Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Changes in Company Cash. In managing our business, we classify changes in Company cash into operating and non-operating items. Operating items include: Company adjusted EBIT excluding Ford Credit EBT, capital spending, depreciation and tooling amortization, changes in working capital, Ford Credit distributions, interest on debt, cash taxes, and all other and timing differences (including timing differences between accrual-based EBIT and associated cash flows). Non-operating items include: restructuring costs, changes in Company debt excluding Ford Credit, contributions to funded pension plans, shareholder distributions, and other items (including gains and losses on investments in equity securities, acquisitions and divestitures, equity investments, and other transactions with Ford Credit).
With respect to “Changes in working capital,” in general, the Company excluding Ford Credit carries relatively low trade receivables compared with our trade payables because the majority of our wholesales are financed (primarily by Ford Credit) immediately upon the sale of vehicles to dealers, which generally occurs shortly after being produced. In contrast, our trade payables are based primarily on industry-standard production supplier payment terms of about 45 days. As a result, our cash flow deteriorates if wholesale volumes (and the corresponding revenue) decrease while trade payables continue to become due. Conversely, our cash flow improves if wholesale volumes (and the corresponding revenue) increase while new trade payables are generally not due for about 45 days. For example, the suspension of production at most of our assembly plants and lower industry volumes due to COVID-19 in early 2020 resulted in an initial deterioration of our cash flow, while the subsequent resumption of manufacturing operations and return to pre-COVID-19 production levels at most of our assembly plants resulted in a subsequent improvement of our cash flow. 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 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 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 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.
The terms of the offtake agreements we have entered into, and those we may enter into in the future, vary by transaction, though they generally obligate us to purchase a certain percentage or minimum amount of output produced by the counterparty over an agreed upon period of time. The purchase price mechanism included in the offtake agreement is typically based on the market price of the material at the time of delivery. The terms may also include conditions to our obligation to purchase the materials, such as quality or minimum output. Subject to satisfaction of those conditions, we will be obligated to purchase the materials at the cost determined by the purchase price mechanism. 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. The actual price paid for these materials will be recorded on our balance sheet at the time of purchase. In addition, we may enter into additional offtake agreements with raw material suppliers, the costs under which could be significant. 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. See Item 1A. 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.
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Item 2. 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. Our suppliers’ voluntary inclusion of invoices in the SCF program has no bearing on our payment terms, the amounts we pay, or our liquidity. We have no economic interest in a supplier’s decision to participate in the SCF program, and we do not provide any guarantees in connection with it. 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.
49
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Changes in Company cash excluding Ford Credit are summarized below (in billions):
Third Quarter First Nine Months
2022 2023 2022 2023
Company Excluding Ford Credit
Company Adjusted EBIT excluding Ford Credit (a) $ 1.2 $ 1.8 $ 5.4 $ 8.3
Capital spending $ (1.6) $ (2.2) $ (4.5) $ (5.9)
Depreciation and tooling amortization 1.3 1.3 3.9 3.9
Net spending $ (0.3) $ (0.9) $ (0.6) $ (2.0)
Receivables $ (0.1) $ (0.6) $ (0.6) $ (0.8)
Inventory (1.7) (0.8) (4.1) (4.2)
Trade Payables 3.9 0.2 5.9 1.9
Changes in working capital $ 2.2 $ (1.1) $ 1.1 $ (3.1)
Ford Credit distributions $ 0.5 $ — $ 2.1 $ —
Interest on debt and cash taxes (0.3) (0.4) (1.2) (1.7)
All other and timing differences 0.3 1.8 (0.2) 3.3
Company adjusted free cash flow (a) $ 3.6 $ 1.2 $ 6.6 $ 4.8
Restructuring $ (0.2) $ (0.3) $ — $ (0.4)
Changes in debt 1.0 — 0.1 (0.2)
Funded pension contributions (0.1) (0.2) (0.5) (0.4)
Shareholder distributions (0.6) (0.6) (1.4) (4.4)
All other (b) (0.3) (0.9) (9.3) (2.6)
Change in cash $ 3.3 $ (0.8) $ (4.5) $ (3.2)
__________
(a) See Non-GAAP Financial Measure Reconciliations section for reconciliation to GAAP.
