Quarterly Report (10-q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

☑ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2020

☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from __________ to __________

Commission file number 1-3950

Ford Motor Company

(Exact name of Registrant as specified in its charter)


Delaware		38-0549190
(State of incorporation)		(I.R.S. Employer Identification No.)

One American Road
Dearborn,	Michigan	48126
(Address of principal executive offices)		(Zip code)

313-322-3000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, par value $.01 per share

New York Stock Exchange

6.200% Notes due June 1, 2059

FPRB

New York Stock Exchange

6.000% Notes due December 1, 2059

FPRC

New York Stock Exchange

Indicate by check mark if the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ☑ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of October 23, 2020, Ford had outstanding 3,907,575,284 shares of Common Stock and 70,852,076 shares of Class B Stock.

Exhibit Index begins on page


75

FORD MOTOR COMPANY

QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended September 30, 2020


	Table of Contents	Page
	Part I - Financial Information
Item 1	Financial Statements	1
	Consolidated Statements of Cash Flows	1
	Consolidated Income Statements	2
	Consolidated Statements of Comprehensive Income	2
	Consolidated Balance Sheets	3
	Consolidated Statements of Equity	4
	Notes to the Financial Statements	5
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
	Recent Developments	36
	Results of Operations	37
	Automotive Segment	39
	Mobility Segment	45
	Ford Credit Segment	46
	Corporate Other	49
	Interest on Debt	49
	Taxes	49
	Liquidity and Capital Resources	50
	Credit Ratings	59
	Outlook	60
	Cautionary Note on Forward-Looking Statements	61
	Non-GAAP Financial Measures That Supplement GAAP Measures	62
	Non-GAAP Financial Measure Reconciliations	64
	Supplemental Information	67
	Critical Accounting Estimates	71
	Accounting Standards Issued But Not Yet Adopted	71
Item 3	Quantitative and Qualitative Disclosures About Market Risk	72
Item 4	Controls and Procedures	72

	Part II - Other Information
Item 1	Legal Proceedings	73
Item 1A	Risk Factors	74
Item 6	Exhibits	75
	Signature	76

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements.

FORD MOTOR COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)


	For the periods ended September 30,
	2019		2020
	First Nine Months
	(unaudited)
Cash flows from operating activities
Net income/(loss)	$	1,756	$	1,515
Depreciation and tooling amortization	7,310		6,670
Other amortization	(891)		(938)
Held-for-sale impairment charges (Note 17)	799		21
Provision for credit and insurance losses	292		866
Pension and other post-retirement employee benefits (“OPEB”) expense/(income)	401		(454)
Equity investment dividends received in excess of (earnings)/losses	73		132
Foreign currency adjustments	49		(216)
Net (gain)/loss on changes in investments in affiliates	(46)		(3,483)
Stock compensation	238		170
Provision for deferred income taxes	(403)		978
Decrease/(Increase) in finance receivables (wholesale and other)	2,792		11,006
Decrease/(Increase) in accounts receivable and other assets	(1,023)		74
Decrease/(Increase) in inventory	(1,790)		(202)
Increase/(Decrease) in accounts payable and accrued and other liabilities	5,226		3,858
Other	(44)		(267)
Net cash provided by/(used in) operating activities	14,739		19,730

Cash flows from investing activities
Capital spending	(5,358)		(4,211)
Acquisitions of finance receivables and operating leases	(41,142)		(43,473)
Collections of finance receivables and operating leases	37,854		36,536
Proceeds from sale of business (Note 17)	—		1,340
Purchases of marketable securities and other investments	(12,367)		(27,401)
Sales and maturities of marketable securities and other investments	12,532		24,402
Settlements of derivatives	163		(407)
Other	(53)		344
Net cash provided by/(used in) investing activities	(8,371)		(12,870)

Cash flows from financing activities
Cash payments for dividends and dividend equivalents	(1,794)		(596)
Purchases of common stock	(237)		—
Net changes in short-term debt	(1,094)		(2,815)
Proceeds from issuance of long-term debt	35,705		54,325
Principal payments on long-term debt	(34,847)		(50,641)
Other	(173)		(242)
Net cash provided by/(used in) financing activities	(2,440)		31

Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(154)		(160)

Net increase/(decrease) in cash, cash equivalents, and restricted cash	$	3,774	$	6,731

Cash, cash equivalents, and restricted cash at beginning of period (Note 7)	$	16,907	$	17,741
Net increase/(decrease) in cash, cash equivalents, and restricted cash	3,774		6,731
Cash, cash equivalents, and restricted cash at end of period (Note 7)	$	20,681	$	24,472

The accompanying notes are part of the consolidated financial statements.

