FORD MOTOR CO 10-Q

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 have entered into and plan to continue 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. The terms of the offtake agreements we have entered into, and those we may enter into in the future, vary by transaction, though they generally obligate us to purchase a certain percentage or minimum amount of output produced by the counterparty over an agreed upon period of time. The purchase price mechanism included in the offtake agreement is typically based on the market price of the material at the time of delivery or an agreed upon formula or market index. The terms also include conditions to our obligation to purchase the materials, such as quality or minimum output. Subject to satisfaction of those conditions, we will be obligated to purchase the materials at the cost determined by the purchase price mechanism. Based on the offtake agreements we have entered into thus far, the earliest date by which we could be obligated to purchase any output, subject to satisfaction of the applicable conditions, will be in 2024. 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 September 30, 2022, the outstanding amount of Ford receivables that suppliers elected to sell to the SCF financial institutions was $228 million. The amount settled through the SCF program during the first nine months of 2022 was $971 million. 51 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): Third Quarter First Nine Months 2021 2022 2021 2022 Company Excluding Ford Credit Company Adjusted EBIT excluding Ford Credit (a) $ 1.9 $ 1.2 $ 4.3 $ 5.4 Capital spending $ (1.6) $ (1.6) $ (4.4) $ (4.5) Depreciation and tooling amortization 1.3 1.3 3.8 3.9 Net spending $ (0.3) $ (0.3) $ (0.6) $ (0.6) Receivables $ (0.1) $ (0.1) $ (0.7) $ (0.6) Inventory (0.2) (1.7) (3.2) (4.1) Trade Payables 4.1 3.9 1.1 5.9 Changes in working capital $ 3.8 $ 2.2 $ (2.8) $ 1.1 Ford Credit distributions $ 1.5 $ 0.5 $ 6.5 $ 2.1 Interest on debt and cash taxes (0.4) (0.3) (1.5) (1.2) All other and timing differences 1.2 0.3 (3.6) (0.2) Company adjusted free cash flow (a) $ 7.8 $ 3.6 $ 2.3 $ 6.6 Global Redesign (including separations) $ (0.3) $ (0.2) $ (1.6) $ — Changes in debt (0.2) 1.0 1.8 0.1 Funded pension contributions (0.2) (0.1) (0.6) (0.5) Shareholder distributions — (0.6) — (1.4) All other (b) (0.7) (0.3) (1.1) (9.3) Change in cash $ 6.4 $ 3.3 $ 0.7 $ (4.5) __________ (a) See Non-GAAP Financial Measure Reconciliations section for reconciliation to GAAP. (b) Includes a $0.6 billion gain and a $7.3 billion loss on our Rivian investment in the third quarter and first nine months of 2022, respectively. Note: Numbers may not sum due to rounding. Our third quarter 2022 Net cash provided by/(used in) operating activities was positive $3.8 billion, a decrease of $3.2 billion from a year ago (see page 64 for additional information), driven by lower net income, higher inventory, and less favorable timing differences. Company adjusted free cash flow was $3.6 billion, $4.2 billion lower than a year ago, driven by higher inventory, lower Ford Credit distributions, less favorable timing differences, and lower adjusted EBIT. Capital spending was $1.6 billion in the third quarter of 2022, unchanged from a year ago. We now expect full year 2022 capital spending to be about $6.5 billion. Third quarter 2022 working capital impact was $2.2 billion positive, driven by higher trade payables, partially offset by higher inventory, each compared to June 30, 2022. All other and timing differences were positive $0.3 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). In the third quarter of 2022, we contributed $130 million to our global funded pension plans. We expect to contribute about $600 million to our global funded pension plans in 2022. Shareholder distributions were $603 million in the third quarter of 2022, all of which was attributable to our regular quarterly dividend. On October 26, 2022, we announced that we are reinstating a modest anti-dilutive share repurchase program to offset the dilutive effect of share-based compensation. The plan authorizes repurchases of up to 35 million shares of Ford Common Stock. We previously announced our plan for the global redesign of our business, pursuant to which we are working to turn around automotive operations, compete like a challenger, and capitalize on our strengths by allocating more capital, more resources, and more talent to our strongest businesses and vehicle franchises. Beginning with the actions we took in 2018, we expect our global redesign to have a potential cash effect of about $6 billion through 2023. The cash effect related to our global redesign activities was $3.6 billion through September 30, 2022. 52 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Available Credit Lines . Total Company committed credit lines, excluding Ford Credit, at September 30, 2022 were $19.1 billion, consisting of $13.5 billion of our corporate credit facility, $2.0 billion of our supplemental revolving credit facility, $1.75 billion of our 364-day revolving credit facility, and $1.9 billion of local credit facilities. At September 30, 2022, the utilized portion of the corporate credit facility was $25 million, representing amounts utilized for letters of credit, and the utilized portion of our 364-day revolving credit facility was $350 million. In addition, $1.6 billion of committed Company credit lines, excluding Ford Credit, was utilized under local credit facilities for our affiliates as of September 30, 2022. Lenders under our corporate revolving credit facility have $3.4 billion of commitments maturing on June 23, 2025 and $10.1 billion of commitments maturing on June 23, 2027. Lenders under our supplemental revolving credit facility have $0.1 billion of commitments maturing on September 29, 2024 and $1.9 billion of commitments maturing on June 23, 2025. Lenders under our 364-day revolving credit facility have $1.75 billion of commitments maturing on June 22, 2023. The