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1、Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperationsOVERVIEWRevenueOurAutomotivesector’srevenueisgeneratedprimarilybysalesofvehicles,parts,andaccessories;wegenerallytreatsalesandmarketingincentivesasareductiontorevenue.Revenueisrecorded
2、whenallrisksandrewardsofownershiparetransferredtoourcustomers(generally,ourdealersanddistributors).Forthemajorityofsales,thisoccurswhenproductsareshippedfromourmanufacturingfacilities.Thisisnotthecase,however,withrespecttovehiclesproducedforsaletodailyrentalc
3、arcompaniesthataresubjecttoaguaranteedrepurchaseoption.Thesevehiclesareaccountedforasoperatingleases,withleaserevenueandprofitsrecognizedoverthetermofthelease.Whenwesellthereturnedvehicleatauction,werecognizeagainorlossonthedifference,ifany,betweenactualaucti
4、onvalueandtheprojectedauctionvalue.Inaddition,revenueforfinishedvehiclesweselltocustomersorvehiclemodifiersonconsignmentisnotrecognizeduntilthevehicleissoldtotheultimatecustomer.MostofthevehiclessoldbyustoourdealersanddistributorsarefinancedatwholesalebyFordC
5、redit.UponFordCreditoriginatingthewholesalereceivablerelatedtoadealer’spurchaseofavehicle,FordCreditpayscashtotherelevantlegalentityinourAutomotivesectorinpaymentofthedealer’sobligationforthepurchasepriceofthevehicle.Thedealerthenpaysthewholesalefinancereceiv
6、abletoFordCreditwhenitsellsthevehicletoaretailcustomer.OurFinancialServicessector’srevenueisgeneratedprimarilyfrominterestonfinancereceivables,netofcertaindeferredoriginationcoststhatareincludedasareductionoffinancingrevenue,andsuchrevenueisrecognizedoverthet
7、ermofthereceivableusingtheinterestmethod.Also,revenuefromoperatingleasesisrecognizedonastraight-linebasisoverthetermofthelease.Incomeisgeneratedtotheextentrevenuesexceedexpenses,mostofwhichareinterest,depreciation,andoperatingexpenses.TransactionsbetweenourAu
8、tomotiveandFinancialServicessectorsoccurintheordinarycourseofbusiness.Forexample,weofferspecialretailfinancingandleaseincentivestodealers’customerswhochoosetofinanceorleaseourvehiclesfrom
