<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) February 12, 1997
--------------------
FORD MOTOR CREDIT COMPANY
(Exact name of registrant as specified in its charter)
Delaware 1-6368 38-1612444
- ----------------------- ----------------------- -------------------
(State or other juris- (Commission File Number (IRS Employer
diction of incorporation Number) Identification No.)
The American Road, Dearborn, Michigan 48121
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 313-322-3000
<PAGE> 2
ITEM 5. OTHER EVENTS.
The 1996 Audit of Consolidated Financial Statements of Ford Motor Credit
Company and Subsidiaries together with the Report of Independent Accountants of
Coopers & Lybrand L.L.P., independent certified public accountants is filed as
Exhibit 99.1 to this Current Report on Form 8-K and is incorporated by
reference herein.
The news release dated January 29, 1997 of Ford Motor Company and
subsidiaries for the year ended December 31, 1996 is filed as Exhibit 99.2 to
this Current Report on Form 8-K and is incorporated by reference herein.
ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibits.
EXHIBITS
Designation Description Method of Filing
- ----------- ----------- ----------------
Exhibit 23 Consent of Coopers & Lybrand Filed with this Report.
L.L.P.
Exhibit 27 Financial Data Schedule. Filed with this Report.
Exhibit 99.1 1996 Audit of Consolidated Filed with this Report.
Financial Statements of Ford
Motor Credit Company and
Subsidiaries together with
the Report of Independent
Accountants of Coopers & Lybrand
L.L.P., independent certified
public accountants.
Exhibit 99.2 News release dated Filed with this Report.
January 29, 1997 of
Ford Motor Company and
Subsidiaries for the year
ended December 31, 1996
with attachments.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on the date indicated.
FORD MOTOR CREDIT COMPANY
(Registrant)
Date: February 12, 1997 By:/s/R. P. Conrad
------------------
R. P. Conrad
Assistant Secretary
<PAGE> 3
EXHIBIT INDEX
Designation Description
- ----------- -----------
Exhibit 23 Consent of Coopers & Lybrand
L.L.P.
Exhibit 27 Financial Data Schedule.
Exhibit 99.1 1996 Audit of Consolidated
Financial Statements of Ford
Motor Credit Company and
Subsidiaries together with
the Report of Independent
Accountants of Coopers & Lybrand
L.L.P., independent certified
public accountants.
Exhibit 99.2 News release dated
January 29, 1997 of
Ford Motor Company and
Subsidiaries for the year
ended December 31, 1996
with attachments.
<PAGE> 1
EXHIBIT 23
CONSENT OF COOPERS & LYBRAND L.L.P.
Re: Ford Motor Credit Company Registration Statement
Nos. 33-62973, 33-24928, 33-64237, 33-64263 and 33-55945 on Form S-3
We consent to the incorporation by reference in the above Ford Motor Credit
Company Registration Statements of our report dated January 27, 1997 on our
audits of the consolidated financial statements of Ford Motor Credit Company
and Subsidiaries at December 31, 1996 and 1995 and for each of the three years
in the period ended December 31, 1996 included in Ford Motor Credit Company's
Current Report on Form 8-K dated February 12, 1997.
COOPERS & LYBRAND L.L.P.
/s/ Coopers & Lybrand L.L.P.
Detroit, Michigan
February 12, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,716
<SECURITIES> 1,325
<RECEIVABLES> 80,848
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 121,696
<CURRENT-LIABILITIES> 0
<BONDS> 98,024
0
0
<COMMON> 25
<OTHER-SE> 9,181
<TOTAL-LIABILITY-AND-EQUITY> 121,696
<SALES> 0
<TOTAL-REVENUES> 16,615
<CGS> 0
<TOTAL-COSTS> 14,430
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 993
<INTEREST-EXPENSE> 6,224
<INCOME-PRETAX> 2,240
<INCOME-TAX> 732
<INCOME-CONTINUING> 1,441
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,441
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
EXHIBIT 99.1
FORD MOTOR CREDIT COMPANY
AND SUBSIDIARIES
1996 AUDIT OF CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 2
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder
of Ford Motor Credit Company:
We have audited the consolidated balance sheets of Ford Motor Credit Company
and Subsidiaries at December 31, 1996 and 1995, and the related consolidated
statements of income and of earnings retained for use in the business and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Ford Motor Credit
Company and Subsidiaries at December 31, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996 in conformity with generally accepted
accounting principles.
Detroit, Michigan
January 27, 1997
1
<PAGE> 3
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME AND OF EARNINGS
RETAINED FOR USE IN THE BUSINESS
(in millions)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
-----------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Financing revenue
Operating leases $ 8,223.6 $ 7,300.8 $ 5,596.4
Retail 5,000.7 4,522.7 4,041.9
Wholesale 1,645.8 1,875.2 1,328.6
Diversified 84.0 152.2 124.0
Other 393.5 354.9 286.9
--------- --------- ---------
Total financing revenue 15,347.6 14,205.8 11,377.8
Insurance premiums earned 225.7 - -
Investment and other income 1,041.4 791.4 469.8
--------- --------- ---------
Total revenue 16,614.7 14,997.2 11,847.6
Expenses
Interest expense 6,224.2 5,998.3 4,209.3
Depreciation on operating leases 5,537.6 5,235.1 4,083.0
Operating expenses 1,467.4 1,211.0 1,158.4
Provision for credit losses 993.3 480.4 293.9
Other insurance expenses 207.3 - -
--------- --------- ---------
Total expenses 14,429.8 12,924.8 9,744.6
--------- --------- ---------
Equity in net income of affiliated companies 55.3 255.4 232.5
--------- --------- ---------
Income before income taxes 2,240.2 2,327.8 2,335.5
Provision for income taxes 731.6 682.9 789.0
--------- --------- ---------
Income before minority interests 1,508.6 1,644.9 1,546.5
Minority interests in net income of subsidiaries 68.0 65.5 59.3
--------- --------- ---------
Net income 1,440.6 1,579.4 1,487.2
Earnings retained for use in the business
Beginning of year 6,724.5 5,961.4 4,862.7
Dividends
Cash (949.0) (816.3) (388.5)
Other (324.0) - -
--------- --------- ---------
End of year $ 6,892.1 $ 6,724.5 $ 5,961.4
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE> 4
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in millions)
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------
ASSETS 1996 1995
--------------- --------------
<S> <C> <C>
Cash and cash equivalents $ 2,716.0 $ 1,478.1
Investments in securities 1,324.8 1,914.3
Finance receivables, net 80,848.0 76,376.7
Net investment, operating leases 30,645.2 25,680.2
Notes and accounts receivable from affiliated
companies 1,133.0 672.9
Equity in net assets of affiliated companies 44.4 1,730.5
Other assets 4,985.0 3,405.2
---------- ----------
Total assets $121,696.4 $111,257.9
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Accounts payable
Trade, customer deposits, and
dealer reserves $ 3,362.6 $ 1,785.1
Affiliated companies 2,315.2 1,898.4
---------- ----------
Total accounts payable 5,677.8 3,683.5
Debt 98,024.3 92,180.3
Deferred income taxes 4,260.4 3,109.8
Other liabilities and deferred income 2,929.9 2,340.2
---------- ----------
Total liabilities 110,892.4 101,313.8
Minority interests in net assets of subsidiaries 1,313.8 988.9
Preferred stockholder's equity in a subsidiary
company 284.5 284.5
STOCKHOLDER'S EQUITY
Capital stock, par value $100 a share, 250,000
shares authorized, issued and outstanding 25.0 25.0
Paid-in surplus (contributions by stockholder) 3,749.6 1,904.5
Note receivable from affiliated company (1,517.0) -
Unrealized gain on investments in
securities available for sale, net of taxes 56.9 30.9
Foreign currency translation adjustments (0.9) (14.2)
Earnings retained for use in the business 6,892.1 6,724.5
---------- ----------
Total stockholder's equity 9,205.7 8,670.7
---------- ----------
Total liabilities and stockholder's equity $121,696.4 $111,257.9
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 5
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
------------------------------------------------
1996 1995 1994
------------- ------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 1,440.6 $ 1,579.4 $ 1,487.2
Adjustments to reconcile net income to
net cash provided by operating
activities
Provision for credit losses 993.3 480.4 293.9
Depreciation and amortization 5,870.4 5,294.4 4,143.1
Gain on sales of finance receivables (55.9) (69.2) (11.4)
Equity in net income of affiliates (55.3) (255.4) (232.5)
Deferred income taxes 1,105.6 560.7 386.6
Changes in the following items
Other assets (286.0) (725.4) (328.5)
Other liabilities 1,467.8 785.2 645.3
Other (272.1) 218.0 (20.7)
---------- ---------- ----------
Net cash provided by
operating activities 10,208.4 7,868.1 6,363.0
---------- ---------- ----------
Cash flows from investing activities
Purchase of finance receivables
(other than wholesale) (40,019.4) (35,761.3) (34,415.4)
Collection of finance receivables
(other than wholesale) 33,477.7 28,293.0 28,413.2
Net change in wholesale receivables (2,127.6) (4,035.5) (5,338.4)
Proceeds from sales of finance receivables
and operating leases 4,668.7 5,422.6 3,154.9
Purchase of operating lease vehicles (21,264.0) (18,102.6) (15,635.7)
Liquidation of operating lease vehicles 10,340.5 7,342.3 4,235.8
Proceeds from sale/maturity of
investment securities 5,767.4 76.4 -
Purchase of investment securities (4,730.1) - -
Other 110.4 (440.7) (485.7)
---------- ---------- ----------
Net cash used in
investing activities (13,776.4) (17,205.8) (20,071.3)
---------- ---------- ----------
Cash flows from financing activities
Proceeds from issuance of long-term debt 13,433.5 15,528.4 14,692.8
Principal payments on long-term debt (8,322.4) (7,189.1) (9,853.0)
Change in short-term debt, net 816.9 2,338.7 8,291.2
Cash dividends paid (949.0) (816.3) (388.5)
Other (169.0) 562.8 216.6
---------- ---------- ----------
Net cash provided by
financing activities 4,810.0 10,424.5 12,959.1
Effect of exchange rate changes on
cash and cash equivalents (4.1) 7.9 9.0
---------- ---------- ----------
Net change in cash and cash equivalents 1,237.9 1,094.7 (740.2)
Cash and cash equivalents, beginning of year 1,478.1 383.4 1,123.6
---------- ---------- ----------
Cash and cash equivalents, end of year $ 2,716.0 $ 1,478.1 $ 383.4
========== ========== ==========
Supplementary cash flow information
Interest paid $ $ 5,207.7 $ 5,618.2 $ 4,232.3
Taxes (received)/paid (291.9) 169.6 433.9
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 6
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Ford Motor Credit
Company and its majority owned domestic and foreign subsidiaries and joint
ventures ("Ford Credit"). Affiliates that are 20-50 percent owned are
included in the consolidated financial statements on an equity basis. Ford
Credit is an indirect wholly owned subsidiary of Ford Motor Company ("Ford").
