UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-K
(Mark One)
X Annual report pursuant to Section 13 or 15(d) of the Securities
- ---- Exchange Act of 1934 (No Fee Required)
For the fiscal year ended December 31, 1998
or
Transition report pursuant to Section 13 or 15(d) of the Securities
- ---- Exchange Act of 1934 (No Fee Required)
For the transition period from to
------- -------
Commission file number 1-3950
------
FORD MOTOR COMPANY
------------------
(Exact name of Registrant as specified in its charter)
Delaware 38-0549190
-------- ----------
(State of incorporation) (I.R.S. employer identification no.)
The American Road, Dearborn, Michigan 48121
------------------------------------- -----
(Address of principal executive offices) (Zip code)
313-322-3000
------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered (a)
------------------- ------------------------
Common Stock, par value $1.00 per share New York Stock Exchange
Pacific Coast Stock Exchange
Depositary Shares, each representing New York Stock Exchange
1/2,000 of a share of Series B Cumulative
Preferred Stock, as described below
- ---------------
(a) In addition, shares of Common Stock of Ford are listed on certain stock
exchanges in the United Kingdom and Continental Europe.
[Cover page 1 of 2 pages]
<PAGE>
Securities registered pursuant to Section 12(g) of the Act:
Series B Cumulative Preferred Stock, par value $1.00 per share, with an annual
dividend rate of $4,125 per share and a liquidation preference of $50,000 per
share.
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
-----
As of February 26, 1999, Ford had outstanding 1,140,797,769 shares of Common
Stock and 70,852,076 shares of Class B Stock. Based on the New York Stock
Exchange Composite Transaction closing price of the Common Stock on that date
($59 5/16 a share), the aggregate market value of such Common Stock was
$67,663,567,674. Although there is no quoted market for our Class B Stock,
shares of Class B Stock may be converted at any time into an equal number of
shares of Common Stock for the purpose of effecting the sale or other
disposition of such shares of Common Stock. The shares of Common Stock and Class
B Stock outstanding at February 26, 1999 included shares owned by persons who
may be deemed to be "affiliates" of Ford. We do not believe, however, that any
such person should be considered to be an affiliate. For information concerning
ownership of outstanding Common Stock and Class B Stock, see the Proxy Statement
for Ford's Annual Meeting of Stockholders to be held on May 13, 1999 (our "Proxy
Statement"), which is incorporated by reference under various Items of this
Report.
Document Incorporated by Reference*
-----------------------------------
Document Where Incorporated
-------- ------------------
Proxy Statement Part III (Items 10,
11, 12 and 13)
- --------------------------
* As stated under various Items of this Report, only certain specified portions
of such document are incorporated by reference in this Report.
[Cover page 2 of 2 pages]
<PAGE>
PART I
Item 1. Business
- -----------------
Ford Motor Company was incorporated in Delaware in 1919. We acquired the
business of a Michigan company, also known as Ford Motor Company, incorporated
in 1903 to produce and sell automobiles designed and engineered by Henry Ford.
We are the world's largest producer of trucks and the second- largest producer
of cars and trucks combined. We and our subsidiaries also engage in other
businesses, such as manufacturing automotive components and systems and
financing and renting vehicles and equipment.
Overview
Ford's business is divided into two business sectors, and we manage these
sectors as four primary operating segments. These business sectors and operating
segments are described below.
<TABLE>
<CAPTION>
Business Sectors Operating Segments Description
- ---------------- ------------------ -----------
<S> <C> <C>
Automotive:
Automotive design, manufacture, sale and service
of cars and trucks
Visteon Automotive Systems design, manufacture, sale and service of
automotive components and systems
Financial Services:
Ford Motor Credit Company vehicle-related financing, leasing and insurance
The Hertz Corporation rental of cars, trucks and industrial and
construction equipment, and other
activities
</TABLE>
We provide financial information (such as, revenues, income and assets) for
each of these business sectors and operating segments in three areas of this
Report: (1) Item 6. "Selected Financial Data" on pages 32 through 34; (2) Item
7. "Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 35 through 48; and (3) Note 17 of our Notes to Financial
Statements located at the end of this Report (pages FS-31 and FS-32). Financial
information relating to certain geographic areas is also included in the
above-mentioned areas of this Report
<PAGE>
Item 1. Business (Continued)
Automotive Sector
Ford sells cars and trucks and automotive components and systems throughout
the world. In 1998 we sold globally 6.8 million vehicles. Our automotive vehicle
brands include Ford, Mercury, Lincoln, Jaguar and Aston Martin. In addition, we
own 33.4% of Mazda Motor Corporation. Also, on March 1, 1999, we entered into a
definitive agreement with AB Volvo to buy Volvo's worldwide passenger car
business. The transaction will close following receipt of regulatory approvals.
The worldwide automotive industry, Ford included, is affected significantly
by a number of factors over which we have little control, including general
economic conditions. In the United States, the automotive industry is a
highly-competitive, cyclical business that has a wide variety of product
offerings. Most of the cars and trucks sold in the United States are produced by
us or by two other manufacturers. The number of cars and trucks sold to retail
buyers (commonly referred to as "industry demand") can vary substantially from
year to year. In any year, industry demand depends largely on general economic
conditions, the cost of purchasing and operating cars and trucks and the
availability and cost of credit and fuel. Industry demand also reflects the fact
that cars and trucks are durable items that people can wait to replace.
The automotive industry outside of the United States consists of many
producers, with no single dominant producer. Certain manufacturers, however,
account for the major percentage of total sales within particular countries,
especially their countries of origin. Most of the factors that affect the 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 costly government regulation. In the United States and
Europe, for example, government regulation has arisen primarily out of concern
for the environment, for greater vehicle safety and for improved fuel economy.
Many governments also regulate local content and/or impose import requirements
as a means of creating jobs, protecting domestic producers or influencing their
balance of payments.
Ford's unit sales vary with the level of total industry demand and our
share of that industry demand. Our share is influenced by how our products
compare with those offered by other manufacturers based on many factors,
including design, driveability, price, quality, reliability, safety and utility.
Our share is also affected by our timing of new model introductions and
manufacturing capacity limitations. Our ability to satisfy changing consumer
preferences with respect to type or size of vehicle and its design and
performance characteristics can impact our sales and earnings significantly.
-2-
<PAGE>
Item 1. Business (Continued)
The profitability of vehicle sales is affected by many factors, including
the following:
- unit sales volume
- the mix of vehicles and options sold
- the margin of profit on each vehicle 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 manage costs
- the ability to recover cost increases through higher prices
Further, because the automotive industry is capital intensive, it operates with
a relatively high percentage of fixed costs, which can result in large changes
in earnings from relatively small changes in unit volume.
Following is a discussion of the automotive industry in the principal
markets where we compete, as well as a discussion of our Visteon operating
segment:
United States
- -------------
Sales Data. The following table shows U.S. industry retail deliveries of
cars and trucks for the years indicated:
<TABLE>
<CAPTION>
U. S. Industry Retail Deliveries
(millions of units)
Years Ended December 31,
------------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Cars........................................ 8.2 8.3 8.6 8.6 9.0
Trucks...................................... 7.8 7.2 6.9 6.5 6.4
---- ---- --- ---- ----
Total....................................... 16.0 15.5 15.5 15.1 15.4
==== ==== ==== ==== ====
</TABLE>
-3-
<PAGE>
Item 1. Business (Continued)
Ford classifies cars by small, middle, large and luxury segments and trucks
by compact pickup, compact bus/van/utility, full-size pickup, full-size
bus/van/utility and medium/heavy segments. The large and luxury car segments and
the compact bus/van/utility, full-size pickup and full-size bus/van/utility
truck segments include the industry's most profitable vehicle lines. The term
"bus" as used in this discussion refers to vans designed to carry passengers.
The following tables show the proportion of U.S. retail car and truck unit sales
by segment for the industry (including Japanese and other foreign-based
manufacturers) and Ford for the years indicated:
<TABLE>
<CAPTION>
U. S. Industry Vehicle Sales by Segment
------------------------------------------------------------------
Years Ended December 31,
------------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
CARS
Small....................................... 16.9% 18.1% 19.1% 19.6% 20.1%
Middle...................................... 23.6 24.7 25.6 26.4 26.8
Large....................................... 3.4 3.9 3.9 4.3 4.8
Luxury...................................... 7.1 6.7 6.7 6.8 6.6
----- ----- ----- ----- -----
Total U.S. Industry Car Sales............... 51.0 53.4 55.3 57.1 58.3
----- ----- ----- ----- -----
TRUCKS
Compact Pickup.............................. 6.7 6.4 6.2 6.8 7.7
Compact Bus/Van/Utility..................... 21.1 20.0 19.0 18.0 16.9
Full-Size Pickup............................ 12.4 12.0 12.6 11.5 11.0
Full-Size Bus/Van/Utility................... 6.5 6.1 5.0 4.4 4.1
Medium/Heavy................................ 2.3 2.1 1.9 2.2 2.0
----- ----- ----- ----- -----
Total U.S. Industry Truck Sales............. 49.0 46.6 44.7 42.9 41.7
----- ----- ----- ----- -----
Total U.S. Industry Vehicle Sales........... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Ford Vehicle Sales by Segment in U.S.
------------------------------------------------------------------
Years Ended December 31,
------------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
CARS
Small....................................... 13.1% 12.7% 13.4% 15.1% 17.5%
Middle...................................... 16.7 19.6 22.1 22.3 22.7
Large....................................... 5.7 5.6 5.3 4.9 5.2
Luxury...................................... 4.2 4.1 4.1 4.4 4.7
----- ----- ----- ----- -----
Total Ford U.S. Car Sales................... 39.7 42.0 44.9 46.7 50.1
----- ----- ----- ----- -----
TRUCKS
Compact Pickup.............................. 8.4 7.7 7.4 8.0 8.9
Compact Bus/Van/Utility..................... 18.1 18.9 20.0 20.1 16.7
Full-Size Pickup............................ 21.3 19.3 20.0 17.9 16.7
Full-Size Bus/Van/Utility................... 12.1 11.0 6.6 5.9 6.2
Medium/Heavy*............................... 0.4 1.1 1.1 1.4 1.4
----- ----- ----- ----- -----
Total Ford U.S. Truck Sales................. 60.3 58.0 55.1 53.3 49.9
----- ----- ----- ----- -----
Total Ford U.S. Vehicle Sales............... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
- --------------------------
*In 1997 Ford sold its heavy truck businesses in North America and Australia to
Freightliner Corporation. Ford ceased production of heavy trucks in North
America in December 1997. The transfer of the North American and Australian
heavy truck businesses was completed in 1998.
As shown in the tables above, since 1994 there has been a steady shift from
cars to trucks for both industry sales and Ford sales.
-4-
<PAGE>
<PAGE>
Market Share Data. The following tables show changes in car and truck
market shares of U.S. and foreign-based manufacturers for the years indicated:
<TABLE>
<CAPTION>
U.S. Car Market Shares*
------------------------------------------------------------------
Years Ended December 31,
------------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
U.S. Manufacturers (Including Imports)
Ford..................................... 19.2% 19.7% 20.6% 20.9% 21.8%
General Motors........................... 29.8 32.2 32.3 33.9 34.0
Chrysler**............................... 9.1 8.9 9.8 9.1 9.0
----- ----- ----- ----- -----
Total U.S. Manufacturers.............. 58.1 60.8 62.7 63.9 64.8
Foreign-Based Manufacturers***
Japanese................................. 31.8 30.9 30.0 29.7 29.6
All Other................................ 10.1 8.3 7.3 6.4 5.6
----- ----- ----- ----- -----
Total Foreign-Based Manufacturers..... 41.9 39.2 37.3 36.1 35.2
----- ----- ----- ------ -----
Total U.S. Car Retail Deliveries...... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
U.S. Truck Market Shares*
------------------------------------------------------------------
Years Ended December 31,
------------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
U.S. Manufacturers (Including Imports)
Ford..................................... 30.2% 31.1% 31.1% 31.9% 30.1%
General Motors........................... 27.5 28.8 29.0 29.9 30.9
Chrysler**............................... 22.6 21.7 23.4 21.3 21.7
Navistar International................... 1.3 1.3 1.3 1.4 1.3
All Other................................ 2.3 1.9 1.8 2.0 1.8
----- ----- ----- ----- -----
Total U.S. Manufacturers.............. 83.9 84.8 86.6 86.5 85.8
Foreign-Based Manufacturers***
Japanese................................. 14.5 14.1 12.7 12.7 13.5
All Other................................ 1.6 1.1 0.7 0.8 0.7
----- ----- ----- ----- -----
Total Foreign-Based Manufacturers..... 16.1 15.2 13.4 13.5 14.2
----- ------ ----- ----- -----
Total U.S. Truck Retail Deliveries.... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
U.S. Combined Car and Truck Market Shares*
------------------------------------------------------------------
Years Ended December 31,
------------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
U.S. Manufacturers (Including Imports)
Ford..................................... 24.6% 25.0% 25.2% 25.6% 25.2%
General Motors........................... 28.7 30.6 30.8 32.2 32.7
Chrysler**............................... 15.7 14.8 15.9 14.3 14.3
Navistar International................... 0.7 0.6 0.6 0.6 0.5
All Other................................ 1.1 0.9 0.7 0.9 0.8
----- ----- ----- ----- -----
Total U.S. Manufacturers.............. 70.8 71.9 73.2 73.6 73.5
Foreign-Based Manufacturers***
Japanese................................. 23.3 23.2 22.4 22.6 22.9
All Other................................ 5.9 4.9 4.4 3.8 3.6
----- ----- ----- ----- -----
Total Foreign-Based Manufacturers..... 29.2 28.1 26.8 26.4 26.5
----- ----- ----- ----- -----
Total U.S. Car and Truck Retail Deliveries 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
- --------------------------
* All U.S. retail sales data are based on publicly available information
from the American Automobile Manufacturers Association, the media and
trade publications.
** Chrysler and Daimler-Benz merged in late 1998, however, they continued to
report separate sales in the United States for their brands for the
remainder of 1998. As such, the figures shown here for 1998 are based on
separate sales figures for the full year.
*** 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.
-5-
<PAGE>
Item1. Business (Continued)
Marketing Incentives and Fleet Sales. Automotive manufacturers that sell
vehicles in the United States frequently give purchasers price discounts or
other marketing incentives. These incentives are the result of intense
competition from new product offerings by both domestic and foreign
manufacturers and the desire to maintain economic production levels and market
shares. Manufacturers provide these incentives to both retail and fleet
customers (fleet customers include daily rental companies, commercial fleet
customers, leasing companies and governments). Marketing incentives generally
are higher during periods of economic downturns, when excess capacity in the
industry tends to increase.
Ford's marketing costs in the United States as a percentage of gross sales
revenue were as follows for the following three years: 10.4% (1998), 8.7% (1997)
and 8.0% (1996). These "marketing costs" include primarily (i) marketing
incentives on vehicles, such as, retail rebates and costs for special financing
and lease programs, (ii) reserves for costs and/or losses associated with our
required repurchase of certain vehicles sold to daily rental companies and (iii)
costs for advertising and sales promotions for vehicles.
Fleet sales generally are less profitable than retail sales, and sales to
daily rental companies generally are less profitable than sales to other fleet
purchasers. The mix between sales to daily rental companies and other fleet
customers has been about evenly split in recent years. The table below shows our
fleet sales in the United States, and the amount of those sales as a percentage
of our total U.S. car and truck sales, for the last five years.
<TABLE>
<CAPTION>
Ford Fleet Sales
------------------------------------------------------------------
Years Ended December 31,
------------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Units sold.................................. 878,000 923,000 936,000 971,000 924,000
Percent of Ford's total U.S. car and truck sales 22% 24% 24% 25% 24%
</TABLE>
Warranty Coverage. Ford presently provides warranty coverage for defects in
factory-supplied materials and workmanship on all vehicles (other than medium
trucks) sold by it in the United States. This warranty coverage extends for at
least 36 months or 36,000 miles (whichever occurs first) and covers all
components of the vehicle, other than tires which are warranted by the tire
manufacturers. In general, different warranty coverage is provided on
medium/heavy trucks and on vehicles sold outside the United States. In addition,
as discussed below under "Governmental Standards - Mobile Source Emissions
Control", the Federal Clean Air Act requires a useful life of 10 years or
100,000 miles (whichever occurs first) for emissions equipment on most light
duty vehicles sold in the United States. As a result of the coverage of these
warranties and the increased concern for customer satisfaction, costs for
warranty repairs, emissions equipment repairs and customer satisfaction actions
("warranty costs") can be substantial. Estimated warranty costs for each vehicle
sold by us are accrued at the time of sale. Such accruals, however, are subject
to adjustment from time to time depending on actual experience.
Europe
- ------
Outside of the United States, Europe is our largest market for the sale of
cars and trucks. The automotive industry in Europe is intensely competitive.
Over the past year, nine new or freshened vehicles were introduced in the
European market by various manufacturers. For the past 12 years, the top six
manufacturers have each achieved a car market share in about the 10% to 17%
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 11.5% for 1998,
increase their production capacity in Europe and import restrictions on Japanese
built-up vehicles are removed in total by December 31, 1999. We estimate that in
1998 the European automotive industry had excess capacity of approximately 6.2
million units (based on a comparison of European domestic demand and capacity).
-6-
<PAGE>
Item 1. Business (Continued)
In 1998, vehicle manufacturers sold 16.1 million cars and trucks in Europe,
up 7% from 1997 levels. Ford's combined car and truck market share in Europe in
1998 was 10.3%, down 1.1 percentage points from 1997.
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 our total automotive profits. For 1998 compared with 1997,
total industry sales were up 4% in Great Britain and up 7% in Germany.
Other Foreign Markets
- ---------------------
Mexico and Canada. Mexico and Canada also are important markets for us. In
1998, industry sales of new cars and trucks in Mexico were 665,000 units, up 34%
from 1997 levels. In Canada, industry volume in 1998 was 1.4 million units,
equal to 1997 levels. Ford's combined car and truck market shares in these
markets in 1998 was 16.6% (Mexico) and 19% (Canada).
South America. Brazil and Argentina are our principal markets in South
America. The economic environment in those countries has been volatile in recent
years, leading to large variations in profitability. Results also have been
influenced by government actions to reduce inflation and public deficits, and
improve the balance of payments. Industry sales in 1998 were 1.6 million units
in Brazil, down 19% from 1997, and 455,000 units in Argentina, up 7% from 1997.
Brazilian government austerity measures in 1998 adversely impacted industry
vehicle sales in that country and are expected to continue to adversely affect
industry sales in 1999. Ford's combined car and truck market shares in these
markets in 1998 was 13.1% (Brazil) and 16.4% (Argentina).
Asia Pacific. In the Asia Pacific region, Australia, Taiwan and Japan are
our principal markets. Industry volumes in 1998 in this region were as follows:
808,000 units in Australia (up 12% from 1997), 474,000 units in Taiwan (down 2%
from 1997) and 5.9 million units in Japan (down 13% from 1997). In 1998, Ford's
combined car and truck market share in Australia was 15.9%. In Taiwan (where
sales of built-up vehicles manufactured in Japan are prohibited), we had a
combined car and truck market share in 1998 of 15.4%. Our combined car and truck
market share in Japan has never exceeded 1%. Our principal competition in the
Asia Pacific region has been the Japanese manufacturers. We anticipate that the
continuing relaxation of import restrictions (including duty reductions) in
Australia and Taiwan will intensify competition in those markets.
The financial crisis that began in Thailand in mid-year 1997, and spread to
the neighboring Southeast Asian nations, particularly Indonesia, has resulted in
a significant reduction of vehicle sales for the region. These markets had been
expanding, but economic growth is now expected to remain subdued during a period
of restructuring. Taiwan and South Africa have also been affected by the crisis.
Ford is positioning itself to participate actively in these markets in
recognition of their long-term growth opportunities.
Africa. We operate in the South African market through South African Motor
Corporation (Pty.) Limited ("SAMCOR") in which we have a 45% equity interest.
SAMCOR is an assembler and distributor of Ford, Mazda and Mitsubishi vehicles in
South Africa. In 1998, industry volume in South Africa was 314,000 units, down
17% from 1997 levels. SAMCOR's combined car and truck market share in 1998 was
15.9% (Ford's share was 7.4%).
-7-
<PAGE>
Item 1. Business (Continued)
Industry Consolidation and Global Competition
- ---------------------------------------------
The worldwide automotive industry is trending toward further consolidation,
such as the recent DaimlerChrysler merger. Such consolidation could be good for
the industry to the extent it reduces excess capacity. Consolidation could also
result in there being fewer but stronger competitors in the industry. We believe
that Ford is well-positioned and does not need to participate in the
consolidation trend to compete globally. However, as with our pending
transaction with Volvo, we consider opportunities with other manufacturers when
we believe it would be beneficial to our business. Presently, our major
competitors on a global basis are DaimlerChrysler, General Motors, Honda, Toyota
and Volkswagen.
Visteon Automotive Systems
- --------------------------
Visteon is an enterprise of Ford and consists of certain subsidiaries and
divisions of Ford. Visteon is a global provider of integrated systems and
components to automotive manufacturers and other automotive suppliers. Visteon
ranks as the second-largest automotive supplier in the world. Its seven
divisions are:
- Chassis Systems
- Climate Control Systems
- Electronic Systems
- Exterior Systems
- Glass Systems
- Interior Systems
- Powertrain Control Systems
Currently, most of Visteon's business is with Ford. In 1998 Visteon's mix
of business was 92% Ford and 8% non-Ford (including sales by unconsolidated
joint ventures, the figures are 91% Ford and 9% non-Ford). In addition, in 1998
most of Visteon's business was in North America (81%) as compared with outside
North America (19%). Visteon's goal, however, is to continue to obtain new
business from companies other than Ford and to further expand its business
beyond North America. In 1998, 46% of Visteon's new business was from non-Ford
customers and 33% was from outside North America.
Below are some financial highlights for Visteon (in millions):
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------
1998 1997
---------------- ----------------
<S> <C> <C>
Revenue $17,762 $17,220
Pre-Tax Income 1,129 825
Net Income 712 518
After-Tax Return on Sales 4.0% 3.0%
</TABLE>
-8-
<PAGE>
Item 1. Business (Continued)
Financial Services Sector
Ford Motor Credit Company
- -------------------------
Ford Credit is an indirect wholly owned subsidiary of Ford. Ford Credit
and its subsidiaries provide wholesale financing and capital loans to Ford
retail dealerships and associated non-Ford dealerships throughout the world.
Most of these dealerships are privately owned. Ford Credit also purchases from
these dealerships retail installment sale contracts and retail leases. In
addition, it makes loans to vehicle leasing companies, the majority of which are
affiliated with such dealerships. Subsidiaries of Ford Credit provide these
financing services in the United States, Europe, Canada, Australia, Indonesia
and India to non-Ford dealerships. A substantial majority of all new vehicles
financed by Ford Credit and its subsidiaries are manufactured by Ford and our
affiliates. Ford Credit also provides retail financing for used vehicles built
by Ford and other manufacturers. In addition to vehicle financing, Ford Credit
makes loans to affiliates of Ford and finances certain receivables of Ford and
our subsidiaries.
Outside the United States, FCE Bank plc is Ford Credit's largest
operation. FCE Bank's primary business is to support the sale of Ford vehicles
in Europe through the Ford dealer network. It provides a variety of retail,
leasing and wholesale finance plans in most countries in which it operates.
Ford Credit also conducts insurance operations through The American
Road Insurance Company and its subsidiaries in the United States and Canada.
American Road's business primarily consists of: extended service plan contracts
for new and used vehicles manufactured by affiliated and nonaffiliated
companies, primarily originating from Ford dealers; physical damage insurance
covering vehicles and equipment financed at wholesale by Ford Credit; and the
reinsurance of credit life and credit disability insurance for retail purchasers
of vehicles and equipment.
Ford Credit financed the following percentages of new Ford cars and
trucks sold or leased at retail and sold at wholesale in the United States and
Europe during the last three years:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------
1998 1997 1996
--------------- --------------- -------------
<S> <C> <C> <C>
United States
-------------
Retail*............................ 42.3% 37.5% 37.6%
Wholesale.......................... 82.5 79.8 79.5
Europe
------
Retail*............................ 32.5 29.1 29.3
Wholesale.......................... 95.4 95.0 90.8
-------------------
* As a percentage of total sales and leases of Ford vehicles, including
cash sales.
</TABLE>
-9-
<PAGE>
Item 1. Business (Continued)
Ford Credit's net finance receivables and net investment in operating
leases were as follows at the dates indicated (in millions):
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1998 1997
---------------- ----------------
<S> <C> <C>
Net finance receivables
Retail $67,733 $55,601
Wholesale 22,650 21,605
Other 6,839 5,276
------- -------
Total finance receivables, net of unearned income 97,222 82,482
Less: allowance for credit losses (1,280) (1,170)
------- -------
Net finance receivables $95,942 $81,312
======= =======
Net investment in operating leases
Vehicles, at cost $42,663 $41,926
Lease origination costs 63 65
Less: Accumulated depreciation (7,891) (6,943)
Allowance for credit losses (268) (302)
------- -------
Net investment in operating leases $34,567 $34,746
======= =======
</TABLE>
Ford Credit's total receivable balances related to accounts past due 60
days or more were as follows at the dates indicated (in millions):
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1998 1997
--------------- --------------
<S> <C> <C>
Retail $473 $497
Wholesale 73 35
Other 32 59
---- ----
Total $578 $591
==== ====
</TABLE>
The following table sets forth information concerning Ford Credit's credit
loss experience with respect to the various categories and geographic regions of
financing during the years indicated (in millions):
<TABLE>
<CAPTION>
Years Ended or at December 31,
------------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Net credit losses/(recoveries)
Retail* $1,031 $1,004 $ 804
Wholesale 9 (1) 19
Other (1) 4 7
------ ------ -------
Total $1,039 $1,007 $ 830
====== ====== =======
United States $ 916 $ 900 $ 707
Europe 57 67 95
Other international 66 40 28
------ ------ -------
Total $1,039 $1,007 $ 830
====== ====== =======
Net losses as a percentage of average net receivables**
Retail 1.10% 1.17% 1.03%
Total finance receivables 0.86 0.89 0.78
Provision for credit losses $1,180 $1,338 $ 993
Allowance for credit losses 1,548 1,471 1,218
Allowance for credit losses
as a percentage of net receivables** 1.19% 1.27% 1.09%
</TABLE>
------------------
*Includes net credit losses on operating leases.
**Includes net investment in operating leases.
-10-
<PAGE>
Item 1. Business (Continued)
Shown below is an analysis of Ford Credit's allowance for credit losses
related to finance receivables and operating leases for the years indicated (in
millions):
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Balance, beginning of year $1,471 $1,218 $1,055
Additions 1,180 1,338 993
Deductions
Losses 1,243 1,239 1,021
Recoveries (203) (232) (191)
------ ------ ------
Net losses 1,040 1,007 830
Other changes, principally
amounts relating to finance
receivables and operating
leases sold 63 78 -
------ ------ ------
Net deductions 1,103 1,085 830
------ ------ ------
Balance, end of year $1,548 $1,471 $1,218
====== ====== ======
</TABLE>
Ford Credit and FCE Bank rely heavily on their ability to raise substantial
amounts of funds. These funds are obtained primarily by the sale of commercial
paper, the issuance of term debt and, in the case of FCE Bank, certificates of
deposit. Funds also are provided by retained earnings and sales of receivables.
The level of funds can be affected by certain transactions with Ford, such as
capital contributions and dividend payments, interest supplements and other
support from Ford for vehicles financed and leased by Ford Credit or FCE Bank
under Ford-sponsored special financing or leasing programs. Funds also can be
affected by the timing of payments for the financing of dealers' wholesale
inventories and for income taxes.
The ability of Ford Credit and FCE Bank to obtain funds is affected by
their credit ratings and the nature and availability of support facilities, such
as revolving credit agreements and receivables sales facilities. Ford Credit and
FCE Bank's credit ratings are closely related to the financial condition of and
the outlook for Ford. The long-term senior debt of each of Ford, Ford Credit and
FCE Bank is rated "A1" (by Moody's Investors Service) and "A" (by Standard &
Poor's Ratings Group). The commercial paper of each of Ford Credit and FCE Bank
is rated "Prime-1" (by Moody's) and "A-1" (by S&P).
Under a profit maintenance agreement with Ford Credit, Ford has agreed to
make payments to maintain Ford Credit's earnings at certain levels. In addition,
under a support agreement with FCE Bank, Ford has agreed to retain a certain
direct or indirect ownership interest in FCE Bank and to make (or cause Ford
Credit to make) payments to maintain FCE Bank's net worth at certain levels. No
payments were required under either of these agreements during the period 1988
through 1998.
-11-
<PAGE>
Item 1. Business (Continued)
The Hertz Corporation
- ---------------------
Hertz and its affiliates and independent licensees operate what Hertz
believes is the largest car rental business in the world based upon revenues and
volume of rental transactions. They also operate what they believe to be one of
the largest industrial and construction equipment rental business in the United
States based upon revenues. Hertz and its affiliates, associates and independent
licensees, do the following:
- rent and lease cars and trucks
- rent industrial and construction equipment
- sell their used cars and equipment
- provide third-party claim management services
- provide telecommunications services
These businesses are operated from over 5,000 locations throughout the United
States and in approximately 140 foreign countries and jurisdictions. In April
1997, Hertz completed an initial public offering of common stock representing a
19.1% economic interest in Hertz.
Below are some financial highlights for Hertz (in millions):
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------
1998 1997
---------------- ----------------
<S> <C> <C>
Revenue $4,250 $3,905
Pre-Tax Income 465 343
Net Income 277 202
</TABLE>
-12-
<PAGE>
Item 1. Business (Continued)
Governmental Standards
A number of governmental standards and regulations relating to safety,
corporate average fuel economy ("CAFE"), emissions control, noise control,
damageability and theft prevention are applicable to new motor vehicles,
engines, and equipment manufactured for sale in the United States, Europe and
elsewhere. In addition, manufacturing and assembly facilities in the United
States, Europe and elsewhere are subject to stringent standards regulating air
emissions, water discharges and the handling and disposal of hazardous
substances. Such facilities in the United States also are subject to a
comprehensive federal-state permit program relating to air emissions.
Mobile Source Emissions Control -- U.S. Requirements. The Federal Clean Air
Act imposes stringent limits on the amount of regulated pollutants that lawfully
may be emitted by new motor vehicles and engines produced for sale in the United
States. Concurrently, most light duty vehicles sold in the United States must
comply with these standards for 10 years or 100,000 miles, whichever first
occurs. The EPA has filed a report with Congress indicating that more stringent
emissions standards will be required for the 2004 model year and beyond. It is
anticipated that the EPA will begin the rulemaking process in 1999 to propose
post-2004 model year standards that are more stringent than the default
standards contained in the Clean Air Act. The EPA is expected to propose
regulations which would require most light duty trucks to meet the same
emissions standards as passenger cars. The proposed standards are likely to
limit severely the use of diesel technology. If the standards are too stringent,
it will impact our ability to produce and offer a broad range of products with
the characteristics and functionality that customers demand.
Pursuant to the Clean Air Act, California has received a waiver from the
EPA to establish its own unique emissions control standards. New vehicles and
engines sold in California must be certified by the California Air Resources
Board ("CARB"). CARB's emissions requirements (the "California program") for
model years 1994 through 2003 require manufacturers to meet a non-methane
organic gasses fleet average requirement that are significantly more stringent
than those prescribed by the Clean Air Act for the corresponding periods of
time. The California program initially required that a specified percentage of
each manufacturer's vehicles produced for sale in California, beginning at 2% in
1998 and increasing to 10% in 2003, must be zero-emission vehicles ("ZEVs"),
which produce no emissions of regulated pollutants. In 1996, however, CARB
eliminated the ZEV mandate until the 2003 model year. Around the same time,
vehicle manufacturers voluntarily entered into an agreement with CARB to provide
air quality benefits for California equivalent to a 49 state program (i.e.,
equivalent to providing vehicles certified to the California low emission
vehicle standard nationwide beginning with the 2001 model year), to continue
research and development of ZEV technology and to provide specific numbers of
advanced technology battery vehicles through demonstration programs in
California.
Electric vehicles are the only presently known type of zero-emission
vehicles. However, despite intensive research activities, technologies have not
been identified that would allow manufacturers to produce an electric vehicle
that either meets most customers' expectations or is commercially viable.
Compliance with the ZEV mandate may require manufacturers to curtail the sale of
non-electric vehicles or to offer substantial discounts on electric vehicles,
selling them well below cost, while increasing the price on non-electric
vehicles. The California program and ZEV mandates present significant
technological challenges to manufacturers and compliance may require costly
actions that would have a substantial adverse effect on Ford's sales volume and
profits.
At a November 1998 hearing, CARB adopted stringent new vehicle
emissions standards that must be phased in beginning in the 2004 model year.
These new standards treat most light duty trucks the same as passenger cars and
require both types of vehicles to meet new stringent emissions requirements. It
is also expected that these new standards will essentially eliminate the use of
-13-
<PAGE>
Item 1. Business (Continued)
diesel technology. CARB's new standards present a difficult engineering and
technological challenge, and may impact our ability to produce and offer a broad
range of products with the characteristics and functionality that customers
demand.
The Clean Air Act also permits other states which do not meet national
ambient air quality standards to adopt the California program no later than two
years before the affected model year. Under the Act, twelve northeastern states
and the District of Columbia formed a group known as the Ozone Transport
Commission (the "OTC"). Based on an OTC recommendation, the EPA required each
OTC jurisdiction to adopt the California program. The OTC jurisdictions also may
adopt California's ZEV mandates, if any, but the EPA does not require them to do
so. In March 1997, the Circuit Court of Appeals for the District of Columbia
vacated the EPA's rule requiring the OTC jurisdictions to adopt the California
program; however, that decision did not affect California programs, including
ZEV mandates, already adopted by individual states. There are major problems
with transferring California standards to the Northeast -- many dealers sell
vehicles in neighboring states and the driving 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 gasoline requirement, which
makes the task of meeting standards even more difficult.
The California program was adopted in New York and Massachusetts and is
currently in effect for model years 1996 and beyond. In addition, these two
states adopted ZEV mandates beginning with model year 1998. In August 1998, as a
result of a legal challenge from the automotive industry, New York's pre-2003
model year ZEV requirements were declared invalid by the U.S. Court of Appeals
for the Second Circuit. Massachusetts has attempted to adopt as a standard ZEV
obligations mirroring a voluntary agreement in California between auto
manufacturers and CARB. A federal district court invalidated these regulations,
but Massachusetts has appealed the decision to the U.S. Court of Appeals for the
First Circuit. Connecticut adopted the California program beginning with model
year 1998. Rhode Island and Vermont adopted the California program beginning
with model year 1999 (with a ZEV mandate to be required in Vermont after certain
determinations with respect to the advancement of ZEV technology have been
made). Maine has adopted the California program beginning with the 2001 model
year. Maryland and New Jersey have laws requiring adoption of the California
program and ZEV mandates after certain conditions, relating to actions which may
be taken by other OTC jurisdictions, have been met.
In response to OTC actions, the automotive industry proposed a National Low
Emissions Vehicle (NLEV) program, which the EPA promulgated as a rule and which
has been agreed to by all manufacturers and all OTC jurisdictions except Maine,
Massachusetts, New York and Vermont. This NLEV program requires manufacturers to
sell low emission vehicles in the participating OTC jurisdictions beginning with
the 1999 model year, and throughout the remainder of the country beginning with
the 2001 model year. The OTC jurisdictions which have agreed to the NLEV program
will for its duration substitute the NLEV program for any of their other
emissions programs for passenger cars and light duty gasoline trucks. California
and the non-participating OTC jurisdictions will retain their California-based
programs. A petition seeking judicial review of the EPA's rule establishing NLEV
has been filed by a coalition of environmental groups. The petition alleges that
the rule violates the Clean Air Act.
Under the Clean Air Act, the EPA and CARB can require manufacturers to
recall and repair non-conforming vehicles. The EPA, through its testing of
production vehicles, can also halt the shipment of non-conforming vehicles. Ford
may be required to recall, or may voluntarily recall, vehicles for such purposes
in the future. The costs of related repairs or inspections associated with such
recalls can be substantial.
The Clean Air Act generally prohibits the introduction of new fuel
additives unless a waiver is granted by the EPA. In 1995, the EPA was ordered by
a federal court to grant such a waiver to Ethyl Corporation for the additive
MMT. Ford and other manufacturers believe that the use of MMT will impair the
performance of current emissions systems and onboard diagnostics systems.
Widespread use of MMT could increase Ford's future warranty costs and
necessitate changes in our warranties for emission control devices.
-14-
<PAGE>
Item 1. Business (Continued)
European Requirements. European Union ("EU") directives and related
legislation limit the amount of regulated pollutants that may be emitted by new
motor vehicles and engines sold in the EU. In 1998, the EU adopted a new
directive on emissions from passenger cars and light commercial trucks. More
stringent emissions standards will apply to new car certifications beginning
January 1, 2000 and to new car registrations beginning January 1, 2001 ("Stage
III Standards"). A second level of even more stringent emission standards will
apply to new car certifications beginning January 1, 2005 and to new car
registrations beginning January 1, 2006 ("Stage lV Standards"). The comparable
light commercial truck Stage III Standards and Stage IV Standards would come
into effect one year later than the passenger car requirements. The directive
includes a framework that permits EU member states to introduce fiscal
incentives to promote early compliance with the Stage III and Stage IV
Standards. The directive also introduces on-board diagnostic requirements, more
stringent evaporative emission requirements, and in-service compliance testing
and recall provisions for emissions-related defects that occur in the first five
years or 80,000 kilometers of vehicle life (extended to 100,000 kilometers in
2005). The Stage IV Standards for diesel engines are not yet technically
feasible and may impact our ability to produce and offer a broad range of
products with the characteristics and functionality that customers want. A
related EU directive was adopted at the same time which establishes standards
for cleaner fuels beginning in 2000 and even cleaner fuels in 2005. The EU is
setting up a program to assess the need for further changes to vehicle emission
and fuel standards after 2005.
Certain European countries are conducting in-use emissions testing to
ascertain compliance of motor vehicles with applicable emissions standards.
These actions could lead to recalls of vehicles; the future costs of related
inspection or repairs could be substantial.
Motor Vehicle Safety -- The National Traffic and Motor Vehicle Safety Act
of 1966 (the "Safety Act") regulates motor vehicles and motor vehicle equipment
in two primary ways. First, the Safety Act prohibits the sale in the United
States of any new vehicle or equipment that does not conform to applicable motor
vehicle safety standards established by the National Highway Traffic Safety
Administration (the "Safety Administration"). Meeting or exceeding many safety
standards is costly because the standards tend to conflict with the need to
reduce vehicle weight in order to meet emissions and fuel economy standards.
Second, the Safety Act requires that defects related to motor vehicle safety be
remedied through safety recall campaigns. There currently are pending before the
Safety Administration a number of investigations relating to alleged safety
defects in Ford vehicles. A manufacturer is also obligated to recall vehicles if
it determines they do not comply with a safety standard. Should Ford or the
Safety Administration determine that either a safety defect or a noncompliance
exists with respect to certain of Ford's vehicles, the costs of such recall
campaigns could be substantial.
In September 1998, the Safety Administration published a proposed advanced
air bag rule that would significantly affect the design and testing of new
vehicles. While Ford supports efforts to further improve air bag systems, and is
aggressively working with suppliers to quickly introduce new designs, we have
many concerns about the proposed rule. These concerns include a dramatic
increase in the number of required tests, complex and vague requirements, the
need to incorporate new and unproven technology, and a potential increase in
safety risks. We are moving aggressively to install even more advanced air bag
restraint systems in our vehicles, but the proposed rule could substantially
interfere with these plans. If such a rule were to become effective, it could
significantly increase our costs, especially if it requires us to change our
present advanced air bag design programs. We outlined our concerns in a December
1998 response to the Safety Administration's proposal. The Safety Administration
is expected to publish a supplemental notice which likely will propose
additional changes to the rule. Ford and other vehicle manufacturers will have
another chance to respond to the new proposal before a final rule is published.
