Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-K
(Mark One)
X Annual report pursuant to Section 13 or 15(d) of the Securities
- ---- Exchange Act of 1934 (No Fee Required)
For the fiscal year ended December 31, 1999
or
Transition report pursuant to Section 13 or 15(d) of the Securities
- ---- Exchange Act of 1934 (No Fee Required)
For the transition period from to
------- -------
Commission file number 1-3950
------
FORD MOTOR COMPANY
------------------
(Exact name of Registrant as specified in its charter)
Delaware 38-0549190
-------- ----------
(State of incorporation) (I.R.S. employer identification no.)
One American Road, Dearborn, Michigan 48126
------------------------------------- -----
(Address of principal executive offices) (Zip code)
313-322-3000
------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered (a)
------------------- ----------------------------
Common Stock, par value $1.00 per share New York Stock Exchange
Pacific Coast Stock Exchange
Depositary Shares, each representing New York Stock Exchange
1/2,000 of a share of Series B Cumulative
Preferred Stock, as described below
- ---------------
(a) In addition, shares of Common Stock of Ford are listed on certain stock
exchanges in the European Union.
[Cover page 1 of 2 pages]
Securities registered pursuant to Section 12(g) of the Act:
Series B Cumulative Preferred Stock, par value $1.00 per share, with an annual
dividend rate of $4,125 per share and a liquidation preference of $50,000 per
share.
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes__X__ No______
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
As of February 25, 2000, Ford had outstanding 1,135,568,311 shares of Common
Stock and 70,852,076 shares of Class B Stock. Based on the New York Stock
Exchange Composite Transaction closing price of the Common Stock on that date
($42 15/16 a share), the aggregate market value of such Common Stock was
$48,758,464,354. Although there is no quoted market for our Class B Stock,
shares of Class B Stock may be converted at any time into an equal number of
shares of Common Stock for the purpose of effecting the sale or other
disposition of such shares of Common Stock. The shares of Common Stock and
Class B Stock outstanding at February 25, 2000 included shares owned by
persons who may be deemed to be "affiliates" of Ford. We do not believe,
however, that any such person should be considered to be an affiliate. For
information concerning ownership of outstanding Common Stock and Class B
Stock, see the Proxy Statement for Ford's Annual Meeting of Stockholders to be
held on May 11, 2000 (our "Proxy Statement"), which is incorporated by
reference under various Items of this Report.
Document Incorporated by Reference*
----------------------------------
Document Where Incorporated
------- ------------------
Proxy Statement Part III (Items 10,
11, 12 and 13)
__________________________
* As stated under various Items of this Report, only certain specified portions
of such document are incorporated by reference in this Report.
[Cover page 2 of 2 pages]
PART I
Item 1. Business
- ----------------
Ford Motor Company was incorporated in Delaware in 1919. We acquired the
business of a Michigan company, also known as Ford Motor Company, incorporated
in 1903 to produce and sell automobiles designed and engineered by Henry Ford.
We are the world's largest producer of trucks and the second-largest producer
of cars and trucks combined. We and our subsidiaries also engage in other
businesses, including manufacturing automotive components and systems and
financing and renting vehicles and equipment.
Overview
Ford's business is divided into two business sectors, and we manage these
sectors as four primary operating segments. These business sectors and
operating segments are described below.
Business Sectors Operating Segments Description
- ---------------- ------------------ ------------
Automotive:
Automotive design, manufacture, sale and service
of cars and trucks
Visteon Automotive Systems design, manufacture, sale and service of
automotive components and systems
Financial Services:
Ford Motor Credit Company vehicle-related financing, leasing and
insurance
The Hertz Corporation renting and leasing of cars and trucks and
renting industrial and construction
equipment, and other activities
We provide financial information (such as, revenues, income and assets)
for each of these business sectors and operating segments in three areas of
this Report: (1) Item 6. "Selected Financial Data" on pages 36 through 38;
(2) Item 7. "Management's Discussion and Analysis of Financial Condition and
Results of Operations" on pages 39 through 50; and (3) Note 18 of our Notes to
Financial Statements located at the end of this Report (pages FS-29 and FS-30).
Financial information relating to certain geographic areas is also included in
the above-mentioned areas of this Report.
Item 1. Business (Continued)
Automotive Sector
We sell cars and trucks and automotive components and systems throughout
the world. In 1999 we sold 7.2 million vehicles throughout the world. Our
automotive vehicle brands include Ford, Mercury, Lincoln, Volvo, Jaguar, Aston
Martin and TH!NK. In addition, we own 33.4% of Mazda Motor Corporation
("Mazda"). We completed the purchase of AB Volvo's worldwide passenger car
business ("Volvo Car") on March 31, 1999. As a result, our 1999 results and
financial condition include Volvo Car's results and financial condition since
the date of the acquisition.
The worldwide automotive industry, Ford included, is affected
significantly by a number of factors over which we have little control,
including general economic conditions. In the United States, the automotive
industry is a highly-competitive, cyclical business that has a wide variety of
product offerings. The number of cars and trucks sold to retail buyers
(commonly referred to as "industry demand") can vary substantially from year to
year. In any year, industry demand depends largely on general economic
conditions, the cost of purchasing and operating cars and trucks and the
availability and cost of credit and fuel. Industry demand also reflects the
fact that cars and trucks are durable items that people can wait to replace.
The automotive industry outside of the United States consists of many
producers, with no single dominant producer. Certain manufacturers, however,
account for the major percentage of total sales within particular countries,
especially their countries of origin. Most of the factors that affect the
United States automotive industry and its sales volumes and profitability are
equally relevant outside the United States.
The worldwide automotive industry also is affected significantly by a
substantial amount of costly government regulation. In the United States and
Europe, for example, government regulation has arisen primarily out of concern
for the environment, for greater vehicle safety and for improved fuel economy.
Many governments also regulate local content and/or impose import requirements
as a means of creating jobs, protecting domestic producers or influencing their
balance of payments.
Our unit sales vary with the level of total industry demand and our share
of that industry demand. Our share is influenced by how our products compare
with those offered by other manufacturers based on many factors, including
design, driveability, price, quality, reliability, safety and utility. Our
share also is affected by our timing of new model introductions and
manufacturing capacity limitations. Our ability to satisfy changing consumer
preferences with respect to type or size of vehicle and its design and
performance characteristics can impact our sales and earnings significantly.
-2-
Item 1. Business (Continued)
The profitability of vehicle sales is affected by many factors,
including the following:
o unit sales volume
o the mix of vehicles and options sold
o the margin of profit on each vehicle sold
o the level of "incentives" (price discounts) and other marketing
costs
o the costs for customer warranty claims and other customer
satisfaction actions
o the costs for government-mandated safety, emission and fuel economy
technology and equipment
o the ability to manage costs
o the ability to recover cost increases through higher prices
Further, because the automotive industry is capital intensive, it operates with
a relatively high percentage of fixed costs, which can result in large changes
in earnings from relatively small changes in unit volume.
Following is a discussion of the automotive industry in the principal
markets where we compete, as well as a discussion of our Visteon operating
segment, our Automotive Consumer Services Group and our ConsumerConnect
e-commerce initiatives and strategy:
United States
- -------------
Sales Data. The following table shows U.S. industry retail deliveries of
cars and trucks for the years indicated:
U. S. Industry Retail Deliveries
(millions of units)
Years Ended December 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- ---------- --------- ----------
Cars........................................ 8.7 8.2 8.3 8.6 8.6
Trucks...................................... 8.7 7.8 7.2 6.9 6.5
---- ---- ---- ---- ----
Total....................................... 17.4 16.0 15.5 15.5 15.1
==== ==== ==== ==== ====
-3-
Item 1. Business (Continued)
We classify cars by small, middle, large and luxury segments and trucks by
compact pickup, compact bus/van/utility, full-size pickup, full-size
bus/van/utility and medium/heavy segments. The large and luxury car segments
and the compact bus/van/utility, full-size pickup and full-size bus/van/utility
truck segments include the industry's most profitable vehicle lines. The term
"bus" as used in this discussion refers to vans designed to carry passengers.
The following tables show the proportion of United States retail car and truck
unit sales by segment for the industry (including Japanese and other
foreign-based manufacturers) and Ford for the years indicated:
U. S. Industry Vehicle Sales by Segment
------------------------------------------------------------------
Years Ended December 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- ---------- --------- ----------
CARS
Small....................................... 16.1% 16.9% 18.1% 19.1% 19.6%
Middle...................................... 23.7 23.6 24.7 25.6 26.4
Large....................................... 3.0 3.4 3.9 3.9 4.3
Luxury...................................... 7.1 7.1 6.7 6.7 6.8
----- ----- ----- ----- -----
Total U.S. Industry Car Sales............... 49.9 51.0 53.4 55.3 57.1
----- ----- ----- ----- -----
TRUCKS
Compact Pickup.............................. 6.2% 6.7 6.4 6.2 6.8
Compact Bus/Van/Utility..................... 22.1 21.1 20.0 19.0 18.0
Full-Size Pickup............................ 12.7 12.4 12.0 12.6 11.5
Full-Size Bus/Van/Utility................... 6.5 6.5 6.1 5.0 4.4
Medium/Heavy................................ 2.6 2.3 2.1 1.9 2.2
----- ----- ----- ----- -----
Total U.S. Industry Truck Sales............. 50.1 49.0 46.6 44.7 42.9
----- ----- ----- ----- -----
Total U.S. Industry Vehicle Sales........... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
Ford Vehicle Sales by Segment in U.S.
------------------------------------------------------------------
Years Ended December 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- ---------- --------- ----------
CARS
Small....................................... 13.5% 13.1% 12.7% 13.4% 15.1%
Middle...................................... 15.7 16.7 19.6 22.1 22.3
Large....................................... 5.7 5.7 5.6 5.3 4.9
Luxury...................................... 6.0 4.2 4.1 4.1 4.4
----- ----- ----- ----- -----
Total Ford U.S. Car Sales................... 40.9 39.7 42.0 44.9 46.7
----- ----- ----- ----- -----
TRUCKS
Compact Pickup.............................. 8.4% 8.4 7.7 7.4 8.0
Compact Bus/Van/Utility..................... 17.7 18.1 18.9 20.0 20.1
Full-Size Pickup............................ 20.9 21.3 19.3 20.0 17.9
Full-Size Bus/Van/Utility................... 11.8 12.1 11.0 6.6 5.9
Medium/Heavy*............................... 0.3 0.4 1.1 1.1 1.4
----- ----- ----- ------ -----
Total Ford U.S. Truck Sales................. 59.1 60.3 58.0 55.1 53.3
----- ----- ----- ------ -----
Total Ford U.S. Vehicle Sales............... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
- ---------------------------
*In 1997 Ford sold its heavy truck businesses in North America and
Australia/New Zealand to Freightliner Corporation. Ford ceased production of
heavy trucks in North America in December 1997. The transfer of the North
American and Australian/New Zealand heavy truck businesses was completed in
1998.
As shown in the tables above, since 1995 there has been a steady shift
from cars to trucks for both industry sales and Ford sales.
-4-
Item 1. Business (Continued)
Market Share Data. The following tables show changes in car and truck
United States market shares of the six leading vehicle manufacturers for the
years indicated:
U.S. Car Market Shares*
------------------------------------------------------------------
Years Ended December 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- ---------- --------- ----------
Ford**................................... 19.9% 20.4% 20.8% 21.6% 21.9%
General Motors........................... 29.3 29.8 32.2 32.3 33.9
DaimlerChrysler***....................... 10.3 10.7 10.2 10.9 10.0
Toyota................................... 10.2 10.6 9.9 9.3 9.2
Honda.................................... 9.8 10.6 10.0 9.2 8.6
Nissan................................... 4.6 5.0 5.7 5.9 6.0
All Other****............................ 15.9 12.9 11.2 10.8 10.4
----- ----- ----- ----- -----
Total U.S. Car Retail Deliveries 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
U.S. Truck Market Shares*
------------------------------------------------------------------
Years Ended December 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- ---------- --------- ----------
Ford..................................... 28.2% 30.2% 31.1% 31.1% 31.9%
General Motors........................... 27.8 27.5 28.8 29.0 29.9
DaimlerChrysler***....................... 22.2 23.2 21.9 23.4 21.3
Toyota................................... 6.7 6.3 5.7 5.3 4.5
Honda.................................... 2.6 1.9 1.5 0.8 0.8
Nissan................................... 3.2 2.7 3.6 3.6 3.9
All Other****............................ 9.3 8.2 7.4 6.8 7.7
----- ----- ----- ----- -----
Total U.S. Truck Retail Deliveries.... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
U.S. Combined Car and Truck Market Shares*
------------------------------------------------------------------
Years Ended December 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- ---------- --------- ----------
Ford**................................... 24.1% 25.2% 25.6% 25.8% 26.2%
General Motors........................... 28.5 28.7 30.6 30.8 32.2
DaimlerChrysler***....................... 16.3 16.8 15.6 16.5 14.8
Toyota................................... 8.5 8.5 7.9 7.5 7.2
Honda.................................... 6.2 6.3 6.0 5.5 5.3
Nissan................................... 3.9 3.9 4.7 4.8 5.1
All Other****............................ 12.5 10.6 9.6 9.1 9.2
----- ----- ----- ----- -----
Total U.S. Car and Truck Retail Deliveries 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
__________________________
* All U.S. retail sales data are based on publicly available information
from the media and trade publications.
** Ford purchased Volvo Car on March 31, 1999. The figures shown here include
Volvo Car on a pro forma basis for the periods prior to its acquisition by
Ford. During the period from 1995 through 1998, Volvo Car represented no
more than 1.2 percentage points of total market share during any one year.
*** Chrysler and Daimler-Benz merged in late 1998. The figures shown here
combine Chrysler and Daimler-Benz (excluding Freightliner and Sterling
Heavy Trucks) on a pro forma basis for the periods prior to their merger.
**** "All Other" includes primarily companies based in various European
countries and in Korea. The increase in combined market share shown for
"All Others" reflects primarily increases in market share for Volkswagen
AG and the Korean manufacturers.
The decline in United States market share for Ford is primarily the result
of capacity constraints on several key products due to strong demand in that
market.
Marketing Incentives and Fleet Sales. Automotive manufacturers that sell
vehicles in the United States frequently give purchasers price discounts or
other marketing incentives. These incentives are the result of competition from
new product offerings by manufacturers and the desire to maintain production
levels and market shares. Manufacturers provide these incentives to both retail
and fleet customers (fleet customers include daily rental companies, commercial
fleet customers, leasing companies and governments). Marketing incentives
generally are higher during periods of economic downturns, when excess capacity
in the industry tends to increase.
-5-
Item 1. Business (Continued)
Our marketing costs in the United States as a percentage of gross sales
revenue were as follows for the following three years: 10.6% (1999), 10.4%
(1998) and 8.7% (1997). These "marketing costs" include primarily (i) marketing
incentives on vehicles, such as retail rebates and costs for special financing
and lease programs, (ii) reserves for costs and/or losses associated with our
required repurchase of certain vehicles sold to daily rental companies and
(iii) costs for advertising and sales promotions for vehicles. The increase in
marketing costs over the last several years is a result of intense competition
in the United States market.
Fleet sales generally are less profitable than retail sales, and sales to
daily rental companies generally are less profitable than sales to other fleet
purchasers. The mix between sales to daily rental companies and other fleet
customers has been about evenly split in recent years. The table below shows
our fleet sales in the United States, and the amount of those sales as a
percentage of our total United States car and truck sales, for the last five
years.
Ford Fleet Sales
------------------------------------------------------------------
Years Ended December 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- ---------- --------- ----------
Units sold.................................. 940,000 878,000 923,000 936,000 971,000
Percent of Ford's total U.S. car and truck sales 23% 22% 24% 24% 25%
Warranty Coverage. We presently provide warranty coverage for defects in
factory-supplied materials and workmanship on all vehicles (other than medium
trucks) we sell in the United States. This warranty coverage for Ford/Mercury
vehicles extends for 36 months or 36,000 miles (whichever occurs first) and
covers components of the vehicle, other than tires which are warranted by the
tire manufacturers. The United States warranty coverage for luxury vehicles
(Lincoln, Jaguar, and Volvo) extends for 48 months or 50,000 miles (whichever
occurs first). In general, different warranty coverage is provided on
medium/heavy trucks and on vehicles sold outside the United States. In
addition, as discussed below under "Governmental Standards - Mobile Source
Emissions Control", the Federal Clean Air Act requires warranty coverage for a
"useful life" of 10 years or 100,000 miles (whichever occurs first) for
emissions equipment on most light duty vehicles sold in the United States. As a
result of these warranties and the increased concern for customer satisfaction,
costs for warranty repairs, emissions equipment repairs and customer
satisfaction actions ("warranty costs") can be substantial. Estimated warranty
costs for each vehicle sold by us are accrued at the time of sale. Such
accruals, however, are subject to adjustment from time to time depending on
actual experience.
Europe
- ------
Outside of the United States, Europe is our largest market for the sale of
cars and trucks. The automotive industry in Europe is intensely competitive.
Over the past year, 60 new or freshened vehicles were introduced in the
European market by various manufacturers. For the past 13 years, the top six
manufacturers have each achieved a car market share in about the 10% to 18%
range. (Manufacturers' shares, however, vary considerably by country.) This
competitive environment is expected to intensify further as a result of import
restrictions on vehicles assembled in Japan having been removed in total on
December 31, 1999, and as Japanese manufacturers, which together had a European
car market share of 12% for 1999, increase their production capacity in Europe.
We estimate that in 1999 the European automotive industry had excess capacity
of approximately 6 million units (based on a comparison of European domestic
demand and capacity).
In 1999, vehicle manufacturers sold approximately 17 million cars and
trucks in Europe, up 6% from 1998 levels. Ford's combined car and truck market
share in Europe in 1999 was 10.6%, up 4/10 of one percentage point from 1998.
Britain and Germany are our most important markets within Europe, although
the Southern European countries are becoming increasingly significant. Any
adverse change in the British or German market has a significant effect on our
total automotive profits. For 1999 compared with 1998, total industry sales
were down 2.3% in Britain and up 1.8% in Germany.
-6-
Item 1. Business (Continued)
For purposes of the figures shown in this section for 1999 and prior
years, we have considered Europe to consist of the following 15 markets:
Britain, Germany, France, Italy, Spain, Austria, Belgium, Ireland, Netherlands,
Portugal, Switzerland, Finland, Sweden, Denmark, and Norway. Beginning
January 1, 2000 and going forward, we will include the following four
additional markets as part of the European market: Czech Republic, Greece,
Hungary, and Poland.
Other Markets
- -------------
Mexico and Canada. Mexico and Canada also are important markets for us.
In 1999, industry sales of new cars and trucks in Mexico were approximately
690,000 units, up 4% from 1998 levels. In Canada, industry sales of new cars
and trucks in 1999 were approximately 1.5 million units, up 7% from 1998 levels.
Ford's combined car and truck market share in these markets in 1999 was 16.5%
(Mexico) and 19% (Canada).
South America. Brazil and Argentina are our principal markets in South
America. The economic environment in those countries has been volatile in
recent years, leading to large variations in industry sales. Results have also
been influenced by the devaluation of the Brazilian currency and government
actions to reduce inflation and public deficits. Industry sales in 1999 were
1.3 million units in Brazil, down about 19% from 1998, and approximately
380,000 units in Argentina, down 16% from 1998. The devaluation of the
Brazilian Real and continued weak economic conditions will adversely affect
industry sales in 2000. Ford's combined car and truck market share in these
markets in 1999 was 9.7% (Brazil) and 15.3% (Argentina).
Asia Pacific. In the Asia Pacific region, Australia, Taiwan and Japan are
our principal markets. Industry volumes in 1999 in this region were as follows:
approximately 787,000 units in Australia (down 3% from 1998), approximately
424,000 units in Taiwan (down 11% from 1998) and approximately 5.9 million
units in Japan (unchanged from 1998). In 1999, Ford's combined car and truck
market share in Australia was 16.1%. In Taiwan, we had a combined car and truck
market share in 1999 of 12.6%. Our combined car and truck market share in Japan
has been less than 1% in recent years. We own a 33.4% interest in Mazda Motor
Corporation ("Mazda") and account for Mazda on an equity basis. Mazda's market
share in Japan has been 5-6% in recent years. Our principal competition in the
Asia Pacific region has been the Japanese manufacturers. We anticipate that the
continuing relaxation of import restrictions (including duty reductions) in
Australia and Taiwan will intensify competition in those markets.
We opened a new assembly plant in India in 1999, launching an all-new
small car (the IKON) designed specifically for that market. We expect India to
become one of our most important markets in Asia in the future.
Africa. We have operated in the South African market as a 45% owner in the
South African Motor Corporation (Pty.) Limited ("SAMCOR"). In January 2000,
Ford and its principal partner, Anglo American Corporation of South Africa
Limited, announced that Ford will purchase Anglo's 45% interest in SAMCOR; 35%
will be purchased during 2000 and the remaining 10% will be purchased in
approximately two years. We have also agreed to purchase during 2000, the 10%
interest in SAMCOR that is currently owned by the SAMCOR Employee Trust. Each
of these purchases is subject to receiving prior regulatory approval.
SAMCOR assembles and distributes Ford, Mazda, and Mitsubishi vehicles in
South Africa, and is also expected to begin assembling and distributing Volvo
vehicles. In addition, SAMCOR distributes Jaguar vehicles. In 1999, industry
volume in South Africa was approximately 296,000 units, down 6.0% from 1998
levels. SAMCOR's combined car and truck market share in 1999 was 15% for the
four brands it distributes; the share for the Ford brands was 6.1%.
-7-
Item 1. Business (Continued)
Industry Consolidation and Global Competition
- ---------------------------------------------
The worldwide automotive industry is trending toward further consolidation,
such as the DaimlerChrysler merger, our acquisition of Volvo Car and the
recently announced alliance between General Motors and Fiat. Such consolidation
could be good for the industry to the extent it reduces excess capacity.
Consolidation could also result in there being fewer but stronger competitors
in the industry. We believe that Ford is well-positioned and does not need to
participate in the consolidation trend to compete globally. However, as with
our purchase of Volvo Car, we consider opportunities with other manufacturers
when we believe it would be beneficial to our business. Presently, our major
competitors on a global basis are DaimlerChrysler, General Motors, Honda,
Toyota and Volkswagen.
Visteon Automotive Systems
- --------------------------
Visteon is an enterprise of Ford and consists of certain subsidiaries and
divisions of Ford. Visteon is a global provider of integrated systems and
components to automotive manufacturers and other automotive suppliers. Visteon
ranks as the third-largest automotive supplier in the world based on revenues
of $19.4 billion for 1999. Visteon operates in three business segments:
o Comfort, Communication & Safety, composed of climate control
systems and interior/exterior systems product groups. The
climate control systems product group produces fluid transport,
air handling, heat exchange and compressor products. The
interior/exterior product group produces cockpit, instrument
panel, interior trim and seats, lighting and bumper products.
o Dynamics & Energy Conversion, composed of energy transformation
systems and chassis systems product groups. The energy
transformation systems product group produces energy
management, distributed power generation, electrical
conversion, and fuel storage and delivery products. The
chassis systems product group produces axle and driveline,
steering and chassis component products.
o Glass, which produces vehicle glass for Ford and aftermarket
customers, and also produces architectural glass.
Currently, most of Visteon's business is with Ford. In 1999 Visteon's mix
of business was 88% Ford and 12% non-Ford. In addition, in 1999 most of
Visteon's business was in North America (81%). Visteon's goal, however, is to
continue to obtain new business from companies other than Ford and to further
expand its business beyond North America. In 1999, 38% of Visteon's new
business was from non-Ford customers and 39% was from outside North America.
Below are some financial highlights for Visteon (in millions):
Years Ended December 31,
-------------------------------------
1999 1998
---------------- ----------------
Revenue 19,366 $17,762
Pre-Tax Income 1,172 1,116
Net Income 735 703
After-Tax Return on Sales 3.9% 3.9%
We previously announced that one of our financial milestones for the year
2000 is for Visteon to achieve independence. We have taken a major step toward
achieving greater independence for Visteon by starting the process of changing
Visteon from an enterprise of Ford into a separate legal entity that will be a
wholly-owned subsidiary of Ford.
-8-
Item 1. Business (Continued)
Automotive Consumer Services Group
- ----------------------------------
Automotive Consumer Services Group is a global automotive service
organization within Ford that includes Ford Customer Service Division and an
all-makes channel consisting of several leading automotive service brands.
Ford Customer Service Division supports consumers of Ford vehicles through
a network of franchised dealers. This is the principal source of vehicle
service and customer support for Ford Motor Company vehicle owners,
traditionally recognized by the Quality CareTM brand.
In the all-makes channel, vehicle owners for all automotive brands can
access services in areas of maintenance and light repair, collision repair,
extended service business and recycling. Our all-makes channel of companies
includes: Kwik-Fit (maintenance and light repair in Europe), Pit Stop
(maintenance and light repair in Europe), Speedy (maintenance and light repair
in Europe), Master Service (maintenance and light repair in Mexico), B-quik
(maintenance and light repair in Thailand), Collision Team of America
(collision repair in the U.S.), Howard Basford (collision repair in the U.K.),
and Automobile Protection Corporation (extended service business selling
all-makes policies through dealers in the U.S.). The characteristics of the
all-makes channel align closely with the Group's core dealer business and
expand the customer base to consumers previously outside the Ford network of
service providers.
Automotive Consumer Services Group conducts business in 38 countries and
serves consumers through over 13,000 dealer outlets and over 2,000 all-makes
outlets.
ConsumerConnect
- ---------------
We believe we are one of the leading automotive companies in electronic
commerce and have created a number of joint ventures with leading Internet and
software companies that touch every aspect of our business. The most
significant of these to date was announced on February 25, 2000, when Ford,
General Motors and DaimlerChrysler announced plans to merge the two existing
business-to-business Internet-based supplier exchanges into a single global
portal, creating the world's largest virtual marketplace. This new venture will
be open to all auto manufacturers, their suppliers and dealers, and eventually
could be expanded to include other industries. Oracle Corporation and Commerce
One, Inc. were announced as the technology partners in this venture.
This announcement followed a number of others in which we established
joint ventures or partnerships with leaders like Microsoft, Trilogy, Yahoo! an
others to disseminate to consumers information about our car and truck brands,
improve the purchase experience by reducing complexity and providing a more
satisfying experience, attract target customers and build consumer loyalty
through alliances with sites like iVillage and bolt.com and to improve our
customer service centers through our joint venture with TeleTech Holdings, Inc.
These and other initiatives are part of a cohesive, deliberate strategy to
transform Ford into a consumer company and an automotive leader in e-commerce.
-9-
Item 1. Business (Continued)
Financial Services Sector
Ford Motor Credit Company
- -------------------------
Ford Credit is an indirect wholly owned subsidiary of Ford. Ford Credit
and its subsidiaries provide wholesale financing and capital loans to Ford
retail dealerships and associated non-Ford dealerships throughout the world.
Most of these dealerships are privately owned. Ford Credit also purchases from
these dealerships retail installment sale contracts and retail leases. In
addition, it makes loans to vehicle leasing companies, the majority of which
are affiliated with such dealerships. Subsidiaries of Ford Credit provide these
financing services in the United States, Europe, Canada, Australia, Indonesia,
Brazil, Mexico, Argentina, Taiwan, Puerto Rico, New Zealand, Japan, Thailand,
the Philippines and India to Ford and non-Ford dealerships. A substantial
majority of all new vehicles financed by Ford Credit and its subsidiaries are
manufactured by Ford and our affiliates. Ford Credit also provides retail
financing for used vehicles built by Ford and other manufacturers. In addition
to vehicle financing, Ford Credit makes loans to affiliates of Ford and
finances certain receivables of Ford and our subsidiaries.
Outside the United States, FCE Bank plc is Ford Credit's largest operation.
FCE Bank's primary business is to support the sale of Ford vehicles in Europe
through the Ford dealer network. It provides a variety of retail, leasing and
wholesale finance plans in most countries in which it operates.
Ford Credit also conducts insurance operations through The American Road
Insurance Company and its subsidiaries in the United States and Canada.
American Road's business primarily consists of: extended service plan contracts
for new and used vehicles manufactured by affiliated and nonaffiliated
companies, primarily originating from Ford dealers; physical damage insurance
covering vehicles and equipment financed at wholesale by Ford Credit; and the
reinsurance of credit life and credit disability insurance for retail
purchasers of vehicles and equipment.
Ford Credit financed the following percentages of new Ford cars and trucks
sold or leased at retail and sold at wholesale in the United States and Europe
during the last three years:
Years Ended December 31,
----------------------------------------------------
1999 1998 1997
--------------- --------------- -------------
United States
-------------
Retail*............................ 47.2% 42.3% 37.5%
Wholesale.......................... 83.5 82.5 79.8
Europe
------
Retail*............................ 32.8 32.5 29.1
Wholesale.......................... 96.4 95.4 95.0
___________________
* As a percentage of total sales and leases of Ford vehicles,
including cash sales.
-10-
Item 1. Business (Continued)
Ford Credit's net finance receivables and net investment in operating
leases were as follows at the dates indicated (in millions):
December 31,
-------------------------------------
1999 1998
---------------- ----------------
Net finance receivables
Retail $76,182 $67,733
Wholesale 26,450 22,650
Other 7,244 6,839
-------- -------
Total finance receivables, net of unearned income 109,876 97,222
Less: allowance for credit losses (1,122) (1,280)
-------- -------
Net finance receivables $108,754 $95,942
======== =======
Net investment in operating leases
Vehicles, at cost $41,537 $42,663
Lease origination costs 52 63
Less: Accumulated depreciation (8,397) (7,891)
Allowance for credit losses (354) (268)
------- -------
Net investment in operating leases $32,838 $34,567
======= =======
Ford Credit's total receivable balances related to accounts past due 60
days or more were as follows at the dates indicated (in millions):
December 31,
-------------------------------------
1999 1998
--------------- --------------
Retail $620 $473
Wholesale 61 73
Other 46 32
---- ----
Total $727 $578
==== ====
The following table sets forth information concerning Ford Credit's credit
loss experience with respect to the various categories and geographic regions
of financing during the years indicated (in millions):
Years Ended or at December 31,
------------------------------------------------
1999 1998 1997
------------- ------------- -------------
Net credit losses/(recoveries)
Retail* $995 $1,031 $1,004
Wholesale 3 9 (1)
Other 2 (1) 4
------ ------ ------
Total $1,000 $1,039 $1,007
====== ====== ======
United States $884 $ 916 $ 900
Europe 66 57 67
Other international 50 66 40
------ ------ ------
Total $1,000 $1,039 $1,007
====== ====== ======
Net losses as a percentage of average net receivables**
Retail 1.06% 1.10% 1.17%
Total finance receivables 0.74 0.86 0.89
Provision for credit losses $1,166 $1,180 $1,338
Allowance for credit losses 1,476 1,548 1,471
Allowance for credit losses as a percentage
of net receivables** 1.04% 1.19% 1.27%
- ------------------
*Includes net credit losses on operating leases.
**Includes net investment in operating leases.
-11-
Item 1. Business (Continued)
Shown below is an analysis of Ford Credit's allowance for credit losses
related to finance receivables and operating leases for the years indicated
(in millions):
1999 1998 1997
------------- ------------- -------------
Balance, beginning of year $1,548 $1,471 $1,218
Additions 1,166 1,180 1,338
Deductions
Losses 1,274 1,243 1,239
Recoveries (274) (203) (232)
------ ------ ------
Net losses 1,000 1,040 1,007
Other changes, principally
amounts relating to finance
receivables and operating
leases sold 238 63 78
------ ------ ------
Net deductions 1,238 1,103 1,085
------ ------ ------
Balance, end of year $1,476 $1,548 $1,471
====== ====== ======
Ford Credit and FCE Bank rely heavily on their ability to raise
substantial amounts of funds. These funds are obtained primarily by the sale of
commercial paper, the issuance of term debt and, in the case of FCE Bank,
certificates of deposit. Funds also are provided by retained earnings and sales
of receivables. The level of funds can be affected by certain transactions with
Ford, such as capital contributions and dividend payments, interest supplements
and other support from Ford for vehicles financed and leased by Ford Credit or
FCE Bank under Ford-sponsored special financing or leasing programs. Funds also
can be affected by the timing of payments for the financing of dealers'
wholesale inventories and for income taxes.
