UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

(Mark One) 
RQuarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
  
 For the quarterly period ended September 30, 20162017
  
or
  
oTransition 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)

Delaware38-0549190
(State of incorporation)(I.R.S. Employer Identification No.)
  
One American Road, Dearborn, Michigan48126
(Address of principal executive offices)(Zip Code)
313-322-3000
(Registrant’s telephone number, including area code)


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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  R   No  o

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

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

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

As of October 20, 2016,19, 2017, Ford had outstanding 3,902,862,5473,901,450,116 shares of Common Stock and 70,852,076 shares of Class B Stock.  


Exhibit Index begins on page
6874


 

 


FORD MOTOR COMPANY
QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended September 30, 20162017
 Table of Contents Page
 Part I - Financial Information  
Item 1Financial Statements 
1
 Consolidated Income Statement 
1
 Consolidated Statement of Comprehensive Income 
1
 Consolidated Balance Sheet 
2
 Condensed Consolidated Statement of Cash Flows 
3
 Consolidated Statement of Equity 
4
 Notes to the Financial Statements 
5
 Report of Independent Registered Public Accounting Firm 
2531
Item 2Management’s Discussion and Analysis of Financial Condition and Results of Operations 
2632
 Overview 
2632
 Results of Operations 
2733
Automotive Segment
35
Financial Services Segment
50
All Other
53
Special Items
53
Taxes
54
 Liquidity and Capital Resources 
4754
 Credit Ratings 
5661
 Production Volumes 
5763
 Outlook 
5864
 GAAP Reconciliations of Non-GAAP Financial MeasuresMeasure Reconciliations 
6166
Supplemental Financial Information
68
 Risk Factors 
6371
 Accounting Standards Issued But Not Yet Adopted 
6472
 Other Financial Information 
6472
Item 3Quantitative and Qualitative Disclosures About Market Risk 
64
Automotive
64
Financial Services
6573
Item 4Controls and Procedures 
6573
    
 Part II - Other Information  
Item 1Legal Proceedings
74
Item 6Exhibits 
6674
 Signature 
67
Exhibit Index
6875

i

PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements.
FORD MOTOR COMPANY AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
(in millions, except per share amounts)
For the periods ended September 30,For the periods ended September 30,
2016 2015 2016 20152016 2017 2016 2017
Third Quarter First Nine MonthsThird Quarter First Nine Months
(unaudited)(unaudited)
Revenues              
Automotive$33,331
 $35,818
 $105,520
 $102,723
$33,331
 $33,646
 $105,520
 $107,234
Financial Services2,612
 2,326
 7,626
 6,584
2,612
 2,802
 7,626
 8,209
Total revenues35,943
 38,144
 113,146
 109,307
Other—
 3
 —
 7
Total revenues (Note 3)35,943
 36,451
 113,146
 115,450
              
Costs and expenses 
  
     
  
    
Cost of sales30,446
 31,213
 93,075
 90,011
30,668
 30,288
 93,707
 96,345
Selling, administrative, and other expenses2,535
 2,386
 7,758
 7,402
2,657
 2,919
 8,131
 8,439
Financial Services interest, operating, and other expenses2,200
 1,905
 6,518
 5,363
2,200
 2,273
 6,518
 6,722
Total costs and expenses35,181
 35,504
 107,351
 102,776
35,525
 35,480
 108,356
 111,506
              
Interest expense on Automotive debt238
 206
 650
 561
238
 284
 650
 840
              
Non-Financial Services interest income and
other income/(loss), net (Note 13)
328
 446
 1,121
 908
Financial Services other income/(loss), net (Note 13)132
 97
 305
 241
Non-Financial Services other income/(loss), net (Note 4)672
 709
 2,126
 2,079
Financial Services other income/(loss), net (Note 4)132
 45
 305
 141
Equity in net income of affiliated companies403
 314
 1,342
 1,237
403
 316
 1,342
 935
Income before income taxes1,387
 3,291

7,913

8,356
1,387
 1,757

7,913

6,259
Provision for/(Benefit from) income taxes426
 1,099
 2,525
 2,849
426
 186
 2,525
 1,044
Net income961
 2,192
 5,388
 5,507
961
 1,571
 5,388
 5,215
Less: Income/(Loss) attributable to noncontrolling interests4
 —
 9
 2
4
 7
 9
 22
Net income attributable to Ford Motor Company$957
 $2,192
 $5,379
 $5,505
$957
 $1,564
 $5,379
 $5,193
              
EARNINGS PER SHARE ATTRIBUTABLE TO FORD MOTOR COMPANY COMMON AND CLASS B STOCK (Note 15)
EARNINGS PER SHARE ATTRIBUTABLE TO FORD MOTOR COMPANY COMMON AND CLASS B STOCK (Note 6)EARNINGS PER SHARE ATTRIBUTABLE TO FORD MOTOR COMPANY COMMON AND CLASS B STOCK (Note 6)
Basic income$0.24
 $0.55
 $1.35
 $1.39
$0.24
 $0.39
 $1.35
 $1.31
Diluted income0.24
 0.55
 1.35
 1.38
0.24
 0.39
 1.35
 1.30
              
Cash dividends declared0.15
 0.15
 0.70
 0.45
0.15
 0.15
 0.70
 0.50


CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(in millions)
For the periods ended September 30,For the periods ended September 30,
2016 2015 2016 20152016 2017 2016 2017
Third Quarter First Nine MonthsThird Quarter First Nine Months
(unaudited)(unaudited)
Net income$961
 $2,192
 $5,388
 $5,507
$961
 $1,571
 $5,388
 $5,215
Other comprehensive income/(loss), net of tax (Note 12)       
Other comprehensive income/(loss), net of tax (Note 15)       
Foreign currency translation(184) (882) (306) (816)(184) 102
 (306) 427
Marketable securities—
 —
 6
 —
—
 (1) 6
 2
Derivative instruments99
 374
 456
 208
99
 (171) 456
 (201)
Pension and other postretirement benefits14
 133
 53
 1
14
 27
 53
 24
Total other comprehensive income/(loss), net of tax(71) (375) 209
 (607)(71) (43) 209
 252
Comprehensive income890
 1,817
 5,597
 4,900
890
 1,528
 5,597
 5,467
Less: Comprehensive income/(loss) attributable to noncontrolling interests3
 1
 7
 2
3
 7
 7
 20
Comprehensive income attributable to Ford Motor Company$887
 $1,816
 $5,590
 $4,898
$887
 $1,521
 $5,590
 $5,447

The accompanying notes are part of the financial statements.
Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in millions)
September 30,
2016		 December 31,
2015		December 31,
2016		 September 30,
2017
(unaudited)(unaudited)
ASSETS      
Cash and cash equivalents (Note 4)$13,340
 $14,272
Marketable securities (Note 4)20,825
 20,904
Financial Services finance receivables, net (Note 5)45,550
 45,137
Trade and other receivables, less allowances of $359 and $37210,029
 11,042
Inventories (Note 7)10,219
 8,319
Cash and cash equivalents (Note 7)$15,905
 $17,589
Marketable securities (Note 7)22,922
 20,492
Financial Services finance receivables, net (Note 8)46,266
 49,541
Trade and other receivables, less allowances of $392 and $40711,102
 10,277
Inventories (Note 10)8,898
 11,263
Other assets3,552
 2,913
3,368
 3,570
Total current assets103,515
 102,587
108,461
 112,732
      
Financial Services finance receivables, net (Note 5)49,614
 45,554
Financial Services finance receivables, net (Note 8)49,924
 54,323
Net investment in operating leases29,196
 27,093
28,829
 28,714
Net property32,257
 30,163
32,072
 34,760
Equity in net assets of affiliated companies3,795
 3,224
3,304
 3,344
Deferred income taxes9,475
 11,509
9,705
 10,359
Other assets7,111
 4,795
5,656
 7,041
Total assets$234,963
 $224,925
$237,951
 $251,273
      
LIABILITIES 
  
 
  
Payables$22,384
 $20,272
$21,296
 $23,566
Other liabilities and deferred revenue (Note 8)19,531
 19,089
Automotive debt payable within one year (Note 10)2,472
 1,779
Financial Services debt payable within one year (Note 10)44,801
 41,196
Other liabilities and deferred revenue (Note 11)19,316
 19,612
Automotive debt payable within one year (Note 13)2,685
 3,551
Financial Services debt payable within one year (Note 13)46,984
 47,623
Total current liabilities89,188
 82,336
90,281
 94,352
      
Other liabilities and deferred revenue (Note 8)23,652
 23,457
Automotive long-term debt (Note 10)10,675
 11,060
Financial Services long-term debt (Note 10)79,276
 78,819
Other liabilities and deferred revenue (Note 11)24,395
 24,819
Automotive long-term debt (Note 13)13,222
 12,633
Financial Services long-term debt (Note 13)80,079
 85,305
Deferred income taxes577
 502
691
 804
Total liabilities203,368
 196,174
208,668
 217,913
      
Redeemable noncontrolling interest96
 94
96
 97
      
EQUITY 
  
 
  
Common Stock, par value $.01 per share (3,976 million shares issued of 6 billion authorized)40
 40
Common Stock, par value $.01 per share (3,986 million shares issued of 6 billion authorized)40
 40
Class B Stock, par value $.01 per share (71 million shares issued of 530 million authorized)1
 1
1
 1
Capital in excess of par value of stock21,598
 21,421
21,630
 21,804
Retained earnings17,013
 14,414
15,634
 19,405
Accumulated other comprehensive income/(loss) (Note 12)(6,046) (6,257)
Accumulated other comprehensive income/(loss) (Note 15)(7,013) (6,759)
Treasury stock(1,122) (977)(1,122) (1,253)
Total equity attributable to Ford Motor Company31,484
 28,642
29,170
 33,238
Equity attributable to noncontrolling interests15
 15
17
 25
Total equity31,499
 28,657
29,187
 33,263
Total liabilities and equity$234,963
 $224,925
$237,951
 $251,273

The following table includes assets to be used to settle liabilities of the consolidated variable interest entities (“VIEs”). These assets and liabilities are included in the consolidated balance sheet above. The following table includes assets to be used to settle liabilities of the consolidated variable interest entities (“VIEs”). These assets and liabilities are included in the consolidated balance sheet above. The following table includes assets to be used to settle liabilities of the consolidated variable interest entities (“VIEs”). These assets and liabilities are included in the consolidated balance sheet above.
September 30,
2016		 December 31,
2015		December 31,
2016		 September 30,
2017
(unaudited)(unaudited)
ASSETS      
Cash and cash equivalents$2,318
 $3,949
$3,047
 $2,511
Financial Services finance receivables, net47,627
 45,902
50,857
 52,834
Net investment in operating leases9,951
 13,309
11,761
 9,908
Other assets7
 85
25
 60
LIABILITIES      
Other liabilities and deferred revenue$10
 $19
$5
 $2
Debt39,123
 43,086
43,730
 43,302
The accompanying notes are part of the financial statements.
Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
For the periods ended September 30,For the periods ended September 30,
2016 20152016 2017
First Nine MonthsFirst Nine Months
(unaudited)(unaudited)
Cash flows from operating activities      
Net cash provided by/(used in) operating activities$16,994
 $14,078
$17,052
 $14,949
      
Cash flows from investing activities      
Capital spending(4,912) (5,358)(4,912) (4,936)
Acquisitions of finance receivables and operating leases(43,746) (43,762)(43,746) (43,054)
Collections of finance receivables and operating leases30,254
 28,632
30,254
 32,988
Purchases of equity and debt securities(22,049) (29,493)(22,049) (20,550)
Sales and maturities of equity and debt securities22,022
 32,874
22,022
 22,953
Settlements of derivatives330
 26
330
 62
Other43
 417
43
 (5)
Net cash provided by/(used in) investing activities(18,058) (16,664)(18,058) (12,542)
      
Cash flows from financing activities 
  
 
  
Cash dividends(2,780) (1,785)(2,780) (1,988)
Purchases of Common Stock(145) (129)
Purchases of common stock(145) (131)
Net changes in short-term debt1,200
 844
1,200
 1,899
Proceeds from issuance of other debt31,956
 35,876
31,956
 30,557
Principal payments on other debt(30,019) (27,366)(30,019) (31,378)
Other(44) (303)(102) (124)
Net cash provided by/(used in) financing activities168
 7,137
110
 (1,165)
      
Effect of exchange rate changes on cash and cash equivalents(36) (622)(36) 442
      
Net increase/(decrease) in cash and cash equivalents$(932) $3,929
$(932) $1,684
      
Cash and cash equivalents at January 1$14,272
 $10,757
$14,272
 $15,905
Net increase/(decrease) in cash and cash equivalents(932) 3,929
(932) 1,684
Cash and cash equivalents at September 30$13,340
 $14,686
$13,340
 $17,589

The accompanying notes are part of the financial statements.


Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EQUITY
(in millions, unaudited)
Equity Attributable to Ford Motor Company    Equity Attributable to Ford Motor Company    
Capital Stock 
Cap. in
Excess of
Par Value 
of Stock
 Retained Earnings Accumulated Other Comprehensive Income/(Loss) (Note 12) Treasury Stock Total 
Equity
Attributable
to Non-controlling Interests
 
Total
Equity
Capital Stock 
Cap. in
Excess of
Par Value 
of Stock
 Retained Earnings Accumulated Other Comprehensive Income/(Loss) (Note 15) Treasury Stock Total 
Equity
Attributable
to Non-controlling Interests
 
Total
Equity
Balance at December 31, 2015$41
 $21,421
 $14,414
 $(6,257) $(977) $28,642
 $15
 $28,657
$41
 $21,421
 $14,414
 $(6,257) $(977) $28,642
 $15
 $28,657
Net income—
 —
 5,379
 —
 —
 5,379
 9
 5,388
—
 —
 5,379
 —
 —
 5,379
 9
 5,388
Other comprehensive income/(loss), net of tax—
 —
 —
 211
 —
 211
 (2) 209
—
 —
 —
 211
 —
 211
 (2) 209
Common stock issued (including share-based compensation impacts)—
 177
 —
 —
 —
 177
 —
 177
—
 177
 —
 —
 —
 177
 —
 177
Treasury stock/other —
 —
 —
 —
 (145) (145) (2) (147)—
 —
 —
 —
 (145) (145) (2) (147)
Cash dividends declared—
 —
 (2,780) —
 —
 (2,780) (5) (2,785)—
 —
 (2,780) —
 —
 (2,780) (5) (2,785)
Balance at September 30, 2016$41
 $21,598
 $17,013
 $(6,046) $(1,122) $31,484
 $15
 $31,499
$41
 $21,598
 $17,013
 $(6,046) $(1,122) $31,484
 $15
 $31,499
                              
Balance at December 31, 2014$40
 $21,089
 $9,422
 $(5,265) $(848) $24,438
 $27
 $24,465
Balance at December 31, 2016$41
 $21,630
 $15,634
 $(7,013) $(1,122) $29,170
 $17
 $29,187
Adoption of accounting standards
(Note 2)		—
 6
 566
 —
 —
 572
 —
 572
Net income—
 —
 5,505
 —
 —
 5,505
 2
 5,507
—
 —
 5,193
 —
 —
 5,193
 22
 5,215
Other comprehensive income/(loss), net of tax—
 —
 —
 (607) —
 (607) —
 (607)—
 —
 —
 254
 —
 254
 (2) 252
Common stock issued (including share-based compensation impacts)1
 265
 —
 —
 —
 266
 —
 266
—
 168
 —
 —
 —
 168
 —
 168
Treasury stock/other —
 —
 —
 —
 (129) (129) (4) (133)—
 —
 —
 —
 (131) (131) (1) (132)
Cash dividends declared—
 —
 (1,785) —
 —
 (1,785) (6) (1,791)—
 —
 (1,988) —
 —
 (1,988) (11) (1,999)
Balance at September 30, 2015$41
 $21,354
 $13,142
 $(5,872) $(977) $27,688
 $19
 $27,707
Balance at September 30, 2017$41
 $21,804
 $19,405
 $(6,759) $(1,253) $33,238
 $25
 $33,263

The accompanying notes are part of the financial statements.



Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

Table of Contents
Footnote Page
Note 1Presentation
6
Note 2New Accounting Standards
6
Note 3Segment InformationRevenue
810
Note 4Other Income/(Loss)
12
Note 5Income Taxes
13
Note 6Capital Stock and Earnings Per Share
13
Note 7Cash, Cash Equivalents, and Marketable Securities
1014
Note 58Financial Services Finance Receivables
1217
Note 69Financial Services Allowance for Credit Losses
1520
Note 710Inventories
1621
Note 811Other Liabilities and Deferred Revenue
1621
Note 912Retirement Benefits
1722
Note 1013Debt
1823
Note 1114Derivative Financial Instruments and Hedging Activities
1924
Note 1215Accumulated Other Comprehensive Income/(Loss)
21
Note 13Other Income/(Loss)
22
Note 14Income Taxes
22
Note 15Capital Stock and Earnings Per Share
2226
Note 16Commitments and Contingencies
2327
Note 17Segment Information
29


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”“us,” or similar references mean Ford Motor Company, our consolidated subsidiaries, and our consolidated VIEs of which we are the primary beneficiary, unless the context requires otherwise.

Our financial statements are presented in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information, instructions to Quarterly Report on Form 10-Q, and Rule 10-01 of Regulation S-X.

In the opinion of management, these unaudited financial statements reflect a fair statement of our results of operations and financial condition for the periods, and at the dates, presented.  The results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year.  Reference should be made to the financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 20152016 (“20152016 Form 10-K Report”).

Change in presentation. Our core Automotive business includes the designing, manufacturing, marketing, and servicing of a full line of Ford cars, trucks, SUVs, and electrified vehicles, as well as Lincoln luxury vehicles. We provide vehicle-related financing and leasing activities through Ford Motor Credit Company LLC (“Ford Credit”). At the same time, we are pursuing emerging opportunities in connectivity, mobility, autonomous vehicles, the customer experience, and data and analytics.
Prior to the second quarter of 2016, we presented our financial statements on both a consolidated basis and on a “sector” basis for our Automotive and Financial Services sectors. With our expansion into mobility services, including the formation in March 2016 of the Ford Smart Mobility LLC subsidiary, we reevaluated our disclosures and concluded we should eliminate our two-sector financial presentation and, reflecting the manner in which our Chief Operating Decision Maker manages our business, changed our segment presentation beginning with the second quarter of 2016 to be Automotive, Financial Services, and All Other. See Note 3 for a description of our segment presentation.
In addition, as a result of the elimination of our two-sector financial presentation, at June 30, 2016 we changed the presentation of our consolidated balance sheet and certain notes to the consolidated financial statements to classify our assets and liabilities as current or non-current. We reclassified certain prior year amounts in our consolidated financial statements to conform to the current year presentation.

NOTE 2. NEW ACCOUNTING STANDARDS

Adoption of New Accounting Standards

Accounting StandardStandards Update (“ASU”) 2015-17, Income Taxes2016-09, Stock Compensation - Balance Sheet ClassificationImprovements to Employee Share-Based Payment Accounting.On January 1, 2017, we adopted the amendments to accounting standards codification (“ASC”) 718 which simplify accounting for share-based payment transactions. Prior to this amendment, excess tax benefits resulting from the difference between the deduction for tax purposes and the compensation costs recognized for financial reporting were not recognized until the deduction reduced taxes payable. Under the new method, we will recognize excess tax benefits in the current accounting period. In addition, prior to January 1, 2017, the employee share-based compensation expense was recorded net of Deferred Taxesestimated forfeiture rates and subsequently adjusted at the vesting date, as appropriate. As part of the amendment, we have elected to recognize the actual forfeitures by reducing the employee share-based compensation expense in the same period as the forfeitures occur. We have adopted these changes in accounting method using the modified retrospective method by recognizing one-time adjustments to retained earnings for excess tax benefits previously unrecognized and the change in accounting for forfeited awards.

ASU 2014-09,Revenue - Revenue from Contracts with Customers. . On AprilJanuary 1, 2016,2017, we retrospectively adopted the new accounting standard which requires deferred tax assetsASC 606, Revenue from Contracts with Customers and liabilitiesall the related amendments (“new revenue standard”) to all contracts using the modified retrospective method. We recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be classified as non-currentreported under the accounting standards in effect for those periods. We do not expect the consolidated balance sheet. The impactadoption of the change resulted in the classification of all deferred taxes as non-current.new revenue standard
We also adopted the following standards during 2016, none of whichto have a material impact to our financial statementsnet income on an ongoing basis.