(b) Includes a $0.6 billion gain and a $7.3 billion loss on our Rivian investment in the third quarter and first nine months of 2022, respectively.
Note: Numbers may not sum due to rounding.
Our third quarter 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. Timing differences include differences between accrual-based EBIT and the associated cash flows (e.g., pension and OPEB income or expense; compensation payments; marketing incentive and warranty payments to dealers).
In the third quarter of 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 third quarter of 2023, all of which was attributable to our regular dividend.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Available Credit Lines . Total Company committed credit lines, excluding Ford Credit, at September 30, 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 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 April 2023 364-day revolving credit facility. 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: Ford Component Sales, LLC; Ford European Holdings Inc.; Ford Global Technologies, LLC; Ford Holdings LLC (the parent company of Ford Credit); Ford International Capital LLC; Ford Mexico Holdings LLC; Ford Motor Service Company; Ford Next LLC; Ford Trading Company, LLC; and Ford Van Dyke Investment Fund, Inc.
Debt. 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.
Leverage. We manage Company debt (excluding Ford Credit) levels with a leverage framework that targets investment grade credit ratings through a normal business cycle. The leverage framework includes a ratio of total Company debt (excluding Ford Credit), underfunded pension liabilities, operating leases, and other adjustments, divided by Company adjusted EBIT (excluding Ford Credit EBT), and further adjusted to exclude depreciation and tooling amortization (excluding Ford Credit).
Ford Credit’s leverage is calculated as a separate business as described in the ”Liquidity and Capital Resources - Ford Credit Segment” section of Item 2. Ford Credit is self-funding and its debt, which is used to fund its operations, is separate from our Company debt excluding Ford Credit.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Ford Credit Segment
Ford Credit remains well capitalized with a strong balance sheet and funding diversified across platforms and markets. 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:
• Maintain strong liquidity and funding diversity
• Prudently access public markets
• Continue to leverage retail deposit funding in Europe
• Flexibility to increase ABS mix as needed; preserving assets and committed capacity
• Target financial statement leverage of 9:1 to 10:1
• Maintain self-liquidating balance sheet
Ford Credit’s liquidity profile continues to be diverse, robust, and focused on maintaining liquidity levels that meet its business and funding requirements. Ford Credit regularly stress tests its balance sheet and liquidity to ensure that it can continue to meet its financial obligations through economic cycles.
The following table shows funding for Ford Credit’s net receivables (in billions):
September 30,
2022 December 31,
2022 September 30,
2023
Funding Structure
Term unsecured debt $ 46.4 $ 48.3 $ 50.7
Term asset-backed securities 48.9 56.4 55.9
Retail Deposits / Ford Interest Advantage 12.7 14.3 16.3
Other 3.6 2.6 2.2
Equity 11.4 11.9 12.6
Adjustments for cash (7.5) (11.2) (11.4)
Total Net Receivables $ 115.5 $ 122.3 $ 126.3
Securitized Funding as Percent of Total Debt 45.3 % 47.4 % 45.5 %
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 October 25, 2023, excluding short-term funding programs (in billions):
2021
Actual 2022
Actual 2023
Forecast Through
October 25
Unsecured $ 5 $ 6 $ 10 - 13 $ 10
Securitizations (a) 9 10 13 - 14 12
Total public $ 14 $ 16 $ 23 - 27 $ 22
__________
(a) See Definitions and Information Regarding Ford Credit Causal Factors section.
For 2023, Ford Credit now projects full year public term funding in the range of $23 billion to $27 billion.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Liquidity. The following table shows Ford Credit’s liquidity sources and utilization (in billions):
September 30,
2022 December 31,
2022 September 30,
2023
Liquidity Sources (a)
Cash $ 7.6 $ 11.3 $ 11.6
Committed asset-backed facilities 34.2 37.4 42.3
Other unsecured credit facilities 2.1 2.3 2.4
Total liquidity sources $ 43.9 $ 51.0 $ 56.3
Utilization of Liquidity (a)
Securitization and restricted cash $ (2.7) $ (2.9) $ (2.9)
Committed asset-backed facilities (20.0) (26.6) (25.8)
Other unsecured credit facilities (0.5) (0.8) (0.7)
Total utilization of liquidity $ (23.2) $ (30.3) $ (29.4)
Gross liquidity $ 20.7 $ 20.7 $ 26.9
Other adjustments 0.3 0.4 0.1
Net liquidity available for use $ 21.0 $ 21.1 $ 27.0
__________
(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 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. 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 “Aggregate Contractual Obligations” table in the “Liquidity and Capital Resources - Company Excluding Ford Credit” section in Item 7 and Note 19 of the Notes to the Financial Statements in our 2022 Form 10-K Report). In addition, subject to approval by Ford Credit’s Board of Directors, shareholder distributions may require the expenditure of a material amount of cash. Moreover, Ford Credit may be subject to additional material cash requirements that are contingent upon the occurrence of certain events, e.g., legal contingencies, uncertain tax positions, and other matters.
