Item 1. Financial Statements (Continued)

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Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS

NOTE 21. SEGMENT INFORMATION (Continued)

Key financial information for the periods ended or at June 30 was as follows (in millions):

Ford BlueFord Model eFord ProFord NextFord CreditCorporate OtherInterest on DebtSpecial ItemsEliminations/AdjustmentsTotal
Second Quarter 2022
External revenues$23,834$1,320$12,748$25$2,256$7$—$—$—$40,190
Intersegment revenues (a)9,70250——————(9,752)—
Total revenues$33,536$1,370$12,748$25$2,256$7$—$—$(9,752)$40,190
Income/(Loss) before income taxes$2,504$(510)$879$(221)$939$131$(312)$(2,619)(b)$—$791
Equity in net income/(loss) of affiliated companies76(3)84(83)4——(20)—58
Total assets56,0473,6702,0163,284127,49354,566——(1,321)(c)245,755
Second Quarter 2023
External revenues$25,002$1,834$15,589$—$2,527$2$—$—$—$44,954
Intersegment revenues (a)10,206172——————(10,378)—
Total revenues$35,208$2,006$15,589$—$2,527$2$—$—$(10,378)$44,954
Income/(loss) before income taxes$2,308$(1,080)$2,391$(26)$390$(197)$(304)$(1,194)(d)$—$2,288
Equity in net income/(loss) of affiliated companies104(3)160(6)71—(387)(e)—(124)
Total assets58,4759,4202,754253143,15554,063——(2,129)(c)265,991
Ford BlueFord Model eFord ProFord NextFord CreditCorporate OtherInterest on DebtSpecial ItemsEliminations/AdjustmentsTotal
First Half 2022
External revenues$44,644$2,292$23,072$109$4,537$12$—$—$—$74,666
Intersegment revenues (a)16,95677——————(17,033)—
Total revenues$61,600$2,369$23,072$109$4,537$12$—$—$(17,033)$74,666
Income/(Loss) before income taxes$3,832$(890)$1,370$(463)$1,867$332$(620)$(8,485)(b)$—$(3,057)
Equity in net income/(loss) of affiliated companies132(5)169(158)101—(124)(f)—25
First Half 2023
External revenues$50,126$2,541$28,838$1$4,916$6$—$—$—$86,428
Intersegment revenues (a)19,383181——————(19,564)—
Total revenues$69,509$2,722$28,838$1$4,916$6$—$—$(19,564)$86,428
Income/(loss) before income taxes$4,931$(1,802)$3,757$(70)$693$(344)$(612)$(2,106)(d)$—$4,447
Equity in net income/(loss) of affiliated companies159(6)277(18)141—(421)(e)—6

(a)Intersegment revenues only reflect finished vehicle transactions between Ford Blue, Ford Model e, and Ford Pro where there is an intersegment markup and are recognized at the time of the intersegment transaction.

(b)Primarily reflects gains/(losses) on our Rivian investment.

(c)Primarily includes eliminations of intersegment transactions occurring in the ordinary course of business.

(d)Primarily reflects restructuring actions, mark-to-market adjustments for our global pension and OPEB plans, and an accrual for the Transit Connect customs matter (relating to certain Transit Connect vehicles produced between 2009 and 2013).

(e)Primarily reflects our share of charges from an equity method investment resulting from Ford’s ongoing restructuring actions in China.

(f)Primarily reflects the full impairment of our Ford Sollers Netherlands B.V. (the parent company of our joint venture in Russia) equity method investment, resulting from the ongoing regulatory and economic uncertainty in Russia.

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

RECENT DEVELOPMENTS

On September 14, 2023, our collective bargaining agreement with the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (“UAW”) in the United States will expire, and on September 18, 2023, our collective bargaining agreement with Unifor in Canada will expire, which will require negotiation of new agreements. See Item 1A. Risk Factors in our 2022 Form 10-K Report and as updated by our subsequent filings with the SEC for a discussion of the risks related to production disruptions.

RESULTS OF OPERATIONS

In the second quarter of 2023, the net income attributable to Ford Motor Company was $1,917 million, and Company adjusted EBIT was $3,786 million.

Net income/(loss) includes certain items (“special items”) that are excluded from Company adjusted EBIT. These items are discussed in more detail in Note 21 of the Notes to the Financial Statements. We report special items separately to allow investors analyzing our results to identify certain infrequent significant items that they may wish to exclude when considering the trend of ongoing operating results. Our pre-tax and tax special items were as follows (in millions):

Second QuarterFirst Half
2022202320222023
Restructuring (by Geography)
Europe$(27)$(51)$(49)$(421)
China(12)(446)(12)(755)
Ford Credit - Brazil(36)—(155)—
Other(68)(159)(104)(147)
Subtotal Restructuring$(143)$(656)$(320)$(1,323)
Pension and OPEB Gain/(Loss)
Pension and OPEB remeasurement$(16)$(89)$(16)$(202)
Pension settlements and curtailments—(59)—(105)
Subtotal Pension and OPEB Gain/(Loss)$(16)$(148)$(16)$(307)
Other Items
Gain/(loss) on Rivian investment$(2,447)$(6)$(7,896)$(31)
Transit Connect customs matter—(300)—(300)
Russia suspension of operations/asset write-off6—(132)—
Patent matters related to prior calendar years148(121)8
Other (including gains/(losses) on investments)(33)(92)—(153)
Subtotal Other Items$(2,460)$(390)$(8,149)$(476)
Total EBIT Special Items$(2,619)$(1,194)$(8,485)$(2,106)
Provision for/(Benefit from) tax special items (a)$(537)$(177)$(1,729)$(321)

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

We recorded $1.2 billion of pre-tax special item charges in the second quarter of 2023, driven primarily by restructuring actions in China and an accrual for the Transit Connect customs matter (relating to certain Transit Connect vehicles produced between 2009 and 2013).

In Note 21 of the Notes to the Financial Statements, special items are reflected as a separate reconciling item, as opposed to being allocated among our segments. This reflects the fact that management excludes these items from its review of operating segment results for purposes of measuring segment profitability and allocating resources.

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

COMPANY KEY METRICS

The table below shows our second quarter 2023 key metrics for the Company, compared to a year ago.

Second QuarterFirst Half
20222023H / (L)20222023H / (L)
GAAP Financial Measures
Cash Flows from Operating Activities ($B)$2.9$5.0$2.1$1.9$7.8$6.0
Revenue ($M)40,19044,95412%74,66686,42816%
Net Income/(Loss) ($M)6671,917$1,250(2,443)3,674$6,117
Net Income/(Loss) Margin (%)1.7%4.3%2.6 ppts(3.3)%4.3%7.6 ppts
EPS (Diluted)$0.16$0.47$0.31$(0.61)$0.91$1.52
Non-GAAP Financial Measures (a)
Company Adj. Free Cash Flow ($B)$3.6$2.9$(0.7)$3.0$3.6$0.6
Company Adj. EBIT ($M)3,7223,786646,0487,1651,117
Company Adj. EBIT Margin (%)9.3%8.4%(0.8) ppts8.1%8.3%0.2 ppts
Adjusted EPS (Diluted)$0.68$0.72$0.04$1.06$1.34$0.28
Adjusted ROIC (Trailing Four Quarters)11.6%14.2%2.7 ppts

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

In the second quarter of 2023, our diluted earnings per share of Common and Class B Stock was $0.47, and our diluted adjusted earnings per share was $0.72.

Net income/(loss) margin was 4.3% in the second quarter of 2023, up 2.6 percentage points from a year ago. Company adjusted EBIT margin was 8.4% in the second quarter of 2023, down 0.8 percentage points from a year ago.

The year-over-year increase of $1.3 billion in net income in the second quarter of 2023 was primarily driven by the non-recurrence of a mark-to-market loss on our Rivian investment (included in special items in the second quarter of 2022), offset partially by higher restructuring and pension expense in the second quarter of 2023 (also included in special items).

