Retail sales, industry volume, and market share in each region and in certain key markets within each region during the past three years were as follows:
U.S. Sales by Type
The Ford Credit segment is comprised of the Ford Credit business on a consolidated basis, which is primarily vehicle-related financing and leasing activities.
Ford Credit offers a wide variety of automotive financing products to and through automotive dealers throughout the world. The predominant share of Ford Credit’s business consists of financing our vehicles and supporting our dealers. Ford Credit earns its revenue primarily from payments made under retail installment sale and finance lease (retail financing) and operating lease contracts that it originates and purchases; interest rate supplements and other support payments from us and our affiliates; and payments made under dealer financing programs.
As a result of these financing activities, Ford Credit has a large portfolio of finance receivables and operating leases which it classifies into two portfolios—“consumer” and “non-consumer.” Finance receivables and operating leases in the consumer portfolio include products offered to individuals and businesses that finance the acquisition of our vehicles from dealers for personal and commercial use. Retail financing includes retail installment sale contracts for new and used vehicles and finance leases (comprised of sales-type and direct financing leases) for new vehicles to retail and commercial customers, including leasing companies, government entities, daily rental companies, and fleet customers. Finance receivables in the non-consumer portfolio include products offered to automotive dealers. Ford Credit makes wholesale loans to dealers to finance the purchase of vehicle inventory, also known as floorplan financing, as well as loans to dealers to finance working capital and improvements to dealership facilities, finance the purchase of dealership real estate, and finance other dealer vehicle programs. Ford Credit also purchases receivables generated by us and our affiliates, primarily related to the sale of parts and accessories to dealers and certain used vehicles from daily rental fleet companies. Ford Credit also provides financing to us for vehicles that we lease to our employees.
Ford Credit does business in the United States and Canada through business centers. Outside of the United States, Europe is Ford Credit’s largest operation. Ford Credit’s European operations are managed primarily through its United Kingdom-based subsidiary, FCE Bank plc (“FCE”). Within Europe, FCE’sFord Credit’s largest markets are the United Kingdom and Germany.
We routinely sponsor special retail financing and lease incentives to dealers’ customers who choose to finance or lease our vehicles from Ford Credit. 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. These programs increase Ford Credit’s financing volume and share. See Note 2 of the Notes to the Financial Statements for information about our accounting for these programs.
The foregoing information regarding Ford Credit’s website and its content is for convenience only and not deemed to be incorporated by reference into this Report nor filed with the SEC.
The California vehicle emissions program also includes requirements for manufacturers to produce and deliver for sale zero-emission vehicles (“ZEVs”). The current light-duty vehicle ZEV regulations mandateregulation, which uses a system based on credits that can be banked and carried forward, mandates substantial annual increases in the production and sale of battery-electric, fuel cell, and plug-in hybrid vehicles through the 2025 model year. ByAt that time, the 2025 model year, approximately 15%regulation will require credits equating to 22% of a manufacturer’s total California light-duty vehicle sales volume will need to be made up of such vehicles.volume. California is now in the process of promulgating futureadopting new ZEV regulations applicable to model years 2026-2035. The proposed regulations include substantial annual increases in required sales volumes, significant restrictions on credit usage, and new requirements for EV battery durability. California has also instituted ZEV regulations aimed at medium- and heavy-duty vehicles.vehicles, beginning with the 2024 model year. These medium- and heavy-duty rules, which could entail significant costs and compliance challenges, are also expected to include complex warranty and recall requirements.requirements for some vehicle configurations. Compliance with ZEV rules depends on market conditions as well as the availability of adequate infrastructure to support vehicle charging.
Canadian criteria emissions regulations are largely aligned with U.S. requirements; however, Quebec’sthe existing ZEV regulations in Quebec and those published in British Columbia in July 2020 are more stringent than those in place in California. In addition, in May 2019, the Province of British Columbia passed legislation regarding regulation ofThe federal government has started preliminary consultations on a potential ZEV sales. Final regulations are expected in 2020.mandate.
Elsewhere, there is a mix of regulations and processes based on U.S. and EU standards. Not all countries have adopted appropriate fuel quality standards to accompany the stringent emission standards adopted. This could lead to compliance problems, particularly if OBD or in-use surveillance requirements are implemented.
Regulators around the world continue to scrutinize automakers’ emission testing, which has led to a number of defeat device settlements by various manufacturers. EPA is carrying out additional non-standard tests as part of its vehicle certification program. CARB has also been conducting extensive non-standard emission tests, which in some cases have resulted in certification delays for diesel vehicles. In the past, several European countries have conducted non-standard emission tests and published the results, and, in some cases, this supplemental testing has triggered investigations of manufacturers for possible defeat devices. Testing is expected to continue on an ongoing basis. In addition, plaintiffs’ attorneys are pursuing consumer class action lawsuits based on alleged excessive emissions from cars and trucks, which could, in turn, prompt further investigations by regulators.
EPA also regulates vehicle greenhouse gas (“GHG”) emissions under the Clean Air Act. Because the vast majority of GHGs emitted by a vehicle are the result of fuel combustion, GHG emission standards are similar to fuel economy standards. Thus, it is necessary for NHTSA and EPA to coordinate with each other on their fuel economy and GHG standards, respectively, to avoid potential inconsistencies.
The approximate number of individuals employed by us and entities that we consolidated as of December 31 was as follows (in thousands):
|
| | | | | |
| 2018 | | 2019 |
Automotive | 183 |
| | 173 |
|
Ford Credit | 8 |
| | 7 |
|
Mobility | 1 |
| | 3 |
|
Corporate and Other | 7 |
| | 7 |
|
Total Company | 199 |
| | 190 |
|
Item 1. Business (Continued)
Substantially all of the hourly employees in our Automotive operations are represented by unions and covered by collective bargaining agreements. In the United States, approximately 99% of these unionized hourly employees in our Automotive segment are represented by the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (“UAW” or “United Auto Workers”). At December 31, 2019,2021, approximately 56,000 hourly employees in the United States were represented by the UAW.
ITEM 1A. Risk Factors.
We have listed below the most significantmaterial risk factors applicable to us grouped into the following categories: Operational Risks; Macroeconomic, Market, and Strategic Risks; Financial Risks; and Legal and Regulatory Risks.
Operational Risks
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.We face various risks related to public health issues, including epidemics, pandemics, and other outbreaks, including the global outbreak of 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 periodically created significant volatility in the global economy. There have been extraordinary actions taken by international, federal, state, and local public health and governmental authorities to contain and combat the outbreak and spread of COVID-19 in regions throughout the world, including travel bans, quarantines, “stay-at-home” orders, and similar mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations. For example, in 2020, consistent with the actions taken by governmental authorities, we idled our manufacturing operations in regions around the world before ultimately resuming our manufacturing operations taking a phased approach and after introducing new safety protocols at our plants. To the extent cases surge in any locations, stringent limitations on daily activities that may have been eased previously could be reinstated in those areas. Further, if new strains or variants of COVID-19 develop or sufficient amounts of vaccines or treatments are not available, not widely administered for a significant period of time, or otherwise prove ineffective, the impact of COVID-19 on the global economy, and, in turn, our financial condition, liquidity, and results of operations could be material.
The predominant share of Ford Credit’s business consists of financing Ford and Lincoln vehicles, and the duration or resurgence of COVID-19 or similar public health issues may negatively impact the level of originations at Ford Credit. For example, Ford’s suspension of manufacturing operations, a significant decline in dealer showroom traffic, and/or a reduction of operations at dealers may lead to a significant decline in Ford Credit’s consumer and non-consumer originations. Moreover, COVID-19 has had a significant negative impact on many businesses and unemployment rates increased from pre-COVID-19 levels. Economic uncertainty and higher unemployment may result in higher defaults in Ford Credit’s consumer portfolio, and prolonged unemployment may have a negative impact on both new and used vehicle demand.
The global economic slowdown and stay-at-home orders enacted across the United States disrupted auction activity in many locations, which adversely impacted and caused delays in realizing the resale value for off-lease and repossessed vehicles. Although auction values have increased significantly, future or additional restrictions could have a similar adverse impact on Ford Credit. For more information about the impact of higher credit losses and lower residual values on Ford Credit’s business, see “Ford Credit could experience higher-than-expected credit losses, lower-than-anticipated residual values, or higher-than-expected return volumes for leased vehicles” below.
As described in more detail below under “Ford and Ford Credit’s access to debt, securitization, or derivative markets around the world at competitive rates or in sufficient amounts could be affected by credit rating downgrades, market volatility, market disruption, regulatory requirements, or other factors,” the volatility created by COVID-19 adversely affected Ford Credit’s access to the debt and securitization markets and its cost of funding, and any volatility in the capital markets as a result of a surge in cases of COVID-19, new outbreaks or variants, or for any other reason could have an adverse impact on Ford Credit’s access to those markets and its cost of funding.
Item 1A. Risk Factors (Continued)
The full impact of COVID-19 on our financial condition and results of operations remains uncertain and will depend on future developments, such as the ultimate duration and scope of the outbreak (including any potential future waves, the emergence or re-emergence of variants and their transmissibility, and the success of vaccination programs and treatments), its impact on our customers, dealers, and suppliers, how quickly normal economic conditions, operations, and the demand for our products can resume, and any permanent behavioral changes that the pandemic may cause. For example, in the event manufacturing operations are again suspended, fully ramping up our production schedule to prior levels may take longer than the prior resumption and will depend, in part, on whether our suppliers and dealers have resumed normal operations. Our automotive operations generally do not realize revenue while our manufacturing operations are suspended, but we continue to incur operating and non-operating expenses, resulting in a deterioration of our cash flow. Accordingly, any significant future disruption to our production schedule, regionally or globally, whether as a result of our own or a supplier’s suspension of operations, could have a substantial adverse effect on our financial condition, liquidity, and results of operations. Further, government-sponsored liquidity or stimulus programs in response to COVID-19 may not be available to our customers, suppliers, dealers, or us, and if available, may nevertheless be insufficient to address the impacts of COVID-19. Moreover, our supply and distribution chains may be disrupted by supplier or dealer bankruptcies or their permanent discontinuation of operations.
The COVID-19 pandemic may also exacerbate other risks disclosed in our 2021 Form 10-K Report, including, but not limited to, our competitiveness, demand or market acceptance for our products and services, and shifting consumer preferences, and our ability to successfully execute our strategy.
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. Our products contain components that we source globally from suppliers who, in turn, source components from their suppliers. If 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 may disrupt our production. For example, the automotive industry continues to face a significant shortage of semiconductors, which has a complex supply chain with long lead times required to increase production and capacity. The shortage is due in large part to strong cross-industry demand, which has presented challenges and production disruptions globally, including at our assembly plants. In addition, Renesas Electronics Corporation, a key supplier of semiconductors for the automotive industry and for us in particular, experienced a significant fire at its Naka Factory in March 2021, and COVID-related work restrictions in Southeast Asia have further impacted semiconductor production. With up to fifty modules on a vehicle, we and our competitors who need integrated circuits are experiencing various levels of semiconductor impact. A shortage of key components or raw materials as a result of disruptions in the supply chain, capacity constraints, competition for those items within the automotive industry and other sectors, or otherwise can cause a significant disruption to our production schedule and have a substantial adverse effect on our financial condition or results of operations.
Ford’s long-term competitiveness depends on the successful execution of global redesign and fitness actions. Ford+.We previously announced plansour plan for growth and value creation – Ford+. Ford+ is focused on delivering distinctive and increasingly electric products plus “Always-On” customer relationships and user experiences. Our Ford+ plan is designed to leverage our global redesignfoundational strengths to build new capabilities – enriching customer experiences and fitness actions to transform the operational fitnessdeepening loyalty. As we undertake this transformation of our business, by becoming more customer centricwe must integrate our strategic initiatives into a cohesive business model, and adopting processes that emphasize simplicity, speed and agility, efficiency, and accountability. In addition, to further improve our fitness and overall competitiveness,balance competing priorities, or we will not be successful. To facilitate this transformation, we are attemptingmaking substantial investments, recruiting new talent, and optimizing our business model, management system, and organization. Accordingly, maintaining discipline in our capital allocation continues to leverage relationships with third parties, including various alliancesbe important, as a strong core business and joint ventures as discussed below under “Ford may not realizea balance sheet that provides the anticipated benefitsflexibility to invest in these new growth opportunities is critical to the success of existingour Ford+ plan. If we are unable to optimize our capital allocation among vehicles, services, technology, and other calls on capital, or pending strategic alliances, joint ventures, acquisitions, divestitures, or new business strategies.” If our global redesign actionswe are otherwise not successful orin executing Ford+ (or are delayed for reasons outside of our control, particularly in Europe and South America, or our fitness actions are not successful,control), we may not be able to materially lower costs inrealize the near term or improvefull benefits of our competitiveness in the long term,plan, which could have an adverse effect on our financial condition or results of operations. Furthermore, if we fail to make progress on our plan at the pace that shareholders expect, it may lead to an increase in shareholder activism, which may disrupt the conduct of our business and divert management’s attention and resources.
Item 1A. Risk Factors (Continued)
Ford’s vehicles could be affected by defects that result in delays in new model launches, recall campaigns, or increased warranty costs. Government safety standards require manufacturers to remedy defects related to vehicle safety through safety recall campaigns, and a manufacturer is obligated to recall vehicles if it determines that the vehicles do not comply with a safety standard. NHTSA’s enforcement strategy has shifted to aresulted in significant increase in civil penalties being levied and the use of consent orders requiring direct oversight by NHTSA of certain manufacturers’ safety processes, a trend that could continue. Should we or government safety regulators determine that a safety or other defect or a noncompliance exists with respect to certain of our vehicles prior to the start of production, the launch of such vehicle could be delayed until such defect is remedied. The cost of recall and customer satisfaction actions to remedy defects in vehicles that have been sold could be substantial, particularly if the actions relate to global platforms or involve defects that are identified years after production (e.g.,production. For example, NHTSA and the automotive industry are currently engaged in a study of the safety of approximately 56 million Takata desiccated airbag inflators). Suchinflators in the United States. Of these, approximately three and a half million of the inflators are in our vehicles. Should NHTSA determine that the inflators contain a safety defect, Ford and other manufacturers could potentially face significant incremental recall costs. Further, to the extent recall and customer satisfaction actions may relate to defective components we receive from suppliers, and our ability to recover from the suppliers may be limited by the suppliers’ financial condition. We accrue the estimated cost of both base warranty coverages and field service actions at the time a vehicle is sold, and we reevaluate the adequacy of our accruals on a regular basis. 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. For additional information regarding warranty and field service action costs, including our process for establishing our reserves, see “Critical Accounting Estimates” in Item 7 and Note 2725 of the Notes to the Financial Statements. If warranty costs are greater than anticipated as a result of increased vehicle and component complexity, the adoption of new technologies, or otherwise, such costs could have an adverse effect on our financial condition or results of operations. Furthermore, launch delays, recall actions, and increased warranty costs could adversely affect our reputation or market acceptance of our products as discussed below under “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.”
Item 1A. Risk Factors (Continued)
Ford may not realize the anticipated benefits of existing or pending strategic alliances, joint ventures, acquisitions, divestitures, or new business strategies. We have invested in, formed strategic alliances with, and announced or formed joint ventures with a number of companies, and we may expand those relationships or enter into similar relationships with additional companies. These initiatives typically involve enormous complexity and may involve a lengthy regulatory approval process. As a result, we may not be able to complete anticipated alliance or joint venture transactions, the anticipated benefits of these transactions may not be realized, or the benefits may be delayed. For example, we may not successfully integrate an alliance or joint venture with our operations, including the implementation of our controls, systems, procedures, and policies, or unforeseen expenses or liabilities may arise that were not discovered during due diligence prior to an investment or entry into a strategic alliance, or a misalignment of interests may develop between us and the other party. Further, to the extent we share ownership, control, or management with another party in a joint venture, our ability to influence the joint venture may be limited, and we may be unable to prevent misconduct or implement our compliance or internal control systems. In addition, implementation of a new business strategy may lead to the disruption of our existing business operations, including distracting management from current operations. Results of operations from new activities may be lower than our existing activities, and, if a strategy is unsuccessful, we may not recoup our investments, which may be significant, in that strategy. Moreover, we may continue to have financial exposure following a strategic divestiture or cessation of operations in a market, and restructuring actions may subject us to potential claims from employees, suppliers, dealers, or governmental authorities or harm our reputation. Failure to successfully and timely realize the anticipated benefits of these transactions or strategies could have an adverse effect on our financial condition or results of operations.
Item 1A. Risk Factors (Continued)
Operational systems, security systems, vehicles, and vehiclesservices could be affected by cyber incidents.incidents, ransomware attacks, and other disruptions. We rely on information technology networks and systems, including in-vehicle systems and mobile devices, some of which are managed by suppliers, to process, transmit, and store electronic information that is important to the operation of our business, our vehicles, and our vehicles.the services we offer. Despite security measures, we are at risk for interruptions, outages, and compromises of: (i) operational systems (including business, financial, accounting, product development, consumer receivables, data processing, or manufacturing processes); (ii) facility security systems; and/or (iii) in-vehicle systems or mobile devices.devices, whether caused by a ransomware or other cyber attack, security breach, or other reasons, e.g., a natural disaster, fire, or overburdened infrastructure system. Such cyber incidents could materially disrupt operational systems; result in loss of trade secrets or other proprietary or competitively sensitive information; compromise the privacy of personal information of consumers, employees, or others; jeopardize the security of our facilities; affect the performance of in-vehicle systems;systems or services we offer; and/or impact the safety of our vehicles. The cyberThis risk exposure rises as we continue to develop and produce vehicles with increased connectivity. We,Moreover, we, our suppliers, and our dealers have been the target of cyber attacks in the past, and such attacks will continue toand evolve in the future, which may cause cyber incidents to be more difficult to detect for periods of time. Our networks and in-vehicle systems, sharing similar architectures, could also be impacted by, or a data breach may result from, the negligence or misconduct of insiders or third parties who have access to our networks and systems. We continually employ capabilities, processes, and other security measures designed to reduce and mitigate the risk of cyber attacks; however, such preventative measures cannot provide absolute security and may not be sufficient in all circumstances or mitigate all potential risks. Moreover, a cyber incident could harm our reputation, cause customers to lose trust in our security measures, and/or subject us to regulatory actions or litigation, and a cyber incident involving us or one of our suppliers could impact production.production, our internal operations, or our ability to deliver products and services to our customers.
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. A work stoppage or other limitation on production could occur at Ford’s or its suppliers’ facilities for any number of reasons, including as a result of labor issues, including disputes under existing collective bargaining agreements with labor unions or in connection with negotiation of new collective bargaining agreements, absenteeism, public health issues (e.g., COVID-19), stay-at-home orders, or in response to potential restructuring actions (e.g., plant closures); as a result of supplier financial distress or other production constraints, such as limited quantities of components, including but not limited to semiconductors, or raw materials, quality issues, capacity limitations, or other difficulties; as a result of a natural disaster (including climate-related physical risk); cyber incidents; or for other reasons. Many components used in our vehicles are available only from a single supplieror limited number of suppliers and, therefore, cannot be re-sourced quickly or inexpensively to another supplier (due to long lead times, new contractual commitments that may be required by another supplier before ramping up to provide the components or materials, etc.). Such single-source suppliers also could threaten to disrupt our production as leverage in negotiations. In addition, when we undertake a model changeover, significant downtime at one or more of our production facilities may be required, and our ability to return to full production may be delayed if we experience production difficulties at one of our facilities or a supplier’s facility. Moreover, as vehicles, components, and their integration become more complex, we may face an increased risk of a delay in production of new vehicles. ARegardless of the cause, our ability to recoup lost production volume may be limited. Accordingly, a significant disruption to our production schedule could have a substantial adverse effect on our financial condition or results of operations.operations and may impact our strategy to comply with fuel economy standards as discussed below under “Ford may need to substantially modify its product plans to comply with safety, emissions, fuel economy, autonomous vehicle, and other regulations.”
Item 1A. Risk Factors (Continued)
Ford’s ability to maintain a competitive cost structure could be affected by labor or other constraints. Substantially all of the hourly employees in our Automotive operations in the United States and Canada are represented by unions and covered by collective bargaining agreements. These agreements provide guaranteed wage and benefit levels throughout the contract term and some degree of income security, subject to certain conditions. These agreements may restrict our ability to close plants and divest businesses. A substantial number of our employees in other regions are represented by unions or government councils, and legislation or custom promoting retention of manufacturing or other employment in the state, country, or region may constrain as a practical matter our ability to sell or close manufacturing or other facilities.
Item 1A. Risk Factors (Continued)
Ford’s ability to attract and retain talented, diverse, and highly skilled employees is critical to its success and competitiveness. Our success depends on our ability to continue to recruit and retain talented and diverse employees who are highly skilled in engineering, software, technology (including digital capabilities and technology,connectivity), marketing, and finance, among other areas. Competition for such employees is intense, which has led to an increase in compensation throughout the labor market, and, the lossaccordingly, may increase costs for employers. In addition to compensation considerations, potential employees are increasingly placing a premium on various intangibles, such as working for companies with a clear purpose, flexible work arrangements, and other considerations. If we are not perceived as an employer of choice, we may be unable to recruit highly skilled employees. Further, if we lose existing employees with needed skills. or our inabilitywe are unable to recruit newupskill and develop existing employees, particularly with the introduction of new technologies, it could have a substantial adverse effect on our business.
Macroeconomic, Market, and Strategic Risks
Ford’s new and existing products, digital and physical services, and mobility services are subject to market acceptance. acceptance and face significant competition from existing and new entrants in the automotive, mobility, and digital services industries.Although we conduct extensive market research before launching new or refreshed vehicles and introducing new services, many factors both within and outside our control affect the success of new or existing products and services in the marketplace, and we may not be able to accurately predict or identify emerging trends or the success of new products or services in the market. It takes years to design and develop a new vehicle or change an existing vehicle. Because customers’ preferences may change quickly, our new and existing products may not generate sales in sufficient quantities and at costs low enough to be profitable.profitable and recoup investment costs. Offering vehicles and services that customers want and value can mitigate the risks of increasing price competition and declining demand, but products and services that are perceived to be less desirable (whether in terms of price, quality, styling, safety, overall value, fuel efficiency, or other attributes) can exacerbate these risks. For example, if we are unable to differentiate our products and services from those of our competitors, develop innovative new products and services, or sufficiently tailor our products and services to customers in other markets, like China, there could be insufficient demand for our products and services, which could have an adverse impact on our financial condition or results of operations.
With increased consumer interconnectedness through the internet, social media, and other media, mere allegations relating to quality, safety, fuel efficiency, corporate social responsibility, or other key attributes can negatively impact our reputation or market acceptance of our products or services, even where such allegations prove to be inaccurate or unfounded. Further, our ability to successfully grow through capacity expansion and investments in the areaareas of mobilityelectrification, connectivity, digital and electrificationphysical services, and mobility depends on many factors, including advancements in technology, regulatory changes, infrastructure development (e.g., a widespread vehicle charging network), and other factors that are difficult to predict, that may significantly affect the future of electric and autonomous vehicles, digital and physical services, and mobility services. The automotive, mobility, and mobilitydigital service businesses are very competitive and are undergoing rapid changes to our industry, including the introduction ofchanges. Traditional competitors are expanding their offerings, and new types of competitors (particularly in our areas of strength, e.g., pick-up trucks and utilities) that may possess technological innovations, increasesuperior technology, may have business models with certain aspects that are more efficient, and are not subject to the same level of fixed costs as us, are entering the market. This level of competition increases the importance that we are ableof our ability to anticipate, develop, and deliver products and services that customers desire on a timely basis, in quantities in line with demand, and at costs low enough to be profitable.
We have announced our intent to continue making multi-billion dollar investments in electrification and mobility. Our plans include offering electrified versions of many of our vehicles, including the F-150 Lightning and E-Transit. If the propulsion choices (such asmarket for electrified vehicles) or autonomous vehicles and services we offer dodoes not gain market acceptance ordevelop at the rate we expect, even if the regulatory framework encourages a rapid adoption of electrified vehicles, there is a negative perception of our vehicles or about electric vehicles in general, or if consumers prefer our competitors’ vehicles, there could be an adverse impact on our financial condition or results of operations. Further, as discussed below under “Ford may need to substantially modify its product plans to comply with safety, emissions, fuel economy, autonomous vehicle, and other regulations,” lower than planned market acceptance of our vehicles may impact our strategy to comply with fuel economy standards. Moreover, new offerings, including those related to electric and autonomous vehicles, may present technological challenges that could be costly to implement and overcome and may subject us to customer claims if they do not operate as anticipated. In addition, since new technologies are subject to market acceptance, a malfunction involving any manufacturer’s autonomous vehicle may negatively impact the perception of autonomous vehicles and erode customer trust.
Item 1A. Risk Factors (Continued)
Ford’s near-term results are dependent on sales of larger, more profitable vehicles, particularly in the United States. A shift in consumer preferences away from larger, more profitable vehicles with internal combustion engines (including trucks and utilities) at levels beyond our current planning assumption, whether because of spiking fuel prices, a decline in the construction industry, government actions or incentives,to battery electric or other reasons,vehicles in our portfolio that may be less profitable could result in an immediate and substantial adverse effect on our financial condition or results of operations.operations in the near term. In the longer term, if demand for battery electric vehicles grows at a rate greater than our ability to increase our production capacity for those vehicles, lower market share and revenue, as well as facility and other asset-related charges (e.g., accelerated depreciation) associated with the production of internal combustion vehicles, may result.
Item 1A. Risk Factors (Continued)
With a global footprint, Ford’s results could be adversely affected by economic, geopolitical, protectionist trade policies, or other events, including tariffs and Brexit.tariffs. With the increasing interconnectedness of the global economy, the challenges of a pandemic, a financial crisis, economic downturn or recession, natural disaster, geopolitical crisis, or other significant event in one area of the world can have an immediate and material adverse impact on markets around the world. Changes in international trade policy can also have a substantial adverse effect on our financial condition or results of operations. For example, stepsSteps taken by the U.S. government to apply or consider applying tariffs on automobiles, parts, and other products and materials have the potential to disrupt existing supply chains, impose additional costs on our business, affect the demand for our products, and make us less competitive. Further,may lead to other countries attempting to retaliate by imposing tariffs, which would increase the costmake our products more expensive for us to importcustomers in other markets, and, in turn, could make our vehicles into such countries. In addition, changes to and withdrawals from existing trade agreements and the entry into new trade agreements between governments may impact our results of operations.
products less competitive. China in particular, presents unique risks to U.S. automakers due to its unique competitive and regulatory landscape. For example, we have established joint ventures in China, and, as discussed above under “Ford may not realize the anticipated benefits of existing or pending strategic alliances, joint ventures, acquisitions, divestitures, or new business strategies,” we do not have the ability to control or operate those joint ventures for our sole benefit. Changes in the Chinese economy, and the automotive market in particular, are driving significant changes to our business model for operating in China. Moreover, changesstrain in U.S.-China trade policyrelations and new or increased tariffs, as well as a further economic slowdown, may have an adverse effect on our financial condition or results of operations.China’s unique regulatory landscape.
In Europe, the United Kingdom withdrew from the European Union effective as of January 31, 2020, and is now in a period of transition until the end of 2020. The transition period maintains all existing trading arrangements. During the transition period, the United Kingdom and European Union will negotiate future trading arrangements. Until a final agreement has been reached, an exit without a trade agreement in place, which would result in the United Kingdom losing access to free trade agreements for goods and services with the European Union and other countries, continues to be a risk. An exit from the European Union without an agreement in place would likely result in a significant reduction in industry volumes in the United Kingdom, increased tariffs on U.K. imports and exports, and delays at the U.K. border, which could have a substantial adverse impact on our financial condition or results of operations. To the extent there is a negotiated Brexit, the implementation of any agreements reached, and the changes to current operations and processes resulting therefrom, could have an adverse impact on our operations.
We have operations in various markets with volatile economic or political environments and are pursuing growth opportunities in a number of newly developed and emerging markets. These investmentsenvironments. This may expose us to heightened risks of economic, geopolitical, or other events, including governmental takeover (i.e., nationalization) of our manufacturing facilities or intellectual property, restrictive exchange or import controls, disruption of operations as a result of systemic political or economic instability, outbreak of war or expansion of hostilities, and acts of terrorism, each of which could have a substantial adverse effect on our financial condition or results of operations. Further, the U.S. government, other governments, and international organizations could impose additional sanctions that could restrict us from doing business directly or indirectly in or with certain countries or parties, which could include affiliates.
Industry sales volume in any of ourFord’s key markets can be volatile and could decline if there is a financial crisis, recession, or significant geopolitical event. Because we, like other manufacturers, have a high proportion of relatively fixed structural costs, relatively small changes in industry sales volume can have a substantial effect on our cash flow and results of operations. Industry vehicle sales are affected by overall economic and market conditions.conditions and developing trends such as shared vehicle ownership and the transportation as a service model, e.g., ridesharing services. If industry vehicle sales were to decline to levels significantly below our planning assumption for key markets including the United States, Europe, or China, the decline could have a substantial adverse effect on our financial condition, results of operations, and cash flow. For a discussion of economic trends, see Item 7.
Item 1A. Risk Factors (Continued)
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. The global automotive industry is intensely competitive, with manufacturing capacity generally far exceeding current demand. Industrydemand (the recent capacity constraints being a temporary exception). Historically, industry overcapacity has resulted in many manufacturers offering marketing incentives on vehicles in an attempt to maintain and grow market share; these incentives historically have included a combination of subsidized financing or leasing programs, price rebates, and other incentives. As a result, we are not necessarily able to set our prices to offset higher costs of marketing incentives, commodity or other cost increases, tariffs, or the impact of adverse currency fluctuations, including pricingcost advantages foreign competitors may have because of their weaker home market currencies. Continuation of or increasedcurrencies, which may, in turn, enable those competitors to offer their products at lower prices. As the automotive industry transitions to battery electric vehicles, excess capacity, particularly for internal combustion engine trucks and utilities, may continue or increase. This excess capacity may further increase price competition in that segment of the market, which could have a substantial adverse effect on our financial condition or results of operations.
Fluctuations
Item 1A. Risk Factors (Continued)
Inflationary pressure and fluctuations in commodity prices, foreign currency exchange rates, interest rates, and market value of ourFord or Ford Credit’s investments, including marketable securities, can have a significant effect on results. We are exposed to inflationary pressure and a variety of market risks, including the effects of changes in commodity prices, foreign currency exchange rates, and interest rates. We monitor and manage these exposures as an integral part of our overall risk management program, which recognizes the unpredictability of markets and seeks to reduce potentially adverse effects on our business. Changes in commodity prices (from tariffs, as discussed above under “With a global footprint, Ford’s results could be adversely affected by economic, geopolitical, protectionist trade policies, or other events, including tariffs and Brexit,” or otherwise), currency exchange rates, and interest rates cannot always be predicted, hedged, or offset with price increases to eliminate earnings volatility. As a result, significant changes in commodity prices, foreign currency exchange rates, or interest rates could have a substantial adverse effect on our financial condition or results of operations. See Item 7 and Item 7A for additional discussion of currency, commodity price, and interest rate risks. In addition, our results are impacted by fluctuations in the market value of our investments, which are includedincluding our Rivian marketable securities, with unrealized gains and losses that could be material in Corporate Other.any period.
Financial Risks
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 and Ford Credit’s ability to obtain unsecured funding at a reasonable cost is dependent on their credit ratings or their perceived creditworthiness. Further, Ford Credit’s ability to obtain securitized funding under its committed asset-backed liquidity programs and certain other asset-backed securitization transactions is subject to having a sufficient amount of assets eligible for these programs, as well as Ford Credit’s ability to obtain appropriate credit ratings and, for certain committed programs, derivatives to manage the interest rate risk. Over time, and particularly in the event of credit rating downgrades, market volatility, market disruption, or other factors, Ford Credit may reduce the amount of receivables it purchases or originates because of funding constraints. The potential discontinuance of LIBOR is one such risk that could cause market volatility or disruption. In July 2017, the chief executive of the United Kingdom Financial Conduct Authority (the “FCA”), which regulates LIBOR, announced that the FCA intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. It is unknown whether any banks will continue to voluntarily submit rates for the calculation of LIBOR after 2021 or whether LIBOR will continue to be published by its administrator based on these submissions or on any other basis. It is not possible to predict the effect of these changes, other reforms, or the establishment of alternative reference rates, but the potential discontinuance of LIBORdisruption and could adversely affect Ford Credit’s access to the debt, securitization, or derivative markets and increase its cost of funding and hedging. In addition, Ford Credit may reduce the amount of receivables it purchases or originates if there is a significant decline in the demand for the types of securities it offers or Ford Credit is unable to obtain derivatives to manage the interest rate risk associated with its securitization transactions. A significant reduction in the amount of receivables Ford Credit purchases or originates would significantly reduce its ongoing results of operations and could adversely affect its ability to support the sale of Ford vehicles.
Item 1A. Risk Factors (Continued)
Ford’s receipt of government incentives could be subject to reduction, termination, or clawback. We receive economic benefits from national, state, and local governments in various regions of the world in the form of incentives designed to encourage manufacturers to establish, maintain, or increase investment, workforce, or production. These incentives may take various forms, including grants, loan subsidies, or tax abatements or credits. The impact of these incentives can be significant in a particular market during a reporting period. For example, most of our manufacturing facilities in South America are located in Brazil, where the state or federal governments have historically offered, and continue to offer, significant incentives to manufacturers to encourage capital investment, increase manufacturing production, and create jobs. As a result, the performance of our South American operations has been impacted favorably by government incentives to a substantial extent. In Brazil, however, the federal government has levied assessments against us concerning our calculation of federal incentives we received, and certain states have challenged the grant to us of tax incentives by the State of Bahia. A decrease in, expiration without renewal of, or other cessation or clawback of government incentives for any of our business units, as a result of administrative decision or otherwise, could have a substantial adverse impact on our financial condition or results of operations. Until 2021, most of our manufacturing facilities in South America were located in Brazil, where the state or federal governments historically offered significant incentives to manufacturers to encourage capital investment, increase manufacturing production, and create jobs. As a result, the performance of our South American operations had been impacted favorably by government incentives to a substantial extent. The federal government in Brazil has levied assessments against us concerning the federal incentives we previously received, and the State of São Paulo has challenged the grant to us of tax incentives by the State of Bahia. See Note 2 of the Notes to the Financial Statements for discussion of our accounting for government incentives, and “Item 3. Legal Proceedings” for a discussion of tax proceedings in Brazil and the potential requirement for us to post collateral.
Item 1A. Risk Factors (Continued)
Ford Credit could experience higher-than-expected credit losses, lower-than-anticipated residual values, or higher-than-expected return volumes for leased vehicles. Credit risk is the possibility of loss from a customer’s or dealer’s failure to make payments according to contract terms. Credit risk (which is heavily dependent upon economic factors including unemployment, consumer debt service burden, personal income growth, dealer profitability, and used car prices) has a significant impact on Ford Credit’s business. The level of credit losses Ford Credit may experience could exceed its expectations and adversely affect its financial condition or results of operations. In addition, Ford Credit projects expected residual values (including residual value support payments from Ford) and return volumes for the vehicles it leases. Actual proceeds realized by Ford Credit upon the sale of returned leased vehicles at lease termination may be lower than the amount projected, which would reduce Ford Credit’s return on the lease transaction. Among the factors that can affect the value of returned lease vehicles are the volume and mix of vehicles returned industry-wide, economic conditions, marketing programs, and quality or perceived quality, safety, fuel efficiency, or reliability of the vehicles, or changes in propulsion technology and related legislative changes. Actual return volumes may be influenced by these factors, as well as by contractual lease-end values relative to auction values. In 2021, Ford Credit experienced lower-than-expected return volumes. If auction values decrease significantly in the future, return volumes could exceed Ford Credit’s expectations. Each of these factors, alone or in combination, has the potential to adversely affect Ford Credit’s results of operations if actual results were to differ significantly from Ford Credit’s projections. See “Critical Accounting Estimates” in Item 7 for additional discussion.
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. The measurement of our obligations, costs, and liabilities associated with benefits pursuant to our pension and other postretirement benefit plans requires that we estimate the present value of projected future payments to all participants. We use many assumptions in calculating these estimates, including assumptions related to discount rates, investment returns on designated plan assets, and demographic experience (e.g., mortality and retirement rates). We generally remeasure these estimates at each year end and recognize any gains or losses associated with changes to our plan assets and liabilities in the year incurred. To the extent actual results are less favorable than our assumptions, we may recognize a substantial remeasurement loss in our results.results, which could be substantial. For discussion ofadditional information regarding our assumptions, see “Critical Accounting Estimates” in Item 7 and Note 1817 of the Notes to the Financial Statements.
Pension and other postretirement liabilities could adversely affect Ford’s liquidity and financial condition. We have defined benefit retirement plans in the United States that cover many of our hourly and salaried employees. We also provide pension benefits to non-U.S. employees and retirees, primarily in Europe. In addition, we and certain of our subsidiaries sponsor plans to provide other postretirement benefits (“OPEB”) for retired employees (primarily health care and life insurance benefits). See Note 1817 of the Notes to the Financial Statements for more information about these plans. These benefit plans impose significant liabilities on us and could require us to make additional cash contributions, which could impair our liquidity. If our cash flows and capital resources wereare insufficient to meet any pension or OPEB obligations, we could be forced to reduce or delay investments and capital expenditures, suspend dividend payments, seek additional capital, or restructure or refinance our indebtedness.
Item 1A. Risk Factors (Continued)
Legal and Regulatory Risks
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. We spend substantial resources ensuring that we comply with governmental safety regulations, mobile and stationary source emissions regulations, consumer and automotive financial regulations, and other standards, but we cannot ensure that employees or other individuals affiliated with us will not violate such laws or regulations. In addition, as discussed below under “Ford may need to substantially modify its product plans to comply with safety, emissions, fuel economy, autonomous vehicle, and other regulations” and “Ford Credit could be subject to new or increased credit regulations, consumer protection regulations, or other regulations,” regulatory standards and interpretations may change on short notice and impact our compliance status. Moreover, compliance with governmental standards does not necessarily prevent individual or class action lawsuits, which can entail significant cost and risk. In certain circumstances, courts may permit tort claimscivil actions even where our vehicles, services, and financial products comply with federal and/or other applicable law. Furthermore, simply responding to actual or threatened litigation or government investigations of our compliance with regulatory standards, whether related to our products, services, or business or commercial relationships, requires significant expenditures of time and other resources. Litigation also is inherently uncertain, and we could experience significant adverse results, which could have an adverse effect on our financial condition or results of operations. In addition, adverse publicity surrounding an allegation may cause significant reputational harm that could have a significant adverse effect on our sales.
Item 1A. Risk Factors (Continued)
Ford may need to substantially modify its product plans to comply with safety, emissions, fuel economy, autonomous vehicle, and other regulations that may change in the future.regulations. The worldwide automotive industry is governedsubject to regulations worldwide that govern product characteristics and that differ by a substantial amount of government regulation, which often differs by state,global region, country, and country, while proposals forsometimes within national boundaries. Further, additional regulationand new regulations continue primarily out of concern forto be proposed to address concerns regarding the environment (including concerns about global climate change and its impact), vehicle safety, and energy independence. Theindependence, and the regulatory landscape is in flux and can change on short notice. For example, as discussed above under “Item 1. Business - Governmental Standards,” the European Union recently imposed stringent new regulations governing motor vehicle fleet CO2 emissions beginning in 2020, with significant potential penalties for excess emissions. In the United States, legal battlesand policy debates are taking shape overcontinuing, with a primary focus on reducing GHG emissions and increasing vehicle electrification. The Trump administration rolled back Obama administration GHG standards through the 2026 model year and sought to block California’s authority to adopt its own regulations as well as other states’ authority to opt in to California’s standards. States, environmental regulatory standards.groups, and others challenged both of those Trump administration actions in court. The Biden administration has completed actions to reverse the rollback of GHG emissions standards and repeal a NHTSA rule blocking California whichand other states’ authority, and the administration is expected to reverse NHTSA’’s rollback of fuel economy standards and EPA’s action blocking California and other states’ authority. California has an ambitious plan to reduce overall GHG emissions to 40% below 1990 levels by 2030 and EPA is vigorously opposing an effortalso developing new and more stringent GHG emissions standards after the 2026 model year. Court rulings and actions by the federal, government to preemptCalifornia, and other state regulations governing motor vehicle GHG emissions. With the backing of other states, California continues to assert its right to promulgate and enforce stringent motor vehicle GHG and ZEV regulations. These conflicts give rise toregulators create regulatory uncertainty and create the possibility thatpotential for applicable regulatory standards mayto change quickly as a result of court rulings.quickly. In addition, many governments regulate local product content and/or impose import requirements with the intentaim of creating jobs, protecting domestic producers, and influencing the balance of payments.
We are continuing to make changes to our product cycle plan to improve the fuel economy of our petroleum-powered vehicles and to offer more propulsion choices, such as electrified vehicles, with lower GHG emissions. There are limits on our ability to achieve fuel economy improvements over a given time frame, however, primarily relating to the cost and effectiveness of available technologies, consumer acceptance of new technologies and changes in vehicle mix (as described in more detail above under “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”), willingness of consumers to absorb the additional costs of new technologies, the appropriateness (or lack thereof) of certain technologies for use in particular vehicles, the widespread availability (or lack thereof) of supporting infrastructure for new technologies, and the human, engineering, and financial resources necessary to deploy new technologies across a wide range of products and powertrains in a short time. If fuel prices remainare relatively low and market conditions do not drive consumers to purchase electric vehicles and other highly fuel-efficient vehicles in large numbers, it may be difficult to meet applicable environmental standards without compromising results. Moreover, a production disruption, stop ship, limited availability of necessary components, e.g., batteries, lower than planned market acceptance of our vehicles, or other intervening events may cause us to modify our product plans, or, in some cases, purchase credits, in order to comply with fuel economy standards, which could have an adverse effect on our financial condition or results of operations and/or cause reputational harm.
Increased scrutiny of automaker emission testing by regulators around the world has led to new regulations, more stringent enforcement programs, requests for field actions, demands for reporting on the field performance of emissions components and higher scrutiny of field data, and/or delays in regulatory approvals. The cost to comply with existing government regulations (in addition to the cost of any field service actions that may result from regulatory actions) is substantial and additional regulations, changes in regulatory interpretations, or changes in consumer preferences that affect vehicle mix could have a substantial adverse impact on our financial condition or results of operations. In addition, a number of governments, as well as NGOs,non-governmental organizations, publicly assess vehicles to their own protocols. The protocols could change, and any negative perception regarding the performance of our vehicles subjected to such tests could reduce future sales. Court decisions arising out of consumer and investor litigation could give rise to de facto changes in the interpretation of existing emission laws and regulations, thereby imposing new burdens on manufacturers. For more discussion of the impact of standards on our global business, see the “Governmental Standards” discussion in “Item 1. Business” above.
Item 1A. Risk Factors (Continued)
We and other companies continue to develop autonomous vehicle technologies, and the U.S. and foreign governments are continuing to develop the regulatory framework that will govern autonomous vehicles. The evolution of the regulatory framework for autonomous vehicles, and the pace of the development of such regulatory framework, may subject us to increased costs and uncertainty, and may ultimately impact our ability to deliver autonomous vehicles and related services that customers want.
Item 1A. Risk Factors (Continued)
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 consumerconsumers’ heightened expectations for the safeguarding ofto safeguard their personal information. We are subject to laws, rules, guidelines from privacy regulators, and regulations in the United States and other countries (such as the European Union’s General Data Protection Regulation and the California Consumer Privacy Act) relating to the collection, use, cross-border data transfer, and security of personal information of consumers, employees, or others, including laws that may require us to notify regulators and affected individuals of a data security incident. Complying withExisting and newly developed laws and regulations whichmay contain broad definitions of personal information, are subject to change and uncertain interpretations by courts and regulators, and may be inconsistent from state to state or country to country,country. Accordingly, complying with such laws and regulations may lead to a decline in consumer engagement or cause us to incur substantial costs orto modify our operations or business practices. Moreover, regulatory actions seeking to impose significant financial penalties for noncompliance and/or legal actions (including pursuant to laws providing for private rights of action by consumers) could be brought against us in the event of a data compromise, misuse of consumer information, or perceived or actual non-compliance with data protection or privacy requirements. Further, any unauthorized release of personally identifiablepersonal information could harm our reputation, disrupt our business, cause us to expend significant resources, and lead to a loss of consumer confidence resulting in an adverse impact on our business and/or consumers deciding to withhold or withdraw consent for our collection or use of data.
Ford Credit could be subject to new or increased credit regulations, consumer protection regulations, or other regulations. As a finance company, Ford Credit is highly regulated by governmental authorities in the locations in which it operates, which can impose significant additional costs and/or restrictions on its business. In the United States, for example, Ford Credit’s operations are subject to regulation and supervision under various federal, state, and local laws, including the federal Truth-in-Lending Act, Consumer Leasing Act, Equal Credit Opportunity Act, and Fair Credit Reporting Act.
The Dodd-Frank Act directs federal agencies to adopt rules to regulate the finance industry and the capital markets and gives the Consumer Financial Protection Bureau (“CFPB”) broad rule-making and enforcement authority for a wide range of consumer financial protection laws that regulate consumer finance businesses, such as Ford Credit’s automotive financing business. Exercise of these powers by the CFPB may increase the costs of, impose additional restrictions on, or otherwise adversely affect companies in the automotive finance business. The CFPB has authority to supervise and examine the largest nonbank automotive finance companies, such as Ford Credit, for compliance with consumer financial protection laws.
Failure to comply with applicable laws and regulations could subject Ford Credit to regulatory enforcement actions, including consent orders or similar orders where Ford Credit may be required to revise practices, remunerate customers, or pay fines. An enforcement action against Ford Credit could harm Ford Credit’s reputation or lead to further litigation.
ITEM 1B. Unresolved Staff Comments.
None.
ITEM 2. Properties.
Our principal properties include manufacturing and assembly facilities, distribution centers, warehouses, sales or administrative offices, and engineering centers.
We own substantially all of our U.S. manufacturing and assembly facilities. Our facilities are situated in various sections of the country and include assembly plants, engine plants, casting plants, metal stamping plants, transmission plants, and other component plants. Most of our distribution centers are leased (we own approximately 40%35% of the total square footage, and lease the balance). The majority of the warehouses that we operate are leased, although many of our manufacturing and assembly facilities contain some warehousing space. Substantially all of our sales offices are leased space. Approximately 90% of the total square footage of our engineering centers and our supplementary research and development space is owned by us.
In addition, we maintain and operate manufacturing plants, assembly facilities, parts distribution centers, and engineering centers outside of the United States. We own substantially all of our non-U.S. manufacturing plants, assembly facilities, and engineering centers. The majority of our parts distribution centers outside of the United States are either leased or provided by vendors under service contracts.
We and the entities that we consolidated as of December 31, 20192021 use eight regional engineering, research, and development centers, and 5548 manufacturing and assembly plants, which includes plants that are operated by us or our consolidated joint venturesventure that support our Automotive segment.
TheWe have one significant consolidated joint venturesventure in our Automotive segment:
•Ford Vietnam Limited — a joint venture between Ford (75% partner) and Diesel Song Cong One Member Limited Liability Company (a subsidiary of the numberVietnam Engine and Agricultural Machinery Corporation, which in turn is majority owned (87.43%) by the State of plants each owns are as follows:Vietnam represented by the Ministry of Industry and Trade) (25% partner). Ford Vietnam Limited assembles and distributes a variety of Ford passenger and commercial vehicle models. The joint venture operates one plant in Vietnam.
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• | Ford Lio Ho Motor Company Ltd. (“FLH”) — a joint venture in Taiwan among Ford (70% partner), the Lio Ho Group (25% partner), and individual shareholders (5% ownership in aggregate) that assembles a variety of Ford vehicles sourced from Ford. In addition to domestic assembly, FLH imports Ford brand built-up vehicles from Asia Pacific, Europe, and the United States. The joint venture operates one plant in Taiwan.
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• | Ford Vietnam Limited — a joint venture between Ford (75% partner) and Diesel Song Cong One Member Limited Liability Company (a subsidiary of the Vietnam Engine and Agricultural Machinery Corporation, which in turn is majority owned (87.43%) by the State of Vietnam represented by the Ministry of Industry and Trade) (25% partner). Ford Vietnam Limited assembles and distributes a variety of Ford passenger and commercial vehicle models. The joint venture operates one plant in Vietnam.
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In addition to the plants that we operate directly or that are operated by our consolidated joint ventures,venture, additional plants that support our Automotive segment are operated by unconsolidated joint ventures of which we are a partner. The most significant of the automotiveour Automotive and Mobility segment unconsolidated joint ventures are as follows:
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• | AutoAlliance (Thailand) Co., Ltd. (“AAT”) — a 50/50 joint venture between Ford and Mazda that owns and operates a manufacturing plant in Rayong, Thailand. AAT produces Ford and Mazda products for domestic and export sales.
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•Argo AI, LLC — Argo AI is a self-driving technology platform company with offices in Pittsburgh, PA, Palo Alto, CA, Allen Park, MI, Cranbury, NJ, and Munich, Germany. Ford and Volkswagen each hold 41% of the ownership interests in Argo AI, with the remaining interests held by employees, founders, and Lyft.
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• | Changan Ford Automobile Corporation, Ltd. (“CAF”) — a 50/50 joint venture between Ford and Chongqing Changan Automobile Co., Ltd. (“Changan”). CAF operates five assembly plants, an engine plant, and a transmission plant in China where it produces and distributes a variety of Ford passenger vehicle models.
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•AutoAlliance (Thailand) Co., Ltd. (“AAT”) — a 50/50 joint venture between Ford and Mazda that owns and operates a manufacturing plant in Rayong, Thailand. AAT produces Ford and Mazda products for domestic and export sales.
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• | Ford Otomotiv Sanayi Anonim Sirketi (“Ford Otosan”) — a joint venture in Turkey among Ford (41% partner), the Koc Group of Turkey (41% partner), and public investors (18%) that is the sole supplier to us of the Transit, Transit Custom, and Transit Courier commercial vehicles for Europe and is our sole distributor of Ford vehicles in Turkey. Ford Otosan also manufactures the Cargo truck for the Turkish and certain export markets and certain engines and transmissions, as well as certain components mainly for the Transit for supply to other regions. The joint venture owns three plants, a parts distribution depot, and a research and development center in Turkey.
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•Changan Ford Automobile Corporation, Ltd. (“CAF”) — a 50/50 joint venture between Ford and Chongqing Changan Automobile Co., Ltd. (“Changan”). CAF operates four assembly plants, an engine plant, and a transmission plant in China where it produces and distributes a variety of Ford passenger vehicle models.
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• | Ford Sollers Netherlands B.V. (“Ford Sollers”) — a joint venture between Ford (49% shareholder) and Sollers PJSC (“Sollers”) (51% shareholder). The joint venture is primarily engaged in manufacturing light commercial vehicles for sale in Russia, and has an exclusive right to manufacture, assemble, and distribute light commercial Ford vehicles in Russia through the licensing of certain trademarks and intellectual property rights. The joint venture operates one manufacturing facility in Russia.
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•Ford Lio Ho Motor Company Ltd. (“FLH”) — a joint venture in Taiwan between Ford (26% partner) and local partners (74% ownership in aggregate) that assembles a variety of Ford vehicles sourced from Ford. In addition to domestic assembly, FLH imports Ford brand built-up vehicles from Asia Pacific, Europe, and the United States. The joint venture operates one plant in Taiwan.
•Ford Otomotiv Sanayi Anonim Sirketi (“Ford Otosan”) — a joint venture in Turkey among Ford (41% partner), the Koc Group of Turkey (41% partner), and public investors (18%) that is the sole supplier to us of the Transit, Transit Custom, and Transit Courier commercial vehicles for Europe and is our sole distributor of Ford vehicles in Turkey. Ford Otosan also manufactures Ford heavy trucks for markets in Europe, the Middle East, and Africa. The joint venture owns three plants, a parts distribution depot, and a research and development center in Turkey.
Item 2. Properties (Continued)
•Ford Sollers Netherlands B.V. (“Ford Sollers”) — a joint venture between Ford (49% shareholder) and Sollers PJSC (“Sollers”) (51% shareholder). The joint venture is primarily engaged in manufacturing light commercial vehicles for sale in Russia, and has an exclusive right to manufacture, assemble, and distribute light commercial Ford vehicles in Russia through the licensing of certain trademarks and intellectual property rights. The joint venture operates one manufacturing facility in Russia.
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• | Getrag Ford Transmissions GmbH (“GFT”)•JMC — a publicly-traded company in China with Ford (32% shareholder) and Nanchang Jiangling Investment Co., Ltd. (41% shareholder) as its controlling shareholders. Nanchang Jiangling Investment Co., Ltd. is a 50/50 joint venture between Changan and Jiangling Motors Company Group. The public investors in JMC own 27% of its total outstanding shares. JMC assembles Ford Transit, a series of Ford SUVs, Ford engines, and non-Ford vehicles and engines for distribution in China and in other export markets. JMC operates two assembly plants and one engine plant in Nanchang.
— a 50/50 joint venture with Magna PT International GmbH (formerly Getrag International GmbH), a German company owned by Magna Powertrain GmbH. GFT operates plants in Halewood, England; Cologne, Germany; and Bordeaux, France and produces, among other things, manual transmissions for our Europe business unit.
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• | JMC — a publicly-traded company in China with Ford (32% shareholder) and Nanchang Jiangling Investment Co., Ltd. (41% shareholder) as its controlling shareholders. Nanchang Jiangling Investment Co., Ltd. is a 50/50 joint venture between Changan and Jiangling Motors Company Group. The public investors in JMC own 27% of its total outstanding shares. JMC assembles Ford Transit, Ford Everest, Ford Territory, Ford engines, and non-Ford vehicles and engines for distribution in China and in other export markets. JMC operates two assembly plants and one engine plant in Nanchang, and is constructing a new vehicle assembly plant in Nanchang. JMC also operates a plant in Taiyuan that assembles heavy duty trucks and engines.
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The facilities described above are, in the opinion of management, suitable and adequate for the manufacture and assembly of our and our joint ventures’ products.
The furniture, equipment, and other physical property owned by our Ford Credit operations are not material in relation to the operations’ total assets.
ITEM 3. Legal Proceedings.
The litigation process is subject to many uncertainties, and the outcome of individual matters is not predictable with assurance. See Note 2725 of the Notes to the Financial Statements for a discussion of loss contingencies. Following is a discussion of our significant pending legal proceedings:
PRODUCT LIABILITY MATTERS
We are a defendant in numerous actions in state and federal courts within and outside of the United States alleging damages from injuries resulting from (or aggravated by) alleged defects in our vehicles. In many actions, no monetary amount of damages is specified or the specific amount alleged is the jurisdictional minimum. Our experience with litigation alleging a specific amount of damages suggests that such amounts, on average, bear little relation to the actual amount of damages, if any, that we will pay in resolving such matters.
In addition to pending actions, we assess the likelihood of incidents that likely have occurred but not yet been reported to us. We also take into consideration specific matters that have been raised as claims but have not yet proceeded to litigation. Individual product liability matters which,that have more than a remote risk of loss and such loss would likely be significant if the matter is resolved unfavorably to the Company, likely would involve a significant costus would be described herein. Currently there are no such matters to report.
ASBESTOS MATTERS
Asbestos was used in some brakes, clutches, and other automotive components from the early 1900s. Along with other vehicle manufacturers, we have been the target of asbestos litigation and, as a result, are a defendant in various actions for injuries claimed to have resulted from alleged exposure to Ford parts and other products containing asbestos. Plaintiffs in these personal injury cases allege various health problems as a result of asbestos exposure, either from component parts found in older vehicles, insulation or other asbestos products in our facilities, or asbestos aboard our former maritime fleet. We believe that we are targeted more aggressively in asbestos suits because many previously targeted companies have filed for bankruptcy or emerged from bankruptcy relieved of liability for such claims.
Item 3. Legal Proceedings (Continued)
Most of the asbestos litigation we face involves individuals who claim to have worked on the brakes of our vehicles. We are prepared to defend these cases and believe that the scientific evidence confirms our long-standing position that there is no increased risk of asbestos-related disease as a result of exposure to the type of asbestos formerly used in the brakes on our vehicles. The extent of our financial exposure to asbestos litigation remains very difficult to estimate and could include both compensatory and punitive damage awards. The majority of our asbestos cases do not specify a dollar amount for damages; in many of the other cases the dollar amount specified is the jurisdictional minimum, and the vast majority of these cases involve multiple defendants, sometimes more than one hundred. Many of these cases also involve multiple plaintiffs, and often we are unable to tell from the pleadings which plaintiffs are making claims against us (as opposed to other defendants). Annual payout and defense costs may become significant in the future. Our accrual for asbestos matters includes probable losses for both asserted and unasserted claims.
Item 3. Legal Proceedings (Continued)
CONSUMER MATTERS
We provide warranties on the vehicles we sell. Warranties are offered for specific periods of time and/or mileage and vary depending upon the type of product and the geographic location of its sale. Pursuant to these warranties, we will repair, replace, or adjust all parts on a vehicle that are defective in factory-supplied materials or workmanship during the specified warranty period. We are a defendant in numerous actions in state and federal courts alleging breach of warranty and claiming damages based on state and federal consumer protection laws and breach of warranty obligations.laws. Remedies under these statutes may include vehicle repurchase, civil penalties, and payment by Ford of the plaintiff’s attorneyattorneys’ fees. In some cases, plaintiffs also include an allegation of fraud. Remedies for a fraud claim may include contract rescission, vehicle repurchase, and punitive damages.
The cost of these litigation matters is included in our warranty costs. We accrue obligations for warranty costs at the time of sale using a patterned estimation model that includes historical information regarding the nature, frequency, and average cost of claims for each vehicle line by model year. We reevaluate the adequacy of our accruals on a regular basis.
We are currently a defendant in a significant number of litigation matters relating to the performance of vehicles, including those equipped with DPS6 transmissions.
ENVIRONMENTAL MATTERS
We have received notices under various federal and state environmental laws that we (along with others) are or may be a potentially responsible party for the costs associated with remediating numerous hazardous substance storage, recycling, or disposal sites in many states and, in some instances, for natural resource damages. We also may have been a generator of hazardous substances at a number of other sites. The amount of any such costs or damages for which we may be held responsible could be significant.
We At this time, we have one environmentalno legal proceeding toproceedings arising under any federal, state, or local provisions that have been enacted or adopted regulating the discharge of materials into the environment or primarily for the purpose of protecting the environment, in which (i) a governmental authority is a party, and in which(ii) we believe there is the possibility of monetary sanctions (exclusive of interest and costs) in excess of $100,000:
$1,000,000.
Notice of Violation to Ford Chicago Assembly Plant
. On August 17, 2015, U.S. EPA issued a notice of violation to our Chicago Assembly Plant. EPA alleges that the plant violated several requirements related to its air permit. Monetary sanctions, if any, have not yet been determined.
CLASS ACTIONS
In light of the fact that very few of the purported class actions filed against us in the past have ever been certified by the courts as class actions, in general we list those actions that (i) have been certified as a class action by a court of competent jurisdiction (and any additional purported class actions that raise allegations substantially similar to an existing and certified class), and (ii) have more than a remote risk of loss, and such loss would likely would involve abe significant cost if the action is resolved unfavorably to the Company.us. At this time, other than as described below, we have no such class actions filed against us.
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In re: Takata Airbag Product Liability Litigation; Economic Loss Track Cases Against Ford Motor Company. On July 16, 2018, Ford entered into a settlement agreement related to a consumer economic loss class action pending before the U.S. District Court for the Southern District of Florida. The first case was originally filed on October 27, 2014, against Ford, Takata, and several other automotive manufacturers, and was brought by consumers who own or owned vehicles equipped with Takata airbag inflators. Additional cases were subsequently filed in courts throughout the United States and consolidated into a multidistrict case before the Florida court, which also included personal injury claims and claims by automotive recyclers. Ford’s July 16, 2018 settlement relates only to the consumer economic loss matters. In these cases, plaintiffs allege that Ford vehicles equipped with Takata airbags are defective and that Ford did not disclose this defect to consumers. Plaintiffs allege that they suffered several forms of economic damages as a result of purchasing vehicles with defective airbags. The settlement is for $299 million, which is subject to certain discounts, and is subject to court approval. On December 20, 2018, the court overruled all objections and entered a final order approving the settlement. Several objectors then filed notices of appeal of the trial court’s order. On December 10, 2019, plaintiffs filed a motion with the court indicating they reached an agreement with the objectors to resolve the dispute. The agreement does not increase the total cost to Ford of the settlement. On January 23, 2020, the court held a hearing on the motion to approve the agreement, and on January 27, 2020, the court entered an “Indicative Ruling” indicating it would approve the agreement. The U.S. Court of Appeals for the Eleventh Circuit will review this ruling and consider whether to dismiss the objectors’ appeal.
Item 3. Legal Proceedings (Continued)
OTHER MATTERS
Brazilian Tax Matters. TwoOne Brazilian statesstate (São Paulo) and the Brazilian federal tax authority currently have outstanding substantial tax assessments against Ford BrazilMotor Company Brasil Ltda. (“Ford Brazil”) related to state and federal tax incentives Ford Brazil receivesreceived for its operations in the Brazilian state of Bahia. All assessments have been appealed to the relevant administrative court of each jurisdiction. Our appeals with the State of The São Paulo and the federal tax authority remain at the administrative level. In the State of Minas Gerais, where three cases are pending, one remains at the administrative level and two have been appealed to the judicial court. To proceed with an appeal within the judicial court system, an appellant may be required to post collateral, which would likely be significant. To date we have not been required to post any collateral.
The state assessments areassessment is part of a broader conflict among various states in Brazil. The federal legislature enacted laws designed to encourage the states to end that conflict, and in 2017 the states reached an agreement on a framework for resolution. Ford Brazil continues to pursue a resolution under the framework and expects the amount of any remaining assessments by the states to be resolved under that framework. The federal assessments are outside the scope of the legislation.
Transit Connect Customs Ruling.
On March 8, 2013, U.S. Customs and Border Protection (“CBP”) ruled that Transit Connects imported as passenger wagons and later converted into cargo vans are subject
All of the outstanding assessments have been appealed to the 25% duty applicablerelevant administrative court of each jurisdiction. To proceed with an appeal within the judicial court system, an appellant may be required to cargo vehicles, rather than the 2.5% duty applicablepost collateral. To date, we have not been required to passenger vehicles. As a resultpost any collateral. If we are required to post collateral, which could be in excess of the ruling, CBP is requiring Ford$1 billion, we expect it to pay the 25% duty upon importation of Transit Connects that will be converted to cargo vehicles, and is seeking the difference in duty rates for prior imports. Our protest of the ruling within CBP was denied, and we filed a challenge in the U.S. Courtform of International Trade (“CIT”). On August 9, 2017,fixed assets, surety bonds, and/or letters of credit, but we may be required to post cash collateral. Although the CIT ruled inultimate resolution of these matters may take many years, we consider our favor. On October 6, 2017, CBP filed a noticeoverall risk of appealloss to the U.S. Court of Appeals for the Federal Circuit (the “Federal Circuit”), and on June 7, 2019, a panel of three Federal Circuit judges ruled in favor of CBP. On July 22, 2019, we filed a petition for rehearing and rehearing en banc with the Federal Circuit. On October 16, 2019, the Federal Circuit denied our petition. We intend to file a petition for a writ of certiorari with the U.S. Supreme Court. If we prevail, we will receive a refund of the contested amounts paid, plus interest. If we do not prevail, CBP would recover the increased duties for prior imports, plus interest, and might assert a claim for penalties.be remote.
European Competition Law Matter.On October 5, 2018, FCE Bank plc (“FCE”) received a notice from the Italian Competition Authority (the “ICA”) concerning an alleged violation of Article 101 of the Treaty on the Functioning of the European Union. The ICA allegesalleged that FCE and other parties engaged in anti-competitive practices in relation to the automotive finance market in Italy. On January 9, 2019, FCE received a decision from the ICA, which included an assessment of a fine against FCE in the amount of €42 million. On March 8, 2019, FCE appealed the decision and the fine to the Italian administrative court, and on November 24, 2020, the Italian administrative court ruled in favor of FCE. On December 23, 2020, the ICA filed an appeal of the Italian administrative court’s decision to the Italian Council of State, and a hearing has been scheduled foron the appeal was held on January 13, 2022. On February 26, 2020. The ultimate resolution1, 2022, the Italian Council of State dismissed the matter may potentially take several years.ICA’s appeal.
Emissions Certification. TheBeginning in 2018 and continuing into 2020, the Company has been investigatinginvestigated a potential concern involving its U.S. emissions certification process. ThisThe matter currently focusesfocused on issues relatingrelated to road load estimations, including analytical modeling and coastdown testing. The potential concern doesdid not involve the use of defeat devices (see Item 1, Governmental Standards for a definition of defeat devices). We voluntarily disclosed this matter to the U.S. Environmental Protection Agency (“EPA”) and the California Air Resources Board (“CARB”) on February 18, 2019 and February 21, 2019, respectively. Subsequently, the U.S. Department of Justice (“DOJ”) opened a criminal investigation into the matter. In addition, we notified a number of other state and federal agencies. We continue to cooperatecooperated fully with these government agencies. We received notifications from EPA, CARB, and DOJ that these agencies have closed their inquiries into the matter and do not intend to take any further action. Environment and Climate Change Canada alsoCanada’s request for information has opened an investigationbeen completed.
Transit Connect Customs Penalty Notice. U.S. Customs and Border Protection (“CBP”) ruled in 2013 that isTransit Connects imported as passenger wagons and later converted into cargo vans are subject to the 25% duty applicable to cargo vehicles, rather than the 2.5% duty applicable to passenger vehicles. We filed a challenge in the U.S. Court of International Trade (“CIT”), and CIT ruled in our favor in 2017. CBP subsequently filed a preliminary stage. At this stage,notice of appeal to the U.S. Court of Appeals for the Federal Circuit, which ruled in favor of CBP. Following the U.S. Supreme Court’s denial of our petition for a writ of certiorari in 2020, we cannot predictpaid the outcomeincreased duties for certain prior imports, plus interest, and disclosed that CBP might assert a claim for penalties. Subsequently, CBP issued a penalty notice to us dated July 22, 2021, and on November 18, 2021, CBP assessed against us a monetary penalty of these investigations,$1.3 billion and we cannot provide assurance that they will not have a material adverse effect on us.additional duties of $181 million, plus interest. We intend to vigorously defend our actions and contest payment of the penalty and the additional duties.
ITEM 4. Mine Safety Disclosures.
Not applicable.
ITEM 4A. Executive Officers of Ford.
Our executive officers are as follows, along with each executive officer’s position and age at February 1, 2020:
2022: |
| | | | | | | | | | | | | | | | | | | |
Name | | Position | | Position Held Since
| | Age |
William Clay Ford, Jr. (a) | | Executive ChairmanChair and ChairmanChair of the Board | | September 2006 | | 6264 |
James P. HackettD. Farley, Jr. (b) | | President and Chief Executive Officer | | May 2017October 2020 | | 6459 |
James D. Farley,Jon M. Huntsman, Jr. (c) | | President, New Businesses, Technology & StrategyVice Chair, Policy | | May 20192021 | | 5761 |
Joseph R. HinrichsJohn Lawler | | President, Automotive | | May 2019 | | 53 |
Tim Stone | | Chief Financial Officer | | June 2019October 2020 | | 5355 |
Hau Thai-Tang | | Chief Product DevelopmentPlatform and PurchasingOperations Officer | | June 2017October 2020 | | 5355 |
Bradley M. GaytonMichael Amend | | Chief AdministrativeDigital & Information Officer | | September 2021 | | 44 |
Steven P. Croley | | Chief Policy Officer and General Counsel | | June 2017July 2021 | | 56 |
Kiersten RobinsonJ. Doug Field | | Chief Human ResourcesAdvanced Technology and Embedded Systems Officer | | April 2018September 2021 | | 4956 |
Cathy O’CallaghanKiersten Robinson | | Controller and Chief Financial Officer, Automotive | | September 2019 | | 51 |
____________
| Chief People and Employee Experience Officer | | October 2020 | | 51 |
(a)Anning Chen | Also a Director, Chair of the Office of the Chairman | President and Chief Executive ChairOfficer, Ford of the Finance Committee, and a member of the Sustainability Committee of the Board of Directors.China |
| December 2018 | | 60 |
(b)Ashwani (“Kumar”) Galhotra | Also a Director | President, Americas and memberInternational Markets Group | | April 2020 | | 56 |
Stuart Rowley | | President, Ford of the Office of the Chairman and Chief Executive.Europe | | April 2019 | | 54 |
Cathy O’Callaghan | | Controller | | June 2018 | | 53 |
__________
(a)Also a Director, Chair of the Office of the Chair and Chief Executive, Chair of the Finance Committee, and a member of the Sustainability, Innovation and Policy Committee of the Board of Directors. Mr. Ford’s daughter, Alexandra Ford English, is a member of the Board of Directors.
(b)Also a Director and member of the Office of the Chair and Chief Executive.
(c)Also a Director and member of the Sustainability, Innovation and Policy Committee of the Board of Directors.
Except as noted below, each of the officers listed above has been employed by Ford or its subsidiaries in one or more capacities during the past five years.
Prior to becoming Vice Chair, Policy, Governor Huntsman was re-elected a member of Ford’s Board of Directors in October 2020 after previously serving as a director from 2012 to 2017. Governor Huntsman served as the U.S. Ambassador to Russia from 2017 through 2019. He served as the Chairman of the Atlantic Council of the United States from 2014 until 2017 and Chairman of the Huntsman Cancer Foundation from 2012 until 2017. He has previously served as U.S. ambassador to China, U.S. ambassador to Singapore, and as Deputy U.S. Trade Representative. Governor Huntsman was twice elected Governor of Utah.
Prior to becoming Chief Digital & Information Officer, Michael Amend was President, Online, at Lowe’s from 2018 to 2021. From 2015 to 2018, Mr. Amend served as Executive Vice President, Omnichannel, at JCPenney.
Prior to becoming Chief Policy Officer and General Counsel, Steven Croley was a partner in the Washington, D.C., office of Latham & Watkins from 2017 to 2021. From 2014 to 2017, Mr. Croley served as General Counsel for the U.S. Department of Energy.
Prior to becoming Chief Advanced Technology and Embedded Systems Officer, J. Doug Field was Vice President, Special Projects Group, at Apple from 2018 to 2021. From 2013 to 2018, Mr. Field served as Tesla’s Senior Vice President of Engineering.
Prior to becoming President and Chief Executive Officer, Ford of Ford, Jim Hackett was a memberChina, from 2010 to 2018, Anning Chen held several leadership roles in Chery Automobile LTD, China including: Chief Executive Officer; Executive Vice President and Chief Operating Officer; and Vice President of Ford’sProducts and Engineering. He also held the positions of Chairman of the Board of Directors, from 2013 to 2016Chery Jaguar Land Rover Automotive, China; and Chairman of the chairman of Ford Smart Mobility LLC from March 2016 to May 2017. Tim Stone joined Ford in April 2019. Prior to becoming Chief Financial Officer, Tim Stone held various positions at Amazon.com, Inc., most recently as Vice President of Finance until May 2018, and was Chief Financial Officer of Snap Inc. from May 2018 to February 2019.Board, Qoros Automotive, China.
Under our by-laws, executive officers are elected by the Board of Directors at an annual meeting of the Board held for this purpose or by a resolution to fill a vacancy. Each officer is elected to hold office until a successor is chosen or as otherwise provided in the by-laws.
PART II.
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market for Registrant’s Stock
Our Common Stock is listed on the New York Stock Exchange in the United States under the symbol F. As of January 31, 2020,2022, stockholders of record of Ford included approximately 112,618107,225 holders of Common Stock and 3 holders of Class B Stock. We believe that the number of beneficial owners is substantially greater than the number of record holders because a large portion of our Common Stock is held in “street name” by brokers.
Stock Performance Graph
The information contained in this Stock Performance Graph section shall not be deemed to be “soliciting material” or “filed” or incorporated by reference in future filings with the SEC, or subject to the liabilities of Section 18 of the Exchange Act, except to the extent that we specifically incorporate it by reference into a document filed under the Securities Act or the Exchange Act.
The following graph compares the cumulative total shareholder return on our Common Stock with the total return on the S&P 500 Index and the Dow Jones Automobiles & Parts Titans 30 Index for the five year period ended December 31, 2019.2021. It shows the growth of a $100 investment on December 31, 2014,2016, including the reinvestment of all dividends.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Base Period | | Years Ending |
Company/Index | | 2016 | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 |
Ford Motor Company | | 100 | | 109 | | 71 | | 93 | | 89 | | 211 |
S&P 500 | | 100 | | 122 | | 116 | | 153 | | 181 | | 233 |
Dow Jones Automobiles & Parts Titans 30 | | 100 | | 121 | | 95 | | 108 | | 163 | | 204 |
|
| | | | | | | | | | | | |
| | Base Period | | Years Ending |
Company / Index | | 2014 | | 2015 | | 2016 | | 2017 | | 2018 | | 2019 |
Ford Motor Company | | 100 | | 95 | | 87 | | 95 | | 62 | | 81 |
S&P 500 | | 100 | | 101 | | 114 | | 138 | | 132 | | 174 |
Dow Jones Automobiles & Parts Titans 30 | | 100 | | 99 | | 97 | | 118 | | 92 | | 105 |
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities (Continued)
Issuer Purchases of Securities
We completed no share repurchases duringIn the fourth quarter of 2019.2021, we repurchased shares of Ford Common Stock from our employees related to certain exercises of stock options in accordance with our various compensation plans.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly-Announced Plans or Programs | | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs |
October 1, 2021 through October 31, 2021 | | 1,593,054 | | | $ | 16.02 | | | — | | | — | |
November 1, 2021 through November 30, 2021 | | 4,096,030 | | | 19.69 | | | — | | | — | |
December 1, 2021 through December 31, 2021 | | 373,535 | | | 20.28 | | | — | | | — | |
Total / Average | | 6,062,619 | | | $ | 18.76 | | | — | | | — | |
Dividends
The table below shows the dividends we paid per share of Common and Class B Stock for each quarterly period in 20182020 and 2019:2021: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | 2021 |
| First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter |
Dividends per share of Ford Common and Class B Stock | $ | 0.15 | | | $ | 0.00 | | | $ | 0.00 | | | $ | 0.00 | | | $ | 0.00 | | | $ | 0.00 | | | $ | 0.00 | | | $ | 0.10 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2018 | | 2019 |
| First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter |
Dividends per share of Ford Common and Class B Stock | $ | 0.28 |
| | $ | 0.15 |
| | $ | 0.15 |
| | $ | 0.15 |
| | $ | 0.15 |
| | $ | 0.15 |
| | $ | 0.15 |
| | $ | 0.15 |
|
Subject to legally available funds,On October 27, 2021, we announced the reinstatement of a regular quarterly dividend of $0.10 per share on our Common and Class B Stock starting in the fourth quarter of 2021, and we intend to continue to paypaying a quarterly cash dividend on our outstanding Common Stock and Class B Stock. The declaration and payment of future dividends is at the sole discretion of our Board of Directors after taking into account various factors, including our financial condition, operating results, available cash, and current and anticipated cash needs.
