# FORD MOTOR CO (F) FY 2021 MD&A Verbatim Item 7 Management's Discussion and Analysis from FORD MOTOR CO's 10-K for fiscal year 2021. SEC filing source: https://www.sec.gov/Archives/edgar/data/37996/000003799622000013/f-20211231.htm Accession: 0000037996-22-000013 Filing date: 2022-02-04 Report date: 2021-12-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high Company profile: /company/F/ All MD&A years: /company/F/mda/ Next year: /company/F/mda/fy2022/ (FY 2022) ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Key Trends and Economic Factors Affecting Ford and the Automotive Industry Supplier Disruptions. The automotive industry has a complex supply network with each manufacturers’ products containing components sourced from suppliers who, in turn, source components from their suppliers. When there is a shortage of a key component in our supply chain, and the component cannot be easily sourced from a different supplier, the shortage can disrupt production. Since early 2021, we and others in the automotive industry have faced a significant shortage of semiconductors. The global semiconductor shortage is due in large part to makers of semiconductors having allocated their capacity to meet surging demand for consumer electronics during the COVID-19 pandemic while automotive OEMs experienced industry-wide plant closures. At the same time, wafer foundries that support chipmakers have not invested enough in recent years to increase capacities to the levels needed to support demand from all of their customers. Wafers have a long lead time for production, which further exacerbates the shortage. When global automakers resumed vehicle production in 2020 – even more quickly than some expected – semiconductor supplies became further strained. A combination of these factors, including increased demand for consumer electronics, automotive shutdowns due to COVID-19, the rapid recovery of demand for vehicles, and long lead times for wafer production, is contributing to the ongoing shortage of semiconductors. For additional information on the impact of the semiconductor shortage, see the Outlook section on page 73. COVID-19. The impact of COVID-19, including changes in consumer behavior, pandemic fears and market downturns, and restrictions on business and individual activities, has created significant volatility in the global economy. Consistent with the actions taken by governmental authorities, in late March 2020, we idled our manufacturing operations in regions around the world other than China, where manufacturing operations were suspended in January and February before beginning to resume operations in March. A successful phased restart of our manufacturing plants, supply network, and other dependent functions occurred in the second quarter of 2020. The remote work arrangements that we implemented in 2020 remain in place in most locations. Our remote work arrangements have been designed to allow for continued operation of non-production business-critical functions, including financial reporting systems and internal control. The full impact of COVID-19 on future results depends on future developments, such as the ultimate duration and scope of outbreaks (including any potential future waves due to variants or otherwise, and the success of vaccination programs) and their impact on our customers, dealers, and suppliers. Despite the successful restart of our manufacturing operations in 2020, we continue to experience intermittent COVID-19-related disruptions in our supply chain. Moreover, new restrictions could have an adverse effect on production, supply chains, distribution, and demand for vehicles. For additional information on the impact and potential impact of COVID-19 on us, please see Item 1A. Risk Factors on page 17. Global Redesign. 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 business and vehicle franchises. Pursuant to the plan, we expect to incur about $11 billion of EBIT charges, with about $7 billion of cash effects, related to our global redesign efforts. During the 2018 through 2022 period, we expect to have incurred the vast majority of the $11 billion of EBIT charges. For additional information on Global Redesign, see the Outlook section on page 73. Currency Exchange Rate Volatility. After aggressively easing monetary policy in response to the COVID-19 pandemic, the Federal Reserve, and other central banks around the world, are poised to withdraw monetary stimulus by raising interest rates. The last time the Fed shifted from easing to tightening, from 2013 through 2017, the U.S. dollar strengthened, and financial markets became more volatile. Increased volatility in both developed and emerging market currencies may again be a result of policy tightening. Emerging markets also face differing inflation backdrops and, in some cases, exposure to commodity prices and political instability, contributing to unpredictable movements in the value of their exchange rates. In addition to direct impacts on the financial flows of global automotive companies, currency movements can also impact pricing of vehicles exported to overseas markets, most notably in the case of the Japanese yen and Korean won. In most markets, exchange rates are market-determined, and all are impacted by many different macroeconomic and policy factors, and thus likely to remain volatile. However, in some markets, exchange rates are heavily influenced or controlled by governments. 34 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Excess Capacity. According to IHS Automotive, an automotive research firm, the estimated global production capacity for light vehicles of about 124 million units exceeded global production by just under 41 million units in 2021. Actual global production is projected to have risen by 8.9 million units in 2021, while capacity rose by just under 2 million units, leading excess capacity to decline by just under 7 million units. Part of the decline was due to the impact of COVID-19-related production disruptions, but the rebound in 2021 production still left global excess capacity 1% above 2019. In North America, the amount of excess capacity rose from 4.8 million units in 2019 to 7.5 million units in 2020, but then fell to 5.7 million units in 2021. Europe followed a similar pattern, with excess capacity rising from 6.2 million units in 2019 to 10.6 million in 2020, but then declining to 8.6 million in 2021. In Asia, however, excess capacity declined from 19.3 million units in 2019 to 15.9 million in 2020 and to 15.2 million units in 2021, coming off a weak base for China’s economy and automotive sector during 2018 and 2019. After the pandemic-related disruptions ease, IHS projects that global excess capacity will trend lower, from around 49% of capacity in 2021 to just under 30% in 2028. Despite the projected gradual decline, the amount of excess capacity will remain substantial and represents a risk to automotive prices and revenue. Pricing Pressure. Over the last year, prices of both new and used vehicles have increased substantially due to both rising demand and supply shortages. It is likely that the rate of price increases will slow down as auto production slowly recovers from the semiconductor shortage, but it is unclear whether prices will decline fully to pre-COVID-19 pandemic levels. Over the long term, intense competition and excess capacity are likely to put downward pressure on inflation-adjusted prices for similarly-contented vehicles and contribute to a challenging pricing environment for the automotive industry in most major markets. Commodity and Energy Price Changes. The recovery from the COVID-19 pandemic has driven energy prices higher over the last year. Oil prices are expected to remain volatile, and are likely to rise in the near term because of low global stocks. In the long term, the outcome of de-carbonization may depress oil demand, but the global energy transition will also contribute to volatility of oil and other energy prices. Prices for other commodities have also been volatile though generally higher, as fluctuating global demand and differences in output across sectors due to the pandemic have generated divergence in price movements across different commodities. For additional information on commodity costs, see the Outlook section on page 73. Vehicle Profitability. Our financial results depend on the profitability of the vehicles we sell, which may vary significantly by vehicle line. In general, larger vehicles tend to command higher prices and be more profitable than smaller vehicles, both across and within vehicle segments. For example, in North America, our larger, more profitable vehicles had an average contribution margin that was 118% of our total average contribution margin across all vehicles, whereas our smaller vehicles had significantly lower contribution margins. In addition, government regulations aimed at reducing emissions and increasing fuel efficiency (e.g., ZEV mandates and low emission zones), and other factors that accelerate the transition to electrified vehicles, may increase the cost of vehicles by more than the perceived benefit to consumers and dampen margins. Trade Policy. To the extent governments in various regions erect or intensify barriers to imports, or implement currency policy that advantages local exporters selling into the global marketplace, there can be a significant negative impact on manufacturers based in other markets. While we believe the long-term trend will support the growth of free trade, we have noted with concern recent developments in a number of regions. In Asia Pacific, a weak yen significantly reduces the cost of exports into the United States, Europe, and other global markets by Japanese manufacturers, and, over a period of time, contribute to other countries pursuing weak currency policies by intervening in the exchange rate markets. This is particularly likely in other Asian countries, such as South Korea. We believe the primary focus of the Biden administration will be addressing the COVID-19 pandemic and moving ahead with economic stimulus. We will continue to monitor and address developing issues. Other Economic Factors. Interest rates, notably mature market government bond yields, have remained lower than expected. At the same time, inflation has accelerated and government deficits and debt remain at high levels in many major markets. The eventual implications of higher government deficits and debt, tighter monetary policy, and potentially higher long-term interest rates may drive a higher cost of capital over our planning period. Higher interest rates and/or taxes to address the higher deficits also may impede real growth in gross domestic product and, therefore, vehicle sales over our planning period. 35 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Revenue Our Automotive segment revenue is generated primarily by sales of vehicles, parts, and accessories. Revenue is recorded when control is transferred to our customers (generally, our dealers and distributors). For the majority of sales, this occurs when products are shipped from our manufacturing facilities. However, we defer a portion of the consideration received when there is a separate future or stand-ready performance obligation, such as extended service contracts or ongoing vehicle connectivity. Revenue related to extended service contracts is recognized over the term of the agreement in proportion to the costs we expect to incur in satisfying the contract obligations; revenue related to other future or stand-ready performance obligations is generally recognized on a straight-line basis over the period in which services are expected to be performed. Vehicles sold to daily rental car companies with an obligation to repurchase for a guaranteed amount, exercisable at the option of the customer, are accounted for as operating leases, with lease revenue and profits recognized over the term of the lease. Proceeds from the sale of vehicles at auction are recognized in revenue upon transfer of control of the vehicle to the buyer. Most of the vehicles sold by us to our dealers and distributors are financed at wholesale by Ford Credit. Upon Ford Credit originating the wholesale receivable related to a dealer’s purchase of a vehicle, Ford Credit pays cash to the relevant Automotive legal entity in payment of the dealer’s obligation for the purchase price of the vehicle. The dealer then pays the wholesale finance receivable to Ford Credit when it sells the vehicle to a retail customer. Our Ford Credit segment revenue is generated primarily from interest on finance receivables, net of certain deferred origination costs that are included as a reduction of financing revenue, and such revenue is recognized over the term of the receivable using the interest method. Also, revenue from operating leases is recognized on a straight-line basis over the term of the lease. Income is generated to the extent revenues exceed expenses, most of which are interest, depreciation, and operating expenses. Transactions between our Automotive and Ford Credit segments occur in the ordinary course of business. For example, we offer special retail financing and lease incentives to dealers’ customers who choose to finance or lease our vehicles from Ford Credit. The cost for these incentives is included in our estimate of variable consideration at the date the related vehicle sales to our dealers are recorded. In order to compensate Ford Credit for the lower interest or lease payments offered to the retail customer, we pay the discounted value of the incentive directly to Ford Credit when it originates the retail finance or lease contract with the dealer’s customer. Ford Credit recognizes the incentive amount over the life of retail finance contracts as an element of financing revenue and over the life of lease contracts as a reduction to depreciation. See Note 1 of the Notes to the Financial Statements for a more detailed discussion of transactions between our Automotive and Ford Credit segments. Costs and Expenses Our income statement classifies our Company excluding Ford Credit total costs and expenses into two categories: (i) cost of sales, and (ii) selling, administrative, and other expenses. We include within cost of sales those costs related to the development, production, and distribution of our vehicles, parts, accessories, and services. Specifically, we include in cost of sales each of the following: material costs (including commodity costs); freight costs; warranty, including product recall costs; labor and other costs related to the development and production of our vehicles and connectivity, parts, accessories, and services; depreciation and amortization; and other associated costs. We include within selling, administrative, and other expenses labor and other costs not directly related to the development and production of our vehicles, parts, accessories, and services, including such expenses as advertising and sales promotion costs. 36 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Certain of our costs, such as material costs, generally vary directly with changes in volume and mix of production. In our industry, production volume often varies significantly from quarter to quarter and year to year. Quarterly production volumes experience seasonal shifts throughout the year (including peak retail sales seasons and the impact on production of model changeover and new product launches). Annual production volumes are heavily impacted by external economic factors, including the pace of economic growth and factors such as the availability of consumer credit and cost of fuel. As a result, we analyze the profit impact of certain cost changes holding constant present-year volume and mix and currency exchange, in order to evaluate our cost trends absent the impact of varying production and currency exchange levels. We analyze these cost changes in the following categories: •Contribution Costs – these costs typically vary with production volume. These costs include material (including commodity), warranty, and freight and duty costs. •Structural Costs – these costs typically do not have a directly proportionate relationship to production volume. These costs include manufacturing; vehicle and software engineering; spending-related; advertising and sales promotion; administrative, information technology, and selling; and pension and OPEB costs. While contribution costs generally vary directly in proportion to production volume, elements within our structural costs category are impacted to differing degrees by changes in production volume. We also have varying degrees of discretion when it comes to controlling the different elements within our structural costs. For example, depreciation and amortization expense largely is associated with prior capital spending decisions. On the other hand, while labor costs do not vary directly with production volume, manufacturing labor costs may be impacted by changes in volume, for example when we increase overtime, add a production shift, or add personnel to support volume increases. Other structural costs, such as advertising or engineering costs, do not necessarily have a directly proportionate relationship to production volume. Our structural costs generally are within our discretion, although to varying degrees, and can be adjusted over time in response to external factors. We consider certain structural costs to be a direct investment in future growth and revenue. For example, structural costs are necessary to grow our business and improve profitability, invest in new products and technologies, respond to increasing industry sales volume, and grow our market share. Cost of sales and Selling, administrative, and other expenses for full year 2021 were $126.6 billion. Our Automotive segment’s material and commodity costs make up the largest portion of these costs and expenses, followed by structural costs. Although material costs are our largest absolute cost, our margins can be affected significantly by changes in any category of costs. 