Ford Motor Company — Q2 2013 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2013. Unaudited interim results; the filing was reviewed, not audited, by PricewaterhouseCoopers. Unless stated otherwise, amounts below are U.S. dollars.
Financial results
| Metric | Q2 2013 | Q2 2012 | First half 2013 | First half 2012 |
|---|---|---|---|---|
| Total revenue | $38.1 billion | $33.2 billion | $73.9 billion | $65.7 billion |
| Pre-tax income, including special items | $1.819 billion | $1.595 billion | $3.942 billion | $3.633 billion |
| Pre-tax income, excluding special items | $2.555 billion | $1.829 billion | $4.701 billion | $4.122 billion |
| Net income attributable to Ford | $1.233 billion | $1.040 billion | $2.844 billion | $2.436 billion |
| Diluted earnings per share | $0.30 | $0.26 | $0.70 | $0.61 |
| Consolidated operating cash flow | Not stated separately for Q2 | Not stated separately for Q2 | $6.289 billion | $5.979 billion |
- Q2 revenue rose about 15% year over year; first-half revenue rose about 13%. Automotive revenue was $36.1 billion in Q2 and $69.9 billion in the first half.
- Q2 pre-tax results improved by $224 million including special items; first-half pre-tax results improved by $309 million. Ford attributed the improvement primarily to stronger Automotive results.
- Q2 special-item charges totaled $736 million, principally $442 million of separation-related actions and a $294 million U.S. salaried pension settlement loss. First-half special-item charges were $759 million.
- Financial Services pre-tax income was $451 million in Q2 and $954 million in the first half. Automotive sector pre-tax income, including special items, was $1.368 billion in Q2 and $2.988 billion in the first half.
- Automotive operating-related cash flow, a company-defined non-GAAP measure, was $4.0 billion for the first half, versus $1.7 billion in the prior-year period. Automotive sector operating cash flow under GAAP was $4.404 billion.
Balance sheet, debt and liquidity
- At June 30, 2013, total assets were $196.2 billion, total debt $107.9 billion, total liabilities $176.7 billion and total equity $19.2 billion. Consolidated cash and cash equivalents were $13.4 billion; marketable securities were $23.3 billion.
- Automotive gross cash was $25.7 billion, up from $24.3 billion at year-end 2012. Automotive liquidity, including unused credit lines, was $37.1 billion; Automotive net cash was $9.9 billion, compared with $10.0 billion at year-end.
- Automotive debt was $15.8 billion, up from $14.3 billion at year-end. Ford Credit debt was $92.0 billion. These sector debt figures are not directly comparable to consolidated debt because of sector and consolidation presentation.
- Ford Credit managed receivables were $95.4 billion. Its available liquidity was $22.9 billion, up from $19.7 billion at year-end, and managed leverage was 8.3:1, unchanged from year-end.
- Consolidated cash and cash equivalents declined $2.3 billion in the first half. Cash flows included $3.1 billion of capital expenditures, $2.8 billion of Automotive pension contributions and $785 million of dividends paid.
Material changes and management commentary
- North America remained the principal earnings driver. Q2 U.S. market share was 16.5%, up 0.9 percentage point year over year; North America achieved at least $2 billion of pre-tax profit and a 10% operating margin for the fifth time in six quarters.
- South America’s first-half loss reflected chiefly the Venezuelan bolivar devaluation. Ford recorded a $186 million remeasurement loss in Q1; restricted currency conversion and parts availability continued to challenge Venezuelan operations.
- Europe continued to report losses, but Q2 results improved year over year. Management cited new-product performance and progress in its restructuring program; it expected a full-year loss of about $1.8 billion, versus prior guidance of about $2.0 billion.
- Asia Pacific Africa posted its best-ever quarterly profit since Ford began reporting specific regional results in 2001. Management raised its expectation to a full-year 2013 profit.
- Ford Credit’s Q2 profit benefited from higher receivables and financing margin, partly offset by lower credit-loss reserve reductions. Credit losses remained near historical lows, while lease returns and declining auction values warrant monitoring.
- Ford consolidated Ford Romania effective January 1, 2013, and classified $264 million of remaining Volvo-related retail financing receivables as held for sale.
Outlook, risks and contingencies
- Management expected 2013 total-company pre-tax profit to be about equal to or higher than 2012, Automotive operating margin about equal to 2012, and Automotive operating-related cash flow substantially higher than 2012. Planned capital spending was about $7 billion.
- Regional outlook: North America higher pre-tax profit and about 10% operating margin; South America about breakeven; Europe loss about $1.8 billion; Asia Pacific Africa profitable. Ford Credit expected full-year pre-tax profit about equal to 2012 and distributions of about $200 million.
- Management raised expected 2013 Automotive net interest expense to $800–$850 million from $750–$800 million, citing rising interest rates and market-value effects on its investment portfolio. It expected Automotive debt to decline to about $10 billion by mid-decade.
- Ford expected to contribute about $5 billion to funded pension plans in 2013, including about $3.4 billion of discretionary contributions. The Q2 pension settlement and remeasurement reduced the U.S. salaried plan’s net pension liability by about $700 million, while generating the $294 million settlement charge.
- Estimated Europe separation costs were about $1.2 billion, expected to be incurred by year-end 2014; approximately $800 million was expected in 2013. Separately, the note estimated about $1 billion of costs for U.K. and Genk actions, excluding approximately $200 million of pension-related costs; management commentary also described the broader separation estimate. Verify scope and reconciliation in the full filing.
- Ford estimated reasonably possible material litigation losses above accruals for indirect tax and customs matters at up to about $2.6 billion in aggregate. Transit Connect import-duty litigation and Brazilian state tax assessments remained unresolved. Guarantees had maximum potential payments of $245 million, with $7 million of recorded liabilities.
- Other key risks include vehicle demand and market share, pricing and product acceptance, currency/commodity/interest-rate volatility, supplier and production disruptions, warranty or recall costs, pension assumptions, legal and regulatory outcomes, and Ford Credit funding, credit-loss and vehicle residual-value risks.
Important facts for investors to verify
- Reconcile reported earnings with the $736 million Q2 special-item charge and assess the recurring impact of European restructuring and pension actions.
- Review Automotive cash generation after capital expenditures, pension contributions and dividends; distinguish company-defined operating-related cash flow from GAAP cash flow.
- Assess the composition and availability of Ford’s reported liquidity, Automotive debt reduction plans, and Ford Credit’s reliance on securitization and committed funding facilities.
- Track Europe’s turnaround, South America’s foreign-exchange and operating constraints, and whether Asia Pacific Africa’s first-half momentum supports full-year profitability.
- Monitor pension funding assumptions, lease-return and auction-value trends, and the potential outcomes of the customs and Brazilian tax disputes.