Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Europe
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Second Quarter | | First Half |
| Key Metrics | 2021 | | 2022 | | H / (L) | | 2021 | | 2022 | | H / (L) |
| Market Share (%) | 6.1 | % | | 6.4 | % | | 0.3 ppts | | 6.6 | % | | 6.5 | % | | (0.1) ppts |
| Wholesale Units (000) (a) | 182 | | | 222 | | | 40 | | | 460 | | | 476 | | | 16 | |
| Revenue ($M) | $ | 5,610 | | | $ | 5,761 | | | $ | 151 | | | $ | 12,660 | | | $ | 12,671 | | | $ | 11 | |
| EBIT ($M) | (284) | | | 10 | | | 294 | | | 57 | | | 217 | | | 160 | |
| EBIT Margin (%) | (5.1) | % | | 0.2 | % | | 5.3 ppts | | 0.4 | % | | 1.7 | % | | 1.3 ppts |
__________
(a)Includes Ford brand vehicles produced and sold by our unconsolidated affiliate in Turkey (about 13,000 units in Q2 2021 and 17,000 units in Q2 2022). Revenue does not include these sales.
| | | | | | | | |
| Change in EBIT by Causal Factor (in millions) | | |
| Second Quarter 2021 EBIT | | $ | (284) | |
| Volume / Mix | | (52) | |
| Net Pricing | | 826 | |
| Cost | | (542) | |
| Exchange | | (108) | |
| Other | | 170 | |
| Second Quarter 2022 EBIT | | $ | 10 | |
In Europe, second quarter 2022 wholesales increased 22% from a year ago, primarily reflecting reduced supply constraints (including semiconductors) on production. Second quarter 2022 revenue increased 3%, driven by higher wholesales and net pricing, offset partially by weaker currencies and unfavorable mix.
Europe’s second quarter 2022 EBIT was $10 million, an improvement of $294 million from a year ago, with an EBIT margin of 0.2%. The higher EBIT was driven by higher net pricing and higher wholesales, offset partially by unfavorable mix driven by semiconductor-related supply constraints, inflationary increases on commodity and material costs, and weaker currencies.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
China (Including Taiwan)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Second Quarter | | First Half |
| Key Metrics | 2021 | | 2022 | | H / (L) | | 2021 | | 2022 | | H / (L) |
| Market Share (%) | 2.3 | % | | 2.3 | % | | 0.1 ppts | | 2.3 | % | | 2.3 | % | | — ppts |
| Wholesale Units (000) (a) | 150 | | | 114 | | | (36) | | | 301 | | | 242 | | | (59) | |
| Revenue ($M) | $ | 550 | | | $ | 438 | | | $ | (112) | | | $ | 1,375 | | | $ | 999 | | | $ | (376) | |
| EBIT ($M) | (123) | | | (121) | | | 2 | | | (138) | | | (174) | | | (36) | |
| EBIT Margin (%) | (22.3) | % | | (27.6) | % | | (5.3) ppts | | (10.0) | % | | (17.4) | % | | (7.4) ppts |
| | | | | | | | | | | |
| China Unconsolidated Affiliates | | | | | | | | | | | |
| Wholesale Units (000) (b) | 149 | | | 111 | | | (38) | | | 289 | | | 236 | | | (53) | |
| Ford Equity Income/(Loss) ($M) | $ | 18 | | | $ | 77 | | | $ | 59 | | | $ | 67 | | | $ | 117 | | | $ | 50 | |
__________
(a)Includes vehicles produced and sold by our unconsolidated affiliates. Revenue does not include these sales.
(b)Includes Ford and Lincoln brand and JMC brand vehicles produced and sold in China and Ford brand vehicles produced in Taiwan by Lio Ho Group.
| | | | | | | | |
| Change in EBIT by Causal Factor (in millions) | | |
| Second Quarter 2021 EBIT | | $ | (123) | |
| Volume / Mix | | (64) | |
| Net Pricing | | (8) | |
| Cost | | 18 | |
| Exchange | | 2 | |
| Other (Including Joint Ventures) | | 54 | |
| Second Quarter 2022 EBIT | | $ | (121) | |
In China, second quarter 2022 wholesales decreased 24% from a year ago, driven by COVID-related lockdowns and restrictions. Second quarter 2022 revenue at our consolidated operations decreased 20%, primarily driven by lower component sales to our joint ventures in China.
China’s second quarter 2022 EBIT loss was $121 million, about flat versus a year ago, with an EBIT margin of negative 27.6%. Higher profits at our joint ventures and lower costs were offset partially by lower wholesales.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
International Markets Group
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Second Quarter | | First Half |
| Key Metrics | 2021 | | 2022 | | H / (L) | | 2021 | | 2022 | | H / (L) |
| Market Share (%) | 1.8 | % | | 1.2 | % | | (0.7) ppts | | 1.8 | % | | 1.2 | % | | (0.6) ppts |
| Wholesale Units (000) (a) | 87 | | | 59 | | | (27) | | | 169 | | | 114 | | | (54) | |
| Revenue ($M) | $ | 2,460 | | | $ | 1,956 | | | $ | (504) | | | $ | 4,710 | | | $ | 3,699 | | | $ | (1,011) | |
| EBIT ($M) | 204 | | | 60 | | | (144) | | | 405 | | | 156 | | | (249) | |
| EBIT Margin (%) | 8.3 | % | | 3.1 | % | | (5.2) ppts | | 8.6 | % | | 4.2 | % | | (4.4) ppts |
__________
(a)Includes Ford brand vehicles produced and sold by our unconsolidated affiliate in Russia (about 5,000 units in Q2 2021 and 0 units in Q2 2022). Revenue does not include these sales.
| | | | | | | | |
| Change in EBIT by Causal Factor (in millions) | | |
| Second Quarter 2021 EBIT | | $ | 204 | |
| Volume / Mix | | (104) | |
| Net Pricing | | 85 | |
| Cost | | (53) | |
| Exchange | | (21) | |
| Other | | (51) | |
| Second Quarter 2022 EBIT | | $ | 60 | |
In our International Markets Group, second quarter 2022 wholesales decreased 32% from a year ago, primarily reflecting lower wholesales in India and Russia and plant changeover for the new Ranger pickup. Second quarter 2022 revenue decreased 21%, driven by lower wholesales and weaker currencies, offset partially by higher net pricing.
