FORD MOTOR CO 10-Q

Item 1. Financial Statements (Continued) FORD MOTOR COMPANY AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS NOTE 19. VARIABLE INTEREST ENTITIES Certain of our affiliates are variable interest entities in which we are not the primary beneficiary. Our maximum exposure to any potential losses associated with these affiliates is limited to our investments and loans and was $ 2.8 billion and $ 2.9 billion at December 31, 2021 and June 30, 2022, respectively. On July 13, 2022, Ford, SK On Co., Ltd., and SK Battery America, Inc. (a wholly owned subsidiary of SK On) completed the creation of BlueOval SK, LLC, a 50/50 joint venture that will build and operate electric vehicle battery plants in Tennessee and Kentucky to supply batteries to Ford and Ford affiliates. We expect BlueOval SK to be a variable interest entity of which we are not the primary beneficiary, and that we will use the equity method of accounting for our investment. Ford has agreed to contribute up to $ 6.6 billion in capital to BlueOval SK over a five-year period ending in 2026, subject to any adjustments agreed to by the parties. NOTE 20. COMMITMENTS AND CONTINGENCIES Commitments and contingencies primarily consist of guarantees and indemnifications, litigation and claims, and warranty and field service actions. Guarantees and Indemnifications Financial Guarantees. Financial guarantees and indemnifications are recorded at fair value at their inception. Subsequent to initial recognition, the guarantee liability is adjusted at each reporting period to reflect the current estimate of expected payments resulting from possible default events over the remaining life of the guarantee. The maximum potential payments for financial guarantees were $ 357 million and $ 242 million at December 31, 2021 and June 30, 2022, respectively. The carrying value of recorded liabilities related to financial guarantees was $ 36 million and $ 18 million at December 31, 2021 and June 30, 2022, respectively. Our financial guarantees consist of 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. Non-Financial Guarantees. Non-financial 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 a guarantee or indemnity, the amount of probable payment is recorded. The maximum potential payments for non-financial guarantees were $ 453 million and $ 278 million at December 31, 2021 and June 30, 2022, respectively. The carrying value of recorded liabilities related to non-financial guarantees was $ 38 million and de minimis at December 31, 2021 and June 30, 2022, respectively. Included in the $ 278 million of maximum potential payments at June 30, 2022 are guarantees for the resale value of vehicles sold in certain arrangements to daily rental companies. The maximum potential payment of $ 271 million as of June 30, 2022 represents the total proceeds we guarantee the rental company will receive on resale. Reflecting our present estimate of proceeds the rental companies will receive on resale from third parties, we have recorded a de minimis amount as our best estimate of the amount we will have to pay under the guarantee. 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 contract claim brought by a counterparty, including a joint venture or alliance partner, or 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. 27 Item 1. Financial Statements (Continued) FORD MOTOR COMPANY AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS NOTE 20. COMMITMENTS AND CONTINGENCIES (Continued) 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, including trade and customs; 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. 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. 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, customs, and regulatory matters, for which we estimate the aggregate risk to be a range of up to a bout $ 2 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. 28 Item 1. Financial Statements (Continued) FORD MOTOR COMPANY AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS NOTE 20. COMMITMENTS AND CONTINGENCIES (Continued) Warranty and Field Service Actions We accrue the estimated cost of both base warranty coverages and field service actions at the time of sale. We establish our estimate of base warranty obligations using a patterned estimation model, using historical information regarding the nature, frequency, and average cost of claims for each vehicle line by model year. We establish our estimates of field service action obligations using a patterned estimation model, using historical information regarding the nature, frequency, severity, and average cost of claims for each model year. In addition, from time to time, we issue extended warranties at our expense, the estimated cost of which is accrued at the time of issuance. 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 recovery is virtually certain. Recoveries are reported in Trade and other receivables, net and Other assets. The estimate of our future warranty and field service action costs, net of estimated supplier recoveries, for the periods ended June 30 was as follows (in millions): First Half 2021 2022 Beginning balance $ 8,172 $ 8,451 Payments made during the period ( 2,169 ) ( 2,006 ) Changes in accrual related to warranties issued during the period 1,933 1,877 Changes in accrual related to pre-existing warranties 80 395 Foreign currency translation and other ( 5 ) ( 120 ) Ending balance $ 8,011 $ 8,597 Changes to our estimated costs are reported as changes in accrual related to pre-existing warranties in the table above. Our estimate of reasonably possible costs in excess of our accruals for material field service actions and customer satisfaction actions is a range of up to about $ 700 million in the aggregate. 