Ford Credit plans to utilize its liquidity (as described above) and its cash flows from business operations to fund its material cash requirements.
Funding and Liquidity Risks. Ford Credit’s funding plan is subject to risks and uncertainties, many of which are beyond its control, including disruption in the capital markets, that could impact both unsecured debt and asset-backed securities issuance and the effects of regulatory changes on the financial markets. Refer to the “Liquidity - Ford Credit Segment - Funding and Liquidity Risks” section of Item 7 of Part II of our 2022 Form 10-K Report for more information.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Leverage. Ford Credit uses leverage, or the debt-to-equity ratio, to make various business decisions, including evaluating and establishing pricing for finance receivable and operating lease financing, and assessing its capital structure.
The table below shows the calculation of Ford Credit’s financial statement leverage (in billions):
September 30,
2022 December 31,
2022 September 30,
2023
Leverage Calculation
Debt $ 108.0 $ 119.0 $ 122.9
Equity (a) 11.4 11.9 12.6
Financial statement leverage (to 1) 9.4 10.0 9.7
__________
(a) Total shareholder’s interest reported on Ford Credit’s balance sheets.
Ford Credit plans its leverage by considering market conditions and the risk characteristics of its business. At September 30, 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.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Total Company
Pension Plans - Funded Balances. As of September 30, 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; expected return on assets; curtailments, settlements, and associated interim remeasurement (where applicable); separation expense; actual benefit payments; and cash contributions. For plans without interim remeasurement, the discount rate and rate of expected return assumptions are unchanged from year-end 2022.
Return on Invested Capital (“ROIC”). We analyze total Company performance using an adjusted ROIC financial metric based on an after-tax, rolling four-quarter average. The following table contains the calculation of our ROIC for the periods shown (in billions):
Four Quarters Ending
September 30,
2022 September 30,
2023
Adjusted Net Operating Profit/(Loss) After Cash Tax
Net income/(loss) attributable to Ford $ 9.0 $ 6.2
Add: Noncontrolling interest 0.1 (0.3)
Less: Income tax 1.8 (0.9)
Add: Cash tax (0.6) (1.1)
Less: Interest on debt (1.4) (1.3)
Less: Total pension/OPEB income/(cost) 4.3 (1.2)
Add: Pension/OPEB service costs (1.0) (0.7)
Net operating profit/(loss) after cash tax $ 2.7 $ 7.5
Less: Special items (excl. pension/OPEB) pre-tax (4.9) (2.7)
Adjusted net operating profit/(loss) after cash tax $ 7.6 $ 10.2
Invested Capital
Equity $ 42.1 $ 44.3
Debt (excl. Ford Credit) 20.3 19.8
Net pension and OPEB liability 4.6 4.6
Invested capital (end of period) $ 66.9 $ 68.6
Average invested capital $ 71.0 $ 67.5
ROIC (a) 3.8 % 11.1 %
Adjusted ROIC (Non-GAAP) (b) 10.7 % 15.1 %
__________
(a) Calculated as the sum of net operating profit/(loss) after cash tax from the last four quarters, divided by the average invested capital over the last four quarters.
(b) Calculated as the sum of adjusted net operating profit/(loss) after cash tax from the last four quarters, divided by the average invested capital over the last four quarters.
Note: Numbers may not sum due to rounding.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
CREDIT RATINGS
Our short-term and long-term debt is rated by four credit rating agencies designated as nationally recognized statistical rating organizations (“NRSROs”) by the U.S. Securities and Exchange Commission: DBRS, Fitch, Moody’s, and S&P.
