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Item 7. Management’s Discussion and Analysis

2023-02-03 compared with 2022-02-04 · 35 added, 773 removed, 151 unchanged (84% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

The full year 2021 working capital impact was $1.7 billion negative, driven by higher inventory.

All other and timing differences were negative $3.1 billion, reflecting assorted differences including differences between accrual-based EBIT and the associated cash flows (e.g., marketing incentive and warranty payments to dealers;

pension and OPEB income or expense).

We expect the working capital and timing differences to normalize when supply is restored, dealer stocks rebound, and incentives potentially increase.

Shareholder distributions were $400 million in 2021, all of which were attributable to the reinstatement of our regular quarterly dividend in the fourth quarter.

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 business and vehicle franchises.

Beginning with the actions we took in 2018, we expect our global redesign to have a potential cash effect of about $7 billion.

The cash effect related to our global redesign activities was $3.5 billion through December 31, 2021.

For additional information on Global Redesign, see the Outlook section on page 73 .

Available Credit Lines .

Total Company committed credit lines, excluding Ford Credit, at December 31, 2021 were $18.3 billion, consisting of $13.5 billion of our corporate credit facility, $2.0 billion of our supplemental revolving credit facility, $1.5 billion of our delayed draw term loan facility, and $1.3 billion of local credit facilities.

At December 31, 2021, the utilized portion of the corporate credit facility was $25 million, representing amounts utilized for letters of credit, and no portion of the supplemental revolving credit facility was utilized.

The $1.5 billion delayed draw term loan facility was drawn in full in 2019 and remains outstanding.

In addition, $847 million of committed Company credit lines, excluding Ford Credit, was utilized under local credit facilities for our affiliates as of December 31, 2021.

Lenders under our corporate credit facility have $3.4 billion of commitments maturing on September 29, 2024 and $10.1 billion of commitments maturing on September 29, 2026.

Lenders under our supplemental revolving credit facility have $2.0 billion of commitments maturing on September 29, 2024.

In September 2021, we amended the corporate and supplemental credit agreements to remove the restrictions on our ability to repurchase shares or pay dividends.

In addition, the 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.

Further, interest on any U.S.

dollar borrowings under both the corporate and supplemental revolving credit facilities will be calculated using daily simple SOFR.

Prior to the amendments, such interest was calculated using LIBOR.

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 delayed draw term loan (other than the sustainability-linked provisions and the transition from LIBOR to SOFR) and the supplemental revolving credit facility are consistent with our corporate credit facility.

Each of the corporate credit facility, supplemental revolving credit facility, delayed draw term loan, and our Loan Arrangement and Reimbursement Agreement with the U.S.

Department of Energy (the “DOE”) 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 and to the DOE:

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 (formerly known as Ford Autonomous Vehicles LLC);

Ford Smart Mobility LLC;

and Ford Trading Company, LLC.

As shown in Note 19 of the Notes to the Financial Statements, at December 31, 2021, Company debt excluding Ford Credit was $20.4 billion.

This balance is $3.6 billion lower than at December 31, 2020, primarily reflecting our repurchase and redemption of $7.6 billion of higher-coupon debt in the fourth quarter of 2021, partially offset by our convertible notes issuance in March 2021 and our green bond issuance in November 2021.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

In March 2021, we issued $2.3 billion aggregate principal amount of unsecured 0% Convertible Senior Notes due 2026.

The notes are convertible, at the option of the noteholders, on or after December 15, 2025.

Prior to December 15, 2025, the notes are convertible under certain circumstances.

Upon conversion, we will pay cash up to the aggregate principal amount of the notes to be converted and cash, shares of our Common Stock, or a combination of cash and shares of our Common Stock, at our election, for the remainder of our obligation in excess, if any, of the aggregate principal amount of the notes being converted.

See Note 19 of the Notes to the Financial Statements for additional information regarding the convertible notes, including a description of the circumstances that allow the noteholders to convert prior to December 15, 2025.

In 2021, we introduced our sustainable financing framework, which covers a variety of potential unsecured and securitization funding transactions, including ESG bonds issued by both Ford and Ford Credit to finance environmental and social projects.

Net proceeds from sustainable financing transactions will be invested and expended in four areas:

Clean Transportation, Clean Manufacturing, Making Lives Better, and Community Revitalization.

Our $2.5 billion green bond issuance in November 2021 was the first financing transaction under our sustainable financing framework.

We are allocating the net proceeds from that issuance to the design, development, and manufacturing of our battery electric vehicles.

DOE Advanced Technology Vehicle Manufacturer (“ATVM”) Incentive Program.

See Note 19 of the Notes to the Financial Statements for information regarding the ATVM loan.

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 - Ford Credit Segment section of Item 7.

Ford Credit is self-funding and its debt, which is used to fund its operations, is separate from our Company debt excluding Ford Credit.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Ford Credit Segment

Ford Credit ended 2021 with $32 billion of liquidity.

During the year, Ford Credit completed $14 billion of public term funding.

Key elements of Ford Credit’s funding strategy include:

• Maintain strong liquidity

• Prudently access public markets, including retail deposits in Europe

• Flexibility to increase ABS mix as needed;

preserving assets and committed capacity

• Target managed leverage of 8:1 to 9:1

• 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.

Funding Sources.

Ford Credit’s funding sources include primarily unsecured debt and securitization transactions (including other structured financings).

Ford Credit issues both short-term and long-term debt that is held by both institutional and retail investors, with long-term debt having an original maturity of more than 12 months.

Ford Credit sponsors a number of securitization programs that can be structured to provide both short-term and long-term funding through institutional investors and other financial institutions in the United States and international capital markets.

Ford Credit obtains unsecured funding from the sale of demand notes under its Ford Interest Advantage program and through the retail deposit programs at FCE Bank plc (“FCE”) and Ford Bank GmbH (“Ford Bank”).

At December 31, 2021, the principal amount outstanding of Ford Interest Advantage notes, which may be redeemed at any time at the option of the holders thereof without restriction, and FCE and Ford Bank deposits was $12.9 billion.

Ford Credit maintains multiple sources of readily available liquidity to fund the payment of its unsecured short-term debt obligations.

The following table shows funding for Ford Credit’s managed receivables (in billions):

December 31, 2019 December 31, 2020 December 31, 2021

Funding Structure

Term unsecured debt $ 75.5 $ 73.3 $ 59.4

Term asset-backed securities 56.6 54.6 45.4

Ford Interest Advantage / Retail Deposits 8.0 9.8 12.9

Other (a) 6.9 5.7 5.7

Equity (a) 16.4 15.6 12.4

Adjustments for cash (11.7) (18.5) (12.4)

Total Managed Receivables (b) $ 151.7 $ 140.5 $ 123.4

Securitized Funding as Percent of Managed Receivables 37.3 % 38.8 % 36.7 %

(a) Prior period amounts have been updated as a result of the adoption of ASU 2019-12, Simplifying the Accounting for Income Taxes .

For additional information, see Note 3 of the Notes to the Financial Statements.

(b) See Non-GAAP Financial Measure Reconciliations section for reconciliation to GAAP.

