NOTES TO THE FINANCIAL STATEMENTS
Table of Contents
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Footnote
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Page
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Note 1
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Presentation
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Note 2
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New Accounting Standards
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Note 3
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Revenue
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Note 4
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Other Income/(Loss)
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Note 5
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Income Taxes
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Note 6
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Capital Stock and Earnings Per Share
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Note 7
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Cash, Cash Equivalents, and Marketable Securities
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Note 8
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Ford Credit Finance Receivables and Allowance for Credit Losses
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Note 9
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Inventories
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Note 10
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Other Investments
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Note 11
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Goodwill
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Note 12
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Other Liabilities and Deferred Revenue
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Note 13
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Retirement Benefits
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Note 14
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Debt
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Note 15
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Derivative Financial Instruments and Hedging Activities
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Note 16
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Employee Separation Actions and Exit and Disposal Activities
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Note 17
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Held-for-Sale Operations and Changes in Investments in Affiliates
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Note 18
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Accumulated Other Comprehensive Income/(Loss)
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Note 19
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Commitments and Contingencies
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Note 20
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Segment Information
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Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1. PRESENTATION
For purposes of this report, “Ford,” the “Company,” “we,” “our,” “us,” or similar references mean Ford Motor Company, our consolidated subsidiaries, and our consolidated VIEs of which we are the primary beneficiary, unless the context requires otherwise. We also make reference to Ford Motor Credit Company LLC, herein referenced to as Ford Credit. Our consolidated financial statements are presented in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information, instructions to the 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, 2019 (“2019 Form 10-K Report”).
Global Pandemic
On March 11, 2020, the World Health Organization characterized the outbreak of COVID-19 as a global pandemic and recommended containment and mitigation measures. As a result, extraordinary actions were taken by international, federal, state, and local public health and governmental authorities to contain and combat the outbreak and spread of COVID-19 in regions throughout the world. These actions included travel bans, quarantines, “stay-at-home” orders, and similar mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations.
Consistent with the actions taken by governmental authorities, by late March 2020, we had idled all of our significant manufacturing operations in regions around the world. By May 2020, we restarted manufacturing operations in a phased manner at locations around the world.
Our results include adjustments to our assets and liabilities recorded during the first nine months of 2020 due to the impact of COVID-19, the most significant of which were a valuation allowance on certain deferred tax assets (see Note 5) and a charge to the provision for credit losses on Ford Credit’s finance receivables (see Note 8). The majority of these adjustments were recorded in the first quarter and there were no material adjustments to our assets and liabilities related to COVID-19 in the third quarter.
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2. NEW ACCOUNTING STANDARDS
Adoption of New Accounting Standards
Accounting Standards Update (“ASU”) 2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments. On January 1, 2020, we adopted the new credit loss standard and all of the related amendments, which replaced the incurred loss impairment method with a method that reflects lifetime expected credit losses. We adopted the changes in accounting for credit losses by recognizing the cumulative effect of initially applying the new credit loss 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 standard in effect for those periods.
The cumulative effect of the changes made to our consolidated balance sheet at January 1, 2020, for the adoption of ASU 2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments, was as follows (in millions):
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Balance at
December 31, 2019
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Adjustments due to ASU 2016-13
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Balance at
January 1, 2020
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Assets
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Ford Credit finance receivables, net, current
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$
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53,651
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$
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(69)
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$
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53,582
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Trade and other receivables, net
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9,237
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(3)
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9,234
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Ford Credit finance receivables, net, non-current
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53,703
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(183)
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53,520
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Equity in net assets of affiliated companies
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2,519
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(7)
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2,512
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Deferred income taxes
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11,863
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2
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11,865
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Liabilities
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Deferred income taxes
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490
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(58)
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432
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Equity
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Retained earnings
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20,320
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(202)
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20,118
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ASU 2020-04, Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting. On April 1, 2020, we adopted the new standard, which provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform (e.g., discontinuation of LIBOR) if certain criteria are met. As of September 30, 2020, we have not yet elected any optional expedients provided in the standard. We will apply the accounting relief as relevant contract and hedge accounting relationship modifications are made during the reference rate reform transition period. We do not expect the standard to have a material impact on our consolidated financial statements.
We also adopted the following ASUs during 2020, none of which had a material impact to our consolidated financial statements or financial statement disclosures:
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ASU
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Effective Date
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2020-01
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Clarifying the Interaction between Equity Securities, Equity Method and Joint Ventures, and Derivatives and Hedging
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January 1, 2020
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2018-18
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Clarifying the Interaction between Collaborative Arrangements and Revenue from Contracts with Customers
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January 1, 2020
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2018-15
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Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract
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January 1, 2020
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Accounting Standards Issued But Not Yet Adopted
The Company considers the applicability and impact of all ASUs. ASUs were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial statements.
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 3. REVENUE
The following table disaggregates our revenue by major source for the periods ended September 30 (in millions):
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Third Quarter 2019
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Automotive
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Mobility
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Ford Credit
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Consolidated
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Vehicles, parts, and accessories
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$
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32,609
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$
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—
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$
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—
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$
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32,609
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Used vehicles
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647
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—
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—
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647
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Extended service contracts
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347
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—
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—
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347
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Other revenue
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183
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14
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55
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252
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Revenues from sales and services
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33,786
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14
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55
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33,855
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Leasing income
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145
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—
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1,480
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1,625
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Financing income
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—
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—
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1,472
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1,472
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Insurance income
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—
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—
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38
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38
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Total revenues
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$
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33,931
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$
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14
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$
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3,045
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$
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36,990
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Third Quarter 2020
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Automotive
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Mobility
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Ford Credit
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Consolidated
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Vehicles, parts, and accessories
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$
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33,005
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$
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—
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$
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—
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$
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33,005
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Used vehicles
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818
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—
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—
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818
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Extended service contracts
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356
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—
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—
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356
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Other revenue
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438
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20
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37
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495
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Revenues from sales and services
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34,617
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20
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37
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34,674
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Leasing income
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90
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—
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1,407
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1,497
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Financing income
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—
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—
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1,303
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1,303
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Insurance income
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—
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—
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27
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27
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Total revenues
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$
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34,707
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$
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20
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$
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2,774
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$
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37,501
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First Nine Months 2019
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Automotive
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Mobility
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Ford Credit
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Consolidated
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Vehicles, parts, and accessories
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$
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102,420
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$
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—
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$
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—
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$
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102,420
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Used vehicles
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2,509
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—
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—
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2,509
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Extended service contracts
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1,028
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—
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—
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1,028
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Other revenue
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615
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26
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161
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802
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Revenues from sales and services
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106,572
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26
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161
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106,759
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Leasing income
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356
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—
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4,429
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4,785
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Financing income
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—
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—
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4,521
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4,521
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Insurance income
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—
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—
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120
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120
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Total revenues
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$
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106,928
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$
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26
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$
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9,231
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$
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116,185
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First Nine Months 2020
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Automotive
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Mobility
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Ford Credit
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Consolidated
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Vehicles, parts, and accessories
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$
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78,252
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$
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—
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$
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—
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$
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78,252
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Used vehicles
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2,282
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—
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—
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2,282
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Extended service contracts
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1,066
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—
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—
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1,066
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Other revenue
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836
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|
43
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|
122
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1,001
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Revenues from sales and services
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82,436
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|
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43
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|
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122
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82,601
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Leasing income
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233
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|
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—
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|
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4,267
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|
|
4,500
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Financing income
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—
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—
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3,989
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3,989
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Insurance income
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—
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|
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—
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|
|
102
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|
|
102
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Total revenues
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$
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82,669
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$
|
43
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|
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$
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8,480
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$
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91,192
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Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 3. REVENUE (Continued)
The amount of consideration we receive and revenue we recognize on our vehicles, parts, and accessories varies with changes in return rights and marketing incentives we offer to our customers and their customers. Estimates of marketing incentives are based on expected retail and fleet sales volumes, mix of products to be sold, and incentive programs to be offered. Customer acceptance of products and programs, as well as other market conditions, will impact these estimates. As a result of changes in our estimate of marketing incentives, we recorded a decrease in revenue of $454 million in the third quarter of 2019 and an increase in revenue of $168 million in the third quarter of 2020 related to revenue recognized in prior periods.
We sell separately-priced service contracts that extend mechanical and maintenance coverages beyond our base warranty agreements to vehicle owners (“extended service contracts”). We had a balance of $4.2 billion and $4.1 billion of unearned revenue associated with outstanding contracts reported in Other liabilities and deferred revenue at December 31, 2019 and September 30, 2020, respectively. We expect to recognize approximately $300 million of the unearned amount in the remainder of 2020, $1.2 billion in 2021, and $2.6 billion thereafter. We recognized $274 million and $295 million of unearned amounts as revenue during the third quarter of 2019 and 2020, respectively, and $864 million and $901 million in the first nine months of 2019 and 2020, respectively.
Amounts paid to dealers to obtain these contracts are deferred and recorded as Other assets. We had a balance of $270 million and $278 million in deferred costs as of December 31, 2019 and September 30, 2020, respectively. We recognized $17 million and $20 million of amortization during the third quarter of 2019 and 2020, respectively, and $56 million and $59 million in the first nine months of 2019 and 2020, respectively.
NOTE 4. OTHER INCOME/(LOSS)
The amounts included in Other income/(loss), net for the periods ended September 30 were as follows (in millions):
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Third Quarter
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First Nine Months
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2019
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2020
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2019
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2020
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Net periodic pension and OPEB income/(cost), excluding service cost
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$
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(21)
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$
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277
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$
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362
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$
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1,272
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Investment-related interest income
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202
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|
90
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|
|
612
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374
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Interest income/(expense) on income taxes
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(5)
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(4)
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(26)
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(15)
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Realized and unrealized gains/(losses) on cash equivalents, marketable securities, and other investments
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199
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297
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79
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312
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Gains/(Losses) on changes in investments in affiliates (a)
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44
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3
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46
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3,483
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Gains/(Losses) on extinguishment of debt
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(1)
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—
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(54)
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(1)
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Royalty income
|
91
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|
|
139
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|
|
283
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|
|
322
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Other
|
25
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|
|
43
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|
|
132
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|
|
96
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Total
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$
|
534
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|
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$
|
845
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|
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$
|
1,434
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|
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$
|
5,843
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__________
(a)See Note 17 for additional information relating to our Argo AI, LLC (“Argo AI”) and Volkswagen AG (“VW”) transaction.
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.
Based on all available evidence, we established a valuation allowance against certain net operating losses and tax credits of $1 billion during the first nine months of 2020, as it is more likely than not that these deferred tax assets will not be realized. In assessing the realizability of deferred tax assets, we consider the trade-offs between cash preservation and cash outlays to preserve tax credits.
