01—Abstract
Summary
Summary of the 10-K filed February 9, 2017. Cited figures are marked; the original filing is the authoritative source.
Ford Motor Company's 2016 Form 10-K (filed February 9, 2017) shows a company in a year of solid but declining profitability.
Revenue rose about 1.5% to a record $151.8 billion, but pre-tax income fell to $6.8 billiona from $10.3 billion, and net income attributable to Ford dropped to $4.6 billion ($1.15 diluted EPS) from $7.4 billion ($1.84). The decline was driven mainly by a $3.0 billion fourth-quarter pension and OPEB remeasurement loss, higher warranty costs (including about $600 million for a door latch recall), and weaker Financial Services results. Adjusted pre-tax profit was $10.4 billion, a modest decline from 2015, and the Automotive segment still earned a strong $9.4 billion pre-tax profit at a 6.7% operating margin.
The balance sheet and liquidity position remain strong. Automotive cash was $27.5 billionb and total Automotive liquidity was $38.3 billion, both above company targets. Ford Credit's liquidity was $27 billion, and the company received upgrades from all four major rating agencies in the first half of 2016.
Dividends were $0.85c per share for the year, including a $0.40 special payment in the first quarter. Management guides to another good year in 2017, with lower profits expected in North America and Europe, improvement in South America, the Middle East & Africa and Asia Pacific, and a lower Ford Credit pre-tax profit of about $1.5 billion because of expected declines in used vehicle values.
Key risks for investors include industry excess capacity (about 32 million units globally) that pressures pricing, tightening fuel economy and zero-emission vehicle rules, large pension underfunding of $8.9 billiond, and the ongoing cost of product recalls. Ford is also investing heavily in electrification, autonomy and mobility, which is expected to weigh on near-term margins.
02—Key points
Key Highlights
- Record 2016 revenue of $151.8 billion, up $2.2 billion from 2015, on wholesale volume of about 6.65 million vehicles.
- Net income attributable to Ford fell 38% to $4.6 billion ($1.15 diluted EPS), mainly due to a $3.0 billion Q4 pension and OPEB remeasurement loss and higher warranty costs.
- Adjusted pre-tax profit was $10.4 billion ($1.76 adjusted EPS), down $425 million from 2015; the Automotive segment earned $9.4 billion pre-tax with a 6.7% operating margin.
- North America delivered a $9.0 billion pre-tax profit and Europe posted a record $1.2 billion profit, while South America's loss widened by $277 million.
- Liquidity remained robust: $27.5 billion of Automotive cash, $38.3 billion of Automotive liquidity, and $27 billion of Ford Credit liquidity available for use.
- Pension plans were underfunded by $8.9 billion at year-end 2016, with management expecting full funding of global funded plans by 2018.
- 2017 outlook calls for lower profit in North America and Europe and lower Ford Credit pre-tax profit (about $1.5 billion), partly offset by gains in South America, MEA and Asia Pacific.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 9, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $151.80B$149.56B | +1.5% |
| Cost of Revenue | $126.19B$124.45B | +1.4% |
| Gross Profit | $25.61B$25.11B | +2.0% |
| R&D Expenses | $7.30B$6.70B | +9.0% |
| SG&A Expenses | $10.97B$10.76B | +1.9% |
| Operating Expenses | $146.01B$142.58B | +2.4% |
| Interest Expense | $894.00M$773.00M | +15.7% |
| Net Income | $4.59B$7.37B | −37.8% |
| EPS (Basic) | $1.16$1.86 | −37.6% |
| EPS (Diluted) | $1.15$1.84 | −37.5% |
| Shares Outstanding (Basic) | 3.97B3.97B | +0.1% |
| Shares Outstanding (Diluted) | 4.00B4.00B | −0.1% |
05—Questions
Frequently Asked Questions
Why did Ford's net income decline so sharply in 2016?
Net income attributable to Ford fell to $4.6 billion from $7.4 billion in 2015. The biggest factor was a $3.0 billion pension and OPEB remeasurement loss recorded in Q4 2016, which is excluded from adjusted results. Higher warranty costs, including about $600 million for the door latch recall, and lower Financial Services profit (on higher lease depreciation and credit losses) also reduced earnings.
Is Ford's dividend secure?
Ford declared $0.85 per share for 2016, including a $0.40 payment in Q1 and $0.15 per quarter thereafter. The company has ample Automotive cash ($27.5 billion) and liquidity ($38.3 billion) to cover dividends. However, the 10-K notes that pension and OPEB obligations could require significant cash contributions that might lead the company to suspend dividends if cash flows were insufficient.
What are the main threats to Ford's profitability going forward?
Key risks include global industry overcapacity of about 32 million units that pressures pricing, a possible shift away from larger, more profitable vehicles, and rising fuel economy and zero-emission vehicle requirements that could raise costs or restrict sales. Currency swings, especially a weak yen and sterling after Brexit, along with Brazilian tax disputes and possible recall costs, are also significant risks.
How is Ford Credit's performance expected to change in 2017?
Ford expects Ford Credit's 2017 pre-tax profit to be about $1.5 billion, below 2016's $1.9 billion. The decline reflects expected lower auction values for off-lease vehicles in North America, which increases depreciation expense on the lease portfolio. Ford Credit's managed leverage was 9.2:1 at year-end, slightly above its 8:1 to 9:1 target range.
What is Ford's strategy for its future growth?
Ford is pursuing a strategy to become an automotive and mobility company. It is focused on strengthening its core profit pillars (trucks, vans, utilities, performance vehicles), transforming weaker areas such as Lincoln and small cars, and investing in electrification (13 electrified products by 2020), autonomy (a planned level 4 vehicle for ride-sharing in 2021), and mobility services. These investments are expected to weigh on near-term results.
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