<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-Q
(MARK ONE)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999, 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)
<TABLE>
<S> <C>
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)
</TABLE>
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, 1999.
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 31 PAGES.
EXHIBIT INDEX APPEARS AT PAGE 27.
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<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, 1998 (the "10-K Report"). Information relating to earnings
per share is not presented because the registrant, Ford Motor Credit Company
("Ford Credit"), is an indirect wholly owned subsidiary of Ford Motor Company
("Ford").
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
AND OF EARNINGS RETAINED FOR USE IN THE BUSINESS
FOR THE PERIODS ENDED JUNE 30, 1999 AND 1998
(IN MILLIONS)
<TABLE>
<CAPTION>
SECOND QUARTER FIRST HALF
---------------------- ----------------------
1999 1998 1999 1998
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Financing revenue
Operating leases................................ $ 2,469.1 $ 2,497.0 $ 4,923.0 $ 4,826.3
Retail.......................................... 1,610.7 1,426.7 3,299.4 2,817.7
Wholesale....................................... 406.1 461.3 814.7 880.7
Other........................................... 98.2 97.7 193.5 191.1
--------- --------- --------- ---------
Total financing revenue...................... 4,584.1 4,482.7 9,230.6 8,715.8
Depreciation on operating leases.................. (1,954.1) (1,841.2) (3,795.4) (3,523.2)
Interest expense.................................. (1,706.7) (1,691.0) (3,468.2) (3,301.5)
--------- --------- --------- ---------
Net financing margin............................ 923.3 950.5 1,967.0 1,891.1
Other revenue
Insurance premiums earned....................... 48.0 76.2 102.8 156.1
Investment and other income..................... 386.8 292.2 605.3 537.7
--------- --------- --------- ---------
Total financing margin and revenue........... 1,358.1 1,318.9 2,675.1 2,584.9
Expenses
Operating expenses.............................. 472.2 459.7 914.9 845.5
Provision for credit losses..................... 281.4 270.5 606.5 592.0
Other insurance expenses........................ 47.9 84.8 98.2 154.3
--------- --------- --------- ---------
Total expenses............................... 801.5 815.0 1,619.6 1,591.8
--------- --------- --------- ---------
Income before income taxes and minority
interests....................................... 556.6 503.9 1,055.5 993.1
Provision for income taxes........................ 207.4 198.3 393.6 390.9
--------- --------- --------- ---------
Income before minority interests.................. 349.2 305.6 661.9 602.2
Minority interests in net income of
subsidiaries.................................... 13.9 5.8 26.8 24.6
--------- --------- --------- ---------
Net income........................................ 335.3 299.8 635.1 577.6
Earnings retained for use in the business
Beginning of period............................. 8,211.2 7,605.2 7,911.4 7,327.4
Dividends....................................... (100.0) 0.0 (100.0) 0.0
--------- --------- --------- ---------
End of period................................... $ 8,446.5 $ 7,905.0 $ 8,446.5 $ 7,905.0
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
1
<PAGE> 3
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN MILLIONS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, JUNE 30,
1999 1998 1998
-------- ------------ --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents.............................. $ 867.6 $ 780.8 $ 1,194.9
Investments in securities.............................. 647.4 725.8 777.6
Finance receivables, net............................... 100,317.7 95,941.6 84,836.4
Net investment, operating leases....................... 34,643.1 34,566.5 36,240.9
Retained interest in securitized assets................ 2,585.1 1,256.3 2,358.2
Notes and accounts receivable from affiliated
companies........................................... 5,414.5 1,099.8 898.3
Other assets........................................... 3,520.4 2,877.0 1,912.7
---------- ---------- ----------
Total assets................................... $147,995.8 $137,247.8 $128,219.0
========== ========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Accounts payable
Trade, customer deposits, and dealer reserves....... $ 3,321.6 $ 3,009.6 $ 3,447.9
Affiliated companies................................ 1,313.0 1,108.1 984.8
---------- ---------- ----------
Total accounts payable............................ 4,634.6 4,117.7 4,432.7
Debt................................................... 124,433.9 114,967.3 106,905.6
Deferred income taxes.................................. 3,454.5 3,157.7 3,039.2
Other liabilities and deferred income.................. 4,054.5 4,014.4 3,071.8
---------- ---------- ----------
Total liabilities.............................. $136,577.5 $126,257.1 $117,449.3
Minority interests in net assets of subsidiaries......... 396.3 346.0 357.1
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)......... 4,343.4 4,343.4 4,229.2
Note receivable from affiliated company................ (1,517.0) (1,517.0) (1,517.0)
Accumulated other comprehensive income/(loss).......... (275.9) (118.1) (229.6)
Retained earnings...................................... 8,446.5 7,911.4 7,905.0
---------- ---------- ----------
Total stockholder's equity.......................... 11,022.0 10,644.7 10,412.6
---------- ---------- ----------
Total liabilities and stockholder's equity.......... $147,995.8 $137,247.8 $128,219.0
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE> 4
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIODS ENDED JUNE 30, 1999 AND 1998
(IN MILLIONS)
<TABLE>
<CAPTION>
FIRST HALF
------------------------
1999 1998
---- ----
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities
Net income................................................ $ 635.1 $ 577.6
Adjustments to reconcile net income to net cash (used
in)/provided by operating activities
Provision for credit losses............................... 606.5 592.0
Depreciation and amortization............................. 3,808.4 3,535.7
Gain on sales of finance receivables...................... (84.9) (112.3)
Increase in deferred income taxes......................... 292.8 229.1
(Increase)/decrease in other assets....................... (6,239.4) 96.4
Decrease in other liabilities............................. (40.2) (907.9)
Other..................................................... 50.4 137.1
---------- ----------
Net cash (used in)/provided by operating activities....... (971.3) 4,147.7
---------- ----------
Cash flows from investing activities
Purchase of finance receivables (other than wholesale).... (25,963.1) (21,722.8)
Collection of finance receivables (other than
wholesale)............................................. 18,755.1 13,734.4
Purchase of operating lease vehicles...................... (12,543.4) (11,392.8)
Liquidation of operating lease vehicles................... 8,563.3 6,784.7
Net change in wholesale receivables....................... (2,239.8) (879.3)
Proceeds from sale of receivables......................... 5,005.0 5,106.7
Purchase of investment securities......................... (528.6) (1,233.5)
Proceeds from sale/maturity of investment securities...... 607.1 797.9
Other..................................................... (93.6) (49.2)
---------- ----------
Net cash used in investing activities..................... (8,438.0) (8,853.9)
Cash flows from financing activities
Proceeds from issuance of long-term debt.................. 12,384.5 11,206.2
Principal payments on long-term debt...................... (7,564.6) (8,943.3)
Change in short-term debt, net............................ 4,959.0 3,139.1
Cash dividends paid....................................... (100.0) 0.0
