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1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1994
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 1-6368
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FORD MOTOR CREDIT COMPANY
-------------------------
(Exact name of registrant as specified in its charter)
Delaware 38-1612444
---------------------- ----------------------------------
(State of Incorporation) (I.R.S. employer identification no.)
The American Road, Dearborn, Michigan 48121
-------------------------------------- --------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (313) 322-3000
-------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class on which registered
------------------- -----------------------
6 3/8% Notes due November 5, 2008 New York Stock Exchange
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___
As of February 28, 1995, the registrant had outstanding 250,000 shares of
Common Stock.
THE REGISTRANT MEETS THE CONDITION SET FORTH IN GENERAL INSTRUCTION
J(1)(a) AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
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PART I
ITEM 1. BUSINESS
The registrant, Ford Motor Credit Company, was incorporated in Delaware
in 1959 and is a wholly owned subsidiary of Ford Motor Company (the "Company"
or "Ford"). As used herein "Ford Credit" refers to Ford Motor Credit Company
and its subsidiaries unless the context otherwise requires.
Ford Credit provides wholesale financing and capital loans to franchised
Ford Motor Company vehicle dealers and other dealers associated with such
franchisees and purchases retail installment sale contracts and retail leases
from them. Ford Credit also makes loans to vehicle leasing companies, the
majority of which are affiliated with such dealers. In addition, a wholly owned
subsidiary of Ford Credit provides these financing services in the U.S. to
other vehicle dealers. Vehicle financing accounted for 97.9% of the dollar
volume of financing done by Ford Credit in 1994 and 97.5% in 1993. More than
84% of all new vehicles financed by Ford Credit are manufactured by Ford or its
affiliates. Ford Credit also provides retail financing for used vehicles built
by Ford and other manufacturers, which accounted for 19% of the dollar volume
of retail vehicle financing done by Ford Credit in both 1994 and 1993. In
addition to vehicle financing, Ford Credit makes loans to affiliates of Ford,
finances certain receivables of Ford and its subsidiaries, and offers
diversified financing services which are managed by USL Capital Corporation
(formerly United States Leasing International, Inc.) ("USL Capital"), a wholly
owned subsidiary of Ford Holdings, Inc. ("Ford Holdings").
In 1994 and 1993, United States operations, conducted in all 50 states,
the District of Columbia and Puerto Rico, accounted for 93.2% and 93.8%,
respectively, of the dollar volume of Ford Credit's financing business;
Canadian operations accounted for 5.1% and 4.6%, respectively, of such volume
in these periods. The balance was in Australia and Japan. In addition, Ford
Credit manages the vehicle financing operations of Ford in other foreign
countries which are conducted through other subsidiaries of Ford.
Ford Credit manages the insurance business of The American Road Insurance
Company ("American Road"), a wholly owned subsidiary of Ford Holdings. Ford
Credit is a significant equity participant in Ford Holdings whose primary
activities consist of consumer and commercial financing operations, insurance
underwriting and equipment leasing.
The business of Ford Credit is substantially dependent upon Ford Motor
Company. See "Vehicle Financing" and "Borrowings and Other Sources of Funds"
under the caption "Business of Ford Credit". Also see Item 7 -- "Management's
Discussion and Analysis of Financial Condition and Results of Operations". Any
protracted reduction or suspension of Ford's production or sale of vehicles,
resulting from a decline in demand, a work stoppage, governmental action,
adverse publicity, or other event, could have a substantial adverse effect on
Ford Credit. For additional information concerning Ford's results of
operations, see Ford Motor Company's Annual Report on Form 10-K for the year
ended December 31, 1994 filed with the Securities and Exchange Commission and
for additional information concerning the business of Ford Holdings, see Ford
Holdings' Annual Report on Form 10-K for the year ended December 31, 1994 filed
with the Securities and Exchange Commission.
The mailing address of Ford Credit's executive offices is The American
Road, Dearborn, Michigan 48121. The telephone number of such offices is (313)
322-3000.
SEGMENT INFORMATION
Segment information called for by Item 1 is set forth in Note 15 of Notes
to Financial Statements and is incorporated herein by reference.
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BUSINESS OF FORD CREDIT
Ford Credit accounts for its financing business in four categories --
retail (which consists of vehicle installment sale financing and vehicle lease
financing), wholesale, diversified and other. Total gross finance receivables
and net investment in operating leases outstanding in these four categories
were as follows at the end of the years indicated:
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(IN MILLIONS)
Retail* . . . . . . . . . . . . . . . $60,560.5 $51,210.2 $43,347.9 $37,647.5 $38,660.8
Wholesale . . . . . . . . . . . . . . 15,252.9 11,698.5 10,056.9 11,465.7 12,721.9
Diversified . . . . . . . . . . . . . 2,738.2 2,626.0 2,949.0 4,335.0 4,814.9
Other . . . . . . . . . . . . . . . . 4,263.8 3,681.0 3,376.2 3,441.1 6,405.1
--------- --------- --------- --------- ---------
Total . . . . . . . . . . . . . . . $82,815.4 $69,215.7 $59,730.0 $56,889.3 $62,602.7
========= ========= ========= ========= =========
__________
*Includes net investment in operating leases.
Dollar volume of financing by Ford Credit was as follows during the years
indicated:
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(IN MILLIONS)
Retail* . . . . . . . . . . . . . . . $ 45,402.5 $40,265.9 $32,302.0 $26,271.7 $25,813.1
Wholesale . . . . . . . . . . . . . . 107,253.0 86,776.8 65,772.9 65,146.6 52,553.2
Diversified . . . . . . . . . . . . . 577.7 73.5 63.0 206.0 614.8
Other . . . . . . . . . . . . . . . . 1,882.7 1,578.3 1,457.1 1,137.8 3,134.9
---------- ---------- --------- --------- ---------
Total . . . . . . . . . . . . . . . $155,115.9 $128,694.5 $99,595.0 $92,762.1 $82,116.0
========== ========== ========= ========= =========
__________
* Includes operating lease volume.
VEHICLE FINANCING
RETAIL. Retail financing consists primarily of installment sale financing
and retail lease financing of vehicles and loans to vehicle leasing companies,
most of which are affiliated with franchised Ford Motor Company dealers. The
number of installment sale and lease vehicles financed by Ford Credit was as
follows during the years indicated:
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(IN THOUSANDS)
New . . . . . . . . . . . . . . . . . 1,899 1,799 1,525 1,271 1,302
Used . . . . . . . . . . . . . . . . 690 625 524 441 365
----- ----- ----- ----- -----
Total . . . . . . . . . . . . . . 2,589 2,424 2,049 1,712 1,667
===== ===== ===== ===== =====
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4
The levels of Ford Credit's retail financing volume and outstanding
receivables and lease investments are dependent on several factors, including
new and used vehicle sales and leases, Ford Credit's share of those vehicle
sales and leases and the average cost of vehicles financed. See "Competition in
Vehicle Financing". In addition, receivables levels will vary depending on
sales of receivables.
Installment sale financing consists principally of purchasing and
servicing installment sale contracts covering sales of new and used vehicles by
vehicle dealers to retail customers. The purchase price paid by Ford Credit to
the dealer for an installment sale contract generally is the amount financed.
In addition, a portion of the finance charge is paid or credited to the dealer.
Ford Credit requires a retail customer to carry fire, theft and collision
insurance on the vehicle. For 1994 in the U.S., the average repayment
obligation for new vehicles covered by installment sale contracts purchased by
Ford Credit was $18,319. The corresponding average monthly payment was $365 and
the average original term was 53 months.
Retail lease financing consists principally of purchasing and servicing
lease contracts covering new and used vehicles leased to retail customers by
vehicle dealers. In recent years, vehicle leasing has increased in popularity
by offering the retail customer a lower initial cash outlay for the vehicle and
lower monthly payments when compared with conventional installment sale
financing. Since 1990, retail lease financing has become a larger percentage of
Ford Credit's total retail financing dollar volume, increasing from 15% in 1990
to 32% in 1994. The number of new and used vehicles for which Ford Credit
provided retail lease financing increased from approximately 186,000 units in
1990 to approximately 754,000 units in 1994.
The amount paid by Ford Credit to the dealer for the vehicle and lease
(the "acquisition cost") represents a negotiated amount agreed to between the
dealer and the customer, less any trade-in or downpayment. The monthly lease
payment equals the acquisition cost of the vehicle less the residual value of
the vehicle established by Ford Credit, amortized over the lease term, plus the
lease charge. A retail lessee is required to carry fire, theft, collision and
liability insurance. The acquisition cost to Ford Credit of the vehicle, less
the residual value, is depreciated on a straight line basis over the life of
the lease. Residual values are determined by Ford Credit after analyzing
residual values published by the Automotive Lease Guide and Ford Credit's own
historical experience in the used car market. In addition, joint marketing
programs with Ford's vehicle divisions can affect established residual values.
At lease termination, Ford Credit either sells the vehicle to the dealer for
the established residual value or sells the vehicle at auction for the market
price.
Retail lease terms range from 12 to 60 months with 24 month and 36 month
terms being by far the most popular. The average monthly payment and the
average original term of U.S. retail lease contracts purchased by Ford Credit
in 1994 were $359 and 28 months compared with $370 and 29 months in 1993.
The average original term of the lease financing extended to leasing
companies and daily rental companies by Ford Credit in 1994 was 38 months and
16 months, respectively. Financing charges in connection with such lease
financing generally are fixed, or floating based on short-term interest rates
in effect at the time the financing is extended. These rates may be
supplemented by payments from Ford whenever the rate payable is less than the
specified minimum rate agreed upon between Ford Credit and Ford. At December
31, 1994, 11 leasing companies and daily rental companies each accounted for
more than $10 million of such lease financing, three of which accounted for
$681.7 million, $98.3 million and $48.3 million of such lease financing,
respectively.
WHOLESALE. Wholesale financing consists principally of loans, under
approved lines of credit, to dealers to assist them in carrying inventories of
new vehicles. Ford Credit generally finances 100% of the wholesale price.
Vehicles are insured against fire, theft and other risks under policies issued
to Ford Credit by American Road. Ford Credit's United States car and truck
wholesale receivables that liquidated were outstanding an average of about 68
days in 1994 and 68 days in 1993.
3
5
The levels of Ford Credit's wholesale financing volume and outstanding
wholesale receivables are dependent on several factors, including sales by Ford
to dealers, the level of dealer inventories, Ford Credit's share of Ford's
sales to dealers, vehicle prices and sales of wholesale receivables.
COMPETITION IN VEHICLE FINANCING. The vehicle financing business is highly
competitive, particularly in the case of retail financing. Ford Credit's
principal competitors for retail installment sale financing have been banks and
credit unions. Banks and other leasing companies are Ford Credit's principal
competitors for wholesale financing and lease financing.
Ford Credit financed the following percentages of new Ford and
Lincoln-Mercury cars and trucks sold or leased at retail and sold at wholesale
in the United States during each of the years indicated:
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Retail* . . . . . . . . 36.6 38.5% 37.7% 35.2% 31.4%
Wholesale . . . . . . . 81.5 81.4 77.6 74.9 71.0
__________________________
* As a percentage of total sales and leases, including cash sales
DIVERSIFIED FINANCING
Diversified finance receivables consist primarily of leases and loans
secured by transportation equipment and facilities, some of which represent
tax-exempt financing for state and local governments, energy related equipment
and other equipment, real estate loans collateralized by first and second
mortgages on improved property and privately negotiated investments in
preferred stock. Most diversified finance receivables represent transactions in
an original amount in excess of $1 million each. Because of the relatively
large size of individual diversified financing transactions, any individual
loss arising out of such transactions could be substantial. Diversified finance
receivables generally are intermediate-term; at December 31, 1994 approximately
22.4% of the outstanding receivables were scheduled to mature within five
years. At December 31, 1994 diversified finance receivables outstanding
represented 3.2% of Ford Credit's total gross finance receivables and net
investment in operating leases.
OTHER FINANCING ACTIVITIES
Ford Credit makes capital loans to vehicle dealers for facilities
expansion and working capital and to enable them to purchase dealership real
estate. Such loans totaled $1,951.3 million at December 31, 1994. From time to
time, Ford Credit purchases accounts receivable of certain divisions and
affiliates of Ford. The amount of such receivables as of the end of each month
during 1994 fluctuated between $1,091.2 million and $1,376.4 million. At
December 31, 1994, such receivables totaled $1,218.5 million, all of which
represent accounts receivable purchased by Ford Credit from Ford pursuant to
agreements under which Ford Credit may purchase such receivables. In addition
to the foregoing receivables, Ford Credit held $1,094.0 million of other
finance receivables at December 31, 1994.
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6
CREDIT LOSS EXPERIENCE
The following table sets forth information concerning Ford Credit's credit
loss experience with respect to the various categories of financing during the
years indicated:
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(DOLLAR AMOUNTS IN MILLIONS)
Net losses/(recoveries)
Retail* . . . . . . . . . . . . . $220.2 $212.8 $298.2 $442.4 $495.2
Wholesale . . . . . . . . . . . . 1.3 (3.5) 14.5 40.2 29.7
Diversified . . . . . . . . . . . 1.8 14.1 23.4 24.4 14.3
Other . . . . . . . . . . . . . . 5.4 5.0 6.5 21.9 33.2
------ ------ ------ ------ ------
$228.7 $228.4 $342.6 $528.9 $572.4
====== ====== ====== ====== ======
- ----------------
*Includes net losses on operating leases
Net losses as a percent of average receivables
Retail* . . . . . . . . . . . . . . . 0.38% 0.46% 0.75% 1.18% 1.26%
Total finance receivables* . . . . . 0.30 0.35 0.60 0.92 0.94
Provision for credit losses . . . . . . . $246.5 $270.2 $418.0 $577.9 $655.9
Allowance for credit losses . . . . . . . 915.5 915.5 915.5 825.4 894.9
As percent of net receivables* . . . 1.18% 1.42% 1.66% 1.60% 1.59%
________________________
* Includes net investment in operating leases
Allowances for estimated credit losses are established as required based
on historical experience. Other factors that affect collectibility also are
evaluated and additional allowances may be provided. The provision for credit
losses generally varies with changes in the amount of loss exposure and the
absolute level of financing. Ford Credit's retail loss experience is dependent
upon the number of repossessions, the unpaid balance outstanding at the time of
repossession, and the resale value of repossessed vehicles. Wholesale losses
generally reflect the financial condition of dealers. For additional
information regarding credit losses, see Notes 1 and 6 of Notes to Financial
Statements.
SECURITY
Ford Credit generally either holds security interests in or is the title
owner of the vehicles which it finances or leases and generally is able to
repossess a vehicle in the event of a default. The right to repossess under a
security interest securing wholesale obligations generally is ineffectual, as a
matter of law, against a retail buyer of a vehicle from a dealer. Under the
wholesale installment sale plan, dealers are permitted to delay payment of up
to 10% of a vehicle's financed balance for up to 60 days after the dealer sells
the vehicle. A portion of such delayed payments may, under certain
circumstances, be unsecured. Obligations arising from lease financing extended
to leasing companies are collateralized to the extent practicable by
assignments of rentals under the related leases and, in almost all instances,
by liens on the vehicles (which liens are not perfected against third parties
in some cases). Diversified finance receivables generally consist of leases
and financings of personal property or real estate in which Ford Credit has
ownership or security interests.
5
7
BORROWINGS AND OTHER SOURCES OF FUNDS
Ford Credit relies heavily on its ability to raise substantial amounts of
funds. These funds are obtained primarily by sales of commercial paper and
issuance of term debt. 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, interest supplements and other support
costs from Ford for vehicles financed and leased by Ford Credit under Ford
sponsored special financing and leasing programs, and dividend payments, and
the timing of payments for the financing of dealers' wholesale inventories and
for income taxes. Ford Credit's ability to obtain funds is affected by its debt
ratings, which are closely related to the outlook for, and financial condition
of, Ford, and the nature and availability of support facilities, such as
revolving credit and receivables sales agreements. In addition, Ford Credit
from time to time sells its receivables in public offerings or private
placements. For additional information regarding Ford Credit's association with
Ford, see "Certain Transactions with Ford and Affiliates".
Ford Credit's outstanding debt at the end of each of the last five years
was as follows:
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(IN MILLIONS)
Commercial paper
and STBAs(a) . . . . . . . . . . $33,300 $24,506 $21,210 $18,232 $23,371
Other short-term debt(b) . . . . . . 1,065 1,001 1,785 1,642 1,411
Long-term debt (including current
portion) . . . . . . . . . . . . 36,075 33,292 26,961 28,455 26,209
------- ------- ------- ------- -------
Total debt . . . . . . . . . . . $70,440 $58,799 $49,956 $48,329 $50,991
======= ======= ======= ======= =======
Memo:
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Total support facilities
(billions) as of January 1,
1995-1991, respectively . . . . . $ 22.3 $ 16.9 $13.9 $13.8 $12.7
__________
(a) Short-term borrowing agreements with bank trust departments
(b) Includes $150 million and $800 million with an affiliated company at
December 31, 1993 and December 31, 1992, respectively
Outstanding commercial paper totaled $33.2 billion at December 31, 1994,
up $8.7 billion from a year earlier. In 1994, long-term debt placements were
$10.7 billion compared with maturities and early redemptions of $8.0 billion.
Long-term debt placements in 1993 were $12.9 billion. In 1994, Ford Credit also
received $3.1 billion from sales of receivables compared with $2.5 billion in
1993.
Support facilities represent additional sources of funds, if required. At
January 1, 1995, Ford Credit had approximately $21.1 billion of contractually
committed facilities for use in the United States, with various maturity dates
through June 1999. These facilities included $18.2 billion of revolving credit
agreements with banks (which included $5.9 billion of Ford bank lines that may
be used either by Ford or Ford Credit at Ford's option) and $2.9 billion of
agreements to sell retail receivables. At January 1, 1995, all of these U.S.
facilities were unused.
Outside of the United States, an additional $1.2 billion of contractually
committed facilities, with various maturity dates through June 1999, support
borrowing operations in Canada, Australia and Puerto Rico. Canadian
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8
facilities of $717 million included $181 million of Ford Motor Company of
Canada Limited and Ford Ensite International Inc. lines which are available to
Ford Credit Canada Limited at the option of these two companies. Australian
facilities of $453 million include $177 million of Ford Motor Company of
Australia Limited lines which are available to Ford Credit Australia Limited at
the option of Ford Motor Company of Australia Limited. Ford Motor Credit
Company of Puerto Rico, Inc. had $25 million in support facilities at January
1, 1995. Substantially all of these facilities were unused at January 1, 1995.
FORD HOLDINGS
Ford Holdings was incorporated on September 1, 1989 for the principal
purpose of acquiring, owning and managing certain assets of Ford. Ford Credit
owns 45% of the common stock of Ford Holdings representing 33.8% of the voting
power of all classes of capital stock and Ford owns the remaining common stock
representing 41.2% of the voting power of all classes of capital stock. The
balance of the capital stock, consisting of preferred stock is held by persons
other than Ford or Ford Credit and accounts for the remaining 25% of the total
voting power. Ford Holdings' primary activities consist of consumer and
commercial financing operations, insurance underwriting and equipment leasing
through its wholly owned subsidiaries, Associates First Capital Corporation
("The Associates"), American Road and USL Capital. Ford Credit accounts for its
investment in Ford Holdings common stock using the equity method of accounting.
For further information regarding Ford Holdings, see Notes 1 and 3 of Notes to
Financial Statements. See "Financial Review of Ford Motor Company Results -
1994 Results of Operations - Financial Services Operations" and "Liquidity and
Capital Resources - Financial Services Operations" for a discussion of 1994
results of operations and liquidity and capital resources, respectively, of The
Associates, American Road and USL Capital.
ASSOCIATES FIRST CAPITAL CORPORATION
The Associates conducts its operations primarily through its principal
operating subsidiary, Associates Corporation of North America. The Associates'
primary business activities are consumer finance, commercial finance and
insurance underwriting. The consumer finance operation is engaged in making and
investing in residential real estate-secured loans to individuals, making
secured and unsecured installment loans to individuals, purchasing consumer
retail installment obligations, investing in credit card receivables, financing
manufactured housing purchases and providing other consumer financial services.
The commercial finance operation is principally engaged in financing sales of
transportation and industrial equipment and leasing, and providing other
financial services, including automobile club and relocation services. The
insurance operation is engaged in underwriting credit life, credit accident and
health, property, casualty and accidental death and dismemberment insurance,
principally for customers of the finance operations of The Associates.