Our International Markets Group’s second quarter 2022 EBIT was $60 million, a decrease of $144 million from a year ago, with an EBIT margin of 3.1%. The lower EBIT was driven by lower wholesales, inflationary increases on commodity and material costs, and weaker currencies, offset partially by higher net pricing.
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 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, 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
▪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, local brand units produced by our China joint venture, Jiangling Motors Corporation, Ltd. (“JMC”), that are sold to dealerships, and Ford badged vehicles produced in Taiwan by Lio Ho Group. 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
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.
In our Mobility segment, our second quarter 2022 EBIT loss was $221 million, an $11 million higher loss than a year ago. The loss reflects our strategic investments as we continued to expand our capabilities in autonomous vehicles and support our mobility initiatives.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Ford Credit Segment
Ford Credit files periodic reports with the SEC that contain additional information regarding Ford Credit. The reports are available through Ford Credit’s website located at www.fordcredit.com/investor-center and can also be found on the SEC’s website located at www.sec.gov. The foregoing information regarding Ford Credit’s website and its content is for convenience only and not deemed to be incorporated by reference into this Report nor filed with the SEC.
The tables below provide second quarter and first half 2022 key metrics and the change in second quarter 2022 EBT compared with second quarter 2021 by causal factor for the Ford Credit segment. For a description of these causal factors, see Definitions and Information Regarding Ford Credit Causal Factors.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Second Quarter | | First Half |
| Key Metrics | 2021 | | 2022 | | H / (L) | | 2021 | | 2022 | | H / (L) |
| Total Net Receivables ($B) | $ | 118 | | | $ | 116 | | | (2) | % | | $ | 118 | | | $ | 116 | | | (2) | % |
| Loss-to-Receivables (bps) (a) | (7) | | | 5 | | | 12 | | | 7 | | | 7 | | | — | |
| Auction Values (b) | $ | 29,040 | | | $ | 31,445 | | | 8 | % | | $ | 25,580 | | | $ | 30,780 | | | 20 | % |
| EBT ($M) | 1,623 | | | 939 | | | $ | (684) | | | 2,585 | | | 1,867 | | | $ | (718) | |
| ROE (%) | 47 | % | | 26 | % | | (21) ppts | | 34 | % | | 24 | % | | (10) ppts |
| | | | | | | | | | | |
| Other Balance Sheet Metrics | | | | | | | | | | | |
| Debt ($B) | | | | | | | $ | 121 | | | $ | 110 | | | (9) | % |
| Net Liquidity ($B) | | | | | | | 33 | | | 25 | | | (24) | % |
Financial Statement Leverage
(to 1) | | | | | | | 9.3 | | | 9.1 | | | (0.2) | |
__________
(a)U.S. retail financing only.
(b)U.S. 36-month off-lease second quarter auction values at Q2 2022 mix and YTD amounts at 2022 YTD mix.
| | | | | | | | |
| Change in EBT by Causal Factor (in millions) | | |
| Second Quarter 2021 EBT | | $ | 1,623 | |
| Volume / Mix | | (77) | |
| Financing Margin | | (113) | |
| Credit Loss | | (109) | |
| Lease Residual | | (428) | |
| Exchange | | (17) | |
| Other | | 60 | |
| Second Quarter 2022 EBT | | $ | 939 | |
Ford Credit’s total net receivables were $2 billion lower than a year ago, primarily reflecting lower volume due to supply constraints and exchange. The loss-to-receivables (“LTR”) ratio remained at a low level in the second quarter of 2022, at five basis points, 12 basis points higher than a year ago. U.S. auction values in the second quarter of 2022 were 8% higher than a year ago, reflecting continued strong demand for used vehicles.
Ford Credit’s second quarter 2022 EBT of $939 million was $684 million lower than a year ago, primarily reflecting lower lease residual gains driven by lower lease return volume, unfavorable changes in net financing margin, lower volume due to supply constraints on new vehicle production, and lower credit loss reserve releases, partially offset by positive market valuation adjustments to derivatives due to higher interest rates, which is 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 2021 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 2021 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, 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, 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 2022, Corporate Other had a $318 million loss, compared with a $263 million loss a year ago. The higher loss was driven by negative fair market value adjustments on our cash equivalent portfolios as a result of higher interest rates and higher administrative and IT-related expenses.
Interest on Debt
Interest on Debt, which consists of interest expense on Company debt excluding Ford Credit, was $312 million in the second quarter of 2022, $141 million lower than a year ago, primarily explained by U.S. debt restructuring actions undertaken in the fourth quarter of 2021.
Taxes
Our Provision for/(Benefit from) income taxes for the second quarter and first half of 2022 was a provision of $153 million and a benefit of $576 million, respectively. This resulted in effective tax rates of 19.3% and 18.8%, respectively.
Our second quarter and first half of 2022 adjusted effective tax rates, which exclude special items, were 20.2% and 21.2%, 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, 2022, total balance sheet cash, cash equivalents, marketable securities, and restricted cash, including Ford Credit and entities held for sale, was $37.3 billion.
We consider our key balance sheet metrics to be: (i) Company cash, which includes cash equivalents, marketable securities, and restricted cash, including cash held for sale, excluding Ford Credit’s cash, cash equivalents, marketable securities, and restricted cash; and (ii) Company liquidity, which includes Company cash, less restricted cash, and total available committed credit lines, excluding Ford Credit’s total available committed credit lines.
