-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NMW2Eh2FJfoCYy7NT4yqwLjx+RYpL4ONOI3dOAgBPwXG1+BOWTfDvKtjgTi/a2SI V6ccCZDRc8FPOKjrrWUjEA== 0000950124-99-004159.txt : 19990716 0000950124-99-004159.hdr.sgml : 19990716 ACCESSION NUMBER: 0000950124-99-004159 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990715 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FORD MOTOR CO CENTRAL INDEX KEY: 0000037996 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLES & PASSENGER CAR BODIES [3711] IRS NUMBER: 380549190 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-03950 FILM NUMBER: 99665368 BUSINESS ADDRESS: STREET 1: THE AMERICAN RD CITY: DEARBORN STATE: MI ZIP: 48121 BUSINESS PHONE: 3133223000 10-Q 1 FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND --- 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 number 1-3950 FORD MOTOR COMPANY ------------------------------------------------------ (Exact name of registrant as specified in its charter) Incorporated in Delaware 38-0549190 ------------------------------------- ----------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) The American Road, Dearborn, Michigan 48121 ----------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 313-322-3000 ------------ Indicate by checkmark 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 issuer's classes of common stock, as of the latest practicable date: As of June 30, 1999, the Registrant had outstanding 1,138,917,037 shares of Common Stock and 70,852,076 shares of Class B Stock. Exhibit index located on sequential page number 26 2 Ford Motor Company and Subsidiaries HIGHLIGHTS ----------
Second Quarter First Half ---------------------------- --------------------------- 1999 1998 1999 1998 ------------ ------------ ------------ ------------ (unaudited) (unaudited) Worldwide vehicle unit sales of cars and trucks (in thousands) - - North America 1,237 1,124 2,457 2,181 - - Outside North America 691 669 1,246 1,340 ----- ----- ----- ----- Total 1,928 1,793 3,703 3,521 ===== ===== ===== ===== Sales and revenues (in millions) - - Automotive $ 35,921 $ 31,309 $ 67,854 $ 60,385 - - Financial Services 6,361 5,980 12,313 13,488 --------- --------- --------- --------- Total $ 42,282 $ 37,289 $ 80,167 $ 73,873 ========= ========= ========= ========= Net income (in millions) - - Automotive $ 1,931 $ 2,051 $ 3,582 $ 3,286 - - Financial Services (excl. The Associates) 407 330 735 609 --------- --------- --------- --------- Subtotal 2,338 2,381 4,317 3,895 - - The Associates - - - 177 - - Gain on spin-off of The Associates - - - 15,955 --------- --------- --------- --------- Total $ 2,338 $ 2,381 $ 4,317 $ 20,027 ========= ========= ========= ========= Capital expenditures (in millions) - - Automotive $ 1,755 $ 1,659 $ 3,093 $ 3,760 - - Financial Services 140 153 284 251 --------- --------- --------- --------- Total $ 1,895 $ 1,812 $ 3,377 $ 4,011 ========= ========= ========= ========= Automotive capital expenditures as a percentage of sales 4.9% 5.3% 4.6% 6.2% Stockholders' equity at June 30 - - Total (in millions) $ 26,242 $ 23,070 $ 26,242 $ 23,070 - - After-tax return on Common and Class B stockholders' equity 36.9% 43.0% 35.0% 33.2% Automotive net cash at June 30 (in millions) - - Cash and marketable securities $ 23,959 $ 22,276 $ 23,959 $ 22,276 - - Debt 11,406 8,220 11,406 8,220 --------- --------- --------- --------- Automotive net cash $ 12,553 $ 14,056 $ 12,553 $ 14,056 ========= ========= ========= ========= After-tax return on sales - - North American Automotive 7.7% 7.3% 7.1% 6.2% - - Total Automotive 5.4% 6.6% 5.3% 5.5% Shares of Common and Class B Stock (in millions) - - Average number outstanding 1,211 1,212 1,211 1,211 - - Number outstanding at June 30 1,210 1,212 1,210 1,212 Common Stock price (per share) (adjusted to reflect The Associates spin-off) - - High $ 67-7/8 $ 59-1/8 $ 67-7/8 $ 59-1/8 - - Low 52-5/8 41-11/64 52-5/8 28-15/32 AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK AFTER PREFERRED STOCK DIVIDENDS Income assuming dilution - - Automotive $ 1.56 $ 1.65 $ 2.89 $ 2.65 - - Financial Services (excl. The Associates) 0.33 0.26 0.59 0.49 --------- --------- --------- --------- Subtotal 1.89 1.91 3.48 3.14 - - The Associates - - - 0.14 - - Premium on Series B Preferred Stock repurchase - - - (0.07) - - Gain on spin-off of The Associates - - - 12.90 --------- --------- --------- --------- Total $ 1.89 $ 1.91 $ 3.48 $ 16.11 ========= ========= ========= ========= Cash dividends $ 0.46 $ 0.42 $ 0.92 $ 0.84
-2- 3 Ford Motor Company and Subsidiaries VEHICLE UNIT SALES For the Periods Ended June 30, 1999 and 1998 (in thousands)
Second Quarter First Half ------------------------ -------------------------- 1999 1998 1999 1998 -------- -------- -------- -------- (unaudited) (unaudited) NORTH AMERICA United States Cars 448 367 852 758 Trucks 679 662 1,419 1,226 ----- ----- ----- ----- Total United States 1,127 1,029 2,271 1,984 Canada 80 68 137 142 Mexico 30 27 49 55 ----- ----- ----- ----- Total North America 1,237 1,124 2,457 2,181 EUROPE Britain 136 149 262 291 Germany 111 117 201 223 Italy 61 48 111 118 Spain 54 45 97 82 France 53 42 91 82 Other countries 154 103 253 211 ----- ----- ----- ----- Total Europe 569 504 1,015 1,007 OTHER INTERNATIONAL Brazil 34 52 56 94 Australia 33 34 64 64 Taiwan 15 19 32 48 Argentina 14 29 29 59 Japan 9 6 16 14 Other countries 17 25 34 54 ----- ----- ----- ----- Total other international 122 165 231 333 ----- ----- ----- ----- TOTAL WORLDWIDE VEHICLE UNIT SALES 1,928 1,793 3,703 3,521 ===== ===== ===== =====