Managed receivables were $123.4 billion at December 31, 2021 and were funded primarily with term debt and term asset-backed securities.

Securitized funding as a percent of managed receivables was 36.7%.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Public Term Funding Plan.

The following table shows Ford Credit’s issuances for full year 2019, 2020, and 2021, and planned issuances for full year 2022, excluding short-term funding programs (in billions):

Unsecured $ 17 $ 14 $ 5 $ 8 - 11

Securitizations (a) 14 13 9 6 - 9

Total public $ 31 $ 27 $ 14 $ 14 - 20

(a) See Definitions and Information Regarding Ford Credit Causal Factors section.

Numbers may not sum due to rounding.

In 2021, Ford Credit completed $14 billion of public term funding.

For 2022, Ford Credit projects full year public term funding in the range of $14 billion to $20 billion.

Through February 2, 2022, Ford Credit has completed $3 billion of public term issuances.

The following table shows Ford Credit’s liquidity sources and utilization (in billions):

December 31, 2019 December 31, 2020 December 31, 2021

Liquidity Sources (a)

Cash $ 11.7 $ 18.5 $ 12.4

Committed asset-backed facilities 36.6 38.1 37.1

Other unsecured credit facilities 3.0 2.5 2.7

Ford corporate credit facility allocation 3.0 — —

Total liquidity sources $ 54.3 $ 59.1 $ 52.2

Utilization of Liquidity (a)

Securitization cash and restricted cash $ (3.6) $ (3.9) $ (3.9)

Committed asset-backed facilities (17.3) (16.7) (12.5)

Other unsecured credit facilities (0.8) (0.5) (1.0)

Ford corporate credit facility allocation — — —

Total utilization of liquidity $ (21.7) $ (21.1) $ (17.4)

Gross liquidity $ 32.6 $ 38.0 $ 34.8

Asset-backed capacity in excess of eligible receivables and other adjustments 0.4 (2.6) (2.8)

Net liquidity available for use $ 33.0 $ 35.4 $ 32.0

(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 December 31, 2021, Ford Credit’s net liquidity available for use was $32 billion, $3.4 billion lower than year-end 2020.

Ford Credit’s sources of liquidity include cash, committed asset-backed facilities, and unsecured credit facilities.

At December 31, 2021, Ford Credit’s liquidity sources totaled $52.2 billion, down $6.9 billion from year-end 2020.

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, the “Material Cash Requirements” section in “Liquidity and Capital Resources - Company excluding Ford Credit” above, and Note 19 of the Notes to the Financial Statements).

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.

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 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):

2022 2023 2024 2025 and Beyond

Balance Sheet Liquidity Profile

Assets (a) $ 64 $ 92 $ 113 $ 135

Total debt (b) 53 76 92 118

Unsecured long-term debt maturities 14 11 11 22

(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 ), 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 2022.

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 December 31, 2021, Ford Credit had $135 billion of assets, $74 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 (such as from the impact of COVID-19) that could impact both unsecured debt and asset-backed securities and the effects of regulatory changes on the financial markets.

Despite Ford Credit’s diverse sources of funding and liquidity, its ability to maintain liquidity may be affected by, among others, the following factors (not necessarily listed in order of importance or probability of occurrence):

• Prolonged disruption of the debt and securitization markets;

• Global capital market volatility;

• Credit ratings assigned to Ford and Ford Credit;

• Market capacity for Ford- and Ford Credit-sponsored investments;

• General demand for the type of securities Ford Credit offers;

• Ford Credit’s ability to continue funding through asset-backed financing structures;

• Performance of the underlying assets within Ford Credit’s asset-backed financing structures;

• Inability to obtain hedging instruments;

• Accounting and regulatory changes (including LIBOR);

• Ford Credit’s ability to maintain credit facilities and committed asset-backed facilities.

Stress Tests.

Ford Credit regularly conducts stress testing on its funding and liquidity sources to ensure it can continue to meet financial obligations and support the sale of Ford and Lincoln vehicles during firm-specific and market-wide stress events.

Stress tests are intended to quantify the potential impact of various adverse scenarios on the balance sheet and liquidity.

These scenarios include assumptions on access to unsecured and secured debt markets, runoff of short-term funding, and ability to renew expiring liquidity commitments and are measured over various time periods, including 30 days, 90 days, and longer term.

Ford Credit’s stress test does not assume any additional funding, liquidity, or capital support from Ford.

Ford Credit routinely develops contingency funding plans as part of its liquidity stress testing.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

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 and managed leverage (in billions):

December 31, 2019 December 31, 2020 December 31, 2021

Leverage Calculation

Debt $ 140.0 $ 137.7 $ 117.7

Adjustments for cash (11.7) (18.5) (12.4)

Adjustments for derivative accounting (a) (0.5) (1.5) (0.4)

Total adjusted debt $ 127.8 $ 117.7 $ 104.9

Equity (b) $ 16.4 $ 15.6 $ 12.4

Adjustments for derivative accounting (a) — 0.1 0.1

Total adjusted equity $ 16.4 $ 15.7 $ 12.5

Financial statement leverage (to 1) (GAAP) (c) 8.5 8.8 9.5

Managed leverage (to 1) (Non-GAAP) (c) 7.8 7.5 8.4

(a) Related primarily to market valuation adjustments to derivatives due to movements in interest rates.

Adjustments to debt are related to hedging activity and adjustments to equity are related to retained earnings.

(b) Total shareholder’s interest reported on Ford Credit’s balance sheets.

(c) Prior period amounts have been updated as a result of the adoption of ASU 2019-12, Simplifying the Accounting for Income Taxes .

For additional information, see Note 3 of the Notes to the Financial Statements.

Ford Credit plans its managed leverage by considering market conditions and the risk characteristics of its business.

At December 31, 2020 and 2021, Ford Credit’s financial statement leverage was 8.8:1 and 9.5:1, respectively, and managed leverage was 7.5:1 and 8.4:1, respectively.

Ford Credit targets managed leverage in the range of 8:1 to 9:1.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Total Company

Pension Plan Contributions and Strategy.

Our strategy is to reduce the risk of our funded defined benefit pension plans, including minimizing the volatility of the value of our pension assets relative to pension liabilities and the need for unplanned use of capital resources to fund the plans.

The strategy reduces balance sheet, cash flow, and income exposures and, in turn, reduces our risk profile.

Going forward, we expect to:

• Limit our pension contributions to offset ongoing service cost or meet regulatory requirements, if any;

• Minimize the volatility of the value of our pension assets relative to pension obligations and ensure assets are sufficient to pay plan benefits;

• Evaluate strategic actions to reduce pension liabilities, such as plan design changes, curtailments, or settlements

2020 2021 2021

Pension Funded Status ($B)

Plans $ (0.7) $ 1.0 $ 1.7

Plans (6.0) (1.3) 4.7

Total Global Pension $ (6.7) $ (0.3) $ 6.4

Year-End Discount Rate (Weighted Average)

Plans 2.56 % 2.91 % 0.35 ppts

Plans 1.23 % 1.75 % 0.52 ppts

Actual Asset Returns

Plans 16.44 % 2.82 % (13.62) ppts

Plans 10.96 % 2.69 % (8.27) ppts

Pension - Funded Plans Only ($B)

Funded Status $ 0.3 $ 5.8 $ 5.5

Contributions for Funded Plans 0.6 0.8 0.2

Worldwide, our defined benefit pension plans were underfunded by $0.3 billion at December 31, 2021, an improvement of $6.4 billion from December 31, 2020, primarily reflecting the impact of higher discount rates and continued strong asset performance relative to changes in discount rates.

