Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

143K characters. Original on sec.gov · Markdown

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

RECENT DEVELOPMENTS

The automotive industry continues to face a significant shortage of semiconductors due in large part to strong cross-industry demand, which has presented challenges and production disruptions globally, including at our assembly plants. Our initial outlook was for semiconductor supply chains to remain constrained through the second quarter of 2021, and we would have an opportunity to begin recovering lost production volumes in the second half of 2021. However, the industry faced another setback on March 19, 2021, when Renesas Electronics Corporation, a key supplier of semiconductors for the automotive industry and for us in particular, experienced a significant fire at its Naka Factory. Renesas recently returned to full capacity across its range of semiconductors at its Naka Factory. COVID-related work restrictions in Southeast Asia, though, have also impacted semiconductor production. Notwithstanding the improvement for Renesas, based on the overall recovery rate we are seeing for the industry, we believe the automotive semiconductor shortage will remain fluid and could extend into 2023.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

RESULTS OF OPERATIONS

In the third quarter of 2021, the net income attributable to Ford Motor Company was $1,832 million, and Company adjusted EBIT was $2,993 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):


	Third Quarter				First Nine Months
	2020		2021		2020		2021
Global Redesign
Europe	$	(211)	$	(88)	$	(410)	$	(347)
India	(3)		(369)		(21)		(369)
South America	(52)		(211)		(70)		(666)
Russia	1		—		18		8
China (including Taiwan)	(3)		(5)		(9)		152
Separations and Other (not included above)	—		(29)		(1)		(40)
Subtotal Global Redesign	$	(268)	$	(702)	$	(493)	$	(1,262)
Other Items
North America hourly buyouts	$	(18)	$	—	$	(219)	$	(10)
Gain on transaction with Argo AI	—		—		3,454		—
Transit Connect customs ruling	(2)		—		(7)		—
Subtotal Other Items	$	(20)	$	—	$	3,228	$	(10)
Pension and OPEB Gain/(Loss)
Pension and OPEB remeasurement	$	(54)	$	40	$	116	$	364
Pension settlements and curtailments	(48)		(7)		(48)		(56)
Subtotal Pension and OPEB Gain/(Loss)	$	(102)	$	33	$	68	$	308
Total EBIT Special Items	$	(390)	$	(669)	$	2,803	$	(964)

Cash effect of Global Redesign (incl. separations)	$	(105)	$	(293)	$	(376)	$	(1,608)

Provision for/(Benefit from) tax special items (a)	$	(159)	$	(460)	$	1,583	$	(503)

(a)Includes related tax effect on special items and tax special items.

We recorded $669 million of pre-tax special item charges in the third quarter of 2021, primarily reflecting redesign actions in India and South America. In total, we expect to incur about $2.0 billion of pre-tax special item charges associated with the redesign actions in India that we announced on September 9, 2021.

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 the Automotive, Mobility, and Ford Credit 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.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

COMPANY KEY METRICS

The table below shows our third quarter 2021 key metrics for the Company, compared to a year ago.


	Third Quarter									First Nine Months
	2020			2021			H / (L)			2020			2021			H / (L)
GAAP Financial Measures
Cash Flows from Operating Activities ($B)	$	11.1		$	7.0		$	(4.1)		$	19.7		$	12.3		$	(7.5)
Revenue ($M)	37,501			35,683			(5)		%	91,192			98,663			8		%
Net Income/(Loss) ($M)	2,385			1,832			(553)			1,509			5,655			4,146
Net Income/(Loss) Margin (%)	6.4		%	5.1		%	(1.3) ppts			1.7		%	5.7		%	4.0 ppts
EPS (Diluted)	$	0.60		$	0.45		$	(0.15)		$	0.38		$	1.40		$	1.02

Non-GAAP Financial Measures (a)
Company Adj. Free Cash Flow ($B)	$	6.6		$	7.7		$	1.2		$	(0.4)		$	2.2		$	2.6
Company Adj. EBIT ($M)	3,644			2,993			(651)			1,066			8,891			7,825
Company Adj. EBIT Margin (%)	9.7		%	8.4		%	(1.3) ppts			1.2		%	9.0		%	7.8 ppts
Adjusted EPS (Diluted)	$	0.65		$	0.51		$	(0.14)		$	0.07		$	1.52		$	1.45
Adjusted ROIC (Trailing Four Quarters)	(0.4)		%	11.0		%	11.4 ppts

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

In the third quarter of 2021, our diluted earnings per share of Common and Class B Stock was $0.45 and our diluted adjusted earnings per share was $0.51.

Net income/(loss) margin was 5.1% and Company adjusted EBIT margin was 8.4% in the third quarter of 2021, both down 1.3 percentage points from a year ago.

The year-over-year decreases of $553 million in net income/(loss) and $651 million in Company adjusted EBIT in the third quarter of 2021 reflect lower Corporate Other results and lower Automotive EBIT.

The table below shows our third quarter 2021 net income/(loss) attributable to Ford and Company adjusted EBIT by segment.


	Third Quarter						First Nine Months
	2020		2021		H / (L)		2020		2021		H / (L)
Automotive	$	2,665	$	2,459	$	(206)	$	448	$	5,767	$	5,319
Mobility	(230)		(258)		(28)		(801)		(637)		164
Ford Credit	1,123		1,077		(46)		1,696		3,662		1,966
Corporate Other	86		(285)		(371)		(277)		99		376
Company Adjusted EBIT (a)	3,644		2,993		(651)		1,066		8,891		7,825
Interest on Debt	(498)		(439)		(59)		(1,175)		(1,365)		190
Special Items	(390)		(669)		279		2,803		(964)		3,767
Taxes / Noncontrolling Interests	(371)		(53)		(318)		(1,185)		(907)		(278)
Net Income/(Loss)	$	2,385	$	1,832	$	(553)	$	1,509	$	5,655	$	4,146

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

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Automotive Segment

The table below shows our third quarter 2021 Automotive segment EBIT by business unit (in millions).


	Third Quarter						First Nine Months
	2020		2021		H / (L)		2020		2021		H / (L)
North America	$	3,202	$	2,423	$	(779)	$	2,629	$	5,566	$	2,937
South America	(108)		2		110		(385)		(157)		228
Europe	(444)		(52)		392		(1,260)		5		1,265
China (including Taiwan)	(57)		(39)		18		(434)		(177)		257
International Markets Group	72		125		53		(102)		530		632
Automotive Segment	$	2,665	$	2,459	$	(206)	$	448	$	5,767	$	5,319

The tables below and on the following pages provide third quarter 2021 key metrics and the change in third quarter 2021 EBIT compared with third quarter 2020 by causal factor for our Automotive segment and its regional business units: North America, South America, Europe, China (including Taiwan), and the International Markets Group. For a description of these causal factors, see Definitions and Information Regarding Automotive Causal Factors.


	Third Quarter								First Nine Months
Key Metrics	2020			2021			H / (L)		2020			2021			H / (L)
Market Share (%)	6.0		%	4.9		%	(1.1) ppts		5.9		%	5.1		%	(0.8) ppts
Wholesale Units (000)	1,178			1,012			(166)		2,949			2,838			(111)
Revenue ($M)	$	34,710		$	33,211		$	(1,499)	$	82,677		$	90,893		$	8,216
EBIT ($M)	2,665			2,459			(206)		448			5,767			5,319
EBIT Margin (%)	7.7		%	7.4		%	(0.3) ppts		0.5		%	6.3		%	5.8 ppts


Change in EBIT by Causal Factor (in millions)
Third Quarter 2020 EBIT	$	2,665
Volume / Mix	(1,798)
Net Pricing	2,385
Cost	(689)
Exchange	29
Other	(133)
Third Quarter 2021 EBIT	$	2,459

In the third quarter of 2021, wholesales decreased 14% from a year ago, primarily reflecting semiconductor-related production constraints and the shift to a new business model in South America. Third quarter 2021 revenue decreased 4%, driven by lower wholesales, partially offset by higher net pricing, favorable mix, and stronger currencies.