The year-over-year increase of $64 million in Company adjusted EBIT was driven by higher Ford Pro EBIT and a lower EBIT loss in Ford Next. Partial offsets include higher EBIT losses in Ford Model e, lower Ford Blue EBIT and Ford Credit EBT, and lower past service pension and OPEB income in Corporate Other.

The table below shows our second quarter and first half 2023 net income/(loss) attributable to Ford and Company adjusted EBIT by segment.

Second QuarterFirst Half
20222023H / (L)20222023H / (L)
Ford Blue$2,504$2,308$(196)$3,832$4,931$1,099
Ford Model e(510)(1,080)(570)(890)(1,802)(912)
Ford Pro8792,3911,5121,3703,7572,387
Ford Next(221)(26)195(463)(70)393
Ford Credit939390(549)1,867693(1,174)
Corporate Other131(197)(328)332(344)(676)
Company Adjusted EBIT (a)3,7223,786646,0487,1651,117
Interest on Debt(312)(304)(8)(620)(612)(8)
Special Items(2,619)(1,194)(1,425)(8,485)(2,106)(6,379)
Taxes / Noncontrolling Interests(124)(371)247614(773)1,387
Net Income/(Loss)$667$1,917$1,250$(2,443)$3,674$6,117

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

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

The tables below and on the following pages provide second quarter and first half 2023 key metrics and the change in second quarter 2023 EBIT compared with second quarter 2022 by causal factor for each of our segments. For a description of these causal factors, see Definitions and Information Regarding Ford Blue, Ford Model e, Ford Pro Causal Factors.

Ford Blue Segment

Second QuarterFirst Half
Key Metrics20222023H / (L)20222023H / (L)
Wholesale Units (000) (a)670720491,3331,42692
Revenue ($M)$23,834$25,002$1,168$44,644$50,126$5,482
EBIT ($M)2,5042,308(196)3,8324,9311,099
EBIT Margin (%)10.5%9.2%(1.3) ppts8.6%9.8%1.2 ppts

(a)Includes Ford and Lincoln brand and JMC brand vehicles produced and sold in China by our unconsolidated affiliates (about 111,000 units in Q2 2022 and 107,000 units in Q2 2023).

Change in EBIT by Causal Factor (in millions)
Second Quarter 2022 EBIT$2,504
Volume / Mix267
Net Pricing133
Cost28
Exchange(367)
Other(257)
Second Quarter 2023 EBIT$2,308

In the second quarter of 2023, Ford Blue’s wholesales increased 7% from a year ago driven by improvements in production-related supply constraints. Second quarter 2023 revenue increased 5%, driven by higher wholesales.

Ford Blue’s second quarter 2023 EBIT was $2.3 billion, a decrease of $196 million from a year ago, with an EBIT margin of 9.2%. The lower EBIT was driven by weaker currencies and the non-recurrence of an insurance claim recovery in the second quarter of 2022 (included in Other), offset partially by higher wholesales, higher net pricing, and improved cost, primarily driven by improved commodity costs.

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

Ford Model e Segment

Second QuarterFirst Half
Key Metrics20222023H / (L)20222023H / (L)
Wholesale Units (000)24341042475
Revenue ($M)$1,320$1,834$514$2,292$2,541$249
EBIT ($M)(510)(1,080)(570)(890)(1,802)(912)
EBIT Margin (%)(38.6)%(58.9)%(20.3) ppts(38.8)%(70.9)%(32.1) ppts
Change in EBIT by Causal Factor (in millions)
Second Quarter 2022 EBIT$(510)
Volume / Mix66
Net Pricing(177)
Cost(481)
Exchange16
Other6
Second Quarter 2023 EBIT$(1,080)

In the second quarter of 2023, Ford Model e’s wholesales increased 44% from a year ago, reflecting increased production capacity for Mustang Mach-E and a full quarter of F-150 Lightning production, which launched in late April 2022. Second quarter 2023 revenue increased 39%, primarily driven by higher wholesales, offset partially by lower net pricing.

Ford Model e’s second quarter 2023 EBIT loss was $1.1 billion, a $570 million higher loss than a year ago, with an EBIT margin of negative 58.9%. The lower EBIT was primarily driven by lower net pricing, higher launch-related supplier costs, as well as higher warranty, engineering, spending-related, and selling, general & administrative costs.

Ford Pro Segment

Second QuarterFirst Half
Key Metrics20222023H / (L)20222023H / (L)
Wholesale Units (000) (a)3383652762370280
Revenue ($M)$12,748$15,589$2,841$23,072$28,838$5,766
EBIT ($M)8792,3911,5121,3703,7572,387
EBIT Margin (%)6.9%15.3%8.4 ppts5.9%13.0%7.1 ppts

(a)Includes Ford brand vehicles produced and sold by our unconsolidated affiliate Ford Otosan in Türkiye (about 17,000 units in Q2 2022 and 24,000 units in Q2 2023).

Change in EBIT by Causal Factor (in millions)
Second Quarter 2022 EBIT$879
Volume / Mix110
Net Pricing1,916
Cost(282)
Exchange(65)
Other(167)
Second Quarter 2023 EBIT$2,391

In the second quarter of 2023, Ford Pro’s wholesales increased 8% from a year ago driven by improvements in production-related supply constraints and new product launches. Second quarter 2023 revenue increased 22%, driven by higher net pricing and wholesales.

Ford Pro’s second quarter 2023 EBIT was $2.4 billion, an increase of $1.5 billion from a year ago, with an EBIT margin of 15.3%. The improvement in EBIT was driven by higher net pricing and wholesales, and lower commodity costs. Partial offsets included higher material cost for new products, higher warranty costs (primarily driven by inflationary cost pressures), and the non-recurrence of an insurance claim recovery in the second quarter of 2022 (included in Other).

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

Definitions and Information Regarding Ford Blue, Ford Model e, Ford Pro Causal Factors

In general, we measure year-over-year change in Ford Blue, Ford Model e, and Ford Pro EBIT using the causal factors listed below, with net pricing and cost variances calculated at present-period volume and mix and exchange:

*•*Market Factors (exclude the impact of unconsolidated affiliate wholesale units):

*◦*Volume and Mix – primarily measures EBIT variance from changes in wholesale unit volumes (at prior-year average contribution margin per unit) driven by changes in industry volume, market share, and dealer stocks, as well as the EBIT variance resulting from changes in product mix, including mix among vehicle lines and mix of trim levels and options within a vehicle line

*◦*Net Pricing – primarily measures EBIT variance driven by changes in wholesale unit prices to dealers and marketing incentive programs such as rebate programs, low-rate financing offers, special lease offers, and stock adjustments on dealer inventory

  • Cost:

*◦*Contribution Costs – primarily measures EBIT variance driven by per-unit changes in cost categories that typically vary with volume, such as material costs (including commodity and component costs), warranty expense, and freight and duty costs

*◦*Structural Costs – primarily measures EBIT variance driven by absolute change in cost categories that typically do not have a directly proportionate relationship to production volume. Structural costs include the following cost categories:

*▪*Manufacturing, Including Volume-Related – consists primarily of costs for hourly and salaried manufacturing personnel, plant overhead (such as utilities and taxes), and new product launch expense. These costs could be affected by volume for operating pattern actions such as overtime, line-speed, and shift schedules

*▪*Engineering and Connectivity – consists primarily of costs for vehicle and software engineering personnel, prototype materials, testing, and outside engineering and software services

*▪*Spending-Related – consists primarily of depreciation and amortization of our manufacturing and engineering assets and capital project expense, but also includes asset retirements and operating leases

*▪*Advertising and Sales Promotions – includes costs for advertising, marketing programs, brand promotions, customer mailings and promotional events, and auto shows

*▪*Administrative, Information Technology, and Selling – includes primarily costs for salaried personnel and purchased services related to our staff activities, information technology, and selling functions

*•*Exchange – primarily measures EBIT variance driven by one or more of the following: (i) transactions denominated in currencies other than the functional currencies of the relevant entities, (ii) effects of converting functional currency income to U.S. dollars, (iii) effects of remeasuring monetary assets and liabilities of the relevant entities in currencies other than their functional currency, or (iv) results of our foreign currency hedging