The ability of Ford Credit and FCE Bank to obtain funds is affected by
their credit ratings and the nature and availability of support facilities,
such as revolving credit agreements and receivables sales facilities. Ford
Credit and FCE Bank's credit ratings are closely related to the financial
condition of and the outlook for Ford. The long-term senior debt of each of
Ford, Ford Credit and FCE Bank is rated "A1" (by Moody's Investors Service) and
"A+" (by Standard & Poor's Ratings Group). The commercial paper of each of Ford
Credit and FCE Bank is rated "Prime-1" (by Moody's) and "A-1" (by S&P).
Under a profit maintenance agreement with Ford Credit, Ford has agreed to
make payments to maintain Ford Credit's earnings at certain levels. In
addition, under a support agreement with FCE Bank, Ford Credit has agreed to
maintain a controlling interest in FCE Bank and to make payments to maintain
FCE Bank's net worth at certain levels. No payments were required under either
of these agreements during the period 1988 through 1999.
-12-
Item 1. Business (Continued)
The Hertz Corporation
- ---------------------
Hertz and its affiliates and independent licensees operate what Hertz
believes is the largest car rental business in the world based upon revenues.
They also operate one of the largest industrial and construction equipment
rental businesses in North America based upon revenues. Hertz and its
affiliates, associates and independent licensees, do the following:
o rent and lease cars and trucks
o rent industrial and construction equipment
o sell their used cars and equipment
o provide third-party claim management services
o provide telecommunications services
These businesses are operated from approximately 6,500 locations throughout the
United States and in approximately 140 foreign countries and jurisdictions. In
April 1997, Hertz completed an initial public offering of common stock
representing a 19.1% economic interest in Hertz.
Below are some financial highlights for Hertz (in millions):
Years Ended December 31,
-------------------------------------
1999 1998
---------------- ----------------
Revenue $4,728 $4,250
Pre-Tax Income 560 465
Net Income 336 277
-13-
Item 1. Business (Continued)
Governmental Standards
A number of governmental standards and regulations relating to safety,
corporate average fuel economy ("CAFE"), emissions control, noise control,
damageability and theft prevention are applicable to new motor vehicles,
engines, and equipment manufactured for sale in the United States, Europe and
elsewhere. In addition, manufacturing and assembly facilities in the United
States, Europe and elsewhere are subject to stringent standards regulating air
emissions, water discharges and the handling and disposal of hazardous
substances. Such facilities in the United States also are subject to a
comprehensive federal-state permit program relating to air emissions.
Mobile Source Emissions Control - U.S. Requirements. The Federal Clean
Air Act imposes stringent limits on the amount of regulated pollutants that
lawfully may be emitted by new motor vehicles and engines produced for sale in
the United States. Currently, most light duty vehicles sold in the United
States must comply with these standards for 10 years or 100,000 miles,
whichever first occurs. The U.S. Environmental Protection Agency ("EPA")
recently has promulgated post-2004 model year standards that are more stringent
than the default standards contained in the Clean Air Act. These new
regulations will require most light duty trucks to meet the same emissions
standards as passenger cars by the 2007 model year. The stringency of the new
standards may impact our ability to produce and offer a broad range of products
with the characteristics and functionality that customers demand. The new
standards also are likely to limit severely the use of diesel technology. In
October, 1999, EPA also proposed new post-2004 emission standards for
"heavy-duty" trucks (8,500-14,000 lbs. gross vehicle weight). These proposed
standards are likely to pose technical challenges and may affect the
competitive position of full-line vehicle manufacturers such as Ford.
Pursuant to the Clean Air Act, California has received a waiver from the
EPA to establish its own unique emissions control standards. New vehicles and
engines sold in California must be certified by the California Air Resources
Board ("CARB"). CARB's emissions requirements (the "California program") for
model years 1994 through 2003 require manufacturers to meet a non-methane
organic gases fleet average requirement that is significantly more stringent
than that prescribed by the Clean Air Act for the corresponding periods of
time. The California program initially required that a specified percentage of
each manufacturer's vehicles produced for sale in California, beginning at 2%
in 1998 and increasing to 10% in 2003, must be zero-emission vehicles ("ZEVs"),
which produce no emissions of regulated pollutants. In 1996, CARB eliminated
the ZEV mandate for the 1998-2002 model years; however, the 10% mandate remains
in effect for the 2003 model year. Around the same time, vehicle manufacturers
voluntarily entered into agreements with CARB that would essentially: (i)
provide air quality benefits for California by certifying vehicles nationwide
to standards comparable to the California low emission vehicle standards
beginning with the 2001 model year, (ii) continue research and development of
ZEV technology, and (iii) provide specific numbers of advanced technology
battery vehicles through demonstration programs in California.
Electric vehicles are the only presently known type of zero-emission
vehicles. However, despite intensive research activities, technologies have not
been identified that would allow manufacturers to produce an electric vehicle
that either meets most customers' expectations or is commercially viable.
Compliance with the ZEV mandate may require manufacturers to curtail the sale
of non-electric vehicles or to offer substantial discounts on electric
vehicles, selling them well below cost, while increasing the price on
non-electric vehicles. The California program and ZEV mandates present
significant technological challenges to manufacturers and compliance may
require costly actions that would have a substantial adverse effect on Ford's
sales volume and profits.
In late 1998, CARB adopted stringent new vehicle emissions standards that
must be phased in beginning in the 2004 model year. These new standards treat
most light duty trucks the same as passenger cars and require both types of
vehicles to meet new stringent emissions requirements. It is also expected that
these new standards will essentially eliminate the use of diesel technology.
CARB's new standards present a difficult engineering and technological
challenge, and may impact our ability to produce and offer a broad range of
products with the characteristics and functionality that customers demand.
-14-
Item 1. Business (Continued)
The Clean Air Act also permits other states which do not meet national
ambient air quality standards to adopt the California program no later than two
years before the affected model year. New York, Massachusetts, Vermont, and
Maine have adopted the California program (NY and MA effective in the 1998
model year; VT effective in the 2000 model year; and ME effective in the 2001
model year). Only NY and MA have adopted California's ZEV mandates (VT's law
provides for possible future adoption of a ZEV mandate after certain findings
have been made). Maryland and New Jersey have laws requiring adoption of the
California program and ZEV mandates after certain conditions have been met.
There are major problems with transferring California standards to the
Northeast, including the following: 1) many dealers sell vehicles in
neighboring (non-California program) states, creating confusion over which
emissions warranty applies; 2) the driving range of present ZEVs is greatly
diminished (by more than 50 percent) in cold weather; and 3) the Northeast
states have refused to adopt the California reformulated gasoline requirement,
which may impair the ability of vehicles to meet California's "in-use"
standards.
As noted previously, California eliminated its ZEV mandate for the
1998-2002 model years. New York refused to eliminate its 1998-2002 ZEV
requirement despite the Clean Air Act requirement of identicality with
California standards. In August 1998, as a result of a legal challenge from the
automotive industry, New York's pre-2003 model year ZEV requirements were
declared invalid by the U.S. Court of Appeals for the Second Circuit.
Massachusetts has attempted to adopt a ZEV mandate mirroring the voluntary
agreements in California between auto manufacturers and CARB. A federal
district court invalidated these regulations, but Massachusetts has appealed
the decision to the U.S. Court of Appeals for the First Circuit. In September
1999, responding to a referral by the Court, EPA expressed its view that the
California agreements do constitute "standards" which could be adopted as
regulations by Massachusetts. This issue is still in litigation.
The automotive industry has entered into a National Low Emissions Vehicle
(NLEV) program, which the EPA promulgated as a rule and which has been agreed
to by all manufacturers and all states except Maine, Massachusetts, New York
and Vermont. This NLEV program requires manufacturers to sell low emission
vehicles in the participating northeastern states beginning with the 1999 model
year, and throughout the remainder of the country beginning with the 2001 model
year.
Under the Clean Air Act, the EPA and CARB can require manufacturers to
recall and repair non-conforming vehicles. The EPA, through its testing of
production vehicles, also can halt the shipment of non-conforming vehicles.
Ford may be required to recall, or may voluntarily recall, vehicles for such
purposes in the future. The costs of related repairs or inspections associated
with such recalls can be substantial.
The Clean Air Act generally prohibits the introduction of new fuel
additives unless a waiver is granted by the EPA. In 1995, the EPA was ordered
by a federal court to grant such a waiver to Ethyl Corporation for the additive
MMT. Ford and other manufacturers are concerned that the widespread use of MMT
may impair the performance of current and future emissions systems and onboard
diagnostics systems.
European Requirements. European Union ("EU") directives and related
legislation limit the amount of regulated pollutants that may be emitted by new
motor vehicles and engines sold in the EU. In 1998, the EU adopted a new
directive on emissions from passenger cars and light commercial trucks. More
stringent emissions standards will apply to new car certifications beginning
January 1, 2000 and to new car registrations beginning January 1, 2001 ("Stage
III Standards"). A second level of even more stringent emission standards will
apply to new car certifications beginning January 1, 2005 and to new car
registrations beginning January 1, 2006 ("Stage lV Standards"). The comparable
light commercial truck Stage III Standards and Stage IV Standards would come
into effect one year later than the passenger car requirements. The directive
includes a framework that permits EU member states to introduce fiscal
incentives to promote early compliance with the Stage III and Stage IV
Standards. The directive also introduces on-board diagnostic requirements, more
stringent evaporative emission requirements, and in-service compliance testing
and recall provisions for emissions-related defects that occur in the first
five years or 80,000 kilometers of vehicle life (extended to 100,000 kilometers
in 2005). The Stage IV Standards for diesel engines are not yet technically
feasible and may impact our ability to produce and offer a broad range of
products with the characteristics and functionality that customers want. A
related EU directive was
-15-
Item 1. Business (Continued)
adopted at the same time which establishes standards for cleaner fuels
beginning in 2000 and even cleaner fuels in 2005. The EU is setting up a
program to assess the need for further changes to vehicle emission and fuel
standards after 2005.
Certain European countries are conducting in-use emissions testing to
ascertain compliance of motor vehicles with applicable emissions standards.
These actions could lead to recalls of vehicles; the future costs of related
inspection or repairs could be substantial.
Motor Vehicle Safety - The National Traffic and Motor Vehicle Safety Act
of 1966 (the "Safety Act") regulates motor vehicles and motor vehicle equipment
in two primary ways. First, the Safety Act prohibits the sale in the United
States of any new vehicle or equipment that does not conform to applicable
motor vehicle safety standards established by the National Highway Traffic
Safety Administration (the "Safety Administration"). Meeting or exceeding many
safety standards is costly because the standards tend to conflict with the need
to reduce vehicle weight in order to meet emissions and fuel economy standards.
Second, the Safety Act requires that defects related to motor vehicle safety be
remedied through safety recall campaigns. There were pending before the Safety
Administration 28 investigations relating to alleged safety defects in Ford
vehicles as of February 20, 2000. A manufacturer also is obligated to recall
vehicles if it determines that they do not comply with a safety standard.
Should Ford or the Safety Administration determine that either a safety defect
or a noncompliance exists with respect to certain of Ford's vehicles, the costs
of such recall campaigns could be substantial.
In November 1999, the Safety Administration published a supplemental
notice of a proposed advanced air bag rule. This proposed rule, which, among
other things, requires a 30 mph, fixed barrier crash test utilizing an unbelted
adult-sized male dummy, could significantly affect the design and testing of
new vehicles. While Ford supports efforts to further improve air bag systems,
and is working with suppliers to introduce new designs, we have concerns about
the proposed rule. These concerns include a dramatic increase in the number of
required tests, complex and vague requirements, the potential need to
incorporate unproven technology, and a potential increase in safety risks. We
are moving to install advanced air bag restraint systems in our vehicles, but
the proposed rule could interfere with these plans. If certain aspects of the
rule were to become effective, it could significantly increase our costs,
especially if it requires us to change our present advanced air bag design
programs. We outlined our concerns in a December 1999 response to the Safety
Administration's proposal. Several other companies and organizations including
the National Transportation Safety Board, the Insurance Institute for Highway
Safety and other automobile manufacturers share many of the same concerns and
have also expressed their concerns with the government. The Safety
Administration is expected to publish a final rule later this year.
The Safety Administration is investigating the feasibility of a test to
measure the propensity of a vehicle to roll. It is unlikely that an objective
and meaningful stability test can be developed. Nonetheless, the Safety
Administration has announced its intention to issue a final rule to require
manufacturers to label vehicles based on their performance on the
yet-to-be-determined stability test. Such a label could impact customer
satisfaction and the sales of Ford products.
Canada, the European Union, individual member countries within the EU and
other countries in Europe, South America and the Asia Pacific markets also have
safety standards applicable to motor vehicles and are likely to adopt
additional or more stringent standards in the future.
Motor Vehicle Fuel Economy - U.S. Requirements. Under 49 U.S.C. Chapter
329, vehicles must meet minimum CAFE (Corporate Average Fuel Economy) standards
set by the Safety Administration. A manufacturer is subject to potentially
substantial civil penalties if it fails to meet the CAFE standard in any model
year, after taking into account all available credits for the preceding three
model years and expected credits for the three succeeding model years.
-16-
Item 1. Business (Continued)
The law established a passenger car CAFE standard of 27.5 mpg for 1985 and
later model years, which the Safety Administration believes it has the
authority to amend to a level it determines to be the maximum feasible level.
The Safety Administration has established a 20.7 mpg CAFE standard applicable
to light trucks.
Ford expects to be able to comply with the foregoing CAFE standards, in
some cases using credits from prior or succeeding years. In October 1999, we
filed a plan to meet the 1998 and 1999 light truck standards and the 1999
domestic passenger car standards using credits to be generated in future years.
In general, a continued increase in demand for larger vehicles, coupled with a
decline in demand for small and middle-size vehicles could jeopardize our
long-term ability to maintain compliance with CAFE standards.
It is anticipated that efforts may be made to raise the CAFE standard
because of concerns for carbon dioxide ("CO2") emissions, energy security or
other reasons. President Clinton's Climate Change Action Plan ("CCAP") sets a
goal to improve new vehicle fuel efficiency in an amount equivalent to at least
2% per year over a 10 to 15 year period. In addition, international concerns
over global warming due to the emission of "greenhouse gasses" have given rise
to strong pressures to increase fuel economy. During the December 1997 meeting
of the parties to the United Nations Climate Change Convention in Kyoto, Japan,
the United States agreed to reduce greenhouse gas emissions by 7% below their
1990 levels during the 2008-2012 period (the "Kyoto Protocol"). The Kyoto
Protocol is not yet binding in the United States, pending ratification by the
Senate. In addition, a petition has been filed with the Environmental
Protection Agency requesting that the Agency regulate CO2 emissions from motor
vehicles under the Clean Air Act. EPA is expected to seek public comment on
this petition in the near future.
If the CCAP or Kyoto Protocol goals are partially or fully implemented
through increases in the CAFE standard, if significant increases in car or
light truck CAFE standards for subsequent model years otherwise are imposed, or
if EPA attempts to regulate CO2 from motor vehicles, Ford might find it
necessary to take various costly actions that could have substantial adverse
effects on its sales volume and profits. For example, Ford might have to
curtail production of larger family-size and luxury cars and full-size light
trucks, restrict offerings of engines and popular options, and increase market
support programs for its most fuel-efficient cars and light trucks.
Foreign Requirements. The EU is also a party to the Kyoto Protocol and has
agreed to reduce greenhouse gas emissions by 8% below their 1990 levels during
the 2008-2012 period. In December 1997, the European Council of Environment
Ministers (the "Environment Council") reaffirmed its goal to reduce average CO2
emissions from new cars to 120 grams per kilometer by 2010 (at the latest) and
invited European motor vehicle manufacturers to negotiate further with the
European Commission on a satisfactory voluntary environmental agreement to help
achieve this goal. In October 1998, the EU agreed to support an environmental
agreement with the European Automotive Manufacturers Association (of which Ford
is a member) on CO2 emission reductions from new passenger cars (the
"Agreement"). The Agreement establishes an emission target of 140 grams of CO2
per kilometer for the average of new cars sold in the EU by the Association's
members in 2008. In addition, the Agreement provides that certain Association
members (including Ford) will introduce models emitting no more than 120 grams
of CO2 per kilometer in 2000, and establishes an estimated target range of
165-170 grams of CO2 per kilometer for the average of new cars sold in 2003.
Also in 2003, the Association will review the potential for additional CO2
reductions, with a view to moving further toward the EU's objective of 120
grams of CO2 per kilometer by 2012. The Agreement assumes (among other things)
that no negative measures will be implemented against diesel-fueled cars and
the full availability of improved fuels with low sulfur content in 2005.
Average CO2 emissions of 140 grams per kilometer for new passenger cars
corresponds to a 25% reduction in average CO2 emissions compared to 1995.
The Environment Council requested the European Commission to review in
2003 the EU's progress toward reaching the 120 gram target by 2010, and to
implement annual monitoring of the average CO2 emissions from new passenger
cars and progress toward achievement of the objectives for 2000 and 2003.
-17-
Item 1. Business (Continued)
In November 1999, the European Parliament published a Directive on the
availability of consumer information about the fuel economy and CO2 emissions
of new passenger cars. Although the Directive includes certain minimum EU
requirements on the information to be made available, individual Member States
would be able to set national requirements for (i) labels to be displayed on
passenger cars at their point of sale, (ii) government published guides listing
information on all passenger cars available for sale in the specific EU
country, and (iii) posters to be displayed in dealerships ranking the fuel
economy, CO2 emissions, and estimated fuel costs of passenger cars available
for sale there. Member States have until January, 2001 to implement this
Directive.
In 1995, members of the German Automobile Manufacturers Association
(including Ford Werke AG) made a voluntary pledge to reduce by 2005 the average
fuel economy of new cars sold in Germany by 25% from 1990 levels, to make
regular reports on fuel consumption, and to increase industry research and
development efforts toward this end. The German Automobile Manufacturers
Association has reported that the industry is on track to meet the pledge.
Other European countries are considering other initiatives for reducing
CO2 emissions from motor vehicles. Taken together such proposals could have
substantial adverse effects on our sales volumes and profits in Europe.
Japan has adopted automobile fuel consumption goals that manufacturers
must attempt to achieve by the 2000 model year. The consumption levels apply
only to gasoline-powered vehicles, vary by vehicle weight, and range from
5.8 km/I to 19.2 km/l.
U.S. Stationary Source Air Pollution Control - The Clean Air Act limits
various emissions into the atmosphere from stationary sources as well as mobile
sources, and allows states to adopt even more stringent standards. The Act
imposes comprehensive permit requirements for manufacturing facilities in
addition to those required by various states. Regulations continue to be
promulgated under the Act, and the costs to comply with the Act could be
substantial. In addition, the enormous complexity and time-consuming nature of
the comprehensive permit program provided for by the Act may reduce operational
flexibility and may interfere with future competitive upgrading of Ford's U.S.
production facilities.
U.S. Water Pollution Control - Pursuant to the Federal Water Pollution
Control Act (the "Clean Water Act"), Ford is required to obtain permits for its
manufacturing facilities that regulate the facilities discharge of wastewater
into public waters and municipal sewerage systems. The EPA also requires
management standards and, in some cases, permits for the discharge of storm
water. The standards under the Clean Water Act are established by the EPA and
by the state where a facility is located. Many states have requirements that go
beyond those established under the Clean Water Act.
The EPA also adopted regulations, pursuant to the Great Lakes Critical
Programs Act of 1990, that require more restrictive standards for discharges
into waters that impact the Great Lakes. These regulations may require the
addition of costly control equipment.
U.S. Hazardous Substance and Waste Control - Pursuant to the Federal
Resource Conservation and Recovery Act, the EPA has issued regulations
establishing certain procedures and standards for persons who generate,
transport, treat, store, or dispose of hazardous wastes and requiring
corrective action for prior releases. States may adopt even more extensive
requirements. The Federal Comprehensive Environmental Response, Compensation,
and Liability Act requires notification regarding certain releases into the
environment, and creates potential liability for remediation costs and for
damage to natural resources at sites where our waste was taken for treatment or
disposal. A number of states have enacted separate laws of this type. In
addition, under the Federal Toxic Substances Control Act ("TSCA"), the EPA
evaluates environmental and health effects of existing chemicals and new
substances. Pursuant to TSCA, the EPA regulates the use of polychlorinated
biphenyls in transformers, capacitors and other equipment that may be located
at our U.S. facilities.
-18-
Item 1. Business (Continued)
European Stationary Source Environmental Control - The European Union and
individual member countries impose requirements on waste and hazardous wastes,
incineration, packaging, landfill, soil pollution, integrated pollution
control, air emissions standards, import/export and use of dangerous
substances, air and water quality standards, noise, environmental management
systems, energy efficiency, emissions reporting, and planning and
permitting. Additional or more stringent requirements (including tax measures
and civil liability schemes for cleaning polluted sites) are likely to be
adopted in the future. The cost of complying with these standards could be
substantial.
End of Life Vehicle Proposal - The European Commission has published a
draft proposal to introduce an obligation for motor vehicle manufacturers to
take back end-of-life vehicles on a cost-free basis beginning in late 2001 for
certain vehicles with full cost free take back of all vehicles in 2006, to
impose requirements on the proportion of the vehicle that may be disposed of in
landfills and the proportion that must be reused or recycled beginning in 2006,
and to ban the use of certain substances in vehicles beginning in 2005. Such
proposal could, if adopted, impose a substantial cost on manufacturers.
The German Automobile Association (including Ford Werke AG) and the German
Automobile Importers Association made a voluntary pledge to establish a
nationwide infrastructure network to take back passenger cars that are at least
12 years old (and meet certain other requirements) on a cost-free basis to
their owners.
Pollution Control Costs - During the period 2000 through 2004, we expect
to spend approximately $348 million on our North American and European
facilities to comply with air and water pollution and hazardous waste control
standards which now are in effect or are scheduled to come into effect. Of this
total, we estimate spending approximately $74 million in 2000 and $73 million
in 2001.
Worldwide Regulatory Compatibility - Our efforts to develop new markets
and increase imports are impeded by incompatible automotive safety,
environmental and other product regulatory standards. At present, differing
standards either restrict the vehicles we can export to serve new markets or
increase the cost and complexity to do so.
-19-
Item 1. Business (Continued)
Employment Data
The average number of people we employed by geographic area was as follows
for the years indicated:
1999 1998
---------------- ----------------
United States 173,064 171,269
Europe 125,733 105,351
Other 65,753 65,925
------- -------
Total 364,550 342,545
======= =======
In 1999, the average number of people we employed increased 6.4 percent.
The increase was due to a number of acquisitions during 1999, notably Volvo
Car, which increased employment levels by approximately 20,000. Most of our
employees work in our Automotive and Visteon operations.
For further information regarding employment statistics of Ford, see Item
6. "Selected Financial Data" later in this Report. For information concerning
employee retirement benefits, see Note 9 of our Notes to Financial Statements
at the end of this Report.
Substantially all of the hourly employees in our Automotive and Visteon
operations in the United States are represented by unions and covered by
collective bargaining agreements. Approximately 99% of these unionized hourly
employees in our Automotive segment (as well as many of those in our Visteon
segment) are represented by the United Automobile Workers (the "UAW").
Approximately 3% of our salaried employees are represented by unions. Most
hourly employees and many non-management salaried employees of our subsidiaries
outside the United States also are represented by unions.
We have entered into a new collective bargaining agreement with the UAW
that will expire on September 14, 2003. We also have entered into a new
collective bargaining agreement with the Canadian Automobile Workers ("CAW")
that will expire on September 21, 2002.
All local CAW contracts are settled, but our management at several of our
plants in the United States continue to negotiate to resolve local issues with
the UAW. In addition, we are or will be negotiating new collective bargaining
agreements with labor unions in Europe. A work stoppage could occur as a result
of these negotiations, which, if protracted, could substantially adversely
affect Ford's profits.
As part of the new UAW agreement, we also agreed that in connection with
any spin-off, sale or other transfer of our Visteon operations: (1) all of our
employees who are represented by the UAW and who work at a Visteon facility on
the date of such spin-off, sale or transfer will remain Ford employees
indefinitely and will continue to be covered under our master agreement with
the UAW; (2) Visteon will continue to use the services of such employees after
any such spin-off, sale or transfer and will accept other UAW represented
employees of Ford who are contractually entitled to fill open positions at
Visteon facilities; (3) Visteon will agree to adopt a collective bargaining
agreement for hourly employees hired by it after any such spin-off, sale or
transfer that is an "exact mirror" of the current master agreement between Ford
and the UAW and the next two immediately succeeding master agreements between
Ford and the UAW; and (4) Visteon will be required to provide any
UAW-represented employees hired by it during the terms of the three master
agreements mentioned above, for the duration of such employee's employment
with, and retirement from, Visteon, with wages, benefits and other terms and
conditions of employment that are the "exact mirror" of the UAW-Ford Master
Agreement.
In recent years we have not had significant work stoppages at our
facilities, but they have occurred in some of our suppliers' facilities. Any
protracted work stoppages in the future, whether in our facilities or those of
certain suppliers, could substantially adversely affect our results of
operations.
-20-
Item 1. Business (Continued)
Engineering, Research and Development
We conduct engineering, research and development primarily to improve the
performance (including fuel efficiency), safety and customer satisfaction of
our products, and to develop new products. We also have staffs of scientists
who engage in basic research. We maintain extensive engineering, research and
design facilities for these purposes, including large centers in Dearborn,
Michigan; Dunton, England; and Merkenich, Germany. Most of our engineering
research and development relates to our Automotive and Visteon operating
segments.
During the last three years we took charges to our consolidated income for
engineering, research and development we sponsored in the following amounts:
$7.1 billion (1999), $6.3 billion (1998) and $6.3 billion (1997). The increase
from 1998 to 1999 is due primarily to the inclusion of Volvo Car for 1999.
Any customer-sponsored research and development activities that we conduct are
not material.
Item 2. Properties
- -------------------
We own substantially all of our U.S. manufacturing and assembly
facilities. These facilities are situated in various sections of the country
and include assembly plants, engine plants, casting plants, metal stamping
plants, components plants, transmission and axle plants and glass plants. We
also own a majority of our distribution centers, warehouses and sales offices,
with the remainder being leased.
In addition, we maintain and operate manufacturing plants, assembly
facilities, parts distribution centers and engineering centers outside the
United States. We own substantially all of these facilities.
Below is more information on the separate number of facilities operated by
our Automotive and Visteon segments:
o Automotive: Approximately 149 plants; 540 distribution, engineering and
research and development centers and warehouses; and 314 owned
dealerships.
o Visteon: Approximately 83 plants and 49 sales, engineering and technical
centers.
The furniture, equipment and other physical property owned by our
Financial Services operations are not material in relation to their total
assets.
-21-
Item 3. Legal Proceedings
- --------------------------
Various legal actions, governmental investigations and proceedings and
claims are pending or may be instituted or asserted in the future against us
and our subsidiaries, including those arising out of the following: alleged
defects in our products; governmental regulations covering safety, emissions
and fuel economy; financial services; employment-related matters; dealer,
supplier and other contractual relationships; intellectual property rights;
product warranties; and environmental matters. Some of the pending legal
actions are, or purport to be, class actions. Some of the foregoing matters
involve or may involve compensatory, punitive or antitrust or other multiplied
damage claims in very large amounts, or demands for recall campaigns,
environmental remediation programs, sanctions or other relief which, if
granted, would require very large expenditures. See Item 1,
"Business-Governmental Standards". Included among the foregoing matters are the
following:
Product Liability Matters
- -------------------------
Occupant Restraint Systems. Ford is a defendant in various actions for
damages arising out of automobile accidents where the plaintiffs claim that
their injuries resulted from (or were aggravated by) alleged defects in the
occupant restraint systems in vehicle lines of various model years. For those
cases in which damages have been specified, the damages specified by the
plaintiffs, including both actual and punitive damages, aggregated
approximately $855 million at December 31, 1999.
Bronco II. Ford is a defendant in various personal injury lawsuits
involving the alleged propensity of Bronco II utility vehicles to roll over.
For those cases in which damages have been specified, the damages specified by
the plaintiffs, including both actual and punitive damages, aggregated
approximately $4.1 billion at December 31, 1999.
In most of the actions described in the two paragraphs above, no dollar
amount of damages is specified or the specific amount we refer to is only the
jurisdictional minimum. It has been our experience that in cases that allege a
specific amount of damages in excess of the jurisdictional minimum, such
amounts, on average, bear little relation to the actual amounts of damages, if
any, paid by Ford in resolving such cases. Any damages we pay generally are, on
average, substantially less than the amounts originally claimed. In addition
to the pending actions, accidents have occurred and claims have arisen which
also may result in lawsuits in which the plaintiffs may allege similar defects.
Asbestos. We are a defendant in various actions for injuries claimed to
have resulted from alleged contact with certain Ford parts and other products
containing asbestos. The plaintiffs in these actions seek damages, including
both actual and punitive damages, of approximately $2 billion at December 31,
1999. (In some of these actions, the plaintiffs have not specified a dollar
amount of damages or the specific amount referred to is only the jurisdictional
minimum.) As distinguished from most lawsuits against us, in most of these
asbestos-related cases, we are but one of many defendants, and many of our
co-defendants have substantial resources.
Environmental Matters
- ---------------------
General. We have received notices under various federal and state
environmental laws that we (along with others) may be a potentially responsible
party for the costs associated with remediating numerous hazardous substance
storage, recycling or disposal sites in many states and, in some instances, for
natural resource damages. We also may have been a generator of hazardous
substances at a number of other sites. The amount of any such costs or damages
for which we may be held responsible could be substantial. The contingent
losses that we expect to incur in connection with many of these sites have been
accrued and those losses are reflected in our financial statements in
accordance with generally accepted accounting principles. However, for many
sites, the remediation costs and other damages for which we ultimately may be
responsible are not reasonably estimable because of uncertainties with respect
to factors such as our connection to the site or to materials there, the
involvement of other potentially responsible parties, the
-22-
Item 3. Legal Proceedings (Continued)
application of laws and other standards or regulations, site conditions, and
the nature and scope of investigations, studies and remediation to be
undertaken (including the technologies to be required and the extent, duration
and success of remediation). As a result, we are unable to determine or
reasonably estimate the amount of costs or other damages for which we are
potentially responsible in connection with these sites, although that total
could be substantial.
MFA Grand Jury Matter. The U.S. Department of Justice ("DOJ"), the U.S.
Environmental Protection Agency ("EPA") and the Federal Bureau of Investigation
("FBI") are investigating the circumstances surrounding Ford's past use of an
engine control strategy that improved fuel economy, but had the side effect of
increasing nitrogen oxide emissions. The investigation findings are being
presented to a federal grand jury in Detroit, which will decide whether to
issue a criminal indictment against Ford or Ford employees. The engine control
strategy (Managed Fuel Air, or "MFA") was used on 1997 model year Econoline
vans (about 60,000 vehicles). In an earlier civil investigation, Ford entered
into a consent decree with DOJ and EPA and agreed to pay $8 million in fines
and special projects, in addition to recalling the Econoline vans. Ford also
settled similar issues with the California Air Resources Board ("CARB"). We
have met with attorneys and investigators from the government and are
cooperating in the investigation.
Waste Disposal. The United States Environmental Protection Agency ("EPA")
has initiated a civil enforcement action against Ford as a result of Ford
Venezuela's shipment of industrial wastes from its Valencia Assembly Plant in
Venezuela for disposal in Texas. Ford also has received a subpoena and been
notified that it is the subject of a grand jury investigation based on the same
facts. Ford Venezuela shipped the industrial waste to the U.S. for disposal
under the more stringent U.S. disposal requirements because of the
unavailability of adequate disposal facilities in Venezuela and to ensure
proper disposal of the waste. Although Ford believes that the subject waste is
properly classified as non-hazardous under U.S. environmental laws, the EPA
contends that even if the wastes do not exhibit any hazardous characteristics,
they nevertheless may be the product of a process that is automatically deemed
hazardous under applicable regulations. If Ford is determined to have violated
EPA regulations regarding the disposal of hazardous wastes, Ford could be
required to pay substantial fines which could exceed $100,000. It is impossible
at this point in the proceedings to determine what amount, if any, Ford may be
required to pay.
On-Board Diagnostics Investigation. CARB and EPA have notified Ford that
the system for monitoring fuel vapor leaks on about 6 million 1997-98 model
year vehicles is inadequate and was not described fully in Ford's certification
application. CARB and the EPA have requested that Ford implement a recall to
reprogram the monitor. The agencies also seek civil penalties, which are likely
to be substantial.