Item 1. Financial Statements (continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENTS

(in millions, except per share amounts)


	For the periods ended September 30,
	2019		2020		2019		2020
	Third Quarter				First Nine Months
	(unaudited)
Revenues
Automotive	$	33,931	$	34,707	$	106,928	$	82,669
Ford Credit	3,045		2,774		9,231		8,480
Mobility	14		20		26		43
Total revenues (Note 3)	36,990		37,501		116,185		91,192

Costs and expenses
Cost of sales	32,282		31,223		99,881		79,677
Selling, administrative, and other expenses	2,601		2,266		8,169		6,663
Ford Credit interest, operating, and other expenses	2,368		1,661		7,104		6,818
Total costs and expenses	37,251		35,150		115,154		93,158
Operating income/(loss)	(261)		2,351		1,031		(1,966)

Interest expense on Automotive debt	262		487		723		1,140
Interest expense on Other debt	14		11		42		35

Other income/(loss), net (Note 4)	534		845		1,434		5,843
Equity in net income/(loss) of affiliated companies	(16)		58		96		(8)
Income/(Loss) before income taxes	(19)		2,756		1,796		2,694
Provision for/(Benefit from) income taxes	(442)		366		40		1,179
Net income/(loss)	423		2,390		1,756		1,515
Less: Income/(Loss) attributable to noncontrolling interests	(2)		5		37		6
Net income/(loss) attributable to Ford Motor Company	$	425	$	2,385	$	1,719	$	1,509

EARNINGS PER SHARE ATTRIBUTABLE TO FORD MOTOR COMPANY COMMON AND CLASS B STOCK (Note 6)
Basic income/(loss)	$	0.11	$	0.60	$	0.43	$	0.38
Diluted income/(loss)	0.11		0.60		0.43		0.38

Weighted-average shares used in computation of earnings per share
Basic shares	3,970		3,976		3,976		3,971
Diluted shares	4,007		4,005		4,006		3,997

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions)


	For the periods ended September 30,
	2019		2020		2019		2020
	Third Quarter				First Nine Months
	(unaudited)
Net income/(loss)	$	423	$	2,390	$	1,756	$	1,515
Other comprehensive income/(loss), net of tax (Note 18)
Foreign currency translation	(360)		(70)		(244)		(1,625)
Marketable securities	8		(17)		130		96
Derivative instruments	(69)		(71)		(398)		597
Pension and other postretirement benefits	15		15		36		46
Total other comprehensive income/(loss), net of tax	(406)		(143)		(476)		(886)
Comprehensive income/(loss)	17		2,247		1,280		629
Less: Comprehensive income/(loss) attributable to noncontrolling interests	(2)		4		37		5
Comprehensive income/(loss) attributable to Ford Motor Company	$	19	$	2,243	$	1,243	$	624

The accompanying notes are part of the consolidated financial statements.

Item 1. Financial Statements (continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in millions)


	December 31, 2019		September 30, 2020
	(unaudited)
ASSETS
Cash and cash equivalents (Note 7)	$	17,504	$	24,263
Marketable securities (Note 7)	17,147		20,568
Ford Credit finance receivables, net of allowance for credit losses of $162 and $394 (Note 8)	53,651		41,847
Trade and other receivables, less allowances of $63 and $80	9,237		10,114
Inventories (Note 9)	10,786		10,583
Assets held for sale (Note 17)	2,383		676
Other assets	3,339		3,714
Total current assets	114,047		111,765