Company excluding Ford Credit
| | | | | | | | | | | |
| December 31,
2021 | | June 30,
2022 |
Balance Sheets ($B) | | | |
| Company Cash | $ | 36.5 | | | $ | 28.7 | |
| Liquidity | 52.4 | | | 45.1 | |
| Debt | (20.4) | | | (19.4) | |
| Cash Net of Debt | 16.1 | | | 9.4 | |
| | | |
Pension Funded Status ($B) (a) | | | |
| Funded Plans | $ | 5.8 | | | $ | 6.7 | |
| Unfunded Plans | (6.1) | | | (6.0) | |
| Total Global Pension | $ | (0.3) | | | $ | 0.7 | |
| | | |
| Total Funded Status OPEB | $ | (6.0) | | | $ | (5.9) | |
__________
(a)Balances at June 30, 2022 reflect net funded status at December 31, 2021, updated for service and interest cost, expected return on assets, separation expense, actual benefit payments, and cash contributions. The discount rate and rate of expected return assumptions are unchanged from year-end 2021.
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, 2022, we had Company cash of $28.7 billion and liquidity of $45.1 billion, including approximately $2 billion of Rivian marketable securities. In the second quarter, we sold approximately 25 million of our Rivian shares resulting in proceeds of about $700 million. As marketable securities increase or decrease in value, Company cash and liquidity will likewise increase or decrease. At June 30, 2022, about 84% 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 (excluding the Rivian marketable securities) 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 battery 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 2021 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 2021 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 2021 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 the Financial Statements in our 2021 Form 10-K Report)
•Cash effects related to the global redesign of our business (for additional information, see the “Changes in Company Cash” section below)
•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 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: global redesign (including separation payments), 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, 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 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, including semiconductors. As a result of the shortage, our inventory is higher than in periods prior to the supply shortage.
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 plan 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.
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 June 30, 2022, the outstanding amount of Ford receivables that suppliers elected to sell to the SCF financial institutions was $218 million. The amount settled through the SCF program during the first half of 2022 was $605 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 Quarter | | First Half |
| 2021 | | 2022 | | 2021 | | 2022 |
| Company Excluding Ford Credit | | | | | | | |
| Company Adjusted EBIT excluding Ford Credit (a) | $ | (0.6) | | | $ | 2.8 | | | $ | 2.4 | | | $ | 4.2 | |
| | | | | | | |
| Capital spending | $ | (1.5) | | | $ | (1.5) | | | $ | (2.9) | | | $ | (2.9) | |
| Depreciation and tooling amortization | 1.3 | | | 1.3 | | | 2.5 | | | 2.6 | |
| Net spending | $ | (0.2) | | | $ | (0.2) | | | $ | (0.4) | | | $ | (0.2) | |
| | | | | | | |
| Receivables | $ | — | | | $ | (0.6) | | | $ | (0.6) | | | $ | (0.6) | |
| Inventory | (0.8) | | | 0.3 | | | (3.0) | | | (2.5) | |
| Trade Payables | (4.6) | | | 0.4 | | | (3.0) | | | 2.0 | |
| Changes in working capital | $ | (5.4) | | | $ | 0.1 | | | $ | (6.6) | | | $ | (1.1) | |
| | | | | | | |
| Ford Credit distributions | $ | 4.0 | | | $ | 0.6 | | | $ | 5.0 | | | $ | 1.6 | |
| Interest on debt and cash taxes | (0.7) | | | (0.6) | | | (1.2) | | | (0.9) | |
| All other and timing differences | (2.2) | | | 0.9 | | | (4.8) | | | (0.5) | |
| Company adjusted free cash flow (a) | $ | (5.1) | | | $ | 3.6 | | | $ | (5.5) | | | $ | 3.0 | |
| | | | | | | |
| Global Redesign (including separations) | $ | (1.0) | | | $ | 0.3 | | | $ | (1.3) | | | $ | 0.2 | |
| Changes in debt | — | | | (0.6) | | | 2.0 | | | (0.8) | |
| Funded pension contributions | (0.2) | | | (0.2) | | | (0.4) | | | (0.3) | |
| Shareholder distributions | — | | | (0.4) | | | — | | | (0.8) | |
| All other (b) | — | | | (2.8) | | | (0.4) | | | (9.0) | |
| Change in cash | $ | (6.2) | | | $ | — | | | $ | (5.7) | | | $ | (7.8) | |
__________
(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 2022 Net cash provided by/(used in) operating activities was positive $2.9 billion, an increase of $2.2 billion from a year ago (see page 62 for additional information), primarily driven by higher trade payables, timing differences, and higher net income, partially offset by lower Ford Credit operating cash flow. Company adjusted free cash flow was $3.6 billion, $8.7 billion higher than a year ago, driven by higher adjusted EBIT, higher trade payables, and timing differences, partially offset by lower Ford Credit distributions.
Capital spending was $1.5 billion in the second quarter of 2022, unchanged from a year ago. We continue to expect full year 2022 capital spending to be about $7.0 billion.
Second quarter 2022 working capital impact was $0.1 billion positive, driven by higher trade payables and lower inventory. All other and timing differences were positive $0.9 billion, reflecting assorted differences including 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).
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
In the second quarter of 2022, we contributed $154 million to our global funded pension plans. We now expect to contribute between $600 million and $700 million to our global funded pension plans in 2022.
Shareholder distributions were $407 million in the second quarter of 2022, all of which was attributable to our regular
quarterly dividend.
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 $6 billion through 2023. The cash effect related to our global redesign activities was $3.4 billion through June 30, 2022.
Available Credit Lines. Total Company committed credit lines, excluding Ford Credit, at June 30, 2022 were $19.3 billion, consisting of $13.5 billion of our corporate credit facility, $2.0 billion of our supplemental revolving credit facility, $1.75 billion of our new 364-day revolving credit facility (as described below), and $2.1 billion of local credit facilities. At June 30, 2022, the utilized portion of the corporate credit facility was $25 million, representing amounts utilized for letters of credit, and the utilized portion of our 364-day revolving credit facility was $750 million. 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, 2022. Our $1.5 billion delayed draw term loan facility, which was drawn in full in 2019, was repaid on June 23, 2022 as described below.
Our corporate and supplemental revolving credit facilities were amended as of June 23, 2022 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 June 23, 2025 and $10.1 billion of commitments mature on June 23, 2027. Following the supplemental revolving credit facility amendment, $0.1 billion of commitments mature on September 29, 2024 and $1.9 billion of commitments mature on June 23, 2025.
