<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) February 3, 1998
--------------------
FORD MOTOR CREDIT COMPANY
(Exact name of registrant as specified in its charter)
Delaware 1-6368 38-1612444
- ----------------------- ----------------------- -------------------
(State or other juris- (Commission File Number (IRS Employer
diction of incorporation Number) Identification No.)
The American Road, Dearborn, Michigan 48121
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 313-322-3000
<PAGE> 2
ITEM 5. OTHER EVENTS.
The 1997 Audit of Consolidated Financial Statements of Ford Motor Credit
Company and Subsidiaries together with the Report of Independent Accountants of
Coopers & Lybrand L.L.P., independent certified public accountants is filed as
Exhibit 99.1 to this Current Report on Form 8-K and is incorporated by
reference herein.
The news release dated January 27, 1998 of Ford Motor Company and
subsidiaries for the year ended December 31, 1997 is filed as Exhibit 99.2 to
this Current Report on Form 8-K and is incorporated by reference herein.
ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibits.
EXHIBITS
Designation Description Method of Filing
- ----------- ----------- ----------------
Exhibit 23 Consent of Coopers & Lybrand Filed with this Report.
L.L.P.
Exhibit 27 Financial Data Schedule. Filed with this Report.
Exhibit 99.1 1997 Audit of Consolidated Filed with this Report.
Financial Statements of Ford
Motor Credit Company and
Subsidiaries together with
the Report of Independent
Accountants of Coopers & Lybrand
L.L.P., independent certified
public accountants.
Exhibit 99.2 News release dated January 27 Filed with this Report.
1998 of Ford Motor Company and
Subsidiaries for the year
ended December 31, 1997
with attachments.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on the date indicated.
FORD MOTOR CREDIT COMPANY
(Registrant)
Date: February 3, 1998 By:/s/R. P. Conrad
------------------
R. P. Conrad
Assistant Secretary
<PAGE> 3
EXHIBIT INDEX
Designation Description
- ----------- -----------
Exhibit 23 Consent of Coopers & Lybrand
L.L.P.
Exhibit 27 Financial Data Schedule.
Exhibit 99.1 1997 Audit of Consolidated
Financial Statements of Ford
Motor Credit Company and
Subsidiaries together with
the Report of Independent
Accountants of Coopers & Lybrand
L.L.P., independent certified
public accountants.
Exhibit 99.2 News release dated January 27
1998 of Ford Motor Company and
Subsidiaries for the year
ended December 31, 1997
with attachments.
<PAGE> 1
EXHIBIT 23
CONSENT OF COOPERS & LYBRAND L.L.P.
Re: Ford Motor Credit Company Registration Statement
Nos. 333-45015, 333-41059, 333-40477, 33-62973, 33-24928 and 33-64237,
on Form S-3
We consent to the incorporation by reference in the above Ford Motor Credit
Company Registration Statements of our report dated January 26, 1998 on our
audits of the consolidated financial statements of Ford Motor Credit Company
and Subsidiaries at December 31, 1997 and 1996 and for each of the three years
in the period ended December 31, 1997 included in Ford Motor Credit Company's
Current Report on Form 8-K dated February 3, 1998.
/s/ Coopers & Lybrand L.L.P.
Detroit, Michigan
February 3, 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 A SHARE IS NOT
PRESENTED BECAUSE FORD CREDIT IS AN INDIRECT WHOLLY OWNED SUBSIDIARY OF FORD
MOTOR COMPANY.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 689
<SECURITIES> 888
<RECEIVABLES> 82,311
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 121,973
<CURRENT-LIABILITIES> 0
<BONDS> 100,725
0
0
<COMMON> 25
<OTHER-SE> 9,559
<TOTAL-LIABILITY-AND-EQUITY> 121,973
<SALES> 0
<TOTAL-REVENUES> 17,603
<CGS> 0
<TOTAL-COSTS> 15,798
<OTHER-EXPENSES> 7,933
<LOSS-PROVISION> 1,338
<INTEREST-EXPENSE> 6,527
<INCOME-PRETAX> 1,806
<INCOME-TAX> 727
<INCOME-CONTINUING> 1,031
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,031
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
EXHIBIT 99.1
FORD MOTOR CREDIT COMPANY
AND SUBSIDIARIES
1997 AUDIT OF CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 2
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
Ford Motor Credit Company:
We have audited the consolidated balance sheets of Ford Motor Credit Company
and Subsidiaries at December 31, 1997 and 1996, and the related consolidated
statements of income, stockholder's equity and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Ford Motor Credit
Company and Subsidiaries at December 31, 1997 and 1996, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997 in conformity with generally accepted
accounting principles.
/s/ Coopers & Lybrand L.L.P.
Detroit, Michigan
January 26, 1998
1
<PAGE> 3
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(in millions)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
----------------------------------------
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Financing revenue
Operating leases $ 8,895.2 $ 8,223.6 $ 7,300.8
Retail 5,226.9 5,000.7 4,522.7
Wholesale 1,588.4 1,645.8 1,875.2
Other 391.4 477.5 507.1
--------- --------- ---------
Total financing revenue 16,101.9 15,347.6 14,205.8
Interest expense (6,527.1) (6,259.7) (5,998.3)
Depreciation on operating leases (6,188.2) (5,537.6) (5,235.1)
--------- --------- ---------
Net financing margin 3,386.6 3,550.3 2,972.4
Other Revenue
Insurance premiums earned 298.3 225.7 -
Investment and other income 1,202.8 1,076.9 791.4
--------- --------- ---------
Total financing margin and revenue 4,887.7 4,852.9 3,763.8
Expenses
Operating expenses 1,477.4 1,467.4 1,211.0
Provision for credit losses 1,338.2 993.3 480.4
Other insurance expenses 267.1 207.3 -
--------- --------- ---------
Total expenses 3,082.7 2,668.0 1,691.4
--------- --------- ---------
Equity in net income of affiliated companies 1.0 55.3 255.4
--------- --------- ---------
Income before income taxes 1,806.0 2,240.2 2,327.8
Provision for income taxes 726.8 731.6 682.9
--------- --------- ---------
Income before minority interests 1,079.2 1,508.6 1,644.9
Minority interests in net income of subsidiaries 48.4 68.0 65.5
--------- --------- ---------
Net income $ 1,030.8 $ 1,440.6 $ 1,579.4
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE> 4
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in millions)
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------
ASSETS 1997 1996
---------- ----------
<S> <C> <C
Cash and cash equivalents $ 689.5 $ 2,716.0
Investments in securities 887.9 1,324.8
Finance receivables, net and retained interest
in sold receivables 82,311.2 81,972.1
Net investment, operating leases 34,746.0 30,645.2
Notes and accounts receivable from affiliated
companies 734.2 1,133.0
Equity in net assets of affiliated companies 49.6 44.4
Other assets 2,554.9 3,860.9
---------- ----------
Total assets $121,973.3 $121,696.4
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Accounts payable
Trade, customer deposits, and
dealer reserves $ 2,835.0 $ 3,362.6
Affiliated companies 2,815.7 2,315.2
---------- ----------
Total accounts payable 5,650.7 5,677.8
Debt 100,725.0 98,024.3
Deferred income taxes 2,732.2 4,260.4
Other liabilities and deferred income 2,803.2 2,929.9
---------- ----------
Total liabilities 111,911.1 110,892.4
Minority interests in net assets of subsidiaries 477.7 1,313.8
Preferred stockholder's equity in a subsidiary
company - 286.5
STOCKHOLDER'S EQUITY
Capital stock, par value $100 a share, 250,000
shares authorized, issued and outstanding 25.0 25.0
Paid-in surplus (contributions by stockholder) 3,891.6 3,747.6
Note receivable from affiliated company (1,517.0) (1,517.0)
Unrealized gain on investments in
securities available for sale, net of taxes 46.9 56.9
Foreign currency translation adjustments (189.4) (0.9)
Earnings retained for use in the business 7,327.4 6,892.1
---------- ----------
Total stockholder's equity 9,584.5 9,203.7
---------- ----------
Total liabilities and stockholder's equity $121,973.3 $121,696.4
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 5
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(in millions)
<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- -----------
<S> <C> <C> <C>
CAPITAL STOCK
Common stock:
Balance, beginning of year $ 25.0 $ 25.0 $ 25.0
--------- --------- ---------
Balance, end of year 25.0 25.0 25.0
PAID IN SURPLUS
Balance, beginning of year 3,747.6 1,904.5 917.3
Contributions from Parent 144.0 1,843.1 987.2
--------- --------- ---------
Balance, end of year 3,891.6 3,747.6 1,904.5
NOTE RECEIVABLE FROM AFFILIATED
COMPANY
Balance, beginning of year (1,517.0) - -
Addition - (2,949.0) -
Payments - 1,432.0 -
--------- --------- ---------
Balance, end of year (1,517.0) (1,517.0) -
UNREALIZED GAIN ON INVESTMENTS IN
SECURITIES AVAILABLE FOR SALE,
NET OF TAXES
Balance, beginning of year 56.9 30.9 (70.0)
Change in unrealized gain (10.0) 26.0 100.9
--------- --------- ---------
Balance, end of year 46.9 56.9 30.9
FOREIGN CURRENCY TRANSLATION
ADJUSTMENTS
Balance, beginning of year (0.9) (14.2) (58.3)
Translation adjustments during year (188.5) 13.3 44.1
--------- --------- ---------
Balance, end of year (189.4) (0.9) (14.2)
EARNINGS RETAINED FOR USE
IN THE BUSINESS
Balance, beginning of year 6,892.1 6,724.5 5,961.4
Net income 1,030.8 1,440.6 1,579.4
Dividends
Cash (595.5) (949.0) (816.3)
Other - (324.0) -
--------- --------- ---------
Balance, end of year 7,327.4 6,892.1 6,724.5
--------- --------- ---------
Total stockholder's equity $ 9,584.5 $ 9,203.7 $ 8,670.7
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 6
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
---------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 1,030.8 $1,440.6 $1,579.4
Adjustments to reconcile net income to
net cash provided by operating
activities
Provision for credit losses 1,338.2 993.3 480.4
Depreciation and amortization 6,398.9 5,870.4 5,294.4
Gain on sales of finance receivables (64.5) (55.9) (69.2)
Equity in net income of affiliates (1.0) (55.3) (255.4)
Deferred income taxes (92.8) 1,105.6 560.7
Decrease/(increase) in assets 452.6 (1,410.1) (725.4)
Increase in liabilities 155.0 1,467.8 785.2
Other 302.6 (272.1) 218.0
--------- --------- ---------
Net cash provided by
operating activities 9,519.8 9,084.3 7,868.1
--------- --------- ---------
Cash flows from investing activities
Purchase of finance receivables
(other than wholesale) (38,396.0) (38,895.3) (35,761.3)
Collection of finance receivables
(other than wholesale) 32,207.8 33,477.7 28,293.0
Net change in wholesale receivables (1,759.1) (2,127.6) (4,035.5)
Proceeds from sales of finance receivables
and operating leases 3,850.4 4,668.7 5,422.6
Purchase of operating lease vehicles (22,917.6) (21,264.0) (18,102.6)
Liquidation of operating lease vehicles 12,164.0 10,340.5 7,342.3
Proceeds from sale/maturity of
investment securities 3,169.9 5,767.4 76.4
Purchase of investment securities (2,732.3) (4,730.1) -
Other (148.9) 110.4 (440.7)
---------- --------- ---------
Net cash used in
investing activities (14,561.8) (12,652.3) (17,205.8)
---------- --------- ---------
Cash flows from financing activities
Proceeds from issuance of long-term debt 11,826.6 13,433.5 15,528.4
Principal payments on long-term debt (10,340.8) (8,322.4) (7,189.1)
Change in short-term debt, net 2,212.2 816.9 2,338.7
Cash dividends paid (595.5) (949.0) (816.3)
Other (57.5) (169.0) 562.8
--------- --------- ---------
Net cash provided by
financing activities 3,045.0 4,810.0 10,424.5
Effect of exchange rate changes on
cash and cash equivalents (29.5) (4.1) 7.9
--------- --------- ---------
Net change in cash and cash equivalents (2,026.5) 1,237.9 1,094.7
Cash and cash equivalents, beginning of year 2,716.0 1,478.1 383.4
--------- --------- ---------
Cash and cash equivalents, end of year $ 689.5 $2,716.0 $ 1,478.1
========= ======== =========
Supplementary cash flow information
Interest paid $6,117.3 $5,207.7 $ 5,618.2
Taxes paid/(received) 520.2 (291.9) 169.6
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 7
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Ford Motor Credit
Company and its majority owned domestic and foreign subsidiaries and joint
ventures ("Ford Credit"). Affiliates that are 20-50 percent owned are
included in the consolidated financial statements on an equity basis. Ford
Credit is an indirect wholly owned subsidiary of Ford Motor Company ("Ford").
