Ford Motor Company — 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014; filed February 13, 2015. Ford operates automotive businesses globally and provides vehicle financing and leasing through Ford Credit.
Financial performance and position
| Metric | 2014 | 2013 |
|---|---|---|
| Total revenue | $144.1 billion | $146.9 billion |
| Income before taxes, GAAP | $4.34 billion | $7.04 billion |
| Pre-tax results excluding special items | $6.28 billion | $8.61 billion |
| Net income attributable to Ford | $3.19 billion; $0.80 diluted EPS | $7.18 billion; $1.77 diluted EPS |
| Net cash provided by operating activities, consolidated | $14.51 billion | $10.44 billion |
| Automotive operating-related cash flow, non-GAAP | $3.6 billion | $6.1 billion |
| Automotive pre-tax operating margin | 3.9% | 5.4% |
| Total debt | $119.2 billion | $114.7 billion |
| Total equity | $24.8 billion | $26.1 billion |
Automotive revenue was $135.8 billion and Financial Services revenue was $8.3 billion. Automotive pre-tax income was $2.55 billion, including special items; Financial Services pre-tax income was $1.79 billion. Ford Credit reported $1.85 billion of pre-tax profit excluding segment eliminations.
At year-end, consolidated cash and cash equivalents were $10.8 billion and marketable securities were $20.4 billion. Automotive gross cash was $21.7 billion, Automotive liquidity was $32.4 billion, and Automotive net cash was $7.9 billion. Ford Credit had $26.5 billion of net liquidity available for use and $112.8 billion of managed receivables. Its managed leverage was 8.7:1.
Automotive capital spending was $7.4 billion. Total consolidated cash and cash equivalents declined by $3.7 billion. Ford declared $0.50 per share in dividends and repurchased approximately 116 million shares for about $2 billion. Worldwide defined-benefit pension plans were underfunded by about $9 billion.
Material changes versus 2013
- Revenue declined about 1.9%; Ford-attributable net income fell about 56%, while pre-tax results excluding special items decreased about 27%.
- Automotive wholesale volume was nearly flat at 6.323 million units. Automotive revenue fell 3%, pre-tax profit excluding special items declined to about $4.5 billion, and operating margin fell from 5.4% to 3.9%.
- North America pre-tax profit decreased to $6.9 billion from $8.8 billion, with lower volume and higher warranty costs, including recalls, cited as key factors. South America recorded a $1.2 billion loss, versus approximately breakeven in 2013. Europe’s loss narrowed to $1.1 billion; Asia Pacific pre-tax profit rose to $589 million, a record, with China joint ventures contributing $1.3 billion.
- Ford Credit pre-tax profit increased to $1.85 billion from $1.76 billion, mainly on higher receivables and lease volume; lower financing margins and weaker North American lease residual performance partly offset the improvement.
- Automotive gross cash declined $3.1 billion. Ford attributed the decline in part to lower operating-related cash flow, pension contributions, dividends, and share repurchases. Automotive debt decreased to $13.8 billion from $15.7 billion, while Financial Services debt increased.
Outlook, commentary, and notable items
- For 2015, Ford forecast total-company pre-tax profit excluding special items of $8.5–$9.5 billion. It expected Automotive revenue, operating margin, and operating-related cash flow to exceed 2014 levels; Ford Credit pre-tax profit was expected to be equal to or higher than 2014.
- Ford projected an 8%–9% North America operating margin; substantially improved but still negative South America results; improved but still negative Europe results; a Middle East & Africa loss; and higher Asia Pacific profit. Ford expected 2015 industry volumes of 17.0–17.5 million in the U.S., 14.8–15.3 million in Europe 20, and 24.5–26.5 million in China.
- Management expected an unusual 2015 earnings pattern, with the second half stronger than the first, reflecting F-150 changeover downtime, product launch costs, and investment in new Asia Pacific capacity. Expected 2015 Automotive capital spending was about $7.5 billion.
- Special items reduced 2014 pre-tax results by $1.94 billion. Major items included an $800 million Venezuela accounting charge, a $329 million Ford Sollers impairment, $685 million of separation-related actions, and a $126 million charge related to settlement of convertible notes. The 2014 effective tax rate was 37.7%, compared with a tax benefit in 2013, which included significant favorable deferred-tax items.
- Ford changed its accounting for Venezuelan operations to the cost method effective December 31, 2014, citing currency restrictions, constrained parts availability, and production limitations. Future results will exclude Venezuelan operating results; the company reported a $477 million cash balance associated with those operations that was no longer included in cash and cash equivalents.
- Key risks include vehicle recalls and warranty costs; intense competition and excess capacity; volatile currencies, commodities, and interest rates; regional economic and geopolitical weakness; supplier and labor disruptions; pension funding needs; regulation of emissions, fuel economy, and safety; and Ford Credit’s funding, credit-loss, and lease-residual exposures.
- Ford disclosed an estimated range of up to about $2.9 billion of reasonably possible loss in excess of accruals for material matters, reflecting indirect tax and customs matters. Significant proceedings include Brazilian tax-incentive assessments and a U.S. customs dispute involving Transit Connect imports. The filing says outcomes are uncertain.
Most important facts for investors to verify
- Reconcile GAAP pre-tax income of $4.34 billion with $6.28 billion excluding special items; assess the recurrence and cash effects of those exclusions, especially Venezuela and restructuring charges.
- Review the drivers and sustainability of the decline in Automotive margin and cash flow, including warranty/recall costs, product changeovers, and regional losses.
- Assess liquidity by sector and distinguish Ford’s Automotive cash and debt from Ford Credit’s financing debt, securitized obligations, and available liquidity.
- Monitor the $9 billion pension underfunding, planned contributions, discount-rate sensitivity, and management’s expectation that funded plans would be fully funded by year-end 2016.
- Test the 2015 profit outlook against the stated market, launch, Russia, currency, and capacity assumptions; actual results may differ materially.
- Track developments in the Brazilian tax matters, Transit Connect customs dispute, product litigation, and warranty accruals, including the disclosed potential loss range.