The Safety Administration has published a rule requiring a revised
standardized label that automakers must display prominently to warn drivers of
sport utility vehicles about rollover risks. The label must be affixed to the
sun visor or the driver side window of all such vehicles beginning with the
model year 2000. The Safety Administration is also investigating the feasibility
-15-
<PAGE>
Item 1. Business (Continued)
of a test to measure the propensity of a vehicle to roll over. It is unlikely
that an objective meaningful stability test can be developed. Nonetheless, the
Safety Administration has announced its intention to issue a final rule to
require manufacturers to label vehicles based on their performance on the
yet-to-be-determined stability test. Such a label could impact customer
satisfaction and the sales of Ford products.
The subject of truck-to-car compatibility in relation to collisions
continues to receive significant media attention and the government is studying
this issue. While we and our suppliers are continuing to work on this complex
issue, government regulation to address vehicle compatibility also is possible.
Final regulations implementing the Fastener Quality Act of 1990 are
applicable to certain fasteners (i.e., nuts, bolts, washers and screws)
manufactured after July 26, 1998. The regulations impose burdensome and costly
testing, certification and record keeping requirements which are not compatible
with quality assurance systems currently used in the automotive industry.
Congress delayed the implementation of the Act pending a Department of Commerce
report. The report, issued in February 1999, addressed automotive industry
concerns by suggesting a narrowing of covered fasteners and an exemption for
fasteners manufactured to industry standards. Congress is considering amendments
to the Act. If amendments are adopted consistent with the principles outlined in
the Commerce Department report, it would significantly lessen the burden of the
legislation.
Canada, the European Union, individual member countries within the EU and
other countries in Europe, South America and the Asia Pacific markets also have
safety standards applicable to motor vehicles and are likely to adopt additional
or more stringent standards in the future.
Motor Vehicle Fuel Economy -- U.S. Requirements. Under the Motor Vehicle
Information and Cost Savings Act vehicles must meet minimum CAFE standards set
by the Safety Administration. A manufacturer is subject to potentially
substantial civil penalties if it fails to meet the CAFE standard in any model
year, after taking into account all available credits for the preceding three
model years and expected credits for the three succeeding model years.
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 believes it
has the authority to amend to a level it determines to be the maximum feasible
level. The Safety Administration has established a 20.7 mpg CAFE standard
applicable to light trucks.
Ford expects to be able to comply with the foregoing CAFE standards, in
some cases using credits from prior or succeeding years. In November 1998, we
filed a plan to meet the 1998 light truck standards using credits to be
generated in future years, and this plan has been approved by the Safety
Administration. In general, a continued increase in demand for larger vehicles,
coupled with a decline in demand for small and middle-size vehicles could
jeopardize our long-term ability to maintain compliance with CAFE standards.
It is anticipated that efforts may be made to raise the CAFE standard
because of concerns for carbon dioxide ("CO2") emissions, energy security or
other reasons. President Clinton's Climate Change Action Plan ("CCAP") sets a
goal to improve new vehicle fuel efficiency in an amount equivalent to at least
2% per year over a 10 to 15 year period. In addition, international concerns
over global warming due to the emission of "greenhouse gasses" have given rise
to strong pressures to increase fuel economy. During the December 1997 meeting
of the parties to the United Nations Climate Change Convention in Kyoto, Japan,
the United States agreed to reduce greenhouse gas emissions by 7% below their
1990 levels during the 2008-2012 period (the "Kyoto Protocol"). The Kyoto
Protocol is not yet binding on the United States, pending signature by the
President and ratification by the Senate. If the CCAP or Kyoto Protocol 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 might have to curtail or eliminate production of
larger family-size and luxury cars and full-size light trucks, restrict
-16-
<PAGE>
Item 1. Business (Continued)
offerings of engines and popular options, and continue or increase market
support programs for its most fuel-efficient cars and light trucks.
Foreign Requirements. The EU is also a party to the Kyoto Protocol and has
agreed to reduce greenhouse gas emissions by 8% below their 1990 levels during
the 2008-2012 period. In December 1997, the European Council of Environment
Ministers (the "Environment Council") reaffirmed its goal to reduce average CO2
emissions from new cars to 120 grams per kilometer by 2010 (at the latest) and
invited European motor vehicle manufacturers to negotiate further with the
European Commission on a satisfactory voluntary environmental agreement to help
achieve this goal. In October 1998, the EU agreed to support an environmental
agreement with the European Automotive Manufacturers Association (of which Ford
is a member) on CO2 emission reductions from new passenger cars (the
"Agreement"). The Agreement establishes an emission target of 140 grams of CO2
per kilometer for the average of new cars sold in the EU by the Association's
members in 2008. In addition, the Agreement provides that certain Association
members (including Ford) will introduce models emitting no more than 120 grams
of CO2 per kilometer in 2000, and establishes an estimated target range of
165-170 grams of CO2 per kilometer for the average of new cars sold in 2003.
Also in 2003, the Association will review the potential for additional CO2
reductions, with a view to moving further toward the EU's objective of 120 grams
of CO2 per kilometer by 2012. The Agreement assumes (among other things) that no
negative measures will be implemented against diesel-fueled cars and the full
availability of improved fuels with low sulfur content in 2005. Average CO2
emissions of 140 grams per kilometer for new passenger cars corresponds to a 25%
reduction in average CO2 emissions compared to 1995.
The Environment Council requested the European Commission to review in 2003
the EU's progress toward reaching the 120 gram target by 2010, and to implement
annual monitoring of the average CO2 emissions from new passenger cars and
progress toward achievement of the objectives for 2000 and 2003.
In February 1999, the European Commission published an amended proposal for
a new EU directive on the availability of consumer information about the fuel
economy and CO2 emissions of new passenger cars. Although the proposal includes
certain minimum EU requirements on the information to be made available,
individual Member States would be able to set national requirements for (i)
labels to be displayed on passenger cars at their point of sale, (ii) guides
listing all passenger cars available for sale in the EU to be available in
booklet and electronic form, and (iii) posters to be displayed in dealerships
ranking the fuel economy, CO2 emissions, and estimated fuel costs of passenger
cars available for sale there.
In 1995, members of the German Automobile Manufacturers Association
(including Ford Werke AG) made a voluntary pledge to reduce by 2005 the average
fuel consumption of new cars sold in Germany by 25% from 1990 levels, to review
before the year 2000 the need for and feasibility of further reductions in
average fuel consumption, to make regular reports on fuel consumption, and to
increase industry research and development efforts toward this end.
Other European countries are considering other initiatives for reducing CO2
emissions from motor vehicles. Taken together such proposals could have
substantial adverse effects on our sales volumes and profits in Europe.
Japan has adopted automobile fuel consumption goals that manufacturers must
attempt to achieve by the 2000 model year. The consumption levels apply only to
gasoline-powered vehicles, vary by vehicle weight, and range from 5.8 km/I to
19.2 km/l.
U.S. Stationary Source Air Pollution Control -- The Clean Air Act limits
various emissions into the atmosphere from stationary sources as well as mobile
sources, and allows states to adopt even more stringent standards. The Act
imposes comprehensive permit requirements for manufacturing facilities in
-17-
<PAGE>
Item 1. Business (Continued)
addition to those required by various states. Regulations continue to be
promulgated under the Act, and the costs to comply with the Act could be
substantial. In addition, the enormous complexity and time-consuming nature of
the comprehensive permit program provided for by the Act may reduce operational
flexibility and may interfere with future competitive upgrading of Ford's U.S.
production facilities.
U.S. Water Pollution Control -- Pursuant to the Federal Water Pollution
Control Act (the "Clean Water Act"), Ford is required to obtain permits for its
manufacturing facilities that regulate the facilities' discharge of wastewater
into public waters and municipal sewerage systems. The EPA also requires
management standards and, in some cases, permits for the discharge of storm
water. The standards under the Clean Water Act are established by the EPA and by
the state where a facility is located. Many states have requirements that go
beyond those established under the Clean Water Act.
The EPA also adopted regulations, pursuant to the Great Lakes Critical
Programs Act of 1990, that require more restrictive standards for discharges
into waters that impact the Great Lakes. These regulations may require the
addition of costly control equipment.
U.S. Hazardous Substance and Waste Control -- Pursuant to the Federal
Resource Conservation and Recovery Act, the EPA has issued regulations
establishing certain procedures and standards for persons who generate,
transport, treat, store, or dispose of hazardous wastes and requiring corrective
action for prior releases. States may adopt even more extensive requirements.
The Federal Comprehensive Environmental Response, Compensation, and Liability
Act requires notification regarding certain releases into the environment, and
creates potential liability for remediation costs and for damage to natural
resources at sites where our waste was taken for treatment or disposal. A number
of states have enacted separate laws of this type. In addition, under the
Federal Toxic Substances Control Act ("TSCA"), the EPA evaluates environmental
and health effects of existing chemicals and new substances. Pursuant to TSCA,
the EPA regulates the use of polychlorinated biphenyls in transformers,
capacitors and other equipment that may be located at our U.S. facilities.
European Stationary Source Environmental Control -- The European Union and
individual member countries impose requirements on waste and hazardous wastes,
incineration, packaging, landfill, soil pollution, integrated pollution control,
air emissions standards, import/export and use of dangerous substances, air and
water quality standards, noise, environmental management systems, energy
efficiency, emissions reporting, and planning and permitting. Additional or more
stringent requirements (including tax measures and civil liability schemes for
cleaning polluted sites) are likely to be adopted in the future. The cost of
complying with these standards could be substantial.
The European Commission has published a draft proposal to introduce an
obligation for motor vehicle manufacturers to take back end-of-life vehicles on
a cost-free basis beginning in 2003, to impose requirements on the proportion of
the vehicle that may be disposed of in landfills and the proportion that must be
reused or recycled beginning in 2005, and to ban the use of certain substances
in vehicles beginning in 2003. Such proposals could, if adopted, impose a
substantial cost on manufacturers. The German Automobile Association (including
Ford Werke AG) and the German Automobile Importers Association made a voluntary
pledge to establish a nationwide infrastructure network to take back passenger
cars that are at least 12 years old (and meet certain other requirements) on a
cost-free basis to their owners.
Pollution Control Costs -- During the period 1999 through 2003, we expect
to spend approximately $468 million on our North American and European
facilities to comply with air and water pollution and hazardous waste control
standards which now are in effect or are scheduled to come into effect. Of this
total, we estimate spending approximately $90 million in 1999 and $92 million in
2000.
Worldwide Regulatory Compatibility -- Our efforts to develop new markets
and increase imports are impeded by incompatible automotive safety,
-18-
<PAGE>
Item 1. Business (Continued)
environmental and other product regulatory standards. At present, differing
standards either restrict the vehicles we can export to serve new markets or
increase the cost and complexity to do so.
Employment Data
The average number of people we employed by geographic area was as
follows for the years indicated:
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
United States 173,899 189,787
Europe 105,351 104,014
Other 65,925 70,091
------- -------
Total 345,175 363,892
======= =======
</TABLE>
In 1998, the average number of people we employed decreased 5.1 percent
reflecting our divestiture of The Associates, offset partially by increased
employment at Hertz. The above figures for 1997 include 21,161 employees at The
Associates. Most of our employees work in our Automotive and Visteon operations.
For further information regarding employment statistics of Ford, see Item
6. "Selected Financial Data" later in this Report. For information concerning
employee retirement benefits, see Note 8 of our Notes to Financial Statements at
the end of this Report.
Substantially all of the hourly employees in our Automotive and Visteon
operations in the United States are represented by unions and covered by
collective bargaining agreements. Approximately 99% of these unionized hourly
employees in our Automotive segment (as well as many of those in our Visteon
segment) are represented by the United Automobile Workers (the "UAW").
Approximately 3% of our salaried employees are represented by unions. Most
hourly employees and many non-management salaried employees of our subsidiaries
outside the United States also are represented by unions. Collective bargaining
agreements between Ford and the UAW and between Ford of Canada and the Canadian
Automobile Workers were entered into in 1996 and are scheduled to expire in
September 1999. We do not know whether we will be able to reach new agreements
with these unions without a work stoppage occurring. If there is a work
stoppage, Ford's profits could be substantially adversely affected.
In recent years we have not had significant work stoppages at our
facilities, but they have occurred in some of our suppliers' facilities. Any
protracted work stoppages in the future, whether in our facilities or those of
certain suppliers, could substantially adversely affect our results of
operations.
-19-
<PAGE>
Item 1. Business (Continued)
Research and Development
We conduct research and development primarily to improve the performance
(including fuel efficiency), safety and customer satisfaction of our products,
and to develop new products. We also have staffs of scientists who engage in
basic research. We maintain extensive engineering, research and design
facilities for these purposes, including large centers in Dearborn, Michigan;
Dunton, England; and Merkenich, Germany. Most of our research and development
relates to our Automotive and Visteon operating segments.
During the last three years we took charges to our consolidated income for
research and development we sponsored in the following amounts: $6.3 billion
(1998), $6.3 billion (1997) and $6.8 billion (1996). Any customer-sponsored
research and development activities that we conduct are not material.
Item 2. Properties
- -------------------
We own substantially all of our U.S. manufacturing and assembly facilities.
These facilities are situated in various sections of the country and include
assembly plants, engine plants, casting plants, metal stamping plants,
components plants, transmission and axle plants and glass plants. We also own a
majority of our distribution centers, warehouses and sales offices, with the
remainder being leased.
In addition, we maintain and operate manufacturing plants, assembly
facilities, parts distribution centers and engineering centers outside the
United States. We own substantially all of these facilities.
Below is more information on the separate number of facilities operated by
our Automotive and Visteon segments:
- Automotive: Approximately 150 plants; 540 distribution,
engineering and research and development centers and warehouses;
and 314 owned dealerships.
- Visteon: Approximately 60 plants and 37 sales, engineering
and technical centers.
The furniture, equipment and other physical property owned by our Financial
Services operations are not material in relation to their total assets.
-20-
<PAGE>
Item 3. Legal Proceedings
- --------------------------
Various legal actions, governmental investigations and proceedings and
claims are pending or may be instituted or asserted in the future against us and
our subsidiaries, including those arising out of the following: alleged defects
in our products; governmental regulations covering safety, emissions and fuel
economy; financial services; employment-related matters; dealer, supplier and
other contractual relationships; intellectual property rights; product
warranties; and environmental matters. Some of the pending legal actions are, or
purport to be, class actions. Some of the foregoing matters involve or may
involve compensatory, punitive or antitrust or other multiplied damage claims in
very large amounts, or demands for recall campaigns, environmental remediation
programs, sanctions or other relief which, if granted, would require very large
expenditures. See Item 1, "Business--Governmental Standards". Included among the
foregoing matters are the following:
Product Liability Matters
- -------------------------
Occupant Restraint Systems. Ford is a defendant in various actions for
damages arising out of automobile accidents where the plaintiffs claim that
their injuries resulted from (or were aggravated by) alleged defects in the
occupant restraint systems in vehicle lines of various model years. For those
cases in which damages have been specified, the damages specified by the
plaintiffs, including both actual and punitive damages, aggregated approximately
$1 billion at December 31, 1998.
Bronco II. Ford is a defendant in various personal injury lawsuits
involving the alleged propensity of Bronco II utility vehicles to roll over. For
those cases in which damages have been specified, the damages specified by the
plaintiffs, including both actual and punitive damages, aggregated approximately
$1.8 billion at December 31, 1998.
In most of the actions described in the two paragraphs above, no dollar
amount of damages is specified or the specific amount we refer to is only the
jurisdictional minimum. It has been our experience that in cases that allege a
specific amount of damages in excess of the jurisdictional minimum, such
amounts, on average, bear little relation to the actual amounts of damages paid
by Ford in resolving such cases. The damages we pay generally are, on average,
substantially less than the amounts originally claimed. In addition to the
pending actions, accidents have occurred and claims have arisen which also may
result in lawsuits in which the plaintiffs may allege similar defects.
Asbestos. We are a defendant in various actions for injuries claimed to
have resulted from alleged contact with certain Ford parts and other products
containing asbestos. The plaintiffs in these actions seek damages, including
both actual and punitive damages, of approximately $2.1 billion at December 31,
1998. (In some of these actions, the plaintiffs have not specified a dollar
amount of damages or the specific amount referred to is only the jurisdictional
minimum.) As distinguished from most lawsuits against us, in most of these
asbestos-related cases, we are but one of many defendants, and many of our
co-defendants have substantial resources.
Environmental Matters
- ---------------------
General. We have received notices from government environmental enforcement
agencies concerning four matters which potentially involve monetary sanctions
exceeding $100,000. The agencies believe that Ford facilities may have violated
regulations relating to certain emissions from facility operations.
-21-
<PAGE>
Item 3. Legal Proceedings (Continued)
We have received notices under various federal and state environmental laws
that we (along with others) may be a potentially responsible party for the costs
associated with remediating numerous hazardous substance storage, recycling or
disposal sites in many states and, in some instances, for natural resource
damages. We also may have been a generator of hazardous substances at a number
of other sites. The amount of any such costs or damages for which we may be held
responsible could be substantial. The contingent losses that we expect to incur
in connection with many of these sites have been accrued and those losses are
reflected in our financial statements in accordance with generally accepted
accounting principles. However, for many sites, the remediation costs and other
damages for which we ultimately may be responsible are not reasonably estimable
because of uncertainties with respect to factors such as our connection to the
site or to materials there, the involvement of other potentially responsible
parties, the application of laws and other standards or regulations, site
conditions, and the nature and scope of investigations, studies and remediation
to be undertaken (including the technologies to be required and the extent,
duration and success of remediation). As a result, we are unable to determine or
reasonably estimate the amount of costs or other damages for which we are
potentially responsible in connection with these sites, although that total
could be substantial.
CCA Lawsuit. The Corporation for Clean Air, Inc., a California non-profit
group ("CCA"), filed a lawsuit in California against Ford and numerous other
engine and vehicle manufacturers and owners of vehicle fleets, under
California's Safe Drinking Water and Toxic Enforcement Act ("Proposition 65").
Under Proposition 65 any business that knowingly and intentionally exposes any
person to certain carcinogens and reproductive toxins must provide that person
with an advance clear and reasonable warning, unless the business can prove that
the exposures are insignificant. CCA's complaint alleges that manufacturers and
fleet owners of diesel powered vehicles are exposing California's citizens to
diesel exhaust in violation of Proposition 65. Maximum penalties under
Proposition 65 are $2,500 per vehicle per day of violation. In September 1998,
the California Superior Court dismissed the lawsuit, finding that CCA failed to
provide admissible evidence sufficient to maintain a case under Proposition 65
and that vehicle manufacturers are not responsible for providing warnings of
exposures for vehicles that are not under their control. CCA has filed notice of
its intent to appeal the court's decision.
Class Actions
- -------------
Ford has been named a defendant in various class action lawsuits. Class
action lawsuits can involve very large groups of plaintiffs, such as statewide
or nationwide classes, if plaintiffs persuade the court to grant class
certification. We believe we have valid defenses in each of these cases;
however, if plaintiffs were to prevail in any of these lawsuits, we could be
required to pay substantial damages.
Paint. There are four purported class actions pending against Ford alleging
defects in the paint processes used on more than six million vehicles we
manufactured in model years 1984 through 1993. One case (Landry) is nationwide
in scope and is pending in the U.S. District Court for the Eastern District of
Louisiana. In August 1998, the Landry court denied the plaintiffs' motion for
class certification. In February 1999, the Court of Appeals denied plaintiffs'
request to permit them to appeal the class cerrtification decision prior to
trial. In another case (Sheldon), a Texas state court certified two subclasses
of Texas residents for trial. The Texas Court of Appeals affirmed the class
certification order and approved a bifurcated trial process that would require
class members to prove causation and damages in separate trials following a
classwide trial on the existence of a defect and Ford's knowledge of the defect.
We appealed the class certification to the Texas Supreme Court and oral argument
was heard in February 1999. We are awaiting a ruling. The third case, Nienhuis,
was filed in Illinois state court in May 1998. It raises the same allegations as
Landry and Sheldon with respect to a larger group of vehicles, and alleges a
nationwide class or, alternatively, a class of Illinois residents. We removed
the action to federal court and, in June 1998, the case was conditionally
transferred to the Louisiana federal court where Landry is pending. The case was
later remanded to state court, and our appeal of the remand order is pending.
The fourth case, Clayman, was filed in Pennsylvania state court and asserts, on
behalf of Pennsylvania residents, claims similar to those raised in Nienhuis. We
removed Clayman to federal court and sought to have it consolidated with Landry
-22-
<PAGE>
Item 3. Legal Proceedings (Continued)
in the U.S. District Court for the Eastern District of Louisiana. It too was
remanded to state court. In each pending lawsuit, the plaintiffs seek
unspecified compensatory damages, as well as punitive damages, attorneys' fees
and costs.
Ignition Switch. In 1996, we were served with fourteen purported class
action lawsuits alleging that certain 1983 to 1993 model year vehicles were
equipped with defective ignition switches that could cause an electrical short
circuit, resulting in smoke and fire damage. Most of the suits were brought on
behalf of plaintiffs who have not experienced a problem, but who claim that
their vehicles have diminished value because of the allegedly defective
switches. Some of the lawsuits were purportedly brought on behalf of plaintiffs
who claim to have suffered fire or smoke damage to their vehicles. Plaintiffs
seek unspecified compensatory damages, punitive damages, attorneys' fees and
costs, as well as injunctive relief requiring, among other things, that Ford
replace the allegedly defective ignition switch in all affected vehicles. All
fourteen lawsuits were consolidated for pretrial proceedings in federal court in
New Jersey. In August 1997, the court denied plaintiffs' motion for class
certification. In September 1997, the court dismissed all of the claims brought
by the non-incident class members except the implied warranty claims brought
under Louisiana law and the breach of contract claims. In May 1998, plaintiffs
in the "incident" (smoke and fire damage) cases filed an amended complaint which
attempts to consolidate all such claims in a single action. The complaint
proposes alternative classes and several subclasses. The plaintiffs have
indicated that the proposed classes and subclasses may be amended following
further discovery. In August 1998, the court reaffirmed its denial of class
certification and ruled on plaintiffs' motion to remand the actions, remanding
one of the fourteen consolidated actions to Alabama state court and retaining
jurisdiction over the others. In October 1998, plaintiffs in the non-incident
cases filed a motion to amend an earlier court ruling that dismissed with
prejudice the claims under the federal Magnuson-Moss Warranty Act and requested
leave to file an amended complaint restating these and other claims. The court
denied the motion as to two of the plaintiffs but allowed the third plaintiff to
amend the complaint to pursue breach of express warranty claims and claims for
injunctive relief and/or restitution under the California Business and
Professions Act.
In a related matter, State Farm Mutual Automobile Insurance Company filed a
lawsuit in federal court in California in January 1998 against Ford and United
Technologies Automotive, Inc. State Farm seeks damages for insurance claims it
paid to cover vehicle damage caused by allegedly defective ignition switches,
the deductible amounts paid by its insureds, other compensatory damages,
disgorgement of profits and attorney's fees and costs. We have moved to dismiss
State Farm's claims and obtained a transfer of the action to the New Jersey
federal court where the ignition switch class actions are pending. State Farm
opposed the transfer. Also, a private insurer, the California State Automobile
Association Inter-insurance Bureau has filed a separate action against us
seeking to recover amounts it paid for 15 vehicle fire claims allegedly caused
by defective ignition switches. The Bureau's lawsuit has also been transferred
to the New Jersey federal court for consolidated pre-trial proceedings with the
other ignition switch-related lawsuits. We have moved to dismiss the Bureau's
complaint.
TFI Module. Six purported class actions are pending in state courts on
behalf of owners and lessees of 1983 through 1995 model year Ford vehicles
containing a distributor-mounted thick film ignition (TFI) module. The
plaintiffs allege that distributor-mounted TFI modules are defective because
they have a high propensity to fail due to exposure to engine heat, causing the
engine to stumble, stall, or not start. The plaintiffs in these cases seek pre-
and post-judgment interest, attorneys' fees, disgorgement of profits,
compensatory damages, punitive damages, notice to the public, and the recall and
retrofit of all vehicles with the allegedly defective TFI modules. The cases are
pending in Alabama, California, Illinois, Maryland, Tennessee and Washington.
The Alabama and Tennessee cases were conditionally certified as nationwide class
actions (excluding California). The cases in Illinois, Maryland and Washington
purport to be regional class actions, and the California case is statewide in
scope. The California case is the "lead" case and proceedings in the other cases
are stayed. The court has certified a class of California residents who
currently own or lease the subject vehicles and residents who purchased such
vehicles when they were new. The court also certified a sub-class of consumers
pursuing Consumer Legal Remedies Act claims, bringing the total class to
approximately 3.2 million members. In the unlikely event that plaintiffs
-23-
<PAGE>
Item 3. Legal Proceedings (Continued)
recovered fully on all of their claimed damages, the total award in the
California action would exceed $4 billion. Trial in the California case is
scheduled for April 5, 1999. The trial court recently denied Ford's motions to
decertify the class and for summary judgment. We are seeking leave to appeal
some of those rulings. If leave to appeal is denied, we will have the right to
appeal after trial if necessary.
Air Bag. One purported class action lawsuit is pending in Alabama state
court alleging that air bags are defective because they can cause injury,
particularly to children and small adults. Plaintiffs allege that their vehicles
are unsuitable for transporting children and small adults and, therefore, are
not worth the purchase price they paid. They seek compensatory damages,
including the alleged diminution in value of their vehicles. The Alabama action
appears to be nationwide in scope and purports to represent owners of 1993
through 1996 (and some 1997) model year cars and light trucks with passenger air
bags. The plaintiffs named as defendants Ford, General Motors Corporation,
Chrysler Corporation, and an Alabama automobile dealership. The trial court
denied defendants' motion for change of venue, and the Alabama Supreme Court
declined to hear an appeal on that issue. We have asked the court to reconsider
that decision. Our motion to dismiss this action is pending.
Ford/Citibank Visa. Following the June 1997 announcement of the termination
of the Ford/Citibank credit card rebate program, five purported nationwide class
actions and one purported statewide class action were filed against Ford;
Citibank is also a defendant in some of these actions. The actions allege
damages in an amount up to $3,500 for each cardholder who obtained a
Ford/Citibank credit card in reliance on the rebate program and who is precluded
from accumulating discounts toward the purchase or lease of new Ford vehicles
after December 1997 as a result of the termination of the rebate program.
Plaintiffs contend that defendants deceptively breached their contract by
unilaterally terminating the program, that defendants have been unjustly
enriched as a result of the interest charges and fees collected from
cardholders, and further, that defendants conspired to deprive plaintiffs of the
benefits of their credit card agreement. Plaintiffs seek compensatory damages,
or alternatively, reinstatement of the rebate program, and punitive damages,
costs, expenses and attorneys' fees. The five purported nationwide class actions
were filed in state courts in Alabama, Illinois, New York, Oregon and
Washington, and the purported statewide class action was filed in a California
state court. The Alabama court has conditionally certified a class consisting of
Alabama residents. Ford removed all of the cases to federal court, which
consolidated and transferred the cases to federal court in Washington for
pretrial proceedings. In September 1998, Ford and Citibank jointly filed a
motion to dismiss the consolidated lawsuit pending before the court in
Washington. The motion to dismiss was denied in November 1998 and the parties
are currently pursuing pretrial discovery. The plaintiffs in the Oregon and
Alabama cases have moved to remand their cases to state court.
Flat Glass. Ford is a defendant in 14 purported class actions brought on
behalf of purchasers of flat glass alleging that we and other manufacturers
fixed prices and allocated markets in violation of federal and state antitrust
laws. Twelve of the class actions are nationwide in scope and pending in federal
court and the other two class actions are statewide in scope and are pending in
state courts. The other defendants include Pilkington, Libbey-Owens Ford, AFG
Industries, PPG Industries, Asahi Glass, and Guardian Industries. Nineteen
similar purported class actions are pending in various courts in which Ford is
not currently named as a defendant. A total of 28 federal cases have been
consolidated in a federal court in Pennsylvania for pretrial proceedings. The
parties are currently engaged in discovery related to class certification. In
the actions involving Ford, the plaintiffs seek economic and treble damages.
Lease Residual. In January 1998 in connection with a case pending in
Illinois state court, Ford and Ford Credit were served with a summons and
intervention counterclaim complaint relating to Ford Credit's leasing practices
(Higginbotham v. Ford Credit). The counterclaim plaintiff, Carla Higginbotham,
is a member of a class that has been conditionally certified for settlement
purposes in Shore v. Ford Credit. In the Shore case, Ford Credit commenced an
action for deficiency against Virginia Shore, a Ford Credit lessee. Shore
counterclaimed for purported violations of the Truth-in-Leasing Act (alleging
that certain lease charges were excessive) and the Truth-in-Lending Act
(alleging that the lease lacked clarity). Shore purported to represent a class
of all similarly situated lessees. Ford was not a party to the Shore case.
-24-
<PAGE>
Item 3. Legal Proceedings (Continued)
Higginbotham objected to the proposed settlement of the Shore case, intervened
as a named defendant, filed separate counterclaims against Ford Credit, and
joined Ford as an additional counterclaim defendant. Higginbotham asserts claims
against Ford Credit for violations of the Consumer Leasing Act, declaratory
judgment concerning the enforceability of early termination provisions in Ford
Credit's leases, and fraud. She also asserts a claim against Ford Credit and
Ford for conspiracy to violate the Truth-in-Lending Act. The Higginbotham
counterclaims allege that Ford Credit inflates the residual values of its leased
vehicles, which results in lower monthly lease payments but higher termination
fees for lessees who exercise their right of early termination. Higginbotham
claims that the early termination fees were not adequately disclosed on the
lease form and that the fees are excessive and illegal because of the allegedly
inflated residual values. She also alleges that Ford dictated the residual
values to Ford Credit and thereby participated in an unlawful conspiracy. This
case was stayed pending the approval/rejection of the settlement in Shore. In
November 1998, the court issued a ruling that rejected the proposed settlement
in Shore. Consequently, the Higginbotham case is proceeding and Ford Credit is
in the process of responding to discovery requests. Ford intends to remove the
case to federal court and move to dismiss the counterclaims.
Lease Agreement Disclosure. Twenty purported class action lawsuits have
been filed in various courts against Ford Credit and, in all but three cases,
Primus Automotive Financial Services, Inc., a subsidiary of Ford Credit. The
lawsuits, each of which purports to be brought on behalf of a statewide class,
allege that Ford Credit and Primus leasing contracts improperly failed to
disclose acquisition and administrative fees that are included in the amount of
a customer's monthly lease payment. Plaintiffs seek compensatory damages in the
amount of all such undisclosed fees, an injunction prohibiting the companies
from continuing the practice of not disclosing such fees, attorneys' fees,
interest, costs and in some cases, punitive damages. We are seeking dismissal of
all the lawsuits. A Georgia federal court and Alabama, Arkansas, Iowa,
Minnesota, Missouri and Wisconsin state courts have recently dismissed seven of
the lawsuits, finding that itemization of monthly lease charges is not required
under federal or state law.
Lifetime Service Guarantee. In June 1998, a purported class action lawsuit
was filed against Ford in California state court challenging the legality of our
termination of the Lifetime Service Guarantee program as of January 1, 1992.
Plaintiff alleges that the program, which ran from 1983 until the program's
termination date, constituted a product warranty that could not be terminated.
Plaintiff alleges claims for violation of the federal Magnuson-Moss Warranty
Act, breach of contract, negligent misrepresentation, violation of the
California Song-Beverly Consumer Warranty Act, violation of the California
Consumer Legal Remedies Act ("CLRA"), violations of the California Unfair
Competition Law ("UCL") and declaratory relief. The Magnuson-Moss and
declaratory relief claims are alleged on behalf of a purported nationwide class.
The breach of contract, negligent misrepresentation, and Song-Beverly claims are
alleged on behalf of a purported subclass of California residents. The CLRA and
UCL claims are alleged on behalf of "the general public" ostensibly under
"private attorney general" provisions in those statutes. Plaintiff claims
compensatory, exemplary, and punitive damages, attorneys' fees, civil penalties,
disgorgement, and interest in unspecified amounts, as well as an injunction
compelling Ford to reinstate the Lifetime Service Guarantee program. We have
removed the case to federal court in California. The parties are currently
engaged in pretrial discovery.
Other Matters
- -------------
Patents. A number of claims have been made or may be asserted in the future
against Ford alleging infringement of patents held by others. We believe that we
have valid defenses with respect to the claims that have been asserted. If some
of these claims should lead to litigation, however, and if the claimant were to
prevail, we could be required to pay substantial damages.
OFCCP Proceeding. In April 1997, the Department of Labor issued an
administrative enforcement proceeding challenging our compliance with
obligations imposed by Executive Order 11246, which prohibits employment
-25-
<PAGE>
Item 3. Legal Proceedings (Continued)
discrimination and requires affirmative action by government contractors and
subcontractors. The Office of Federal Contract Compliance Programs ("OFCCP")
claims that our Kentucky Truck Plant used a hiring process in 1993 for
entry-level hourly laborer positions that discriminated against female
applicants. OFCCP seeks an order awarding back pay to the "affected class of
women," a job offer to each of these persons, and retroactive seniority for each
person. Ford and the OFCCP have completed a partial consent decree that resolves
the disputes relating to our cooperation in various OFCCP investigations
concerning hourly hiring practices at Ford facilities. Trial before an
administrative law judge on the OFCCP proceeding relating to our Kentucky Truck
Plant is set for August 16, 1999.
FTC Investigation. The Federal Trade Commission and the Department of
Justice are continuing their investigation, commenced in 1995, of the retail
vehicle financing credit practices of Ford Credit for compliance with the Equal
Credit Opportunity Act and Regulation B.
Red Carpet Lease Terminations. We have been advised that a consortium of 37
states is investigating certain Ford Credit Red Carpet Lease ("RCL") practices
and that the Florida Attorney General's Office is leading the investigation. The
investigation focuses on whether Ford Credit RCL customers who want to terminate
leases early and purchase the leased vehicle have been misled by the alleged
improper failure to itemize (i) the cost of terminating the lease and (ii) the
vehicle purchase price. We believe that Ford Credit's business practices are
fair under applicable law, and we are attempting to negotiate a resolution of
the matter.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
Not required.
-26-
<PAGE>
Item 4A. Executive Officers of Ford
- ------------------------------------
Our executive officers and their positions and ages at March 15, 1999 are
shown in the table below:
<TABLE>
<CAPTION>
Present Position
Name Position Held Since Age
---- -------- ---------- ---
<S> <C> <C> <C>
Jacques A. Nasser* President and January 1999 51
Chief Executive Officer
(also a Director)
W. Wayne Booker Vice Chairman November 1996 64
Peter J. Pestillo Vice Chairman and January 1999 60
Chief of Staff
John M. Devine Executive Vice President and November 1996 54
Chief Financial Officer
Carlos E. Mazzorin Group Vice President-- January 1998 57
Purchasing and
Ford of Mexico
James J. Padilla Group Vice President-- January 1999 52
Manufacturing
Richard Parry-Jones Group Vice President-- January 1998 47
Product Development
and Quality
Robert L. Rewey Group Vice President-- December 1993 60
Marketing, Sales and Service
Henry D. G. Wallace Group Vice President-- January 1999 53
Asia Pacific Operations
and Associations
Gurminder S. Bedi Vice President-- January 1998 51
Truck Vehicle Center
William W. Boddie Vice President-- January 1998 53
Small and Medium Car
Vehicle Center
Mei Wei Cheng Vice President-- January 1999 49
(President, Ford
Motor (China) Ltd.)
</TABLE>
-27-
<PAGE>
<TABLE>
<CAPTION>
Present Position
Name Position Held Since Age
---- -------- ---------- ---
<S> <C> <C> <C>
William J. Cosgrove Vice President--Business January 1999 53
and Product Strategy
James D. Donaldson Vice President January 1998 56
(President, Ford of
Europe Incorporated)
Wayne S. Doran Vice President November 1997 64
(Chairman, Ford Motor Land
Development Corporation)
Louise K. Goeser Vice President--Quality March 1999 45
Ronald E. Goldsberry Vice President--Global January 1999 56
Service Business Strategy
Elliott S. Hall Vice President-- July 1998 60
Dealer Development
Mark W. Hutchins Vice President July 1999 53
(President, Lincoln and Mercury)
I. Martin Inglis Vice President January 1999 48
(President, Ford South
American Operations)
Michael D. Jordan Vice President--Ford January 1999 52
Customer Service Division
Kenneth K. Kohrs Vice President March 1999 60
Vaughn A. Koshkarian Vice President--Public Affairs January 1999 58
Robert O. Kramer Vice President January 1999 60
Roman J. Krygier Vice President-- January 1999 56
Powertrain Operations
Malcolm S. Macdonald Vice President and January 1998 58
Treasurer
J.C. Mays Vice President--Design October 1997 44
James E. Miller Vice President January 1998 52
Craig H. Muhlhauser Vice President January 1999 50
(President, Visteon
Automotive Systems)
</TABLE>
-28-
<PAGE>
<TABLE>
<CAPTION>
Present Position
Name Position Held Since Age
---- -------- ---------- ---
<S> <C> <C> <C>
Janet G. Mullins Vice President-- January 1998 49
Washington Affairs
David L. Murphy Vice President-- January 1999 53
Human Resources
James G. O'Connor Vice President June 1998 56
(President, Ford Division)
Helen O. Petrauskas Vice President--Environmental March 1983 54
and Safety Engineering
William F. Powers Vice President--Research February 1996 58
Neil W. Ressler Vice President and January 1999 59
Chief Technical Officer
Research and Vehicle Technology
John M. Rintamaki Vice President--General Counsel January 1999 57
and Secretary
Ross H. Roberts Vice President June 1998 61
(President, Ford Investment
Enterprises Corporation)
Dennis E. Ross Vice President and January 1998 48
Chief Tax Officer
Shamel T. Rushwin Vice President - Advanced March 1999 51
Manufacturing Engineering
Nicholas V. Scheele Vice President February 1999 55
William A. Swift Vice President and Controller January 1999 55
Chris P. Theodore Vice President - Large Luxury March 1999 48
Vehicle Center
David W. Thursfield Vice President-- January 1998 53
Vehicle Operations
Robert J. Womac Vice President (Executive November 1996 55
Vice President, Operations,
Visteon Automotive Systems)
</TABLE>
-29-
<PAGE>
<TABLE>
<CAPTION>
Present Position
Name Position Held Since Age
---- -------- ---------- ---
<S> <C> <C> <C>
Martin B. Zimmerman Vice President-- January 1999 52
Governmental Affairs
Rolf Zimmermann Vice President December 1998 52
(Chairman, Ford Werke AG)
</TABLE>
- ------------------
*Also a member of the Finance Committee and the Organization Review and
Nominating Committee of the Board of Directors.
Some of the officers listed above also are members of one or more
additional committees of Ford that are not committees of the Board of Directors.
All of the above officers, except those noted below, have been employed by
Ford or its subsidiaries in one or more capacities during the past five years.
Described below are the positions (other than those with Ford or its
subsidiaries) held by those officers who have not been with Ford or its
subsidiaries for five years:
- - Mr. Cheng most recently was President and Regional Executive of GE
Appliances Ltd. in Hong Kong. Prior to that he was President of General
Electric China, and prior to that, President of AT&T China Inc.
- - Ms. Goeser served at Whirlpool Corporation as General Manager,
Refrigeration Product Team, Whirlpool North American Appliance Group, and
before that, as Vice President, Corporate Quality.
- - Mr. Mays was Vice President of Design Development at SHR Perceptual
Management in Scottsdale, Arizona. Prior to that he was design director
responsible for worldwide design strategy, development and execution for
Audi AG.
- - Mr. Muhlhauser was an officer of United Technologies Corporation and held
the positions of Senior Vice President, Sales and Service-Americas, and
Senior Vice President, Worldwide Aftermarket - Pratt & Whitney.
- - Mr. Ross was a partner in the New York law firm of Davis, Polk & Wardwell.
- - Mr. Rushwin most recently was Vice President-International Manufacturing
and Minivan Assembly Operations at DaimlerChrysler AG. His prior
positions at Daimler-Chrysler AG were: General Manager-Minivan Platform
Assembly and Plant Manger-Belvidere Assembly Plant.
