☑Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2023
or
☐Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from __________ to __________
Commission file number 1-3950
Ford Motor Company
(Exact name of Registrant as specified in its charter)
Delaware
38-0549190
(State of incorporation)
(I.R.S. Employer Identification No.)
One American Road
Dearborn,
Michigan
48126
(Address of principal executive offices)
(Zip code)
313-322-3000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbols
Name of each exchange on which registered
Common Stock, par value $.01 per share
F
New York Stock Exchange
6.200% Notes due June 1, 2059
FPRB
New York Stock Exchange
6.000% Notes due December 1, 2059
FPRC
New York Stock Exchange
6.500% Notes due August 15, 2062
FPRD
New York Stock Exchange
Indicate by check mark if the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ☑ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
As of July 24, 2023, Ford had outstanding 3,931,373,526 shares of Common Stock and 70,852,076 shares of Class B Stock.
Provision for/(Benefit from) credit and insurance losses
(107)
212
Pension and other postretirement employee benefits (“OPEB”) expense/(income) (Note 13)
(400)
612
Equity method investment dividends received in excess of (earnings)/losses and impairments
171
142
Foreign currency adjustments
60
(97)
Net realized and unrealized (gains)/losses on cash equivalents, marketable securities, and other investments (Note 4)
7,974
163
Net (gain)/loss on changes in investments in affiliates (Note 4)
146
(17)
Stock compensation
170
238
Provision for/(Benefit from) deferred income taxes
(1,160)
3
Decrease/(Increase) in finance receivables (wholesale and other)
(4,611)
(1,473)
Decrease/(Increase) in accounts receivable and other assets
(1,856)
(1,793)
Decrease/(Increase) in inventory
(2,507)
(3,354)
Increase/(Decrease) in accounts payable and accrued and other liabilities
3,180
6,134
Other
118
165
Net cash provided by/(used in) operating activities
1,863
7,835
Cash flows from investing activities
Capital spending
(3,069)
(3,729)
Acquisitions of finance receivables and operating leases
(20,749)
(26,231)
Collections of finance receivables and operating leases
24,139
22,517
Purchases of marketable securities and other investments
(8,065)
(4,860)
Sales and maturities of marketable securities and other investments
11,257
7,584
Settlements of derivatives
156
(32)
Capital contributions to equity method investments
(36)
(1,047)
Other
509
(359)
Net cash provided by/(used in) investing activities
4,142
(6,157)
Cash flows from financing activities
Cash payments for dividends and dividend equivalents
(807)
(3,794)
Purchases of common stock
—
—
Net changes in short-term debt
595
(658)
Proceeds from issuance of long-term debt
18,868
26,401
Payments of long-term debt
(24,697)
(22,213)
Other
(199)
(197)
Net cash provided by/(used in) financing activities
(6,240)
(461)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
(368)
66
Net increase/(decrease) in cash, cash equivalents, and restricted cash
$
(603)
$
1,283
Cash, cash equivalents, and restricted cash at beginning of period (Note 7)
$
20,737
$
25,340
Net increase/(decrease) in cash, cash equivalents, and restricted cash
(603)
1,283
Cash, cash equivalents, and restricted cash at end of period (Note 7)
$
20,134
$
26,623
The accompanying notes are part of the consolidated financial statements.
1
Item 1. Financial Statements (continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(in millions, except per share amounts)
For the periods ended June 30,
2022
2023
2022
2023
Second Quarter
First Half
(unaudited)
Revenues
Company excluding Ford Credit
$
37,934
$
42,427
$
70,129
$
81,512
Ford Credit
2,256
2,527
4,537
4,916
Total revenues (Note 3)
40,190
44,954
74,666
86,428
Costs and expenses
Cost of sales
33,191
37,471
62,227
72,140
Selling, administrative, and other expenses
2,759
2,750
5,499
5,256
Ford Credit interest, operating, and other expenses
1,372
2,272
2,729
4,458
Total costs and expenses
37,322
42,493
70,455
81,854
Operating income/(loss)
2,868
2,461
4,211
4,574
Interest expense on Company debt excluding Ford Credit
312
304
620
612
Other income/(loss), net (Note 4)
(1,823)
255
(6,673)
479
Equity in net income/(loss) of affiliated companies
58
(124)
25
6
Income/(Loss) before income taxes
791
2,288
(3,057)
4,447
Provision for/(Benefit from) income taxes
153
272
(576)
768
Net income/(loss)
638
2,016
(2,481)
3,679
Less: Income/(Loss) attributable to noncontrolling interests
(29)
99
(38)
5
Net income/(loss) attributable to Ford Motor Company
$
667
$
1,917
$
(2,443)
$
3,674
EARNINGS/(LOSS) PER SHARE ATTRIBUTABLE TO FORD MOTOR COMPANY COMMON AND CLASS B STOCK (Note 6)
Basic income/(loss)
$
0.17
$
0.48
$
(0.61)
$
0.92
Diluted income/(loss)
0.16
0.47
(0.61)
0.91
Weighted-average shares used in computation of earnings/(loss) per share
Basic shares
4,021
4,003
4,014
3,996
Diluted shares
4,052
4,041
4,014
4,035
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
For the periods ended June 30,
2022
2023
2022
2023
Second Quarter
First Half
(unaudited)
Net income/(loss)
$
638
$
2,016
$
(2,481)
$
3,679
Other comprehensive income/(loss), net of tax (Note 18)
Foreign currency translation
(1,018)
278
(872)
771
Marketable securities
(83)
(44)
(336)
66
Derivative instruments
(94)
(369)
50
(424)
Pension and other postretirement benefits
12
3
20
6
Total other comprehensive income/(loss), net of tax
(1,183)
(132)
(1,138)
419
Comprehensive income/(loss)
(545)
1,884
(3,619)
4,098
Less: Comprehensive income/(loss) attributable to noncontrolling interests
(33)
103
(42)
9
Comprehensive income/(loss) attributable to Ford Motor Company
$
(512)
$
1,781
$
(3,577)
$
4,089
The accompanying notes are part of the consolidated financial statements.
2
Item 1. Financial Statements (continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions)
December 31, 2022
June 30, 2023
(unaudited)
ASSETS
Cash and cash equivalents (Note 7)
$
25,134
$
26,406
Marketable securities (Note 7)
18,936
16,415
Ford Credit finance receivables, net of allowance for credit losses of $255 and $260 (Note 8)
38,720
42,557
Trade and other receivables, less allowances of $105 and $101
15,729
14,482
Inventories (Note 9)
14,080
17,703
Other assets
3,877
4,149
Total current assets
116,476
121,712
Ford Credit finance receivables, net of allowance for credit losses of $590 and $613 (Note 8)
49,903
52,567
Net investment in operating leases
22,772
21,662
Net property
37,265
38,503
Equity in net assets of affiliated companies
2,798
3,578
Deferred income taxes
15,552
15,860
Other assets
11,118
12,109
Total assets
$
255,884
$
265,991
LIABILITIES
Payables
$
25,605
$
27,749
Other liabilities and deferred revenue (Note 12 and Note 20)
21,097
23,925
Debt payable within one year (Note 14)
Company excluding Ford Credit
730
410
Ford Credit
49,434
48,931
Total current liabilities
96,866
101,015
Other liabilities and deferred revenue (Note 12 and Note 20)
25,497
25,754
Long-term debt (Note 14)
Company excluding Ford Credit
19,200
19,169
Ford Credit
69,605
74,726
Deferred income taxes
1,549
1,721
Total liabilities
212,717
222,385
EQUITY
Common Stock, par value $0.01 per share (4,084 million shares issued of 6 billion authorized)
41
41
Class B Stock, par value $0.01 per share (71 million shares issued of 530 million authorized)
1
1
Capital in excess of par value of stock
22,832
23,029
Retained earnings
31,754
31,577
Accumulated other comprehensive income/(loss) (Note 18)
(9,339)
(8,924)
Treasury stock
(2,047)
(2,047)
Total equity attributable to Ford Motor Company
43,242
43,677
Equity attributable to noncontrolling interests
(75)
(71)
Total equity
43,167
43,606
Total liabilities and equity
$
255,884
$
265,991
The following table includes assets to be used to settle liabilities of the consolidated variable interest entities (“VIEs”). These assets and liabilities are included in the consolidated balance sheets above.
December 31, 2022
June 30, 2023
(unaudited)
ASSETS
Cash and cash equivalents
$
2,274
$
2,421
Ford Credit finance receivables, net
49,142
52,504
Net investment in operating leases
12,545
8,929
Other assets
264
279
LIABILITIES
Other liabilities and deferred revenue
$
2
$
—
Debt
45,451
47,891
The accompanying notes are part of the consolidated financial statements.
3
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(in millions, unaudited)
Equity Attributable to Ford Motor Company
Capital Stock
Cap. in Excess of Par Value of Stock
Retained Earnings
Accumulated Other Comprehensive Income/(Loss) (Note 18)
Treasury Stock
Total
Equity Attributable to Non-controlling Interests
Total Equity
Balance at December 31, 2021
$
41
$
22,611
$
35,769
$
(8,339)
$
(1,563)
$
48,519
$
103
$
48,622
Net income/(loss)
—
—
(3,110)
—
—
(3,110)
(9)
(3,119)
Other comprehensive income/(loss), net
—
—
—
45
—
45
—
45
Common Stock issued (a)
1
(61)
—
—
—
(60)
—
(60)
Treasury stock/other
—
—
—
—
(1)
(1)
5
4
Dividends and dividend equivalents declared ($0.10 per share) (b)
—
—
(408)
—
—
(408)
—
(408)
Balance at March 31, 2022
$
42
$
22,550
$
32,251
$
(8,294)
$
(1,564)
$
44,985
$
99
$
45,084
Net income/(loss)
—
—
667
—
—
667
(29)
638
Other comprehensive income/(loss), net
—
—
—
(1,179)
—
(1,179)
(4)
(1,183)
Common Stock issued (a)
—
103
—
—
—
103
—
103
Treasury stock/other
—
—
—
—
—
—
2
2
Dividends and dividend equivalents declared ($0.10 per share) (b)
—
—
(407)
—
—
(407)
—
(407)
Balance at June 30, 2022
$
42
$
22,653
$
32,511
$
(9,473)
$
(1,564)
$
44,169
$
68
$
44,237
Balance at December 31, 2022
$
42
$
22,832
$
31,754
$
(9,339)
$
(2,047)
$
43,242
$
(75)
$
43,167
Net income/(loss)
—
—
1,757
—
—
1,757
(94)
1,663
Other comprehensive income/(loss), net
—
—
—
551
—
551
—
551
Common Stock issued (a)
—
57
—
—
—
57
—
57
Treasury stock/other
—
—
—
—
—
—
—
—
Dividends and dividend equivalents declared ($0.80 per share) (b)
—
—
(3,241)
—
—
(3,241)
—
(3,241)
Balance at March 31, 2023
$
42
$
22,889
$
30,270
$
(8,788)
$
(2,047)
$
42,366
$
(169)
$
42,197
Net income/(loss)
—
—
1,917
—
—
1,917
99
2,016
Other comprehensive income/(loss), net
—
—
—
(136)
—
(136)
4
(132)
Common Stock issued (a)
—
140
—
—
—
140
—
140
Treasury stock/other
—
—
—
—
—
—
(5)
(5)
Dividends and dividend equivalents declared ($0.15 per share) (b)
—
—
(610)
—
—
(610)
—
(610)
Balance at June 30, 2023
$
42
$
23,029
$
31,577
$
(8,924)
$
(2,047)
$
43,677
$
(71)
$
43,606
__________
(a)Includes impact of share-based compensation.
(b)Dividends and dividend equivalents declared for Common and Class B Stock. In the first quarter of 2023, in addition to a regular dividend of $0.15 per share, we declared a supplemental dividend of $0.65 per share.
The accompanying notes are part of the consolidated financial statements.
For purposes of this report, “Ford,” the “Company,” “we,” “our,” “us,” or similar references mean Ford Motor Company, our consolidated subsidiaries, and our consolidated VIEs of which we are the primary beneficiary, unless the context requires otherwise. We also make reference to Ford Motor Credit Company LLC, herein referenced to as Ford Credit. Our consolidated financial statements are presented in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information, instructions to the Quarterly Report on Form 10-Q, and Rule 10-01 of Regulation S-X. We reclassified certain prior year amounts in our consolidated financial statements to conform to the current year presentation.
In the opinion of management, these unaudited financial statements include all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of our results of operations and financial condition for the periods, and at the dates, presented. The results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. Reference should be made to the financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2022 (“2022 Form 10-K Report”).
NOTE 2. NEW ACCOUNTING STANDARDS
Adoption of New Accounting Standards
Accounting Standards Update (“ASU”) 2022-02, Financial Instruments – Credit Losses, Troubled Debt Restructurings and Vintage Disclosures. Effective January 1, 2023, we adopted the new standard, which eliminates the troubled debt recognition and measurement guidance and requires disclosure of current period gross charge-offs by year of origination (vintage disclosure). Adoption of the new standard did not have a material impact to our consolidated financial statements or financial statement disclosures.
ASU 2022-04, Liabilities – Supplier Finance Programs, Disclosure of Supplier Finance Program Obligations. Effective January 1, 2023, we adopted the new standard, which requires that entities that use supplier finance programs disclose information about the nature and potential magnitude of the programs, activity during the period, and changes from period to period.
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. The outstanding amount of Ford receivables that suppliers elected to sell to the SCF financial institutions, reported in Payables, was $253 million and $269 million at December 31, 2022 and June 30, 2023, respectively. The amount settled through the SCF program during the second quarter and first halfof 2023 was $485 million and $937 million, respectively.
We also adopted the following ASUs during 2023, none of which had a material impact to our consolidated financial statements or financial statement disclosures:
ASU
Effective Date
2022-01
Derivatives and Hedging – Fair Value Hedging – Portfolio Layer Hedging
January 1, 2023
2022-03
Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions
January 1, 2023
2018-12
Targeted Improvements to the Accounting for Long Duration Contracts (and related amendments)
January 1, 2023
Accounting Standards Issued But Not Yet Adopted
ASUs issued but not yet adopted were assessed and determined to be not applicable or are not expected to have a material impact on our consolidated financial statements or financial statement disclosures.
6
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 3. REVENUE
The following tables disaggregate our revenue by major source for the periods ended June 30 (in millions):
Second Quarter 2022
Company excluding Ford Credit
Ford Credit
Consolidated
Vehicles, parts, and accessories
$
36,831
$
—
$
36,831
Used vehicles
373
—
373
Services and other revenue (a)
677
52
729
Revenues from sales and services
37,881
52
37,933
Leasing income
53
1,166
1,219
Financing income
—
1,026
1,026
Insurance income
—
12
12
Total revenues
$
37,934
$
2,256
$
40,190
Second Quarter 2023
Company excluding Ford Credit
Ford Credit
Consolidated
Vehicles, parts, and accessories
$
41,241
$
—
$
41,241
Used vehicles
457
—
457
Services and other revenue (a)
683
49
732
Revenues from sales and services
42,381
49
42,430
Leasing income
46
1,029
1,075
Financing income
—
1,426
1,426
Insurance income
—
23
23
Total revenues
$
42,427
$
2,527
$
44,954
First Half 2022
Company excluding Ford Credit
Ford Credit
Consolidated
Vehicles, parts, and accessories
$
67,822
$
—
$
67,822
Used vehicles
802
—
802
Services and other revenue (a)
1,399
71
1,470
Revenues from sales and services
70,023
71
70,094
Leasing income
106
2,377
2,483
Financing income
—
2,066
2,066
Insurance income
—
23
23
Total revenues
$
70,129
$
4,537
$
74,666
First Half 2023
Company excluding Ford Credit
Ford Credit
Consolidated
Vehicles, parts, and accessories
$
79,168
$
—
$
79,168
Used vehicles
926
—
926
Services and other revenue (a)
1,328
66
1,394
Revenues from sales and services
81,422
66
81,488
Leasing income
90
2,078
2,168
Financing income
—
2,727
2,727
Insurance income
—
45
45
Total revenues
$
81,512
$
4,916
$
86,428
__________
(a)Includes extended service contract revenue.
7
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 3. REVENUE (Continued)
The amount of consideration we receive and revenue we recognize on our vehicles, parts, and accessories varies with changes in return rights and marketing incentives we offer to our customers and their customers. Estimates of marketing incentives are based on expected retail and fleet sales volumes, mix of products to be sold, and incentive programs to be offered. Customer acceptance of products and programs, as well as other market conditions, will impact these estimates. As a result of changes in our estimate of marketing incentives, we recorded an increase of $152 million in the second quarter of 2022 and a decrease of $3 million in the second quarter of 2023 related to revenue recognized in prior periods.