ITEM 6. Selected Financial Data.
The following table sets forth selected financial data for each of the last five years (dollar amounts in millions, except for per share amounts):
|
| | | | | | | | | | | | | | | | | | | |
SUMMARY OF INCOME | 2015 | | 2016 | | 2017 | | 2018 | | 2019 |
Total revenues | $ | 149,558 |
| | $ | 151,800 |
| | $ | 156,776 |
| | $ | 160,338 |
| | $ | 155,900 |
|
| | | | | | | | | |
Income/(Loss) before income taxes | $ | 10,179 |
| | $ | 6,784 |
| | $ | 8,159 |
| | $ | 4,345 |
| | $ | (640 | ) |
Provision for/(Benefit from) income taxes | 2,854 |
| | 2,184 |
| | 402 |
| | 650 |
| | (724 | ) |
Net income | 7,325 |
| | 4,600 |
| | 7,757 |
| | 3,695 |
| | 84 |
|
Less: Income/(Loss) attributable to noncontrolling interests | (2 | ) | | 11 |
| | 26 |
| | 18 |
| | 37 |
|
Net income attributable to Ford Motor Company | $ | 7,327 |
| | $ | 4,589 |
| | $ | 7,731 |
| | $ | 3,677 |
| | $ | 47 |
|
| | | | | | | | | |
Earnings Per Share Attributable to Ford Motor Company Common and Class B Stock |
Average number of shares of Ford Common and Class B Stock outstanding (in millions) | 3,969 |
| | 3,973 |
| | 3,975 |
| | 3,974 |
| | 3,972 |
|
| | | | | | | | | |
Basic income | $ | 1.85 |
| | $ | 1.16 |
| | $ | 1.94 |
| | $ | 0.93 |
| | $ | 0.01 |
|
Diluted income | 1.83 |
| | 1.15 |
| | 1.93 |
| | 0.92 |
| | 0.01 |
|
| | | | | | | | | |
Cash dividends declared | 0.60 |
| | 0.85 |
| | 0.65 |
| | 0.73 |
| | 0.60 |
|
| | | | | | | | | |
BALANCE SHEET DATA AT YEAR END | |
| | |
| | |
| | |
| | |
|
Total assets | $ | 225,491 |
| | $ | 238,510 |
| | $ | 258,496 |
| | $ | 256,540 |
| | $ | 258,537 |
|
| | | | | | | | | |
Automotive debt | $ | 12,839 |
| | $ | 15,907 |
| | $ | 15,931 |
| | $ | 13,547 |
| | $ | 14,678 |
|
Ford Credit debt | 119,417 |
| | 126,464 |
| | 137,757 |
| | 140,066 |
| | 140,029 |
|
Other debt | 598 |
| | 599 |
| | 599 |
| | 600 |
| | 600 |
|
| | | | | | | | | |
Total equity | $ | 29,223 |
| | $ | 29,746 |
| | $ | 35,606 |
| | $ | 35,966 |
| | $ | 33,230 |
|
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.
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.
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. ThisHowever, we defer a portion of the consideration received when there is nota 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 case, however, with respectterm of the agreement in proportion to vehicles produced for salethe 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 the vehicle for a guaranteed amount, exercisable at the option of the customer. These contractscustomer, 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 Automotive segmentCompany 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, manufacture,production, and distribution of our vehicles, parts, accessories, and accessories.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 manufactureproduction of our products;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 manufactureproduction of our products,vehicles, parts, accessories, and services, including such expenses as advertising and sales promotion costs.
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.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
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.
– 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, engineering, spending-related, advertising and sales promotion, administrative 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 2019full year 2021 were $145.9$126.6 billion. Our Automotive segment’s material and commodity costs make up the largest portion of these costs and expenses, representing in 2019 about two-thirds of the total amount. Structural costs are the largest piece of the remaining balance.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.
Key Economic Factors and Trends Affecting the Automotive Industry
Currency Exchange Rate Volatility. The U.S. Federal Reserve lowered its policy interest rate three times in 2019, after nine increases over the course of the tightening cycle beginning in late 2015. Central banks in other developed markets have also signaled the potential for rate cuts in response to recent global economic headwinds, extending the era of monetary policy easing that began with the 2008-2009 global financial crisis. The related shifts in capital flows have contributed to increased volatility for both developed and emerging market currencies globally. 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.
Excess Capacity. According to IHS Automotive, an automotive research firm, the estimated automotive industry global production capacity for light vehicles of about 139 million units exceeded global production by about 50 million units in 2019. While global production capacity rose by about 2 million units in 2019 compared with 2018, excess capacity rose by nearly 7 million units, including increases in North America, Europe, and, most substantially, in China. In North America and Europe, two regions where a significant share of industry revenue is earned, excess capacity as a percent of production in 2019 increased to 30% and 33%, respectively. In China, the auto industry witnessed excess capacity at 104% in 2019, as industry sales remained below expectations due to weaker economic conditions there. According to production capacity data projected by IHS Automotive, global excess capacity conditions could continue for several years at an average of about 50 million units per year, declining only gradually from current levels, during the period from 2020 to 2025.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Pricing Pressure. Excess capacity, coupled with a proliferation of new products being introduced in key segments, will keep pressure on manufacturers’ ability to set prices. In North America, the industry restructuring of the past few years has allowed manufacturers to better match production with demand, although Japanese and Korean manufacturers also have capacity located outside of the region directed to North America. In the future, Chinese and Indian manufacturers are expected to enter U.S. and European markets, further intensifying competition. Over the long term, intense competition and excess capacity will continue to put downward pressure on inflation-adjusted prices for similarly-contented vehicles in the United States and contribute to a challenging pricing environment for the automotive industry. In Europe, the excess capacity situation has been exacerbated by the nominal reductions in existing capacity, such that negative pricing pressure is expected to continue for the foreseeable future.
Commodity and Energy Price Changes. Changes in market expectations for global demand, notably weaker growth in China, along with geopolitical tensions have generated volatility in energy prices, though they remain at a relatively low level compared with historical performance. Oil prices are expected to remain volatile, and on a lower long-term trend than in prior commodity cycles. Prices for other commodities have also been volatile, as fluctuating global demand and the threat of further tariff actions continues to impact prices despite some easing in global trade tensions at the start of this year.
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 about 130% 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) may increase the cost of vehicles by more than the perceived benefit to the consumer. Given the backdrop of excess capacity, these regulations could dampen contribution 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. The imposition of tariffs on steel and aluminum coming into the United States in 2018 had a direct negative impact on costs for manufacturers in the U.S. market. 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 will continue to monitor and address developing issues around trade policy.
Other Economic Factors. Interest rates, notably mature market government bond yields, and inflation have remained lower than expected. At the same time, government deficits and debt remain at high levels in many major markets. The eventual implications of higher government deficits and debt, with 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.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
RESULTS OF OPERATIONS - 20192021
NetThe net income attributable to Ford Motor Company was $47$17,937 million in 2019.2021. Company adjusted EBIT was $6,379$10,000 million.
Net incomeincome/(loss) includes certain items (“special items”) that are excluded from Company adjusted EBIT. These items are discussed in more detail in Note 2826 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):
| | | | | | | | | | | | | | |
| | 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 | | | $ | — | |
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 | | — | | | (1,692) | |
Takata field service action | | (610) | | | — | |
Ford Credit - Brazil and Argentina | | — | | | 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) | |
|
| | | | | | | | |
| | 2018 | | 2019 |
Global Redesign | | | | |
Europe excl. Russia | | $ | (309 | ) | | $ | (1,246 | ) |
India | | — |
| | (804 | ) |
South America | | (65 | ) | | (566 | ) |
Russia | | — |
| | (357 | ) |
China | | — |
| | (101 | ) |
Separations and Other (not included above) | | (163 | ) | | (107 | ) |
Subtotal Global Redesign | | $ | (537 | ) | | $ | (3,181 | ) |
Other Items | | | | |
Focus cancellation | | $ | (16 | ) | | $ | (72 | ) |
Other, including Transit Connect customs ruling and Chariot | | (40 | ) | | (201 | ) |
Subtotal Other Items | | $ | (56 | ) | | $ | (273 | ) |
Pension and OPEB Gain / (Loss) | | | | |
Pension and OPEB remeasurement | | $ | (851 | ) | | $ | (2,500 | ) |
Pension curtailment | | 15 |
| | (45 | ) |
Subtotal Pension and OPEB Gain / (Loss) | | $ | (836 | ) | | $ | (2,545 | ) |
Total EBIT Special Items | | $ | (1,429 | ) | | $ | (5,999 | ) |
| | | | |
Cash effect of Global Redesign (incl. separations) | | $ | (196 | ) | | $ | (911 | ) |
| | | | |
Tax special items* | | $ | (88 | ) | | $ | (1,323 | ) |
| |
* | Includes related tax effect on special items and tax special items. |
__________
We(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 $6$9.6 billion of pre-tax special item chargesitems, primarily reflecting gains on our equity investment in 2019. Actions related toRivian 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 accounted for $3.2actions and a debt extinguishment premium associated with the repurchase and redemption of $7.6 billion of the special items, including European restructuring, with cash effects of $911 million. Special item charges also included $2.5 billion for pension and OPEB remeasurement losses. The remeasurement loss did not have an impact on our cash in 2019.higher-coupon debt.
In Note 2826 of the Notes to the Financial Statements, special items are reflected as a separate reconciling item, as opposed to being allocated among the Automotive, Mobility, and Ford Credit segments. This reflects the fact that management excludes these items from its review of operating segment results for purposes of measuring segment profitability and allocating resources.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)38
COMPANY KEY METRICS
The table below shows our full year 2019 key metrics for the Company compared to a year ago.
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| | | | | | | | | | | | |
| | 2018 | | 2019 | | H / (L) |
GAAP Financial Measures | | | | | | |
Cash Flows from Operating Activities ($B) | | $ | 15.0 |
| | $ | 17.6 |
| | $ | 2.6 |
|
Revenue ($M) | | 160,338 |
| | 155,900 |
| | (3)% |
|
Net Income ($M) | | 3,677 |
| | 47 |
| | $ | (3,630 | ) |
Net Income Margin (%) | | 2.3 | % | | 0.0 | % | | (2.3) ppts |
|
EPS (Diluted) | | $ | 0.92 |
| | $ | 0.01 |
| | $ | (0.91 | ) |
| | | | | | |
Non-GAAP Financial Measures* | | | | | |
|
|
Company Adj. Free Cash Flow ($B) | | $ | 2.8 |
| | $ | 2.8 |
| | $ | — |
|
Company Adj. EBIT ($M) | | 7,002 |
| | 6,379 |
| | (623 | ) |
Company Adj. EBIT Margin (%) | | 4.4 | % | | 4.1 | % | | (0.3) ppts |
|
Adjusted EPS (Diluted) | | $ | 1.30 |
| | $ | 1.19 |
| | $ | (0.11 | ) |
Adjusted ROIC (Trailing Four Qtrs) | | 7.1 | % | | 7.8 | % | | 0.7 ppts |
|
| |
* | See Non-GAAP Financial Measure Reconciliations section for reconciliation to GAAP.
|
For full year 2019, revenue was down 3 percent, or 1 percent excluding the impact of exchange, to $155.9 billion.
In 2019, our diluted earnings per share of Common and Class B Stock was $0.01 and our diluted adjusted earnings per share was $1.19.
Net income margin was 0.0 percent in 2019, down from 2.3 percent a year ago. Company adjusted EBIT margin was 4.1 percent in 2019, down from 4.4 percent a year ago.
The table below shows our full year 2019 net income attributable to Ford and Company adjusted EBIT by segment (in millions).
|
| | | | | | | | | | | | |
| | 2018 | | 2019 | | H / (L) |
Automotive | | $ | 5,422 |
| | $ | 4,926 |
| | $ | (496 | ) |
Mobility | | (674 | ) | | (1,186 | ) | | (512 | ) |
Ford Credit | | 2,627 |
| | 2,998 |
| | 371 |
|
Corporate Other | | (373 | ) | | (359 | ) | | 14 |
|
Company Adjusted EBIT * | | 7,002 |
| | 6,379 |
| | (623 | ) |
Interest on Debt | | (1,228 | ) | | (1,020 | ) | | 208 |
|
Special Items | | (1,429 | ) | | (5,999 | ) | | (4,570 | ) |
Taxes / Noncontrolling Interests | | (668 | ) | | 687 |
| | 1,355 |
|
Net Income | | $ | 3,677 |
| | $ | 47 |
| | $ | (3,630 | ) |
| |
* | See Non-GAAP Financial Measure Reconciliations section for reconciliation to GAAP.
|
The $3.6 billion year-over-year decline in net income in 2019 is more than explained by the $6 billion of special item charges discussed in more detail above under “Results of Operations.”
Company adjusted EBIT decreased about 9 percent year-over-year in 2019, driven by higher investments in Mobility and lower Automotive EBIT, offset partially by improved Ford Credit EBT.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
COMPANY KEY METRICS
Automotive Segment
The table below shows our full year 2019 Automotive segment EBIT by business unit (in millions).
|
| | | | | | | | | | | | |
| | 2018 | | 2019 | | H / (L) |
North America | | $ | 7,607 |
| | $ | 6,612 |
| | $ | (995 | ) |
South America | | (678 | ) | | (704 | ) | | (26 | ) |
Europe | | (398 | ) | | (47 | ) | | 351 |
|
China | | (1,545 | ) | | (771 | ) | | 774 |
|
Asia Pacific Operations | | 443 |
| | (23 | ) | | (466 | ) |
Middle East & Africa | | (7 | ) | | (141 | ) | | (134 | ) |
Automotive Segment | | $ | 5,422 |
| | $ | 4,926 |
| | $ | (496 | ) |
The tables below and on the following pages provide full year 20192021 key metrics andfor the change in fullCompany compared to a year 2019 EBIT compared with full year 2018 by causal factorago. | | | | | | | | | | | | | | | | | | | | |
| | 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 |
__________
(a)See Non-GAAP Financial Measure Reconciliations section for our Automotive segment and its regional business units. For a description of these causal factors, see Definitions and Information Regarding Automotive Causal Factors.reconciliation to GAAP.
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| | | | | | | | | | | | |
| | 2018 | | 2019 | | H / (L) |
Key Metrics | | | | | | |
Market Share (%) | | 6.3 | % | | 6.0 | % | | (0.3) ppts |
|
Wholesale Units (000) | | 5,982 |
| | 5,386 |
| | (596 | ) |
Revenue ($M) | | $ | 148,294 |
| | $ | 143,599 |
| | $ | (4,695 | ) |
EBIT ($M) | | 5,422 |
| | 4,926 |
| | (496 | ) |
EBIT Margin (%) | | 3.7 | % | | 3.4 | % | | (0.3) ppts |
|
|
| | | | |
Change in EBIT by Causal Factor (in millions) | | |
2018 Full Year EBIT | | $ | 5,422 |
|
Volume / Mix | | (720 | ) |
Net Pricing | | 3,093 |
|
Cost | | (1,552 | ) |
Exchange | | (904 | ) |
Other | | (413 | ) |
2019 Full Year EBIT | | $ | 4,926 |
|
In 2019, wholesales2021, 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 our Automotive segment declined 596,000 units year-over-year, reflecting decreases2021, up from negative 1.0% a year ago. Company adjusted EBIT margin was 7.3% in each business unit, while Automotive revenue was down 3.1 percent2021, up from 2.0% a year ago.
OurThe table below shows our full year 2019 Automotive2021 net income/(loss) attributable to Ford and Company adjusted EBIT by segment EBIT was $5(in millions). | | | | | | | | | | | | | | | | | | | | |
| | 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 | |
__________
(a)See Non-GAAP Financial Measure Reconciliations section for reconciliation to GAAP.
The year-over-year increase of $19.2 billion down $496 million from a year ago, and EBIT margin was 3.4 percent. Favorable mix was more than offset byin net income/(loss) in 2021 includes the impacteffect of lower volume,special items, including the effectsRivian IPO and mark-to-market gain, as well as higher Automotive EBIT and Ford Credit EBT. The year-over-year increase of new product launches. We had higher net pricing across most business units. Costs were higher,$7.5 billion in Company adjusted EBIT was driven by higher materialAutomotive EBIT and warranty costs, while structural costs, excluding pension and OPEB, were lower, primarily as a result of improved fitness and global redesign actions. Exchange was unfavorable, and other adverse impacts included UAW contract ratification costs.Ford Credit EBT.
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). | | | | | | | | | | | | | | | | | | | | |
| | 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 | |
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. | | | | | | | | | | | | | | | | | | | | |
| | 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 ($M) | | 1,706 | | | 7,397 | | | 5,691 | |
EBIT Margin (%) | | 1.5 | % | | 5.9 | % | | 4.4 ppts |
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| | | | | | | | | | | | |
| | 2018 | | 2019 | | H / (L) |
Key Metrics | | | | | | |
Market Share (%) | | 13.4 | % | | 13.2 | % | | (0.2) ppts |
|
Wholesale Units (000) | | 2,920 |
| | 2,765 |
| | (155 | ) |
Revenue ($M) | | $ | 96,617 |
| | $ | 98,053 |
| | $ | 1,436 |
|
EBIT ($M) | | 7,607 |
| | 6,612 |
| | (995 | ) |
EBIT Margin (%) | | 7.9 | % | | 6.7 | % | | (1.2) ppts |
|
| | | | | | | | |
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 | |
|
| | | | |
Change in EBIT by Causal Factor (in millions) | | |
2018 Full Year EBIT | | $ | 7,607 |
|
Volume / Mix | | (241 | ) |
Net Pricing | | 1,910 |
|
Cost | | (1,865 | ) |
Exchange | | (174 | ) |
Other | | (625 | ) |
2019 Full Year EBIT | | $ | 6,612 |
|
In North America, 20192021, wholesales in our Automotive segment declined 5 percent6% from a year ago, driven byreflecting semiconductor-related production constraints and the impact of major product launches.shift to a new business model in South America. Full year 20192021 Automotive revenue increased 1 percent year-over-year,9%, driven by improved mix and higher net pricing, favorable mix, and stronger currencies, partially offset partially by lower volume.wholesales.
North America’s 2019Our full year 2021 Automotive segment EBIT decreased 13 percentincreased $5.7 billion from a year ago with an EBIT margin of 6.7 percent,5.9 percent. The EBIT improvement was driven by UAW contract-related bonuses, higher warranty expenses,net pricing (reflecting the strength of our product portfolio and lower wholesales. Higher net pricing andincentives in response to reduced dealer stock levels), lower warranty expense, favorable mix, were partial offsets.
South America
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| | | | | | | | | | | | |
| | 2018 | | 2019 | | H / (L) |
Key Metrics | | | | | | |
Market Share (%) | | 8.3% |
| | 7.2% |
| | (1.1) ppts |
|
Wholesale Units (000) | | 365 |
| | 295 |
| | (70 | ) |
Revenue ($M) | | $ | 5,288 |
| | $ | 3,893 |
| | $ | (1,395 | ) |
EBIT ($M) | | (678 | ) | | (704 | ) | | (26 | ) |
EBIT Margin (%) | | (12.8 | )% | | (18.1 | )% | | (5.2) ppts |
|
|
| | | | |
Change in EBIT by Causal Factor (in millions) | | |
2018 Full Year EBIT | | $ | (678 | ) |
Volume / Mix | | (180 | ) |
Net Pricing | | 626 |
|
Cost | | (350 | ) |
Exchange | | (175 | ) |
Other | | 53 |
|
2019 Full Year EBIT | | $ | (704 | ) |
In South America, 2019 wholesales declined 19 percenthigher profits from a year ago, driven by the discontinuation of heavy trucks, Fiesta,our Ford Customer Service Division business, and Focus. Full year 2019 revenue declined 26 percent year over year, drivenstronger currencies, partially offset by lower volumewholesales and adverse exchange.increased commodity costs.
South America’s 2019 EBIT loss of $704 million was 4 percent higher than a year ago, driven by lower wholesales.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
North America | | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2021 | | H / (L) |
Key Metrics | | | | | | |
Market Share (%) | | 13.2 | % | | 12.0 | % | | (1.2) ppts |
Wholesale Units (000) | | 2,081 | | | 2,006 | | | (75) | |
Revenue ($M) | | $ | 80,044 | | | $ | 87,783 | | | $ | 7,739 | |
EBIT ($M) | | 3,710 | | | 7,377 | | | 3,667 | |
EBIT Margin (%) | | 4.6 | % | | 8.4 | % | | 3.8 ppts |
Europe
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| | | | | | | | | | | | |
| | 2018 | | 2019 | | H / (L) |
Key Metrics | | | | | | |
Market Share (%) | | 7.2% |
| | 6.8% |
| | (0.4) ppts |
|
Wholesale Units* (000) | | 1,533 |
| | 1,418 |
| | (115 | ) |
Revenue ($M) | | $ | 31,272 |
| | $ | 28,627 |
| | $ | (2,645 | ) |
EBIT ($M) | | (398 | ) | | (47 | ) | | 351 |
|
EBIT Margin (%) | | (1.3)% |
| | (0.2)% |
| | 1.1 ppts |
|
|
| | | | |
Change in EBIT by Causal Factor (in millions) | | |
2018 Full Year EBIT | | $ | (398 | ) |
Volume / Mix | | (124 | ) |
Net Pricing | | 452 |
|
Cost | | (25 | ) |
Exchange | | (232 | ) |
Other | | 280 |
|
2019 Full Year EBIT | | $ | (47 | ) |
| | | | | | | | |
*Change in EBIT by Causal Factor (in millions) | Includes Ford brand vehicles produced and sold by our unconsolidated affiliate in Turkey (about 44,000 units in 2018 and 34,000 in 2019); revenue does not include these sales. | |
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 | |
In Europe, 2019North America, 2021 wholesales declined 8 percent4% from a year ago, driven by lower share from planned actions to drive gross margin and improve EBIT.primarily reflecting the impact of semiconductor-related production constraints. Full year 20192021 revenue declined 8 percent year-over-year, driven by adverse exchange and planned lower share from our business redesign.
Europe’s 2019 EBIT loss improved $351 million year-over-year,increased 10%, driven by higher net pricing, favorable mix, and stronger currencies, partially offset by lower structural costs.wholesales.
China
|
| | | | | | | | | | | | |
| | 2018 | | 2019 | | H / (L) |
Key Metrics | | | | | | |
Market Share (%) | | 2.9% |
| | 2.2% |
| | (0.7) ppts |
|
Wholesale Units* (000) | | 732 |
| | 535 |
| | (197 | ) |
Revenue ($M) | | $ | 4,619 |
| | $ | 3,615 |
| | $ | (1,004 | ) |
EBIT ($M) | | (1,545 | ) | | (771 | ) | | 774 |
|
EBIT Margin (%) | | (33.4)% |
| | (21.3)% |
| | 12.1 ppts |
|
| |
* | Wholesale units include Ford brand and JMC brand vehicles produced and sold in China by our unconsolidated affiliates; revenue does not include these sales. |
|
| | | | |
Change in EBIT by Causal Factor (in millions) | | |
2018 Full Year EBIT | | $ | (1,545 | ) |
Volume / Mix | | 7 |
|
Net Pricing | | 61 |
|
Cost | | 612 |
|
Exchange | | 143 |
|
Other | | (49 | ) |
2019 Full Year EBIT | | $ | (771 | ) |
In China, 2019 wholesales declined 27 percentNorth America’s 2021 EBIT increased $3.7 billion from a year ago with an EBIT margin of 8.4%. The EBIT improvement was driven by higher net pricing, lower warranty expense, and favorable mix, partially offset by increased commodity prices, lower volume, and higher structural costs.
South America | | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2021 | | H / (L) |
Key Metrics | | | | | | |
Market Share (%) | | 6.2 | % | | 2.6 | % | | (3.7) ppts |
Wholesale Units (000) | | 185 | | | 81 | | | (104) | |
Revenue ($M) | | $ | 2,463 | | | $ | 2,399 | | | $ | (64) | |
EBIT ($M) | | (490) | | | (121) | | | 369 | |
EBIT Margin (%) | | (19.9) | % | | (5.1) | % | | 14.8 ppts |
| | | | | | | | |
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) | |
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 joint venture volumes. Fullvolume and weaker currencies, partially offset by higher net pricing and favorable mix.
South America’s 2021 EBIT loss improved $369 million from a year 2019 consolidated revenue declined 22 percent year-over-year,ago with an EBIT margin of negative 5.1%. The EBIT improvement was driven primarilyby higher net pricing, partially offset by lower component sales to our joint ventures in China and lower volume.
China’s 2019 EBIT loss narrowed by 50 percent year-over-year, driven by lower structural costs, favorable exchange, lower tariffs, and higher net pricing.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Europe | | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2021 | | H / (L) |
Key Metrics | | | | | | |
Market Share (%) | | 7.2 | % | | 6.4 | % | | (0.8) ppts |
Wholesale Units (000) (a) | | 1,020 | | | 891 | | | (128) | |
Revenue ($M) | | $ | 22,644 | | | $ | 24,466 | | | $ | 1,822 | |
EBIT ($M) | | (851) | | | (154) | | | 697 | |
EBIT Margin (%) | | (3.8) | % | | (0.6) | % | | 3.2 ppts |
Asia Pacific Operations__________
(a)Includes Ford brand vehicles produced and sold by our unconsolidated affiliate in Turkey (about 72,000 units in 2020 and 61,000 units in 2021); revenue does not include these sales. |
| | | | | | | | | | | | |
| | 2018 | | 2019 | | H / (L) |
Key Metrics | | | | | | |
Market Share (%) | | 1.9% |
| | 1.7% |
| | (0.2) ppts |
|
Wholesale Units* (000) | | 323 |
| | 279 |
| | (44 | ) |
Revenue ($M) | | $ | 7,811 |
| | $ | 7,017 |
| | $ | (794 | ) |
EBIT ($M) | | 443 |
| | (23 | ) | | (466 | ) |
EBIT Margin (%) | | 5.7% |
| | (0.3)% |
| | (6.0) ppts |
|
| | | | | | | | |
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) | |
|
| | | | |
Change in EBIT by Causal Factor (in millions) | | |
2018 Full Year EBIT | | $ | 443 |
|
Volume / Mix | | (221 | ) |
Net Pricing | | (25 | ) |
Cost | | 124 |
|
Exchange | | (281 | ) |
Other | | (63 | ) |
2019 Full Year EBIT | | $ | (23 | ) |
In our Asia Pacific Operations, 2019Europe, 2021 wholesales declined 14 percent13% from a year ago, primarily reflecting the impact of semiconductor-related production constraints. Full year 2021 revenue improved 8%, driven by lower sharefavorable mix, stronger currencies, and industry. Full year 2019 revenue declined 10 percent year-over-year, drivenhigher net pricing, partially offset by lower volume.
Asia Pacific Operations’ 2019Europe’s 2021 EBIT was $466loss improved $697 million lower thanfrom a year ago with a $23 million loss driven by adverse exchange and unfavorable market factors, offset partially by lower costs.an EBIT margin of negative 0.6%. The adverse exchangeEBIT improvement was driven by the Australian dollarhigher net pricing, lower material and Thai baht.
Middle East & Africa
|
| | | | | | | | | | | | |
| | 2018 | | 2019 | | H / (L) |
Key Metrics | | | | | | |
Market Share (%) | | 3.0% |
| | 3.2% |
| | 0.2 ppts |
|
Wholesale Units* (000) | | 109 |
| | 94 |
| | (15 | ) |
Revenue ($M) | | $ | 2,688 |
| | $ | 2,392 |
| | $ | (296 | ) |
EBIT ($M) | | (7 | ) | | (141 | ) | | (134 | ) |
EBIT Margin (%) | | (0.3)% |
| | (5.9)% |
| | (5.6) ppts |
|
|
| | | | |
Change in EBIT by Causal Factor (in millions) | | |
2018 Full Year EBIT | | $ | (7 | ) |
Volume / Mix | | 39 |
|
Net Pricing | | 70 |
|
Cost | | (49 | ) |
Exchange | | (184 | ) |
Other | | (10 | ) |
2019 Full Year EBIT | | $ | (141 | ) |
In Middle East & Africa, 2019 wholesales declined 14 percent from a year ago, driven bywarranty expenses, and lower share in South Africa. Full year 2019 revenue declined 11 percent year-over-year, drivenstructural costs, partially offset by lower volume and adverse exchange.increased commodity prices.
Middle East & Africa’s 2019 EBIT loss was $134 million higher than a year ago, primarily driven by adverse exchange, offset partially by industry pricing. The adverse exchange was primarily driven by the South African rand.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
China (Including Taiwan)
| | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2021 | | H / (L) |
Key Metrics | | | | | | |
Market Share (%) | | 2.4 | % | | 2.4 | % | | — ppts |
Wholesale Units (000) (a) | | 617 | | | 649 | | | 31 | |
Revenue ($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 | |
__________(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.
| | | | | | | | |
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) | |
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 $172 million from a year ago with an EBIT margin of negative 12.8%. The EBIT improvement was driven by favorable mix of imported vehicles, higher joint venture profits and royalties, and higher net pricing, partially offset by lower volume at our consolidated operations.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
International Markets Group | | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2021 | | H / (L) |
Key Metrics | | | | | | |
Market Share (%) | | 1.7 | % | | 1.8 | % | | — ppts |
Wholesale Units (000) (a) | | 284 | | | 315 | | | 31 | |
Revenue ($M) | | $ | 7,541 | | | $ | 8,955 | | | $ | 1,414 | |
EBIT ($M) | | (164) | | | 622 | | | 786 | |
EBIT Margin (%) | | (2.2) | % | | 6.9 | % | | 9.1 ppts |
_________
(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.
| | | | | | | | |
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 | |
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.
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 wholesales):
|
| |
◦ | Volume and Mix – primarily measures EBIT variance from changes in wholesale 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 prices to dealers and marketing incentive programs such as rebate programs, low-rate financing offers, special lease offers, and stock adjustments on dealer inventory
|
•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
– 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, attendance, line speed, and shift schedules
|
| |
▪ | Engineering –consists primarily of costs for engineering personnel, prototype materials, testing, and outside engineering services
|
| |
▪ | Spending-Related –consists primarily of depreciation and amortization of our manufacturing and engineering assets, but also includes asset retirements and operating leases
|
| |
▪ | Advertising and Sales Promotions –includes costs for advertising, marketing programs, brand promotions, customer mailings and promotional events, and auto shows
|
| |
▪ | Administrative and Selling –includes primarily costs for salaried personnel and purchased services related to our staff activities and selling functions, as well as associated information technology costs
|
| |
▪ | Pension and OPEB –consists primarily of past service pension costs and other postretirement employee benefit costs
|
| |
• | Exchange – primarily measures EBIT variance driven by one or more of the following: (i) transactions denominated in currencies other than the functional currencies of the relevant entities, (ii) effects of converting functional currency income to U.S. dollars, (iii) effects of remeasuring monetary assets and liabilities of the relevant entities in currencies other than their functional currency, or (iv) results of our foreign currency hedging
|
| |
• | Other –includes a variety of items, such as parts and services earnings, royalties, government incentives, and compensation-related changes
|
In addition, definitions and calculations used in this report include:
| |
• | Wholesales and Revenue – wholesale unit volumes include all Ford and Lincoln badged units (whether produced by Ford or by an unconsolidated affiliate) that are sold to dealerships, units manufactured by Ford that are sold to other manufacturers, units distributed by Ford for other manufacturers, and local brand units produced by our China joint venture, Jiangling Motors Corporation, Ltd. (“JMC”), that are sold to dealerships. Vehicles sold to daily rental car companies that are subject to a guaranteed repurchase option (i.e., rental repurchase), as well as other sales of finished vehicles for which the recognition of revenue is deferred (e.g., consignments), also are included in wholesale unit volumes. Revenue from certain vehicles in wholesale unit volumes (specifically, Ford badged vehicles produced and distributed by our unconsolidated affiliates, as well as JMC brand vehicles) are not included in our revenue
|
•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
|
•Industry Volume and Market Share – based, in part, on estimated vehicle registrations; includes medium and heavy duty trucks
| |
• | SAAR – seasonally adjusted annual rate
|
•SAAR – seasonally adjusted annual rate
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Mobility Segment
OurEffective 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 related to ourfor Ford’s autonomous vehicles and our investmentrelated businesses, Ford’s equity ownership in mobility through Ford Smart Mobility LLC (“FSM”). Autonomous vehicles includes self-driving systems development and vehicle integration,Argo AI (a developer of autonomous vehicle research and advanced engineering, autonomous vehicle transportation-as-a-service network development, user experience, and business strategy and business development teams. FSM designs and builds mobility products and subscriptiondriving systems), and other services on its own,mobility businesses and collaborates with service providers and technology companies. In 2019, we began recording in the Mobility segment subscription related income previously reported in the Automotive segment. This income is generated from services managed in our Mobility segment.investments.
In our Mobility segment, our 20192021 EBIT loss was $1.2 billion, a $512improved $22 million higher loss thanfrom a year ago. OurThe $1 billion EBIT loss reflects our strategic investments in Mobility in 2019 increased by more than 75 percent year-over-year2021 as we continued to expand our capabilities in autonomous vehicles and mobility and autonomous vehicles.businesses.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Ford Credit Segment
The tables below provide full year 20192021 key metrics and the change in full year 20192021 EBT compared with full year 20182020 by causal factor for the Ford Credit segment. For a description of these causal factors, see Definitions and Information Regarding Ford Credit Causal Factors. | | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2021 | | H / (L) |
GAAP Financial Measures | | | | | | |
Total Net Receivables ($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 ($B) | | 35 | | | 32 | | | (10) | % |
Financial Statement Leverage (to 1) (c) | | 8.8 | | | 9.5 | | | 0.7 | |
|
| | | | | | | | | | | | |
| | 2018 | | 2019 | | H / (L) |
GAAP Financial Measures | | | | | | |
Net Receivables ($B) | | $ | 146 |
| | $ | 142 |
| | (3 | )% |
Loss-to-Receivables* (bps) | | 55 |
| | 52 |
| | (3 | ) |
Auction Values** | | $ | 18,540 |
| | $ | 18,150 |
| | (2 | )% |
EBT ($M) | | 2,627 |
| | 2,998 |
| | $ | 371 |
|
ROE (%) | | 14 | % | | 15 | % | | 1 ppt |
|
| | | | | | |
Other Balance Sheet Metrics | | | | | | |
Debt ($B) | | $ | 140 |
| | $ | 140 |
| | — |
|
Net Liquidity ($B) | | 27 |
| | 33 |
| | 22 | % |
Financial Statement Leverage (to 1) | | 9.4 |
| | 9.8 |
| | 0.4 |
|
(a)U.S. retail financing only.(b)U.S. 36-month off-lease auction values at full year 2021 mix.
(c)Prior period amounts have been updated as a result of the adoption of ASU 2019-12, Simplifying the Accounting for Income Taxes. For additional information, see Note 3 of the Notes to the Financial Statements.
| | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2021 | | H / (L) |
Non-GAAP Financial Measures | | | | | | |
Managed Receivables ($B) (a) | | $ | 141 | | | $ | 123 | | | (12) | % |
Managed Leverage (to 1) (b) (c) | | 7.5 | | | 8.4 | | | 0.9 | |
__________
(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.
| | | | | | | | |
*Change in EBT by Causal Factor (in millions) | U.S. retail financing only, previously included both retail financing and operating leases. |
| |
**2020 Full Year EBT | U.S. 36-month off-lease auction values at full-year 2019 mix. |
|
| | | | | | | | | | | |
| | 2018 | | 2019 | | H / (L) |
Non-GAAP Financial Measures | | | | | | |
Managed Receivables* ($B) | | $ | 155 |
| | $ | 152 |
| | (2 | )% |
Managed Leverage** (to 1) | | 8.8 |
| | 8.9 |
| | 0.1 |
|
$ | 2,608 | |
*Volume / Mix | | See (243)Non-GAAP Financial Measure Reconciliations section for reconciliation to GAAP. |
| |
**Financing Margin | | See (206) | |
Credit Loss | | 1,136 | |
Lease Residual | | 1,494 | |
Exchange | | 27 | |
Other | | (99) | |
2021 Full Year EBT | | $ | 4,717Liquidity and Capital Resources - Ford Credit Segment section for reconciliation to GAAP. | |
|
| | | | |
Change in EBT by Causal Factor (in millions) | | |
2018 Full Year EBT | | $ | 2,627 |
|
Volume / Mix | | (38 | ) |
Financing Margin | | (86 | ) |
Credit Loss | | 127 |
|
Lease Residual | | 249 |
|
Exchange | | (71 | ) |
Other | | 190 |
|
2019 Full Year EBT | | $ | 2,998 |
|
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 slightly better than expected. We expect full year 2020 auction values to be about 5 percent lower compared with 2019 at a constant mix, based on third party assessments. Receivables at December 31, 2019 were lower year-over-year.
Ford Credit delivered $3 billion of EBT in 2019, a 14 percent increaseup 25% from a year ago, driven by favorable lease residual, credit loss, and derivatives performance.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.
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.
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 |
◦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 |
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◦ | 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 |
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• | Credit Loss:◦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
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◦ | 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 |
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◦ | 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 economic conditions. For additional information, refer to the “Critical Accounting Estimates - Allowance for Credit Losses” section of Item 7 of Part II of our 2019 Form 10-K Report
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◦ | As of January 1, 2019, we changed our accounting method for reporting early termination losses related to customer defaults on operating leases. Previously, we presented the early termination loss reserve on operating leases due to customer default events as part of the allowance for credit losses which reduces Net investment in operating leases on the balance sheet. We now consider the effects of operating lease early terminations when determining depreciation estimates, which are included as part of accumulated depreciation within Net investment in operating leases on the balance sheet. We believe this change in accounting method is preferable as the characterization of these changes is better reflected as depreciation. We have reclassified prior period amounts to reflect these changes.
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◦ | 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 |
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◦ | 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. With the change in accounting method discussed above, accumulated depreciation now reflects early termination losses on operating leases due to customer default events for all periods presented. 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 2019 Form 10-K Report
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◦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:
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◦ | Reflects changes in EBT driven by the effects of converting functional currency income to U.S. dollars |
◦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
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
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◦ | Primarily includes operating expenses, other revenue, insurance expenses, and other income at prior period exchange rates |
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◦ | Changes in operating expenses are primarily driven by salaried personnel costs, facilities costs, and costs associated with the origination and servicing of customer contracts |
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◦ | 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 |
In addition, the following definitions and calculations apply to Ford Credit when used in this report:Report:
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• | Cash (as shown in the Funding Structure, Liquidity, and Leverage tables) – Cash, cash equivalents, and marketable securities, excluding amounts related to insurance activities
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• | Debt (as shown in the Key Metrics and Leverage tables) - Debt on Ford Credit’s balance sheet. 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
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• | Earnings Before Taxes (EBT) – Reflects Ford Credit’s income before income taxes
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• | 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
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• | Securitization Cash (as shown in the Liquidity table) – Cash held for the benefit of the securitization investors (for example, a reserve fund)
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• | 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
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• | 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
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• | 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
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Item 7. Management’s Discussion•Cash (as shown in the Funding and AnalysisLiquidity 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 Financial Conditioncollections on the underlying securitized assets and Resultsrelated enhancements. Ford Credit holds the right to receive the excess cash flows not needed to pay the debt issued by, and other obligations of, Operations (Continued)
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 otherlosses 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, andthat are not allocated to specific Automotive business units or operating segments. These include expenses related to setting and directing global policy, providing oversight and stewardship, and promoting the Company’s interests. OurFor full year 20192021, Corporate Other results werehad a $359$1,084 million loss, compared with a $373$726 million loss a year ago.in 2020. The year-over-year improvementhigher loss was driven by fair market value adjustments offset partially bylower interest income and higher interest expense on income taxes.administrative and IT-related expenses.
Interest on Debt
Interest on Debt consists of interest expense on Automotive and Other debt. FullCompany debt excluding Ford Credit. Our full year 20192021 interest expense on Automotive and OtherCompany debt excluding Ford Credit was $1 billion, which is $208$1,803 million, lower$154 million higher than a year ago, more thanin 2020, primarily explained by lower foreignhigher U.S. unsecured debt interest expense, reflecting our repayment of higher-cost affiliate debt as discussed in the Liquidity and Capital Resources section below, as well as the extinguishment of Ford Sollers debtexpense.
.
Taxes
Our Provision for/(Benefit from) income taxes for full year 2019 was a $724 million benefit, reflecting an effective tax rate of 113%. This includes a one-time benefit arising from restructuring in our European operations.
Our full year 2019 adjusted effective tax rate, which excludes special items, was 11.2%.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Taxes
RESULTS OF OPERATIONS - 2018
NetOur Provision for/(Benefit from) income attributable to Ford was $3.7 billion in 2018. Company adjusted EBIT was $7 billion.
Our pre-tax and tax special items were as follows (in millions):
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| | | | | | | | |
| | 2017 | | 2018 |
Pension and OPEB Gain / (Loss) | | | | |
Pension and OPEB remeasurement | | $ | (162 | ) | | $ | (851 | ) |
Pension curtailment | | 354 |
| | 15 |
|
Total pension and OPEB gain / (loss) | | $ | 192 |
| | $ | (836 | ) |
| | | | |
Separation-related actions | | $ | (297 | ) | | $ | (537 | ) |
| | | | |
Other Items | | | | |
San Luis Potosi plant cancellation | | $ | 41 |
| | $ | — |
|
Next-generation Focus footprint change | | (225 | ) | | (9 | ) |
Focus cancellation | | — |
| | (7 | ) |
Chariot closure | | — |
| | (40 | ) |
Total other Items | | $ | (184 | ) | | $ | (56 | ) |
Total pre-tax special items | | $ | (289 | ) | | $ | (1,429 | ) |
| | | | |
Tax special items | | $ | 897 |
| | $ | (88 | ) |
We recorded $1.4 billion of special item charges in 2018, including $851 million for pension and OPEB remeasurement losses and $537 million for separation-related actions from our Global Redesign.
COMPANY KEY METRICS
The table below shows our full year 2018 key metrics for the Company compared with full year 2017.
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| | | | | | | | | | | | |
| | 2017 | | 2018 | | H / (L) |
GAAP Financial Measures | | | | | | |
Cash Flows from Operating Activities ($B) | | $ | 18.1 |
| | $ | 15.0 |
| | $ | (3.1 | ) |
Revenue ($M) | | 156,776 |
| | 160,338 |
| | 2 | % |
Net Income ($M) | | 7,731 |
| | 3,677 |
| | $ | (4,054 | ) |
Net Income Margin (%) | | 4.9 | % | | 2.3 | % | | (2.6) ppts |
|
EPS (Diluted) | | $ | 1.93 |
| | $ | 0.92 |
| | $ | (1.01 | ) |
| | | | | | |
Non-GAAP Financial Measures* | | | | | | |
Company Adj. Free Cash Flow ($B) | | $ | 4.2 |
| | $ | 2.8 |
| | $ | (1.4 | ) |
Company Adj. EBIT ($M) | | 9,638 |
| | 7,002 |
| | (2,636 | ) |
Company Adj. EBIT Margin (%) | | 6.1 | % | | 4.4 | % | | (1.7) ppts |
|
Adjusted EPS (Diluted) | | $ | 1.78 |
| | $ | 1.30 |
| | $ | (0.48 | ) |
Adjusted ROIC (Trailing Four Qtrs) | | 11.8 | % | | 7.1 | % | | (4.7) ppts |
|
| |
* | See taxesNon-GAAP Financial Measure Reconciliations section for reconciliation to GAAP.
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For full year 2018, revenue grew 2 percent to $160.3 billion.
In 2018, our diluted earnings per share of Common and Class B stock was $0.92 and our diluted adjusted earnings per share was $1.30.
Net income margin was 2.3 percent and Company adjusted EBIT margin was 4.4 percent for full year 2018, down 2.6 percentage points2021 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 1.7 percentage points, respectively,a $918 million benefit from 2017.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.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
RESULTS OF OPERATIONS - 2020
The table below shows our full year 2018 net incomeloss attributable to Ford andMotor Company was $1,279 million in 2020. Company adjusted EBIT by segmentwas $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).:
| | | | | | | | | | | | | | |
| | 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 | | $ | — | | | $ | 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 | | — | | | (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 | |
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| | | | | | | | | | | | |
| | 2017 | | 2018 | | H / (L) |
Automotive | | $ | 8,084 |
| | $ | 5,422 |
| | $ | (2,662 | ) |
Mobility | | (299 | ) | | (674 | ) | | (375 | ) |
Ford Credit | | 2,310 |
| | 2,627 |
| | 317 |
|
Corporate Other | | (457 | ) | | (373 | ) | | 84 |
|
Company Adjusted EBIT * | | 9,638 |
| | 7,002 |
| | (2,636 | ) |
Interest on Debt | | (1,190 | ) | | (1,228 | ) | | (38 | ) |
Special Items | | (289 | ) | | (1,429 | ) | | (1,140 | ) |
Taxes / Noncontrolling Interests | | (428 | ) | | (668 | ) | | (240 | ) |
Net Income | | $ | 7,731 |
| | $ | 3,677 |
| | $ | (4,054 | ) |
| |
* | See Non-GAAP Financial Measure Reconciliations section for reconciliation to GAAP.
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__________
Net income attributable to Ford(a)Includes related tax effect on special items and Company adjusted EBIT were driven bytax 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 Automotive and Ford Credit segments. Mobility and Corporate Other were losses.
The year-over-year decline in net income was primarily due to the lower Automotive EBIT, the larger mark-to-market adjustment for global pension and OPEB plans, dueand 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 adverse financial market conditionsthe 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 occurred late in 2018,management excludes these items from its review of operating segment results for purposes of measuring segment profitability and personnel separation-related actions in North America, South America, and Europe.allocating resources.
51
The lower Automotive EBIT fully explains the $2.6 billion decline in Company adjusted EBIT, compared with 2017.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
COMPANY KEY METRICS
Automotive Segment
The table below shows our full year 20182020 key metrics for the Company compared with full year 2019. | | | | | | | | | | | | | | | | | | | | |
| | 2019 | | 2020 | | H / (L) |
GAAP Financial Measures | | | | | | |
Cash Flows from Operating Activities ($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 |
__________
(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). | | | | | | | | | | | | | | | | | | | | |
| | 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) | |
__________
(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.
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). | | | | | | | | | | | | | | | | | | | | |
| | 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) | |
|
| | | | | | | | | | | | |
| | 2017 | | 2018 | | H / (L) |
North America | | $ | 8,057 |
| | $ | 7,607 |
| | $ | (450 | ) |
South America | | (753 | ) | | (678 | ) | | 75 |
|
Europe | | 367 |
| | (398 | ) | | (765 | ) |
China | | 152 |
| | (1,545 | ) | | (1,697 | ) |
Asia Pacific Operations | | 507 |
| | 443 |
| | (64 | ) |
Middle East & Africa | | (246 | ) | | (7 | ) | | 239 |
|
Automotive Segment | | $ | 8,084 |
| | $ | 5,422 |
| | $ | (2,662 | ) |
The tables below and on the following pages provide full year 20182020 key metrics and the change in full year 20182020 EBIT compared with full year 20172019 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. | | | | | | | | | | | | | | | | | | | | |
| | 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 ($M) | | 4,888 | | | 1,706 | | | (3,182) | |
EBIT Margin (%) | | 3.4 | % | | 1.5 | % | | (1.9) ppts |
|
| | | | | | | | | | | | |
| | 2017 | | 2018 | | H / (L) |
Key Metrics | | | | | | |
Market Share (%) | | 7.0 | % | | 6.3 | % | | (0.7) ppts |
|
Wholesale Units (000) | | 6,607 |
| | 5,982 |
| | (625 | ) |
Revenue ($M) | | $ | 145,653 |
| | $ | 148,294 |
| | $ | 2,641 |
|
EBIT ($M) | | 8,084 |
| | 5,422 |
| | (2,662 | ) |
EBIT Margin (%) | | 5.6 | % | | 3.7 | % | | (1.9) ppts |
|
| | | | | | | | |
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 | |
|
| | | | |
Change in EBIT by Causal Factor (in millions) | | |
2017 Full Year EBIT | | $ | 8,084 |
|
Volume / Mix | | 1,032 |
|
Net Pricing | | 1,971 |
|
Cost | | (3,965 | ) |
Exchange | | (1,010 | ) |
Other | | (690 | ) |
2018 Full Year EBIT | | $ | 5,422 |
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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.
North America more than explained the Automotive segment’sOur full year 2018 profitability.2020 Automotive segment EBIT benefiteddecreased $3.2 billion from the largest improvement in market factors since 2015. Volume / Mix as well as2019 with an EBIT margin of 1.5 percent. Higher net pricing and favorable mix were improved compared to 2017. This benefit was more than offset by cost, including higher net product costs as we were entering a major product refresh cycle, higher tariff-related effectsthe impact of $750 million, higher commodities costs of $1.1 billion unrelated to tariff effects,COVID-related lower industry volume and higher warranty costs, including $775 million of costs relatedthe changeover to the Takata recalls announcedF-150. Structural costs were significantly lower, primarily reflecting the impact of our suspension of production earlier in 2017 in North America. Exchange was unfavorable and other adverse impacts included lower joint venture equity income in China. Compared to 2017, the decline in Automotive EBIT was essentially2020 due to China and Europe.COVID-19.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
North America | | | | | | | | | | | | | | | | | | | | |
| | 2019 | | 2020 | | H / (L) |
Key Metrics | | | | | | |
Market Share (%) | | 13.2 | % | | 13.2 | % | | — ppts |
Wholesale Units (000) | | 2,765 | | | 2,081 | | | (684) | |
Revenue ($M) | | $ | 98,058 | | | $ | 80,044 | | | $ | (18,014) | |
EBIT ($M) | | 6,545 | | | 3,710 | | | (2,835) | |
EBIT Margin (%) | | 6.7 | % | | 4.6 | % | | (2.0) ppts |
|
| | | | | | | | | | | | |
| | 2017 | | 2018 | | H / (L) |
Key Metrics | | | | | | |
Market Share (%) | | 13.9 | % | | 13.4 | % | | (0.5) ppts |
|
Wholesale Units (000) | | 2,967 |
| | 2,920 |
| | (47 | ) |
Revenue ($M) | | $ | 93,481 |
| | $ | 96,617 |
| | $ | 3,136 |
|
EBIT ($M) | | 8,057 |
| | 7,607 |
| | (450 | ) |
EBIT Margin (%) | | 8.6 | % | | 7.9 | % | | (0.7) ppts |
|
| | | | | | | | |
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 | |
|
| | | | |
Change in EBIT by Causal Factor (in millions) | | |
2017 Full Year EBIT | | $ | 8,057 |
|
Volume / Mix | | 1,587 |
|
Net Pricing | | 425 |
|
Cost | | (3,046 | ) |
Exchange | | (11 | ) |
Other | | 595 |
|
2018 Full Year EBIT | | $ | 7,607 |
|
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 20182020 EBIT decreased $2.8 billion from 2019 with an EBIT margin of 4.6%. The lower EBIT was driven by lower volume, higher material cost, and higher warranty expense. Higher net pricing, favorable mix, and lower structural costs were partial offsets.
South America | | | | | | | | | | | | | | | | | | | | |
| | 2019 | | 2020 | | H / (L) |
Key Metrics | | | | | | |
Market Share (%) | | 7.2 | % | | 6.2 | % | | (1.0) ppts |
Wholesale Units (000) | | 295 | | | 185 | | | (111) | |
Revenue ($M) | | $ | 3,893 | | | $ | 2,463 | | | $ | (1,430) | |
EBIT ($M) | | (696) | | | (490) | | | 206 | |
EBIT Margin (%) | | (17.9) | % | | (19.9) | % | | (2.0) ppts |
| | | | | | | | |
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) | |
In South America, 2020 wholesales declined $45038% 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 $206 million year-over-year,from 2019 with an EBIT margin of negative 19.9%. The EBIT improvement was driven by higher net product costs, tariff-related effects, commodities costs,pricing and warranty costs described above under “Automotive Segment.”
South Americacost reductions.
|
| | | | | | | | | | | | |
| | 2017 | | 2018 | | H / (L) |
Key Metrics | | | | | | |
Market Share (%) | | 8.9% |
| | 8.3% |
| | (0.6) ppts |
|
Wholesale Units (000) | | 373 |
| | 365 |
| | (8 | ) |
Revenue ($M) | | $ | 5,841 |
| | $ | 5,288 |
| | $ | (553 | ) |
EBIT ($M) | | (753 | ) | | (678 | ) | | 75 |
|
EBIT Margin (%) | | (12.9)% |
| | (12.8)% |
| | 0.1 ppts |
|
|
| | | | |
Change in EBIT by Causal Factor (in millions) | | |
2017 Full Year EBIT | | $ | (753 | ) |
Volume / Mix | | 61 |
|
Net Pricing | | 821 |
|
Cost | | (423 | ) |
Exchange | | (451 | ) |
Other | | 67 |
|
2018 Full Year EBIT | | $ | (678 | ) |
In 2018, South America delivered an EBIT improvement of $75 million compared to 2017.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Europe | | | | | | | | | | | | | | | | | | | | |
| | 2019 | | 2020 | | H / (L) |
Key Metrics | | | | | | |
Market Share (%) | | 7.3 | % | | 7.2 | % | | (0.1) ppts |
Wholesale Units (000) (a) | | 1,390 | | | 1,020 | | | (370) | |
Revenue ($M) | | $ | 28,150 | | | $ | 22,644 | | | $ | (5,506) | |
EBIT ($M) | | 124 | | | (851) | | | (975) | |
EBIT Margin (%) | | 0.4 | % | | (3.8) | % | | (4.2) ppts |
Europe_________
(a)Includes Ford brand vehicles produced and sold by our unconsolidated affiliate in Turkey (about 34,000 units in 2019 and 72,000 units in 2020); revenue does not include these sales. |
| | | | | | | | | | | | |
| | 2017 | | 2018 | | H / (L) |
Key Metrics | | | | | | |
Market Share (%) | | 7.5% |
| | 7.2% |
| | (0.3) ppts |
|
Wholesale Units* (000) | | 1,582 |
| | 1,533 |
| | (49 | ) |
Revenue ($M) | | $ | 29,637 |
| | $ | 31,272 |
| | $ | 1,635 |
|
EBIT ($M) | | 367 |
| | (398 | ) | | (765 | ) |
EBIT Margin (%) | | 1.2% |
| | (1.3)% |
| | (2.5) ppts |
|
|
| | | | |
Change in EBIT by Causal Factor (in millions) | | |
2017 Full Year EBIT | | $ | 367 |
|
Volume / Mix | | (299 | ) |
Net Pricing | | 916 |
|
Cost | | (770 | ) |
Exchange | | (418 | ) |
Other | | (194 | ) |
2018 Full Year EBIT | | $ | (398 | ) |
| | | | | | | | |
* | Includes Ford brand vehicles produced and soldChange in EBIT by our unconsolidated affiliate in Turkey (about 78,000 units in 2017 and 44,000 units in 2018). Revenue does not include these sales.Causal Factor (in millions) |
Europe saw a year-over-year EBIT decline of $765 million in 2018.
China
|
| | | | | | | | | | | | |
| | 2017 | | 2018 | | H / (L) |
Key Metrics | | | | | | |
Market Share (%) | | 4.2% |
| | 2.9% |
| | (1.3) ppts |
|
Wholesale Units* (000) | | 1,235 |
| | 732 |
| | (503 | ) |
Revenue ($M) | | $ | 6,709 |
| | $ | 4,619 |
| | $ | (2,090 | ) |
EBIT ($M) | | 152 |
| | (1,545 | ) | | (1,697 | ) |
EBIT Margin (%) | | 2.3% |
| | (33.4)% |
| | (35.7) ppts |
|
| |
*2019 Full Year EBIT | Wholesale units include Ford brand and JMC brand vehicles produced and sold in China by our unconsolidated affiliates. Revenue does not include these sales. | $ | 124 | |
Volume / Mix | | (1,973) | |
Net Pricing | | 1,354 | |
Cost | | (190) | |
Exchange | | 74 | |
Other | | (240) | |
2020 Full Year EBIT | | $ | (851) | |
|
| | | | |
Change in EBIT by Causal Factor (in millions) | | |
2017 Full Year EBIT | | $ | 152 |
|
Volume / Mix | | (213 | ) |
Net Pricing | | (285 | ) |
Cost | | 72 |
|
Joint Ventures | | (1,025 | ) |
Exchange | | 63 |
|
Other | | (309 | ) |
2018 Full Year EBIT | | $ | (1,545 | ) |
China’s 2018 EBITIn Europe, 2020 wholesales declined $1.7 billion27% from 2017. The decline was2019, driven by a $1.3 billion reduction in net equity income and royaltiesCOVID-19 related lower industry volume. Full year 2020 revenue declined 20% from our China joint ventures and2019, driven by lower volume, partially offset by higher net pricing on Explorer and Lincoln imports.favorable series and option mix.
Europe’s 2020 EBIT decreased $974 million from 2019 with an EBIT margin of negative 3.8%. The lower EBIT was more than explained by COVID-19 related lower industry volume and the Kuga PHEV recall in the third quarter of 2020.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
China (Including Taiwan) | | | | | | | | | | | | | | | | | | | | |
| | 2019 | | 2020 | | H / (L) |
Key Metrics | | | | | | |
Market Share (%) | | 2.2 | % | | 2.4 | % | | 0.2 ppts |
Wholesale Units (000) (a) | | 535 | | | 617 | | | 83 | |
Revenue ($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 | |
Asia Pacific Operations__________
(a)Includes vehicles produced and sold by our unconsolidated affiliates. Revenue does not include these sales. |
| | | | | | | | | | | | |
| | 2017 | | 2018 | | H / (L) |
Key Metrics | | | | | | |
Market Share (%) | | 2.0 | % | | 1.9 | % | | (0.1) ppts |
|
Wholesale Units* (000) | | 331 |
| | 323 |
| | (8 | ) |
Revenue ($M) | | $ | 7,346 |
| | $ | 7,811 |
| | $ | 465 |
|
EBIT ($M) | | 507 |
| | 443 |
| | (64 | ) |
EBIT Margin (%) | | 6.9 | % | | 5.7 | % | | (1.2) ppts |
|
(b)Includes Ford and Lincoln brand and JMC brand vehicles produced and sold in China. |
| | | | |
Change in EBIT by Causal Factor (in millions) | | |
2017 Full Year EBIT | | $ | 507 |
|
Volume / Mix | | (146 | ) |
Net Pricing | | 35 |
|
Cost | | 106 |
|
Exchange | | (262 | ) |
Other | | 203 |
|
2018 Full Year EBIT | | $ | 443 |
|
| | | | | | | | |
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) | |
Asia Pacific Operations’ 2018In 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 declined $64loss improved $263 million from 2017.2019 with an EBIT margin of negative 15.6%. The declineimproved EBIT was driven by adverse exchange, primarily the Thai bahthigher joint venture profits and Australian dollar.
Middle East & Africaroyalties and lower structural costs.
|
| | | | | | | | | | | | |
| | 2017 | | 2018 | | H / (L) |
Key Metrics | | | | | | |
Market Share (%) | | 3.8% |
| | 3.0% |
| | (0.8) ppts |
|
Wholesale Units* (000) | | 119 |
| | 109 |
| | (10 | ) |
Revenue ($M) | | $ | 2,639 |
| | $ | 2,688 |
| | $ | 49 |
|
EBIT ($M) | | (246 | ) | | (7 | ) | | 239 |
|
EBIT Margin (%) | | (9.3 | )% | | (0.3)% |
| | 9.0 ppts |
|
|
| | | | |
Change in EBIT by Causal Factor (in millions) | | |
2017 Full Year EBIT | | $ | (246 | ) |
Volume / Mix | | 42 |
|
Net Pricing | | 59 |
|
Cost | | 96 |
|
Exchange | | 68 |
|
Other | | (26 | ) |
2018 Full Year EBIT | | $ | (7 | ) |
Middle East & Africa was nearly breakeven in 2018, with a year-over-year EBIT improvement of $239 million.
Mobility Segment
In our Mobility segment, our 2018 EBIT loss was $674 million, a $375 million higher loss than in 2017, due to increased investments for autonomous vehicle business development and mobility services.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
International Markets Group | | | | | | | | | | | | | | | | | | | | |
| | 2019 | | 2020 | | H / (L) |
Key Metrics | | | | | | |
Market Share (%) | | 1.9 | % | | 1.7 | % | | (0.2) ppts |
Wholesale Units* (000) | | 401 | | | 284 | | | (117) | |
Revenue ($M) | | $ | 9,888 | | | $ | 7,541 | | | $ | (2,347) | |
EBIT ($M) | | (323) | | | (164) | | | 159 | |
EBIT Margin (%) | | (3.3) | % | | (2.2) | % | | 1.1 ppts |
_________
(a)Includes Ford Credit Segmentbrand vehicles produced and sold by our unconsolidated affiliate in Russia (about 28,000 units in 2019 and 14,000 units in 2020). Revenue after Q2 2019 does not include these sales.
The tables below provide full year 2018 key metrics and the change in full year 2018 EBT compared with full year 2017 by causal factor for the Ford Credit segment.
|
| | | | | | | | | | | | |
| | 2017 | | 2018 | | H / (L) |
GAAP Financial Measures | | | | | | |
Net Receivables ($B) | | $ | 143 |
| | $ | 146 |
| | 3 | % |
Loss-to-Receivables* (bps) | | 62 |
| | 55 |
| | (7 | ) |
Auction Values** | | $ | 17,815 |
| | $ | 18,540 |
| | 4 | % |
EBT ($M) | | 2,310 |
| | 2,627 |
| | $ | 317 |
|
ROE (%) | | 22 | % | | 14 | % | | (8) ppts |
|
| | | | | | |
Other Balance Sheet Metrics | | | | | | |
Debt ($B) | | $ | 138 |
| | $ | 140 |
| | 2 | % |
Net Liquidity ($B) | | 30 |
| | 27 |
| | (7 | )% |
Financial Statement Leverage (to 1) | | 8.7 |
| | 9.4 |
| | 0.7 |
|
| | | | | | | | |
*Change in EBIT by Causal Factor (in millions) | U.S. retail and lease, previously included both retail financing and operating leases. |
| |
**2019 Full Year EBIT | U.S. 36-month off-lease auction values at full year 2018 mix. |
|
| | | | | | | | | | | |
| | 2017 | | 2018 | | H / (L) |
Non-GAAP Financial Measures | | | | | | |
Managed Receivables* ($B) | | $ | 151 |
| | $ | 155 |
| | 3 | % |
Managed Leverage** (to 1) | | 8.0 |
| | 8.8 |
| | 0.8 |
|
$ | (323) | |
*Volume / Mix | | See (388)Non-GAAP Financial Measure Reconciliations section for reconciliation to GAAP. |
| |
**Net Pricing | | See91 | |
Liquidity and Capital Resources - Ford Credit Segment Cost | | section for reconciliation to GAAP.446 | |
Exchange | | 22 | |
Other | | (12) | |
2020 Full Year EBIT | | $ | (164) | |
|
| | | | |
Change in EBT by Causal Factor (in millions) | | |
2017 Full Year EBT | | $ | 2,310 |
|
Volume / Mix | | 262 |
|
Financing Margin | | (69 | ) |
Credit Loss | | 57 |
|
Lease Residual | | 320 |
|
Exchange | | (9 | ) |
Other | | (244 | ) |
2018 Full Year EBT | | $ | 2,627 |
|
Ford Credit generated a fullIn our International Markets Group, 2020 wholesales declined 29% from 2019, driven by COVID-related lower industry volume. Full year 2018 EBT of $2.6 billion, $317 million2020 revenue declined 24% from 2019, driven by lower volume and weaker currencies, partially offset by higher than 2017. Ford Credit’s EBT improvement was led by favorable lease residual performancenet pricing and favorable volumeseries and option mix. This was offset, in part, by unfavorable derivatives market valuation.
Corporate Other
Our full year 2018 Corporate Other results were a $373International Market Group’s 2020 EBIT loss improved $159 million loss, comparedfrom 2019 with a $457 million loss in 2017. This year-over-year improvementan EBIT margin of negative 2.2%. The improved EBIT was driven by cost reductions, higher interest incomenet pricing, and net gains on cash equivalents and marketable securities,favorable mix, partially offset partially by an increase in corporate governance costs.lower volume.
Interest on Debt
Our full year 2018 interest expense on Automotive and Other debt was $1.2 billion, $38 million higher than in 2017, reflecting primarily higher foreign debt interest expense.
Taxes
Our provision for income taxes for full year 2018 was $650 million, resulting in an effective tax rate of 15.0%. Our full year 2018 adjusted effective tax rate, which excludes special items, was 9.7%.
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 $1.1 billion EBIT loss reflected our strategic investments in 2020 as we continued to expand our capabilities in autonomous vehicles and mobility businesses.
Ford Credit Segment
The tables below provide full year 2020 key metrics and the change in full year 2020 EBT compared with full year 2019 by causal factor for the Ford Credit segment.
| | | | | | | | | | | | | | | | | | | | |
| | 2019 | | 2020 | | H / (L) |
GAAP Financial Measures | | | | | | |
Total Net Receivables ($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 ($B) | | 33 | | | 35 | | | 6 | % |
Financial Statement Leverage (to 1) (c) | | 8.5 | | | 8.8 | | | 0.3 | |
__________
(a)U.S. retail financing only.
(b)U.S. 36-month off-lease auction values at full year 2021 mix.
(c)Prior period amounts have been updated as a result of the adoption of ASU 2019-12, Simplifying the Accounting for Income Taxes. For additional information, see Note 3 of the Notes to the Financial Statements.
| | | | | | | | | | | | | | | | | | | | |
| | 2019 | | 2020 | | H / (L) |
Non-GAAP Financial Measures | | | | | | |
Managed Receivables ($B) (a) | | $ | 152 | | | $ | 141 | | | (7) | % |
Managed Leverage (to 1) (b) (c) | | 7.8 | | | 7.5 | | | (0.3) | |
__________
(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.
| | | | | | | | |
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 | |
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.
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%.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2019,2021, total balance sheet cash, cash equivalents, marketable securities, and restricted cash (including Ford Credit) was $34.9$49.8 billion.
We consider our key balance sheet metrics to be: (i) Company cash, which includes cash equivalents, marketable securities, and restricted cash, excluding Ford Credit’s cash, cash equivalents, marketable securities, and restricted cash; and (ii) Company liquidity, which includes Company cash, (lessless restricted cash)cash, and total available committed credit lines, excluding Ford Credit’s total available committed credit lines.
Company excluding Ford Credit | | | | | | | | | | | | | | |
| | December 31, 2020 | | December 31, 2021 |
Balance Sheet ($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) | |
|
| | | | | | | | |
| | December 31, 2018 | | December 31, 2019 |
Balance Sheet ($B) | | | | |
Company Cash | | $ | 23.1 |
| | $ | 22.3 |
|
Liquidity | | 34.2 |
| | 35.4 |
|
Debt | | $ | (14.1 | ) | | $ | (15.3 | ) |
Cash Net of Debt | | 8.9 |
| | 7.0 |
|
| | | | |
Pension Funded Status ($B) | | | | |
Funded Plans | | $ | (0.3 | ) | | $ | (0.4 | ) |
Unfunded Plans | | (6.0 | ) | | (6.4 | ) |
Total Global Pension | | $ | (6.3 | ) | | $ | (6.8 | ) |
| | | | |
Total Funded Status OPEB | | $ | (5.6 | ) | | $ | (6.1 | ) |
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. Based on our planning assumptions, we believe we have sufficient liquidity and capital resources to continue to invest in new products and services, pay our debts and obligations as and when they come due, pay a regular dividend, and provide protection within an uncertain global economic environment. We will continue to be opportunistic in evaluating sources of capital while maintaining strong balance sheet discipline.
At December 31, 2019,2021, we had $22.3Company 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 with 90%was held by consolidated entities domiciled in the United States. States at December 31, 2021.
To be prepared for an economic downturn, we target an ongoing Company cash balance at or above $20 billion.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.
In addition to our Company cash target, we also target to maintain an additional $10 billion of liquidity available under our corporate credit facility to further protect our Automotive business against a more severe economic downturn and other potential exogenous shocks. We regularly evaluate the appropriate long-term target for total Company liquidity, which is presently $30 billion including Company cash and the Automotive portion of the corporate credit facility, an amount we believe is sufficient to support our business priorities and to protect our business. At December 31, 2019, we had $35.4 billion of Company liquidity, an increase of $1.2 billion from December 31, 2018, reflecting the addition of our supplemental credit facility (described below in Available Credit Lines). We may reduce our Company cash and liquidity targets over time, based on improved operating performance and changes in our risk profile.
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.
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): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 | | | — | | | 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 | | | — | | | 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 | |
__________
(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.differences (including timing differences between accrual-based EBIT and associated cash flows). Non-operating items include: Global Redesignglobal redesign (including separation payments), changes in Automotive and OtherCompany 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 generally ranging between 30 days toof about 45 days. As a result, our cash flow tends to improve asdeteriorates if wholesale volumes increase, but can deteriorate when(and the corresponding revenue) decrease while trade payables continue to become due. Conversely, our cash flow improves if wholesale volumes sharply decrease. These(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.
Changes in Company cash excluding Ford Credit are summarized below (in billions):
|
| | | | | | | | | | | | |
| | December 31, 2017 | | December 31, 2018 | | December 31, 2019 |
Company Excluding Ford Credit | | | | | | |
Company Adjusted EBIT* excluding Ford Credit | | $ | 7.3 |
| | $ | 4.4 |
| | $ | 3.4 |
|
| | | | | | |
Capital spending | | $ | (7.0 | ) | | $ | (7.7 | ) | | $ | (7.6 | ) |
Depreciation and tooling amortization | | 5.0 |
| | 5.4 |
| | 5.5 |
|
Net spending | | $ | (2.0 | ) | | $ | (2.4 | ) | | $ | (2.1 | ) |
| | | | | | |
Changes in working capital | | — |
| | (0.9 | ) | | (0.6 | ) |
Ford Credit distributions | | 0.4 |
| | 2.7 |
| | 2.9 |
|
All other and timing differences | | (1.5 | ) | | (1.1 | ) | | (0.8 | ) |
Company adjusted free cash flow* | | $ | 4.2 |
| | $ | 2.8 |
| | $ | 2.8 |
|
| | | | | | |
Global Redesign (including separations) | | (0.3 | ) | | (0.2 | ) | | (0.9 | ) |
Changes in debt | | (0.4 | ) | | (1.8 | ) | | 1.1 |
|
Funded pension contributions | | (1.4 | ) | | (0.4 | ) | | (0.7 | ) |
Shareholder distributions | | (2.7 | ) | | (3.1 | ) | | (2.6 | ) |
All other (including acquisitions and divestitures) | | (0.3 | ) | | (0.7 | ) | | (0.3 | ) |
Change in cash | | $ | (1.0 | ) | | $ | (3.4 | ) | | $ | (0.8 | ) |
| |
* | See Non-GAAP Financial Measure Reconciliations section for reconciliation to GAAP.
|
| |
* | Note: Numbers may not sum due to rounding. |
As reported on our Consolidated Statement of Cash Flows, our full year 2019 Net cash provided by/(used in) operating activities was up $2.6 billion year-over-year more than explained by higher Ford Credit operating cash flows. Company adjusted free cash flow was flat year-over-year, primarily reflecting improvement in working capital, lower capital spending, and higher distributions from Ford Credit, offset by UAW contract-related bonuses.
Capital spending of $7.6 billion in 2019 was down 2 percent compared with the prior year. Ongoing capital spending to support product development, growth, and infrastructure is expected to decline further and be in the range of $6.8 billion to $7.3 billion in 2020.
Full year 2019 working capital was $617 million negative, more than explained by lower trade payables.
Full year 2019 all other and timing differences were negative $825 million, reflecting assorted timing differences, interest payments on Automotive and Other debt, and cash taxes.
Shareholder distributions (including dividends and anti-dilutive share repurchases) were $2.6 billion in 2019.
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): | | | | | | | | | | | | | | | | | | | | |
| | 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 | |
__________
(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.
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, 20192021 were $14.9$18.3 billion, consisting of $10.4$13.5 billion of our corporate credit facility, $3.5$2.0 billion of our supplemental revolving credit facility, $1.5 billion of our delayed draw term loan facility, and $1$1.3 billion of local credit facilities. At December 31, 2019,2021, the utilized portion of the corporate credit facility was $27$25 million, representing amounts utilized for letters of credit. At December 31, 2019, the utilizedcredit, 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 was $200 million. The utilized portionfor our affiliates as of our supplemental credit facility is described below.December 31, 2021.
Lenders under our corporate credit facility have commitments to us totaling $13.4$3.4 billion with 25% of the commitments maturing on April 30, 2022September 29, 2024 and 75%$10.1 billion of the commitments maturing on April 30, 2024. WeSeptember 29, 2026. Lenders under our supplemental revolving credit facility have allocated $3$2.0 billion of commitments to Ford Creditmaturing on an irrevocable and exclusive basis to support its liquidity. We would guarantee any borrowings by Ford Credit underSeptember 29, 2024.
In September 2021, we amended the corporate and supplemental credit facility.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.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. IfThe 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,&P. The following subsidiaries have provided unsecured guarantees to the guarantees of certain subsidiaries will be required.
In 2019, we entered into a $3.5 billion supplemental credit facility, further strengthening our liquidity and providing additional financial flexibility. The terms and conditions of the supplemental credit facility are consistent with our corporate credit facility; however, unlike our corporate credit facility, the supplemental facility is intended to be utilized and includes a $2 billion revolving facility maturing on April 30, 2022 and a $1.5 billion delayed draw term loan facility maturing on December 31, 2022. We drew all $1.5 billionlenders under the term loan facility in 2019,credit facilities and all $2 billion underto the supplemental revolving facility was available for useDOE: 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 of December 31, 2019.Ford Autonomous Vehicles LLC); Ford Smart Mobility LLC; and Ford Trading Company, LLC.
Debt. As shown in Note 2019 of the Notes to the Financial Statements, at December 31, 2019,2021, Company debt excluding Ford Credit was $15.3$20.4 billion. This balance is $3.6 billion including Automotive debt of $14.7 billion. Both balances were $1.1 billion higherlower than at December 31, 2018,2020, primarily reflecting our repurchase and include the $1.5redemption of $7.6 billion drawn under the term loan facility described above and our $750 million and $800 million unsecuredof higher-coupon debt (retail bond) issuances in the second quarter and fourth quarter of 2019, respectively.2021, partially offset by our convertible notes issuance in March 2021 and our green bond issuance in November 2021.
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 impactnotes are convertible, at the option of thesethe 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, is leverage neutral after taking into consideration debt reduction actions we tookincluding 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 late 2018four areas: Clean Transportation, Clean Manufacturing, Making Lives Better, and Community Revitalization. Our $2.5 billion green bond issuance in 2019November 2021 was the first financing transaction under our sustainable financing framework. We are allocating the net proceeds from that issuance to repay higher-cost affiliate debt as well as automotive debt maturities over the next several quarters in 2020.design, development, and manufacturing of our battery electric vehicles.
