-----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, GKf7wd6VnHVY3Gnc8RJFS3VQ2MJZZOwYupQNIQ2VkqDJVMn+nhpvWh/h4fKf/Pnj QwpTDax02UqPR6J8vDT5+A== 0000037996-99-000012.txt : 19990420 0000037996-99-000012.hdr.sgml : 19990420 ACCESSION NUMBER: 0000037996-99-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990419 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: 99596642 BUSINESS ADDRESS: STREET 1: THE AMERICAN RD CITY: DEARBORN STATE: MI ZIP: 48121 BUSINESS PHONE: 3133223000 10-Q 1 FIRST QUARTER 10-Q 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 March 31, 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 March 31, 1999, the Registrant had outstanding 1,139,920,793 shares of Common Stock and 70,852,076 shares of Class B Stock. Exhibit index located on sequential page number 19
Ford Motor Company and Subsidiaries HIGHLIGHTS ---------- First Quarter ---------------------------- 1999 1998 ------------ ------------ (unaudited) Worldwide vehicle unit sales of cars and trucks (in thousands) - North America 1,220 1,057 - Outside North America 554 670 ----- ----- Total 1,774 1,727 ===== ===== Sales and revenues (in millions) - Automotive $ 31,933 $ 29,076 - Financial Services 5,952 7,508 --------- --------- Total $ 37,885 $ 36,584 ========= ========= Net income (in millions) - Automotive $ 1,651 $ 1,235 - Financial Services (including income of The Associates through March 12, 1998) 328 456 --------- --------- Subtotal 1,979 1,691 - Gain on spin-off of The Associates - 15,955 --------- --------- Total $ 1,979 $ 17,646 ========= ========= Capital expenditures (in millions) - Automotive $ 1,338 $ 2,101 - Financial Services 144 98 --------- --------- Total $ 1,482 $ 2,199 ========= ========= Automotive capital expenditures as a percentage of sales 4.2% 7.2% Stockholders' equity at March 31 - Total (in millions) $ 24,747 $ 21,497 - After-tax return on Common and Class B stockholders' equity 33.0% 24.8% Automotive net cash at March 31 (in millions) - Cash and marketable securities $ 23,456 $ 21,277 - Debt 11,477 8,178 --------- --------- Automotive net cash $ 11,979 $ 13,099 ========= ========= After-tax return on sales - North American Automotive 6.6% 5.0% - Total Automotive 5.2% 4.3% Shares of Common and Class B Stock (in millions) - Average number outstanding 1,211 1,210 - Number outstanding at March 31 1,211 1,213 Common Stock price (per share) (adjusted to reflect The Associates spin-off) - High $66-1/2 $43-5/8 - Low 55-1/4 28-5/16 AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK AFTER PREFERRED STOCK DIVIDENDS Income assuming dilution - Automotive $ 1.33 $ 0.99 - Financial Services (including income of The Associates through March 12, 1998) 0.27 0.37 --------- --------- Subtotal 1.60 1.36 - Premium on Series B Preferred Stock repurchase - (0.07) - Gain on spin-off of The Associates - 12.94 --------- --------- Total $ 1.60 $ 14.23 ========= ========= Cash dividends $ 0.46 $ 0.42
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Ford Motor Company and Subsidiaries VEHICLE UNIT SALES ------------------ For the Periods Ended March 31, 1999 and 1998 (in thousands) First Quarter -------------------- 1999 1998 -------- -------- (unaudited) North America United States Cars 404 391 Trucks 739 564 ----- ----- Total United States 1,143 955 Canada 58 74 Mexico 19 28 ----- ----- Total North America 1,220 1,057 Europe Britain 126 142 Germany 90 106 Italy 50 70 Spain 43 37 France 38 39 Other countries 99 108 ----- ----- Total Europe 446 502 Other international Australia 30 30 Brazil 22 42 Taiwan 17 29 Argentina 14 30 Japan 7 8 Other countries 18 29 ----- ----- Total other international 108 168 ----- ----- Total worldwide vehicle unit sales 1,774 1,727 ===== =====
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-
Part 1. Financial Information ----------------------------- Item 1. Financial Statements - ----------------------------- Ford Motor Company and Subsidiaries CONSOLIDATED STATEMENT OF INCOME -------------------------------- For the Periods Ended March 31, 1999 and 1998 (in millions, except amounts per share) First Quarter ----------------------- 1999 1998 -------- -------- (unaudited) AUTOMOTIVE Sales $31,933 $29,076 Costs and expenses (Note 2) Costs of sales 27,615 25,354 Selling, administrative and other expenses 1,931 1,916 ------- ------- Total costs and expenses 29,546 27,270 Operating income 2,387 1,806 Interest income 340 322 Interest expense 293 199 ------- ------- Net interest income 47 123 Equity in net income/(loss) of affiliated 50 (10) companies Net expense from transactions with Financial Services (28) (48) ------- ------- Income before income taxes - Automotive 2,456 1,871 FINANCIAL SERVICES Revenues 5,952 7,508 Costs and expenses Interest expense 1,888 2,370 