Of the $0.3 billion underfunded status at year-end 2021, our funded plans were $5.8 billion overfunded and our unfunded plans were $6.1 billion underfunded.

These unfunded plans are “pay as you go” with benefits paid from Company cash and primarily include certain plans in Germany and U.S.

defined benefit plans for senior management.

The fixed income mix was 81% in our U.S.

plans and 83% in our non-U.S.

plans at year-end 2021.

In 2021, we contributed $773 million to our global funded pension plans, an increase of $203 million compared with 2020.

During 2022, we expect to contribute between $600 million and $800 million of cash to our global funded pension plans.

We also expect to make about $390 million of benefit payments to participants in unfunded plans.

Based on current assumptions and regulations, we do not expect to have a legal requirement to fund our major U.S.

plans in 2022.

Our global funded plans remain fully funded in aggregate, demonstrating the effectiveness of our de-risking strategy and our commitment to a strong balance sheet.

For a detailed discussion of our pension plans, refer to the “Critical Accounting Estimates - Pensions and Other Postretirement Employee Benefits” section of Item 7 of Part II of our 2021 Form 10-K Report and Note 17 of the Notes to the Financial Statements.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

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 years shown (in billions):

December 31, 2019 December 31, 2020 December 31, 2021

Adjusted Net Operating Profit/(Loss) After Cash Tax

Net income/(loss) attributable to Ford $ — $ (1.3) $ 17.9

Noncontrolling interest — — —

Income tax 0.7 (0.2) 0.1

Cash tax (0.6) (0.4) (0.6)

Interest on debt (1.0) (1.6) (1.8)

Total pension / OPEB income / (cost) (2.6) (1.0) 4.9

Pension / OPEB service costs (1.0) (1.1) (1.1)

Net operating profit/(loss) after cash tax $ 1.4 $ 0.1 $ 13.0

Special items (excl.

pension / OPEB) pre-tax (3.3) (0.4) 5.9

Adjusted net operating profit/(loss) after cash tax $ 4.7 $ 0.5 $ 7.1

Invested Capital

Equity $ 33.2 $ 30.8 $ 48.6

Redeemable noncontrolling interest — — —

Ford Credit) 15.3 24.0 20.4

Net pension and OPEB liability 12.9 13.3 6.4

Invested capital (end of period) $ 61.4 $ 68.1 $ 75.4

Average invested capital $ 61.7 $ 70.7 $ 72.1

ROIC (a) 2.2 % 0.1 % 18.0 %

Adjusted ROIC (Non-GAAP) (b) 7.6 % 0.7 % 9.8 %

(a) Calculated as the sum of net operating profit 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 after cash tax from the last four quarters, divided by the average invested capital over the last four quarters.

Numbers may not sum due to rounding.

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.

The following rating actions were taken by these NRSROs since the filing of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2021:

• On November 18, 2021, S&P affirmed the credit ratings for Ford and Ford Credit at BB+ and revised the outlook for each to positive, from negative.

The following table summarizes certain of the credit ratings and outlook presently assigned by these four NRSROs:

NRSRO RATINGS

Ford Ford Credit NRSROs

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) Stable BB (high) R-4 Stable BBB (low)

Fitch BB+ BB+ Stable BB+ B Stable BBB-

Moody’s N/A Ba2 Stable Ba2 NP Stable Baa3

S&P BB+ BB+ Positive BB+ B Positive BBB-

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

We provided 2022 Company guidance in our earnings release furnished on Form 8-K dated February 3, 2022.

The guidance is based on our expectations as of February 3, 2022, and assumes no material change in the current economic environment, including foreign exchange and tariffs.

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 Part I.

2022 Guidance

Total Company

Adjusted EBIT (a) $11.5 - $12.5 billion

Adjusted Free Cash Flow (a) $5.5 - $6.5 billion

Capital spending $7.0 - $8.0 billion

Pension contributions $0.6 - $0.8 billion

Global Redesign EBIT charges $1.8 - $2.4 billion

Global Redesign cash effects $2.0 - $2.5 billion

EBT Strong but lower than 2021

(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.

Our outlook for 2022 assumes the following operating environment:

• Supply constraints will remain fluid reflecting a variety of factors, including semiconductor availability and COVID-19 impacts

• Wholesales are expected to be up about 10% - 15% year over year

• Pricing environment is expected to remain strong, although the interplay between volume and pricing will be dynamic

• Inflationary pressures will impact a broad range of costs

• Commodity costs will be $1.5 - $2.0 billion higher year over year

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;

• 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” above.

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 the underlying run rate of our business.

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.

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 Automotive and Mobility 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.

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 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 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.

• Ford Credit Managed Receivables (Most Comparable GAAP Measure:

Net Finance Receivables plus Net Investment in Operating Leases) – Measure of Ford Credit’s total net receivables, excluding unearned interest supplements and residual support, allowance for credit losses, and other (primarily accumulated supplemental depreciation).

The measure is useful to management and investors as it closely approximates the customer’s outstanding balance on the receivables, which is the basis for earning revenue.

• Ford Credit Managed Leverage (Most Comparable GAAP Measure:

Financial Statement Leverage) – Ford Credit’s debt-to-equity ratio adjusted (i) to exclude cash, cash equivalents, and marketable securities (other than amounts related to insurance activities), and (ii) for derivative accounting.

The measure is useful to investors because it reflects the way Ford Credit manages its business.

Cash, cash equivalents, and marketable securities are deducted because they generally correspond to excess debt beyond the amount required to support operations and on-balance sheet securitization transactions.

Derivative accounting adjustments are made to asset, debt, and equity positions to reflect the impact of interest rate instruments used with Ford Credit’s term-debt issuances and securitization transactions.

Ford Credit generally repays its debt obligations as they mature, so the interim effects of changes in market interest rates are excluded in the calculation of managed leverage.

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.

The GAAP reconciliation for Ford Credit Managed Leverage can be found in the Ford Credit Segment section of “Liquidity and Capital Resources.”

Net Income/(Loss) Reconciliation to Adjusted EBIT ($M)

2019 2020 2021

Net income/(loss) attributable to Ford (GAAP) $ 47 $ (1,279) $ 17,937

Income/(Loss) attributable to noncontrolling interests 37 3 (27)

Net income/(loss) $ 84 $ (1,276) $ 17,910

(Provision for)/Benefit from income taxes (a) 724 (160) 130

Income/(Loss) before income taxes $ (640) $ (1,116) $ 17,780

Special items pre-tax (5,877) (2,003) 9,583

Income/(Loss) before special items pre-tax $ 5,237 $ 887 $ 8,197

Interest on debt (1,020) (1,649) (1,803)

Adjusted EBIT (Non-GAAP) $ 6,257 $ 2,536 $ 10,000

Revenue ($B) $ 155.9 $ 127.1 $ 136.3

Net income/(loss) margin (%) — % (1.0) % 13.2 %

Adjusted EBIT margin (%) 4.0 % 2.0 % 7.3 %

(a) 2021 includes the recognition of net deferred tax assets and changes in our valuation allowances, offset by tax consequences of unrealized gains on marketable securities.