We had a balance of $4.4 billion and $4.6 billion of unearned revenue associated primarily with outstanding extended service contracts reported in Other liabilities and deferred revenue at December 31, 2022 and June 30, 2023, respectively. We expect to recognize approximately $800 million of the unearned amount in the remainder of 2023, $1.3 billion in 2024, and $2.5 billion thereafter. We recognized $352 million and $374 million of unearned amounts from prior years as revenue during the second quarter of 2022 and 2023, respectively, and $717 million and $754 million in the first half of 2022 and 2023, respectively.
Amounts paid to dealers to obtain extended service contracts are deferred and recorded as Other assets. We had a balance of $315 million and $320 million in deferred costs as of December 31, 2022 and June 30, 2023, respectively. We recognized $22 million and $25 million of amortization during the second quarter of 2022 and 2023, respectively, and $44 million and $51 million in the first half of 2022 and 2023, respectively.
8
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 4. OTHER INCOME/(LOSS)
The amounts included in Other income/(loss), net for the periods ended June 30 were as follows (in millions):
Second Quarter
First Half
2022
2023
2022
2023
Net periodic pension and OPEB income/(cost), excluding service cost (Note 13)
$
430
$
(167)
$
889
$
(332)
Investment-related interest income
89
372
150
720
Interest income/(expense) on income taxes
2
(2)
7
(6)
Realized and unrealized gains/(losses) on cash equivalents, marketable securities, and other investments (a)
(2,520)
(112)
(7,974)
(163)
Gains/(Losses) on changes in investments in affiliates
(21)
13
(146)
17
Royalty income
111
127
255
230
Other
86
24
146
13
Total
$
(1,823)
$
255
$
(6,673)
$
479
__________
(a) Includes a $2.4 billion loss and a $6 million loss on our Rivian investment in the second quarter of 2022 and 2023, respectively, and a $7.9 billion loss and a $31 million loss in the first half of 2022 and 2023, respectively.
NOTE 5. INCOME TAXES
For interim tax reporting, we estimate one single effective tax rate for tax jurisdictions not subject to a valuation allowance, which is applied to the year-to-date ordinary income/(loss). Tax effects of significant unusual or infrequently occurring items are excluded from the estimated annual effective tax rate calculation and recognized in the interim period in which they occur.
NOTE 6. CAPITAL STOCK AND EARNINGS/(LOSS) PER SHARE
Earnings/(Loss) Per Share Attributable to Ford Motor Company Common and Class B Stock
Basic and diluted earnings/(loss) per share were calculated using the following (in millions):
Second Quarter
First Half
2022
2023
2022
2023
Net income/(loss) attributable to Ford Motor Company
$
667
$
1,917
$
(2,443)
$
3,674
Basic and Diluted Shares
Basic shares (average shares outstanding)
4,021
4,003
4,014
3,996
Net dilutive options, unvested restricted stock units, unvested restricted stock shares, and convertible debt (a)
31
38
—
39
Diluted shares
4,052
4,041
4,014
4,035
__________
(a) In the first half of 2022, there were 43 million shares excluded from the calculation of diluted earnings/(loss) per share, due to their anti-dilutive effect.
9
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 7. CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES
The fair values of cash, cash equivalents, and marketable securities measured at fair value on a recurring basis were as follows (in millions):
December 31, 2022
Fair Value Level
Company excluding Ford Credit
Ford Credit
Consolidated
Cash and cash equivalents
U.S. government
1
$
3,295
$
1,045
$
4,340
U.S. government agencies
2
2,245
150
2,395
Non-U.S. government and agencies
2
1,048
199
1,247
Other cash equivalents
2
10
—
10
Corporate debt
2
593
792
1,385
Total marketable securities classified as cash equivalents
7,191
2,186
9,377
Cash, time deposits, and money market funds
7,550
8,207
15,757
Total cash and cash equivalents
$
14,741
$
10,393
$
25,134
Marketable securities
U.S. government
1
$
4,947
$
187
$
5,134
U.S. government agencies
2
2,641
221
2,862
Non-U.S. government and agencies
2
2,625
658
3,283
Corporate debt
2
6,755
266
7,021
Equities (a)
1
223
—
223
Other marketable securities
2
252
161
413
Total marketable securities
$
17,443
$
1,493
$
18,936
Restricted cash
$
79
$
127
$
206
June 30, 2023
Fair Value Level
Company excluding Ford Credit
Ford Credit
Consolidated
Cash and cash equivalents
U.S. government
1
$
4,038
$
1,252
$
5,290
U.S. government agencies
2
3,055
650
3,705
Non-U.S. government and agencies
2
902
441
1,343
Corporate debt
2
539
756
1,295
Total marketable securities classified as cash equivalents
8,534
3,099
11,633
Cash, time deposits, and money market funds
6,411
8,362
14,773
Total cash and cash equivalents
$
14,945
$
11,461
$
26,406
Marketable securities
U.S. government
1
$
4,612
$
281
$
4,893
U.S. government agencies
2
2,361
319
2,680
Non-U.S. government and agencies
2
2,307
577
2,884
Corporate debt
2
5,245
271
5,516
Equities (a)
1
29
—
29
Other marketable securities
2
255
158
413
Total marketable securities
$
14,809
$
1,606
$
16,415
Restricted cash
$
86
$
131
$
217
__________
(a)Includes $194 million of Rivian common shares valued at $18.43 per share as of December 31, 2022. In the second quarter of 2023, we sold the remaining 9.5 million of our Rivian common shares for about $141 million in total proceeds. Net unrealized gains/losses recognized during full year 2022 and the first half of 2023 on all equity securities held at December 31, 2022 and June 30, 2023 were a $968 million loss and de minimis, respectively.
10
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 7. CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES (Continued)
The cash equivalents and marketable securities accounted for as available-for-sale (“AFS”) securities were as follows (in millions):
December 31, 2022
Fair Value of Securities with Contractual Maturities
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Fair Value
Within 1 Year
After 1 Year through 5 Years
After 5 Years
Company excluding Ford Credit
U.S. government
$
4,797
$
1
$
(145)
$
4,653
$
1,008
$
3,645
$
—
U.S. government agencies
2,508
—
(119)
2,389
1,244
1,109
36
Non-U.S. government and agencies
2,248
—
(132)
2,116
294
1,810
12
Corporate debt
7,511
6
(197)
7,320
3,117
4,195
8
Other marketable securities
246
—
(9)
237
—
181
56
Total
$
17,310
$
7
$
(602)
$
16,715
$
5,663
$
10,940
$
112
June 30, 2023
Fair Value of Securities with Contractual Maturities
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Fair Value
Within 1 Year
After 1 Year through 5 Years
After 5 Years
Company excluding Ford Credit
U.S. government
$
4,483
$
—
$
(133)
$
4,350
$
1,346
$
2,995
$
9
U.S. government agencies
2,210
—
(96)
2,114
936
1,158
20
Non-U.S. government and agencies
2,265
—
(116)
2,149
409
1,728
12
Corporate debt
5,907
3
(157)
5,753
1,445
4,295
13
Other marketable securities
233
—
(8)
225
—
172
53
Total
$
15,098
$
3
$
(510)
$
14,591
$
4,136
$
10,348
$
107
Sales proceeds and gross realized gains/losses from the sale of AFS securities for the periods ended June 30 were as follows (in millions):
Second Quarter
First Half
2022
2023
2022
2023
Company excluding Ford Credit
Sales proceeds
$
1,118
$
715
$
5,122
$
1,878
Gross realized gains
1
—
7
1
Gross realized losses
9
9
15
21
11
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 7. CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES (Continued)
The present fair values and gross unrealized losses for cash equivalents and marketable securities accounted for as AFS securities that were in an unrealized loss position, aggregated by investment category and the length of time that individual securities have been in a continuous loss position, were as follows (in millions):
December 31, 2022
Less than 1 Year
1 Year or Greater
Total
Fair Value
Unrealized Losses
Fair Value
Unrealized Losses
Fair Value
Unrealized Losses
Company excluding Ford Credit
U.S. government
$
2,860
$
(52)
$
1,570
$
(93)
$
4,430
$
(145)
U.S. government agencies
707
(14)
1,658
(105)
2,365
(119)
Non-U.S. government and agencies
751
(23)
1,271
(109)
2,022
(132)
Corporate debt
4,571
(79)
1,737
(118)
6,308
(197)
Other marketable securities
123
(4)
108
(5)
231
(9)
Total
$
9,012
$
(172)
$
6,344
$
(430)
$
15,356
$
(602)
June 30, 2023
Less than 1 Year
1 Year or Greater
Total
Fair Value
Unrealized Losses
Fair Value
Unrealized Losses
Fair Value
Unrealized Losses
Company excluding Ford Credit
U.S. government
$
2,744
$
(41)
$
1,606
$
(92)
$
4,350
$
(133)
U.S. government agencies
604
(6)
1,449
(90)
2,053
(96)
Non-U.S. government and agencies
441
(7)
1,644
(109)
2,085
(116)
Corporate debt
3,289
(40)
2,103
(117)
5,392
(157)
Other marketable securities
77
(2)
144
(6)
221
(8)
Total
$
7,155
$
(96)
$
6,946
$
(414)
$
14,101
$
(510)
We determine credit losses on AFS debt securities using the specific identification method. During the second quarter of 2023, we did not recognize any credit loss. The unrealized losses on securities are due to changes in interest rates and market liquidity.
Cash, Cash Equivalents, and Restricted Cash
Cash, cash equivalents, and restricted cash, as reported in the consolidated statements of cash flows, were as follows (in millions):
December 31, 2022
June 30, 2023
Cash and cash equivalents
$
25,134
$
26,406
Restricted cash (a)
206
217
Total cash, cash equivalents, and restricted cash
$
25,340
$
26,623
__________
(a)Included in Other assetsin the non-current assets section of our consolidated balance sheets.
12
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 8. FORD CREDIT FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES
Ford Credit manages finance receivables as “consumer” and “non-consumer” portfolios. The receivables are generally secured by the vehicles, inventory, or other property being financed.
Finance receivables are recorded at the time of origination or purchase at fair value and are subsequently reported at amortized cost, net of any allowance for credit losses.
For all finance receivables, Ford Credit defines “past due” as any payment, including principal and interest, that is at least 31 days past the contractual due date.
Ford Credit finance receivables, net were as follows (in millions):
December 31, 2022
June 30, 2023
Consumer
Retail installment contracts, gross
$
66,954
$
69,920
Finance leases, gross
6,765
7,256
Retail financing, gross
73,719
77,176
Unearned interest supplements
(2,305)
(2,721)
Consumer finance receivables
71,414
74,455
Non-Consumer
Dealer financing
18,054
21,542
Non-Consumer finance receivables
18,054
21,542
Total recorded investment
$
89,468
$
95,997
Recorded investment in finance receivables
$
89,468
$
95,997
Allowance for credit losses
(845)
(873)
Total finance receivables, net
$
88,623
$
95,124
Current portion
$
38,720
$
42,557
Non-current portion
49,903
52,567
Total finance receivables, net
$
88,623
$
95,124
Net finance receivables subject to fair value (a)
$
82,200
$
88,256
Fair value (b)
79,521
85,923
__________
(a)Net finance receivables subject to fair value exclude finance leases.
(b)The fair value of finance receivables is categorized within Level 3 of the fair value hierarchy.
Ford Credit’s finance leases are comprised of sales-type and direct financing leases. Financing revenue from finance leases for the second quarter of 2022 and 2023 was $73 million and $91 million, respectively, and for the first half of 2022 and 2023 was $150 million and $174 million, respectively, and is included in Ford Credit revenues on our consolidated income statements.
At December 31, 2022 and June 30, 2023, accrued interest was $187 million and $218 million, respectively, which we report in Other assets in the current assets section of our consolidated balance sheets.
Included in the recorded investment in finance receivables at December 31, 2022 and June 30, 2023, were consumer receivables of $43.9 billion and $43.6 billion, respectively, and non-consumer receivables of $18.2 billion and $18.3 billion, respectively, (including Ford Blue, Ford Model e, and Ford Pro receivables sold to Ford Credit, which we report in Trade and other receivables) that have been sold for legal purposes in securitization transactions but continue to be reported in our consolidated financial statements. The receivables are available only for payment of the debt issued by, and other obligations of, the securitization entities that are parties to those securitization transactions; they are not available to pay the other obligations or the claims of Ford Credit’s other creditors. Ford Credit holds the right to receive the excess cash flows not needed to pay the debt issued by, and other obligations of, the securitization entities that are parties to those securitization transactions.
13
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 8. FORD CREDIT FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES (Continued)
Credit Quality
Consumer Portfolio. Credit quality ratings for consumer receivables are based on Ford Credit’s aging analysis. Consumer receivables credit quality ratings are as follows:
•Pass – current to 60 days past due;
•Special Mention – 61 to 120 days past due and in intensified collection status; and
•Substandard – greater than 120 days past due and for which the uncollectible portion of the receivables has already been charged off, as measured using the fair value of collateral less costs to sell.
The credit quality analysis of consumer receivables at December 31, 2022 was as follows (in millions):
Amortized Cost Basis by Origination Year
Prior to 2018
2018
2019
2020
2021
2022
Total
Percent
Consumer
31 - 60 days past due
$
41
$
60
$
91
$
181
$
150
$
126
$
649
0.9
%
61 - 120 days past due
9
12
20
39
40
29
149
0.2
Greater than 120 days past due
9
4
5
7
7
6
38
0.1
Total past due
59
76
116
227
197
161
836
1.2
Current
883
2,563
6,137
13,844
18,357
28,794
70,578
98.8
Total
$
942
$
2,639
$
6,253
$
14,071
$
18,554
$
28,955
$
71,414
100.0
%
The credit quality analysis of consumer receivables at June 30, 2023 was as follows (in millions):
Amortized Cost Basis by Origination Year
Prior to 2019
2019
2020
2021
2022
2023
Total
Percent
Consumer
31 - 60 days past due
$
61
$
62
$
141
$
127
$
156
$
45
$
592
0.8
%
61 - 120 days past due
11
13
32
34
44
13
147
0.2
Greater than 120 days past due
10
4
8
9
9
1
41
—
Total past due
82
79
181
170
209
59
780
1.0
Current
1,860
4,085
10,430
14,654
24,580
18,066
73,675
99.0
Total
$
1,942
$
4,164
$
10,611
$
14,824
$
24,789
$
18,125
$
74,455
100.0
%
Gross charge-offs
$
27
$
20
$
37
$
40
$
48
$
2
$
174
Non-Consumer Portfolio. The credit quality of dealer financing receivables is evaluated based on Ford Credit’s internal dealer risk rating analysis. Ford Credit uses a proprietary model to assign each dealer a risk rating. This model uses historical dealer performance data to identify key factors about a dealer that are considered most significant in predicting a dealer’s ability to meet its financial obligations. Ford Credit also considers numerous other financial and qualitative factors of the dealer’s operations, including capitalization and leverage, liquidity and cash flow, profitability, and credit history with Ford Credit and other creditors.
Dealers are assigned to one of four groups according to risk ratings as follows:
•Group I – strong to superior financial metrics;
•Group II – fair to favorable financial metrics;
•Group III – marginal to weak financial metrics; and
•Group IV – poor financial metrics, including dealers classified as uncollectible.
14
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 8. FORD CREDIT FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES (Continued)
The credit quality analysis of dealer financing receivables at December 31, 2022 was as follows (in millions):
Amortized Cost Basis by Origination Year
Wholesale Loans
Dealer Loans
Prior to 2018
2018
2019
2020
2021
2022
Total
Total
Percent
Group I
$
402
$
148
$
35
$
67
$
185
$
224
$
1,061
$
13,888
$
14,949
82.8
%
Group II
2
21
—
5
2
42
72
2,751
2,823
15.6
Group III
—
—
—
—
—
10
10
233
243
1.4
Group IV
—
—
1
—
—
3
4
35
39
0.2
Total (a)
$
404
$
169
$
36
$
72
$
187
$
279
$
1,147
$
16,907
$
18,054
100.0
%
__________
(a)Total past due dealer financing receivables at December 31, 2022 were $9 million.