Ohio Assembly Plant. In September 1999, the EPA filed a complaint against
Ford alleging violations of the Resource Conservation and Recovery Act ("RCRA")
at Ford's Ohio Assembly Plant. The violations are related to Ford's storage of
hazardous waste and the absence of a leak monitoring program for paint
equipment. EPA has proposed a civil penalty of $303,745. Ford could be required
to implement monitoring programs at all U.S. plants at an initial cost of
$700,000 and $350,000 each year thereafter.
Rawsonville Plant. The Michigan Department of Environmental Quality
("MDEQ") alleges that Ford failed to obtain a permit modification in connection
with a raw material change at the Rawsonville Plant. MDEQ proposed a $204,000
fine and installation of additional pollution control equipment. The Plant
recently installed the pollution control equipment, and final settlement
discussions between Ford and MDEQ are in progress.
-23-
Item 3. Legal Proceedings (Continued)
Michigan Truck, Dearborn and Wayne Assembly Plants. Ford received notices
of violation ("NOVs") from the EPA, the MDEQ and Wayne County, Michigan,
alleging regulatory violations related to volatile organic compound emissions
at the Michigan Truck, Dearborn and Wayne Assembly Plants. The NOVs included
allegations that the plants violated permit limitations at certain plant
processes (total emissions remained well below allowable levels) and that
production was increased at Michigan Truck in violation of its permit
(notwithstanding written approval from the State permitting agency authorizing
the production increase). In settlement of this matter, a Judicial Consent
Decree is expected to be entered in the United States District Court, Eastern
District of Michigan, during the first quarter of 2000. The settlement includes
a $1.1 million payment divided equally between the three agencies and a
supplemental environmental project involving the installation of a waterborne
primer system at the new Dearborn Assembly Plant paint shop (representing an
incremental investment of $10 million).
Class Actions
- -------------
Paint Class Actions. There are two purported class actions pending against
Ford in Texas and Illinois alleging claims for fraud, breach of warranty, and
violations of consumer protection statutes. The Texas case purports to assert
claims on behalf of Texas residents who have experienced paint peeling in
certain 1984 through 1992 Ford vehicles. The Illinois case purports to assert
claims on behalf of residents of all states except Louisiana and Texas who have
experienced paint peeling on most 1988 through 1997 Ford vehicles. Plaintiffs
in both cases contend that their paint is defective and susceptible to peeling
because Ford did not use spray primer between the high-build electrocoat
("HBEC") and the color coat. The lack of spray primer allegedly causes the
adhesion of the color coat to the HBEC to deteriorate after extended exposure
to ultraviolet radiation from sunlight. Plaintiffs in both cases seek
unspecified compensatory damages (in an amount to cover the cost of repainting
their vehicles and to compensate for alleged diminution in value), punitive
damages, attorneys' fees and interest.
In the Texas case, Sheldon, the trial court certified a class of Texas
owners who experienced paint peeling because of the alleged defect. The order
certifying the class is presently on appeal to the Texas Supreme Court. The
Illinois case, Phillips, was just recently filed. We intend to pursue
aggressively summary dismissal and oppose class certification.
Ignition Switch Class Action. This litigation involves allegations that
Ford concealed a defect in ignition switches in most 1983 through 1993 model
vehicles that could cause short circuits, resulting in smoke and fire damage.
At one time, more than a dozen class actions were pending, but now there is
only one, Snodgrass, a purported nationwide class action pending in federal
court in New Jersey. In that case, Plaintiffs seek damages allegedly caused by
ignition switch fires. The trial court has already denied one motion for class
certification. A renewed motion for class certification is pending.
TFI Module Class Actions. There are six class actions pending in state
courts in Alabama, California, Illinois, Maryland, Tennessee and Washington,
alleging defects in thick film ignition modules in more than 22 million
vehicles manufactured by Ford between 1983 and 1995. With minor variations
based upon state law and differences in the scope of the classes alleged, all
of the cases involve the same legal claims and theories. The Howard case in
California, presently in trial, is the lead case; proceedings in the other five
cases are stayed.
The Howard plaintiffs assert two claims for relief: violations of the
California Consumer Legal Remedies Act ("CLRA"), and violations of the
California Unfair Competition Law ("UCL"). Both claims are based upon the
allegation that Ford intentionally concealed a safety defect in the subject
vehicles. The alleged defect is that distributor mounted TFI modules are
inordinately prone to failure because they are exposed to excessive heat.
Plaintiffs contend that TFI failure causes stalling at highway speeds and that
stalling at highway speeds poses an unreasonable risk to motor vehicle safety.
They further contend that Ford knew about the alleged defect and concealed it
by withholding documents from NHTSA during investigations into stalling,
secretly settling personal injury lawsuits in which TFI failure was at issue,
-24-
Item 3. Legal Proceedings (Continued)
falsely advertising its vehicles as safe, conducting an owner notification
campaign on certain vehicles rather than a safety recall, and failing to report
TFI warranty claims and failures to the EPA. Under the CLRA, plaintiffs seek a
$1,000 statutory penalty per class member plus punitive damages. Under the UCL,
plaintiffs seek a recall or "disgorgement" of the amount Ford saved by not
conducting a recall. If plaintiffs are successful on all of their claims, an
adverse judgment in California could be as high as $4 billion.
A jury trial on the CLRA claims in Howard began in May 1999 and ended in
November 1999 with a deadlocked jury and a mistrial; the CLRA claims will be
retried, probably in 2000. Before the second trial, however, the trial judge
will decide, probably in the second or third quarter of 2000, whether to order
a recall or "disgorgement" under the UCL.
Ford/Citibank Visa Class Action. Following the June 1997 announcement of
the termination of the Ford/Citibank credit card rebate program, five purported
nationwide class actions and one purported statewide class action were filed
against Ford; Citibank is also a defendant in some of these actions. The
actions allege damages in an amount up to $3,500 for each cardholder who
obtained a Ford/Citibank credit card in reliance on the rebate program and who
is precluded from accumulating discounts toward the purchase or lease of new
Ford vehicles after December 1997 as a result of the termination of the rebate
program. Plaintiffs contend that defendants deceptively breached their contract
by unilaterally terminating the program, that defendants have been unjustly
enriched as a result of the interest charges and fees collected from
cardholders, and further, that defendants conspired to deprive plaintiffs of
the benefits of their credit card agreement. Plaintiffs seek compensatory
damages, or alternatively, reinstatement of the rebate program, and punitive
damages, costs, expenses and attorneys' fees. The five purported nationwide
class actions were filed in state courts in Alabama, Illinois,
New York, Oregon and Washington, and the purported statewide class action was
filed in a California state court. The Alabama court has conditionally
certified a class consisting of Alabama residents. Ford removed all of the
cases to federal court, which consolidated and transferred the cases to federal
court in Washington for pretrial proceedings. In October 1999, the federal
court dismissed the consolidated proceedings for lack of jurisdiction and sent
each action back to the state court in which it originated. We have appealed
this ruling.
Flat Glass Class Actions. Ford is a defendant in 15 purported class
actions brought on behalf of purchasers of flat glass (and one individual suit
brought by Allstate Insurance Company) alleging that we and other manufacturers
fixed prices and allocated markets in violation of federal and state antitrust
laws. Twelve of the class actions are nationwide in scope and pending in
federal court and the other three class actions are statewide in scope and are
pending in state courts. The other defendants include Pilkington, Libbey-Owens
Ford, AFG Industries, PPG Industries, Asahi Glass, and Guardian Industries. A
number of similar purported class actions are pending in various courts in
which Ford is not currently named as a defendant. A total of 28 federal cases
have been consolidated in a federal court in Pennsylvania for pretrial
proceedings. Ford and PPG Industries are the only remaining defendants in the
consolidated class actions, as a result of a settlement among plaintiffs and
the other defendants.
In November 1999, the trial judge granted plaintiffs' motion for class
certification and certified two subclasses: (1) all individuals and entities
who, between August 1, 1995 and December 31, 1995, purchased flat glass
products in the U.S. from defendants, and (2) all individuals and entities who,
between August 1, 1991 and December 31, 1995, purchased fabricated automotive
replacement glass for domestic makes of cars in the U.S. from defendants. In
January 2000, the Third Circuit Court of Appeals denied our request that it
review this ruling. The parties will now begin pretrial discovery. In the
actions against Ford, the plaintiffs seek economic and treble damages.
Lease Residual Class Action. In January 1998 in connection with a case
pending in Illinois state court, Ford and Ford Credit were served with a
summons and intervention counterclaim complaint relating to Ford Credit's
leasing practices (Higginbotham v. Ford Credit). The counterclaim plaintiff,
Carla Higginbotham, is a member of a class that has been conditionally
certified for settlement purposes in Shore v. Ford Credit. In the Shore case,
Ford Credit commenced an action for deficiency against Virginia Shore, a Ford
Credit lessee. Shore counterclaimed for purported violations of the
Truth-in-Leasing Act (alleging that
-25-
Item 3. Legal Proceedings (Continued)
certain lease charges were excessive) and the Truth-in-Lending Act (alleging
that the lease lacked clarity). Shore purported to represent a class of all
similarly situated lessees. Ford was not a party to the Shore case.
Higginbotham objected to the proposed settlement of the Shore case, intervened
as a named defendant, filed separate counterclaims against Ford Credit, and
joined Ford as an additional counterclaim defendant. Higginbotham asserts
claims against Ford Credit for violations of the Consumer Leasing Act,
declaratory judgment concerning the enforceability of early termination
provisions in Ford Credit's leases, and fraud. She also asserts a claim against
Ford Credit and Ford for conspiracy to violate the Truth-in-Lending Act. The
Higginbotham counterclaims allege that Ford Credit inflates the residual values
of its leased vehicles, which results in lower monthly lease payments but
higher termination fees for lessees who exercise their right of early
termination. Higginbotham claims that the early termination fees were not
adequately disclosed on the lease form and that the fees are excessive and
illegal because of the allegedly inflated residual values. She also alleged
that Ford dictated the residual values to Ford Credit and thereby participated
in an unlawful conspiracy. This case was stayed pending the approval/rejection
of the settlement in Shore.
In November 1998, the court issued a ruling that rejected the proposed
settlement in Shore. During the third quarter of 1999, however, Ford Credit
reached individual settlements with the Shore plaintiffs. The Illinois court in
Higginbotham found that the lease end residual value of Ms. Higginbotham's
vehicle was properly valued and, as a result, Ms. Higginbotham was an
inadequate representative for the class. Subsequently, Ms. Higginbotham
voluntarily dismissed her intervention counterclaim without prejudice in the
Illinois state court and has reactivated her initial suit in the Florida
federal court, pursuing substantially similar claims on behalf of herself and
others similarly situated. Consequently, the Higginbotham case is proceeding in
Florida and Ford Credit is in the process of responding to discovery requests.
Lease Agreement Disclosure Class Action. Twenty-one purported class action
lawsuits have been filed in various courts against Ford Credit and, in all but
three cases, Primus Automotive Financial Services, Inc., a subsidiary of Ford
Credit. The lawsuits, each of which purports to be brought on behalf of a
statewide class, allege that Ford Credit and Primus leasing contracts
improperly failed to disclose acquisition and administrative fees that are
included in the amount of a customer's monthly lease payment. Plaintiffs seek
compensatory damages in the amount of all such undisclosed fees, an injunction
prohibiting the companies from continuing the practice of not disclosing such
fees, attorneys' fees, interest, costs and in some cases, punitive damages.
Ford Credit has filed motions to dismiss in every one of these suits and was
successful in getting all but one case dismissed. Plaintiffs in certain of
these cases have appealed their dismissal. One case remains pending in Kentucky
where we lost our motion to dismiss. We expect to file a motion for summary
judgment in that case.
Retail Lessee Insurance Coverage Class Action. On May 24, 1999, Michigan
Mutual Insurance Company was served with a purported class action complaint in
federal court in Florida alleging that the Ford Commercial, General Liability
and Business Automobile Insurance Policy, and the Personal Auto Supplement to
that policy, provides uninsured/underinsured motorist coverage and medical
payments coverage to retail lessees of Ford vehicles (e.g., to Red Carpet
lessees). The Company is required to defend and indemnify Michigan Mutual. The
complaint rests on an untenable interpretation of the Michigan Mutual policy,
which was intended to cover company cars and lease evaluation vehicles.
Unfortunately, however, the Florida Court of Appeals in a prior action brought
by a single individual, has accepted Plaintiffs' interpretation of the policy.
The Florida court's opinion should not be controlling in federal court, but it
does create a substantial impediment to the early resolution of this case. The
policy language was recently amended to expressly exclude retail lessees, but
this amendment probably will not affect the claims of retail lessees injured
before the amendment's effective date. Ford has filed a motion for summary
judgment based on the policy language and the intention of the parties.
Plaintiffs recently responded to Ford's motion, cross-moved for summary
judgment in their favor, moved to amend their complaint, and moved for class
certification.
-26-
Item 3. Legal Proceedings (Continued)
3.8 Liter Engine Transmissions Class Actions. There are four purported
nationwide class actions pending against Ford alleging that the transmissions
of 3.8 liter engines in 1995 Windstar minivans are defective, and that Ford
sold the vehicles despite knowledge of the defect. One of the cases also
alleges a defect in the transmissions of 3.8 liter engines in 1990-95
Taurus/Sables and 1990-94 Lincoln Continentals. One of these cases has been
pending in California state court since 1998. Motions to dismiss that complaint
are pending. If the motions are denied, class certification motions could be
decided during late 2000. The other three cases were filed in state courts in
early 2000 (two in Illinois and one in Pennsylvania), and may be removed to
federal court. The complaints assert various theories, including breach of
warranty and violation of state consumer protection laws, and seek various
forms of relief, including compensatory damages in an amount to cover the cost
of repairing or replacing the vehicles, plus punitive damages, interest and
attorneys' fees. No specific amounts are sought, except that one of the
Illinois complaints seeks compensatory damages in excess of $50,000 per class
member. Some of the complaints also seek an order requiring Ford to recall the
vehicles.
Seat Back Class Action. Four purported statewide class actions have been
filed in state courts in Maryland, New Hampshire, New Jersey and New York
against Ford, General Motors Corporation and DaimlerChrysler AG alleging that
seat backs with single recliner mechanisms are defective. Plaintiffs in each of
these suits allege that seats installed in "class vehicles" are defective
because they have a single recliner mechanism (the device that fixes the angle
of the seat back) on the outboard side and no equivalent device on the inboard
side. The absence of a similar mechanism on the inboard side, combined with
other flaws (such as "inadequate bracing") allegedly makes the seats
unreasonably dangerous because the seat backs are "unstable and susceptible to
rearward collapse in the event of a rear-end collision. The purported class in
each state consists of all persons who own a class vehicle (defined as various
1993-1998 model lines for each manufacturer) and specifically excludes all
persons who have suffered personal injury as a result of the rearward collapse
of a seat. Plaintiffs allege causes of action for negligence, strict liability,
implied warranty, fraud, and civil conspiracy. Plaintiffs also allege
violations of the consumer protection statutes in the various states. For each
of the eight counts alleged, Plaintiffs seek "compensatory damages measured by
the cost of correcting the Defect, not to exceed $5,000 for each class
vehicle." We have filed motions to dismiss each of the cases. On December 15,
1999, the trial judge in New Hampshire granted our motion to dismiss because
Plaintiffs had suffered no injury. However, on January 7, 2000, the trial judge
in the New Jersey case denied our motion to dismiss. We are seeking
interlocutory review and, if necessary, we will file a motion for summary
judgment after preliminary discovery. The motions to dismiss filed in Maryland
and New York are still pending.
Head Gasket Class Actions. In December 1999, a purported nationwide class
action was filed in Illinois state court on behalf of owners and lessees of
1994-1995 vehicles with 3.8 liter engines who have paid for repairs resulting
from head gasket failure. Ford removed the case to federal court. The federal
court dismissed the complaint for technical reasons and granted plaintiffs
leave to refile by March 1, 2000. Plaintiffs filed a motion for reconsideration,
which the trial court is treating as a motion to remand to state court. That
motion is pending. Coolant leakage from head gaskets was the subject of a
Technical Service Bulletin in April 1998, an Owner Notification Program ("ONP")
that extended warranty coverage on 1994-1995 vehicles with a 3.8 liter engine
to 5 years or 60,000 miles, and a recent ONP that further extended coverage to
7 years or 100,000 miles. Plaintiffs allege that Ford's sale of the vehicles
constituted violations of the Illinois and Michigan consumer protection
statutes, and that Ford breached both the original warranty and the first ONP
extended warranty by failing to pay for repair costs. In particular, plaintiffs
point to the fact that the first ONP notification letter provided coverage to 5
years or 60,000 miles, and (inadvertently) did not contain the phrase
"whichever occurs first." Plaintiffs seek reimbursement for the cost of
repairing their vehicles in addition to punitive damages.
A second purported nationwide class action alleging defective head gaskets
was filed in federal court in Ohio on February 22, 2000. The complaint includes
allegations similar to those asserted in the Illinois case, and also alleges
similar problems with 4.2 liter engines and certain 1996-1997 vehicles.
-27-
Item 3. Legal Proceedings (Continued)
Late Charges Class Actions. There are two class actions, one in California
(Cumberland v. Ford Credit) and the other in Oklahoma (Crim v. Ford Credit), in
which the plaintiffs are contending that Ford Motor Credit Company is engaged
in unfair business practices by assessing late charges on lease accounts that
bear no reasonable relation to our actual costs. In Cumberland the plaintiff
has brought a purported nationwide class action filed in the Superior Court of
San Francisco. Plaintiffs are seeking restitution, punitive damages and
injunctive relief. Basically, the claim is that our late charge of 7 1/2 % or
$50, whichever is less, is excessive. There has been extensive discovery and
the court has granted nationwide class certification. In Crim, the plaintiff
has made similar allegations. After granting a statewide class, the court
granted our motion for summary judgment because it found that the plaintiff had
voluntarily made the late payments and was therefore precluded from bringing
this action. We have completed an extensive study of the costs incurred by Ford
Credit on delinquent accounts and are confident that we can justify the late
charge fee.
Wartime Labor. Ford and Ford Germany are among hundreds of defendants in
numerous class action lawsuits brought on behalf of millions of foreign workers
forced by the Nazi government to work for industry during WWII as a result of
German labor shortages. In September 1999, a New Jersey federal court dismissed
one of the class action lawsuits against Ford and Ford Germany, ruling that
such issues must be resolved by governments, not the courts. That lawsuit is on
appeal, along with an appeal of the dismissal of another lawsuit not involving
Ford. Three other lawsuits are pending against Ford in federal courts in New
York and California. Ford is seeking the dismissal of those actions. In
December 1999, German and U.S. negotiators announced the formation of a $5.2
billion humanitarian fund that is expected to shield companies from further
lawsuits. Ford is evaluating the appropriateness of participating in the fund
as a means of resolving the matter.
Other Matters
- -------------
Konrad Patent Litigation. A patent infringement suit naming Ford as a
defendant has been filed in the U. S. District Court for the Eastern District
of Texas by an individual, Allan Konrad, who holds three patents allegedly
covering intranet/internet use. Mr. Konrad also owns a fourth patent
application allegedly covering e-commerce. Thirty-eight other companies,
including General Motors and DaimlerChrysler are codefendants in this
litigation. The Company procures all products and services related to this
infringement allegation from suppliers and believes that it is entitled to be
indemnified by these suppliers for any loss that may result from this
litigation.
The technology covered in the Konrad patents relates to computer system
configuration and a method of using that configuration. More specifically, a
local host (personal workstation), remote host (server), a network connecting
the local host to the remote host, and various computer service functionalities
are claimed to be covered by these patents. Technology of this type is widely
used in the Company and continued use is required.
OFCCP Proceeding. In April 1997, the Department of Labor issued an
administrative enforcement proceeding challenging our compliance with
obligations imposed by Executive Order 11246, which prohibits employment
discrimination and requires affirmative action by government contractors and
subcontractors. The Office of Federal Contract Compliance Programs ("OFCCP")
claims that our Kentucky Truck Plant used a hiring process in 1993 for
entry-level hourly laborer positions that discriminated against female
applicants. OFCCP sought an order awarding back pay to the "affected class of
women," a job offer to each of these persons, and retroactive seniority for
each person. A settlement was reached with OFCCP in February 2000. The
settlement addressed all compliance investigations that had been pending,
including the Kentucky matter. The accord requires the Company to pay $3.8
million in settlement and to hire 100 hourly workers (without retroactive
seniority) scattered among nine manufacturing facilities within three years.
-28-
Item 3. Legal Proceedings (Continued)
Red Carpet Lease Terminations. The Florida Attorney General issued a
subpoena asking for all Ford Credit Red Carpet Lease ("RCL") early termination
accounts going back to 1991. The Florida Attorney General has been
investigating leasing practices at the dealership level for years. The Attorney
General is representing a consortium of 37 states. The investigation focuses on
whether Ford Credit RCL customers who want to terminate leases early and
purchase the leased vehicle have been misled by the dealers' alleged improper
failure to itemize: (i) the cost to terminating the lease, and (ii) the vehicle
purchase price. They claim that because Ford Credit requires the customer to
early terminate with the originating dealer, we are conspiring with our dealer
to mislead the customer. We believe that Ford Credit's business practices are
fair under applicable law, and we are attempting to negotiate a resolution of
the matter. There have been numerous and extensive meetings with most of the
Attorneys General involved in the 37 state consortium. We are confident that an
amicable resolution of this matter will be reached.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
Not required.
-29-
Item 4A. Executive Officers of Ford
- ------------------------------------
Our executive officers and their positions and ages at March 15, 2000 are
shown in the table below:
Present Position
Name Position Held Since Age
---- -------- ---------- ---
Jacques A. Nasser* President and January 1999 52
Chief Executive Officer
(also a Director)
W. Wayne Booker Vice Chairman November 1996 65
Peter J. Pestillo Vice Chairman January 2000 61
(Chairman and CEO,
Visteon Automotive Systems)
James D. Donaldson Group Vice President- January 2000 57
Global Business Development
Carlos E. Mazzorin Group Vice President- January 2000 58
Global Purchasing and
South America
James J. Padilla Group Vice President- January 2000 53
Global Manufacturing
Richard Parry-Jones Group Vice President- January 2000 48
Global Product Development
and Quality
Wolfgang Reitzle Group Vice President- Premier March 1999 50
Automotive Group
Robert L. Rewey Group Vice President- January 2000 61
Global Consumer Services and
North America
John M. Rintamaki Group Vice President and January 2000 58
Chief of Staff
Henry D. G. Wallace Group Vice President and January 2000 54
Chief Financial Officer
Gurminder S. Bedi Vice President- January 2000 52
North American Truck
William W. Boddie Vice President- January 2000 54
Global Core Engineering
Mei Wei Cheng Vice President- January 1999 50
(President, Ford
Motor (China) Ltd.)
-30-
Item 4A. Executive Officers of Ford (Continued)
Present Position
Name Position Held Since Age
---- -------- ---------- ---
William J. Cosgrove Vice President July 1999 54
(Chief of Staff and Chief
Financial Officer, Premier
Automotive Group)
Terrell M. de Jonckheere Vice President-Ford South January 2000 55
South America Operations
Wayne S. Doran Vice President November 1997 65
(Chairman, Ford Motor Land
Development Corporation)
Mark Fields Vice President December 1999 38
Bobbie A. Gaunt Vice President- July 1999 53
(President and CEO,
Ford of Canada, Ltd.)
Louise K. Goeser Vice President-Quality March 1999 46
Elliott S. Hall Vice President- July 1998 61
Dealer Development
Earl J. Hesterberg Vice President- June 1999 46
(Vice President, Marketing,
Sales and Service, Ford of
Europe, Inc.)
Mark W. Hutchins Vice President- July 1998 54
(President, Lincoln and Mercury)
I. Martin Inglis Vice President- Ford January 2000 49
North America
Michael D. Jordan Vice President- January 1999 53
(President, Automotive Consumer
Services Group)
Brian P. Kelley Vice President- Consumer June 1999 39
Connect (COO, Ford Investment
Enterprises Corporation)
Vaughn A. Koshkarian Vice President-Ford Asia January 2000 59
Pacific Operations
Roman J. Krygier Vice President- January 1999 57
Powertrain Operations
Martin Leach Vice President- January 2000 42
(VP, Product Development,
Ford of Europe, Inc.)
-31-
Item 4A. Executive Officers of Ford (Continued)
Present Position
Name Position Held Since Age
---- -------- ---------- ---
Malcolm S. Macdonald Vice President and January 1998 59
Treasurer
J.C. Mays Vice President-Design October 1997 45
James E. Miller Vice President January 1998 53
Craig H. Muhlhauser Vice President January 1999 51
(President, Visteon
Automotive Systems)
Janet G. Mullins Vice President- January 1998 50
Washington Affairs
David L. Murphy Vice President- January 1999 54
Human Resources
James G. O'Connor Vice President June 1998 57
(President, Ford Division)
Helen O. Petrauskas Vice President-Environmental March 1983 55
and Safety Engineering
William F. Powers Vice President-Research February 1996 59
Neil W. Ressler Vice President and January 1999 60
Chief Technical Officer
Research and Vehicle Technology
Dennis E. Ross Vice President and January 1998 49
Chief Tax Officer
Shamel T. Rushwin Vice President-Vehicle March 1999 52
Operations
Nicholas V. Scheele Vice President- February 1999 56
(Chairman, Ford of Europe, Inc.)
James C. Schroer Vice President- Global July 1999 48
Marketing
William A. Swift Vice President and Controller January 1999 56
Frank M. Taylor Vice President- Material July 1999 52
Planning and Logistics
Chris P. Theodore Vice President- North January 2000 49
America Car
David W. Thursfield Vice President- January 2000 54
(President, Ford of
Europe, Inc.)
-32-
Item 4A. Executive Officers of Ford (Continued)
Present Position
Name Position Held Since Age
---- -------- ---------- ---
Alex P. Ver Vice President- Advanced January 2000 53
Manufacturing Engineering
Jason H. Vines Vice President- February 2000 40
Communications
Donald A. Winkler Vice President- October 1999 51
(Chairman and CEO, Ford
Motor Credit Company)
Robert J. Womac Vice President (Executive November 1996 56
Vice President, Operations,
Visteon Automotive Systems)
James A. Yost Vice President and Chief July 1999 50
Information Officer
Martin B. Zimmerman Vice President- January 1999 53
Governmental Affairs
Rolf Zimmermann Vice President November 1998 53
(Chairman, Ford Werke AG)
________________________
* Also a member of the Finance Committee and the Organization Review and
Nominating Committee of the Board of Directors.
All of the above officers, except those noted below, have been employed by
Ford or its subsidiaries in one or more capacities during the past five years.
Described below are the positions (other than those with Ford or its
subsidiaries) held by those officers who have not been with Ford or its
subsidiaries for five years:
o Mr. Cheng was President and Regional Executive of GE Appliances Ltd. in
Hong Kong from October 1996 until January 1998. From September 1994 until
September 1996 he was President of General Electric China.
o Ms. Goeser served as General Manager, Refrigeration Product Team Whirlpool
Corporation, Whirlpool North American Appliance Group, from September 1996
until March 1999. From January 1994 until September 1996, she served as
Vice President, Corporate Quality, Whirlpool Corporation.
o Mr. Kelley served as Vice President and General Manager for Sales and
Distribution with General Electric's Appliance Division from January 1997
until June 1999. From January 1995 until January 1997 he served as General
Manager, Laundry Products, General Electric's Appliance Division and as
Marketing Director, GE Brands Worldwide, General Electric Appliance
Division from January 1994 until January 1995.
o Mr. Mays was Vice President of Design Development at SHR Perceptual
Management in Scottsdale, Arizona from 1995 to 1997. Prior to that he was
design director responsible for worldwide design strategy, development and
execution for Audi AG.
o Mr. Muhlhauser was an officer of United Technologies Corporation and held
the positions of Senior Vice President, Sales and Service-Americas, and
Senior Vice President, Worldwide Aftermarket - Pratt & Whitney from June
1995 to July 1997.
-33-
Item 4A. Executive Officers of Ford (Continued)
o Dr. Reitzle was a member of the Board of Management of BMW AG, Research
and Development from July 1987 to October 1995. He served as Chairman of
Rover Group Board from October 1995 to March 1997 and as a member of the
Board of Management of BMW AG, Market and Product from March 1998 to
February 1999.
o Mr. Ross was a partner in the New York law firm of Davis, Polk & Wardwell
from May 1989 to May 1995.
o Mr. Rushwin served as Vice President-International Manufacturing and
Minivan Assembly Operations at DaimlerChrysler AG and its predecessors
from October 1994 until March 1999.
o Mr. Taylor was Executive Director, Production Control and Logistics -
General Motors Corporation Powertrain Group from March 1994 to July 1999.
o Mr. Theodore most recently was Senior Vice President-Platform Engineering
at DaimlerChrysler AG and its predecessors from January 1998 until March
1999. His prior positions at DaimlerChrysler AG were General Manager-Small
Car Platform Engineering from 1996 through December 1997 and General
Manager-Minivan Platform Engineering from 1992 through 1996.
o Mr. Vines served as Vice President - External Affairs, Nissan North
America from April 1998 until February 2000. From 1993 until 1995 while an
employee of Chrysler Corporation, he served as Public Relations Executive
with the American Automobile Manufacturers Association.
o Mr. Winkler was Chairman and CEO of Finance One, a finance subsidiary of
Bank One Corporation and served as Executive Vice President of Bank One
Corporation from 1993 to October 1999.
Under Ford's By-Laws, the executive officers are elected by the Board of
Directors at the Annual Meeting of the Board of Directors held for this
purpose. Each officer is elected to hold office until his or her successor is
chosen or as otherwise provided in the By-Laws.
-34-
PART II
Item 5. Market for Ford's Common Stock and Related Stockholder Matters
- ----------------------------------------------------------------------
Our Common Stock is listed on the New York and Pacific Coast Stock
Exchanges in the United States and on certain stock exchanges in Belgium,
France, Germany, Switzerland and the United Kingdom.
The table below shows the high and low sales prices for our Common Stock
and the dividends we paid per share of Common and Class B Stock for each
quarterly period in 1999 and 1998.
1999 1998
----------------------------------------- ------------------------------------------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
------- ------- ------- ------- ------- ------- ------- -------
Common Stock price per share*
High $66-1/2 $67-7/8 $58-5/8 $54-7/8 $43-5/8 $59-1/8 $61-7/16 $59-7/8
Low 55-1/4 52-5/8 46-1/4 48-1/2 28-5/16 41-11/64 40-5/8 38-13/16
Dividends per share of
Common and Class B Stock $0.46 $0.46 $0.46 $0.50 $0.42 $0.42 $0.42 $0.46
______________________________
* New York Stock Exchange composite interday prices as provided by the
www.NYSEnet.com price history database. All prices prior to April 8, 1998 have
been adjusted to reflect The Associates spin-off.
As of February 25, 2000, stockholders of record of Ford included 217,801
holders of Common Stock and 101 holders of Class B Stock.
During 1999 we sold 1,001,513 shares of our Common Stock in private
transactions that were not registered with the Securities and Exchange
Commission. These transactions were exempt from registration requirements
because they were private placements under Section 4(2) of the Securities Act
of 1933, as amended. These shares were sold to owners of automotive dealership,
automotive recycling and other businesses in exchange for those businesses. The
consideration we received for the shares was equal to the market value of the
shares at the time of the transactions.