*•*Other – includes a variety of items, such as parts and services earnings, royalties, government incentives, and compensation-related changes

In addition, definitions and calculations used in this report include:

*•*Wholesales and Revenue – wholesale unit volumes include all Ford and Lincoln badged units (whether produced by Ford or by an unconsolidated affiliate) that are sold to dealerships or others, units manufactured by Ford that are sold to other manufacturers, units distributed by Ford for other manufacturers, and local brand units produced by our China joint venture, Jiangling Motors Corporation, Ltd. (“JMC”), that are sold to dealerships or others. Vehicles sold to daily rental car companies that are subject to a guaranteed repurchase option (i.e., rental repurchase), as well as other sales of finished vehicles for which the recognition of revenue is deferred (e.g., consignments), also are included in wholesale unit volumes. Revenue from certain vehicles in wholesale unit volumes (specifically, Ford badged vehicles produced and distributed by our unconsolidated affiliates, as well as JMC brand vehicles) are not included in our revenue. Excludes transactions between Ford Blue, Ford Model e, and Ford Pro segments

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

  • SAAR – seasonally adjusted annual rate

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

Ford Next Segment

The Ford Next segment (formerly Mobility) primarily includes expenses and investments for emerging business initiatives aimed at creating value for Ford in vehicle-adjacent market segments.

In this segment, our second quarter 2023 EBIT loss was $26 million, a $195 million improvement from a year ago. Ford Next has evolved from primarily investing in the development of autonomous vehicle capabilities to focus exclusively on incubating and launching new businesses creating strategic value for Ford.

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

Ford Credit Segment

Ford Credit files periodic reports with the SEC that contain additional information regarding Ford Credit. The reports are available through Ford Credit’s website located at www.fordcredit.com/investor-center and can also be found on the SEC’s website located at www.sec.gov. The foregoing information regarding Ford Credit’s website and its content is for convenience only and not deemed to be incorporated by reference into this Report nor filed with the SEC.

The tables below provide second quarter and first half 2023 key metrics and the change in second quarter 2023 EBT compared with second quarter 2022 by causal factor for the Ford Credit segment. For a description of these causal factors, see Definitions and Information Regarding Ford Credit Causal Factors.

Second QuarterFirst Half
Key Metrics20222023H / (L)20222023H / (L)
Total Net Receivables ($B)$116$1269%$116$1269%
Loss-to-Receivables (bps) (a)5211672821
Auction Values (b)$34,620$31,830(8)%$34,485$31,445(9)%
EBT ($M)939390$(549)1,867693$(1,174)
ROE (%)26%9%(17) ppts24%9%(15) ppts
Other Balance Sheet Metrics
Debt ($B)$110$12413%
Net Liquidity ($B)252916%
Financial Statement Leverage (to 1)9.19.90.8

(a)U.S. retail financing only.

(b)U.S. 36-month off-lease second quarter auction values at Q2 2023 mix and YTD amounts at 2023 YTD mix.

Change in EBT by Causal Factor (in millions)
Second Quarter 2022 EBT$939
Volume / Mix47
Financing Margin(196)
Credit Loss(96)
Lease Residual(112)
Exchange(1)
Other(191)
Second Quarter 2023 EBT$390

Ford Credit’s total net receivables of $126 billion were $10 billion higher than a year ago, reflecting the impact of increased non-consumer financing and consumer financing, partially offset by fewer operating leases. The U.S. loss-to-receivables (“LTR”) ratio remained at a low level in the second quarter of 2023, at 21 basis points, though higher than a year ago as losses begin to normalize from historic lows. U.S. auction values in the second quarter of 2023 were lower compared to a year ago.

Ford Credit’s second quarter 2023 EBT of $390 million was $549 million lower than a year ago, explained primarily by lower financing margin due to higher borrowing costs, the non-recurrence of prior year credit loss reserve releases and higher credit losses, unfavorable lease residual performance, and unfavorable market valuation adjustments to derivatives (included in Other).

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

Definitions and Information Regarding Ford Credit Causal Factors

In general, we measure year-over-year changes in Ford Credit’s EBT using the causal factors listed below:

*•*Volume and Mix:

◦Volume primarily measures changes in net financing margin driven by changes in average net receivables excluding the allowance for credit losses at prior period financing margin yield (defined below in financing margin) at prior period exchange rates. Volume changes are primarily driven by the volume of new and used vehicles sold and leased, the extent to which Ford Credit purchases retail financing and operating lease contracts, the extent to which Ford Credit provides wholesale financing, the sales price of the vehicles financed, the level of dealer inventories, Ford-sponsored special financing programs available exclusively through Ford Credit, and the availability of cost-effective funding

◦Mix primarily measures changes in net financing margin driven by period-over-period changes in the composition of Ford Credit’s average net receivables excluding the allowance for credit losses by product within each region

*•*Financing Margin:

◦Financing margin variance is the period-to-period change in financing margin yield multiplied by the present period average net receivables excluding the allowance for credit losses at prior period exchange rates. This calculation is performed at the product and country level and then aggregated. Financing margin yield equals revenue, less interest expense and scheduled depreciation for the period, divided by average net receivables excluding the allowance for credit losses for the same period

◦Financing margin changes are driven by changes in revenue and interest expense. Changes in revenue are primarily driven by the level of market interest rates, cost assumptions in pricing, mix of business, and competitive environment. Changes in interest expense are primarily driven by the level of market interest rates, borrowing spreads, and asset-liability management

*•*Credit Loss:

◦Credit loss is the change in the provision for credit losses at prior period exchange rates. For analysis purposes, management splits the provision for credit losses into net charge-offs and the change in the allowance for credit losses

◦Net charge-off changes are primarily driven by the number of repossessions, severity per repossession, and recoveries. Changes in the allowance for credit losses are primarily driven by changes in historical trends in credit losses and recoveries, changes in the composition and size of Ford Credit’s present portfolio, changes in trends in historical used vehicle values, and changes in forward looking macroeconomic conditions. For additional information, refer to the “Critical Accounting Estimates - Allowance for Credit Losses” section of Item 7 of Part II of our 2022 Form 10-K Report

*•*Lease Residual:

◦Lease residual measures changes to residual performance at prior period exchange rates. For analysis purposes, management splits residual performance primarily into residual gains and losses, and the change in accumulated supplemental depreciation

◦Residual gain and loss changes are primarily driven by the number of vehicles returned to Ford Credit and sold, and the difference between the auction value and the depreciated value (which includes both base and accumulated supplemental depreciation) of the vehicles sold. Changes in accumulated supplemental depreciation are primarily driven by changes in Ford Credit’s estimate of the expected auction value at the end of the lease term and changes in Ford Credit’s estimate of the number of vehicles that will be returned to it and sold. Depreciation on vehicles subject to operating leases includes early termination losses on operating leases due to customer default events. For additional information, refer to the “Critical Accounting Estimates - Accumulated Depreciation on Vehicles Subject to Operating Leases” section of Item 7 of Part II of our 2022 Form 10-K Report

  • Exchange:

◦Reflects changes in EBT driven by the effects of converting functional currency income to U.S. dollars

*•*Other:

◦Primarily includes operating expenses, other revenue, insurance expenses, and other income/(loss) at prior period exchange rates

◦Changes in operating expenses are primarily driven by salaried personnel costs, facilities costs, and costs associated with the origination and servicing of customer contracts

◦In general, other income/(loss) changes are primarily driven by changes in earnings related to market valuation adjustments to derivatives (primarily related to movements in interest rates) and other miscellaneous items

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

In addition, the following definitions and calculations apply to Ford Credit when used in this Report:

  • Cash (as shown in the Funding Structure and Liquidity tables) – Cash, cash equivalents, and marketable securities, excluding amounts related to insurance activities

