Ford Motor Company — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2009; filed November 6, 2009. Amounts are U.S. dollars. Financial statement figures are generally in millions unless noted. Interim statements were reviewed, not audited.
Business context and financial results
Ford reports Automotive and Financial Services (primarily Ford Credit) sectors. Results reflect the global downturn, lower vehicle volumes, restructuring and balance-sheet actions. Third-quarter earnings improved year over year, while nine-month revenue remained substantially lower.
| Metric | Q3 2009 | Q3 2008 | First 9 months 2009 | First 9 months 2008 |
|---|---|---|---|---|
| Total revenue | $30.9bn | $31.7bn | $82.9bn | $116.1bn |
| Automotive sales | $27.9bn | $27.7bn | $73.2bn | $103.9bn |
| Automotive operating income/(loss) | $667m | $(8)m | $(3.2)bn | $(5.3)bn |
| Income/(loss) before tax | $1.2bn | $(573)m | $2.0bn | $(9.3)bn |
| Net income/(loss) attributable to Ford | $997m | $(161)m | $1.8bn | $(8.8)bn |
| Diluted earnings/(loss) per share | $0.29 | $(0.07) | $0.61 | $(3.94) |
Q3 Automotive operating margin was approximately 2.4% of Automotive sales. Ford Credit reported Q3 pre-tax income of $677m, compared with $161m a year earlier; Financial Services sector pre-tax income was $670m.
Cash flow, debt and liquidity
- Consolidated operating cash flow for the first nine months was $15.6bn, versus $3.3bn in 2008. This total includes Financial Services cash flows and presentation reclassifications; it is not a proxy for Automotive operating cash generation.
- Ford’s non-GAAP Automotive operating-related cash flow was negative $3.4bn for the first nine months, improved from negative $12.3bn in 2008; Q3 was positive $1.3bn. Ford expected positive Automotive operating-related cash flow in Q4.
- Automotive gross cash was $23.8bn at September 30, up from $13.4bn at year-end 2008. Automotive net debt was $3.1bn, compared with $10.8bn at year-end.
- Total company debt was $132.0bn, down from $152.6bn at year-end; this includes $105.8bn of Financial Services debt. Total equity remained a deficit of $7.3bn, an improvement from a $14.5bn deficit.
- Ford Credit reported $23.9bn of liquidity available for use, up from $21.4bn at year-end. Its managed leverage was 7.7-to-1, down from 9.9-to-1.
Changes versus comparable periods and unusual items
- Q3 net income attributable to Ford improved by $1.2bn year over year. Automotive pre-tax results improved by $1.3bn and Financial Services by $511m.
- For the first nine months, revenue fell about 29% year over year, while net income attributable to Ford improved by $10.6bn from the 2008 loss. The comparison is materially affected by 2008 impairment charges and 2009 debt-reduction gains.
- Ford recorded $4.7bn of Automotive gains on debt extinguishments in the first nine months of 2009, including gains from debt repurchases and exchanges. These gains substantially supported reported Automotive pre-tax income of $853m, despite a $3.2bn Automotive operating loss.
- Other significant items included a $650m first-quarter impairment related to Volvo, a $141m impairment of the DFO Partnership investment, and a $281m foreign-currency translation loss on liquidation of a subsidiary. Volvo was classified as held for sale; Ford identified Zhejiang Geely Group as preferred bidder, with negotiations ongoing.
- Ford Credit’s improvement included the non-recurrence of a $2.1bn 2008 operating-lease impairment, lower lease depreciation and credit-loss provisions, and currency-related gains. Its receivables declined as vehicle volumes, dealer stocks and financing activity fell.
- Ford issued shares and converted substantial convertible debt to equity during 2009. A $630m cumulative correction of a prior-period Ford Credit cash/payables error was recorded in 2009; management said the effect on previously issued statements was not material.
Outlook, risks and contingencies
- Ford’s 2009 planning outlook assumed U.S. industry sales of about 10.6m vehicles and sales of about 15.7m across the 19 European markets it tracks. It expected global industry sales to decline about 7% for 2009 and gradual improvement in 2010, with a possible substantial European downturn as scrappage programs expire.
- Ford expected 2009 Automotive structural cost reductions of about $5bn, exceeding its prior $4bn goal; it said structural costs should be relatively stable thereafter. It forecast about $5bn of 2009 capital spending.
- Ford expected Ford Credit to be profitable in Q4 2009 and in 2010, but at a lower level in 2010. It expected 2011 total-company and Ford North America pre-tax results to be solidly profitable, excluding special items, and 2011 Automotive operating-related cash flow to be positive.
- Ford said it had sufficient liquidity for its plan and obligations under its planning assumptions, while noting economic, industry and funding uncertainty. Its $10.2bn revolving-credit borrowing was due December 2011; a proposed lender amendment would reduce commitments and extend maturities, subject to lender approval.
- The UAW rejected a proposed labor agreement in November 2009; Ford Canada’s CAW members ratified modifications. The amended UAW retiree-health settlement remained subject to court approval and other conditions. Ford estimated that implementation would increase debt by about $7bn–$8bn and 2010 interest expense by about $700m; scheduled year-end payments were about $2bn, with up to about $610m payable in stock at Ford’s option.
- Ford’s DOE advanced-technology loan facility could provide up to $5.9bn; $886m had been borrowed by September 30. Advances are tied to eligible vehicle-program costs, milestones and fuel-economy targets.
- Key risks cited include weak vehicle demand, pricing and market-share pressure, commodity and currency volatility, supplier and labor disruption, pension and retiree-health obligations, warranty or safety issues, and Ford Credit’s ability to obtain funding and manage credit losses and vehicle residual values. Ford Credit’s nine-month loss-to-receivables ratio rose to 1.10% from 0.74%; its allowance was $1.7bn, or 1.79% of end-period receivables.
- Other matters include a Michigan environmental notice alleging permit violations at Ford’s Dearborn research center, pending state antitrust class actions, and proposed greenhouse-gas and air-quality regulations that could increase compliance costs. Ford also adopted a tax-benefit preservation plan to protect tax attributes; a potential ownership change could limit their use.
Important facts for investors to verify
- How much of reported 2009 profitability and Automotive liquidity improvement is sustainable versus attributable to debt-extinguishment gains, equity issuance, asset sales and other non-operating items.
- Whether Ford can convert positive Q3 and expected Q4 Automotive operating-related cash flow into sustained positive cash generation, and meet debt and retiree-health obligations.
- Final lender approval and terms for the proposed revolving-credit extension, and the timing and effects of the announced convertible-note offering and possible equity sales.
- Ford Credit funding access, receivables and liquidity trends, credit-loss allowances, and lease residual values as government-supported funding programs and market conditions change.
- Progress and final terms for a Volvo sale, approval and implementation of the amended UAW retiree-health settlement, and the financial effects of labor negotiations and pending legal or regulatory matters.