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. Prior period restated to correct reported unit sales. -3- 4 Part I. Financial Information Item 1. Financial Statements Ford Motor Company and Subsidiaries CONSOLIDATED STATEMENT OF INCOME For the Periods Ended June 30, 1999 and 1998 (in millions)
Second Quarter First Half -------------------------- -------------------------- 1999 1998 1999 1998 ---------- ----------- ----------- ---------- (unaudited) (unaudited) AUTOMOTIVE SALES $ 35,921 $ 31,309 $ 67,854 $ 60,385 COSTS AND EXPENSES (Note 2) Costs of sales 30,526 26,156 58,141 51,510 Selling, administrative and other expenses 2,497 2,231 4,428 4,147 -------- -------- -------- -------- Total costs and expenses 33,023 28,387 62,569 55,657 OPERATING INCOME 2,898 2,922 5,285 4,728 Interest income 348 318 688 640 Interest expense 346 208 639 407 -------- -------- -------- -------- Net interest income 2 110 49 233 Equity in net income/(loss) of affiliated companies 0 18 50 8 Net expense from transactions with Financial Services (17) (39) (45) (87) -------- -------- -------- -------- INCOME/(LOSS) BEFORE INCOME TAXES - AUTOMOTIVE 2,883 3,011 5,339 4,882 FINANCIAL SERVICES REVENUES 6,361 5,980 12,313 13,488 COSTS AND EXPENSES Interest expense 1,825 1,825 3,713 4,195 Depreciation 2,391 2,158 4,548 4,195 Operating and other expenses 1,101 1,086 2,098 2,669 Provision for credit and insurance losses 372 360 763 1,068 -------- -------- -------- -------- Total costs and expenses 5,689 5,429 11,122 12,127 Net revenue from transactions with Automotive 17 39 45 87 Gain on spin-off of The Associates (Note 6) -- -- -- 15,955 -------- -------- -------- -------- INCOME BEFORE INCOME TAXES - FINANCIAL SERVICES 689 590 1,236 17,403 -------- -------- -------- -------- TOTAL COMPANY INCOME BEFORE INCOME TAXES 3,572 3,601 6,575 22,285 Provision for income taxes 1,198 1,192 2,203 2,164 -------- -------- -------- -------- INCOME BEFORE MINORITY INTERESTS 2,374 2,409 4,372 20,121 Minority interests in net income of subsidiaries 36 28 55 94 -------- -------- -------- -------- NET INCOME $ 2,338 $ 2,381 $ 4,317 $ 20,027 ======== ======== ======== ======== Income attributable to Common and Class B Stock after preferred stock dividends $ 2,334 $ 2,377 $ 4,310 $ 19,928 Average number of shares of Common and Class B Stock outstanding 1,211 1,212 1,211 1,211 AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK BASIC INCOME (Note 7) $ 1.93 $ 1.96 $ 3.57 $ 16.47 DILUTED INCOME (Note 7) $ 1.89 $ 1.91 $ 3.48 $ 16.11 CASH DIVIDENDS $ 0.46 $ 0.42 $ 0.92 $ 0.84
The accompanying notes are part of the financial statements. Prior period costs of sales and selling, administrative and other expenses were reclassified. -4- 5 Ford Motor Company and Subsidiaries CONSOLIDATED BALANCE SHEET (in millions)
June 30, December 31, 1999 1998 -------------- --------------- (unaudited) ASSETS AUTOMOTIVE Cash and cash equivalents $ 4,392 $ 3,685 Marketable securities 19,567 20,120 -------- -------- Total cash and marketable securities 23,959 23,805 Receivables 3,713 2,604 Inventories (Note 8) 6,347 5,656 Deferred income taxes 3,342 3,239 Other current assets 3,952 3,405 Current receivable from Financial Services 581 0 -------- -------- Total current assets 41,894 38,709 Equity in net assets of affiliated companies (Notes 4 & 5) 4,680 2,401 Net property 39,775 37,320 Deferred income taxes 3,355 3,175 Other assets 10,348 7,139 -------- -------- Total Automotive assets 100,052 88,744 FINANCIAL SERVICES Cash and cash equivalents 1,227 1,151 Investments in securities 915 968 Net receivables and lease investments 141,665 132,567 Other assets 16,694 13,227 Receivable from Automotive 752 888 -------- -------- Total Financial Services assets 161,253 148,801 -------- -------- TOTAL ASSETS $261,305 $237,545 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY AUTOMOTIVE Trade payables $ 13,286 $ 13,368 Other payables 3,979 2,755 Accrued liabilities 19,419 16,925 Income taxes payable 2,641 1,404 Debt payable within one year 1,348 1,121 Current payable to Financial Services 141 70 -------- -------- Total current liabilities 40,814 35,643 Long-term debt 10,058 8,713 Other liabilities 32,973 30,133 Deferred income taxes 981 751 Payable to Financial Services 611 818 -------- -------- Total Automotive liabilities 85,437 76,058 FINANCIAL SERVICES Payables 4,158 3,555 Debt 132,226 122,324 Deferred income taxes 5,653 5,488 Other liabilities and deferred income 6,332 6,034 Payable to Automotive 581 0 -------- -------- Total Financial Services liabilities 148,950 137,401 Company-obligated mandatorily redeemable preferred securities of a subsidiary trust holding solely junior subordinated debentures of the Company (Note 9) 676 677 STOCKHOLDERS' EQUITY Capital stock Preferred Stock, par value $1.00 per share (aggregate liquidation preference of $177 million) * * Common Stock, par value $1.00 per share (1,151 million shares issued) 1,151 1,151 Class B Stock, par value $1.00 per share (71 million shares issued) 71 71 Capital in excess of par value of stock 5,036 5,283 Accumulated other comprehensive income (2,173) (1,670) ESOP loan and treasury stock (697) (1,085) Earnings retained for use in business 22,854 19,659 -------- -------- Total stockholders' equity 26,242 23,409 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $261,305 $237,545 ======== ========