  • Debt (as shown in the Key Metrics and Leverage tables) – Debt on Ford Credit’s balance sheets. Includes debt issued in securitizations and payable only out of collections on the underlying securitized assets and related enhancements. Ford Credit holds the right to receive the excess cash flows not needed to pay the debt issued by, and other obligations of, the securitization entities that are parties to those securitization transactions

  • Earnings Before Taxes (“EBT”) – Reflects Ford Credit’s income before income taxes

  • Loss-to-Receivables (“LTR”) Ratio – LTR ratio is calculated using net charge-offs divided by average finance receivables, excluding unearned interest supplements and the allowance for credit losses

  • Return on Equity (“ROE”) (as shown in the Key Metrics table) – Reflects return on equity calculated by annualizing net income for the period and dividing by monthly average equity for the period

  • Securitization and Restricted Cash (as shown in the Liquidity table) – Securitization cash is held for the benefit of the securitization investors (for example, a reserve fund). Restricted cash primarily includes cash held to meet certain local governmental and regulatory reserve requirements and cash held under the terms of certain contractual agreements

  • Securitizations (as shown in the Public Term Funding Plan table) – Public securitization transactions, Rule 144A offerings sponsored by Ford Credit, and widely distributed offerings by Ford Credit Canada

  • Term Asset-Backed Securities (as shown in the Funding Structure table) – Obligations issued in securitization transactions that are payable only out of collections on the underlying securitized assets and related enhancements

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

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

Corporate Other

Corporate Other primarily includes corporate governance expenses, past service pension and OPEB income and expense, interest income (excluding Ford Credit interest income and interest earned on our extended service contract portfolio) and gains and losses from our cash, cash equivalents, and marketable securities (excluding gains and losses on investments in equity securities), and foreign exchange derivatives gains and losses associated with intercompany lending. Corporate governance expenses are primarily administrative, delivering benefit on behalf of the global enterprise, that are not allocated to operating segments. These include expenses related to setting and directing global policy, providing oversight and stewardship, and promoting the Company’s interests. In the second quarter of 2023, Corporate Other had a $197 million loss, compared with a $131 million profit a year ago. The loss was driven by lower past service pension and OPEB income, which was partially offset by higher Company excluding Ford Credit interest income due to increases in interest rates (primarily Fed Funds).

Interest on Debt

Interest on Debt, which consists of interest expense on Company debt excluding Ford Credit, was $304 million in the second quarter of 2023, $8 million lower than a year ago.

Taxes

Our Provision for/(Benefit from) income taxes for the second quarter and first half of 2023 was a provision of $272 million and $768 million, respectively. This resulted in effective tax rates of 11.9% and 17.3%, respectively.

Our second quarter and first half of 2023 adjusted effective tax rates, which exclude special items, were 12.9% and 16.6%, respectively.

We regularly review our organizational structure and income tax elections for affiliates in non-U.S. and U.S. tax jurisdictions, which may result in changes in affiliates that are included in or excluded from our U.S. tax return. Any future changes to our structure, as well as any changes in income tax laws in the countries that we operate, could cause increases or decreases to our deferred tax balances and related valuation allowances.

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

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 2023, total balance sheet cash, cash equivalents, marketable securities, and restricted cash, including Ford Credit and entities held for sale, was $43.0 billion.

We consider our key balance sheet metrics to be: (i) Company cash, which includes cash equivalents, marketable securities, and restricted cash, including cash held for sale, excluding Ford Credit’s cash, cash equivalents, marketable securities, and restricted cash; and (ii) Company liquidity, which includes Company cash, less restricted cash, and total available committed credit lines, excluding Ford Credit’s total available committed credit lines.

Company excluding Ford Credit

December 31, 2022June 30, 2023
Balance Sheets ($B)
Company Cash$32.3$29.8
Liquidity48.047.3
Debt(19.9)(19.6)
Cash Net of Debt12.310.3
Pension Funded Status ($B) (a)
Funded Plans$4.1$4.0
Unfunded Plans(4.3)(4.2)
Total Global Pension$(0.2)$(0.2)
Total Funded Status OPEB$(4.5)$(4.4)

(a)Balances at June 30, 2023 reflect net funded status at December 31, 2022, updated for service and interest cost; expected return on assets; curtailments, settlements, and associated interim remeasurement (where applicable); separation expense; actual benefit payments; and cash contributions. The discount rate and rate of expected return assumptions are unchanged from year-end 2022.

Liquidity. One of our key priorities is to maintain a strong balance sheet, while at the same time having resources available to invest in and grow our business. At June 30, 2023, we had Company cash of $29.8 billion and liquidity of $47.3 billion. At June 30, 2023, about 90% of Company cash was held by consolidated entities domiciled in the United States.

To be prepared for an economic downturn, we target an ongoing Company cash balance at or above $20 billion plus significant additional liquidity above our Company cash target. We expect to have periods when we will be above or below this amount due to: (i) future cash flow expectations, such as for investments in future opportunities, capital investments, debt maturities, pension contributions, or restructuring requirements, (ii) short-term timing differences, and (iii) changes in the global economic environment.

Our Company cash investments primarily include U.S. Department of Treasury obligations, federal agency securities, bank time deposits with investment-grade institutions, investment-grade corporate securities, investment-grade commercial paper, and debt obligations of a select group of non-U.S. governments, non-U.S. governmental agencies, and supranational institutions. The average maturity of these investments is approximately one year and adjusted based on market conditions and liquidity needs. We monitor our Company cash levels and average maturity on a daily basis.

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

Material Cash Requirements. Our material cash requirements include:

  • Capital expenditures (for additional information, see the “Changes in Company Cash” section below) and other payments for engineering, software, product development, and implementation of our plans for electric vehicles

  • Purchase of raw materials and components to support the manufacturing and sale of vehicles (including electric vehicles), parts, and accessories (for additional information, see the Aggregate Contractual Obligations table and the accompanying description of our “Purchase obligations” in the “Liquidity and Capital Resources - Company Excluding Ford Credit” section in Item 7 of our 2022 Form 10-K Report)

  • Marketing incentive payments to dealers

  • Payments for warranty and field service actions (for additional information, see Note 20 of the Notes to the Financial Statements herein)

  • Debt repayments (for additional information, see the Aggregate Contractual Obligations table in the “Liquidity and Capital Resources - Company Excluding Ford Credit” section in Item 7 and Note 19 of the Notes the Financial Statements in our 2022 Form 10-K Report)

  • Discretionary and mandatory payments to our global pension plans (for additional information, see the Aggregate Contractual Obligations table in the “Liquidity and Capital Resources - Company Excluding Ford Credit” section in Item 7 of our 2022 Form 10-K Report, the “Changes in Company Cash” section below, and Note 13 of the Notes to the Financial Statements herein)

  • Employee wages, benefits, and incentives

  • Operating lease payments (for additional information, see the Aggregate Contractual Obligations table in the “Liquidity and Capital Resources - Company Excluding Ford Credit” section in Item 7 and Note 18 of the Notes to the Financial Statements in our 2022 Form 10-K Report)

  • Cash effects related to the restructuring of our business

  • Strategic acquisitions and investments to grow our business, including electrification

Subject to approval by our Board of Directors, shareholder distributions in the form of dividend payments and/or a share repurchase program (including share repurchases to offset the anti-dilutive effect of increased shared-based compensation) may require the expenditure of a material amount of cash. Moreover, we may be subject to additional material cash requirements that are contingent upon the occurrence of certain events, e.g., legal contingencies, uncertain tax positions, and other matters.

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

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

Changes in Company Cash. In managing our business, we classify changes in Company cash into operating and non-operating items. Operating items include: Company adjusted EBIT excluding Ford Credit EBT, capital spending, depreciation and tooling amortization, changes in working capital, Ford Credit distributions, interest on debt, cash taxes, and all other and timing differences (including timing differences between accrual-based EBIT and associated cash flows). Non-operating items include: restructuring costs, changes in Company debt excluding Ford Credit, contributions to funded pension plans, shareholder distributions, and other items (including gains and losses on investments in equity securities, acquisitions and divestitures, equity investments, and other transactions with Ford Credit).