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 6. CAPITAL STOCK AND EARNINGS PER SHARE
Earnings Per Share Attributable to Ford Motor Company Common and Class B Stock
Basic and diluted income/(loss) per share were calculated using the following (in millions):
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Third Quarter
|
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First Nine Months
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2019
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2020
|
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2019
|
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2020
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Basic and Diluted Income/(Loss) Attributable to Ford Motor Company
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Basic income/(loss)
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$
|
425
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|
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$
|
2,385
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|
|
$
|
1,719
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|
|
$
|
1,509
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|
Diluted income/(loss)
|
425
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|
|
2,385
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|
|
1,719
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|
|
1,509
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|
|
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|
|
|
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Basic and Diluted Shares
|
|
|
|
|
|
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Basic shares (average shares outstanding)
|
3,970
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|
|
3,976
|
|
|
3,976
|
|
|
3,971
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|
Net dilutive options, unvested restricted stock units, and unvested restricted stock shares
|
37
|
|
|
29
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|
|
30
|
|
|
26
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|
Diluted shares
|
4,007
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|
|
4,005
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|
|
4,006
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|
|
3,997
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|
NOTE 7. CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES
Cash Equivalents
Cash and cash equivalents are highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of change in value due to interest rate, quoted price, or penalty on withdrawal. A debt security is classified as a cash equivalent if it meets these criteria and if it has a remaining time to maturity of three months or less from the date of purchase. Amounts on deposit and available upon demand, or negotiated to provide for daily liquidity without penalty, are classified as cash and cash equivalents. Time deposits, certificates of deposit, and money market accounts that meet the above criteria are reported at par value on our consolidated balance sheets.
Marketable Securities
Investments in securities with a maturity date greater than three months at the date of purchase, and other securities for which there is more than an insignificant risk of change in value due to interest rate, quoted price, or penalty on withdrawal, are classified as marketable securities.
Realized gains and losses and interest income on all of our marketable securities and unrealized gains and losses on securities not classified as available for sale are recorded in Other income/(loss), net. Unrealized gains and losses on available-for-sale securities are recognized in Unrealized gains and losses on securities, a component of Other comprehensive income/(loss), net of tax. Realized gains and losses and reclassifications of accumulated other comprehensive income into net income are measured using the specific identification method.
On a quarterly basis, we review our available-for-sale debt securities for credit losses. We compare the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis of the security, we determine if a credit loss allowance is necessary. If a credit loss allowance is necessary, we will record an allowance, limited by the amount that fair value is less than the amortized cost basis, and recognize the corresponding charge in Other income/(loss), net. Factors we consider include the severity of the impairment, the reason for the decline in value, interest rate changes, and counterparty long-term ratings.
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 fair values of cash, cash equivalents, and marketable securities measured at fair value on a recurring basis were as follows (in millions):
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December 31, 2019
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Fair Value Level
|
|
Automotive
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Mobility
|
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Ford Credit
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Consolidated
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
U.S. government
|
1
|
|
$
|
520
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
520
|
|
U.S. government agencies
|
2
|
|
125
|
|
|
—
|
|
|
—
|
|
|
125
|
|
Non-U.S. government and agencies
|
2
|
|
601
|
|
|
—
|
|
|
350
|
|
|
951
|
|
Corporate debt
|
2
|
|
642
|
|
|
—
|
|
|
604
|
|
|
1,246
|
|
Total marketable securities classified as cash equivalents
|
|
|
1,888
|
|
|
—
|
|
|
954
|
|
|
2,842
|
|
Cash, time deposits, and money market funds
|
|
|
6,432
|
|
|
117
|
|
|
8,113
|
|
|
14,662
|
|
Total cash and cash equivalents
|
|
|
$
|
8,320
|
|
|
$
|
117
|
|
|
$
|
9,067
|
|
|
$
|
17,504
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
|
|
|
|
|
|
|
|
U.S. government
|
1
|
|
$
|
2,930
|
|
|
$
|
—
|
|
|
$
|
195
|
|
|
$
|
3,125
|
|
U.S. government agencies
|
2
|
|
1,548
|
|
|
—
|
|
|
210
|
|
|
1,758
|
|
Non-U.S. government and agencies
|
2
|
|
4,217
|
|
|
—
|
|
|
2,408
|
|
|
6,625
|
|
Corporate debt
|
2
|
|
4,802
|
|
|
—
|
|
|
193
|
|
|
4,995
|
|
Equities (a)
|
1
|
|
81
|
|
|
—
|
|
|
—
|
|
|
81
|
|
Other marketable securities
|
2
|
|
273
|
|
|
—
|
|
|
290
|
|
|
563
|
|
Total marketable securities
|
|
|
$
|
13,851
|
|
|
$
|
—
|
|
|
$
|
3,296
|
|
|
$
|
17,147
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
$
|
15
|
|
|
$
|
21
|
|
|
$
|
139
|
|
|
$
|
175
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents, and restricted cash in held-for-sale assets
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
62
|
|
|
$
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
Fair Value Level
|
|
Automotive
|
|
Mobility
|
|
Ford Credit
|
|
Consolidated
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
U.S. government
|
1
|
|
$
|
3,277
|
|
|
$
|
—
|
|
|
$
|
1,217
|
|
|
$
|
4,494
|
|
U.S. government agencies
|
2
|
|
706
|
|
|
—
|
|
|
850
|
|
|
1,556
|
|
Non-U.S. government and agencies
|
2
|
|
916
|
|
|
—
|
|
|
1,105
|
|
|
2,021
|
|
Corporate debt
|
2
|
|
545
|
|
|
—
|
|
|
900
|
|
|
1,445
|
|
Total marketable securities classified as cash equivalents
|
|
|
5,444
|
|
|
—
|
|
|
4,072
|
|
|
9,516
|
|
Cash, time deposits, and money market funds
|
|
|
7,679
|
|
|
62
|
|
|
7,006
|
|
|
14,747
|
|
Total cash and cash equivalents
|
|
|
$
|
13,123
|
|
|
$
|
62
|
|
|
$
|
11,078
|
|
|
$
|
24,263
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
|
|
|
|
|
|
|
|
U.S. government
|
1
|
|
$
|
3,724
|
|
|
$
|
—
|
|
|
$
|
1,275
|
|
|
$
|
4,999
|
|
U.S. government agencies
|
2
|
|
3,124
|
|
|
—
|
|
|
235
|
|
|
3,359
|
|
Non-U.S. government and agencies
|
2
|
|
3,645
|
|
|
—
|
|
|
2,111
|
|
|
5,756
|
|
Corporate debt
|
2
|
|
5,292
|
|
|
—
|
|
|
313
|
|
|
5,605
|
|
Equities (a)
|
1
|
|
299
|
|
|
—
|
|
|
—
|
|
|
299
|
|
Other marketable securities
|
2
|
|
236
|
|
|
—
|
|
|
314
|
|
|
550
|
|
Total marketable securities
|
|
|
$
|
16,320
|
|
|
$
|
—
|
|
|
$
|
4,248
|
|
|
$
|
20,568
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
$
|
30
|
|
|
$
|
5
|
|
|
$
|
174
|
|
|
$
|
209
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents, and restricted cash in held-for-sale assets
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
__________
(a)Net unrealized gains/losses incurred during the reporting periods on equity securities still held at December 31, 2019 and September 30, 2020 were a $44 million loss and a $111 million gain, respectively.
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 7. CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES (Continued)
The cash equivalents and marketable securities accounted for as available-for-sale (“AFS”) securities were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
Fair Value of Securities with
Contractual Maturities
|
|
Amortized Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Fair Value
|
|
Within 1 Year
|
|
After 1 Year through
5 Years
|
|
After 5 Years
|
Automotive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government
|
$
|
2,839
|
|
|
$
|
11
|
|
|
$
|
(1)
|
|
|
$
|
2,849
|
|
|
$
|
1,028
|
|
|
$
|
1,772
|
|
|
$
|
49
|
|
U.S. government agencies
|
1,445
|
|
|
2
|
|
|
(1)
|
|
|
1,446
|
|
|
830
|
|
|
589
|
|
|
27
|
|
Non-U.S. government and agencies
|
3,925
|
|
|
20
|
|
|
(1)
|
|
|
3,944
|
|
|
1,546
|
|
|
2,398
|
|
|
—
|
|
Corporate debt
|
5,029
|
|
|
53
|
|
|
—
|
|
|
5,082
|
|
|
1,837
|
|
|
3,245
|
|
|
—
|
|
Other marketable securities
|
230
|
|
|
1
|
|
|
—
|
|
|
231
|
|
|
—
|
|
|
149
|
|
|
82
|
|
Total
|
$
|
13,468
|
|
|
$
|
87
|
|
|
$
|
(3)
|
|
|
$
|
13,552
|
|
|
$
|
5,241
|
|
|
$
|
8,153
|
|
|
$
|
158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
|
|
|
|
|
|
|
|
Fair Value of Securities with
Contractual Maturities
|
|
Amortized Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Fair Value
|
|
Within 1 Year
|
|
After 1 Year through
5 Years
|
|
After 5 Years
|
Automotive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government
|
$
|
2,660
|
|
|
$
|
52
|
|
|
$
|
—
|
|
|
$
|
2,712
|
|
|
$
|
987
|
|
|
$
|
1,722
|
|
|
$
|
3
|
|
U.S. government agencies
|
2,187
|
|
|
15
|
|
|
(1)
|
|
|
2,201
|
|
|
708
|
|
|
1,371
|
|
|
122
|
|
Non-U.S. government and agencies
|
2,907
|
|
|
39
|
|
|
—
|
|
|
2,946
|
|
|
1,085
|
|
|
1,851
|
|
|
10
|
|
Corporate debt
|
5,549
|
|
|
102
|
|
|
(2)
|
|
|
5,649
|
|
|
1,727
|
|
|
3,897
|
|
|
25
|
|
Other marketable securities
|
206
|
|
|
3
|
|
|
—
|
|
|
209
|
|
|
2
|
|
|
148
|
|
|
59
|
|
Total
|
$
|
13,509
|
|
|
$
|
211
|
|
|
$
|
(3)
|
|
|
$
|
13,717
|
|
|
$
|
4,509
|
|
|
$
|
8,989
|
|
|
$
|
219
|
|
Sales proceeds and gross realized gains/losses from the sale of AFS securities for the periods ended September 30 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter
|
|
First Nine Months
|
|
2019
|
|
2020
|
|
2019
|
|
2020
|
Automotive
|
|
|
|
|
|
|
|
Sales proceeds
|
$
|
1,176
|
|
|
$
|
2,243
|
|
|
$
|
4,176
|
|
|
$
|
6,560
|
|
Gross realized gains
|
3
|
|
|
16
|
|
|
8
|
|
|
44
|
|
Gross realized losses
|
—
|
|
|
1
|
|
|
10
|
|
|
11
|
|
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, 2019
|
|
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
|
$
|
183
|
|
|
$
|
(1)
|
|
|
$
|
50
|
|
|
$
|
—
|
|
|
$
|
233
|
|
|
$
|
(1)
|
|
U.S. government agencies
|
370
|
|
|
(1)
|
|
|
344
|
|
|
—
|
|
|
714
|
|
|
(1)
|
|
Non-U.S. government and agencies
|
463
|
|
|
—
|
|
|
390
|
|
|
(1)
|
|
|
853
|
|
|
(1)
|
|
Corporate debt
|
29
|
|
|
—
|
|
|
53
|
|
|
—
|
|
|
82
|
|
|
—
|
|
Other marketable securities
|
59
|
|
|
—
|
|
|
17
|
|
|
—
|
|
|
76
|
|
|
—
|
|
Total
|
$
|
1,104
|
|
|
$
|
(2)
|
|
|
$
|
854
|
|
|
$
|
(1)
|
|
|
$
|
1,958
|
|
|
$
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
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
|
$
|
55
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
55
|
|
|
$
|
—
|
|
U.S. government agencies
|
170
|
|
|
—
|
|
|
42
|
|
|
(1)
|
|
|
212
|
|
|
(1)
|
|
Non-U.S. government and agencies
|
442
|
|
|
—
|
|
|
46
|
|
|
—
|
|
|
488
|
|
|
—
|
|
Corporate debt
|
739
|
|
|
(2)
|
|
|
9
|
|
|
—
|
|
|
748
|
|
|
(2)
|
|
Other marketable securities
|
4
|
|
|
—
|
|
|
13
|
|
|
—
|
|
|
17
|
|
|
—
|
|
Total
|
$
|
1,410
|
|
|
$
|
(2)
|
|
|
$
|
110
|
|
|
$
|
(1)
|
|
|
$
|
1,520
|
|
|
$
|
(3)
|
|
We determine credit losses on available-for-sale debt securities using the specific identification method. During the first nine months of 2020, we did not recognize any credit loss. The unrealized losses on securities are due to changes in interest rates and market liquidity.