Other..................................................... (6.1) (189.1)
---------- ----------
Net cash provided by financing activities................. 9,672.8 5,212.9
Effect of exchange rate changes on cash and cash
equivalents............................................... (176.7) (1.3)
---------- ----------
Net change in cash and cash equivalents................... 86.8 505.4
Cash and cash equivalents, beginning of period.............. 780.8 689.5
---------- ----------
Cash and cash equivalents, end of period.................... $ 867.6 $ 1,194.9
========== ==========
Supplementary cash flow information
Interest paid............................................. $ 3,335.0 $ 3,251.7
Taxes paid................................................ 123.6 65.9
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<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,
1999 1998 1998
-------- ------------ --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Retail.................................................... $ 69,755.0 $67,732.7 $57,658.9
Wholesale................................................. 24,697.7 22,650.1 22,475.2
Other..................................................... 7,017.8 6,838.8 5,887.8
---------- --------- ---------
Total finance receivables, net of unearned income....... 101,470.5 97,221.6 86,021.9
Less: Allowance for credit losses......................... (1,152.8) (1,280.0) (1,185.5)
---------- --------- ---------
Finance receivables, net................................ $100,317.7 $95,941.6 $84,836.4
========== ========= =========
</TABLE>
NOTE 2. DEBT (IN MILLIONS)
<TABLE>
<CAPTION>
JUNE 30, 1999
-------------------------------
WEIGHTED AVERAGE JUNE 30, DECEMBER 31, JUNE 30,
INTEREST RATES(A) MATURITIES 1999 1998 1998
----------------- ---------- -------- ------------ --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
PAYABLE WITHIN ONE YEAR:
Commercial paper.............. $ 52,563.0 $ 46,188.2 $ 40,854.9
Other short-term debt (B)..... 6,150.2 7,445.0 6,758.4
---------- ---------- ----------
Total short-term debt.... 58,713.2 53,633.2 47,613.3
Long-term indebtedness payable
within one year (C)........ 10,737.0 9,689.2 9,791.5
---------- ---------- ----------
Total payable within one
year.................. 69,450.2 63,322.4 57,404.8
PAYABLE AFTER ONE YEAR:
Unsecured senior indebtedness
Notes (D).................. 5.98% 2000-2078 52,990.9 49,899.0 48,222.5
Debentures................. 3.26% 2001-2006 1,966.1 1,661.1 1,196.1
Unamortized discount....... (70.5) (25.5) (19.8)
---------- ---------- ----------
Total unsecured senior
indebtedness.......... 54,886.5 51,534.6 49,398.8
Unsecured long-term
subordinated notes......... 8.27% 2005 97.2 110.3 102.0
---------- ---------- ----------
Total payable after one
year.................. 54,983.7 51,644.9 49,500.8
---------- ---------- ----------
Total debt............... $124,433.9 $114,967.3 $106,905.6
========== ========== ==========
</TABLE>
- -------------------------
(A) Rates were variable on 0% of the debt payable after one year including the
effects of interest rate swap agreements.
(B) Includes $787.1 million, $988.6 million, and $901.0 million with affiliated
companies at June 30, 1999, December 31, 1998, and June 30, 1998,
respectively.
(C) Includes $413.7 million, $394.9 million, and $735.9 million with affiliated
companies at June 30, 1999, December 31, 1998, and June 30, 1998,
respectively.
(D) Includes $2,969.0 million, $3,253.9 million, and $1,668.7 million with
affiliated companies at June 30, 1999, December 31, 1998, and June 30, 1998,
respectively.
4
<PAGE> 6
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 3. COMPREHENSIVE INCOME
Ford Credit adopted Statement of Financial Standards No. 130, "Reporting
Comprehensive Income", as of January 31, 1998. Other comprehensive income
includes foreign currency translation adjustments, retained senior certificates,
and net unrealized gains and losses on investments in equity securities. Total
comprehensive income was as follows (in millions):
<TABLE>
<CAPTION>
SECOND QUARTER FIRST HALF
---------------- -----------------
1999 1998 1999 1998
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net income................................................. $335.3 $299.8 $635.1 $ 577.6
Other comprehensive income................................. (109.8) (96.4) (157.8) (87.1)
------ ------ ------ -------
Total comprehensive income............................ $225.5 $203.4 $477.3 $ 490.5
====== ====== ====== =======
</TABLE>
5
<PAGE> 7
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 4. SEGMENT INFORMATION
Ford Credit adopted Statement of Financial Accounting Standard No. 131,
"Disclosures about Segments of an Enterprise and Related Information", effective
with year end 1998. Segment detail is summarized as follows (in millions):
<TABLE>
<CAPTION>
FORD CREDIT PERSONAL FORD CREDIT
NORTH FORD CREDIT FINANCIAL ELIMINATIONS/ FINANCIAL
AMERICA INTERNATIONAL SERVICES RECLASSIFICATIONS STATEMENTS
----------- ------------- --------- ----------------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SECOND QUARTER
1999
Revenue............................. $ 4,458.4 $ 876.1 $ 69.7 $ (385.3) $ 5,018.9
Income
Income before income taxes........ 396.5 150.4 14.3 (4.6) 556.6
Provision for income taxes........ 145.7 58.5 5.7 (2.5) 207.4
Net income................... 250.8 91.9 8.6 (16.0) 335.3
Other disclosures
Depreciation on operating
leases......................... 1,853.0 160.5 -- (59.4) 1,954.1
Interest expense.................. 1,650.3 375.9 -- (319.5) 1,706.7
1998
Revenue............................. $ 4,075.9 $ 903.7 $ 121.7 $ (250.2) $ 4,851.1
Income
Income before income taxes........ 316.1 145.4 26.5 15.9 503.9
Provision for income taxes........ 118.9 45.4 10.1 23.9 198.3
Net income................... 197.2 100.0 16.4 (13.8) 299.8
Other disclosures
Depreciation on operating
leases......................... 1,729.2 181.8 -- (69.8) 1,841.2
Interest expense.................. 1,536.3 407.2 -- (252.5) 1,691.0
FIRST HALF
1999
Revenue............................. $ 8,575.6 $ 1,775.7 $ 148.5 $ (561.1) $ 9,938.7
Income
Income before income taxes........ 719.7 297.7 31.2 6.9 1,055.5
Provision for income taxes........ 256.8 121.9 12.2 2.7 393.6
Net income................... 462.9 175.8 19.0 (22.6) 635.1
Other disclosures
Depreciation on operating
leases......................... 3,513.0 305.0 -- (22.6) 3,795.4
Interest expense.................. 3,197.6 777.1 -- (506.5) 3,468.2
Finance receivables (including net
investment operating
leases)*....................... 130,245.5 27,429.9 -- (22,714.6) 134,960.8
Total assets...................... 136,108.3 28,917.4 1,639.3 (18,669.2) 147,995.8
1998
Revenue............................. $ 8,046.8 $ 1,713.3 $ 224.9 $ (575.4) $ 9,409.6
Income
Income before income taxes........ 642.4 290.9 49.0 10.8 993.1
Provision for income taxes........ 244.7 123.8 18.4 4.0 390.9
Net income................... 397.7 167.1 30.6 (17.8) 577.6
Other disclosures
Depreciation on operating
leases......................... 3,359.9 259.8 -- (96.5) 3,523.2
Interest expense.................. 2,999.7 786.8 -- (485.0) 3,301.5
Finance receivables (including net
investment operating
leases)*....................... 112,984.0 26,542.9 -- (18,449.6) 121,077.3
Total assets...................... 111,555.7 28,108.6 1,010.2 (12,455.5) 128,219.0
</TABLE>
- -------------------------
* Ford Credit managed receivables exclude allowance for credit losses
6
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SECOND QUARTER 1999 COMPARED WITH SECOND QUARTER 1998
Ford Credit's consolidated net income in the second quarter of 1999 was
$335 million, up $35 million or 12% from 1998. Compared with 1998, the increase
in earnings primarily reflects higher financing volumes, improved credit loss
performance and lower effective tax rates, offset partially by lower net
financing margins.
