01—Abstract
Summary
Summary of the 10-K filed February 13, 2015. Cited figures are marked; the original filing is the authoritative source.
Ford Motor Company's 2014 Form 10-K (filed February 13, 2015) shows a year of lower profitability driven by the Automotive sector.
Total revenue was $144.1 billiona, down from $146.9 billion, and net income attributable to Ford fell to $3.2 billion ($0.80 diluted EPS) from $7.2 billion ($1.77) in 2013. Pre-tax profit excluding special items was $6.3 billion versus $8.6 billion, and special items of $1.9 billion (including an $800 million Venezuela accounting charge and a $329 million Ford Sollers impairment) further reduced reported results. Automotive operating margin fell to 3.9% from 5.4%, with North America still the profit engine ($6.9 billion pre-tax) while South America lost $1.2 billion and Europe lost $1.1 billion.
Balance sheet and liquidity remain solid. Automotive gross cash was $21.7 billionb and total Automotive liquidity was $32.4 billion, including a $12.2 billion revolving credit facility. Automotive net cash was $7.9 billion, and the company repurchased about $2 billion of stock and paid $2 billion in dividends.
Total debt rose to $119.2 billionc, almost entirely at Ford Credit ($105.3 billion), whose managed leverage was 8.7:1. Ford's pension plans were underfunded by $9 billion, a figure management expects to close by 2016. Regulatory exposure is significant: the CAFE and ZEV rules, the 2025 fuel-economy targets, and possible Brazilian tax assessments all pose risk.
Management guided to a strong 2015 rebound, with total Company pre-tax profit (excluding special items) of $8.5 to $9.5 billiond, higher Automotive revenue and margins, and a North America operating margin of 8% to 9%. Investors should weigh that guidance against the cost of 15 to 24 new product launches, the continued losses in South America and Europe, and the back-half-weighted 2015 calendarization.
02—Key points
Key Highlights
- Total revenue of $144.1B (down 2% from $146.9B); Automotive revenue $135.8B, Financial Services revenue $8.3B.
- Net income attributable to Ford fell to $3.2B ($0.80 diluted EPS) from $7.2B ($1.77) in 2013, reflecting $1.9B of special items.
- Pre-tax profit excluding special items fell to $6.3B from $8.6B; Automotive operating margin dropped to 3.9% from 5.4%.
- North America pre-tax profit was $6.9B (8.4% margin), offset by South America (-$1.2B) and Europe (-$1.1B) losses.
- Automotive liquidity was $32.4B and net cash $7.9B; $2B was spent on share repurchases and dividends were raised to $0.50 per share.
- 2015 outlook calls for total Company pre-tax profit of $8.5B to $9.5B, with 15 global product launches planned.
- Pension plans were underfunded by $9B at year-end 2014, with a goal of full funding by 2016; Ford Credit managed leverage was 8.7:1.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2014filed February 13, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $144.08B$146.92B | −1.9% |
| Cost of Revenue | $125.03B$120.19B | +4.0% |
| Gross Profit | $19.05B$26.73B | −28.7% |
| R&D Expenses | $6.70B$6.20B | +8.1% |
| SG&A Expenses | $11.84B$10.85B | +9.1% |
| Operating Expenses | $143.75B$134.11B | +7.2% |
| Interest Expense | $797.00M$3.69B | −78.4% |
| Net Income | $1.23B$11.95B | −89.7% |
| EPS (Basic) | $0.31$3.04 | −89.8% |
| EPS (Diluted) | $0.31$2.94 | −89.5% |
| Shares Outstanding (Basic) | 3.91B3.94B | −0.6% |
| Shares Outstanding (Diluted) | 3.96B4.09B | −3.2% |
05—Questions
Frequently Asked Questions
Why did Ford's 2014 net income fall so sharply from 2013?
Net income fell by about $4B, from $7.2B to $3.2B. Pre-tax profit excluding special items declined from $8.6B to $6.3B, driven mainly by higher warranty and recall costs, unfavorable currency effects, lower volume in the Americas (including product launch effects), and higher structural costs. Special items of $1.9B, including an $800M Venezuela accounting charge and a $329M impairment of the Ford Sollers joint venture, further reduced reported earnings.
How is Ford's balance sheet risk profile, and is the debt a concern?
Most of Ford's $119.2B debt sits in the Financial Services sector ($105.3B), which funds vehicle loans and leases and is backed largely by receivables and securitizations. Automotive debt was $13.8B against $21.7B of gross cash, leaving a net cash position of $7.9B. Ford targets reducing Automotive debt to about $10B by 2018. Ford Credit's managed leverage of 8.7:1 is within its 8:1 to 9:1 target range, and its credit ratings are all investment grade (BBB- range).
What is Ford's 2015 outlook and what are the key assumptions?
Ford expects total Company pre-tax profit, excluding special items, of $8.5B to $9.5B in 2015, versus $6.3B in 2014. The outlook assumes U.S. industry volume of 17.0 to 17.5 million units, higher Automotive revenue, operating margin and operating-related cash flow, and capital spending of about $7.5B. North America's margin is expected to rise to 8% to 9%, while South America and Europe should improve but remain loss-making. Ford also expects 2015 earnings to be weighted toward the second half because of launch costs and plant changeovers.
What are the main regulatory and legal risks Ford disclosed?
The most significant regulatory risks are the U.S. CAFE standards (35.5 mpg by 2016, 54.5 mpg by 2025), California's ZEV mandate, which could require substantial electric-vehicle sales from 2018, and European CO2 limits that can trigger penalties. Ford flagged that meeting the 2022-2025 model-year standards is unclear. On the legal side, the Brazilian tax assessments tied to Bahia incentives and the U.S. Customs Transit Connect duty ruling are the main disputed matters; indirect tax and customs matters carry a reasonably possible loss of up to about $2.9B.
Are there any shareholder-relevant capital return or dilution actions?
In 2014 Ford repurchased about 116 million shares for roughly $2B, mostly to offset dilution from share-based compensation and from its 4.25% convertible notes. The convertible notes were settled through conversion into about 103 million shares, and the company has no convertible debt outstanding. The quarterly dividend increased from $0.10 to $0.125 per share during 2014, and total dividends declared were $0.50 per share for the year.
06—Continue