Depreciation 2,157 2,037 Operating and other expenses 997 1,583 Provision for credit and insurance losses 391 708 ------- ------- Total costs and expenses 5,433 6,698 Net revenue from transactions with Automotive 28 48 Gain on spin-off of The Associates (Note 5) - 15,955 ------- ------- Income before income taxes - Financial Services 547 16,813 -------- ------- TOTAL COMPANY Income before income taxes 3,003 18,684 Provision for income taxes 1,005 972 ------- ------- Income before minority interests 1,998 17,712 Minority interests in net income of subsidiaries 19 66 ------- ------- Net income $ 1,979 $17,646 ======= ======= Income attributable to Common and Class B Stock after preferred stock dividends $ 1,975 $17,551 Average number of shares of Common and Class B Stock outstanding 1,211 1,210 AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK Basic income (Note 6) $ 1.64 $ 14.48 Diluted income (Note 6) $ 1.60 $ 14.23 Cash dividends $ 0.46 $ 0.42
The accompanying notes are part of the financial statements. Prior period costs of sales and selling, administrative and other expenses restated. -4-
Ford Motor Company and Subsidiaries CONSOLIDATED BALANCE SHEET -------------------------- (in millions) March 31, December 31, 1999 1998 ------------ -------------- (unaudited) ASSETS Automotive Cash and cash equivalents $ 4,187 $ 3,685 Marketable securities 19,269 20,120 -------- -------- Total cash and marketable securities 23,456 23,805 Receivables 2,668 2,604 Inventories (Note 7) 5,542 5,656 Deferred income taxes 3,169 3,239 Other current assets 3,174 3,405 Current receivable from Financial Services 284 0 -------- -------- Total current assets 38,293 38,709 Equity in net assets of affiliated companies (Note 3) 9,210 2,401 Net property 36,882 37,320 Deferred income taxes 3,056 3,175 Other assets 6,999 7,139 -------- -------- Total Automotive assets 94,440 88,744 Financial Services Cash and cash equivalents 1,743 1,151 Investments in securities 804 968 Net receivables and lease investments 133,976 132,567 Other assets 14,590 13,227 Receivable from Automotive 958 888 -------- -------- Total Financial Services assets 152,071 148,801 -------- -------- Total assets $246,511 $237,545 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Automotive Trade payables $ 12,489 $ 13,368 Other payables 2,290 2,755 Accrued liabilities 20,000 16,925 Income taxes payable 1,529 1,404 Debt payable within one year 1,501 1,121 Current payable to Financial Services 0 70 -------- -------- Total current liabilities 37,809 35,643 Long-term debt 9,976 8,713 Other liabilities 31,240 30,133 Deferred income taxes 745 751 Payable to Financial Services 958 818 -------- -------- Total Automotive liabilities 80,728 76,058 Financial Services Payables 3,614 3,555 Debt 124,887 122,324 Deferred income taxes 5,754 5,488 Other liabilities and deferred income 5,821 6,034 Payable to Automotive 284 0 -------- -------- Total Financial Services liabilities 140,360 137,401 Company-obligated mandatorily redeemable preferred securities of a subsidiary trust holding solely junior subordinated debentures of the Company (Note 8) 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 5,147 5,283 Accumulated other comprehensive income (1,820) (1,670) ESOP loan and treasury stock (879) (1,085) Earnings retained for use in business 21,077 19,659 -------- -------- Total stockholders' equity 24,747 23,409 -------- -------- Total liabilities and stockholders' equity $246,511 $237,545 ======== ======== - - - - - *Less than $1 million
The accompanying notes are part of the financial statements. -5-
Ford Motor Company and Subsidiaries CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS ---------------------------------------------- For the Periods Ended March 31, 1999 and 1998 (in millions) First Quarter 1999 First Quarter 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 2,957 1,830 3,138 4,463 Net sales/(purchases) of trading securities 922 99 108 (113) ------- --------- ------- -------- Net cash flows from operating activities 3,879 1,929 3,246 4,350 Cash flows from investing activities Capital expenditures (1,338) (144) (2,101) (98) Purchase of leased assets 0 - (110) - Acquisitions of receivables and lease investments - (18,304) - (27,772) Collections of receivables and lease investments - 12,859 - 19,289 Net acquisitions of daily rental vehicles - (768) - (611) Purchases of securities (392) (309) (123) (569) Sales and maturities of securities 321 367 62 491 Proceeds from sales of receivables and lease investments - 2,045 - 2,368 Net investing activity with Financial Services 39 - 403 - Volvo acquisition (Note 3) (2,966) - - - Other 167 (3) 269 (661) ------- -------- ------- -------- Net cash used in investing activities (4,169) (4,257) (1,600) (7,563) Cash