The credit quality analysis of dealer financing receivables at June 30, 2023 was as follows (in millions):
Amortized Cost Basis by Origination Year
Wholesale Loans
Dealer Loans
Prior to 2019
2019
2020
2021
2022
2023
Total
Total
Percent
Group I
$
520
$
32
$
67
$
165
$
83
$
247
$
1,114
$
17,488
$
18,602
86.4
%
Group II
2
—
1
2
3
57
65
2,504
2,569
11.9
Group III
—
—
1
—
1
6
8
301
309
1.4
Group IV
—
1
—
—
—
3
4
58
62
0.3
Total (a)
$
522
$
33
$
69
$
167
$
87
$
313
$
1,191
$
20,351
$
21,542
100.0
%
Gross charge-offs
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
__________
(a)Total past due dealer financing receivables at June 30, 2023 were $4 million.
Non-Accrual of Revenue. The accrual of financing revenue is discontinued at the time a receivable is determined to be uncollectible or when it is 90 days past due. Accounts may be restored to accrual status only when a customer settles all past-due deficiency balances and future payments are reasonably assured. For receivables in non-accrual status, subsequent financing revenue is recognized only to the extent a payment is received. Payments are generally applied first to outstanding interest and then to the unpaid principal balance.
Loan Modifications.Consumer and non-consumer receivables that have a modified interest rate and/or a term extension (including receivables that were modified in reorganization proceedings pursuant to the U.S. Bankruptcy Code) are typically considered to be loan modifications. Ford Credit does not grant modifications to the principal balance of the receivables. If a receivable is modified in a reorganization proceeding, all payment requirements of the reorganization plan need to be met before remaining balances are forgiven.
The use of interest rate modifications and term extensions helps Ford Credit mitigate financial loss. Term extensions may assist in cases where Ford Credit believes the customer will recover from short-term financial difficulty and resume regularly scheduled payments. The effect of most loan modifications made to borrowers experiencing financial difficulty is included in the historical trends used to measure the allowance for credit losses. A loan modification that improves the delinquency status of a borrower reduces the probability of default, which results in a lower allowance for credit losses. At June 30, 2023, an insignificant portion of Ford Credit's total finance receivables portfolio had been granted a loan modification, and these modifications are generally treated as a continuation of the existing loan.
15
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 8. FORD CREDIT FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES (Continued)
Allowance for Credit Losses
The allowance for credit losses represents an estimate of the lifetime expected credit losses inherent in finance receivables as of the balance sheet date. The adequacy of the allowance for credit losses is assessed quarterly.
Adjustments to the allowance for credit losses are made by recording charges toFord Credit interest, operating, and other expenses on our consolidated income statements. The uncollectible portion of a finance receivable is charged to the allowance for credit losses at the earlier of when an account is deemed to be uncollectible or when an account is 120 days delinquent, taking into consideration the financial condition of the customer or borrower, the value of the collateral, recourse to guarantors, and other factors.
Charge-offs on finance receivables include uncollected amounts related to principal, interest, late fees, and other allowable charges. Recoveries on finance receivables previously charged off as uncollectible are credited to the allowance for credit losses. In the event Ford Credit repossesses the collateral, the receivable is charged off and the collateral is recorded at its estimated fair value less costs to sell and reported in Other assets on our consolidated balance sheets.
An analysis of the allowance for credit losses related to finance receivables for the periods ended June 30 was as follows (in millions):
Second Quarter 2022
First Half 2022
Consumer
Non-Consumer
Total
Consumer
Non-Consumer
Total
Allowance for credit losses
Beginning balance
$
826
$
19
$
845
$
903
$
22
$
925
Charge-offs
(61)
(1)
(62)
(123)
(1)
(124)
Recoveries
44
1
45
87
2
89
Provision for/(Benefit from) credit losses
(48)
(8)
(56)
(107)
(13)
(120)
Other (a)
(7)
(2)
(9)
(6)
(1)
(7)
Ending balance
$
754
$
9
$
763
$
754
$
9
$
763
Second Quarter 2023
First Half 2023
Consumer
Non-Consumer
Total
Consumer
Non-Consumer
Total
Allowance for credit losses
Beginning balance
$
863
$
7
$
870
$
838
$
7
$
845
Charge-offs
(78)
—
(78)
(174)
—
(174)
Recoveries
38
—
38
76
1
77
Provision for/(Benefit from) credit losses
40
—
40
118
(1)
117
Other (a)
3
—
3
8
—
8
Ending balance
$
866
$
7
$
873
$
866
$
7
$
873
__________
(a) Primarily represents amounts related to translation adjustments.
During the second quarter and first half of 2023, the allowance for credit losses increased $3 million and $28 million, respectively, driven by an increase in Ford Credit finance receivables. Net charge-offs increased from a year ago reflecting normalization from extraordinarily low levels. The impact of higher inflation and higher interest rates on future credit losses remains uncertain. Ford Credit will continue to monitor economic trends and conditions and portfolio performance and will adjust the reserve accordingly.
16
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 9. INVENTORIES
Inventories were as follows (in millions):
December 31, 2022
June 30, 2023
Raw materials, work-in-process, and supplies
$
5,997
$
6,325
Finished products
8,083
11,378
Total inventories
$
14,080
$
17,703
Our finished product inventory at June 30, 2023 was higher than at December 31, 2022, reflecting higher in-transit and in-plant inventory.
NOTE 10. OTHER INVESTMENTS
We have investments in entities not accounted for under the equity method for which fair values are not readily available. We record these investments at cost (less impairment, if any), adjusted for observable price changes in orderly transactions for the identical or a similar investment of the same issuer. We report the carrying value of these investments in Other assets in the non-current assets section of our consolidated balance sheets. These investments were $384 million and $261 million at December 31, 2022 and June 30, 2023, respectively. The cumulative net unrealized gain from adjustments related to Other Investments held at June 30, 2023 was $12 million.
NOTE 11. GOODWILL
The net carrying amount of goodwill was $603 million and $608 million at December 31, 2022 and June 30, 2023, respectively, and is reported in Other assets in the non-current assets section of our consolidated balance sheets.
17
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 12. OTHER LIABILITIES AND DEFERRED REVENUE
Other liabilities and deferred revenue were as follows (in millions):
December 31, 2022
June 30, 2023
Current
Dealer and dealers’ customer allowances and claims
$
9,219
$
11,121
Deferred revenue
2,404
2,679
Employee benefit plans
2,020
1,828
Accrued interest
935
1,050
Operating lease liabilities
404
413
OPEB (a)
329
330
Pension (a)
196
198
Other (b)
5,590
6,306
Total current other liabilities and deferred revenue
$
21,097
$
23,925
Non-current
Dealer and dealers’ customer allowances and claims
$
6,095
$
6,168
Pension (a)
5,673
5,931
OPEB (a)
4,130
4,077
Deferred revenue
4,883
4,877
Operating lease liabilities
1,101
1,201
Employee benefit plans
834
783
Other (b)
2,781
2,717
Total non-current other liabilities and deferred revenue
$
25,497
$
25,754
__________
(a)Balances at June 30, 2023 reflect pension and OPEB liabilities 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. The discount rate and rate of expected return assumptions are unchanged from year-end 2022. Included in Other assets are pension assets of $5.7 billion and $6.0 billion at December 31, 2022 and June 30, 2023, respectively.
(b)Includes current derivative liabilities of $1.3 billion and $1.5 billion at December 31, 2022 and June 30, 2023, respectively. Includes non-current derivative liabilities of $1.7 billion and $1.5 billion at December 31, 2022 and June 30, 2023, respectively (see Note 15).
18
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 13. RETIREMENT BENEFITS
Defined Benefit Plans - Expense
The pre-tax net periodic benefit cost/(income) for our defined benefit pension and OPEB plans for the periods ended June 30 were as follows (in millions):
Second Quarter
Pension Benefits
U.S. Plans
Non-U.S. Plans
Worldwide OPEB
2022
2023
2022
2023
2022
2023
Service cost
$
125
$
75
$
107
$
61
$
11
$
6
Interest cost
264
405
133
242
37
57
Expected return on assets
(643)
(480)
(259)
(223)
—
—
Amortization of prior service costs/(credits)
1
—
5
5
—
1
Net remeasurement (gain)/loss
—
81
16
8
—
—
Separation programs/other
7
10
10
57
(1)
—
Settlements and curtailments
—
3
—
1
—
—
Net periodic benefit cost/(income)
$
(246)
$
94
$
12
$
151
$
47
$
64
First Half
Pension Benefits
U.S. Plans
Non-U.S. Plans
Worldwide OPEB
2022
2023
2022
2023
2022
2023
Service cost
$
250
$
147
$
218
$
122
$
21
$
11
Interest cost
527
813
267
479
74
115
Expected return on assets
(1,285)
(966)
(527)
(442)
—
—
Amortization of prior service costs/(credits)
1
—
12
10
(1)
2
Net remeasurement (gain)/loss
—
194
16
8
—
—
Separation programs/other
11
12
17
61
(1)
—
Settlements and curtailments
—
45
—
1
—
—
Net periodic benefit cost/(income)
$
(496)
$
245
$
3
$
239
$
93
$
128
The service cost component is included in Cost of sales and Selling, administrative, and other expenses. Other components of net periodic benefit cost/(income) are included in Other income/(loss), net on our consolidated income statements.
In the second quarter and first half of 2023, we paid lump sums for two of our pension plans, which resulted in a remeasurement of $89 million and $202 million, respectively, and settlement expenses of $4 million and $46 million, respectively.
Pension Plan Contributions
During 2023, we continue to expect to contribute between $500 million and $600 million of cash to our global funded pension plans. We also expect to make about $400 million of benefit payments to participants in unfunded plans. In the first half of 2023, we contributed $234 million to our global funded pension plans and made $199 million of benefit payments to participants in unfunded plans.
19
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 14. DEBT
The carrying value of Company debt excluding Ford Credit and Ford Credit debt was as follows (in millions):
December 31, 2022
June 30, 2023
Company excluding Ford Credit
Debt payable within one year
Short-term
$
359
$
256
Long-term payable within one year
Other debt (including finance leases)
372
154
Unamortized (discount)/premium
(1)
—
Total debt payable within one year
730
410
Long-term debt payable after one year
Public unsecured debt securities
14,935
14,935
Convertible notes (a)
2,300
2,300
U.K. Export Finance Program
1,654
1,739
Other debt (including finance leases)
682
547
Unamortized (discount)/premium
(180)
(170)
Unamortized issuance costs
(191)
(182)
Total long-term debt payable after one year
19,200
19,169
Total Company excluding Ford Credit
$
19,930
$
19,579
Fair value of Company debt excluding Ford Credit (b)
$
18,557
$
19,224
Ford Credit
Debt payable within one year
Short-term
$
19,624
$
19,405
Long-term payable within one year
Unsecured debt
7,980
9,447
Asset-backed debt
21,839
20,077
Unamortized (discount)/premium
—
—
Unamortized issuance costs
(13)
(15)
Fair value adjustments (c)
4
17
Total debt payable within one year
49,434
48,931
Long-term debt payable after one year
Unsecured debt
39,620
44,377
Asset-backed debt
31,840
32,280
Unamortized (discount)/premium
23
15
Unamortized issuance costs
(184)
(231)
Fair value adjustments (c)
(1,694)
(1,715)
Total long-term debt payable after one year
69,605
74,726
Total Ford Credit
$
119,039
$
123,657
Fair value of Ford Credit debt (b)
$
117,214
$
122,954
__________
(a)As of June 30, 2023, each $1,000 principal amount of the notes will be convertible into 63.8801 shares of our Common Stock, which is equivalent to a conversion price of approximately $15.65 per share. We recognized issuance cost amortization of $2 million and $3 million during the second quarter and first half of 2022, respectively, and $2 million and $3 million during the second quarter and first half of 2023, respectively.
(b)At December 31, 2022 and June 30, 2023, the fair value of debt includes $359 million and $256 million of Company excluding Ford Credit short-term debt, respectively, and $16.9 billion and $16.2 billion of Ford Credit short-term debt, respectively, carried at cost, which approximates fair value. All other debt is categorized within Level 2 of the fair value hierarchy.
(c)These adjustments are related to hedging activity and include discontinued hedging relationship adjustments of $31 million and $(339) million at December 31, 2022 and June 30, 2023, respectively. The carrying value of hedged debt was $33.3 billion and $38.0 billion at December 31, 2022 and June 30, 2023, respectively.
20
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 15. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
In the normal course of business, our operations are exposed to global market risks, including the effect of changes in foreign currency exchange rates, certain commodity prices, and interest rates. To manage these risks, we enter into highly effective derivative contracts. We have elected to apply hedge accounting to certain derivatives. Derivatives that are designated in hedging relationships are evaluated for effectiveness using regression analysis at the time they are designated and throughout the hedge period. Some derivatives do not qualify for hedge accounting; for others, we elect not to apply hedge accounting.
Income Effect of Derivative Financial Instruments
The gains/(losses), by hedge designation, reported in income for the periods ended June 30 were as follows (in millions):
Second Quarter
First Half
Cash flow hedges
2022
2023
2022
2023
Reclassified from AOCI to Cost of sales
Foreign currency exchange contracts (a)
$
(90)
$
64
$
(180)
$
90
Commodity contracts (b)
84
(15)
142
(24)
Fair value hedges
Interest rate contracts
Net interest settlements and accruals on hedging instruments
25
(130)
101
(270)
Fair value changes on hedging instruments
(336)
(316)
(1,322)
(66)
Fair value changes on hedged debt
385
292
1,376
13
Cross-currency interest rate swap contracts
Net interest settlements and accruals on hedging instruments
(6)
(19)
(9)
(33)
Fair value changes on hedging instruments
(61)
(24)
(98)
(2)
Fair value changes on hedged debt
65
22
106
3
Derivatives not designated as hedging instruments
Foreign currency exchange contracts (c)
127
25
81
22
Cross-currency interest rate swap contracts
(443)
(60)
(670)
25
Interest rate contracts
89
109
212
97
Commodity contracts
(140)
(45)
(31)
(56)
Total
$
(301)
$
(97)
$
(292)
$
(201)
__________
(a)For the second quarter and first half of 2022, a $234 million gain and a $106 million gain, respectively, were reported in Other comprehensive income/(loss), net of tax. For the second quarter and first half of 2023, a $328 million loss and a $391 million loss, respectively, were reported in Other comprehensive income/(loss), net of tax.
(b)For the second quarter and first half of 2022, a $360 million loss and a $76 million loss, respectively, were reported in Other comprehensive income/(loss), net of tax. For the second quarter and first half of 2023, a $108 million loss and a $100 million loss, respectively, were reported in Other comprehensive income/(loss), net of tax.
(c)For the second quarter and first half of 2022, a $100 million gain and a $56 million gain, respectively, were reported in Cost of sales, and a $27 million gain and a $25 million gain, respectively, were reported in Other income/(loss), net. For the second quarter and first half of 2023, a $32 million gain and a $51 million gain, respectively, were reported in Cost of sales, and a $7 million loss and a $29 million loss, respectively, were reported in Other income/(loss), net.
21
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 15. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)
Balance Sheet Effect of Derivative Financial Instruments
Derivative assets and liabilities are reported on our consolidated balance sheets at fair value and are presented on a gross basis. The notional amounts of the derivative instruments do not necessarily represent amounts exchanged by the parties and are not a direct measure of our financial exposure. We also enter into master agreements with counterparties that may allow for netting of exposures in the event of default or breach of the counterparty agreement. Collateral represents cash received or paid under reciprocal arrangements that we have entered into with our derivative counterparties, which we do not use to offset our derivative assets and liabilities.
The fair value of our derivative instruments and the associated notional amounts were as follows (in millions):
December 31, 2022
June 30, 2023
Notional
Fair Value of Assets
Fair Value of Liabilities
Notional
Fair Value of Assets
Fair Value of Liabilities
Cash flow hedges
Foreign currency exchange contracts
$
11,536
$
376
$
52
$
17,886
$
111
$
284
Commodity contracts
990
16
56
1,033
—
118
Fair value hedges
Interest rate contracts
16,883
—
1,653
16,454
—
1,266
Cross-currency interest rate swap contracts
885
—
161
2,078
5
145
Derivatives not designated as hedging instruments
Foreign currency exchange contracts
20,851
162
285
20,780
170
143
Cross-currency interest rate swap contracts
6,635
15
653
6,416
54
476
Interest rate contracts
63,210
931
483
64,142
938
908
Commodity contracts
841
26
35
1,003
6
70
Total derivative financial instruments, gross (a) (b)
$
121,831
$
1,526
$
3,378
$
129,792
$
1,284
$
3,410
Current portion
$
1,101
$
1,656
$
925
$
1,914
Non-current portion
425
1,722
359
1,496
Total derivative financial instruments, gross
$
1,526
$
3,378
$
1,284
$
3,410
__________
(a)At December 31, 2022 and June 30, 2023, we held collateral of $210 million and $174 million, respectively, and we posted collateral of $201 million and $278 million, respectively.