U.S. Department of Energy (“DOE”)DOE Advanced Technology Vehicle Manufacturer (“ATVM”) Incentive Program. See Note 2019 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 to maintainthat targets investment grade credit ratings through a normal business cycle. The leverage framework includes a ratio of total companyCompany 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 Automotive and Other debt.Company debt excluding Ford Credit.
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.
Funding Overview.
Ford Credit’s primary funding objective is to be well capitalized with a strong balance sheet and ample liquidity to support its financing activities and growth under a variety
Key elements of market conditions, including short-term and long-term market disruptions. Ford Credit’s funding strategy remains focused on diversification,include:
•Maintain strong liquidity
•Prudently access public markets, including retail deposits in Europe
•Flexibility to increase ABS mix as needed; preserving assets and it planscommitted capacity
•Target managed leverage of 8:1 to continue accessing a variety of markets, channels, and investors.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 annuallyregularly 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 short-term unsecured funding from the sale of demand notes under its Ford Interest Advantage program and through the Retail Deposit programretail deposit programs at FCE Bank plc (“FCE”), and by issuing unsecured commercial paper in the United States and other international markets.Ford Bank GmbH (“Ford Bank”). At December 31, 2019,2021, 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 Depositsand Ford Bank deposits was $7$12.9 billion. At December 31, 2019, the principal amount outstanding of Ford Credit’s unsecured commercial paper was $4 billion, which primarily represents issuance under its commercial paper program in the United States.
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): | | | | | | | | | | | | | | | | | | | | |
| | 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 | % |
|
| | | | | | | | | | | | |
| | December 31, 2017 | | December 31, 2018 | | December 31, 2019 |
Funding Structure | | | | | | |
Term Debt (incl. Bank Borrowings) | | $ | 75 |
| | $ | 70 |
| | $ | 73 |
|
Term Asset-Backed Securities | | 53 |
| | 60 |
| | 57 |
|
Commercial Paper | | 5 |
| | 4 |
| | 4 |
|
Ford Interest Advantage / Deposits | | 5 |
| | 6 |
| | 7 |
|
Other | | 9 |
| | 10 |
| | 9 |
|
Equity | | 16 |
| | 15 |
| | 14 |
|
Adjustments for Cash | | (12 | ) | | (10 | ) | | (12 | ) |
Total Managed Receivables * | | $ | 151 |
| | $ | 155 |
| | $ | 152 |
|
| | | | | | |
Securitized Funding as Percent of Managed Receivables | | 35 | % | | 39 | % | | 38 | % |
(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.
Non-GAAP Financial Measure Reconciliations section for reconciliation to GAAP.
|
Managed receivables were $152$123.4 billion at December 31, 20192021 and were funded primarily with term debt and term asset-backed securities. Securitized funding as a percent of managed receivables was 38%36.7%. Ford Credit targets a mix of securitized funding between 35% and 40%. The calendarization of the funding plan will result in quarterly fluctuations of the securitized funding percentage.
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 2017, 2018,full year 2019, 2020, and 2019,2021, and planned issuances for full-year 2020,full year 2022, excluding short-term funding programs (in billions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 |
|
| | | | | | | | | | | | | | | |
| | 2017 Actual | | 2018 Actual | | 2019 Actual | | 2020 Forecast |
Unsecured - Currency of issuance (USD equivalent) | | | | | | | | |
USD | | $ | 10 |
| | $ | 6 |
| | $ | 11 |
| | $ 7 - 10 |
|
CAD | | 2 |
| | 1 |
| | 1 |
| | 1 - 2 |
|
EUR / GPB | | 3 |
| | 4 |
| | 5 |
| | 3 - 4 |
|
Other | | 1 |
| | 1 |
| | 1 |
| | 1 |
|
Total unsecured | | $ | 16 |
| | $ | 13 |
| | $ | 17 |
| | $ 12 - 17 |
|
Securitizations* | | 15 |
| | 14 |
| | 14 |
| | 12 - 14 |
|
Total public | | $ | 32 |
| | $ | 27 |
| | $ | 31 |
| | $ 24 - 31 |
|
| |
* | See “Ford Credit Segment” section for definitions. |
| |
* | Note: Numbers may not sum due to rounding. |
__________
(a)See Definitions and Information Regarding Ford Credit’s total unsecured public term funding plan is categorized by currency of issuance.Credit Causal Factors section.
Note: Numbers may not sum due to rounding.
In 2019,2021, Ford Credit completed $31$14 billion of public term funding. For 2020,2022, Ford Credit projects full-yearfull year public term funding in the range of $24$14 billion to $31$20 billion. Ford Credit plans to continue issuing its eurocurrency-denominated (e.g., euro and sterling) public unsecured debt from the United States. Through February 3, 2020,2, 2022, Ford Credit has completed $3.5$3 billion of public term issuances.
Liquidity. The following table shows Ford Credit’s liquidity sources and utilization (in billions):
| | | | | | | | | | | | | | | | | | | | |
| | 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 | | | — | | | — | |
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 | | — | | | — | | | — | |
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 | |
|
| | | | | | | | | | | | |
| | December 31, 2017 | | December 31, 2018 | | December 31, 2019 |
Liquidity Sources* | | | | | | |
Cash | | $ | 11.8 |
| | $ | 10.2 |
| | $ | 11.7 |
|
Committed asset-backed facilities | | 33.4 |
| | 35.4 |
| | 36.6 |
|
Other unsecured credit facilities | | 3.3 |
| | 3.0 |
| | 3.0 |
|
Ford corporate credit facility allocation | | 3.0 |
| | 3.0 |
| | 3.0 |
|
Total liquidity sources | | $ | 51.5 |
| | $ | 51.6 |
| | $ | 54.3 |
|
| | | | | | |
Utilization of Liquidity* | | | | | | |
Securitization cash | | $ | (3.8 | ) | | $ | (3.0 | ) | | $ | (3.5 | ) |
Committed asset-backed facilities | | (17.2 | ) | | (20.7 | ) | | (17.3 | ) |
Other unsecured credit facilities | | (1.1 | ) | | (0.7 | ) | | (0.8 | ) |
Ford corporate credit facility allocation | | — |
| | — |
| | — |
|
Total utilization of liquidity | | $ | (22.1 | ) | | $ | (24.4 | ) | | $ | (21.6 | ) |
| | | | | | |
Gross liquidity | | $ | 29.4 |
| | $ | 27.2 |
| | $ | 32.7 |
|
Adjustments | | 0.1 |
| | 0.1 |
| | 0.4 |
|
Net liquidity available for use | | $ | 29.5 |
| | $ | 27.3 |
| | $ | 33.1 |
|
| |
* | See Definitions and Information Regarding Ford Credit Causal Factors section.
|
__________
(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. Ford Credit targets liquidity of about $25 billion. At December 31,2019, 2021, Ford Credit’s net liquidity available for use was $33.1$32 billion, $5.8$3.4 billion higherlower than year-end 2018.
2020. Ford Credit’s sources of liquidity include cash, committed asset-backed facilities, and unsecured credit facilities, and the corporate credit facility allocation.facilities. At December 31, 2019,2021, Ford Credit’s liquidity sources including cash totaled $54.3$52.2 billion, up $2.7down $6.9 billion from year-end 2018.2020.
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.
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.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):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | |
__________
(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.
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): | | | | | | | | | | | | | | | | | | | | |
| | 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) | | — | | | 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 | |
|
| | | | | | | | | | | | |
| | December 31, 2017 | | December 31, 2018 | | December 31, 2019 |
Leverage Calculation | | | | | | |
Debt* | | $ | 137.8 |
| | $ | 140.1 |
| | $ | 140.0 |
|
Adjustments for cash | | (11.8 | ) | | (10.2 | ) | | (11.7 | ) |
Adjustments for derivative accounting* | | — |
| | 0.2 |
| | (0.5 | ) |
Total adjusted debt | | $ | 126.0 |
| | $ | 130.1 |
| | $ | 127.8 |
|
| | | | | | |
Equity** | | $ | 15.9 |
| | $ | 15.0 |
| | $ | 14.3 |
|
Adjustments for derivative accounting* | | (0.1 | ) | | (0.2 | ) | | — |
|
Total adjusted equity | | $ | 15.8 |
| | $ | 14.8 |
| | $ | 14.3 |
|
| | | | | | |
Financial statement leverage (to 1) (GAAP) | | 8.7 |
| | 9.4 |
| | 9.8 |
|
Managed leverage (to 1) (Non-GAAP) | | 8.0 |
| | 8.8 |
| | 8.9 |
|
(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. | |
* | Related primarily to market valuation adjustments to derivatives due to movements in interest rates. Adjustments to debt are related to designated fair value hedges and adjustments to equity are related to retained earnings. |
| |
** | Total shareholder’s interest reported on Ford Credit’s balance sheet. |
(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, 2019,2020 and 2021, Ford Credit’s financial statement leverage was 9.8:8.8:1 and 9.5:1, respectively, and managed leverage was 8.9:1.7.5:1 and 8.4:1, respectively. Ford Credit targets managed leverage in the range of 8:1 to 9:1.
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;
Maintain target asset allocation of about 80% fixed income investments and 20% growth assets, which better matches plan assets to•Minimize the characteristicsvolatility of the liabilities, thereby reducingvalue of our net exposure;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
| | | | | | | | | | | | | | | | | | | | |
| | 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 | |
|
| | | | | | | | | | | | |
| | 2018 | | 2019 | | 2019 B / (W) 2018 |
Pension Funded Status ($B) | | | | | | |
U.S. Plans | | $ | (2.5 | ) | | $ | (1.4 | ) | | $ | 1.1 |
|
Non-U.S. Plans | | (3.8 | ) | | (5.4 | ) | | (1.6 | ) |
Total Global Pension | | $ | (6.3 | ) | | $ | (6.8 | ) | | $ | (0.5 | ) |
| | | | | | |
Year-End Discount Rate (Weighted Average) | | | | | | |
U.S. Plans | | 4.29% |
| | 3.32% |
| | (0.97) ppts |
|
Non-U.S. Plans | | 2.48% |
| | 1.74% |
| | (0.74) ppts |
|
| | | | | | |
Actual Asset Returns | | | | | | |
U.S. Plans | | (3.72)% |
| | 20.43% |
| | 24.15 ppts |
|
Non-U.S. Plans | | (0.10)% |
| | 10.72% |
| | 10.82 ppts |
|
| | | | | | |
Pension - Funded Plans Only ($B) | | | | | | |
Funded Status | | $ | (0.3 | ) | | $ | (0.4 | ) | | $ | (0.1 | ) |
Contributions for Funded Plans | | 0.4 |
| | 0.7 |
| | 0.3 |
|
Worldwide, our defined benefit pension plans were underfunded by $6.8$0.3 billion at December 31, 2019, a deterioration2021, an improvement of $536 million$6.4 billion from December 31, 2018,2020, primarily as a resultreflecting the impact of lowerhigher discount rates offset partially by higherand continued strong asset returns.performance relative to changes in discount rates. Of the $6.8$0.3 billion underfunded status at year-end 2019, $6.42021, our funded plans were $5.8 billion is associated withoverfunded and our unfunded plans.plans were $6.1 billion underfunded. These unfunded plans are “pay as you go,”go” with benefits paid from Company cash. These unfunded planscash 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 at year-end 2019 was 81%, three percentage points higher than year-end 2018. The fixed income mixand 83% in our non-U.S. plans at year-end 2019 was 86%, three percentage points higher than year-end 2018.2021.
In 2019,2021, we contributed $730$773 million (including $140 million in discretionary contributions in the United States) to our global funded pension plans, an increase of $293$203 million compared with 2018.2020. During 2020,2022, we expect to contribute between $600 million and $800 million of cash to our global funded pension plans. We also expect to make about $300$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 2020.2022. 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, seerefer 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 1817 of the Notes to the Financial Statements.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Return on Invested Capital.Capital (“ROIC”). We analyze total Company performance using an adjusted Return on Invested Capital (“ROIC”)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): | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2019 | | December 31, 2020 | | December 31, 2021 |
Adjusted Net Operating Profit/(Loss) After Cash Tax | | | | | | |
Net income/(loss) attributable to Ford | | $ | — | | | $ | (1.3) | | | $ | 17.9 | |
Add: Noncontrolling interest | | — | | | — | | | — | |
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 | | — | | | — | | | — | |
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 | % |
__________
(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.
|
| | | | | | | | | | | | |
| | December 31, 2017 | | December 31, 2018 | | December 31, 2019 |
Adjusted Net Operating Profit After Cash Tax | | | | | | |
Net income attributable to Ford | | $ | 7.7 |
| | $ | 3.7 |
| | $ | 0.0 |
|
Add: Noncontrolling interest | | 0.0 |
| | 0.0 |
| | 0.0 |
|
Less: Income tax | | (0.4 | ) | | (0.7 | ) | | 0.7 |
|
Add: Cash tax | | (0.6 | ) | | (0.8 | ) | | (0.6 | ) |
Less: Interest on debt | | (1.2 | ) | | (1.2 | ) | | (1.0 | ) |
Less: Total pension / OPEB income / (cost) | | 0.6 |
| | (0.4 | ) | | (2.6 | ) |
Add: Pension / OPEB service costs | | (1.1 | ) | | (1.2 | ) | | (1.0 | ) |
Net operating profit after cash tax | | $ | 7.0 |
| | $ | 4.0 |
| | $ | 1.4 |
|
Less: Special items (excl. pension / OPEB) pre-tax | | (0.5 | ) | | (0.6 | ) | | (3.5 | ) |
Adjusted net operating profit after cash tax | | $ | 7.5 |
| | $ | 4.6 |
| | $ | 4.8 |
|
| | | | | | |
Invested Capital | |
| |
| |
|
Equity | | $ | 35.6 |
| | $ | 36.0 |
| | $ | 33.2 |
|
Redeemable noncontrolling interest | | 0.1 |
| | 0.1 |
| | 0.0 |
|
Debt (excl. Ford Credit) | | 16.5 |
| | 14.1 |
| | 15.3 |
|
Net pension and OPEB liability | | 12.8 |
| | 11.9 |
| | 12.9 |
|
Invested capital (end of period) | | $ | 65.0 |
| | $ | 62.1 |
| | $ | 61.4 |
|
Average invested capital | | $ | 63.4 |
| | $ | 64.0 |
| | $ | 61.7 |
|
| | | | | | |
ROIC* | | 11.0 | % | | 6.2 | % | | 2.2 | % |
Adjusted ROIC (Non-GAAP)** | | 11.8 | % | | 7.1 | % | | 7.8 | % |
| |
* | 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. |
| |
** | 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. |
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-recognizedlocally 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, 2019.2021:
•On October 25, 2019,November 18, 2021, S&P downgradedaffirmed the credit ratings for Ford and Ford Credit (to BBB- from BBB)at BB+ and revised the outlook for each to stablepositive, from negative.
The following table summarizes certain of the credit ratings and outlook presently assigned by these four NRSROs:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| NRSRO RATINGS |
| Ford | | Ford Credit | | NRSROs |
| Issuer Default /
Corporate /
Issuer Rating
| | Long-Term Senior Unsecured | | Outlook / Trend | | Long-Term Senior Unsecured | | Short-Term Unsecured
| | Outlook / Trend | | Minimum Long-Term Investment Grade Rating |
DBRS | BBBBB (high) | | BBBBB (high) | | NegativeStable | | BBBBB (high) | | R-2MR-4 | | NegativeStable | | BBB (low) |
Fitch | BBBBB+ | | BBBBB+ | | NegativeStable | | BBBBB+ | | F2B | | NegativeStable | | BBB- |
Moody’s | N/A | | Ba1Ba2 | | Stable | | Ba1Ba2 | | NP | | Stable | | Baa3 |
S&P | BBB-BB+ | | BBB-BB+ | | StablePositive | | BBB-BB+ | | A-3B | | StablePositive | | BBB- |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
OUTLOOK
We provided 20202022 Company guidance in our earnings release furnished on Form 8-K dated February 4, 2020.3, 2022. The guidance is based on our expectations as of February 4, 20203, 2022, and assumes no material change in the current economic environment, including commodities, foreign exchange and tariffs, and does not include any assumptions for the effects of the coronavirus.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.
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| | 2022 Guidance |
Total Company | | 2020 Guidance |
Total CompanyAdjusted EBIT (a) | | $11.5 - $12.5 billion |
Adjusted Free Cash Flow*Flow (a) | | $2.45.5 - $3.4$6.5 billion |
Adjusted EBIT*Capital spending | | $5.67.0 - $6.6$8.0 billion |
Adjusted EPS* | | $0.94 - $1.20 |
Capital spending | | $6.8 - $7.3 billion |
Pension contributions | | $0.6 - $0.8 billion |
Regular Dividend** | | $0.15 / quarter |
Adjusted Effective Tax Rate* | | Mid-to-High Teens |
Global Redesign EBIT charges | | $(0.9)1.8 - $(1.4)$2.4 billion |
Global Redesign cash effects | | $(0.8)2.0 - $(1.3)$2.5 billion |
Ford Credit | | |
Ford Credit auction values | | Down about 5% *** |
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*EBT | When we provide guidance for Adjusted Free Cash Flow, Adjusted EBIT, Adjusted EPS, and Adjusted Effective Tax Rate, 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. | Strong but lower than 2021 |
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** | Subject to approval by our Board of Directors. |
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*** | On average compared with full year 2019 at constant mix. |
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(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 guidanceoutlook for 2022 assumes at least nominal growth in Automotive, offset by lower EBT from Ford Creditthe 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 modest investment increase in Mobility.broad range of costs
•Commodity costs will be $1.5 - $2.0 billion higher year over year
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 global redesign and fitness actions;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 vehiclesservices could be affected by cyber incidents;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;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 and Brexit;tariffs;
•Industry sales volume in any of ourFord’s key markets can be volatile and could decline if there is a financial crisis, recession, or significant geopolitical event;
•Ford may face increased price competition or a reduction in demand for its products resulting from industry excess capacity, currency fluctuations, competitive actions, or other factors;
Fluctuations•Inflationary pressure and fluctuations in commodity prices, foreign currency exchange rates, interest rates, and market value of ourFord 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 that may change in the future;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 consumerconsumers’ heightened expectations for the safeguarding ofto 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.
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 financial measures listed below are intended to be considered by users as supplemental information to their comparableequivalent GAAP financial measures, to aid investors in better understanding our financial results. We believe that these non-GAAP financial measures provide useful perspective on underlying businessoperating results and trends, and a means to assesscompare our period-over-period results. These non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. These non-GAAP financial 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:
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•Pre-Tax Special Item | | Company Adjusted EBIT (Most Comparable GAAP Measure: Net Income Attributable to Ford)Significance Guideline |
– Earnings before interest and taxes (EBIT) excludes interest on debt (excl. Ford Credit Debt), taxes, and pre-tax special items. This non-GAAP measure is useful to management and investors because it allows users to evaluate our operating results aligned with industry reporting. Pre-tax special items consist of (i) pension∘ Pension and OPEB remeasurement gains and losses (ii) significant personnel | | ∘ No minimum |
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∘ Gains and losses on investments in equity securities | | ∘ No minimum |
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∘ 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 and (iii) other | | ∘ Generally $100 million or more |
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∘ Other items that we do not necessarily consider to be indicative of earnings from ongoing operating activities. When we provide guidanceactivities | | ∘ $500 million or more for adjusted EBIT, we do not provide guidance on a net income basis because the GAAP measure will include potentially significant specialindividual field service actions; generally $100 million or more for other 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. |
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• | Company Adjusted EBIT Margin (Most Comparable GAAP Measure: Company Net Income 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.
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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.
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• | Adjusted Earnings Per Share (Most Comparable GAAP Measure: Earnings Per Share) – Measure of Company’s diluted net earnings 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 per share, we do not provide guidance on an earnings 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.
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•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.
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• | 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.
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•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.
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• | 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 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.
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•Adjusted Effective Tax Rate (Most Comparable GAAP Measure: Effective Tax Rate) – Measure of Company’s tax rate excluding pre-tax special items (described above) and tax special items. The measure provides an ongoing effective rate which investors find useful for historical comparisons and for forecasting. When we provide guidance for adjusted effective tax rate, we do not provide guidance on an effective tax rate basis because the GAAP measure will include potentially significant special items that have not yet occurred and are difficult to predict with reasonable certainty prior to year-end, including pension and OPEB remeasurement gains and losses.
Item 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.
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• | Adjusted Free Cash Flow Conversion (Most Comparable GAAP Measure: Net Cash Provided By / (Used In) Operating Activities divided by Net Income Attributable to Ford) – Adjusted Free Cash Flow Conversion is Company adjusted free cash flow divided by Company Adjusted EBIT. This non-GAAP measure is useful to management and investors because it allows users to evaluate how much of Ford's Adjusted EBIT is converted into cash flow.
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•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.
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• | 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 (“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.
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•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.
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• | Ford Credit Managed Receivables (Most Comparable GAAP Measure: Net Finance Receivables plus Net Investment in Operating Leases) – Measure of Ford Credit’s total net receivables and held-for-sale receivables, excluding unearned interest supplements and residual support, allowance for credit losses, and other (primarily accumulated supplemental depreciation). The measure is useful to management and investors as it closely approximates the customer’s outstanding balance on the receivables, which is the basis for earning revenue.
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•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.
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• | 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.
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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 IncomeIncome/(Loss) Reconciliation to Adjusted EBIT ($M) | | | | | | | | | | | | | | | | | | | | |
| | 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 | |
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Memo: | | | | | | |
Revenue ($B) | | $ | 155.9 | | | $ | 127.1 | | | $ | 136.3 | |
Net income/(loss) margin (%) | | — | % | | (1.0) | % | | 13.2 | % |
Adjusted EBIT margin (%) | | 4.0 | % | | 2.0 | % | | 7.3 | % |
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| | 2017 | | 2018 | | 2019 |
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Net income / (loss) attributable to Ford (GAAP) | | $ | 7,731 |
| | $ | 3,677 |
| | $ | 47 |
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Income / (Loss) attributable to noncontrolling interests | | 26 |
| | 18 |
| | 37 |
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Net income / (loss) | | $ | 7,757 |
| | $ | 3,695 |
| | $ | 84 |
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Less: (Provision for) / Benefit from income taxes | | (402 | ) | | (650 | ) | | 724 |
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Income / (Loss) before income taxes | | $ | 8,159 |
| | $ | 4,345 |
| | $ | (640 | ) |
Less: Special items pre-tax | | (289 | ) | | (1,429 | ) | | (5,999 | ) |
Income / (Loss) before special items pre-tax | | $ | 8,448 |
| | $ | 5,774 |
| | $ | 5,359 |
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Less: Interest on debt | | (1,190 | ) | | (1,228 | ) | | (1,020 | ) |
Adjusted EBIT (Non-GAAP) | | $ | 9,638 |
| | $ | 7,002 |
| | $ | 6,379 |
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Memo: | | | | | | |
Revenue ($B) | | $ | 156.8 |
| | $ | 160.3 |
| | $ | 155.9 |
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Net income margin (%) | | 4.9 | % | | 2.3 | % | | 0.0 | % |
Adjusted EBIT margin (%) | | 6.1 | % | | 4.4 | % | | 4.1 | % |
(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.
EarningsEarnings/(Loss) per Share Reconciliation to Adjusted EarningsEarnings/(Loss) per Share | | | | | | | | | | | | | | | | | | | | |
| | 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) | | | — | | | — | |
Adjusted net income/(loss) - Diluted (Non-GAAP) | | $ | 4,661 | | | $ | 1,445 | | | $ | 6,430 | |
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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 | |
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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 | |
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(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.
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| | 2017 | | 2018 | | 2019 |
Diluted After-Tax Results ($M) | | | | | | |
Diluted after-tax results (GAAP) | | $ | 7,731 |
| | $ | 3,677 |
| | $ | 47 |
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Less: Impact of pre-tax and tax special items | | 608 |
| | (1,517 | ) | | (4,676 | ) |
Less: Noncontrolling interests impact of Russia restructuring | | — |
| | — |
| | (35 | ) |
Adjusted net income - Diluted (Non-GAAP) | | $ | 7,123 |
| | $ | 5,194 |
| | $ | 4,758 |
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Basic and Diluted Shares (M) | | | | | | |
Basic shares (average shares outstanding) | | 3,975 |
| | 3,974 |
| | 3,972 |
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Net dilutive options, unvested restricted stock units, and restricted stock | | 23 |
| | 24 |
| | 32 |
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Diluted shares | | 3,998 |
| | 3,998 |
| | 4,004 |
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Earnings per share - diluted (GAAP) | | $ | 1.93 |
| | $ | 0.92 |
| | $ | 0.01 |
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Less: Net impact of adjustments | | 0.15 |
| | (0.38 | ) | | (1.18 | ) |
Adjusted earnings per share - diluted (Non-GAAP) | | $ | 1.78 |
| | $ | 1.30 |
| | $ | 1.19 |
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Effective Tax Rate Reconciliation to Adjusted Effective Tax Rate | | | | | | | | | | | | | | | | | | | | |
| | 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 | |
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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) | |
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Tax Rate (%) | | | | | | |
Effective tax rate (GAAP) | | 113.1 | % | | (14.3) | % | | (0.7) | % |
Adjusted effective tax rate (Non-GAAP) | | 11.0 | % | | (63.2) | % | | 21.9 | % |
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| | 2017 | | 2018 | | 2019 |
Pre-Tax Results ($M) | | | | | | |
Income / (Loss) before income taxes (GAAP) | | $ | 8,159 |
| | $ | 4,345 |
| | $ | (640 | ) |
Less: Impact of special items | | (289 | ) | | (1,429 | ) | | (5,999 | ) |
Adjusted earnings before taxes (Non-GAAP) | | $ | 8,448 |
| | $ | 5,774 |
| | $ | 5,359 |
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Taxes ($M) | | | | | | |
(Provision for) / Benefit from income taxes (GAAP) | | $ | (402 | ) | | $ | (650 | ) | | $ | 724 |
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Less: Impact of special items | | 897 |
| | (88 | ) | | 1,323 |
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Adjusted (provision for) / benefit from income taxes (Non-GAAP) | | $ | (1,299 | ) | | $ | (562 | ) | | $ | (599 | ) |
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Tax Rate (%) | | | | | | |
Effective tax rate (GAAP) | | 4.9 | % | | 15.0 | % | | 113.1 | % |
Adjusted effective tax rate (Non-GAAP) | | 15.4 | % | | 9.7 | % | | 11.2 | % |
(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) | | | | | | | | | | | | | | | | | | | | |
| | 2019 | | 2020 | | 2021 |
| | | | | | |
Net cash provided by/(used in) operating activities (GAAP) | | $ | 17,639 | | | $ | 24,269 | | | $ | 15,787 | |
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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 | |
__________
(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.
|
| | | | | | | | | | | | |
| | 2017 | | 2018 | | 2019 |
| | | | | | |
Net cash provided by / (used in) operating activities (GAAP) | | $ | 18,096 |
| | $ | 15,022 |
| | $ | 17,639 |
|
| | | | | | |
Less: Items not included in Company Adjusted Free Cash Flows | | | | | | |
Ford Credit operating cash flows | | 9,300 |
| | $ | 8,171 |
| | $ | 11,531 |
|
Funded pension contributions | | (1,434 | ) | | (437 | ) | | (730 | ) |
Global Redesign (including separations) | | (281 | ) | | (196 | ) | | (911 | ) |
Other, net | | (52 | ) | | 82 |
| | 390 |
|
| | | | | | |
Add: Items included in Company Adjusted Free Cash Flows | | | | | | |
Automotive and Mobility capital spending | | (7,004 | ) | | (7,737 | ) | | (7,580 | ) |
Ford Credit distributions | | 406 |
| | 2,723 |
| | 2,900 |
|
Settlement of derivatives | | 217 |
| | 132 |
| | 107 |
|
Pivotal conversion to a marketable security | | — |
| | 263 |
| | — |
|
| | | | | | |
Company adjusted free cash flow (Non-GAAP) | | $ | 4,182 |
| | $ | 2,781 |
| | $ | 2,785 |
|
| | | | | | |
Cash conversion (GAAP) | | 234 | % | | 409 | % | | 37,530 | % |
Adjusted free cash flow conversion (Non-GAAP) | | 43 | % | | 40 | % | | 44 | % |
| |
* | Note: Numbers may not sum due to rounding. |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Ford Credit Net Receivables Reconciliation to Managed Receivables ($B) | | | | | | | | | | | | | | | | | | | | |
| | 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 | | | $ | — | | | $ | — | |
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 | |
__________
(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.
|
| | | | | | | | | | | | |
| | 2017 | | 2018 | | 2019 |
| | | | | | |
Ford Credit finance receivables, net (GAAP)* | | $ | 108.4 |
| | $ | 109.9 |
| | $ | 107.4 |
|
Net investments in operating leases (GAAP)* | | 26.7 |
| | 27.4 |
| | 27.6 |
|
Consolidating adjustments** | | 7.6 |
| | 8.9 |
| | 7.0 |
|
Total net receivables | | $ | 142.7 |
| | $ | 146.2 |
| | $ | 142.0 |
|
| | | | | | |
Held-for-sale receivables (GAAP) | | — |
| | — |
| | 1.5 |
|
Ford Credit unearned interest supplements and residual support | | 6.1 |
| | 6.8 |
| | 6.7 |
|
Allowance for credit losses | | 0.6 |
| | 0.6 |
| | 0.5 |
|
Other, primarily accumulated supplemental depreciation | | 1.1 |
| | 1.2 |
| | 1.0 |
|
Total managed receivables (Non-GAAP) | | $ | 150.5 |
| | $ | 154.9 |
| | $ | 151.7 |
|
| |
* | 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 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. |
| |
** | Primarily includes Automotive segment receivables purchased by Ford Credit which are classified to Trade and other receivables on our consolidated balance sheet. Also includes eliminations of intersegment transactions.
|
| |
* | Note: Numbers may not sum due to rounding. |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
20192021 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): | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | | | $ | — | | | $ | 17,910 | |
Depreciation and tooling amortization | | 5,652 | | | 1,666 | | | — | | | 7,318 | |
Other amortization | | 141 | | | (1,499) | | | — | | | (1,358) | |
Brazil manufacturing exit non-cash charges (excluding accelerated depreciation of $322) | 48 | | | — | | | — | | | 48 | |
(Gains)/Losses on extinguishment of debt | | 1,692 | | | 10 | | | — | | | 1,702 | |
Provision for/(Benefit from) credit and insurance losses | | 3 | | | (301) | | | — | | | (298) | |
Pension and OPEB expense/(income) | | (4,865) | | | — | | | — | | | (4,865) | |
Equity investment dividends received in excess of (earnings)/losses | 120 | | | (4) | | | — | | | 116 | |
Foreign currency adjustments | | 406 | | | 126 | | | — | | | 532 | |
Net realized and unrealized (gains)/losses on cash equivalents, marketable securities, and other investments | (9,174) | | | 15 | | | — | | | (9,159) | |
Net (gain)/loss on changes in investments in affiliates | | (367) | | | (1) | | | — | | | (368) | |
Stock compensation | | 296 | | | 9 | | | — | | | 305 | |
Provision for deferred income taxes | | (710) | | | 147 | | | — | | | (563) | |
Decrease/(Increase) in finance receivables (wholesale and other) | — | | | 7,656 | | | — | | | 7,656 | |
Decrease/(Increase) in intersegment receivables/payables | | (662) | | | 662 | | | — | | | — | |
Decrease/(Increase) in accounts receivable and other assets | | (1,378) | | | 237 | | | — | | | (1,141) | |
Decrease/(Increase) in inventory | | (1,778) | | | — | | | — | | | (1,778) | |
Increase/(Decrease) in accounts payable and accrued and other liabilities | 187 | | | (223) | | | — | | | (36) | |
Other | | (180) | | | (54) | | | — | | | (234) | |
Interest supplements and residual value support to Ford Credit | (2,340) | | | 2,340 | | | — | | | — | |
Net cash provided by/(used in) operating activities | | $ | 494 | | | $ | 15,293 | | | $ | — | | | $ | 15,787 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash flows from investing activities | | | | | | | | |
Capital spending | | $ | (6,183) | | | $ | (44) | | | $ | — | | | $ | (6,227) | |
Acquisitions of finance receivables and operating leases | | — | | | (48,379) | | | — | | | (48,379) | |
Collections of finance receivables and operating leases | | — | | | 52,094 | | | — | | | 52,094 | |
Proceeds from sale of business | | 145 | | | — | | | — | | | 145 | |
Purchases of marketable securities and other investments | | (19,477) | | | (8,014) | | | — | | | (27,491) | |
Sales and maturities of marketable securities and other investments | | 22,553 | | | 10,676 | | | — | | | 33,229 | |
Settlements of derivatives | | (255) | | | (17) | | | — | | | (272) | |
Other | | (354) | | | — | | | — | | | (354) | |
Investing activity (to)/from other segments | | 7,478 | | | (146) | | | (7,332) | | | — | |
Net cash provided by/(used in) investing activities | | $ | 3,907 | | | $ | 6,170 | | | $ | (7,332) | | | $ | 2,745 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash flows from financing activities | | | | | | | | |
Cash payments for dividends and dividend equivalents | | $ | (403) | | | $ | — | | | $ | — | | | $ | (403) | |
Purchases of common stock | | — | | | — | | | — | | | — | |
Net changes in short-term debt | | (187) | | | 3,460 | | | — | | | 3,273 | |
Proceeds from issuance of long-term debt | | 4,800 | | | 23,101 | | | — | | | 27,901 | |
Payments on long-term debt | | (9,904) | | | (44,260) | | | — | | | (54,164) | |
Other | | (42) | | | (63) | | | — | | | (105) | |
Financing activity to/(from) other segments | | 146 | | | (7,478) | | | 7,332 | | | — | |
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) | | | $ | — | | | $ | (232) | |
|
| | | | | | | | | | | | | | | | |
| | For the Year Ended December 31, 2019 |
Cash flows from operating activities | | Company excluding Ford Credit | | Ford Credit | | Eliminations | | Consolidated |
Net income/(loss) | | $ | (2,144 | ) | | $ | 2,228 |
| | $ | — |
| | $ | 84 |
|
Depreciation and tooling amortization | | 6,023 |
| | 3,666 |
| | — |
| | 9,689 |
|
Other amortization | | 48 |
| | (1,247 | ) | | — |
| | (1,199 | ) |
Held-for-sale impairment charges | | 804 |
| | — |
| | — |
| | 804 |
|
Provision for credit and insurance losses | | 14 |
| | 399 |
| | — |
| | 413 |
|
Pension and OPEB expense/(income) | | 2,625 |
| | — |
| | — |
| | 2,625 |
|
Equity investment dividends received in excess of (earnings)/losses | 233 |
| | (30 | ) | | — |
| | 203 |
|
Foreign currency adjustments | | (18 | ) | | (36 | ) | | — |
| | (54 | ) |
Net (gain)/loss on changes in investments in affiliates | | (36 | ) | | 7 |
| | — |
| | (29 | ) |
Stock compensation | | 220 |
| | 8 |
| | — |
| | 228 |
|
Provision for deferred income taxes | | (1,407 | ) | | 37 |
| | — |
| | (1,370 | ) |
Decrease/(Increase) in finance receivables (wholesale and other) | — |
| | 1,554 |
| | — |
| | 1,554 |
|
Decrease/(Increase) in intersegment receivables/payables | | (193 | ) | | 193 |
| | — |
| | — |
|
Decrease/(Increase) in accounts receivable and other assets | | (971 | ) | | 155 |
| | — |
| | (816 | ) |
Decrease/(Increase) in inventory | | 206 |
| | — |
| | — |
| | 206 |
|
Increase/(Decrease) in accounts payable and accrued and other liabilities | 5,228 |
| | 32 |
| | — |
| | 5,260 |
|
Other | | 157 |
| | (116 | ) | | — |
| | 41 |
|
Interest supplements and residual value support to Ford Credit | (4,681 | ) | | 4,681 |
| | — |
| | — |
|
Net cash provided by/(used in) operating activities | | $ | 6,108 |
| | $ | 11,531 |
| | $ | — |
| | $ | 17,639 |
|
|
| | | | | | | | | | | | | | | | |
Cash flows from investing activities | | | | | | | | |
Capital spending | | $ | (7,580 | ) | | $ | (52 | ) | | $ | — |
| | $ | (7,632 | ) |
Acquisitions of finance receivables and operating leases | | — |
| | (55,576 | ) | | — |
| | (55,576 | ) |
Collections of finance receivables and operating leases | | — |
| | 50,182 |
| | — |
| | 50,182 |
|
Purchases of marketable and other investments | | (11,589 | ) | | (5,883 | ) | | — |
| | (17,472 | ) |
Sales and maturities of marketable and other investments | | 12,998 |
| | 3,931 |
| | — |
| | 16,929 |
|
Settlements of derivatives | | 107 |
| | (221 | ) | | — |
| | (114 | ) |
Other | | (34 | ) | | (4 | ) | | — |
| | (38 | ) |
Investing activity (to)/from other segments | | 2,980 |
| | — |
| | (2,980 | ) | | — |
|
Net cash provided by/(used in) investing activities | | $ | (3,118 | ) | | $ | (7,623 | ) | | $ | (2,980 | ) | | $ | (13,721 | ) |
|
| | | | | | | | | | | | | | | | |
Cash flows from financing activities | | | | | | | | |
Cash payments for dividends and dividend equivalents | | $ | (2,389 | ) | | $ | — |
| | $ | — |
| | $ | (2,389 | ) |
Purchases of common stock | | (237 | ) | | — |
| | — |
| | (237 | ) |
Net changes in short-term debt | | (186 | ) | | (1,198 | ) | | — |
| | (1,384 | ) |
Proceeds from issuance of long-term debt | | 3,082 |
| | 44,522 |
| | — |
| | 47,604 |
|
Principal payments on long-term debt | | (1,832 | ) | | (44,665 | ) | | — |
| | (46,497 | ) |
Other | | (110 | ) | | (116 | ) | | — |
| | (226 | ) |
Financing activity to/(from) other segments | | — |
| | (2,980 | ) | | 2,980 |
| | — |
|
Net cash provided by/(used in) financing activities | | $ | (1,672 | ) | | $ | (4,437 | ) | | $ | 2,980 |
| | $ | (3,129 | ) |
| | | | | | | | |
Effect of exchange rate changes on cash, cash equivalents, and restricted cash | $ | (5 | ) | | $ | 50 |
| | $ | — |
| | $ | 45 |
|
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):
| | | | | | | | | | | | | | | | | |
| 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 | | | — | | | 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) | | | — | | | (27) | |
Net income/(loss) attributable to Ford Motor Company | $ | 13,430 | | | $ | 4,507 | | | $ | 17,937 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Year Ended December 31, 2019 |
| | Company excluding Ford Credit | | | | |
| | Automotive | | Mobility | | Other (a) | | Subtotal | | Ford Credit | | Consolidated |
Revenues | | $ | 143,599 |
| | $ | 41 |
| | $ | — |
| | $ | 143,640 |
| | $ | 12,260 |
| | $ | 155,900 |
|
Total costs and expenses | | 140,736 |
| | 1,379 |
| | 3,739 |
| | 145,854 |
| | 9,472 |
| | 155,326 |
|
Operating income/(loss) | | 2,863 |
| | (1,338 | ) | | (3,739 | ) | | (2,214 | ) | | 2,788 |
| | 574 |
|
Interest expense on Automotive debt | | — |
| | — |
| | 963 |
| | 963 |
| | — |
| | 963 |
|
Interest expense on Other debt | | — |
| | — |
| | 57 |
| | 57 |
| | — |
| | 57 |
|
Other income/(loss), net | | 2,074 |
| | 140 |
| | (2,619 | ) | | (405 | ) | | 179 |
| | (226 | ) |
Equity in net income of affiliated companies | | (11 | ) | | 12 |
| | — |
| | 1 |
| | 31 |
| | 32 |
|
Income/(loss) before income taxes | | 4,926 |
| | (1,186 | ) | | (7,378 | ) | | (3,638 | ) | | 2,998 |
| | (640 | ) |
Provision for/(Benefit from) income taxes | | 444 |
| | (284 | ) | | (1,654 | ) | | (1,494 | ) | | 770 |
| | (724 | ) |
Net income/(loss) | | 4,482 |
| | (902 | ) | | (5,724 | ) | | (2,144 | ) | | 2,228 |
| | 84 |
|
Less: Income attributable to noncontrolling interests | | 37 |
| | — |
| | — |
| | 37 |
| | — |
| | 37 |
|
Net income/(loss) attributable to Ford Motor Company | | $ | 4,445 |
| | $ | (902 | ) | | $ | (5,724 | ) | | $ | (2,181 | ) | | $ | 2,228 |
| | $ | 47 |
|
__________
| |
(a) | Other includes Corporate Other, Interest on Debt, and Special Items |
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): | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
Assets | | Company excluding Ford Credit | | Ford Credit | | Eliminations | | Consolidated |
Cash and cash equivalents | | $ | 9,577 | | | $ | 10,963 | | | $ | — | | | $ | 20,540 | |
Marketable securities | | 26,880 | | | 2,173 | | | — | | | 29,053 | |
Ford Credit finance receivables, net | | — | | | 32,543 | | | — | | | 32,543 | |
Trade and other receivables, net | | 3,564 | | | 7,806 | | | — | | | 11,370 | |
Inventories | | 12,065 | | | — | | | — | | | 12,065 | |
Other assets | | 2,473 | | | 952 | | | — | | | 3,425 | |
Receivable from other segments | | 55 | | | 1,333 | | | (1,388) | | | — | |
Total current assets | | 54,614 | | | 55,770 | | | (1,388) | | | 108,996 | |
| | | | | | | | |
Ford Credit finance receivables, net | | — | | | 51,256 | | | — | | | 51,256 | |
Net investment in operating leases | | 1,194 | | | 25,167 | | | — | | | 26,361 | |
Net property | | 36,915 | | | 224 | | | — | | | 37,139 | |
Equity in net assets of affiliated companies | | 4,422 | | | 123 | | | — | | | 4,545 | |
Deferred income taxes | | 13,606 | | | 190 | | | — | | | 13,796 | |
Other assets | | 13,273 | | | 1,669 | | | — | | | 14,942 | |
Receivable from other segments | | — | | | 29 | | | (29) | | | — | |
Total assets | | $ | 124,024 | | | $ | 134,428 | | | $ | (1,417) | | | $ | 257,035 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities | | | | | | | | |
Payables | | $ | 21,315 | | | $ | 1,034 | | | $ | — | | | $ | 22,349 | |
Other liabilities and deferred revenue | | 17,394 | | | 1,292 | | | — | | | 18,686 | |
Company excluding Ford Credit debt payable within one year | | 3,175 | | | — | | | — | | | 3,175 | |
Ford Credit debt payable within one year | | — | | | 46,517 | | | — | | | 46,517 | |
Payable to other segments | | 1,388 | | | — | | | (1,388) | | | — | |
Total current liabilities | | 43,272 | | | 48,843 | | | (1,388) | | | 90,727 | |
| | | | | | | | |
Other liabilities and deferred revenue | | 26,393 | | | 1,312 | | | — | | | 27,705 | |
Company excluding Ford Credit long-term debt | | 17,200 | | | — | | | — | | | 17,200 | |
Ford Credit long-term debt | | — | | | 71,200 | | | — | | | 71,200 | |
Deferred income taxes | | 905 | | | 676 | | | — | | | 1,581 | |
Payable to other segments | | 29 | | | — | | | (29) | | | — | |
Total liabilities | | $ | 87,799 | | | $ | 122,031 | | | $ | (1,417) | | | $ | 208,413 | |
|
| | | | | | | | | | | | | | | | |
| | December 31, 2019 |
Assets | | Company excluding Ford Credit | | Ford Credit | | Eliminations | | Consolidated |
Cash and cash equivalents | | $ | 8,437 |
| | $ | 9,067 |
| | $ | — |
| | $ | 17,504 |
|
Marketable securities | | 13,851 |
| | 3,296 |
| | — |
| | 17,147 |
|
Ford Credit finance receivables, net | | — |
| | 53,651 |
| | — |
| | 53,651 |
|
Trade and other receivables, less allowances | | 3,618 |
| | 5,619 |
| | — |
| | 9,237 |
|
Inventories | | 10,786 |
| | — |
| | — |
| | 10,786 |
|
Assets held for sale | | 685 |
| | 1,698 |
| | — |
| | 2,383 |
|
Other assets | | 2,014 |
| | 1,325 |
| | — |
| | 3,339 |
|
Receivable from other segments | | 125 |
| | 2,228 |
| | (2,353 | ) | | — |
|
Total current assets | | 39,516 |
| | 76,884 |
| | (2,353 | ) | | 114,047 |
|
| | | | | | | | |
Ford Credit finance receivables, net | | — |
| | 53,703 |
| | — |
| | 53,703 |
|
Net investment in operating leases | | 1,612 |
| | 27,618 |
| | — |
| | 29,230 |
|
Net property | | 36,257 |
| | 212 |
| | — |
| | 36,469 |
|
Equity in net assets of affiliated companies | | 2,396 |
| | 123 |
| | — |
| | 2,519 |
|
Deferred income taxes | | 13,856 |
| | 171 |
| | (2,164 | ) | | 11,863 |
|
Other assets | | 8,736 |
| | 1,970 |
| | — |
| | 10,706 |
|
Receivable from other segments | | 9 |
| | 16 |
| | (25 | ) | | — |
|
Total assets | | $ | 102,382 |
| | $ | 160,697 |
| | $ | (4,542 | ) | | $ | 258,537 |
|
|
| | | | | | | | | | | | | | | | |
Liabilities | | | | | | | | |
Payables | | $ | 19,681 |
| | $ | 992 |
| | $ | — |
| | $ | 20,673 |
|
Other liabilities and deferred revenue | | 21,340 |
| | 1,647 |
| | — |
| | 22,987 |
|
Automotive debt payable within one year | | 1,445 |
| | — |
| | — |
| | 1,445 |
|
Ford Credit debt payable within one year | | — |
| | 52,371 |
| | — |
| | 52,371 |
|
Other debt payable within one year | | 130 |
| | — |
| | — |
| | 130 |
|
Liabilities held for sale | | 481 |
| | 45 |
| | — |
| | 526 |
|
Payable to other segments | | 2,353 |
| | — |
| | (2,353 | ) | | — |
|
Total current liabilities | | 45,430 |
| | 55,055 |
| | (2,353 | ) | | 98,132 |
|
| | | | | | | | |
Other liabilities and deferred revenue | | 24,280 |
| | 1,044 |
| | — |
| | 25,324 |
|
Automotive long-term debt | | 13,233 |
| | — |
| | — |
| | 13,233 |
|
Ford Credit long-term debt | | — |
| | 87,658 |
| | — |
| | 87,658 |
|
Other long-term debt | | 470 |
| | — |
| | — |
| | 470 |
|
Deferred income taxes | | 61 |
| | 2,593 |
| | (2,164 | ) | | 490 |
|
Payable to other segments | | 25 |
| | — |
| | (25 | ) | | — |
|
Total liabilities | | $ | 83,499 |
| | $ | 146,350 |
| | $ | (4,542 | ) | | $ | 225,307 |
|
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Selected Other Information.
Equity. At December 31, 2018,2020, total equity attributable to Ford was $35.9$30.7 billion, an increasea decrease of $354 million$2.5 billion compared with December 31, 2017.2019. At December 31, 2019,2021, total equity attributable to Ford was $33.2$48.5 billion, a decreasean increase of $2.7$17.8 billion compared with December 31, 2018.2020. The detail for the changes is shown below (in billions): | | | | | | | | | | | |
| 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) | | | — | |
Adoption of accounting standards | (0.2) | | | — | |
Common stock issued (including share-based compensation impacts) | 0.1 | | | 0.3 | |
Total | $ | (2.5) | | | $ | 17.8 | |
|
| | | | | | | |
| 2018 vs 2017 Increase/ (Decrease) | | 2019 vs 2018 Increase/ (Decrease) |
Net income | $ | 3.7 |
| | $ | — |
|
Shareholder distributions | (3.1 | ) | | (2.6 | ) |
Other comprehensive income | (0.4 | ) | | (0.3 | ) |
Common stock issued (including share-based compensation impacts) | 0.2 |
| | 0.2 |
|
Total | $ | 0.4 |
| | $ | (2.7 | ) |
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 all 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. AsWith actual experience, becomes available, 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 are distinguishable from warranties in that they 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 2725 of the Notes to the Financial Statements for information regarding warranty and product recall relatedfield 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).
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:
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• | •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.
Our discount rate assumption is based primarily on the results of a cash flow matching analysis, which matches 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.
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• | 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 where appropriate. The assumption is based on consideration of all inputs, with a focus on long-term trends to avoid short-term market influences.
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• | Salary growth. Our salary growth assumption reflects our actual experience, long-term outlook, and assumed inflation.
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• | Inflation. Our inflation assumption is based on an evaluation of external market indicators, including real gross domestic product growth and central bank inflation targets.
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• | 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).
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• | Retirement rates. Retirement rates are developed to reflect actual and projected plan experience.
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• | Mortality rates. Mortality rates are developed to reflect actual and projected plan experience.
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• | 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.
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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 1817 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 20192021 weighted average discount rate was 3.32%2.91% for U.S. plans and 1.74%1.75% for non-U.S. plans, reflecting decreasesincreases of 9735 and 7452 basis points, respectively, compared with year-end 2018.2020. In 2019,2021, the U.S. actual return on assets was 20.43%2.82%, which was higherlower than the expected long-term rate of return of 6.75%6.0%. Non-U.S. actual return on assets was 10.72%2.69%, which was higherlower than the expected long-term rate of return of 4.18%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, these differences,higher rates and excess growth asset returns, in addition to demographic and other updates, resulted in a net remeasurement lossgain of $1.9$3.5 billion, which has been recognized within net periodic benefit cost and reported as a special item.
For 2020,2022, the expected long-term rate of return on assets is 6.50%5.75% for U.S. plans, down 25 basis points from 2019,2021, and 3.67%3.29% for non-U.S. plans, down 5113 basis points compared with a year ago, primarily reflecting an increased allocation to fixed income assets and a lower consensus on capital market return expectations from advisors.
De-risking Strategy. We employ a broad global de-risking strategy whichfor our global funded plans that increases the matching characteristics of our assets relative to our obligation as funded status improves. Changes in interest rates, (whichwhich directly influence changes in discount rates),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.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Sensitivity Analysis. The December 31, 20192021 pension funded status and 20202022 expense are affected by year-end 20192021 assumptions. Sensitivities to these assumptions may be asymmetric and are specific to the time periods noted. The effects of changes in the factors whichthat 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 impacteffect on our funded status of an increase/decrease in discount rates and interest rates (in millions):
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| | | | | | | | | | | | | | | | | | | |
| | Basis Point Change
| | Increase/(Decrease) in December 31, 20192021 Funded Status |
| | |
Factor | | | U.S. Plans | | Non-U.S. Plans |
Discount rate - obligation | | +/- 100 bps | | $4,900/4,800/$(5,900)(5,800) | | $5,300/4,800/$(6,900)(6,300) |
Interest rate - fixed income assets | | +/- 100 | | (4,700)(4,600)/5,7005,600 | | (3,900)(3,300)/5,0004,300 |
Net impact on funded status | | | | $200/$(200) | | $1,400/1,500/$(1,900)(2,000) |
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 impactaffect net funded status (e.g., contributions) are not reflected.
Interest rates and the expected long-term rate of return on assets have the largest impacteffect on pension expense. These assumptions are generally set at each year-end for expense recorded throughout the following year. The table below estimates the impacteffect on pension expense of a higher/lower assumption for these factors (in millions):
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| | | | | | | | | | | | | | | | | | | |
| | Basis Point Change
| | Increase/(Decrease) in December 31, 2019 Funded Status 2022 Pension Expense |
| | |
Factor | | | U.S. Plans | | Non-U.S. Plans |
Interest rate - service cost and interest cost | | +/- 25 bps | | $40/45/$(40)(50) | | $30/35/$(30) |
Expected long-term rate of return on assets | | +/- 25 | | (110) (445)/110445 | | (70)(325)/70325 |
The impacteffect of changing multiple factors simultaneously cannot be calculated by combining the individual sensitivities. The sensitivity of pension expense to an increasea change in discount ratesrate 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, 20192021 was 3.30%2.97%, compared with 4.08%2.62% at December 31, 2018,2020, resulting in a worldwide net remeasurement lossgain of $551$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 impacteffect on our OPEB obligation and expense. The table below estimates the impacteffect on 20202022 OPEB expense of higher/lower assumptions for these factors (in millions):
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| | | | | | | | | | | | | | | | | | | |
| | | | Worldwide OPEB |
| | Basis Point Change
| | (Increase)/Decrease 2019 2021 YE Obligation
| | Increase/(Decrease) 2019 2022 Expense
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| | | |
Factor | | | |
Discount rate - obligation | | +/- 100 bps | | $700/675/$(850)(835) | | N/A |
Interest rate - service cost and interest cost | | +/- 25 | | N/A | | $5/$(5) |
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, that will ultimately be reported in tax returns, 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.
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 tofor 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 (defined as a likelihood of more than 50%) 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 a number ofvarious types of evidence, including the following:
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• | 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;
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• | 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
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• | Tax planning strategies. If necessary and available, tax planning strategies would 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.
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•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 aglobal valuation allowanceallowances of $843 million is required, primarily related to deferred tax assets in various non-U.S. operations.$1.1 billion are required. We believe that we ultimately will recover the remaining $11.3$12.2 billion of deferred tax assets. We have assessed recoverabilityHowever, the ultimate realization of theseour deferred tax assets is subject to a number of variables, including our future profitability within relevant tax jurisdictions, and concluded that nofuture tax planning and the related effects on our cash and liquidity position. Accordingly, our valuation allowance is required for these assets.allowances may increase or decrease in future periods.
For additional information regarding income taxes, see Note 7 of the Notes to the Financial Statements.
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 andor expenses, present cash flow losses combined with a history of present 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 amountamounts of those assets isare depreciated over their remaining useful life.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Nature of Estimates Required - Held-for-Sale Operations.Goodwill. Goodwill is subject to periodic assessments of impairment. We performtest 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 on a disposal group to be discontinued, held for sale, or otherwise disposed of when we have committed to an action and the action is expected to be completed within one year. We estimate fair value to approximate the expected proceeds to be received less cost to sell and compare it toperformed. If the carrying value of the disposal group. Anreporting unit is above fair value, an impairment chargeloss is recognized whenin an amount equal to the carrying value exceeds the estimated fair value.excess.
Assumptions and Approach Used - Held-and-Used Long-Lived Assets.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:
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• | •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.
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• | •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.
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.
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 a business unit’s earnings stream is projected to grow beyond the planning period.
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• | 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.
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• | 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.
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During 2018,2021, we embarked on a comprehensive strategy aimed at strengthening the competitive positioncontinued to progress our global redesign by reassessing our operations and profitability of our operations.reducing structural costs. As part of this process, we have initiated several key fitness actions aimed at reducing structural costs while at the same time consulting with our key stakeholders and partners with regardredesign, in 2020, Ford Brazil committed to a fundamental redesignplan to exit manufacturing operations which resulted in the closure of our operations. This redesign includes changesfacilities in Camaçari, Taubaté, and Troller in 2021. In addition, in 2021, Ford India, committed to a plan to exit the Company’sengine and vehicle portfolio, expanding offeringsmanufacturing operations at its facilities in Chennai and volumesits vehicle manufacturing operation at its facility in its most profitable growthSanand. Ford India ceased vehicle segments, while improving or exiting less profitablemanufacturing in Sanand in the fourth quarter of 2021 and will cease engine and vehicle lines and addressing underperforming markets.manufacturing in Chennai by the second quarter of 2022.
Against this backdrop, we determined that there were triggering events related to Asia Pacific Operations, China, andour South America business units and tested our long-lived assets for impairment. We also tested the newly formed International Markets Group (“IMG”) business unit,units. In each situation in which combinedwe experienced a triggering event during the year, we tested our Asia Pacific Operations, and Middle East & Africa business units and also includes the results of our joint venture in Russia. Usinglong-lived assets for impairment using our internal economic and business projections, as well as third-party valuations of certain long-lived assets, weassets. We determined that the carrying valuevalues 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 these business unitsBrazil and India were reduced by accelerated depreciation that was recoverabletriggered at December 31, 2019.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 iswas 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.
Assumptions and Approach Used - Held-for-Sale Operations. In the third quarter of 2019, we committed to a plan to sell specific net assets in our India Automotive operations. We entered into a definitive agreement to form a joint venture with Mahindra & Mahindra Limited (“Mahindra”), with Mahindra owning a 51 percent controlling stake and Ford owning a 49 percent stake. Under the terms of the transaction, which is expected to close mid-2020, Ford will sell certain India Automotive operations to the joint venture.
Item 7. Management’s Discussion and AnalysisIn our Mobility segment, goodwill of Financial Condition and Results$102 million related to two investments was fully impaired during the second half of Operations (Continued)
Our commitment to sell the India Automotive operations triggered a held-for-sale impairment test. The fair value of the disposal group is measured using a market approach and estimated2021 based on expected proceeds to be received less cost to sell, which we conclude is most representative of the value of the net assets given the currentexternal market conditions, the characteristics of viable market participants, and the pending sales transaction. As a result of the impairment testing, we recognized a pre-tax impairment charge of $804 million reported in indicators evaluated for other business purposes.
Cost of sales.
Allowance for Credit Losses
The allowance for credit losses represents Ford Credit’s estimate of the probableexpected lifetime credit losslosses 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 1110 of the Notes to the Financial Statements for more information regarding allowance for credit losses.
Nature of Estimates Required.Ford Credit estimates the probable credit losses inherent in finance receivables based on several factors.
Consumer Portfolio. Ford Credit estimates the allowance for credit losses for receivables that share similar risk characteristics based on consumer receivablesa 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 recoveries (including key metrics such as delinquencies, repossessions,forward-looking macroeconomic conditions. The models vary by portfolio and bankruptcies), the composition of Ford Credit’s present portfolio (including vehicle brand, term, risk evaluation,receivable type including consumer finance receivables, wholesale loans, and new/used vehicles), trends in historical used vehicle values, and economic conditions. Estimates from these models rely on historical information and may not fully reflect losses inherent in the present portfolio. Therefore,dealer loans. If Ford Credit may adjustdoes not believe the estimatemodels 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 recent economic trends and conditions, portfolio composition,performance, and other relevant factors.
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:
| |
• | Frequency.
The number of finance receivables that are expected to default over the loss emergence period (“LEP”), measured as repossessions; repossession ratio reflects the number of finance receivables that Ford Credit expects will default over a period of time divided by the average number of contracts outstanding; and
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• | Loss severity. The expected difference between the amount a customer owes when the finance contract is charged off and the amount received, net of expenses, from selling the repossessed vehicle.
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Collective Allowance for Credit Losses. •Probability of default. The collective allowance is evaluated primarily using a collective loss-to- receivables (“LTR”) model that, based on historical experience, indicates credit losses have been incurred inexpected probability of payment and time to default, which include assumptions about macroeconomic factors and recent performance; and
•Loss given default. The percentage of the portfolio even though the particular accounts that are uncollectible cannot be specifically identified. The LTR model is based on the most recent years of history. An LTR for each product is calculated by dividing credit losses (i.e., charge-offs net of recoveries) by average net finance receivables, excluding unearned interest supplements, and allowance for credit losses. The average LTRexpected balance due at default that is calculated for each product is multiplied by the end-of-period balances for that given product.
Ford Credit’s largest markets also use a loss projection model to estimate losses inherent in the portfolio.not recoverable. The loss projection model applies recent monthly performance metrics, stratified by contract type (retail installment sale contract or finance lease), contract term (e.g., 60-month),given default takes into account expected collateral value and risk rating to Ford Credit’s active portfolio to estimate the losses that have been incurred.future recoveries.
The LEP is an assumption withinMacroeconomic factors used in Ford Credit’s models are country specific and represents the average amount of time between when a loss event first occurs to when it is charged off. This time period starts when the consumer begins to experience financial difficulty. It is evidenced, typically through delinquency, before eventually resulting in a charge-off. The LEP is a multiplier in the calculation of the collective consumer allowance for credit losses.
For accounts greater than 120 days past due, the uncollectible portion is charged off,include variables such that the remaining recorded investment is equal to the estimated fair value of the collateral less costs to sell.
as unemployment rates, housing prices, and gross domestic product.
Specific Allowance for Impaired Receivables
. Consumer receivables involved in Troubled Debt Restructurings are specifically assessed for impairment. A specific allowance is estimated based on the present value of the expected future cash flows of the receivable discounted at the contract’s original effective interest rate or the fair value of any collateral adjusted for estimated costs to sell.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
After establishing the collective and specific allowance for credit losses, if Ford Credit management believes the allowance does not reflect all losses inherent in the portfolio due to changes in recent economic trends and conditions, or other relevant factors, an adjustment is made based on management judgment.
Sensitivity Analysis. Changes in the assumptions used to derive frequencyprobability of default and severityloss 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):
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| | | | | | | | | | | | | |
Assumption | | Basis Point Change | | Increase/(Decrease) |
Frequency - repossession ratioProbability of default (lifetime) | | +/- 10 bps | | $27/$(27) |
Loss severity per unit | | +/- 100 bps | | 3/(3)$200/$(200) |
Loss given default | | +/- 100 | | 10/(10) |
Non-Consumer Portfolio. Ford Credit estimates the allowance for credit losses for non-consumer receivables based on historical LTR ratios, expected future cash flows, and the fair value of collateral.
Collective Allowance for Credit Losses. Ford Credit estimates an allowance for non-consumer receivables that are not specifically identified as impaired using an LTR model for each financing product based on historical experience. This LTR is an average of the most recent historical experience and is calculated consistent with the consumer receivables LTR approach. All accounts that are specifically identified as impaired are excluded from the calculation of the non-specific or collective allowance.
Specific Allowance for Impaired Receivables. Dealer financing is evaluated by segmenting individual loans by the risk characteristics of the loan (such as the amount of the loan, the nature of the collateral, and the financial status of the debtor). The loans are analyzed to determine whether individual loans are impaired, and a specific allowance is estimated based on the present value of the expected future cash flows of the receivable discounted at the loan’s original effective interest rate or the fair value of the collateral adjusted for estimated costs to sell.
After establishing the collective and specific allowance for credit losses, if Ford Credit management believes the allowance does not reflect all losses inherent in the portfolio due to changes in recent economic trends and conditions, or other relevant factors, an adjustment is made based on management judgment.
Changes in Ford Credit’s assumptions affect Ford Credit interest, operating, and other expenses on our income statement and the allowance for credit losses contained within Ford Credit finance receivables, net on our balance sheet.
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. Such adjustmentsAdjustments to depreciation expense would 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.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Assumptions Used. Ford Credit’s accumulated depreciation on vehicles subject to operating leases is based on assumptions regarding:
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• | •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.
Ford Credit’s projection of the market value of the vehicles when sold at the end of the lease; and
|
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• | Return volume. Ford Credit’s projection of the number of vehicles that will be returned at lease-end.
|
See Note 1312 of the Notes to the Financial Statements for more information regarding accumulated depreciation on vehicles subject to operating leases.
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):
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| | | | | | | | | | | | | |
Assumption | | Basis Point Change | | Increase/(Decrease) |
Future auction values | | +/- 100 bps | | $(132)(20)/$13220 |
Return volumes | | +/- 100 | | 17/(17)5/(5) |
Adjustments to the amount of accumulated supplemental depreciation on operating leases would beare reflected on our balance sheetsheets as Net investment in operating leases and on theour income statementstatements in Ford Credit interest, operating, and other expenses.
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 (with the exception of ASU 2016-13) to our financial statements or financial statement disclosures. For additional information, see Note 3 of the Notes to the Financial Statements.
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| | | | | | | | | | |
ASU | | Effective Date (a) |
2018-182021-04 | Clarifying the Interaction between Collaborative Arrangements and Revenue from Contracts with CustomersIssuer’s Accounting for Certain Modifications or Exchanges of Warrants | | January 1, 20202022 |
2018-152021-05 | Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service
Contract Lessors – Certain Leases with Variable Lease Payments | | January 1, 20202022 |
2016-132021-10 | Credit Losses - Measurement of Credit Losses on Financial InstrumentsGovernment Assistance: Disclosures by Business Entities about Government Assistance | | January 1, 2020 (b)2022 |
2020-012018-12 | Clarifying the Interaction between Equity Securities, Equity Method and Joint Ventures, and Derivatives and Hedging | | January 1, 2021 |
2019-12 | Simplifying the Accounting for Income Taxes | | January 1, 2021 |
2018-12 | Targeted Improvements to the Accounting for Long Duration Contracts | | January 1, 20222023 |
2021-08 | Business Combinations: Accounting for Contract Assets and Contract Liabilities from Contracts with Customers | | January 1, 2023 |
_________
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(a) | (a)Early adoption for each of the standards is permitted. |
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(b) | The FASB has issued the following update to the Credit Losses standard: ASU 2019-05 (Targeted Transition Relief). The new Credit Losses standard and the related amendments were effective January 1, 2020. |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
AGGREGATE CONTRACTUAL OBLIGATIONS
We are party to many contractual obligations involving commitments to make payments to third parties. Most of these are debt obligations incurred by our Ford Credit segment. 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. 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” 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.
The table below summarizes our contractual obligations as of December 31, 2019 (in millions):
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| | | | | | | | | | | | | | | | | | | |
| Payments Due by Period | | |
| 2020 | | 2021 - 2022 | | 2023 - 2024 | | Thereafter | | Total |
Company excluding Ford Credit | | | | | | | | | |
On-balance sheet | | | | | | | | | |
Long-term debt (a) | $ | 1,169 |
| | $ | 2,823 |
| | $ | 157 |
| | $ | 10,919 |
| | $ | 15,068 |
|
Interest payments relating to long-term debt | 780 |
| | 1,466 |
| | 1,317 |
| | 10,141 |
| | 13,704 |
|
Finance leases (b) | 96 |
| | 56 |
| | 26 |
| | 10 |
| | 188 |
|
Operating leases | 388 |
| | 498 |
| | 245 |
| | 360 |
| | 1,491 |
|
Pension funding (c) | 181 |
| | 385 |
| | 373 |
| | — |
| | 939 |
|
Off-balance sheet | | | | | | | | | |
Purchase obligations | 1,323 |
| | 1,414 |
| | 635 |
| | 200 |
| | 3,572 |
|
Total Company excluding Ford Credit | 3,937 |
| | 6,642 |
| | 2,753 |
| | 21,630 |
| | 34,962 |
|
| | | | | | | | | |
Ford Credit | | | | | | | | | |
On-balance sheet | | | | | | | | | |
Long-term debt (a) | 38,671 |
| | 53,016 |
| | 21,136 |
| | 13,158 |
| | 125,981 |
|
Interest payments relating to long-term debt | 3,307 |
| | 3,995 |
| | 1,840 |
| | 988 |
| | 10,130 |
|
Operating leases | 18 |
| | 27 |
| | 25 |
| | 27 |
| | 97 |
|
Off-balance sheet | | | | | | | | | |
Purchase obligations | 26 |
| | 41 |
| | 18 |
| | — |
| | 85 |
|
Total Ford Credit | 42,022 |
| | 57,079 |
| | 23,019 |
| | 14,173 |
| | 136,293 |
|
Total Company | $ | 45,959 |
| | $ | 63,721 |
|
| $ | 25,772 |
|
| $ | 35,803 |
|
| $ | 171,255 |
|
__________
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(a) | Excludes unamortized debt discounts/premiums, unamortized debt issuance costs, and fair value adjustments. |
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(b) | Includes interest payments of $11 million. |
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(c) | Amounts represent our estimate of contractually obligated contributions to U.K. and Ford-Werke plans. See Note 18 of the Notes to the Financial Statements for further information regarding our expected 2020 pension contributions and funded status. |
The amount of unrecognized tax benefits for 2019 of $1.9 billion (see Note 7 of the Notes to the Financial Statements for additional discussion)standards is excluded from the table above. Final settlement of a significant portion of these obligations will require bilateral tax agreements among us and various countries, the timing of which cannot reasonably be estimated.permitted.
For additional information regarding pension and OPEB obligations, operating lease obligations, and long-term debt, see Notes 18, 19, and 20, respectively, of the Notes to the Financial Statements.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
OVERVIEW
We are exposed to a variety of market and other risks, including the effects of changes in foreign currency exchange rates, commodity prices, and interest rates, as well as risks to availability of funding sources, hazard events, and specific asset risks.
These risks affect our Automotive and Ford Credit segments differently. We monitor and manage these exposures as an integral part of our overall risk management program, which includes regular reports to a central management committee, the Global Risk Management Committee (“GRMC”). The GRMC is chaired by our Chief Financial Officer, and the committee includes our Controller and Chief Financial Officer, Automotive, our Treasurer, and other members of senior management.Treasurer.
Our Automotive and Ford Credit segments are exposed to liquidity risk, including the possibility of having to curtail business or being unable to meet financial obligations as they come due because funding sources may be reduced or become unavailable. Our plan is to maintain funding sources to ensure liquidity through a variety of economic or business cycles. As discussed in greater detail in Item 7, our funding sources include sales of receivables in securitizations and other structured financings, unsecured debt issuances, equity and equity-linked issuances, and bank borrowings.
We are exposed to a variety of insurable risks, such as loss or damage to property, liability claims, and employee injury. We protect against these risks through the purchase of commercial insurance that is designed to protect us above our self-insured retentions against events that could generate significant losses.
Direct responsibility for the execution of our market risk management strategies resides with our Treasurer’s Office and is governed by written policies and procedures. Separation of duties is maintained between the development and authorization of derivative trades, the transaction of derivatives, and the settlement of cash flows. Regular audits are conducted to ensure that appropriate controls are in place and that they remain effective. In addition, our market risk exposures and our use of derivatives to manage these exposures are approved by the GRMC, and reviewed by the Audit Committee of our Board of Directors.
In accordance with our corporate risk management policies, we use derivative instruments, when available, such as forward contracts, swaps, and options that economically hedge certain exposures (foreign currency, commodity, and interest rates). We do not use derivative contracts for trading, market-making, or speculative purposes. In certain instances, we forgo hedge accounting, and in certain other instances, our derivatives do not qualify for hedge accounting. Either situation results in unrealized gains and losses that are recognized in income. For additional information on our derivatives, see Note 2120 of the Notes to the Financial Statements.
The market and counterparty risks of our Automotive and Ford Credit segments are discussed and quantified below.
AUTOMOTIVE MARKET RISK
Our Automotive segment frequently has expenditures and receipts denominated in foreign currencies, including the following: purchases and sales of finished vehicles and production parts, debt and other payables, subsidiary dividends, and investments in foreign operations. These expenditures and receipts create exposures to changes in exchange rates. We also are exposed to changes in prices of commodities used in the production of our vehicles and changes in interest rates.
Foreign currency risk, commodity risk, and interest rate risk are measured and quantified using a model to evaluate the sensitivity of market value to instantaneous, parallel shifts in rates and/or prices.
Foreign Currency Risk. Foreign currency risk is the possibility that our financial results could be worse than planned because of changes in currency exchange rates. Accordingly, our practice is to use derivative instruments to hedge our economic exposure with respect to forecasted revenues and costs, assets, liabilities, and firm commitments denominated in certain foreign currencies consistent with our overall risk management strategy. In our hedging actions, we use derivative instruments commonly used by corporations to reduce foreign exchange risk (e.g., forward contracts).
Item 7A. Quantitative and Qualitative Disclosures About Market Risk (Continued)
The net fair value of foreign exchange forward contracts (including adjustments for credit risk) as of December 31, 2019,2021, was a liability of $596$253 million, compared with an asseta liability of $363$487 million as of December 31, 2018.2020. The potential decreasechange in the fair value from a 10% adverse change in the underlying exchange rates, in U.S. dollar terms, would have been $2.3$2.2 billion at December 31, 2019,2021, compared with $2.5 billion at December 31, 2018.2020. The sensitivity analysis presented is hypothetical and assumes foreign exchange rate changes are instantaneous and adverse across all currencies. In reality, some of our exposures offset and foreign exchange rates move in different magnitudes and at different times, and any changes in fair value would generally be offset by changes in the underlying exposure. See Note 2120 of the Notes to the Financial Statements for more information regarding our foreign currency exchange contracts.
Commodity Price Risk. Commodity price risk is the possibility that our financial results could be worse than planned because of changes in the prices of commodities used in the production of motor vehicles, such as base metals (e.g., steel, copper, and aluminum), precious metals (e.g., palladium), energy (e.g., natural gas and electricity), and plastics/resins (e.g., polypropylene). As we transition to a greater mix of battery electric vehicles, we expect to increase our reliance on lithium, cobalt, and nickel for batteries. Accordingly, our practice is to use derivative instruments to hedge the price risk with respect to forecasted purchases of certain commodities that we can economically hedge (primarily base metals and precious metals) and consistent with our overall risk management strategy. In our hedging actions, we use derivative instruments commonly used by corporations to reduce commodity price risk (e.g., financially settled forward contracts). The extent to which we hedge is also impacted by our ability to achieve designated hedge accounting.
The net fair value of commodity forward contracts (including adjustments for credit risk) as of December 31, 2019,2021, was a liabilityan asset of $24$220 million, compared with a liabilityan asset of $62$105 million as of December 31, 2018.2020. The potential decreasechange in the fair value from a 10% adverse change in the underlying commodity prices would be $112$215 million at December 31, 2019,2021, compared with $90$141 million at December 31, 2018.2020. The sensitivity analysis presented is hypothetical and assumes commodity price changes are instantaneous and adverse across all commodities. In reality, commodity prices move in different magnitudes and at different times, and any changes in fair value would generally be offset by changes in the underlying exposure.
In addition, our purchasing organization (with guidance from the GRMC, as appropriate) negotiates contracts to ensurefor the continuous supply of raw materials. In some cases, these contracts stipulate minimum purchase amounts and specific prices, and, therefore, play a role in managing commodity price risk.
Interest Rate Risk. Interest rate risk relates to the loss we could incur in our Company cash investment portfolios due to a change in interest rates. Our interest rate sensitivity analysis on the investment portfolios includes cash and cash equivalents and net marketable securities. At December 31, 2019, we had $22.32021, Company cash consisted of $10.6 billion of Rivian marketable securities and $26.0 billion of cash in our Company cash investment portfolios, compared to $23.1$30.8 billion of Company cash at December 31, 2018.2020. We invest the portfolios in securities of various types and maturities, the value of which are subject to fluctuations in interest rates. The investment strategy is based on clearly defined risk and liquidity guidelines to maintain liquidity, minimize risk, and earn a reasonable return on the short-term investments. In investing the cash in our Company cash,investment portfolios, safety of principal is the primary objective and risk-adjusted return is the secondary objective.