29 Item 1. Financial Statements (Continued) FORD MOTOR COMPANY AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS NOTE 21. SEGMENT INFORMATION We report segment information consistent with the way our chief operating decision maker (“CODM”) evaluates the operating results and performance of the Company. Accordingly, we analyze the results of our business through the following segments: Automotive, Mobility, and Ford Credit. Effective with fourth quarter 2021 reporting, special items include gains and losses on investments in equity securities. Prior period amounts were adjusted retrospectively to reflect the change. Below is a description of our reportable segments and other activities. Automotive Segment The Automotive segment primarily includes the sale of Ford and Lincoln vehicles, service parts, and accessories worldwide, together with the associated costs to develop, manufacture, distribute, and service the vehicles, parts, and accessories. This segment includes revenues and costs related to our electrification vehicle programs and enterprise connectivity. The segment includes the following regional business units: North America, South America, Europe, China (including Taiwan), and the International Markets Group. Mobility Segment The Mobility segment primarily includes development costs for Ford’s autonomous vehicles and related businesses, Ford’s equity ownership in Argo AI (a developer of autonomous driving systems), and other mobility businesses and investments. Ford Credit Segment The Ford Credit segment is comprised of the Ford Credit business on a consolidated basis, which is primarily vehicle-related financing and leasing activities. Corporate Other Corporate Other primarily includes corporate governance expenses, interest income (excluding interest earned on our extended service contract portfolio that is included in our Automotive segment) and gains and losses from our cash, cash equivalents, and marketable securities (excluding gains and losses on investments in equity securities), and foreign exchange derivatives gains and losses associated with intercompany lending. Corporate governance expenses are primarily administrative, delivering benefit on behalf of the global enterprise, that are not allocated to operating segments. These include expenses related to setting and directing global policy, providing oversight and stewardship, and promoting the Company’s interests. Corporate Other assets include: cash, cash equivalents, and marketable securities; tax related assets; other investments; and other assets managed centrally. Interest on Debt Interest on Debt is presented as a separate reconciling item and consists of interest expense on Company debt excluding Ford Credit. The underlying liability is reported in the Automotive segment and in Corporate Other. Special Items Special Items are presented as a separate reconciling item. They consist of (i) pension and OPEB remeasurement gains and losses, (ii) gains and losses on investments in equity securities, (iii) significant personnel expenses, dealer-related costs, and facility-related charges stemming from our efforts to match production capacity and cost structure to market demand and changing model mix, and (iv) other items that we do not necessarily consider to be indicative of earnings from ongoing operating activities. Our management ordinarily excludes these items from its review of the results of the operating segments for purposes of measuring segment profitability and allocating resources. We also report these special items separately to help investors track amounts related to these activities and to allow investors analyzing our results to identify certain infrequent significant items that they may wish to exclude when considering the trend of ongoing operating results. 30 Item 1. Financial Statements (Continued) FORD MOTOR COMPANY AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS NOTE 21. SEGMENT INFORMATION (Continued) Key financial information for the periods ended or at June 30 was as follows (in millions): Automotive Mobility Ford Credit Corporate Other Interest on Debt Special Items Adjustments Total Second Quarter 2021 Revenues $ 24,128 $ 21 $ 2,603 $ — $ — $ — $ — $ 26,752 Income/(Loss) before income taxes ( 97 ) ( 210 ) 1,623 ( 263 ) ( 453 ) 135 (a) — 735 Equity in net income/(loss) of affiliated companies 77 ( 63 ) 9 — — 28 — 51 Total assets 67,513 3,574 138,098 40,411 — — ( 1,064 ) (b) 248,532 Second Quarter 2022 Revenues $ 37,909 $ 25 $ 2,256 $ — $ — $ — $ — $ 40,190 Income/(Loss) before income taxes 3,322 ( 221 ) 939 ( 318 ) ( 312 ) ( 2,619 ) (c) — 791 Equity in net income/(loss) of affiliated companies 157 ( 83 ) 4 — — ( 20 ) — 58 Total assets 71,291 3,284 127,493 45,008 — — ( 1,321 ) (b) 245,755 Automotive Mobility Ford Credit Corporate Other Interest on Debt Special Items Adjustments Total First Half 2021 Revenues $ 57,682 $ 32 $ 5,266 $ — $ — $ — $ — $ 62,980 Income/(loss) before income taxes 3,300 ( 417 ) 2,585 ( 503 ) ( 926 ) 638 (d) — 4,677 Equity in net income/(loss) of affiliated companies 249 ( 123 ) 14 1 — ( 11 ) — 130 First Half 2022 Revenues $ 70,020 $ 109 $ 4,537 $ — $ — $ — $ — $ 74,666 Income/(loss) before income taxes 5,213 ( 463 ) 1,867 ( 569 ) ( 620 ) ( 8,485 ) (c) — ( 3,057 ) Equity in net income/(loss) of affiliated companies 296 ( 158 ) 10 1 — ( 124 ) (e) — 25 __________ (a) Primarily reflects Global Redesign actions, mark-to-market adjustments for our global pension and OPEB plans, and gains/(losses) on investments in equity securities. (b) Includes eliminations of intersegment transactions occurring in the ordinary course of business and deferred tax netting. (c) Primarily reflects the loss on our Rivian investment. (d) Primarily reflects the gain on our Rivian investment, Global Redesign actions, and mark-to-market adjustments for our global pension and OPEB plans. (e) Primarily reflects the full impairment of our Ford Sollers Netherlands B.V. (the parent company of our joint venture in Russia) equity method investment, resulting from the ongoing regulatory and economic uncertainty in Russia. 31 ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. KEY TRENDS AND ECONOMIC FACTORS AFFECTING FORD AND THE AUTOMOTIVE INDUSTRY The following supplements the key trends and economic factors discussed on pages 34 and 35 of our 2021 Form 10‑K and page 31 of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022: COVID-19 and Supplier Disruptions. The impact of COVID-19, including changes in consumer behavior, pandemic fears and market downturns, and restrictions on business and individual activities, has created significant volatility in the global economy. Recent outbreaks in certain regions continue to cause intermittent COVID-19-related disruptions in our supply chain and local manufacturing operations. We also continue to face supplier disruptions due to the semiconductor shortage. Further, actions taken by Russia in Ukraine have impacted and could further impact our suppliers, particularly our lower tier suppliers, as well as our operations in Europe. For additional information on the impact of supplier disruptions, see the Outlook section on page 57 . Commodity and Energy Prices. Prices for commodities remain volatile, and recently we have experienced price increases for base metals (e.g., steel and aluminum), precious metals (e.g., palladium), and raw materials that are used in batteries for electric vehicles (e.g., lithium, cobalt, and nickel for batteries). Global demand and differences in output across sectors due to the COVID-19 pandemic