With respect to “Changes in working capital,” in general, the Company excluding Ford Credit carries relatively low trade receivables compared with our trade payables because the majority of our wholesales are financed (primarily by Ford Credit) immediately upon the sale of vehicles to dealers, which generally occurs shortly after being produced. In contrast, our trade payables are based primarily on industry-standard production supplier payment terms of about 45 days. As a result, our cash flow deteriorates if wholesale volumes (and the corresponding revenue) decrease while trade payables continue to become due. Conversely, our cash flow improves if wholesale volumes (and the corresponding revenue) increase while new trade payables are generally not due for about 45 days. For example, the suspension of production at most of our assembly plants and lower industry volumes due to COVID-19 in early 2020 resulted in an initial deterioration of our cash flow, while the subsequent resumption of manufacturing operations and return to pre-COVID-19 production levels at most of our assembly plants resulted in a subsequent improvement of our cash flow. Even in normal economic conditions, however, these working capital balances generally are subject to seasonal changes that can impact cash flow. For example, we typically experience cash flow timing differences associated with inventories and payables due to our annual summer and December shutdown periods when production, and therefore inventories and wholesale volumes, are usually at their lowest levels, while payables continue to come due and be paid. The net impact of this typically results in cash outflows from changes in our working capital balances during these shutdown periods.

Our finished product inventory at June 30, 2023 was higher than at December 31, 2022, reflecting higher in-transit inventory, primarily related to capacity constraints in transportation infrastructure, and in-plant inventory.

In response to, or in anticipation of, supplier disruptions, we may stockpile certain components or raw materials to help prevent disruption in our production of vehicles. Such actions could have a short-term adverse impact on our cash and increase our inventory. Moreover, in order to secure critical materials for production of electric vehicles, we have entered into and plan to continue to enter into offtake agreements with raw material suppliers and make investments in certain raw material and battery suppliers, including contributing up to $6.6 billion in capital to BlueOval SK, LLC over a five-year period ending in 2026. Such investments, which are part of our plan to invest over $50 billion in electric vehicles through 2026, could have an additional adverse impact on our cash in the near-term.

The terms of the offtake agreements we have entered into, and those we may enter into in the future, vary by transaction, though they generally obligate us to purchase a certain percentage or minimum amount of output produced by the counterparty over an agreed upon period of time. The purchase price mechanism included in the offtake agreement is typically based on the market price of the material at the time of delivery. The terms may also include conditions to our obligation to purchase the materials, such as quality or minimum output. Subject to satisfaction of those conditions, we will be obligated to purchase the materials at the cost determined by the purchase price mechanism. As of June 30, 2023, our estimated expenditures for the maximum quantity that we are committed to purchase under these offtake agreements, subject to certain conditions, total about $12 billion through 2035 based on our present pricing forecast; however, our pricing forecast could fluctuate significantly from period to period, which could result in significant increases or decreases in the estimate of our overall purchase commitment. The actual price paid for these materials will be recorded on our balance sheet at the time of purchase. In addition, we may enter into additional offtake agreements with raw material suppliers, the costs under which could be significant. Based on the offtake agreements we have entered into thus far, the earliest date by which we could be obligated to purchase any output, subject to satisfaction of the applicable conditions, will be in 2024.

Financial institutions participate in a supply chain finance (“SCF”) program that enables our suppliers, at their sole discretion, to sell their Ford receivables (i.e., our payment obligations to the suppliers) to the financial institutions on a non-recourse basis in order to be paid earlier than our payment terms provide. Our suppliers’ voluntary inclusion of invoices in the SCF program has no bearing on our payment terms, the amounts we pay, or our liquidity. We have no economic interest in a supplier’s decision to participate in the SCF program, and we do not provide any guarantees in connection with it. As of June 30, 2023, the outstanding amount of Ford receivables that suppliers elected to sell to the SCF financial institutions was $269 million. The amount settled through the SCF program during the first half of 2023 was $937 million.

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

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

Second QuarterFirst Half
2022202320222023
Company Excluding Ford Credit
Company Adjusted EBIT excluding Ford Credit (a)$2.8$3.4$4.2$6.5
Capital spending$(1.5)$(1.9)$(2.9)$(3.7)
Depreciation and tooling amortization1.31.32.62.6
Net spending$(0.2)$(0.6)$(0.2)$(1.1)
Receivables$(0.6)$(0.6)$(0.6)$(0.2)
Inventory0.3(1.4)(2.5)(3.4)
Trade Payables0.41.42.01.7
Changes in working capital$0.1$(0.7)$(1.1)$(1.9)
Ford Credit distributions$0.6$—$1.6$—
Interest on debt and cash taxes(0.6)(0.7)(0.9)(1.3)
All other and timing differences0.91.6(0.5)1.4
Company adjusted free cash flow (a)$3.6$2.9$3.0$3.6
Restructuring$0.3$(0.1)$0.2$(0.1)
Changes in debt(0.6)—(0.8)(0.2)
Funded pension contributions(0.2)(0.1)(0.3)(0.2)
Shareholder distributions(0.4)(0.6)(0.8)(3.8)
All other (b)(2.8)(0.9)(9.0)(1.7)
Change in cash$—$1.1$(7.8)$(2.4)

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

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

Note: Numbers may not sum due to rounding.

Our second quarter 2023 Net cash provided by/(used in) operating activities was positive $5.0 billion, an increase of $2.1 billion from a year ago (see page 59 for additional information), driven primarily by higher net income and higher Ford Credit operating cash flow, offset partially by an increase in inventory. Company adjusted free cash flow was $2.9 billion, $0.7 billion lower than a year ago, driven by higher capital spending and an increase in working capital, offset partially by higher adjusted EBIT excluding Ford Credit and favorable timing differences.

Capital spending was $1.9 billion in the second quarter of 2023, an increase of $0.4 billion from a year ago. We continue to expect full year 2023 capital spending to be in the range of $8 billion to $9 billion.

Second quarter 2023 working capital impact was $0.7 billion negative, driven by higher inventory and higher receivables, offset partially by higher trade payables, each compared to March 31, 2023. All other and timing differences were positive $1.6 billion. Timing differences include differences between accrual-based EBIT and the associated cash flows (e.g., pension and OPEB income or expense; compensation payments; marketing incentive and warranty payments to dealers).

In the second quarter of 2023, we contributed $109 million to our global funded pension plans. We continue to expect to contribute between $500 million and $600 million to our global funded pension plans in 2023.

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

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

Available Credit Lines. Total Company committed credit lines, excluding Ford Credit, at June 30, 2023 were $19.3 billion, consisting of $13.5 billion of our corporate credit facility, $2.0 billion of our supplemental revolving credit facility, $1.8 billion of our 364-day revolving credit facility, and $2.1 billion of local credit facilities. At June 30, 2023, the utilized portion of the corporate credit facility was $18 million, representing amounts utilized for letters of credit. In addition, $1.7 billion of committed Company credit lines, excluding Ford Credit, was utilized under local credit facilities for our affiliates as of June 30, 2023.

Lenders under our corporate credit facility have $3.4 billion of commitments maturing on April 26, 2026 and $10.1 billion of commitments maturing on April 26, 2028. Lenders under our supplemental revolving credit facility have $0.1 billion of commitments maturing on September 29, 2024 and $1.9 billion of commitments maturing on April 26, 2026. Lenders under our 364-day revolving credit facility have $1.8 billion of commitments maturing on April 24, 2024.

The corporate, supplemental, and 364-day credit agreements include certain sustainability-linked targets, pursuant to which the applicable margin and facility fees may be adjusted if Ford achieves, or fails to achieve, the specified targets related to global manufacturing facility greenhouse gas emissions, renewable electricity consumption, and Ford Europe CO2 tailpipe emissions.

