Ford Motor Company — FY 2009 Form 10-K
Reporting period: Fiscal year ended December 31, 2009. This annual filing includes fourth-quarter data but is not a standalone Q4 report. Ford operates Automotive and Financial Services businesses; Volvo was classified as held for sale.
Key financial results
| Metric | FY 2009 | FY 2008 |
|---|---|---|
| Total sales and revenues | $118.3 billion | $145.1 billion |
| Income/(loss) before income taxes | $3.0 billion | $(14.5) billion |
| Net income/(loss) attributable to Ford | $2.7 billion; $0.86 diluted EPS | $(14.8) billion; $(6.50) diluted EPS |
| Automotive sales | $105.9 billion | $129.2 billion |
| Automotive operating income/(loss) | $(2.7) billion | $(9.3) billion |
| Financial Services pre-tax income/(loss) | $1.8 billion | $(2.6) billion |
| Consolidated operating cash flow | $16.0 billion | $(0.2) billion |
Worldwide ongoing Automotive wholesales were 4.817 million, down 11% year over year. Automotive sector GAAP operating cash flow was $4.1 billion; Ford’s separate non-GAAP Automotive operating-related cash-flow measure was negative $0.3 billion, versus negative $19.5 billion in 2008. Consolidated operating cash flow includes Financial Services activity and is not directly comparable to that Automotive measure.
At year-end, Automotive gross cash was $25.5 billion, Automotive debt $34.4 billion and Automotive net debt $8.9 billion, compared with $13.4 billion, $24.2 billion and $10.8 billion, respectively, in 2008. Total company debt was $132.4 billion, including $98.7 billion in Financial Services debt. Total equity was a deficit of $6.5 billion; equity attributable to Ford was a deficit of $7.8 billion.
Fourth-quarter 2009 pre-tax income was $1.06 billion and net income attributable to Ford was $886 million, compared with a $5.15 billion pre-tax loss and $5.98 billion net loss in Q4 2008.
Changes versus the prior comparable period
- Revenue declined 18% and ongoing Automotive wholesales fell 11%, reflecting lower volumes, the economic downturn, currency effects and the absence of Jaguar Land Rover revenue.
- Ford returned to reported profitability from a substantial 2008 loss. The improvement was not solely from recurring operations: Automotive results included $4.7 billion of net gains from debt-reduction actions. Other major favorable factors included lower costs, improved net pricing and the non-recurrence of the $5.3 billion North America asset impairment recorded in 2008.
- Ford Credit returned to pre-tax profitability, at $2.0 billion versus a $2.6 billion loss, aided by the non-recurrence of a $2.1 billion lease impairment, improved used-vehicle auction values and lower credit-loss provisioning. Its managed receivables declined to $94.5 billion from $117.7 billion.
- Automotive market share improved in the U.S. to 15.3% from 14.2%, and in the tracked European markets to 9.1% from 8.6%. U.S. industry sales nevertheless fell to 10.6 million units from 13.5 million.
Liquidity, financing and material items
- Ford raised equity, issued $2.875 billion of 4.25% convertible notes due 2016, drew on its secured revolver and obtained access to up to $5.9 billion of U.S. Department of Energy loans; $1.2 billion had been drawn by year-end.
- Debt-reduction transactions removed $10.1 billion principal amount of Automotive debt and generated substantial accounting gains. The secured credit facility was amended; $7.2 billion of revolving commitments was extended to November 2013, while $886 million remained due in December 2011. The facility includes collateral, borrowing-base and minimum-liquidity covenants, and restricts cash dividends.
- Ford transferred its UAW retiree health-care obligation, valued at about $13.6 billion, to the UAW VEBA Trust at year-end. The settlement included cash and securities, notes and warrants; Ford recorded a $264 million net settlement loss. The arrangement permits payment of a portion of future obligations in Ford shares, subject to conditions.
- The company reported a $17.5 billion valuation allowance against deferred tax assets, notwithstanding 2009 profitability. Ford said sustained North American profitability would be needed before reconsidering the allowance.
- Ford’s consolidated financial statements report cash and cash equivalents of $21.4 billion and marketable securities of $21.4 billion at year-end. Some Financial Services cash and securitized assets are restricted or unavailable to meet other company obligations.
Outlook, commentary and risks
Management’s 2010 planning assumptions included U.S. industry sales of 11.5–12.5 million vehicles and European sales of 13.5–14.5 million in the 19 tracked markets. Ford forecast positive Automotive operating-related cash flow, $4.5–$5.0 billion of capital spending, and somewhat higher Automotive structural costs as production increased. It expected Ford Credit to remain profitable, but at a lower level than in 2009, with year-end managed receivables of $80–$90 billion. Management planned for total company, Automotive and Ford North America pre-tax profitability excluding special items in 2010, and “solid” pre-tax profitability excluding special items in 2011; these are forward-looking expectations, not guarantees.
Management cited fragile economic recovery, expiring vehicle-incentive programs, weak labor markets, industry overcapacity, pricing pressure, rising commodity costs and currency volatility. Key risks include lower vehicle demand or market share, product acceptance and quality, supplier distress or production interruptions, labor constraints, pension funding needs, high Automotive indebtedness, financing-market access and Ford Credit credit losses or residual-value deterioration. More stringent safety, emissions and fuel-economy rules may increase costs or constrain vehicle sales. Legal matters include product, environmental, employment and other claims; the filing states that the potential exposure in some asbestos and environmental matters is difficult to estimate. Six NHTSA investigations concerning alleged safety defects or compliance issues were pending as of February 12, 2010. A criminal investigation into potential air-permit violations at the Sterling Axle Plant was also disclosed.
Ford expected to reach a definitive agreement to sell Volvo in Q1 2010, with a potential closing in Q2, subject to documentation, financing and government approvals. The company also anticipated that a new consolidation accounting standard effective January 1, 2010 would reduce reported 2010 pre-tax operating results by an estimated $350–$400 million, without affecting net income attributable to Ford.
Important facts for investors to verify
- How much of FY 2009 profit came from debt-extinguishment gains and other non-recurring items, versus sustainable vehicle and financing operations.
- Whether Ford achieves its 2010 and 2011 profitability and positive Automotive operating-related cash-flow objectives, and how those non-GAAP measures reconcile to GAAP cash flow.
- Automotive liquidity, debt maturities, secured-credit borrowing-base coverage and compliance with liquidity and other debt covenants.
- Ford Credit’s funding access, credit-loss trends, receivables outlook and exposure to lease residual values; assess the limits on use of securitized assets and cash.
- Progress and final terms of the Volvo sale, including any further impairment or changes in timing or proceeds.
- Potential dilution from share issuances, convertible notes and UAW VEBA warrants, as well as the status of the deferred-tax valuation allowance and material legal or regulatory matters.