corporate, supplemental, and 364-day credit agreements include certain sustainability-linked targets, pursuant to which the applicable margin and facility fees may be adjusted if Ford achieves, or fails to achieve, the specified targets related to global manufacturing facility greenhouse gas emissions, renewable electricity consumption, and Ford Europe CO 2 tailpipe emissions. On October 26, 2022, Ford amended its 364-day revolving credit facility to provide for the designation of domestic subsidiary borrowers and designated Ford Credit as a subsidiary borrower. The corporate credit facility is unsecured and free of material adverse change conditions to borrowing, restrictive financial covenants (for example, interest or fixed-charge coverage ratio, debt-to-equity ratio, and minimum net worth requirements), and credit rating triggers that could limit our ability to obtain funding or trigger early repayment. The corporate credit facility contains a liquidity covenant that requires us to maintain a minimum of $4 billion in aggregate of domestic cash, cash equivalents, and loaned and marketable securities and/or availability under the facility. The terms and conditions of the supplemental and 364-day revolving credit facilities are consistent with our corporate credit facility. Each of the corporate credit facility, supplemental revolving credit facility, and 364-day revolving credit facility include a covenant that requires us to provide guarantees from certain of our subsidiaries in the event that our senior, unsecured, long-term debt does not maintain at least two investment grade ratings from Fitch, Moody’s, and S&P. The following subsidiaries have provided unsecured guarantees to the lenders under the credit facilities: Ford Component Sales, LLC; Ford European Holdings LLC; Ford Global Technologies, LLC; Ford Holdings LLC (the parent company of Ford Credit); Ford International Capital LLC; Ford Mexico Holdings LLC; Ford Motor Service Company; Ford Next LLC; Ford Smart Mobility LLC; and Ford Trading Company, LLC. Debt. As shown in Note 15 of the Notes to the Financial Statements, at September 30, 2022, Company debt excluding Ford Credit was $20.3 billion, $100 million lower than at December 31, 2021 and $900 million higher than at June 30, 2022. The increase from the end of the second quarter primarily reflects our $600 million retail bond and $1.8 billion green bond issuances in August, partially offset by our redemption of $1.1 billion of higher-coupon debt and $400 million repayment under our 364-day revolving credit facility in September. Leverage. We manage Company debt (excluding Ford Credit) levels with a leverage framework that targets investment grade credit ratings through a normal business cycle. The leverage framework includes a ratio of total Company debt (excluding Ford Credit), underfunded pension liabilities, operating leases, and other adjustments, divided by Company adjusted EBIT (excluding Ford Credit EBT), and further adjusted to exclude depreciation and tooling amortization (excluding Ford Credit). Ford Credit’s leverage is calculated as a separate business as described in the ”Liquidity and Capital Resources - Ford Credit Segment” section of Item 2. Ford Credit is self-funding and its debt, which is used to fund its operations, is separate from our Company debt excluding Ford Credit. 53 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Ford Credit Segment Ford Credit ended the third quarter of 2022 with $20.9 billion of liquidity. During the quarter, Ford Credit completed $2 billion of public term funding. Key elements of Ford Credit’s funding strategy include: • Maintain strong liquidity • Prudently access public markets • Continue growth of retail deposits in Europe • Flexibility to increase ABS mix as needed; preserving assets and committed capacity • Target financial statement leverage of 9:1 to 10:1 • Maintain self-liquidating balance sheet Ford Credit’s liquidity profile continues to be diverse, robust, and focused on maintaining liquidity levels that meet its business and funding requirements. Ford Credit regularly stress tests its balance sheet and liquidity to ensure that it can continue to meet its financial obligations through economic cycles. The following table shows funding for Ford Credit’s net receivables (in billions): September 30, 2021 December 31, 2021 September 30, 2022 Funding Structure Term unsecured debt $ 62.0 $ 59.4 $ 46.4 Term asset-backed securities 45.1 45.4 48.9 Ford Interest Advantage / Retail Deposits 11.9 12.9 12.7 Other (0.6) (0.2) 3.6 Equity 12.4 12.4 11.4 Adjustments for cash (14.3) (12.4) (7.5) Total Net Receivables $ 116.5 $ 117.5 $ 115.5 Securitized Funding as Percent of Total Debt 37.9 % 38.5 % 45.3 % Net receivables were $115.5 billion at September 30, 2022 and were funded primarily with term unsecured debt and term asset-backed securities. Securitized funding as a percent of total debt was 45.3% at the end of the third quarter of 2022. Public Term Funding Plan. The following table shows Ford Credit’s issuances for full year 2020 and 2021, planned issuances for full year 2022, and its global public term funding issuances through October 25, 2022, excluding short-term funding programs (in billions): 2020 Actual 2021 Actual 2022 Forecast Through October 25 Unsecured $ 14 $ 5 $ 5 - 7 $ 5 Securitizations (a) 13 9 9 - 10 8 Total public $ 27 $ 14 $ 14 - 17 $ 13 __________ (a) See Definitions and Information Regarding Ford Credit Causal Factors section. For 2022, Ford Credit now projects full year public term funding in the range of $14 billion to $17 billion. Through October 25, 2022, Ford Credit has completed $13 billion of public term issuances. 