37 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) RESULTS OF OPERATIONS - 2021 The net income attributable to Ford Motor Company was $17,937 million in 2021. Company adjusted EBIT was $10,000 million. Net income/(loss) includes certain items (“special items”) that are excluded from Company adjusted EBIT. These items are discussed in more detail in Note 26 of the Notes to the Financial Statements. We report special items separately to allow investors analyzing our results to identify certain infrequent significant items that they may wish to exclude when considering the trend of ongoing operating results. Our pre-tax and tax special items were as follows (in millions): [[GREPCENT_TABLE]] [["","","2020","","2021"],["Global Redesign"],["Europe","","$","(727)","","","$","(530)"],["India","","(23)","","","(468)"],["South America","","(2,486)","","","(803)"],["Russia","","18","","","5"],["China (including Taiwan)","","(56)","","","150"],["Separations and Other (not included above)","","(94)","","","(74)"],["Subtotal Global Redesign","","$","(3,368)","","","$","(1,720)"],["Other Items"],["Gain on transaction with Argo AI","","$","3,454","","","$","\u2014"],["Gain on Rivian IPO and mark-to-market","","143","","","9,096"],["Gains and losses on investments in equity securities (excl. Rivian)","","100","","","92"],["Debt extinguishment premium","","\u2014","","","(1,692)"],["Takata field service action","","(610)","","","\u2014"],["Ford Credit - Brazil and Argentina","","\u2014","","","14"],["Other","","(226)","","","(10)"],["Subtotal Other Items","","$","2,861","","","$","7,500"],["Pension and OPEB Gain/(Loss)"],["Pension and OPEB remeasurement","","$","(1,435)","","","$","3,873"],["Pension settlements and curtailments","","(61)","","","(70)"],["Subtotal Pension and OPEB Gain/(Loss)","","$","(1,496)","","","$","3,803"],["Total EBIT Special Items","","$","(2,003)","","","$","9,583"],["Cash effect of Global Redesign (incl. separations)","","$","(503)","","","$","(1,935)"],["Provision for/(Benefit from) tax special items (a)","","$","721","","","$","(1,924)"]] [[/GREPCENT_TABLE]] __________ (a)Includes related tax effect on special items and tax special items. Effective with the reporting of our fourth quarter 2021 results, pre-tax special items now include gains and losses on investments in equity securities. For the full year, we recorded $9.6 billion of pre-tax special items, primarily reflecting gains on our equity investment in Rivian in connection with Rivian’s initial public offering and mark-to-market valuation adjustments during the year, as well as a remeasurement gain associated with our global pension and OPEB plans. The gains were partially offset by costs associated with our Global Redesign actions and a debt extinguishment premium associated with the repurchase and redemption of $7.6 billion of our higher-coupon debt. In Note 26 of the Notes to the Financial Statements, special items are reflected as a separate reconciling item, as opposed to being allocated among the Automotive, Mobility, and Ford Credit segments. This reflects the fact that management excludes these items from its review of operating segment results for purposes of measuring segment profitability and allocating resources. 38 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) COMPANY KEY METRICS The table below shows our full year 2021 key metrics for the Company compared to a year ago. [[GREPCENT_TABLE]] [["","","2020","","2021","","H / (L)"],["GAAP Financial Measures"],["Cash Flows from Operating Activities ($B)","","$","24.3","","","$","15.8","","","$","(8.5)"],["Revenue ($M)","","127,144","","","136,341","","","7","%"],["Net Income/(Loss) ($M)","","(1,279)","","","17,937","","","$","19,216"],["Net Income/(Loss) Margin (%)","","(1.0)","%","","13.2","%","","14.2 ppts"],["EPS (Diluted)","","$","(0.32)","","","$","4.45","","","$","4.77"],["Non-GAAP Financial Measures (a)"],["Company Adj. Free Cash Flow ($B)","","$","1.3","","","$","4.6","","","$","3.3"],["Company Adj. EBIT ($M)","","2,536","","","10,000","","","7,464"],["Company Adj. EBIT Margin (%)","","2.0","%","","7.3","%","","5.3 ppts"],["Adjusted EPS (Diluted)","","$","0.36","","","$","1.59","","","$","1.23"],["Adjusted ROIC (Trailing Four Qtrs)","","0.7 %","","9.8","%","","9.1 ppts"]] [[/GREPCENT_TABLE]] __________ (a)See Non-GAAP Financial Measure Reconciliations section for reconciliation to GAAP. In 2021, our diluted earnings per share of Common and Class B Stock was $4.45 and our diluted adjusted earnings per share was $1.59. Net income/(loss) margin was 13.2% in 2021, up from negative 1.0% a year ago. Company adjusted EBIT margin was 7.3% in 2021, up from 2.0% a year ago. The table below shows our full year 2021 net income/(loss) attributable to Ford and Company adjusted EBIT by segment (in millions). [[GREPCENT_TABLE]] [["","","2020","","2021","","H / (L)"],["Automotive","","$","1,706","","","$","7,397","","","$","5,691"],["Mobility","","(1,052)","","","(1,030)","","","22"],["Ford Credit","","2,608","","","4,717","","","2,109"],["Corporate Other","","(726)","","","(1,084)","","","(358)"],["Company Adjusted EBIT (a)","","2,536","","","10,000","","","7,464"],["Interest on Debt","","(1,649)","","","(1,803)","","","154"],["Special Items","","(2,003)","","","9,583","","","(11,586)"],["Taxes / Noncontrolling Interests","","(163)","","","157","","","(320)"],["Net Income/(Loss)","","$","(1,279)","","","$","17,937","","","$","19,216"]] [[/GREPCENT_TABLE]] __________ (a)See Non-GAAP Financial Measure Reconciliations section for reconciliation to GAAP. The year-over-year increase of $19.2 billion in net income/(loss) in 2021 includes the effect of special items, including the Rivian IPO and mark-to-market gain, as well as higher Automotive EBIT and Ford Credit EBT. The year-over-year increase of $7.5 billion in Company adjusted EBIT was driven by higher Automotive EBIT and Ford Credit EBT. 39 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Automotive Segment The table below shows our full year 2021 Automotive segment EBIT by business unit (in millions). [[GREPCENT_TABLE]] [["","","2020","","2021","","H / (L)"],["North America","","$","3,710","","","$","7,377","","","$","3,667"],["South America","","(490)","","","(121)","","","369"],["Europe","","(851)","","","(154)","","","697"],["China (including Taiwan)","","(499)","","","(327)","","","172"],["International Markets Group","","(164)","","","622","","","786"],["Automotive Segment","","$","1,706","","","$","7,397","","","$","5,691"]] [[/GREPCENT_TABLE]] The tables below and on the following pages provide full year 2021 key metrics and the change in full year 2021 EBIT compared with full year 2020 by causal factor for our Automotive segment and its regional business units: North America, South America, Europe, China (including Taiwan), and the International Markets Group. For a description of these causal factors, see Definitions and Information Regarding Automotive Causal Factors. [[GREPCENT_TABLE]] [["","","2020","","2021","","H / (L)"],["Key Metrics"],["Market Share (%)","","5.8","%","","5.1","%","","(0.6) ppts"],["Wholesale Units (000)","","4,187","","","3,942","","","(245)"],["Revenue ($M)","","$","115,894","","","$","126,150","","","$","10,256"],["EBIT ($M)","","1,706","","","7,397","","","5,691"],["EBIT Margin (%)","","1.5","%","","5.9","%","","4.4 ppts"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["Change in EBIT by Causal Factor (in millions)"],["2020 Full Year EBIT","","$","1,706"],["Volume / Mix","","(2,853)"],["Net Pricing","","9,700"],["Cost","","(2,173)"],["Exchange","","524"],["Other","","493"],["2021 Full Year EBIT","","$","7,397"]] [[/GREPCENT_TABLE]] In 2021, wholesales in our Automotive segment declined 6% from a year ago, reflecting semiconductor-related production constraints and the shift to a new business model in South America. Full year 2021 Automotive revenue increased 9%, driven by higher net pricing, favorable mix, and stronger currencies, partially offset by lower wholesales. Our full year 2021 Automotive segment EBIT increased $5.7 billion from a year ago with an EBIT margin of 5.9 percent. The EBIT improvement was driven by higher net pricing (reflecting the strength of our product portfolio and lower incentives in response to reduced dealer stock levels), lower warranty expense, favorable mix, higher profits from our Ford Customer Service Division business, and stronger currencies, partially offset by lower wholesales and increased commodity costs. 40 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) North America [[GREPCENT_TABLE]] [["","","2020","","2021","","H / (L)"],["Key Metrics"],["Market Share (%)","","13.2","%","","12.0","%","","(1.2) ppts"],["Wholesale Units (000)","","2,081","","","2,006","","","(75)"],["Revenue ($M)","","$","80,044","","","$","87,783","","","$","7,739"],["EBIT ($M)","","3,710","","","7,377","","","3,667"],["EBIT Margin (%)","","4.6","%","","8.4","%","","3.8 ppts"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["Change in EBIT by Causal Factor (in millions)"],["2020 Full Year EBIT","","$","3,710"],["Volume / Mix","","(1,661)"],["Net Pricing","","7,858"],["Cost","","(2,672)"],["Exchange","","220"],["Other","","(78)"],["2021 Full Year EBIT","","$","7,377"]] [[/GREPCENT_TABLE]] In North America, 2021 wholesales declined 4% from a year ago, primarily reflecting the impact of semiconductor-related production constraints. Full year 2021 revenue increased 10%, driven by higher net pricing, favorable mix, and stronger currencies, partially offset by lower wholesales. North America’s 2021 EBIT increased $3.7 billion from a year ago with an EBIT margin of 8.4%. The EBIT improvement was driven by higher net pricing, lower warranty expense, and favorable mix, partially offset by increased commodity prices, lower volume, and higher structural costs. South America [[GREPCENT_TABLE]] [["","","2020","","2021","","H / (L)"],["Key Metrics"],["Market Share (%)","","6.2","%","","2.6","%","","(3.7) ppts"],["Wholesale Units (000)","","185","","","81","","","(104)"],["Revenue ($M)","","$","2,463","","","$","2,399","","","$","(64)"],["EBIT ($M)","","(490)","","","(121)","","","369"],["EBIT Margin (%)","","(19.9)","%","","(5.1)","%","","14.8 ppts"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["Change in EBIT by Causal Factor (in millions)"],["2020 Full Year EBIT","","$","(490)"],["Volume / Mix","","(210)"],["Net Pricing","","602"],["Cost","","(12)"],["Exchange","","2"],["Other","","(13)"],["2021 Full Year EBIT","","$","(121)"]] [[/GREPCENT_TABLE]] In South America, 2021 wholesales declined 56% from a year ago, primarily reflecting the shift to the region’s new business model and the impact of semiconductor-related production constraints. Full year 2021 revenue declined 3%, driven by lower volume and weaker currencies, partially offset by higher net pricing and favorable mix. South America’s 2021 EBIT loss improved $369 million from a year ago with an EBIT margin of negative 5.1%. The EBIT improvement was driven by higher net pricing, partially offset by lower volume. 41 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Europe [[GREPCENT_TABLE]] [["","","2020","","2021","","H / (L)"],["Key Metrics"],["Market Share (%)","","7.2","%","","6.4","%","","(0.8) ppts"],["Wholesale Units (000) (a)","","1,020","","","891","","","(128)"],["Revenue ($M)","","$","22,644","","","$","24,466","","","$","1,822"],["EBIT ($M)","","(851)","","","(154)","","","697"],["EBIT Margin (%)","","(3.8)","%","","(0.6)","%","","3.2 ppts"]] [[/GREPCENT_TABLE]] __________ (a)Includes Ford brand vehicles produced and sold by our unconsolidated affiliate in Turkey (about 72,000 units in 2020 and 61,000 units in 2021); revenue does not include these sales. [[GREPCENT_TABLE]] [["Change in EBIT by Causal Factor (in millions)"],["2020 Full Year EBIT","","$","(851)"],["Volume / Mix","","(941)"],["Net Pricing","","949"],["Cost","","472"],["Exchange","","(112)"],["Other","","329"],["2021 Full Year EBIT","","$","(154)"]] [[/GREPCENT_TABLE]] In Europe, 2021 wholesales declined 13% from a year ago, primarily reflecting the impact of semiconductor-related production constraints. Full year 2021 revenue improved 8%, driven by favorable mix, stronger currencies, and higher net pricing, partially offset by lower volume. Europe’s 2021 EBIT loss improved $697 million from a year ago with an EBIT margin of negative 0.6%. The EBIT improvement was driven by higher net pricing, lower material and warranty expenses, and lower structural costs, partially offset by lower volume and increased commodity prices. 42 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) China (Including Taiwan) [[GREPCENT_TABLE]] [["","","2020","","2021","","H / (L)"],["Key Metrics"],["Market Share (%)","","2.4","%","","2.4","%","","\u2014 ppts"],["Wholesale Units (000) (a)","","617","","","649","","","31"],["Revenue ($M)","","$","3,202","","","$","2,547","","","$","(655)"],["EBIT ($M)","","(499)","","","(327)","","","172"],["EBIT Margin (%)","","(15.6)","%","","(12.8)","%","","2.8 ppts"],["China Unconsolidated Affiliates"],["Wholesale Units (000) (b)","","564","","","633","","","69"],["Ford Equity Income/(Loss) ($M)","","$","49","","","$","165","","","$","116"]] [[/GREPCENT_TABLE]] __________ (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, from second quarter 2021, Ford brand vehicles produced in Taiwan by Lio Ho Group. [[GREPCENT_TABLE]] [["Change in EBIT by Causal Factor (in millions)"],["2020 Full Year EBIT","","$","(499)"],["Volume / Mix","","(190)"],["Net Pricing","","73"],["Cost","","16"],["Exchange","","69"],["Other","","204"],["2021 Full Year EBIT","","$","(327)"]] [[/GREPCENT_TABLE]] In China, 2021 wholesales increased 5% from a year ago, driven by higher joint venture volumes. Full year 2021 consolidated revenue declined 20%, driven by product localization and the de-consolidation of our operations in Taiwan, partially offset by favorable import mix, higher component sales to our joint ventures in China, and stronger currencies. China’s 2021 EBIT loss improved $172 million from a year ago with an EBIT margin of negative 12.8%. The EBIT improvement was driven by favorable mix of imported vehicles, higher joint venture profits and royalties, and higher net pricing, partially offset by lower volume at our consolidated operations. 43 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) International Markets Group [[GREPCENT_TABLE]] [["","","2020","","2021","","H / (L)"],["Key Metrics"],["Market Share (%)","","1.7","%","","1.8","%","","\u2014 ppts"],["Wholesale Units (000) (a)","","284","","","315","","","31"],["Revenue ($M)","","$","7,541","","","$","8,955","","","$","1,414"],["EBIT ($M)","","(164)","","","622","","","786"],["EBIT Margin (%)","","(2.2)","%","","6.9","%","","9.1 ppts"]] [[/GREPCENT_TABLE]] _________ (a)Includes Ford brand vehicles produced and sold by our unconsolidated affiliate in Russia (about 14,000 units in 2020 and 22,000 units in 2021). Revenue does not include these sales. [[GREPCENT_TABLE]] [["Change in EBIT by Causal Factor (in millions)"],["2020 Full Year EBIT","","$","(164)"],["Volume / Mix","","150"],["Net Pricing","","218"],["Cost","","24"],["Exchange","","344"],["Other","","50"],["2021 Full Year EBIT","","$","622"]] [[/GREPCENT_TABLE]] In our International Markets Group, 2021 wholesales increased 11% from a year ago, reflecting the non-recurrence of the COVID-related production suspension and higher industry volumes, partially offset by the impact of semiconductor-related supply constraints. Full year 2021 revenue increased 19%, driven by higher volume and mix, higher net pricing, and stronger currencies. Our International Market Group’s 2021 EBIT improved $786 million from a year ago with an EBIT margin of 6.9%. The EBIT improvement was driven by stronger currencies, higher net pricing and volume, and lower warranty expense. 44 Item 7. 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-year 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, and local brand units produced by our China joint venture, Jiangling Motors Corporation, Ltd. (“JMC”), that are sold to dealerships. Vehicles sold to daily rental car companies that are subject to a guaranteed repurchase option (i.e., rental repurchase), as well as other sales of finished vehicles for which the recognition of revenue is deferred (e.g., consignments), also are included in wholesale unit volumes. Revenue from certain vehicles in wholesale unit volumes (specifically, Ford badged vehicles produced and distributed by our unconsolidated affiliates, as well as JMC brand vehicles) are not included in our revenue •Industry Volume and Market Share – based, in part, on estimated vehicle registrations; includes medium and heavy duty trucks •SAAR – seasonally adjusted annual rate 45 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Mobility Segment Effective January 1, 2021, we realigned the costs and benefits related to enterprise connectivity activities previously included in the Mobility segment to the Automotive segment. Accordingly, beginning in 2021, the Mobility segment primarily includes development costs for Ford’s autonomous vehicles and related businesses, Ford’s equity ownership in Argo AI (a developer of autonomous driving systems), and other mobility businesses and investments.  In our Mobility segment, our 2021 EBIT loss improved $22 million from a year ago. The $1 billion EBIT loss reflects our strategic investments in 2021 as we continued to expand our capabilities in autonomous vehicles and mobility businesses. Ford Credit Segment The tables below provide full year 2021 key metrics and the change in full year 2021 EBT compared with full year 2020 by causal factor for the Ford Credit segment. For a description of these causal factors, see Definitions and Information Regarding Ford Credit Causal Factors. [[GREPCENT_TABLE]] [["","","2020","","2021","","H / (L)"],["GAAP Financial Measures"],["Total Net Receivables ($B)","","$","132","","","$","118","","","(11)","%"],["Loss-to-Receivables (bps) (a)","","36","","","6","","","(30)"],["Auction Values (b)","","$","20,600","","","$","25,800","","","25","%"],["EBT ($M)","","2,608","","","4,717","","","$","2,109"],["ROE (%) (c)","","15","%","","32","%","","17 ppts"],["Other Balance Sheet Metrics"],["Debt ($B)","","$","138","","","$","118","","","(15)","%"],["Net Liquidity ($B)","","35","","","32","","","(10)","%"],["Financial Statement Leverage (to 1) (c)","","8.8","","","9.5","","","0.7"]] [[/GREPCENT_TABLE]] __________ (a)U.S. retail financing only. (b)U.S. 36-month off-lease auction values at full year 2021 mix. (c)Prior period amounts have been updated as a result of the adoption of ASU 2019-12, Simplifying the Accounting for Income Taxes. For additional information, see Note 3 of the Notes to the Financial Statements. [[GREPCENT_TABLE]] [["","","2020","","2021","","H / (L)"],["Non-GAAP Financial Measures"],["Managed Receivables ($B) (a)","","$","141","","","$","123","","","(12)","%"],["Managed Leverage (to 1) (b) (c)","","7.5","","","8.4","","","0.9"]] [[/GREPCENT_TABLE]] __________ (a)See Non-GAAP Financial Measure Reconciliations section for reconciliation to GAAP. (b)See Liquidity and Capital Resources - Ford Credit Segment section for reconciliation to GAAP. (c)Prior period amount has been updated as a result of the adoption of ASU 2019-12, Simplifying the Accounting for Income Taxes. For additional information, see Note 3 of the Notes to the Financial Statements. [[GREPCENT_TABLE]] [["Change in EBT by Causal Factor (in millions)"],["2020 Full Year EBT","","$","2,608"],["Volume / Mix","","(243)"],["Financing Margin","","(206)"],["Credit Loss","","1,136"],["Lease Residual","","1,494"],["Exchange","","27"],["Other","","(99)"],["2021 Full Year EBT","","$","4,717"]] [[/GREPCENT_TABLE]] Total net receivables at December 31, 2021 were $14 billion lower than a year ago, primarily reflecting lower wholesale receivables as a result of lower dealer inventories due to the semiconductor shortage. Ford Credit’s loss metrics reflected healthy and stable consumer credit conditions and strong auction values. Ford Credit’s U.S. 36-month auction values for off-lease vehicles were up 25% from a year ago, reflecting strong demand for used vehicles, including the impact of lower new vehicle production due to the semiconductor shortage. We are planning for full year 2022 auction values to remain strong. 