Cash, Cash Equivalents, and Restricted Cash
Cash, cash equivalents, and restricted cash, as reported in the consolidated statements of cash flows, were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
September 30,
2020
|
Cash and cash equivalents
|
$
|
17,504
|
|
|
$
|
24,263
|
|
Restricted cash (a)
|
175
|
|
|
209
|
|
Cash, cash equivalents, and restricted cash in held-for-sale assets
|
62
|
|
|
—
|
|
Total cash, cash equivalents, and restricted cash
|
$
|
17,741
|
|
|
$
|
24,472
|
|
__________
(a)Included in Other assets in the non-current assets section of our consolidated balance sheets.
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 8. FORD CREDIT FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES
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 are recorded at the time of origination or purchase at fair value and are subsequently reported at amortized cost, net of any allowance for credit losses.
For all finance receivables, Ford Credit defines "past due" as any payment, including principal and interest, that is at least 31 days past the contractual due date.
Ford Credit finance receivables, net were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
September 30,
2020
|
Consumer
|
|
|
|
Retail installment contracts, gross
|
$
|
68,905
|
|
|
$
|
73,246
|
|
Finance leases, gross
|
8,566
|
|
|
8,244
|
|
Retail financing, gross
|
77,471
|
|
|
81,490
|
|
Unearned interest supplements
|
(3,589)
|
|
|
(4,091)
|
|
Consumer finance receivables
|
73,882
|
|
|
77,399
|
|
Non-Consumer
|
|
|
|
Dealer financing
|
33,985
|
|
|
21,421
|
|
Non-Consumer finance receivables
|
33,985
|
|
|
21,421
|
|
Total recorded investment
|
$
|
107,867
|
|
|
$
|
98,820
|
|
|
|
|
|
Recorded investment in finance receivables
|
$
|
107,867
|
|
|
$
|
98,820
|
|
Allowance for credit losses
|
(513)
|
|
|
(1,314)
|
|
Total finance receivables, net
|
$
|
107,354
|
|
|
$
|
97,506
|
|
|
|
|
|
Current portion
|
$
|
53,651
|
|
|
$
|
41,847
|
|
Non-current portion
|
53,703
|
|
|
55,659
|
|
Total finance receivables, net
|
$
|
107,354
|
|
|
$
|
97,506
|
|
|
|
|
|
Net finance receivables subject to fair value (a)
|
$
|
99,168
|
|
|
$
|
89,663
|
|
Fair value (b)
|
99,297
|
|
|
91,068
|
|
__________
(a)Net finance receivables subject to fair value exclude finance leases.
(b)The fair value of finance receivables is categorized within Level 3 of the fair value hierarchy.
Ford Credit’s finance leases are comprised of sales-type and direct financing leases. Financing revenue from finance leases for the third quarter of 2019 and 2020 was $90 million and $96 million, respectively, and for the first nine months of 2019 and 2020 was $279 million and $268 million, respectively, and is included in Ford Credit revenues on our consolidated income statements.
At December 31, 2019 and September 30, 2020, accrued interest was $251 million and $184 million, respectively, which we report in Other assets in the current assets section of our consolidated balance sheets.
Included in the recorded investment in finance receivables at December 31, 2019 and September 30, 2020, were consumer receivables of $38.3 billion and $41.1 billion, respectively, and non-consumer receivables of $26.8 billion and $17.4 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.
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 8. FORD CREDIT FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES (Continued)
The value of finance receivables considered held for sale at December 31, 2019 was $1.5 billion, primarily made up of $1.2 billion of Forso Nordic AB (“Forso”) related finance receivables. At September 30, 2020, there were $38 million of certain wholesale finance receivables specifically identified as held for sale. These held-for-sale values are reported in Assets held for sale on our consolidated balance sheets. See Note 17 for additional information.
Credit Quality
Consumer Portfolio. Credit quality ratings for consumer receivables are based on aging. 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; and
•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.
The credit quality analysis of consumer receivables at December 31, 2019 was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
Total
|
Consumer
|
|
|
31 - 60 days past due
|
|
$
|
839
|
|
61 - 120 days past due
|
|
166
|
|
Greater than 120 days past due
|
|
35
|
|
Total past due
|
|
1,040
|
|
Current
|
|
72,842
|
|
Total
|
|
$
|
73,882
|
|
The credit quality analysis of consumer receivables at September 30, 2020 was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost Basis by Origination Year
|
|
|
|
|
Prior to 2016
|
|
2016
|
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
Total
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31 - 60 days past due
|
|
$
|
45
|
|
|
$
|
58
|
|
|
$
|
99
|
|
|
$
|
141
|
|
|
$
|
141
|
|
|
$
|
76
|
|
|
$
|
560
|
|
61 - 120 days past due
|
|
7
|
|
|
14
|
|
|
28
|
|
|
45
|
|
|
48
|
|
|
22
|
|
|
164
|
|
Greater than 120 days past due
|
|
13
|
|
|
7
|
|
|
7
|
|
|
8
|
|
|
7
|
|
|
1
|
|
|
43
|
|
Total past due
|
|
65
|
|
|
79
|
|
|
134
|
|
|
194
|
|
|
196
|
|
|
99
|
|
|
767
|
|
Current
|
|
1,141
|
|
|
3,290
|
|
|
8,001
|
|
|
15,444
|
|
|
22,492
|
|
|
26,264
|
|
|
76,632
|
|
Total
|
|
$
|
1,206
|
|
|
$
|
3,369
|
|
|
$
|
8,135
|
|
|
$
|
15,638
|
|
|
$
|
22,688
|
|
|
$
|
26,363
|
|
|
$
|
77,399
|
|
Non-Consumer Portfolio. Ford Credit uses a proprietary model to assign each dealer a risk rating. This model uses historical dealer performance data to identify key factors about a dealer that are considered most significant in predicting a dealer’s ability to meet its financial obligations. Ford Credit also considers numerous other financial and qualitative factors of the dealer’s operations, including capitalization and leverage, liquidity and cash flow, profitability, and credit history with Ford Credit and other creditors. The credit quality of dealer financing receivables is evaluated based on an internal dealer risk rating analysis.
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 8. FORD CREDIT FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES (Continued)
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; and
•Group IV – poor financial metrics, including dealers classified as uncollectible.
The credit quality analysis of dealer financing receivables at December 31, 2019 was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
Total
|
Dealer financing
|
|
|
Group I
|
|
$
|
26,281
|
|
Group II
|
|
5,407
|
|
Group III
|
|
2,108
|
|
Group IV
|
|
189
|
|
Total (a)
|
|
$
|
33,985
|
|
__________
(a)Total past due dealer financing receivables at December 31, 2019 were $62 million.
The credit quality analysis of dealer financing receivables at September 30, 2020 was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost Basis by Origination Year
|
|
Wholesale Loans
|
|
|
|
|
Dealer Loans
|
|
|
|
|
|
Prior to 2016
|
|
2016
|
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
Total
|
|
|
Total
|
Group I
|
|
$
|
528
|
|
|
$
|
130
|
|
|
$
|
142
|
|
|
$
|
132
|
|
|
$
|
73
|
|
|
$
|
300
|
|
|
$
|
1,305
|
|
|
$
|
13,823
|
|
|
$
|
15,128
|
|
Group II
|
|
46
|
|
|
21
|
|
|
15
|
|
|
35
|
|
|
4
|
|
|
89
|
|
|
210
|
|
|
4,520
|
|
|
4,730
|
|
Group III
|
|
9
|
|
|
—
|
|
|
3
|
|
|
17
|
|
|
3
|
|
|
41
|
|
|
73
|
|
|
1,356
|
|
|
1,429
|
|
Group IV
|
|
2
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
5
|
|
|
12
|
|
|
122
|
|
|
134
|
|
Total (a)
|
|
$
|
585
|
|
|
$
|
154
|
|
|
$
|
160
|
|
|
$
|
184
|
|
|
$
|
82
|
|
|
$
|
435
|
|
|
$
|
1,600
|
|
|
$
|
19,821
|
|
|
$
|
21,421
|
|
__________
(a)Total past due dealer financing receivables at September 30, 2020 were $126 million.
Non-Accrual of Revenue. The accrual of financing revenue is discontinued at the time a receivable is determined to be uncollectible or when it is 90 days past due. Accounts may be restored to accrual status only when a customer settles all past-due deficiency balances and future payments are reasonably assured. For receivables in non-accrual status, subsequent financing revenue is recognized only to the extent a payment is received. Payments are generally applied first to outstanding interest and then to the unpaid principal balance.