Our third quarter 2021 Automotive segment EBIT was $2.5 billion, a decrease of $206 million from a year ago, and our third quarter 2021 Automotive EBIT margin was 7.4%. The lower EBIT was driven by lower wholesales and increased commodity prices, partially offset by higher net pricing (reflecting the strength of our product portfolio and lower incentives), lower warranty expense, and favorable mix.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

North America


	Third Quarter								First Nine Months
Key Metrics	2020			2021			H / (L)		2020			2021			H / (L)
Market Share (%)	13.6		%	11.2		%	(2.4) ppts		13.7		%	11.3		%	(2.4) ppts
Wholesale Units (000)	651			546			(104)		1,541			1,407			(134)
Revenue ($M)	$	25,336		$	24,032		$	(1,304)	$	58,092		$	61,992		$	3,900
EBIT ($M)	3,202			2,423			(779)		2,629			5,566			2,937
EBIT Margin (%)	12.6		%	10.1		%	(2.5) ppts		4.5		%	9.0		%	4.5 ppts


Change in EBIT by Causal Factor (in millions)
Third Quarter 2020 EBIT	$	3,202
Volume / Mix	(1,468)
Net Pricing	1,904
Cost	(997)
Exchange	3
Other	(221)
Third Quarter 2021 EBIT	$	2,423

In North America, third quarter 2021 wholesales decreased 16% from a year ago, primarily reflecting the impact of semiconductor-related production constraints. Third quarter 2021 revenue decreased 5%, driven by lower wholesales, partially offset by higher net pricing (primarily reflecting strong demand for the new product portfolio and lower incentives) and favorable mix.

North America’s third quarter 2021 EBIT decreased $779 million from a year ago with an EBIT margin of 10.1%. The lower EBIT was driven by lower volume, increased commodity prices, and other costs, partially offset by higher net pricing, favorable mix, and lower warranty expense.

South America


	Third Quarter								First Nine Months
Key Metrics	2020			2021			H / (L)		2020			2021			H / (L)
Market Share (%)	5.7		%	2.4		%	(3.3) ppts		6.3		%	2.8		%	(3.5) ppts
Wholesale Units (000)	48			20			(29)		122			55			(67)
Revenue ($M)	$	630		$	627		$	(3)	$	1,601		$	1,605		$	4
EBIT ($M)	(108)			2			110		(385)			(157)			228
EBIT Margin (%)	(17.1)		%	0.3		%	17.4 ppts		(24.0)		%	(9.8)		%	14.2 ppts


Change in EBIT by Causal Factor (in millions)
Third Quarter 2020 EBIT	$	(108)
Volume / Mix	(55)
Net Pricing	159
Cost	15
Exchange	4
Other	(13)
Third Quarter 2021 EBIT	$	2

In South America, third quarter 2021 wholesales decreased 60% from a year ago, primarily reflecting the shift to the region’s new business model and the impact of semiconductor-related production constraints. Third quarter 2021 revenue decreased 1%, driven by lower wholesales and weaker currencies, partially offset by higher net pricing and favorable mix.

South America’s third quarter 2021 EBIT improved $110 million from a year ago with an EBIT margin of 0.3%. The EBIT improvement was driven by higher net pricing and structural cost reductions.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Europe


	Third Quarter								First Nine Months
Key Metrics	2020			2021			H / (L)		2020			2021			H / (L)
Market Share (%)	7.8		%	6.2		%	(1.6) ppts		7.3		%	6.5		%	(0.8) ppts
Wholesale Units (000) (a)	239			218			(21)		681			678			(3)
Revenue ($M)	$	5,694		$	6,066		$	372	$	15,555		$	18,726		$	3,171
EBIT ($M)	(444)			(52)			392		(1,260)			5			1,265
EBIT Margin (%)	(7.8)		%	(0.9)		%	6.9 ppts		(8.1)		%	0.0		%	8.1 ppts

(a)Includes Ford brand vehicles produced and sold by our unconsolidated affiliate in Turkey (about 26,000 units in Q3 2020 and 12,000 units in Q3 2021). Revenue does not include these sales.


Change in EBIT by Causal Factor (in millions)
Third Quarter 2020 EBIT	$	(444)
Volume / Mix	(127)
Net Pricing	273
Cost	243
Exchange	(66)
Other	69
Third Quarter 2021 EBIT	$	(52)

In Europe, third quarter 2021 wholesales decreased 9% from a year ago, primarily reflecting the impact of semiconductor-related production constraints. Third quarter 2021 revenue increased 7%, driven by favorable mix and higher net pricing, partially offset by lower wholesales.

Europe’s third quarter 2021 EBIT loss improved $392 million from a year ago with an EBIT margin of negative 0.9%. The EBIT improvement was driven by higher net pricing, lower warranty expense, and lower structural costs, partially offset by higher commodity prices.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

China (Including Taiwan)


	Third Quarter								First Nine Months
Key Metrics	2020			2021			H / (L)		2020			2021			H / (L)
Market Share (%)	2.4		%	2.5		%	0.1 ppts		2.4		%	2.3		%	(0.1) ppts
Wholesale Units (000) (a)	164			162			(2)		415			463			48
Revenue ($M)	$	1,011		$	592		$	(419)	$	2,407		$	1,966		$	(441)
EBIT ($M)	(57)			(39)			18		(434)			(177)			257
EBIT Margin (%)	(5.7)		%	(6.6)		%	(0.9) ppts		(18.0)		%	(9.0)		%	9.0 ppts

China Unconsolidated Affiliates
Wholesales (000)	146			160			14		374			449			75
Ford Equity Income/(Loss) ($M)	$	55		$	77		$	22	$	(26)		$	144		$	170

(a)Includes Ford and Lincoln brand and JMC brand vehicles produced and sold in China by our unconsolidated affiliates and, from second quarter 2021, Ford brand vehicles produced in Taiwan by Lio Ho Group. Revenue does not include these sales.


Change in EBIT by Causal Factor (in millions)
Third Quarter 2020 EBIT	$	(57)
Volume / Mix	(104)
Net Pricing	7
Cost	17
Exchange	29
Other (Including Joint Ventures)	69
Third Quarter 2021 EBIT	$	(39)

In China, third quarter 2021 wholesales declined 1% from a year ago, driven by the impact of semiconductor-related production constraints. Third quarter 2021 revenue at our consolidated operations decreased 41%, driven by product localization, partially offset by higher component sales to our joint ventures in China, favorable mix, and stronger currencies.

China’s third quarter 2021 EBIT loss improved $18 million from a year ago with an EBIT margin of negative 6.6%. The EBIT improvement reflects favorable mix, higher profits and royalties from our joint ventures, stronger exchange, and lower structural costs, partially offset by lower volume.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

International Markets Group


	Third Quarter								First Nine Months
Key Metrics	2020			2021			H / (L)		2020			2021			H / (L)
Market Share (%)	1.7		%	1.8		%	0.1 ppts		1.6		%	1.8		%	0.2 ppts
Wholesale Units (000) (a)	76			66			(10)		191			235			44
Revenue ($M)	$	2,039		$	1,894		$	(145)	$	5,022		$	6,604		$	1,582
EBIT ($M)	72			125			53		(102)			530			632
EBIT Margin (%)	3.6		%	6.6		%	3.0 ppts		(2.0)		%	8.0		%	10.0 ppts

(a)Includes Ford brand vehicles produced and sold by our unconsolidated affiliate in Russia (about 4,000 units in Q3 2020 and 5,000 units in Q3 2021). Revenue does not include these sales.


Change in EBIT by Causal Factor (in millions)
Third Quarter 2020 EBIT	$	72
Volume / Mix	(44)
Net Pricing	42
Cost	34
Exchange	60
Other	(39)
Third Quarter 2021 EBIT	$	125

In our International Markets Group, third quarter 2021 wholesales decreased 13% from a year ago, primarily reflecting the impact of semiconductor-related production constraints. Third quarter 2021 revenue decreased 7%, driven by lower wholesales, partially offset by stronger currencies and higher net pricing.

Our International Markets Group’s third quarter 2021 EBIT was $53 million higher than a year ago with an EBIT margin of 6.6%. The EBIT improvement was driven by favorable exchange, higher net pricing, and lower structural cost, partially offset by lower volume.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Definitions and Information Regarding Automotive Causal Factors

In general, we measure year-over-year change in Automotive segment 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 – consists primarily of costs for engineering personnel, prototype materials, testing, and outside engineering services

*▪*Spending-Related – consists primarily of depreciation and amortization of our manufacturing and engineering assets, 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 and Selling – includes primarily costs for salaried personnel and purchased services related to our staff activities and selling functions, as well as associated information technology costs

*▪*Pension and OPEB – consists primarily of past service pension costs and other postretirement employee benefit costs

*•*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, 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. 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

*•*Industry Volume and Market Share – based, in part, on estimated vehicle registrations; includes medium and heavy duty trucks

SAAR – seasonally adjusted annual rate

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Mobility Segment

Effective January 1, 2021, we realigned the costs and benefits related to enterprise connectivity activities previously included in the Mobility segment to the Automotive segment. Accordingly, beginning in 2021, the Mobility segment primarily includes development costs for Ford’s autonomous vehicles and related businesses, Ford’s equity ownership in Argo AI (a developer of autonomous driving systems), and other mobility businesses and investments (including Spin, a micro-mobility service provider).