In several markets, locally recognized rating agencies also rate us. A credit rating reflects an assessment by the rating agency of the credit risk associated with a corporate entity or particular securities issued by that entity. Rating agencies’ ratings of us are based on information provided by us and other sources. Credit ratings are not recommendations to buy, sell, or hold securities and are subject to revision or withdrawal at any time by the assigning rating agency. Each rating agency may have different criteria for evaluating company risk and, therefore, ratings should be evaluated independently for each rating agency.
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:
NRSRO RATINGS
Ford Ford Credit NRSROs
Issuer
Default /
Corporate /
Issuer Rating Long-Term Senior Unsecured Outlook / Trend Long-Term Senior Unsecured Short-Term
Unsecured Outlook / Trend Minimum Long-Term Investment Grade Rating
DBRS BBB (low) BBB (low) Stable BBB (low) R-2 (low) Stable BBB (low)
Fitch BBB- BBB- Stable BBB- F3 Stable BBB-
Moody’s N/A Ba1 Stable Ba1 NP Stable Baa3
S&P BB+ BB+ Positive BB+ B Positive BBB-
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
OUTLOOK
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.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Cautionary Note on Forward-Looking Statements
Statements included or incorporated by reference herein may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on expectations, forecasts, and assumptions by our management and involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from those stated, including, without limitation:
• Ford and Ford Credit’s financial condition and results of operations have been and may continue to be adversely affected by public health issues, including epidemics or pandemics such as COVID-19;
• Ford is highly dependent on its suppliers to deliver components in accordance with Ford’s production schedule and specifications, and a shortage of or inability to acquire key components, such as semiconductors, or raw materials, such as lithium, cobalt, nickel, graphite, and manganese, can disrupt Ford’s production of vehicles;
• To facilitate access to the raw materials necessary for the production of electric vehicles, Ford has entered into, and expects to continue to enter into, multi-year commitments to raw material suppliers that subject Ford to risks associated with lower future demand for such materials as well as costs that fluctuate and are difficult to accurately forecast;
• 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, restructurings, or new business strategies;
• Operational systems, security systems, vehicles, and services could be affected by cyber incidents, ransomware attacks, and other disruptions and impact Ford and Ford Credit as well as their suppliers and dealers;
• Ford’s production, as well as Ford’s suppliers’ production, and/or the ability to deliver products to consumers could be disrupted by labor issues, natural or man-made disasters, adverse effects of climate change, 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 and digital, software, and physical services are subject to market acceptance and face significant competition from existing and new entrants in the automotive and digital and software services industries and its reputation may be harmed if it is unable to achieve the initiatives it has announced;
• Ford’s 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 or geopolitical developments, including protectionist trade policies such as tariffs, or other events;
• Industry sales volume 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 and energy 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;
• The impact of government incentives on Ford’s business could be significant, and 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 OPEB 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 and facilities to comply with safety, emissions, fuel economy, autonomous driving technology, environmental, and other regulations;
• Ford and Ford Credit could be affected by the continued development of more stringent privacy, data use, and data protection laws and regulations as well as consumers’ heightened expectations to safeguard their personal information; and
• Ford Credit could be subject to new or increased credit regulations, consumer protection regulations, or other regulations.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
We cannot be certain that any expectation, forecast, or assumption made in preparing forward-looking statements will prove accurate, or that any projection will be realized. It is to be expected that there may be differences between projected and actual results. Our forward-looking statements speak only as of the date of their initial issuance, and we do not undertake any obligation to update or revise publicly any forward-looking statement, whether as a result of new information, future events, or otherwise. For additional discussion, see “Item 1A. Risk Factors” in our 2022 Form 10-K Report, as updated by our subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
NON-GAAP FINANCIAL MEASURES THAT SUPPLEMENT GAAP MEASURES
We use both generally accepted accounting principles (“GAAP”) and non-GAAP financial measures for operational and financial decision making, and to assess Company and segment business performance. The non-GAAP measures listed below are intended to be considered by users as supplemental information to their equivalent GAAP measures, to aid investors in better understanding our financial results. We believe that these non-GAAP measures provide useful perspective on underlying operating results and trends, and a means to compare our period-over-period results. These non-GAAP measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. These non-GAAP measures may not be the same as similarly titled measures used by other companies due to possible differences in method and in items or events being adjusted.