At any time, a rise in interest rates could have a material adverse impact on the fair value of our portfolios. Assuming a hypothetical increase in interest rates of one percentage point, the value of our portfolios would be reduced by $173$250 million, as calculated as of December 31, 2019.2021. This compares to $205$250 million, as calculated as of December 31, 2018.2020. While these are our best estimates of the impact of the specified interest rate scenario, actual results could differ from those projected. The sensitivity analysis presented assumes interest rate changes are instantaneous, parallel shifts in the yield curve. In reality, interest rate changes of this magnitude are rarely instantaneous or parallel.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk (Continued)
FORD CREDIT MARKET RISK
Market risk for Ford Credit is the possibility that changes in interest and currency exchange rates will adversely affect cash flow and economic value.
Interest Rate Risk. Generally, Ford Credit’s assets and the related debt have different re-pricing periods, and consequently, respond differently to changes in interest rates.
Ford Credit’s assets consist primarily of fixed-rate retail financing and operating lease contracts and floating-rate wholesale receivables. Fixed-rate retail financing and operating lease contracts generally require customers to make equal monthly payments over the life of the contract. Wholesale receivables are originated to finance new and used vehicles held in dealers’ inventory and generally require dealers to pay a floating rate.
Debt consists primarily of short- and long-term unsecured and securitized debt. Ford Credit’s term debt instruments are principally fixed-rate and require fixed and equal interest payments over the life of the instrument and a single principal payment at maturity.
Ford Credit’s interest rate risk management objective is to reduce volatility in its cash flows and volatility in its economic value from changes in interest rates based on an established risk tolerance that may vary by market.
Ford Credit uses economic value sensitivity analysis and re-pricing gap analysis to evaluate potential long-term effects of changes in interest rates. It then enters into interest rate swaps to convert portions of its floating-rate debt to fixed or its fixed-rate debt to floating to ensure that Ford Credit’s exposure falls within the established tolerances. Ford Credit also uses pre-tax cash flow sensitivity analysis to monitor the level of near-term cash flow exposure. The pre-tax cash flow sensitivity analysis measures the changes in expected cash flows associated with Ford Credit’s interest-rate-sensitive assets, liabilities, and derivative financial instruments from hypothetical changes in interest rates over a twelve-month horizon. Ford Credit’sInterest rate swaps are placed to maintain exposure within approved thresholds and the Asset-Liability Committee reviews the re-pricing mismatch and exposure every month and approves interest rate swaps required to maintain exposure within approved thresholds prior to execution.monthly.
To provide a quantitative measure of the sensitivity of its pre-tax cash flow to changes in interest rates, Ford Credit uses interest rate scenarios that assume a hypothetical, instantaneous increase or decrease of one percentage point in all interest rates across all maturities (a “parallel shift”), as well as a base case that assumes that all interest rates remain constant at existing levels. In reality, interest rate changes are rarely instantaneous or parallel and rates could move more or less than the one percentage point assumed in Ford Credit’s analysis. As a result, the actual impact to pre-tax cash flow could be higher or lower than the results detailed in the table below. These interest rate scenarios are purely hypothetical and do not represent Ford Credit’s view of future interest rate movements.
Under these interest rate scenarios, Ford Credit expects more debt and liabilities than assets to re-price in the next twelve months. Other things being equal, this means that during a period of rising interest rates, the interest received on Ford Credit’s assets will increase less than the interest paid on Ford Credit’s debt, thereby initially decreasing Ford Credit’s pre-tax cash flow. During a period of falling interest rates, Ford Credit would expect its pre-tax cash flow to initially increase. Ford Credit’s pre-tax cash flow sensitivity to interest rate movement is highlighted in the table below.
Pre-tax cash flow sensitivity at December 31 was as follows (in millions):
| | | | | | | | | | | | | | |
Pre-Tax Cash Flow Sensitivity | | 2020 | | 2021 |
One percentage point instantaneous increase in interest rates | | $ | (3) | | | $ | (76) | |
One percentage point instantaneous decrease in interest rates (a) | | 3 | | | 76 | |
|
| | | | | | | | |
Pre-Tax Cash Flow Sensitivity | | 2018 | | 2019 |
One percentage point instantaneous increase in interest rates | | $ | 51 |
| | $ | (26 | ) |
One percentage point instantaneous decrease in interest rates (a) | | (51 | ) | | 26 |
|
_______________(a)Pre-tax cash flow sensitivity given a one percentage point decrease in interest rates requires an assumption of negative interest rates in markets where existing interest rates are below one percent.
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(a) | Pre-tax cash flow sensitivity given a one percentage point decrease in interest rates requires an assumption of negative interest rates in markets where existing interest rates are below one percent. |
While the sensitivity analysis presented is Ford Credit’s best estimate of the impacts of the specified assumed interest rate scenarios, its actual results could differ from those projected. The model Ford Credit uses to conduct this analysis is heavily dependent on assumptions. Embedded in the model are assumptions regarding the reinvestment of maturing asset principal, refinancing of maturing debt, replacement of maturing derivatives, exercise of options embedded in debt and derivatives, and predicted repayment of retail financing and operating lease contracts ahead of contractual maturity. Ford Credit’s repayment projections ahead of contractual maturity are based on historical experience. If interest rates or other factors change, Ford Credit’s actual prepayment experience could be different than projected.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk (Continued)
Foreign Currency Risk. Ford Credit’s policy is to minimize exposure to changes in currency exchange rates. To meet funding objectives, Ford Credit borrows in a variety of currencies, principally U.S. dollars, Canadian dollars, euros, sterling, and renminbi. Ford Credit faces exposure to currency exchange rates if a mismatch exists between the currency of receivables and the currency of the debt funding those receivables. When possible, receivables are funded with debt in the same currency, minimizing exposure to exchange rate movements. When a different currency is used, Ford Credit may use foreign currency swaps and foreign currency forwards to convert substantially all of its foreign currency debt obligations to the local country currency of the receivables. As a result of this policy, Ford Credit believes its market risk exposure, relating to changes in currency exchange rates at December 31, 2019,2021, is insignificant.
Derivative Fair Values. The net fair value of Ford Credit’s derivative financial instruments was an asset of $772$553 million and $7 million$2.1 billion at December 31, 20192021 and 2018,2020, respectively.
TRANSITION FROM LIBOR TO ALTERNATIVE REFERENCE RATES
We and our affiliates, including Ford Credit, have been working to transition from the London Interbank Offered Rate (“LIBOR”) to alternative reference rates. We have developed a total company inventory of affected financial instruments and contracts, have been working to transition legacy contracts linked to LIBOR to alternative reference rates, and are no longer utilizing LIBOR for new contracts.
COUNTERPARTY RISK
Counterparty risk relates to the loss we could incur if an obligor or counterparty defaulted on an investment or a derivative contract. We enter into master agreements with counterparties that allow netting of certain exposures in order to manage this risk. Exposures primarily relate to investments in fixed income instruments and derivative contracts used for managing interest rate, foreign currency exchange rate, and commodity price risk. We, together with Ford Credit, establish exposure limits for each counterparty to minimize risk and provide counterparty diversification.
Our approach to managing counterparty risk is forward-looking and proactive, allowing us to take risk mitigation actions before risks become losses. Exposure limits are established based on our overall risk tolerance, which is calculated from counterparty credit ratings and market-based credit default swap (“CDS”) spreads. The exposure limits are lower for smaller and lower-rated counterparties, counterparties that have relatively higher CDS spreads, and for longer dated exposures. Our exposures are monitored on a regular basis and included in periodic reports to our Treasurer.
Substantially all of our counterparty exposures are with counterparties that have an investment grade rating. Investment grade is our guideline for minimum counterparty long-term ratings.
ITEM 8. Financial Statements and Supplementary Data.
The Report of Independent Registered Public Accounting Firm, our Financial Statements, the accompanying Notes to the Financial Statements, and the Financial Statement Schedule that are filed as part of this Report are listed under “Item 15. Exhibits and Financial Statement Schedules” and are set forth beginning on page FS-1106 immediately following the signature pages of this Report.
Selected quarterly financial data for 2018 and 2019 are provided in Note 29 of the Notes to the Financial Statements.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
ITEM 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures. James P. Hackett,D. Farley, Jr., our Chief Executive Officer (“CEO”), and Tim Stone,John T. Lawler, our Chief Financial Officer (“CFO”), have performed an evaluation of the Company’s disclosure controls and procedures, as that term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), as of December 31, 2019,2021, and each has concluded that such disclosure controls and procedures are effective to ensure that information required to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified by SEC rules and forms, and that such information is accumulated and communicated to the CEO and CFO to allow timely decisions regarding required disclosures.
Management’s Report on Internal Control Over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or because the degree of compliance with policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2019.2021. The assessment was based on criteria established in the framework Internal Control - Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concluded that our internal control over financial reporting was effective as of December 31, 2019.2021.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 20192021 has been audited by PricewaterhouseCoopers LLP (PCAOB ID 238), an independent registered public accounting firm, as stated in its report included herein.
Changes in Internal Control Over Financial Reporting. There were no changes in internal control over financial reporting during the quarter ended December 31, 20192021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. Other Information.
None.
ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
PART III.
ITEM 10. Directors, Executive Officers of Ford, and Corporate Governance.
The information required by Item 10 regarding our directors is incorporated by reference from the information under the captions “Proposal 1. Election of Directors”Directors,” “Corporate Governance – Beneficial Stock Ownership,” and “Beneficial Stock Ownership”“Corporate Governance – Delinquent Section 16(a) Reports” in our Proxy Statement. The information required by Item 10 regarding our executive officers appears as Item 4A under Part I of this Report. The information required by Item 10 regarding an audit committee financial expert is incorporated by reference from the information under the caption “Corporate Governance – Audit Committee Financial Expert and Auditor Rotation” in our Proxy Statement.The information required by Item 10 regarding the members of our Audit Committee of the Board of Directors is incorporated by reference from the information under the captions “Proxy Summary,” “Corporate Governance – Board Committee Functions,” “Corporate Governance – Audit Committee Financial Expert and Auditor Rotation,” and “Proposal 1 –1. Election of Directors” in our Proxy Statement. The information required by Item 10 regarding the Audit Committee’s review and discussion of the audited financial statements is incorporated by reference from information under the caption “Audit Committee Report” in our Proxy Statement. The information required by Item 10 regarding our codes of ethics is incorporated by reference from the information under the caption “Corporate Governance – Codes of Ethics” in our Proxy Statement. In addition, we have included in Item 1 instructions for how to access our codes of ethics on our website and our Internet address.Amendments to, and waivers granted under, our Code of Ethics for Senior Financial Personnel, if any, will be posted to our website as well.
ITEM 11. Executive Compensation.
The information required by Item 11 is incorporated by reference from the information under the following captions in our Proxy Statement: “Director Compensation in 2019,2021,” “Compensation Discussion and Analysis,” “Compensation Committee Report,” “Compensation Committee Interlocks and Insider Participation,” “Compensation of Executive Officers,Named Executives,” “Summary Compensation Table,” “Grants of Plan-Based Awards in 2019,2021,” “Outstanding Equity Awards at 20192021 Fiscal Year-End,” “Option Exercises and Stock Vested in 2019,2021,” “Pension Benefits in 2019,2021,” “Nonqualified Deferred Compensation in 2019,2021,” and “Potential Payments Upon Termination or Change in Control.Change-in-Control,” and “Pay Ratio.”
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by Item 12 is incorporated by reference from the information under the captions “Equity Compensation Plan Information” and “Corporate Governance – Beneficial Stock Ownership” in our Proxy Statement.
ITEM 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by Item 13 is incorporated by reference from the information under the captions “Certain“Corporate Governance – Certain Relationships and Related Party Transactions” and “Corporate Governance – Independence of Directors and Relevant Facts and Circumstances” in our Proxy Statement.
ITEM 14. Principal Accounting Fees and Services.
The information required by Item 14 is incorporated by reference from the information under the caption “Proposal 2. Ratification of Independent Registered Public Accounting Firm” in our Proxy Statement.
PART IV.
ITEM 15. Exhibits and Financial Statement Schedules.
(a) 1. Financial Statements – Ford Motor Company and Subsidiaries
The following are contained in this 20192021 Form 10-K Report:
| |
•
| Report of Independent Registered Public Accounting Firm. |
•Report of Independent Registered Public Accounting Firm.
| |
•
| Consolidated Statement•Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2018, and 2019. |
Consolidated Income Statement for the years ended December 31, 2017, 2018,2019, 2020, and 2019.2021.
| |
•Consolidated Income Statements for the years ended December 31, 2019, 2020, and 2021.
•Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2020, and 2021.
•Consolidated Balance Sheets at December 31, 2020 and 2021.
•Consolidated Statements of Equity for the years ended December 31, 2019, 2020, and 2021.
•Notes to the Financial Statements.
•
| Consolidated Statement of Comprehensive Income for the years ended December 31, 2017, 2018, and 2019. |
| |
•
| Consolidated Balance Sheet at December 31, 2018 and 2019. |
| |
•
| Consolidated Statement of Equity for the years ended December 31, 2017, 2018, and 2019. |
| |
•
| Notes to the Financial Statements. |
The Report of Independent Registered Public Accounting Firm, the Consolidated Financial Statements, and the Notes to the Financial Statements listed above are filed as part of this Report and are set forth beginning on page
FS-1106 immediately following the signature pages of this Report.
(a) 2. Financial Statement Schedules
|
| | | | | | | |
Designation | | Description |
Schedule II | | Valuation and Qualifying Accounts for the years ended 2017, 2018,2019, 2020, and 20192021 |
Schedule II is filed as part of this Report and is set forth on page FSS-1177 immediately following the Notes to the Financial Statements referred to above. The other schedules are omitted because they are not applicable, the information required to be contained in them is disclosed elsewhere on our Consolidated Financial Statements, or the amounts involved are not sufficient to require submission.
(a) 3. Exhibits
|
| | | | | | | | | | | | | |
Designation | | Description | | Method of Filing |
| | Restated Certificate of Incorporation, dated August 2, 2000. | | Filed as Exhibit 3-A to our Annual Report on Form 10-K for the year ended December 31, 2000.* (a) |
| | Certificate of Designations of Series A Junior Participating Preferred Stock filed on September 11, 2009. | | Filed as Exhibit 3.1 to our Current Report on Form 8-K filed September 11, 2009.* (a) |
| | By-laws. | | Filed as Exhibit 3.23.1 to our Form 8-A/A8-K filed on September 11, 2015.*July 9, 2021. (a) |
| | Tax Benefit Preservation Plan (“TBPP”) dated September 11, 2009 between Ford Motor Company and Computershare Trust Company, N.A. | | Filed as Exhibit 4.1 to our Current Report on Form 8-K filed September 11, 2009.*
(a) |
| | Amendment No. 1 to TBPP dated September 11, 2012.
| | Filed as Exhibit 4 to our Current Report on Form 8-K filed September 12, 2012.* (a) |
| | Amendment No. 2 to TBPP dated September 9, 2015.
| | Filed as Exhibit 4 to our Current Report on Form 8-K filed September 11, 2015.* (a) |
| | Amendment No. 3 to TBPP dated September 13, 2018. | | Filed as Exhibit 4 to our Current Report on Form 8-K filed September 14, 2018.* (a) |
| | Amendment No. 4 to TBPP dated September 9, 2021. | | Filed as Exhibit 4 to our Current Report on Form 8-K filed September 10, 2021. (a) |
| | Description of Securities. | | Filed with this Report. |
| | Executive Separation Allowance Plan, as amended and restated effective as of January 1, 2018**2018. (b) | | Filed as Exhibit 10.1 to our Current Report on Form 8-K filed February 7, 2018.* (a) |
| | Deferred Compensation Plan for Non-Employee Directors, as amended and restated as of January 1, 2012.** (b) | | Filed as Exhibit 10-B to our Annual Report on Form 10-K for the year ended December 31, 2011.* (a) |
| | 2014 Stock Plan for Non-Employee Directors**Directors (b) | | Filed as Exhibit 10-C to our Annual Report on Form 10-K for the year ended December 31, 2013.* (a) |
|
| | | | | | | | | | | | | |
Designation | | Description | | Method of Filing |
| | Benefit Equalization Plan, as amended and restated effective as of January 1, 2018.** (b) | | Filed as Exhibit 10.2 to our Current Report on Form 8-K filed February 7, 2018.* (a) |
| | Description of financial counseling services provided to certain executives.** (b) | | Filed with this Report.as Exhibit 10-E to our Annual Report on Form 10-K for the year ended December 31, 2019. (a) |
| | Defined Benefit Supplemental Executive Retirement Plan, as amended and restated effective as of January 1, 2018.** (b) | | Filed as Exhibit 10.3 to our Current Report on Form 8-K filed February 7, 2018.* (a) |
| | Defined Contribution Supplemental Executive Retirement Plan, as amended and restated effective as of January 1, 2017.**July 9, 2020. (b) | | Filed as Exhibit 10.410 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2017.*June 30, 2020. (a) |
| | Description of Director Compensation as of July 13, 2006.** (b) | | Filed as Exhibit 10-G-3 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2006.* (a) |
| | Amendment to Description of Director Compensation as of February 8, 2012.** (b) | | Filed as Exhibit 10-F-3 to our Annual Report on Form 10-K for the year ended December 31, 2011.* (a) |
| | Amendment to Description of Director Compensation as of July 1, 2013.** (b) | | Filed as Exhibit 10-G-2 to our Annual Report on Form 10-K for the year ended December 31, 2013.* (a) |
| | Amendment to Description of Director Compensation as of January 1, 2017.** (b) | | Filed as Exhibit 10-G-3 to our Annual Report on Form 10-K for the year ended December 31, 2016.* (a) |
| | 2008 Long-Term Incentive Plan.** (b) | | Filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2008.* (a) |
| | Description of Matching Gift Program and Vehicle Evaluation Program for Non-EmployeeNon-Executive Directors.** (b) | | Filed as Exhibit 10-I to our Annual Report on Form 10-K/A for the year ended December 31, 2005.*with this Report. |
| | Non-Employee Directors Life Insurance and Optional Retirement Plan as amended and restated as of December 31, 2010.** (b) | | Filed as Exhibit 10-I to our Annual Report on Form 10-K for the year ended December 31, 2010.* (a) |
Exhibit 10-K | | Description of Non-Employee Directors Accidental Death, Dismemberment and Permanent Total Disablement Indemnity.** (b) | | Filed as Exhibit 10-S to our Annual Report on Form 10-K for the year ended December 31, 1992.* (a) |
| | Description of Amendment to Basic Life Insurance and Accidental Death & Dismemberment Insurance.** (b) | | Filed as Exhibit 10-K-1 to our Annual Report on Form 10-K for the year ended December 31, 2013.* (a) |
| | Description of Compensation Arrangements for Mark Fields.** | | Filed as Exhibit 10-L to our Annual Report on Form 10-K for the year ended December 31, 2014.* |
| | Executive Separation Waiver and Release Agreement between Ford Motor Company and Mark FieldsJon M. Huntsman, Jr. dated May 21, 2017.**April 12, 2021. (b) | | Filed as Exhibit 1010.3 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2017.*March 31, 2021. (a) |
| | Offer Letter to Tim StoneMichael Amend dated March 11, 2019.**August 16, 2021. (b) | | Filed with this Report. |
| | Offer Letter to Doug Field dated August 26, 2021. (b) | | Filed with this Report. |
| | Agreement between Ford Motor Company and James D. Farley, Jr. dated August 3, 2020. (b) | | Filed as Exhibit 9910.1 to our CurrentQuarterly Report on Form 8-K filed June 4, 2019.*10-Q for the quarter ended September 30, 2020. (a) |
| | Select Retirement Plan, as amended and restated effective as of January 1, 2018.** (b) | | Filed as Exhibit 10.4 to our Current Report on Form 8-K filed February 7, 2018.* (a) |
| | Deferred Compensation Plan, as amended and restated as of December 31, 2010.** (b) | | Filed as Exhibit 10-M to our Annual Report on Form 10-K for the year ended December 31, 2010.* (a) |
| | Suspension of Open Enrollment in Deferred Compensation Plan.** (b) | | Filed as Exhibit 10-M-1 to our Annual Report on Form 10-K for the year ended December 31, 2009.* (a) |
| | Annual Incentive Compensation Plan, as amended and restated effective as of March 1, 2018.**January 19, 2022. (b) | | Filed as Exhibit 10-O-2 to our Annual Report on Form 10-K for the year ended December 31, 2017.*with this Report. |
| | Annual Incentive Compensation Plan Metrics for 2018.**2020. (b) | | Filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2018.*2020. (a) |
| | Annual Incentive Compensation Plan Metrics for 2019.**2021. (b) | | Filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2019.*2021. (a) |
| | Performance-Based Restricted Stock Unit Metrics for 2016.** | | Filed as Exhibit 10-O-9 to our Annual Report on Form 10-K for the year ended December 31, 2015.* |
| | Performance-Based Restricted Stock Unit Metrics for 2017.** | | Filed as Exhibit 10-O-10 to our Annual Report on Form 10-K for the year ended December 31, 2016.* |
| | Performance-Based Restricted Stock Unit Metrics for 2018.** (b) | | Filed as Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2018.* (a) |
| | Performance-Based Restricted Stock Unit Metrics for 2019.** (b) | | Filed as Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2019.* (a) |
| | Performance-Based Restricted Stock Unit Metrics for 2020. (b) | | Filed as Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020. (a) |
| | Performance-Based Restricted Stock Unit Metrics for 2021. (b) | | Filed as Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021. (a) |
| | Executive Compensation Recoupment Policy.** (b) | | Filed as Exhibit 10-N-8 to our Annual Report on Form 10-K for the year ended December 31, 2010.* (a) |
| | Incremental Bonus Description.** (b) | | Filed as Exhibit 10-N-9 to our Annual Report on Form 10-K for the year ended December 31, 2010.* (a) |
| | 2018 Long-Term Incentive Plan.** (b) | | Filed as Exhibit 4.1 to Registration Statement No. 333-226348.* (a) |
| | Form of Stock Option Terms and Conditions for Long-Term Incentive Plan.** (b) | | Filed as Exhibit 10-P-210.4 to our AnnualQuarterly Report on Form 10-K10-Q for the yearquarter ended December 31, 2017.*September 30, 2020. (a) |
| | Form of Stock Option Agreement for Long-Term Incentive Plan.** (b) | | Filed as Exhibit 10-P-3 to our Annual Report on Form 10-K for the year ended December 31, 2017.* (a) |
| | Form of Stock Option Agreement (ISO) for Long-Term Incentive Plan.** (b) | | Filed as Exhibit 10-P-4 to our Annual Report on Form 10-K for the year ended December 31, 2017.* |
|
| | | | |
Designation | | Description | | Method of Filing (a) |
| | Form of Stock Option Agreement (U.K. NQO) for Long-Term Incentive Plan.** (b) | | Filed as Exhibit 10-P-5 to our Annual Report on Form 10-K for the year ended December 31, 2017.* (a) |
| | | | | | | | | | | | | | |
Designation | | Description | | Method of Filing |
| | Form of Stock Option (U.K.) Terms and Conditions for Long-Term Incentive Plan.** (b) | | Filed as Exhibit 10-P-610-R-5 to our Annual Report on Form 10-K for the year ended December 31, 2017.*2020. (a) |
| | Form of Restricted Stock Grant Letter.** (b) | | Filed as Exhibit 10-P-7 to our Annual Report on Form 10-K for the year ended December 31, 2017.* (a) |
| | Form of Final Award Notification Letter for Performance-Based Restricted Stock Units.** (b) | | Filed as Exhibit 10-P-8 to our Annual Report on Form 10-K for the year ended December 31, 2017.* (a) |
| | Form of Annual Equity Grant Letter V.1.** (b) | | Filed as Exhibit 10-P-9 to our Annual Report on Form 10-K for the year ended December 31, 2017.* (a) |
| | Form of Annual Equity Grant Letter V.2.** (b) | | Filed as Exhibit 10-P-10 to our Annual Report on Form 10-K for the year ended December 31, 2017.* (a) |
| | Form of Long-Term Incentive Plan Restricted Stock Unit Agreement.** (b) | | Filed as Exhibit 10-P-11 to our Annual Report on Form 10-K for the year ended December 31, 2017.* (a) |
| | Form of Long-Term Incentive Plan Retention Restricted Stock Unit Agreement (b) | | Filed with this Report. |
| | Long-Term Incentive Plan Restricted Stock Unit Terms and Conditions.** (b) | | Filed as Exhibit 10-P-12 to our Annual Report on Form 10-K for the year ended December 31, 2017.* (a) |
| | Form of Final Award Agreement for Performance-Based Restricted Stock Units under Long-Term Incentive Plan.** (b) | | Filed as Exhibit 10-P-13 to our Annual Report on Form 10-K for the year ended December 31, 2017.* (a) |
| | Form of Final Award Terms and Conditions for Performance-Based Restricted Stock Units under Long-Term Incentive Plan.** (b) | | Filed as Exhibit 10-P-14 to our Annual Report on Form 10-K for the year ended December 31, 2017.* (a) |
| | Form of Notification Letter for Time-Based Restricted Stock Units.** (b) | | Filed as Exhibit 10-P-15 to our Annual Report on Form 10-K for the year ended December 31, 2017.* (a) |
| | Agreement dated January 13, 1999 between Ford Motor Company and Edsel B. Ford II.** (b) | | Filed as Exhibit 10-X to our Annual Report on Form 10-K for the year ended December 31, 1998.* (a) |
| | Amendment dated May 5, 2010 to the Consulting Agreement between Ford Motor Company and Edsel B. Ford II.** (b) | | Filed as Exhibit 10.3 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2010.* (a) |
| | Amendment dated January 1, 2012 to the Consulting Agreement between Ford Motor Company and Edsel B. Ford II.** (b) | | Filed as Exhibit 10-P-2 to our Annual Report on Form 10-K for the year ended December 31, 2011.* (a) |
| | Second Amended and Restated Relationship Agreement dated April 30, 2015March 19, 2020 between Ford Motor Company and Ford Motor Credit Company LLC. | | Filed as Exhibit 10.210 to our Current Report on Form 8-K filed May 1, 2015.*March 19, 2020. (a) |
| | Form of Trade Secrets/Non-Compete Statement between Ford and certain of its Executive Officers.** | | Filed as Exhibit 10-V to our Annual Report on Form 10-K for the year ended December 31, 2003.* |
| | Arrangement between Ford Motor Company and William C. Ford, Jr., dated February 24, 2009.** | | Filed as Exhibit 10-V to our Annual Report on Form 10-K for the year ended December 31, 2008.* |
| | Description of Company Practices regarding Club Memberships for Executives.** (b) | | Filed as Exhibit 10-BB to our Annual Report on Form 10-K for the year ended December 31, 2006.*with this Report. |
| | Amended and Restated Credit Agreement dated as of November 24, 2009. | | Filed as Exhibit 99.2 to our Current Report on Form 8-K filed November 25, 2009.* (a) |
| | Seventh Amendment dated as of March 15, 2012 to our Credit Agreement dated as of December 15, 2006, as amended and restated as of November 24, 2009, and as further amended. | | Filed as Exhibit 99.2 to our Current Report on Form 8-K filed March 15, 2012.* (a) |
| | Ninth Amendment dated as of April 30, 2013 to our Credit Agreement dated as of December 15, 2006, as amended and restated as of November 24, 2009, and as further amended. | | Filed as Exhibit 10 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2013.* (a) |
| | Tenth Amendment dated as of April 30, 2014 to our Credit Agreement dated as of December 15, 2006, as amended and restated as of November 24, 2009, and as further amended. | | Filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2014.* (a) |
| | Eleventh Amendment dated as of April 30, 2015 to our Credit Agreement dated as of December 15, 2006, as amended and restated as of November 24, 2009, as amended and restated as of April 30, 2014, and as further amended, including the Third Amended and Restated Credit Agreement. | | Filed as Exhibit 10.1 to our Current Report on Form 8-K filed May 1, 2015.* (a) |
| | Twelfth Amendment dated as of April 29, 2016 to our Credit Agreement dated as of December 15, 2006, as amended and restated as of November 24, 2009, as amended and restated as of April 30, 2014, and as further amended and restated as of April 30, 2015. | | Filed as Exhibit 10 to our Current Report on Form 8-K filed April 29, 2016.* (a) |
| | Thirteenth Amendment dated as of April 28, 2017 to our Credit Agreement dated as of December 15, 2006, as amended and restated as of November 24, 2009, as amended and restated as of April 30, 2014, and as further amended and restated as of April 30, 2015. | | Filed as Exhibit 10 to our Current Report on Form 8-K filed April 28, 2017.* |
|
| | | | |
Designation | | Description | | Method of Filing (a) |
| | Fourteenth Amendment dated as of April 26, 2018 to our Credit Agreement dated as of December 15, 2006, as amended and restated as of November 24, 2009, as amended and restated as of April 30, 2014, and as further amended and restated as of April 30, 2015. | | Filed as Exhibit 10 to our Current Report on Form 8-K filed April 26, 2018.* (a) |
| | | | | | | | | | | | | | |
Designation | | Description | | Method of Filing |
| | Fifteenth Amendment dated as of April 23, 2019 to our Credit Agreement dated as of December 15, 2006, as amended and restated as of November 24, 2009, as amended and restated as of April 30, 2014, and as further amended and restated as of April 30, 2015. | | Filed as Exhibit 10.1 to our Current Report on Form 8-K filed April 26, 2019.* (a) |
| | Sixteenth Amendment dated as of July 27, 2020 to our Credit Agreement dated as of December 15, 2006, as amended and restated as of November 24, 2009, as amended and restated as of April 30, 2014, and as further amended and restated as of April 30, 2015. | | Filed as Exhibit 10.1 to our Current Report on Form 8-K filed July 30, 2020. (a) |
| | Seventeenth Amendment dated as of March 16, 2021 to our Credit Agreement dated as of December 15, 2006, as amended and restated as of November 24, 2009, as amended and restated as of April 30, 2014, and as further amended and restated as of April 30, 2015. | | Filed as Exhibit 10.1 to our Current Report on Form 8-K filed March 17, 2021. (a) |
| | Eighteenth Amendment dated as of September 29, 2021 to our Credit Agreement dated as of December 15, 2006, as amended and restated as of November 24, 2009, as amended and restated as of April 30, 2014, as amended and restated as of April 30, 2015, and as further amended, including the Fourth Amended and Restated Credit Agreement. | | Filed as Exhibit 10.1 to our Current Report on Form 8-K filed September 29, 2021. (a) |
| | Revolving Credit Agreement dated as of April 23, 2019. | | Filed as Exhibit 10.2 to our Current Report on Form 8-K filed April 26, 2019.* (a) |
| | First Amendment dated July 27, 2020 to the Revolving Credit Agreement dated April 23, 2019. | | Filed as Exhibit 10.2 to our Current Report on Form 8-K filed July 30, 2020. (a) |
| | Second Amendment dated March 16, 2021 to the Revolving Credit Agreement dated April 23, 2019. | | Filed as Exhibit 10.2 to our Current Report on Form 8-K filed March 17, 2021. (a) |
| | Third Amendment dated September 29, 2021 to the Revolving Credit Agreement dated April 23, 2019, and as further amended, including the First Amended and Restated Revolving Credit Agreement. | | Filed as Exhibit 10.2 to our Current Report on Form 8-K filed September 29, 2021. (a) |
| | Term Loan Credit Agreement dated as of April 23, 2019. | | Filed as Exhibit 10.3 to our Current Report on Form 8-K filed April 26, 2019.* (a) |
| | Loan Arrangement and Reimbursement Agreement between Ford Motor Company and the U.S. Department of Energy dated as of September 16, 2009. | | Filed as Exhibit 10.1 to our Current Report on Form 8-K filed September 22, 2009.* (a) |
| | Note Purchase Agreement dated as of September 16, 2009 among the Federal Financing Bank, Ford Motor Company, and the U.S. Secretary of Energy. | | Filed as Exhibit 10.2 to our Current Report on Form 8-K filed September 22, 2009.* (a) |
| | List of Subsidiaries of Ford as of January 31, 2020.2022. | | Filed with this Report. |
| | Consent of Independent Registered Public Accounting Firm. | | Filed with this Report. |
| | Powers of Attorney. | | Filed with this Report. |
| | Rule 15d-14(a) Certification of CEO. | | Filed with this Report. |
| | Rule 15d-14(a) Certification of CFO. | | Filed with this Report. |
| | Section 1350 Certification of CEO. | | Furnished with this Report. |
| | Section 1350 Certification of CFO. | | Furnished with this Report. |
Exhibit 101.INS | | XBRL Instance Document.Interactive Data Files pursuant to Rule 405 of Regulation S-T formatted in Inline Extensible Business Reporting Language (“Inline XBRL”). | | ***(c) |
Exhibit 101.SCH | | XBRL Taxonomy Extension Schema Document. | | ***(c) |
Exhibit 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document. | | ***(c) |
Exhibit 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document. | | ***(c) |
Exhibit 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document. | | ***(c) |
Exhibit 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document. | | ***(c) |
Exhibit 104 | | Cover Page Interactive Data File (formated(formatted in Inline XBRL contained in Exhibit 101). | | ***(c) |
__________
* (a)Incorporated by reference as an exhibit to this Report (file number reference 1-3950, unless otherwise indicated).
** (b)Management contract or compensatory plan or arrangement.
*** (c)Submitted electronically with this Report in accordance with the provisions of Regulation S-T.
Instruments defining the rights of holders of certain issues of long-term debt of Ford and of certain consolidated subsidiaries and of any unconsolidated subsidiary, for which financial statements are required to be filed with this Report, have not been filed as exhibits to this Report because the authorized principal amount of any one of such issues does not exceed 10% of the total assets of Ford and our subsidiaries on a consolidated basis. Ford agrees to furnish a copy of each of such instrument to the Securities and Exchange Commission upon request.
ITEM 16. Form 10-K Summary.
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, Ford has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
FORD MOTOR COMPANY
|
| | | | |
By: | /s/ Cathy O’Callaghan |
| Cathy O’Callaghan, Controller |
| (principal accounting officer) |
| |
Date: | February 5, 20203, 2022 |
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of Ford and in the capacities on the date indicated:
| | | | | | | | | | | | | | |
Signature | | Title | | Date |
| | | | |
/s/ WILLIAM CLAY FORD, JR. | | Director, Chair of the Board, Executive Chair, Chair of the Office of the Chair and Chief Executive, and Chair of the Finance Committee | | February 3, 2022 |
William Clay Ford, Jr. | | | |
| | | | |
Signature | | Title | | Date |
| | | | |
/s/ WILLIAM CLAY FORD, JR. | | Director, Chairman of the Board, Executive Chairman, Chair of the Office of the Chairman and Chief Executive, and Chair of the Finance Committee | | February 5, 2020 |
William Clay Ford, Jr. | | | |
| | | | |
/s/ JAMES P. HACKETTD. FARLEY, JR. | | Director, President and Chief Executive Officer | | February 5, 20203, 2022 |
James P. HackettD. Farley, Jr. | | (principal executive officer) | | |
| | | | |
STEPHEN G. BUTLER* | | Director and Chair of the Audit Committee | | February 5, 2020 |
Stephen G. Butler | | | | |
| | | | |
KIMBERLY A. CASIANO* | | Director | | February 5, 20203, 2022 |
Kimberly A. Casiano | | | | |
| | | | |
ANTHONY F. EARLEY, JR.* | | Director and Chair of the Compensation, Talent and Culture Committee | | February 5, 20203, 2022 |
Anthony F. Earley, Jr. | | | | |
| | | | |
EDSEL B.ALEXANDRA FORD II*ENGLISH* | | Director | | February 5, 20203, 2022 |
Edsel B.Alexandra Ford IIEnglish | | | | |
| | | | |
HENRY FORD III* | | Director | | February 3, 2022 |
Henry Ford III | | | |
| | | | |
WILLIAM W. HELMAN IV* | | Director and Chair of the Sustainability, Innovation and InnovationPolicy Committee | | February 5, 20203, 2022 |
William W. Helman IV | | | |
| | | | |
/s/ JON M. HUNTSMAN, JR. | | Director, Vice Chair, Policy | | February 3, 2022 |
Jon M. Huntsman, Jr. | | | |
| | | | |
WILLIAM E. KENNARD* | | Director and Chair of the Nominating and Governance Committee | | February 5, 20203, 2022 |
William E. Kennard | | | |
| | | | |
JOHN C. LECHLEITER* | | Director | | February 5, 2020 |
John C. Lechleiter | | | | |
| | | | |
BETH E. MOONEY* | | Director | | February 5, 2020 |
Beth E. Mooney | | | | |
| | | | |
JOHN L. THORNTON* | | Director | | February 5, 2020 |
John L. Thornton | | | | |
| | | | |
|
| | | | |
SignatureJOHN C. MAY II* | | TitleDirector | | DateFebruary 3, 2022 |
John C. May II | | | | |
| | | | |
BETH E. MOONEY* | | Director | | February 3, 2022 |
Beth E. Mooney | | | | |
| | | | |
LYNN VOJVODICH RADAKOVICH* | | Director | | February 3, 2022 |
Lynn Vojvodich Radakovich | | | | |
| | | | | | | | | | | | | | |
Signature | | Title | | Date |
| | | | |
JOHN L. THORNTON* | | Director | | February 3, 2022 |
John L. Thornton | | | | |
| | | | |
JOHN B. VEIHMEYER* | | Director and Chair of the Audit Committee | | February 5, 20203, 2022 |
John B. Veihmeyer | | | | |
| | | | |
LYNN M. VOJVODICH* | | Director | | February 5, 2020 |
Lynn M. Vojvodich | | | | |
| | | | |
JOHN S. WEINBERG* | | Director | | February 5, 20203, 2022 |
John S. Weinberg | | | | |
| | | | |
/s/ TIM STONEJOHN T. LAWLER | | Chief Financial Officer | | February 5, 20203, 2022 |
Tim StoneJohn T. Lawler | | (principal financial officer) | | |
| | | | |
/s/ CATHY O’CALLAGHAN | | Controller | | February 5, 20203, 2022 |
Cathy O’Callaghan | | (principal accounting officer) | | |
| | | | |
*By: /s/ JONATHAN E. OSGOOD | | | | February 5, 20203, 2022 |
Jonathan E. Osgood | | | | |
Attorney-in-Fact | | | | |
| | | | |
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
Ford Motor Company
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheetsheets of Ford Motor Company and its subsidiaries (the “Company”) as of December 31, 20192021 and 2018,2020, and the related consolidated statements of income, of comprehensive income, of equity and of cash flows for each of the three years in the period ended December 31, 2019,2021, including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2019,2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20192021 and 2018,2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 20192021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019,2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
ChangesChange in Accounting PrinciplesPrinciple
As discussed in Notes 1 and 3Note 10 to the consolidated financial statements, the Company changed its method for reporting early termination losses related to customer defaults on Ford Credit’s vehicles subject to operating leases and the manner in which it accounts for leases, respectively,credit losses in 2019.2020.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of theconsolidatedfinancial statements included performing procedures to assess the risks of material misstatement of the consolidatedfinancial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidatedfinancial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Ford Credit Consumer CollectiveFinance Receivables Allowance for Credit Losses
As described in Note 1110 to the consolidated financial statements, the Company had consumer finance receivables of $73,560$73,446 million, collectively evaluated for impairment, for which ana consumer allowance for credit losses of $478$903 million was recorded as of December 31, 2019.2021. The consumer collective allowance for credit losses represents themanagement’s estimate of the probablelifetime expected credit losslosses inherent in the consumer finance receivables as of the balance sheet date. ManagementFor consumer receivables that share similar risk characteristics, management estimates the allowance forlifetime expected credit losses based on consumer receivablesa collective assessment using a combination of measurement models (collective loss-to-receivables and loss projection models) and management judgment. The key assumptions used in the process of estimating the consumer collective allowance forlifetime expected credit losses are frequency, loss severity,for the receivables is determined by applying probability of default and loss emergence period. After establishinggiven default assumptions to monthly expected exposures, then discounting these cash flows to present value using the collective and specific allowancereceivable’s original effective interest rate or the current effective interest rate for a variable rate receivable. If management does not believe the models reflect lifetime expected credit losses if management believesfor the allowance does not reflect all losses inherent in the portfolio, due to changes in recent economic trends and conditions, or other relevant factors, an adjustment is made based onto reflect management judgment.judgment regarding qualitative factors including economic uncertainty, observable changes in portfolio performance, and other relevant factors.
The principal considerations for our determination that performing procedures relating to the Ford Credit consumer collectivefinance receivables allowance for credit losses is a critical audit matter are there was(i) the significant judgment by management in determining the consumer collectivefinance receivables allowance for credit losses, including the frequency, loss severity, and loss emergence period assumptions, which led tolosses; (ii) a high degree of auditor judgment, subjectivity and effort in performing procedures over these assumptions. In addition,and evaluating audit evidence relating to the probability of default and loss given default assumptions and management’s judgment regarding qualitative factors; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing procedures and evaluating the audit evidence obtained from these procedures.knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls related to management’s consumer collective allowance for credit losses estimation process. These procedures also included, among others, testing management’s process for determining the consumer collective allowance for credit losses, including evaluating the appropriateness of the models used to estimate the allowance, the reasonableness of management’s frequency, loss severity, and loss emergence period assumptions, and testing the completeness and accuracy of underlying data supporting the assumptions and models. Additionally, the procedures included the involvement of professionals with specialized skill and knowledge to assist in evaluating the appropriateness of the models.
Defined Benefit Pension Plan Obligations and Benefit Cost
As described in Note 18 to the consolidated financial statements, the Company has defined pension benefit obligations of $81,045 million (comprised of $45,672 million and $35,373 million for its U.S. plans and non-U.S. plans, respectively) as of December 31, 2019, and pre-tax net periodic benefit cost (“benefit cost”) of $1,890 million (comprised of $(706) million of benefit income and $2,596 million of benefit cost for its U.S. plans and non-U.S. plans, respectively) for the year ended December 31, 2019. Management remeasures defined benefit pension plan obligations at least annually as of December 31 based on the present value of projected future benefit payments for all participants for services rendered to date. Actuarial gains and losses resulting from plan remeasurement are recognized in net periodic benefit cost in the period of the remeasurement. The measurement of projected future benefits is dependent on the provisions of each specific plan, demographics of the group covered by the plan, and other key measurement assumptions including the discount rate and the average rate of increase in compensation. The assumptions used to determine the benefit cost include discount rate-service cost, effective interest rate on benefit obligation, expected long-term rate of return on assets, and average rate of increase in compensation.
The principal considerations for our determination that performing procedures relating to defined benefit pension plan obligations and benefit cost is a critical audit matter are there was significant judgment by management when developing assumptions used in the estimation of the defined benefit pension obligations and benefit cost, which led to a high degree of auditor judgment, subjectivity, and effort in performing procedures to evaluate the significant assumptions. In addition to the demographics of the group covered by the plan, significant assumptions include the discount rate and the average rate of increase in compensation used in determining the benefit obligation and the discount rate-service cost, the effective interest rate on benefit obligation, and the average rate of increase in compensation used in determining the benefit cost. In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained from these procedures.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the Company’s determination of the defined benefit pension plan obligations and benefit cost.consumer finance receivables allowance for credit losses. These procedures also included, among others (i) testing management’s process for determining the consumer finance receivables allowance for credit losses; (ii) evaluating the Company’s historical experience and expectationsappropriateness of future experiencethe models used to evaluatedetermine the allowance; (iii) evaluating the reasonableness of the average rateprobability of increasedefault and loss given default assumptions; (iv) testing the data used in compensation. Additionally, professionalsthe models; and (v) evaluating the reasonableness of management’s judgment regarding qualitative factors related to economic uncertainty, observable changes in portfolio performance, and other relevant factors. Professionals with specialized skill and knowledge were used to assist in performing the evaluation of the appropriateness of the actuarial model, as well as the reasonableness of significant assumptions including demographics of the group covered by the plan, the discount rate usedprocedures described in determining the benefit obligation and the discount rate-service cost and the effective interest rate on benefit obligation used in determining the benefit cost.(i) through (v).
Warranty and Field Service Actions Accrual (United States)
As described in Note 2725 to the consolidated financial statements, the Company recordedhad an accrual for estimated future warranty and field service action costs, net of estimated supplier recoveries (“warranty accrual”), of $5,702$8,451 million as of December 31, 2019,2021, of which the United States comprises a significant portion. Management accrues the estimated cost of both base warranty coverages and field service actions at the time of sale. Management establishes their estimate of base warranty obligations using a patterned estimation model, using historical information regarding the nature, frequency, and average cost of claims for each vehicle line by model year. Management establishes their estimates of field service action obligations using a patterned estimation model, using historical information regarding the nature, frequency, severity, and average cost of claims for each model year. Management reevaluates the adequacy of their accruals on a regular basis.
The principal considerations for our determination that performing procedures relating to the warranty accrual for the United States is a critical audit matter are there was(i) the significant judgment by management in the estimation of the accrual and development of the patterned estimation model, which led tomodel; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures to evaluateand evaluating the estimation model and significant assumptions includingrelated to the frequency and average cost of claims. In addition,claims; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained from these procedures.knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls related to the estimate of the warranty accrual for the United States. These procedures also included, among others, evaluating the reasonableness of significant assumptions used by management to develop the warranty accrual for the United States, includingrelated to the frequency and average cost of claims, in part by considering the historical experience of the Company. Additionally, professionalsProfessionals with specialized skill and knowledge were used to assist in the evaluation ofevaluating the appropriateness of the model as well as the reasonableness of certain significant assumptions.assumptions related to the frequency and average cost of claims.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
February 5, 20203, 2022
We have served as the Company’s auditor since 1946.
FORD MOTOR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTSTATEMENTS OF CASH FLOWS
(in millions) | | | | | | | | | | | | | | | | | |
| For the years ended December 31, |
| 2019 | | 2020 | | 2021 |
Cash flows from operating activities | | | | | |
Net income/(loss) | $ | 84 | | | $ | (1,276) | | | $ | 17,910 | |
Depreciation and tooling amortization (Note 12 and Note 13) | 9,689 | | | 8,751 | | | 7,318 | |
Other amortization | (1,199) | | | (1,294) | | | (1,358) | |
Held-for-sale impairment charges (Note 21) | 804 | | | 23 | | | — | |
Brazil manufacturing exit non-cash charges (excluding accelerated depreciation of $145 and $322) (Note 21) | — | | | 1,159 | | | 48 | |
(Gains)/Losses on extinguishment of debt (Note 5 and Note 19) | 55 | | | 1 | | | 1,702 | |
Provision for/(Benefit from) credit and insurance losses | 413 | | | 929 | | | (298) | |
Pension and other post-retirement employee benefits (“OPEB”) expense/(income) (Note 17) | 2,625 | | | 1,027 | | | (4,865) | |
Equity investment dividends received in excess of (earnings)/losses | 203 | | | 130 | | | 116 | |
Foreign currency adjustments | (54) | | | (420) | | | 532 | |
Net realized and unrealized (gains)/losses on cash equivalents, marketable securities, and other investments | (139) | | | (315) | | | (9,159) | |
Net (gain)/loss on changes in investments in affiliates (Note 5) | (29) | | | (3,446) | | | (368) | |
Stock compensation (Note 6) | 228 | | | 199 | | | 305 | |
Provision for deferred income taxes | (1,370) | | | (269) | | | (563) | |
Decrease/(Increase) in finance receivables (wholesale and other) | 1,554 | | | 12,104 | | | 7,656 | |
Decrease/(Increase) in accounts receivable and other assets | (816) | | | (63) | | | (1,141) | |
Decrease/(Increase) in inventory | 206 | | | 148 | | | (1,778) | |
Increase/(Decrease) in accounts payable and accrued and other liabilities | 5,260 | | | 6,809 | | | (36) | |
Other | 125 | | | 72 | | | (234) | |
Net cash provided by/(used in) operating activities | 17,639 | | | 24,269 | | | 15,787 | |
| | | | | |
Cash flows from investing activities | | | | | |
Capital spending | (7,632) | | | (5,742) | | | (6,227) | |
Acquisitions of finance receivables and operating leases | (55,576) | | | (55,901) | | | (48,379) | |
Collections of finance receivables and operating leases | 50,182 | | | 48,746 | | | 52,094 | |
Proceeds from sale of business (Note 22) | — | | | 1,340 | | | 145 | |
Purchases of marketable securities and other investments | (17,472) | | | (39,624) | | | (27,491) | |
Sales and maturities of marketable securities and other investments | 16,929 | | | 32,395 | | | 33,229 | |
Settlements of derivatives | (114) | | | (323) | | | (272) | |
Other | (38) | | | 494 | | | (354) | |
Net cash provided by/(used in) investing activities | (13,721) | | | (18,615) | | | 2,745 | |
| | | | | |
Cash flows from financing activities | | | | | |
Cash payments for dividends and dividend equivalents | (2,389) | | | (596) | | | (403) | |
Purchases of common stock | (237) | | | — | | | — | |
Net changes in short-term debt | (1,384) | | | (2,291) | | | 3,273 | |
Proceeds from issuance of long-term debt | 47,604 | | | 65,900 | | | 27,901 | |
Payments of long-term debt | (46,497) | | | (60,514) | | | (54,164) | |
Other | (226) | | | (184) | | | (105) | |
Net cash provided by/(used in) financing activities | (3,129) | | | 2,315 | | | (23,498) | |
Effect of exchange rate changes on cash, cash equivalents, and restricted cash | 45 | | | 225 | | | (232) | |
Net increase/(decrease) in cash, cash equivalents, and restricted cash | $ | 834 | | | $ | 8,194 | | | $ | (5,198) | |
| | | | | |
Cash, cash equivalents, and restricted cash at beginning of period (Note 9) | $ | 16,907 | | | $ | 17,741 | | | $ | 25,935 | |
Net increase/(decrease) in cash, cash equivalents, and restricted cash | 834 | | | 8,194 | | | (5,198) | |
Cash, cash equivalents, and restricted cash at end of period (Note 9) | $ | 17,741 | | | $ | 25,935 | | | $ | 20,737 | |
|
| | | | | | | | | | | |
| For the years ended December 31, |
| 2017 | | 2018 | | 2019 |
Cash flows from operating activities | | | | | |
Net income | $ | 7,757 |
| | $ | 3,695 |
| | $ | 84 |
|
Depreciation and tooling amortization | 9,241 |
| | 9,385 |
| | 9,689 |
|
Other amortization | (669 | ) | | (972 | ) | | (1,199 | ) |
Held-for-sale impairment charges | — |
| | — |
| | 804 |
|
Provision for credit and insurance losses | 598 |
| | 504 |
| | 413 |
|
Pension and other postretirement employee benefits (“OPEB”) expense/(income) | (608 | ) | | 400 |
| | 2,625 |
|
Equity investment dividends received in excess of (earnings)/losses | 240 |
| | 206 |
| | 203 |
|
Foreign currency adjustments | (403 | ) | | 529 |
| | (54 | ) |
Net (gain)/loss on changes in investments in affiliates | (7 | ) | | (42 | ) | | (29 | ) |
Stock compensation | 246 |
| | 191 |
| | 228 |
|
Provision for deferred income taxes | (350 | ) | | (197 | ) | | (1,370 | ) |
Decrease/(Increase) in finance receivables (wholesale and other) | (836 | ) | | (2,408 | ) | | 1,554 |
|
Decrease/(Increase) in accounts receivable and other assets | (2,297 | ) | | (2,239 | ) | | (816 | ) |
Decrease/(Increase) in inventory | (970 | ) | | (828 | ) | | 206 |
|
Increase/(Decrease) in accounts payable and accrued and other liabilities | 6,089 |
| | 6,781 |
| | 5,260 |
|
Other | 65 |
| | 17 |
| | 41 |
|
Net cash provided by/(used in) operating activities | 18,096 |
| | 15,022 |
| | 17,639 |
|
| | | | | |
Cash flows from investing activities | | | | | |
Capital spending | (7,049 | ) | | (7,785 | ) | | (7,632 | ) |
Acquisitions of finance receivables and operating leases | (59,354 | ) | | (62,924 | ) | | (55,576 | ) |
Collections of finance receivables and operating leases | 44,641 |
| | 50,880 |
| | 50,182 |
|
Purchases of marketable securities and other investments | (27,567 | ) | | (17,140 | ) | | (17,472 | ) |
Sales and maturities of marketable and other investments | 29,898 |
| | 20,527 |
| | 16,929 |
|
Settlements of derivatives | 100 |
| | 358 |
| | (114 | ) |
Other | (29 | ) | | (177 | ) | | (38 | ) |
Net cash provided by/(used in) investing activities | (19,360 | ) | | (16,261 | ) | | (13,721 | ) |
| | | | | |
Cash flows from financing activities | |
| | |
| | |
|
Cash payments for dividends and dividend equivalents | (2,584 | ) | | (2,905 | ) | | (2,389 | ) |
Purchases of common stock | (131 | ) | | (164 | ) | | (237 | ) |
Net changes in short-term debt | 1,229 |
| | (2,819 | ) | | (1,384 | ) |
Proceeds from issuance of long-term debt | 45,801 |
| | 50,130 |
| | 47,604 |
|
Principal payments on long-term debt | (40,770 | ) | | (44,172 | ) | | (46,497 | ) |
Other | (151 | ) | | (192 | ) | | (226 | ) |
Net cash provided by/(used in) financing activities | 3,394 |
| | (122 | ) | | (3,129 | ) |
Effect of exchange rate changes on cash, cash equivalents, and restricted cash | 489 |
| | (370 | ) | | 45 |
|
Net increase/(decrease) in cash, cash equivalents, and restricted cash | $ | 2,619 |
| | $ | (1,731 | ) | | $ | 834 |
|
| | | | | |
Cash, cash equivalents, and restricted cash at beginning of period (Note 9) | $ | 16,019 |
| | $ | 18,638 |
| | $ | 16,907 |
|
Net increase/(decrease) in cash, cash equivalents, and restricted cash | 2,619 |
| | (1,731 | ) | | 834 |
|
Cash, cash equivalents, and restricted cash at end of period (Note 9) | $ | 18,638 |
| | $ | 16,907 |
| | $ | 17,741 |
|
The accompanying notes are part of the consolidated financial statements.
FORD MOTOR COMPANY AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTSTATEMENTS
(in millions, except per share amounts) | | | | | | | | | | | | | | | | | |
| For the years ended December 31, |
| 2019 | | 2020 | | 2021 |
Revenues | | | | | |
Automotive | $ | 143,604 | | | $ | 115,894 | | | $ | 126,150 | |
Ford Credit | 12,260 | | | 11,203 | | | 10,073 | |
Mobility | 36 | | | 47 | | | 118 | |
Total revenues (Note 4) | 155,900 | | | 127,144 | | | 136,341 | |
| | | | | |
Costs and expenses | | | | | |
Cost of sales | 134,693 | | | 112,752 | | | 114,651 | |
Selling, administrative, and other expenses | 11,161 | | | 10,193 | | | 11,915 | |
Ford Credit interest, operating, and other expenses | 9,472 | | | 8,607 | | | 5,252 | |
Total costs and expenses | 155,326 | | | 131,552 | | | 131,818 | |
Operating income/(loss) | 574 | | | (4,408) | | | 4,523 | |
Interest expense on Company debt excluding Ford Credit | 1,020 | | | 1,649 | | | 1,803 | |
Other income/(loss), net (Note 5 and Note 22) | (226) | | | 4,899 | | | 14,733 | |
Equity in net income/(loss) of affiliated companies | 32 | | | 42 | | | 327 | |
Income/(Loss) before income taxes | (640) | | | (1,116) | | | 17,780 | |
Provision for/(Benefit from) income taxes (Note 7) | (724) | | | 160 | | | (130) | |
Net income/(loss) | 84 | | | (1,276) | | | 17,910 | |
Less: Income/(Loss) attributable to noncontrolling interests | 37 | | | 3 | | | (27) | |
Net income/(loss) attributable to Ford Motor Company | $ | 47 | | | $ | (1,279) | | | $ | 17,937 | |
| | | | | |
EARNINGS/(LOSS) PER SHARE ATTRIBUTABLE TO FORD MOTOR COMPANY COMMON AND CLASS B STOCK (Note 8) |
Basic income/(loss) | $ | 0.01 | | | $ | (0.32) | | | $ | 4.49 | |
Diluted income/(loss) | 0.01 | | | (0.32) | | | 4.45 | |
| | | | | |
Weighted-average shares used in computation of earnings/(loss) per share | | | | | |
Basic shares | 3,972 | | | 3,973 | | | 3,991 | |
Diluted shares | 4,004 | | | 3,973 | | | 4,034 | |
|
| | | | | | | | | | | |
| For the years ended December 31, |
| 2017 | | 2018 | | 2019 |
Revenues | | | | | |
Automotive | $ | 145,653 |
| | $ | 148,294 |
| | $ | 143,599 |
|
Ford Credit | 11,113 |
| | 12,018 |
| | 12,260 |
|
Mobility | 10 |
| | 26 |
| | 41 |
|
Total revenues (Note 4) | 156,776 |
| | 160,338 |
| | 155,900 |
|
| | | | | |
Costs and expenses | |
| | |
| | |
Cost of sales | 131,321 |
| | 136,269 |
| | 134,693 |
|
Selling, administrative, and other expenses | 11,527 |
| | 11,403 |
| | 11,161 |
|
Ford Credit interest, operating, and other expenses | 9,047 |
| | 9,463 |
| | 9,472 |
|
Total costs and expenses | 151,895 |
| | 157,135 |
| | 155,326 |
|
Operating income | 4,881 |
| | 3,203 |
| | 574 |
|
| | | | | |
Interest expense on Automotive debt | 1,133 |
| | 1,171 |
| | 963 |
|
Interest expense on Other debt | 57 |
| | 57 |
| | 57 |
|
| | | | | |
Other income/(loss), net (Note 5) | 3,267 |
| | 2,247 |
| | (226 | ) |
Equity in net income of affiliated companies | 1,201 |
| | 123 |
| | 32 |
|
Income/(Loss) before income taxes | 8,159 |
| | 4,345 |
| | (640 | ) |
Provision for/(Benefit from) income taxes (Note 7) | 402 |
| | 650 |
| | (724 | ) |
Net income | 7,757 |
| | 3,695 |
| | 84 |
|
Less: Income attributable to noncontrolling interests | 26 |
| | 18 |
| | 37 |
|
Net income attributable to Ford Motor Company | $ | 7,731 |
| | $ | 3,677 |
| | $ | 47 |
|
| | | | | |
EARNINGS PER SHARE ATTRIBUTABLE TO FORD MOTOR COMPANY COMMON AND CLASS B STOCK (Note 8) |
Basic income | $ | 1.94 |
| | $ | 0.93 |
| | $ | 0.01 |
|
Diluted income | 1.93 |
| | 0.92 |
| | 0.01 |
|
| | | | | |
Weighted-average shares used in computation of earnings per share | | | | | |
Basic shares | 3,975 |
| | 3,974 |
| | 3,972 |
|
Diluted shares | 3,998 |
| | 3,998 |
| | 4,004 |
|
CONSOLIDATED STATEMENTSTATEMENTS OF COMPREHENSIVE INCOME
(in millions) | | | | | | | | | | | | | | | | | |
| For the years ended December 31, |
| 2019 | | 2020 | | 2021 |
Net income/(loss) | $ | 84 | | | $ | (1,276) | | | $ | 17,910 | |
Other comprehensive income/(loss), net of tax (Note 23) | | | | | |
Foreign currency translation | 174 | | | (901) | | | 43 | |
Marketable securities | 130 | | | 85 | | | (175) | |
Derivative instruments | (689) | | | 222 | | | 73 | |
Pension and other postretirement benefits | 23 | | | 27 | | | 18 | |
Total other comprehensive income/(loss), net of tax | (362) | | | (567) | | | (41) | |
Comprehensive income/(loss) | (278) | | | (1,843) | | | 17,869 | |
Less: Comprehensive income/(loss) attributable to noncontrolling interests | 37 | | | 2 | | | (23) | |
Comprehensive income/(loss) attributable to Ford Motor Company | $ | (315) | | | $ | (1,845) | | | $ | 17,892 | |
|
| | | | | | | | | | | |
| For the years ended December 31, |
| 2017 | | 2018 | | 2019 |
Net income | $ | 7,757 |
| | $ | 3,695 |
| | $ | 84 |
|
Other comprehensive income/(loss), net of tax (Note 25) | | | | | |
Foreign currency translation | 314 |
| | (523 | ) | | 174 |
|
Marketable securities | (34 | ) | | (11 | ) | | 130 |
|
Derivative instruments | (265 | ) | | 183 |
| | (689 | ) |
Pension and other postretirement benefits | 37 |
| | (56 | ) | | 23 |
|
Total other comprehensive income/(loss), net of tax | 52 |
| | (407 | ) | | (362 | ) |
Comprehensive income/(loss) | 7,809 |
| | 3,288 |
| | (278 | ) |
Less: Comprehensive income/(loss) attributable to noncontrolling interests | 24 |
| | 18 |
| | 37 |
|
Comprehensive income/(loss) attributable to Ford Motor Company | $ | 7,785 |
| | $ | 3,270 |
| | $ | (315 | ) |
The accompanying notes are part of the consolidated financial statements.
FORD MOTOR COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETSHEETS
(in millions) | | | | | | | | | | | |
| December 31, 2020 | | December 31, 2021 |
ASSETS | | | |
Cash and cash equivalents (Note 9) | $ | 25,243 | | | $ | 20,540 | |
Marketable securities (Note 9) | 24,718 | | | 29,053 | |
Ford Credit finance receivables, net of allowance for credit losses of $394 and $282 (Note 10) | 42,401 | | | 32,543 | |
Trade and other receivables, less allowances of $84 and $48 | 9,993 | | | 11,370 | |
Inventories (Note 11) | 10,808 | | | 12,065 | |
Other assets | 3,581 | | | 3,425 | |
Total current assets | 116,744 | | | 108,996 | |
Ford Credit finance receivables, net of allowance for credit losses of $911 and $643 (Note 10) | 55,277 | | | 51,256 | |
Net investment in operating leases (Note 12) | 27,951 | | | 26,361 | |
Net property (Note 13) | 37,083 | | | 37,139 | |
Equity in net assets of affiliated companies (Note 14) | 4,901 | | | 4,545 | |
Deferred income taxes (Note 7) | 12,423 | | | 13,796 | |
Other assets | 12,882 | | | 14,942 | |
Total assets | $ | 267,261 | | | $ | 257,035 | |
LIABILITIES | | | |
Payables | $ | 22,204 | | | $ | 22,349 | |
Other liabilities and deferred revenue (Note 16 and Note 25) | 23,645 | | | 18,686 | |
Debt payable within one year (Note 19) | | | |
Company excluding Ford Credit | 1,374 | | | 3,175 | |
Ford Credit | 49,969 | | | 46,517 | |
Total current liabilities | 97,192 | | | 90,727 | |
Other liabilities and deferred revenue (Note 16 and Note 25) | 28,379 | | | 27,705 | |
Long-term debt (Note 19) | | | |
Company excluding Ford Credit | 22,633 | | | 17,200 | |
Ford Credit | 87,708 | | | 71,200 | |
Deferred income taxes (Note 7) | 538 | | | 1,581 | |
Total liabilities | 236,450 | | | 208,413 | |
EQUITY | | | |
Common Stock, par value $0.01 per share (4,050 million shares issued of 6 billion authorized) | 40 | | | 40 | |
Class B Stock, par value $0.01 per share (71 million shares issued of 530 million authorized) | 1 | | | 1 | |
Capital in excess of par value of stock | 22,290 | | | 22,611 | |
Retained earnings | 18,243 | | | 35,769 | |
Accumulated other comprehensive income/(loss) (Note 23) | (8,294) | | | (8,339) | |
Treasury stock | (1,590) | | | (1,563) | |
Total equity attributable to Ford Motor Company | 30,690 | | | 48,519 | |
Equity attributable to noncontrolling interests | 121 | | | 103 | |
Total equity | 30,811 | | | 48,622 | |
Total liabilities and equity | $ | 267,261 | | | $ | 257,035 | |
|
| | | | | | | |
| December 31, 2018 | | December 31, 2019 |
ASSETS | | | |
Cash and cash equivalents (Note 9) | $ | 16,718 |
| | $ | 17,504 |
|
Marketable securities (Note 9) | 17,233 |
| | 17,147 |
|
Ford Credit finance receivables, net (Note 10) | 54,353 |
| | 53,651 |
|
Trade and other receivables, less allowances of $94 and $63 | 11,195 |
| | 9,237 |
|
Inventories (Note 12) | 11,220 |
| | 10,786 |
|
Assets held for sale (Note 10 and Note 24) | — |
| | 2,383 |
|
Other assets | 3,930 |
| | 3,339 |
|
Total current assets | 114,649 |
| | 114,047 |
|
| | | |
Ford Credit finance receivables, net (Note 10) | 55,544 |
| | 53,703 |
|
Net investment in operating leases (Note 13) | 29,119 |
| | 29,230 |
|
Net property (Note 14) | 36,178 |
| | 36,469 |
|
Equity in net assets of affiliated companies (Note 15) | 2,709 |
| | 2,519 |
|
Deferred income taxes (Note 7) | 10,412 |
| | 11,863 |
|
Other assets | 7,929 |
| | 10,706 |
|
Total assets | $ | 256,540 |
| | $ | 258,537 |
|
| | | |
LIABILITIES | |
| | |
|
Payables | $ | 21,520 |
| | $ | 20,673 |
|
Other liabilities and deferred revenue (Note 17) | 20,556 |
| | 22,987 |
|
Automotive debt payable within one year (Note 20) | 2,314 |
| | 1,445 |
|
Ford Credit debt payable within one year (Note 20) | 51,179 |
| | 52,371 |
|
Other debt payable within one year (Note 20) | — |
| | 130 |
|
Liabilities held for sale (Note 24) | — |
| | 526 |
|
Total current liabilities | 95,569 |
| | 98,132 |
|
| | | |
Other liabilities and deferred revenue (Note 17) | 23,588 |
| | 25,324 |
|
Automotive long-term debt (Note 20) | 11,233 |
| | 13,233 |
|
Ford Credit long-term debt (Note 20) | 88,887 |
| | 87,658 |
|
Other long-term debt (Note 20) | 600 |
| | 470 |
|
Deferred income taxes (Note 7) | 597 |
| | 490 |
|
Total liabilities | 220,474 |
| | 225,307 |
|
| | | |
Redeemable noncontrolling interest (Note 23) | 100 |
| | — |
|
| | | |
EQUITY | |
| | |
|
Common Stock, par value $.01 per share (4,011 million shares issued of 6 billion authorized) | 40 |
| | 40 |
|
Class B Stock, par value $.01 per share (71 million shares issued of 530 million authorized) | 1 |
| | 1 |
|
Capital in excess of par value of stock | 22,006 |
| | 22,165 |
|
Retained earnings | 22,668 |
| | 20,320 |
|
Accumulated other comprehensive income/(loss) (Note 25) | (7,366 | ) | | (7,728 | ) |
Treasury stock | (1,417 | ) | | (1,613 | ) |
Total equity attributable to Ford Motor Company | 35,932 |
| | 33,185 |
|
Equity attributable to noncontrolling interests | 34 |
| | 45 |
|
Total equity | 35,966 |
| | 33,230 |
|
Total liabilities and equity | $ | 256,540 |
| | $ | 258,537 |
|
The following table includes assets to be used to settle liabilities of the consolidated variable interest entities (“VIEs”). These assets and liabilities are included in the consolidated balance sheetsheets above. See Note 2624 for additional information on our VIEs.
|
| | | | | | | |
| December 31, 2018 | | December 31, 2019 |
ASSETS | | | |
Cash and cash equivalents | $ | 2,728 |
| | $ | 3,202 |
|
Ford Credit finance receivables, net | 58,662 |
| | 58,478 |
|
Net investment in operating leases | 16,332 |
| | 14,883 |
|
Other assets | 27 |
| | 12 |
|
LIABILITIES | | | |
Other liabilities and deferred revenue | $ | 24 |
| | $ | 19 |
|
Debt | 53,269 |
| | 50,865 |
|
| | | | | | | | | | | |
| December 31, 2020 | | December 31, 2021 |
ASSETS | | | |
Cash and cash equivalents | $ | 2,822 | | | $ | 3,407 | |
Ford Credit finance receivables, net | 51,472 | | | 43,001 | |
Net investment in operating leases | 12,794 | | | 7,540 | |
Other assets | — | | | 39 | |
LIABILITIES | | | |
Other liabilities and deferred revenue | $ | 56 | | | $ | 6 | |
Debt | 46,770 | | | 38,274 | |
The accompanying notes are part of the consolidated financial statements.
FORD MOTOR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTSTATEMENTS OF EQUITY
(in millions) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Equity Attributable to Ford Motor Company | | | | |
| Capital Stock | | Cap. in Excess of Par Value of Stock | | Retained Earnings/(Accumulated Deficit) | | Accumulated Other Comprehensive Income/(Loss) (Note 23) | | Treasury Stock | | Total | | Equity Attributable to Non-controlling Interests | | Total Equity |
Balance at December 31, 2018 | $ | 41 | | | $ | 22,006 | | | $ | 22,668 | | | $ | (7,366) | | | $ | (1,417) | | | $ | 35,932 | | | $ | 34 | | | $ | 35,966 | |
Adoption of accounting standards | — | | | — | | | 13 | | | — | | | — | | | 13 | | | — | | | 13 | |
Net income/(loss) | — | | | — | | | 47 | | | — | | | — | | | 47 | | | 37 | | | 84 | |
Other comprehensive income/(loss), net of tax | — | | | — | | | — | | | (362) | | | — | | | (362) | | | — | | | (362) | |
Common stock issued (a) | — | | | 159 | | | — | | | — | | | — | | | 159 | | | — | | | 159 | |
Treasury stock/other | — | | | — | | | — | | | — | | | (196) | | | (196) | | | (26) | | | (222) | |
Dividend and dividend equivalents declared (b) | — | | | — | | | (2,408) | | | — | | | — | | | (2,408) | | | — | | | (2,408) | |
Balance at December 31, 2019 | $ | 41 | | | $ | 22,165 | | | $ | 20,320 | | | $ | (7,728) | | | $ | (1,613) | | | $ | 33,185 | | | $ | 45 | | | $ | 33,230 | |
| | | | | | | | | | | | | | | |
Balance at December 31, 2019 | $ | 41 | | | $ | 22,165 | | | $ | 20,320 | | | $ | (7,728) | | | $ | (1,613) | | | $ | 33,185 | | | $ | 45 | | | $ | 33,230 | |
Adoption of accounting standards | — | | | — | | | (202) | | | — | | | — | | | (202) | | | — | | | (202) | |
Net income/(loss) | — | | | — | | | (1,279) | | | — | | | — | | | (1,279) | | | 3 | | | (1,276) | |
Other comprehensive income/(loss), net of tax | — | | | — | | | — | | | (566) | | | — | | | (566) | | | (1) | | | (567) | |
Common stock issued (a) | — | | | 125 | | | — | | | — | | | — | | | 125 | | | — | | | 125 | |
Treasury stock/other | — | | | — | | | — | | | — | | | 23 | | | 23 | | | 86 | | | 109 | |
Dividend and dividend equivalents declared (b) | — | | | — | | | (596) | | | — | | | — | | | (596) | | | (12) | | | (608) | |
Balance at December 31, 2020 | $ | 41 | | | $ | 22,290 | | | $ | 18,243 | | | $ | (8,294) | | | $ | (1,590) | | | $ | 30,690 | | | $ | 121 | | | $ | 30,811 | |
| | | | | | | | | | | | | | | |
Balance at December 31, 2020 | $ | 41 | | | $ | 22,290 | | | $ | 18,243 | | | $ | (8,294) | | | $ | (1,590) | | | $ | 30,690 | | | $ | 121 | | | $ | 30,811 | |
Net income/(loss) | — | | | — | | | 17,937 | | | — | | | — | | | 17,937 | | | (27) | | | 17,910 | |
Other comprehensive income/(loss), net of tax | — | | | — | | | — | | | (45) | | | — | | | (45) | | | 4 | | | (41) | |
Common stock issued (a) | — | | | 321 | | | — | | | — | | | — | | | 321 | | | — | | | 321 | |
Treasury stock/other | — | | | — | | | — | | | — | | | 27 | | | 27 | | | 5 | | | 32 | |
Dividend and dividend equivalents declared (b) | — | | | — | | | (411) | | | — | | | — | | | (411) | | | — | | | (411) | |
Balance at December 31, 2021 | $ | 41 | | | $ | 22,611 | | | $ | 35,769 | | | $ | (8,339) | | | $ | (1,563) | | | $ | 48,519 | | | $ | 103 | | | $ | 48,622 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Equity Attributable to Ford Motor Company | | | | |
| Capital Stock | | Cap. in Excess of Par Value of Stock | | Retained Earnings/(Accumulated Deficit) | | Accumulated Other Comprehensive Income/(Loss) (Note 25) | | Treasury Stock | | Total | | Equity Attributable to Non-controlling Interests | | Total Equity |
Balance at December 31, 2016 | $ | 41 |
| | $ | 21,630 |
| | $ | 16,193 |
| | $ | (7,013 | ) | | $ | (1,122 | ) | | $ | 29,729 |
| | $ | 17 |
| | $ | 29,746 |
|
Adoption of accounting standards | — |
| | 6 |
| | 566 |
| | — |
| | — |
| | 572 |
| | — |
| | 572 |
|
Net income | — |
| | — |
| | 7,731 |
| | — |
| | — |
| | 7,731 |
| | 26 |
| | 7,757 |
|
Other comprehensive income/(loss), net of tax | — |
| | — |
| | — |
| | 54 |
| | — |
| | 54 |
| | (2 | ) | | 52 |
|
Common stock issued (including share-based compensation impacts) | — |
| | 207 |
| | — |
| | — |
| | — |
| | 207 |
| | — |
| | 207 |
|
Treasury stock/other | — |
| | — |
| | — |
| | — |
| | (131 | ) | | (131 | ) | | (2 | ) | | (133 | ) |
Cash dividends declared (a) | — |
| | — |
| | (2,584 | ) | | — |
| | — |
| | (2,584 | ) | | (11 | ) | | (2,595 | ) |
Balance at December 31, 2017 | $ | 41 |
| | $ | 21,843 |
| | $ | 21,906 |
| | $ | (6,959 | ) | | $ | (1,253 | ) | | $ | 35,578 |
| | $ | 28 |
| | $ | 35,606 |
|
| | | | | | | | | | | | | | | |
Balance at December 31, 2017 | $ | 41 |
| | $ | 21,843 |
| | $ | 21,906 |
| | $ | (6,959 | ) | | $ | (1,253 | ) | | $ | 35,578 |
| | $ | 28 |
| | $ | 35,606 |
|
Net income | — |
| | — |
| | 3,677 |
| | — |
| | — |
| | 3,677 |
| | 18 |
| | 3,695 |
|
Other comprehensive income/(loss), net of tax | — |
| | — |
| | — |
| | (407 | ) | | — |
| | (407 | ) | | — |
| | (407 | ) |
Common stock issued (including share-based compensation impacts) | — |
| | 163 |
| | — |
| | — |
| | — |
| | 163 |
| | — |
| | 163 |
|
Treasury stock/other | — |
| | — |
| | — |
| | — |
| | (164 | ) | | (164 | ) | | — |
| | (164 | ) |
Dividend and dividend equivalents declared (a) | — |
| | — |
| | (2,915 | ) | | — |
| | — |
| | (2,915 | ) | | (12 | ) | | (2,927 | ) |
Balance at December 31, 2018 | $ | 41 |
| | $ | 22,006 |
| | $ | 22,668 |
| | $ | (7,366 | ) | | $ | (1,417 | ) | | $ | 35,932 |
| | $ | 34 |
| | $ | 35,966 |
|
| | | | | | | | | | | | | | | |
Balance at December 31, 2018 | $ | 41 |
| | $ | 22,006 |
| | $ | 22,668 |
| | $ | (7,366 | ) | | $ | (1,417 | ) | | $ | 35,932 |
| | $ | 34 |
| | $ | 35,966 |
|
Adoption of accounting standards | — |
| | — |
| | 13 |
| | — |
| | — |
| | 13 |
| | — |
| | 13 |
|
Net income | — |
| | — |
| | 47 |
| | — |
| | — |
| | 47 |
| | 37 |
| | 84 |
|
Other comprehensive income/(loss), net of tax | — |
| | — |
| | — |
| | (362 | ) | | — |
| | (362 | ) | | — |
| | (362 | ) |
Common stock issued (including share-based compensation impacts) | — |
| | 159 |
| | — |
| | — |
| | — |
| | 159 |
| | — |
| | 159 |
|
Treasury stock/other | — |
| | — |
| | — |
| | — |
| | (196 | ) | | (196 | ) | | (26 | ) | | (222 | ) |
Dividend and dividend equivalents declared (a) | — |
| | — |
| | (2,408 | ) | | — |
| | — |
| | (2,408 | ) | | — |
| | (2,408 | ) |
Balance at December 31, 2019 | $ | 41 |
| | $ | 22,165 |
| | $ | 20,320 |
| | $ | (7,728 | ) | | $ | (1,613 | ) | | $ | 33,185 |
| | $ | 45 |
| | $ | 33,230 |
|
(a)Includes impacts of share-based compensation.