46 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Ford Credit’s 2021 EBT increased $2,109 million from a year ago, explained primarily by favorable operating lease residual performance, the non-recurrence of the 2020 increase to the credit loss reserve due to deterioration in macroeconomic conditions related to COVID-19, and reductions in the credit loss reserve in 2021, partially offset by lower volume driven by the impact of the global semiconductor shortage and lower financing margin. 47 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Definitions and Information Regarding Ford Credit Causal Factors. In general, we measure year-over-year changes in Ford Credit’s EBT using the causal factors listed below: •Volume and Mix: ◦Volume primarily measures changes in net financing margin driven by changes in average managed receivables at prior period financing margin yield (defined below in financing margin) at prior period exchange rates. Volume changes are primarily driven by the volume of new and used vehicles sold and leased, the extent to which Ford Credit purchases retail financing and operating lease contracts, the extent to which Ford Credit provides wholesale financing, the sales price of the vehicles financed, the level of dealer inventories, Ford-sponsored special financing programs available exclusively through Ford Credit, and the availability of cost-effective funding ◦Mix primarily measures changes in net financing margin driven by period-over-period changes in the composition of Ford Credit’s average managed receivables by product within each region •Financing Margin: ◦Financing margin variance is the period-to-period change in financing margin yield multiplied by the present period average managed receivables at prior period exchange rates. This calculation is performed at the product and country level and then aggregated. Financing margin yield equals revenue, less interest expense and scheduled depreciation for the period, divided by average managed receivables for the same period ◦Financing margin changes are driven by changes in revenue and interest expense. Changes in revenue are primarily driven by the level of market interest rates, cost assumptions in pricing, mix of business, and competitive environment. Changes in interest expense are primarily driven by the level of market interest rates, borrowing spreads, and asset-liability management •Credit Loss: ◦Credit loss is the change in the provision for credit losses at prior period exchange rates. For analysis purposes, management splits the provision for credit losses into net charge-offs and the change in the allowance for credit losses ◦Net charge-off changes are primarily driven by the number of repossessions, severity per repossession, and recoveries. Changes in the allowance for credit losses are primarily driven by changes in historical trends in credit losses and recoveries, changes in the composition and size of Ford Credit’s present portfolio, changes in trends in historical used vehicle values, and changes in forward looking macroeconomic conditions. For additional information, refer to the “Critical Accounting Estimates - Allowance for Credit Losses” section of Item 7 of Part II of our 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. 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 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 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 48 Item 7. 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 and Liquidity and Leverage sections) – Cash, cash equivalents, and marketable securities, excluding amounts related to insurance activities •Debt (as shown in the Key Metrics and Leverage tables) – Debt on Ford Credit’s balance sheets. Includes debt issued in securitizations and payable only out of collections on the underlying securitized assets and related enhancements. Ford Credit holds the right to receive the excess cash flows not needed to pay the debt issued by, and other obligations of, the securitization entities that are parties to those securitization transactions •Earnings Before Taxes (EBT) – Reflects Ford Credit’s income before income taxes •Return on Equity (ROE) (as shown in the Key Metrics table) – Reflects return on equity calculated by annualizing net income for the period and dividing by monthly average equity for the period •Securitization and Restricted Cash (as shown in the Liquidity table) – Securitization cash 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 and Ford Credit Net Receivables Reconciliation To Managed Receivables tables) – Includes finance receivables (retail financing and wholesale) sold for legal purposes and net investment in operating leases included in securitization transactions that do not satisfy the requirements for accounting sale treatment. These receivables and operating leases are reported on Ford Credit’s balance sheet 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 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. For full year 2021, Corporate Other had a $1,084 million loss, compared with a $726 million loss in 2020. The higher loss was driven by lower interest income and higher administrative and IT-related expenses. Interest on Debt Interest on Debt consists of interest expense on Company debt excluding Ford Credit. Our full year 2021 interest expense on Company debt excluding Ford Credit was $1,803 million, $154 million higher than in 2020, primarily explained by higher U.S. unsecured debt interest expense. 49 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Taxes Our Provision for/(Benefit from) income taxes for full year 2021 was a $130 million benefit, resulting in an effective tax rate of negative 0.7%. This includes a benefit of $2.9 billion to recognize deferred tax assets resulting from changes in our global tax structure and a $918 million benefit from the reversal of U.S. valuation allowances. Our full year 2021 adjusted effective tax rate, which excludes special items, was 21.9%. 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. 50 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) RESULTS OF OPERATIONS - 2020 The net loss attributable to Ford Motor Company was $1,279 million in 2020. Company adjusted EBIT was $2,536 million. Net income/(loss) includes certain items (“special items”) that are excluded from Company adjusted EBIT. These items are discussed in more detail in Note 26 of the Notes to the Financial Statements. We report special items separately to allow investors analyzing our results to identify certain infrequent significant items that they may wish to exclude when considering the trend of ongoing operating results. Our pre-tax and tax special items were as follows (in millions): [[GREPCENT_TABLE]] [["","","2019","","2020"],["Global Redesign"],["Europe","","$","(1,246)","","","$","(727)"],["India","","(804)","","","(23)"],["South America","","(566)","","","(2,486)"],["Russia","","(357)","","","18"],["China","","(101)","","","(56)"],["Separations and Other (not included above)","","(107)","","","(94)"],["Subtotal Global Redesign","","$","(3,181)","","","$","(3,368)"],["Other Items"],["Gain on transaction with Argo AI","","$","\u2014","","","$","3,454"],["Gain on Rivian mark-to-market","","94","","","143"],["Gains and losses on investments in equity securities (excl. Rivian)","","28","","","100"],["Takata field service action","","\u2014","","","(610)"],["Other incl. Focus cancellation, Transit Connect customs ruling, North America hourly buyouts, and Chariot","","(273)","","","(226)"],["Subtotal Other Items","","$","(151)","","","$","2,861"],["Pension and OPEB Gain/(Loss)"],["Pension and OPEB remeasurement","","$","(2,500)","","","$","(1,435)"],["Pension curtailment","","(45)","","","(61)"],["Subtotal Pension and OPEB Gain/(Loss)","","$","(2,545)","","","$","(1,496)"],["Total EBIT Special Items","","$","(5,877)","","","$","(2,003)"],["Cash effect of Global Redesign (incl. separations)","","$","(911)","","","$","(503)"],["Provision for/(Benefit from) tax special items (a)","","$","(1,298)","","","$","721"]] [[/GREPCENT_TABLE]] __________ (a)Includes related tax effect on special items and tax special items. We recorded $2 billion of pre-tax special item charges in 2020, primarily reflecting Global Redesign actions in South America and Europe, mark-to-market adjustments for our global pension and OPEB plans, and the field service action for Takata airbag inflators, partially offset by the gain on our investment in Argo AI as a result of the transaction with Argo AI and Volkswagen in the second quarter of 2020. In Note 26 of the Notes to the Financial Statements, special items are reflected as a separate reconciling item, as opposed to being allocated among the Automotive, Mobility, and Ford Credit segments. This reflects the fact that management excludes these items from its review of operating segment results for purposes of measuring segment profitability and allocating resources. 51 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) COMPANY KEY METRICS The table below shows our full year 2020 key metrics for the Company compared with full year 2019. [[GREPCENT_TABLE]] [["","","2019","","2020","","H / (L)"],["GAAP Financial Measures"],["Cash Flows from Operating Activities ($B)","","$","17.6","","","$","24.3","","","$","6.6"],["Revenue ($M)","","155,900","","","127,144","","","(18)","%"],["Net Income/(Loss) ($M)","","47","","","(1,279)","","","(1,326)"],["Net Income/(Loss) Margin (%)","","0.0","%","","(1.0)","%","","(1.0) ppts"],["EPS (Diluted)","","$","0.01","","","$","(0.32)","","","$","(0.33)"],["Non-GAAP Financial Measures (a)"],["Company Adj. Free Cash Flow ($B)","","$","2.9","","","$","1.3","","","$","(1.6)"],["Company Adj. EBIT ($M)","","6,257","","","2,536","","","(3,721)"],["Company Adj. EBIT Margin (%)","","4.0 %","","2.0","%","","(2.0) ppts"],["Adjusted EPS (Diluted)","","$","1.16","","","$","0.36","","","$","(0.80)"],["Adjusted ROIC (Trailing Four Qtrs)","","7.6","%","","0.7","%","","(6.9) ppts"]] [[/GREPCENT_TABLE]] __________ (a)See Non-GAAP Financial Measure Reconciliations section for reconciliation to GAAP. In 2020, our diluted earnings per share of Common and Class B Stock was a loss of $0.32 and our diluted adjusted earnings per share was $0.36. Net income/(loss) margin was negative 1.0% in 2020, down from 0.0% a year ago. Company adjusted EBIT margin was 2.0% in 2020, down from 4.0% in 2019. The table below shows our full year 2020 net income/(loss) attributable to Ford and Company adjusted EBIT by segment (in millions). [[GREPCENT_TABLE]] [["","","2019","","2020","","H / (L)"],["Automotive","","$","4,888","","","$","1,706","","","$","(3,182)"],["Mobility","","(941)","","","(1,052)","","","(111)"],["Ford Credit","","2,998","","","2,608","","","(390)"],["Corporate Other","","(688)","","","(726)","","","(38)"],["Company Adjusted EBIT (a)","","6,257","","","2,536","","","(3,721)"],["Interest on Debt","","(1,020)","","","(1,649)","","","629"],["Special Items","","(5,877)","","","(2,003)","","","(3,874)"],["Taxes / Noncontrolling Interests","","687","","","(163)","","","850"],["Net Income/(Loss)","","$","47","","","$","(1,279)","","","$","(1,326)"]] [[/GREPCENT_TABLE]] __________ (a)See Non-GAAP Financial Measure Reconciliations section for reconciliation to GAAP. The year-over-year declines of $1.3 billion in net income/(loss) and $3.7 billion in Company adjusted EBIT in 2020 were driven by decreases in Automotive EBIT and Ford Credit EBT, primarily reflecting the impact of COVID-19. Our net loss in 2020 includes the effect of special items, including Global Redesign actions in South America and Europe, mark-to-market adjustments for our global pension and OPEB plans, and the field service action for Takata airbag inflators, partially offset by the gain on our investment in Argo AI. 52 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Automotive Segment The table below shows our full year 2020 Automotive segment EBIT by business unit (in millions). [[GREPCENT_TABLE]] [["","","2019","","2020","","H / (L)"],["North America","","$","6,545","","","$","3,710","","","$","(2,835)"],["South America","","(696)","","","(490)","","","206"],["Europe","","124","","","(851)","","","(975)"],["China (including Taiwan)","","(762)","","","(499)","","","263"],["International Markets Group","","(323)","","","(164)","","","159"],["Automotive Segment","","$","4,888","","","$","1,706","","","$","(3,182)"]] [[/GREPCENT_TABLE]] The tables below and on the following pages provide full year 2020 key metrics and the change in full year 2020 EBIT compared with full year 2019 by causal factor for our Automotive segment and its regional business units. For a description of these causal factors, see Definitions and Information Regarding Automotive Causal Factors. [[GREPCENT_TABLE]] [["","","2019","","2020","","H / (L)"],["Key Metrics"],["Market Share (%)","","6.0","%","","5.8","%","","(0.2) ppts"],["Wholesale Units (000)","","5,386","","","4,187","","","(1,199)"],["Revenue ($M)","","$","143,604","","","$","115,894","","","$","(27,710)"],["EBIT ($M)","","4,888","","","1,706","","","(3,182)"],["EBIT Margin (%)","","3.4","%","","1.5","%","","(1.9) ppts"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["Change in EBIT by Causal Factor (in millions)"],["2019 Full Year EBIT","","$","4,888"],["Volume / Mix","","(9,417)"],["Net Pricing","","4,985"],["Cost","","904"],["Exchange","","(312)"],["Other","","658"],["2020 Full Year EBIT","","$","1,706"]] [[/GREPCENT_TABLE]] In 2020, wholesales in our Automotive segment declined 22% from 2019, reflecting a decrease in each business unit other than China. Full year 2020 Automotive revenue decreased 19% from 2019. Our full year 2020 Automotive segment EBIT decreased $3.2 billion from 2019 with an EBIT margin of 1.5 percent. Higher net pricing and favorable mix were more than offset by the impact of COVID-related lower industry volume and the changeover to the F-150. Structural costs were significantly lower, primarily reflecting the impact of our suspension of production earlier in the 2020 due to COVID-19. 53 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) North America [[GREPCENT_TABLE]] [["","","2019","","2020","","H / (L)"],["Key Metrics"],["Market Share (%)","","13.2","%","","13.2","%","","\u2014 ppts"],["Wholesale Units (000)","","2,765","","","2,081","","","(684)"],["Revenue ($M)","","$","98,058","","","$","80,044","","","$","(18,014)"],["EBIT ($M)","","6,545","","","3,710","","","(2,835)"],["EBIT Margin (%)","","6.7","%","","4.6","%","","(2.0) ppts"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["Change in EBIT by Causal Factor (in millions)"],["2019 Full Year EBIT","","$","6,545"],["Volume / Mix","","(6,776)"],["Net Pricing","","3,041"],["Cost","","366"],["Exchange","","(64)"],["Other","","598"],["2020 Full Year EBIT","","$","3,710"]] [[/GREPCENT_TABLE]] In North America, 2020 wholesales declined 25% from 2019, driven by COVID-related lower industry volume and the changeover to the F-150. Full year 2020 revenue decreased 18% from 2019, driven by lower volume, partially offset by higher net pricing and favorable series and option mix. North America’s 2020 EBIT decreased $2.8 billion from 2019 with an EBIT margin of 4.6%. The lower EBIT was driven by lower volume, higher material cost, and higher warranty expense. Higher net pricing, favorable mix, and lower structural costs were partial offsets. South America [[GREPCENT_TABLE]] [["","","2019","","2020","","H / (L)"],["Key Metrics"],["Market Share (%)","","7.2","%","","6.2","%","","(1.0) ppts"],["Wholesale Units (000)","","295","","","185","","","(111)"],["Revenue ($M)","","$","3,893","","","$","2,463","","","$","(1,430)"],["EBIT ($M)","","(696)","","","(490)","","","206"],["EBIT Margin (%)","","(17.9)","%","","(19.9)","%","","(2.0) ppts"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["Change in EBIT by Causal Factor (in millions)"],["2019 Full Year EBIT","","$","(696)"],["Volume / Mix","","(143)"],["Net Pricing","","513"],["Cost","","89"],["Exchange","","(232)"],["Other","","(21)"],["2020 Full Year EBIT","","$","(490)"]] [[/GREPCENT_TABLE]] In South America, 2020 wholesales declined 38% from 2019, driven by COVID-related lower industry volume. Full year 2020 revenue declined 37% from 2019, driven by lower volume and weaker currencies, partially offset by higher net pricing and favorable vehicle mix. South America’s 2020 EBIT loss improved $206 million from 2019 with an EBIT margin of negative 19.9%. The EBIT improvement was driven by higher net pricing and cost reductions. 54 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Europe [[GREPCENT_TABLE]] [["","","2019","","2020","","H / (L)"],["Key Metrics"],["Market Share (%)","","7.3","%","","7.2","%","","(0.1) ppts"],["Wholesale Units (000) (a)","","1,390","","","1,020","","","(370)"],["Revenue ($M)","","$","28,150","","","$","22,644","","","$","(5,506)"],["EBIT ($M)","","124","","","(851)","","","(975)"],["EBIT Margin (%)","","0.4","%","","(3.8)","%","","(4.2) ppts"]] [[/GREPCENT_TABLE]] _________ (a)Includes Ford brand vehicles produced and sold by our unconsolidated affiliate in Turkey (about 34,000 units in 2019 and 72,000 units in 2020); revenue does not include these sales. [[GREPCENT_TABLE]] [["Change in EBIT by Causal Factor (in millions)"],["2019 Full Year EBIT","","$","124"],["Volume / Mix","","(1,973)"],["Net Pricing","","1,354"],["Cost","","(190)"],["Exchange","","74"],["Other","","(240)"],["2020 Full Year EBIT","","$","(851)"]] [[/GREPCENT_TABLE]] In Europe, 2020 wholesales declined 27% from 2019, driven by COVID-19 related lower industry volume. Full year 2020 revenue declined 20% from 2019, driven by lower volume, partially offset by higher net pricing and favorable series and option mix. Europe’s 2020 EBIT decreased $974 million from 2019 with an EBIT margin of negative 3.8%. The lower EBIT was more than explained by COVID-19 related lower industry volume and the Kuga PHEV recall in the third quarter of 2020. 55 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) China (Including Taiwan) [[GREPCENT_TABLE]] [["","","2019","","2020","","H / (L)"],["Key Metrics"],["Market Share (%)","","2.2","%","","2.4","%","","0.2 ppts"],["Wholesale Units (000) (a)","","535","","","617","","","83"],["Revenue ($M)","","$","3,615","","","$","3,202","","","$","(413)"],["EBIT ($M)","","(762)","","","(499)","","","263"],["EBIT Margin (%)","","(21.1)","%","","(15.6)","%","","5.5 ppts"],["China Unconsolidated Affiliates"],["Wholesale Units (000) (b)","","462","","","564","","","102"],["Ford Equity Income/(Loss) ($M)","","$","(161)","","","$","49","","","$","210"]] [[/GREPCENT_TABLE]] __________ (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. [[GREPCENT_TABLE]] [["Change in EBIT by Causal Factor (in millions)"],["2019 Full Year EBIT","","$","(762)"],["Volume / Mix","","(137)"],["Net Pricing","","(15)"],["Cost","","193"],["Exchange","","(113)"],["Other","","335"],["2020 Full Year EBIT","","$","(499)"]] [[/GREPCENT_TABLE]] In China, 2020 wholesales increased 16% from 2019, driven by higher joint venture volumes. Full year 2020 consolidated revenue declined 11% from 2019, driven by lower volume, partially offset by higher component sales to our joint ventures in China and favorable series and option mix. China’s 2020 EBIT loss improved $263 million from 2019 with an EBIT margin of negative 15.6%. The improved EBIT was driven by higher joint venture profits and royalties and lower structural costs. 