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The Associates' finance receivables were as follows at the dates indicated
(in millions):
December 31,
-------------------------
1994 1993
--------- ---------
Consumer finance
Residential real estate-secured receivables $12,003 $10,626
Direct installment and credit card receivables 7,200 6,060
Manufactured housing and other
installment receivables 4,864 3,810
------- -------
Total consumer finance receivables 24,067 20,496
Commercial finance
Heavy-duty truck receivables 5,001 4,334
Other industrial equipment receivables 5,877 4,743
------- -------
Total commercial finance receivables 10,878 9,077
------- -------
Gross receivables 34,945 29,573
Unearned finance income (3,769) (3,208)
------- -------
Net finance receivables $31,176 $26,365
======= =======
Allowance for losses on finance receivables $ 944 $ 809
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10
Credit loss experience, net of recoveries, of The Associates' finance
business was as follows for the years indicated (dollar amounts in millions):
Years Ended or at December 31,
------------------------------
1994 1993 1992
------ ------ ------
NET CREDIT LOSSES
Consumer finance
Amount $ 456 $ 372 $ 383
% of average net receivables 2.33% 2.19% 2.64%
% of receivables liquidated 3.09 3.41 4.57
Commercial finance
Amount $ 8 $ 22 $ 42
% of average net receivables .09% .30% .64%
% of receivables liquidated .08 .26 .61
Total net credit losses
Amount $ 464 $ 394 $ 425
% of average net receivables 1.62% 1.61% 2.02%
% of receivables liquidated 1.84 2.03 2.80
ALLOWANCE FOR LOSSES
Balance at end of period $ 944 $ 809 $ 699
% of net receivables 3.03% 3.07% 3.06%
The following table shows total gross balances contractually delinquent
sixty days and more by type of business at the dates indicated (dollar amounts
in millions):
Consumer Finance Commercial Finance Total
------------------- -------------------- -------------------
Balances Delinquent Balances Delinquent Balances Delinquent
60 Days and More 60 Days and More 60 Days and More
------------------- -------------------- -------------------
Gross % of Gross % of Gross % of
Amount Outstandings Amount Outstandings Amount Outstandings
------ ------------ ------ ------------ ------ ------------
At December 31,
1994 $443 1.84% $31 .28% $474 1.36%
1993 363 1.77 48 .53 411 1.39
An analysis of The Associates' allowance for losses on finance receivables
is as follows for the years indicated (in millions):
1994 1993 1992
------ ------- -------
Beginning balance $ 809 $ 699 $ 591
Additions 577 477 513
Recoveries 101 88 72
Losses (565) (482) (497)
Other adjustments, primarily
reserves of acquired businesses 22 27 20
---- ---- ----
Ending balance $ 944 $ 809 $ 699
==== ==== ====
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THE AMERICAN ROAD INSURANCE COMPANY
American Road was incorporated as a wholly owned subsidiary of Ford
Credit in 1959 and was transferred to Ford Holdings in 1989. The operations of
American Road consist primarily of underwriting floor plan insurance related to
substantially all new vehicle inventories of dealers financed at wholesale by
Ford Credit in the United States and Canada, credit life and disability
insurance in connection with retail vehicle financing, and insurance related to
retail contracts sold by automobile dealers to cover vehicle repairs. In
addition, Ford Life Insurance Company ("Ford Life"), a wholly owned subsidiary
of American Road, offers deferred annuities which are sold primarily through
banks and brokerage firms. The obligations of Ford Life, including annuities,
are guaranteed by American Road. In addition, American Road has agreed to
maintain Ford Life's surplus and capital at levels necessary to meet applicable
insurance regulations.
The following table summarizes the revenues and net income of American
Road (in millions):
Premiums Investment Annuities and Net
Earned Income Other Income Total Income
------ ------ ------------ ----- ------
1994 $376 $ 41 $159 $576 $ 58(a)
1993 465 141 130 736 79
1992 519 175 42 736 63(b)
1991 706 211 2 919 126
1990 764 149 4 917 103
- ------------
(a) Includes an increase of $26 million for nonrecurring recovery of income
taxes in 1994 from prior years.
(b) Includes an increase of $16 million resulting from the cumulative effect
of adopting new accounting rules on income taxes.
The detail of premiums earned by American Road was as follows (in millions):
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Extended service contracts $148 $211 $217 $318 $355
Physical damage 119 139 176 227 228
Credit life and disability 109 115 126 161 181
---- ---- ---- ---- ----
Total $376 $465 $519 $706 $764
==== ==== ==== ==== ====
USL Capital Corporation
USL Capital, a diversified commercial leasing and financing organization,
originally incorporated in 1956, was acquired by Ford in 1987 and was
transferred to Ford Holdings in 1989. The primary operations of USL Capital
include the leasing, financing, and management of office, manufacturing and
other general-purpose business equipment; commercial fleets of automobiles,
vans, and trucks; large-balance transportation equipment (principally
commercial aircraft, rail, and marine equipment); industrial and energy
facilities; and essential-use equipment for state and local governments. It
also provides intermediate-term, first-mortgage loans on commercial properties
and invests in corporate preferred stock and senior and subordinated debt
instruments. Certain of these financing transactions are carried on the books
of Ford affiliates.
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The following table sets forth certain information regarding USL Capital's
earning assets, credit losses, and delinquent accounts at the dates indicated
(dollar amounts in millions):
December 31,
--------------------------------
1994 1993 1992
-------- -------- --------
Total earning assets
Investments in finance leases - net $2,435 $2,364 $2,075
Investments in operating leases - net 712 695 558
Investments in leveraged leases - net 266 191 4
Notes receivable 825 721 502
Investment in securities 700 563 329
Inventory held for sale or lease 87 55 97
Investments in associated companies 18 18 20
------ ------ ------
Total $5,043 $4,607 $3,585
====== ====== ======
Allowance for doubtful accounts
Beginning balance $ 55 $ 40 $ 30
Additions 8 25 19
Deductions (5) (10) (9)
------- ------ ------
Ending balance $ 58 $ 55 $ 40
======= ====== ======
Allowance for doubtful accounts
as a percent of earning assets 1.2% 1.2% 1.1%
Total balance over 90 days past due
at year end $ 37 $ 44 $ 49
Percent of earning assets 0.7% 1.0% 1.4%
FORD CREDIT EMPLOYEE RELATIONS
At December 31, 1994, Ford Credit and its subsidiaries had 9,399
employees. All such employees are salaried, and none is represented by a union.
Ford Credit considers its employee relations to be satisfactory.
FORD CREDIT GOVERNMENTAL REGULATIONS
Various aspects of Ford Credit's financing operations are regulated under
both Federal and state law. Various states require licenses to conduct retail
financing. Interest rates, particularly those with respect to consumer
financing, generally are limited by state law and, in periods of high interest
rates, these limitations can have a substantial adverse effect on operations in
certain states if Ford Credit is unable to pass on its increased interest costs
to its customers.
During the past several years, legislative, judicial, and administrative
authorities have evidenced a growing concern for the protection of the interest
of consumers, especially in connection with consumer financing transactions. As
a result, significant changes have been made in the methods by which Ford
Credit and the financing industry conduct business, and many proposals have
been made which would require further changes. None of the changes to date has
had a substantial adverse effect on the operations of Ford Credit.
CERTAIN TRANSACTIONS WITH FORD AND AFFILIATES
For information concerning transactions between Ford Credit and Ford or
affiliates, see Note 12 of Notes to Financial Statements, "Business of Ford
Credit - Other Financing Activities", "Business of Ford Credit - Borrowings and
Other Sources of Funds" and Item 6 - "Selected Financial Data--Selected Income
Statement Data." The profit maintenance agreement referred to in the first
paragraph of Note 12 of Notes to Financial Statements, under which Ford has
agreed to maintain the income of Ford Credit at certain minimum levels,
expires at the end of 1998.
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BUSINESS OF FORD
Ford was incorporated in Delaware in 1919 and acquired the business of a
Michigan company, also known as Ford Motor Company, incorporated in 1903 to
produce automobiles designed and engineered by Henry Ford. Ford is the
second-largest producer of cars and trucks in the world, and ranks among the
largest providers of financial services in the United States.
GENERAL
The Company's two principal business segments are Automotive and Financial
Services. The activities of the Automotive segment consist of the manufacture,
assembly and sale of cars and trucks and related parts and accessories.
Substantially all of Ford's automotive products are marketed through retail
dealerships, most of which are privately owned and financed.
The Financial Services segment is comprised of the following direct
subsidiaries, the activities of which include financing operations, vehicle and
equipment leasing and insurance operations: Ford Credit, Ford Credit Europe plc
("Ford Credit Europe"), Ford Holdings, The Hertz Corporation ("Hertz") and
Granite Management Corporation (formerly First Nationwide Financial
Corporation) ("Granite"). Ford Holdings is a holding company that owns
primarily The Associates, USL Capital and American Road. In addition, there are
a number of international affiliates not listed above that are consolidated in
the total Financial Services results, but are managed by either Ford Credit
(which manages Ford Credit Europe, as well as other international affiliates),
The Associates or USL Capital.
AUTOMOTIVE OPERATIONS
The worldwide automotive industry is affected significantly by a number of
factors over which the industry has little control, including general economic
conditions.
In the United States, the automotive industry is a highly-competitive,
cyclical business characterized by a wide variety of product offerings. The
level of industry demand (retail deliveries of cars and trucks) can vary
substantially from year to year and, in any year, is dependent to a large
extent on general economic conditions, the cost of purchasing and operating
cars and trucks and the availability and cost of credit and of fuel, and
reflects the fact that cars and trucks are durable items, the replacement of
which can be postponed.
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 respective countries of origin. Most of the factors that
affect the U.S. 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 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.
Unit sales of Ford vehicles vary with the level of total industry demand
and Ford's share of industry sales. Ford's share is influenced by the quality,
price, design, driveability, safety, reliability, economy and utility of its
products compared with those offered by other manufacturers, as well as by the
timing of new model introductions and capacity limitations. Ford's ability to
satisfy changing consumer preferences with respect to type or size of vehicle
and its design and performance characteristics can affect Ford's sales and
earnings significantly.
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The profitability of vehicle sales is affected by many factors, including
unit sales volume, the mix of vehicles and options sold, the level of
"incentives" (price discounts) and other marketing costs, the costs for
customer warranty claims and other customer satisfaction actions, the costs for
government-mandated safety, emission and fuel economy technology and equipment,
the ability to control costs and 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 with relatively small changes in unit volume.
Ford has operations in over 30 countries and sells vehicles in over 200
markets. These businesses frequently have foreign currency exposures when they
buy, sell, and finance in currencies other than their local currencies. Ford's
primary foreign currency exposures, in terms of revenue and income, are in the
German Mark, Japanese Yen, Italian Lira and French Franc. The effect of
changes in exchange rates on income depends largely on the relationship between
revenues and costs incurred in the local currency versus other currencies.
Historically, the effect of changes in exchange rates on Ford's earnings
generally has been small relative to other factors that also affect earnings
(such as unit sales).
United States
Sales Data. The following table shows U.S. industry demand for the years
indicated:
U.S. Industry Retail Deliveries
(millions of units)
------------------------------------
Years Ended December 31
------------------------------------
1994 1993 1992 1991 1990
---- ---- ----- ---- ----
Cars........................................ 9.0 8.5 8.2 8.2 9.3
Trucks...................................... 6.4 5.7 4.9 4.3 4.8
---- ---- ---- ---- ----
Total....................................... 15.4 14.2 13.1 12.5 14.1
==== ==== ==== ==== ====
Ford classifies cars by small, middle, large and luxury segments and
trucks by compact pickup, compact van/utility, full-size pickup, full-size
van/utility and medium/heavy segments. The large and luxury car segments and
the compact van/utility, full-size pickup and full-size van/utility truck
segments include the industry's most profitable vehicle lines. The following
tables show the proportion of retail car and truck sales by segment for the
industry (including Japanese and other foreign-based manufacturers) and Ford
for the years indicated:
U.S. Industry Car Sales by Segment
------------------------------------------
Years Ended December 31
------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Small........................... 31.5% 28.8% 29.3% 29.0% 28.9%
Middle.......................... 48.9 52.1 51.7 51.4 51.8
Large........................... 8.2 8.5 9.2 9.6 9.1
Luxury.......................... 11.4 10.6 9.8 10.0 10.2
----- ----- ----- ----- -----
Total U.S. Industry Car Sales... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
Ford Car Sales by Segment in U.S.
------------------------------------------
Years Ended December 31
------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Small........................... 35.0% 29.0% 26.6% 31.2% 31.1%
Middle.......................... 45.3 51.7 53.4 47.3 44.8
Large........................... 10.3 9.9 10.5 10.1 11.2
Luxury.......................... 9.4 9.4 9.5 11.4 12.9
----- ----- ----- ----- -----
Total Ford U.S. Car Sales....... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
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As shown in the first table above, the percentages of industry sales in
the various car segments have remained relatively stable since 1990. As shown
in the second table above, Ford's proportion of sales in 1994 has increased in
the small segment and decreased in the middle segment, reflecting lower sales
of Tempo and Topaz models, which were discontinued in 1994.
U.S. Industry Truck Sales by Segment
------------------------------------------
Years Ended December 31
------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Compact pickup.................. 18.5% 18.9% 20.8% 22.4% 22.9%
Compact van/utility............. 40.4 41.1 40.1 38.8 34.7
Full-Size pickup................ 26.3 24.8 24.2 25.1 26.0
Full-Size van/utility........... 9.9 10.6 10.6 9.4 11.4
Medium/Heavy.................... 4.9 4.6 4.3 4.3 5.0
----- ----- ----- ----- -----
Total U.S. Industry Truck Sales. 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
Ford Truck Sales by Segment in U.S.
------------------------------------------
Years Ended December 31
------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Compact pickup.................. 17.8% 19.7% 17.0% 18.5% 19.8%
Compact van/utility............. 33.5 32.6 33.5 31.5 25.3
Full-Size pickup................ 33.4 32.6 33.6 35.8 36.8
Full-Size van/utility........... 12.5 12.4 13.1 11.7 14.9
Medium/Heavy.................... 2.8 2.7 2.8 2.5 3.2
----- ----- ----- ----- -----
Total Ford U.S. Truck Sales..... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
As shown in the tables above, for both the industry and Ford, the compact
van/utility segment has grown significantly since 1990, while the full-size
segments (pickups and van/utility) have declined slightly as a percentage of
total truck sales.
Market Share Data. The following tables show changes in car and truck
market shares of United States and foreign-based manufacturers for the years
indicated:
U.S. Car Market Shares*
---------------------------------------------
Years Ended December 31
---------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
U.S. Manufacturers (Including Imports)
Ford........................ 21.8% 22.3% 21.8% 20.1% 21.1%
General Motors.............. 34.0 34.1 34.6 35.6 35.6
Chrysler.................... 9.0 9.8 8.3 8.6 9.2
----- ----- ----- ----- -----
Total U.S. Manufacturers.. 64.8 66.2 64.7 64.3 65.9
Foreign-Based Manufacturers**
Japanese.................... 29.6 29.1 30.1 30.2 27.9
All Other................... 5.6 4.7 5.2 5.5 6.2
----- ----- ----- ----- -----
Total Foreign-Based
Manufacturer 35.2 33.8 35.3 35.7 34.1
----- ----- ----- ----- -----
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
---------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
U.S. Manufacturers (Including Imports)
Ford........................ 30.1% 30.5% 29.7% 28.9% 29.3%
General Motors.............. 30.9 31.4 32.2 32.9 34.3
Chrysler.................... 21.7 21.4 21.1 18.5 17.3
Navistar International...... 1.3 1.3 1.3 1.4 1.5
All Other................... 1.8 1.6 1.4 1.3 1.4
----- ----- ----- ----- -----
Total U.S. Manufacturers.. 85.8 86.2 85.7 83.0 83.8
Foreign-Based Manufacturers**
Japanese.................... 13.5 13.2 13.8 16.5 15.6
All Other................... 0.7 0.6 0.5 0.5 0.6
----- ----- ----- ----- -----
Total Foreign-Based
Manufacturers 14.2 13.8 14.3 17.0 16.2
----- ----- ----- ----- -----
Total U.S. Truck Retail
Deliveries................ 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
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U.S. Combined Car and Truck Market Shares*
------------------------------------------
Years Ended December 31
------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
U.S. Manufacturers (Including Imports)
Ford........................ 25.2% 25.5% 24.7% 23.2% 23.9%
General Motors.............. 32.7 33.1 33.7 34.6 35.2
Chrysler.................... 14.3 14.4 13.1 12.0 12.0
Navistar International...... 0.5 0.5 0.5 0.5 0.5
All Other................... 0.8 0.7 0.5 0.5 0.5
----- ----- ----- ----- -----
Total U.S. Manufacturers.. 73.5 74.2 72.5 70.8 72.1
Foreign-Based Manufacturers**
Japanese.................... 22.9 22.8 24.0 25.5 23.7
All Other................... 3.6 3.0 3.5 3.7 4.2
----- ----- ----- ----- -----
Total Foreign-Based Manufacturers 26.5 25.8 27.5 29.2 27.9
----- ----- ----- ----- -----
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 American Automobile Manufacturers Association, the media and
trade publications.
** Share data include cars and trucks assembled and sold in the U.S. by
Japanese-based manufacturers selling through their own dealers as well as
vehicles imported by them into the U.S. "All Other" includes primarily
companies based in various European countries and in Korea and Taiwan.
Japanese Competition. The market share of Ford and other domestic
manufacturers in the U.S. is affected by sales from Japanese manufacturers. As
shown in the table above, the share of the U.S. combined car and truck industry
held by the Japanese manufacturers increased from 23.7% in 1990 to 25.5% in
1991, but declined to 22.9% in 1994, reflecting in part the effects of the
strengthening of the Japanese yen on the prices of vehicles produced by the
Japanese manufacturers.
In the 1980s and continuing in the 1990s, Japanese manufacturers added
assembly capacity in North America (frequently referred to as "transplants") in
response to a variety of factors, including export restraints, the significant
growth of Japanese car sales in the U.S. and international trade
considerations. In response to the strengthening of the Japanese yen to the
U.S. dollar, Japanese manufacturers are continuing to add production capacity
(particularly in the profitable truck segments) in the United States.
Production in the U.S. by Japanese transplants reached about 2.4 million units
in 1994 and is expected to increase gradually over the next several years.
Marketing Incentives and Fleet Sales. As a result of intense competition
from new product offerings (from both domestic and foreign manufacturers) and
the desire to maintain economic production levels, automotive manufacturers
that sell vehicles in the U.S. have provided marketing incentives (price
discounts) to retail and fleet customers (i.e., daily rental companies,
commercial fleets, leasing companies and governments). Marketing incentives
are particularly prevalent during periods of economic downturns, when excess
capacity in the industry tends to exist.
Ford's U.S. and Canada marketing costs as a percentage of gross sales
revenue for each of 1994, 1993 and 1992 were: 8.5%, 9.9% and 10.9%,
respectively. During the 1983-1988 period, such costs as a percentage of sales
revenue were in the 4% to 7% range. In 1991, marketing costs peaked at 14% of
gross revenues. "Marketing costs" include (i) marketing incentives such as
retail rebates and special financing rates, (ii) reserves for residual
guaranties on retail vehicle leases; (iii) reserves for costs and/or losses
associated with obligatory repurchases of certain vehicles sold to daily rental
companies and (iv) costs for advertising and sales promotions.
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Sales by Ford to fleet customers were as follows for the years indicated:
Ford Fleet Sales
---------------------------------------------
Years Ended December 31
---------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Units Sold..................... 924,000 881,000 882,000 782,000 821,000
Percent of Ford's
Total Car and Truck Sales.... 24% 25% 28% 27% 24%
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
sales has been about evenly split in recent years.
Warranty Coverages. In recent years, due to competitive pressures,
vehicle manufacturers have both expanded the coverages and extended the terms
of warranties on vehicles sold in the U.S. Ford presently provides warranty
coverage on most vehicles sold by it in the U.S that extends for 36 months or
36,000 miles (whichever occurs first) and covers nearly all components of the
vehicle. Different warranty coverages are provided on vehicles sold outside
the U.S. In addition, as discussed below under "Governmental Standards -
Mobile Source Emissions Control", the Federal Clean Air Act requires a useful
life of 10 years or 100,000 miles (whichever occurs first) for emissions
equipment on vehicles sold in the U.S. As a result of these coverages 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
Ford are accrued at the time of sale. Such accruals, however, are subject to
adjustment from time to time depending on actual experience.
Europe
Europe is the largest market for the sale of Ford cars and trucks outside
the United States. The automotive industry in Europe is intensely competitive;
for the past 12 years, the top six manufacturers have each achieved a car
market share in about the 10% to 16% range. (Manufacturers' shares, however,
vary considerably by country.) This competitive environment is expected to
intensify further as Japanese manufacturers, which together had a European car
market share of 11% for 1994, increase their production capacity in Europe and
import restrictions on Japanese built-up vehicles gradually are removed in
total by December 31, 1999.
In 1994, European car industry sales were 11.8 million cars, up 6% from
1993 levels. Truck sales were 1.4 million units, up 6% from 1993 levels.
Ford's European car share for 1994 was 11.8%, compared with 11.5% for 1993, and
its European truck share for 1994 was 14.7%, compared with 14.6% for 1993.
For Ford, Great Britain and Germany are the 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 total automotive profits. For 1994 compared with 1993,
total industry sales were up 8% in Great Britain and unchanged in Germany.
Other Foreign Markets
Mexico and Canada. Mexico and Canada also are important markets for Ford.
Generally, industry conditions in Canada closely follow conditions in the U.S.
market. In 1994, industry sales of cars and trucks in Canada were up 5% from
1993 levels, slightly less than the increase of 8% in the U.S. over the same
period. Mexico has been a growing market. In 1994, industry sales were up 2%
to 619,000 units. However, substantial devaluation of the Mexican peso in late
1994 created a high level of uncertainty regarding economic activity in Mexico.