flows from financing activities Cash dividends (561) (1) (519) (1) Issuance/(Purchases) of Common Stock (136) - 93 - Preferred stock - Series B repurchase, Series A redemption 0 - (420) - Changes in short-term debt 121 (968) 76 1,882 Proceeds from issuance of other debt 1,632 9,097 337 7,996 Principal payments on other debt (151) (5,282) (812) (5,650) Net financing activity with Automotive - (39) - (403) Spin-off of The Associates cash - - - (508) Other 178 5 (323) 53 ------- -------- ------- -------- Net cash (used in)/provided by financing activities 1,083 2,812 (1,568) 3,369 Effect of exchange rate changes on cash (77) (106) (9) 69 Net transactions with Automotive/Financial Services (214) 214 419 (419) ------- -------- ------- -------- Net increase/(decrease) in cash and cash equivalents 502 592 488 (194) ------- -------- ------- -------- Cash and cash equivalents at March 31 $ 4,187 $ 1,743 $ 6,804 $ 1,424 ======= ======== ======= ========
The accompanying notes are part of the financial statements. -6- 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. Accounting Changes ------------------ In the first quarter of 1999, we adopted Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use". This SOP requires entities to capitalize certain internal-use software costs once certain criteria are met. Our practice has been to expense the costs of obtaining or developing internal-use software as incurred. Beginning in 1999, we changed from an accelerated method to the units-of-production method for special tooling amortization. This change is being made to recognize that special tooling retains its value more uniformly over time and more closely aligns tooling amortization with vehicle production volumes, providing a better matching of costs and revenues. Also beginning in 1999, we modified our plant and equipment retirement policy to reflect gains and losses in income in the year of retirement. Previously, the cost of retired assets, net of salvage proceeds, was charged to accumulated depreciation. The plant and equipment retirement change in accounting principle is being made to better reflect the results of asset disposal/sale decisions. Adoption of these changes did not have a material effect on our financial statements. 2. Selected Automotive costs and expenses are summarized as follows (in millions): First Quarter ------------------ 1999 1998 ---- ---- Depreciation $746 $680 Amortization 572 718 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). 3. Purchase of AB Volvo's Worldwide Passenger Car Business - On March 31, 1999, we purchased AB Volvo's worldwide passenger car business ("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-related net indebtedness of approximately $2.9 billion. In addition to the cash payment to Volvo, on March 31, 1999 approximately $1 billion was paid to reduce Volvo Car's automotive indebtedness and for acquisition-related costs. Most of the remaining automotive indebtedness of Volvo Car was repaid on April 12, 1999. The purchase price payment and debt repayments were 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 Volvo Car will be included in our financial statements on a consolidated basis beginning in the second quarter of 1999. Our investment in Volvo Car at March 31, 1999 is included in Equity in Net Assets of Affiliated Companies. 4. Purchase of Kwik-Fit Holdings plc - On April 12, 1999, we announced that we had reached an agreement with the board of Kwik-Fit Holdings plc ("Kwik-Fit") for a cash tender offer of all the outstanding capital stock of Kwik-Fit, Europe's largest independent car maintenance and repair company. Our offer price is (pound)5.60 (approximately the equivalent of $9.05) per share, or an aggregate of (pound)1,008 million (approximately the equivalent of $1.6 billion). Our offer is contingent on receipt of applicable regulatory approvals and acceptances from holders of at least 90% of the outstanding shares of Kwik-Fit. The directors of Kwik-Fit have unanimously recommended that Kwik-Fit shareholders accept our offer. -7- Ford Motor Company and Subsidiaries NOTES TO FINANCIAL STATEMENTS ----------------------------- (unaudited) 5. 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 first quarter 1998. Ford has received a ruling from the U.S. Internal Revenue Service that the distribution qualifies as a tax-free transaction for U.S. federal income tax purposes. The Company's results in first quarter 1998 include Ford's share of The Associates earnings through the record date, March 12 ($177 million, or $0.14 a share). 6. 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):
