Looking at the heading of the Consolidated Statement of Equity for Ford Motor Company and its Subsidiaries. 1. The heading of the statement is not quite clear. You may need to refer to the text. What is the date of the statement for the most current year? Is it for a period of time or at a point in time? Explain. 2. Each column heading represents a line item in the Equity section of the Balance Sheet. However, there are seven line items on the Balance Sheet and only six columns. What items were combined on the Equity Statement? Why do you think Ford combined the two items? Let's journalize. Only prepare journal entries for the most current year. 3. Start with the Capital Stock and Capital in Excess of Par Value columns on the Consolidated Statement of Equity for Ford Motor Company. We see that Capital in Excess of Part increased $163 mill, but the par value account did not change. We can also see on the cash flow statement that no stock was issued. Since the line item says that the increase to the account includes share-based compensation impacts, we will assume that the entire amount is for share-based compensation. The entry would be similar to Illustration 19-3 and 19-3a. Show the journal entry here. Date Accounts Debit Credit 4. Move to the Retained Earnings Column. Show the journal entry to close out net income to Retained Earnings. Date Accounts Debit Credit 5. Show the journal to record the declaration of cash dividends. The amount declared is $2,915 on the statement of equity. The amount actually paid on the cash flow statement is $2,905. Show journal entry here: Date Accounts Debit Credit Note-we will ignore the $1 mil reduction in Retained Earnings on the Treasury Stock/other line. We aren't given enough information to re-create this journal entry. 7. We can move to the Treasury Stock Column next. We see that treasury stock was purchased. Notice that the change in the Treasury Stock account equals the cash received from sale of common stock on the cash flow statement. Show the journal entry for the purchase of treasury stock. Date Accounts Debit Credit 8. Move on to the Accumulated Other Comprehensive Incomel (Loss) column. The total change is $407 mil. Remember there are four items that are charged to Other Comprehensive Income. To find the break-down of the $407 mil go to the Consolidated Statement of Comprehensive Income. LA Credit I'll do the foreign currency translation adjustment: Date Accounts Other comprehensive lossforeign currency Payables-(accounts payable) Debit 523 523 You do the marketable securities adjustment. (4 points) Date Accounts Debit Credit I'll take the derivatives adjustment as well, although we are just 2 weeks away from learning this. I will make the adjustment to marketable securities Date Accounts Debit Credit Marketable Securities 183 | Other comprehensive income-Derivatives | 183 Lastly, we have the pension adjustment. The pension liability is included under "Other liabilities and deferred revenue. Date Accounts Debit Credit FORD MOTOR COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EQUITY (in millions) Equity Attributable to Ford Motor Company Cap. in Excess of Par Value of Stock Capital Stock Equity Attributable to Non- controlling Interests Accumulated Other Comprehensive Income/(Loss) (Note 21) Treasury Stock Total Total Equity Retained Earnings/(Accumulated Deficit) 14,980s 4,589 41 $ 21,421 (6,257) (977) S 29,208 15 29.223 Balance at December 31, 2015 Net income 4,589 4,600 (756) (756) (757) Other comprehensive income/(loss), net of tax Common stock issued (including share-based compensation impacts) 209 (145) (3) Treasury stock/other Cash dividends declared (a) Balance at December 31, 2016 209 (145) (3,376) 29,729s 209 (148) (3,381) 29,746 (3,376) 16,193 41 $ 21,630s S (7,013) S (1,122) s 41 $ 21,630 (7,013) S (1,122) $ 29,729 17 $ Balance at December 31, 2016 Adoption of accounting standards 16,193 566 7,731 572 29,746 572 7,757 Net income 7,731 Other comprehensive income/(loss), net of tax Common stock issued (including share-based compensation impacts) Treasury stock/other (131) 207 (131) (2,584) 35,578 207 (133) (2,595) 35,606 Cash dividends declared (a) (2.584) (11) 