In our Mobility segment, our third quarter 2021 EBIT loss was $258 million, a $28 million higher loss than a year ago. The loss reflects our strategic investments as we continued to expand our capabilities in autonomous vehicles and mobility businesses.

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 third quarter and year-to-date 2021 key metrics and the change in third quarter 2021 EBT compared with third quarter 2020 by causal factor for the Ford Credit segment. For a description of these causal factors, see Definitions and Information Regarding Ford Credit Causal Factors.


	Third Quarter									First Nine Months
GAAP Financial Measures	2020			2021			H / (L)			2020			2021			H / (L)
Total Net Receivables ($B)	$	131.5		$	116.5		(11)		%	$	131.5		$	116.5		(11)		%
Loss-to-Receivables (bps) (a)	30			—			(30)			35			5			(30)
Auction Values (b)	$	22,160		$	28,045		27		%	$	20,490		$	25,150		23		%
EBT ($M)	$	1,123		$	1,077		$	(46)		$	1,696		$	3,662		$	1,966
ROE (%) (c)	26		%	29		%	3 ppts			13		%	32		%	20 ppts

Other Balance Sheet Metrics
Debt ($B)										$	133		$	119		(11)		%
Net Liquidity ($B)										31			33			5		%
Financial Statement Leverage (to 1) (c)										8.5			9.6			1.1

(a)U.S. retail financing only.

(b)U.S. 36-month off-lease third quarter auction values at Q3 2021 mix and YTD amounts at 2021 YTD mix.

(c)Prior period amounts have been updated as a result of the adoption of ASU 2019-12, Simplifying the Accounting for Income Taxes. For additional information, see Note 2 of the Notes to the Financial Statements.


Non-GAAP Financial Measures	September 30, 2020		September 30, 2021		H / (L)
Managed Receivables ($B) (a)	$	140.6	$	122.8	(13)	%
Managed Leverage (to 1) (b) (c)	7.5		8.4		0.9

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

(b)See Liquidity and Capital Resources - Ford Credit Segment section for reconciliation to GAAP.

(c)Prior period amount has been updated as a result of the adoption of ASU 2019-12, Simplifying the Accounting for Income Taxes. For additional information, see Note 2 of the Notes to the Financial Statements.


Change in EBT by Causal Factor (in millions)
Third Quarter 2020 EBT	$	1,123
Volume / Mix	(84)
Financing Margin	(92)
Credit Loss	145
Lease Residual	61
Exchange	—
Other	(76)
Third Quarter 2021 EBT	$	1,077

Ford Credit’s total net receivables were $15 billion lower than a year ago, primarily reflecting lower wholesale receivables as a result of lower dealer inventories due to the semiconductor shortage. The loss-to-receivables (“LTR”) ratio remained at a low level in the third quarter of 2021, at zero basis points, 30 basis points lower than a year ago. U.S. auction values in the third quarter of 2021 were 27% higher than a year ago, reflecting continued strong demand for used vehicles.

Ford Credit’s third quarter 2021 EBT of $1.1 billion was $46 million lower than a year ago, reflecting lower net financing margin due to semiconductor shortages, partially offset by lower charge-offs; reductions in the credit loss reserve, reflecting an expectation of lower lifetime losses; and higher auction values.

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 managed receivables 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 managed receivables 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 managed receivables 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 managed receivables 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 2020 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. Accumulated depreciation reflects 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 2020 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

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, Liquidity, and Leverage 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
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 is primarily 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 and Ford Credit Net Receivables Reconciliation to Managed Receivables tables) – 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

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Corporate Other

Corporate Other primarily includes corporate governance expenses, interest income (excluding interest earned on our extended service contract portfolio that is included in our Automotive segment) and gains and losses from our cash, cash equivalents, marketable securities, and other investments, 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, and are not allocated to specific Automotive business units or operating segments. These include expenses related to setting and directing global policy, providing oversight and stewardship, and promoting the Company’s interests. In the third quarter of 2021, Corporate Other had a $285 million loss, compared with an $86 million gain a year ago. The lower results were driven by fair market value adjustments on investments, higher governance costs, and lower interest income.

Interest on Debt

Interest on Debt, which consists of interest expense on Company debt excluding Ford Credit, was $439 million in the third quarter of 2021, $59 million lower than a year ago.

Taxes

Our Provision for/(Benefit from) income taxes for the third quarter and first nine months of 2021 was a provision of $63 million and $925 million, respectively. This resulted in effective tax rates of 3.3% and 14.1%, respectively.

During third quarter 2021, we recorded a tax benefit of $295 million, resulting from a reduction of valuation allowances recorded on various deferred tax assets.

Our third quarter and first nine months of 2021 adjusted effective tax rates, which exclude special items, were 20.5% and 19.0%, respectively.

As of September 30, 2021, we have recorded $11.9 billion of deferred tax assets. The ultimate realization of these assets is subject to several variables, including our future profitability within the relevant tax jurisdictions, and future tax planning and the related effects on our cash and liquidity position. Accordingly, our valuation allowances may increase or decrease in future periods.

In addition, 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.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2021, total balance sheet cash, cash equivalents, marketable securities, and restricted cash (including Ford Credit) was $46.6 billion.

We consider our key balance sheet metrics to be: (i) Company cash, which includes cash equivalents, marketable securities, and restricted cash, 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, 2020		September 30, 2021
Balance Sheets ($B)
Company Cash	$	30.8	$	31.5
Liquidity	46.9		47.4
Debt	(24.0)		(25.6)
Cash Net of Debt	6.8		5.9

Pension Funded Status ($B) (a)
Funded Plans	$	0.3	$	2.3
Unfunded Plans	(7.0)		(6.5)
Total Global Pension	$	(6.7)	$	(4.2)

Total Funded Status OPEB	$	(6.6)	$	(6.5)

(a)Balances at September 30, 2021 reflect net underfunded status at December 31, 2020, updated for service and interest cost, expected return on assets, curtailment and settlement gains 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 2020.

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 September 30, 2021, we had Company cash of $31.5 billion, with about 92% of Company cash held by consolidated entities domiciled in the United States, and Company liquidity of $47.4 billion. 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.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Material Cash Requirements. Our material cash requirements include: (1) capital expenditures (for additional information, see the “Changes in Company Cash” section below) and other payments for engineering, software, product development, and electrification; (2) the 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” section in Item 7 of our 2020 Form 10-K Report); (3) marketing incentive payments to dealers; (4) payments for warranty and field service actions (for additional information, see Note 20 of the Notes to the Financial Statements herein); (5) debt repayments (for additional information, see the “Aggregate Contractual Obligations” section in Item 7 and Note 19 of the Notes to the Financial Statements in our 2020 Form 10-K Report); (6) discretionary and mandatory payments to our global pension plans (for additional information, see the “Aggregate Contractual Obligations” section in Item 7 of our 2020 Form 10-K Report, the “Changes in Company Cash” section below, and Note 13 of the Notes to the Financial Statements herein); (7) employee wages, benefits, and incentives; (8) operating lease payments (for additional information, see the “Aggregate Contractual Obligations” section in Item 7 and Note 18 of the Notes the Financial Statements in our 2020 Form 10-K Report); (9) cash effects related to the global redesign of our business (for additional information, see the “Changes in Company Cash” section below); and (10) strategic acquisitions and investments to grow our business, including electrification. In addition, subject to approval by our Board of Directors, shareholder distributions in the form of dividend payments and/or a share repurchase program 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.

“Purchase obligations” in the “Aggregate Contractual Obligations” section in Item 7 of our 2020 Form 10-K Report are defined as off-balance sheet agreements to purchase goods or services that are enforceable and legally binding on the Company and that specify all significant terms; however, as we purchase raw materials and components beyond the minimum amounts required by the “Purchase obligations,” our material cash requirements for these items are higher than what is reflected in the Aggregate Contractual Obligations table. For additional information on the timing of these payments and the impact on our working capital, see the “Changes in Company Cash” section below.