Troubled Debt Restructuring (“TDR”). A restructuring of debt constitutes a TDR if a concession is granted to a debtor for economic or legal reasons related to the debtor’s financial difficulties that Ford Credit otherwise would not consider. Consumer and non-consumer receivables that have a modified interest rate below market rate or that were modified in reorganization proceedings pursuant to the U.S. Bankruptcy Code, except non-consumer receivables that are current with minimal risk of loss, are considered to be TDRs. Ford Credit does not grant concessions on the principal balance of the receivables. If a receivable is modified in a reorganization proceeding, all payment requirements of the reorganization plan need to be met before remaining balances are forgiven.
Ford Credit offered various programs to provide relief to customers and dealers impacted by COVID-19. These programs, which were broadly available to all customers and dealers during the first half of 2020, included payment extensions. Ford Credit concluded that these programs did not meet TDR criteria. As of September 30, 2020, in the United States, Ford Credit has received payments on nearly all the pandemic extensions offered to its customers, and no dealers were delinquent on their payments. The volume of payment extensions has returned to pre-COVID-19 levels and Ford Credit continues to grant payment extensions to customers and dealers under its normal business practices.
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 8. FORD CREDIT FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES (Continued)
Allowance for Credit Losses
The allowance for credit losses represents an estimate of the lifetime expected credit losses inherent in finance receivables as of the balance sheet date.
Additions to the allowance for credit losses are made by recording charges to Ford Credit interest, operating, and other expenses on our consolidated income statements. The uncollectible portion of a finance receivable is charged to the allowance for credit losses at the earlier of when an account is deemed to be uncollectible or when an account is 120 days delinquent, taking into consideration the financial condition of the customer or borrower, the value of the collateral, recourse to guarantors, and other factors.
Charge-offs on finance receivables include uncollected amounts related to principal, interest, late fees, and other allowable charges. Recoveries on finance receivables previously charged off as uncollectible are credited to the allowance for credit losses. In the event Ford Credit repossesses the collateral, the receivable is charged off and the collateral is recorded at its estimated fair value less costs to sell and reported in Other assets on our consolidated balance sheets.
Consumer Portfolio
Receivables in this portfolio include products offered to individuals and businesses that finance the acquisition of Ford and Lincoln vehicles from dealers for personal or commercial use. Retail financing includes retail installment contracts for new and used vehicles and finance leases with retail customers, government entities, daily rental companies, and fleet customers.
For consumer receivables that share similar risk characteristics such as product type, initial credit risk, term, vintage, geography, and other relevant factors, Ford Credit estimates the lifetime expected credit loss allowance based on a collective assessment using measurement models and management judgment. The lifetime expected credit losses for the receivables is determined by applying probability of default and loss given default models to monthly expected exposures, then discounting these cash flows to present value using the receivable’s original effective interest rate or the current effective interest rate for a variable rate receivable. Probability of default models are developed from internal risk scoring models taking into account the expected probability of payment and time to default, adjusted for macroeconomic outlook and recent performance. The models consider factors such as risk evaluation at the time of origination, historical trends in credit losses (which include the impact of TDRs), and the composition and recent performance of the present portfolio (including vehicle brand, term, risk evaluation, and new / used vehicles). The loss given default is the percentage of the expected balance due at default that is not recoverable, taking into account the expected collateral value and trends in recoveries (including key metrics such as delinquencies, repossessions, and bankruptcies). Monthly exposures are equal to the receivables’ expected outstanding principal and interest balance.
The loss allowance incorporates forward-looking macroeconomic conditions for baseline, upturn, and downturn scenarios. Three separate credit loss allowances are calculated from these scenarios. They are then probability-weighted to determine the credit loss allowance recognized in the financial statements. Ford Credit uses forecasts from a third party that revert to a long-term historical average after a reasonable and supportable forecasting period, which is specific to the particular macroeconomic variable and which varies by market. Ford Credit updates the forward-looking macroeconomic forecasts quarterly.
If management does not believe these models reflect lifetime expected credit losses for the portfolio, an adjustment is made to reflect management judgment regarding observable changes in recent or expected economic trends and conditions, portfolio composition, and other relevant factors.
On an ongoing basis, Ford Credit reviews its models, including macroeconomic factors, the selection of macroeconomic scenarios, and their weighting, to ensure they reflect the risk of the portfolio.
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 8. FORD CREDIT FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES (Continued)
Non-Consumer Portfolio
Dealer financing includes wholesale loans to dealers to finance vehicle inventory, also known as floorplan financing, as well as loans to dealers to finance working capital, improvements to dealership facilities, the purchase of dealership real estate, and other dealer programs.
Dealer financing is evaluated on an individual dealer basis by segmenting dealers by risk characteristics (such as the amount of the loans, the nature of the collateral, the financial status of the dealer, and any TDR modifications) to determine if an individual dealer requires a specific allowance for credit loss. If required, the allowance is based on the present value of the expected future cash flows of the dealer’s receivables discounted at the loans’ original effective interest rate or the fair value of the collateral adjusted for estimated costs to sell.
For the remaining dealer financing, Ford Credit estimates an allowance for credit losses on a collective basis.
Wholesale Loans. Ford Credit estimates the allowance for credit losses for wholesale loans based on historical loss-to-receivable (“LTR”) ratios, expected future cash flows, and the fair value of collateral. For wholesale loans with similar risk characteristics, the allowance for credit losses is estimated on a collective basis using the LTR model and management judgment. The LTR model is based on the most recent years of history. An LTR is calculated by dividing credit losses (i.e., charge-offs net of recoveries) by average net finance receivables, excluding unearned interest supplements and allowance for credit losses. The average LTR is multiplied by the end-of-period balances, representing the lifetime expected credit loss reserve.
Dealer Loans. Ford Credit uses a weighted-average remaining maturity method to estimate the lifetime expected credit loss reserve for dealer loans. The loss model is based on the industry-wide commercial real estate credit losses, adjusted to factor in the historical credit losses for the dealer loans portfolio. The expected credit loss is calculated under different economic scenarios that are weighted to provide the total lifetime expected credit loss.
After establishing the collective and specific allowance for credit losses, if management believes the allowance does not reflect all losses inherent in the portfolio due to changes in recent economic trends and conditions, or other relevant forward-looking economic factors, an adjustment is made based on management judgment.
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 8. FORD CREDIT FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES (Continued)
An analysis of the allowance for credit losses related to finance receivables for the periods ended September 30 was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter 2019 (a)
|
|
First Nine Months 2019 (a)
|
|
Consumer
|
|
Non-Consumer
|
|
Total
|
|
Consumer
|
|
Non-Consumer
|
|
Total
|
Allowance for credit losses
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
$
|
496
|
|
|
$
|
17
|
|
|
$
|
513
|
|
|
$
|
566
|
|
|
$
|
23
|
|
|
$
|
589
|
|
Charge-offs
|
(129)
|
|
|
(1)
|
|
|
(130)
|
|
|
(383)
|
|
|
(18)
|
|
|
(401)
|
|
Recoveries
|
41
|
|
|
—
|
|
|
41
|
|
|
129
|
|
|
8
|
|
|
137
|
|
Provision for credit losses
|
93
|
|
|
—
|
|
|
93
|
|
|
187
|
|
|
2
|
|
|
189
|
|
Other (b)
|
(3)
|
|
|
(1)
|
|
|
(4)
|
|
|
(1)
|
|
|
—
|
|
|
(1)
|
|
Ending balance
|
$
|
498
|
|
|
$
|
15
|
|
|
$
|
513
|
|
|
$
|
498
|
|
|
$
|
15
|
|
|
$
|
513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter 2020
|
|
First Nine Months 2020
|
|
Consumer
|
|
Non-Consumer
|
|
Total
|
|
Consumer
|
|
Non-Consumer
|
|
Total
|
Allowance for credit losses
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
$
|
1,211
|
|
|
$
|
74
|
|
|
$
|
1,285
|
|
|
$
|
496
|
|
|
$
|
17
|
|
|
$
|
513
|
|
Adoption of ASU 2016-13 (c)
|
—
|
|
|
—
|
|
|
—
|
|
|
247
|
|
|
5
|
|
|
252
|
|
Charge-offs
|
(104)
|
|
|
(5)
|
|
|
(109)
|
|
|
(329)
|
|
|
(6)
|
|
|
(335)
|
|
Recoveries
|
41
|
|
|
2
|
|
|
43
|
|
|
117
|
|
|
5
|
|
|
122
|
|
Provision for credit losses
|
95
|
|
|
(9)
|
|
|
86
|
|
|
723
|
|
|
42
|
|
|
765
|
|
Other (b)
|
8
|
|
|
1
|
|
|
9
|
|
|
(3)
|
|
|
—
|
|
|
(3)
|
|
Ending balance
|
$
|
1,251
|
|
|
$
|
63
|
|
|
$
|
1,314
|
|
|
$
|
1,251
|
|
|
$
|
63
|
|
|
$
|
1,314
|
|
__________
(a)The comparative information has not been restated and continues to be reported under the accounting standard in effect during 2019.
(b)Primarily represents amounts related to translation adjustments.
(c)Cumulative pre-tax adjustments recorded to retained earnings as of January 1, 2020. See Note 2 for additional information.
During the third quarter and first nine months of 2020, the allowance for credit losses increased $29 million and $801 million, respectively. The change in the third quarter of 2020 reflects an increase to the reserve of $20 million associated with higher balances in Ford Credit’s finance receivables portfolio, as well as an increase for translation adjustments. The relatively moderate reserve increase in the third quarter of 2020 also reflects Ford Credit’s view that future economic conditions are largely unchanged from its assumptions at June 30, 2020. The change in the first nine months of 2020 reflects an increase to the reserve of $252 million related to the adoption of ASU 2016-13, with the remainder primarily related to economic conditions attributable to the COVID-19 pandemic.
The change to the reserve due to the impact of COVID-19 reflects economic uncertainty which, along with the expectation of continued higher unemployment, has increased the probability of default and loss given default rates used in Ford Credit’s estimate of the lifetime expected credit losses for its consumer portfolio, especially in the United States. These economic trends and conditions are also expected to negatively impact dealers. Although net charge-offs during the third quarter and first nine months of 2020 remained low, reflecting government relief programs and customer payment deferral programs, the future impact of COVID-19 on credit losses is expected to be adverse.
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 9. INVENTORIES
Inventories were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
September 30,
2020
|
Raw materials, work-in-process, and supplies
|
$
|
4,402
|
|
|
$
|
4,401
|
|
Finished products
|
6,384
|
|
|
6,182
|
|
Total inventories
|
$
|
10,786
|
|
|
$
|
10,583
|
|
NOTE 10. OTHER INVESTMENTS
We have investments in entities not accounted for under the equity method for which fair values are not readily available. We record these investments at cost (less impairment, if any), adjusted for observable price changes in orderly transactions for the identical or a similar investment of the same issuer. We report the carrying value of these investments in Other assets in the non-current assets section of our consolidated balance sheets. These investments were $1.2 billion and $1.7 billion at December 31, 2019 and September 30, 2020, respectively. The increase from December 31, 2019 primarily reflects our preferred security investment in Argo AI in the second quarter of 2020. See Note 17 for additional information relating to our Argo AI and VW transaction. In the third quarter of 2020, there were no material adjustments to the fair values of these investments held at September 30, 2020.
