01—Abstract
Summary
Summary of the 10-K/A filed March 30, 2016. Cited figures are marked; the original filing is the authoritative source.
This Form 10-K/A (Amendment No. 1) does not contain Ford Motor Company's own 2015 financial statements.
It was filed to add the audited financial statements of Changan Ford Automobile Corporation Limited (CAF), Ford's 50%a-owned, equity-method joint venture in China, as required by SEC Rule 3-09. CAF met the significant-subsidiary test for 2014 but not for 2015 or 2013, so these statements are included as Exhibit 99. Ford's consolidated results, the risk factors and the rest of the original 10-K are in the February 11, 2016 Original 10-K, not in this amendment.
All CAF figures below are in Renminbi (RMB), not U.S. dollars. CAF's 2015 results were strong. Total revenues rose about 9.7%b to RMB 109.98 billion, operating income rose about 16% to RMB 18.07 billion, and net income attributable to CAF rose about 21% to RMB 17.38 billion.
Government grant income more than doubled to RMB 2.42 billion, and it was a meaningful contributor to the earnings increase. CAF's effective tax rate was reduced by a 15%c preferential rate for western China, which lowered tax expense by about RMB 1.95 billion versus the 25% statutory rate. Operating cash flow was RMB 24.65 billion, capital expenditures were RMB 6.41 billion, and CAF paid RMB 15.86 billion in dividends, roughly 91% of net income.
The balance sheet expanded. Total assets increased about 22%d to RMB 50.47 billion, with cash of RMB 12.87 billion. Accounts payable rose about 56% to RMB 16.94 billion, and inventories rose about 37% to RMB 7.69 billion.
Those working-capital increases supported operating cash flow in 2015 but would need to be monitored in future periods. For Ford investors, CAF is a material contributor to the earnings from Ford's China equity-method investments, so its results offer a useful read on the Chinese joint-venture business.
02—Key points
Key Highlights
- This is a 10-K/A that adds only Changan Ford Automobile Corporation Limited (CAF) financial statements as Exhibit 99 under SEC Rule 3-09. Ford's own consolidated financials are not included in this amendment.
- CAF is a 50% non-controlling, equity-method joint venture between Ford and Chongqing Changan Automobile. It was a significant subsidiary for fiscal 2014 but not for 2015 or 2013.
- CAF 2015 total revenues were RMB 109.98 billion, up about 9.7% from RMB 100.26 billion in 2014, and operating income was RMB 18.07 billion, up about 16%.
- CAF 2015 net income attributable to the company was RMB 17.38 billion, up about 21% from RMB 14.32 billion, helped by government grant income of RMB 2.42 billion (versus RMB 0.97 billion in 2014).
- Operating cash flow was RMB 24.65 billion in 2015 (up from RMB 20.52 billion), while capital expenditures fell to RMB 6.41 billion from RMB 7.20 billion.
- CAF paid RMB 15.86 billion in dividends in 2015, about 91% of net income. Cash on hand was RMB 12.87 billion at year-end.
- Working capital grew sharply: accounts payable rose about 56% to RMB 16.94 billion and inventories rose about 37% to RMB 7.69 billion. The 2013 CAF statements are unaudited.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-K/AFY2015filed March 30, 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
Why was this 10-K/A filed, and does it contain Ford's own 2015 financial results?
The amendment was filed to add the audited financial statements of Changan Ford Automobile Corporation Limited, a 50% equity-method joint venture, as required by SEC Rule 3-09. It does not contain Ford's consolidated 2015 financial statements, which appear in the Original 10-K filed February 11, 2016. It also does not update other exhibits or reflect events after the original filing date.
How significant is Changan Ford to Ford's overall financial picture?
CAF's 2015 net income of about RMB 17.38 billion (roughly USD 2.7 billion at the average 2015 exchange rate of about 6.4 RMB per dollar) is large relative to its size. Because Ford owns 50% and accounts for CAF using the equity method, Ford records its share of CAF's net income as equity income rather than consolidating its revenues. The amendment therefore shows how much of Ford's China joint-venture value comes through this equity income.
What drove CAF's earnings growth in 2015?
Revenue grew about 9.7%, and operating income grew about 16%. Net income grew faster, about 21%, because government grant income rose to RMB 2.42 billion from RMB 0.97 billion and because the 15% preferential tax rate applied to a larger profit base. Gross margin also improved, since cost of sales rose more slowly than revenue. Investors should note that grant income is less predictable than operating earnings.
Is CAF's cash generation sustainable, and how much is being returned to shareholders?
CAF generated RMB 24.65 billion of operating cash flow in 2015, well above its RMB 6.41 billion of capital spending, which left free cash flow of roughly RMB 18.2 billion. It paid RMB 15.86 billion in dividends, which is about 91% of net income and nearly all of its free cash flow. Cash rose to RMB 12.87 billion. The strong operating cash flow was partly supported by a RMB 6.10 billion increase in accounts payable, so part of the cash generation came from supplier financing and would reverse if payables normalized.
What should investors watch in CAF's balance sheet and disclosures?
Watch the rapid growth in accounts payable (up about 56%) and inventories (up about 37%), the reliance on government grants, and the related-party exposure. CAF had RMB 3.24 billion of cash deposited with a related-party finance company and RMB 6.23 billion of amounts due to related parties. The 2013 statements are unaudited, and the 15% preferential tax rate runs only through 2020, so future tax expense could increase.
06—Continue