54 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Liquidity. The following table shows Ford Credit’s liquidity sources and utilization (in billions): September 30, 2021 December 31, 2021 September 30, 2022 Liquidity Sources (a) Cash $ 14.3 $ 12.4 $ 7.5 Committed asset-backed facilities 37.7 37.1 34.2 Other unsecured credit facilities 2.7 2.7 2.1 Total liquidity sources $ 54.7 $ 52.2 $ 43.8 Utilization of Liquidity (a) Securitization and restricted cash $ (6.1) $ (3.9) $ (2.7) Committed asset-backed facilities (11.5) (12.5) (20.0) Other unsecured credit facilities (0.4) (1.0) (0.5) Total utilization of liquidity $ (18.0) $ (17.4) $ (23.2) Gross liquidity $ 36.7 $ 34.8 $ 20.6 Asset-backed capacity in excess of eligible receivables and other adjustments (3.7) (2.8) 0.3 Net liquidity available for use $ 33.0 $ 32.0 $ 20.9 __________ (a) See Definitions and Information Regarding Ford Credit Causal Factors section. Ford Credit’s net liquidity available for use will fluctuate quarterly based on factors including near-term debt maturities, receivable growth and decline, and timing of funding transactions. At September 30, 2022, Ford Credit’s net liquidity available for use was $20.9 billion, $11.1 billion lower than year-end 2021. Ford Credit’s net liquidity remains robust, while reflecting a smaller balance sheet and lower near-term debt maturities following Ford Credit’s $3 billion debt repurchase completed in the second quarter of 2022. At September 30, 2022, Ford Credit’s liquidity sources, including cash, committed asset-backed facilities, and unsecured credit facilities, totaled $43.8 billion, down $8.4 billion from year-end 2021. Ford Credit continues to be well capitalized with a strong balance sheet. Material Cash Requirements. Ford Credit’s material cash requirements include: (1) the purchase of retail financing and operating lease contracts from dealers and providing wholesale financing for dealers to finance new and used vehicles; and (2) debt repayments (for additional information on debt, see the “Balance Sheet Liquidity Profile” section below and 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 to the Financial Statements in our 2021 Form 10-K Report). In addition, subject to approval by Ford Credit’s Board of Directors, shareholder distributions may require the expenditure of a material amount of cash. Moreover, Ford Credit 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. Ford Credit plans to utilize its liquidity (as described above) and its cash flows from business operations to fund its material cash requirements. 55 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Balance Sheet Liquidity Profile. Ford Credit defines its balance sheet liquidity profile as the cumulative maturities, including the impact of expected prepayments and allowance for credit losses, of its finance receivables, investment in operating leases, and cash, less the cumulative debt maturities over upcoming annual periods. Ford Credit’s balance sheet is inherently liquid because of the short-term nature of its finance receivables, investment in operating leases, and cash. Ford Credit ensures its cumulative debt maturities have a longer tenor than its cumulative asset maturities. This positive maturity profile is intended to provide Ford Credit with additional liquidity after all of its assets have been funded and is in addition to its liquidity available to protect for stress scenarios. The following table shows Ford Credit’s cumulative maturities for assets and total debt for the periods presented and unsecured long-term debt maturities in the individual periods presented (in billions): October - December 2022 2023 2024 2025 and Beyond Balance Sheet Liquidity Profile Assets (a) $ 38 $ 69 $ 93 $ 127 Total debt (b) 26 56 76 110 Memo: Unsecured long-term debt maturities 3 8 11 25 __________ (a) Includes gross finance receivables less the allowance for credit losses (including certain finance receivables that are reclassified in consolidation to Trade and other receivables, net ), investment in operating leases net of accumulated depreciation, cash and cash equivalents, and marketable securities (excluding amounts related to insurance activities). Amounts shown include the impact of expected prepayments. (b) Excludes unamortized debt (discount)/premium, unamortized issuance costs, and fair value adjustments. Maturities of investment in operating leases consist primarily of the portion of rental payments attributable to depreciation over the remaining life of the lease and the expected residual value at lease termination. Maturities of finance receivables and investment in operating leases in the table above include expected prepayments for Ford Credit’s retail installment sale contracts and investment in operating leases. The table above also reflects adjustments to debt maturities to match the asset-backed debt maturities with the underlying asset maturities. All wholesale securitization transactions and wholesale receivables are shown maturing in the next 12 months, even if the maturities extend beyond third quarter 2023. The retail securitization transactions under certain committed asset-backed facilities are assumed to amortize immediately rather than amortizing after the expiration of the commitment period. As of September 30, 2022, Ford Credit had $127 billion of assets, $59 billion of which were unencumbered. Funding and Liquidity Risks. Ford Credit’s funding plan is subject to risks and uncertainties, many of which are beyond its control, including disruption in the capital markets, that could impact both unsecured debt and asset-backed securities issuance and the effects of regulatory changes on the financial markets. Refer to the “Liquidity - Ford Credit Segment - Funding and Liquidity Risks” section of Item 7 of Part II of our 2021 Form 10-K Report for more information. Leverage. Ford Credit uses leverage, or the debt-to-equity ratio, to make various business decisions, including evaluating and establishing pricing for finance receivable and operating lease financing, and assessing its capital structure. The table below shows the calculation of Ford Credit’s financial statement leverage (in billions): September 30, 2021 December 31, 2021 September 30, 2022 Leverage Calculation Debt $ 119.0 $ 117.7 $ 108.0 Equity (a) 12.4 12.4 11.4 Financial statement leverage (to 1) 9.6 9.5 9.4 __________ (a) Total shareholder’s interest reported on Ford Credit’s balance sheets. Ford Credit plans its leverage by considering market conditions and the risk characteristics of its business. At September 30, 2022, Ford Credit’s financial statement leverage was 9.4:1. Ford Credit targets financial statement leverage in the range of 9:1 to 10:1. 