Case Study

Revenue Disaggregation Disclosures: Ford Case Study

Take a look at how early adopter, Ford Motor Company, disclosed its disaggregation of revenue in its financials, and see what the SEC had to say about it.

Nov 29, 2018

In a previous article, Disclosures, we discussed the disclosures required by Accounting Standards Codification (ASC) 606. Now that most public companies have filed their first 10-Qs under the new standard and some have filed 10-Ks, we can provide examples of these disclosures. In this article, we focus specifically on disaggregation of revenue as disclosed by Ford Motor Company.

ASC 606 requires that revenue be disaggregated into categories that help users determine the nature, amount, timing, and uncertainty of revenue and cash flows. Multiple categories may be necessary. In addition, the standard requires companies to disclose how they choose these categories. ASC 606-10-55-91 provides the following potential categories:

  • Type of good or service (e.g., product or service lines)
  • Geographical region (e.g., country or region)
  • Market or type of customer (e.g., government or non-government)
  • Type of contract (e.g., fixed price or unit price)
  • Contract duration (e.g., short-term or long-term)
  • Timing of transfer of goods or services (e.g., at a point in time or over time)
  • Sales channels (e.g., directly to consumers or through intermediaries)

Although the standard provides some illustrations, a few real-life examples can shed some light on how companies have interpreted the requirements.

Ford Motor Company

Ford Motor Company is an early adopter of ASC 606. After filing its June 30, 2017 10-Q, Ford received a comment letter from the Securities and Exchange Commission (SEC) asking for an explanation of its disclosure of the disaggregation of revenue, specifically how the categories of disaggregation were selected, and how Ford used the guidance in ASC 606. Ford explained in a response letter why its chosen categories are useful to users of its financial statements, stating:

We looked to paragraph 606-10-55-91 and considered the example categories of type of good or service, type of customer, and timing of transfer of goods or services to be relevant to the disaggregation of our contracts. Geographical location, type of contracts, contract duration, and sales channels were not materially relevant disaggregation criteria for our contracts. Finally, we also considered customer class and significant performance obligations to be significant differentiators of our types of revenue contracts.

Ford first disaggregated revenue based on contracts with similar characteristics. To do this, Ford considered the following questions:

  • What product or service was offered?
  • Was the customer a dealer or a retail customer?
  • When was cash collected?
  • When was revenue recognized?
  • Was the amount received fixed or varied?
  • Did the contract involve significant ongoing performance obligations?

Based on its analysis, Ford identified the following categories for disclosure:

  • Vehicles, parts, and accessories
  • Sale of used vehicles
  • Extended service contracts
  • Other revenue

Vehicles, parts, and accessories

In its 10-Q, Ford explained that vehicles, parts, and accessories are grouped into one category because of the similarities between these products, particularly when considering transfer of control and timing of revenue recognition. However, the SEC asked that Ford clarify why parts and accessories are grouped with vehicles, especially because customers have the option to return parts and accessories but do not have that option for vehicles. Ford explained that though the return policies for these products differ, other factors including customer class, timing of revenue recognition, pricing model, and significant ongoing performance obligations are similar and therefore justify grouping vehicles, parts, and accessories into one category.  For example, when asking the questions listed above, Ford found:

  • All vehicles, parts, and accessories are sold to the same type of customer: Ford’s dealers.
  • Ford recognizes revenue from these three products when they are shipped, and requires payment within 30 days.
  • Contracts for these products “do not involve significant ongoing performance obligations.”
  • As for the pricing model, though vehicles sales do not have a return option like parts and accessories, “contracts for the sales of parts and accessories include discounts and rebates similar to contracts for vehicles sales.”

Based on the company’s response, it appears that Ford viewed the existing potential categories, especially the class of customer, timing of payment, and contract similarities, as more heavily weighted than right of return. Therefore, despite differences in the right of return option for parts vs. the right of return option for vehicles, Ford grouped parts and accessories together with vehicles.

As seen in the tables below, about 96 percent of Ford’s revenues from contracts with customers come from its sale of vehicles, parts, and accessories. Although the SEC did not object to Ford’s response, given that vehicles, parts, and accessories make up well over the majority of its revenues, analysts would almost certainly prefer that Ford further disaggregate this category. For example, in its quarter two earnings call on July 26, 2017, analysts asked for further disaggregation of product lines, specifically requesting revenue details for SUVs, crossovers, and pickups. Analysts are also likely to be interested in further details regarding luxury and non-luxury automobiles, and the sales mix of vehicles, parts, and accessories. For example, do vehicles make up the majority of revenues, or do parts and accessories? How have these revenues changed relative to each other over time?

As much as analysts and investors may want to see more detailed disaggregation in Ford’s revenue disclosures, there are a number of reasons why Ford may not provide such details. First, Ford may not provide more detailed disaggregation because doing so would reveal information Ford considers proprietary, resulting in a competitive disadvantage. In addition, Ford’s existing accounting system may not be set up to gather and organize financial information in the way analysts and investors want to see it. For example, although analysts may want to see retail sales numbers for each vehicle category Ford sells, according to its earnings call Ford doesn’t actually track retail sales dollars and instead relies on industry reports themselves for these numbers. Finally, while Ford may have a data warehouse with all kinds of customer and revenue data useful for disaggregation, it may not be considered an “accounting system” in the scope of SOX, and therefore is not sufficiently reliable for external disclosure.

