What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-10-27 compared with 2023-07-28 · 80 added, 88 removed, 459 unchanged (27% of the section changed)

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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.

The UAW labor disruption has impacted production at several of our manufacturing facilities and, similar to our experience during COVID-19, could result in a significant deterioration 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.

For example, we typically experience cash flow timing differences associated with inventories and payables due to our annual 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 finished product inventory at June 30, 2023 was higher than at December 31, 2022, reflecting higher in-transit inventory, primarily related to capacity constraints in transportation infrastructure, and in-plant inventory.

Our finished product inventory at September 30, 2023 was higher than at December 31, 2022.

The increase primarily reflects higher in-plant and in-transit inventory, both of which include vehicles on hold for quality control.

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.

Moreover, in order to secure critical materials for production of electric vehicles, we have entered into and we may, in the future 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.

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Subject to satisfaction of those conditions, we will be obligated to purchase the materials at the cost determined by the purchase price mechanism.

As of June 30, 2023, our estimated expenditures for the maximum quantity that we are committed to purchase under these offtake agreements, subject to certain conditions, total about $12 billion through 2035 based on our present pricing forecast;

As of September 30, 2023, our estimated expenditures for the maximum quantity that we are committed to purchase under these offtake agreements, subject to certain conditions, total about $12 billion through 2035 based on our present pricing forecast;

however, our pricing forecast could fluctuate significantly from period to period, which could result in significant increases or decreases in the estimate of our overall purchase commitment.

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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.

Risk Factors in our 2022 Form 10-K Report and as updated by our subsequent filings with the SEC for a discussion of the risks related to our offtake agreements and other long-term purchase contracts.

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

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.

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We have no economic interest in a supplier’s decision to participate in the SCF program, and we do not provide any guarantees in connection with it.

As of June 30, 2023, the outstanding amount of Ford receivables that suppliers elected to sell to the SCF financial institutions was $269 million.

The amount settled through the SCF program during the first half of 2023 was $937 million.

As of September 30, 2023, the outstanding amount of Ford receivables that suppliers elected to sell to the SCF financial institutions was $236 million.

The amount settled through the SCF program during the first nine months of 2023 was $1.4 billion.

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

Changes in Company cash excluding Ford Credit are summarized below (in billions):

Second Quarter First Half

Third Quarter First Nine Months

2022 2023 2022 2023

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

(b) Includes a $2.4 billion loss and a $7.9 billion loss on our Rivian investment in the second quarter and first half of 2022, respectively.

(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.

Numbers may not sum due to rounding.

Our second quarter 2023 Net cash provided by/(used in) operating activities was positive $5.0 billion, an increase of $2.1 billion from a year ago (see page 59 for additional information), driven primarily by higher net income and higher Ford Credit operating cash flow, offset partially by an increase in inventory.

Company adjusted free cash flow was $2.9 billion, $0.7 billion lower than a year ago, driven by higher capital spending and an increase in working capital, offset partially by higher adjusted EBIT excluding Ford Credit and favorable timing differences.

Capital spending was $1.9 billion in the second quarter of 2023, an increase of $0.4 billion from a year ago.

We continue to expect full year 2023 capital spending to be in the range of $8 billion to $9 billion.

Second quarter 2023 working capital impact was $0.7 billion negative, driven by higher inventory and higher receivables, offset partially by higher trade payables, each compared to March 31, 2023.

Our third quarter 2023 Net cash provided by/(used in) operating activities was positive $4.6 billion, $0.8 billion higher than a year ago (see page 63 for additional information).

The increase was driven primarily by higher net income and higher Ford Credit operating cash flow, offset partially by a decrease in working capital.

Company adjusted free cash flow was $1.2 billion, $2.4 billion lower than a year ago.

The decrease was driven by unfavorable working capital and higher capital spending, offset partially by more favorable timing differences and higher adjusted EBIT excluding Ford Credit.

Capital spending was $2.2 billion in the third quarter of 2023, an increase of $0.6 billion from a year ago.

We now expect full year 2023 capital spending to be in the range of $8 billion to $8.5 billion.

Third quarter 2023 working capital impact was $1.1 billion negative, driven by higher inventory and higher receivables, offset partially by higher trade payables, each compared to June 30, 2023.

All other and timing differences were positive $1.8 billion.

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marketing incentive and warranty payments to dealers).

In the second quarter of 2023, we contributed $109 million to our global funded pension plans.

In the third quarter of 2023, we contributed $190 million to our global funded pension plans.

We continue to expect to contribute between $500 million and $600 million to our global funded pension plans in 2023.

Shareholder distributions were $0.6 billion in the second quarter of 2023, all of which was attributable to our regular dividend.