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

The new revenue standard also provided additional clarity that resulted in reclassifications to or financial statement disclosures:
StandardEffective Date
2015-16Business Combinations - Simplifying the Accounting for Measurement-Period AdjustmentsJanuary 1, 2016
2015-09Insurance - Disclosures about Short-Duration ContractsJanuary 1, 2016
2015-05Internal-Use Software - Customer’s Accounting for Fees Paid in a Cloud Computing ArrangementJanuary 1, 2016
2015-02Consolidation - Amendments to the Consolidation AnalysisJanuary 1, 2016
2015-01Extraordinary and Unusual Items - Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary ItemsJanuary 1, 2016
2014-12Stock Compensation - Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service PeriodJanuary 1, 2016
from Revenue, Cost of sales, and Financial Services other income/(loss), net.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 2. NEW ACCOUNTING STANDARDS (Continued)

The cumulative effect of the changes made to our consolidated January 1, 2017 balance sheet for the adoption of ASU 2016-09, Stock Compensation - Improvements to Employee Share-Based Payment Accounting and ASU 2014-09,Revenue - Revenue from Contracts with Customers were as follows (in millions):
 
Balance at
December 31, 2016
 Adjustments Due to
ASU 2016-09		 
Adjustments Due to
ASU 2014-09
 
Balance at
January 1, 2017
Balance Sheet       
Assets       
Trade and other receivables$11,102
 $—
 $(17) $11,085
Inventories8,898
 —
 (9) 8,889
Other assets, current3,368
 —
 307
 3,675
Net investment in operating leases28,829
 —
 (1,078) 27,751
Deferred income taxes9,705
 536
 (13) 10,228
       

Liabilities      

Payables21,296
 —
 262
 21,558
Other liabilities and deferred revenue, current19,316
 —
 (1,429) 17,887
Automotive debt payable within one year2,685
 —
 326
 3,011
Other liabilities and deferred revenue, non-current24,395
 —
 (5) 24,390
       

Equity      

Capital in excess of par value of stock21,630
 6
 —
 21,636
Retained earnings15,634
 530
 36
 16,200

As part of ASU 2016-09, we retrospectively reclassified cash paid to taxing authorities related to shares withheld for tax purposes from operating activities to financing activities on our consolidated statement of cash flows. Cash paid to taxing authorities related to shares withheld for tax purposes was about $58 million and $56 million for the first nine months of 2016 and 2017, respectively. This standard did not have a material impact on our third quarter and first nine months 2017 consolidated income statement or September 30, 2017 consolidated balancesheet.
Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 2. NEW ACCOUNTING STANDARDS (Continued)

In accordance with the new revenue standard requirements, the disclosure of the impact of adoption on our consolidated income statement and balance sheet for the periods ended September 30, 2017 was as follows (in millions):
 Third Quarter First Nine Months
 
As
Reported
 Balances Without Adoption of ASC 606 
Effect of Change 
Higher/(Lower)
 
As
Reported
 Balances Without Adoption of ASC 606 
Effect of Change 
Higher/(Lower)
Income statement           
Revenues           
Automotive$33,646
 $33,897
 $(251) $107,234
 $106,937
 $297
Financial Services2,802
 2,709
 93
 8,209
 7,930
 279
            
Costs and expenses           
Cost of sales30,288
 30,536
 (248) 96,345
 96,166
 179
Interest expense on Automotive debt284
 265
 19
 840
 793
 47
Non-Financial Services other income/(loss), net709
 731
 (22) 2,079
 2,142
 (63)
Financial Services other income/(loss), net45
 138
 (93) 141
 420
 (279)
Provision for/(Benefit from) income taxes186
 194
 (8) 1,044
 1,040
 4
Net income1,571
 1,607
 (36) 5,215
 5,211
 4
 September 30, 2017
 
As
Reported
 Balances Without Adoption of ASC 606 
Effect of Change 
Higher/(Lower)
Balance Sheet     
Assets     
Trade and other receivables$10,277
 $10,300
 $(23)
Other assets, current3,570
 3,233
 337
Net investment in operating leases28,714
 29,510
 (796)
Deferred income taxes10,359
 10,376
 (17)
      
Liabilities     
Payables23,566
 23,287
 279
Other liabilities and deferred revenue, current19,612
 20,818
 (1,206)
Automotive debt payable within one year3,551
 3,158
 393
Other liabilities and deferred revenue, non-current24,819
 24,824
 (5)
Deferred income taxes804
 804
 —
      
Equity     
Retained earnings19,405
 19,365
 40

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 2. NEW ACCOUNTING STANDARDS (Continued)

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

The effect of the retrospective presentation change related to the net periodic cost of our defined benefit pension and other postretirement employee benefits (“OPEB”) plans on our consolidated income statement for the periods ended September 30, 2016 was as follows (in millions):
 Third Quarter First Nine Months
 
As
Revised
 Previously Reported 
Effect of Change 
Higher/(Lower)
 
As
Revised
 Previously Reported 
Effect of Change 
Higher/(Lower)
Income statement           
Cost of sales$30,668
 $30,446
 $222
 $93,707
 $93,075
 $632
Selling, administrative, and other expenses2,657
 2,535
 122
 8,131
 7,758
 373
Non-Financial Services other income/(loss), net672
 328
 344
 2,126
 1,121
 1,005

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

Accounting Standards Issued But Not Yet Adopted

The following represent the standards that will, or are expected to, result in a significant change in practice and/or have a significant financial impact to Ford.

ASU 2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments. In June 2016, the Financial Accounting Standards Board (“FASB”) issued a new accounting standard which replaces the current incurred loss impairment method with a method that reflects expected credit losses. The new standard is effective as of January 1, 2020, and early adoption is permitted as of January 1, 2019. We are assessingwill adopt the potentialnew credit loss guidance by recognizing the cumulative effect of initially applying the new standard as an adjustment to the opening balance of retained earnings. We anticipate adoption will increase the amount of expected credit losses reported in Financial Services finance receivables, net on our consolidated balance sheet and do not expect a material impact to our financial statements and disclosures.income statement.
Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

ASU 2016-09, Stock Compensation - Improvements to Employee Share-Based Payment AccountingNOTE 2. NEW ACCOUNTING STANDARDS .In March 2016, the FASB issued a new accounting standard which simplifies accounting for share-based payment transactions, including income tax consequences and the classification of the tax impact on the statement of cash flows. We will adopt the standard effective January 1, 2017 by recognizing a one-time adjustment to retained earnings and deferred tax assets related to cumulative excess tax benefits previously unrecognized. We will also change classification of tax-related items on the consolidated statement of cash flows.(Continued)

ASU 2016-02, Leases.  In February 2016, the FASB issued a new accounting standard which provides guidance on the recognition, measurement, presentation, and disclosure of leases. The new standard supersedes the present U.S. GAAP guidancestandard on leases and requires substantially all leases to be reported on the balance sheet as right-of-use assets and lease liabilities, as well as additional disclosures. Theobligations. We plan to adopt the new standard isat its effective asdate of January 1, 2019,2019. We anticipate adoption of the standard will add between $1.5 billion and early$2 billion in right-of-use assets and lease obligations to our balance sheet and will not significantly impact pre-tax profit. We plan to elect the practical expedients upon transition that will retain the lease classification and initial direct costs for any leases that exist prior to adoption is permitted.of the standard. We will not reassess whether any contracts entered into prior to adoption are leases. We are assessingin the potential impact to our financial statements and disclosures.early stages of implementation.

ASU 2014-09,Revenue - Revenue from Contracts with Customers. 2017-12, Derivatives and Hedging.In May 2014,August 2017, the FASB issued a new accounting standard that requires recognition of revenuewhich aligns hedge accounting with risk management activities and simplifies the requirements to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchangequalify for those goods or services. The FASB has also issued several updates to ASU 2014-09. The new standard supersedes U.S. GAAP guidance on revenue recognition and requires the use of more estimates and judgments than the present standards. It also requires additional disclosures. hedge accounting. We plan to adopt the new revenue guidancestandard effective January 1, 2017 by recognizing2018 and are assessing the cumulative effect of initially applying the new standard as an adjustmentimpact to the opening balance of equity.our hedge accounting processes and financial statement disclosures. We doanticipate adoption will not expecthave a material impact to our financial statements or disclosures.statements.


NOTE 3. REVENUE

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

 Third Quarter
 Automotive Financial Services 
All
Other
 Consolidated
Vehicles, parts, and accessories$32,401
 $—
 $—
 $32,401
Used vehicles606
 —
 —
 606
Extended service contracts314
 —
 —
 314
Other revenue (a)197
 55
 3
 255
Revenues from sales and services33,518
 55
 3
 33,576
        
Leasing income128
 1,395
 —
 1,523
Financing income—
 1,314
 —
 1,314
Insurance income—
 38
 —
 38
Total revenues$33,646
 $2,802
 $3
 $36,451
        
 First Nine Months
 Automotive Financial Services 
All
Other
 Consolidated
Vehicles, parts, and accessories$103,143
 $—
 $—
 $103,143
Used vehicles2,187
 —
 —
 2,187
Extended service contracts921
 —
 —
 921
Other revenue (a)623
 159
 7
 789
Revenues from sales and services106,874
 159
 7
 107,040
        
Leasing income360
 4,142
 —
 4,502
Financing income—
 3,788
 —
 3,788
Insurance income—
 120
 —
 120
Total revenues$107,234
 $8,209
 $7
 $115,450
__________
(a)Primarily includes commissions and vehicle-related design and testing services.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 3. SEGMENT INFORMATIONREVENUE (Continued)

In conjunctionRevenue is recognized when obligations under the terms of a contract with our expanded business model to become an automotive, financial services, and mobility company, beginningcustomer are satisfied; generally this occurs with the second quartertransfer of 2016, we changed our reportable segment disclosures. Reflecting the manner in which our Chief Operating Decision Maker manages our businesses, including resource allocation and performance assessment, we have four operating segments that represent the primary businesses reported in our consolidated financial statements. These operating segments are: Automotive, Financial Services, Ford Smart Mobility LLC, and Central Treasury Operations.

Automotive and Financial Services comprise separate reportable segments. Ford Smart Mobility LLC and Central Treasury Operations did not meet the quantitative thresholds in this reporting period to qualify as reportable segments; therefore, these operating segments are combined and disclosed below as All Other. Prior-period amounts were adjusted retrospectively to reflect the change to our reportable segments.
Below is a descriptioncontrol of our reportable segmentsvehicles, parts, accessories, or services. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Sales, value add, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. Incidental items that are immaterial in the business activities included in All Other.context of the contract are recognized as expense. The expected costs associated with our base warranties and field service actions continue to be recognized as expense when the products are sold (see Note 16). We recognize revenue for vehicle service contracts that extend mechanical and maintenance coverages beyond our base warranties over the life of the contract. We do not have any material significant payment terms as payment is received at or shortly after the point of sale.

Automotive Segment

Our Automotive segment primarily includesVehicles, Parts, and Accessories. For the majority of vehicles, parts, and accessories, we transfer control and recognize a sale when we ship the product from our manufacturing facility to our customer (dealers and distributors). We receive cash equal to the invoice price for most vehicle sales at the time of wholesale. When the vehicle sale is financed by our wholly-owned subsidiary Ford Credit, the dealer pays Ford Credit when it sells the vehicle to the retail customer (see Note 8). Payment terms on part sales to dealers, distributors, and retailers range from 30 days to 120 days. The amount of consideration we receive and revenue we recognize varies with changes in marketing incentives and returns we offer to our customers and their customers. When we give our dealers the right to return eligible parts and accessories, we estimate the expected returns based on an analysis of historical experience. We adjust our estimate of revenue at the earlier of when the most likely amount of consideration we expect to receive changes or when the consideration becomes fixed. As a result we recognized an increase to revenue from prior periods in the third quarter of 2017 of $33 million.

Depending on the terms of the arrangement, we may also defer the recognition of a portion of the consideration received because we have to satisfy a future obligation (e.g., free extended service contracts). We use an observable price to determine the stand-alone selling price for separate performance obligations or a cost plus margin approach when one is not available. We have elected to recognize the cost for freight and shipping when control over vehicles, parts, or accessories have transferred to the customer as an expense in Cost of sales.

We sell vehicles to daily rental companies and guarantee that we will pay them the difference between an agreed amount and the value they are able to realize upon resale. At the time of transfer of vehicles to the daily rental companies, we record the probable amount we will pay under the guarantee to Other liabilities and deferred revenue.

Used Vehicles. We sell used vehicles both at auction and through our consolidated dealerships. Proceeds from the sale of Fordthese vehicles are recognized in Automotive revenues upon transfer of control of the vehicle to the customer and Lincoln brand vehicles, service parts, and accessories worldwide, together with the associated costs to develop, manufacture, distribute, and service the vehicles, parts, and accessories. The segment includes 5 regional business units:  North America, South America, Europe, Middle East & Africa, and Asia Pacific.
Financial Services Segmentrelated vehicle carrying value is recognized in Cost of sales.

Extended Service Contracts. We sell separately-priced service contracts that extend mechanical and maintenance coverages beyond our base warranty agreements to vehicle owners. The Financial Services segment primarily includes our vehicle-related financingseparately priced service contracts range from 12 months to 120 months. We receive payment at the inception of the contract and leasing activities at Ford Credit.

All Other

All Other is a combinationrecognize revenue over the term of operating segments that did not meet the quantitative thresholdsagreement in this reporting periodproportion to qualify as reportable segments. All Other consiststhe costs expected to be incurred in satisfying the obligations under the contract. At January 1, 2017, $3.5 billion of our Central Treasury Operations (formerly Other Automotive) and Ford Smart Mobility LLC. The Central Treasury Operations segment is primarily engaged in decision making for investments, risk management activities, and providing financing for the Automotive segment. Interest income (excluding interest earned on our extended service contract portfolio that is included in our Automotive segment), interest expense, gains and losses on cash equivalents and marketable securities, and foreign exchange derivativesunearned revenue associated with intercompany lending, are includedoutstanding contracts was reported in Other Liabilities and deferred revenue, $256 million and $797 million of this was recognized as revenue during the third quarter and first nine months of 2017, respectively. At September 30, 2017, the unearned amount was $3.7 billion. We expect to recognize approximately $300 million of the unearned amount in the resultsremainder of Central Treasury Operations. The underlying2017, $1 billion in 2018, and $2.4 billion thereafter. We record a premium deficiency reserve to the extent we estimate the future costs associated with these contracts exceed the unrecognized revenue. Amounts paid to dealers to obtain these contracts are deferred and recorded as Other assets. These costs are amortized to expense consistent with how the related revenue is recognized. We had a balance of $236 million in deferred costs as of September 30, 2017 and liabilities, primarily cashrecognized $17 million and cash equivalents, marketable securities, debt,$46 million of amortization during the third quarter and derivatives, remain with the Automotive segment.

Ford Smart Mobility LLC is a new subsidiary formed to design, build, grow, and invest in emerging mobility services. Designed to compete like a start-up company, Ford Smart Mobility LLC will design and build mobility services on its own, and collaborate with start-ups and tech companies.

Special Items

In addition, our results include Special Items that consistfirst nine months of (i) pension and other postretirement employee benefits (“OPEB”) remeasurement gains and losses, (ii) significant personnel and dealer-related costs stemming from our efforts to match production capacity and cost structure to market demand and changing model mix, and (iii) certain infrequent significant items that we generally do not consider to be indicative of our 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. Special items are presented as a separate reconciling item.2017, respectively.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 3. SEGMENT INFORMATIONREVENUE (Continued)

KeyOther Revenue. Other revenue consists primarily of net commissions received for serving as the agent in facilitating the sale of a third party’s products or services to our customers and payments for vehicle-related design and testing services we perform for others. We have applied the practical expedient to recognize Automotive revenues for vehicle-related design and testing services over the two to three year term of these agreements in proportion to the amount we have the right to invoice.

Leasing Income. We sell vehicles to daily rental companies with an obligation to repurchase the vehicles for a guaranteed amount, exercisable at the option of the customer. The transactions are accounted for as operating data forleases. Upon the transfer of vehicles to the daily rental companies, we record proceeds received in Other liabilities and deferred revenue. The difference between the proceeds received and the guaranteed repurchase amount is recorded in Automotive revenues over the term of the lease using a straight-line method. The cost of the vehicle is recorded in Net investment in operating leases on our business segmentsconsolidated balance sheet and the difference between the cost of the vehicle and the estimated auction value is depreciated in Cost of sales over the term of the lease.

Financial Services Segment

Leasing Income. Ford Credit offers leasing plans to retail consumers through Ford and Lincoln brand dealers who originate the leases. Upon the purchase of a lease from the dealer, Ford Credit takes ownership of the vehicle and records an operating lease. The retail consumer makes lease payments representing the difference between Ford Credit’s purchase price of the vehicle and the contractual residual value of the vehicle, plus lease fees that we recognize on a straight-line basis over the term of the lease agreement. Depreciation and the gain or loss upon disposition of the vehicle is recorded in Financial Services interest, operating, and other expenses.

Financing Income. Ford Credit originates and purchases finance installment contracts. Financing income represents interest earned on the finance receivables (including direct financing leases). Interest is recognized using the interest method, and includes the amortization of certain direct origination costs.

Insurance Income. Income from insurance contracts is recognized evenly over the term of the agreement. Insurance commission revenue is recognized on a net basis at the time of sale of the third party’s product or service to our customer.

NOTE 4. OTHER INCOME/(LOSS)

Non-Financial Services

The amounts included in Non-Financial Services other income/(loss), net for the periods ended or at September 30 were as follows (in millions):
 Third Quarter First Nine Months
 2016 2017 2016 2017
Net periodic pension and OPEB income/(cost), excluding service cost$344
 $365
 $1,005
 $1,144
Investment-related interest income50
 91
 163
 247
Interest income/(expense) on income taxes9
 (1) 8
 1
Realized and unrealized gains/(losses) on cash equivalents and marketable securities(13) (14) 52
 11
Gains/(Losses) on changes in investments in affiliates

(1) (4) 180
 (6)
Royalty income174
 171
 494
 475
Other109
 101
 224
 207
Total$672
 $709
 $2,126
 $2,079

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
 Automotive 
Financial
Services
 All Other 
Special
Items
 Adjustments Total
Third Quarter 2016 
  
  
    
  
Revenues$33,331
 $2,612
 $—
 $—
 $—
 $35,943
Pre-tax results - income/(loss)1,084
 552
 (223) (26) —
 1,387
Equity in net income/(loss) of affiliated companies395
 8
 —
 —
 —
 403
Cash, cash equivalents, and marketable securities24,300
 9,855
 10
 —
 —
 34,165
Total assets97,269
 142,979
 67
 —
 (5,352)(a)234,963
Debt13,147
 124,077
 —
 —
 —
 137,224
Operating cash flows(1,954) 5,953
 —
 —
 1,161
(b)5,160
            
Third Quarter 2015 
  
  
    
  
Revenues$35,818
 $2,326
 $—
 $—
 $—
 $38,144
Pre-tax results - income/(loss)2,762
 526
 (163) 166
 —
 3,291
Equity in net income/(loss) of affiliated companies306
 8
 —
 —
 —
 314
Cash, cash equivalents, and marketable securities22,177
 9,670
 —
 —
 —
 31,847
Total assets92,873
 130,626
 —
 —
 (3,921)(a)219,578
Debt12,798
 113,627
 —
 —
 —
 126,425
Operating cash flows2,787
 2,167
 —
 —
 1,501
(b)6,455
            
 Automotive 
Financial
Services
 All Other 
Special
Items
 Adjustments Total
First Nine Months 2016 
  
  
    
  
Revenues$105,520
 $7,626
 $—
 $—
 $—
 $113,146
Pre-tax results - income/(loss)7,380
 1,436
 (573) (330) —
 7,913
Equity in net income/(loss) of affiliated companies1,319
 23
 —
 —
 —
 1,342
Operating cash flows4,917
 8,761
 —
 —
 3,316
(b)16,994
            
First Nine Months 2015 
  
  
    
  
Revenues$102,723
 $6,584
 $—
 $—
 $—
 $109,307
Pre-tax results - income/(loss)7,246
 1,486
 (542) 166
 —
 8,356
Equity in net income/(loss) of affiliated companies1,213
 24
 —
 —
 —
 1,237
Operating cash flows5,199
 5,329
 —
 —
 3,550
(b)14,078

__________NOTE 4. OTHER INCOME/(LOSS) (Continued)
(a)Includes eliminations of intersegment transactions occurring in the ordinary course of business and deferred tax netting.
(b)
We measure and evaluate our Automotive segment operating cash flow on a different basis than Net cash provided by/(used in) operating activities

Financial Services

The amounts included in Financial Services other income/(loss), net in our consolidated statement of cash flows. Automotive segment operating cash flow includes additional elements management considers to be related to our Automotive operating activities, primarily capital spending and non-designated derivatives, and excludes outflows for funded pension contributions, separation payments, and other items that are considered operating cash flows under U.S. GAAP. The table below quantifies these reconciling adjustments to Net cash provided by/(used in) operating activities for the periods ended September 30 were as follows (in millions):
  Third Quarter First Nine Months
  2016 2015 2016 2015
 Automotive capital spending$1,696
 $1,819
 $4,879
 $5,324
 Net cash flows from non-designated derivatives(246) 119
 (322) 90
 Funded pension contributions(246) (89) (835) (942)
 Separation payments(40) (90) (198) (600)
 Other(3) (258) (208) (322)
 Total operating cash flow adjustments$1,161
 $1,501
 $3,316
 $3,550
 Third Quarter First Nine Months
 2016 2017 2016 2017
Investment-related interest income$18
 $33
 $57
 $78
Interest income/(expense) on income taxes(2) (1) 11
 (2)
Insurance premiums earned38
 —
 118
 —
Other78
 13
 119
 65
Total$132
 $45
 $305
 $141

NOTE 5. INCOME TAXES

For interim tax reporting, we estimate one single effective tax rate for tax jurisdictions not subject to a valuation allowance, which is applied to the year-to-date ordinary income/(loss). Tax effects of significant unusual or infrequently occurring items are excluded from the estimated annual effective tax rate calculation and recognized in the interim period in which they occur.

