<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 June 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 June 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 29.
EXHIBIT INDEX APPEARS AT PAGE 24.
<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 June 30, 1998 and 1997
(in millions)
<TABLE>
<CAPTION>
Second Quarter First Half
1998 1997 1998 1997
-------------- -------------- -------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Financing revenue
Operating leases $ 2,531.7 $ 2,169.1 $ 4,860.9 $ 4,310.7
Retail 1,418.0 1,269.8 2,801.1 2,527.3
Wholesale 446.9 419.4 849.8 851.6
Other 97.6 97.3 191.1 195.8
---------- ---------- ---------- ----------
Total financing revenue 4,494.2 3,955.6 8,702.9 7,885.4
Depreciation on operating leases (1,841.2) (1,467.8) (3,523.2) (2,913.3)
Interest expense (1,691.0) (1,565.8) (3,301.5) (3,124.8)
---------- ---------- ---------- ----------
Net financing margin 962.0 922.0 1,878.2 1,847.3
Other revenue
Insurance premium earned 76.2 70.3 156.1 140.1
Investment and other income 280.1 227.4 549.7 469.8
---------- ---------- ---------- ----------
Total financing margin and revenue 1,318.3 1,219.7 2,584.0 2,457.2
Expenses
Operating expenses 459.7 366.9 845.5 708.7
Provision for credit losses 270.5 296.4 592.0 652.1
Other insurance expenses 84.8 66.9 154.3 133.8
---------- ---------- ---------- ----------
Total expenses 815.0 730.2 1,591.8 1,494.6
---------- ---------- ---------- ----------
Equity in net income/(loss) of
affiliated companies 0.6 (1.2) 0.9 (0.5)
Income before income taxes 503.9 488.3 993.1 962.1
Provision for income taxes 198.3 196.4 390.9 379.2
---------- ---------- ---------- ----------
Income before minority interest 305.6 291.9 602.2 582.9
Minority interest in net income of
subsidiaries 5.8 12.9 24.6 28.0
---------- ---------- ---------- ----------
Net income 299.8 279.0 577.6 554.9
Earnings retained for use in the business
Beginning of period 7,605.2 7,153.5 7,327.4 6,892.1
Dividends 0.0 0.0 0.0 (14.5)
---------- ---------- ---------- ----------
End of period $ 7,905.0 $ 7,432.5 $ 7,905.0 $ 7,432.5
========== ========== ========== ==========
</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>
June 30, December 31, June 30,
1998 1997 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
(Unaudited) (Unaudited)
ASSETS
Cash and cash equivalents $ 1,194.9 $ 689.5 $ 1,220.3
Investments in securities 1,324.0 887.9 829.7
Finance receivables, net (Note 1) 84,836.4 81,312.6 78,914.5
Net investment, operating leases 36,240.9 34,746.0 34,579.1
Retained interest in sold receivables 1,811.8 998.6 1,033.4
Accounts and notes receivable from
affiliated companies 898.3 734.2 737.3
Equity in net assets of affiliated companies 44.8 49.6 45.5
Other assets 1,867.9 2,554.9 3,542.3
------------ ------------ ------------
Total assets $ 128,219.0 $ 121,973.3 $ 120,902.1
============ ============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Accounts payable
Trade, customer deposits, and dealer
reserves $ 3,447.9 $ 2,835.0 $ 2,672.2
Affiliated companies 984.8 2,815.7 982.0
------------ ------------ ------------
Total accounts payable 4,432.7 5,650.7 3,654.2
Debt (Note 2) 106,905.6 100,725.0 100,325.6
Deferred income taxes 3,039.2 2,732.2 3,839.9
Other liabilities and deferred income 3,071.8 2,803.2 2,833.8
------------ ------------ ------------
Total liabilities $ 117,449.3 $ 111,911.1 $ 110,653.5
Minority interest in net assets of
subsidiaries 357.1 477.7 354.0
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) 4,229.2 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) (229.6) (142.5) (51.9)
Earnings retained for use in the business 7,905.0 7,327.4 7,432.5
------------ ------------ ------------
Total stockholder's equity 10,412.6 9,584.5 9,608.1
------------ ------------ ------------
Total liabilities and stockholder's equity $ 128,219.0 $ 121,973.3 $ 120,902.1
============ ============ ============
</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 June 30, 1998 and 1997
(in millions)
<TABLE>
<CAPTION>
First Half
1998 1997
---------- -----------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net income $ 577.6 $ 554.9
Adjustments to reconcile net income to net
cash provided by operating activities
Provision for credit losses 592.0 652.1
Depreciation and amortization 3,535.7 3,216.4
Gain on sales of finance receivables (112.3) (18.4)
Equity in net income of affiliates (0.9) 0.5
Deferred income taxes 229.1 (441.3)
Decrease in other assets 96.4 568.1
Increase in other liabilities (907.9) (581.4)
Other 138.0 (60.3)
----------- -----------
Net cash provided by operating activities 4,147.7 3,890.6
Cash flows from investing activities
Purchase of finance receivables (other than wholesale) (21,722.8) (18,092.3)
Collection of finance receivables (other than wholesale) 13,734.4 16,973.9
Purchase of operating lease vehicles (11,392.8) (12,856.5)
Liquidation of operating lease vehicles 6,784.7 5,829.7
Net change in wholesale receivables (879.3) (1,297.7)
Proceeds from sale of receivables 5,106.7 1,541.1
Purchase of investment securities (1,233.5) (1,598.7)
Proceeds from sale/maturity of investment securities 797.9 2,094.1
Other (49.2) (26.6)
----------- -----------
Net cash used in investing activities (8,853.9) (7,433.0)
Cash flows from financing activities
Proceeds from issuance of long-term debt 11,206.2 6,965.1
Principal payments on long-term debt (8,943.3) (4,496.9)
Change in short-term debt, net 3,139.1 (441.6)
Cash dividends paid 0 (14.5)
Other (189.1) 63.5
----------- -----------
Net cash provided by financing activities 5,212.9 2,075.6