-35-
Item 6. Selected Financial Data
- --------------------------------
The following tables set forth selected financial data and other data
concerning Ford for each of the last eleven years (dollar amounts in millions,
except per share amounts):
SUMMARY OF OPERATIONS 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Automotive Sector
Sales $136,973 $119,083 $122,935 $118,023 $110,496 $107,137 $91,568 $84,407 $72,051 $81,844 $82,879
Operating income/(loss) 8,379 6,685 6,946 2,516 3,281 5,826 1,432 (1,775) (3,769) 316 4,252
Income/(loss) before income
taxes and cumulative effects
of changes in accounting
principles 8,447 6,958 7,082 2,571 3,166 5,997 1,291 (1,952) (4,052) 275 5,156
Income/(loss) before cumulative
effects of changes in
accounting principles 5,721 4,752 4,714 1,655 2,056 3,913 1,008 (1,534) (3,186) 99 3,175
Net income/(loss) 5,721 4,752 4,714 1,655 2,056 3,913 1,008 (8,628) (3,186) 99 3,175
Financial Services Sector
Revenues $ 25,585 $ 25,333 $ 30,692 $ 28,968 $ 26,641 $ 21,302 $16,953 $15,725 $16,235 $15,806 $13,267
Income before income taxes and
cumulative effects of changes
in accounting principles 2,579 18,438 3,857 4,222 3,539 2,792 2,712 1,825 1,465 1,220 874
Income before cumulative
effects of changes in
accounting principles a/,b/,
c/ 1,516 17,319 2,206 2,791 2,083 1,395 1,521 1,032 928 761 660
Net income 1,516 17,319 2,206 2,791 2,083 1,395 1,521 1,243 928 761 660
Total Company
Income/(loss) before income
taxes and cumulative effects
of changes in accounting
principles $ 11,026 $ 25,396 $ 10,939 $ 6,793 $ 6,705 $ 8,789 $ 4,003 $ ( 127) $(2,587) $ 1,495 $ 6,030
Provision/(credit) for income
taxes 3,670 3,176 3,741 2,166 2,379 3,329 1,350 295 (395) 530 2,113
Minority interests in net
income of subsidiaries 119 149 278 181 187 152 124 80 66 105 82
-------- -------- -------- -------- -------- -------- ------- ------- ------- ------- -------
Income/(loss) before
cumulative effects of
changes in accounting
principles a/, b/, c/ $ 7,237 22,071 6,920 4,446 4,139 5,308 2,529 (502) (2,258) 860 3,835
Cumulative effects of changes
in accounting principles - - - - - - - (6,883) - - -
-------- -------- -------- -------- -------- -------- ------- ------- ------- ------- -------
Net income/(loss) 7,237 $ 22,071 $ 6,920 $ 4,446 $ 4,139 $ 5,308 $ 2,529 $(7,385) $(2,258) $ 860 $ 3,835
======== ======== ======== ======== ======== ======== ======= ======= ======= ======= =======
Total Company Data Per Share
of Common and Class B
Stock d/
Income/(loss) before cumulative
effects
of changes in accounting
principles $ 5.99 $ 18.17 $ 5.75 $ 3.73 $ 3.58 $ 4.97 $ 2.27 $ (0.73) $ (2.40) $ 0.93 $ 4.11
Income/(loss)
Basic 5.99 18.17 5.75 3.73 3.58 4.97 2.27 (7.81) (2.40) 0.93 4.11
Diluted 5.86 17.76 5.62 3.64 3.33 4.44 2.10 (7.81) (2.40) 0.92 4.06
Cash dividends 1.88 1.72 1.645 1.47 1.23 0.91 0.80 0.80 0.98 1.50 1.50
Common stock price range (NYSE)
High 67-7/8 61-7/16 33-3/8 24-47/64 21-53/64 23-1/4 21-61/64 16-15/64 12-17/32 16-5/16 18-51/64
Low 46-1/4 28-15/32 19-59/64 18-3/32 16-7/16 17-11/64 14-9/32 9-7/32 7-49/64 8-19/64 13-47/64
Average number of shares of
Common and Class B stock
outstanding (in millions) 1,210 1,211 1,195 1,179 1,071 1,010 986 972 952 926 934
- - - - - -
a/ 1998 includes a non-cash gain of $15,955 million that resulted from Ford's
spin-off of The Associates.
b/ 1997 includes a gain of $269 million on the sale of Hertz Common Stock.
c/ 1996 includes a gain of $650 million on the sale of The Associates Common
Stock.
d/ Share data have been adjusted to reflect stock dividends and stock splits.
Common stock price range (NYSE) has been adjusted to reflect The Associates
Spin-off.
-36-
Item 6. Selected Financial Data (Continued)
SUMMARY OF OPERATIONS
(continued) 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total Company Balance
Sheet Data at Year-End
Assets
Automotive Sector $105,181 $ 88,744 $ 85,079 $ 79,658 $ 72,772 $ 68,639 $ 61,737 $ 57,170 $ 52,397 $ 50,824 $ 45,819
Financial Services
Sector 171,048 148,801 194,018 183,209 170,511 150,983 137,201 123,375 122,032 122,839 115,074
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total assets $276,229 $237,545 $279,097 $262,867 $243,283 $219,622 $198,938 $180,545 $174,429 $173,663 $160,893
Long-term debt ======== ======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Automotive Sector $ 10,542 $ 8,713 $ 7,047 $ 6,495 $ 5,475 $ 7,103 $ 7,084 $ 7,068 $ 6,539 $ 4,553 $ 1,137
Financial Services
Sector 67,517 55,468 73,198 70,641 68,259 58,104 47,900 42,369 43,680 40,779 37,784
Stockholders' equity e/ 27,537 23,409 30,734 26,762 24,547 21,659 15,574 14,753 22,690 23,238 22,728
Total Company Facility
and Tooling Data
Capital expenditures for
facilities (excluding
special tools) $ 5,088 $ 5,109 $ 5,695 $ 5,362 $ 5,455 $ 5,236 $ 4,339 $ 3,613 $ 3,611 $ 4,702 $ 4,412
Depreciation 12,516 11,393 10,404 9,519 8,954 7,207 5,456 4,658 3,956 3,185 2,720
Expenditures for special
tools 3,447 3,508 3,022 3,289 3,542 3,310 2,475 2,177 2,236 2,556 2,354
Amortization of special
tools 2,427 2,936 3,179 3,272 2,765 2,129 2,012 2,097 1,822 1,695 1,509
Total Company Employee
Data - Worldwide
Payroll $ 18,307 $ 16,757 $ 17,187 $ 17,616 $ 16,567 $ 15,853 $ 13,750 $ 13,754 $ 12,850 $ 14,014 $ 13,327
Total labor costs $ 27,568 $ 25,606 $ 25,546 $ 25,689 $ 23,758 $ 22,985 $ 20,065 $ 19,850 $ 17,998 $ 18,962 $ 18,152
Average number of employees 364,550 342,545 363,892 371,702 346,989 337,728 321,925 325,333 331,977 369,547 366,641
Total Company Employee
Data - U.S. Operations
Payroll $ 11,483 $ 10,548 $ 10,840 $ 10,961 $ 10,488 $ 10,381 $ 8,889 $ 8,019 $ 7,393 $ 8,313 $ 8,654
Average number of employees 173,064 171,269 189,787 189,718 186,387 180,861 166,995 158,501 156,203 180,228 188,402
Average hourly labor
costs f/
Earnings $ 25.58 $ 24.30 $ 22.95 $ 22.30 $ 21.79 $ 21.81 $ 20.94 $ 19.92 $ 19.10 $ 18.44 $ 17.77
Benefits 21.79 21.42 20.60 19.47 18.66 19.13 18.12 19.24 17.97 14.12 13.21
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total hourly labor
costs $ 47.37 $ 45.72 $ 43.55 $ 41.77 $ 40.45 $ 40.94 $ 39.06 $ 39.16 $ 37.07 $ 32.56 $ 30.98
======== ======== ======== ======== ======== ======== ======== ======== ======== ======== ========
- - - - - -
e/ The cumulative effects of changes in accounting principles reduced equity by
$6,883 million in 1992.
f/ Per hour worked (in dollars). Excludes data for subsidiary companies.
-37-
Item 6. Selected Financial Data (Continued)
SUMMARY OF VEHICLE UNIT SALES g/
(in thousands)
1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
North America
United States
Cars 1,725 1,563 1,614 1,656 1,767 2,036 1,925 1,820 1,588 1,870 2,201
Trucks 2,660 2,425 2,402 2,241 2,226 2,182 1,859 1,510 1,253 1,416 1,517
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total United States 4,385 3,988 4,016 3,897 3,993 4,218 3,784 3,330 2,841 3,286 3,718
Canada 288 279 319 258 254 281 256 237 259 257 326
Mexico 114 103 97 67 32 92 91 126 112 89 87
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total North America 4,787 4,370 4,432 4,222 4,279 4,591 4,131 3,693 3,212 3,632 4,131
Europe
Britain 518 498 466 516 496 520 464 420 471 607 739
Germany 353 444 460 436 409 386 340 407 501 361 326
Italy 209 205 248 180 193 179 172 266 301 219 153
Spain 180 155 155 155 160 163 117 165 128 155 173
France 172 171 153 194 165 180 150 194 190 185 192
Other countries 528 377 318 339 286 281 250 270 296 289 296
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total Europe 1,960 1,850 1,800 1,820 1,709 1,709 1,493 1,722 1,887 1,816 1,879
Other international
Australia 125 133 132 138 139 125 120 105 104 134 154
Brazil 117 178 214 190 201 164 151 117 137 137 157
Argentina 60 97 147 64 48 54 49 49 26 18 25
Taiwan 56 77 79 86 106 97 122 119 107 115 115
Japan 32 25 40 52 57 50 53 64 83 99 82
Other countries 83 93 103 81 67 63 65 71 67 72 65
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total other international 473 603 715 611 618 553 560 525 524 575 598
Total worldwide cars and trucks 7,220 6,823 6,947 6,653 6,606 6,853 6,184 5,940 5,623 6,023 6,608
===== ===== ===== ===== ===== ===== ===== ===== ===== ===== =====
- - - - - -
g/ Vehicle unit sales generally are reported worldwide on a "where sold" basis
and include sales of all Ford-badged units, as well as units manufactured by
Ford and sold to other manufacturers.
-38-
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- ----------------------------------------------------------------------------
OVERVIEW
On March 31, 1999, we purchased AB Volvo's worldwide passenger car
business ("Volvo Car"). Our 1999 results and financial condition discussed
below include the results and financial condition of Volvo Car since the date
of acquisition.
Our worldwide net income was $7,237 million in 1999, or $5.86 per diluted
share of Common and Class B Stock. Earnings in 1998 were $22,071 million, or
$17.76 per diluted share. This includes a one-time, non-cash gain of $15,955
million that resulted from our spin-off of The Associates in 1998. The
following unusual items were included in our 1999, 1998, and 1997 net income
(in millions):
Automotive Sector
-----------------------------------------------------------
Rest Total Financial
North South of Auto Services
America Europe America World Sector Sector
----------- ---------- ------------ ----------- ----------- -----------
1999
- ----
- - Gain from the sale of our interest in
AutoEuropa to Volkswagen AG in the first
quarter $ 165 $ 165
- - Inventory-related profit reduction for Volvo
Car in the second quarter $ (16) $(125) $ (5) $(146)
- - Visteon-related postretirement adjustment in
the third quarter (incl. in Total Auto Sector) $(125)
- - Employee separation costs in the third
quarter $ (88) $ (88) $ (23)
- - Lump-sum payments relating to ratification of
the 1999 United Auto Workers and Canadian
Auto Workers contracts in the fourth
quarter $(103) $(103)
----- ----- ----- ---- ----- -------
Total 1999 unusual items $(207) $ 40 - $ (5) $(297) $ (23)
===== ===== ===== ==== ===== =======
- ------------------------------------------------------------------------------------------------------------------------------
1998
- ----
- - Non-cash gain from our spin-off of
The Associates in the first quarter $15,955
- - Employee separation costs in the fourth
quarter $(248) $(137) $(81) $(466) $ (6)
- - Write-off of our net exposure in Kia Motors
Company in the fourth quarter $ (42) $(44) $ (86)
- - Charge in the fourth quarter to transfer our
Batavia, Ohio transmission plant to a new
joint venture company formed by
ZF Friedrichshafen AG and us to manufacture
continuously variable transmissions $ (73) $ (73)
----- ----- ---- ----- ----- -------
Total 1998 unusual items $(363) $(137) $(81) $( 44) $(625) $15,949
===== ===== ==== ===== ===== =======
- ------------------------------------------------------------------------------------------------------------------------------
1997
- ----
- - Gain resulting from Hertz IPO in the second
quarter $ 269
- - Write-down of surplus assets in the second
quarter resulting from the discontinuation of
passenger car production at the Lorain
Assembly Plant $ (97) $ (97)
- - Employee termination costs in the second
quarter relating to the elimination of a shift
at the Halewood (England) Plant $ (44) $ (44)
- - Loss on the sale of the heavy truck business
in the second quarter $ (28) $ (28)
----- ----- ---- ---- ----- ------
Total 1997 unusual items $(125) $( 44) - - $(169) $ 269
===== ===== ==== ==== ===== ======
For more details regarding some of these unusual items, see Note 16 (pages
FS-26 through FS-28) of our Notes to Financial Statements.
-39-
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Our worldwide revenues were $162.6 billion in 1999, up $18.2 billion from
1998. We sold 7,220,000 cars and trucks in 1999, up 397,000 units from 1998.
This increase in unit sales reflects primarily the addition of Volvo Car. Our
stockholders' equity was $27.5 billion at December 31, 1999, up $4.1 billion
compared with December 31, 1998.
FOURTH QUARTER 1999 RESULTS OF OPERATIONS
In the fourth quarter of 1999, we earned $1,806 million, or $1.47 per
diluted share of Common and Class B Stock, compared with $1,043 million, or
$0.84 per diluted share, in the fourth quarter of 1998. The increase in
earnings reflects primarily the non-recurrence of 1998's unusual items and
lower costs, offset partially by lump-sum payments relating to the ratification
of union contracts.
Results of our operations by business sector for the fourth quarter of
1999 and 1998 are shown below (in millions):
Fourth Quarter
Net Income
------------------------------------
1999
O/(U)
1999 1998 1998
----------- ------------ -----------
Automotive Sector $1,449 $ 820 $629
Financial Services Sector 357 223 134
------ ------ ----
Total Company $1,806 $1,043 $763
====== ====== ====
Automotive Sector
- -----------------
Worldwide earnings for our Automotive sector were $1,449 million in the
fourth quarter of 1999 on sales of $37.8 billion. Earnings in the fourth
quarter of 1998 were $820 million on sales of $32.2 billion.
Details of our Automotive sector earnings for the fourth quarter of 1999
and 1998 are shown below (in millions):
Fourth Quarter
Net Income/(Loss)
------------------------------------
1999
O/(U)
1999 1998 1998
----------- ------------ -----------
North American Automotive $1,576 $1,047 $529
Automotive Outside North America
-Europe (55) (74) 19
-South America (95) (151) 56
-Rest of World 23 (2) 25
------ ------ ----
Total Automotive Outside
North America (127) (227) 100
------ ------ ----
Total Automotive Sector $1,449 $ 820 $629
====== ====== ====
The increase in our fourth quarter Automotive sector earnings in North
America reflects primarily the non-recurrence of last year's unusual items,
lower costs, higher volume and a more favorable vehicle mix, offset partially
by the lump-sum payments relating to the ratification of union contracts.
-40-
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
The improved fourth quarter results in Europe reflect the non-recurrence
of 1998's charge for employee separation costs, the addition of Volvo Car
earnings and lower taxes, offset partially by lower volumes and market share
for Ford-branded vehicles, primarily the Ka, Fiesta and Mondeo. The improvement
in South America reflects primarily lower costs and the non-recurrence of the
charge for employee separation costs, offset partially by lower revenue.
Financial Services Sector
- -------------------------
Details of our Financial Services sector earnings are shown below (in
millions):
Fourth Quarter
Net Income/(Loss)
------------------------------------
1999
O/(U)
1999 1998 1998
----------- ----------- ------------
Ford Credit $309 $234 $ 75
Hertz 60 48 12
Minority Interests, Eliminations,
and Other (12) (59) 47
---- ---- ----
Total Financial Services Sector $357 $223 $134
==== ==== ====
Memo: Ford's share of earnings in Hertz $ 49 $ 39 $ 10
Ford Credit's consolidated net income in the fourth quarter of 1999 was
$309 million, up $75 million or 32% from 1998. The increase in earnings
reflects primarily a higher level of finance receivables and improved credit
loss performance, offset partially by higher operating costs.
Earnings at Hertz in the fourth quarter of 1999 were $60 million (of which
$50 million was Ford's share), compared with earnings of $48 million (of which
$39 million was Ford's share) a year ago.
FULL-YEAR 1999 RESULTS OF OPERATIONS
Results of our operations by business sector for the full-year 1999, 1998,
and 1997 are shown below (in millions):
Full Year
Net Income
-------------------------------------
1999 1998 1997
------------ ----------- -----------
Automotive Sector $5,721 $ 4,752 $4,714
Financial Services Sector (excluding The
Associates) 1,516 1,187 1,374
Gain on spin-off of The Associates - 15,955 -
The Associates (net of Minority Interest) - 177* 832
------ ------- ------
Total Company $7,237 $22,071 $6,920
====== ======= ======
_ _ _ _ _
* Through March 12, 1998
-41-
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Review of 1999 Financial Milestones
- -----------------------------------
We established and communicated the financial milestones listed below for
1999. Our results against these milestones are listed below.
Full-Year 1999 Milestone 1999 Result
------------------------ -----------
Automotive Sector
-----------------
o North America 5%+ return on sales 6.2% return on sales
o Europe Grow earnings $165 million worse
o South America Improve results $226 million worse
o Total Costs Down $1 billion from 1998
(at constant volume and mix) Down $1 billion
o Capital Spending $8.5 billion (includes
capitalized software) $7.9 billion
o Visteon Grow earnings Earnings up 5%
$2 billion of new business $2 billion of new business
Financial Services Sector
-------------------------
o Ford Credit Grow earnings by 10% Earnings up 16%
o Hertz Record earnings Record, earnings up 21%
Total Company
-------------
o Total Shareholder
Returns Top quartile of S&P 500 over time
o 1999 No (-6%)
o 1998 Yes (+89%)
o 1997-1999 Yes (+41% avg.)
AUTOMOTIVE SECTOR RESULTS OF OPERATIONS
Details of our full-year Automotive sector earnings for 1999, 1998, and
1997 are shown below (in millions):
Full-Year
Net Income/(Loss)
------------------------------------
1999 1998 1997
---------- ------------ ------------
North American Automotive $6,137 $4,612 $4,434
Automotive Outside North America
-Europe 28 193 273
-South America (452) (226) 40
-Rest of World 133 173 (33)
------ ------ ------
Total Automotive Outside
North America (291) 140 280
Visteon-related postretirement adjustment (125) - -
------ ------ ------
Total Automotive Sector $5,721 $4,752 $4,714
====== ====== ======
-42-
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
1999 Compared with 1998
- -----------------------
Worldwide earnings for our Automotive sector were $5,721 million in 1999
on sales of $137 billion, compared with $4,752 million in 1998 on sales of
$119.1 billion. The increase in earnings reflects improved results in North
America, offset partially by lower earnings in all other geographic markets.
Adjusted for constant volume and mix, our total costs in the Automotive sector
declined $1 billion compared with 1998.
Our Automotive sector earnings in North America were $6,137 million in
1999 on sales of $100.3 billion, compared with $4,612 million in 1998 on sales
of $87.4 billion. The earnings improvement reflects primarily increased sales
volume, an improved mix of light trucks and luxury cars, lower costs, and the
non-recurrence of 1998's unusual items, offset partially by higher interest
expense, lump-sum payments related to the ratification of union contracts in
1999, and costs related to employee separation programs in 1999. The after-tax
return on sales for our Automotive sector in North America was 6.2% in 1999, up
9/10 of a percentagepoint from 1998.
In 1999, approximately 17.4 million new cars and trucks were sold in the
United States, up from 16 million units in 1998. Our share of those unit sales
was 23.9% in 1999, down 7/10 of a percentage point. The decrease in market
share reflects primarily capacity constraints on several key products due to
strong demand in the United States market.
Our Automotive sector earnings in Europe were $28 million in 1999, a $165
million reduction from a year ago. The deterioration is explained by lower
market share for Ford-branded vehicles, primarily Mondeo and Fiesta, and
unfavorable vehicle mix, offset partially by the non-recurrence of 1998's
employee separation costs, lower taxes, the impact of 1999's unusual items, and
the addition of Volvo Car.
In 1999, approximately 17 million new cars and trucks were sold in our
fifteen primary European markets, up from 16.1 million units in 1998. Our share
of those unit sales was 10.6% in 1999, up 4/10 of a percentage point from a
year ago. The increase in our share is more than explained by the addition of
Volvo Car.
Our Automotive sector in South America lost $452 million in 1999, compared
with a loss of $226 million in 1998. The decline in earnings reflects primarily
lower industry sales, lower market share in Brazil, weak economic conditions,
devaluation of the Brazilian currency, and increased competition, offset
partially by lower costs and the non-recurrence of 1998's employee separation
costs.
In 1999, approximately 1.3 million new cars and trucks were sold in
Brazil, compared with 1.6 million in 1998. Our share of those unit sales was
9.7% in 1999, down 3.4 percentage points from a year ago. In the fourth quarter
of 1999, our market share in Brazil was 10.8%, down 8/10 of a percentage point.
These declines in market share reflect increased competition from new and
existing manufacturers who are aggressively competing for the lower industry
volume.
During December 1999, Ford completed the legal restructuring of its
operations in Brazil, which included the realignment of its operations and the
retirement of U.S. Dollar debt. Based on business changes, events in 1999, and
the current business plan for Ford in Brazil, management has decided that a
change in functional currency from the U.S. Dollar to the Real is required by
Statement of Financial Accounting Standards No. 52 ("SFAS 52") for our
Automotive Segment. The Real will be the primary currency of the environment in
which Ford Brazil will operate. This change, effective January 1, 2000, will
result in a one-time write-down of Ford Brazil's fixed assets and inventories
of $348 million, which will be reflected in our first quarter Other
Comprehensive Income shown in our Consolidated Statement of Stockholders'
Equity. Visteon's Brazilian operations will continue to use the U.S. Dollar as
its functional currency.
-43-
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Automotive sector earnings outside North America, Europe and South America
("Rest of World") were $133 million in 1999, compared with earnings of $173
million in 1998. The decline in earnings reflects primarily higher taxes and
lower sales volume, offset partially by our share of the profit improvement at
Mazda and the non-recurrence of a write-off of our net exposure to Kia Motors
Company in 1998. New car and truck sales in Australia, our largest market in
Rest of World, were approximately 787,000 units in 1999, down 2.6 percentage
points from a year ago. In 1999, our combined car and truck market share in
Australia was 16.1%, up 2/10 of a
percentage point from 1998.
Our Visteon operations, included in our Automotive sector, earned $735
million on revenues of $19,366 million in 1999, compared with $703 million on
revenues of $17,762 million in 1998. This earnings improvement reflects
primarily cost reductions, the consolidation of Halla Climate Control, and
increased North American truck volume, offset partially by negotiated price
reductions, compensation factors, and foreign currency translation. Visteon's
after-tax return on sales in 1999 was 3.9%, unchanged from a year ago.
We and Visteon are close to completing a market-pricing review begun in
1999 of various carry-over components and systems we purchase from Visteon.
When the review is completed and a final pricing level is agreed to, it is
expected that Visteon will reduce prices to us.
1998 Compared with 1997
- -----------------------
Our Automotive sector earnings in North America were $4,612 million in
1998 on sales of $87.4 billion, compared with $4,434 million in 1997 on sales
of $88.6 billion. The increase reflects primarily continued cost reductions and
improved vehicle mix, offset partially by lower volumes and higher marketing
costs. The after-tax return on sales for our Automotive sector in North America
was 5.3% in 1998, up 2/10 of a percentage point from 1997.
In 1998, approximately 16 million new cars and trucks were sold in the
United States, up from 15.5 million units in 1997. Our share of those unit
sales was 24.6% in 1998, down 4/10 of a percentage point, more than explained
by the discontinuation of low margin vehicle lines.
Our Automotive sector earnings in Europe were $193 million in 1998, $80
million worse than in 1997. The deterioration reflected higher restructuring
costs, lower export sales, and costs associated with the Focus car line launch,
offset partially by cost reductions.
In 1998, approximately 16.1 million new cars and trucks were sold in our
fifteen primary European markets, up from 15 million units in 1997. Our share
of those unit sales was 10.2% in 1998, down 1.2 percentage points from the
prior year. In the fourth quarter of 1998, our market share in Europe was 9.4%,
down 1.7 percentage points. Our market share declined because of intense
competitive conditions in Europe and limited availability of our new Focus car
line during its launch.
Our Automotive sector in South America lost $226 million in 1998, compared
with a profit of $40 million in 1997. The decline was the result of lower
volume and revenue resulting from weak economic conditions and charges we
incurred for employee reductions, offset partially by lower costs. We reduced
production in Brazil and Argentina in the fourth quarter because of anticipated
weaker demand in those markets in 1999.
-44-
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
In 1998, approximately 1.6 million new cars and trucks were sold in
Brazil, compared with 1.9 million in 1997. Our share of those unit sales was
13.1% in 1998, down 1.2 percentage points from 1997. In the fourth quarter of
1998, our market share in Brazil declined to 11.6%, down 5.2 percentage points.
These declines in market share reflect new product entries from other
manufacturers and an increasingly competitive market.
Automotive sector earnings in Rest of World were $173 million in 1998, up
$206 million from 1997. The improvement in earnings reflects primarily foreign
tax credits and our share of the profit improvement at Mazda, offset partially
by a write-off of our net exposure to Kia Motors Company in 1998. New car and
truck sales in Australia were approximately 808,000 units in 1998, up 11.9
percentage points from 1997. In 1998, our combined car and truck market share
in Australia was 15.9%, down 2.1 percentage points from 1997.
Our Visteon operations, included in our Automotive sector, earned $703
million on revenues of $17,762 million in 1998, compared with $511 million on
revenues of $17,220 million in 1997. This earnings improvement reflects
primarily cost reductions and increased revenue for customer-driven design
changes. Visteon's after-tax return on sales in 1998 was 3.9%, up 9/10 of a
percentage point compared with the prior year.
FINANCIAL SERVICES SECTOR RESULTS OF OPERATIONS
Details of our full-year Financial Services sector earnings for 1999,
1998, and 1997 are shown below (in millions):
Full-Year
Net Income/(Loss)
-----------------------------------
1999 1998 1997
----------- ----------- -----------
Ford Credit $1,261 $ 1,084 $1,031
Hertz 336 277 202
Gain on sale of Common Stock of Hertz - - 269
Minority Interests, Eliminations,
and Other (81) (174) (128)
------ ------- ------
Financial Services (excluding
The Associates) 1,516 1,187 1,374
The Associates (net of Minority Interest) - 177* 832
Gain on spin-off of The Associates - 15,955 -
------ ------- ------
Total Financial Services Sector $1,516 $17,319 $2,206
====== ======= ======
Memo: Ford's share of earnings in Hertz $ 273 $ 224 $ 168
_ _ _ _ _
* Through March 12, 1998
1999 Compared with 1998
- -----------------------
Earnings of our Financial Services sector consist primarily of two
segments, Ford Credit and Hertz. Ford Credit's consolidated net income in 1999
was $1,261 million, up $177 million or 16% from 1998. Compared with 1998, the
increase in full-year earnings reflects primarily higher financing volumes and
improved credit loss performance, offset partially by higher operating costs.
Higher operating costs reflect primarily operating costs of recent
acquisitions, costs associated with the restructuring of financing operations,
and employee separation programs.
Earnings at Hertz in 1999 were $336 million (of which $273 million was
Ford's share). In 1998, Hertz had earnings of $277 million (of which $224
million was Ford's share). The increase in earnings reflects primarily strong
demand and continuing cost efficiency improvements.
-45-
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
1998 Compared with 1997
- -----------------------
In 1998 we spun-off The Associates to our shareholders, resulting in a
$15,955 million gain to Ford. For details of the spin-off see Note 16
(page FS-27) of our Notes to Financial Statements.
Ford Credit's consolidated net income in 1998 was $1,084 million, up $53
million or 5% from 1997. Compared with 1997, the increase in full-year earnings
reflects primarily improved credit loss performance, higher gains on receivable
sales, lower effective tax rates, and higher financing volumes, offset
partially by lower net financing margins and higher operating costs. Lower
financing margins reflect higher depreciation expense for leased vehicles as a
result of lower-than-anticipated residual values and higher residual reserves.
Earnings at Hertz in 1998 were $277 million (of which $224 million was
Ford's share). In 1997, Hertz had earnings of $202 million (of which $168
million was Ford's share). The increase in earnings reflects primarily higher
revenues and improved profit margins in worldwide car rental operations.
LIQUIDITY AND CAPITAL RESOURCES
Automotive Sector
- -----------------
At December 31, 1999, our Automotive sector had $23.6 billion of cash and
marketable securities. Despite cash outflows of $6.3 billion for acquisitions
and $2.3 billion in cash dividends, our cash and marketable securities only
decreased by $220 million from December 31, 1998.
In 1999, we spent $7.9 billion for capital goods, such as machinery,
equipment, tooling and facilities, used in our Automotive sector. This is down
$168 million from 1998. Capital expenditures were 5.8% of sales in 1999, down
one percentage point from a year ago.
At December 31, 1999, our Automotive sector had total debt of $12.1
billion. This amount was 31% of our total capitalization (that is, the sum of
our stockholders' equity and Automotive debt) at the end of 1999, compared with
30% of total capitalization at year-end 1998.
Financial Services Sector
- -------------------------
At December 31, 1999, our Financial Services sector had cash and
marketable securities totaling $1.6 billion, up $437 million from December 31,
1998.
Finance receivables and net investment in operating leases were $155.8
billion at December 31, 1999, up $17.4 billion from December 31, 1998.
Total debt was $139.9 billion at December 31, 1999, up $17.6 billion from
December 31, 1998. Outstanding commercial paper at December 31, 1999 totaled
$43.1 billion at Ford Credit (including $1 billion owed to Ford), and $2.5
billion at Hertz, with an average remaining maturity of 25 days and 15 days,
respectively.
For a discussion of the credit and other financial support facilities for
our Automotive and Financial Services sectors at December 31, 1999, see Note 10
(page FS-21) of our Notes to Financial Statements.
-46-
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
YEAR 2000 DATE CONVERSION
As of December 31, 1999, all critical business systems had been remediated
and tested to ensure their ability to process the year 2000 date change ("Y2K").
The remediation and testing program's scope included other impact areas as
well, including suppliers, plant floor equipment, affiliates, dealers, product
development test equipment, technical infrastructure, physical infrastructure,
vehicle components, and end-user computing.
We entered into the year 2000 smoothly and without disruption to the
business due to Y2K. We did not experience any significant malfunctions or
errors in our operating or business systems when the date changed from 1999 to
2000. Based on operations since the date change, we do not expect any
significant impact to our business as a result of Y2K. Reports from our
suppliers regarding Y2K have exceeded expectations and have been uniformly
positive. Our business systems and technical infrastructure are processing
normally.
We estimate our total cost for Y2K compliance efforts will be about $394
million, which we will have incurred over about a three-year period that
commenced mid-1997. Y2K compliance costs incurred through December 31, 1999
were about $388 million. Our annual Y2K costs relating to information
technology have represented and are expected through year-end 2000 to represent
about 10% of our total annual information technology budget.
EURO CONVERSION
The increased price transparency that may result from the use of a single
currency in the eleven participating countries that have adopted the euro as
their common legal currency could affect the ability of Ford and other
companies to price their products differently in the various European markets.
A possible result of this is price harmonization at lower average prices for
products sold in some markets. Nevertheless, differences in national value
added tax regimes, national vehicle registration taxes, customer preferences
for equipment and options, sizes and types of vehicles and engines, and
trade-in values may reduce the potential for price harmonization. In the year
since the euro's introduction, it is uncertain what affect, if any, the euro
has had on the pricing of automobiles. Other factors, such as intense
competition in the European markets and consumer preferences, also affect how
our vehicles are priced. It is impossible to determine how the introduction of
the euro has impacted pricing relative to these other factors.
Introduction of the euro may reduce the amount of Ford's exposure to
changes in foreign exchange rates, due to the netting effect of having imports
and exports denominated in a single currency as opposed to the various legacy
currencies. As a result, the complexity of our foreign exchange hedging has
been reduced. Conversely, because there will be less diversity in our exposure
to foreign currencies, movements in the euro's value could have a more
pronounced effect, whether positive or negative, on Ford.
We have budgeted up to $50 million (including contingencies) for the
period from 1997 through 2003 to cover the worldwide costs of preparing for and
making operational changes to accommodate introduction of the euro. Certain of
our business functions introduced euro-capability as of January 1, 1999,
including, for example, systems for making and receiving certain payments,
pricing and invoicing. Other business functions will be converted for the euro
by the end of the transition period (December 31, 2001), but may be converted
earlier where operationally efficient or cost-effective, or to meet customer
needs.
