Results May Take Bigger Hit Next Quarter Due to Revamp; Earnings Will Be Restated

From the Wall Street Journal
By JEFFREY MCCRACKEN
October 24, 2006

DETROIT -- Ford Motor Co.'s $5.8 billion third-quarter preliminary net loss, its prediction of bigger fourth-quarter operating losses and its continued cash burn signal increased pressure on the auto maker and new Chief Executive Alan Mulally to find a solution to the company's troubles.

The Dearborn, Mich., company also said it will restate earnings from 2001 through the second quarter of 2006 and said its third-quarter results were preliminary, due to a change in accounting for derivatives contracts. Ford expects the restatement to "materially" improve 2002 earnings, although all other periods remain under review.

Ford -- which is coping with declining popularity of its biggest trucks and sport-utility vehicles due to high gasoline prices, high costs and competition from Asian car makers -- estimated restructuring charges this year would total between $9.5 billion and $10.5 billion. That puts it on track this year to outpace General Motors Corp.'s $10.6 billion loss in 2005.

Without specifying, Ford Chief Financial Officer Don Leclair said the auto maker will continue to have negative cash flow "for the next couple years" and disclosed Ford's intention to pursue financing backed by its own assets, a move that prompted two credit-rating firms to say they will re-examine their ratings of some of Ford's debt.

Ford Motor CEO Alan Mulally comments on the earnings loss, the company's restructuring plans and the goal to reduce capacity and to change the model mix.

With $23.6 billion in cash and equivalents, Ford isn't in imminent danger of a cash squeeze. But the cash burn has been a source of concern among investors. Ford went through $3.1 billion in cash in the third quarter, and expects to burn $3.6 billion in the fourth quarter.

Fitch Ratings said if cash falls below $15 billion at Ford that could "raise the level of concern among suppliers and customers." Mr. Leclair said Ford is intent on maintaining strong liquidity.

Ford already is considering the sale of certain assets, such as the Aston Martin luxury brand, though it said an Aston Martin sale wouldn't close this year. Mr. Mulally said potential sales of luxury brands Jaguar and Land Rover still are being studied.

"The cash burn is great enough that this company will have to sell more assets and start to pledge other assets in borrowing," said John Casesa, managing partner of Casesa Strategic Advisors LLC, a New York consulting firm.

Restructuring charges of $4.6 billion made up much of Ford's loss. Its third-quarter loss amounted to $3.08 share, compared with a loss of $284 million, or 15 cents a share, in the year-ago period. The loss was its biggest in 14 years. Its loss from continuing operations, excluding items, was 62 cents a share. Through the first nine months, Ford has lost $7.24 billion, including $6.5 billion in charges.

In his first earnings call since joining Ford in September, Mr. Mulally called the results "unacceptable," but said he wasn't surprised by the depth of the losses. When he joined Ford, he said in an interview, "I came in with my eyes wide open. What's good is we are dealing with the reality now." He said Ford was more focused on turning around its operations than exploring an alliance with another auto maker. Wall Street had speculated Renault SA of France and Nissan Motor Co. of Japan could reach a cooperation agreement with Ford after being spurned by GM.

Ford shares fell 1.4%, or 11 cents, to $7.90 as of 4 p.m. in New York Stock Exchange composite trading yesterday.

Ford's North American operations lost $2 billion in the quarter, compared with a $1.2 billion loss a year ago. The latest loss came despite a United Auto Workers deal on retiree health care, which saved the auto maker $200 million in the quarter, and 4,000 salaried job cuts this year, which saved it an additional $400 million during the quarter. Ford sold 1.51 million vehicles in the third quarter, compared with 1.53 million in the year-earlier period.

Ford said it discovered after a PricewaterhouseCoopers LLP audit that certain interest-rate swaps Ford Motor Credit had entered to hedge on interest rates were accounted for incorrectly. It said the accounting firm "reassessed" how Ford had accounted for the swaps and determined they didn't meet the requirements for accounting for derivatives contracts.

 

Ouch, that's nasty.

GM 2005 = Ford 2006 methinks.

 

Very sad news indeed.

 

http://money.cnn.com/2006/10/23/news...ion=2006102311

Saying the same thing, just reposting here.

 

It's product. I can't think of a single Ford vehicle that is interesting outside of the GT (which for around half the price i'd take a Z06) and the GT500 (which actually i think i'd prefer an 03/04 cobra). Outside of enthusiasts everyone i know who isn't a "car person" doesn't seem excited about any ford products either outside of the mustang. No surprise. Mazda is the best thing ford has going for them.