We plan to utilize our liquidity (as described above) and our cash flows from business operations to fund our material cash requirements.

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. Non-operating items include: global redesign (including separation payments), changes in Company debt excluding Ford Credit, contributions to funded pension plans, shareholder distributions, and other items (including acquisitions and divestitures and other transactions with Ford Credit).

With respect to “Changes in working capital,” in general we carry relatively low Automotive segment trade receivables compared with our trade payables because the majority of our Automotive 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 Automotive trade payables are based primarily on industry-standard production supplier payment terms of generally 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 inventory includes vehicles completed but awaiting installation of components affected by the semiconductor supply shortage. As a result of the shortage, our inventory is higher than in normal periods.

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.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Financial institutions participate in a supply chain finance (“SCF”) program that enables our suppliers, at their sole discretion, to sell their Ford receivables (i.e., our payment obligations to the suppliers) to the financial institutions on a non-recourse basis in order to be paid earlier than our payment terms provide. Our suppliers’ voluntary inclusion of invoices in the SCF program has no bearing on our payment terms, the amounts we pay, or our liquidity. We have no economic interest in a supplier’s decision to participate in the SCF program, and we have no direct financial relationship with the SCF financial institutions. Moreover, we do not provide any guarantees in connection with the SCF program. As of September 30, 2021, the outstanding amount of Ford receivables that suppliers elected to sell to the SCF financial institutions was $152 million. The amount settled through the SCF program during the first nine months of 2021 was $621 million.

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


	Third Quarter				First Nine Months
	2020		2021		2020		2021
Company Excluding Ford Credit
Company Adjusted EBIT excluding Ford Credit (a)	$	2.5	$	1.9	$	(0.6)	$	5.2

Capital spending	$	(1.2)	$	(1.6)	$	(4.2)	$	(4.4)
Depreciation and tooling amortization	1.3		1.3		4.0		3.8
Net spending	$	0.1	$	(0.3)	$	(0.2)	$	(0.6)

Receivables	$	(0.2)	$	(0.1)	$	0.3	$	(0.7)
Inventory	(0.1)		(0.2)		—		(3.2)
Trade Payables	4.3		4.1		1.6		1.1
Changes in working capital	$	3.9	$	3.8	$	1.9	$	(2.8)

Ford Credit distributions	$	0.8	$	1.5	$	2.0	$	6.5
Interest on debt and cash taxes	(0.4)		(0.4)		(1.1)		(1.5)
All other and timing differences	(0.4)		1.1		(2.3)		(4.6)
Company adjusted free cash flow (a)	$	6.6	$	7.7	$	(0.4)	$	2.2

Global Redesign (including separations)	$	(0.1)	$	(0.3)	$	(0.4)	$	(1.6)
Changes in debt	(15.8)		(0.2)		8.8		1.8
Funded pension contributions	(0.1)		(0.2)		(0.4)		(0.6)
Shareholder distributions	—		—		(0.6)		—
All other (including acquisitions and divestitures)	(0.2)		(0.7)		0.1		(1.1)
Change in cash	$	(9.7)	$	6.4	$	7.2	$	0.7

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

Note: Numbers may not sum due to rounding.

Our third quarter 2021 Net cash provided by/(used in) operating activities was positive $7.0 billion, a decrease of $4.1 billion from a year ago. The year-over-year decrease was driven by lower Ford Credit operating cash flow and lower net income, partially offset by favorable timing differences. Our Company adjusted free cash flow was $7.7 billion, $1.2 billion higher than a year ago, driven by favorable timing differences and higher Ford Credit distributions, partially offset by lower adjusted EBIT.

Capital spending was $1.6 billion in the third quarter of 2021, $0.3 billion higher than a year ago. We continue to expect full year 2021 capital spending to be between $6.0 billion and $6.5 billion.

Third quarter 2021 working capital was $3.8 billion positive, driven by the rebuilding of trade payables, which were depleted in the second quarter of 2021 due to semiconductor-related production constraints. All other and timing differences were $1.1 billion positive, reflecting assorted differences including differences between accrual-based EBIT and the associated cash flows (e.g., marketing incentive and warranty payments to dealers, pension and OPEB income or expense).

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

In the third quarter of 2021, we contributed $209 million to our global funded pension plans. We now expect to contribute about $800 million to our global funded pension plans in 2021.

There were no shareholder distributions in the third quarter of 2021. On October 27, 2021, we announced the reinstatement of a regular quarterly dividend of $0.10 per share on our Common and Class B Stock starting in the fourth quarter of 2021.

We previously announced our plan for the global redesign of our business, pursuant to which we are working to turn around automotive operations, compete like a challenger, and capitalize on our strengths by allocating more capital, more resources, and more talent to our strongest businesses and vehicle franchises. Beginning with the actions we took in 2018, we expect our global redesign to have a potential cash effect of about $7 billion. The cash effect related to our global redesign activities was $3.2 billion through September 30, 2021 and is expected to be about $4 billion through December 31, 2021.

Available Credit Lines. Total Company committed credit lines, excluding Ford Credit, at September 30, 2021 were $18.4 billion, consisting of $13.5 billion of our corporate credit facility, $2.0 billion of our supplemental revolving credit facility, $1.5 billion of our delayed draw term loan facility, and $1.4 billion of local credit facilities. At September 30, 2021, the utilized portion of the corporate credit facility was $25 million, representing amounts utilized for letters of credit under the corporate credit facility, and no portion of the supplemental revolving credit facility was utilized. The $1.5 billion delayed draw term loan facility was drawn in full in 2019 and remains outstanding. In addition, $844 million of committed Company credit lines, excluding Ford Credit, was utilized under local credit facilities for our affiliates as of September 30, 2021.

Our corporate and supplemental revolving credit facilities were amended as of September 29, 2021 to, among other things, extend the maturity dates of the commitments under each facility. Following the corporate credit facility amendment, $3.4 billion of commitments mature on September 29, 2024 and $10.1 billion of commitments mature on September 29, 2026. Following the supplemental revolving credit facility amendment, all $2.0 billion of commitments mature on September 29, 2024.

As a result of the September 29, 2021 amendments, there are no longer any restrictions in either the corporate or supplemental credit agreements on Ford’s ability to repurchase shares or pay dividends. In addition, the facilities now 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. Further, interest on any U.S. dollar borrowings under both the corporate and supplemental revolving credit facilities will be calculated using daily simple SOFR. Prior to the amendments, such interest was calculated using LIBOR. Additional information about the amendments is available in our Current Report on Form 8-K filed on September 29, 2021.

The corporate credit facility is unsecured and free of material adverse change conditions to borrowing, restrictive financial covenants (for example, interest or fixed-charge coverage ratio, debt-to-equity ratio, and minimum net worth requirements), and credit rating triggers that could limit our ability to obtain funding or trigger early repayment. The corporate credit facility contains a liquidity covenant that requires us to maintain a minimum of $4 billion in aggregate of domestic cash, cash equivalents, and loaned and marketable securities and/or availability under the facility. The terms and conditions of the delayed draw term loan (other than the sustainability-linked provisions and the transition from LIBOR to SOFR) and the supplemental revolving credit facility are consistent with our corporate credit facility.

Each of the corporate credit facility, supplemental revolving credit facility, delayed draw term loan, and our Loan Arrangement and Reimbursement Agreement with the U.S. Department of Energy (the “DOE”) include a covenant that requires us to provide guarantees from certain of our subsidiaries in the event that our senior, unsecured, long-term debt does not maintain at least two investment grade ratings from Fitch, Moody’s, and S&P. The following subsidiaries have provided unsecured guarantees to the lenders under the credit facilities and to the DOE: Ford Autonomous Vehicles LLC; Ford Component Sales, LLC; Ford European Holdings LLC; Ford Global Technologies, LLC; Ford Holdings LLC (the parent company of Ford Credit); Ford International Capital LLC; Ford Mexico Holdings LLC; Ford Motor Service Company; Ford Smart Mobility LLC; and Ford Trading Company, LLC.

Debt. As shown in Note 14 of the Notes to the Financial Statements, at September 30, 2021, Company debt excluding Ford Credit was $25.6 billion. This balance is $1.6 billion higher than at December 31, 2020, primarily reflecting our convertible notes issuance in March 2021.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Leverage. We manage Company debt (excluding Ford Credit) levels with a leverage framework that targets investment grade credit ratings through a normal business cycle; however, during these uncertain times, we have increased our debt balance and prioritized actions that preserve or improve our cash balance. The leverage framework includes a ratio of total Company debt (excluding Ford Credit), underfunded pension liabilities, operating leases, and other adjustments, divided by Company adjusted EBIT (excluding Ford Credit EBT), and further adjusted to exclude depreciation and tooling amortization (excluding Ford Credit).