56 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) International Markets Group [[GREPCENT_TABLE]] [["","","2019","","2020","","H / (L)"],["Key Metrics"],["Market Share (%)","","1.9","%","","1.7","%","","(0.2) ppts"],["Wholesale Units* (000)","","401","","","284","","","(117)"],["Revenue ($M)","","$","9,888","","","$","7,541","","","$","(2,347)"],["EBIT ($M)","","(323)","","","(164)","","","159"],["EBIT Margin (%)","","(3.3)","%","","(2.2)","%","","1.1 ppts"]] [[/GREPCENT_TABLE]] _________ (a)Includes Ford brand vehicles produced and sold by our unconsolidated affiliate in Russia (about 28,000 units in 2019 and 14,000 units in 2020). Revenue after Q2 2019 does not include these sales. [[GREPCENT_TABLE]] [["Change in EBIT by Causal Factor (in millions)"],["2019 Full Year EBIT","","$","(323)"],["Volume / Mix","","(388)"],["Net Pricing","","91"],["Cost","","446"],["Exchange","","22"],["Other","","(12)"],["2020 Full Year EBIT","","$","(164)"]] [[/GREPCENT_TABLE]] In our International Markets Group, 2020 wholesales declined 29% from 2019, driven by COVID-related lower industry volume. Full year 2020 revenue declined 24% from 2019, driven by lower volume and weaker currencies, partially offset by higher net pricing and favorable series and option mix. Our International Market Group’s 2020 EBIT loss improved $159 million from 2019 with an EBIT margin of negative 2.2%. The improved EBIT was driven by cost reductions, higher net pricing, and favorable mix, partially offset by lower volume. 57 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Mobility Segment In our Mobility segment, our 2020 EBIT loss was $111 million higher than 2019. The $1.1 billion EBIT loss reflected our strategic investments in 2020 as we continued to expand our capabilities in autonomous vehicles and mobility businesses. Ford Credit Segment The tables below provide full year 2020 key metrics and the change in full year 2020 EBT compared with full year 2019 by causal factor for the Ford Credit segment. [[GREPCENT_TABLE]] [["","","2019","","2020","","H / (L)"],["GAAP Financial Measures"],["Total Net Receivables ($B)","","$","142","","","$","132","","","(7)","%"],["Loss-to-Receivables (bps) (a)","","52","","","36","","","(16)"],["Auction Values (b)","","$","19,955","","","$","20,600","","","3","%"],["EBT ($M)","","2,998","","","2,608","","","$","(390)"],["ROE (%) (c)","","16","%","","15","%","","(1) ppt"],["Other Balance Sheet Metrics"],["Debt ($B)","","$","140","","","$","138","","","(1)","%"],["Net Liquidity ($B)","","33","","","35","","","6","%"],["Financial Statement Leverage (to 1) (c)","","8.5","","","8.8","","","0.3"]] [[/GREPCENT_TABLE]] __________ (a)U.S. retail financing only. (b)U.S. 36-month off-lease auction values at full year 2021 mix. (c)Prior period amounts have been updated as a result of the adoption of ASU 2019-12, Simplifying the Accounting for Income Taxes. For additional information, see Note 3 of the Notes to the Financial Statements. [[GREPCENT_TABLE]] [["","","2019","","2020","","H / (L)"],["Non-GAAP Financial Measures"],["Managed Receivables ($B) (a)","","$","152","","","$","141","","","(7)","%"],["Managed Leverage (to 1) (b) (c)","","7.8","","","7.5","","","(0.3)"]] [[/GREPCENT_TABLE]] __________ (a)See Non-GAAP Financial Measure Reconciliations section for reconciliation to GAAP. (b)See Liquidity and Capital Resources – Ford Credit Segment section for reconciliation to GAAP. (c)Prior period amounts have been updated as a result of the adoption of ASU 2019-12, Simplifying the Accounting for Income Taxes. For additional information, see Note 3 of the Notes to the Financial Statements. [[GREPCENT_TABLE]] [["Change in EBT by Causal Factor (in millions)"],["2019 Full Year EBT","","$","2,998"],["Volume / Mix","","(173)"],["Financing Margin","","20"],["Credit Loss","","(539)"],["Lease Residual","","304"],["Exchange","","(9)"],["Other","","7"],["2020 Full Year EBT","","$","2,608"]] [[/GREPCENT_TABLE]] Ford Credit’s loss metrics in 2020 reflected healthy and stable consumer credit conditions, and auction values for off-lease vehicles were 3% higher than 2019. Ford Credit’s 2020 EBT decreased $390 million from 2019, primarily driven by an increase to the credit loss reserve due to COVID-19 and unfavorable volume and mix due to lower receivables, partially offset by favorable lease residual performance due to improved auction values. 58 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Corporate Other For full year 2020, Corporate Other had a $726 million loss, compared with a $688 million loss in 2019. The year-over-year decline is more than explained by lower interest income. Interest on Debt Our full year 2020 interest expense on Company excluding Ford Credit debt was $1,649 million, $629 million higher than in 2019, more than explained by higher U.S. debt interest expense. Taxes Our Provision for/(Benefit from) income taxes for full year 2020 was a $160 million provision, resulting in an effective tax rate of negative 14.3%. This includes expenses to establish $1.3 billion of valuation allowances primarily against U.S. tax credits recorded as deferred tax assets. Our full year 2020 adjusted effective tax rate, which excludes special items, was negative 63.2%. 59 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) LIQUIDITY AND CAPITAL RESOURCES At December 31, 2021, total balance sheet cash, cash equivalents, marketable securities, and restricted cash (including Ford Credit) was $49.8 billion. We consider our key balance sheet metrics to be: (i) Company cash, which includes cash equivalents, marketable securities, and restricted cash, excluding Ford Credit’s cash, cash equivalents, marketable securities, and restricted cash; and (ii) Company liquidity, which includes Company cash, less restricted cash, and total available committed credit lines, excluding Ford Credit’s total available committed credit lines. Company excluding Ford Credit [[GREPCENT_TABLE]] [["","","December 31, 2020","","December 31, 2021"],["Balance Sheet ($B)"],["Company Cash","","$","30.8","","","$","36.5"],["Liquidity","","46.9","","","52.4"],["Debt","","(24.0)","","","(20.4)"],["Cash Net of Debt","","6.8","","","16.1"],["Pension Funded Status ($B)"],["Funded Plans","","$","0.3","","","$","5.8"],["Unfunded Plans","","(7.0)","","","(6.1)"],["Total Global Pension","","$","(6.7)","","","$","(0.3)"],["Total Funded Status OPEB","","$","(6.6)","","","$","(6.0)"]] [[/GREPCENT_TABLE]] 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 December 31, 2021, we had Company cash of $36.5 billion, an increase of $5.7 billion compared with December 31, 2020, primarily reflecting the inclusion of the Rivian marketable securities of $10.6 billion. Excluding the Rivian marketable securities, Company cash at December 31, 2021 was $26.0 billion. At December 31, 2021, Company liquidity was $52.4 billion. Company cash and liquidity include marketable securities, such as our Rivian shares. Accordingly, as marketable securities increase or decrease in value, Company cash and liquidity will likewise increase or decrease. In addition, about 92% of Company cash was held by consolidated entities domiciled in the United States at December 31, 2021. 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. 60 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Material Cash Requirements. Our material cash requirements include: (1) capital expenditures (for additional information, see the “Changes in Company Cash” section below) and other payments for engineering, software, product development, and implementation of our plans for battery electric vehicles; (2) the purchase of raw materials and components to support the manufacturing and sale of vehicles (including electric vehicles), parts, and accessories (for additional information, see the Aggregate Contractual Obligations table and accompanying description of our “Purchase obligations” below); (3) marketing incentive payments to dealers; (4) payments for warranty and field service actions (for additional information, see Note 25 of the Notes to the Financial Statements); (5) debt repayments (for additional information, see the Aggregate Contractual Obligations table below and Note 19 of the Notes to the Financial Statements); (6) discretionary and mandatory payments to our global pension plans (for additional information, see the Aggregate Contractual Obligations table below, the “Changes in Company Cash” section below, and Note 17 of the Notes to the Financial Statements); (7) employee wages, benefits, and incentives; (8) operating lease payments (for additional information, see the Aggregate Contractual Obligations table below and Note 18 of the Notes the Financial Statements); (9) cash effects related to the global redesign of our business (for additional information, see the “Changes in Company Cash” section below); and (10) strategic acquisitions and investments to grow our business, including electrification. In addition, subject to approval by our Board of Directors, shareholder distributions in the form of dividend payments and/or a share repurchase program may require the expenditure of a material amount of cash. Moreover, we may be subject to additional material cash requirements that are contingent upon the occurrence of certain events, e.g., legal contingencies, uncertain tax positions, and other matters. We are party to many contractual obligations involving commitments to make payments to third parties, and, as noted above, such commitments require a material amount of cash. Most of these are debt obligations incurred by our Ford Credit segment. In addition, as part of our normal business practices, we enter into contracts with suppliers for purchases of certain raw materials, components, and services to facilitate adequate supply of these materials and services. These arrangements may contain fixed or minimum quantity purchase requirements. “Purchase obligations” in the Aggregate Contractual Obligations table below are defined as off-balance sheet agreements to purchase goods or services that are enforceable and legally binding on the Company and that specify all significant terms; however, as we purchase raw materials and components beyond the minimum amounts required by the “Purchase obligations,” our material cash requirements for these items are higher than what is reflected in the Aggregate Contractual Obligations table. For additional information on the timing of these payments and the impact on our working capital, see the “Changes in Company Cash” section below. 61 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) The table below summarizes our aggregate contractual obligations as of December 31, 2021 (in millions): [[GREPCENT_TABLE]] [["","Payments Due by Period"],["","2022","","2023 - 2024","","2025 - 2026","","Thereafter","","Total"],["Company excluding Ford Credit"],["On-balance sheet"],["Long-term debt (a)","$","2,811","","","$","134","","","$","6,069","","","$","10,862","","","$","19,876"],["Interest payments relating to long-term debt (b)","855","","","1,650","","","1,442","","","8,970","","","12,917"],["Finance leases (c)","94","","","157","","","119","","","289","","","659"],["Operating leases (d)","370","","","504","","","270","","","326","","","1,470"],["Pension funding (e)","171","","","357","","","366","","","\u2014","","","894"],["Off-balance sheet"],["Purchase obligations","1,476","","","1,143","","","604","","","132","","","3,355"],["Total Company excluding Ford Credit","5,777","","","3,945","","","8,870","","","20,579","","","39,171"],["Ford Credit"],["On-balance sheet"],["Long-term debt (a)","31,709","","","39,047","","","22,976","","","8,968","","","102,700"],["Interest payments relating to long-term debt (b)","2,408","","","3,212","","","1,415","","","838","","","7,873"],["Operating leases","15","","","26","","","19","","","9","","","69"],["Off-balance sheet"],["Purchase obligations","31","","","29","","","3","","","\u2014","","","63"],["Total Ford Credit","34,163","","","42,314","","","24,413","","","9,815","","","110,705"],["Total Company","$","39,940","","","$","46,259","","","$","33,283","","","$","30,394","","","$","149,876"]] [[/GREPCENT_TABLE]] __________ (a)Excludes unamortized debt discounts/premiums, unamortized debt issuance costs, and fair value adjustments. (b)Long-term debt may have fixed or variable interest rates. For long-term debt with variable-rate interest, we estimate the future interest payments based on projected market interest rates for various floating-rate benchmarks received from third parties. (c)Includes interest payments of $94 million. (d)Excludes approximately $252 million in future lease payments for various operating leases commencing in a future period. (e)Amounts represent our estimate of contractually obligated contributions to the Ford-Werke plan. See Note 17 of the Notes to the Financial Statements for further information regarding our expected 2021 pension contributions and funded status. We plan to utilize our liquidity (as described above) and our cash flows from business operations to fund our material cash requirements. Changes in Company Cash. In managing our business, we classify changes in Company cash into operating and non-operating items. Operating items include: Company adjusted EBIT excluding Ford Credit EBT, capital spending, depreciation and tooling amortization, changes in working capital, Ford Credit distributions, interest on debt, cash taxes, and all other and timing differences (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. 62 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Our inventory includes vehicles completed but awaiting installation of components affected by the semiconductor supply shortage. As a result of the shortage, our inventory in 2021 was higher than in prior years. 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 an adverse impact on our cash and increase our inventory. 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 December 31, 2021, the outstanding amount of Ford receivables that suppliers elected to sell to the SCF financial institutions was $178 million. The amount settled through the SCF program during 2021 was $1.0 billion. Changes in Company cash excluding Ford Credit are summarized below (in billions): [[GREPCENT_TABLE]] [["","","December 31, 2019","","December 31, 2020","","December 31, 2021"],["Company Excluding Ford Credit"],["Company Adjusted EBIT excluding Ford Credit (a)","","$","3.3","","","$","(0.1)","","","$","5.3"],["Capital spending","","$","(7.6)","","","$","(5.7)","","","$","(6.2)"],["Depreciation and tooling amortization","","5.5","","","5.3","","","5.1"],["Net spending","","$","(2.1)","","","$","(0.4)","","","$","(1.1)"],["Receivables","","$","(0.1)","","","$","0.4","","","$","(0.2)"],["Inventory","","0.1","","","0.3","","","(1.8)"],["Trade Payables","","(0.6)","","","1.3","","","0.3"],["Changes in working capital","","$","(0.6)","","","$","2.0","","","$","(1.7)"],["Ford Credit distributions","","$","2.9","","","$","3.3","","","$","7.5"],["Interest on debt and cash taxes","","(1.5)","","","(1.8)","","","(2.3)"],["All other and timing differences","","0.9","","","(1.7)","","","(3.1)"],["Company adjusted free cash flow (a)","","$","2.9","","","$","1.3","","","$","4.6"],["Global Redesign (including separations)","","$","(0.9)","","","$","(0.5)","","","$","(1.9)"],["Changes in debt","","1.1","","","8.4","","","(3.7)"],["Funded pension contributions","","(0.7)","","","(0.6)","","","(0.8)"],["Shareholder distributions","","(2.6)","","","(0.6)","","","(0.4)"],["All other (b)","","(0.4)","","","0.5","","","7.9"],["Change in cash","","$","(0.8)","","","$","8.5","","","$","5.7"]] [[/GREPCENT_TABLE]] __________ (a)See Non-GAAP Financial Measure Reconciliations section for reconciliation to GAAP. (b)2021 includes our investment in Rivian of $10.6 billion and cash premium paid of $(1.6) billion associated with repurchasing and redeeming $7.6 billion of higher-coupon debt. Note: Numbers may not sum due to rounding. Our full year 2021 Net cash provided by/(used in) operating activities was positive $15.8 billion, a decrease of $8.5 billion from a year ago (see page 78 for additional information). The year-over-year decrease was driven by adverse working capital and a decrease in Ford Credit operating cash flow. Company adjusted free cash flow was $4.6 billion, $3.3 billion higher than a year ago, driven by higher Ford Credit distributions and Company adjusted EBIT. Capital spending was $6.2 billion in 2021, $0.5 billion higher than a year ago, and is expected to be in the range of $7.0 billion to $8.0 billion in 2022. 63 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) The full year 2021 working capital impact was $1.7 billion negative, driven by higher inventory. All other and timing differences were negative $3.1 billion, reflecting assorted differences including differences between accrual-based EBIT and the associated cash flows (e.g., marketing incentive and warranty payments to dealers; pension and OPEB income or expense). We expect the working capital and timing differences to normalize when supply is restored, dealer stocks rebound, and incentives potentially increase. Shareholder distributions were $400 million in 2021, all of which were attributable to the reinstatement of our regular quarterly dividend in the fourth quarter. 