• Company Adjusted EBIT (Most Comparable GAAP Measure: Net Income/(Loss) Attributable to Ford) – Earnings before interest and taxes (EBIT) excludes interest on debt (excl. Ford Credit Debt), taxes, and pre-tax special items. This non-GAAP measure is useful to management and investors because it focuses on underlying operating results and trends, and improves comparability of our period-over-period results. Our management ordinarily excludes special items from its review of the results of the operating segments for purposes of measuring segment profitability and allocating resources. Our categories of pre-tax special items and the applicable significance guideline for each item (which may consist of a group of items related to a single event or action) are as follows:
Pre-Tax Special Item Significance Guideline
∘ Pension and OPEB remeasurement gains and losses ∘ No minimum
∘ Gains and losses on investments in equity securities ∘ No minimum
∘ Personnel expenses, supplier- and dealer-related costs, and facility-related charges stemming from our efforts to match production capacity and cost structure to market demand and changing model mix ∘ Generally $100 million or more
∘ Other items that we do not necessarily consider to be indicative of earnings from ongoing operating activities ∘ $500 million or more for individual field service actions; generally $100 million or more for other items
When we provide guidance for adjusted EBIT, we do not provide guidance on a net income basis because the GAAP measure will include potentially significant special items that have not yet occurred and are difficult to predict with reasonable certainty, including gains and losses on pension and OPEB remeasurements and on investments in equity securities.
• Company Adjusted EBIT Margin (Most Comparable GAAP Measure: Company Net Income/(Loss) Margin) – Company Adjusted EBIT margin is Company adjusted EBIT divided by Company revenue. This non-GAAP measure is useful to management and investors because it allows users to evaluate our operating results aligned with industry reporting.
• Adjusted Earnings/(Loss) Per Share (Most Comparable GAAP Measure: Earnings/(Loss) Per Share) – Measure of Company’s diluted net earnings/(loss) per share adjusted for impact of pre-tax special items (described above), tax special items, and restructuring impacts in noncontrolling interests. The measure provides investors with useful information to evaluate performance of our business excluding items not indicative of earnings from ongoing operating activities. When we provide guidance for adjusted earnings/(loss) per share, we do not provide guidance on an earnings/(loss) per share basis because the GAAP measure will include potentially significant special items that have not yet occurred and are difficult to predict with reasonable certainty prior to year-end, including pension and OPEB remeasurement gains and losses.
• Adjusted Effective Tax Rate (Most Comparable GAAP Measure: Effective Tax Rate) – Measure of Company’s tax rate excluding pre-tax special items (described above) and tax special items. The measure provides an ongoing effective rate which investors find useful for historical comparisons and for forecasting. When we provide guidance for adjusted effective tax rate, we do not provide guidance on an effective tax rate basis because the GAAP measure will include potentially significant special items that have not yet occurred and are difficult to predict with reasonable certainty prior to year-end, including pension and OPEB remeasurement gains and losses.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
• Company Adjusted Free Cash Flow (Most Comparable GAAP Measure: Net Cash Provided By/(Used In) Operating Activities) – Measure of Company’s operating cash flow excluding Ford Credit’s operating cash flows. The measure contains elements management considers operating activities, including Company excluding Ford Credit capital spending, Ford Credit distributions to its parent, and settlement of derivatives. The measure excludes cash outflows for funded pension contributions, restructuring actions, and other items that are considered operating cash flows under U.S. GAAP. This measure is useful to management and investors because it is consistent with management’s assessment of the Company’s operating cash flow performance. When we provide guidance for Company adjusted free cash flow, we do not provide guidance for net cash provided by/(used in) operating activities because the GAAP measure will include items that are difficult to quantify or predict with reasonable certainty, including cash flows related to the Company's exposures to foreign currency exchange rates and certain commodity prices (separate from any related hedges), Ford Credit's operating cash flows, and cash flows related to special items, including separation payments, each of which individually or in the aggregate could have a significant impact to our net cash provided by/(used in) our operating activities.