Use of estimates 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 these estimates and
assumptions. Certain amounts in prior years' financial statements have been
reclassified to conform with current year presentations.
Nature of Operations
Ford Credit operates in many locations around the world, the most significant
of which are the United States and Europe.
Ford Credit operates in two industry segments -- financing and insurance.
Financing operations primarily consist of: the purchase from franchised Ford
vehicle dealers of retail installment sale contracts and retail leases;
wholesale financing and capital loans to franchised Ford vehicle dealers and
other franchises associated with such dealers; loans to vehicle leasing
companies; and diversified financing. In addition, certain subsidiaries of
Ford Credit provide these financing services in the United States, Europe,
Canada, and Australia to other vehicle dealers. Insurance operations conducted
through Ford Credit's wholly owned subsidiary, The American Road Insurance
Company ("TARIC"), operate in the United States and Canada and consist 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 its subsidiaries; and credit life and credit
disability insurance for retail purchasers of vehicles and equipment. See also
Note 2 for information regarding Ford Credit's ownership changes in TARIC.
Continued
5
<PAGE> 7
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 1. ACCOUNTING POLICIES (continued)
Revenue Recognition
Revenue from finance receivables is recognized using the interest (actuarial)
method. Certain loan origination costs are deferred and amortized to financing
revenue over the life of the related loans using the interest method. Rental
revenue on operating leases is recognized on a straight-line basis over the
term of the lease. Initial direct costs, net of acquisition fees, related to
leases are deferred and amortized over the term of the lease. 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.
Agreements with Ford and other affiliates provide for interest supplements and
other support payments to Ford Credit on certain financing and leasing
transactions. These payments are recognized as income over the period that the
related finance receivables and leases are outstanding.
Insurance premiums are earned over the policy periods on bases related to
amounts at risk. Premiums from extended service plan contracts are earned over
the life of the policy based on historical loss experience. Physical damage
insurance premiums covering vehicles and equipment financed at wholesale by
Ford Credit and its finance subsidiaries are recognized as income on a monthly
basis as billed; other physical damage, credit life, and credit disability
premiums are earned over the life of the related policies, primarily on the
sum-of-the-digits basis. Certain costs of acquiring new business are deferred
and amortized over the terms of the related policies on the same basis on which
premiums are earned.
Sale of Receivables and Operating Leases
Ford Credit periodically sells finance receivables through special purpose
subsidiaries, retains the servicing rights, and is paid a servicing fee.
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 (see Note 7).
Continued
6
<PAGE> 8
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 1. ACCOUNTING POLICIES (continued)
Sale of Receivables and Operating Leases (continued)
Normal servicing fees are earned as collected over the remaining term of the
related sold finance receivables. The excess servicing asset is amortized over
the term of the sold receivables using the interest method.
Statement of Financial Accounting Standards No. 125 ("SFAS 125"), "Accounting
for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities," was issued in June 1996. SFAS 125 provides accounting and
reporting standards for the subject matter based on consistent application of a
financial components approach that focuses on control. The standard will be
adopted effective January 1, 1997 and is not expected to have any material
effect on the financial statements.
Ford Credit also periodically sells vehicles subject to operating leases to
special purpose subsidiaries under sale-leaseback arrangements. The leaseback
arrangements are structured as operating leases. Pursuant to these
transactions, the vehicles sold are removed from the balance sheet and any gain
on sale is deferred and amortized over the period of the leaseback arrangement.
Ford Credit continues to service the leases and is paid a servicing fee which
is recognized as received. Ford Credit also retains certain residual value and
credit risk which is considered in the calculation of the gain on sale.
Depreciation
Depreciation expense on operating leases is provided on a straight-line basis
over the term of the lease in an amount necessary to reduce the leased vehicle
to its estimated residual value at the end of the lease term. Gains or losses
upon disposal and adjustments to reflect impairment of the vehicle's residual
value are also included in depreciation expense.
Residual Values
The Company has significant investments in the residual values of its leasing
portfolios. Residual values represent estimates of the value of the assets at
the end of the contract terms and are initially recorded based on appraisals
and estimates. Residual values are reviewed on a regular basis to determine
that recorded amounts are appropriate.
Continued
7
<PAGE> 9
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 1. ACCOUNTING POLICIES (continued)
Allowance for Credit Losses
An allowance for estimated credit losses is established during the period in
which receivables or vehicles leased are acquired and is based on historical
experience and other factors that affect collectibility. The allowance for
estimated credit losses includes a provision for certain non-homogenous,
impaired loans. Finance receivables and lease investments are charged to the
allowance for credit losses when an account is deemed to be uncollectible,
taking into consideration the financial condition of the borrower or lessee,
the value of the collateral, recourse to guarantors and other factors.
Collateral held for resale included in other assets is carried at its estimated
fair value at the date of repossession net of estimated disposal costs.
Recoveries on finance receivables and lease investments previously charged off
as uncollectible are credited to the allowance for credit losses.
Insurance Liabilities
A liability for reported insurance claims and an estimate of unreported
insurance claims is provided for based on past experience and is included in
other liabilities and deferred income.
Derivative Financial Instruments
Ford Credit operates in many countries worldwide, and is exposed to market
risks, including the effects of changes in interest rates and changes in
foreign currency exchange rates. Ford Credit issues debt and other payables
with various maturity and interest rate structures to ensure funding over
business and economic cycles and to minimize overall borrowing costs. 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. The
financial exposures are monitored and managed in accordance with Ford Credit's
established policies and procedures.
Ford Credit has entered into agreements to manage exposures to fluctuations in
interest rates and foreign exchange. These agreements are used to hedge
interest rate exposure and to hedge debt denominated in foreign currencies.
All such instruments are classified as "held for purposes other than trading";
company policy specifically prohibits the use of derivatives for speculative
purposes.
Continued
8
<PAGE> 10
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 1. ACCOUNTING POLICIES (continued)
Derivative Financial Instruments (continued)
Interest rate swap agreements are used to manage the effects of interest rate
fluctuations by changing the interest rate characteristics of Ford Credit's
debt to match the interest rate characteristics of related assets. The
differential paid or received on interest rate swap agreements 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.
Foreign currency swap agreements are used to manage foreign exchange exposure.
The differential paid or received on currency swaps is recognized on an accrual
basis as an adjustment to interest expense. Gains and losses on the foreign
currency swap agreements are recognized concurrently with foreign currency
translation gains and losses on the underlying debt.
Foreign Currency Translation
Revenues, costs and expenses of foreign subsidiaries are translated to U.S.
dollars at average-period exchange rates. Assets and liabilities of foreign
subsidiaries are translated to U.S. dollars at year-end exchange rates with the
effects of these translation adjustments being reported in a separate component
of stockholder's equity. The change in this account results from translation
adjustments recorded during the year.
Cash Equivalents
Ford Credit considers investments purchased with a maturity of three months or
less to be cash equivalents.
Continued
9
<PAGE> 11
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 2. ACQUISITIONS AND DIVESTITURES
During 1996 and early 1997 the following actions were completed:
- - In February 1996, Ford Credit exchanged substantially all of its common
stock interest in Ford Holdings, Inc. ("FHI") for a promissory note.
- - In March 1996, TARIC was contributed to Ford Credit.
- - During 1996, the majority of Ford Credit's diversified assets managed by USL
Capital Corporation was sold.
- - In December 1996, Ford, FSG, Inc. ("FFSGI") contributed ownership of Ford
Credit Europe and Ford Credit Argentina to Ford Credit.
- - In January 1997, Ford Credit sold its interest in Ford New Holland Credit
Company to FiatAllis North America, Inc. ("Fiat") and New Holland (Canada)
Credit Holding Ltd. ("Fiat Canada").
These actions are further discussed in the following sections.
Investment in FHI
FHI is a holding company whose principal asset at December 31,1996 is an equity
investment in FFSGI. FFSGI is a holding company which owns substantially all
of Ford's financial services activities.
On February 28, 1996, FHI purchased substantially all of Ford Credit's common
stock interest in FHI for $2,949 million. FHI issued a promissory note to Ford
Credit for the purchase amount. The excess of the value received over the book
value of the FHI investment ($1,296.2 million) was credited to Ford Credit's
paid-in surplus. On April 2, 1996 and December 11, 1996, Ford Credit received
cash payments on the note of $1,032 million and $400 million, respectively.
The unpaid portion of the promissory note ($1,517 million at December 31, 1996)
is reflected as a reduction to stockholder's equity. Ford Credit's investment
in FHI at December 31, 1996 is $62.7 million. Prior to this transaction, Ford
Credit owned 45% of Ford Holdings' common stock and accounted for its
investment in FHI under the equity method. Ford owned the remaining common
stock in FHI representing 55% of the voting power.
Continued
10
<PAGE> 12
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 2. ACQUISITIONS AND DIVESTITURES (continued)
Investment in FHI (continued)
Assuming the sale of Ford Credit's common stock interest in FHI had taken place
on January 1, 1995, Ford Credit's unaudited pro forma net income would have
been lower by approximately $27 million and $136 million in 1996 and 1995,
respectively. The pro forma results are not necessarily indicative of future
operating results or the results that might have occurred had the transaction
taken place on January 1, 1995.