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

NOTE 6. CAPITAL STOCK AND EARNINGS PER SHARE

Earnings Per Share Attributable to Ford Motor Company Common and Class B Stock

Basic and diluted income per share were calculated using the following (in millions):
 Third Quarter First Nine Months
 2016 2017 2016 2017
Basic and Diluted Income Attributable to Ford Motor Company       
Basic income$957
 $1,564
 $5,379
 $5,193
Diluted income957
 1,564
 5,379
 5,193
        
Basic and Diluted Shares 
  
    
Basic shares (average shares outstanding)3,974
 3,972
 3,972
 3,975
Net dilutive options and unvested restricted stock units26
 24
 25
 21
Diluted shares4,000
 3,996
 3,997
 3,996
Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 4.7. CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES

The following tables categorize the fair values of cash, cash equivalents, and marketable securities measured at fair value on a recurring basis on our balance sheet were as follows (in millions):
 September 30, 2016 December 31, 2016
Fair Value
 Level
 Automotive Financial Services 
All
Other
 Consolidated
Fair Value
 Level
 Automotive Financial Services 
All
Other
 Consolidated
Cash and cash equivalents                  
U.S. government1 $599
 $—
 $—
 $599
1 $888
 $924
 $—
 $1,812
U.S. government agencies2 —
 4
 —
 4
2 —
 —
 —
 —
Non-U.S. government and agencies2 551
 280
 —
 831
2 200
 142
 —
 342
Corporate debt2 60
 50
 —
 110
2 100
 —
 —
 100
Total marketable securities classified as cash equivalents 1,210
 334
 —
 1,544
 1,188
 1,066
 —
 2,254
Cash, time deposits, and money market funds 6,445
 5,341
 10
 11,796
 6,632
 7,011
 8
 13,651
Total cash and cash equivalents $7,655
 $5,675
 $10
 $13,340
 $7,820
 $8,077
 $8
 $15,905
                  
Marketable securities                
U.S. government1 $3,982
 $1,724
 $—
 $5,706
1 $8,099
 $1,634
 $—
 $9,733
U.S. government agencies2 3,284
 1,354
 —
 4,638
2 2,244
 505
 —
 2,749
Non-U.S. government and agencies2 5,423
 520
 —
 5,943
2 4,751
 632
 —
 5,383
Corporate debt2 3,709
 540
 —
 4,249
2 4,329
 475
 —
 4,804
Equities1 198
 —
 —
 198
1 165
 —
 —
 165
Other marketable securities2 49
 42
 —
 91
2 54
 34
 —
 88
Total marketable securities $16,645
 $4,180
 $—
 $20,825
 $19,642
 $3,280
 $—
 $22,922
                
 December 31, 2015 September 30, 2017
Fair Value
 Level
 Automotive Financial Services 
All
Other
 Consolidated
Fair Value
 Level
 Automotive Financial Services 
All
Other
 Consolidated
Cash and cash equivalents                  
U.S. government1 $115
 $—
 $—
 $115
1 $498
 $112
 $—
 $610
U.S. government agencies2 22
 —
 —
 22
2 150
 200
 —
 350
Non-U.S. government and agencies2 173
 266
 —
 439
2 —
 357
 —
 357
Corporate debt2 20
 —
 —
 20
2 —
 —
 —
 —
Total marketable securities classified as cash equivalents 330
 266
 —
 596
 648
 669
 —
 1,317
Cash, time deposits, and money market funds 5,056
 8,620
 —
 13,676
 8,105
 8,166
 1
 16,272
Total cash and cash equivalents $5,386
 $8,886
 $—
 $14,272
 $8,753
 $8,835
 $1
 $17,589
                  
Marketable securities                
U.S. government1 $1,623
 $298
 $—
 $1,921
1 $4,418
 $670
 $—
 $5,088
U.S. government agencies2 5,240
 1,169
 —
 6,409
2 2,990
 384
 —
 3,374
Non-U.S. government and agencies2 7,451
 832
 —
 8,283
2 5,833
 971
 —
 6,804
Corporate debt2 3,279
 384
 —
 3,663
2 3,958
 1,051
 —
 5,009
Equities1 240
 —
 —
 240
1 160
 —
 —
 160
Other marketable securities2 348
 40
 —
 388
2 32
 25
 —
 57
Total marketable securities $18,181
 $2,723
 $—
 $20,904
 $17,391
 $3,101
 $—
 $20,492

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 4.7. CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES (Continued)

The following tables present cash equivalents and marketable securities accounted for as available-for-sale (“AFS”) securities on our balance sheet were as follows (in millions):
September 30, 2016December 31, 2016
        
Fair Value of Securities with
Contractual Maturities:
        
Fair Value of Securities with
Contractual Maturities
Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Less than 1 Year 1-5 YearsAmortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Within 1 Year After 1 Year through 5 Years After 5 Years through 10 Years
Automotive                        
U.S. government$447
 $—
 $—
 $447
 $—
 $447
$3,703
 $2
 $(14) $3,691
 $727
 $2,776
 $188
U.S. government agencies100
 —
 —
 100
 —
 100
308
 —
 (2) 306
 —
 306
 —
Non-U.S. government and agencies77
 —
 —
 77
 —
 77
1,443
 1
 (11) 1,433
 148
 1,285
 —
Corporate debt337
 —
 —
 337
 247
 90
1,079
 —
 —
 1,079
 1,031
 48
 —
Total$961
 $—
 $—
 $961
 $247
 $714
$6,533
 $3
 $(27) $6,509
 $1,906
 $4,415
 $188
       
           
      
December 31, 2015September 30, 2017
        
Fair Value of Securities with
Contractual Maturities:
        
Fair Value of Securities with
Contractual Maturities
Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Less than 1 Year 1-5 YearsAmortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Within 1 Year After 1 Year through 5 Years After 5 Years through 10 Years
Automotive                        
U.S. government$—
 $—
 $—
 $—
 $—
 $—
$3,228
 $—
 $(8) $3,220
 $1,268
 $1,952
 $—
U.S. government agencies—
 —
 —
 —
 —
 —
1,795
 —
 (5) 1,790
 228
 1,547
 15
Non-U.S. government and agencies82
 —
 (12) 70
 —
 70
3,392
 6
 (7) 3,391
 99
 3,242
 50
Corporate debt—
 —
 —
 —
 —
 —
1,542
 1
 (1) 1,542
 530
 1,012
 —
Total$82
 $—
 $(12) $70
 $—
 $70
$9,957
 $7
 $(21) $9,943
 $2,125
 $7,753
 $65

Sales proceeds forfrom investments classified as AFS and sold prior to maturity were $0 and $491 million in the third quarter of 2016 and 2017, respectively, and $69 million and $0 for$3.1��billion in the first nine months ended September 30,of 2016 and 2015,2017, respectively. Gross realized gains from the sale of AFS securities in both the third quarter of 2016 and 2017 were $0, and in the first nine months of 2016 and 2017 were $1 million and $0 for the nine months ended September 30, 2016 and 2015,$3 million, respectively. There were no grossGross realized losses from the sale of AFS securities forin both the third quarter of 2016 and 2017 were $0, and in the first nine months ended September 30,of 2016 and 2015.2017 were $0 and $8 million, 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 present fair values and gross unrealized losses for cash equivalents and marketable securities accounted for as AFS securities that were in an unrealized loss position, aggregated by investment category and the length of time that individual securities have been in a continuous loss position, were as follows (in millions):
 December 31, 2016
 Less than 1 year 1 Year or Greater Total
 Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses
            
Automotive           
U.S. government$1,474
 $(14) $—
 $—
 $1,474
 $(14)
U.S. government agencies261
 (2) —
 —
 261
 (2)
Non-U.S. government and agencies1,137
 (11) —
 —
 1,137
 (11)
Corporate debt—
 —
 —
 —
 —
 —
Total$2,872
 $(27) $—
 $—
 $2,872
 $(27)
  
          
 September 30, 2017
 Less than 1 year 1 Year or Greater Total
 Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses
Automotive           
U.S. government$2,674
 $(7) $49
 $(1) $2,723
 $(8)
U.S. government agencies1,608
 (4) 49
 (1) 1,657
 (5)
Non-U.S. government and agencies1,956
 (7) 39
 —
 1,995
 (7)
Corporate debt543
 (1) —
 —
 543
 (1)
Total$6,781
 $(19) $137
 $(2) $6,918
 $(21)

We determine other-than-temporary impairments on cash equivalents and marketable securities using a specific identification method. During the nine months ended September 30, 2016 and 2015,2017, we did not recognize any other-than-temporary impairment loss.

Other Securities

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

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 5.8. FINANCIAL SERVICES FINANCE RECEIVABLES

Our Financial Services segment, primarily Ford Credit, manages finance receivables as “consumer” and “non-consumer” portfolios.  The receivables are generally secured by the vehicles, inventory, or other property being financed.

Finance receivables, net were as follows (in millions):
September 30,
2016		 December 31,
2015		December 31,
2016		 September 30,
2017
Consumer      
Retail financing, gross$67,894
 $62,068
$68,121
 $75,452
Unearned interest supplements(2,785) (2,119)(2,783) (3,136)
Consumer finance receivables65,109
 59,949
65,338
 72,316
Non-Consumer 
  
 
  
Dealer financing30,533
 31,115
31,336
 32,123
Non-Consumer finance receivables30,533
 31,115
31,336
 32,123
Total recorded investment$95,642
 $91,064
$96,674
 $104,439
      
Recorded investment in finance receivables$95,642
 $91,064
$96,674
 $104,439
Allowance for credit losses(478) (373)(484) (575)
Finance receivables, net$95,164
 $90,691
$96,190
 $103,864
      
Current portion$45,550
 $45,137
$46,266
 $49,541
Non-current portion49,614
 45,554
49,924
 54,323
Finance receivables, net$95,164
 $90,691
$96,190
 $103,864
      
Net finance receivables subject to fair value (a)$93,033
 $88,876
$94,066
 $100,773
Fair value94,327
 90,048
94,785
 100,552
__________
(a)
At December 31, 2016 and September 30, 2016 and2017, December 31, 2015Finance receivables, net, excludes includes $2.1 billion and $1.83.1 billion, respectively, of certain receivables (primarily direct financing leases)leases that are not subject to fair value disclosure requirements. The fair value of finance receivables is categorized within Level 3 of the fair value hierarchy.

Excluded from finance receivables at both December 31, 2016and September 30, 2016 and December 31, 2015,2017, was $206223 million and $209 million, respectively, of accrued uncollected interest, which areis reported as Other assets in the current assets section of our consolidated balance sheet.

Included in the recorded investment in finance receivables at December 31, 2016 and September 30, 2016 and December 31, 20152017 were consumer receivables of $29.932.5 billion and $27.635.2 billion, respectively, and non-consumer receivables of $23.326 billion and $26.123.6 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 5.8. FINANCIAL SERVICES FINANCE RECEIVABLES (Continued)
Aging

For all finance receivables, we define “past due” as any payment, including principal and interest, that is at least 31 days past the contractual due date. The recorded investment of consumer receivables greater than 90 days past due and still accruing interest was $24$21 million and $1628 million at December 31, 2016 and September 30, 2016 and December 31, 2015,2017, respectively. The recorded investment of non-consumer receivables greater than 90 days past due and still accruing interest was de minimis and $1$1 million at December 31, 2016 and September 30, 2016 and December 31, 2015,2017, respectively.

The aging analysis of our finance receivables balances were as follows (in millions):
September 30,
2016		 December 31,
2015		December 31,
2016		 September 30,
2017
Consumer      
31-60 days past due$652
 $708
$760
 $682
61-90 days past due112
 108
114
 111
91-120 days past due36
 27
34
 40
Greater than 120 days past due39
 38
39
 37
Total past due839
 881
947
 870
Current64,270
 59,068
64,391
 71,446
Consumer finance receivables65,109
 59,949
65,338
 72,316
      
Non-Consumer      
Total past due71
 116
107
 135
Current30,462
 30,999
31,229
 31,988
Non-Consumer finance receivables30,533
 31,115
31,336
 32,123
Total recorded investment$95,642
 $91,064
$96,674
 $104,439

Credit Quality

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

Consumer receivables credit quality ratings are as follows:

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

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

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

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 5.8. FINANCIAL SERVICES FINANCE RECEIVABLES (Continued)
The credit quality analysis of our dealer financing receivables was as follows (in millions):
September 30,
2016		 December 31,
2015		December 31,
2016		 September 30,
2017
Dealer Financing      
Group I$23,162
 $22,146
$24,315
 $24,911
Group II5,847
 7,175
5,552
 5,581
Group III1,399
 1,683
1,376
 1,479
Group IV125
 111
93
 152
Total recorded investment$30,533
 $31,115
$31,336
 $32,123

Impaired Receivables

Receivables. Impaired consumer receivables include accounts that have been rewritten or modified in reorganization proceedings pursuant to the U.S. Bankruptcy Code that are considered to be troubled debt restructuringsTroubled Debt Restructurings (“TDRs”), as well as all accounts greater than 120 days past due. Impaired non-consumer receivables represent accounts with dealers that have weak or poor financial metrics or dealer financing that has been modified in TDRs. The recorded investment of consumer receivables that were impaired at December 31, 2016 and September 30, 2016 and December 31, 20152017 was $366$367 million,, or 0.6% of consumer receivables, and $375387 million, or 0.6%0.5% of consumer receivables, respectively. The recorded investment of non-consumer receivables that were impaired at December 31, 2016 and September 30, 20162017 was $107 million, or 0.3% of non-consumer receivables, and December 31, 2015 was $140152 million, or 0.5% of non-consumer receivables, and $134 million, or 0.4% of non-consumer receivables, respectively. Impaired finance receivables are evaluated both collectively and specifically.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 6.9. FINANCIAL SERVICES ALLOWANCE FOR CREDIT LOSSES

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 2016 First Nine Months 2016
 Consumer Non-Consumer Total Consumer Non-Consumer Total
Allowance for credit losses           
Beginning balance$432
 $17
 $449
 $357
 $16
 $373
Charge-offs(108) (5) (113) (304) (7) (311)
Recoveries29
 1
 30
 89
 4
 93
Provision for credit losses112
 1
 113
 323
 1
 324
Other (a)(1) —
 (1) (1) —
 (1)
Ending balance (b)$464
 $14
 $478
 $464
 $14
 $478
            
Analysis of ending balance of allowance for credit losses
Collective impairment allowance      $445
 $12
 $457
Specific impairment allowance      19
 2
 21
Ending balance (b)      464
 14
 478
            
Analysis of ending balance of finance receivables      
Collectively evaluated for impairment      64,743
 30,393
 95,136
Specifically evaluated for impairment      366
 140
 506
Recorded investment      65,109
 30,533
 95,642
            
Ending balance, net of allowance for credit losses   $64,645
 $30,519
 $95,164
__________
(a)Primarily represents amounts related to translation adjustments.
(b)Total allowance, including reserves for operating leases, was $541 million.
Third Quarter 2015 First Nine Months 2015Third Quarter 2017 First Nine Months 2017
Consumer Non-Consumer Total Consumer Non-Consumer TotalConsumer Non-Consumer Total Consumer Non-Consumer Total
Allowance for credit losses                      
Beginning balance$322
 $13
 $335
 $305
 $16
 $321
$507
 $15
 $522
 $469
 $15
 $484
Charge-offs(85) (2) (87) (235) (3) (238)(132) —
 (132) (366) (3) (369)
Recoveries29
 1
 30
 90
 4
 94
36
 4
 40
 105
 8
 113
Provision for credit losses80
 2
 82
 190
 (2) 188
146
 (6) 140
 341
 (7) 334
Other (a)(4) —
 (4) (8) (1) (9)5
 —
 5
 13
 —
 13
Ending balance (b)$342
 $14
 $356
 $342
 $14
 $356
$562
 $13
 $575
 $562
 $13
 $575
                      
Analysis of ending balance of allowance for credit losses
Collective impairment allowance      $323
 $12
 $335
      $541
 $13
 $554
Specific impairment allowance      19
 2
 21
      21
 —
 21
Ending balance (b)      342
 14
 356
      562
 13
 575
                      
Analysis of ending balance of finance receivablesAnalysis of ending balance of finance receivables      Analysis of ending balance of finance receivables      
Collectively evaluated for impairment      58,749
 26,311
 85,060
      71,929
 31,971
 103,900
Specifically evaluated for impairment      375
 129
 504
      387
 152
 539
Recorded investment      59,124
 26,440
 85,564
      72,316
 32,123
 104,439
                      
Ending balance, net of allowance for credit lossesEnding balance, net of allowance for credit losses $58,782
 $26,426
 $85,208
Ending balance, net of allowance for credit losses $71,754
 $32,110
 $103,864
__________
(a)Primarily represents amounts related to translation adjustments.
(b)Total allowance, including reserves for operating leases, was $403$644 million.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 7.10. INVENTORIES

All inventories are stated at the lower of cost and net realizable value. Cost for a substantial portion of U.S. inventories is determined on a last-in, first-out (“LIFO”) basis. LIFO was used for 32%30% and 27%35% of total inventories at December 31, 2016 and September 30, 2016 and December 31, 2015,2017, respectively. Cost of other inventories is determined by costing methods that approximate a first-in, first-out (“FIFO”) basis.

Inventories were as follows (in millions):
September 30,
2016		 December 31,
2015		December 31,
2016		 September 30,
2017
Raw materials, work-in-process, and supplies$4,335
 $4,005
$3,843
 $4,587
Finished products6,823
 5,254
5,943
 7,591
Total inventories under FIFO11,158
 9,259
9,786
 12,178
LIFO adjustment(939) (940)(888) (915)
Total inventories$10,219
 $8,319
$8,898
 $11,263

NOTE 8.11. OTHER LIABILITIES AND DEFERRED REVENUE

Other liabilities and deferred revenue were as follows (in millions):
September 30,
2016		 December 31,
2015		December 31,
2016		 September 30,
2017
Current      
Dealer and dealers’ customer allowances and claims$9,050
 $8,122
$9,542
 $10,489
Deferred revenue4,715
 4,675
3,866
 2,409
Employee benefit plans1,505
 1,562
1,469
 1,718
Accrued interest761
 840
974
 833
OPEB(a)357
 354
349
 354
Pension (a)268
 249
247
 260
Other2,875
 3,287
2,869
 3,549
Total current other liabilities and deferred revenue$19,531
 $19,089
$19,316
 $19,612
Non-current 
  
 
  
Pension (a)$9,024
 $9,543
$10,150
 $10,251
OPEB(a)5,362
 5,347
5,516
 5,582
Dealer and dealers’ customer allowances and claims3,146
 2,731
2,564
 2,490
Deferred revenue3,639
 3,285
3,687
 3,806
Employee benefit plans1,112
 1,041
1,063
 1,131
Other1,369
 1,510
1,415
 1,559
Total non-current other liabilities and deferred revenue$23,652
 $23,457
$24,395
 $24,819
__________
(a)
Balances at September 30, 20162017 reflect pension and OPEB liabilities at December 31, 2015,2016, updated (where applicable) for service and interest cost, expected return on assets, separation expense, actual benefit payments, and cash contributions. The discount rate and rate of expected return assumptions are unchanged from year-end 2015.2016. Included in Other assets are pension assets of $2.3$1.5 billion and $1.6$2.5 billion at December 31, 2016 and September 30, 2016 and December 31, 2015,2017, respectively.


Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 9.12. RETIREMENT BENEFITS

Defined Benefit Plans - Expense

The pre-tax expensenet periodic benefit cost for our defined benefit pension and OPEB plans for the periods ended September 30 was as follows (in millions):
 Third Quarter
 Pension Benefits    
 U.S. Plans Non-U.S. Plans Worldwide OPEB
 2016 2015 2016 2015 2016 2015
Service cost$128
 $147
 $116
 $133
 $13
 $15
Interest cost381
 454
 190
 236
 49
 59
Expected return on assets(673) (732) (329) (372) —
 —
Amortization of prior service costs/(credits)43
 38
 9
 13
 (35) (51)
Net remeasurement (gain)/loss—
 —
 —
 —
 —
 —
Separation programs/other6
 4
 16
 11
 (1) —
Net periodic benefit cost/(income)$(115) $(89) $2
 $21
 $26
 $23
First Nine MonthsThird Quarter
Pension Benefits    Pension Benefits    
U.S. Plans Non-U.S. Plans Worldwide OPEBU.S. Plans Non-U.S. Plans Worldwide OPEB
2016 2015 2016 2015 2016 20152016 2017 2016 2017 2016 2017
Service cost$383
 $440
 $358
 $401
 $37
 $45
$128
 $133
 $116
 $154
 $13
 $13
Interest cost1,143
 1,363
 587
 707
 146
 178
381
 382
 190
 155
 49
 50
Expected return on assets(2,020) (2,196) (1,018) (1,116) —
 —
(673) (683) (329) (347) —
 —
Amortization of prior service costs/(credits)128
 116
 28
 36
 (106) (154)43
 36
 9
 9
 (35) (30)
Net remeasurement (gain)/loss—
 —
 11
 —
 —
 —
—
 —
 —
 —
 —
 —
Separation programs/other9
 6
 88
 30
 (1) 1
6
 58
 16
 5
 (1) —
Net periodic benefit cost/(income)$(357) $(271) $54
 $58
 $76
 $70
$(115) $(74) $2
 $(24) $26
 $33
           
First Nine Months
Pension Benefits    
U.S. Plans Non-U.S. Plans Worldwide OPEB
2016 2017 2016 2017 2016 2017
Service cost$383
 $400
 $358
 $413
 $37
 $37
Interest cost1,143
 1,144
 587
 487
 146
 148
Expected return on assets(2,020) (2,050) (1,018) (1,012) —
 —
Amortization of prior service costs/(credits)128
 107
 28
 27
 (106) (89)
Net remeasurement (gain)/loss—
 —
 11
 —
 —
 —
Separation programs/other9
 70
 88
 24
 (1) —
Net periodic benefit cost/(income)$(357) $(329) $54
 $(61) $76
 $96

BeginningThe service cost component is included in 2016, we changed the method used to estimate the serviceCost of sales and interest costs for pensionSelling, administrative and OPEB plans that utilize a yield curve approach. We now apply the specific spot rates along the yield curve to the relevant cash flows insteadother expenses. Other components of using a single effective discount rate. Service and interest costsnet periodic benefit cost/(income) are included in the third quarter and first nine months were about $145 million lower and about $435 million lower, respectively, with the new method than they would have been under the prior method.Non-Financial Services other income/(loss), net of our consolidated income statement.

Pension Plan Contributions

During 2016,2017, we expect contributions to contributebe about $1.21.5 billion from cash and cash equivalents to our worldwide funded pension plans, (including discretionary contributions of about $100 million), down about $300 million from our previous plan due to recalendarization of contributions into 2017, and to make about $300 million of benefit payments to participants in unfunded plans, for a total of about $1.51.8 billion. Contributions to our funded plans are higher than our prior guidance of about $1 billion (most of which is mandatory), as we plan to pull ahead about $500 million of 2018 planned funding into the fourth quarter of 2017 to achieve a cash tax benefit. In the first nine months of 2016,2017, we contributed about $800700 million to our worldwide funded pension plans and made about $200 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 10.13. DEBT

The carrying value of Automotive and Financial Services debt was as follows (in millions):
AutomotiveSeptember 30,
2016		 December 31,
2015
Automotive SegmentDecember 31,
2016		 September 30,
2017
Debt payable within one year      
Short-term$1,169
 $818
$1,324
 $1,566
Long-term payable within one year 
  
 
  
U.S. Department of Energy (“DOE”) Advanced Technology Vehicles Manufacturing (“ATVM”) Incentive Program591
 591
Public unsecured debt securities—
 361
U.S. Department of Energy Advanced Technology Vehicles Manufacturing Incentive Program591
 591
Other debt765
 370
827
 1,049
Unamortized (discount)/premium(53) —
(57) (16)
Total debt payable within one year2,472
 1,779
2,685
 3,551
Long-term debt payable after one year 
  
 
  
Public unsecured debt securities6,594
 6,594
9,394
 9,033
DOE ATVM Incentive Program2,799
 3,242
2,651
 2,209
Other debt1,678
 1,696
1,573
 1,785
Adjustments      
Unamortized (discount)/premium(338) (412)(320) (317)
Unamortized issuance costs(58) (60)(76) (77)
Total long-term debt payable after one year10,675
 11,060
13,222
 12,633
Total Automotive$13,147
 $12,839
Total Automotive Segment$15,907
 $16,184
      
Fair value of Automotive debt (a)$15,158
 $14,199
Fair value of Automotive Segment debt (a)$17,433
 $18,028
      
Financial Services 
  
Financial Services Segment 
  
Debt payable within one year 
  
 
  
Short-term$12,953
 $12,123
$15,330
 $17,640
Long-term payable within one year 
  
 
  
Unsecured debt12,586
 10,241
12,369
 13,487
Asset-backed debt19,263
 18,855
19,286
 16,496
Adjustments      
Unamortized (discount)/premium(4) (5)(2) 1
Unamortized issuance costs(20) (18)(16) (17)
Fair value adjustments (b)23
 —
17
 16
Total debt payable within one year44,801
 41,196
46,984
 47,623
Long-term debt payable after one year      
Unsecured debt53,985
 49,193
49,912
 54,463
Asset-backed debt24,477
 29,390
30,112
 30,910
Adjustments      
Unamortized (discount)/premium(5) (24)(9) (6)
Unamortized issuance costs(213) (198)(197) (208)
Fair value adjustments (b)1,032
 458
261
 146
Total long-term debt payable after one year79,276
 78,819
80,079
 85,305
Total Financial Services$124,077
 $120,015
Total Financial Services Segment$127,063
 $132,928
      
Fair value of Financial Services debt (a)$126,175
 $121,170
Fair value of Financial Services Segment debt (a)$128,777
 $134,877
__________
(a)
The fair value of debt includes $941 million1.1 billion and $560 million1.3 billion of Automotive segment short-term debt and $12.514.3 billion and $10.316.5 billion of Financial Services segment short-term debt at December 31, 2016 and September 30, 2016 and December 31, 2015,2017, respectively, carried at cost, which approximates fair value. All other debt is categorized within Level 2 of the fair value hierarchy.
(b)Adjustments related to designated fair value hedges of unsecured debt.
Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 11.14. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

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

Income Effect of Derivative Financial Instruments

The gains/(losses), by hedge designation, recorded in income for the periods ended September 30 were as follows (in millions):
Third Quarter First Nine MonthsThird Quarter First Nine Months
2016 2015 2016 20152016 2017 2016 2017
Cash flow hedges (a)              
Reclassified from AOCI to net income$202
 $(60) $335
 $(196)$202
 $115
 $335
 $357
Fair value hedges              
Interest rate contracts              
Net interest settlements and accruals excluded from the assessment of hedge effectiveness95
 94
 292
 271
95
 50
 292
 182
Ineffectiveness (b)(1) 10
 21
 6
(1) —
 21
 —
Derivatives not designated as hedging instruments              
Foreign currency exchange contracts29
 65
 61
 210
29
 (168) 61
 (594)
Cross-currency interest rate swap contracts128
 63
 463
 75
128
 5
 463
 79
Interest rate contracts21
 (22) (70) (83)21
 20
 (70) 57
Commodity contracts3
 (22) 7
 (47)3
 21
 7
 53
Total$477
 $128
 $1,109
 $236
$477
 $43
 $1,109
 $134
__________
(a)
For the third quarter and first nine months of 2016,, a $340 million gain and a $887 million gain, respectively, were recorded in Other comprehensive income. For the third quarter and first nine months of 2015,2017, a $453$116 million gainloss and a $86$90 million gain, respectively, were recorded in Other comprehensive income.
(b)
For the third quarter and first nine months of 2016, hedge ineffectiveness reflects the net change in fair value on derivatives of $228$228 million loss and $655 million gain, respectively, and a change in value on hedged debt attributable to the change in benchmark interest rates of $227 million gain and $634 million loss, respectively. For the third quarter and first nine months of 2015,2017, hedge ineffectiveness reflects the net change in fair value on derivatives of $373$40 million gainloss and $345$95 million gain,loss, respectively, and a change in value on hedged debt attributable to the change in benchmark interest rates of $363$40 million lossgain and $339$95 million loss,gain, respectively.
Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 11.14. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)

Balance Sheet Effect of Derivative Financial Instruments

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

The fair value of our derivative instruments and the associated notional amounts, presented gross, were as follows (in millions):
September 30, 2016 December 31, 2015December 31, 2016 September 30, 2017
Notional 
Fair Value of
Assets
 
Fair Value of
Liabilities
 Notional 
Fair Value of
Assets
 
Fair Value of
Liabilities
Notional 
Fair Value of
Assets
 
Fair Value of
Liabilities
 Notional 
Fair Value of
Assets
 
Fair Value of
Liabilities
Cash flow hedges                      
Foreign currency exchange and commodity contracts$16,775
 $818
 $136
 $12,593
 $522
 $366
Foreign currency exchange contracts$19,091
 $620
 $257
 $18,734
 $466
 $352
Fair value hedges 
  
  
       
  
  
      
Interest rate contracts36,215
 1,217
 —
 28,964
 670
 16
33,175
 487
 80
 31,802
 323
 132
Derivatives not designated as hedging instrumentsDerivatives not designated as hedging instruments          Derivatives not designated as hedging instruments          
Foreign currency exchange contracts17,267
 352
 129
 21,108
 426
 242
17,227
 379
 194
 19,792
 259
 357
Cross-currency interest rate swap contracts3,765
 383
 —
 3,137
 73
 111
3,201
 242
 8
 3,998
 370
 22
Interest rate contracts61,650
 142
 122
 62,638
 159
 112
61,689
 156
 74
 57,144
 227
 119
Commodity contracts525
 10
 4
 643
 2
 26
531
 11
 6
 603
 25
 2
Total derivative financial instruments, gross (a) (b)$136,197
 $2,922
 $391
 $129,083
 $1,852
 $873
$134,914
 $1,895
 $619
 $132,073
 $1,670
 $984
                      
Current portion  $1,395
 $297
   $1,209
 $692
  $1,108
 $371
   $937
 $612
Non-current portion  1,527
 94
   643
 181
  787
 248
   733
 372
Total derivative financial instruments, gross  $2,922
 $391
   $1,852
 $873
  $1,895
 $619
   $1,670
 $984
__________
(a)At December 31, 2016 and September 30, 2016 and December 31, 2015, the net obligation to return cash2017, we held collateral was $13of $15 million and $0,$11 million, and we posted collateral of $12 million and $31 million, respectively.
(b)
At December 31, 2016 and September 30, 2016 and December 31, 2015,2017, the fair value of assets and liabilities available for counterparty netting was $347$554 million and $733$669 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 12.15. ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)

The changes in the balances for each component of accumulated other comprehensive income/(loss) attributable to Ford Motor Company for the periods ended September 30 were as follows (in millions):
Third Quarter First Nine MonthsThird Quarter First Nine Months
2016 2015 2016 20152016 2017 2016 2017
Foreign currency translation              
Beginning balance$(3,691) $(2,371) $(3,570) $(2,438)$(3,691) $(4,266) $(3,570) $(4,593)
Gains/(Losses) on foreign currency translation(183) (883) (271) (816)(183) 25
 (271) 175
Less: Tax/(Tax benefit)—
 —
 —
 —
—
 (94) —
 (271)
Net gains/(losses) on foreign currency translation(183) (883) (271) (816)(183) 119
 (271) 446
(Gains)/Losses reclassified from AOCI to net income (a)—
 —
 (33) —
—
 (17) (33) (17)
Other comprehensive income/(loss), net of tax(183) (883) (304) (816)(183) 102
 (304) 429
Ending balance$(3,874) $(3,254) $(3,874) $(3,254)$(3,874) $(4,164) $(3,874) $(4,164)
              
Marketable securities              
Beginning balance$—
 $—
 $(6) $—
$—
 $(11) $(6) $(14)
Gains/(Losses) on available for sale securities—
 —
 11
 —
—
 (3) 11
 —
Less: Tax/(Tax benefit)—
 —
 —
 —
—
 (3) —
 2
Net gains/(losses) on available for sale securities—
 —
 11
 —
—
 —
 11
 (2)
(Gains)/Losses reclassified from AOCI to net income—
 —
 (1) —
—
 —
 (1) 5
Less: Tax/(Tax benefit)—
 —
 4
 —
—
 1
 4
 1
Net (gains)/losses reclassified from AOCI to net income—
 —
 (5) —
—
 (1) (5) 4
Other comprehensive income/(loss), net of tax—
 —
 6
 —
—
 (1) 6
 2
Ending balance$—
 $—
 $—
 $—
$—
 $(12) $—
 $(12)
              
Derivative instruments              
Beginning balance$421
 $(329) $64
 $(163)$421
 $253
 $64
 $283
Gains/(Losses) on derivative instruments340
 453
 887
 86
340
 (116) 887
 90
Less: Tax/(Tax benefit)87
 196
 181
 86
87
 (36) 181
 15
Net gains/(losses) on derivative instruments253
 257
 706
 —
253
 (80) 706
 75
(Gains)/Losses reclassified from AOCI to net income(202) 60
 (335) 196
(202) (115) (335) (357)
Less: Tax/(Tax benefit)(48) (57) (85) (12)(48) (24) (85) (81)
Net (gains)/losses reclassified from AOCI to net income (b)(154) 117
 (250) 208
(154) (91) (250) (276)
Other comprehensive income/(loss), net of tax99
 374
 456
 208
99
 (171) 456
 (201)
Ending balance$520
 $45
 $520
 $45
$520
 $82
 $520
 $82
              
Pension and other postretirement benefits              
Beginning balance$(2,706) $(2,796) $(2,745) $(2,664)$(2,706) $(2,692) $(2,745) $(2,689)
Amortization and recognition of prior service costs/(credits) (c)17
 —
 50
 (2)17
 15
 50
 45
Less: Tax/(Tax benefit)7
 (86) 17
 (9)7
 (13) 17
 15
Net prior service costs/(credits) reclassified from AOCI to net income10
 86
 33
 7
10
 28
 33
 30
Translation impact on non-U.S. plans4
 47
 20
 (6)4
 (1) 20
 (6)
Other comprehensive income/(loss), net of tax14
 133
 53
 1
14
 27
 53
 24
Ending balance$(2,692) $(2,663) $(2,692) $(2,663)$(2,692) $(2,665) $(2,692) $(2,665)
              
Total AOCI ending balance at September 30$(6,046) $(5,872) $(6,046) $(5,872)$(6,046) $(6,759) $(6,046) $(6,759)
__________
(a)
Reclassified to Non-Financial Services interest income and 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 $54897 million. See Note 1114 for additional information.
(c)
Amortization and recognition of prior service costs/(credits) is included in the computation of net periodic pension cost. See Note 9 for additional information.


Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 13. OTHER INCOME/(LOSS)

Non-Financial Services

The amounts included in Non-Financial Services interest income and other income/(loss), net for the periods ended September 30 were as follows (in millions):
 Third Quarter First Nine Months
 2016 2015 2016 2015
Investment-related interest income$50
 $60
 $163
 $161
Interest income/(expense) on income taxes9
 —
 8
 1
Realized and unrealized gains/(losses) on cash equivalents and marketable securities(13) 189
 52
 146
Gains/(Losses) on changes in investments in affiliates(1) —
 180
 18
Royalty income174
 149
 494
 448
Other109
 48
 224
 134
Total$328
 $446
 $1,121
 $908

Financial Services

The amounts included in Financial Services other income/(loss), net for the periods ended September 30 were as follows (in millions):
 Third Quarter First Nine Months
 2016 2015 2016 2015
Investment-related interest income$18
 $19
 $57
 $58
Interest income/(expense) on income taxes(2) (3) 11
 (9)
Insurance premiums earned38
 32
 118
 97
Other78
 49
 119
 95
Total$132
 $97
 $305
 $241

NOTE 14. INCOME TAXES

For interim tax reporting, we estimate one single effective tax rate for tax jurisdictions not subject to a valuation allowance, which is applied to the year-to-date ordinary income/(loss). Tax effects of significant unusual or infrequently occurring items are excluded from the estimated annual effective tax rate calculation and recognized in the interim period in which they occur.

NOTE 15. CAPITAL STOCK AND EARNINGS PER SHARE

Earnings Per Share Attributable to Ford Motor Company Common and Class B Stock

Basic and diluted income per share were calculated using the following (in millions):
 Third Quarter First Nine Months
 2016 2015 2016 2015
Basic and Diluted Income Attributable to Ford Motor Company       
Basic income$957
 $2,192
 $5,379
 $5,505
Diluted income957
 2,192
 5,379
 5,505
        
Basic and Diluted Shares 
  
    
Basic shares (average shares outstanding)3,974
 3,969
 3,972
 3,968
Net dilutive options and unvested restricted stock units26
 30
 25
 34
Diluted shares4,000
 3,999
 3,997
 4,002

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 16. COMMITMENTS AND CONTINGENCIES

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

Guarantees and Indemnifications

The maximum potential payments and the carrying value of recorded liabilities related to guarantees and limited indemnities were as follows (in millions):
 December 31,
2016		 September 30,
2017
Maximum potential payments$177
 $1,349
Carrying value of recorded liabilities related to guarantees and limited indemnities23
 399

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

We guarantee the resale value of vehicles sold in certain arrangements to daily rental companies. The maximum potential payment of $1.2 billion as of September 30, 2017 included in the table above represents the total proceeds we guarantee the rental company will receive on re-sale.  Reflecting our present estimate of proceeds the rental companies will receive on resale from third parties, we have recorded $399 million as our best estimate of the amount we will have to pay under the guarantee.  See Note 2 for additional information on the adoption of the new revenue standard.

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

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

The maximum potential payments and the carrying value of recorded liabilities related to guarantees and limited indemnities were as follows (in millions):
 September 30,
2016		 December 31,
2015
Maximum potential payments$227
 $284
Carrying value of recorded liabilities related to guarantees and limited indemnities23
 23

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.
Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 16. COMMITMENTS AND CONTINGENCIES (Continued)

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

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 16. COMMITMENTS AND CONTINGENCIES (Continued)

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

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

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

Warranty and Field Service Actions

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

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

The estimate of our future warranty and field service action costs, net of supplier recoveries, for the periods ended September 30 were as follows (in millions):
First Nine MonthsFirst Nine Months
2016 20152016 2017
Beginning balance$4,558
 $4,785
$4,558
 $4,960
Payments made during the period(2,464) (2,036)(2,464) (2,596)
Changes in accrual related to warranties issued during the period1,704
 1,523
1,704
 1,588
Changes in accrual related to pre-existing warranties1,088
 495
1,088
 968
Foreign currency translation and other42
 (192)42
 111
Ending balance$4,928
 $4,575
$4,928
 $5,031

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


Item 1. Financial Statements (Continued)

Report of Independent Registered Public Accounting FirmFORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

To the Board of Directors and Stockholders of
Ford Motor Company:

We have reviewed the accompanying consolidated balance sheet of Ford Motor Company and its subsidiaries as of September 30, 2016, and the related consolidated statements of income and comprehensive income for the three-month and nine-month periods ended September 30, 2016 and 2015 and the condensed consolidated statement of cash flows and the consolidated statement of equity for the nine-month periods ended September 30, 2016 and 2015. These interim financial statements are the responsibility of the Company’s management.

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

Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2015, and the related consolidated statements of income, comprehensive income, equity, and cash flows for the year then ended (not presented herein), and in our report dated February 11, 2016 (which included an explanatory paragraph with respect to the Company’s change in the manner in which it accounts for defined benefit pension and other postretirement employee benefit plans), we expressed an unqualified opinion on those consolidated financial statements. As discussed in Note 1 to the accompanying consolidated interim financial statements, the Company changed its presentation of the consolidated balance sheet to classify assets and liabilities as current or non-current. The accompanying December 31, 2015 consolidated balance sheet reflects this change.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Detroit, Michigan
October 27, 2016



NOTE 17. SEGMENT INFORMATION

Below is a description of our reportable segments and the business activities included in All Other.

Automotive Segment

Our Automotive segment primarily includes the sale of Ford and Lincoln brand vehicles, service parts, and accessories worldwide, together with the associated costs to develop, manufacture, distribute, and service the vehicles, parts, and accessories. The segment includes five regional business units:  North America, South America, Europe, Middle East & Africa, and Asia Pacific.
Financial Services Segment

The Financial Services segment primarily includes our vehicle-related financing and leasing activities at Ford Credit.

All Other

All Other is a combination of two operating segments that did not meet the quantitative thresholds in this reporting period to qualify as reportable segments. All Other consists of our Central Treasury Operations and Ford Smart Mobility LLC. The Central Treasury Operations segment is primarily engaged in decision making for investments, risk management activities, and providing financing for the Automotive segment. Interest income (excluding interest earned on our extended service contract portfolio that is included in our Automotive segment), interest expense, gains and losses on cash equivalents and marketable securities, and foreign exchange derivatives associated with intercompany lending, are included in the results of Central Treasury Operations. The underlying assets and liabilities, primarily cash and cash equivalents, marketable securities, debt, and derivatives, remain with the Automotive segment.

Ford Smart Mobility LLC is a subsidiary formed to design, build, grow, and invest in emerging mobility services. Designed to compete like a start-up company, Ford Smart Mobility LLC designs and builds mobility services on its own, and collaborates with start-ups and tech companies.