The corporate credit facility is unsecured and free of material adverse change conditions to borrowing, restrictive financial covenants (for example, interest or fixed-charge coverage ratio, debt-to-equity ratio, and minimum net worth requirements), and credit rating triggers that could limit our ability to obtain funding or trigger early repayment. The corporate credit facility contains a liquidity covenant that requires us to maintain a minimum of $4 billion in aggregate of domestic cash, cash equivalents, and loaned and marketable securities and/or availability under the corporate credit facility, supplemental revolving credit facility, and 364-day revolving credit facility. The terms and conditions of the supplemental and 364-day revolving credit facilities are consistent with our corporate credit facility. Ford Credit has been designated as a subsidiary borrower under the corporate credit facility and the 364-day revolving credit facility.

Each of the corporate credit facility, supplemental revolving credit facility, and 364-day revolving credit facility include a covenant that requires us to provide guarantees from certain of our subsidiaries in the event that our senior, unsecured, long-term debt does not maintain at least two investment grade ratings from Fitch, Moody’s, and S&P. The following subsidiaries have provided unsecured guarantees to the lenders under the credit facilities: Ford Component Sales, LLC; Ford European Holdings Inc.; Ford Global Technologies, LLC; Ford Holdings LLC (the parent company of Ford Credit); Ford International Capital LLC; Ford Mexico Holdings LLC; Ford Motor Service Company; Ford Next LLC; Ford Trading Company, LLC; and Ford Van Dyke Investment Fund, Inc.

Debt. As shown in Note 14 of the Notes to the Financial Statements, at June 30, 2023, Company debt excluding Ford Credit was $19.6 billion. This balance is $0.4 billion lower than at December 31, 2022.

Leverage. We manage Company debt (excluding Ford Credit) levels with a leverage framework that targets investment grade credit ratings through a normal business cycle. The leverage framework includes a ratio of total Company debt (excluding Ford Credit), underfunded pension liabilities, operating leases, and other adjustments, divided by Company adjusted EBIT (excluding Ford Credit EBT), and further adjusted to exclude depreciation and tooling amortization (excluding Ford Credit).

Ford Credit’s leverage is calculated as a separate business as described in the ”Liquidity and Capital Resources - Ford Credit Segment” section of Item 2. Ford Credit is self-funding and its debt, which is used to fund its operations, is separate from our Company debt excluding Ford Credit.

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

Ford Credit Segment

Ford Credit remains well capitalized with a strong balance sheet and funding diversified across platforms and markets. Ford Credit saw sequential improvement in liquidity and securitized funding mix during the quarter and ended the second quarter of 2023 with $28.8 billion of liquidity, up $7.8 billion from year-end. Ford Credit continues to have robust access to the capital markets, completing $18 billion of public term issuances through July 26, 2023.

Key elements of Ford Credit’s funding strategy include:

  • Maintain strong liquidity and funding diversity

  • Prudently access public markets

  • Continue to leverage retail deposit funding in Europe

  • Flexibility to increase ABS mix as needed; preserving assets and committed capacity

  • Target financial statement leverage of 9:1 to 10:1

  • Maintain self-liquidating balance sheet

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

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

June 30, 2022December 31, 2022June 30, 2023
Funding Structure
Term unsecured debt$49.9$48.3$52.2
Term asset-backed securities47.156.455.6
Ford Interest Advantage / Retail Deposits12.514.315.9
Other1.92.62.3
Equity1211.912.5
Adjustments for cash(7.8)(11.2)(12.4)
Total Net Receivables$115.6$122.3$126.1
Securitized Funding as Percent of Total Debt43.0%47.4%45.0%

Net receivables were $126.1 billion at June 30, 2023 and were funded primarily with term unsecured debt and term asset-backed securities. Securitized funding as a percent of total debt was 45.0% as of June 30, 2023.

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

2021 Actual2022 Actual2023 ForecastThrough July 26
Unsecured$5$6$ 11 - 14$9
Securitizations (a)91012 - 149
Total public$14$16$ 23 - 28$18

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

For 2023, Ford Credit now projects full year public term funding in the range of $23 billion to $28 billion.

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

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

June 30, 2022December 31, 2022June 30, 2023
Liquidity Sources (a)
Cash$7.8$11.2$12.4
Committed asset-backed facilities34.337.442.3
Other unsecured credit facilities2.52.32.6
Total liquidity sources$44.6$50.9$57.3
Utilization of Liquidity (a)
Securitization and restricted cash$(2.7)$(2.9)$(2.9)
Committed asset-backed facilities(15.3)(26.6)(23.1)
Other unsecured credit facilities(0.5)(0.8)(1.2)
Total utilization of liquidity$(18.5)$(30.3)$(27.2)
Gross liquidity$26.1$20.6$30.1
Asset-backed capacity in excess of eligible receivables and other adjustments(1.1)0.4(1.3)
Net liquidity available for use$25.0$21.0$28.8

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

Ford Credit’s net liquidity available for use will fluctuate quarterly based on factors including near-term debt maturities, receivable growth and decline, and timing of funding transactions. At June 30, 2023, Ford Credit’s net liquidity available for use was $28.8 billion, $7.8 billion higher than year-end 2022, reflecting strong access to public funding markets and the addition of $4.9 billion in committed asset-backed capacity. At June 30, 2023, Ford Credit’s liquidity sources, including cash, committed asset-backed facilities, and unsecured credit facilities, totaled $57.3 billion, up $6.4 billion from year-end 2022.

Material Cash Requirements. Ford Credit’s material cash requirements include: (1) the purchase of retail financing and operating lease contracts from dealers and providing wholesale financing for dealers to finance new and used vehicles; and (2) debt repayments (for additional information on debt, see the “Aggregate Contractual Obligations” table in the “Liquidity and Capital Resources - Company Excluding Ford Credit” section in Item 7 and Note 19 of the Notes to the Financial Statements in our 2022 Form 10-K Report). In addition, subject to approval by Ford Credit’s Board of Directors, shareholder distributions may require the expenditure of a material amount of cash. Moreover, Ford Credit may be subject to additional material cash requirements that are contingent upon the occurrence of certain events, e.g., legal contingencies, uncertain tax positions, and other matters.

Ford Credit plans to utilize its liquidity (as described above) and its cash flows from business operations to fund its material cash requirements.

Funding and Liquidity Risks. Ford Credit’s funding plan is subject to risks and uncertainties, many of which are beyond its control, including disruption in the capital markets, that could impact both unsecured debt and asset-backed securities issuance and the effects of regulatory changes on the financial markets. Refer to the “Liquidity - Ford Credit Segment - Funding and Liquidity Risks” section of Item 7 of Part II of our 2022 Form 10-K Report for more information.

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

Leverage. Ford Credit uses leverage, or the debt-to-equity ratio, to make various business decisions, including evaluating and establishing pricing for finance receivable and operating lease financing, and assessing its capital structure.

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

June 30, 2022December 31, 2022June 30, 2023
Leverage Calculation
Debt$109.5$119.0$123.7
Equity (a)12.011.912.5
Financial statement leverage (to 1)9.110.09.9

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

Ford Credit plans its leverage by considering market conditions and the risk characteristics of its business. At June 30, 2023, Ford Credit’s financial statement leverage was 9.9:1. Ford Credit targets financial statement leverage in the range of 9:1 to 10:1.

Total Company

Pension Plans - Funded Balances. As of June 30, 2023, our total Company pension underfunded status reported on our consolidated balance sheets was $0.2 billion and reflects the net funded status at December 31, 2022, updated for: service and interest cost; expected return on assets; curtailments, settlements, and associated interim remeasurement (where applicable); separation expense; actual benefit payments; and cash contributions. For plans without interim remeasurement, the discount rate and rate of expected return assumptions are unchanged from year-end 2022.