Ford Credit finance receivables, net of allowance for credit losses of $351 and $920 (Note 8)	53,703		55,659
Net investment in operating leases	29,230		27,895
Net property	36,469		36,118
Equity in net assets of affiliated companies	2,519		4,741
Deferred income taxes	11,863		10,907
Other assets	10,706		12,858
Total assets	$	258,537	$	259,943

LIABILITIES
Payables	$	20,673	$	21,466
Other liabilities and deferred revenue (Note 12)	22,987		20,293
Automotive debt payable within one year (Note 14)	1,445		1,368
Ford Credit debt payable within one year (Note 14)	52,371		49,447
Other debt payable within one year (Note 14)	130		180
Liabilities held for sale (Note 17)	526		405
Total current liabilities	98,132		93,159

Other liabilities and deferred revenue (Note 12)	25,324		26,826
Automotive long-term debt (Note 14)	13,233		22,363
Ford Credit long-term debt (Note 14)	87,658		83,626
Other long-term debt (Note 14)	470		291
Deferred income taxes	490		517
Total liabilities	225,307		226,782

EQUITY
Common Stock, par value $0.01 per share (4,025 million shares issued of 6 billion authorized)	40		40
Class B Stock, par value $0.01 per share (71 million shares issued of 530 million authorized)	1		1
Capital in excess of par value of stock	22,165		22,262
Retained earnings	20,320		21,031
Accumulated other comprehensive income/(loss) (Note 18)	(7,728)		(8,613)
Treasury stock	(1,613)		(1,596)
Total equity attributable to Ford Motor Company	33,185		33,125
Equity attributable to noncontrolling interests	45		36
Total equity	33,230		33,161
Total liabilities and equity	$	258,537	$	259,943


The following table includes assets to be used to settle liabilities of the consolidated variable interest entities (“VIEs”). These assets and liabilities are included in the consolidated balance sheets above.
	December 31, 2019		September 30, 2020
	(unaudited)
ASSETS
Cash and cash equivalents	$	3,202	$	2,905
Ford Credit finance receivables, net	58,478		48,490
Net investment in operating leases	14,883		14,613
Other assets	12		—
LIABILITIES
Other liabilities and deferred revenue	$	19	$	69
Debt	50,865		44,766

The accompanying notes are part of the consolidated financial statements.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

(in millions, unaudited)


	Equity Attributable to Ford Motor Company
	Capital Stock		Cap. In Excess of Par Value of Stock		Retained Earnings		Accumulated Other Comprehensive Income/(Loss) (Note 18)		Treasury Stock		Total		Equity Attributable to Non-controlling Interests		Total Equity
Balance at December 31, 2018	$	41	$	22,006	$	22,668	$	(7,366)	$	(1,417)	$	35,932	$	34	$	35,966
Adoption of accounting standards	—		—		13		—		—		13		—		13
Net income/(loss)	—		—		1,146		—		—		1,146		37		1,183
Other comprehensive income/(loss), net	—		—		—		(135)		—		(135)		—		(135)
Common stock issued (a)	—		20		—		—		—		20		—		20
Treasury stock/other	—		—		—		—		23		23		(35)		(12)
Dividends and dividend equivalents declared ($0.15 per share) (b)	—		—		(601)		—		—		(601)		—		(601)
Balance at March 31, 2019	$	41	$	22,026	$	23,226	$	(7,501)	$	(1,394)	$	36,398	$	36	$	36,434
Net income/(loss)	—		—		148		—		—		148		2		150
Other comprehensive income/(loss), net	—		—		—		65		—		65		—		65
Common stock issued (a)	—		85		—		—		—		85		—		85
Treasury stock/other	—		—		—		—		6		6		1		7
Dividends and dividend equivalents declared ($0.15 per share) (b)	—		—		(605)		—		—		(605)		—		(605)
Balance at June 30, 2019	$	41	$	22,111	$	22,769	$	(7,436)	$	(1,388)	$	36,097	$	39	$	36,136
Net income/(loss)	—		—		425		—		—		425		(2)		423
Other comprehensive income/(loss), net	—		—		—		(406)		—		(406)		—		(406)
Common stock issued (a)	—		68		—		—		—		68		—		68
Treasury stock/other	—		—		—		—		(231)		(231)		1		(230)
Dividends and dividend equivalents declared ($0.15 per share) (b)	—		—		(604)		—		—		(604)		—		(604)
Balance at September 30, 2019	$	41	$	22,179	$	22,590	$	(7,842)	$	(1,619)	$	35,349	$	38	$	35,387