28 Balance at December 31, 2017 41 21,843 SAS 21,906 (6,959) (1,253) S $ 21,843 (6,959) (1,253) S 28 Balance at December 31, 2017 Net income 21,906 3,677 35,578 3,677 (407) 35,606 3,695 (407) (407) Other comprehensive income/(loss), net of tax Common stock issued (including share-based compensation impacts) 163 163 Treasury stock/other (164) (164) Dividend and dividend equivalents declared (a) (2,915) (2,915) 22,668 (12) 34 (164) (2,927) 35,966 Balance at December 31, 2018 $ 22,006 $ S (7,366) S (1,417) $ 35,932 $ $ (a) We declared dividends per share of Common and Class B Stock of $0.85, $0.65, and $0.73 per share in 2016, 2017, and 2018, respectively. The accompanying notes are part of the consolidated financial statements FORD MOTOR COMPANY AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENT (in millions, except per share amounts) For the years ended December 31, 2017 2016 2018 Revenues Automotive 141,546 10,253 145,653 11,113 Ford Credit 148,294 12,018 26 Mobility 10 Total revenues (Note 4) 151,800 156,776 160,338 Costs and expenses Cost of sales 126,195 136,269 Selling, administrative, and other expenses Ford Credit interest, operating, and other expenses Total costs and expenses 10,972 8,847 131,321 11,527 9,047 151,895 11,403 9,463 146,014 157,135 1,133 Interest expense on Automotive debt Interest expense on Other debt 894 57 1,171 57 57 Other income/(loss), net (Note 5) 169 3,267 2,247 123 Equity in net income of affiliated companies 1,201 Income before income taxes 8,159 4,345 Provision for/(Benefit from) income taxes (Note 7) 1,780 6,784 2,184 4,600 11 650 Net income 402 7,757 26 7,731 Less: Income/(Loss) attributable to noncontrolling interests 3,695 18 3,677 Net income attributable to Ford Motor Company 4,589 $ EARNINGS PER SHARE ATTRIBUTABLE TO FORD MOTOR COMPANY COMMON AND CLASS B STOCK (Note 8) Basic income 1.94 0.93 1.16 1.15 Diluted income 1.93 0.92 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (in millions) For the years ended December 31, 2016 2017 S 4 ,600 7,757 $ 2018 Net income 3,695 Other comprehensive income/(loss), net of tax (Note 21) Foreign currency translation (1,024) Marketable securities 314 (34) (265) Derivative instruments 219 (523) (11) 183 (56) (407) Pension and other postretirement benefits 56 37 52 Total other comprehensive income/(loss), net of tax (757) 3,843 Comprehensive income Less: Comprehensive income/(loss) attributable to noncontrolling interests 7,809 24 7,785 3,288 18 Comprehensive income attributable to Ford Motor Company 3,833 3,270 FORD MOTOR COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (in millions) December 31, 2017 December 31, 2018 ASSETS $ Cash and cash equivalents (Note 9) Marketable securities (Note 9) Ford Credit finance receivables, net (Note 10) Trade and other receivables. less allowances of $412 and 594 Inventories (Note 12) Other assets Total current assets Ford Credit finance receivables, net (Note 10) Net investment in operating leases (Note 13) Net property (Note 141 Equity in net assets of affiliated companies (Note 15) Deferred income taxes (Note 7) Other assets 18,492 20,435 52,210 10.598 11,178 3.8BE 116.801 56,182 28,236 35.327 3,085 10,762 8,104 258.496 16,718 17,233 54,353 11.195 11,220 3,930 114.649 55,544 29,119 36.178 2,709 10,412 7,925 Total assets 3 $ 256.540 LIABILITIES Pavables Other liabilities and deferred revenue (Note 18) Automotive debt payable within one year (Note 18) Ford Credit debt Davable within one vear (Note 18) Total current liabilities 23.28219 19,697 3,35 48.286 94,600 21.520 20,556 2,314 51.179 95,569 Other liabilities and deferred revenue (Note 18) Automotive long-term debt (Note 18) Ford Credit long-term debt (Note 18) Other long-term debt (Note 18) Deferred income taxes (Note 7) . Total liabilities 24,711 12.575 89.492 598 23,588 11.23 88,887 600 597 220,474 Redeemable noncontrolling interest (Note 20) 40 EQUITY Common Stock, par value $.01 per share (4.000 million shares issued of 8 billion authorized) Class 8 Stock. Dar value 5.01 per share (71 million shares issued of 530 million authorized Capital in excess of par value of stock Retained earnings Accumulated other comprehensive income/lloss) (Note 