Ford Credit’s leverage is calculated as a separate business as described in the Liquidity - Ford Credit Segment section of Item 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.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Ford Credit Segment

Ford Credit ended the third quarter of 2021 with $33 billion of liquidity. During the quarter, Ford Credit completed $4 billion of public term funding.

Key elements of Ford Credit’s funding strategy include:

Maintain strong liquidity
Prudently access public markets
Flexibility to increase ABS mix as needed; preserving assets and committed capacity
Target managed leverage of 8:1 to 9:1
Maintain self-liquidating balance sheet

Ford Credit’s liquidity profile continues to be diverse, robust, and focused on maintaining liquidity levels that meet its business and funding requirements. Ford Credit regularly stress tests its balance sheet and liquidity to ensure that it can continue to meet its financial obligations through economic cycles.

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


	September 30, 2020			December 31, 2020			September 30, 2021
Funding Structure
Term unsecured debt	$	74.0		$	76.6		$	65.2
Term asset-backed securities	53.2			54.6			45.1
Ford Interest Advantage / Deposits	5.9			6.5			8.6
Other (a)	6.5			5.7			5.8
Equity (a)	15.6			15.6			12.4
Adjustments for cash	(14.6)			(18.5)			(14.3)
Total Managed Receivables (b)	$	140.6		$	140.5		$	122.8

Securitized Funding as Percent of Managed Receivables	37.8		%	38.8		%	36.7		%

(a)Prior period amounts have been updated as a result of the adoption of ASU 2019-12, Simplifying the Accounting for Income Taxes. For additional information, see Note 2 of the Notes to the Financial Statements.

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

Managed receivables of $122.8 billion at September 30, 2021, were funded primarily with term unsecured debt and term asset-backed securities. Securitized funding as a percent of managed receivables was 36.7% at the end of the third quarter of 2021. The calendarization of the funding plan will result in quarterly fluctuations of the securitized funding percentage.

Public Term Funding Plan. The following table shows Ford Credit’s issuances for full year 2019 and 2020, planned issuances for full year 2021, and its global public term funding issuances through October 26, 2021, excluding short-term funding programs (in billions):


	2019 Actual		2020 Actual		2021 Forecast	Through October 26
Unsecured	$	17	$	14	$ 5 - 7	$	5
Securitizations (a)	14		13		8 - 9	8
Total public	$	31	$	27	$ 13 - 16	$	13

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

For 2021, Ford Credit now projects full year public term funding in the range of $13 billion to $16 billion. Public funding is significantly reduced from 2019 and 2020, reflecting Ford Credit’s smaller balance sheet size. Through October 26, 2021, Ford Credit has completed $13 billion of public term issuances.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

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


	September 30, 2020		December 31, 2020		September 30, 2021
Liquidity Sources (a)
Cash	$	14.6	$	18.5	$	14.3
Committed asset-backed facilities	37.4		38.1		37.7
Other unsecured credit facilities	2.4		2.5		2.7
Total liquidity sources	$	54.4	$	59.1	$	54.7

Utilization of Liquidity (a)
Securitization and restricted cash	$	(3.5)	$	(3.9)	$	(6.1)
Committed asset-backed facilities	(17.4)		(16.7)		(11.5)
Other unsecured credit facilities	(0.5)		(0.5)		(0.4)
Total utilization of liquidity	$	(21.4)	$	(21.1)	$	(18.0)

Gross liquidity	$	33.0	$	38.0	$	36.7
Asset-backed capacity in excess of eligible receivables and other adjustments	(1.9)		(2.6)		(3.7)
Net liquidity available for use	$	31.1	$	35.4	$	33.0

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

Ford Credit’s net liquidity available for use will fluctuate quarterly based on factors including near-term debt maturities, receivable growth and decline, and timing of funding transactions. At September 30, 2021, Ford Credit’s net liquidity available for use was $33 billion, $2.4 billion lower than year-end 2020. At September 30, 2021, Ford Credit’s liquidity sources including cash, committed asset-backed facilities, and unsecured credit facilities totaled $54.7 billion, down $4.4 billion from year-end 2020.

Material Cash Requirements. Ford Credit’s material cash requirements include: (1) the purchase of retail financing and operating lease contracts from dealers and providing wholesale financing for dealers to finance new and used vehicles; and (2) debt repayments (for additional information on debt, see the “Balance Sheet Liquidity Profile” section below and the “Aggregate Contractual Obligations” section in Item 7 and Note 19 of the Notes to the Financial Statements in our 2020 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.

Balance Sheet Liquidity Profile. Ford Credit defines its balance sheet liquidity profile as the cumulative maturities, including the impact of expected prepayments and allowance for credit losses, of its finance receivables, investment in operating leases, and cash, less the cumulative debt maturities over upcoming annual periods. Ford Credit’s balance sheet is inherently liquid because of the short-term nature of its finance receivables, investment in operating leases, and cash. Ford Credit ensures its cumulative debt maturities have a longer tenor than its cumulative asset maturities. This positive maturity profile is intended to provide Ford Credit with additional liquidity after all of its assets have been funded and is in addition to its liquidity available to protect for stress scenarios.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

The following table shows Ford Credit’s cumulative maturities for assets and total debt for the periods presented and unsecured long-term debt maturities in the individual periods presented (in billions):


	October - December 2021		2022		2023		2024 and Beyond
Balance Sheet Liquidity Profile
Assets (a)	$	39	$	73	$	101	$	136
Total debt (b)	27		58		79		118
Memo: Unsecured long-term debt maturities	3		14		11		33

(a)Includes gross finance receivables less the allowance for credit losses (including certain finance receivables that are reclassified in consolidation to Trade and other receivables, net), investment in operating leases net of accumulated depreciation, cash and cash equivalents, and marketable securities (excluding amounts related to insurance activities). Amounts shown include the impact of expected prepayments.

(b)Excludes unamortized debt (discount)/premium, unamortized issuance costs, and fair value adjustments.

Maturities of investment in operating leases consist primarily of the portion of rental payments attributable to depreciation over the remaining life of the lease and the expected residual value at lease termination. Maturities of finance receivables and investment in operating leases in the table above include expected prepayments for Ford Credit’s retail installment sale contracts and investment in operating leases. The table above also reflects adjustments to debt maturities to match the asset-backed debt maturities with the underlying asset maturities.

All wholesale securitization transactions and wholesale receivables are shown maturing in the next 12 months, even if the maturities extend beyond third quarter 2022. The retail securitization transactions under certain committed asset-backed facilities are assumed to amortize immediately rather than amortizing after the expiration of the commitment period. As of September 30, 2021, Ford Credit had $136 billion of assets, $72 billion of which were unencumbered.

Funding and Liquidity Risks. Ford Credit’s funding plan is subject to risks and uncertainties, many of which are beyond its control, including disruption in the capital markets, 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 2020 Form 10-K Report for more information.

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 and managed leverage (in billions):


	September 30, 2020		December 31, 2020		September 30, 2021
Leverage Calculation
Debt	$	133.1	$	137.7	$	119.0
Adjustments for cash	(14.6)		(18.5)		(14.3)
Adjustments for derivative accounting (a)	(1.6)		(1.5)		(0.8)
Total adjusted debt	$	116.9	$	117.7	$	103.9

Equity (b) (c)	$	15.6	$	15.6	$	12.4
Adjustments for derivative accounting (a)	0.1		0.1		0.1
Total adjusted equity (c)	$	15.7	$	15.7	$	12.5

Financial statement leverage (to 1) (GAAP) (c)	8.5		8.8		9.6
Managed leverage (to 1) (Non-GAAP) (c)	7.5		7.5		8.4

(a)Related primarily to market valuation adjustments to derivatives due to movements in interest rates. Adjustments to debt are related to designated fair value hedges and adjustments to equity are related to retained earnings.

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

Note: Numbers may not sum due to rounding.