Credit losses as a percent of average net finance receivables including net
investment in operating leases decreased to 0.67% in the second quarter of 1999
compared with 0.75% in the same period of 1998, reflecting an improvement in
portfolio quality.
The effective income tax rate was 37.3% for the second quarter of 1999
compared with 39.4% for the second quarter of 1998. The decrease in the
effective tax rate resulted from reduced taxes on foreign income.
The deterioration in net financing margins primarily reflects lower yields
resulting from a shift to lower risk business, during the past 12 months, driven
by Ford-sponsored special financing programs.
Total net finance receivables and net investment in operating leases at
June 30, 1999 were $135.0 billion, up $13.9 billion or 11% from a year earlier.
The increase primarily results from Ford-sponsored special financing programs
that are available exclusively through Ford Credit.
During the second quarter of 1999, Ford Credit financed 43% of all new cars
and trucks sold by Ford dealers in the U.S. compared with 39% in the same period
of 1998. In Europe during the second quarter of 1999, Ford Credit financed 33%
of all new vehicles sold by Ford dealers compared with 31% in the same period of
1998. In the second quarter of 1999, Ford Credit provided retail financing for
0.8 and 0.2 million new and used vehicles in the U.S. and Europe, respectively.
In the second quarter of 1999, Ford Credit provided wholesale financing for 83%
of Ford factory sales in the U.S. and 96% of Ford factory sales in Europe
compared with 78% for the U.S. and 97% for Europe in the same period of 1998.
FIRST HALF 1999 COMPARED WITH 1998
For the first half of 1999, Ford Credit's consolidated net income was $635
million, up $57 million or 10% from the first half of 1998. Compared with 1998,
the increase in earnings primarily reflects higher financing volumes, improved
credit loss performance and lower effective tax rates, offset partially by lower
net financing margins. The deterioration in net financing margins primarily
reflects higher depreciation on operating leases and a shift to lower risk
business driven by Ford-sponsored special financing programs.
During the first half of 1999, Ford Credit provided retail financing for
44% of all new cars and trucks sold by Ford dealers in the U.S. compared with
38% in the first half of 1998. In Europe, Ford Credit financed 32% of all new
vehicles sold by Ford dealers in the first half of 1999 compared with 30% in the
first half of last year. In the first half of 1999, Ford Credit provided retail
financing for 1.6 and 0.4 million new and used vehicles in the U.S. and Europe,
respectively. During the first half of 1999, Ford Credit provided wholesale
financing for 83% of Ford U.S. factory sales and 95% of Ford Europe factory
sales compared with 78% for the U.S. and 96% for Europe in the first half of
1998.
YEAR 2000 DATE CONVERSION
General
An issue affecting Ford Credit and others is the inability of many computer
systems and applications to process the year 2000 and beyond ("Y2K"). To address
this problem, in 1996, Ford Credit initiated a global Y2K program to manage Ford
Credit's overall Y2K compliance effort. As part of this program, Ford Credit
established a global Y2K Program Office to coordinate Ford Credit's Y2K
compliance efforts. Ford Credit participates closely with Ford Motor Company's
Y2K Central Program Office and the Ford Y2K Steering Committee. Ford's Y2K
program has been certified by the Information Technology Association of America
as meeting its Y2K best practices standards.
7
<PAGE> 9
State of Readiness
Set forth below is a timetable showing our internal target dates for
compliance and the present status of compliance (at June 30, 1999) for each of
the areas of Ford Credit's Y2K program. (These areas are described in the 10-K
Report.) Ford Credit established these target dates well before December 31,
1999, to allow sufficient time to perform enterprise-wide testing and further
validation of Y2K compliance.
YEAR 2000 PROGRAM TIMING
STATUS AS OF JUNE 30, 1999
<TABLE>
<CAPTION>
---------------------------------------------------------------------
1996 1997 1998 1999 2000
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Business Computer Systems Plan: 100% compliant by 6/99
Status: 97%
Critical External Alliances (Banks,
Credit Bureaus, Underwriters, etc.) Plan: 100% ready* by 6/99
Status: 99%
Affiliates Plan: 100% ready** by 6/99
Status: 100%
Critical End User Computing Plan: 100% compliant by 6/99
Status: 99%
Technical Infrastructure Plan: 100% compliant by 6/99
Status: 99%
Physical Properties and
Infrastructure Plan: 100% compliant by 6/99
Status: 84%
</TABLE>
- -------------------------
* "Ready" means having a comprehensive Y2K program in place and a plan that
will achieve compliance before January 1, 2000.
Y2K Costs
Y2K compliance costs incurred through June 30, 1999, are estimated at $22
million. For additional information regarding Ford Credit's Y2K costs, see the
10-K report.
8
<PAGE> 10
Y2K Contingency Plans
Ford Credit has established a Y2K business resumption planning committee to
evaluate business disruption scenarios, coordinate the establishment of Y2K
contingency plans, and identify and implement preemptive strategies. Detailed
contingency plans for critical business processes have been developed and will
be validated by September 1999. Additionally, a Global Response Center is being
launched as an information clearinghouse for the most current Y2K status
available as year-end 1999 approaches.
For additional information regarding Ford Credit's state of readiness
regarding Year 2000 Date Conversions, see the 10-K Report.
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
established accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires recognition of all derivatives as either assets
or liabilities on the balance sheet and measurement of those instruments at fair
value. If certain conditions are met, a derivative may be designated
specifically as (a) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment referred to as
a fair value hedge, (b) a hedge of the exposure to variability in cash flows of
a forecasted transaction (a cash flow hedge), or (c) a hedge of the foreign
currency exposure of a net investment in a foreign operation, an unrecognized
firm commitment, an available-for-sale security, or a forecasted transaction.
Ford Credit anticipates having types (a) and (b) of these hedges, and will
comply with the requirements of SFAS 133 when adopted beginning January 1, 2001.
Ford Credit has not yet determined the effect of adopting SFAS 133.
9
<PAGE> 11
FORD CREDIT LIQUIDITY AND CAPITAL RESOURCES
Ford Credit's outstanding debt at June 30, 1999 and at the end of each of
the last four years was as follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31
JUNE 30, ------------------------------------------
1999 1998 1997 1996 1995
-------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial paper & STBAs(a)................. $ 53,698 $ 48,636 $ 42,311 $38,774 $40,419
Other short-term debt(b).................... 5,015 4,997 3,897 4,243 1,781
Long-term debt (including current
portion)(c)............................... 65,721 61,334 54,517 55,007 49,980
-------- -------- -------- ------- -------
Total debt........................ $124,434 $114,967 $100,725 $98,024 $92,180
======== ======== ======== ======= =======
United States............................... $ 96,173 $ 85,394 $ 78,443 $76,635 $73,178
Europe...................................... 14,469 16,653 12,491 14,028 13,013
Other international......................... 13,792 12,920 9,791 7,361 5,989
-------- -------- -------- ------- -------
Total debt........................ $124,434 $114,967 $100,725 $98,024 $92,180
======== ======== ======== ======= =======
Memo:
Total support facilities (billions) as of
June 30, 1999 and December 31,
1998 - 1995, respectively:
Ford Credit U.S. ...................... $ 25.9 $ 26.9 $ 26.6 $ 27.2 $ 27.4
FCE Bank............................... 5.0 5.3 5.2 5.7 4.7
</TABLE>
- -------------------------
(a) Short-term borrowing agreements with bank trust departments.