Effect of exchange rate changes on cash and cash
equivalents (1.3) (28.9)
----------- -----------
Net change in cash and cash equivalents 505.4 (1,495.7)
Cash and cash equivalents, beginning of period 689.5 2,716.0
----------- -----------
Cash and cash equivalents, end of period $ 1,194.9 $ 1,220.3
=========== ===========
Supplementary cash flow information
Interest paid $ 3,251.7 $ 3,107.6
Taxes paid 65.9 420.7
<FN>
</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>
June 30, December 31, June 30,
1998 1997 1997
--------------- --------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Retail $ 57,658.9 $ 55,601.0 $ 52,583.4
Wholesale 22,475.2 21,605.5 21,898.2
Other 5,887.8 5,275.9 5,479.4
----------- ----------- ------------
Total finance receivables net of
unearned income 86,021.9 82,482.4 79,961.0
Less allowance for credit losses (1,185.5) (1,169.8) (1,046.5)
----------- ----------- ------------
Finance receivables, net $ 84,836.4 $ 81,312.6 $ 78,914.5
=========== =========== ============
</TABLE>
<PAGE> 6
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
Notes To Financial Statements (cont'd)
Note 2. Debt (in millions)
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1998 1997 1997
------------ ------------ -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
PAYABLE WITHIN ONE YEAR:
Commercial paper $40,854.9 $ 40,856.8 $ 38,477.4
Other short-term debt* 6,758.4 5,351.0 4,970.5
--------- ---------- ----------
Total short-term debt 47,613.3 46,207.8 43,447.9
Long-term indebtedness payable
within one year** 9,791.5 9,572.6 10,952.3
--------- ---------- ----------
Total payable within
one year 57,404.8 55,780.4 54,400.2
--------- ---------- ----------
<CAPTION>
June 30, 1998
------------------------------------
Weighted Average
Interest Rates*** Maturities
-------------------- ------------
<S> <C> <C> <C> <C> <C>
PAYABLE AFTER ONE YEAR:
Secured indebtedness 20.32% 1999-2000 10.0 13.5 17.6
Unsecured senior indebtedness
Notes**** 6.45% 1999-2048 48,212.5 43,584.1 44,703.0
Debentures 4.32% 2001-2005 1,196.1 1,247.6 1,097.0
Unamortized (discount)/premium) (19.8) (3.0) 2.1
---------- ---------- ----------
Total secured and unsecured
senior indebtedness 49,398.8 44,842.2 45,819.7
Unsecured long-term
subordinated notes 8.51% 2005 102.0 102.4 105.7
---------- ---------- ----------
Total payable after one year 49,500.8 44,944.6 45,925.4
---------- ---------- ----------
Total debt $106,905.6 $100,725.0 $100,325.6
========== ========== ==========
</TABLE>
* Includes $901.0 million, $830.5 million, and $1,805.6 million with
affiliated companies at June 30, 1998, December 31, 1997, and June 30,
1997, respectively.
** Includes $735.9 million, $1,716.0 million, and $1,640.8 million with
affiliated companies at June 30,1998, December 31, 1997, and June 30,
1997, respectively.
*** Rates were variable on about 17.1% of the debt payable after one year
including the effects of interest rate swap agreements.
**** Includes $1,668.7 million, $1,830.6 million, and $2,413.3 million with
affiliated companies at June 30, 1998, December 31, 1997, and June 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>
Second Quarter First Half
1998 1997 1998 1997
------------- ------------- ------------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net income $ 299.8 $ 279.0 $ 577.6 $554.9
Other comprehensive income
Foreign currency translation adjustments (84.7) (12.5) (84.2) (116.6)
Unrealized gain/(loss) on investments
in securities available for sale,
net of taxes (11.7) 19.1 (2.9) 8.7
------------ ----------- ------------ ------
Total other comprehensive income (96.4) 6.6 (87.1) (107.9)
------------ ----------- ------------ ------
Total comprehensive income $ 203.4 $ 285.6 $ 490.5 $447.0
============ ============ ============ ======
</TABLE>
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORD CREDIT SECOND QUARTER 1998 COMPARED WITH SECOND QUARTER 1997 RESULTS
OF OPERATIONS
Ford Credit's consolidated net income in the second quarter of 1998 was $300
million, up $21 million or 7% from 1997. Compared with results from a year ago,
the increase primarily reflects higher gains on receivables sales, lower credit
loss reserve requirements, and higher levels of earning assets. Higher operating
costs and lower net financing margins were a partial offset.
Total net finance receivables and net investment in operating leases at June 30,
1998 were $121.1 billion, up $7.6 billion or 7% from a year earlier.
Credit losses as a percent of average net finance receivables including net
investment in operating leases decreased to 0.75% in 1998 from 0.76% in 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 offset
partially by improved yields. Increased depreciation expense for leased vehicles
primarily reflects lower than anticipated residual values on leased vehicles.
These factors are expected to continue to adversely affect Ford Credit's
earnings for the remainder of 1998.
During the second quarter of 1998, Ford Credit financed 39% of all new cars and
trucks sold by Ford dealers in the U.S., compared with 37% in the same period
of 1997. In Europe, Ford Credit financed 31% of all new vehicles sold by Ford
dealers in the second quarter of 1998 compared with 29% in the second quarter
of 1997. Ford Credit provided retail customers with financing for 742,000 new
and used vehicles in the United States and 198,000 in Europe. In the second
quarter of 1998, Ford Credit provided wholesale financing for 78% of Ford U.S.
factory sales and 97% of Ford factory sales in Europe compared with 79% for the
U.S. and 95% for Europe in second quarter 1997.