- - Mr. Theodore most recently was Senior Vice President-Platform Engineering
at DaimlerChrysler AG. His prior positions at DaimlerChrysler AG were:
Vice President-Platform Engineering, General Manager-Small Car Platform
Engineering and General Manager-Minivan Platform Engineering.
Under Ford's By-Laws the executive officers are elected by the Board of
Directors at the Annual Meeting of the Board of Directors held for this purpose.
Each officer is elected to hold office until his or her successor is chosen or
as otherwise provided in the By-Laws.
-30-
<PAGE>
PART II
Item 5. Market for Ford's Common Stock and Related Stockholder Matters
- -----------------------------------------------------------------------
Our Common Stock is listed on the New York and Pacific Coast Stock
Exchanges in the United States and on certain stock exchanges in Belgium,
France, Germany, Switzerland and the United Kingdom.
The table below shows the high and low sales prices for our Common Stock
and the dividends we paid per share of Common and Class B Stock for each
quarterly period in 1998 and 1997.
<TABLE>
<CAPTION>
1998 1997
--------------------------------------- ----------------------------------------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
-------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Common Stock price per share*
High $43-5/8 $59-1/8 $61-7/16 $59-7/8 $23-1/4 $26-15/64 $30-5/8 $33-3/8
Low 28-5/16 41-11/64 40-5/8 38-13/16 20-27/64 19-59/64 25-23/64 27-9/16
Dividends per share of
Common and Class B Stock $0.42 $0.42 $0.42 $0.46 $0.385 $0.42 $0.42 $0.42
</TABLE>
- ---------------------------
* New York Stock Exchange composite interday prices as provided by the
www.NYSEnet.com price history database. All prices prior to April 8, 1998 have
been adjusted to reflect The Associates spin-off.
As of February 26, 1999, stockholders of record of Ford included 223,695
holders of Common Stock and 104 holders of Class B Stock.
During 1998 we sold 1,116,209 shares of our Common Stock in private
transactions that were not registered with the Securities and Exchange
Commission. These transactions were exempt from registration requirements
because they were private placements under Section 4(2) of the Securities Act of
1933, as amended. These shares were sold to owners of automotive dealership
businesses in exchange for those businesses. The consideration we received for
the shares was equal to the market value of the shares at the time of the
transactions.
-31-
<PAGE>
Item 6. Selected Financial Data
- --------------------------------
The following tables set forth selected financial data and other data
concerning Ford for each of the last eleven years (dollar amounts in millions
except per share amounts):
<TABLE>
<CAPTION>
SUMMARY OF OPERATIONS 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Automotive Sector
Sales $119,083 $122,935 $118,023 $110,496 $107,137 $91,568 $84,407 $72,051 $81,844 $82,879 $82,193
Operating income/(loss) 6,685 6,946 2,516 3,281 5,826 1,432 (1,775) (3,769) 316 4,252 6,612
Income/(loss) before income
taxes and cumulative effects
of changes in accounting
principles 6,958 7,082 2,571 3,166 5,997 1,291 (1,952) (4,052) 275 5,156 7,312
Income/(loss) before cumulative
effects of changes in
accounting principles a/, c/ 4,752 4,714 1,655 2,056 3,913 1,008 (1,534) (3,186) 99 3,175 4,609
-------- -------- -------- -------- -------- ------- ------- ------- ------- ------- -------
Net income/(loss) 4,752 4,714 1,655 2,056 3,913 1,008 (8,628) (3,186) 99 3,175 4,609
-------- -------- -------- -------- -------- ------- ------- ------- ------- ------- -------
Financial Services Sector
Revenues $ 25,333 $ 30,692 $ 28,968 $ 26,641 $ 21,302 $16,953 $15,725 $16,235 $15,806 $13,267 $10,253
Income before income taxes and
cumulative effects of changes
in accounting principles 18,438 3,857 4,222 3,539 2,792 2,712 1,825 1,465 1,220 874 1,031
Income before cumulative
effects of changes in
accounting principles b/,
d/, e/ 17,319 2,206 2,791 2,083 1,395 1,521 1,032 928 761 660 691
-------- -------- -------- -------- -------- ------- ------- ------- ------- ------- -------
Net income 17,319 2,206 2,791 2,083 1,395 1,521 1,243 928 761 660 691
-------- -------- -------- -------- -------- ------- ------- ------- ------- ------- -------
Total Company
Income/(loss) before income
taxes and cumulative effects
of changes in accounting
principles $ 25,396 $ 10,939 $ 6,793 $ 6,705 $ 8,789 $ 4,003 $ (127) $(2,587) $ 1,495 $ 6,030 $ 8,343
Provision/(credit) for income
taxes 3,176 3,741 2,166 2,379 3,329 1,350 295 (395) 530 2,113 2,999
Minority interests in net
income of subsidiaries 149 278 181 187 152 124 80 66 105 82 44
-------- -------- -------- -------- -------- ------- ------ ------- ------- ------- -------
Income/(loss) before
cumulative effects of
changes in accounting
principles a/, b/, c/, d/, e/ 22,071 6,920 4,446 4,139 5,308 2,529 (502) (2,258) 860 3,835 5,300
Cumulative effects of changes
in accounting principles - - - - - - (6,883) - - - -
-------- -------- -------- -------- -------- ------- ------- ------- ------- ------- -------
Net income/(loss) $ 22,071 $ 6,920 $ 4,446 $ 4,139 $ 5,308 $ 2,529 $(7,385) $(2,258) $ 860 $ 3,835 $ 5,300
======== ======== ======== ======== ======== ======= ======= ======= ======= ======= =======
Total Company Data Per Share
of Common and Class B
Stock f/
Income/(loss) before cumulative
effects of changes in
accounting principles 18.17 $ 5.75 $ 3.73 $ 3.58 $ 4.97 $ 2.27 $ (0.73) $ (2.40) $ 0.93 $ 4.11 $ 5.48
Income/(loss)
Basic 18.17 5.75 3.73 3.58 4.97 2.27 (7.81) (2.40) 0.93 4.11 5.48
Diluted 17.76 5.62 3.64 3.33 4.44 2.10 (7.81) 2.40) 0.92 4.06 5.40
Cash dividends 1.72 1.645 1.47 1.23 0.91 0.80 0.80 0.98 1.50 1.50 1.15
Common stock price range (NYSE)
High 61-7/16 33-3/8 24-47/64 21-53/64 23-1/4 21-61/64 16-15/64 12-17/32 16-5/16 18-51/64 18-17/64
Low 28-5/16 19-59/64 18-3/32 16-7/16 17-11/64 14-9/32 9-7/32 7-49/64 8-19/64 13-47/64 12-41/64
Average number of shares of
Common and Class B Stock
outstanding (in millions) 1,211 1,195 1,179 1,071 1,010 986 972 952 926 934 968
</TABLE>
- - - - - -
a/ 1989 includes an after-tax loss of $424 million from the sale of Rouge
Steel Company.
b/ 1994 includes an after-tax loss of $440 million from the sale of Granite
Savings Bank (formerly First Nationwide Bank).
c/ 1995 includes a gain of $230 million from the dissolution of Autolatina,
Ford's joint venture with Volkswagen AG in Brazil and Argentina.
d/ 1996 includes gains of $650 million on the sale of The Associates' common
stock and $95 million on the sale of USL Capital's assets, offset partially
by a net write-down of $233 million for Budget Rent a Car Corporation.
e/ 1997 includes a gain of $269 million on the sale of Hertz common stock.
f/ Share data have been adjusted to reflect stock dividends and stock splits.
Common stock price range (NYSE) has been adjusted to reflect The Associates
spin-off.
-32-
<PAGE>
Item 6. Selected Financial Data (Continued)
- --------------------------------------------
<TABLE>
<CAPTION>
SUMMARY OF OPERATIONS 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
(continued) ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Company Balance
Sheet Data at Year-End
Assets
Automotive Sector $ 88,744 $ 85,079 $ 79,658 $ 72,772 $ 68,639 $ 61,737 $ 57,170 $ 52,397 $ 50,824 $ 45,819 $ 43,128
Financial Services
Sector 148,801 194,018 183,209 170,511 150,983 137,201 123,375 122,032 122,839 115,074 100,239
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total assets $237,545 $279,097 $262,867 $243,283 $219,622 $198,938 $180,545 $174,429 $173,663 $160,893 $143,367
Long-term debt
Automotive Sector $ 8,713 $ 7,047 $ 6,495 $ 5,475 $ 7,103 $ 7,084 $ 7,068 $ 6,539 $ 4,553 $ 1,137 $ 1,336
Financial Services
Sector 55,468 73,198 70,641 68,259 58,104 47,900 42,369 43,680 40,779 37,784 30,777
Stockholders' equity g/ 23,409 30,734 26,762 24,547 21,659 15,574 14,753 22,690 23,238 22,728 21,529
Total Company Facility
and Tooling Data
Capital expenditures for
facilities (excluding
special tools) $ 5,109 $ 5,695 $ 5,362 $ 5,455 $ 5,236 $ 4,339 $ 3,613 $ 3,611 $ 4,702 $ 4,412 $ 3,148
Depreciation 11,393 10,404 9,519 8,954 7,207 5,456 4,658 3,956 3,185 2,720 2,458
Expenditures for special
tools 3,508 3,022 3,289 3,542 3,310 2,475 2,177 2,236 2,556 2,354 1,634
Amortization of special
tools 2,936 3,179 3,272 2,765 2,129 2,012 2,097 1,822 1,695 1,509 1,335
Total Company Employee
Data - Worldwide
Payroll $ 16,848 $ 17,187 $ 17,616 $ 16,567 $ 15,853 $ 13,750 $ 13,754 $ 12,850 $ 14,014 $ 13,327 $ 13,010
Total labor costs 25,731 25,546 25,689 23,758 22,985 20,065 19,850 17,998 18,962 18,152 18,108
Average number of employees 345,175 363,892 371,702 346,989 337,728 321,925 325,333 331,977 369,547 366,641 358,939
Total Company Employee
Data - U.S. Operations
Payroll $ 10,639 $ 10,840 $ 10,961 $ 10,488 $ 10,381 $ 8,889 $ 8,019 $ 7,393 $ 8,313 $ 8,654 $ 8,477
Average number of employees 173,899 189,787 189,718 186,387 180,861 166,995 158,501 156,203 180,228 188,402 185,651
Average hourly labor
costs h/
Earnings $ 24.30 $ 22.97 $ 22.30 $ 21.79 $ 21.81 $ 20.94 $ 19.92 $ 19.10 $ 18.44 $ 17.77 $ 17.39
Benefits 21.42 20.60 19.47 18.66 19.13 18.12 19.24 17.97 14.12 13.21 13.07
-------- -------- -------- ------- -------- -------- -------- -------- -------- -------- --------
Total hourly labor
costs $ 45.72 $ 43.45 $ 41.77 $ 40.45 $ 40.94 $ 39.06 $ 39.16 $ 37.07 $ 32.56 $ 30.98 $ 30.46
======== ======== ======== ======== ======== ======== ======== ======== ======== ======== ========
- - - - - -
</TABLE>
g/ The cumulative effects of changes in accounting principles reduced equity
by $6,883 million in 1992.
h/ Per hour worked (in dollars). Excludes data for subsidiary companies.
-33-
<PAGE>
Item 6. Selected Financial Data (Continued)
- --------------------------------------------
<TABLE>
<CAPTION>
SUMMARY OF VEHICLE UNIT SALES i/
(in thousands) 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
North America
United States
Cars 1,563 1,614 1,656 1,767 2,036 1,925 1,820 1,588 1,870 2,201 2,364
Trucks 2,425 2,402 2,241 2,226 2,182 1,859 1,510 1,253 1,416 1,517 1,537
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total United States 3,988 4,016 3,897 3,993 4,218 3,784 3,330 2,841 3,286 3,718 3,901
Canada 279 319 258 254 281 256 237 259 257 326 349
Mexico 103 97 67 32 92 91 126 112 89 87 63
----- ----- ----- ------ ----- ----- ----- ----- ----- ----- -----
Total North America 4,370 4,432 4,222 4,279 4,591 4,131 3,693 3,212 3,632 4,131 4,313
Europe
Britain 498 466 516 496 520 464 420 471 607 739 753
Germany 444 460 436 409 386 340 407 501 361 326 332
Italy 205 248 180 193 179 172 266 301 219 153 98
France 155 153 194 165 180 150 194 190 185 192 168
Spain 171 155 155 160 163 117 165 128 155 173 158
Other countries 377 318 339 286 281 250 270 296 289 296 290
----- ----- ----- ------ ----- ----- ----- ----- ----- ----- -----
Total Europe 1,850 1,800 1,820 1,709 1,709 1,493 1,722 1,887 1,816 1,879 1,799
Other international
Brazil 178 214 190 201 164 151 117 137 137 157 154
Australia 133 132 138 139 125 120 105 104 134 154 132
Argentina 97 147 64 48 54 49 49 26 18 25 30
Taiwan 77 79 86 106 97 122 119 107 115 115 88
Japan 25 40 52 57 50 53 64 83 99 82 60
Other countries 93 103 81 67 63 65 71 67 72 65 86
---- ----- ----- --- --- --- --- --- --- ---- ---
Total other
international 603 715 611 618 553 560 525 524 575 598 550
Total worldwide cars and
trucks 6,823 6,947 6,653 6,606 6,853 6,184 5,940 5,623 6,023 6,608 6,662
Total worldwide tractors j/ - - - - - - - 13 66 72 77
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total worldwide vehicle
unit sales 6,823 6,947 6,653 6,606 6,853 6,184 5,940 5,636 6,089 6,680 6,739
===== ===== ===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
- - - - - -
i/ Vehicle unit sales generally are reported worldwide on a "where sold"
basis and include sales of all Ford-badged units, as well as units
manufactured by Ford and sold to other manufacturers.
j/ Ford's tractor operation, Ford New Holland, was sold on May 6, 1991.
-34-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
- -------------------------------------------------------------------------
OVERVIEW
Our worldwide net income was $22,071 million in 1998, or $17.76 per diluted
share of Common and Class B Stock. This compares with the $6,920 million, or
$5.62 per diluted share, we earned in 1997. Our 1998 net income includes
earnings of $177 million from The Associates through March 12, 1998 and a
one-time, non-cash gain of $15,955 million that resulted from our spin-off of
The Associates. Excluding these amounts related to The Associates, our net
income would have been $5,939 million, or $4.72 per diluted share of Common and
Class B Stock, compared with 1997 net income (excluding The Associates earnings)
of $6,088 million, or $4.94 per diluted share.
Our 1998 net income also includes the following other one-time charges
totaling $631 million, which we incurred in the fourth quarter:
- - $472 million for employee early retirement and separation programs,
- - $86 million for writing off our net exposure in Kia Motors Company, and
- - $73 million relating to the transfer of our Batavia, Ohio transmission
plant to a new joint venture company formed by us and ZF
Friedrichshafen AG to manufacture continuously variable transmissions.
In addition, our earnings per share in 1998 were reduced by $0.07 for the
premium paid to repurchase our Series B preferred stock. For more details
regarding one-time charges see Note 15 (pages FS-28 and FS-29) of our Notes to
Financial Statements.
Our worldwide revenues were $144.4 billion in 1998, down $9.2 billion from
1997. We sold 6,823,000 cars and trucks in 1998, down 124,000 units from 1997.
Our stockholders' equity was $23.4 billion at December 31, 1998, down $7.3
billion compared with December 31, 1997. This reduction primarily was a result
of The Associates spin-off.
FOURTH QUARTER 1998 RESULTS OF OPERATIONS
In the fourth quarter of 1998, we earned $1,043 million, or $0.84 per
diluted share of Common and Class B Stock, compared with $1,796 million, or
$1.45 per diluted share, in the fourth quarter of 1997. The one-time charges
discussed above and the absence of earnings from The Associates in the fourth
quarter of 1998 more than account for the earnings decline. Excluding one-time
charges, our fourth quarter 1998 earnings would have been $1,674 million, or
$1.35 per diluted share, compared with earnings (excluding The Associates) of
$1,572 million, or $1.27 per diluted share, in 1997.
-35-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Details of our Automotive sector earnings for the fourth quarter of 1998
and 1997 are shown below (in millions):
<TABLE>
<CAPTION>
Fourth Quarter
Net Income/(Loss)
---------------------------------------
1998
O/(U)
1998 1997 1997
---------- ----------- -----------
<S> <C> <C> <C>
North American Automotive $1,047 $1,353 $ (306)
Automotive Outside North America
- Europe (74) 158 (232)
- South America (151) (71) (80)
- Rest of World (2) (99) 97
------ ------ -------
Total Automotive Outside
North America (227) (12) (215)
------ ------ ------
Total Automotive Sector $ 820 $1,341 $ (521)
====== ====== ======
</TABLE>
The decline in our fourth quarter 1998 Automotive sector earnings in North
America is more than explained by one-time charges of $363 million. Without the
one-time charges, our results in North America would have improved over our
fourth quarter 1997 earnings by $57 million, reflecting primarily higher sales
volume, offset partially by higher marketing costs.
The decline in our fourth quarter Automotive sector earnings in Europe
reflects one-time charges of $137 million, lower volume and costs associated
with the Focus car line launch, offset partially by cost reductions. The
earnings decline in South America was caused by one-time charges and the
deteriorating economy in Brazil.
Details of our Financial Services sector earnings for the fourth quarter of
1998 and 1997 are shown below (in millions):
<TABLE>
<CAPTION>
Fourth Quarter
Net Income/(Loss)
-------------------------------------
1998
O/(U)
1998 1997 1997
---------- ----------- ---------
<S> <C> <C> <C>
Ford Credit $234 $218 $ 16
Hertz 48 35 13
Minority Interests, Eliminations,
and Other (excluding
The Associates) (59) (22) (37)
---- ---- -----
Financial Services (excluding
The Associates) 223 231 (8)
The Associates - 278 (278)
The Associates Minority Interest - (54) 54
---- ---- -----
Total Financial Services
Sector $223 $455 $(232)
==== ==== =====
Memo: Ford's share of earnings in
The Associates $ - $224 $(224)
Hertz 39 28 11
</TABLE>
Our Financial Services sector had lower fourth quarter 1998 earnings primarily
because, unlike in the fourth quarter of 1997, they did not include earnings
from The Associates.
-36-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
FULL-YEAR 1998 RESULTS OF OPERATIONS
Details of our full-year Automotive sector earnings for 1998, 1997 and 1996
are shown below (in millions):
<TABLE>
<CAPTION>
Full-Year
Net Income/(Loss)
-------------------------------------
1998 1997 1996
---------- ---------- ---------
<S> <C> <C> <C>
North American Automotive $4,612 $4,434 $2,255
Automotive Outside North America
- Europe 193 273 (291)
- South America (226) 40 (642)
- Rest of World 173 (33) 333
------ ------ ------
Total Automotive Outside
North America 140 280 (600)
------ ------ ------
Total Automotive Sector $4,752 $4,714 $1,655
====== ====== ======
</TABLE>
Details of our full-year Financial Services sector earnings for 1998, 1997
and 1996 are shown below (in millions):
<TABLE>
<CAPTION>
Full-Year
Net Income/(Loss)
-------------------------------------
1998 1997 1996
---------- ----------- ---------
<S> <C> <C> <C>
Ford Credit $ 1,084 $1,031 $1,441
Hertz 277 202 159
USL Capital - - 191
One-Time Actions
- Gain on Sale of Common Stock
of The Associates and Hertz - 269 650
- Sale of USL Capital Assets - - 95
- Budget Rent a Car Write-down - - (233)
Minority Interests, Eliminations,
and Other (174) (128) (257)
------- ----- ------
Financial Services (excluding
The Associates) 1,187 1,374 2,046
The Associates 220* 1,032 857
The Associates Minority Interest (43) (200) (112)
Gain on the Spin-off of
The Associates 15,955 - -
------- ----- ------
Total Financial Services Sector $17,319 $2,206 $2,791
======= ====== ======
Memo: Ford's share of earnings in
----------------------------------
The Associates $ 177* $ 832 $ 745
Hertz 224 168 159
- - - - -
*Through March 12, 1998
</TABLE>
-37-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
1998 COMPARED WITH 1997
Automotive Sector
- -----------------
Worldwide earnings for our Automotive sector were $4,752 million in 1998 on
sales of $119.1 billion, compared with $4,714 million in 1997 on sales of $122.9
billion. Excluding one-time charges, our Automotive sector earnings were $5,377
million in 1998 compared with $4,883 million in 1997. The 1997 one-time charge
was for restructuring actions in the second quarter. The increase in operating
earnings reflects primarily continued cost reductions and improved vehicle mix,
offset partially by lower volume and higher marketing costs. Adjusted for
constant volume and mix, our total costs in the Automotive sector declined $2.2
billion compared with 1997.
Our Automotive sector earnings in North America were $4,612 million in 1998
on sales of $87 billion, compared with $4,434 million in 1997 on sales of $89
billion. Excluding one-time charges, earnings were $4,975 million, up $416
million compared with a year ago. The increase reflects primarily continued cost
reductions and improved vehicle mix, offset partially by lower volumes and
higher marketing costs. The after-tax return on sales for our North American
Automotive sector was 5.3% in 1998. Excluding one-time charges, after-tax return
on sales was 5.8%, up 6/10 of a percentage point from 1997.
In 1998, 16 million new cars and trucks were sold in the United States, up
from 15.5 million units in 1997. Our share of those unit sales was 24.6% in
1998, down 4/10 of a percentage point, more than explained by the
discontinuation of low margin vehicle lines.
Our Automotive sector earnings in Europe were $193 million in 1998, $80
million worse than a year ago. The deterioration reflected higher restructuring
costs, lower export sales and costs associated with the Focus car line launch,
offset partially by cost reductions.
In 1998, 16.1 million new cars and trucks were sold in Europe, up from 15
million units in 1997. Our share of those unit sales was 10.3% in 1998, down 1.1
percentage points from a year ago. In the fourth quarter of 1998, our market
share in Europe was 9.4%, down 1.7 percentage points. Our market share declined
because of intense competitive conditions in Europe and limited availability of
our new Focus car line during its launch.
Our Automotive sector in South America lost $226 million in 1998, compared
with a profit of $40 million in 1997. The decline was the result of lower volume
and revenue resulting from weak economic conditions and charges we incurred for
employee reductions, offset partially by lower costs. We reduced production in
Brazil and Argentina in the fourth quarter because of anticipated weaker demand
in those markets in 1999.
In 1998, 1.6 million new cars and trucks were sold in Brazil, compared with
1.9 million in 1997. Our share of those unit sales was 13.1% in 1998, down 1.2
percentage points from a year ago. In the fourth quarter of 1998, our market
share in Brazil declined to 11.8%, down 5 percentage points. These declines in
market share reflect new product entries from other manufacturers and an
increasingly competitive market.
Our Visteon operations, included in our Automotive sector, earned $712
million on revenues of $17,762 million in 1998, compared with $518 million on
revenues of $17,220 million in 1997. This earnings improvement reflects
primarily cost reductions and increased revenue. Visteon's after-tax return on
sales in 1998 was 4.0%, up one percentage point compared with the prior year.
-38-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Financial Services Sector
- -------------------------
Earnings of our Financial Services sector consist primarily of two
segments, Ford Credit and Hertz. In 1998 we spun-off The Associates to our
shareholders, resulting in a $15,955 million gain to Ford. For details of the
spin-off see Note 15 (page FS-29) of our Notes to Financial Statements.
Ford Credit's consolidated net income in 1998 was $1,084 million, up $53
million or 5% from 1997. Compared with 1997, the increase in full-year earnings
primarily reflects improved credit loss performance, higher gains on receivable
sales, lower effective tax rates and higher financing volumes, offset partially
by lower net financing margins and higher operating costs. Lower financing
margins reflect higher depreciation expense for leased vehicles as a result of
lower-than-anticipated residual values.
Earnings at Hertz in 1998 were $277 million (of which $224 million was
Ford's share). In 1997, Hertz had earnings of $202 million (of which $168
million was Ford's share). The increase in earnings reflects primarily higher
revenues and improved profit margins in worldwide car rental operations.
Review of 1998 Financial Targets
- --------------------------------
We set and communicated the financial targets listed below for 1998. Our
results against these targets also are listed below.
<TABLE>
<CAPTION>
Full-Year 1998 Target 1998 Result
----------------------------- ----------------------------
<S> <C> <C>
Automotive Sector
-----------------
- North America 5% return on sales 5.3% return on sales
- Europe Profitable $193 million profit
- South America Breakeven $226 million loss
- Total Costs Down $1 billion from 1997 down $2.2 billion
(at constant volume and mix)
- Capital Spending Lower than 1997 $29 million lower
- Visteon $1.5 billion in new business $2.3 billion in new business
Improve return on sales 1 percentage point improvement
Financial Services Sector
-------------------------
- Ford Credit Grow earnings 10%+ Up 5%
- Hertz Record earnings Record
(Up $75 million from 1997)
</TABLE>
The Automotive sector in South America did not meet its target to break
even as the result of lower volume and revenue resulting from weak economic
conditions and charges we incurred for employee reductions. Ford Credit's
shortfall to achieve the target to grow earnings by 10% reflected primarily the
impact of lower-than-anticipated residual values.
-39-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
1997 COMPARED WITH 1996
Automotive Sector
- -----------------
Our Automotive sector earnings in North America were a record $4,434
million in 1997, up $2,179 million from 1996. The increase reflected higher
margins from ongoing cost, quality, and vehicle mix improvements. Adjusted for
constant volume and mix, total Automotive costs declined $3 billion in 1997. The
after-tax return on sales was 5.1% in 1997, up 2.3 percentage points from 1996.
The U.S. economy continued on a path of strong growth, low unemployment,
and moderate inflation in 1997. In 1997, 15.5 million new cars and trucks were
sold, about the same level as 1996. Ford's share of those unit sales was 25%,
down 2/10 of a percentage point from 1996.
Our Automotive sector operations in Europe returned to profitability in
1997 with earnings of $273 million, compared with a loss of $291 million in
1996. The improvement reflected primarily lower operating costs (at constant
volume and mix), offset partially by lower volume.
In 1997, 15 million new cars and trucks were sold, compared with 14.3
million units in 1996. Ford's share was 11.4%, down 4/10 of a percentage point
from 1996.
Our Automotive sector operations in South America were profitable, earning
$40 million in 1997, compared with a loss of $642 million in 1996. Higher
earnings reflected primarily improved volume and mix, and lower material costs
(at constant volume and mix). In 1997, 1.9 million new cars and trucks were sold
in Brazil (the largest market in South America). Ford's share of those unit
sales was 14.3% in 1997, up 4.3 percentage points from 1996.
Financial Services Sector
- -------------------------
Earnings for the Financial Services sector in 1997 were down $585 million,
compared with 1996. Excluding the one-time actions in 1997 and 1996 shown
previously, results from operations in 1997 were down $342 million from 1996.
Lower earnings at Ford Credit in 1997, compared with 1996, resulted
primarily from lower net financing margins, higher credit losses and loss
reserve requirements, and a higher effective tax rate; improved operating costs
and higher financing volumes were a partial offset. Net financing margins
decreased from 1996, reflecting higher depreciation costs on leased vehicles (as
a result of lower-than-anticipated residuals). Credit losses as a percent of
average net finance receivables (including net investment in operating leases)
were 0.89% in 1997, compared with 0.78% in 1996, reflecting higher losses per
repossession.
Record earnings at The Associates reflected primarily higher levels of
earning assets and improved net interest margins, offset partially by higher
credit losses. Credit losses as a percent of average net finance receivables
were 2.40% in 1997, compared with 2.03% in 1996.
Record earnings at Hertz reflected continued strong performance in the U.S.
car rental market both in terms of increased transaction volume and more
favorable pricing.
-40-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
LIQUIDITY AND CAPITAL RESOURCES
Automotive Sector
- -----------------
At December 31, 1998, our Automotive sector had $23.8 billion of cash and
marketable securities, up $3.0 billion from December 31, 1997. This increase
occurred even though we paid a total of $2.1 billion in regular cash dividends
on our Common Stock, Class B Stock and Preferred Stock during 1998, and paid a
special cash dividend of $3.2 billion related to The Associates spin-off.
In 1998, we spent $8.1 billion for capital goods, such as machinery,
equipment, tooling and facilities, used in our Automotive sector. This is down
$29 million from 1997. Capital expenditures were 6.8% of sales in 1998, up 2/10
of a percentage point from a year ago.
At December 31, 1998, our Automotive sector had total debt of $9.8 billion.
This amount was 30% of our total capitalization (that is, the sum of our
stockholders' equity and Automotive debt) at the end of 1998, compared with 21%
of total capitalization at year-end 1997.
Financial Services Sector
- -------------------------
The Associates spin-off primarily explains the declines discussed below.
At December 31, 1998, our Financial Services sector had cash and marketable
securities totaling $2.1 billion, down $1.7 billion from December 31, 1997.
Net receivables and lease investments were $132.6 billion at December 31,
1998, down $43 million from December 31, 1997.
Total debt was $122.3 billion at December 31, 1998, down $37.8 billion from
December 31, 1997.
Outstanding commercial paper at December 31, 1998 totaled $46.2 billion at
Ford Credit, and $2.3 billion at Hertz, with an average remaining maturity of 30
days and 52 days, respectively.
For a discussion of the credit and other financial support facilities for
our Automotive and Financial Services sectors at December 31, 1998, see Note 9
(pages FS-22 and FS-23) of our Notes to Financial Statements.
-41-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
YEAR 2000 DATE CONVERSION
General
- -------
An issue affecting Ford and others is the inability of many computer
systems and applications to process the year 2000 and beyond ("Y2K"). To address
this problem, in 1996, we initiated a global Y2K program to manage Ford's
overall Y2K compliance effort. As part of this program, we established a global
Central Program Office to coordinate our Y2K compliance efforts. We also have
established a Y2K Steering Committee comprised of senior executives to address
compliance issues. Ford's Y2K program has been certified by the Information
Technology Association of America as meeting its Y2K best practices standards.
State of Readiness
- ------------------
We achieved all compliance objectives that we set for ourselves for 1998,
including interim 1998 objectives. We expect to complete most of the remaining
remediation efforts by the end of June 1999, with the rest completed in the
third quarter of 1999. We have identified the following ten distinct areas for
Ford's Y2K compliance efforts:
Business Computer Systems: These include computer systems and applications
relating to operations such as financial reporting, human resources,
manufacturing, marketing and sales (including vehicle ordering), product
engineering and design, purchasing, and treasury. In 1997 we implemented a
compliance plan focused on critical systems. By year-end 1998, all critical
systems had been repaired, tested, independently verified and implemented into a
production environment. In addition, we initiated an enterprise test plan for
all key business processes in November 1998. As of February 28, 1999, 86% of all
business computer systems were Y2K compliant.
Plant Floor Equipment: We have implemented a process to assess equipment
and machinery in our 180 manufacturing and assembly plants and parts warehouse
facilities. We have implemented strategies to repair, replace, or develop
contingency plans for all non-compliant hardware and software. As of February
28, 1999, 92% of our plant floor systems were Y2K compliant, and 85% of those
systems that are critical were Y2K compliant.
Suppliers: Ford has deployed, in conjunction with an industry trade
association (the Automotive Industry Action Group), a process to pursue a common
Y2K compliance approach with the automotive supply industry in North America.
Similar actions are underway in Europe and the rest of the world. Y2K awareness
and educational sessions have been made available to first, second, and third
tier suppliers. Ford does business with approximately 5,000 vehicle production
and critical non-production suppliers. We have asked each of these suppliers to
respond to a Y2K compliance questionnaire, and a majority of them have done so.
Based on these responses, the criticality of the product or service being
supplied and other factors, during 1999 we will selectively audit Y2K compliance
of our suppliers.
Vehicle Components: Although testing continues, we have determined that the
Y2K problem does not affect the onboard computer systems in our vehicles. The
functionality of these systems is based generally on engine cycles or the time
elapsed since the vehicle was started, not any particular date. We have surveyed
suppliers of microprocessors and embedded system assemblies, and no problems
have been identified to date. Recent internal global surveys to all Ford
employees have substantiated these findings.
-42-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Affiliates: Ford Credit, Hertz, and our other consolidated subsidiaries, as
well as our non-consolidated joint ventures, have developed plans to address Y2K
compliance similar to those of Ford. We have contacted and are monitoring over
200 affiliates to ensure plans are in place to achieve timely Y2K compliance.
Product Development Test Equipment: This includes equipment and systems for
testing vehicle emissions, safety and performance. We are working with suppliers
to replace our non-compliant systems with common global test systems where
needed. As of February 28, 1999, 45% of our product development test systems
were Y2K compliant, and 63% of those systems that are critical were Y2K
compliant.
End-User Computing: Desktop computers are used throughout Ford. Our plans
to make these computers Y2K compliant include the replacement or repair of all
non-compliant computers and related software, distribution of an assessment tool
for end-user developed applications and the training of over 700 end-user
program coordinators worldwide. As of February 28, 1999, 57% of critical
end-user programs were Y2K compliant.
Technical Infrastructure: We established a dedicated testing facility to
repair and test our critical systems infrastructures, such as wide area
networks, local area networks, electronic data centers, and e-mail systems. As
of February 28, 1999, 75% of our hardware, software and global communications
network were Y2K compliant.
Dealers: We are handling the compliance of all Ford-developed dealer
systems, such as vehicle and parts ordering systems. Dealer compliance efforts
with respect to other systems are being monitored by us through various dealer
service providers.
Physical Properties and Infrastructures: We have assessed the impact of Y2K
on all building systems globally in two phases. Phase I included energy
management, fire, and security systems in our production facilities. We are
correcting problems where required. Phase II of the program has expanded to
include leased office facilities. These facilities have minimal Y2K issues. As
of February 28, 1999, 82% of our plant, engineering support and owned office
building systems were Y2K compliant. We are also confirming the Y2K preparedness
of our energy and other utility suppliers.
On the next page is a timetable showing Ford's internal target dates for
compliance and the status of compliance (at February 28, 1999) for each of the
areas mentioned above. We established these target dates before December 31,
1999 to allow sufficient time to perform enterprise-wide testing and further
validation of our Y2K compliance.
-43-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
<TABLE>
<CAPTION>
Year 2000 Program Timing
Status as of February 28, 1999
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Business Computer Systems ---Plan: 100% compliant by 6/99----------------
Status: 86%(a)
Plant Floor Equipment ---Plan: 100% compliant by 6/99-----------
Status: 92%(b)
Production and
Critical Non-Production Suppliers ---Plan: 100% ready (c) by 6/99------------
Status: 88%
Vehicle Components ---Plan: 100% compliant by 6/99----------------
Status: 100%
Affiliates ---Plan: 100% ready (c) by 6/99-----------
Status: 88%
PD Test Equipment ---Plan: 100% compliant by 6/99-------
Status: 45%(d)
Critical End-User Computing ---Plan: 100% compliant by 6/99----------------
Status: 57%
Technical Infrastructure ---Plan: 100% compliant by 6/99------------------
Status: 75%
Dealers ---Plan: 100% ready (c) by 9/99----------------
Status: 78%
Physical Properties and
Infrastructure ---Plan: 100% compliant by 6/99----------
Status: 82%
- -----------------
(a) 100% of critical business computer systems were compliant at year-end 1998.
(b) 85% of critical plant floor equipment was compliant at February 28, 1999.
(c) "Ready" means having a comprehensive Y2K program in place and a plan that
will achieve compliance before January 1, 2000.
(d) 63% of critical PD test equipment was compliant at February 28, 1999.
</TABLE>
-44-
<PAGE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Y2K Costs
- ---------
We estimate that we will spend about $375 million for our Y2K compliance
efforts. We will incur this amount over about a three-year period that commenced
mid-1997 and will end mid-2000. Y2K compliance costs incurred through December
31, 1998 were about $155 million. Our annual Y2K costs relating to information
technology have represented and are expected through year-end 2000 to represent
about 10% of our total annual information technology budget.
Y2K Risks
- ---------
The most reasonably likely worst case scenario for Ford with respect to the Y2K
problem is the failure of a supplier, including an energy supplier, to be Y2K
compliant such that its supply of needed products or services to a Ford or
supplier manufacturing facility is interrupted temporarily. This could result in
Ford not being able to produce one or more vehicle lines for a period of time,
which in turn could result in lost sales and profits. We are monitoring the
preparedness of utility suppliers to ensure plans are in place for uninterrupted
service.
Y2K Contingency Plans
- ---------------------
We have established a Y2K business resumption planning committee to evaluate
business disruption scenarios, coordinate the establishment of Y2K contingency
plans, and identify and implement preemptive strategies. The committee will
develop detailed contingency plans for critical business processes by the end of
March 1999 and will validate those plans by the end of June 1999.
EURO CONVERSION
A single currency called the euro was introduced in Europe on January 1, 1999.
Eleven of the fifteen member countries of the European Union adopted the euro as
their common legal currency as of that date. Fixed conversion rates between
these participating countries' existing currencies (the "legacy currencies") and
the euro were established as of that date. The legacy currencies will remain
legal tender as denominations of the euro until at least January 1, 2002 (but
not later than July 1, 2002). During this transition period, parties may settle
transactions using either the euro or a participating country's legacy currency.
The increased price transparency resulting from the use of a single currency in
the eleven participating countries may affect the ability of Ford and other
companies to price their products differently in the various European markets. A
possible result of this is price harmonization at lower average prices for
products sold in some markets. Nevertheless, differences in national value added
tax regimes, national vehicle registration taxes, customer preferences for
equipment and options, sizes and types of vehicles and engines, and trade-in
values may reduce the potential for price harmonization.
Introduction of the euro may reduce the amount of Ford's exposure to changes in
foreign exchange rates, due to the netting effect of having assets and
liabilities denominated in a single currency as opposed to the various legacy
currencies. As a result, our foreign exchange hedging costs could be reduced.
Conversely, because there will be less diversity in our exposure to foreign
currencies, movements in the euro's value in U.S. dollars could have a more
pronounced effect, whether positive or negative, on us.
-45-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
We have budgeted up to $50 million (including contingencies) for the period
from 1997 through 2003 to cover the worldwide costs of preparing for and making
operational changes to accommodate introduction of the euro. Certain of our
business functions have introduced euro-capability as of January 1, 1999,
including, for example, systems for making and receiving certain payments,
pricing and invoicing. Other business functions will be converted for the euro
by the end of the transition period (December 31, 2001), but may be converted
earlier where operationally efficient or cost-effective, or to meet customer
needs.
DISSOLUTION OF AUTOEUROPA JOINT VENTURE
Effective January 1, 1999, our joint venture with Volkswagen AG in Portugal
(AutoEuropa) was dissolved. This action will improve our first quarter 1999
after-tax results by approximately $165 million. Prior to the dissolution, we
held a 50% interest in AutoEuropa and accounted for it on an equity basis.
VOLVO
On March 1, 1999, we entered into a definitive agreement with AB Volvo for
the purchase of Volvo's worldwide passenger car business for a price of $6.45
billion. On March 8, 1999, AB Volvo's shareholders approved the transaction. The
transaction will close following receipt of regulatory approvals.
ROUGE COMPLEX
On February 1, 1999, an explosion occurred at the powerhouse of the Rouge
Complex in Dearborn, Michigan, completely halting production at the powerhouse.
Thirty-one people were injured or died as a result of this accident. The
powerhouse supplied energy and steam to the entire Rouge Complex. We own part of
the powerhouse and have manufacturing plants and an assembly plant located
within the Complex. Those plants supply products to various Ford manufacturing
and assembly plants worldwide. Through alternative sources of power we have
resumed normal production at all of our manufacturing and assembly plants in the
Rouge Complex. A significant supplier of steel to us also is located in the
Rouge Complex. We do not know when that supplier will be able to fully resume
its production. In the interim, we have implemented contingency plans for
temporary alternative sources of steel. We have insurance, including business
interruption coverage, which should limit the financial impact from the
accident.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 131 ("SFAS 131"),
"Disclosures about Segments of an Enterprise and Related Information," was
issued by the Financial Accounting Standards Board in June 1997. We adopted SFAS
131 effective with the 1998 financial statements.