-47-
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
NEW ACCOUNTING STANDARDS AND CHANGES
New Standards
- -------------
In the first quarter of 1999, we adopted Statement of Position ("SOP")
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use". This SOP requires entities to capitalize certain internal-use
software costs once certain criteria are met. Our practice has been to expense
the costs of obtaining or developing internal-use software as incurred.
Adoption of this standard did not have a material effect on earnings.
Statement of Financial Accounting Standards No. 133 ("SFAS 133"),
"Accounting for Derivative Instruments and Hedging Activities," was issued by
the Financial Accounting Standards Board in June 1998. This Statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires recognition of all derivatives as either
assets or liabilities on the balance sheet and measurement of those instruments
at fair value. If certain conditions are met, a derivative may be designated
specifically as (a) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment referred to as
a fair value hedge, (b) a hedge of the exposure to variability in cash flows of
a forecasted transaction (a cash flow hedge), or (c) a hedge of the foreign
currency exposure of a net investment in a foreign operation, an unrecognized
firm commitment, an available-for-sale security, or a forecasted transaction.
We anticipate having each of these types of hedges, and we will comply with the
requirements of SFAS 133 when we adopt it. We expect to adopt SFAS 133
beginning January 1, 2001. We have not yet determined the effect of adopting
SFAS 133.
Accounting Changes
- ------------------
Beginning in 1999, we changed from an accelerated method to the
units-of-production method for special tooling amortization. This change was
made to recognize that special tooling retains its value more uniformly over
time and more closely aligns tooling amortization with vehicle production
volumes, providing a better matching of costs and revenues.
Also beginning in 1999, we modified our plant and equipment retirement
policy to reflect gains and losses in income in the year of retirement.
Previously, the cost of retired assets, net of salvage proceeds, was charged
to accumulated depreciation. The change in accounting principle for plant and
equipment retirement was made to better reflect the results of asset
disposal/sale decisions.
Adoption of these changes did not have a material effect on our financial
statements.
-48-
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
OUTLOOK
Industry Sales Volumes
- ----------------------
Our outlook for car and truck (including heavy trucks) industry sales in
2000 in our major markets is as follows:
United States - approximately 17 million units, compared with the 17.4
million units sold in 1999
Europe - approximately 18 million units, compared with the 18.3
million units sold in 1999
(both figures based on 19 markets)
Brazil - between 1.3 and 1.5 million units, compared with the
1.3 million units sold in 1999
Australia - slightly lower than the 787,000 units sold in 1999
2000 Financial Milestones
- -------------------------
We have set and communicated certain financial milestones for 2000. While
we hope to achieve these goals, they should not be interpreted as projections,
expectations or forecasts of 2000 results. The financial milestones for 2000
are as follows:
Full-Year 2000 Milestone
--------------------------------------------------------------
Total Company
-------------
o Total Shareholder
Returns Top quartile of S&P 500 over time
o Revenue Grow $5 billion
Automotive Sector
-----------------
o North America Record earnings
o Europe Improve results
o South America Improve results
o Rest of World Improve results
o Total Costs Reduce $1 billion (at constant volume and mix)
o Capital Spending $9 billion
o Visteon Achieve independence
Financial Services Sector
-------------------------
o Ford Credit Grow earnings 10% & improve returns
o Hertz Record earnings (ninth consecutive year of increased earnings)
-49-
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Risk Factors
- ------------
Statements included or incorporated by reference herein may constitute
"forward looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements involve a number of risks,
uncertainties, and other factors that could cause actual results to differ
materially from those stated, including, without limitation: greater price
competition in the U.S. and Europe resulting from currency fluctuations,
industry overcapacity or other factors; a significant decline in industry
sales, particularly in the U.S. or Europe, resulting from slowing economic
growth; currency or commodity price fluctuations; further economic difficulties
in South America or Asia; higher fuel prices; a market shift from truck sales
in the U.S.; lower-than-anticipated residual values for leased vehicles; labor
or other constraints on our ability to restructure our business; increased
safety or emissions regulation resulting in higher costs and/or sales
restrictions; work stoppages at key Ford or supplier facilities; and the
discovery of defects in vehicles resulting in recall campaigns, increased
warranty costs or litigation.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
- --------------------------------------------------------------------
Ford is exposed to a variety of market risks, including the effects of
changes in interest rates, foreign currency exchange rates and commodity prices.
o To ensure funding over business and economic cycles and to minimize
overall borrowing costs, our Financial Services sector issues debt
and other payables with various maturity and interest rate structures.
The maturity and interest rate structures frequently differ from the
invested assets. Exposures to fluctuations in interest rates are
created by the difference in the interest rate structure of assets
and liabilities.
o Our Automotive sector frequently has expenditures and receipts
denominated in foreign currencies, including the following: purchases
and sales of finished vehicles and production parts; debt and other
payables; subsidiary dividends; and investments in subsidiaries.
These expenditures and receipts create exposures to changes in
exchange rates.
o We also are exposed to changes in prices of commodities used in our
Automotive sector.
We monitor and manage these financial exposures as an integral part of our
overall risk management program, which recognizes the unpredictability of
financial markets and seeks to reduce the potentially adverse effect on our
results. The effect of changes in exchange rates, interest rates and commodity
prices on our earnings generally has been small relative to other factors that
also affect earnings, such as unit sales and operating margins. For more
information on these financial exposures, see Note 1 (pages FS-9 and FS-10) and
Note 15 (page FS-25) of our Notes to Financial Statements.
Our interest rate risk, foreign currency exchange rate risk and commodity
risk are quantified below.
-50-
Item 7A. Quantitative and Qualitative Disclosures About Market Risk (Continued)
Interest Rate Risk -- We use interest rate swaps (including those
with a currency swap component) primarily at Ford Credit to mitigate the
effects of interest rate fluctuations on earnings by changing the
characteristics of assets and liabilities to match each other. All
interest rate swap agreements are designated to hedge either a specific
balance sheet item or pool of items. We use a model to assess the
sensitivity of our earnings to changes in market interest rates. The model
recalculates earnings by adjusting rates associated with variable rate
instruments on the repricing date and by adjusting rates on fixed rate
instruments scheduled to mature in the subsequent twelve months, effective
on their scheduled maturity date. Interest income and interest expense are
then recalculated based on the revised rates. Assuming an instantaneous
increase or decrease of one percentage point in interest rates applied to
all financial instruments and leased assets, our after-tax earnings would
change by $29 million over a 12-month period.
Foreign Currency Risk -- We use derivative financial instruments to
hedge assets, liabilities and firm commitments denominated in foreign
currencies. Our hedging policy is defensive, based on clearly defined
guidelines. Speculative actions are not permitted. We do not use complex
derivative instruments such as interest only or principal only derivatives.
We use a value-at-risk ("VAR") analysis to evaluate our exposure to
changes in foreign currency exchange rates. The primary assumptions used
in the VAR analysis are as follows:
o A Monte Carlo simulation model is used to calculate changes in the
value of currency derivative instruments (forwards and options) and
all significant underlying exposures. The VAR includes an 18-month
exposure and derivative hedging horizon and a one-month holding
period.
o The VAR analysis calculates the potential risk, within a 99%
confidence level, on firm commitment exposures (cash flows),
including the effects of foreign currency derivatives. (Translation
exposures are not included in the VAR analysis). The Monte Carlo
simulation model uses historical volatility and correlation estimates
of the underlying assets to produce a large number of future price
scenarios which have a lognormal distribution.
o Estimates of correlations and volatilities are drawn primarily from
the JP Morgan RiskMetricsTM datasets.
Based on our overall currency exposure (including derivative positions)
during 1999, the risk during 1999 to our pre-tax cash flow from currency
movements was on average less than $225 million, with a high of $250
million and a low of $175 million. At December 31, 1999, currency
movements are projected to affect our pre-tax cash flow over the next 18
months by less than $175 million, within a 99% confidence level. Compared
with our projection at December 31, 1998, the 1999 VAR amount is
approximately $150 million lower, primarily because of significantly
reduced currency exchange rate volatility and higher levels of hedging,
partially offset by the inclusion of Volvo currency exposures and hedges.
Commodity Price Risk -- Ford enters into commodity forward and option
contracts. Such contracts are executed to offset Ford's exposure to the
potential change in prices mainly for various non-ferrous metals used in
the manufacturing of automotive components. The fair value liability of
such contracts, excluding the underlying exposures, as of December 31 1999
and 1998 was approximately $223 and $(48) million, respectively. The
potential change in the fair value of commodity forward and option
contracts, assuming a 10% change in the underlying commodity price, would
be approximately $300 and $69 million at December 31, 1999 and 1998,
respectively. This amount excludes the offsetting impact of the price
change in the physical purchase of the underlying commodities.
-51-
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
Our Financial Statements, the accompanying Notes and the Report of
Independent Accountants that are filed as part of this Report are listed under
Item 14. "Exhibits, Financial Statement Schedules, and Reports on Form 8-K" and
are set forth on pages FS-1 through FS-32 immediately following the signature
pages of this Report.
Selected quarterly financial data for us and our consolidated subsidiaries
for 1999 and 1998 is in Note 19 of our Notes to Financial Statements.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
- --------------------------------------------------------------------------
Not required.
PART III
Item 10. Directors and Executive Officers of Ford
- --------------------------------------------------
The information required by Item 10 regarding our directors is
incorporated by reference from the information under the captions "Election of
Directors" and "Management Stock Ownership" in our Proxy Statement. The
information required by Item 10 regarding our executive officers appears as
Item 4A under Part I of this Report.
Item 11. Executive Compensation
- --------------------------------
The information required by Item 11 is incorporated by reference from the
information under the following captions in our Proxy Statement: "Compensation
of Directors", "Compensation and Option Committee Report on Executive
Compensation", "Compensation of Executive Officers", "Stock Options",
"Performance Stock Rights and Restricted Stock Units", "Stock Performance
Graphs" and "Retirement Plans".
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
The information required by Item 12 is incorporated by reference from the
information under the caption "Management Stock Ownership" in our Proxy
Statement.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
The information required by Item 13 is incorporated by reference from the
information under the caption "Certain Relationships and Related Transactions"
in our Proxy Statement.
-52-
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- --------------------------------------------------------------------------
(a) 1. Financial Statements - Ford Motor Company and Subsidiaries
- -------------------------------------------------------------------
Consolidated Statement of Income for the years ended December 31, 1999,
1998, and 1997.
Consolidated Balance Sheet at December 31, 1999 and 1998.
Consolidated Statement of Cash Flows for the years ended December 31,
1999, 1998, and 1997.
Consolidated Statement of Stockholders' Equity for the years ended
December 31, 1999, 1998, and 1997.
Notes to Financial Statements
Report of Independent Accountants
The Consolidated Financial Statements, the Notes to Financial
Statements and the Report of Independent Accountants listed above are filed as
part of this Report and are set forth on pages FS-1 through FS-32 immediately
following the signatures pages of this Report.
(a) 2. Financial Statement Schedules
- --------------------------------------
Designation Description
- ----------- -----------
Supplemental
Schedule Condensed Financial Information of Subsidiary
Report of Independent Accountants
on Supplemental Schedule
The Financial Statement Schedule and the Report of Independent
Accountants on Supplemental Schedule listed above are filed as part of this
Report and are set forth on pages FSS-1 and FSS-2 immediately following page
FS-32. The schedules not filed are omitted because the information required to
be contained in them is disclosed elsewhere in the Financial Statements or the
amounts involved are not sufficient to require submission.
-53-
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
(a) 3. Exhibits
- -----------------
Designation Description Method of Filing
- ----------- ----------- ----------------
Exhibit 3-A Restated Certificate of Incorporation, Filed as Exhibit 3.1 to Ford's Quarterly
dated April 9, 1998. Report on Form 10-Q for the quarter
ended March 31, 1998.*
Exhibit 3-B By-Laws as amended Filed as Exhibit 3-B to Ford's Annual
through January 1, 1999. Report on Form 10-K for the year
ended December 31, 1998.*
Exhibit 4 Form of Deposit Agreement dated as of Filed as Exhibit 4-E to Ford's
October 29, 1992 among Ford, Registration Statement No. 33-53092.*
Chemical Bank, as Depositary,
and the holders from time to time of
Depositary Shares, each representing
1/2,000 of a share of Ford's
Series B Cumulative Preferred Stock.
Exhibit 10-A Amended and Restated Profit Filed as Exhibit 10-A to the Registrant's
Maintenance Agreement, dated as of Annual Report on Form 10-K for the
January 1, 1999, between Ford year ended December 31, 1998.*
and Ford Credit.
Exhibit 10-B 1985 Stock Option Plan.** Filed as Exhibit 10-D to Ford's
Annual Report on Form 10-K for the
year ended December 31, 1985.*
Exhibit 10-B-1 Amendment dated as of March 8, 1990 Filed as Exhibit 10-C-1 to Ford's
to 1985 Stock Option Plan.** Annual Report on Form 10-K for
the year ended December 31, 1989.*
Exhibit 10-B-2 Amendment to 1985 Stock Option Plan, Filed as Exhibit 4.C to Amendment No.
effective as of January 8, 1998.** 1 to Ford's Registration Statement
No. 33-9722.*
Exhibit 10-C Executive Separation Allowance Plan Filed as Exhibit 10-D to Ford's
as amended through December 9, 1993 Annual Report on Form 10-K for the
for separations on or after January 1, 1981.** year ended December 31, 1994.*
Exhibit 10-D Description of Ford practices regarding Filed as Exhibit 10-I to Ford's
club memberships for executives.** Annual Report on Form 10-K for the
year ended December 31, 1981.*
-54-
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
Designation Description Method of Filing
- ----------- ----------- ----------------
Exhibit 10-E Description of Ford practices regarding Filed as Exhibit 10-J to Ford's
travel expenses of spouses of certain Annual Report on Form 10-K for the
executives.** year ended December 31, 1980.*
Exhibit 10-F Deferred Compensation Plan for Filed as Exhibit 10-H-1 to Ford's
Non-Employee Directors, as amended Annual Report on Form 10-K for the
on July 11, 1991.** year ended December 31, 1991.*
Exhibit 10-F-1 Amendments to Deferred Compensation Plan Filed as Exhibit 10-G-1 to Ford's
for Non-Employee Directors, effective as of Annual Report on Form 10-K for the
January 1, 1996.** year ended December 31, 1995.*
Exhibit 10-F-2 Amendment to Deferred Compensation Plan Filed as Exhibit 10-G-2 to Ford's
for Non-Employee Directors, effective as of Annual Report on Form 10-K for the
November 14, 1996.** year ended December 31, 1996.*
Exhibit 10-G Benefit Equalization Plan, as Filed as Exhibit 10-H to Ford's
amended as of January 1, 1989.** Annual Report on Form 10-K for the
year ended December 31, 1994.*
Exhibit 10-G-1 Description of Amendments to Benefit Filed as Exhibit 10-H-1 to Ford's
Equalization Plan, adopted January 11, Annual Report on Form 10-K for the
1996 and January 25, 1996.** year ended December 31, 1995.*
Exhibit 10-H Description of financial counseling Filed as Exhibit 10-N to Ford's
services provided to certain executives.** Annual Report on Form 10-K for the
year ended December 31, 1983.*
Exhibit 10-I Supplemental Executive Retirement Plan, Filed as Exhibit 10-K to Ford's
as restated and incorporating amendments Annual Report on Form 10-K for the
through December 12, 1995.** year ended December 31, 1995.*
Exhibit 10-J Restricted Stock Plan for Non-Employee Filed as Exhibit 10-P to Ford's
Directors adopted by the Board of Annual Report on Form 10-K for the
Directors on November 10, 1988, year ended December 31, 1988.*
and approved by the stockholders at
the 1989 Annual Meeting.**
-55-
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
Designation Description Method of Filing
- ----------- ----------- ----------------
Exhibit 10-J-1 Amendment to Restricted Stock Plan for Filed as Exhibit 10.1 to Ford's
Non-Employee Directors, effective as of Quarterly Report on Form 10-Q for the
August 1, 1996.** quarter ended September 30, 1996.*
Exhibit 10-K 1990 Long-Term Incentive Plan, Filed as Exhibit 10-R to Ford's
amended as of June 1, 1990.** Annual Report on Form 10-K for the
year ended December 31, 1990.*
Exhibit 10-K-1 Amendment to 1990 Long-Term Incentive Filed as Exhibit 10-P-1 to Ford's
Plan, effective as of October 1, 1990.** Annual Report on Form 10-K for the
year ended December 31, 1991.*
Exhibit 10-K-2 Amendment to 1990 Long-Term Incentive Filed as Exhibit 10.2 to Ford's
Plan, effective as of March 8, 1995.** Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995.*
Exhibit 10-K-3 Amendment to 1990 Long-Term Filed as Exhibit 10-M-3 to Ford's
Incentive Plan, effective as of Annual Report on Form 10-K for the
October 1, 1997.** year ended December 31, 1997.*
Exhibit 10-K-4 Amendment to 1990 Long-Term Filed as Exhibit 10-M-4 to Ford's
Incentive Plan, effective as of Annual Report on Form 10-K for the
January 1, 1998.** year ended December 31, 1997.*
Exhibit 10-L Description of Matching Gift Program for Filed as Exhibit 10-Q to Ford's
Non-Employee Directors.** Annual Report on Form 10-K for the
year ended December 31, 1991.*
Exhibit 10-M Non-Employee Directors Life Insurance Filed as Exhibit 10-O to Ford's
and Optional Retirement Plan Annual Report on Form 10-K for the
(as amended as of January 1, 1993).** year ended December 31, 1994.*
Exhibit 10-N Description of Non-Employee Directors Filed as Exhibit 10-S to Ford's
Accidental Death, Dismemberment and Annual Report on Form 10-K for the
Permanent Total Disablement Indemnity.** year ended December 31, 1992.*
Exhibit 10-O Agreement dated December 10, 1992 Filed as Exhibit 10-T to Ford's
between Ford and William C. Ford.** Annual Report on Form 10-K for the
year ended December 31, 1992.*
Exhibit 10-P Support Agreement dated as of October 1, Filed as Exhibit 10-T to Ford's
1993 between Ford and FCE Bank. Annual Report on Form 10-K for the
year ended December 31, 1993.*
Exhibit 10-P-1 Amendment No. 1 dated as of November Filed as Exhibit 10-R-1 to Ford's
15, 1995 to Support Agreement between Annual Report on Form 10-K for the
Ford and FCE Bank. year ended December 31, 1995.*
-56-
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
Designation Description Method of Filing
- ----------- ----------- ----------------
Exhibit 10-Q Select Retirement Plan Filed as Exhibit 10-S to Ford's
adopted on June 9, 1994.** Annual Report on Form 10-K for the
year ended December 31, 1996.*
Exhibit 10-R Deferred Compensation Plan, Filed with this Report.
as amended and restated as of
January 1, 2000.**
Exhibit 10-S Description of Amendments to Supplemental Filed as Exhibit 10-U to Ford's
Executive Retirement Plan and Executive Annual Report on Form 10-K for the
Separation Allowance Plan, adopted year ended December 31, 1995.*
January 25, 1996.**
Exhibit 10-S-2 Description of Amendment to Supplemental Filed as Exhibit 10-U-2 to Ford's
Executive Retirement Plan and Executive Annual Report on Form 10-K for the
Separation Allowance Plan, effective as of year ended December 31, 1996.*
July 1, 1996.**
Exhibit 10-S-3 Description of Amendment to Supplemental Filed as Exhibit 10-U-3 to Ford's
Executive Retirement Plan adopted Annual Report on Form 10-K for
September 10, 1998. ** the year ended December 31, 1998.*
Exhibit 10-T Annual Incentive Compensation Plan, Filed with this Report.
as amended and restated as of
January 1, 2000.**
Exhibit 10-U 1998 Long-Term Incentive Plan, Filed as Exhibit 10-W to Ford's
effective as of January 1, 1998.** Annual Report on Form 10-K for the
year ended December 31, 1997.*
Exhibit 10-U-1 Amendment to 1998 Long-Term Incentive Filed as Exhibit 10-W-1 to Ford's
Plan, effective as of January 1, 1999.** Annual Report on Form 10-K for
the year ended December 31, 1998.*
Exhibit 10-U-2 Amendment to 1998 Long-Term Incentive Filed with this Report.
Plan, effective as of March 10, 2000.**
Exhibit 10-V Agreement dated January 13, 1999 Filed as Exhibit 10-X to Ford's
between Ford and Edsel B. Ford II.** Annual Report on Form 10-K for
the year ended December 31, 1998.*
Exhibit 12 Computation of Ratio of Earnings to Filed with this Report.
Combined Fixed Charges and Preferred
Stock Dividends.
Exhibit 21 List of Subsidiaries of Ford Filed with this Report.
as of March 15, 2000.
-57-
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
Designation Description Method of Filing
- ----------- ----------- ----------------
Exhibit 23 Consent of Independent Certified Public Filed with this Report.
Accountants.
Exhibit 24 Powers of Attorney. Filed with this Report.
- -------------------------
* Incorporated by reference as an exhibit to this Report (file number
reference 1-3950, unless otherwise indicated)
** Management contract or compensatory plan or arrangement
Instruments defining the rights of holders of certain issues of long-term
debt of Ford and of certain consolidated subsidiaries and of any unconsolidated
subsidiary, for which financial statements are required to be filed with this
Report, have not been filed as exhibits to this Report because the authorized
principal amount of any one of such issues does not exceed 10% of the total
assets of Ford and our subsidiaries on a consolidated basis. Ford agrees to
furnish a copy of each of such instruments to the Commission upon request.
(b) Reports on Form 8-K
- ----------------------------
Ford filed the following Current Reports on Form 8-K during the quarter
ended December 31, 1999:
Current Report on Form 8-K dated October 18, 1999 included information
relating to Ford's third quarter 1999 financial results.
-58-
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, Ford has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FORD MOTOR COMPANY
By: Henry D. G. Wallace*
------------------------
(Henry D. G. Wallace)
Group Vice President and
Chief Financial Officer
Date: March 16, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of Ford and in
the capacities on the date indicated.
Signature Title Date
--------- ----- ----
William Clay Ford, Jr.* Director, Chairman of the March 16, 2000
------------------------ Board and Chairman of the
(William Clay Ford, Jr.) Environmental and Public
Policy Committee, the Finance
Committee and the Organization
Review and Nominating Committee
Jacques A. Nasser* Director and President March 16, 2000
------------------------ and Chief Executive Officer
(Jacques A. Nasser) (principal executive officer)
Michael D. Dingman* Director and
------------------------ Chairman of the March 16, 2000
(Michael D. Dingman) Compensation and
Option Committee
Edsel B. Ford II* Director March 16, 2000
------------------------
(Edsel B. Ford II)
William Clay Ford* Director March 16, 2000
------------------------
(William Clay Ford)
Irvine O. Hockaday, Jr.* Director and March 16, 2000
------------------------ Chairman of the
(Irvine O. Hockaday, Jr.) Audit Committee
-59-
Signature Title Date
--------- ----- ----
Marie-Josee Kravis* Director March 16, 2000
------------------------
Marie-Josee Kravis)
Ellen R. Marram* Director March 16, 2000
------------------------
(Ellen R. Marram)
Homer A Neal* Director March 16, 2000
------------------------
(Homer A. Neal)
Jorma J. Ollila* Director March 16, 2000
------------------------
(Jorma J. Ollila)
Carl E. Reichardt* Director March 16, 2000
------------------------
(Carl E. Reichardt)
Robert E. Rubin* Director March 16, 2000
------------------------
(Robert E. Rubin)
John L. Thornton* Director March 16, 2000
------------------------
(John L. Thornton)
Henry D. G. Wallace* Group Vice President and March 16, 2000
------------------------ Chief Financial Officer
(Henry D. G. Wallace) (principal financial officer)
William A. Swift* Vice President and Controller March 16, 2000
------------------------ (principal accounting officer)
(William A. Swift)
*By: /s/ Peter Sherry, Jr.
---------------------
(Peter Sherry, Jr.)
Attorney-in-Fact
-60-
Ford Motor Company and Subsidiaries
-----------------------------------
HIGHLIGHTS
----------
Fourth Quarter Full Year
---------------------------- ---------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
(unaudited)
Worldwide vehicle unit sales of
cars and trucks (in thousands)
- - North America 1,280 1,197 4,787 4,370
- - Outside North America 639 617 2,433 2,453
----- ----- ----- -----
Total 1,919 1,814 7,220 6,823
===== ===== ===== =====
Sales and revenues (in millions)
- - Automotive $ 37,781 $ 32,204 $ 136,973 $ 119,083
- - Financial Services 6,637 5,699 25,585 25,333
--------- --------- --------- ---------
Total $ 44,418 $ 37,903 $ 162,558 $ 144,416
========= ========= ========= =========
Net income (in millions)
- - Automotive $ 1,449 $ 820 $ 5,721 $ 4,752
- - Financial Services (excl. The Associates) 357 223 1,516 1,187
- - The Associates - - - 177
- - Gain on spin-off of The Associates - - - 15,955
--------- --------- --------- ---------
Total $ 1,806 $ 1,043 $ 7,237 $ 22,071
========= ========= ========= =========
Capital expenditures (in millions)
- - Automotive $ 2,921 $ 2,445 $ 7,945 $ 8,113
- - Financial Services 155 106 590 504
--------- --------- --------- ---------
Total $ 3,076 $ 2,551 $ 8,535 $ 8,617
========= ========= ========= =========
Automotive capital expenditures as a
percentage of sales 7.7% 7.6% 5.8% 6.8%
Stockholders' equity at December 31
- - Total (in millions) $ 27,537 $ 23,409 $ 27,537 $ 23,409
- - After-tax return on Common and
Class B stockholders' equity 26.6% 17.8% 28.1% 25.4%
Automotive net cash at December 31
(in millions)
- - Cash and marketable securities $ 23,585 $ 23,805 $ 23,585 $ 23,805
- - Debt 12,144 9,834 12,144 9,834
--------- --------- --------- ---------
Automotive net cash $ 11,441 $ 13,971 $ 11,441 $ 13,971
========= ========= ========= =========
After-tax return on sales
- - North American Automotive 5.8% 4.5% 6.2% 5.3%
- - Total Automotive 3.9% 2.6% 4.2% 4.0%
Shares of Common and Class B Stock
(in millions)
- - Average number outstanding 1,207 1,210 1,210 1,211
- - Number outstanding at December 31 1,207 1,209 1,207 1,209
Common Stock price (per share)
(adjusted to reflect The Associates
spin-off)
- - High $ 54-7/8 $59-7/8 $ 67-7/8 $61-7/16
- - Low 48-1/2 38-13/16 46-1/4 28-15/32
AMOUNTS PER SHARE OF COMMON AND CLASS B
STOCK AFTER PREFERRED STOCK DIVIDENDS
Income assuming dilution
- - Automotive $ 1.18 $ 0.66 $ 4.63 $ 3.76
- - Financial Services (excl. The Associates) 0.29 0.18 1.23 0.96
- - The Associates - - - 0.14
- - Gain on spin-off of The Associates - - - 12.90
--------- --------- --------- ---------
Total $ 1.47 $ 0.84 $ 5.86 $ 17.76
========= ========= ========= =========
Cash dividends $ 0.50 $ 0.46 $ 1.88 $ 1.72
FS-1
Ford Motor Company and Subsidiaries
VEHICLE UNIT SALES
------------------
For the Periods Ended December 31, 1999 and 1998
(in thousands)
Fourth Quarter Full Year
------------------------ --------------------------
1999 1998 1999 1998
-------- -------- -------- --------
(unaudited) (unaudited)
North America
United States
Cars 497 428 1,725 1,563
Trucks 646 654 2,660 2,425
----- ----- ----- -----
Total United States 1,143 1,082 4,385 3,988
Canada 100 87 288 279
Mexico 37 28 114 103
----- ----- ----- -----
Total North America 1,280 1,197 4,787 4,370
Europe
Britain 122 102 518 498
Germany 80 143 353 444
Italy 59 56 209 205
Spain 45 46 180 155
France 44 54 172 171
Other countries 175 95 528 377
----- ----- ----- -----
Total Europe 525 496 1,960 1,850
Other international
Australia 30 35 125 133
Brazil 26 34 117 178
Argentina 16 16 60 97
Taiwan 11 12 56 77
Japan 8 5 32 25
Other countries 23 19 83 93
----- ----- ----- -----
Total other international 114 121 473 603
----- ----- ------ -----
Total worldwide vehicle unit sales 1,919 1,814 7,220 6,823
===== ===== ===== =====
Vehicle unit sales generally are reported worldwide on a "where sold" basis and
include sales of all Ford-badged units, as well as units manufactured by Ford
and sold to other manufacturers.
Prior periods were restated to correct reported unit sales.
FS-2
Ford Motor Company and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
--------------------------------
For the Years Ended December 31, 1999, 1998, and 1997
(in millions, except amounts per share)
1999 1998 1997
------------ ------------ ---------
AUTOMOTIVE
Sales (Note 1) $136,973 $119,083 $122,935
Costs and expenses (Notes 1 and 16)
Costs of sales 119,046 103,905 107,994
Selling, administrative and other expenses 9,548 8,493 7,995
-------- -------- --------
Total costs and expenses 128,594 112,398 115,989
Operating income 8,379 6,685 6,946
Interest income 1,428 1,331 1,116
Interest expense 1,397 829 788
-------- -------- --------
Net interest income 31 502 328
Equity in net income/(loss) of affiliated companies (Note 1) 82 (38) (88)
Net expense from transactions with
Financial Services (Note 1) (45) (191) (104)
-------- -------- --------
Income before income taxes - Automotive 8,447 6,958 7,082
FINANCIAL SERVICES
Revenues (Note 1) 25,585 25,333 30,692
Costs and expenses (Note 1)
Interest expense 7,679 8,036 9,712
Depreciation 9,254 8,589 7,645
Operating and other expenses 4,653 4,618 6,621
Provision for credit and insurance losses 1,465 1,798 3,230
-------- -------- --------
Total costs and expenses 23,051 23,041 27,208
Net revenue from transactions with Automotive (Note 1) 45 191 104
Gain on spin-off of The Associates (Note 16) - 15,955 -
Gain on sale of Common Stock of a subsidiary (Note 16) - - 269
-------- -------- --------
Income before income taxes - Financial Services 2,579 18,438 3,857
-------- -------- --------
TOTAL COMPANY
Income before income taxes 11,026 25,396 10,939
Provision for income taxes (Note 7) 3,670 3,176 3,741
-------- -------- --------
Income before minority interests 7,356 22,220 7,198
Minority interests in net income of subsidiaries 119 149 278
-------- -------- --------
Net income $ 7,237 $ 22,071 $ 6,920
======== ======== ========
Income attributable to Common and Class B Stock
after Preferred Stock dividends (Note 1) $ 7,222 $ 21,964 $ 6,866
Average number of shares of Common and Class B
Stock outstanding (Note 1) 1,210 1,211 1,195
AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK (Note 1)
Basic income $ 5.99 $ 18.17 $ 5.75
Diluted income $ 5.86 $ 17.76 $ 5.62
Cash dividends $ 1.88 $ 1.72 $ 1.645
The accompanying notes are part of the financial statements.
Prior period costs of sales and selling, administrative and other expenses were
reclassified.