FIRST HALF 1998 COMPARED WITH 1997
For the first half of 1998, Ford Credit's consolidated net income was $578
million, up $23 million or 4% from the first half of 1997. The factors affecting
financing profits during the first half of 1998 were the same as those affecting
second quarter results discussed above.
During the first half of 1998, Ford Credit provided retail financing for 38% of
all new cars and trucks sold by Ford dealers in the United States, equal to the
same period a year ago. In Europe, Ford Credit financed 30% of all new vehicles
sold by Ford dealers in the first half of 1998, compared to 27% in the first
half of last year. Ford Credit provided retail financing for 1,369,000 new and
used vehicles in the United States and 390,000 in Europe. In the first half of
1998, Ford Credit provided wholesale financing for 78% of Ford U.S. factory
sales and 96% of Ford factory sales in Europe compared with 78% for the U.S.
and 95% for Europe in the first half of 1997.
<PAGE> 9
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting
for Derivative Instruments and Hedging Activities," was issued by the Financial
Accounting Standards Board in June 1998. This Statement establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
recognition of all derivatives as either assets or liabilities on the balance
sheet and measurement of those instruments at fair value. If certain conditions
are met, a derivative may be designated specifically as (a) a hedge of the
exposure to changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment (a fair value hedge) or (b) a hedge of the exposure
to variable cash flows of a forecasted transaction (a cash flow hedge). Ford
Credit currently has fair value and cash flow hedges, and will comply with
requirements of SFAS 133 when adopted.
This Statement is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. Ford Credit expects to adopt SFAS 133 beginning January 1,
2000. The effect of adopting SFAS 133 presently is being evaluated but is not
expected to be material.
Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-up
Activities," was issued by the American Institute of Certified Public
Accountants in April 1998. Effective for fiscal years beginning after December
15, 1998, this SOP provides guidance on the financial reporting of start-up
costs and organization costs. It requires start-up activities and organization
costs to be expensed as incurred. Presently, Ford Credit expenses start-up
costs and organization costs as incurred.
<PAGE> 10
FORD CREDIT LIQUIDITY AND CAPITAL RESOURCES
Ford Credit's outstanding debt at June 30, 1998 and at the end of each of the
last three years was as follows (in millions):
<TABLE>
<CAPTION>
June 30, December 31
------------------------------------------
1998 1997 1996 1995
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Commercial paper & STBAs(a) $ 42,403 $ 42,311 $ 38,774 $ 40,419
Other short-term debt (b) 5,211 3,897 4,243 1,781
Long-term debt (including
current portion)(c) 59,292 54,517 55,007 49,980
=========== ========== ========== ==========
Total debt $ 106,906 $ 100,725 $ 98,024 $ 92,180
=========== ========== ========== ==========
United States $ 80,612 $ 78,443 $ 76,635 $ 73,178
Europe 15,073 12,491 14,028 13,013
Other international 11,221 9,791 7,361 5,989
=========== ========== ========== ==========
Total debt $ 106,906 $ 100,725 $ 98,024 $ 92,180
=========== ========== ========== ==========
Memo:
Total support facilities
(billions) as of July 1, 1998
and December 31, 1997-1995,
respectively:
Ford Credit $ 26.8 $ 26.6 $ 27.2 $ 27.4
Ford Credit Europe 5.4 5.2 5.7 4.7
<FN>
- - - - -
(a) Short-term borrowing agreements with bank trust departments.
(b) Includes $901 million, $831 million, $2,478 million, and $176
million with affiliated companies at June 30, 1998, December 31,
1997, December 31, 1996, and December 31, 1995, respectively.
(c) Includes $2,405 million and $3,547 million, $4,237 million and $1,174
million with affiliated companies at June 30, 1998, December 31, 1997,
December 31, 1996, and December 31, 1995 respectively.
</TABLE>
Support facilities represent additional sources of funds, if required. At July
1, 1998, Ford Credit had approximately $19.1 billion of contractually committed
facilities. In addition, $7.7 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 July 1, 1998, there were approximately $4.8 billion of
contractually committed facilities available for FCE Bank plc's ("FCE Bank")
(formerly Ford Credit Europe plc) 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> 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
For a discussion of six 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 Security Holders
Not required.
Item 5. Other information
INFORMATION CONCERNING FORD
Following is a condensed consolidated statement of income (unaudited) of Ford
for the periods ended June 30, 1998 and 1997 (in millions except amounts per
share):
<TABLE>
<CAPTION>
Second Quarter First Half
------------------ ------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales and revenues $37,289 $40,265 $73,873 $77,579
Total costs and expenses 33,816 36,925 67,784 71,724
Operating income 3,473 3,340 6,089 5,855
Automotive net interest income 110 94 233 149
Automotive equity in net income/(loss)
of affiliated companies 18 79 (8) (65)
Gain on spin-off of The Associates a/ - - 15,955 -
Gain on sale of Common Stock
of a subsidiary a/ - 269 - 269
Income before income taxes 3,601 3,782 22,285 6,208
Provision for income taxes 1,192 1,182 2,164 2,080
Minority interests in net income
of subsidiaries 28 70 94 129
Net income $ 2,381 $2,530 $20,027 $ 3,999
Amounts Per Share of Common Stock
and Class B Stock after Preferred
Stock Dividends
Basic Income $ 1.96 $ 2.11 $ 16.47 $ 3.34
Diluted Income $ 1.91 $ 2.06 $ 16.11 $ 3.27
Cash Dividends per share $ 0.42 $ 0.42 $ 0.84 $ 0.805
</TABLE>
a/ The gain was not subject to income taxes.