Statement of Financial Accounting Standards No. 132 ("SFAS 132"),
"Employers' Disclosures about Pensions and Other Postretirement Benefits," was
issued by the Financial Accounting Standards Board in February 1998. We adopted
SFAS 132 effective with the 1998 financial statements.
-46-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," was issued by the American
Institute of Certified Public Accountants in March 1998. This SOP provides
guidance on accounting for the costs of computer software developed or obtained
for internal use, and requires capitalization of certain internal-use computer
software costs. We will adopt this SOP for costs incurred beginning January 1,
1999. Adoption of this standard is expected to improve full-year 1999 after-tax
results by an estimated $220 million.
Statement of Financial Accounting Standards No. 133 ("SFAS 133"),
"Accounting for Derivative Instruments and Hedging Activities," was issued by
the Financial Accounting Standards Board in June 1998. This Statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires recognition of all derivatives as either assets
or liabilities on the balance sheet and measurement of those instruments at fair
value. If certain conditions are met, a derivative may be designated
specifically as (a) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment referred to as
a fair value hedge, (b) a hedge of the exposure to variability in cash flows of
a forecasted transaction (a cash flow hedge), or (c) a hedge of the foreign
currency exposure of a net investment in a foreign operation, an unrecognized
firm commitment, an available-for-sale security, or a forecasted transaction. We
anticipate having each of these types of hedges, and we will comply with the
requirements of SFAS 133 when we adopt it. We expect to adopt SFAS 133 beginning
January 1, 2000. We have not yet determined the effect of adopting SFAS 133.
OUTLOOK
Industry Sales Volumes
- ----------------------
Our outlook for car and truck industry sales in 1999 in our major markets
is as follows:
United States - between 15.5 to 16 million units, compared with
the 16 million units sold in 1998
Europe - lower than the 16.1 million units sold in 1998
Brazil - substantially lower than the 1.6 million units
sold in 1998
-47-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
1999 Financial Targets
- ----------------------
Ford's management has set and communicated certain financial targets for
1999. While we hope to achieve these goals, they should not be interpreted as
projections, expectations or forecasts of 1999 results. The financial targets
for 1999 are as follows:
<TABLE>
<CAPTION>
Automotive Sector Full-Year 1999 Target
----------------- --------------------------------------------------------------
<S> <C>
- North America After-tax return on sales greater than 5%
- Europe Grow earnings
- South America Improve operating results*
- Total Costs Down $1 billion from 1998 (at constant volume and mix)
- Capital Spending $8.5 billion (includes capitalized software)
- Visteon Grow earnings; obtain $2 billion of new business
Financial Services Sector
-------------------------
- Ford Credit Grow earnings by 10%
- Hertz Record earnings (eighth consecutive year of increased earnings)
Total Company
-------------
- Total shareholder returns Top quartile of the S&P 500 over time
</TABLE>
--------------------
* Because the Brazilian market has deteriorated more than expected in
the first quarter of 1999, our current forecast is for worse operating
results.
RISK FACTORS
Statements included in this Report may constitute "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements involve a number of risks, uncertainties, and other
factors that could cause actual results to differ materially from those stated,
including, without limitation: greater price competition in the U.S. and Europe
resulting from currency fluctuations or industry overcapacity; a significant
decline in U.S. or European industry sales resulting from slowing economic
growth; currency fluctuations; further economic difficulties in South America,
including those resulting from Brazilian government austerity programs; a market
shift from truck sales in the U.S.; lower-than-anticipated residual values for
leased vehicles; problems relating to the Y2K issue; increased safety or
emissions regulation resulting in higher costs and/or sales restrictions; work
stoppages at key Ford or supplier facilities; and the discovery of defects in
vehicles resulting in recall campaigns, increased warranty costs or litigation.
-48-
<PAGE>
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
- --------------------------------------------------------------------
Ford is exposed to a variety of market risks, including the effects of
changes in foreign currency exchange rates, interest rates and commodity prices.
- Our Automotive sector frequently has expenditures denominated in
foreign currencies, including the following: purchases and sales
of finished vehicles and production parts; debt and other
payables; subsidiary dividends; and investments in subsidiaries.
These expenditures create exposures to changes in exchange rates.
- We also are exposed to changes in prices of commodities used in
our Automotive sector.
- To ensure funding over business and economic cycles and to
minimize overall borrowing costs, our Financial Services sector
issues debt and other payables with various maturity and interest
rate structures. The maturity and interest rate structures
frequently differ from the invested assets. Exposures to
fluctuations in interest rates are created by the difference in
maturities of liabilities versus the maturities of assets.
We monitor and manage these financial exposures as an integral part of our
overall risk management program, which recognizes the unpredictability of
financial markets and seeks to reduce the potentially adverse effect on our
results. The effect of changes in exchange rates, interest rates and commodity
prices on our earnings generally has been small relative to other factors that
also affect earnings, such as unit sales and operating margins. For more
information on these financial exposures, see Note 1 (pages FS-9 and FS-10) and
Note 14 (pages FS-26 and FS-27) of our Notes to Financial Statements.
Our interest rate risk and foreign currency exchange rate risk are
quantified below. Our risks related to commodity derivative positions are not
material.
Interest Rate Risk -- We use interest rate swaps (including those with
a currency swap component) primarily at Ford Credit to mitigate the
effects of interest rate fluctuations on earnings by changing the
characteristics of debt to match the characteristics of assets. All
interest rate swap agreements are designated to hedge either a specific
debt issue or pool of debt. We use a model to assess the sensitivity of
our earnings to changes in market interest rates. The model
recalculates earnings by adjusting rates associated with variable rate
instruments on the repricing date and by adjusting rates on fixed rate
instruments scheduled to mature in the subsequent twelve months,
effective on their scheduled maturity date. Interest income and
interest expense are then recalculated based on the revised rates.
Assuming an instantaneous increase or decrease of one percentage point
in interest rates applied to all financial instruments and leased
assets, our after-tax earnings would change by $23 million over a
12-month period.
-49-
<PAGE>
Item 7A. Quantitative and Qualitative Disclosures About Market Risk (Continued)
Foreign Currency Risk - We use derivative financial instruments to
hedge assets, liabilities and firm commitments denominated in foreign
currencies. We use a value-at-risk (VAR) analysis to evaluate our
exposure to changes in foreign currency exchange rates. The primary
assumptions used in the VAR analysis are as follows:
- A historical time series analysis (variance/covariance) is used to
calculate changes in the value of currency derivative instruments
(forwards and options) and all significant underlying exposures.
The VAR includes an 18-month exposure horizon and a one-month
holding period.
- The VAR analysis calculates the potential risk, within a 99%
confidence level, on firm commitment exposures (cash flows),
including the effects of foreign currency derivatives.
(Translation exposures are not included in the VAR analysis). The
model generally assumes currency prices are normally distributed
and draws volatility data from the currency markets.
- Estimates of correlations of market factors primarily are drawn
from the JP Morgan RiskMetricsTM datasets.
Based on our overall currency exposure (including derivative positions)
during 1998, the risk during 1998 to our pre-tax cash flow from
currency movements was on average less than $300 million, with a high
of $350 million and a low of $200 million. At December 31, 1998,
currency movements are projected to affect our pre-tax cash flow over
the next 18 months by less than $325 million, within a 99% confidence
level. Compared with our projection at December 31, 1997, the 1998 VAR
amount is approximately $75 million higher, primarily because of
increased currency exchange rate volatility and increased exposure.
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
Our Financial Statements, the accompanying Notes and the Report of
Independent Accountants that are filed as part of this Report are listed under
Item 14. "Exhibits, Financial Statement Schedules, and Reports on Form 8-K" and
are set forth on pages FS-1 through FS-33 immediately following the signature
pages of this Report.
Selected quarterly financial data for us and our consolidated subsidiaries
for 1998 and 1997 is in Note 18 of our Notes to Financial Statements.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
- --------------------------------------------------------------------------
Not required.
-50-
<PAGE>
PART III
Item 10. Directors and Executive Officers of Ford
- --------------------------------------------------
The information required by Item 10 regarding our directors is incorporated
by reference from the information under the captions "Election of Directors" and
"Management Stock Ownership" in our Proxy Statement. The information required by
Item 10 regarding our executive officers appears as Item 4A under Part I of this
Report.
Item 11. Executive Compensation
- --------------------------------
The information required by Item 11 is incorporated by reference from the
information under the following captions in our Proxy Statement: "Compensation
of Directors", "Compensation and Option Committee Report on Executive
Compensation", "Compensation of Executive Officers", "Stock Options",
"Performance Stock Rights and Restricted Stock Units", "Stock Performance
Graphs" and "Retirement Plans".
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
The information required by Item 12 is incorporated by reference from the
information under the caption "Management Stock Ownership" in our Proxy
Statement.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
The information required by Item 13 is incorporated by reference from the
information under the caption "Certain Relationships and Related Transactions"
in our Proxy Statement.
-51-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- --------------------------------------------------------------------------
(a) 1. Financial Statements - Ford Motor Company and Subsidiaries
- -------------------------------------------------------------------
Consolidated Statement of Income for the years ended December 31,
1998, 1997 and 1996.
Consolidated Balance Sheet at December 31, 1998 and 1997.
Consolidated Statement of Cash Flows for the years ended December
31, 1998, 1997 and 1996.
Consolidated Statement of Stockholders' Equity for the years ended
December 31, 1998, 1997 and 1996.
Notes to Financial Statements
Report of Independent Accountants
The Consolidated Financial Statements, the Notes to Financial Statements
and the Report of Independent Accountants listed above are filed as part of this
Report and are set forth on pages FS-1 through FS-33 immediately following the
signatures pages of this Report.
(a) 2. Financial Statement Schedules
- --------------------------------------
Designation Description
- ----------- -----------
Supplemental
Schedule Condensed Financial Information of Subsidiary
Report of Independent
Accountants on
Supplemental Schedule
The Financial Statement Schedule and the Report of Independent Accountants
on Supplemental Schedule listed above are filed as part of this Report and are
set forth on pages FSS-1 and FSS-2 immediately following page FS-33. The
schedules not filed are omitted because the information required to be contained
in them is disclosed elsewhere in the Financial Statements or the amounts
involved are not sufficient to require submission.
-52-
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
(a) 3. Exhibits
- ---------------
<TABLE>
<CAPTION>
Designation Description Method of Filing
- ----------- ----------- ----------------
<S> <C> <C>
Exhibit 3-A Restated Certificate of Incorporation, Filed as Exhibit 3.1 to Ford's Quarterly
dated April 9, 1998. Report on Form 10-Q for the quarter
ended March 31, 1998.*
Exhibit 3-B By-Laws as amended through January 1, 1999. Filed with this Report.
Exhibit 4 Form of Deposit Agreement dated as of Filed as Exhibit 4-E to Ford's
October 29, 1992 among Ford, Chemical Registration Statement No. 33-53092.*
Bank, as Depositary, and the holders from
time to time of Depositary Shares, each
representing 1/2,000 of a share of Ford's
Series B Cumulative Preferred Stock.
Exhibit 10-A Amended and Restated Profit Filed with this Report.
Maintenance Agreement, dated as of
January 1, 1999, between Ford
and Ford Credit.
Exhibit 10-B 1985 Stock Option Plan.** Filed as Exhibit 10-D to Ford's
Annual Report on Form 10-K for the
year ended December 31, 1985.*
Exhibit 10-B-1 Amendment dated as of March 8, 1990 Filed as Exhibit 10-C-1 to Ford's
to 1985 Stock Option Plan.** Annual Report on Form 10-K for
the year ended December 31, 1989.*
Exhibit 10-B-2 Amendment to 1985 Stock Option Plan, Filed as Exhibit 4.C to Amendment No.
effective as of January 8, 1998.** 1 to Ford's Registration Statement
No. 33-9722.*
Exhibit 10-C Supplemental Compensation Plan Filed as Exhibit 10-H to Ford's
as amended through May 8, 1986.** Annual Report on Form 10-K for the
year ended December 31, 1986.*
Exhibit 10-C-1 Amendment to Supplemental Filed as Exhibit 10-F-1 to Ford's
Compensation Plan, dated May 12, 1988.** Annual Report on Form 10-K for the
year ended December 31, 1988.*
</TABLE>
-53-
<PAGE>
<TABLE>
<CAPTION>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
Designation Description Method of Filing
- ----------- ----------- ----------------
<S> <C>
Exhibit 10-C-2 Amendment to Supplemental Compensation Plan, Filed as Exhibit 10-D-2 to Ford's
dated July 8, 1992.** Annual Report on Form 10-K for the
year ended December 31, 1992.*
Exhibit 10-C-2A Amendment to Supplemental Compensation Plan, Filed as Exhibit 10-C-2A to Ford's
effective as of March 9, 1994.** Annual Report on Form 10-K for the
year ended December 31, 1996.*
Exhibit 10-C-3 Amendment to Supplemental Compensation Filed as Exhibit 10.1 to Ford's
Plan, effective as of March 8, 1995.** Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995.*
Exhibit 10-C-4 Amendment to Supplemental Filed as Exhibit 10.1 to Ford's
Compensation Plan, effective as of Quarterly Report on Form 10-Q for the
July 13, 1995.** quarter ended June 30, 1995.*
Exhibit 10-C-5 Amendment to Supplemental Filed as Exhibit 10-C-5 to Ford's
Compensation Plan, effective as of Annual Report on Form 10-K for the
January 10, 1996.** year ended December 31, 1995.*
Exhibit 10-C-6 Amendments to Supplemental Filed as Exhibit 10-C-6 to Ford's
Compensation Plan, effective as of Annual Report on Form 10-K for the
October 1, 1997.** year ended December 31, 1997.*
Exhibit 10-C-7 Amendment to Supplemental Filed as Exhibit 10-C-7 to Ford's
Compensation Plan, effective as of Annual Report on Form 10-K for the
December 22, 1997.** year ended December 31, 1997.*
Exhibit 10-C-8 Amendment to Supplemental Filed as Exhibit 10-C-8 to Ford's
Compensation Plan, effective as of Annual Report on Form 10-K for the
May 14, 1998.** year ended December 31, 1997.*
Exhibit 10-C-9 Amendment to Supplemental Filed with this Report.
Compensation Plan, effective as of
October 16, 1998.**
Exhibit 10-D Executive Separation Allowance Plan Filed as Exhibit 10-D to Ford's
as amended through December 9, 1993 Annual Report on Form 10-K for the
for separations on or after January 1, 1981.** year ended December 31, 1994.*
Exhibit 10-E Description of Ford practices regarding Filed as Exhibit 10-I to Ford's
club memberships for executives.** Annual Report on Form 10-K for the
year ended December 31, 1981.*
Exhibit 10-F Description of Ford practices regarding Filed as Exhibit 10-J to Ford's
travel expenses of spouses of certain Annual Report on Form 10-K for the
executives.** year ended December 31, 1980.*
</TABLE>
-54-
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
<TABLE>
<CAPTION>
Designation Description Method of Filing
- ----------- ----------- ----------------
<S> <C> <C>
Exhibit 10-G Deferred Compensation Plan for Filed as Exhibit 10-H-1 to Ford's
Non-Employee Directors, as amended Annual Report on Form 10-K for the
on July 11, 1991.** year ended December 31, 1991.*
Exhibit 10-G-1 Amendments to Deferred Compensation Plan Filed as Ehibit 10-G-1 to Ford's
for Non-Employee Directors, effective as of Annual Report on Form 10-K for the
January 1, 1996.** year ended December 31, 1995.*
Exhibit 10-G-2 Amendment to Deferred Compensation Plan Filed as Exhibit 10-G-2 to Ford's
for Non-Employee Directors, effective as of Annual Report on Form 10-K for the
November 14, 1996.** year ended December 31, 1996.*
Exhibit 10-H Benefit Equalization Plan, as Filed as Exhibit 10-H to Ford's
amended as of January 1, 1989.** Annual Report on Form 10-K for the
year ended December 31, 1994.*
Exhibit 10-H-1 Description of Amendments to Benefit Filed as Exhibit 10-H-1 to Ford's
Equalization Plan, adopted January 11, Annual Report on Form 10-K for the
1996 and January 25, 1996.** year ended December 31, 1995.*
Exhibit 10-I Description of financial counseling Filed as Exhibit 10-N to Ford's
services provided to certain executives.** Annual Report on Form 10-K for the
year ended December 31, 1983.*
Exhibit 10-J 1986 Long-Term Incentive Plan.** Filed as Exhibit 10-Q to Ford's
Annual Report on Form 10-K for the
year ended December 31, 1985.*
Exhibit 10-J-1 Amendment dated as of June 1, 1990 to Filed as Exhibit 10-N-1 to Ford's
1986 Long-Term Incentive Plan. ** Annual Report on Form 10-K for the
year ended December 31, 1990.*
Exhibit 10-K Supplemental Executive Retirement Plan, Filed as Exhibit 10-K to Ford's
as restated and incorporating amendments Annual Report on Form 10-K for the
through December 12, 1995.** year ended December 31, 1995.*
Exhibit 10-L Restricted Stock Plan for Non-Employee Filed as Exhibit 10-P to Ford's
Directors adopted by the Board of Annual Report on Form 10-K for the
Directors on November 10, 1988, year ended December 31, 1988.*
and approved by the stockholders at
the 1989 Annual Meeting.**
</TABLE>
-55-
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
<TABLE>
<CAPTION>
Designation Description Method of Filing
- ----------- ----------- ----------------
<S> <C> <C>
Exhibit 10-L-1 Amendment to Restricted Stock Plan for Filed as Exhibit 10.1 to Ford's
Non-Employee Directors, effective as of Quarterly Report on Form 10-Q for the
August 1, 1996.** quarter ended September 30, 1996.*
Exhibit 10-M 1990 Long-Term Incentive Plan, Filed as Exhibit 10-R to Ford's
amended as of June 1, 1990.** Annual Report on Form 10-K for the
year ended December 31, 1990.*
Exhibit 10-M-1 Amendment to 1990 Long-Term Incentive Filed as Exhibit 10-P-1 to Ford's
Plan, effective as of October 1, 1990.** Annual Report on Form 10-K for the
year ended December 31, 1991.*
Exhibit 10-M-2 Amendment to 1990 Long-Term Incentive Filed as Exhibit 10.2 to Ford's
Plan, effective as of March 8, 1995.** Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995.*
Exhibit 10-M-3 Amendment to 1990 Long-Term Filed as Exhibit 10-M-3 to Ford's
Incentive Plan, effective as of Annual Report on Form 10-K for the
October 1, 1997.** year ended December 31, 1997.*
Exhibit 10-M-4 Amendment to 1990 Long-Term Filed as Exhibit 10-M-4 to Ford's
Incentive Plan, effective as of Annual Report on Form 10-K for the
January 1, 1998.** year ended December 31, 1997.*
Exhibit 10-N Description of Matching Gift Program for Filed as Exhibit 10-Q to Ford's
Non-Employee Directors.** Annual Report on Form 10-K for the
year ended December 31, 1991.*
Exhibit 10-O Non-Employee Directors Life Insurance Filed as Exhibit 10-O to Ford's
and Optional Retirement Plan Annual Report on Form 10-K for the
(as amended as of January 1, 1993).** year ended December 31, 1994.*
Exhibit 10-P Description of Non-Employee Directors Filed as Exhibit 10-S to Ford's
Accidental Death, Dismemberment and Annual Report on Form 10-K for the
Permanent Total Disablement Indemnity.** year ended December 31, 1992.*
Exhibit 10-Q Agreement dated December 10, 1992 Filed as Exhibit 10-T to Ford's
between Ford and William C. Ford.** Annual Report on Form 10-K for the
year ended December 31, 1992.*
Exhibit 10-R Support Agreement dated as of October 1, Filed as Exhibit 10-T to Ford's
1993 between Ford and FCE Bank. Annual Report on Form 10-K for the
year ended December 31, 1993.*
Exhibit 10-R-1 Amendment No. 1 dated as of November Filed as Exhibit 10-R-1 to Ford's
15, 1995 to Support Agreement between Annual Report on Form 10-K for the
Ford and FCE Bank. year ended December 31, 1995.*
</TABLE>
-56-
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
<TABLE>
<CAPTION>
Designation Description Method of Filing
- ----------- ----------- ----------------
<S> <C> <C>
Exhibit 10-S Select Retirement Plan Filed as Exhibit 10-S to Ford's
adopted on June 9, 1994.** Annual Report on Form 10-K for the
year ended December 31, 1996.*
Exhibit 10-T Deferred Compensation Plan, Filed as Exhibit 10.2 to Ford's
effective as of July 13, 1995.** Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995.*
Exhibit 10-T-1 Amendments to Deferred Compensation Filed as Exhibit 10-T-1 to Ford's
Plan, effective as of July 13, 1995 and Annual Report on Form 10-K for the
October 1, 1995.** year ended December 31, 1995.*
Exhibit 10-T-2 Amendments to Deferred Compensation Filed as Exhibit 10.2 to Ford's
Plan, effective as of October 1, 1996.** Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996.*
Exhibit 10-T-3 Amendment to Deferred Compensation Filed as Exhibit 4.4 to Ford's
Plan, effective as of October 1, 1997.** Registration Statement
No. 333-47733.*
Exhibit 10-T-4 Amendments to Deferred Compensation Filed as Exhibit 4.5 to Ford's
Plan, effective as of January 1, 1998.** Registration Statement
No. 333-47733.*
Exhibit 10-T-5 Amendments to Deferred Compensation Plan, Filed as Exhibit 10.1 to Ford's Quarterly
effective as of July 8, 1998.** Report on Form 10-Q/A for the
quarter ended September 30, 1998.*
Exhibit 10-T-6 Amendment to Deferred Compensation Plan, Filed as Exhibit 10.2 to Ford's Quarterly
effective as of September 9, 1998.** Report on Form 10-Q/A for the
quarter ended September 30, 1998.*
Exhibit 10-T-7 Amendments to Deferred Compensation Plan, Filed as Exhibit 10.3 to Ford's Quarterly
effective as of October 16, 1998.** Report on Form 10-Q/A for the
quarter ended September 30, 1998.*
Exhibit 10-T-8 Amendments to Deferred Compensation Filed with this Report.
Plan, effective as of November 11, 1998.**
Exhibit 10-U Description of Amendments to Supplemental Filed as Exhibit 10-U to Ford's
Executive Retirement Plan and Executive Annual Report on Form 10-K for the
Separation Allowance Plan, adopted year ended December 31, 1995.*
January 25, 1996.**
Exhibit 10-U-2 Description of Amendment to Supplemental Filed as Exhibit 10-U-2 to Ford's
Executive Retirement Plan and Executive Annual Report on Form 10-K for the
Separation Allowance Plan, effective as of year ended December 31, 1996.*
July 1, 1996.**
</TABLE>
-57-
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
<TABLE>
<CAPTION>
Designation Description Method of Filing
- ----------- ----------- ----------------
<S> <C> <C>
Exhibit 10-U-3 Description of Amendment to Supplemental Filed with this Report.
Executive Retirement Plan adopted
September 10, 1998. **
Exhibit 10-V Annual Incentive Compensation Plan, Filed as Exhibit 10-V to Ford's
effective as of January 1, 1998.** Annual Report on Form 10-K for the
year ended December 31, 1997.*
Exhibit 10-W 1998 Long-Term Incentive Plan, Filed as Exhibit 10-W to Ford's
effective as of January 1, 1998.** Annual Report on Form 10-K for the
year ended December 31, 1997.*
Exhibit 10-W-1 Amendment to 1998 Long-Term Incentive Filed with this Report.
Plan, effective as of January 1, 1999.**
Exhibit 10-X Agreement dated January 13, 1999 Filed with this Report.
between Ford and Edsel B. Ford II.**
Exhibit 12 Computation of Ratio of Earnings to Filed with this Report.
Combined Fixed Charges and Preferred
Stock Dividends.
Exhibit 21 List of Subsidiaries of Ford Filed with this Report.
as of March 15, 1999.
Exhibit 23 Consent of Independent Certified Public Filed with this Report.
Accountants.
Exhibit 24 Powers of Attorney. Filed with this Report.
- --------------------------
* Incorporated by reference as an exhibit to this Report (file number
reference 1-3950, unless otherwise indicated)
** Management contract or compensatory plan or arrangement
</TABLE>
Instruments defining the rights of holders of certain issues of long-term
debt of Ford and of certain consolidated subsidiaries and of any unconsolidated
subsidiary, for which financial statements are required to be filed with this
Report, have not been filed as exhibits to this Report because the authorized
principal amount of any one of such issues does not exceed 10% of the total
assets of Ford and our subsidiaries on a consolidated basis. Ford agrees to
furnish a copy of each of such instruments to the Commission upon request.
(b) Reports on Form 8-K
- -----------------------
During the quarter ended December 31, 1998, Ford filed no Current Reports
on Form 8-K.
-58-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, Ford has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FORD MOTOR COMPANY
By: John M. Devine*
-----------------------
(John M. Devine)
Executive Vice President and
Chief Financial Officer
Date: March 17, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of Ford and in
the capacities on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
William Clay Ford, Jr.* Director, Chairman of the March 17, 1999
- ------------------------------ Board and Chairman of the
(William Clay Ford, Jr.) Environmental and Public
Policy Committee, the Finance
Committee and the Organization
Review and Nominating Committee
Jacques A. Nasser* Director and President March 17, 1999
- ------------------------------ and Chief Executive Officer
(Jacques A. Nasser) (principal executive officer)
Michael D. Dingman* Director and Chairman of the March 17, 1999
- ------------------------------- Compensation and Option Committee
(Michael D. Dingman)
Edsel B. Ford II* Director March 17, 1999
- -------------------------------
(Edsel B. Ford II)
William Clay Ford* Director March 17, 1999
- -------------------------------
(William Clay Ford)
Irvine O. Hockaday, Jr.* Director and Chairman of the March 17, 1999
- ------------------------------- Audit Committee
(Irvine O. Hockaday, Jr.)
-59-
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Marie-Josee Kravis* Director March 17, 1999
- ------------------------------
(Marie-Josee Kravis)
Ellen R. Marram* Director March 17, 1999
- ------------------------------
(Ellen R. Marram)
Homer A Neal* Director March 17, 1999
- ------------------------------
(Homer A. Neal)
Carl E. Reichardt* Director March 17, 1999
- ------------------------------
(Carl E. Reichardt)
John L. Thornton* Director March 17, 1999
- ------------------------------
(John L. Thornton)
John M. Devine* Executive Vice President and March 17, 1999
- ------------------------------ Chief Financial Officer
(John M. Devine) (principal financial officer)
William A. Swift* Vice President and Controller March 17, 1999
- ------------------------------ (principal accounting officer)
(William A. Swift)
*By: /s/ John M. Rintamaki
-------------------------
(John M. Rintamaki)
Attorney-in-Fact
</TABLE>
-60-
<PAGE>
<TABLE>
<CAPTION>
Ford Motor Company and Subsidiaries
-----------------------------------
HIGHLIGHTS
Fourth Quarter Full Year
----------------------- -------------------------
1998 1997 1998 1997
------- ------- -------- --------
(unaudited)
<S> <C> <C> <C> <C>
Worldwide vehicle unit sales of
cars and trucks (in thousands)
- - North America 1,197 1,118 4,370 4,432
- - Outside North America 617 673 2,453 2,515
----- ----- ----- -----
Total 1,814 1,791 6,823 6,947
===== ===== ===== =====
Sales and revenues (in millions)
- - Automotive $32,204 $31,897 $119,083 $122,935
- - Financial Services 5,699 8,055 25,333 30,692
------- ------- -------- --------
Total $37,903 $39,952 $144,416 $153,627
======= ======= ======== ========
Net income (in millions)
- - Automotive $ 820 $ 1,341 $ 4,752 $ 4,714
- - Financial Services (excl. The Associates) 223 231 1,187 1,374
------- ------- -------- --------
Subtotal 1,043 1,572 5,939 6,088
- - The Associates - 224 177 832
- - Gain on spin-off of The Associates - - 15,955 -
------- ------- -------- --------
Total $ 1,043 $ 1,796 $ 22,071 $ 6,920
======= ======= ======== ========
Capital expenditures (in millions)
- - Automotive $ 2,445 $ 2,389 $ 8,113 $ 8,142
- - Financial Services 106 162 504 575
------- ------- -------- --------
Total $ 2,551 $ 2,551 $ 8,617 $ 8,717
======= ======= ======== ========
Automotive capital expenditures as a
percentage of sales 7.6% 7.5% 6.8% 6.6%
Stockholders' equity at December 31
- - Total (in millions) $23,409 $30,734 $ 23,409 $ 30,734
- - After-tax return on Common and
Class B stockholders' equity 17.8% 24.1% 25.4% 24.4%
Automotive net cash at December 31
(in millions)
- - Cash and marketable securities $23,805 $20,835 $ 23,805 $ 20,835
- - Debt 9,834 8,176 9,834 8,176
------- ------- -------- --------
Automotive net cash $13,971 $12,659 $ 13,971 $ 12,659
======= ======= ======== ========
After-tax return on sales
- - North American Automotive 4.5% 5.9% 5.3% 5.1%
- - Total Automotive 2.6% 4.2% 4.0% 3.9%
Shares of Common and Class B Stock
(in millions)
- - Average number outstanding 1,210 1,201 1,211 1,195
- - Number outstanding at December 31 1,209 1,202 1,209 1,202
Common Stock price (per share)
(adjusted to reflect The Associates
spin-off)
- - High $59-7/8 $33-9/16 $61-7/16 $33-9/16
- - Low 38-13/16 27-23/32 28-15/32 20-3/64
AMOUNTS PER SHARE OF COMMON AND
CLASS B STOCK AFTER PREFERRED
STOCK DIVIDENDS
Income assuming dilution
- - Automotive $ 0.66 $ 1.08 $ 3.76 $ 3.82
- - Financial Services (excl. The Associates) 0.18 0.19 0.96 1.12
------- ------- ------- --------
Subtotal 0.84 1.27 4.72 4.94
- - The Associates - 0.18 0.14 0.68
- - Gain on spin-off of The Associates - - 12.90 -
------- -------- ------- --------
Total $ 0.84 $ 1.45 $ 17.76 $ 5.62
======= ======= ======= ========
Cash dividends $ 0.46 $ 0.42 $ 1.72 $ 1.645
</TABLE>
FS-1
<PAGE>
<TABLE>
<CAPTION>
Ford Motor Company and Subsidiaries
VEHICLE UNIT SALES
------------------
For the Periods Ended December 31, 1998 and 1997
(in thousands)
Fourth Quarter Full Year
---------------------- ----------------------
1998 1997 1998 1997
------ ------ ------ ------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
North America
United States
Cars 428 409 1,563 1,614
Trucks 654 578 2,425 2,402
----- ----- ----- -----
Total United States 1,082 987 3,988 4,016
Canada 87 91 279 319
Mexico 28 40 103 97
----- ----- ----- -----
Total North America 1,197 1,118 4,370 4,432
Europe
Britain 102 124 498 466
Germany 143 137 444 460
Italy 56 70 205 248
France 54 41 171 153
Spain 46 43 155 155
Other 95 91 377 318
----- ----- ----- -----
Total Europe 496 506 1,850 1,800
Other international
Brazil 34 49 178 214
Australia 35 31 133 132
Argentina 16 35 97 147
Taiwan 12 17 77 79
Japan 5 10 25 40
Other 19 25 93 103
----- ----- ----- -----
Total other international 121 167 603 715
----- ----- ----- -----
Total worldwide vehicle unit sales 1,814 1,791 6,823 6,947
===== ===== ===== =====
</TABLE>
Vehicle unit sales are reported worldwide on a "where sold" basis and include
sales of all Ford-badged units, as well as units manufactured by Ford and sold
to other manufacturers.
Prior periods restated to correct reported unit sales.
FS-2
<PAGE>
<TABLE>
<CAPTION>
Ford Motor Company and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
--------------------------------
For the Years Ended December 31, 1998, 1997 and 1996
(in millions, except amounts per share)
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
AUTOMOTIVE
Sales (Note 1) $119,083 $122,935 $118,023
Costs and expenses (Note 1 and 15):
Costs of sales 104,782 108,907 108,882
Selling, administrative and other expenses 7,616 7,082 6,625
-------- -------- --------
Total costs and expenses 112,398 115,989 115,507
Operating income 6,685 6,946 2,516
Interest income 1,331 1,116 841
Interest expense 829 788 695
-------- -------- --------
Net interest income 502 328 146
Equity in net loss of affiliated companies (Note 1) (38) (88) (6)
Net expense from transactions with
Financial Services (Note 1) (191) (104) (85)
-------- -------- --------
Income before income taxes - Automotive 6,958 7,082 2,571
FINANCIAL SERVICES
Revenues (Note 1) 25,333 30,692 28,968
Costs and expenses (Note 1):
Interest expense 8,036 9,712 9,704
Depreciation 8,589 7,645 6,875
Operating and other expenses 4,618 6,621 6,217
Provision for credit and insurance losses 1,798 3,230 2,564
Asset write-downs and dispositions (Note 15) - - 121
-------- -------- --------
Total costs and expenses 23,041 27,208 25,481
Net revenue from transactions with Automotive (Note 1) 191 104 85
Gain on spin-off of The Associates (Note 15) 15,955 - -
Gain on sale of Common Stock of a subsidiary (Note 15) - 269 650
-------- -------- --------
Income before income taxes - Financial Services 18,438 3,857 4,222
-------- -------- --------
TOTAL COMPANY
Income before income taxes 25,396 10,939 6,793
Provision for income taxes (Note 6) 3,176 3,741 2,166
-------- -------- --------
Income before minority interests 22,220 7,198 4,627
Minority interests in net income of subsidiaries 149 278 181
-------- -------- --------
Net income $ 22,071 $ 6,920 $ 4,446
======== ======== ========
Income attributable to Common and Class B Stock
after preferred stock dividends (Note 1) $ 21,964 $ 6,866 $ 4,381
Average number of shares of Common and Class B
Stock outstanding (Note 1) 1,211 1,195 1,179
AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK (Note 1)
Basic income $ 18.17 $ 5.75 $ 3.73
Diluted income $ 17.76 $ 5.62 $ 3.64
Cash dividends $ 1.72 $ 1.645 $ 1.47
</TABLE>
The accompanying notes are part of the financial statements.
FS-3
<PAGE>
<TABLE>
<CAPTION>
Ford Motor Company and Subsidiaries
CONSOLIDATED BALANCE SHEET
--------------------------
(in millions)
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Automotive
Cash and cash equivalents $ 3,685 $ 6,316
Marketable securities (Note 2) 20,120 14,519
-------- --------
Total cash and marketable securities 23,805 20,835
Receivables 2,604 3,097
Inventories (Note 4) 5,656 5,468
Deferred income taxes 3,239 3,249
Other current assets (Note 1) 3,405 3,782
Net current receivable from Financial Services (Note 1) 0 416
-------- --------
Total current assets 38,709 36,847
Equity in net assets of affiliated companies (Note 1) 2,401 1,951
Net property (Note 5) 37,320 34,594
Deferred income taxes 3,175 3,712
Other assets (Notes 1 and 8) 7,139 7,975
-------- --------
Total Automotive assets 88,744 85,079
Financial Services
Cash and cash equivalents 1,151 1,618
Investments in securities (Note 2) 968 2,207
Net receivables and lease investments (Note 3) 132,567 175,417
Other assets (Note 1) 13,227 14,776
Net receivable from Automotive (Note 1) 888 0
-------- --------
Total Financial Services assets 148,801 194,018
-------- --------
Total assets $237,545 $279,097
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Automotive
Trade payables $ 13,368 $ 11,997
Other payables 2,755 2,557
Accrued liabilities (Note 7) 16,925 16,250
Income taxes payable 1,404 1,358
Debt payable within one year (Note 9) 1,121 1,129
Net current payable to Financial Services (Note 1) 70 0
-------- --------
Total current liabilities 35,643 33,291
Long-term debt (Note 9) 8,713 7,047
Other liabilities (Note 7) 30,133 28,899
Deferred income taxes 751 1,210
Net payable to Financial Services (Note 1) 818 0
-------- --------
Total Automotive liabilities 76,058 70,447
Financial Services
Payables 3,555 4,539
Debt (Note 9) 122,324 160,071
Deferred income taxes 5,488 4,347
Other liabilities and deferred income 6,034 7,865
Net payable to Automotive (Note 1) 0 416
-------- --------
Total Financial Services liabilities 137,401 177,238
Company-obligated mandatorily redeemable preferred securities of a subsidiary
trust holding solely junior subordinated debentures of the Company (Note 1) 677 678
Stockholders' equity
Capital stock (Notes 10 and 11)
Preferred Stock, par value $1.00 per share (aggregate liquidation preference
of $177 million and $637 million) * *
Common Stock, par value $1.00 per share (1,151 and 1,132 million shares issued) 1,151 1,132
Class B Stock, par value $1.00 per share (71 million shares issued) 71 71
Capital in excess of par value of stock 5,283 5,564
Accumulated other comprehensive income (1,670) (1,228)
ESOP loan and treasury stock (1,085) (39)
Earnings retained for use in business 19,659 25,234
-------- --------
Total stockholders' equity 23,409 30,734
-------- --------
Total liabilities and stockholders' equity $237,545 $279,097
======== ========
- - - - - -
*Less than $500,000
The accompanying notes are part of the financial statements.
</TABLE>
FS-4
<PAGE>
<TABLE>
<CAPTION>
Ford Motor Company and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
For the Years Ended December 31, 1998, 1997 and 1996
(in millions)
1998 1997 1996
------------------------- --------------------------- -------------------------
Financial Financial Financial
Automotive Services Automotive Services Automotive Services
------------ ----------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents at January 1 $ 6,316 $ 1,618 $ 3,578 $ 3,689 $ 5,750 $ 2,690
Cash flows from operating activities
(Note 16) 9,622 13,478 13,984 13,650 6,576 12,681
Cash flows from investing activities
Capital expenditures (8,113) (504) (8,142) (575) (8,209) (442)
Purchase of leased assets (110) - (332) - (195) -
Acquisitions of other companies 0 (344) 0 (40) 0 (166)
Acquisitions of receivables and lease
investments - (78,863) - (117,895) - (109,087)
Collections of receivables and lease
investments - 49,303 - 86,842 - 82,398
Net acquisitions of daily rental vehicles - (1,790) - (958) - (1,759)
Net proceeds from USL Capital asset sales - - - - - 1,157
Purchases of securities (Note 16) (758) (2,102) (43) (3,067) (6) (8,020)
Sales and maturities of securities
(Note 16) 590 2,271 13 3,520 7 9,863
Proceeds from sales of receivables and
lease investments - 8,413 - 5,197 - 2,867
Net investing activity with
Financial Services 642 - 258 - 416 -
Other (468) (463) (285) (569) (586) (45)
------- -------- ------- -------- ------- --------
Net cash used in investing activities (8,217) (24,079) (8,531) (27,545) (8,573) (23,234)
Cash flows from financing activities
Cash dividends (5,348) - (2,020) - (1,800) -
Issuance of Common Stock 157 - 310 - 192 -
Issuance of Common Stock of a subsidiary
(Note 15) - - - 453 - 1,897
Purchase of Ford Treasury Stock (669) - (15) - - -
Preferred stock - Series B repurchase,
Series A redemption (420) - - - - -
Changes in short-term debt 497 7,475 (430) 6,210 151 3,474
Proceeds from issuance of other debt 2,403 21,776 1,100 22,923 1,688 22,342
Principal payments on other debt (1,434) (16,797) (668) (18,215) (1,031) (14,428)
Net financing activity with Automotive - (642) - (258) - (416)
Spin-off of The Associates cash - (508) - - - -
Other (472) (12) 16 (206) 37 (528)
------- ------- ------- -------- ------- --------
Net cash (used in)/provided by
financing activities (5,286) 11,292 (1,707) 10,907 (763) 12,341
Effect of exchange rate changes on cash (54) 146 (119) 28 (85) (116)
Net transactions with Automotive/
Financial Services 1,304 (1,304) (889) 889 673 (673)
------- -------- - ------- -------- ------- --------
Net (decrease)/increase in cash and
cash equivalents (2,631) (467) 2,738 (2,071) (2,172) 999
------- -------- ------- -------- ------- --------
Cash and cash equivalents at December 31 $ 3,685 $ 1,151 $ 6,316 $ 1,618 $ 3,578 $ 3,689
======= ======== ======= ======== ======= ========
</TABLE>
The accompanying notes are part of the financial statements.