(b) Includes $787 million, $989 million, $831 million, $2,478 million, and $176
million with affiliated companies at June 30, 1999, December 31, 1998,
December 31, 1997, December 31, 1996, and December 31, 1995, respectively.
(c) Includes $3,383 million, $3,649 million, $3,547 million, $4,237 million and
$1,174 million with affiliated companies at July 1, 1999, December 31, 1998,
December 31, 1997, December 31, 1996, and December 31, 1995, respectively.
Support facilities represent additional sources of funds, if required. At
July 1, 1999, Ford Credit had approximately $18.2 billion of contractually
committed facilities. In addition, approximately $7.7 billion of Ford lines of
credit may be used by Ford Credit at Ford's option. These credit lines have
various maturity dates through June 30, 2004 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 $1.5 billion of
contractually committed liquidity facilities to support Ford Credit's asset
backed commercial paper program.
Additionally, at July 1, 1999, there were approximately $4.4 billion of
contractually committed facilities available for FCE Bank plc's ("FCE Bank")
use. In addition, $615 million of Ford lines of credit may be used by FCE Bank
at Ford's option. The lines have various maturity dates through June 30, 2004
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.
10
<PAGE> 12
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, 1999 and 1998 (in millions except amounts
per share):
<TABLE>
<CAPTION>
SECOND QUARTER FIRST HALF
----------------- -----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales and revenues....................................... $42,282 $37,289 $80,167 $73,873
Total costs and expenses................................. 38,712 33,816 73,691 67,784
Operating income......................................... 3,570 3,473 6,476 6,089
Automotive net interest income........................... 2 110 49 233
Automotive equity in net income/(loss) of affiliated
companies.............................................. -- 18 50 8
Gain on spin-off of The Associates....................... -- -- -- 15,955
Income before income taxes............................... 3,572 3,601 6,575 22,285
Provision for income taxes............................... 1,198 1,192 2,203 2,164
Minority interests in net income of subsidiaries......... 36 28 55 94
Net income............................................... $ 2,338 $ 2,381 $ 4,317 $20,027
Amounts Per Share of Common Stock and Class B Stock after
Preferred Stock Dividends
Basic Income............................................. $ 1.93 $ 1.96 $ 3.57 $ 16.47
Diluted Income........................................... $ 1.89 $ 1.91 $ 3.48 $ 16.11
Cash Dividends per share................................. $ 0.46 $ 0.42 $ 0.92 $ 0.84
</TABLE>
11
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- FORD
OVERVIEW
Unless otherwise indicated, Ford's second quarter 1999 results and
financial condition discussed below include the second quarter 1999 results and
financial condition of AB Volvo's worldwide passenger car business ("Volvo
Car"), which Ford purchased on March 31, 1999.
Ford's worldwide net income was $2,338 million in the second quarter of
1999, or $1.89 per diluted share of Common and Class B Stock. These earnings
include a one-time profit reduction of $146 million, or $0.11 per diluted share
of Common and Class B Stock, related to the acquisition of Volvo Car. Ford was
required to write-up Volvo Car's inventory, resulting in a one-time increase in
cost of sales. Excluding the one-time profit reduction of $146 million, Ford's
second quarter 1999 operating earnings would have been $2,484 million, or $2.00
per diluted share of Common and Class B Stock. In the second quarter of 1998,
earnings were $2,381 million, or $1.91 per diluted share. Ford's worldwide sales
and revenues were $42.3 billion in the second quarter of 1999, up $5 billion
from a year ago. This includes Volvo Car revenues of $3.4 billion for the
second quarter of 1999. Vehicle unit sales of cars and trucks were 1,928,000, up
135,000 units. Stockholders' equity was $26.2 billion at June 30, 1999, up $2.8
billion from December 31, 1998.
SECOND QUARTER RESULTS OF OPERATIONS
Results of Ford's operations by major business sector for the second
quarter of 1999 and 1998 are shown below (in millions).
<TABLE>
<CAPTION>
Second Quarter
Net Income/(Loss)
--------------------------------------
1999
O/(U)
1999 1998 1998
------------ ------------ -----------
<S> <C> <C> <C>
Automotive Sector $1,931 $2,051 $(120)
Financial Services Sector 407 330 77
------ ------ ----
Total Company $2,338 $2,381 $ (43)
====== ====== =====
</TABLE>
Automotive Sector
Worldwide earnings for Ford's Automotive sector were $1,931 million
in the second quarter of 1999 on sales of $35.9 billion. On an operating basis,
a measure that excludes the inventory-related profit reduction for Volvo Car,
Ford's second quarter earnings would have been $2,077 million. Earnings in the
second quarter of 1998 were $2,051 million on sales of $31.3 billion. Adjusted
for constant volume and mix, total automotive costs were down $300 million
compared with the second quarter of 1998.
Details of second quarter Automotive sector earnings are shown below
(in millions).
<TABLE>
<CAPTION>
Second Quarter
Net Income/(Loss)
--------------------------------------
1999
O/(U)
1999 1998 1998
------------ ------------ -----------
<S> <C> <C> <C>
North American Automotive $1,969 $1,655 $ 314
Automotive Outside North America
- Europe 89 310 (221)
- South America (120) 14 (134)
- Other (7) 72 (79)
------- ------ ----
Total Automotive Outside
North America (38) 396 (434)
------ ------ -----
Total Automotive Sector $1,931 $2,051 $(120)
====== ====== =====
</TABLE>
-12-
<PAGE> 14
Automotive sector earnings in North America were $1,969 million in the
second quarter of 1999 on sales of $25.8 billion. In the second quarter of 1998,
earnings were $1,655 million on sales of $22.7 billion. The increase in earnings
reflects primarily increased volume and lower material cost. The after-tax
return on sales for Ford's North American Automotive sector was 7.7% in the
second quarter of 1999, up 4/10 of a percentage point from a year ago.
In the second quarter of 1999, 4.7 million new cars and trucks were
sold in the United States, up 200,000 units from a year ago. Ford's share of
those unit sales was 24.7% in the second quarter of 1999, up 7/10 of a
percentage point from a year ago.
Ford's Automotive sector earnings in Europe were $89 million in the
second quarter of 1999. Excluding the inventory-related profit reduction for
Volvo Car of $125 million, Ford's operating earnings would have been $214
million, down $96 million from a year ago. The deterioration reflects primarily
lower sales volume and unfavorable mix for Ford-branded vehicles. Even with the
addition of Volvo Car, it will be a challenge for Ford to achieve its 1999
milestone to grow operating earnings.
In the second quarter of 1999, 4.4 million new cars and trucks were
sold in Europe, up 300,000 units from a year ago. Ford's share of those unit
sales was 11.5% in the second quarter of 1999, up 1.1 percentage points from a
year ago. Ford's market share increased because of the addition of Volvo Car
sales.
Ford's Automotive sector in South America had losses of $120 million in
the second quarter of 1999, compared with earnings of $14 million a year ago.
The decline was the result of lower volumes, exchange impact of the Real
devaluation and higher interest costs.
In the second quarter of 1999, 336,000 new cars and trucks were sold in
Brazil, compared with 421,000 a year ago. Ford's share of those unit sales was
10.5% in the second quarter of 1999, down 3.3 percentage points from a year ago.
The decline in market share reflects primarily shortages of dealer stocks
because of an earlier carrier strike and increased competition from new and
existing manufacturers who are aggressively competing for the lower base.