Use of estimates as determined by management is required in the preparation of
consolidated financial statements in conformity with generally accepted
accounting principles. Actual results could differ from these estimates and
assumptions. Certain amounts in prior years' financial statements have been
reclassified to conform with current year presentations.
Nature of Operations
Ford Credit operates in many locations around the world, the most significant
of which are the United States and Europe.
Ford Credit's financing operations primarily consist of: the purchase from
franchised Ford vehicle dealers of retail installment sale contracts and retail
leases; wholesale financing and capital loans to franchised Ford vehicle
dealers and other franchises associated with such dealers; and loans to vehicle
leasing companies. In addition, certain subsidiaries of Ford Credit provide
these financing services in the United States, Europe, Canada, and Australia to
non-Ford dealerships. Ford Credit conducts insurance operations through its
wholly owned subsidiary, The American Road Insurance Company ("TARIC"). See
also Note 2 for information regarding Ford Credit's ownership changes in TARIC.
6
<PAGE> 8
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 1. ACCOUNTING POLICIES (continued)
Revenue Recognition
Revenue from finance receivables is recognized using the interest (actuarial)
method. Certain loan origination costs are deferred and amortized to financing
revenue over the life of the related loans using the interest method. Rental
revenue on operating leases is recognized on a straight-line basis over the
term of the lease. Initial direct costs, net of acquisition fees, related to
leases are deferred and amortized over the term of the lease. The accrual of
interest on loans is discontinued at the time a loan is determined to be
impaired. Subsequent amounts of interest collected are recognized in income
only if full recovery of the remaining principal is expected. Other amounts
collected are generally recognized first as a reduction of principal. Any
remaining amounts are treated as a recovery.
Agreements with Ford and other affiliates provide for interest supplements and
other support payments to Ford Credit on certain financing and leasing
transactions. These payments are recognized as income over the period that the
related finance receivables and leases are outstanding.
Insurance premiums are earned over the policy periods on bases related to
amounts at risk. Premiums from extended service plan contracts are earned over
the life of the policy based on historical loss experience. Physical damage
insurance premiums covering vehicles and equipment financed at wholesale by
Ford Credit and its finance subsidiaries are recognized as income on a monthly
basis as billed; other physical damage, credit life, and credit disability
premiums are earned over the life of the related policies, primarily on the
sum-of-the-digits basis. Certain costs of acquiring new business are deferred
and amortized over the terms of the related policies on the same basis on which
premiums are earned.
Sale of Receivables and Operating Leases
Statement of Financial Accounting Standards No. 125 ("SFAS 125"), "Accounting
for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities", was adopted prospectively effective January 1, 1997 and did not
have any material effect on the consolidated financial statements.
7
<PAGE> 9
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 1. ACCOUNTING POLICIES (continued)
Sale of Receivables and Operating Leases (continued)
Ford Credit periodically sells finance receivables through special purpose
subsidiaries, retains the servicing rights, and receives a servicing fee which
is recognized as collected over the remaining term of the related sold finance
receivables. Estimated gains or losses from the sale of finance receivables
are recognized in the period in which the sale occurs. In determining the gain
or loss on each qualifying sale of finance receivables, the investment in the
sold receivable pool is allocated between the portion sold and the portion
retained based on their relative fair values at the date of sale (see Note 4).
The retained interest includes servicing rights, interest only (IO) strips, and
subordinated certificates. Excess servicing assets related to sales occurring
prior to 1997 were reclassified as IO strips in connection with the adoption of
SFAS 125. These financial instruments are recorded at market.
Ford Credit also periodically sells vehicles subject to operating leases to
special purpose subsidiaries under sale-leaseback arrangements. The leaseback
arrangements are structured as operating leases. Pursuant to these
transactions, the vehicles sold are removed from the balance sheet and any gain
on sale is deferred and amortized over the period of the leaseback arrangement.
Ford Credit continues to service the leases and is paid a servicing fee which
is recognized as received. Ford Credit also retains certain residual value and
credit risk which is considered in the calculation of the gain on sale.
Depreciation
Depreciation expense on operating leases is provided on a straight-line basis
over the term of the lease in an amount necessary to reduce the leased vehicle
to its estimated residual value at the end of the lease term. Gains or losses
upon disposal and adjustments to reflect impairment of the vehicle's residual
value are also included in depreciation expense.
Residual Values
The Company has significant investments in the residual values of its leasing
portfolios. Residual values represent estimates of the value of the assets at
the end of the contract terms and are initially calculated based on appraisals
and estimates. Residual values are reviewed on a regular basis to determine
that recorded amounts are appropriate. Estimated reserves for residual values
are based on assumptions as to used car prices at lease termination and the
number of vehicles that will be returned to the Company. These assumptions and
the related reserve may change based on changing market conditions.
8
<PAGE> 10
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 1. ACCOUNTING POLICIES (continued)
Allowance for Credit Losses
An allowance for estimated credit losses is established during the period in
which receivables or vehicles leased are acquired and is based on historical
experience and other factors that affect collectibility. The allowance for
estimated credit losses includes a provision for certain non-homogenous,
impaired loans. Impaired loans are measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate.
Finance receivables and lease investments are charged to the allowance for
credit losses when an account is deemed to be uncollectible, taking into
consideration the financial condition of the borrower or lessee, the value of
the collateral, recourse to guarantors and other factors. Collateral held for
resale included in other assets is carried at its estimated fair value at the
date of repossession net of estimated disposal costs. Recoveries on finance
receivables and lease investments previously charged off as uncollectible are
credited to the allowance for credit losses.
Insurance Liabilities
A liability for reported insurance claims and an estimate of unreported
insurance claims is provided for based on past experience and is included in
other liabilities and deferred income.
Derivative Financial Instruments
Ford Credit operates in many countries worldwide, and is exposed to market
risks, including the effects of changes in interest rates and foreign currency
exchange rates. Ford Credit issues debt and other payables with various
maturities, interest rate structures and in various currencies, to ensure
funding over business and economic cycles and to minimize overall borrowing
costs. The maturity and interest rate structures frequently differ from the
invested assets. Exposures to fluctuations in interest rates are created by
the difference in maturities of liabilities versus the maturities of assets.
The financial exposures are monitored and managed in accordance with Ford
Credit's established policies and procedures.
Ford Credit has entered into agreements to manage exposures to fluctuations in
interest rates and foreign exchange. These agreements are used to hedge
interest rate exposure and to hedge debt denominated in foreign currencies.
All such instruments are classified as "held for purposes other than trading";
company policy specifically prohibits the use of derivatives for speculative
purposes.
9
<PAGE> 11
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 1. ACCOUNTING POLICIES (continued)
Derivative Financial Instruments (continued)
Interest rate swap agreements are used to manage the effects of interest rate
fluctuations by changing the interest rate characteristics of Ford Credit's
debt to match the interest rate characteristics of related assets. All
interest rate swap agreements are designated to hedge either a specific debt
issue or pool of debt. The differential paid or received on interest rate
swap agreements is recognized on an accrual basis as an adjustment to interest
expense. Gains and losses on terminated interest rate swaps are amortized and
reflected in interest expense over the remaining term of the underlying debt.
Foreign currency agreements including swaps and forward contracts are used to
manage foreign exchange exposure. All currency swaps and forward contracts are
designated to hedge specific foreign currency denominated debt instruments or
intercompany loans. The differential paid or received on these contracts is
recognized on an accrual basis as an adjustment to interest expense.
Unrealized gains or losses are recognized concurrently with foreign currency
translation gains and losses on the underlying debt.
Foreign Currency Translation
Revenues, costs and expenses of foreign subsidiaries are translated to U.S.
dollars at average-period exchange rates. Assets and liabilities of foreign
subsidiaries are translated to U.S. dollars at year-end exchange rates with the
effects of these translation adjustments being reported in a separate component
of stockholder's equity. The change in this account results from translation
adjustments recorded during the year.