FS-3
Ford Motor Company and Subsidiaries
CONSOLIDATED BALANCE SHEET
--------------------------
As of December 31, 1999 and 1998
(in millions)
1999 1998
--------------- ----------------
ASSETS
Automotive
Cash and cash equivalents $ 4,642 $ 3,685
Marketable securities (Note 2) 18,943 20,120
-------- --------
Total cash and marketable securities 23,585 23,805
Receivables 3,769 2,604
Inventories (Note 5) 6,435 5,656
Deferred income taxes 3,872 3,239
Other current assets (Note 1) 4,126 3,405
Current receivable from Financial Services (Note 1) 2,304 0
-------- --------
Total current assets 44,091 38,709
Equity in net assets of affiliated companies (Note 1) 2,744 2,401
Net property (Note 6) 42,317 37,320
Deferred income taxes 2,816 3,175
Other assets (Note 1) 13,213 7,139
-------- --------
Total Automotive assets 105,181 88,744
Financial Services
Cash and cash equivalents 1,588 1,151
Investments in securities (Note 2) 733 968
Finance receivables (Note 3) 113,298 97,176
Net investment in operating leases (Note 4) 42,471 41,173
Other assets 11,123 7,445
Receivable from Automotive (Note 1) 1,835 888
-------- --------
Total Financial Services assets 171,048 148,801
-------- --------
Total assets $276,229 $237,545
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Automotive
Trade payables $ 14,450 $ 13,368
Other payables 4,156 2,755
Accrued liabilities (Note 8) 19,321 16,925
Income taxes payable 1,862 1,404
Debt payable within one year (Note 10) 1,602 1,121
Current payable to Financial Services (Note 1) 0 70
-------- --------
Total current liabilities 41,391 35,643
Long-term debt (Note 10) 10,542 8,713
Other liabilities (Note 8) 33,247 30,133
Deferred income taxes 1,376 751
Payable to Financial Services (Note 1) 1,835 818
-------- --------
Total Automotive liabilities 88,391 76,058
Financial Services
Payables 3,550 3,555
Debt (Note 10) 139,919 122,324
Deferred income taxes 7,078 5,488
Other liabilities and deferred income 6,775 6,034
Payable to Automotive (Note 1) 2,304 0
-------- --------
Total Financial Services liabilities 159,626 137,401
Company-obligated mandatorily redeemable preferred securities of a subsidiary
trust holding solely junior subordinated debentures of the Company (Note 1) 675 677
Stockholders' equity
Capital stock (Notes 11 and 12)
Preferred Stock, par value $1.00 per share (aggregate liquidation preference
of $177 million) * *
Common Stock, par value $1.00 per share (1,151 million shares issued) 1,151 1,151
Class B Stock, par value $1.00 per share (71 million shares issued) 71 71
Capital in excess of par value of stock 5,049 5,283
Accumulated other comprehensive income (1,923) (1,670)
ESOP loan and treasury stock (1,417) (1,085)
Earnings retained for use in business 24,606 19,659
-------- --------
Total stockholders' equity 27,537 23,409
-------- --------
Total liabilities and stockholders' equity $276,229 $237,545
======== ========
- - - - -
*Less than $1 million
The accompanying notes are part of the financial statements.
FS-4
Ford Motor Company and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
For the Years Ended December 31, 1999, 1998, and 1997
(in millions)
1999 1998 1997
--------------------------- --------------------------- ---------------------------
Financial Financial Financial
Automotive Services Automotive Services Automotive Services
------------ ------------ ------------ ------------ ------------ ------------
Cash and cash equivalents at January 1 $ 3,685 $ 1,151 $ 6,316 $ 1,618 $ 3,578 $ 3,689
Cash flows from operating activities
(Note 17) 17,271 12,540 9,622 13,478 13,984 13,650
Cash flows from investing activities
Capital expenditures (7,945) (590) (8,113) (504) (8,142) (575)
Purchase of leased assets - - (110) - (332) -
Acquisitions of other companies
(Note 16) (6,342) (144) - (344) - (40)
Acquisitions of receivables and lease
investments - (80,422) - (78,863) - (117,895)
Collections of receivables and lease
investments
investments - 46,646 - 49,303 - 86,842
Net acquisitions of daily rental vehicles - (1,739) - (1,790) - (958)
Purchases of securities (3,609) (900) (758) (2,102) (43) (3,067)
Sales and maturities of securities 2,352 1,100 590 2,271 13 3,520
Proceeds from sales of receivables and
lease investments
lease investments - 9,931 - 8,413 - 5,197
Net investing activity with
Financial Services
Financial Services 1,329 - 642 - 258 -
Other (68) 119 (468) (463) (285) (569)
------- ------- ------- ------- ------- -------
Net cash used in investing activities (14,283) (25,999) (8,217) (24,079) (8,531) (27,545)
Cash flows from financing activities
Cash dividends
Cash dividends (2,290) - (5,348) - (2,020) -
Issuance of Common Stock 336 - 157 - 310 -
Issuance of Common Stock of a
subsidiary (Note 16) - - - - - 453
Purchase of Ford treasury stock (707) - (669) - (15) -
Preferred Stock - Series B repurchase,
Series A redemption - - (420) - - -
Changes in short-term debt 64 5,547 497 7,475 (430) 6,210
Proceeds from issuance of other debt 3,428 37,184 2,403 21,776 1,100 22,923
Principal payments on other debt (1,182) (28,672) (1,434) (16,797) (668) (18,215)
Net financing activity with Automotive - (1,329) - (642) - (258)
Spin-off of The Associates cash - - - (508) - -
Other (254) 88 (472) (12) 16 (206)
------- ------- ------- ------- ------- -------
Net cash (used in)/provided by
financing activities
financing activities (605) 12,818 (5,286) 11,292 (1,707) 10,907
Effect of exchange rate changes on cash (69) (279) (54) 146 (119) 28
Net transactions with Automotive/
Financial Services
Financial Services (1,357) 1,357 1,304 (1,304) (889) 889
------- ------- ------- ------- ------- -------
Net (decrease)/increase in cash and
cash
equivalents
cash equivalents 957 437 (2,631) (467) 2,738 (2,071)
------- ------- ------- ------- ------- -------
Cash and cash equivalents at December 31 $ 4,642 $ 1,588 $ 3,685 $ 1,151 $ 6,316 $ 1,618
======== ======== ======== ======== ======= ========
The accompanying notes are part of the financial statements.
FS-5
Ford Motor Company and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
----------------------------------------------
For the Years Ended December 31, 1997, 1998, and 1999
(in millions)
Capital Other Comprehensive Income
in Excess -----------------------------------------
of Par Foreign Minimum Unrealized
Capital Value of Retained Currency Pension Holding
Stock Stock Earnings Translation Liability Gain/Loss Other Total
------- --------- -------- ------------- --------- ---------- --------- ---------
YEAR ENDED DECEMBER 31, 1997
- ----------------------------
Balance at beginning of year $1,189 $5,268 $20,334 $ 74 $ (267) $164 $ - $26,762
Comprehensive income
Net Income 6,920 6,920
Foreign currency translation (1,038) (1,038)
Minimum pension liability
(net of tax benefit of $36) (70) (70)
Net holding loss
(net of tax benefit of $47) (91) (91)
-------
Comprehensive Income 5,721
Common Stock issued for Series A
Preferred Stock conversion,
employee benefit plans and other 14 296 310
Treasury stock (39) (39)
Cash Dividends (2,020) (2,020)
------ ------ ------- -------- ------ ---- ------- ------
Balance at end of year $1,203 $5,564 $25,234 $ (964) $ (337) $ 73 $ (39) $30,734
====== ====== ======= ======== ====== ==== ======= =======
YEAR ENDED DECEMBER 31, 1998
- ----------------------------
Balance at beginning of year $1,203 $5,564 $25,234 $ (964) $ (337) $ 73 $ (39) $30,734
Comprehensive income
Net income (excluding gain on
spin-off of The Associates) 6,116 6,116
Gain on The Associates spin-off 15,955 15,955
Foreign currency translation (53) (53)
Minimum pension liability
(net of tax benefit of $184) (361) (361)
Net holding loss
(net of tax benefit of $3) (28) (28)
------
Comprehensive income 21,629
Common Stock issued for Series A
Preferred Stock conversion,
employee benefit plans and other 19 139 158
Preferred Stock-Series B repurchase
and Series A redemption (420) (420)
ESOP loan and treasury stock (1,046) (1,046)
The Associates spin-off to Ford
Common stockholders (22,298) (22,298)
Cash dividends (5,348) (5,348)
------ ------ ------- -------- ------ ---- ------- -------
Balance at end of year $1,222 $5,283 $19,659 $ (1,017) $ (698) $ 45 $(1,085) $23,409
====== ====== ======= ======== ====== ==== ======= =======
YEAR ENDED DECEMBER 31, 1999
- ----------------------------
Balance at beginning of year $1,222 $5,283 $19,659 $ (1,017) $ (698) $ 45 $(1,085) $23,409
Comprehensive income
Net income 7,237 7,237
Foreign currency translation (615) (615)
Minimum pension liability
(net of tax of $174) 324 324
Net holding gain
(net of tax of $20) 38 38
-------
Comprehensive income 6,984
Common Stock issued for
employee benefit plans and other (234) (234)
ESOP loan and treasury stock (332) (332)
Cash dividends (2,290) (2,290)
------ ------ ------- -------- ------ ---- ------ -------
Balance at end of year $1,222 $5,049 $24,606 $ (1,632) $ (374) $ 83 $(1,417) $27,537
====== ====== ======= ======== ====== ==== ======= =======
The accompanying notes are part of the financial statements.
FS-6
NOTE 1. Accounting Policies
- ---------------------------
Principles of Consolidation
- ---------------------------
The consolidated financial statements include all significant majority-owned
subsidiaries and reflect the operating results, assets, liabilities and cash
flows for the company's two business sectors: Automotive and Financial Services.
The assets and liabilities of the Automotive sector are classified as current
or noncurrent, and those of the Financial Services sector are unclassified.
Affiliates that are 20% to 50% owned, principally Mazda Motor Corporation and
AutoAlliance International Inc., and subsidiaries where control is expected to
be temporary, principally investments in certain dealerships, are accounted for
on an equity basis. Use of estimates and assumptions as determined by
management is required in the preparation of consolidated financial statements
in conformity with generally accepted accounting principles. Actual results
could differ from those estimates and assumptions. For purposes of Notes to
Financial Statements, "Ford" or "the company" means Ford Motor Company and its
majority-owned consolidated subsidiaries unless the context requires otherwise.
Certain amounts for prior periods are reclassified, if required, to conform
with present period presentations.
Structure of Operations
- -----------------------
The company's sectors, Automotive and Financial Services, are managed as four
primary operating segments. A segment is defined as a component with business
activity resulting in revenue and expense that has separate financial
information evaluated regularly by the company's chief operating decision maker
in determining resource allocation and assessing performance (Note 18).
The Automotive sector is comprised of Automotive and Visteon. The Automotive
segment consists of the design, manufacture, sale and service of cars and
trucks; the Visteon segment consists of the design, manufacture and sale of
automotive components and systems. The Financial Services sector primarily
includes two segments, Ford Motor Credit Company and its subsidiaries
("Ford Credit") and The Hertz Corporation and its subsidiaries ("Hertz").
The Financial Services sector also includes less significant financial services
businesses (Note 18). Ford Credit leases and finances the purchase of cars and
trucks made by Ford and other companies. It also provides inventory and capital
financing to retail car and truck dealerships. Hertz rents cars and trucks and
industrial and construction equipment. Both Ford Credit and Hertz also have
insurance operations related to their businesses.
Intersector transactions represent principally transactions occurring in the
ordinary course of business, borrowings and related transactions between
entities in the Financial Services and Automotive sectors, and interest and
other support under special vehicle financing programs. These arrangements are
reflected in the respective business sectors. Intersegment transactions are
described in Note 18.
Revenue Recognition - Automotive Sector
- ---------------------------------------
Sales are recorded by the company when products are shipped to dealers and
other customers, except as described below. Estimated costs for approved sales
incentive programs normally are recognized as sales reductions at the time of
revenue recognition. Estimated costs for sales incentive programs approved
subsequent to the time that related sales were recorded are recognized when the
programs are approved.
Sales through dealers to certain daily rental companies where the daily rental
company has an option to require Ford to repurchase vehicles subject to certain
conditions, are recognized over the period of daily rental service in a manner
similar to lease accounting. The carrying value of these vehicles, included in
other current assets, was $2.0 billion at December 31, 1999, and $2.1 billion
at December 31, 1998.
FS-7
NOTE 1. Accounting Policies (continued)
- ---------------------------------------
Revenue Recognition - Financial Services Sector
- -----------------------------------------------
Revenue from finance receivables is recognized over the term of the receivable
using the interest method. Certain loan origination costs are deferred and
amortized, using the interest method, over the term of the related receivable
as a reduction in financing revenue. Revenue from operating leases is
recognized on a straight-line basis over the term of the lease. Initial direct
costs net of acquisition fees related to leases are deferred and amortized over
the term of the lease. Agreements between the Automotive sector operations and
certain Financial Services sector operations provide for interest supplements
and other support costs to be paid by Automotive sector operations on certain
financing and leasing transactions. The Financial Services sector recognizes
this revenue in income over the period that the related receivables and leases
are outstanding; the estimated costs of interest supplements and other support
costs are recorded as sales incentives by Automotive sector operations in the
same manner as sales incentives described above.
The accrual of interest on loans is discontinued at the time a loan is
determined to be impaired. Subsequent amounts of interest collected are
recognized in income only if full recovery of the remaining principal is
expected. Other amounts collected are generally recognized first as a reduction
of principal. Any remaining amounts are treated as a recovery.
The Financial Services sector periodically sells finance receivables through
special purpose subsidiaries, retains the servicing rights and certain other
beneficial interests, and receives a servicing fee which is recognized as
collected over the remaining term of the related sold finance receivables.
Estimated gains or losses from the sale of finance receivables are recognized
in the period in which the sale occurs. In determining the gain or loss on each
qualifying sale of finance receivables, the investment in the sold receivable
pool is allocated between the portion sold and the portion retained based on
their relative fair values at the date of sale.
Other Costs
- -----------
Advertising and sales promotion costs are expensed as incurred. Advertising
costs were $2.8 billion in 1999, $2.2 billion in 1998 and $2.3 billion in 1997.
Estimated costs related to product warranty are accrued at the time of sale.
Engineering, research and development costs are expensed as incurred and were
$7.1 billion in 1999, $6.3 billion in 1998 and $6.3 billion in 1997.
Income Per Share of Common and Class B Stock
- --------------------------------------------
Basic income per share of Common and Class B Stock is calculated by dividing
the income attributable to Common and Class B Stock by the average number of
shares of Common and Class B Stock outstanding during the applicable period,
adjusted for shares issuable under employee savings and compensation plans.
The calculation of diluted income per share of Common and Class B Stock takes
into account the effect of obligations, such as stock options, considered to be
potentially dilutive.
FS-8
NOTE 1. Accounting Policies (continued)
- ----------------------------
Income per share of Common and Class B Stock were as follows (in millions):
1999 1998 1997
-------------------- -------------------- ---------------------
Income Shares* Income Shares* Income Shares*
--------- ---------- --------- ---------- ---------- ----------
Net income $7,237 1,210 $22,071 1,211 $6,920 1,195
Preferred Stock dividend requirements (15) - (22) - (54) -
Premium on Series B Tender Offer** - - (85) - - -
Issuable and uncommitted ESOP shares - (4) - (2) - (1)
------ ----- ------- ----- ------ -----
Basic income and shares $7,222 1,206 $21,964 1,209 $6,866 1,194
Basic income per share $ 5.99 $ 18.17 $ 5.75
- ----------------------
Basic income and shares $7,222 1,206 $21,964 1,209 $6,866 1,194
Net dilutive effect of options - 27 - 28 - 20
Convertible Preferred Stock and other (1) - (1) - 8 10
------ ----- ------- ----- ------ -----
Diluted income and shares $7,221 1,233 $21,963 1,237 $6,874 1,224
Diluted income per share $ 5.86 $ 17.76 $ 5.62
- ------------------------
- - - - - -
*Average shares outstanding
**Represents a one-time reduction of $0.07 per share of Common and Class B
Stock resulting from the premium paid to repurchase the company's Series B
Cumulative Preferred Stock.
Derivative Financial Instruments
- --------------------------------
Ford has operations in over 30 countries and sells vehicles in over 200
markets, and is exposed to a variety of market risks, including the effects of
changes in foreign currency exchange rates, interest rates and commodity
prices. These financial exposures are monitored and managed by the company as
an integral part of the company's overall risk management program, which
recognizes the unpredictability of financial markets and seeks to reduce the
potentially adverse effect on the company's results. The company uses
derivative financial instruments to manage the exposures to fluctuations in
exchange rates, interest rates and commodity prices. All derivative financial
instruments are classified as "held for purposes other than trading"; company
policy specifically prohibits the use of leveraged derivatives or use of any
derivatives for speculative purposes.
Ford's primary foreign currency exposures, in terms of net corporate exposure,
are in the Swedish Krona, Euro, British Pound Sterling, Japanese Yen,
Mexican Peso and Brazilian Real. Agreements to manage foreign currency
exposures include forward contracts, swaps and options. The company uses these
derivative instruments to hedge assets and liabilities denominated in foreign
currencies, firm commitments and certain investments in foreign subsidiaries.
Gains and losses on hedges of firm commitments are deferred and recognized with
the related transactions. In the case of hedges of net investments in foreign
subsidiaries, gains and losses are recognized in other comprehensive income to
the extent they are effective as hedges. All other gains and losses are
recognized in cost of sales for the Automotive sector and interest expense for
the Financial Services sector. These instruments usually mature in two years or
less for Automotive sector exposures and longer for Financial Services sector
exposures, consistent with the underlying transactions. The effect of changes
in exchange rates may not be fully offset by gains or losses on currency
derivatives, depending on the extent to which the exposures are hedged.
Interest rate swap agreements are used to manage the effects of interest rate
fluctuations by changing the interest rate characteristics of specific debt or
pools of debt to match the interest rate characteristics of corresponding
assets. These instruments mature consistent with underlying debt issues as
identified in Note 10. The differential paid or received on interest rate swaps
is recognized on an accrual basis as an adjustment to interest expense. Gains
and losses on terminated interest rate swaps are deferred and reflected in
interest expense over the remaining term of the underlying debt.
FS-9
NOTE 1. Accounting Policies (continued)
- ----------------------------
Ford has a commodity hedging program that uses primarily forward contracts and
options to manage the effects of changes in commodity prices on the Automotive
sector's results. Gains and losses are recognized in cost of sales during the
settlement period of the related transactions.
Foreign Currency Translation
- ----------------------------
Assets and liabilities of non-U.S. subsidiaries generally are translated to
U.S. Dollars at end-of-period exchange rates. The effects of this translation
for most non-U.S. subsidiaries are reported in other comprehensive income.
Remeasurement of assets and liabilities of non-U.S. subsidiaries that use the
U.S. Dollar as their functional currency are included in income as transaction
gains and losses. Income statement elements of all non-U.S. subsidiaries are
translated to U.S. Dollars at average-period exchange rates and are recognized
as part of revenues, costs and expenses. Also included in income are gains and
losses arising from transactions denominated in a currency other than the
functional currency of the subsidiary involved. Net transaction gains and
losses, as described above, increased net income by $284 million in 1999 and by
$97 million in 1998, and decreased net income by $164 million in 1997.
Impairment of Long-Lived Assets and Certain Identifiable Intangibles
- --------------------------------------------------------------------
The company evaluates the carrying value of goodwill for potential impairment
on an ongoing basis. Such evaluations compare operating income before
amortization of goodwill to the amortization recorded for the operations to
which the goodwill relates. The company also periodically evaluates the
carrying value of long-lived assets and long-lived assets to be disposed of for
potential impairment. The company considers projected future operating results,
cash flows, trends and other circumstances in making such estimates and
evaluations.
Goodwill
- --------
Goodwill represents the excess of the purchase price over the fair value of the
net assets of acquired companies and is amortized using the straight-line
method for periods of up to 40 years. Total goodwill included in the Automotive
sector's other assets was $6.1 billion at December 31, 1999 and $2.1 billion at
December 31, 1998. The increase is primarily related to the acquisitions of
Volvo, Kwik-Fit, and Plastic Omnium (Note 16). Total goodwill included in the
Financial Services sector's other assets was $970 million at December 31, 1999
and $743 million at December 31, 1998.
Company-Obligated Mandatorily Redeemable Preferred Securities of a Subsidiary
Trust
- -----------------------------------------------------------------------------
During 1995, Ford Motor Company Capital Trust I (the "Trust") issued $632
million of its 9% Trust Originated Preferred Securities (the "Preferred
Securities") in a one-for-one exchange for 25,273,537 shares of the company's
outstanding Series B Depositary Shares (the "Depositary Shares"). Concurrent
with the exchange and the related purchase by Ford of the Trust's common
securities (the "Common Securities"), the company issued to the Trust $651
million aggregate principal amount of its 9% Junior Subordinated Debentures due
December 2025 (the "Debentures"). The sole assets of the Trust are and will be
the Debentures. The Debentures are redeemable, in whole or in part, at the
company's option on or after December 1, 2002, at a redemption price of $25 per
Debenture plus accrued and unpaid interest. If the company redeems the
Debentures, or upon maturity of the Debentures, the Trust is required to redeem
the Preferred Securities and Common Securities at $25 per share plus accrued
and unpaid distributions.
Ford guarantees to pay in full to the holders of the Preferred Securities all
distributions and other payments on the Preferred Securities to the extent not
paid by the Trust only if and to the extent that Ford has made a payment of
interest or principal on the Debentures. This guarantee, when taken together
with Ford's obligations under the Debentures and the indenture relating thereto
and its obligations under the Declaration of Trust of the Trust, including its
obligation to pay certain costs and expenses of the Trust, constitutes a full
and unconditional guarantee by Ford of the Trust's obligations under the
Preferred Securities.
FS-10
NOTE 2. Marketable and Other Securities
- ----------------------------------------
Trading securities are recorded at fair value with unrealized gains and losses
included in income. Available-for-sale securities are recorded at fair value
with net unrealized gains and losses reported, net of tax, in other
comprehensive income. Held-to-maturity securities are recorded at amortized
cost. Equity securities which do not have readily determinable fair values are
recorded at cost. The basis of cost used in determining realized gains and
losses is specific identification.
The fair value of substantially all securities is determined by quoted market
prices. The estimated fair value of securities, for which there are no quoted
market prices, is based on similar types of securities that are traded in the
market. Book value approximates fair value for all securities.
Expected maturities of debt securities may differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without penalty.
Automotive Sector
- -----------------
Investments in securities at December 31 were as follows (in millions):
Book/
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- ----------
1999
----
Trading securities $17,243 $56 $123 $17,176
Available-for-sale securities - Corporate securities 1,004 - 8 996
Held-to-maturity securities 771 - - 771
------- --- ---- -------
Total investments in securities $19,018 $56 $131 $18,943
======= === ==== =======
1998
----
Trading securities $19,534 $83 $ 40 $19,577
Available-for-sale securities - Corporate securities 543 - - 543
------- --- ---- -------
Total investments in securities $20,077 $83 $ 40 $20,120
======= === ==== =======
During 1997, $365 million of bonds issued by affiliates were reclassified from
equity in net assets of affiliated companies to available-for-sale marketable
securities; $163 million of the bonds matured in 1999 and $202 million matured
in 1998. Proceeds from sales of available-for-sale securities were $2,352
million in 1999 and $586 million in 1998. In 1999, gross gains of $11 million
were reported. Other comprehensive income included net unrealized gains of $13
million in 1999 and net unrealized losses of $5 million in 1998 on securities
owned by certain unconsolidated affiliates. The available-for-sale securities
at December 31, 1999 had contractual maturities between one and five years.
Financial Services Sector
- -------------------------
Investments in securities at December 31, 1999 were as follows (in millions):
Book/
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ----------- ------------ ----------
Trading securities $190 $ - $ - $190
Available-for-sale securities
-----------------------------
Debt securities issued by the U.S.
government and agencies 89 - 3 86
Municipal securities 18 - 1 17
Debt securities issued by non-U.S. governments 19 - - 19
Corporate securities 156 - 6 150
Mortgage-backed securities 202 - 7 195
Equity securities 28 43 2 69
---- --- --- ----
Total available-for-sale securities 512 43 19 536
Held-to-maturity securities
---------------------------
Debt securities issued by the U.S.
government and agencies 6 - - 6
Corporate securities 1 - - 1
---- --- --- ----
Total held-to-maturity securities 7 - - 7
Total investments in securities $709 $43 $19 $733
==== === === ====
FS-11
NOTE 2. Marketable and Other Securities (continued)
- ---------------------------------------
Investments in securities at December 31, 1998 were as follows (in millions):
Book/
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------------------ ------------
$231 $ 3 $4 $230
Trading securities
Available-for-sale securities
-----------------------------
Debt securities issued by the U.S.
government and agencies 153 3 - 156
Municipal securities 63 2 - 65
Debt securities issued by non-U.S. governments 25 - - 25
Corporate securities 192 3 2 193
Mortgage-backed securities 198 3 - 201
Equity securities 35 56 1 90
---- --- -- ----
Total available-for-sale securities 666 67 3 730
Held-to-maturity securities
---------------------------
Debt securities issued by the U.S.
government and agencies 6 - - 6
Corporate securities 2 - - 2
---- --- -- ----
Total held-to-maturity securities 8 - - 8
Total investments in securities $905 $70 $7 $968
==== === == ====
The amortized cost and fair value of investments in available-for-sale
securities and held-to-maturity securities at December 31 by contractual
maturity, were as follows (in millions):
Available-for-sale Held-to-maturity
---------------------- ----------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---------- ---------- ---------- ----------
1999
----
Due in one year or less $ - $ - $- $-
Due after one year through five years 119 118 3 3
Due after five years through ten years 53 51 3 3
Due after ten years 110 104 1 1
Mortgage-backed securities 202 195 - -
Equity securities 28 68 - -
---- ---- -- --
Total $512 $536 $7 $7
==== ==== == ==
1998
----
Due in one year or less $ 29 $ 29 $1 $1
Due after one year through five years 165 167 3 3
Due after five years through ten years 101 102 3 3
Due after ten years 138 141 1 1
Mortgage-backed securities 198 200 - -
Equity securities 35 91 - -
---- ---- -- --
Total $666 $730 $8 $8
==== ==== == ==
Proceeds from sales of available-for-sale securities were $1.1 billion in 1999,
$2.1 billion in 1998 and $2.9 billion in 1997. In 1999, gross gains of $33
million and gross losses of $14 million were realized on those sales; gross
gains of $48 million and gross losses of $3 million were realized in 1998 and
gross gains of $98 million and gross losses of $8 million were realized in 1997.
FS-12
NOTE 3. Finance Receivables - Financial Services Sector
- -------------------------------------------------------
Receivables
- -----------
Included in finance receivables at December 31 were net finance receivables and
investment in direct financing leases. The investment in direct financing
leases relates to the leasing of vehicles, various types of transportation and
other equipment, and facilities.
Net finance receivables at December 31 were as follows (in millions):
1999 1998
------------ ------------
Retail $ 70,771 $60,653
Wholesale 27,298 22,650
Real estate 3,417 2,507
Other finance receivables 5,302 5,533
-------- -------
Total finance receivables 106,788 91,343
Allowance for credit losses (1,143) (1,229)
-------- -------
Total net finance receivables 105,645 90,114
Other 471 63
-------- -------
Net finance and other receivables $106,116 $90,177
======== =======
Net finance receivables subject to
fair value* $105,577 $90,010
Fair value $106,552 $89,847
- - - - -
*Excludes certain diversified and other receivables of $539
million and $167 million at December 31, 1999 and 1998,
respectively
Included in finance receivables at December 31, 1999 and 1998 were a total of
$2.6 billion and $1.5 billion, respectively, owed by three customers with the
largest receivable balances. Other finance receivables consisted primarily of
commercial and other collateralized loans and accrued interest. Also included
in other finance receivables at December 31, 1999 and 1998 were $3.7 billion
and $3.9 billion, respectively, of accounts receivable purchased by certain
Financial Services sector operations from Automotive sector operations. Finance
receivables that originated outside the United States are $35.5 billion and
$35.6 billion at December 31, 1999 and 1998, respectively.
Contractual maturities of total finance receivables are as follows (in
millions): 2000 - $65,017; 2001 - $20,541; 2002 - $11,375; thereafter - $9,855.
Experience indicates that a substantial portion of the portfolio generally is
repaid before the contractual maturity dates.
The fair value of most receivables was estimated by discounting future cash
flows using an estimated discount rate that reflected the credit, interest rate
and prepayment risks associated with similar types of instruments. For
receivables with short maturities, the book value approximated fair value.
The Financial Services sector has sold receivables through special purpose
subsidiaries. The servicing portfolio related to these securitized assets
amounted to $19.6 billion, $13.9 billion and $10.9 billion at December 31, 1999,
1998 and 1997, respectively. The company retains certain beneficial interests
in the sold receivables which are subject to limited recourse provisions. These
financial instruments of $3.4 billion at December 31, 1999 and $1.3 billion at
December 31, 1998 are included in other assets.
Direct Financing Leases
- -----------------------
Net investment in direct financing leases at December 31 was as follows
(in millions):
1999 1998
------------ ------------
Total minimum lease rentals to be received $4,782 $ 4,406
Less: Unearned income (916) (1,106)
Loan origination costs 84 59
------ -------
Minimum lease rentals 3,950 3,359
Estimated residual values 3,283 3,720
Less: Allowance for credit losses (51) (80)
------ -------
Net investment in direct financing leases $7,182 $ 6,999
====== =======
Minimum direct financing lease rentals are contractually due as follows (in
millions): 2000 - $1,705; 2001 - $1,327; 2002 - $1,011; 2003 - $561;
2004 - $151; thereafter - $27.
FS-13
NOTE 3. Finance Receivables - Financial Services Sector (continued)
- --------------------------------------------------------
Credit Losses
- -------------
Allowances for credit losses are estimated and established as required based on
historical experience and other factors that affect collectibility. The
allowance for estimated credit losses includes a provision for certain
non-homogeneous impaired loans. Impaired loans are measured based on the
present value of expected future cash flows discounted at the loan's effective
interest rate. Finance receivables and investment in direct financing leases
are charged to the allowances for credit losses when an account is deemed to be
uncollectible, taking into consideration the financial condition of the
borrower, the value of the collateral, recourse to guarantors and other
factors. Recoveries on finance receivables and investment in direct financing
leases previously charged-off as uncollectible are credited to the allowances
for credit losses.
Changes in the allowances for credit losses were as follows (in millions):
1999 1998 1997
------------ ------------ ------------
Beginning balance $1,309 $ 3,164 $ 2,478
Provision for credit losses 844 1,195 2,542
Total charge-offs and recoveries:
Charge-offs (903) (1,257) (2,130)
Recoveries 173 205 168
------ ------- -------
Net losses (730) (1,052) (1,962)
Other changes (229) (1,998)* 106
------ ------- -------
Ending balance $1,194 $ 1,309 $ 3,164
====== ======= =======
- - - - -
*Other changes includes $1,892 million to reflect the spin-off
of The Associates
NOTE 4. Net Investment in Operating Leases
- -------------------------------------------
The net investment in operating leases relates to the leasing of vehicles,
various types of transportation and other equipment, and facilities. The net
investment in operating leases at December 31 was as follows (in millions):
1999 1998
------------ ------------
Vehicles and other equipment, at cost $ 53,018 $50,366
Lease origination costs 56 63
Accumulated depreciation (10,225) (8,988)
Allowances for credit losses (378) (268)
-------- -------
Net investment in operating leases $ 42,471 $41,173
======== =======
Minimum rentals on operating leases are contractually due as follows (in
millions): 2000 - $6,936; 2001 - $4,653; 2002 - $2,372; 2003 - $300;
2004 - $144; thereafter - $275.
Depreciation expense for assets subject to operating leases is provided
primarily on the straight-line method over the term of the lease in amounts
necessary to reduce the carrying amount of the asset to its estimated residual
value. Depreciation rates and amounts are based on assumptions as to used car
prices at lease termination and the number of vehicles that will be returned to
the company. Estimated and actual residual values are reviewed on a regular
basis to determine that depreciation amounts are appropriate. Gains and losses
upon disposal of the assets also are included in depreciation expense.
Depreciation expense was as follows: $8.8 billion in 1999, $8.4 billion in 1998
and $7.4 billion in 1997.
FS-14
NOTE 5. Inventories - Automotive Sector
- ----------------------------------------
Inventories at December 31 were as follows (in millions):
1999 1998
------------ ------------
Raw materials, work-in-process and supplies $2,688 $2,887
Finished products 3,747 2,769
------ ------
Total inventories $6,435 $5,656
====== ======
U.S. inventories $2,245 $1,832
Inventories are stated at the lower of cost or market. The cost of most U.S.
inventories is determined by the last-in, first-out ("LIFO") method. The cost
of the remaining inventories is determined primarily by the first-in, first-out
("FIFO") method.
If the FIFO method had been used instead of the LIFO method, inventories would
have been higher by $1.1 billion and $1.2 billion at December 31, 1999 and 1998,
respectively.