Although the long-term outlook remains positive, industry volume
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is expected to be down substantially in 1995. Ongoing financial effects of the
devaluation on Ford are expected to be unfavorable; the magnitude of these will
be dependent in large part upon overall economic conditions and the extent to
which the Mexican government permits price increases.
The North American Free Trade Agreement ("NAFTA") became effective January
1, 1994. NAFTA unites Canada, Mexico and the United States into the world's
largest trading region by phasing out regulations which restricted trade
between Mexico and the U.S. and Canada. The Company believes that NAFTA will
benefit the economies of the three countries and the North American automobile
industry in particular. In 1994, Ford had 28,448 export sales to Mexico,
compared with none in 1993.
South America. Brazil, Argentina and Venezuela are the principal markets
for Ford in South America. The economic environment in those countries has
been volatile in recent years, leading to large variations in profitability.
Results also have been influenced by government actions to reduce inflation and
public deficits, and improve the balance of payments. In 1994, Ford's
profitability in the region improved compared with 1993, primarily reflecting
strong results in Brazil and Argentina. Autolatina (Ford's joint venture with
Volkswagen AG in Brazil and Argentina) remained the market leader in Brazil.
Industry sales in Brazil and Argentina were at record levels in 1994. In
Brazil, the economic plan implemented in late 1993 has had a stabilizing effect
on the Brazilian economy and has reduced inflation, but the ongoing success of
the plan remains uncertain. In addition, duties on vehicles imported into
Brazil have declined progressively from 85% in 1990 to 32% in 1995. As a
result, imports have been and are expected to continue to gain a progressively
larger share of the car market in Brazil.
Ford and Volkswagen have agreed on a separation process leading toward
dissolution of Autolatina in Brazil and Argentina by year-end 1995. See
"Financial Review of Ford Motor Company Results" for more information
concerning this plan for dissolution. Ford's future results in the region
largely will be dependent on the political and economic environments in Brazil
and Argentina, which historically have been unpredictable.
Asia-Pacific. In the Asia-Pacific region, Australia, Taiwan and Japan are
the principal markets for Ford products. In 1994, Ford was the car market
share leader in Australia with a 22.9% car market share and a 20.3% combined
car and truck market share. In Taiwan (where sales of built-up vehicles
manufactured in Japan are prohibited), Ford had a combined car and truck market
share in 1994 of 16.3%. Ford's principal competition in the Asia-Pacific
region has been the Japanese manufacturers. It is anticipated that the
continuing relaxation of import restrictions (including duty reductions) in
Australia and Taiwan will intensify competition in those markets.
Ford believes that the Asia-Pacific region offers many important
opportunities for the future. Ford believes that China is strategically
important to Ford's long-term success in the Asia-Pacific region. Ford China
Operations was established in 1994 to coordinate all of Ford's activities in
China. In 1994, Ford invested in automotive component manufacturing joint
ventures in China (automotive interior trim, automotive glass and automotive
electronic/audio components) and purchased a 6.5% equity interest in Mahindra
and Mahindra Limited, an automotive and tractor manufacturer in India. Ford is
continuing to investigate additional automotive component manufacturing and
vehicle assembly opportunities in those markets as well as others. In
addition, Ford is expanding the number of right-hand-drive vehicles it will
offer in Japan, including the Probe, Explorer and Taurus models.
Ford's relationship with Mazda Motor Corporation, in which it has held a
25% ownership interest since 1979, has been a key element of Ford's presence in
the Asia-Pacific region. Recent management appointments by Mazda of
Ford-nominated executives have been made to improve coordination of business
and product plans in the Asia-Pacific region.
Africa. In late 1994, Ford re-entered the South African market by
acquiring a 45% equity interest in South African Motor Corporation (Pty.)
Limited ("SAMCOR"). SAMCOR is an assembler of Ford and other manufacturers'
vehicles in South Africa.
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FINANCIAL SERVICES OPERATIONS
For information regarding the businesses of Ford Credit, Ford Holdings,
The Associates, American Road and USL Capital, see "Business of Ford Credit"
and "Ford Holdings".
Ford Credit Europe plc
In 1993, most of the European credit operations of Ford, which generally
had been organized as subsidiaries of the respective automotive affiliates of
Ford throughout Europe, were consolidated into a single company, Ford Credit
Europe. Ford Credit Europe, which was originally incorporated in 1963 in
England as a private limited company, is wholly owned by Ford and certain of
its subsidiaries. Ford Credit Europe's primary business is to support the sale
of Ford vehicles in Europe through the Ford dealer network. A variety of
retail, leasing and wholesale finance plans is provided in most countries in
which it operates. The business of Ford Credit Europe is substantially
dependent upon Ford's automotive operations in Europe. Ford Credit Europe
issues commercial paper, certificates of deposits and term debt to fund its
credit operations. One of the purposes of the consolidation described above is
to facilitate Ford Credit Europe's access to public debt markets. Ford Credit
Europe's ability to obtain funds in these markets is affected by its credit
ratings, which are closely related to the financial condition of and outlook
for Ford.
Ford Credit Europe's finance receivables and investments in operating
leases were as follows at the dates indicated (in millions):
December 31,
--------------------------
1994 1993
--------- ---------
Finance receivables
Retail $ 9,356 $ 7,143
Wholesale 4,615 3,724
Other 234 100
------- -------
Total finance receivables 14,205 10,967
Loan origination costs, net 85 63
Unearned income (1,159) (955)
Allowance for credit losses (162) (89)
------- -------
Finance receivables, net $12,969 $ 9,986
======= =======
Investments in operating leases $ 1,010 $ 818
Accumulated depreciation (231) (212)
Allowance for credit losses (7) (1)
------- -------
Investments in operating
leases, net $ 772 $ 605
======= =======
An analysis of Ford Credit Europe's allowance for credit losses in
finance receivables and operating leases is as follows for the years indicated
(in millions):
1994 1993 1992
---- ---- ----
Beginning balance $ 90 $123 $145
Additions 50 46 62
Net losses (66) (72) (51)
Other changes 95 (7) (33)
---- ---- ----
Ending balance $169 $ 90 $123
==== ==== ====
The Hertz Corporation
On March 8, 1994, Ford purchased from Commerzbank Aktiengellschaft, a
German bank, additional shares of common stock of Hertz aggregating 5% of the
total outstanding voting stock, thereby bringing
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Ford's ownership of the total voting stock of Hertz to 54% from 49%. On April
29, 1994, Ford acquired 20% of Hertz' common stock from Park Ridge Limited
Partnership, and Hertz redeemed the common stock (26%) and preferred stock of
Hertz owned by AB Volvo for $145 million. These transactions resulted in Hertz
becoming a wholly owned subsidiary of Ford. In addition, a $150 million
subordinated promissory note of Hertz held by Ford Credit was exchanged for
$150 million of preferred stock of Hertz. Because the Company was a principal
shareholder of Hertz prior to these transactions, there was no significant
change in the relationship between Ford and Hertz. Prior to these
transactions, Hertz had been accounted for on an equity basis as part of the
Automotive segment. Hertz' operating results, assets, liabilities and cash
flows were consolidated as part of the Financial Services segment effective
March 31, 1994.
Hertz was incorporated in 1967 and is a successor to corporations which were
engaged in the automobile and truck leasing and rental business since 1924.
Hertz' affiliates, independent licensees and associates are engaged principally
in the business of renting automobiles and renting and leasing trucks, without
drivers, in the U.S. and in over 150 foreign countries. Collectively, they
operate what Hertz believes is the largest rent-a-car business in the world and
one of the largest one-way truck rental businesses in the U.S. In addition,
through its wholly owned subsidiary, Hertz Equipment Rental Corporation, Hertz
operates what it believes to be the largest business in the U.S. involving the
rental, lease and sale of construction and materials handling equipment. Other
activities of Hertz include the sale of its used vehicles, the leasing of
automobiles, and providing claim management and telecommunications services in
the U.S.
Revenue earning equipment is used in the rental of vehicles and construction
equipment and the leasing of vehicles under closed-end leases where the
disposition of the vehicles upon termination of the lease is for the account of
Hertz.
The cost and accumulated depreciation of revenue earning equipment were as
follows for the nine months ended December 31, 1994 (in millions):
Revenue Earning Equipment
----------------------------------------
Accumulated
Cost Depreciation Net Book Value
--------- ------------ --------------
Balance, March 31, 1994 $ 4,211 $ 441 $ 3,770
Additions 5,002 554 4,448
Retirements and other (4,402) (444) (3,958)
------- ----- -------
Balance, December 31, 1994 $ 4,811 $ 551 $ 4,260
======= ===== =======
Granite Management Corporation
Granite, a savings and loan holding company organized in Delaware in 1959,
was acquired by Ford in December 1985. It is a wholly owned subsidiary of
Ford.
Until September 30, 1994, the principal asset of Granite was the capital
stock of First Nationwide Bank, A Federal Savings Bank, since known as Granite
Savings Bank (the "Bank"). On September 30, 1994, substantially all of the
assets of the Bank were sold to, and substantially all of the liabilities of
the Bank were assumed by, First Madison Bank, FSB ("First Madison").
The stated sale price for the Bank was $1.1 billion, slightly higher than
tangible net book value at December 31, 1993. In total, Ford retained, through
Granite, approximately $1.2 billion of commercial real estate and other assets
as of the closing date. These retained assets generally are of lower quality
than those included in the sale. In addition, for the three-year period ending
in November 1996, First Madison has the option of requiring Granite to
repurchase up to $500 million of the assets included in the sale that become
nonperforming. This repurchase obligation is guaranteed by Ford.
The sale of the Bank resulted in an after-tax charge of $440 million
against Ford's 1994 first quarter earnings, reflecting the nonrecovery of
goodwill and reserves for estimated losses on the assets retained
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and to be repurchased by Granite. These assets will be liquidated over time as
market conditions permit. Historically, Granite (including the Bank) has not
had a significant effect on Ford's operating results.
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 -- United States Requirements. As amended
in November 1990, the Federal Clean Air Act (the "Clean Air Act" or the "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. In addition, the Act requires that emissions equipment for
vehicles sold in the U.S. have a minimum "useful life" during which compliance
with the applicable standards must be achieved. Passenger cars, for example,
must comply for 10 years or 100,000 miles, whichever first occurs. The Act
prohibits, among other things, the sale in or importation into the United
States of any new motor vehicle or engine which is not covered by a certificate
of conformity issued by the United States Environmental Protection Agency (the
"EPA").
The Act also may require production of certain new cars and trucks capable
of operating on fuels other than gasoline or diesel fuel ("alternative fuels")
under a pilot test program to be conducted in California beginning in the 1996
model year. Under this pilot program, each manufacturer will be required to
sell its pro rata share of 150,000 alternate fuel vehicles in each of the 1996,
1997 and 1998 model years and its pro rata share of 300,000 alternate fuel
vehicles in each model year thereafter. The Act also authorizes certain states
to establish programs to encourage the purchase of such vehicles.
Motor vehicle emissions standards even more stringent than those presently
in effect will become effective as early as the 2004 model year, unless the EPA
determines that such standards are not necessary, technologically feasible or
cost-effective.
The Act authorizes California to establish unique emissions control
standards that, in the aggregate, are at least as stringent as the federal
standards if it secures the requisite waiver of federal preemption from the
EPA. The Health and Safety Code of the State of California prohibits, among
other things, the sale to an ultimate purchaser who is a resident of or doing
business in California of a new motor vehicle or engine which is intended for
use or registration in that state which has not been certified by the
California Air Resources Board (the "CARB"). The CARB received a waiver from
the EPA for a series of passenger car and light truck emissions standards (the
"low emission vehicle", or "LEV", standards), effective beginning between the
1994 and 2003 model years, that are significantly more stringent than those
prescribed by the Act for the corresponding periods of time. These California
standards are intended to promote the development of various classes of low
emission vehicles. California also requires 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.
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 customer expectations or is commercially viable.
Such vehicles likely will run on lead-acid batteries with a limited range (well
under 100 miles per recharge in
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optimal conditions), have a long recharge time (up to 8 hours), lack
substantial infrastructure support (home and public facilities for recharging)
and have a significant cost premium over conventional vehicles. To comply with
the mandate, manufacturers may have to offer substantial discounts on electric
vehicles, selling them well below cost, or increase the price or curtail the
sale of nonelectric vehicles.
As part of its State Implementation Plan ("SIP"), California is
considering more stringent standards for medium duty trucks. Adoption of such
standards could require Ford to accelerate implementation of costly and
unproven technology and incur additional recall and warranty expenses or
preclude the sale in California of some medium duty trucks. Further action by
California on SIP provisions could similarly impact light duty vehicles and
heavy trucks.
The California emissions standards 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.
The Act also permits other states which do not meet national ambient air
quality standards to adopt new motor vehicle emissions standards identical to
those adopted by California, if such states lawfully adopt such standards two
years before commencement of the affected model year. A group of twelve
northeastern states and the District of Columbia, the Ozone Transport
Commission (the "OTC"), organized under provisions of the Act, petitioned the
EPA to require California LEV standards in that region. There are major
problems with transferring California standards to the Northeast -- many
dealers sell vehicles in neighboring states and the range of present ZEVs is
greatly diminished (by more than 50 percent) in cold weather. Also, the
Northeast states have refused to adopt the California reformulated (i.e.,
cleaner burning) gasoline requirement -- the absence of which makes the task of
meeting standards even more difficult. California LEV standards (including the
ZEV requirements) already have been adopted in New York and Massachusetts.
To mitigate these problems, the automobile industry proposed to
voluntarily meet emissions standards nationwide that are more stringent than
those required by the Act. The proposal was based on using technology
developed to meet the California LEV standards, but adjusting for the absence
of the California reformulated gasoline and ZEV requirements. While there was
a general receptivity to the industry's proposal, some of the states are
insisting on either a ZEV mandate or a guarantee that "advanced technology"
vehicles will be sold in their states.
In December 1994, the EPA granted the OTC petition to impose California
LEV standards, while at the same time urging states and manufacturers to agree
on a national approach which the EPA described as "environmentally superior" to
the California standards. The states will have until February 1996 to decide
between the two approaches.
Under the Act, if the EPA determines that a substantial number of any
class or category of vehicles, although properly maintained and used, do not
conform to applicable emissions standards, a manufacturer may be required to
recall and remedy such nonconformity at its expense. Further, if the EPA
determines through testing of production vehicles that emission control
performance requirements are not met, it can halt shipment of motor vehicles of
the configuration tested. California has similar, and in some respects greater,
authority to order manufacturers to recall vehicles. Ford has been required,
and may in the future be required, to recall vehicles for such purposes from
time to time. The costs of related repairs or inspections associated with such
recalls can be substantial.
European Requirements. The European Union has established standards
which, in many cases, require motor vehicle emissions control equipment similar
to that used in the U.S. These standards are of generally equivalent
stringency to 1983 model year U.S. standards for gasoline-powered vehicles and
1987 model year standards for diesel-powered vehicles. New more stringent
vehicle emissions standards
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were established by the European Union in March 1994. These new standards
apply to new vehicle homologations beginning January 1, 1996 and to new vehicle
registrations beginning January 1, 1997 and are of generally equivalent
numerical stringency to 1994 model year U.S. standards. The European Commission
also is examining proposals for more stringent emissions standards and
enforcement procedures (the "Stage III Directive"). It is proposed that the
Stage III Directive would become effective beginning in 2000 for new vehicle
homologations and 2001 for new vehicle registrations. European Union member
countries are permitted to provide "green" incentives for the purchase of
vehicles that comply with the new standards before their effective date.
Certain other European countries also have established, and may in the future
establish, unique automotive emissions standards.
Certain European countries, including member countries of the European
Union, are conducting in-use emissions testing to ascertain compliance of motor
vehicles with applicable emissions standards. These actions could lead to
recalls of vehicles and the future costs of related repairs or inspections
could be substantial.
Motor Vehicle Safety -- Under the National Traffic and Motor Vehicle Safety
Act of 1966, as amended (the "Safety Act"), the National Highway Traffic Safety
Administration (the "Safety Administration") is required to establish
appropriate federal motor vehicle safety standards that are practicable, meet
the need for motor vehicle safety and are stated in objective terms. The
Safety Act prohibits the sale in the United States of any new motor vehicle or
item of motor vehicle equipment that does not conform to applicable federal
motor vehicle safety standards. Compliance with many safety standards is
costly because doing so tends to conflict with the need to reduce vehicle
weight in order to meet stringent emissions and fuel economy standards. The
Safety Administration also is required to make a determination on the basis of
its investigation whether motor vehicles or equipment contain defects related
to motor vehicle safety or fail to comply with applicable safety standards and,
generally, to require the manufacturer to remedy any such condition at its own
expense. The same obligation is imposed on a manufacturer which learns that
motor vehicles manufactured by it contain a defect which the manufacturer
decides in good faith is related to motor vehicle safety. There currently are
pending before the Safety Administration a number of major investigations
relating to alleged safety defects or alleged noncompliance with applicable
safety standards in vehicles built, imported or sold by Ford. The cost of
recall programs to remedy safety defects or noncompliance, should any be
determined to exist as a result of certain of such investigations, could be
substantial.
Canada, the European Union, individual member countries within the European
Union and other countries in Europe, Latin 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. The cost of
complying with these standards, as well as the cost of any recall programs to
remedy safety defects or noncompliance, could be substantial.
Motor Vehicle Fuel Economy -- Passenger cars and trucks rated at less than
8,500 pounds gross vehicle weight are required by regulations issued by the
Safety Administration pursuant to the Motor Vehicle Information and Cost
Savings Act (the "Cost Savings Act") to meet separate minimum CAFE standards.
Failure to meet the CAFE standard in any model year, after taking into account
all available credits, is deemed to be unlawful conduct and would subject a
manufacturer to the imposition of a civil penalty equivalent to $5 for each
one-tenth of a mile per gallon ("mpg") under the applicable standard multiplied
by the number of vehicles in the class (i.e., domestic cars, domestic trucks,
imported cars or imported trucks) produced in that model year. Each such class
of vehicle may earn credits either as a result of exceeding the standard in one
or more of the preceding three model years ("carryforward credits") or pursuant
to a plan, approved by the Safety Administration, under which a manufacturer
expects to exceed the standard in one or more of the three succeeding model
years ("carryback credits") but credits earned by a class may not be applied to
any other class of vehicles.
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The Cost Savings Act established a passenger car CAFE standard of 27.5 mpg
for the 1985 and later model years, which the Safety Administration asserts it
has the authority to amend to a level it determines to be the "maximum
feasible" level (considering the following factors: technological feasibility,
economic practicality, the effect of other federal motor vehicle standards on
fuel economy, and the need of the nation to conserve energy). Pursuant to the
Cost Savings Act, the Safety Administration has established CAFE standards
applicable to light trucks (under 8,500 lbs. GVW) for the following model years
(on a combined two-wheel drive/four-wheel drive basis): 1995 - 20.6 mpg, 1996
- - 20.7 mpg and 1997 - 20.7 mpg.
Although Ford expects to be able to comply with the foregoing CAFE
standards, there are factors that could jeopardize its ability to comply.
These factors include the possibility of changes in market conditions,
including a shift in demand for larger vehicles and a decline in demand for
small and middle-size vehicles; or conversely, a shortage of reasonably priced
gasoline resulting in a decreased demand for more profitable vehicles and a
corresponding increase in demand for relatively less profitable vehicles.
It is anticipated that efforts may be made to raise the CAFE standard
because of concerns for 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, using a combination of regulatory and
nonregulatory measures. The Safety Administration is considering significant
increases in the truck CAFE standard for the 1988 - 2006 model years that could
be as high as 28 mpg by the 2006 model year. If the CCAP goals are partially
or fully implemented through increases in the CAFE standard, or if significant
increases in car or light truck CAFE standards for subsequent model years
otherwise are imposed, Ford would find it necessary to take various costly
actions that would have substantial adverse effects on its sales volume and
profits. For example, Ford could find it necessary to curtail or eliminate
production of larger family-size and luxury passenger cars and full-size light
trucks, restrict offerings of engines and popular options, and continue or
increase market support programs for its most fuel-efficient passenger cars and
light trucks.
The European Union and its member countries also are examining measures to
reduce CO2 emissions, some of which may affect the automotive industry. These
may include proposals: to limit CO2 exhaust emissions for vehicles to 120g/km
by 2005 (which translates into fuel economy requirements of approximately
5L/100 km for gasoline engines and 4.5L/100 km for diesel engines); to improve
fuel economy for vehicles by as much as 15% over the 1995-2005 period and/or by
as much as 25% in one or more markets over the 1990-2005 period; and for member
countries to increase fuel taxes. Some of these proposals, if adopted, would
result in Ford having to take costly actions that could have substantial
adverse effects on its sales volume and profits.
The U.S. Energy Tax Act of 1978, as amended, imposes a federal excise tax
on automobiles which do not achieve prescribed fuel economy levels. Additional
legislative proposals could be introduced that, if enacted, would increase
excise taxes or create economic disincentives to purchase any except the least
fuel consuming vehicles. Because of the uncertainties and variables inherent
in testing for fuel economy and the uncertain effect on fuel economy of other
government requirements, it is not possible to predict the amount of excise
tax, if any, which may be incurred.