Cash Equivalents
Ford Credit considers investments purchased with a maturity of three months or
less to be cash equivalents.
10
<PAGE> 12
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 2. ACQUISITIONS AND DIVESTITURES
During 1997 and 1996, the following significant actions were completed:
- - Effective January 1, 1997, Ford Credit sold its interest in Ford New Holland
Credit Company to FiatAllis North America, Inc. ("Fiat") and New Holland
(Canada) Credit Holding Ltd. ("Fiat Canada").
- - In December 1996, Ford, FSG, Inc. ("FFSGI") contributed ownership of Ford
Credit Europe to Ford Credit.
- - During 1996, the majority of Ford Credit's diversified assets managed by
USL Capital Corporation was sold.
- - In March 1996, Ford Holdings, Inc. ("FHI") contributed ownership of TARIC to
Ford Credit.
- - In February 1996, Ford Credit exchanged substantially all of its common
stock interest in FHI for a promissory note.
These actions are further discussed in the following sections.
Sale of Ford New Holland Credit Company
Ford Credit sold its 51% majority ownership of Ford New Holland Credit Company
to Fiat and Fiat Canada. The sale was effective January 1, 1997 and was not
material to Ford Credit's financial statements.
Contribution of Ford Credit Europe
During the fourth quarter 1996, FFSGI contributed its ownership interest in
Ford Credit Europe (approximately 78% ownership) to Ford Credit. The
transaction was recorded at book value. Prior years' financial statements were
restated to include Ford Credit Europe. The preferred stock of Ford Credit
Europe was owned by Ford.
In November 1997, Ford Credit Europe converted the Ford-held preferred stock to
common stock and issued additional common stock to Ford. Ford Credit's
ownership in Ford Credit Europe is approximately 70% at December 31, 1997.
11
<PAGE> 13
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 2. ACQUISITIONS AND DIVESTITURES (continued)
Investment in Leasing Partnership
As a part of Ford's sale of USL Capital Corporation's assets during 1996, the
majority of Ford Credit's diversified assets (except leveraged leases) managed
by USL Capital Corporation was sold. The sale of the diversified assets did
not have a material impact on Ford Credit's 1996 financial statements. Also,
Ford Credit formed a partnership with Bank of America to manage a significant
portion of the leveraged lease portfolio and certain leveraged leases were
transferred to the partnership.
On December 31, 1997, Ford Credit sold its partnership interest to Ford Leasing
Corporation, an affiliate company. The transaction was recorded at book value.
Contribution of TARIC
FHI contributed TARIC to Ford Credit on March 29, 1996. The transaction was
recorded by Ford Credit at TARIC's book value as a credit to paid-in surplus.
Investment in FHI
FHI is a holding company whose principal asset at December 31,1996 was an
equity investment in FFSGI. FFSGI is a holding company which owns
substantially all of Ford's financial services activities.
On February 28, 1996, FHI purchased substantially all of Ford Credit's common
stock interest in FHI for $2,949 million. FHI issued a promissory note to Ford
Credit for the purchase amount. The excess of the value received over the book
value of the FHI investment ($1,296.2 million) was credited to Ford Credit's
paid-in surplus. On April 2, 1996 and December 11, 1996, Ford Credit received
cash payments on the note of $1,032 million and $400 million, respectively.
The unpaid portion of the promissory note ($1,517 million at December 31, 1997)
is reflected as a reduction to stockholder's equity. Ford Credit's investment
in FHI at December 31, 1997 is $62.7 million. Prior to this transaction, Ford
Credit owned 45% of Ford Holdings' common stock and accounted for its
investment in FHI under the equity method. Ford owned the remaining common
stock in FHI representing 55% of the voting power.
12
<PAGE> 14
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 2. ACQUISITIONS AND DIVESTITURES (continued)
Investment in FHI (continued)
Assuming the sale of Ford Credit's common stock interest in FHI had taken place
on January 1, 1995, Ford Credit's unaudited pro forma net income would have
been lower by approximately $27 million and $136 million in 1996 and 1995,
respectively. The pro forma results are not necessarily indicative of future
operating results or the results that might have occurred had the transaction
taken place on January 1, 1995.
Condensed income statement information of FHI for the year ended December 31,
1995 and the two months ended February 29, 1996 was as follows:
<TABLE>
<CAPTION>
TWO MONTHS
ENDED
FEBRUARY 29, 1996 1995
----------------- -----------
(in millions)
<S> <C> <C>
INCOME STATEMENT
Revenue $ 350.4 $ 7,047.4
Income before income taxes 120.9 1,107.1
Net income 106.5 690.0
Preferred stock dividend
requirements - 129.8
Income available for common
stockholders 106.5 560.2
</TABLE>
13
<PAGE> 15
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 3. MARKETABLE AND OTHER SECURITIES
Available-for-sale securities are recorded at fair value with unrealized gains
and losses excluded from income and reported, net of tax, as a separate
component of stockholder's equity. Held-to-maturity securities are
recorded at amortized cost. Equity securities which do not have readily
determinable fair values are recorded at cost. The basis of cost used in
determining realized gains and losses is specific identification.
The fair value of substantially all securities was estimated based on quoted
market prices. For securities for which there were no quoted market prices,
the estimate of fair value was based on similar types of securities that are
traded in the market.
The amortized cost and fair value of investments in available-for-sale
securities and held-to-maturity securities at December 31, 1997, by contractual
maturity, were as follows:
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE HELD-TO-MATURITY
------------------ --------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- ------ --------- ------
(in millions)
<S> <C> <C> <C> <C>
Due in one year or less $ 0.7 $ 0.7 $ 13.9 $ 13.9
Due after one year through
five years 242.7 245.0 9.7 9.8
Due after five years
through ten years 136.2 139.1 0.6 0.7
Due after ten years 114.1 116.8 0.7 0.8
Mortgage-backed-securities 238.4 239.7 - -
Equity securities 53.0 116.0 - -
------- ------- ------ ------
Total $ 785.1 $ 857.3 $ 24.9 $ 25.2
======= ======= ====== ======
</TABLE>
Proceeds from sales of available-for-sale securities were $3.2 billion and $5.8
billion in 1997 and 1996, respectively. Gross realized gains and losses for
1997 were $95.1 million and $7.4 million, respectively. Gross realized gains
and losses for 1996 were not material.
14
<PAGE> 16
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 3. MARKETABLE AND OTHER SECURITIES (continued)
Investments in securities at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ----------
(in millions)
<S> <C> <C> <C> <C>
Available-for-sale securities
Corporate debt securities $ 265.2 $ 6.0 $ (0.1) $ 271.1
Mortgage-backed securities 238.4 1.9 (0.6) 239.7
Debt securities issued by
U.S. government and agencies 194.1 2.0 (0.1) 196.0
Equity securities 53.0 65.1 (2.1) 116.0
Debt securities issued
by foreign government 21.4 0.1 - 21.5
Municipal securities 13.0 0.1 (0.1) 13.0
--------- ---------- --------- ----------
Total available-for-sale
securities 785.1 75.2 (3.0) 857.3
--------- ---------- --------- ----------
Held-to-maturity securities
Corporate debt securities 15.3 - - 15.3
Debt securities issued by
U.S. government and agencies 6.4 0.3 - 6.7
Other debt securities 3.2 - - 3.2
--------- ---------- --------- ----------
Total held-to-maturity
securities 24.9 0.3 - 25.2
--------- ---------- --------- ----------
Total investments in securities
with readily determinable
fair values 810.0 75.5 (3.0) 882.5
Other non-marketable
equity securities 5.7 - - 5.7
--------- ---------- --------- ----------
Total investments
in securities $ 815.7 $ 75.5 $ (3.0) $ 888.2
========= ========== ========= ==========
</TABLE>
15
<PAGE> 17
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 3. MARKETABLE AND OTHER SECURITIES (continued)
Investments in securities at December 31, 1996 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ----------- ---------- ---------
(in millions)
<S> <C> <C> <C> <C>
Available-for-sale securities
Corporate debt securities $ 218.5 $ 1.5 $ (1.2) $ 218.8
Mortgage-backed securities 207.1 1.7 (2.1) 206.7
Debt securities issued by
U.S. government and agencies 154.3 1.3 (0.7) 154.9
Equity securities 104.2 89.4 (3.4) 190.2
Debt securities issued
by foreign government 26.0 0.9 - 26.9
Municipal securities 14.4 - - 14.4
Total available-for-sale -------- ------ ------- --------
securities 724.5 94.8 (7.4) 811.9
Held-to-maturity securities -------- ------ ------- --------
Corporate debt securities 13.4 - - 13.4
Debt securities issued by
U.S. government and agencies 8.6 0.3 - 8.9
Other debt securities - - - -
Total held-to-maturity -------- ------ ------- --------
securities 22.0 0.3 - 22.3
-------- ------ ------- --------
Total investments in securities
with readily determinable
fair values 746.5 95.1 (7.4) 834.2
Other non-marketable
equity securities 490.9 - - 490.9
-------- ------ ------- --------
Total investments
in securities $1,237.4 $ 95.1 $ (7.4) $1,325.1
======== ====== ======= =======
</TABLE>
16
<PAGE> 18
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 4. FINANCE RECEIVABLES AND RETAINED INTEREST IN SOLD RECEIVABLES
Net finance receivables at December 31 were as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -------------
(in millions)
<S> <C> <C>
Retail $ 55,601.0 $ 53,140.6
Wholesale 21,605.5 22,706.3
Other 5,275.9 5,901.2
----------- -----------
Total finance receivables, net of
unearned income 82,482.4 81,748.1
Less: Allowance for credit losses (1,169.8) (900.1)
----------- -----------
Finance receivables, net 81,312.6 80,848.0
Retained interest in sold receivables 998.6 1,124.1
----------- -----------
Finance receivables, net and
retained interest in sold receivables $ 82,311.2 $ 81,972.1
=========== ===========
</TABLE>
The retained interest in sold receivables is comprised of IO strips ($293.3
million and $231.0 million at December 31, 1997 and 1996 respectively),
subordinated amounts ($790.4 million and $975.8 million at December 31, 1997
and 1996 respectively), and allowance for credit losses ($85.1 million and $82.7
million at December 31, 1997 and 1996 respectively).