Special Items

Our results include Special items that consist of (i) pension and OPEB remeasurement gains and losses, (ii) significant personnel and dealer-related costs stemming from our efforts to match production capacity and cost structure to market demand and changing model mix, and (iii) certain infrequent significant items that we generally do not consider to be indicative of our 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. Special items are presented as a separate reconciling item.
Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 17. SEGMENT INFORMATION (Continued)

Key operating data for the periods ended or at September 30 were as follows (in millions):

 Automotive 
Financial
Services
 All Other 
Special
Items
 Adjustments Total
Third Quarter 2016 
  
  
    
  
Revenues$33,331
 $2,612
 $—
 $—
 $—
 $35,943
Pre-tax results - income/(loss)1,084
 552
 (223) (26) —
 1,387
Equity in net income/(loss) of affiliated companies395
 8
 —
 —
 —
 403
Cash, cash equivalents, and marketable securities24,300
 9,855
 10
 —
 —
 34,165
Total assets97,269
 142,979
 67
 —
 (5,352)(a)234,963
Debt13,147
 124,077
 —
 —
 —
 137,224
Operating cash flows(1,954) 5,953
 —
 —
 1,162
(b)5,161
            
Third Quarter 2017 
  
  
    
  
Revenues$33,646
 $2,802
 $3
 $—
 $—
 $36,451
Pre-tax results - income/(loss)1,668
 584
 (278) (217) —
 1,757
Equity in net income/(loss) of affiliated companies305
 10
 1
 —
 —
 316
Cash, cash equivalents, and marketable securities26,144
 11,936
 1
 —
 —
 38,081
Total assets103,534
 154,613
 85
 —
 (6,959)(a)251,273
Debt16,184
 132,928
 —
 —
 —
 149,112
Operating cash flows(1,654) 5,193
 (22) —
 1,481
(b)4,998
            
 Automotive 
Financial
Services
 All Other 
Special
Items
 Adjustments Total
First Nine Months 2016 
  
  
    
  
Revenues$105,520
 $7,626
 $—
 $—
 $—
 $113,146
Pre-tax results - income/(loss)7,380
 1,436
 (573) (330) —
 7,913
Equity in net income/(loss) of affiliated companies1,319
 23
 —
 —
 —
 1,342
Operating cash flows4,917
 8,761
 —
 —
 3,374
(b)17,052
            
First Nine Months 2017 
  
  
    
  
Revenues$107,234
 $8,209
 $7
 $—
 $—
 $115,450
Pre-tax results - income/(loss)5,824
 1,653
 (777) (441) —
 6,259
Equity in net income/(loss) of affiliated companies910
 25
 —
 —
 —
 935
Operating cash flows1,632
 9,418
 (44) —
 3,943
(b)14,949
__________
(a)Includes eliminations of intersegment transactions occurring in the ordinary course of business and deferred tax netting.
(b)
We measure and evaluate our Automotive segment operating cash flow on a different basis than Net cash provided by/(used in) operating activities in our consolidated statement of cash flows. Automotive segment operating cash flow includes additional elements management considers to be related to our Automotive operating activities, primarily capital spending and non-designated derivatives, and excludes outflows for funded pension contributions, separation payments, and other items that are considered operating cash flows under U.S. GAAP. The table below quantifies these reconciling adjustments to Net cash provided by/(used in) operating activities for the periods ended September 30 (in millions):
  Third Quarter First Nine Months
  2016 2017 2016 2017
 Automotive capital spending$1,696
 $1,659
 $4,879
 $4,901
 Settlement of derivatives(246) 90
 (322) (110)
 Funded pension contributions(246) (264) (835) (720)
 Separation payments(40) (41) (198) (100)
 Other(2) 37
 (150) (28)
 Total operating cash flow adjustments$1,162
 $1,481
 $3,374
 $3,943



Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of
Ford Motor Company

We have reviewed the accompanying consolidated balance sheet of Ford Motor Company and its subsidiaries as of September 30, 2017, and the related consolidated statements of income and comprehensive income for the three-month and nine-month periods ended September 30, 2017 and 2016 and the consolidated statement of equity and the condensed consolidated statement of cash flows for the nine-month periods ended September 30, 2017 and 2016. These interim financial statements are the responsibility of the Company’s management.

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

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

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Detroit, Michigan
October 26, 2017



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

OVERVIEW

Our core business includes designing, manufacturing, marketing, and servicing a full line of Ford cars, trucks, and SUVs, as well as Lincoln luxury vehicles. To expand our business model, we are aggressively pursuing emerging opportunities with investments in electrification, autonomy, and mobility. We provide financial services through Ford Credit.
In conjunction with our expanded business model to become an automotive, financial services, and mobility company, beginning with the second quarter of 2016, we changed our reportable segments. Prior-period amounts have been adjusted retrospectively to reflect the reportable segment change. See Note 3 of the Notes to the Financial Statements for additional information.

Non-GAAP Financial Measures That Supplement GAAP Measures

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

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

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

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

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

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

See “GAAP Reconciliations to Non-GAAP Financial Measures” section in this Item 2.

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

 

RESULTS OF OPERATIONS

Total Company

Net income attributable to Ford. The chart below shows our third quarter 20162017 net income attributable to Ford.

q32016netincome7.jpgq32017netincome5.jpg

Net income attributable to Ford in the third quarter of 20162017 was $957 million$1.6 billion or $0.24$0.39 diluted earnings per share of Common and Class B Stock, a decreasean increase of $1.2 billion$607 million or $0.31$0.15 per share fromcompared with the third quarter of 2015.2016. Third quarter 20162017 pre-tax results of our Automotive segment, Financial Services segment, All Other, and Special Items, andas well as Taxes are discussed in the following sections in “Results of Operations.”

Revenue. Company revenue in the third quarter of 20162017 was $35.9$36.5 billion, $2.2 billion lower$508 million higher than a year ago.

Equity.Cost of sales At September 30, 2016, total equity attributable to Ford was $31.5and Selling, administrative, and other expenses for the third quarter of 2017 were $33.2 billion, a decrease of $0.1 billion. Cost of sales and Selling, administrative, and other expenses for the first nine months of 2017 were $104.8 billion, an increase of $2.9 billion compared with December 31, 2015.billion. The detail for thisthe third quarter and first nine months of 2017 change compared with 2016 is shown below (in billions):

 Higher/(Lower)
Net income$5.4
Dividends(2.8)
Other comprehensive income0.2
Compensation-related equity issuances0.2
Treasury stock share repurchases(0.1)
Total$2.9
 2017 Lower/(Higher) 2016
 Third Quarter First Nine Months
Volume and mix, exchange, and other$(0.5) $(1.9)
Contribution costs   
Material excluding commodities0.2
 (0.1)
Commodities(0.3) (0.9)
Freight and other—
 0.1
Warranty0.6
 0.2
Structural costs0.2
 (0.3)
Special items(0.1) —
Total$0.1
 $(2.9)

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


Equity. At September 30, 2017, total equity attributable to Ford was $33.2 billion, an increase of $4.1 billion compared with December 31, 2016. The detail for this change is shown below (in billions):
 
Increase/
(Decrease)
Net income$5.2
Shareholder distributions(2.1)
Other comprehensive income0.2
Adoption of accounting standards0.6
Common Stock issued (including share-based compensation impacts)0.2
Total$4.1

The chart below shows our third quarter 20162017 total Company adjusted pre-tax results and the pre-tax results of our Automotive segment, by regional business unit, our Financial Services segment, and All Other, which is mainly net interest expense.expense and the results of Ford Smart Mobility LLC.

q32016totcowaterfall7.jpgq32017totcoresults5.jpg

Our total Company adjusted pre-tax profit was $1.4 billion infor the third quarter of 2016,2017 was $2 billion, $561 million higher than our guidancea year ago. Adjusted earnings per share of about $1 billion. This reflects favorable calendarization of marketing accruals inCommon and Class B stock was $0.43, up $0.17 per share compared with the United States and cost performance, all of which will be offset in the fourththird quarter of 2016. Automotive results were driven by North America, Europe, and a record third quarter pre-tax profit in Asia Pacific.

Financial ServicesOur total Company adjusted pre-tax profit of $552 million included strong performance at Ford Credit, which earned a pre-tax$2 billion consisted of: Automotive segment profit of $567 million.$1.7 billion, a profit of $584 million in the Financial Services segment, and a loss of $278 million in All Other, largely treasury-related activities, including net interest expense.

As shown below the chart, our Automotive segment results were $1.7 billion lower thanthe higher Company pre-tax profit from a year ago while our Financial Services segmentwas more than explained by the improved slightly compared to 2015.

Automotive segment.

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

 

AUTOMOTIVE SEGMENT

In general, we measure year-over-year change in Automotive segment pre-tax results using the causal factors listed below, with net pricing and cost variances calculated at present-year volume and mix and exchange:

Market Factors:
◦
Volume and Mix – primarily measures profit variance from changes in wholesale volumes (at prior-year average contribution margin per unit) driven by changes in industry volume, market share, and dealer stocks, as well as the profit variance resulting from changes in product mix, including mix among vehicle lines and mix of trim levels and options within a vehicle line
◦
Net Pricing – primarily measures profit variance driven by changes in wholesale prices to dealers and marketing incentive programs such as rebate programs, low-rate financing offers, special lease offers, and stock adjustments on dealer inventory

Contribution Costs – primarily measures profit variance driven by per-unit changes in cost categories that typically vary with volume, such as material costs (including commodity and component costs), warranty expense, and freight and duty costs

Structural Costs – primarily measures profit variance driven by absolute change in cost categories that typically do not have a directly proportionate relationship to production volume. Structural costs include the following cost categories:
◦
Manufacturing, Including Volume Related – consists primarily of costs for hourly and salaried manufacturing personnel, plant overhead (such as utilities and taxes), and new product launch expense. These costs could be affected by volume for operating pattern actions such as overtime, line-speed, and shift schedules
◦
Engineering – consists primarily of costs for engineering personnel, prototype materials, testing, and outside engineering services
◦
Spending-Related – consists primarily of depreciation and amortization of our manufacturing and engineering assets, but also includes asset retirements and operating leases
◦
Advertising and Sales Promotions – includes costs for advertising, marketing programs, brand promotions, customer mailings and promotional events, and auto shows
◦
Administrative and Selling – includes primarily costs for salaried personnel and purchased services related to our staff activities and selling functions, as well as associated information technology costs
◦
Pension and OPEB – consists primarily of past service pension costs and other postretirement employee benefit costs

Exchange – primarily measures profit variance driven by one or more of the following: (i) transactions denominated in currencies other than the functional currencies of the relevant entities, (ii) effects of converting functional currency income to U.S. dollars, (iii) effects of remeasuring monetary assets and liabilities of the relevant entities in currencies other than their functional currency, or (iv) results of our foreign currency hedging

Other – includes a variety of items, such as parts and services profits, royalties, government incentives and compensation-related changes

In addition, definitions and calculations used in this report include:

Wholesales and Revenue – wholesale unit volumes include all Ford and Lincoln badged units (whether produced by Ford or by an unconsolidated affiliate) that are sold to dealerships, units manufactured by Ford that are sold to other manufacturers, units distributed by Ford for other manufacturers, and local brand units produced by our China joint venture, Jiangling Motors Corporation, Ltd. (“JMC”), that are sold to dealerships. Vehicles sold to daily rental car companies that are subject to a guaranteed repurchase option (i.e., rental repurchase), as well as other sales of finished vehicles for which the recognition of revenue is deferred (e.g., consignments), also are included in wholesale unit volumes. Revenue from certain vehicles in wholesale unit volumes (specifically, Ford badged vehicles produced and distributed by our unconsolidated affiliates, as well as JMC brand vehicles) are not included in our revenue

Automotive Segment Operating Margin – defined as Automotive segment pre-tax profit divided by Automotive segment revenue

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


Industry Volume and Market Share – based, in part, on estimated vehicle registrations; includes medium and heavy duty trucks
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

SAAR – seasonally adjusted annual rate

AutomotiveAutomotive Cash – includes cash, cash equivalents, and marketable securities

SAAR – seasonally adjusted annual rate

References to Automotive records for operating cash flow, operating margin, and business units are since at least 2000.

The charts on the following pages detail third quarter 20162017 key metrics and the change in third quarter 20162017 pre-tax results compared with the third quarter of 20152016 by causal factor for our Automotive segment byand its business unit.

References to Automotive segment and business unit records are since at least 2000.

q32016autometrics7.jpg

Shown above are the key market factors and financial metrics for our Automotive segment in the third quarter of 2016, which all declined from a year ago, consistent with expectations. The changes were driven by North America. Wholesale volumes were down 4%, more than explained by reductions in dealer stocks this year in North America and Europe versus increases a year ago. Automotive revenue was down 7% due to the lower volume.

Our global market share, at 7.5%, was down one-tenth of a percentage point compared to a year ago driven by lower market shares inunits — North America, South America, andEurope, Middle East & Africa. Market share was flat in EuropeAfrica, and higher in Asia Pacific.

Global industry SAAR in theq32017autoburesults5.jpg

Our third quarter was estimated to be 90.1 million units, an increase of 2.9 million units or 3% compared with a year ago; the increase2017 Automotive pre-tax results by business unit are shown above. Automotive profit was driven by Asia PacificNorth America and Europe.

Automotive operating margin anda third quarter record pre-tax profit at 3.3% and $1.1 billion, respectively,in Asia Pacific. Operations outside North America were both significantly lower than a year ago.about breakeven in total.

As shown below the chart, Automotive pre-tax profit was $584 million higher than a year ago, reflecting improvement in all regions, excluding Europe, with North America improving the Automotive key metrics in the first nine months of 2016 were strong, about the same as last year.

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

 

q32016autowaterfall7.jpgq32017autometrics8a.jpg

Shown above are the factors that contributed to thethird quarter 2017 key metrics for our Automotive segment. Automotive operating margin and pre-tax profit, at 5.0% and $1.7 billion, decline in third quarter Automotive segment pre-tax profit. Therespectively, were both up sharply from a year ago, despite a relatively flat top line, including lower profitglobal market share.

Global industry SAAR is explainedestimated at 96.7 million units, up 5%. This was driven by lower volume, mainly the unfavorable changes in dealer stocks in North AmericaAsia Pacific, Europe, and Europe, as well as higher warranty costs related to a recall. Net pricing was favorable, mainly in NorthSouth America.

CostGlobal market share, at 6.8%, was down five-tenths of sales and Selling, administrative, and other expenses fora percentage point, reflecting lower share in all regions.

As shown below the third quarter of 2016 and 2015 was $33 billion and $33.6 billion, respectively, a decrease of $600 million. Cost of sales and Selling, administrative, and other expenses forchart, Automotive revenue in the first nine months of 2016 and 2015 was $100.8 billion and $97.4 billion, respectively, an increase of $3.4 billion. The detail for the third quarter and first nine months of 2016 change is shown below (in billions):
 2016 Lower/(Higher) 2015
 
Third
Quarter
 
First
Nine Months
Volume and mix, exchange, and other$1.8
 $(2.5)
Contribution costs   
Material excluding commodities(0.3) 0.2
Commodities0.1
 1.0
Warranty(0.6) (0.8)
Other0.1
 0.3
Structural costs(0.5) (1.3)
Special items—
 (0.3)
Total$0.6
 $(3.4)


up slightly year over year, while all other key metrics were lower.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

 

q32016nametrics7.jpg

Shown above are the third quarter 2016 key metrics for the North America business unit, which were lower in the quarter compared to a year ago.

The top line declined with wholesale volume down 11% and revenue down 8% from a year ago. Lower wholesales were driven by dealer stock reductions this year compared to an increase last year for F-150 following the Kansas City Assembly Plant launch, the launch effect of the all-new Super Duty, and aligning car production with demand.

Our North America market share was down five-tenths of a percentage point, with our U.S. share down by seven-tenths of a percentage point to 14%. The decrease was driven by lower retail sales of cars and utilities, as well as lower fleet sales, mainly rental. F-Series retail share was flat from a year ago. North America SAAR, at 21.8 million units, was down 200,000 units; U.S. SAAR, at 17.8 million units, was down 500,000 units.

Operating margin was 5.8%, down sharply from last year, and pre-tax profit was $1.3 billion, down $1.6 billion.q32017autobridge8a.jpg

As shown belowabove, the chart, North America’s key metrics$584 million improvement in third quarter 2017 Automotive segment pre-tax profit was driven by favorable cost performance and market factors. Lower cost was due to the first nine monthsnon-repeat of 2016 were strong, though mixeda recall from a year ago.ago, net material cost efficiencies excluding commodities, and lower engineering and advertising and sales promotion expense.

Adverse exchange was driven by the sterling, reflecting Brexit effects, Canadian dollar, Indian rupee, Thai baht, and Argentine peso.

Commodities, mainly metals, remain a headwind.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

 

q32016nawaterfall7.jpgq32017nametrics5.jpg

Shown above are the third quarter 2017 key metrics for North America, where our operating margin and pre-tax profit improved significantly from a year ago, despite a lower top line.

Wholesale volume was down 5% and revenue was down 4%, due to lower volume from a year ago. The lower wholesales were driven by an unfavorable change in dealer stocks and lower market share in Canada and Mexico.

North America SAAR, at 21.3 million units, and U.S. SAAR, at 17.4 million units, were both down 400,000 units.

North America market share was down one-tenth of a percentage point, while U.S. share was up one-tenth of a percentage point to 14.1%, driven by higher retail share for Ford trucks and SUVs and Lincoln.

In the quarter, F-Series U.S. sales improved 14% compared to a year ago and gained share, reflecting our best third quarter sales performance since 2005. Ford brand SUVs also had outstanding results, achieving our highest third quarter SUV retail sales since 2003, driven by Explorer and Edge.

As shown above, our third quarter 2016 pre-tax profit was $1.6 billionbelow the chart, each of North America’s key metrics in the first nine months were lower than a year ago, driven by the launch impact of our all-new Super Duty, the dealer stock reduction of F-150 versus the increase a year ago and normalization of series mixexcept for F-150, and the previously announced door latch recall.

Net pricingrevenue, which was favorable for the first time in 2016. Average U.S. retail transaction prices were $1,300 per vehicle higher compared to a year ago, almost double the industry average increase.


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

 

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In South America, our results were negatively impacted by the difficult external conditions, including high inflation and unfavorable exchange in Argentina, and lower industry volume in Brazil.

The top lineAs shown above, North America’s third quarter 2017 pre-tax profit was lower with wholesales down 13% and revenue down 15%, reflecting lower industry and market share, and weaker local currencies.

Our market share for the region, at 9.4%, was down eight-tenths of a percentage point due to Fiesta in Brazil. Industry SAAR for the region, at 3.6$421 million units, was 400,000 units lowerhigher than a year ago, due to Brazil.driven by favorable cost performance, despite continued headwinds on commodities. Lower volume and adverse exchange were partial offsets.

OperatingFavorable cost performance was driven by both lower contribution cost, reflecting the non-repeat of last year’s recall, and lower structural cost.

Net pricing was favorable for the fourth consecutive quarter, reflecting the continued strength of F-Series.

Lower volume was driven by an unfavorable change in dealer stock, including matching car production to demand, mainly Fusion, Explorer, and the launch of the all-new Expedition and Navigator.

The unfavorable exchange reflects mainly the Canadian dollar.

For 2017, we continue to expect North America operating margin and pre-tax results for the region were bothprofit to be lower than a year ago.

As shown below the chart, each2016, mainly due to higher commodity cost, higher product cost net of South America’s key metrics in the first nine months of 2016 was lower than a year ago.


efficiencies, and increased engineering expense, primarily for utilities, commercial vehicles, and autonomous vehicles. Exchange is also expected to be unfavorable.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

 

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As shown above, the higher lossmetrics continue to demonstrate the disciplined approach we take to our business. This is true everywhere we operate, but highlighted here for North America.

Our year-over-year average transaction price in South Americathe United States in the third quarter of 2016 was2017 grew more than explained bydouble the unfavorable effectsrate of high local inflationthe industry due to the strength of F-Series. In the quarter, F-Series transaction prices were up over $2,800 per unit compared to a year ago, outpacing the overall segment increase of $1,600 per unit, reflecting strong customer demand for high-level trim series on both Super Duty and weaker local currencies exceeding higher net pricing. ThisF-150, including the Raptor.

We also continued our disciplined approach to incentives. Although our incentive levels increased compared to a year ago, the increase was offset partially by continued progress in reducing costs, including further workforce reductions as we optimizedlower than the industry average, which demonstrated our manufacturing plant operating patterns.commitment to managing supply and demand and benefiting from the strength of our products.

Our team is continuing its workU.S. stocks remain at healthy levels and days supply as we continue to further improvetake a disciplined approach to match supply to demand.

As a reminder, note that Ford’s days supply tend to be slightly higher than industry average because of our stronger position in trucks and the cost structureassociated larger number of the business and identify revenue opportunities. Importantly, we are now seeing some key economic indicators beginning to improve, although still in negative territory, suggesting we may have passed the trough of the current economic cycle.