Stationary Source Air Pollution Control -- Pursuant to the Clean Air Act
the states are required to amend their implementation plans to require more
stringent limitations on the quantity of pollutants which may be emitted into
the atmosphere, and other controls, to achieve national ambient air quality
standards established by the EPA. In addition, the Act requires reduced
emissions of substances that are classified as hazardous or that contribute to
acid deposition, imposes comprehensive permit requirements for manufacturing
facilities in addition to those required by various states, and expands federal
authority to impose severe penalties and criminal sanctions. The Act requires
the EPA and the states to adopt regulations, and allows states to adopt
standards more stringent than those required by the Act. The
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costs to comply with these provisions of the Act cannot presently be quantified
but could be substantial. In addition, the enormous complexity and
time-consuming nature of the comprehensive federal-state permit program
provided for by the Act may reduce operational flexibility and may delay or
prevent future competitive upgrading of Ford's production facilities in the
United States.
Water Pollution Control -- Pursuant to the Federal Clean Water Act (the
"Clean Water Act"), Ford has been issued National Pollutant Discharge
Elimination System permits which establish certain pollution control standards
for its manufacturing facilities that discharge wastewater into public waters.
Ford, among many other companies, also is required to comply with certain
standards and obtain permits relating to discharges into 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. These various requirements may necessitate the addition of costly
control equipment.
The EPA recently issued proposed regulations, pursuant to the Great Lakes
Critical Programs Act of 1990, that would require more restrictive standards
for discharges into waters that impact the Great Lakes. Ford and many others
have expressed opposition to these proposed regulations which, if adopted,
could require the addition of costly control equipment.
Hazardous Waste Control -- Pursuant to the Federal Resource Conservation
and Recovery Act ("RCRA"), the EPA has issued regulations establishing certain
procedures and standards for persons who generate, transport, treat, store, or
dispose of hazardous wastes. These regulations also require permits for
treatment, storage, and disposal facilities and corrective action for prior
releases at sites where permits are issued. The EPA has delegated permit
authority to states with programs equivalent to RCRA, and states may adopt even
more extensive requirements. The Federal Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended (the "Superfund Act"),
requires disclosure of certain releases from Ford facilities into the
environment, creates potential liability for remediation costs at sites where
Ford waste was disposed and for damage to natural resources resulting from a
release, and provides for citizens' suits for failure to comply with final
requirements of orders or regulations. A number of states have enacted
separate state 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
has banned production of polychlorinated biphenyls and regulates their use in
transformers, capacitors and other equipment that may be located at Ford's
facilities.
European Stationary Source Environmental Control -- The European Union
(now including Finland, Sweden and Austria) by Directives and Regulations, and
individual member countries by legislation and regulations, 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.
Climate Change Convention -- In response to the requirements of the United
Nations Climate Change Convention held in Brazil in 1992, national governments
are examining ways to reduce potential global warming risks. These actions may
restrict the use of certain chemicals that are used as refrigerants (in
vehicles and buildings) and cleaning solvents, such as R-134a.
Worldwide Regulatory Compatibility -- Ford's efforts to develop new
markets and increase imports are impeded by incompatible automotive safety,
environmental and other product regulatory standards.
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At present, differing standards either restrict the vehicles Ford can export to
serve new markets or increase the cost and complexity to do so. Also, vehicle
safety is a priority with customers in North America, Europe and key
Asia-Pacific markets and better global understanding of real-world accidents
and injuries is a competitive necessity.
The "traditional" and developed automotive markets have developed their
own bodies of regulation. In Europe, two sets of vehicle regulations exist:
1) European Union directives, which must be accepted by the member countries;
and 2) United Nations Economic Commission for Europe (ECE) regulations, which
may be accepted by the member countries. Although European Union directives
and ECE regulations generally are aligned, some variations exist in the manner
in which they are interpreted and enforced by each member country. The United
States and Canada use a substantially different regulatory system, and Japan
and Australia use a hybrid of the ECE system.
The ECE regulations are generally recognized outside the above markets.
Countries in the process of defining motor vehicle regulations, such as China,
India, Malaysia and Russia, are adopting ECE (versus U.S.) regulations. As a
result, U.S.-built vehicles have to be modified for these markets.
The U.S. and Europe have shown limited willingness to accept each other's
regulations, and negotiations for acceptance of U.S. regulations as being
functionally equivalent to the ECE standards in emerging markets have had
limited success.
Pollution Control Costs -- During the period 1995 through 1999, Ford
expects that approximately $800 million will be spent on its 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, Ford estimates that approximately $170 million will be spent in
1995 and $220 million will be spent in 1996.
LEGAL PROCEEDINGS
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, 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. See "Business of Ford
- --Governmental Standards". Included among the foregoing matters are the
following:
Product Matters -- Ford is a defendant in various actions for damages
arising out of automobile accidents where plaintiffs claim that the injuries
resulted from (or were aggravated by) alleged defects in the occupant restraint
systems in vehicle lines of various model years. The damages specified by the
plaintiffs in these actions, including both actual and punitive damages,
aggregated approximately $1 billion at December 31, 1994.
Ford is a defendant in various actions involving the alleged propensity of
Bronco II utility vehicles to roll over. The damages specified in these
actions, including both actual and punitive damages, aggregated approximately
$911 million at December 31, 1994.
In some of the actions described in the foregoing paragraphs no dollar
amount of damages is specified or the specific amount referred to is only the
jurisdictional minimum. In addition to the pending
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actions, accidents have occurred and claims have arisen which also may result
in lawsuits in which such a defect may be alleged.
Ford is a defendant in various actions for injuries claimed to have
resulted from alleged contact with certain Ford parts and other products
containing asbestos. Damages specified by plaintiffs in complaints in these
actions, including both actual and punitive damages, aggregated approximately
$214 million at December 31, 1994. (In some of these actions no dollar amount
of damages is specified or the specific amount referred to is only the
jurisdictional minimum.) As distinguished from most lawsuits against Ford, in
most of these asbestos-related cases, Ford is but one of many defendants, and
many of these co-defendants have substantial resources.
Environmental Matters -- Ford has received a notice from a government
environmental enforcement agency concerning a matter which potentially involves
monetary sanctions exceeding $100,000. The agency believes a Ford facility may
have violated regulations relating to the management of certain of the
facility's wastes.
Ford has received notices under RCRA, the Superfund Act and applicable
state laws that it (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. Ford 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
Ford may be held responsible could be substantial. Contingent losses expected
to be incurred by Ford in connection with many of these sites have been accrued
and are reflected in Ford's financial statements in accordance with generally
accepted accounting principles. However, for many other of these sites the
remediation costs and other damages for which Ford ultimately may be
responsible are not reasonably estimable because of the uncertainties with
respect to factors such as Ford's connection to the site or to materials there,
the involvement of other potentially responsible parties, the 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, Ford is unable to determine or reasonably estimate
the amount of costs or other damages for which it is potentially responsible in
connection with these sites, although it could be substantial.
Other Matters -- A number of claims have been made or may be asserted in
the future against Ford alleging infringement of patents held by others. Ford
believes that it has valid defenses with respect to the claims that have been
asserted. If some of such claims should lead to litigation, however, and if the
claimant were to prevail, Ford could be required to pay substantial damages.
In 1992, Ford was sued in federal court in Nevada by an individual
patent owner seeking damages and an injunction for alleged infringement of four
U.S. patents characterized by the individual as covering machine vision
inspection technologies, including bar code reading. Ford filed a declaratory
judgment action in the same court to have those patents and several other
patents directed to machine vision and laser uses declared invalid,
unenforceable and not infringed. The individual counterclaimed, alleging
infringement of the patents added by Ford and several additional patents. If
the patent holder were to prevail, Ford could be required to pay substantial
damages of an as yet indeterminate amount and could become subject to an
injunction preventing future uses of any process or product found to be covered
by a valid patent.
Currently pending against Ford are three purported class action lawsuits
that allege defects in the paint processes used with respect to certain
vehicles manufactured by Ford. One lawsuit, pending in Texas state court, is
limited to Texas purchasers who allegedly experienced paint chipping or
peeling. The other two lawsuits (one pending in federal court in Louisiana,
and one pending in federal court in Alabama) are nationwide in scope and also
allege defects claimed to result in paint chipping and peeling.
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All three lawsuits appear to be focusing on vehicles painted with high-build
electrocoat systems and seek unspecified compensatory and punitive damages and
unspecified injunctive relief. Cumulatively, the three lawsuits apparently
cover certain F-Series/Bronco, Ranger/Bronco II and Mustang vehicles for
several model years beginning in 1984. If the plaintiffs were to prevail in
these lawsuits, Ford could be required to pay substantial damages.
Ford has been served with various private purported class action lawsuits
seeking economic damages (including damages for diminution in value and
rescission of purchase agreements) on behalf of Bronco II vehicle owners
relating to the alleged propensity of such vehicles to roll over. The
purported classes include all Bronco II owners in the United States. Each
lawsuit expressly excludes personal injury claimants, whose claims are
discussed above. Several of the lawsuits seek recovery of unspecified punitive
damages. In addition, several of the lawsuits seek an order requiring the
Company to recall and retrofit these vehicles. A settlement has been reached
in each of these matters, subject to final court approval.
The Federal Trade Commission and the Department of Justice have advised
Ford that they are investigating the retail vehicle financing credit practices
of Ford and Ford Credit for compliance with the Equal Credit Opportunity Act
and Regulation B thereunder.
EMPLOYEE RELATIONS
Substantially all hourly employees of Ford in the United States are
included in collective bargaining units represented by unions. Approximately
99% of these unionized hourly employees are represented by the United
Automobile Workers (the "UAW"). Approximately 3% of salaried employees are
represented by unions. Most hourly employees and many nonmanagement salaried
employees of subsidiaries outside the United States also are represented by
unions. Affiliates of Ford also are parties to collective bargaining agreements
in Britain, Spain, Germany and France.
Collective bargaining agreements between Ford and the UAW and between Ford
of Canada and the Canadian Automobile Workers were entered into in 1993 and are
scheduled to expire in September 1996.
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The following tables set forth selected financial data and other data
concerning Ford for each of the last ten years (dollar amounts in millions
except per share amounts):
SUMMARY OF OPERATIONS 1994 1993 1992 1991 1990
---- ---- ---- ---- ----
AUTOMOTIVE
Sales $107,137 $91,568 $84,407 $72,051 $81,844
Operating income/(loss) 5,826 1,432 (1,775) (3,769) 316
Income/(Loss) before income taxes and cumulative
effects of changes in accounting principles 5,997 1,291 (1,952) (4,052) 275
Income/(Loss) before cumulative effects of
changes in accounting principles (1) 3,824 940 (1,534) (3,186) 99
Net income/(loss) 3,824 940 (8,628) (3,186) 99
FINANCIAL SERVICES
Revenues $ 21,302 $16,953 $15,725 $16,235 $15,806
Income before income taxes and cumulative effects
of changes in accounting principles 2,792 2,712 1,825 1,465 1,221
Income before cumulative effects of
changes in accounting principles 1,484 1,589 1,032 928 761
Net income 1,484 1,589 1,243 928 761
TOTAL COMPANY
Income/(Loss) before income taxes and cumulative
effects of changes in accounting principles $ 8,789 $ 4,003 $ (127) $(2,587) $ 1,495
Provision/(Credit) for income taxes 3,329 1,350 295 (395) 530
Minority interests 152 124 80 66 105
Income/(Loss) before cumulative effects of
changes in accounting principles (1) $ 5,308 $ 2,529 $ (502) $(2,258) $ 860
Cumulative effects of changes in
accounting principles - - (6,883) - -
Net income/(loss) 5,308 2,529 (7,385) (2,258) 860
TOTAL COMPANY DATA PER SHARE OF
COMMON AND CLASS B STOCK (2)
Income/(Loss) before cumulative effects
of changes in accounting principles $ 4.97 $ 2.27 $ (0.73) $ (2.40) $ 0.93
Income/(Loss)
Assuming no dilution 4.97 2.27 (7.81) (2.40) 0.93
Assuming full dilution 4.44 2.10 (7.81) (2.40) 0.92
Cash dividends 0.91 0.80 0.80 0.98 1.50
Common stock price range (NYSE)
. High 35 1/16 33 1/16 24 1/2 18 7/8 24 5/8
. Low 25 5/8 21 1/2 13 7/8 11 3/4 12 1/2
Average number of shares of Common
and Class B stock outstanding (in millions) 1,010 986 972 952 926
SUMMARY OF OPERATIONS 1989 1988 1987 1986 1985
---- ---- ---- ---- ----
AUTOMOTIVE
Sales $ 82,879 $82,193 $71,797 $62,868 $52,915
Operating income/(loss) 4,252 6,612 6,256 4,142 2,902
Income/(Loss) before income taxes and cumulative
effects of changes in accounting principles 5,155 7,312 6,499 4,300 3,154
Income/(Loss) before cumulative effects of
changes in accounting principles (1) 3,175 4,609 3,767 2,512 2,012
Net income/(loss) 3,175 4,609 3,767 2,512 2,012
FINANCIAL SERVICES
Revenues $ 13,267 $10,253 $ 8,096 $ 6,826 $ 4,700
Income before income taxes and cumulative effects
of changes in accounting principles 874 1,031 1,385 1,321 861
Income before cumulative effects of
changes in accounting principles 660 691 858 773 504
Net income 660 691 858 773 504
TOTAL COMPANY
Income/(Loss) before income taxes and cumulative
effects of changes in accounting principles $ 6,030 $ 8,343 $ 7,885 $ 5,620 $ 4,015
Provision/(Credit) for income taxes 2,112 2,999 3,226 2,324 1,487
Minority interests 82 44 34 12 13
Income/(Loss) before cumulative effects of
changes in accounting principles (1) $ 3,835 $ 5,300 $ 4,625 $ 3,285 $ 2,515
Cumulative effects of changes in
accounting principles - - - - -
Net income/(loss) 3,835 5,300 4,625 3,285 2,515
TOTAL COMPANY DATA PER SHARE OF
COMMON AND CLASS B STOCK (2)
Income/(Loss) before cumulative effects
of changes in accounting principles $ 4.11 $ 5.48 $ 4.53 $ 3.08 $ 2.27
Income/(Loss)
Assuming no dilution 4.11 5.48 4.53 3.08 2.27
Assuming full dilution 4.06 5.40 4.46 3.03 2.20
Cash dividends 1.50 1.15 0.79 0.56 0.40
Common stock price range (NYSE)
. High 28 3/8 27 1/2 28 1/4 15 7/8 9 7/8
. Low 20 3/4 19 1/8 14 1/4 9 6 3/4
Average number of shares of Common
and Class B stock outstanding (in millions) 934 968 1,022 1,066 1,108
____________________
(1) 1989 includes an after-tax loss of $424 million from the sale of Rouge
Steel Company.
(2) Share data have been adjusted to reflect stock dividends and stock
splits.
28
30
SUMMARY OF OPERATIONS CONT. 1994 1993 1992 1991 1990
---- ---- ---- ---- ----
TOTAL COMPANY BALANCE SHEET
DATA AT YEAR END
Assets
Automotive $ 68,371 $ 61,737 $ 57,170 $ 52,397 $ 50,824
Financial Services 150,983 137,201 123,375 122,032 122,839
Total Assets $219,354 $198,938 $180,545 $174,429 $173,663
Long-term debt
Automotive $ 7,103 $ 7,084 $ 7,068 $ 6,539 $ 4,553
Financial Services 58,104 47,900 42,369 43,680 40,779
Stockholders' equity (3) 21,659 15,574 14,753 22,690 23,238
TOTAL COMPANY FACILITY
AND TOOLING DATA
Capital expenditures for facilities
(excluding special tools) $ 5,236 $ 4,339 $ 3,613 $ 3,611 $ 4,702
Depreciation 7,207 5,456 4,658 3,956 3,185
Expenditures for special tools 3,310 2,475 2,177 2,236 2,556
Amortization of special tools 2,129 2,012 2,097 1,822 1,695
TOTAL COMPANY EMPLOYEE
DATA -- WORLDWIDE
Payroll $ 15,785 $ 13,750 $ 13,754 $ 12,850 $ 14,014
Total labor costs 22,896 20,065 19,850 17,998 18,962
Average number of employees 337,778 321,925 325,333 331,977 369,547
TOTAL COMPANY EMPLOYEE
DATA -- U.S. OPERATIONS
Payroll $ 10,396 $ 8,888 $ 8,015 $ 7,389 $ 8,309
Average number of employees 180,460 166,593 158,377 156,079 180,104
Average hourly labor costs (4)
Earnings $ 21.81 $ 20.94 $ 19.92 $ 19.10 $ 18.44
Benefits 19.12 18.12 19.24 17.97 14.12
Total hourly labor costs $ 40.93 $ 39.06 $ 39.16 $ 37.07 $ 32.56
SUMMARY OF OPERATIONS 1989 1988 1987 1986 1985
---- ---- ---- ---- ----
TOTAL COMPANY BALANCE SHEET
DATA AT YEAR END
Assets
Automotive $ 45,819 $ 43,128 $ 39,734 $ 34,021 $ 29,297
Financial Services 115,074 100,239 76,260 59,211 45,797
Total Assets $160,893 $143,367 $115,994 $ 93,232 $ 75,094
Long-term debt
Automotive $ 1,137 $ 1,336 $ 2,058 $ 2,467 $ 2,459
Financial Services 37,784 30,777 26,009 19,128 13,753
Stockholders' equity (3) 22,728 21,529 18,493 14,860 12,269
TOTAL COMPANY FACILITY
AND TOOLING DATA
Capital expenditures for facilities
(excluding special tools) $ 4,412 $ 3,148 $ 2,415 $ 2,179 $ 2,385
Depreciation 2,720 2,458 2,107 1,859 1,559
Expenditures for special tools 2,354 1,634 1,343 1,285 1,417
Amortization of special tools 1,509 1,335 1,353 1,293 948
TOTAL COMPANY EMPLOYEE
DATA -- WORLDWIDE
Payroll $ 13,327 $ 13,010 $ 11,670 $ 11,290 $ 10,175
Total labor costs 18,152 18,108 16,567 15,610 14,033
Average number of employees 366,641 358,939 350,320 382,274 369,314
TOTAL COMPANY EMPLOYEE
DATA -- U.S. OPERATIONS
Payroll $ 8,650 $ 8,473 $ 7,762 $ 7,704 $ 7,213
Average number of employees 188,286 185,540 180,838 181,476 172,165
Average hourly labor costs (4)
Earnings $ 17.77 $ 17.39 $ 16.50 $ 16.12 $ 15.70
Benefits 13.21 13.07 12.38 11.01 10.75
Total hourly labor costs $ 30.98 $ 30.46 $ 28.88 $ 27.13 $ 26.45
____________________
(3) The cumulative effects of changes in accounting principles reduced
equity by $6,883 million in 1992.
(4) Per hour worked (in dollars). Excludes data for subsidiary companies.
29
31
SUMMARY OF VEHICLE SALES (5)
(UNITS IN THOUSANDS) 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ----
NORTH AMERICA (6)
CARS
United States 2,077 1,950 1,841 1,605 1,847 2,186
Canada 124 130 128 154 143 189
Mexico 49 51 67 55 51 47
TOTAL CARS 2,250 2,131 2,036 1,814 2,041 2,422
TRUCKS
United States 2,199 1,874 1,520 1,260 1,420 1,523
Canada 156 126 108 104 114 138
Mexico 42 39 59 57 37 40
TOTAL TRUCKS 2,397 2,039 1,687 1,421 1,571 1,701
TOTAL NORTH AMERICA 4,647 4,170 3,723 3,235 3,612 4,123
OUTSIDE NORTH AMERICA
Germany 938 831 924 969 980 1,023
Britain 463 422 473 482 481 516
Spain 302 211 311 341 335 310
Australia 130 127 120 109 157 159
Taiwan 86 114 114 103 104 100
Japan 34 53 67 96 108 91
Other Countries (7) 39 37 35 20 19 15
TOTAL OUTSIDE NORTH AMERICA 1,992 1,795 2,044 2,120 2,184 2,214
TOTAL WORLDWIDE -- CARS AND TRUCKS 6,639 5,965 5,767 5,355 5,796 6,337
TOTAL WORLDWIDE -- TRACTORS (8) 0 0 0 13 68 72
TOTAL WORLDWIDE FACTORY SALES 6,639 5,965 5,767 5,368 5,864 6,409
SUMMARY OF VEHICLE SALES (5)
(UNITS IN THOUSANDS) 1988 1987 1986 1985
---- ---- ---- ----
NORTH AMERICA (6)
CARS
United States 2,377 2,171 2,094 1,941
Canada 204 198 194 195
Mexico 32 17 21 36
TOTAL CARS 2,613 2,386 2,309 2,172
TRUCKS
United States 1,541 1,481 1,404 1,260
Canada 145 151 127 120
Mexico 31 18 23 34
TOTAL TRUCKS 1,717 1,650 1,554 1,414
TOTAL NORTH AMERICA 4,330 4,036 3,863 3,586
OUTSIDE NORTH AMERICA
Germany 1,008 900 862 770
Britain 507 484 438 422
Spain 282 276 268 266
Australia 136 134 143 177
Taiwan 80 59 35 24
Japan 62 51 44 39
Other Countries (7) 39 120 268 268
TOTAL OUTSIDE NORTH AMERICA 2,114 2,024 2,058 1,966
TOTAL WORLDWIDE -- CARS AND TRUCKS 6,444 6,060 5,921 5,552
TOTAL WORLDWIDE -- TRACTORS (8) 77 64 68 84
TOTAL WORLDWIDE FACTORY SALES 6,521 6,124 5,989 5,636
____________________
(5) Includes units manufactured by other companies and sold by Ford.