21) Treasury stock Total equity attributable to Ford Motor Company Eauitv attributable to noncontrolling interests Total equity Total liabilities and equity 21,843 21,906 16.950) (1,252) 35,578 28 35,60 258.4065 22,00 22,668 17.3661 (1,417) 35,932 34 35,966 256.540 _ FORD MOTOR COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (in millions) For the years ended December 31, 2018 2017 2018 Cash flows from operating activities Net income 4,800 $ 7.757 $ 3,695 Depreciation and toolina amortization 9.023 9.122 9.280 Other amortization (300) (889) (972) Provision for credit and insurance losses 672 717 609 Pension and other postretirement employee benefits ("OPEB") expense/income) 2,867 (008) 400 Equity investment learninas Wlosses in excess of dividends received (178) 240 206 Foreign currency adjustments 283 (403) 529 Net (gainWloss on changes in investments in affiliates (42) Stock compensation 210 246 191 Net change in wholesale and other receivables (1.449) (830) (2.408) Provision for deferred income taxes 1.472 (350) (197) Decrease (Increase) in accounts receivable and other assets (2,855) (2.297) (2,239) Decrease Increase in inventory (803) (970) 1828) Increase/Decrease) in accounts payable and accrued and other liabilities 8,595 0,089 1 6.781 Other 57 85 Net cash provided by/lused in operatina activities 19.850 18.090 (139) 15.022 Cash flows from investing activities Capital spendina Acquisitions of finance receivables and operating leases Collections of finance receivables and operating leases Purchases of marketable and other securities Sales and maturities of marketable and other securities Settlements of derivatives Other (8.992) (58,007 38,834 (31.422) 29.354 825 17.049) (59,354) 44.641 (27,587) 29.898 100 (29) (19.3801 17.7851 (62,924) 50,880 (17,140) 20.527 358 (1771 (16.2610 112 Net cash provided by/(used in) investina activities (25.302) Cash flows from financing activities Cash dividends Purchases of common stock Net changes in short-term debt Proceeds from issuance of long-term debt Principal payments on long-term debt Other Net cash provided byl(used in) financing activities Effect of exchange rate changes on cash. cash equivalents and restricted cash Net increase (decrease) in cash, cash equivalents, and restricted cash (3.376) (145) 3,884 45,901 (38.7971 (1071 7,400 (205) 1.883 (2.584) (131) 1.228 45,8011 (40.770) (151) 3,394 489 2,819 $ 12.9051 (164) (2,819) 50,130 (44.1721 (192) (122) (370) $ (1,731) Cash, cash equivalents, and restricted cash at January 1 (Note 9) Net increase/ decrease) in cash, cash equivalents, and restricted cash Cash.cash equivalents, and restricted cash at December 31 (Note 9) 14,3365 1,883 16.019 $ 16,01 $ 2.018 18.638 : $ 18,638 (1,731) 16.907 NOTE 6. SHARE-BASED COMPENSATION Under our Long-Term Incentive Plans, we may issue restricted stock units ("RSUS"), restricted stock shares ("RSSs"), and RSSs consist of time-based and performance-based awards. The number of shares that may be granted in any year is limited to 2% of our issued and outstanding Common Stock as of December 31 of the prior calendar year. The limit may be increased up to 3% in any year, with a corresponding reduction in shares available for ts in future years. Granted RSUS generally cliff vest or ratably vest over a three-year service period. Performance- based RSUS have two components: one based on internal financial performance metrics, and the other based on total shareholder return relative to an industrial and automotive peer group (shares are withheld to cover the employee tax obligation) The fair value of both the time-based and the internal performance metrics portion of the performance-based RSUS and RSSs is determined using the closing price of our Common Stock at grant date. The weighted average per unit grant date fair value for the years ended December 31, 2016, 2017, and 2018 was $13.54, $12.37, and 59.89, respectively. The fair value of time-based RSUS and RSSs is expensed over the shorter of the vesting period, using the graded vesting method, or the time period an employee becomes eligible to retain the award at retirement. The fair value of performance-based RSUS and RSSs is expensed