Ford Motor Company — 2017 Form 10-K Summary
Business context and reporting period
Annual report for the fiscal year ended December 31, 2017; amounts are in U.S. dollars. Ford designs, manufactures, markets, and services Ford and Lincoln vehicles and provides vehicle financing through Ford Credit. It reported Automotive and Financial Services as its reportable segments; Ford Smart Mobility and Central Treasury Operations were included in All Other. Ford said it planned to change to Automotive, Mobility, and Ford Credit reporting segments in 2018.
Financial performance and key metrics
| Metric | 2017 | Comparison / context |
|---|---|---|
| Revenue | $156.8 billion | Up $5.0 billion from 2016 |
| Income before taxes | $8.1 billion | 2016: $6.8 billion |
| Net income attributable to Ford | $7.6 billion; diluted EPS $1.90 | 2016: $4.6 billion; diluted EPS $1.15 |
| Adjusted pre-tax profit (non-GAAP) | $8.4 billion | Down $1.9 billion from 2016 |
| Adjusted EPS (non-GAAP) | $1.78 | 2016: $1.76 |
| Automotive segment | $7.3 billion pre-tax profit; 5% operating margin | Profit down $2.2 billion year over year |
| Ford Credit | $2.2 billion segment pre-tax income | Up $431 million; managed receivables of $151 billion |
| Cash flow | $18.1 billion consolidated operating cash flow; $7.0 billion capital spending | Automotive operating cash flow, Ford’s non-GAAP measure: $3.9 billion |
| Liquidity | $26.5 billion Automotive cash; $37.4 billion Automotive liquidity | Liquidity includes available committed credit lines |
| Debt | $15.9 billion Automotive; $138.4 billion Financial Services; $154.3 billion total | Automotive debt was essentially unchanged; Ford Credit debt increased from $127.1 billion |
| Equity and assets | $34.9 billion total equity; $257.8 billion total assets | Year-end 2016 equity: $29.2 billion; assets: $238.0 billion |
| Income tax | $520 million provision; 6.4% effective rate | Adjusted effective tax rate: 15.3% |
Reported net income improved substantially, primarily reflecting a much smaller pension and other postretirement benefit remeasurement loss than in 2016 and favorable tax actions. The 2016 fourth quarter included a $3.0 billion pension/OPEB remeasurement loss. The reported 2017 effective tax rate also benefited from tax planning, restructuring, and the U.S. Tax Cuts and Jobs Act.
Material changes versus 2016
- Revenue rose about 3%; net income attributable to Ford increased from $4.6 billion to $7.6 billion, while adjusted pre-tax profit declined from $10.4 billion to $8.4 billion.
- Automotive results weakened, principally due to higher commodity costs and adverse currency effects. North America earned $7.5 billion, down $1.5 billion; Europe earned $234 million, down $971 million. South America’s loss narrowed to $784 million, while Asia Pacific profit declined to $561 million.
- Ford Credit profit increased to $2.2 billion, supported by receivables growth, financing margin, and stronger lease residual performance. Its loss-to-receivables ratio was 53 basis points, up 6 basis points and described as within expectations.
- Global wholesale volume was 6.607 million vehicles, slightly below 2016’s 6.651 million. Global market share declined from 7.2% to 7.0%. Ford’s China joint ventures contributed $916 million in pre-tax profit, $523 million less than the prior year.
- Total debt increased from $143.0 billion to $154.3 billion, mainly reflecting higher Financial Services debt. Total equity increased by $5.7 billion.
Outlook, commentary, risks, and unusual items
- 2018 guidance: Revenue expected to be about flat to modestly higher; adjusted EPS of $1.45–$1.70; Automotive profit flat to lower; Ford Credit profit strong but lower; and positive Company operating cash flow, below 2017. The outlook assumes an adjusted effective tax rate of about 15%.
- Management cited anticipated commodity and currency headwinds, slightly lower U.S. industry volume, and possible recall volatility. Metals prices were expected to rise, and exchange rates were expected to remain a headwind.
- Ford expected 2018 capital spending of about $7.5 billion and described ongoing annual spending of about $8 billion through 2021. It announced expected electrification investment above $11 billion through 2022, alongside increased investment in autonomous vehicles, mobility, and connected services.
- Key business risks include vehicle-demand and mix shifts, pricing pressure from industry overcapacity, commodity, currency and interest-rate volatility, execution of cost-reduction plans, labor and supplier disruption, recalls and warranty costs, regulatory requirements, pension obligations, cyber incidents, and Ford Credit funding, credit-loss, and lease-residual risks.
- Worldwide defined-benefit pension plans were underfunded by $6.6 billion at year-end, an improvement of $2.3 billion. Ford expected about $850 million in 2018 for funded-plan contributions and unfunded-plan benefit payments combined.
- Contingencies include Brazilian tax assessments related to incentives, an appealed customs ruling concerning Transit Connect imports, and an EPA notice alleging air-permit violations at the Chicago Assembly Plant. Ford estimated reasonably possible loss in excess of accruals for material matters, primarily indirect tax and customs matters, at up to about $600 million. The filing says outcomes are uncertain.
- The 2017 fourth quarter included a $354 million pension curtailment gain and tax benefits of $398 million related to U.S. tax legislation and $484 million related to non-U.S. restructuring. These and other special items affect comparisons of reported and adjusted results.
Important facts for investors to verify
- Review the reconciliation of GAAP net income and EPS to adjusted pre-tax profit and adjusted EPS, including pension, restructuring, and tax-related items.
- Distinguish consolidated operating cash flow, which includes Ford Credit, from Ford’s non-GAAP Automotive operating cash flow measure and its defined exclusions.
- Assess Ford Credit’s debt maturities, funding access, credit-loss allowance, residual-value assumptions, and managed leverage; year-end managed leverage was 8.0:1.
- Track whether 2018 guidance and planned cost, capital-spending, electrification, and mobility initiatives are achieved amid commodity, currency, recall, and demand risks.
- Follow developments in Brazilian tax matters, the Transit Connect customs appeal, and the Chicago Assembly Plant EPA matter; the filing does not state a final outcome for these proceedings.