Earnings/(Loss) per Share Reconciliation to Adjusted Earnings/(Loss) per Share

2019 2020 2021

Diluted After-Tax Results ($M)

Diluted after-tax results (GAAP) $ 47 $ (1,279) $ 17,937

Impact of pre-tax and tax special items (4,579) (2,724) 11,507

Noncontrolling interests impact of Russia restructuring (35) — —

Adjusted net income/(loss) - Diluted (Non-GAAP) $ 4,661 $ 1,445 $ 6,430

Basic and Diluted Shares (M)

Basic shares (average shares outstanding) 3,972 3,973 3,991

Net dilutive options, unvested restricted stock units, unvested restricted stock shares, and convertible debt 32 29 43

Diluted shares 4,004 4,002 4,034

Earnings/(Loss) per share - diluted (GAAP) (a) $ 0.01 $ (0.32) $ 4.45

Net impact of adjustments (1.15) (0.68) 2.86

Adjusted earnings per share - diluted (Non-GAAP) $ 1.16 $ 0.36 $ 1.59

(a) The 2020 calculation excludes the 29 million shares of net dilutive options, unvested restricted stock units, and restricted stock due to their antidilutive effect.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Effective Tax Rate Reconciliation to Adjusted Effective Tax Rate

2019 2020 2021

Pre-Tax Results ($M)

Income/(Loss) before income taxes (GAAP) $ (640) $ (1,116) $ 17,780

Impact of special items (5,877) (2,003) 9,583

Adjusted earnings before taxes (Non-GAAP) $ 5,237 $ 887 $ 8,197

(Provision for)/Benefit from income taxes (GAAP) $ 724 $ (160) $ 130

Impact of special items (a) 1,298 (721) 1,924

Adjusted (provision for)/benefit from income taxes (Non-GAAP) $ (574) $ 561 $ (1,794)

Effective tax rate (GAAP) 113.1 % (14.3) % (0.7) %

Adjusted effective tax rate (Non-GAAP) 11.0 % (63.2) % 21.9 %

(a) 2020 includes the establishment of valuation allowances against primarily U.S.

2021 includes the recognition of net deferred tax assets and changes in our valuation allowances, offset by tax consequences of unrealized gains on marketable securities.

Net Cash Provided by/(Used in) Operating Activities Reconciliation to Company Adjusted Free Cash Flow ($M)

2019 2020 2021

Net cash provided by/(used in) operating activities (GAAP) $ 17,639 $ 24,269 $ 15,787

Items not included in Company Adjusted Free Cash Flows

Ford Credit operating cash flows (a) $ 11,531 $ 21,592 $ 15,293

Funded pension contributions (730) (570) (773)

Global Redesign (including separations) (911) (503) (1,935)

Ford Credit tax payments/(refunds) under tax sharing agreement (a) 391 477 15

Other, net (77) (583) (341)

Items included in Company Adjusted Free Cash Flows

Company excluding Ford Credit capital spending $ (7,580) $ (5,702) $ (6,183)

Ford Credit distributions (a) 2,900 3,290 7,500

Settlement of derivatives 107 (171) (255)

Company adjusted free cash flow (Non-GAAP) (a) $ 2,862 $ 1,273 $ 4,590

(a) Prior period amounts have been updated as a result of the adoption of ASU 2019-12, Simplifying the Accounting for Income Taxes .

For additional information, see Note 3 of the Notes to the Financial Statements.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Ford Credit Net Receivables Reconciliation to Managed Receivables ($B)

2019 2020 2021

Ford Credit finance receivables, net (GAAP) (a) $ 107.4 $ 97.7 $ 83.8

Net investments in operating leases (GAAP) (a) 27.6 26.6 25.2

Consolidating adjustments (b) 7.0 7.4 8.5

Total net receivables $ 142.0 $ 131.7 $ 117.5

Held-for-sale receivables (GAAP) $ 1.5 $ — $ —

Ford Credit unearned interest supplements and residual support 6.7 6.5 4.6

Allowance for credit losses 0.5 1.3 0.9

Other, primarily accumulated supplemental depreciation 1.0 1.0 0.4

Total managed receivables (Non-GAAP) $ 151.7 $ 140.5 $ 123.4

(a) Includes finance receivables (retail 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.

(b) Primarily includes Automotive segment receivables purchased by Ford Credit which are classified to Trade and other receivables on our consolidated balance sheets.

Also includes eliminations of intersegment transactions.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

2021 SUPPLEMENTAL INFORMATION

The tables below provide supplemental consolidating financial information and other financial information.

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 Year Ended December 31, 2021

Cash flows from operating activities Company excluding Ford Credit Ford Credit Eliminations Consolidated

Net income/(loss) $ 13,403 $ 4,507 $ — $ 17,910

Depreciation and tooling amortization 5,652 1,666 — 7,318

Other amortization 141 (1,499) — (1,358)

Brazil manufacturing exit non-cash charges (excluding accelerated depreciation of $322) 48 — — 48

(Gains)/Losses on extinguishment of debt 1,692 10 — 1,702

Provision for/(Benefit from) credit and insurance losses 3 (301) — (298)

Pension and OPEB expense/(income) (4,865) — — (4,865)

Equity investment dividends received in excess of (earnings)/losses 120 (4) — 116

Foreign currency adjustments 406 126 — 532

Net realized and unrealized (gains)/losses on cash equivalents, marketable securities, and other investments (9,174) 15 — (9,159)

Net (gain)/loss on changes in investments in affiliates (367) (1) — (368)

Stock compensation 296 9 — 305

Provision for deferred income taxes (710) 147 — (563)

Decrease/(Increase) in finance receivables (wholesale and other) — 7,656 — 7,656

Decrease/(Increase) in intersegment receivables/payables (662) 662 — —

Decrease/(Increase) in accounts receivable and other assets (1,378) 237 — (1,141)

Decrease/(Increase) in inventory (1,778) — — (1,778)

Increase/(Decrease) in accounts payable and accrued and other liabilities

187 (223) — (36)

Other (180) (54) — (234)

Interest supplements and residual value support to Ford Credit

(2,340) 2,340 — —

Net cash provided by/(used in) operating activities $ 494 $ 15,293 $ — $ 15,787

Cash flows from investing activities

Capital spending $ (6,183) $ (44) $ — $ (6,227)

Acquisitions of finance receivables and operating leases — (48,379) — (48,379)

Collections of finance receivables and operating leases — 52,094 — 52,094

Proceeds from sale of business 145 — — 145

Purchases of marketable securities and other investments (19,477) (8,014) — (27,491)