(6) Factory sales are shown by source of manufacture, except within North
America. In North America, U.S. sales include exports from Canada,
Mexico and Australia, Canadian sales include exports from the U.S. and
Mexico and Mexican sales include exports from the U.S. and Canada
(7) Unit sales for Brazil and Argentina are included through June 30, 1987.
Excludes units sold by Autolatina, a joint venture in Brazil and
Argentina in which Ford holds a 49% interest.
(8) Ford's tractor operation, Ford New Holland, was sold on May 6, 1991.
30
32
FINANCIAL REVIEW OF FORD MOTOR COMPANY RESULTS
OVERVIEW
The Company's worldwide net income in 1994 was a record $5,308 million, or
$4.97 per share of Common and Class B Stock, compared with earnings of $2,529
million, or $2.27 per share in 1993. Fully diluted earnings per share were
$4.44, compared with $2.10 a year ago. Sales and revenues totaled $128.4
billion in 1994, up 18% from 1993. Factory unit sales of cars and trucks were
6,639,000, up 674,000 or 11%.
On June 6, 1994, a 2-for-1 stock split in the form of a 100% stock
dividend on the Company's outstanding Common and Class B Stock became
effective. Earnings per share for prior periods have been restated to reflect
the stock split.
The Company's financial results in 1994 showed substantial improvement
compared with 1993. Improvements in U.S. Automotive operations included the
favorable effects of higher industry volume and improved margins. Automotive
operations outside the U.S. also improved. The improvement reflected primarily
higher unit volume, lower manufacturing costs, and improved margins in Europe.
Earnings from Financial Services operations were down $105 million compared
with 1993, which was more than explained by a $440 million write-off for the
disposition of First Nationwide Bank, discussed below. The write-off was
offset largely by substantially improved earnings at the other operations.
The Company continued to strengthen its competitive position through cost
reduction programs and the development of new products. In 1994, capital
spending for new products and facilities was up $1.7 billion from 1993.
Automotive debt at the end of 1994 was $7.3 billion, down $0.7 billion from
year-end 1993. Cash and marketable securities for the Company's Automotive
segment totaled $12.1 billion, up $2.3 billion from year-end 1993.
In 1994, the Company announced a reorganization of its Automotive
operations, called "Ford 2000." Ford 2000 is a fundamental change intended to
provide customers with a wider array of vehicles in more markets, assure full
competitiveness in vehicle design, quality and value, and substantially reduce
the cost of operating Ford's automotive business. The new structure reduces
duplication of effort and facilitates best practices around the world by
merging Ford's North American Automotive Operations, European Automotive
Operations, and Automotive Components Group into a single organization, Ford
Automotive Operations. The new organization became effective on January 1,
1995.
Fourth Quarter of 1994
In the fourth quarter of 1994, the Company's worldwide net income was
$1,569 million or $1.47 per share of Common and Class B Stock, compared with
$719 million, or $0.65 per share in the fourth quarter of 1993.
Worldwide Automotive operations earned $1,085 million in the fourth
quarter of 1994, compared with $297 million a year ago. U.S. Automotive
operations earned $720 million in the fourth quarter of 1994, compared with
$669 million a year ago. The improved results for U.S. Automotive operations
reflected higher industry volume. Automotive operations outside the U.S. earned
$365 million, compared with a loss of $372 million a year ago. The improvement
for Automotive operations outside the U.S. reflected higher unit volumes and
lower manufacturing costs in Europe, improved operating results and
nonrecurrence of restructuring charges at Jaguar and Ford of Australia, and a
one-time gain of $110 million from the recent devaluation of the Mexican peso.
Ford's European Automotive operations (excluding Jaguar) earned $11 million in
the fourth quarter compared with a loss of $143 million in 1993.
31
33
Financial Services earned a record $484 million in the fourth quarter of
1994, compared with $422 million a year ago.
1994 RESULTS OF OPERATIONS
Automotive Operations
Net income from Ford's worldwide Automotive operations was $3,824 million
in 1994 on sales of $107.1 billion, compared with $940 million in 1993 on sales
of $91.6 billion.
In the U.S., Ford's Automotive operations earned $3,040 million on sales
of $73 billion, compared with $1,482 million in 1993 on sales of $61.6 billion.
Higher vehicle production, reflecting increased industry sales, accounted for
most of the improvement. Improved margins, reflecting mainly favorable
material costs, manufacturing efficiencies, and lower marketing costs, were
offset partially by higher costs for new products and related facilities.
Results in 1993 included the one-time favorable effect of tax legislation ($171
million) for the restatement of U.S. deferred tax balances, and the gain on the
sale of Ford's North American automotive seating and seat trim business ($73
million).
The U.S. economy continued to grow at a modest rate in 1994, helping to
maintain interest rates and inflation at comparatively low levels. Full-year
U.S. car and truck industry volumes increased from 14.2 million units in 1993
to 15.4 million units in 1994. Over 70% of the increase in industry sales was
attributable to trucks (including minivans, compact utility vehicles, full-size
pickups, and compact pickups). Ford's share of the U.S. car market was 21.6%,
down half of a point from 1993, reflecting lower shares for Tempo and Topaz,
which were discontinued in 1994. The Company's U.S. truck share was 30.1%,
down 4/10 of a point from 1993, reflecting capacity constraints on Explorer.
Outside the U.S., Ford's Automotive operations earned $784 million in 1994
on sales of $34.1 billion, compared with a loss of $542 million in 1993 on
sales of $30 billion. The improvement reflected primarily higher unit volumes,
lower manufacturing costs, and improved margins in Europe. Ford's European
Automotive operations (excluding Jaguar) earned $388 million, compared with a
loss of $407 million in 1993. Results outside the U.S. in 1993 included
restructuring charges at Jaguar ($174 million) and at Ford of Australia ($57
million), offset partially by the favorable one-time effect of a reduction in
German tax rates ($59 million).
Car and truck industry sales in Europe were 13.2 million units in 1994,
compared with 12.6 million units in 1993. Ford's European car market share was
11.8% in 1994, up 3/10 of a point from 1993. Ford's European truck share
improved 2/10 of a point to 14.8%.
Ford and Volkswagen AG have agreed on a separation process leading toward
dissolution of their Autolatina joint venture in Brazil and Argentina by
year-end 1995. Since it was formed in 1987, the joint venture has been a
successful and profitable participant in these volatile markets. Recent
industry volume growth in Brazil and Argentina, however, has resulted in
somewhat lower Autolatina market shares -- primarily because of capacity
limitations and increased competitive action. It is not known at this time
what effect, if any, the dissolution of Autolatina will have on Ford's future
earnings. Historically, earnings in Brazil and Argentina have represented a
significant portion of Ford's Automotive earnings outside the U.S. and Europe.
32
34
Financial Services Operations
The Company's Financial Services operations earned $1,484 million in 1994,
down $105 million from 1993. The decline was more than explained by the charge
to net income of $440 million in 1994 related to the disposition of First
Nationwide Bank. This charge, however, was offset largely by record earnings
at Ford Credit, The Associates, USL Capital, and the consolidation of results
for Hertz. Results in 1993 included an unfavorable one-time effect of $31
million from tax legislation in the U.S.
See Item 7. "Management's Discussion and Analysis of Financial Condition
and Results of Operations" for the discussion of Ford Credit's 1994 results of
operations. International operations managed by Ford Credit earned $241
million in 1994, up $42 million from 1993, reflecting primarily higher levels
of earning assets and lower credit losses.
The Associates earned a record $548 million in the U.S. in 1994, up $78
million from 1993. The increase reflected higher levels of earning assets and
improved net interest margins. The international operations managed by The
Associates earned $76 million in 1994, up $38 million from 1993, reflecting
primarily higher levels of earning assets.
USL Capital earned a record $109 million in 1994, up $32 million from
1993. The increase reflected higher earning assets, lower operating costs, and
the nonrecurrence of the one-time tax adjustment in 1993 for increased U.S. tax
rates. American Road earned $58 million in 1994, compared with $79 million in
1993. The decrease reflected primarily reduced investment income from capital
gains.
In April 1994, Hertz became a wholly-owned subsidiary of Ford. In 1994,
Financial Services net income included $92 million for Hertz. In 1993,
Automotive net income included $26 million for Hertz (reflecting Ford's prior
equity interest).
On September 30, 1994, substantially all of the assets of First Nationwide
Bank, since known as Granite Savings Bank (the "Bank"), were sold to, and
substantially all of the Bank's liabilities were assumed by, First Madison
Bank, FSB ("First Madison"). The Bank is a wholly-owned subsidiary of Granite
Management Corporation (formerly First Nationwide Financial Corporation)
("Granite"), which in turn is a wholly-owned subsidiary of Ford. In 1994,
Granite incurred a loss of $484 million including a charge of $440 million
related to the disposition of the Bank, reflecting the nonrecovery of goodwill
and reserves for estimated losses on assets not included in the sale. Granite
incurred a loss of $55 million in 1993.
LIQUIDITY AND CAPITAL RESOURCES
Automotive Operations
Cash and marketable securities of the Company's Automotive operations were
$12.1 billion at December 31, 1994, up $2.3 billion from December 31, 1993.
The Company paid $1.2 billion in cash dividends on its capital stock and
contributed $1.7 billion to its U.S. pension plans and $300 million to its
non-U.S. plans during 1994.
Automotive capital expenditures were $8.3 billion in 1994, up $1.6 billion
from 1993. During the next several years, the pace of spending for product
change at Ford is expected to be at similar or higher levels.
At December 31, 1994, Automotive debt totaled $7.3 billion, which was 25%
of total capitalization (stockholders' equity and Automotive debt), compared
with $8 billion, or 34% of total capitalization, at year-end 1993.
33
35
At December 31, 1994, Ford (parent company only) had long-term
contractually committed credit agreements in the U.S. under which $5.9 billion
is available from various banks at least through June 30, 1999. The entire
$5.9 billion may be used, at Ford's option, by either Ford or Ford Credit. As
of December 31, 1994, these facilities were unused.
Outside the U.S., Ford has additional long-term contractually committed
credit-line facilities of approximately $2.5 billion. These facilities are
available in varying amounts from 1995 through 1999; less than 1% was used at
December 31, 1994.
FINANCIAL SERVICES OPERATIONS
The Financial Services operations rely heavily on their ability to raise
substantial amounts of funds in capital markets in addition to collections on
loans and retained earnings. The levels of funds for certain Financial Services
operations are affected by certain transactions with Ford, such as capital
contributions, dividend payments and the timing of payments for income taxes.
Their ability to obtain funds also is affected by their debt ratings which, for
certain operations, are closely related to the financial condition and outlook
for Ford and the nature and availability of support facilities, such as
revolving credit and receivables sales agreements.
For information relating to Ford Credit's liquidity and capital resources,
see "Business of Ford Credit -- Borrowings and Other Sources of Funds" and Item
7. -- "Management's Discussion and Analysis of Financial Condition and Results
of Operations". In addition, at December 31, 1994, international subsidiaries
and other credit operations managed by Ford Credit had $8.1 billion of
contractually committed support facilities available outside the U.S. At
December 31, 1994, approximately 12% of these facilities were in use.
At December 31, 1994, Ford Holdings had outstanding debt of $1.9 billion,
all of which was long term. All of the Ford Holdings debt held by
nonaffiliated persons is guaranteed by Ford. Ford Holdings had no
contractually committed lines of credit at December 31, 1994. In 1994, Ford
Holdings sold 2,000 shares of its Series D Cumulative Preferred Stock having an
aggregate liquidation preference of $200 million, and sold 2,150 shares of its
Flexible Rate Auction Preferred Stock, Series L, M, and N, having an aggregate
liquidation preference of $215 million.
At December 31, 1994, The Associates had contractually committed lines of
credit with banks of $3.8 billion, with various maturities ranging from January
4, 1995 to December 31, 1995, none of which were utilized at December 31, 1994.
Also, at December 31, 1994, The Associates had $4.4 billion of contractually
committed revolving credit facilities with banks, with maturity dates ranging
from February 1, 1995 through January 1, 2000, and $1 billion of contractually
committed receivables sale facilities, $500 million of which are available
through April 30, 1995 and $500 million of which are available through April
15, 1997; none of these facilities were in use at December 31, 1994. At
December 31, 1994, foreign operations managed by The Associates had
approximately $260 million of contractually committed support facilities
available outside the U.S., of which about 20% were in use at December 31,
1994.
At December 31, 1994, USL Capital had $1.5 billion of contractually
committed credit facilities, 69% of which are available through September 1999.
These facilities included $120 million of contractually committed receivables
sale facilities, of which 100% were in use at December 31, 1994. At December
31, 1994, foreign operations managed by USL Capital had approximately $30
million of contractually committed support facilities available outside the
U.S., of which about 84% were in use at December 31, 1994.
34
36
American Road's principal sources of funds are insurance premiums, annuity
deposits and investment income. American Road had no debt or credit lines at
December 31, 1994.
At December 31, 1994, Hertz had $2 billion of contractually committed
credit facilities in the U.S., none of which were utilized at December 31,
1994. These facilities included $750 million and $1 billion of agreements with
banks, which mature June 30, 1995 and June 30, 1999, respectively, and a $250
million revolving credit facility with Ford. At December 31, 1994, Hertz'
foreign operations had approximately $488 million of contractually committed
support facilities available outside the U.S., of which about 75% were in use
at December 31, 1994.
Accounting Changes
The Emerging Issues Task Force (the "EITF") of the Financial Accounting
Standards Board is considering an accounting issue that, depending on its
outcome, could result in a significant one-time effect on Ford's reported
financial results, but not its cash flow. The issue concerns timing of revenue
recognition where a manufacturer sells a product to a dealer who in turn enters
into an operating lease for the product with a retail customer, and the lease
and title to the product are then sold by the dealer to the manufacturer (or a
finance subsidiary of the manufacturer). Ford recognizes revenue upon the sale
of vehicles to dealers, including vehicles that ultimately are leased under
Ford Credit's retail leasing program. If the EITF decides that later timing of
revenue recognition is required, Ford likely would be required to defer a
substantial amount of revenue and income from these transactions, but without
any impact on cash flow.
ITEM 2. FORD CREDIT PROPERTIES
Substantially all of Ford Credit's branch operations presently are being
conducted from leased properties. At December 31, 1994, Ford Credit's aggregate
obligation under leases of real property was $51.8 million. In 1990, Ford
Credit purchased from Ford its central office building in Dearborn, Michigan.
ITEM 3. FORD CREDIT LEGAL PROCEEDINGS
Various legal actions, governmental proceedings, and other claims are
pending or may be instituted or asserted in the future against Ford Credit and
its subsidiaries.
Ford Credit is a defendant in actions asserting claims under the antitrust
laws and the Automobile Dealers' Day in Court Act resulting from Ford Credit's
termination of financing relationships with former automobile dealers, and
actions alleging violations of various state and federal regulatory laws
concerning financing and insurance, based upon technical interpretations of
their requirements. Some of these matters involve or may involve class actions,
compensatory, punitive or treble damage claims and attorneys fees in very large
amounts, or other requested relief which, if granted, would require very large
expenditures.
The Federal Trade Commission and the Department of Justice have advised
Ford that they are investigating the retail financing credit practices of Ford
and Ford Credit for compliance with the Equal Credit Opportunity Act and
Regulation B thereunder.
35
37
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
All shares of the registrant's Common Stock are owned by Ford and,
accordingly, there is no market for such stock. During 1994, Ford Credit
declared and paid to Ford cash dividends of $364 million. Dividends also were
paid to Ford in 1993, 1992 and 1991. Ford Credit may pay additional dividends
from time to time depending on Ford Credit's receivables levels, capital
requirements, and profitability.
36
38
ITEM 6. SELECTED FINANCIAL DATA
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
SELECTED INCOME STATEMENT DATA (IN MILLIONS)
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Financing revenue
Operating leases . . . . . . . . . $ 5,343 $ 3,603 $ 2,353 $ 1,286 $ 768
Retail . . . . . . . . . . . . . . 3,232 3,305 3,347 3,753 3,864
Wholesale . . . . . . . . . . . . 964 679 713 1,102 1,116
Diversified . . . . . . . . . . . 120 144 200 271 328
Other . . . . . . . . . . . . . . 268 221 221 289 604
--------- --------- ---------- --------- ---------
Total finance revenue . . . . . . . . 9,927 7,952 6,834 6,701 6,680
Investment and other income . . . . . 462 386 239 301 178
--------- --------- ---------- --------- ---------
Total revenue . . . . . . . . . . . . 10,389 8,338 7,073 7,002 6,858
Interest expense . . . . . . . . . . 3,541 2,919 3,076 3,792 4,292
Depreciation on operating
leases . . . . . . . . . . . . . . 3,910 2,676 1,653 1,030 558
Provision for credit losses . . . . . 247 270 418 578 656
Operating expenses . . . . . . . . . 925 796 758 718 734
--------- --------- ---------- --------- ---------
Total expenses . . . . . . . . . . . 8,623 6,661 5,905 6,118 6,240
--------- --------- ---------- --------- ---------
Equity in net income of
affiliated companies . . . . . . . 233 198 155 191 145
--------- --------- ---------- --------- ---------
Income before income taxes
and cumulative effects of
changes in accounting
principles . . . . . . . . . . . . 1,999 1,875 1,323 1,075 763
Provision for income taxes . . . . . 675 673 425 324 200
Minority interest . . . . . . . . . . 11 8 6 2 --
--------- --------- ---------- --------- ---------
Income before cumulative
effects of changes in
accounting principles . . . . . . 1,313 1,194 892 749 563
Cumulative effects of changes
in accounting principles . . . . . -- -- 147 -- --
--------- --------- ---------- --------- ---------
Net income . . . . . . . . . . . . . $ 1,313 $ 1,194 $ 1,039 $ 749 $ 563
========= ========= ========= ======== ========
Net income from financing
operations . . . . . . . . . . . . $ 1,080 $ 996 $ 737 $ 558 $ 418
Net income from affiliated
companies . . . . . . . . . . . . 233 198 155 191 145
Cumulative effects of changes
in accounting principles . . . -- -- 147 -- --
Cash dividends . . . . . . . . . . . 364 250 600 650 100
Return on Equity . . . . . . . . . . 20.9% 22.0% 21.2% 15.8% 12.0%
Earnings-to-fixed charges
ratio . . . . . . . . . . . . 1.49 1.56 1.37 1.23 1.14
- ----------
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39
SELECTED BALANCE SHEET DATA (IN BILLIONS)
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Finance Receivables
Retail . . . . . . . . . . $40.6 $38.6 $35.6 $ 33.3 $36.2
Wholesale . . . . . . . . . 15.2 11.7 10.1 11.5 12.7
Diversified . . . . . . . . 2.7 2.6 2.9 4.3 4.8
Other . . . . . . . . . . 4.3 3.7 3.4 3.4 6.4
----- ----- ----- ------ -----
Total finance receivables . . . 62.8 56.6 52.0 52.5 60.1
Deduct: Unearned income . (5.2) (5.1) (5.1) (5.0) (6.2)
Allowance for
credit losses . . (0.7) (0.7) (0.8) (0.7) (0.8)
----- ----- ----- ------ -----
Finance receivables, net . . . $56.9 $50.8 $46.1 $ 46.8 $53.1
===== ===== ===== ====== =====
Operating leases, net . . . . . $20.0 $12.6 $ 7.7 $ 4.3 $ 2.5
===== ===== ===== ====== =====
Assets
Financing operations . . . $81.9 $68.4 $58.0 $ 55.9 $58.0
Equity in net assets of
affiliated companies . . 1.3 1.2 1.0 1.0 1.0
----- ----- ----- ------ -----
Total Assets . . . . . . . . . $83.2 $69.6 $59.0 $56.9 $59.0
===== ===== ===== ====== =====
CAPITALIZATION (IN BILLIONS)
Debt payable within one year . $39.1 $33.4 $28.5 $ 25.3 $29.2
Debt payable after one year
Senior . . . . . . . . . . 31.3 25.4 21.5 22.9 21.7
Subordinated and other . . -- -- -- 0.1 0.1
----- ----- ----- ------ -----
Total debt payable after
one year . . . . . . . . . 31.3 25.4 21.5 23.0 21.8
----- ----- ----- ------ -----
Total debt . . . . . . . . . . 70.4 58.8 50.0 48.3 51.0
Stockholder's equity . . . . . 6.7 5.8 4.9 4.7 4.9
----- ----- ----- ------ -----
Total capital . . . . . . . . . $77.1 $64.6 $54.9 $53.0 $55.9
===== ===== ===== ====== =====
Debt-to-equity ratio (to 1) . . 10.6 10.1 10.2 10.3 10.4
Debt payable within one
year as percent of
total capital . . . . . . . 50.7 % 51.7 % 51.9 % 47.7 % 52.2 %
38
40
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The principal factors that influence the earnings of Ford Credit are
interest margins, the levels of finance receivables and net investment in
operating leases, and its investment in, and profitability of, Ford Holdings,
Inc. ("Ford Holdings").