FS-5
<PAGE>
<TABLE>
<CAPTION>
Ford Motor Company and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
----------------------------------------------
For the Years Ended December 31, 1996, 1997 and 1998
(in millions)
Capital Other Comprehensive Income
in Excess -------------------------------------
of Par Foreign Minimum Unrealized
Capital Value of Retained Currency Pension Holding
Stock Stock Earnings Translation Liability Gain/Loss Other Total
-------- -------- -------- ----------- --------- ---------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
- ----------------------------
Balance at beginning of year $1,160 $5,105 $17,688 $ 482 $ (108) $220 $ - $24,547
Comprehensive income
Net income 4,446 4,446
Foreign currency translation (408) (408)
Minimum pension liability
(net of tax benefit of $74) (159) (159)
Net unrealized holding loss,
(net of tax benefit of $26) (56) (56)
-------
Comprehensive income 3,823
Common stock issued for Series A
Preferred Stock conversion,
employee benefit plan and other 29 163 192
Cash dividends (1,800) (1,800)
------ ------ ------- ------- ------ ---- ------- -------
Balance at end of year $1,189 $5,268 $20,334 $ 74 $ (267) $164 $ - $26,762
====== ====== ======= ======= ====== ==== ======= =======
YEAR ENDED DECEMBER 31, 1997
- ----------------------------
Balance at beginning of year $1,189 $5,268 $20,334 $ 74 $ (267) $164 $ - $26,762
Comprehensive income
Net income 6,920 6,920
Foreign currency translation (1,038) (1,038)
Minimum pension liability
(net of tax benefit of $36) (70) (70)
Net unrealized holding loss
(net of tax benefit of $47) (91) (91)
-------
Comprehensive income 5,721
Common stock issued for Series A
Preferred Stock conversion,
employee benefit plans and other 14 296 310
Treasury stock (39) (39)
Cash dividends (2,020) (2,020)
------ ------ ------- ------- ------ ---- ------- -------
Balance at end of year $1,203 $5,564 $25,234 $ (964) $ (337) $ 73 $ (39) $30,734
====== ====== ======= ======= ====== ==== ======= =======
YEAR ENDED DECEMBER 31, 1998
- ----------------------------
Balance at beginning of year $1,203 $5,564 $25,234 $ (964) $ (337) $ 73 $ (39) $30,734
Comprehensive income
Net income (excluding gain on
spin-off of The Associates) 6,116 6,116
Gain on The Associates spin-off 15,955 15,955
Foreign currency translation (53) (53)
Minimum pension liability
(net of tax benefit of $184) (361) (361)
Net unrealized holding loss
(net of tax benefit of $3) (6) (6)
Reclassification adjustments
for net gains realized in
net income (net of tax of $11) (22) (22)
------
Comprehensive income 21,629
Common stock issued for Series A
Preferred Stock conversion,
employee benefit plans and other 19 139 158
Preferred stock-Series B
repurchase and Series A redemption (420) (420)
ESOP loan and treasury stock (1,046) (1,046)
The Associates spin-off to Ford
Common stockholders (22,298) (22,298)
Cash dividends (5,348) (5,348)
------ ------ ------- -------- ------ ---- ------- -------
Balance at end of year $1,222 $5,283 $19,659 $ (1,017) $ (698) $ 45 $(1,085) $23,409
====== ====== ======= ======== ====== ==== ======= =======
</TABLE>
The accompanying notes are part of the financial statements.
FS-6
<PAGE>
Ford Motor Company and Subsidiaries
Notes to Financial Statements
NOTE 1. Accounting Policies
- ----------------------------
Principles of Consolidation
- ---------------------------
The consolidated financial statements include all significant majority-owned
subsidiaries and reflect the operating results, assets, liabilities and cash
flows for the company's two business sectors: Automotive and Financial Services.
The assets and liabilities of the Automotive sector are classified as current or
noncurrent, and those of the Financial Services sector are unclassified.
Affiliates that are 20% to 50% owned, principally Mazda Motor Corporation and
AutoAlliance International Inc., and subsidiaries where control is expected to
be temporary, principally investments in certain dealerships, are accounted for
on an equity basis. Use of estimates and assumptions as determined by management
is required in the preparation of consolidated financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates and assumptions. For purposes of Notes to Financial
Statements, "Ford" or "the company" means Ford Motor Company and its
majority-owned consolidated subsidiaries unless the context requires otherwise.
Certain amounts for prior periods are reclassified, if required, to conform with
present period presentations.
Structure of Operations
- -----------------------
The company's sectors, Automotive and Financial Services, are managed as four
primary operating segments. A segment is defined as a component with business
activity resulting in revenue and expense that has separate financial
information evaluated regularly by the company's chief operating decision maker
in determining resource allocation and assessing performance (Note 17). The
Automotive sector is comprised of Automotive and Visteon. The Automotive segment
consists of the design, manufacture, assembly and sale of cars and trucks; the
Visteon segment consists of the design, manufacture and sale of automotive
components and systems. The Financial Services sector primarily includes two
segments, Ford Motor Credit Company and its subsidiaries ("Ford Credit") and The
Hertz Corporation and its subsidiaries ("Hertz"). The Financial Services sector
also includes less significant financial services businesses (Note 17). Ford
Credit leases and finances the purchase of cars and trucks made by Ford and
other companies. It also provides inventory and capital financing to retail car
and truck dealerships. Hertz rents cars and trucks and industrial and
construction equipment. Both Ford Credit and Hertz also have insurance
operations related to their businesses.
Intersector transactions represent principally transactions occurring in the
ordinary course of business, borrowings and related transactions between
entities in the Financial Services and Automotive sectors, and interest and
other support under special vehicle financing programs. These arrangements are
reflected in the respective business sectors. Intersegment transactions are
described in Note 17.
Revenue Recognition - Automotive Sector
- ---------------------------------------
Sales are recorded by the company when products are shipped to dealers and other
customers, except as described below. Estimated costs for approved sales
incentive programs normally are recognized as sales reductions at the time of
revenue recognition. Estimated costs for sales incentive programs approved
subsequent to the time that related sales were recorded are recognized when the
programs are approved.
Sales through dealers to certain daily rental companies where the daily rental
company has an option to require Ford to repurchase vehicles subject to certain
conditions, are recognized over the period of daily rental service in a manner
similar to lease accounting. The carrying value of these vehicles, included in
other current assets, was $2.1 billion at December 31, 1998, and $2.2 billion at
December 31, 1997.
FS-7
<PAGE>
NOTE 1. Accounting Policies (continued)
- ----------------------------
Revenue Recognition - Financial Services Sector
- -----------------------------------------------
Revenue from finance receivables is recognized over the term of the receivable
using the interest method. Certain loan origination costs are deferred and
amortized, using the interest method, over the term of the related receivable as
a reduction in financing revenue. Revenue from operating leases is recognized as
scheduled payments become due. Initial direct costs net of acquisition fees
related to leases are deferred and amortized over the term of the lease.
Agreements between the Automotive sector operations and certain Financial
Services sector operations provide for interest supplements and other support
costs to be paid by Automotive sector operations on certain financing and
leasing transactions. The Financial Services sector recognizes this revenue in
income over the period that the related receivables and leases are outstanding;
the estimated costs of interest supplements and other support costs are recorded
as sales incentives by Automotive sector operations in the same manner as sales
incentives described above.
The accrual of interest on loans is discontinued at the time a loan is
determined to be impaired. Subsequent amounts of interest collected are
recognized in income only if full recovery of the remaining principal is
expected. Other amounts collected are generally recognized first as a reduction
of principal. Any remaining amounts are treated as a recovery.
The Financial Services sector periodically sells finance receivables through
special purpose subsidiaries, retains the servicing rights and certain other
beneficial interests, and receives a servicing fee which is recognized as
collected over the remaining term of the related sold finance receivables.
Estimated gains or losses from the sale of finance receivables are recognized in
the period in which the sale occurs. In determining the gain or loss on each
qualifying sale of finance receivables, the investment in the sold receivable
pool is allocated between the portion sold and the portion retained based on
their relative fair values at the date of sale.
Other Costs
- -----------
Advertising and sales promotion costs are expensed as incurred. Advertising
costs were $2.2 billion in 1998, $2.3 billion in 1997 and $2.2 billion in 1996.
Estimated costs related to product warranty are accrued at the time of sale.
Research and development costs are expensed as incurred and were $6.3 billion in
1998, $6.3 billion in 1997 and $6.8 billion in 1996.
Income Per Share of Common and Class B Stock
- --------------------------------------------
Basic income per share of Common and Class B Stock is calculated by dividing the
income attributable to Common and Class B Stock by the average number of shares
of Common and Class B Stock outstanding during the applicable period, adjusted
for shares issuable under employee savings and compensation plans.
The calculation of diluted income per share of Common and Class B Stock takes
into account the effect of obligations, such as stock options, considered to be
potentially dilutive.
FS-8
<PAGE>
NOTE 1. Accounting Policies (continued)
- ----------------------------
Income per share of Common and Class B Stock were as follows (in millions):
<TABLE>
1998 1997 1996
----------------- ---------------- ------------------
Income Shares* Income Shares* Income Shares*
------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net income $22,071 1,211 $6,920 1,195 $4,446 1,179
Preferred stock dividend requirements (22) - (54) - (65) -
Premium on Series B Tender Offer** (85) - - - - -
Issuable and uncommitted ESOP shares - (2) - (1) - (4)
------- ------ ------ ------ ------ -----
Basic income and shares $21,964 1,209 $6,866 1,194 $4,381 1,175
Basic Income Per Share $ 18.17 $ 5.75 $ 3.73
- ----------------------
Basic income and shares $21,964 1,209 $6,866 1,194 $4,381 1,175
Net dilutive effect of options - 28 - 20 - 16
Convertible preferred stock and other (1) - 8 10 24 19
------- ------ ------ ------ ------ -----
Diluted income and shares $21,963 1,237 $6,874 1,224 $4,405 1,210
Diluted Income Per Share $ 17.76 $ 5.62 $ 3.64
- ------------------------
</TABLE>
- - - - - -
*Average shares outstanding
**Represents a one-time reduction of $0.07 per share of Common and Class B
Stock resulting from the premium paid to repurchase the company's Series B
Cumulative Preferred Stock.
Derivative Financial Instruments
- --------------------------------
Ford has operations in over 30 countries and sells vehicles in over 200 markets,
and is exposed to a variety of market risks, including the effects of changes in
foreign currency exchange rates, interest rates and commodity prices. These
financial exposures are monitored and managed by the company as an integral part
of the company's overall risk management program, which recognizes the
unpredictability of financial markets and seeks to reduce the potentially
adverse effect on the company's results. The company uses derivative financial
instruments to manage the exposures to fluctuations in exchange rates, interest
rates and commodity prices. All derivative financial instruments are classified
as "held for purposes other than trading"; company policy specifically prohibits
the use of leveraged derivatives or use of any derivatives for speculative
purposes.
Ford's primary foreign currency exposures, in terms of net corporate exposure,
are in the British Pound Sterling, Japanese Yen, euro, Mexican Peso and
Brazilian Real. Agreements to manage foreign currency exposures include forward
contracts, swaps and options. The company uses these derivative instruments to
hedge assets and liabilities denominated in foreign currencies, firm commitments
and certain investments in foreign subsidiaries. Gains and losses on hedges of
firm commitments are deferred and recognized with the related transactions. In
the case of hedges of net investments in foreign subsidiaries, gains and losses
are recognized in other comprehensive income. All other gains and losses are
recognized in cost of sales for the Automotive sector and interest expense for
the Financial Services sector. These instruments usually mature in two years or
less for Automotive sector exposures and longer for Financial Services sector
exposures, consistent with the underlying transactions. The effect of changes in
exchange rates may not be fully offset by gains or losses on currency
derivatives, depending on the extent to which the exposures are hedged.
Interest rate swap agreements are used to manage the effects of interest rate
fluctuations by changing the interest rate characteristics of specific debt or
pools of debt to match the interest rate characteristics of corresponding
assets. These instruments mature consistent with underlying debt issues as
identified in Note 9. The differential paid or received on interest rate swaps
is recognized on an accrual basis as an adjustment to interest expense. Gains
and losses on terminated interest rate swaps are amortized and reflected in
interest expense over the remaining term of the underlying debt.
FS-9
<PAGE>
NOTE 1. Accounting Policies (continued)
- ----------------------------
Ford has a commodity hedging program that uses primarily forward contracts and
options to manage the effects of changes in commodity prices on the Automotive
sector's results. The financial instruments used in this program mature in
three years or less, consistent with the related purchase commitments. Gains
and losses are recognized in cost of sales during the settlement period of the
related transactions.
Foreign Currency Translation
- ----------------------------
Assets and liabilities of non-U.S. subsidiaries generally are translated to U.S.
Dollars at end-of-period exchange rates. The effects of this translation for
most non-U.S. subsidiaries are reported in other comprehensive income.
Remeasurement of assets and liabilities of non-U.S. subsidiaries that use the
U.S. Dollar as their functional currency are included in income as transaction
gains and losses. Income statement elements of all non-U.S. subsidiaries are
translated to U.S. Dollars at average-period exchange rates and are recognized
as part of revenues, costs and expenses. Also included in income are gains and
losses arising from transactions denominated in a currency other than the
functional currency of the subsidiary involved. Net transaction gains and
losses, as described above, increased net income by $97 million in 1998, and
decreased net income by $164 million in 1997 and $156 million in 1996.
Impairment of Long-Lived Assets and Certain Identifiable Intangibles
- --------------------------------------------------------------------
The company evaluates the carrying value of goodwill for potential impairment on
an ongoing basis. Such evaluations compare operating income before amortization
of goodwill to the amortization recorded for the operations to which the
goodwill relates. The company also periodically evaluates the carrying value of
long-lived assets and long-lived assets to be disposed of for potential
impairment. The company considers projected future operating results, cash
flows, trends and other circumstances in making such estimates and evaluations.
Goodwill
- --------
Goodwill represents the excess of the purchase price over the fair value of the
net assets of acquired companies and is amortized using the straight-line method
principally over 40 years. Total goodwill included in the Automotive sector's
other assets was $2.1 billion at December 31, 1998 and $2.1 billion at
December 31, 1997. Total goodwill included in the Financial Services sector's
other assets was $743 million at December 31, 1998 and $2.7 billion at
December 31, 1997. The decrease is related to the spin-off of Associates First
Capital Corporation ("The Associates", Note 15).
Company-Obligated Mandatorily Redeemable Preferred Securities of a Subsidiary
Trust
- -----------------------------------------------------------------------------
During 1995, Ford Motor Company Capital Trust I (the "Trust") issued
$632 million of its 9% Trust Originated Preferred Securities (the "Preferred
Securities") in a one-for-one exchange for 25,273,537 shares of the company's
outstanding Series B Depositary Shares (the "Depositary Shares"). Concurrent
with the exchange and the related purchase by Ford of the Trust's common
securities (the "Common Securities"), the company issued to the Trust
$651 million aggregate principal amount of its 9% Junior Subordinated Debentures
due December 2025 (the "Debentures"). The sole assets of the Trust are and will
be the Debentures. The Debentures are redeemable, in whole or in part, at the
company's option on or after December 1, 2002, at a redemption price of $25 per
Debenture plus accrued and unpaid interest. If the company redeems the
Debentures, or upon maturity of the Debentures, the Trust is required to redeem
the Preferred Securities and Common Securities at $25 per share plus accrued and
unpaid distributions.
Ford guarantees to pay in full to the holders of the Preferred Securities all
distributions and other payments on the Preferred Securities to the extent not
paid by the Trust only if and to the extent that Ford has made a payment of
interest or principal on the Debentures. This guarantee, when taken together
with Ford's obligations under the Debentures and the Indenture relating thereto
and its obligations under the Declaration of Trust of the Trust, including its
obligation to pay certain costs and expenses of the Trust, constitutes a full
and unconditional guarantee by Ford of the Trust's obligations under the
Preferred Securities.
FS-10
<PAGE>
NOTE 2. Marketable and Other Securities
- ----------------------------------------
Trading securities are recorded at fair value with unrealized gains and losses
included in income. Available-for-sale securities are recorded at fair value
with net unrealized gains and losses reported, net of tax, in other
comprehensive income. Held-to-maturity securities are recorded at amortized
cost. Equity securities which do not have readily determinable fair values are
recorded at cost. The basis of cost used in determining realized gains and
losses is specific identification.
The fair value of substantially all securities is determined by quoted market
prices. The estimated fair value of securities, for which there are no quoted
market prices, is based on similar types of securities that are traded in the
market.
Expected maturities of debt securities may differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without penalty.
Automotive Sector
- -----------------
Investments in securities at December 31 were as follows (in millions):
<TABLE>
<CAPTION>
Memo:
Amortized Unrealized Unrealized Fair Book
Cost Gains Losses Value Value
--------- ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C>
1998
- -----
Trading securities $19,534 $83 $40 $19,577 $19,577
Available-for-sale securities - Corporate securities 543 - - 543 543
------- --- --- ------- -------
Total investments in securities $20,077 $83 $40 $20,120 $20,120
======= === === ======= =======
1997
- ----
Trading securities $14,114 $29 $ - $14,143 $14,143
Available-for-sale securities - Corporate securities 395 - 19 376 376
------- --- --- ------- -------
Total investments in securities $14,509 $29 $19 $14,519 $14,519
======= === === ======= =======
</TABLE>
During 1997, $365 million of bonds issued by affiliates were reclassified from
equity in net assets of affiliated companies to available-for-sale marketable
securities; $202 million of the bonds matured in 1998. Proceeds from sales of
available-for-sale securities were $586 million in 1998 and $8 million in 1997.
In 1998, gross losses of $15 million were reported. Other comprehensive income
included net unrealized losses of $5 million in 1998 and net unrealized gains of
$28 million in 1997 on securities owned by certain unconsolidated affiliates.
The available-for-sale securities at December 31, 1998 had contractual
maturities between one and five years.
Financial Services Sector
- -------------------------
Investments in securities at December 31, 1998 were as follows (in millions):
<TABLE>
<CAPTION>
Memo:
Amortized Unrealized Unrealized Fair Book
Cost Gains Losses Value Value
--------- ---------- ---------- ----- -----
<S> <C> <C> <C> <C> <C>
Trading securities $231 $ 3 $4 $230 $230
Available-for-sale securities
- -----------------------------
Debt securities issued by the U.S.
government and agencies 153 3 - 156 156
Municipal securities 63 2 - 65 65
Debt securities issued by non-U.S. governments 25 - - 25 25
Corporate securities 192 3 2 193 193
Mortgage-backed securities 198 3 - 201 201
Equity securities 35 56 1 90 90
---- --- -- ---- ----
Total available-for-sale securities 666 67 3 730 730
Held-to-maturity securities
- ---------------------------
Debt securities issued by the U.S.
government and agencies 6 - - 6 6
Corporate securities 2 - - 2 2
---- --- -- ---- ----
Total held-to-maturity securities 8 - - 8 8
Total investments in securities $905 $70 $7 $968 $968
==== === == ==== ====
</TABLE>
FS-11
<PAGE>
NOTE 2. Marketable and Other Securities (continued)
- ----------------------------------------
Investments in securities at December 31, 1997 were as follows (in millions):
<TABLE>
<CAPTION>
Memo:
Amortized Unrealized Unrealized Fair Book
Cost Gains Losses Value Value
--------- ---------- ---------- ------ ------
<S> <C> <C> <C> <C> <C>
Trading securities $ 267 $ 4 $1 $ 270 $ 270
Available-for-sale securities
- -----------------------------
Debt securities issued by the U.S.
government and agencies 385 4 1 388 388
Municipal securities 13 - - 13 13
Debt securities issued by non-U.S. governments 36 - - 36 36
Corporate securities 489 7 1 495 495
Mortgage-backed securities 837 8 1 844 844
Other debt securities 14 - - 14 14
Equity securities 53 65 2 116 116
------ --- -- ------ ------
Total available-for-sale securities 1,827 84 5 1,906 1,906
Held-to-maturity securities
- ---------------------------
Debt securities issued by the U.S.
government and agencies 7 - - 7 7
Corporate securities 15 - - 15 15
Other debt securities 3 - - 3 3
------ --- -- ------ ------
Total held-to-maturity securities 25 - - 25 25
Total investments in securities with
readily determinable fair value 2,119 $88 $6 $2,201 2,201
=== == ======
Equity securities not practicable to fair value 6 6
------ ------
Total investments in securities $2,125 $2,207
====== ======
</TABLE>
The amortized cost and fair value of investments in available-for-sale
securities and held-to-maturity securities at December 31 by contractual
maturity, were as follows (in millions):
<TABLE>
<CAPTION>
Available-for-sale Held-to-maturity
----------------------- -------------------------
Amortized Amortized
1998 Cost Fair Value Cost Fair Value
---- --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Due in one year or less $ 29 $ 29 $ 1 $ 1
Due after one year through five years 165 167 3 3
Due after five years through ten years 101 102 3 3
Due after ten years 138 141 1 1
Mortgage-backed securities 198 200 - -
Equity securities 35 91 - -
------ ------ --- ---
Total $ 666 $ 730 $ 8 $ 8
====== ====== === ===
1997
----
Due in one year or less $ 100 $ 101 $14 $14
Due after one year through five years 443 446 10 10
Due after five years through ten years 273 276 - -
Due after ten years 121 124 1 1
Mortgage-backed securities 837 843 - -
Equity securities 53 116 - -
------ ------ --- ---
Total $1,827 $1,906 $25 $25
====== ====== === ===
</TABLE>
Proceeds from sales of available-for-sale securities were $2.1 billion in 1998,
$2.9 billion in 1997 and $8.4 billion in 1996. In 1998, gross gains of
$48 million and gross losses of $3 million were realized on those sales; gross
gains of $98 million and gross losses of $8 million were realized in 1997 and
gross gains of $43 million and gross losses of $21 million were realized in
1996.
FS-12
<PAGE>
NOTE 3. Net Receivables and Lease Investments - Financial Services Sector
- --------------------------------------------------------------------------
Receivables
- -----------
Included in net receivables and lease investments at December 31 were net
finance receivables, investments in direct financing leases and investments in
operating leases. The investments in direct financing and operating leases
relate to the leasing of vehicles, various types of transportation and other
equipment, and facilities.
Net finance receivables at December 31 were as follows (in millions):
<TABLE>
<CAPTION>
1998 1997
------- --------
<S> <C> <C>
Retail $60,653 $ 65,661
Wholesale 22,650 24,520
Real estate 2,507 21,065
Other finance receivables 5,533 19,482
------- --------
Total finance receivables 91,343 130,728
Allowance for credit losses (1,229) (3,021)
------- --------
Total net finance receivables 90,114 127,707
Other 63 85
------- --------
Net finance and other receivables $90,177 $127,792
======= ========
Net finance receivables subject to
fair value* $90,010 $127,595
Fair value $89,847 $130,978
- - - - -
*Excludes certain diversified and other receivables of
$167 million and $197 million at December 31, 1998 and
1997, respectively
</TABLE>
Included in finance receivables at December 31, 1998 and 1997 were a total of
$1.5 billion and $1 billion, respectively, owed by three customers with the
largest receivable balances. Other finance receivables consisted primarily of
commercial and other collateralized loans and accrued interest. Also included in
other finance receivables at December 31, 1998 and 1997 were $3.9 billion and
$3.7 billion, respectively, of accounts receivable purchased by certain
Financial Services sector operations from Automotive sector operations. Finance
receivables that originated outside the United States are $35.6 billion and
$28.3 billion at December 31, 1998 and 1997, respectively.
Contractual maturities of total finance receivables are as follows (in
millions): 1999 - $56,480; 2000 - $17,930; 2001 - $9,369; thereafter - $7,564.
Experience indicates that a substantial portion of the portfolio generally is
repaid before the contractual maturity dates.
The fair value of most receivables was estimated by discounting future cash
flows using an estimated discount rate that reflected the credit, interest rate
and prepayment risks associated with similar types of instruments. For
receivables with short maturities, the book value approximated fair value.
The Financial Services sector has sold receivables through special purpose
subsidiaries. The servicing portfolio related to these securitized assets
amounted to $13.9 billion, $10.9 billion and $10.3 billion at December 31, 1998,
1997 and 1996, respectively. The company retains certain beneficial interests in
the sold receivables which are subject to limited recourse provisions. These
financial instruments of $1.3 billion at December 31, 1998 and $999 million at
December 31, 1997 are included in other assets.
FS-13
<PAGE>
NOTE 3. Net Receivables and Lease Investments - Financial Services Sector
- --------------------------------------------------------------------------
(continued)
Lease Investments
- -----------------
Investments in direct financing leases at December 31 were as follows (in
millions):
<TABLE>
<CAPTION>
1998 1997
------ -------
<S> <C> <C>
Minimum lease rentals, net
of unearned income $3,359 $ 7,874
Estimated residual values 3,720 2,923
Allowance for credit losses (80) (143)
------ -------
Net investments in direct financing leases $6,999 $10,654
====== =======
</TABLE>
Minimum direct financing lease rentals are contractually due as follows (in
millions): 1999 - $1,506; 2000 - $1,019; 2001 - $599; 2002 - $202; 2003 - $33;
thereafter - less than $1 million.
Investments in operating leases, excluding daily rental, at December 31 were as
follows (in millions):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Vehicles and other equipment, at cost $43,732 $44,705
Lease origination costs 63 65
Accumulated depreciation (8,136) (7,487)
Allowance for credit losses (268) (312)
------- -------
Net investments in operating leases $35,391 $36,971
======= =======
</TABLE>
Minimum rentals on operating leases are contractually due as follows
(in millions): 1999 - $7,150; 2000 - $3,712; 2001 - $1,629; 2002 - $224;
2003 - $76; thereafter - $121.
Depreciation expense for assets subject to operating leases is provided
primarily on the straight-line method over the term of the lease in amounts
necessary to reduce the carrying amount of the asset to its estimated residual
value. Depreciation rates and amounts are based on assumptions as to used car
prices at lease termination and the number of vehicles that will be returned to
the company. Estimated and actual residual values are reviewed on a regular
basis to determine that depreciation amounts are appropriate. Gains and losses
upon disposal of the assets also are included in depreciation expense.
Depreciation expense was as follows: $8.4 billion in 1998, $7.4 billion in 1997
and $6.6 billion in 1996.
Credit Losses
- -------------
Allowances for credit losses are estimated and established as required based on
historical experience and other factors that affect collectibility. The
allowance for estimated credit losses includes a provision for certain
non-homogeneous impaired loans. Impaired loans are measured based on the present
value of expected future cash flows discounted at the loan's effective interest
rate. Finance receivables and lease investments are charged to the allowances
for credit losses when an account is deemed to be uncollectible, taking into
consideration the financial condition of the borrower, the value of the
collateral, recourse to guarantors and other factors. Recoveries on finance
receivables and lease investments previously charged-off as uncollectible are
credited to the allowances for credit losses.
Changes in the allowances for credit losses were as follows (in millions):
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Beginning balance $ 3,476 $ 2,799 $ 2,391
Provision for credit losses 1,489 2,759 2,092
Total charge-offs and recoveries:
Charge-offs (1,640) (2,484) (2,058)
Recoveries 262 238 338
------- ------- -------
Net losses (1,378) (2,246) (1,720)
Other changes (2,010)* 164 36
------- ------- -------
Ending balance $ 1,577 $ 3,476 $ 2,799
======= ======= =======
- - - - -
*Other changes includes $1,892 million to reflect the spin-off of The Associates.
</TABLE>
FS-14
<PAGE>
NOTE 4. Inventories - Automotive Sector
- ----------------------------------------
Inventories at December 31 were as follows (in millions):
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Raw materials, work-in-process and supplies $2,887 $2,875
Finished products 2,769 2,593
------ ------
Total inventories $5,656 $5,468
====== ======
U.S. inventories $1,832 $1,993
</TABLE>
Inventories are stated at the lower of cost or market. The cost of most U.S.
inventories is determined by the last-in, first-out ("LIFO") method. The cost of
the remaining inventories is determined primarily by the first-in, first-out
("FIFO") method.
If the FIFO method had been used instead of the LIFO method, inventories would
have been higher by $1.2 billion and $1.4 billion at December 31, 1998 and 1997,
respectively.
NOTE 5. Net Property, Depreciation and Amortization - Automotive Sector
- ------------------------------------------------------------------------
Net property at December 31 was as follows (in millions):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Land $ 409 $ 393
Buildings and land improvements 9,298 8,803
Machinery, equipment and other 43,562 41,510
Construction in progress 2,774 2,377
------- -------
Total land, plant and equipment 56,043 53,083
Accumulated depreciation (26,840) (26,004)
------- -------
Net land, plant and equipment 29,203 27,079
Special tools, net of amortization 8,117 7,515
------- -------
Net property $37,320 $34,594
======= =======
</TABLE>
Property, equipment and special tools are stated at cost, less accumulated
depreciation and amortization. Property and equipment placed in service before
January 1, 1993 are depreciated using an accelerated method that results in
accumulated depreciation of approximately two-thirds of the asset cost during
the first half of the estimated useful life of the asset. Property and equipment
placed in service after December 31, 1992 are depreciated using the
straight-line method of depreciation over the estimated useful life of the
asset. On average, buildings and land improvements are depreciated based on a
30-year life; machinery and equipment are depreciated based on a 14-year life.
Special tools are amortized using an accelerated method over periods of time
representing the estimated productive life of those tools.
Depreciation and amortization expenses were as follows (in millions):
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Depreciation $2,804 $2,759 $2,644
Amortization 2,936 3,179 3,272
------ ------ ------
Total $5,740 $5,938 $5,916
====== ====== ======
</TABLE>
When property and equipment are retired, the general policy is to charge the
cost of those assets, reduced by net salvage proceeds, to accumulated
depreciation. Maintenance, repairs and rearrangement costs are expensed as
incurred and were $2.2 billion in 1998, $2.3 billion in 1997 and $2.3 billion in
1996. Expenditures that increase the value or productive capacity of assets are
capitalized. Preproduction costs related to new facilities are expensed as
incurred.
FS-15
<PAGE>
NOTE 6. Income Taxes
- ---------------------
Income before income taxes for U.S. and non-U.S. operations, excluding equity in
net income/(loss) of affiliated companies and excluding non-taxable gains from
The Associates spin-off (1998) and IPO (1996) and Hertz IPO (1997), was as
follows (in millions):
<TABLE>
<CAPTION>
1998 1997 1996
------ ------- ------
<S> <C> <C> <C>
U.S. $8,363 $ 8,353 $5,633
Non-U.S. 1,114 2,404 516
------ ------- ------
Total income before income taxes $9,477 $10,757 $6,149
====== ======= ======
</TABLE>
The provision for income taxes was estimated as follows (in millions):
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ -----
<S> <C> <C> <C>
Currently payable
U.S. federal $1,588 $2,130 $ 655
Non-U.S. 623 830 756
State and local 40 (25) 151
------ ------ ------
Total currently payable 2,251 2,935 1,562
Deferred tax liability/(benefit)
U.S. federal 883 536 642
Non-U.S. (109) 78 (117)
State and local 151 192 79
------ ------ ------
Total deferred 925 806 604
------ ------ ------
Total provision $3,176 $3,741 $2,166
====== ====== ======
</TABLE>
Deferred taxes are provided for earnings of non-U.S. subsidiaries which are
planned to be remitted. No provision for deferred taxes has been made on
$2.1 billion of retained earnings (primarily prior to 1998) which are
considered to be indefinitely invested in the non-U.S. subsidiaries. Deferred
taxes for the undistributed earnings of non-U.S. subsidiaries are not practical
to estimate.
A reconciliation of the provision for income taxes compared with the amounts at
the U.S. statutory tax rate, excluding the non-taxable gains from The Associates
spin-off (1998) and IPO (1996) and Hertz IPO (1997), is shown below:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Tax provision at U.S. statutory rate of 35% 35% 35% 35%
Effect of:
Tax on non-U.S. income 0 Pts. 0 Pts. 2 Pts.
State and local income taxes 1 1 2
Other (2) (1) (4)
--- --- ---
Provision for income taxes 34% 35% 35%
=== === ===
</TABLE>
Deferred income taxes reflect the estimated tax effect of accumulated temporary
differences between assets and liabilities for financial reporting purposes and
those amounts as measured by tax laws and regulations. The components of
deferred income tax assets and liabilities at December 31 were as follows (in
millions):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Deferred tax assets
-------------------
Employee benefit plans $ 6,591 $ 6,378
Dealer and customer allowances and claims 4,075 4,320
Net operating loss carryforwards 795 859
Allowance for credit losses 1,164 1,270
All other 1,717 1,697
Valuation allowances (256) (308)
------- -------
Total deferred tax assets 14,086 14,216
Deferred tax liabilities
------------------------
Leasing transactions 6,324 5,588
Depreciation and amortization
(excluding leasing transactions) 4,221 4,011
Employee benefit plans 969 997
All other 2,682 2,490
------- -------
Total deferred tax liabilities 14,196 13,086
------- -------
Net deferred tax assets/(liabilities) $ (110) $ 1,130
======= =======
</TABLE>
FS-16
<PAGE>
NOTE 6. Income Taxes (continued)
- ---------------------
Non-U.S. net operating loss carryforwards for tax purposes were $2.3 billion at
December 31, 1998. A substantial portion of these losses has an indefinite
carryforward period; the remaining losses have expiration dates beginning in
2000. For financial statement purposes, the tax benefit of operating losses is
recognized as a deferred tax asset, subject to appropriate valuation allowances.
The company evaluates the tax benefits of operating loss carryforwards on an
ongoing basis. Such evaluations include a review of historical and projected
future operating results, the eligible carryforward period and other
circumstances.
NOTE 7. Liabilities - Automotive Sector
- ----------------------------------------
Current Liabilities
- -------------------
Included in accrued liabilities at December 31 were the following (in millions):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Dealer and customer allowances and claims $ 8,765 $ 8,059
Employee benefit plans 2,530 2,154
Deferred revenue 2,447 2,566
Salaries, wages and employer taxes 740 759
Postretirement benefits other than pensions 275 640
Other 2,168 2,072
------- -------
Total accrued liabilities $16,925 $16,250
======= =======
</TABLE>
Noncurrent Liabilities
- ----------------------
Included in other liabilities at December 31 were the following (in millions):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Postretirement benefits other than pensions $14,859 $15,407
Dealer and customer allowances and claims 7,401 7,049
Employee benefit plans 3,762 3,137
Unfunded pension obligation 1,528 1,009
Minority interests in net assets of subsidiaries 103 94
Other 2,480 2,203
------- -------
Total other liabilities $30,133 $28,899
======= =======
</TABLE>
FS-17
<PAGE>
NOTE 8. Employee Retirement Benefits
- -------------------------------------
Employee Retirement Plans
- -------------------------
The company has two principal retirement plans in the U.S. The Ford-UAW
Retirement Plan covers hourly employees represented by the UAW, and the General
Retirement Plan covers substantially all other Ford employees of the company in
the U.S. The hourly plan provides noncontributory benefits related to employee
service. The salaried plan provides similar noncontributory benefits and
contributory benefits related to pay and service. Other U.S. and non-U.S.
subsidiaries have separate plans that generally provide similar types of
benefits for their employees.
In general, the company's plans are funded with the main exceptions of the U.S.
defined benefit plans for executives and certain plans in Germany; in such cases
an unfunded liability is recorded.
The company's policy for funded plans is to contribute annually, at a minimum,
amounts required by applicable law, regulations and union agreements. Plan
assets consist principally of investments in stocks, and government and other
fixed income securities.
Postretirement Health Care and Life Insurance Benefits
- ------------------------------------------------------
The company and certain of its subsidiaries sponsor unfunded plans to provide
selected health care and life insurance benefits for retired employees. The
company's U.S. and Canadian employees may become eligible for those benefits if
they retire while working for the company; however benefits and eligibility
rules may be modified from time to time. The estimated cost for these benefits
is accrued over periods of employee service on an actuarially determined basis.
In June 1997, the company prepaid certain 1998 and 1999 hourly health benefits
by contributing $1.6 billion to a Voluntary Employees' Beneficiary Association
("VEBA") trust. In 1998, a further $1.7 billion was contributed to the VEBA to
pre-pay hourly retiree health benefits. At December 31, 1998, $2 billion of the
remaining $2.4 billion VEBA assets applied to hourly retirees.
Increasing the assumed health care cost trend rates by one percentage point is
estimated to increase the aggregate service and interest cost components of net
postretirement benefit expense for 1998 by about $200 million and the
accumulated postretirement benefit obligation at December 31, 1998 by about
$2.3 billion. A decrease of one percentage point would reduce service and
interest costs by $160 million and decrease the December 31, 1998 obligation by
$1.9 billion.
FS-18
<PAGE>
NOTE 8. Employee Retirement Benefits (continued)
- -------------------------------------
Employee Retirement Benefit Expense
- -----------------------------------
The company's expense for pensions, retirement health care and life insurance
was as follows (in millions):
<TABLE>
<CAPTION>
Pension Benefits
-------------------------------------------------
U.S. Plans Non-U.S. Plans Other Beneifts*
------------------------- ------------------- ---------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
------ ------ ------ ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Costs Recognized in Income
- --------------------------
Service cost $ 596 $ 551 $ 532 $354 $331 $261 $ 265 $ 242 $ 268
Interest cost 1,999 1,993 1,838 867 857 819 1,183 1,161 1,195
Expected return on plan
assets (2,747) (2,505) (2,310) (986) (931) (790) (45) - -
Amortization of:
Transition (asset)/obligation (22) (22) (21) 13 61 39 - - -
Plan amendments 729 515 599 114 92 103 (42) (44) (48)
(Gains)/losses and other 25 30 30 129 56 95 95 13 (21)
------- ------- ------- ----- ---- ---- ------- ------ ------
Net pension/postretirement
expense $ 580 $ 562 $ 668 $491 $466 $527 $1,456 $1,372 $1,394
======= ======= ======= ===== ===== ===== ======= ======= ======
Discount rate for expense 6.75% 7.25% 7.00% 6.50% 7.10% 7.60% 7.00% 7.50% 7.25%
Assumed long-term rate of
return on assets 9.00% 9.00% 9.00% 9.20% 9.20% 9.20% 6.20% - -
Initial health care cost
trend rate - - - - - - 6.60% 6.60% 9.50%
Ultimate health care cost
trend rate - - - - - - 5.00% 5.00% 5.50%
Number of years to ultimate
trend rate - - - - - - 10 10 10
- - - - - -
*Postretirement health care and life insurance benefits
</TABLE>
Pension expense in 1998 increased for U.S. and non-U.S. plans primarily as a
result of the year-to-year change in the cost of special employee separation
programs and lower discount rates, partially offset by increased return on plan
assets.