NOTE 6. Net Property, Depreciation and Amortization - Automotive Sector
- -----------------------------------------------------------------------
Net property at December 31 was as follows (in millions):
1999 1998
------------ ------------
Land $ 518 $ 409
Buildings and land improvements 10,599 9,298
Machinery, equipment and other 47,550 43,562
Construction in progress 2,081 2,774
-------- --------
Total land, plant and equipment $ 60,748 $ 56,043
Accumulated depreciation (27,832) (26,840)
-------- --------
Net land, plant and equipment $ 32,916 $ 29,203
Special tools, net of amortization 9,401 8,117
-------- --------
Net property $ 42,317 $ 37,320
======== ========
Property, equipment and special tools are stated at cost, less accumulated
depreciation and amortization. Property and equipment placed in service before
January 1, 1993 are depreciated using an accelerated method that results in
accumulated depreciation of approximately two-thirds of the asset cost during
the first half of the estimated useful life of the asset. Property and
equipment placed in service after December 31, 1992 are depreciated using the
straight-line method of depreciation over the estimated useful life of the
asset. On average, buildings and land improvements are depreciated based on a
30-year life; machinery and equipment are depreciated based on a 14-year life.
Costs of computer software developed or obtained for internal use are
capitalized beginning January 1, 1999. Special tools placed in service before
January 1, 1999 are amortized using an accelerated method over periods of time
representing the estimated life of those tools. Special tools placed in service
beginning in 1999 are amortized using the units-of-production method. For
property and equipment retired before January 1, 1999, the general policy is to
charge the cost of those assets, reduced by net salvage proceeds, to
accumulated depreciation. For property and equipment retired after December 31,
1998, the general policy is to charge the cost of those assets, reduced by net
salvage proceeds, to gain or loss on disposal of assets. These changes did not
have a material impact on the financial statements.
Depreciation and amortization expenses were as follows (in millions):
1999 1998 1997
------------ ------------ ------------
Depreciation $3,262 $2,804 $2,759
Amortization 2,427 2,936 3,179
------ ------ ------
Total $5,689 $5,740 $5,938
====== ====== =======
Maintenance, repairs and rearrangement costs are expensed as incurred and were
$2.2 billion in 1999, $2.2 billion in 1998 and $2.3 billion in 1997.
Expenditures that increase the value or productive capacity of assets are
capitalized. Preproduction costs related to new facilities are expensed as
incurred.
FS-15
NOTE 7. Income Taxes
- ---------------------
Income before income taxes, excluding equity in net income/(loss) of affiliated
companies, the provision for income taxes, and a reconciliation of the
provision for income taxes compared with the amounts at the U.S. statutory tax
rate, are as follows:
1999 1998 1997
------------ ------------ ------------
Income before income tax (in millions)
--------------------------------------
U.S. $10,273 $8,363 $ 8,353
Non-U.S. 688 1,114 2,404
------- ------ -------
Total income before income taxes $10,961 $9,477 $10,757
======= ====== =======
Provision for income taxes (in millions)
---------------------------------------
U.S. federal $ 845 $ 785 $1,558
Non-U.S. 839 623 830
State and local 143 40 (25)
------- ------ ------
Total current income tax provision 1,827 1,448 2,363
U.S. federal 2,135 1,685 1,108
Non-U.S. (482) (109) 78
State and local 190 152 192
------- ------ ------
Total deferred income tax provision 1,843 1,728 1,378
------- ------ ------
Total provision $ 3,670 $3,176 $3,741
======= ====== ======
Reconciliation of the income tax provision
------------------------------------------
Tax provision at U.S. statutory rate of 35% 35 % 35 % 35 %
Effect of (in points):
Tax on non-U.S. income (1) 0 0
State and local income taxes 2 1 1
Other (2) (2) (1)
------- ------ ------
Provision for income taxes 34 % 34 % 35 %
======= ====== ======
- - - - -
Amounts shown exclude non-taxable gains from The Associates spin-off
(1998) and Hertz IPO (1997)
Deferred taxes are provided for earnings of non-U.S. subsidiaries which are
planned to be remitted. No provision for deferred taxes has been made on $2.1
billion of retained earnings (primarily prior to 1998) which are considered to
be indefinitely invested in the non-U.S. subsidiaries. Deferred taxes for the
undistributed earnings of non-U.S. subsidiaries are not practical to estimate.
Deferred tax assets and liabilities reflect the estimated tax effect of
accumulated temporary differences between assets and liabilities for financial
reporting purposes and those amounts as measured by tax laws and regulations.
The components of deferred tax assets and liabilities at December 31 were as
follows (in millions):
1999 1998
------------ ------------
Deferred tax assets
-------------------
Employee benefit plans $ 6,300 $ 6,591
Dealer and customer allowances and claims 2,945 3,709
Allowance for credit losses 1,006 1,164
Net operating loss carryforwards 518 795
All other 1,824 1,717
Valuation allowances (115) (256)
------- -------
Total deferred tax assets 12,478 13,720
Deferred tax liabilities
------------------------
Leasing transactions 6,520 6,324
Depreciation and amortization
(excluding leasing transactions) 4,344 4,221
Employee benefit plans 849 969
All other 2,891 2,316
------- -------
Total deferred tax liabilities 14,604 13,830
------- -------
Net deferred tax assets/(liabilities) $(2,126) $ (110)
======= =======
Non-U.S. net operating loss carryforwards for tax purposes were $1.4 billion at
December 31, 1999. A substantial portion of these losses has an indefinite
carryforward period; the remaining losses have expiration dates beginning in
2000. The tax benefit of operating losses is recognized as a deferred tax
asset, subject to appropriate valuation allowances. We evaluate the tax
benefits of operating loss carryforwards on an ongoing basis. Such evaluations
include a review of historical and projected future operating results, the
eligible carryforward period and other circumstances.
FS-16
NOTE 8. Liabilities - Automotive Sector
- ----------------------------------------
Current Liabilities
- -------------------
Included in accrued liabilities at December 31 were the following (in millions):
1999 1998
------------ ------------
Dealer and customer allowances and claims $10,245 $ 8,765
Employee benefit plans 1,913 2,530
Deferred revenue 2,326 2,447
Salaries, wages and employer taxes 724 740
Postretirement benefits other than pensions 880 275
Other 3,233 2,168
------- -------
Total accrued liabilities $19,321 $16,925
======= =======
Noncurrent Liabilities
- ----------------------
Included in other liabilities at December 31 were the following (in millions):
1999 1998
------------ ------------
Postretirement benefits other than pensions $15,458 $14,859
Dealer and customer allowances and claims 7,271 7,401
Employee benefit plans 4,525 3,762
Unfunded pension obligation 1,189 1,528
Minority interests in net assets of subsidiaries 177 103
Other 4,627 2,480
------- -------
Total other liabilities $33,247 $30,133
======= =======
NOTE 9. Employee Retirement Benefits
- -------------------------------------
Employee Retirement Plans
- -------------------------
The company has two principal retirement plans in the U.S. The Ford-UAW
Retirement Plan covers hourly employees represented by the UAW, and the General
Retirement Plan covers substantially all other Ford employees of the company in
the U.S. The hourly plan provides noncontributory benefits related to employee
service. The salaried plan provides similar noncontributory benefits and
contributory benefits related to pay and service. Other U.S. and non-U.S.
subsidiaries have separate plans that generally provide similar types of
benefits for their employees.
In general, the company's plans are funded with the main exceptions of the U.S.
defined benefit plans for executives and certain plans in Germany; in such
cases an unfunded liability is recorded.
The company's policy for funded plans is to contribute annually, at a minimum,
amounts required by applicable law, regulations and union agreements. Plan
assets consist principally of investments in stocks, and government and other
fixed income securities.
Postretirement Health Care and Life Insurance Benefits
- ------------------------------------------------------
The company and certain of its subsidiaries sponsor unfunded plans to provide
selected health care and life insurance benefits for retired employees. The
company's U.S. and Canadian employees may become eligible for those benefits if
they retire while working for the company; however benefits and eligibility
rules may be modified from time to time. The estimated cost for these benefits
is accrued over periods of employee service on an actuarially determined basis.
The company has prepaid a portion of U.S. hourly retiree health benefits by
contributing to a Voluntary Employees' Beneficiary Association ("VEBA") trust.
At December 31, 1999, the market value of this VEBA pre-funding was $1.7
billion.
Increasing the assumed health care cost trend rates by one percentage point is
estimated to increase the aggregate service and interest cost components of net
postretirement benefit expense for 1999 by about $260 million and the
accumulated postretirement benefit obligation at December 31, 1999 by about
$2.4 billion. A decrease of one percentage point would reduce service and
interest costs by $200 million and decrease the December 31, 1999 obligation by
$2 billion.
FS-17
NOTE 9. Employee Retirement Benefits (continued)
- -------------------------------------
Employee Retirement Benefit Expense
- -----------------------------------
The company's expense for pensions, retirement health care and life insurance
was as follows (in millions):
Pension Benefits
----------------------------------------------------------
U.S. Plans Non-U.S. Plans Other Benefits*
---------------------------- ---------------------------- -------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
-------- -------- -------- -------- -------- -------- --------- --------- ---------
Costs Recognized in Income
- --------------------------
Service cost $ 662 $ 596 $ 551 $ 436 $ 354 $ 331 $ 356 $ 265 $ 242
Interest cost 2,132 1,999 1,993 890 867 857 1,232 1,183 1,161
Expected return on plan
assets (3,086) (2,747) (2,505) (1,121) (986) (931) (109) (45) -
Amortization of:
Transition (asset)/obligation (21) (22) (22) 9 13 61 - - -
Plan amendments 586 729 515 118 114 92 (44) (42) (44)
(Gains)/losses and other (26) 25 30 195 129 56 276 95 13
------- ------- ------- ------- ----- ----- ------ ------ ------
Net pension/postretirement
expense $ 247 $ 580 $ 562 $ 527 $ 491 $ 466 $1,711 $1,456 $1,372
======= ======= ======= ======= ===== ===== ====== ====== ======
Discount rate for expense 6.25% 6.75% 7.25% 5.70% 6.50% 7.10% 6.50% 7.00% 7.50%
Assumed long-term rate of
return on assets 9.00% 9.00% 9.00% 9.30% 9.20% 9.20% 6.00% 6.20% -
Initial health care cost
trend rate - - - - - - 7.00% 6.60% 6.60%
Ultimate health care cost
trend rate - - - - - - 5.00% 5.00% 5.00%
Number of years to ultimate
trend rate - - - - - - 9 10 10
- - - - - -
*Postretirement health care and life insurance benefits
Pension expense in 1999 decreased for U.S. plans primarily as a result of
increased return on plan assets and the year-to-year change in the cost of
special employee separation programs, partially offset by lower discount rates.
Pension expense in 1999 increased for non-U.S. plans primarily as a result of
lower discount rates and inclusion of Volvo partially offset by increased
return on plan assets and year-to-year change in the cost of special employee
separation programs.
FS-18
NOTE 9. Employee Retirement Benefits (continued)
- -------------------------------------
The year-end status of these plans was as follows (in millions):
Pension Benefits
--------------------------------------------------
U.S. Plans Non-U.S. Plans Other Benefits*
------------------------ ------------------------ ------------------------
1999 1998 1999 1998 1999 1998
----------- ----------- ----------- ----------- ----------- -----------
Change in Benefit Obligation
- ----------------------------
Benefit obligation at January 1 $33,535 $30,923 $16,336 $13,311 $ 19,215 $ 17,522
Service cost 662 596 436 354 356 265
Interest cost 2,132 1,999 890 867 1,232 1,183
Amendments 3,113 10 414 26 37 -
Special programs 109 278 48 114 52 63
Net aquisitions/(sales) 74 (493) 784 - 37 (130)
Plan participant contributions 47 45 67 91 2 -
Benefits paid (1,977) (1,869) (699) (660) (922) (846)
Foreign exchange translation - - (952) 182 22 (22)
Actuarial loss/(gain) (5,371) 2,046 (817) 2,051 (146) 1,180
------- ------- ------- ------- -------- --------
Benefit obligation at December 31 $32,324 $33,535 $16,507 $16,336 $ 19,885 $ 19,215
======= ======= ======= ======= ======== ========
Change in Plan Assets
- ---------------------
Fair value of plan assets at January 1 $39,122 $35,683 $13,255 $11,687 $ 2,001 $ 736
Actual return on plan assets 4,329 5,746 2,134 1,470 74 45
Company contributions 6 2 221 219 132 1,700
Special programs (32) (95) 0 (27) - -
Net acquisitions/(sales) 43 (473) 671 - - -
Plan participant contributions 47 45 67 91 - -
Benefits paid (1,977) (1,869) (699) (660) (530) (480)
Foreign exchange translation - - (447) 26 - -
Other 71 83 256 449 - -
------- ------- ------- ------- -------- --------
Fair value of plan assets at December 31 $41,609 $39,122 $15,458 $13,255 $ 1,677 $ 2,001
======= ======= ======= ======= ======== ========
Funded Status of the Plan
- -------------------------
Plan assets in excess of/(less than) $ 9,285 $ 5,587 $(1,049) $(3,081) $(18,208) $(17,214)
benefit obligations
Unamortized:
Transition (asset)/obligation (44) (68) 171 744 - -
Prior service cost 4,581 1,941 834 507 (38) (119)
Net (gains)/losses (12,246) (5,704) (1,058) 650 1,559 1,900
------- ------- ------- ------- -------- --------
Net amount recognized $ 1,576 $ 1,756 $(1,102) $(1,180) $(16,687) $(15,433)
======= ======= ======= ======= ======== ========
Amounts Recognized in the
Balance Sheet Consists of Assets/(Liabilities)
- ---------------------------------------------
Prepaid assets $ 2,390 $ 2,437 $ 1,070 $ 1,176 $ - $ -
Accrued liabilities (1,118) (785) (3,061) (3,780) (16,687) (15,433)
Intangible assets 170 16 519 404 - -
Deferred income tax 46 34 84 376 - -
Accumulated other comprehensive income 88 54 286 644 - -
------- ------- ------- ------- -------- --------
Net amount recognized $ 1,576 $ 1,756 $(1,102) $(1,180) $(16,687) $(15,433)
======= ======= ======= ======= ======== ========
Pension Plans in Which Accumulated Benefit
Obligation Exceeds Plan Assets at December 31
- ---------------------------------------------
Projected benefit obligation $ 1,109 $ 786 $ 5,731 $ 6,557
Accumulated benefit obligation 1,021 689 5,377 6,141
Fair value of plan assets 54 14 2,845 2,820
Assumptions as of December 31
- -----------------------------
Discount rate 7.75% 6.25% 6.10% 5.70% 7.75% 6.50%
Expected return on assets 9.00% 9.00% 9.40% 9.30% 6.00% 6.00%
Average rate of increase in compensation 5.20% 5.20% 4.90% 5.10% - -
Initial health care cost trend rate - - - - 8.75% 7.00%
Ultimate health care cost trend rate - - - - 5.14% 5.00%
Number of years to ultimate trend rate - - - - 8 9
- - - - - -
*Postretirement health care and life insurance benefits
FS-19
NOTE 10. Debt
- --------------
The fair value of debt was estimated based on quoted market prices or current
rates for similar debt with the same remaining maturities.
Automotive Sector
- ----------------
Debt at December 31 was as follows (in millions):
Weighted Average
Interest Rate* Book Value
----------------------- -----------------------
Maturity 1999 1998 1999 1998
------------ ----------- ---------- ----------- -----------
Debt payable within one year
----------------------------
Short-term debt 13.4% 9.8% $ 1,152 $ 1,076
Long-term debt payable within one year 450 45
------- -------
Total debt payable within one year 1,602 1,121
Long-term debt 2001-2097 7.5% 8.0% 10,542 8,713
-------------- ------- -------
Total debt $12,144 $ 9,834
======= =======
Fair value $13,935 $10,809
- - - - - -
*Excludes the effect of interest rate swap agreements; change in 1999 primarily
reflects short-term debt in South America.
Long-term debt at December 31, 1999 included maturities as follows (in
millions): 2000 - $450 (included in current liabilities); 2001 - $180; 2002 -
$185; 2003 - $114; 2004 - $236; thereafter - $9,827.
Included in long-term debt at December 31, 1999 and 1998 were obligations of
$10,152 million and $7,944 million, respectively, with fixed interest rates,
and $390 million and $769 million, respectively, with variable interest rates
(generally based on LIBOR or other short-term rates). Obligations payable in
foreign currencies at December 31, 1999 and 1998 were $619 million and $544
million, respectively.
Agreements to manage exposures to fluctuations in interest rates, which include
primarily interest rate swap agreements and futures contracts, did not affect
the December 31, 1999 and December 31, 1998 overall weighted-average interest
rates on long-term debt or the obligations subject to variable interest rates.
Financial Services Sector
- -------------------------
Debt at December 31 was as follows (in millions):
Weighted Average
Interest Rate* Book Value
----------------------- -----------------------
Maturity 1999 1998 1999 1998
------------ ----------- ----------- ----------- -----------
Debt payable within one year
----------------------------
Unsecured short-term debt $ 1,853 $ 2,998
Commercial paper 44,605 49,429
Other short-term debt 4,970 4,046
-------- --------
Total short-term debt 5.9% 5.6% 51,428 56,473
Long-term debt payable within one year 20,974 10,383
-------- --------
Total debt payable within one year 72,402 66,856
Long-term debt
--------------
Secured indebtedness 2001-2021 8.3% 10.2% 3 17
Unsecured senior indebtedness
Notes and bank debt 2001-2078 6.4% 6.2% 62,909 50,449
Debentures 2001-2006 3.2% 4.0% 2,142 1,661
Unamortized discount (87) (30)
-------- --------
Total unsecured senior indebtedness 64,964 52,080
Unsecured subordinated indebtedness
Notes 2001-2020 6.6% 7.7% 2,558 3,381
Unamortized discount (8) (10)
-------- --------
Total unsecured subordinated indebtedness 2,550 3,371
-------- --------
Total long-term debt 67,517 55,468
-------- --------
Total debt $139,919 $122,324
======== ========
Fair value $139,979 $124,320
- - - - - -
*Excludes the effect of interest rate swap agreements
FS-20
NOTE 10. Debt (continued)
- --------------
Information concerning short-term borrowings (excluding long-term debt payable
within one year) is as follows (in millions):
1999 1998 1997
------------ ------------ ------------
Average amount of short-term borrowings $55,096 $49,099 $65,592
Weighted-average short-term interest rates per
annum (average year) 5.7% 5.7% 5.3%
Average remaining term of commercial paper
at December 31 24 days 31 days 30 days
Long-term debt at December 31, 1999 included maturities as follows (in
millions): 2000 - $20,974; 2001 - $14,504; 2002 - $12,571; 2003 - $10,149;
2004 - $10,397; thereafter - $19,896.
Included in long-term debt at December 31, 1999 and 1998 were obligations of
$46.5 billion and $38.1 billion, respectively, with fixed interest rates and
$21 billion and $17.3 billion, respectively, with variable interest rates
(generally based on LIBOR or other short-term rates). Obligations payable in
foreign currencies at December 31, 1999 and 1998 were $31 billion and $30
billion, respectively. These obligations were issued primarily to fund non-U.S.
business operations.
Outstanding commercial paper at December 31, 1999 totaled $42.1 billion at Ford
Credit and $2.5 billion at Hertz, with an average remaining maturity of 25 days
and 15 days, respectively.
Agreements to manage exposures to fluctuations in interest rates include
primarily interest rate swap agreements. At December 31, 1999, these agreements
decreased the weighted-average interest rate on long-term debt to 6.2% compared
with 6.4% excluding these agreements, and effectively decreased the obligations
subject to variable interest rates to $199 million; the weighted-average
interest rate on short-term debt excluding these agreements did not change
materially. At December 31, 1998, these agreements decreased the
weighted-average interest rate on long-term debt to 6%, compared with 6.2%
excluding these agreements, and effectively decreased the obligations subject
to variable interest rates to zero; the weighted-average interest rate on
short-term debt excluding these agreements did not change materially.
Support Facilities
- ------------------
At December 31, 1999, Ford had long-term contractually committed global credit
agreements under which $8.6 billion is available from various banks; 87% are
available through June 30, 2004. The entire $8.6 billion may be used, at Ford's
option, by any affiliate of Ford; however, any borrowing by an affiliate will
be guaranteed by Ford. Ford also has the ability to transfer, on a
nonguaranteed basis, $8.3 billion of such credit lines in varying portions to
Ford Credit and FCE Bank plc (formerly known as Ford Credit Europe plc). In
addition, at December 31, 1999, $336 million of contractually committed credit
facilities were available to various Automotive Sector affiliates outside the
U.S. Approximately $56 million of these facilities were in use at December 31,
1999.
At December 31, 1999, the Financial Services Sector had a total of $26.6
billion of contractually committed support facilities (excluding the $8.3
billion available under Ford's global credit agreements). Of these facilities,
$23 billion are contractually committed global credit agreements under which
$18.3 billion and $4.6 billion are available to Ford Credit and FCE Bank plc,
respectively, from various banks; 54% and 66%, respectively of such facilities
are available through June 30, 2004. The entire $18.3 billion may be used, at
Ford Credit's option, by any subsidiary of Ford Credit, and the entire $4.6
billion may be used, at FCE Bank plc's option, by any subsidiary of FCE Bank
plc. Any borrowings by such subsidiaries will be guaranteed by Ford Credit or
FCE Bank plc, as the case may be. At December 31, 1999, $80 million of the Ford
Credit global facilities were in use and $165 million of the FCE Bank plc
global facilities were in use. Other than the global credit agreements, the
remaining portion of the Financial Services Sector support facilities at
December 31, 1999 consisted of $2.5 billion of contractually committed support
facilities available to Hertz in the U.S. and $1.2 billion of contractually
committed support facilities available to various affiliates outside the U.S.;
at December 31, 1999, approximately $0.8 billion of these facilities were in
use. Furthermore, banks provide $1.4 billion of liquidity facilities to support
the asset-backed commercial paper program of a Ford Credit sponsored special
purpose entity.
FS-21
NOTE 11. Capital Stock
- -----------------------
At December 31, 1999, all general voting power was vested in the holders of
Common Stock and the holders of Class B Stock, voting together without regard
to class. At that date, the holders of Common Stock were entitled to one vote
per share and, in the aggregate, had 60% of the general voting power; the
holders of Class B Stock were entitled to such number of votes per share as
would give them, in the aggregate, the remaining 40% of the general voting
power, as provided in the company's Restated Certificate of Incorporation.
The Restated Certificate of Incorporation provides that all shares of Common
Stock and Class B Stock share equally in dividends (other than dividends
declared with respect to any outstanding Preferred Stock), except that any
stock dividends are payable in shares of Common Stock to holders of that class
and in Class B Stock to holders of that class. Upon liquidation, all shares of
Common Stock and Class B Stock are entitled to share equally in the assets of
the company available for distribution to the holders of such shares.
On January 9, 1998, all outstanding shares of Series A Depositary Shares,
representing 1/1,000 of a share of Series A Cumulative Convertible Preferred
Stock, were redeemed at a price of $51.68 per Depositary Share plus an amount
equal to accrued and unpaid dividends.
Series B Depositary Shares, representing 1/2,000 of a share of $1.00 par value
Series B Cumulative Preferred Stock, have a liquidation preference of $25 per
Depositary Share. Shares outstanding at December 31, 1999 numbered 7,096,688
Depositary Shares. Dividends are payable at a rate of $2.0625 per year per
Depositary Share. Series B Cumulative Preferred Stock is not convertible
into shares of Common Stock of the company. On and after December 1, 2002, and
upon satisfaction of certain conditions, the stock is redeemable for cash at
the option of Ford, in whole or in part, at a redemption price equivalent to
$25 per Depositary Share, plus an amount equal to the sum of all accrued and
unpaid dividends.
On January 22, 1998, the company commenced an offer to purchase all Depositary
Shares representing its Series B Cumulative Preferred Stock at a price of
$31.40 per Depositary Share. The offer to purchase was in effect until
February 26, 1998. Depositary Shares purchased totaled 13,229,775.
The Series B Cumulative Preferred Stock ranks (and any other outstanding
Preferred Stock of the company would rank) senior to the Common Stock and Class
B Stock in respect of dividends and liquidation rights.
Changes to the number of shares of capital stock issued for the periods
indicated were as follows (shares in millions):
Preferred
Common Class B -------------------------
Stock Stock Series A Series B
------------ ------------ ------------ ------------
Issued at December 31, 1996 1,118 71 0.004 0.010
Changes:
1997 - Conversion of Series A Preferred Stock 4 (0.001)
- Employee benefit plans and other 10
1998 - Conversion and Redemption of Series A 8 (0.003)
Preferred Stock
- Employee benefit plans and other 11
- Repurchase of Series B Preferred Stock (0.006)
----- --- ----- -----
Net change 33 0 (0.004) (0.006)
----- --- ----- -----
Issued at December 31, 1999 1,151 71 0.000 0.004
===== === ===== =====
Authorized at December 31, 1999 3,000 265 Total Preferred: 30
FS-22
NOTE 12. Stock Options
- -----------------------
The company has stock options outstanding under the 1990 Long-Term Incentive
Plan and the 1998 Long-Term Incentive Plan. These Plans were approved by the
stockholders. No further grants may be made under the 1990 Plan. Grants may be
made under the 1998 Plan through April 2008. In general, options granted in
1997 under the 1990 Plan and subsequent years under the 1998 Plan become
exercisable 33% after one year from the date of grant, 66% after two years, and
in full after three years. In general, options granted prior to 1997 under the
1990 Plan become exercisable 25% after one year from the date of grant, 50%
after two years, 75% after three years, and in full after four years. Options
under the Plans expire after 10 years from the date of grant. Certain
participants were granted accompanying Stock Appreciation Rights under the
Plans which may be exercised in lieu of the related options. Under the Plans, a
Stock Appreciation Right entitles the holder to receive, without payment, the
excess of the fair market value of the Common Stock on the date of exercise
over the option price, either in Common Stock or cash or a combination. In
addition, grants of Performance/Contingent Stock Rights were made with respect
to 1,179,300 shares in 1999, 1,354,627 shares in 1998, and 936,300 shares in
1997. The number of shares ultimately awarded will depend on the extent to
which the performance targets specified in each Right is achieved, individual
performance of the recipients, and other factors, as determined by the
Compensation and Option Committee of the Board of Directors.
Under the 1998 Plan, up to 2% of Common Stock issued as of December 31 of any
year may be made available for stock options and other plan awards in the next
succeeding calendar year. That limit may be increased up to 3% in any year,
with a corresponding reduction in shares available for grants in future years.
Any unused portion of the 2% limit for any calendar year may be carried forward
and made available for Plan awards in succeeding calendar years. At December 31,
1999, the number of unused shares carried forward aggregated to 18,694,278
shares.
Information concerning stock options is as follows (shares in millions):
1999 1998 1997
-------------------- -------------------- --------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares subject to option Shares Price Shares Price Shares Price
- ------------------------ --------- ---------- ---------- --------- ---------- ----------
Outstanding at beginning of period 70.9 $25.67 50.0 $28.44 50.3 $26.93
New grants (based on fair value of
Common Stock at dates of grant) 14.9 57.84 12.7 58.07 8.6 32.05
Associates adjustment* 24.8
Exercised** (9.1) 20.26 (13.7) 19.97 (8.3) 23.19
Surrendered upon exercise of Stock
Appreciation Rights (0.8) 21.14 (2.5) 22.79 (0.4) 22.44
Terminated and expired (0.6) 37.10 (0.4) 33.58 (0.2) 30.86
--- --- ---
Outstanding at end of period 75.3*** 32.66 70.9 25.67 50.0 28.44
Outstanding but not exercisable (33.5) (34.9) (21.6)
---- ---- ----
Exercisable at end of period 41.8 23.51 36.0 19.53 28.4 25.84
==== ==== ====
- - - - - -
*Outstanding stock options and related exercise prices were adjusted to
preserve the intrinsic value of options as a result of The Associates
spin-off in 1998.
**Exercised at option prices ranging from $10.43 to $44.75 during 1999,
$10.43 to $32.69 during 1998, and $15.00 to $32.69 during 1997.
***Included 43.5 and 31.8 million shares under the 1990 and 1998 Plans,
respectively, at option prices ranging from $10.43 to $64.91 per share. At
December 31, 1999, the weighted-average remaining exercise period relating
to the outstanding options was 6.8 years.
FS-23
NOTE 12. Stock Options (continued)
- -----------------------
The estimated fair value as of date of grant of options granted in 1999, 1998,
and 1997, using the Black-Scholes option-pricing model, was as follows:
1999 1998 1997
----------- ----------- -----------
Estimated fair value per share of
options granted during the year $17.53 $9.25 $5.76
Assumptions:
Annualized dividend yield 3.2% 4.1% 4.8%
Common Stock price volatility 36.5% 28.1% 22.1%
Risk-free rate of return 5.2% 5.7% 6.7%
Expected option term (in years) 5 5 5
The company measures compensation cost using the intrinsic value method.
Accordingly, no compensation cost for stock options has been recognized. If
compensation cost had been determined based on the estimated fair value of
options granted since 1995, the company's net income and income per share would
have been reduced to the pro forma amounts indicated below:
1999 1998 1997
---------------------- ---------------------- -----------------------
As Pro As Pro As Pro
Reported Forma* Reported Forma* Reported Forma*
----------- ---------- ---------- ----------- ----------- -----------
Net income (in millions) $7,237 $7,129 $22,071 $22,014 $6,920 $6,892
Income per share
----------------
Basic $ 5.99 $ 5.90 $ 18.17 $ 18.12 $ 5.75 $ 5.73
Diluted $ 5.86 $ 5.77 $ 17.76 $ 17.71 $ 5.62 $ 5.60
- - - - -
*The pro forma disclosures may not be representative of the effects on
reported net income and income per share for future periods because
only stock options that were granted beginning in 1995 are included in
the above table. The estimated fair value, before tax, of options
granted in 1999, 1998, and 1997 was $256 million, $162 million, and $48
million, respectively.
NOTE 13. Litigation and Claims
- -------------------------------
Various legal actions, governmental investigations and proceedings and claims
are pending or may be instituted or asserted in the future against the company
and its subsidiaries, including those arising out of alleged defects in the
company's products; governmental regulations relating to safety, emissions and
fuel economy; financial services; employment-related matters; dealer, supplier
and other contractual relationships; intellectual property rights; product
warranties; and environmental matters. Certain of the pending legal actions
are, or purport to be, class actions. Some of the foregoing matters involve or
may involve compensatory, punitive, or antitrust or other treble damage claims
in very large amounts, or demands for recall campaigns, environmental
remediation programs, sanctions, or other relief which, if granted, would
require very large expenditures.
Litigation is subject to many uncertainties, and the outcome of individual
litigated matters is not predictable with assurance. Reserves have been
established by the company for certain of the matters discussed in the
foregoing paragraph where losses are deemed probable. It is reasonably
possible, however, that some of the matters discussed in the foregoing
paragraph for which reserves have not been established could be decided
unfavorably to the company or the subsidiary involved and could require the
company or such subsidiary to pay damages or make other expenditures in amounts
or a range of amounts that cannot be estimated at December 31, 1999. The
company does not reasonably expect, based on its analysis, that any adverse
outcome from such matters would have a material effect on future consolidated
financial statements for a particular year, although such an outcome is
possible.
NOTE 14. Commitments and Contingencies
- --------------------------------------
At December 31, 1999, the company had the following minimum rental commitments
under non-cancelable operating leases (in millions): 2000 - $437; 2001 - $346;
2002 - $278; 2003 - $157; 2004 - $107; thereafter- $238. These amounts include
rental commitments related to the sale and leaseback of certain automotive
sector machinery and equipment.
FS-24
NOTE 15. Financial Instruments
- -------------------------------
Estimated fair value amounts have been determined using available market
information and various valuation methods depending on the type of instrument.
In evaluating the fair value information, considerable judgment is required to
interpret the market data used to develop the estimates. The use of different
market assumptions and/or different valuation techniques may have a material
effect on the estimated fair value amounts. Further, it should be noted that
fair value at a particular point in time gives no indication of future gain or
loss, or what the dimensions of that gain or loss are likely to be.
