Ford Motor Company — FY 2012 Form 10-K
Reporting period: Year ended December 31, 2012. This is an annual filing, not a stand-alone fourth-quarter filing; quarterly figures below are included where disclosed. Ford operates Automotive and Financial Services businesses, including Ford Credit.
Financial performance and position
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Total revenue | $134.3 billion | $136.3 billion |
| Income before tax | $7.72 billion | $8.68 billion |
| Net income attributable to Ford | $5.67 billion | $20.21 billion |
| Diluted EPS | $1.42 | $4.94 |
| Automotive revenue | $126.6 billion | $128.2 billion |
| Automotive pre-tax income | $6.01 billion | $6.25 billion |
| Ford Credit pre-tax income | $1.70 billion | $2.40 billion |
| Consolidated debt | $105.1 billion | $99.5 billion |
Revenue declined about 1.5%. Net income fell sharply because 2011 included a $12.4 billion tax benefit from releasing almost all of Ford’s deferred-tax-asset valuation allowance; 2012 had a $2.06 billion tax provision. FY 2012 pre-tax results included $246 million of net special-item charges. The reported Automotive operating margin was 5.3% excluding Other Automotive, versus 5.4% in 2011.
Fourth quarter: Automotive revenue was $34.47 billion and pre-tax income was $1.42 billion; Financial Services revenue was $1.96 billion and pre-tax income was $419 million. Total-company pre-tax income was $1.84 billion; net income attributable to Ford was $1.60 billion, with diluted EPS of $0.40. Q4 2011 net income was $13.62 billion, including the large tax-valuation-allowance release. Q4 2012 pre-tax income included a $625 million gain from the China joint-venture reorganization and a $250 million pension lump-sum settlement charge.
Cash flow and liquidity: Consolidated operating cash flow was $9.05 billion, down from $9.78 billion. Automotive operating-related cash flow, a non-GAAP measure, was $3.4 billion versus $5.6 billion; Automotive capital spending was $5.5 billion. Automotive gross cash was $24.3 billion, available credit lines were $10.2 billion, and Automotive liquidity totaled $34.5 billion. Automotive net cash was $10.0 billion. Ford Credit reported $19.7 billion of available liquidity and $91.3 billion of managed receivables.
Debt, benefits, and other balance-sheet items: Automotive debt was $14.3 billion; Financial Services debt was $90.8 billion, primarily supporting financing receivables and leases. Worldwide defined-benefit pension plans were underfunded by $18.7 billion at year-end, compared with $15.4 billion in 2011, mainly reflecting lower discount rates. Ford contributed $3.4 billion to funded pension plans in 2012 and expected approximately $5.4 billion of 2013 pension contributions and unfunded-plan benefit payments.
Material changes versus the prior comparable period
- Automotive pre-tax income decreased to $6.01 billion from $6.25 billion. Higher net pricing and lower compensation costs were offset by unfavorable volume and mix and higher costs, particularly structural costs.
- Ford Credit pre-tax income declined $707 million, primarily because fewer leases terminated and generated vehicle-sale gains, and financing margins declined as higher-yielding assets originated in earlier periods ran off.
- Ford Europe reported a $1.75 billion pre-tax loss, compared with a $27 million loss in 2011, reflecting weaker demand, lower market share, and reduced dealer stocks. Europe’s tracked-market industry sales fell about 9%.
- Ford North America pre-tax income rose to $8.34 billion from $6.19 billion. U.S. market share declined 1.3 percentage points to 15.2%, partly due to model changeovers, discontinued models, and capacity constraints.
- Automotive gross cash increased $1.4 billion, but operating-related cash flow fell, including from a $2.3 billion working-capital outflow and higher capital spending and pension contributions.
- Ford consolidated AutoAlliance International (AAI) from September 2012 and restructured its China joint-venture interests. The company recorded gains related to these transactions; AAI also added cash, securities, and liabilities to the consolidated statements.
Outlook, risks, contingencies, and unusual items
- For 2013, management expected total-company pre-tax profit to be about equal to 2012, Automotive operating margin about equal to or below 2012, and Automotive operating-related cash flow higher than 2012. Planned Automotive capital spending was about $7 billion.
- Management expected North America pre-tax profit to exceed 2012, with an operating margin around 10%; South America and Asia Pacific Africa were expected to be approximately breakeven.
- Ford Europe was expected to incur a 2013 pre-tax loss of about $2 billion, worse than prior guidance, as European industry volume weakened and pension costs and restructuring-related costs increased. Ford planned to close three facilities, affecting about 6,200 positions; the completed footprint changes were expected to reduce assembly capacity by 18% and yield annual gross savings of about $450–$500 million. Management targeted a 6%–8% European operating margin longer term.
- Ford Credit expected 2013 pre-tax profit about equal to 2012, managed receivables of $95–$105 billion, and managed leverage of 8:1–9:1.
- Key operating risks include economic weakness and excess capacity, especially in Europe; price competition; shifts in vehicle mix and fuel prices; foreign-exchange and commodity volatility; supplier or production disruptions; product quality, warranty and recall costs; and increasingly stringent safety, emissions, and fuel-economy requirements.
- Other significant exposures include pension and postretirement obligations; Ford Credit credit, residual-value and funding risks; cybersecurity; and potential changes to government incentives. The filing estimates reasonably possible losses in excess of accruals for material matters, primarily non-U.S. indirect tax matters, at up to about $2.3 billion. Asbestos exposure is difficult to estimate. A Brazilian state-tax assessment had advanced to court in one state, where collateral might be required.
- After year-end, Venezuela devalued its currency. Ford stated that applying the new rate at December 31, 2012 would have produced an estimated $200 million translation loss; restrictions also limited access to foreign currency. Ford issued $2 billion of long-term notes in January 2013, partly to redeem higher-coupon debt and partly to fund pension de-risking.
- PwC issued an unqualified opinion on the financial statements and internal control over financial reporting; management also concluded internal controls were effective at year-end.
Investor verification priorities
- Reconcile reported net income and EPS to the prior-year tax valuation-allowance release and to 2012 special items, including the China joint-venture gain and pension settlement charge.
- Review the European turnaround assumptions, expected 2013 loss, plant-closure process, restructuring cash costs, and whether projected savings and mid-decade margins are achievable.
- Assess pension funding needs and sensitivity to discount rates, investment returns, and future contributions; verify the impact of planned 2013 contributions on Automotive liquidity.
- Distinguish Automotive cash and debt from Ford Credit’s financing-sector balances; review Ford Credit funding availability, receivable quality, lease residual values, and securitization commitments.
- Track material legal and tax contingencies, including the disclosed up-to-$2.3 billion reasonably possible loss estimate, Brazil assessments, asbestos claims, and any developments in the dealer class action.