First Quarter 1999 First Quarter 1998 -------------------- -------------------- Income Shares Income Shares ------ ------ ------ ------ Net income $1,979 1,211 $17,646 1,210 Preferred stock dividend requirements (4) - (95) - Issuable and uncommitted ESOP shares - (5) - 2 ------ ----- ------- ----- Basic income and shares $1,975 1,206 $17,551 1,212 Basic income per share $ 1.64 $ 14.48 ---------------------- Basic income and shares $1,975 1,206 $17,551 1,212 Net dilutive effect of options - 31 - 20 Convertible preferred stock and other 0 0 0 1 ------ ----- ------- ----- Diluted income and shares $1,975 1,237 $17,551 1,233 Diluted income per share $ 1.60 $ 14.23 ------------------------
7. Automotive inventories are summarized as follows (in millions): ---------------------- March 31, December 31, 1999 1998 --------- ------------ Raw materials, work in process and supplies $2,771 $2,887 Finished products 2,771 2,769 Total inventories $5,542 $5,656 ====== ====== U.S. inventories $1,988 $1,832 -8- Ford Motor Company and Subsidiaries NOTES TO FINANCIAL STATEMENTS ----------------------------- (unaudited) 8. 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. 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): First Quarter --------------------- 1999 1998 ------ ------- Net income $1,979 $17,646 Other comprehensive income (150) (188) ------ ------- Total comprehensive income $1,829 $17,458 ====== ======= 10. 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 First Quarter Auto- Ford Other Elims/ Auto Fin Svcs motive Visteon Credit Hertz Fin Svcs Other Sector Sector ------- ------- -------- ------ -------- ------- ------- -------- 1999 - ---- Revenues External customer revenues $31,597 $ 417 $ 4,863 $1,031 $ 56 $ (79) $31,933 $ 5,952 Intersegment revenues 1,188 4,355 57 2 71 (5,673) 0 0 ------- ------ -------- ------ ------- ------- ------- -------- Total Revenues $32,785 $4,772 $ 4,920 $1,033 $ 127 $(5,752) $31,933 $ 5,952 ======= ====== ======== ====== ======= ======= ======= ======== Net income $ 1,443 $ 208 $ 300 $ 49 $ (12) $ (9) $ 1,651 $ 328 Total assets $89,905 $9,771 $140,643 $9,293 $ 6,266 $(9,367) $94,440 $152,071 1998 - ---- Revenues External customer revenues $28,866 $ 307 $ 4,492 $ 897 $ 2,117 $ (95) $29,076 $ 7,508 Intersegment revenues 1,231 4,071 67 2 131 (5,502) 0 0 ------- ------ -------- ------ ------- ------- ------- -------- Total Revenues $30,097 $4,378 $ 4,559 $ 899 $ 2,248 $(5,597) $29,706 $ 7,508 ======= ====== ======== ====== ======= ======= ======= ======== Net income $ 1,046 $ 189 $ 278 $ 35 $16,147 a/ $ (49) $ 1,235 $ 16,411 Total assets $81,631 $8,780 $124,533 $7,665 $ 9,346 $(8,717) $85,504 $137,734 - - - - - -
a/ Includes $15,955 non-cash gain (not taxed) on spin-off of The Associates in the first quarter of 1998 (Note 5). "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. -9- [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 at March 31, 1999 and the related consolidated statement of income and condensed consolidated statement of cash flows for the periods set forth in the accompanying unaudited financial statements. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists primarily 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. /s/ PricewaterhouseCoopers LLP April 14, 1999 -10- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - ------------------------------------------------------------------------ OVERVIEW Our worldwide net income was $1,979 million in the first quarter of 1999, or $1.60 per diluted share of Common and Class B Stock. Excluding a $165 million gain from the sale of our interest in AutoEuropa to Volkswagen AG, our operating income would have been $1,814 million, or $1.46 per diluted share of Common and Class B Stock. This compares with first quarter 1998 operating income of $1,514 million, or $1.22 per diluted share, excluding all income and a one-time gain related to The Associates, and a one-time earnings per share reduction of $0.07 per share resulting from the premium paid to repurchase our Series B Cumulative Preferred Stock. Our worldwide sales and revenues were $37.9 billion in the first quarter of 1999, up $1.3 billion from a year ago. Vehicle unit sales of cars and trucks were 1,774,000, up 47,000 units. Stockholders' equity was $24.7 billion at March 31, 1999, up $1.3 billion from December 31, 1998. RESULTS OF OPERATIONS Results of our operations by major business sector are shown below (in millions). Our Automotive sector, which includes Automotive operations and Visteon Automotive Systems, earned $1,651 million in the first quarter of 1999. This compares with earnings of $1,235 million in the first quarter of 1998. Our Financial Services sector had earnings of $328 million in first quarter 1999. This compares with $279 million in the first quarter of 1998, excluding all income and a one-time gain related to The Associates detailed below.