- - - - - *Less than $1 million The accompanying notes are part of the financial statements. -5- 6 Ford Motor Company and Subsidiaries CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS For the Periods Ended June 30, 1999 and 1998 (in millions)
First Half 1999 First Half 1998 --------------------------- -------------------------- Financial Financial Automotive Services Automotive Services ------------- ----------- ------------- ----------- (unaudited) (unaudited) CASH AND CASH EQUIVALENTS AT JANUARY 1 $ 3,685 $ 1,151 $ 6,316 $ 1,618 Cash flows from operating activities before securities trading 9,798 4,074 9,989 8,148 Net sales/(purchases) of trading securities 762 (86) (2,936) (43) ------- -------- ------- -------- Net cash flows from operating activities 10,560 3,988 7,053 8,105 Cash flows from investing activities Capital expenditures (3,093) (284) (3,760) (251) Purchase of leased assets - - (110) - Acquisitions of receivables and lease investments - (39,237) - (45,322) Collections of receivables and lease investments - 25,292 - 29,787 Net acquisitions of daily rental vehicles - (1,901) - (1,855) Purchases of securities (878) (533) (341) (1,416) Sales and maturities of securities 669 609 410 988 Proceeds from sales of receivables and lease investments - 5,005 - 5,448 Net investing activity with Financial Services (100) - 786 - Cash paid for acquisitions (Notes 3-5) (6,342) - - - Other (92) (6) (89) (629) ------- -------- ------- -------- Net cash used in investing activities (9,836) (11,055) (3,104) (13,250) Cash flows from financing activities Cash dividends (1,122) (2) (4,274) (3) Issuance/(Purchases) of Common Stock (246) - 210 - Preferred stock - Series B repurchase, Series A redemption - - (420) - Changes in short-term debt 84 6,263 180 3,871 Proceeds from issuance of other debt 1,653 13,874 337 14,820 Principal payments on other debt (160) (13,596) (1,182) (11,507) Net financing activity with Automotive - 100 - (786) Spin-off of The Associates cash - - - (508) Other 544 (26) (658) (169) ------- -------- ------- -------- Net cash (used in)/provided by financing activities 753 6,613 (5,807) 5,718 Effect of exchange rate changes on cash (53) (187) (26) 64 Net transactions with Automotive/Financial Services (717) 717 458 (458) ------- -------- ------- -------- Net increase/(decrease) in cash and cash equivalents 707 76 (1,426) 179 -------- -------- ------- -------- CASH AND CASH EQUIVALENTS AT JUNE 30 $ 4,392 $ 1,227 $ 4,890 $ 1,797 ======= ======== ======= ========
The accompanying notes are part of the financial statements. -6- 7 Ford Motor Company and Subsidiaries NOTES TO FINANCIAL STATEMENTS (unaudited) 1. Financial Statements - The financial data presented herein are unaudited, but in the opinion of management reflect those 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 (the "10-K Report") for the year ended December 31, 1998. For purposes of Notes to Financial Statements, "Ford" or the "Company" means Ford Motor Company and its majority owned subsidiaries unless the context requires otherwise. Certain amounts for prior periods were reclassified to conform with present period presentation. 2. Selected Automotive costs and expenses are summarized as follows (in millions):
Second Quarter First Half --------------------- --------------------- 1999 1998 1999 1998 --------- -------- --------- -------- Depreciation $802 $679 $1,548 $1,359 Amortization 590 620 1,162 1,338
Acquisition of AB Volvo's worldwide passenger car business ("Volvo Car") - Second quarter 1999 financial results include a one-time profit reduction of $146 million, or $0.11 per share of diluted Common and Class B Stock, related to the acquisition of Volvo Car. Under U.S. accounting rules, we were required to write-up inventory acquired to fair value, resulting in a one-time increase to cost of sales. Dissolution of AutoEuropa Joint Venture - Effective January 1, 1999, our joint venture for the production of minivans with Volkswagen AG in Portugal (AutoEuropa) was dissolved resulting in a $255 million pre-tax gain ($165 million after-tax) in the first quarter of 1999. 3. Purchase of AB Volvo's Worldwide Passenger Car Business - On March 31, 1999, we 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 our 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. 4. Purchase of Kwik-Fit Holdings plc - As of June 30, 1999, we 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. Our 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. We expect to purchase the remaining Kwik-Fit shares by the end of July 1999. The purchase has been funded from our 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 our financial statements on a consolidated basis beginning in the third quarter of 1999. Our investment in Kwik-Fit at June 30, 1999, is included in Equity in Net Assets of Affiliated Companies on our financial statements. -7- 8 Ford Motor Company and Subsidiaries NOTES TO FINANCIAL STATEMENTS (unaudited) 5. Purchase of Plastic Omnium - On June 30, 1999, we 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 our 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 our financial statements on a consolidated basis beginning in the third quarter of 1999. Our investment in Plastic Omnium at June 30, 1999 is included in Equity in Net Assets of Affiliated Companies on our financial statements. 