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 business and vehicle franchises. Beginning with the actions we took in 2018, we expect our global redesign to have a potential cash effect of about $7 billion. The cash effect related to our global redesign activities was $3.5 billion through December 31, 2021. For additional information on Global Redesign, see the Outlook section on page 73. Available Credit Lines. Total Company committed credit lines, excluding Ford Credit, at December 31, 2021 were $18.3 billion, consisting of $13.5 billion of our corporate credit facility, $2.0 billion of our supplemental revolving credit facility, $1.5 billion of our delayed draw term loan facility, and $1.3 billion of local credit facilities. At December 31, 2021, the utilized portion of the corporate credit facility was $25 million, representing amounts utilized for letters of credit, and no portion of the supplemental revolving credit facility was utilized. The $1.5 billion delayed draw term loan facility was drawn in full in 2019 and remains outstanding. In addition, $847 million of committed Company credit lines, excluding Ford Credit, was utilized under local credit facilities for our affiliates as of December 31, 2021. Lenders under our corporate credit facility have $3.4 billion of commitments maturing on September 29, 2024 and $10.1 billion of commitments maturing on September 29, 2026. Lenders under our supplemental revolving credit facility have $2.0 billion of commitments maturing on September 29, 2024. In September 2021, we amended the corporate and supplemental credit agreements to remove the restrictions on our ability to repurchase shares or pay dividends. In addition, the 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. Further, interest on any U.S. dollar borrowings under both the corporate and supplemental revolving credit facilities will be calculated using daily simple SOFR. Prior to the amendments, such interest was calculated using LIBOR. The corporate credit facility is unsecured and free of material adverse change conditions to borrowing, restrictive financial covenants (for example, interest or fixed-charge coverage ratio, debt-to-equity ratio, and minimum net worth requirements), and credit rating triggers that could limit our ability to obtain funding or trigger early repayment. The corporate credit facility contains a liquidity covenant that requires us to maintain a minimum of $4 billion in aggregate of domestic cash, cash equivalents, and loaned and marketable securities and/or availability under the facility. The terms and conditions of the delayed draw term loan (other than the sustainability-linked provisions and the transition from LIBOR to SOFR) and the supplemental revolving credit facility are consistent with our corporate credit facility. Each of the corporate credit facility, supplemental revolving credit facility, delayed draw term loan, and our Loan Arrangement and Reimbursement Agreement with the U.S. Department of Energy (the “DOE”) include a covenant that requires us to provide guarantees from certain of our subsidiaries in the event that our senior, unsecured, long-term debt does not maintain at least two investment grade ratings from Fitch, Moody’s, and S&P. The following subsidiaries have provided unsecured guarantees to the lenders under the credit facilities and to the DOE: Ford 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 (formerly known as Ford Autonomous Vehicles LLC); Ford Smart Mobility LLC; and Ford Trading Company, LLC. Debt. As shown in Note 19 of the Notes to the Financial Statements, at December 31, 2021, Company debt excluding Ford Credit was $20.4 billion. This balance is $3.6 billion lower than at December 31, 2020, primarily reflecting our repurchase and redemption of $7.6 billion of higher-coupon debt in the fourth quarter of 2021, partially offset by our convertible notes issuance in March 2021 and our green bond issuance in November 2021. 64 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) In March 2021, we issued $2.3 billion aggregate principal amount of unsecured 0% Convertible Senior Notes due 2026. The notes are convertible, at the option of the noteholders, on or after December 15, 2025. Prior to December 15, 2025, the notes are convertible under certain circumstances. Upon conversion, we will pay cash up to the aggregate principal amount of the notes to be converted and cash, shares of our Common Stock, or a combination of cash and shares of our Common Stock, at our election, for the remainder of our obligation in excess, if any, of the aggregate principal amount of the notes being converted. See Note 19 of the Notes to the Financial Statements for additional information regarding the convertible notes, including a description of the circumstances that allow the noteholders to convert prior to December 15, 2025. In 2021, we introduced our sustainable financing framework, which covers a variety of potential unsecured and securitization funding transactions, including ESG bonds issued by both Ford and Ford Credit to finance environmental and social projects. Net proceeds from sustainable financing transactions will be invested and expended in four areas: Clean Transportation, Clean Manufacturing, Making Lives Better, and Community Revitalization. Our $2.5 billion green bond issuance in November 2021 was the first financing transaction under our sustainable financing framework. We are allocating the net proceeds from that issuance to the design, development, and manufacturing of our battery electric vehicles. DOE Advanced Technology Vehicle Manufacturer (“ATVM”) Incentive Program. See Note 19 of the Notes to the Financial Statements for information regarding the ATVM loan. 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 - Ford Credit Segment section of Item 7. Ford Credit is self-funding and its debt, which is used to fund its operations, is separate from our Company debt excluding Ford Credit. 65 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Ford Credit Segment Ford Credit ended 2021 with $32 billion of liquidity. During the year, Ford Credit completed $14 billion of public term funding. Key elements of Ford Credit’s funding strategy include: •Maintain strong liquidity •Prudently access public markets, including retail deposits in Europe •Flexibility to increase ABS mix as needed; preserving assets and committed capacity •Target managed leverage of 8:1 to 9:1 •Maintain self-liquidating balance sheet Ford Credit’s liquidity profile continues to be diverse, robust, and focused on maintaining liquidity levels that meet its business and funding requirements. Ford Credit regularly stress tests its balance sheet and liquidity to ensure that it can continue to meet its financial obligations through economic cycles. Funding Sources. Ford Credit’s funding sources include primarily unsecured debt and securitization transactions (including other structured financings). Ford Credit issues both short-term and long-term debt that is held by both institutional and retail investors, with long-term debt having an original maturity of more than 12 months. Ford Credit sponsors a number of securitization programs that can be structured to provide both short-term and long-term funding through institutional investors and other financial institutions in the United States and international capital markets. Ford Credit obtains unsecured funding from the sale of demand notes under its Ford Interest Advantage program and through the retail deposit programs at FCE Bank plc (“FCE”) and Ford Bank GmbH (“Ford Bank”). At December 31, 2021, the principal amount outstanding of Ford Interest Advantage notes, which may be redeemed at any time at the option of the holders thereof without restriction, and FCE and Ford Bank deposits was $12.9 billion. Ford Credit maintains multiple sources of readily available liquidity to fund the payment of its unsecured short-term debt obligations. The following table shows funding for Ford Credit’s managed receivables (in billions): [[GREPCENT_TABLE]] [["","","December 31, 2019","","December 31, 2020","","December 31, 2021"],["Funding Structure"],["Term unsecured debt","","$","75.5","","","$","73.3","","","$","59.4"],["Term asset-backed securities","","56.6","","","54.6","","","45.4"],["Ford Interest Advantage / Retail Deposits","","8.0","","","9.8","","","12.9"],["Other (a)","","6.9","","","5.7","","","5.7"],["Equity (a)","","16.4","","","15.6","","","12.4"],["Adjustments for cash","","(11.7)","","","(18.5)","","","(12.4)"],["Total Managed Receivables (b)","","$","151.7","","","$","140.5","","","$","123.4"],["Securitized Funding as Percent of Managed Receivables","","37.3","%","","38.8","%","","36.7","%"]] [[/GREPCENT_TABLE]] __________ (a)Prior period amounts have been updated as a result of the adoption of ASU 2019-12, Simplifying the Accounting for Income Taxes. For additional information, see Note 3 of the Notes to the Financial Statements. (b)See Non-GAAP Financial Measure Reconciliations section for reconciliation to GAAP. Managed receivables were $123.4 billion at December 31, 2021 and were funded primarily with term debt and term asset-backed securities. Securitized funding as a percent of managed receivables was 36.7%. 66 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Public Term Funding Plan. The following table shows Ford Credit’s issuances for full year 2019, 2020, and 2021, and planned issuances for full year 2022, excluding short-term funding programs (in billions): [[GREPCENT_TABLE]] [["","","2019 Actual","","2020 Actual","","2021 Actual","","2022 Forecast"],["Unsecured","","$","17","","","$","14","","","$","5","","","$ 8 - 11"],["Securitizations (a)","","14","","","13","","","9","","","6 - 9"],["Total public","","$","31","","","$","27","","","$","14","","","$ 14 - 20"]] [[/GREPCENT_TABLE]] __________ (a)See Definitions and Information Regarding Ford Credit Causal Factors section. Note: Numbers may not sum due to rounding. In 2021, Ford Credit completed $14 billion of public term funding. For 2022, Ford Credit projects full year public term funding in the range of $14 billion to $20 billion. Through February 2, 2022, Ford Credit has completed $3 billion of public term issuances. Liquidity. The following table shows Ford Credit’s liquidity sources and utilization (in billions): [[GREPCENT_TABLE]] [["","","December 31, 2019","","December 31, 2020","","December 31, 2021"],["Liquidity Sources (a)"],["Cash","","$","11.7","","","$","18.5","","","$","12.4"],["Committed asset-backed facilities","","36.6","","","38.1","","","37.1"],["Other unsecured credit facilities","","3.0","","","2.5","","","2.7"],["Ford corporate credit facility allocation","","3.0","","","\u2014","","","\u2014"],["Total liquidity sources","","$","54.3","","","$","59.1","","","$","52.2"],["Utilization of Liquidity (a)"],["Securitization cash and restricted cash","","$","(3.6)","","","$","(3.9)","","","$","(3.9)"],["Committed asset-backed facilities","","(17.3)","","","(16.7)","","","(12.5)"],["Other unsecured credit facilities","","(0.8)","","","(0.5)","","","(1.0)"],["Ford corporate credit facility allocation","","\u2014","","","\u2014","","","\u2014"],["Total utilization of liquidity","","$","(21.7)","","","$","(21.1)","","","$","(17.4)"],["Gross liquidity","","$","32.6","","","$","38.0","","","$","34.8"],["Asset-backed capacity in excess of eligible receivables and other adjustments","","0.4","","","(2.6)","","","(2.8)"],["Net liquidity available for use","","$","33.0","","","$","35.4","","","$","32.0"]] [[/GREPCENT_TABLE]] __________ (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 December 31, 2021, Ford Credit’s net liquidity available for use was $32 billion, $3.4 billion lower than year-end 2020. Ford Credit’s sources of liquidity include cash, committed asset-backed facilities, and unsecured credit facilities. At December 31, 2021, Ford Credit’s liquidity sources totaled $52.2 billion, down $6.9 billion from year-end 2020. Material Cash Requirements. Ford Credit’s material cash requirements include: (1) the purchase of retail financing and operating lease contracts from dealers and providing wholesale financing for dealers to finance new and used vehicles; and (2) debt repayments (for additional information on debt, see the “Balance Sheet Liquidity Profile” section below, the “Material Cash Requirements” section in “Liquidity and Capital Resources - Company excluding Ford Credit” above, and Note 19 of the Notes to the Financial Statements). 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. 67 Item 7. 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 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): [[GREPCENT_TABLE]] [["","","2022","","2023","","2024","","2025 and Beyond"],["Balance Sheet Liquidity Profile"],["Assets (a)","","$","64","","","$","92","","","$","113","","","$","135"],["Total debt (b)","","53","","","76","","","92","","","118"],["Memo: Unsecured long-term debt maturities","","14","","","11","","","11","","","22"]] [[/GREPCENT_TABLE]] __________ (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), 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 2022. The retail securitization transactions under certain committed asset-backed facilities are assumed to amortize immediately rather than amortizing after the expiration of the commitment period. As of December 31, 2021, Ford Credit had $135 billion of assets, $74 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 (such as from the impact of COVID-19) that could impact both unsecured debt and asset-backed securities and the effects of regulatory changes on the financial markets. Despite Ford Credit’s diverse sources of funding and liquidity, its ability to maintain liquidity may be affected by, among others, the following factors (not necessarily listed in order of importance or probability of occurrence): •Prolonged disruption of the debt and securitization markets; •Global capital market volatility; •Credit ratings assigned to Ford and Ford Credit; •Market capacity for Ford- and Ford Credit-sponsored investments; •General demand for the type of securities Ford Credit offers; •Ford Credit’s ability to continue funding through asset-backed financing structures; •Performance of the underlying assets within Ford Credit’s asset-backed financing structures; •Inability to obtain hedging instruments; •Accounting and regulatory changes (including LIBOR); and •Ford Credit’s ability to maintain credit facilities and committed asset-backed facilities. Stress Tests. Ford Credit regularly conducts stress testing on its funding and liquidity sources to ensure it can continue to meet financial obligations and support the sale of Ford and Lincoln vehicles during firm-specific and market-wide stress events. Stress tests are intended to quantify the potential impact of various adverse scenarios on the balance sheet and liquidity. These scenarios include assumptions on access to unsecured and secured debt markets, runoff of short-term funding, and ability to renew expiring liquidity commitments and are measured over various time periods, including 30 days, 90 days, and longer term. Ford Credit’s stress test does not assume any additional funding, liquidity, or capital support from Ford. Ford Credit routinely develops contingency funding plans as part of its liquidity stress testing. 68 Item 7. 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 and managed leverage (in billions): [[GREPCENT_TABLE]] [["","","December 31, 2019","","December 31, 2020","","December 31, 2021"],["Leverage Calculation"],["Debt","","$","140.0","","","$","137.7","","","$","117.7"],["Adjustments for cash","","(11.7)","","","(18.5)","","","(12.4)"],["Adjustments for derivative accounting (a)","","(0.5)","","","(1.5)","","","(0.4)"],["Total adjusted debt","","$","127.8","","","$","117.7","","","$","104.9"],["Equity (b)","","$","16.4","","","$","15.6","","","$","12.4"],["Adjustments for derivative accounting (a)","","\u2014","","","0.1","","","0.1"],["Total adjusted equity","","$","16.4","","","$","15.7","","","$","12.5"],["Financial statement leverage (to 1) (GAAP) (c)","","8.5","","","8.8","","","9.5"],["Managed leverage (to 1) (Non-GAAP) (c)","","7.8","","","7.5","","","8.4"]] [[/GREPCENT_TABLE]] __________ (a)Related primarily to market valuation adjustments to derivatives due to movements in interest rates. Adjustments to debt are related to hedging activity and adjustments to equity are related to retained earnings. (b)Total shareholder’s interest reported on Ford Credit’s balance sheets. (c)Prior period amounts have been updated as a result of the adoption of ASU 2019-12, Simplifying the Accounting for Income Taxes. For additional information, see Note 3 of the Notes to the Financial Statements. Ford Credit plans its managed leverage by considering market conditions and the risk characteristics of its business. At December 31, 2020 and 2021, Ford Credit’s financial statement leverage was 8.8:1 and 9.5:1, respectively, and managed leverage was 7.5:1 and 8.4:1, respectively. Ford Credit targets managed leverage in the range of 8:1 to 9:1. 69 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Total Company Pension Plan Contributions and Strategy. Our strategy is to reduce the risk of our funded defined benefit pension plans, including minimizing the volatility of the value of our pension assets relative to pension liabilities and the need for unplanned use of capital resources to fund the plans. The strategy reduces balance sheet, cash flow, and income exposures and, in turn, reduces our risk profile. Going forward, we expect to: •Limit our pension contributions to offset ongoing service cost or meet regulatory requirements, if any; •Minimize the volatility of the value of our pension assets relative to pension obligations and ensure assets are sufficient to pay plan benefits; and •Evaluate strategic actions to reduce pension liabilities, such as plan design changes, curtailments, or settlements [[GREPCENT_TABLE]] [["","","2020","","2021","","2021 H / (L) 2020"],["Pension Funded Status ($B)"],["U.S. Plans","","$","(0.7)","","","$","1.0","","","$","1.7"],["Non-U.S. Plans","","(6.0)","","","(1.3)","","","4.7"],["Total Global Pension","","$","(6.7)","","","$","(0.3)","","","$","6.4"],["Year-End Discount Rate (Weighted Average)"],["U.S. Plans","","2.56","%","","2.91","%","","0.35 ppts"],["Non-U.S. Plans","","1.23","%","","1.75","%","","0.52 ppts"],["Actual Asset Returns"],["U.S. Plans","","16.44","%","","2.82","%","","(13.62) ppts"],["Non-U.S. Plans","","10.96","%","","2.69","%","","(8.27) ppts"],["Pension - Funded Plans Only ($B)"],["Funded Status","","$","0.3","","","$","5.8","","","$","5.5"],["Contributions for Funded Plans","","0.6","","","0.8","","","0.2"]] [[/GREPCENT_TABLE]] Worldwide, our defined benefit pension plans were underfunded by $0.3 billion at December 31, 2021, an improvement of $6.4 billion from December 31, 2020, primarily reflecting the impact of higher discount rates and continued strong asset performance relative to changes in discount rates. Of the $0.3 billion underfunded status at year-end 2021, our funded plans were $5.8 billion overfunded and our unfunded plans were $6.1 billion underfunded. These unfunded plans are “pay as you go” with benefits paid from Company cash and primarily include certain plans in Germany and U.S. defined benefit plans for senior management. The fixed income mix was 81% in our U.S. plans and 83% in our non-U.S. plans at year-end 2021. In 2021, we contributed $773 million to our global funded pension plans, an increase of $203 million compared with 2020. During 2022, we expect to contribute between $600 million and $800 million of cash to our global funded pension plans. We also expect to make about $390 million of benefit payments to participants in unfunded plans. Based on current assumptions and regulations, we do not expect to have a legal requirement to fund our major U.S. plans in 2022. Our global funded plans remain fully funded in aggregate, demonstrating the effectiveness of our de-risking strategy and our commitment to a strong balance sheet. For a detailed discussion of our pension plans, refer to the “Critical Accounting Estimates - Pensions and Other Postretirement Employee Benefits” section of Item 7 of Part II of our 2021 Form 10-K Report and Note 17 of the Notes to the Financial Statements. 