The tables below depict Ford’s disaggregation of revenue for both the second quarter and then the first half of the year 2017. They show the different categories for revenue from contracts with customers in addition to other sources of revenue1.

Automotive Financial Services All Other Consolidated
Vehicles, Parts, and Accessories $35,746 $– $– $35,746
Sale of used vehicles 708 -- -- 708
Extended Service Contracts 332 -- -- 332
Other (a) 202 55 2 259
Revenues from sales and services 36,988 55 2 37,045
Leasing income 125 1,381 -- 1,506
Financing income -- 1,260 -- 1,260
Insurance income -- 42 -- 42
Total Revenues $37,113 $2,738 $2 $39,853

Second Quarter

Automotive Financial Services All Other Consolidated
Vehicles, Parts, and Accessories $70,742 $– $– $70,742
Sale of used vehicles 1,581 -- -- 1,581
Extended Service Contracts 607 -- -- 607
Other (a) 426 104 4 534
Revenues from sales and services 73,356 104 4 73,464
Leasing income 232 2,747 -- 2,979
Financing income -- 2,474 -- 2,474
Insurance income -- 82 -- 82
Total Revenues $73,588 $5,407 $4 $78,999

First Half

Sale of used vehicles

Sale of used vehicles is not included with Ford’s first category of vehicles, parts, and accessories because of the difference in product, customer class, timing of revenue recognition and variable consideration. Products in this category also differ from new vehicles in age, brand, and type of warranties. Rather than recognizing revenue at shipment, Ford recognizes revenue when vehicles are sold. Prices are not fixed and can be sold “either at auction or at retail sale.” Finally, the consideration for used vehicles does not vary with refunds, rebates, and returns as it does with new vehicles, parts, and accessories.

Extended service contracts

Another source of revenue for Ford is the sale of extended service contracts. Extended service contracts last up to eight years, and include repairs, maintenance, and other benefits available to Ford car owners. These contracts are treated separately from other services and products because payment is received at the inception of the contract and revenue is recognized over the life of the contract. In its comment letter Ford stated, “the contract price is fixed and does not contain variable consideration. Contracts contain performance obligations, and these are satisfied over time as repairs are made.” Various contract options are available; however, Ford does not go into detail about the different types of contracts.

Other revenue

Ford’s final category for disaggregation of revenue from contracts with customers is “Other revenue.” This consists mainly of revenue from the sale of third-party services or products to Ford’s customers/dealers, and revenue from “vehicle-related design and testing services.” Ford recognizes this revenue when the service is completed and the company is entitled to payment.

Additional disclosure

Even after further explanation, the SEC issued yet another comment letter in December 2017 asking Ford to explain how certain public information (e.g., monthly sales reports, strategic updates, earnings calls) influenced its choice of categories for disaggregation of revenue. More simply put, the SEC wanted to know what information Ford disclosed in other public statements and how that information compares with its disclosures of disaggregation of revenue in the 10-Q. If Ford is disclosing information in a specific way in one document, it should be disclosing that information in a similar way elsewhere.

Ford replied that monthly sales reports influenced its choice of category because these reports come directly from the dealers and already include the sales volume of products. This corresponds with revenue from products, and shows trends applicable to both sales volume and revenues. Earnings calls also provide revenue and margin trends for vehicle lines. In its explanation for use of strategic updates, Ford said:

The update emphasized our goal to develop a diverse portfolio of revenue streams in the future, instead of relying so heavily on today’s predominant source of revenue and profit – new vehicles, parts, and accessories. A diverse portfolio of future products and services will allow us to re-base revenue, attack costs, and grow profitably.

Other consideration

In a recent study, Deloitte indicated that, “most adopters (approximately 90 percent) appeared to use two or fewer categories…” (Deloitte Heads Up) The most common categories are product/service type (55 percent), geography (34 percent), contract type (9 percent), and customer type (9 percent). Ford used four categories: vehicles, parts and accessories, used vehicles, service contracts, and other revenue. Other categories were considered, but not used.

Companies should consider where to disclose disaggregation of revenue in their financial reports. The same study by Deloitte found:

Approximately 60% of companies disclosed disaggregated revenue by category in a newly incorporated revenue footnote, while slightly over 20% disclosed such information in the segment footnote, and approximately 20% disclosed it as part of their footnote for newly adopted accounting pronouncements or another location.

Consistent with the practice of most companies adopting ASC 606, Ford created a new revenue footnote to disclose its disaggregation of revenue.


After reading this article, we hope you have a better idea of how to choose categories for your company’s disclosure of disaggregation of revenue that will be useful to investors and other users of your financial statements. For another example of a disclosure of disaggregation of revenue, check out our Alphabet Inc. case study.

Resources Consulted

  1. Using a table to display the disaggregation of revenue is not required under ASC 606-10-50-6, however, “entities should disclose enough information to permit a financial statement user to understand the relationship between disaggregated revenue and the revenue disclosed by reportable segment.”