Continued
11
<PAGE> 13
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 2. ACQUISITIONS AND DIVESTITURES (continued)
Investment in FHI (continued)
Condensed financial information of FHI as of December 31 and the two months
ended February 29, 1996 was as follows:
<TABLE>
<CAPTION>
TWO MONTHS
ENDED
FEBRUARY 29, 1996 1995 1994
----------------- ------------- -------------
(in millions)
<S> <C> <C> <C>
INCOME STATEMENT
Revenue $350.4 $ 7,047.4 $ 5,880.5
Income before income taxes 120.9 1,107.1 940.5
Net income 106.5 690.0 609.3
Preferred stock dividend
requirements - 129.8 97.5
Income available for common
stockholders 106.5 560.2 511.8
BALANCE SHEET
Assets
Cash and investments in securities $ 2,508.2 $ 5,947.0
Finance receivables, net 1,478.3 29,361.7
Investment in Ford FSG, Inc. 3,390.0 -
Accounts receivable (including affiliated
companies) and other assets 7,743.0 9,064.5
--------- ---------
Total assets $15,119.5 $44,373.2
========= =========
Liabilities
Accounts payable (including affiliated
companies) and other liabilities $ 3,756.1 $ 5,537.8
Debt payable within one year 2,248.0 16,054.9
Long-term debt 4,486.8 17,765.1
--------- ---------
Total liabilities 10,490.9 39,357.8
Stockholders' equity 4,628.6 5,015.4
--------- ---------
Total liabilities and stockholders'
equity $15,119.5 $44,373.2
========= =========
</TABLE>
Ford Credit's equity in the net assets of Ford Holdings at December 31, 1995
and 1994 was $1,697 million and $1,342 million, respectively.
Continued
12
<PAGE> 14
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 2. ACQUISITIONS AND DIVESTITURES (continued)
Contribution of TARIC
TARIC was contributed to Ford Credit on March 29, 1996. The transaction was
recorded by Ford Credit at TARIC's book value as a credit to paid-in surplus.
Sale of Diversified Assets
As a part of Ford's sale of USL Capital Corporation's assets during 1996, the
majority of Ford Credit's diversified assets (except leveraged leases) managed
by USL Capital Corporation was sold. The sale of the diversified assets did
not have a material impact on Ford Credit's 1996 financial statements. Also,
Ford Credit formed a partnership with Bank of America to manage a significant
portion of the leveraged lease portfolio and certain leveraged leases were
transferred to the partnership. Ford Credit accounts for its investment in the
partnership under the equity method.
Contribution of Ford Credit Europe and Ford Credit Argentina
During the fourth quarter 1996, FFSGI contributed Ford Credit Europe
(approximately 78% ownership) and Ford Credit Argentina (substantially 100%
ownership) to Ford Credit. The transactions were recorded at book value.
Prior years' financial statements were restated to include Ford Credit Europe
only. Beginning retained earnings decreased by $36.2 million for 1994 due to
this restatement. The preferred stock of Ford Credit Europe is owned by Ford.
The contribution of Ford Credit Argentina was not material to Ford Credit's
financial statements and was recorded as a credit to paid-in surplus.
A reconciliation of revenue and net income is as follows:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
(IN MILLIONS)
<S> <C> <C>
Revenue (as previously reported) $13,110.1 $10,389.3
Ford Credit Europe revenue 1,887.1 1,458.3
--------- ---------
Total revenue $14,997.2 $11,847.6
========= =========
Net income (as previously reported) $ 1,395.2 $ 1,312.7
Ford Credit Europe net income 184.2 174.5
--------- ---------
Total net income $ 1,579.4 $ 1,487.2
========= =========
</TABLE>
Continued
13
<PAGE> 15
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 2. ACQUISITIONS AND DIVESTITURES (continued)
Sale of Ford New Holland Credit Company
Ford Credit sold its 51% majority ownership of Ford New Holland Credit Company
to Fiat and Fiat Canada on January 24, 1997. The sale was effective January 1,
1997 and is not expected to materially effect Ford Credit's financial
statements.
Reconciliation of Paid-In Surplus
Certain of the transactions outlined above were recorded in paid-in surplus. A
reconciliation follows:
<TABLE>
<CAPTION>
PAID-IN
SURPLUS
-------------
(IN MILLIONS)
<S> <C>
Balance at January 1, 1995
(as previously stated) $ 917.3
Add:
Paid-in surplus for Ford Credit Europe 987.2
--------
Balance at December 31, 1995
(as restated) $1,904.5
Add:
Excess of the value received over
book value of FHI common stock 1,296.2
Contribution of TARIC 563.8
Other contributions (primarily
Ford Credit Argentina) 35.7
Less:
Return of capital to parent company (50.6)
--------
Balance at December 31, 1996 $3,749.6
========
</TABLE>
Continued
14
<PAGE> 16
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 3. MARKETABLE AND OTHER SECURITIES
Available-for-sale securities are recorded at fair value with unrealized gains
and losses excluded from income and reported, net of tax, as a separate
component of stockholder's equity. At December 31, 1995, the amount reported
in stockholder's equity includes Ford Credit's equity interest in Ford
Holdings' investment portfolio. Held-to-maturity securities are recorded at
amortized cost. Equity securities which do not have readily determinable fair
values are recorded at cost. The basis of cost used in determining realized
gains and losses is specific identification.
The fair value of substantially all securities was estimated based on quoted
market prices for those securities. For securities for which there were no
quoted market prices, the estimate of fair value was based on similar types of
securities that are traded in the market.
Continued
15
<PAGE> 17
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 3. MARKETABLE AND OTHER SECURITIES (continued)
Investments in securities at December 31, 1996 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED MEMO:
AMORTIZED UNREALIZED UNREALIZED FAIR BOOK
COST GAINS LOSSES VALUE VALUE
------------ ---------- ------------- ------------- ------------
(in millions)
<S> <C> <C> <C> <C> <C>
Available-for-sale
securities
Corporate debt
securities $ 218.5 $ 1.5 $ (1.2) $ 218.8 $ 218.8
Mortgage-backed
securities 207.1 1.7 (2.1) 206.7 206.7
Debt securities issued
by the U.S.
government
and agencies 154.3 1.3 (0.7) 154.9 154.9
Equity securities 104.2 89.4 (3.4) 190.2 190.2
Debt securities issued
by foreign
government 26.0 0.9 - 26.9 26.9
Municipal securities 14.4 - - 14.4 14.4
-------- ----- ------ -------- --------
Total
available-
for-sale
securities 724.5 94.8 (7.4) 811.9 811.9
-------- ----- ------ -------- --------
Held-to-maturity
securities
Corporate debt
securities 13.4 - - 13.4 13.4
Debt securities
issued by U.S.
government
and agencies 8.6 0.3 - 8.9 8.6
-------- ----- ------ -------- --------
Total held-to-
maturity
securities 22.0 0.3 - 22.3 22.0
-------- ----- ------ -------- --------
Total investments
in securities
with readily
determinable
fair values 746.5 95.1 (7.4) 834.2 833.9
Other non-marketable
equity
securities 490.9 - - 490.9 490.9
-------- ----- ------ -------- --------
Total investments
in securities $1,237.4 $95.1 $ (7.4) $1,325.1 $1,324.8
======== ===== ====== ======== ========
</TABLE>
Continued
16
<PAGE> 18
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 3. MARKETABLE AND OTHER SECURITIES (continued)
Investments in securities at December 31, 1995 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED MEMO:
AMORTIZED UNREALIZED UNREALIZED FAIR BOOK
COST GAINS LOSSES VALUE VALUE
------------ ---------- ------------- ------------- ------------
(in millions)
<S> <C> <C> <C> <C> <C>
Available-for-sale
securities
Debt securities issued
by the U.S.
government
and agencies $ 9.3 $ 0.1 $ - $ 9.4 $ 9.4
Held-to-maturity
securities
Municipal securities 1,041.6 57.6 - 1,099.2 1,041.6
Corporate debt
securities 47.9 1.8 - 49.7 47.9
-------- ------ ------ -------- --------
Total held-to-
maturity
securities 1,089.5 59.4 - 1,148.9 1,089.5
-------- ------ ------ -------- --------
Total investments
in securities
with readily
determinable
fair values 1,098.8 59.5 - 1,158.3 1,098.9
Other non-marketable
equity
securities 815.4 - - 815.4 815.4
-------- ------ ------ -------- --------
Total investments
in securities $1,914.2 $59.5 $ - $1,973.7 $1,914.3
======== ===== ===== ======== ========
</TABLE>
Continued
17
<PAGE> 19
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 3. MARKETABLE AND OTHER SECURITIES (continued)
The amortized cost and fair value of investments in available-for-sale
securities and held-to-maturity securities at December 31, 1996, by contractual
maturity, were as follows:
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE HELD-TO-MATURITY
--------------------------------------------- -----------------------------------------
ESTIMATED MEMO: ESTIMATED MEMO:
AMORTIZED FAIR BOOK AMORTIZED FAIR BOOK
COST VALUE VALUE COST VALUE VALUE
------------- ------------- ------------- ------------- ------------- ------------
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Due in one
year or less $ 4.4 $ 4.4 $ 4.4 $ 5.8 $ 5.8 $ 5.8
Due after one
year through
five years 182.7 184.3 184.3 13.9 14.0 13.9
Due after five
years through
ten years 162.7 162.3 162.3 0.6 0.7 0.6
Due after ten
years 63.4 64.0 64.0 1.7 1.8 1.7
Mortgage-backed-
securities 207.1 206.7 206.7 - - -
Equity securities 104.2 190.2 190.2 - - -
------ ------ ------ ----- ----- -----
Total $724.5 $811.9 $811.9 $22.0 $22.3 $22.0
====== ====== ====== ===== ===== =====
</TABLE>
Proceeds from sales of available-for-sale securities were $4.5 billion and
$76.4 million in 1996 and 1995, respectively. The increase in activity in 1996
was related to the contribution of TARIC to Ford Credit (see Note 2). TARIC
purchases and sells securities in the normal course of business. Gross
realized gains and losses for the years 1996 and 1995 were not material.
Continued
18
<PAGE> 20
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 4. FINANCE RECEIVABLES
Net finance receivables at December 31 were as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
(in millions)
<S> <C> <C>
Retail $53,099.1 $47,688.7
Wholesale 22,706.3 22,122.7
Diversified 515.3 2,241.6
Other 5,427.4 5,111.2
--------- ---------
Total finance receivables, net of
unearned income 81,748.1 77,164.2
Less: Allowance for credit losses (900.1) (787.5)
--------- ---------
Finance receivables, net $80,848.0 $76,376.7
========= =========
</TABLE>
Included in finance receivables is a total of $1.2 billion owed by three
customers with the largest receivable balances. During 1996 and 1995, Ford
Credit issued irrevocable standby letters of credit in the amount of $234
million and $267 million, respectively, on behalf of one of these customers. A
major portion of these amounts are guaranteed by Ford.
Ford Credit periodically sells finance receivables under agreements which
contain recourse provisions. Reserves for estimated losses under the recourse
provisions are separately provided based principally on historical loss
experience. Ford Credit continues to service the sold receivables for a fee.