(a) (b)We declared dividends per share of Common and Class B Stock of $0.65, $0.73,$0.60, $0.15, and $0.60$0.10 per share in 2017, 2018,2019, 2020, and 2019,2021, respectively.
The accompanying notes are part of the consolidated financial statements.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
Table of Contents
|
| | | | | | | |
Footnote | | Page |
Note 1 | Presentation | |
Note 2 | Summary of Significant Accounting Policies | |
Note 3 | New Accounting Standards | |
Note 4 | Revenue | |
Note 5 | Other Income/(Loss) | |
Note 6 | Share-Based Compensation | |
Note 7 | Income Taxes | |
Note 8 | Capital Stock and EarningsEarnings/(Loss) Per Share | |
Note 9 | Cash, Cash Equivalents, and Marketable Securities | |
Note 10 | Ford Credit Finance Receivables | |
Note 11 | Ford Credit and Allowance for Credit Losses | |
Note 1211 | Inventories | |
Note 1312 | Net Investment in Operating Leases | |
Note 1413 | Net Property | |
Note 1514 | Equity in Net Assets of Affiliated Companies | |
Note 1615 | Other Investments | |
Note 1716 | Other Liabilities and Deferred Revenue | |
Note 1817 | Retirement Benefits | |
Note 1918 | Lease Commitments | |
Note 2019 | Debt and Commitments | |
Note 2120 | Derivative Financial Instruments and Hedging Activities | |
Note 2221 | Employee Separation Actions and Exit and Disposal Activities | |
Note 2322 | Redeemable Noncontrolling InterestAcquisitions and Divestitures | |
Note 2423 | Held-for-Sale Operations | |
Note 25 | Accumulated Other Comprehensive Income/(Loss) | |
Note 2624 | Variable Interest Entities | |
Note 2725 | Commitments and Contingencies | |
Note 2826 | Segment Information | |
Note 29 | Selected Quarterly Financial Data (unaudited) | |
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1. PRESENTATION
For purposes of this report, “Ford,” the “Company,” “we,” “our,” “us,” or similar references mean Ford Motor Company, our consolidated subsidiaries, and our consolidated VIEs of which we are the primary beneficiary, unless the context requires otherwise. We also make reference to Ford Motor Credit Company LLC, herein referenced to as Ford Credit. Our consolidated financial statements are presented in accordance with U.S. generally accepted accounting principles (“GAAP”). We reclassified certain prior year amounts in our consolidated financial statements to conform to the current year presentation.
Certain Transactions Between Automotive, Mobility, and Ford Credit
Intersegment transactions occur in the ordinary course of business. Additional detail regarding certain transactions and the effect on each segment at December 31 was as follows (in billions): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | 2021 |
| Automotive | | Mobility | | Ford Credit | | Automotive | | Mobility | | Ford Credit |
Trade and other receivables (a) | | | | | $ | 5.9 | | | | | | | $ | 7.4 | |
Unearned interest supplements and residual support (b) | | | | | (6.5) | | | | | | | (4.6) | |
Finance receivables and other (c) | | | | | 1.5 | | | | | | | 1.2 | |
Intersegment receivables/(payables) | $ | (2.7) | | | $ | — | | | 2.7 | | | $ | (1.4) | | | $ | — | | | 1.4 | |
__________ (a)Automotive receivables (generated primarily from vehicle and parts sales to third parties) sold to Ford Credit.
(b)Automotive pays amounts to Ford Credit at the point of retail financing or lease origination, which represent interest supplements and residual support.
(c)Primarily receivables with entities that are consolidated subsidiaries of Ford, including a sale-leaseback agreement between Automotive and Ford Credit relating primarily to vehicles that we lease to our employees.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 2018 | | 2019 |
| Automotive | | Mobility | | Ford Credit | | Automotive | | Mobility | | Ford Credit |
Trade and other receivables (a) | | | | | $ | 6.8 |
| | | | | | $ | 4.9 |
|
Unearned interest supplements and residual support (b) | | | | | (6.8 | ) | | | | | | (6.7 | ) |
Finance receivables and other (c) | | | | | 2.1 |
| | | | | | 2.1 |
|
Intersegment receivables/(payables) | $ | (1.2 | ) | | $ | (1.1 | ) | | 2.3 |
| | $ | (2.6 | ) | | $ | 0.1 |
| | 2.5 |
|
__________
| |
(a) | Automotive receivables (generated primarily from vehicle and parts sales to third parties) sold to Ford Credit. |
| |
(b) | Automotive pays amounts to Ford Credit at the point of retail financing or lease origination which represent interest supplements and residual support. |
| |
(c) | Primarily receivables with entities that are consolidated subsidiaries of Ford. |
Change in Accounting
As of January 1, 2019, we changed our accounting method for reporting early termination losses related to customer defaults on Ford Credit’s operating leases. Previously, we presented the early termination loss reserve on operating leases due to customer default events as part of the allowance for credit losses within Net investment in operating leases. We now consider the effects of operating lease early terminations when determining depreciation estimates, which are included as part of accumulated depreciation within Net investment in operating leases. We believe this change in accounting method is preferable as the characterization of these changes is better reflected as depreciation.
We have retrospectively applied this change in accounting method to all prior periods. At December 31, 2018, this reclassification increased accumulated depreciation and decreased allowance for credit losses by $78 million within Net investment in operating leases. This change had no impact on our consolidated income statement, consolidated balance sheet, or total cash flows from operating activities in the consolidated statement of cash flows for the years presented.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
For each accounting topic that is addressed in its own note, the description of the accounting policy may be found in the related note. Other significant accounting policies are described below.
Use of Estimates
The preparation of financial statements requires us to make estimates and assumptions that affect our results. Estimates are used to account for certain items such as marketing accruals, warranty costs, employee benefit programs, etc.allowance for credit losses, and other items requiring judgment. Estimates are based on assumptions that we believe are reasonable under the circumstances. Due to the inherent uncertainty involved with estimates, actual results may differ.
Foreign Currency
We remeasureWhen an entity has monetary assets and liabilities denominated in a currency that is different than a reporting entity’sfrom its functional currency, we remeasure those assets and liabilities from the transactional currency to the legal entity’s functional currency. The effect of this remeasurement process and the results of our related foreign currency hedging activities are reported in Cost of sales and Other income/(loss), net and were $307$58 million, $(121)$(46) million, and $108$(74) million, for the years ended 2017, 2018,2019, 2020, and 2019,2021, respectively.
Generally, our foreign subsidiaries use the local currency as their functional currency. We translate the assets and liabilities of our foreign subsidiaries from their respective functional currencies to U.S. dollars using end-of-period exchange rates. Changes in the carrying value of these assets and liabilities attributable to fluctuations in exchange rates are recognized in Foreign currency translation, a component of Other comprehensive income/(Ioss), net of tax. Upon sale or upon complete or substantially complete liquidation of an investment in a foreign subsidiary, the amount of accumulated foreign currency translation related to the entity is reclassified to income and recognized as part of the gain or loss on the investment.
Cash Equivalents
Cash and cash equivalents are highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of change in value due to interest rate, quoted price, or penalty on withdrawal. A debt security is classified as a cash equivalent if it meets these criteria and if it has a remaining time to maturity of three months or less from the date of acquisition.purchase. Amounts on deposit and available upon demand, or negotiated to provide for daily liquidity without penalty, are classified as Cash and cash equivalents. Time deposits, certificates of deposit, and money market accounts that meet the above criteria are reported at par value on our consolidated balance sheet.sheets.
Restricted Cash
Cash and cash equivalents that are restricted as to withdrawal or use under the terms of certain contractual agreements are recorded in Other assets in the non-current assets section of our consolidated balance sheet.sheets. Our Automotive segmentCompany excluding Ford Credit restricted cash balances primarily include various escrow agreements related to legal, insurance, customs, and environmental matters.matters and cash held under the terms of certain contractual agreements. Our Ford Credit segment restricted cash balances primarily include cash held to meet certain local governmental and regulatory reserve requirements and cash held under the terms of certain contractual agreements. Mobility segment restricted cash balances primarily include cash held under the terms of certain contractual agreements. Restricted cash does not include required minimum balances or cash securing debt issued through securitization transactions.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Marketable Securities
Investments in debt securities with a maturity date greater than three months at the date of purchase and other debt securities for which there is more than an insignificant risk of change in value due to interest rate, quoted price, or penalty on withdrawal are classified and accounted for as Marketableeither trading or available-for-sale marketable securities. Equity securities. with a readily determinable fair value are classified and accounted for as trading marketable securities.
Realized gains and losses, interest income, and interestdividend income on all of our marketable securities and unrealized gains and losses on securities not classified as available for sale are recorded in Other income/(loss), net. Unrealized gains and losses on available for saleavailable-for-sale securities are recognized in Unrealized gains and losses on securities, a component of Other comprehensive income/(loss), net of tax. Realized gains and losses and reclassifications of accumulated other comprehensive income into net income are measured using the specific identification method.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
On a quarterly basis, we review our available-for-sale debt securities for impairment.credit losses. We compare the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. If we conclude that anythe present value of these investments are impaired,cash flows expected to be collected is less than the amortized cost basis of the security, we determine whether such impairmentif a credit loss allowance is other-than-temporary.necessary. If a credit loss allowance is necessary, we will record an allowance, limited by the amount that fair value is less than the amortized cost basis, and recognize the corresponding charge in Other income/(loss), net. Factors we consider to make such determination include the duration and severity of the impairment, the reason for the decline in value, interest rate changes, and the potential recovery period and our intent to sell. If any impairment is considered other-than-temporary, we will write down the asset to its fair value and record the corresponding charge in Other income/(loss), net.counterparty long-term ratings.
Trade Receivables
Trade and other receivables consistsconsist primarily of Automotive segmentCompany excluding Ford Credit receivables from contracts with customers for the sale of vehicles, parts, accessories, and accessories.services. Trade receivables initially are recorded at the transaction amount and are typically outstanding for less than 30 days.days or less. Each reporting period, we evaluate the collectibility of the receivables and record an allowance for doubtful accounts representing our estimate of the probable losses. Additionsexpected losses that result from possible default events over the expected life of a receivable. Changes to the allowance for doubtful accounts are made by recording charges to bad debt expense reported in Selling, administrative, and other expenses.
Net Intangible Assets and Goodwill
Indefinite-lived intangible assets and goodwill are not amortized but are tested for impairment annually or more frequently if events or circumstances indicate the assets may be impaired. Goodwill impairment testing is also performed following an allocation of goodwill to a business to be disposed or a change in reporting units. We test for impairment by assessing qualitative factors to determine whether it is more likely than not that the fair value of the indefinite-lived intangible asset or the reporting unit allocated the goodwill is less than its carrying amount. If the qualitative assessment indicates a possible impairment, the carrying value of the asset or reporting unit is compared with its fair value. Fair value is measured relying primarily on the income approach by applying a discounted cash flow method, the market approach using market values or multiples, and/or third-party valuations. We capitalize and amortize our finite-lived intangible assets over their estimated useful lives.
Intangible assets are comprised primarily of licensing and advertising agreements, land rights, patents, customer contracts, and technology. The net carrying amount of our intangible assets was $178 million and $188 million at December 31, 2018 and 2019, respectively.
The net carrying amount of goodwill was $264 million and $278 million at December 31, 2018 and 2019, respectively.
For the periods presented, we have not recorded any material impairments for indefinite-lived intangibles or goodwill.
The carrying amount of intangible assets and goodwill is reported in Other assets in the non-current assets section of our consolidated balance sheet.sheets. Intangible assets are comprised primarily of advertising agreements, land rights, and technology licenses. The net carrying amount of our intangible assets was $144 million and $111 million at December 31, 2020 and 2021, respectively. For the periods presented, we have not recorded any material impairments for indefinite-lived intangibles. The net carrying amount of goodwill was $258 million and $619 million at December 31, 2020 and 2021, respectively. The goodwill increase from December 31, 2020 primarily reflects the acquisitions of Getrag Ford Transmissions GmbH in March 2021 and Electriphi, Inc. in June 2021 (see Note 22), offset partially by the full impairment of goodwill for two investments in our Mobility segment.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Held-and-Used Long-Lived Asset Impairment
We test long-lived asset groups for recoverability when changes in circumstances indicate the carrying value may not be recoverable. Events that trigger a test for recoverability include material adverse changes in projected revenues andor 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, 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 amountamounts of those assets isare depreciated over their remaining useful life. For the periods presented, we have not recorded any impairments.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Held-for-Sale Asset Impairment
We perform an impairment test on a disposal group to be discontinued, held for sale (“HFS”), or otherwise disposed when we have committed to an action and the action is expected to be completed within twelve months.one year. We estimate fair value to approximate the expected proceeds to be received, less cost to sell, and compare it to the carrying value of the disposal group. An impairment charge is recognized when the carrying value exceeds the estimated fair value (see Note 24)22). We also assess fair value if circumstances arise that were considered unlikely and, as a result, we decide not to sell a disposal group previously classified as HFS upon reclassification as held and used. When there is a change to a plan of sale, and the assets are reclassified from HFS to held and used, the long-lived assets would be reported at the lower of (i) the carrying amount before HFS designation, adjusted for depreciation that would have been recognized if the assets had not been classified as HFS, or (ii) the fair value at the date the assets no longer satisfy the criteria for classification as HFS.
Fair Value Measurements
We measure fair value of our financial instruments, including those held within our pension plans, using various valuation methods and prioritize the use of observable inputs. The use of observable and unobservable inputs and their significance in measuring fair value are reflected in our fair value hierarchy.hierarchy:
•Level 1 - inputs include quoted prices for identical instruments and are the most observable
•Level 2 - inputs include quoted prices for similar instruments and observable inputs such as interest rates, currency exchange rates, and yield curves
•Level 3 - inputs include data not observable in the market and reflect management judgment about the assumptions market participants would use in pricing the instruments
Fixed income securities, equities, commingled funds, derivative financial instruments, and alternative assets are remeasured and presented within our consolidated financial statements at fair value on a recurring basis. Finance receivables and debt are measured at fair value for the purpose of disclosure. Other assets and liabilities are measured at fair value on a nonrecurring basis.
Transfers into and transfers out of the hierarchy levels are recognized as if they had taken place at the end of the reporting period.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Valuation Method
Fixed Income Securities. Fixed income securities primarily include government securities, government agency securities, corporate bonds, and asset-backed securities. We generally measure the fair value using prices obtained from pricing services or quotes from dealers that make markets in such securities. Pricing methods and inputs to valuation models used by the pricing services depend on the security type (i.e., asset class). Where possible, fair values are generated using market inputs, including quoted prices (the closing price in an exchange market), bid prices (the price at which a buyer stands ready to purchase), and other market information. For fixed income securities that are not actively traded, the pricing services use alternative methods to determine fair value for the securities, including quotes for similar fixed income securities, matrix pricing, discounted cash flow using benchmark curves, or other factors. In certain cases, when market data are not available, we may use broker quotes or pricing services that use proprietary pricing models to determine fair value. The proprietary models incorporate unobservable inputs primarily consisting of prepayment curves, discount rates, default assumptions, recovery rates, yield assumptions, and credit spread assumptions.
An annual review is performed on the security prices received from our pricing services, which includes discussion and analysis of the inputs used by the pricing services to value our securities. TheWe also compare the price of certain securities sold close to the quarter end are also compared to the price of the same security at the balance sheet date to ensure the reported fair value is reasonable.
Equities. Equity securities are primarily exchange-traded and are valued based on the closing bid, official close, or last trade pricing on an active exchange. If closing prices are not available, securities are valued at the last quoted bid price or may be valued using the last available price. Securities that are thinly traded or delisted are valued using unobservable pricing data.
Commingled Funds. Fixed income and public equity securities may each be combined into commingled fund investments. Most commingled funds are valued to reflect our interest in the fund based on the reported year-end net asset value (“NAV”).
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Derivative Financial Instruments. Exchange-traded derivatives for which market quotations are readily available are valued at the last reported sale price or official closing price as reported by an independent pricing service on the primary market or exchange on which they are traded. Over-the-counter derivatives are not exchange traded and are valued using independent pricing services or industry-standard valuation models such as a discounted cash flow. When discounted cash flow models are used, projected future cash flows are discounted to a present value using market-based expectations for interest rates, foreign exchange rates, commodity prices, and the contractual terms of the derivative instruments. The discount rate used is the relevant benchmark interest rate (e.g., LIBOR, SONIA) plus an adjustment for non-performance risk. The adjustment reflects the full credit default swap (“CDS”) spread applied to a net exposure, by counterparty, considering the master netting agreements and any posted collateral. We use our counterparty’s CDS spread when we are in a net asset position and our own CDS spread when we are in a net liability position. In cases wherewhen market data isare not available, we use broker quotes and models (e.g., Black-Scholes) to determine fair value. This includes situations where there is a lack of liquidity for a particular currency or commodity, or when the instrument is longer dated. When broker quotes or models are used to determine fair value, the derivative is categorized within Level 3 of the hierarchy. All other derivatives are categorized within Level 2.
Alternative Assets. Hedge funds generally hold liquid and readily-priced securities, such as public equities, exchange-traded derivatives, and corporate bonds. Private equity and real estate investments are less liquid. External investment managers typically report valuations reflecting initial cost or updated appraisals, which are adjusted for cash flows, and realized and unrealized gains/losses. All alternative assets are valued at the NAV provided by the investment sponsor or third party administrator, as they do not have readily-available market quotations. Valuations may be lagged up to six months. The NAV will be adjusted for cash flows (additional investments or contributions, and distributions) through year end. We may make further adjustments for any known substantive valuation changes not reflected in the NAV.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
We may hold annuity contracts within some of our non-U.S. pension plans (see Note 17). Generally, the contract valuation method is applied for markets where we have purchased non-participating annuity contracts from an insurer as a plan asset. The Ford-Werke GmbH (“Ford-Werke”) defined benefit plan is primarily funded through a participating group insurance contract (see Note 18). Wecontract. For the Ford-Werke plan, we measure the fair value of the insurance asset by projecting expected future cash flows from the contract and discounting them to present value based on current market rates includingas well as an assessment for non-performance risk of the insurance company. The assumptions used to project expected future cash flows are based on actuarial estimates and are unobservable; therefore, the contract is categorizedunobservable. We include all annuity contracts within Level 3 of the hierarchy.
Finance Receivables. We measure finance receivables at fair value using internal valuation models (see Note 10). These models project future cash flows of financing contracts based on scheduled contract payments (including principal and interest). The projected cash flows are discounted to present value based on assumptions regarding expected credit losses, pre-payment speed, and applicable spreads to approximate current rates. Our assumptions regarding pre-payment speed and credit losses are based on historical performance. The fair value of finance receivables is categorized within Level 3 of the hierarchy.
On a nonrecurring basis, we also measure at fair value retail contracts greater than 120 days past due or deemed to be uncollectible, and individual dealer loans probable of foreclosure. We use the fair value of collateral, adjusted for estimated costs to sell, to determine the fair value of ourthese receivables. The collateral for a retail financing or wholesale receivable is the vehicle financed, and for dealer loans is real estate or other property.
The fair value of collateral for retail receivables is calculated as the outstanding receivable balances multiplied by the average recovery value percentage. The fair value of collateral for wholesale receivables is based on the wholesale market value or liquidation value for new and used vehicles. The fair value of collateral for dealer loans is determined by reviewing various appraisals, which include total adjusted appraised value of land and improvements, alternate use appraised value, broker’s opinion of value, and purchase offers.
Debt. We measure debt at fair value using quoted prices for our own debt with approximately the same remaining maturities (see Note 20)19). Where quoted prices are not available, we estimate fair value using discounted cash flows and market-based expectations for interest rates, credit risk, and the contractual terms of the debt instruments. For certain short-term debt with an original maturity date of one year or less, we assume that book value is a reasonable approximation of the debt’s fair value. The fair value of debt is categorized within Level 2 of the hierarchy.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Finance and Lease Incentives
We routinely sponsor special retail financing and lease incentives to dealers’ customers who choose to finance or lease Ford or Lincolnour vehicles withfrom Ford Credit. The cost for these incentives is included in our estimate of variable consideration when the vehicle is sold to the dealer. Ford Credit records a reduction to the finance receivable or reduces the cost of the vehicle operating lease when it records the underlying finance contract, and we transfer to Ford Credit the amount of the incentive on behalf of the dealer’s customer. See Note 1 for additional information regarding transactions between Automotive and Ford Credit. The Ford Credit segment recognized interest revenue of $2$2.5 billion,, $2.4 $2.4 billion,, and $2.5$2.4 billion in 2017, 2018,2019, 2020, and 2019,2021, respectively, and lower depreciation of $2.1$2.6 billion, $2.4$2.3 billion, and $2.6$1.9 billion in 2017, 2018,2019, 2020, and 2019,2021, respectively, associated with these incentives.
Supplier Price Adjustments
We frequently negotiate price adjustments with our suppliers throughout a production cycle, even after receiving production material. These price adjustments relate to changes in design specification or other commercial terms such as economics, productivity, and competitive pricing. We recognize price adjustments when we reach final agreement with our suppliers. In general, we avoid direct price changes in consideration of future business; however, when these occur, our policy is to defer the recognition of any such price change given explicitly in consideration of future business where guaranteed volumes are specified.business.
Government Incentives
We receive incentives from U.S. and non-U.S. governmental entities in the form of tax rebates or credits, grants, and loans. Government incentives are recorded in our consolidated financial statements in accordance with their purpose as a reduction of expense, a reduction of the cost of the capital investment, or other income. The benefit is generally recorded when all conditions attached to the incentive have been met and there is reasonable assurance of receipt.
FORD MOTOR COMPANY AND SUBSIDIARIES
Employee Bonus and Lump-Sum PaymentsNOTES TO THE FINANCIAL STATEMENTS
Effective November 15, 2019, we signed a new agreement with the International Union, United Automobile, Aerospace, and Agricultural Implement Workers of America (“UAW”) covering approximately 56,000 employees in the United States. The agreement established wages, benefits, and a variety of bonus payments for covered employees over a four-year period.
Performance-based and inflation-protection employee bonuses are accrued throughout the period in which services are provided and the bonuses are earned. Lump-sum cash bonuses paid in connection with signing a union contract are recognized in the period that the contract negotiations are finalized and ratified. These amounts are reported inNOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cost of sales.(Continued)
Selected Other Costs
Engineering, research, and development expenses are reported in Cost of sales and primarily consist of salaries, materials, and associated costs. Engineering, research, and development costs are expensed as incurred when performed internally or when performed by a supplier if we guarantee reimbursement. Advertising costs are reported in Selling, administrative, and other expenses and are expensed as incurred. Engineering, research, development, and advertising expenses for the years ended December 31 were as follows (in billions): | | | | | | | | | | | | | | | | | |
| 2019 | | 2020 | | 2021 |
Engineering, research, and development | $ | 7.4 | | | $ | 7.1 | | | $ | 7.6 | |
Advertising | 3.6 | | | 2.8 | | | 3.1 | |
|
| | | | | | | | | | | |
| 2017 | | 2018 | | 2019 |
Engineering, research, and development | $ | 8.0 |
| | $ | 8.2 |
| | $ | 7.4 |
|
Advertising | 4.1 |
| | 4.0 |
| | 3.6 |
|
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 3. NEW ACCOUNTING STANDARDS
Adoption of New Accounting Standards
Accounting Standards Update (“ASU”) 2016-02, Leases2019-12, Income Taxes - Simplifying the Accounting for Income Taxes. . OnEffective January 1, 2019,2021, we adopted Accounting Standards Codification 842the amendments in this ASU to simplify the accounting for income taxes. The amendments clarified that an entity may elect, but is not required, to reflect an allocation of consolidated current and all the related amendments (“new lease standard”) using the modified retrospective method. We recognized the cumulative effect of initially applying the new lease standarddeferred tax expense for non-taxable legal entities that are treated as an adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the lease accounting standarddisregarded by taxing authorities in effect for those periods. We do not expecttheir separately issued financial statements.
With the adoption of the new lease standardamendments in ASU 2019-12, Ford Credit’s separately issued financial statements no longer reflect an allocation of our consolidated U.S. current and deferred tax expense to haveit and certain of its U.S. subsidiaries that are treated as disregarded entities for U.S. tax purposes. Adoption of these amendments reduces complexity in accounting for income taxes and better reflects Ford Credit’s external obligations to tax authorities. Following the adoption, in April 2021, we entered into a materialSecond Amended and Restated Tax Sharing Agreement with Ford Credit. The adoption of ASU 2019-12 and the Second Amended and Restated Tax Sharing Agreement had no impact toon our net incomeconsolidated financial position or results of operations. The amendments were adopted on an ongoing basis.a retrospective basis and are reflected in Ford Credit’s standalone financial statements and disclosures.
The new lease standard requires all leases to be reported on the balance sheet as right-of-use assetsASU 2020-06, Accounting for Convertible Instruments and lease obligations. We elected the practical expedients permitted under the transition guidance ofContracts in an Entity’s Own Equity. Effective January 1, 2021, we adopted the new standard, that retainedwhich simplified guidance on the lease classificationissuer’s accounting for convertible debt instruments and initial direct costsamended certain guidance related to the computation of earnings per share for any leases that existed prior to adoptionconvertible instruments and contracts in an entity’s own equity. There was no impact on the date of adoption. During the standard. We did not reassess whether any contracts or land easements entered into prior to adoption are leases or contain leases.
The cumulative effectfirst quarter of the changes made to our consolidated balance sheet at January 1, 2019, for the adoption of
ASU 2016-02, Leases, was as follows (in millions):2021, we issued convertible notes (see Note 19).
|
| | | | | | | | | | | | |
| | Balance at December 31, 2018 | | Adjustments due to ASU 2016-02 | | Balance at January 1, 2019 |
Balance sheet | | | | | | |
| | | | | | |
Assets | | | | | | |
Other assets, current | | $ | 3,930 |
| | $ | (8 | ) | | $ | 3,922 |
|
Other assets, non-current | | 7,929 |
| | 1,324 |
| | 9,253 |
|
Deferred income taxes | | 10,412 |
| | (4 | ) | | 10,408 |
|
Liabilities | | | | | | |
Other liabilities and deferred revenue, current | | 20,556 |
| | 316 |
| | 20,872 |
|
Other liabilities and deferred revenue, non-current | | 23,588 |
| | 983 |
| | 24,571 |
|
Equity | | | | | | |
Retained earnings | | 22,668 |
| | 13 |
| | 22,681 |
|
We also adopted the following ASUs during 2019, none of which had a material impact to our consolidated financial statements or financial statement disclosures:
|
| | | |
ASU | | Effective Date |
2018-17 | Targeted Improvements to Related Party Guidance for Variable Interest Entities | | January 1, 2019 |
2018-16 | Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes | | January 1, 2019 |
2018-13 | Fair Value Measurement - Changes to the Disclosure Requirements for Fair Value Measurement | | January 1, 2019 |
2018-08 | Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made | | January 1, 2019 |
2018-07 | Stock Compensation - Improvements to Nonemployee Share-Based Payment Accounting | | January 1, 2019 |
2018-02 | Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (a) | | January 1, 2019 |
2018-14 | Changes to the Disclosure Requirements for Defined Benefit Plans | | December 31, 2019 |
_________
| |
(a) | Ford did not elect to reclassify the income tax effects of the Tax Cuts and Jobs Act from Accumulated other comprehensive income/(loss) to Retained earnings.
|
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 3. NEW ACCOUNTING STANDARDS (Continued)
Accounting Standards Issued But Not Yet Adopted
The Company considers the applicability and impact of all ASUs. ASUs not listed below were assessed and
determined to be either not applicable or are expected to have minimal impact on our consolidated financial statements.
ASU 2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments. In June 2016, the Financial Accounting Standards Board (“FASB”) issued a new accounting standard which replaces the current incurred loss impairment method with a method that reflects expected credit losses. The new standard and the related amendments were effective on January 1, 2020. Based on our current portfolio and forecasts of future macroeconomic conditions, we estimate that the allowance for credit losses reported in Ford Credit finance receivables, net on our consolidated balance sheet will increase by about $250 million at adoption. We will record the cumulative effect of initially applying the new standard as an adjustment to the opening balance of Retained earnings. The increase is primarily for our consumer portfolio, as it will cover expected credit losses over the full remaining expected life of the receivables.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 4. REVENUE
The following tables disaggregate our revenue by major source for the years ended December 31 (in millions): | | | | | | | | | | | | | | | | | |
| 2019 |
| Company Excluding Ford Credit | | Ford Credit | | Consolidated |
Vehicles, parts, and accessories | $ | 137,659 | | | $ | — | | | $ | 137,659 | |
Used vehicles | 3,307 | | | — | | | 3,307 | |
Services and other revenue (a) | 2,228 | | | 204 | | | 2,432 | |
Revenues from sales and services | 143,194 | | | 204 | | | 143,398 | |
| | | | | |
Leasing income | 446 | | | 5,899 | | | 6,345 | |
Financing income | — | | | 5,996 | | | 5,996 | |
Insurance income | — | | | 161 | | | 161 | |
Total revenues | $ | 143,640 | | | $ | 12,260 | | | $ | 155,900 | |
| | | | | | | | | | | | | | | | | |
| 2020 |
| Company Excluding Ford Credit | | Ford Credit | | Consolidated |
Vehicles, parts, and accessories | $ | 110,180 | | | $ | — | | | $ | 110,180 | |
Used vehicles | 2,935 | | | — | | | 2,935 | |
Services and other revenue (a) | 2,514 | | | 161 | | | 2,675 | |
Revenues from sales and services | 115,629 | | | 161 | | | 115,790 | |
| | | | | |
Leasing income | 312 | | | 5,653 | | | 5,965 | |
Financing income | — | | | 5,261 | | | 5,261 | |
Insurance income | — | | | 128 | | | 128 | |
Total revenues | $ | 115,941 | | | $ | 11,203 | | | $ | 127,144 | |
| | | 2017 | | 2021 |
| Automotive | | Mobility | | Ford Credit | | Consolidated | | Company Excluding Ford Credit | | Ford Credit | | Consolidated |
Vehicles, parts, and accessories | $ | 140,171 |
| | $ | — |
| | $ | — |
| | $ | 140,171 |
| Vehicles, parts, and accessories | $ | 120,973 | | | $ | — | | | $ | 120,973 | |
Used vehicles | 2,956 |
| | — |
| | — |
| | 2,956 |
| Used vehicles | 2,358 | | | — | | | 2,358 | |
Extended service contracts | 1,236 |
| | — |
| | — |
| | 1,236 |
| |
Other revenue | 815 |
| | 10 |
| | 219 |
| | 1,044 |
| |
Services and other revenue (a) | | Services and other revenue (a) | 2,651 | | | 161 | | | 2,812 | |
Revenues from sales and services | 145,178 |
| | 10 |
| | 219 |
| | 145,407 |
| Revenues from sales and services | 125,982 | | | 161 | | | 126,143 | |
| | | | | | | | |
Leasing income | 475 |
| | — |
| | 5,552 |
| | 6,027 |
| Leasing income | 286 | | | 5,291 | | | 5,577 | |
Financing income | — |
| | — |
| | 5,184 |
| | 5,184 |
| Financing income | — | | | 4,560 | | | 4,560 | |
Insurance income | — |
| | — |
| | 158 |
| | 158 |
| Insurance income | — | | | 61 | | | 61 | |
Total revenues | $ | 145,653 |
| | $ | 10 |
| | $ | 11,113 |
| | $ | 156,776 |
| Total revenues | $ | 126,268 | | | $ | 10,073 | | | $ | 136,341 | |
|
| | | | | | | | | | | | | | | |
| 2018 |
| Automotive | | Mobility | | Ford Credit | | Consolidated |
Vehicles, parts, and accessories | $ | 142,532 |
| | $ | — |
| | $ | — |
| | $ | 142,532 |
|
Used vehicles | 3,022 |
| | — |
| | — |
| | 3,022 |
|
Extended service contracts | 1,323 |
| | — |
| | — |
| | 1,323 |
|
Other revenue | 879 |
| | 26 |
| | 218 |
| | 1,123 |
|
Revenues from sales and services | 147,756 |
| | 26 |
| | 218 |
| | 148,000 |
|
| | | | | | | |
Leasing income | 538 |
| | — |
| | 5,795 |
| | 6,333 |
|
Financing income | — |
| | — |
| | 5,841 |
| | 5,841 |
|
Insurance income | — |
| | — |
| | 164 |
| | 164 |
|
Total revenues | $ | 148,294 |
| | $ | 26 |
| | $ | 12,018 |
| | $ | 160,338 |
|
(a)Includes extended service contract revenue. |
| | | | | | | | | | | | | | | |
| 2019 |
| Automotive | | Mobility | | Ford Credit | | Consolidated |
Vehicles, parts, and accessories | $ | 137,659 |
| | $ | — |
| | $ | — |
| | $ | 137,659 |
|
Used vehicles | 3,307 |
| | — |
| | — |
| | 3,307 |
|
Extended service contracts | 1,376 |
| | — |
| | — |
| | 1,376 |
|
Other revenue | 811 |
| | 41 |
| | 204 |
| | 1,056 |
|
Revenues from sales and services | 143,153 |
| | 41 |
| | 204 |
| | 143,398 |
|
| | | | | | | |
Leasing income | 446 |
| | — |
| | 5,899 |
| | 6,345 |
|
Financing income | — |
| | — |
| | 5,996 |
| | 5,996 |
|
Insurance income | — |
| | — |
| | 161 |
| | 161 |
|
Total revenues | $ | 143,599 |
| | $ | 41 |
| | $ | 12,260 |
| | $ | 155,900 |
|
Revenue is recognized when obligations under the terms of a contract with our customer are satisfied; generally this occurs with thewhen we transfer of control of our vehicles, parts, or accessories, or provide services. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. 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. Sales, value add,value-added, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. Incidental items that are immaterial in the context of the contract are recognized as expense. The expected costs associated with our base warranties and field service actions continue to beare recognized as expense when the products are sold (see Note 27)25). We recognize revenue for vehicle service contracts that extend mechanical and maintenance coverages beyond our base warranties over the life of the contract. We do not have any material significant payment terms as payment is received at or shortly after the point of sale.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 4. REVENUE (Continued)
Automotive SegmentCompany Excluding Ford Credit
Vehicles, Parts, and Accessories. For the majority of vehicles, parts, and accessories, we transfer control and recognize a sale when we ship the product from our manufacturing facility to our customer (dealers and distributors). We receive cash equal to the invoice price for most vehicle sales at the time of wholesale. When the vehicle sale is financed by our wholly-owned subsidiary Ford Credit, the dealer paysis obligated to pay Ford Credit when it sells the vehicle to the retail customer (see Note 10). Payment terms on part sales to dealers, distributors, and retailers range from 30 to 120 days. The amount of consideration we receive and revenue we recognize varies with changes in return rights and marketing incentives we offer to our customers and their customers. When we give our dealers the right to return eligible parts and accessories, we estimate the expected returns based on an analysis of historical experience. Estimates of marketing incentives are based on expected retail and fleet sales volumes, mix of products to be sold, and incentive programs to be offered. Customer acceptance of products and programs, as well as other market conditions, will impact these estimates. We adjust our estimate of revenue at the earlier of when the value of consideration we expect to receive changes or when the consideration becomes fixed. As a result of changes in our estimate of marketing incentives, during 2017, 2018, and 2019 we recorded a decrease in revenue of $887 million, $903$844 million and $844$973 million during 2019 and 2020, respectively, and an increase in revenue of $252 million during 2021 related to revenue recognized in prior annual periods.
Depending on the terms of the arrangement, we may also defer the recognition of a portion of the consideration received because we have to satisfy a future obligation (e.g., free extended service contracts). We use an observable price to determine the stand-alone selling price for separate performance obligations or a cost plus margin approach when one is not available. We have elected to recognize the cost for freight and shipping when control over vehicles, parts, or accessories have transferred to the customer as an expense in Cost of sales.
We sell vehicles to daily rental companies and may guarantee that we will pay them the difference between an agreed amount and the value they are able to realize upon resale. At the time of transfer of vehicles to the daily rental companies, we record the probable amount we will pay under the guarantee to Other liabilities and deferred revenue (see Note 27)25).
Used Vehicles. We sell used vehicles both at auction and through our consolidated dealerships. Proceeds from the sale of these vehicles are recognized in AutomotiveCompany excluding Ford Credit revenues upon transfer of control of the vehicle to the customer, and the related vehicle carrying value is recognized in Cost of sales.
Extended Service Contracts.Services and other revenue. We use an observable price to determine the stand-alone selling price for separate or stand-ready performance obligations that are included as part of the vehicle consideration received (e.g., free extended service contracts, vehicle connectivity, over-the-air updates), or a cost-plus margin approach when one is not available. We also sell separately priced service contracts that extend mechanical and maintenance coverages beyond our base warranty agreements to vehicle owners. The separately priced serviceWe receive payment at contract inception and the contracts range from 12 to 120 months. We receive payment at contract inceptionrecognize revenue for vehicle service contracts that extend mechanical and recognize revenuemaintenance coverages beyond our base warranties over the term of the agreement in proportion to the costs we expect to incur in satisfying the contract obligations. We hadRevenue 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.
At December 31, 2019 and 2020, a balance of $3.8 billion and $4$4.2 billion of unearned revenue associated primarily with outstanding extended service contracts was reported in Other liabilities and deferred revenueat December 31, 2017 and 2018, respectively.. We recognized $1.11.2 billion and $1.3 billion of the unearned amounts as revenue during each of the years ended December 31, 20182020 and 2019.2021, respectively. At December 31, 2019,2021, the unearned amount was $4.2$4.3 billion. We expect to recognize approximately $1.2$1.3 billion of the unearned amount in 2020,2022, $1.1 billion in 2021,2023, and $1.9 billion thereafter.
We record a premium deficiency reserve to the extent we estimate the future costs associated with theseextended service contracts exceed the unrecognized revenue. Amounts paid to dealers to obtain these contracts are deferred and recorded as Other assets. These costs are amortized to expense consistent with how the related revenue is recognized. We had a balance of $247$283 million and $270$309 million in deferred costs as of December 31, 20182020 and 2019,2021, respectively. We recognized $63$74 million,, $73 $79 million, and $74$81 million of amortization during the years ended December 31, 2017, 2018,2019, 2020, and 2019,2021, respectively.
Other Revenue.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 4. REVENUE Other revenue consists primarily of(Continued)
We also receive net commissions received for serving as the agent in facilitating the sale of a third party’s products or services to our customers, payments for vehicle-related design and testing services we perform for others, and revenue associated with various Mobility operations. We have applied the practical expedient to recognize Automotive revenues for vehicle-related design and testing services over the two to three year term of these agreements in proportion to the amount we have the right to invoice.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 4. REVENUE (Continued)
Leasing Income. We sell vehicles to daily rental companies with an obligation to repurchase the vehicles for a guaranteed amount, exercisable at the option of the customer. The transactions are accounted for as operating leases. Upon the transfer of vehicles to the daily rental companies, we record proceeds received in Other liabilities and deferred revenue. The difference between the proceeds received and the guaranteed repurchase amount is recorded in AutomotiveCompany excluding Ford Credit revenues over the term of the lease using a straight-line method. The cost of the vehicle is recorded in Net investment in operating leases on our consolidated balance sheetsheets and the difference between the cost of the vehicle and the estimated auction value is depreciated in Cost of sales over the term of the lease.
Ford Credit Segment
Leasing Income. Ford Credit offers leasing plans to retail consumers through Ford and Lincoln brand dealers whothat originate the leases. Ford Credit records an operating lease upon purchase of a vehicle subject to a lease from the dealer. The retail consumer makes lease payments representing the difference between Ford Credit’s purchase price of the vehicle and the contractual residual value of the vehicle plus lease fees, thatwhich we recognize on a straight-line basis over the term of the lease agreement. Depreciation and the gain or loss upon disposition of the vehicle is recorded in Ford Credit interest, operating, and other expenses.
Financing Income. Ford Credit originates and purchases finance installment contracts. Financing income represents interest earned on the finance receivables (including sales-type and direct financing leases). Interest is recognized using the interest method and includes the amortization of certain direct origination costs.
Insurance Income. Income from insurance contracts is recognized evenly over the term of the agreement. Insurance commission revenue is recognized on a net basis at the time of sale of the third party’s product or service to our customer.
NOTE 5. OTHER INCOME/(LOSS)
The amounts included in Other income/(loss), net for the years ended December 31 were as follows (in millions): | | | | | | | | | | | | | | | | | |
| 2019 | | 2020 | | 2021 |
Net periodic pension and OPEB income/(cost), excluding service cost (a) | $ | (1,602) | | | $ | 69 | | | $ | 5,997 | |
Investment-related interest income | 809 | | | 452 | | | 254 | |
Interest income/(expense) on income taxes | (29) | | | (2) | | | 7 | |
Realized and unrealized gains/(losses) on cash equivalents, marketable securities, and other investments (b) | 144 | | | 325 | | | 9,159 | |
Gains/(Losses) on changes in investments in affiliates (c) | 20 | | | 3,446 | | | 368 | |
Gains/(Losses) on extinguishment of debt (d) | (55) | | | (1) | | | (1,702) | |
Royalty income | 381 | | | 493 | | | 619 | |
Other | 106 | | | 117 | | | 31 | |
Total | $ | (226) | | | $ | 4,899 | | | $ | 14,733 | |
__________
(a) See Note 17 for additional information relating to our pension and OPEB remeasurements.
(b) See Note 15 for additional information relating to our investment in Rivian.
(c) See Note 22 for additional information relating to our Argo AI, LLC (“Argo AI”) and Volkswagen AG (“VW”) transaction in 2020.
(d) See Note 19 for additional information relating to our debt repurchase.
|
| | | | | | | | | | | |
| 2017 | | 2018 | | 2019 |
Net periodic pension and OPEB income/(cost), excluding service cost | $ | 1,757 |
| | $ | 786 |
| | $ | (1,602 | ) |
Investment-related interest income | 459 |
| | 667 |
| | 809 |
|
Interest income/(expense) on income taxes | 2 |
| | 33 |
| | (29 | ) |
Realized and unrealized gains/(losses) on cash equivalents, marketable securities, and other investments | (23 | ) | | 115 |
| | 144 |
|
Gains/(Losses) on changes in investments in affiliates | 14 |
| | 42 |
| | 20 |
|
Gains/(Losses) on extinguishment of debt | — |
| | — |
| | (55 | ) |
Royalty income | 678 |
| | 491 |
| | 381 |
|
Other | 380 |
| | 113 |
| | 106 |
|
Total | $ | 3,267 |
| | $ | 2,247 |
| | $ | (226 | ) |
123
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS NOTE 6. SHARE-BASED COMPENSATION
Under our Long-Term Incentive Plans, we may issue restricted stock units (“RSUs”), restricted stock shares (“RSSs”), and stock options. RSUs and RSSs consist of time-based and performance-based awards. The number of shares that may be granted in any year is limited to 2% of our issued and outstanding Common Stock as of December 31 of the prior calendar year. The limit may be increased up to 3% in any year, with a corresponding reduction in shares available for grants in future years. Granted RSUs generally cliff vest or ratably vest over a three-year service period. Performance-based RSUs have two components: one based on internal financial performance metrics and the other based on total shareholder return relative to an industrial and automotive peer group. At the time of vesting,vest, RSU awards are net settled (shares(i.e., shares are withheld to cover the employee tax obligation).
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
Stock options ratably vest over a three-year service period and expire ten years from the grant date.
NOTE 6. SHARE-BASED COMPENSATION
(Continued)
The fair value of both the time-based and the internal performance metrics portion of the performance-based RSUs and RSSs is determined using the closing price of our Common Stock at grant date. For awards that include a market condition, we measure the fair value using a Monte Carlo simulation. The weighted average per unit grant date fair value for the years ended December 31, 2017, 2018,2019, 2020, and 20192021 was $12.37, $9.89,$8.99, $7.11, and $8.99,$13.02, respectively.
Time-based RSUs generally have a graded vesting feature whereby one-third of each grant vests after the first anniversary of the grant date, one-third after the second anniversary, and one-third after the third anniversary. The graded vesting method recognizes expense over the service period for each separately-vesting tranche, which results in accelerated recognition of expense. The fair value of time-based RSUs, RSSs, and RSSsstock options is expensed over the shorter of theeach separate vesting period, using the graded vesting method, or the time period an employee becomes eligible to retain the award at retirement. The fair value of performance-based RSUs and RSSs is expensed when it is probable and estimable as measured against the performance metrics over the shorter of the performance or required service periods basedperiods. We measure the fair value of our stock options on the best available estimatedate of grant using either the number of shares expected to vest as measured against the performance metrics. Changes in estimates are recorded asBlack-Scholes option-pricing model (for options without a cumulative adjustment in the period of change.market condition) or a Monte Carlo simulation (for options with a market condition). We have elected to recognize forfeitures as an adjustment to compensation expense for all RSUs, RSSs, and RSSsstock options in the same period as the forfeitures occur. Expense is recorded in Selling, administrative, and other expenses.
Restricted Stock Units and Restricted Stock Shares
The fair value of vested RSUs and RSSs as well as the compensation cost for the years ended December 31 waswere as follows (in millions): | | | | | | | | | | | | | | | | | |
| 2019 | | 2020 | | 2021 |
Fair value of vested shares | $ | 231 | | | $ | 264 | | | $ | 217 | |
Compensation cost (a) | 190 | | | 156 | | | 229 | |
__________ (a) Net of tax benefit of $38 million, $31 million, and $74 million in 2019, 2020, and 2021, respectively.
|
| | | | | | | | | | | |
| 2017 | | 2018 | | 2019 |
Fair value of vested shares | $ | 175 |
| | $ | 187 |
| | $ | 231 |
|
Compensation cost (a) | 193 |
| | 162 |
| | 190 |
|
__________
| |
(a) | Net of tax benefit of $52 million, $29 million, and $38 million in 2017, 2018, and 2019, respectively. |
As of December 31, 2019,2021, there was approximately $101$121 million in unrecognized compensation cost related to non-vested RSUs and RSSs.RSUs. This expense will be recognized over a weighted average period of 1.81.9 years.
The performance-based RSUs granted in March 2017, 2018,2019, 2020, and 20192021 include a relative Total Shareholder Return (“TSR”) metric. We estimate the fair value of the TSR component of the performance-based RSUs using a Monte Carlo simulation. Inputs and assumptions used to calculate the fair value at grant date through a Monte Carlo simulation were as follows: | | | | | | | | | | | | | | | | | | | |
| 2019 | | 2020 | | 2021 | | |
Fair value per stock award | $ | 9.66 | | | $ | 7.21 | | | $ | 13.45 | | | |
Grant date stock price | 8.81 | | | 7.08 | | | 11.93 | | | |
Assumptions: | | | | | | | |
Ford’s stock price expected volatility (a) | 24.1 | % | | 25.4 | % | | 39.9 | % | | |
Expected average volatility of peer companies (a) | 25.8 | | | 26.4 | | | 39.6 | | | |
Risk-free interest rate | 2.57 | | | 0.68 | | | 0.32 | | | |
__________ (a)Expected volatility based on three years of daily closing share price changes ending on the grant date.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
|
| | | | | | | | | | | |
| 2017 | | 2018 | | 2019 |
Fair value per stock award | $ | 12.44 |
| | $ | 9.03 |
| | $ | 9.66 |
|
Grant date stock price | 12.66 |
| | 10.40 |
| | 8.81 |
|
Assumptions: | | | | | |
Ford’s stock price expected volatility (a) | 23.4 | % | | 22.9 | % | | 24.1 | % |
Expected average volatility of peer companies (a) | 26.0 |
| | 25.4 |
| | 25.8 |
|
Risk-free interest rate | 1.57 |
| | 2.46 |
| | 2.57 |
|
Dividend yield | 4.74 |
| | N/A | | N/A |
NOTE 6. SHARE-BASED COMPENSATION (Continued)__________
| |
(a) | Expected volatility based on three years of daily closing share price changes ending on the grant date. |
During 2019,2021, activity for RSUs and RSSs was as follows (in millions, except for weighted averageweighted-average fair value): | | | | | | | | | | | | | |
| Shares | | Weighted- Average Fair Value | | |
Outstanding, beginning of year | 72.2 | | | $ | 8.35 | | | |
Granted (a) | 23.4 | | | 13.02 | | | |
Vested (a) | (24.1) | | | 9.01 | | | |
Forfeited | (9.0) | | | 10.73 | | | |
Outstanding, end of year (b) | 62.5 | | | 10.31 | | | |
__________ (a)Includes shares awarded to non-employee directors.
|
| | | | | | |
| Shares | | Weighted- Average Fair Value |
Outstanding, beginning of year | 64.1 |
| | $ | 10.80 |
|
Granted (a) | 31.2 |
| | 8.99 |
|
Vested (a) | (20.0 | ) | | 11.56 |
|
Forfeited | (6.0 | ) | | 12.24 |
|
Outstanding, end of year (b) | 69.3 |
| | 9.90 |
|
(b)Excludes 821,082 non-employee director shares that were vested but unissued at December 31, 2021.
__________
| |
(a) | Includes shares awarded to non-employee directors. |
| |
(b) | Excludes 848,168 non-employee director shares that were vested, but unissued at December 31, 2019. |
Stock Options
As of MarchFor the years ended December 31, 2017, all of our outstanding2020 and 2021, stock options outstanding were fully vested. The last of our outstanding26.9 million and 11.9 million, respectively, and stock options will expireexercisable were 20.3 million and 7.5 million, respectively. During 2021, there were 11 million stock options exercised, with a weighted-average exercise price of $12.07. The exercised options prices ranged from $6.19 to $15.37 during 2021. We received approximately $133 million in July 2024, if notproceeds with an equivalent of about $197 million in new issues used to settle the exercised sooner. We measureoptions. For options exercised during the year ended December 31, 2021, the difference between the fair value of ourthe Common Stock issued and the respective exercise price was $64 million. As of December 31, 2021, the intrinsic value for vested and unvested stock options usingwas $51.6 million and $63.2 million, respectively. The average remaining terms for fully vested stock options and unvested stock options were 2.3 years and 8.5 years, respectively. Compensation cost for stock options for the Black-Scholes option-pricing model and record expense in year ended December 31, 2021 was $2 million. As of December 31, 2021, there was no unrecognized compensation cost related to non-vested stock options. During 2021, no new stock options were granted.
Selling, administrative, and other expenses.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 7. INCOME TAXES
We recognize income tax-related penalties in Provision for/(Benefit from) income taxes on our consolidated income statement.statements. We recognize income tax-related interest income and interest expense in Other income/(loss), net on our consolidated income statement.statements.
We account for U.S. tax on global intangible low-taxlow-taxed income in the period incurred.
Valuation of Deferred Tax Assets and Liabilities
Deferred tax assets and liabilities are recognized based on the future tax consequences attributable to temporary differences that exist between the financial statement carrying value of assets and liabilities and their respective tax bases, and operating loss and tax credit carryforwards on a taxing jurisdiction basis. We measure deferred tax assets and liabilities using enacted tax rates that will apply in the years in which we expect the temporary differences to be recovered or paid.
Our accounting for deferred tax consequences represents our best estimate of the likely future tax consequences of events that have been recognized on our consolidated financial statements or tax returns and their future probability. In assessing the need for a valuation allowance, we consider both positive and negative evidence related to the likelihood of realization of the deferred tax assets. If, based on the weight of available evidence, it is more likely than not that the deferred tax assets will not be realized, we record a valuation allowance.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 7. INCOME TAXES (Continued)
Components of Income Taxes
Components of income taxes excluding cumulative effects of changes in accounting principles, other comprehensive income, and equity in net results of affiliated companies accounted for after-tax for the years ended December 31 were as follows: | | | | | | | | | | | | | | | | | |
| 2019 | | 2020 | | 2021 |
Income/(Loss) before income taxes (in millions) | | | | | |
U.S. | $ | 2,656 | | | $ | (231) | | | $ | 10,043 | |
Non-U.S. | (3,296) | | | (885) | | | 7,737 | |
Total | $ | (640) | | | $ | (1,116) | | | $ | 17,780 | |
Provision for/(Benefit from) income taxes (in millions) | | | | | |
Current | | | | | |
Federal | $ | (101) | | | $ | (23) | | | $ | 102 | |
Non-U.S. | 738 | | | 554 | | | 598 | |
State and local | 33 | | | (45) | | | 26 | |
Total current | 670 | | | 486 | | | 726 | |
Deferred | | | | | |
Federal | (1,190) | | | (523) | | | 2,290 | |
Non-U.S. | (70) | | | 168 | | | (3,254) | |
State and local | (134) | | | 29 | | | 108 | |
Total deferred | (1,394) | | | (326) | | | (856) | |
Total | $ | (724) | | | $ | 160 | | | $ | (130) | |
Reconciliation of effective tax rate | | | | | |
U.S. statutory rate | 21.0 | % | | 21.0 | % | | 21.0 | % |
Non-U.S. tax rates under U.S. rates | 46.9 | | | (2.6) | | | 1.3 | |
State and local income taxes | 12.4 | | | 8.9 | | | 0.5 | |
General business credits | 67.0 | | | 35.1 | | | (2.3) | |
Dispositions and restructurings (a) | 45.5 | | | (0.4) | | | (18.8) | |
U.S. tax on non-U.S. earnings | (49.2) | | | 27.0 | | | 2.4 | |
Prior year settlements and claims | (5.0) | | | 8.3 | | | (0.3) | |
Tax incentives | 20.7 | | | (6.0) | | | (0.6) | |
Enacted change in tax laws | (12.5) | | | 1.5 | | | 1.1 | |
Valuation allowances | (18.7) | | | (108.8) | | | (4.7) | |
Other | (15.0) | | | 1.7 | | | (0.3) | |
Effective rate | 113.1 | % | | (14.3) | % | | (0.7) | % |
__________
|
| | | | | | | | | | | |
| 2017 | | 2018 | | 2019 |
Income/(Loss) before income taxes (in millions) | | | | | |
U.S. | $ | 4,861 |
| | $ | 2,051 |
| | $ | 2,656 |
|
Non-U.S. | 3,298 |
| | 2,294 |
| | (3,296 | ) |
Total | $ | 8,159 |
| | $ | 4,345 |
| | $ | (640 | ) |
Provision for/(Benefit from) income taxes (in millions) | |
| | |
| | |
|
Current | |
| | |
| | |
|
Federal | $ | (125 | ) | | $ | 75 |
| | $ | (101 | ) |
Non-U.S. | 868 |
| | 690 |
| | 738 |
|
State and local | 85 |
| | (6 | ) | | 33 |
|
Total current | 828 |
| | 759 |
| | 670 |
|
Deferred | |
| | |
| | |
|
Federal | (1,214 | ) | | (360 | ) | | (1,190 | ) |
Non-U.S. | 593 |
| | 239 |
| | (70 | ) |
State and local | 195 |
| | 12 |
| | (134 | ) |
Total deferred | (426 | ) | | (109 | ) | | (1,394 | ) |
Total | $ | 402 |
| | $ | 650 |
| | $ | (724 | ) |
Reconciliation of effective tax rate | |
| | |
| | |
|
U.S. statutory rate | 35.0 | % | | 21.0 | % | | 21.0 | % |
Non-U.S. tax rates under U.S. rates | (4.9 | ) | | (1.2 | ) | | 46.9 |
|
State and local income taxes | 2.2 |
| | 2.0 |
| | 12.4 |
|
General business credits | (3.6 | ) | | (9.2 | ) | | 67.0 |
|
Dispositions and restructurings | (11.7 | ) | | 4.6 |
| | 45.5 |
|
U.S. tax on non-U.S. earnings | (7.0 | ) | | 8.1 |
| | (49.2 | ) |
Prior year settlements and claims | (0.2 | ) | | 1.1 |
| | (5.0 | ) |
Tax incentives | — |
| | — |
| | 20.7 |
|
Enacted change in tax laws | (8.2 | ) | | (3.0 | ) | | (12.5 | ) |
Valuation allowances | 5.6 |
| | (9.6 | ) | | (18.7 | ) |
Other | (2.3 | ) | | 1.2 |
| | (15.0 | ) |
Effective rate | 4.9 | % | | 15.0 | % | | 113.1 | % |
(a)Includes a benefit of $2.9 billion to recognize deferred tax assets resulting from changes in our global tax structure in 2021.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 7. INCOME TAXES (Continued)
On December 22, 2017, the Tax Cuts and Jobs Act (H.R. 1) was signed into law. This act includes, among other items, a permanent reduction to the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018, and requires immediate taxation of accumulated, unremitted non-U.S. earnings. As a result, at December 31, 2017, we recognized a tax benefit of $739 million from revaluing U.S. net deferred tax liabilities and tax expense of $219 million to record U.S. tax on unremitted non-U.S. earnings. For the yearsyear ended December 31, 2018 and 2019, our tax provision includes additional benefit of $123 million and additional expense of $95 million respectively, related to the impact of the act and subsequently issued Treasury regulations on our global operations.
During 2020, based on all available evidence, we established U.S. valuation allowances of $1.3 billion, primarily against tax credits as it was deemed more likely than not that these deferred tax assets would not be realized. 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 allowances. The reversal primarily reflects a change in our intent to pursue planning actions involving cash outlays to preserve tax credits.
At December 31, 2019, $8.12021, $16.7 billion of non-U.S. earnings are considered indefinitely reinvested in operations outside the United States, for which deferred taxes have not been provided. Quantification of the deferred tax liability, if any, associated with indefinitely reinvested basis differences is not practicable.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 7. INCOME TAXES (Continued)
Components of Deferred Tax Assets and Liabilities
The components of deferred tax assets and liabilities at December 31 were as follows (in millions): | | | | | | | | | | | |
| 2020 | | 2021 |
Deferred tax assets | | | |
Employee benefit plans | $ | 4,760 | | | $ | 2,320 | |
Net operating loss carryforwards | 1,584 | | | 4,163 | |
Tax credit carryforwards | 11,037 | | | 10,437 | |
Research expenditures | 1,321 | | | 1,117 | |
Dealer and dealers’ customer allowances and claims | 2,145 | | | 1,944 | |
Other foreign deferred tax assets | 729 | | | 2,005 | |
All other | 2,335 | | | 2,353 | |
Total gross deferred tax assets | 23,911 | | | 24,339 | |
Less: Valuation allowances | (1,981) | | | (1,067) | |
Total net deferred tax assets | 21,930 | | | 23,272 | |
Deferred tax liabilities | | | |
Leasing transactions | 3,299 | | | 2,103 | |
Depreciation and amortization (excluding leasing transactions) | 3,218 | | | 2,881 | |
Finance receivables | 574 | | | 756 | |
Carrying value of investments | 144 | | | 2,149 | |
Other foreign deferred tax liabilities | 839 | | | 893 | |
All other | 1,971 | | | 2,275 | |
Total deferred tax liabilities | 10,045 | | | 11,057 | |
Net deferred tax assets/(liabilities) | $ | 11,885 | | | $ | 12,215 | |
|
| | | | | | | |
| 2018 | | 2019 |
Deferred tax assets | | | |
Employee benefit plans | $ | 4,039 |
| | $ | 4,125 |
|
Net operating loss carryforwards | 1,825 |
| | 1,726 |
|
Tax credit carryforwards | 9,199 |
| | 9,335 |
|
Research expenditures | 437 |
| | 619 |
|
Dealer and dealers’ customer allowances and claims | 1,552 |
| | 1,724 |
|
Other foreign deferred tax assets | 648 |
| | 799 |
|
All other | 1,765 |
| | 1,781 |
|
Total gross deferred tax assets | 19,465 |
| | 20,109 |
|
Less: Valuation allowances | (973 | ) | | (843 | ) |
Total net deferred tax assets | 18,492 |
| | 19,266 |
|
Deferred tax liabilities | |
| | |
|
Leasing transactions | 3,215 |
| | 2,694 |
|
Depreciation and amortization (excluding leasing transactions) | 2,865 |
| | 3,094 |
|
Finance receivables | 639 |
| | 584 |
|
Other foreign deferred tax liabilities | 948 |
| | 608 |
|
All other | 1,010 |
| | 913 |
|
Total deferred tax liabilities | 8,677 |
| | 7,893 |
|
Net deferred tax assets/(liabilities) | $ | 9,815 |
| | $ | 11,373 |
|
At December 31, 2019, we have a valuation allowance of $843 million primarily related to deferred tax assets in various non-U.S. operations.
Deferred tax assets for net operating losses and other temporary differences related to certain non-U.S. operations have not been recorded as a result of elections to tax these operations simultaneously in U.S. tax returns. During 2021, we restructured a significant portion of these operations resulting in recognition of $2.9 billion of net deferred tax assets. Reversal of thesethe remaining elections would result in the recognition of $9.5$4.3 billion of deferred tax assets, subject to valuation allowance testing.
Operating loss carryforwards for tax purposes were $4.3$11.4 billion at December 31, 2019,2021, resulting in a deferred tax asset of $1.7$4.2 billion. There is no expiration date for $2.5$3.2 billion of these losses. A substantial portion of the remaining losses will expire beyond 2023.2024. Tax credits available to offset future tax liabilities are $9.3 billion. Approximately half$10.4 billion. The majority of these credits have a remaining carryforward period of sevenfive years or more. Tax benefits of operating loss and tax credit carryforwards are evaluated on an ongoing basis, including a review of historical and projected future operating results, the eligible carryforward period, and available tax planning strategies. In our evaluation, we anticipate making tax elections that change the order of tax credit carryforward utilization on U.S. tax returns.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 7. INCOME TAXES (Continued)
Other
A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31 were as follows (in millions): | | | | | | | | | | | |
| 2020 | | 2021 |
Beginning balance | $ | 1,943 | | | $ | 1,913 | |
Increase – tax positions in prior periods | 137 | | | 1,054 | |
Increase – tax positions in current period | 25 | | | 25 | |
Decrease – tax positions in prior periods | (131) | | | (54) | |
Settlements | (61) | | | 1 | |
Lapse of statute of limitations | — | | | (7) | |
Foreign currency translation adjustment | — | | | (22) | |
Ending balance | $ | 1,913 | | | $ | 2,910 | |
|
| | | | | | | |
| 2018 | | 2019 |
Beginning balance | $ | 2,063 |
| | $ | 2,047 |
|
Increase – tax positions in prior periods | 90 |
| | 169 |
|
Increase – tax positions in current period | 45 |
| | 24 |
|
Decrease – tax positions in prior periods | (133 | ) | | (239 | ) |
Settlements | — |
| | (57 | ) |
Lapse of statute of limitations | — |
| | — |
|
Foreign currency translation adjustment | (18 | ) | | (1 | ) |
Ending balance | $ | 2,047 |
| | $ | 1,943 |
|
The amount of unrecognized tax benefits that would affect the effective tax rate if recognized was $2 billion and $1.9 billion atand $2.9 billion as of December 31, 20182020 and 2019,2021, respectively.
Examinations by tax authorities have been completed through the following years: 2004 in India, 2006 in Mexico, 2008 in Germany, 2010 in Spain, 2011 in Canada, 20112014 in the United States and 2014 in China and the United Kingdom. Although examinations have been completedKingdom, and 2016 in these jurisdictions, limited transfer pricing disputes exist for years dating back to 2005.China.
Net interest on income taxes was $2$29 million of expense, $2 million of expense, and $33$7 million of income and $29 million of expense for the years ended December 31, 2017, 2018,2019, 2020, and 2019,2021, respectively. These were reported in Other income/(loss), net in our consolidated income statement.statements. Net payables for tax related interest were $29$36 million and $58$32 million as of December 31, 20182020 and 2019,2021, respectively.
Cash paid for income taxes was $586$599 million, $821$421 million, and $599$568 million in 2017, 2018,2019, 2020, and 2019,2021, respectively.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 8. CAPITAL STOCK AND EARNINGSEARNINGS/(LOSS) PER SHARE
All general voting power is vested in the holders of Common Stock and Class B Stock. Holders of our Common Stock have 60% of the general voting power, and holders of our Class B Stock are entitled to such number of votes per share as will give them the remaining 40%. Shares of Common Stock and Class B Stock share equally in dividends when and as paid, with stock dividends payable in shares of stock of the class held.
If liquidated, each share of Common Stock is entitled to the first $0.50 available for distribution to holders of Common Stock and Class B Stock, each share of Class B Stock is entitled to the next $1.00 so available, each share of Common Stock is entitled to the next $0.50 so available, and each share of Common and Class B Stock is entitled to an equal amount thereafter.
We present both basic and diluted earningsearnings/(loss) per share (“EPS”) amounts in our financial reporting. Basic EPS excludes dilution and is computed by dividing Net incomeincome/(loss) attributable to Ford Motor Company by the weighted-average number of Common and Class B Stock outstanding for the period. Diluted EPS reflects the maximum potential dilution that could occur from our share-based compensation including “in-the-money”(“in-the-money” stock options, unvested restricted stock units,RSUs, and unvested restricted stock shares.RSSs) and convertible debt. Potentially dilutive shares are excluded from the calculation if they have an anti-dilutive effect in the period.