6. Spin-off of The Associates - On March 2, 1998, the Board of Directors of the Company approved the spin-off of The Associates by declaring a dividend on Ford's outstanding shares of Common and Class B Stock consisting of Ford's 80.7% interest (279.5 million shares) in The Associates. The Board of Directors also declared a dividend in cash on shares of Company stock held in U.S. employee savings plans equal to the market value of The Associates stock to be distributed per share of the Company's Common and Class B Stock. Both the spin-off dividend and the cash dividend were paid on April 7, 1998 to stockholders of record on March 12, 1998. Holders of Ford Common and Class B Stock on the record date received 0.262085 shares of The Associates common stock for each share of Ford stock, and participants in U.S. employee savings plans on the record date received $22.12 in cash per share of Ford stock, based on the volume-weighted average price of The Associates stock of $84.3849 per share on April 7, 1998. The total value of the distribution (including the $3.2 billion cash dividend) was $26.8 billion or $22.12 per share of Ford stock. As a result of the spin-off of The Associates, Ford realized a gain of $15,955 million based on the fair value of The Associates as of the record date, March 12, 1998, in the first quarter of 1998. Ford received a ruling from the U.S. Internal Revenue Service that the distribution qualified as a tax-free transaction for U.S. federal income tax purposes. The Company's results in the first quarter of 1998 include Ford's share of The Associates earnings through the record date, March 12 ($177 million, or $0.14 a share). -8- 9 Ford Motor Company and Subsidiaries NOTES TO FINANCIAL STATEMENTS (unaudited) 7. Income Per Share of Common and Class B Stock - Basic income per share of Common and Class B Stock is calculated by dividing the income attributable to Common and Class B Stock by the average number of shares of Common and Class B Stock outstanding during the applicable period, adjusted for shares issuable under employee savings and compensation plans. The Company had Series A Preferred Stock convertible to Common Stock until January 9, 1998. Other obligations, such as stock options, are considered to be dilutive potential common stock. The calculation of diluted income per share of Common and Class B Stock takes into account the effect of dilutive potential common stock. Income per share of Common and Class B Stock was as follows (in millions, except per share amounts):
Second Quarter 1999 Second Quarter 1998 ----------------------- ----------------------- Income Shares Income Shares ---------- ---------- ---------- ---------- Net income $2,338 1,211 $ 2,381 1,212 Preferred stock dividend requirements (4) - (4) - Issuable and uncommitted ESOP shares - (3) - (2) ------ ----- ------- ----- Basic income and shares $2,334 1,208 $ 2,377 1,210 Basic income per share $ 1.93 $ 1.96 Basic income and shares $2,334 1,208 $ 2,377 1,210 Net dilutive effect of options - 29 - 33 Convertible preferred stock and other - - - - ------ ----- ------- ----- Diluted income and shares $2,334 1,237 $ 2,377 1,243 Diluted income per share $ 1.89 $ 1.91 First Half 1999 First Half 1998 ----------------------- ----------------------- Income Shares Income Shares ---------- ---------- ---------- ---------- Net income $4,317 1,211 $20,027 1,211 Preferred stock dividend requirements (7) - (99) - Issuable and uncommitted ESOP shares - (4) - (1) ------ ----- ------- ----- Basic income and shares $4,310 1,207 $19,928 1,210 Basic income per share $ 3.57 $ 16.47 Basic income and shares $4,310 1,207 $19,928 1,210 Net dilutive effect of options - 30 - 26 Convertible preferred stock and other - - - 1 ------ ----- ------- ----- Diluted income and shares $4,310 1,237 $19,928 1,237 Diluted income per share $ 3.48 $ 16.11
8. Automotive Inventories are summarized as follows (in millions):
June 30, December 31, 1999 1998 ----------- ------------ Raw materials, work in process and supplies $2,642 $2,887 Finished products 3,705 2,769 ------ ------ Total inventories $6,347 $5,656 ====== ====== U.S. inventories $2,176 $1,832
9. Company-Obligated Mandatorily Redeemable Preferred Securities of a Subsidiary Trust - The sole asset of Ford Motor Company Capital Trust I (the "Trust"), which is the obligor on the Preferred Securities of such Trust, is $632 million principal amount of 9% Junior Subordinated Debentures due 2025 of Ford Motor Company. -9- 10 Ford Motor Company and Subsidiaries NOTES TO FINANCIAL STATEMENTS (unaudited) 10. Comprehensive Income - Other comprehensive income includes foreign currency translation adjustments, minimum pension liability adjustments, and net unrealized gains and losses on investments in equity securities. Total comprehensive income is summarized as follows (in millions):