FS-19
<PAGE>
NOTE 8. Employee Retirement Benefits (continued)
- -------------------------------------
The year-end status of these plans was as follows (in millions):
<TABLE>
<CAPTION>
Pension Benefits
------------------------------------------
U.S. Plans Non-U.S. Plans Other Benefits*
------------------ ------------------ --------------------
1998 1997 1998 1997 1998 1997
-------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Change in Benefit Obligation
- ----------------------------
Benefit obligation at January 1 $30,923 $28,245 $13,311 $12,865 $ 17,522 $ 16,503
Service cost 596 551 354 331 265 242
Interest cost 1,999 1,993 867 857 1,183 1,161
Amendments 10 4 26 91 - -
Special programs 278 79 114 37 63 -
Net aquisitions/(sales) (493) 76 - - (130) -
Plan participant contributions 45 43 91 - - -
Benefits paid (1,869) (1,828) (660) (633) (846) (794)
Foreign exchange translation - - 182 (1,029) (22) (15)
Actuarial loss/(gain) 2,046 1,760 2,051 792 1,180 425
------- ------- ------- ------- -------- --------
Benefit obligation at December 31 $33,535 $30,923 $16,336 $13,311 $ 19,215 $ 17,522
======= ======= ======= ======= ======== ========
Change in Plan Assets
- ---------------------
Fair value of plan assets at January 1 $35,683 $30,933 $11,687 $10,898 $ 736 $ -
Actual return on plan assets 5,746 5,933 1,470 1,533 45 -
Company contributions 2 210 219 246 1,700 736
Special programs (95) (1) (27) - - -
Net sales (473) - - - - -
Plan participant contributions 45 43 91 - - -
Benefits paid (1,869) (1,828) (660) (633) (480) -
Foreign exchange translation - - 26 (652) - -
Other 83 393 449 295 - -
------- ------- ------- ------- -------- --------
Fair value of plan assets at December 31 $39,122 $35,683 $13,255 $11,687 $ 2,001 $ 736
======= ======= ======= ======= ======== ========
Funded Status of the Plan
- -------------------------
Plan assets in excess of/(less than) $ 5,587 $ 4,760 $(3,081) $(1,624) $(17,214) $(16,786)
benefit obligations
Unamortized:
Transition (asset)/obligation (68) (87) 744 212 - -
Prior service cost 1,941 2,393 507 570 (119) (162)
Net (gains)/losses (5,704) (4,801) 650 (63) 1,900 757
------- ------- ------- ------- -------- --------
Net amount recognized $ 1,756 $ 2,265 $(1,180) $ (905) $(15,433) $(16,191)
======= ======= ======= ======= ======== ========
Amounts Recognized in the
Balance Sheet Consists of Assets/(Liabilities)
- ----------------------------------------------
Other non-current assets - Automotive** $ 2,314 $ 2,459 $ 1,558 $ 1,600 $ - $ -
Accrued non-current liabilities - Automotive (611) (515) (3,601) (2,749) (14,859) (15,407)
Deferred income taxes 34 39 376 120 - -
Accumulated other comprehensive income 54 63 644 274 - -
Other (35) 219 (157) (150) (574) (784)
------- ------- ------- ------- -------- --------
Net amount recognized $ 1,756 $ 2,265 $(1,180) $ (905) $(15,433) $(16,191)
======= ======= ======= ======= ======== ========
**Includes intangible asset 16 68 404 455
Pension Plans in Which Accumulated Benefit
Obligation Exceeds Plan Assets at December 31
- ---------------------------------------------
Projected benefit obligation $ 786 $ 795 $ 6,557 $ 5,358
Accumulated benefit obligation 689 688 6,141 5,024
Fair value of plan assets 14 76 2,820 2,631
Assumptions as of December 31
- -----------------------------
Discount rate 6.25% 6.75% 5.70% 6.50% 6.50% 7.00%
Expected return on assets 9.00% 9.00% 9.30% 9.20% 6.00% 6.20%
Average rate of increase in compensation 5.20% 5.50% 5.10% 5.10% - -
Initial health care cost trend rate - - - - 7.00% 6.60%
Ultimate health care cost trend rate - - - - 5.00% 5.00%
Number of years to ultimate trend rate - - - - 9 10
- - - - - -
*Postretirement health care and life insurance benefits
</TABLE>
FS-20
<PAGE>
NOTE 9. Debt
- -------------
The fair value of debt was estimated based on quoted market prices or current
rates for similar debt with the same remaining maturities.
Automotive Sector
- -----------------
Debt at December 31 was as follows (in millions):
<TABLE>
<CAPTION>
Weighted Average
Interest Rate* Book Value
---------------- -----------------
Maturity 1998 1997 1998 1997
-------- ---- ---- ----- ------
<S> <C> <C> <C> <C> <C>
Debt payable within one year
----------------------------
Short-term debt 9.8% 7.9% $ 1,076 $ 592
Long-term debt payable within one year 45 537
------- ------
Total debt payable within one year 1,121 1,129
Long-term debt 2000-2097 8.0% 8.5% 8,713 7,047
------- ------
Total debt $ 9,834 $8,176
======= ======
Fair value $10,809 $8,988
- - - - -
*Excludes the effect of interest rate swap agreements; change in 1998
primarily reflects short-term debt in South America.
</TABLE>
Long-term debt at December 31, 1998 included maturities as follows (in
millions): 1999 - $45 (included in current liabilities); 2000 - $705;
2001 - $222; 2002 - $595; 2003 - $69; thereafter - $7,122.
Included in long-term debt at December 31, 1998 and 1997 were obligations of
$7,944 million and $6,864 million, respectively, with fixed interest rates, and
$769 million and $183 million, respectively, with variable interest rates
(generally based on LIBOR or other short-term rates). Obligations payable in
foreign currencies at December 31, 1998 and 1997 were $544 million and
$372 million, respectively.
Agreements to manage exposures to fluctuations in interest rates, which include
primarily interest rate swap agreements and futures contracts, did not change
the December 31, 1998 and December 31, 1997 overall weighted-average interest
rates on long-term debt or the obligations subject to variable interest rates.
Financial Services Sector
- -------------------------
Debt at December 31 was as follows (in millions):
<TABLE>
<CAPTION>
Weighted Average
Interest Rate* Book Value
------------------ -------------------
Maturity 1998 1997 1998 1997
-------- ------ ------ -------- --------
<S> <C> <C> <C> <C> <C>
Debt payable within one year
----------------------------
Unsecured short-term debt $ 2,998 $ 3,684
Commercial paper 49,429 63,834
Other short-term debt 4,046 3,985
-------- --------
Total short-term debt 5.6% 6.0% 56,473 71,503
Long-term debt payable within one year 10,383 15,370
-------- --------
Total debt payable within one year 66,856 86,873
Long-term debt
--------------
Secured indebtedness 2000-2005 10.2% 9.3% 17 64
Unsecured senior indebtedness
Notes and bank debt 2000-2078 6.2% 6.6% 50,449 67,477
Debentures 2001-2006 4.0% 5.6% 1,661 2,313
Unamortized discount (30) (6)
-------- --------
Total unsecured senior indebtedness 52,080 69,784
Unsecured subordinated indebtedness
Notes 2000-2020 7.7% 8.5% 3,381 2,946
Debentures 7.3% 0 425
Unamortized discount (10) (21)
-------- --------
Total unsecured subordinated indebtedness 3,371 3,350
-------- --------
Total long-term debt 55,468 73,198
-------- --------
Total debt $122,324 $160,071
======== ========
Fair value $124,320 $161,872
- - - - -
*Excludes the effect of interest rate swap agreements
</TABLE>
FS-21
<PAGE>
NOTE 9. Debt (continued)
- -------------
Financial Services Sector (continued)
- -------------------------
Information concerning short-term borrowings (excluding long-term debt payable
within one year) is as follows (in millions):
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Average amount of short-term borrowings $49,099 $65,592 $62,529
Weighted-average short-term interest rates per annum
(average year) 5.7% 5.3% 5.7%
Average remaining term of commercial paper
at December 31 31 days 30 days 33 days
</TABLE>
Long-term debt at December 31, 1998 included maturities as follows
(in millions): 1999 - $10,383; 2000 - $11,307; 2001 - $12,363; 2002 - $8,577;
2003 - $9,958; thereafter - $13,263.
Included in long-term debt at December 31, 1998 and 1997 were obligations of
$38.1 billion and $56.7 billion, respectively, with fixed interest rates and
$17.3 billion and $16.5 billion, respectively, with variable interest rates
(generally based on LIBOR or other short-term rates). Obligations payable in
foreign currencies at December 31, 1998 and 1997 were $30 billion and
$27 billion, respectively. These obligations were issued primarily to fund
non-U.S. business operations.
Outstanding commercial paper at December 31, 1998 totaled $46.2 billion at Ford
Credit and $2.3 billion at Hertz, with an average remaining maturity of 30 days
and 52 days, respectively.
Agreements to manage exposures to fluctuations in interest rates include
primarily interest rate swap agreements. At December 31, 1998, these agreements
decreased the weighted-average interest rate on long-term debt to 6%, compared
with 6.2% excluding these agreements, and effectively decreased the obligations
subject to variable interest rates to zero; the weighted-average interest rate
on short-term debt excluding these agreements did not change materially. At
December 31, 1997, these agreements decreased the weighted-average interest rate
on long-term debt to 6.5%, compared with 6.6% excluding these agreements, and
effectively decreased the obligations subject to variable rates to
$11.8 billion; the weighted-average interest rate on short-term debt excluding
these agreements did not change materially.
Support Facilities
- ------------------
At December 31, 1998, Ford had long-term contractually committed global credit
agreements under which $8.6 billion is available from various banks; 94% are
available through June 30, 2003. The entire $8.6 billion may be used, at Ford's
option, by any affiliate of Ford; however, any borrowing by an affiliate will be
guaranteed by Ford. Ford also has the ability to transfer on a nonguaranteed
basis $8.3 billion of such credit lines in varying portions to Ford Credit and
FCE Bank plc (formerly known as Ford Credit Europe plc). In addition, at
December 31, 1998, $628 million of contractually committed credit facilities
were available to various Automotive sector affiliates outside the U.S.
Approximately $254 million of these facilities were in use at December 31, 1998.
FS-22
<PAGE>
NOTE 9. Debt (continued)
- -------------
At December 31, 1998, the Financial Services sector had a total of $28.2 billion
of contractually committed support facilities (excluding the $8.3 billion
available under Ford's global credit agreements). Of these facilities,
$23.9 billion are contractually committed global credit agreements under which
$19.2 billion and $4.7 billion are available to Ford Credit and FCE Bank plc,
respectively, from various banks; 58% and 76%, respectively, of such facilities
are available through June 30, 2003. The entire $19.2 billion may be used, at
Ford Credit's option, by any subsidiary of Ford Credit, and the entire
$4.7 billion may be used, at FCE Bank plc's option, by any subsidiary of FCE
Bank plc. Any borrowings by such subsidiaries will be guaranteed by Ford Credit
or FCE Bank plc, as the case may be. At December 31, 1998, $131 million of the
Ford Credit global facilities were in use and $826 million of the FCE Bank plc
global facilities were in use. Other than the global credit agreements, the
remaining portion of the Financial Services sector support facilities at
December 31, 1998 consisted of $2 billion of contractually committed support
facilities available to Hertz in the U.S. and $2.3 billion of contractually
committed support facilities available to various affiliates outside the U.S.;
at December 31, 1998 approximately $1.3 billion of these facilities were in use.
Furthermore, banks provide $1.5 billion of liquidity facilities to support the
asset-backed commercial paper program of a Ford Credit sponsored special purpose
entity.
NOTE 10. Capital Stock
- -----------------------
At December 31, 1998, all general voting power was vested in the holders of
Common Stock and the holders of Class B Stock, voting together without regard to
class. At that date, the holders of Common Stock were entitled to one vote per
share and, in the aggregate, had 60% of the general voting power; the holders of
Class B Stock were entitled to such number of votes per share as would give
them, in the aggregate, the remaining 40% of the general voting power, as
provided in the company's Restated Certificate of Incorporation.
The Restated Certificate of Incorporation provides that all shares of Common
Stock and Class B Stock share equally in dividends (other than dividends
declared with respect to any outstanding Preferred Stock), except that any stock
dividends are payable in shares of Common Stock to holders of that class and in
Class B Stock to holders of that class. Upon liquidation, all shares of Common
Stock and Class B Stock are entitled to share equally in the assets of the
company available for distribution to the holders of such shares.
On January 9, 1998, all outstanding shares of Series A Depositary Shares,
representing 1/1,000 of a share of Series A Cumulative Convertible Preferred
Stock, were redeemed at a price of $51.68 per Depositary Share plus an amount
equal to accrued and unpaid dividends.
Series B Depositary Shares, representing 1/2,000 of a share of Series B
Cumulative Preferred Stock, have a liquidation preference of $25 per Depositary
Share. Shares outstanding at December 31, 1998 were valued at $177 million and
numbered 7,096,688 Depositary Shares. Dividends are payable at a rate of
$2.0625 per year per Depositary Share. Series B Cumulative Preferred Stock is
not convertible into shares of Common Stock of the company. On and after
December 1, 2002, and upon satisfaction of certain conditions, the stock is
redeemable forcash at the option of Ford, in whole or in part, at a redemption
price equivalent to $25 per Depositary Share, plus an amount equal to the sum
of all accrued and unpaid dividends.
On January 22, 1998, the company commenced an offer to purchase all Depositary
Shares representing its Series B Cumulative Preferred Stock at a price of
$31.40 per Depositary Share. The offer to purchase was in effect until
February 26, 1998. Depositary Shares purchased totaled 13,229,775.
The Series B Cumulative Preferred Stock ranks (and any other outstanding
Preferred Stock of the company would rank) senior to the Common Stock and Class
B Stock in respect of dividends and liquidation rights.
FS-23
<PAGE>
NOTE 10. Capital Stock (continued)
- -----------------------
Changes to the number of shares of capital stock issued for the periods
indicated were as follows (shares in millions):
<TABLE>
<CAPTION>
Series A Series B
Common Class B Preferred Preferred
Stock Stock Stock Stock
------- ------- --------- ---------
<S> <C> <C> <C> <C>
Issued at December 31, 1995 1,089 71 0.011 0.010
Changes:
1996 - Conversion of Series A Preferred Stock 23 (0.007)
- Employee benefit plans and other 6
1997 - Conversion of Series A Preferred Stock 4 (0.001)
- Employee benefit plans and other 10
1998 - Conversion and Redemption of Series A 8 (0.003)
Preferred Stock
- Employee benefit plans and other 11
- Repurchase of Series B Preferred Stock (0.006)
----- -- ----- -----
Net change 62 0 (0.011) (0.006)
----- -- ----- -----
Issued at December 31, 1998 1,151 71 0.000 0.004
===== == ===== =====
Authorized at December 31, 1998 3,000 265 -- Total Preferred: 30 --
</TABLE>
NOTE 11. Stock Options
- -----------------------
The company has stock options outstanding under the 1985 Stock Option Plan, the
1990 Long-Term Incentive Plan and 1998 Long-Term Incentive Plan. These Plans
were approved by the stockholders. No further grants may be made under the
1985 Plan or 1990 Plan. Grants may be made under the 1998 Plan through
April 2008. In general, options granted in 1997 under the 1990 Plan and
subsequent years under the 1998 Plan become exercisable 33% after one year from
the date of grant, 66% after two years and in full after three years. In
general, options granted under the 1985 Plan and options granted prior to
1997 under the 1990 Plan become exercisable 25% after one year from the date of
grant, 50% after two years, 75% after three years and in full after four years.
Options under the Plans expire after 10 years from the date of grant. Certain
participants were granted accompanying stock appreciation rights under the
Plans which may be exercised in lieu of the related options. Under the Plans,
a stock appreciation right entitles the holder to receive, without payment, the
excess of the fair market value of the Common Stock on the date of exercise
over the option price, either in Common Stock or cash or a combination. In
addition, grants of Performance/Contingent Stock Rights were made with respect
to 1,354,627 shares in 1998, 936,300 shares in 1997, 865,100 shares in 1996. The
number of shares ultimately awarded will depend on the extent to which the
Performance Targets specified in each Right is achieved, individual performance
of the recipients and other factors, as determined by the Compensation and
Option Committee of the Board of Directors.
Under the 1998 Plan, up to 2% of Common Stock issued as of December 31 of any
year may be made available for stock options and other plan awards in the next
succeeding calendar year. That limit may be increased up to 3% in any year, with
a corresponding reduction in shares available for grants in future years. Any
unused portion of the 2% limit for any calendar year may be carried forward and
made available for Plan awards in succeeding calendar years. At
December 31, 1998, the number of unused shares carried forward aggregated to
12,966,146 shares.
FS-24
<PAGE>
NOTE 11. Stock Options (continued)
- -----------------------
Information concerning stock options is as follows (shares in millions):
<TABLE>
<CAPTION>
1998 1997 1996
------------------ ------------------ ------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares subject to option Shares Price Shares Price Shares Price
------------------------ ------ --------- ------ ---------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period 50.0 $28.44 50.3 $26.93 48.5 $25.22
New grants (based on fair value of
Common Stock at dates of grant) 12.7 58.07 8.6 32.05 8.0 32.69
Associates adjustment* 24.8 -
Exercised** (13.7) 19.97 (8.3) 23.19 (5.2) 20.32
Surrendered upon exercise of stock
appreciation rights (2.5) 22.79 (0.4) 22.44 (0.7) 23.03
Terminated and expired (0.4) 33.58 (0.2) 30.86 (0.3) 31.14
----- ----- -----
Outstanding at end of period 70.9*** 25.67 50.0 28.44 50.3 26.93
Outstanding but not exercisable (34.9) (21.6) (21.5)
----- ----- -----
Exercisable at end of period 36.0 19.53 28.4 25.84 28.8 23.61
===== ===== =====
</TABLE>
- - - - -
*Outstanding stock options and related exercise prices were adjusted to
preserve the intrinsic value of options as a result of The Associates
spin-off in 1998.
**Exercised at option prices ranging from $10.43 to $32.69 during
1998, $15.00 to $32.69 during 1997 and $13.42 to $29.06 during 1996.
***Included 0.7, 52.5 and 17.7 million shares under the 1985, 1990 and
1998 Plans, respectively, at option prices ranging from $10.43 to
$58.63 per share. At December 31, 1998, the weighted-average remaining
exercise period relating to the outstanding options was 7.1 years.
The estimated fair value as of date of grant of options granted in 1998,
1997 and 1996, using the Black-Scholes option-pricing model, was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Estimated fair value per share of
options granted during the year $9.25 $5.76 $6.93
Assumptions:
Annualized dividend yield 4.1% 4.8% 4.3%
Common Stock price volatility 28.1% 22.1% 25.2%
Risk-free rate of return 5.7% 6.7% 6.2%
Expected option term (in years) 5 5 5
</TABLE>
The company measures compensation cost using the intrinsic value method.
Accordingly, no compensation cost for stock options has been recognized. If
compensation cost had been determined based on the estimated fair value of
options granted since 1995, the company's net income and income per share would
have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------- ------------------- -------------------
As Pro As Pro As Pro
Reported Forma* Reported Forma* Reported Forma*
-------- ------- -------- ------ -------- ------
<S> <C> <C> <C> <C>
Net income (in millions) $22,071 $22,014 $6,920 $6,892 $4,446 $4,428
Income per share
----------------
Basic $ 18.17 $ 18.12 $ 5.75 $ 5.73 $ 3.73 $ 3.71
Diluted $ 17.76 $ 17.71 $ 5.62 $ 5.60 $ 3.64 $ 3.63
</TABLE>
- - - - - -
*The pro forma disclosures may not be representative of the effects on reported
net income and income per share for future periods because only stock options
that were granted beginning in 1995 are included in the above table. The
estimated fair value, before tax, of options granted in 1998, 1997 and 1996 was
$162 million, $48 million and $54 million, respectively.
FS-25
<PAGE>
NOTE 12. Litigation and Claims
- -------------------------------
Various legal actions, governmental investigations and proceedings and claims
are pending or may be instituted or asserted in the future against the company
and its subsidiaries, including those arising out of alleged defects in the
company's products; governmental regulations relating to safety, emissions and
fuel economy; financial services; employment-related matters; dealer, supplier
and other contractual relationships; intellectual property rights; product
warranties; and environmental matters. Certain of the pending legal actions are,
or purport to be, class actions. Some of the foregoing matters involve or may
involve compensatory, punitive, or antitrust or other treble damage claims in
very large amounts, or demands for recall campaigns, environmental remediation
programs, sanctions, or other relief which, if granted, would require very large
expenditures.
Litigation is subject to many uncertainties, and the outcome of individual
litigated matters is not predictable with assurance. Reserves have been
established by the company for certain of the matters discussed in the foregoing
paragraph where losses are deemed probable. It is reasonably possible, however,
that some of the matters discussed in the foregoing paragraph for which reserves
have not been established could be decided unfavorably to the company or the
subsidiary involved and could require the company or such subsidiary to pay
damages or make other expenditures in amounts or a range of amounts that cannot
be estimated at December 31, 1998. The company does not reasonably expect, based
on its analysis, that any adverse outcome from such matters would have a
material effect on future consolidated financial statements for a particular
year, although such an outcome is possible.
NOTE 13. Commitments and Contingencies
- ---------------------------------------
At December 31, 1998, the company had the following minimum rental commitments
under non-cancelable operating leases (in millions): 1999 - $413; 2000 - $336;
2001 - $272; 2002 - $182; 2003 - $113; thereafter - $187. These amounts include
rental commitments related to the sale and leaseback of certain Automotive
sector machinery and equipment.
Ford in the U.S. and Ford of Canada have entered into agreements with banks to
provide credit card programs that offer rebates that can be applied against the
purchase or lease of Ford vehicles. The maximum amount of rebates available to
qualified cardholders at December 31, 1998 and 1997 was $1.6 billion and
$1.8 billion, respectively. The company has provided for the estimated net cost
of these programs as a sales incentive based on the estimated number of
participants who ultimately will purchase vehicles. The U.S. program was
discontinued December 31, 1997 and the Canadian program was discontinued
May 31, 1998; rebates for the U.S. program earned prior to program
discontinuance will be valid for up to five years following the calendar year
in which earned, subject to certain restrictions.
NOTE 14. Financial Instruments
- -------------------------------
Estimated fair value amounts have been determined using available market
information and various valuation methods depending on the type of instrument.
In evaluating the fair value information, considerable judgment is required to
interpret the market data used to develop the estimates. The use of different
market assumptions and/or different valuation techniques may have a material
effect on the estimated fair value amounts. Accordingly, the estimates of fair
value presented herein may not be indicative of the amounts that could be
realized in a current market exchange.
FS-26
<PAGE>
NOTE 14. Financial Instruments (continued)
- -------------------------------
Balance Sheet Financial Instruments
- -----------------------------------
Information about specific valuation techniques and estimated fair values is
provided throughout the Notes to Financial Statements. Book value and estimated
fair value amounts at December 31 were as follows (in millions):
<TABLE>
<CAPTION>
1998 1997
----------------------- -----------------------
Book Fair Book Fair Fair Value
Value Value Value Value Reference
-------- -------- -------- ------- ----------
<S> <C> <C> <C> <C> <C>
Automotive Sector
-----------------
Marketable securities $ 20,120 $ 20,120 $ 14,519 $ 14,519 Note 2
Debt 9,834 10,809 8,176 8,988 Note 9
Financial Services Sector
-------------------------
Marketable securities $ 968 $ 968 $ 2,201 $ 2,201 Note 2
Receivables 90,010 89,847 127,595 130,978 Note 3
Debt 122,324 124,320 160,071 161,872 Note 9
</TABLE>
Foreign Currency and Interest Rate Instruments
- ----------------------------------------------
The fair value of foreign currency and interest rate instruments was estimated
using current market prices provided by outside quotation services. The
estimated fair value, notional amount and deferred loss at December 31 were as
follows (in millions):
<TABLE>
<CAPTION>
Fair Value
------------------
1998 1997
------ ------
<S> <C> <C>
Foreign currency instruments
Assets $631 $ 289
Liabilities 615 1,207
Interest rate instruments
Assets 944 548
Liabilities 251 182
</TABLE>
The notional amount represents the contract amount, not the amount at risk. The
notional amount for foreign currency instruments was $33.1 billion at
December 31, 1998, and $31 billion at December 31, 1997. The deferred gain for
foreign currency instruments was $28 million at December 31, 1998, compared to a
deferred loss of $63 million at December 31, 1997. The deferred gain for 1998
is the sum of unrecognized gains and losses on the underlying transactions or
commitments. The notional amount for interest rate instruments was $97.5 billion
at December 31, 1998, and $90.4 billion at December 31, 1997.
Counterparty Credit Risk
- ------------------------
Ford manages its foreign currency and interest rate counterparty credit risks by
limiting exposure to and by monitoring the financial condition of each
counterparty. The amount of exposure Ford may have to a single counterparty on a
worldwide basis is limited by company policy. In the unlikely event that a
counterparty fails to meet the terms of a foreign currency or an interest rate
instrument, the company's risk is limited to the fair value of the instrument.
Other Financial Agreements
- --------------------------
At December 31, 1998, the notional amount of commodity hedging contracts
outstanding totaled $853 million; the notional amount at December 31, 1997 was
$496 million. The company also had guaranteed $826 million of debt of
unconsolidated subsidiaries, affiliates and others at December 31, 1998. The
risk of loss under these financial agreements is not material.
FS-27
<PAGE>
NOTE 15. Acquisitions, Dispositions and Restructuring
- ------------------------------------------------------
Automotive Sector
- -----------------
Restructurings
- --------------
Ford recorded a pre-tax charge of $726 million ($472 million after taxes) in the
fourth quarter of 1998 for retirement and separation programs. These special
voluntary and involuntary programs reduce the workforce by 2,184 persons in
North America (all salaried), 1,977 in Europe (1,304 hourly and 673 salaried)
and 4,650 in South America (4,400 hourly and 250 salaried). The costs were
charged to Automotive segment ($674 million) in cost of sales, Visteon segment
($38 million) in cost of sales, Ford Credit segment ($9 million) in operating
and other expenses, and other Financial Services operations ($5 million) in
operating and other expenses.
Ford recorded a pre-tax charge of $272 million ($169 million after taxes) in the
second quarter of 1997, reflecting actions that were completed during 1997 and
1998. These included primarily the discontinuation of passenger car production
at the Lorain Assembly Plant resulting in a write-down of surplus assets. The
charge also included employee termination costs related to the elimination of a
shift at the Halewood (England) Plant, and a loss on the sale of the heavy truck
business.
Cost for special voluntary employee separation programs reduced the Automotive
sector's net income for 1996 by $436 million. The programs affected about
3,500 salaried employees, primarily in the U.S.
Write-Down of Kia Motors Corporation
- ------------------------------------
During the fourth quarter of 1998, Ford recorded a pre-tax charge of
$111 million ($86 million after taxes) to write-off its net exposure to Kia
Motors Corporation ("Kia"). The write off of Ford's exposure was recorded in
cost of sales. Ford's share of Mazda Motor Corporation's ("Mazda") exposure was
recorded in equity in net income of affiliates.
Batavia/ZF Friedrichshafen AG Joint Venture
- -------------------------------------------
During the fourth quarter of 1998, Ford recorded in cost of sales a pre-tax
charge of $112 million ($73 million after taxes) related to the fair value
transfer of its Batavia (Ohio) Transmission Plant to a new joint venture company
formed by Ford and ZF Friedrichshafen AG of Germany. The transaction is expected
to be completed in the first quarter of 1999. The new joint venture will be
reflected in Ford's consolidated financial statements on an equity basis.
Investment in Mazda Motor Corporation
- -------------------------------------
During May 1996, Ford increased its investment in Mazda from its existing
24.5% ownership interest to a 33.4% ownership interest by purchasing from Mazda
newly-issued shares of common stock for an aggregate purchase price of
$484 million. In connection with the purchase of shares, Mazda agreed to
coordinate more closely with Ford its strategies and plans, particularly in the
areas of product development, manufacturing and distribution of vehicles, so as
to improve the competitiveness and economies of scale of both companies. Ford
and Mazda remain separate public companies with separate identities. Ford is not
responsible for any of Mazda's liabilities, debts or other obligations, and
Mazda's operating results and financial position are not consolidated with those
of Ford; Mazda continues to be reflected in Ford's consolidated financial
statements on an equity basis.
FS-28
<PAGE>
NOTE 15. Acquisitions, Dispositions and Restructuring (continued)
- ------------------------------------------------------
Financial Services Sector
- -------------------------
Associates First Capital Corporation
- ------------------------------------
During the second quarter of 1998, the company completed a spin-off of Ford's
80.7% (279.5 million shares) interest in The Associates. As a result of the
spin-off of The Associates, Ford recorded a gain of $15,955 million in the first
quarter of 1998 based on the fair value of The Associates as of the record date,
March 12, 1998. The spin-off qualified as a tax-free transaction for U.S.
federal income tax purposes. During the second quarter of 1996, The Associates
completed an initial public offering ("IPO") of its common stock representing a
19.3% economic interest in The Associates. Ford recorded a second quarter
1996 gain of $650 million resulting from the IPO; the gain was not subject to
income taxes.
Hertz Corporation
- -----------------
In the second quarter of 1997, Hertz, a subsidiary of Ford, completed an IPO of
its common stock representing a 19.1% economic interest in Hertz. Ford recorded
a second quarter 1997 gain of $269 million resulting from the IPO; the gain was
not subject to income taxes.
Ford Leasing
- ------------
During the third quarter of 1996, Ford Leasing Corporation, then known as USL
Capital Corporation ("USL Capital"), a subsidiary of Ford Holdings, Inc.,
concluded a series of transactions for the sale of substantially all of its
assets, as well as certain assets owned by Ford Credit and managed by USL
Capital. Proceeds from the sales were used to pay down related liabilities and
debt. Ford recorded a pre-tax gain of $263 million from the sales ($95 million
gain after taxes).
Budget Rent-A-Car
- -----------------
The company recorded a pre-tax charge in 1996 totaling $384 million
($233 million after taxes) to recognize the estimated value of its outstanding
notes receivable from, and preferred stock investment in, Budget Rent-A-Car
Corporation ("BRAC"). The initial provision taken in the second quarter of
1996 totaling $700 million ($437 million after taxes) resulted from conclusions
reached in a study of Ford's rental car business strategy. In accordance with
SFAS 114, the notes receivable provision reflected primarily the unsecured
portion of financing provided to BRAC by Ford. The preferred stock write-down
reflected recognition of the fair value of Ford's investment at the time. In the
fourth quarter of 1996, the notes receivable provision was reduced by
$316 million ($204 million after taxes), reflecting a strengthening of the
rental car business, recent sales of rental car franchises, and increased
investor interest that led to a reassessment of the value of the outstanding
common stock of BRAC; Ford became the owner of approximately 22% of Team Rental
as a result of the partial repayment in Team Rental stock of Ford's loans to
BRAC. In the fourth quarter of 1997, Ford sold its shares of Budget Group
(formerly "Team Rental") stock. The gain on sale was not material.
FS-29
<PAGE>
NOTE 16. Cash Flows
- --------------------
The reconciliation of net income to cash flows from operating activities is as
follows (in millions):
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- -------------------- ---------------------
Financial Financial Financial
Automotive Services Automotive Services Automotive Services
---------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net income $ 4,752 $17,319 $ 4,714 $ 2,206 $ 1,655 $ 2,791
Adjustments to reconcile net income
to cash flows from operating activities:
Depreciation and amortization 5,740 8,589 5,938 7,645 5,916 6,875
Losses/(earnings) of affiliated
companies in excess of dividends
remitted 82 (2) 127 (1) 44 (16)
Provision for credit and
insurance losses - 1,798 - 3,230 - 2,564
Foreign currency adjustments (208) - (27) - 156 -
Net (purchases)/sales of trading
securities (5,434) (205) (2,307) 67 (5,180) 62
Provision for deferred income taxes 421 504 908 (102) 74 530
Gain on spin-off of The Associates
(Note 15) - (15,955) - - - -
Gain on sale of common stock of a
subsidiary (Note 15) - - - (269) - (650)
Changes in assets and liabilities:
Decrease/(increase) in accounts
receivable and other current assets 1,027 (1,189) (179) 256 (2,183) (1,328)
(Increase)/decrease in inventory (254) - 1,234 - 553 -
Increase/(decrease) in accounts payable
and accrued and other liabilities 3,019 1,728 3,854 (121) 5,447 1,303
Other 477 891 (278) 739 94 550
------- ------- ------- ------- ------- -------
Cash flows from operating activities $ 9,622 $13,478 $13,984 $13,650 $ 6,576 $12,681
======= ======= ======= ======= ======= =======
</TABLE>
The company considers all highly liquid investments purchased with a maturity of
three months or less, including short-term time deposits and government, agency
and corporate obligations, to be cash equivalents. Automotive sector cash
equivalents at December 31, 1998 and 1997 were $3.4 billion and $5.8 billion,
respectively; Financial Services sector cash equivalents at December 31, 1998
and 1997 were $500 million and $800 million, respectively. Cash flows resulting
from futures contracts, forward contracts and options that are accounted for as
hedges of identifiable transactions are classified in the same category as the
item being hedged. Purchases, sales and maturities of trading securities are
included in cash flows from operating activities. Purchases, sales and
maturities of available-for-sale and held-to-maturity securities are included in
cash flows from investing activities.
Cash paid for interest and income taxes was as follows (in millions):
<TABLE>
<CAPTION>
1998 1997 1996
------ ------- ---------
<S> <C> <C> c>
Interest $9,120 $10,430 $10,250
Income taxes 2,027 1,301 1,285
</TABLE>
FS-30
<PAGE>
NOTE 17. Segment Information
- -----------------------------
Ford adopted Statement of Financial Accounting Standards No. 131, Disclosures
about Segments of an Enterprise and Related Information, effective with year-end
1998. This standard requires companies to disclose selected financial data by
operating segment (defined in Note 1). Ford has identified four primary
operating segments: Automotive, Visteon, Ford Credit, and Hertz. Segment
selection was based upon internal organizational structure, the way in which
these operations are managed and their performance evaluated by management and
Ford's Board of Directors, the availability of separate financial results, and
materiality considerations. Segment detail is summarized as follows (in
millions):
<TABLE>
<CAPTION>
Automotive Sector Financial Services Sector
------------------ ----------------------------- Total Total
Auto- Ford Other Elims/ Auto Fin Svcs
motive Visteon Credit Hertz Fin Svcs Other Sector Sector
--------- -------- -------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998
- ----
Revenues
External customer revenues $118,017 $ 1,412 a/ $ 19,095 $ 4,241 $ 1,997 $ (346) $119,083 $ 25,333
Intersegment revenues 3,839 16,350 208 9 272 (20,678) 0 0
-------- ------- -------- ------- -------- -------- -------- --------
Total Revenues $121,856 $17,762 $ 19,303 $ 4,250 $ 2,269 $(21,024) $119,083 $ 25,333
======== ======= ======== ======= ======== ======== ======== ========
Income
Income before taxes $ 5,829 $ 1,129 $ 1,812 $ 465 $ 16,161 b/ $ 0 $ 6,958 $ 18,438
Provision for income taxes 1,739 420 680 188 149 0 2,159 1,017
Net income 4,040 712 1,084 277 16,060 b/ (102) 4,752 17,319
Other Disclosures
Depreciation/amortization $ 5,181 $ 559 $ 7,327 $ 1,186 $ 45 $ 31 $ 5,740 $ 8,589
Interest income 1,414 58 - - - (141) 1,331 -
Interest expense 1,089 102 6,910 318 1,114 (668) 829 8,036
Capital expenditures 7,252 861 67 317 120 0 8,113 504
Unusual items 0 0 0 0 15,955 b/ 0 0 15,955
Unconsolidated affiliates
Equity in net income (64) 26 2 0 0 0 (38) 2
Investments in 2,191 214 76 0 0 0 2,405 76
Total assets at year-end 83,556 9,223 137,248 8,873 6,181 (7,536) 88,744 148,801
- -------------------------------------------------------------------------------------------------------------------------
1997
- ----
Revenues
External customer revenues $121,976 $ 1,217 a/ $ 17,144 $ 3,895 $ 9,653 $ (258) $122,935 $ 30,692
Intersegment revenues 4,749 16,003 201 10 266 (21,229) 0 0
-------- ------- -------- ------- -------- -------- -------- --------
Total Revenues $126,725 $17,220 $ 17,345 $ 3,905 $ 9,919 $(21,487) $122,935 $ 30,692
======== ======= ======== ======= ======== ======== ======== ========
Income
Income before taxes $ 6,257 $ 825 $ 1,806 $ 343 $ 1,708 c/ $ 0 $ 7,082 $ 3,857
Provision for income taxes 2,014 308 727 142 550 0 2,322 1,419
Net income 4,196 518 1,031 202 1,205 c/ (232) 4,714 2,206
Other Disclosures
Depreciation/amortization $ 5,346 $ 592 $ 6,188 $ 1,068 $ 364 $ 25 $ 5,938 $ 7,645
Interest income 1,228 17 - - - (129) 1,116 -
Interest expense 904 82 6,268 316 3,523 (593) 788 9,712
Capital expenditures 7,225 917 49 211 315 0 8,142 575
Unusual items 0 0 0 0 269 c/ 0 0 269
Unconsolidated affiliates
Equity in net income (117) 29 1 0 0 0 (88) 1
Investments in 1,782 195 84 0 0 0 1,977 84
Total assets at year-end 82,376 8,409 121,973 7,436 68,348 (9,445) 85,079 194,018
- ------------------------------------------------------------------------------------------------------------------------
1996
- ----
Revenues
External customer revenues $116,887 $ 1,368 a/ $ 16,476 $ 3,668 $ 8,913 $ (321) $118,023 $ 28,968
Intersegment revenues 5,001 15,111 229 11 985 (21,337) 0 0
-------- ------- -------- ------- -------- -------- -------- --------
Total Revenues $121,888 $16,479 $ 16,705 $ 3,679 $ 9,898 $(21,658) $118,023 $ 28,968
======== ======= ======== ======= ======== ======== ======== ========
Income
Income before taxes $ 1,973 $ 598 $ 2,240 $ 256 $ 1,726 d/ $ 0 $ 2,571 $ 4,222
Provision for income taxes 642 220 732 98 474 0 862 1,304
Net income 1,274 381 1,441 159 1,318 d/ (127) 1,655 2,791
Other Disclosures
Depreciation/amortization $ 5,406 $ 510 $ 5,538 $ 975 $ 336 $ 26 $ 5,916 $ 6,875
Interest income 895 16 - - - (70) 841 -
Interest expense 749 79 6,260 309 3,378 (376) 695 9,704
Capital expenditures 7,240 969 44 194 204 0 8,209 442
Unusual items 0 0 0 0 529 d/ 0 0 529
Unconsolidated affiliates
Equity in net income (53) 47 0 0 1 (2) (6) (1)
Investments in 2,245 206 76 0 0 0 2,451 76
Total assets at year-end 73,976 7,906 121,696 7,649 58,694 (7,054) 79,658 183,209
- - - - - -
</TABLE>
a/ Includes sales to outside fabricators for inclusion in components sold to
Ford's Automotive segment. These sales are eliminated in total Automotive
sector reporting.
b/ Includes $15,955 non-cash gain (not taxed) on spin-off of The Associates in
the first quarter of 1998 (Note 15).
c/ Includes $269 gain (not taxed) on Hertz IPO in the second quarter of 1997
(Note 15).
d/ Includes $650 gain (not taxed) on The Associates IPO in the second quarter of
1996, $263 gain on sale of USL Capital assets, $384 loss resulting from the
write-down of Budget Rent-A-Car notes receivable in 1996 (Note 15).
FS-31
<PAGE>
NOTE 17. Segment Information (continued)
- -----------------------------
"Other Financial Services" data is an aggregation of miscellaneous smaller
Financial Services Sector business components, including Ford Motor Land
Development Corporation, Ford Leasing Development Company, Ford Leasing
Corporation, and Granite Management Corporation, and certain unusual
transactions (footnoted). Also included is data for The Associates, which was
spun-off from Ford in 1998.
"Eliminations/Other" data includes intersegment eliminations and minority
interest calculations. Data for "Depreciation/amortization" includes
depreciation of fixed assets and assets subject to operating leases and
amortization of special tools. Interest income for the operating segments in the
Financial Services sector is reported as "Revenue".