-10-
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - FORD
OVERVIEW
The company's worldwide net income was $2,381 million in second quarter 1998, or
$1.91 per diluted share of Common and Class B Stock, compared with $2,530
million, or $2.06 per diluted share in second quarter 1997. Excluding The
Associates' earnings contribution of $197 million, and a net one-time gain of
$100 million, Ford's second quarter 1997 operating earnings were $2,233 million,
or $1.82 per diluted share. The company's worldwide sales and revenues were
$37.3 billion in second quarter 1998, down $3 billion from a year ago. Vehicle
unit sales of cars and trucks were 1,786,000, down 93,000 units. Stockholders'
equity was $23.1 billion at June 30, 1998, down $7.7 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 second quarter
1998 and 1997 and first half 1998 and 1997 was as follows (in millions):
<PAGE> 13
<TABLE>
<CAPTION>
Second Quarter First Half
----------------------------- ---------------------------
1998 1998
O/(U) O/(U)
1998 1997 1997 1998 1997 1997
--------- -------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
North American Automotive $ 1,655 $1,441 $ 214 $2,665 $2,461 $204
Automotive Outside North America
- - Europe 310 157 153 540 262 278
- - South America 14 25 (11) (31) (22) (9)
- - Other 72 112 (40) 112 38 74
------ ------ ----- ------ ------ ----
Total Automotive Outside
North America 396 294 102 621 278 343
------ ------ ----- ------ ------ ----
Total Automotive Sector $2,051 $1,735 $ 316 $3,286 $2,739 $547
====== ====== ===== ====== ====== ====
</TABLE>
The Automotive sector includes Automotive operations and Visteon Automotive
Systems ("Visteon"), the company's automotive systems enterprise.
The company's worldwide net income for the Financial Services group in second
quarter 1998 and 1997 and first half 1998 and 1997 was as follows (in millions):
<TABLE>
<CAPTION>
Second Quarter First Half
-------------------------------- ---------------------------
1998 1998
O/(U) O/(U)
1998 1997 1997 1998 1997 1997
-------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Ford Credit $300 $279 $ 21 $ 578 $ 555 $ 23
Hertz 75 54 21 110 74 36
Gain on Hertz IPO - 269 (269) - 269 (269)
Minority interests, Eliminations,
and Other (45) (4) (41) (79) (27) (52)
---- ---- ---- ------- ------ ------
Financial Services (excluding
The Associates) 330 598 (268) 609 871 (262)
The Associates - 197 (197) 177* 389 (212)
Gain on spin-off of
The Associates - - - 15,955 - 15,955
---- ---- ----- ------- ------ -------
Total Financial Services $330 $795 $(465) $16,741 $1,260 $15,481
==== ==== ===== ======= ====== =======
Memo: Ford's share of earnings in
Hertz $ 60 $ 45 $ 15 $ 89 $ 65 $ 24
- - - - - -
* Through March 12, 1998
</TABLE>
<PAGE> 14
SECOND QUARTER 1998 COMPARED WITH SECOND QUARTER 1997 - FORD
Automotive Sector
- -----------------
Worldwide earnings for Ford's Automotive sector were $2,051 million in second
quarter 1998 on sales of $31.3 billion, compared with $1,735 million in second
quarter 1997 on sales of $32.8 billion. Excluding a one-time charge of $169
million for restructuring actions in second quarter 1997, earnings in second
quarter 1998 increased $147 million compared with a year ago. The improvement in
earnings reflects primarily continued cost reductions and improved product mix,
offset partially by lower market share and higher marketing incentives. Adjusted
for constant volume and mix, total automotive costs were down $900 million
compared with second quarter a year ago. In second half 1998, a sizable
restructuring charge is expected to be incurred for a voluntary
retirement/separation program to be offered to employees in the coming months.
Automotive sector earnings in North America were $1,655 million in second
quarter 1998, up $214 million compared with a year ago. The increase reflected
primarily cost reductions and nonrecurrence of second quarter 1997 restructuring
actions, offset partially by lower market share. The after-tax return on sales
was 7.3% in second quarter 1998, up 1.1 points from a year ago.
The seasonally-adjusted annual selling rate for the U.S. car and truck industry
was 16.5 million units in second quarter 1998, up from 14.8 million units in
second 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 24% in second quarter 1998, down 1.6
points from a year ago, reflecting primarily the discontinuation of five
low-margin vehicle lines and reduced low-margin fleet business.
Automotive sector earnings in Europe were $310 million, up $153 million compared
with second quarter a year ago. The improvement reflected primarily cost
reductions and higher dealer stocks. Higher marketing incentives were a partial
offset.
The seasonally-adjusted annual selling rate for the European car and truck
industry was 15.4 million units in second quarter 1998, up from 14.6 million
units in second quarter 1997. European car and truck industry sales for
full-year 1998 are expected to be higher than the 15 million units in 1997.
Ford's combined European car and truck market share was 10.4% in second quarter
1998, down 1.3 points from a year ago. The decline reflects primarily new model
launches by competitors and Ford production constraints.
Automotive sector earnings in South America were $14 million in second quarter
1998, down $11 million compared with second quarter a year ago. In second
quarter 1998, the seasonally-adjusted annual selling rate for the Brazilian car
and truck industry totaled 1.7 million units, compared with 2.1 million units in
second quarter a year ago. For full-year 1998, the company expects car and truck
industry sales in Brazil to be lower than the 1.9 million units in 1997. Ford's
combined car and truck share in Brazil was 13.8% in second quarter 1998, down
4/10 of a point from second quarter 1997.