Second Quarter First Half ----------------------- ---------------------- 1999 1998 1999 1998 --------- --------- --------- -------- Net income $2,338 $2,381 $4,317 $20,027 Other comprehensive income (353) (80) (503) (268) ------ ------ ------ ------- Total comprehensive income $1,985 $2,301 $3,814 $19,759 ====== ====== ====== =======
11. Segment Information - Ford has identified four primary operating segments: Automotive, Visteon, Ford Credit and Hertz. Segment selection was based upon internal organizational structure, the way in which these operations are managed and their performance evaluated by management and our Board of Directors, the availability of separate financial results and materiality considerations. Segment detail is summarized as follows (in millions):
Automotive Sector Financial Services Sector ----------------- -------------------------- Total Total Second Quarter Auto- Ford Other Elims/ Auto Fin Svcs motive Visteon Credit Hertz Fin Svcs Other Sector Sector ------ ------- ------ ----- -------- ----- ------ ------- 1999 Revenues External customer $35,545 $ 449 $ 4,928 $ 1,162 $ 280 $ (82) $ 35,921 $ 6,361 Intersegment 1,517 4,614 91 8 22 (6,252) 0 0 ------- ------- -------- ------- ------- -------- -------- -------- Total Revenues $37,062 $ 5,063 $ 5,019 $ 1,170 $ 302 $ (6,334) $ 35,921 $ 6,361 ======= ======= ======== ======= ======= ======== ======== ======== Net income $ 1,649 $ 282 $ 335 $ 88 $ 3 $ (19) $ 1,931 $ 407 1998 Revenues External customer $31,042 $ 362 $ 4,786 $ 1,045 $ 145 $ (91) $ 31,309 $ 5,980 Intersegment 1,256 4,363 65 7 (27) (5,664) 0 0 ------- ------- -------- ------- ------- -------- -------- -------- Total Revenues $32,298 $ 4,725 $ 4,851 $ 1,052 $ 118 $ (5,755) $ 31,309 $ 5,980 ======= ======= ======== ======= ======= ======== ======== ======== Net income $ 1,810 $ 241 $ 300 $ 75 $ (31) $ (14) $ 2,051 $ 330 Automotive Sector Financial Services Sector ----------------- ------------------------- Total Total First Half Auto- Ford Other Elims/ Auto Fin Svcs motive Visteon Credit Hertz Fin Svcs Other Sector Sector ------ -------- ------ ----- -------- ----- ------ ------ 1999 Revenues External customer $67,142 $ 866 $ 9,791 $ 2,189 $ 336 $ (157) $ 67,854 $ 12,313 Intersegment 2,705 8,969 148 16 93 (11,931) 0 0 ------- ------- -------- ------- ------- -------- -------- -------- Total Revenues $69,847 $ 9,835 $ 9,939 $ 2,205 $ 429 $(12,088) $ 67,854 $ 12,313 ======= ======= ======== ======= ======= ======== ======== ======== Net income $ 3,092 $ 490 $ 635 $ 137 $ (9) $ (28) $ 3,582 $ 735 Total assets $94,829 $11,208 $147,996 $10,123 $10,607 $(13,458) $100,052 $161,253 1998 Revenues External customer $59,908 $ 669 $ 9,278 $ 1,938 $ 2,262 $ (182) $ 60,385 $ 13,488 Intersegment 2,487 8,434 132 15 104 (11,172) 0 0 ------- ------ -------- ------- ------- -------- -------- -------- Total Revenues $62,395 $9,103 $ 9,410 $ 1,953 $ 2,366 $(11,354) $ 60,385 $ 13,488 ======= ====== ======== ======= ======= ======== ======== ======== Net income $ 2,856 $ 430 $ 578 $ 110 $16,116 a/ $ (63) $ 3,286 $ 16,741 Total assets $81,994 $9,080 $128,219 $ 8,741 $ 7,619 $ (7,382) $ 86,921 $141,350 - - - - - -
a/ Includes $15,955 non-cash gain (not taxed) on spin-off of The Associates in the first quarter of 1998 (Note 6). "Other Financial Services" data is an aggregation of miscellaneous smaller Financial Services Sector business components, including Ford Motor Land Development Corporation, Ford Leasing Development Company, Ford Leasing Corporation, and Granite Management Corporation, and certain unusual transactions (footnoted). Also included is data for The Associates, which was spun-off from Ford in 1998. "Eliminations/Other" data includes intersegment eliminations and minority interest calculations. Interest income for the operating segments in the Financial Services Sector is reported as "Revenue". Included in the Visteon segment's external customer revenues are sales to outside fabricators for inclusion in components sold to Ford's Automotive segment. -10- 11 [PricewaterhouseCoopers LLP letterhead] REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders Ford Motor Company We have reviewed the consolidated balance sheet of Ford Motor Company and Subsidiaries as of June 30, 1999 and the related consolidated statement of income for each of the three-month and six-month periods ended June 30, 1999, and condensed consolidated statement of cash flows for the six-month period 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 reviews, 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, stockholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated January 21, 1999, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of 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 July 13, 1999 -11- 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations OVERVIEW Unless otherwise indicated, our 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 we purchased on March 31, 1999. Our 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. We were 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, our 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. Our 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 our operations by major business sector for the second quarter of 1999 and 1998 are shown below (in millions).