Balance Sheet Financial Instruments
- -----------------------------------
Information about specific valuation techniques and estimated fair values is
provided throughout the Notes to Financial Statements. Book value and estimated
fair value amounts at December 31 were as follows (in millions):
1999 1998
----------------------- -----------------------
Book Fair Book Fair Fair Value
Value Value Value Value Reference
----------- ----------- ----------- ----------- -----------
Automotive Sector
-----------------
Marketable securities $ 18,943 $ 18,943 $ 20,120 $ 20,120 Note 2
Debt 12,144 13,935 9,834 10,809 Note 10
Financial Services Sector
-------------------------
Marketable securities $ 733 $ 733 $ 968 $ 968 Note 2
Receivables 105,577 106,552 90,010 89,847 Note 3
Debt 139,919 139,979 122,324 124,320 Note 10
Foreign Currency and Interest Rate Instruments
- ----------------------------------------------
The fair value of foreign currency and interest rate instruments was estimated
using current market rates provided by outside quotation services. The
estimated notional amount and fair value at December 31 were as follows (in
millions):
Fair Value
----------------------------
1999 Notional Amount Asset Liability
---- ------------------ -------------- -------------
Interest rate products $125,329 $397 $ 478
Currency products 44,340 674 1,664
1998
----
Interest rate products 96,061 922 309
Currency products 33,066 721 704
The notional amount represents the contract amount, not the amount at risk. The
deferred loss for foreign currency instruments was $285 million at December 31,
1999, compared to a deferred gain of $28 million at December 31, 1998. The
deferred loss for 1999 is the sum of unrecognized gains and losses on the
underlying transactions or commitments.
Counterparty Credit Risk
- ------------------------
Ford manages its foreign currency and interest rate counterparty credit risks
by limiting exposure to and by monitoring the financial condition of each
counterparty. The amount of exposure Ford may have to a single counterparty on
a worldwide basis is limited by company policy. In the unlikely event that a
counterparty fails to meet the terms of a foreign currency or an interest rate
instrument, the company's risk is limited to the fair value of the instrument.
Other Financial Agreements
- --------------------------
At December 31, 1999, the notional amount of commodity hedging contracts
outstanding totaled $2,700 million: the notional amount at December 31, 1998
was $853 million. The company also had guaranteed $586 million of debt of
unconsolidated subsidiaries, affiliates and others at December 31, 1999. The
risk of loss under these financial agreements is not material.
FS-25
NOTE 16. Acquisitions, Dispositions and Restructuring
- ------------------------------------------------------
Automotive Sector
- -----------------
Acquisitions
- ------------
Purchase of AB Volvo's Worldwide Passenger Car Business ("Volvo Car") - On
March 31, 1999, we purchased Volvo Car for approximately $6.45 billion
The acquisition price consisted of a cash payment of approximately $2
billion on March 31, 1999, a deferred payment obligation to AB Volvo of
approximately $1.6 billion due March 31, 2001, and Volvo Car automotive net
indebtedness of approximately $2.9 billion. Most automotive indebtedness
was repaid on April 12, 1999. The purchase price payment and automotive
debt repayments were funded from our cash reserves.
The acquisition has been accounted for as a purchase. The assets
purchased, liabilities assumed and the results of operations, since the
date of acquisition, are included in our financial statements on a
consolidated basis.
The purchase price for Volvo Car has been allocated to the assets acquired
and liabilities assumed based on the estimated fair values as of the
acquisition date. The excess of the purchase price over the estimated fair
value of net assets acquired is approximately $2.5 billion and is being
amortized on a straight-line basis over 40 years. Value assigned to
identified intangible assets is approximately $400 million and is being
amortized on a straight-line basis over periods ranging from 12 to 40
years. The purchase price allocation included a write-up of inventory to
fair value; the sale of this inventory in the second quarter of 1999
resulted in a one-time increase in cost of sales of $146 million after-tax.
Purchase of Kwik-Fit Holdings plc - During the third quarter of 1999, we
completed the purchase of all the outstanding stock of Kwik-Fit Plc
("Kwik-Fit"). Kwik-Fit is Europe's largest independent vehicle maintenance
and light repair chain, with over 1,900 outlets in the United Kingdom,
Ireland, and continental Europe. The acquisition price was approximately
$1.6 billion and consisted of cash payments of approximately $1.4 billion
and loan notes to certain Kwik-Fit shareholders of approximately $0.2
billion, redeemable beginning on April 30, 2000 and on any subsequent
interest payment date. The purchase price payments were funded from our
cash reserves.
The acquisition has been accounted for as a purchase. The assets
purchased, liabilities assumed and the results of operations, since June
30, 1999, are included in our financial statements on a consolidated basis.
The purchase price for Kwik-Fit has been allocated to the assets acquired
and liabilities assumed based on the estimated fair values as of the
acquisition date. The excess of the purchase price over the estimated fair
value of the net assets acquired is approximately $1.1 billion and is
being amortized on a straight-line basis over 30 years. Value assigned to
identified intangible assets is approximately $400 million and is being
amortized on a straight-line basis over periods ranging from 10 to 30
years.
Purchase of Plastic Omnium - On June 30, 1999, we purchased (through
Visteon) Plastic Omnium's automotive interior business for approximately
$500 million. The automotive interior business of Plastic Omnium has 14
facilities in four countries in Europe: France, Spain, Italy and the UK.
The purchase was funded from our cash reserves.
The acquisition has been accounted for as a purchase. The assets
purchased, liabilities assumed and the results of operations, since the
date of acquisition, are included in our financial statements on a
consolidated basis.
The purchase price for Plastic Omnium has been allocated to the assets
acquired and liabilities assumed based on estimated fair values as of the
acquisition date. The excess of the purchase price over the estimated
fair value of net assets acquired is approximately $300 million and is
being amortized on a straight-line basis over 20 years.
FS-26
NOTE 16. Acquisitions, Dispositions and Restructuring (continued)
- ------------------------------------------------------
Assuming the acquisitions described above had taken place on January 1, 1999
and 1998, our total (Automotive and Financial Services) pro forma revenue, net
income, and earnings per share for the fourth quarter and twelve months ended
December 31, 1999 would not have been materially affected. For the twelve month
period ended December 31, 1998, unaudited pro forma revenue would have been
$158.7 billion. Net income and earnings per share for this period would not be
materially affected.
Dissolution of AutoEuropa Joint Venture
- ---------------------------------------
Effective January 1, 1999, our joint venture for the production of minivans
with Volkswagen AG in Portugal (AutoEuropa) was dissolved resulting in a $255
million pre-tax gain ($165 million after-tax). The gain was recorded in the
first quarter 1999 and credited to cost of sales.
Write-Down of Kia Motors Corporation
- ------------------------------------
During the fourth quarter of 1998, Ford recorded a pre-tax charge of $111
million ($86 million after taxes) to write-off its net exposure to Kia Motors
Corporation ("Kia"). The write-off of Ford's exposure was recorded in cost of
sales. Ford's share of Mazda Motor Corporation's ("Mazda") exposure was
recorded in equity in net income of affiliates.
Batavia/ZF Friedrichshafen AG Joint Venture
- -------------------------------------------
During the fourth quarter of 1998, Ford recorded in cost of sales a pre-tax
charge of $112 million ($73 million after taxes) related to the fair value
transfer of its Batavia (Ohio) Transmission Plant to a new joint venture
company formed by Ford and ZF Friedrichshafen AG of Germany. The new joint
venture is reflected in Ford's consolidated financial statements on an equity
basis.
Restructurings
- --------------
Ford recorded a pre-tax charge of $726 million ($472 million after taxes) in
the fourth quarter of 1998, reflecting retirement and separation program
actions that were completed during 1998 and 1999. These special voluntary and
involuntary programs reduced the workforce by 2,184 persons in North America
(all salaried), 1,977 in Europe (1,304 hourly and 673 salaried) and 4,650 in
South America (4,400 hourly and 250 salaried). The costs were charged to the
Automotive segment ($674 million) in cost of sales, Visteon segment ($38
million) in cost of sales, Ford Credit segment ($9 million) in operating and
other expenses, and other Financial Services operations ($5 million) in
operating and other expenses.
Ford recorded a pre-tax charge of $272 million ($169 million after taxes) in
the second quarter of 1997, reflecting actions that were completed during 1997
and 1998. These included primarily the discontinuation of passenger car
production at the Lorain Assembly Plant resulting in a write-down of surplus
assets. The charge also included employee termination costs related to the
elimination of a shift at the Halewood (England) Plant, and a loss on the sale
of the heavy truck business.
Financial Services Sector
- -------------------------
Associates First Capital Corporation ("The Associates")
- -------------------------------------------------------
During the second quarter of 1998, the company completed a spin-off of Ford's
80.7% (279.5 million shares) interest in The Associates. As a result of the
spin-off of The Associates, Ford recorded a gain of $15,955 million in the
first quarter of 1998 based on the fair value of The Associates as of the
record date, March 12, 1998. The spin-off qualified as a tax-free transaction
for U.S. federal income tax purposes. During the second quarter of 1996, The
Associates completed an initial public offering ("IPO") of its Common Stock
representing a 19.3% economic interest in The Associates. Ford recorded a
second quarter 1996 gain of $650 million resulting from the IPO; the gain was
not subject to income taxes.
FS-27
NOTE 16. Acquisitions, Dispositions and Restructuring (continued)
- -----------------------------------------------------
The Hertz Corporation ("Hertz")
- -------------------------------
In the second quarter of 1997, Hertz, a subsidiary of Ford, completed an IPO of
its Common Stock representing a 19.1% economic interest in Hertz. Ford recorded
a second quarter 1997 gain of $269 million resulting from the IPO; the gain was
not subject to income taxes.
NOTE 17. Cash Flows
- -------------------
The reconciliation of net income to cash flows from operating activities is as
follows (in millions):
1999 1998 1997
------------------------ ---------------------- -------------------------
Financial Financial Financial
Automotive Services Automotive Services Automotive Services
----------- ------------ ----------- ---------- ------------ ------------
Net income $ 5,721 $ 1,516 $ 4,752 $ 17,319 $ 4,714 $ 2,206
Adjustments to reconcile net income
to cash flows from operating activities:
Depreciation and amortization 5,895 9,298 5,844 8,624 6,020 7,764
Losses/(earnings) of affiliated
companies in excess of dividends
remitted (37) 25 82 (2) 127 (1)
Provision for credit and
insurance losses - 1,465 - 1,798 - 3,230
Foreign currency adjustments 316 - (208) - (27) -
Net (purchases)/sales of trading
securities 2,316 (157) (5,434) (205) (2,307) 67
Provision for deferred income taxes 278 1,565 421 1,307 908 (102)
Gain on spin-off of The Associates
(Note 16) - - - (15,955) - -
Gain on sale of Common Stock of a
subsidiary (Note 16) - - - - - (269)
Changes in assets and liabilities:
Decrease/(increase) in accounts
receivable and other current assets (1,107) (331) 1,027 (1,189) (179) 256
(Increase)/decrease in inventory 893 - (254) - 1,234 -
Increase/(decrease) in accounts payable
and accrued and other liabilities 2,648 (1,213) 2,915 890 3,772 (240)
Other 348 372 477 891 (278) 739
------- ------- ------- -------- ------- -------
Cash flows from operating activities $17,271 $12,540 $ 9,622 $ 13,478 $13,984 $13,650
======= ======= ======= ======== ======= =======
The company considers all highly liquid investments purchased with a maturity
of three months or less, including short-term time deposits and government,
agency and corporate obligations, to be cash equivalents. Automotive sector
cash equivalents at December 31, 1999 and 1998 were $3.1 billion and $3.4
billion, respectively; Financial Services sector cash equivalents at December
31, 1999 and 1998 were $1.1 billion and $500 million, respectively. Cash flows
resulting from futures contracts, forward contracts and options that are
accounted for as hedges of identifiable transactions are classified in the same
category as the item being hedged. Purchases, sales and maturities of trading
securities are included in cash flows from operating activities. Purchases,
sales and maturities of available-for-sale and held-to-maturity securities are
included in cash flows from investing activities.
Cash paid for interest and income taxes was as follows (in millions):
1999 1998 1997
----------- ----------- -----------
Interest $8,524 $9,120 $10,430
Income taxes 1,125 1,764 1,289
FS-28
NOTE 18. Segment Information
- -----------------------------
Ford adopted Statement of Financial Accounting Standards No. 131, Disclosures
about Segments of an Enterprise and Related Information, effective with
year-end 1998. This standard requires companies to disclose selected financial
data by operating segment (defined in Note 1). Ford has identified four primary
operating segments: Automotive, Visteon, Ford Credit, and Hertz. Segment
selection was based upon internal organizational structure, the way in which
these operations are managed and their performance evaluated by management and
Ford's Board of Directors, the availability of separate financial results, and
materiality considerations. Segment detail is summarized as follows (in
millions):
Automotive Sector Financial Services Sector
----------------------- ----------------------------------- Total Total
Auto- Ford Other Elims/ Auto Fin Svcs
motive Visteon Credit Hertz Fin Svcs Other Sector Sector
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
1999
- ----
Revenues
External customer $135,073 $ 2,261 a/ $ 20,020 $ 4,695 $ 866 $ (357) $136,973 $ 25,585
Intersegment 4,514 17,105 340 33 170 (22,162) 0 0
-------- ------- -------- ------- ------- -------- -------- --------
Total Revenues $139,587 $19,366 $ 20,360 $ 4,728 $ 1,036 $(22,519) $136,973 $ 25,585
======== ======= ======== ======= ======= ======== ======== ========
Income
Income before taxes $ 7,467 $ 1,172 $ 2,104 $ 560 $ (85) $ (192) $ 8,447 $ 2,579
Provision for income tax 2,318 422 791 224 (18) (67) 2,673 997
Net income 5,111 735 1,261 336 (15) (191) 5,721 1,516
Other Disclosures
Depreciation/amortization $ 5,244 $ 651 $ 7,565 b/ $ 1,357 $ 326 $ 50 $ 5,895 $ 9,298
Interest income 1,584 79 - - - (235) 1,428 -
Interest expense 1,488 143 7,193 354 633 (735) 1,397 7,679
Capital expenditures 7,069 876 82 351 157 0 7,945 590
Unconsolidated affiliates
Equity in net income 35 47 (25) 0 0 0 82 (25)
Investments in 2,539 205 97 0 8 0 2,744 105
Total assets at year-end 100,132 12,506 156,631 10,137 12,427 (15,604) 105,181 171,048
- ---------------------------------------------------------------------------------------------------------------------------------
1998
- ----
Revenues
External customer $118,017 $ 1,412 a/ $ 19,095 $ 4,241 $ 1,997 $ (346) $119,083 $ 25,333
Intersegment 3,839 16,350 208 9 272 (20,678) 0 0
-------- ------- -------- ------- ------- -------- -------- --------
Total Revenues $121,856 $17,762 $ 19,303 $ 4,250 $ 2,269 $(21,024) $119,083 $ 25,333
======== ======= ======== ======= ======= ======== ======== ========
Income
Income before taxes $ 5,829 $ 1,116 $ 1,812 $ 465 $16,161 c/ $ 13 $ 6,958 $ 18,438
Provision for income tax 1,739 416 680 188 149 4 2,159 1,017
Net income 4,040 703 1,084 277 16,060 c/ (93) 4,752 17,319
Other Disclosures
Depreciation/amortization $ 5,279 $ 565 $ 7,327 b/ $ 1,212 $ 54 $ 31 $ 5,844 $ 8,624
Interest income 1,453 38 - - - (160) 1,331 -
Interest expense 1,109 82 6,910 318 1,114 (668) 829 8,036
Capital expenditures 7,252 861 67 317 120 0 8,113 504
Gain on spin-off of
The Associates 0 0 0 0 15,955 c/ 0 0 15,955
Unconsolidated affiliates
Equity in net income (64) 26 2 0 0 0 (38) 2
Investments in 2,187 214 76 0 0 0 2,401 76
Total assets at year-end 83,390 9,373 137,248 8,873 6,181 (7,520) 88,744 148,801
- ---------------------------------------------------------------------------------------------------------------------------------
1997
- ----
Revenues
External customer $121,976 $ 1,217 a/ $ 17,144 $ 3,895 $ 9,653 $ (258) $122,935 $ 30,692
Intersegment 4,749 16,003 201 10 266 (21,229) 0 0
-------- ------- -------- ------- ------- -------- -------- --------
Total Revenues $126,725 $17,220 $ 17,345 $ 3,905 $ 9,919 $(21,487) $122,935 $ 30,692
======== ======= ======== ======= ======= ======== ======== ========
Income
Income before taxes $ 6,257 $ 815 $ 1,806 $ 343 $ 1,708 d/ $ 10 $ 7,082 $ 3,857
Provision for income tax 2,014 305 727 142 550 3 2,322 1,419
Net income 4,196 511 1,031 202 1,205 d/ (225) 4,714 2,206
Other Disclosures
Depreciation/amortization $ 5,430 $ 590 $ 6,188 b/ $ 1,088 $ 463 $ 25 $ 6,020 $ 7,764
Interest income 1,228 17 - - - (129) 1,116 -
Interest expense 904 82 6,268 316 3,523 (593) 788 9,712
Capital expenditures 7,225 917 49 211 315 0 8,142 575
Gain on Hertz IPO 0 0 0 0 269 d/ 0 0 269
Unconsolidated affiliates
Equity in net income (117) 29 1 0 0 0 (88) 1
Investments in 1,756 195 84 0 0 0 1,951 84
Total assets at year-end 82,306 8,471 121,973 7,436 68,348 (9,437) 85,079 194,018
- - - - - -
a/ Includes sales to outside fabricators for inclusion in components sold to
Ford's Automotive segment. These sales are eliminated in total Automotive
sector reporting.
b/ Includes depreciation of operating leases only. Other types of
Depreciation/amortization for Ford Credit are included in the Elims/Other
column.
c/ Includes $15,955 non-cash gain (not taxed) on spin-off of The Associates in
the first quarter of 1998 (Note 16).
d/ Includes $269 gain (not taxed) on Hertz IPO in the second quarter of 1997
(Note 16).
FS-29
NOTE 18. Segment Information (continued)
- -----------------------------
"Other Financial Services" data is an aggregation of miscellaneous smaller
Financial Services sector business components, including Ford Motor Land
Development Corporation, Ford Leasing Development Company, Ford Leasing
Corporation, and Granite Management Corporation, and certain unusual
transactions (footnoted). Also included is data for The Associates, which was
spun-off from Ford in 1998.
"Eliminations/Other" data includes intersegment eliminations and minority
interest calculations. Data for "Depreciation/amortization" includes
depreciation of fixed assets and assets subject to operating leases,
amortization of special tools, and amortization of intangible assets. Interest
income for the operating segments in the Financial Services sector is reported
as "Revenue".
Information concerning principal geographic areas was as follows (in millions):
Geographic Areas United All Total
---------------- States Europe Other Company
----------- ----------- ----------- -----------
1999
----
External revenues $112,420 $33,182 $16,956 $162,558
Net property 27,738 14,372 7,642 49,752
1998
----
External revenues $100,597 $27,026 $16,793 $144,416
Net property 25,761 11,018 7,260 44,039
1997
----
External revenues $105,581 $27,618 $20,428 $153,627
Net property 23,948 9,596 7,090 40,634
FS-30
NOTE 19. Summary Quarterly Financial Data (Unaudited)
- -----------------------------------------------------
(in millions, except amounts per share)
1999 1998
---------------------------------------- ----------------------------------------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
--------- --------- --------- ---------- --------- --------- --------- ----------
Automotive
Sales $31,933 $35,921 $31,338 $37,781 $29,076 $31,309 $26,494 $32,204
Operating income 2,387 2,898 1,010 2,084 1,806 2,922 777 1,180
Financial Services
Revenues 5,952 6,361 6,635 6,637 7,508 5,980 6,146 5,699
Income before income taxes 547 689 742 601 16,813 590 645 390
Total Company
Net income $ 1,979 $ 2,338 $ 1,114 $ 1,806 $17,646 $ 2,381 $ 1,001 $ 1,043
Less:
Preferred Stock dividend
requirements 4 4 4 3 95 4 4 4
------- ------- ------- ------- ------- ------- ------- -------
Income attributable
to Common and
Class B Stock $ 1,975 $ 2,334 $ 1,110 $ 1,803 $17,551 $ 2,377 $ 997 $ 1,039
======= ======= ======= ======= ======= ======= ======= =======
AMOUNTS PER SHARE OF COMMON
AND CLASS B STOCK AFTER
PREFERRED STOCK DIVIDENDS
Basic income $ 1.64 $ 1.93 $ 0.92 $ 1.50 $ 14.48 $ 1.96 $ 0.82 $ 0.86
Diluted income 1.60 1.89 0.90 1.47 14.23 1.91 0.80 0.84
Cash dividends 0.46 0.46 0.46 0.50 0.42 0.42 0.42 0.46
FS-31
PricewaterhouseCoopers LLP
400 Renaissance Center
Detroit, MI 48243-1507
Telephone (313)394-6000
Facsimile (313)394-6555
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Ford Motor Company:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, stockholders' equity and cash flows present
fairly, in all material respects, the financial position of Ford Motor Company
and Subsidiaries at December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/PricewaterhouseCoopers LLP
January 24, 2000
FS-32
Supplemental Schedule
Ford Motor Company
CONDENSED FINANCIAL INFORMATION OF SUBSIDIARY
---------------------------------------------
(in millions)
FORD CAPITAL B.V.
- -----------------
December 31, December 31,
1999 1998
------------ ------------
Current assets $ 579 $ 621
Noncurrent assets 2,372 2,388
------ ------
Total assets $2,951 $3,009
====== ======
Current liabilities $1,088 $ 394
Noncurrent liabilities 1,680 2,430
Minority interests in net
assets of subsidiaries 2 15
Stockholder's equity 181 170
------ ------
Total liabilities and
stockholder's equity $2,951 $3,009
====== ======
1999 1998 1997
-------- -------- --------
Sales and other revenue $2,556 $2,381 $2,527
Operating income 112 73 47
Income before income taxes 65 63 4
Net (loss)/income 34 52 (21)
Ford Capital B.V., a wholly-owned subsidiary of Ford Motor Company, was
established primarily for the purpose of raising funds through the issuance of
commercial paper and debt securities. Ford Capital B.V. also holds shares of
the capital stock of Ford Nederland B.V., Ford Motor Company (Belgium) N.V.,
Ford Motor Company A/S (Denmark), Ford Poland S.A., and Ford Distribution Sp.
Z.o.o., Ltd. Substantially all of the assets of Ford Capital B.V., other than
its ownership interests in subsidiaries, represent receivables from Ford Motor
Company or its consolidated subsidiaries.
FSS-1
PricewaterhouseCoopers LLP
400 Renaissance Center
Detroit, MI 48243-1507
Telephone (313)394-6000
Facsimile (313)394-6555
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders
Ford Motor Company:
Our audits of the consolidated financial statements of Ford Motor Company and
Subsidiaries referred to in our report dated January 24, 2000 in this Annual
Report on Form 10-K also included an audit of the financial statement schedule
listed in Item 14(a)(2) of this Form 10-K. In our opinion, this financial
statement schedule presents fairly, in all material respects, the information
set forth therein when read in conjunction, with the consolidated financial
statement of Ford Motor Company and Subsidiaries.
/s/PricewaterhouseCoopers LLP
January 24, 2000
FSS-2
EXHIBIT INDEX
Designation Description Method of Filing
- ----------- ----------- ----------------
Exhibit 3-A Restated Certificate of Incorporation, Filed as Exhibit 3.1 to Ford's Quarterly
dated April 9, 1998. Report on Form 10-Q for the quarter
ended March 31, 1998.*
Exhibit 3-B By-Laws as amended Filed as Exhibit 3-B to Ford's Annual
through January 1, 1999. Report on Form 10-K for the year
ended December 31, 1998.*
Exhibit 4 Form of Deposit Agreement dated as of Filed as Exhibit 4-E to Ford's
October 29, 1992 among Ford, Registration Statement No. 33-53092.*
Chemical Bank, as Depositary,
and the holders from time to time of
Depositary Shares, each representing
1/2,000 of a share of Ford's
Series B Cumulative Preferred Stock.
Exhibit 10-A Amended and Restated Profit Filed as Exhibit 10-A to the Registrant's
Maintenance Agreement, dated as of Annual Report on Form 10-K for the
January 1, 1999, between Ford year ended December 31, 1998.*
and Ford Credit.
Exhibit 10-B 1985 Stock Option Plan.** Filed as Exhibit 10-D to Ford's
Annual Report on Form 10-K for the
year ended December 31, 1985.*
Exhibit 10-B-1 Amendment dated as of March 8, 1990 Filed as Exhibit 10-C-1 to Ford's
to 1985 Stock Option Plan.** Annual Report on Form 10-K for
the year ended December 31, 1989.*
Exhibit 10-B-2 Amendment to 1985 Stock Option Plan, Filed as Exhibit 4.C to Amendment No.
effective as of January 8, 1998.** 1 to Ford's Registration Statement
No. 33-9722.*
Exhibit 10-C Executive Separation Allowance Plan Filed as Exhibit 10-D to Ford's
as amended through December 9, 1993 Annual Report on Form 10-K for the
for separations on or after January 1, 1981.** year ended December 31, 1994.*
Exhibit 10-D Description of Ford practices regarding Filed as Exhibit 10-I to Ford's
club memberships for executives.** Annual Report on Form 10-K for the
year ended December 31, 1981.*
Exhibit 10-E Description of Ford practices regarding Filed as Exhibit 10-J to Ford's
travel expenses of spouses of certain Annual Report on Form 10-K for the
executives.** year ended December 31, 1980.*
Exhibit 10-F Deferred Compensation Plan for Filed as Exhibit 10-H-1 to Ford's
Non-Employee Directors, as amended Annual Report on Form 10-K for the
on July 11, 1991.** year ended December 31, 1991.*
Exhibit 10-F-1 Amendments to Deferred Compensation Plan Filed as Exhibit 10-G-1 to Ford's
for Non-Employee Directors, effective as of Annual Report on Form 10-K for the
January 1, 1996.** year ended December 31, 1995.*
EXHIBIT INDEX (continued)
Designation Description Method of Filing
- ----------- ----------- ----------------
Exhibit 10-F-2 Amendment to Deferred Compensation Plan Filed as Exhibit 10-G-2 to Ford's
for Non-Employee Directors, effective as of Annual Report on Form 10-K for the
November 14, 1996.** year ended December 31, 1996.*
Exhibit 10-G Benefit Equalization Plan, as Filed as Exhibit 10-H to Ford's
amended as of January 1, 1989.** Annual Report on Form 10-K for the
year ended December 31, 1994.*
Exhibit 10-G-1 Description of Amendments to Benefit Filed as Exhibit 10-H-1 to Ford's
Equalization Plan, adopted January 11, Annual Report on Form 10-K for the
1996 and January 25, 1996.** year ended December 31, 1995.*
Exhibit 10-H Description of financial counseling Filed as Exhibit 10-N to Ford's
services provided to certain executives.** Annual Report on Form 10-K for the
year ended December 31, 1983.*
Exhibit 10-I Supplemental Executive Retirement Plan, Filed as Exhibit 10-K to Ford's
as restated and incorporating amendments Annual Report on Form 10-K for the
through December 12, 1995.** year ended December 31, 1995.*
Exhibit 10-J Restricted Stock Plan for Non-Employee Filed as Exhibit 10-P to Ford's
Directors adopted by the Board of Annual Report on Form 10-K for the
Directors on November 10, 1988, year ended December 31, 1988.*
and approved by the stockholders at
the 1989 Annual Meeting.**
Exhibit 10-J-1 Amendment to Restricted Stock Plan for Filed as Exhibit 10.1 to Ford's
Non-Employee Directors, effective as of Quarterly Report on Form 10-Q for the
August 1, 1996.** quarter ended September 30, 1996.*
Exhibit 10-K 1990 Long-Term Incentive Plan, Filed as Exhibit 10-R to Ford's
amended as of June 1, 1990.** Annual Report on Form 10-K for the
year ended December 31, 1990.*
Exhibit 10-K-1 Amendment to 1990 Long-Term Incentive Filed as Exhibit 10-P-1 to Ford's
Plan, effective as of October 1, 1990.** Annual Report on Form 10-K for the
year ended December 31, 1991.*
Exhibit 10-K-2 Amendment to 1990 Long-Term Incentive Filed as Exhibit 10.2 to Ford's
Plan, effective as of March 8, 1995.** Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995.*
Exhibit 10-K-3 Amendment to 1990 Long-Term Filed as Exhibit 10-M-3 to Ford's
Incentive Plan, effective as of Annual Report on Form 10-K for the
October 1, 1997.** year ended December 31, 1997.*
Exhibit 10-K-4 Amendment to 1990 Long-Term Filed as Exhibit 10-M-4 to Ford's
Incentive Plan, effective as of Annual Report on Form 10-K for the
January 1, 1998.** year ended December 31, 1997.*
-2-
EXHIBIT INDEX (continued)
Designation Description Method of Filing
- ----------- ----------- ----------------
Exhibit 10-L Description of Matching Gift Program for Filed as Exhibit 10-Q to Ford's
Non-Employee Directors.** Annual Report on Form 10-K for the
year ended December 31, 1991.*
Exhibit 10-M Non-Employee Directors Life Insurance Filed as Exhibit 10-O to Ford's
and Optional Retirement Plan Annual Report on Form 10-K for the
(as amended as of January 1, 1993).** year ended December 31, 1994.*
Exhibit 10-N Description of Non-Employee Directors Filed as Exhibit 10-S to Ford's
Accidental Death, Dismemberment and Annual Report on Form 10-K for the
Permanent Total Disablement Indemnity.** year ended December 31, 1992.*
Exhibit 10-O Agreement dated December 10, 1992 Filed as Exhibit 10-T to Ford's
between Ford and William C. Ford.** Annual Report on Form 10-K for the
year ended December 31, 1992.*
Exhibit 10-P Support Agreement dated as of October 1, Filed as Exhibit 10-T to Ford's
1993 between Ford and FCE Bank. Annual Report on Form 10-K for the
year ended December 31, 1993.*
Exhibit 10-P-1 Amendment No. 1 dated as of November Filed as Exhibit 10-R-1 to Ford's
15, 1995 to Support Agreement between Annual Report on Form 10-K for the
Ford and FCE Bank. year ended December 31, 1995.*
Exhibit 10-Q Select Retirement Plan Filed as Exhibit 10-S to Ford's
adopted on June 9, 1994.** Annual Report on Form 10-K for the
year ended December 31, 1996.*
Exhibit 10-R Deferred Compensation Plan, Filed with this Report.
amended and restated as of
January 1, 2000.**
Exhibit 10-S Description of Amendments to Supplemental Filed as Exhibit 10-U to Ford's
Executive Retirement Plan and Executive Annual Report on Form 10-K for the
Separation Allowance Plan, adopted year ended December 31, 1995.*
January 25, 1996.**
Exhibit 10-S-2 Description of Amendment to Supplemental Filed as Exhibit 10-U-2 to Ford's
Executive Retirement Plan and Executive Annual Report on Form 10-K for the
Separation Allowance Plan, effective as of year ended December 31, 1996.*
July 1, 1996.**
Exhibit 10-S-3 Description of Amendment to Supplemental Filed as Exhibit 10-U-3 to Ford's
Executive Retirement Plan adopted Annual Report on Form 10-K for
September 10, 1998. ** the year ended December 31, 1998.*
Exhibit 10-T Annual Incentive Compensation Plan, Filed with this Report.
as amended and restated as of
January 1, 2000.**
-3-
EXHIBIT INDEX (continued)
Designation Description Method of Filing
- ----------- ----------- ----------------
Exhibit 10-U 1998 Long-Term Incentive Plan, Filed as Exhibit 10-W to Ford's
effective as of January 1, 1998.** Annual Report on Form 10-K for the
year ended December 31, 1997.*
Exhibit 10-U-1 Amendment to 1998 Long-Term Incentive Filed as Exhibit 10-W-1 to Ford's
Plan, effective as of January 1, 1999.** Annual Report on Form 10-K for
the year ended December 31, 1998.*
Exhibit 10-U-2 Amendment to 1998 Long-Term Incentive Filed with this Report.
Plan, effective as of March 10, 2000.**
Exhibit 10-V Agreement dated January 13, 1999 Filed as Exhibit 10-X to Ford's Annual
between Ford and Edsel B. Ford II.** Report on Form 10-K for the year
ended December 31, 1998.*
Exhibit 12 Computation of Ratio of Earnings to Filed with this Report.
Combined Fixed Charges and Preferred
Stock Dividends.
Exhibit 21 List of Subsidiaries of Ford Filed with this Report.
as of March 15, 2000.
Exhibit 23 Consent of Independent Certified Public Filed with this Report.
Accountants.
Exhibit 24 Powers of Attorney. Filed with this Report.
- -------------------------
* Incorporated by reference as an exhibit to this Report (file number
reference 1-3950, unless otherwise indicated)
** Management contract or compensatory plan or arrangement
-4-