56 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Total Company Pension Plans - Funded Balances. As of September 30, 2022, our total Company pension overfunded status reported on our consolidated balance sheets was $1.2 billion and reflects the net funded status at December 31, 2021, updated for: service and interest cost; expected return on assets; curtailments, settlements, and associated interim remeasurement (where applicable); separation expense; actual benefit payments; and cash contributions. For plans without interim remeasurement, the discount rate and rate of expected return assumptions are unchanged from year-end 2021. Return on Invested Capital (“ROIC”). We analyze total Company performance using an adjusted ROIC financial metric based on an after-tax, rolling four quarter average. The following table contains the calculation of our ROIC for the periods shown (in billions): Four Quarters Ending September 30, 2021 September 30, 2022 Adjusted Net Operating Profit/(Loss) After Cash Tax Net income/(loss) attributable to Ford $ 2.9 $ 9.0 Add: Noncontrolling interest — 0.1 Less: Income tax 0.1 1.8 Add: Cash tax (0.6) (0.6) Less: Interest on debt (1.8) (1.4) Less: Total pension/OPEB income/(cost) (0.4) 4.3 Add: Pension/OPEB service costs (1.1) (1.0) Net operating profit/(loss) after cash tax $ 3.2 $ 2.7 Less: Special items (excl. pension/OPEB) pre-tax (3.6) (4.9) Adjusted net operating profit/(loss) after cash tax $ 6.9 $ 7.6 Invested Capital Equity $ 36.7 $ 42.1 Debt (excl. Ford Credit) 25.6 20.3 Net pension and OPEB liability 10.6 4.6 Invested capital (end of period) $ 73.0 $ 66.9 Average invested capital $ 70.9 $ 71.0 ROIC (a) 4.6 % 3.8 % Adjusted ROIC (Non-GAAP) (b) 9.7 % 10.7 % __________ (a) Calculated as the sum of net operating profit/(loss) after cash tax from the last four quarters, divided by the average invested capital over the last four quarters. (b) Calculated as the sum of adjusted net operating profit/(loss) after cash tax from the last four quarters, divided by the average invested capital over the last four quarters. Note: Numbers may not sum due to rounding. 57 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) CREDIT RATINGS Our short-term and long-term debt is rated by four credit rating agencies designated as nationally recognized statistical rating organizations (“NRSROs”) by the U.S. Securities and Exchange Commission: DBRS, Fitch, Moody’s, and S&P. In several markets, locally recognized rating agencies also rate us. A credit rating reflects an assessment by the rating agency of the credit risk associated with a corporate entity or particular securities issued by that entity. Rating agencies’ ratings of us are based on information provided by us and other sources. Credit ratings are not recommendations to buy, sell, or hold securities and are subject to revision or withdrawal at any time by the assigning rating agency. Each rating agency may have different criteria for evaluating company risk and, therefore, ratings should be evaluated independently for each rating agency. There have been no rating actions taken by these NRSROs since the filing of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2022. The following table summarizes certain of the credit ratings and outlook presently assigned by these four NRSROs: NRSRO RATINGS Ford Ford Credit NRSROs Issuer Default / Corporate / Issuer Rating Long-Term Senior Unsecured Outlook / Trend Long-Term Senior Unsecured Short-Term Unsecured Outlook / Trend Minimum Long-Term Investment Grade Rating DBRS BB (high) BB (high) Positive BB (high) R-4 Positive BBB (low) Fitch BB+ BB+ Positive BB+ B Positive BBB- Moody’s N/A Ba2 Stable Ba2 NP Stable Baa3 S&P BB+ BB+ Positive BB+ B Positive BBB- 58 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) OUTLOOK We provided 2022 Company guidance in our earnings release furnished on Form 8-K dated October 26, 2022. Our actual results could differ materially from our guidance due to risks, uncertainties, and other factors, including those set forth in “Risk Factors” in Item 1A of our 2021 Form 10-K Report and as updated by our subsequent filings with the SEC. 2022 Guidance Total Company Adjusted EBIT (a) About $11.5 billion Adjusted Free Cash Flow (a) $9.5 - $10.0 billion Capital spending About $6.5 billion Pension contributions About $0.6 billion Global Redesign EBIT charges (b) About $1 billion Global Redesign cash effects (b) $0.5 - $1.0 billion Ford Credit EBT About $2.7 billion __________ (a) When we provide guidance for adjusted EBIT and adjusted free cash flow, we do not provide guidance for the most comparable GAAP measures because, as described in more detail below in “Non-GAAP Measures That Supplement GAAP Measures,” they include items that are difficult to predict with reasonable certainty. (b) We continue to review our global businesses and may take additional restructuring actions in markets where a path to sustained profitability is not feasible when considering the capital allocation required for those markets. Such actions may result in global redesign EBIT charges and cash effects in 2022 that are incremental to those set forth in the table. For full-year 2022, we now expect adjusted EBIT of about $11.5 billion, which would be about 15% higher than 2021. We also now expect full-year adjusted free cash flow of $9.5 billion to $10.0 billion, reflecting the strength in the Company’s automotive operations, including our restructured businesses in regions outside of North America. Our guidance assumes about a 10% year-over-year increase in wholesale shipments; significantly higher earnings in