01—Abstract
Summary
Summary of the 10-K/A filed March 29, 2017. Cited figures are marked; the original filing is the authoritative source.
This excerpt is not Ford Motor Company's consolidated 10-K financial statements.
It consists of the Item 15 exhibit index and Exhibit 99, the audited financial statements of Changan Ford Automobile Corporation Limited (Changan Ford), a China joint venture that Ford accounts for under the equity method. Those statements are prepared in RMB and cover fiscal 2014 to 2016. Ford's own 2016 results, including its consolidated revenue, net income, and balance sheet, are not in this text and would need to be sourced from the full filing.
Changan Ford grew in 2016. Total revenues rose about 7.7%a to RMB 118.4 billion, and net income attributable to the company rose about 4.0% to RMB 18.1 billion. Cost of sales rose faster than revenue, to RMB 86.5 billion, and government grant income increased to RMB 3.7 billion from RMB 2.4 billion.
Grants equaled roughly 17%b of pre-tax income of RMB 21.6 billion, and a 15% preferential tax rate reduced 2016 tax expense by about RMB 1.8 billion. Investors should treat these subsidies as a meaningful, policy-dependent component of earnings. Cash generation and capital allocation were strong.
Operating cash flow was about RMB 24.4 billion, capital expenditure fell to RMB 4.5 billion from RMB 6.4 billion, and dividends paid were RMB 17.7 billion, roughly 98%c of net income. Cash ended the year at RMB 15.1 billion, but inventory writedowns and warranty liabilities rose, with warranty liabilities up to RMB 1.57 billion from RMB 1.32 billion. Ford's economic exposure is 50% indirectly through its FAPAH (35%) and Ford China (15%) holdings.
02—Key points
Key Highlights
- Filing content: The excerpt is Ford's 2016 Item 15 exhibit index plus Exhibit 99, the audited statements of the Changan Ford JV (Ford holds 50% indirectly via FAPAH 35% and Ford China 15%).
- Revenue growth: Changan Ford total revenues rose about 7.7% to RMB 118.4 billion in 2016, from RMB 110.0 billion in 2015.
- Earnings: Net income attributable to the JV was RMB 18.1 billion, up about 4.0% year over year.
- Government support: Government grant income reached RMB 3.7 billion, about 17% of pre-tax income, and the 15% preferential tax rate saved about RMB 1.8 billion in tax.
- Cash flow and capex: Operating cash flow was about RMB 24.4 billion, and capex fell to RMB 4.5 billion from RMB 6.4 billion.
- Shareholder distributions: Dividends paid were RMB 17.7 billion, close to 98% of 2016 net income, leaving cash of RMB 15.1 billion at year end.
- Quality and balance sheet watch items: Inventory provisions and writedowns rose sharply, and total warranty liabilities increased to RMB 1.57 billion from RMB 1.32 billion.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-K/AFY2016filed March 29, 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
Does this filing show Ford's consolidated financial results for 2016?
No. The text includes the exhibit index and the financial statements of Changan Ford, an equity-method joint venture. Ford's consolidated income statement, balance sheet, and cash flows are in the main body of its 10-K, which is not included in this excerpt.
How much of Changan Ford's 2016 profit came from government support?
Government grant income was RMB 3.7 billion in 2016, up from RMB 2.4 billion in 2015. That is roughly 17% of pre-tax income of RMB 21.6 billion, so the profit is sensitive to continued policy support.
Why is Changan Ford's effective tax rate low?
The company qualifies for a 15% preferential PRC corporate income tax rate for western region businesses through 2020, instead of the 25% statutory rate. Its effective rate in 2016 was about 16.5%. The benefit was about RMB 1.8 billion in 2016 and depends on the company continuing to meet the qualification requirements.
Is the joint venture's cash flow strong enough to support its dividends?
In 2016 operating cash flow of about RMB 24.4 billion covered dividends of RMB 17.7 billion and capital spending of RMB 4.5 billion. Cash rose to RMB 15.1 billion, so the company remained self-funding, though payouts were close to net income.
What risks should investors watch in the joint venture's financials?
Watch the rising warranty liabilities, which increased to RMB 1.57 billion. Inventory writedowns and impairments also increased, to RMB 472 million from RMB 108 million. Reliance on government grants and the continuation of the preferential tax rate are additional risks.
06—Continue