FORD MOTOR CO 10-Q

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 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 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 and other components necessary for the production of electric vehicles, Ford has entered into and may, in the future, enter into multi-year commitments to raw material and other suppliers that subject Ford to risks associated with lower future demand for such items 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 recall campaigns, increased warranty costs, or delays in new model launches, and the time it takes to improve the quality of our vehicles and services could continue to have an adverse effect on our business; • Ford may not realize the anticipated benefits of existing or pending strategic alliances, joint ventures, acquisitions, divestitures, or business strategies; • Ford may not realize the anticipated benefits of restructuring actions and such actions may cause Ford to incur significant charges, disrupt our operations, or harm our reputation; • Operational information systems, security systems, vehicles, and services could be affected by cybersecurity 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, public health issues, natural or man-made disasters, adverse effects of climate change, financial distress, production difficulties, capacity limitations, or other factors; • Failure to develop and deploy secure digital services that appeal to customers could have a negative impact on Ford’s business; • Ford’s ability to maintain a competitive cost structure could be affected by labor or other constraints; • Ford’s ability to attract, develop, grow, and reward talent 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 and supply chain, Ford’s results and operations 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, public health emergency, 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, particularly for electric vehicles; • 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, data protection, and artificial intelligence 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. 56 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 2023 Form 10-K Report, as updated by our subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. 57 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. 58 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. 59 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 2023 2024 2023 2024 Net income/(loss) attributable to Ford (GAAP) $ 1,199 $ 892 $ 4,873 $ 4,055 Income/(Loss) attributable to noncontrolling interests (26) 4 (21) 8 Net income/(loss) $ 1,173 $ 896 $ 4,852 $ 4,063 Less: (Provision for)/Benefit from income taxes (214) 27 (982) (856) Income/(Loss) before income taxes $ 1,387 $ 869 $ 5,834 $ 4,919 Less: Special items pre-tax (487) (1,409) (2,593) (2,331) Income/(Loss) before special items pre-tax $ 1,874 $ 2,278 $ 8,427 $ 7,250 Less: Interest on debt (324) (272) (936) (820) Adjusted EBIT (Non-GAAP) $ 2,198 $ 2,550 $ 9,363 $ 8,070 Memo: Revenue ($B) $ 43.8 $ 46.2 $ 130.2 $ 136.8 Net income/(loss) margin (GAAP) (%) 2.7 % 1.9 % 3.7 % 3.0 % Adjusted EBIT margin (Non-GAAP) (%) 5.0 % 5.5 % 7.2 % 5.9 % Earnings per Share Reconciliation to Adjusted Earnings per Share Third Quarter First Nine Months 2023 2024 2023 2024 Diluted After-Tax Results ($M) Diluted after-tax results (GAAP) $ 1,199 $ 892 $ 4,873 $ 4,055 Less: Impact of pre-tax and tax special items (a) (376) (1,066) (2,098) (1,798) Adjusted net income/(loss) – diluted (Non-GAAP) $ 1,575 $ 1,958 $ 6,971 $ 5,853 Basic and Diluted Shares (M) Basic shares (average shares outstanding) 4,004 3,976 3,999 3,980 Net dilutive options, unvested restricted stock units, unvested restricted stock shares, and convertible debt 46 42 41 40 Diluted shares 4,050 4,018 4,040 4,020 Earnings/(Loss) per share – diluted (GAAP) $ 0.30 $ 0.22 $ 1.21 $ 1.01 Less: Net impact of adjustments (0.09) (0.27) (0.52) (0.45) Adjusted earnings/(loss) per share – diluted (Non-GAAP) $ 0.39 $ 0.49 $ 1.73 $ 1.46 _________ (a) Includes adjustment for noncontrolling interest in the third quarter and first nine months of 2023. 