Also on June 23, 2022, we entered into a 364-day revolving credit facility, with $1.75 billion of commitments maturing on June 22, 2023. This new 364-day revolving credit facility further strengthens our liquidity, provides working capital funding, and is intended to be utilized. On June 23, 2022, we drew $750 million under the 364-day revolving credit facility, which, along with $750 million of Company cash, was used to prepay the full $1.5 billion outstanding under our delayed draw term loan facility. The maturity date of the delayed draw term loan facility was December 31, 2022.
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 facility. The terms and conditions of the supplemental and 364-day revolving credit facilities are consistent with our corporate 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 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 Next LLC; Ford Smart Mobility LLC; and Ford Trading Company, LLC.
On June 28, 2022, Ford Motor Company Limited, our operating subsidiary in the United Kingdom (“Ford Britain”), entered into a £750 million term loan credit facility with a syndicate of banks to support Ford Britain’s general export activities. Accordingly, U.K. Export Finance (“UKEF”) provided a £600 million guarantee of the credit facility under its Export Development Guarantee scheme, which supports high value commercial lending to U.K. exporters. We have also guaranteed Ford Britain’s obligations under the credit facility to the lenders. On June 30, 2022, Ford Britain drew the full £750 million available under the facility. This five-year, non-amortizing loan matures on June 30, 2027.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Debt. As shown in Note 14 of the Notes to the Financial Statements, at June 30, 2022, Company debt excluding Ford Credit was $19.4 billion. This balance is $1.0 billion lower than at December 31, 2021, due to the repayment in full of our $1.5 billion delayed draw term loan facility, repayment of the remaining $954 million under our Loan Arrangement and Reimbursement Agreement with the U.S. Department of Energy, and scheduled maturities. These debt repayments were partially offset by the $750 million draw on our 364-day revolving credit facility and the £750 million ($908 million as of June 30, 2022) draw on our UKEF term loan credit facility.
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 ended the second quarter of 2022 with $25 billion of liquidity. During the quarter, Ford Credit completed $4.4 billion of public term funding.
Key elements of Ford Credit’s funding strategy include:
•Maintain strong liquidity
•Prudently access public markets
•Continue growth of retail deposits 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,
2021 | | December 31,
2021 | | June 30,
2022 |
| Funding Structure | | | | | |
| Term unsecured debt | $ | 63.8 | | | $ | 59.4 | | | $ | 49.9 | |
| Term asset-backed securities | 45.9 | | | 45.4 | | | 47.1 | |
| Ford Interest Advantage / Retail Deposits | 11.3 | | | 12.9 | | | 12.5 | |
| Other | (1.1) | | | (0.2) | | | 1.9 | |
| Equity | 13.1 | | | 12.4 | | | 12.0 | |
| Adjustments for cash | (15.3) | | | (12.4) | | | (7.8) | |
| Total Net Receivables | $ | 117.7 | | | $ | 117.5 | | | $ | 115.6 | |
| | | | | |
| Securitized Funding as Percent of Total Debt | 37.9 | % | | 38.5 | % | | 43.0 | % |
Net receivables were $115.6 billion at June 30, 2022 and were funded primarily with term unsecured debt and term asset-backed securities. Securitized funding as a percent of total debt was 43.0% at the end of the second quarter of 2022.
Public Term Funding Plan. The following table shows Ford Credit’s issuances for full year 2020 and 2021, planned issuances for full year 2022, and its global public term funding issuances through July 26, 2022, excluding short-term funding programs (in billions):
| | | | | | | | | | | | | | | | | | | | | | | |
| 2020
Actual | | 2021
Actual | | 2022
Forecast | | Through
July 26 |
| Unsecured | $ | 14 | | | $ | 5 | | | $ 4 - 7 | | $ | 4 | |
| Securitizations (a) | 13 | | | 9 | | | 8 - 10 | | 6 | |
| Total public | $ | 27 | | | $ | 14 | | | $ 12 - 17 | | $ | 10 | |
__________
(a)See Definitions and Information Regarding Ford Credit Causal Factors section.
For 2022, Ford Credit now projects full year public term funding in the range of $12 billion to $17 billion. Through July 26, 2022, Ford Credit has completed $10 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):
| | | | | | | | | | | | | | | | | |
| June 30,
2021 | | December 31,
2021 | | June 30,
2022 |
Liquidity Sources (a) | | | | | |
| Cash | $ | 15.3 | | | $ | 12.4 | | | $ | 7.8 | |
| Committed asset-backed facilities | 38.4 | | | 37.1 | | | 34.3 | |
| Other unsecured credit facilities | 2.6 | | | 2.7 | | | 2.5 | |
| Total liquidity sources | $ | 56.3 | | | $ | 52.2 | | | $ | 44.6 | |
| | | | | |
Utilization of Liquidity (a) | | | | | |
| Securitization and restricted cash | $ | (8.1) | | | $ | (3.9) | | | $ | (2.7) | |
| Committed asset-backed facilities | (11.3) | | | (12.5) | | | (15.3) | |
| Other unsecured credit facilities | (0.5) | | | (1.0) | | | (0.5) | |
| Total utilization of liquidity | $ | (19.9) | | | $ | (17.4) | | | $ | (18.5) | |
| | | | | |
| Gross liquidity | $ | 36.4 | | | $ | 34.8 | | | $ | 26.1 | |
| Asset-backed capacity in excess of eligible receivables and other adjustments | (3.4) | | | (2.8) | | | (1.1) | |
| Net liquidity available for use | $ | 33.0 | | | $ | 32.0 | | | $ | 25.0 | |
__________
(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. In June 2022, Ford Credit used its excess liquidity to repurchase approximately $3 billion of its public unsecured debt securities maturing in 2023, reducing interest expense and near-term maturities. At June 30, 2022, Ford Credit’s net liquidity available for use was $25 billion, $7 billion lower than year-end 2021. At June 30, 2022, Ford Credit’s liquidity sources including cash, committed asset-backed facilities, and unsecured credit facilities totaled $44.6 billion, down $7.6 billion from year-end 2021.