NOTE 11. GOODWILL
The net carrying amount of goodwill was $278 million and $258 million at December 31, 2019 and September 30, 2020, respectively, and is reported in Other assets in the non-current assets section of our consolidated balance sheets.
NOTE 12. OTHER LIABILITIES AND DEFERRED REVENUE
Other liabilities and deferred revenue were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
September 30,
2020
|
Current
|
|
|
|
Dealer and dealers’ customer allowances and claims
|
$
|
13,113
|
|
|
$
|
10,958
|
|
Deferred revenue
|
2,091
|
|
|
2,137
|
|
Employee benefit plans
|
1,857
|
|
|
1,434
|
|
Accrued interest
|
1,128
|
|
|
1,186
|
|
OPEB (a)
|
332
|
|
|
329
|
|
Pension (a)
|
185
|
|
|
186
|
|
Operating lease liabilities
|
367
|
|
|
331
|
|
Other
|
3,914
|
|
|
3,732
|
|
Total current other liabilities and deferred revenue
|
$
|
22,987
|
|
|
$
|
20,293
|
|
Non-current
|
|
|
|
Pension (a)
|
$
|
9,878
|
|
|
$
|
9,718
|
|
OPEB (a)
|
5,740
|
|
|
5,684
|
|
Dealer and dealers’ customer allowances and claims
|
1,921
|
|
|
3,366
|
|
Deferred revenue
|
4,191
|
|
|
4,374
|
|
Operating lease liabilities
|
1,047
|
|
|
955
|
|
Employee benefit plans
|
1,104
|
|
|
1,125
|
|
Other
|
1,443
|
|
|
1,604
|
|
Total non-current other liabilities and deferred revenue
|
$
|
25,324
|
|
|
$
|
26,826
|
|
__________
(a)Balances at September 30, 2020 reflect pension and OPEB liabilities at December 31, 2019, updated for service and interest cost, expected return on assets, curtailment and settlement gains and associated interim remeasurement (where applicable), separation expense, actual benefit payments, and cash contributions. For plans without interim remeasurement, the discount rate and rate of expected return assumptions are unchanged from year-end 2019. Included in Other assets are pension assets of $3.2 billion and $4.1 billion at December 31, 2019 and September 30, 2020, respectively.
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 13. RETIREMENT BENEFITS
Defined Benefit Plans - Expense
The pre-tax net periodic benefit cost/(income) for our defined benefit pension and OPEB plans for the periods ended September 30 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter
|
|
Pension Benefits
|
|
|
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
Worldwide OPEB
|
|
2019
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
2020
|
Service cost
|
$
|
121
|
|
|
$
|
130
|
|
|
$
|
125
|
|
|
$
|
135
|
|
|
$
|
11
|
|
|
$
|
12
|
|
Interest cost
|
381
|
|
|
322
|
|
|
170
|
|
|
130
|
|
|
53
|
|
|
43
|
|
Expected return on assets
|
(674)
|
|
|
(699)
|
|
|
(277)
|
|
|
(272)
|
|
|
—
|
|
|
—
|
|
Amortization of prior service costs/(credits)
|
22
|
|
|
1
|
|
|
8
|
|
|
8
|
|
|
(18)
|
|
|
(4)
|
|
Net remeasurement (gain)/loss
|
263
|
|
|
(1)
|
|
|
43
|
|
|
55
|
|
|
—
|
|
|
—
|
|
Separation programs/other
|
7
|
|
|
—
|
|
|
78
|
|
|
66
|
|
|
—
|
|
|
(1)
|
|
Settlements and curtailments
|
(16)
|
|
|
1
|
|
|
(19)
|
|
|
74
|
|
|
—
|
|
|
—
|
|
Net periodic benefit cost/(income)
|
$
|
104
|
|
|
$
|
(246)
|
|
|
$
|
128
|
|
|
$
|
196
|
|
|
$
|
46
|
|
|
$
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Nine Months
|
|
Pension Benefits
|
|
|
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
Worldwide OPEB
|
|
2019
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
2020
|
Service cost
|
$
|
349
|
|
|
$
|
390
|
|
|
$
|
381
|
|
|
$
|
393
|
|
|
$
|
33
|
|
|
$
|
35
|
|
Interest cost
|
1,199
|
|
|
968
|
|
|
519
|
|
|
393
|
|
|
158
|
|
|
127
|
|
Expected return on assets
|
(1,972)
|
|
|
(2,097)
|
|
|
(844)
|
|
|
(793)
|
|
|
—
|
|
|
—
|
|
Amortization of prior service costs/(credits)
|
65
|
|
|
3
|
|
|
25
|
|
|
25
|
|
|
(53)
|
|
|
(12)
|
|
Net remeasurement (gain)/loss
|
253
|
|
|
3
|
|
|
43
|
|
|
(177)
|
|
|
—
|
|
|
58
|
|
Separation programs/other
|
8
|
|
|
13
|
|
|
322
|
|
|
123
|
|
|
—
|
|
|
(1)
|
|
Settlements and curtailments
|
(66)
|
|
|
5
|
|
|
(19)
|
|
|
92
|
|
|
—
|
|
|
(2)
|
|
Net periodic benefit cost/(income)
|
$
|
(164)
|
|
|
$
|
(715)
|
|
|
$
|
427
|
|
|
$
|
56
|
|
|
$
|
138
|
|
|
$
|
205
|
|
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 Other income/(loss), net on our consolidated income statements.
As part of our ongoing global redesign activities, we recognized additional expense of $50 million and $92 million in the third quarter of 2019 and 2020, respectively, and $245 million and $167 million in the first nine months of 2019 and 2020, respectively, related to separation programs, settlements, and curtailments.
The settlements and curtailments required plan remeasurements at current discount rates, asset returns, and economic conditions. This resulted in remeasurement losses of $54 million in the third quarter and gains of $116 million in the first nine months of 2020. Until our global redesign actions are completed, we anticipate further adjustments to our plans in subsequent periods.
In the third quarter of 2020, we also recognized a settlement loss of $48 million related to a non-US pension plan.
Pension Plan Contributions
During 2020, we expect to contribute between $500 million and $700 million of cash to our global funded pension plans. We also expect to make about $350 million of benefit payments to participants in unfunded plans. In the first nine months of 2020, we contributed $429 million to our worldwide funded pension plans and made $267 million of benefit payments to participants in unfunded plans.
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 14. DEBT
The carrying value of Automotive, Ford Credit, and Other debt was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
September 30,
2020
|
Automotive
|
|
|
|
Debt payable within one year
|
|
|
|
Short-term
|
$
|
315
|
|
|
$
|
807
|
|
Long-term payable within one year
|
|
|
|
U.S. Department of Energy Advanced Technology Vehicles Manufacturing (“DOE ATVM”) Incentive Program (a)
|
591
|
|
|
148
|
|
Other debt
|
540
|
|
|
414
|
|
Unamortized (discount)/premium
|
(1)
|
|
|
(1)
|
|
Total debt payable within one year
|
1,445
|
|
|
1,368
|
|
Long-term debt payable after one year (b)
|
|
|
|
Public unsecured debt securities (c)
|
10,583
|
|
|
18,583
|
|
Delayed draw term loan
|
1,500
|
|
|
1,500
|
|
DOE ATVM Incentive Program (a)
|
880
|
|
|
1,101
|
|
Other debt (d)
|
547
|
|
|
1,611
|
|
Unamortized (discount)/premium
|
(161)
|
|
|
(239)
|
|
Unamortized issuance costs
|
(116)
|
|
|
(193)
|
|
Total long-term debt payable after one year
|
13,233
|
|
|
22,363
|
|
Total Automotive
|
$
|
14,678
|
|
|
$
|
23,731
|
|
Fair value of Automotive debt (e)
|
$
|
15,606
|
|
|
$
|
25,793
|
|
Ford Credit
|
|
|
|
Debt payable within one year
|
|
|
|
Short-term
|
$
|
13,717
|
|
|
$
|
10,231
|
|
Long-term payable within one year
|
|
|
|
Unsecured debt
|
15,062
|
|
|
18,568
|
|
Asset-backed debt
|
23,609
|
|
|
20,619
|
|
Unamortized (discount)/premium
|
1
|
|
|
3
|
|
Unamortized issuance costs
|
(17)
|
|
|
(18)
|
|
Fair value adjustments (f)
|
(1)
|
|
|
44
|
|
Total debt payable within one year
|
52,371
|
|
|
49,447
|
|
Long-term debt payable after one year
|
|
|
|
Unsecured debt
|
55,148
|
|
|
49,946
|
|
Asset-backed debt
|
32,162
|
|
|
32,326
|
|
Unamortized (discount)/premium
|
6
|
|
|
(1)
|
|
Unamortized issuance costs
|
(197)
|
|
|
(202)
|
|
Fair value adjustments (f)
|
539
|
|
|
1,557
|
|
Total long-term debt payable after one year
|
87,658
|
|
|
83,626
|
|
Total Ford Credit
|
$
|
140,029
|
|
|
$
|
133,073
|
|
Fair value of Ford Credit debt (e)
|
$
|
141,678
|
|
|
$
|
132,647
|
|
Other
|
|
|
|
Long-term debt payable within one year
|
$
|
130
|
|
|
$
|
180
|
|
Long-term debt payable after one year
|
|
|
|
Unsecured debt
|
474
|
|
|
295
|
|
Unamortized (discount)/premium and issuance costs
|
(4)
|
|
|
(4)
|
|
Total long-term debt payable after one year
|
470
|
|
|
291
|
|
Total Other
|
$
|
600
|
|
|
$
|
471
|
|
Fair value of Other debt
|
$
|
720
|
|
|
$
|
549
|
|
__________
(a)In June 2020, our DOE ATVM loan was modified, reducing quarterly principal payments from $148 million to $37 million. The deferred portion of the principal payments will be due upon original maturity in June 2022.
(b)In the first quarter of 2020, we drew $15.4 billion under our corporate credit facilities and fully repaid these facilities in the third quarter of 2020.
(c)Public unsecured debt securities increased by $8 billion reflecting our unsecured debt issuance in April 2020.
(d)Includes a £625 million five-year term loan entered into by Ford Motor Company Limited in June 2020 pursuant to U.K. Export Finance program.
(e)The fair value of debt includes $315 million and $807 million of Automotive short-term debt and $12.8 billion and $9.9 billion of Ford Credit short-term debt at December 31, 2019 and September 30, 2020, respectively, carried at cost, which approximates fair value. All other debt is categorized within Level 2 of the fair value hierarchy.
