01—Abstract
Summary
Summary of the 10-K filed February 28, 2007. Cited figures are marked; the original filing is the authoritative source.
Ford Motor Company's 2006 Form 10-K (filed February 28, 2007) reports a severe downturn.
Total company sales and revenues fell to $160.1 billiona from $176.9 billion, and the company posted a net loss of $12.6 billion, or $6.72 per share, versus a $1.4 billion profit in 2005. The loss was driven by the Automotive sector, which recorded a pre-tax loss of $17.0 billion including $11.9 billion of special items such as Jobs Bank benefit charges, pension curtailment losses, and $3.8 billion of impairments on Ford North America and Jaguar Land Rover assets. Stockholders' equity turned negative at $(3.5) billion, down $16.9 billion from 2005.
The Financial Services sector remained profitable, with pre-tax income of $2.0 billionb, though Ford Credit earnings fell on higher borrowing costs. Liquidity was the main positive. In December 2006 Ford raised $23.5 billion of new capital, including a $4.95 billion convertible note, a $7 billion secured term loan, and an $11.5 billion secured revolver, bringing total automotive liquidity to about $46 billion.
Management expects more than $17 billionc of cumulative automotive cash outflows through 2009, with more than half in 2007, and projects Ford North America and the Automotive sector to return to profitability in 2009. Credit ratings were cut further in late 2006 and remain in deep speculative-grade territory, with Moody's at Caa1 on senior unsecured debt and S&P at CCC+. Market share continues to decline, with U.S. combined share at 17.1% versus 21.1% in 2002.
The company suspended its dividend, and the credit agreement now prohibits common dividends. For investors, the filing describes a company in a multi-year restructuring: roughly 14,000 salaried positions cut, about 89,000 hourly North American employees at year-end, and 16 North American plants to be idled by 2012, with the Way Forward plan targeting about $5 billiond in annual cost savings by 2008. Significant risks remain, including a Ford Credit funding squeeze, a labor contract expiring with the UAW in September 2007, a diesel engine supply dispute with International Truck and Engine, and large pension and retiree health obligations.
02—Key points
Key Highlights
- 2006 net loss of $12.6 billion ($6.72 per share) versus a $1.4 billion profit in 2005, driven by $11.9 billion of automotive special items
- Stockholders' equity fell to a deficit of $(3.5) billion, down $16.9 billion year over year, after SFAS 158 pension and OPEB adoption and 2006 losses
- Raised $23.5 billion of new secured and convertible financing in December 2006, lifting automotive liquidity to about $46 billion
- Automotive gross cash rose to $33.9 billion, but automotive net cash fell to $3.9 billion as debt climbed to $30.0 billion
- Expects $10 billion of operating cash outflows and $7 billion of restructuring cash costs in 2007 through 2009, with more than half in 2007
- Credit ratings were cut further in late 2006 (Moody's Caa1, S&P CCC+ on senior unsecured debt), raising borrowing costs
- U.S. combined car and truck market share fell to 17.1% in 2006 from 21.1% in 2002, while the company plans a $5 billion North American cost reduction by 2008
03—Questions
Frequently Asked Questions
Why did Ford post such a large loss in 2006?
The loss mainly reflects $11.9 billion of pre-tax special items in the Automotive sector. These include $4.8 billion of Jobs Bank Benefits and personnel-reduction charges, $2.7 billion of pension curtailment losses, $2.2 billion of Ford North America fixed-asset impairments, and $1.6 billion of Jaguar Land Rover impairments. Underlying operations also weakened due to lower volume, adverse product mix, market share losses, and unfavorable pricing.
Is Ford at risk of running out of cash?
Management says automotive liquidity of about $46 billion at year-end 2006 should fund restructuring and product development and provide a cushion for a recession. The company expects heavy 2007 cash outflows, and its covenants require minimum domestic liquidity of $4 billion. Ford Credit's funding costs have also risen, and it has begun shifting toward securitization. The filing flags that substantial negative automotive cash flows could limit access to future borrowing.
Will Ford pay dividends going forward?
Unlikely in the near term. Ford paid $0.10 per quarter through the first half of 2006, reduced it to $0.05 in the third quarter, and paid nothing in the fourth. The December 2006 secured credit agreement prohibits dividends on common and Class B stock, subject to limited exceptions. Ford Credit also suspended its regular dividend beginning in 2007.
When does Ford expect to return to profitability?
Management expects Ford North America and the Automotive sector overall to be profitable in 2009, assuming North American U.S. market share stabilizes at 14% to 15% and about $5 billion of annual cost reductions are achieved by 2008. For 2007 it expects a substantial improvement in the total automotive loss but a continued net loss, with market share and earnings comparisons remaining challenging through the first three quarters.
04—Continue