Balance at December 31, 2019	$	41	$	22,165	$	20,320	$	(7,728)	$	(1,613)	$	33,185	$	45	$	33,230
Adoption of accounting standards	—		—		(202)		—		—		(202)		—		(202)
Net income/(loss)	—		—		(1,993)		—		—		(1,993)		—		(1,993)
Other comprehensive income/(loss), net	—		—		—		(733)		—		(733)		—		(733)
Common stock issued (a)	—		(15)		—		—		—		(15)		—		(15)
Treasury stock/other	—		—		—		—		6		6		3		9
Dividends and dividend equivalents declared ($0.15 per share) (b)	—		—		(598)		—		—		(598)		—		(598)
Balance at March 31, 2020	$	41	$	22,150	$	17,527	$	(8,461)	$	(1,607)	$	29,650	$	48	$	29,698
Net income/(loss)	—		—		1,117		—		—		1,117		1		1,118
Other comprehensive income/(loss), net	—		—		—		(10)		—		(10)		—		(10)
Common stock issued (a)	—		60		—		—		—		60		—		60
Treasury stock/other	—		—		—		—		6		6		(18)		(12)
Dividends and dividend equivalents declared (b)	—		—		1		—		—		1		—		1
Balance at June 30, 2020	$	41	$	22,210	$	18,645	$	(8,471)	$	(1,601)	$	30,824	$	31	$	30,855
Net income/(loss)	—		—		2,385		—		—		2,385		5		2,390
Other comprehensive income/(loss), net	—		—		—		(142)		—		(142)		(1)		(143)
Common stock issued (a)	—		52		—		—		—		52		—		52
Treasury stock/other	—		—		—		—		5		5		1		6
Dividends and dividend equivalents declared (b)	—		—		1		—		—		1		—		1
Balance at September 30, 2020	$	41	$	22,262	$	21,031	$	(8,613)	$	(1,596)	$	33,125	$	36	$	33,161

__________

(a)Includes impacts of share-based compensation.

(b)Dividends and dividend equivalents declared for Common and Class B Stock.

The accompanying notes are part of the consolidated financial statements.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS

Table of Contents


Footnote		Page
Note 1	Presentation	6
Note 2	New Accounting Standards	7
Note 3	Revenue	8
Note 4	Other Income/(Loss)	9
Note 5	Income Taxes	9
Note 6	Capital Stock and Earnings Per Share	10
Note 7	Cash, Cash Equivalents, and Marketable Securities	10
Note 8	Ford Credit Finance Receivables and Allowance for Credit Losses	14
Note 9	Inventories	20
Note 10	Other Investments	20
Note 11	Goodwill	20
Note 12	Other Liabilities and Deferred Revenue	20
Note 13	Retirement Benefits	21
Note 14	Debt	22
Note 15	Derivative Financial Instruments and Hedging Activities	23
Note 16	Employee Separation Actions and Exit and Disposal Activities	25
Note 17	Held-for-Sale Operations and Changes in Investments in Affiliates	27
Note 18	Accumulated Other Comprehensive Income/(Loss)	30
Note 19	Commitments and Contingencies	31
Note 20	Segment Information	34

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):


	Balance at December 31, 2019		Adjustments due to ASU 2016-13		Balance at January 1, 2020
Assets
Ford Credit finance receivables, net, current	$	53,651	$	(69)	$	53,582
Trade and other receivables, net	9,237		(3)		9,234
Ford Credit finance receivables, net, non-current	53,703		(183)		53,520
Equity in net assets of affiliated companies	2,519		(7)		2,512
Deferred income taxes	11,863		2		11,865
Liabilities
Deferred income taxes	490		(58)		432
Equity
Retained earnings	20,320		(202)		20,118