Visteon earned $241 million on revenues of $4,725 million in second quarter
1998, compared with $210 million on revenues of $4,720 million in second quarter
a year ago. The improvement in earnings reflects primarily continuing cost
reductions. The after-tax return on sales was 5.1% in second quarter 1998, up
7/10 of a point from a year ago.
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.
<PAGE> 15
For a discussion of Ford Credit's operations in second quarter 1998, see
Item 2. "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Ford Credit Second Quarter 1998 Compared with Second
Quarter 1997 Results of Operations."
Earnings at Hertz in second quarter 1998 were a record $75 million (of which $60
million was Ford's share), up $21 million from the same period a year ago. The
increase reflects primarily higher revenues in U.S. car rental operations.
FIRST HALF 1998 COMPARED WITH FIRST HALF 1997 - FORD
The company's operating earnings were $3,895 million, or $3.14 per diluted share
of Common and Class B Stock, in first half 1998, compared with $3,510 million,
or $2.87 per diluted share, in first half 1997 excluding The Associates.
Operating results in first half 1998 exclude a one-time gain of $15,955 million,
or $12.90 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 half 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 half 1998 were $20,027
million, or $16.11 per diluted share, compared with $3,999 million, or $3.27 per
diluted share, in first half 1997. The company's results in first half 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 half 1998 were $73.9
billion, down $3.7 billion from a year ago. Vehicle unit sales of cars and
trucks were 3,507,000, down 53,000 units.
Automotive Sector
- -----------------
Worldwide earnings for Ford's Automotive sector were $3,286 million in first
half 1998 on sales of $60.4 billion, compared with $2,739 million in first half
1997 on sales of $62.8 billion. The increase was more than explained by cost
reductions.
Earnings for the Automotive sector in North America were $2,665 million in first
half 1998, up $204 million from first half 1997. The increase reflected
primarily cost reductions, higher industry volume, vehicle mix improvements, and
nonrecurrence of 1997 restructuring actions, offset partially by lower market
share and increased marketing incentives. The North American Automotive
after-tax return on sales was 6.2% in first half 1998, up 7/10 of a point from a
year ago.
The seasonally-adjusted annual selling rate for the U.S. car and truck industry
was 16 million units in first half 1998, compared with 15.3 million units in
first half 1997. Ford's combined U.S. car and truck market share was 24.2%, down
1.2 points compared with a year ago, reflecting primarily the discontinuation of
five low-margin vehicle lines and reduced low-margin fleet business.
Automotive sector earnings in Europe in first half 1998 were $540 million, up
$278 million from first half a year ago, reflecting primarily cost reductions
and improved volume and mix, offset partially by higher marketing incentives.
<PAGE> 16
The seasonally-adjusted annual selling rate for the European car and truck
industry was 15.6 million units in first half 1998, up from 14.4 million units
in first half 1997. Ford's combined European car and truck market share was 11%
in first half 1998, down 6/10 of a point from a year ago.
Automotive sector losses in South America were $31 million in first half 1998,
compared with a loss of $22 million in first half a year ago. In first half
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
half 1997. Ford's combined car and truck share in Brazil was 13.7% in first half
1998, up one point from first half 1997.
Visteon earned $430 million on revenues of $9,103 million in first half 1998,
compared with $356 million on revenues of $8,873 million in first half a year
ago. The improvement in earnings reflects primarily continuing cost reductions.
The after-tax return on sales was 4.7% in first half 1998, up 7/10 of a point
from a year ago.
Financial Services Group
- ------------------------
Higher earnings at Ford Credit and Hertz in first half 1998, compared with first
half 1997, reflected primarily the same factors as those described in the
discussion of second quarter results of operations.
LIQUIDITY AND CAPITAL RESOURCES
Automotive Sector
- -----------------
Automotive cash and marketable securities were $22.3 billion at June 30, 1998,
up $1.4 billion from December 31, 1997. The company paid $1 billion in quarterly
cash dividends on its Common Stock, Class B Stock and Preferred Stock during
first half 1998, and $3.2 billion in cash dividends related to The Associates
spin-off .
Automotive capital expenditures were $3.8 billion in first half 1998, up $275
million from the same period a year ago. Capital expenditures were 6.2% of sales
in first half 1998, up 7/10 of a point from first half a year ago.
Automotive debt at June 30, 1998 totaled $8.2 billion, which was 26% of total
capitalization (stockholders' equity and Automotive debt), compared with 21% of
total capitalization at year-end 1997. The increase in the ratio in 1998
reflects the reduction in stockholders' equity resulting from The Associates
spin-off.
At July 1, 1998, Ford had long-term contractually committed global credit
agreements under which $8.5 billion is available from various banks; 94% of such
commitments are available through June 30, 2003. The entire $8.5 billion may be
used, at Ford's option, by any affiliate of Ford; however, any borrowing by an
affiliate will be guaranteed by Ford. Ford also has the ability to transfer on a
nonguaranteed basis $8.3 billion of such credit lines in varying portions to
Ford Credit and FCE Bank. In addition, at July 1, 1998, $485 million of
contractually committed credit facilities were available to various Automotive
affiliates outside the U.S. Approximately $74 million of these facilities
were in use at July 1, 1998.
<PAGE> 17
Financial Services Group
- ------------------------
The Associates spin-off explains primarily the declines discussed below.
Financial Services cash and investments in securities totaled $3.3 billion at
June 30, 1998, down $574 million from December 31, 1997.
Net receivables and lease investments were $124.9 billion at June 30, 1998, down
$50.6 billion from December 31, 1997.