60 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 2023 2024 2023 2024 Memo: FY 2023 Pre-Tax Results ($M) Income/(Loss) before income taxes (GAAP) $ 1,387 $ 869 $ 5,834 $ 4,919 $ 3,967 Less: Impact of special items (487) (1,409) (2,593) (2,331) (5,147) Adjusted earnings before taxes (Non-GAAP) $ 1,874 $ 2,278 $ 8,427 $ 7,250 $ 9,114 Taxes ($M) (Provision for)/Benefit from income taxes (GAAP) (a) $ (214) $ 27 $ (982) $ (856) $ 362 Less: Impact of special items (b) 87 343 408 533 1,273 Adjusted (provision for)/benefit from income taxes (Non-GAAP) $ (301) $ (316) $ (1,390) $ (1,389) $ (911) Tax Rate (%) Effective tax rate (GAAP) 15.4 % (3.1) % 16.8 % 17.4 % (9.1) % Adjusted effective tax rate (Non-GAAP) 16.1 % 13.9 % 16.5 % 19.2 % 10.0 % _________ (a) Full Year 2023 reflects benefits from U.S. research tax credits and legal entity restructuring within our leasing operations and China. (b) Full Year 2023 reflects benefits from China legal entity restructuring. Net Cash Provided by/(Used in) Operating Activities Reconciliation to Company Adjusted Free Cash Flow ($M) Third Quarter First Nine Months 2023 2024 2023 2024 Net cash provided by/(used in) operating activities (GAAP) $ 4,591 $ 5,502 $ 12,426 $ 12,395 Less: Items not included in Company Adjusted Free Cash Flows Ford Credit operating cash flows $ 1,800 $ 1,296 $ 3,007 $ 3,162 Funded pension contributions (190) (334) (424) (967) Restructuring (including separations) (a) (297) (226) (496) (691) Ford Credit tax payments/(refunds) under tax sharing agreement — — (5) (33) Other, net (151) 14 (364) (590) Add: Items included in Company Adjusted Free Cash Flows Company excluding Ford Credit capital spending $ (2,191) $ (1,970) $ (5,878) $ (6,121) Ford Credit distributions — 175 — 325 Settlement of derivatives (13) 230 7 227 Company adjusted free cash flow (Non-GAAP) $ 1,225 $ 3,187 $ 4,837 $ 5,945 _________ (a) Restructuring excludes cash flows reported in investing activities. 61 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 Income Statement Information. The following table provides supplemental income statement information (in millions): For the period ended September 30, 2024 Third Quarter Company excluding Ford Credit Ford Credit Consolidated Revenues $ 43,069 $ 3,127 $ 46,196 Total costs and expenses 42,624 2,692 45,316 Operating income/(loss) 445 435 880 Interest expense on Company debt excluding Ford Credit 272 — 272 Other income/(loss), net 15 99 114 Equity in net income/(loss) of affiliated companies 137 10 147 Income/(Loss) before income taxes 325 544 869 Provision for/(Benefit from) income taxes (78) 51 (27) Net income/(loss) 403 493 896 Less: Income/(Loss) attributable to noncontrolling interests 4 — 4 Net income/(loss) attributable to Ford Motor Company $ 399 $ 493 $ 892 For the period ended September 30, 2024 First Nine Months Company excluding Ford Credit Ford Credit Consolidated Revenues $ 127,770 $ 9,011 $ 136,781 Total costs and expenses 124,643 8,150 132,793 Operating income/(loss) 3,127 861 3,988 Interest expense on Company debt excluding Ford Credit 820 — 820 Other income/(loss), net 916 324 1,240 Equity in net income/(loss) of affiliated companies 483 28 511 Income/(Loss) before income taxes 3,706 1,213 4,919 Provision for/(Benefit from) income taxes 625 231 856 Net income/(loss) 3,081 982 4,063 Less: Income/(Loss) attributable to noncontrolling interests 8 — 8 Net income/(loss) attributable to Ford Motor Company $ 3,073 $ 982 $ 4,055 62 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, 2024 Assets Company excluding Ford Credit Ford Credit Eliminations Consolidated Cash and cash equivalents $ 14,978 $ 8,471 $ — $ 23,449 Marketable securities 12,729 727 — 13,456 Ford Credit finance receivables, net — 49,340 — 49,340 Trade and other receivables, net 5,812 10,657 — 16,469 Inventories 18,025 — — 18,025 Other assets 3,147 1,213 — 4,360 Receivable from other segments 897 2,275 (3,172) — Total current assets 55,588 72,683 (3,172) 125,099 Ford Credit finance receivables, net — 59,889 — 59,889 Net investment in operating leases 1,229 21,160 — 22,389 Net property 40,863 306 — 41,169 Equity in net assets of affiliated companies 7,890 139 — 8,029 Deferred income taxes 17,024 189 3 17,216 Other assets 11,218 2,038 — 13,256 Receivable from other segments 79 