Shareholder distributions were $0.6 billion in the third quarter of 2023, all of which was attributable to our regular dividend.

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 June 30, 2023 were $19.3 billion, consisting of $13.5 billion of our corporate credit facility, $2.0 billion of our supplemental revolving credit facility, $1.8 billion of our 364-day revolving credit facility, and $2.1 billion of local credit facilities.

At June 30, 2023, the utilized portion of the corporate credit facility was $18 million, representing amounts utilized for letters of credit.

In addition, $1.7 billion of committed Company credit lines, excluding Ford Credit, was utilized under local credit facilities for our affiliates as of June 30, 2023.

Total Company committed credit lines, excluding Ford Credit, at September 30, 2023 were $23.3 billion, consisting of $13.5 billion of our corporate credit facility, $2.0 billion of our supplemental revolving credit facility, $1.8 billion of our 364-day revolving credit facility (initially entered into in June 2022 and amended most recently in April 2023), $4.0 billion of our new 364-day revolving credit facility (discussed below), and $2.1 billion of local credit facilities.

At September 30, 2023, the utilized portion of the corporate credit facility was $18 million, representing amounts utilized for letters of credit.

In addition, $1.7 billion of committed Company credit lines, excluding Ford Credit, was utilized under local credit facilities for our affiliates as of September 30, 2023.

Lenders under our corporate credit facility have $3.4 billion of commitments maturing on April 26, 2026 and $10.1 billion of commitments maturing on April 26, 2028.

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 April 26, 2026.

Lenders under our 364-day revolving credit facility have $1.8 billion of commitments maturing on April 24, 2024.

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.

Lenders under our 364-day revolving credit facility initially entered into in 2022 and amended most recently in April 2023 (the “April 2023 364-day revolving credit facility”) have $1.8 billion of commitments maturing on April 24, 2024.

On August 17, 2023, we entered into a new 364-day revolving credit facility (the “August 2023 364-day revolving credit facility”), with $4 billion of commitments maturing on August 15, 2024.

This new 364-day revolving credit facility provides additional working capital flexibility to manage through uncertainties in the present environment.

The corporate, supplemental, and April 2023 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.

Ford outperformed the 2022 targets for all three of the sustainability-linked metrics, which favorably impacted pricing beginning in the third quarter of 2023.

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 corporate credit facility, supplemental revolving credit facility, and 364-day revolving credit facility.

The terms and conditions of the supplemental and 364-day revolving credit facilities are consistent with our corporate credit facility.

Ford Credit has been designated as a subsidiary borrower under the corporate credit facility and the 364-day revolving 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 terms and conditions of the supplemental, April 2023 364-day, and August 2023 364-day revolving credit facilities are consistent with our corporate credit facility.

Ford Credit has been designated as a subsidiary borrower under the corporate credit facility and the April 2023 364-day revolving credit facility.

Each of the corporate credit facility, supplemental revolving credit facility, April 2023 364-day revolving credit facility, and August 2023 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:

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and Ford Van Dyke Investment Fund, Inc.

As shown in Note 14 of the Notes to the Financial Statements, at June 30, 2023, Company debt excluding Ford Credit was $19.6 billion.

As shown in Note 14 of the Notes to the Financial Statements, at September 30, 2023, Company debt excluding Ford Credit was $19.8 billion.

This balance is $0.2 billion lower than at December 31, 2022.

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Ford Credit remains well capitalized with a strong balance sheet and funding diversified across platforms and markets.

Ford Credit saw sequential improvement in liquidity and securitized funding mix during the quarter and ended the second quarter of 2023 with $28.8 billion of liquidity, up $7.8 billion from year-end.

Ford Credit continues to have robust access to the capital markets, completing $18 billion of public term issuances through July 26, 2023.

Ford Credit ended the third quarter of 2023 with $27 billion of liquidity, up $5.9 billion from year-end.

Ford Credit continues to have robust access to the capital markets, completing $22 billion of public term issuances through October 25, 2023.

Key elements of Ford Credit’s funding strategy include:

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

September 30,

2022 December 31,

2022 June 30,

2022 September 30,

Funding Structure

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Term asset-backed securities 48.9 56.4 55.9

Ford Interest Advantage / Retail Deposits 12.5 14.3 15.9

Retail Deposits / Ford Interest Advantage 12.7 14.3 16.3

Other 3.6 2.6 2.2

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Securitized Funding as Percent of Total Debt 45.3 % 47.4 % 45.5 %

Net receivables were $126.1 billion at June 30, 2023 and were funded primarily with term unsecured debt and term asset-backed securities.

Securitized funding as a percent of total debt was 45.0% as of June 30, 2023.