when it is probable and estimable as measured against the performance metrics over the shorter of the performance or required service periods. We have elected to recognize forfeitures as an adjustment to compensation expense for all RSUS and RSSs in the same period as the forfeitures occur. Expense is recorded in Selling, administrative, and other expenses. The fair value of vested RSUS and RSSs as well as the compensation cost for the years ended December 31 was as follows (in millions): 2016 2017 2018 Fair value of vested shares 157 178 187 Compensation cost (a) 1351 1932 102 fa) Net of tax benefit of $72 million $62 million, and $20 million in 2016, 2017, and 2018, respectively As of December 31, 2018, there was approximately $146 million in unrecognized compensation cost related to non- vested RSUS and RSSs. This expense will be recognized over a weighted average period of 1.9 years. The performance-based RSUS granted in March 2016, 2017, and 2018 include a relative Total Shareholder Return ("TSR") metric. We estimate the fair value of the TSR component of the performance-based RSUs using a Monte Carlo simulation. Inputs and assumptions used to calculate the fair value at grant date were as follows: 2016 2017 2018 9.03 12.44 15.56 13.54 12.60 10.40 Fair value per stock award Grant date stock price Assumptions: Ford's stock price expected volatility (a) Expected average volatility of peer companies (a) Risk-free interest rate Dividend yield 23.1% 28.4 23.4% 20.0 22.8% 25.4 2.48 4.74 5.00 a) Expected volatility based on three years of daily closing share price changes ending on the grant date During 2018, activity for RSUS and RSSs was as follows (in millions, except for weighted average fair value): Weighted- Average Fair Shares Outstanding, beginning of year 13.32 Granted 37.7 9.86 Value 44.4 Vested (13.7.) 1431 Forfeited Outstanding, end of year 13.88 13.85 10.80 The table above also includes shares awarded to non-employee directors. At December 31, 2018, there were 684,461 shares vested, but unissued. Stock Options As of March 31, 2017, all of our outstanding stock options were fully vested. The last of our outstanding stock options will expire in July 2024, if not exercised sooner. We measure the fair value of our stock options using the Black-Scholes option-pricing model and record expense in Selling, administrative, and other expenses. NOTE 8. CAPITAL STOCK AND EARNINGS PER SHARE All general voting power is vested in the holders of Common Stock and Class B Stock. Holders of our Common Stock have 60% of the general voting power and holders of our Class B Stock are entitled to such number of votes per share as will give them the remaining 40%. Shares of Common Stock and Class B Stock share equally in dividends when and as paid, with stock dividends payable in shares of stock of the class held. If liquidated, each share of Common Stock is entitled to the first $0.50 available for distribution to holders of Common Stock and Class B Stock, each share of Class B Stock is entitled to the next $1.00 so available, each share of Common Stock is entitled to the next $0.50 so available, and each share of Common and Class B Stock is entitled to an equal amount thereafter. We present both basic and diluted earnings per share ("EPS") amounts in our financial reporting. Basic EPS excludes dilution and is computed by dividing income available to Common and Class B Stock holders by the weighted average number of Common and Class B Stock outstanding for the period. Diluted EPS reflects the maximum potential dilution that could occur from our share-based compensation, including "in-the-money stock options, unvested restricted stock units, and unvested restricted stock shares. Potentially dilutive shares are excluded from the calculation if they have an anti-dilutive effect in the period. 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): 2016 Basic and Diluted Income Attributable to Ford Motor Company Basic income 4.5895 Diluted income 4,589 2017 3,973 Basic and Diluted Shares Basic shares (average shares outstanding) Net dilutive options, unvested restricted stock units, and unvested restricted stock shares Diluted shares 3.999 Looking at the heading of the Consolidated Statement of Equity for Ford Motor Company and its Subsidiaries. 