Sales and maturities of marketable securities and other investments 22,553 10,676 — 33,229

Settlements of derivatives (255) (17) — (272)

Other (354) — — (354)

Investing activity (to)/from other segments 7,478 (146) (7,332) —

Net cash provided by/(used in) investing activities $ 3,907 $ 6,170 $ (7,332) $ 2,745

Cash flows from financing activities

Cash payments for dividends and dividend equivalents $ (403) $ — $ — $ (403)

Purchases of common stock — — — —

Net changes in short-term debt (187) 3,460 — 3,273

Proceeds from issuance of long-term debt 4,800 23,101 — 27,901

Payments on long-term debt (9,904) (44,260) — (54,164)

Other (42) (63) — (105)

Financing activity to/(from) other segments 146 (7,478) 7,332 —

Net cash provided by/(used in) financing activities $ (5,590) $ (25,240) $ 7,332 $ (23,498)

Effect of exchange rate changes on cash, cash equivalents, and restricted cash $ (104) $ (128) $ — $ (232)

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 Year Ended December 31, 2021

Company excluding Ford Credit Ford Credit Consolidated

Revenues $ 126,268 $ 10,073 $ 136,341

Total costs and expenses 126,566 5,252 131,818

Operating income/(loss) (298) 4,821 4,523

Interest expense on Company debt excluding Ford Credit 1,803 — 1,803

Other income/(loss), net 14,868 (135) 14,733

Equity in net income/(loss) of affiliated companies 296 31 327

Income/(Loss) before income taxes 13,063 4,717 17,780

Provision for/(Benefit from) income taxes (340) 210 (130)

Net income/(loss) 13,403 4,507 17,910

Income/(loss) attributable to noncontrolling interests (27) — (27)

Net income/(loss) attributable to Ford Motor Company $ 13,430 $ 4,507 $ 17,937

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):

December 31, 2021

Assets Company excluding

Ford Credit Ford Credit Eliminations Consolidated

Cash and cash equivalents $ 9,577 $ 10,963 $ — $ 20,540

Marketable securities 26,880 2,173 — 29,053

Ford Credit finance receivables, net — 32,543 — 32,543

Trade and other receivables, net 3,564 7,806 — 11,370

Inventories 12,065 — — 12,065

Other assets 2,473 952 — 3,425

Receivable from other segments 55 1,333 (1,388) —

Total current assets 54,614 55,770 (1,388) 108,996

Ford Credit finance receivables, net — 51,256 — 51,256

Net investment in operating leases 1,194 25,167 — 26,361

Net property 36,915 224 — 37,139

Equity in net assets of affiliated companies 4,422 123 — 4,545

Deferred income taxes 13,606 190 — 13,796

Other assets 13,273 1,669 — 14,942

Receivable from other segments — 29 (29) —

Total assets $ 124,024 $ 134,428 $ (1,417) $ 257,035

Payables $ 21,315 $ 1,034 $ — $ 22,349

Other liabilities and deferred revenue 17,394 1,292 — 18,686

Company excluding Ford Credit debt payable within one year 3,175 — — 3,175

Ford Credit debt payable within one year — 46,517 — 46,517

Payable to other segments 1,388 — (1,388) —

Total current liabilities 43,272 48,843 (1,388) 90,727

Other liabilities and deferred revenue 26,393 1,312 — 27,705

Company excluding Ford Credit long-term debt 17,200 — — 17,200

Ford Credit long-term debt — 71,200 — 71,200

Deferred income taxes 905 676 — 1,581

Payable to other segments 29 — (29) —

Total liabilities $ 87,799 $ 122,031 $ (1,417) $ 208,413

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Selected Other Information.

At December 31, 2020, total equity attributable to Ford was $30.7 billion, a decrease of $2.5 billion compared with December 31, 2019.

At December 31, 2021, total equity attributable to Ford was $48.5 billion, an increase of $17.8 billion compared with December 31, 2020.

The detail for the changes is shown below (in billions):

2020 vs 2019 Increase/

(Decrease) 2021 vs 2020 Increase/

Net income/(loss) $ (1.3) $ 17.9

Shareholder distributions (0.6) (0.4)

Other comprehensive income/(loss) (0.5) —

Adoption of accounting standards (0.2) —

Common stock issued (including share-based compensation impacts) 0.1 0.3

Total $ (2.5) $ 17.8

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

CRITICAL ACCOUNTING ESTIMATES

We consider an accounting estimate to be critical if:

(1) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (2) changes in the estimate that are reasonably likely to occur from period to period, or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations.

Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of our Board of Directors.

In addition, there are other items within our financial statements that require estimation, but are not deemed critical as defined above.

Changes in estimates used in these and other items could have a material impact on our financial statements.

Warranties and Field Service Actions

Nature of Estimates Required.

We provide base warranties on the products we sell for specific periods of time and/or mileage, which vary depending upon the type of product and the geographic location of its sale.

Separately, we also periodically perform field service actions related to safety recalls, emission recalls, and other product campaigns.

Pursuant to these warranties and field service actions, we will repair, replace, or adjust parts on a vehicle that are defective in factory-supplied materials or workmanship.

We accrue the estimated cost of both base warranty coverages and field service actions at the time of sale.

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.

Assumptions and Approach Used.

We establish our estimate of base warranty obligations using a patterned estimation model.

We use historical information regarding the nature, frequency, and average cost of claims for each vehicle line by model year.

We reevaluate our estimate of base warranty obligations on a regular basis.

Experience has shown that initial data for any given model year may be volatile;

therefore, our process relies on long-term historical averages until sufficient data are available.

With actual experience, we use the data to update the historical averages.

We then compare the resulting accruals with present spending rates to assess whether the balances are adequate to meet expected future obligations.

Based on this data, we update our estimates as necessary.

Field service actions may occur in periods beyond the base warranty coverage period.

We establish our estimates of field service action obligations using a patterned estimation model.

We use historical information regarding the nature, frequency, severity, and average cost of claims for each model year.

We assess our obligation for field service actions on a regular basis using actual claims experience and update our estimates as necessary.

Due to the uncertainty and potential volatility of the factors used in establishing our estimates, changes in our assumptions could materially affect our financial condition and results of operations.

See Note 25 of the Notes to the Financial Statements for information regarding warranty and field service action costs.

Pensions and Other Postretirement Employee Benefits

Nature of Estimates Required.

The estimation of our defined benefit pension and OPEB plan obligations and expenses requires that we make use of estimates of the present value of the projected future payments to all participants, taking into consideration the likelihood of potential future events, such as demographic experience and health care cost increases.

Plan obligations and expenses are based on existing retirement plan provisions.

No assumption is made regarding any potential future changes to benefit provisions beyond those to which we are presently committed (e.g., in existing labor contracts).

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Assumptions and Approach Used.

The assumptions used in developing the required estimates include the following key factors:

• Discount rates.

Our discount rate assumptions are based primarily on the results of cash flow matching analyses, which match the future cash outflows for each major plan to a yield curve based on high-quality bonds specific to the country of the plan.