First Quarter Net Income/(Loss) -------------------------------- 1999 O/(U) 1999 1998 1998 ------ ------- -------- Automotive Sector $1,651 $ 1,235 $ 416 Financial Services Sector 328 279 49 ------ ------- -------- Total Operations $1,979 $ 1,514 $ 465 Gain on Spin-Off of The Associates - 15,955 (15,955) The Associates (net of Minority Interest) - 177 (177) ------ ------- -------- Total Company $1,979 $17,646 $(15,667) ====== ======= ========
FIRST QUARTER 1999 COMPARED WITH FIRST QUARTER 1998 Automotive Sector - ----------------- Worldwide earnings for our Automotive sector were $1,651 million in the first quarter of 1999 on sales of $31.9 billion. Excluding a $165 million gain from the sale of our interest in AutoEuropa to Volkswagen AG, our first quarter 1999 earnings would have been $1,486 million, compared with earnings of $1,235 million in the first quarter of 1998 on sales of $29.1 billion. The increase in operating earnings reflects higher sales volumes in the U.S., offset partially by lower sales volumes in Europe and South America. Adjusted for constant volume and mix, total costs in the Automotive sector declined $100 million compared with the first quarter of 1998. -11- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) - ------------------------------------------------------------------------ Details of Automotive sector earnings are shown below (in millions).
First Quarter Net Income/(Loss) -------------------------------- 1999 O/(U) 1999 1998 1998 ------ ------- -------- North American Automotive $1,588 $1,010 $ 578 Automotive Outside North America - Europe 165 230 (65) - South America (165) (45) (120) - Other 63 40 23 ------ ----- ----- Total Automotive Outside North America 63 225 (162) ------ ------ ----- Total Automotive Sector $1,651 $1,235 $ 416 ====== ====== =====
Automotive sector earnings in North America were $1,588 million in the first quarter of 1999 on sales of $24.4 billion, compared with $1,010 million a year ago on sales of $20.7 billion. The increase reflects primarily higher sales volume and lower costs, offset partially by higher marketing costs and lower net interest income. The after-tax return on sales for our North American Automotive sector was 6.6% in the first quarter of 1999. In the first quarter of 1999, 4 million new cars and trucks were sold in the United States, up from 3.6 million units a year ago. Our share of those unit sales was 24.4% in the first quarter of 1999, unchanged from a year ago. Our Automotive sector earnings in Europe were $165 million in the first quarter of 1999, down $65 million from a year ago. The deterioration is explained by lower sales volumes, reflecting primarily a lower market share, and higher fixed marketing costs, offset partially by the gain from the sale of our interest in AutoEuropa. In the first quarter of 1999, 4.4 million new cars and trucks were sold in Europe, up from 4.3 million units a year ago. Our share of those unit sales was 9.8% in the first quarter of 1999, down 1.6 percentage points from a year ago. Our market share declined because of intense competitive conditions in Europe. Our Automotive sector in South America lost $165 million in the first quarter of 1999, compared with a loss of $45 million a year ago. The decline was the result of lower volume and revenue, resulting from the devaluation of the Real in Brazil and weak economic conditions throughout the region, offset partially by lower costs. We are looking at all of our options to address the business equation in South America. In the first quarter of 1999, 276,000 new cars and trucks were sold in Brazil, compared with 384,000 a year ago. Our share of those unit sales was 9% in the first quarter of 1999, down 4.7 percentage points from a year ago. The decline in market share reflects production and transportation interruptions caused by labor disruptions, which have been resolved, and an increasingly competitive market. Our Visteon operations earned $208 million on revenues of $4,772 million in the first quarter of 1999, compared with earnings of $189 million on revenues of $4,378 million in the first quarter of 1998. This earnings improvement reflects primarily favorable volume and mix and material cost reductions, offset partially by lower revenue from negotiated price reductions. Visteon's after-tax return on sales in the first quarter of 1999 was 4.3%, unchanged from a year ago. -12- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) - ------------------------------------------------------------------------ Financial Services Sector - ------------------------- Earnings of our Financial Services sector consist primarily of two segments, Ford Credit and Hertz. Details of Financial Services sector earnings are shown below (in millions).