Net interest margins reflect the difference between interest rates earned
on finance receivables, including operating leases net of depreciation,
("yields") and the rates paid on borrowed funds. Yields on most receivables
and operating leases generally are fixed at the time the contracts are
acquired. On some receivables, primarily wholesale financing, yields vary with
changes in short-term interest rates. Borrowed funds include short-term debt,
the cost of which reflects changes in short-term interest rates, and long-term
debt, the cost of which generally is fixed at the time of the debt placement.
Interest-rate swap agreements are used to hedge movements in interest rates
related to borrowings and to manage the match between the interest rates of
assets and liabilities.
The levels of finance receivables and net investment in operating leases
depend primarily on the volume of Ford Motor Company vehicle sales, the extent
to which Ford Credit provides the wholesale and retail financing of those
sales, and sales of receivables. Ford periodically sponsors special financing
programs that are available exclusively through Ford Credit which provide
payments to Ford Credit for interest supplements and other support costs on
certain financing and leasing transactions. These programs can increase Ford
Credit's financing volume of Ford Motor Company vehicles.
RESULTS OF OPERATIONS
1994 COMPARED WITH 1993
Ford Credit's consolidated net income in 1994 was $1,313 million, up $119
million or 10% from 1993. Net income from financing operations in 1994 was
$1,080 million, up $84 million or 8% from 1993. The increase in financing
profits was more than accounted for by higher financing volumes, a one-time
gain from the sale of Ford Credit's investment in Manheim Auto Auctions, the
non-recurrence of the effect of the 1993 U.S. tax rate increase, gains on used
service vehicles and repurchased fleet-account vehicles sold at auction,
improved credit losses and improved operating costs. Lower net interest
margins and lower gains from sales of receivables were a partial offset.
Continuing the trend of favorable credit loss experience, credit losses as
a percent of average finance receivables including net investment in operating
leases were 0.30% in 1994 ($229 million) compared with 0.35% in 1993 ($228
million). The credit loss coverage ratio for 1994 was 4.0, the same as the
prior year. The decline in net interest margins reflects the lower portfolio
yields on finance receivables and net investment in operating leases, and an
increase in net U.S. portfolio borrowing rates from 5.3% in 1993 to 5.4% in
1994.
For 1994, equity in net income of affiliated companies (primarily Ford
Holdings) was $233 million compared with $198 million last year. The increase
reflected higher Ford Holdings net income available to common shareholders. At
December 31, 1994, Ford Credit owned about 45% of Ford Holdings common stock,
representing about 34% of the voting power.
Total gross finance receivables and net investment in operating leases at
December 31, 1994 were $82.8 billion, up $13.6 billion or 20% from a year
earlier. The higher financing volume reflects primarily an increase in
operating leases and higher wholesale receivables. Depreciation expense in
1994 was $3,910 million, up $1,234 million or 46% from 1993. The increase
reflected the higher levels of operating leases and was more than offset by
higher revenue earned on the lease contracts.
39
41
For 1994, Ford Credit financed 36.6% of all new cars and trucks sold by
Ford Motor Company dealers in the U.S. compared with 38.5% in 1993. The
decrease primarily resulted from lower levels of daily rental car financing.
Ford Credit provided retail customers with financing for 2,347,000 new and used
vehicles in the United States. Ford Credit provided wholesale financing for a
record 81.5% of Ford Motor Company U.S. factory sales in 1994 compared with
81.4% in 1993.
1993 COMPARED WITH 1992
Ford Credit's consolidated net income in 1993 was $1,194 million, up $155
million or 15% from 1992. Excluding a one-time gain resulting from the net
effect of the adoption of new accounting standards for income taxes and
postretirement benefits in 1992, net income was up $302 million or 34% from the
prior year. The following comparison of 1993 results with 1992 results
excludes the one-time net gain associated with the accounting changes.
Net income from financing operations was $996 million, up $259 million or
35% from the prior year. The increase in financing profits was more than
accounted for by higher financing volumes, lower credit losses and higher net
income from gains on sales of retail automotive receivables, partially offset
by the increase in U.S. income taxes and lower net interest margins.
Lower credit losses reflect lower losses per repossession and fewer
repossessions. Actual credit losses were $228 million (0.35% of average
finance receivables including net investments in operating leases) compared
with $343 million (0.60%) in 1992. The credit loss coverage ratio for 1993 was
4.0 compared with 2.7 in the prior year. The decline in net interest margins,
including depreciation on operating leases, reflects primarily the decline in
net U.S. borrowing rates from 6.3% in 1992 to 5.3% in 1993, more than offset by
lower yields on finance receivables and net investment in operating leases.
For 1993, equity in net income of affiliated companies (primarily Ford
Holdings) was $198 million, up $43 million from 1992. The increase reflected
higher Ford Holdings net income available to common shareholders, partially
offset by a reduction in Ford Credit's ownership of Ford Holdings common stock.
The reduction in ownership was the result of a dividend paid in 1992 to Ford in
the form of Ford Holdings commons stock. At December 31, 1993, Ford Credit
owned about 45% of Ford Holdings common stock, representing about 34% of the
voting power.
Total gross finance receivables and net investment in operating leases at
December 31, 1993 were $69.2 billion, up $9.5 billion (16%) from a year
earlier. The higher financing volume reflects primarily an increase in
operating leases and higher wholesale receivables. Depreciation expense on
operating leases in 1993 was $2,676 million, up $1,023 million or 62% from
1992. The increase reflected the higher levels of operating leases and was
more than offset by higher revenue earned on the lease contracts.
For 1993, Ford Credit financed 38.5% of all new cars and trucks sold by
Ford Motor Company dealers in the U.S. compared with 37.7% in 1992. Ford
Credit provided retail financing for 2,246,000 new and used vehicles in the
United States. Ford Credit provided wholesale financing for 81.4% of Ford
Motor Company U.S. factory sales in 1993 compared with 77.6% in 1992.
Additional information called for by Item 7 is incorporated herein by
reference from Item 1 -- Business -- "Business of Ford Credit -- Credit Loss
Experience", "Business of Ford Credit -- Borrowings and Other Sources of Funds",
"Ford Holdings" and "Certain Transactions with Ford and Affiliates", and Item 8
- -- "Financial Statements and Supplementary Data".
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by Item 8 is set forth at pages FC-1 through
FC-27 of this Form 10-K Report, is incorporated herein by reference and is
listed in the Index to Financial Statements as set forth in Item 14(a)(1) and
14(a)(2).
40
42
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
Report of Independent Accountants
Ford Motor Credit Company and Subsidiaries
Consolidated Statement of Income and of Earnings Retained for Use in the
Business for the Years Ended December 31, 1994, 1993 and 1992.
Consolidated Balance Sheet, December 31, 1994 and 1993.
Consolidated Statement of Cash Flows for the Years Ended December 31,
1994, 1993 and 1992.
Notes to Financial Statements.
The financial statements and notes to financial statements listed above
are incorporated by reference in Item 8 of this Report from pages FC-1 through
FC-27 of this Form 10-K Report.
Information regarding significant restrictions on the ability of
subsidiaries to transfer funds to the registrant, and condensed financial
information of the registrant are omitted because the amounts related to such
restrictions are not sufficient to require submission.
(a) 2. Financial Statement Schedules
Schedules have been omitted because the subject matter is disclosed
elsewhere in the financial statements and notes thereto, is not required,
is not present, or is not present in amounts sufficient to require
submission.
41
43
(a) 3. Exhibits
DESIGNATION DESCRIPTION METHOD OF FILING
----------- ----------- ----------------
EXHIBIT 3-A Restated Certificate of Filed as Exhibit 3-A to Ford Motor Credit
Incorporation of Ford Motor Company Report on Form 10-K for the year
Credit Company. ended December 31, 1987 and incorporated
herein by reference. File No. 1-6368.
EXHIBIT 3-B By-Laws of Ford Motor Credit Filed as Exhibit 3-B to Ford Motor Credit
Company as amended through March Company Report
2, 1988. on Form 10-K for the year ended December
31, 1987 and incorporated herein by
reference. File No. 1-6368.
EXHIBIT 4-A Form of Indenture dated as of Filed as Exhibit 4-A to Ford
August 1, 1984 between Ford Motor Motor Credit Company Registration
Credit Company and The Chase Statement No. 2-92561 and incorporated
Manhattan Bank (National herein by reference.
Association) relating to Debt
Securities.
EXHIBIT 4-A-1 Form of First Supplemental Filed as Exhibit 4-C to Ford Motor Credit
Indenture dated August 15, 1986 Company Registration Statement No. 33-8126
between Ford Motor Credit Company and incorporated herein by reference.
and The Chase Manhattan Bank
(National Association)
supplementing the Indenture
designated as Exhibit 4-A.
EXHIBIT 4-A-2 Form of Second Supplemental Filed as Exhibit 4-B to Ford Motor Credit
Indenture dated as of October 15, Company Current Report on Form 8-K dated
1986 between Ford Motor Credit October 17, 1986 and incorporated herein
Company and The Chase Manhattan by reference. File No. 1-6368.
Bank (National Association)
supplementing the Indenture
designated as Exhibit 4-A.
EXHIBIT 4-B Form of Indenture dated as of Filed as Exhibit 4-A to Ford Motor Credit
February 1, 1985 between Ford Company Registration Statement No. 2-95568
Motor Credit Company and and incorporated herein by reference.
Manufacturers Hanover Trust
Company relating to Debt
Securities.
EXHIBIT 4-B-1 Form of First Supplemental Filed as Exhibit 4-B to Ford Motor Credit
Indenture dated as of April 1, Company Current Report on Form 8-K dated
1986 between Ford Motor Credit April 29, 1986 and incorporated herein by
Company and Manufacturers Hanover reference. File No. 1-6368.
Trust Company supplementing the
Indenture designated as Exhibit
4-B.
42
44
DESIGNATION DESCRIPTION METHOD OF FILING
----------- ----------- ----------------
EXHIBIT 4-B-2 Form of Second Supplemental Filed as Exhibit 4-B to Ford Motor Credit
Indenture dated as of September Company Current Report on Form 8-K dated
1, 1986 between Ford Motor Credit August 28, 1986 and incorporated herein by
Company and Manufacturers Hanover reference. File No. 1-6368.
Trust Company supplementing the
Indenture designated as Exhibit
4-B.
EXHIBIT 4-B-3 Form of Third Supplemental Filed as Exhibit 4-E to Ford
Indenture dated as of March 15, Motor Credit Company Registration
1987 between Ford Motor Credit Statement No. 33-12928 and incorporated
Company and Manufacturers Hanover herein by reference.
Trust Company supplementing the
Indenture designated as Exhibit
4-B.
EXHIBIT 4-B-4 Form of Fourth Supplemental Filed as Exhibit 4-F to Post-
Indenture dated as of April 15, Effective Amendment No. 1 to
1988 between Ford Motor Credit Ford Motor Credit Company
Company and Manufacturers Hanover Registration No. 33-20081 and
Trust Company supplementing the incorporated herein by reference.
Indenture designated as Exhibit
4-B.
EXHIBIT 4-B-5 Form of Fifth Supplemental Filed as Exhibit 4-G to Ford Motor Credit
Indenture dated as of September Company Registration Statement No.
1, 1990 between Ford Motor Credit 33-36946 and incorporated hereby by
Company and Manufacturers Hanover reference.
Trust Company supplementing the
Indenture designated as Exhibit
4-B.
EXHIBIT 4-C Indenture dated as of November 1, Filed as Exhibit 4-A to Ford Motor Credit
1987 between Ford Motor Credit Company Current Report on Form 8-K dated
Company and Continental Bank, December 10, 1990 and incorporated herein
National Association relating to by reference. File No. 1-6368.
Debt Securities.
EXHIBIT 4-D Indenture dated as of August 1, Filed as Exhibit 4-A to Ford Motor Credit
1994 between Ford Motor Credit Company Registration Statement No. 33-
Company and First Fidelity Bank, 55237.
National Association relating to
Debt Securities.
43
45
DESIGNATION DESCRIPTION METHOD OF FILING
----------- ----------- ----------------
EXHIBIT 10-J Copy of Amended and Restated Filed as Exhibit 10-J to Ford Motor Credit
Profit Maintenance Agreement Company Report on Form 10-K for the year
dated as of July 1, 1993 between ended December 31, 1993 and incorporated
Ford Motor Credit Company and herein by reference. File No. 1-6368.
Ford Motor Company.
EXHIBIT 10-X Copy of Agreement dated as of Filed as Exhibit 10-X to Ford
February 1, 1980 between Ford Motor Credit Company Report on Form 10-K
Motor Company and Ford Motor for the year ended December 31, 1980 and
Credit Company. incorporated herein by reference. File No.
1-6368.
EXHIBIT 12-A Calculation of Ratio of Earnings Filed with this Report.
to Fixed Charges of Ford Credit.
EXHIBIT 12-B Calculation of Ratio of Earnings Filed with this Report.
to Combined Fixed Charges and
Preferred Stock Dividends of
Ford.
EXHIBIT 23 Consent of Independent Filed with this Report.
Accountants.
EXHIBIT 24 Powers of Attorney. Filed with this Report.
Instruments defining the rights of holders of certain issues of long-term
debt of the registrant 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 the registrant. The registrant agrees to furnish a copy
of each of such instruments to the Commission upon request.
(b) Reports on Form 8-K
Ford Credit filed the following Reports on Form 8-K during the quarter
ended December 31, 1994, none of which contained financial statements:
DATE OF REPORT ITEM
- -------------- ----
October 17, 1994 . . . . . . . . . . . . . Item 5 -- Other Events
October 31, 1994 . . . . . . . . . . . . . Item 5 -- Other Events
December 9, 1994 . . . . . . . . . . . . . Item 5 -- Other Events
44
46
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Ford Motor Credit Company
By WILLIAM E. ODOM*
(William E. Odom, Chairman
of the Board of Directors)
Date: March 21, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
SIGNATURE TITLE DATE
--------- ----- ----
WILLIAM E. ODOM* Chairman of the Board of March 21, 1995
Directors and
- -------------------------------- Director (principal
(William E. Odom) executive officer)
KENNETH J. COATES* Director and Executive Vice March 21, 1995
President -- Finance
- -------------------------------- (principal financial officer)
(Kenneth J. Coates)
TERRENCE F. MARRS* Controller (principal March 21, 1995
- -------------------------------- accounting officer)
(Terrence F. Marrs)
JOHN G. CLISSOLD* Director March 21, 1995
- --------------------------------
(John G. Clissold)
EDSEL B. FORD II* Director March 21, 1995
- --------------------------------
(Edsel B. Ford II)
DAVID N. McCAMMON* Director March 21, 1995
- --------------------------------
(David N. McCammon)
GREGORY C. SMITH* Director March 21, 1995
- --------------------------------
(Gregory C. Smith)
ROBERT D. WARNER* Director March 21, 1995
- --------------------------------
(Robert D. Warner)
KENNETH WHIPPLE* Director March 21, 1995
- --------------------------------
(Kenneth Whipple)
*By HURLEY D. SMITH
- --------------------------------
(Hurley D. Smith, Attorney-in-Fact)
45
47
INDEX TO FINANCIAL STATEMENTS
Ford Motor Credit Company and Subsidiaries
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FC-1
Consolidated Statement of Income and of Earnings
Retained for Use in the Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FC-2
Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FC-3
Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . FC-4
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FC-5
46
48
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
Ford Motor Credit Company:
We have audited the consolidated balance sheet of Ford Motor Credit Company and
Subsidiaries at December 31, 1994 and 1993, and the related consolidated
statements of income and of earnings retained for use in the business and cash
flows for each of the three years in the period ended December 31, 1994.
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 in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Ford Motor Credit
Company and Subsidiaries at December 31, 1994 and 1993, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1994 in conformity with generally accepted
accounting principles.
As discussed in Notes 3, 10 and 11 to the consolidated financial statements,
Ford Motor Credit Company changed its methods of accounting for postretirement
health care benefits and income taxes in 1992.
COOPERS & LYBRAND L.L.P.
Detroit, Michigan
January 27, 1995
FC-1
49
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME AND OF EARNINGS
RETAINED FOR USE IN THE BUSINESS
(in millions)
FOR THE YEARS ENDED DECEMBER 31
--------------------------------
1994 1993 1992
----------- ----------- -----------
Financing revenue
Operating leases $ 5,343.2 $ 3,602.6 $ 2,353.1
Retail 3,231.5 3,305.2 3,347.4
Wholesale 964.8 679.6 712.4
Diversified 119.8 143.9 199.8
Other 267.6 221.1 221.2
------------ ------------- -------------
Total financing revenue 9,926.9 7,952.4 6,833.9
Investment and other income 462.4 386.0 239.4
------------ ------------- -------------
Total revenue 10,389.3 8,338.4 7,073.3
Expenses
Depreciation on operating leases 3,910.0 2,675.7 1,652.6
Interest expense 3,540.8 2,919.3 3,076.5
Operating expenses 925.4 796.5 758.2
Provision for credit losses 246.5 270.2 418.0
------------ ------------- -------------
Total expenses 8,622.7 6,661.7 5,905.3
------------ ------------- -------------
Equity in net income of affiliated companies 232.5 198.3 155.2
------------ ------------- -------------
Income before income taxes and cumulative
effects of changes in accounting principles 1,999.1 1,875.0 1,323.2
Provision for income taxes 675.7 673.3 424.9
------------ ------------- -------------
Income before minority interest and cumulative
effects of changes in accounting principles 1,323.4 1,201.7 898.3
Minority interest in net income of subsidiaries 10.7 7.9 6.1
------------ ------------- -------------
Income before cumulative effects of
changes in accounting principles 1,312.7 1,193.8 892.2
Cumulative effects of changes in
accounting principles - - 146.5
------------ ------------- -------------
Net income 1,312.7 1,193.8 1,038.7
Earnings retained for use in the business
Beginning of year 4,899.9 3,956.1 3,717.4
Dividends
Cash (364.0) (250.0) (600.0)
Stock of Ford Holdings, Inc. - - (200.0)
------------ ------------- -------------
End of year $ 5,848.6 $ 4,899.9 $ 3,956.1
============= ============= =============
The accompanying notes are part of the financial statements.
FC-2
50
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in millions)
DECEMBER 31
-----------------------------
ASSETS 1994 1993
------------- -------------
Cash and cash equivalents $ 292.0 $ 992.3
Investments in securities 1,596.3 1,207.3
Finance receivables, net 56,946.5 50,759.2
Notes and accounts receivable from affiliated
companies 250.3 384.4
Equity in net assets of affiliated companies 1,346.5 1,201.9
Net investment, operating leases 19,993.9 12,600.9
Other assets 2,799.0 2,508.8
------------ ------------
Total assets $ 83,224.5 $ 69,654.8
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Accounts payable
Trade, customer deposits, and
dealer reserves $ 1,326.5 $ 1,079.2
Affiliated companies 496.0 261.9
------------ ------------
Total accounts payable 1,822.5 1,341.1
Debt 70,440.4 58,798.7
Deferred income taxes 2,405.9 2,048.7
Other liabilities and deferred income 1,495.6 1,394.6
------------ ------------
Total liabilities 76,164.4 63,583.1
Minority interest in net assets of subsidiaries 397.5 297.0
STOCKHOLDER'S EQUITY
Capital stock, par value $100 a share, 250,000
shares authorized, issued and outstanding 25.0 25.0
Paid-in surplus (contributions by stockholder) 917.3 917.3
Unrealized (loss)/gain on investments in
securities, net of taxes (70.0) 17.8
Foreign currency translation adjustments (58.3) (85.3)
Earnings retained for use in the business 5,848.6 4,899.9
------------ ------------
Total stockholder's equity 6,662.6 5,774.7
------------ ------------
Total liabilities and stockholder's equity $ 83,224.5 $ 69,654.8
============ ============
The accompanying notes are part of the financial statements.