1. The heading of the statement is not quite clear. You may need to refer to the text. What is the date of the statement for the most current year? Is it for a period of time or at a point in time? Explain. 2. Each column heading represents a line item in the Equity section of the Balance Sheet. However, there are seven line items on the Balance Sheet and only six columns. What items were combined on the Equity Statement? Why do you think Ford combined the two items? Let's journalize. Only prepare journal entries for the most current year. 3. Start with the Capital Stock and Capital in Excess of Par Value columns on the Consolidated Statement of Equity for Ford Motor Company. We see that Capital in Excess of Part increased $163 mill, but the par value account did not change. We can also see on the cash flow statement that no stock was issued. Since the line item says that the increase to the account includes share-based compensation impacts, we will assume that the entire amount is for share-based compensation. The entry would be similar to Illustration 19-3 and 19-3a. Show the journal entry here. Date Accounts Debit Credit 4. Move to the Retained Earnings Column. Show the journal entry to close out net income to Retained Earnings. Date Accounts Debit Credit 5. Show the journal to record the declaration of cash dividends. The amount declared is $2,915 on the statement of equity. The amount actually paid on the cash flow statement is $2,905. Show journal entry here: Date Accounts Debit Credit Note-we will ignore the $1 mil reduction in Retained Earnings on the Treasury Stock/other line. We aren't given enough information to re-create this journal entry. 7. We can move to the Treasury Stock Column next. We see that treasury stock was purchased. Notice that the change in the Treasury Stock account equals the cash received from sale of common stock on the cash flow statement. Show the journal entry for the purchase of treasury stock. Date Accounts Debit Credit 8. Move on to the Accumulated Other Comprehensive Incomel (Loss) column. The total change is $407 mil. Remember there are four items that are charged to Other Comprehensive Income. To find the break-down of the $407 mil go to the Consolidated Statement of Comprehensive Income. LA Credit I'll do the foreign currency translation adjustment: Date Accounts Other comprehensive lossforeign currency Payables-(accounts payable) Debit 523 523 You do the marketable securities adjustment. (4 points) Date Accounts Debit Credit I'll take the derivatives adjustment as well, although we are just 2 weeks away from learning this. I will make the adjustment to marketable securities Date Accounts Debit Credit Marketable Securities 183 | Other comprehensive income-Derivatives | 183 Lastly, we have the pension adjustment. The pension liability is included under "Other liabilities and deferred revenue. Date Accounts Debit Credit FORD MOTOR COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EQUITY (in millions) Equity Attributable to Ford Motor Company Cap. in Excess of Par Value of Stock Capital Stock Equity Attributable to Non- controlling Interests Accumulated Other Comprehensive Income/(Loss) (Note 21) Treasury Stock Total Total Equity Retained Earnings/(Accumulated Deficit) 14,980s 4,589 41 $ 21,421 (6,257) (977) S 29,208 15 29.223 Balance at December 31, 2015 Net income 4,589 4,600 (756) (756) (757) Other comprehensive income/(loss), net of tax Common stock issued (including share-based compensation impacts) 209 (145) (3) Treasury stock/other Cash dividends declared (a) Balance at December 31, 2016 209 (145) (3,376) 29,729s 209 (148) (3,381) 29,746 (3,376) 16,193 41 $ 21,630s S (7,013) S (1,122) s 41 $ 21,630 (7,013) S (1,122) $ 29,729 17 $ Balance at December 31, 2016 Adoption of accounting standards 16,193 566 7,731 572 29,746 572 7,757 Net income 7,731 Other comprehensive income/(loss), net of tax Common stock issued (including share-based compensation impacts) Treasury stock/other (131) 207 (131) (2,584) 35,578 207 (133) (2,595) 35,606 Cash dividends declared (a) (2.584) (11) 