have generated divergence in price movements across different commodities. The net impact on us overall has been higher material costs. To help ensure supply of raw materials for critical components (e.g., batteries), we, like others in the industry, have entered into multi-year sourcing agreements and may enter into additional agreements. Similar dynamics are impacting energy markets, with Europe particularly exposed to the risk of both higher prices and constraints on supply of natural gas due to the ongoing conflict in Ukraine. Such shortages may impact facilities operated by us or our suppliers, which could have an impact on us in Europe and other regions. For additional information on commodity costs, see the Outlook section on page 57 . Inflation. We are seeing a near-term impact on our business due to inflationary pressure, and inflation has continued to accelerate in the wake of Russia’s invasion of Ukraine, driving up energy prices, freight premiums, and other operating costs. Inflation in the United States rose by 9.1% on an annual basis in June, and U.K. inflation rose 9.4% over the same period, both representing 40-year highs. Surging energy prices drove the inflation rate for the euro zone 8.6% higher on an annual basis in June. Interest rates, notably mature market government bond yields, remain low by historical standards but are rising as central banks around the world tighten monetary policy in response to inflation pressures, while government deficits and debt remain at high levels in many major markets. The eventual implications of higher government deficits and debt, tighter monetary policy, and potentially higher long-term interest rates may drive a higher cost of capital during our plan period. 32 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) RESULTS OF OPERATIONS In the second quarter of 2022, the net income attributable to Ford Motor Company was $667 million, and Company adjusted EBIT was $3,722 million. Net income/(loss) includes certain items (“special items”) that are excluded from Company adjusted EBIT. These items are discussed in more detail in Note 21 of the Notes to the Financial Statements. We report special items separately to allow investors analyzing our results to identify certain items that they may wish to exclude when considering the trend of ongoing operating results. Our pre-tax and tax special items were as follows (in millions): Second Quarter First Half 2021 2022 2021 2022 Global Redesign Europe $ (165) $ (27) $ (259) $ (49) India — (47) — (75) South America (133) 10 (455) (17) China (including Taiwan) 158 (12) 157 (12) Separations and Other (not included above) (4) (31) (3) (12) Subtotal Global Redesign $ (144) $ (107) $ (560) $ (165) Other Items Gain/(loss) on Rivian investment (a) $ — $ (2,447) $ 902 $ (7,896) Ford Credit – Brazil restructuring (see Note 16) — (36) — (155) Russia suspension of operations/asset write-off — 6 — (132) Patent matters related to prior calendar years — 14 — (121) Other 26 (33) 21 — Subtotal Other Items $ 26 $ (2,496) $ 923 $ (8,304) Pension and OPEB Gain/(Loss) Pension and OPEB remeasurement $ 263 $ (16) $ 324 $ (16) Pension settlements and curtailments (10) — (49) — Subtotal Pension and OPEB Gain/(Loss) $ 253 $ (16) $ 275 $ (16) Total EBIT Special Items $ 135 $ (2,619) $ 638 $ (8,485) Cash effect of Global Redesign (incl. separations) $ (970) $ 298 $ (1,315) $ 150 Provision for/(Benefit from) tax special items (b) $ 84 $ (537) $ 142 $ (1,729) __________ (a) As of June 30, 2022, we held 76.7 million Rivian common shares valued at $25.74 per share. (b) Includes related tax effect on special items and tax special items. We recorded $2.6 billion of pre-tax special item charges in the second quarter of 2022, driven primarily by a loss on our Rivian investment. In Note 21 of the Notes to the Financial Statements, special items are reflected as a separate reconciling item, as opposed to being allocated among the Automotive, Mobility, and Ford Credit segments. This reflects the fact that management excludes these items from its review of operating segment results for purposes of measuring segment profitability and allocating resources. 33 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) COMPANY KEY METRICS The table below shows our second quarter and first half 2022 key metrics for the Company, compared to a year ago. Second Quarter First Half 2021 2022 H / (L) 2021 2022 H / (L) GAAP Financial Measures Cash Flows from Operating Activities ($B) $ 0.8 $ 2.9 $ 2.2 $ 5.2 $ 1.9 $ (3.4) Revenue ($M) 26,752 40,190 50 % 62,980 74,666 19 % Net Income/(Loss) ($M) 561 667 $ 106 3,823 (2,443) (6,266) Net Income/(Loss) Margin (%) 2.1 % 1.7 % (0.4) ppts 6.1 % (3.3) % (9.4) ppts EPS (Diluted) $ 0.14 $ 0.16 $ 0.02 $ 0.95 $ (0.61) $ (1.56) Non-GAAP Financial Measures (a) Company Adj. Free Cash Flow ($B) $ (5.1) $ 3.6 $ 8.7 $ (5.5) $ 3.0 $ 8.5 Company Adj. EBIT ($M) 1,053 3,722 2,669 4,965 6,048 1,083 Company Adj. EBIT Margin (%) 3.9 % 9.3 % 5.4 ppts 7.9 % 8.1 % 0.2 ppts Adjusted EPS (Diluted) $ 0.13 $ 0.68 $ 0.55 $ 0.83 $ 1.06 $ 0.23 Adjusted ROIC (Trailing Four Quarters) 10.3 % 11.6 % 1.2 ppts __________ (a) See Non-GAAP Financial Measure Reconciliations section for reconciliation to GAAP. In the second quarter of 2022, our diluted earnings per share of Common and Class B Stock was $0.16 and our diluted adjusted earnings per share was $0.68. Net income/(loss) margin was 1.7% in the second quarter of 2022, down 0.4 percentage points from a year ago. Company adjusted EBIT margin was 9.3% in the second quarter of 2022, up 5.4 percentage points from a year ago. The year-over-year increase of $106 million in net income/(loss) in the second quarter of 2022 was driven by higher Automotive EBIT, partially offset by a loss on our Rivian investment, which is included in special items, and lower Ford Credit EBT. The year-over-year increase of $2.7 billion in Company adjusted EBIT was driven by higher Automotive EBIT, partially offset by lower Ford Credit EBT. The table below shows our second quarter and first half 2022 net income/(loss) attributable to Ford and Company adjusted EBIT by segment. Second Quarter First Half 2021 2022 H / (L) 2021 2022 H / (L) Automotive $ (97) $ 3,322 $ 3,419 $ 3,300 $ 5,213 $ 1,913 Mobility (210) (221) (11) (417) (463) (46) Ford Credit 1,623 939 (684) 2,585 1,867 (718) Corporate Other (263) (318) (55) (503) (569) (66) Company Adjusted EBIT (a) 1,053 3,722 2,669 4,965 6,048 1,083 Interest on Debt (453) (312) (141) (926) (620) (306) Special Items 135 (2,619) 2,754 638 (8,485) 9,123 Taxes / Noncontrolling Interests (174) (124) (50) (854) 614 (1,468) Net Income/(Loss) $ 561 $ 667 $ 106 $ 3,823 $ (2,443) $ (6,266) __________ (a) See Non-GAAP Financial Measure Reconciliations section for reconciliation to GAAP. 34 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Automotive Segment The table below shows our second quarter and first half 2022 Automotive segment EBIT by business unit (in millions). Second Quarter First Half 2021 2022 H / (L) 2021 2022 H / (L) North America $ 192 $ 3,269 $ 3,077 $ 3,135 $ 4,860 $ 1,725 South America (86) 104 190 (159) 154 313 Europe (284) 10 294 57 217 160 China (including Taiwan) (123) (121) 2 (138) (174) (36) International Markets Group 204 60 (144) 405 156 (249) Automotive Segment $ (97) $ 3,322 $ 3,419 $ 3,300 $ 5,213 $ 1,913 The tables below and on the following pages provide second quarter and first half 2022 key metrics and the change in second quarter 2022 EBIT compared with second quarter 2021 by causal factor for our Automotive segment and its regional business units: North America, South America, Europe, China (including Taiwan), and the International Markets Group. For a description of these causal factors, see Definitions and Information Regarding Automotive Causal Factors. Second Quarter First Half Key Metrics 2021 2022 H / (L) 2021 2022 H / (L) Market Share (%) 4.9 % 5.3 % 0.3 ppts 5.1 % 5.0 % (0.1) ppts Wholesale Units (000) 764 1,032 268 1,826 1,998 172 Revenue ($M) $ 24,128 $ 37,909 $ 13,781 $ 57,682 $ 70,020 $ 12,338 EBIT ($M) (97) 3,322 3,419 3,300 5,213 1,913 EBIT Margin (%) (0.4) % 8.8 % 9.2 ppts 5.7 % 7.4 % 1.7 ppts Change in EBIT by Causal Factor (in millions) Second Quarter 2021 EBIT $ (97) Volume / Mix 4,358 Net Pricing 2,338 Cost (3,598) Exchange 43 Other 278 Second Quarter 2022 EBIT $ 3,322 In the second quarter of 2022, wholesales increased 35% from a year ago, primarily reflecting reduced supply constraints (including semiconductors) on production and the ramp-up of Bronco and Maverick production. Second quarter 2022 revenue increased 57%, driven by higher wholesales, net pricing, and parts and accessories sales, as well as favorable mix, offset partially by weaker currencies. Our second quarter 2022 Automotive segment EBIT was $3.3 billion, an increase of $3.4 billion from a year ago, and our second quarter 2022 Automotive EBIT margin was 8.8%. The higher EBIT was driven by higher wholesales and higher net pricing, offset partially by inflationary increases on commodity, material, and freight costs, and higher volume-related manufacturing and investment-related costs. 35 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) North America Second Quarter First Half Key Metrics 2021 2022 H / (L) 2021 2022 H / (L) Market Share (%) 10.4 % 12.9 % 2.5 ppts 11.4 % 12.4 % 1.1 ppts Wholesale Units (000) 327 618 291 861 1,132 271 Revenue ($M) $ 14,966 $ 29,055 $ 14,089 $ 37,959 $ 51,374 $ 13,415 EBIT ($M) 192 3,269 3,077 3,135 4,860 1,725 EBIT Margin (%) 1.3 % 11.3 % 10.0 ppts 8.3 % 9.5 % 1.2 ppts Change in EBIT by Causal Factor (in millions) Second Quarter 2021 EBIT $ 192 Volume / Mix 4,585 Net Pricing 1,230 Cost (2,989) Exchange 160 Other 91 Second Quarter 2022 EBIT $ 3,269 In North America, second quarter 2022 wholesales increased 89% from a year ago, primarily reflecting reduced supply constraints (including semiconductors) on production. Second quarter 2022 revenue increased 94%, driven by higher wholesales and net pricing, favorable mix, and higher parts and accessories sales. North America’s second quarter 2022 EBIT was $3.3 billion, an increase of $3.1 billion from a year ago, with an EBIT margin of 11.3%. The higher EBIT was driven by higher wholesales, higher net pricing, and favorable mix, offset partially by inflationary increases on commodity, material, and freight costs and higher volume-related manufacturing and investment-related costs. South America Second Quarter First Half Key Metrics 2021 2022 H / (L) 2021 2022 H / (L) Market Share (%) 2.3 % 2.0 % (0.3) ppts 3.0 % 2.1 % (0.9) ppts Wholesale Units (000) 18 18 1 35 34 (2) Revenue ($M) $ 542 $ 699 $ 157 $ 978 $ 1,277 $ 299 EBIT ($M) (86) 104 190 (159) 154 313 EBIT Margin (%) (15.9) % 14.8 % 30.7 ppts (16.3) % 12.1 % 28.4 ppts Change in EBIT by Causal Factor (in millions) Second Quarter 2021 EBIT $ (86) Volume / Mix (6) Net Pricing 206 Cost (31) Exchange 9 Other 12 Second Quarter 2022 EBIT $ 104 In South America, second quarter 2022 wholesales increased 3% from a year ago. Second quarter 2022 revenue increased 29%, driven by higher net pricing, offset partially by weaker currencies. South America’s second quarter 2022 EBIT was $104 million, an improvement of $190 million from a year ago, with an EBIT margin of 14.8%. The EBIT improvement was driven by higher net pricing, lower warranty expense, and structural cost reductions, offset partially by inflationary increases on commodity and material costs. The strong results in South America reflect our restructuring efforts and pricing and were further aided by currencies, including a balance sheet revaluation, the effect of which is not expected to be sustained. 36 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Europe Second Quarter First Half Key Metrics 2021 2022 H / (L) 2021 2022 H / (L) Market Share (%) 6.1 % 6.4 % 0.3 ppts 6.6 % 6.5 % (0.1) ppts Wholesale Units (000) (a) 182 222 40 460 476 16 Revenue ($M) $ 5,610 $ 5,761 $ 151 $ 12,660 $ 12,671 $ 11 EBIT ($M) (284) 10 294 57 217 160 EBIT Margin (%) (5.1) % 0.2 % 5.3 ppts 0.4 % 1.7 % 1.3 ppts __________ (a) Includes Ford brand vehicles produced and sold by our unconsolidated affiliate in Turkey (about 13,000 units in Q2 2021 and 17,000 units in Q2 2022). Revenue does not include these sales. Change in EBIT by Causal Factor (in millions) Second Quarter 2021 EBIT $ (284) Volume / Mix (52) Net Pricing 826 Cost (542) Exchange (108) Other 170 Second Quarter 2022 EBIT $ 10 In Europe, second quarter 2022 wholesales increased 22% from a year ago, primarily reflecting reduced supply constraints (including semiconductors) on production. Second quarter 2022 revenue increased 3%, driven by higher wholesales and net pricing, offset partially by weaker currencies and unfavorable mix. Europe’s second quarter 2022 EBIT was $10 million, an improvement of $294 million from a year ago, with an EBIT margin of 0.2%. The higher EBIT was driven by higher net pricing and higher wholesales, offset partially by unfavorable mix driven by semiconductor-related supply constraints, inflationary increases on commodity and material costs, and weaker currencies. 