North America and aggregate profitability in the rest of the world; and strong, but lower, EBT from Ford Credit of about $2.7 billion. Other assumptions include: • No further deterioration in the supply chain • Continued strong pent-up demand and orders for our newest products • Persistent strength in pricing • High commodity and broad-based inflationary costs of about $9 billion • Strong, though lower, auction values at Ford Credit, along with higher borrowing costs • Continuation of the strong dollar 59 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Cautionary Note on Forward-Looking Statements Statements included or incorporated by reference herein may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on expectations, forecasts, and assumptions by our management and involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from those stated, including, without limitation: • Ford and Ford Credit’s financial condition and results of operations have been and may continue to be adversely affected by public health issues, including epidemics or pandemics such as COVID-19; • Ford is highly dependent on its suppliers to deliver components in accordance with Ford’s production schedule, and a shortage of key components, such as semiconductors, or raw materials can disrupt Ford’s production of vehicles; • Ford’s long-term competitiveness depends on the successful execution of Ford+; • Ford’s vehicles could be affected by defects that result in delays in new model launches, recall campaigns, or increased warranty costs; • Ford may not realize the anticipated benefits of existing or pending strategic alliances, joint ventures, acquisitions, divestitures, or new business strategies; • Operational systems, security systems, vehicles, and services could be affected by cyber incidents, ransomware attacks, and other disruptions; • Ford’s production, as well as Ford’s suppliers’ production, could be disrupted by labor issues, natural or man-made disasters, financial distress, production difficulties, capacity limitations, or other factors; • Ford’s ability to maintain a competitive cost structure could be affected by labor or other constraints; • Ford’s ability to attract and retain talented, diverse, and highly skilled employees is critical to its success and competitiveness; • Ford’s new and existing products, digital and physical services, and mobility services are subject to market acceptance and face significant competition from existing and new entrants in the automotive, mobility, and digital services industries; • Ford’s near-term results are dependent on sales of larger, more profitable vehicles, particularly in the United States; • With a global footprint, Ford’s results could be adversely affected by economic, geopolitical, protectionist trade policies, or other events, including tariffs; • Industry sales volume in any of Ford’s key markets can be volatile and could decline if there is a financial crisis, recession, or significant geopolitical event; • Ford may face increased price competition or a reduction in demand for its products resulting from industry excess capacity, currency fluctuations, competitive actions, or other factors; • Inflationary pressure and fluctuations in commodity prices, foreign currency exchange rates, interest rates, and market value of Ford or Ford Credit’s investments, including marketable securities, can have a significant effect on results; • Ford and Ford Credit’s access to debt, securitization, or derivative markets around the world at competitive rates or in sufficient amounts could be affected by credit rating downgrades, market volatility, market disruption, regulatory requirements, or other factors; • Ford’s receipt of government incentives could be subject to reduction, termination, or clawback; • Ford Credit could experience higher-than-expected credit losses, lower-than-anticipated residual values, or higher-than-expected return volumes for leased vehicles; • Economic and demographic experience for pension and other postretirement benefit plans (e.g., discount rates or investment returns) could be worse than Ford has assumed; • Pension and other postretirement liabilities could adversely affect Ford’s liquidity and financial condition; • Ford and Ford Credit could experience unusual or significant litigation, governmental investigations, or adverse publicity arising out of alleged defects in products, services, perceived environmental impacts, or otherwise; • Ford may need to substantially modify its product plans to comply with safety, emissions, fuel economy, autonomous vehicle, and other regulations; • Ford and Ford Credit could be affected by the continued development of more stringent privacy, data use, and data protection laws and regulations as well as consumers’ heightened expectations to safeguard their personal information; and • Ford Credit could be subject to new or increased credit regulations, consumer protection regulations, or other regulations. We cannot be certain that any expectation, forecast, or assumption made in preparing forward-looking statements will prove accurate, or that any projection will be realized. It is to be expected that there may be differences between projected and actual results. Our forward-looking statements speak only as of the date of their initial issuance, and we do not undertake any obligation to update or revise publicly any forward-looking statement, whether as a result of new information, future events, or otherwise. For additional discussion, see “Item 1A. Risk Factors” in our 2021 Form 10-K Report, as updated by our subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. 