12 (91) — Total assets $ 133,891 $ 156,416 $ (3,260) $ 287,047 Liabilities Payables $ 26,501 $ 923 $ — $ 27,424 Other liabilities and deferred revenue 25,358 2,690 — 28,048 Debt payable within one year 1,526 52,038 — 53,564 Payable to other segments 3,090 82 (3,172) — Total current liabilities 56,475 55,733 (3,172) 109,036 Other liabilities and deferred revenue 27,393 1,584 — 28,977 Long-term debt 19,071 84,623 — 103,694 Deferred income taxes 630 368 3 1,001 Payable to other segments 12 79 (91) — Total liabilities $ 103,581 $ 142,387 $ (3,260) $ 242,708 63 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Selected Cash Flow Information. The following tables provide supplemental cash flow information (in millions): For the period ended September 30, 2024 First Nine Months Cash flows from operating activities Company excluding Ford Credit Ford Credit Eliminations Consolidated Net income/(loss) $ 3,081 $ 982 $ — $ 4,063 Depreciation and tooling amortization 3,780 1,856 — 5,636 Other amortization 36 (1,255) — (1,219) Provision for credit and insurance losses 7 426 — 433 Pension and OPEB expense/(income) 689 — — 689 Equity method investment dividends received in excess of (earnings)/losses and impairments (198) (18) — (216) Foreign currency adjustments 395 (99) — 296 Net realized and unrealized (gains)/losses on cash equivalents, marketable securities, and other investments 44 (19) — 25 Stock compensation 390 14 — 404 Provision for/(Benefit from) deferred income taxes (357) 28 — (329) Decrease/(Increase) in finance receivables (wholesale and other) — (2,739) — (2,739) Decrease/(Increase) in intersegment receivables/payables 367 (367) — — Decrease/(Increase) in accounts receivable and other assets (1,722) (324) — (2,046) Decrease/(Increase) in inventory (2,338) — — (2,338) Increase/(Decrease) in accounts payable and accrued and other liabilities 8,977 409 — 9,386 Other 243 107 — 350 Interest supplements and residual value support to Ford Credit (4,161) 4,161 — — Net cash provided by/(used in) operating activities $ 9,233 $ 3,162 $ — $ 12,395 Cash flows from investing activities Capital spending $ (6,121) $ (65) $ — $ (6,186) Acquisitions of finance receivables and operating leases — (44,942) — (44,942) Collections of finance receivables and operating leases — 33,855 — 33,855 Purchases of marketable and other investments (8,333) (168) — (8,501) Sales and maturities of marketable securities and other investments 10,362 249 — 10,611 Settlements of derivatives 227 (401) — (174) Capital contributions to equity method investments (2,200) — — (2,200) Other 28 — — 28 Investing activity (to)/from other segments 325 4 (329) — Net cash provided by/(used in) investing activities $ (5,712) $ (11,468) $ (329) $ (17,509) Cash flows from financing activities Cash payments for dividends and dividend equivalents $ (2,522) $ — $ — $ (2,522) Purchases of common stock (276) — — (276) Net changes in short-term debt 287 (1,520) — (1,233) Proceeds from issuance of long-term debt 106 43,473 — 43,579 Payments of long-term debt (110) (35,453) — (35,563) Other (173) (117) — (290) Financing activity to/(from) other segments (4) (325) 329 — Net cash provided by/(used in) financing activities $ (2,692) $ 6,058 $ 329 $ 3,695 Effect of exchange rate changes on cash, cash equivalents, and restricted cash $ 3 $ 32 $ — $ 35 64 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Selected Other Information. Equity. At September 30, 2024, total equity attributable to Ford was $44.3 billion, an increase of $1.5 billion compared with December 31, 2023. The detail for this change is shown below (in billions): Increase/ (Decrease) Net income/(loss) $ 4.0 Shareholder distributions (2.8) Other comprehensive income/(loss), net — Common stock issued (including share-based compensation impacts) 0.3 Total $ 1.5 U.S. Sales by Type. The following table shows third quarter 2024 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 23,509 17,390 Hybrid Vehicles 48,101 54,023 Internal Combustion Vehicles 432,429 455,042 Total Vehicles 504,039 526,455 ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED For a discussion of recent accounting standards, see Note 2 of the Notes to the Financial Statements. 65