Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. FORD MOTOR CO (37996) 10-Q published on Apr 25, 2019 at 8:29 pm
Reporting Period: Mar 30, 2019
For the majority of our leases commencing after January 1, 2019, we do not separate the non-lease components (e.g., maintenance and operating services) from the lease components to which they relate. Instead, non-lease components are included in the measurement of the lease liabilities. However, we do separate lease and non-lease components for contracts containing a significant service component (e.g., energy performance contracts). We calculate the initial lease liability as the present value of fixed payments not yet paid and variable payments that are based on a market rate or an index (e.g., CPI), measured at commencement. The majority of our leases are discounted using our incremental borrowing rate because the rate implicit in the lease is not readily determinable. All other variable payments are expensed as incurred.
Russia. On March 27, 2019, Ford Sollers Netherlands B.V. (“Ford Sollers”), a joint venture between Ford and Sollers PJSC (“Sollers”) in which Ford has control, announced its plan to restructure its business in Russia to focus exclusively on commercial vehicles and to exit the passenger car segment. As a result of these actions, Ford Sollers will cease production in 2019 at the Naberezhnye Chelny and St. Petersburg vehicle assembly plants and the Elabuga engine plant. As part of these restructuring actions, Ford plans to acquire a 100% ownership of Ford Sollers during the second quarter of 2019, and later in the year sell a 51% controlling interest in the restructured entity to Sollers.
Other Global Redesign Actions. In 2018, we announced our plan to end production at the Ford Aquitane Industries plant in Bordeaux, France, and in March 2019, we announced our plan to phase-out the production of the C-Max at the Saarlouis Body and Assembly Plant in Germany. Furthermore, we are reducing our global workforce and taking other restructuring actions.
In China, we incurred a loss of $128 million on lower volume. This was an improvement from the $150 million we lost a year ago, which was, by far, China’s best quarterly result in 2018. In the second through fourth quarters of 2018, our average quarterly loss was $465 million. The improvement from a year ago was driven by our consolidated operations, offset partially by lower JV equity net income. The main elements of the consolidated operations’ improvement were strong cost performance and favorable exchange, although we also saw favorable mix and achieved flat year-over-year pricing in a negative industry-pricing environment. The favorable currency effect essentially was a reversal of an equivalent adverse impact we incurred in China over the past several years. The lower JV equity net income was entirely due to lower volume. Importantly, we ended the quarter with dealer stocks in good shape and improving dealer profitability.
From a product standpoint, North America’s EBIT improvement was driven by our F-Series despite new competitive challenges; Ranger, as it came to market; and Transit, America’s best-selling van. North America’s EBIT also benefited substantially from the decision to exit traditional passenger sedans. The strong financial performance of F-Series was matched by robust performance in the marketplace. In the first quarter of 2019 and in the face of new competitive entries, F-Series customer sales and average transaction prices held strong from a year ago, while share of segment increased. Our plan is to strengthen our position further with a new Super Duty launching later this year, a new F-150 coming in 2020, followed by a battery electric vehicle relatively soon thereafter.
Also on April 23, 2019, we closed on a $3.5 billion supplemental credit facility, further strengthening our liquidity and providing additional financial flexibility. Unlike our corporate credit facility, the supplemental facility is intended to be utilized and includes a $2 billion revolving facility maturing on April 30, 2022 and a $1.5 billion delayed draw term loan facility maturing on December 31, 2022. We expect to fully draw the term loan over the course of 2019; however, the impact of any draws will be leverage neutral after taking into consideration debt reduction actions we took late last year, including the repayment of about $1 billion of higher cost affiliate debt. The terms and conditions of the supplemental credit facility are consistent with our corporate credit facility. As of April 25, 2019, all $3.5 billion was available for use.