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” 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 2021 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.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
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.
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):
| | | | | | | | | | | | | | | | | | | | | | | |
| July - December
2022 | | 2023 | | 2024 | | 2025 and Beyond |
| Balance Sheet Liquidity Profile | | | | | | | |
| Assets (a) | $ | 46 | | | $ | 75 | | | $ | 98 | | | $ | 127 | |
| Total debt (b) | 36 | | | 61 | | | 79 | | | 111 | |
| Memo: Unsecured long-term debt maturities | 6 | | | 8 | | | 11 | | | 26 | |
__________
(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 second quarter 2023. 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 June 30, 2022, Ford Credit had $127 billion of assets, $65 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 2021 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 (in billions):
| | | | | | | | | | | | | | | | | |
| June 30,
2021 | | December 31,
2021 | | June 30,
2022 |
| Leverage Calculation | | | | | |
| Debt | $ | 121.0 | | | $ | 117.7 | | | $ | 109.5 | |
| Equity (a) | 13.1 | | | 12.4 | | | 12.0 | |
| Financial statement leverage (to 1) | 9.3 | | | 9.5 | | | 9.1 | |
__________
(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, 2022, Ford Credit’s financial statement leverage was 9.1:1, at the lower end of Ford Credit’s 9:1 to 10:1 target range.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Total Company
Pension Plans - Funded Balances. As of June 30, 2022, our total Company pension overfunded status reported on our consolidated balance sheets was $0.7 billion and reflects the net funded status at December 31, 2021, updated for: service and interest cost; expected return on assets; separation expense; actual benefit payments; and cash contributions. The discount rate and rate of expected return assumptions are unchanged from year-end 2021.
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,
2021 | | June 30,
2022 |
| Adjusted Net Operating Profit/(Loss) After Cash Tax | | | |
| Net income/(loss) attributable to Ford | $ | 3.4 | | | $ | 11.7 | |
| Add: Noncontrolling interest | — | | | — | |
| Less: Income tax | (0.2) | | | 1.6 | |
| Add: Cash tax | (0.5) | | | (0.7) | |
| Less: Interest on debt | (1.9) | | | (1.5) | |
| Less: Total pension/OPEB income/(cost) | (0.7) | | | 4.5 | |
| Add: Pension/OPEB service costs | (1.1) | | | (1.0) | |
| Net operating profit/(loss) after cash tax | $ | 4.6 | | | $ | 5.4 | |
| Less: Special items (excl. pension/OPEB) pre-tax | (3.0) | | | (3.0) | |
| Adjusted net operating profit/(loss) after cash tax | $ | 7.5 | | | $ | 8.3 | |
| | | |
| Invested Capital | | | |
| Equity | $ | 34.8 | | | $ | 44.2 | |
| Debt (excl. Ford Credit) | 25.9 | | | 19.4 | |
| Net pension and OPEB liability | 11.5 | | | 5.2 | |
| Invested capital (end of period) | $ | 72.2 | | | $ | 68.8 | |
| Average invested capital | $ | 72.8 | | | $ | 72.0 | |
| | | |
| ROIC (a) | 6.3 | % | | 7.4 | % |
| Adjusted ROIC (Non-GAAP) (b) | 10.3 | % | | 11.6 | % |
__________
(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, 2022:
•On May 2, 2022, Fitch affirmed the credit ratings for Ford and Ford Credit at BB+ and revised the outlook to positive, from stable.
•On May 17, 2022, DBRS affirmed the credit ratings for Ford and Ford Credit at BB (high) and revised the outlook to positive, from stable.
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) | | Positive | | BB (high) | | R-4 | | Positive | | BBB (low) |
| Fitch | BB+ | | BB+ | | Positive | | BB+ | | B | | Positive | | BBB- |
| Moody’s | N/A | | Ba2 | | Stable | | Ba2 | | NP | | Stable | | Baa3 |
| S&P | BB+ | | BB+ | | Positive | | BB+ | | B | | Positive | | BBB- |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
OUTLOOK
We provided 2022 Company guidance in our earnings release furnished on Form 8-K dated July 27, 2022. 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 2021 Form 10-K Report and as updated by our subsequent filings with the SEC.
| | | | | | | | |
| | 2022 Guidance |
| Total Company | | |
| Adjusted EBIT (a) | | $11.5 - $12.5 billion |
| Adjusted Free Cash Flow (a) | | $5.5 - $6.5 billion |
| Capital spending | | About $7.0 billion |
| Pension contributions | | $0.6 - $0.7 billion |
| Global Redesign EBIT charges (b) | | About $1.5 billion |
| Global Redesign cash effects (b) | | $1.0 - $1.5 billion |
| | |
| Ford Credit | | |
| EBT | | About $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.
(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 2022 that are incremental to those set forth in the table.
For full-year 2022, we continue to expect adjusted EBIT of $11.5 billion to $12.5 billion, which would represent 15% to 25% growth from last year, and adjusted free cash flow of $5.5 billion to $6.5 billion, with a significant portion coming from Automotive operations.
Our guidance continues to assume 10% to 15% growth in vehicle wholesales from 2021 and assumes that semiconductor availability continues to improve. Our adjusted EBIT range assumes significantly higher profits in North America, collective profitability from other regional markets, strong but lower Ford Credit EBT of about $3 billion, and modest improvement in Mobility and Corporate Other EBIT.