70 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Return on Invested Capital (“ROIC”). We analyze total Company performance using an adjusted ROIC financial metric based on an after-tax rolling four quarter average. The following table contains the calculation of our ROIC for the years shown (in billions): [[GREPCENT_TABLE]] [["","","December 31, 2019","","December 31, 2020","","December 31, 2021"],["Adjusted Net Operating Profit/(Loss) After Cash Tax"],["Net income/(loss) attributable to Ford","","$","\u2014","","","$","(1.3)","","","$","17.9"],["Add: Noncontrolling interest","","\u2014","","","\u2014","","","\u2014"],["Less: Income tax","","0.7","","","(0.2)","","","0.1"],["Add: Cash tax","","(0.6)","","","(0.4)","","","(0.6)"],["Less: Interest on debt","","(1.0)","","","(1.6)","","","(1.8)"],["Less: Total pension / OPEB income / (cost)","","(2.6)","","","(1.0)","","","4.9"],["Add: Pension / OPEB service costs","","(1.0)","","","(1.1)","","","(1.1)"],["Net operating profit/(loss) after cash tax","","$","1.4","","","$","0.1","","","$","13.0"],["Less: Special items (excl. pension / OPEB) pre-tax","","(3.3)","","","(0.4)","","","5.9"],["Adjusted net operating profit/(loss) after cash tax","","$","4.7","","","$","0.5","","","$","7.1"],["Invested Capital"],["Equity","","$","33.2","","","$","30.8","","","$","48.6"],["Redeemable noncontrolling interest","","\u2014","","","\u2014","","","\u2014"],["Debt (excl. Ford Credit)","","15.3","","","24.0","","","20.4"],["Net pension and OPEB liability","","12.9","","","13.3","","","6.4"],["Invested capital (end of period)","","$","61.4","","","$","68.1","","","$","75.4"],["Average invested capital","","$","61.7","","","$","70.7","","","$","72.1"],["ROIC (a)","","2.2","%","","0.1","%","","18.0","%"],["Adjusted ROIC (Non-GAAP) (b)","","7.6","%","","0.7","%","","9.8","%"]] [[/GREPCENT_TABLE]] __________ (a)Calculated as the sum of net operating profit 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 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. 71 Item 7. 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 September 30, 2021: •On November 18, 2021, S&P affirmed the credit ratings for Ford and Ford Credit at BB+ and revised the outlook for each to positive, from negative. The following table summarizes certain of the credit ratings and outlook presently assigned by these four NRSROs: [[GREPCENT_TABLE]] [["","NRSRO RATINGS"],["","Ford","","Ford Credit","","NRSROs"],["","Issuer Default / Corporate / Issuer Rating","","Long-Term Senior Unsecured","","Outlook / Trend","","Long-Term Senior Unsecured","","Short-Term Unsecured","","Outlook / Trend","","Minimum Long-Term Investment Grade Rating"],["DBRS","BB (high)","","BB (high)","","Stable","","BB (high)","","R-4","","Stable","","BBB (low)"],["Fitch","BB+","","BB+","","Stable","","BB+","","B","","Stable","","BBB-"],["Moody\u2019s","N/A","","Ba2","","Stable","","Ba2","","NP","","Stable","","Baa3"],["S&P","BB+","","BB+","","Positive","","BB+","","B","","Positive","","BBB-"]] [[/GREPCENT_TABLE]] 72 Item 7. 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 February 3, 2022.  The guidance is based on our expectations as of February 3, 2022, and assumes no material change in the current economic environment, including foreign exchange and tariffs. Our actual results could differ materially from our guidance due to risks, uncertainties, and other factors, including those set forth in “Risk Factors” in Item 1A of Part I. [[GREPCENT_TABLE]] [["","","2022 Guidance"],["Total Company"],["Adjusted EBIT (a)","","$11.5 - $12.5 billion"],["Adjusted Free Cash Flow (a)","","$5.5 - $6.5 billion"],["Capital spending","","$7.0 - $8.0 billion"],["Pension contributions","","$0.6 - $0.8 billion"],["Global Redesign EBIT charges","","$1.8 - $2.4 billion"],["Global Redesign cash effects","","$2.0 - $2.5 billion"],["Ford Credit"],["EBT","","Strong but lower than 2021"]] [[/GREPCENT_TABLE]] __________ (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. Our outlook for 2022 assumes the following operating environment: •Supply constraints will remain fluid reflecting a variety of factors, including semiconductor availability and COVID-19 impacts •Wholesales are expected to be up about 10% - 15% year over year •Pricing environment is expected to remain strong, although the interplay between volume and pricing will be dynamic •Inflationary pressures will impact a broad range of costs •Commodity costs will be $1.5 - $2.0 billion higher year over year 73 Item 7. 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” above. 74 Item 7. 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: [[GREPCENT_TABLE]] [["Pre-Tax Special Item","","Significance Guideline"],["\u2218 Pension and OPEB remeasurement gains and losses","","\u2218 No minimum"],["\u2218 Gains and losses on investments in equity securities","","\u2218 No minimum"],["\u2218 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","","\u2218 Generally $100 million or more"],["\u2218 Other items that we do not necessarily consider to be indicative of earnings from ongoing operating activities","","\u2218 $500 million or more for individual field service actions; generally $100 million or more for other items"]] [[/GREPCENT_TABLE]] 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 the underlying run rate of our business. When we provide guidance for adjusted earnings/(loss) per share, we do not provide guidance on an earnings/(loss) per share basis because the GAAP measure will include potentially significant special items that have not yet occurred and are difficult to predict with reasonable certainty prior to year-end, including pension and OPEB remeasurement gains and losses. •Adjusted Effective Tax Rate (Most Comparable GAAP Measure: Effective Tax Rate) – Measure of Company’s tax rate excluding pre-tax special items (described above) and tax special items. The measure provides an ongoing effective rate which investors find useful for historical comparisons and for forecasting. When we provide guidance for adjusted effective tax rate, we do not provide guidance on an effective tax rate basis because the GAAP measure will include potentially significant special items that have not yet occurred and are difficult to predict with reasonable certainty prior to year-end, including pension and OPEB remeasurement gains and losses. 75 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) •Company Adjusted Free Cash Flow (Most Comparable GAAP Measure: Net Cash Provided By/(Used In) Operating Activities) – Measure of Company’s operating cash flow excluding Ford Credit’s operating cash flows. The measure contains elements management considers operating activities, including Automotive and Mobility capital spending, Ford Credit distributions to its parent, and settlement of derivatives. The measure excludes cash outflows for funded pension contributions, global redesign (including separations), and other items that are considered operating cash flows under U.S. GAAP. This measure is useful to management and investors because it is consistent with management’s assessment of the Company’s operating cash flow performance. When we provide guidance for Company adjusted free cash flow, we do not provide guidance for net cash provided by/(used in) operating activities because the GAAP measure will include items that are difficult to quantify or predict with reasonable certainty, including cash flows related to the Company's exposures to foreign currency exchange rates and certain commodity prices (separate from any related hedges), Ford Credit's operating cash flows, and cash flows related to special items, including separation payments, each of which individually or in the aggregate could have a significant impact to our net cash provided by/(used in) our operating activities. •Adjusted ROIC – Calculated as the sum of adjusted net operating profit 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. •Ford Credit Managed Receivables (Most Comparable GAAP Measure: Net Finance Receivables plus Net Investment in Operating Leases) – Measure of Ford Credit’s total net receivables, excluding unearned interest supplements and residual support, allowance for credit losses, and other (primarily accumulated supplemental depreciation). The measure is useful to management and investors as it closely approximates the customer’s outstanding balance on the receivables, which is the basis for earning revenue. •Ford Credit Managed Leverage (Most Comparable GAAP Measure: Financial Statement Leverage) – Ford Credit’s debt-to-equity ratio adjusted (i) to exclude cash, cash equivalents, and marketable securities (other than amounts related to insurance activities), and (ii) for derivative accounting. The measure is useful to investors because it reflects the way Ford Credit manages its business. Cash, cash equivalents, and marketable securities are deducted because they generally correspond to excess debt beyond the amount required to support operations and on-balance sheet securitization transactions. Derivative accounting adjustments are made to asset, debt, and equity positions to reflect the impact of interest rate instruments used with Ford Credit’s term-debt issuances and securitization transactions. Ford Credit generally repays its debt obligations as they mature, so the interim effects of changes in market interest rates are excluded in the calculation of managed leverage. 76 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) NON-GAAP FINANCIAL MEASURE RECONCILIATIONS The following tables show our Non-GAAP financial measure reconciliations. The GAAP reconciliation for Ford Credit Managed Leverage can be found in the Ford Credit Segment section of “Liquidity and Capital Resources.” Net Income/(Loss) Reconciliation to Adjusted EBIT ($M) [[GREPCENT_TABLE]] [["","","2019","","2020","","2021"],["Net income/(loss) attributable to Ford (GAAP)","","$","47","","","$","(1,279)","","","$","17,937"],["Income/(Loss) attributable to noncontrolling interests","","37","","","3","","","(27)"],["Net income/(loss)","","$","84","","","$","(1,276)","","","$","17,910"],["Less: (Provision for)/Benefit from income taxes (a)","","724","","","(160)","","","130"],["Income/(Loss) before income taxes","","$","(640)","","","$","(1,116)","","","$","17,780"],["Less: Special items pre-tax","","(5,877)","","","(2,003)","","","9,583"],["Income/(Loss) before special items pre-tax","","$","5,237","","","$","887","","","$","8,197"],["Less: Interest on debt","","(1,020)","","","(1,649)","","","(1,803)"],["Adjusted EBIT (Non-GAAP)","","$","6,257","","","$","2,536","","","$","10,000"],["Memo:"],["Revenue ($B)","","$","155.9","","","$","127.1","","","$","136.3"],["Net income/(loss) margin (%)","","\u2014","%","","(1.0)","%","","13.2","%"],["Adjusted EBIT margin (%)","","4.0","%","","2.0","%","","7.3","%"]] [[/GREPCENT_TABLE]] _________ (a)2021 includes the recognition of net deferred tax assets and changes in our valuation allowances, offset by tax consequences of unrealized gains on marketable securities. Earnings/(Loss) per Share Reconciliation to Adjusted Earnings/(Loss) per Share [[GREPCENT_TABLE]] [["","","2019","","2020","","2021"],["Diluted After-Tax Results ($M)"],["Diluted after-tax results (GAAP)","","$","47","","","$","(1,279)","","","$","17,937"],["Less: Impact of pre-tax and tax special items","","(4,579)","","","(2,724)","","","11,507"],["Less: Noncontrolling interests impact of Russia restructuring","","(35)","","","\u2014","","","\u2014"],["Adjusted net income/(loss) - Diluted (Non-GAAP)","","$","4,661","","","$","1,445","","","$","6,430"],["Basic and Diluted Shares (M)"],["Basic shares (average shares outstanding)","","3,972","","","3,973","","","3,991"],["Net dilutive options, unvested restricted stock units, unvested restricted stock shares, and convertible debt","","32","","","29","","","43"],["Diluted shares","","4,004","","","4,002","","","4,034"],["Earnings/(Loss) per share - diluted (GAAP) (a)","","$","0.01","","","$","(0.32)","","","$","4.45"],["Less: Net impact of adjustments","","(1.15)","","","(0.68)","","","2.86"],["Adjusted earnings per share - diluted (Non-GAAP)","","$","1.16","","","$","0.36","","","$","1.59"]] [[/GREPCENT_TABLE]] _________ (a)The 2020 calculation excludes the 29 million shares of net dilutive options, unvested restricted stock units, and restricted stock due to their antidilutive effect. 77 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Effective Tax Rate Reconciliation to Adjusted Effective Tax Rate [[GREPCENT_TABLE]] [["","","2019","","2020","","2021"],["Pre-Tax Results ($M)"],["Income/(Loss) before income taxes (GAAP)","","$","(640)","","","$","(1,116)","","","$","17,780"],["Less: Impact of special items","","(5,877)","","","(2,003)","","","9,583"],["Adjusted earnings before taxes (Non-GAAP)","","$","5,237","","","$","887","","","$","8,197"],["Taxes ($M)"],["(Provision for)/Benefit from income taxes (GAAP)","","$","724","","","$","(160)","","","$","130"],["Less: Impact of special items (a)","","1,298","","","(721)","","","1,924"],["Adjusted (provision for)/benefit from income taxes (Non-GAAP)","","$","(574)","","","$","561","","","$","(1,794)"],["Tax Rate (%)"],["Effective tax rate (GAAP)","","113.1","%","","(14.3)","%","","(0.7)","%"],["Adjusted effective tax rate (Non-GAAP)","","11.0","%","","(63.2)","%","","21.9","%"]] [[/GREPCENT_TABLE]] _________ (a)2020 includes the establishment of valuation allowances against primarily U.S. tax credits. 2021 includes the recognition of net deferred tax assets and changes in our valuation allowances, offset by tax consequences of unrealized gains on marketable securities. Net Cash Provided by/(Used in) Operating Activities Reconciliation to Company Adjusted Free Cash Flow ($M) [[GREPCENT_TABLE]] [["","","2019","","2020","","2021"],["Net cash provided by/(used in) operating activities (GAAP)","","$","17,639","","","$","24,269","","","$","15,787"],["Less: Items not included in Company Adjusted Free Cash Flows"],["Ford Credit operating cash flows (a)","","$","11,531","","","$","21,592","","","$","15,293"],["Funded pension contributions","","(730)","","","(570)","","","(773)"],["Global Redesign (including separations)","","(911)","","","(503)","","","(1,935)"],["Ford Credit tax payments/(refunds) under tax sharing agreement (a)","","391","","","477","","","15"],["Other, net","","(77)","","","(583)","","","(341)"],["Add: Items included in Company Adjusted Free Cash Flows"],["Company excluding Ford Credit capital spending","","$","(7,580)","","","$","(5,702)","","","$","(6,183)"],["Ford Credit distributions (a)","","2,900","","","3,290","","","7,500"],["Settlement of derivatives","","107","","","(171)","","","(255)"],["Company adjusted free cash flow (Non-GAAP) (a)","","$","2,862","","","$","1,273","","","$","4,590"]] [[/GREPCENT_TABLE]] __________ (a)Prior period amounts have been updated as a result of the adoption of ASU 2019-12, Simplifying the Accounting for Income Taxes. For additional information, see Note 3 of the Notes to the Financial Statements. 78 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Ford Credit Net Receivables Reconciliation to Managed Receivables ($B) [[GREPCENT_TABLE]] [["","","2019","","2020","","2021"],["Ford Credit finance receivables, net (GAAP) (a)","","$","107.4","","","$","97.7","","","$","83.8"],["Net investments in operating leases (GAAP) (a)","","27.6","","","26.6","","","25.2"],["Consolidating adjustments (b)","","7.0","","","7.4","","","8.5"],["Total net receivables","","$","142.0","","","$","131.7","","","$","117.5"],["Held-for-sale receivables (GAAP)","","$","1.5","","","$","\u2014","","","$","\u2014"],["Ford Credit unearned interest supplements and residual support","","6.7","","","6.5","","","4.6"],["Allowance for credit losses","","0.5","","","1.3","","","0.9"],["Other, primarily accumulated supplemental depreciation","","1.0","","","1.0","","","0.4"],["Total managed receivables (Non-GAAP)","","$","151.7","","","$","140.5","","","$","123.4"]] [[/GREPCENT_TABLE]] __________ (a)Includes finance receivables (retail and wholesale) sold for legal purposes and net investment in operating leases included in securitization transactions that do not satisfy the requirements for accounting sale treatment. These receivables and operating leases are reported on Ford Credit’s balance sheets and are available only for payment of the debt issued by, and other obligations of, the securitization entities that are parties to those securitization transactions; they are not available to pay the other obligations of Ford Credit or the claims of Ford Credit’s other creditors. (b)Primarily includes Automotive segment receivables purchased by Ford Credit which are classified to Trade and other receivables on our consolidated balance sheets. Also includes eliminations of intersegment transactions. 79 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) 2021 SUPPLEMENTAL INFORMATION The tables below provide supplemental consolidating financial information and other financial information. 