Ford Credit plans its managed leverage by considering market conditions and the risk characteristics of its business. At September 30, 2021, Ford Credit’s financial statement leverage was 9.6:1, and its managed leverage was 8.4:1. Ford Credit targets managed leverage in the range of 8:1 to 9:1.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Total Company

Pension Plans - Underfunded Balances. As of September 30, 2021, our total Company pension underfunded status reported on our consolidated balance sheets was $4.2 billion and reflects the net underfunded status at December 31, 2020, 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 2020.

Return on Invested Capital (“ROIC”). We analyze total Company performance using an adjusted ROIC financial metric based on an after-tax, rolling four quarter average. The following table contains the calculation of our ROIC for the periods shown (in billions):


	Four Quarters Ending
	September 30, 2020			September 30, 2021
Adjusted Net Operating Profit/(Loss) After Cash Tax
Net income/(loss) attributable to Ford	$	(0.2)		$	2.9
Add: Noncontrolling interest	—			—
Less: Income tax	(0.4)			0.1
Add: Cash tax	(0.3)			(0.6)
Less: Interest on debt	(1.4)			(1.8)
Less: Total pension/OPEB income/(cost)	(1.8)			(0.4)
Add: Pension/OPEB service costs	(1.1)			(1.1)
Net operating profit/(loss) after cash tax	$	2.0		$	3.2
Less: Special items (excl. pension/OPEB) pre-tax	2.3			(4.6)
Adjusted net operating profit/(loss) after cash tax	$	(0.3)		$	7.8

Invested Capital
Equity	$	33.2		$	36.7
Redeemable noncontrolling interest	—			—
Debt (excl. Ford Credit)	24.2			25.6
Net pension and OPEB liability	11.9			10.6
Invested capital (end of period)	$	69.2		$	73.0
Average invested capital	$	69.4		$	70.9

ROIC (a)	2.9		%	4.6		%
Adjusted ROIC (Non-GAAP) (b)	(0.4)		%	11.0		%

(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.

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.

There have been no rating actions taken by these NRSROs since the filing of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2021.

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	BB (high)	BB (high)	Stable	BB (high)	R-4	Stable	BBB (low)
Fitch	BB+	BB+	Stable	BB+	B	Stable	BBB-
Moody’s	N/A	Ba2	Stable	Ba2	NP	Stable	Baa3
S&P	BB+	BB+	Negative	BB+	B	Negative	BBB-

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

OUTLOOK

We provided 2021 Company guidance in our earnings release furnished on Form 8-K dated October 27, 2021. The guidance is based on our expectations as of October 27, 2021 and assumes no material change in the current economic environment, including foreign exchange and tariffs. Our actual results could differ materially from our guidance due to risks, uncertainties, and other factors, including those set forth in “Risk Factors” in Item 1A of our 2020 Form 10-K Report and as updated by our subsequent filings with the SEC.


						2021 Guidance
Total Company
Adjusted EBIT (a)						$10.5 - $11.5 billion
Adjusted Free Cash Flow (a)						$4 - $5 billion
Capital spending						$6.0 - $6.5 billion
Pension contributions						About $0.8 billion
Global Redesign EBIT charges (b)						$1.7 - $2.2 billion
Global Redesign cash effects (b)						$2.2 - $2.7 billion

Ford Credit
EBT						About $4.6 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.

(b)We continue to review our global businesses and may take additional restructuring actions in markets where a path to sustained profitability is not feasible when considering the capital allocation required for those markets. Such actions may result in global redesign EBIT charges and cash effects in 2021 that are incremental to those set forth in the table.

We now expect our adjusted EBIT for 2021 to be in a range of $10.5 billion to $11.5 billion. Despite a lower than anticipated improvement in the availability of semiconductors in the second half of 2021, the underlying strength of our business supports the increase in our guidance. Moreover, we have also assumed a sequential increase in wholesales in the fourth quarter. Consistent with our adjusted EBIT guidance throughout the year, our updated guidance includes the $900 million non-cash gain on our investment in Rivian that we reported in our results for the first quarter of 2021.

Our guidance for adjusted free cash flow in 2021 is unchanged at $4 billion to $5 billion, reflecting higher adjusted EBIT but less favorable improvement in working capital and timing differences. This is due to lower than anticipated volume than previously assumed in the back-half of the fourth quarter as a result of semiconductor-related constraints. We expect adjusted free cash flow to increase with higher production and the associated improvement in supplier payables and other timing differences.

In the event Rivian completes its IPO, we will record any gain on our investment, and any subsequent adjustments, as special items, and, accordingly, we will recast prior period gains on our Rivian investment as special items.

For the full year, Ford Credit now expects EBT of about $4.6 billion.

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 a shortage of key components, such as semiconductors, can disrupt Ford’s production of vehicles;
Ford’s long-term competitiveness depends on the successful execution of its Plan;
Ford’s vehicles could be affected by defects that result in delays in new model launches, recall campaigns, or increased warranty costs;
Ford may not realize the anticipated benefits of existing or pending strategic alliances, joint ventures, acquisitions, divestitures, or new business strategies;
Operational systems, security systems, and vehicles could be affected by cyber incidents and other disruptions;
Ford’s production, as well as Ford’s suppliers’ production, could be disrupted by labor issues, natural or man-made disasters, financial distress, production difficulties, 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 mobility services are subject to market acceptance and face significant competition from existing and new entrants in the automotive and mobility industries;
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, geopolitical, protectionist trade policies, or other events, including tariffs;
Industry sales volume in any of Ford’s key markets can be volatile and could decline if there is a financial crisis, recession, or significant geopolitical event;
Ford may face increased price competition or a reduction in demand for its products resulting from industry excess capacity, currency fluctuations, competitive actions, or other factors;
Fluctuations in commodity prices, foreign currency exchange rates, interest rates, and market value of Ford or Ford Credit’s investments can have a significant effect on results;
Ford and Ford Credit’s access to debt, securitization, or derivative markets around the world at competitive rates or in sufficient amounts could be affected by credit rating downgrades, market volatility, market disruption, regulatory requirements, or other factors;
Ford’s receipt of government incentives could be subject to reduction, termination, or clawback;
Ford Credit could experience higher-than-expected credit losses, lower-than-anticipated residual values, or higher-than-expected return volumes for leased vehicles;
Economic and demographic experience for pension and other postretirement benefit plans (e.g., discount rates or investment returns) could be worse than Ford has assumed;
Pension and other postretirement liabilities could adversely affect Ford’s liquidity and financial condition;
Ford could experience unusual or significant litigation, governmental investigations, or adverse publicity arising out of alleged defects in products, perceived environmental impacts, or otherwise;
Ford may need to substantially modify its product plans to comply with safety, emissions, fuel economy, autonomous vehicle, and other regulations;
Ford and Ford Credit could be affected by the continued development of more stringent privacy, data use, and data protection laws and regulations as well as consumers’ heightened expectations to safeguard their personal information; and
Ford Credit could be subject to new or increased credit regulations, consumer protection regulations, or other regulations.

We cannot be certain that any expectation, forecast, or assumption made in preparing forward-looking statements will prove accurate, or that any projection will be realized. It is to be expected that there may be differences between projected and actual results. Our forward-looking statements speak only as of the date of their initial issuance, and we do not undertake any obligation to update or revise publicly any forward-looking statement, whether as a result of new information, future events, or otherwise. For additional discussion, see “Item 1A. Risk Factors” in our 2020 Form 10-K Report, as updated by our subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

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 business results and trends, and a means to assess 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 allows users to evaluate our operating results aligned with industry reporting. 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

∘ Personnel expenses, dealer-related costs, and facility-related charges stemming from our efforts to match production capacity and cost structure to market demand and changing model mix						∘ Generally $100 million or more

∘ Other items that we do not necessarily consider to be indicative of earnings from ongoing operating activities						∘ $500 million or more for individual field service actions; generally $100 million or more for other items

When we provide guidance for adjusted EBIT, we do not provide guidance on a net income basis because the GAAP measure will include potentially significant special items that have not yet occurred and are difficult to predict with reasonable certainty prior to year-end, including pension and OPEB remeasurement gains and losses.

*•*Company Adjusted EBIT Margin (Most Comparable GAAP Measure: Company Net Income/(Loss) Margin) – Company Adjusted EBIT margin is Company adjusted EBIT divided by Company revenue. This non-GAAP measure is useful to management and investors because it allows users to evaluate our operating results aligned with industry reporting.