Benefit payments are discounted at the rates on the curve to determine the year-end obligations.

• Expected long-term rate of return on plan assets.

Our expected long-term rate of return considers inputs from a range of advisors for capital market returns, inflation, bond yields, and other variables, adjusted for specific aspects of our investment strategy by plan.

Historical returns also are considered when appropriate.

The assumption is based on consideration of all inputs, with a focus on long-term trends to avoid short-term market influences.

• Salary growth.

Our salary growth assumption reflects our actual experience, long-term outlook, and assumed inflation.

Our inflation assumption is based on an evaluation of external market indicators, including real gross domestic product growth and central bank inflation targets.

• Expected contributions.

Our expected amount and timing of contributions are based on an assessment of minimum requirements, cash availability, and other considerations (e.g., funded status, avoidance of regulatory premiums and levies, and tax efficiency).

• Retirement rates.

Retirement rates are developed to reflect actual and projected plan experience.

• Mortality rates.

Mortality rates are developed to reflect actual and projected plan experience.

• Health care cost trends .

Our health care cost trend assumptions are developed based on historical cost data, the near-term outlook, and an assessment of likely long-term trends.

Assumptions are set at each year-end and are generally not changed during the year unless there is a major plan event, such as a curtailment or settlement that would trigger a plan remeasurement.

See Note 17 of the Notes to the Financial Statements for more information regarding pension and OPEB costs and assumptions.

Pension Plans

Effect of Actual Results .

The year-end 2021 weighted average discount rate was 2.91% for U.S.

plans and 1.75% for non-U.S.

plans, reflecting increases of 35 and 52 basis points, respectively, compared with year-end 2020.

In 2021, the U.S.

actual return on assets was 2.82%, which was lower than the expected long-term rate of return of 6.0%.

actual return on assets was 2.69%, which was lower than the expected long-term rate of return of 3.42%.

The lower returns are primarily explained by losses on fixed income assets offset by growth asset returns in excess of our growth return assumptions.

In total, higher rates and excess growth asset returns, in addition to demographic and other updates, resulted in a net remeasurement gain of $3.5 billion, which has been recognized within net periodic benefit cost and reported as a special item.

For 2022, the expected long-term rate of return on assets is 5.75% for U.S.

plans, down 25 basis points from 2021, and 3.29% for non-U.S.

plans, down 13 basis points compared with a year ago, reflecting a lower consensus on capital market return expectations from advisors.

De-risking Strategy .

We employ a broad de-risking strategy for our global funded plans that increases the matching characteristics of our assets relative to our obligation as funded status improves.

Changes in interest rates, which directly influence changes in discount rates, in addition to other factors have a significant impact on the value of our pension obligation and fixed income asset portfolio.

Our de-risking strategy has increased the allocation to fixed income investments and reduced our funded status sensitivity to changes in interest rates.

Changes in interest rates should result in offsetting effects in the value of our pension obligation and the value of the fixed income asset portfolio.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Sensitivity Analysis.

The December 31, 2021 pension funded status and 2022 expense are affected by year-end 2021 assumptions.

Sensitivities to these assumptions may be asymmetric and are specific to the time periods noted.

The effects of changes in the factors that generally have the largest impact on year-end funded status and pension expense are discussed below.

Discount rates and interest rates have the largest impact on our obligations and fixed income assets.

The table below estimates the effect on our funded status of an increase/decrease in discount rates and interest rates (in millions):

Point Change Increase/(Decrease) in

December 31, 2021 Funded Status

Plans Non-U.S.

Discount rate - obligation +/- 100 bps $4,800/$(5,800) $4,800/$(6,300)

Interest rate - fixed income assets +/- 100 (4,600)/5,600 (3,300)/4,300

Net impact on funded status $200/$(200) $1,500/$(2,000)

The fixed income asset sensitivity shown excludes other fixed income return components (e.g., changes in credit spreads, bond coupon and active management excess returns), and growth asset returns.

Other factors that affect net funded status (e.g., contributions) are not reflected.

Interest rates and the expected long-term rate of return on assets have the largest effect on pension expense.

These assumptions are generally set at each year-end for expense recorded throughout the following year.

The table below estimates the effect on pension expense of a higher/lower assumption for these factors (in millions):

Point Change Increase/(Decrease) in

2022 Pension Expense

Plans Non-U.S.

Interest rate - service cost and interest cost +/- 25 bps $45/$(50) $35/$(30)

Expected long-term rate of return on assets +/- 25 (445)/445 (325)/325

The effect of changing multiple factors simultaneously cannot be calculated by combining the individual sensitivities.

The sensitivity of pension expense to a change in discount rate assumptions may not be linear.

Other Postretirement Employee Benefits

Effect of Actual Results .

The weighted average discount rate used to determine the benefit obligation for worldwide OPEB plans at December 31, 2021 was 2.97%, compared with 2.62% at December 31, 2020, resulting in a worldwide net remeasurement gain of $376 million, which has been recognized within net periodic benefit cost and reported as a special item.

Sensitivity Analysis.

Discount rates and interest rates have the largest effect on our OPEB obligation and expense.

The table below estimates the effect on 2022 OPEB expense of higher/lower assumptions for these factors (in millions):

Worldwide OPEB

Point Change (Increase)/Decrease

2021 YE Obligation Increase/(Decrease)

Discount rate - obligation +/- 100 bps $675/$(835) N/A

Interest rate - service cost and interest cost +/- 25 N/A $5/$(5)

Nature of Estimates Required.

We must make estimates and apply judgment in determining the provision for income taxes for financial reporting purposes.

We make these estimates and judgments primarily in the following areas:

(i) the calculation of tax credits, (ii) the calculation of differences in the timing of recognition of revenue and expense for tax reporting and financial statement purposes, as well as (iii) the calculation of interest and penalties related to uncertain tax positions.

Changes in these estimates and judgments may result in a material increase or decrease to our tax provision, which would be recorded in the period in which the change occurs.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Assumptions and Approach Used.

We are subject to the income tax laws and regulations of the many jurisdictions in which we operate.

These tax laws and regulations are complex and involve uncertainties in the application to our facts and circumstances that may be open to interpretation.

We recognize benefits for these uncertain tax positions based upon a process that requires judgment regarding the technical application of the laws, regulations, and various related judicial opinions.

If, in our judgment, it is more likely than not (defined as a likelihood of more than 50%) that the uncertain tax position will be settled favorably for us, we estimate an amount that ultimately will be realized.

This process is inherently subjective since it requires our assessment of the probability of future outcomes.

We evaluate these uncertain tax positions on a quarterly basis, including consideration of changes in facts and circumstances, such as new regulations or recent judicial opinions, as well as the status of audit activities by taxing authorities.

Changes to our estimate of the amount to be realized are recorded in our provision for income taxes during the period in which the change occurred.

We must also assess the likelihood that we will be able to recover our deferred tax assets against future sources of taxable income and reduce the carrying amount of deferred tax assets by recording a valuation allowance if, based on all available evidence, it is more likely than not that all or a portion of such assets will not be realized.