• Adjusted ROIC – Calculated as the sum of adjusted net operating profit/(loss) after cash tax from the last four quarters, divided by the average invested capital over the last four quarters. Adjusted Return on Invested Capital (“Adjusted ROIC”) provides management and investors with useful information to evaluate the Company’s after-cash tax operating return on its invested capital for the period presented. Adjusted net operating profit/(loss) after cash tax measures operating results less special items, interest on debt (excl. Ford Credit Debt), and certain pension/OPEB costs. Average invested capital is the sum of average balance sheet equity, debt (excl. Ford Credit Debt), and net pension/OPEB liability.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Non-GAAP Financial Measure Reconciliations
The following tables show our Non-GAAP financial measure reconciliations.
Net Income/(Loss) Reconciliation to Adjusted EBIT ($M)
Third Quarter First Nine Months
2022 2023 2022 2023
Net income/(loss) attributable to Ford (GAAP) $ (827) $ 1,199 $ (3,270) $ 4,873
Income/(Loss) attributable to noncontrolling interests (103) (26) (141) (21)
Net income/(loss) $ (930) $ 1,173 $ (3,411) $ 4,852
Less: (Provision for)/Benefit from income taxes 195 (214) 771 (982)
Income/(Loss) before income taxes $ (1,125) $ 1,387 $ (4,182) $ 5,834
Less: Special items pre-tax (2,607) (487) (11,092) (2,593)
Income/(Loss) before special items pre-tax $ 1,482 $ 1,874 $ 6,910 $ 8,427
Less: Interest on debt (321) (324) (941) (936)
Adjusted EBIT (Non-GAAP) $ 1,803 $ 2,198 $ 7,851 $ 9,363
Memo:
Revenue ($B) $ 39.4 $ 43.8 $ 114.1 $ 130.2
Net income/(loss) margin (GAAP) (%) (2.1) % 2.7 % (2.9) % 3.7 %
Adjusted EBIT margin (Non-GAAP) (%) 4.6 % 5.0 % 6.9 % 7.2 %
Earnings per Share Reconciliation to Adjusted Earnings per Share
Third Quarter First Nine Months
2022 2023 2022 2023
Diluted After-Tax Results ($M)
Diluted after-tax results (GAAP) $ (827) $ 1,199 $ (3,270) $ 4,873
Less: Impact of pre-tax and tax special items (a) (2,063) (376) (8,819) (2,098)
Adjusted net income/(loss) – diluted (Non-GAAP) $ 1,236 $ 1,575 $ 5,549 $ 6,971
Basic and Diluted Shares (M)
Basic shares (average shares outstanding) 4,021 4,004 4,017 3,999
Net dilutive options, unvested restricted stock units, unvested restricted stock shares, and convertible debt 38 46 42 41
Diluted shares 4,059 4,050 4,059 4,040
Earnings/(Loss) per share – diluted (GAAP) (b) $ (0.21) $ 0.30 $ (0.81) $ 1.21
Less: Net impact of adjustments (0.51) (0.09) (2.18) (0.52)
Adjusted earnings/(loss) per share – diluted (Non-GAAP) $ 0.30 $ 0.39 $ 1.37 $ 1.73
_________
(a) Includes adjustment for noncontrolling interest in 2023.
(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.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Effective Tax Rate Reconciliation to Adjusted Effective Tax Rate
Third Quarter First Nine Months
2022 2023 2022 2023 Memo:
FY 2022
Pre-Tax Results ($M)
Income/(Loss) before income taxes (GAAP) $ (1,125) $ 1,387 $ (4,182) $ 5,834 $ (3,016)
Less: Impact of special items (2,607) (487) (11,092) (2,593) (12,172)
Adjusted earnings before taxes (Non-GAAP) $ 1,482 $ 1,874 $ 6,910 $ 8,427 $ 9,156
Taxes ($M)
(Provision for)/Benefit from income taxes (GAAP) $ 195 $ (214) $ 771 $ (982) $ 864
Less: Impact of special items (a) 544 87 2,273 408 2,573
Adjusted (provision for)/benefit from income taxes (Non-GAAP) $ (349) $ (301) $ (1,502) $ (1,390) $ (1,709)
Tax Rate (%)
Effective tax rate (GAAP) 17.3 % 15.4 % 18.4 % 16.8 % 28.6 %
Adjusted effective tax rate (Non-GAAP) 23.5 % 16.1 % 21.7 % 16.5 % 18.7 %
_________
(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)
Third Quarter First Nine Months
2022 2023 2022 2023
Net cash provided by/(used in) operating activities (GAAP) $ 3,812 $ 4,591 $ 5,675 $ 12,426
Less: Items not included in Company Adjusted Free Cash Flows
Ford Credit operating cash flows $ (439) $ 1,800 $ (2,198) $ 3,007
Funded pension contributions (130) (190) (458) (424)
