01—Abstract
Summary
Summary of the 10-K filed February 11, 2016. Cited figures are marked; the original filing is the authoritative source.
Ford Motor Company's 2015 Form 10-K (filed February 11, 2016) reports a record full-year Company pre-tax profit of $10.8 billiona excluding special items, and net income attributable to Ford of $7.4 billion, or $1.84 diluted EPS, up from $0.31 in 2014.
Revenue rose about 4% to $149.6 billionb. The Automotive sector's operating margin reached 6.8%, the highest since at least the 1990s, with Automotive pre-tax profit (excluding special items) of $8.8 billion, up 60%. Wholesale volume grew 5% to about 6.6 million units, and North America, Asia Pacific and Europe all improved, while South America remained loss-making.
Ford Credit delivered $2.1 billionc of pre-tax profit, and the company ended the year with $23.6 billion of Automotive cash and $34.5 billion of Automotive liquidity. The filing also highlights several risks and watch items for investors. Management expects 2016 Company pre-tax profit to be equal to or higher than 2015, but warns that South America losses will grow and that North America margins may be pressured by the 2022-2025 fuel economy and GHG standards.
Automotive debt is modest at $12.8 billiond, and net cash is $10.8 billion, while Financial Services debt is $120 billion, supporting Ford Credit's managed leverage of 9.5:1. Pension underfunding of $8.2 billion remains a liability, and Ford changed its pension accounting so remeasurement gains and losses now flow through net income in the fourth quarter, which will create earnings volatility.
Legal exposures include Brazilian tax assessments, an EPA investigation into air permits, and indirect tax and customs matters with a reasonably possible loss of up to about $2.3 billion. Overall, the filing portrays a financially strong year driven by North American benchmark profitability and a turnaround in Europe and Asia Pacific, with the main investor debates centering on the sustainability of North American profits in a period of excess global capacity, low fuel prices, and tightening regulation.
02—Key points
Key Highlights
- Record 2015 Company pre-tax profit of $10.8B excluding special items, versus $7.3B in 2014; net income attributable to Ford of $7.4B, or $1.84 diluted EPS (vs. $0.31 in 2014).
- Automotive operating margin of 6.8%, the highest since at least the 1990s, with Automotive pre-tax profit (ex-special items) of $8.8B, up 60%.
- North America delivered $9.3B pre-tax profit with a 10.2% operating margin; Europe returned to profitability at $259M, and Asia Pacific posted a record $765M.
- Ford Credit pre-tax profit of $2.1B, with managed receivables of $127B, a loss-to-receivables ratio at the low end of history, and managed leverage of 9.5:1.
- Strong liquidity: Automotive cash of $23.6B and total Automotive liquidity of $34.5B; Automotive net cash of $10.8B.
- 2016 guidance calls for Company pre-tax profit equal to or higher than 2015, with a greater South America loss, higher Europe and Asia Pacific profit, and North America operating margin of 9.5% or higher.
- Key risks include pension underfunding of $8.2B, new fuel economy/GHG and California ZEV rules, excess industry capacity (~31M units), and up to ~$2.3B of reasonably possible indirect tax and customs losses.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2015filed February 11, 2016Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $149.56B$144.08B | +3.8% |
| Cost of Revenue | $124.45B$125.03B | −0.5% |
| Gross Profit | $25.11B$19.05B | +31.8% |
| R&D Expenses | $6.70B$6.70B | 0.0% |
| SG&A Expenses | $10.76B$11.84B | −9.1% |
| Operating Expenses | $142.58B$143.75B | −0.8% |
| Interest Expense | $773.00M$797.00M | −3.0% |
| Net Income | $7.37B$1.23B | +498.9% |
| EPS (Basic) | $1.86$0.31 | +500.0% |
| EPS (Diluted) | $1.84$0.31 | +493.5% |
| Shares Outstanding (Basic) | 3.97B3.91B | +1.5% |
| Shares Outstanding (Diluted) | 4.00B3.96B | +1.1% |
05—Questions
Frequently Asked Questions
How profitable was Ford in 2015 and what drove the improvement?
Ford reported net income attributable to the company of $7.4B, or $1.84 per diluted share, versus $0.31 in 2014. Excluding special items, Company pre-tax profit was a record $10.8B. The improvement was driven by $7.4B of favorable market factors, including new product launches, growth in Asia Pacific, and industry growth in North America and Europe, partly offset by higher structural and product-related costs.
Is Ford's dividend and capital return sustainable?
Cash dividends declared rose to $0.60 per share in 2015 from $0.50 in 2014, and the quarterly dividend was $0.15. Dividends paid totaled $2.4B. Automotive net cash of $10.8B and total Automotive liquidity of $34.5B support the payout. The company also expects to contribute about $1.8B to pension plans in 2016 and plans capital spending of about $7.7B in 2016, rising toward $9B annually by 2020.
What are the biggest risks to Ford's 2016 outlook?
Management highlights several risks: continued excess global capacity (about 31M units) that pressures pricing; a possible shift away from larger, more profitable vehicles due to low fuel prices; the difficulty of meeting 2022-2025 CAFE and GHG standards and California ZEV mandates; deepening losses in South America; and pension and OPEB obligations, which now flow through net income each fourth quarter. Legal and regulatory exposures include Brazilian tax assessments and EPA air-permit notices.
How is Ford Credit's financial position and risk profile?
Ford Credit ended 2015 with $127B of managed receivables, up $14B, and pre-tax profit of $2.1B, which management expects to be equal to or higher in 2016. Its financial statement leverage was 10.2:1 and managed leverage 9.5:1, with 2016 managed leverage expected to return to the 8:1 to 9:1 target range. Securitized funding was 39% of managed receivables, and total liquidity available for use was $23.5B. Higher credit losses in 2015 reflected reserve builds versus reserve releases in 2014.
Did Ford change its accounting in 2015, and why does it matter?
Yes. Effective December 31, 2015, Ford changed its accounting for pension and OPEB plans to recognize remeasurement gains and losses immediately in net income, generally in the fourth quarter, rather than amortizing them through other comprehensive income. Prior years were restated, which reduced retained earnings by about $18B as of January 1, 2013. The change does not affect funding or benefits, but it will create more earnings volatility, and Ford reports these remeasurements as special items excluded from its operating results.
06—Continue