37 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) China (Including Taiwan) Second Quarter First Half Key Metrics 2021 2022 H / (L) 2021 2022 H / (L) Market Share (%) 2.3 % 2.3 % 0.1 ppts 2.3 % 2.3 % — ppts Wholesale Units (000) (a) 150 114 (36) 301 242 (59) Revenue ($M) $ 550 $ 438 $ (112) $ 1,375 $ 999 $ (376) EBIT ($M) (123) (121) 2 (138) (174) (36) EBIT Margin (%) (22.3) % (27.6) % (5.3) ppts (10.0) % (17.4) % (7.4) ppts China Unconsolidated Affiliates Wholesale Units (000) (b) 149 111 (38) 289 236 (53) Ford Equity Income/(Loss) ($M) $ 18 $ 77 $ 59 $ 67 $ 117 $ 50 __________ (a) Includes vehicles produced and sold by our unconsolidated affiliates. Revenue does not include these sales. (b) Includes Ford and Lincoln brand and JMC brand vehicles produced and sold in China and Ford brand vehicles produced in Taiwan by Lio Ho Group. Change in EBIT by Causal Factor (in millions) Second Quarter 2021 EBIT $ (123) Volume / Mix (64) Net Pricing (8) Cost 18 Exchange 2 Other (Including Joint Ventures) 54 Second Quarter 2022 EBIT $ (121) In China, second quarter 2022 wholesales decreased 24% from a year ago, driven by COVID-related lockdowns and restrictions. Second quarter 2022 revenue at our consolidated operations decreased 20%, primarily driven by lower component sales to our joint ventures in China. China’s second quarter 2022 EBIT loss was $121 million, about flat versus a year ago, with an EBIT margin of negative 27.6%. Higher profits at our joint ventures and lower costs were offset partially by lower wholesales. 38 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) International Markets Group Second Quarter First Half Key Metrics 2021 2022 H / (L) 2021 2022 H / (L) Market Share (%) 1.8 % 1.2 % (0.7) ppts 1.8 % 1.2 % (0.6) ppts Wholesale Units (000) (a) 87 59 (27) 169 114 (54) Revenue ($M) $ 2,460 $ 1,956 $ (504) $ 4,710 $ 3,699 $ (1,011) EBIT ($M) 204 60 (144) 405 156 (249) EBIT Margin (%) 8.3 % 3.1 % (5.2) ppts 8.6 % 4.2 % (4.4) ppts __________ (a) Includes Ford brand vehicles produced and sold by our unconsolidated affiliate in Russia (about 5,000 units in Q2 2021 and 0 units in Q2 2022). Revenue does not include these sales. Change in EBIT by Causal Factor (in millions) Second Quarter 2021 EBIT $ 204 Volume / Mix (104) Net Pricing 85 Cost (53) Exchange (21) Other (51) Second Quarter 2022 EBIT $ 60 In our International Markets Group, second quarter 2022 wholesales decreased 32% from a year ago, primarily reflecting lower wholesales in India and Russia and plant changeover for the new Ranger pickup. Second quarter 2022 revenue decreased 21%, driven by lower wholesales and weaker currencies, offset partially by higher net pricing. Our International Markets Group’s second quarter 2022 EBIT was $60 million, a decrease of $144 million from a year ago, with an EBIT margin of 3.1%. The lower EBIT was driven by lower wholesales, inflationary increases on commodity and material costs, and weaker currencies, offset partially by higher net pricing. 39 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Definitions and Information Regarding Automotive Causal Factors In general, we measure year-over-year change in Automotive segment EBIT using the causal factors listed below, with net pricing and cost variances calculated at present-period volume and mix and exchange: • Market Factors (exclude the impact of unconsolidated affiliate wholesale units): ◦ Volume and Mix – primarily measures EBIT variance from changes in wholesale unit volumes (at prior-year average contribution margin per unit) driven by changes in industry volume, market share, and dealer stocks, as well as the EBIT 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 EBIT variance driven by changes in wholesale unit prices to dealers and marketing incentive programs such as rebate programs, low-rate financing offers, special lease offers, and stock adjustments on dealer inventory • Cost: ◦ Contribution Costs – primarily measures EBIT 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 EBIT 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 and Connectivity – consists primarily of costs for vehicle and software engineering personnel, prototype materials, testing, and outside engineering and software 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, Information Technology, and Selling – includes primarily costs for salaried personnel and purchased services related to our staff activities, information technology, and selling functions ▪ Pension and OPEB – consists primarily of past service pension costs and other postretirement employee benefit costs • Exchange – primarily measures EBIT 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 earnings, 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, local brand units produced by our China joint venture, Jiangling Motors Corporation, Ltd. (“JMC”), that are sold to dealerships, and Ford badged vehicles produced in Taiwan by Lio Ho Group. 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 • Industry Volume and Market Share – based, in part, on estimated vehicle registrations; includes medium and heavy duty trucks • SAAR – seasonally adjusted annual rate 40 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Mobility Segment The Mobility segment primarily includes development costs for Ford’s autonomous vehicles and related businesses, Ford’s equity ownership in Argo AI (a developer of autonomous driving systems), and other mobility businesses and investments. In our Mobility segment, our second quarter 2022 EBIT loss was $221 million, an $11 million higher loss than a year ago. The loss reflects our strategic investments as we continued to expand our capabilities in autonomous vehicles and support our mobility initiatives. 41 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Ford Credit Segment Ford Credit files periodic reports with the SEC that contain additional information regarding Ford Credit. The reports are available through Ford Credit’s website located at www.fordcredit.com/investor-center and can also be found on the SEC’s website located at www.sec.gov . The foregoing information regarding Ford Credit’s website and its content is for convenience only and not deemed to be incorporated by reference into this Report nor filed with the SEC. The tables below provide second quarter and first half 2022 key metrics and the change in second quarter 2022 EBT compared with second quarter 2021 by causal factor for the Ford Credit segment. For a description of these causal factors, see Definitions and Information Regarding Ford Credit Causal Factors. Second Quarter First Half Key Metrics 2021 2022 H / (L) 2021 2022 H / (L) Total Net Receivables ($B) $ 118 $ 116 (2) % $ 118 $ 116 (2) % Loss-to-Receivables (bps) (a) (7) 5 12 7 7 — Auction Values (b) $ 29,040 $ 31,445 8 % $ 25,580 $ 30,780 20 % EBT ($M) 1,623 939 $ (684) 