Ford Motor Company — Q3 2013 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2013. Amounts are in U.S. dollars; financial statements are unaudited. The interim financial statements received a limited review, not an audit.
Financial performance
| Metric | Q3 2013 | Q3 2012 | First 9 months 2013 | First 9 months 2012 |
|---|---|---|---|---|
| Total revenue | $35.976B | $32.172B | $109.881B | $97.828B |
| Pre-tax income, including special items | $2.091B | $2.246B | $6.033B | $5.879B |
| Pre-tax results, excluding special items | $2.589B | $2.163B | $7.290B | $6.285B |
| Net income attributable to Ford | $1.272B | $1.631B | $4.116B | $4.067B |
| Diluted earnings per share | $0.31 | $0.41 | $1.02 | $1.02 |
- Q3 special-item charges were $498 million, primarily European restructuring and U.S. salaried pension lump-sum settlement costs. Nine-month charges were $1.257 billion.
- Automotive generated $1.728 billion of Q3 pre-tax income and $4.716 billion for the first nine months, including special items. Ford Credit and other Financial Services together reported $363 million and $1.317 billion, respectively.
- Management reported Automotive operating margin of 6.2% for the first nine months, versus 5.3% a year earlier. North America delivered a Q3 operating margin of at least 10% for the sixth time in seven quarters; Europe remained loss-making.
Cash flow, balance sheet and liquidity
- Consolidated operating cash flow for the first nine months was $10.129 billion, versus $9.406 billion in 2012. Capital expenditures were $4.659 billion, up from $3.603 billion.
- Automotive operating-related cash flow, a company-defined non-GAAP measure, was $5.6 billion for the first nine months, versus $2.4 billion. Automotive gross cash was $26.1 billion; reported Automotive liquidity, including available credit lines, was $37.5 billion. Automotive net cash was $10.3 billion.
- At September 30, consolidated cash and cash equivalents were $14.752 billion, marketable securities $22.890 billion, total debt $110.622 billion, and total equity $20.510 billion. Automotive debt was $15.824 billion; most consolidated debt relates to Financial Services.
- Ford Credit had $99.0 billion of managed receivables, $11.0 billion of cash and related securities, and $22.6 billion of liquidity available for use. Its managed leverage was 8.2:1.
- Ford declared dividends of $0.10 per share in Q3; $0.30 per share had been declared for the first nine months.
Changes and management commentary
- Revenue rose year over year in Q3 and the first nine months. Excluding special items, pre-tax results improved, while reported Q3 net income declined, principally reflecting special-item costs and a higher tax provision.
- Automotive results benefited from higher volume, product mix and net pricing across regions; higher investment and restructuring costs, pension costs and unfavorable exchange partly offset those gains. First-nine-month wholesale volume and revenue increased 14% and 13%, respectively.
- Ford Credit’s Q3 pre-tax results improved year over year, mainly on higher North American volume. Credit losses remained near historic lows, though lease returns increased and 36-month average auction values were about $700 below the prior year.
- Ford raised its full-year 2013 outlook: total-company pre-tax profit expected to exceed 2012; Automotive margin expected to be higher than 2012; and Automotive operating-related cash flow expected to be substantially higher. Capital spending was projected at about $6.5 billion.
- Segment outlook: North America expected to deliver higher pre-tax profit and about 10% margin; South America about breakeven to profitable; Europe’s loss expected to be less than 2012; Asia Pacific Africa expected to be profitable. Ford Credit expected full-year pre-tax profit about equal to 2012, managed receivables about $100 billion, and distributions about $400 million.
Risks, contingencies and unusual items
- Ford estimated potential reasonably possible losses beyond accruals for material matters, principally indirect tax and customs matters, at up to about $2.6 billion. The filing notes that actual outcomes could exceed estimates. Guarantees had maximum potential payments of $228 million; recorded liabilities were $6 million.
- European restructuring was expected to cost approximately $1 billion, plus an estimated $200 million of pension-related costs. Ford expected about $5 billion of worldwide pension-plan contributions in 2013; $3.9 billion had been contributed through September.
- Venezuela remained challenging due to foreign-exchange restrictions and production and parts constraints. Ford reported $704 million of cash there and $283 million of U.S.-dollar exchange requests pending or in transit, including $274 million payable to Ford affiliates.
- Other principal risks include weaker vehicle demand or market share, pricing and currency volatility, supplier or labor disruption, product defects and warranty costs, pension obligations, regulation and litigation, and Ford Credit funding, credit-loss and vehicle-residual-value risks.
- Ford Credit planned to wind down its FCAR commercial-paper program by Q2 2014, with no new FCAR commercial paper after year-end 2013; a new two-year committed asset-backed liquidity facility was established in October 2013.
Important facts for investors to verify
- How much of reported and adjusted profit reflects recurring operations versus restructuring, pension-settlement and other special items.
- Whether full-year guidance is achieved, particularly Automotive margins, operating-related cash flow and the regional profit outlook.
- Cash requirements for pension contributions, European restructuring and the planned increase in ongoing annual capital spending to about $7.5 billion later in the decade.
- Ford Credit’s funding capacity and leverage, and whether lease-return volumes and used-vehicle auction values affect residual losses or credit costs.
- Developments in the up-to-$2.6 billion estimated tax/customs exposure, other legal matters, and Venezuela’s ability to convert and transfer funds.