01—Abstract
Summary
Summary of the 10-K/A filed March 30, 2015. Cited figures are marked; the original filing is the authoritative source.
The filing provided is an exhibit index plus Exhibit 99, the audited 2014 financial statements of Changan Ford Automobile Corporation Limited (CAF), a Chinese joint venture.
It does not contain Ford Motor Company's own consolidated financial statements, MD&A, or risk factors, so the figures below describe the JV, not Ford. Ford's economic interest is 50%a (35% through FAPAH and 15% through Ford China), with Changan Automobile holding the other 50%. CAF is accounted for under the equity method, so its results matter to Ford mainly through its share of earnings and dividends.
All figures are in RMB. CAF's 2014 performance was strong. Total revenues rose about 26%b to RMB 100.3 billion, operating income rose about 67% to RMB 15.5 billion (a 15.5% operating margin), and net income attributable to the company rose about 75% to RMB 14.3 billion.
Government grants added RMB 971 million, and a preferential 15%c tax rate (versus the 25% statutory rate) cut the tax bill by about RMB 1.9 billion. Operating cash flow was RMB 20.5 billion, against RMB 7.2 billion of capital expenditure. The balance sheet shows some pressure.
Shareholders' equity fell to RMB 9.4 billion from RMB 10.4 billion because dividends of RMB 15.4 billion exceeded 2014 net income. Warranty liabilities nearly doubled to RMB 1.8 billion, and cash fell to RMB 10.5 billion from RMB 12.3 billion. Accounts payable of RMB 12.9 billion remain the largest liability, reflecting heavy reliance on supplier financing.
02—Key points
Key Highlights
- Total revenues grew about 26% to RMB 100.3 billion in 2014, up from RMB 79.7 billion in 2013.
- Operating income rose about 67% to RMB 15.5 billion, with operating margin of roughly 15.5%.
- Net income attributable to CAF grew about 75% to RMB 14.3 billion, supported by a preferential 15% tax rate and RMB 971 million in government grants.
- Operating cash flow of RMB 20.5 billion covered RMB 7.2 billion of capex, leaving free cash flow of about RMB 13.3 billion.
- Dividends paid of RMB 15.1 billion (RMB 15.4 billion declared) exceeded 2014 net income, reducing equity to RMB 9.4 billion from RMB 10.4 billion.
- Warranty liabilities almost doubled to RMB 1.8 billion, from RMB 0.9 billion, reflecting higher accrual and pre-existing warranty adjustments.
- Ford's 50% economic interest is held through FAPAH (35%) and Ford China (15%); the statements cover CAF only, not Ford Motor Company.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-K/AFY2014filed March 30, 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
Does this filing contain Ford Motor Company's own 2014 financial results?
No. The content provided is the exhibit index and Exhibit 99, which contains the audited financial statements of Changan Ford Automobile Corporation Limited, a 50%-owned (economically) Chinese joint venture. Ford's consolidated income statement, balance sheet, and cash flows are not included in the text provided and would need to be reviewed from the full 10-K.
How profitable was the Changan Ford joint venture in 2014?
Very profitable. CAF reported operating income of RMB 15.5 billion on RMB 100.3 billion of total revenues, and net income attributable to the company of RMB 14.3 billion, up about 75% from RMB 8.2 billion in 2013. Part of the gain came from a preferential 15% tax rate and RMB 971 million of government grants, so not all of the improvement is recurring operating performance.
Why did shareholders' equity decline despite strong earnings?
The company paid out more than it earned. Dividends of RMB 15.4 billion were declared in 2014, slightly above the RMB 14.3 billion in net income, which pushed total equity down to RMB 9.4 billion from RMB 10.4 billion. Large payouts relative to earnings can limit future capacity for reinvestment or fund downturns, although cash generation was strong.
Are there any warning signs in the balance sheet or cash flows?
Several items warrant monitoring. Warranty liabilities rose to RMB 1.8 billion from RMB 0.9 billion, with a RMB 639 million increase tied to pre-existing warranties, which suggests quality-cost pressure. Cash fell by RMB 1.8 billion in 2014 because dividends exceeded operating cash flow after capex. Accounts payable of RMB 12.9 billion are large relative to the RMB 5.6 billion of inventory, meaning the business is heavily funded by suppliers.
How does this affect Ford investors?
Ford's economic share of CAF's 2014 profit is about half of RMB 14.3 billion, or roughly RMB 7 billion, under the equity method, and Ford receives dividends in proportion to its stake. Investors should check how Ford reports this investment in its consolidated results and whether CAF's strong 2014 earnings, which benefited from tax incentives and grants, are sustainable.
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