Information concerning principal geographic areas was as follows (in millions):
<TABLE>
<CAPTION>
Geographic Areas
- ----------------
United All Total
States Europe Other Company
--------- -------- ------- ---------
<S> <C> <C> <C> <C>
1998
- ----
External revenues $100,597 $27,026 $16,793 $144,416
Net property 25,761 11,018 7,260 44,039
1997
- ----
External revenues $105,581 $27,618 $20,428 $153,627
Net property 23,948 9,596 7,090 40,634
1996
- ----
External revenues $ 98,887 $30,478 $17,626 $146,991
Net property 22,950 9,720 6,868 39,538
NOTE 18. Summary Quarterly Financial Data (Unaudited)
- ------------------------------------------------------
(in millions, except amounts per share)
1998 1997
---------------------------------------- -----------------------------------------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
-------- -------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Automotive
Sales $29,076 $31,309 $26,494 $32,204 $30,037 $32,805 $28,196 $31,897
Operating income 1,806 2,922 777 1,180 1,704 2,444 846 1,952
Financial Services
Revenues 7,508 5,980 6,146 5,699 7,277 7,460 7,900 8,055
Income before income taxes 16,813 590 645 390 830 1,199 912 916
Total Company
Net income 17,646 2,381 1,001 1,043 $ 1,469 $ 2,530 $ 1,125 $ 1,796
Less:
Preferred stock dividend
requirements 95 4 4 4 14 14 13 13
------- ------- ------- ------ ------- ------- ------- -------
Income attributable
to Common and
Class B Stock $17,551 $ 2,377 $ 997 $ 1,039 $ 1,455 $ 2,516 $ 1,112 $ 1,783
======= ======= ======= ======= ======= ======= ======= =======
AMOUNTS PER SHARE OF COMMON
AND CLASS B STOCK AFTER
PREFERRED STOCK DIVIDENDS
Basic income $ 14.48 $ 1.96 $ 0.82 $ 0.86 $ 1.23 $ 2.11 $ 0.93 $ 1.48
Diluted income 14.23 1.91 0.80 0.84 1.20 2.06 0.91 1.45
Cash dividends 0.42 0.42 0.42 0.46 0.385 0.42 0.42 0.42
</TABLE>
FS-32
<PAGE>
PricewaterhouseCoopers LLP
400 Renaissance Center
Detroit, MI 48243-1507
Telephone (313)446-7100
Facsmilie (313)446-7117
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Ford Motor Company
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, stockholders' equity and cash flows present
fairly, in all material respects, the financial position of Ford Motor Company
and Subsidiaries at December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/PricewaterhouseCoopers LLP
400 Renaissance Center
Detroit, Michigan
January 21, 1999
FS-33
<PAGE>
<TABLE>
<CAPTION>
Ford Motor Company
CONDENSED FINANCIAL INFORMATION OF SUBSIDIARY
---------------------------------------------
(in millions)
FORD CAPITAL B.V.
- -----------------
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Current assets $ 621 $2,046
Noncurrent assets 2,388 2,390
------ ------
Total assets $3,009 $4,436
====== ======
Current liabilities $ 394 $1,551
Noncurrent liabilities 2,430 2,433
Minority interests in net
assets of subsidiaries 15 14
Stockholder's equity 170 438
------ ------
Total liabilities and
stockholder's equity $3,009 $4,436
====== ======
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Sales and other revenue $2,381 $2,527 $2,760
Operating income 73 47 73
Income before income taxes 63 4 18
Net (loss)/income 52 (21) (4)
</TABLE>
Ford Capital B.V., a wholly-owned subsidiary of Ford Motor Company, was
established primarily for the purpose of raising funds through the issuance of
commercial paper and debt securities. Ford Capital B.V. also holds shares of the
capital stock of Ford Nederland B.V., Ford Motor Company (Belgium) N.V., Ford
Motor Company A/S (Denmark), Ford Poland S.A., and Ford Distribution Sp. z.o.o.,
Ltd. Substantially all of the assets of Ford Capital B.V., other than its
ownership interests in subsidiaries, represent receivables from Ford Motor
Company or its consolidated subsidiaries.
FSS-1
<PAGE>
PricewaterhouseCoopers LLP
400 Renaissance Center
Detroit, MI 48243-1507
Telephone (313)446-7100
Facsmilie (313)446-7117
Report of Independent Accountants on
Financial Statement Schedules
To the Board of Directors of
Ford Motor Company
Our audits of the consolidated financial statements of Ford Motor Company
and Subsidiaries referred to in our report dated January 21, 1999 in this Annual
Report on Form 10-K also included an audit of the financial statement schedule
listed in Item 14(a)(2) of this Form 10-K. In our opinion, this financial
statement schedule presents fairly, in all material respects, the information
set forth therein when read in conjunction with the consolidated financial
statements of Ford Motor Company and Subsidiaries.
/s/PricewaterhouseCoopers LLP
400 Renaissance Center
Detroit, Michigan
January 21, 1999
FSS-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Designation Description Method of Filing
- ----------- ----------- ----------------
<S> <C> <C>
Exhibit 3-A Restated Certificate of Incorporation, Filed as Exhibit 3.1 to Ford's Quarterly
dated April 9, 1998. Report on Form 10-Q for the quarter
ended March 31, 1998.*
Exhibit 3-B By-Laws as amended through January 1, 1999. Filed with this Report.
Exhibit 4 Form of Deposit Agreement dated as of Filed as Exhibit 4-E to Ford's
October 29, 1992 among Ford, Chemical Registration Statement No. 33-53092.*
Bank, as Depositary, and the holders from
time to time of Depositary Shares, each
representing 1/2,000 of a share of Ford's
Series B Cumulative Preferred Stock.
Exhibit 10-A Amended and Restated Profit Filed with this Report.
Maintenance Agreement, dated as of
January 1, 1999, between Ford
and Ford Credit.
Exhibit 10-B 1985 Stock Option Plan.** Filed as Exhibit 10-D to Ford's
Annual Report on Form 10-K for the
year ended December 31, 1985.*
Exhibit 10-B-1 Amendment dated as of March 8, 1990 Filed as Exhibit 10-C-1 to Ford's
to 1985 Stock Option Plan.** Annual Report on Form 10-K for
the year ended December 31, 1989.*
Exhibit 10-B-2 Amendment to 1985 Stock Option Plan, Filed as Exhibit 4.C to Amendment No.
effective as of January 8, 1998.** 1 to Ford's Registration Statement
No. 33-9722.*
Exhibit 10-C Supplemental Compensation Plan Filed as Exhibit 10-H to Ford's
as amended through May 8, 1986.** Annual Report on Form 10-K for the
year ended December 31, 1986.*
Exhibit 10-C-1 Amendment to Supplemental Filed as Exhibit 10-F-1 to Ford's
Compensation Plan, dated May 12, 1988.** Annual Report on Form 10-K for the
year ended December 31, 1988.*
Exhibit 10-C-2 Amendment to Supplemental Compensation Plan, Filed as Exhibit 10-D-2 to Ford's
dated July 8, 1992.** Annual Report on Form 10-K for the
year ended December 31, 1992.*
Exhibit 10-C-2A Amendment to Supplemental Compensation Plan, Filed as Exhibit 10-C-2A to Ford's
effective as of March 9, 1994.** Annual Report on Form 10-K for the
year ended December 31, 1996.*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Designation Description Method of Filing
- ----------- ----------- ----------------
<S> <C>
Exhibit 10-C-3 Amendment to Supplemental Compensation Filed as Exhibit 10.1 to Ford's
Plan, effective as of March 8, 1995.** Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995.*
Exhibit 10-C-4 Amendment to Supplemental Filed as Exhibit 10.1 to Ford's
Compensation Plan, effective as of Quarterly Report on Form 10-Q for the
July 13, 1995.** quarter ended June 30, 1995.*
Exhibit 10-C-5 Amendment to Supplemental Filed as Exhibit 10-C-5 to Ford's
Compensation Plan, effective as of Annual Report on Form 10-K for the
January 10, 1996.** year ended December 31, 1995.*
Exhibit 10-C-6 Amendments to Supplemental Filed as Exhibit 10-C-6 to Ford's
Compensation Plan, effective as of Annual Report on Form 10-K for the
October 1, 1997.** year ended December 31, 1997.*
Exhibit 10-C-7 Amendment to Supplemental Filed as Exhibit 10-C-7 to Ford's
Compensation Plan, effective as of Annual Report on Form 10-K for the
December 22, 1997.** year ended December 31, 1997.*
Exhibit 10-C-8 Amendment to Supplemental Filed as Exhibit 10-C-8 to Ford's
Compensation Plan, effective as of Annual Report on Form 10-K for the
May 14, 1998.** year ended December 31, 1997.*
Exhibit 10-C-9 Amendment to Supplemental Filed with this Report.
Compensation Plan, effective as of
October 16, 1998.**
Exhibit 10-D Executive Separation Allowance Plan Filed as Exhibit 10-D to Ford's
as amended through December 9, 1993 Annual Report on Form 10-K for the
for separations on or after January 1, 1981.** year ended December 31, 1994.*
Exhibit 10-E Description of Ford practices regarding Filed as Exhibit 10-I to Ford's
club memberships for executives.** Annual Report on Form 10-K for the
year ended December 31, 1981.*
Exhibit 10-F Description of Ford practices regarding Filed as Exhibit 10-J to Ford's
travel expenses of spouses of certain Annual Report on Form 10-K for the
executives.** year ended December 31, 1980.*
Exhibit 10-G Deferred Compensation Plan for Filed as Exhibit 10-H-1 to Ford's
Non-Employee Directors, as amended Annual Report on Form 10-K for the
on July 11, 1991.** year ended December 31, 1991.*
Exhibit 10-G-1 Amendments to Deferred Compensation Plan Filed as Ehibit 10-G-1 to Ford's
for Non-Employee Directors, effective as of Annual Report on Form 10-K for the
January 1, 1996.** year ended December 31, 1995.*
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
Designation Description Method of Filing
- ----------- ----------- ----------------
<S> <C> <C>
Exhibit 10-G-2 Amendment to Deferred Compensation Plan Filed as Exhibit 10-G-2 to Ford's
for Non-Employee Directors, effective as of Annual Report on Form 10-K for the
November 14, 1996.** year ended December 31, 1996.*
Exhibit 10-H Benefit Equalization Plan, as Filed as Exhibit 10-H to Ford's
amended as of January 1, 1989.** Annual Report on Form 10-K for the
year ended December 31, 1994.*
Exhibit 10-H-1 Description of Amendments to Benefit Filed as Exhibit 10-H-1 to Ford's
Equalization Plan, adopted January 11, Annual Report on Form 10-K for the
1996 and January 25, 1996.** year ended December 31, 1995.*
Exhibit 10-I Description of financial counseling Filed as Exhibit 10-N to Ford's
services provided to certain executives.** Annual Report on Form 10-K for the
year ended December 31, 1983.*
Exhibit 10-J 1986 Long-Term Incentive Plan.** Filed as Exhibit 10-Q to Ford's
Annual Report on Form 10-K for the
year ended December 31, 1985.*
Exhibit 10-J-1 Amendment dated as of June 1, 1990 to Filed as Exhibit 10-N-1 to Ford's
1986 Long-Term Incentive Plan. ** Annual Report on Form 10-K for the
year ended December 31, 1990.*
Exhibit 10-K Supplemental Executive Retirement Plan, Filed as Exhibit 10-K to Ford's
as restated and incorporating amendments Annual Report on Form 10-K for the
through December 12, 1995.** year ended December 31, 1995.*
Exhibit 10-L Restricted Stock Plan for Non-Employee Filed as Exhibit 10-P to Ford's
Directors adopted by the Board of Annual Report on Form 10-K for the
Directors on November 10, 1988, year ended December 31, 1988.*
and approved by the stockholders at
the 1989 Annual Meeting.**
Exhibit 10-L-1 Amendment to Restricted Stock Plan for Filed as Exhibit 10.1 to Ford's
Non-Employee Directors, effective as of Quarterly Report on Form 10-Q for the
August 1, 1996.** quarter ended September 30, 1996.*
Exhibit 10-M 1990 Long-Term Incentive Plan, Filed as Exhibit 10-R to Ford's
amended as of June 1, 1990.** Annual Report on Form 10-K for the
year ended December 31, 1990.*
Exhibit 10-M-1 Amendment to 1990 Long-Term Incentive Filed as Exhibit 10-P-1 to Ford's
Plan, effective as of October 1, 1990.** Annual Report on Form 10-K for the
year ended December 31, 1991.*
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
Designation Description Method of Filing
- ----------- ----------- ----------------
<S> <C> <C>
Exhibit 10-M-2 Amendment to 1990 Long-Term Incentive Filed as Exhibit 10.2 to Ford's
Plan, effective as of March 8, 1995.** Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995.*
Exhibit 10-M-3 Amendment to 1990 Long-Term Filed as Exhibit 10-M-3 to Ford's
Incentive Plan, effective as of Annual Report on Form 10-K for the
October 1, 1997.** year ended December 31, 1997.*
Exhibit 10-M-4 Amendment to 1990 Long-Term Filed as Exhibit 10-M-4 to Ford's
Incentive Plan, effective as of Annual Report on Form 10-K for the
January 1, 1998.** year ended December 31, 1997.*
Exhibit 10-N Description of Matching Gift Program for Filed as Exhibit 10-Q to Ford's
Non-Employee Directors.** Annual Report on Form 10-K for the
year ended December 31, 1991.*
Exhibit 10-O Non-Employee Directors Life Insurance Filed as Exhibit 10-O to Ford's
and Optional Retirement Plan Annual Report on Form 10-K for the
(as amended as of January 1, 1993).** year ended December 31, 1994.*
Exhibit 10-P Description of Non-Employee Directors Filed as Exhibit 10-S to Ford's
Accidental Death, Dismemberment and Annual Report on Form 10-K for the
Permanent Total Disablement Indemnity.** year ended December 31, 1992.*
Exhibit 10-Q Agreement dated December 10, 1992 Filed as Exhibit 10-T to Ford's
between Ford and William C. Ford.** Annual Report on Form 10-K for the
year ended December 31, 1992.*
Exhibit 10-R Support Agreement dated as of October 1, Filed as Exhibit 10-T to Ford's
1993 between Ford and FCE Bank. Annual Report on Form 10-K for the
year ended December 31, 1993.*
Exhibit 10-R-1 Amendment No. 1 dated as of November Filed as Exhibit 10-R-1 to Ford's
15, 1995 to Support Agreement between Annual Report on Form 10-K for the
Ford and FCE Bank. year ended December 31, 1995.*
Exhibit 10-S Select Retirement Plan Filed as Exhibit 10-S to Ford's
adopted on June 9, 1994.** Annual Report on Form 10-K for the
year ended December 31, 1996.*
Exhibit 10-T Deferred Compensation Plan, Filed as Exhibit 10.2 to Ford's
effective as of July 13, 1995.** Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995.*
Exhibit 10-T-1 Amendments to Deferred Compensation Filed as Exhibit 10-T-1 to Ford's
Plan, effective as of July 13, 1995 and Annual Report on Form 10-K for the
October 1, 1995.** year ended December 31, 1995.*
</TABLE>
-4-
<PAGE>
<TABLE>
<CAPTION>
Designation Description Method of Filing
- ----------- ----------- ----------------
<S> <C> <C>
Exhibit 10-T-2 Amendments to Deferred Compensation Filed as Exhibit 10.2 to Ford's
Plan, effective as of October 1, 1996.** Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996.*
Exhibit 10-T-3 Amendment to Deferred Compensation Filed as Exhibit 4.4 to Ford's
Plan, effective as of October 1, 1997.** Registration Statement
No. 333-47733.*
Exhibit 10-T-4 Amendments to Deferred Compensation Filed as Exhibit 4.5 to Ford's
Plan, effective as of January 1, 1998.** Registration Statement
No. 333-47733.*
Exhibit 10-T-5 Amendments to Deferred Compensation Plan, Filed as Exhibit 10.1 to Ford's Quarterly
effective as of July 8, 1998.** Report on Form 10-Q/A for the
quarter ended September 30, 1998.*
Exhibit 10-T-6 Amendment to Deferred Compensation Plan, Filed as Exhibit 10.2 to Ford's Quarterly
effective as of September 9, 1998.** Report on Form 10-Q/A for the
quarter ended September 30, 1998.*
Exhibit 10-T-7 Amendments to Deferred Compensation Plan, Filed as Exhibit 10.3 to Ford's Quarterly
effective as of October 16, 1998.** Report on Form 10-Q/A for the
quarter ended September 30, 1998.*
Exhibit 10-T-8 Amendments to Deferred Compensation Filed with this Report.
Plan, effective as of November 11, 1998.**
Exhibit 10-U Description of Amendments to Supplemental Filed as Exhibit 10-U to Ford's
Executive Retirement Plan and Executive Annual Report on Form 10-K for the
Separation Allowance Plan, adopted year ended December 31, 1995.*
January 25, 1996.**
Exhibit 10-U-2 Description of Amendment to Supplemental Filed as Exhibit 10-U-2 to Ford's
Executive Retirement Plan and Executive Annual Report on Form 10-K for the
Separation Allowance Plan, effective as of year ended December 31, 1996.*
July 1, 1996.**
Exhibit 10-U-3 Description of Amendment to Supplemental Filed with this Report.
Executive Retirement Plan adopted
September 10, 1998. **
Exhibit 10-V Annual Incentive Compensation Plan, Filed as Exhibit 10-V to Ford's
effective as of January 1, 1998.** Annual Report on Form 10-K for the
year ended December 31, 1997.*
Exhibit 10-W 1998 Long-Term Incentive Plan, Filed as Exhibit 10-W to Ford's
effective as of January 1, 1998.** Annual Report on Form 10-K for the
year ended December 31, 1997.*
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
Designation Description Method of Filing
- ----------- ----------- ----------------
<S> <C> <C>
Exhibit 10-W-1 Amendment to 1998 Long-Term Incentive Filed with this Report.
Plan, effective as of January 1, 1999.**
Exhibit 10-X Agreement dated January 13, 1999 Filed with this Report.
between Ford and Edsel B. Ford II.**
Exhibit 12 Computation of Ratio of Earnings to Filed with this Report.
Combined Fixed Charges and Preferred
Stock Dividends.
Exhibit 21 List of Subsidiaries of Ford Filed with this Report.
as of March 15, 1999.
Exhibit 23 Consent of Independent Certified Public Filed with this Report.
Accountants.
Exhibit 24 Powers of Attorney. Filed with this Report.
- --------------------------
* Incorporated by reference as an exhibit to this Report (file number
reference 1-3950, unless otherwise indicated)
** Management contract or compensatory plan or arrangement
</TABLE>
-6-
Ford Motor Company
By-Laws
As Amended Through January 1, 1999
<PAGE>
BY-LAWS
OF
FORD MOTOR COMPANY
TABLE OF CONTENTS
Page
----
ARTICLE I - Offices......................................................1
ARTICLE II - Stockholders.................................................1
Section 1. Annual Meeting..............................................1
Section 2. Special Meetings............................................1
Section 3. Notice of Meetings..........................................2
Section 4. Quorum......................................................2
Section 5. Organization................................................2
Section 6. Proxies and Voting..........................................2
Section 7. Stock Lists.................................................2
Section 8. Ratification................................................3
Section 9. Judges......................................................3
ARTICLE III - Board of Directors...........................................3
Section 1. Number, Term of Office and Eligibility......................3
Section 2. Meetings....................................................3
Section 3. Notice of Meetings..........................................4
Section 4. Quorum and Organization of Meetings.........................4
Section 5. Powers......................................................5
Section 6. Reliance upon Books, Reports and Records....................6
Section 7. Compensation of Directors...................................6
ARTICLE IV - Committees...................................................7
Section 1. Committees of the Board of Directors........................7
Section 2. Audit Committee.............................................7
Section 3. Compensation and Option Committee...........................8
Section 4. Environmental and Public Policy Committee...................8
Section 5. Finance Committee...........................................8
Section 6. Organization Review and Nominating Committee................9
Section 7. Other Committees............................................9
Section 8. Rules and Procedures........................................9
Section 9. Application of Article.....................................10
ARTICLE V - Officers....................................................10
Section 1. Officers...................................................10
Section 2. President and Chief Executive Officer......................10
Section 3. Chief Operating Officer....................................10
Section 4. Vice Chairmen of the Company, Executive Vice Presidents,
Group Vice Presidents and Vice Presidents............11
Section 5. Treasurer and Assistant Treasurer..........................11
Section 6. Secretary and Assistant Secretary..........................11
Section 7. General Counsel............................................12
Section 8. Controller.................................................12
Section 9. Salaries...................................................12
<PAGE>
ARTICLE VI - Resignations, Removals and Vacancies.......................12
Section 1. Resignations..............................................12
Section 2. Removals..................................................13
Section 3. Vacancies.................................................13
ARTICLE VII - Capital Stock - Dividends - Seal...........................13
Section 1. Certificates of Shares....................................13
Section 2. Addresses of Stockholders.................................13
Section 3. Lost, Destroyed or Stolen Certificate.....................14
Section 4. Fixing a Record Date......................................14
Section 5. Regulations...............................................14
Section 6. Corporate Seal............................................14
ARTICLE VIII - Execution of Contracts and Other Documents.................15
Section 1. Contracts, etc............................................15
Section 2. Checks, Drafts, etc.......................................15
ARTICLE IX - Fiscal Year................................................15
ARTICLE X - Miscellaneous..............................................15
Section 1. Original Stock Ledger.....................................15
Section 2. Notices and Waivers Thereof...............................16
Section 3. Voting upon Stocks........................................16
ARTICLE XI - Amendments.................................................17
<PAGE>
CERTIFICATION
The undersigned officer of Ford Motor Company, a Delaware corporation, does
hereby certify that the following is a true and correct copy of the By-Laws of
the Company in effect on the date hereof.
Witness my hand and the seal of the Company this ______ day of ________ 19
---------------------
Secretary
<PAGE>
BY-LAWS
OF
FORD MOTOR COMPANY
ARTICLE I
OFFICES
The registered office of the Company shall be in the City of Wilmington,
County of New Castle, State of Delaware. The Company may also have an office in
the City of Dearborn, State of Michigan, and at such other places as the Board
of Directors may from time to time determine or as the business of the Company
may require. The books and records of the Company may be kept (except as
otherwise provided by law) at the office of the Company in the City of Dearborn,
State of Michigan, outside of the State of Delaware, or at such other places as
from time to time may be determined by the Board of Directors.
ARTICLE II
STOCKHOLDERS
Section 1. Annual Meeting.
The annual meeting of the stockholders for the purpose of electing directors
and of transacting such other business as may come before it shall be held in
the City of Detroit, State of Michigan, unless otherwise determined by the Board
of Directors, on the second Thursday of May in each and every year, if not a
legal holiday, and if a legal holiday then on the next day not a legal holiday.
The Board of Directors shall, by resolution duly adopted, fix the place within
the City of Detroit, Michigan, or elsewhere if so determined, and the time for
the holding of each such meeting. At least twenty (20) days' notice shall be
given to each stockholder entitled to vote at such meeting of the place and time
so fixed.
Section 2. Special Meetings.
Special meetings of the stockholders shall be held at the office of the
Company in the City of Dearborn, State of Michigan, unless otherwise determined
by resolution of the stockholders or of the Board of Directors, whenever called
in the manner required by law for purposes as to which there are special
statutory provisions, and for other purposes whenever called by the Chairman of
the Board of Directors or the President, or by resolution of the Board of
Directors, and whenever the holders of thirty percent (30%) or more of the total
number of outstanding shares of any class of stock the holders of which are
entitled to vote on every matter that is to be voted on without regard to class
at such meeting shall file with the Secretary a written application for such
meeting stating the time and purpose thereof.
-1-
<PAGE>
Section 3. Notice of Meetings.
Except as otherwise provided by law, at least twenty (20) days' notice of
stockholders' meetings stating the time and place and the objects thereof shall
be given by the Chairman of the Board of Directors, the President or the
Secretary to each stockholder of record having voting power in respect of the
business to be transacted thereat. No business other than that stated in the
notice shall be transacted at any meeting.
Section 4. Quorum.
At any meeting of the stockholders the number of shares the holders of which
shall be present or represented by proxy in order to constitute a quorum for,
and the votes that shall be necessary for, the transaction of any business shall
be as expressly provided in Article FOURTH of the Certificate of Incorporation,
as amended. At any meeting of stockholders at which a quorum is not present, the
holders of shares entitled to cast a majority of all of the votes (computed, in
the case of each share of Class B Stock, as provided in subsection 1.3 of said
Article FOURTH) which could be cast at such meeting by the holders of
outstanding shares of stock of the Company who are present in person or by proxy
and who are entitled to vote on every matter that is to be voted on without
regard to class at such meeting may adjourn the meeting from time to time.
Section 5. Organization.
The Chairman of the Board of Directors shall act as chairman of meetings of
the stockholders. The Board of Directors may designate any other officer or
director of the Company to act as chairman of any meeting in the absence of the
Chairman of the Board of Directors, and the Board of Directors may further
provide for determining who shall act as chairman of any stockholders meeting in
the absence of the Chairman of the Board of Directors and such designee.
The Secretary of the Company shall act as secretary of all meetings of the
stockholders, but in the absence of the Secretary the presiding officer may
appoint any other person to act as secretary of any meeting.
Section 6. Proxies and Voting.
Every stockholder entitled to vote at any meeting may vote in person or by
proxy authorized by an instrument in writing or by a transmission permitted by
law filed in accordance with the procedures established for the meeting. No
proxy shall be voted after three years from its date unless such proxy provides
expressly for a longer period. Shares of the Company's stock belonging to the
Company shall not be voted upon directly or indirectly.
Section 7. Stock Lists.
A complete list of stockholders entitled to vote at any meeting of
stockholders shall be prepared, in alphabetical order by class, by the Secretary
and shall be open to the examination of any stockholder, at the place where the
meeting is to be held, for at least ten days before the meeting and during the
whole time of the meeting.
2
<PAGE>
Section 8. Ratification.
Any transaction questioned in any stockholders' derivative suit, or any other
suit to enforce alleged rights of the Company or any of its stockholders, on the
ground of lack of authority, defective or irregular execution, adverse interest
of any director, officer or stockholder, nondisclosure, miscomputation or the
application of improper principles or practices of accounting may be approved,
ratified and confirmed before or after judgment by the Board of Directors or by
the holders of Common Stock and the holders of Class B Stock voting as provided
in subsection 1.6 of Article FOURTH of the Certificate of Incorporation, as
amended, and, if so approved, ratified or confirmed, shall have the same force
and effect as if the questioned transaction had been originally duly authorized,
and said approval, ratification or confirmation shall be binding upon the
Company and all of its stockholders and shall constitute a bar to any claim or
execution of any judgment in respect of such questioned transaction.
Section 9. Judges.
All votes by ballot at any meeting of stockholders shall be conducted by two
judges appointed for the purpose either by the directors or by the meeting. The
judges shall decide upon the qualifications of voters, count the votes and
declare the result.
ARTICLE III
BOARD OF DIRECTORS
Section 1. Number, Term of Office and Eligibility.
Except as provided by the laws of the State of Delaware or by the Certificate
of Incorporation, as amended, the business and the property of the Company shall
be managed by or under the direction of a Board of not less than ten and not
more than twenty directors, the exact number of which shall be fixed from time
to time by resolution of the Board. Each director shall be elected annually by
ballot by the holders of Common Stock and the holders of Class B Stock voting as
provided in subsection 1.6 of Article FOURTH of the Certificate of
Incorporation, as amended, at the annual meeting of stockholders, to serve until
his or her successor shall have been elected and shall have qualified, except as
provided in this Section. No person may be elected or re-elected a director of
the Company if at the time of his or her election or re-election he or she shall
have attained the age of seventy years, and the term of any director who shall
have attained such age while serving as a director shall terminate as of the
time of the first annual meeting of stockholders following his or her seventieth
birthday; provided, however, that the Board by resolution may waive such age
limitation in any year and from year to year with respect to any director or
directors.
Section 2. Meetings.
The directors may hold their meetings outside of the State of Delaware, at
the office of the Company in the City of Dearborn, State of Michigan, or at such
other place as from time to time they may determine.
3
<PAGE>
The annual meeting of the Board of Directors, for the election of officers
and the transaction of other business, shall be held at the World Headquarters
of the Company in Dearborn, Michigan, on the same day as, and as soon as
practicable following, the annual meeting of stockholders, or at such other time
or place as shall be determined by the Board at its regular meeting next
preceding said annual meeting of stockholders. No notice of said annual meeting
of the Board shall be required to be given to the directors.
Regular meetings of the Board of Directors may be held at such time and place
as shall from time to time be determined by the Board.
Special meetings of the Board of Directors shall be held whenever called by
direction of the Chairman of the Board of Directors or the President or by
one-third of the directors then in office.
Section 3. Notice of Meetings.
The Secretary or an Assistant Secretary shall give notice of the time and
place of holding of meetings of the Board of Directors (excepting the annual
meeting of directors) by mailing such notice not later than during the second
day preceding the day on which such meeting is to be held, or by sending a
cablegram, facsimile transmission, mailgram, radiogram, telegram or other form
of recorded communication containing such notice or delivering such notice
personally or by telephone not later than during the first day preceding the day
on which such meeting is to be held to each director. Unless otherwise stated in
the notice thereof any and all business may be transacted at any meeting.
Section 4. Quorum and Organization of Meetings.
A third of the total number of members of the Board of Directors as
constituted from time to time, but in no event less than three, shall constitute
a quorum for the transaction of business; but if at any meeting of the Board of
Directors, there shall be less than a quorum present, a majority of those
present may adjourn the meeting from time to time, and the meeting may be held
as adjourned without further notice or waiver. Except as otherwise provided by
law or by the Certificate of Incorporation, as amended, or by these By-Laws, a
majority of the directors present at any duly constituted meeting may decide any
question brought before such meeting.
The Board of Directors shall elect one of its members to be Chairman of the
Board of Directors. The Chairman of the Board of Directors shall lead the Board
of Directors in fulfilling its responsibilities as set forth in these By-Laws,
including its responsibility to oversee the performance of the Company, and
shall determine the agenda and perform all other duties and exercise all other
powers which are or from time to time may be delegated to him or her by the
Board of Directors.
Meetings of the Board of Directors shall be presided over by the Chairman of
the Board of Directors, or in his or her absence, by the President, or in the
absence of the Chairman of the Board of Directors and the President by such
other person as the Board of Directors may designate or the members present may
select.
4
<PAGE>
Section 5. Powers.
In addition to the powers and authorities by these By-Laws expressly
conferred upon them, the Board of Directors shall have and may exercise all such
powers of the Company and do all such lawful acts and things that are not by
statute or by the Certificate of Incorporation, as amended, or by these By-Laws
directed or required to be exercised or done by the stockholders. Without
prejudice to or limitation of such general powers and any other powers conferred
by statute, or by the Certificate of Incorporation, as amended, or by these
By-Laws, the Board of Directors shall have the following powers:
(1) To determine, subject to the requirements of law and of Section 5
of Article FOURTH of the Certificate of Incorporation, as amended, what,
if any, dividends shall be declared and paid to the stockholders out of
net profits, current or accumulated, or out of surplus or other assets
of the Company available for dividends.
(2) To fix, and from time to time to vary, the amount of working
capital of the Company, and to set aside from time to time out of net
profits, current or accumulated, or surplus of the Company such amount
or amounts as they in their discretion may deem necessary and proper as,
or as a safeguard to the maintenance of, working capital, as a reserve
for contingencies, as a reserve for repairs, maintenance, or
rehabilitation, or as a reserve for revaluation of profits of the
Company or for such other proper purpose as may in the opinion of the
directors be in the best interests of the Company; and in their sole
discretion to abolish or modify any such provision for working capital
or any such reserve, and to credit the amount thereof to net profits,
current or accumulated, or to the surplus of the Company.
(3) To purchase, or otherwise acquire for the Company, any business,
property, rights or privileges which the Company may at the time be
authorized to acquire, at such price or consideration and generally on
such terms and conditions as they think fit; and at their discretion to
pay therefor either wholly or partly in money, stock, bonds, debentures
or other securities of the Company.
(4) To create, make and issue mortgages, bonds, deeds of trust, trust
agreements or negotiable or transferable instruments or securities,
secured by mortgage or otherwise, and to do every other act and thing
necessary to effect the same.
(5) To appoint any person or corporation to accept and hold in trust
for the Company any property belonging to the Company, or in which it is
interested, or for any other purpose, and to execute such deeds and do
all things requisite in relation to any such trust.
(6) To delegate any of the powers of the Board in the course of the
business of the Company to any officer, employee or agent, and to
appoint any person the agent of the Company, with such powers (including
the power to subdelegate) and upon such terms as the Board may think
fit.
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(7) To remove any officer of the Company with or without cause, and
from time to time to devolve the powers and duties of any officer upon
any other person for the time being.
(8) To confer upon any officer of the Company the power to appoint,
remove and suspend subordinate officers, agents and employees.
(9) To determine who shall be authorized on the Company's behalf,
either generally or specifically, to make and sign bills, notes,
acceptances, endorsements, checks, releases, receipts, contracts,
conveyances, and all other written instruments executed on behalf of the
Company.
(10) To make and change regulations, not inconsistent with these
By-Laws, for the management of the Company's business and affairs.
(11) To adopt and, unless otherwise provided therein, to amend and
repeal, from time to time, a bonus or supplemental compensation plan for
employees (including employees who are officers or directors) of the
Company or any subsidiary. Power to construe, interpret, administer,
modify or suspend such plan shall be vested in the Board of Directors or
a committee thereof.
(12) To adopt a retirement plan, or plans, for the purpose of making
retirement payments to employees (including employees who are officers
or directors) of the Company or of any subsidiary thereof; and to adopt
a group insurance plan, or plans, for the purpose of enabling employees
(including employees who are officers or directors) of the Company or of
any subsidiary thereof to acquire insurance protection; any such
retirement plan or insurance plan, unless otherwise provided therein,
shall be subject to amendment or revocation by the Board of Directors.
Section 6. Reliance upon Books, Reports and Records.
Each director, each member of any committee designated by the Board of
Directors and each officer, in the performance of his or her duties, shall be
fully protected in relying in good faith upon the books of account or reports
made to the Company by any of its officials, or by an independent certified
public accountant, or by an appraiser selected with reasonable care by the Board
of Directors or by any such committee, or in relying in good faith upon other
records of the Company.
Section 7. Compensation of Directors.
Directors, as such, may receive, pursuant to resolution of the Board of
Directors, fixed fees and other compensation for their services as directors,
including, without limitation, services as Chairman of the Board of Directors,
or members of committees of the directors or as chairmen thereof; provided,
however, that nothing herein contained shall be construed to preclude any
director from serving the Company in any other capacity and receiving
compensation therefor.
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ARTICLE IV
COMMITTEES
Section 1. Committees of the Board of Directors.
There are hereby established as committees of the Board of Directors an Audit
Committee, a Compensation and Option Committee, an Environmental and Public
Policy Committee, a Finance Committee, and an Organization Review and Nominating
Committee, each of which shall have the powers and functions set forth in
Sections 2, 3, 4, 5, and 6 hereof, respectively, and such additional powers as
may be delegated to it by the Board of Directors. The Board of Directors may
from time to time establish additional standing committees or special committees
of the Board of Directors, each of which shall have such powers and functions as
may be delegated to it by the Board of Directors. The Board of Directors may
abolish any committee established by or pursuant to this Section 1 as it may
deem advisable. Each such committee shall consist of one or more directors, the
exact number being determined from time to time by the Board of Directors;
provided, however, that membership on the Audit Committee and on the
Compensation and Option Committee shall be limited to directors who are not
officers or employees of the Company. Designations of the Chairman and members
of each such committee, and, if desired, a Vice Chairman and alternates for
members, shall be made by the Board of Directors. Each such committee shall have
a secretary who shall be designated by its chairman. A vice chairman of a
committee shall act as the chairman of the committee in the absence or
disability of the chairman.
Section 2. Audit Committee.
The Audit Committee shall select and engage, on behalf of the Company,
independent public accountants to (1) audit the books of account and other
corporate records of the Company and (2) perform such other duties as the
Committee may from time to time prescribe. The Committee shall transmit
financial statements certified by such independent public accountants to the
Board of Directors after the close of each fiscal year. The selection of
independent public accountants for each fiscal year shall be made in advance of
the annual meeting of stockholders in such fiscal year and shall be submitted
for ratification or rejection at such meeting. The Committee shall confer with
such accountants and review and approve the scope of the audit of the books of
account and other corporate records of the Company. The Committee shall have the
power to confer with and direct the officers of the Company to the extent
necessary to review the internal controls, accounting practices, financial
structure and financial reporting of the Company. From time to time the
Committee shall report to and advise the Board of Directors concerning the
results of its consultation and review and such other matters relating to the
internal controls, accounting practices, financial structure and financial
reporting of the Company as the Committee believes merit review by the Board of
Directors. The Committee also shall perform such other functions and exercise
such other powers as may be delegated to it from time to time by the Board of
Directors.
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Section 3. Compensation and Option Committee.
The Compensation and Option Committee shall fix from time to time the
salaries of members of the Board of Directors who are officers or employees of
the Company, the President, and of any and all Vice Chairmen of the Company,
Executive Vice Presidents, Group Vice Presidents and Vice Presidents of the
Company. It also shall perform such functions as may be delegated to it under
the provisions of any bonus, supplemental compensation, special compensation or
stock option plan of the Company.
Section 4. Environmental and Public Policy Committee.
The Environmental and Public Policy Committee shall review all aspects of the
Company's policies and practices that relate to environmental and public policy
considerations facing the Company worldwide. From time to time the Committee
shall report and make recommendations to the Board of Directors concerning the
results of its review and such other matters relating to the foregoing matters
as the Committee believes merit consideration by the Board of Directors. The
Committee also shall perform such other functions and exercise such other powers
as may be delegated to it from time to time by the Board of Directors.
Section 5. Finance Committee.
The Finance Committee shall include the Chairman of the Board of Directors
together with such other directors as the Board of Directors shall designate.
The Committee during intervals between meetings of the Board of Directors
shall have, and may exercise in such manner as it shall deem to be in the best
interests of the Company, all the powers of the Board of Directors (except with
respect to matters within the powers of the Audit Committee, the Environmental
and Public Policy Committee, or the Compensation and Option Committee)
concerning the determination of financial policies of the Company and the
management of its financial affairs, not inconsistent, however, with law or with
such specific directions as to the conduct of affairs as shall have been given
by the Board of Directors. The Committee also shall perform such other functions
and exercise such other powers as may be delegated to it from time to time by
the Board of Directors. The Committee may redelegate from time to time and to
the full extent permitted by law, in writing, to any officer or employee of the
Company any of such powers.
During intervals between meetings of the Committee, the Chairman, and, if
any, the Vice Chairman, of the Committee shall have and may exercise such of the
powers of the Committee as from time to time shall be conferred upon them by
resolution of the Board of Directors or of the Finance Committee.
All actions by the Committee shall be reported to the Board of Directors and
shall be subject to revision by the Board of Directors, provided no acts or
rights of third parties shall be affected thereby.
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Section 6. Organization Review and Nominating Committee.
The Organization Review and Nominating Committee from time to time shall
consider and make recommendations to the Board of Directors, to the Chairman of
the Board of Directors and to the President with respect to the management
organization of the Company, the nominations or elections of directors and
officers of the Company and the appointments of such other employees of the
Company as shall be referred to the Committee.
The Committee from time to time shall consider the size and composition of
the Board of Directors and make recommendations to the Board of Directors with
respect to such matters. Prior to the annual meeting of stockholders each year,
and prior to any special meeting of stockholders at which a director is to be
elected, the Committee shall recommend to the Board of Directors persons
proposed to constitute the nominees whose election at such meeting will be
recommended by the Board of Directors.
The authority vested in the Committee by this section shall not derogate from
the power of individual members of the Board of Directors to recommend or place
in nomination persons other than those recommended by the Committee.
The Committee also shall perform such other functions and exercise such other
powers as may be delegated to it from time to time by the Board of Directors.
Section 7. Other Committees.
The Board of Directors, or any committee, officer or employee of the Company
may establish additional standing committees or special committees to serve in
an advisory capacity or in such other capacities as may be permitted by law, by
the Certificate of Incorporation and by the By-Laws. The members of any such
committee need not be members of the Board of Directors. Any committee
established pursuant to this Section 7 may be abolished by the person or body by
whom it was established as he, she or it may deem advisable. Each such committee
shall consist of two or more members, the exact number being determined from
time to time by such person or body. Designations of members of each such
committee and, if desired, alternates for members, shall be made by such person
or body, at whose will all such members and alternates shall serve. The chairman
of each such committee shall be designated by such person or body. Each such
committee shall have a secretary who shall be designated by the chairman.