(f)These adjustments relate to fair value hedges. The carrying value of hedged debt was $39.4 billion and $42.8 billion at December 31, 2019 and September 30, 2020, respectively.
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 15. 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, reported in income for the periods ended September 30 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter
|
|
First Nine Months
|
Cash flow hedges
|
2019
|
|
2020
|
|
2019
|
|
2020
|
Reclassified from AOCI to Cost of sales
|
|
|
|
|
|
|
|
Foreign currency exchange contracts (a)
|
$
|
(8)
|
|
|
$
|
6
|
|
|
$
|
90
|
|
|
$
|
(68)
|
|
Commodity contracts (b)
|
(10)
|
|
|
(22)
|
|
|
(21)
|
|
|
(50)
|
|
Fair value hedges
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
|
|
|
|
|
Net interest settlements and accruals on hedging instruments
|
—
|
|
|
94
|
|
|
(32)
|
|
|
190
|
|
Fair value changes on hedging instruments
|
203
|
|
|
(103)
|
|
|
927
|
|
|
1,119
|
|
Fair value changes on hedged debt
|
(194)
|
|
|
96
|
|
|
(910)
|
|
|
(1,095)
|
|
Cross-currency interest rate swap contracts (c)
|
|
|
|
|
|
|
|
Net interest settlements and accruals on hedging instruments
|
—
|
|
|
(1)
|
|
|
—
|
|
|
(1)
|
|
Fair value changes on hedging instruments
|
—
|
|
|
(10)
|
|
|
—
|
|
|
(10)
|
|
Fair value changes on hedged debt
|
—
|
|
|
6
|
|
|
—
|
|
|
6
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
Foreign currency exchange contracts (d)
|
347
|
|
|
(349)
|
|
|
324
|
|
|
(37)
|
|
Cross-currency interest rate swap contracts
|
(257)
|
|
|
210
|
|
|
(261)
|
|
|
213
|
|
Interest rate contracts
|
18
|
|
|
(4)
|
|
|
(12)
|
|
|
(90)
|
|
Commodity contracts
|
(8)
|
|
|
19
|
|
|
(9)
|
|
|
(12)
|
|
Total
|
$
|
91
|
|
|
$
|
(58)
|
|
|
$
|
96
|
|
|
$
|
165
|
|
__________
(a)For the third quarter and first nine months of 2019, a $68 million loss and a $384 million loss, respectively, were reported in Other comprehensive income/(loss), net of tax. For the third quarter and first nine months of 2020, a $132 million loss and a $684 million gain, respectively, were reported in Other comprehensive income/(loss), net of tax.
(b)For the third quarter and first nine months of 2019, a $32 million loss and a $58 million loss, respectively, were reported in Other comprehensive income/(loss), net of tax. For the third quarter and first nine months of 2020, a $36 million gain and a $48 million loss, respectively, were reported in Other comprehensive income/(loss), net of tax.
(c)During the third quarter of 2020, we began designating cross-currency interest rate swap contracts. We enter into cross-currency interest rate swaps to hedge our exposure to interest rate risk and foreign currency risk associated with the issuance of foreign denominated long-term debt. We report the change in fair value of the hedged debt and hedging instrument related to the change in the benchmark interest rate in Ford Credit interest, operating, and other expenses. We report the change in fair value of the hedged debt and hedging instrument related to foreign currency in Other income/(loss), net.
(d)For the third quarter and first nine months of 2019, a $193 million gain and a $136 million gain were reported in Cost of sales, respectively, and a $154 million gain and a $188 million gain were reported in Other income/(loss), net, respectively. For the third quarter and first nine months of 2020, a $242 million loss and a $97 million loss were reported in Cost of sales, respectively, and a $107 million loss and a $60 million gain were reported in Other income/(loss), net, respectively.
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 15. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)
Balance Sheet Effect of Derivative Financial Instruments
Derivative assets and liabilities are reported on our consolidated balance sheets 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 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
September 30, 2020
|
|
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
|
$
|
15,349
|
|
|
$
|
47
|
|
|
$
|
493
|
|
|
$
|
14,100
|
|
|
$
|
217
|
|
|
$
|
76
|
|
Commodity contracts
|
673
|
|
|
5
|
|
|
29
|
|
|
631
|
|
|
9
|
|
|
29
|
|
Fair value hedges
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
26,577
|
|
|
702
|
|
|
19
|
|
|
23,224
|
|
|
1,417
|
|
|
1
|
|
Cross-currency interest rate swap contracts
|
—
|
|
|
—
|
|
|
—
|
|
|
885
|
|
|
—
|
|
|
11
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
19,350
|
|
|
58
|
|
|
270
|
|
|
21,758
|
|
|
244
|
|
|
126
|
|
Cross-currency interest rate swap contracts
|
5,849
|
|
|
134
|
|
|
67
|
|
|
6,285
|
|
|
377
|
|
|
20
|
|
Interest rate contracts
|
68,914
|
|
|
275
|
|
|
191
|
|
|
71,071
|
|
|
675
|
|
|
510
|
|
Commodity contracts
|
467
|
|
|
9
|
|
|
9
|
|
|
506
|
|
|
31
|
|
|
8
|
|
Total derivative financial instruments, gross (a) (b)
|
$
|
137,179
|
|
|
$
|
1,230
|
|
|
$
|
1,078
|
|
|
$
|
138,460
|
|
|
$
|
2,970
|
|
|
$
|
781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion
|
|
|
$
|
390
|
|
|
$
|
772
|
|
|
|
|
$
|
1,169
|
|
|
$
|
517
|
|
Non-current portion
|
|
|
840
|
|
|
306
|
|
|
|
|
1,801
|
|
|
264
|
|
Total derivative financial instruments, gross
|
|
|
$
|
1,230
|
|
|
$
|
1,078
|
|
|
|
|
$
|
2,970
|
|
|
$
|
781
|
|
__________
(a)At December 31, 2019 and September 30, 2020, we held collateral of $18 million and $11 million, respectively, and we posted collateral of $78 million and $103 million, respectively.
(b)At December 31, 2019 and September 30, 2020, the fair value of assets and liabilities available for counterparty netting was $269 million and $469 million, respectively. All derivatives are categorized within Level 2 of the fair value hierarchy.
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 16. EMPLOYEE SEPARATION ACTIONS AND EXIT AND DISPOSAL ACTIVITIES
We record costs associated with voluntary separations at the time of employee acceptance, unless the acceptance requires explicit approval by the Company. We record costs associated with involuntary separation programs when management has approved the plan for separation, the affected employees are identified, and it is unlikely that actions required to complete the separation plan will change significantly. Costs associated with benefits that are contingent on the employee continuing to provide service are accrued over the required service period.
Automotive Segment
Global Redesign
As previously announced, we are executing a global redesign of our business. Redesign-related activities, including employee separation costs, facility-related charges, payments to dealers and suppliers, and other expenses, are recorded in Cost of sales and Selling, administrative, and other expenses. See Note 17 for additional information related to assets held for sale. Below are actions we have initiated as part of the redesign.
Brazil. In February 2019, Ford Motor Company Brasil Ltda. (“Ford Brazil”), our subsidiary in Brazil, committed to a plan to exit the commercial heavy truck business in South America. As a result, Ford Brazil ceased production at the São Bernardo do Campo plant in Brazil during 2019. In the third quarter of 2020, Ford Brazil completed a sale of the plant machinery and equipment, and also entered into a separate agreement to sell the land and buildings.
Russia. In March 2019, Ford Sollers Netherlands B.V. (“Ford Sollers”), a joint venture between Ford and Sollers PJSC (“Sollers”) in which Ford had control, announced its plan to restructure its business in Russia to focus exclusively on commercial vehicles and to exit the passenger car segment. As a result of these actions, Ford acquired 100% ownership of Ford Sollers and ceased production at the Naberezhnye Chelny and St. Petersburg vehicle assembly plants and the Elabuga engine plant during the second quarter of 2019.
Subsequent to completion of the restructuring actions, in July 2019, Ford sold a 51% controlling interest in the restructured entity to Sollers, which resulted in deconsolidation of the Ford Sollers subsidiary. Our continued involvement in Ford Sollers is accounted for as an equity method investment.
In the third quarter of 2020, we committed to a plan to sell certain manufacturing assets, which are not part of the restructured Ford Sollers joint venture.
United Kingdom. In June 2019, Ford Motor Company Limited (“Ford of Britain”), a subsidiary of Ford, announced its plan to exit the Ford Bridgend plant in South Wales in 2020. Ford of Britain ceased production at the Bridgend plant and the facility was closed in September 2020.
India. In the third quarter of 2019, Ford committed to a plan to sell specific net assets in our India Automotive operations.
Other Global Redesign Actions. In 2018, we announced our plan to end production at the Ford Aquitaine Industries plant in Bordeaux, France. We ceased production and the facility was closed in July 2019. In March 2019, we announced our plan to phase-out the production of the C-Max at the Saarlouis Body and Assembly Plant in Germany. We ceased production of the C-Max in June 2019. In addition, we are continuing to reduce our global workforce and take other restructuring actions.
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 16. EMPLOYEE SEPARATION ACTIONS AND EXIT AND DISPOSAL ACTIVITIES (Continued)
The following table summarizes the redesign-related activities for the periods ended September 30, which are recorded in Other liabilities and deferred revenue (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter
|
|
First Nine Months
|
|
2019
|
|
2020
|
|
2019
|
|
2020
|
Beginning balance
|
$
|
929
|
|
|
$
|
524
|
|
|
$
|
291
|
|
|
$
|
734
|
|
Changes in accruals (a)
|
173
|
|
|
109
|
|
|
1,181
|
|
|
203
|
|
Payments
|
(334)
|
|
|
(105)
|
|
|
(692)
|
|
|
(376)
|
|
Foreign currency translation
|
(39)
|
|
|
11
|
|
|
(51)
|
|
|
(22)
|
|
Ending balance
|
$
|
729
|
|
|
$
|
539
|
|
|
$
|
729
|
|
|
$
|
539
|
|
__________
(a)Excludes pension costs of $49 million and $92 million in the third quarter of 2019 and 2020, respectively, and $244 million and $167 million in the first nine months of 2019 and 2020, respectively.
We also recorded $821 million and $64 million in the third quarter of 2019 and 2020, respectively, and $1.4 billion and $114 million in the first nine months of 2019 and 2020, respectively, for the impairment of long-lived assets, accelerated depreciation and other non-cash items. We estimate that we will incur total charges in 2020 that range between $700 million and $1.2 billion related to the actions above, primarily attributable to employee separations, accelerated depreciation, and dealer and supplier settlements.
Other Actions
United Automobile, Aerospace and Agricultural Implement Workers of America (“UAW”) Voluntary Separation Packages. As agreed in the collective bargaining agreement ratified in November 2019, during the first quarter of 2020, we offered voluntary separation packages to our UAW hourly workforce who were eligible for normal or early retirement, and recorded associated costs of $201 million in Cost of sales. All separations are expected to occur before the end of the year.