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

 

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Shown above are the third quarter 2016South America key metrics for Europe, where we delivered our best third quarter 2017 are shown above, where our pre-tax profit since 2007, with pre-tax profit and operating margin up sharply from a year ago. The top-line declinedloss improved 46% from a year ago and macroeconomic conditions are showing signs of improvement. This was our smallest quarterly loss in the region since fourth quarter 2013.

The top line improved double digits, with wholesale volume down 15%up 16% and revenue down 10%,up 19%.

The higher volume was driven by lower volume.higher industry, while the higher revenue was due to the volume increase and higher pricing.

Industry SAAR for the region, at 4.3 million units, was up 16%, or 600,000 units. Brazil SAAR, at 2.4 million units, was up 20%, or 400,000 units. This was the second consecutive quarter of year-over-year improvement in Brazil.

Our market share for the region, at 7.9%8.8%, was flat fromdown six-tenths of a year ago. Ford remained Europe’s best selling commercial vehicle brandpercentage point primarily due to lower participation in the third quarter of 2016 with improved share from a year ago. Europe SAAR, at 20.1 million units, was 4% higher thanfleet sales, mainly EcoSport, and market performance in the third quarter of 2015.Argentina, mainly Focus.

Our operatingOperating margin at 2.2%, was up 2.1 percentage pointsand pre-tax results for the region both improved sharply from a year ago and pre-tax profit was $138 million, up $129 million.– our fourth consecutive quarter of year-over-year improvement.

As shown below the chart, each of Europe’sSouth America’s key metrics improved significantly in the first nine months of 2016 improved except market share which was flat, with pre-tax profit exceeding $1 billion and operating margin at 4.9%.

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

 

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As shown above, we delivered our sixth consecutive profitable quarter, with pre-tax profit $129 million higher in theSouth America’s third quarter of 20162017 pre-tax loss improved $137 million compared to a year ago driven by improved cost performance, strong mix,due to favorable net pricing and favorable balance sheet exchange.higher industry volume.

We delivered our fourth consecutive quarter of year-over-year cost performance improvement, reflecting our continued focus on material cost reductions. Mix remains strong, driven byHigher commodity costs and adverse exchange, mainly the strength of our products, including Ranger, Mustang, and Kuga, and increasing demand for our higher trim series across all major vehicle lines. Lower volume was aArgentine peso, were partial offset, reflecting a reduction in dealer stocks compared to an increase a year ago as we took actions to align production to expected demand following Brexit.offsets.

Although not shown above, our operationsStructural cost was flat despite higher volume and continued high inflation in Russia contributed meaningfullysome markets.

For 2017, we continue to Europe’s improved results inexpect South America’s loss to improve from last year as a result of favorable market factors as the third quarter of 2016.

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

 

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Shown above are the third quarter 2017 key metrics for Europe, where the Middle East & Africa region for the third quarter of 2016, where ourtop line was up. All other key metrics were down comparedlower.

Wholesale volume was up 7% and revenue was up 9% from a year ago. The higher wholesales were driven by a favorable change in dealer stocks, reflecting the ramp up of all-new Fiesta production following launch. The higher revenue was driven by higher volume, strong mix, and favorable pricing.

Third quarter 2017 production was about 33,000 units below guidance, primarily reflecting constraints related to the launch of the all-new Fiesta, which have now been resolved. Demand for the Fiesta and our other vehicles in the region is very strong with the customer order bank at a record level.

Europe SAAR, at 21.1 million units, was 5% higher than a year ago, reflecting lower industry and market performanceincluding the second consecutive quarterly year-over-year improvement in the Middle East.Russia.

The top line in the third quarter of 2016Market share, at 7.3%, was down 14% from a year ago, driven primarily by lower wholesale volume. The decline in volume largely reflects stock adjustments in Saudi Arabia for lower industry and market performance. We are working with our distributor to improve our performance.

SAAR for the region, at 3.7 million units, was down 500,000 units from the third quarter of 2015. Within this, the markets where we participate declined 500,000 units. The markets where we do not participate, with Iran being the largest, were about the same as a year ago. Our market share for the region was 4.1%, down three-tenthsfive-tenths of a percentage point, due to unfavorable market mix. In markets where we participate, our market share was flat.reflecting the launch effect of the all-new Fiesta.

Middle East & AfricaCommercial vehicle share improved, and Ford remained Europe’s best-selling commercial vehicle brand for the fifth consecutive quarter.

Europe’s operating margin was negative 19%, down sharply from a year ago, reflecting lower volume1.2% and unfavorable exchange, primarily the South African rand.pre-tax loss was $86 million, our first quarterly loss since first quarter 2015.

As shown below the chart, each of the keytop line was about flat year-to-date, while all other metrics in the first nine months of 2016 was lower compared with a year ago, reflecting the impact of adverse external conditions.

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

 

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In Asia Pacific, we delivered a record third quarter pre-tax profit with all key metrics improved compared to a year ago. Wholesale volume increased 30% and revenue from consolidated operations improved 16%, reflecting higher industry volume and strong performance from new products.

Asia Pacific SAAR was 40.9 million units, up 3.2 million units from the third quarter of 2015, mostly explained by a 2.8 million unit increase in China SAAR, estimated at 24.9 million units. This was driven by the government purchase tax incentive for vehicles with engine displacements of 1.6 liters or smaller. Asia Pacific market share was 4.0%, up five-tenths of a percentage point, with China share increasing five-tenths of a percentage point to 5.1%. The improvement in share was driven by strong C-car sales and new product introductions, including Taurus, the locally built Edge, Lincoln MKX, and Lincoln MKZ.

Asia Pacific operating margin was 4.3%, up 3.5 percentage points from a year ago, and pre-tax profit was $131 million, up $109 million. Our China joint ventures contributed $320 million to pre-tax profit, reflecting our equity share of the joint ventures’ after-tax earnings; this was $67 million higher than a year ago. The joint ventures’ net income margin was 13.4%, up seven-tenths of a percentage point.q32017eurbridge7a.jpg

As shown below the chart, all of our key metrics in the first nine months of 2016 improved compared withabove, Europe’s third quarter 2017 pre-tax result was $224 million lower than a year ago except for operating margin.driven by the following:

Brexit effects, reflecting the weaker sterling and lower U.K. industry, offset partially by favorable net pricing in the United Kingdom;
Higher commodities, mainly steel and other metals; and
Fiesta launch effects, reflecting lower volume and higher costs, both product and structural costs, offset partially by favorable net pricing.

Although not shown, results in Russia continued to improve, approaching breakeven.

We expect Europe to return to profitability in the fourth quarter of 2017 driven by higher volume.

For full year 2017, we continue to expect Europe to remain profitable, although at a level below 2016. This is due to adverse Brexit effects and higher commodity costs. Favorable market factors and continued improvement in Russia will be a partial offset.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

 

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Shown above are the third quarter 2017 key metrics for Middle East & Africa. Our operating margin and pre-tax loss improved sharply from a year ago even though all other key metrics were lower.

The top line was down due to lower wholesale volume, largely reflecting lower industry.

Industry SAAR for the region, at 3.4 million units, was down 200,000 units from 2016. Within this, the markets where we participate declined 400,000 units.

Our market share was 4.0%, down two-tenths of a percentage point due to unfavorable market mix. In the markets where we participate, our share was up three-tenths of a percentage point, driven by higher share in Northern and Southern Africa.

As shown below the chart, our pre-tax result in the first nine months improved from a year ago despite declines in all other key metrics.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)


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As shown above, ourMiddle East & Africa’s third quarter record profit2017 pre-tax loss improved $92 million from a year ago. All factors improved or were flat other than volume and mix.

Favorable cost performance, our fourth consecutive quarter of year-over-year improvement, was due to both lower contribution cost and structural cost.

Favorable exchange reflects the stronger South African rand and euro.

For 2017, we continue to expect results in Middle East & Africa to improve compared to 2016 due to lower cost and favorable exchange with lower volume a partial offset.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)


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In Asia Pacific, was up sharply compared with 2015. Volume and mix was up reflecting higher market share, favorable industry and the non-repeatwe delivered a record third quarter pre-tax profit of dealer stock reductions in China$289 million, more than double from a year ago.

Lower netWholesale volume decreased by 5%, driven by lower market share in China. Revenue from consolidated operations increased by 19%, reflecting the strength of our full line up of SUVs and continued growth of Lincoln in China.

Asia Pacific SAAR was 46.6 million units, up 3.3 million units, driven by a 2.2 million unit increase in China SAAR, estimated at 29.5 million units, and a 400,000 unit increase in India SAAR, estimated at 4.5 million units.

Asia Pacific market share was 3.4%, down three-tenths of a percentage point, with China share decreasing four-tenths of a percentage point to 4.2%, reflecting increased competitive entries in the SUV segment.

Asia Pacific’s operating margin and pre-tax profit both increased significantly from a year ago.

In the quarter, our China joint ventures contributed $241 million to pre-tax profit, reflecting our equity share of the JVs’ after-tax earnings. This was $79 million lower than last year. Net income margin was 12.2%, down 1.2 percentage points, reflecting negative industry pricing and unfavorable volume and mix.

As shown below the chart, the key financial metrics were up significantly in the first nine months compared to a year ago, while wholesales and market share were lower reflecting China market performance.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)


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As shown above, Asia Pacific’s third quarter 2017 pre-tax profit was $158 million higher than a year ago due to improvements in most operations outside China, particularly in Australia and India.

Favorable cost performance, our third consecutive quarter of year-over-year improvement, drove the improvement, reflecting material cost reductions and lower structural costs.

Market factors were about flat with favorable volume and mix about offsetting lower net pricing. The favorable volume and mix was driven by our high-margin vehicles, mainly Explorer and Ranger, which achieved record quarterly sales. The lower net pricing reflects continued negative pricing trends in China. In the quarter, the rate of negative pricing in China continued to slow since the fourth quarter of 2015. We continue to expect full year negative pricing for the industry.

Unfavorable cost performance was driven by cost increases to support higher volumes and continued investment for future product and regulatory actions; it includes the impact of plant launches during the second half of 2015. The investments in structural cost were offset partially by our continued focus on material cost efficiencies.

Unfavorable exchange reflects mainly the impact of the weaker Chinese yuan; the Company has a substantial net revenue exposure to this currency.stronger Thai baht and Indian rupee.


For 2017, we continue to expect Asia Pacific’s pre-tax profit to improve from 2016 due to lower cost and favorable volume and mix. Partial offsets will be lower industry pricing in China and unfavorable exchange because of a weaker RMB.

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

 

FINANCIAL SERVICES SEGMENT

In general, we measure year-over-year changes in Ford Credit’s pre-tax results using the causal factors listed below:

Volume and Mix:
◦Volume primarily measures changes in net financing margin driven by changes in average managed receivables at prior period financing margin yield (defined below in financing margin) at prior period exchange rates. Volume changes are primarily driven by the volume of new and used vehicle sales and leases, the extent to which Ford Credit purchases retail installment sale and lease contracts, the extent to which Ford Credit provides wholesale financing, the sales price of the vehicles financed, the level of dealer inventories, Ford-sponsored special financing programs available exclusively through Ford Credit, and the availability of cost-effective funding for the purchase of retail installment sale and lease contracts and to provide wholesale financing
◦Mix primarily measures changes in net financing margin driven by period over period changes in the composition of Ford Credit’s average managed receivables by product and by country or region

•Financing Margin:
◦Financing margin variance is the period-to-period change in financing margin yield multiplied by the present period average managed receivables at prior period exchange rates. This calculation is performed at the product and country level and then aggregated. Financing margin yield equals revenue, less interest expense and scheduled depreciation for the period, divided by average managed receivables for the same period
◦Financing margin changes are driven by changes in revenue and interest expense. Changes in revenue are primarily driven by the level of market interest rates, cost assumptions in pricing, mix of business, and competitive environment. Changes in interest expense are primarily driven by the level of market interest rates, borrowing spreads, and asset-liability management

Credit Loss:
◦Credit loss is the change in the provision for credit losses at prior period exchange rates. For analysis purposes, management splits the provision for credit losses into net charge-offs and the change in the allowance for credit losses
◦
Net charge-off changes are primarily driven by the number of repossessions, severity per repossession, and recoveries. Changes in the allowance for credit losses are primarily driven by changes in historical trends in credit losses and recoveries, changes in the composition and size of Ford Credit’s present portfolio, changes in trends in historical used vehicle values, and changes in economic conditions. For additional information on the allowance for credit losses, refer to the “Critical Accounting Estimates - Allowance for Credit Losses” section of Item 7 of Part II of our 20152016 Form 10-K Report

Lease Residual:
◦Lease residual measures changes to residual performance at prior period exchange rates. For analysis purposes, management splits residual performance primarily into residual gains and losses, and the change in accumulated supplemental depreciation
◦
Residual gain and loss changes are primarily driven by the number of vehicles returned to Ford Credit and sold, and the difference between the auction value and the depreciated value (which includes both base and accumulated supplemental depreciation) of the vehicles sold. Changes in accumulated supplemental depreciation are primarily driven by changes in Ford Credit’s estimate of the expected auction value at the end of the lease term, and changes in the estimate of the number of vehicles that will be returned to it and sold. For additional information on accumulated supplemental depreciation, refer to the “Critical Accounting Estimates - Accumulated Depreciation on Vehicles Subject to Operating Leases” section of Item 7 of Part II of our 20152016 Form 10-K Report

Exchange:
◦Reflects changes in pre-tax results driven by the effects of converting functional currency income to U.S. dollars

Other:
◦Primarily includes operating expenses, other revenue, and insurance expenses at prior period exchange rates
◦Changes in operating expenses are primarily driven by salaried personnel costs, facilities costs, and costs associated with the origination and servicing of customer contracts
◦In general, other revenue changes are primarily driven by changes in earnings related to market valuation adjustments to derivatives (primarily related to movements in interest rates) and other miscellaneous items
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Ford Credit. The chart below details the key metrics for Ford Credit for third quarter of 2016.

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In the third quarter of 2016, Ford Credit’s pre-tax profit was strong – the best quarterly profit since 2011 – and receivables were higher than a year ago, in line with expectations. Portfolio performance remained robust. FICO scores remained consistent. The over-60-day delinquency ratio of 16 basis points in the third quarter of 2016 continued at the low end of Ford Credit’s historical experience. The loss-to-receivables ratio of 45 basis points was up 11 basis points, also below, but approaching, Ford Credit’s historical experience. Originations, servicing, and collections practices remained disciplined and consistent.
As shown below the chart, Ford Credit’s year-to-date key metrics were unfavorable compared with a year ago.

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

 

q32016fcwaterfall8.jpgIn addition, the following definitions and calculations apply to Ford Credit when used in this report:

AsCash (as shown above,on the Funding Structure, Liquidity Sources, and Leverage charts) – Cash, cash equivalents, and marketable securities, excluding amounts related to insurance activities

Securitizations (as shown on the Public Term Funding Plan chart) – Public securitizations, Rule 144A offerings sponsored by Ford Credit's profit improvementMotor Credit, and widely distributed offerings by Ford Credit Canada

Term Asset-Backed Securities (as shown on the Funding Structure chart) – Obligations issued in securitization transactions that are payable only out of $26 millioncollections on the underlying securitized assets and related enhancements

Total Debt (as shown on the Leverage chart) – Debt on Ford Credit’s balance sheet. Includes debt issued in securitizations and payable only out of collections on the underlying securitized assets and related enhancements. 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

The charts on the following pages detail third quarter 2017 key metrics and the change in third quarter 2017 pre-tax results compared with third quarter 2016 by causal factor for Ford Credit.

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In the third quarter of 2016 is explained primarily2017, Ford Credit’s pre-tax profit of $600 million improved from a year ago. Receivables were higher with growth globally led by favorable volume, mix,retail receivables and market valuation adjustments to derivatives. Partial offsets include unfavorable lease residual performance and higher credit losses. The favorable volume and mix was driven by growththe consolidation of $1.3 billion in all products globally.receivables for the Forso Nordic AB (“Forso”) joint venture in the Nordic region.

Lease residualFICO scores remain strong, and origination, servicing, and collection practices continue to be disciplined and consistent. Portfolio performance reflects higher depreciation in North America related to expected lower auction values in the lease portfolio.was robust. The loss-to-receivables ratio of 53 basis points was up 8 basis points and within expectations.

In the quarter, Ford Credit loss performance primarily reflects higher charge-offs aspaid a result of higher defaults and severities in North America. Credit losses have been at historically low levels for quite some time, and we continued$378 million distribution to see credit losses increase toward more normal levels.

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

 

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Leasing isAs shown above, Ford Credit’s third quarter pre-tax profit was $33 million higher compared to a great trade cycle management product, butyear ago, led primarily by strong receivables growth and lease share must be managed carefully to protect residuals. Our leasing strategy considers many factors including share, term, model mix, and geography to optimize sales, share, profits, and residuals.residual performance.

OverUnfavorable credit loss performance reflects an increase in reserves and higher actual losses driven primarily by higher defaults.

Other includes unfavorable derivatives market valuation, higher operating costs, and a pre-tax loss of $17 million related to the last several years, we have seen industry lease share grow with rising industry volumes. As a result,consolidation of the supply of off-lease vehicles is higher and will continueForso joint venture.

Ford Credit continues to grow for the next several years. The increased supply of used vehicles, along with higher new vehicle incentives, is resulting in lower auction values, particularly in smaller, more fuel efficient vehicles given low fuel prices. We expect this trend to continue, and we are planningplan for lower auction values, going forward.but its outlook has improved. Ford Credit now expects three-year full year 2017 auction values to be down about 3% compared with 2016 at constant mix.

Given significant industry growth in leasing and higher new vehicle incentives, we lowered our projection on residual values which makes the relative cost of leasing higher. As a result,We now expect Ford Credit’s lease sharefull year 2017 pre-tax profit to exceed $2 billion driven by strong volume and lease placement volume in the third quarter of 2016 were lower compared to a year ago.

Ford Credit’s off-lease vehicle auction values in the third quarter of 2016 were lower than a year agomix and slightly lower than the prior quarter, with 36-month off-lease auction values about $600 lower year-over-year. Ford Credit’s auction performance has been consistent with the industry when comparing similar vehicle age and segment.

On longer-term financing, Ford Credit’s average retail term remains largely unchanged from last year, and retail contracts of 73 months and longer continued to be a relatively small part of Ford Credit’s business.

Finally, the average placement FICO score remained consistent with the second quarter and the same period last year, reflecting Ford Credit's consistent underwriting practices.


better-than-expected residual values.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

 

ALL OTHER

All Other is a combination of Central Treasury Operations and Ford Smart Mobility LLC, two operating segments that did not meet the quantitative thresholds in this reporting period to qualify as reportable segments. All Other consists of our Central Treasury Operations (formerly Other Automotive) and Ford Smart Mobility LLC.

The Central Treasury Operations segment is primarily engaged in decision making for investments, risk management activities, and providing financing for the Automotive segment. Interest income (excluding interest earned on our extended service contract portfolio that is included in our Automotive segment), interest expense, gains and losses on cash equivalents and marketable securities, and foreign exchange derivatives associated with intercompany lending are included in the results of Central Treasury Operations. The underlying assets and liabilities, primarily cash and cash equivalents, marketable securities, debt, and derivatives, remain with the Automotive segment.

Ford Smart Mobility LLC is a new subsidiary formed to design, build, grow, and invest in emerging mobility services. Designed to compete like a start-up company, Ford Smart Mobility LLC will designdesigns and buildbuilds mobility services on its own, and collaboratecollaborates with start-ups and tech companies.

Our third quarter 20162017 All Other pre-tax results were a loss of $223$278 million, a $60$55 million greater loss compared with a year ago. This increase is more thanprimarily explained by Ford Smart Mobility LLC’s results and higher net interest expense and net losses on cash equivalents and marketable securities.expense.

SPECIAL ITEMS

As detailed inIn Note 317 of the Notes to the Financial Statements, special items are reflected as a separate reconciling item, as opposed to allocating thembeing allocated among the Automotive segment, Financial Services segment, and All Other. This reflects the fact that management excludes these items from its review of operating segment results for purposes of measuring segment profitability and allocating resources.

Our pre-tax and tax special items were as follows:

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

 

TAXES

Our tax provision inprovisions for the third quarter and first nine months of 2016 was $4262017 were $186 million and $2.5$1 billion, respectively, resulting in anGAAP effective tax raterates of 30.7%10.6% and 31.9%16.7%, respectively.

Our third quarter and first nine months 20162017 non-GAAP adjusted effective tax rate,rates, which excludesexclude special items, was 25.9%were 11.8% and 29.1%16.7%, respectively, 7.414.1 and 512.4 percentage points lower than a year ago. The lower adjusted effectiveago, reflecting the realization of foreign tax rates throughcredit benefits in the first nine months of 2016 reflect tax benefits from legislation enacted December 18, 2015 making permanent the U.S. research and development tax credit.United States.