Ford's Visteon operations, included in its Automotive sector, earned
$282 million on revenues of $5,063 million in the second quarter of 1999,
compared with earnings of $241 million on revenues of $4,725 million in the
second quarter of 1998. This earnings increase reflects primarily improved
volume and mix and lower material costs, partially offset by price reductions to
customers. Visteon's after-tax return on sales in the second quarter of 1999 was
5.7%, up 6/10 of a percentage point from a year ago.
Financial Services Sector
Earnings of Ford's Financial Services sector consist primarily of two
segments, Ford Credit and Hertz. Details of second quarter Financial Services
sector earnings are shown below (in millions).
<TABLE>
<CAPTION>
Second Quarter
Net Income/(Loss)
-------------------------------------
1999
O/(U)
1999 1998 1998
---------- ----------- -----------
<S> <C> <C> <C>
Ford Credit $335 $300 $35
Hertz 88 75 13
Minority interests, Eliminations,
and Other (16) (45) 29
---- ---- ---
Total Financial Services Sector $407 $330 $77
==== ==== ===
Memo: Ford's share of earnings in
Hertz $ 71 $ 60 $11
</TABLE>
-13-
<PAGE> 15
For a discussion of Ford Credit's results of operations in second
quarter 1999, See Item 2. "Management's Discussion and Analysis of Financial
Conditions and Results of Operations--Ford Credit Second Quarter 1999 Compared
with Second Quarter 1998".
Earnings at Hertz in the second quarter of 1999 were $88 million (of
which $71 million was Ford's share), compared with earnings of $75 million (of
which $60 million was Ford's share) a year ago.
FIRST HALF RESULTS OF OPERATIONS
Results of Ford's operations by major business sector for the first
half of 1999 and 1998 are shown below (in millions).
<TABLE>
<CAPTION>
First Half
Net Income/(Loss)
--------------------------------------
1999
O/(U)
1999 1998 1998
------------ ------------ -----------
<S> <C> <C> <C>
Automotive Sector $3,582 $ 3,286 $ 296
Financial Services Sector 735 609 126
------ ------- --------
Total Operations $4,317 $ 3,895 $ 422
Gain on Spin-Off of The Associates - 15,955 (15,955)
The Associates (net of Minority Interest) - 177* (177)
------ ------- --------
Total Company $4,317 $20,027 $(15,710)
====== ======= ========
</TABLE>
- - - - -
* Through March 12, 1998
Ford's worldwide earnings in the first half of 1999 were $4,317
million. First half 1998 operating earnings were $3,895 million, excluding all
income and a one-time gain related to The Associates. Worldwide sales and
revenues in the first half of 1999 were $80.2 billion, up $6.3 billion from a
year ago. Vehicle unit sales of cars and trucks were 3,703,000, up 182,000
units.
Automotive Sector
Worldwide earnings for Ford's Automotive sector were $3,582 million in
the first half of 1999 on sales of $67.9 billion. Earnings in the first half of
1998 were $3,286 million on sales of $60.4 billion. The earnings improvement
reflects primarily higher North America profits, offset partially by lower
earnings in all other regions.
Automotive sector earnings in the first half of 1999 and 1998 are
shown below (in millions).
<TABLE>
<CAPTION>
First Half
Net Income/(Loss)
----------------------------------------
1999
O/(U)
1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
North American Automotive $3,557 $2,665 $892
Automotive Outside North America
- Europe 254 540 (286)
- South America (285) (31) (254)
- Other 56 112 (56)
------ ------ ----
Total Automotive Outside
North America 25 621 (596)
------ ------ ----
Total Automotive Sector $3,582 $3,286 $296
====== ====== ====
</TABLE>
-14-
<PAGE> 16
Automotive sector earnings in North America were $3,557 million in the
first half of 1999, up $892 million from the first half of 1998. The increase
reflects primarily increased volume and lower material cost. The North American
Automotive after-tax return on sales was 7.1% in the first half of 1999, up 9/10
of a percentage point from a year ago.
In the first half of 1999, 8.8 million new cars and trucks were sold in
the United States, up 600,000 units from a year ago. Ford's share of those unit
sales was 24.7% in the first half of 1999, up 7/10 of a percentage point from a
year ago.
Automotive sector earnings in Europe in the first half of 1999 were
$254 million, down $286 million from the first half a year ago. The
deterioration is explained by lower sales volume, a less favorable mix for
Ford-branded vehicles and a $125 million one-time inventory-related profit
reduction for Volvo Car, partially offset by a $165 million gain from the sale
of Ford's interest in AutoEuropa to Volkswagen AG in the first quarter of 1999.
In the first half of 1999, 9 million new cars and trucks were sold in
Europe, up 600,000 units from a year ago. Ford's share of those unit sales was
10.7% in the first half of 1999, down 2/10 of a percentage point from a year
ago. Ford's market share decrease reflects lower shares for Mondeo and Fiesta,
partially offset by the addition of Volvo Car sales.
Automotive sector losses in South America were $285 million in the
first half of 1999, compared with losses of $31 million in the first half a year
ago. In the first half of 1999, 612,000 new cars and trucks were sold in Brazil,
compared with 805,000 a year ago. Ford's share of those unit sales was 9.7% in
the first half of 1999, down 4 percentage points from a year ago.
Visteon earned $490 million on revenues of $9,835 million in the first
half of 1999, compared with $430 million on revenues of $9,103 million in the
first half a year ago. The increase in earnings reflects primarily improved
volume and mix and lower material costs, partially offset by price reductions to
customers. The after-tax return on sales was 5% in the first half of 1999, up
3/10 of a percentage point from a year ago.
Financial Services Sector
Higher earnings at Ford Credit and Hertz in the first half of 1999,
compared with the first half of 1998, reflect primarily the same factors as
those described in the discussion of second quarter results of operations.
Financial Services sector earnings in the first half of 1999 and 1998 are shown
below (in millions).
<TABLE>
<CAPTION>
First Half
Net Income/(Loss)
---------------------------------------
1999
O/(U)
1999 1998 1998
----------- ------------ ------------
<S> <C> <C> <C>
Ford Credit $635 $ 578 $ 57
Hertz 137 110 27
Minority interests, Eliminations,
and Other (37) (79) 42
---- ------- --------
Financial Services (excluding
The Associates) 735 609 126
The Associates - 177* (177)
Gain on Spin-off of
The Associates - 15,955 (15,955)
---- ------- --------
Total Financial Services Sector $735 $16,741 $(16,006)
==== ======= =========
</TABLE>
- - - - -
* Through March 12, 1998
-15-
<PAGE> 17
LIQUIDITY AND CAPITAL RESOURCES
Automotive Sector
At June 30, 1999, Ford's Automotive sector had $24 billion of cash and
marketable securities, up $154 million from December 31, 1998.
Automotive capital expenditures, including the effect of adopting the
accounting change for the capitalization of computer software (Statement of
Position 98-1), totaled $3.1 billion in the first half of 1999, down $0.7
billion from in the first half of 1998.
At June 30, 1999, Ford's Automotive sector had total debt of $11.4
billion, compared with $9.8 billion at December 31, 1998. This amount was 30.3%
of Ford's total capitalization (that is, the sum of stockholders' equity and
Automotive debt) at the end of the second quarter of 1999, slightly above the
percent of total debt to total capitalization at December 31, 1998.