28 Balance at December 31, 2017 41 21,843 SAS 21,906 (6,959) (1,253) S $ 21,843 (6,959) (1,253) S 28 Balance at December 31, 2017 Net income 21,906 3,677 35,578 3,677 (407) 35,606 3,695 (407) (407) Other comprehensive income/(loss), net of tax Common stock issued (including share-based compensation impacts) 163 163 Treasury stock/other (164) (164) Dividend and dividend equivalents declared (a) (2,915) (2,915) 22,668 (12) 34 (164) (2,927) 35,966 Balance at December 31, 2018 $ 22,006 $ S (7,366) S (1,417) $ 35,932 $ $ (a) We declared dividends per share of Common and Class B Stock of $0.85, $0.65, and $0.73 per share in 2016, 2017, and 2018, respectively. The accompanying notes are part of the consolidated financial statements FORD MOTOR COMPANY AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENT (in millions, except per share amounts) For the years ended December 31, 2017 2016 2018 Revenues Automotive 141,546 10,253 145,653 11,113 Ford Credit 148,294 12,018 26 Mobility 10 Total revenues (Note 4) 151,800 156,776 160,338 Costs and expenses Cost of sales 126,195 136,269 Selling, administrative, and other expenses Ford Credit interest, operating, and other expenses Total costs and expenses 10,972 8,847 131,321 11,527 9,047 151,895 11,403 9,463 146,014 157,135 1,133 Interest expense on Automotive debt Interest expense on Other debt 894 57 1,171 57 57 Other income/(loss), net (Note 5) 169 3,267 2,247 123 Equity in net income of affiliated companies 1,201 Income before income taxes 8,159 4,345 Provision for/(Benefit from) income taxes (Note 7) 1,780 6,784 2,184 4,600 11 650 Net income 402 7,757 26 7,731 Less: Income/(Loss) attributable to noncontrolling interests 3,695 18 3,677 Net income attributable to Ford Motor Company 4,589 $ EARNINGS PER SHARE ATTRIBUTABLE TO FORD MOTOR COMPANY COMMON AND CLASS B STOCK (Note 8) Basic income 1.94 0.93 1.16 1.15 Diluted income 1.93 0.92 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (in millions) For the years ended December 31, 2016 2017 S 4 ,600 7,757 $ 2018 Net income 3,695 Other comprehensive income/(loss), net of tax (Note 21) Foreign currency translation (1,024) Marketable securities 314 (34) (265) Derivative instruments 219 (523) (11) 183 (56) (407) Pension and other postretirement benefits 56 37 52 Total other comprehensive income/(loss), net of tax (757) 3,843 Comprehensive income Less: Comprehensive income/(loss) attributable to noncontrolling interests 7,809 24 7,785 3,288 18 Comprehensive income attributable to Ford Motor Company 3,833 3,270 FORD MOTOR COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (in millions) December 31, 2017 December 31, 2018 ASSETS $ Cash and cash equivalents (Note 9) Marketable securities (Note 9) Ford Credit finance receivables, net (Note 10) Trade and other receivables. less allowances of $412 and 594 Inventories (Note 12) Other assets Total current assets Ford Credit finance receivables, net (Note 10) Net investment in operating leases (Note 13) Net property (Note 141 Equity in net assets of affiliated companies (Note 15) Deferred income taxes (Note 7) Other assets 18,492 20,435 52,210 10.598 11,178 3.8BE 116.801 56,182 28,236 35.327 3,085 10,762 8,104 258.496 16,718 17,233 54,353 11.195 11,220 3,930 114.649 55,544 29,119 36.178 2,709 10,412 7,925 Total assets 3 $ 256.540 LIABILITIES Pavables Other liabilities and deferred revenue (Note 18) Automotive debt payable within one year (Note 18) Ford Credit debt Davable within one vear (Note 18) Total current liabilities 23.28219 19,697 3,35 48.286 94,600 21.520 20,556 2,314 51.179 95,569 Other liabilities and deferred revenue (Note 18) Automotive long-term debt (Note 18) Ford Credit long-term debt (Note 18) Other long-term debt (Note 18) Deferred income taxes (Note 7) . Total liabilities 24,711 12.575 89.492 598 23,588 11.23 88,887 600 597 220,474 Redeemable noncontrolling interest (Note 20) 40 EQUITY Common Stock, par value $.01 per share (4.000 million shares issued of 8 billion authorized) Class 8 Stock. Dar value 5.01 per share (71 million shares issued of 530 million authorized Capital in excess of par value of stock Retained earnings Accumulated other comprehensive income/lloss) (Note 