(b)At December 31, 2022 and June 30, 2023, the fair value of assets and liabilities available for counterparty netting was $451 million and $512 million, respectively. All derivatives are categorized within Level 2 of the fair value hierarchy.
22
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 16.EMPLOYEE SEPARATION ACTIONS AND EXIT AND DISPOSAL ACTIVITIES
We generally record costs associated with voluntary separations at the time of employee acceptance. We record costs associated with involuntary separation programs when management has approved the plan for separation, the affected employees are identified, and it is unlikely that actions required to complete the separation plan will change significantly. Costs associated with benefits that are contingent on the employee continuing to provide service are accrued over the required service period.
Company Excluding Ford Credit
Employee separation actions and exit and disposal activities include employee separation costs, facility and other asset-related charges (e.g., impairment, accelerated depreciation), dealer and supplier payments, other statutory and contractual obligations, and other expenses, which are recorded in Cost of sales and Selling, administrative, and other expenses. Below are actions that have been initiated:
•Brazil. Exited manufacturing operations in 2021 resulting in the closure of facilities in Camaçari, Taubaté, and Troller. A sale of the Taubaté plant was completed in the second quarter of 2023
•India. Ceased vehicle manufacturing in Sanand in the fourth quarter of 2021 and ceased manufacturing in Chennai in the third quarter of 2022. A sale of the Sanand vehicle assembly and powertrain plants was completed in the first quarter of 2023 (see Note 17)
•Spain. Ceased production of the Mondeo at the Valencia plant in the first quarter of 2022
•China. Ceased development of certain product programs in the first half of 2023
In addition, we are continuing to reduce our global workforce and take other restructuring actions, including the separation of salaried workers as announced in the first half of 2023.
The following table summarizes the activities for the periods ended June 30, which are recorded in Other liabilities and deferred revenue (in millions):
Second Quarter
First Half
2022
2023
2022
2023
Beginning balance
$
829
$
1,126
$
950
$
588
Changes in accruals (a)
50
290
116
919
Payments
(146)
(112)
(351)
(195)
Foreign currency translation
(42)
(27)
(24)
(35)
Ending balance
$
691
$
1,277
$
691
$
1,277
__________
(a)Excludes pension costs of $9 million and $55 million in the second quarter of 2022 and 2023, respectively, and $16 million and $59 million in the first half of 2022 and 2023, respectively.
We recorded $43 million and $2 million in the second quarter of 2022 and 2023, respectively, and $66 million and $50 million in the first half of 2022 and 2023, respectively, for accelerated depreciation and other non-cash items. In addition, we recognized a $6 million and $38 million pre-tax net gain on sale of assets in the second quarter and first halfof 2022, respectively, and a $19 million pre-tax net gain in both the second quarter and first half of 2023.
We recorded costs of $160 million and $1 billion in the first half of 2022 and 2023, respectively, related to the actions above. We estimate that we will incur total charges in 2023 that range between $1.5 billion and $2 billion related to such actions, primarily attributable to employee separations and supplier settlements. We continue to review our global businesses and may take additional restructuring actions where a path to sustained profitability is not feasible when considering the capital allocation required for those businesses.
23
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 16.EMPLOYEE SEPARATION ACTIONS AND EXIT AND DISPOSAL ACTIVITIES(Continued)
Ford Credit
Accumulated foreign currency translation losses included in Accumulated other comprehensive income/(loss) at June 30, 2023 of $223 million are associated with Ford Credit’s investments in Brazil and Argentina that have ceased operations. We expect to reclassify these losses to income upon substantially complete liquidation of Ford Credit’s investments, which may occur over multiple reporting periods. In the second quarter and first half of 2022, we reclassified losses of $36 million and $155 million, respectively, to Other income/(loss), net, upon the liquidation of three investments in Brazil. Although the timing for the completion of the remaining actions is uncertain, we expect the majority of losses to be recognized in 2024 or later.
NOTE 17. ACQUISITIONS AND DIVESTITURES
Company Excluding Ford Credit
Argo AI, LLC (“Argo AI”).In October 2022, Ford and Volkswagen AG (“VW”), who held equal interests that together comprised a majority ownership of Argo AI, initiated the process of exiting the joint development of highly automated driving technology (L4) through Argo AI. At December 31, 2022, the carrying value of our equity method investment in Argo AI was $0, and we had $65 million in Other liabilities and deferred revenue related to our funding commitment for our share of Argo AI’s expenses previously incurred. Argo AI is in the process of winding down operations, and in the second quarter of 2023, we settled our expected funding commitment.
Sanand, India (“Sanand”) Plants. In the third quarter of 2022, we entered into an agreement to sell our Sanand vehicle assembly and powertrain plants to Tata Passenger Electric Mobility Limited (“Tata”), a subsidiary of Tata Motors Limited. The sale transaction included the land, buildings, and other fixed assets (excluding the powertrain machinery and equipment) for the plants. We recognized, in Cost of sales, pre-tax impairment charges of $32 million in the third quarter of 2022 to adjust the carrying value of the assets to fair value less costs to sell. We determined fair value using the market approach, based on the negotiated value of the assets. Accordingly, we reported $88 million of fixed assets for this operation as held for sale for the period ended December 31, 2022, which we report in Other assets in the current assets section of our consolidated balance sheets.
On January 10, 2023, we completed the sale of the plants to Tata. Ford will continue to operate the powertrain facility by leasing back the associated land and building. As a result of the sale transaction, we derecognized the fixed assets and recognized the powertrain facility operating lease right-of-use asset and related lease liability in the first quarter of 2023. The fair value of the cash consideration received approximated the carrying value of the fixed assets at the time of sale.
Ford Romania S.R.L. (“Ford Romania”). On July 1, 2022, we completed the sale of Ford Romania, our wholly-owned Romanian manufacturing subsidiary, to Ford Otosan, a joint venture in which Ford has a 41% ownership share. The transaction resulted in deconsolidation of our Ford Romania subsidiary in the third quarter of 2022. The fair value of consideration received, consisting of cash and a note receivable, approximated the carrying value of Ford Romania at the time of sale. The Ford Romania plant in Craiova, Romania will continue to manufacture Ford-branded vehicles for Ford and Ford Otosan. Ford’s portion of the output is expected to be significant; as a result, at the time of the sale there were about $100 million of assets, such as embedded leases, and related liabilities that continue to be reported as part of our financial statements.
Skinny Labs Inc., dba Spin (“Spin”). On April 1, 2022, we completed the sale of Spin, our wholly-owned micro-mobility provider, to TIER Mobility SE, a German-based micro-mobility provider, which resulted in the deconsolidation of our Spin subsidiary in the second quarter of 2022. In exchange for our shares of Spin, we received preferred equity in TIER Mobility SE.
24
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 18. ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)
The changes in the balances for each component of accumulated other comprehensive income/(loss) attributable to Ford Motor Company for the periods ended June 30 were as follows (in millions):
Second Quarter
First Half
2022
2023
2022
2023
Foreign currency translation
Beginning balance
$
(5,341)
$
(5,923)
$
(5,487)
$
(6,416)
Gains/(Losses) on foreign currency translation
(996)
276
(1,067)
761
Less: Tax/(Tax benefit) (a)
65
—
(31)
(10)
Net gains/(losses) on foreign currency translation
(1,061)
276
(1,036)
771
(Gains)/Losses reclassified from AOCI to net income (b)
47
(2)
168
(4)
Other comprehensive income/(loss), net of tax (c)
(1,014)
274
(868)
767
Ending balance
$
(6,355)
$
(5,649)
$
(6,355)
$
(5,649)
Marketable securities
Beginning balance
$
(272)
$
(332)
$
(19)
$
(442)
Gains/(Losses) on available for sale securities
(118)
(67)
(448)
68
Less: Tax/(Tax benefit)
(29)
(16)
(106)
17
Net gains/(losses) on available for sale securities
(89)
(51)
(342)
51
(Gains)/Losses reclassified from AOCI to net income
8
9
8
20
Less: Tax/(Tax benefit)
2
2
2
5
Net (gains)/losses reclassified from AOCI to net income
6
7
6
15
Other comprehensive income/(loss), net of tax
(83)
(44)
(336)
66
Ending balance
$
(355)
$
(376)
$
(355)
$
(376)
Derivative instruments
Beginning balance
$
(49)
$
74
$
(193)
$
129
Gains/(Losses) on derivative instruments
(126)
(436)
30
(491)
Less: Tax/(Tax benefit)
(30)
(113)
7
(127)
Net gains/(losses) on derivative instruments
(96)
(323)
23
(364)
(Gains)/Losses reclassified from AOCI to net income
6
(49)
38
(66)
Less: Tax/(Tax benefit)
4
(3)
11
(6)
Net (gains)/losses reclassified from AOCI to net income (d)
2
(46)
27
(60)
Other comprehensive income/(loss), net of tax
(94)
(369)
50
(424)
Ending balance
$
(143)
$
(295)
$
(143)
$
(295)
Pension and other postretirement benefits
Beginning balance
$
(2,632)
$
(2,607)
$
(2,640)
$
(2,610)
Amortization and recognition of prior service costs/(credits)
6
6
12
12
Less: Tax/(Tax benefit)
2
2
3
3
Net prior service costs/(credits) reclassified from AOCI to net income
4
4
9
9
Translation impact on non-U.S. plans
8
(1)
11
(3)
Other comprehensive income/(loss), net of tax
12
3
20
6
Ending balance
$
(2,620)
$
(2,604)
$
(2,620)
$
(2,604)
Total AOCI ending balance at June 30
$
(9,473)
$
(8,924)
$
(9,473)
$
(8,924)
__________
(a)We do not recognize deferred taxes for a majority of the foreign currency translation gains and losses because we do not anticipate reversal in the foreseeable future. However, we have made elections to tax certain non-U.S. operations simultaneously in U.S. tax returns, and have recorded deferred taxes for temporary differences that will reverse, independent of repatriation plans, in U.S. tax returns. Taxes or tax benefits resulting from foreign currency translation of the temporary differences are recorded in Other comprehensive income/(loss), net of tax.
(b)Reclassified to Other income/(loss), net.
(c)Excludes a $4 million loss and a $4 million gain in 2022 and 2023, respectively.
(d)Reclassified to Cost of sales. During the next twelve months, we expect to reclassify existing net losses on cash flow hedges of $139 million (see Note 15).
25
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 19. VARIABLE INTEREST ENTITIES
Certain of our affiliates are variable interest entities in which we are not the primary beneficiary. Our maximum exposure to any potential losses associated with these unconsolidated affiliates is limited to our equity investments, accounts receivable, loans, and guarantees and was $1.0 billion and $2.1 billion at December 31, 2022 and June 30, 2023, respectively. Of these amounts, guarantees of $113 million at both December 31, 2022 and June 30, 2023 related to certain obligations of our VIEs also are included in Note 20.
On July 13, 2022, Ford, SK On Co., Ltd., and SK Battery America, Inc. (a wholly owned subsidiary of SK On) completed the creation of BlueOval SK, LLC, a 50/50 joint venture that will build and operate electric vehicle battery plants in Tennessee and Kentucky to supply batteries to Ford and Ford affiliates. BlueOval SK is a variable interest entity of which we are not the primary beneficiary, and we use the equity method of accounting for our investment. As of June 30, 2023, Ford has contributed to BlueOval SK $1.6 billion of its agreed capital contribution of up to $6.6 billion through 2026, subject to any adjustments agreed to by the parties.
26
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 20. COMMITMENTS AND CONTINGENCIES
Commitments and contingencies primarily consist of guarantees and indemnifications, litigation and claims, and warranty and field service actions.
Guarantees and Indemnifications
Financial Guarantees. Financial guarantees and indemnifications are recorded at fair value at their inception. Subsequent to initial recognition, the guarantee liability is adjusted at each reporting period to reflect the current estimate of expected payments resulting from possible default events over the remaining life of the guarantee. The maximum potential payments for financial guarantees were $518 million and $576 million at December 31, 2022 and June 30, 2023, respectively. The carrying value of recorded liabilities related to financial guarantees was $31 million and $47 million at December 31, 2022 and June 30, 2023, respectively.
Our financial guarantees consist of debt and lease obligations of certain joint ventures, as well as certain financial obligations of outside third parties, including suppliers, to support our business and economic growth. Expiration dates vary through 2037, and guarantees will terminate on payment and/or cancellation of the underlying obligation. A payment by us would be triggered by failure of the joint venture or other third party to fulfill its obligation covered by the guarantee. In some circumstances, we are entitled to recover from a third party amounts paid by us under the guarantee.
Non-Financial Guarantees. Non-financial guarantees and indemnifications are recorded at fair value at their inception. We regularly review our performance risk under these arrangements, and in the event it becomes probable we will be required to perform under a guarantee or indemnity, the amount of probable payment is recorded. The maximum potential payments for non-financial guarantees were $273 million and $77 million at December 31, 2022 and June 30, 2023, respectively. The carrying value of recorded liabilities related to non-financial guarantees was $0 at both December 31, 2022 and June 30, 2023.
Included in the $77 million of maximum potential payments at June 30, 2023 are guarantees for the resale value of vehicles sold in certain arrangements to daily rental companies. The maximum potential payment of $71 million as of June 30, 2023 represents the total proceeds we guarantee the rental company will receive on resale. Reflecting our present estimate of proceeds the rental companies will receive on resale from third parties, we do not expect we will have to pay under the guarantee.
In the ordinary course of business, we execute contracts involving indemnifications standard in the industry and indemnifications specific to a transaction, such as the sale of a business. These indemnifications might include and are not limited to claims relating to any of the following: environmental, tax, and shareholder matters; intellectual property rights; power generation contracts; governmental regulations and employment-related matters; dealer, supplier, and other commercial contractual relationships; and financial matters, such as securitizations. Performance under these indemnities generally would be triggered by a breach of contract claim brought by a counterparty, including a joint venture or alliance partner, or a third-party claim. While some of these indemnifications are limited in nature, many of them do not limit potential payment. Therefore, we are unable to estimate a maximum amount of future payments that could result from claims made under these unlimited indemnities.
27
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 20. COMMITMENTS AND CONTINGENCIES (Continued)
Litigation and Claims
Various legal actions, proceedings, and claims (generally, “matters”) are pending or may be instituted or asserted against us. These include, but are not limited to, matters arising out of alleged defects in our products; product warranties; governmental regulations relating to safety, emissions, and fuel economy or other matters; government incentives; tax matters, including trade and customs; alleged illegal acts resulting in fines or penalties; financial services; employment-related matters; dealer, supplier, and other contractual relationships; intellectual property rights; environmental matters; shareholder or investor matters; and financial reporting matters. Certain of the pending legal actions are, or purport to be, class actions. Some of the matters involve or may involve claims for compensatory, punitive, or antitrust or other treble damages in very large amounts, or demands for field service actions, environmental remediation programs, sanctions, loss of government incentives, assessments, or other relief, which, if granted, would require very large expenditures.
The extent of our financial exposure to these matters is difficult to estimate. Many matters do not specify a dollar amount for damages, and many others specify only a jurisdictional minimum. To the extent an amount is asserted, our historical experience suggests that in most instances the amount asserted is not a reliable indicator of the ultimate outcome.
We accrue for matters when losses are deemed probable and reasonably estimable. In evaluating matters for accrual and disclosure purposes, we take into consideration factors such as our historical experience with matters of a similar nature, the specific facts and circumstances asserted, the likelihood that we will prevail, and the severity of any potential loss. We reevaluate and update our accruals as matters progress over time.
For the majority of matters, which generally arise out of alleged defects in our products, we establish an accrual based on our extensive historical experience with similar matters. We do not believe there is a reasonably possible outcome materially in excess of our accrual for these matters.
For the remaining matters, where our historical experience with similar matters is of more limited value (i.e., “non-pattern matters”), we evaluate the matters primarily based on the individual facts and circumstances. For non-pattern matters, we evaluate whether there is a reasonable possibility of a material loss in excess of any accrual that can be estimated. Our estimate of reasonably possible loss in excess of our accruals for all material matters currently reflects indirect tax and customs matters, for which we estimate the aggregate risk to be a range of up to about $1.4 billion.
As noted, the litigation process is subject to many uncertainties, and the outcome of individual matters is not predictable with assurance. Our assessments are based on our knowledge and experience, but the ultimate outcome of any matter could require payment substantially in excess of the amount that we have accrued and/or disclosed.