2,585 1,867 $ (718) ROE (%) 47 % 26 % (21) ppts 34 % 24 % (10) ppts Other Balance Sheet Metrics Debt ($B) $ 121 $ 110 (9) % Net Liquidity ($B) 33 25 (24) % Financial Statement Leverage (to 1) 9.3 9.1 (0.2) __________ (a) U.S. retail financing only. (b) U.S. 36-month off-lease second quarter auction values at Q2 2022 mix and YTD amounts at 2022 YTD mix. Change in EBT by Causal Factor (in millions) Second Quarter 2021 EBT $ 1,623 Volume / Mix (77) Financing Margin (113) Credit Loss (109) Lease Residual (428) Exchange (17) Other 60 Second Quarter 2022 EBT $ 939 Ford Credit’s total net receivables were $2 billion lower than a year ago, primarily reflecting lower volume due to supply constraints and exchange. The loss-to-receivables (“LTR”) ratio remained at a low level in the second quarter of 2022, at five basis points, 12 basis points higher than a year ago. U.S. auction values in the second quarter of 2022 were 8% higher than a year ago, reflecting continued strong demand for used vehicles. Ford Credit’s second quarter 2022 EBT of $939 million was $684 million lower than a year ago, primarily reflecting lower lease residual gains driven by lower lease return volume, unfavorable changes in net financing margin, lower volume due to supply constraints on new vehicle production, and lower credit loss reserve releases, partially offset by positive market valuation adjustments to derivatives due to higher interest rates, which is included in Other. 42 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Definitions and Information Regarding Ford Credit Causal Factors In general, we measure year-over-year changes in Ford Credit’s EBT using the causal factors listed below: • Volume and Mix: ◦ Volume primarily measures changes in net financing margin driven by changes in average net receivables excluding the allowance for credit losses 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 vehicles sold and leased, the extent to which Ford Credit purchases retail financing and operating 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 ◦ Mix primarily measures changes in net financing margin driven by period-over-period changes in the composition of Ford Credit’s average net receivables excluding the allowance for credit losses by product within each region • Financing Margin: ◦ Financing margin variance is the period-to-period change in financing margin yield multiplied by the present period average net receivables excluding the allowance for credit losses 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 net receivables excluding the allowance for credit losses 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 forward looking macroeconomic conditions. For additional information, refer to the “Critical Accounting Estimates - Allowance for Credit Losses” section of Item 7 of Part II of our 2021 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 Ford Credit’s estimate of the number of vehicles that will be returned to it and sold. Accumulated depreciation reflects early termination losses on operating leases due to customer default events. For additional information, refer to the “Critical Accounting Estimates - Accumulated Depreciation on Vehicles Subject to Operating Leases” section of Item 7 of Part II of our 2021 Form 10-K Report • Exchange: ◦ Reflects changes in EBT driven by the effects of converting functional currency income to U.S. dollars • Other: ◦ Primarily includes operating expenses, other revenue, insurance expenses, and other income/(loss) 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 income/(loss) 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 43 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) In addition, the following definitions and calculations apply to Ford Credit when used in this report: • Cash (as shown in the Funding Structure and Liquidity tables) – Cash, cash equivalents, and marketable securities, excluding amounts related to insurance activities • Debt (as shown in the Key Metrics and Leverage tables) – Debt on Ford Credit’s balance sheets. 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 • Earnings Before Taxes (“EBT” ) – Reflects Ford Credit’s income before income taxes • Loss-to-Receivables (“LTR”) Ratio – LTR ratio is calculated using net charge-offs divided by average finance receivables, excluding unearned interest supplements and the allowance for credit losses • Return on Equity (“ROE” ) (as shown in the Key Metrics table) – Reflects return on equity calculated by annualizing net income for the period and dividing by monthly average equity for the period • Securitization and Restricted Cash (as shown in the Liquidity table) – Securitization cash is held for the benefit of the securitization investors (for example, a reserve fund). Restricted cash primarily includes cash held to meet certain local governmental and regulatory reserve requirements and cash held under the terms of certain contractual agreements • Securitizations (as shown in the Public Term Funding Plan table) – Public securitization transactions, Rule 144A offerings sponsored by Ford Credit, and widely distributed offerings by Ford Credit Canada • Term Asset-Backed Securities (as shown in the Funding Structure table) – Obligations issued in securitization transactions that are payable only out of collections on the underlying securitized assets and related enhancements • Total Net Receivables (as shown in the Key Metrics table) – Includes finance receivables (retail financing and wholesale) sold for legal purposes and net investment in operating leases included in securitization transactions that do not satisfy the requirements for accounting sale treatment. These receivables and operating leases are reported on Ford Credit’s balance sheets and 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 of Ford Credit or the claims of Ford Credit’s other creditors 44 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Corporate Other Corporate Other primarily includes corporate governance expenses, interest income (excluding interest earned on our extended service contract portfolio that is included in our Automotive segment) and gains and losses from our cash, cash equivalents, and marketable securities (excluding gains and losses on investments in equity securities), and foreign exchange derivatives gains and losses associated with intercompany lending. Corporate governance expenses are primarily administrative, delivering benefit on behalf of the global enterprise, that are not allocated to operating segments. These include expenses related to setting and directing global policy, providing oversight and stewardship, and promoting the Company’s