Restructuring (including separations) (a) (179) (297) (492) (496)
Ford Credit tax payments/(refunds) under tax sharing agreement 22 — 22 (5)
Other, net (150) (151) (150) (364)
Add: Items included in Company Adjusted Free Cash Flows
Company excluding Ford Credit capital spending $ (1,613) $ (2,191) $ (4,465) $ (5,878)
Ford Credit distributions 500 — 2,100 —
Settlement of derivatives 26 (13) 54 7
Company adjusted free cash flow (Non-GAAP) $ 3,601 $ 1,225 $ 6,640 $ 4,837
_________
(a) Restructuring excludes cash flows reported in investing activities.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
SUPPLEMENTAL INFORMATION
The tables below provide supplemental consolidating financial information, other financial information, and U.S. sales by type. Company excluding Ford Credit includes our Ford Blue, Ford Model e, Ford Pro, and Ford Next reportable segments, Corporate Other, Interest on Debt, and Special Items. Eliminations, where presented, primarily represent eliminations of intersegment transactions and deferred tax netting.
Selected Cash Flow Information. The following tables provide supplemental cash flow information (in millions):
For the period ended September 30, 2023
First Nine Months
Cash flows from operating activities Company excluding Ford Credit Ford Credit Eliminations Consolidated
Net income/(loss) $ 4,078 $ 774 $ — $ 4,852
Depreciation and tooling amortization 3,956 1,722 — 5,678
Other amortization 4 (857) — (853)
Provision for/(Benefit from) credit and insurance losses 104 245 — 349
Pension and OPEB expense/(income) 1,026 — — 1,026
Equity method investment dividends received in excess of (earnings)/losses and impairments (59) (12) — (71)
Foreign currency adjustments (3) (96) — (99)
Net realized and unrealized (gains)/losses on cash equivalents, marketable securities, and other investments 193 (6) — 187
Net (gain)/loss on changes in investments in affiliates (19) — — (19)
Stock compensation 340 10 — 350
Provision for/(Benefit from) deferred income taxes (43) (2) — (45)
Decrease/(Increase) in finance receivables (wholesale and other) — (1,234) — (1,234)
Decrease/(Increase) in intersegment receivables/payables 369 (369) — —
Decrease/(Increase) in accounts receivable and other assets (2,876) (89) — (2,965)
Decrease/(Increase) in inventory (4,229) — — (4,229)
Increase/(Decrease) in accounts payable and accrued and other liabilities 8,967 228 — 9,195
Other 374 (70) — 304
Interest supplements and residual value support to Ford Credit (2,763) 2,763 — —
Net cash provided by/(used in) operating activities $ 9,419 $ 3,007 $ — $ 12,426
Cash flows from investing activities
Capital spending $ (5,882) $ (59) $ — $ (5,941)
Acquisitions of finance receivables and operating leases — (40,162) — (40,162)
Collections of finance receivables and operating leases — 33,726 — 33,726
Purchases of marketable and other investments (3,981) (1,918) — (5,899)
Sales and maturities of marketable securities and other investments 8,405 1,979 — 10,384
Settlements of derivatives 7 (214) — (207)
Capital contributions to equity method investments (1,615) — — (1,615)
Other (505) — — (505)
Investing activity (to)/from other segments — 1 (1) —
Net cash provided by/(used in) investing activities $ (3,571) $ (6,647) $ (1) $ (10,219)
Cash flows from financing activities
Cash payments for dividends and dividend equivalents $ (4,394) $ — $ — $ (4,394)
Purchases of common stock — — — —
Net changes in short-term debt (57) (885) — (942)
Proceeds from issuance of long-term debt — 36,582 — 36,582
Payments of long-term debt (156) (31,663) — (31,819)
Other (117) (109) — (226)
Financing activity to/(from) other segments (1) — 1 —
Net cash provided by/(used in) financing activities $ (4,725) $ 3,925 $ 1 $ (799)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash (84) (30) — (114)
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Selected Income Statement Information. The following table provides supplemental income statement information (in millions):