60 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) NON-GAAP FINANCIAL MEASURES THAT SUPPLEMENT GAAP MEASURES We use both generally accepted accounting principles (“GAAP”) and non-GAAP financial measures for operational and financial decision making, and to assess Company and segment business performance. The non-GAAP measures listed below are intended to be considered by users as supplemental information to their equivalent GAAP measures, to aid investors in better understanding our financial results. We believe that these non-GAAP measures provide useful perspective on underlying operating results and trends, and a means to compare our period-over-period results. These non-GAAP measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. These non-GAAP measures may not be the same as similarly titled measures used by other companies due to possible differences in method and in items or events being adjusted. • Company Adjusted EBIT (Most Comparable GAAP Measure: Net Income/(Loss) Attributable to Ford) – Earnings before interest and taxes (EBIT) excludes interest on debt (excl. Ford Credit Debt), taxes, and pre-tax special items. This non-GAAP measure is useful to management and investors because it focuses on underlying operating results and trends, and improves comparability of our period-over-period results. Our management ordinarily excludes special items from its review of the results of the operating segments for purposes of measuring segment profitability and allocating resources. Our categories of pre-tax special items and the applicable significance guideline for each item (which may consist of a group of items related to a single event or action) are as follows: Pre-Tax Special Item Significance Guideline ∘ Pension and OPEB remeasurement gains and losses ∘ No minimum ∘ Gains and losses on investments in equity securities ∘ No minimum ∘ 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 ∘ Generally $100 million or more ∘ Other items that we do not necessarily consider to be indicative of earnings from ongoing operating activities ∘ $500 million or more for individual field service actions; generally $100 million or more for other items When we provide guidance for adjusted EBIT, we do not provide guidance on a net income basis because the GAAP measure will include potentially significant special items that have not yet occurred and are difficult to predict with reasonable certainty, including gains and losses on pension and OPEB remeasurements and on investments in equity securities. • Company Adjusted EBIT Margin (Most Comparable GAAP Measure: Company Net Income/(Loss) Margin) – Company Adjusted EBIT margin is Company adjusted EBIT divided by Company revenue. This non-GAAP measure is useful to management and investors because it allows users to evaluate our operating results aligned with industry reporting. • Adjusted Earnings/(Loss) Per Share (Most Comparable GAAP Measure: Earnings/(Loss) Per Share) – Measure of Company’s diluted net earnings/(loss) per share adjusted for impact of pre-tax special items (described above), tax special items, and restructuring impacts in noncontrolling interests. The measure provides investors with useful information to evaluate performance of our business excluding items not indicative of earnings from ongoing operating activities. When we provide guidance for adjusted earnings/(loss) per share, we do not provide guidance on an earnings/(loss) per share basis because the GAAP measure will include potentially significant special items that have not yet occurred and are difficult to predict with reasonable certainty prior to year-end, including pension and OPEB remeasurement gains and losses. • Adjusted Effective Tax Rate (Most Comparable GAAP Measure: Effective Tax Rate) – Measure of Company’s tax rate excluding pre-tax special items (described above) and tax special items. The measure provides an ongoing effective rate which investors find useful for historical comparisons and for forecasting. When we provide guidance for adjusted effective tax rate, we do not provide guidance on an effective tax rate basis because the GAAP measure will include potentially significant special items that have not yet occurred and are difficult to predict with reasonable certainty prior to year-end, including pension and OPEB remeasurement gains and losses. 61 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) • Company Adjusted Free Cash Flow (Most Comparable GAAP Measure: Net Cash Provided By/(Used In) Operating Activities) – Measure of Company’s operating cash flow excluding Ford Credit’s operating cash flows. The measure contains elements management considers operating activities, including Company excluding Ford Credit capital spending, Ford Credit distributions to its parent, and settlement of derivatives. The measure excludes cash outflows for funded pension contributions, global redesign (including separations), and other items that are considered operating cash flows under U.S. GAAP. This measure is useful to management and investors because it is consistent with management’s assessment of the Company’s operating cash flow performance. When we provide guidance for Company adjusted free cash flow, we do not provide guidance for net cash provided by/(used in) operating activities because the GAAP measure will include items that are difficult to quantify or predict with reasonable certainty, including cash flows related to the Company's exposures to foreign currency exchange rates and certain commodity prices (separate from any related hedges), Ford Credit's operating cash flows, and cash flows related to special items, including separation payments, each of which individually or in the aggregate could have a significant impact to our net cash provided by/(used in) our operating activities. • Adjusted ROIC – Calculated as the sum of adjusted net operating profit/(loss) after cash tax from the last four quarters, divided by the average invested capital over the last four quarters. Adjusted Return on Invested Capital (“Adjusted ROIC”) provides management and investors with useful information to evaluate the Company’s after-cash tax operating return on its invested capital for the period presented. Adjusted net operating profit/(loss) after cash tax measures operating results less special items, interest on debt (excl. Ford Credit Debt), and certain pension/OPEB costs. Average invested capital is the sum of average balance sheet equity, debt (excl. Ford Credit Debt), and net pension/OPEB liability. 62 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Non-GAAP Financial Measure Reconciliations The following tables show our Non-GAAP financial measure reconciliations. Net Income/(Loss) Reconciliation to Adjusted EBIT ($M) Third Quarter First Nine Months 2021 2022 2021 2022 Net income/(loss) attributable to Ford (GAAP) $ 1,832 $ (827) $ 5,655 $ (3,270) Income/(Loss) attributable to noncontrolling interests (10) (103) (18) (141) Net income/(loss) $ 1,822 $ (930) $ 5,637 $ (3,411) Less: (Provision for)/Benefit from income taxes (63) 195 (925) 771 Income/(Loss) before income taxes $ 1,885 $ (1,125) $ 6,562 $ (4,182) Less: Special items pre-tax (669) (2,607) (31) (11,092) Income/(Loss) before special items pre-tax $ 2,554 $ 1,482 $ 6,593 $ 6,910 Less: Interest on debt (439) (321) (1,365) (941) Adjusted EBIT (Non-GAAP) $ 2,993 $ 1,803 $ 7,958 $ 7,851 Memo: Revenue ($B) $ 35.7 $ 39.4 $ 98.7 $ 114.1 Net income/(loss) margin (GAAP) (%) 5.1 % (2.1) % 5.7 % (2.9) % Adjusted EBIT margin (Non-GAAP) (%) 8.4 % 4.6 % 8.1 % 6.9 % Earnings per Share Reconciliation to Adjusted Earnings per Share Third Quarter First Nine Months 2021 2022 2021 2022 Diluted After-Tax Results ($M) Diluted after-tax results (GAAP) $ 1,832 $ (827) $ 5,655 $ (3,270) Less: Impact of pre-tax and tax special items (209) (2,063) 287 (8,819) Adjusted net income/(loss) – diluted (Non-GAAP) $ 2,041 $ 1,236 $ 5,368 $ 5,549 Basic and Diluted Shares (M) Basic shares (average shares outstanding) 3,995 4,021 3,989 4,017 Net dilutive options, unvested restricted stock units, unvested restricted stock shares, and convertible debt 41 38 38 42 Diluted shares 4,036 4,059 4,027 4,059 Earnings/(Loss) per share – diluted (GAAP) (a) $ 0.45 $ (0.21) $ 1.40 $ (0.81) Less: Net impact of adjustments (0.06) (0.51) 0.07 (2.18) Adjusted earnings/(loss) per share – diluted (Non-GAAP) $ 0.51 $ 0.30 $ 1.33 $ 1.37 _________ (a) In the third quarter and first nine months of 2022, there were 38 million and 42 million shares, respectively, excluded from the calculation of diluted earnings/(loss) per share, due to their anti-dilutive effect. 63 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Effective Tax Rate Reconciliation to Adjusted Effective Tax Rate Third Quarter First Nine Months 2021 2022 2021 2022 Memo: FY 2021 Pre-Tax Results ($M) Income/(Loss) before income taxes (GAAP) $ 1,885 $ (1,125) $ 6,562 $ (4,182) $ 17,780 Less: Impact of special items (669) (2,607) (31) (11,092) 9,583 Adjusted earnings before taxes (Non-GAAP) $ 2,554 $ 1,482 $ 6,593 $ 6,910 $ 8,197 Taxes ($M) (Provision for)/Benefit from income taxes (GAAP) $ (63) $ 195 $ (925) $ 771 $ 130 Less: Impact of special items 460 544 318 2,273 1,924 Adjusted (provision for)/benefit from income taxes (Non-GAAP) $ (523) $ (349) $ (1,243) $ (1,502) $ (1,794) Tax Rate (%) Effective tax rate (GAAP) 3.3 % 17.3 % 14.1 % 18.4 % (0.7) % Adjusted effective tax rate (Non-GAAP) 20.5 % 23.5 % 18.9 % 21.7 % 21.9 % Net Cash Provided by/(Used in) Operating Activities Reconciliation to Company Adjusted Free Cash Flow ($M) Third Quarter First Nine Months 2021 2022 2021 2022 Net cash provided by/(used in) operating activities (GAAP) $ 7,008 $ 3,812 $ 12,256 $ 5,675 Less: Items not included in Company Adjusted Free Cash Flows Ford Credit operating cash flows $ (341) $ (439) $ 14,295 $ (2,198) Funded pension contributions (209) (130) (602) (458) Global Redesign (including separations) (a) (301) (179) (1,545) (492) Ford Credit tax payments/(refunds) under tax sharing agreement — 22 4 22 Other, net (5) (150) (275) (150) Add: Items included in Company Adjusted Free Cash Flows Company excluding Ford Credit capital spending $ (1,562) $ (1,613) $ (4,424) $ (4,465) Ford Credit distributions 1,500 500 6,500 2,100 Settlement of derivatives (42) 26 (200) 54 Company adjusted free cash flow (Non-GAAP) $ 7,760 $ 3,601 $ 2,255 $ 6,640 _______ (a) Global Redesign excludes cash flows reported in investing activities. 64 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) SUPPLEMENTAL INFORMATION The tables below provide supplemental consolidating financial information, other financial information, and U.S. sales by type. Company excluding Ford Credit includes our Automotive and Mobility reportable segments, Corporate Other, Interest on Debt, and Special Items. Eliminations, where presented, primarily represent eliminations of intersegment transactions and deferred tax netting. Selected Cash Flow Information. The following tables provide supplemental cash flow information (in millions): For the period ended September 30, 2022 First Nine Months Cash flows from operating activities Company excluding Ford Credit Ford Credit Eliminations Consolidated Net income/(loss) $ (5,542) $ 2,131 $ — $ (3,411) Depreciation and tooling amortization 3,995 1,674 — 5,669 Other amortization 74 (950) — (876) (Gains)/Losses on extinguishment of debt 135 (14) — 121 Held for sale impairment charges 32 — — 32 Provision for/(Benefit from) credit and insurance losses 11 (81) — (70) Pension and OPEB expense/(income) (595) — — (595) Equity method investment dividends received in excess of (earnings)/losses and impairments 2,983 (8) — 2,975 Foreign currency adjustments (246) 175 — (71) Net realized and unrealized (gains)/losses on cash equivalents, marketable securities, and other investments 7,277 88 — 7,365 Net (gain)/loss on changes in investments in affiliates 136 1 — 137 Stock compensation 269 8 — 277 Provision for/(Benefit from) deferred income taxes (1,835) 278 — (1,557) Decrease/(Increase) in finance receivables (wholesale and other) — (6,601) — (6,601) Decrease/(Increase) in intersegment receivables/payables (161) 161 — — Decrease/(Increase) in accounts receivable and other assets (2,172) (198) — (2,370) Decrease/(Increase) in inventory (4,160) — — (4,160) Increase/(Decrease) in accounts payable and accrued and other