At July 1, 1999, Ford had long-term contractually committed global
credit agreements under which $8.6 billion is available from various banks; 85%
are available through June 30, 2004. The entire $8.6 billion may be used, at
Ford's option, by any affiliate of Ford; however, any borrowing by an affiliate
will be guaranteed by Ford. Ford also has the ability to transfer on a
nonguaranteed basis $8.3 billion of such credit lines in varying portions to
Ford Credit and FCE Bank plc (formerly known as Ford Credit Europe plc). In
addition, at July 1, 1999, $468 million of contractually committed credit
facilities were available to various Automotive sector affiliates outside the
U.S. Approximately $330 million of these facilities were in use at July 1, 1999.
On July 9, 1999, Ford's committed to issue $1.8 billion of long-term
debt securities in a global public offering, which is scheduled to close on July
16, 1999.
Financial Services Sector
At June 30, 1999, Ford's Financial Services sector had cash and
cash equivalents totaling $1.2 billion, unchanged from December 31, 1998.
Net receivables and lease investments were $142 billion at June 30,
1999, up $9.1 billion from December 31, 1998.
Total debt was $132.2 billion at June 30, 1999, up $9.9 billion from
December 31, 1998.
Outstanding commercial paper at June 30, 1999 totaled $52.6 billion at
Ford Credit, and $2.3 billion at Hertz, with an average remaining maturity of 22
days and 24 days, respectively.
At July 1, 1999, Ford's Financial Services sector had a total of $26.8
billion of contractually committed support facilities (excluding the $8.3
billion available under Ford's global credit agreements). Of these facilities,
$22.6 billion are contractually committed global credit agreements under which
$18.2 billion and $4.4 billion are available to Ford Credit and FCE Bank plc,
respectively, from various banks; 53% and 71%, respectively of such facilities
are available through June 30, 2004. The entire $18.2 billion may be used, at
Ford Credit's option, by any subsidiary of Ford Credit, and the entire $4.4
billion may be used, at FCE Bank plc's option, by any subsidiary of FCE Bank
plc. Any borrowings by such subsidiaries will be guaranteed by Ford Credit or
FCE Bank plc, as the case may be. At July 1, 1999, $100 million of the Ford
Credit global facilities were in use and $360 million of the FCE Bank plc global
facilities were in use. Other than the global credit agreements, the remaining
portion of the Financial Services sector support facilities at July 1, 1999
consisted of $2.1 billion of contractually committed support facilities
available to Hertz in the U.S. and $2.1 billion of contractually committed
support facilities available to various affiliates outside the U.S.; at
July 1, 1999, approximately $1 billion of these facilities were in use.
Furthermore, banks provide $1,450 million of liquidity facilities to support
the asset-backed commercial paper program of a Ford Credit sponsored special
purpose entity.
-16-
<PAGE> 18
On July 9, 1999, Ford Credit committed to issue $6.8 billion of debt
securities in a global public offering which is scheduled to close on July 16,
1999.
VOLVO CAR
On March 31, 1999, Ford purchased Volvo Car for approximately $6.45
billion. The acquisition price consisted of a cash payment of approximately $2
billion on March 31, 1999, a deferred payment obligation to AB Volvo of
approximately $1.6 billion due March 31, 2001, and Volvo Car automotive net
indebtedness of approximately $2.9 billion. Most automotive indebtedness was
repaid on April 12, 1999. The purchase price payment and automotive debt
repayments were funded from our cash reserves.
The acquisition has been accounted for as a purchase. The assets
purchased, liabilities assumed and the results of operations, since the date of
acquisition, are included in Ford's financial statements on a consolidated
basis.
The purchase price for Volvo Car has been allocated, on a preliminary
basis, to the assets acquired and liabilities assumed based on estimated fair
values as of the acquisition date. The excess of the purchase price over the
estimated fair value of net assets acquired is approximately $2.5 billion and is
being amortized on a straight-line basis over 40 years. The purchase price
allocation included a write-up of inventory to fair value; the sale of this
inventory in the second quarter of 1999 resulted in a one-time increase in cost
of sales of $146 million after-tax.
Assuming the acquisition had taken place on January 1, 1999 and 1998,
unaudited pro forma revenue for Ford (Automotive and Financial Services) would
have been approximately $83.5 billion and $80.1 billion for each of the six
month periods ended June 30, respectively. Excluding the unfavorable inventory
profit effect in the second quarter of 1999, pro forma effects on net income and
earnings per share would not have been material
KWIK-FIT
As of June 30, 1999, Ford acquired approximately 96% of the outstanding
stock of Kwik-Fit Holdings plc ("Kwik-Fit"). Kwik-Fit is Europe's largest
independent vehicle maintenance and light repair chain, with over 1,600 service
centers in the United Kingdom, Ireland and continental Europe. Ford's offer
price is (pound)5.60 (approximately the equivalent of $9.05) per share, or an
aggregate of (pound)1,013 million including acquisition-related costs
(approximately the equivalent of $1.6 billion). The payments through June 30,
1999 amounted to approximately (pound)966 million which was a combination of a
cash payment of (pound)862 million and a payable to certain shareholders of
(pound)104 million. Ford expects to purchase the remaining Kwik-Fit shares by
the end of July 1999. The purchase has been funded from Ford's cash reserves.
The acquisition will be accounted for as a purchase. The assets
purchased, liabilities assumed and the results of operations of Kwik-Fit will be
included in Ford's financial statements on a consolidated basis beginning in the
third quarter of 1999. Ford's investment in Kwik-Fit at June 30, 1999, is
included in Equity in Net Assets of Affiliated Companies on its financial
statements.
PLASTIC OMNIUM
On June 30, 1999, Ford purchased (through Visteon) Plastic Omnium's
automotive interior business for approximately $500 million. The automotive
interior business of Plastic Omnium has 14 facilities in four countries in
Europe: France, Spain, Italy and the UK. The purchase was funded from cash
reserves.
The acquisition will be accounted for as a purchase. The assets
purchased, liabilities assumed and the results of operations of Plastic Omnium
will be included in Ford's financial statements on a consolidated basis
beginning in the third quarter of 1999. Ford's investment in Plastic Omnium at
June 30, 1999 is included in Equity in Net Assets of Affiliated Companies on our
financial statements.
-17-
<PAGE> 19
YEAR 2000 DATE CONVERSION
General
An issue affecting Ford and others is the inability of many computer
systems and applications to process the year 2000 and beyond ("Y2K"). To address
this problem, in 1996, Ford initiated a global Y2K program to manage its overall
Y2K compliance effort. As part of this program, Ford established a global
Central Program Office to coordinate its Y2K compliance efforts. Ford also
established a Y2K Steering Committee comprised of senior executives to address
compliance issues. Ford's Y2K program has been certified by the Information
Technology Association of America as meeting its Y2K best practices standards.
With the acquisition of Volvo Car, Ford assessed Volvo Car's Y2K
compliance efforts. In general, Volvo Car is following sound compliance and
program management processes. Volvo Car's Y2K compliance program is on target to
achieve all of its 1999 objectives.
State of Readiness
Set forth below is a timetable showing Ford's internal target dates for
compliance and the present status of compliance (at June 30, 1999) for each of
the areas of our Y2K program. (These areas are described in detail on pages 42
and 43 of Ford's 10-K Report.) Ford established these target dates well before
December 31, 1999 to allow sufficient time to perform enterprise-wide testing
and further validation of our Y2K compliance.