Second Quarter Net Income/(Loss) -------------------------------------- 1999 O/(U) 1999 1998 1998 ------------ ------------ ----------- Automotive Sector $1,931 $2,051 $(120) Financial Services Sector 407 330 77 ------ ------ ---- Total Company $2,338 $2,381 $ (43) ====== ====== =====
Automotive Sector Worldwide earnings for our 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, our 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).
Second Quarter Net Income/(Loss) -------------------------------------- 1999 O/(U) 1999 1998 1998 ------------ ------------ ----------- 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) ====== ====== =====
-12- 13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) 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 our 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. Our 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. Our 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, our 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 to achieve our 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. Our share of those unit sales was 11.5% in the second quarter of 1999, up 1.1 percentage points from a year ago. Our market share increased because of the addition of Volvo Car sales. Our 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. Our 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. Our Visteon operations, included in our 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 our 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).
Second Quarter Net Income/(Loss) ------------------------------------- 1999 O/(U) 1999 1998 1998 ---------- ----------- ----------- 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
-13- 14 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Ford Credit's consolidated net income in the second quarter of 1999 was $335 million, up $35 million or 12% from a year ago. The increase in earnings reflects primarily higher financing volumes, improved credit loss performance and lower effective tax rates, offset partially by lower net financing margins. 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 our operations by major business sector for the first half of 1999 and 1998 are shown below (in millions).
First Half Net Income/(Loss) -------------------------------------- 1999 O/(U) 1999 1998 1998 ------------ ------------ ----------- 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) ====== ======= ========
- - - - - * Through March 12, 1998 Our 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 our 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).
First Half Net Income/(Loss) ---------------------------------------- 1999 O/(U) 1999 1998 1998 ------------ ------------ ------------ 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 ====== ====== ====
-14- 15 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) 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. Our 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 our 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. Our 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. Our 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. Our 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).
First Half Net Income/(Loss) --------------------------------------- 1999 O/(U) 1999 1998 1998 ----------- ------------ ------------ 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) ==== ======= =========
- - - - - * Through March 12, 1998 -15- 16 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) LIQUIDITY AND CAPITAL RESOURCES Automotive Sector At June 30, 1999, our 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, our Automotive sector had total debt of $11.4 billion, compared with $9.8 billion at December 31, 1998. This amount was 30.3% of our total capitalization (that is, the sum of our 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 our option, by any affiliate of Ford; however, any borrowing by an affiliate will be guaranteed by Ford. We also have 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, we 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, our 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, our 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- 17 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) 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, we 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 our 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, we 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. Our 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. We expect to purchase the remaining Kwik-Fit shares by the end of July 1999. The purchase has been funded from our 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 our financial statements on a consolidated basis beginning in the third quarter of 1999. Our investment in Kwik-Fit at June 30, 1999, is included in Equity in Net Assets of Affiliated Companies on our financial statements. PLASTIC OMNIUM On June 30, 1999, we 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 our 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 our financial statements on a consolidated basis beginning in the third quarter of 1999. Our investment in Plastic Omnium at June 30, 1999 is included in Equity in Net Assets of Affiliated Companies on our financial statements. -17- 18 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) 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, we initiated a global Y2K program to manage our overall Y2K compliance effort. As part of this program, we established a global Central Program Office to coordinate our Y2K compliance efforts. We also established a Y2K Steering Committee comprised of senior executives to address compliance issues. Our 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, we 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 our 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 our 10-K Report.) We 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- 19 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) YEAR 2000 PROGRAM TIMING Status as of June 30, 1999