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

Four Quarters Ending
June 30, 2022June 30, 2023
Adjusted Net Operating Profit/(Loss) After Cash Tax
Net income/(loss) attributable to Ford$11.7$4.1
Add: Noncontrolling interest—(0.2)
Less: Income tax1.6(0.5)
Add: Cash tax(0.7)(1.0)
Less: Interest on debt(1.5)(1.3)
Less: Total pension/OPEB income/(cost)4.5(0.6)
Add: Pension/OPEB service costs(1.0)(0.7)
Net operating profit/(loss) after cash tax$5.4$4.5
Less: Special items (excl. pension/OPEB) pre-tax(3.0)(5.1)
Adjusted net operating profit/(loss) after cash tax$8.3$9.6
Invested Capital
Equity$44.2$43.6
Debt (excl. Ford Credit)19.419.6
Net pension and OPEB liability5.24.6
Invested capital (end of period)$68.8$67.8
Average invested capital$72.0$67.6
ROIC (a)7.4%6.7%
Adjusted ROIC (Non-GAAP) (b)11.6%14.2%

(a)Calculated as the sum of net operating profit/(loss) after cash tax from the last four quarters, divided by the average invested capital over the last four quarters.

(b)Calculated as the sum of adjusted net operating profit/(loss) after cash tax from the last four quarters, divided by the average invested capital over the last four quarters.

Note: Numbers may not sum due to rounding.

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

CREDIT RATINGS

Our short-term and long-term debt is rated by four credit rating agencies designated as nationally recognized statistical rating organizations (“NRSROs”) by the U.S. Securities and Exchange Commission: DBRS, Fitch, Moody’s, and S&P.

In several markets, locally recognized rating agencies also rate us. A credit rating reflects an assessment by the rating agency of the credit risk associated with a corporate entity or particular securities issued by that entity. Rating agencies’ ratings of us are based on information provided by us and other sources. Credit ratings are not recommendations to buy, sell, or hold securities and are subject to revision or withdrawal at any time by the assigning rating agency. Each rating agency may have different criteria for evaluating company risk and, therefore, ratings should be evaluated independently for each rating agency.

The following rating actions were taken by these NRSROs since the filing of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023:

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

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

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

NRSRO RATINGS
FordFord CreditNRSROs
Issuer Default / Corporate / Issuer RatingLong-Term Senior UnsecuredOutlook / TrendLong-Term Senior UnsecuredShort-Term UnsecuredOutlook / TrendMinimum Long-Term Investment Grade Rating
DBRSBBB (low)BBB (low)StableBBB (low)R-2 (low)StableBBB (low)
FitchBB+BB+PositiveBB+BPositiveBBB-
Moody’sN/ABa1StableBa1NPStableBaa3
S&PBB+BB+PositiveBB+BPositiveBBB-

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

OUTLOOK

We provided 2023 Company guidance in our earnings release furnished on Form 8-K dated July 27, 2023. The guidance is based on our expectations as of July 27, 2023, and assumes no material change to our current assumptions for inflation, logistics issues, production, or macroeconomic conditions. Our actual results could differ materially from our guidance due to risks, uncertainties, and other factors, including those set forth in “Risk Factors” in Item 1A of our 2022 Form 10-K Report and as updated by our subsequent filings with the SEC.

2023 Guidance
Total Company
Adjusted EBIT (a)$11 - $12 billion
Adjusted Free Cash Flow (a)$6.5 - $7 billion
Capital spending$8 - $9 billion
Ford Credit
EBTAbout $1.3 billion

(a)When we provide guidance for adjusted EBIT and adjusted free cash flow, we do not provide guidance for the most comparable GAAP measures because, as described in more detail below in “Non-GAAP Measures That Supplement GAAP Measures,” they include items that are difficult to predict with reasonable certainty.

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

On a segment basis, we expect:

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

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

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

  • Ford Credit EBT to be about $1.3 billion.

Our outlook for 2023 assumes the headwinds and tailwinds below.

Headwinds:

  • Global economic uncertainty

  • Inflationary pressures

  • Higher industrywide customer incentives and continued EV pricing pressure

  • Increased warranty costs

  • Lower past service pension income

  • Exchange

  • Certain costs associated with union contract negotiations

Tailwinds:

  • Improved supply chain

  • Higher industry volumes

  • All-new Super Duty

  • Lower commodity costs

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

Cautionary Note on Forward-Looking Statements

Statements included or incorporated by reference herein may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on expectations, forecasts, and assumptions by our management and involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from those stated, including, without limitation:

  • Ford and Ford Credit’s financial condition and results of operations have been and may continue to be adversely affected by public health issues, including epidemics or pandemics such as COVID-19;

  • Ford is highly dependent on its suppliers to deliver components in accordance with Ford’s production schedule and specifications, and a shortage of or inability to acquire key components, such as semiconductors, or raw materials, such as lithium, cobalt, nickel, graphite, and manganese, can disrupt Ford’s production of vehicles;

  • To facilitate access to the raw materials necessary for the production of electric vehicles, Ford has entered into, and expects to continue to enter into, multi-year commitments to raw material suppliers that subject Ford to risks associated with lower future demand for such materials as well as costs that fluctuate and are difficult to accurately forecast;

  • Ford’s long-term competitiveness depends on the successful execution of Ford+;

  • Ford’s vehicles could be affected by defects that result in delays in new model launches, recall campaigns, or increased warranty costs;

  • Ford may not realize the anticipated benefits of existing or pending strategic alliances, joint ventures, acquisitions, divestitures, restructurings, or new business strategies;

  • Operational systems, security systems, vehicles, and services could be affected by cyber incidents, ransomware attacks, and other disruptions and impact Ford and Ford Credit as well as their suppliers and dealers;

  • Ford’s production, as well as Ford’s suppliers’ production, and/or the ability to deliver products to consumers could be disrupted by labor issues, natural or man-made disasters, adverse effects of climate change, financial distress, production difficulties, capacity limitations, or other factors;

  • Ford’s ability to maintain a competitive cost structure could be affected by labor or other constraints;

  • Ford’s ability to attract and retain talented, diverse, and highly skilled employees is critical to its success and competitiveness;

  • Ford’s new and existing products and digital, software, and physical services are subject to market acceptance and face significant competition from existing and new entrants in the automotive and digital and software services industries and its reputation may be harmed if it is unable to achieve the initiatives it has announced;

  • Ford’s results are dependent on sales of larger, more profitable vehicles, particularly in the United States;

  • With a global footprint, Ford’s results could be adversely affected by economic or geopolitical developments, including protectionist trade policies such as tariffs, or other events;

  • Industry sales volume can be volatile and could decline if there is a financial crisis, recession, or significant geopolitical event;

  • Ford may face increased price competition or a reduction in demand for its products resulting from industry excess capacity, currency fluctuations, competitive actions, or other factors;

  • Inflationary pressure and fluctuations in commodity and energy prices, foreign currency exchange rates, interest rates, and market value of Ford or Ford Credit’s investments, including marketable securities, can have a significant effect on results;

  • Ford and Ford Credit’s access to debt, securitization, or derivative markets around the world at competitive rates or in sufficient amounts could be affected by credit rating downgrades, market volatility, market disruption, regulatory requirements, or other factors;

  • The impact of government incentives on Ford’s business could be significant, and Ford’s receipt of government incentives could be subject to reduction, termination, or clawback;

  • Ford Credit could experience higher-than-expected credit losses, lower-than-anticipated residual values, or higher-than-expected return volumes for leased vehicles;

  • Economic and demographic experience for pension and OPEB plans (e.g., discount rates or investment returns) could be worse than Ford has assumed;

  • Pension and other postretirement liabilities could adversely affect Ford’s liquidity and financial condition;

  • Ford and Ford Credit could experience unusual or significant litigation, governmental investigations, or adverse publicity arising out of alleged defects in products, services, perceived environmental impacts, or otherwise;

  • Ford may need to substantially modify its product plans and facilities to comply with safety, emissions, fuel economy, autonomous driving technology, environmental, and other regulations;

  • Ford and Ford Credit could be affected by the continued development of more stringent privacy, data use, and data protection laws and regulations as well as consumers’ heightened expectations to safeguard their personal information; and

  • Ford Credit could be subject to new or increased credit regulations, consumer protection regulations, or other regulations.