Other assumptions include:
•Strong order banks and pent-up demand for our new and iconic products
•Continued strength in pricing, which includes the benefit of pricing actions taken during the year
•Commodity headwinds of about $4 billion, which we expect to offset with improvements in net pricing and mix
•Continuation of other broad-based inflationary pressures, now expected to total about $3 billion for the year, up $1 billion from our estimate last quarter, while we are actively looking at opportunities to offset increases
•Lower Ford Credit EBT reflecting primarily lower credit loss reserve releases, fewer returned off-lease vehicles, and more normalized credit losses. We also expect auction values to remain strong but to decline in the second half of the year as the supply of new vehicles improves
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, or raw materials can disrupt Ford’s production of vehicles;
•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, or new business strategies;
•Operational systems, security systems, vehicles, and services could be affected by cyber incidents, ransomware attacks, 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, 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, digital and physical services, and mobility services are subject to market acceptance and face significant competition from existing and new entrants in the automotive, mobility, and digital services industries;
•Ford’s near-term 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;
•Inflationary pressure and fluctuations in commodity 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;
•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 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 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 2021 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 Item | | Significance Guideline |
| ∘ Pension and OPEB remeasurement gains and losses | | ∘ No minimum |
| | |
| ∘ Gains and losses on investments in equity securities | | ∘ 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, 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, 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 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 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 Quarter | | First Half |
| 2021 | | 2022 | | 2021 | | 2022 |
| Net income/(loss) attributable to Ford (GAAP) | $ | 561 | | | $ | 667 | | | $ | 3,823 | | | $ | (2,443) | |
| Income/(Loss) attributable to noncontrolling interests | (8) | | | (29) | | | (8) | | | (38) | |
| Net income/(loss) | $ | 553 | | | $ | 638 | | | $ | 3,815 | | | $ | (2,481) | |
| Less: (Provision for)/Benefit from income taxes | (182) | | | (153) | | | (862) | | | 576 | |
| Income/(Loss) before income taxes | $ | 735 | | | $ | 791 | | | $ | 4,677 | | | $ | (3,057) | |
| Less: Special items pre-tax | 135 | | | (2,619) | | | 638 | | | (8,485) | |
| Income/(Loss) before special items pre-tax | $ | 600 | | | $ | 3,410 | | | $ | 4,039 | | | $ | 5,428 | |
| Less: Interest on debt | (453) | | | (312) | | | (926) | | | (620) | |
| Adjusted EBIT (Non-GAAP) | $ | 1,053 | | | $ | 3,722 | | | $ | 4,965 | | | $ | 6,048 | |
| | | | | | | |
| Memo: | | | | | | | |
| Revenue ($B) | $ | 26.8 | | | $ | 40.2 | | | $ | 63.0 | | | $ | 74.7 | |
| Net income/(loss) margin (GAAP) (%) | 2.1 | % | | 1.7 | % | | 6.1 | % | | (3.3) | % |
| Adjusted EBIT margin (Non-GAAP) (%) | 3.9 | % | | 9.3 | % | | 7.9 | % | | 8.1 | % |
Earnings per Share Reconciliation to Adjusted Earnings per Share
| | | | | | | | | | | | | | | | | | | | | | | |
| Second Quarter | | First Half |
| 2021 | | 2022 | | 2021 | | 2022 |
Diluted After-Tax Results ($M) | | | | | | | |
| Diluted after-tax results (GAAP) | $ | 561 | | | $ | 667 | | | $ | 3,823 | | | $ | (2,443) | |
| Less: Impact of pre-tax and tax special items | 51 | | | (2,082) | | | 496 | | | (6,756) | |
| Adjusted net income/(loss) – diluted (Non-GAAP) | $ | 510 | | | $ | 2,749 | | | $ | 3,327 | | | $ | 4,313 | |
| | | | | | | |
Basic and Diluted Shares (M) | | | | | | | |
| Basic shares (average shares outstanding) | 3,992 | | | 4,021 | | | 3,986 | | | 4,014 | |
| Net dilutive options, unvested restricted stock units, unvested restricted stock shares, and convertible debt | 36 | | | 31 | | | 36 | | | 43 | |
| Diluted shares | 4,028 | | | 4,052 | | | 4,022 | | | 4,057 | |
| | | | | | | |
| Earnings/(Loss) per share – diluted (GAAP) (a) | $ | 0.14 | | | $ | 0.16 | | | $ | 0.95 | | | $ | (0.61) | |
| Less: Net impact of adjustments | 0.01 | | | (0.52) | | | 0.12 | | | (1.67) | |
| Adjusted earnings/(loss) per share – diluted (Non-GAAP) | $ | 0.13 | | | $ | 0.68 | | | $ | 0.83 | | | $ | 1.06 | |
_________
(a)The first half of 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 Quarter | | First Half | | |
| 2021 | | 2022 | | 2021 | | 2022 | | Memo:
FY 2021 |
Pre-Tax Results ($M) | | | | | | | | | |
| Income/(Loss) before income taxes (GAAP) | $ | 735 | | | $ | 791 | | | $ | 4,677 | | | $ | (3,057) | | | $ | 17,780 | |
| Less: Impact of special items | 135 | | | (2,619) | | | 638 | | | (8,485) | | | 9,583 | |
| Adjusted earnings before taxes (Non-GAAP) | $ | 600 | | | $ | 3,410 | | | $ | 4,039 | | | $ | 5,428 | | | $ | 8,197 | |
| | | | | | | | | |
Taxes ($M) | | | | | | | | | |
| (Provision for)/Benefit from income taxes (GAAP) | $ | (182) | | | $ | (153) | | | $ | (862) | | | $ | 576 | | | $ | 130 | |
| Less: Impact of special items | (84) | | | 537 | | | (142) | | | 1,729 | | | 1,924 | |
| Adjusted (provision for)/benefit from income taxes (Non-GAAP) | $ | (98) | | | $ | (690) | | | $ | (720) | | | $ | (1,153) | | | $ | (1,794) | |
| | | | | | | | | |
Tax Rate (%) | | | | | | | | | |
| Effective tax rate (GAAP) | 24.8 | % | | 19.3 | % | | 18.4 | % | | 18.8 | % | | (0.7) | % |
| Adjusted effective tax rate (Non-GAAP) | 16.3 | % | | 20.2 | % | | 17.8 | % | | 21.2 | % | | 21.9 | % |
Net Cash Provided by/(Used in) Operating Activities Reconciliation to Company Adjusted Free Cash Flow ($M)
| | | | | | | | | | | | | | | | | | | | | | | |
| Second Quarter | | First Half |
| 2021 | | 2022 | | 2021 | | 2022 |
| Net cash provided by/(used in) operating activities (GAAP) | $ | 756 | | | $ | 2,947 | | | $ | 5,248 | | | $ | 1,863 | |
| | | | | | | |
| Less: Items not included in Company Adjusted Free Cash Flows | | | | | | | |
| Ford Credit operating cash flows | $ | 9,638 | | | $ | (1,340) | | | $ | 14,636 | | | $ | (1,759) | |
| Funded pension contributions | (164) | | | (154) | | | (393) | | | (328) | |
| Global Redesign (including separations) (a) | (954) | | | (137) | | | (1,244) | | | (285) | |
| Ford Credit tax payments/(refunds) under tax sharing agreement | — | | | — | | | 4 | | | — | |
| Other, net | (279) | | | 20 | | | (270) | | | (28) | |
| | | | | | | |
| Add: Items included in Company Adjusted Free Cash Flows | | | | | | | |
| Company excluding Ford Credit capital spending | $ | (1,504) | | | $ | (1,503) | | | $ | (2,862) | | | $ | (2,852) | |
| Ford Credit distributions | 4,000 | | | 600 | | | 5,000 | | | 1,600 | |
| Settlement of derivatives | (133) | | | (36) | | | (158) | | | 28 | |
| Company adjusted free cash flow (Non-GAAP) | $ | (5,122) | | | $ | 3,619 | | | $ | (5,505) | | | $ | 3,039 | |
_______
(a)Global Redesign excludes cash flows reported in investing activities.