-18-
<PAGE> 20
YEAR 2000 PROGRAM TIMING
Status as of June 30, 1999
<TABLE>
<CAPTION>
---------------------------------------------------------------------
1996 1997 1998 1999 2000
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Business Computer Systems Plan: 100% compliant by 6/99
Status: 97% a/
Plant Floor Equipment Plan: 100% compliant by 6/99
Status: 99% b/
Production and
Critical Non-Production Suppliers Plan: 100% ready c/ by 6/99
Status: 90%
Vehicle Components Plan: 100% compliant by 6/99
Status: 100%
Affiliates Plan: 100% ready c/ by 6/99
Status: 100%
PD Test Equipment Plan: 100% compliant by 6/99
Status: 92% d/
Critical End-User Computing Plan: 100% compliant by 6/99
Status: 97%
Technical Infrastructure Plan: 100% compliant by 6/99
Status: 95%
Dealers Plan: 100% ready c/ by 9/99
Status: 97%
Physical Properties and
Infrastructure Plan: 100% compliant by 6/99
Status: 97%
</TABLE>
- --------------------
(a/) 98% of critical business computer systems were compliant at June 30, 1999.
(b/) 99% of critical plant floor equipment was compliant at June 30, 1999.
(c/) "Ready" means having a comprehensive Y2K program in place and a plan that
will achieve compliance before January 1, 2000.
(d/) 87% of critical PD test equipment was compliant at June 30, 1999.
-19-
<PAGE> 21
Y2K Costs
Including Volvo, Ford estimate that it will spend about $400 million
for its Y2K compliance efforts. Ford will incur this amount over about a
three-year period that commenced mid-1997 and will end mid-2000. Y2K compliance
costs incurred through June 30, 1999 are estimated at about $280 million. Ford's
annual Y2K costs relating to information technology have represented and are
expected in the future to represent about 10% of its total annual information
technology budget.
Y2K Contingency Plans
Ford has established a Y2K business resumption planning committee to
evaluate business disruption scenarios, coordinate the establishment of Y2K
contingency plans, and identify and implement preemptive strategies. Detailed
contingency plans for critical business processes have been developed and will
be validated by September 1999. Additionally, a Global Response Center was
launched as an information clearinghouse for the most current Y2K status
available as we approach year-end 1999.
NEW ACCOUNTING STANDARDS
New 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 referred to as
a fair value hedge, (b) a hedge of the exposure to variability in cash flows of
a forecasted transaction (a cash flow hedge), or (c) a hedge of the foreign
currency exposure of a net investment in a foreign operation, an unrecognized
firm commitment, an available-for-sale security, or a forecasted transaction.
Ford anticipates having each of these types of hedges, and Ford will comply with
the requirements of SFAS 133 when Ford adopts it. Based on the May 1999
announcement by the Financial Accounting Standards Board to delay the
implementation date by one year, Ford expects to adopt SFAS 133 beginning
January 1, 2001. Ford has not yet determined the effect of adopting SFAS 133.
-20-
<PAGE> 22
Product Liability Matters
Bronco Rollover Jury Verdict. On July 12, 1999, a state court jury in
Modesto, California returned a verdict against Ford stemming from a 1993
accident in which three family members were killed when their 1978 Bronco rolled
over. The jury concluded that Ford was seventy-eight percent responsible for the
deaths, and awarded the family $6 million in compensatory damages and $290
million in punitive damages. Ford believes this result is inconsistent with the
evidence introduced at trial and will appeal the verdict.
Class Actions
TFI Module. (Previously discussed in the second full paragraph on page
22 of the 10-K Report.) Trial in the California case began on May 11, 1999. We
expect a verdict in September or October.
Windstar Transmission. (Previously discussed in the last paragraph on
page 16 of Ford Credit's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999 (the "First Quarter 10-Q Report").) Plaintiffs amended their
complaint to add residents of Canada as named plaintiffs. We are preparing a
motion to dismiss.
Lease Agreement Disclosure. (Previously discussed in the last
paragraph on page 23 of the 10-K Report and the second paragraph on page 16 of
the First Quarter 10-Q Report) In addition to the ten of the twenty cases
discussed in the 10-K Report and First Quarter 10-Q Report as having been
dismissed in various state courts, Kansas, New York and Ohio state courts have
recently dismissed purported class actions alleging that Ford Credit and Primus
leasing contracts improperly failed to disclose acquisition and administrative
fees that are included in the amount of customer's monthly lease payment.
Head Gaskets. On April 29, 1999, a purported nationwide class action
was filed in Maryland state court alleging premature head gasket failure,
resulting in coolant leakage and engine failure, in 1992-1995 Taurus/Sables,
1992-1995 Continentals, and 1995 Windstars with 3.8 liter engines. Plaintiffs
seek unspecified monetary relief and an injunction requiring the Company to
recall all affected vehicles. Ford has removed the case to federal court, but
Plaintiffs are likely to move to remand to state court, and such a motion is
likely to be granted. Once the issue of federal court jurisdiction is resolved,
we will file a motion to dismiss the complaint.
Retail Lessee Insurance Coverage. On May 24, 1999, Michigan Mutual
Insurance Company was served with a purported class action complaint in federal
court in Florida alleging that the Ford Commercial, General Liability and
Business Automobile Insurance Policy, and the Personal Auto Supplement to that
policy, provides uninsured/underinsured motorist coverage and medical payment
coverage to retail lessees of Ford vehicles (e.g., to Red Carpet lessees). Ford
is required to defend and indemnify Michigan Mutual. The complaint rests on an
untenable interpretation of the Michigan Mutual policy, which was intended to
cover company cars and lease evaluation vehicles. Unfortunately, however, the
Florida Court of Appeals in a prior action brought by a single individual, has
accepted Plaintiffs' interpretation of the policy. The Florida court's opinion
should not be controlling in federal court, but it does create a substantial
impediment to the early resolution of this case. The policy language was
recently amended to expressly exclude retail lessees, but this amendment
probably will not affect the claims of retail lessees injured before the
amendment's effective date. Ford is considering a motion to dismiss based on the
policy language attached to the complaint.
Seat Backs. Four purported statewide class actions have been filed in
state courts in Maryland, Pennsylvania, New Jersey and New York against Ford, GM
and DaimlerChrysler alleging that seat backs with single recliner mechanisms are
defective. The identical suits allege that the vehicles at issue have seats that
are unreasonably dangerous because they are unstable and susceptible to backward
collapse in rear impact collisions. The purported class in each state consists
of all persons who own a class
21
<PAGE> 23
vehicle (defined as various 1993-1998 model lines for each manufacturer) and
specifically excludes all persons who have suffered personal injury as a result
of the rearward collapse of a seat. For each of the eight counts alleged,
Plaintiffs seek monetary damages of up to $5,000 on behalf of each class member.
Ford plans to remove the case to federal court and to file motions to dismiss
all of the claims.
Environmental Matters
CCA Lawsuit (Previously discussed in the last paragraph on page 20 of
the 10K Report). CCA has informed Ford that it intends to withdraw its appeal.
Other Information - Ford
Governmental Standards
Mobile Source Emissions Control (Previously discussed on page 14 of the
10-K Report). The federal Clean Air Act imposes limits on the amount of
regulated pollutants that lawfully may be emitted by new motor vehicles and
engines sold in the U.S. Most light duty vehicles must comply with these
standards for 10 years or 100,000 miles, whichever first occurs. In May 1999,
the U.S. Environmental Protection Agency ("EPA") proposed new vehicle emissions
standards for model years 2004 and beyond. The proposed standards would require
that light-duty trucks meet the same emissions standards as passenger cars no
later than the 2009 model year. The complexity of the proposed standards may
impair our ability to certify vehicles, and likely would hinder the use of
diesel technology. EPA intends to issue final standards by the end of 1999.