EarningsEarnings/(Loss) Per Share Attributable to Ford Motor Company Common and Class B Stock
Basic and diluted incomeincome/(loss) per share were calculated using the following (in millions):
|
| | | | | | | | | | | |
| 2017 | | 2018 | | 2019 |
Basic and Diluted Income Attributable to Ford Motor Company | | | | | |
Basic income | $ | 7,731 |
| | $ | 3,677 |
| | $ | 47 |
|
Diluted income | 7,731 |
| | 3,677 |
| | 47 |
|
| | | | | |
Basic and Diluted Shares | |
| | |
| | |
Basic shares (average shares outstanding) | 3,975 |
| | 3,974 |
| | 3,972 |
|
Net dilutive options, unvested restricted stock units, and unvested restricted stock shares | 23 |
| | 24 |
| | 32 |
|
Diluted shares | 3,998 |
| | 3,998 |
| | 4,004 |
|
| | | | | | | | | | | | | | | | | |
| 2019 | | 2020 | | 2021 |
Net income/(loss) attributable to Ford Motor Company | $ | 47 | | | $ | (1,279) | | | $ | 17,937 | |
| | | | | |
Basic and Diluted Shares | | | | | |
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 (a) | 32 | | | — | | | 43 | |
Diluted shares | 4,004 | | | 3,973 | | | 4,034 | |
__________
(a) In 2020, there were 29 million shares excluded from the calculation of diluted earnings/(loss) per share, due to their anti-dilutive effect.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 9. CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES
The fair values of cash, cash equivalents, and marketable securities measured at fair value on a recurring basis were as follows (in millions): | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2020 |
| Fair Value Level | | Company excluding Ford Credit | | Ford Credit | | Consolidated |
Cash and cash equivalents | | | | | | | |
U.S. government | 1 | | $ | 2,940 | | | $ | 3,255 | | | $ | 6,195 | |
U.S. government agencies | 2 | | 850 | | | 640 | | | 1,490 | |
Non-U.S. government and agencies | 2 | | 600 | | | 717 | | | 1,317 | |
Corporate debt | 2 | | 605 | | | 970 | | | 1,575 | |
Total marketable securities classified as cash equivalents | | | 4,995 | | | 5,582 | | | 10,577 | |
Cash, time deposits, and money market funds | | | 5,899 | | | 8,767 | | | 14,666 | |
Total cash and cash equivalents | | | $ | 10,894 | | | $ | 14,349 | | | $ | 25,243 | |
| | | | | | | |
Marketable securities | | | | | | | |
U.S. government | 1 | | $ | 4,709 | | | $ | 1,082 | | | $ | 5,791 | |
U.S. government agencies | 2 | | 3,259 | | | 485 | | | 3,744 | |
Non-U.S. government and agencies | 2 | | 4,448 | | | 2,693 | | | 7,141 | |
Corporate debt | 2 | | 7,095 | | | 308 | | | 7,403 | |
Equities (a) | 1 | | 113 | | | — | | | 113 | |
Other marketable securities | 2 | | 234 | | | 292 | | | 526 | |
Total marketable securities | | | $ | 19,858 | | | $ | 4,860 | | | $ | 24,718 | |
| | | | | | | |
Restricted cash | | | $ | 45 | | | $ | 647 | | | $ | 692 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | December 31, 2021 |
| Fair Value Level | | Company excluding Ford Credit | | Ford Credit | | Consolidated |
Cash and cash equivalents | | | | | | | |
U.S. government | 1 | | $ | 2,877 | | | $ | 711 | | | $ | 3,588 | |
U.S. government agencies | 2 | | 355 | | | 240 | | | 595 | |
Non-U.S. government and agencies | 2 | | 55 | | | 152 | | | 207 | |
Corporate debt | 2 | | 105 | | | 940 | | | 1,045 | |
Total marketable securities classified as cash equivalents | | | 3,392 | | | 2,043 | | | 5,435 | |
Cash, time deposits, and money market funds | | | 6,185 | | | 8,920 | | | 15,105 | |
Total cash and cash equivalents | | | $ | 9,577 | | | $ | 10,963 | | | $ | 20,540 | |
| | | | | | | |
Marketable securities | | | | | | | |
U.S. government | 1 | | $ | 4,018 | | | $ | 864 | | | $ | 4,882 | |
U.S. government agencies | 2 | | 2,270 | | | 75 | | | 2,345 | |
Non-U.S. government and agencies | 2 | | 3,373 | | | 697 | | | 4,070 | |
Corporate debt | 2 | | 6,299 | | | 304 | | | 6,603 | |
Equities (a) | 1 | | 10,673 | | | — | | | 10,673 | |
Other marketable securities | 2 | | 247 | | | 233 | | | 480 | |
Total marketable securities | | | $ | 26,880 | | | $ | 2,173 | | | $ | 29,053 | |
| | | | | | | |
Restricted cash | | | $ | 69 | | | $ | 128 | | | $ | 197 | |
| | | | | | | |
| | | | | | | |
__________ (a) Includes $10.6 billion of Rivian common shares valued at $103.69 per share as of December 31, 2021. Net unrealized gains/losses incurred during the reporting periods on equity securities still held at December 31, 2020 and 2021 were a $24 million gain and a $8.3 billion gain, respectively. At February 2, 2022, Rivian common shares were valued at $64.32 per share. Ford’s Rivian shares are subject to a contractual 180-day lockup period that commenced with Rivian’s initial public offering (“IPO”) on November 10, 2021.
|
| | | | | | | | | | | | | | | | | |
| | | December 31, 2018 |
| Fair Value Level | | Automotive | | Mobility | | Ford Credit | | Consolidated |
Cash and cash equivalents | | | | | | | | | |
U.S. government | 1 | | $ | 220 |
| | $ | — |
| | $ | 139 |
| | $ | 359 |
|
U.S. government agencies | 2 | | 496 |
| | — |
| | 25 |
| | 521 |
|
Non-U.S. government and agencies | 2 | | 169 |
| | — |
| | 114 |
| | 283 |
|
Corporate debt | 2 | | 174 |
| | — |
| | 884 |
| | 1,058 |
|
Total marketable securities classified as cash equivalents | | | 1,059 |
| | — |
| | 1,162 |
| | 2,221 |
|
Cash, time deposits, and money market funds | | | 5,999 |
| | 53 |
| | 8,445 |
| | 14,497 |
|
Total cash and cash equivalents | | | $ | 7,058 |
| | $ | 53 |
| | $ | 9,607 |
| | $ | 16,718 |
|
| | | | | | |
| | |
Marketable securities | | | | | | |
| | |
U.S. government | 1 | | $ | 3,014 |
| | $ | — |
| | $ | 289 |
| | $ | 3,303 |
|
U.S. government agencies | 2 | | 1,953 |
| | — |
| | 65 |
| | 2,018 |
|
Non-U.S. government and agencies | 2 | | 4,674 |
| | — |
| | 610 |
| | 5,284 |
|
Corporate debt | 2 | | 5,614 |
| | — |
| | 198 |
| | 5,812 |
|
Equities (a) | 1 | | 424 |
| | — |
| | — |
| | 424 |
|
Other marketable securities | 2 | | 246 |
| | — |
| | 146 |
| | 392 |
|
Total marketable securities | | | $ | 15,925 |
| | $ | — |
| | $ | 1,308 |
| | $ | 17,233 |
|
| | | | | | | | | |
Restricted Cash | | | $ | 16 |
| | $ | 33 |
| | $ | 140 |
| | $ | 189 |
|
| | | | | | | | | |
| | | December 31, 2019 |
| Fair Value Level | | Automotive | | Mobility | | Ford Credit | | Consolidated |
Cash and cash equivalents | | | | | | | | | |
U.S. government | 1 | | $ | 520 |
| | $ | — |
| | $ | — |
| | $ | 520 |
|
U.S. government agencies | 2 | | 125 |
| | — |
| | — |
| | 125 |
|
Non-U.S. government and agencies | 2 | | 601 |
| | — |
| | 350 |
| | 951 |
|
Corporate debt | 2 | | 642 |
| | — |
| | 604 |
| | 1,246 |
|
Total marketable securities classified as cash equivalents | | | 1,888 |
| | — |
| | 954 |
| | 2,842 |
|
Cash, time deposits, and money market funds | | | 6,432 |
| | 117 |
| | 8,113 |
| | 14,662 |
|
Total cash and cash equivalents | | | $ | 8,320 |
| | $ | 117 |
| | $ | 9,067 |
| | $ | 17,504 |
|
| | | | | | | | | |
Marketable securities | | | | | | | | | |
U.S. government | 1 | | $ | 2,930 |
| | $ | — |
| | $ | 195 |
| | $ | 3,125 |
|
U.S. government agencies | 2 | | 1,548 |
| | — |
| | 210 |
| | 1,758 |
|
Non-U.S. government and agencies | 2 | | 4,217 |
| | — |
| | 2,408 |
| | 6,625 |
|
Corporate debt | 2 | | 4,802 |
| | — |
| | 193 |
| | 4,995 |
|
Equities (a) | 1 | | 81 |
| | — |
| | — |
| | 81 |
|
Other marketable securities | 2 | | 273 |
| | — |
| | 290 |
| | 563 |
|
Total marketable securities | | | $ | 13,851 |
| | $ | — |
| | $ | 3,296 |
| | $ | 17,147 |
|
| | | | | | | | | |
Restricted Cash | | | $ | 15 |
| | $ | 21 |
| | $ | 139 |
| | $ | 175 |
|
| | | | | | | | | |
Cash, cash equivalents, and restricted cash in held-for-sale assets | | | $ | — |
| | $ | — |
| | $ | 62 |
| | $ | 62 |
|
130
__________
| |
(a) | Net unrealized gains/losses on equities were a $25 million gain and a $44 million loss at December 31, 2018 and 2019, respectively. |
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 9. CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES (Continued)
The cash equivalents and marketable securities accounted for as available-for-sale (“AFS”) securities were as follows (in millions): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | | |
| | | | | | | | | Fair Value of Securities with Contractual Maturities |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Within 1 Year | | After 1 Year through 5 Years | | After 5 Years |
Company excluding Ford Credit | | | | | | | | | | | | | |
U.S. government | $ | 2,894 | | | $ | 44 | | | $ | — | | | $ | 2,938 | | | $ | 1,649 | | | $ | 1,286 | | | $ | 3 | |
U.S. government agencies | 2,588 | | | 15 | | | — | | | 2,603 | | | 772 | | | 1,629 | | | 202 | |
Non-U.S. government and agencies | 2,926 | | | 31 | | | — | | | 2,957 | | | 1,330 | | | 1,617 | | | 10 | |
Corporate debt | 7,482 | | | 102 | | | (1) | | | 7,583 | | | 3,566 | | | 3,987 | | | 30 | |
Other marketable securities | 212 | | | 3 | | | — | | | 215 | | | 1 | | | 147 | | | 67 | |
Total | $ | 16,102 | | | $ | 195 | | | $ | (1) | | | $ | 16,296 | | | $ | 7,318 | | | $ | 8,666 | | | $ | 312 | |
| | | | | | | | | | | | | |
| December 31, 2021 | | |
| | | | | | | | | Fair Value of Securities with Contractual Maturities |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Within 1 Year | | After 1 Year through 5 Years | | After 5 Years |
Company excluding Ford Credit | | | | | | | | | | | | | |
U.S. government | $ | 3,821 | | | $ | 12 | | | $ | (14) | | | $ | 3,819 | | | $ | 1,360 | | | $ | 2,435 | | | $ | 24 | |
U.S. government agencies | 2,249 | | | 2 | | | (21) | | | 2,230 | | | 316 | | | 1,802 | | | 112 | |
Non-U.S. government and agencies | 2,599 | | | 6 | | | (21) | | | 2,584 | | | 854 | | | 1,708 | | | 22 | |
Corporate debt | 6,373 | | | 21 | | | (23) | | | 6,371 | | | 2,645 | | | 3,726 | | | — | |
Other marketable securities | 228 | | | 1 | | | (1) | | | 228 | | | — | | | 150 | | | 78 | |
Total | $ | 15,270 | | | $ | 42 | | | $ | (80) | | | $ | 15,232 | | | $ | 5,175 | | | $ | 9,821 | | | $ | 236 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2018 | | |
| | | | | | | | | Fair Value of Securities with Contractual Maturities |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Within 1 Year | | After 1 Year through 5 Years | | After 5 Years |
Automotive | | | | | | | | | | | | | |
U.S. government | $ | 2,933 |
| | $ | 5 |
| | $ | (10 | ) | | $ | 2,928 |
| | $ | 1,714 |
| | $ | 1,214 |
| | $ | — |
|
U.S. government agencies | 1,920 |
| | — |
| | (18 | ) | | 1,902 |
| | 797 |
| | 1,087 |
| | 18 |
|
Non-U.S. government and agencies | 3,841 |
| | 4 |
| | (37 | ) | | 3,808 |
| | 194 |
| | 3,614 |
| | — |
|
Corporate debt | 4,010 |
| | 3 |
| | (33 | ) | | 3,980 |
| | 1,148 |
| | 2,830 |
| | 2 |
|
Other marketable securities | 207 |
| | — |
| | — |
| | 207 |
| | 1 |
| | 134 |
| | 72 |
|
Total | $ | 12,911 |
| | $ | 12 |
| | $ | (98 | ) | | $ | 12,825 |
| | $ | 3,854 |
| | $ | 8,879 |
| | $ | 92 |
|
| | | | | | | | | | | | | |
| December 31, 2019 | | |
| | | | | | | | | Fair Value of Securities with Contractual Maturities |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Within 1 Year | | After 1 Year through 5 Years | | After 5 Years |
Automotive | | | | | | | | | | | | | |
U.S. government | $ | 2,839 |
| | $ | 11 |
| | $ | (1 | ) | | $ | 2,849 |
| | $ | 1,028 |
| | $ | 1,772 |
| | $ | 49 |
|
U.S. government agencies | 1,445 |
| | 2 |
| | (1 | ) | | 1,446 |
| | 830 |
| | 589 |
| | 27 |
|
Non-U.S. government and agencies | 3,925 |
| | 20 |
| | (1 | ) | | 3,944 |
| | 1,546 |
| | 2,398 |
| | — |
|
Corporate debt | 5,029 |
| | 53 |
| | — |
| | 5,082 |
| | 1,837 |
| | 3,245 |
| | — |
|
Other marketable securities | 230 |
| | 1 |
| | — |
| | 231 |
| | — |
| | 149 |
| | 82 |
|
Total | $ | 13,468 |
| | $ | 87 |
| | $ | (3 | ) | | $ | 13,552 |
| | $ | 5,241 |
| | $ | 8,153 |
| | $ | 158 |
|
Sales proceeds and gross realized gains/losses from the sale of AFS securities for the years ended December 31 were as follows (in millions): | | | | | | | | | | | | | | | | | |
| 2019 | | 2020 | | 2021 |
Company excluding Ford Credit | | | | | |
Sales proceeds | $ | 5,753 | | | $ | 8,574 | | | $ | 5,943 | |
Gross realized gains | 13 | | | 56 | | | 26 | |
Gross realized losses | 10 | | | 11 | | | 3 | |
|
| | | | | | | | | | | |
| 2017 | | 2018 | | 2019 |
Automotive | | | | | |
Sales proceeds | $ | 3,315 |
| | $ | 5,512 |
| | $ | 5,753 |
|
Gross realized gains | 3 |
| | 1 |
| | 13 |
|
Gross realized losses | 8 |
| | 21 |
| | 10 |
|
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 9. CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES (Continued)
The present fair values and gross unrealized losses for cash equivalents and marketable securities accounted for as AFS securities that were in an unrealized loss position, aggregated by investment category and the length of time that individual securities have been in a continuous loss position, were as follows (in millions): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Less than 1 Year | | 1 Year or Greater | | Total |
| Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
| | | | | | | | | | | |
Company excluding Ford Credit | | | | | | | | | | | |
U.S. government | $ | 181 | | | $ | — | | | $ | — | | | $ | — | | | $ | 181 | | | $ | — | |
U.S. government agencies | 83 | | | — | | | — | | | — | | | 83 | | | — | |
Non-U.S. government and agencies | 164 | | | — | | | 10 | | | — | | | 174 | | | — | |
Corporate debt | 1,538 | | | (1) | | | 9 | | | — | | | 1,547 | | | (1) | |
Other marketable securities | 23 | | | — | | | 13 | | | — | | | 36 | | | — | |
Total | $ | 1,989 | | | $ | (1) | | | $ | 32 | | | $ | — | | | $ | 2,021 | | | $ | (1) | |
| | | | | | | | | | | |
| December 31, 2021 |
| Less than 1 Year | | 1 Year or Greater | | Total |
| Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
Company excluding Ford Credit | | | | | | | | | | | |
U.S. government | $ | 2,598 | | | $ | (14) | | | $ | — | | | $ | — | | | $ | 2,598 | | | $ | (14) | |
U.S. government agencies | 1,809 | | | (19) | | | 73 | | | (2) | | | 1,882 | | | (21) | |
Non-U.S. government and agencies | 1,614 | | | (20) | | | 38 | | | (1) | | | 1,652 | | | (21) | |
Corporate debt | 3,637 | | | (21) | | | 71 | | | (2) | | | 3,708 | | | (23) | |
Other marketable securities | 178 | | | (1) | | | 15 | | | — | | | 193 | | | (1) | |
Total | $ | 9,836 | | | $ | (75) | | | $ | 197 | | | $ | (5) | | | $ | 10,033 | | | $ | (80) | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2018 |
| Less than 1 year | | 1 Year or Greater | | Total |
| Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
| | | | | | | | | | | |
Automotive | | | | | | | | | | | |
U.S. government | $ | 199 |
| | $ | (1 | ) | | $ | 1,637 |
| | $ | (9 | ) | | $ | 1,836 |
| | $ | (10 | ) |
U.S. government agencies | 193 |
| | (1 | ) | | 1,596 |
| | (17 | ) | | 1,789 |
| | (18 | ) |
Non-U.S. government and agencies | 341 |
| | (1 | ) | | 2,445 |
| | (36 | ) | | 2,786 |
| | (37 | ) |
Corporate debt | 1,816 |
| | (16 | ) | | 856 |
| | (17 | ) | | 2,672 |
| | (33 | ) |
Other marketable securities | 125 |
| | — |
| | — |
| | — |
| | 125 |
| | — |
|
Total | $ | 2,674 |
| | $ | (19 | ) | | $ | 6,534 |
| | $ | (79 | ) | | $ | 9,208 |
| | $ | (98 | ) |
| |
| | | | | | | | | | |
| December 31, 2019 |
| Less than 1 year | | 1 Year or Greater | | Total |
| Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
Automotive | | | | | | | | | | | |
U.S. government | $ | 183 |
| | $ | (1 | ) | | $ | 50 |
| | $ | — |
| | $ | 233 |
| | $ | (1 | ) |
U.S. government agencies | 370 |
| | (1 | ) | | 344 |
| | — |
| | 714 |
| | (1 | ) |
Non-U.S. government and agencies | 463 |
| | — |
| | 390 |
| | (1 | ) | | 853 |
| | (1 | ) |
Corporate debt | 29 |
| | — |
| | 53 |
| | — |
| | 82 |
| | — |
|
Other marketable securities | 59 |
| | — |
| | 17 |
| | — |
| | 76 |
| | — |
|
Total | $ | 1,104 |
| | $ | (2 | ) | | $ | 854 |
| | $ | (1 | ) | | $ | 1,958 |
| | $ | (3 | ) |
We determine credit losses on AFS debt securities using the specific identification method. During the years ended December 31, 2017, 2018,2019, 2020, and 2019,2021, we did not recognize any other-than-temporary impairment losses.credit loss. The unrealized losses on securities are due to changes in interest rates and market liquidity.
Cash, Cash Equivalents, and Restricted Cash
Cash, cash equivalents, and restricted cash as reported in the consolidated statementstatements of cash flows were as follows (in millions):
|
| | | | | | | |
| December 31, 2018 | | December 31, 2019 |
Cash and cash equivalents | $ | 16,718 |
| | $ | 17,504 |
|
Restricted cash (a) | 189 |
| | 175 |
|
Cash, cash equivalents, and restricted cash in held-for-sale assets | — |
| | 62 |
|
Total cash, cash equivalents, and restricted cash | $ | 16,907 |
| | $ | 17,741 |
|
| | | | | | | | | | | |
| December 31, 2020 | | December 31, 2021 |
Cash and cash equivalents | $ | 25,243 | | | $ | 20,540 | |
Restricted cash (a) | 692 | | | 197 | |
Total cash, cash equivalents, and restricted cash | $ | 25,935 | | | $ | 20,737 | |
__________
| |
(a) | Included in Other assets in the non-current assets section of our consolidated balance sheet.
|
(a)Included in Other assets in the non-current assets section of our consolidated balance sheets.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 10. FORD CREDIT FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES
Ford Credit manages finance receivables as “consumer” and “non-consumer” portfolios. The receivables are generally secured by the vehicles, inventory, or other property being financed.
Finance receivables are recorded at time of origination or purchase at fair value and are subsequently reported at amortized cost, net of any allowance for credit losses.
Consumer Portfolio. Receivables in this portfolio include products offered to individuals and businesses that finance the acquisition of Ford and Lincoln vehicles from dealers for personal or commercial use. Retail financing includes retail installment contracts for new and used vehicles and finance leases with retail customers, government entities, daily rental companies, and fleet customers.
Non-Consumer Portfolio.Receivables in this portfolio include products offered to automotive dealers. Dealer financing includes wholesale loans to dealers to finance the purchase of vehicle inventory, also known as floorplan financing, as well as loans to dealers to finance working capital and improvements to dealership facilities, finance the purchase of dealership real estate, and finance other dealer programs. Wholesale financing is approximately 94%89% of dealer financing.
Finance receivables are recorded at the time of origination or purchase at fair value and are subsequently reported at amortized cost, net of any allowance for credit losses.
For all finance receivables, Ford Credit defines “past due” as any payment, including principal and interest, that is at least 31 days past the contractual due date.
Finance Receivables Classification
Finance receivables are accounted for as held-for-investmentheld for investment (“HFI”) if Ford Credit has the intent and ability to hold the receivables for the foreseeable future or until maturity or payoff. The determination of intent and ability to hold for the foreseeable future is highly judgmental and requires Ford Credit to make good faith estimates based on all information available at the time of origination or purchase. If Ford Credit does not have the intent and ability to hold the receivables, then the receivables are classified as held-for-sale (“HFS”).HFS.
Each quarter, Ford Credit makes a determination of whether it is probable that finance receivables originated or purchased during the quarter will be held for the foreseeable future based on historical receivables sale experience, internal forecasts and budgets, as well as other relevant, reliable information available through the date of evaluation. For purposes of this determination, probable means at least 70% likely and, consistent with the budgeting and forecasting period, the foreseeable future means twelve months. Ford Credit classifies receivables as HFI or HFS on a receivable-by-receivable basis. Specific receivables included in off-balance sheet sale transactions are generally not identified until the month in which the sale occurs.
Held-for-Investment. Finance receivables classified as HFI are recorded at the time of origination or purchase at fair value and are subsequently reported at amortized cost, net of any allowance for credit losses. Cash flows from finance receivables, excluding wholesale and other receivables, that were originally classified as HFI are recorded as an investing activity.activity since GAAP requires the statement of cash flows presentation to be based on the original classification of the receivables. Cash flows from wholesale and other receivables are recorded as an operating activity.
Held-for-Sale. Finance receivables classified as HFS are carried at the lower of cost or fair value. Cash flows resulting from the origination or purchase and sale of HFS receivables are recorded as an operating activity in Decrease/(Increase) in finance receivables (wholesale and other). Once a decision has been made to sell receivables that were originally classified as HFI, the receivables are reclassified as HFS and carried at the lower of cost or fair value. The valuation adjustment, if applicable, is recorded in Other income/(loss), net to recognize the receivables at the lower of cost or fair value.
At December 31, 2019, Ford Credit determined that it is probable that it will not hold certain retail financing and wholesale finance receivables for more than the following twelve months. The value of the finance receivables considered HFS at December 31, 2019 was $1.5 billion. Included within this amount is $1.2 billion of Forso Nordic AB (“Forso”) finance receivables, whose operations have been classified as HFS (see Note 24).
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 10. FORD CREDIT FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES (Continued)
FinanceFord Credit finance receivables, net at December 31 were as follows (in millions): | | | | | | | | | | | |
| 2020 | | 2021 |
Consumer | | | |
Retail installment contracts, gross | $ | 73,631 | | | $ | 69,148 | |
Finance leases, gross | 8,431 | | | 7,318 | |
Retail financing, gross | 82,062 | | | 76,466 | |
Unearned interest supplements | (3,987) | | | (3,020) | |
Consumer finance receivables | 78,075 | | | 73,446 | |
Non-Consumer | | | |
Dealer financing | 20,908 | | | 11,278 | |
Non-Consumer finance receivables | 20,908 | | | 11,278 | |
Total recorded investment | $ | 98,983 | | | $ | 84,724 | |
| | | |
Recorded investment in finance receivables | $ | 98,983 | | | $ | 84,724 | |
Allowance for credit losses | (1,305) | | | (925) | |
Total finance receivables, net | $ | 97,678 | | | $ | 83,799 | |
| | | |
Current portion | $ | 42,401 | | | $ | 32,543 | |
Non-current portion | 55,277 | | | 51,256 | |
Total finance receivables, net | $ | 97,678 | | | $ | 83,799 | |
| | | |
Net finance receivables subject to fair value (a) | $ | 89,651 | | | $ | 76,796 | |
Fair value (b) | 91,238 | | | 77,648 | |
__________(a)Net finance receivables subject to fair value exclude finance leases. |
| | | | | | | |
| 2018 | | 2019 |
Consumer | | | |
Retail installment contracts, gross | $ | 70,874 |
| | $ | 68,905 |
|
Finance leases, gross | 8,748 |
| | 8,566 |
|
Retail financing, gross | 79,622 |
| | 77,471 |
|
Unearned interest supplements | (3,508 | ) | | (3,589 | ) |
Consumer finance receivables | 76,114 |
| | 73,882 |
|
Non-Consumer | |
| | |
|
Dealer financing | 34,372 |
| | 33,985 |
|
Non-Consumer finance receivables | 34,372 |
| | 33,985 |
|
Total recorded investment | $ | 110,486 |
| | $ | 107,867 |
|
| | | |
Recorded investment in finance receivables | $ | 110,486 |
| | $ | 107,867 |
|
Allowance for credit losses | (589 | ) | | (513 | ) |
Finance receivables, net | $ | 109,897 |
| | $ | 107,354 |
|
| | | |
Current portion | $ | 54,353 |
| | $ | 53,651 |
|
Non-current portion | 55,544 |
| | 53,703 |
|
Finance receivables, net | $ | 109,897 |
| | $ | 107,354 |
|
| | | |
Net finance receivables subject to fair value (a) | $ | 101,471 |
| | $ | 99,168 |
|
Fair value (b) | 100,877 |
| | 99,297 |
|
(b)The fair value of finance receivables is categorized within Level 3 of the fair value hierarchy.__________
| |
(a) | Net finance receivables subject to fair value exclude finance leases. Previously, certain consumer financing products in Europe were classified as retail installment contracts. These products are now classified as finance leases
. Comparative information has been revised to reflect this change.
|
| |
(b) | The fair value of finance receivables is categorized within Level 3 of the hierarchy. |
Ford Credit’s finance leases are comprised of sales-type and direct financing leases. These financings include primarily lease plans for terms of 24 to 60 months. Financing revenue from finance leases was $375 million and $380 million for the years ended December 31, 20182019, 2020, and 2019,2021, was $380 million, $357 million, and $345 million, respectively, and is included in Ford Credit revenues on theour consolidated income statement.statements.
The amounts contractually due on Ford Credit’s finance lease receivablesleases at December 31 were as follows (in millions): | | | | | | | | |
| | 2021 |
2022 | | $ | 2,190 | |
2023 | | 1,376 | |
2024 | | 897 | |
2025 | | 322 | |
2026 | | 52 | |
Thereafter | | — | |
Total future cash payments | | 4,837 | |
Less: Present value discount | | (206) | |
Finance lease receivables | | $ | 4,631 | |
|
| | | | |
| | 2019 |
2020 | | $ | 1,911 |
|
2021 | | 1,853 |
|
2022 | | 1,418 |
|
2023 | | 673 |
|
2024 | | 83 |
|
Thereafter | | — |
|
Total future cash payments | | 5,938 |
|
Less: Present value discount | | (287 | ) |
Finance lease receivables | | $ | 5,651 |
|
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 10. FORD CREDIT FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES (Continued)
The reconciliation from finance lease receivables to finance leases, gross and finance leases, net at December 31 wasis as follows (in millions): | | | | | | | | | | | |
| 2020 | | 2021 |
Finance lease receivables | $ | 5,436 | | | $ | 4,631 | |
Unguaranteed residual assets | 2,893 | | | 2,605 | |
Initial direct costs | 102 | | | 82 | |
Finance leases, gross | 8,431 | | | 7,318 | |
Unearned interest supplements from Ford and affiliated companies | (337) | | | (274) | |
Allowance for credit losses | (67) | | | (41) | |
Finance leases, net | $ | 8,027 | | | $ | 7,003 | |
|
| | | | |
| | 2019 |
Finance lease receivables | | $ | 5,651 |
|
Unguaranteed residual assets | | 2,795 |
|
Initial direct costs | | 120 |
|
Finance leases, gross | | 8,566 |
|
Unearned interest supplements from Ford and affiliated companies | | (363 | ) |
Allowance for credit losses | | (17 | ) |
Finance leases, net | | $ | 8,186 |
|
At December 31, 20182020 and 2019,2021, accrued interest was $264$181 million and $251$125 million, respectively, which we report in Other assets in the current assets section of our consolidated balance sheet.sheets.
Included in the recorded investment in finance receivables at December 31, 20182020 and 20192021 were consumer receivables of $40.7$43.7 billion and $38.3$39 billion,, respectively, and non-consumer receivables of $25.7$16.4 billion and $26.8$12 billion,, respectively, that have been sold for legal purposes in securitization transactions but continue to be reported in our consolidated financial statements. The receivables are available only for payment of the debt issued by, and other obligations of, the securitization entities that are parties to those securitization transactions; they are not available to pay the other obligations or the claims of Ford Credit’s other creditors. Ford Credit holds the right to receive the excess cash flows not needed to pay the debt issued by, and other obligations of, the securitization entities that are parties to those securitization transactions (see Note 26)24).
Aging
For all finance receivables, Ford Credit defines “past due” as any payment, including principal and interest, that is at least 31 days past the contractual due date. The recorded investment of consumer receivables greater than 90 days past due and still accruing interest was $20 million at December 31, 2018. At December 31, 2019, there were no balances greater than 90 days past due that were still accruing interest.
The aging analysis of Ford Credit’s finance receivables balances at December 31 was as follows (in millions):
|
| | | | | | | |
| 2018 | | 2019 |
Consumer | | | |
31-60 days past due | $ | 859 |
| | $ | 839 |
|
61-90 days past due | 123 |
| | 126 |
|
91-120 days past due | 39 |
| | 40 |
|
Greater than 120 days past due | 39 |
| | 35 |
|
Total past due | 1,060 |
| | 1,040 |
|
Current | 75,054 |
| | 72,842 |
|
Consumer finance receivables | 76,114 |
| | 73,882 |
|
| | | |
Non-Consumer | | | |
Total past due | 76 |
| | 62 |
|
Current | 34,296 |
| | 33,923 |
|
Non-Consumer finance receivables | 34,372 |
| | 33,985 |
|
Total recorded investment | $ | 110,486 |
| | $ | 107,867 |
|
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 10. FORD CREDIT FINANCE RECEIVABLES (Continued)
Credit Quality
Consumer Portfolio
Consumer Portfolio
.
When originating consumer receivables, Ford Credit uses a proprietary scoring system that measures credit quality using information in the credit application, proposed contract terms, credit bureau data, and other information. After a proprietary risk score is generated, Ford Credit decides whether to originate a contract using a decision process based on a judgmental evaluation of the applicant, the credit application, the proposed contract terms, credit bureau information (e.g., FICO score), proprietary risk score, and other information. The evaluation emphasizes the applicant’s ability to pay and creditworthiness focusing on payment, affordability, applicant credit history, and stability as key considerations.
After origination, Ford Credit reviews the credit quality of retail financing based on customer payment activity. As each customer develops a payment history, an internally developed behavioral scoring model is used to assist in determining the best collection strategies, which allows Ford Credit to focus collection activity on higher-risk accounts. These models are used to refine ourFord Credit’s risk-based staffing model to ensure collection resources are aligned with portfolio risk. Based on data from this scoring model, contracts are categorized by collection risk. Ford Credit’s collection models evaluate several factors, including origination characteristics, updated credit bureau data, and payment patterns.
Credit quality ratings for consumer receivables are based on aging. Consumer receivables credit quality ratings are as follows:
| |
• | Pass – current to 60 days past due;
|
| |
• | Special Mention – 61 to 120 days past due and in intensified collection status; and
|
| |
• | Substandard – greater than 120 days past due and for which the uncollectible portion of the receivables has already been charged off, as measured using the fair value of collateral less costs to sell.
|
•Pass – current to 60 days past due;
•Special Mention – 61 to 120 days past due and in intensified collection status; and
•Substandard – greater than 120 days past due and for which the uncollectible portion of the receivables has already been charged off, as measured using the fair value of collateral less costs to sell.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 10. FORD CREDIT FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES (Continued)
The credit quality analysis of consumer receivables at December 31, 2020 was as follows (in millions): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amortized Cost Basis by Origination Year | | | | |
| Prior to 2016 | | 2016 | | 2017 | | 2018 | | 2019 | | 2020 | | Total | | Percent |
Consumer | | | | | | | | | | | | | | | |
31 - 60 days past due | $ | 45 | | | $ | 62 | | | $ | 103 | | | $ | 162 | | | $ | 166 | | | 143 | | $ | 681 | | | 0.9 | % |
61 - 120 days past due | 7 | | | 12 | | | 24 | | | 44 | | | 45 | | | 31 | | | 163 | | | 0.2 | |
Greater than 120 days past due | 11 | | | 6 | | | 7 | | | 8 | | | 7 | | | 2 | | | 41 | | | — | |
Total past due | 63 | | | 80 | | | 134 | | | 214 | | | 218 | | | 176 | | | 885 | | | 1.1 | |
Current | 782 | | | 2,518 | | | 6,648 | | | 13,704 | | | 20,822 | | | 32,716 | | | 77,190 | | | 98.9 | |
Total | $ | 845 | | | $ | 2,598 | | | $ | 6,782 | | | $ | 13,918 | | | $ | 21,040 | | | $ | 32,892 | | | $ | 78,075 | | | 100.0 | % |
The credit quality analysis of consumer receivables at December 31, 2021 was as follows (in millions): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amortized Cost Basis by Origination Year | | | | |
| Prior to 2017 | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | Total | | Percent |
Consumer | | | | | | | | | | | | | | | |
31 - 60 days past due | $ | 39 | | | $ | 52 | | | $ | 98 | | | $ | 120 | | | $ | 186 | | | $ | 91 | | | $ | 586 | | | 0.8 | % |
61 - 120 days past due | 7 | | | 10 | | | 20 | | | 29 | | | 40 | | | 21 | | | 127 | | | 0.2 | |
Greater than 120 days past due | 10 | | | 6 | | | 6 | | | 9 | | | 11 | | | 1 | | | 43 | | | — | |
Total past due | 56 | | | 68 | | | 124 | | | 158 | | | 237 | | | 113 | | | 756 | | | 1.0 | |
Current | 812 | | | 2,607 | | | 6,559 | | | 12,689 | | | 22,701 | | | 27,322 | | | 72,690 | | | 99.0 | |
Total | $ | 868 | | | $ | 2,675 | | | $ | 6,683 | | | $ | 12,847 | | | $ | 22,938 | | | $ | 27,435 | | | $ | 73,446 | | | 100.0 | % |
Non-Consumer Portfolio
.
Ford Credit extends credit to dealers primarily in the form of lines of credit to purchase new Ford and Lincoln vehicles as well as used vehicles. Payment is required when the dealer has sold the vehicle. Each non-consumer lending request is evaluated by considering the borrower’s financial condition and the underlying collateral securing the loan. Ford Credit uses a proprietary model to assign each dealer a risk rating. This model uses historical dealer performance data to identify key factors about a dealer that are considered most significant in predicting a dealer’s ability to meet its financial obligations. Ford Credit also considers numerous other financial and qualitative factors of the dealer’s operations, including capitalization and leverage, liquidity and cash flow, profitability, and credit history with ourselvesFord Credit and other creditors.
Dealers are assigned to one of four groups according to risk ratings as follows:
| |
• | •Group I – strong to superior financial metrics; •Group II – fair to favorable financial metrics; •Group III – marginal to weak financial metrics; and •Group IV – poor financial metrics, including dealers classified as uncollectible.
– strong to superior financial metrics;
|
| |
• | Group II – fair to favorable financial metrics;
|
| |
• | Group III – marginal to weak financial metrics; and
|
| |
• | Group IV – poor financial metrics, including dealers classified as uncollectible.
|
Ford Credit generally suspends credit lines and extendextends no further funding to dealers classified in Group IV.
Ford Credit regularly reviews the model to confirm the continued business significance and statistical predictability of the model and may make updates to improve the performance of the model. In addition, theyFord Credit regularly auditaudits dealer inventory and dealer sales records to verify that the dealer is in possession of the financed vehicles and is promptly paying each receivable following the sale of the financed vehicle. The frequency of on-site vehicle inventory audits depends primarily on the dealer’s risk rating. Under Ford Credit’s policies, on-site vehicle inventory audits of low-risk dealers are conducted only as circumstances warrant. On-site vehicle inventory audits of higher-risk dealers are conducted with increased frequency based primarily on the dealer’s risk rating, but also considering the results of electronic monitoring of the dealer’s performance, including daily payment verifications and monthly analysisanalyses of the dealer’s financial statements, payoffs, aged inventory, over credit line, and delinquency reports. Ford Credit typically performs a credit review of each dealer annually and more frequently reviews certain dealers based on the dealer’s risk rating and total exposure. Ford Credit adjusts the dealer’s risk rating, if necessary.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 10. FORD CREDIT FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES (Continued)
The credit quality of dealer financing receivables is evaluated based on our internal dealer risk rating analysis. A dealer has the same risk rating for its entire dealer financing regardless of the type of financing.
The credit quality analysis of dealer financing receivables at December 31, 2020 was as follows (in millions):
|
| | | | | | | |
| 2018 | | 2019 |
Dealer Financing | | | |
Group I | $ | 27,032 |
| | $ | 26,281 |
|
Group II | 5,635 |
| | 5,407 |
|
Group III | 1,576 |
| | 2,108 |
|
Group IV | 129 |
| | 189 |
|
Total recorded investment | $ | 34,372 |
| | $ | 33,985 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amortized Cost Basis by Origination Year | | Wholesale Loans | | | | |
| | Dealer Loans | | | | | |
| | Prior to 2016 | | 2016 | | 2017 | | 2018 | | 2019 | | 2020 | | Total | | | Total | | Percent |
Group I | | $ | 503 | | | $ | 129 | | | $ | 110 | | | $ | 188 | | | $ | 70 | | | $ | 248 | | | $ | 1,248 | | | $ | 13,160 | | | $ | 14,408 | | | 68.9 | % |
Group II | | 38 | | | 20 | | | 11 | | | 35 | | | 3 | | | 87 | | | 194 | | | 4,680 | | | 4,874 | | | 23.3 | |
Group III | | 9 | | | — | | | 3 | | | 19 | | | 3 | | | 35 | | | 69 | | | 1,464 | | | 1,533 | | | 7.3 | |
Group IV | | 2 | | | — | | | — | | | — | | | 2 | | | 6 | | | 10 | | | 83 | | | 93 | | | 0.5 | |
Total (a) | | $ | 552 | | | $ | 149 | | | $ | 124 | | | $ | 242 | | | $ | 78 | | | $ | 376 | | | $ | 1,521 | | | $ | 19,387 | | | $ | 20,908 | | | 100.0 | % |
__________
Impaired Receivables.(a)Impaired consumer receivables include accounts that have been rewritten or modified in reorganization proceedings pursuant to the U.S. Bankruptcy Code that are considered to be Troubled Debt Restructurings (“TDRs”), as well as all accounts greater than 120 daysTotal past due. Impaired non-consumer receivables represent accounts with dealers that have weak or poor financial metrics ordue dealer financing that has been modified in TDRs. The recorded investment of consumer receivables that were impaired at December 31, 20182020 were $99 million.
and2019 was $370 million and $322 million, or 0.5% and 0.4%The credit quality analysis of consumerdealer financing receivables respectively. The recorded investment of non-consumer receivables that were impaired at December 31, 2018and20192021 was $129 million and $189 million, or 0.4% and 0.6% of non-consumer receivables, respectively. Impaired finance receivables are evaluated both collectively and specifically.as follows (in millions): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amortized Cost Basis by Origination Year | | Wholesale Loans | | | | |
| Dealer Loans | | | | | |
| Prior to 2017 | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | Total | | | Total | | Percent |
Group I | $ | 391 | | | $ | 68 | | | $ | 151 | | | $ | 45 | | | $ | 109 | | | $ | 345 | | | $ | 1,109 | | | $ | 6,751 | | | $ | 7,860 | | | 69.7 | % |
Group II | 11 | | | 7 | | | 26 | | | 2 | | | 4 | | | 54 | | | 104 | | | 2,689 | | | 2,793 | | | 24.8 | |
Group III | 8 | | | — | | | 1 | | | — | | | 1 | | | 20 | | | 30 | | | 529 | | | 559 | | | 4.9 | |
Group IV | — | | | — | | | 4 | | | — | | | — | | | 6 | | | 10 | | | 56 | | | 66 | | | 0.6 | |
Total (a) | $ | 410 | | | $ | 75 | | | $ | 182 | | | $ | 47 | | | $ | 114 | | | $ | 425 | | | $ | 1,253 | | | $ | 10,025 | | | $ | 11,278 | | | 100.0 | % |
__________
(a)Total past due dealer financing receivables at December 31, 2021 were $62 million.
Non-Accrual of Revenue. The accrual of financing revenue is discontinued at the time a receivable is determined to be uncollectible or when it is 90 days past due. Accounts may be restored to accrual status only when a customer settles all past-due deficiency balances and future payments are reasonably assured. For receivables in non-accrual status, subsequent financing revenue is recognized only to the extent a payment is received. Payments are generally applied first to outstanding interest and fees and then to the unpaid principal balance.
Troubled Debt Restructuring (“TDR”).A restructuring of debt constitutes a TDR if a concession is granted to a debtor for economic or legal reasons related to the debtor’s financial difficulties that Ford Credit otherwise would not consider. Consumer and non-consumer receivables that have a modified interest rate below market rate or that were modified in reorganization proceedings pursuant to the U.S. Bankruptcy Code, except non-consumer receivables that are current with minimal risk of loss, are considered to be TDRs. Ford Credit does not grant concessions on the principal balance of ourthe receivables. If a receivable is modified in a reorganization proceeding, all payment requirements of the reorganization plan need to be met before remaining balances are forgiven. Finance receivables involved in TDRs are specifically assessed for impairment.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 11.10. FORD CREDIT FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES(Continued)
Allowance for Credit Losses
The allowance for credit losses represents an estimate of the probablelifetime expected credit losslosses inherent in finance receivables as of the balance sheet date. The adequacy of the allowance for credit losses is assessed quarterly and the assumptions and models used in establishing the allowance are evaluated regularly. Because credit losses may vary substantially over time, estimating credit losses requires a number of assumptions about matters that are uncertain. The majority of credit losses are attributable to Ford Credit’s consumer receivables.
quarterly.
Additions
Adjustments to the allowance for credit losses are made by recording charges to Ford Credit interest, operating, and other expenses on our consolidated income statement.statements. The uncollectible portion of a finance receivables arereceivable is charged to the allowance for credit losses at the earlier of when an account is deemed to be uncollectible or when an account is 120 days delinquent, taking into consideration the financial condition of the customer or borrower, the value of the collateral, recourse to guarantors, and other factors.
Charge-offs on finance receivables include uncollected amounts related to principal, interest, late fees, and other allowable charges. Recoveries on finance receivables previously charged off as uncollectible are credited to the allowance for credit losses. In the event Ford Credit repossesses the collateral, the receivable is charged off and the collateral is recorded at its estimated fair value less costs to sell and reported in Other assets on our consolidated balance sheet. Charge-offs on financesheets.
Consumer Portfolio
For consumer receivables include uncollected amounts related to principal, interest, late fees,that share similar risk characteristics such as product type, initial credit risk, term, vintage, geography, and other allowable charges. Recoveries on finance receivables previously charged off as uncollectible are credited to the allowance for credit losses.
Consumer
relevant factors, Ford Credit estimates the lifetime expected credit loss allowance for credit lossesbased on consumer receivables using a combination ofcollective assessmentusing measurement models and management judgment. The lifetime expected credit losses for the receivables is determined by applying probability of default and loss given default assumption models to monthly expected exposures, then discounting these cash flows to present value using the receivable’s original effective interest rate or the current effective interest rate for a variable rate receivable. Probability of default models are developed from internal risk scoring models taking into account the expected probability of payment and time to default, adjusted for macroeconomic outlook and recent performance. The models consider factors such as risk evaluation at the time of origination, historical trends in credit losses (which include the impact of TDRs), and recoveries (including key metrics such as delinquencies, repossessions, and bankruptcies), the composition and recent performance of the present portfolio (including vehicle brand, term, risk evaluation, and new/used vehicles),. The loss given default is the percentage of the expected balance due at default that is not recoverable, taking into account the expected collateral value and trends in historical used vehicle values,recoveries (including key metrics such as delinquencies, repossessions, and economic conditions. Estimatesbankruptcies). Monthly exposures are equal to the receivables’ expected outstanding principal and interest balance.
The allowance for credit losses incorporates forward-looking macroeconomic conditions for baseline, upturn, and downturn scenarios. Three separate credit loss allowances are calculated from these models rely on historical information and may not fully reflect losses inherentscenarios. They are then probability-weighted to determine the quantitative estimate of the credit loss allowance recognized in the present portfolio. Therefore,financial statements. Ford Credit may adjustuses forecasts from a third party that revert to a long-term historical average after a reasonable and supportable forecasting period, which is specific to the estimateparticular macroeconomic variable and which varies by market. Ford Credit updates the forward-looking macroeconomic forecasts quarterly.
If management 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 recent economic trends and conditions, portfolio composition,performance, and other relevant factors.
On an ongoing basis, Ford Credit makes projectionsreviews its models, including macroeconomic factors, the selection of two key assumptionsmacroeconomic scenarios, and their weighting, to assist in estimatingensure they reflect the consumerrisk of the portfolio.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 10. FORD CREDIT FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES (Continued)
Non-Consumer Portfolio
Dealer financing is evaluated on an individual dealer basis by segmenting dealers by risk characteristics (such as the amount of the loans, the nature of the collateral, the financial status of the dealer, and any TDR modifications) to determine if an individual dealer requires a specific allowance for credit losses:
Frequency - number of finance receivables contracts that are expected to default overloss. If required, the loss emergence period (“LEP”), measured as repossessions; and
Loss severity - expected difference between the amount a customer owes when the finance contract is charged off and the amount received, net of expenses, from selling the repossessed vehicle.
Collective Allowance for Credit Losses. The collective allowance is evaluated primarily usingbased on the present value of the expected future cash flows of the dealer’s receivables discounted at the loans’ original effective interest rate or the fair value of the collateral adjusted for estimated costs to sell.
For the remaining dealer financing, Ford Credit estimates an allowance for credit losses on a collective loss-to-receivables (“LTR”) model that,basis.
Wholesale Loans. Ford Credit estimates the allowance for credit losses for wholesale loans based on historical experience, indicatesloss-to-receivable (“LTR”) ratios, expected future cash flows, and the fair value of collateral. For wholesale loans with similar risk characteristics, the allowance for credit losses have been incurred inis estimated on a collective basis using the portfolio even though the particular accounts that are uncollectible cannot be specifically identified.LTR model and management judgment. The LTR model is based on the most recent years of history. An LTR for each productratio is calculated by dividing credit losses (i.e., charge-offs net of recoveries) by average net finance receivables, excluding unearned interest supplements and allowance for credit losses. The average LTR that is calculated for each productratio is multiplied by the end-of-period balances, for that given product.representing the lifetime expected credit loss reserve.
The largest markets also useDealer Loans. Ford Credit uses a loss projection model to estimate losses inherent in the portfolio. The loss projection model applies recent monthly performance metrics, stratified by contract type (retail installment sale contract or finance lease), contract term (e.g., 60 months), and risk rating to the active portfolioweighted-average remaining maturity method to estimate the losses that have been incurred.
lifetime expected credit loss reserve for dealer loans. The LEPloss model is an assumption within the models and represents the average amount of time between when a loss event first occurs to when it is charged off. This time period starts when the consumer begins to experience financial difficulty. It is evidenced, typically through delinquency, before eventually resulting in a charge-off. The LEP is a multiplier in the calculation of the collective consumer allowance for credit losses.
For accounts greater than 120 days past due, the uncollectible portion is charged off, such that the remaining recorded investment is equal to the estimated fair value of the collateral less costs to sell.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 11. FORD CREDIT ALLOWANCE FOR CREDIT LOSSES (Continued)
Specific Allowance for Impaired Receivables. Consumer receivables involved in TDRs are specifically assessed for impairment. A specific allowance is estimated based on the present value ofindustry-wide commercial real estate credit losses, adjusted to factor in the historical credit losses for the dealer loans portfolio. The expected future cash flows ofcredit loss is calculated under different macroeconomic scenarios that are weighted to provide the receivable discounted at the contract’s original effective interest rate or the fair value of any collateral adjusted for estimated costs to sell.total lifetime expected credit loss.
After establishing the collective and specific allowance for credit losses, if management believes the allowance does not reflect all losses inherent in the portfolio due to changes in recent economic trends and conditions, or other relevant forward-looking economic factors, an adjustment is made based on management judgment.
139
Non-Consumer
Ford Credit estimates the allowance for credit losses for non-consumer receivables based on historical LTR ratios, expected future cash flows, and the fair value of collateral.
Collective Allowance for Credit Losses. Ford Credit estimates an allowance for non-consumer receivables that are not specifically identified as impaired using an LTR model for each financing product based on historical experience. This LTR is an average of the most recent historical experience and is calculated consistent with the consumer receivables LTR approach. All accounts that are specifically identified as impaired are excluded from the calculation of the non-specific or collective allowance.
Specific Allowance for Impaired Receivables. Dealer financing is evaluated by segmenting individual loans by the risk characteristics of the loan (such as the amount of the loan, the nature of the collateral, and the financial status of the debtor). The loans are analyzed to determine whether individual loans are impaired, and a specific allowance is estimated based on the present value of the expected future cash flows of the receivable discounted at the loan’s original effective interest rate or the fair value of the collateral adjusted for estimated costs to sell.
After establishing the collective and the specific allowance for credit losses, if management believes the allowance does not reflect all losses inherent in the portfolio due to changes in recent economic trends and conditions, or other relevant factors, an adjustment is made based on management judgment.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 11.10. FORD CREDIT FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES (Continued)
An analysis of the allowance for credit losses related to finance receivables for the years ended December 31 was as follows (in millions): | | | | | | | | | | | | | | | | | |
| 2020 |
| Consumer | | Non-Consumer | | Total |
Allowance for credit losses | | | | | |
Beginning balance | $ | 496 | | | $ | 17 | | | $ | 513 | |
Adoption of ASU 2016-13 (a) | 247 | | | 5 | | | 252 | |
Charge-offs | (441) | | | (29) | | | (470) | |
Recoveries | 161 | | | 8 | | | 169 | |
Provision for/(Benefit from) credit losses | 771 | | | 57 | | | 828 | |
Other (b) | 11 | | | 2 | | | 13 | |
Ending balance | $ | 1,245 | | | $ | 60 | | | $ | 1,305 | |
|
| | | | | | | | | | | |
| 2018 |
| Consumer | | Non-Consumer | | Total |
Allowance for credit losses | | | | | |
Beginning balance | $ | 582 |
| | $ | 15 |
| | $ | 597 |
|
Charge-offs (a) | (528 | ) | | (67 | ) | | (595 | ) |
Recoveries | 163 |
| | 7 |
| | 170 |
|
Provision for credit losses | 359 |
| | 68 |
| | 427 |
|
Other | (10 | ) | | — |
| | (10 | ) |
Ending balance | $ | 566 |
| | $ | 23 |
| | $ | 589 |
|
| | | | | |
Analysis of ending balance of allowance for credit losses | | | | |
Collective impairment allowance | $ | 546 |
| | $ | 14 |
| | $ | 560 |
|
Specific impairment allowance | 20 |
| | 9 |
| | 29 |
|
Ending balance | 566 |
| | 23 |
| | 589 |
|
| | | | | |
Analysis of ending balance of finance receivables | | | | |
Collectively evaluated for impairment | 75,744 |
| | 34,243 |
| | 109,987 |
|
Specifically evaluated for impairment | 370 |
| | 129 |
| | 499 |
|
Recorded investment | 76,114 |
| | 34,372 |
| | 110,486 |
|
| | | | | |
Ending balance, net of allowance for credit losses | $ | 75,548 |
| | $ | 34,349 |
| | $ | 109,897 |
|
| | | | | | | | | | | | | | | | | |
| 2021 |
| Consumer | | Non-Consumer | | Total |
Allowance for credit losses | | | | | |
Beginning balance | $ | 1,245 | | | $ | 60 | | | $ | 1,305 | |
Charge-offs | (272) | | | (3) | | | (275) | |
Recoveries | 202 | | | 8 | | | 210 | |
Provision for/(Benefit from) credit losses | (270) | | | (40) | | | (310) | |
Other (b) | (2) | | | (3) | | | (5) | |
Ending balance | $ | 903 | | | $ | 22 | | | $ | 925 | |
__________
| |
(a) | Non-consumer charge-offs primarily reflect a U.S. dealer’s floorplan inventory and dealer loan determined to be uncollectible. |
(a)On January 1, 2020, we adopted ASU 2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments, which replaced the incurred loss impairment method with a method that reflects lifetime expected credit losses. We recognized the cumulative effect as a pre-tax adjustment to retained earnings as of January 1, 2020.
|
| | | | | | | | | | | |
| 2019 |
| Consumer | | Non-Consumer | | Total |
Allowance for credit losses | | | | | |
Beginning balance | $ | 566 |
| | $ | 23 |
| | $ | 589 |
|
Charge-offs | (527 | ) | | (22 | ) | | (549 | ) |
Recoveries | 168 |
| | 10 |
| | 178 |
|
Provision for credit losses | 291 |
| | 5 |
| | 296 |
|
Other | (2 | ) | | 1 |
| | (1 | ) |
Ending balance | $ | 496 |
| | $ | 17 |
| | $ | 513 |
|
| | | | | |
Analysis of ending balance of allowance for credit losses | | |
| | |
|
Collective impairment allowance | $ | 478 |
| | $ | 15 |
| | $ | 493 |
|
Specific impairment allowance | 18 |
| | 2 |
| | 20 |
|
Ending balance | 496 |
| | 17 |
| | 513 |
|
| | | | | |
Analysis of ending balance of finance receivables | | |
| | |
|
Collectively evaluated for impairment | 73,560 |
| | 33,796 |
| | 107,356 |
|
Specifically evaluated for impairment | 322 |
| | 189 |
| | 511 |
|
Recorded investment | 73,882 |
| | 33,985 |
| | 107,867 |
|
| | | | | |
Ending balance, net of allowance for credit losses | $ | 73,386 |
| | $ | 33,968 |
| | $ | 107,354 |
|
(b)Primarily represents amounts related to translation adjustments.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
The allowance for credit losses at December 31, 2021 considers the remaining economic uncertainty attributable to the COVID-19 pandemic, including the negative impact to consumer liquidity once economic support programs end, and the pandemic’s effect on the labor market and unemployment.
NOTE 12. INVENTORIES
For the year ended December 31, 2021, the allowance for credit losses decreased $380 million, primarily reflecting improvement in the economic outlook that caused Ford Credit to lower its expectation of lifetime losses attributable to macroeconomic assumptions driven by COVID-19. Although net charge-offs for the year ended December 31, 2021 remained low, due in part to government support programs, changes in consumer spending behavior, and high vehicle auction values, the impact of COVID-19 on future credit losses remains uncertain. Ford Credit will continue to monitor economic trends and conditions and portfolio performance and will adjust the reserve accordingly.
NOTE 11. INVENTORIES
All inventories are stated at the lower of cost or net realizable value. Cost of our inventories is determined by costing methods that approximate a first-in, first-out (“FIFO”) basis. Inventories at December 31 were as follows (in millions): | | | | | | | | | | | |
| 2020 | | 2021 |
Raw materials, work-in-process, and supplies | $ | 4,676 | | | $ | 5,785 | |
Finished products | 6,132 | | | 6,280 | |
Total inventories | $ | 10,808 | | | $ | 12,065 | |
|
| | | | | | | |
| 2018 | | 2019 |
Raw materials, work-in-process, and supplies | $ | 4,536 |
| | $ | 4,402 |
|
Finished products | 6,684 |
| | 6,384 |
|
Total inventories | $ | 11,220 |
| | $ | 10,786 |
|
Finished products at December 31, 2021 in the table above include vehicles completed but awaiting installation of components affected by the semiconductor supply shortage, after which, they will proceed through an additional quality review process prior to being shipped to our dealers.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 13.12. NET INVESTMENT IN OPERATING LEASES
Net investment in operating leases consists primarily of lease contracts for vehicles with individuals, daily rental companies, government entities, and fleet customers. Assets subject to operating leases are depreciated using the straight-line method over the term of the lease to reduce the asset to its estimated residual value. Estimated residual values are based on assumptions for used vehicle prices at lease termination and the number of vehicles that are expected to be returned.
The net investment in operating leases at December 31 was as follows (in millions): | | | | | | | | | | | |
| 2020 | | 2021 |
Company excluding Ford Credit | | | |
Vehicles, net of depreciation | $ | 1,304 | | | $ | 1,194 | |
Ford Credit Segment | | | |
Vehicles and other equipment, at cost (a) | 32,486 | | | 29,982 | |
Accumulated depreciation | (5,839) | | | (4,815) | |
Total Ford Credit Segment | 26,647 | | | 25,167 | |
Total | $ | 27,951 | | | $ | 26,361 | |
__________ (a)Includes Ford Credit’s operating lease assets of $12.8 billion and $7.5 billion at December 31, 2020and2021, respectively, that have been included in securitization transactions. These net investments in operating leases are available only for payment of the debt or other obligations issued or arising in the securitization transactions; they are not available to pay other obligations or the claims of other creditors. |
| | | | | | | |
| 2018 | | 2019 |
Automotive Segment | | | |
Vehicles, net of depreciation | $ | 1,705 |
| | $ | 1,612 |
|
Ford Credit Segment | | | |
Vehicles and other equipment, at cost (a) | 33,557 |
| | 33,386 |
|
Accumulated depreciation | (6,143 | ) | | (5,768 | ) |
Total Ford Credit Segment | 27,414 |
| | 27,618 |
|
Total | $ | 29,119 |
| | $ | 29,230 |
|
__________
| |
(a) | Includes Ford Credit’s operating lease assets of
$16.3 billion and $14.9 billion at December 31, 2018and2019, respectively, that have been included in securitization transactions. These net investments in operating leases are available only for payment of the debt or other obligations issued or arising in the securitization transactions; they are not available to pay other obligations or the claims of other creditors.
|
Ford Credit Segment
Included in Ford Credit interest, operating, and other expense is operating lease depreciation expense, which includes gains and losses on disposal of assets.assets along with fees assessed to a customer at lease termination such as excess wear and use and excess mileage that are considered variable lease payments. Operating lease depreciation expense for the years ended December 31 was as follows (in millions): | | | | | | | | | | | | | | | | | |
| 2019 | | 2020 | | 2021 |
Operating lease depreciation expense | $ | 3,635 | | | $ | 3,235 | | | $ | 1,626 | |
|
| | | | | | | | | | | |
| 2017 | | 2018 | | 2019 |
Operating lease depreciation expense | $ | 4,254 |
| | $ | 3,972 |
| | $ | 3,635 |
|
Included in Ford Credit revenues are rents on operating leases. The amounts contractually due for minimum rentals on operating leases at December 31, 2018 were as follows (in millions):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 2019 | | 2020 | | 2021 | | 2022 | | Thereafter | | Total |
Minimum rentals on operating leases | $ | 4,708 |
| | $ | 2,929 |
| | $ | 1,083 |
| | $ | 83 |
| | $ | 6 |
| | $ | 8,809 |
|
The amounts contractually due on operating leases at December 31,
20192021 were as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | 2023 | | 2024 | | 2025 | | Thereafter | | Total |
Operating lease payments | $ | 3,848 | | | $ | 2,278 | | | $ | 855 | | | $ | 138 | | | $ | 7 | | | $ | 7,126 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | 2021 | | 2022 | | 2023 | | Thereafter | | Total |
Operating lease payments | $ | 4,705 |
| | $ | 2,898 |
| | $ | 1,011 |
| | $ | 78 |
| | $ | 5 |
| | $ | 8,697 |
|
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 13. NET PROPERTY
NOTE 14. NET PROPERTY
Net property is reported at cost, net of accumulated depreciation, which includes impairments. We capitalize new assets when we expect to use the asset for more than one year. Routine maintenance and repair costs are expensed when incurred.
Property and equipment are depreciated primarily using the straight-line method over the estimated useful life of the asset. Useful lives range from 3 years to 3640 years. The estimated useful lives generally are 14.5 years for machinery and equipment, 8 years for software, 30 years for land improvements, and 3640 years for buildings. Tooling generally is amortized over the expected life of a product program using a straight-line method.
Net property at December 31 was as follows (in millions): | | | | | | | | | | | |
| 2020 | | 2021 |
Land | $ | 451 | | | $ | 450 | |
Buildings and land improvements | 12,557 | | | 12,438 | |
Machinery, equipment, and other | 40,463 | | | 39,636 | |
Software | 3,900 | | | 4,598 | |
Construction in progress | 1,718 | | | 2,152 | |
Total land, plant and equipment, and other | 59,089 | | | 59,274 | |
Accumulated depreciation | (32,848) | | | (32,342) | |
Net land, plant and equipment, and other | 26,241 | | | 26,932 | |
Tooling, net of amortization | 10,842 | | | 10,207 | |
Total | $ | 37,083 | | | $ | 37,139 | |
|
| | | | | | | |
| 2018 | | 2019 |
Land | $ | 445 |
| | $ | 421 |
|
Buildings and land improvements | 11,477 |
| | 11,900 |
|
Machinery, equipment, and other | 38,720 |
| | 38,939 |
|
Software | 3,349 |
| | 3,691 |
|
Construction in progress | 2,066 |
| | 1,710 |
|
Total land, plant and equipment, and other | 56,057 |
| | 56,661 |
|
Accumulated depreciation | (30,243 | ) | | (31,020 | ) |
Net land, plant and equipment, and other | 25,814 |
| | 25,641 |
|
Tooling, net of amortization | 10,364 |
| | 10,828 |
|
Total | $ | 36,178 |
| | $ | 36,469 |
|
Property-related expenses, excluding net investment in operating leases, for the years ended December 31 were as follows (in millions): | | | | | | | | | | | | | | | | | |
| 2019 | | 2020 | | 2021 |
Depreciation and other amortization | $ | 3,449 | | | $ | 2,792 | | | $ | 2,986 | |
Tooling amortization | 3,409 | | | 2,747 | | | 2,706 | |
Total (a) | $ | 6,858 | | | $ | 5,539 | | | $ | 5,692 | |
| | | | | |
Maintenance and rearrangement | $ | 1,963 | | | $ | 1,670 | | | $ | 1,940 | |
__________ (a) Includes impairment of held-for-sale long-lived assets in 2019 and 2020. See Note 22 for additional information.
|
| | | | | | | | | | | |
| 2017 | | 2018 | | 2019 |
Depreciation and other amortization | $ | 2,292 |
| | $ | 2,504 |
| | $ | 3,449 |
|
Tooling amortization | 2,695 |
| | 2,909 |
| | 3,409 |
|
Total (a) | $ | 4,987 |
| | $ | 5,413 |
| | $ | 6,858 |
|
| | | | | |
Maintenance and rearrangement | $ | 1,970 |
| | $ | 1,994 |
| | $ | 1,963 |
|
142
__________
| |
(a) | Includes impairment of held-for-sale long-lived assets in 2019. See Note 24 for additional information. |
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 15.14. EQUITY IN NET ASSETS OF AFFILIATED COMPANIES
We use the equity method of accounting for our investments in entities over which we do not have control, but over whose operating and financial policies we are able to exercise significant influence.
Our carrying value and ownership percentages of our equity method investments at December 31 were as follows
(in (in millions, except percentages):
| | | | | | | | | | | | | | | | | |
| Investment Balance | | Ownership Percentage |
| 2020 | | 2021 | | 2021 |
Argo AI, LLC (see Note 22) | $ | 2,368 | | | $ | 2,042 | | | 41 | % |
Changan Ford Automobile Corporation, Limited (a) | 691 | | | 860 | | | 50 | |
Jiangling Motors Corporation, Limited (a) (b) | 592 | | | 468 | | | 32 | |
AutoAlliance (Thailand) Co., Ltd. | 428 | | | 391 | | | 50 | |
Ford Otomotiv Sanayi Anonim Sirketi | 328 | | | 278 | | | 41 | |
Ford Sollers Netherlands B.V. (see Note 21) | 75 | | | 108 | | | 49 | |
FFS Finance South Africa (Pty) Limited | 76 | | | 70 | | | 50 | |
Ionity Holding GmbH & Co. KG | 52 | | | 41 | | | 20 | |
Getrag Ford Transmissions GmbH (a) (b) (See Note 22) | 131 | | | — | | | 50 | |
Other | 160 | | | 287 | | | Various |
Total | $ | 4,901 | | | $ | 4,545 | | | |
__________(a)In 2020, Changan Ford Automobile Corporation, Limited, Jiangling Motors Corporation, Limited, and Getrag Ford Transmissions GmbH recorded restructuring charges, our share of which was $15 million, $40 million, and $91 million, respectively. These charges are included in Equity in net income/(loss) of affiliated companies.
|
| | | | | | | | | | |
| Investment Balance | | Ownership Percentage |
| 2018 | | 2019 | | 2019 |
Changan Ford Automobile Corporation, Limited (a) | $ | 950 |
| | $ | 672 |
| | 50 | % |
Jiangling Motors Corporation, Limited | 543 |
| | 544 |
| | 32 |
|
AutoAlliance (Thailand) Co., Ltd. | 431 |
| | 435 |
| | 50 |
|
Ford Otomotiv Sanayi Anonim Sirketi | 247 |
| | 274 |
| | 41 |
|
Getrag Ford Transmissions GmbH | 236 |
| | 209 |
| | 50 |
|
Ford Sollers Netherlands B.V. (See Note 22) | — |
| | 93 |
| | 49 |
|
FFS Finance South Africa (Pty) Limited | 81 |
| | 88 |
| | 50 |
|
Ionity Holding GmbH & Co. KG | 42 |
| | 58 |
| | 25 |
|
Other | 179 |
| | 146 |
| | Various |
|
Total | $ | 2,709 |
| | $ | 2,519 |
| | |
(b)In 2021, Jiangling Motors Corporation, Limited, and Getrag Ford Transmission GmbH recorded restructuring charges, our share of which was $10 million and $40 million, respectively. These charges are included in Equity in net income/(loss) of affiliated companies.
__________
| |
(a) | In 2019, Changan Ford Automobile Corporation, Limited recorded a long-lived asset impairment charge, our share of which was $99 million and is included in Equity in net income of affiliated companies.
|
We recorded $1.4 billion, $330$244 million,, $180 million, and $244$452 million of dividends from these affiliated companies for the years ended December 31, 2017, 2018,2019, 2020, and 2019,2021, respectively.
A summary of the total financial results, as reported by our equity method investees, in the aggregate at December 31 was as follows (in millions):
|
| | | | | | | | | | | |
Summarized Balance Sheet | 2018 | | 2019 |
Current assets | $ | 8,277 |
| | $ | 8,884 |
|
Non-current assets | 9,733 |
| | 10,381 |
|
Total assets | $ | 18,010 |
| | $ | 19,265 |
|
| | | |
Current liabilities | $ | 9,190 |
| | $ | 9,357 |
|
Non-current liabilities | 3,149 |
| | 4,333 |
|
Total liabilities | $ | 12,339 |
| | $ | 13,690 |
|
| | | |
Equity attributable to noncontrolling interests | $ | 11 |
| | $ | 12 |
|
| | | | | |
| For the years ended December 31, |
Summarized Income Statement | 2017 | | 2018 | | 2019 |
Total revenue | $ | 35,172 |
| | $ | 27,196 |
| | $ | 22,750 |
|
Income before income taxes | 2,980 |
| | 484 |
| | 111 |
|
Net income | 2,584 |
| | 463 |
| | 209 |
|
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 15. EQUITY IN NET ASSETS OF AFFILIATED COMPANIES (Continued)
In the ordinary course of business, we buy/sell various products and services including vehicles, parts, and components to/from our equity method investees. In addition, we receive royalty income.
Transactions with equity method investees reported for the years ended or at December 31 were as follows (in millions): | | | | | | | | | | | | | | | | | |
| For the years ended December 31, |
Income Statement | 2019 | | 2020 | | 2021 |
Sales | $ | 3,541 | | | $ | 4,126 | | | $ | 4,777 | |
Purchases | 10,106 | | | 8,439 | | | 9,245 | |
Royalty income | 250 | | | 381 | | | 458 | |
| | | | | | | | | | | |
Balance Sheet | 2020 | | 2021 |
Receivables | $ | 795 | | | $ | 724 | |
Payables | 928 | | | 1,035 | |
|
| | | | | | | | | | | |
| For the years ended December 31, |
Income Statement | 2017 | | 2018 | | 2019 |
Sales | $ | 4,481 |
| | $ | 4,426 |
| | $ | 3,541 |
|
Purchases | 9,422 |
| | 10,477 |
| | 10,106 |
|
Royalty income | 583 |
| | 374 |
| | 250 |
|
|
| | | | | | | |
Balance Sheet | 2018 | | 2019 |
Receivables | $ | 634 |
| | $ | 785 |
|
Payables | 663 |
| | 694 |
|
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 16.15. OTHER INVESTMENTS
We have investments in entities not accounted for under the equity method for which we do not have the ability to exercise significant influence and fair values are not readily available. We have elected to record these investments at cost (less impairment, if any), adjusted for observable price changes in orderly transactions for the identical or a similar investment of the same issuer. We report the carrying value of these investments in Other assets in the non-current assets section of our consolidated balance sheet.sheets. These investments were $250 million$1.7 billion and $1.2$0.9 billion at December 31, 20182020 and 2019,2021, respectively.
The increasedecrease from December 31, 20182020 primarily reflects the reclassification of our investmentsinvestment in Rivian madefrom Other assets to Marketable securities following the Rivian IPO in November 2021. At the time of the IPO, Ford’s investment in Rivian’s preferred shares (including the observable event earlier in 2021 of $902 million) and investment in Rivian’s unsecured senior convertible notes converted to common shares, and we recorded an $8.2 billion unrealized gain during 2019. It also includes adjustments for observable price eventsfourth quarter 2021, reported in Other income/(loss), net on our investments, none of which were material.consolidated income statements.
The cumulative net unrealized gain from adjustments related to Other Investments held on December 31, 2021 is $101 million.
NOTE 17.16. OTHER LIABILITIES AND DEFERRED REVENUE
Other liabilities and deferred revenue at December 31 were as follows (in millions): | | | | | | | | | | | |
| 2020 | | 2021 |
Current | | | |
Dealer and dealers’ customer allowances and claims | $ | 12,702 | | | $ | 8,300 | |
Deferred revenue | 2,161 | | | 2,349 | |
Employee benefit plans | 1,752 | | | 1,687 | |
Accrued interest | 1,215 | | | 888 | |
Operating lease liabilities | 323 | | | 345 | |
OPEB | 339 | | | 332 | |
Pension | 193 | | | 202 | |
Other | 4,960 | | | 4,583 | |
Total current other liabilities and deferred revenue | $ | 23,645 | | | $ | 18,686 | |
| | | |
Non-current | | | |
Pension | $ | 10,738 | | | $ | 8,658 | |
OPEB | 6,236 | | | 5,708 | |
Dealer and dealers’ customer allowances and claims | 3,072 | | | 4,909 | |
Deferred revenue | 4,559 | | | 4,683 | |
Operating lease liabilities | 991 | | | 1,048 | |
Employee benefit plans | 1,074 | | | 1,007 | |
Other | 1,709 | | | 1,692 | |
Total non-current other liabilities and deferred revenue | $ | 28,379 | | | $ | 27,705 | |
|
| | | | | | | |
| 2018 | | 2019 |
Current | | | |
Dealer and dealers’ customer allowances and claims | $ | 11,369 |
| | $ | 13,113 |
|
Deferred revenue | 2,095 |
| | 2,091 |
|
Employee benefit plans | 1,755 |
| | 1,857 |
|
Accrued interest | 988 |
| | 1,128 |
|
OPEB | 339 |
| | 332 |
|
Pension | 204 |
| | 185 |
|
Operating lease liabilities | — |
| | 367 |
|
Other | 3,806 |
| | 3,914 |
|
Total current other liabilities and deferred revenue | $ | 20,556 |
| | $ | 22,987 |
|
| | | |
Non-current | |
| | |
|
Pension | $ | 9,423 |
| | $ | 9,878 |
|
OPEB | 5,220 |
| | 5,740 |
|
Dealer and dealers’ customer allowances and claims | 2,497 |
| | 1,921 |
|
Deferred revenue | 3,985 |
| | 4,191 |
|
Operating lease liabilities | — |
| | 1,047 |
|
Employee benefit plans | 1,080 |
| | 1,104 |
|
Other | 1,383 |
| | 1,443 |
|
Total non-current other liabilities and deferred revenue | $ | 23,588 |
| | $ | 25,324 |
|
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 17. RETIREMENT BENEFITS
NOTE 18. RETIREMENT BENEFITS
Defined benefit pension and OPEB plan obligations are remeasured at least annually as of December 31 based on the present value of projected future benefit payments for all participants for services rendered to date. The measurement of projected future benefits is dependent on the provisions of each specific plan, demographics of the group covered by the plan, and other key measurement assumptions. For plans that provide benefits dependent on salary assumptions, we include a projection of salary growth in our measurements. 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).
Net periodic benefit costs, including service cost, interest cost, and expected return on assets, are determined using assumptions regarding the benefit obligation and the fair value of plan assets (where applicable) as of the beginning of each year. We have elected to use a fair value of plan assets to calculate the expected return on assets in net periodic benefit cost. The funded status of the benefit plans, which represents the difference between the benefit obligation and fair value of plan assets, is calculated on a plan-by-plan basis. The benefit obligation and related funded status are determined using assumptions as of the end of each year. Actuarial gains and losses resulting from plan remeasurement are recognized in net periodic benefit cost in the period of the remeasurement. The impact of a retroactive plan amendment is recorded in Accumulated other comprehensive income/(loss), and is amortized as a component of net periodic cost, generally over the remaining service period of the active employees. The service cost component is included in Cost of sales and Selling, administrative and other expenses. Other components of net periodic benefit cost/(income) are included in Other income/(loss), net on our consolidated income statement.statements.
A curtailment results from an event that significantly reduces the expected years of future service or eliminates the accrual of defined benefits for the future services of a significant number of employees. A curtailment gain is recorded when the employees who are entitled to a benefit terminate their employment, or when a plan suspension or amendment that results in a curtailment gain is adopted. A curtailment loss is recorded when it becomes probable a curtailment loss will occur. We recognize settlement expense when the costs associated with all settlements during the year exceed the interest component of net periodic cost for the affected plan. Expense from curtailments and settlements is recorded in Other income/(loss), net.
Defined Benefit Pension Plans. We have defined benefit pension plans covering hourly and salaried employees in the United States, Canada, United Kingdom, Germany, and other locations. The largest portion of our worldwide obligation is associated with our U.S. plans. Virtually all of our worldwide defined benefit plans are closed to new participants.
In general, our defined benefit pension plans are funded (i.e., have restricted assets from which benefits are paid). Our unfunded defined benefit pension plans are treated on a “pay as you go” basis with benefit payments from general Company cash. These unfunded plans primarily include certain plans in Germany and the U.S. defined benefit plans for senior management.
OPEB. We have defined benefit OPEB plans, primarily certain health care and life insurance benefits, covering hourly and salaried employees in the United States, Canada, and other locations. The largest portion of our worldwide obligation is associated with our U.S. plans. Our OPEB plans are unfunded and the benefits are paid from general Company cash.
Defined Contribution and Savings Plans. We also have defined contribution and savings plans for hourly and salaried employees in the United States and other locations. Company contributions to these plans, if any, are made from general Company cash and are expensed as incurred. The expense for our worldwide defined contribution and savings plans was $377$444 million, $393$398 million,, and $444$432 million for the years ended December 31, 2017, 2018,2019, 2020, and 2019,2021, respectively. This includes the expense for Company-matching contributions to our primary employee savings plan in the United States of $142$143 million,, $143 $146 million,, and $143$152 million for the years ended December 31, 2017, 2018,2019, 2020, and 2019,2021, respectively. The 2019 expense also reflects a one-time contribution of $33 million to certain eligible employees as part of the UAW collective bargaining agreement.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 18.17. RETIREMENT BENEFITS(Continued)
Defined Benefit Plans – Expense and Status
The assumptions used to determine benefit obligation and net periodic benefit cost/(income) were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension Benefits | | | | |
| U.S. Plans | | Non-U.S. Plans | | Worldwide OPEB |
| 2020 | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 |
Weighted Average Assumptions at December 31 | | | | | | | | | | | |
Discount rate | 2.56 | % | | 2.91 | % | | 1.23 | % | | 1.75 | % | | 2.62 | % | | 2.97 | % |
Average rate of increase in compensation | 3.50 | | | 3.50 | | | 3.34 | | | 3.19 | | | 3.44 | | | 3.46 | |
Weighted Average Assumptions Used to Determine Net Benefit Cost for the Year Ended December 31 | | | | | | | | | | | |
Discount rate - Service cost | 3.55 | % | | 3.02 | % | | 1.75 | % | | 1.44 | % | | 3.57 | % | | 3.14 | % |
Effective interest rate on benefit obligation | 2.88 | | | 2.00 | | | 1.46 | | | 1.06 | | | 2.85 | | | 1.96 | |
Expected long-term rate of return on assets | 6.50 | | | 6.00 | | | 3.67 | | | 3.42 | | | — | | | — | |
Average rate of increase in compensation | 3.50 | | | 3.50 | | | 3.37 | | | 3.34 | | | 3.44 | | | 3.44 | |
|
| | | | | | | | | | | | | | | | | |
| Pension Benefits | | | | |
| U.S. Plans | | Non-U.S. Plans | | Worldwide OPEB |
| 2018 | | 2019 | | 2018 | | 2019 | | 2018 | | 2019 |
Weighted Average Assumptions at December 31 | | | | | | | | | | | |
Discount rate | 4.29 | % | | 3.32 | % | | 2.48 | % | | 1.74 | % | | 4.17 | % | | 3.30 | % |
Average rate of increase in compensation | 3.50 |
| | 3.50 |
| | 3.37 |
| | 3.37 |
| | 3.44 |
| | 3.44 |
|
Weighted Average Assumptions Used to Determine Net Benefit Cost for the Year Ended December 31 | | | | | |
| | |
| | |
| | |
|
Discount rate - Service cost | 3.67 | % | | 4.17 | % | | 2.39 | % | | 2.52 | % | | 3.70 | % | | 4.34 | % |
Effective interest rate on benefit obligation | 3.22 |
| | 3.75 |
| | 2.02 |
| | 2.21 |
| | 3.27 |
| | 3.87 |
|
Expected long-term rate of return on assets | 6.75 |
| | 6.75 |
| | 4.51 |
| | 4.18 |
| | — |
| | — |
|
Average rate of increase in compensation | 3.50 |
| | 3.50 |
| | 3.37 |
| | 3.37 |
| | 3.44 |
| | 3.44 |
|
The pre-tax net periodic benefit cost/(income) for our defined benefit pension and OPEB plans for the years ended December 31 was as follows (in millions): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension Benefits | | | | | | |
| U.S. Plans | | Non-U.S. Plans | | Worldwide OPEB |
| 2019 | | 2020 | | 2021 | | 2019 | | 2020 | | 2021 | | 2019 | | 2020 | | 2021 |
Service cost | $ | 474 | | | $ | 520 | | | $ | 526 | | | $ | 506 | | | $ | 529 | | | $ | 557 | | | $ | 43 | | | $ | 47 | | | $ | 49 | |
Interest cost | 1,570 | | | 1,291 | | | 928 | | | 691 | | | 514 | | | 420 | | | 211 | | | 169 | | | 127 | |
Expected return on assets | (2,657) | | | (2,795) | | | (2,728) | | | (1,124) | | | (1,067) | | | (1,130) | | | — | | | — | | | — | |
Amortization of prior service costs/(credits) | 87 | | | 4 | | | 2 | | | 33 | | | 32 | | | 24 | | | (70) | | | (16) | | | (12) | |
Net remeasurement (gain)/loss | (135) | | | 377 | | | (254) | | | 2,084 | | | 499 | | | (3,241) | | | 551 | | | 556 | | | (376) | |
Separation programs/other | 22 | | | 35 | | | 19 | | | 398 | | | 226 | | | 156 | | | — | | | — | | | — | |
Settlements and curtailments | (67) | | | 5 | | | 70 | | | 8 | | | 103 | | | (2) | | | — | | | (2) | | | — | |
Net periodic benefit cost/(income) | $ | (706) | | | $ | (563) | | | $ | (1,437) | | | $ | 2,596 | | | $ | 836 | | | $ | (3,216) | | | $ | 735 | | | $ | 754 | | | $ | (212) | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension Benefits | | | | | | |
| U.S. Plans | | Non-U.S. Plans | | Worldwide OPEB |
| 2017 | | 2018 | | 2019 | | 2017 | | 2018 | | 2019 | | 2017 | | 2018 | | 2019 |
Service cost | $ | 534 |
| | $ | 544 |
| | $ | 474 |
| | $ | 566 |
| | $ | 588 |
| | $ | 506 |
| | $ | 49 |
| | $ | 54 |
| | $ | 43 |
|
Interest cost | 1,525 |
| | 1,466 |
| | 1,570 |
| | 671 |
| | 684 |
| | 691 |
| | 197 |
| | 195 |
| | 211 |
|
Expected return on assets | (2,734 | ) | | (2,887 | ) | | (2,657 | ) | | (1,375 | ) | | (1,295 | ) | | (1,124 | ) | | — |
| | — |
| | — |
|
Amortization of prior service costs/(credits) | 143 |
| | 143 |
| | 87 |
| | 37 |
| | 25 |
| | 33 |
| | (120 | ) | | (109 | ) | | (70 | ) |
Net remeasurement (gain)/loss | (538 | ) | | 1,294 |
| | (135 | ) | | 407 |
| | (76 | ) | | 2,084 |
| | 293 |
| | (366 | ) | | 551 |
|
Separation programs/other | 74 |
| | 53 |
| | 22 |
| | 18 |
| | 103 |
| | 398 |
| | 2 |
| | 1 |
| | — |
|
Settlements and curtailments | (354 | ) | | (15 | ) | | (67 | ) | | (3 | ) | | (2 | ) | | 8 |
| | — |
| | — |
| | — |
|
Net periodic benefit cost/(income) | $ | (1,350 | ) | | $ | 598 |
| | $ | (706 | ) | | $ | 321 |
| | $ | 27 |
| | $ | 2,596 |
| | $ | 421 |
| | $ | (225 | ) | | $ | 735 |
|
As part of our ongoing global redesign activities,In 2019, we recognized separation pensionadditional expense of $415 million and settlement and curtailment gains of $104$361 million related to separation programs, settlements, and curtailments, which included a $57 million settlement loss, offset partially by a $12 million curtailment gain, related to the transfer of our Netherlands pension obligation and related plan assets to an insurance company, and $415 million of separation expenses, partially offset by $104 million of settlement and curtailment gains, related to ongoing redesign programs.