This assessment, which is completed on a taxing jurisdiction basis, takes into account various types of evidence, including the following:

• Nature, frequency, and severity of current and cumulative financial reporting losses.

A pattern of objectively measured recent financial reporting losses is heavily weighted as a source of negative evidence.

We generally consider cumulative pre-tax losses in the three-year period ending with the current quarter to be significant negative evidence regarding future profitability.

We also consider the strength and trend of earnings, as well as other relevant factors.

In certain circumstances, historical information may not be as relevant due to changes in our business operations;

• Sources of future taxable income.

Future reversals of existing temporary differences are heavily weighted sources of objectively verifiable positive evidence.

Projections of future taxable income exclusive of reversing temporary differences are a source of positive evidence only when the projections are combined with a history of recent profits and can be reasonably estimated.

Otherwise, these projections are considered inherently subjective and generally will not be sufficient to overcome negative evidence that includes relevant cumulative losses in recent years, particularly if the projected future taxable income is dependent on an anticipated turnaround to profitability that has not yet been achieved.

In such cases, we generally give these projections of future taxable income no weight for the purposes of our valuation allowance assessment;

• Tax planning strategies.

If necessary and available, tax planning strategies could be implemented to accelerate taxable amounts to utilize expiring carryforwards.

These strategies would be a source of additional positive evidence and, depending on their nature, could be heavily weighted.

In assessing the realizability of deferred tax assets, we consider the trade-offs between cash preservation and cash outlays to preserve tax credits.

In 2021, we reversed $918 million of the previously established U.S.

valuation allowance.

The reversal primarily reflects a change in our intent to pursue planning actions involving cash outlays to preserve tax credits.

We presently believe that global valuation allowances of $1.1 billion are required.

We believe that we ultimately will recover the remaining $12.2 billion of deferred tax assets.

However, the ultimate realization of our deferred tax assets is subject to a number of variables, including our future profitability within relevant tax jurisdictions, and future tax planning and the related effects on our cash and liquidity position.

Accordingly, our valuation allowances may increase or decrease in future periods.

For additional information regarding income taxes, see Note 7 of the Notes to the Financial Statements.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Impairment of Long-Lived Assets and Goodwill

Asset groups are tested at the level of the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.

Impairment of Long-Lived Assets

Asset groups are tested at the level of the smallest identifiable group of assets that generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets.

Our asset groups presently are the regional Automotive business units (i.e., North America, South America, Europe, China (including Taiwan), and the International Markets Group), Ford Credit, and the separate legal entities within the Mobility segment.

Asset groupings for impairment analysis are reevaluated when events occur, such as changes in organizational structure and management reporting.

As a result of the new organizational and segment structure that will be implemented in 2023, our asset groups are expected to be Ford Blue North America, Ford Blue Europe, Ford Blue Rest of World, Ford Model e, Ford Pro, Ford Credit, and Ford Next (formerly Mobility).

Nature of Estimates Required - Held-and-Used Long-Lived Assets.

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Events that trigger a test for recoverability include material adverse changes in projected revenues or expenses, present cash flow losses combined with a history of cash flow losses and a forecast that demonstrates significant continuing losses, significant negative industry or economic trends (including a substantial shift in consumer preference), a current expectation that a long-lived asset group will be disposed of significantly before the end of its useful life, a significant adverse change in the manner in which an asset group is used or in its physical condition, or when there is a change in the asset grouping.

In addition, investing in new, emerging products (e.g., EVs) or services (e.g., connectivity) may require substantial upfront investment, which may result in initial forecasted negative cash flows in the near term.

In these instances, near term negative cash flows on their own may not be indicative of a triggering event for evaluation of impairment.

In such circumstances we also conduct a qualitative evaluation of the business growth trajectory, which includes updating our assessment of when positive cash flows are expected to be generated, confirming whether established milestones are being achieved, and assessing our ability and intent to continue to access required funding to execute the plan.

If this evaluation indicates a triggering event has occurred, a test for recoverability is performed.

When a triggering event occurs, a test for recoverability is performed, comparing projected undiscounted future cash flows to the carrying value of the asset group.

If the test for recoverability identifies a possible impairment, the asset group’s fair value is measured relying primarily on a discounted cash flow method.

If the undiscounted forecasted cash flows are less than the carrying value of the assets, the asset group’s fair value is measured relying primarily on a discounted cash flow method.

To the extent available, we will also consider third-party valuations of our long-lived assets that were prepared for other business purposes.

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When an impairment loss is recognized for assets to be held and used, the adjusted carrying amounts of those assets are depreciated over their remaining useful life.

Nature of Estimates Required - Goodwill.

Goodwill is subject to periodic assessments of impairment.

We test goodwill for impairment annually during the fourth quarter, or when an event occurs or circumstances change that indicate the asset may be impaired.

We assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill.

If a qualitative assessment identifies a possible impairment or we impair the assets of a reporting unit, then a quantitative goodwill impairment test is performed.

If the carrying value of the reporting unit is above fair value, an impairment loss is recognized in an amount equal to the excess.

Assumptions and Approach Used - Held-and-Used Long-Lived Assets and Goodwill.

Nature of Estimates Required - Held-for-Sale Operations.

We perform an impairment test on a disposal group to be discontinued, held for sale, or otherwise disposed of when we have committed to an action and the action is expected to be completed within one year.

We estimate fair value to approximate the expected proceeds to be received less cost to sell and compare it to the carrying value of the disposal group.

An impairment charge is recognized when the carrying value exceeds the estimated fair value.

Assumptions and Approach Used - Held-and-Used Long-Lived Assets.

Fair value of an asset group is determined from the perspective of a market-participant considering, among other things, appropriate discount rates, valuation techniques, the most advantageous market, and assumptions about the highest and best use of the asset group.

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These projections are derived using our internal business plan forecasts that are updated at least annually and reviewed by our Board of Directors.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

• Long-term growth rate.

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The growth rate is the expected rate at which an asset group’s business unit’s earnings stream is projected to grow beyond the planning period.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

• Discount rate.

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In addition, to the extent available we also consider third-party valuations that were prepared for other business purposes.

During 2021, we continued to progress our global redesign by reassessing our operations and reducing structural costs.

As part of this redesign, in 2020, Ford Brazil committed to a plan to exit manufacturing operations which resulted in the closure of facilities in Camaçari, Taubaté, and Troller in 2021.

In addition, in 2021, Ford India, committed to a plan to exit the engine and vehicle manufacturing operations at its facilities in Chennai and its vehicle manufacturing operation at its facility in Sanand.

Ford India ceased vehicle manufacturing in Sanand in the fourth quarter of 2021 and will cease engine and vehicle manufacturing in Chennai by the second quarter of 2022.

During 2022, we continued to progress our global redesign.

Against this backdrop, we determined that there were triggering events related to our South America and International Markets Group (“IMG”) business units.

In each situation in which we experienced a triggering event during the year, we tested our long-lived assets for impairment using our internal economic and business projections, as well as third-party valuations of certain long-lived assets.

We determined that the carrying values of the long-lived assets were recoverable in these business units at December 31, 2021.