28
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 20. COMMITMENTS AND CONTINGENCIES (Continued)
Warranty and Field Service Actions
We accrue the estimated cost of both base warranty coverages and field service actions at the time of sale. We establish our estimate of base warranty obligations using a patterned estimation model, using historical information regarding the nature, frequency, and average cost of claims for each vehicle line by model year. We establish our estimates of field service action obligations using a patterned estimation model, using historical information regarding the nature, frequency, severity, and average cost of claims for each model year. In addition, from time to time, we issue extended warranties at our expense, the estimated cost of which is accrued at the time of issuance. Warranty and field service action obligations are reported in Other liabilities and deferred revenue. We reevaluate the adequacy of our accruals on a regular basis.
We recognize the benefit from a recovery of the costs associated with our warranty and field service actions when specifics of the recovery have been agreed with our supplier and the amount of recovery is virtually certain. Recoveries are reported in Trade and other receivables, net and Other assets.
The estimate of our future warranty and field service action costs, net of estimated supplier recoveries, for the periods ended June 30 was as follows (in millions):
First Half
2022
2023
Beginning balance
$
8,451
$
9,193
Payments made during the period
(2,006)
(2,011)
Changes in accrual related to warranties issued during the period
1,877
2,146
Changes in accrual related to pre-existing warranties
395
882
Foreign currency translation and other
(120)
(314)
Ending balance
$
8,597
$
9,896
Changes to our estimated costs are reported as changes in accrual related to pre-existing warranties in the table above. Our estimate of reasonably possible costs in excess of our accruals for material field service actions and customer satisfaction actions is a range of up to about $1 billion in the aggregate.
29
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 21. SEGMENT INFORMATION
We report segment information consistent with the way our chief operating decision maker (“CODM”) evaluates the operating results and performance of the Company.
On January 1, 2023, we implemented a new operating model and reporting structure. As a result of this change, we analyze the results of our business through the following segments: Ford Blue, Ford Model e, and Ford Pro (combined, replacing the previous Automotive segment), Ford Next (previously the Mobility segment), and Ford Credit. Company adjusted earnings before interest and taxes (“EBIT”) include the financial results of these five reportable segments and Corporate Other, and net income comprises the financial results of the five reportable segments and Corporate Other, as well as Interest on Debt, Special Items, and Taxes.
Additionally, past service pension and OPEB income and expense plus related assets, previously reported in the Automotive segment, have been realigned to Corporate Other.
Prior period amounts were adjusted retrospectively to reflect each of the above changes.
Below is a description of our reportable segments and other activities.
Ford Blue Segment
Ford Blue primarily includes the sale of Ford and Lincoln internal combustion engine (“ICE”) and hybrid vehicles, service parts, accessories, and digital services for retail customers, together with the associated costs of development, manufacture, and distribution of the vehicles, parts, accessories, and services. This segment focuses on developing Ford and Lincoln ICE and hybrid vehicles. Additionally, this segment provides hardware engineering and manufacturing capabilities to Ford Model e and manufactures vehicles on behalf of Ford Pro and, in certain cases, Ford Model e. Ford Blue also includes:
•All sales for markets not presently in scope for Ford Model e or Ford Pro (as further described below)
•In markets outside of the United States and Canada, sales to commercial, government, and rental customers of ICE and hybrid vehicles not considered core to Ford Pro
•Sales of electric vehicles (“EVs”) by our unconsolidated affiliates in China
•All sales of vehicles manufactured and sold to other OEMs
Ford Model e Segment
Ford Model e primarily includes the sale of our electric vehicles, service parts, accessories, and digital services for retail customers, together with the associated costs of development, manufacture, and distribution of the vehicles, parts, accessories, and services. This segment focuses on developing EV and digital vehicle technologies, as well as software development. Additionally, Ford Model e provides software and connected vehicle technologies on behalf of the enterprise, and manufactures certain EVs, including for Ford Pro. Ford Model e operates in North America, Europe, and China. Ford Model e also includes EV and related sales not considered core to Ford Pro to commercial, government, and rental customers in Europe, China, and Mexico.
30
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 21. SEGMENT INFORMATION (Continued)
Ford Pro Segment
Ford Pro primarily includes the sale of Ford and Lincoln vehicles, service parts, accessories, and services for commercial, government, and rental customers. Included in this segment are sales of all core Ford Pro vehicles, such as Super Duty and the Transit range of vans in North America and Europe and all sales of Ranger in Europe. In the United States and Canada, Ford Pro also includes all vehicle sales to commercial, government, and rental customers. This segment focuses on selling ICE, hybrid, and electric vehicles, and providing digital and physical services to optimize and maintain fleets, including telematics and EV charging solutions. This segment reflects external sales of vehicles produced by Ford Blue and Ford Model e, and the costs (including intersegment markup) associated with acquiring vehicles for sale and providing services are reflected in this segment. Ford Pro operates in North America and Europe.
Ford Next Segment
The Ford Next segment (formerly the Mobility segment) primarily includes expenses and investments for emerging business initiatives aimed at creating value for Ford in vehicle-adjacent market segments.
Ford Credit Segment
The Ford Credit segment is comprised of the Ford Credit business on a consolidated basis, which is primarily vehicle-related financing and leasing activities.
Corporate Other
Corporate Other primarily includes corporate governance expenses, past service pension and OPEB income and expense, interest income (excluding Ford Credit interest income and interest earned on our extended service contract portfolio) and gains and losses from our cash, cash equivalents, and marketable securities (excluding gains and losses on investments in equity securities), and foreign exchange derivatives gains and losses associated with intercompany lending. Corporate governance expenses are primarily administrative, delivering benefit on behalf of the global enterprise, that are not allocated to operating segments. These include expenses related to setting and directing global policy, providing oversight and stewardship, and promoting the Company’s interests. Corporate Other assets include: cash, cash equivalents and marketable securities, tax related assets, defined benefit pension plan net assets, and other assets managed centrally.
Interest on Debt
Interest on Debt is presented as a separate reconciling item and consists of interest expense on Company debt excluding Ford Credit.
Special Items
Special Items are presented as a separate reconciling item. They consist of (i) pension and OPEB remeasurement gains and losses, (ii) gains and losses on investments in equity securities, (iii) significant 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, and (iv) other items that we do not necessarily consider to be indicative of earnings from ongoing operating activities. Our management ordinarily excludes these items from its review of the results of the operating segments for purposes of measuring segment profitability and allocating resources. We also report these special items separately to help investors track amounts related to these activities and to allow investors analyzing our results to identify certain infrequent significant items that they may wish to exclude when considering the trend of ongoing operating results.
31
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 21. SEGMENT INFORMATION (Continued)
Segment Revenue, Cost, and Asset Principles for Ford Blue, Ford Model e, and Ford Pro
External vehicle and digital services revenue is generally vehicle-specific and included in the segment responsible for the external vehicle sale. A majority of parts and accessories revenue and cost is attributed to customer sales channels or vehicle lines based on recent end customer sales and is included in the respective segment.
In the normal course of business, Ford Blue, Ford Model e, and Ford Pro transact between segments and cooperate to leverage synergies, including developing and manufacturing vehicles on behalf of another segment. When one segment produces a vehicle that is sold externally by another segment, an intersegment transaction occurs. The producing segment will report intersegment revenue to recoup the costs associated with the unit produced. This includes material cost, labor and overhead (including depreciation and amortization), inbound freight, and an intersegment markup. The intersegment markup amount is set to deliver a competitive return to the producing segment for its manufacturing and distribution service. Costs are reflected in the associated segment externally reporting the vehicle sale, as detailed in the table below:
Income Statement Elements
Examples
Segment Reporting
Costs specific to a particular vehicle
Bill of material cost and initial warranty accrual
Reported in the segment externally selling the vehicle
Costs identifiable by product line
Manufacturing and logistics costs, depreciation & amortization expense, direct research & development costs
Typically identifiable to the product line or production location. Reported in the segment externally selling the vehicle, based on relative volume
Shared costs
Selling, general & administrative expense, and indirect/cross product line research & development costs
Typically shared across all segments, generally based on relative volume. Certain costs clearly linked to a segment are reported in the specific segment
Intersegment markup costs for intersegment vehicle transactions
Contract manufacturing and distribution fees
Reported in the segment externally selling the vehicle, for each applicable vehicle transaction
Assets are reported in each segment, aligned to the appropriate operational responsibility. Manufacturing assets, e.g., our plants and the machinery and equipment therein, are included in our Ford Blue and Ford Model e segments. Manufacturing assets producing only, or primarily, EVs and related components are reflected in Ford Model e. Manufacturing assets that support the production of ICE and hybrid vehicles, including those producing ICE and electric in the same facility, are included in Ford Blue. Vendor tooling dedicated to producing EV parts is reported in Ford Model e. There are no Ford manufacturing assets or vendor tooling reported in Ford Pro. Regardless of the segment reporting the asset, depreciation and amortization expense is reflected on the basis of production volume and reported in the segment that reports the external vehicle sale.
Equity in net income/(loss) of affiliated companies is included in Income/(Loss) before income taxes, based primarily on which segment the entity supports or has the majority of the entity’s purchases or sales. The table below shows the segment reporting for our most significant unconsolidated entities:
Ford Blue
Ford Model e
Ford Pro
∘ Changan Ford Automobile Corporation, Ltd. (“CAF”)
∘ BlueOval SK, LLC
∘ Ford Otomotiv Sanayi Anonim Sirketi (“Ford Otosan”)
∘ Jiangling Motors Corporation, Ltd. (“JMC”)
∘ AutoAlliance (Thailand) Co., Ltd. (“AAT”)
32
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 21. SEGMENT INFORMATION (Continued)
Key financial information for the periods ended or at June 30 was as follows (in millions):
Ford Blue
Ford Model e
Ford Pro
Ford Next
Ford Credit
Corporate Other
Interest on Debt
Special Items
Eliminations/Adjustments
Total
Second Quarter 2022
External revenues
$
23,834
$
1,320
$
12,748
$
25
$
2,256
$
7
$
—
$
—
$
—
$
40,190
Intersegment revenues (a)
9,702
50
—
—
—
—
—
—
(9,752)
—
Total revenues
$
33,536
$
1,370
$
12,748
$
25
$
2,256
$
7
$
—
$
—
$
(9,752)
$
40,190
Income/(Loss) before income taxes
$
2,504
$
(510)
$
879
$
(221)
$
939
$
131
$
(312)
$
(2,619)
(b)
$
—
$
791
Equity in net income/(loss) of affiliated companies
76
(3)
84
(83)
4
—
—
(20)
—
58
Total assets
56,047
3,670
2,016
3,284
127,493
54,566
—
—
(1,321)
(c)
245,755
Second Quarter 2023
External revenues
$
25,002
$
1,834
$
15,589
$
—
$
2,527
$
2
$
—
$
—
$
—
$
44,954
Intersegment revenues (a)
10,206
172
—
—
—
—
—
—
(10,378)
—
Total revenues
$
35,208
$
2,006
$
15,589
$
—
$
2,527
$
2
$
—
$
—
$
(10,378)
$
44,954
Income/(loss) before income taxes
$
2,308
$
(1,080)
$
2,391
$
(26)
$
390
$
(197)
$
(304)
$
(1,194)
(d)
$
—
$
2,288
Equity in net income/(loss) of affiliated companies
104
(3)
160
(6)
7
1
—
(387)
(e)
—
(124)
Total assets
58,475
9,420
2,754
253
143,155
54,063
—
—
(2,129)
(c)
265,991
Ford Blue
Ford Model e
Ford Pro
Ford Next
Ford Credit
Corporate Other
Interest on Debt
Special Items
Eliminations/Adjustments
Total
First Half 2022
External revenues
$
44,644
$
2,292
$
23,072
$
109
$
4,537
$
12
$
—
$
—
$
—
$
74,666
Intersegment revenues (a)
16,956
77
—
—
—
—
—
—
(17,033)
—
Total revenues
$
61,600
$
2,369
$
23,072
$
109
$
4,537
$
12
$
—
$
—
$
(17,033)
$
74,666
Income/(Loss) before income taxes
$
3,832
$
(890)
$
1,370
$
(463)
$
1,867
$
332
$
(620)
$
(8,485)
(b)
$
—
$
(3,057)
Equity in net income/(loss) of affiliated companies
132
(5)
169
(158)
10
1
—
(124)
(f)
—
25
First Half 2023
External revenues
$
50,126
$
2,541
$
28,838
$
1
$
4,916
$
6
$
—
$
—
$
—
$
86,428
Intersegment revenues (a)
19,383
181
—
—
—
—
—
—
(19,564)
—
Total revenues
$
69,509
$
2,722
$
28,838
$
1
$
4,916
$
6
$
—
$
—
$
(19,564)
$
86,428
Income/(loss) before income taxes
$
4,931
$
(1,802)
$
3,757
$
(70)
$
693
$
(344)
$
(612)
$
(2,106)
(d)
$
—
$
4,447
Equity in net income/(loss) of affiliated companies
159
(6)
277
(18)
14
1
—
(421)
(e)
—
6
__________
(a)Intersegment revenues only reflect finished vehicle transactions between Ford Blue, Ford Model e, and Ford Pro where there is an intersegment markup and are recognized at the time of the intersegment transaction.
(b)Primarily reflects gains/(losses) on our Rivian investment.
(c)Primarily includes eliminations of intersegment transactions occurring in the ordinary course of business.
(d)Primarily reflects restructuring actions, mark-to-market adjustments for our global pension and OPEB plans, and an accrual for the Transit Connect customs matter (relating to certain Transit Connect vehicles produced between 2009 and 2013).
(e)Primarily reflects our share of charges from an equity method investment resulting from Ford’s ongoing restructuring actions in China.
(f)Primarily reflects the full impairment of our Ford Sollers Netherlands B.V. (the parent company of our joint venture in Russia) equity method investment, resulting from the ongoing regulatory and economic uncertainty in Russia.
33
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
RECENT DEVELOPMENTS
On September 14, 2023, our collective bargaining agreement with the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (“UAW”) in the United States will expire, and on September 18, 2023, our collective bargaining agreement with Unifor in Canada will expire, which will require negotiation of new agreements. 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 production disruptions.
RESULTS OF OPERATIONS
In the second quarter of 2023, the net income attributable to Ford Motor Company was $1,917 million, and Company adjusted EBIT was $3,786 million.
Net income/(loss) includes certain items (“special items”) that are excluded from Company adjusted EBIT. These items are discussed in more detail in Note 21 of the Notes to the Financial Statements. We report special items separately to allow investors analyzing our results to identify certain infrequent significant items that they may wish to exclude when considering the trend of ongoing operating results. Our pre-tax and tax special items were as follows (in millions):
Second Quarter
First Half
2022
2023
2022
2023
Restructuring (by Geography)
Europe
$
(27)
$
(51)
$
(49)
$
(421)
China
(12)
(446)
(12)
(755)
Ford Credit - Brazil
(36)
—
(155)
—
Other
(68)
(159)
(104)
(147)
Subtotal Restructuring
$
(143)
$
(656)
$
(320)
$
(1,323)
Pension and OPEB Gain/(Loss)
Pension and OPEB remeasurement
$
(16)
$
(89)
$
(16)
$
(202)
Pension settlements and curtailments
—
(59)
—
(105)
Subtotal Pension and OPEB Gain/(Loss)
$
(16)
$
(148)
$
(16)
$
(307)
Other Items
Gain/(loss) on Rivian investment
$
(2,447)
$
(6)
$
(7,896)
$
(31)
Transit Connect customs matter
—
(300)
—
(300)
Russia suspension of operations/asset write-off
6
—
(132)
—
Patent matters related to prior calendar years
14
8
(121)
8
Other (including gains/(losses) on investments)
(33)
(92)
—
(153)
Subtotal Other Items
$
(2,460)
$
(390)
$
(8,149)
$
(476)
Total EBIT Special Items
$
(2,619)
$
(1,194)
$
(8,485)
$
(2,106)
Provision for/(Benefit from) tax special items (a)
$
(537)
$
(177)
$
(1,729)
$
(321)
__________
(a)Includes related tax effect on special items and tax special items.
We recorded $1.2 billion of pre-tax special item charges in the second quarter of 2023, driven primarily by restructuring actions in China and an accrual for the Transit Connect customs matter (relating to certain Transit Connect vehicles produced between 2009 and 2013).
In Note 21 of the Notes to the Financial Statements, special items are reflected as a separate reconciling item, as opposed to being allocated among our segments. This reflects the fact that management excludes these items from its review of operating segment results for purposes of measuring segment profitability and allocating resources.
34
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
COMPANY KEY METRICS
The table below shows our second quarter 2023 key metrics for the Company, compared to a year ago.