interests. In the second quarter of 2022, Corporate Other had a $318 million loss, compared with a $263 million loss a year ago. The higher loss was driven by negative fair market value adjustments on our cash equivalent portfolios as a result of higher interest rates and higher administrative and IT-related expenses. Interest on Debt Interest on Debt, which consists of interest expense on Company debt excluding Ford Credit, was $312 million in the second quarter of 2022, $141 million lower than a year ago, primarily explained by U.S. debt restructuring actions undertaken in the fourth quarter of 2021. Taxes Our Provision for/(Benefit from) income taxes for the second quarter and first half of 2022 was a provision of $153 million and a benefit of $576 million, respectively. This resulted in effective tax rates of 19.3% and 18.8%, respectively. Our second quarter and first half of 2022 adjusted effective tax rates, which exclude special items, were 20.2% and 21.2%, respectively. We regularly review our organizational structure and income tax elections for affiliates in non-U.S. and U.S. tax jurisdictions, which may result in changes in affiliates that are included in or excluded from our U.S. tax return. Any future changes to our structure, as well as any changes in income tax laws in the countries that we operate, could cause increases or decreases to our deferred tax balances and related valuation allowances. 45 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) LIQUIDITY AND CAPITAL RESOURCES At June 30, 2022, total balance sheet cash, cash equivalents, marketable securities, and restricted cash, including Ford Credit and entities held for sale, was $37.3 billion. We consider our key balance sheet metrics to be: (i) Company cash, which includes cash equivalents, marketable securities, and restricted cash, including cash held for sale, excluding Ford Credit’s cash, cash equivalents, marketable securities, and restricted cash; and (ii) Company liquidity, which includes Company cash, less restricted cash, and total available committed credit lines, excluding Ford Credit’s total available committed credit lines. Company excluding Ford Credit December 31, 2021 June 30, 2022 Balance Sheets ($B) Company Cash $ 36.5 $ 28.7 Liquidity 52.4 45.1 Debt (20.4) (19.4) Cash Net of Debt 16.1 9.4 Pension Funded Status ($B) (a) Funded Plans $ 5.8 $ 6.7 Unfunded Plans (6.1) (6.0) Total Global Pension $ (0.3) $ 0.7 Total Funded Status OPEB $ (6.0) $ (5.9) __________ (a) Balances at June 30, 2022 reflect net funded status at December 31, 2021, 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 2021. Liquidity . One of our key priorities is to maintain a strong balance sheet, while at the same time having resources available to invest in and grow our business. At June 30, 2022, we had Company cash of $28.7 billion and liquidity of $45.1 billion, including approximately $2 billion of Rivian marketable securities. In the second quarter, we sold approximately 25 million of our Rivian shares resulting in proceeds of about $700 million. As marketable securities increase or decrease in value, Company cash and liquidity will likewise increase or decrease. At June 30, 2022, about 84% of Company cash was held by consolidated entities domiciled in the United States. To be prepared for an economic downturn, we target an ongoing Company cash balance at or above $20 billion plus significant additional liquidity above our Company cash target. We expect to have periods when we will be above or below this amount due to: (i) future cash flow expectations, such as for investments in future opportunities, capital investments, debt maturities, pension contributions, or restructuring requirements, (ii) short-term timing differences, and (iii) changes in the global economic environment. Our Company cash investments (excluding the Rivian marketable securities) primarily include U.S. Department of Treasury obligations, federal agency securities, bank time deposits with investment-grade institutions, investment-grade corporate securities, investment-grade commercial paper, 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 is approximately one year and adjusted based on market conditions and liquidity needs. We monitor our Company cash levels and average maturity on a daily basis. 46 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Material Cash Requirements. Our material cash requirements include: • Capital expenditures (for additional information, see the “Changes in Company Cash” section below) and other payments for engineering, software, product development, and implementation of our plans for battery electric vehicles • Purchase of raw materials and components to support the manufacturing and sale of vehicles (including electric vehicles), parts, and accessories (for additional information, see the Aggregate Contractual Obligations table and the accompanying description of our “Purchase obligations” in the “Liquidity and Capital Resources - Company Excluding Ford Credit” section in Item 7 of our 2021 Form 10-K Report) • Marketing incentive payments to dealers • Payments for warranty and field service actions (for additional information, see Note 20 of the Notes to the Financial Statements herein) • Debt repayments (for additional information, see the Aggregate Contractual Obligations table in the “Liquidity and Capital Resources - Company Excluding Ford Credit” section in Item 7 and Note 19 of the Notes the Financial Statements in our 2021 Form 10-K Report) • Discretionary and mandatory payments to our global pension plans (for additional information, see the Aggregate Contractual Obligations table in the “Liquidity and Capital Resources - Company Excluding Ford Credit” section in Item 7 of our 2021 Form 10-K Report, the “Changes in Company Cash” section below, and Note 13 of the Notes to the Financial Statements herein) • Employee wages, benefits, and incentives • Operating lease payments (for additional information, see the Aggregate Contractual Obligations table in the “Liquidity and Capital Resources - Company Excluding Ford Credit” section in Item 7 and Note 18 of the Notes the Financial Statements in our 2021 Form 10-K Report) • Cash effects related to the global redesign of our business (for additional information, see the “Changes in Company Cash” section below) • Strategic acquisitions and investments to grow our business, including electrification Subject to approval by our Board of Directors, shareholder distributions in the form of dividend payments and/or a share repurchase program may require the expenditure of a material amount of cash. Moreover, we may be subject to additional material cash requirements that are contingent upon the occurrence of certain events, e.g., legal contingencies, uncertain tax positions, and other matters. We plan to utilize our liquidity (as described above) and our cash flows from business operations to fund our material cash requirements. 