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 17. HELD-FOR-SALE OPERATIONS AND CHANGES IN INVESTMENTS IN AFFILIATES
Automotive Segment
Brazil and Russia. In the third quarter of 2020, as part of our global redesign, we committed to plans to sell manufacturing assets in Brazil and Russia. As a result, we classified assets of $39 million as held for sale at September 30, 2020.
India. In the third quarter of 2019, we committed to a plan to sell specific net assets in our India Automotive operations. We entered into a definitive agreement to form a joint venture with Mahindra & Mahindra Limited (“Mahindra”), with Mahindra owning a 51% controlling stake and Ford owning a 49% stake. Under the terms of the transaction, we will sell certain India Automotive operations to the joint venture. The sale was expected to close within twelve months of the definitive agreement, but has been deferred primarily due to COVID-19 related shutdowns, which have delayed the necessary regulatory approvals and other steps required to establish the joint venture. Although completion of the transaction has extended beyond our initial expectations, our assessment of the planned sale is that it is still probable. Accordingly, as we continue to meet the held-for-sale classification criteria, we have reported the assets and liabilities of these operations as held for sale and ceased depreciation and amortization of those assets.
The assets and liabilities of our India Automotive operations classified as held for sale were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
September 30,
2020
|
Assets
|
|
|
|
Trade and other receivables, net
|
$
|
269
|
|
|
$
|
141
|
|
Inventories
|
208
|
|
|
185
|
|
Other assets, current
|
147
|
|
|
99
|
|
Net property
|
279
|
|
|
270
|
|
Other assets, non-current
|
10
|
|
|
8
|
|
Total assets of held-for-sale operations
|
913
|
|
|
703
|
|
Less: Intercompany asset balances
|
(228)
|
|
|
(122)
|
|
Automotive segment total assets of held-for-sale operations (a)
|
$
|
685
|
|
|
$
|
581
|
|
|
|
|
|
Liabilities
|
|
|
|
Payables
|
$
|
461
|
|
|
$
|
372
|
|
Other liabilities and deferred revenue, current
|
71
|
|
|
65
|
|
Automotive debt payable within one year
|
90
|
|
|
84
|
|
Other liabilities and deferred revenue, non-current
|
28
|
|
|
25
|
|
Total liabilities of held-for-sale operations
|
650
|
|
|
546
|
|
Less: Intercompany liability balances
|
(169)
|
|
|
(141)
|
|
Automotive segment total liabilities of held-for-sale operations (a)
|
$
|
481
|
|
|
$
|
405
|
|
__________
(a)As of December 31, 2019 and September 30, 2020, intercompany items and transactions have been eliminated on the consolidated balance sheets. Upon closing, the buyer will assume the intercompany assets and liabilities. Accordingly, we have presented those balances in the table for informational purposes.
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 17. HELD-FOR-SALE OPERATIONS AND CHANGES IN INVESTMENTS IN AFFILIATES (Continued)
We recognized pre-tax impairment charges of $804 million in 2019, of which $799 million was recorded in the third quarter of 2019, and $3 million and $21 million in the third quarter and first nine months of 2020, respectively, to adjust the carrying value of the held-for-sale assets to fair value less cost to sell. These charges are reported in Cost of sales. The value is measured on a nonrecurring basis and categorized within Level 3 of the fair value hierarchy. We determined fair value using a market approach, estimated based on expected proceeds to be received, which we conclude is most representative of the value of the assets given the current market conditions, the characteristics of viable market participants, and the pending sales transaction. The transaction is subject to regulatory approvals and satisfaction of other closing conditions that may impact the final proceeds received.
Mobility Segment
On June 1, 2020, we completed a transaction with VW that reduced our ownership interest in the autonomous vehicle technology company Argo AI and resulted in Ford and VW holding equal interests in Argo AI, with the remaining interest consisting of incentive units and founders’ equity. The transaction involved us selling a portion of our Argo AI equity to VW for $500 million and VW making additional investments in Argo AI, including contributing its Autonomous Intelligent Driving company. As a result of the transaction, we deconsolidated Argo AI, remeasured our retained investment in Argo AI at fair value, and recognized a $3.5 billion gain in Other income/(loss), of which $2.9 billion related to our retained investment in Argo AI. We measured the fair value of Argo AI using the income approach. The significant assumptions used in the valuation included Argo AI’s projected long-term cash flows and related terminal value, discounted at a rate typically used for a company at Argo AI’s stage of development.
Our retained investment in Argo AI immediately after the transaction consisted of an equity method investment of $2.4 billion and a preferred equity security investment of $400 million, reflected on our consolidated balance sheets in Equity in net assets of affiliated companies and Other assets, respectively. The difference between the fair value of our equity method investment and our share of the carrying value of Argo AI’s net assets primarily related to indefinite-lived assets. We also agreed to future funding of Argo AI of $600 million, subject to capital calls, which will increase our preferred equity investment.
Argo AI is a variable interest entity of which we are not the primary beneficiary. As of September 30, 2020, our maximum exposure to any potential losses associated with Argo AI is limited to our $2.8 billion of investments.
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 17. HELD-FOR-SALE OPERATIONS AND CHANGES IN INVESTMENTS IN AFFILIATES (Continued)
Ford Credit Segment
In the fourth quarter of 2019, Ford Credit committed to a plan to sell its operations in Forso, a wholly owned subsidiary of Ford Credit, which provides retail and dealer financing in Denmark, Finland, Norway, and Sweden. As a result, we classified the assets and liabilities of these operations as held for sale and recognized a pre-tax fair value impairment charge of $20 million, reported in Other income/(loss), net, in the fourth quarter of 2019.
The assets and liabilities of the Forso operations classified as held for sale at December 31, 2019 were as follows (in millions):
|
|
|
|
|
|
|
December 31,
2019
|
Assets
|
|
Cash and cash equivalents
|
$
|
61
|
|
Ford Credit finance receivables, net, current
|
516
|
|
Trade and other receivables, net
|
8
|
|
Other assets, current
|
106
|
|
Ford Credit finance receivables, net, non-current
|
715
|
|
Net property
|
2
|
|
Deferred income taxes
|
9
|
|
Other assets, non-current
|
1
|
|
Total assets of held-for-sale operations
|
1,418
|
|
Less: Intercompany asset balances
|
(2)
|
|
Ford Credit segment total assets of held-for-sale operations (a)
|
$
|
1,416
|
|
|
|
Liabilities
|
|
Payables
|
$
|
34
|
|
Other liabilities and deferred revenue, current
|
8
|
|
Ford Credit long-term debt
|
1,254
|
|
Deferred income taxes
|
23
|
|
Total liabilities of held-for-sale operations
|
1,319
|
|
Less: Intercompany liability balances
|
(1,274)
|
|
Ford Credit segment total liabilities of held-for-sale operations (a)
|
$
|
45
|
|
__________
(a)As of December 31, 2019, intercompany items and transactions have been eliminated on the consolidated balance sheets. Upon closing, the buyer assumed the intercompany assets and liabilities. Accordingly, we have presented those balances in the table for informational purposes.
On February 28, 2020, Ford Credit completed the sale of Forso recognizing a pre-tax loss of $4 million, reported in Other income/(loss), net, and cash proceeds of $1.3 billion.
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 18. 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 September 30 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter
|
|
First Nine Months
|
|
2019
|
|
2020
|
|
2019
|
|
2020
|
Foreign currency translation
|
|
|
|
|
|
|
|
Beginning balance
|
$
|
(4,684)
|
|
|
$
|
(6,181)
|
|
|
$
|
(4,800)
|
|
|
$
|
(4,626)
|
|
Gains/(Losses) on foreign currency translation
|
(301)
|
|
|
(126)
|
|
|
(169)
|
|
|
(1,673)
|
|
Less: Tax/(Tax benefit)
|
58
|
|
|
(60)
|
|
|
74
|
|
|
(83)
|
|
Net gains/(losses) on foreign currency translation
|
(359)
|
|
|
(66)
|
|
|
(243)
|
|
|
(1,590)
|
|
(Gains)/Losses reclassified from AOCI to net income (a)
|
(1)
|
|
|
(3)
|
|
|
(1)
|
|
|
(34)
|
|
Other comprehensive income/(loss), net of tax
|
(360)
|
|
|
(69)
|
|
|
(244)
|
|
|
(1,624)
|
|
Ending balance
|
$
|
(5,044)
|
|
|
$
|
(6,250)
|
|
|
$
|
(5,044)
|
|
|
$
|
(6,250)
|
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
|
|
|
|
|
|
Beginning balance
|
$
|
63
|
|
|
$
|
184
|
|
|
$
|
(59)
|
|
|
$
|
71
|
|
Gains/(Losses) on available for sale securities
|
15
|
|
|
(8)
|
|
|
169
|
|
|
157
|
|
Less: Tax/(Tax benefit)
|
4
|
|
|
(2)
|
|
|
40
|
|
|
36
|
|
Net gains/(losses) on available for sale securities
|
11
|
|
|
(6)
|
|
|
129
|
|
|
121
|
|
(Gains)/Losses reclassified from AOCI to net income
|
(3)
|
|
|
(15)
|
|
|
2
|
|
|
(33)
|
|
Less: Tax/(Tax benefit)
|
—
|
|
|
(4)
|
|
|
1
|
|
|
(8)
|
|
Net (gains)/losses reclassified from AOCI to net income
|
(3)
|
|
|
(11)
|
|
|
1
|
|
|
(25)
|
|
Other comprehensive income/(loss), net of tax
|
8
|
|
|
(17)
|
|
|
130
|
|
|
96
|
|
Ending balance
|
$
|
71
|
|
|
$
|
167
|
|
|
$
|
71
|
|
|
$
|
167
|
|
|
|
|
|
|
|
|
|
Derivative instruments
|
|
|
|
|
|
|
|
Beginning balance
|
$
|
(128)
|
|
|
$
|
180
|
|
|
$
|
201
|
|
|
$
|
(488)
|
|
Gains/(Losses) on derivative instruments
|
(100)
|
|
|
(96)
|
|
|
(442)
|
|
|
636
|
|
Less: Tax/(Tax benefit)
|
(17)
|
|
|
(15)
|
|
|
(95)
|
|
|
135
|
|
Net gains/(losses) on derivative instruments
|
(83)
|
|
|
(81)
|
|
|
(347)
|
|
|
501
|
|
(Gains)/Losses reclassified from AOCI to net income
|
18
|
|
|
16
|
|
|
(69)
|
|
|
118
|
|
Less: Tax/(Tax benefit)
|
4
|
|
|
6
|
|
|
(18)
|
|
|
22
|
|
Net (gains)/losses reclassified from AOCI to net income (b)
|
14
|
|
|
10
|
|
|
(51)
|
|
|
96
|
|
Other comprehensive income/(loss), net of tax
|
(69)
|
|
|
(71)
|
|
|
(398)
|
|
|
597
|
|
Ending balance
|
$
|
(197)
|
|
|
$
|
109
|
|
|
$
|
(197)
|
|
|
$
|
109
|
|
|
|
|
|
|
|
|
|
Pension and other postretirement benefits
|
|
|
|
|
|
|
|
Beginning balance
|
$
|
(2,687)
|
|
|
$
|
(2,654)
|
|
|
$
|
(2,708)
|
|
|
$
|
(2,685)
|
|
Amortization and recognition of prior service costs/(credits)
|
12
|
|
|
29
|
|
|
37
|
|
|
55
|
|
Less: Tax/(Tax benefit)
|
2
|
|
|
6
|
|
|
7
|
|
|
10
|
|
Net prior service costs/(credits) reclassified from AOCI to net income
|
10
|
|
|
23
|
|
|
30
|
|
|
45
|
|
Translation impact on non-U.S. plans
|
5
|
|
|
(8)
|
|
|
6
|
|
|
1
|
|
Other comprehensive income/(loss), net of tax
|
15
|
|
|
15
|
|
|
36
|
|
|
46
|
|
Ending balance
|
$
|
(2,672)
|
|
|
$
|
(2,639)
|
|
|
$
|
(2,672)
|
|
|
$
|
(2,639)
|
|
|
|
|
|
|
|
|
|
Total AOCI ending balance at September 30
|
$
|
(7,842)
|
|
|
$
|
(8,613)
|
|
|
$
|
(7,842)
|
|
|
$
|
(8,613)
|
|
__________
(a)Reclassified to Other income/(loss), net.