First Quarter Net Income/(Loss) -------------------------------- 1999 O/(U) 1999 1998 1998 ------ ------- --------- Ford Credit $300 $ 278 $ 22 Hertz 49 35 14 Minority Interests, Eliminations, and Other (excluding The Associates) (21) (34) 13 ---- ------ -------- Financial Services (excluding The Associates) 328 279 49 Gain on Spin-Off of The Associates - 15,955 (15,955) The Associates (net of Minority Interest) - 177* (177) ---- ------- -------- Total Financial Services Sector $328 $16,411 $(16,083) ==== ======= ======== Memo: Ford's share of earnings in Hertz 40 29 11 ------ * Through March 12, 1998
Ford Credit's consolidated net income in the first quarter of 1999 was $300 million, up $22 million or 7.9% from a year ago. 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. Lower financing margins reflect higher depreciation expense for leased vehicles. Earnings at Hertz in the first quarter of 1999 were $49 million (of which $40 million was Ford's share), compared with earnings of $35 million (of which $29 million was Ford's share) a year ago. The increase in earnings reflects primarily higher revenues and improved profit margins in worldwide car rental operations. LIQUIDITY AND CAPITAL RESOURCES Automotive Sector - ----------------- At March 31, 1999, our Automotive sector had $23.5 billion of cash and marketable securities, down $349 million from December 31, 1998. The decline was more than explained by the acquisition of Volvo Cars, offset partially by operating cash flows and a global debt issuance of $1.5 billion. Automotive capital expenditures, including the effect of adopting the accounting change for the capitalization of computer software (Statement of Position 98-1) discussed below, totaled $1.3 billion in the first quarter of 1999, down from $2.1 billion in the first quarter of 1998, which was unusually high. Our target for capital expenditures for 1999 remains at $8.5 billion. At March 31, 1999, our Automotive sector had total debt of $11.5 billion, compared with $9.8 billion at December 31, 1998. This amount was 31.7% of our total capitalization (that is, the sum of our stockholders' equity and Automotive debt) at the end of the first quarter of 1999, compared with 30% of total capitalization at December 31, 1998. -13- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) - ------------------------------------------------------------------------ Financial Services Sector - ------------------------- At March 31, 1999, our Financial Services sector had cash and marketable securities totaling $1.7 billion, up $592 million from December 31, 1998. Net receivables and lease investments were $134 billion at March 31, 1999, up $1.4 billion from December 31, 1998. Total debt was $124.9 billion at March 31, 1999, up $2.6 billion from December 31, 1998. Outstanding commercial paper at March 31, 1999 totaled $46.8 billion at Ford Credit, and $2.1 billion at Hertz, with an average remaining maturity of 27 days and 35 days, respectively. For a discussion of support facilities available to our Automotive and Financial Services sector, see Note 9 of our Notes to Financial Statements for the year ended December 31, 1998, which are included in our Annual Report on Form 10-K for 1998. VOLVO On March 31, 1999, we purchased AB Volvo's worldwide passenger car business ("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-related net indebtedness of approximately $2.9 billion. In addition to the cash payment to AB Volvo, on March 31, 1999 approximately $1 billion was paid to reduce Volvo Car's automotive indebtedness and for acquisition-related costs. Most of the remaining automotive indebtedness of Volvo Car was repaid on April 12, 1999. The purchase price payment and debt repayments were 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 Volvo Car will be included in our financial statements on a consolidated basis beginning in the second quarter of 1999. Our investment in Volvo Car at March 31, 1999 is included in Equity in Net Assets of Affiliated Companies. KWIK-FIT On April 12, 1999, we announced that we had reached an agreement with the board of Kwik-Fit Holdings plc ("Kwik-Fit) for a cash tender offer for all the outstanding capital stock of Kwik-Fit. Kwik-Fit is Europe's largest independent car maintenance and repair company, with over 1,900 service points 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)1,008 million (approximately the equivalent of $1.6 billion). Our offer is contingent on receipt of applicable regulatory approvals and acceptances from holders of at least 90% of the outstanding shares of Kwik-Fit. The directors of Kwik-Fit have unanimously recommended that Kwik-Fit shareholders accept our offer. -14- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) - ------------------------------------------------------------------------- NEW ACCOUNTING STANDARDS AND CHANGES New Standards - ------------- In the first quarter of 1999, we adopted Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use". This SOP requires entities to capitalize certain internal-use software costs once certain criteria are met. Our practice has been to expense the costs of obtaining or developing internal-use software as incurred. Adoption of this standard did not have a material effect on first quarter earnings. 