Total debt was $115.8 billion at June 30, 1998, down $44.3 billion from December
31, 1997.
Outstanding commercial paper at June 30, 1998 totaled $40.9 billion at Ford
Credit and $2 billion at Hertz, with an average remaining maturity of 22 days
and 24 days, respectively.
At July 1, 1998, Financial Services had a total of $27.9 billion of
contractually committed support facilities (excluding the $8.3 billion available
under Ford's global credit agreements). Of these facilities, $23.9 billion are
contractually committed global credit agreements under which $19.1 billion and
$4.8 billion are available to Ford Credit and FCE Bank, respectively, from
various banks; 58% and 75%, respectively, of such facilities are available
through June 30, 2003. The entire $19.1 billion may be used, at Ford Credit's
option, by any subsidiary of Ford Credit, and the entire $4.8 billion may be
used, at FCE Bank's option, by any subsidiary of FCE Bank. Any borrowings by
such subsidiaries will be guaranteed by Ford Credit or FCE Bank, as the case may
be. At July 1, 1998, $205 million of the Ford Credit global facilities were in
use and $738 million of the FCE Bank global facilities were in use. Other than
the global credit agreements, the remaining portion of the Financial Services
support facilities at July 1, 1998 consisted of $2.1 billion of contractually
committed support facilities available to Hertz in the U.S., and $1.9 billion of
contractually committed support facilities available to various affiliates
outside the U.S.; at July 1, 1998, approximately $967 million of these
facilities were in use. Furthermore, banks provide $1.5 billion of liquidity
facilities to support the asset-backed commercial paper program of a Ford Credit
sponsored special purpose entity.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting
for Derivative Instruments and Hedging Activities," was issued by the Financial
Accounting Standards Board in June 1998. This Statement establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
recognition of all derivatives as either assets or liabilities on the balance
sheet and measurement of those instruments at fair value. If certain conditions
are met, a derivative may be designated specifically as (a) a hedge of the
exposure to changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment (a fair value hedge), (b) a hedge of the exposure
to variable cash flows of a forecasted transaction (a cash flow hedge), or (c) a
hedge of the foreign currency exposure of a net investment in a foreign
operation, an unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction. Ford anticipates having
each of these types of hedges, and will comply with requirements of SFAS 133
when adopted.
This Statement is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. Ford expects to adopt SFAS 133 beginning January 1, 2000.
The effect of adopting SFAS 133 is not expected to be material.
<PAGE> 18
Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities," was issued by the American Institute of Certified Public
Accountants in April 1998. Effective for fiscal years beginning after December
15, 1998, this SOP provides guidance on the financial reporting of start-up
costs and organization costs. It requires start-up activities and organization
costs to be expensed as incurred. Presently, Ford expenses start-up costs and
organization costs as incurred.
Legal Proceedings - Ford
Environmental Matters
- ---------------------
Mobile Source Emissions Alleged Violation. In June 1998, the United States
Department of Justice (the "DOJ"), at the request of the Environmental
Protection Agency (the "EPA"), lodged a complaint against Ford. The complaint
alleged that certain vehicles produced by Ford contained an engine control
strategy that was not fully explained in the certification application and, in
some applications, was an impermissible "defeat device" because it would result
in higher emissions of nitrogen oxides under certain operating conditions. The
vehicles in question included certain 1997 model year Econolines and 1991
through 1995 model year Escorts. The DOJ, EPA and Ford agreed upon a consent
decree which was filed the same day as the complaint. Under the terms of the
consent decree Ford denies any wrongdoing and will pay $2.5 million in civil
penalties, spend $1.5 million on supplemental environmental projects, recall the
Econolines for recalibration (costing approximately $1.3 million) and retire
2,500 tons of nitrogen oxide emissions credits (at an estimated cost of $2.5
million). A notice of settlement was published in the Federal Register on July 1
and allows for a thirty-day comment period on the proposed settlement. The
consent decree should be entered shortly after the government has reviewed and
considered the comments, absent any major concerns by the government. These same
issues have been resolved with the State of California by an agreement which
requires Ford to recall the California Econolines (the cost of which is included
in the above description of the federal settlement) and to pay $350,000 in civil
penalties.
Class Actions
- -------------
Lease Agreement Disclosure. Six purported class actions recently were filed
against Ford Credit and its subsidiary, Primus Automotive Financial Services,
Inc., in state courts in Arkansas, Georgia, Minnesota, Ohio, Oregon and
Wisconsin. 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
<PAGE> 19
in the amount of a customer's monthly lease payment. Plaintiffs seek
compensatory damages in the amount of all such undisclosed fees, an injunction
prohibiting the companies from continuing the practice of not disclosing such
fees, attorneys' fees, interest, costs and, in some cases, punitive damages.
Ford Credit and Primus believe that their leasing contracts conform with
applicable federal and state laws and will move to dismiss the lawsuits.
However, if plaintiffs were to prevail in these actions, Ford Credit and Primus
could be required to pay substantial damages.