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

LIQUIDITY AND CAPITAL RESOURCES

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Automotive Segment

Liquidity. One of our key priorities is to finance our plan and maintain a strong balance sheet, while at the same time having resources available to invest in and grow our core business and invest in emerging opportunities.business. Based on our planning assumptions, we believe that we have sufficient liquidity and capital resources to continue to invest in new products and services that customers want and value, transform and grow our business, pay our debts and obligations as and when they come due, pay a sustainable regular dividend at the current level, and provide protection within an uncertain global economic environment.

Our key balance sheet metrics include total cash, cash equivalents, and marketable securities (collectively “Automotive cash”), Automotive liquidity, which includes Automotive cash and total available committed credit lines, and cash net of debt.
 
At September 30, 2016,2017, we had $24.3$26.1 billion of Automotive cash, of which 85%82% was held by consolidated entities domiciled in the United States. We target to have an average ongoing Automotive cash balance of about $20 billion. We expect to have periods when we will be above or below this amount due toto:  (i) future cash flow expectations, such as for pension contributions, debt maturities, capital investments, investments in future opportunities, or restructuring requirements, (ii) short-term timing differences, and (iii) changes in the global economic environment.

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


Our Automotive cash investments primarily include U.S. Department of Treasury obligations, federal agency securities, bank time deposits with investment-grade institutions, corporate investment-grade securities, commercial paper rated A-1/P-1 or higher, and debt obligations of a select group of non-U.S. governments, non-U.S. governmental agencies, and supranational institutions. The average maturity of these investments ranges from about 90 days to up to aboutis approximately one year, and is adjusted based on market conditions and liquidity needs. We monitor our Automotive cash levels and average maturity on a daily basis.

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

In addition to our target Automotive cash balance, we also target to maintain a corporate credit facility, discussed below, for our Automotive business of about $10 billion to protect against exogenous shocks. Our corporate credit facility is discussed below. We assess the appropriate long-term target for total Automotive liquidity, comprised ofwhich includes Automotive cash and the corporate credit facility, to be about $30 billion, which is an amount we believe is sufficient to support our business priorities and to protect our business. At September 30, 2016,2017, we had $35.2$37 billion of Automotive liquidity. Our Automotive cash and Automotive liquidity targets could be reduced over time based on improved operating performance and changes in our risk profile.
 
Changes in Automotive Cash. Changes in Automotive cash are summarized below (in billions):

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In managing our Automotive business, we classify changes in Automotive cash into operating and other items. Operating items include: Automotive segment pre-tax profits, capital spending, which we report as an operating cash flow as it is a key contributor to our Automotive segment financial results, depreciation and tooling amortization, changes in working capital, and All Otherother and timing differences. OtherNon-operating items include: separation payments, transactions with other segments, acquisitions and divestitures, changes in Automotive debt, contributions to funded pension plans, and dividends paid to shareholders.shareholder distributions.

Third quarter 20162017 Automotive operating cash flow was $2$1.7 billion negative, reflecting primarily reflecting the seasonal impact of lower production and dealer stocks on working capital and timing differences. First nine months 2016 Automotive operating cash flow was a strong $4.9 billion positive, more than explained by Automotive segment pre-tax profit.differences and other payments net of accrual changes.

Third quarter 2016 capital
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)


Capital spending was $1.7 billion in the third quarter of 2017, and first nine months 2016our outlook for full year capital spending was $4.9 billion. Full year 2016 capital spending is expected to beremains on track for about $7 billion. Based on expected cash flows and the identification of additional opportunities for profitable growth, the ongoing amount of capital spending to support product development, growth, restructuring, and infrastructure is expected to increase tobe about $9$8 billion annually bythrough 2020.

Item 2. Management’s Discussion and AnalysisIn the third quarter of Financial Condition and Results2017, we made over $200 million in pension contributions to our funded plans. We now expect full year contributions to our funded plans to total about $1.5 billion. This is higher than our prior guidance of Operations (Continued)about $1 billion, as we plan to pull ahead about $500 million of 2018 planned funding into the fourth quarter of 2017 to achieve a cash tax benefit.

Shareholder distributions were about $600 million in the third quarter of 2017. For the full year, we expect distributions to be about $2.7 billion.
 

With respect to “Changes in working capital,” in general we carry relatively low Automotive segment trade receivables compared with our trade payables because the majority of our Automotive wholesales are financed (primarily by Ford Credit) immediately upon sale of vehicles to dealers, which generally occurs at the time the vehicles are gate-released shortly after being produced. In addition, our inventories are lean because we build to order, not for inventory. In contrast, our Automotive trade payables are based primarily on industry-standard production supplier payment terms generally ranging between 30 days to 45 days. As a result, our cash flow tends to improve as wholesale volumes increase, but can deteriorate significantly when wholesale volumes drop sharply. These working capital balances generally are subject to seasonal changes that can impact cash flow. For example, we typically experience cash flow timing differences associated with inventories and payables due to our annual summer and December shutdown periods, when production, and therefore inventories and wholesale volumes, are usually at their lowest levels, while payables continue to come due and be paid. The net impact of this typically results in cash outflows from changes in our working capital balances during these shutdown periods.

Available Credit Lines. Total committed Automotive credit lines at September 30, 20162017 were $11.9$12 billion, consisting of $10.4 billion of our corporate credit facility and $1.5$1.6 billion of local credit facilities available tofor use by our non-U.S. Automotive affiliates. At September 30, 2016,2017, the utilized portion of the corporate credit facility was about $40$35 million, representing amounts utilized for letters of credit. At September 30, 2016,2017, the utilized portion of the local credit facilities was about $1$1.1 billion.

Our corporate credit facility was amended as of April 28, 2017 to extend the maturities by one year. Lenders under our corporate credit facility have commitments to us totaling $13.4 billion, with 75% of the commitments maturing on April 30, 20212022 and 25% of the commitments maturing on April 30, 2019.2020. We have allocated $3 billion of commitments to Ford Credit on an irrevocable and exclusive basis to support its growth and liquidity. Any borrowings by Ford Credit under the corporate credit facility would be guaranteed by us.

The corporate credit facility is unsecured and free of material adverse change conditions to borrowing, restrictive financial covenants (for example, interest or fixed charge coverage ratio, debt-to-equity ratio, and minimum net worth requirements), and credit rating triggers that could limit our ability to obtain funding. The corporate credit facility contains a liquidity covenant that requires us to maintain a minimum of $4 billion in aggregate of domestic cash, cash equivalents, and loaned and marketable securities and/or availability under the facility. If our senior, unsecured, long-term debt does not maintain at least two investment grade ratings from Fitch, Moody’s, and S&P (each as defined under “Credit Ratings” below), the guarantees of certain subsidiaries will be required.

Debt. Total Automotive debt at September 30, 20162017 was $13.1$16.2 billion, which is about $300$280 million higher than it was at December 31, 2015.2016. The increase primarily reflectsis more than explained by an increase in local fundingdebt in international markets (including the impact of the adoption of ASC 606, Revenue from Contracts with Customers) and foreign currency exchange effects, offset partially by debt repayments.

Leverage. We manage Automotive debt levels with a leverage framework to maintain strong, investment grade credit ratings through a normal business cycle. The leverage framework includes a ratio of Automotive debt, underfunded pension liabilities, operating leases, and other adjustments, divided by Automotive income before income tax, adjusted for depreciation, amortization, interest expense on Automotive debt, and other adjustments. Ford Credit’s leverage is calculated as a separate business as described in the Liquidity - Financial Services section of Item 2. Ford Credit is self-funding and its debt, which is used to fund its operations, is separate from our Automotive debt.



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

 

Financial Services Segment

Ford Credit

Funding Overview. Ford Credit’s primary funding and liquidity objective is to maintainbe well capitalized with a strong investment grade balance sheet withand ample liquidity to support its financing activities and growth under a variety of market conditions, including short-term and long-term market disruptions. Ford Credit’s funding strategy remains focused on diversification, and it plans to continue accessing a variety of markets, channels, and investors.

Ford Credit’s liquidity profile continues to be diverse, robust, and focused on maintaining liquidity levels that meet its business and funding requirements. Ford Credit regularlyannually stress tests its balance sheet and liquidity to ensure that it continues to meet its financial obligations through economic cycles.

Funding Portfolio. The following chart below shows the trends in funding for Ford Credit’s managed receivables:

q32016fcfundingstructure1.jpgq32017fcmanrec5.jpg

Ford Credit’s managedManaged receivables of $134$145 billion at the endas of the third quarter of 2016September 30, 2017, were funded primarily with term debt and term asset-backed securities. Securitized funding as a percent of managed receivables was 33%.

Ford Credit expects the mix of securitized funding to trend lower over time.remain around 35%. The calendarization of the funding plan maywill result in quarterly fluctuations of the securitized funding percentage. Ford Credit expects this mix to be higher in the fourth quarter.



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

 

Public Term Funding Plan. The following chart shows Ford Credit’s issuances for full-year 20142015 and 2015,2016, planned issuances for full-year 2016,2017, and its global public term funding issuances through October 26, 2016,25, 2017, excluding short-term funding programs:

q32016fcfundingplan3.jpgq32017fcfunding6.jpg

For 2016,2017, Ford Credit now projectsCredit’s full-year forecast for public term funding is in the range of $26$28 billion to $29$32 billion. Through October 26, 2016,25, 2017, Ford Credit has completed $26about $25 billion of public term issuance.



The forecast reflects the potential for Ford Credit U.S. to issue euro-denominated debt and on-lend to FCE Bank plc to provide funding flexibility given the uncertainty around Brexit.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

 

Liquidity. Ford Credit defines gross liquidity as cash, cash equivalents, and marketable securities (excluding amounts related to insurance activities) and committed capacity (which includes its credit and asset-backed facilities and bank lines), less utilization of liquidity. Utilization of liquidity is the amount funded under Ford Credit’s liquidity sources and also includes the cash and cash equivalents required to support securitization transactions. Securitization cash is cash held for the benefit of the securitization investors (for example, a reserve fund). Net liquidity available for use is defined as gross liquidity less certain adjustments for asset-backed capacity in excess of eligible receivables and cash related to the Ford Credit Revolving Extended Variable-utilization program (“FordREV”), which can be accessed through future sales of receivables. While not included in available liquidity, these adjustments represent additional funding sources for future originations

The following chart shows Ford Credit’s liquidity sources and utilization:

q32016fcliquidity3.jpgq32017fcliquidity5.jpg

Ford Credit’s liquidity available for use will fluctuate quarterly based on factors including near-term debt maturities, receivable growth, and timing of funding transactions. Ford Credit has a targettargets liquidity of at least $25 billion. As ofAt September 30, 2016,2017, Ford Credit’s liquidity available for use was up $9.8$2.9 billion fromhigher than at year-end 20152016 and down $500 million from second quarter 2016.$1.4 billion higher than at June 30, 2017.

As of September 30, 2016,2017, Ford Credit’s liquidity remained strong at $33.3$29.9 billion. ItsFord Credit’s sources of liquidity include cash, committed asset-backed facilities, unsecured credit facilities, and the corporate credit facility allocation. As of September 30, 2016,2017, Ford Credit’s liquidity sources including cash totaled $50.2$50.5 billion, up $500down $400 million from year-end.


year-end 2016.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

 

Leverage. Ford Credit uses leverage, or the debt-to-equity ratio, to make various business decisions, including evaluating and establishing pricing for finance receivable and operating lease financing, and assessing its capital structure.

The following chart below shows the calculation of Ford Credit’s financial statement leverage and managed leverage (in billions, except for ratios):leverage:

q32016fcleverage3.jpgq32017fcleverage8a.jpg

Ford Credit plans its managed leverage by considering prevailing market conditions and the risk characteristics of its business. At September 30, 2016,2017, Ford Credit’s financial statement leverage was 9.7:9.4:1, and its managed leverage was 9.2:8.7:1. ManagedFord Credit targets managed leverage is abovein the targeted range of 8:1 to 9:1, but continues to trend toward the target range.1.

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


Total Company

Pension Plans - Underfunded Balances. As of September 30, 2016,2017, our total Company pension underfunded status reported on our balance sheet was $7$8 billion and reflects the net underfunded status at December 31, 20152016, updated for service and interest cost, expected return on assets, separation expense, actual benefit payments, and cash contributions.  The discount rate and rate of expected return assumptions are unchanged from year-end 2015,2016, and the reported number does not reflect the impact from the declineany change in interest rates throughoutor asset returns since year-end 2016.

As a result of our pension de-risking strategy, the sensitivity of our funded status to changes in interest rates has been significantly reduced, especially in the United States.  In Europe, however, where our de-risking is less advanced, lower Eurozone and U.K. bond yields will negatively impact our funded status. Based on our planning assumptions for asset returns, discount rates, and contributions, we expect a modest deterioration in our funded status to improve at year-end 20162017 compared to year-end 2015.the end of last year.

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

Supplemental Financial Information

The tables below provide supplemental consolidating financial information. The data is presented by our reportable segments, Automotive and Financial Services. All Other and Adjustments include our operating segments that did not meet the quantitative threshold to qualify as a reportable segment, eliminations of intersegment transactions, deferred tax netting, and special items (if applicable). See Note 3 of the Notes to the Financial Statements for information regarding our segments.

Selected Balance Sheet Information. The following tables provide supplemental balance sheet information, by segment, at September 30, 2016 (in millions):
Assets Automotive 
Financial
Services
 All Other and Adjustments Consolidated
Cash and cash equivalents $7,655
 $5,675
 $10
 $13,340
Marketable securities 16,645
 4,180
 —
 20,825
Financial Services finance receivables, net —
 45,550
 —
 45,550
Trade and other receivables, less allowances 4,481
 5,548
 —
 10,029
Inventories 10,219
 —
 —
 10,219
Other assets 2,372
 1,180
 —
 3,552
Receivable from other segments 4
 589
 (593) —
   Total current assets 41,376
 62,722
 (583) 103,515
         
Financial Services finance receivables, net —
 49,614
 —
 49,614
Net investment in operating leases 2,235
 26,961
 —
 29,196
Net property 32,106
 151
 —
 32,257
Equity in net assets of affiliated companies 3,633
 151
 11
 3,795
Deferred income taxes 13,125
 141
 (3,791) 9,475
Other assets 4,794
 2,271
 46
 7,111
Receivable from other segments —
 968
 (968) —
   Total assets $97,269
 $142,979
 $(5,285) $234,963

Liabilities Automotive 
Financial
Services
 All Other and Adjustments Consolidated
Payables $21,184
 $1,200
 $—
 $22,384
Other liabilities and deferred revenue 18,550
 974
 7
 19,531
Automotive debt payable within one year 2,472
 —
 —
 2,472
Financial Services debt payable within one year —
 44,801
 —
 44,801
Payable to other segments 589
 —
 (589) —
   Total current liabilities 42,795
 46,975
 (582) 89,188
         
Other liabilities and deferred revenue 22,913
 739
 —
 23,652
Automotive long-term debt 10,675
 —
 —
 10,675
Financial Services long-term debt —
 79,276
 —
 79,276
Deferred income taxes 239
 4,129
 (3,791) 577
Payable to other segments 968
 —
 (968) —
   Total liabilities $77,590
 $131,119
 $(5,341) $203,368

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

Selected Cash Flow Information. The following tables provide supplemental cash flow information, by segment, for the nine months ended September 30, 2016 (in millions):
Cash flows from operating activities Automotive 
Financial
Services
 All Other and Adjustments Consolidated
Net cash provided by /(used in) operating activities $8,233
 $8,761
 $—
 $16,994
        

Reconciling Adjustments to Automotive Segment Operating Cash Flows*      

Automotive capital spending (4,879)     

Net cash flows from non-designated derivatives 322
      
Funded pension contributions 835
     

Separation payments 198
      
Other 208
     

Automotive Segment Operating Cash Flows $4,917
     

_________
*We measure and evaluate our Automotive segment operating cash flow on a different basis than Net cash provided by/(used in) operating activities in our consolidated statement of cash flows. Automotive segment operating cash flow includes additional elements management considers to be related to our Automotive operating activities, primarily capital spending and non-designated derivatives, and excludes outflows for funded pension contributions, separation payments, and other items that are considered operating cash flows under U.S. GAAP. The table above quantifies the reconciling adjustments to Net cash provided by/(used in) operating activities for the period ended September 30, 2016.

Cash flows from investing activities Automotive 
Financial
Services
 All Other and Adjustments Consolidated
Capital spending $(4,879) $(33) $—
 $(4,912)
Acquisitions of finance receivables and operating leases —
 (43,746) —
 (43,746)
Collections of finance receivables and operating leases —
 30,254
 —
 30,254
Purchases of equity and debt securities (16,249) (5,794) (6) (22,049)
Sales and maturities of equity and debt securities 17,654
 4,368
 —
 22,022
Settlements of derivatives 322
 8
 —
 330
Other 148
 (61) (44) 43
Investing activity (to)/from other segments 63
 —
 (63) —
Net cash provided by/(used in) investing activities $(2,941) $(15,004) $(113) $(18,058)

Cash flows from financing activities Automotive 
Financial
Services
 All Other and Adjustments Consolidated
Cash dividends $(2,780) $—
 $—
 $(2,780)
Purchases of Common Stock (145) —
 —
 (145)
Net changes in short-term debt 252
 948
 —
 1,200
Proceeds from issuance of other debt 330
 31,626
 —
 31,956
Principal payments on other debt (764) (29,255) —
 (30,019)
Other 46
 (90) —
 (44)
Financing activity to/(from) other segments —
 (123) 123
 —
Net cash provided by/(used in) financing activities $(3,061) $3,106
 $123
 $168
         
Effect of exchange rate changes on cash and cash equivalents$38
 $(74) $—
 $(36)


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

CREDIT RATINGS

Our short-term and long-term debt is rated by four credit rating agencies designated as nationally recognized statistical rating organizations (“NRSROs”) by the U.S. Securities and Exchange Commission:

DBRS Limited (“DBRS”);
Fitch, Inc. (“Fitch”);
Moody’s Investors Service, Inc. (“Moody’s”); and
Standard & Poor’s Ratings Services, a division of McGraw Hill Financial (“S&P”).

In several markets, locally-recognized rating agencies also rate us. A credit rating reflects an assessment by the rating agency of the credit risk associated with a corporate entity or particular securities issued by that entity. Rating agencies’ ratings of us are based on information provided by us and other sources. Credit ratings assigned to us from all of the NRSROs are closely associated with their opinions on Ford. Credit ratings are not recommendations to buy, sell, or hold securities, and are subject to revision or withdrawal at any time by the assigning rating agency. Each rating agency may have different criteria for evaluating company risk and, therefore, ratings should be evaluated independently for each rating agency.

There have been no rating actions taken by these NRSROs since the filing of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2016.2017.

The following chart summarizes certain of the credit ratings and outlook presently assigned by these four NRSROs:
 NRSRO RATINGS
 Ford Ford Credit NRSROs
 
Issuer
Default /
Corporate /
Issuer Rating
 Long-Term Senior Unsecured Outlook / Trend Long-Term Senior Unsecured 
Short-Term
Unsecured
 Outlook / Trend Minimum Long-Term Investment Grade Rating
DBRSBBB BBB Stable BBB R-2M Stable BBB (low)
FitchBBB BBB Stable BBB F2 Stable BBB-
Moody’sN/A Baa2 Stable Baa2 P-2 Stable Baa3
S&PBBB BBB Stable BBB A-2 Stable BBB-

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


GDP AND INDUSTRY PLANNING ASSUMPTIONS

Based on the current environment, our GDP and industry planning assumptions include the following:

q32017planassumptions6.jpg

Since the filing of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, we have updated our expectations for full year industry sales for the United States, Brazil, and China and raised Euro Area growth outlook on the back of a stronger year-to-date performance.

We are adjusting our 2017 guidance for the United States down to 17.4 million units, in line with weaker year-to-date performance in the fleet and retail sectors, while closely monitoring the effects of Hurricanes Harvey and Irma on sales.

Our outlook for Brazil is slightly lower at 2.2 million units, but the economic recovery appears to be gaining traction despite a challenging political backdrop.

In Europe, 2017 industry volume is unchanged as compared to our prior guidance, with sales supported by firmer economic expansion in the Euro Area and ongoing recovery in Russia, but with Brexit-related headwinds in the United Kingdom.

In China, we are raising the industry guidance to 28.2 million units in 2017 to reflect a better-than-expected response to the extension of the purchase tax incentive on small vehicles, supported by a stable economy.

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

 

PRODUCTION VOLUMES

The third quarter 20162017 actual and fourth quarter 2016 forecast2017 forecasted production volumes for our Automotive business units are as follows:

q32016prodvolume7.jpgq32017prodvolumes8a.jpg

Production volumes above include Ford brand and JMC brand vehicles produced by our unconsolidated affiliates.