liabilities 8,218 235 — 8,453 Other 794 (437) — 357 Interest supplements and residual value support to Ford Credit (1,340) 1,340 — — Net cash provided by/(used in) operating activities $ 7,873 $ (2,198) $ — $ 5,675 Cash flows from investing activities Company excluding Ford Credit Ford Credit Eliminations Consolidated Capital spending $ (4,761) $ (40) $ — $ (4,801) Acquisitions of finance receivables and operating leases — (32,988) — (32,988) Collections of finance receivables and operating leases — 35,676 — 35,676 Proceeds from sale of business 435 — — 435 Purchases of marketable and other investments (10,774) (3,341) — (14,115) Sales and maturities of marketable securities and other investments 12,623 3,585 — 16,208 Settlements of derivatives 54 179 — 233 Other (25) 2 — (23) Investing activity (to)/from other segments 2,130 (30) (2,100) — Net cash provided by/(used in) investing activities $ (318) $ 3,043 $ (2,100) $ 625 Cash flows from financing activities Company excluding Ford Credit Ford Credit Eliminations Consolidated Cash payments for dividends and dividend equivalents $ (1,410) $ — $ — $ (1,410) Purchases of common stock — — — — Net changes in short-term debt 513 1,137 — 1,650 Proceeds from issuance of long-term debt 3,295 29,560 — 32,855 Payments of long-term debt (3,817) (33,578) — (37,395) Other (185) (59) — (244) Financing activity to/(from) other segments — (2,100) 2,100 — Net cash provided by/(used in) financing activities $ (1,604) $ (5,040) $ 2,100 $ (4,544) Effect of exchange rate changes on cash, cash equivalents, and restricted cash $ (329) $ (443) $ — $ (772) 65 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Selected Income Statement Information. The following table provides supplemental income statement information (in millions): For the period ended September 30, 2022 Third Quarter Company excluding Ford Credit Ford Credit Consolidated Revenues $ 37,205 $ 2,187 $ 39,392 Total costs and expenses (a) 37,211 1,677 38,888 Operating income/(loss) (6) 510 504 Interest expense on Company debt excluding Ford Credit 321 — 321 Other income/(loss), net 1,237 81 1,318 Equity in net income/(loss) of affiliated companies (2,634) 8 (2,626) Income/(Loss) before income taxes (1,724) 599 (1,125) Provision for/(Benefit from) income taxes (346) 151 (195) Net income/(loss) (1,378) 448 (930) Less: Income/(Loss) attributable to noncontrolling interests (103) — (103) Net income/(loss) attributable to Ford Motor Company $ (1,275) $ 448 $ (827) For the period ended September 30, 2022 First Nine Months Company excluding Ford Credit Ford Credit Consolidated Revenues $ 107,334 $ 6,724 $ 114,058 Total costs and expenses (a) 104,937 4,406 109,343 Operating income/(loss) 2,397 2,318 4,715 Interest expense on Company debt excluding Ford Credit 941 — 941 Other income/(loss), net (5,485) 130 (5,355) Equity in net income/(loss) of affiliated companies (2,619) 18 (2,601) Income/(Loss) before income taxes (6,648) 2,466 (4,182) Provision for/(Benefit from) income taxes (1,106) 335 (771) Net income/(loss) (5,542) 2,131 (3,411) Less: Income/(Loss) attributable to noncontrolling interests (141) — (141) Net income/(loss) attributable to Ford Motor Company $ (5,401) $ 2,131 $ (3,270) __________ (a) Ford Credit excludes a specials charge of $10 million. 66 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Selected Balance Sheet Information. The following tables provide supplemental balance sheet information (in millions): September 30, 2022 Assets Company excluding Ford Credit Ford Credit Eliminations Consolidated Cash and cash equivalents $ 15,197 $ 6,351 $ — $ 21,548 Marketable securities 16,780 1,845 — 18,625 Ford Credit finance receivables, net — 33,902 — 33,902 Trade and other receivables, net 4,154 10,610 — 14,764 Inventories 15,213 — — 15,213 Assets held for sale 100 — — 100 Other assets 2,638 1,298 — 3,936 Receivable from other segments 13 971 (984) — Total current assets 54,095 54,977 (984) 108,088 Ford Credit finance receivables, net — 47,683 — 47,683 Net investment in operating leases 1,077 22,478 — 23,555 Net property 35,307 222 — 35,529 Equity in net assets of affiliated companies 2,432 124 — 2,556 Deferred income taxes 14,979 170 — 15,149 Other assets 12,940 1,419 — 14,359 Receivable from other segments — 15 (15) — Total assets $ 120,830 $ 127,088 $ (999) $ 246,919 Liabilities Company excluding Ford Credit Ford Credit Eliminations Consolidated Payables $ 25,823 $ 1,228 $ — $ 27,051 Other liabilities and deferred revenue 16,689 2,377 — 19,066 Debt payable within one year 1,212 42,838 — 44,050 Liabilities held for sale — — — Payable to other segments 984 — (984) — Total current liabilities 44,708 46,443 (984) 90,167 Other liabilities and deferred revenue 25,463 3,128 — 28,591 Long-term debt 19,073 65,206 — 84,279 Deferred income taxes 917 876 — 1,793 Payable to other segments 15 — (15) — Total liabilities $ 90,176 $ 115,653 $ (999) $ 204,830 67 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Selected Other Information. Equity. At September 30, 2022, total equity attributable to Ford was $42.1 billion, a decrease of $6.4 billion compared with December 31, 2021. The detail for this change is shown below (in billions): Increase/ (Decrease) Net income/(loss) $ (3.3) Shareholder distributions (1.4) Other comprehensive income/(loss), net (1.9) Common stock issued (including share-based compensation impacts) 0.2 Total $ (6.4) U.S. Sales by Type. The following table shows third quarter 2022 U.S. sales volume and U.S. wholesales segregated by truck, SUV, and car sales. U.S. sales volume reflects transactions with (i) retail and fleet customers (as reported by dealers), (ii) governments, and (iii) Ford management. U.S. wholesales reflect sales to dealers. U.S. Sales U.S. Wholesales Trucks 238,981 257,275 SUVs 215,322 216,655 Cars 10,371 13,037 Total Vehicles 464,674 486,967 ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED For a discussion of recent accounting standards, see Note 2 of the Notes to the Financial Statements. 68