For the period ended September 30, 2023
Third Quarter
Company excluding Ford Credit Ford Credit Consolidated
Revenues $ 41,176 $ 2,625 $ 43,801
Total costs and expenses 40,219 2,453 42,672
Operating income/(loss) 957 172 1,129
Interest expense on Company debt excluding Ford Credit 324 — 324
Other income/(loss), net 142 177 319
Equity in net income/(loss) of affiliated companies 254 9 263
Income/(Loss) before income taxes 1,029 358 1,387
Provision for/(Benefit from) income taxes 95 119 214
Net income/(loss) 934 239 1,173
Less: Income/(Loss) attributable to noncontrolling interests (26) — (26)
Net income/(loss) attributable to Ford Motor Company $ 960 $ 239 $ 1,199
For the period ended September 30, 2023
First Nine Months
Company excluding Ford Credit Ford Credit Consolidated
Revenues $ 122,688 $ 7,541 $ 130,229
Total costs and expenses 117,615 6,911 124,526
Operating income/(loss) 5,073 630 5,703
Interest expense on Company debt excluding Ford Credit 936 — 936
Other income/(loss), net 400 398 798
Equity in net income/(loss) of affiliated companies 246 23 269
Income/(Loss) before income taxes 4,783 1,051 5,834
Provision for/(Benefit from) income taxes 705 277 982
Net income/(loss) 4,078 774 4,852
Less: Income/(Loss) attributable to noncontrolling interests (21) — (21)
Net income/(loss) attributable to Ford Motor Company $ 4,099 $ 774 $ 4,873
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Selected Balance Sheet Information. The following tables provide supplemental balance sheet information (in millions):
September 30, 2023
Assets Company excluding Ford Credit Ford Credit Eliminations Consolidated
Cash and cash equivalents $ 15,776 $ 10,651 $ — $ 26,427
Marketable securities 13,224 1,464 — 14,688
Ford Credit finance receivables, net — 42,572 — 42,572
Trade and other receivables, net 5,966 9,163 — 15,129
Inventories 18,326 — — 18,326
Other assets 2,788 1,431 — 4,219
Receivable from other segments 397 1,832 (2,229) —
Total current assets 56,477 67,113 (2,229) 121,361
Ford Credit finance receivables, net — 53,434 — 53,434
Net investment in operating leases 1,057 20,358 — 21,415
Net property 39,112 258 — 39,370
Equity in net assets of affiliated companies 4,277 126 — 4,403
Deferred income taxes 15,509 153 — 15,662
Other assets 11,285 1,143 — 12,428
Receivable from other segments — 30 (30) —
Total assets $ 127,717 $ 142,615 $ (2,259) $ 268,073
Liabilities
Payables $ 26,808 $ 1,005 $ — $ 27,813
Other liabilities and deferred revenue 20,915 2,902 — 23,817
Debt payable within one year 437 48,201 — 48,638
Payable to other segments 2,228 1 (2,229) —
Total current liabilities 50,388 52,109 (2,229) 100,268
Other liabilities and deferred revenue 25,582 2,269 — 27,851
Long-term debt 19,333 74,691 — 94,024
Deferred income taxes 733 921 — 1,654
Payable to other segments 30 — (30) —
Total liabilities $ 96,066 $ 129,990 $ (2,259) $ 223,797
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Selected Other Information.
Equity. 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):
Increase/
(Decrease)
Net income/(loss) $ 4.9
Shareholder distributions (4.5)
Other comprehensive income/(loss), net 0.4
Common stock issued (including share-based compensation impacts) 0.3
Other (0.1)
Total $ 1.0
U.S. Sales by Type. The following table shows third quarter 2023 U.S. sales volume and U.S. wholesales segregated by electric, hybrid, and internal combustion vehicles. U.S. sales volume represents primarily sales by dealers, sales to the government, and leases to Ford management, and is based, in part, on estimated vehicle registrations and includes medium and heavy trucks.
U.S. Sales U.S. Wholesales
Electric Vehicles 20,962 30,126
Hybrid Vehicles 34,861 37,923
Internal Combustion Vehicles 444,681 434,230
Total Vehicles 500,504 502,279
ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED
For a discussion of recent accounting standards, see Note 2 of the Notes to the Financial Statements.
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