10-K/APeriod: FY2005

FORD MOTOR CO Annual Report (Amendment), Year Ended Dec 31, 2005

Filed November 14, 2006For Securities:FF-PCF-PDF-PB

Summary

Ford Motor Company's 2005 Form 10-K/A reveals a year of significant financial activity and strategic adjustments. The company reported total sales and revenues of $176.9 billion, a slight increase from the previous year, but net income experienced a substantial decline to $1.44 billion from $3.04 billion in 2004. This decrease was largely influenced by an $845 million provision for income taxes and a $251 million cumulative effect of changes in accounting principles. The Automotive sector faced operating losses of $4.19 billion, contrasted by a profitable Financial Services sector that generated $4.95 billion in income before taxes. A key event during the year was the sale of The Hertz Corporation, which resulted in a $1.1 billion pre-tax gain and significantly impacted the company's asset and liability structure, as Hertz was reclassified as discontinued operations. Furthermore, the financial statements highlight a substantial restatement impacting prior years' results due to issues with hedge accounting for interest rate swaps. This restatement led to a decrease in reported debt and an increase in net income for previous periods, emphasizing the complexity and importance of derivative accounting. The company also continues to navigate significant employee benefit obligations, particularly postretirement health care and pension liabilities, which remain a considerable financial commitment. Ford's financial position at year-end 2005 showed total assets of $269.5 billion and total liabilities of $254.9 billion, with a notable decrease in debt levels in the Automotive sector.

Key Highlights

  • 1Net income significantly decreased to $1.44 billion in 2005 from $3.04 billion in 2004, largely due to an increase in income tax provision and accounting principle changes.
  • 2The Automotive sector reported an operating loss of $4.19 billion, while the Financial Services sector remained profitable with $4.95 billion in income before taxes.
  • 3The sale of The Hertz Corporation in late 2005 generated a pre-tax gain of $1.1 billion, impacting the company's discontinued operations and overall financial position.
  • 4Ford implemented a significant restatement of its financial statements for 2005, 2004, and 2003, primarily related to accounting for interest rate swaps used in hedge accounting, which affected reported debt and net income.
  • 5Total assets decreased to $269.5 billion at year-end 2005 from $295.5 billion at year-end 2004, alongside a reduction in total liabilities from $277.2 billion to $254.9 billion.
  • 6The company continues to manage substantial long-term liabilities related to pension and postretirement health care benefits, totaling tens of billions of dollars.
  • 7Sales and revenues remained relatively stable, increasing slightly to $176.9 billion in 2005 from $172.3 billion in 2004.

Frequently Asked Questions

The primary reason for the restatement was an issue with the accounting for certain interest rate swaps used in hedge accounting. Ford concluded that these hedging relationships did not meet specific criteria for an assumption of 'no ineffectiveness' under SFAS No. 133, leading to the recognition of fair value changes in earnings without the corresponding offset from the hedged debt. This restatement impacted net income and debt levels in prior periods.

The sale of The Hertz Corporation in December 2005 resulted in a pre-tax gain of $1.1 billion, which was recognized in the 'Gain on sale of The Hertz Corporation' line item. Hertz's operations were classified as discontinued/held-for-sale prior to the sale, impacting the balance sheet presentation.

The Automotive sector reported a significant operating loss of $4.19 billion for 2005, indicating challenges in its core manufacturing business. In contrast, the Financial Services sector remained a strong contributor, generating $4.95 billion in income before taxes, primarily through its lending and leasing operations.

Ford's balance sheet is significantly impacted by 'Debt,' totaling $153.3 billion at year-end 2005, and substantial liabilities related to 'Accrued liabilities and deferred revenue,' amounting to $73.0 billion. Additionally, the company has considerable long-term obligations related to retirement benefits, including pension and postretirement health care liabilities, which represent a significant future financial commitment.