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. We expect to adopt SFAS 133 beginning January 1, 2000. We have not yet determined the effect of adopting SFAS 133. Accounting Changes - ------------------ Beginning in 1999, we changed from an accelerated method to the units-of-production method for special tooling amortization. This change is being made to recognize that special tooling retains its value more uniformly over time and more closely aligns tooling amortization with vehicle production volumes, providing a better matching of costs and revenues. Also beginning in 1999, we modified our plant and equipment retirement policy to reflect gains and losses in income in the year of retirement. Previously, the cost of retired assets, net of salvage proceeds, was charged to accumulated depreciation. The change in accounting principle for plant and equipment retirement is being made to better reflect the results of asset disposal/sale decisions. Adoption of these changes did not have a material effect on our financial statements. OTHER FINANCIAL INFORMATION PricewaterhouseCoopers LLP, our independent public accountants, performed a limited review of the financial data presented on pages 4 through 9 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. -15- Part II. Other Information Item 1. Legal Proceedings - ------------------------- Class Actions - ------------- Air Bag. (Previously discussed in the first full paragraph on page 24 of Ford's Annual Report on Form 10-K for year ended December 31, 1998 (the "10-K Report").) Upon reconsideration of the trial court's decision to deny defendants' motion for change of venue, the Alabama Supreme Court would not overturn the trial court's ruling. Our motion to dismiss this action continues to be pending. Lease Agreement Disclosure. (Previously discussed in the first full paragraph on page 25 of the 10-K Report.) In addition to the seven of the twenty cases discussed in the 10-K Report as having been dismissed in various state courts, the actions pending in Florida, New Jersey and Tennessee state courts were recently dismissed on the basis that itemization of monthly lease charges is not required under federal or state law. Windstar Transmission. A purported class action has been filed in California state court alleging that 1995 Ford Windstar vehicles are defective because they contain a 3.8 liter engine with a defective transmission. Plaintiffs allege transmissions in the Windstar prematurely suffered from serious shifting problems and acceleration failures, requiring early replacement at a substantial expense to owners and lessees. They seek compensatory damages, punitive damages, attorneys' and experts' fees and additional unspecified relief. Plaintiffs do not specifically seek damages for any alleged personal injuries suffered by purported class members. The California class action is nationwide in scope and purports to represent all persons or entities in the United States who own or lease any model 1995 Ford Windstar. After Ford removed the case to federal court, the state court granted Plaintiffs' motion to remand the case back to Los Angeles County court. Ford plans to file a motion for judgment on the pleadings. -16-
Supplemental Schedule Ford Motor Company CONDENSED FINANCIAL INFORMATION OF SUBSIDIARY --------------------------------------------- (in millions) Ford Capital B.V. ----------------- March 31, December 31, 1999 1998 -------------- -------------- (unaudited) Current assets $ 658 $ 621 Noncurrent assets 2,374 2,388 ------ ------ Total assets $3,032 $3,009 ====== ====== Current liabilities $ 582 $ 394 Noncurrent liabilities 2,249 2,430 Minority interests in net assets of subsidiaries 0 15 Stockholder's equity 201 170 ------ ------ Total liabilities and stockholder's equity $3,032 $3,009 ====== ======
First Quarter ---------------------------------- 1999 1998 --------------- ------------- (unaudited) Sales and other revenue $683 $641 Operating income 84 27 Income before income taxes 69 18 Net income 41 6
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. -17- Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- (a) Exhibits -------- Please refer to the Exhibit Index on page 19. (b) Reports on Form 8-K ------------------- The Registrant filed the following Current Reports on Form 8-K during the quarter ended March 31, 1999: Current Report on Form 8-K dated January 14, 1999 included additional detail on one-time charges expected for the fourth quarter 1998. Current Report on Form 8-K dated January 21, 1999 included information relating to Ford's 1998 financial results. Current Report on Form 8-K dated January 28, 1999 included information relating to Ford's agreement with AB Volvo to buy its worldwide passenger vehicle business. Current Report on Form 8-K dated February 2, 1999 included the consolidated financial statements of Ford and its subsidiaries for the year ended December 31, 1998. Current Report on Form 8-K dated February 5, 1999 included information regarding the registration of debt securities, and the explosion at the Rouge Complex. SIGNATURES 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: April 19, 1999 By: /s/ W. A. Swift -------------- ----------------------------- W. A. Swift Vice President - Corporate Controller (principal accounting officer) -18-