Ford Credit's servicing portfolio relating to these finance receivables sales
amounted to $8.9 billion and $9.2 billion at December 31, 1996 and 1995,
respectively.
The contractual maturities of total finance receivables net of unearned income
outstanding at December 31, 1996 were as follows:
<TABLE>
<CAPTION>
DUE IN YEAR
ENDING DECEMBER 31 DUE
------------------------------------------ AFTER
1997 1998 1999 1999 TOTAL
------------- ------------ ------------ ------------- ------------
(in millions)
<S> <C> <C> <C> <C> <C>
Retail $20,077.2 $14,845.3 $ 9,669.7 $ 8,506.8 $53,099.0
Wholesale 22,284.9 198.0 213.9 9.5 22,706.3
Diversified 62.6 51.3 34.3 367.2 515.4
Other 3,680.0 113.1 106.3 1,528.0 5,427.4
--------- --------- --------- --------- ---------
Total $46,104.7 $15,207.7 $10,024.2 $10,411.5 $81,748.1
========= ========= ========= ========= =========
</TABLE>
It is Ford Credit's experience that a substantial portion of finance
receivables are repaid before contractual maturity dates. The above table,
therefore, is not to be regarded as a forecast of future cash collections.
Continued
19
<PAGE> 21
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 4. FINANCE RECEIVABLES (continued)
Installments, including interest, past-due 60 days or more and the aggregate
receivable balances related to such past-due installments were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------------- -----------------------
INSTALLMENTS BALANCES INSTALLMENTS BALANCES
------------ -------- ------------ --------
(in millions)
<S> <C> <C> <C> <C>
Retail $283.2 $806.4 $178.0 $457.6
Wholesale 12.1 53.3 22.1 26.6
Diversified 0.1 0.2 - 0.2
Other 21.6 86.0 11.1 44.6
------ ------ ------ ------
Total $317.0 $945.9 $211.2 $529.0
====== ====== ====== ======
</TABLE>
Included in retail and diversified receivables are investments in direct
financing and leveraged leases related to the leasing of motor vehicles and
various types of transportation and other equipment:
<TABLE>
<CAPTION>
1996 1995
----------- ------------
(in millions)
<S> <C> <C>
Net investment in direct financing leases
Minimum lease rentals $2,307.5 $2,079.8
Estimated residual values 2,618.4 3,540.5
Less: Allowance for credit losses (37.6) (35.5)
-------- --------
Net investment in direct
financing leases $4,888.3 $5,584.8
======== ========
</TABLE>
Minimum direct financing lease rentals (including executory costs of $25.5
million) for each of the five succeeding years are as follows (in millions):
1997 - $2,509.4; 1998 - $1,449.0; 1999 - $695.2; 2000 - $258.4; 2001 - $39.3;
thereafter - $0.1.
Continued
20
<PAGE> 22
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 4. FINANCE RECEIVABLES (continued)
<TABLE>
<CAPTION>
1996 1995
---------- -----------
(in millions)
<S> <C> <C>
Investment in leveraged leases
Rentals receivable (net of principal
and interest on nonrecourse debt) $ 200.5 $ 1,097.1
Estimated residual values 28.2 564.6
Less: Allowance for credit losses (2.7) (19.2)
---------- -----------
Investment in leveraged leases $ 226.0 $ 1,642.5
========== ===========
</TABLE>
Deferred income tax liabilities arising from leveraged leases were $190.5
million and $1,490.1 million at December 31, 1996 and 1995, respectively.
See Note 2 regarding the partial sale of Ford Credit's diversified assets and
the formation of a partnership with Bank of America to manage a significant
portion of the leveraged lease portfolio in 1996.
NOTE 5. NET INVESTMENT, OPERATING LEASES
Operating leases at December 31 were as follows:
<TABLE>
<CAPTION>
1996 1995
---------- -----------
(in millions)
<S> <C> <C>
Investment in operating leases
Vehicles, at cost $ 36,951.2 $ 31,848.7
Lease origination costs 60.1 44.9
Less: Accumulated depreciation (6,048.6) (5,946.0)
Allowance for credit losses (317.5) (267.4)
---------- -----------
Net investment in operating leases $ 30,645.2 $ 25,680.2
========== ===========
</TABLE>
Future minimum rentals on operating leases are as follows (in millions): 1997
- - $10,872.8; 1998 - $10,202.7; 1999 - $997.5; 2000 - $154.2.
Ford Credit periodically sells vehicles subject to operating leases to special
purpose subsidiaries under sale-leaseback arrangements. The leaseback
arrangements are structured as operating leases. Ford Credit continues to
service the leases and is paid a service fee which is recognized as received.
Ford Credit also retains certain limited residual value and credit risk which
is considered in the calculation of the gain on sale. Ford Credit's servicing
portfolio related to these sales amounted to $1,388.7 million and $659.5
million at December 31, 1996 and 1995, respectively.
Continued
21
<PAGE> 23
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 6. ALLOWANCE FOR CREDIT LOSSES
Following is an analysis of the allowance for credit losses relating to finance
receivables and operating leases for the past three years:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ -----------
(in millions)
<S> <C> <C> <C>
Balance, beginning of year $1,054.9 $1,084.4 $1,005.1
Additions 993.3 480.4 293.9
Deductions
Losses 1,020.7 686.6 443.6
Recoveries (190.7) (200.7) (220.5)
-------- -------- --------
Net losses 830.0 485.9 223.1
Other changes, principally amounts relating
to finance receivables and
operating leases sold 0.6 24.0 (8.5)
-------- -------- --------
Net deductions 830.6 509.9 214.6
-------- -------- --------
Balance, end of year $1,217.6 $1,054.9 $1,084.4
======== ======== ========
</TABLE>
Statement of Financial Accounting Standards No. 114, "Accounting by Creditors
for Impairment of a Loan," was issued in May 1993 and amended in October 1994
by Statement of Financial Accounting Standards No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures." The
Standards apply to loans individually evaluated and do not apply to small
dollar homogeneous loans, such as retail finance receivables, which are
evaluated collectively based on historical experience. The Standards require
that impaired loans be measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate. The Company
adopted these standards as of January 1, 1995 and the effect was not material.
Continued
22
<PAGE> 24
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 7. OTHER ASSETS
Other assets consist of:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1996 1995
-------- --------
(in millions)
<S> <C> <C>
Investment in leasing partnership $1,451.5 $ -
Investment in used vehicles held for
resale, at estimated fair value 1,145.1 1,199.3
Retained interest in sold receivables 1,124.1 1,149.2
Deferred charges and other assets 706.6 572.3
Collateral held for resale 407.6 348.8
Property and equipment, net of
accumulated depreciation of $103.5
in 1996 and $95.2 in 1995 150.1 135.6
-------- --------
Total $4,985.0 $3,405.2
======== ========
</TABLE>
Continued
23
<PAGE> 25
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 8. DEBT
Debt at December 31 was as follows:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE(A)
INTEREST RATES BOOK VALUE
------------------------- -----------------------------
1996 1995 1996 1995
----------- ---------- ------------ ------------
(in millions)
<S> <C> <C> <C> <C>
PAYABLE WITHIN ONE YEAR
Commercial paper(B) $38,228.3 $40,089.8
Other short-term debt(C) 4,788.7 2,110.3
--------- ---------
Total short-term debt 5.52% 5.86% 43,017.0 42,200.1
Senior notes payable
within one year(D) (F) 6.49% 7.58% 9,178.0 7,335.6
--------- ---------
Total payable within
one year 5.69% 6.11% 52,195.0 49,535.7
--------- ---------
PAYABLE AFTER ONE YEAR
Secured indebtedness 17.64 % - 9.9 -
Unsecured senior indebtedness
Notes(E) 6.63% 6.85% 44,273.6 41,152.6
Debentures 4.56% 5.60% 1,228.3 1,160.9
Unamortized (discount)/
premium (7.5) 6.1
--------- ---------
Total secured and
unsecured senior
indebtedness 45,504.3 42,319.6
Unsecured long-term
subordinated notes 6.15% 6.23% 325.0 325.0
--------- ---------
Total payable after one year(F) 45,829.3 42,644.6
--------- ---------
Total debt 6.12% 6.43% $98,024.3 $92,180.3
========= =========
</TABLE>
(A) Excludes the effect of interest rate swap agreements.
(B) The average remaining maturities of commercial paper was 34 days at
December 31, 1996 and 32 days at December 31, 1995.
(C) Includes $2,477.7 million and $176.3 million with affiliated companies
at December 31, 1996 and 1995, respectively.
(D) Includes $653 million and $0 million with an affiliated company at
December 31, 1996 and 1995, respectively.
(E) Includes $3,584.4 million and $1,174.4 million with affiliated
companies at December 31, 1996 and 1995, respectively.
(F) Secured and unsecured senior notes and debentures mature at various
dates through 2048. Maturities for the next five years are as
follows (in millions): 1997 -$9,178.0; 1998 -$9,843.2; 1999 - $9,429.0;
2000 - $8,539.0; 2001 - $7,694.8; thereafter - $10,330.8.
Continued
24
<PAGE> 26
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 8. DEBT (continued)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
(in millions)
<S> <C> <C>
PAYABLE AFTER ONE YEAR(A)
Fixed interest rates $ 31,254.7 $ 28,337.2
Variable interest rates (generally based
on LIBOR or other short-term rates) 14,574.6 14,307.4
----------- -----------
Total payable after one year $ 45,829.3 $ 42,644.6
=========== ===========
</TABLE>
(A)Excludes the effect of interest rate swap agreements.
Ford Credit and certain of its subsidiaries have entered into interest rate
swap agreements to manage exposures to fluctuations in interest rates. The
agreements decreased the overall weighted-average interest rate on total debt
from 6.12% to 6.08% as of December 31, 1996 and increased the overall
weighted-average interest rate on total debt from 6.43% to 6.57% as of December
31, 1995. In addition, the agreements increased the Company's overall
weighted-average effective interest rates for full year 1996 from 6.42% to
6.43% and decreased full year 1995 from 6.99% to 6.87%. The agreements
decreased the long-term obligations payable after one year subject to variable
interest rates as of December 31, 1996 and 1995 to $13,627.5 and $12,221.4
million, respectively. The effect of these agreements is to reduce the effect
of interest rate changes on profitability. Approximately 32% of Ford Credit's
interest rate swaps mature in 1997 and approximately 88% mature by 2001.
Continued
25
<PAGE> 27
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 8. DEBT (continued)
Debt at December 31 included obligations payable in foreign currencies and
translated to U.S. dollars as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------
1996 1995
------------ ------------
(in millions)
<S> <C> <C>
Canadian dollar $ 4,518.2 $ 4,099.8
German mark 3,621.6 3,662.4
Japanese yen 2,903.2 1,726.4
British pound 2,380.5 2,072.7
Australian dollar 1,710.5 1,416.8
French franc 1,175.5 757.9
Italian lira 867.0 771.7
Spanish peseta 846.9 770.5
Netherland guilder 304.9 305.3
Norwegian krone 283.9 234.3
Swedish krona 282.1 136.0
New Zealand dollar 237.4 -
Danish krone 228.2 203.0
Austrian schilling 216.8 164.5
Mexican peso 209.5 116.8
Belgian franc 183.6 201.0
Swiss franc 169.5 280.0
Portuguese escudo 163.1 95.0
Finnish markka 145.3 79.2
Irish punt 140.0 105.9
Argentina peso 126.1 -
Indonesian rupiah 63.4 32.3
Luxembourg franc 63.1 68.0
Grecian drachma 30.5 4.8
Polish zloty 18.6 -
European currency unit - 160.2
------------ ------------
$ 20,889.4 $ 17,464.5
============ ============
</TABLE>
Certain of these obligations are denominated in currencies other than the
currency of the country of the issuer. Foreign currency swap agreements are
used to hedge exposure to changes in exchange rates of certain of these
obligations. These obligations are translated to U.S. dollars in the
financial statements at the year-end rates of exchange.
Continued
26
<PAGE> 28
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 9. SUPPORT FACILITIES
Support facilities represent additional sources of funds, if required. At
December 31, 1996, Ford Credit had approximately $19.6 billion of contractually
committed facilities. In addition, $7.6 billion of Ford bank lines may be used
by Ford Credit at Ford's option. The lines have various maturity dates through
June 30, 2001 and may be used, at Ford Credit's option, by any of its direct or
indirect majority-owned subsidiaries. Any such borrowing will be guaranteed by
Ford Credit.
Additionally, at December 31, 1996, there was approximately $4.9 billion of
contractually committed facilities available for Ford Credit Europe plc's use.
In addition, $775 million of Ford bank lines may be used by Ford Credit Europe
plc at Ford's option. The lines have various maturity dates through June 30,
2001 and may be used, at Ford Credit Europe plc's option, by any of its direct
or indirect majority-owned subsidiaries. Any such borrowing will be guaranteed
by Ford Credit Europe plc.
Continued
27
<PAGE> 29
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 10. INCOME TAXES
Ford Credit and certain of its domestic subsidiaries join Ford in filing
consolidated United States federal and state income tax returns. Pursuant to
an arrangement with Ford, United States income tax liabilities or credits are
allocated to Ford Credit in accordance with the contribution of Ford Credit and
its subsidiaries to Ford's consolidated tax position.
The provision for income taxes was estimated as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- ---------
(in millions)
<S> <C> <C> <C>
Currently (refundable)/payable
U.S. federal $ (501.7) $(45.0) $286.4
Foreign 138.1 196.9 114.5
State and local (10.4) (29.7) 1.5
-------- ------ ------
Total currently (refundable)/payable (374.0) 122.2 402.4
Deferred tax liability/(benefit)
U.S. federal 1,050.3 490.0 327.9
Foreign 56.2 (22.1) 34.1
State and local (0.9) 92.8 24.6
-------- ------ ------
Total deferred 1,105.6 560.7 386.6
-------- ------ ------
Total provision $ 731.6 $682.9 $789.0
======== ====== ======
</TABLE>
A reconciliation of the provision for income taxes as a percentage of income
before income taxes, excluding equity in net income of affiliated companies and
minority interest in net income of a joint venture with the United States
statutory tax rate for the last three years is shown below:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
U.S. statutory tax rate 35.0% 35.0% 35.0%
Effect of (in percentage points)
State and local income taxes 1.5 2.0 2.0
U.S. taxes attributable to foreign
source income 1.5 (1.9) 1.6
Investment income not subject to tax or
subject to tax at reduced rates (.9) (1.3) (0.9)
Rate adjustments on deferred taxes (1.9) - (1.4)
Other (1.4) (0.6) 1.4
---- ---- ----
Effective tax rate 33.8% 33.2% 37.7%
==== ==== ====
</TABLE>
Continued
28
<PAGE> 30
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 10. INCOME TAXES (continued)
Deferred income taxes reflect the estimated tax effect of temporary differences
between assets and liabilities for financial reporting purposes and those
amounts as measured by tax laws and regulations. The components of deferred
income tax assets and liabilities as of December 31 were as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
(in millions)
<S> <C> <C>
DEFERRED TAX LIABILITIES
------------------------
Leasing transactions $ 4,536.0 $ 3,470.8
Purchased tax benefits 294.1 298.9
Loan origination costs 125.0 97.7
Sales of receivables 105.2 81.8
Other 104.8 114.5
---------- ----------
Total deferred tax liabilities 5,165.1 4,063.7
DEFERRED TAX ASSETS
-------------------
Provision for credit losses 662.6 456.7
Employee benefit plans 113.6 109.5
Retail contract earnings method 48.5 49.4
Alternative minimum tax 46.0 289.9
Other 34.0 48.4
---------- ----------
Total deferred tax assets 904.7 953.9
---------- ----------
Net deferred tax liabilities $ 4,260.4 $ 3,109.8
========== ==========
</TABLE>
NOTE 11. POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
Ford Credit and certain of its subsidiaries provide selected health care and
life insurance benefits for retired employees under unfunded plans sponsored by
Ford and certain of its subsidiaries. Ford Credit's U.S. and Canadian
employees may become eligible for those benefits if they retire while working
for Ford Credit; however, benefits and eligibility rules may be modified from
time to time. The estimated cost for postretirement health care benefits is
accrued on an actuarially determined basis.
Continued
29
<PAGE> 31
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 11. POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS (continued)
Net postretirement benefit expense included the following:
<TABLE>
<CAPTION>
1996 1995
----------- ----------
(in millions)
<S> <C> <C>
Benefits attributed to employees' service $ 8.3 $ 7.3
Interest on accumulated benefit obligation 14.4 13.1
Net amortization/other (1.7) -
----- -----
Net postretirement benefit expense $21.0 $20.4
===== =====
Retiree benefit payments $ 4.7 $ 3.4
</TABLE>
The status of these plans, reconciled with the amounts recognized in Ford
Credit's balance sheet at December 31, was as follows:
<TABLE>
<CAPTION>
1996 1995
----------- ----------
(in millions)
Accumulated Postretirement Benefit Obligation
<S> <C> <C>
Retirees $ 60.6 $ 57.0
Active employees eligible to retire 29.5 26.7
Other active employees 120.6 137.8
---------- ---------
Total accumulated obligation 210.7 221.5
Unamortized amendments 1.2 2.0
Unamortized net gain 32.1 3.9
----------- ---------
Accrued liability $244.0 $227.4
========== =========
Assumptions:
Discount rate at year-end 7.5% 7.25%
Present health care cost trend rate 6.6% 9.5%
Ultimate trend rate in ten years 5.0% 5.5%
Weighted-average trend rate 5.7% 6.6%
</TABLE>
Changing the assumed health care cost trend rates by one percentage point would
change the aggregate service and interest cost components of net periodic
postretirement benefit cost for 1996 by $4.0 million and the accumulated
postretirement benefit obligation at December 31, 1996 by $34.0 million.
Continued
30
<PAGE> 32
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 12. TRANSACTIONS WITH AFFILIATED COMPANIES
An agreement with Ford provides for payments by Ford to Ford Credit that would
maintain Ford Credit's consolidated income before income taxes and net income
at specified minimum levels. No payments were required under the agreement
during 1996, 1995, or 1994.
Ford Credit and its subsidiaries, from time to time, purchase accounts
receivable of certain divisions and subsidiaries of Ford. The amount of such
receivables outstanding was $4,043.4 million at December 31, 1996 and $3,523.0
million at December 31, 1995. Agreements with Ford and other affiliates also
provide for payments to Ford Credit for interest supplements and other support
costs on certain financing and leasing transactions. Amounts included in the
income statement for these and other transactions with Ford were as follows (in
millions): 1996 - $1,432.7; 1995 - $1,279.0; 1994 - $890.1. Ford Credit and
its subsidiaries purchase from Ford and affiliates certain vehicles which were
previously acquired by Ford principally from its fleet and rental car
customers. The fair value of these vehicles held for resale and included in
other assets at December 31 was as follows (in millions): 1996 - $789.2; 1995
- - $660.7. Ford Credit also has entered into a sale/leaseback agreement with
Ford for vehicles leased to employees of Ford and its subsidiaries. The net
investment in these vehicles included in operating leases at December 31 was as
follows (in millions): 1996 - $764.4; 1995 - $743.8.
Investments in securities include preferred stock of an affiliate ($485.9
million) which was acquired from Ford. Investments in these securities are
recorded at cost. Ford has provided Ford Credit with certain guarantees
related to Ford Credit's investment and return on investment in this preferred
stock. Amounts related to these transactions included in investment and other
income were as follows (in millions): 1996 - $28.7; 1995 - $40.7; 1994 -
$32.4.
On June 28, 1996, Ford Credit transferred Budget Rent-a-Car Corporation
("BRAC") preferred stock to FFSGI as a dividend. Also, Ford Credit recorded a
$498 million reserve for a portion of the BRAC receivables and recorded a
corresponding receivable from FFSGI, the guarantor of the receivables. Payment
was received from FFSGI for this amount on July 11, 1996. Amounts included in
investment and other income from dividends and interest were as follows (in
millions): 1996 - $85.8; 1995 - $109.4; 1994 -$82.3. In January 1997, Ford
announced an agreement to sell its ownership of BRAC to Team Rental Group, Inc.
Based on this agreement Ford Credit will recover approximately $344 million of
the amount previously reserved which will be refunded to FFSGI.
Continued
31
<PAGE> 33
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 12. TRANSACTIONS WITH AFFILIATED COMPANIES (continued)
On February 28, 1996, FHI issued a promissory note to Ford Credit for
substantially all of Ford Credit's common stock interest in FHI. Interest
income earned on the promissory note was $93.5 million in 1996.
Ford Credit and its subsidiaries receive technical and administrative advice
and services from Ford and its subsidiaries, occupy office space furnished by
Ford and its subsidiaries and utilize data processing facilities maintained by
Ford. Payments to Ford and its subsidiaries for such advice and services are
charged to operating expenses and were as follows (in millions): 1996 -
$111.4; 1995 - $95.2; 1994 - $87.2.
Retirement benefits are provided under defined benefit plans for employees of
Ford Credit and its subsidiaries in the United States by the Ford General
Retirement Plan and for employees of the foreign subsidiaries in Europe,
Australia and Canada by the respective Ford retirement plans. Employee
retirement plan costs allocated to Ford Credit and its subsidiaries from Ford
and charged to operating expenses were as follows (in millions): 1996 - $16.6;
1995 - $15.9; 1994 - $13.7.
See other notes for additional information regarding transactions with
affiliated companies.
NOTE 13. LITIGATION AND CLAIMS
Various legal actions, governmental proceedings and other claims are pending or
may be instituted or asserted in the future against Ford Credit and its
subsidiaries. Certain of the pending legal actions are, or purport to be,
class actions. Some of these matters involve or may involve compensatory,
punitive or antitrust or other treble damage claims in very significant amounts
or other relief which, if granted, would require very significant expenditures.
Litigation is subject to many uncertainties, the outcome of individual
litigated matters is not predictable with assurance and it is reasonably
possible that some of the foregoing matters could be decided unfavorably to
Ford Credit or the subsidiary involved. Although the amount of liability at
December 31, 1996 with respect to these matters cannot be ascertained, Ford
Credit believes that any resulting liability should not materially affect the
consolidated financial position or results of operations of Ford Credit and its
subsidiaries.
Continued
32
<PAGE> 34
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 14. FINANCIAL INSTRUMENTS
Book and Estimated Fair Value of Financial Instruments
The estimated fair value of financial instruments held by Ford Credit and its
subsidiaries at December 31, and the valuation techniques used to estimate the
fair value, were as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------------- ------------------------------
ESTIMATED ESTIMATED
BOOK FAIR BOOK FAIR
VALUE VALUE VALUE VALUE
--------------- --------------- -------------- --------------
(in millions) (in millions)
<S> <C> <C> <C> <C>
Assets
- ------
Cash and cash equivalents $ 2,716.0 $ 2,716.0 $ 1,478.1 $ 1,478.1
Investments in securities 1,324.8 1,325.1 1,914.3 1,973.7
Finance receivables, net 75,611.4 74,942.6 69,884.2 69,299.4
Retained interests in sold
receivables 1,124.1 1,124.1 1,149.2 1,149.2
Liabilities
- -----------
Debt payable within one year $52,195.0 $52,195.0 $49,535.7 $49,535.7
Debt payable after one year 45,829.3 45,563.4 42,644.6 43,860.4
Derivative Contracts:
Foreign exchange
instruments
Contracts with unrealized
gains 80.1 68.5 17.2 218.1
Contracts with unrealized
losses (428.3) (722.8) (127.9) (162.4)
Interest rate instruments
Contracts with unrealized
gains 250.2 433.7 63.0 732.8
Contracts with unrealized
losses (123.1) (285.5) (61.1) (339.7)
</TABLE>
CASH AND CASH EQUIVALENTS. The book value approximates fair value because of
the short maturity of these instruments.
INVESTMENTS IN SECURITIES. The estimated fair value of investments in
marketable equity and debt securities are estimated based on market prices.
Book value of investments in non-marketable equity securities approximate fair
value (See Note 3.).
Continued
33
<PAGE> 35
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 14. FINANCIAL INSTRUMENTS (continued)
FINANCE RECEIVABLES, NET. The fair value of substantially all finance
receivables is estimated by discounting future cash flows using an estimated
discount rate which reflects the current credit, interest rate and prepayment
risks associated with similar types of instruments. For receivables with short
maturities, the book values approximate fair values. Finance receivables
excluded from fair market valuation include direct financing and leveraged
lease investments.
RETAINED INTERESTS IN SOLD RECEIVABLES. Included in other assets is the
retained interest in sold finance receivables and related amounts. These
amounts are recorded at the present value of estimated future cash flows
discounted at rates commensurate with this type of instrument, which
approximates fair value.
DEBT PAYABLE WITHIN ONE YEAR. The book value approximates fair value because
of the short maturity of these instruments.
DEBT PAYABLE AFTER ONE YEAR. The fair value is estimated based on quoted
market prices or current rates for similar debt with the same remaining
maturities.
Financial Instruments with Off-Balance-Sheet Risk
The following sections describe the various off-balance-sheet financial
instruments that Ford Credit and its subsidiaries held as of December 31, 1996
and 1995. Also included is a brief discussion of the estimated fair value of
those contracts and certain risks associated with holding those contracts
through maturity.
FOREIGN EXCHANGE INSTRUMENTS. Ford Credit and certain of its subsidiaries have
entered into foreign currency swap agreements to manage exposure to foreign
exchange rate fluctuations. At December 31, 1996 and 1995, the total notional
amount of Ford Credit's foreign exchange instruments outstanding was $10.6
billion and $8.4 billion, respectively. These exchange agreements hedge
principal and interest payments on debt that are denominated in foreign
currencies. The book value of the foreign currency swap agreements represents
the amount payable to the counterparty since the last settlement date. The fair
value of these foreign exchange agreements was estimated using current market
rates.
Continued
34
<PAGE> 36
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 14. FINANCIAL INSTRUMENTS (continued)
INTEREST RATE INSTRUMENTS. Ford Credit and certain of its subsidiaries have
entered into interest rate swap agreements to manage exposure to fluctuations
in interest rates. The underlying notional amount of interest rate swaps was
$74.1 billion at December 31, 1996 and $61.7 billion at December 31, 1995,
respecitvely.
The differential paid or received on interest rate swap agreements is
recognized on an accrual basis as an adjustment to interest expense. The book
value of an interest rate swap agreement represents the differential receivable
or payable with a swap counterparty since the last settlement date.
The fair value of an interest rate swap is the estimated amount Ford Credit
would receive or pay to terminate the agreement. The fair value is calculated
using current market rates for similar instruments with the same remaining
maturities. Unrealized gains and losses are netted for individual
counterparties where legally permissible.
Counterparty Credit Risk
Ford Credit manages its foreign currency and interest rate counterparty credit
risks by limiting exposure and by monitoring the financial condition of
counterparties. The amount of exposure Ford Credit 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, risk is limited to the fair value of
the instrument.
Concentrations of Credit Risk
Ford Credit controls its credit risk through credit standards, limits on
exposure and by monitoring the financial condition of other parties. The
majority of Ford Credit's finance receivables are geographically diversified
throughout the United States. Foreign finance receivables are concentrated in
Europe, Canada, and Australia.
Continued
35
<PAGE> 37
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 15. SEGMENT INFORMATION
Total revenue, income before income taxes and assets identifiable with United
States, Europe, and other foreign operations were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
(in millions)
<S> <C> <C> <C>
Total revenue
United States operations $ 13,175.9 $ 12,056.2 $ 9,624.1
European operations 2,137.2 1,887.1 1,458.3
Other foreign operations 1,301.6 1,053.9 765.2
----------- ----------- -----------
Total revenue $ 16,614.7 $ 14,997.2 $ 11,847.6
=========== =========== ===========
Income before income taxes
United States operations $ 1,677.8 $ 1,634.0 $ 1,689.1
European operations 358.1 382.5 336.4
Other foreign operations 149.0 55.9 77.5
Equity in net income of affiliated
companies 55.3 255.4 232.5
----------- ----------- -----------
Total income before income taxes $ 2,240.2 $ 2,327.8 $ 2,335.5
=========== =========== ===========
Assets at December 31
United States operations $ 93,726.9 $ 85,698.1 $ 76,310.5
European operations 18,743.9 16,688.7 13,525.9
Other foreign operations 9,181.2 7,140.6 5,567.5
Equity in net assets of affiliated
companies 44.4 1,730.5 1,349.3
----------- ----------- -----------
Total assets $ 121,696.4 $ 111,257.9 $ 96,753.2
=========== =========== ===========
</TABLE>
Continued
36
<PAGE> 38
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 16. SELECTED QUARTERLY FINANCIAL DATA
(UNAUDITED)
Selected financial data by calendar quarter for the past two years were as
follows:
<TABLE>
<CAPTION>
TOTAL INTEREST DEPRECIATION ON PROVISION FOR NET
REVENUE EXPENSE OPERATING LEASES CREDIT LOSSES INCOME
------------- ------------ ----------------------- ------------------ -----------
(in millions)
<S> <C> <C> <C> <C> <C>
1996
First Quarter $ 3,932.5 $1,546.7 $1,377.4 $203.5 $ 339.0
Second Quarter 4,142.6 1,569.8 1,337.6 196.9 376.0
Third Quarter 4,183.7 1,529.3 1,403.5 300.4 340.9
Fourth Quarter 4,355.9 1,578.4 1,419.1 292.5 384.7
--------- -------- -------- ------ --------
Full Year $16,614.7 $6,224.2 $5,537.6 $993.3 $1,440.6
========= ======== ======== ====== ========
1995
First Quarter $ 3,484.5 $1,348.1 $1,249.7 $ 84.0 $ 334.0
Second Quarter 3,707.4 1,467.3 1,293.9 96.6 387.9
Third Quarter 3,836.2 1,570.3 1,341.3 140.0 402.5
Fourth Quarter 3,969.1 1,612.6 1,350.2 159.8 455.0
--------- -------- -------- ------ --------
Full Year $14,997.2 $5,998.3 $5,235.1 $480.4 $1,579.4
========= ======== ======== ====== ========
</TABLE>
37
<PAGE> 1
EXHIBIT 99.2
FORD NEWS
Contact: Media Inquiries Stockholder Inquiries
Christian Vinyard (800) 555-5259 or
(313) 322-3428 (313) 845-8540
RELEASE AT 7:30 A.M. (EASTERN) JAN. 29, 1997
FORD EARNS $4.4 BILLION IN 1996, UP 7%;
FOURTH QUARTER RISES 82% TO $1.2 BILLION
DEARBORN, Mich., Jan. 29, 1997 -- Ford Motor Company today reported 1996
earnings of $4.4 billion or $3.64 per fully diluted share of common and Class B
stock. These results were 7 percent better than 1995's earnings of $4.1 billion
or $3.33 a share.
"This was a year of important progress but continuing challenges," said
Chairman and Chief Executive Officer Alex Trotman.
"We have successfully completed our highest-volume launches in North
America and Europe," Trotman said. "Our global product development organization
was streamlined from five to three Vehicle Centers. Important new products like
Expedition, Ka, and Jaguar XK8 have received strong customer reception.
Non-strategic businesses were sold, Financial Services set another earnings
record, our balance sheet strengthened further, and we ended the year with a
solid fourth quarter."
In the fourth quarter, Ford's earnings rose 82 percent to $1.2 billion or
99 cents a share. The results include a one-time charge for voluntary
separation programs and a partial reversal of a provision for losses on loans
to Budget Rent a Car. Excluding these one-time factors, Ford's fourth-quarter
earnings were $1.3 billion or $1.10 a share, more than double year-ago results.
Fourth-quarter automotive earnings, excluding one-time factors, were $770
million in the U.S., $39 million in Europe, and improved in every major region
compared with a year ago.
_______________________________________________________________________________
Investor and Financial Media Relations, World Headquarters, Dearborn, Michigan
48126 Telephone: (313) 322-9600; Fax: (313) 845-0570 Internet:
http://media.ford.com
<PAGE> 2
-2-
AUTOMOTIVE OPERATIONS
Ford's full-year net income from worldwide automotive operations was $1.6
billion, down from $2 billion earned in 1995. The 1996 results reflect a
one-time charge of $436 million for the cost of voluntary employee separation
programs.
"Our U.S. operations, which contribute about 65 percent of our automotive
revenues, have been on an improving trend for the last three quarters," Trotman
said, "and we're addressing challenges in Europe and South America."
In the U.S., Ford earned $2 billion in 1996, up from $1.8 billion earned
in 1995. Outside the U.S., Ford lost $352 million, compared with earnings of
$213 million in 1995. Ford's European automotive operations lost $291 million
in 1996, compared with a profit of $116 million in 1995. In South America, Ford
lost $642 million, compared with a loss of $94 million in 1995.
"We've strengthened our truck line-up in the U.S. while the market
continued to shift from cars to trucks," Trotman noted.
About 55 percent of Ford's U.S. automotive sales in 1996 were trucks. With
sales of more than 780,000, F-Series was the best-selling vehicle in America
for the 15th year in a row. Explorer sales were more than 402,000, the new
Mountaineer added 26,700, and the all-new Expedition, introduced in October,
already is the best seller in its segment despite constrained manufacturing
capacity. Taurus retained its position as best-selling car in America for the
fifth straight year.
Three of America's top four vehicles in 1996 were built by Ford, as were
five of the top 10. These sales successes were accomplished with no increase in
total marketing costs as a percentage of revenue.
Outside the U.S., Trotman said that Ford faces a highly competitive market
in Europe, while launching a virtually new automotive company in South America.
"Europe is tough for everyone," Trotman said, "but we expect better
results in 1997." The European markets have seen a shift to low-end cars and
increasingly high incentives from most manufacturers.
<PAGE> 3
-3-
In 1996, Ford strengthened the product line-up with a new Fiesta, a new
small car -- the Ka -- and an updated Mondeo. Aggressive cost reductions are
under way, including vehicle cost reductions and the rationalization of
manufacturing capacity.
The challenges Ford faces in South America stem from the dissolution of
Autolatina in 1995. Ford is in the process, in effect, of launching a new
company in Brazil and Argentina. Autolatina was a joint-venture company formed
in 1987 with Volkswagen and was dissolved by mutual agreement.
"We have the right plans in Brazil and Argentina to restore our strength
and profitability, although we know it will take some time as we introduce new
products, build a new organization, and restore the dealer body," Trotman said.
"The new products are generating sales momentum. Overall, we are on track."
FINANCIAL SERVICES
The Financial Services Group earned a record $2.8 billion in 1996 compared
with $2.1 billion in 1995. Earnings in 1996 include a net one-time gain of $512
million, reflecting a gain of $650 million from the initial public offering of
19.3 percent of The Associates common stock, a gain of $95 million from the
sale of essentially all the assets of USL Capital and a net charge of $233
million from the write-down for Budget Rent a Car. Without the one-time
actions, Financial Services still set a record for the year.
Ford Credit earned $1.4 billion in 1996, down $138 million from 1995. The
lower results reflect increased credit losses, consistent with industry trends.
On Jan. 28, The Associates reported its 22nd year of increased earnings with
record profits of $857 million in 1996, up 19 percent. As the majority
shareholder, Ford's share was $745 million.
FOURTH-QUARTER RESULTS
Fourth-quarter earnings of $1.2 billion or 99 cents per fully diluted
share of common and Class B stock compare with $660 million or 48 cents a share
in the fourth quarter of 1995. A fourth-quarter charge of $336 million for
voluntary separation costs is offset by a partial reversal of a second-quarter
provision for losses on loans to Budget Rent a Car ($204 million).
<PAGE> 4
-4-
U.S. automotive operations continued to improve, with earnings of $628
million for the fourth quarter, compared with $168 million for the same period
last year. Outside the U.S., automotive operations lost $238 million, compared
with a loss of $152 million for the same period last year, reflecting higher
losses in Europe and South America.
For the Financial Services Group, fourth-quarter earnings were $814
million, compared with $644 million in the same period a year ago. The 1996
results include a favorable $204 million adjustment for Budget Rent a Car.
Ford Credit earned $385 million, compared with $455 million last year. The
Associates' earnings grew 20 percent to a record $234 million, compared to $195
million earned in the fourth quarter last year. Ford's fourth-quarter share was
$190 million.
LOOKING AHEAD
"We're starting 1997 in a much stronger competitive position," Trotman
noted. "We have a tough business plan in place. We expect automotive earnings
to improve in 1997, driven by a strong product line-up and company-wide efforts
to lower costs."
"Our agenda is straightforward," Trotman said. "The first priority is to
improve near-term automotive results."
"Second," Trotman continued, "we want to continue to grow the earnings of
our Financial Services Group. It's clearly one of our undervalued strengths."
"We have a great deal of energy devoted to meeting our near-term
objectives," Trotman said. "Everything we do is designed to maximize the
quality and value of our products for our customers and, over time, create
value for our shareholders."
# # #
<PAGE> 5
-5-
SUMMARY OF 1996 COMPARED WITH 1995
Overview
- --------
Total earnings were $4.4 billion, up 7 percent from earnings of $4.1 billion in
1995.
Fully diluted earnings per share were $3.64, compared with $3.33 a share.
Worldwide sales and revenues were $147 billion, compared with $137.1 billion.
Stockholders' equity at year-end was $26.8 billion, compared with $24.5
billion.
Automotive
- ----------
Net income from worldwide automotive operations was $1.6 billion, compared with
$2 billion in 1995.
Net income from U.S. automotive operations was $2 billion, compared with $1.8
billion. A record 2.1 million trucks were sold in the U.S. in 1996, surpassing
1995's peak by nearly 85,000. Ford Division sold nearly 3.3 million vehicles in
1996 for its best sales year in history.
Automotive operations outside the U.S. lost $352 million, compared with a
profit of $213 million.
Worldwide vehicle unit sales were 6,653,000 in 1996, about equal to 1995's unit
sales of 6,606,000. Revenues in 1996 were $118 billion, up 7 percent from
1995's revenues of $110.5 billion.
Combined full-year car and truck share in the U.S. was 25.2 percent, compared
with 25.6 percent. In the fourth quarter, U.S. market share was 26.2 percent,
compared with 24.9 percent in 1995.
Combined car and truck share in Europe was 11.8 percent, compared with 12.2
percent.
Financial Services Group
- ------------------------
The Financial Services Group earned a record $2.8 billion, compared with $2.1
billion in 1995.
Ford Credit earned $1.441 billion, compared with $1.579 billion.
The Associates earned a record $857 million, compared with $723 million in
1995.
Hertz earned a record $159 million in 1996, up 51 percent over 1995.
Automotive Balance Sheet
- ------------------------
Cash and marketable securities was a record $15.4 billion, compared with $12.4
billion.
Debt was $8.2 billion, compared with $7.3 billion.
Net cash was a record $7.2 billion, compared with $5.1 billion.
Capital spending was $8.2 billion or 7 percent of revenue, compared with $8.7
billion or 7.9 percent of revenue.
<PAGE> 6
Ford Motor Company and Subsidiaries
HIGHLIGHTS
<TABLE>
<CAPTION>
Fourth Quarter Full Year
------------------------- --------------------------
1996 1995 1996 1995
------- ------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C>
Worldwide vehicle unit sales of
cars and trucks (in thousands)
(Unaudited)
- - United States 1,006 955 3,897 3,993
- - Outside United States 747 635 2,756 2,613
----- ----- ----- -----
Total 1,753 1,590 6,653 6,606
===== ===== ===== =====
Sales and revenues (in millions)
- - Automotive $31,505 $27,597 $118,023 $110,496
- - Financial Services 7,328 6,950 28,968 26,641
------- ------- -------- --------
Total $38,833 $34,547 $146,991 $137,137
======= ======= ======== ========
Net income (in millions)*
- - Automotive $ 390 $ 16 $ 1,655 $ 2,056
- - Financial Services 814 644 2,791 2,083
------- ------- -------- --------
Total $ 1,204 $ 660 $ 4,446 $ 4,139
======= ======= ======== ========
Capital expenditures (in millions)
- - Automotive $ 2,413 $ 2,472 $ 8,209 $ 8,676
- - Financial Services 93 98 442 321
------- ------- -------- --------
Total $ 2,506 $ 2,570 $ 8,651 $ 8,997
======= ======= ======== ========
Automotive capital expenditures
as a percentage of sales 7.7% 9.0% 7.0% 7.9%
Stockholders' equity at December 31
- - Total (in millions) $26,762 $24,547 $ 26,762 $ 24,547
- - After-tax return on Common and
Class B stockholders' equity 18.4% 10.9% 17.6% 18.2%
Automotive cash and marketable securities
at December 31 (in millions) $15,414 $12,406 $ 15,414 $ 12,406
Automotive debt at December 31
(in millions) $ 8,156 $ 7,307 $ 8,156 $ 7,307
After-tax return on sales
- - U.S. Automotive 3.2% 0.9% 2.7% 2.5%
- - Total Automotive 1.3 0.1 1.4 1.9
Shares of Common and Class B Stock
(in millions)
- - Average number outstanding 1,187 1,136 1,179 1,071
- - Number outstanding at December 31 1,188 1,159 1,188 1,159
AMOUNTS PER SHARE OF COMMON AND
CLASS B STOCK AFTER PREFERRED
STOCK DIVIDENDS
Income/(loss) assuming full dilution
- - Automotive $ 0.32 $ (0.06) $ 1.33 $ 1.59
- - Financial Services 0.67 0.54 2.31 1.74
------- ------- -------- --------
Total $ 0.99 $ 0.48 $ 3.64 $ 3.33
======= ======= ======== ========
Cash dividends $ 0.385 $ 0.35 $ 1.47 $ 1.23
- - - - - -
*One-time factors included in net income
(in millions):
Automotive
- Employee separation programs $ (336) $ (129) $ (436) $ (146)
- Autolatina dissolution - 230 - 230
Financial Services
- Sale of The Associates' common stock - - 650 -
- Sale of USL Capital's assets - - 95 -
- Net write-down for Budget Rent a Car
Corporation 204 - (233) -
------- ------- -------- --------
Total $ (132) $ 101 $ 76 $ 84
======= ======= ======== ========
</TABLE>
FS-1
<PAGE> 7
Ford Motor Company and Subsidiaries
VEHICLE UNIT SALES
For the Periods Ended December 31, 1996 and 1995
(in thousands)
<TABLE>
<CAPTION>
Fourth Quarter Full Year
-------------------------- ---------------------------
1996 1995 1996 1995
-------- -------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NORTH AMERICA
United States
Cars 428 434 1,656 1,767
Trucks 578 521 2,241 2,226
----- ----- ----- -----
Total United States 1,006 955 3,897 3,993
Canada 84 76 258 254
Mexico 28 11 67 32
----- ----- ----- -----
Total North America 1,118 1,042 4,222 4,279
EUROPE
Britain 140 125 516 496
Germany 106 84 436 409
France 47 41 194 165
Italy 51 54 180 193
Spain 41 31 155 160
Other countries 103 74 339 286
----- ----- ----- -----
Total Europe 488 409 1,820 1,709
OTHER INTERNATIONAL
Brazil 48 48 190 201
Australia 31 32 138 139
Taiwan 14 16 86 106
Argentina 21 14 64 48
Japan 11 13 52 57
Other countries 22 16 81 67
----- ----- ----- -----
Total other international 147 139 611 618
----- ----- ----- -----
Total worldwide vehicle unit sales 1,753 1,590 6,653 6,606
===== ===== ===== =====
</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.
FS-2
<PAGE> 8
Ford Motor Company and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
For the Years Ended December 31, 1996, 1995 and 1994
(in millions, except amounts per share)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
AUTOMOTIVE
Sales $118,023 $110,496 $107,137
Costs and expenses:
Costs of sales 108,882 101,171 95,887
Selling, administrative and other expenses 6,625 6,044 5,424
-------- -------- --------
Total costs and expenses 115,507 107,215 101,311
Operating income 2,516 3,281 5,826
Interest income 841 800 665
Interest expense 695 622 721
-------- -------- --------
Net interest income/(expense) 146 178 (56)
Equity in net (loss)/income of affiliated companies (6) (154) 271
Net expense from transactions with Financial Services (85) (139) (44)
-------- -------- --------
Income before income taxes - Automotive 2,571 3,166 5,997
FINANCIAL SERVICES
Revenues 28,968 26,641 21,302
Costs and expenses:
Interest expense 9,704 9,424 7,023
Depreciation 6,875 6,500 4,910
Operating and other expenses 6,217 5,499 4,607
Provision for credit and insurance losses 2,564 1,818 1,539
Asset write-downs and dispositions 121 - 475
-------- -------- --------
Total costs and expenses 25,481 23,241 18,554
Net revenue from transactions with Automotive 85 139 44
Gain on sale of The Associates' common stock 650 - -
-------- -------- --------
Income before income taxes - Financial Services 4,222 3,539 2,792
-------- -------- --------
TOTAL COMPANY
Income before income taxes 6,793 6,705 8,789
Provision for income taxes 2,166 2,379 3,329
-------- -------- --------
Income before minority interests 4,627 4,326 5,460
Minority interests in net income of subsidiaries 181 187 152
-------- -------- --------
Net income $ 4,446 $ 4,139 $ 5,308
======== ======== ========
Income attributable to Common and Class B Stock
after preferred stock dividends $ 4,381 $ 3,839 $ 5,021
Average number of shares of Common and Class B Stock outstanding 1,179 1,071 1,010
AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK
Income $ 3.72 $ 3.58 $ 4.97
Income assuming full dilution $ 3.64 $ 3.33 $ 4.44
Cash dividends $ 1.47 $ 1.23 $ 0.91
</TABLE>
FS-3
<PAGE> 9
Ford Motor Company and Subsidiaries
CONSOLIDATED BALANCE SHEET
(in millions)
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
--------------- ---------------
<S> <C> <C>
ASSETS
Automotive:
Cash and cash equivalents $ 3,578 $ 5,750
Marketable securities 11,836 6,656
-------- --------
Total cash and marketable securities 15,414 12,406
Receivables 3,635 3,321
Inventories 6,656 7,162
Deferred income taxes 3,296 2,709
Other current assets 3,193 1,483
Net current receivable from Financial Services 0 200
-------- --------
Total current assets 32,194 27,281
Equity in net assets of affiliated companies 2,483 2,248
Net property 33,527 31,273
Deferred income taxes 4,429 4,802
Other assets 7,025 7,168
-------- --------
Total Automotive assets 79,658 72,772
Financial Services:
Cash and cash equivalents 3,689 2,690
Investments in securities 2,307 4,553
Net receivables and lease investments 161,906 149,694
Other assets 14,834 13,574
Net receivable from Automotive 473 0
-------- --------
Total Financial Services assets 183,209 170,511
-------- --------
Total assets $262,867 $243,283
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Automotive:
Trade payables $ 11,735 $ 11,260
Other payables 2,206 1,976
Accrued liabilities 16,587 13,392
Income taxes payable 508 316
Debt payable within one year 1,661 1,832
Net current payable to Financial Services 473 0
-------- --------
Total current liabilities 33,170 28,776
Long-term debt 6,495 5,475
Other liabilities 26,793 25,677
Deferred income taxes 1,225 1,186
-------- --------
Total Automotive liabilities 67,683 61,114
Financial Services:
Payables 4,695 5,476
Debt 150,205 141,317
Deferred income taxes 4,338 3,831
Other liabilities and deferred income 8,504 6,116
Net payable to Automotive 0 200
-------- --------
Total Financial Services liabilities 167,742 156,940
Company-obligated mandatorily redeemable preferred securities of
a subsidiary trust holding solely junior subordinated debentures
of the Company 680 682
Stockholders' equity:
Capital stock
Preferred Stock, par value $1.00 per share (aggregate
liquidation preference of $694 million and $1,042 million) * *
Common Stock, par value $1.00 per share
(1,118 million and 1,089 million shares issued) 1,118 1,089
Class B Stock, par value $1.00 per share (71 million shares issued) 71 71
Capital in excess of par value of stock 5,268 5,105
Foreign currency translation adjustments and other (29) 594
Earnings retained for use in business 20,334 17,688
-------- --------
Total stockholders' equity 26,762 24,547
-------- --------
Total liabilities and stockholders' equity $262,867 $243,283
======== ========
</TABLE>
- - - - - -
*Less than $500,000
FS-4
<PAGE> 10
Ford Motor Company and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Years Ended December 31, 1996, 1995 and 1994
(in millions)
<TABLE>
<CAPTION>
1996 1995 1994
----------------------- ---------------------- ----------------------
Financial Financial Financial
Automotive Services Automotive Services Automotive Services
---------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents at January 1 $ 5,750 $ 2,690 $ 4,481 $ 1,739 $ 5,667 $ 2,555
Cash flows from operating activities 6,576 12,776 8,849 12,322 7,542 9,087
Cash flows from investing activities
Capital expenditures (8,209) (442) (8,676) (321) (8,310) (236)
Purchase of leased assets (195) - 0 - 0 -
Acquisitions of other companies 0 (166) 0 0 0 (485)
Acquisitions of receivables and lease
investments - (108,713) - (99,967) - (90,824)
Collections of receivables and
lease investments - 82,024 - 71,149 - 61,111
Net acquisitions of daily rental vehicles - (1,759) - (1,459) - (924)
Net proceeds from USL Capital asset
sales - 1,157 - - - -
Purchases of securities (6) (8,020) (51) (6,274) (412) (10,688)
Sales and maturities of securities 7 9,863 325 5,052 511 9,649
Proceeds from sales of receivables and
lease investments - 2,867 - 4,360 - 3,622
Net investing activity with Financial Services 416 - (19) - 355 -
Other (586) (45) 558 (184) (331) 196
-------- --------- -------- -------- ------- --------
Net cash used in investing activities (8,573) (23,234) (7,863) (27,644) (8,187) (28,579)
Cash flows from financing activities
Cash dividends (1,800) - (1,559) - (1,205) -
Issuance of Common Stock 192 - 601 - 715 -
Issuance of Common Stock of a
subsidiary - 1,897 - - - -
Changes in short-term debt 151 3,224 413 5,884 (795) 10,314
Proceeds from other debt 1,688 22,247 300 23,854 158 21,885
Principal payments on other debt (1,031) (14,428) (177) (11,489) (75) (14,088)
Net financing activity with Automotive - (416) - 19 - (355)
Receipts from annuity contracts - - - 283 - 1,124
Net (redemption)/issuance of subsidiary
company preferred stock - - - (1,875) - 417
Other 37 (278) 121 102 31 (554)
------- --------- ------- -------- ------- --------
Net cash (used in)/provided by financing
activities (763) 12,246 (301) 16,778 (1,171) 18,743
Effect of exchange rate changes on cash (85) (116) 107 (28) 397 166
Net transactions with Automotive/
Financial Services 673 (673) 477 (477) 233 (233)
------- --------- ------- -------- ------- --------
Net (decrease)/increase in cash and
cash equivalents (2,172) 999 1,269 951 (1,186) (816)
------- --------- ------- -------- ------- --------
Cash and cash equivalents at December 31 $ 3,578 $ 3,689 $ 5,750 $ 2,690 $ 4,481 $ 1,739
======= ========= ======= ======== ======= ========
</TABLE>
FS-5