Ford Credit's servicing portfolio relating to these finance receivables sales
amounted to $10.0 billion and $8.9 billion at December 31, 1997 and 1996,
respectively.
At December 31, 1997 finance receivables include $1.0 billion owed by three
customers with the largest receivable balances.
17
<PAGE> 19
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 4. FINANCE RECEIVABLES AND RETAINED INTEREST IN SOLD RECEIVABLES
(continued)
The contractual maturities of total finance receivables net of unearned income
outstanding at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
DUE IN YEAR
ENDING DECEMBER 31 DUE
----------------------------------------- AFTER
1998 1999 2000 2000 TOTAL
---------- ---------- ---------- ---------- ------------
(in millions)
<S> <C> <C> <C> <C> <C>
Retail $ 25,870.8 $ 15,711.7 $ 8,542.9 $ 5,475.6 $ 55,601.0
Wholesale 21,599.9 2.2 1.4 2.0 21,605.5
Other 3,372.1 122.2 124.0 1,657.6 5,275.9
---------- ---------- ---------- ---------- ------------
Total $ 50,842.8 $ 15,836.1 $ 8,668.3 $ 7,135.2 $ 82,482.4
========== ========== ========== ========== ============
</TABLE>
It is Ford Credit's experience that a substantial portion of finance receivables
are repaid before contractual maturity dates. The above table, therefore, is
not to be regarded as a forecast of future cash collections.
The aggregate receivable balances related to accounts past due 60 days or more
were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1997 1996
--------- ---------
(in millions)
<S> <C> <C>
Retail $ 496.8 $ 806.4
Wholesale 35.4 53.3
Other 58.6 86.2
------- ---------
Total $ 590.8 $ 945.9
======= =========
</TABLE>
Included in retail and other receivables are investments in direct financing
leases related to the leasing of motor vehicles.
<TABLE>
<CAPTION>
1997 1996
---------- ----------
(in millions)
<S> <C> <C>
Net investment in direct financing leases
Minimum lease rentals $ 2,743.9 $ 2,307.5
Estimated residual values 2,527.0 2,618.4
Less: Allowance for credit losses (42.5) (37.6)
--------- ----------
Net investment in direct
financing leases $ 5,228.4 $ 4,888.3
========= ==========
</TABLE>
Minimum direct financing lease rentals, net of interest payments, for each of
the five succeeding years are as follows (in millions): 1998 -- $1,231.0;
1999 -- $800.3; 2000 -- $485.0; 2001 -- $186.4; 2002 -- $39.6;
thereafter -- $1.6.
18
<PAGE> 20
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 5. NET INVESTMENT, OPERATING LEASES
Operating leases at December 31 were as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
(in millions)
<S> <C> <C>
Investment in operating leases
Vehicles, at cost $ 41,925.5 $ 36,951.2
Lease origination costs 64.9 60.1
Less: Accumulated depreciation (6,942.8) (6,048.6)
Allowance for credit losses (301.6) (317.5)
---------- ----------
Net investment in operating leases $ 34,746.0 $ 30,645.2
========== ==========
</TABLE>
Future minimum rentals on operating leases are as follow (in millions):
1998 -- $12,073.3; 1999 -- $8,647.2; 2000 -- $1,156.3; 2001 -- $55.3;
2002 -- $2.9.
Ford Credit periodically sells vehicles subject to operating leases to special
purpose subsidiaries under sale-leaseback arrangements. Ford Credit's
servicing portfolio related to these sales amounted to $947.5 million and
$1,388.7 million at December 31, 1997 and 1996, respectively.
19
<PAGE> 21
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 6. ALLOWANCE FOR CREDIT LOSSES
Following is an analysis of the allowance for credit losses relating to finance
receivables and operating leases for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- --------
(in millions)
<S> <C> <C> <C>
Balance, beginning of year $1,217.6 $1,054.9 $1,084.4
Additions 1,338.2 993.3 480.4
Deductions
Losses 1,239.1 1,020.7 686.6
Recoveries (232.0) (190.7) (200.7)
-------- -------- --------
Net losses 1,007.1 830.0 485.9
Other changes, principally amounts relating
to finance receivables and
operating leases sold 77.3 0.6 24.0
-------- -------- --------
Net deductions 1,084.4 830.6 509.9
-------- -------- --------
Balance, end of year $1,471.4 $1,217.6 $1,054.9
======== ======== ========
</TABLE>
Ford Credit retains limited credit risk related to finance receivables sold.
Reserves for estimated losses related to these receivables are separately
provided based principally on historical loss experience. These reserves
totaled $85.1 million and $82.7 million at December 31, 1997 and 1996,
respectively, and are netted against the retained interest in sold receivables
(see Note 4).
20
<PAGE> 22
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 7. OTHER ASSETS
Other assets consist of:
<TABLE>
<CAPTION>
DECEMBER 31
-----------
1997 1996
---- ----
(in millions)
<S> <C> <C>
Investment in leasing partnership $ - $ 1,451.5
Investment in used vehicles held for
resale, at estimated fair value 1,042.3 1,145.1
Deferred charges and other assets 937.4 706.6
Collateral held for resale 419.4 407.6
Property and equipment, net of
accumulated depreciation of $105.1
in 1997 and $103.5 in 1996 155.8 150.1
--------- ---------
Total $ 2,554.9 $ 3,860.9
========= =========
</TABLE>
21
<PAGE> 23
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 8. DEBT
Debt at December 31 was as follows:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE(A)--
INTEREST RATES BOOK VALUE
--------------------- ------------------------
1997 1996 1997 1996
------- -------- ---------- ----------
(in millions)
<S> <C> <C> <C> <C>
PAYABLE WITHIN ONE YEAR
Commercial paper (B) $ 40,856.8 $ 38,228.3
Other short-term debt(C) 5,351.0 4,788.7
---------- ----------
Total short-term debt 5.83% 5.52% 46,207.8 43,017.0
Senior notes payable
within one year (D) (E) 6.64% 6.49% 9,572.6 9,178.0
Total payable within ---------- ----------
one year 5.97% 5.69% 55,780.4 52,195.0
---------- ----------
PAYABLE AFTER ONE YEAR
Secured indebtedness 18.63% 17.64% 13.5 9.9
Unsecured senior indebtedness
Notes (F) 6.64% 6.63% 43,584.1 44,273.6
Debentures 4.50% 4.56% 1,247.6 1,228.3
Unamortized discount (3.0) (7.5)
---------- ----------
Total secured and
unsecured senior
indebtedness 44,842.2 45,504.3
Unsecured long-term
subordinated notes 8.29% 6.15% 102.4 325.0
---------- ----------
Total payable after one year (E) 44,944.6 45,829.3
---------- ----------
Total debt 6.25% 6.12% $100,725.0 $ 98,024.3
========== ==========
</TABLE>
(A) Excludes the effect of interest rate swap agreements.
(B) The average remaining maturities of commercial paper was 24 days at
December 31, 1997 and 34 days at December 31, 1996.
(C) Includes $830.5 million and $2,477.7 million with affiliated companies
at December 31, 1997 and 1996, respectively.
(D) Includes $1,716.0 million and $653 million with an affiliated company
at December 31, 1997 and 1996, respectively.
(E) Secured and unsecured senior notes and debentures mature at various
dates through 2048. Maturities are as follows (in millions): 1998 --
$9,572.6; 1999 -- $9,617.8; 2000 -- $9,142.2; 2001 -- $7,721.4; 2002
-- $8,020.6; thereafter -- $10,442.6.
(F) Includes $1,830.6 million and $3,584.4 million with affiliated
companies at December 31, 1997 and 1996, respectively.
22
<PAGE> 24
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 8. DEBT (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
---- ----
(in millions)
<S> <C> <C>
PAYABLE AFTER ONE YEAR(A)/
Fixed interest rates $ 30,602.9 $ 31,254.7
Variable interest rates (generally based
on LIBOR or other short-term rates) 14,341.7 14,574.6
---------- ----------
Total payable after one year $ 44,944.6 $ 45,829.3
========== ==========
</TABLE>
(A)/ Excludes the effect of interest rate swap agreements.
Ford Credit and certain of its subsidiaries have entered into interest rate
swap agreements to manage exposures to fluctuations in interest rates. The
agreements decreased the overall weighted-average interest rate on total debt
from 6.25% to 6.17% as of December 31, 1997 and decreased the overall
weighted-average interest rate on total debt from 6.12% to 6.08% as of
December 31, 1996. In addition, the agreements increased the Company's overall
weighted-average effective interest rates for full year 1997 from 6.50% to
6.54% and increased full year 1996 from 6.42% to 6.43%. The agreements
decreased the long-term obligations payable after one year subject to variable
interest rates as of December 31, 1997 and 1996 to $9,741.6 and $13,627.5
million, respectively. The effect of these agreements is to reduce the effect
of interest rate changes on profitability. Approximately 31% of Ford Credit's
interest rate swaps mature in 1998 and approximately 90% mature by 2002.
Certain of these obligations are denominated in currencies other than the
currency of the country of the issuer. Foreign currency swap and forward
agreements are used to hedge exposure to changes in exchange rates of certain
of these obligations.
23
<PAGE> 25
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 9. SUPPORT FACILITIES
Support facilities represent additional available sources of funds. At
December 31, 1997, Ford Credit had approximately $19.2 billion of contractually
committed facilities. In addition, $7.4 billion of Ford bank lines may be used
by Ford Credit at Ford's option. The lines have various maturity dates through
June 30, 2002 and may be used, at Ford Credit's option, by any of its direct or
indirect majority-owned subsidiaries. Any such borrowings will be guaranteed
by Ford Credit. Banks also provide $1.6 billion of contractually committed
liquidity facilities to support Ford Credit's asset-backed commercial paper
program.
Additionally, at December 31, 1997, there were approximately $4.6 billion of
contractually committed facilities available for Ford Credit Europe plc's use.
In addition, $615 million of Ford bank lines may be used by Ford Credit Europe
plc at Ford's option. The lines have various maturity dates through June 30,
2002 and may be used, at Ford Credit Europe plc's option, by any of its direct
or indirect majority-owned subsidiaries. Any such borrowings will be
guaranteed by Ford Credit Europe plc.