FC-3
51
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
FOR THE YEARS ENDED DECEMBER 31
------------------------------------------------
1994 1993 1992
------------- ------------- ---------------
Cash flows from operating activities
Net income $ 1,312.7 $ 1,193.8 $ 1,038.7
Adjustments to reconcile net income to
net cash provided by operating
activities
Cumulative effects of changes in accounting
principles - - (146.5)
Provision for credit losses 246.5 270.2 418.0
Depreciation and amortization 3,969.4 2,745.8 1,732.7
Gain on sales of finance receivables (11.4) (92.5) (0.1)
Equity in net income of affiliates (232.5) (198.3) (155.2)
Deferred income taxes 349.3 565.3 328.2
Changes in the following items
Other assets (186.6) (327.0) (169.3)
Other liabilities 625.4 229.1 20.3
Other (23.4) 27.4 (67.9)
------------- ------------- -------------
Net cash provided by
operating activities 6,049.4 4,413.8 2,998.9
------------- ------------- -------------
Cash flows from investing activities
Purchase of finance receivables (134,498.7) (113,424.9) (88,295.2)
Collection of finance receivables 125,079.4 105,933.6 83,956.9
Proceeds from sales of finance receivables 3,105.1 2,521.3 3,349.6
Purchase of operating lease vehicles (14,842.5) (9,908.0) (6,464.0)
Liquidation of operating lease vehicles 3,448.9 2,317.8 1,324.7
Other (484.6) 53.9 (97.2)
------------- ------------- -------------
Net cash used in
investing activities (18,192.4) (12,506.3) (6,225.2)
------------- ------------- -------------
Cash flows from financing activities
Proceeds from issuance of long-term debt 10,721.1 12,934.9 6,517.0
Principal payments on long-term debt (8,035.7) (6,326.2) (7,348.1)
Change in short-term debt, net 8,898.0 2,568.4 3,232.9
Cash dividends paid (364.0) (250.0) (600.0)
Other 225.4 (132.8) (143.3)
------------- ------------- -------------
Net cash provided by
financing activities 11,444.8 8,794.3 1,658.5
Effect of exchange rate changes on
cash and cash equivalents (2.1) (4.5) (9.9)
------------- ------------- -------------
Net change in cash and cash equivalents (700.3) 697.3 (1,577.7)
Cash and cash equivalents, beginning of year 992.3 295.0 1,872.7
------------- ------------- -------------
Cash and cash equivalents, end of year $ 292.0 $ 992.3 $ 295.0
============= ============= =============
Supplementary cash flow information
Interest paid $ 3,494.2 $ 2,871.6 $ 3,198.2
Taxes paid 341.2 101.2 4.0
The accompanying notes are part of the financial statements.
FC-4
52
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Ford Motor Credit
Company ("Ford Credit") and its majority-owned domestic and foreign
subsidiaries and joint ventures. Affiliates that are 20-50 percent owned,
principally Ford Holdings, Inc. ("Ford Holdings"), are included in the
consolidated financial statements on an equity basis. Ford Credit is a wholly
owned subsidiary of Ford Motor Company ("Ford").
Unrealized gains or losses on investments in securities are reported in a
separate component of stockholder's equity and relate principally to Ford
Credit's equity interest in Ford Holdings' investment portfolio.
Revenue Recognition
Revenue from finance receivables is recognized using the interest (actuarial)
method. Certain loan origination costs are deferred and amortized to financing
revenue over the life of the related loans using the interest method. Rental
revenue on operating leases is recognized on a straight-line basis over the
term of the lease.
Allowance for Credit Losses
Allowances for estimated credit losses are established as required based on
historical experience. Other factors that affect collectibility also are
evaluated and additional amounts may be provided. Finance receivables and
lease investments are charged to the allowance for credit losses when an
account is deemed to be uncollectible, taking into consideration the financial
condition of the borrower or lessee, the value of the collateral, recourse to
guarantors and other factors. Collateral held for resale included in other
assets is carried at the lower of the recorded investment in the receivable or
its estimated fair value at the date of repossession. Any difference between
the recorded investment in the receivable or lease and the actual sales price
of the underlying collateral is charged to the allowance for credit losses.
Recoveries on finance receivables and lease investments previously charged off
as uncollectible are credited to the allowance for credit losses.
Continued
FC-5
53
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 1. ACCOUNTING POLICIES (continued)
Derivative Financial Instruments
Ford Credit has entered into agreements to manage exposures to fluctuations in
interest rates and foreign exchange. These agreements are used to hedge
exposure created by the difference in maturities of funding sources versus the
average maturities of finance receivables and operating leases and to hedge
debt denominated in foreign currencies. All instruments are classified as
"held for purposes other than trading"; company policy specifically prohibits
the use of derivatives for speculative purposes.
Interest rate swap agreements are used to manage interest rate fluctuations.
The differential paid or received on interest rate swap agreements is
recognized as an adjustment to interest expense in the period. Gains and
losses on terminated interest rate swaps are amortized and reflected in
interest expense over the remaining term of the original agreement.
Foreign currency swap agreements are used to manage foreign exchange exposure.
The differential paid or received on currency swaps is recognized as an
adjustment to interest expense in the period. Gains and losses on the foreign
currency swap agreements are recognized during the period of the related
transactions.
Foreign Currency Translation
Revenues, costs and expenses of foreign subsidiaries are translated to U.S.
dollars at average-period exchange rates. Assets and liabilities of foreign
subsidiaries are translated at year-end exchange rates with the effects of
these translation adjustments being reported in a separate component of
stockholder's equity. The change in this account results from translation
adjustments recorded during the year.
Cash Equivalents
Ford Credit considers investments purchased with a maturity of three months or
less to be cash equivalents.
Financial Statement Reclassifications
Certain amounts in prior year financial statements have been reclassified to
conform with presentations adopted in 1994.
Continued
FC-6
54
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 2. MARKETABLE AND OTHER SECURITIES
Ford Credit adopted Statement of Financial Accounting Standards No. 115 ("SFAS
115"), "Accounting for Certain Investments in Debt and Equity Securities," as
of January 1, 1994. The cumulative effect of this change in accounting
principle on Ford Credit's financial statements was not material.
Available-for-sale securities are recorded at fair value with unrealized gains
and losses excluded from income and reported in a separate component of
stockholder's equity. 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 was estimated based on quoted
market prices for those securities. For securities for which there were no
quoted market prices, the estimate of fair value was based on similar types of
securities that are traded in the market.
GROSS ESTIMATED
AMORTIZED UNREALIZED FAIR
COST LOSSES VALUE
------------ ------------- -------------
(in millions)
Available-for-sale securities
- -----------------------------
Debt securities issued by the
U.S. government and agencies $ 4.8 $ - $ 4.8
Held-to-maturity securities
- ---------------------------
Municipal securities 687.5 5.7 681.8
Corporate debt securities 52.1 0.4 51.7
Redeemable preferred stock 40.0 0.1 39.9
----------- -------- -----------
Total held-to-maturity securities 779.6 6.2 773.4
----------- -------- -----------
Total investments in securities with
readily determinable fair values 784.4 6.2 778.2
Other non-marketable equity securities 811.9 - 811.9
----------- -------- -----------
Total investments in securities $ 1,596.3 $ 6.2 $ 1,590.1
=========== ======== ===========
Continued
FC-7
55
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 2. MARKETABLE AND OTHER SECURITIES (continued)
The amortized cost and fair value of investments in available-for-sale
securities and held-to-maturity securities at December 31, 1994, by contractual
maturity, were as follows:
AVAILABLE-FOR-SALE HELD-TO-MATURITY
---------------------------- ---------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
------------- ------------- ------------- ------------
(in millions)
Due in one year or less $ - $ - $ 60.3 $ 60.2
Due after one year through five years 4.5 4.5 146.1 146.1
Due after five years through ten years 0.3 0.3 573.2 567.1
-------- -------- -------- -------
$ 4.8 $ 4.8 $ 779.6 $ 773.4
======== ======== ======== =======
Proceeds from sales of available-for-sale securities were $74.2 million in
1994.
NOTE 3. EQUITY INVESTMENT IN FORD HOLDINGS
Ford Holdings' primary activities consist of consumer and commercial financing
operations, insurance underwriting, and equipment leasing through its wholly
owned subsidiaries, Associates First Capital Corporation, The American Road
Insurance Company, and USL Capital Corporation (formerly United States Leasing
International, Inc.).
In 1992, Ford Credit transferred $200 million of Ford Holdings' common stock to
Ford as dividends.
At December 31, 1994 and 1993, Ford Credit owned 45% of the common stock
representing 33.8% of the voting power of Ford Holdings. Ford owns the
remaining common stock representing 41.2% of the voting power. The balance of
the voting power is represented by preferred stock owned by persons other than
Ford or Ford Credit.
Continued
FC-8
56
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 3. EQUITY INVESTMENT IN FORD HOLDINGS (continued)
Condensed financial information of Ford Holdings as of December 31 was as
follows:
1994 1993 1992
------------ ------------- -------------
(in millions)
INCOME STATEMENT
Revenue $ 5,880.5 $ 5,291.8 $ 4,816.8
Income before income taxes and
cumulative effects of changes
in accounting principles 940.5 830.6 588.0
Cumulative effects of changes in
accounting principles - - 25.8*
Net income 609.3 511.4 382.9
Preferred stock dividend requirements 97.5 74.9 50.8
Income available for common stockholders 511.8 436.5 332.1
BALANCE SHEET
Assets
Cash and investments in securities $ 5,947.0 $ 5,100.7
Finance receivables, net 29,361.7 24,376.6
Accounts receivable (including affiliated
companies) and other assets 9,064.5 9,121.5
------------ -------------
Total assets $ 44,373.2 $ 38,598.8
============ =============
Liabilities
Accounts payable (including affiliated
companies) and other liabilities $ 5,537.8 $ 4,738.3
Debt payable within one year 16,054.9 13,802.1
Long-term debt 17,765.1 15,767.7
------------ -------------
Total liabilities 39,357.8 34,308.1
Stockholders' equity 5,015.4 4,290.7
------------ -------------
Total liabilities and stockholders'
equity $ 44,373.2 $ 38,598.8
============ =============
Ford Credit's equity in the net assets of Ford Holdings at December 31, 1994
and 1993 was $1,342 million and $1,199 million, respectively.
*Ford Credit's equity in Ford Holdings' cumulative effects of changes in
accounting principles related to postretirement benefits and income taxes in
the amount of $11.6 million is included in Ford Credit's 1992 cumulative
effects of changes in accounting principles.
Continued
FC-9
57
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 4. FINANCE RECEIVABLES
Finance receivables at December 31 were as follows:
1994 1993
----------- -----------
(in millions)
Retail $ 40,566.6 $ 38,609.3
Wholesale 15,252.9 11,698.5
Diversified 2,738.2 2,626.0
Other 4,263.8 3,681.0
------------ ------------
Total finance receivables 62,821.5 56,614.8
Add: Loan origination costs, net 155.6 125.4
Less: Unearned income (5,371.0) (5,263.3)
Allowance for credit losses (659.6) (717.7)
------------ ------------
Finance receivables, net $ 56,946.5 $ 50,759.2
============ ============
Included in finance receivables is a total of $1.3 billion owed by three
customers with the largest receivable balances. During 1994, Ford Credit
issued irrevocable standby letters of credit in the amount of $295 million on
behalf of one of these customers. A major portion of these amounts are
guaranteed by Ford.
Ford Credit periodically sells finance receivables under agreements which
contain recourse provisions. Reserves for estimated losses under the recourse
provisions are provided at the time of the sales based principally on
historical loss experience. Ford Credit continues to service the sold
receivables for a fee. Ford Credit's servicing portfolio relating to these
finance receivables sales amounted to $8.1 billion and $6.7 billion at December
31, 1994 and 1993, respectively.
The maturities of finance receivables outstanding at December 31, 1994 were as
follows:
DUE IN YEAR DUE
ENDING DECEMBER 31 AFTER
----------------------------------
1995 1996 1997 1997 TOTAL
------------- ------------ ------------ ------------ ------------
(in millions)
Retail $ 15,099.5 $ 11,407.3 $ 8,345.8 $ 5,714.0 $ 40,566.6
Wholesale 15,252.9 - - - 15,252.9
Diversified 179.0 125.8 165.6 2,267.8 2,738.2
Other 2,582.0 116.8 114.2 1,450.8 4,263.8
------------- ------------- ----------- ----------- -------------
Total $ 33,113.4 $ 11,649.9 $ 8,625.6 $ 9,432.6 $ 62,821.5
============= ============= ============ =========== =============
It is Ford Credit's experience that a substantial portion of finance
receivables are repaid before contractual maturity dates. The above table,
therefore, is not to be regarded as a forecast of future cash collections.
Continued
FC-10
58
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 4. FINANCE RECEIVABLES (continued)
Installments, including interest, past-due 60 days or more and the aggregate
receivable balances related to such past-due installments were as follows:
DECEMBER 31, 1994 DECEMBER 31, 1993
--------------------------- ----------------------------
INSTALLMENTS BALANCES INSTALLMENTS BALANCES
------------ -------- ------------ --------
(in millions)
Retail $ 26.7 $ 183.0 $ 10.2 $ 97.7
Diversified 5.4 8.0 12.9 56.1
Other 1.0 6.9 23.4 95.3
-------- -------- -------- --------
Total $ 33.1 $ 197.9 $ 46.5 $ 249.1
======== ======== ======== ========
Included in retail and diversified receivables are investments in direct
financing and leveraged leases related to the leasing of motor vehicles and
various types of transportation and other equipment:
1994 1993
----------- ------------
(in millions)
Investment in direct financing leases
Minimum lease rentals $ 1,843.7 $ 1,752.6
Estimated residual values 1,420.3 1,383.8
Lease origination costs 7.1 2.9
Less: Unearned income (467.6) (471.4)
Allowance for credit losses (43.5) (47.0)
----------- ------------
Net investment in direct
financing leases $ 2,760.0 $ 2,620.9
=========== ============
Minimum direct financing lease rentals (including executory costs of $32.8
million) for each of the five succeeding years are as follows (in millions):
1995 - $808.3; 1996 - $508.7; 1997 - $334.1; 1998 - $164.6; 1999 - $11.7;
thereafter - $49.1.
Continued
FC-11
59
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 4. FINANCE RECEIVABLES (continued)
1994 1993
------------- ------------
(in millions)
Investment in leveraged leases
Rentals receivable (net of principal
and interest on nonrecourse debt) $ 1,491.9 $ 1,417.4
Estimated residual values 543.1 479.7
Lease origination costs 3.5 3.2
Less: Unearned income (427.7) (388.9)
Allowance for credit losses (22.8) (18.9)
------------- -----------
Investment in leveraged leases 1,588.0 1,492.5
Less deferred income taxes arising
from leveraged leases (1,427.8) (1,398.2)
------------ -----------
Net investment in leveraged leases $ 160.2 $ 94.3
============= ===========
NOTE 5. NET INVESTMENT, OPERATING LEASES
Operating leases at December 31 were as follows:
1994 1993
------------ ------------
(in millions)
Investment in operating leases
Vehicles and other equipment, at cost $ 24,817.8 $ 15,752.7
Lease origination costs 34.9 20.3
Less: Accumulated depreciation (4,602.9) (2,974.3)
Allowance for credit losses (255.9) (197.8)
------------ ------------
Net investment in operating leases $ 19,993.9 $ 12,600.9
============ ============
Future minimum rentals on operating leases are as follows (in millions): 1995
- - $4,158.0; 1996 - $1,594.4; 1997 - $107.2; 1998 - $0.2.
Depreciation expense on operating leases is provided on a straight-line basis
over the term of the lease and includes gains or losses upon disposal or
impairment of the vehicle.
Continued
FC-12
60
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 6. ALLOWANCE FOR CREDIT LOSSES
Following is an analysis of the allowance for credit losses relating to finance
receivables and operating leases for the past three years:
1994 1993 1992
----------- ---------- -----------
(in millions)
Balance, beginning of year $ 915.5 $ 915.5 $ 825.4
Additions 246.5 270.2 418.0
Deductions
Losses 377.8 391.8 476.5
Recoveries (149.1) (163.4) (133.9)
----------- ---------- -----------
Net losses 228.7 228.4 342.6
Other changes, including reclassifications
and amounts related to finance
receivables sold 17.8 41.8 (14.7)
----------- ---------- -----------
Net deductions 246.5 270.2 327.9
----------- ---------- -----------
Balance, end of year $ 915.5 $ 915.5 $ 915.5
=========== ========== ===========
NOTE 7. OTHER ASSETS
Other assets consist of:
DECEMBER 31
-------------------
1994 1993
------------ ------------
(in millions)
Investment in used vehicles held for
resale, at cost $ 1,269.0 $ 1,085.8
Retained interest in sold receivables 760.5 692.0
Deferred charges and other assets 388.7 359.6
Collateral held for resale 297.3 299.9
Property and equipment, at cost less
accumulated depreciation of $49.9
in 1994 and $48.2 in 1993 83.5 71.5
------------ ---------
Total $ 2,799.0 $ 2,508.8
============ =========
Continued
FC-13
61
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 8. DEBT
Debt at December 31 was as follows:
DECEMBER 31, 1994
-------------------
WEIGHTED
AVERAGE BOOK VALUE
INTEREST -----------------------------
RATES* MATURITIES 1994 1993
---------- ---------- ------------ ------------
(in millions)
PAYABLE WITHIN ONE YEAR
Commercial paper $33,228.9 $24,506.1
Other short-term debt** 1,136.0 1,001.0
--------- ---------
Total short-term debt 5.90% 34,364.9 25,507.1
Senior notes payable
within one year 7.79% 4,712.7 7,856.3
--------- ---------
Total payable within
one year 6.13% 39,077.6 33,363.4
--------- ---------
PAYABLE AFTER ONE YEAR
Unsecured senior notes 7.02% 1996-2048 31,411.2 25,481.6
Unamortized discount (48.4) (46.8)
--------- ---------
Total unsecured senior
notes 31,362.8 25,434.8
Unsecured subordinated
convertible debentures -- 0.5
--------- ---------
Total payable after one year 31,362.8 25,435.3
--------- ---------
Total debt 6.53% $70,440.4 $58,798.7
========= =========
* Excludes the effect of interest rate swap agreements.
** Includes $150 million with an affiliated company at December 31, 1993.
Continued
FC-14
62
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 8. DEBT (continued)
The average amount of short-term debt outstanding during the past three years
was as follows (in millions): 1994 -- $29,752.3; 1993 -- $22,682.5; 1992 --
$19,358.4. The weighted average commercial paper interest rates per annum for
these years were as follows: 1994 -- 4.4%; 1993 -- 3.2%; 1992 -- 4.2%. The
average remaining term of commercial paper was 27 days at December 31, 1994 and
28 days at December 31, 1993. The weighted average commercial paper interest
rate was 5.9% at December 31, 1994 and 3.3% at December 31, 1993.
Included in debt payable after one year at December 31, 1994 and 1993 were
obligations of $21,158.4 million and $19,683.5 million, respectively, with
fixed interest rates and $10,204.4 million and $5,751.8 million, respectively,
with variable interest rates (generally based on LIBOR or other short-term
rates).
Ford Credit and certain of its subsidiaries have entered into interest rate
swap agreements to manage exposures to fluctuations in interest rates. The
agreements effectively decreased the overall weighted-average interest rate on
total debt to 6.17% from 6.53% as of December 31, 1994, and decreased the
long-term obligations subject to variable interest rates to $6,857.4 million as
of that date. The result of these agreements is to reduce the effect of
interest rate changes, both favorable and unfavorable, on profitability.
Approximately 27% of Ford Credit's interest rate swaps mature in 1995 and
approximately 90% mature by 1999.
The aggregate principal amounts of notes with terms of more than one year from
dates of issue, maturing for each of the five succeeding years are as follows
(in millions): 1995 -- $4,712.7; 1996 -- $6,587.4; 1997 -- $6,702.0; 1998 --
$6,833.6; 1999 -- $5,861.1; thereafter -- $5,427.1.
Included in debt at December 31, 1994 were obligations payable in foreign
currencies: $3,451.4 million in Canadian dollars; $1,192.8 million in
Australian dollars; $655.1 million in Japanese yen; $257.9 million in German
deutsche marks; $125.5 million in Luxembourg francs; $123.0 million in Italian
lire; $153.3 million in European currency units; and $95.3 million in Swiss
francs. Certain of these obligations are denominated in currencies other than
the currency of the country of the issuer. Foreign currency swap agreements
are used to hedge exposure to changes in exchange rates of such obligations.
These obligations are translated in the financial statements at the year-end
rates of exchange.
Continued
FC-15
63
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 9. SUPPORT FACILITIES
Support facilities represent additional sources of funds, if required. At
January 1, 1995, Ford Credit had approximately $21.1 billion of contractually
committed facilities for use in the United States, with various maturity dates
through June 1999. These facilities included $18.2 billion of revolving credit
agreements with banks (which included $5.9 billion of Ford bank lines that may
be used either by Ford or Ford Credit at Ford's option) and $2.9 billion of
agreements to sell retail receivables. At January 1, 1995, all of these United
States facilities were unused.
Outside of the United States, an additional $1.2 billion of contractually
committed facilities, with various maturity dates through June 1999, support
borrowing operations in Canada, Australia and Puerto Rico. Canadian facilities
of $717 million included $181 million of Ford Motor Company of Canada Limited
and Ford Ensite International Inc. lines which are available to Ford Credit
Canada Limited at the option of these two companies. Australian facilities of
$453 million included $177 million of Ford Motor Company of Australia Limited
lines which are available to Ford Credit Australia Limited at the option of
Ford Motor Company of Australia Limited. Ford Motor Credit Company of Puerto
Rico, Inc. had $25 million in support facilities at January 1, 1995.
Substantially all of these facilities were unused at January 1, 1995.
Continued
FC-16
64
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 10. INCOME TAXES
Ford Credit and certain of its domestic subsidiaries join Ford in filing
consolidated United States federal and state income tax returns. Pursuant to
an arrangement with Ford, United States income tax liabilities or credits are
allocated to Ford Credit in accordance with the contribution of Ford Credit and
its subsidiaries to Ford's consolidated tax position.