(b)Reclassified to Cost of sales. During the next twelve months we expect to reclassify existing net gains on cash flow hedges of $155 million. See Note 15 for additional information.
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 19. COMMITMENTS AND CONTINGENCIES
Commitments and contingencies primarily consist of guarantees and indemnifications, litigation and claims, and warranty and field service actions.
Guarantees and Indemnifications
Financial Guarantees. Financial guarantees and indemnifications are recorded at fair value at their inception. Subsequent to initial recognition, the guarantee liability is adjusted at each reporting period to reflect the current estimate of expected payments resulting from possible default events over the remaining life of the guarantee. The probability of default is applied to the expected exposure at the time of default less recoveries to determine the expected payments. Factors to consider when estimating the probability of default include the obligor’s financial position, forecasted economic environment, historical loss rates, and other communications. The liability recorded represents Ford’s exposure to credit risk. The maximum potential payments for financial guarantees were $162 million and $437 million at December 31, 2019 and September 30, 2020, respectively. The carrying value of recorded liabilities related to financial guarantees was $33 million and $40 million at December 31, 2019 and September 30, 2020, respectively.
Our financial guarantees consist of 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.
Non-Financial Guarantees. Non-financial 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 a guarantee or indemnity, the amount of probable payment is recorded. The maximum potential payments for non-financial guarantees were $587 million and $266 million at December 31, 2019 and September 30, 2020, respectively. The carrying value of recorded liabilities related to non-financial guarantees was $200 million and $59 million at December 31, 2019 and September 30, 2020, respectively.
We guarantee the resale value of vehicles sold in certain arrangements to daily rental companies. The maximum potential payment of $260 million as of September 30, 2020 represents the total proceeds we guarantee the rental company will receive on resale. Reflecting our present estimate of proceeds the rental companies will receive on resale from third parties, we have recorded $58 million as our best estimate of the amount we will have to pay under the guarantee.
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 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.
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 19. COMMITMENTS AND CONTINGENCIES (Continued)
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.
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 $900 million.
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.
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 19. COMMITMENTS AND CONTINGENCIES (Continued)
Warranty and Field Service Actions
We accrue the estimated cost of both base warranty coverages and field service actions at the time of sale. We establish our estimate of base warranty obligations using a patterned estimation model, using historical information regarding the nature, frequency, and average cost of claims for each vehicle line by model year. We establish our estimates of field service action obligations using a patterned estimation model, using historical information regarding the nature, frequency, severity, and average cost of claims for each model year. In addition, from time to time, we issue extended warranties at our expense, the estimated cost of which is accrued at the time of issuance. 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 recovery is virtually certain. Recoveries are reported in Trade and other receivables, net and Other assets.
The estimate of our future warranty and field service action costs, net of estimated supplier recoveries, for the periods ended September 30 was as follows (in millions):
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|
|
|
|
|
|
|
|
|
|
|
First Nine Months
|
|
2019
|
|
2020
|
Beginning balance
|
$
|
5,137
|
|
|
$
|
5,702
|
|
Payments made during the period
|
(3,395)
|
|
|
(2,913)
|
|
Changes in accrual related to warranties issued during the period
|
2,180
|
|
|
2,419
|
|
Changes in accrual related to pre-existing warranties
|
1,355
|
|
|
1,451
|
|
Foreign currency translation and other
|
(57)
|
|
|
(75)
|
|
Ending balance
|
$
|
5,220
|
|
|
$
|
6,584
|
|
Changes to our estimated costs are reported as changes in accrual related to pre-existing warranties in the table above.
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 20. SEGMENT INFORMATION
We report segment information consistent with the way our chief operating decision maker evaluates the operating results and performance of the Company. Accordingly, we analyze the results of our business through the following segments: Automotive, Mobility, and Ford Credit. Below is a description of our reportable segments and other activities.
Automotive Segment
Our Automotive segment primarily includes the sale of Ford and Lincoln vehicles, service parts, and accessories worldwide, together with the associated costs to develop, manufacture, distribute, and service the vehicles, parts, and accessories. This segment includes revenues and costs related to our electrification vehicle programs. The segment includes the following regional business units: North America, South America, Europe, China (including Taiwan), and
the International Markets Group.
Mobility Segment
Our Mobility segment primarily includes development costs related to our autonomous vehicles and our investment in mobility through Ford Smart Mobility LLC (“FSM”). Autonomous vehicles includes self-driving systems development and vehicle integration, autonomous vehicle research and advanced engineering, autonomous vehicle transportation-as-a-service network development, user experience, and business strategy and business development teams. FSM designs and builds mobility products and subscription services on its own, and collaborates with service providers and technology companies.
Ford Credit Segment
The Ford Credit segment is comprised of the Ford Credit business on a consolidated basis, which is primarily vehicle-related financing and leasing activities.
Corporate Other
Corporate Other primarily includes corporate governance expenses, interest income (excluding interest earned on our extended service contract portfolio that is included in our Automotive segment) and gains and losses from our cash, cash equivalents, marketable securities, and other investments, and foreign exchange derivatives gains and losses associated with intercompany lending. Corporate governance expenses are primarily administrative, delivering benefit on behalf of the global enterprise, and are not allocated to specific Automotive business units or operating segments. These include expenses related to setting and directing global policy, providing oversight and stewardship, and promoting the Company’s interests. The underlying assets and liabilities associated with these activities remain with the respective Automotive and Mobility segments.
Interest on Debt
Interest on Debt is presented as a separate reconciling item and consists of interest expense on Automotive and Other debt. The underlying liability is reported in the Automotive segment and in Corporate Other.
Special Items
Special Items are presented as a separate reconciling item. They consist of (i) pension and OPEB remeasurement gains and losses, (ii) significant personnel expenses, dealer-related costs, and facility-related charges stemming from 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. Our management excludes these items from its review of the results of the operating segments for purposes of measuring segment profitability and allocating resources. We also report these special items separately to help investors track amounts related to these activities and to allow investors analyzing our results to identify certain infrequent significant items that they may wish to exclude when considering the trend of ongoing operating results.
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 20. SEGMENT INFORMATION (Continued)
Key financial information for the periods ended or at September 30 was as follows (in millions):
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|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
|
|
Mobility
|
|
Ford Credit
|
|
Corporate
Other
|
|
Interest
on Debt
|
|
Special Items
|
|
Adjustments
|
|
Total
|
Third Quarter 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
33,931
|
|
|
$
|
14
|
|
|
$
|
3,045
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
36,990
|
|
Income/(loss) before income taxes
|
1,329
|
|
|
(290)
|
|
|
736
|
|
|
18
|
|
|
(276)
|
|
|
(1,536)
|
|
|
—
|
|
|
(19)
|
|
Equity in net income/(loss) of affiliated companies
|
(27)
|
|
|
2
|
|
|
9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(16)
|
|
Cash, cash equivalents, marketable securities, and restricted cash
|
22,194
|
|
|
135
|
|
|
15,160
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
37,489
|
|
Total assets
|
101,865
|
|
|
1,193
|
|
|
160,322
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,223)
|
|
(a)
|
258,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
34,707
|
|
|
$
|
20
|
|
|
$
|
2,774
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
37,501
|
|
Income/(loss) before income taxes
|
2,644
|
|
|
(281)
|
|
|
1,123
|
|
|
158
|
|
|
(498)
|
|
|
(390)
|
|
|
—
|
|
|
2,756
|
|
Equity in net income/(loss) of affiliated companies
|
115
|
|
|
(58)
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
(3)
|
|
|
—
|
|
|
58
|
|
Cash, cash equivalents, marketable securities, and restricted cash
|
29,473
|
|
|
67
|
|
|
15,500
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
45,040
|
|
Total assets
|
107,097
|
|
|
4,082
|
|
|
153,799
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,035)
|
|
(a)
|
259,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
|
|
Mobility
|
|
Ford Credit
|
|
Corporate
Other
|
|
Interest
on Debt
|
|
Special Items
|
|
Adjustments
|
|
Total
|
First Nine Months 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
106,928
|
|
|
$
|
26
|
|
|
$
|
9,231
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
116,185
|
|
Income/(loss) before income taxes
|
4,711
|
|
|
(842)
|
|
|
2,368
|
|
|
(343)
|
|
|
(765)
|
|
|
(3,333)
|
|
|
—
|
|
|
1,796
|
|
Equity in net income/(loss) of affiliated companies
|
62
|
|
|
11
|
|
|
23
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Nine Months 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
82,669
|
|
|
$
|
43
|
|
|
$
|
8,480
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
91,192
|
|
Income/(loss) before income taxes
|
378
|
|
|
(947)
|
|
|
1,696
|
|
|
(61)
|
|
|
(1,175)
|
|
|
2,803
|
|
|
—
|
|
|
2,694
|
|
Equity in net income/(loss) of affiliated companies
|
59
|
|
|
(70)
|
|
|
12
|
|
|
—
|
|
|
—
|
|
|
(9)
|
|
|
—
|
|
|
(8)
|
|
__________
(a)Includes eliminations of intersegment transactions occurring in the ordinary course of business and deferred tax netting.