24
<PAGE> 26
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 10. INCOME TAXES
Ford Credit and certain of its domestic subsidiaries join Ford in filing
consolidated United States federal and state income tax returns. During 1997,
Ford and Ford Credit changed their intercompany tax sharing agreement. The
change resulted in a net additional current tax payment to Ford of $516.5
million but had no effect on the total provision. Pursuant to this arrangement
with Ford, United States income tax liabilities or credits are allocated to
Ford Credit generally on a separate return basis.
The provision for income taxes was estimated as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- -------- -------
<S> <C> <C> <C>
(in millions)
Currently payable/(refundable)
U.S. federal $ 572.1 $ (501.7) $ (45.0)
Foreign 231.9 138.1 196.9
State and local 15.3 (10.4) (29.7)
------- -------- -------
Total currently payable/(refundable) 819.3 (374.0) 122.2
Deferred tax (benefit)/liability
U.S. federal (136.3) 1,050.3 490.0
Foreign 32.8 56.2 (22.1)
State and local 11.0 (0.9) 92.8
------- -------- -------
Total deferred (92.5) 1,105.6 560.7
------- -------- -------
Total provision $ 726.8 $ 731.6 $ 682.9
======= ======== =======
</TABLE>
A reconciliation of the provision for income taxes as a percentage of income
before income taxes, excluding equity in net income of affiliated companies and
minority interest in net income of a joint venture, with the United States
statutory tax rate for the last three years is shown below:
<TABLE>
<CAPTION>
1997 1996 1995
------- -------- --------
<S> <C> <C> <C>
U.S. statutory tax rate 35.0% 35.0% 35.0%
Effect of (in percentage points)
Taxes attributable to foreign
source income 3.7 1.5 (1.9)
State and local income taxes 1.7 1.5 2.0
Investment income not subject to tax or
subject to tax at reduced rates (0.2) (0.9) (1.3)
Rate adjustments on deferred taxes (0.7) (1.9) -
Other 0.8 (1.4) (0.6)
---- ---- ----
Effective tax rate 40.3% 33.8% 33.2%
===== ==== ====
</TABLE>
25
<PAGE> 27
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 10. INCOME TAXES (continued)
Deferred income taxes reflect the estimated tax effect of temporary differences
between the bases of assets and liabilities for financial reporting purposes
and those amounts as measured by tax laws and regulations. The components of
deferred income tax assets and liabilities as of December 31 were as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(in millions)
<S> <C> <C>
DEFERRED TAX LIABILITIES
Leasing transactions $ 3,560.3 $ 4,536.0
Purchased tax benefits 293.0 294.1
Finance receivables 225.5 125.0
Sales of receivables 87.6 105.2
Other 272.3 104.8
--------- ---------
Total deferred tax liabilities 4,438.7 5,165.1
DEFERRED TAX ASSETS
Provision for credit losses 749.9 662.6
Alternative minimum tax 289.9 46.0
Foreign tax credits 234.5 -
Employee benefit plans 120.6 113.6
Retail contract earnings method 48.5 48.5
Other 263.1 34.0
--------- ---------
Total deferred tax assets 1,706.5 904.7
--------- ---------
Net deferred tax liabilities $ 2,732.2 $ 4,260.4
========= =========
</TABLE>
NOTE 11. POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
Ford Credit and certain of its subsidiaries provide selected health care and
life insurance benefits for retired employees under unfunded plans sponsored by
Ford and certain of its subsidiaries. Ford Credit's U.S. and Canadian
employees may become eligible for those benefits if they retire while working
for Ford Credit; however, benefits and eligibility rules may be modified from
time to time. The estimated cost for postretirement health care benefits is
accrued on an actuarially determined basis.
26
<PAGE> 28
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 11. POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS (continued)
Net postretirement benefit expense included the following:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
(in millions)
<S> <C> <C>
Benefits attributed to employees' service $ 7.8 $ 8.3
Interest on accumulated benefit obligation 14.6 14.4
Net amortization/other (0.2) (1.7)
------- ------
Net postretirement benefit expense $ 22.2 $ 21.0
======= ======
Retiree benefit payments $ 5.7 $ 4.7
</TABLE>
The status of these plans, reconciled with the amounts recognized in Ford
Credit's balance sheet at December 31, was as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(in millions)
<S> <C> <C>
Accumulated Postretirement Benefit Obligation
Retirees $ 84.3 $ 60.6
Active employees eligible to retire 30.2 29.5
Other active employees 124.9 120.6
------- ------
Total accumulated obligation 239.4 210.7
Unamortized amendments 1.2 1.2
Unamortized net gain 14.6 32.1
------- ------
Accrued liability $ 255.2 $244.0
======= ======
Assumptions:
Discount rate at year-end 7.0% 7.5%
Present health care cost trend rate 6.6% 6.6%
Ultimate trend rate in ten years 5.0% 5.0%
Weighted-average trend rate 5.5% 5.7%
</TABLE>
Changing the assumed health care cost trend rates by one percentage point would
change the aggregate service and interest cost components of net periodic
postretirement benefit cost for 1997 by $3.4 million and the accumulated
postretirement benefit obligation at December 31, 1997 by $36.3 million. The
accumulated postretirement benefit obligation at December 31, 1997 has been
reduced by $5.3 million due to the sale of Ford New Holland Credit Company.
27
<PAGE> 29
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 12. TRANSACTIONS WITH AFFILIATED COMPANIES
An agreement with Ford provides for payments by Ford to Ford Credit that would
maintain Ford Credit's consolidated income before income taxes and net income
at specified minimum levels. No payments were required under the agreement
during 1997, 1996, or 1995.
Ford Credit and its subsidiaries, from time to time, purchase accounts
receivable of certain divisions and subsidiaries of Ford. The amount of such
receivables outstanding was $3,664.4 million at December 31, 1997 and $4,043.4
million at December 31, 1996. Agreements with Ford and other affiliates also
provide for payments to Ford Credit for interest supplements and other support
costs on certain financing and leasing transactions. Amounts included in the
income statement for these and other transactions with Ford were as follows (in
millions): 1997 - $1,778.5; 1996 - $1,432.7; 1995 - $1,279.0. Ford Credit and
its subsidiaries purchase from Ford and affiliates certain vehicles which were
previously acquired by Ford principally from its fleet and rental car
customers. The fair value of these vehicles held for resale and included in
other assets at December 31 was as follows (in millions): 1997 - $636.9; 1996
- - $789.2. Ford Credit also has entered into a sale-leaseback agreement with
Ford for vehicles leased to employees of Ford and its subsidiaries. The net
investment in these vehicles included in operating leases at December 31 was as
follows (in millions): 1997 - $731.2; 1996 - $764.4.
Ford Credit and Ford revised their intercompany tax sharing agreement in 1997
effective for years ended after December 31, 1994. Ford Credit recorded a
deferred tax asset for amounts due from Ford under the revised agreement. Ford
compensates Ford Credit for the temporary use of these funds. The interest
income earned and included in income was $41.6 million in 1997.
In 1996, Ford Credit transferred Budget Rent-A-Car ("BRAC") preferred stock to
FFSGI as a dividend. In 1997, Ford sold its ownership of BRAC to Team Rental
Group, Inc. As part of that sales agreement, Ford Credit received full payment
of their loans to BRAC. Dividends and interest received from BRAC and included
in income were as follows (in millions): 1997 - $23.6; 1996 - $85.8; 1995 -
$109.4
On April 21, 1997, Ford Credit sold its preferred stock in The Hertz
Corporation to FFSGI. Ford Credit received dividends on the preferred stock
which are included in investment and other income as follows (in millions):
1997 - $11.9; 1996 - $28.7; 1995 - $40.7.
28
<PAGE> 30
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 12. TRANSACTIONS WITH AFFILIATED COMPANIES (CONTINUED)
Ford Credit holds a promissory note from FHI for $1,517 million which is
classified against stockholder's equity. Interest income earned on the
promissory note was $91.6 million in 1997 and $93.5 million in 1996.
Ford Credit and its subsidiaries receive technical and administrative advice
and services from Ford and its subsidiaries, occupy office space furnished by
Ford and its subsidiaries and utilize data processing facilities maintained by
Ford. Payments to Ford and its subsidiaries for such advice and services are
charged to operating expenses and were as follows (in millions): 1997 -
$120.7; 1996 - $113.9; 1995 - $95.2.
Retirement benefits are provided under defined benefit plans for employees of
Ford Credit and its subsidiaries in the United States by the Ford General
Retirement Plan and for employees of the foreign subsidiaries in Europe,
Australia and Canada by the respective Ford retirement plans. Employee
retirement plan costs allocated to Ford Credit and its subsidiaries from Ford
and charged to operating expenses were as follows (in millions): 1997 - $13.6;
1996 - $16.6; 1995 - $15.9.
See other notes for additional information regarding transactions with
affiliated companies.
NOTE 13. LITIGATION AND CLAIMS
Various legal actions, governmental proceedings and other claims are pending or
may be instituted or asserted in the future against Ford Credit and its
subsidiaries. Certain of the pending legal actions are, or purport to be,
class actions. Some of these matters involve or may involve compensatory,
punitive or antitrust or other treble damage claims in very significant amounts
or other relief which, if granted, would require very significant expenditures.
Litigation is subject to many uncertainties, the outcome of individual
litigated matters is not predictable with assurance and it is reasonably
possible that some of the foregoing matters could be decided unfavorably to
Ford Credit or the subsidiary involved. Although the amount of liability at
December 31, 1997 with respect to these matters cannot be ascertained, Ford
Credit believes that any resulting liability should not materially affect the
consolidated financial position or results of operations of Ford Credit and its
subsidiaries.