Net receivables were $126.3 billion at September 30, 2023 and were funded primarily with term unsecured debt and term asset-backed securities.

Securitized funding as a percent of total debt was 45.5% as of September 30, 2023.

Public Term Funding Plan.

The following table shows Ford Credit’s issuances for full year 2021 and 2022, planned issuances for full year 2023, and its global public term funding issuances through July 26, 2023, excluding short-term funding programs (in billions):

The following table shows Ford Credit’s issuances for full year 2021 and 2022, planned issuances for full year 2023, and its global public term funding issuances through October 25, 2023, excluding short-term funding programs (in billions):

Forecast Through

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

September 30,

2022 December 31,

2022 June 30,

2022 September 30,

Liquidity Sources (a)

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Gross liquidity $ 20.7 $ 20.7 $ 26.9

Asset-backed capacity in excess of eligible receivables and other adjustments (1.1) 0.4 (1.3)

Other adjustments 0.3 0.4 0.1

Net liquidity available for use $ 21.0 $ 21.1 $ 27.0

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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 June 30, 2023, Ford Credit’s net liquidity available for use was $28.8 billion, $7.8 billion higher than year-end 2022, reflecting strong access to public funding markets and the addition of $4.9 billion in committed asset-backed capacity.

At June 30, 2023, Ford Credit’s liquidity sources, including cash, committed asset-backed facilities, and unsecured credit facilities, totaled $57.3 billion, up $6.4 billion from year-end 2022.

At September 30, 2023, Ford Credit’s net liquidity available for use was $27 billion, $5.9 billion higher than year-end 2022, reflecting strong access to public funding markets and the addition of $4.9 billion in committed asset-backed capacity.

At September 30, 2023, Ford Credit’s liquidity sources, including cash, committed asset-backed facilities, and unsecured credit facilities, totaled $56.3 billion, up $5.3 billion from year-end 2022.

Material Cash Requirements.

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The table below shows the calculation of Ford Credit’s financial statement leverage (in billions):

September 30,

2022 December 31,

2022 June 30,

2022 September 30,

Leverage Calculation

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

At June 30, 2023, Ford Credit’s financial statement leverage was 9.9:1.

At September 30, 2023, Ford Credit’s financial statement leverage was 9.7:1.

Ford Credit targets financial statement leverage in the range of 9:1 to 10:1.

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

Total Company

Pension Plans - Funded Balances.

As of June 30, 2023, our total Company pension underfunded status reported on our consolidated balance sheets was $0.2 billion and reflects the net funded status at December 31, 2022, updated for:

As of September 30, 2023, our total Company pension underfunded status reported on our consolidated balance sheets was $0.2 billion and reflects the net funded status at December 31, 2022, updated for:

service and interest cost;

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Four Quarters Ending

2022 June 30,

September 30,

2022 September 30,

Adjusted Net Operating Profit/(Loss) After Cash Tax

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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 March 31, 2023:

• On June 14, 2023, DBRS upgraded the credit ratings for Ford and Ford Credit to BBB (low) from BB (high) and revised the outlook to stable from positive.

• On July 13, 2023, Moody’s upgraded the credit ratings for Ford and Ford Credit to Ba1 from Ba2 with a stable outlook.

The following rating actions were taken by these NRSROs since the filing of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2023:

• On September 6, 2023, Fitch upgraded the credit ratings for Ford and Ford Credit to BBB- from BB+ and revised the outlook to stable from positive.

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

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DBRS BBB (low) BBB (low) Stable BBB (low) R-2 (low) Stable BBB (low)

Fitch BB+ BB+ Positive BB+ B Positive BBB-

Fitch BBB- BBB- Stable BBB- F3 Stable BBB-

Moody’s N/A Ba1 Stable Ba1 NP Stable Baa3

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

We provided 2023 Company guidance in our earnings release furnished on Form 8-K dated July 27, 2023.

The guidance is based on our expectations as of July 27, 2023, and assumes no material change to our current assumptions for inflation, logistics issues, production, or macroeconomic conditions.

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 2022 Form 10-K Report and as updated by our subsequent filings with the SEC.

2023 Guidance

Total Company

Adjusted EBIT (a) $11 - $12 billion

Adjusted Free Cash Flow (a) $6.5 - $7 billion

Capital spending $8 - $9 billion

EBT About $1.3 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.

For full-year 2023, we now expect adjusted EBIT of $11 billion to $12 billion, primarily reflecting stronger net pricing, and adjusted free cash flow of $6.5 billion to $7 billion.

On a segment basis, we expect:

• Ford Pro EBIT approaching $8 billion, more than double full-year 2022, from significant year-over-year improvement in pricing and volume.