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 June 30, 2022 |
| | First Half |
| Cash flows from operating activities | | Company excluding Ford Credit | | Ford Credit | | Eliminations | | Consolidated |
| Net income/(loss) | | $ | (4,164) | | | $ | 1,683 | | | $ | — | | | $ | (2,481) | |
| Depreciation and tooling amortization | | 2,691 | | | 1,083 | | | — | | | 3,774 | |
| Other amortization | | 54 | | | (662) | | | — | | | (608) | |
| Provision for/(Benefit from) credit and insurance losses | | 11 | | | (118) | | | — | | | (107) | |
| Pension and OPEB expense/(income) | | (400) | | | — | | | — | | | (400) | |
| Equity method investment dividends received in excess of (earnings)/losses and impairments | 171 | | | — | | | — | | | 171 | |
| Foreign currency adjustments | | (69) | | | 129 | | | — | | | 60 | |
| Net realized and unrealized (gains)/losses on cash equivalents, marketable securities, and other investments | | 7,908 | | | 66 | | | — | | | 7,974 | |
| Net (gain)/loss on changes in investments in affiliates | | 145 | | | 1 | | | — | | | 146 | |
| Stock compensation | | 165 | | | 5 | | | — | | | 170 | |
| Provision for/(Benefit from) deferred income taxes | | (1,352) | | | 192 | | | — | | | (1,160) | |
| Decrease/(Increase) in finance receivables (wholesale and other) | — | | | (4,611) | | | — | | | (4,611) | |
| Decrease/(Increase) in intersegment receivables/payables | 16 | | | (16) | | | — | | | — | |
| Decrease/(Increase) in accounts receivable and other assets | (1,720) | | | (136) | | | — | | | (1,856) | |
| Decrease/(Increase) in inventory | | (2,507) | | | — | | | — | | | (2,507) | |
| Increase/(Decrease) in accounts payable and accrued and other liabilities | 3,131 | | | 49 | | | — | | | 3,180 | |
| Other | | 443 | | | (325) | | | — | | | 118 | |
| Interest supplements and residual value support to Ford Credit | (901) | | | 901 | | | — | | | — | |
| Net cash provided by/(used in) operating activities | | $ | 3,622 | | | $ | (1,759) | | | $ | — | | | $ | 1,863 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash flows from investing activities | | Company excluding Ford Credit | | Ford Credit | | Eliminations | | Consolidated |
| Capital spending | | $ | (3,046) | | | $ | (23) | | | $ | — | | | $ | (3,069) | |
| Acquisitions of finance receivables and operating leases | | — | | | (20,749) | | | — | | | (20,749) | |
| Collections of finance receivables and operating leases | | — | | | 24,139 | | | — | | | 24,139 | |
| | | | | | | | |
| Purchases of marketable and other investments | | (5,382) | | | (2,683) | | | — | | | (8,065) | |
| Sales and maturities of marketable securities and other investments | 8,651 | | | 2,606 | | | — | | | 11,257 | |
| Settlements of derivatives | | 28 | | | 128 | | | — | | | 156 | |
| Other | | 471 | | | 2 | | | — | | | 473 | |
| Investing activity (to)/from other segments | | 1,631 | | | (66) | | | (1,565) | | | — | |
| Net cash provided by/(used in) investing activities | | $ | 2,353 | | | $ | 3,354 | | | $ | (1,565) | | | $ | 4,142 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash flows from financing activities | | Company excluding Ford Credit | | Ford Credit | | Eliminations | | Consolidated |
| Cash payments for dividends and dividend equivalents | | $ | (807) | | | $ | — | | | $ | — | | | $ | (807) | |
| Purchases of common stock | | — | | | — | | | — | | | — | |
| Net changes in short-term debt | | 832 | | | (237) | | | — | | | 595 | |
| Proceeds from issuance of long-term debt | | 944 | | | 17,924 | | | — | | | 18,868 | |
| Payments of long-term debt | | (2,608) | | | (22,089) | | | — | | | (24,697) | |
| Other | | (150) | | | (49) | | | — | | | (199) | |
| Financing activity to/(from) other segments | | 35 | | | (1,600) | | | 1,565 | | | — | |
| Net cash provided by/(used in) financing activities | | $ | (1,754) | | | $ | (6,051) | | | $ | 1,565 | | | $ | (6,240) | |
| | | | | | | | |
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | $ | (139) | | | $ | (229) | | | $ | — | | | $ | (368) | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Selected Income Statement Information. The following table provides supplemental income statement information (in millions):
| | | | | | | | | | | | | | | | | |
| For the period ended June 30, 2022 |
| Second Quarter |
| Company excluding Ford Credit | | Ford Credit | | Consolidated |
| Revenues | $ | 37,934 | | | $ | 2,256 | | | $ | 40,190 | |
| Total costs and expenses | 35,950 | | | 1,372 | | | 37,322 | |
| Operating income/(loss) | 1,984 | | | 884 | | | 2,868 | |
| Interest expense on Company debt excluding Ford Credit | 312 | | | — | | | 312 | |
| Other income/(loss), net | (1,874) | | | 51 | | | (1,823) | |
| Equity in net income/(loss) of affiliated companies | 54 | | | 4 | | | 58 | |