29
<PAGE> 31
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 14. FINANCIAL INSTRUMENTS
Book and Estimated Fair Value of Financial Instruments
The estimated fair value of financial instruments held by Ford Credit and its
subsidiaries at December 31, and the valuation techniques used to estimate the
fair value, were as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------ -----------------------------
ESTIMATED ESTIMATED
BOOK FAIR BOOK FAIR
VALUE VALUE VALUE VALUE
------------ ------------- ------------ -------------
(in millions) (in millions)
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents $ 689.5 $ 689.5 $ 2,716.0 $ 2,716.0
Investments in securities 887.9 888.2 1,324.8 1,325.1
Finance receivables, net
and retained interest in
sold receivables 76,970.5 76,473.7 76,735.5 76,066.7
Liabilities
Debt payable within one year $ 55,780.4 $55,780.4 $ 52,195.0 $ 52,195.0
Debt payable after one year 44,944.6 45,828.2 45,829.3 45,563.4
Derivative Contracts:
Foreign exchange
instruments
Contracts with unrealized
gains 64.8 115.9 102.9 68.5
Contracts with unrealized
losses (814.3) (898.4) (784.1) (722.8)
Interest rate instruments
Contracts with unrealized
gains 80.6 546.9 250.2 433.7
Contracts with unrealized
losses (70.9) (159.9) (123.1) (285.5)
</TABLE>
CASH AND CASH EQUIVALENTS. The book value approximates fair value because of
the short maturity of these instruments.
INVESTMENTS IN SECURITIES. The estimated fair value of investments in
marketable equity and debt securities are estimated based on market prices.
Book value of investments in non-marketable equity securities approximate fair
value (See Note 3.).
30
<PAGE> 32
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 14. FINANCIAL INSTRUMENTS (Continued)
FINANCE RECEIVABLES, NET AND RETAINED INTEREST IN SOLD RECEIVABLES. The fair
value of substantially all finance receivables is estimated by discounting
future cash flows using an estimated discount rate which reflects the current
credit, interest rate and prepayment risks associated with similar types of
instruments. For receivables with short maturities, the book values
approximate fair values. Included in finance receivables is the retained
interest in sold finance receivables and related amounts. These amounts are
recorded at the present value of estimated future cash flows discounted at
rates commensurate with this type of instrument, which approximates fair value.
Certain leases are excluded from the fair market valuation of finance
receivables.
DEBT PAYABLE WITHIN ONE YEAR. The book value approximates fair value because
of the short maturity of these instruments.
DEBT PAYABLE AFTER ONE YEAR. The fair value is estimated based on quoted
market prices or current rates for similar debt with the same remaining
maturities.
Financial Instruments with Off-Balance-Sheet Risk
The following sections describe the various off-balance-sheet financial
instruments that Ford Credit and its subsidiaries held as of December 31, 1997
and 1996. Also included is a brief discussion of the estimated fair value of
those contracts and certain risks associated with holding those contracts
through maturity.
FOREIGN EXCHANGE INSTRUMENTS. Ford Credit and certain of its subsidiaries have
entered into foreign currency swap and forward agreements to manage exposure to
foreign exchange rate fluctuations. At December 31, 1997 and 1996, the total
notional amount of Ford Credit's foreign exchange instruments outstanding was
$12.5 billion and $10.6 billion, respectively. These agreements hedge
principal and interest payments on debt issues that are denominated in foreign
currencies. The book value of the foreign currency swap and forward agreements
represents the amount payable to the counterparty since the last settlement
date. The fair value of these foreign agreements was estimated using current
market rates.
31
<PAGE> 33
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 14. FINANCIAL INSTRUMENTS (continued)
INTEREST RATE INSTRUMENTS. Ford Credit and certain of its subsidiaries have
entered into interest rate swap agreements to manage exposure to fluctuations
in interest rates. The underlying notional amount of interest rate swaps was
$86.6 billion at December 31, 1997 and $74.1 billion at December 31, 1996,
respectively.
The differential paid or received on interest rate swap agreements is
recognized on an accrual basis as an adjustment to interest expense. The book
value of an interest rate swap agreement represents the differential receivable
or payable with a swap counterparty since the last settlement date.
The fair value of an interest rate swap is the estimated amount Ford Credit
would receive or pay to terminate the agreement. The fair value is calculated
using current market rates for similar instruments with the same remaining
maturities. Unrealized gains and losses are netted for individual
counterparties where legally permissible.
Counterparty Credit Risk
Ford Credit manages its foreign currency and interest rate counterparty credit
risks by limiting exposure and by monitoring the financial condition of
counterparties. The amount of exposure Ford Credit may have to a single
counterparty on a worldwide basis is limited by company policy. In the
unlikely event that a counterparty fails to meet the terms of a foreign
currency or an interest rate instrument, risk is limited to the fair value of
the instrument.
Concentrations of Credit Risk
The business of Ford Credit is substantially dependent upon Ford Motor Company.
Any protracted reduction or suspension of Ford's production or sale of
vehicles, resulting from a decline in demand, a work stoppage, governmental
action, adverse publicity, or other event, could have a substantial adverse
effect on Ford Credit.
Ford Credit controls its credit risk through credit standards, limits on
exposure and by monitoring the financial condition of other parties. The
majority of Ford Credit's finance receivables are geographically diversified
throughout the United States. Foreign finance receivables are concentrated in
Europe, Canada, and Australia.
32
<PAGE> 34
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 15. STOCK OPTIONS
Ford Credit employees participate in the stock option plans of Ford. Ford
Credit has stock options outstanding under Ford's 1985 Stock Option Plan
and 1990 Long-Term Incentive Plan ("Plans"). No further grants may be made
under the 1985 Plan. Grants may be made under the 1990 Plan through April
2000. Options granted in 1997 and subsequent years under the 1990 Plan become
exercisable 33% after one year from the date of grant, 66% after two years and
100% after three years. In general, options granted under the 1985 Plan and
options granted prior to 1997 under the 1990 Plan become exercisable 25% after
one year from the date of grant, 50% after two years, 75% after three years and
100% after four years. Options under both Plans expire after 10 years.
Information concerning stock options for Ford Credit's employees is as follows
(shares in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- -------------------- -----------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares subject to option Shares Price Shares Price Shares Price
- ------------------------ ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period 2,446 $26.93 2,267 $25.22 1,916 $23.24
New grants (based on fair value of
common stock at dates of grant) 430 32.05 423 32.69 445 32.00
Exercised* (404) 23.19 (190) 20.32 (75) 19.62
Surrendered upon exercise of stock
appreciation rights (53) 22.44 (40) 23.03 -
Terminated and expired - (14) 31.14 (19) 28.05
----- ----- -----
Outstanding at end of period 2,419 28.44 2,446 26.93 2,267 25.22
Outstanding but not exercisable (1,078) (1,021) (972) -
----- ----- -----
Exercisable at end of period 1,341 25.85 1,425 23.61 1,295 21.77
===== ===== =====
</TABLE>
* Exercised at option prices ranging from $15.00 to $32.69 during 1997, $13.42
to $29.06 during 1996, and $9.09 to $29.06 during 1995.
33
<PAGE> 35
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 15. STOCK OPTIONS (continued)
The estimated fair value as of date of grant of options granted in 1997, 1996,
and 1995 using the Black-Scholes option-pricing model, was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Estimated fair value per share of
options granted during the year $5.76 $6.93 $7.16
Assumptions:
Annualized dividend yield 4.8% 4.3% 3.9%
Common stock price volatility 22.1% 25.2% 26.2%
Risk-free rate of return 6.7% 6.2% 5.8%
Expected option term (in years) 5 5 5
</TABLE>
The Company adopted the disclosure requirements of Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation" but elected to continue to measure compensation cost using
the intrinsic value method, in accordance with APB Opinion No. 25 ("APB 25"),
"Accounting for Stock Issued to Employees". Accordingly, no compensation cost
for stock options has been recognized. If compensation cost had been
determined based on the estimated fair value of options granted in 1997, 1996,
and 1995 consistent with the methodology in SFAS 123, the pro forma effects on
the Company's net income would not have been material.
34
<PAGE> 36
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 16. SEGMENT INFORMATION
Total financing revenue and other revenue, income before income taxes and
assets identifiable with United States, Europe, and other foreign operations
were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ----------- ----------
(in millions)
<S> <C> <C> <C>
Financing revenue and other revenue
United States operations $ 13,911.5 $ 13,159.6 $ 12,011.7
European operations 2,175.7 2,137.2 1,887.1
Other foreign operations 1,515.8 1,353.4 1,098.4
---------- ----------- ----------
Total financing revenue
and other revenue $ 17,603.0 $ 16,650.2 $ 14,997.2
========== =========== ==========
Income before income taxes
United States operations $ 1,244.8 $ 1,662.3 $ 1,617.4
European operations 383.5 358.1 382.5
Other foreign operations 176.7 164.5 72.5
Equity in net income of affiliated
companies 1.0 55.3 255.4
---------- ----------- ----------
Total income before income taxes $ 1,806.0 $ 2,240.2 $ 2,327.8
========== =========== ==========
Assets at December 31
United States operations $ 92,407.6 $ 93,190.1 $ 85,223.8
European operations 17,867.7 18,743.9 16,688.7
Other foreign operations 11,648.4 9,718.0 7,614.9
Equity in net assets of affiliated
companies 49.6 44.4 1,730.5
---------- ----------- ----------
Total assets $121,973.3 $ 121,696.4 $111,257.9
========== =========== ==========
</TABLE>
35
<PAGE> 37
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 17. SELECTED QUARTERLY FINANCIAL DATA
(UNAUDITED)
Selected financial data by calendar quarter were as follows:
<TABLE>
<CAPTION>
First Second Third Fourth Full
1997 Quarter Quarter Quarter Quarter Year
- ---- --------- --------- --------- --------- ---------
(in millions)
<S> <C> <C> <C> <C> <C>
Total financing revenue $ 3,929.8 $ 3,955.6 $ 4,149.0 $ 4,067.5 $16,101.9
Interest expense 1,626.6 1,609.8 1,639.6 1,651.1 6,527.1
Depreciation on operating 1,445.5 1,467.8 1,624.1 1,650.8 6,188.2
leases
Total financing margin and 1,237.5 1,219.7 1,234.4 1,196.1 4,887.7
revenue
Provision for credit losses 355.7 296.4 370.1 316.0 1,338.2
Net income 275.9 279.0 257.7 218.2 1,030.8
1996
- ----
Total financing revenue $ 3,725.7 $ 3,780.0 $ 3,856.2 $ 3,985.7 $15,347.6
Interest expense 1,553.0 1,575.9 1,540.1 1,590.7 6,259.7
Depreciation on operating 1,377.4 1,337.6 1,403.5 1,419.1 5,537.6
leases
Total financing margin and 1,008.4 1,235.2 1,250.9 1,358.4 4,852.9
revenue
Provision for credit losses 203.5 196.9 300.4 292.5 993.3
Net income 339.0 376.0 340.9 384.7 1,440.6
</TABLE>
36
<PAGE> 1
EXHIBIT 99.2
FORD NEWS
Global News, Public Affairs, World Headquarters, Dearborn, Michigan 48121
Telephone: (313) 322-9600; Fax: (313) 845-0570
Internet: http://media.ford.com
Contact: Media Inquiries Institutional Investors Shareholder Inquiries
Mel Stephens Mike Holland (800) 555-5259 or
(313) 323-8220 (313) 323-8221 (313) 845-8540
FOR RELEASE AT 7:30 A.M. (EASTERN STANDARD)
FORD EARNS A RECORD $6.9 BILLION IN 1997, UP 56%;
GLOBAL COMPETITIVE POSITION STRENGTHENED BY
LOWER TOTAL COSTS, IMPROVED PRODUCT QUALITY
DEARBORN, Mich., January 27, 1998 -- Ford Motor Company [NYSE: F] earned a
record $6.9 billion in 1997, an increase of 56 percent over earnings of $4.4
billion in 1996. Earnings per diluted share of common and Class B stock were
$5.62, compared with $3.64 in 1996. Total revenues grew 4.5 percent to $154
billion.