*•*Adjusted Earnings/(Loss) Per Share (Most Comparable GAAP Measure: Earnings/(Loss) Per Share) – Measure of Company’s diluted net earnings/(loss) per share adjusted for impact of pre-tax special items (described above), tax special items, and restructuring impacts in noncontrolling interests. The measure provides investors with useful information to evaluate performance of our business excluding items not indicative of the underlying run rate of our business. When we provide guidance for adjusted earnings/(loss) per share, we do not provide guidance on an earnings/(loss) per share basis because the GAAP measure will include potentially significant special items that have not yet occurred and are difficult to predict with reasonable certainty prior to year-end, including pension and OPEB remeasurement gains and losses.

*•*Adjusted Effective Tax Rate (Most Comparable GAAP Measure: Effective Tax Rate) – Measure of Company’s tax rate excluding pre-tax special items (described above) and tax special items. The measure provides an ongoing effective rate which investors find useful for historical comparisons and for forecasting. When we provide guidance for adjusted effective tax rate, we do not provide guidance on an effective tax rate basis because the GAAP measure will include potentially significant special items that have not yet occurred and are difficult to predict with reasonable certainty prior to year-end, including pension and OPEB remeasurement gains and losses.

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 Automotive and Mobility capital spending, Ford Credit distributions to its parent, and settlement of derivatives. The measure excludes cash outflows for funded pension contributions, global redesign (including separations), and other items that are considered operating cash flows under U.S. 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.

*•*Ford Credit Managed Receivables (Most Comparable GAAP Measure: Net Finance Receivables plus Net Investment in Operating Leases) – Measure of Ford Credit’s total net receivables and held-for-sale receivables, excluding unearned interest supplements and residual support, allowance for credit losses, and other (primarily accumulated supplemental depreciation). The measure is useful to management and investors as it closely approximates the customer’s outstanding balance on the receivables, which is the basis for earning revenue.

*•*Ford Credit Managed Leverage (Most Comparable GAAP Measure: Financial Statement Leverage) – Ford Credit’s debt-to-equity ratio adjusted (i) to exclude cash, cash equivalents, and marketable securities (other than amounts related to insurance activities), and (ii) for derivative accounting. The measure is useful to investors because it reflects the way Ford Credit manages its business. Cash, cash equivalents, and marketable securities are deducted because they generally correspond to excess debt beyond the amount required to support operations and on-balance sheet securitization transactions. Derivative accounting adjustments are made to asset, debt, and equity positions to reflect the impact of interest rate instruments used with Ford Credit’s term-debt issuances and securitization transactions. Ford Credit generally repays its debt obligations as they mature, so the interim effects of changes in market interest rates are excluded in the calculation of managed leverage.

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

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


		Third Quarter								First Nine Months
	2020				2021				2020				2021
Net income/(loss) attributable to Ford (GAAP)		$	2,385			$	1,832			$	1,509			$	5,655
Income/(Loss) attributable to noncontrolling interests		5				(10)				6				(18)
Net income/(loss)		$	2,390			$	1,822			$	1,515			$	5,637
Less: (Provision for)/Benefit from income taxes		(366)				(63)				(1,179)				(925)
Income/(Loss) before income taxes		$	2,756			$	1,885			$	2,694			$	6,562
Less: Special items pre-tax		(390)				(669)				2,803				(964)
Income/(Loss) before special items pre-tax		$	3,146			$	2,554			$	(109)			$	7,526
Less: Interest on debt		(498)				(439)				(1,175)				(1,365)
Adjusted EBIT (Non-GAAP)		$	3,644			$	2,993			$	1,066			$	8,891

Memo:
Revenue ($B)		$	37.5			$	35.7			$	91.2			$	98.7
Net income/(loss) margin (%)		6.4		%		5.1		%		1.7		%		5.7		%
Adjusted EBIT margin (%)		9.7		%		8.4		%		1.2		%		9.0		%

Earnings per Share Reconciliation to Adjusted Earnings per Share


		Third Quarter						First Nine Months
	2020			2021			2020			2021
Diluted After-Tax Results ($M)
Diluted after-tax results (GAAP)		$	2,385		$	1,832		$	1,509		$	5,655
Less: Impact of pre-tax and tax special items		(231)			(209)			1,220			(461)
Adjusted net income/(loss) – diluted (Non-GAAP)		$	2,616		$	2,041		$	289		$	6,116

Basic and Diluted Shares (M)
Basic shares (average shares outstanding)		3,976			3,995			3,971			3,989
Net dilutive options, unvested restricted stock units, and unvested restricted stock shares		29			41			26			38
Diluted shares		4,005			4,036			3,997			4,027

Earnings/(Loss) per share – diluted (GAAP)		$	0.60		$	0.45		$	0.38		$	1.40
Less: Net impact of adjustments		(0.05)			(0.06)			0.31			(0.12)
Adjusted earnings/(loss) per share – diluted (Non-GAAP)		$	0.65		$	0.51		$	0.07		$	1.52

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Effective Tax Rate Reconciliation to Adjusted Effective Tax Rate


	Third Quarter						First Nine Months
	2020			2021			2020			2021			Memo: FY 2020
Pre-Tax Results ($M)
Income/(Loss) before income taxes (GAAP)	$	2,756		$	1,885		$	2,694		$	6,562		$	(1,116)
Less: Impact of special items	(390)			(669)			2,803			(964)			(2,246)
Adjusted earnings before taxes (Non-GAAP)	$	3,146		$	2,554		$	(109)		$	7,526		$	1,130

Taxes ($M)
(Provision for)/Benefit from income taxes (GAAP)	$	(366)		$	(63)		$	(1,179)		$	(925)		$	(160)
Less: Impact of special items (a)	159			460			(1,583)			503			(670)
Adjusted (provision for)/benefit from income taxes (Non-GAAP)	$	(525)		$	(523)		$	404		$	(1,428)		$	510

Tax Rate (%)
Effective tax rate (GAAP)	13.3		%	3.3		%	43.8		%	14.1		%	(14.3)		%
Adjusted effective tax rate (Non-GAAP)	16.7		%	20.5		%	370.6		%	19.0		%	(45.1)		%

(a)Full Year 2020 includes $(1.3) billion related to the establishment of valuation allowances against primarily U.S. tax credits.

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


		Third Quarter						First Nine Months
	2020			2021			2020			2021
Net cash provided by/(used in) operating activities (GAAP)		$	11,088		$	7,008		$	19,730		$	12,256

Less: Items not included in Company Adjusted Free Cash Flows
Ford Credit operating cash flows (a)		$	4,417		$	(341)		$	18,582		$	14,295
Funded pension contributions		(147)			(209)			(429)			(602)
Global Redesign (including separations)		(105)			(293)			(376)			(1,608)
Ford Credit tax payments/(refunds) under tax sharing agreement (a)		44			—			469			4
Other, net		(431)			4			(624)			(179)

Add: Items included in Company Adjusted Free Cash Flows
Automotive and Mobility capital spending		$	(1,247)		$	(1,562)		$	(4,182)		$	(4,424)
Ford Credit distributions (a)		831			1,500			2,000			6,500
Settlement of derivatives		(336)			(42)			(300)			(200)
Company adjusted free cash flow (Non-GAAP) (a)		$	6,558		$	7,743		$	(374)		$	2,222

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

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


	September 30, 2020		December 31, 2020		September 30, 2021
Ford Credit finance receivables, net (GAAP) (a)	$	97.5	$	97.7	$	83.4
Net investment in operating leases (GAAP) (a)	26.6		26.6		25.5
Consolidating adjustments (b)	7.4		7.4		7.6
Total net receivables	$	131.5	$	131.7	$	116.5

Ford Credit unearned interest supplements and residual support	$	6.7	$	6.5	$	4.8
Allowance for credit losses	1.3		1.3		1.0
Other, primarily accumulated supplemental depreciation	1.1		1.0		0.5
Total managed receivables (Non-GAAP)	$	140.6	$	140.5	$	122.8

(a)Includes finance receivables (retail and wholesale) sold for legal purposes and net investment in operating leases included in securitization transactions that do not satisfy the requirements for accounting sale treatment. These receivables and operating leases are reported on Ford Credit’s balance sheets and are available only for payment of the debt issued by, and other obligations of, the securitization entities that are parties to those securitization transactions; they are not available to pay the other obligations of Ford Credit or the claims of Ford Credit’s other creditors.

(b)Primarily includes Automotive segment receivables purchased by Ford Credit, which are classified to Trade and other receivables, net on our consolidated balance sheets. Also includes eliminations of intersegment transactions.