Although no impairment was required, the carrying values of the long-lived assets in Brazil and India were reduced by accelerated depreciation that was triggered at the point of decision to cease manufacturing operations prior to the end of their estimated useful lives.

We also assessed our expected new 2023 asset groups, which consist of Ford Blue North America, Ford Blue Europe, Ford Blue Rest of World, Ford Model e, Ford Pro, Ford Credit and Ford Next and assessed these groups for triggering events and potential impairment.

We determined that the carrying values of the long-lived assets were recoverable at December 31, 2022 under our existing assets groups as well as under our anticipated 2023 asset groups.

If in future quarters our economic or business projections were to change as a result of our plans or changes in the economic or business environment, there was a significant adverse change in the extent or manner in which a long-lived asset is being used, or there was a current expectation that a long-lived asset group will be disposed of significantly before the end of its useful life, we would undertake additional testing, as appropriate, which could result in an impairment of long-lived assets.

In our Mobility segment, goodwill of $102 million related to two investments was fully impaired during the second half of 2021 based on external market indicators evaluated for other business purposes.

Assumptions and Approach Used - Held-for-Sale Operations .

In the third quarter of 2022, we entered into an agreement to sell our Sanand, India vehicle assembly and powertrain plants to Tata Passenger Electric Mobility Limited (“Tata”).

The sale transaction included the land, buildings, and other fixed assets (excluding the powertrain machinery and equipment) for the plants.

Accordingly, we have reported $88 million of fixed assets for this operation as held for sale for the period ended December 31, 2022.

We recognized pre-tax impairment charges in Cost of sales of $32 million in the third quarter of 2022 to adjust the carrying value of the held-for-sale assets to fair value less costs to sell.

We determined fair value using the market approach, estimated based on the negotiated value of the assets.

On January 10, 2023, we completed the sale of the plants to Tata.

See Note 22 of the Notes to the Financial Statements for more information regarding held-for-sale operations.

Allowance for Credit Losses

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The loss given default takes into account expected collateral value and future recoveries.

Macroeconomic factors used in Ford Credit’s models are country specific and include variables such as unemployment rates, housing prices, and gross domestic product.

Macroeconomic factors used in Ford Credit’s models are country specific and include variables such as unemployment rates, personal bankruptcy filings, housing prices, and gross domestic product.

Sensitivity Analysis.

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Adjustments to depreciation expense result in a change in the depreciation rates of the vehicles subject to operating leases and are recorded prospectively on a straight-line basis.

Each lease customer has the option to buy the leased vehicle at the end of the lease or to return the vehicle to the dealer.

Generally, lease customers have the option to buy the leased vehicle at the end of the lease or to return the vehicle to the dealer.

Nature of Estimates Required.

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The impact of the change in assumptions on future auction values and return volumes would increase or decrease accumulated supplemental depreciation and depreciation expense over the remaining terms of the operating leases;

however, the impact may be tempered or exacerbated based on future auction values in relation to the purchase price specified in the lease contract.

A change in the assumption for an auction value will impact Ford Credit’s estimate of accumulated supplemental depreciation if the future auction value is lower than the purchase price specified in the lease contract.

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ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED

The Financial Accounting Standards Board (“FASB”) has issued the following Accounting Standards Updates (“ASU”) which are not expected to have a material impact to our financial statements or financial statement disclosures.

For additional information, see Note 3 of the Notes to the Financial Statements.

ASU Effective Date (a)

2021-04 Issuer’s Accounting for Certain Modifications or Exchanges of Warrants January 1, 2022

2021-05 Lessors – Certain Leases with Variable Lease Payments January 1, 2022

2021-10 Government Assistance:

Disclosures by Business Entities about Government Assistance January 1, 2022

2018-12 Targeted Improvements to the Accounting for Long Duration Contracts January 1, 2023

2021-08 Business Combinations:

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers January 1, 2023

(a) Early adoption for each of the standards is permitted.

For a discussion of recent accounting standards, see Note 3 of the Notes to the Financial Statements.

Quantitative and Qualitative Disclosures About Market Risk

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Quantitative and Qualitative Disclosures About Market Risk (Continued)

The net fair value of foreign exchange forward contracts (including adjustments for credit risk) as of December 31, 2021, was a liability of $253 million, compared with a liability of $487 million as of December 31, 2020.

The net fair value of foreign exchange forward contracts (including adjustments for credit risk) as of December 31, 2022, was an asset of $236 million, compared with a liability of $253 million as of December 31, 2021.

The potential change in the fair value from a 10% change in the underlying exchange rates, in U.S.

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Commodity price risk is the possibility that our financial results could be worse than planned because of changes in the prices of commodities used in the production of motor vehicles, such as base metals (e.g., steel, copper, and aluminum), precious metals (e.g., palladium), energy (e.g., natural gas and electricity), and plastics/resins (e.g., polypropylene).

As we transition to a greater mix of battery electric vehicles, we expect to increase our reliance on lithium, cobalt, and nickel for batteries.

Accordingly, our practice is to use derivative instruments to hedge the price risk with respect to forecasted purchases of certain commodities that we can economically hedge (primarily base metals and precious metals) and consistent with our overall risk management strategy.

As we transition to a greater mix of electric vehicles, we expect to increase our reliance on lithium, cobalt, nickel, graphite, and manganese, among other materials, for batteries.

Accordingly, our practice is to use derivative instruments to hedge the price risk with respect to forecasted purchases of certain commodities that we can economically hedge and consistent with our overall risk management strategy.

In our hedging actions, we use derivative instruments commonly used by corporations to reduce commodity price risk (e.g., financially settled forward contracts).

The extent to which we hedge is also impacted by our ability to achieve designated hedge accounting.

The net fair value of commodity forward contracts (including adjustments for credit risk) as of December 31, 2021, was an asset of $220 million, compared with an asset of $105 million as of December 31, 2020.

The potential change in the fair value from a 10% change in the underlying commodity prices would be $215 million at December 31, 2021, compared with $141 million at December 31, 2020.

The net fair value of commodity forward contracts (including adjustments for credit risk) as of December 31, 2022, was a liability of $49 million, compared with an asset of $220 million as of December 31, 2021.

The potential change in the fair value from a 10% change in the underlying commodity prices would have been $178 million at December 31, 2022, compared with $215 million at December 31, 2021.

The sensitivity analysis presented is hypothetical and assumes commodity price changes are instantaneous and adverse across all commodities.

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Our interest rate sensitivity analysis on the investment portfolios includes cash and cash equivalents and net marketable securities.

At December 31, 2021, Company cash consisted of $10.6 billion of Rivian marketable securities and $26.0 billion of cash in our investment portfolios, compared to $30.8 billion of Company cash at December 31, 2020.

At December 31, 2022, Company cash consisted of $0.2 billion of Rivian marketable securities and $32.1 billion of cash in our investment portfolios, compared to $10.6 billion of Rivian marketable securities and $26.0 billion of cash in our investment portfolios at December 31, 2021.

We invest the portfolios in securities of various types and maturities, the value of which are subject to fluctuations in interest rates.

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What changed 10-K

Item 7. Management’s Discussion and Analysis