The provision for income taxes consisted of the following:
1994 1993 1992
---------- ---------- ---------
(in millions)
Currently payable
U.S. Federal $286.4 $ 30.8 $ 21.5
Foreign 41.9 33.0 38.4
State and local 1.5 39.7 30.3
------ ------ ------
Total currently payable 329.8 103.5 90.2
Deferred tax liability/(benefit)
U.S. Federal 327.9 518.0 309.0
Foreign (6.6) (6.5) 0.2
State and local 24.6 58.3 25.5
------ ------ ------
Total deferred 345.9 569.8 334.7
------ ------ ------
Total provision $675.7 $673.3 $424.9*
====== ====== ======
* Excludes cumulative effects of changes in accounting principles.
Ford Credit adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS No. 109"), as of January 1, 1992. The
adoption of SFAS No. 109 changed the method of accounting for income taxes from
the deferred method using Accounting Principles Board No. 11 to an asset and
liability approach. The cumulative effect of this change in accounting
principle increased 1992 net income by $216.6 million.
Continued
FC-17
65
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 10. INCOME TAXES (continued)
Under SFAS No. 109, deferred income taxes reflect the estimated tax effect of
temporary differences between assets and liabilities for financial reporting
purposes and those amounts as measured by tax laws and regulations. The
components of deferred income tax assets and liabilities as of December 31 were
as follows:
1994 1993
------------ -------------
(in millions)
DEFERRED TAX LIABILITIES
------------------------
Leasing transactions $2,851.8 $2,322.5
Purchased tax benefits 296.9 303.2
Loan origination costs 69.1 56.8
Sales of receivables 55.9 28.0
Other 57.6 52.9
-------- --------
Total deferred tax liabilities 3,331.3 2,763.4
DEFERRED TAX ASSETS
-------------------
Provision for credit losses 481.4 434.0
Alternative minimum tax 227.3 53.7
Employee benefit plans 98.4 88.8
Retail contract earnings method 49.4 50.1
Interest supplements 40.5 40.4
Other 28.4 47.7
-------- --------
Total deferred tax assets 925.4 714.7
-------- --------
Net deferred tax liabilities $2,405.9 $2,048.7
======== ========
Continued
FC-18
66
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 10. INCOME TAXES (continued)
A reconciliation of the provision for income taxes as a percentage of income
before income taxes, excluding equity in net income of affiliated companies and
minority interest in net income of subsidiaries, with the United States
statutory tax rate for the last three years is shown below:
1994 1993 1992
---- ---- ----
U.S. statutory tax rate 35.0% 35.0% 34.0%
Effect of (in percentage points)
State and local income taxes 2.4 3.6 3.2
U.S. taxes attributable to foreign
source income 1.9 0.1 0.6
Rate adjustments on deferred taxes (1.7) 1.9 --
Investment income not subject to tax or
subject to tax at reduced rates (0.9) (1.0) (2.0)
Other 1.8 0.7 0.8
----- ----- -----
Effective tax rate 38.5% 40.3% 36.6%*
==== ==== ====
*Excludes cumulative effects of changes in accounting principles.
NOTE 11. POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
Ford Credit and certain of its subsidiaries provide selected health care and
life insurance benefits for retired employees under unfunded plans sponsored by
Ford and certain of its subsidiaries. Ford Credit's U.S. and Canadian
employees may become eligible for those benefits if they retire while working
for Ford Credit; however, benefits and eligibility rules may be modified from
time to time. Prior to 1992, the expense recognized for postretirement health
care benefits was based on actual expenditures for the year. Beginning in
1992, the estimated cost for postretirement health care benefits is accrued on
an actuarially determined basis, in accordance with the requirements of
Statement of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("SFAS No. 106"). Implementation
of SFAS No. 106 has not increased Ford Credit's cash expenditures for
postretirement benefits. Ford Credit elected to recognize immediately the
prior-year unaccrued accumulated postretirement benefit obligation, resulting
in an adverse effect on income of $81.7 million in the first quarter of 1992.
The charge reflected a retiree benefit obligation of $131.6 million, offset
partially by projected tax benefits of $49.9 million.
Continued
FC-19
67
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 11. POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS (continued)
Net postretirement benefit expense included the following:
1994 1993
----------- ----------
(in millions)
Benefits attributed to employees' service $ 9.3 $ 7.0
Interest on accumulated benefit obligation 14.7 13.1
----------- ----------
Net postretirement benefit expense $ 24.0 $ 20.1
=========== ==========
Retiree benefit payments $ 3.3 $ 3.2
The status of these plans, reconciled with the amounts recognized in Ford
Credit's balance sheet at December 31, was as follows:
1994 1993
----------- ----------
(in millions)
Accumulated Postretirement Benefit Obligation
- ---------------------------------------------
Retirees $ 45.8 $ 53.0
Active employees eligible to retire 20.8 23.4
Other active employees 100.4 120.2
----------- ----------
Total accumulated obligation 167.0 196.6
Unamortized amendments 2.2 2.1
Unamortized net gain/(loss) 39.5 (11.4)
------------ ----------
Accrued liability $ 208.7 $ 187.3
=========== ==========
Assumptions:
Discount rate at year-end 8.75% 7.50%
Present health care cost trend rate 9.2% 9.7%
Ultimate trend rate in ten years 5.5% 5.5%
Weighted-average trend rate 6.6% 6.8%
Changing the assumed health care cost trend rates by one percentage point would
change the aggregate service and interest cost components of net periodic
postretirement benefit cost for 1994 by $4.0 million and the accumulated
postretirement benefit obligation at December 31, 1994 by $30.0 million.
Continued
FC-20
68
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 12. TRANSACTIONS WITH AFFILIATED COMPANIES
An agreement with Ford provides for payments by Ford to Ford Credit that would
maintain Ford Credit's consolidated income before income taxes and net income
at specified minimum levels. No payments were required under the agreement
during 1994, 1993, or 1992.
Ford Credit and its subsidiaries, from time to time, purchase accounts
receivable of certain divisions and subsidiaries of Ford. The amount of such
receivables outstanding was $1,218.5 million at December 31, 1994 and $1,076.9
million at December 31, 1993. Agreements with Ford also provide for payment to
Ford Credit for interest supplements and other support costs on certain
financing and leasing transactions. Amounts included in the income statement
for these and other transactions with Ford were as follows (in millions): 1994
- -- $493.4; 1993 -- $583.0; 1992 -- $622.8. Ford Credit and its subsidiaries
purchase from Ford and affiliates certain vehicles which were previously
acquired by Ford principally from its fleet and rental car customers. The cost
of these vehicles held for resale and included in other assets at December 31
was as follows (in millions): 1994 -- $556.8; 1993 -- $514.4. Ford Credit
also has entered into a sale/leaseback agreement with Ford for vehicles leased
to employees of Ford and its subsidiaries. The net investment in these lease
vehicles included in operating leases at December 31 was as follows (in
millions): 1994 -- $592.4; 1993 -- $562.3.
Investments in securities include preferred stock of a nonaffiliate ($324.0
million) and of an affiliate ($485.9 million) which were acquired from Ford.
In 1994, Ford Credit exchanged a promissory note for additional preferred stock
of the affiliate, increasing the investment by $150 million. Investments in
these securities are recorded at cost. Ford has provided Ford Credit with
certain guarantees related to Ford Credit's investment and return on investment
in this preferred stock, and for certain related finance receivables. Amounts
related to these transactions included in investment and other income were as
follows (in millions): 1994 -- $54.5; 1993 -- $52.7; 1992 -- $47.2.
Ford Credit and its subsidiaries receive technical and administrative advice
and services from Ford and its subsidiaries, occupy office space furnished by
Ford and its subsidiaries and utilize data processing facilities maintained by
Ford. Payments to Ford and its subsidiaries for such services are charged to
operating expenses and were as follows (in millions): 1994 -- $61.9; 1993 --
$57.1; 1992 -- $53.6.
Continued
FC-21
69
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 12. TRANSACTIONS WITH AFFILIATED COMPANIES (continued)
Retirement benefits are provided under defined benefit plans for employees of
Ford Credit and its subsidiaries in the United States by the Ford General
Retirement Plan and for employees of the foreign subsidiaries in Australia and
Canada by the respective Ford retirement plans. Employee retirement plan costs
allocated to Ford Credit and its subsidiaries from Ford and charged to
operating expenses were as follows (in millions): 1994 -- $14.8; 1993 -- $5.8;
1992 -- $6.1.
At December 31, 1994 and 1993, Ford Credit had guaranteed $155.2 million and
$94.6 million of debt outstanding of other subsidiaries of Ford.
See other notes for additional information regarding transactions with
affiliated companies.
NOTE 13. LITIGATION AND CLAIMS
Various legal actions, governmental proceedings and other claims are pending or
may be instituted or asserted in the future against Ford Credit and its
subsidiaries. Certain of the pending legal actions are, or purport to be,
class actions. Some of these matters involve or may involve compensatory,
punitive or antitrust or other treble damage claims in very significant amounts
or other relief which, if granted, would require very significant expenditures.
Litigation is subject to many uncertainties, the outcome of individual
litigated matters is not predictable with assurance and it is reasonably
possible that some of the foregoing matters could be decided unfavorably to
Ford Credit or the subsidiary involved. Although the amount of liability at
December 31, 1994 with respect to these matters cannot be ascertained, Ford
Credit believes that any resulting liability should not materially affect the
consolidated financial position or results of operations of Ford Credit and its
subsidiaries.
Continued
FC-22
70
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 14. FINANCIAL INSTRUMENTS
Book and Estimated Fair Value of Financial Instruments
The estimated fair value of financial instruments held by Ford Credit and its
subsidiaries at December 31, and the valuation techniques used to estimate the
fair value, were as follows:
1994 1993
------------------------------- ------------------------------
ESTIMATED ESTIMATED
BOOK FAIR BOOK FAIR
VALUE VALUE VALUE VALUE
--------------- --------------- -------------- --------------
(in millions) (in millions)
Assets
- ------
Cash and cash equivalents $ 292.0 $ 292.0 $ 992.3 $ 992.3
Investments in securities 1,596.3 1,590.1 1,207.3 1,265.8
Finance receivables 51,855.5 51,470.3 46,133.9 46,605.1
Other assets 1,012.4 1,012.4 970.9 970.9
Liabilities
- -----------
Debt payable within one year $ 39,077.6 $ 39,077.6 $ 33,363.4 $ 33,363.4
Debt payable after one year 31,362.8 30,282.6 25,435.3 26,853.5
Derivative Contracts:
Foreign exchange
instruments
Contracts with unrealized
gains (28.3) 187.2 (26.4) 100.5
Contracts with unrealized
losses (0.5) (17.7) (11.3) (46.4)
Interest rate instruments
Contracts with unrealized
gains 17.9 409.9 63.6 526.0
Contracts with unrealized
losses 27.1 (576.4) (16.0) (67.8)
CASH AND CASH EQUIVALENTS. The book value approximates fair value because of
the short maturity of these instruments.
INVESTMENTS IN SECURITIES. Investments in marketable equity and debt
securities are estimated based on market prices. Book value of investments in
non-marketable equity securities approximate fair value (See Note 2.).
Continued
FC-23
71
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 14. FINANCIAL INSTRUMENTS (continued)
FINANCE RECEIVABLES. The fair value of substantially all receivables is
estimated by discounting future cash flows using an estimated discount rate
which reflects the credit, interest rate and prepayment risks associated with
similar types of instruments. For receivables with short maturities, the book
values approximate fair values. Finance receivables excluded from fair market
valuation include direct financing and leveraged lease investments.
OTHER ASSETS. Included in other assets is the retained interest in sold
receivables and related amounts. These amounts are recorded at the present
value of estimated future cash flows discounted at rates commensurate with this
type of instrument, which approximates fair value.
DEBT PAYABLE WITHIN ONE YEAR. The book value approximates fair value because
of the short maturity of these instruments.
DEBT PAYABLE AFTER ONE YEAR. The fair value is estimated based on quoted
market prices or current rates for similar debt with the same remaining
maturities.
Financial Instruments with Off-Balance-Sheet Risk
The following sections describe the various off-balance-sheet financial
instruments that Ford Credit held as of December 31, 1994 and 1993. Also
included is a brief discussion of the estimated fair value of those contracts
and certain risks associated with holding those contracts through maturity.
FOREIGN EXCHANGE INSTRUMENTS. Ford Credit and certain of its subsidiaries have
entered into foreign currency swap agreements to manage exposure to foreign
exchange rate fluctuations. These exchange agreements hedge principal and
interest payments on debt that are denominated in foreign currencies. The
book value of the foreign currency swap agreements represents the amount
payable to the counterparty since the last settlement date.
The fair value of these foreign exchange agreements was estimated using current
market rates.
In the unlikely event that a counterparty fails to meet the terms of the
contract, Ford Credit's market risk is the fair value of the agreements. In
the case of currency swaps, Ford Credit's market risk also may include an
interest rate differential. At December 31, 1994 and 1993, the total notional
amount of Ford Credit's foreign currency swaps outstanding was $1.5 billion and
$2.1 billion, respectively.
Continued
FC-24
72
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 14. FINANCIAL INSTRUMENTS (continued)
INTEREST RATE INSTRUMENTS. Ford Credit and certain of its subsidiaries have
entered into interest rate swap agreements to manage exposure to fluctuations
in interest rates.
Interest rate swap agreements involve the exchange of interest obligations on
fixed and floating interest rate debt without the exchange of the underlying
principal amounts. The differential paid or received on interest rate swap
agreements is recognized as an adjustment to interest expense over the term of
the underlying debt agreement. The book value of the interest rate swap
agreements represents the differential receivable or payable with a swap
counterparty since the last settlement date.
The fair value of interest rate instruments is the estimated amount Ford Credit
would receive or pay to terminate the agreement or contract. The fair value is
calculated using current market rates and the remaining terms of the agreements
or contracts. Unrealized gains and losses are netted for individual
counterparties.
In the unlikely event that a counterparty fails to meet the terms of an
interest rate instrument, Ford Credit's exposure is the fair value of the
contracts. The underlying notional amount on which Ford Credit has interest
rate swaps outstanding aggregated $46.3 billion at December 31, 1994 and $31.1
billion at December 31, 1993.
Concentrations of Credit Risk
Ford Credit controls its credit risk through credit standards, limits on
exposure and by monitoring the financial conditions of other parties. The
majority of Ford Credit's finance receivables are geographically diversified
throughout the United States. Foreign finance receivables are concentrated in
Canada and Australia.
Continued
FC-25
73
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 15. INDUSTRY SEGMENTS AND FOREIGN OPERATIONS
Ford Credit, its subsidiaries and affiliates operate in two industry segments -
financing and insurance. Financing operations primarily consist of: the
purchase from franchised Ford vehicle dealers of retail installment sale
contracts and retail leases; wholesale financing and capital loans to
franchised Ford vehicle dealers and other franchises associated with such
dealers; loans to vehicle leasing companies; and diversified financing. In
addition, a wholly owned subsidiary of Ford Credit provides these financing
services in the United States to other vehicle dealers. Insurance operations
conducted through Ford Credit's equity investment in Ford Holdings consist of:
single premium deferred annuities; property and casualty insurance relating to
extended service plan contracts for new and used vehicles manufactured by
affiliated and nonaffiliated companies, primarily originating from Ford
dealers; credit life and credit disability insurance for retail purchasers of
vehicles and equipment; and physical damage insurance covering vehicles and
equipment financed at wholesale by Ford Credit and its subsidiaries.
Ford Credit, through certain of its subsidiaries, operates in several foreign
countries, the most significant of which are Canada and Australia. Total
revenue, income before income taxes and cumulative effects of changes in
accounting principles, and assets identifiable with United States and foreign
operations were as follows:
1994 1993 1992
------------- ------------- ------------
(in millions)
Total revenue
United States operations $ 9,624.1 $ 7,694.8 $ 6,339.2
Foreign operations 765.2 643.6 734.1
------------- ------------- ------------
Total revenue $ 10,389.3 $ 8,338.4 $ 7,073.3
============= ============= ============
Income before income taxes and cumulative
effects of changes in accounting principles
United States operations $ 1,689.1 $ 1, 610.3 $ 1,084.4
Foreign operations 77.5 66.4 83.6
Equity in net income of affiliated
companies 232.5 198.3 155.2
------------- ------------- ------------
Total income before income taxes
and cumulative effects of
changes in accounting principles $ 1,999.1 $ 1,875.0 $ 1,323.2
============= ============= ============
Assets at December 31
United States operations $ 76,310.5 $ 64,081.8
Foreign operations 5,567.5 4,371.1
Equity in net assets of affiliated
companies 1,346.5 1,201.9
------------- -------------
Total assets $ 83,224.5 $ 69,654.8
============= =============
Continued
FC-26
74
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 16. SELECTED QUARTERLY FINANCIAL DATA
(UNAUDITED)
Selected financial data by calendar quarter for the past two years were as
follows:
TOTAL INTEREST PROVISION FOR NET
REVENUE EXPENSE CREDIT LOSSES INCOME
------------- ----------- ------------------ -----------
(in millions)
1994
First Quarter $ 2,257.2 $ 760.2 $ 71.1 $ 298.8
Second Quarter 2,593.4 845.4 61.2 368.6
Third Quarter 2,649.9 905.0 39.3 314.8
Fourth Quarter 2,888.8 1,030.2 74.9 330.5
------------- ----------- -------- -----------
Full Year $ 10,389.3 $ 3,540.8 $ 246.5 $ 1,312.7
============= =========== ======== ===========
1993
First Quarter $ 1,960.1 $ 718.2 $ 84.4 $ 315.1
Second Quarter 2,053.6 725.0 68.1 306.2
Third Quarter 2,180.2 733.2 87.3 274.3
Fourth Quarter 2,144.5 742.9 30.4* 298.2
------------- ----------- -------- -----------
Full Year $ 8,338.4 $ 2,919.3 $ 270.2 $ 1,193.8
============= =========== ======== ===========
- ---------------
* The provision for credit losses for the fourth quarter of 1993 was reduced
by $78.8 million as a result of continued improvement in credit loss
experience.
FC-27
75
EXHIBIT INDEX
DESIGNATION DESCRIPTION
- ----------- -----------
EXHIBIT 3-A Restated Certificate of Incorporation of Ford Motor Credit Company.
EXHIBIT 3-B By-Laws of Ford Motor Credit Company as amended through March 2,
1988.
EXHIBIT 4-A Form of Indenture dated as of August 1, 1984 between Ford Motor
Credit Company and The Chase Manhattan Bank (National Association)
relating to Debt Securities.
EXHIBIT 4-A-1 Form of First Supplemental Indenture dated August 15, 1986 between
Ford Motor Credit Company and The Chase Manhattan Bank (National
Association) supplementing the Indenture designated as Exhibit 4-A.
EXHIBIT 4-A-2 Form of Second Supplemental Indenture dated as of October 15, 1986
between Ford Motor Credit Company and The Chase Manhattan Bank
(National Association) supplementing the Indenture designated as
Exhibit 4-A.
EXHIBIT 4-B Form of Indenture dated as of February 1, 1985 between Ford Motor
Credit Company and Manufacturers Hanover Trust Company relating to
Debt Securities.
EXHIBIT 4-B-1 Form of First Supplemental Indenture dated as of April 1, 1986
between Ford Motor Credit Company and Manufacturers Hanover Trust
Company supplementing the Indenture designated as Exhibit 4-B.
EXHIBIT 4-B-2 Form of Second Supplemental Indenture dated as of September 1, 1986
between Ford Motor Credit Company and Manufacturers Hanover Trust
Company supplementing Indenture designated as Exhibit 4-B.
EXHIBIT 4-B-3 Form of Third Supplemental Indenture dated as of March 15, 1987 between
Ford Motor Credit Company and Manufacturers Hanover Trust Company
supplementing the Indenture designated as Exhibit 4-B.
76
DESIGNATION DESCRIPTION
- ----------- -----------
EXHIBIT 4-B-4 Form of Fourth Supplemental Indenture dated as of April 15, 1988 between
Ford Motor Credit Company and Manufacturers Hanover Trust Company
supplementing the Indenture designated as Exhibit 4-B.
EXHIBIT 4-B-5 Form of Fifth Supplemental Indenture dated as of September 1, 1990 between
Ford Motor Credit Company and Manufacturers Hanover Trust Company
supplementing the Indenture designated as Exhibit 4-B.
EXHIBIT 4-C Indenture dated as of November 1, 1987 between Ford Motor Credit Company and
Continental Bank, National Association relating to Debt Securities.
EXHIBIT 4-D Indenture dated as of August 1, 1994 between Ford Motor Credit Company and First
Fidelity Bank, National Association, relating to Debt Securities.
EXHIBIT 10-J Copy of Amended and Restated Profit Maintenance Agreement dated as of July 1,
1993 between Ford Motor Credit Company and Ford Motor Company.
EXHIBIT 10-X Copy of Agreement dated as of February 1, 1980 between Ford Motor
Company and Ford Motor Credit Company.
EXHIBIT 12-A Calculation of Ratio of Earnings to Fixed Charges of Ford Credit.
EXHIBIT 12-B Calculation of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends of Ford.
EXHIBIT 23 Consent of Independent Accountants.
EXHIBIT 24 Powers of Attorney.