Second Quarter
First Half
2022
2023
H / (L)
2022
2023
H / (L)
GAAP Financial Measures
Cash Flows from Operating Activities ($B)
$
2.9
$
5.0
$
2.1
$
1.9
$
7.8
$
6.0
Revenue ($M)
40,190
44,954
12
%
74,666
86,428
16
%
Net Income/(Loss) ($M)
667
1,917
$
1,250
(2,443)
3,674
$
6,117
Net Income/(Loss) Margin (%)
1.7
%
4.3
%
2.6 ppts
(3.3)
%
4.3
%
7.6 ppts
EPS (Diluted)
$
0.16
$
0.47
$
0.31
$
(0.61)
$
0.91
$
1.52
Non-GAAP Financial Measures (a)
Company Adj. Free Cash Flow ($B)
$
3.6
$
2.9
$
(0.7)
$
3.0
$
3.6
$
0.6
Company Adj. EBIT ($M)
3,722
3,786
64
6,048
7,165
1,117
Company Adj. EBIT Margin (%)
9.3
%
8.4
%
(0.8) ppts
8.1
%
8.3
%
0.2 ppts
Adjusted EPS (Diluted)
$
0.68
$
0.72
$
0.04
$
1.06
$
1.34
$
0.28
Adjusted ROIC (Trailing Four Quarters)
11.6
%
14.2
%
2.7 ppts
__________
(a)See Non-GAAP Financial Measure Reconciliations section for reconciliation to GAAP.
In the second quarter of 2023, our diluted earnings per share of Common and Class B Stock was $0.47, and our diluted adjusted earnings per share was $0.72.
Net income/(loss) margin was 4.3% in the second quarter of 2023, up 2.6 percentage points from a year ago. Company adjusted EBIT margin was 8.4% in the second quarter of 2023, down 0.8 percentage points from a year ago.
The year-over-year increase of $1.3 billion in net income in the second quarter of 2023 was primarily driven by the non-recurrence of a mark-to-market loss on our Rivian investment (included in special items in the second quarter of 2022), offset partially by higher restructuring and pension expense in the second quarter of 2023 (also included in special items).
The year-over-year increase of $64 million in Company adjusted EBIT was driven by higher Ford Pro EBIT and a lower EBIT loss in Ford Next. Partial offsets include higher EBIT losses in Ford Model e, lower Ford Blue EBIT and Ford Credit EBT, and lower past service pension and OPEB income in Corporate Other.
The table below shows our second quarter and first half 2023 net income/(loss) attributable to Ford and Company adjusted EBIT by segment.
Second Quarter
First Half
2022
2023
H / (L)
2022
2023
H / (L)
Ford Blue
$
2,504
$
2,308
$
(196)
$
3,832
$
4,931
$
1,099
Ford Model e
(510)
(1,080)
(570)
(890)
(1,802)
(912)
Ford Pro
879
2,391
1,512
1,370
3,757
2,387
Ford Next
(221)
(26)
195
(463)
(70)
393
Ford Credit
939
390
(549)
1,867
693
(1,174)
Corporate Other
131
(197)
(328)
332
(344)
(676)
Company Adjusted EBIT (a)
3,722
3,786
64
6,048
7,165
1,117
Interest on Debt
(312)
(304)
(8)
(620)
(612)
(8)
Special Items
(2,619)
(1,194)
(1,425)
(8,485)
(2,106)
(6,379)
Taxes / Noncontrolling Interests
(124)
(371)
247
614
(773)
1,387
Net Income/(Loss)
$
667
$
1,917
$
1,250
$
(2,443)
$
3,674
$
6,117
__________
(a)See Non-GAAP Financial Measure Reconciliations section for reconciliation to GAAP.
35
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
The tables below and on the following pages provide second quarter and first half 2023 key metrics and the change in second quarter 2023 EBIT compared with second quarter 2022 by causal factor for each of our segments. For a description of these causal factors, see Definitions and Information Regarding Ford Blue, Ford Model e, Ford Pro Causal Factors.
Ford Blue Segment
Second Quarter
First Half
Key Metrics
2022
2023
H / (L)
2022
2023
H / (L)
Wholesale Units (000) (a)
670
720
49
1,333
1,426
92
Revenue ($M)
$
23,834
$
25,002
$
1,168
$
44,644
$
50,126
$
5,482
EBIT ($M)
2,504
2,308
(196)
3,832
4,931
1,099
EBIT Margin (%)
10.5
%
9.2
%
(1.3) ppts
8.6
%
9.8
%
1.2 ppts
__________
(a)Includes Ford and Lincoln brand and JMC brand vehicles produced and sold in China by our unconsolidated affiliates (about 111,000 units in Q2 2022 and 107,000 units in Q2 2023).
Change in EBIT by Causal Factor (in millions)
Second Quarter 2022 EBIT
$
2,504
Volume / Mix
267
Net Pricing
133
Cost
28
Exchange
(367)
Other
(257)
Second Quarter 2023 EBIT
$
2,308
In the second quarter of 2023, Ford Blue’s wholesales increased 7% from a year ago driven by improvements in production-related supply constraints. Second quarter 2023 revenue increased 5%, driven by higher wholesales.
Ford Blue’s second quarter 2023 EBIT was $2.3 billion, a decrease of $196 million from a year ago, with an EBIT margin of 9.2%. The lower EBIT was driven by weaker currencies and the non-recurrence of an insurance claim recovery in the second quarter of 2022 (included in Other), offset partially by higher wholesales, higher net pricing, and improved cost, primarily driven by improved commodity costs.
36
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Ford Model e Segment
Second Quarter
First Half
Key Metrics
2022
2023
H / (L)
2022
2023
H / (L)
Wholesale Units (000)
24
34
10
42
47
5
Revenue ($M)
$
1,320
$
1,834
$
514
$
2,292
$
2,541
$
249
EBIT ($M)
(510)
(1,080)
(570)
(890)
(1,802)
(912)
EBIT Margin (%)
(38.6)
%
(58.9)
%
(20.3) ppts
(38.8)
%
(70.9)
%
(32.1) ppts
Change in EBIT by Causal Factor (in millions)
Second Quarter 2022 EBIT
$
(510)
Volume / Mix
66
Net Pricing
(177)
Cost
(481)
Exchange
16
Other
6
Second Quarter 2023 EBIT
$
(1,080)
In the second quarter of 2023, Ford Model e’s wholesales increased 44% from a year ago, reflecting increased production capacity for Mustang Mach-E and a full quarter of F-150 Lightning production, which launched in late April 2022. Second quarter 2023 revenue increased 39%, primarily driven by higher wholesales, offset partially by lower net pricing.
Ford Model e’s second quarter 2023 EBIT loss was $1.1 billion, a $570 million higher loss than a year ago, with an EBIT margin of negative 58.9%. The lower EBIT was primarily driven by lower net pricing, higher launch-related supplier costs, as well as higher warranty, engineering, spending-related, and selling, general & administrative costs.
Ford Pro Segment
Second Quarter
First Half
Key Metrics
2022
2023
H / (L)
2022
2023
H / (L)
Wholesale Units (000) (a)
338
365
27
623
702
80
Revenue ($M)
$
12,748
$
15,589
$
2,841
$
23,072
$
28,838
$
5,766
EBIT ($M)
879
2,391
1,512
1,370
3,757
2,387
EBIT Margin (%)
6.9
%
15.3
%
8.4 ppts
5.9
%
13.0
%
7.1 ppts
__________
(a)Includes Ford brand vehicles produced and sold by our unconsolidated affiliate Ford Otosan in Türkiye (about 17,000 units in Q2 2022 and 24,000 units in Q2 2023).
Change in EBIT by Causal Factor (in millions)
Second Quarter 2022 EBIT
$
879
Volume / Mix
110
Net Pricing
1,916
Cost
(282)
Exchange
(65)
Other
(167)
Second Quarter 2023 EBIT
$
2,391
In the second quarter of 2023, Ford Pro’s wholesales increased 8% from a year ago driven by improvements in production-related supply constraints and new product launches. Second quarter 2023 revenue increased 22%, driven by higher net pricing and wholesales.
Ford Pro’s second quarter 2023 EBIT was $2.4 billion, an increase of $1.5 billion from a year ago, with an EBIT margin of 15.3%. The improvement in EBIT was driven by higher net pricing and wholesales, and lower commodity costs. Partial offsets included higher material cost for new products, higher warranty costs (primarily driven by inflationary cost pressures), and the non-recurrence of an insurance claim recovery in the second quarter of 2022 (included in Other).
37
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Definitions and Information Regarding Ford Blue, Ford Model e, Ford Pro Causal Factors
In general, we measure year-over-year change in Ford Blue, Ford Model e, and Ford Pro EBIT using the causal factors listed below, with net pricing and cost variances calculated at present-period volume and mix and exchange:
•Market Factors (exclude the impact of unconsolidated affiliate wholesale units):
◦Volume and Mix – primarily measures EBIT variance from changes in wholesale unit volumes (at prior-year average contribution margin per unit) driven by changes in industry volume, market share, and dealer stocks, as well as the EBIT variance resulting from changes in product mix, including mix among vehicle lines and mix of trim levels and options within a vehicle line
◦Net Pricing – primarily measures EBIT variance driven by changes in wholesale unit prices to dealers and marketing incentive programs such as rebate programs, low-rate financing offers, special lease offers, and stock adjustments on dealer inventory
•Cost:
◦Contribution Costs – primarily measures EBIT variance driven by per-unit changes in cost categories that typically vary with volume, such as material costs (including commodity and component costs), warranty expense, and freight and duty costs
◦Structural Costs – primarily measures EBIT variance driven by absolute change in cost categories that typically do not have a directly proportionate relationship to production volume. Structural costs include the following cost categories:
▪Manufacturing, Including Volume-Related –consists primarily of costs for hourly and salaried manufacturing personnel, plant overhead (such as utilities and taxes), and new product launch expense. These costs could be affected by volume for operating pattern actions such as overtime, line-speed, and shift schedules
▪Engineering and Connectivity –consists primarily of costs for vehicle and software engineering personnel, prototype materials, testing, and outside engineering and software services
▪Spending-Related –consists primarily of depreciation and amortization of our manufacturing and engineering assets and capital project expense, but also includes asset retirements and operating leases
▪Advertising and Sales Promotions –includes costs for advertising, marketing programs, brand promotions, customer mailings and promotional events, and auto shows
▪Administrative, Information Technology, and Selling –includes primarily costs for salaried personnel and purchased services related to our staff activities, information technology, and selling functions
•Exchange – primarily measures EBIT variance driven by one or more of the following: (i) transactions denominated in currencies other than the functional currencies of the relevant entities, (ii) effects of converting functional currency income to U.S. dollars, (iii) effects of remeasuring monetary assets and liabilities of the relevant entities in currencies other than their functional currency, or (iv) results of our foreign currency hedging
•Other –includes a variety of items, such as parts and services earnings, royalties, government incentives, and compensation-related changes
In addition, definitions and calculations used in this report include:
•Wholesales and Revenue – wholesale unit volumes include all Ford and Lincoln badged units (whether produced by Ford or by an unconsolidated affiliate) that are sold to dealerships or others, units manufactured by Ford that are sold to other manufacturers, units distributed by Ford for other manufacturers, and local brand units produced by our China joint venture, Jiangling Motors Corporation, Ltd. (“JMC”), that are sold to dealerships or others. Vehicles sold to daily rental car companies that are subject to a guaranteed repurchase option (i.e., rental repurchase), as well as other sales of finished vehicles for which the recognition of revenue is deferred (e.g., consignments), also are included in wholesale unit volumes. Revenue from certain vehicles in wholesale unit volumes (specifically, Ford badged vehicles produced and distributed by our unconsolidated affiliates, as well as JMC brand vehicles) are not included in our revenue. Excludes transactions between Ford Blue, Ford Model e, and Ford Pro segments
•Industry Volume and Market Share – based, in part, on estimated vehicle registrations; includes medium and heavy duty trucks
•SAAR – seasonally adjusted annual rate
38
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Ford Next Segment
The Ford Next segment (formerly Mobility) primarily includes expenses and investments for emerging business initiatives aimed at creating value for Ford in vehicle-adjacent market segments.
In this segment, our second quarter 2023 EBIT loss was $26 million, a $195 million improvement from a year ago. Ford Next has evolved from primarily investing in the development of autonomous vehicle capabilities to focus exclusively on incubating and launching new businesses creating strategic value for Ford.
39
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Ford Credit Segment
Ford Credit files periodic reports with the SEC that contain additional information regarding Ford Credit. The reports are available through Ford Credit’s website located at www.fordcredit.com/investor-center and can also be found on the SEC’s website located at www.sec.gov. The foregoing information regarding Ford Credit’s website and its content is for convenience only and not deemed to be incorporated by reference into this Report nor filed with the SEC.
The tables below provide second quarter and first half 2023 key metrics and the change in second quarter 2023 EBT compared with second quarter 2022 by causal factor for the Ford Credit segment. For a description of these causal factors, see Definitions and Information Regarding Ford Credit Causal Factors.
Second Quarter
First Half
Key Metrics
2022
2023
H / (L)
2022
2023
H / (L)
Total Net Receivables ($B)
$
116
$
126
9
%
$
116
$
126
9
%
Loss-to-Receivables (bps) (a)
5
21
16
7
28
21
Auction Values (b)
$
34,620
$
31,830
(8)
%
$
34,485
$
31,445
(9)
%
EBT ($M)
939
390
$
(549)
1,867
693
$
(1,174)
ROE (%)
26
%
9
%
(17) ppts
24
%
9
%
(15) ppts
Other Balance Sheet Metrics
Debt ($B)
$
110
$
124
13
%
Net Liquidity ($B)
25
29
16
%
Financial Statement Leverage (to 1)
9.1
9.9
0.8
__________
(a)U.S. retail financing only.
(b)U.S. 36-month off-lease second quarter auction values at Q2 2023 mix and YTD amounts at 2023 YTD mix.
Change in EBT by Causal Factor (in millions)
Second Quarter 2022 EBT
$
939
Volume / Mix
47
Financing Margin
(196)
Credit Loss
(96)
Lease Residual
(112)
Exchange
(1)
Other
(191)
Second Quarter 2023 EBT
$
390
Ford Credit’s total net receivables of $126 billion were $10 billion higher than a year ago, reflecting the impact of increased non-consumer financing and consumer financing, partially offset by fewer operating leases. The U.S. loss-to-receivables (“LTR”) ratio remained at a low level in the second quarter of 2023, at 21 basis points, though higher than a year ago as losses begin to normalize from historic lows. U.S. auction values in the second quarter of 2023 were lower compared to a year ago.
Ford Credit’s second quarter 2023 EBT of $390 million was $549 million lower than a year ago, explained primarily by lower financing margin due to higher borrowing costs, the non-recurrence of prior year credit loss reserve releases and higher credit losses, unfavorable lease residual performance, and unfavorable market valuation adjustments to derivatives (included in Other).