Depending on their form and content, the final standards may impact Ford's
ability to produce and offer a broad range of products with the characteristics
and functionality that customers demand.
Motor Vehicle Safety - Fastener Quality Act (Previously discussed in
the second full paragraph on page 17 of the 10-K Report). On June 8, the
President signed the Fastener Quality Act Amendments Act of 1999 which exempts
the majority of fasteners used by us and other vehicle manufacturers and
significantly reduces the testing and record keeping requirements imposed on the
remaining covered fasteners. Consistent with a favorable Commerce Department
report, the new law recognizes the substantial improvements in fastener quality
due to proprietary fastener standards and quality assurance systems like ISO
9000.
22
<PAGE> 24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Please refer to the Exhibit Index on page 26
(b) Reports on Form 8-K during the quarter ended June 30, 1999:
<TABLE>
<CAPTION>
DATE OF REPORT ITEM FINANCIAL STATEMENTS FILED
-------------- ---- --------------------------
<S> <C> <C>
April 15, 1999................. Item 5 -- Other News Release dated April 15, 1999 of Ford
Events Motor Credit Company and Subsidiaries for
the quarter ended March 31, 1999 with
attachments and News Release dated April
15, 1999 of Ford Motor Company and
subsidiaries for the quarter ended March
31, 1999, with attachments.
May 27, 1999................... Item 5 -- Other None
Events
</TABLE>
23
<PAGE> 25
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)
By: /s/ E. S. ACTON
------------------------------------
E. S. Acton
Vice President -- Finance
(Chief Financial Officer)
July 15, 1999
24
<PAGE> 26
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, 1999 and 1998, 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, 1999. 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, 1998 and the related
consolidated statements of income and earnings retained for use in the business
and cash flows for the year then ended (not presented herein); and in our report
dated January 20, 1999, 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, 1998 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 13, 1999
25
<PAGE> 27
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
DESIGNATION DESCRIPTION METHOD OF FILING
- ----------- ----------- ----------------
<S> <C> <C>
12-A Calculation of ratio of earnings to fixed charges of Filed with this Report.
Ford Credit.
12-B Calculation of ratio of earnings to fixed charges of Filed with this Report.
Ford.
15 Letter from PricewaterhouseCoopers LLP dated July 13, Filed with this Report.
1999 regarding unaudited interim financial information.
27 Financial Data Schedule. Filed with this Report.
</TABLE>
26
<PAGE> 1
EXHIBIT 12-A
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
CALCULATION OF RATIO OF EARNINGS
TO FIXED CHARGES
(IN MILLIONS)
<TABLE>
<CAPTION>
FIRST HALF FOR THE YEARS ENDED DECEMBER 31
------------------- ----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed Charges
Interest expense............. $3,468.2 $3,301.5 $6,910.4 $6,268.2 $6,235.7 $5,987.8 $4,226.3
Rents........................ 12.6 12.7 26.4 26.2 22.2 19.5 16.9
-------- -------- -------- -------- -------- -------- --------
Total fixed
charges............ 3,480.8 3,314.2 6,936.8 6,294.4 6,257.9 6,007.3 4,243.2
Earnings
Income before income taxes... 1,055.5 993.1 1,812.2 1,806.0 2,240.2 2,327.8 2,335.5
Less equity in net income of
affiliated companies...... 0.3 0.9 2.3 1.0 55.3 255.4 232.5
-------- -------- -------- -------- -------- -------- --------
Earnings before fixed
charges................... $4,536.0 $4,306.4 $8,746.7 $8,099.4 $8,442.8 $8,079.7 $6,346.2
======== ======== ======== ======== ======== ======== ========
Ratio of earnings to fixed
charges................... 1.3 1.3 1.3 1.3 1.3 1.3 1.5
======== ======== ======== ======== ======== ======== ========
</TABLE>
For purposes of the Ford Credit ratio, earnings consist of the sum of
pre-tax income from continuing operations before adjustment for minority
interests in consolidated subsidiaries, plus fixed charges. 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
Ford Motor Company and Subsidiaries
CALCULATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
(in millions)
<TABLE>
<CAPTION>
First For the Years Ended December 31
Half -----------------------------------------------
1999 1998 1997 1996 1995 1994
------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Earnings
Income before income taxes $ 6,575 $25,396 $10,939 $ 6,793 $ 6,705 $ 8.789
Equity in net (income)/loss of affiliates
plus dividends from affiliates (23) 78 121 36 179 (182)
Adjusted fixed charges a/ 4,524 9,215 10,911 10,801 10,556 8,122
------- ------- ------- ------- ------- -------
Earnings $11,076 $34,689 $21,971 $17,630 $17,440 $16,729
======= ======= ======= ======= ======= =======
Combined Fixed Charges and
Preferred Stock Dividends
Interest expense b/ $ 4,375 $ 8,919 $10,570 $10,464 $10,121 $7,787
Interest portion of rental expense c/ 120 245 309 300 396 265
Preferred stock dividend requirements of
majority owned subsidiaries and trusts d/ 28 55 55 55 199 160
------- ------- ------- ------- ------- ------
Fixed charges 4,523 9,219 10,934 10,819 10,716 8,212
Ford preferred stock dividend requirements e/ 11 122 82 95 459 472
------- ------- ------- ------- ------- ------
Total combined fixed charges
and preferred stock dividends $ 4,534 $ 9,341 $11,016 $10,914 $11,175 $8,684
======= ======= ======= ======= ======= ======
Ratios
Ratio of earnings to fixed charges 2.4 3.8 f/ 2.0 1.6 1.6 2.0
Ratio of earnings to combined fixed
charges and preferred stock dividends 2.4 3.7 f/ 2.0 1.6 1.6 1.9
</TABLE>
- - - - - -
a/ Fixed charges, as shown above, adjusted to exclude the amount of interest
capitalized during the period and preferred
stock dividend requirements of majority owned subsidiaries and trusts.
b/ Includes interest, whether expensed or capitalized, and amortization of debt
expense and discount or premium relating to any indebtedness.
c/ One-third of all rental expense is deemed to be interest.
d/ Preferred stock dividend requirements of Ford Holdings, Inc. (1995 - 1993)
increased to an amount representing the pre-tax earnings which would be
required to cover such dividend requirements based on Ford'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 Motor Company'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 2.0.
<PAGE> 1
EXHIBIT 15
Ford Motor Credit Company
The American Road
Dearborn, Michigan
Re: Ford Motor Credit Company Registration Statement Nos. 333-75177
333-45015 and 333-50611 on Form S-3
We are aware that our report dated July 13, 1999 accompanying the unaudited
interim financial information of Ford Motor Credit Company and subsidiaries for
the periods ended June 30, 1999 and 1998 and included in the Ford Motor Credit
Company Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 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 13, 1999
<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-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 868
<SECURITIES> 647
<RECEIVABLES> 100,318
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 147,996
<CURRENT-LIABILITIES> 0
<BONDS> 124,434
0
0
<COMMON> 25
<OTHER-SE> 10,997
<TOTAL-LIABILITY-AND-EQUITY> 147,996
<SALES> 0
<TOTAL-REVENUES> 9,939
<CGS> 0
<TOTAL-COSTS> 8,883
<OTHER-EXPENSES> 4,809
<LOSS-PROVISION> 606
<INTEREST-EXPENSE> 3,468
<INCOME-PRETAX> 1,056
<INCOME-TAX> 394
<INCOME-CONTINUING> 635
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 635
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
