Did Ford's profitability decline in 2000, and why?

Yes. Net income fell to $3.47 billion from $7.24 billion in 1999. The main drivers were a $1.6 billion pre-tax European restructuring and asset impairment charge, a $2.25 billion after-tax loss on the Visteon spin-off, Firestone recall costs, and higher warranty expense in North America. Excluding unusual items, management reports income from continuing operations of about $6.67 billion versus $6.79 billion in 1999.

How did the Visteon spin-off and Value Enhancement Plan change Ford's share structure and balance sheet?

Ford distributed 130 million Visteon shares to stockholders on June 28, 2000, recording a $2.3 billion after-tax loss. The Value Enhancement Plan, effective August 2000, exchanged each share for one new share plus either $20 in cash or 0.748 additional shares. Shareholders elected $5.7 billion in cash, and shares outstanding rose to about 1.893 billion. Equity fell to $18.6 billion, and average diluted shares for 2000 were 1.504 billion, so per-share comparisons with 1999 are distorted.

How strong is Ford's financial position, and what should investors watch?

Automotive cash and marketable securities were $16.5 billion, but automotive net cash fell to $4.4 billion from $10.0 billion. Automotive debt was $12.0 billion, or 39% of capitalization. Financial Services debt was $153.5 billion, funded mainly through commercial paper and term debt. Credit ratings were A2 (Moody's) and A (S&P) for senior debt. Investors should watch Automotive cash generation, the pace of cost reductions (a $1 billion target for 2001), and the outcome of product liability litigation, which could require large and currently unquantified payments.

What is the 2001 outlook?

Ford projected lower U.S. industry sales of 16.0 to 16.5 million units, compared with 17.8 million in 2000, and flat-to-slightly-lower European sales of about 17.7 million. Financial milestones include a 4%+ return on sales in North America, a 1%+ return on sales in Europe, a $1 billion reduction in total costs at constant volume and mix, and capital spending held at $8 billion or less. Ford also expects to adopt SFAS 133 on January 1, 2001, with an estimated $70 million reduction to 2001 net income. The company notes these are milestones, not forecasts.

What are the most significant legal and regulatory risks disclosed?

The most significant risks are the Firestone/Explorer tire claims, including personal injury suits, class actions, and a Venezuelan criminal investigation; Bronco II rollover suits with about $2.4 billion in specified damages; and occupant restraint and asbestos claims. A California court found Ford violated state law by concealing a TFI module defect, and it ordered a recall and restitution, with potential exposure up to $4 billion. Ford also faces an EPA waste-disposal action and an on-board diagnostics inquiry covering about 6 million vehicles. Management says it does not expect these matters to materially affect any single year's results, but the outcomes are uncertain.

FORD MOTOR CO 10-K FY2000 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 22, 2001. Cited figures are marked; the original filing is the authoritative source.

Ford Motor Company's 2000 10-K shows a company in transition.

Full-year 2000 revenues reached a record $170.1 billion^a (up $9.4 billion), with 7.42 million vehicles sold, helped by the Land Rover acquisition. Profitability weakened sharply, however: net income fell to $3.47 billion from $7.24 billion in 1999, and income from continuing operations declined to $5.41 billion from $6.50 billion. The Automotive sector earned $3.62 billion, down from $4.99 billion, and was hit by a $1.6 billion European charge (including $1.1 billion asset impairment) and a $2.25 billion after-tax loss on the Visteon spin-off.

Excluding unusual items, income from continuing operations would have been about $6.67 billion^b, which is useful context but should be read with caution given how frequently such items recur. The balance sheet and capital structure changed materially. Stockholders' equity fell to $18.6 billion from $27.6 billion, driven by the $5.7 billion Value Enhancement Plan recapitalization, the Visteon spin-off, share repurchases, and currency translation losses.

Automotive debt-to-capitalization rose to 39% from 30%. Automotive net cash fell to $4.4 billion^c from $10.0 billion. Financial Services grew, with Ford Credit earnings up 22% to $1.54 billion and finance receivables plus operating leases reaching $171.8 billion.

Financial Services debt rose to $153.5 billion^d. Management's 2001 outlook calls for a lower U.S. industry (16.0 to 16.5 million units) and continued cost reduction, with a $1 billion cost target. Investors should also weigh material legal and product-liability exposure.