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

 

OUTLOOK

Business Environment

Our view of the global business environment is as follows:

▪Global growth outlook for 2016 remains modest at just under 3%

▪Full year GDP outlook reduced for United States on weak first half data; consumer spending remains solid with vehicle sales at high plateau

▪Europe growth steady; U.K. data improving after initial Brexit shock but tone heading into formal exit negotiations is driving a weaker sterling

▪China growth still supported by consumer and services sector strength, with vehicle purchase tax reduction in place through year end

▪Russia and Brazil economies show signs of bottoming out

2016 Planning Assumptions and Key Metrics

Based on the current economic environment, our industry and GDP planning assumptionsCompany guidance for 2016 include2017 includes the following:

q32016gdpplanassump7.jpgq32017totcoguidance7a.jpg

AllWith the improvement in all,our operating performance, and traction against cost initiatives, we see some risksare tightening our adjusted EPS guidance range to global GDP growth as policy uncertainty, including Brexit negotiations, adds$1.75 to existing weakness in global trade flows and business investment spending. This$1.85, which is offset partially by a steady consumer sector in most major markets. We are updating our global GDP guidance to 2.9%, the low endupper half of our prior range. For industry volumes, we are providing upward adjustments for China and Europe, with a small downward adjustment for Brazil.guidance.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

2016 Business Unit and Total Company Guidance

q32016buguidance7.jpg

We continue to expect healthy returns from North America in 2016, with an operating margin in the 9% to 9.5% range. Excluding the door latch recall, the margin would exceed 9.5%, consistent with our original guidance for 2016. We continue to expect South America’s loss to be greater in 2016 than in 2015. In Europe, we continue to expect a significantly higher profit in 2016 compared to last year. In Middle East & Africa, we continue to expect a loss in 2016 compared to the small profit we earned last year. In Asia Pacific, we continue to expect a lower profit in 2016 than last year, driven by adverse China industry pricing and unfavorable exchange. For the full year, we continue to expect Ford Credit’s pre-tax profit to be about $1.8 billion.

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

q32016tocoguidance7.jpgOur business unit guidance for 2017 includes the following:

Shown above is our 2016 Company Guidance, including guidance for total Company adjusted pre-tax results, which is a non-GAAP financial measure. We do not provide guidance on our net income, the comparable GAAP financial measure. Full-year net income will include potentially significant special items that have not yet occurred and are difficult to predict with reasonable certainty prior to year end, specifically pension and OPEB remeasurement gains and losses.q32017buguidance6.jpg

We have had a strong first nine monthsThe business unit guidance above provides our latest assessment of the year, and we continue to expect 2016 full year total Company adjusted pre-tax profit2017 “puts and takes” for each region or segment compared to be about $10.2 billion – an outcome that would be our second best since 2000.

results in 2016.

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

 

GAAP RECONCILIATIONS TO NON-GAAP FINANCIAL MEASURESMEASURE RECONCILIATIONS

The following charts show GAAP reconciliations of our Non-GAAP financial measuresmeasure reconciliations for: Adjusted Pre-Tax Profit, Adjusted Earnings Per Share, Adjusted Effective Tax Rate, and Ford Credit Managed Receivables. The GAAP reconciliation for Ford Credit Managed Leverage can be found in the Financial Services Segment section of “Liquidity and Capital Resources.”

q32016netincrecon7.jpgq32017netincomerecon5.jpg

q32016epsrecon7.jpgq32017epsrecon5.jpg
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

 

q32016taxraterecon7.jpgq32017taxraterecon5.jpg

q32016manrecrecon7.jpg


q32017manrecrecon5.jpg

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


Supplemental Financial Information

The tables below provide supplemental consolidating financial information. The data is presented by our reportable segments, Automotive and Financial Services. All Other, Special Items, and Adjustments include our operating segments that did not meet the quantitative threshold to qualify as a reportable segment, special items, eliminations of intersegment transactions, and deferred tax netting.

Selected Income Statement Information. The following table provides supplemental income statement information, by segment (in millions):
  For the period ended September 30, 2017
  Third Quarter
  Automotive 
Financial
Services
 All Other, Special Items, & Adjustments Consolidated
Total revenues $33,646
 $2,802
 $3
 $36,451
Total costs and expenses 32,987
 2,273
 220
 35,480
Interest expense on Automotive debt —
 —
 284
 284
Other income/(loss), net 704
 45
 5
 754
Equity in net income of affiliated companies 305
 10
 1
 316
Income/(loss) before income taxes 1,668
 584
 (495) 1,757
Provision for/(Benefit from) income taxes 146
 185
 (145) 186
Net income/(Loss) 1,522
 399
 (350) 1,571
Less: Income/(Loss) attributable to noncontrolling interests7
 —
 —
 7
Net income/(Loss) attributable to Ford Motor Company$1,515
 $399
 $(350) $1,564


  For the period ended September 30, 2017
  First Nine Months
  Automotive 
Financial
Services
 All Other, Special Items, & Adjustments Consolidated
Total revenues $107,234
 $8,209
 $7
 $115,450
Total costs and expenses 104,282
 6,722
 502
 111,506
Interest expense on Automotive debt —
 —
 840
 840
Other income/(loss), net 1,962
 141
 117
 2,220
Equity in net income of affiliated companies 910
 25
 —
 935
Income/(loss) before income taxes 5,824
 1,653
 (1,218) 6,259
Provision for/(Benefit from) income taxes 887
 507
 (350) 1,044
Net income/(Loss) 4,937
 1,146
 (868) 5,215
Less: Income/(Loss) attributable to noncontrolling interests22
 —
 —
 22
Net income/(Loss) attributable to Ford Motor Company$4,915
 $1,146
 $(868) $5,193

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


Selected Balance Sheet Information. The following tables provide supplemental balance sheet information, by segment (in millions):
  September 30, 2017
Assets Automotive 
Financial
Services
 All Other & Adjustments Consolidated
Cash and cash equivalents $8,753
 $8,835
 $1
 $17,589
Marketable securities 17,391
 3,101
 —
 20,492
Financial Services finance receivables, net —
 49,541
 —
 49,541
Trade and other receivables, less allowances 4,443
 5,834
 —
 10,277
Inventories 11,263
 —
 —
 11,263
Other assets 2,400
 1,169
 1
 3,570
Receivable from other segments 34
 1,537
 (1,571) —
   Total current assets 44,284
 70,017
 (1,569) 112,732
         
Financial Services finance receivables, net —
 54,323
 —
 54,323
Net investment in operating leases 1,783
 26,931
 —
 28,714
Net property 34,571
 176
 13
 34,760
Equity in net assets of affiliated companies 3,238
 106
 —
 3,344
Deferred income taxes 14,347
 244
 (4,232) 10,359
Other assets 5,311
 1,660
 70
 7,041
Receivable from other segments —
 1,156
 (1,156) —
   Total assets $103,534
 $154,613
 $(6,874) $251,273
Liabilities Automotive 
Financial
Services
 All Other & Adjustments Consolidated
Payables $22,341
 $1,219
 $6
 $23,566
Other liabilities and deferred revenue 18,379
 1,218
 15
 19,612
Automotive debt payable within one year 3,551
 —
 —
 3,551
Financial Services debt payable within one year —
 47,623
 —
 47,623
Payable to other segments 1,534
 —
 (1,534) —
   Total current liabilities 45,805
 50,060
 (1,513) 94,352
         
Other liabilities and deferred revenue 23,663
 1,155
 1
 24,819
Automotive long-term debt 12,633
 —
 —
 12,633
Financial Services long-term debt —
 85,305
 —
 85,305
Deferred income taxes 169
 4,867
 (4,232) 804
Payable to other segments 1,146
 —
 (1,146) —
   Total liabilities $83,416
 $141,387
 $(6,890) $217,913

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


Selected Cash Flow Information. The following tables provide supplemental cash flow information, by segment (in millions):
  For the period ended September 30, 2017
  First Nine Months
Cash flows from operating activities Automotive 
Financial
Services
 All Other & Adjustments Consolidated
Net cash provided by/(used in) operating activities $5,575
 $9,418
 $(44) $14,949
         
Reconciling Adjustments to Automotive Segment Operating Cash Flows*       
Automotive capital spending (4,901)      
Settlements of derivatives 110
      
Funded pension contributions 720
      
Separation payments 100
      
Other 28
      
Automotive Segment Operating Cash Flows $1,632
      
_________
*We measure and evaluate our Automotive segment operating cash flow on a different basis than Net cash provided by/(used in) operating activities in our consolidated statement of cash flows. Automotive segment operating cash flow includes additional elements management considers to be related to our Automotive operating activities, primarily capital spending and non-designated derivatives, and excludes outflows for funded pension contributions, separation payments, and other items that are considered operating cash flows under U.S. GAAP. The table above quantifies the reconciling adjustments to Net cash provided by/(used in) operating activities for the period ended September 30, 2017.

  For the period ended September 30, 2017
  First Nine Months
Cash flows from investing activities Automotive 
Financial
Services
 All Other & Adjustments Consolidated
Capital spending $(4,901) $(35) $—
 $(4,936)
Acquisitions of finance receivables and operating leases —
 (43,054) —
 (43,054)
Collections of finance receivables and operating leases —
 32,988
 —
 32,988
Purchases of equity and debt securities (16,188) (4,359) (3) (20,550)
Sales and maturities of equity and debt securities 18,389
 4,564
 —
 22,953
Settlements of derivatives 110
 (48) —
 62
Other (17) 18
 (6) (5)
Investing activity (to)/from other segments 286
 —
 (286) —
Net cash provided by/(used in) investing activities $(2,321) $(9,926) $(295) $(12,542)

Cash flows from financing activities Automotive 
Financial
Services
 All Other & Adjustments Consolidated
Cash dividends $(1,988) $—
 $—
 $(1,988)
Purchases of common stock (131) —
 —
 (131)
Net changes in short-term debt 208
 1,691
 —
 1,899
Proceeds from issuance of other debt 575
 29,982
 —
 30,557
Principal payments on other debt (1,087) (30,291) —
 (31,378)
Other (49) (75) —
 (124)
Financing activity to/(from) other segments —
 (332) 332
 —
Net cash provided by/(used in) financing activities $(2,472) $975
 $332
 $(1,165)
         
Effect of exchange rate changes on cash and cash equivalents$151
 $291
 $—
 $442

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

 

Risk Factors

Statements included or incorporated by reference herein may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on expectations, forecasts, and assumptions by our management and involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from those stated, including, without limitation:

Decline in industry sales volume, particularly in the United States, Europe, or China, due to financial crisis, recession, geopolitical events, or other factors; 
Decline in Ford’s market share or failure to achieve growth;
Lower-than-anticipated market acceptance of Ford’s new or existing products or services;services, or failure to achieve expected growth;
Market shift away from sales of larger, more profitable vehicles beyond Ford’s current planning assumption, particularly in the United States;
An increase in or continued volatility of fuel prices, or reduced availability of fuel;
Continued or increased price competition resulting from industry excess capacity, currency fluctuations, or other factors;
Fluctuations in foreign currency exchange rates, commodity prices, and interest rates;
Adverse effects resulting from economic, geopolitical, protectionist trade policies, or other events;
Economic distress of suppliers that may require Ford to provide substantial financial support or take other measures to ensure supplies of components or materials and could increase costs, affect liquidity, or cause production constraints or disruptions;
Work stoppages at Ford or supplier facilities or other limitations on production (whether as a result of labor disputes, natural or man-made disasters, tight credit markets or other financial distress, production constraints or difficulties, or other factors);
Single-source supply of components or materials;
Labor or other constraints on Ford’s ability to maintain competitive cost structure;
Substantial pension and other postretirement health care and life insurance liabilities impairing liquidity or financial condition;
Worse-than-assumed economic and demographic experience for pension and other postretirement benefit plans (e.g., discount rates or investment returns);
Restriction on use of tax attributes from tax law “ownership change;”  
The discovery of defects in vehicles resulting in delays in new model launches, recall campaigns, or increased warranty costs;
Increased safety, emissions, fuel economy, or other regulations resulting in higher costs, cash expenditures, and/or sales restrictions;
Unusual or significant litigation, governmental investigations, or adverse publicity arising out of alleged defects in products, perceived environmental impacts, or otherwise;
A change in requirements under long-term supply arrangements committing Ford to purchase minimum or fixed quantities of certain parts, or to pay a minimum amount to the seller (“take-or-pay” contracts);
Adverse effects on results from a decrease in or cessation or clawback of government incentives related to investments;
Inherent limitations of internal controls impacting financial statements and safeguarding of assets;
Cybersecurity risks to operational systems, security systems, or infrastructure owned by Ford, Ford Credit, or a third-party vendor or supplier;  
Failure of financial institutions to fulfill commitments under committed credit and liquidity facilities;
Inability of Ford Credit to access debt, securitization, or derivative markets around the world at competitive rates or in sufficient amounts, due to credit rating downgrades, market volatility, market disruption, regulatory requirements, or other factors;
Higher-than-expected credit losses, lower-than-anticipated residual values, or higher-than-expected return volumes for leased vehicles;
Increased competition from banks, financial institutions, or other third parties seeking to increase their share of financing Ford vehicles; and
New or increased credit regulations, consumer or data protection regulations, or other regulations resulting in higher costs and/or additional financing restrictions.

We cannot be certain that any expectation, forecast, or assumption made in preparing forward-looking statements will prove accurate, or that any projection will be realized. It is to be expected that there may be differences between projected and actual results. Our forward-looking statements speak only as of the date of their initial issuance, and we do not undertake any obligation to update or revise publicly any forward-looking statement, whether as a result of new information, future events, or otherwise. For additional discussion, see “Item 1A. Risk Factors” in our 20152016 Form 10-K Report, as updated by our subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

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

 

ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED

The Financial Accounting Standards Board (“FASB”) has issued the following standards, which are not expected to have a material impact (with the exception of standards 2016-02 2016-09, and 2016-13) to our financial statements or financial statement disclosures:
Standard Effective Date (a)
2014-152016-18Going ConcernStatement of Cash Flows - Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going ConcernDecember 31, 2016
2016-09Stock Compensation - Improvements to Employee Share-Based Payment AccountingRestricted Cash January 1, 2017 (b)
2016-07Equity Method and Joint Ventures - Simplifying the Transition to the Equity Method of AccountingJanuary 1, 2017
2016-06Derivatives and Hedging - Contingent Put and Call Options in Debt InstrumentsJanuary 1, 2017
2016-05Derivatives and Hedging - Effect of Derivative Contract Novations on Existing Hedge Accounting RelationshipsJanuary 1, 20172018
2016-16Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory January 1, 2018
2016-15Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments January 1, 2018
2016-04Extinguishments of Liabilities - Recognition of Breakage for Certain Prepaid Stored-Value ProductsJanuary 1, 2018
2016-01Financial Instruments - Recognition and Measurement of Financial Assets and Financial Liabilities January 1, 2018
2014-092017-12Revenue - Revenue from Contracts with CustomersDerivatives and Hedging January 1, 20182019 (b) (c)
2017-08Nonrefundable Fees and Other Costs - Premium Amortization on Purchased Callable Debt SecuritiesJanuary 1, 2019
2016-02Leases January 1, 2019 (b)
2016-13Credit Losses - Measurement of Credit Losses on Financial Instruments January 1, 2020 (b)
__________
(a)Early adoption for each of the standards, except standard 2016-01, is permitted.
(b)For additional information, see Note 2 of the Notes to the Financial Statements.
(c)The FASB has issued the following updates to the Revenue from Contracts with Customers standard: Accounting Standard Update (“ASU”) 2015-14 (Deferral of the Effective Date), ASU 2016-08 (Principal versus Agent Considerations (Reporting Revenue Gross versus Net)), ASU 2016-10 (Identifying Performance Obligations and Licensing), and ASU 2016-12 (Narrow-Scope Improvements and Practical Expedients). We plan to adopt the new revenue guidance effective January 1, 2017.

OTHER FINANCIAL INFORMATION

The interim financial information included in this Quarterly Report on Form 10-Q for the periods ended
September 30, 20162017 and 20152016 has not been audited by PricewaterhouseCoopers LLP (“PwC”). In reviewing such information, PwC has applied limited procedures in accordance with professional standards for reviews of interim financial information. Readers should restrict reliance on PwC’s reports on such information accordingly. PwC is not subject to the liability provisions of Section 11 of the Securities Act of 1933 for its reports on interim financial information, because such reports do not constitute “reports” or “parts” of registration statements prepared or certified by PwC within the meaning of Sections 7 and 11 of the Securities Act of 1933.


ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.

Automotive Segment
 
Foreign Currency Risk. The net fair value of foreign exchange forward contracts (including adjustments for credit risk), as of September 30, 2016,2017, was an asset of $791$101 million, compared with an asset of $322$528 million as of December 31,2015. 2016. The potential decrease in fair value from a 10% adverse change in the underlying exchange rates, in U.S. dollar terms, would be $2.7was $2.8 billion at September 30, 2016,2017, compared with $2.2$2.7 billion at December 31, 2015.2016.

Commodity Price Risk. The net fair value of commodity forward contracts (including adjustments for credit risk) as of September 30, 20162017, was an asset of $6$23 million, compared with a liabilityan asset of $24$5 million as ofat December 31, 2015.2016. The potential decrease in fair value from a 10% adverse change in the underlying commodity prices, in U.S. dollar terms, would be $53was $63 million at September 30, 2016,2017, compared with $62$54 million at December 31, 2015.2016.


Financial Services Segment
  
Interest Rate Risk. To provide a quantitative measure of the sensitivity of its pre-tax cash flow to changes in interest rates, Ford Credit uses interest rate scenarios that assume a hypothetical, instantaneous increase or decrease of one percentage point in all interest rates across all maturities (a “parallel shift”), as well as a base case that assumes that all interest rates remain constant at existing levels. The differences in pre-tax cash flow between these scenarios and the base case over a 12-month period represent an estimate of the sensitivity of Ford Credit’s pre-tax cash flow. Under this model, Ford Credit estimates that at September 30, 2016,2017, all else constant, such an increase in interest rates would increasedecrease its pre-tax cash flow by $5$2 million over the next 12 months, compared with an increase of $7$21 million at December 31, 20152016. In reality, interest rate changes are rarely instantaneous or parallel and rates could move more or less than the one percentage point assumed in Ford Credit’s analysis. As a result, the actual impact to pre-tax cash flow could be higher or lower than the results detailed above.


ITEM 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures. Mark Fields,James P. Hackett, our Chief Executive Officer (“CEO”), and Bob Shanks, our Chief Financial Officer (“CFO”), have performed an evaluation of the Company’s disclosure controls and procedures, as that term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), as of September 30, 2016,2017, and each has concluded that such disclosure controls and procedures are effective to ensure that information required to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified by SEC rules and forms, and that such information is accumulated and communicated to the CEO and CFO to allow timely decisions regarding required disclosures.

Changes in Internal Control Over Financial Reporting. There were no changes in internal control over financial reporting during the quarter ended September 30, 20162017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings.

Transit Connect Customs Ruling. On March 8, 2013, U.S. Customs and Border Protection (“CBP”) ruled that Transit Connects imported as passenger wagons and later converted into cargo vans are subject to the 25% duty applicable to cargo vehicles, rather than the 2.5% duty applicable to passenger vehicles. As a result of the ruling, CBP is requiring us to pay the 25% duty upon importation of Transit Connects that will be converted to cargo vehicles, and is seeking the difference in duty rates for prior imports. Our protest of the ruling within CBP was denied and we filed a challenge in the U.S. Court of International Trade (“CIT”). On August 9, 2017, the CIT ruled in our favor. On October 6, 2017, CBP filed a notice of appeal to the U.S. Court of Appeals for the Federal Circuit. If we prevail on appeal, we will receive a refund of the contested amounts paid, plus interest.

ITEM 6. Exhibits.

Please see exhibit index below.


SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
FORD MOTOR COMPANY

By:/s/ John Lawler
John Lawler, Vice President and Controller
(principal accounting officer)
Date:October 27, 2016



EXHIBIT INDEX
Designation Description Method of Filing
Exhibit 12
 Calculation of Ratio of Earnings to Fixed Charges. Filed with this Report.
Exhibit 15
 Letter of PricewaterhouseCoopers LLP, dated October 27, 2016,26, 2017, relating to financial information. Filed with this Report.
Exhibit 31.1
 Rule 15d-14(a) Certification of CEO. Filed with this Report.
Exhibit 31.2
 Rule 15d-14(a) Certification of CFO. Filed with this Report.
Exhibit 32.1
 Section 1350 Certification of CEO. Furnished with this Report.
Exhibit 32.2
 Section 1350 Certification of CFO. Furnished with this Report.
Exhibit 101.INS XBRL Instance Document. *
Exhibit 101.SCH XBRL Taxonomy Extension Schema Document. *
Exhibit 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document. *
Exhibit 101.LAB XBRL Taxonomy Extension Label Linkbase Document. *
Exhibit 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document. *
Exhibit 101.DEF XBRL Taxonomy Extension Definition Linkbase Document. *
__________
* Submitted electronically with this Report in accordance with the provisions of Regulation S-T.



SIGNATURE


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
FORD MOTOR COMPANY












By:/s/ John Lawler
John Lawler, Vice President and Controller
(principal accounting officer)
Date:October 26, 2017



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