--------------------------------------------------------------------- 1996 1997 1998 1999 2000 --------------------------------------------------------------------- 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%
- -------------------- (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- 20 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Y2K Costs Including Volvo, we estimate that we will spend about $400 million for our Y2K compliance efforts. We 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. Our annual Y2K costs relating to information technology have represented and are expected in the future to represent about 10% of our total annual information technology budget. Y2K Contingency Plans We have 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. We anticipate having each of these types of hedges, and we will comply with the requirements of SFAS 133 when we adopt it. Based on the May 1999 announcement by the Financial Accounting Standards Board to delay the implementation date by one year, we expect to adopt SFAS 133 beginning January 1, 2001. We have not yet determined the effect of adopting SFAS 133. OTHER FINANCIAL INFORMATION PricewaterhouseCoopers LLP, our independent public accountants, performed a limited review of the financial data presented on pages 2 through 10 inclusive. The review was performed in accordance with standards for such reviews established by the American Institute of Certified Public Accountants. The review did not constitute an audit; accordingly, PricewaterhouseCoopers LLP did not express an opinion on the aforementioned data. The financial data include any material adjustments or disclosures proposed by PricewaterhouseCoopers LLP as a result of their review. -20- 21 Part II. Other Information Item 1. Legal Proceedings Product Liability Matters Bronco Rollover Jury Verdict. On July 12, 1999, a state court jury in Modesto, California returned a verdict against us stemming from a 1993 accident in which three family members were killed when their 1978 Bronco rolled over. The jury concluded that we were seventy-eight percent responsible for the deaths, and awarded the family $6 million in compensatory damages and $290 million in punitive damages. We believe this result is inconsistent with the evidence introduced at trial and will appeal the verdict. Class Actions TFI Module. (Previously discussed in the third full paragraph on page 23 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 third paragraph on page 16 of Ford'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 first full paragraph on page 25 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. We have 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). The Company 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. We are 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- 22 Item 1. Legal Proceedings (Continued) 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. We plan 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 second paragraph on page 22 of the 10-K Report). CCA has informed us that it intends to withdraw its appeal. Item 4. Submission of Matters to a Vote of Security-Holders On May 13, 1999, the 1999 Annual Meeting of Stockholders of the Company was held. Following is a brief description of the matters voted upon at the meeting and a tabulation of the voting therefor: Proposal 1 Election of Directors. The following persons were elected directors of the Company based on the number of votes set forth opposite their respective names:
Number of Votes ---------------------------------------------------------- Nominee For Not For - ---------------------------------- -------------------- --------------- Michael D. Dingman 1,711,618,512 14,046,708 Edsel B. Ford II 1,713,799,944 11,865,276 William C. Ford 1,711,968,811 13,696,409 William C. Ford, Jr. 1,713,735,475 11,929,745 Irvine O. Hockaday, Jr. 1,713,062,885 12,602,335 Marie-Josee Kravis 1,712,775,482 12,889,738 Ellen R. Marram 1,712,796,630 12,868,590 Jacques A. Nasser 1,711,705,773 13,959,447 Homer A. Neal 1,712,889,782 12,775,438 Carl E. Reichardt 1,710,486,412 15,178,808 John L. Thornton 1,709,564,006 16,101,214
There were no broker non-votes with respect to the election of directors. Proposal 2 Ratification of Selection of Independent Public Accountants. A proposal to ratify the selection of PricewaterhouseCoopers LLP as independent public accountants to audit the books of account and other corporate records of the Company for 1999 was adopted, with 1,714,445,462 votes cast for, 4,936,012 votes cast against, 6,283,746 votes abstained and no broker non-votes. Proposal 3 Relating to Political Non-partisanship. A proposal relating to the affirmation of the Company's Political Non-partisanship was rejected, with 1,498,135,126 votes cast against, 58,164,100 votes cast for, 50,435,353 votes abstained and 118,930,641 broker non-votes. Proposal 4 Relating to a Report on Global Warming. A proposal relating to a Company report on Global Warming was rejected, with 1,503,797,362 votes cast against, 35,907,203 votes cast for, 67,030,013 votes abstained and 118,930,641 broker non-votes. -22- 23 Item 4. Submission of Matters to a Vote of Security-Holders (Continued) Proposal 5 Relating to a Proposed Set of Global Corporate Standards. A proposal relating to a review and, where applicable, amendment of the Company's global corporate standards was rejected, with 1,493,807,040 votes cast against, 41,814,773 votes cast for, 71,112,766 votes abstained and 118,930,641 broker non-votes. Proposal 6 Relating to a Proposed Study to Add Ford Employee(s) to the Board of Directors. A proposal relating to a proposed study to add Ford employee(s) to the Board of Directors was rejected, with 1,530,516,619 votes cast against, 53,221,003 votes cast for, 22,996,927 votes abstained and 118,930,641 broker non-votes. Proposal 7 Relating to Independent Directors on Key Board Committees. A proposal relating to independent directors on key board committees was rejected, with 1,300,759,370 votes cast against, 285,135,202 votes cast for, 20,840,007 votes abstained and 118,930,641 broker non-votes. Item 5. Other Information Governmental Standards Mobile Source Emissions Control (Previously discussed in the second paragraph on page 13 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 our 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 16 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. -23- 24 Supplemental Schedule Ford Motor Company CONDENSED FINANCIAL INFORMATION OF SUBSIDIARY (in millions)