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): [[GREPCENT_TABLE]] [["","","For the Year Ended December 31, 2021"],["Cash flows from operating activities","","Company excluding Ford Credit","","Ford Credit","","Eliminations","","Consolidated"],["Net income/(loss)","","$","13,403","","","$","4,507","","","$","\u2014","","","$","17,910"],["Depreciation and tooling amortization","","5,652","","","1,666","","","\u2014","","","7,318"],["Other amortization","","141","","","(1,499)","","","\u2014","","","(1,358)"],["Brazil manufacturing exit non-cash charges (excluding accelerated depreciation of $322)","48","","","\u2014","","","\u2014","","","48"],["(Gains)/Losses on extinguishment of debt","","1,692","","","10","","","\u2014","","","1,702"],["Provision for/(Benefit from) credit and insurance losses","","3","","","(301)","","","\u2014","","","(298)"],["Pension and OPEB expense/(income)","","(4,865)","","","\u2014","","","\u2014","","","(4,865)"],["Equity investment dividends received in excess of (earnings)/losses","120","","","(4)","","","\u2014","","","116"],["Foreign currency adjustments","","406","","","126","","","\u2014","","","532"],["Net realized and unrealized (gains)/losses on cash equivalents, marketable securities, and other investments","(9,174)","","","15","","","\u2014","","","(9,159)"],["Net (gain)/loss on changes in investments in affiliates","","(367)","","","(1)","","","\u2014","","","(368)"],["Stock compensation","","296","","","9","","","\u2014","","","305"],["Provision for deferred income taxes","","(710)","","","147","","","\u2014","","","(563)"],["Decrease/(Increase) in finance receivables (wholesale and other)","\u2014","","","7,656","","","\u2014","","","7,656"],["Decrease/(Increase) in intersegment receivables/payables","","(662)","","","662","","","\u2014","","","\u2014"],["Decrease/(Increase) in accounts receivable and other assets","","(1,378)","","","237","","","\u2014","","","(1,141)"],["Decrease/(Increase) in inventory","","(1,778)","","","\u2014","","","\u2014","","","(1,778)"],["Increase/(Decrease) in accounts payable and accrued and other liabilities","187","","","(223)","","","\u2014","","","(36)"],["Other","","(180)","","","(54)","","","\u2014","","","(234)"],["Interest supplements and residual value support to Ford Credit","(2,340)","","","2,340","","","\u2014","","","\u2014"],["Net cash provided by/(used in) operating activities","","$","494","","","$","15,293","","","$","\u2014","","","$","15,787"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["Cash flows from investing activities"],["Capital spending","","$","(6,183)","","","$","(44)","","","$","\u2014","","","$","(6,227)"],["Acquisitions of finance receivables and operating leases","","\u2014","","","(48,379)","","","\u2014","","","(48,379)"],["Collections of finance receivables and operating leases","","\u2014","","","52,094","","","\u2014","","","52,094"],["Proceeds from sale of business","","145","","","\u2014","","","\u2014","","","145"],["Purchases of marketable securities and other investments","","(19,477)","","","(8,014)","","","\u2014","","","(27,491)"],["Sales and maturities of marketable securities and other investments","","22,553","","","10,676","","","\u2014","","","33,229"],["Settlements of derivatives","","(255)","","","(17)","","","\u2014","","","(272)"],["Other","","(354)","","","\u2014","","","\u2014","","","(354)"],["Investing activity (to)/from other segments","","7,478","","","(146)","","","(7,332)","","","\u2014"],["Net cash provided by/(used in) investing activities","","$","3,907","","","$","6,170","","","$","(7,332)","","","$","2,745"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["Cash flows from financing activities"],["Cash payments for dividends and dividend equivalents","","$","(403)","","","$","\u2014","","","$","\u2014","","","$","(403)"],["Purchases of common stock","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Net changes in short-term debt","","(187)","","","3,460","","","\u2014","","","3,273"],["Proceeds from issuance of long-term debt","","4,800","","","23,101","","","\u2014","","","27,901"],["Payments on long-term debt","","(9,904)","","","(44,260)","","","\u2014","","","(54,164)"],["Other","","(42)","","","(63)","","","\u2014","","","(105)"],["Financing activity to/(from) other segments","","146","","","(7,478)","","","7,332","","","\u2014"],["Net cash provided by/(used in) financing activities","","$","(5,590)","","","$","(25,240)","","","$","7,332","","","$","(23,498)"],["Effect of exchange rate changes on cash, cash equivalents, and restricted cash","$","(104)","","","$","(128)","","","$","\u2014","","","$","(232)"]] [[/GREPCENT_TABLE]] 80 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Selected Income Statement Information. The following table provides supplemental income statement information (in millions): [[GREPCENT_TABLE]] [["","For the Year Ended December 31, 2021"],["","Company excluding Ford Credit","","Ford Credit","","Consolidated"],["Revenues","$","126,268","","","$","10,073","","","$","136,341"],["Total costs and expenses","126,566","","","5,252","","","131,818"],["Operating income/(loss)","(298)","","","4,821","","","4,523"],["Interest expense on Company debt excluding Ford Credit","1,803","","","\u2014","","","1,803"],["Other income/(loss), net","14,868","","","(135)","","","14,733"],["Equity in net income/(loss) of affiliated companies","296","","","31","","","327"],["Income/(Loss) before income taxes","13,063","","","4,717","","","17,780"],["Provision for/(Benefit from) income taxes","(340)","","","210","","","(130)"],["Net income/(loss)","13,403","","","4,507","","","17,910"],["Less: Income/(loss) attributable to noncontrolling interests","(27)","","","\u2014","","","(27)"],["Net income/(loss) attributable to Ford Motor Company","$","13,430","","","$","4,507","","","$","17,937"]] [[/GREPCENT_TABLE]] 81 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Selected Balance Sheet Information. The following tables provide supplemental balance sheet information (in millions): [[GREPCENT_TABLE]] [["","","December 31, 2021"],["Assets","","Company excluding Ford Credit","","Ford Credit","","Eliminations","","Consolidated"],["Cash and cash equivalents","","$","9,577","","","$","10,963","","","$","\u2014","","","$","20,540"],["Marketable securities","","26,880","","","2,173","","","\u2014","","","29,053"],["Ford Credit finance receivables, net","","\u2014","","","32,543","","","\u2014","","","32,543"],["Trade and other receivables, net","","3,564","","","7,806","","","\u2014","","","11,370"],["Inventories","","12,065","","","\u2014","","","\u2014","","","12,065"],["Other assets","","2,473","","","952","","","\u2014","","","3,425"],["Receivable from other segments","","55","","","1,333","","","(1,388)","","","\u2014"],["Total current assets","","54,614","","","55,770","","","(1,388)","","","108,996"],["Ford Credit finance receivables, net","","\u2014","","","51,256","","","\u2014","","","51,256"],["Net investment in operating leases","","1,194","","","25,167","","","\u2014","","","26,361"],["Net property","","36,915","","","224","","","\u2014","","","37,139"],["Equity in net assets of affiliated companies","","4,422","","","123","","","\u2014","","","4,545"],["Deferred income taxes","","13,606","","","190","","","\u2014","","","13,796"],["Other assets","","13,273","","","1,669","","","\u2014","","","14,942"],["Receivable from other segments","","\u2014","","","29","","","(29)","","","\u2014"],["Total assets","","$","124,024","","","$","134,428","","","$","(1,417)","","","$","257,035"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["Liabilities"],["Payables","","$","21,315","","","$","1,034","","","$","\u2014","","","$","22,349"],["Other liabilities and deferred revenue","","17,394","","","1,292","","","\u2014","","","18,686"],["Company excluding Ford Credit debt payable within one year","","3,175","","","\u2014","","","\u2014","","","3,175"],["Ford Credit debt payable within one year","","\u2014","","","46,517","","","\u2014","","","46,517"],["Payable to other segments","","1,388","","","\u2014","","","(1,388)","","","\u2014"],["Total current liabilities","","43,272","","","48,843","","","(1,388)","","","90,727"],["Other liabilities and deferred revenue","","26,393","","","1,312","","","\u2014","","","27,705"],["Company excluding Ford Credit long-term debt","","17,200","","","\u2014","","","\u2014","","","17,200"],["Ford Credit long-term debt","","\u2014","","","71,200","","","\u2014","","","71,200"],["Deferred income taxes","","905","","","676","","","\u2014","","","1,581"],["Payable to other segments","","29","","","\u2014","","","(29)","","","\u2014"],["Total liabilities","","$","87,799","","","$","122,031","","","$","(1,417)","","","$","208,413"]] [[/GREPCENT_TABLE]] 82 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Selected Other Information. Equity. At December 31, 2020, total equity attributable to Ford was $30.7 billion, a decrease of $2.5 billion compared with December 31, 2019. At December 31, 2021, total equity attributable to Ford was $48.5 billion, an increase of $17.8 billion compared with December 31, 2020. The detail for the changes is shown below (in billions): [[GREPCENT_TABLE]] [["","2020 vs 2019 Increase/ (Decrease)","","2021 vs 2020 Increase/ (Decrease)"],["Net income/(loss)","$","(1.3)","","","$","17.9"],["Shareholder distributions","(0.6)","","","(0.4)"],["Other comprehensive income/(loss)","(0.5)","","","\u2014"],["Adoption of accounting standards","(0.2)","","","\u2014"],["Common stock issued (including share-based compensation impacts)","0.1","","","0.3"],["Total","$","(2.5)","","","$","17.8"]] [[/GREPCENT_TABLE]] 83 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) CRITICAL ACCOUNTING ESTIMATES We consider an accounting estimate to be critical if: (1) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (2) changes in the estimate that are reasonably likely to occur from period to period, or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of our Board of Directors. In addition, there are other items within our financial statements that require estimation, but are not deemed critical as defined above. Changes in estimates used in these and other items could have a material impact on our financial statements. Warranties and Field Service Actions Nature of Estimates Required. We provide base warranties on the products we sell for specific periods of time and/or mileage, which vary depending upon the type of product and the geographic location of its sale. Separately, we also periodically perform field service actions related to safety recalls, emission recalls, and other product campaigns. Pursuant to these warranties and field service actions, we will repair, replace, or adjust parts on a vehicle that are defective in factory-supplied materials or workmanship.  We accrue the estimated cost of both base warranty coverages and field service actions at the time of sale. In addition, from time to time, we issue extended warranties at our expense, the estimated cost of which is accrued at the time of issuance. Assumptions and Approach Used. We establish our estimate of base warranty obligations using a patterned estimation model. We use historical information regarding the nature, frequency, and average cost of claims for each vehicle line by model year. We reevaluate our estimate of base warranty obligations on a regular basis. Experience has shown that initial data for any given model year may be volatile; therefore, our process relies on long-term historical averages until sufficient data are available. With actual experience, we use the data to update the historical averages. We then compare the resulting accruals with present spending rates to assess whether the balances are adequate to meet expected future obligations. Based on this data, we update our estimates as necessary. Field service actions may occur in periods beyond the base warranty coverage period. We establish our estimates of field service action obligations using a patterned estimation model. We use historical information regarding the nature, frequency, severity, and average cost of claims for each model year. We assess our obligation for field service actions on a regular basis using actual claims experience and update our estimates as necessary. Due to the uncertainty and potential volatility of the factors used in establishing our estimates, changes in our assumptions could materially affect our financial condition and results of operations. See Note 25 of the Notes to the Financial Statements for information regarding warranty and field service action costs. Pensions and Other Postretirement Employee Benefits Nature of Estimates Required. The estimation of our defined benefit pension and OPEB plan obligations and expenses requires that we make use of estimates of the present value of the projected future payments to all participants, taking into consideration the likelihood of potential future events, such as demographic experience and health care cost increases. Plan obligations and expenses are based on existing retirement plan provisions. No assumption is made regarding any potential future changes to benefit provisions beyond those to which we are presently committed (e.g., in existing labor contracts). 84 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Assumptions and Approach Used. The assumptions used in developing the required estimates include the following key factors: •Discount rates. Our discount rate assumptions are based primarily on the results of cash flow matching analyses, which match the future cash outflows for each major plan to a yield curve based on high-quality bonds specific to the country of the plan. Benefit payments are discounted at the rates on the curve to determine the year-end obligations. •Expected long-term rate of return on plan assets. Our expected long-term rate of return considers inputs from a range of advisors for capital market returns, inflation, bond yields, and other variables, adjusted for specific aspects of our investment strategy by plan. Historical returns also are considered when appropriate. The assumption is based on consideration of all inputs, with a focus on long-term trends to avoid short-term market influences. •Salary growth. Our salary growth assumption reflects our actual experience, long-term outlook, and assumed inflation. •Inflation. Our inflation assumption is based on an evaluation of external market indicators, including real gross domestic product growth and central bank inflation targets. •Expected contributions. Our expected amount and timing of contributions are based on an assessment of minimum requirements, cash availability, and other considerations (e.g., funded status, avoidance of regulatory premiums and levies, and tax efficiency). •Retirement rates. Retirement rates are developed to reflect actual and projected plan experience. •Mortality rates. Mortality rates are developed to reflect actual and projected plan experience. •Health care cost trends. Our health care cost trend assumptions are developed based on historical cost data, the near-term outlook, and an assessment of likely long-term trends. Assumptions are set at each year-end and are generally not changed during the year unless there is a major plan event, such as a curtailment or settlement that would trigger a plan remeasurement. See Note 17 of the Notes to the Financial Statements for more information regarding pension and OPEB costs and assumptions. Pension Plans Effect of Actual Results. The year-end 2021 weighted average discount rate was 2.91% for U.S. plans and 1.75% for non-U.S. plans, reflecting increases of 35 and 52 basis points, respectively, compared with year-end 2020. In 2021, the U.S. actual return on assets was 2.82%, which was lower than the expected long-term rate of return of 6.0%. Non-U.S. actual return on assets was 2.69%, which was lower than the expected long-term rate of return of 3.42%. The lower returns are primarily explained by losses on fixed income assets offset by growth asset returns in excess of our growth return assumptions. In total, higher rates and excess growth asset returns, in addition to demographic and other updates, resulted in a net remeasurement gain of $3.5 billion, which has been recognized within net periodic benefit cost and reported as a special item. For 2022, the expected long-term rate of return on assets is 5.75% for U.S. plans, down 25 basis points from 2021, and 3.29% for non-U.S. plans, down 13 basis points compared with a year ago, reflecting a lower consensus on capital market return expectations from advisors. De-risking Strategy. We employ a broad de-risking strategy for our global funded plans that increases the matching characteristics of our assets relative to our obligation as funded status improves. Changes in interest rates, which directly influence changes in discount rates, in addition to other factors have a significant impact on the value of our pension obligation and fixed income asset portfolio. Our de-risking strategy has increased the allocation to fixed income investments and reduced our funded status sensitivity to changes in interest rates. Changes in interest rates should result in offsetting effects in the value of our pension obligation and the value of the fixed income asset portfolio. 85 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Sensitivity Analysis. The December 31, 2021 pension funded status and 2022 expense are affected by year-end 2021 assumptions. Sensitivities to these assumptions may be asymmetric and are specific to the time periods noted. The effects of changes in the factors that generally have the largest impact on year-end funded status and pension expense are discussed below. Discount rates and interest rates have the largest impact on our obligations and fixed income assets. The table below estimates the effect on our funded status of an increase/decrease in discount rates and interest rates (in millions): [[GREPCENT_TABLE]] [["","","Basis Point Change","","Increase/(Decrease) in December 31, 2021 Funded Status"],["Factor","","","U.S. Plans","","Non-U.S. Plans"],["Discount rate - obligation","","+/- 100 bps","","$4,800/$(5,800)","","$4,800/$(6,300)"],["Interest rate - fixed income assets","","+/- 100","","(4,600)/5,600","","(3,300)/4,300"],["Net impact on funded status","","","","$200/$(200)","","$1,500/$(2,000)"]] [[/GREPCENT_TABLE]] The fixed income asset sensitivity shown excludes other fixed income return components (e.g., changes in credit spreads, bond coupon and active management excess returns), and growth asset returns. Other factors that affect net funded status (e.g., contributions) are not reflected. Interest rates and the expected long-term rate of return on assets have the largest effect on pension expense. These assumptions are generally set at each year-end for expense recorded throughout the following year. The table below estimates the effect on pension expense of a higher/lower assumption for these factors (in millions): [[GREPCENT_TABLE]] [["","","Basis Point Change","","Increase/(Decrease) in 2022 Pension Expense"],["Factor","","","U.S. Plans","","Non-U.S. Plans"],["Interest rate - service cost and interest cost","","+/- 25 bps","","$45/$(50)","","$35/$(30)"],["Expected long-term rate of return on assets","","+/- 25","","(445)/445","","(325)/325"]] [[/GREPCENT_TABLE]] The effect of changing multiple factors simultaneously cannot be calculated by combining the individual sensitivities. The sensitivity of pension expense to a change in discount rate assumptions may not be linear. Other Postretirement Employee Benefits Effect of Actual Results. The weighted average discount rate used to determine the benefit obligation for worldwide OPEB plans at December 31, 2021 was 2.97%, compared with 2.62% at December 31, 2020, resulting in a worldwide net remeasurement gain of $376 million, which has been recognized within net periodic benefit cost and reported as a special item. Sensitivity Analysis. Discount rates and interest rates have the largest effect on our OPEB obligation and expense. The table below estimates the effect on 2022 OPEB expense of higher/lower assumptions for these factors (in millions): [[GREPCENT_TABLE]] [["","","","","Worldwide OPEB"],["","","Basis Point Change","","(Increase)/Decrease 2021 YE Obligation","","Increase/(Decrease) 2022 Expense"],["Factor"],["Discount rate - obligation","","+/- 100 bps","","$675/$(835)","","N/A"],["Interest rate - service cost and interest cost","","+/- 25","","N/A","","$5/$(5)"]] [[/GREPCENT_TABLE]] Income Taxes Nature of Estimates Required. We must make estimates and apply judgment in determining the provision for income taxes for financial reporting purposes. We make these estimates and judgments primarily in the following areas: (i) the calculation of tax credits, (ii) the calculation of differences in the timing of recognition of revenue and expense for tax reporting and financial statement purposes, as well as (iii) the calculation of interest and penalties related to uncertain tax positions. Changes in these estimates and judgments may result in a material increase or decrease to our tax provision, which would be recorded in the period in which the change occurs. 