REVENUE

The following tables disaggregate our revenue by major source for the periods ended September 30 (in millions):



	Third Quarter 2017
	Automotive		Mobility		Ford Credit		Consolidated
Vehicles, parts, and accessories	$	32,401	$	—	$	—	$	32,401
Used vehicles	606		—		—		606
Extended service contracts	314		—		—		314
Other revenue	197		3		55		255
Revenues from sales and services	33,518		3		55		33,576

Leasing income	128		—		1,395		1,523
Financing income	—		—		1,314		1,314
Insurance income	—		—		38		38
Total revenues	$	33,646	$	3	$	2,802	$	36,451

	Third Quarter 2018
	Automotive		Mobility		Ford Credit		Consolidated
Vehicles, parts, and accessories	$	33,352	$	—	$	—	$	33,352
Used vehicles	620		—		—		620
Extended service contracts	333		—		—		333
Other revenue	201		8		53		262
Revenues from sales and services	34,506		8		53		34,567

Leasing income	154		—		1,463		1,617
Financing income	—		—		1,443		1,443
Insurance income	—		—		39		39
Total revenues	$	34,660	$	8	$	2,998	$	37,666



	First Nine Months 2017
	Automotive		Mobility		Ford Credit		Consolidated
Vehicles, parts, and accessories	$	103,143	$	—	$	—	$	103,143
Used vehicles	2,187		—		—		2,187
Extended service contracts	921		—		—		921
Other revenue	623		7		159		789
Revenues from sales and services	106,874		7		159		107,040

Leasing income	360		—		4,142		4,502
Financing income	—		—		3,788		3,788
Insurance income	—		—		120		120
Total revenues	$	107,234	$	7	$	8,209	$	115,450

	First Nine Months 2018
	Automotive		Mobility		Ford Credit		Consolidated
Vehicles, parts, and accessories	$	105,338	$	—	$	—	$	105,338
Used vehicles	2,203		—		—		2,203
Extended service contracts	990		—		—		990
Other revenue	630		18		166		814
Revenues from sales and services	109,161		18		166		109,345

Leasing income	416		—		4,321		4,737
Financing income	—		—		4,340		4,340
Insurance income	—		—		123		123
Total revenues	$	109,577	$	18	$	8,950	$	118,545

NOTE 3. REVENUE (Continued)

Revenue is recognized when obligations under the terms of a contract with our customer are satisfied; generally this occurs with the transfer of control of our vehicles, parts, accessories, or services. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Sales, value add, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. Incidental items that are immaterial in the context of the contract are recognized as expense. The expected costs associated with our base warranties continue to be recognized as expense when the products are sold. 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

Vehicles, Parts, and Accessories. For the majority of vehicles, parts, and accessories, we transfer control and recognize a sale when we ship the product from our manufacturing facility to our customer (dealers and distributors). 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. 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 recorded a decrease related to revenue recognized in prior periods of $182 million and $240 million in the third quarter of 2017 and 2018, respectively.

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 these vehicles are recognized in Automotive revenues upon transfer of control of the vehicle to the customer and the related vehicle carrying value is recognized in Cost of sales.

Extended Service Contracts. We sell separately-priced service contracts that extend mechanical and maintenance coverages beyond our base warranty agreements to vehicle owners. The separately priced service contracts range from 12 months to 120 months. We receive payment at contract inception and recognize revenue over the term of the agreement in proportion to the costs we expect to incur in satisfying the contract obligations. At January 1, 2017 and December 31, 2017, $3.5 billion and $3.8 billion, respectively, of unearned revenue associated with outstanding contracts was reported in Other liabilities and deferred revenue. We recognized $256 million and $262 million of the unearned amounts as revenue during the third quarter of 2017 and 2018, respectively, and $797 million and $829 million in the first nine months of 2017 and 2018, respectively. At September 30, 2018, the unearned amount was $4 billion. We expect to recognize approximately $300 million of the unearned amount in the remainder of 2018, $1.1 billion in 2019, and $2.6 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 $232 million and $242 million in deferred costs as of December 31, 2017 and September 30, 2018, respectively. Amortization of $17 million and $18 million was recognized during the third quarter of 2017 and 2018, respectively, and $46 million and $55 million in the first nine months of 2017 and 2018, respectively.

NOTE 3. REVENUE (Continued)

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

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

Ford Credit Segment

Leasing Income. Ford Credit offers leasing plans to retail consumers through Ford and Lincoln brand dealers who originate the leases. Ford Credit records an operating lease upon purchase of a vehicle subject to a lease from the dealer. 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 Ford Credit 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.