In 2020, we recognized additional expense of $367 million related to separation programs, settlements, and curtailments, which included $61 million of settlement losses related to a non-U.S. pension plan and $268 million related to ongoing redesign programs.
In 2021, we recognized expense of $244 million related to separation programs, settlements, and curtailments, which included $70 million of settlement losses related to a U.S. pension plan and additional separation expense of $156 million in 2019.non-U.S. pension plans related to ongoing redesign programs. Until our global redesign actionsGlobal Redesign programs are completed, we anticipate further adjustments to our plans in subsequent periods.
146
In the fourth quarter of 2019, we transferred our Netherlands pension obligation and related plan assets to an insurance company, resulting in a settlement loss of $57 million, offset partially by a curtailment gain of $12 million.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 18.17. RETIREMENT BENEFITS (Continued)
The year-end status of these plans was as follows (in millions): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | | | |
| | U.S. Plans | | Non-U.S. Plans | | Worldwide OPEB |
| | 2020 | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 |
Change in Benefit Obligation | | | | | | | | | | | | |
Benefit obligation at January 1 | | $ | 45,672 | | | $ | 49,020 | | | $ | 35,373 | | | $ | 39,835 | | | $ | 6,072 | | | $ | 6,575 | |
Service cost | | 520 | | | 526 | | | 529 | | | 557 | | | 47 | | | 49 | |
Interest cost | | 1,291 | | | 928 | | | 514 | | | 420 | | | 169 | | | 127 | |
Amendments | | — | | | — | | | — | | | 4 | | | 21 | | | — | |
Separation programs/other | | (10) | | | (25) | | | 219 | | | 185 | | | — | | | — | |
Curtailments | | — | | | — | | | — | | | (4) | | | — | | | — | |
Settlements | | (25) | | | (1,297) | | | (189) | | | — | | | — | | | — | |
Plan participant contributions | | 23 | | | 20 | | | 14 | | | 13 | | | 21 | | | 21 | |
Benefits paid | | (3,055) | | | (2,522) | | | (1,394) | | | (1,565) | | | (339) | | | (356) | |
Foreign exchange translation | | — | | | — | | | 1,131 | | | (1,432) | | | 28 | | | — | |
Actuarial (gain)/loss | | 4,604 | | | (1,762) | | | 3,638 | | | (3,581) | | | 556 | | | (376) | |
Benefit obligation at December 31 | | 49,020 | | | 44,888 | | | 39,835 | | | 34,432 | | | 6,575 | | | 6,040 | |
Change in Plan Assets | | | | | | | | | | | | |
Fair value of plan assets at January 1 | | 44,253 | | | 48,355 | | | 29,958 | | | 33,820 | | | — | | | — | |
Actual return on plan assets | | 7,018 | | | 1,150 | | | 4,149 | | | 788 | | | — | | | — | |
Company contributions | | 186 | | | 247 | | | 744 | | | 912 | | | — | | | — | |
Plan participant contributions | | 23 | | | 20 | | | 14 | | | 13 | | | — | | | — | |
Benefits paid | | (3,055) | | | (2,522) | | | (1,394) | | | (1,565) | | | — | | | — | |
Settlements | | (25) | | | (1,297) | | | (189) | | | — | | | — | | | — | |
Foreign exchange translation | | — | | | — | | | 547 | | | (855) | | | — | | | — | |
Other | | (45) | | | (44) | | | (9) | | | (28) | | | — | | | — | |
Fair value of plan assets at December 31 | | 48,355 | | | 45,909 | | | 33,820 | | | 33,085 | | | — | | | — | |
Funded status at December 31 | | $ | (665) | | | $ | 1,021 | | | $ | (6,015) | | | $ | (1,347) | | | $ | (6,575) | | | $ | (6,040) | |
| | | | | | | | | | | | |
Amounts Recognized on the Balance Sheets | | | | | | | | | | | | |
Prepaid assets | | $ | 1,578 | | | $ | 3,130 | | | $ | 2,673 | | | $ | 5,404 | | | $ | — | | | $ | — | |
Other liabilities | | (2,243) | | | (2,109) | | | (8,688) | | | (6,751) | | | (6,575) | | | (6,040) | |
Total | | $ | (665) | | | $ | 1,021 | | | $ | (6,015) | | | $ | (1,347) | | | $ | (6,575) | | | $ | (6,040) | |
Amounts Recognized in Accumulated Other Comprehensive Loss (pre-tax) | | | | | | | | | | | | |
Unamortized prior service costs/(credits) | | $ | 4 | | | $ | 2 | | | $ | 206 | | | $ | 170 | | | $ | (11) | | | $ | 22 | |
| | | | | | | | | | | | |
Pension Plans in which Accumulated Benefit Obligation Exceeds Plan Assets at December 31 | | | | | | | | | | | | |
Accumulated benefit obligation | | $ | 2,295 | | | $ | 2,192 | | | $ | 14,595 | | | $ | 12,586 | | | | | |
Fair value of plan assets | | 145 | | | 140 | | | 7,203 | | | 6,835 | | | | | |
| | | | | | | | | | | | |
Accumulated Benefit Obligation at December 31 | | $ | 47,848 | | | $ | 43,879 | | | $ | 36,272 | | | $ | 31,850 | | | | | |
| | | | | | | | | | | | |
Pension Plans in which Projected Benefit Obligation Exceeds Plan Assets at December 31 | | | | | | | | | | | | |
Projected benefit obligation | | $ | 2,389 | | | $ | 2,249 | | | $ | 15,951 | | | $ | 13,651 | | | | | |
Fair value of plan assets | | 145 | | | 140 | | | 7,264 | | | 6,900 | | | | | |
| | | | | | | | | | | | |
Projected Benefit Obligation at December 31 | | $ | 49,020 | | | $ | 44,888 | | | $ | 39,835 | | | $ | 34,432 | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | | | |
| | U.S. Plans | | Non-U.S. Plans | | Worldwide OPEB |
| | 2018 | | 2019 | | 2018 | | 2019 | | 2018 | | 2019 |
Change in Benefit Obligation | | | | | | | | | | | | |
Benefit obligation at January 1 | | $ | 46,340 |
| | $ | 42,269 |
| | $ | 34,098 |
| | $ | 31,079 |
| | $ | 6,169 |
| | $ | 5,559 |
|
Service cost | | 544 |
| | 474 |
| | 588 |
| | 506 |
| | 54 |
| | 43 |
|
Interest cost | | 1,466 |
| | 1,570 |
| | 684 |
| | 691 |
| | 195 |
| | 211 |
|
Amendments | | — |
| | — |
| | 135 |
| | 10 |
| | — |
| | — |
|
Separation programs/other | | 9 |
| | (24 | ) | | 97 |
| | 391 |
| | 1 |
| | 3 |
|
Curtailments | | (15 | ) | | — |
| | (2 | ) | | (43 | ) | | — |
| | — |
|
Settlements | | — |
| | (966 | ) | | (16 | ) | | (272 | ) | | — |
| | — |
|
Plan participant contributions | | 25 |
| | 23 |
| | 19 |
| | 17 |
| | 17 |
| | 3 |
|
Benefits paid | | (2,880 | ) | | (2,615 | ) | | (1,316 | ) | | (1,395 | ) | | (372 | ) | | (367 | ) |
Foreign exchange translation | | — |
| | — |
| | (1,858 | ) | | 501 |
| | (139 | ) | | 69 |
|
Actuarial (gain)/loss | | (3,220 | ) | | 4,941 |
| | (1,350 | ) | | 3,888 |
| | (366 | ) | | 551 |
|
Benefit obligation at December 31 | | 42,269 |
| | 45,672 |
| | 31,079 |
| | 35,373 |
| | 5,559 |
| | 6,072 |
|
Change in Plan Assets | | |
| | |
| | |
| | |
| | |
| | |
|
Fair value of plan assets at January 1 | | 44,160 |
| | 39,774 |
| | 29,657 |
| | 27,273 |
| | — |
| | — |
|
Actual return on plan assets | | (1,627 | ) | | 7,800 |
| | 21 |
| | 2,935 |
| | — |
| | — |
|
Company contributions | | 140 |
| | 284 |
| | 629 |
| | 789 |
| | — |
| | — |
|
Plan participant contributions | | 25 |
| | 23 |
| | 19 |
| | 17 |
| | — |
| | — |
|
Benefits paid | | (2,880 | ) | | (2,615 | ) | | (1,316 | ) | | (1,395 | ) | | — |
| | — |
|
Settlements | | — |
| | (966 | ) | | (16 | ) | | (330 | ) | | — |
| | — |
|
Foreign exchange translation | | — |
| | — |
| | (1,708 | ) | | 678 |
| | — |
| | — |
|
Other | | (44 | ) | | (47 | ) | | (13 | ) | | (9 | ) | | — |
| | — |
|
Fair value of plan assets at December 31 | | 39,774 |
| | 44,253 |
| | 27,273 |
| | 29,958 |
| | — |
| | — |
|
Funded status at December 31 | | $ | (2,495 | ) | | $ | (1,419 | ) | | $ | (3,806 | ) | | $ | (5,415 | ) | | $ | (5,559 | ) | | $ | (6,072 | ) |
| | | | | | | | | | | | |
Amounts Recognized on the Balance Sheet | | |
| | |
| | |
| | |
| | |
| | |
|
Prepaid assets | | $ | 165 |
| | $ | 911 |
| | $ | 3,161 |
| | $ | 2,318 |
| | $ | — |
| | $ | — |
|
Other liabilities | | (2,660 | ) | | (2,330 | ) | | (6,967 | ) | | (7,733 | ) | | (5,559 | ) | | (6,072 | ) |
Total | | $ | (2,495 | ) | | $ | (1,419 | ) | | $ | (3,806 | ) | | $ | (5,415 | ) | | $ | (5,559 | ) | | $ | (6,072 | ) |
Amounts Recognized in Accumulated Other Comprehensive Loss (pre-tax) | | |
| | |
| | |
| | |
| | |
| | |
|
Unamortized prior service costs/(credits) | | $ | 95 |
| | $ | 8 |
| | $ | 285 |
| | $ | 274 |
| | $ | 97 |
| | $ | 29 |
|
| | | | | | | | | | | | |
Pension Plans in which Accumulated Benefit Obligation Exceeds Plan Assets at December 31 | | |
| | |
| | |
| | |
| | |
| | |
|
Accumulated benefit obligation | | $ | 1,965 |
| | $ | 2,141 |
| | $ | 10,904 |
| | $ | 12,421 |
| | |
| | |
|
Fair value of plan assets | | 137 |
| | 156 |
| | 5,232 |
| | 5,948 |
| | |
| | |
|
| | | | | | | | | | | | |
Accumulated Benefit Obligation at December 31 | | $ | 41,312 |
| | $ | 44,578 |
| | $ | 27,787 |
| | $ | 32,106 |
| | |
| | |
|
| | | | | | | | | | | | |
Pension Plans in which Projected Benefit Obligation Exceeds Plan Assets at December 31 | | | | | | | | | | | | |
Projected benefit obligation | | $ | 20,529 |
| | $ | 22,085 |
| | $ | 12,321 |
| | $ | 13,864 |
| | | | |
Fair value of plan assets | | 17,872 |
| | 19,755 |
| | 5,357 |
| | 6,131 |
| | | | |
| | | | | | | | | | | | |
Projected Benefit Obligation at December 31 | | $ | 42,269 |
| | $ | 45,672 |
| | $ | 31,079 |
| | $ | 35,373 |
| | | | |
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 18.17. RETIREMENT BENEFITS (Continued)
The actuarial (gain)/loss for our pension benefit obligations in 20182020 and 20192021 was primarily related to changes in discount rates.
Pension Plan Contributions
Our policy for funded pension plans is to contribute annually, at a minimum, amounts required by applicable laws and regulations. We may make contributions beyond those legally required.
In 2019,2021, we contributed $730$773 million (including $140 million in discretionary contributions in the United States) to our global funded pension plans and made $342$387 million of benefit payments to participants in unfunded plans. During 2020,2022, we expect to contribute between $600 million and $800 million of cash to our global funded pension plans. We also expect to make about $300$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 contribute tofund our major U.S. pension plans in 2020.2022.
Expected Future Benefit Payments
The expected future benefit payments at December 31, 20192021 were as follows (in millions): | | | | | | | | | | | | | | | | | | | | |
| | Benefit Payments |
| | Pension | | |
| | U.S. Plans | | Non-U.S. Plans | | Worldwide OPEB |
2022 | | $ | 2,700 | | | $ | 1,490 | | | $ | 335 | |
2023 | | 2,670 | | | 1,350 | | | 330 | |
2024 | | 2,680 | | | 1,360 | | | 330 | |
2025 | | 2,680 | | | 1,380 | | | 330 | |
2026 | | 2,650 | | | 1,380 | | | 330 | |
2027-2031 | | 12,805 | | | 7,035 | | | 1,620 | |
|
| | | | | | | | | | | | |
| | Benefit Payments |
| | Pension | | |
| | U.S. Plans | | Non-U.S. Plans | | Worldwide OPEB |
2020 | | $ | 2,820 |
| | $ | 1,440 |
| | $ | 340 |
|
2021 | | 2,790 |
| | 1,240 |
| | 330 |
|
2022 | | 2,770 |
| | 1,250 |
| | 330 |
|
2023 | | 2,780 |
| | 1,260 |
| | 330 |
|
2024 | | 2,810 |
| | 1,280 |
| | 330 |
|
2025-2029 | | 13,970 |
| | 6,670 |
| | 1,630 |
|
Pension Plan Asset Information
Investment ObjectiveObjectives and Strategies. Our investment objectives for the U.S. plans are to minimize the volatility of the value of our U.S. pension assets relative to U.S. pension obligations and to ensure assets are sufficient to pay plan benefits. Our U.S. target asset allocations are 80% fixed income and 20% growth assets (primarily hedge funds, real estate, private equity, and public equity). Our largest non-U.S. plans (United(e.g., United Kingdom and Canada) have similar investment objectives to the U.S. plans.
Investment strategies and policies for the U.S. plans and the largest non-U.S. plans reflect a balance of risk-reducing and return-seeking considerations. The objective of minimizing the volatility of assets relative to obligations is addressed primarily through asset-liability matching, asset diversification, and hedging. The fixed income target asset allocation matches the bond-like and long-dated nature of the pension obligations. Assets are broadly diversified within asset classes to achieve risk-adjusted returns that, in total, lower asset volatility relative to the obligations. Strategies to address the goal of ensuring sufficient assets to pay benefits include target allocations to a broad array of asset classes, and strategies within asset classes that provide adequate returns, diversification, and liquidity.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 18.17. RETIREMENT BENEFITS (Continued)
Derivatives are permitted for fixed income investment and public equity managers to use as efficient substitutes for traditional securities and to manage exposure to interest rate and foreign exchange risks. Interest rate and foreign currency derivative instruments are used for the purpose of hedging changes in the fair value of assets that result from interest rate changes and currency fluctuations. Interest rate derivatives are also are used to adjust portfolio duration. Derivatives may not be used to leverage or to alter the economic exposure to an asset class outside the scope of the mandate an investment manager has been given. Alternative investment managers are permitted to employ leverage (including through the use of derivatives or other tools) that may alter economic exposure.
Alternative investments execute diverse strategies that provide exposure to a broad range of hedge fund strategies, equity investments in private companies, and investments in private property funds.
Significant Concentrations of Risk. Significant concentrations of risk in our plan assets relate to interest rates, growth assets, and operating risks. In order to minimize asset volatility relative to the obligations, the majority of plan assets are allocated to fixed income investments which are exposed to interest rate risk. Rate increases generally will result in a decline in the value of fixed income assets, while reducing the present value of the obligations. Conversely, rate decreases generally will increase the value of fixed income assets, offsetting the related increase in the obligations.
In order to ensure assets are sufficient to pay benefits, a portion of plan assets is allocated to growth assets (primarily hedge funds, real estate, private equity, and public equity) that are expected over time to earn higher returns with more volatility than fixed income investments, which more closely match pension obligations. Within growth assets, risk is mitigated by constructing a portfolio that is broadly diversified by asset class, investment strategy, manager, style, and process.
Operating risks include the risks of inadequate diversification and weak controls. To mitigate these risks, investments are diversified across and within asset classes in support of investment objectives. Policies and practices to address operating risks include ongoing manager oversight (e.g., style adherence, team strength, firm health, and internal risk controls), plan and asset class investment guidelines and instructions that are communicated to managers, and periodic compliance reviews to ensure adherence.
At year-end 2019,2021, Ford securities comprised less than 1% of our plan assets.
Expected Long-Term Rate of Return on Assets. The long-term return assumption at year-end 20192021 is 6.50%5.75% for the U.S. plans, 3.50%3.00% for the U.K. plans, and 4.75%4.11% for the Canadian plans, and averages 3.67%3.29% for all non-U.S. plans. A generally consistent approach is used worldwide to develop this assumption. This approach considers primarily inputs from a range of advisors for long-term capital market returns, inflation, bond yields, and other variables, adjusted for specific aspects of our investment strategy by plan. Historical returns also are considered where appropriate. The assumption is based on consideration of all inputs, with a focus on long-term trends to avoid short-term market influences.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 18.17. RETIREMENT BENEFITS (Continued)
The fair value of our defined benefit pension plan assets (including dividends and interest receivables of $340$317 million and $115$102 million for U.S. and non-U.S. plans, respectively) by asset category at December 31 was as follows (in millions): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 |
| U.S. Plans | | Non-U.S. Plans |
| Level 1 | | Level 2 | | Level 3 | | Assets measured at NAV (a) | | Total | | Level 1 | | Level 2 | | Level 3 | | Assets measured at NAV (a) | | Total |
Asset Category | | | | | | | | | | | | | | | | | | | |
Equity | | | | | | | | | | | | | | | | | | | |
U.S. companies | $ | 2,161 | | | $ | 20 | | | $ | — | | | $ | — | | | $ | 2,181 | | | $ | 1,989 | | | $ | 48 | | | $ | — | | | $ | — | | | $ | 2,037 | |
International companies | 1,346 | | | 18 | | | 2 | | | — | | | 1,366 | | | 1,428 | | | 181 | | | 4 | | | — | | | 1,613 | |
Total equity | 3,507 | | | 38 | | | 2 | | | — | | | 3,547 | | | 3,417 | | | 229 | | | 4 | | | — | | | 3,650 | |
Fixed Income | | | | | | | | | | | | | | | | | | | |
U.S. government and agencies | 9,243 | | | 2,177 | | | — | | | — | | | 11,420 | | | — | | | 75 | | | — | | | — | | | 75 | |
Non-U.S. government | — | | | 1,203 | | | 14 | | | — | | | 1,217 | | | — | | | 20,398 | | | — | | | — | | | 20,398 | |
Corporate bonds | — | | | 26,983 | | | — | | | — | | | 26,983 | | | — | | | 3,391 | | | 53 | | | — | | | 3,444 | |
Mortgage/other asset-backed | — | | | 512 | | | — | | | — | | | 512 | | | — | | | 515 | | | 16 | | | — | | | 531 | |
Commingled funds | — | | | 189 | | | — | | | — | | | 189 | | | — | | | 111 | | | — | | | — | | | 111 | |
Derivative financial instruments, net | 1 | | | (95) | | | — | | | — | | | (94) | | | 2 | | | 80 | | | (118) | | | — | | | (36) | |
Total fixed income | 9,244 | | | 30,969 | | | 14 | | | — | | | 40,227 | | | 2 | | | 24,570 | | | (49) | | | — | | | 24,523 | |
Alternatives | | | | | | | | | | | | | | | | | | | |
Hedge funds | — | | | — | | | — | | | 3,258 | | | 3,258 | | | — | | | — | | | — | | | 1,259 | | | 1,259 | |
Private equity | — | | | — | | | — | | | 1,859 | | | 1,859 | | | — | | | — | | | — | | | 729 | | | 729 | |
Real estate | — | | | — | | | — | | | 1,220 | | | 1,220 | | | — | | | — | | | — | | | 323 | | | 323 | |
Total alternatives | — | | | — | | | — | | | 6,337 | | | 6,337 | | | — | | | — | | | — | | | 2,311 | | | 2,311 | |
Cash, cash equivalents, and repurchase agreements (b) | (605) | | | — | | | — | | | — | | | (605) | | | (2,257) | | | — | | | — | | | — | | | (2,257) | |
Other (c) | (1,151) | | | — | | | — | | | — | | | (1,151) | | | (458) | | | — | | | 6,051 | | | — | | | 5,593 | |
Total assets at fair value | $ | 10,995 | | | $ | 31,007 | | | $ | 16 | | | $ | 6,337 | | | $ | 48,355 | | | $ | 704 | | | $ | 24,799 | | | $ | 6,006 | | | $ | 2,311 | | | $ | 33,820 | |
__________
(a)Certain assets that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.
(b)Primarily short-term investment funds to provide liquidity to plan investment managers, cash held to pay benefits, and repurchase agreements valued at $(2.4) billion in U.S. plans and $(2.9) billion in non-U.S. plans.
(c)For U.S. plans, amounts related to net pending security (purchases)/sales and net pending foreign currency purchases/(sales). For non-U.S plans, primarily Ford-Werke, plan assets (insurance contracts valued at $5 billion at year-end 2020) and amounts related to net pending security (purchases)/sales and net pending foreign currency purchases/(sales).
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2018 |
| U.S. Plans | | Non-U.S. Plans |
| Level 1 | | Level 2 | | Level 3 | | Assets measured at NAV (a) | | Total | | Level 1 | | Level 2 | | Level 3 | | Assets measured at NAV (a) | | Total |
Asset Category | | | | | | | | | | | | | | | | | | | |
Equity | | | | | | | | | | | | | | | | | | | |
U.S. companies | $ | 1,246 |
| | $ | 17 |
| | $ | — |
| | $ | — |
| | $ | 1,263 |
| | $ | 1,146 |
| | $ | 103 |
| | $ | — |
| | $ | — |
| | $ | 1,249 |
|
International companies | 787 |
| | 10 |
| | 1 |
| | — |
| | 798 |
| | 894 |
| | 134 |
| | 1 |
| | — |
| | 1,029 |
|
Total equity | 2,033 |
| | 27 |
| | 1 |
| | — |
| | 2,061 |
| | 2,040 |
| | 237 |
| | 1 |
| | — |
| | 2,278 |
|
Fixed Income | |
| | |
| | |
| | | | |
| | | | | | | | | | |
U.S. government and agencies | 7,915 |
| | 2,317 |
| | — |
| | — |
| | 10,232 |
| | 415 |
| | 148 |
| | — |
| | — |
| | 563 |
|
Non-U.S. government | — |
| | 1,073 |
| | — |
| | — |
| | 1,073 |
| | — |
| | 14,871 |
| | — |
| | — |
| | 14,871 |
|
Corporate bonds | — |
| | 19,905 |
| | — |
| | — |
| | 19,905 |
| | — |
| | 2,875 |
| | — |
| | — |
| | 2,875 |
|
Mortgage/other asset-backed | — |
| | 474 |
| | — |
| | — |
| | 474 |
| | — |
| | 286 |
| | — |
| | — |
| | 286 |
|
Commingled funds | — |
| | 94 |
| | — |
| | — |
| | 94 |
| | — |
| | 268 |
| | — |
| | — |
| | 268 |
|
Derivative financial instruments, net | 9 |
| | 43 |
| | — |
| | — |
| | 52 |
| | 13 |
| | (46 | ) | | — |
| | — |
| | (33 | ) |
Total fixed income | 7,924 |
| | 23,906 |
| | — |
| | — |
| | 31,830 |
| | 428 |
| | 18,402 |
| | — |
| | — |
| | 18,830 |
|
Alternatives | |
| | |
| | |
| | | | |
| | | | | | | | | | |
Hedge funds | — |
| | — |
| | — |
| | 3,217 |
| | 3,217 |
| | — |
| | — |
| | — |
| | 1,143 |
| | 1,143 |
|
Private equity | — |
| | — |
| | — |
| | 2,046 |
| | 2,046 |
| | — |
| | — |
| | — |
| | 687 |
| | 687 |
|
Real estate | — |
| | — |
| | — |
| | 1,242 |
| | 1,242 |
| | — |
| | — |
| | — |
| | 413 |
| | 413 |
|
Total alternatives | — |
| | — |
| | — |
| | 6,505 |
| | 6,505 |
| | — |
| | — |
| | — |
| | 2,243 |
| | 2,243 |
|
Cash, cash equivalents, and repurchase agreements (b) | 354 |
| | — |
| | — |
| | — |
| | 354 |
| | (641 | ) | | — |
| | — |
| | — |
| | (641 | ) |
Other (c) | (976 | ) | | — |
| | — |
| | — |
| | (976 | ) | | (685 | ) | | — |
| | 5,248 |
| | — |
| | 4,563 |
|
Total assets at fair value | $ | 9,335 |
| | $ | 23,933 |
| | $ | 1 |
| | $ | 6,505 |
| | $ | 39,774 |
| | $ | 1,142 |
| | $ | 18,639 |
| | $ | 5,249 |
| | $ | 2,243 |
| | $ | 27,273 |
|
_______
| |
(a) | Certain assets that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. |
| |
(b) | Primarily short-term investment funds to provide liquidity to plan investment managers, cash held to pay benefits, and repurchase agreements valued at $(1.7) billion in U.S. plans and $(1.4) billion in non-U.S. plans. |
| |
(c) | For U.S. plans, amounts related to net pending security (purchases)/sales and net pending foreign currency purchases/(sales). For non-U.S plans, primarily Ford-Werke, plan assets (insurance contract valued at $4.3 billion at year-end 2018) and amounts related to net pending security (purchases)/sales and net pending foreign currency purchases/(sales).
|
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 18.17. RETIREMENT BENEFITS (Continued)
The fair value of our defined benefit pension plan assets (including dividends and interest receivables of $322$310 million and $102$96 million for U.S. and non-U.S. plans, respectively) by asset category at December 31 was as follows (in millions): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 |
| U.S. Plans | | Non-U.S. Plans |
| Level 1 | | Level 2 | | Level 3 | | Assets measured at NAV (a) | | Total | | Level 1 | | Level 2 | | Level 3 | | Assets measured at NAV (a) | | Total |
Asset Category | | | | | | | | | | | | | | | | | | | |
Equity | | | | | | | | | | | | | | | | | | | |
U.S. companies | $ | 1,396 | | | $ | 20 | | | $ | — | | | $ | — | | | $ | 1,416 | | | $ | 1,862 | | | $ | 48 | | | $ | — | | | $ | — | | | $ | 1,910 | |
International companies | 740 | | | 8 | | | 8 | | | — | | | 756 | | | 1,254 | | | 59 | | | — | | | — | | | 1,313 | |
Total equity | 2,136 | | | 28 | | | 8 | | | — | | | 2,172 | | | 3,116 | | | 107 | | | — | | | — | | | 3,223 | |
Fixed Income | | | | | | | | | | | | | | | | | | | |
U.S. government and agencies | 9,660 | | | 1,687 | | | — | | | — | | | 11,347 | | | 47 | | | 13 | | | — | | | — | | | 60 | |
Non-U.S. government | — | | | 1,230 | | | 12 | | | — | | | 1,242 | | | — | | | 20,338 | | | 123 | | | — | | | 20,461 | |
Corporate bonds | — | | | 25,842 | | | — | | | — | | | 25,842 | | | — | | | 2,901 | | | 70 | | | — | | | 2,971 | |
Mortgage/other asset-backed | — | | | 464 | | | — | | | — | | | 464 | | | — | | | 338 | | | 15 | | | — | | | 353 | |
Commingled funds | — | | | 164 | | | — | | | — | | | 164 | | | — | | | 185 | | | — | | | — | | | 185 | |
Derivative financial instruments, net | 1 | | | (19) | | | — | | | — | | | (18) | | | (1) | | | 23 | | | 28 | | | — | | | 50 | |
Total fixed income | 9,661 | | | 29,368 | | | 12 | | | — | | | 39,041 | | | 46 | | | 23,798 | | | 236 | | | — | | | 24,080 | |
Alternatives | | | | | | | | | | | | | | | | | | | |
Hedge funds | — | | | — | | | — | | | 3,390 | | | 3,390 | | | — | | | — | | | — | | | 1,221 | | | 1,221 | |
Private equity | 1 | | | — | | | — | | | 1,976 | | | 1,977 | | | — | | | — | | | — | | | 756 | | | 756 | |
Real estate | — | | | — | | | — | | | 1,323 | | | 1,323 | | | — | | | — | | | — | | | 386 | | | 386 | |
Total alternatives | 1 | | | — | | | — | | | 6,689 | | | 6,690 | | | — | | | — | | | — | | | 2,363 | | | 2,363 | |
Cash, cash equivalents, and repurchase agreements (b) | (1,220) | | | — | | | — | | | — | | | (1,220) | | | (1,899) | | | — | | | — | | | — | | | (1,899) | |
Other (c) | (774) | | | — | | | — | | | — | | | (774) | | | (466) | | | — | | | 5,784 | | | — | | | 5,318 | |
Total assets at fair value | $ | 9,804 | | | $ | 29,396 | | | $ | 20 | | | $ | 6,689 | | | $ | 45,909 | | | $ | 797 | | | $ | 23,905 | | | $ | 6,020 | | | $ | 2,363 | | | $ | 33,085 | |
__________
(a)Certain assets that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.
(b)Primarily short-term investment funds to provide liquidity to plan investment managers, cash held to pay benefits, and repurchase agreements valued at $2.9 billion in U.S. plans and $2.6 billion in non-U.S. plans.
(c)For U.S. plans, amounts related to net pending security (purchases)/sales and net pending foreign currency purchases/(sales). For non-U.S plans, $4.7 billion of insurance contracts, primarily Ford-Werke, and amounts related to net pending security (purchases)/sales and net pending foreign currency purchases/(sales).
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2019 |
| U.S. Plans | | Non-U.S. Plans |
| Level 1 | | Level 2 | | Level 3 | | Assets measured at NAV (a) | | Total | | Level 1 | | Level 2 | | Level 3 | | Assets measured at NAV (a) | | Total |
Asset Category | | | | | | | | | | | | | | | | | | | |
Equity | | | | | | | | | | | | | | | | | | | |
U.S. companies | $ | 1,542 |
| | $ | 20 |
| | $ | — |
| | $ | — |
| | $ | 1,562 |
| | $ | 1,059 |
| | $ | 43 |
| | $ | — |
| | $ | — |
| | $ | 1,102 |
|
International companies | 971 |
| | 9 |
| | 1 |
| | — |
| | 981 |
| | 850 |
| | 58 |
| | 3 |
| | — |
| | 911 |
|
Total equity | 2,513 |
| | 29 |
| | 1 |
| | — |
| | 2,543 |
| | 1,909 |
| | 101 |
| | 3 |
| | — |
| | 2,013 |
|
Fixed Income | |
| | |
| | |
| | | | |
| | | | | | | | | | |
|
U.S. government and agencies | 8,965 |
| | 2,823 |
| | — |
| | — |
| | 11,788 |
| | 380 |
| | 94 |
| | — |
| | — |
| | 474 |
|
Non-U.S. government | — |
| | 1,321 |
| | 16 |
| | — |
| | 1,337 |
| | — |
| | 18,256 |
| | — |
| | — |
| | 18,256 |
|
Corporate bonds | — |
| | 23,717 |
| | — |
| | — |
| | 23,717 |
| | — |
| | 3,089 |
| | 35 |
| | — |
| | 3,124 |
|
Mortgage/other asset-backed | — |
| | 527 |
| | — |
| | — |
| | 527 |
| | — |
| | 565 |
| | 69 |
| | — |
| | 634 |
|
Commingled funds | — |
| | 191 |
| | — |
| | — |
| | 191 |
| | — |
| | 174 |
| | 1 |
| | — |
| | 175 |
|
Derivative financial instruments, net | (9 | ) | | (147 | ) | | — |
| | — |
| | (156 | ) | | 15 |
| | 103 |
| | (56 | ) | | — |
| | 62 |
|
Total fixed income | 8,956 |
| | 28,432 |
| | 16 |
| | — |
| | 37,404 |
| | 395 |
| | 22,281 |
| | 49 |
| | — |
| | 22,725 |
|
Alternatives | |
| | |
| | |
| | | | |
| | | | | | | | | | |
|
Hedge funds | — |
| | — |
| | — |
| | 2,961 |
| | 2,961 |
| | — |
| | — |
| | — |
| | 1,207 |
| | 1,207 |
|
Private equity | — |
| | — |
| | — |
| | 1,884 |
| | 1,884 |
| | — |
| | — |
| | — |
| | 695 |
| | 695 |
|
Real estate | — |
| | — |
| | — |
| | 1,193 |
| | 1,193 |
| | — |
| | — |
| | — |
| | 325 |
| | 325 |
|
Total alternatives | — |
| | — |
| | — |
| | 6,038 |
| | 6,038 |
| | — |
|
| — |
|
| — |
|
| 2,227 |
| | 2,227 |
|
Cash, cash equivalents, and repurchase agreements (b) | (195 | ) | | — |
| | — |
| | — |
| | (195 | ) | | (1,765 | ) | | — |
| | — |
| | — |
| | (1,765 | ) |
Other (c) | (1,537 | ) | | — |
| | — |
| | — |
| | (1,537 | ) | | (762 | ) | | — |
| | 5,520 |
| | — |
| | 4,758 |
|
Total assets at fair value | $ | 9,737 |
| | $ | 28,461 |
| | $ | 17 |
| | $ | 6,038 |
| | $ | 44,253 |
| | $ | (223 | ) | | $ | 22,382 |
| | $ | 5,572 |
| | $ | 2,227 |
| | $ | 29,958 |
|
_______
| |
(a) | Certain assets that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. |
| |
(b) | Primarily short-term investment funds to provide liquidity to plan investment managers, cash held to pay benefits, and repurchase agreements valued at $(1.9) billion in U.S. plans and $(2.5) billion in non-U.S. plans. |
| |
(c) | For U.S. plans, amounts related to net pending security (purchases)/sales and net pending foreign currency purchases/(sales). For non-U.S plans, primarily Ford-Werke, plan assets (insurance contract valued at $4.5 billion at year-end 2019) and amounts related to net pending security (purchases)/sales and net pending foreign currency purchases/(sales).
|
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 18.17. RETIREMENT BENEFITS (Continued)
The following table summarizes the changes in Level 3 defined benefit pension plan assets measured at fair value on a recurring basis for the years ended December 31 (in millions): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 |
| | Return on plan assets | | | | | | |
| Fair Value at January 1 | | Attributable to Assets Held at December 31 | | Attributable to Assets Sold | | Net Purchases/ (Settlements) | | Transfers Into/ (Out of) Level 3 | | Fair Value at December 31 |
U.S. Plans | $ | 17 | | | $ | (2) | | | $ | 1 | | | $ | — | | | $ | — | | | $ | 16 | |
Non-U.S. Plans (a) | 5,572 | | | 473 | | | 1 | | | 1 | | | (41) | | | 6,006 | |
| | | | | | | | | | | |
| 2021 |
| | Return on plan assets | | | | | | |
| Fair Value at January 1 | | Attributable to Assets Held at December 31 | | Attributable to Assets Sold | | Net Purchases/ (Settlements) | | Transfers Into/ (Out of) Level 3 | | Fair Value at December 31 |
U.S. Plans | $ | 16 | | | $ | (2) | | | $ | — | | | $ | 5 | | | $ | 1 | | | $ | 20 | |
Non-U.S. Plans (a) | 6,006 | | | (943) | | | 153 | | | 687 | | | 117 | | | 6,020 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 2018 |
| | Return on plan assets | | | | | | |
| Fair Value at January 1 | | Attributable to Assets Held at December 31 | | Attributable to Assets Sold | | Net Purchases/ (Settlements) | | Transfers Into/ (Out of) Level 3 | | Fair Value at December 31 |
U.S. Plans | $ | 5 |
| | $ | — |
| | $ | (5 | ) | | $ | 4 |
| | $ | (3 | ) | | $ | 1 |
|
Non-U.S. Plans (a) | 5,633 |
| | (384 | ) |
| 1 |
|
| (1 | ) |
| — |
|
| 5,249 |
|
| | | | | | | | | | | |
| 2019 |
| | Return on plan assets | | | | | | |
| Fair Value at January 1 | | Attributable to Assets Held at December 31 | | Attributable to Assets Sold | | Net Purchases/ (Settlements) | | Transfers Into/ (Out of) Level 3 | | Fair Value at December 31 |
U.S. Plans | $ | 1 |
| | $ | 1 |
| | $ | — |
| | $ | 15 |
| | $ | — |
| | $ | 17 |
|
Non-U.S. Plans (a) | 5,249 |
| | 215 |
| | (5 | ) | | 113 |
| | — |
| | 5,572 |
|
(a)Non-U.S. plans, insurance contracts, primarily Ford-Werke plan, valued at $5 billion and $4.7 billion at year-end 2020 and 2021, respectively._______
| |
(a) | Primarily Ford-Werke plan assets (insurance contract valued at $4.3 billion and $4.5 billion at year-end 2018 and 2019, respectively). |
NOTE 19.18. LEASE COMMITMENTS
We lease land, dealership facilities, offices, distribution centers, warehouses, and equipment under agreements with contractual periods ranging from less than one year to 40 years. Many of our leases contain one or more options to extend. In certain dealership lease agreements, we are the tenant and we sublease the site to a dealer. In the event the sublease is terminated, we have the option to terminate the head lease. We include options that we are reasonably certain to exercise in our evaluation of the lease term after considering all relevant economic and financial factors.
Leases that are economically similar to the purchase of an asset are classified as finance leases. The leased (“right-of-use”) assets in finance lease arrangements are reported in Net property on our consolidated balance sheet.sheets. Otherwise, the leases are classified as operating leases and reported in Other assets in the non-current assets section of our consolidated balance sheet.sheets.
For the majority of our leases, commencing on or after January 1, 2019, we do not separate the non-lease components (e.g., maintenance and operating services) from the lease components to which they relate. Instead, non-lease components are included in the measurement of the lease liabilities. However, we do separate lease and non-lease components for contracts containing a significant service component (e.g., energy performance contracts). We calculate the initial lease liability as the present value of fixed payments not yet paid and variable payments that are based on a market rate or an index (e.g., CPI), measured at commencement. The majority of our leases are discounted using our incremental borrowing rate because the rate implicit in the lease is not readily determinable. All other variable payments are expensed as incurred.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 19.18. LEASE COMMITMENTS (Continued)
Lease right-of-use assets and liabilities at December 31 were as follows (in millions): | | | | | | | | | | | | | | |
| | 2020 | | 2021 |
Operating leases | | | | |
Other assets, non-current | | $ | 1,287 | | | $ | 1,337 | |
| | | | |
Other liabilities and deferred revenue, current | | $ | 323 | | | $ | 345 | |
Other liabilities and deferred revenue, non-current | | 991 | | | 1,048 | |
Total operating lease liabilities | | $ | 1,314 | | | $ | 1,393 | |
| | | | |
Finance leases | | | | |
Property and equipment, gross | | $ | 540 | | | $ | 715 | |
Accumulated depreciation | | (50) | | | (68) | |
Property and equipment, net | | $ | 490 | | | $ | 647 | |
| | | | |
Company excluding Ford Credit debt payable within one year | | $ | 46 | | | $ | 76 | |
Company excluding Ford Credit long-term debt | | 368 | | | 489 | |
Total finance lease liabilities | | $ | 414 | | | $ | 565 | |
|
| | | | |
| | 2019 |
Operating leases | | |
Other assets, non-current | | $ | 1,415 |
|
| | |
Other liabilities and deferred revenue, current | | $ | 367 |
|
Other liabilities and deferred revenue, non-current | | 1,047 |
|
Total operating lease liabilities | | $ | 1,414 |
|
| | |
Finance leases | | |
Property and equipment, gross | | $ | 252 |
|
Accumulated depreciation | | (43 | ) |
Property and equipment, net | | $ | 209 |
|
| | |
Automotive debt payable within one year | | $ | 92 |
|
Automotive long-term debt | | 85 |
|
Total finance lease liabilities | | $ | 177 |
|
Minimum non-cancellable operating lease commitments at December 31, 2018 were as follows (in millions):
|
| | | | |
| | Operating Leases |
2019 | | $ | 363 |
|
2020 | | 271 |
|
2021 | | 193 |
|
2022 | | 141 |
|
2023 | | 106 |
|
Thereafter | | 437 |
|
Total | | $ | 1,511 |
|
The amounts contractually due on our lease liabilities as of December 31,
20192021 were as follows (in millions):
| | | | | | | | | | | | | | |
| | Operating Leases (a) | | Finance Leases |
2022 | | $ | 385 | | | $ | 94 | |
2023 | | 307 | | | 88 | |
2024 | | 223 | | | 70 | |
2025 | | 161 | | | 62 | |
2026 | | 128 | | | 57 | |
Thereafter | | 335 | | | 288 | |
Total | | 1,539 | | | 659 | |
Less: Present value discount | | 146 | | | 94 | |
Total lease liabilities | | $ | 1,393 | | | $ | 565 | |
__________
(a) Excludes approximately $252 million in future lease payments for various operating leases commencing in a future period.
|
| | | | | | | | |
| | Operating Leases | | Finance Leases (a) |
2020 | | $ | 406 |
| | $ | 96 |
|
2021 | | 306 |
| | 35 |
|
2022 | | 219 |
| | 21 |
|
2023 | | 156 |
| | 16 |
|
2024 | | 114 |
| | 10 |
|
Thereafter | | 387 |
| | 10 |
|
Total | | 1,588 |
| | 188 |
|
Less: Present value discount | | 174 |
| | 11 |
|
Total lease liabilities | | $ | 1,414 |
| | $ | 177 |
|
_______
| |
(a) | Excludes approximately $400 million in future lease payments for a 20-year finance lease commencing in a future period. |
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 19.18. LEASE COMMITMENTS (Continued)
Supplemental cash flow information related to leases for the yearyears ended December 31 was as follows (in millions): | | | | | | | | | | | | | | | | | | | | |
| | 2019 | | 2020 | | 2021 |
Cash paid for amounts included in the measurement of lease liabilities | | | | | | |
Operating cash flows from operating leases | | $ | 460 | | | $ | 434 | | | $ | 424 | |
Operating cash flows from finance leases | | 6 | | | 15 | | | 14 | |
Financing cash flows from finance leases | | 35 | | | 105 | | | 52 | |
Right-of-use assets obtained in exchange for lease liabilities | | | | | | |
Operating leases | | $ | 527 | | | $ | 304 | | | $ | 441 | |
Finance leases | | 43 | | | 306 | | | 192 | |
|
| | | | |
| | 2019 |
Cash paid for amounts included in the measurement of lease liabilities | | |
Operating cash flows from operating leases | | $ | 460 |
|
Operating cash flows from finance leases | | 6 |
|
Financing cash flows from finance leases | | 35 |
|
Right-of-use assets obtained in exchange for lease liabilities | | |
Operating leases | | $ | 527 |
|
Finance leases | | 43 |
|
The components of lease expense for the yearyears ended December 31 were as follows (in millions): | | | | | | | | | | | | | | | | | | | | |
| | 2019 | | 2020 | | 2021 |
Operating lease expense | | $ | 467 | | | $ | 463 | | | $ | 444 | |
Variable lease expense | | 53 | | | 57 | | | 49 | |
Sublease income | | (16) | | | (14) | | | (16) | |
Finance lease expense | | | | | | |
Amortization of right-of-use assets | | 15 | | | 27 | | | 34 | |
Interest on lease liabilities | | 6 | | | 15 | | | 14 | |
Total lease expense | | $ | 525 | | | $ | 548 | | | $ | 525 | |
|
| | | | |
| | 2019 |
Operating lease expense | | $ | 467 |
|
Variable lease expense | | 53 |
|
Sublease income | | (16 | ) |
Finance lease expense | | |
Amortization of right-of-use assets | | 15 |
|
Interest on lease liabilities | | 6 |
|
Total lease expense | | $ | 525 |
|
The weighted averageweighted-average remaining lease term and weighted averageweighted-average discount rate at December 31 were as follows: | | | | | | | | | | | | | | | | | | | | |
| | 2019 | | 2020 | | 2021 |
Weighted-average remaining lease term (in years) | | | | | | |
Operating leases | | 6.3 | | 6.3 | | 6.0 |
Finance leases | | 3.0 | | 14.8 | | 12.1 |
Weighted-average discount rate | | | | | | |
Operating leases | | 3.4 | % | | 3.8 | % | | 3.3 | % |
Finance leases | | 3.3 | % | | 3.5 | % | | 3.3 | % |
|
| | | |
| | 2019 |
Weighted average remaining lease term (years) | | |
Operating leases | | 6.3 |
|
Finance leases | | 3.0 |
|
Weighted average discount rate | | |
Operating leases | | 3.4 | % |
Finance leases | | 3.3 | % |
NOTE 20.19. DEBT AND COMMITMENTS
Our debt consists of short-term and long-term secured and unsecured debt securities, and secured and unsecured borrowings from banks and other lenders. Debt issuances are placed directly by us or through securities dealers or underwriters and are held by institutional and retail investors. In addition, Ford Credit sponsors securitization programs that provide short-term and long-term asset-backed financing through institutional investors in the U.S. and international capital markets.
Debt is reported on our consolidated balance sheetsheets at par value adjusted for unamortized discount or premium, unamortized issuance costs, and adjustments related to designated fair value hedging (see Note 21)20). Discounts, premiums, and costs directly related to the issuance of debt are capitalized and amortized over the life of the debt or to the put date and are recorded in interest expense using the effective interest method. Gains and losses on the extinguishment of debt are recorded in Other income/(loss), net.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 20.19. DEBT AND COMMITMENTS (Continued)
The carrying value of Automotive,Company debt excluding Ford Credit and OtherFord Credit debt at December 31 was as follows (in millions): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Interest Rates | |
| | | | | Average Contractual | | Average Effective (a) | |
Company excluding Ford Credit | 2020 | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | |
Debt payable within one year | | | | | | | | | | | | |
Short-term | $ | 613 | | | $ | 286 | | | 4.0 | % | | 0.4 | % | | 4.0 | % | | 0.4 | % | |
Long-term payable within one year | | | | | | | | | | | | |
Public unsecured debt securities | 180 | | | 86 | | | | | | | | | | |
U.S. Department of Energy Advanced Technology Vehicles Manufacturing (“DOE ATVM”) Incentive Program | 148 | | | 953 | | | | | | | | | | |
Delayed draw term loan | — | | | 1,500 | | | | | | | | | | |
Other debt | 434 | | | 348 | | | | | | | | | | |
Unamortized (discount)/premium | (1) | | | 2 | | | | | | | | | | |
Total debt payable within one year | 1,374 | | | 3,175 | | | | | | | | | | |
Long-term debt payable after one year | | | | | | | | | | | | |
Public unsecured debt securities | 18,877 | | | 13,643 | | | | | | | | | | |
Convertible notes | — | | | 2,300 | | | | | | | | | | |
Delayed draw term loan | 1,500 | | | — | | | | | | | | | | |
DOE ATVM Incentive Program | 1,064 | | | — | | | | | | | | | | |
U.K. Export Finance Program | 854 | | | 843 | | | | | | | | | | |
Other debt | 768 | | | 768 | | | | | | | | | | |
Unamortized (discount)/premium | (242) | | | (188) | | | | | | | | | | |
Unamortized issuance costs | (188) | | | (166) | | | | | | | | | | |
Total long-term debt payable after one year | 22,633 | | | 17,200 | | | 6.3 | % | (b) | 4.4 | % | (b) | 6.5 | % | (b) | 4.6 | % | (b) |
Total Company excluding Ford Credit | $ | 24,007 | | | $ | 20,375 | | | | | | | | | | |
| | | | | | | | | | | | |
Fair value of Company debt excluding Ford Credit (c) | $ | 27,794 | | | $ | 24,044 | | | | | | | | | | |
| | | | | | | | | | | | |
Ford Credit | | | | | | | | | | | | |
Debt payable within one year | | | | | | | | | | | | |
Short-term | $ | 11,429 | | | $ | 14,810 | | | 1.5 | % | | 1.2 | % | | 1.6 | % | | 1.3 | % | |
Long-term payable within one year | | | | | | | | | | | | |
Unsecured debt | 17,185 | | | 13,660 | | | | | | | | | | |
Asset-backed debt | 21,345 | | | 18,049 | | | | | | | | | | |
Unamortized (discount)/premium | 2 | | | 1 | | | | | | | | | | |
Unamortized issuance costs | (17) | | | (13) | | | | | | | | | | |
Fair value adjustments (d) | 25 | | | 10 | | | | | | | | | | |
Total debt payable within one year | 49,969 | | | 46,517 | | | | | | | | | | |
Long-term debt payable after one year | | | | | | | | | | | | |
Unsecured debt | 54,197 | | | 44,337 | | | | | | | | | | |
Asset-backed debt | 32,276 | | | 26,654 | | | | | | | | | | |
Unamortized (discount)/premium | 28 | | | 28 | | | | | | | | | | |
Unamortized issuance costs | (235) | | | (199) | | | | | | | | | | |
Fair value adjustments (d) | 1,442 | | | 380 | | | | | | | | | | |
Total long-term debt payable after one year | 87,708 | | | 71,200 | | | 2.7 | % | (b) | 2.6 | % | (b) | 2.7 | % | (b) | 2.6 | % | (b) |
Total Ford Credit | $ | 137,677 | | | $ | 117,717 | | | | | | | | | | |
| | | | | | | | | | | | |
Fair value of Ford Credit debt (c) | $ | 139,796 | | | $ | 120,204 | | | | | | | | | | |
__________ (a)Average effective rates reflect the average contractual interest rate plus amortization of discounts, premiums, and issuance costs.
(b)Includes interest on long-term debt payable within one year and after one year.
(c)At December 31, 2020 and 2021, the fair value of debt includes $529 million and $209 million of Company excluding Ford Credit short-term debt and $10.4 billion and $14.1 billion of Ford Credit short-term debt, respectively, carried at cost, which approximates fair value. All other debt is categorized within Level 2 of the fair value hierarchy.
(d)These adjustments are related to hedging activity and include discontinued hedging relationship adjustments of $299 million and $257 million at December 31, 2020 and 2021, respectively. The carrying value of hedged debt was $45.5 billion and $37.5 billion at December 31, 2020 and 2021, respectively.
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | Interest Rates | |
| | | | | Average Contractual | | Average Effective (a) | |
Automotive | 2018 | | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | |
Debt payable within one year | | | | | | | | | | | | |
Short-term | $ | 614 |
| | $ | 315 |
| | 2.9 | % | | 1.5 | % | | 2.9 | % | | 1.5 | % | |
Long-term payable within one year | |
| | |
| | | | | | | | | |
U.S. Department of Energy Advanced Technology Vehicles Manufacturing (“DOE ATVM”) Incentive Program | 591 |
| | 591 |
| | | | | | | | | |
Other debt | 1,125 |
| | 540 |
| | | | | | | | | |
Unamortized (discount)/premium | (16 | ) | | (1 | ) | | | | | | | | | |
Total debt payable within one year | 2,314 |
| | 1,445 |
| | | | | | | | | |
Long-term debt payable after one year | |
| | |
| | | | | | | | | |
Public unsecured debt securities | 9,033 |
| | 10,583 |
| | | | | | | | | |
DOE ATVM Incentive Program | 1,470 |
| | 880 |
| | | | | | | | | |
Delayed draw term loan | — |
| | 1,500 |
| | | | | | | | | |
Other debt | 1,026 |
| | 547 |
| | | | | | | | | |
Unamortized (discount)/premium | (224 | ) | | (161 | ) | | | | | | | | | |
Unamortized issuance costs | (72 | ) | | (116 | ) | | | | | | | | | |
Total long-term debt payable after one year | 11,233 |
| | 13,233 |
| | 5.2 | % | (b) | 5.2 | % | (b) | 5.7 | % | (b) | 5.3 | % | (b) |
Total Automotive | $ | 13,547 |
| | $ | 14,678 |
| | | | | | | | | |
| | | | | | | | | | | | |
Fair value of Automotive debt (c) | $ | 13,319 |
| | $ | 15,606 |
| | | | | | | | | |
| | | | | | | | | | | | |
Ford Credit | |
| | |
| | | | | | | | | |
Debt payable within one year | |
| | |
| | | | | | | | | |
Short-term | $ | 14,705 |
| | $ | 13,717 |
| | 3.5 | % | | 2.8 | % | | 3.5 | % | | 2.8 | % | |
Long-term payable within one year | |
| | |
| | | | | | | | | |
Unsecured debt | 14,373 |
| | 15,062 |
| | | | | | | | | |
Asset-backed debt | 22,130 |
| | 23,609 |
| | | | | | | | | |
Unamortized (discount)/premium | 2 |
| | 1 |
| | | | | | | | | |
Unamortized issuance costs | (16 | ) | | (17 | ) | | | | | | | | | |
Fair value adjustments (d) | (15 | ) | | (1 | ) | | | | | | | | | |
Total debt payable within one year | 51,179 |
| | 52,371 |
| | | | | | | | | |
Long-term debt payable after one year | | | | | | | | | | | | |
Unsecured debt | 52,409 |
| | 55,148 |
| | | | | | | | | |
Asset-backed debt | 36,844 |
| | 32,162 |
| | | | | | | | | |
Unamortized (discount)/premium | — |
| | 6 |
| | | | | | | | | |
Unamortized issuance costs | (195 | ) | | (197 | ) | | | | | | | | | |
Fair value adjustments (d) | (171 | ) | | 539 |
| | | | | | | | | |
Total long-term debt payable after one year | 88,887 |
| | 87,658 |
| | 2.8 | % | (b) | 3.0 | % | (b) | 2.8 | % | (b) | 3.0 | % | (b) |
Total Ford Credit | $ | 140,066 |
| | $ | 140,029 |
| | | | | | | | | |
| | | | | | | | | | | | |
Fair value of Ford Credit debt (c) | $ | 138,809 |
| | $ | 141,678 |
| | | | | | | | | |
| | | | | | | | | | | | |
Other | | | | | | | | | | | | |
Long-term debt payable within one year | $ | — |
| | $ | 130 |
| | | | | | | | | |
Long-term debt payable after one year | | | | | | | | | | | | |
Unsecured debt | 604 |
| | 474 |
| | | | | | | | | |
Unamortized (discount)/premium | (3 | ) | | (3 | ) | | | | | | | | | |
Unamortized issuance costs | (1 | ) | | (1 | ) | | | | | | | | | |
Total long-term debt payable after one year | 600 |
| | 470 |
| | 9.3 | % | (b) | 9.3 | % | (b) | 9.2 | % | (b) | 9.2 | % | (b) |
Total Other | $ | 600 |
| | $ | 600 |
| | | | | | | | | |
| | | | | | | | | | | | |
Fair value of Other debt | $ | 697 |
| | $ | 720 |
| | | | | | | | | |
__________
| |
(a) | Average effective rates reflect the average contractual interest rate plus amortization of discounts, premiums, and issuance costs. |
| |
(b) | Includes interest on long-term debt payable within one year and after one year. |
| |
(c) | At December 31, 2018 and 2019, the fair value of debt includes $458 million and $315 million of Automotive short-term debt and $13.8 billion and $12.8 billion of Ford Credit short-term debt, respectively, carried at cost which approximates fair value. All debt is categorized within Level 2 of the fair value hierarchy. |
| |
(d) | These adjustments relate to designated fair value hedges. The carrying value of hedged debt was $38 billion and $39.4 billion at December 31, 2018 and 2019, respectively. |
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 20.19. DEBT AND COMMITMENTS (Continued)
Cash paid for interest was $1.1$1 billion, $1.2$1.4 billion, and $1$1.9 billion in 2017, 2018,2019, 2020, and 2019,2021, respectively, on Automotive and OtherCompany excluding Ford Credit debt. Cash paid for interest was $2.9$4.1 billion, $3.5$3.4 billion, and $4.1$2.8 billion in 2017, 2018,2019, 2020, and 2019,2021, respectively, on Ford Credit debt.
Maturities
Debt maturities at December 31, 20192021 were as follows (in millions): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | Thereafter | | Adjustments | | Total Debt Maturities |
Company excluding Ford Credit | | | | | | | | | | | | | | | |
Public unsecured debt securities | $ | 86 | | | $ | — | | | $ | — | | | $ | 1,234 | | | $ | 3,972 | | | $ | 10,737 | | | $ | (242) | | | $ | 15,787 | |
DOE ATVM Incentive Program | 953 | | | — | | | — | | | — | | | — | | | — | | | 2 | | | 955 | |
Delayed draw term loan | 1,500 | | | — | | | — | | | — | | | — | | | — | | | — | | | 1,500 | |
Short-term and other debt | 634 | | | 195 | | | 70 | | | 914 | | | 52 | | | 380 | | | (112) | | | 2,133 | |
Total | $ | 3,173 | | | $ | 195 | | | $ | 70 | | | $ | 2,148 | | | $ | 4,024 | | | $ | 11,117 | | | $ | (352) | | | $ | 20,375 | |
| | | | | | | | | | | | | | | |
Ford Credit | | | | | | | | | | | | | | | |
Unsecured debt | $ | 27,761 | | | $ | 11,319 | | | $ | 10,730 | | | $ | 8,870 | | | $ | 5,150 | | | $ | 8,268 | | | $ | 260 | | | $ | 72,358 | |
Asset-backed debt | 18,758 | | | 11,791 | | | 5,207 | | | 6,736 | | | 2,220 | | | 700 | | | (53) | | | 45,359 | |
Total | $ | 46,519 | | | $ | 23,110 | | | $ | 15,937 | | | $ | 15,606 | | | $ | 7,370 | | | $ | 8,968 | | | $ | 207 | | | $ | 117,717 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | Thereafter | | Adjustments | | Total Debt Maturities |
Automotive | | | | | | | | | | | | | | | |
Public unsecured debt securities | $ | — |
| | $ | — |
| | $ | 86 |
| | $ | — |
| | $ | — |
| | $ | 10,497 |
| | $ | (234 | ) | | $ | 10,349 |
|
DOE ATVM Incentive Program | 591 |
| | 591 |
| | 289 |
| | — |
| | — |
| | — |
| | — |
| | 1,471 |
|
Delayed draw term loan | — |
| | — |
| | 1,500 |
| | — |
| | — |
| | — |
| | — |
| | 1,500 |
|
Short-term and other debt | 855 |
| | 128 |
| | 100 |
| | 151 |
| | 30 |
| | 138 |
| | (44 | ) | | 1,358 |
|
Total | $ | 1,446 |
| | $ | 719 |
| | $ | 1,975 |
| | $ | 151 |
| | $ | 30 |
| | $ | 10,635 |
| | $ | (278 | ) | | $ | 14,678 |
|
| | | | | | | | | | | | | | | |
Ford Credit | |
| | |
| | |
| | |
| | |
| | |
| | | | |
|
Unsecured debt | $ | 27,898 |
| | $ | 16,893 |
| | $ | 12,827 |
| | $ | 7,054 |
| | $ | 8,101 |
| | $ | 10,273 |
| | $ | 395 |
| | $ | 83,441 |
|
Asset-backed debt | 24,490 |
| | 14,371 |
| | 8,925 |
| | 3,476 |
| | 2,505 |
| | 2,885 |
| | (64 | ) | | 56,588 |
|
Total | $ | 52,388 |
| | $ | 31,264 |
| | $ | 21,752 |
| | $ | 10,530 |
| | $ | 10,606 |
| | $ | 13,158 |
| | $ | 331 |
| | $ | 140,029 |
|
| | | | | | | | | | | | | | | |
Other | | | | | | | | | | | | | | | |
Unsecured debt | $ | 130 |
| | $ | 180 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 294 |
| | $ | (4 | ) | | $ | 600 |
|
FORD MOTOR COMPANY AND SUBSIDIARIES
AutomotiveNOTES TO THE FINANCIAL STATEMENTS
NOTE 19. DEBT AND COMMITMENTS (Continued)
Company excluding Ford Credit Segment
Public Unsecured Debt Securities
Our public unsecured debt securities outstanding at December 31 were as follows (in millions): | | | | | | | | | | | |
| Aggregate Principal Amount Outstanding |
Title of Security | 2020 | | 2021 |
9.215% Debentures due September 15, 2021 | $ | 180 | | | $ | — | |
8 7/8% Debentures due January 15, 2022 | 86 | | | 86 | |
8.500% Notes due April 21, 2023 | 3,500 | | | — | |
9.000% Notes due April 22, 2025 | 3,500 | | | 1,058 | |
7 1/8% Debentures due November 15, 2025 | 209 | | | 176 | |
0.00% Notes due March 15, 2026 | — | | | 2,300 | |
7 1/2% Debentures due August 1, 2026 | 193 | | | 172 | |
4.346% Notes due December 8, 2026 | 1,500 | | | 1,500 | |
6 5/8% Debentures due February 15, 2028 | 104 | | | 104 | |
6 5/8% Debentures due October 1, 2028 (a) | 638 | | | 446 | |
6 3/8% Debentures due February 1, 2029 (a) | 260 | | | 202 | |
9.30% Notes due March 1, 2030 | 294 | | | 294 | |
9.625% Notes due April 22, 2030 | 1,000 | | | 432 | |
7.45% GLOBLS due July 16, 2031 (a) | 1,794 | | | 1,070 | |
8.900% Debentures due January 15, 2032 | 151 | | | 108 | |
3.25% Notes due February 12, 2032 | — | | | 2,500 | |
9.95% Debentures due February 15, 2032 | 4 | | | 4 | |
4.75% Notes due January 15, 2043 | 2,000 | | | 2,000 | |
7.75% Debentures due June 15, 2043 | 73 | | | 73 | |
7.40% Debentures due November 1, 2046 | 398 | | | 398 | |
5.291% Notes due December 8, 2046 | 1,300 | | | 1,300 | |
9.980% Debentures due February 15, 2047 | 181 | | | 114 | |
6.20% Notes due June 1, 2059 | 750 | | | 750 | |
6.00% Notes due December 1, 2059 | 800 | | | 800 | |
7.70% Debentures due May 15, 2097 | 142 | | | 142 | |
Total public unsecured debt securities | $ | 19,057 | | | $ | 16,029 | |
__________ (a)Listed on the Luxembourg Exchange and on the Singapore Exchange.
|
| | | | | | | |
| Aggregate Principal Amount Outstanding |
Title of Security | 2018 | | 2019 |
8 7/8% Debentures due January 15, 2022 | $ | 86 |
| | $ | 86 |
|
7 1/8% Debentures due November 15, 2025 | 209 |
| | 209 |
|
7 1/2% Debentures due August 1, 2026 | 193 |
| | 193 |
|
6 5/8% Debentures due February 15, 2028 | 104 |
| | 104 |
|
6 5/8% Debentures due October 1, 2028 (a) | 638 |
| | 638 |
|
6 3/8% Debentures due February 1, 2029 (a) | 260 |
| | 260 |
|
7.45% GLOBLS due July 16, 2031 (a) | 1,794 |
| | 1,794 |
|
8.900% Debentures due January 15, 2032 | 151 |
| | 151 |
|
9.95% Debentures due February 15, 2032 | 4 |
| | 4 |
|
7.75% Debentures due June 15, 2043 | 73 |
| | 73 |
|
7.40% Debentures due November 1, 2046 | 398 |
| | 398 |
|
9.980% Debentures due February 15, 2047 | 181 |
| | 181 |
|
7.70% Debentures due May 15, 2097 | 142 |
| | 142 |
|
4.346% Notes due December 8, 2026 | 1,500 |
| | 1,500 |
|
4.75% Notes due January 15, 2043 | 2,000 |
| | 2,000 |
|
5.291% Notes due December 8, 2046 | 1,300 |
| | 1,300 |
|
6.20% Notes due June 1, 2059 | — |
| | 750 |
|
6.00% Notes due December 1, 2059 | — |
| | 800 |
|
Total public unsecured debt securities (b) | $ | 9,033 |
|
| $ | 10,583 |
|
__________
| |
(a) | Listed on the Luxembourg Exchange and on the Singapore Exchange. |
| |
(b) | Excludes 9.215% Debentures due September 15, 2021 with an outstanding balance at December 31, 2019 of $180 million. The proceeds from these securities were on-lent by Ford to Ford Holdings and are reported as Other long-term debt.
|
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 20.19. DEBT AND COMMITMENTS (Continued)
2021 Debt Extinguishment
Pursuant to our November 2021 cash tender offer and December 2021 redemption, we repurchased or redeemed $7.6 billion principal amount of our public unsecured debt securities for an aggregate cost of $9.3 billion (including transaction costs and accrued and unpaid interest payments for such tendered securities).As a result of these transactions, we recorded a pre-tax loss of $1.7 billion (net of unamortized discounts, premiums, and fees) in Other income/(loss), net in the fourth quarter of 2021.
Environmental, Social, Governance (ESG) Bond
In November 2021, we issued $2.5 billion aggregate principal amount of green bonds with an interest rate of 3.250% under our new sustainable financing framework. We are allocating the net proceeds from this issuance to the design, development, and manufacturing of our battery electric vehicles.
Convertible Debt
In March 2021, we issued $2.3 billion aggregate principal amount of unsecured 0% Convertible Senior Notes due 2026, including $300 million aggregate principal amount of such notes pursuant to the exercise in full of the overallotment option granted to the initial purchasers. The notes will not bear regular interest and the principal amount of the notes will not accrete. The total net proceeds from the offering, after deducting debt issuance costs, were approximately $2.267 billion.
Each $1,000 principal amount of the notes will be convertible into 57.1886 shares of our Common Stock, which is equivalent to a conversion price of approximately $17.49 per share, subject to adjustment upon the occurrence of specified events. 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 only under the following circumstances:
•During any fiscal quarter commencing after the fiscal quarter ending on September 30, 2021 (and only during such fiscal quarter), if the last reported sale price of our Common Stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price of the notes on each applicable trading day;
•During the 5 business day period after any 5 consecutive trading day period in which the trading price per $1,000 principal amount of the notes for each day of that 5 consecutive trading day period was less than 98% of the product of the last reported sale price of our Common Stock and the conversion rate of the notes on such trading day;
•If we call any or all of the notes for redemption; or
•Upon the occurrence of specific corporate events such as a change in control or certain beneficial distributions to common stockholders (as set forth in the indenture governing the notes).
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.
We may not redeem the notes prior to March 20, 2024. On or after March 20, 2024, we may redeem all or any portion of the notes for cash equal to 100% of the principal amount of the notes being redeemed if the last reported sale price of our Common Stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period.
If we undergo a fundamental change (e.g., change of control), subject to certain conditions, holders of the notes may require us to repurchase for cash all or any portion of their notes at a repurchase price equal to 100% of the principal amount of the notes. In addition, if specific corporate events occur prior to the maturity date or if we issue a notice of redemption, we will increase the conversion rate by pre-defined amounts for holders who elect to convert their notes in connection with such a corporate event. The conditions allowing holders of the notes to convert were not met in 2021.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 19. DEBT AND COMMITMENTS (Continued)
The notes were issued at par and fees associated with the issuance of these notes are amortized to Interest expense on Company debt excluding Ford Credit over the contractual term of the notes. Amortization of issuance costs was $5 million in 2021. The effective interest rate of the notes is 0.3%.
The total estimated fair value of the notes as of December 31, 2021 was approximately $3.2 billion. The fair value was determined using commonly employed valuation methodologies applying observable market inputs and is classified within Level 2 of the fair value hierarchy.
The notes did not have an impact on our full year 2021 diluted EPS.
DOE ATVM Incentive Program
In September 2009, we entered into a Loan Arrangement and Reimbursement Agreement with the DOE, under which we borrowed through multiple draws $5.9$5.9 billion to finance certain costs for fuel-efficient, advanced-technology vehicles. At December 31, 2019,2021, an aggregate $1.5 billion$953 million was outstanding. In June 2020, the ATVM loan was modified, reducing quarterly principal payments from $148 million to $37 million. The principal amountdeferred portion of the principal payments will be due upon original maturity in June 2022. As a result of our dividend payment in December 2021, the remaining quarterly principal payments revert from $37 million back to $148 million in accordance with the terms of the Loan Arrangement and Reimbursement Agreement. The ATVM loan bears interest at a blended rate based on the U.S. Treasury yield curve at the time each draw was made (with the weighted-average interest rate on all such draws being about 2.3% per annum). The ATVM on the principal amount, and an additional 1.45% per annum on the deferred portion of the principal amount.
U.K. Export Finance Program
In 2020, Ford Motor Company Limited (“Ford of Britain”), our operating subsidiary in the United Kingdom, entered into, and drew in full, a £625 million term loan is repayable in equal quarterly installmentscredit facility with a syndicate of $148banks to support Ford of Britain’s general export activities. Accordingly, U.K. Export Finance (“UKEF”) provided a £500 million, guarantee of the credit facility under its Export Development Guarantee scheme, which began in September 2012 and will end insupports high value commercial lending to U.K. exporters. We have also guaranteed Ford of Britain’s obligations under the credit facility to the lenders. As of December 31, 2021, the full £625 million remained outstanding. This five-year, non-amortizing loan matures on June 2022.30, 2025.
AutomotiveCompany Excluding Ford Credit Facilities
Total Company committed credit lines, excluding Ford Credit, at December 31, 20192021 were $14.9$18.3 billion, consisting of $10.4$13.5 billion of our corporate credit facility, $3.5$2.0 billion of our supplemental revolving credit facility, $1.5 billion of our delayed draw term loan facility, and $1$1.3 billion of local credit facilities. At December 31, 2019,2021, the utilized portion of the corporate credit facility was $27$25 million, representing amounts utilized for letters of credit. At December 31, 2019, the utilizedcredit, 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 was $200 million. The utilized portionfor our affiliates as of our supplemental credit facility is described below.December 31, 2021.
Lenders under our corporate credit facility have commitments to us totaling $13.4$3.4 billion with 25% of the commitments maturing on April 30, 2022September 29, 2024 and 75%$10.1 billion of the commitments maturing on April 30, 2024. WeSeptember 29, 2026. Lenders under our supplemental revolving credit facility have allocated $3$2.0 billion of commitments to Ford Creditmaturing on an irrevocable and exclusive basis to support its liquidity. We would guarantee any borrowings by Ford Credit underSeptember 29, 2024.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 19. DEBT AND COMMITMENTS (Continued)
In September 2021, we amended the corporate and supplemental credit facility.
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 chargefixed-charge coverage ratio, debt-to-equity ratio, and minimum net worth requirements), and credit rating triggers that could limit our ability to obtain funding.funding or trigger early repayment. The corporate credit facility contains a liquidity covenant that requires us to maintain a minimum of $4$4 billion in aggregate of domestic cash, cash equivalents, and loaned and marketable securities and/or availability under the facility. IfThe terms and conditions of the delayed draw term loan (other than 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 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,&P. The following subsidiaries have provided unsecured guarantees to the guarantees of certain subsidiaries will be required.
In 2019, we entered into a $3.5 billion supplemental credit facility. The terms and conditions of the supplemental credit facility are consistent with our corporate credit facility; however, unlike our corporate credit facility, the supplemental credit facility is intended to be utilized and includes a $2 billion revolving facility maturing on April 30, 2022 and a $1.5 billion delayed draw term loan facility maturing on December 31, 2022. We drew all $1.5 billionlenders under the term loan facility in 2019.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.
Ford Credit Segment
Asset-Backed Debt
At December 31, 2019,2021, the carrying value of our asset-backed debt was $56.6$45.4 billion. This secured debt is issued by Ford Credit and includes asset-backed securities used to fund operations and maintain liquidity. Assets securing the related debt issued as part of all our securitization transactions are included in our consolidated results and are based upon the legal transfer of the underlying assets in order to reflect legal ownership and the beneficial ownership of the debt holder. The third-party investors in the securitization transactions have legal recourse only to the assets securing the debt and do not have such recourse to us, except for the customary representation and warranty provisions or when we are counterparty to certain derivative transactions of the special purpose entities (“SPEs”). In addition, the cash flows generated by the assets are restricted only to pay such liabilities; Ford Credit retains the right to residual cash flows. See Note 2624 for additional information.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 20. DEBT AND COMMITMENTS (Continued)
Although not contractually required, we regularly support our wholesale securitization programs by repurchasing receivables of a dealer from a SPE when the dealer’s performance is at risk, which transfers the corresponding risk of loss from the SPE to us. In order to continue to fund the wholesale receivables, we also may contribute additional cash or wholesale receivables if the collateral falls below required levels. There were no balancesThe balance of cash related to these contributions was $25 million and $1,150 million at December 31, 20182020 and 2019. ContributionsDecember 31, 2021, respectively, and ranged from $0 to $179$524 million during 20182020 and therefrom $25 million to $3,700 million during 2021. Cash contributions were none in 2019.higher than a year ago primarily related to lower wholesale receivables as a result of lower dealer inventories due to the semiconductor shortage.
SPEs that are exposed to interest rate or currency risk may reduce their risks by entering into derivative transactions. In certain instances, we have entered into derivative transactions with the counterparty to protect the counterparty from risks absorbed through derivative transactions with the SPEs. Derivative income/(expense) related to the derivative transactions that support Ford Credit’s securitization programs were $60$(75) million, $(17)$(234) million, and $75$41 million for the years ended December 31, 2017, 2018,2019, 2020, and 2019,2021, respectively. See Note 2120 for additional information regarding the accounting for derivatives.