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 Automotive and Mobility reportable segments, Corporate Other, Interest on Debt, and Special Items. Eliminations, where presented, primarily represent eliminations of intersegment transactions and deferred tax netting.

Selected Cash Flow Information. The following tables provide supplemental cash flow information (in millions):


	For the period ended September 30, 2021
	First Nine Months
Cash flows from operating activities	Company excluding Ford Credit		Ford Credit		Eliminations		Consolidated
Net income	$	2,161	$	3,476	$	—	$	5,637
Depreciation and tooling amortization	4,247		1,231		—		5,478
Other amortization	103		(1,137)		—		(1,034)
Increase/(Decrease) in provision for credit and insurance losses	1		(251)		—		(250)
Pension and OPEB expense/(income)	(1,115)		—		—		(1,115)
Equity investment dividends received in excess of (earnings)/losses	106		(11)		—		95
Foreign currency adjustments	261		87		—		348
Net unrealized (gain)/loss on Other Investments	(926)		—		—		(926)
Net (gain)/loss on changes in investments in affiliates	(353)		(1)		—		(354)
Stock compensation	255		7		—		262
Provision for deferred income taxes	667		(15)		—		652
Decrease/(Increase) in finance receivables (wholesale and other)	—		8,508		—		8,508
Decrease/(Increase) in intersegment receivables/payables	(830)		830		—		—
Decrease/(Increase) in accounts receivable and other assets	(1,545)		216		—		(1,329)
Decrease/(Increase) in inventory	(3,129)		—		—		(3,129)
Increase/(Decrease) in accounts payable and accrued and other liabilities	(264)		(247)		—		(511)
Other	(28)		(48)		—		(76)
Interest supplements and residual value support to Ford Credit	(1,650)		1,650		—		—
Net cash provided by/(used in) operating activities	$	(2,039)	$	14,295	$	—	$	12,256


Cash flows from investing activities	Company excluding Ford Credit		Ford Credit		Eliminations		Consolidated
Capital spending	$	(4,424)	$	(31)	$	—	$	(4,455)
Acquisitions of finance receivables and operating leases	—		(34,693)		—		(34,693)
Collections of finance receivables and operating leases	—		39,440		—		39,440
Proceeds from sale of business	145		—		—		145
Purchases of marketable and other investments	(16,100)		(7,143)		—		(23,243)
Sales and maturities of marketable securities and other investments	18,499		9,940		—		28,439
Settlements of derivatives	(200)		(44)		—		(244)
Other	(381)		—		—		(381)
Investing activity (to)/from other segments	6,500		(21)		(6,479)		—
Net cash provided by/(used in) investing activities	$	4,039	$	7,448	$	(6,479)	$	5,008


Cash flows from financing activities	Company excluding Ford Credit		Ford Credit		Eliminations		Consolidated
Cash payments for dividends and dividend equivalents	$	(3)	$	—	$	—	$	(3)
Purchases of common stock	—		—		—		—
Net changes in short-term debt	(144)		1,712		—		1,568
Proceeds from issuance of long-term debt	2,300		17,000		—		19,300
Principal payments on long-term debt	(393)		(35,729)		—		(36,122)
Other	(110)		(53)		—		(163)
Financing activity to/(from) other segments	21		(6,500)		6,479		—
Net cash provided by/(used in) financing activities	$	1,671	$	(23,570)	$	6,479	$	(15,420)

Effect of exchange rate changes on cash, cash equivalents, and restricted cash	$	(78)	$	(77)	$	—	$	(155)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Selected Income Statement Information. The following table provides supplemental income statement information (in millions):


	For the period ended September 30, 2021
	Third Quarter
	Company excluding Ford Credit		Ford Credit		Consolidated
Revenues	$	33,249	$	2,434	$	35,683
Total costs and expenses	33,004		1,337		34,341
Operating income/(loss)	245		1,097		1,342
Interest expense on Company debt excluding Ford Credit	439		—		439
Other income/(loss), net	881		(29)		852
Equity in net income/(loss) of affiliated companies	121		9		130
Income/(Loss) before income taxes	808		1,077		1,885
Provision for/(Benefit from) income taxes	(34)		97		63
Net income/(loss)	842		980		1,822
Less: Income/(Loss) attributable to noncontrolling interests	(10)		—		(10)
Net income/(loss) attributable to Ford Motor Company	$	852	$	980	$	1,832

	For the period ended September 30, 2021
	First Nine Months
	Company excluding Ford Credit		Ford Credit		Consolidated
Revenues	$	90,963	$	7,700	$	98,663
Total costs and expenses	90,925		3,954		94,879
Operating income/(loss)	38		3,746		3,784
Interest expense on Company debt excluding Ford Credit	1,365		—		1,365
Other income/(loss), net	3,990		(107)		3,883
Equity in net income/(loss) of affiliated companies	237		23		260
Income/(Loss) before income taxes	2,900		3,662		6,562
Provision for/(Benefit from) income taxes	739		186		925
Net income/(loss)	2,161		3,476		5,637
Less: Income/(Loss) attributable to noncontrolling interests	(18)		—		(18)
Net income/(loss) attributable to Ford Motor Company	$	2,179	$	3,476	$	5,655

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Selected Balance Sheet Information. The following tables provide supplemental balance sheet information (in millions):


	September 30, 2021
Assets	Company excluding Ford Credit		Ford Credit		Eliminations		Consolidated
Cash and cash equivalents	$	14,466	$	12,963	$	—	$	27,429
Marketable securities	16,951		2,046		—		18,997
Ford Credit finance receivables, net	—		32,600		—		32,600
Trade and other receivables, net	4,040		6,811		—		10,851
Inventories	13,508		—		—		13,508
Other assets	2,470		1,113		—		3,583
Receivable from other segments	107		1,038		(1,145)		—
Total current assets	51,542		56,571		(1,145)		106,968

Ford Credit finance receivables, net	—		50,839		—		50,839
Net investment in operating leases	1,281		25,459		—		26,740
Net property	36,377		220		—		36,597
Equity in net assets of affiliated companies	4,490		138		—		4,628
Deferred income taxes	11,707		177		7		11,891
Other assets	13,060		1,954		—		15,014
Receivable from other segments	—		27		(27)		—
Total assets	$	118,457	$	135,385	$	(1,165)	$	252,677


Liabilities	Company excluding Ford Credit		Ford Credit		Eliminations		Consolidated
Payables	$	21,851	$	1,072	$	—	$	22,923
Other liabilities and deferred revenue	17,543		1,244		—		18,787
Debt payable within one year	1,849		45,474		—		47,323
Payable to other segments	1,145		—		(1,145)		—
Total current liabilities	42,388		47,790		(1,145)		89,033

Other liabilities and deferred revenue	27,566		1,242		—		28,808
Long-term debt	23,767		73,482		—		97,249
Deferred income taxes	374		502		7		883
Payable to other segments	27		—		(27)		—
Total liabilities	$	94,122	$	123,016	$	(1,165)	$	215,973

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Selected Other Information.

Equity. At September 30, 2021, total equity attributable to Ford was $36.6 billion, an increase of $5.9 billion compared with December 31, 2020. The detail for this change is shown below (in billions):


	Increase/ (Decrease)
Net income/(loss)	$	5.7
Common stock issued	0.2
Total	$	5.9

U.S. Sales by Type. The following table shows third quarter 2021 U.S. sales volume and U.S. wholesales segregated by truck, SUV, and car sales. U.S. sales volume reflects transactions with (i) retail and fleet customers (as reported by dealers), (ii) governments, and (iii) Ford management. U.S. wholesales reflect sales to dealers.


	U.S. Sales	U.S. Wholesales
Trucks	229,738	264,383
SUVs	161,571	197,020
Cars	9,534	9,959
Total Vehicles	400,843	471,362

ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED

The Financial Accounting Standards Board (“FASB”) has issued the following Accounting Standards Updates (“ASU”), which are not expected to have a material impact to our financial statements or financial statement disclosures. For additional information, see Note 2 of the Notes to the Financial Statements.


ASU		Effective Date (a)
2021-04	Issuer’s Accounting for Certain Modifications or Exchanges of Warrants	January 1, 2022
2021-05	Lessors – Certain Leases with Variable Lease Payments	January 1, 2022
2018-12	Targeted Improvements to the Accounting for Long Duration Contracts	January 1, 2023

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

Previous: Item 1. Financial Statements. · Next: Item 3. Quantitative and Qualitative Disclosures About Market Risk.