86 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Assumptions and Approach Used. We are subject to the income tax laws and regulations of the many jurisdictions in which we operate. These tax laws and regulations are complex and involve uncertainties in the application to our facts and circumstances that may be open to interpretation. We recognize benefits for these uncertain tax positions based upon a process that requires judgment regarding the technical application of the laws, regulations, and various related judicial opinions. If, in our judgment, it is more likely than not (defined as a likelihood of more than 50%) that the uncertain tax position will be settled favorably for us, we estimate an amount that ultimately will be realized. This process is inherently subjective since it requires our assessment of the probability of future outcomes. We evaluate these uncertain tax positions on a quarterly basis, including consideration of changes in facts and circumstances, such as new regulations or recent judicial opinions, as well as the status of audit activities by taxing authorities. Changes to our estimate of the amount to be realized are recorded in our provision for income taxes during the period in which the change occurred. We must also assess the likelihood that we will be able to recover our deferred tax assets against future sources of taxable income and reduce the carrying amount of deferred tax assets by recording a valuation allowance if, based on all available evidence, it is more likely than not that all or a portion of such assets will not be realized. This assessment, which is completed on a taxing jurisdiction basis, takes into account various types of evidence, including the following: •Nature, frequency, and severity of current and cumulative financial reporting losses. A pattern of objectively measured recent financial reporting losses is heavily weighted as a source of negative evidence. We generally consider cumulative pre-tax losses in the three-year period ending with the current quarter to be significant negative evidence regarding future profitability. We also consider the strength and trend of earnings, as well as other relevant factors. In certain circumstances, historical information may not be as relevant due to changes in our business operations; •Sources of future taxable income. Future reversals of existing temporary differences are heavily weighted sources of objectively verifiable positive evidence. Projections of future taxable income exclusive of reversing temporary differences are a source of positive evidence only when the projections are combined with a history of recent profits and can be reasonably estimated. Otherwise, these projections are considered inherently subjective and generally will not be sufficient to overcome negative evidence that includes relevant cumulative losses in recent years, particularly if the projected future taxable income is dependent on an anticipated turnaround to profitability that has not yet been achieved. In such cases, we generally give these projections of future taxable income no weight for the purposes of our valuation allowance assessment; and •Tax planning strategies. If necessary and available, tax planning strategies could be implemented to accelerate taxable amounts to utilize expiring carryforwards. These strategies would be a source of additional positive evidence and, depending on their nature, could be heavily weighted. In assessing the realizability of deferred tax assets, we consider the trade-offs between cash preservation and cash outlays to preserve tax credits. In 2021, we reversed $918 million of the previously established U.S. valuation allowance. The reversal primarily reflects a change in our intent to pursue planning actions involving cash outlays to preserve tax credits. We presently believe that global valuation allowances of $1.1 billion are required. We believe that we ultimately will recover the remaining $12.2 billion of deferred tax assets. However, the ultimate realization of our deferred tax assets is subject to a number of variables, including our future profitability within relevant tax jurisdictions, and future tax planning and the related effects on our cash and liquidity position. Accordingly, our valuation allowances may increase or decrease in future periods. For additional information regarding income taxes, see Note 7 of the Notes to the Financial Statements. 87 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Impairment of Long-Lived Assets and Goodwill Asset groups are tested at the level of the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Our asset groups presently are the regional Automotive business units (i.e., North America, South America, Europe, China (including Taiwan), and the International Markets Group), Ford Credit, and the separate legal entities within the Mobility segment. Asset groupings for impairment analysis are reevaluated when events occur, such as changes in organizational structure and management reporting. Nature of Estimates Required - Held-and-Used Long-Lived Assets. We test our long-lived asset groups when changes in circumstances indicate their carrying value may not be recoverable. Events that trigger a test for recoverability include material adverse changes in projected revenues or expenses, present cash flow losses combined with a history of cash flow losses and a forecast that demonstrates significant continuing losses, significant negative industry or economic trends (including a substantial shift in consumer preference), a current expectation that a long-lived asset group will be disposed of significantly before the end of its useful life, a significant adverse change in the manner in which an asset group is used or in its physical condition, or when there is a change in the asset grouping. When a triggering event occurs, a test for recoverability is performed, comparing projected undiscounted future cash flows to the carrying value of the asset group. If the test for recoverability identifies a possible impairment, the asset group’s fair value is measured relying primarily on a discounted cash flow method. To the extent available, we will also consider third-party valuations of our long-lived assets that were prepared for other business purposes. An impairment charge is recognized for the amount by which the carrying value of the asset group exceeds its estimated fair value. When an impairment loss is recognized for assets to be held and used, the adjusted carrying amounts of those assets are depreciated over their remaining useful life. Nature of Estimates Required - Goodwill. Goodwill is subject to periodic assessments of impairment. We test goodwill for impairment annually during the fourth quarter, or when an event occurs or circumstances change that indicate the asset may be impaired. We assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If a qualitative assessment identifies a possible impairment or we impair the assets of a reporting unit, then a quantitative goodwill impairment test is performed. If the carrying value of the reporting unit is above fair value, an impairment loss is recognized in an amount equal to the excess. Assumptions and Approach Used - Held-and-Used Long-Lived Assets and Goodwill. Fair value of an asset group is determined from the perspective of a market-participant considering, among other things, appropriate discount rates, valuation techniques, the most advantageous market, and assumptions about the highest and best use of the asset group. We measure the fair value of an asset group based on market prices (i.e., the amount for which the asset could be sold to a third party) when available. When market prices are not available, we generally estimate the fair value of the asset group using the income approach and/or the market approach. The income approach uses cash flow projections. Inherent in our development of cash flow projections are assumptions and estimates derived from a review of our operating results, business plan forecasts, expected growth rates, and cost of capital, similar to those a market participant would use to assess fair value. We also make certain assumptions about future economic conditions and other data. Many of the factors used in assessing fair value are outside the control of management, and these assumptions and estimates may change in future periods. Changes in assumptions or estimates can materially affect the fair value measurement of an asset group and, therefore, can affect the test results. The following are key assumptions we use in making cash flow projections: •Business projections. We make assumptions about the demand for our products in the marketplace. These assumptions drive our planning assumptions for volume, mix, and pricing. We also make assumptions about our cost levels (e.g., capacity utilization, cost performance). These projections are derived using our internal business plan forecasts that are updated at least annually and reviewed by our Board of Directors. •Long-term growth rate. A growth rate is used to calculate the terminal value of the business and is added to the present value of the debt-free interim cash flows. The growth rate is the expected rate at which an asset group’s business unit’s earnings stream is projected to grow beyond the planning period. 88 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) •Discount rate. When measuring possible impairment, future cash flows are discounted at a rate that is consistent with a weighted-average cost of capital that we anticipate a potential market participant would use. Weighted-average cost of capital is an estimate of the overall risk-adjusted pre-tax rate of return expected by equity and debt holders of a business enterprise. •Economic projections. Assumptions regarding general economic conditions are included in and affect our assumptions regarding industry sales and pricing estimates for our vehicles. These macroeconomic assumptions include, but are not limited to, industry sales volumes, inflation, interest rates, prices of raw materials (e.g., commodities), and foreign currency exchange rates. The market approach is another method for measuring the fair value of a reporting unit or asset group. This approach relies on the market value (i.e., market capitalization) of companies that are engaged in the same or similar line of business as the reporting unit or asset group being evaluated. In addition, to the extent available we also consider third-party valuations that were prepared for other business purposes. During 2021, we continued to progress our global redesign by reassessing our operations and reducing structural costs. As part of this redesign, in 2020, Ford Brazil committed to a plan to exit manufacturing operations which resulted in the closure of facilities in Camaçari, Taubaté, and Troller in 2021. In addition, in 2021, Ford India, committed to a plan to exit the engine and vehicle manufacturing operations at its facilities in Chennai and its vehicle manufacturing operation at its facility in Sanand. Ford India ceased vehicle manufacturing in Sanand in the fourth quarter of 2021 and will cease engine and vehicle manufacturing in Chennai by the second quarter of 2022. Against this backdrop, we determined that there were triggering events related to our South America and International Markets Group (“IMG”) business units. In each situation in which we experienced a triggering event during the year, we tested our long-lived assets for impairment using our internal economic and business projections, as well as third-party valuations of certain long-lived assets. We determined that the carrying values of the long-lived assets were recoverable in these business units at December 31, 2021. Although no impairment was required, the carrying values of the long-lived assets in Brazil and India were reduced by accelerated depreciation that was triggered at the point of decision to cease manufacturing operations prior to the end of their estimated useful lives. If in future quarters our economic or business projections were to change as a result of our plans or changes in the economic or business environment, there was a significant adverse change in the extent or manner in which a long-lived asset is being used, or there was a current expectation that a long-lived asset group will be disposed of significantly before the end of its useful life, we would undertake additional testing, as appropriate, which could result in an impairment of long-lived assets. In our Mobility segment, goodwill of $102 million related to two investments was fully impaired during the second half of 2021 based on external market indicators evaluated for other business purposes. Allowance for Credit Losses The allowance for credit losses represents Ford Credit’s estimate of the expected lifetime credit losses inherent in finance receivables as of the balance sheet date. The adequacy of Ford Credit’s allowance for credit losses is assessed quarterly, and the assumptions and models used in establishing the allowance are evaluated regularly. Because credit losses can vary substantially over time, estimating credit losses requires a number of assumptions about matters that are uncertain. Changes in assumptions affect Ford Credit interest, operating, and other expenses on our consolidated income statements and the allowance for credit losses contained within Ford Credit finance receivables, net on our consolidated balance sheets. See Note 10 of the Notes to the Financial Statements for more information regarding allowance for credit losses. Nature of Estimates Required. Ford Credit estimates the allowance for credit losses for receivables that share similar risk characteristics based on a collective assessment using a combination of measurement models and management judgment. The models consider factors such as historical trends in credit losses, recent portfolio performance, and forward-looking macroeconomic conditions. The models vary by portfolio and receivable type including consumer finance receivables, wholesale loans, and dealer loans. If Ford Credit does not believe the models reflect lifetime expected credit losses for the portfolio, an adjustment is made to reflect management judgment regarding qualitative factors including economic uncertainty, observable changes in portfolio performance, and other relevant factors. 89 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Assumptions Used. Ford Credit’s allowance for credit losses is based on its assumptions regarding: •Probability of default. The expected probability of payment and time to default, which include assumptions about macroeconomic factors and recent performance; and •Loss given default. The percentage of the expected balance due at default that is not recoverable. The loss given default takes into account expected collateral value and future recoveries. Macroeconomic factors used in Ford Credit’s models are country specific and include variables such as unemployment rates, housing prices, and gross domestic product. Sensitivity Analysis. Changes in the probability of default and loss given default assumptions would affect the allowance for credit losses. The effect of the indicated increase/decrease in the assumptions for Ford Credit’s U.S. Ford and Lincoln retail financing is as follows (in millions): [[GREPCENT_TABLE]] [["Assumption","","Basis Point Change","","Increase/(Decrease)"],["Probability of default (lifetime)","","+/- 100 bps","","$200/$(200)"],["Loss given default","","+/- 100","","10/(10)"]] [[/GREPCENT_TABLE]] Accumulated Depreciation on Vehicles Subject to Operating Leases Accumulated depreciation on vehicles subject to operating leases reduces the value of the leased vehicles in Ford Credit’s operating lease portfolio from their original acquisition value to their expected residual value at the end of the lease term. Ford Credit monitors residual values each month, and it reviews the adequacy of accumulated depreciation on a quarterly basis. If Ford Credit believes that the expected residual values for its vehicles have changed, it revises depreciation to ensure that net investment in operating leases (equal to the acquisition value of the vehicles less accumulated depreciation) will be adjusted to reflect Ford Credit’s revised estimate of the expected residual value at the end of the lease term. Adjustments to depreciation expense result in a change in the depreciation rates of the vehicles subject to operating leases and are recorded prospectively on a straight-line basis. Each lease customer has the option to buy the leased vehicle at the end of the lease or to return the vehicle to the dealer. Nature of Estimates Required. Each operating lease in Ford Credit’s portfolio represents a vehicle it owns that has been leased to a customer. At the time Ford Credit purchases a lease, it establishes an expected residual value for the vehicle. Ford Credit estimates the expected residual value by evaluating recent auction values, return volumes for its leased vehicles, industrywide used vehicle prices, marketing incentive plans, and vehicle quality data. Assumptions Used. Ford Credit’s accumulated depreciation on vehicles subject to operating leases is based on assumptions regarding: •Auction value. Ford Credit’s projection of the market value of the vehicles when sold at the end of the lease; and •Return volume. Ford Credit’s projection of the number of vehicles that will be returned at lease-end. See Note 12 of the Notes to the Financial Statements for more information regarding accumulated depreciation on vehicles subject to operating leases. 90 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Sensitivity Analysis. For returned vehicles, Ford Credit faces a risk that the amount it obtains from the vehicle sold at auction will be less than its estimate of the expected residual value for the vehicle. The impact of the change in assumptions on future auction values and return volumes would increase or decrease accumulated supplemental depreciation and depreciation expense over the remaining terms of the operating leases. A change in the assumption for an auction value will impact Ford Credit’s estimate of accumulated supplemental depreciation if the future auction value is lower than the purchase price specified in the lease contract. The effect of the indicated increase/decrease in the assumptions for Ford Credit’s U.S. Ford and Lincoln operating lease portfolio is as follows (in millions): [[GREPCENT_TABLE]] [["Assumption","","Basis PointChange","","Increase/(Decrease)"],["Future auction values","","+/- 100 bps","","$(20)/$20"],["Return volumes","","+/- 100","","5/(5)"]] [[/GREPCENT_TABLE]] Adjustments to the amount of accumulated supplemental depreciation on operating leases are reflected on our balance sheets as Net investment in operating leases and on our income statements in Ford Credit interest, operating, and other expenses. 91 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED The Financial Accounting Standards Board (“FASB”) has issued the following Accounting Standards Updates (“ASU”) which are not expected to have a material impact to our financial statements or financial statement disclosures. For additional information, see Note 3 of the Notes to the Financial Statements. [[GREPCENT_TABLE]] [["ASU","","Effective Date (a)"],["2021-04","Issuer\u2019s Accounting for Certain Modifications or Exchanges of Warrants","","January 1, 2022"],["2021-05","Lessors \u2013 Certain Leases with Variable Lease Payments","","January 1, 2022"],["2021-10","Government Assistance: Disclosures by Business Entities about Government Assistance","","January 1, 2022"],["2018-12","Targeted Improvements to the Accounting for Long Duration Contracts","","January 1, 2023"],["2021-08","Business Combinations: Accounting for Contract Assets and Contract Liabilities from Contracts with Customers","","January 1, 2023"]] [[/GREPCENT_TABLE]] _________ (a)Early adoption for each of the standards is permitted. 92