The filing discloses the Firestone/Explorer tire matters, Bronco II rollover claims (about $2.4 billion in specified damages), occupant restraint claims, asbestos claims (about $1.7 billion), and a California TFI module case in which the court found Ford violated state law and could face an adverse judgment as high as $4 billion. Management states it does not expect these matters to have a material effect on any single year's financial statements, but the risk is substantial and unquantified.

02—Key points

Key Highlights

Record 2000 revenue of $170.1 billion (up $9.4 billion), with 7.42 million vehicles sold, including the Land Rover acquisition completed June 30, 2000.
Net income fell 52% to $3.47 billion ($2.30 diluted EPS) from $7.24 billion ($5.86) in 1999, reflecting a $1.6 billion European charge and a $2.25 billion after-tax loss on the Visteon spin-off.
Automotive sector earnings declined to $3.62 billion from $4.99 billion; Europe posted a $1.13 billion loss, and North American Automotive earnings fell to $4.89 billion from $5.42 billion, pressured by Firestone recall costs and 3.8L engine warranty expense.
Financial Services net income rose 18% to $1.79 billion, led by Ford Credit (up 22% to $1.54 billion) and Hertz (up 7% to $358 million), before Hertz was taken fully private in March 2001 for about $750 million.
Stockholders' equity dropped to $18.6 billion from $27.6 billion after the $5.7 billion Value Enhancement Plan recapitalization; Automotive debt rose to 39% of total capitalization from 30%.
Automotive net cash fell to $4.4 billion from $10.0 billion, and the company expects about $5 billion in early 2001 outflows for profit sharing, the final Volvo payment, buybacks, and the Hertz buyout.
Material legal exposure includes Firestone tire and Explorer claims, Bronco II rollover suits (about $2.4 billion in specified damages), asbestos claims (about $1.7 billion), and a California TFI module case with a potential judgment of up to $4 billion.

03—Questions

Frequently Asked Questions

Did Ford's profitability decline in 2000, and why?
Yes. Net income fell to $3.47 billion from $7.24 billion in 1999. The main drivers were a $1.6 billion pre-tax European restructuring and asset impairment charge, a $2.25 billion after-tax loss on the Visteon spin-off, Firestone recall costs, and higher warranty expense in North America. Excluding unusual items, management reports income from continuing operations of about $6.67 billion versus $6.79 billion in 1999.
How did the Visteon spin-off and Value Enhancement Plan change Ford's share structure and balance sheet?
Ford distributed 130 million Visteon shares to stockholders on June 28, 2000, recording a $2.3 billion after-tax loss. The Value Enhancement Plan, effective August 2000, exchanged each share for one new share plus either $20 in cash or 0.748 additional shares. Shareholders elected $5.7 billion in cash, and shares outstanding rose to about 1.893 billion. Equity fell to $18.6 billion, and average diluted shares for 2000 were 1.504 billion, so per-share comparisons with 1999 are distorted.
How strong is Ford's financial position, and what should investors watch?
Automotive cash and marketable securities were $16.5 billion, but automotive net cash fell to $4.4 billion from $10.0 billion. Automotive debt was $12.0 billion, or 39% of capitalization. Financial Services debt was $153.5 billion, funded mainly through commercial paper and term debt. Credit ratings were A2 (Moody's) and A (S&P) for senior debt. Investors should watch Automotive cash generation, the pace of cost reductions (a $1 billion target for 2001), and the outcome of product liability litigation, which could require large and currently unquantified payments.
What is the 2001 outlook?
Ford projected lower U.S. industry sales of 16.0 to 16.5 million units, compared with 17.8 million in 2000, and flat-to-slightly-lower European sales of about 17.7 million. Financial milestones include a 4%+ return on sales in North America, a 1%+ return on sales in Europe, a $1 billion reduction in total costs at constant volume and mix, and capital spending held at $8 billion or less. Ford also expects to adopt SFAS 133 on January 1, 2001, with an estimated $70 million reduction to 2001 net income. The company notes these are milestones, not forecasts.
What are the most significant legal and regulatory risks disclosed?
The most significant risks are the Firestone/Explorer tire claims, including personal injury suits, class actions, and a Venezuelan criminal investigation; Bronco II rollover suits with about $2.4 billion in specified damages; and occupant restraint and asbestos claims. A California court found Ford violated state law by concealing a TFI module defect, and it ordered a recall and restitution, with potential exposure up to $4 billion. Ford also faces an EPA waste-disposal action and an on-board diagnostics inquiry covering about 6 million vehicles. Management says it does not expect these matters to materially affect any single year's results, but the outcomes are uncertain.

04—Continue

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