| Income/(Loss) before income taxes | (148) | | | 939 | | | 791 | |
| Provision for/(Benefit from) income taxes | 54 | | | 99 | | | 153 | |
| Net income/(loss) | (202) | | | 840 | | | 638 | |
| Less: Income/(Loss) attributable to noncontrolling interests | (29) | | | — | | | (29) | |
| Net income/(loss) attributable to Ford Motor Company | $ | (173) | | | $ | 840 | | | $ | 667 | |
| | | | | |
| For the period ended June 30, 2022 |
| First Half |
| Company excluding Ford Credit | | Ford Credit | | Consolidated |
| Revenues | $ | 70,129 | | | $ | 4,537 | | | $ | 74,666 | |
| Total costs and expenses | 67,726 | | | 2,729 | | | 70,455 | |
| Operating income/(loss) | 2,403 | | | 1,808 | | | 4,211 | |
| Interest expense on Company debt excluding Ford Credit | 620 | | | — | | | 620 | |
| Other income/(loss), net | (6,722) | | | 49 | | | (6,673) | |
| Equity in net income/(loss) of affiliated companies | 15 | | | 10 | | | 25 | |
| Income/(Loss) before income taxes | (4,924) | | | 1,867 | | | (3,057) | |
| Provision for/(Benefit from) income taxes | (760) | | | 184 | | | (576) | |
| Net income/(loss) | (4,164) | | | 1,683 | | | (2,481) | |
| Less: Income/(Loss) attributable to noncontrolling interests | (38) | | | — | | | (38) | |
| Net income/(loss) attributable to Ford Motor Company | $ | (4,126) | | | $ | 1,683 | | | $ | (2,443) | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Selected Balance Sheet Information. The following tables provide supplemental balance sheet information (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 |
| Assets | | Company excluding Ford Credit | | Ford Credit | | Eliminations | | Consolidated |
| Cash and cash equivalents | | $ | 13,218 | | | $ | 6,298 | | | $ | — | | | $ | 19,516 | |
| Marketable securities | | 14,998 | | | 2,186 | | | — | | | 17,184 | |
| Ford Credit finance receivables, net | | — | | | 30,716 | | | — | | | 30,716 | |
| Trade and other receivables, net | | 3,953 | | | 11,084 | | | — | | | 15,037 | |
| Inventories | | 13,976 | | | — | | | — | | | 13,976 | |
| Assets held for sale | | 705 | | | — | | | — | | | 705 | |
| Other assets | | 2,475 | | | 860 | | | — | | | 3,335 | |
| Receivable from other segments | | 83 | | | 1,232 | | | (1,315) | | | — | |
| Total current assets | | 49,408 | | | 52,376 | | | (1,315) | | | 100,469 | |
| | | | | | | | |
| Ford Credit finance receivables, net | | — | | | 49,743 | | | — | | | 49,743 | |
| Net investment in operating leases | | 1,125 | | | 23,408 | | | — | | | 24,533 | |
| Net property | | 35,942 | | | 220 | | | — | | | 36,162 | |
| Equity in net assets of affiliated companies | | 4,074 | | | 122 | | | — | | | 4,196 | |
| Deferred income taxes | | 14,819 | | | 216 | | | 10 | | | 15,045 | |
| Other assets | | 14,215 | | | 1,392 | | | — | | | 15,607 | |
| Receivable from other segments | | — | | | 16 | | | (16) | | | — | |
| Total assets | | $ | 119,583 | | | $ | 127,493 | | | $ | (1,321) | | | $ | 245,755 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Liabilities | | Company excluding Ford Credit | | Ford Credit | | Eliminations | | Consolidated |
| Payables | | $ | 22,242 | | | $ | 1,136 | | | $ | — | | | $ | 23,378 | |
| Other liabilities and deferred revenue | | 17,207 | | | 1,688 | | | — | | | 18,895 | |
| Debt payable within one year | | 1,533 | | | 42,286 | | | — | | | 43,819 | |
| Liabilities held for sale | | 360 | | | — | | | — | | | 360 | |
| Payable to other segments | | 1,315 | | | — | | | (1,315) | | | — | |
| Total current liabilities | | 42,657 | | | 45,110 | | | (1,315) | | | 86,452 | |
| | | | | | | | |
| Other liabilities and deferred revenue | | 25,871 | | | 2,350 | | | — | | | 28,221 | |
| Long-term debt | | 17,833 | | | 67,175 | | | — | | | 85,008 | |
| Deferred income taxes | | 942 | | | 885 | | | 10 | | | 1,837 | |
| Payable to other segments | | 16 | | | — | | | (16) | | | — | |
| Total liabilities | | $ | 87,319 | | | $ | 115,520 | | | $ | (1,321) | | | $ | 201,518 | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Selected Other Information.
Equity. At June 30, 2022, total equity attributable to Ford was $44.2 billion, a decrease of $4.3 billion compared with December 31, 2021. The detail for this change is shown below (in billions):
| | | | | |
| Increase/
(Decrease) |
| Net income/(loss) | $ | (2.4) | |
| Shareholder distributions | (0.8) | |
| Other comprehensive income/(loss), net | (1.1) | |
| Total | $ | (4.3) | |
U.S. Sales by Type. The following table shows second quarter 2022 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 | 234,186 | | | 278,029 | |
| SUVs | 237,222 | | | 228,527 | |
| Cars | 12,280 | | | 10,882 | |
| Total Vehicles | 483,688 | | | 517,438 | |
ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED
For a discussion of recent accounting standards, see Note 2 of the Notes to the Financial Statements.