Fourth-quarter earnings, also a record, were $1.8 billion, up 49 percent and
the seventh consecutive quarter of year-to-year improvement.
"It was a very good year," said Chairman and Chief Executive Officer Alex
Trotman. "We exceeded all of our financial goals for 1997 and delivered a 57
percent total return to our shareholders. Revenues grew, automotive returns
were up, quality improved sharply, customer satisfaction was up and total costs
came down." At constant volume and mix, total automotive costs declined $3
billion in 1997.
"Our cost improvement came from the fundamental reprocessing of our business
that we call Ford 2000," Trotman said. "A continued strong focus on total cost
reductions, quality improvements, and efficiencies -- using best practices and
economies of scale throughout the organization -- contributed to the excellent
results."
<PAGE> 2
"We're replacing low-margin, slow-selling products with higher margin products
that are in hot demand," he said. In North America and Europe, Ford took steps
in 1997 to rebalance its manufacturing capacity to produce a richer product
mix. New products in 1997 included Jaguar XK8, Puma, Courier, Lincoln Town Car
and Navigator, Grand Marquis, Crown Victoria, and Ka in Brazil. Five vehicle
lines were discontinued, and the heavy truck business was sold.
AUTOMOTIVE OPERATIONS SET NEW RECORDS
Full-year net income from automotive operations was a record $4.7 billion, up
from $1.6 billion earned in 1996. Worldwide automotive return on sales was 3.9
percent, up 2.5 points from 1996 and the best since 1989.
In the U.S., Ford earned a record $3.7 billion in 1997, up from $2 billion
earned in 1996. Outside the U.S., Ford earned $1 billion, compared with a loss
of $352 million in 1996. Ford's European automotive operations earned $273
million, compared with a loss of $291 million in 1996. Greater efficiencies and
lower separation costs more than accounted for the improvement. In South
America, Ford earned $40 million, compared with a loss of $642 million in 1996.
The improvement stemmed from the strong acceptance of new products, growth in
unit sales of 41 percent in Brazil and Argentina and lower costs from higher
efficiencies and rebalancing manufacturing capacity.
"In Europe, Ford made real progress in 1997," Trotman noted, "but the European
market is still a struggle for everyone. In South America, we made great
strides with new products, greater efficiencies and increases in quality. We'll
continue to build on this momentum in 1998, but the present economic
environment means that breaking even will be difficult."
-2-
<PAGE> 3
In the rest of the world, Ford earned $695 million, reflecting strong results
in Australia, Canada and Mexico. In Canada, Ford achieved truck leadership for
the second year in a row and sales growth for the third year in a row.
FINANCIAL SERVICES EARN $2.2 BILLION
Ford's financial services businesses earned $2.2 billion in 1997, compared with
a record $2.8 billion in 1996.
Ford Credit earned $1 billion, compared with $1.4 billion in 1996. The decline
reflects primarily depreciation expenses on leased vehicles and higher credit
losses, partly offset by lower operating costs and higher financing volumes.
The Associates [NYSE: AFS] earned a record $1 billion, the 23rd consecutive
year of increased earnings, compared with $857 million a year ago. Ford's
full-year share was $832 million. Hertz [NYSE: HRZ] earned a record $202
million, the fifth year of increased earnings. In 1996, Hertz earned $159
million. Ford's full-year share was $168 million.
FOURTH QUARTER
Ford earned a record $1.8 billion in the fourth quarter, or $1.45 per diluted
share of common and Class B stock. The 1997 results compare with $1.2 billion
or 99 cents in 1996.
U.S. automotive operations earned a record $1.2 billion, compared with $628
million a year ago. Outside the U.S., automotive operations earned $148
million, compared with a loss of $238 million in 1996.
-3-
<PAGE> 4
Ford's financial services businesses earned $455 million in the fourth quarter,
compared with $814 million a year ago. The fourth quarter of 1996 included a
one-time favorable impact of $204 million from the Budget Rent a Car
transaction.
Ford Credit earned $218 million, compared with $385 million in 1996. The
Associates earned an all-time record of $278 million, compared with $234
million. Ford's fourth-quarter share was $224 million. Hertz earned $35
million, compared with $36 million in 1996. Ford's fourth-quarter share was $28
million.
DELIVERING VALUE TO SHAREHOLDERS
A number of steps were taken in 1997 to increase shareholder value. Both
earnings and cash flow set records. The dividend was increased, an initial
public offering of Hertz was completed, and Ford's automotive components
businesses were organized as a new entity, Visteon. Ford also announced that it
would distribute its remaining 80.6 percent interest in The Associates to Ford
shareholders. The plan is before the Internal Revenue Service to determine that
the distribution will be free of U.S. income taxes. A ruling is expected in the
first quarter of 1998.
"Our Ford 2000 strategy is working," Trotman said. "We've improved our global
competitiveness -- better quality, lower costs and faster speed to market. In
1998, we'll continue to focus on these same fundamentals to drive the
business."
# # #
-4-
<PAGE> 5
SUMMARY OF 1997 COMPARED WITH 1996
Overview
- --------
* Total earnings were a record $6.9 billion, up 56 percent from earnings of
$4.4 billion in 1996.
* Diluted earnings per share were $5.62, compared with $3.64 a share.
* Worldwide sales and revenues were $154 billion, compared with $147
billion.
* Stockholders' equity at year-end was $30.7 billion, compared with $26.8
billion.
Automotive
- ----------
* Net income from worldwide automotive operations was a record $4.7
billion, compared with $1.6 billion in 1996.
* Net income from U.S. automotive operations was a record $3.7 billion,
compared with $2 billion.
* Automotive operations outside the U.S. earned $1 billion, compared with a
loss of $352 million in 1996. In Europe, Ford earned $273 million,
compared with a loss of $291 million in 1996. In South America, Ford
earned $40 million, compared with a loss of $642 million last year.
* Worldwide return on sales was 3.9 percent, compared with 1.4 percent in
1996. In the U.S., return on sales was 4.6 percent, compared with 2.7
percent.
* Worldwide vehicle unit sales were 6,943,000 in 1997, compared with
6,653,000 in 1996.
* Combined full-year car and truck market share in the U.S. was 25 percent,
compared with 25.2 percent. In the fourth quarter, U.S. market share was
24.9 percent, compared with 26.2 percent in 1996.
* Combined car and truck share in Europe was 11.4 percent, compared with
11.8 percent.
Financial Services
- ------------------
* Financial services earned $2.2 billion, compared with a record $2.8
billion in 1996.
* Ford Credit earned $1 billion, compared with $1.4 billion.
* The Associates earned a record $1 billion, compared with $857 million.
* Hertz earned a record $202 million, compared with $159 million in 1996.
Automotive Balance Sheet
- ------------------------
* Net cash was a record $12.7 billion, compared with $7.3 billion.
* Cash and marketable securities was a record $20.8 billion, compared with
$15.4 billion.
* Debt was $8.1 billion, compared with $8.1 billion.
* Capital spending was $8.1 billion, compared with $8.2 billion.