21) Treasury stock Total equity attributable to Ford Motor Company Eauitv attributable to noncontrolling interests Total equity Total liabilities and equity 21,843 21,906 16.950) (1,252) 35,578 28 35,60 258.4065 22,00 22,668 17.3661 (1,417) 35,932 34 35,966 256.540 _ FORD MOTOR COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (in millions) For the years ended December 31, 2018 2017 2018 Cash flows from operating activities Net income 4,800 $ 7.757 $ 3,695 Depreciation and toolina amortization 9.023 9.122 9.280 Other amortization (300) (889) (972) Provision for credit and insurance losses 672 717 609 Pension and other postretirement employee benefits ("OPEB") expense/income) 2,867 (008) 400 Equity investment learninas Wlosses in excess of dividends received (178) 240 206 Foreign currency adjustments 283 (403) 529 Net (gainWloss on changes in investments in affiliates (42) Stock compensation 210 246 191 Net change in wholesale and other receivables (1.449) (830) (2.408) Provision for deferred income taxes 1.472 (350) (197) Decrease (Increase) in accounts receivable and other assets (2,855) (2.297) (2,239) Decrease Increase in inventory (803) (970) 1828) Increase/Decrease) in accounts payable and accrued and other liabilities 8,595 0,089 1 6.781 Other 57 85 Net cash provided by/lused in operatina activities 19.850 18.090 (139) 15.022 Cash flows from investing activities Capital spendina Acquisitions of finance receivables and operating leases Collections of finance receivables and operating leases Purchases of marketable and other securities Sales and maturities of marketable and other securities Settlements of derivatives Other (8.992) (58,007 38,834 (31.422) 29.354 825 17.049) (59,354) 44.641 (27,587) 29.898 100 (29) (19.3801 17.7851 (62,924) 50,880 (17,140) 20.527 358 (1771 (16.2610 112 Net cash provided by/(used in) investina activities (25.302) Cash flows from financing activities Cash dividends Purchases of common stock Net changes in short-term debt Proceeds from issuance of long-term debt Principal payments on long-term debt Other Net cash provided byl(used in) financing activities Effect of exchange rate changes on cash. cash equivalents and restricted cash Net increase (decrease) in cash, cash equivalents, and restricted cash (3.376) (145) 3,884 45,901 (38.7971 (1071 7,400 (205) 1.883 (2.584) (131) 1.228 45,8011 (40.770) (151) 3,394 489 2,819 $ 12.9051 (164) (2,819) 50,130 (44.1721 (192) (122) (370) $ (1,731) Cash, cash equivalents, and restricted cash at January 1 (Note 9) Net increase/ decrease) in cash, cash equivalents, and restricted cash Cash.cash equivalents, and restricted cash at December 31 (Note 9) 14,3365 1,883 16.019 $ 16,01 $ 2.018 18.638 : $ 18,638 (1,731) 16.907 NOTE 6. SHARE-BASED COMPENSATION Under our Long-Term Incentive Plans, we may issue restricted stock units ("RSUS"), restricted stock shares ("RSSs"), and RSSs consist of time-based and performance-based awards. The number of shares that may be granted in any year is limited to 2% of our issued and outstanding Common Stock as of December 31 of the prior calendar year. The limit may be increased up to 3% in any year, with a corresponding reduction in shares available for ts in future years. Granted RSUS generally cliff vest or ratably vest over a three-year service period. Performance- based RSUS have two components: one based on internal financial performance metrics, and the other based on total shareholder return relative to an industrial and automotive peer group (shares are withheld to cover the employee tax obligation) The fair value of both the time-based and the internal performance metrics portion of the performance-based RSUS and RSSs is determined using the closing price of our Common Stock at grant date. The weighted average per unit grant date fair value for the years ended December 31, 2016, 2017, and 2018 was $13.54, $12.37, and 59.89, respectively. The fair value of time-based RSUS and RSSs is expensed over the shorter of the vesting period, using the graded vesting method, or the time period an employee becomes eligible to retain the award at retirement. The fair value of performance-based RSUS and RSSs is expensed