Lifetime Service Guarantee. In June 1998, Edward Elbert commenced a purported
class action against the company in California state court with respect to the
company's termination of the Lifetime Service Guarantee program as of January 1,
1992. The program, which ran from 1983 until its termination, provided new
vehicle buyers with a lifetime warranty on replaced parts for, and repairs on,
their vehicles that were not otherwise warrantied and were performed by a
participating dealer. Mr. Elbert alleges that the program constituted a product
warranty that could not be terminated. He alleges claims for violation of the
federal Magnuson-Moss Warranty Act, breach of contract, negligent
misrepresentation, violation of the California Song-Beverly Consumer Warranty
Act, violation of the California Consumers Legal Remedies Act ("CLRA"),
violations of the California Unfair Competition Law ("UCL"), and declaratory
relief. The Magnuson-Moss and declaratory relief claims are alleged on behalf of
a purported national class. The breach of contract, negligent misrepresentation,
and Song-Beverly claims are alleged on behalf of a purported subclass of
California residents. The CLRA and UCL claims are alleged on behalf of "the
general public" ostensibly under "private attorney general" provisions in those
statutes. Plaintiff claims compensatory, exemplary, and punitive damages,
attorneys' fees, civil penalties, disgorgement, and interest in unspecified
amounts. He is also seeking an injunction to compel the company to reinstate the
Lifetime Service Guarantee program. Ford believes it has valid defenses to the
plaintiff's claims; however, if plaintiff were to prevail in their lawsuit, Ford
could be required to pay substantial damages and possibly incur substantial
future costs.
Paint. (Previously discussed in the fifth paragraph on page 19 of the 10-K
Report.) In April 1998, the Louisiana federal court heard oral argument
on plaintiffs' motion for nationwide class certification in the Landry case.
The court deferred ruling on the motion and requested additional briefing from
the parties on the feasibility of trying the case as a class action. During the
second quarter two new purported class actions concerning alleged defects in
paint processes were filed against the company. The first, Nienhuis, was filed
in Illinois state court in May 1998. This case raises the same allegations as
in the other paint cases with respect to a somewhat larger group of vehicles.
This action seeks a nationwide class or, alternatively, a class of Illinois
residents. Ford has removed the action to federal court, and the Judicial Panel
on Multidistrict Litigation has conditionally transferred the action to the
Louisiana federal court where Landry is pending. The other new case, Clayman,
was filed in Pennsylvania state court in June 1998. The action asserts
allegations similar to the other cases on behalf of a proposed class of
Pennsylvania residents.
Bronco II. (Previously discussed in the last paragraph on page 19 of the 10-K
Report.) The federal court in West Virginia denied plaintiffs' motion for class
certification in the Goff case. The court also dismissed the claims of one
plaintiff and ordered the other plaintiff to file a more definite statement of
the fraud allegations. Trial of the remaining plaintiff's claims is scheduled
for November 1998.
Ignition Switch. (Previously discussed in the second full paragraph on page 20
of the 10-K Report.) In June 1998, the federal court in New Jersey indicated
that it would issue a written order denying the plaintiffs' motion to remand all
of the lawsuits to state courts and to vacate the court's rulings denying
nationwide class certification and dismissing most of the claims of the
plaintiffs who have had no "incidents" with their vehicles. In May 1998,
plaintiffs who claim to have had "incidents" with their vehicles filed an
amended complaint on behalf of a proposed class of all persons who have
experienced "incidents" in a subject
<PAGE> 20
vehicle, attempting to consolidate all such claims in a single action. The
complaint proposes alternative classes and several subclasses. Plaintiffs have
indicated that the proposed classes and subclasses may be amended following
further discovery. Over the past several weeks, Ford has been served with three
new purported class actions concerning ignition switch issues. Two of the cases
were filed in Illinois and California state courts and propose to include
individuals or entities that own or currently lease Illinois and
California-registered vehicles, respectively, equipped with allegedly defective
ignition switches that have not been recalled by the company. The third case was
filed in another Illinois state court and proposes to include individuals or
entities nationwide that currently own or that have previously owned vehicles
equipped with allegedly defective ignition switches that have been recalled by
the company.
TFI Module. (Previously discussed in the last paragraph on page 20 of the 10-K
Report.) The California Supreme Court has declined to hear Ford's appeal of the
trial court's class certification and class notice orders. Ford will have the
right to appeal those orders after entry of any adverse final judgment in the
case. In addition, the trial court modified its earlier class notice order and
indicated that it will require plaintiffs to bear most of the expense of
disseminating notice to the class. In related developments, in June 1998 the
Chief Counsel of the National Highway Traffic Safety Administration (the "Safety
Administration") released a letter rejecting many of the allegations made by the
plaintiffs and the Safety Administration's former chief investigator that Ford
improperly withheld information and documents during prior investigations of the
TFI module. The Chief Counsel's letter did, however, state that Ford had failed
to produce six documents responsive to agency information requests. The Safety
Administration declined to impose a civil penalty but directed Ford to alter its
approach to responding to agency information requests. The Safety Administration
also declined to consider whether the receipt of the six documents would have
caused the agency to alter its decision to close the TFI-related investigations
without action.
Airbag. (Previously discussed in the second full paragraph on page 21 of the
10-K Report.) The company moved for dismissal or summary judgment on claims
asserted by plaintiffs in the Louisiana case (which was consolidated in federal
court) and in the Alabama case. In May 1998, the federal court in Louisiana
dismissed all claims asserted in that case. The deadline for appeal of this
dismissal has passed, and the plaintiffs have not filed a notice of appeal. In
the Alabama lawsuit, the trial court denied Ford's motion for change of venue
and Ford has petitioned the Alabama Supreme Court for review. The trial court
has stayed the case pending a decision by the Alabama Supreme Court on the venue
issue. Ford's motion to dismiss the Alabama action is pending.
Other Matters
- -------------
Lemelson Patent Case. (Previously discussed in the last paragraph on page 22 of
the 10-K Report.) Ford and the Lemelson interests settled their patent
litigation in May 1998. The settlement with Lemelson resolves all issues
involved in the lawsuit and provides Ford with a license under more than 200
Lemelson patents that currently exist, as well as future Lemelson patents that
may issue. The amount of the settlement payment, which is required to be kept
confidential by the terms of the settlement, is not material. The settlement
also includes an option for Ford suppliers to settle their individual
differences with Lemelson at royalty rates that are significantly better than
those offered to others in the past.