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 April 19, 1999, relating to Financial Information. Exhibit 18 Letter of PricewaterhouseCoopers LLP, Independent Public Accountants, dated March 31, 1999 relating to changes in accounting principles. -19-
EX-12 2 EXHIBIT 12
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 Quarter ------------------------------------------------------------ 1999 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- -------- Earnings - -------- Income before income taxes $ 3,003 $25,396 $10,939 $ 6,793 $ 6,705 $ 8,789 Equity in net (income)/loss of affiliates plus dividends from affiliates (41) 78 121 36 179 (182) Adjusted fixed charges a/ 2,268 9,215 10,911 10,801 10,558 8,122 ------- ------- ------- ------- ------- ------- Earnings $ 5,230 $34,689 $21,971 $17,630 $17,440 $16,729 ======= ======= ======= ======= ======= ======= Combined Fixed Charges and Preferred Stock Dividends - -------------------------- Interest expense b/ $ 2,192 $ 8,919 $10,570 $10,464 $10,121 $ 7,787 Interest portion of rental expense c/ 61 245 309 300 396 265 Preferred stock dividend requirements of majority owned subsidiaries and trusts d/ 14 55 55 55 199 160 ------- ------- ------- ------- ------- ------- Fixed charges 2,267 9,219 10,934 10,819 10,716 8,212 Ford preferred stock dividend requirements e/ 6 122 82 95 459 472 ------- ------- ------- ------- ------- ------- Total combined fixed charges and preferred stock dividends $ 2,273 $ 9,341 $11,016 $10,914 $11,175 $ 8,684 ======= ======= ======= ======= ======= ======= Ratios - ------ Ratio of earnings to fixed charges 2.3 3.8 f/ 2.0 1.6 1.6 2.0 Ratio of earnings to combined fixed charges and preferred stock dividends 2.3 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 EXHIBIT 15 Exhibit 15 Ford Motor Company The American Road Dearborn, Michigan 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, and 333-67211 on Form S-3 We are aware that our report dated April 14, 1999 accompanying the unaudited interim financial information of Ford Motor Company for the periods ended March 31, 1999 and 1998 and included in the Ford Motor Company Quarterly Report on Form 10-Q for the quarter ended March 31, 1999 will be incorporated by reference in the 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 400 Renaissance Center Detroit, Michigan 48243 April 19, 1999 EX-18 4 EXHIBIT 18 Exhibit 18 March 31, 1999 Ford Motor Company The American Road Dearborn, MI 48121 We are providing this letter to you for inclusion as an exhibit to your Form 10-Q filing pursuant to Item 601 of Regulation S-K. We have read management's justification for the following prospective changes in accounting, effective January 1, 1999 and contained in Ford Motor Company's (the "Company") Form 10-Q for the quarter ended March 31, 1999: 1. The Company changed its method of special tooling depreciation from the sum-of-the-years-digits method to the units of production method. This change is being made to recognize that special tooling retains its value more uniformly over time and more closely aligns tooling amortization with vehicle production volumes, providing a better matching of costs and revenues. 2. The Company changed its plant and equipment retirement policy to reflect gains and losses in the year of retirement. Previously, the cost of retired assets, net of salvage proceeds, was charged to accumulated depreciation. The plant and equipment retirement change in accounting principle is being made to better reflect the results of asset sale and disposal decisions. Based on our reading of the data and discussions with Company officials about the business judgment and business planning factors relating to the changes, we believe management's justification to be reasonable. Accordingly, in reliance on management's determination regarding elements of business judgment and business planning, we concur that the newly adopted accounting principles described above are preferable in the Company's circumstances to the methods previously applied. We have not audited any financial statements of the Company as of any date or for any period subsequent to December 31, 1998, nor have we audited the application of the changes in accounting principles disclosed in the Company's Form 10-Q for the three months ended March 31, 1999; accordingly, our comments are subject to revision on completion of an audit of the financial statements that include the accounting changes. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Detroit, Michigan -----END PRIVACY-ENHANCED MESSAGE-----