40
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Definitions and Information Regarding Ford Credit Causal Factors
In general, we measure year-over-year changes in Ford Credit’s EBT using the causal factors listed below:
•Volume and Mix:
◦Volume primarily measures changes in net financing margin driven by changes in average net receivables excluding the allowance for credit losses at prior period financing margin yield (defined below in financing margin) at prior period exchange rates. Volume changes are primarily driven by the volume of new and used vehicles sold and leased, the extent to which Ford Credit purchases retail financing and operating lease contracts, the extent to which Ford Credit provides wholesale financing, the sales price of the vehicles financed, the level of dealer inventories, Ford-sponsored special financing programs available exclusively through Ford Credit, and the availability of cost-effective funding
◦Mix primarily measures changes in net financing margin driven by period-over-period changes in the composition of Ford Credit’s average net receivables excluding the allowance for credit losses by product within each region
•Financing Margin:
◦Financing margin variance is the period-to-period change in financing margin yield multiplied by the present period average net receivables excluding the allowance for credit losses at prior period exchange rates. This calculation is performed at the product and country level and then aggregated. Financing margin yield equals revenue, less interest expense and scheduled depreciation for the period, divided by average net receivables excluding the allowance for credit losses for the same period
◦Financing margin changes are driven by changes in revenue and interest expense. Changes in revenue are primarily driven by the level of market interest rates, cost assumptions in pricing, mix of business, and competitive environment. Changes in interest expense are primarily driven by the level of market interest rates, borrowing spreads, and asset-liability management
•Credit Loss:
◦Credit loss is the change in the provision for credit losses at prior period exchange rates. For analysis purposes, management splits the provision for credit losses into net charge-offs and the change in the allowance for credit losses
◦Net charge-off changes are primarily driven by the number of repossessions, severity per repossession, and recoveries. Changes in the allowance for credit losses are primarily driven by changes in historical trends in credit losses and recoveries, changes in the composition and size of Ford Credit’s present portfolio, changes in trends in historical used vehicle values, and changes in forward looking macroeconomic conditions. For additional information, refer to the “Critical Accounting Estimates - Allowance for Credit Losses” section of Item 7 of Part II of our 2022 Form 10-K Report
•Lease Residual:
◦Lease residual measures changes to residual performance at prior period exchange rates. For analysis purposes, management splits residual performance primarily into residual gains and losses, and the change in accumulated supplemental depreciation
◦Residual gain and loss changes are primarily driven by the number of vehicles returned to Ford Credit and sold, and the difference between the auction value and the depreciated value (which includes both base and accumulated supplemental depreciation) of the vehicles sold. Changes in accumulated supplemental depreciation are primarily driven by changes in Ford Credit’s estimate of the expected auction value at the end of the lease term and changes in Ford Credit’s estimate of the number of vehicles that will be returned to it and sold. Depreciation on vehicles subject to operating leases includes early termination losses on operating leases due to customer default events. For additional information, refer to the “Critical Accounting Estimates - Accumulated Depreciation on Vehicles Subject to Operating Leases” section of Item 7 of Part II of our 2022 Form 10-K Report
•Exchange:
◦Reflects changes in EBT driven by the effects of converting functional currency income to U.S. dollars
•Other:
◦Primarily includes operating expenses, other revenue, insurance expenses, and other income/(loss) at prior period exchange rates
◦Changes in operating expenses are primarily driven by salaried personnel costs, facilities costs, and costs associated with the origination and servicing of customer contracts
◦In general, other income/(loss) changes are primarily driven by changes in earnings related to market valuation adjustments to derivatives (primarily related to movements in interest rates) and other miscellaneous items
41
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
In addition, the following definitions and calculations apply to Ford Credit when used in this Report:
•Cash (as shown in the Funding Structure and Liquidity tables) – Cash, cash equivalents, and marketable securities, excluding amounts related to insurance activities
•Debt (as shown in the Key Metrics and Leverage tables) – Debt on Ford Credit’s balance sheets. Includes debt issued in securitizations and payable only out of collections on the underlying securitized assets and related enhancements. Ford Credit holds the right to receive the excess cash flows not needed to pay the debt issued by, and other obligations of, the securitization entities that are parties to those securitization transactions
•Earnings Before Taxes (“EBT”) – Reflects Ford Credit’s income before income taxes
•Loss-to-Receivables (“LTR”) Ratio – LTR ratio is calculated using net charge-offs divided by average finance receivables, excluding unearned interest supplements and the allowance for credit losses
•Return on Equity (“ROE”) (as shown in the Key Metrics table) – Reflects return on equity calculated by annualizing net income for the period and dividing by monthly average equity for the period
•Securitization and Restricted Cash (as shown in the Liquidity table) – Securitization cash is held for the benefit of the securitization investors (for example, a reserve fund). Restricted cash primarily includes cash held to meet certain local governmental and regulatory reserve requirements and cash held under the terms of certain contractual agreements
•Securitizations (as shown in the Public Term Funding Plan table) – Public securitization transactions, Rule 144A offerings sponsored by Ford Credit, and widely distributed offerings by Ford Credit Canada
•Term Asset-Backed Securities (as shown in the Funding Structure table) – Obligations issued in securitization transactions that are payable only out of collections on the underlying securitized assets and related enhancements
•Total Net Receivables (as shown in the Key Metrics table) – Includes finance receivables (retail financing and wholesale) sold for legal purposes and net investment in operating leases included in securitization transactions that do not satisfy the requirements for accounting sale treatment. These receivables and operating leases are reported on Ford Credit’s balance sheets and are available only for payment of the debt issued by, and other obligations of, the securitization entities that are parties to those securitization transactions; they are not available to pay the other obligations of Ford Credit or the claims of Ford Credit’s other creditors
42
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Corporate Other
Corporate Other primarily includes corporate governance expenses, past service pension and OPEB income and expense, interest income (excluding Ford Credit interest income and interest earned on our extended service contract portfolio) and gains and losses from our cash, cash equivalents, and marketable securities (excluding gains and losses on investments in equity securities), and foreign exchange derivatives gains and losses associated with intercompany lending. Corporate governance expenses are primarily administrative, delivering benefit on behalf of the global enterprise, that are not allocated to operating segments. These include expenses related to setting and directing global policy, providing oversight and stewardship, and promoting the Company’s interests. In the second quarter of 2023, Corporate Other had a $197 million loss, compared with a $131 million profit a year ago. The loss was driven by lower past service pension and OPEB income, which was partially offset by higher Company excluding Ford Credit interest income due to increases in interest rates (primarily Fed Funds).
Interest on Debt
Interest on Debt, which consists of interest expense on Company debt excluding Ford Credit, was $304 million in the second quarter of 2023, $8 million lower than a year ago.
Taxes
Our Provision for/(Benefit from) income taxes for the second quarter and first half of 2023 was a provision of $272 million and $768 million, respectively. This resulted in effective tax rates of 11.9% and 17.3%, respectively.
Our second quarter and first half of 2023 adjusted effective tax rates, which exclude special items, were 12.9% and 16.6%, respectively.
We regularly review our organizational structure and income tax elections for affiliates in non-U.S. and U.S. tax jurisdictions, which may result in changes in affiliates that are included in or excluded from our U.S. tax return. Any future changes to our structure, as well as any changes in income tax laws in the countries that we operate, could cause increases or decreases to our deferred tax balances and related valuation allowances.
43
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2023, total balance sheet cash, cash equivalents, marketable securities, and restricted cash, including Ford Credit and entities held for sale, was $43.0 billion.
We consider our key balance sheet metrics to be: (i) Company cash, which includes cash equivalents, marketable securities, and restricted cash, including cash held for sale, excluding Ford Credit’s cash, cash equivalents, marketable securities, and restricted cash; and (ii) Company liquidity, which includes Company cash, less restricted cash, and total available committed credit lines, excluding Ford Credit’s total available committed credit lines.
Company excluding Ford Credit
December 31, 2022
June 30, 2023
Balance Sheets ($B)
Company Cash
$
32.3
$
29.8
Liquidity
48.0
47.3
Debt
(19.9)
(19.6)
Cash Net of Debt
12.3
10.3
Pension Funded Status ($B) (a)
Funded Plans
$
4.1
$
4.0
Unfunded Plans
(4.3)
(4.2)
Total Global Pension
$
(0.2)
$
(0.2)
Total Funded Status OPEB
$
(4.5)
$
(4.4)
__________
(a)Balances at June 30, 2023 reflect 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. The discount rate and rate of expected return assumptions are unchanged from year-end 2022.
Liquidity. One of our key priorities is to maintain a strong balance sheet, while at the same time having resources available to invest in and grow our business. At June 30, 2023, we had Company cash of $29.8 billion and liquidity of $47.3 billion. At June 30, 2023, about 90% of Company cash was held by consolidated entities domiciled in the United States.
To be prepared for an economic downturn, we target an ongoing Company cash balance at or above $20 billion plus significant additional liquidity above our Company cash target. We expect to have periods when we will be above or below this amount due to: (i) future cash flow expectations, such as for investments in future opportunities, capital investments, debt maturities, pension contributions, or restructuring requirements, (ii) short-term timing differences, and (iii) changes in the global economic environment.
Our Company cash investments primarily include U.S. Department of Treasury obligations, federal agency securities, bank time deposits with investment-grade institutions, investment-grade corporate securities, investment-grade commercial paper, and debt obligations of a select group of non-U.S. governments, non-U.S. governmental agencies, and supranational institutions. The average maturity of these investments is approximately one year and adjusted based on market conditions and liquidity needs. We monitor our Company cash levels and average maturity on a daily basis.
44
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Material Cash Requirements. Our material cash requirements include:
•Capital expenditures (for additional information, see the “Changes in Company Cash” section below) and other payments for engineering, software, product development, and implementation of our plans for electric vehicles
•Purchase of raw materials and components to support the manufacturing and sale of vehicles (including electric vehicles), parts, and accessories (for additional information, see the Aggregate Contractual Obligations table and the accompanying description of our “Purchase obligations” in the “Liquidity and Capital Resources - Company Excluding Ford Credit” section in Item 7 of our 2022 Form 10-K Report)
•Marketing incentive payments to dealers
•Payments for warranty and field service actions (for additional information, see Note 20 of the Notes to the Financial Statements herein)
•Debt repayments (for additional information, 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 the Financial Statements in our 2022 Form 10-K Report)
•Discretionary and mandatory payments to our global pension plans (for additional information, see the Aggregate Contractual Obligations table in the “Liquidity and Capital Resources - Company Excluding Ford Credit” section in Item 7 of our 2022 Form 10-K Report, the “Changes in Company Cash” section below, and Note 13 of the Notes to the Financial Statements herein)
•Employee wages, benefits, and incentives
•Operating lease payments (for additional information, see the Aggregate Contractual Obligations table in the “Liquidity and Capital Resources - Company Excluding Ford Credit” section in Item 7 and Note 18 of the Notes to the Financial Statements in our 2022 Form 10-K Report)
•Cash effects related to the restructuring of our business
•Strategic acquisitions and investments to grow our business, including electrification
Subject to approval by our Board of Directors, shareholder distributions in the form of dividend payments and/or a share repurchase program (including share repurchases to offset the anti-dilutive effect of increased shared-based compensation) may require the expenditure of a material amount of cash. Moreover, we 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.
We plan to utilize our liquidity (as described above) and our cash flows from business operations to fund our material cash requirements.
45
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. Even in normal economic conditions, however, these working capital balances generally are subject to seasonal changes that can impact cash flow. For example, we typically experience cash flow timing differences associated with inventories and payables due to our annual summer and December shutdown periods when production, and therefore inventories and wholesale volumes, are usually at their lowest levels, while payables continue to come due and be paid. The net impact of this typically results in cash outflows from changes in our working capital balances during these shutdown periods.
Our 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.
In response to, or in anticipation of, supplier disruptions, we may stockpile certain components or raw materials to help prevent disruption in our production of vehicles. Such actions could have a short-term adverse impact on our cash and increase our inventory. Moreover, in order to secure critical materials for production of electric vehicles, we have entered into and plan to continue to enter into offtake agreements with raw material suppliers and make investments in certain raw material and battery suppliers, including contributing up to $6.6 billion in capital to BlueOval SK, LLC over a five-year period ending in 2026. Such investments, which are part of our plan to invest over $50 billion in electric vehicles through 2026, could have an additional adverse impact on our cash in the near-term.
The terms of the offtake agreements we have entered into, and those we may enter into in the future, vary by transaction, though they generally obligate us to purchase a certain percentage or minimum amount of output produced by the counterparty over an agreed upon period of time. The purchase price mechanism included in the offtake agreement is typically based on the market price of the material at the time of delivery. 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 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; 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.
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 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.
46
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):
Second Quarter
First Half
2022
2023
2022
2023
Company Excluding Ford Credit
Company Adjusted EBIT excluding Ford Credit (a)
$
2.8
$
3.4
$
4.2
$
6.5
Capital spending
$
(1.5)
$
(1.9)
$
(2.9)
$
(3.7)
Depreciation and tooling amortization
1.3
1.3
2.6
2.6
Net spending
$
(0.2)
$
(0.6)
$
(0.2)
$
(1.1)
Receivables
$
(0.6)
$
(0.6)
$
(0.6)
$
(0.2)
Inventory
0.3
(1.4)
(2.5)
(3.4)
Trade Payables
0.4
1.4
2.0
1.7
Changes in working capital
$
0.1
$
(0.7)
$
(1.1)
$
(1.9)
Ford Credit distributions
$
0.6
$
—
$
1.6
$
—
Interest on debt and cash taxes
(0.6)
(0.7)
(0.9)
(1.3)
All other and timing differences
0.9
1.6
(0.5)
1.4
Company adjusted free cash flow (a)
$
3.6
$
2.9
$
3.0
$
3.6
Restructuring
$
0.3
$
(0.1)
$
0.2
$
(0.1)
Changes in debt
(0.6)
—
(0.8)
(0.2)
Funded pension contributions
(0.2)
(0.1)
(0.3)
(0.2)
Shareholder distributions
(0.4)
(0.6)
(0.8)
(3.8)
All other (b)
(2.8)
(0.9)
(9.0)
(1.7)
Change in cash
$
—
$
1.1
$
(7.8)
$
(2.4)
__________
(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.
Note: 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. All other and timing differences were positive $1.6 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 second quarter of 2023, we contributed $109 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.
47
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 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.
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 CO2 tailpipe emissions.
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 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 June 30, 2023, Company debt excluding Ford Credit was $19.6 billion. This balance is $0.4 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.
48
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 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.
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):
June 30, 2022
December 31, 2022
June 30, 2023
Funding Structure
Term unsecured debt
$
49.9
$
48.3
$
52.2
Term asset-backed securities
47.1
56.4
55.6
Ford Interest Advantage / Retail Deposits
12.5
14.3
15.9
Other
1.9
2.6
2.3
Equity
12
11.9
12.5
Adjustments for cash
(7.8)
(11.2)
(12.4)
Total Net Receivables
$
115.6
$
122.3
$
126.1
Securitized Funding as Percent of Total Debt
43.0
%
47.4
%
45.0
%
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.
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):
2021 Actual
2022 Actual
2023 Forecast
Through July 26
Unsecured
$
5
$
6
$ 11 - 14
$
9
Securitizations (a)
9
10
12 - 14
9
Total public
$
14
$
16
$ 23 - 28
$
18
__________
(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 $28 billion.
49
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):
June 30, 2022
December 31, 2022
June 30, 2023
Liquidity Sources (a)
Cash
$
7.8
$
11.2
$
12.4
Committed asset-backed facilities
34.3
37.4
42.3
Other unsecured credit facilities
2.5
2.3
2.6
Total liquidity sources
$
44.6
$
50.9
$
57.3
Utilization of Liquidity (a)
Securitization and restricted cash
$
(2.7)
$
(2.9)
$
(2.9)
Committed asset-backed facilities
(15.3)
(26.6)
(23.1)
Other unsecured credit facilities
(0.5)
(0.8)
(1.2)
Total utilization of liquidity
$
(18.5)
$
(30.3)
$
(27.2)
Gross liquidity
$
26.1
$
20.6
$
30.1
Asset-backed capacity in excess of eligible receivables and other adjustments
(1.1)
0.4
(1.3)
Net liquidity available for use
$
25.0
$
21.0
$
28.8
__________
(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 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.
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.
50
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):
June 30, 2022
December 31, 2022
June 30, 2023
Leverage Calculation
Debt
$
109.5
$
119.0
$
123.7
Equity (a)
12.0
11.9
12.5
Financial statement leverage (to 1)
9.1
10.0
9.9
__________
(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 June 30, 2023, Ford Credit’s financial statement leverage was 9.9:1. Ford Credit targets financial statement leverage in the range of 9:1 to 10:1.
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: 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
June 30, 2022
June 30, 2023
Adjusted Net Operating Profit/(Loss) After Cash Tax
Net income/(loss) attributable to Ford
$
11.7
$
4.1
Add: Noncontrolling interest
—
(0.2)
Less: Income tax
1.6
(0.5)
Add: Cash tax
(0.7)
(1.0)
Less: Interest on debt
(1.5)
(1.3)
Less: Total pension/OPEB income/(cost)
4.5
(0.6)
Add: Pension/OPEB service costs
(1.0)
(0.7)
Net operating profit/(loss) after cash tax
$
5.4
$
4.5
Less: Special items (excl. pension/OPEB) pre-tax
(3.0)
(5.1)
Adjusted net operating profit/(loss) after cash tax
$
8.3
$
9.6
Invested Capital
Equity
$
44.2
$
43.6
Debt (excl. Ford Credit)
19.4
19.6
Net pension and OPEB liability
5.2
4.6
Invested capital (end of period)
$
68.8
$
67.8
Average invested capital
$
72.0
$
67.6
ROIC (a)
7.4
%
6.7
%
Adjusted ROIC (Non-GAAP) (b)
11.6
%
14.2
%
__________
(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.
51
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 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 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
BB+
BB+
Positive
BB+
B
Positive
BBB-
Moody’s
N/A
Ba1
Stable
Ba1
NP
Stable
Baa3
S&P
BB+
BB+
Positive
BB+
B
Positive
BBB-
52
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
OUTLOOK
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
Ford Credit
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.