<PAGE> 21
Fastener Quality Act. (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.) The effective date for the implementation of the Fastener Quality Act of
1990 has been administratively extended to October 24, 1998. Congress is
considering a bill which would delay the effective date of the Act by up to one
year and would require the Secretary of Commerce to review the Act and make
recommendations regarding necessary and appropriate changes to the Act. The
House of Representatives has passed the bill, and it is currently pending in the
Senate.
<PAGE> 22
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Please refer to the Exhibit Index on page 24.
(b) Reports on Form 8-K during the quarter ended June 30, 1998:
FINANCIAL
DATE OF REPORT ITEM STATEMENTS FILED
- -------------- --------------------- ----------------
April 16, 1998 Item 5 - Other Events Earnings Release dated
April 16, 1998 of Ford
Motor Credit Company and
Subsidiaries for the
quarter ended March 31, 1998
with attachments and
Earnings Release dated
April 16, 1998 of Ford
Motor Company and
subsidiaries for
the quarter ended
March 31, 1998, with
attachments.
April 27, 1998 Item 5 - Other Events None
June 15, 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)
/s/ E. S. Acton
July 17, 1998 --------------------------
E. S. Acton
Vice President - Finance
(Chief Financial Officer)
<PAGE> 23
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 June 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 June 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 and of earnings retained for use in the
business 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
July 14, 1998
<PAGE> 24
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 Report.
LLP dated July 17, 1998
regarding unaduited
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>
First Half 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 $3,301.5 $3,124.8 $ 6,268.2 $ 6,235.7 $ 5,987.8 $ 4,226.3 $ 3,699.9
Rents 12.7 12.8 26.2 22.2 19.5 16.9 13.0
-------- -------- ---------- --------- --------- --------- ---------
Total fixed charges 3,314.2 3,137.6 6,294.4 6,257.9 6,007.3 4,243.2 3,712.9
Earnings
Income before income
taxes 993.1 962.1 1,806.0 2,240.2 2,327.8 2,335.5 2,147.5
Less equity in net income/
(loss) of affiliated
companies 0.9 (0.5) 1.0 55.3 255.4 232.5 198.0
Less minority interest
in net income of
subsidiaries 24.6 28.0 48.4 68.0 65.5 59.3 44.6
-------- -------- ---------- --------- --------- --------- ---------
Earnings before fixed
charges $4,281.8 $4,072.2 $ 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 include income before income
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 12-B
<TABLE>
<CAPTION>
Ford Motor Company and Subsidiaries
CALCULATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
----------------------------------------------------------------------------------------
(in millions)
First For the Years Ended December 31
Half ------------------------------------------------------------
1998 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Earnings
Income before income taxes $22,285 $10,939 $ 6,793 $ 6,705 $ 8,789 $ 4,003
Equity in net (income)/loss of affiliates
plus dividends from affiliates 26 121 36 179 (182) (98)
Adjusted fixed charges a/ 4,781 10,911 10,801 10,556 8,122 7,648
------- ------- ------- ------- ------- -------
Earnings $27,092 $21,971 $17,630 $17,440 $16,729 $11,553
======= ======= ======= ======= ======= =======
Combined Fixed Charges and
Preferred Stock Dividends
Interest expense b/ $ 4,631 $10,570 $10,464 $10,121 $ 7,787 $ 7,351
Interest portion of rental expense c/ 126 309 300 396 265 266
Preferred stock dividend requirements of
majority owned subsidiaries and trusts d/ 27 55 55 199 160 115
------- ------- ------- ------- ------- -------
Fixed charges 4,784 10,934 10,819 10,716 8,212 7,732
Ford preferred stock dividend requirements e/ 110 82 95 459 472 442
------- ------- ------- ------- ------- -------
Total combined fixed charges
and preferred stock dividends $ 4,894 $11,016 $10,914 $11,175 $ 8,684 $ 8,174
======= ======= ======= ======= ======= =======
Ratios
Ratio of earnings to fixed charges 5.7 f/ 2.0 1.6 1.6 2.0 1.5
Ratio of earnings to combined fixed
charges and preferred stock dividends 5.5 g/ 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 and trusts.
b/ Includes interest, whether expensed or capitalized, and amortization of debt
expense and discount or premium relating to any indebtedness.
<PAGE> 2
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 2.4.
g/ 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 2.3.
<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, 333-41059, and 33-64237 on Form S-3
We are aware that our report dated July 14, 1998 accompanying the unaudited
interim financial information of Ford Motor Credit Company and subsidiaries for
the periods ended June 30, 1998 and 1997 and included in the Ford Motor Credit
Company Quarterly Report on Form 10-Q for the quarter ended June 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
July 17, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Ford Credit's Condensed Consolidated Balance Sheet is unclassified. Therefore,
the following tags listed below are not applicable to Ford Credit: Current
Assets and Current Liabilities. Information relating to earnings per share is
not presented because Ford Credit is an indirect wholly owned subsidiary of Ford
Motor Company.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,195
<SECURITIES> 1,324
<RECEIVABLES> 84,836
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 128,219
<CURRENT-LIABILITIES> 0
<BONDS> 106,906
0
0
<COMMON> 25
<OTHER-SE> 10,388
<TOTAL-LIABILITY-AND-EQUITY> 128,219
<SALES> 0
<TOTAL-REVENUES> 9,409
<CGS> 0
<TOTAL-COSTS> 8,417
<OTHER-EXPENSES> 4,523
<LOSS-PROVISION> 592
<INTEREST-EXPENSE> 3,302
<INCOME-PRETAX> 993
<INCOME-TAX> 391
<INCOME-CONTINUING> 578
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 578
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