when it is probable and estimable as measured against the performance metrics over the shorter of the performance or required service periods. We have elected to recognize forfeitures as an adjustment to compensation expense for all RSUS and RSSs in the same period as the forfeitures occur. Expense is recorded in Selling, administrative, and other expenses. The fair value of vested RSUS and RSSs as well as the compensation cost for the years ended December 31 was as follows (in millions): 2016 2017 2018 Fair value of vested shares 157 178 187 Compensation cost (a) 1351 1932 102 fa) Net of tax benefit of $72 million $62 million, and $20 million in 2016, 2017, and 2018, respectively As of December 31, 2018, there was approximately $146 million in unrecognized compensation cost related to non- vested RSUS and RSSs. This expense will be recognized over a weighted average period of 1.9 years. The performance-based RSUS granted in March 2016, 2017, and 2018 include a relative Total Shareholder Return ("TSR") metric. We estimate the fair value of the TSR component of the performance-based RSUs using a Monte Carlo simulation. Inputs and assumptions used to calculate the fair value at grant date were as follows: 2016 2017 2018 9.03 12.44 15.56 13.54 12.60 10.40 Fair value per stock award Grant date stock price Assumptions: Ford's stock price expected volatility (a) Expected average volatility of peer companies (a) Risk-free interest rate Dividend yield 23.1% 28.4 23.4% 20.0 22.8% 25.4 2.48 4.74 5.00 a) Expected volatility based on three years of daily closing share price changes ending on the grant date During 2018, activity for RSUS and RSSs was as follows (in millions, except for weighted average fair value): Weighted- Average Fair Shares Outstanding, beginning of year 13.32 Granted 37.7 9.86 Value 44.4 Vested (13.7.) 1431 Forfeited Outstanding, end of year 13.88 13.85 10.80 The table above also includes shares awarded to non-employee directors. At December 31, 2018, there were 684,461 shares vested, but unissued. Stock Options As of March 31, 2017, all of our outstanding stock options were fully vested. The last of our outstanding stock options will expire in July 2024, if not exercised sooner. We measure the fair value of our stock options using the Black-Scholes option-pricing model and record expense in Selling, administrative, and other expenses. NOTE 8. CAPITAL STOCK AND EARNINGS PER SHARE All general voting power is vested in the holders of Common Stock and Class B Stock. Holders of our Common Stock have 60% of the general voting power and holders of our Class B Stock are entitled to such number of votes per share as will give them the remaining 40%. Shares of Common Stock and Class B Stock share equally in dividends when and as paid, with stock dividends payable in shares of stock of the class held. If liquidated, each share of Common Stock is entitled to the first $0.50 available for distribution to holders of Common Stock and Class B Stock, each share of Class B Stock is entitled to the next $1.00 so available, each share of Common Stock is entitled to the next $0.50 so available, and each share of Common and Class B Stock is entitled to an equal amount thereafter. We present both basic and diluted earnings per share ("EPS") amounts in our financial reporting. Basic EPS excludes dilution and is computed by dividing income available to Common and Class B Stock holders by the weighted average number of Common and Class B Stock outstanding for the period. Diluted EPS reflects the maximum potential dilution that could occur from our share-based compensation, including "in-the-money stock options, unvested restricted stock units, and unvested restricted stock shares. Potentially dilutive shares are excluded from the calculation if they have an anti-dilutive effect in the period. 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): 2016 Basic and Diluted Income Attributable to Ford Motor Company Basic income 4.5895 Diluted income 4,589 2017 3,973 Basic and Diluted Shares Basic shares (average shares outstanding) Net dilutive options, unvested restricted stock units, and unvested restricted stock shares Diluted shares 3.999