Headwinds:
•Global economic uncertainty
•Inflationary pressures
•Higher industrywide customer incentives and continued EV pricing pressure
•Increased warranty costs
•Lower past service pension income
•Exchange
•Certain costs associated with union contract negotiations
Tailwinds:
•Improved supply chain
•Higher industry volumes
•All-new Super Duty
•Lower commodity costs
53
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.
54
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.
55
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.
56
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.
57
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)
Second Quarter
First Half
2022
2023
2022
2023
Net income/(loss) attributable to Ford (GAAP)
$
667
$
1,917
$
(2,443)
$
3,674
Income/(Loss) attributable to noncontrolling interests
(29)
99
(38)
5
Net income/(loss)
$
638
$
2,016
$
(2,481)
$
3,679
Less: (Provision for)/Benefit from income taxes
(153)
(272)
576
(768)
Income/(Loss) before income taxes
$
791
$
2,288
$
(3,057)
$
4,447
Less: Special items pre-tax
(2,619)
(1,194)
(8,485)
(2,106)
Income/(Loss) before special items pre-tax
$
3,410
$
3,482
$
5,428
$
6,553
Less: Interest on debt
(312)
(304)
(620)
(612)
Adjusted EBIT (Non-GAAP)
$
3,722
$
3,786
$
6,048
$
7,165
Memo:
Revenue ($B)
$
40.2
$
45.0
$
74.7
$
86.4
Net income/(loss) margin (GAAP) (%)
1.7
%
4.3
%
(3.3)
%
4.3
%
Adjusted EBIT margin (Non-GAAP) (%)
9.3
%
8.4
%
8.1
%
8.3
%
Earnings per Share Reconciliation to Adjusted Earnings per Share
Second Quarter
First Half
2022
2023
2022
2023
Diluted After-Tax Results ($M)
Diluted after-tax results (GAAP)
$
667
$
1,917
$
(2,443)
$
3,674
Less: Impact of pre-tax and tax special items (a)
(2,082)
(1,012)
(6,756)
(1,722)
Adjusted net income/(loss) – diluted (Non-GAAP)
$
2,749
$
2,929
$
4,313
$
5,396
Basic and Diluted Shares (M)
Basic shares (average shares outstanding)
4,021
4,003
4,014
3,996
Net dilutive options, unvested restricted stock units, unvested restricted stock shares, and convertible debt
31
38
43
39
Diluted shares
4,052
4,041
4,057
4,035
Earnings/(Loss) per share – diluted (GAAP) (b)
$
0.16
$
0.47
$
(0.61)
$
0.91
Less: Net impact of adjustments
(0.52)
(0.25)
(1.67)
(0.43)
Adjusted earnings/(loss) per share – diluted (Non-GAAP)
$
0.68
$
0.72
$
1.06
$
1.34
_________
(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.
58
Item 2. 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
2022
2023
2022
2023
Memo: FY 2022
Pre-Tax Results ($M)
Income/(Loss) before income taxes (GAAP)
$
791
$
2,288
$
(3,057)
$
4,447
$
(3,016)
Less: Impact of special items
(2,619)
(1,194)
(8,485)
(2,106)
(12,172)
Adjusted earnings before taxes (Non-GAAP)
$
3,410
$
3,482
$
5,428
$
6,553
$
9,156
Taxes ($M)
(Provision for)/Benefit from income taxes (GAAP)
$
(153)
$
(272)
$
576
$
(768)
$
864
Less: Impact of special items (a)
537
177
1,729
321
2,573
Adjusted (provision for)/benefit from income taxes (Non-GAAP)
$
(690)
$
(449)
$
(1,153)
$
(1,089)
$
(1,709)
Tax Rate (%)
Effective tax rate (GAAP)
19.3
%
11.9
%
18.8
%
17.3
%
28.6
%
Adjusted effective tax rate (Non-GAAP)
20.2
%
12.9
%
21.2
%
16.6
%
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.
Net Cash Provided by/(Used in) Operating Activities Reconciliation to Company Adjusted Free Cash Flow ($M)
Second Quarter
First Half
2022
2023
2022
2023
Net cash provided by/(used in) operating activities (GAAP)
$
2,947
$
5,035
$
1,863
$
7,835
Less: Items not included in Company Adjusted Free Cash Flows
Ford Credit operating cash flows
$
(1,340)
$
581
$
(1,759)
$
1,207
Funded pension contributions
(154)
(109)
(328)
(234)
Restructuring (including separations) (a)
(137)
(118)
(313)
(199)
Ford Credit tax payments/(refunds) under tax sharing agreement
—
—
—
(5)
Other, net
20
(73)
—
(213)
Add: Items included in Company Adjusted Free Cash Flows
Company excluding Ford Credit capital spending
$
(1,503)
$
(1,927)
$
(2,852)
$
(3,687)
Ford Credit distributions
600
—
1,600
—
Settlement of derivatives
(36)
92
28
20
Company adjusted free cash flow (Non-GAAP)
$
3,619
$
2,919
$
3,039
$
3,612
_________
(a)Restructuring excludes cash flows reported in investing activities.
59
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 June 30, 2023
First Half
Cash flows from operating activities
Company excluding Ford Credit
Ford Credit
Eliminations
Consolidated
Net income/(loss)
$
3,144
$
535
$
—
$
3,679
Depreciation and tooling amortization
2,640
1,135
—
3,775
Other amortization
(8)
(546)
—
(554)
Provision for/(Benefit from) credit and insurance losses
55
157
—
212
Pension and OPEB expense/(income)
612
—
—
612
Equity method investment dividends received in excess of (earnings)/losses and impairments
146
(4)
—
142
Foreign currency adjustments
(92)
(5)
—
(97)
Net realized and unrealized (gains)/losses on cash equivalents, marketable securities, and other investments
175
(12)
—
163
Net (gain)/loss on changes in investments in affiliates
(17)
—
—
(17)
Stock compensation
232
6
—
238
Provision for/(Benefit from) deferred income taxes
(10)
13
—
3
Decrease/(Increase) in finance receivables (wholesale and other)
—
(1,473)
—
(1,473)
Decrease/(Increase) in intersegment receivables/payables
261
(261)
—
—
Decrease/(Increase) in accounts receivable and other assets
(1,750)
(43)
—
(1,793)
Decrease/(Increase) in inventory
(3,354)
—
—
(3,354)
Increase/(Decrease) in accounts payable and accrued and other liabilities
6,068
66
—
6,134
Other
245
(80)
—
165
Interest supplements and residual value support to Ford Credit
(1,719)
1,719
—
—
Net cash provided by/(used in) operating activities
$
6,628
$
1,207
$
—
$
7,835
Cash flows from investing activities
Company excluding Ford Credit
Ford Credit
Eliminations
Consolidated
Capital spending
$
(3,691)
$
(38)
$
—
$
(3,729)
Acquisitions of finance receivables and operating leases
—
(26,231)
—
(26,231)
Collections of finance receivables and operating leases
—
22,517
—
22,517
Purchases of marketable and other investments
(3,164)
(1,696)
—
(4,860)
Sales and maturities of marketable securities and other investments
5,974
1,610
—
7,584
Settlements of derivatives
20
(52)
—
(32)
Capital contributions to equity method investments
(1,047)
—
—
(1,047)
Other
(359)
—
—
(359)
Investing activity (to)/from other segments
—
1
(1)
—
Net cash provided by/(used in) investing activities
$
(2,267)
$
(3,889)
$
(1)
$
(6,157)
Cash flows from financing activities
Company excluding Ford Credit
Ford Credit
Eliminations
Consolidated
Cash payments for dividends and dividend equivalents
$
(3,794)
$
—
$
—
$
(3,794)
Purchases of common stock
—
—
—
—
Net changes in short-term debt
(104)
(554)
—
(658)
Proceeds from issuance of long-term debt
—
26,401
—
26,401
Payments of long-term debt
(138)
(22,075)
—
(22,213)
Other
(102)
(95)
—
(197)
Financing activity to/(from) other segments
(1)
—
1
—
Net cash provided by/(used in) financing activities
$
(4,139)
$
3,677
$
1
$
(461)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
$
(11)
$
77
$
—
$
66
60
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 June 30, 2023
Second Quarter
Company excluding Ford Credit
Ford Credit
Consolidated
Revenues
$
42,427
$
2,527
$
44,954
Total costs and expenses
40,221
2,272
42,493
Operating income/(loss)
2,206
255
2,461
Interest expense on Company debt excluding Ford Credit
304
—
304
Other income/(loss), net
127
128
255
Equity in net income/(loss) of affiliated companies
(131)
7
(124)
Income/(Loss) before income taxes
1,898
390
2,288
Provision for/(Benefit from) income taxes
177
95
272
Net income/(loss)
1,721
295
2,016
Less: Income/(Loss) attributable to noncontrolling interests
99
—
99
Net income/(loss) attributable to Ford Motor Company
$
1,622
$
295
$
1,917
For the period ended June 30, 2023
First Half
Company excluding Ford Credit
Ford Credit
Consolidated
Revenues
$
81,512
$
4,916
$
86,428
Total costs and expenses
77,396
4,458
81,854
Operating income/(loss)
4,116
458
4,574
Interest expense on Company debt excluding Ford Credit
612
—
612
Other income/(loss), net
258
221
479
Equity in net income/(loss) of affiliated companies
(8)
14
6
Income/(Loss) before income taxes
3,754
693
4,447
Provision for/(Benefit from) income taxes
610
158
768
Net income/(loss)
3,144
535
3,679
Less: Income/(Loss) attributable to noncontrolling interests
5
—
5
Net income/(loss) attributable to Ford Motor Company
$
3,139
$
535
$
3,674
61
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):
June 30, 2023
Assets
Company excluding Ford Credit
Ford Credit
Eliminations
Consolidated
Cash and cash equivalents
$
14,945
$
11,461
$
—
$
26,406
Marketable securities
14,809
1,606
—
16,415
Ford Credit finance receivables, net
—
42,557
—
42,557
Trade and other receivables, net
5,070
9,412
—
14,482
Inventories
17,703
—
—
17,703
Other assets
2,775
1,374
—
4,149
Receivable from other segments
353
1,761
(2,114)
—
Total current assets
55,655
68,171
(2,114)
121,712
Ford Credit finance receivables, net
—
52,567
—
52,567
Net investment in operating leases
1,022
20,640
—
21,662
Net property
38,250
253
—
38,503
Equity in net assets of affiliated companies
3,464
114
—
3,578
Deferred income taxes
15,685
175
—
15,860
Other assets
10,889
1,220
—
12,109
Receivable from other segments
—
15
(15)
—
Total assets
$
124,965
$
143,155
$
(2,129)
$
265,991
Liabilities
Company excluding Ford Credit
Ford Credit
Eliminations
Consolidated
Payables
$
26,711
$
1,038
$
—
$
27,749
Other liabilities and deferred revenue
21,037
2,888
—
23,925
Debt payable within one year
410
48,931
—
49,341
Payable to other segments
2,114
—
(2,114)
—
Total current liabilities
50,272
52,857
(2,114)
101,015
Other liabilities and deferred revenue
23,659
2,095
—
25,754
Long-term debt
19,169
74,726
—
93,895
Deferred income taxes
753
968
—
1,721
Payable to other segments
15
—
(15)
—
Total liabilities
$
93,868
$
130,646
$
(2,129)
$
222,385
62
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Selected Other Information.
Equity. At June 30, 2023, total equity attributable to Ford was $43.7 billion, an increase of $0.5 billion compared with December 31, 2022. The detail for this change is shown below (in billions):
Increase/ (Decrease)
Net income/(loss)
$
3.7
Shareholder distributions
(3.8)
Other comprehensive income/(loss), net
0.4
Common stock issued (including share-based compensation impacts)
0.2
Total
$
0.5
U.S. Sales by Type. The following table shows second 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
14,843
30,055
Hybrid Vehicles
34,589
35,135
Internal Combustion Vehicles
482,230
466,571
Total Vehicles
531,662
531,761
ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED
For a discussion of recent accounting standards, see Note 2 of the Notes to the Financial Statements.
63
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
Company Excluding Ford Credit
Foreign Currency Risk. The net fair value of foreign exchange forward contracts (including adjustments for credit risk) as of June 30, 2023, was a liability of $122 million, compared with an asset of $236 million as of December 31, 2022. The potential change in the fair value from a 10% change in the underlying exchange rates, in U.S. dollar terms, would have been $2.8 billion at June 30, 2023, compared with $1.9 billion at December 31, 2022.
Commodity Price Risk. The net fair value of commodity forward contracts (including adjustments for credit risk) as of June 30, 2023, was a liability of $182 million, compared with a liability of $49 million at December 31, 2022. The potential change in the fair value from a 10% change in the underlying commodity prices would have been $185 million at June 30, 2023, compared with $178 million at December 31, 2022.
Ford Credit Segment
Interest Rate Risk. To provide a quantitative measure of the sensitivity of its pre-tax cash flow to changes in interest rates, Ford Credit uses interest rate scenarios that assume a hypothetical, instantaneous increase or decrease of one percentage point in all interest rates across all maturities (a “parallel shift”), as well as a base case that assumes that all interest rates remain constant at existing levels. Maturing assets and liabilities are also instantaneously reinvested, capturing 100% of any hypothetical change in interest rates. The differences in pre-tax cash flow between thesescenarios and the base case over a 12-month period represent an estimate of the sensitivity of Ford Credit’s pre-taxcash flow. Under this model, Ford Credit estimates that at June 30, 2023, all else constant, such an increase ininterest rates would increase its pre-tax cash flow by $117 million over the next 12 months, compared with an increaseof $127 million at December 31, 2022. In reality, new assets and liabilities may not immediately capture changes in interest rates, and interest rate changes are rarely instantaneous, parallel, or move exactly the one percentage point assumed in Ford Credit’s analysis. As a result, the actual impact to pre-tax cash flow could be higher or lower than the results detailed above.
ITEM 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures. James D. Farley, Jr., our Chief Executive Officer (“CEO”), and John T. Lawler, our Chief Financial Officer (“CFO”), have performed an evaluation of the Company’s disclosure controls and procedures, as that term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), as of June 30, 2023, and each has concluded that such disclosure controls and procedures are effective to ensure that information required to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified by SEC rules and forms, and that such information is accumulated and communicated to the CEO and CFO to allow timely decisions regarding required disclosures.
Changes in Internal Control Over Financial Reporting. As previously reported, in 2021 we began a multi-year implementation of a new global integrated enterprise resource planning (“I-ERP”) system to replace a number of our existing core financial systems. Implementation of I-ERP began with the launch of our Canada market in May 2021, and implementation is progressing in phased launches across our remaining markets over the next several years. In May 2023, I-ERP was launched in the rest of North America. Additionally, a new general ledger system was launched globally. Our processes, procedures, and controls continue to be refined as appropriate during the phased implementation of the I-ERP system.
64
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.
ENVIRONMENTAL MATTERS
Any legal proceeding arising under any federal, state, or local provisions that have been enacted or adopted regulating the discharge of materials into the environment or primarily for the purpose of protecting the environment, in which (i) a governmental authority is a party, and (ii) we believe there is the possibility of monetary sanctions (exclusive of interest and costs) in excess of $1,000,000 is described on page 30 of our 2022 Form 10-K Report and page 64 of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023.
OTHER MATTERS
Brazilian Tax Matters (as previously reported on page 31 of our 2022 Form 10-K Report and page 64 of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023). One Brazilian state (São Paulo) and the Brazilian federal tax authority currently have outstanding substantial tax assessments against Ford Motor Company Brasil Ltda. (“Ford Brazil”) related to state and federal tax incentives Ford Brazil received for its operations in the Brazilian state of Bahia. The São Paulo assessment is part of a broader conflict among various states in Brazil. The federal legislature enacted laws designed to encourage the states to end that conflict, and in 2017 the states reached an agreement on a framework for resolution. Ford Brazil continues to pursue a resolution under the framework and expects the amount of any remaining assessments by the states to be resolved under that framework. The federal assessments are outside the scope of the legislation.
All of the outstanding assessments have been appealed to the relevant administrative court of each jurisdiction. To proceed with an appeal within the judicial court system, an appellant may be required to post collateral. To date, we have not been required to post any collateral. If we are required to post collateral, which could be in excess of $1 billion, we expect it to be in the form of fixed assets, surety bonds, and/or letters of credit, but we may be required to post cash collateral. Although the ultimate resolution of these matters may take many years, we consider our overall risk of loss to be remote.
Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101).
(c)
__________
(a)Management contract or compensatory plan or arrangement.
(b)Incorporated by reference as an exhibit to this Report (file number reference 1-3950, unless otherwise indicated).
(c)Submitted electronically with this Report in accordance with the provisions of Regulation S-T.
66
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