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

We cannot be certain that any expectation, forecast, or assumption made in preparing forward-looking statements will prove accurate, or that any projection will be realized. It is to be expected that there may be differences between projected and actual results. Our forward-looking statements speak only as of the date of their initial issuance, and we do not undertake any obligation to update or revise publicly any forward-looking statement, whether as a result of new information, future events, or otherwise. For additional discussion, see “Item 1A. Risk Factors” in our 2022 Form 10-K Report, as updated by our subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

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

NON-GAAP FINANCIAL MEASURES THAT SUPPLEMENT GAAP MEASURES

We use both generally accepted accounting principles (“GAAP”) and non-GAAP financial measures for operational and financial decision making, and to assess Company and segment business performance. The non-GAAP measures listed below are intended to be considered by users as supplemental information to their equivalent GAAP measures, to aid investors in better understanding our financial results. We believe that these non-GAAP measures provide useful perspective on underlying operating results and trends, and a means to compare our period-over-period results. These non-GAAP measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. These non-GAAP measures may not be the same as similarly titled measures used by other companies due to possible differences in method and in items or events being adjusted.

*•*Company Adjusted EBIT (Most Comparable GAAP Measure: Net Income/(Loss) Attributable to Ford) – Earnings before interest and taxes (EBIT) excludes interest on debt (excl. Ford Credit Debt), taxes, and pre-tax special items. This non-GAAP measure is useful to management and investors because it focuses on underlying operating results and trends, and improves comparability of our period-over-period results. Our management ordinarily excludes special items from its review of the results of the operating segments for purposes of measuring segment profitability and allocating resources. Our categories of pre-tax special items and the applicable significance guideline for each item (which may consist of a group of items related to a single event or action) are as follows:

Pre-Tax Special ItemSignificance Guideline
∘ Pension and OPEB remeasurement gains and losses∘ No minimum
∘ Gains and losses on investments in equity securities∘ No minimum
∘ Personnel expenses, supplier- and dealer-related costs, and facility-related charges stemming from our efforts to match production capacity and cost structure to market demand and changing model mix∘ Generally $100 million or more
∘ Other items that we do not necessarily consider to be indicative of earnings from ongoing operating activities∘ $500 million or more for individual field service actions; generally $100 million or more for other items

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

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

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

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

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

  • Company Adjusted Free Cash Flow (Most Comparable GAAP Measure: Net Cash Provided By/(Used In) Operating Activities) – Measure of Company’s operating cash flow excluding Ford Credit’s operating cash flows. The measure contains elements management considers operating activities, including Company excluding Ford Credit capital spending, Ford Credit distributions to its parent, and settlement of derivatives. The measure excludes cash outflows for funded pension contributions, restructuring actions, and other items that are considered operating cash flows under U.S. GAAP. This measure is useful to management and investors because it is consistent with management’s assessment of the Company’s operating cash flow performance. When we provide guidance for Company adjusted free cash flow, we do not provide guidance for net cash provided by/(used in) operating activities because the GAAP measure will include items that are difficult to quantify or predict with reasonable certainty, including cash flows related to the Company's exposures to foreign currency exchange rates and certain commodity prices (separate from any related hedges), Ford Credit's operating cash flows, and cash flows related to special items, including separation payments, each of which individually or in the aggregate could have a significant impact to our net cash provided by/(used in) our operating activities.

*•*Adjusted ROIC – Calculated as the sum of adjusted net operating profit/(loss) after cash tax from the last four quarters, divided by the average invested capital over the last four quarters. Adjusted Return on Invested Capital (“Adjusted ROIC”) provides management and investors with useful information to evaluate the Company’s after-cash tax operating return on its invested capital for the period presented. Adjusted net operating profit/(loss) after cash tax measures operating results less special items, interest on debt (excl. Ford Credit Debt), and certain pension/OPEB costs. Average invested capital is the sum of average balance sheet equity, debt (excl. Ford Credit Debt), and net pension/OPEB liability.

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

Non-GAAP Financial Measure Reconciliations

The following tables show our Non-GAAP financial measure reconciliations.

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

Second QuarterFirst Half
2022202320222023
Net income/(loss) attributable to Ford (GAAP)$667$1,917$(2,443)$3,674
Income/(Loss) attributable to noncontrolling interests(29)99(38)5
Net income/(loss)$638$2,016$(2,481)$3,679
Less: (Provision for)/Benefit from income taxes(153)(272)576(768)
Income/(Loss) before income taxes$791$2,288$(3,057)$4,447
Less: Special items pre-tax(2,619)(1,194)(8,485)(2,106)
Income/(Loss) before special items pre-tax$3,410$3,482$5,428$6,553
Less: Interest on debt(312)(304)(620)(612)
Adjusted EBIT (Non-GAAP)$3,722$3,786$6,048$7,165
Memo:
Revenue ($B)$40.2$45.0$74.7$86.4
Net income/(loss) margin (GAAP) (%)1.7%4.3%(3.3)%4.3%
Adjusted EBIT margin (Non-GAAP) (%)9.3%8.4%8.1%8.3%

Earnings per Share Reconciliation to Adjusted Earnings per Share

Second QuarterFirst Half
2022202320222023
Diluted After-Tax Results ($M)
Diluted after-tax results (GAAP)$667$1,917$(2,443)$3,674
Less: Impact of pre-tax and tax special items (a)(2,082)(1,012)(6,756)(1,722)
Adjusted net income/(loss) – diluted (Non-GAAP)$2,749$2,929$4,313$5,396
Basic and Diluted Shares (M)
Basic shares (average shares outstanding)4,0214,0034,0143,996
Net dilutive options, unvested restricted stock units, unvested restricted stock shares, and convertible debt31384339
Diluted shares4,0524,0414,0574,035
Earnings/(Loss) per share – diluted (GAAP) (b)$0.16$0.47$(0.61)$0.91
Less: Net impact of adjustments(0.52)(0.25)(1.67)(0.43)
Adjusted earnings/(loss) per share – diluted (Non-GAAP)$0.68$0.72$1.06$1.34

(a)Includes adjustment for noncontrolling interest in 2023.

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

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

Effective Tax Rate Reconciliation to Adjusted Effective Tax Rate

Second QuarterFirst Half
2022202320222023Memo: FY 2022
Pre-Tax Results ($M)
Income/(Loss) before income taxes (GAAP)$791$2,288$(3,057)$4,447$(3,016)
Less: Impact of special items(2,619)(1,194)(8,485)(2,106)(12,172)
Adjusted earnings before taxes (Non-GAAP)$3,410$3,482$5,428$6,553$9,156
Taxes ($M)
(Provision for)/Benefit from income taxes (GAAP)$(153)$(272)$576$(768)$864
Less: Impact of special items (a)5371771,7293212,573
Adjusted (provision for)/benefit from income taxes (Non-GAAP)$(690)$(449)$(1,153)$(1,089)$(1,709)
Tax Rate (%)
Effective tax rate (GAAP)19.3%11.9%18.8%17.3%28.6%
Adjusted effective tax rate (Non-GAAP)20.2%12.9%21.2%16.6%18.7%

(a)The first half of 2022 reflects the tax consequences of unrealized losses on marketable securities. Full Year 2022 reflects the tax consequences of unrealized losses on marketable securities and fourth quarter favorable changes in our valuation allowances.

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

Second QuarterFirst Half
2022202320222023
Net cash provided by/(used in) operating activities (GAAP)$2,947$5,035$1,863$7,835
Less: Items not included in Company Adjusted Free Cash Flows
Ford Credit operating cash flows$(1,340)$581$(1,759)$1,207
Funded pension contributions(154)(109)(328)(234)
Restructuring (including separations) (a)(137)(118)(313)(199)
Ford Credit tax payments/(refunds) under tax sharing agreement———(5)
Other, net20(73)—(213)
Add: Items included in Company Adjusted Free Cash Flows
Company excluding Ford Credit capital spending$(1,503)$(1,927)$(2,852)$(3,687)
Ford Credit distributions600—1,600—
Settlement of derivatives(36)922820
Company adjusted free cash flow (Non-GAAP)$3,619$2,919$3,039$3,612

(a)Restructuring excludes cash flows reported in investing activities.

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