47 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Changes in Company Cash. In managing our business, we classify changes in Company cash into operating and non-operating items. Operating items include: Company adjusted EBIT excluding Ford Credit EBT, capital spending, depreciation and tooling amortization, changes in working capital, Ford Credit distributions, interest on debt, cash taxes, and all other and timing differences (including timing differences between accrual-based EBIT and associated cash flows). Non-operating items include: global redesign (including separation payments), changes in Company debt excluding Ford Credit, contributions to funded pension plans, shareholder distributions, and other items (including gains and losses on investments in equity securities, acquisitions and divestitures, and other transactions with Ford Credit). 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 the sale of vehicles to dealers, which generally occurs shortly after being produced. In contrast, our Automotive trade payables are based primarily on industry-standard production supplier payment terms of about 45 days. As a result, our cash flow deteriorates if wholesale volumes (and the corresponding revenue) decrease while trade payables continue to become due. Conversely, our cash flow improves if wholesale volumes (and the corresponding revenue) increase while new trade payables are generally not due for about 45 days. For example, the suspension of production at most of our assembly plants and lower industry volumes due to COVID-19 in early 2020 resulted in an initial deterioration of our cash flow, while the subsequent resumption of manufacturing operations and return to pre-COVID-19 production levels at most of our assembly plants resulted in a subsequent improvement of our cash flow. Even in normal economic conditions, however, 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. Our inventory includes vehicles completed but awaiting installation of components, including semiconductors. As a result of the shortage, our inventory is higher than in periods prior to the supply shortage. In response to, or in anticipation of, supplier disruptions, we may stockpile certain components or raw materials to help prevent disruption in our production of vehicles. Such actions could have a short-term adverse impact on our cash and increase our inventory. Moreover, in order to secure critical materials for production of electric vehicles, we plan to enter into offtake agreements with raw material suppliers and make investments in certain raw material and battery suppliers, including contributing up to $6.6 billion in capital to BlueOval SK, LLC over a five-year period ending in 2026. Such investments, which are part of our plan to invest over $50 billion in electric vehicles through 2026, could have an additional adverse impact on our cash in the near-term. Financial institutions participate in a supply chain finance (“SCF”) program that enables our suppliers, at their sole discretion, to sell their Ford receivables (i.e., our payment obligations to the suppliers) to the financial institutions on a non-recourse basis in order to be paid earlier than our payment terms provide. Our suppliers’ voluntary inclusion of invoices in the SCF program has no bearing on our payment terms, the amounts we pay, or our liquidity. We have no economic interest in a supplier’s decision to participate in the SCF program, and we have no direct financial relationship with the SCF financial institutions. Moreover, we do not provide any guarantees in connection with the SCF program. As of June 30, 2022, the outstanding amount of Ford receivables that suppliers elected to sell to the SCF financial institutions was $218 million. The amount settled through the SCF program during the first half of 2022 was $605 million. 48 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Changes in Company cash excluding Ford Credit are summarized below (in billions): Second Quarter First Half 2021 2022 2021 2022 Company Excluding Ford Credit Company Adjusted EBIT excluding Ford Credit (a) $ (0.6) $ 2.8 $ 2.4 $ 4.2 Capital spending $ (1.5) $ (1.5) $ (2.9) $ (2.9) Depreciation and tooling amortization 1.3 1.3 2.5 2.6 Net spending $ (0.2) $ (0.2) $ (0.4) $ (0.2) Receivables $ — $ (0.6) $ (0.6) $ (0.6) Inventory (0.8) 0.3 (3.0) (2.5) Trade Payables (4.6) 0.4 (3.0) 2.0 Changes in working capital $ (5.4) $ 0.1 $ (6.6) $ (1.1) Ford Credit distributions $ 4.0 $ 0.6 $ 5.0 $ 1.6 Interest on debt and cash taxes (0.7) (0.6) (1.2) (0.9) All other and timing differences (2.2) 0.9 (4.8) (0.5) Company adjusted free cash flow (a) $ (5.1) $ 3.6 $ (5.5) $ 3.0 Global Redesign (including separations) $ (1.0) $ 0.3 $ (1.3) $ 0.2 Changes in debt — (0.6) 2.0 (0.8) Funded pension contributions (0.2) (0.2) (0.4) (0.3) Shareholder distributions — (0.4) — (0.8) All other (b) — (2.8) (0.4) (9.0) Change in cash $ (6.2) $ — $ (5.7) $ (7.8) __________ (a) See Non-GAAP Financial Measure Reconciliations section for reconciliation to GAAP. (b) Includes a $2.4 billion loss and a $7.9 billion loss on our Rivian investment in the second quarter and first half of 2022, respectively. Note: Numbers may not sum due to rounding. Our second quarter 2022 Net cash provided by/(used in) operating activities was positive $2.9 billion, an increase of $2.2 billion from a year ago (see page 62 for additional information), primarily driven by higher trade payables, timing differences, and higher net income, partially offset by lower Ford Credit operating cash flow. Company adjusted free cash flow was $3.6 billion, $8.7 billion higher than a year ago, driven by higher adjusted EBIT, higher trade payables, and timing differences, partially offset by lower Ford Credit distributions. Capital spending was $1.5 billion in the second quarter of 2022, unchanged from a year ago. We continue to expect full year 2022 capital spending to be about $7.0 billion. Second quarter 2022 working capital impact was $0.1 billion positive, driven by higher trade payables and lower inventory. All other and timing differences were positive $0.9 billion, reflecting assorted differences including differences between accrual-based EBIT and the associated cash flows (e.g., pension and OPEB income or expense; compensation payments; marketing incentive and warranty payments to dealers). 49