-5-
<PAGE> 6
Ford Motor Company and Subsidiaries
HIGHLIGHTS
<TABLE>
<CAPTION>
Fourth Quarter Full Year
---------------------------- -----------------------------
1997 1996 1997 1996
--------- ---------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C>
Worldwide vehicle unit sales of
cars and trucks (in thousands)
- - United States 987 1,006 4,016 3,897
- - Outside United States 804 747 2,927 2,756
----- ----- ----- -----
Total 1,791 1,753 6,943 6,653
===== ===== ===== =====
Sales and revenues (in millions)
- - Automotive $31,897 $31,505 $122,935 $118,023
- - Financial Services 8,055 7,328 30,692 28,968
------- ------- -------- --------
Total $39,952 $38,833 $153,627 $146,991
======= ======= ======== ========
Net income (in millions)
- - Automotive $ 1,341 $ 390 $ 4,714 $ 1,655
- - Financial Services 455 814 2,206 2,791
------- ------- -------- --------
Total $ 1,796 $ 1,204 $ 6,920 $ 4,446
======= ======= ======== ========
Capital expenditures (in millions)
- - Automotive $ 2,389 $ 2,413 $ 8,142 $ 8,209
- - Financial Services 162 93 575 442
------- ------- -------- --------
Total $ 2,551 $ 2,506 $ 8,717 $ 8,651
======= ======= ======== ========
Automotive capital expenditures as a
percentage of sales 7.5% 7.7% 6.6% 7.0%
Stockholders' equity at December 31
- - Total (in millions) $30,734 $26,762 $ 30,734 $ 26,762
- - After-tax return on Common and
Class B stockholders' equity 24.1% 18.4% 24.4% 17.6%
Automotive net cash at December 31
(in millions)
- - Cash and marketable securities $20,835 $15,414 $ 20,835 $ 15,414
- - Debt 8,176 8,156 8,176 8,156
------- ------- -------- --------
Automotive net cash $12,659 $ 7,258 $ 12,659 $ 7,258
======= ======= ======== ========
After-tax return on sales
- - U.S. Automotive 5.8% 3.2% 4.6% 2.7%
- - Total Automotive 4.2% 1.3% 3.9% 1.4%
Shares of Common and Class B Stock
(in millions)
- - Average number outstanding 1,201 1,187 1,195 1,179
- - Number outstanding at December 31 1,202 1,188 1,202 1,188
Common Stock price (per share)
- - High $50-1/4 $33-7/8 $ 50-1/4 $ 37-1/4
- - Low 41-1/2 30-3/8 30 27-1/4
AMOUNTS PER SHARE OF COMMON AND
CLASS B STOCK AFTER PREFERRED
STOCK DIVIDENDS
Income assuming dilution
- - Automotive $ 1.08 $ 0.32 $ 3.82 $ 1.33
- - Financial Services 0.37 0.67 1.80 2.31
------- ------- -------- --------
Total $ 1.45 $ 0.99 $ 5.62 $ 3.64
======= ======= ======== ========
Cash dividends $ 0.420 $ 0.385 $ 1.645 $ 1.47
</TABLE>
FS-1
<PAGE> 7
Ford Motor Company and Subsidiaries
VEHICLE UNIT SALES
For the Periods Ended December 31, 1997 and 1996
(in thousands)
<TABLE>
<CAPTION>
Fourth Quarter Full Year
------------------------- -------------------------
1997 1996 1997 1996
-------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C>
North America
United States
Cars 409 428 1,614 1,656
Trucks 578 578 2,402 2,241
----- ----- ----- -----
Total United States 987 1,006 4,016 3,897
Canada 91 84 319 258
Mexico 40 28 97 67
----- ----- ----- -----
Total North America 1,118 1,118 4,432 4,222
Europe
Britain 124 140 466 516
Germany 137 106 460 436
Italy 70 51 248 180
Spain 43 41 155 155
France 41 47 153 194
Other countries 91 103 318 339
----- ----- ----- -----
Total Europe 506 488 1,800 1,820
Other international
Brazil 49 48 214 190
Argentina 35 21 143 64
Australia 31 31 132 138
Taiwan 17 14 79 86
Japan 10 11 40 52
Other countries 25 22 103 81
----- ----- ----- -----
Total other international 167 147 711 611
----- ----- ----- -----
Total worldwide vehicle unit sales 1,791 1,753 6,943 6,653
===== ===== ===== =====
</TABLE>
Vehicle unit sales generally are reported worldwide on a "where sold" basis
and include sales of all Ford-badged units, as well as units manufactured by
Ford and sold to other manufacturers.
FS-2
<PAGE> 8
Ford Motor Company and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
For the Periods Ended December 31, 1997, 1996 and 1995
(in millions, except amounts per share)
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
AUTOMOTIVE
Sales $122,935 $118,023 $110,496
Costs and expenses:
Costs of sales 108,907 108,882 101,171
Selling, administrative and other expenses 7,082 6,625 6,044
-------- -------- --------
Total costs and expenses 115,989 115,507 107,215
Operating income 6,946 2,516 3,281
Interest income 1,116 841 800
Interest expense 788 695 622
-------- -------- --------
Net interest income 328 146 178
Equity in net loss of affiliated companies (88) (6) (154)
Net expense from transactions with
Financial Services (104) (85) (139)
-------- -------- --------
Income before income taxes - Automotive 7,082 2,571 3,166
FINANCIAL SERVICES
Revenues 30,692 28,968 26,641
Costs and expenses:
Interest expense 9,712 9,704 9,424
Depreciation 7,645 6,875 6,500
Operating and other expenses 6,621 6,217 5,499
Provision for credit and insurance losses 3,230 2,564 1,818
Asset write-downs and dispositions - 121 -
-------- -------- --------
Total costs and expenses 27,208 25,481 23,241
Net revenue from transactions with Automotive 104 85 139
Gain on sale of Common Stock of a subsidiary 269 650 -
-------- -------- --------
Income before income taxes - Financial Services 3,857 4,222 3,539
-------- -------- --------
TOTAL COMPANY
Income before income taxes 10,939 6,793 6,705
Provision for income taxes 3,741 2,166 2,379
-------- -------- --------
Income before minority interests 7,198 4,627 4,326
Minority interests in net income of subsidiaries 278 181 187
-------- -------- --------
Net income $ 6,920 $ 4,446 $ 4,139
========= ======== ========
Income attributable to Common and Class B Stock
after preferred stock dividends $ 6,866 $ 4,381 $ 3,839
Average number of shares of Common and Class B
Stock outstanding 1,195 1,179 1,071
AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK
Basic $ 5.75 $ 3.73 $ 3.58
Diluted $ 5.62 $ 3.64 $ 3.33
Cash dividends $ 1.645 $ 1.47 $ 1.23
</TABLE>
FS-3
<PAGE> 9
Ford Motor Company and Subsidiaries
CONSOLIDATED BALANCE SHEET
(in millions)
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
<S> <C> <C>
ASSETS
Automotive
Cash and cash equivalents $ 6,316 $ 3,578
Marketable securities 14,519 11,836
-------- --------
Total cash and marketable securities 20,835 15,414
Receivables 3,097 3,133
Inventories 5,468 6,656
Deferred income taxes 3,249 3,296
Other current assets 3,782 3,193
Net current receivable from Financial Services 416 0
-------- --------
Total current assets 36,847 31,692
Equity in net assets of affiliated companies 1,951 2,483
Net property 34,594 33,527
Deferred income taxes 3,712 4,429
Other assets 7,975 7,527
-------- --------
Total Automotive assets 85,079 79,658
Financial Services
Cash and cash equivalents 1,618 3,689
Investments in securities 2,207 2,307
Net receivables and lease investments 176,416 163,030
Other assets 13,777 13,710
Net receivable from Automotive 0 473
-------- --------
Total Financial Services assets 194,018 183,209
-------- --------
Total assets $279,097 $262,867
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Automotive
Trade payables $ 11,997 $ 11,735
Other payables 2,557 2,206
Accrued liabilities 16,250 16,587
Income taxes payable 1,358 508
Debt payable within one year 1,129 1,661
Net current payable to Financial Services 0 473
-------- --------
Total current liabilities 33,291 33,170
Long-term debt 7,047 6,495
Other liabilities 28,899 26,793
Deferred income taxes 1,210 1,225
-------- --------
Total Automotive liabilities 70,447 67,683
Financial Services
Payables 4,539 4,695
Debt 160,071 150,205
Deferred income taxes 4,347 4,338
Other liabilities and deferred income 7,865 8,504
Net payable to Automotive 416 0
-------- --------
Total Financial Services liabilities 177,238 167,742
Company-obligated mandatorily redeemable preferred securities of a subsidiary
trust holding solely junior subordinated debentures of the Company 678 680
Stockholders' equity
Capital stock
Preferred Stock, par value $1.00 per share (aggregate liquidation preference
of $637 million and $694 million) * *
Common Stock, par value $1.00 per share (1,132 and 1,118 million shares issued) 1,132 1,118
Class B Stock, par value $1.00 per share (71 million shares issued) 71 71
Capital in excess of par value of stock 5,564 5,268
Foreign currency translation adjustments and other (1,267) (29)
Earnings retained for use in business 25,234 20,334
-------- --------
Total stockholders' equity 30,734 26,762
-------- --------
Total liabilities and stockholders' equity $279,097 $262,867
======== ========
*Less than $500,000
</TABLE>
FS-4
<PAGE> 10
Ford Motor Company and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the Periods Ended December 31, 1997, 1996 and 1995
(in millions)
<TABLE>
<CAPTION>
1997 1996 1995
---------------------------- ---------------------------- ---------------------------
Financial Financial Financial
Automotive Services Automotive Services Automotive Services
-------------- ------------ -------------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents at
January 1 $ 3,578 $ 3,689 $ 5,750 $ 2,690 $ 4,481 $ 1,739
Cash flows from operating activities 13,984 13,728 6,576 12,681 8,849 12,322
Cash flows from investing activities
Capital expenditures (8,142) (576) (8,209) (442) (8,676) (321)
Purchase of leased assets (332) - (195) - 0 -
Acquisitions of other companies 0 (40) 0 (166) 0 0
Acquisitions of receivables and
lease investments - (119,191) - (109,087) - (99,967)
Collections of receivables and lease
investments - 86,802 - 82,398 - 71,149
Net acquisitions of daily rental
vehicles - (958) - (1,759) - (1,459)
Net proceeds from USL Capital
asset sales - - - 1,157 - -
Purchases of securities (43) (3,067) (6) (8,020) (51) (6,274)
Sales and maturities of securities 13 3,520 7 9,863 325 5,052
Proceeds from sales of receivables and
lease investments - 5,197 - 2,867 - 4,360
Net investing activity with
Financial Services 258 - 416 - (19) -
Other (285) (557) (586) (45) 558 (184)
------- -------- ------- -------- -------- -------
Net cash used in investing
activities (8,531) (28,870) (8,573) (23,234) (7,863) (27,644)
Cash flows from financing activities
Cash dividends (2,020) - (1,800) - (1,559) -
Issuance of Common Stock 311 - 192 - 601 -
Issuance of Common Stock of a
subsidiary - 453 - 1,897 - -
Changes in short-term debt (430) 7,470 151 3,474 413 5,884
Proceeds from issuance of other debt 1,100 23,075 1,688 22,342 300 23,854
Principal payments on other debt (668) (18,367) (1,031) (14,428) (177) (11,489)
Net financing activity with Automotive - (258) - (416) - 19
Receipts from annuity contracts - - - - - 283
Net redemption of subsidiary
company preferred stock - - - - - (1,875)
Other 0 (211) 37 (528) 121 102
------- -------- ------- -------- ------- -------
Net cash (used in)/provided by
financing activities (1,707) 12,162 (763) 12,341 (301) 16,778
Effect of exchange rate changes on
cash (119) 20 (85) (116) 107 (28)
Net transactions with Automotive/
Financial Services (889) 889 673 (673) 477 (477)
------- -------- ------- ------- ------- -------
Net (decrease)/increase in cash
and cash equivalents 2,738 (2,071) (2,172) 999 1,269 951
------- -------- ------- -------- -------- -------
Cash and cash equivalents at $ 6,316 $ 1,618 $ 3,578 $ 3,689 $ 5,750 $ 2,690
December 31 ======= ======== ======= ======= ======= =======
</TABLE>
FS-5