Ford Capital B.V. June 30, December 31, 1999 1998 -------------- -------------- (unaudited) Current assets $ 709 $ 621 Noncurrent assets 2,308 2,388 ------ ------ Total assets $3,017 $3,009 ====== ====== Current liabilities $ 484 $ 394 Noncurrent liabilities 2,304 2,430 Minority interests in net assets of subsidiaries 17 15 Stockholder's equity 212 170 ------ ------ Total liabilities and stockholder's equity $3,017 $3,009 ====== ====== Second Quarter First Half --------------------- ---------------------- 1999 1998 1999 1998 -------- --------- -------- --------- (unaudited) (unaudited) Sales and other revenue $699 $638 $1,382 $1,279 Operating income 47 3 131 30 Income before income taxes 35 12 104 30 Net income/(loss) 20 8 61 14
Ford Capital B.V., a wholly owned subsidiary of Ford Motor Company, was established primarily for the purpose of raising funds through the issuance of commercial paper and debt securities. Ford Capital B.V. also holds shares of the capital stock of Ford Nederland B.V., Ford Motor Company (Belgium) N.V., Ford Motor Company A/S (Denmark), Ford Poland S.A., and Ford Distribution Sp. z.o.o., Ltd. Substantially all of the assets of Ford Capital B.V., other than its ownership interests in subsidiaries, represent receivables from Ford Motor Company or its consolidated subsidiaries. -24- 25 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 The Registrant filed the following Current Reports on Form 8-K during the quarter ended June 30, 1999: Current Report on Form 8-K dated April 12, 1999 included information relating to Ford's agreement to acquire Kwik-Fit. Current Report on Form 8-K dated April 15, 1998 included information relating to Ford's first quarter 1999 financial results. 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 COMPANY -------------------------------------- (Registrant) Date: July 15, 1999 By: /s/ W. A. Swift -------------------------------------- W. A. Swift Vice President - Corporate Controller (principal accounting officer) -25- 26 EXHIBIT INDEX Designation Description ----------------------- ---------------------------------------------------- Exhibit 12 Ford Motor Company and Subsidiaries Calculation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends. Exhibit 15 Letter of PricewaterhouseCoopers LLP, Independent Public Accountants, dated July 13, 1999, relating to Financial Information. Exhibit 27.1 Financial Data Schedule, Automotive Sector, for the Six Months Ended June 30, 1999 Exhibit 27.2 Financial Data Schedule, Financial Services Sector, for the Six Months Ended June 30, 1999 Exhibit 27.3 Financial Data Schedule, Conglomerate Totals, for the Six Months Ended June 30, 1999 -26- EX-12 2 FORD MOTOR CO. AND SUBSIDIARIES CALCULATION 1 Exhibit 12 Ford Motor Company and Subsidiaries CALCULATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (in millions)
First For the Years Ended December 31 Half ----------------------------------------------- 1999 1998 1997 1996 1995 1994 ------- -------- -------- -------- -------- -------- 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
- - - - - - 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. EX-15 3 LETTER OF PRICEWATERHOUSECOOPERS LLP 1 Exhibit 15 July 13, 1999 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Re: Ford Motor Company Registration Statements Nos. 2-95018, 2-95020, 33-9722, 33-14951, 33-19036, 33-36043, 33-36061, 33-39402, 33-50194, 33-50238, 33-54275, 33-54283, 33-54344, 33-54348, 33-54735, 33-54737, 33-58255, 33-58785, 33-58861, 33-61107, 33-62227, 33-64605, 33-64607, 333-02735, 333-20725, 333-27993, 333-28181, 333-46295, 333-47443, 333-47445, 333-47451, 333-47733, 333-47735, 333-49545, 333-49547, 333-49551, 333-52399, 333-58695, 333-58697, 333-58701, 333-65703, 333-70447, and 333-74313 on Form S-8, and 333-52485, 333-67209, 333-67211, and 333-82625 on Form S-3 Commissioners: We are aware that our report dated July 13, 1999 on our review of interim financial information of Ford Motor Company (the "Company") as of and for the period ended June 30, 1999 and included in the Company's Quarterly Report on Form 10-Q for the quarter then ended is incorporated by reference in the afore referenced Registration Statements. Very truly yours, PricewaterhouseCoopers LLP EX-27.1 4 FINANCIAL DATA SCHEDULE AUTOMOTIVE SECTOR WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 Automotive Sector - This schedule contains summary financial information extracted from Ford's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 and is qualified in its entirety by reference to such financial statements. 0000037996 FORD MOTOR COMPANY 1,000,000 6-MOS DEC-31-1999 JUN-30-1999 4,392 19,567 3,713 128 6,347 41,894 86,588 46,813 100,052 40,814 10,058 0 0 0 0 0 67,854 67,854 58,141 62,569 0 0 639 5,339 0 0 0 0 0 0 0 0
EX-27.2 5 FINANCIAL DATA SCHEDULE FINANCIAL SERVICES SECTOR
5 Financial Services Sector - This schedule contains summary financial information extracted from Ford's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 and is qualified in its entirety by reference to such financial statements. The error message indicated on this FDS is a result of the EDGAR system's inability to accept multiple Article 5 Financial Data Schedules. Accordingly, the error message should be ignored. 0000037996 FORD MOTOR COMPANY 1,000,000 6-MOS DEC-31-1999 JUN-30-1999 1,227 915 141,665 0 0 0 0 0 161,253 0 132,226 0 0 0 0 0 12,313 12,313 0 11,122 0 763 3,713 1,236 0 0 0 0 0 0 0 0
EX-27.3 6 FINANCIAL DATA SCHEDULE CONGLOMERATE TOTAL
CT Conglomerate Totals - This schedule contains summary financial information extracted from Ford's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 and is qualified in its entirety by reference to such financial statements. 0000037996 FORD MOTOR COMPANY 1,000,000 6-MOS DEC-31-1999 JUN-30-1999 261,305 0 0 1,222 25,020 261,305 80,167 2,203 4,317 0 0 0 4,317 3.57 3.48
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