• Ford Blue EBIT of about $8 billion, with higher volumes and stronger mix more than offsetting any potential pricing headwinds.

• Ford Model e to report an EBIT loss of about $4.5 billion, reflecting the pricing environment, disciplined investments in new products and capacity, supplier-related launch costs, and warranty expenses.

• Ford Credit EBT to be about $1.3 billion.

Our outlook for 2023 assumes the headwinds and tailwinds below.

• Global economic uncertainty

• Inflationary pressures

• Higher industrywide customer incentives and continued EV pricing pressure

• Increased warranty costs

• Lower past service pension income

• Certain costs associated with union contract negotiations

• Improved supply chain

• Higher industry volumes

• All-new Super Duty

• Lower commodity costs

On July 27, 2023, we affirmed an adjusted EBIT range of $11 billion to $12 billion for full-year 2023 with adjusted free cash flow of $6.5 billion to $7 billion.

Based on the $9.4 billion in adjusted EBIT we earned through the third quarter, we were on track to deliver our prior guidance.

However, the UAW strike created significant uncertainty regarding our full-year results, and, although a tentative agreement has been reached with the UAW, given the impact of the strike and the fact that the agreement is subject to ratification, we are withdrawing our full-year 2023 guidance.

This is in part because of the continued disruption in the industry with ongoing strikes and the follow-on impact to our shared supply base, the ramp of production in our plants and at our supplier partners, as well as other additional impacts.

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

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

Second Quarter First Half

Third Quarter First Nine Months

2022 2023 2022 2023

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Earnings per Share Reconciliation to Adjusted Earnings per Share

Second Quarter First Half

Third Quarter First Nine Months

2022 2023 2022 2023

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(a) Includes adjustment for noncontrolling interest in 2023.

(b) The first half 2022 calculation excludes 43 million shares of net dilutive options, unvested restricted stock units, unvested restricted stock shares, and convertible debt due to their anti-dilutive effect.

(b) 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.

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

Effective Tax Rate Reconciliation to Adjusted Effective Tax Rate

Second Quarter First Half

Third Quarter First Nine Months

2022 2023 2022 2023 Memo:

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Adjusted effective tax rate (Non-GAAP) 23.5 % 16.1 % 21.7 % 16.5 % 18.7 %

(a) The first half of 2022 reflects the tax consequences of unrealized losses on marketable securities.

Full Year 2022 reflects the tax consequences of unrealized losses on marketable securities and fourth quarter favorable changes in our valuation allowances.

(a) The first nine months of 2022 reflects the tax consequences of unrealized losses on marketable securities.

Full Year 2022 reflects the tax consequences of unrealized losses on marketable securities and favorable changes in our valuation allowances.

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

Second Quarter First Half

Third Quarter First Nine Months

2022 2023 2022 2023

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The following tables provide supplemental cash flow information (in millions):

For the period ended June 30, 2023

For the period ended September 30, 2023

First Nine Months

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

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Net cash provided by/(used in) operating activities $ 9,419 $ 3,007 $ — $ 12,426

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

Cash flows from investing activities

Capital spending $ (5,882) $ (59) $ — $ (5,941)

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Net cash provided by/(used in) investing activities $ (3,571) $ (6,647) $ (1) $ (10,219)

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

Cash flows from financing activities

Cash payments for dividends and dividend equivalents $ (4,394) $ — $ — $ (4,394)

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The following table provides supplemental income statement information (in millions):

For the period ended June 30, 2023

Second Quarter

For the period ended September 30, 2023

Third Quarter

Company excluding Ford Credit Ford Credit Consolidated

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Net income/(loss) attributable to Ford Motor Company $ 960 $ 239 $ 1,199

For the period ended June 30, 2023

For the period ended September 30, 2023

First Nine Months

Company excluding Ford Credit Ford Credit Consolidated

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The following tables provide supplemental balance sheet information (in millions):

June 30, 2023

September 30, 2023

Assets Company excluding Ford Credit Ford Credit Eliminations Consolidated

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Total assets $ 127,717 $ 142,615 $ (2,259) $ 268,073

Liabilities Company excluding Ford Credit Ford Credit Eliminations Consolidated

Payables $ 26,808 $ 1,005 $ — $ 27,813

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Selected Other Information.

At June 30, 2023, total equity attributable to Ford was $43.7 billion, an increase of $0.5 billion compared with December 31, 2022.

At September 30, 2023, total equity attributable to Ford was $44.3 billion, an increase of $1.0 billion compared with December 31, 2022.

The detail for this change is shown below (in billions):

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Sales by Type.

The following table shows second quarter 2023 U.S.

The following table shows third quarter 2023 U.S.

sales volume and U.S.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis