<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----
FORM 10-Q
(Mark One)
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------------- ----------------
Commission file numbers 1-6368
FORD MOTOR CREDIT COMPANY
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 38-1612444
- -------------------- -----------------------------------
(State of Incorporation) (I.R.S. employer identification no.)
The American Road, Dearborn, Michigan 48121
- --------------------------------------- ---------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (313) 322-3000
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
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number
of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date: 250,000 shares
of common stock as of September 30, 1998.
The registrant meets the conditions set forth in General Instruction H(1)(a)
and (b) of Form 10-Q and is therefore filing this Form in reduced disclosure
format.
PAGE 1 OF 36
EXHIBIT INDEX APPEARS AT PAGE 32.
<PAGE> 2
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements - The interim financial data presented herein are
unaudited, but in the opinion of management reflect all adjustments necessary
for a fair presentation of such information. Results for interim periods should
not be considered indicative of results for a full year. Reference should be
made to the financial statements contained in the registrant's Annual Report on
Form 10-K for the year ended December 31, 1997 (the "10-K Report"). Information
relating to earnings a share is not presented because the registrant, Ford Motor
Credit Company ("Ford Credit"), is an indirect wholly owned subsidiary of Ford
Motor Company ("Ford" or the "company").
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
Condensed Consolidated Statement of Income
and of Earnings Retained for Use in the Business
For the Periods Ended September 30, 1998 and 1997
(in millions)
<TABLE>
<CAPTION> Third Quarter Nine Months
1998 1997 1998 1997
---------- --------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Financing revenue
Operating leases $ 2,442.2 $ 2,347.3 $ 7,303.1 $ 6,658.0
Retail 1,448.9 1,341.3 4,250.0 3,868.6
Wholesale 353.5 359.4 1,203.3 1,211.0
Other 92.5 101.0 283.6 296.8
---------- --------- --------- ---------
Total financing revenue 4,337.1 4,149.0 13,040.0 12,034.4
Depreciation on operating leases (1,791.7) (1,624.1) (5,314.9) (4,537.4)
Interest expense (1,662.0) (1,551.8) (4,963.5) (4,676.6)
---------- --------- --------- ---------
Net financing margin 883.4 973.1 2,761.6 2,820.4
Other revenue
Insurance premium earned 68.8 75.1 224.9 215.2
Investment and other income 268.4 186.2 818.1 656.0
---------- --------- --------- ---------
Total financing margin and revenue 1,220.6 1,234.4 3,804.6 3,691.6
Expenses
Operating expenses 394.9 379.4 1,240.4 1,088.1
Provision for credit losses 290.2 370.1 882.2 1,022.2
Other insurance expenses 68.4 66.8 222.7 200.6
---------- --------- --------- ---------
Total expenses 753.5 816.3 2,345.3 2,310.9
---------- --------- --------- ---------
Equity in net income of affiliated companies 0.7 1.2 1.6 0.7
Income before income taxes 467.8 419.3 1,460.9 1,381.4
Provision for income taxes 184.1 149.4 575.0 528.6
---------- --------- --------- ---------
Income before minority interest 283.7 269.9 885.9 852.8
Minority interest in net
income of subsidiaries 11.3 12.2 35.9 40.2
---------- --------- --------- ---------
Net income 272.4 257.7 850.0 812.6
Earnings retained for use in the business
Beginning of period 7,905.0 7,432.5 7,327.4 6,892.1
Dividends (80.0) 0.0 (80.0) (14.5)
---------- --------- --------- ---------
End of period $ 8,097.4 $ 7,690.2 $ 8,097.4 $ 7,690.2
========== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 3
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
(in millions)
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1998 1997 1997
---------------- ---------------- ----------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 504.1 $ 689.5 $ 1,355.2
Investments in securities 1,504.5 887.9 829.3
Finance receivables, net (Note 1) 84,700.6 81,312.6 78,746.6
Net investment, operating leases 35,434.7 34,746.0 34,928.1
Retained interest in sold receivables 1,244.0 998.6 950.0
Accounts and notes receivable from
affiliated companies 1,109.8 734.2 710.7
Equity in net assets of affiliated companies 39.6 49.6 46.9
Other assets 2,086.0 2,554.9 3,432.0
---------------- ---------------- ----------------
Total assets $ 126,623.3 $ 121,973.3 $ 120,998.8
================ ================ ================
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Accounts payable
Trade, customer deposits, and dealer reserves $ 3,448.9 $ 2,835.0 $ 2,697.7
Affiliated companies 1,034.4 2,815.7 1,040.2
---------------- ---------------- ----------------
Total accounts payable 4,483.3 5,650.7 3,737.9
Debt (Note 2) 104,664.4 100,725.0 99,991.4
Deferred income taxes 3,206.4 2,732.2 3,997.9
Other liabilities and deferred income 3,186.1 2,803.2 2,811.7
---------------- ---------------- ----------------
Total liabilities $ 115,540.2 $ 111,911.1 $ 110,538.9
Minority interest in net assets of subsidiaries 387.1 477.7 352.9
Preferred stockholder's equity in a subsidiary
company 0 0 286.5
Stockholder's Equity
Capital stock, par value $100 a share,
250,000 shares authorized, issued and outstanding 25.0 25.0 25.0
Paid-in surplus (contributions by stockholder) 4,229.0 3,891.6 3,719.5
Note receivable from affiliated company (1,517.0) (1,517.0) (1,517.0)
Accumulated other comprehensive income/(loss)
(Note 3) (138.4) (142.5) (97.2)
Earnings retained for use in the business 8,097.4 7,327.4 7,690.2
---------------- ---------------- ----------------
Total stockholder's equity 10,696.0 9,584.5 9,820.5
---------------- ---------------- ----------------
Total liabilities and stockholder's equity $ 126,623.3 $ 121,973.3 $ 120,998.8
================ ================ ================
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 4
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
Consolidated Statement of Cash Flows
For the Periods Ended September 30, 1998 and 1997
(in millions)
<TABLE>
<CAPTION>
Nine Months
1998 1997
----------- -----------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net income $ 850.0 $ 812.6
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for credit losses 882.2 1,022.2
Depreciation and amortization 5,599.7 4,963.1
Gain on sales of finance receivables (171.3) (18.4)
Equity in net income of affiliates (1.6) (0.7)
Increase/(decrease) in deferred income taxes 395.4 (299.2)
Increase in other assets (182.1) (1,114.5)
Decrease in other liabilities (356.7) (716.7)
Other 67.2 (36.0)
----------- -----------
Net cash provided by operating activities 7,082.8 4,612.4
----------- -----------
Cash flows from investing activities
Purchase of finance receivables (other than wholesale) (36,275.4) (28,657.8)
Collection of finance receivables (other than wholesale) 21,452.6 23,642.9
Purchase of operating lease vehicles (14,964.8) (17,391.5)
Liquidation of operating lease vehicles 9,311.5 8,792.6
Net change in wholesale receivables 4,114.7 1,588.5
Proceeds from sale of receivables 7,769.0 1,541.1
Purchase of investment securities (1,654.0) (2,136.0)
Proceeds from sale/maturity of investment securities 1,037.4 2,632.1
Other (92.8) (54.8)
----------- -----------
Net cash used in investing activities (9,301.8) (10,042.9)
----------- -----------
Cash flows from financing activities
Proceeds from issuance of long-term debt 15,620.9 9,546.5
Principal payments on long-term debt (11,605.5) (6,218.8)
Change in short-term debt, net (1,719.2) 728.1
Cash dividends paid (80.0) (14.5)
Other (187.6) 63.4
----------- -----------
Net cash provided by financing activities 2,028.6 4,104.7
----------- -----------
Effect of exchange rate changes on cash and cash
equivalents 5.0 (35.0)
----------- -----------
Net change in cash and cash equivalents (185.4) (1,360.8)
Cash and cash equivalents, beginning of period 689.5 2,716.0
----------- -----------
Cash and cash equivalents, end of period $ 504.1 $ 1,355.2
=========== ===========
Supplementary cash flow information
Interest paid $ 4,894.3 $ 4,644.5
Taxes paid 139.3 475.4
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 5
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
Notes To Financial Statements
Note 1. Finance Receivables, Net (in millions)
<TABLE>
<CAPTION> September 30, December 31, September 30,
1998 1997 1997
---------------- --------------- ----------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Retail $ 62,228.3 $ 55,601.0 $ 55,423.4
Wholesale 17,696.8 21,605.5 18,930.8
Other 5,963.0 5,275.9 5,543.0
---------------- --------------- ----------------
Total finance receivables net of
unearned income 85,888.1 82,482.4 79,897.2
Less allowance for credit losses (1,187.5) (1,169.8) (1,150.6)
---------------- --------------- ----------------
Finance receivables, net $ 84,700.6 $ 81,312.6 $ 78,746.6
================ =============== ================
</TABLE>
<PAGE> 6
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
Notes To Financial Statements (cont'd)
Note 2. Debt (in millions)
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1998 1997 1997
------------- ------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
PAYABLE WITHIN ONE YEAR:
Commercial paper $ 37,893.1 $ 40,856.8 $ 35,232.7
Other short-term debt* 6,023.0 5,351.0 7,484.1
------------- -------------- -------------
Total short-term debt 43,916.1 46,207.8 42,716.8
Long-term indebtedness payable
within one year** 9,601.0 9,572.6 11,291.1
------------- -------------- -------------
Total payable within one year 53,517.1 55,780.4 54,007.9
------------- -------------- -------------
<CAPTION>
September 30, 1998
-------------------------------------
Weighted Average
Interest Rates*** Maturities
------------------- -------------
<S> <C> <C> <C> <C> <C>
PAYABLE AFTER ONE YEAR:
Secured indebtedness 20.32% 1999-2000 14.3 13.5 16.1
Unsecured senior indebtedness
Notes**** 6.30% 1998-2048 49,635.6 43,584.1 44,812.5
Debentures 4.12% 2001-2005 1,410.2 1,247.6 1,048.9
Unamortized (discount)/premium (22.6) (3.0) 1.8
------------- -------------- -------------
Total secured and unsecured
senior indebtedness 51,037.5 44,842.2 45,879.3
Unsecured long-term
subordinated notes 8.51% 2005 109.8 102.4 104.2
------------- -------------- -------------
Total payable after one year 51,147.3 44,944.6 45,983.5
------------- -------------- -------------
Total debt $ 104,664.4 $ 100,725.0 $ 99,991.4
============= ============== =============
</TABLE>
* Includes $186.6 million, $830.5 million, and $4,205.8 million with
affiliated companies at September 30, 1998, December 31, 1997, and
September 30, 1997, respectively.
** Includes $383.6 million, $1,716.0 million, and $1,918.0 million with
affiliated companies at September 30, 1998, December 31, 1997, and
September 30, 1997, respectively.
*** Rates were variable on about 21.5% of the debt payable after one year
including the effects of interest rate swap agreements.
**** Includes $4,109.4 million, $1,830.6 million, and $1,945.8 million with
affiliated companies at September 30, 1998, December 31, 1997, and
September 30, 1997, respectively.
<PAGE> 7
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
Notes To Financial Statements (cont'd)
Note 3. Comprehensive Income
Ford Credit adopted statement of Financial Standards 130, "Reporting
Comprehensive Income," as of January 1, 1998. Total comprehensive income was as
follows (in millions):
<TABLE>
<CAPTION> Third Quarter Nine Months
1998 1997 1998 1997
------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net income $ 272.4 $ 257.7 $ 850.0 $ 812.6
Other comprehensive income
Foreign currency translation adjustments 96.6 (49.7) 12.4 (166.3)
Unrealized gain/(loss)on investments in securities
available for sale, net of taxes (5.4) 4.4 (8.3) 13.1
------------ ------------ ------------ ------------
Total other comprehensive income 91.2 (45.3) 4.1 (153.2)
------------ ------------ ------------ ------------
Total comprehensive income $ 363.6 $ 212.4 $ 854.1 $ 659.4
============ ============ ============ ============
</TABLE>
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORD CREDIT THIRD QUARTER 1998 COMPARED WITH THIRD QUARTER 1997 RESULTS
OF OPERATIONS
Ford Credit's consolidated net income in the third quarter of 1998 was $272
million, up $14 million or 5% from 1997. Compared with results from a
year ago, the increase primarily reflects lower credit losses and loss reserve
requirements, higher gains on receivables sales, higher financing volumes, and
lower operating costs. Lower financing margins and a higher effective tax rate
are a partial offset.
Total net finance receivables and net investment in operating leases at
September 30, 1998 were $120.1 billion, up $6.4 billion or 6% from a year
earlier.
Credit losses as a percent of average net finance receivables including net
investment in operating leases decreased to 0.79% in third quarter 1998 from
0.85% in third quarter 1997 reflecting a decrease in repossession rates offset
partially by higher losses per repossession. The increase in losses per
repossession reflects a weaker used vehicle market resulting in Ford Credit
realizing lower prices for repossessed units sold at auction.
Net financing margins decreased compared with the same period a year ago
primarily reflecting increased depreciation expense for leased vehicles.
Increased depreciation expense for leased vehicles primarily reflects lower than
anticipated residual values on those vehicles. These factors are expected to
continue to adversely affect Ford Credit's earnings for the remainder of 1998.
During the third quarter of 1998, Ford Credit financed 50% of all new cars and
trucks sold by Ford dealers in the U.S., compared with 39% in the same period of
1997. In Europe, Ford Credit financed 36% of all new vehicles sold by Ford
dealers in the third quarter of 1998 compared with 31% in the third quarter of
1997. Ford Credit provided retail customers with financing for 774,000 new and
used vehicles in the United States and 209,000 in Europe. In the third quarter
of 1998, Ford Credit provided wholesale financing for 85% of Ford U.S. factory
sales and 94% of Ford factory sales in Europe compared with 79% for the U.S. and
94% for Europe in the third quarter 1997.
FIRST NINE MONTHS 1998 COMPARED WITH FIRST NINE MONTHS 1997 RESULTS OF
OPERATIONS
For the first nine months of 1998, Ford Credit's consolidated net income was
$850 million, up $37 million or 5% from the first nine months of 1997. The
factors affecting financing profits during the first nine months of 1998 were
the same as those affecting third quarter results discussed above.
During the first nine months of 1998, Ford Credit provided retail financing for
42% of all new cars and trucks sold by Ford dealers in the United States,
compared with 38% in the same period a year ago. In Europe, Ford Credit financed
32% of all new vehicles sold by Ford in the first nine months of 1998, compared
to 28% in the first nine months of last year. Ford Credit provided retail
financing for 2,143,000 new and used vehicles in the United States and 599,000
in Europe. In the first nine months of 1998, Ford Credit provided wholesale
financing for 80% of Ford U.S. factory sales and 95% of Ford factory sales in
Europe compared with 79% for the U.S. and 95% for Europe in the first nine
months of 1997.
<PAGE> 9
FORD CREDIT LIQUIDITY AND CAPITAL RESOURCES
Ford Credit's outstanding debt at September 30, 1998 and at the end of each of
the last three years was as follows (in millions):
<TABLE>
<CAPTION>
September 30, December 31
------------------------------------------
1998 1997 1996 1995
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Commercial paper & STBAs(a) $ 39,252 $ 42,311 $ 38,774 $ 40,419
Other short-term debt (b) 4,664 3,897 4,243 1,781
Long-term debt (including
current portion)(c) 60,748 54,517 55,007 49,980
----------- ---------- ---------- -----------
Total debt $ 104,664 $ 100,725 $ 98,024 $ 92,180
=========== ========== ========== ===========
United States $ 79,226 $ 78,443 $ 76,635 $ 73,178
Europe 15,476 12,491 14,028 13,013
Other international 9,962 9,791 7,361 5,989
----------- ---------- ----------- -----------
Total debt $ 104,664 $ 100,725 $ 98,024 $ 92,180
=========== ========== =========== ===========
Memo:
Total support facilities
(billions) as of October 1, 1998
and December 31, 1997-1995,
respectively:
Ford Credit U.S. $ 26.7 $ 26.6 $ 27.2 $ 27.4
FCE Bank 5.5 5.2 5.7 4.7
- - - - -
(a) Short-term borrowing agreements with bank trust departments.
(b) Includes $187 million, $831 million, $2,478 million and $176 million
with affiliated companies at September 30, 1998, December 31, 1997,
December 31, 1996, and December 31, 1995, respectively.
(c) Includes $4,493 million, $3,547 million, $4,237 million and $1,174
million with affiliated companies at September 30, 1998 and December
31, 1997, December 31, 1996, and December 31, 1995 respectively.
</TABLE>
Support facilities represent additional sources of funds, if required. At
October 1, 1998, Ford Credit had approximately $19.1 billion of contractually
committed facilities. In addition, $7.6 billion of Ford credit lines may be used
by Ford Credit at Ford's option. The lines have various maturity dates through
June 30, 2003 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. Banks also provide $1.5 billion of contractually committed
liquidity facilities to support Ford Credit's asset backed commercial paper
program.
Additionally, at October 1, 1998, there were approximately $4.9 billion of
contractually committed facilities available for FCE Bank plc's ("FCE Bank")
use. In addition $615 million of Ford credit lines may be used by FCE Bank at
Ford's option. The lines have various maturity dates through June 30, 2003 and
may be used, at FCE Bank's option, by any of its direct or indirect
majority-owned subsidiaries. Any such borrowing will be guaranteed by FCE Bank.
<PAGE> 10
YEAR 2000 CONVERSION
General
An issue affecting Ford Credit 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, Ford Credit initiated a global Y2K program to manage Ford
Credit's overall Y2K compliance effort. As part of this program, Ford Credit
established a global Y2K Program Office to coordinate Ford Credit's compliance
efforts. Ford Credit participates closely with Ford's Y2K Central Program Office
and the Ford Y2K Steering Committee. Ford's Y2K program has been certified by
the Information Technology Association of America as meeting its Y2K best
practices standards.
State of Readiness
Ford Credit has identified the following six distinct areas for its Y2K
compliance efforts:
Business Computer Systems: These include computer systems and applications
relating to operations such as retail and lease financing, commercial lending,
customer account processing, collections, insurance operations, treasury, and
financial reporting. A compliance plan has been developed for each business
system, with particular attention given to critical systems. Critical business
systems are being verified independently for compliance.
External Alliances (Banks, Credit Bureaus, Trustees, Underwriters, Financial
Institutions): Ford Credit 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 financial institutions in North America.
Similar actions are underway in Europe and the rest of the world. Follow-up
actions to explore the Y2K preparedness and plan integration testing are being
conducted with each highly critical financial institution.
Affiliates: All affiliates have developed plans to address Y2K compliance and
Ford Credit is monitoring their progress.
End-User Computing: Ford Credit's plan to ensure Y2K compliance of desktop
computers throughout the company includes the replacement or repair of all
non-compliant computers and related software.
Technical Infrastructure: All critical infrastructure hardware has been
inventoried and assessed. Ford's dedicated test facility will be used to test
selected critical systems infrastructure.
Physical Properties and Infrastructures: Ford Credit, in conjunction with Ford,
is assessing the Y2K compliance of a ll its significant building systems,
including energy and security systems. Actions are being taken to determine
energy and other utility supplier preparedness.
Set forth below is a timetable showing Ford Credit's internal target dates for
compliance and the present status of compliance (at September 30, 1998) for each
of the areas mentioned above. Ford Credit has established these target dates
well before December 31, 1999 to allow sufficient time to perform enterprise-
wide testing and further validation of Ford Credit's Y2K compliance.
Present status as of September 30, 1998:
<TABLE>
<CAPTION>
Y2K Program Timing
------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Critical Business Computer
Systems -Plan: 100% compliant by 12/98-
Present Status: 75%
Critical External Alliances --Plan: 100% ready* by 6/99-----
Present Status: 95%
Affiliates --Plan: 100% ready* by 6/99-----
Present Status: 100%
Critical End-User
Computing ----Plan: 100% compliant by 6/99--
Present Status: 60%
Technical Infrastructure ----Plan: 100% compliant by 6/99--
Present Status: 50%
Physical Properties and
Infrastructure --Plan: 100% compliant by 6/99--
Present Status: 70%
</TABLE>
*"Ready" means having a comprehensive Y2K program in place and a plan that will
achieve compliance before January 1, 2000.
<PAGE> 11
Y2K Costs
Ford Credit is sharing many of Ford's Y2K compliance tools. Ford Credit
estimates that its incremental costs will be about $20 million for Y2K
compliance efforts. This amount will be incurred over a three-year period that
commenced mid-1997 and will end mid-2000. Y2K compliance costs incurred through
September 30, 1998 are estimated at $12 million. Ford Credit's annual Y2K costs
relating to information technology have represented and are expected in the
future to represent less than 10% of Ford Credit's annual information technology
budget.
Y2K Risks
The most reasonably likely worst case scenario for Ford Credit with respect to
the Y2K problem is the failure of an external alliance, particularly another
financial institution or energy supplier to that financial institution, to be
Y2K compliant. This could result in Ford Credit not being able to conduct
financial transfers such as payment of debt, selling commercial paper, or
collecting receivables, which in turn could result in lost revenue.
Y2K Contingency Plans
Ford Credit has 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. Detailed
contingency plans for critical business processes will be developed by March
1999. In addition, Ford Credit is participating with the Ford business
resumption steering committee.
EURO CONVERSION
A single currency called the euro will be introduced in Europe on January 1,
1999. Eleven of the fifteen member countries of the European Union have agreed
to adopt the euro as their common legal currency on that date. Fixed conversion
rates between these participating countries' existing currencies (the "legacy
currencies") and the euro will be established as of that date. The legacy
currencies are scheduled to remain legal tender as denominations of the euro
until January 1, 2002. During this transition period, parties may pay for items
using either the euro or a participating country's legacy currency.
Ford Credit, including its European subsidiary, FCE Bank plc, plans to make
necessary changes to accounting, operational, and payment systems to accommodate
introduction of the euro. Certain of Ford Credit's business functions will
introduce euro-capability as of January 1, 1999, including, for example, systems
for making and receiving certain payments and denominating certain types of new
loans in euro. Other business functions of Ford Credit 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.
Ford Credit plans no changes in its funding strategies or asset-liability
management policies as a result of the introduction of the euro, and will
continue to fund in all markets which are cost-effective. Ford Credit generally
hedges all foreign exchange exposure associated with its funding activities. As
a result, Ford Credit's exposure to movements in foreign exchange rates is
limited and introduction of the euro should have no material effect on Ford
Credit.
<PAGE> 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
For a discussion of 19 purported class actions affecting Ford Credit,
see Item 5 "Legal Proceedings - Ford - Class Actions - Lease
Agreement Disclosure".
Item 2. Changes in securities
Not required.
Item 3. Defaults upon Senior Securities
Not required.
Item 4. Submission of Matters to a Vote of Secuirty Holders
Not required.
Item 5. Other Information
<PAGE> 13
INFORMATION CONCERNING FORD
Following is a condensed consolidated statement of income (unaudited) of Ford
for the periods ended September 30, 1998 and 1997 (in millions except amounts
per share):
<TABLE>
<CAPTION>
Third Quarter Nine Months
------------- -----------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales and revenues $32,640 $36,096 $106,513 $113,675
Total costs and expenses 31,274 34,353 99,058 106,077
Operating income 1,366 1,743 7,455 7,598
Automotive net interest income 124 61 357 210
Automotive equity in net/(loss)income
of affiliated companies 23 0 31 (65)
Gain on spin-off of the Associates 15,955 -
Gain on sale of common stock of
a subsidiary - 269
Income before income taxes 1,513 1,804 23,798 8,012
Provision for income taxes 482 595 2,646 2,675
Minority interests in net income
of subsidiaries 30 84 124 213
Net income 1,001 1,125 21,028 5,124
Amounts Per Share of Common Stock
and Class B Stock after Preferred
Stock Dividends
Income per share $ 0.82 $ 0.93 $ 17.29 $ 4.26
Income per share
assuming full dilution $ 0.80 $ 0.91 $ 16.90 $ 4.17
Cash dividends per share of Common
and Class B Stock $ 0.42 $ 0.42 $ 1.26 $ 1.225
</TABLE>
- -
<PAGE> 14
Management's Discussion and Analysis of Financial Condition and Results
of Operations - Ford
- -------------------------------------------------------------------------------
OVERVIEW
The company's worldwide net income was $1,001 million in third quarter 1998, or
$0.80 per diluted share of Common and Class B Stock, compared with $1,125
million, or $0.91 per diluted share in third quarter 1997. Excluding The
Associates' earnings contribution of $219 million, Ford's third quarter 1997
operating earnings were $906 million, or $0.73 per diluted share. The company's
worldwide sales and revenues were $32.6 billion in third quarter 1998, down
$3,456 million from a year ago. Vehicle unit sales of cars and trucks were
1,489,000, down 107,000 units. Stockholders' equity was $23.7 billion at
September 30, 1998, down $7 billion compared with December 31, 1997, reflecting
primarily The Associates spin-off.
RESULTS OF OPERATIONS
The company's worldwide net income for the Automotive sector in third quarter
1998 and 1997 and first nine months 1998 and 1997 was as follows (in millions):
<TABLE>
<CAPTION>
Third Quarter Nine Months
----------------------------- ---------------------------
1998 1998
O/(U) O/(U)
1998 1997 1997 1998 1997 1997
--------- -------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
North American Automotive $ 900 $ 620 $ 280 $3,565 $3,081 $ 484
Automotive Outside North America
- - Europe (273) (147) (126) 267 115 152
- - South America (44) 133 (177) (75) 111 (186)
- - Other 63 28 35 175 66 109
----- ----- ----- ------ ------ -----
Total Automotive Outside
North America (254) 14 (268) 367 292 75
----- ----- ----- ------ ------ -----
Total Automotive Sector $ 646 $ 634 $ 12 $3,932 $3,373 $ 559
===== ===== ===== ====== ====== =====
</TABLE>
<PAGE> 15
The Automotive sector includes Automotive operations and Visteon Automotive
Systems, the company's automotive systems enterprise.
The company's worldwide net income for Financial Services group in third quarter
1998 and 1997 and first nine months 1998 and 1997 was as follows (in millions):
<TABLE>
<CAPTION>
Third Quarter Nine Months
--------------------------------- ---------------------------
1998 1998
O/(U) O/(U)
1998 1997 1997 1998 1997 1997
--------- -------- ------ -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Ford Credit $272 $258 $ 14 $ 850 $ 813 $ 37
Hertz 119 93 26 229 167 62
Gain on Hertz IPO - - - - 269 (269)
Minority interests, Eliminations,
and Other (36) (79) 43 (115) (106) (9)
---- ---- ----- ------- ------ -------
Financial Services (excluding
The Associates) 355 272 83 964 1,143 (179)
The Associates - 219 (219) 177* 608 (431)
Gain on spin-off of
The Associates - - - 15,955 - 15,955
---- ---- ----- ------- ------ -------
Total Financial Services $355 $491 $(136) $17,096 $1,751 $15,345
==== ==== ===== ======= ====== =======
Memo: Ford's share of earnings in
Hertz $ 96 $ 75 $ 21 $ 185 $ 140 $ 45
</TABLE>
- --------------
* Through March 12, 1998
<PAGE> 16
THIRD QUARTER 1998 COMPARED WITH THIRD QUARTER 1997 - FORD
Automotive Sector
- -----------------
Worldwide earnings for Ford's Automotive sector were $646 million in third
quarter 1998 on sales of $26.5 billion, compared with $634 million in third
quarter 1997 on sales of $28.2 billion. Increased earnings reflect primarily
continued cost reductions, offset partially by lower volume. Adjusted for
constant volume and mix, total automotive costs were down $600 million compared
with third quarter a year ago.
Automotive sector earnings in North America were $900 million in third quarter
1998, up $280 million compared with a year ago. The increase reflects primarily
favorable cost performance, offset partially by lower volumes. The after-tax
return on sales was 4.5% in third quarter 1998, up 1.4 points from a year ago.
The seasonally-adjusted annual selling rate for the U.S. car and truck industry
was 15.3 million units in third quarter 1998, down from 15.8 million units in
third quarter 1997. The company expects car and truck industry sales for
full-year 1998 to be slightly higher than the 15.5 million units in 1997. Ford's
combined U.S. car and truck share was 25.9% in third quarter 1998, up 1.3 points
from a year ago, which was more than explained by stronger truck share.
Automotive sector losses in Europe were $273 million, $126 million worse than
third quarter a year ago. The deterioration reflected costs associated with the
Focus launch and lower export sales, offset partially by cost reductions.
The seasonally-adjusted annual selling rate for the European car and truck
industry was 16.8 million units in third quarter 1998, up from 15.6 million
units in third quarter 1997. European car and truck industry sales for full-year
1998 are expected to be about 15.6 million units. Ford's combined European car
and truck market share was 10.1% in third quarter 1998, down 1.2 points from a
year ago. The reduction was primarily due to the Focus launch.
Automotive sector losses in South America were $44 million in third quarter
1998, compared with a profit of $133 million in the third quarter a year ago,
reflecting lower volume and higher marketing costs. Ford is reducing production
in Brazil and Argentina in the fourth quarter, and is considering other actions
because of anticipated weak demand through 1999.
In third quarter 1998, the seasonally-adjusted annual selling rate for the
Brazilian car and truck industry totaled 1.6 million units, compared with 2.1
million units in third quarter a year ago. For full-year 1998, the company
expects car and truck industry sales in Brazil to be about 1.5 million units.
Ford's combined car and truck share in Brazil was 13% in third quarter 1998,
down 2.7 points from third quarter 1997 reflecting an increasingly competitive
environment.
<PAGE> 17
Visteon earned $150 million on revenues of $4,097 million in third quarter 1998,
compared with $114 million on revenues of $3,937 million in third quarter a year
ago. The improvement in earnings reflects primarily cost reductions and
increased revenue. The after-tax return on sales was 3.7%, up 8/10 of a point
compared to the prior year.
Voluntary employee separation programs in North America and Europe have been
announced. Costs for these programs will be determined and reported in fourth
quarter 1998. In addition, in early October 1998, Ford and others submitted bids
for Kia Motor Corporation. Ford could incur a pre-tax charge of up to $150
million in fourth quarter 1998 with respect to its financial exposure to Kia
Motor Corporation based on the outcome of the bidding. Ford also expects to
incur in fourth quarter 1998 a pre-tax charge of about $100 million in
connection with the transfer of its Batavia, Ohio transmission plant to the
recently announced joint venture between Ford and ZF Friedrichshafen AG for the
production of vehicle transmissions.
Financial Services Group
- ------------------------
With the completion of The Associates spin-off, Financial Services group
earnings now reflect primarily the results of Ford Credit and Ford's share of
the earnings of Hertz.
For a discussion of Ford Credit's operations in third quarter 1998, see Item 2.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Ford Credit Third Quarter 1998 Compared with Third Qauarter 1997
Results of Operations."
Earnings at Hertz in third quarter 1998 were $119 million (of which $96 million
was Ford's share), up $26 million from the same period a year ago. The increase
reflects primarily higher revenues and improved profit margins in worldwide car
rental operations.
<PAGE> 18
FIRST NINE MONTHS 1998 COMPARED WITH FIRST NINE MONTHS 1997 - FORD
The company's operating earnings were $4,896 million, or $3.94 per diluted share
of Common and Class B Stock, in the first nine months 1998, compared with $4,516
million, or $3.67 per diluted share, in first nine months 1997 excluding The
Associates.
Operating results in first nine months 1998 exclude a one-time gain of $15,955
million, or $12.89 per diluted share, resulting from the spin-off of The
Associates, and a one-time earnings per share reduction of $0.07 per share
resulting from the premium paid to repurchase the company's Series B Cumulative
Preferred Stock. Results in first nine months 1997 include a one-time gain of
$269 million on the initial public offering of the common stock of Hertz, offset
partially by a one-time charge of $169 million for restructuring actions.
Including one-time factors, the company's reported earnings in first nine months
1998 were $21,028 million, or $16.90 per diluted share, compared with $5,124
million, or $4.17 per diluted share, in first nine months 1997. The company's
results in first nine months 1998 include Ford's share of The Associates'
earnings through March 12, the record date for the spin-off of The Associates.
The company's worldwide sales and revenues in first nine months 1998 were $106.5
billion, down $7.2 billion from a year ago. Vehicle unit sales of cars and
trucks were 5,009,000, down 147,000 units.
Automotive Sector
- -----------------
Worldwide earnings for Ford's Automotive sector were $3,932 million in first
nine months 1998 on sales of $86.9 billion, compared with $3,373 million in
first nine months 1997 on sales of $91 billion. The increase was explained
primarily by lower costs offset partially by increased marketing costs and lower
volume.
Earnings for the Automotive sector in North America were $3,565 million in first
nine months 1998, up $484 million from first nine months 1997. The increase
reflects lower costs, offset partially by increased marketing costs and lower
volume. The North American Automotive after-tax return on sales was 5.7% in
first nine months 1998, up 9/10 of a point from a year ago.
The seasonally-adjusted annual selling rate for the U.S. car and truck industry
was 15.7 million units in first nine months 1998, compared with 15.5 million
units in first nine months 1997. Ford's combined U.S. car and truck market share
was 24.7%, down 4/10 of a point compared with a year ago.
Automotive sector earnings in Europe in first nine months 1998 were $267
million, up $152 million from first nine months a year ago, reflecting continued
<PAGE> 19
cost reductions and higher volume, offset partially by Focus launch costs and
higher marketing costs.
The seasonally-adjusted annual selling rate for the European car and truck
industry was 15.9 million units in first nine months 1998, up from 14.8 million
units in first nine months 1997. Ford's combined European car and truck market
share was 10.6% in first nine months 1998, down 9/10 of a point from a year ago.
Automotive sector losses in South America were $75 million in first nine months
1998, compared with a profit of $111 million in first nine months a year ago,
reflecting primarily the same factors as those described in the discussion of
third quarter results of operations.
In first nine months 1998, the seasonally-adjusted annual selling rate for the
Brazilian car and truck industry totaled 1.6 million units, compared with 2
million units in first nine months 1997. Ford's combined car and truck share in
Brazil was 13.5% in first nine months 1998, down 1/10 of a point from first nine
months 1997.
Visteon earned $580 million on revenues of $13,200 million in first nine months
1998, compared with $470 million on revenues of $12,810 million in first nine
months a year ago. The improvement in earnings reflects primarily cost
reductions, increased revenue, and volume and mix. The after-tax return on sales
was 4.4% in first nine months 1998, up 7/10 of a point from a year ago.
Financial Services Group
- ------------------------
Lower earnings for Financial Services group for first nine months 1998 reflect
primarily the non-reoccurrence of the Hertz IPO. Higher earnings at Ford Credit
and Hertz in first nine months 1998, compared with first nine months 1997,
reflected primarily the same factors as those described in the discussion of
third quarter results of operations.
LIQUIDITY AND CAPITAL RESOURCES - FORD
Automotive Sector
- -----------------
Automotive cash and marketable securities were $22.9 billion at September 30,
1998, up $2.1 billion from December 31, 1997. The company paid $1.5 billion in
quarterly cash dividends on its Common Stock, Class B Stock and Preferred Stock
during first nine months 1998, and an additional $3.2 billion in cash dividends
related to The Associates spin-off.
Automotive capital expenditures were $5.7 billion in first nine months 1998,
down $85 million from the same period a year ago. Capital expenditures were 6.5%
of sales in first nine months 1998, up 2/10 of a point from first nine months a
year ago.
Automotive debt at September 30, 1998 totaled $9.8 billion, which was 29% of
<PAGE> 20
total capitalization (stockholders' equity and Automotive debt), compared with
21% of total capitalization at year-end 1997. The Automotive sector issued $2.2
billion in new debt during the third quarter. Approximately $1 billion of debt
was transferred in the third quarter to Financial Services group, at prevailing
market interest rates.
For a discussion of support facilities available to Ford's Automotive
sector and Financial Services group, see the Liquidity and Capital Resources
section regarding Ford in Ford Credit's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998.
Financial Services Group
- ------------------------
The Associates spin-off primarily explains the declines discussed below.
Financial Services cash and investments in securities totaled $2.9 billion at
September 30, 1998, down $900 million from December 31, 1997.
Net receivables and lease investments were $124.5 billion at September 30, 1998,
down $50 million from December 31, 1997.
Total debt was $113.6 billion at September 30, 1998, down $37.9 billion from
December 31, 1997.
Outstanding commercial paper at September 30, 1998 totaled $37.9 billion at Ford
Credit and $2 billion at Hertz, with an average remaining maturity of 29 days
and 31 days, respectively.
YEAR 2000 DATE CONVERSION - FORD
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, Ford initiated a global Y2K program to manage Ford's overall
Y2K compliance effort. As part of this program, Ford established a global
Central Program Office to coordinate Ford's Y2K compliance efforts. Ford also
has 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.
<PAGE> 21
State of Readiness
- ------------------
Ford has identified the following ten distinct areas for its 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. A compliance plan has been
developed for each business system, with particular attention given to critical
systems. Ford has contracted with outside vendors for repair and testing work
for some of these systems. Critical business systems are being verified
independently for compliance.
Plant Floor Equipment: Ford has implemented a process to audit equipment and
machinery in its 187 manufacturing and assembly plants and parts warehouse
facilities to identify and determine actions for all non-compliant hardware and
software. Strategies to repair or replace such equipment as necessary have been
developed with key vendors to avoid production disruptions.
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 nonproduction suppliers. Each of these suppliers has been asked to
respond to a Y2K compliance questionnaire, and a majority of them have
responded. Based on these responses, the criticality of the product or service
being supplied and other factors, Ford will selectively audit Y2K compliance of
these suppliers.
Vehicle Components: Although testing continues, Ford has determined that onboard
computer systems in Ford vehicles are unaffected by the Y2K problem. The
functionality of these systems is based generally on engine cycles or the time
elapsed since the vehicle was started, not any particular date.
Affiliates: Ford Credit, Hertz, and other consolidated subsidiaries, as well as
nonconsolidated joint ventures, have developed plans to address Y2K compliance
similar to those of Ford. Over 200 affiliates have been contacted and are being
monitored 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. Actions are underway with
<PAGE> 22
suppliers to develop repair or replacement strategies for noncompliant equipment
and systems.
End-User Computing: Ford's plan to ensure Y2K compliance of desktop computers
used throughout the company includes the replacement or repair of all
non-compliant computers and related software.
Technical Infrastructure: A dedicated testing facility has been established to
repair and test Ford's critical systems infrastructures, such as wide area
networks, local area networks, electronic data centers, and E-mail systems.
Dealers: Ford is handling the compliance of all Ford-developed dealer systems,
such as vehicle and parts ordering systems. Dealer compliance efforts with
respect to other systems is being monitored by Ford through various dealer
service providers.
Physical Properties and Infrastructures: Ford is assessing the Y2K compliance of
all its significant building systems, including energy and security systems.
Actions are being taken to determine energy and other utility supplier
preparedness.
Set forth below is a timetable showing Ford's internal target dates for
compliance and the present status of compliance (at September 30, 1998) for each
of the areas mentioned above. Ford has established these target dates well
before December 31, 1999 to allow sufficient time to perform enterprise-wide
testing and further validation of Ford's Y2K compliance.
<PAGE> 23
Present status as of September 30, 1998
<TABLE>
<CAPTION>
Y2K Program Timing
------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Critical Business Computer Systems -----Plan: 100% compliant by 12/98--
Present Status: 75% compliant
Critical Plant Floor Equipment ----Plan: 100% compliant by 6/99-------
Present Status: 75%
Production and Critical ----Plan: 100% ready* by 6/99----------
Non-Production Suppliers Present Status: 85%
Vehicle Components ----Plan: 100% compliant by 6/99---------------
Present Status: 100%
Affiliates ----Plan: 100% ready* by 6/99----------
Present Status: 90%
PD Test Equipment ----Plan: 100% compliant by 6/99----
Present Status: 18%
Critical End-User Computing ----Plan: 100% compliant by 6/99---------------
Present Status: 20%
Technical Infrastructure ----Plan: 100% compliant by 6/99------------------
Present Status: 75%
Dealers ----Plan: 100% compliant by 6/99-------
Present Status: 90%
Physical Properties and ----Plan: 100% compliant by 6/99-------
Infrastructures Present Status: 70%
*"Ready" means having a comprehensive Y2K program in place and a plan that will
achieve compliance before January 1, 2000.
</TABLE>
<PAGE> 24
Y2K Costs
- ---------
Ford estimates that it will spend about $375 million for its Y2K compliance
efforts. This amount will be incurred over about a three-year period that
commenced mid-1997 and will end mid-2000. Y2K compliance costs incurred through
September 30, 1998 are estimated at about $110 million. Ford's annual Y2K costs
relating to information technology have represented and are expected in the
future to represent about 10% of Ford's 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.
Y2K Contingency Plans
- ---------------------
Ford has 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. Detailed contingency
plans for critical business processes will be developed by March 1999.
EURO CONVERSION - FORD
A single currency called the euro will be introduced in Europe on January 1,
1999. Eleven of the fifteen member countries of the European Union have agreed
to adopt the euro as their common legal currency on that date. Fixed conversion
rates between these participating countries' existing currencies (the "legacy
currencies") and the euro will be established as of that date. The legacy
currencies are scheduled to 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.
Conversion to 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, Ford's foreign exchange hedging costs could be reduced.
Conversely, because there will be less diversity in Ford's 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 Ford.
Ford has budgeted up to $50 million (including contingencies) for the period
from 1997 through 2003 to cover the worldwide costs of preparing for and making
<PAGE> 25
operational changes to accommodate introduction of the euro. Certain of Ford's
business functions will introduce euro-capability as of January 1, 1999,
including, for example, systems for making and receiving certain payments,
pricing and invoicing. Other business functions of Ford 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.
LEGAL PROCEEDINGS - FORD
- --------------------------
Environmental Matters
- ---------------------
CCA Lawsuit. (Previously discussed in the second full paragraph on page 19 of
the 10-K Report.) In August 1998, the California Superior Court granted summary
judgment in favor of Ford and the other manufacturers, dismissing the lawsuit
filed by The Corporation for Clean Air, Inc. ("CCA"). The court held that CCA
failed to credibly dispute the manufacturers' evidence that risks from exhaust
from a single diesel vehicle fell well below the level that would trigger a
warning under Proposition 65. The court further held that manufacturers are not
responsible for providing warnings for environmental exposure to diesel exhaust
emitted from vehicles that are not under the manufacturers' control. CCA could
appeal the court's decision.
Mobile Source Emissions Alleged Violation. (Previously discussed in the first
paragraph on page 18 of Ford Credit's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998 (the "Second Quarter 10-Q Report").) In August 1998,
the U.S. District Court entered the consent decree agreed upon by Ford, the
<PAGE> 26
Department of Justice and the Environmental Protection Agency (the "EPA")
relating to an engine control strategy included in certain vehicles.
Class Actions
- -------------
Paint. (Previously discussed in the fifth paragraph on page 19 of the 10-K
Report and in the second full paragraph on page 19 of the Second Quarter 10-Q
Report.) In August 1998, the court in the Landry case denied plaintiffs' motion
for class certification. Plaintiffs are attempting to appeal that decision. The
Nienhuis case was remanded to state court and the conditional transfer order was
vacated. Ford intends to appeal the remand order. Ford removed the Clayman case
to federal court and is seeking to have it consolidated with Landry.
TFI Module. (Previously discussed in the last paragraph on page 20 of the 10-K
Report and in the first full paragraph on page 20 of the Second Quarter 10-Q
Report.) A trial in the California class action relating to distributor-mounted
thick film ignition modules is scheduled to begin on March 5, 1999. The case
involves a class of approximately 3.4 million members. Plaintiffs in the case
are claiming, among other things, statutory damages of $1,000 per class member.
Lease Agreement Disclosure. (Previously discussed in the last paragraph on
page 18 of the Second Quarter 10-Q Report.) Thirteen additional purported class
actions have been filed against Ford Credit and its subsidiary, Primus
Automotive Financial Services, Inc. ("Primus"), bringing the total number of
such lawsuits to nineteen. 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 certain acquisition or administrative
fees that are included in the amount of a customer's monthly lease payment. The
new lawsuits were filed in state courts in the following states: Alabama,
California, Florida, Iowa, Kansas, Kentucky, Massachusetts, Missouri, New
Jersey, New York, Tennessee, and Texas (2 cases).
Other Matters
- -------------
OFCCP Proceeding. (Previously discussed in the first full paragraph on page 23
of the 10-K Report.) Ford and the Office of Federal Contract Compliance Programs
("OFCCP") are in the process of completing a partial consent decree that will
resolve the disputes relating to Ford's cooperation in various OFCCP
investigations concerning hourly hiring practices at Ford facilities. Trial
before an administrative law judge on the OFCCP proceeding relating to Ford's
Kentucky Truck Plant is set for April 1999.
<PAGE> 27
Other Information
- --------------------------
Mobile Source Emissions Control--U.S. Requirements. (Previously discussed on
pages 13, 14 and 15 of the 10-K Report.) 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 to propose post-2004 model year standards that are more
stringent than the default standards contained in the Clean Air Act. The EPA is
also 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 severely limit the use of diesel technology. If the standards are
too stringent, it will impact Ford's ability to produce and offer a broad range
of products with the characteristics and functionality that customers demand.
The California Air Resources Board (the "CARB") has proposed for adoption at a
November 1998 CARB hearing, stringent new vehicle emissions standards which
could begin to be phased in as early as the 2004 model year. These new standards
will, among other things, treat most light duty trucks the same as passenger
cars and require both types of vehicles to meet new stringent emissions
requirements. It is also expected that these new standards will essentially
eliminate the use of diesel technology. As noted with the EPA proposal discussed
above, if CARB's new standards are set at levels that are too stringent, it will
impact the ability to produce and offer a broad range of products with the
characteristics and functionality that customers demand.
With respect to the automotive industry's challenge to New York's zero-emission
vehicle ("ZEV") mandate, the U. S. Court of Appeals for the Second Circuit
reached a decision in August 1998. The court reversed a lower court decision and
ruled that New York cannot impose a ZEV sales requirement for model years
1998-2002. New York has 90 days from the entry of the decision to seek leave to
file an appeal with the U.S. Supreme Court.
Mobile Source Emissions Control--European Requirements. (Previously discussed on
page 15 of the 10-K Report.) The European Council and the European Parliament
have adopted a directive on emissions from passenger cars and light commercial
trucks (the "Directive"). The Directive provides for more stringent standards to
apply beginning in 2000 and even more stringent standards to apply beginning in
2005. The standards are the same as those originally proposed by the European
Commission in the Stage III Directive. Among the most important differences
between the Directive and the original European Commission proposal is that the
2005 standards will be mandatory, rather than indicative values that could serve
as a basis for European Union member states to introduce fiscal incentives for
early compliance. The Directive also provides for in-service compliance testing
and recalls in the event of emissions related defects that occur in the first
five years or 80,000 kilometers of vehicle life. The durability requirements
will be extended to 100,000 kilometers beginning in 2005.
Motor Vehicle Safety. The National Highway Traffic Safety Administration (the
"Safety Administration") is investigating the feasibility of a test to measure
the propensity of a vehicle to roll over. It is uncertain that an objective
meaningful stability test can be developed. Nonetheless, the Safety
Administration has announced its intention to issue by the end of 1999 a final
<PAGE> 28
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's products.
(Previously discussed in the sixth paragraph on page 15 of the 10-K Report.) 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, Ford has
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. If such a rule were to become effective, it could significantly
increase Ford's costs, especially if it requires Ford to change its present
advanced air bag design programs.
(Previously discussed in the second paragraph on page 14 of Ford Credit's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 and
on page 21 of the Second Quarter 10-Q Report.) Congress has passed and
the President has signed a bill delaying the effective date of The Fastener
Quality Act of 1990 until approximately June 1999. The bill also requires the
Secretary of Commerce to review the Act and make recommendations regarding
appropriate changes to the Act.
Motor Vehicle Fuel Economy - Foreign Requirements. (Previously discussed in the
fifth paragraph on page 16 of the 10-K Report.) The European Union agreed on
October 6, 1998 to support an environmental agreement with the European
automotive manufacturers association (of which Ford is a member) on carbon
dioxide ("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 European Union 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, 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 towards the European Union'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 sulphur 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.
<PAGE> 29
The European Environment Council declared that the Agreement is designed to make
a major contribution toward the European Union's objective of reducing average
CO2 emissions from new passenger cars to 120 grams per kilometer by 2010 (as it
called for in June 1996). The Environment Council requested the European
Commission to review in 2003 the European Union's progress toward reaching the
120 gram target by 2010, and to monitor on an annual basis the average CO2
emissions from new passenger cars and progress toward achievement of the
objectives for 2000 and 2003. The Environment Council will review proposals for
a community scheme to monitor CO2 emissions from new passenger cars and for
providing consumer information on the fuel economy of new passenger cars at its
December meeting.
<PAGE> 30
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Please refer to the Exhibit Index on page 32.
(b) Reports on Form 8-K during the quarter ended September 30, 1998:
FINANCIAL
DATE OF REPORT ITEM STATEMENTS FILED
- -------------- --------------------- ----------------
August 26, 1998 Item 5 - Other Events None.
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.
FORD MOTOR CREDIT COMPANY
(Registrant)
October 16, 1998
/s/ E. S. Acton
--------------------------
E. S. Acton
Vice President - Finance
(Chief Financial Officer)
- -
<PAGE> 31
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder
of Ford Motor Credit Company:
We have reviewed the condensed consolidated balance sheet of Ford Motor Credit
Company and Subsidiaries at September 30, 1998 and 1997, and the related
condensed consolidated statements of income and of earnings retained for use in
the business and cash flows for the periods set forth in this Form 10-Q for the
quarter ended September 30, 1998. These financial statements are the
responsibility of the company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet at December 31, 1997 and the related
consolidated statements of income, stockholder's equity and cash flows for the
year then ended (not presented herein); and in our report dated January 26,
1998, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet at December 31, 1997 is fairly stated in
all material respects in relation to the consolidated balance sheet from which
it has been derived.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
October 13, 1998
- -
<PAGE> 32
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
EXHIBIT INDEX
Sequential
Designation Description Method of Filing
- ----------- ------------ -----------------
12-A Calculation of ratio of Filed with this
earnings to fixed charges Report.
of Ford Credit
12-B Calculation of ratio of Filed with this
earnings to fixed charges Report.
of Ford.
15 Letter from Filed with this
PricewaterhouseCoopers LLP Report.
dated October 16, 1998,
regarding unaudited
interim financial infor-
mation.
27 Financial Data Schedule Filed with this
Report.
<PAGE> 1
Exhibit 12-A
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
CALCULATION OF RATIO OF EARNINGS
TO FIXED CHARGES
(dollar amounts in millions)
<TABLE>
<CAPTION>
Nine Months For the Years Ended December 31
-------------------------- ------------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ----------- ---------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed Charges
Interest expense $ 4,963.5 $ 4,676.6 $ 6,268.2 $ 6,235.7 $ 5,987.8 $ 4,226.3 $ 3,699.9
Rents 18.3 17.3 26.2 22.2 19.5 16.9 13.0
----------- ----------- ----------- ----------- ---------- ---------- -----------
Total fixed charges 4,981.8 4,693.9 6,294.4 6,257.9 6,007.3 4,243.2 3,712.9
Earnings
Income before income
taxes 1,460.9 1,381.4 1,806.0 2,240.2 2,327.8 2,335.5 2,147.5
Less equity in net income
of affiliated companies 1.6 0.7 1.0 55.3 255.4 232.5 198.0
Less minority interest
in net income of
subsidiaries 35.9 40.2 48.4 68.0 65.5 59.3 44.6
----------- ----------- ----------- ----------- ----------- ---------- -----------
Earnings before fixed
charges $ 6,405.2 $ 6,034.4 $ 8,051.0 $ 8,374.8 $ 8,014.2 $ 6,286.9 $ 5,617.8
=========== =========== =========== =========== =========== ========== ===========
Ratio of earnings to
fixed charges
1.3 1.3 1.3 1.3 1.3 1.5 1.5
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
For purposes of the Ford Credit ratio, earnings consist of income before taxes
and fixed charges. Income before income taxes of Ford Credit includes the equity
in net income of all unconsolidated affiliates and minority interest in net
income of subsidiaries. Fixed charges consist of interest on borrowed funds,
amortization of debt discount, premium, and issuance expense, and one-third of
all rental expense (the proportion deemed representative of the interest
factor).
<PAGE> 1
Exhibit 12B
Ford Motor Company and Subsidiaries
CALCULATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK
DIVIDENDS
-------------------------------------------------------------------------------
(in millions)
<TABLE>
<CAPTION>
Nine For the Years Ended December 31
Months -------------------------------------------------------------
1998 1997 1996 1995 1994 1993
------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Earnings
- --------
Income before income taxes $23,798 $ 10,939 $ 6,793 $ 6,705 $ 8,789 $ 4,003
Equity in net (income)/loss of affiliates
plus dividends from affiliates 9 121 36 179 (182) (98)
Adjusted fixed charges a/ 6,899 10,911 10,801 10,556 8,122 7,648
------- -------- -------- -------- -------- --------
Earnings $30,706 $ 21,971 $ 17,630 $ 17,440 $ 16,729 $ 11,553
======= ======== ======== ======== ======== ========
Combined Fixed Charges and
Preferred Stock Dividends
- --------------------------
Interest expense b/ $ 6,669 $ 10,570 $ 10,464 $ 10,121 $ 7,787 $ 7,351
Interest portion of rental expense c/ 191 309 300 396 265 266
Preferred stock dividend requirements of
majority owned subsidiaries and trusts d/ 41 55 55 199 160 115
------- -------- -------- -------- -------- --------
Fixed charges 6,901 10,934 10,819 10,716 8,212 7,732
Ford preferred stock dividend requirements e/ 116 82 95 459 472 442
------- -------- -------- -------- -------- --------
Total combined fixed charges
and preferred stock dividends $ 7,017 $ 11,016 $ 10,914 $ 11,175 $ 8,684 $ 8,174
======= ======== ======== ======== ======== ========
Ratios
- ------
Ratio of earnings to fixed charges 4.4 f/ 2.0 1.6 1.6 2.0 1.5
Ratio of earnings to combined fixed
charges and preferred stock dividends 4.4 f/ 2.0 1.6 1.6 1.9 1.4
</TABLE>
- - - - - -
a/ Fixed charges, as shown below, adjusted to exclude the amount of interest
capitalized during the period and preferred stock dividend requirements of
majority owned subsidiaries.
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. (applicable for
1993 through 1995) increased to an amount representing the pre-tax earnings
which would be required to cover such dividend requirements based on Ford's
effective income tax rates. Beginning in Fourth Quarter 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's effective income tax rates.
f/ Earnings used in calculation of this ratio include the $15,955 million gain
on the spin-off of The Associates. Excluding this gain, the ratio is 2.1.
<PAGE> 1
EXHIBIT 15
Ford Motor Credit Company
The American Road
Dearborn, Michigan
Re: Ford Motor Credit Company Registration Statement Nos. 333-50611,
333-45015 and 333-41059 on Form S-3
We are aware that our report dated October 13, 1998 accompanying the
unaudited interim financial information of Ford Motor Credit Company and
subsidiaries for the periods ended September 30, 1998 and 1997 and included
in the Ford Motor Credit Company Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998 will be incorporated by reference in the
above Registration Statements. Pursuant to Rule 436(c) under the Securities
Act of 1933, this report should not be considered a part of the Registration
Statements prepared or certified by us within the meaning of Sections 7
and 11 of the Act.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
October 16, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
FORD CREDIT'S CONDENSED CONSOLIDATED BALANCE SHEET IS UNCLASSIFIED. THEREFORE,
THE FOLLOWING PAGES LISTED BELOW ARE NOT APPLICABLE TO FORD CREDIT: CURRENT
ASSETS AND CURRENT LIABILITIES. INFORMATION RELATING TO EARNINGS A SHARE IS NOT
PRESENTED BECAUSE FORD CREDIT IS AN INDIRECT WHOLLY OWNED SUBSIDIARY OF FORD
MOTOR COMPANY.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 504
<SECURITIES> 1,505
<RECEIVABLES> 84,701
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 126,623
<CURRENT-LIABILITIES> 0
<BONDS> 104,664
0
0
<COMMON> 25
<OTHER-SE> 10,671
<TOTAL-LIABILITY-AND-EQUITY> 126,623
<SALES> 0
<TOTAL-REVENUES> 14,083
<CGS> 0
<TOTAL-COSTS> 12,624
<OTHER-EXPENSES> 6,778
<LOSS-PROVISION> 882
<INTEREST-EXPENSE> 4,964
<INCOME-PRETAX> 1,461
<INCOME-TAX> 575
<INCOME-CONTINUING> 850
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 850
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