Section 8. Rules and Procedures.
Each committee may fix its own rules and procedures and shall meet at such
times and places as may be provided by such rules, by resolution of the
committee, or by call of the chairman or vice chairman. Notice of meeting of
each committee, other than of regular meetings provided for by its rules or
resolutions, shall be given to committee members. The presence of one-third of
its members, but not less than two, shall constitute a quorum of any committee,
and all questions shall be decided by a majority vote of the members present at
the meeting. All action taken at each committee meeting shall be recorded in
minutes of the meeting.
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Section 9. Application of Article.
Whenever any provision of any other document relating to any committee of the
Company named therein shall be in conflict with any provision of this Article
IV, the provisions of this Article IV shall govern, except that if such other
document shall have been approved by the stockholders, voting as provided in the
Certificate of Incorporation, or by the Board of Directors, the provisions of
such other document shall govern.
ARTICLE V
OFFICERS
Section 1. Officers.
The Officers of the Company may include a President, who shall be chosen from
among the directors, and one or more Vice Chairmen of the Company, one or more
Executive Vice Presidents, one or more Group Vice Presidents, one or more Vice
Presidents, a Treasurer, a Controller and a Secretary, each of whom shall be
elected by the Board of Directors to hold office until his or her successor
shall have been chosen and shall have qualified. The Board of Directors may
elect or appoint one or more Assistant Treasurers, one or more Assistant
Secretaries, and such other officers as it may deem necessary, or desirable,
each of whom shall have such authority, shall perform such duties and shall hold
office for such term as may be prescribed by the Board of Directors from time to
time. Any person may hold at one time more than one office.
Section 2. President and Chief Executive Officer.
Subject to the provisions of these By-Laws and to the direction of the Board
of Directors, the President shall be the Chief Executive Officer of the Company
and shall have ultimate authority for decisions relating to the general
management and control of the affairs and business of the Company and shall
perform all other duties and exercise all other powers commonly incident to the
position of Chief Executive Officer or which are or from time to time may be
delegated to him or her by the Board of Directors, or which are or may at any
time be authorized or required by law. He or she may redelegate from time to
time and to the full extent permitted by law, in writing, to officers or
employees of the Company any or all of such duties and powers, and any such
redelegation may be either general or specific. Whenever he or she so shall
delegate any of his or her authority, he or she shall file a copy of the
redelegation with the Secretary of the Company.
Section 3. Chief Operating Officer.
The Chief Operating Officer shall be selected by the Board of Directors.
Subject to the provisions of these By-Laws and to the direction of the Board of
Directors and of the President, he or she shall have such powers and shall
perform such duties as from time to time may be delegated to him or her by the
Board of Directors or by the President, or which are or may at any time be
authorized or required by law.
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Section 4. Vice Chairmen of the Company, Executive Vice Presidents, Group
Vice Presidents and Vice Presidents.
Each of the Vice Chairmen of the Company, each of the Executive Vice
Presidents, each of the Group Vice Presidents and each of the other Vice
Presidents shall have such powers and shall perform such duties as may be
delegated to him or her by the Board of Directors, by the President or by the
Chief Operating Officer.
In addition, the Board of Directors shall designate one of the Vice Chairmen
of the Company, Executive Vice Presidents, Group Vice Presidents, or Vice
Presidents as the Chief Financial Officer, who, among his or her other powers
and duties, shall provide and maintain, subject to the direction of the Board of
Directors and the Finance Committee, financial and accounting controls over the
business and affairs of the Company. Such office shall maintain, among others,
adequate records of the assets, liabilities and financial transactions of the
Company, and shall direct the preparation of financial statements, reports and
analyses. The Chief Financial Officer shall perform such other duties and
exercise such other powers as are incident to such functions, subject to the
control of the Board of Directors.
Section 5. Treasurer and Assistant Treasurer.
The Treasurer, subject to the direction of the Board of Directors, shall have
the care and custody of all funds and securities which may come into his or her
hands. When necessary or proper he or she shall endorse on behalf of the
Company, for collection, checks, notes and other obligations, and shall deposit
all funds of the Company in such banks or other depositaries as may be
designated by the Board of Directors or by such officers or employees as may be
authorized by the Board of Directors so to designate. He or she shall perform
all acts incident to the office of Treasurer, subject to the control of the
Board of Directors. He or she may be required to give a bond for the faithful
discharge of his or her duties, in such sum and upon such conditions as the
Board of Directors may require.
At the request of the Treasurer, any Assistant Treasurer, in the case of the
absence or inability to act of the Treasurer, temporarily may act in his or her
place. In the case of the death of the Treasurer, or in the case of his or her
absence or inability to act without having designated an Assistant Treasurer to
act temporarily in his or her place, the Assistant Treasurer so to perform the
duties of the Treasurer shall be designated by the President, the Chief
Operating Officer, a Vice Chairman of the Company or an Executive Vice
President.
Section 6. Secretary and Assistant Secretary.
The Secretary shall keep the minutes of the meetings of the stockholders and
of the Board of Directors, and, when required, the minutes of meetings of the
committees, and shall be responsible for the custody of all such minutes.
Subject to the direction of the Board of Directors, the Secretary shall have
custody of the stock ledgers and documents of the Company. He or she shall have
custody of the corporate seal and shall affix and attest such seal to any
instrument whose execution under seal shall have been duly authorized. He or she
shall give notice of meetings and, subject to the direction of the Board of
Directors, shall perform all other duties and enjoy all other powers commonly
incident to his or her office.
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At the request of the Secretary, any Assistant Secretary, in the case of the
absence or inability to act of the Secretary, temporarily may act in his or her
place. In the case of the death of the Secretary, or in the case of his or her
absence or inability to act without having designated an Assistant Secretary to
act temporarily in his or her place, the Assistant Secretary or other person so
to perform the duties of the Secretary shall be designated by the Chairman of
the Board of Directors, the President, the Chief Operating Officer, a Vice
Chairman of the Company or an Executive Vice President.
Section 7. General Counsel.
The Company may have a General Counsel who shall be appointed by the Board of
Directors and who shall have general supervision of all matters of a legal
nature concerning the Company.
Section 8. Controller.
The Controller shall have such powers and shall perform such duties as may be
delegated to him or her by the Board of Directors, the President, the Chief
Operating Officer or the appropriate Vice Chairman of the Company, Executive
Vice President, Group Vice President or Vice President.
Section 9. Salaries.
Salaries of officers, agents or employees shall be fixed from time to time by
the Board of Directors or by such committee or committees, or person or persons,
if any, to whom such power shall have been delegated by the Board of Directors.
An employment contract, whether with an officer, agent or employee, if expressly
approved or specifically authorized by the Board of Directors, may fix a term of
employment thereunder; and such contract, if so approved or authorized, shall be
valid and binding upon the Company in accordance with the terms thereof,
provided that this provision shall not limit or restrict in any way the right of
the Company at any time to remove from office, discharge or terminate the
employment of any such officer, agent or employee prior to the expiration of the
term of employment under any such contract, except that the Company shall not
thereby be relieved of any continuing liability for salary or other compensation
provided for in such contract.
ARTICLE VI
RESIGNATIONS, REMOVALS AND VACANCIES
Section 1. Resignations.
Any director, officer or agent of the Company, or any member of any
committee, may resign at any time by giving written notice to the Board of
Directors, to the Chairman of the Board of Directors, to the President or to the
Secretary of the Company. Any such resignation shall take effect at the time
specified therein, or if the time be not specified therein, then upon receipt
thereof. The acceptance of such resignation shall not be necessary to make it
effective.
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Section 2. Removals.
At any meeting thereof called for the purpose, the holders of Common Stock
and the holders of Class B Stock voting as provided in subsection 1.6 of Article
FOURTH of the Certificate of Incorporation, as amended, may remove from office
or terminate the employment of any director, officer or agent with or without
cause; and the Board of Directors, by vote of not less than a majority of the
entire Board at any meeting thereof called for the purpose, may, at any time,
remove from office or terminate the employment of any officer, agent or member
of any committee.
Section 3. Vacancies.
Subject to the last sentence of Section 1 of Article III, any vacancy in the
office of any director, officer or agent through death, resignation, removal,
disqualification, increase in the number of directors or other cause may be
filled by the Board of Directors (in the case of vacancies in the Board, by the
affirmative vote of a majority of the directors then in office, even though less
than a quorum remains) and the person so elected shall hold office until his or
her successor shall have been elected and shall have qualified.
ARTICLE VII
CAPITAL STOCK-DIVIDENDS-SEAL
Section 1. Certificates of Shares.
The certificates for shares of the capital stock of the Company shall be in
such form, not inconsistent with the Certificate of Incorporation, as amended,
as shall be approved by the Board of Directors. The certificates shall be signed
by the Chairman of the Board of Directors, the President, a Vice Chairman of the
Company, an Executive Vice President, a Group Vice President or a Vice
President, and also by the Treasurer or an Assistant Treasurer, or the Secretary
or an Assistant Secretary. Any and all signatures may be facsimiles.
All certificates shall bear the name of the person owning the shares
represented thereby, shall state the number of shares represented by such
certificate and the date of issue; and such information shall be entered in the
Company's original stock ledger.
Section 2. Addresses of Stockholders.
It shall be the duty of every stockholder to notify the Company of his or her
post office address and of any change therein. The latest address furnished by
each stockholder shall be entered on the original stock ledger of the Company
and the latest address appearing on such original stock ledger shall be deemed
conclusively to be the post office address and the last-known post office
address of such stockholder. If any stockholder shall fail to notify the Company
of his or her post office address, it shall be sufficient to send corporate
notices to such stockholder at the address, if any, understood by the Secretary
to be his or her post office address, or in the absence of such address, to such
stockholder, at the General Post Office in the City of Wilmington, State of
Delaware.
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Section 3. Lost, Destroyed or Stolen Certificate.
Any person claiming a stock certificate in lieu of one lost, destroyed or
stolen, shall give the Company an affidavit as to his, her or its ownership of
the certificate and of the facts which go to prove that it has been lost,
destroyed or stolen. If required by the Board of Directors, he, she or it also
shall give the Company a bond, in such form as may be approved by the Board of
Directors, sufficient to indemnify the Company against any claim that may be
made against it on account of the alleged loss of the certificate or the
issuance of a new certificate.
Section 4. Fixing a Record Date.
The Board of Directors may fix in advance a date not exceeding (i) sixty (60)
days preceding the date of any meeting of stockholders, or the date for payment
of any dividend, or the date for the allotment of rights, or the date when any
change or conversion or exchange of stock shall go into effect (other than
conversions or exchanges pursuant to Sections 2, 3 or 4 of Article FOURTH of the
Certificate of Incorporation, as amended), as a record date for the
determination of the stockholders entitled to notice of and to vote at any such
meeting and any adjournment thereof, or entitled to payment of any such dividend
or to any such allotment of rights or to exercise the rights in respect of any
such change, or conversion or exchange of stock (other than conversions or
exchanges pursuant to Sections 2, 3 or 4 of Article FOURTH of the Certificate of
Incorporation, as amended), or (ii), ten (10) days after adoption of the
resolution fixing such date, as a record date for the determination of the
stockholders entitled to consent in writing to corporate action; and in any such
case, such stockholders and only such stockholders, as shall be stockholders of
record on the date so fixed, shall be entitled, subject to the provisions of
Article FOURTH of the Certificate of Incorporation, as amended, to such notice
of and to vote at such meeting and any adjournment thereof or to receive payment
of such dividend or to receive such allotment of rights or to exercise such
rights or to give such consent, as the case may be, notwithstanding any transfer
of any stock on the books of the Company after such record date.
Section 5. Regulations.
The Board of Directors shall have power and authority to make all such rules
and regulations not inconsistent with any of the provisions of Sections 2, 3, 4
or 5 of Article FOURTH of the Certificate of Incorporation, as amended, as it
may deem expedient, concerning the issue, transfer and registration of
certificates for shares of the stock of the Company.
Section 6. Corporate Seal.
The corporate seal shall have inscribed thereon the name of the Company, the
year of its organization, and the words "Corporate Seal" and "Delaware." If and
when so authorized by the Board of Directors, a duplicate of the seal may be
kept and used by the Secretary or Treasurer or by any Assistant Secretary or
Assistant Treasurer.
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ARTICLE VIII
EXECUTION OF CONTRACTS AND OTHER DOCUMENTS
Section 1. Contracts, etc.
Except as otherwise prescribed in these By-Laws, such officers, employees or
agents of the Company as shall be specified by the Board of Directors shall
sign, in the name and on behalf of the Company, all deeds, bonds, contracts,
mortgages and other instruments or documents, the execution of which shall be
authorized by the Board of Directors; and such authority may be general or
confined to specific instances. Except as so authorized by the Board of
Directors, no officer, agent or employee of the Company shall have power or
authority to bind the Company by any contract or engagement or to pledge,
mortgage, sell or otherwise dispose of its credit or any of its property or to
render it pecuniarily liable for any purpose or in any amount.
Section 2. Checks, Drafts, etc.
Except as otherwise provided in these By-Laws, all checks, drafts, notes,
bonds, bills of exchange or other orders, instruments or obligations for the
payment of money shall be signed by such officer or officers, employee or
employees, or agent or agents, as the Board of Directors shall by resolution
direct. The Board of Directors may, in its discretion, also provide by
resolution for the countersignature or registration of any or all such orders,
instruments or obligations for the payment of money.
ARTICLE IX
FISCAL YEAR
The fiscal year of the Company shall begin the first day of January in each
year.
ARTICLE X
MISCELLANEOUS
Section 1. Original Stock Ledger.
As used in these By-Laws and in the Certificate of Incorporation, as amended,
the words "original stock ledger" shall mean the record maintained by the
Secretary of the Company of the name and address of each of the holders of
shares of any class of stock of the Company, and the number of shares and the
numbers of the certificates for such shares held by each of them, taking into
account transfers at the time made by and recorded on the transfer sheets of
each of the Transfer Agents of the Company although such transfers may not then
have been posted in the record maintained by the Secretary.
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Section 2. Notices and Waivers Thereof.
Whenever any notice whatever is required by these By-Laws or by the
Certificate of Incorporation, as amended, or by any of the laws of the State of
Delaware to be given to any stockholder, director or officer, such notice,
except as otherwise provided by the laws of the State of Delaware, may be given
personally or by telephone or be given by cablegram, facsimile transmission,
mailgram, radiogram, telegram or other form of recorded communication, addressed
to such stockholder at the address set forth as provided in Section 2 of Article
VII, or to such director or officer at his or her Company location, if any, or
at such address as appears on the books of the Company, or the notice may be
given in writing by depositing the same in a post office, or in a regularly
maintained letter box, in a postpaid, sealed wrapper addressed to such
stockholder at the address set forth in Section 2 of Article VII, or to such
director or officer at his or her Company location, if any, or such address as
appears on the books of the Company.
Any notice given by cablegram, mailgram, radiogram or telegram shall be
deemed to have been given when it shall have been delivered for transmission.
Any notice given by facsimile transmission or other form of recorded
communication shall be deemed to have been given when it shall have been
transmitted. Any notice given by mail shall be deemed to have been given when it
shall have been mailed.
A waiver of any such notice in writing, including by cablegram, facsimile
transmission, mailgram or telegram, signed or dispatched by the person entitled
to such notice or by his or her duly authorized attorney, whether before or
after the time stated therein, shall be deemed equivalent to the notice required
to be given, and the presence at any meeting of any person entitled to notice
thereof shall be deemed a waiver of such notice as to such person.
Section 3. Voting upon Stocks.
The Board of Directors (whose authorization in this connection shall be
necessary in all cases) may from time to time appoint an attorney or attorneys
or agent or agents of the Company, or may at any time or from time to time
authorize the Chairman of the Board of Directors, the President, any Vice
Chairman of the Company, any Executive Vice President, any Group Vice President,
any Vice President, the Treasurer or the Secretary to appoint an attorney or
attorneys or agent or agents of the Company, in the name and on behalf of the
Company, to cast the votes which the Company may be entitled to cast as a
stockholder or otherwise in any other corporation or association, any of the
stock or securities of which may be held by the Company, at meetings of the
holders of the stock or other securities of such other corporation or
association, or to consent in writing to any action by any such other
corporation or association, and the Board of Directors or any aforesaid officer
so authorized may instruct the person or persons so appointed as to the manner
of casting such votes or giving such consent, and the Board of Directors or any
aforesaid officer so authorized may from time to time authorize the execution
and delivery, on behalf of the Company and under its corporate seal, or
otherwise, of such written proxies, consents, waivers or other instruments as
may be deemed necessary or proper in the premises.
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ARTICLE XI
AMENDMENTS
The Board of Directors shall have power to make, alter, amend or repeal the
By-Laws of the Company by vote of not less than a majority of the entire Board
at any meeting of the Board. The holders of Common Stock and the holders of
Class B Stock voting as provided in subsection 1.6 of Article FOURTH of the
Certificate of Incorporation, as amended, shall have power to make, alter, amend
or repeal the By-Laws at any regular or special meeting, if the substance of
such amendment be contained in the notice of such meeting of stockholders.
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This AMENDED AND RESTATED PROFIT MAINTENANCE AGREEMENT is dated as of
January 1, 1999 between Ford Motor Company, a Delaware corporation ("Ford"), and
Ford Motor Credit Company, a Delaware corporation ("Ford Credit").
WITNESSETH:
WHEREAS, Ford and Ford Credit (i) entered into a profit maintenance
agreement dated as of December 12, 1974, as amended by amendments dated as of
April 14, 1978, January 15, 1980, March 28, 1989, March 15, 1990 and July 1,
1993; and (ii) desire to further amend and restate the same to read as set forth
below (such agreement as amended and restated hereby being hereinafter called
the "Agreement").
NOW, THEREFORE, in consideration of the foregoing and of the mutual
agreements hereinafter provided, the parties hereto hereby agree as follows:
1. As used herein, "Invested Capital" shall mean an amount equal to
Ford Credit's total stockholder's equity, less any equity in the net assets of
unconsolidated subsidiaries, as shown on the balance sheet of Ford Credit and
its consolidated subsidiaries as of December 31 of the year preceding the
calendar year for which any computation is made hereunder.
2. (a) To the extent necessary, Ford shall make a payment to Ford
Credit, as of the end of each calendar quarter during the years 1999 through
2001 (beginning with the first quarter of 1999), equal to the greater of (i) an
amount sufficient to cause the income before income taxes of Ford Credit and its
consolidated subsidiaries for such calendar quarter, as shown on a consolidated
statement of income of Ford Credit and its consolidated subsidiaries for such
calendar quarter, to be not less than 2% on an annualized basis of Invested
Capital, or (ii) an amount sufficient to cause the net income of Ford Credit and
its consolidated subsidiaries for such calendar quarter, as shown on such
statement of income, to be not less than 1% on an annualized basis of Invested
Capital. In the event that the amounts computed under clauses (i) and (ii) above
shall be equal, Ford shall make a payment to Ford Credit equal to such amount.
The determination of whether and the extent to which any payment is required to
be made as of the end of a calendar quarter shall be based on the latest
available earnings forecast of Ford Credit and its consolidated subsidiaries for
such calendar quarter.
(b) In the event that Ford shall have made a payment to Ford Credit
under paragraph 2(a) with respect to any calendar quarter, and Ford Credit
thereafter shall have for any subsequent calendar quarter during the same
calendar year, both (i) income before income taxes of Ford Credit and its
consolidated subsidiaries in an amount in excess of 2% on an annualized basis of
Invested Capital, and (ii) net income of Ford Credit and its consolidated
subsidiaries in an amount in excess of 1% on an annualized basis of Invested
Capital, Ford Credit shall repay to Ford an amount equal to the lesser of (A) an
amount sufficient to reduce income before income taxes of Ford Credit and its
consolidated subsidiaries to 2% on an annualized basis of Invested Capital, or
(B) an amount sufficient to reduce net income of Ford Credit and its
consolidated subsidiaries to 1% on an annualized basis of Invested Capital (but
not to exceed the aggregate of any payments made to Ford Credit under paragraph
2(a) during such year less any prior repayments made by Ford Credit during such
year under this paragraph 2(b)). In the event that the amounts computed under
clauses (A) and (B) above shall be equal, Ford Credit shall make a repayment to
Ford equal to such amount.
<PAGE>
-2-
3. During the years 1999 through 2001, Ford Credit shall continue to
make inventory and capital financing generally available to dealers of vehicles
manufactured or sold by Ford and shall continue to make retail and lease
financing generally available to such dealers' customers to no less an extent
than Ford Credit made such services available during 1998.
4. All determinations hereunder shall be made in accordance with
generally accepted accounting principles.
5. This Agreement contains the entire agreement between the parties
hereto with respect to the transactions contemplated hereby and shall supersede
all prior agreements between the parties hereto with respect to the subject
matter hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
FORD MOTOR COMPANY
By:/s/Malcolm S. Macdonald
--------------------------
Name: Malcolm S. Macdonald
Title: Vice President and Treasurer
FORD MOTOR CREDIT COMPANY
By:/s/David P. Cosper
--------------------------
Name: David P. Cosper
Title: Vice President - Treasurer
AMENDMENT TO FORD MOTOR COMPANY
SUPPLEMENTAL COMPENSATION PLAN
------------------------------
(Effective as of October 16, 1998)
Paragraph 10 is amended by adding the following new Paragraph 10i at the end
thereof:
"10i. Transfer of Deferral Accounts and Complete Termination of the Plan.
Anything in this Plan to the contrary notwithstanding, all outstanding book
entry deferral accounts maintained under the Plan in the form of contingent
credits for cash and/or Common Stock shall be transferred to the Company's
Deferred Compensation Plan and governed by the provisions of that plan,
effective as of the close of business on October 16, 1998. Upon such transfer,
contingent credits for cash shall be valued based on the Fidelity Retirement
Money Market Portfolio and contingent credits for Common Stock shall be valued
based on the Ford Stock Fund until such time, if any, as all or part of such
amounts are transferred by the applicable participants to other investment
options available under the Deferred Compensation Plan. Ultimate payout of a
transferred deferral account shall be in cash, except that, to the extent that
the transferred account is valued based on the Ford Stock Fund, the participant
may make an election prior to the transfer of the account to receive the
ultimate payout in whole shares of Common Stock. Upon completion of the transfer
of the deferral accounts to the Deferred Compensation Plan from the Plan, the
Plan shall terminate in its entirety."
Exhibit 10-T-8
AMENDMENTS TO FORD MOTOR COMPANY
DEFERRED COMPENSATION PLAN
--------------------------
(Effective as of November 11, 1998)
The following new paragraph (q) is added to Section 2:
"(q) The term 'ARC Plan' shall mean the Automotive Rental Corporation
Executive Management Incentive Plan, as amended."
Paragraph (f) of Section 4 is amended to read as follows:
"(f) Deferrals of Awards Under AIC Plan, RPM Plan or ARC Plan.
Notwithstanding anything contained in the Plan to the contrary,
subject to any limitations determined under paragraph (a) or
paragraph (e) of this Section 4, U.S. employees who receive an award
payable only in cash under the AIC Plan, the RPM Plan or the ARC Plan
are eligible to defer payment under the Plan from 1% to 100%, in 1%
increments, of such amount net of applicable taxes, but not less than
$1,000, provided that such employees are actively employed by
the Company in salary grade 11 or above or the equivalent at the time
of the election to defer. Unless otherwise determined by the
Compensation and Option Committee, deferrals of cash awards under
the AIC Plan, the RPM Plan or the ARC Plan shall be subject to the
same terms and conditions of the Plan that apply to deferrals of
awards of supplemental compensation under the SC Plan. For purposes
of the Plan, any references to awards or payments of supplemental
compensation shall be deemed to cover cash awards or cash payments
under the AIC Plan, the RPM Plan and the ARC Plan."
The fifth sentence of paragraph (e) of Section 5 is amended and replaced by the
following two sentences:
"In addition, with respect to any particular deferral under the
Plan, the participant shall elect (i) the year in which distribution
shall be made or distribution upon retirement and (ii) the method of
distribution desired with respect to any such deferral election if
the participant elected distribution upon retirement, i.e., in a
lump sum payment or in up to ten annual installments."
The first sentence of Paragraph (a) of Section 10 is amended to read as follows:
"Except as otherwise provided in paragraph (b) of this Section 10 or
in Section 12, or as otherwise determined by the Committee,
distribution of all or any part of a participant's Deferred
Compensation Account shall be made on, or as soon thereafter as
practicable, (i) March 15 of the year selected by the participant
for distribution with respect to the particular deferral if the
participant is an active employee of the Company on the distribution
date, (ii) the March 15 following death or termination for reasons
other than retirement, notwithstanding any prior selection by the
participant of a subsequent year for distribution with respect to the
<PAGE>
-2-
particular deferral, (iii) the March 15 following retirement if the
participant selected distribution upon retirement with respect to the
particular deferral and a lump sum distribution was selected, or if
the participant selected a particular year for distribution with
respect to the particular deferral but retired prior to the year
selected, or (iv) the March 15 following retirement with respect to
the first annual installment and continuing on the applicable number
of consecutive anniversaries of such date if no more than ten annual
installments were selected by the participant with respect to the
particular deferral."
Description of Amendment to the Supplemental Executive Retirement Plan
adopted September 10, 1998
The Supplemental Executive Retirement Plan (SERP) was amended September 10, 1998
to provide to Company U.S. Vice Presidents and above whose careers include
subsidiary service a comparable retirement benefit under the General Retirement
Plan (GRP) and Benefit Equilization Plan (BEP) as if they had been a participant
under those plans for their entire career. Generally, the executive's additional
SERP retirement benefit will be the difference between (i) the GRP/BEP
contributory benefit calculated as if the executive's total service had been
recognized as contributory service under the plans (less any years the executive
could have contributed to a Company sponsored retirement plan but failed to do
so), and (ii) the amount of all retirement income payable from Company sponsored
retirement plans. The amendment is effective for retirements beginning October
1, 1998.
Exhibit 10-W-1
AMENDMENT TO 1998 LONG-TERM INCENTIVE PLAN
------------------------------------------
(Effective as of January 1, 1999)
The following paragraph (d) is added to Article 6:
"6. (d) Salaried Employee. Notwithstanding anything contained in the
Plan to the contrary, the term 'salaried employee', for purposes of this
Article 6, shall be deemed to include any salaried employee of the Company
or any other person designated by the Committee for an award under this
Article 6."
Ford Motor Company
The American Road
P.O. Box 1899
Dearborn, Michigan 48121-1899
January 13, 1999
Mr. Edsel B. Ford II
Ford Motor Company
The American Road
Dearborn, MI 48121
Dear Mr. Ford:
This will confirm the agreement between you and the Company with respect to
consulting and related services.
1. During the term of the agreement, you will be available for consultation
and representation of the Company in various matters, generally as outlined in
the attachment, as well as for such other appropriate duties as you and the
Company may agree upon, and you will make yourself available to serve as a
Director of the Company. Your consulting activities under this agreement shall
be coordinated by a Company Representative. The Company Representative shall be
the Vice Chairman - Chief of Staff or such other person as the Company shall
nominate in writing.
2. The agreement will commence on January 13, 1999 and will continue in
effect until terminated by either party upon 30 days' written notice to the
other.
3. As a condition of the Company's obligations under this agreement, during
its term you will not, without the written permission of the Company, engage in
any activity that is directly or indirectly in competition with any activity of
the Company or any subsidiary or in conduct that is inimical to the best
interests of the Company, and will hold in confidence product plans and other
proprietary information which you have concerning the Company.
4. In consideration of your agreement described above, the Company will,
during the term of the agreement, pay you at the rate of $500,000 per year,
payable quarterly, in the form of restricted shares of Ford Motor Company Common
Stock, reimburse you for travel-related expenses incurred in connection with
work performed under this agreement and provide you with the following
facilities: (i) an office within the Company's World Headquarters and a
secretary assigned to that office; and (ii) the club memberships for which the
Company reimburses you.
<PAGE>
-2-
5. This shall not affect your right, as long as you continue to serve as a
member of the Board of Directors or any committee thereof, to be paid whatever
fees are established from time to time for services in those capacities.
If the foregoing correctly sets forth the agreement between you and the
Company, please sign and return the enclosed copy of this letter.
FORD MOTOR COMPANY
By /s/John M. Rintamaki
AGREED:
/s/Edsel B. Ford II
- ---------------------
Edsel B. Ford II
<PAGE>
-3-
Attachment to Consulting Agreement
Community Relations
Dealer Relations
Education Projects
Heritage Events
Motorsports
<TABLE>
<CAPTION>
Exhibit 12
Ford Motor Company and Subsidiaries
CALCULATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
----------------------------------------------------------------------------------------
(in millions)
For the Years Ended December 31
-----------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Earnings
- --------
Income/(Loss) before income taxes
and cumulative effects of changes
in accounting principles $25,396 $10,939 $ 6,793 $ 6,705 $ 8,789
Equity in net loss/(income) of
affiliates plus dividends from
affiliates 78 121 36 179 (182)
Adjusted fixed charges a/ 9,215 10,911 10,801 10,556 8,122
------- ------- ------- ------- -------
Earnings $34,689 $21,971 $17,630 $17,440 $16,729
======= ======= ======= ======= =======
Combined Fixed Charges and
Preferred Stock Dividends
- --------------------------
Interest expense b/ $ 8,919 $10,570 $10,464 $10,121 $ 7,787
Interest portion of rental expense c/ 245 309 300 396 265
Preferred stock dividend requirements
of majority owned subsidiaries and
trusts d/ 55 55 55 199 160
------- ------- ------- ------- -------
Fixed charges 9,219 10,934 10,819 10,716 8,212
Ford preferred stock dividend
requirements e/ 122 82 95 459 472
------- ------- ------- ------- -------
Total combined fixed charges
and preferred stock dividends $ 9,341 $11,016 $10,914 $11,175 $ 8,684
======= ======= ======= ======= =======
Ratios
- ------
Ratio of earnings to fixed charges f/ 3.8 2.0 1.6 1.6 2.0
Ratio of earnings to combined fixed
charges and preferred stock dividends f/ 3.7 2.0 1.6 1.6 1.9
</TABLE>
- - - - - -
a/ Fixed charges, as shown above, adjusted to exclude the amount of interest
capitalized during the period and preferred stock dividend requirements of
majority owned subsidiaries and trusts.
b/ Includes interest, whether expensed or capitalized, and amortization of debt
expense and discount or premium relating to any indebtedness.
c/ One-third of all rental expense is deemed to be interest.
d/ Preferred stock dividend requirements of Ford Holdings, Inc. (1995 - 1993),
increased to an amount representing the pre-tax earnings which would be
required to cover such dividend requirements based on Ford Motor Company's
effective income tax rates. Beginning in the fourth quarter of 1995,
includes requirements related to company-obligated mandatorily redeemable
preferred securities of a subsidiary trust.
e/ Preferred stock dividend requirements of Ford Motor Company increased to an
amount representing the pre-tax earnings which would be required to cover
such dividend requirements based on Ford Motor Company's effective income
tax rates.
f/ Earnings used in calculation of the 1998 ratio include the $15,955 million
gain on the spin-off of The Associates. Excluding this gain, the ratio
is 2.0.
<TABLE>
<CAPTION>
Exhibit 21
SUBSIDIARIES OF FORD MOTOR COMPANY AS OF MARCH 15, 1999*
--------------------------------------------------------
Organization Jurisdiction
- ------------ ------------
<S> <C>
Cadiz Electronica, S.A. Spain
Carplastic S.A. de C.V. Mexico
Ford Argentina S.A. Argentina
Ford Automotive Holdings England
Ford Motor Company Limited England
Jaguar Limited England
Ford Brasil Ltda. Brazil
Ford Capital B.V. The Netherlands
Ford Electronica Portuguesa, Ltd. Bermuda
Ford Electronics and Refrigeration LLC Delaware, U.S.A.
Ford Electronics Manufacturing Corporation Canada
Ford Enhanced Investment Partnership Michigan, U.S.A.
Ford Enhanced Return Partnership Michigan, U.S.A.
Ford Espana S.A. Spain
Ford Export Services B.V. The Netherlands
Ford European Holdings, Inc. Delaware, U.S.A.
Ford Deutschland Holding, GmbH Germany
Ford Werke AG Germany
Ford FSG, Inc. Delaware, U.S.A.
Ford Motor Credit Company Delaware, U.S.A.
The American Road Insurance Company Michigan, U.S.A.
Ford Credit Auto Receivables Corporation Delaware, U.S.A.
Ford Credit Auto Receivables LLC Delaware, U.S.A.
Ford Credit International, Inc. Delaware, U.S.A.
Ford Credit Canada Limited Canada
FCE Bank plc England
Primus Automotive Financial Services, Inc. New York, U.S.A.
Ford Global Technologies, Inc. Michigan, U.S.A.
Ford Holdings, Inc. Delaware, U.S.A.
Ford Motor Land Development Corporation Delaware, U.S.A.
Ford International Capital Corporation Delaware, U.S.A.
Ford Investment Partnership Michigan, U.S.A.
Ford Italiana S.p.A. Italy
Ford Motor Company (Austria) K.G. Austria
Ford Motor Company (Belgium) N.V. Belgium
Ford Motor Company of Canada, Limited Ontario, Canada
Essex Manufacturing Ontario, Canada
Ford Motor Company of Australia Limited Australia
Ford Lio Ho Motor Company Ltd. Taiwan
Ford Motor Company (Japan), Ltd. Japan
Ford Motor Company, S.A. de C.V. Mexico
Ford Motor de Venezuela, S.A. Venezuela
Ford Nederland B.V. The Netherlands
Ford Super Enhanced Return Partnership Michigan, U.S.A.
Ford Treasury Services Dublin Ireland
Groupe Ford France SAS France
Ford Aquitaine Industrie SAS France
Ford Ardennes Industrie SAS France
Ford France Automobile SAS France
The Hertz Corporation Delaware, U.S.A.
Transcon Insurance Limited
</TABLE>
284 Other U.S. Subsidiaries
301 Other Non-U.S. Subsidiaries
* Subsidiaries are not shown by name in the above list if, considered in the
aggregate as a single subsidiary, they would not constitute a significant
subsidiary.
PricewaterhouseCoopers LLP
400 Renaissance Center
Detroit, MI 48243-1507
Telephone (313)446-7100
Facsmilie (313)446-7117
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
Re: Ford Motor Company Registration Statements Nos. 33-9722, 333-46295,
333-47443, 333-47445, 333-47451, 333-47733, 333-47735, 333-49545,
333-49547, 333-49551, 333-52399, 333-58695, 333-58697, 333-58701,
333-65703, and 333-70447 on Form S-8, and 333-52485, 333-67209, and
333-67211 on Form S-3
We consent to the incorporation by reference in the above Registration
Statements of our report dated January 21, 1999 on our audits of the
consolidated financial statements of Ford Motor Company and Subsidiaries as of
December 31, 1998 and 1997, and for the years ended December 31, 1998, 1997 and
1996, which report is included in this Annual Report on Form 10-K. We also
consent to the incorporation by reference of our report on the Financial
Statement Schedules, which report is also included in this Annual Report on Form
10-K.
/s/PricewaterhouseCoopers LLP
400 Renaissance Center
Detroit, Michigan
March 16, 1999
Exhibit 24
FORD MOTOR COMPANY
Certificate of Assistant Secretary
----------------------------------
The undersigned, Peter Sherry, Jr., an Assistant Secretary of FORD MOTOR
COMPANY, a Delaware corporation (the "Company"), DOES HEREBY CERTIFY that the
following resolutions were adopted at a meeting of the Board of Directors of the
Company duly called and held on March 11, 1999 and that the same are in full
force and effect:
RESOLVED, That preparation of an Annual Report of the Company on Form
10-K for the year ended December 31, 1998 (the "10-K Report"), including
exhibits and other documents, to be filed with the Securities and Exchange
Commission (the "Commission") under the Securities Exchange Act of 1934,
as amended, be and hereby is in all respects authorized and approved; that
the draft 10-K Report presented to this meeting be and hereby is approved
in all respects; that the directors and appropriate officers of the
Company, and each of them, be and hereby are authorized to sign and
execute in their own behalf, or in the name and on behalf of the Company,
or both, as the case may be, the 10-K Report, and any and all amendments
thereto, with such changes therein as such directors and officers may deem
necessary, appropriate or desirable, as conclusively evidenced by their
execution thereof; and that the appropriate officers of the Company,
and each of them, be and hereby are authorized to cause the 10-K Report
and any such amendments, so executed, to be filed with the Commission.
RESOLVED, That each officer and director who may be required to sign
and execute the 10-K Report or any amendment thereto or document in
connection therewith (whether in the name and on behalf of the Company,
or as an officer or director of the Company, or otherwise), be and hereby
is authorized to execute a power of attorney appointing J. M. Devine,
W. A. Swift, J. M. Rintamaki, L. J. Ghilardi and N. A. Patino, and each of
them, severally, his or her true and lawful attorney or attorneys to sign
in his or her name, place and stead in any such capacity the 10-K Report
and any and all amendments thereto and documents in connection therewith,
and to file the same with the Commission, each of said attorneys to have
power to act with or without the other, and to have full power and
authority to do and perform in the name and on behalf of each of said
officers and directors who shall have executed such power of attorney,
every act whatsoever which such attorneys, or any of them, may deem
necessary, appropriate or desirable to be done in connection therewith as
fully and to all intents and purposes as such officers or directors might
or could do in person.
WITNESS my hand as of this 11th day of March, 1999.
/s/Peter Sherry, Jr.
----------------------------
Peter Sherry, Jr.
Assistant Secretary
(SEAL)
<PAGE>
POWER OF ATTORNEY WITH RESPECT TO
ANNUAL REPORT OF FORD MOTOR COMPANY ON
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998
----------------------------------------------
Each of the undersigned, a director or officer of FORD MOTOR COMPANY,
appoints each of J. M. Devine, W. A. Swift, J. M. Rintamaki, L. J. Ghilardi and
N. A. Patino his or her true and lawful attorney and agent to do any and all
acts and things and execute any and all instruments which the attorney and agent
may deem necessary or advisable in order to enable FORD MOTOR COMPANY to comply
with the Securities Exchange Act of 1934, and any requirements of the Securities
and Exchange Commission, in connection with the Annual Report of FORD MOTOR
COMPANY on Form 10-K for the year ended December 31, 1998 and any and all
amendments thereto, as authorized at a meeting of the Board of Directors of FORD
MOTOR COMPANY held on March 11, 1999, including, but not limited to, power and
authority to sign his or her name (whether on behalf of FORD MOTOR COMPANY, or
as a director or officer of FORD MOTOR COMPANY, or by attesting the seal of FORD
MOTOR COMPANY, or otherwise) to such instruments and to such Annual Report and
any amendments thereto, and to file them with the Securities and Exchange
Commission. The undersigned ratifies and confirms all that any of the attorneys
and agents shall do or cause to be done by virtue hereof. Any one of the
attorneys and agents shall have, and may exercise, all the powers conferred by
this instrument.
Each of the undersigned has signed his or her name as of the 11th day of
March, 1999.
/s/ William Clay Ford, Jr. /s/ Jacques A. Nasser
- -------------------------------- -----------------------------
(William Clay Ford, Jr.) (Jacques A. Nasser)
/s/ Michael D. Dingman /s/ Edsel B. Ford II
- -------------------------------- -----------------------------
(Michael D. Dingman) (Edsel B. Ford II)
/s/ William Clay Ford /s/ Irvine O. Hockaday, Jr.
- -------------------------------- ------------------------------
(William Clay Ford) (Irvine O. Hockaday, Jr.)
/s/ Marie-Josee Kravis /s/ Ellen R. Marram
- -------------------------------- ------------------------------
(Marie-Josee Kravis) (Ellen R. Marram)
/s/ Homer A. Neal /s/ Carl E. Reichardt
- -------------------------------- ------------------------------
(Homer A. Neal) (Carl E. Reichardt)
/s/ John L. Thornton /s/ John M. Devine
- -------------------------------- ------------------------------
(John L. Thornton) (John M. Devine)
/s/ William A. Swift
- --------------------------------
(William A. Swift)
