01—Abstract
Summary
Summary of the 10-K filed March 16, 2000. Cited figures are marked; the original filing is the authoritative source.
Ford Motor Company's 10-K for fiscal 1999 shows a company that delivered record-level profitability in North America while struggling elsewhere.
Total company net income was $7.2 billiona ($5.86 per diluted share), down sharply from $22.1 billion in 1998, which included a one-time, non-cash $15.96 billion gain from the spin-off of The Associates. Revenues rose to $162.6 billion, driven largely by the March 1999 acquisition of Volvo Car. Automotive sector earnings were $5.7 billion, with North American Automotive delivering $6.1 billion (a 6.2% after-tax return on sales), offset by a $452 million loss in South America and a sharp drop in European earnings to $28 million.
Financial Services net income rose to $1.5 billionb, with Ford Credit up 16% and Hertz at a record. The filing highlights several risks for investors. Ford's U.S. market share fell to 23.9% (from 24.6%) because of capacity constraints on key products, and marketing costs rose to 10.6% of U.S. gross sales.
The company faces significant litigation, including a Bronco II rollover exposure of about $4.1 billionc in specified damages, a TFI module class action in California that could reach $4 billion, and a federal grand jury investigation over the MFA engine control strategy. Regulatory pressures from tighter emissions standards, CAFE requirements, and possible CO2 regulation could also weigh on sales and profits. Management plans to take Visteon, its $19.4 billion components unit, toward independence in 2000.
The balance sheet remains strong, with $23.6 billiond of Automotive cash and marketable securities and stockholders' equity of $27.5 billion, up $4.1 billion. However, Financial Services debt rose $17.6 billion to $139.9 billion. Management's 2000 outlook calls for record North American earnings, a $1 billion reduction in total costs, and capital spending of $9 billion.
02—Key points
Key Highlights
- Total net income of $7.237 billion ($5.86 diluted EPS) in 1999, versus $22.071 billion in 1998 that included a one-time $15.955 billion non-cash spin-off gain from The Associates
- North American Automotive earnings of $6.137 billion on $100.3 billion in sales, with a 6.2% after-tax return on sales, the main driver of profitability
- Europe Automotive earnings fell to $28 million (down $165 million), and South America lost $452 million amid Brazil's economic weakness and currency devaluation
- U.S. market share declined to 23.9% (from 24.6%) as capacity constraints limited supply of key products, while U.S. marketing costs rose to 10.6% of gross sales
- Significant litigation exposure, including Bronco II rollover claims of about $4.1 billion, TFI module class actions with a possible California judgment of up to $4 billion, and a federal grand jury probe over the MFA engine strategy
- Strong Automotive balance sheet with $23.6 billion in cash and marketable securities, net automotive cash of $11.4 billion, and total stockholders' equity of $27.5 billion
- 2000 milestones include record North American earnings, a $1 billion cost reduction, $9 billion in capital spending, and achieving Visteon independence
03—Questions
Frequently Asked Questions
How did Ford's 1999 earnings compare with 1998, and why is the comparison distorted?
Net income fell to $7.2 billion in 1999 from $22.1 billion in 1998. The 1998 figure included a non-cash, non-taxable $15.96 billion gain from spinning off The Associates to shareholders. Excluding that gain, 1998 net income was roughly $6.1 billion, so underlying 1999 earnings were higher, though still weighed down by losses in South America and Europe.
Which parts of Ford's business are driving profits and which are struggling?
North American Automotive is the main profit engine, earning $6.1 billion in 1999 on higher volume, a richer light-truck and luxury mix, and lower costs. Europe earned only $28 million, pressured by weaker Ford-brand share (Mondeo, Fiesta) and mix, and South America lost $452 million. Financial Services earned $1.5 billion, with Ford Credit up 16% and Hertz at a record.
What are the biggest legal and regulatory risks disclosed in the filing?
Key risks include product liability claims such as Bronco II rollover suits (about $4.1 billion in specified damages) and occupant restraint and asbestos cases; the TFI module class action in California, where an adverse outcome could reach $4 billion; a federal grand jury investigation over the MFA engine control strategy; and tightening emissions, CAFE, and possible CO2 rules that could limit product offerings and profits. Management says most damage claims are typically settled for much less than the amounts originally sought.
Is Ford's balance sheet strong enough to absorb these risks?
The Automotive sector is in solid shape, with $23.6 billion in cash and marketable securities against $12.1 billion of debt, leaving net cash of $11.4 billion. Automotive debt was 31% of total capitalization. Financial Services carries much heavier leverage, with total debt of $139.9 billion (up $17.6 billion), but that debt is largely matched against receivables and leases. Ford's senior debt is rated A1 by Moody's and A+ by S&P.
What does Ford expect for 2000?
Ford set financial milestones for 2000, not forecasts. These include record North American earnings, improved results in Europe, South America and Rest of World, a $1 billion reduction in total costs at constant volume and mix, capital spending of about $9 billion, revenue growth of $5 billion, and Visteon achieving independence. Management expects U.S. industry sales of about 17 million units, down from 17.4 million in 1999.
04—Continue