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:


ASU		Effective Date
2020-01	Clarifying the Interaction between Equity Securities, Equity Method and Joint Ventures, and Derivatives and Hedging	January 1, 2020
2018-18	Clarifying the Interaction between Collaborative Arrangements and Revenue from Contracts with Customers	January 1, 2020
2018-15	Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract	January 1, 2020

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):


	Third Quarter 2019
	Automotive		Mobility		Ford Credit		Consolidated
Vehicles, parts, and accessories	$	32,609	$	—	$	—	$	32,609
Used vehicles	647		—		—		647
Extended service contracts	347		—		—		347
Other revenue	183		14		55		252
Revenues from sales and services	33,786		14		55		33,855

Leasing income	145		—		1,480		1,625
Financing income	—		—		1,472		1,472
Insurance income	—		—		38		38
Total revenues	$	33,931	$	14	$	3,045	$	36,990

	Third Quarter 2020
	Automotive		Mobility		Ford Credit		Consolidated
Vehicles, parts, and accessories	$	33,005	$	—	$	—	$	33,005
Used vehicles	818		—		—		818
Extended service contracts	356		—		—		356
Other revenue	438		20		37		495
Revenues from sales and services	34,617		20		37		34,674

Leasing income	90		—		1,407		1,497
Financing income	—		—		1,303		1,303
Insurance income	—		—		27		27
Total revenues	$	34,707	$	20	$	2,774	$	37,501

	First Nine Months 2019
	Automotive		Mobility		Ford Credit		Consolidated
Vehicles, parts, and accessories	$	102,420	$	—	$	—	$	102,420
Used vehicles	2,509		—		—		2,509
Extended service contracts	1,028		—		—		1,028
Other revenue	615		26		161		802
Revenues from sales and services	106,572		26		161		106,759

Leasing income	356		—		4,429		4,785
Financing income	—		—		4,521		4,521
Insurance income	—		—		120		120
Total revenues	$	106,928	$	26	$	9,231	$	116,185

	First Nine Months 2020
	Automotive		Mobility		Ford Credit		Consolidated
Vehicles, parts, and accessories	$	78,252	$	—	$	—	$	78,252
Used vehicles	2,282		—		—		2,282
Extended service contracts	1,066		—		—		1,066
Other revenue	836		43		122		1,001
Revenues from sales and services	82,436		43		122		82,601

Leasing income	233		—		4,267		4,500
Financing income	—		—		3,989		3,989
Insurance income	—		—		102		102
Total revenues	$	82,669	$	43	$	8,480	$	91,192

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):


	Third Quarter				First Nine Months
	2019		2020		2019		2020
Net periodic pension and OPEB income/(cost), excluding service cost	$	(21)	$	277	$	362	$	1,272
Investment-related interest income	202		90		612		374
Interest income/(expense) on income taxes	(5)		(4)		(26)		(15)
Realized and unrealized gains/(losses) on cash equivalents, marketable securities, and other investments	199		297		79		312
Gains/(Losses) on changes in investments in affiliates (a)	44		3		46		3,483
Gains/(Losses) on extinguishment of debt	(1)		—		(54)		(1)
Royalty income	91		139		283		322
Other	25		43		132		96
Total	$	534	$	845	$	1,434	$	5,843

__________

(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):


	Third Quarter				First Nine Months
	2019		2020		2019		2020
Basic and Diluted Income/(Loss) Attributable to Ford Motor Company
Basic income/(loss)	$	425	$	2,385	$	1,719	$	1,509
Diluted income/(loss)	425		2,385		1,719		1,509

Basic and Diluted Shares
Basic shares (average shares outstanding)	3,970		3,976		3,976		3,971
Net dilutive options, unvested restricted stock units, and unvested restricted stock shares	37		29		30		26
Diluted shares	4,007		4,005		4,006		3,997

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):


		December 31, 2019
	Fair Value Level	Automotive		Mobility		Ford Credit		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 accou

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