Interest expense on securitization debt was $955 million, $1.4$1.6 billion, $1.2 billion, and $1.6$0.9 billion in 2017, 2018,2019, 2020, and 2019,2021, respectively.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 19. DEBT AND COMMITMENTS (Continued)
The assets and liabilities related to our asset-backed debt arrangements included in our consolidated financial statements at December 31 were as follows (in billions): | | | | | | | | | | | |
| 2020 | | 2021 |
Assets | | | |
Cash and cash equivalents | $ | 3.2 | | | $ | 3.8 | |
Finance receivables, net | 59.6 | | | 50.6 | |
Net investment in operating leases | 12.8 | | | 7.5 | |
| | | |
Liabilities | | | |
Debt (a) | $ | 54.6 | | | $ | 45.4 | |
__________ (a)Debt is net of unamortized discount and issuance costs.
|
| | | | | | | |
| 2018 | | 2019 |
Assets | | | |
Cash and cash equivalents | $ | 3.0 |
| | $ | 3.5 |
|
Finance receivables, net | 66.2 |
| | 64.9 |
|
Net investment in operating leases | 16.3 |
| | 14.9 |
|
| | | |
Liabilities | | | |
Debt (a) | $ | 59.8 |
| | $ | 56.6 |
|
__________
| |
(a) | Debt is net of unamortized discount and issuance costs. |
Committed Credit Facilities
At December 31, 2019,2021, Ford Credit’s committed capacity totaled $42.6$39.8 billion, compared with $41.4$40.6 billion at December 31, 2018.2020. Ford Credit’s committed capacity is primarily comprised of unsecured credit facilities with financial institutions, committed asset-backed security linesfacilities from bank-sponsored commercial paper conduits and other financial institutions and allocated commitments under the corporateunsecured credit facility.
facilities with financial institutions.
NOTE 21.20. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
In the normal course of business, our operations are exposed to global market risks, including the effect of changes in foreign currency exchange rates, certain commodity prices, and interest rates. To manage these risks, we enter into highly effective derivative contracts:
•Foreign currency exchange contracts, including forwards, that are used to manage foreign exchange exposure;
•Commodity contracts, including forwards, that are used to manage commodity price risk;
•Interest rate contracts, including swaps, that are used to manage the effects of interest rate fluctuations; and
•Cross-currency interest rate swap contracts that are used to manage foreign currency and interest rate exposures on foreign-denominated debt.
Our derivatives are over-the-counter customized derivative transactions and are not exchange-traded. We review our hedging program, derivative positions, and overall risk management strategy on a regular basis.
Derivative Financial Instruments and Hedge Accounting. Derivatives are reported on our consolidated balance sheet at fair value and presented on a gross basis. Derivative assets are reported in Other assets and derivative liabilities are reported in Payables and Other liabilities and deferred revenue.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 21. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)
We have elected to apply hedge accounting to certain derivatives. Derivatives that are designated in hedging relationships are evaluated for effectiveness using regression analysis at the time they are designated and throughout the hedge period. Some derivatives do not qualify for hedge accounting; for others, we elect not to apply hedge accounting.
Cash Flow Hedges. Our Automotive segment hasWe have designated certain forward contracts as cash flow hedges of forecasted transactions with exposure to foreign currency exchange and commodity price risks.
Changes in the fair value of cash flow hedges are deferred in Accumulated other comprehensive income/(loss) and are recognized in Cost of sales when the hedged item affects earnings. Our policy is to de-designate foreign currency exchange cash flow hedges prior to the time forecasted transactions are recognized as assets or liabilities on theour consolidated balance sheetsheets and report subsequent changes in fair value through Cost of sales. If it becomes probable that the originally forecasted transaction will not occur, the related amount included in Accumulated other comprehensive income/(loss) is reclassified and recognized in earnings. The cash flows associated with hedges designated until maturity are reported in Net cash provided by/(used in) operating activities on our consolidated statement of cash flows. Our cash flow hedges mature within three years.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 20. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)
Fair Value Hedges. Our Ford Credit segment uses derivatives to reduce the risk of changes in the fair value of debt. We have designated certain receive-fixed, pay-float interest rate and cross-currency interest rate swaps as fair value hedges of fixed-rate debt. The risk being hedged is the risk of changes in the fair value of the hedged debt attributable to changes in the benchmark interest rate. If the hedge relationship is deemed to be highly effective, werate and foreign exchange. We report the changeschange in the fair value of the hedged debt related to the risk being hedgedchange in benchmark interest rate in Ford Credit debt and Ford Credit interest, operating, and other expenses. We report the change in fair value of the hedged debt and hedging instrument related to foreign currency in Other income/(loss), net. Net interest settlements and accruals, and the fair value changes on hedging instruments due to the benchmark interest rate change are reported in Ford Credit interest, operating, and other expenses. The cash flows associated with fair value hedges are reported in Net cash provided by/(used in) operating activities on our consolidated statementstatements of cash flows.
When a fair value hedge is de-designated, or when the derivative is terminated before maturity, the fair value adjustment to the hedged debt continues to be reported as part of the carrying value of the debt and is recognized in Ford Credit interest, operating, and other expenses over its remaining life.
Derivatives Not Designated as Hedging Instruments.Automotive reports For total Company excluding Ford Credit, we report changes in the fair value of derivatives not designated as hedging instruments through Cost of sales. Cash flows associated with non-designated or de-designated derivatives are reported in Net cash provided by/(used in) investing activities on our consolidated statementstatements of cash flows.
Our Ford Credit segment reports the gains/(losses) on derivatives not designated as hedging instruments in Other income/(loss), net. Cash flows associated with non-designated or de-designated derivatives are reported in Net cash provided by/(used in) investing activities on our consolidated statementstatements of cash flows.flows.
Normal Purchases and Normal Sales Classification. We have elected to apply the normal purchases and normal sales classification for physical supply contracts that are entered into for the purpose of procuring commodities to be used in production over a reasonable period in the normal course of our business.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 21.20. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES(Continued)
Income Effect of Derivative Financial Instruments
The gains/(losses), by hedge designation, reported in income for the years ended December 31 were as follows (in millions): | | | | | | | | | | | | | | | | | |
| 2019 | | 2020 | | 2021 |
Cash flow hedges | | | | | |
Reclassified from AOCI to Cost of sales | | | | | |
Foreign currency exchange contracts (a) | $ | 29 | | | $ | (11) | | | $ | (412) | |
Commodity contracts (b) | (32) | | | (55) | | | 132 | |
Fair value hedges | | | | | |
Interest rate contracts | | | | | |
Net interest settlements and accruals on hedging instruments | (16) | | | 290 | | | 393 | |
Fair value changes on hedging instruments | 706 | | | 986 | | | (1,001) | |
Fair value changes on hedged debt | (694) | | | (985) | | | 957 | |
Cross-currency interest rate swap contracts | | | | | |
Net interest settlements and accruals on hedging instruments | — | | | (2) | | | (8) | |
Fair value changes on hedging instruments | — | | | 38 | | | (93) | |
Fair value changes on hedged debt | — | | | (37) | | | 82 | |
Derivatives not designated as hedging instruments | | | | | |
Foreign currency exchange contracts (c) | 84 | | | (310) | | | 375 | |
Cross-currency interest rate swap contracts | (229) | | | 486 | | | (507) | |
Interest rate contracts | (13) | | | (100) | | | (3) | |
Commodity contracts | — | | | 47 | | | 170 | |
Total | $ | (165) | | | $ | 347 | | | $ | 85 | |
__________ (a)For 2019, 2020, and 2021, an $839 million loss, a $198 million gain, and a $453 million loss, respectively, were reported in Other comprehensive income/(loss), net of tax.
(b)For 2019, 2020, and 2021, a $36 million loss, a $9 million gain, and a $284 million gain, respectively, were reported in Other comprehensive income/(loss), net of tax.
(c)For 2019, 2020, and 2021, a $32 million gain, a $228 million loss, and a $230 million gain, respectively, were reported in Cost of sales and a $52 million gain, an $82 million loss, and a $145 million gainwere reported in Other income/(loss), net, respectively.
|
| | | | | | | | | | | |
| 2017 | | 2018 | | 2019 |
Cash flow hedges (a) | | | | | |
Reclassified from AOCI to Cost of sales | | | | | |
Foreign currency exchange contracts | $ | 456 |
| | $ | 50 |
| | $ | 29 |
|
Commodity contracts | — |
| | — |
| | (32 | ) |
Fair value hedges | | | | | |
Interest rate contracts | | | | | |
Net interest settlements and accruals on hedging instruments | 217 |
| | 10 |
| | (16 | ) |
Fair value changes on hedging instruments (b) | (268 | ) | | (155 | ) | | 706 |
|
Fair value changes on hedged debt (b) | 267 |
| | 153 |
| | (694 | ) |
Derivatives not designated as hedging instruments | | | | | |
Foreign currency exchange contracts (c) | (662 | ) | | 398 |
| | 84 |
|
Cross-currency interest rate swap contracts | 103 |
| | (244 | ) | | (229 | ) |
Interest rate contracts | 58 |
| | (84 | ) | | (13 | ) |
Commodity contracts | 74 |
| | (96 | ) | | — |
|
Total | $ | 245 |
| | $ | 32 |
| | $ | (165 | ) |
__________
| |
(a) | For 2017, 2018, and 2019, a $134 million gain, a $288 million gain, and a $839 million loss, respectively, were reported in Other comprehensive income/(loss), net of tax related to foreign currency contracts. For 2019, a $36 million loss was reported in Other comprehensive income/(loss), net of tax related to commodity contracts.
|
| |
(b) | For 2017, the fair value changes on hedging instruments and on hedged debt were reported in Other income/(loss), net; effective 2018, these amounts were reported in Ford Credit interest, operating, and other expenses.
|
| |
(c) | For 2017, 2018, and 2019, a $512 million loss, a $235 million gain, and a $32 million gain were reported in Cost of sales and a $150 million loss, a $163 million gain, and a $52 million gainwere reported in Other income/(loss), net, respectively.
|
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 21.20. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)
Balance Sheet Effect of Derivative Financial Instruments
Derivative assets and liabilities are reported on our consolidated balance sheetsheets at fair value and are presented on a gross basis. The notional amounts of the derivative instruments do not necessarily represent amounts exchanged by the parties and are not a direct measure of our financial exposure. We also enter into master agreements with counterparties that may allow for netting of exposures in the event of default or breach of the counterparty agreement. Collateral represents cash received or paid under reciprocal arrangements that we have entered into with our derivative counterparties, which we do not use to offset our derivative assets and liabilities.
The fair value of our derivative instruments and the associated notional amounts presented gross, at December 31 were as follows (in millions): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | 2021 |
| Notional | | Fair Value of Assets | | Fair Value of Liabilities | | Notional | | Fair Value of Assets | | Fair Value of Liabilities |
Cash flow hedges | | | | | | | | | | | |
Foreign currency exchange contracts | $ | 15,860 | | | $ | 47 | | | $ | 383 | | | $ | 11,534 | | | $ | 74 | | | $ | 346 | |
Commodity contracts | 703 | | | 40 | | | 5 | | | 931 | | | 182 | | | 5 | |
Fair value hedges | | | | | | | | | | | |
Interest rate contracts | 26,924 | | | 1,331 | | | 4 | | | 23,893 | | | 544 | | | 274 | |
Cross-currency interest rate swap contracts | 885 | | | 46 | | | — | | | 885 | | | — | | | 49 | |
Derivatives not designated as hedging instruments | | | | | | | | | | | |
Foreign currency exchange contracts | 25,956 | | | 172 | | | 399 | | | 28,463 | | | 281 | | | 198 | |
Cross-currency interest rate swap contracts | 6,849 | | | 557 | | | 1 | | | 6,533 | | | 117 | | | 61 | |
Interest rate contracts | 70,318 | | | 663 | | | 439 | | | 50,060 | | | 338 | | | 126 | |
Commodity contracts | 599 | | | 74 | | | 4 | | | 997 | | | 54 | | | 11 | |
Total derivative financial instruments, gross (a) (b) | $ | 148,094 | | | $ | 2,930 | | | $ | 1,235 | | | $ | 123,296 | | | $ | 1,590 | | | $ | 1,070 | |
| | | | | | | | | | | |
Current portion | | | $ | 974 | | | $ | 859 | | | | | $ | 924 | | | $ | 535 | |
Non-current portion | | | 1,956 | | | 376 | | | | | 666 | | | 535 | |
Total derivative financial instruments, gross | | | $ | 2,930 | | | $ | 1,235 | | | | | $ | 1,590 | | | $ | 1,070 | |
__________ (a)At December 31, 2020 and 2021, we held collateral of $9 million and $26 million, respectively, and we posted collateral of $96 million and $71 million, respectively.
(b)At December 31, 2020 and 2021, the fair value of assets and liabilities available for counterparty netting was $505 million and $719 million, respectively. All derivatives are categorized within Level 2 of the fair value hierarchy.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 2018 | | 2019 |
| Notional | | Fair Value of Assets | | Fair Value of Liabilities | | Notional | | Fair Value of Assets | | Fair Value of Liabilities |
Cash flow hedges | | | | | | | | | | | |
Foreign currency exchange contracts | $ | 15,972 |
| | $ | 391 |
| | $ | 110 |
| | $ | 15,349 |
| | $ | 47 |
| | $ | 493 |
|
Commodity contracts | 327 |
| | — |
| | 20 |
| | 673 |
| | 5 |
| | 29 |
|
Fair value hedges | |
| | |
| | |
| | | | | | |
Interest rate contracts | 22,989 |
| | 158 |
| | 208 |
| | 26,577 |
| | 702 |
| | 19 |
|
Derivatives not designated as hedging instruments | | | | | | | | | | | |
Foreign currency exchange contracts | 20,695 |
| | 202 |
| | 99 |
| | 19,350 |
| | 58 |
| | 270 |
|
Cross-currency interest rate swap contracts | 5,235 |
| | 232 |
| | 157 |
| | 5,849 |
| | 134 |
| | 67 |
|
Interest rate contracts | 76,904 |
| | 235 |
| | 274 |
| | 68,914 |
| | 275 |
| | 191 |
|
Commodity contracts | 638 |
| | 3 |
| | 45 |
| | 467 |
| | 9 |
| | 9 |
|
Total derivative financial instruments, gross (a) (b) | $ | 142,760 |
| | $ | 1,221 |
| | $ | 913 |
| | $ | 137,179 |
| | $ | 1,230 |
| | $ | 1,078 |
|
| | | | | | | | | | | |
Current portion | | | $ | 681 |
| | $ | 601 |
| | | | $ | 390 |
| | $ | 772 |
|
Non-current portion | | | 540 |
| | 312 |
| | | | 840 |
| | 306 |
|
Total derivative financial instruments, gross | | | $ | 1,221 |
| | $ | 913 |
| | | | $ | 1,230 |
| | $ | 1,078 |
|
__________
| |
(a) | At December 31, 2018 and 2019, we held collateral of $19 million and $18 million, and we posted collateral of $59 million and $78 million, respectively. |
| |
(b) | At December 31, 2018 and 2019, the fair value of assets and liabilities available for counterparty netting was $434 million and $269 million, respectively. All derivatives are categorized within Level 2 of the fair value hierarchy. |
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 22.21. EMPLOYEE SEPARATION ACTIONS AND EXIT AND DISPOSAL ACTIVITIES
We record costs associated with voluntary separations at the time of employee acceptance, unless the acceptance requires explicit approval by the Company. We record costs associated with involuntary separation programs when management has approved the plan for separation, the affected employees are identified, and it is unlikely that actions required to complete the separation plan will change significantly. Costs associated with benefits that are contingent on the employee continuing to provide service are accrued over the required service period.
Automotive Segment
Company Excluding Ford Credit
As previously announced, we are executing a global redesign of our business. Redesign-related
Global Redesign and Other Actions
Employee separation actions and exit and disposal activities includinginclude employee separation costs, payments to dealers and suppliers,facility and other asset-related charges (e.g., impairment, accelerated depreciation), dealer and supplier payments, other statutory and contractual obligations, and other expenses, which are recorded in Cost of sales and Selling, administrative, and other expenses. Below are actions we have initiated, as partprimarily related to the global redesign of the redesign.our business.
Brazil. In February 2019, Ford Motor Company Brasil Ltda. (“Ford Brazil”), our subsidiary in Brazil, committed to a plan to exit the commercial heavy truck business in South America. As a result, Ford Brazil ceased production at the São Bernardo do Campo plant in Brazil during 2019. Ford Brazil completed a sale of the plant machinery and equipment in the third quarter of 2020 and the land and buildings in the fourth quarter of 2020.
In December 2020, Ford Brazil committed to a plan to exit manufacturing operations in Brazil, which resulted in the closure of facilities in Camaçari, Taubaté, and Troller in 2021. These actions will not result in Ford Brazil being substantially liquidated, as it will continue imported vehicle sales and customer support operations, and maintain the product development center in Bahia, the proving grounds in Tatuí, São Paulo, and the regional headquarters in São Paulo.
Russia. In March 2019, Ford Sollers Netherlands B.V. (“Ford Sollers”), a joint venture between Ford and Sollers PJSC (“Sollers”) in which Ford had control, announced its plan to restructure its business in Russia to focus exclusively on commercial vehicles and to exit the passenger car segment. As a result of these actions, Ford acquired 100% ownership of Ford Sollers and ceased production at the Naberezhnye Chelny and St. Petersburg vehicle assembly plants and the Elabuga engine plant during the second quarter of 2019.
Subsequent to completion of the restructuring actions, in July 2019, Ford sold a 51% controlling interest in the restructured entity to Sollers, which resulted in deconsolidation of the Ford Sollers subsidiary. Our continued involvement in Ford Sollers is accounted for as an equity method investment.
In the fourth quarter of 2020, we also completed a sale of certain manufacturing assets.
United Kingdom. In June 2019, Ford Motor Company Limited (“Ford of Britain), a subsidiary of Ford,Britain announced its plan to exit the Ford Bridgend plant in South Wales in 2020. Ford of Britain ceased production at the Bridgend plant and the facility was closed in September 2020.
India. In the third quarter of 2019, Ford committed to a plan to sell specific net assets in our India Automotive operations. Seeoperations as part of a plan to establish a joint venture with Mahindra & Mahindra Limited (“Mahindra”). In December 2020, Ford and Mahindra mutually determined that we would not complete the joint venture (see Note 24 for more information concerning this plan.22). Subsequently, in September 2021, Ford India Private Limited (“Ford India”), our subsidiary in India, announced its plans 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 fourth quarter 2021 and plans to cease engine and vehicle manufacturing in Chennai by second quarter 2022. These actions will not result in Ford India being substantially liquidated, as it will continue with its powertrain operations at its engine plant in Sanand to support certain products, including those manufactured by our affiliate in Thailand, and it will continue its imported vehicle sales and customer support operations.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 21. EMPLOYEE SEPARATION ACTIONS AND EXIT AND DISPOSAL ACTIVITIES (Continued)
Other Global Redesign Actions. In 2018, we announced our plan to end production at the Ford AquitaneAquitaine Industries plant in Bordeaux, France,France. We ceased production and closed the facility in July 2019. In March 2019, we announced our plan to phase-out the production of the C-Max at the Saarlouis Body and Assembly Plant in Germany. Furthermore,We ceased production of the C-Max in June 2019. In March 2021, we announced our plan to phase-out the production of the Mondeo at the Valencia Plant in Spain.
In addition, we are reducingcontinuing to reduce our global workforce and takingtake other restructuring actions.
The following table summarizes the redesign-related activities for the yearyears ended December 31, which are recorded in Other liabilities and deferred revenue (in millions):
| | | | 2019 | | 2020 | | 2021 |
Beginning balance | | $ | 291 |
| Beginning balance | | $ | 734 | | | $ | 1,732 | |
Changes in accruals (a) | | 1,382 |
| Changes in accruals (a) | | 1,598 | | | 1,150 | |
Payments | | (911 | ) | Payments | | (631) | | | (1,883) | |
Foreign currency translation | | (28 | ) | Foreign currency translation | | 31 | | | (49) | |
Ending balance | | $ | 734 |
| Ending balance | | $ | 1,732 | | | $ | 950 | |
__________(a) Excludes pension costs of $311$268 million and $156 million in 2019.2020 and 2021, respectively.
We also recorded $1.4 billion of non-cash charges in 2019 for the impairment of our held-for-sale India Automotive operations, accelerated depreciation, and other items. In 2020, we recorded $1.4 billion of non-cash charges related to the write-off of certain tax and other assets in South America, accelerated depreciation, and other items. In addition, we recognized a pre-tax net gain on sale of assets in Brazil and Russia of $39 million, with cash proceeds of $128 million. In 2021, we recorded $739 million for accelerated depreciation and other non-cash items.
We estimate that we will incur about $2 billion in total charges in 2020 that range between $900 million and $1.4 billion2022 related to the actions above, primarily attributable to employee separations accelerated depreciation, and dealer and supplier settlements. We continue to review our global businesses and may take additional restructuring actions in markets where a path to sustained profitability is not feasible when considering the capital allocation required for those markets.
United Automobile, Aerospace and Agricultural Implement Workers of America (“UAW”) Voluntary Separation Packages
As agreed in the collective bargaining agreement ratified in November 2019, during the first quarter of 2020, we offered voluntary separation packages to our UAW hourly workforce who were eligible for normal or early retirement, and recorded associated costs of $201 million in Cost of sales. All separations occurred during 2020.
Ford Credit
In June 2021, Ford Credit announced the plan of its subsidiaries in Brazil and Argentina to cease originating receivables by the end of 2021 and begin the process of selling or otherwise winding down their operations in those markets. We recorded approximately $11 million related to employee separation costs in Ford Credit interest, operating, and other expenses, the majority of which was paid in 2021.
Accumulated foreign currency translation losses included in Accumulated other comprehensive income/(loss) at December 31, 2021 of $379 million are associated with Ford Credit’s investments in Brazil and Argentina that it no longer plans to operate. We expect to reclassify these losses to income upon sale, transfer, or substantially complete liquidation of Ford Credit’s investments, which may occur over multiple reporting periods. In the fourth quarter of 2021, we recognized a $14 million gain on the liquidation of an entity in Brazil. The timing for the completion of the remaining actions is uncertain, as they may be subject to regulatory approval. We expect the majority of losses to be recognized in 2022.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 23.22. REDEEMABLE NONCONTROLLING INTERESTACQUISITIONS AND DIVESTITURES
Company Excluding Ford Credit
We formed the Ford Sollers joint venture with Sollers in October 2011 to operate in Russia. The value
Electriphi, Inc. (“Electriphi”). On June 18, 2021, we acquired Electriphi, a California-based provider of the redeemable noncontrolling interest, reflecting redemption features embedded in the 50% equity interest in the joint venture held by Sollers, reported in the mezzanine section of our consolidated balance sheet at December 31, 2018 was $100 million. The redeemable noncontrolling interest became exercisable beginning on January 1, 2019,charging management and Sollers exercised its option in March 2019fleet monitoring software for a value of $135 million. The $35 million increase in value from December 2018 waselectric vehicles. Assets acquired primarily include goodwill, reported in Income/(Loss) attributable to noncontrolling interestsOther assets (see Note 2), and software, reported in Net property. The acquisition did not have a material impact on our consolidated income statement during
financial statements.
Ford Lio Ho Motor Co., Ltd. (“FLH”). On April 1, 2021, we completed the first quartersale of 2019. We purchased the noncontrolling interest from Sollers in the second quarter of 2019, derecognized the redeemable noncontrolling interest balance, and restructured our Russian operations. Subsequent to completion of the restructuring actions, in July 2019, we sold a 51% controlling financial interest in the restructured operations to Sollers,FLH and its wholly owned subsidiary FLH Marketing & Service Limited, which resulted in deconsolidation of our Ford Sollers subsidiary.Taiwan subsidiary in the second quarter of 2021. FLH will continue to import, manufacture, and sell Ford-branded vehicles through at least 2025. We recognized a pre-tax gain of $161 million, which was reported in Other income/(loss), net in the second quarter of 2021.
Getrag Ford Transmissions GmbH (“GFT”). Prior to March 2021, Ford and Magna International Inc. (“Magna”) equally owned and operated the GFT joint venture for the purpose of developing, manufacturing, and selling transmissions. We accounted for our investment in GFT as an equity method investment. During the first quarter of 2021 and prior to our acquisition, GFT recorded restructuring charges, of which our share was $40 million. These charges are included in Equity in net income/(loss) of affiliated companies.
On March 1, 2021, we acquired Magna’s shares in the restructured GFT. The purchase price, which is subject to post-closing revisions, presently is estimated at $273 million. We expect that the purchase price revisions will be finalized by the first quarter of 2022. The restructured GFT includes the Halewood, UK and Cologne, Germany transmission plants, but excludes the Bordeaux, France transmission plant and China interests acquired by Magna. We concluded with Magna that these businesses would be better served under separate ownership. The Sanand, India transmission plant will continue under joint Ford/Magna ownership. As a result of the transaction, we consolidated the restructured GFT, remeasured our prior investment in GFT at its $273 million fair value, and recognized a pre-tax gain of $178 million in Other income/(loss), net during 2021. We estimated the fair value of GFT in negotiations with Magna based on the income approach. The significant assumptions used in the valuation included GFT’s cash flows that reflect the approved business plan, discounted at a rate typically used for a company like GFT. See Note 222 for more information concerningabout goodwill recognized as part of this transaction.
Argo AI, LLC (“Argo AI”). On June 1, 2020, we completed a transaction with Volkswagen AG (“VW”) that reduced our ownership interest in the restructuringautonomous vehicle technology company Argo AI and resulted in Ford and VW holding equal interests that comprised a majority ownership of Argo AI. The transaction involved us selling a portion of our businessArgo AI equity to VW for $500 million and VW making additional investments in Russia.Argo AI, including contributing its Autonomous Intelligent Driving company. As a result of the transaction, we deconsolidated Argo AI, remeasured our retained investment in Argo AI at fair value, and recognized a $3.5 billion gain in Other income/(loss), of which $2.9 billion related to our retained investment in Argo AI. Our retained investment in Argo AI consists of an equity method investment and a preferred equity security investment, reflected on our consolidated balance sheets in Equity in net assets of affiliated companies and Other assets, respectively.
NOTE 24.India. In 2019 and 2020, we recognized, in HELD-FOR-SALE OPERATIONSCost of sales
, pre-tax impairment charges of $804 million and $23 million, respectively, to adjust the carrying value of certain India Automotive Segment
In the third quarter of 2019, we committedoperations held-for-sale assets to a planfair value less cost to sell specific net assets in our India Automotive operations. We entered into a definitive agreementpreparation to form a joint venture with Mahindra & Mahindra Limited (“Mahindra”),Mahindra. In 2020, it was determined the joint venture with Mahindra owning a 51% controlling stakewould not be completed, and Ford owning a 49% stake. Under the terms of the transaction, which is expected to close mid-2020, we will sell certain India Automotive operations to the joint venture. Accordingly, we have reported the assets and liabilities of these operationswere reclassified as held for sale and ceased depreciation and amortizationused. Because the carrying value of those assets.
Thethe net assets and liabilities of our India Automotive operations classified as held for sale for the year endedapproximated fair value at December 31, 2020, the pre-tax impairment charges recorded in 2019 and 2020 were not adjusted as follows (in millions):a result of the reclassification to held and used.
Ford Credit Segment
In the first quarter of 2020, Ford Credit completed the sale of its wholly-owned subsidiary Forso Nordic AB, recognizing a pre-tax loss of $4 million, reported in Other income/(loss), net, and cash proceeds of $1.3 billion.
|
| | | | |
| | 2019 |
Assets | | |
Trade and other receivables, net | | $ | 269 |
|
Inventories | | 208 |
|
Other assets, current | | 147 |
|
Net property | | 279 |
|
Other assets, non-current | | 10 |
|
Total assets of held-for-sale operations | | 913 |
|
Less: Intercompany asset balances | | (228 | ) |
Automotive segment total assets of held-for-sale operations (a) | | $ | 685 |
|
| | |
Liabilities | | |
Payables | | $ | 461 |
|
Other liabilities and deferred revenue, current | | 71 |
|
Automotive debt payable within one year | | 90 |
|
Other liabilities and deferred revenue, non-current | | 28 |
|
Total liabilities of held-for-sale operations | | 650 |
|
Less: Intercompany liability balances | | (169 | ) |
Automotive segment total liabilities of held-for-sale operations (a) | | $ | 481 |
|
__________
| |
(a) | As of December 31, 2019, intercompany items and transactions have been eliminated on the consolidated balance sheet. Upon closing, the buyer will assume the intercompany assets and liabilities. Accordingly, we have presented those balances in the table for informational purposes. |
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 24.HELD-FOR-SALE OPERATIONS(Continued)
We recognized a pre-tax impairment charge of $804 million reported in Cost of sales in 2019 to adjust the carrying value of the held-for-sale assets to fair value less cost to sell. The value is measured on a nonrecurring basis and categorized within Level 3 of the fair value hierarchy. We determined fair value using a market approach, estimated based on expected proceeds to be received, which we conclude is most representative of the value of the assets given the current market conditions, the characteristics of viable market participants, and the pending sales transaction. The transaction is subject to regulatory approvals and satisfaction of other closing conditions that may impact the final proceeds received.
Ford Credit Segment
In the fourth quarter of 2019, Ford Credit committed to a plan to sell its operations in Forso, a wholly owned subsidiary of Ford Credit, which provides retail and dealer financing in Denmark, Finland, Norway, and Sweden. Ford Credit expects to complete the sale of Forso in the first quarter of 2020.
The assets and liabilities of the Forso operations classified as held for sale for the year ended December 31 were as follows (in millions):
|
| | | | |
| | 2019 |
Assets | | |
Cash and cash equivalents | | $ | 61 |
|
Ford Credit finance receivables, net, current | | 516 |
|
Trade and other receivables, net | | 8 |
|
Other assets, current | | 106 |
|
Ford Credit finance receivables, net, non-current | | 715 |
|
Net property | | 2 |
|
Deferred income taxes | | 9 |
|
Other assets, non-current | | 1 |
|
Total assets of held-for-sale operations | | 1,418 |
|
Less: Intercompany asset balances | | (2 | ) |
Ford Credit segment total assets of held-for-sale operations (a) | | $ | 1,416 |
|
| | |
Liabilities | | |
Payables | | $ | 34 |
|
Other liabilities and deferred revenue, current | | 8 |
|
Ford Credit long-term debt | | 1,254 |
|
Deferred income taxes | | 23 |
|
Total liabilities of held-for-sale operations | | 1,319 |
|
Less: Intercompany liability balances | | (1,274 | ) |
Ford Credit segment total liabilities of held-for-sale operations (a) | | $ | 45 |
|
__________
| |
(a) | As of December 31, 2019, intercompany items and transactions have been eliminated on the consolidated balance sheet. Upon closing, the buyer will assume the intercompany assets and liabilities. Accordingly, we have presented those balances in the table for informational purposes. |
Ford Credit recognized a pre-tax fair value impairment charge of $20 million, reported in Other income/(loss), net, as a result of the pending sale. The fair value is measured on a non-recurring basis and categorized within Level 3 of the fair value hierarchy. We determined fair value using a market approach, estimated based on our expected proceeds to be received, which we conclude is most representative of the value of the assets.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 25.23. ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)
The changes in the balances for each component of accumulated other comprehensive income/(loss) attributable to Ford Motor Company for the years ended December 31 were as follows (in millions): | | | | | | | | | | | | | | | | | |
| 2019 | | 2020 | | 2021 |
Foreign currency translation | | | | | |
Beginning balance | $ | (4,800) | | | $ | (4,626) | | | $ | (5,526) | |
Gains/(Losses) on foreign currency translation | 181 | | | (1,107) | | | 200 | |
Less: Tax/(Tax benefit) (a) | 6 | | | (206) | | | 143 | |
Net gains/(losses) on foreign currency translation | 175 | | | (901) | | | 57 | |
(Gains)/Losses reclassified from AOCI to net income (b) | (1) | | | 1 | | | (18) | |
Other comprehensive income/(loss), net of tax (c) | 174 | | | (900) | | | 39 | |
Ending balance | $ | (4,626) | | | $ | (5,526) | | | $ | (5,487) | |
| | | | | |
Marketable securities | | | | | |
Beginning balance | $ | (59) | | | $ | 71 | | | $ | 156 | |
Gains/(Losses) on available for sale securities | 173 | | | 155 | | | (209) | |
Less: Tax/(Tax benefit) | 40 | | | 37 | | | (52) | |
Net gains/(losses) on available for sale securities | 133 | | | 118 | | | (157) | |
(Gains)/Losses reclassified from AOCI to net income | (3) | | | (45) | | | (23) | |
Less: Tax/(Tax benefit) | — | | | (12) | | | (5) | |
Net (gains)/losses reclassified from AOCI to net income | (3) | | | (33) | | | (18) | |
Other comprehensive income/(loss), net of tax | 130 | | | 85 | | | (175) | |
Ending balance | $ | 71 | | | $ | 156 | | | $ | (19) | |
| | | | | |
Derivative instruments | | | | | |
Beginning balance | $ | 201 | | | $ | (488) | | | $ | (266) | |
Gains/(Losses) on derivative instruments | (875) | | | 207 | | | (169) | |
Less: Tax/(Tax benefit) | (180) | | | 39 | | | (20) | |
Net gains/(losses) on derivative instruments | (695) | | | 168 | | | (149) | |
(Gains)/Losses reclassified from AOCI to net income | 3 | | | 66 | | | 280 | |
Less: Tax/(Tax benefit) | (3) | | | 12 | | | 58 | |
Net (gains)/losses reclassified from AOCI to net income (d) | 6 | | | 54 | | | 222 | |
Other comprehensive income/(loss), net of tax | (689) | | | 222 | | | 73 | |
Ending balance | $ | (488) | | | $ | (266) | | | $ | (193) | |
| | | | | |
Pension and other postretirement benefits | | | | | |
Beginning balance | $ | (2,708) | | | $ | (2,685) | | | $ | (2,658) | |
Prior service (costs)/credits arising during the period | (15) | | | (21) | | | — | |
Less: Tax/(Tax benefit) | (2) | | | (6) | | | — | |
Net prior service (costs)/credits arising during the period | (13) | | | (15) | | | — | |
Amortization and recognition of prior service costs/(credits) (e) | 50 | | | 63 | | | 27 | |
Less: Tax/(Tax benefit) | 10 | | | 10 | | | 6 | |
Net prior service costs/(credits) reclassified from AOCI to net income | 40 | | | 53 | | | 21 | |
Translation impact on non-U.S. plans | (4) | | | (11) | | | (3) | |
Other comprehensive income/(loss), net of tax | 23 | | | 27 | | | 18 | |
Ending balance | $ | (2,685) | | | $ | (2,658) | | | $ | (2,640) | |
| | | | | |
Total AOCI ending balance at December 31 | $ | (7,728) | | | $ | (8,294) | | | $ | (8,339) | |
__________ (a)We do not recognize deferred taxes for a majority of the foreign currency translation gains and losses because we do not anticipate reversal in the foreseeable future. However, we have made elections to tax certain non-U.S. operations simultaneously in U.S. tax returns, and have recorded deferred taxes for temporary differences that will reverse, independent of repatriation plans, in U.S. tax returns. Taxes or tax benefits resulting from foreign currency translation of the temporary differences are recorded in Other comprehensive income/(loss), net of tax.
(b)Reclassified to Other income/(loss), net.
(c)In 2021, excludes a gain of $4 million related to noncontrolling interests.
(d)Reclassified to Cost of sales. During the next twelve months we expect to reclassify existing net losses on cash flow hedges of $116 million. See Note 20 for additional information.
(e)Amortization and recognition of prior service costs/(credits) is included in the computation of net periodic pension cost/(income). See Note 17 for additional information.
|
| | | | | | | | | | | |
| 2017 | | 2018 | | 2019 |
Foreign currency translation | | | | | |
Beginning balance | $ | (4,593 | ) | | $ | (4,277 | ) | | $ | (4,800 | ) |
Gains/(Losses) on foreign currency translation | 38 |
| | (435 | ) | | 181 |
|
Less: Tax/(Tax benefit) (a) | (294 | ) | | 91 |
| | 6 |
|
Net gains/(losses) on foreign currency translation | 332 |
| | (526 | ) | | 175 |
|
(Gains)/Losses reclassified from AOCI to net income (b) | (16 | ) | | 3 |
| | (1 | ) |
Other comprehensive income/(loss), net of tax | 316 |
| | (523 | ) | | 174 |
|
Ending balance | $ | (4,277 | ) | | $ | (4,800 | ) | | $ | (4,626 | ) |
| | | | | |
Marketable securities | | | | | |
Beginning balance | $ | (14 | ) | | $ | (48 | ) | | $ | (59 | ) |
Gains/(Losses) on available for sale securities | (53 | ) | | (37 | ) | | 173 |
|
Less: Tax/(Tax benefit) | (15 | ) | | (8 | ) | | 40 |
|
Net gains/(losses) on available for sale securities | (38 | ) | | (29 | ) | | 133 |
|
(Gains)/Losses reclassified from AOCI to net income | 5 |
| | 20 |
| | (3 | ) |
Less: Tax/(Tax benefit) | 1 |
| | 2 |
| | — |
|
Net (gains)/losses reclassified from AOCI to net income | 4 |
| | 18 |
| | (3 | ) |
Other comprehensive income/(loss), net of tax | (34 | ) | | (11 | ) | | 130 |
|
Ending balance | $ | (48 | ) | | $ | (59 | ) | | $ | 71 |
|
| | | | | |
Derivative instruments | | | | | |
Beginning balance | $ | 283 |
| | $ | 18 |
| | $ | 201 |
|
Gains/(Losses) on derivative instruments | 134 |
| | 288 |
| | (875 | ) |
Less: Tax/(Tax benefit) | 80 |
| | 65 |
| | (180 | ) |
Net gains/(losses) on derivative instruments | 54 |
| | 223 |
| | (695 | ) |
(Gains)/Losses reclassified from AOCI to net income | (456 | ) | | (50 | ) | | 3 |
|
Less: Tax/(Tax benefit) | (137 | ) | | (10 | ) | | (3 | ) |
Net (gains)/losses reclassified from AOCI to net income (c) | (319 | ) | | (40 | ) | | 6 |
|
Other comprehensive income/(loss), net of tax | (265 | ) | | 183 |
| | (689 | ) |
Ending balance | $ | 18 |
| | $ | 201 |
| | $ | (488 | ) |
| | | | | |
Pension and other postretirement benefits | | | | | |
Beginning balance | $ | (2,689 | ) | | $ | (2,652 | ) | | $ | (2,708 | ) |
Prior service (costs)/credits arising during the period | 5 |
| | (135 | ) | | (15 | ) |
Less: Tax/(Tax benefit) | — |
| | (23 | ) | | (2 | ) |
Net prior service (costs)/credits arising during the period | 5 |
| | (112 | ) | | (13 | ) |
Amortization and recognition of prior service costs/(credits) (d) | 60 |
| | 59 |
| | 50 |
|
Less: Tax/(Tax benefit) | 20 |
| | 13 |
| | 10 |
|
Net prior service costs/(credits) reclassified from AOCI to net income | 40 |
| | 46 |
| | 40 |
|
Translation impact on non-U.S. plans | (8 | ) | | 10 |
| | (4 | ) |
Other comprehensive income/(loss), net of tax | 37 |
| | (56 | ) | | 23 |
|
Ending balance | $ | (2,652 | ) | | $ | (2,708 | ) | | $ | (2,685 | ) |
| | | | | |
Total AOCI ending balance at December 31 | $ | (6,959 | ) | | $ | (7,366 | ) | | $ | (7,728 | ) |
__________
| |
(a) | We do not recognize deferred taxes for a majority of the foreign currency translation gains and losses because we do not anticipate reversal in the foreseeable future. However, we have made elections to tax certain non-U.S. operations simultaneously in U.S. tax returns, and have recorded deferred taxes for temporary differences that will reverse, independent of repatriation plans, on U.S. tax returns. Taxes or tax benefits resulting from foreign currency translation of the temporary differences are recorded in Other comprehensive income/(loss), net of tax.
|
| |
(b) | Reclassified to Other income/(loss), net.
|
| |
(c) | Reclassified to Cost of sales. During the next twelve months we expect to reclassify existing net losses on cash flow hedges of $344 million. See Note 21 for additional information.
|
| |
(d) | Amortization and recognition of prior service costs/(credits) is included in the computation of net periodic pension cost/(income). See Note 18 for additional information.
|
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 26.24. VARIABLE INTEREST ENTITIES
A VIE is an entity that either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support, or (ii) has equity investors who lack the characteristics of a controlling financial interest. We consolidate VIEs of which we are the primary beneficiary. We consider ourselves the primary beneficiary of a VIE when we have both the power to direct the activities that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the VIE. Assets recognized as a result of consolidating these VIEs do not represent additional assets that could be used to satisfy claims against our general assets. Liabilities recognized as a result of consolidating these VIEs do not represent additional claims on our general assets; rather, they represent claims against the specific assets of the consolidated VIEs.
We have the power to direct the significant activities of an entity when our management has the ability to make key operating decisions, such as decisions regarding capital or product investment or manufacturing production schedules. For securitization entities, we have the power to direct significant activities when we have the ability to exercise discretion in the servicing of financial assets, (including general collection activity on current and non-current accounts and loss mitigation efforts including repossession and sale of collateral), issue additional debt, exercise a unilateral call option, add assets to revolving structures, or control investment decisions.
VIEs of Which We are Not the Primary Beneficiary
Certain of our joint venturesaffiliates are VIEs in which we are not the power to direct economically significant activities is shared with the joint venture partner. Our investments in these joint ventures are accounted for as equity method investments.primary beneficiary. Our maximum exposure to any potential losses associated with these joint venturesaffiliates is limited to our investment, includingaffiliate investments and loans and was $237 million$3 billion and $209 million$2.8 billion at December 31, 20182020 and 2019,2021, respectively.
VIEs of Which We are the Primary Beneficiary
Securitization Entities. Through Ford Credit, we securitize, transfer, and service financial assets associated with consumer finance receivables, operating leases, and wholesale loans. Our securitization transactions typically involve the legal transfer of financial assets to bankruptcy remote SPEs. We generally retain a portion of the economic interests in the asset-backed securitization transactions, which arecould be retained in the form of a portion of the senior orinterests, the subordinated interests, cash reserve accounts, residual interests, and servicing rights. For accounting purposes, we are precluded from recording theThe transfers of assets in our securitization transactions as sales.
do not qualify for accounting sale treatment. In most cases, the bankruptcy remote SPEs meet the definition of VIEs for which we have determined we have bothare the power to direct the activities of the entity that most significantly impact the entity’s performanceprimary beneficiary and, the obligation to absorb losses or the right to receive benefits of the entity that could be significant, and would therefore, also beare consolidated. We account for all securitization transactions as if they were secured financing and therefore the assets, liabilities, and related activity of these transactions are consolidated in our financial results and are included in amounts presented on the face of our consolidated balance sheet.statements. See Note 2019 for additional information on the accounting for asset-backed debt and the assets securing this debt.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 27.25. COMMITMENTS AND CONTINGENCIES
Commitments and contingencies primarily consist of guarantees and indemnifications, litigation and claims, and warranty.warranty and field service actions.
Guarantees and Indemnifications
The maximum potential payments and the carrying value of recorded liabilities related to guarantees and limited indemnities at December 31 were as follows (in millions):
|
| | | | | | | |
| 2018 | | 2019 |
Maximum potential payments | $ | 1,163 |
| | $ | 749 |
|
Carrying value of recorded liabilities related to guarantees and limited indemnities | 351 |
| | 233 |
|
GuaranteesFinancial Guarantees. Financial guarantees and indemnifications are recorded at fair value at their inception. We regularly review our performance risk under these arrangements, and inSubsequent to initial recognition, the event it becomes probable we will be requiredguarantee liability is adjusted at each reporting period to perform under a guarantee or indemnity,reflect the amountcurrent estimate of probable payment is recorded.
We guaranteeexpected payments resulting from possible default events over the resale valueremaining life of vehicles sold in certain arrangements to daily rental companies.the guarantee. The maximum potential payment of $582payments for financial guarantees were $346 million as ofand $357 million at December 31, 2019 included in the table above represents the total proceeds we guarantee the rental company will receive on re-sale. Reflecting our present estimate2020 and 2021, respectively. The carrying value of proceeds the rental companies will receive on resale from third parties, we have recorded $199liabilities related to financial guarantees was $46 million as our best estimateand $36 million at December 31, 2020 and 2021, respectively.
Our financial guarantees consist of the amount we will have to pay under the guarantee.
We also guarantee debt and lease obligations of certain joint ventures, as well as certain financial obligations of outside third parties, including suppliers, to support our business and economic growth. Expiration dates vary through 2033, and guarantees will terminate on payment and/or cancellation of the underlying obligation. A payment by us would be triggered by failure of the joint venture or other third party to fulfill its obligation covered by the guarantee. In some circumstances, we are entitled to recover from a third party amounts paid by us under the guarantee. However,
Non-Financial Guarantees. Non-financial guarantees and indemnifications are recorded at fair value at their inception. We regularly review our ability to enforceperformance risk under these rights is sometimes stayed until the guaranteed party is paid in full,arrangements, and may be limited in the event it becomes probable we will be required to perform under a guarantee or indemnity, the amount of insolvencyprobable payment is recorded. The maximum potential payments for non-financial guarantees were $245 million and $453 million at December 31, 2020 and 2021, respectively. The carrying value of recorded liabilities related to non-financial guarantees was $48 million and $38 million at December 31, 2020 and 2021, respectively.
We guarantee the resale value of vehicles sold in certain arrangements to daily rental companies. The maximum potential payment of $446 million as of December 31, 2021 represents the total proceeds we guarantee the rental company will receive on resale. Reflecting our present estimate of proceeds the rental companies will receive on resale from third parties, we have recorded $38 million as our best estimate of the third party or other circumstances.amount we will have to pay under the guarantee.
In the ordinary course of business, we execute contracts involving indemnifications standard in the industry and indemnifications specific to a transaction, such as the sale of a business. These indemnifications might include and are not limited to claims relating to any of the following: environmental, tax, and shareholder matters; intellectual property rights; power generation contracts; governmental regulations and employment-related matters; dealer, supplier, and other commercial contractual relationships; and financial matters, such as securitizations. Performance under these indemnities generally would be triggered by a breach of terms of the contract claim brought by a counterparty, including a joint venture or byalliance partner, or a third-party claim. While some of these indemnifications are limited in nature, many of them do not limit potential payment. Therefore, we are unable to estimate a maximum amount of future payments that could result from claims made under these unlimited indemnities.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 25. COMMITMENTS AND CONTINGENCIES (Continued)
Litigation and Claims
Various legal actions, proceedings, and claims (generally, “matters”) are pending or may be instituted or asserted against us. These include, but are not limited to, matters arising out of alleged defects in our products; product warranties; governmental regulations relating to safety, emissions, and fuel economy or other matters; government incentives; tax matters;matters, including trade and customs; alleged illegal acts resulting in fines or penalties; financial services; employment-related matters; dealer, supplier, and other contractual relationships; intellectual property rights; environmental matters; shareholder or investor matters; and financial reporting matters. Certain of the pending legal actions are, or purport to be, class actions. Some of the matters involve or may involve claims for compensatory, punitive, or antitrust or other treble damages in very large amounts, or demands for field service actions, environmental remediation programs, sanctions, loss of government incentives, assessments, or other relief, which, if granted, would require very large expenditures.
The extent of our financial exposure to these matters is difficult to estimate. Many matters do not specify a dollar amount for damages, and many others specify only a jurisdictional minimum. To the extent an amount is asserted, our historical experience suggests that in most instances the amount asserted is not a reliable indicator of the ultimate outcome.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 27. COMMITMENTS AND CONTINGENCIES (Continued)
We accrue for matters when losses are deemed probable and reasonably estimable. In evaluating matters for accrual and disclosure purposes, we take into consideration factors such as our historical experience with matters of a similar
nature, the specific facts and circumstances asserted, the likelihood that we will prevail, and the severity of any potential loss. We reevaluate and update our accruals as matters progress over time.
For the majority of matters, which generally arise out of alleged defects in our products, we establish an accrual based on our extensive historical experience with similar matters. We do not believe there is a reasonably possible outcome materially in excess of our accrual for these matters.
For the remaining matters, where our historical experience with similar matters is of more limited value (i.e., “non-pattern matters”), we evaluate the matters primarily based on the individual facts and circumstances. For non-pattern matters, we evaluate whether there is a reasonable possibility of a material loss in excess of any accrual that can be estimated. Our estimate of reasonably possible loss in excess of our accruals for all material matters currently reflects indirect tax and customs matters, for which we estimate the aggregate risk to be a range of up to about $500 million. In addition, we have$1.7 billion, an increase of about $1.3 billion from December 31, 2020, primarily reflecting an assessment received in 2021 in a reasonably possible risk of loss for an emissioncustoms matter. At this stage, we cannot estimate the risk of loss or predict the outcome, and cannot provide reasonable assurance that it will not have a material adverse effect on us.
As noted, the litigation process is subject to many uncertainties, and the outcome of individual matters is not predictable with assurance. Our assessments are based on our knowledge and experience, but the ultimate outcome of any matter could require payment substantially in excess of the amount that we have accrued and/or disclosed.
FORD MOTOR COMPANY AND SUBSIDIARIES
WarrantiesNOTES TO THE FINANCIAL STATEMENTS
NOTE 25. COMMITMENTS AND CONTINGENCIES (Continued)
Warranty and Field Service Actions
We accrue the estimated cost of both base warranty coverages and field service actions at the time of sale. We establish our estimate of base warranty obligations using a patterned estimation model, using historical information regarding the nature, frequency, and average cost of claims for each vehicle line by model year. We establish our estimates of field service action obligations using a patterned estimation model, using historical information regarding the nature, frequency, severity, and average cost of claims for each model year. In addition, from time to time, we issue extended warranties at our expense, the estimated cost of which is accrued at the time of issuance. Warranty and field service action obligations are reported in Other liabilities and deferred revenue. We reevaluate the adequacy of our accruals on a regular basis.
We recognize the benefit from a recovery of the costs associated with our warranty and field service actions when specifics of the recovery have been agreed with our supplier and the amount of the recovery is virtually certain. Recoveries are reported in Trade and other receivables, net and Other assets.
The estimate of our future warranty and field service action costs, net of estimated supplier recoveries, for the years ended December 31 was as follows (in millions): | | | | | | | | | | | |
| 2020 | | 2021 |
Beginning balance | $ | 5,702 | | | $ | 8,172 | |
Payments made during the period | (3,923) | | | (3,952) | |
Changes in accrual related to warranties issued during the period | 3,934 | | | 4,102 | |
Changes in accrual related to pre-existing warranties | 2,403 | | | 221 | |
Foreign currency translation and other | 56 | | | (92) | |
Ending balance | $ | 8,172 | | | $ | 8,451 | |
|
| | | | | | | |
| 2018 | | 2019 |
Beginning balance | $ | 5,296 |
| | $ | 5,137 |
|
Payments made during the period | (4,360 | ) | | (4,561 | ) |
Changes in accrual related to warranties issued during the period | 2,584 |
| | 3,182 |
|
Changes in accrual related to pre-existing warranties | 1,758 |
| | 1,941 |
|
Foreign currency translation and other | (141 | ) | | 3 |
|
Ending balance | $ | 5,137 |
| | $ | 5,702 |
|
Changes to our estimated costs are reported as changes in accrual related to pre-existing warranties in the table above. Our estimate of reasonably possible costs in excess of our accruals for material field service actions and customer satisfaction actions is a range of up to about $1 billion in the aggregate.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 26. SEGMENT INFORMATION
NOTE 28. SEGMENT INFORMATION
We report segment information consistent with the way our chief operating decision maker (“CODM”) evaluates the operating results and performance of the Company. Accordingly, we analyze the results of our business through the following segments: Automotive, Mobility, and Ford Credit.
Beginning in 2021, consistent with how our CODM assesses performance of the segments and makes decisions about resource allocations, we changed the measurement of our segments as follows: (i) costs and benefits related to enterprise connectivity activities included in the Mobility segment are reported in the Automotive segment; (ii) certain corporate governance expenses that benefit the global enterprise reported in the Automotive segment are reported as part of Corporate Other; and (iii) cash and other centrally managed corporate assets reported in the Automotive segment are realigned to Corporate Other.
In addition, we realigned tax-related assets within our segments to reflect our adoption of ASU 2019-12 as of January 1, 2021 (see Note 3).
Effective with fourth quarter 2021 reporting, special items now include gains and losses on investments in equity securities.
Prior period amounts were adjusted retrospectively to reflect each of the above changes.
Below is a description of our reportable segments and other activities.
Automotive Segment
OurThe Automotive segment primarily includes the sale of Ford and Lincoln vehicles, service parts, and accessories worldwide, together with the associated costs to develop, manufacture, distribute, and service the vehicles, parts, and accessories. This segment includes revenues and costs related to our electrification vehicle programs.programs and enterprise connectivity. The segment includes the following regional business units: North America, South America, Europe, China (including Taiwan), Asia Pacific Operations, and Middle East & Africa.the International Markets Group.
Mobility Segment
OurThe Mobility segment primarily includes development costs related to ourfor Ford’s autonomous vehicles and our investmentrelated businesses, Ford’s equity ownership in mobility through Ford Smart Mobility LLC (“FSM”). Autonomous vehicles includes self-driving systems development and vehicle integration,Argo AI (a developer of autonomous vehicle research and advanced engineering, autonomous vehicle transportation-as-a-service network development, user experience, and business strategy and business development teams. FSM designs and builds mobility products and subscriptiondriving systems), and other services on its own,mobility businesses and collaborates with service providers and technology companies. In 2019, we began recording in the Mobility segment subscription related income previously reported in the Automotive segment. This income is generated from services managed in our Mobility segment.investments.
Ford Credit Segment
The Ford Credit segment is comprised of the Ford Credit business on a consolidated basis, which is primarily vehicle-related financing and leasing activities.
Corporate Other
Corporate Other primarily includes corporate governance expenses, 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 otherlosses 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, andthat are not allocated to specific Automotive business units or operating segments. These include expenses related to setting and directing global policy, providing oversight and stewardship, and promoting the Company’s interests. The underlyingCorporate Other assets include: cash, cash equivalents, and liabilities associated with these activities remain with the respective Automotivemarketable securities; tax related assets; other investments; and Mobility segments.other assets managed centrally.
Interest on Debt
Interest on Debt is presented as a separate reconciling item and consists of interest expense on Automotive and Other debt.Company debt excluding Ford Credit. The underlying liability is reported in the Automotive segment and in Corporate Other.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 26. SEGMENT INFORMATION (Continued)
Special Items
Special Items are presented as a separate reconciling item. They consist of (i) pension and OPEB remeasurement gains and losses, (ii) gains and losses on investments in equity securities, (iii) significant personnel expenses, dealer-related costs, and facility-related charges stemming from our efforts to match production capacity and cost structure to market demand and changing model mix, and (iii)(iv) other items that we do not necessarily consider to be indicative of earnings from ongoing operating activities. Our management ordinarily excludes these items from its review of the results of the operating segments for purposes of measuring segment profitability and allocating resources. We also report these special items separately to help investors track amounts related to these activities and to allow investors analyzing our results to identify certain infrequent significant items that they may wish to exclude when considering the trend of ongoing operating results.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 28.26. SEGMENT INFORMATION (Continued)
Key financial information for the years ended or at December 31 was as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | Automotive | | Mobility | | Ford Credit | | Corporate Other | | Interest on Debt | | Special Items | | Adjustments | | Total |
| Automotive | | Mobility | | Ford Credit | | Corporate Other | | Interest on Debt | | Special Items | | Adjustments | | Total | |
2017 | |
| | | | |
| | |
| | | | | | |
| | |
| |
2019 | | 2019 | | | | | | | | | | | | | | | |
Revenues | $ | 145,653 |
| | $ | 10 |
| | $ | 11,113 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 156,776 |
| Revenues | $ | 143,604 | | | $ | 36 | | | $ | 12,260 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 155,900 | |
Income/(loss) before income taxes | 8,084 |
| | (299 | ) | | 2,310 |
| | (457 | ) | | (1,190 | ) | | (289 | ) | | — |
| | 8,159 |
| |
Income/(Loss) before income taxes | | Income/(Loss) before income taxes | 4,888 | | | (941) | | | 2,998 | | | (688) | | | (1,020) | | | (5,877) | | (a) | — | | | (640) | |
Depreciation and tooling amortization | 4,963 |
| | — |
| | 4,278 |
| | — |
| | — |
| | — |
| | — |
| | 9,241 |
| Depreciation and tooling amortization | 5,494 | | | 8 | | | 3,666 | | | 47 | | | — | | | 1,278 | | | — | | | 10,493 | |
Interest expense | — |
| | — |
| | 3,174 |
| | — |
| | 1,190 |
| | — |
| | — |
| | 4,364 |
| Interest expense | — | | | — | | | 4,389 | | | — | | | 1,020 | | | — | | | — | | | 5,409 | |
Investment-related interest income | 93 |
| | — |
| | 118 |
| | 248 |
| | — |
| | — |
| | — |
| | 459 |
| Investment-related interest income | 167 | | | — | | | 306 | | | 336 | | | — | | | — | | | — | | | 809 | |
Equity in net income/(loss) of affiliated companies | 1,169 |
| | — |
| | 32 |
| | — |
| | — |
| | — |
| | — |
| | 1,201 |
| Equity in net income/(loss) of affiliated companies | 83 | | | — | | | 31 | | | 2 | | | — | | | (84) | | (b) | — | | | 32 | |
Cash outflow for capital spending | 7,001 |
| | 3 |
| | 45 |
| | — |
| | — |
| | — |
| | — |
| | 7,049 |
| Cash outflow for capital spending | 7,362 | | | 23 | | | 52 | | | 195 | | | — | | | — | | | — | | | 7,632 | |
Cash, cash equivalents, marketable securities, and restricted cash | 26,499 |
| | 11 |
| | 12,563 |
| | — |
| | — |
| | — |
| | — |
| | 39,073 |
| |
Total assets | 103,573 |
| | 96 |
| | 160,594 |
| | — |
| | — |
| | — |
| | (5,767 | ) | (a) | 258,496 |
| Total assets | 63,586 | | | 419 | | | 160,964 | | | 36,190 | | | — | | | — | | | (2,622) | | (c) | 258,537 | |
| | | | | | | | | | | | | | | | |
2018 | |
| | |
| | |
| | |
| | | | | | |
| | |
| |
2020 | | 2020 | | | | | | | | | | | |
Revenues | $ | 148,294 |
| | $ | 26 |
| | $ | 12,018 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 160,338 |
| Revenues | $ | 115,894 | | | $ | 47 | | | $ | 11,203 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 127,144 | |
Income/(loss) before income taxes | 5,422 |
| | (674 | ) | | 2,627 |
| | (373 | ) | | (1,228 | ) | | (1,429 | ) | | — |
| | 4,345 |
| |
Income/(Loss) before income taxes | | Income/(Loss) before income taxes | 1,706 | | | (1,052) | | | 2,608 | | | (726) | | | (1,649) | | | (2,003) | | (d) | — | | | (1,116) | |
Depreciation and tooling amortization | 5,368 |
| | 16 |
| | 4,001 |
| | — |
| | — |
| | — |
| | — |
| | 9,385 |
| Depreciation and tooling amortization | 5,209 | | | 8 | | | 3,269 | | | 52 | | | — | | | 236 | | | — | | | 8,774 | |
Interest expense | — |
| | — |
| | 3,929 |
| | — |
| | 1,228 |
| | — |
| | — |
| | 5,157 |
| Interest expense | — | | | — | | | 3,402 | | | — | | | 1,649 | | | — | | | — | | | 5,051 | |
Investment-related interest income | 109 |
| | — |
| | 201 |
| | 357 |
| | — |
| | — |
| | — |
| | 667 |
| Investment-related interest income | 158 | | | — | | | 94 | | | 200 | | | — | | | — | | | — | | | 452 | |
Equity in net income/(loss) of affiliated companies | 95 |
| | — |
| | 28 |
| | — |
| | — |
| | — |
| | — |
| | 123 |
| Equity in net income/(loss) of affiliated companies | 296 | | | (133) | | | 20 | | | 1 | | | — | | | (142) | | (b) | — | | | 42 | |
Cash outflow for capital spending | 7,677 |
| | 60 |
| | 48 |
| | — |
| | — |
| | — |
| | — |
| | 7,785 |
| Cash outflow for capital spending | 5,483 | | | 44 | | | 40 | | | 175 | | | — | | | — | | | — | | | 5,742 | |
Cash, cash equivalents, marketable securities, and restricted cash | 22,999 |
| | 86 |
| | 11,055 |
| | — |
| | — |
| | — |
| | — |
| | 34,140 |
| |
Total assets | 100,105 |
| | 558 |
| | 161,678 |
| | — |
| | — |
| | — |
| | (5,801 | ) | (a) | 256,540 |
| Total assets | 62,741 | | | 3,459 | | | 157,637 | | | 45,410 | | | — | | | — | | | (1,986) | | (c) | 267,261 | |
| | | | | | | | | | | | | | | | |
2019 | |
| | |
| | |
| | |
| | | | | | |
| | |
| |
2021 | | 2021 | | | | | | | | | | | |
Revenues | $ | 143,599 |
| | $ | 41 |
| | $ | 12,260 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 155,900 |
| Revenues | $ | 126,150 | | | $ | 118 | | | $ | 10,073 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 136,341 | |
Income/(loss) before income taxes | 4,926 |
| | (1,186 | ) | | 2,998 |
| | (359 | ) | | (1,020 | ) | | (5,999 | ) | | — |
| | (640 | ) | |
Income/(Loss) before income taxes | | Income/(Loss) before income taxes | 7,397 | | | (1,030) | | | 4,717 | | | (1,084) | | | (1,803) | | | 9,583 | | (e) | — | | | 17,780 | |
Depreciation and tooling amortization | 6,798 |
| | 29 |
| | 3,666 |
| | — |
| | — |
| | — |
| | — |
| | 10,493 |
| Depreciation and tooling amortization | 5,024 | | | 8 | | | 1,666 | | | 53 | | | — | | | 567 | | | — | | | 7,318 | |
Interest expense | — |
| | — |
| | 4,389 |
| | — |
| | 1,020 |
| | — |
| | — |
| | 5,409 |
| Interest expense | — | | | — | | | 2,790 | | | — | | | 1,803 | | | — | | | — | | | 4,593 | |
Investment-related interest income | 167 |
| | — |
| | 306 |
| | 336 |
| | — |
| | — |
| | — |
| | 809 |
| Investment-related interest income | 112 | | | — | | | 38 | | | 104 | | | — | | | — | | | — | | | 254 | |
Equity in net income/(loss) of affiliated companies | (11 | ) | | 12 |
| | 31 |
| | — |
| | — |
| | — |
| | — |
| | 32 |
| Equity in net income/(loss) of affiliated companies | 567 | | | (258) | | | 31 | | | 2 | | | — | | | (15) | | | — | | | 327 | |
Cash outflow for capital spending | 7,481 |
| | 99 |
| | 52 |
| | — |
| | — |
| | — |
| | — |
| | 7,632 |
| Cash outflow for capital spending | 5,979 | | | 46 | | | 44 | | | 158 | | | — | | | — | | | — | | | 6,227 | |
Cash, cash equivalents, marketable securities, and restricted cash | 22,186 |
| | 138 |
| | 12,564 |
| | — |
| | — |
| | — |
| | — |
| | 34,888 |
| |
Total assets | 101,348 |
| | 1,034 |
| | 160,697 |
| | — |
| | — |
| | — |
| | (4,542 | ) | (a) | 258,537 |
| Total assets | 68,969 | | | 3,325 | | | 134,428 | | | 51,730 | | | — | | | — | | | (1,417) | | (c) | 257,035 | |
__________
| |
(a) | Includes deferred tax netting and eliminations of intersegment transactions occurring in the ordinary course of business. |
(a)Primarily reflects Global Redesign actions in Europe and mark-to-market adjustments for our global pension and OPEB plans. Prior period amounts have been reclassified in accordance with special item reporting.
(b)Prior period amounts have been reclassified in accordance with special item reporting.
(c)Primarily includes eliminations of intersegment transactions occurring in the ordinary course of business. Prior period amounts have been revised to reflect adoption of ASU 2019-12.
(d)Primarily reflects 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 VW in the second quarter of 2020. Prior period amounts have been reclassified in accordance with special item reporting.
(e)Primarily reflects gains/(losses) on investments in equity securities (including a $9.1 billion gain on our Rivian equity investment) and mark-to-market adjustments for our global pension and OPEB plans, partially offset by Global Redesign actions and the loss on extinguishment of debt.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 28.26. SEGMENT INFORMATION (Continued)
Geographic Information
We report revenue on a “where-sold” basis, which reflects the revenue within the country in which the ultimate sale or financing is made to our external customer.
Total Company revenues and long-lived assets, split geographically by our country of domicile (the United States) and other countries where our major subsidiaries are domiciled, for the years ended December 31 were as follows (in millions):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 2017 | | 2018 | | 2019 |
| Revenues | | Long-Lived Assets (a) | | Revenues | | Long-Lived Assets (a) | | Revenues | | Long-Lived Assets (a) |
United States | $ | 93,844 |
| | $ | 42,504 |
| | $ | 97,546 |
| | $ | 44,940 |
| | $ | 98,729 |
| | $ | 46,434 |
|
Canada | 10,580 |
| | 4,771 |
| | 10,541 |
| | 4,604 |
| | 10,855 |
| | 4,842 |
|
United Kingdom | 9,619 |
| | 1,691 |
| | 9,703 |
| | 1,650 |
| | 8,899 |
| | 1,541 |
|
Germany | 7,265 |
| | 3,182 |
| | 7,894 |
| | 3,593 |
| | 7,930 |
| | 3,225 |
|
All Other | 35,468 |
| | 11,414 |
| | 34,654 |
| | 10,510 |
| | 29,487 |
| | 9,657 |
|
Total Company | $ | 156,776 |
| | $ | 63,562 |
| | $ | 160,338 |
| | $ | 65,297 |
| | $ | 155,900 |
| | $ | 65,699 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2019 | | 2020 | | 2021 |
| Revenues | | Long-Lived Assets (a) | | Revenues | | Long-Lived Assets (a) | | Revenues | | Long-Lived Assets (a) |
United States | $ | 98,729 | | | $ | 46,434 | | | $ | 82,535 | | | $ | 45,360 | | | $ | 87,012 | | | $ | 44,271 | |
Canada | 10,855 | | | 4,842 | | | 8,711 | | | 5,111 | | | 11,153 | | | 5,773 | |
Germany | 7,930 | | | 3,225 | | | 6,526 | | | 3,197 | | | 6,237 | | | 2,708 | |
United Kingdom | 8,899 | | | 1,541 | | | 6,110 | | | 1,401 | | | 7,607 | | | 1,383 | |
Mexico | 1,451 | | | 2,909 | | | 1,030 | | | 3,669 | | | 1,440 | | | 3,903 | |
All Other | 28,036 | | | 6,748 | | | 22,232 | | | 6,296 | | | 22,892 | | | 5,462 | |
Total Company | $ | 155,900 | | | $ | 65,699 | | | $ | 127,144 | | | $ | 65,034 | | | $ | 136,341 | | | $ | 63,500 | |
__________
| |
(a) | (a) Includes Net property and Net investment in operating leases from our consolidated balance sheets.Net property and Net investment in operating leases from our consolidated balance sheet. |
NOTE 29. SELECTED QUARTERLY FINANCIAL DATA (unaudited)
Selected financial data by calendar quarter were as follows (in millions, except per share amounts):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2018 | | 2019 |
| First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter |
Total revenues | $ | 41,959 |
| | $ | 38,920 |
| | $ | 37,666 |
| | $ | 41,793 |
| | $ | 40,342 |
| | $ | 38,853 |
| | $ | 36,990 |
| | $ | 39,715 |
|
Income/(Loss) before income taxes | 1,919 |
| | 1,349 |
| | 1,094 |
| | (17 | ) | | 1,610 |
| | 205 |
| | (19 | ) | | (2,436 | ) |
| | | | | | | | | | | | | | | |
Amounts Attributable to Ford Motor Company Common and Class B Shareholders |
Net income/(loss) | $ | 1,736 |
| | $ | 1,066 |
| | $ | 991 |
| | $ | (116 | ) | | $ | 1,146 |
| | $ | 148 |
| | $ | 425 |
| | $ | (1,672 | ) |
| | | | | | | | | | | | | | | |
Common and Class B per share from income from continuing operations |
Basic | $ | 0.44 |
| | $ | 0.27 |
| | $ | 0.25 |
| | $ | (0.03 | ) | | $ | 0.29 |
| | $ | 0.04 |
| | $ | 0.11 |
| | $ | (0.42 | ) |
Diluted | 0.43 |
| | 0.27 |
| | 0.25 |
| | (0.03 | ) | | 0.29 |
| | 0.04 |
| | 0.11 |
| | (0.42 | ) |
Certain of the quarterly results identified in the table above include material unusual or infrequently occurring items as follows on a pre-tax basis, except for tax items:
The fourth quarter 2018 results include a pension and OPEB net remeasurement loss of $877 million.
The first, second, third, and fourth quarter 2019 results each include global redesign related activities, including employee separation costs, payments to dealers and suppliers, and impairment and other charges, of $514 million, $1.2 billion, $1 billion, and $413 million, respectively (see Note 22).
The third quarter 2019 net income includes a one-time tax benefit of $278 million arising from restructuring in our European operations.
The third and fourth quarter 2019 results include pension and OPEB net remeasurement losses of $306 million and $2.2 billion, respectively.
FORD MOTOR COMPANY AND SUBSIDIARIES
Schedule II — Valuation and Qualifying Accounts
(in millions)
| | Description | | Balance at Beginning of Period | | Charged to Costs and Expenses | | Deductions | | Balance at End of Period | Description | | Balance at Beginning of Period | | Charged to Costs and Expenses | | Deductions | | Balance at End of Period |
For the Year Ended December 31, 2017 | | | | | | | | | | | |
For the Year Ended December 31, 2019 | | For the Year Ended December 31, 2019 | | | | | | | | |
Allowances deducted from assets | | | | | | | | | | | Allowances deducted from assets | | | | | | | | |
Credit losses | | $ | 503 |
| | $ | 476 |
| | $ | 371 |
| (a) | | $ | 608 |
| Credit losses | | $ | 592 | | | $ | 310 | | | $ | 372 | | (a) | | $ | 530 | |
Doubtful receivables | | 377 |
| | 24 |
| | (3 | ) | (b) | | 404 |
| Doubtful receivables | | 94 | | | 18 | | | 63 | | (b) | | 49 | |
Inventories (primarily service part obsolescence) | | 201 |
| | 42 |
| (c) | | — |
| | | 243 |
| Inventories (primarily service part obsolescence) | | 373 | | | 89 | | (c) | | — | | | | 462 | |
Deferred tax assets | | 909 |
| | 583 |
| (d) | | — |
| | 1,492 |
| Deferred tax assets | | 973 | | | 41 | | (d) | | 171 | | | 843 | |
Total allowances deducted from assets | | $ | 1,990 |
| | $ | 1,125 |
| | $ | 368 |
| | | $ | 2,747 |
| Total allowances deducted from assets | | $ | 2,032 | | | $ | 458 | | | $ | 606 | | | | $ | 1,884 | |
| | | | | | | | | | | | | | | | |
For the Year Ended December 31, 2018 | | |
| | |
| | | |
| | | |
| |
For the Year Ended December 31, 2020 | | For the Year Ended December 31, 2020 | | | | | | | | | | |
Allowances deducted from assets | | |
| | |
| | | |
| | | |
| Allowances deducted from assets | | | | | | | | | | |
Credit losses | | $ | 608 |
| | $ | 419 |
| | | $ | 435 |
| (a) | | $ | 592 |
| Credit losses | | $ | 530 | | | $ | 840 | | | | $ | 38 | | (a) | | $ | 1,332 | |
Doubtful receivables | | 404 |
| | 5 |
| | | 315 |
| (b) | | 94 |
| Doubtful receivables | | 49 | | | 28 | | | | 20 | | (b) | | 57 | |
Inventories (primarily service part obsolescence) | | 243 |
| | 130 |
| (c) | | — |
| | | 373 |
| Inventories (primarily service part obsolescence) | | 462 | | | 226 | | (c) | | — | | | | 688 | |
Deferred tax assets | | 1,492 |
| | (519 | ) | (d) | | — |
| | 973 |
| Deferred tax assets | | 843 | | | 1,301 | | (d) | | 163 | | | 1,981 | |
Total allowances deducted from assets | | $ | 2,747 |
| | $ | 35 |
| | | $ | 750 |
| | | $ | 2,032 |
| Total allowances deducted from assets | | $ | 1,884 | | | $ | 2,395 | | | | $ | 221 | | | | $ | 4,058 | |
| | | | | | | | | | | | | | | | |
For the Year Ended December 31, 2019 | | |
| | |
| | | |
| | | |
| |
For the Year Ended December 31, 2021 | | For the Year Ended December 31, 2021 | | | | | | | | | | |
Allowances deducted from assets | | |
| | |
| | | |
| | | |
| Allowances deducted from assets | | | | | | | | | | |
Credit losses | | $ | 592 |
| | $ | 310 |
| | | $ | 372 |
| (a) | | $ | 530 |
| Credit losses | | $ | 1,332 | | | $ | (306) | | | | $ | 100 | | (a) | | $ | 926 | |
Doubtful receivables | | 94 |
| | 18 |
| | | 63 |
| (b) | | 49 |
| Doubtful receivables | | 57 | | | 3 | | | | 13 | | (b) | | 47 | |
Inventories (primarily service part obsolescence) | | 373 |
| | 89 |
| (c) | | — |
| | | 462 |
| Inventories (primarily service part obsolescence) | | 688 | | | 36 | | (c) | | — | | | | 724 | |
Deferred tax assets | | 973 |
| | 41 |
| (d) | | 171 |
| | 843 |
| Deferred tax assets | | 1,981 | | | (670) | | (d) | | 244 | | | 1,067 | |
Total allowances deducted from assets | | $ | 2,032 |
| | $ | 458 |
| | | $ | 606 |
| | | $ | 1,884 |
| Total allowances deducted from assets | | $ | 4,058 | | | $ | (937) | | | | $ | 357 | | | | $ | 2,764 | |
_________
| |
(a) | Finance receivables deemed to be uncollectible and other changes, principally amounts related to finance receivables sold and translation adjustments. |
| |
(b) | Accounts and notes receivable deemed to be uncollectible as well as translation adjustments. |
| |
(c) | Net change in inventory allowances, including translation adjustments. |
| |
(d) | Includes $127(a)Finance receivables deemed to be uncollectible and other changes, principally amounts related to finance receivables sold and translation adjustments. For the year ended 2020, includes $(252) million related to the adoption of ASU 2016-13 for cumulative pre-tax adjustments recorded to retained earnings as of January 1, 2020., $(101) million, and $(78) million in 2017, 2018, and 2019, respectively, of valuation allowance for deferred tax assets through Accumulated other comprehensive income/(loss), including translation adjustments and $456 million, $(418) million, and $(52) million in 2017, 2018, and 2019, respectively, of valuation allowance for deferred tax assets through the income statement. |
(b)Accounts receivable deemed to be uncollectible as well as translation adjustments.
(c)Net change in inventory allowances, including translation adjustments.
(d)Includes $(78) million, $(77) million, and $127 million in 2019, 2020, and 2021, respectively, of valuation allowances for deferred tax assets through Accumulated other comprehensive income/(loss), including translation adjustments and $(52) million, $1.2 billion, and $(797) million in 2019, 2020, and 2021, respectively, of valuation allowances for deferred tax assets through the income statement. The reversal in 2021 primarily reflects a change in our intent to pursue planning actions involving cash outlays to preserve tax credits.