-----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, NSo2cds4coTlBMKYTjFUegLJq16AHkrM/LOOfB8488mRRbTS+Wa6HT3R4RFBh5Su niq7/AF9oq6BaHzXzMHzpA== 0000037996-00-000019.txt : 20000317 0000037996-00-000019.hdr.sgml : 20000317 ACCESSION NUMBER: 0000037996-00-000019 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000316 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-K SEC ACT: SEC FILE NUMBER: 001-03950 FILM NUMBER: 571492 BUSINESS ADDRESS: STREET 1: THE AMERICAN RD CITY: DEARBORN STATE: MI ZIP: 48121 BUSINESS PHONE: 3133223000 10-K 1 ANNUAL REPORT ON FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 FORM 10-K (Mark One) X Annual report pursuant to Section 13 or 15(d) of the Securities - ---- Exchange Act of 1934 (No Fee Required) For the fiscal year ended December 31, 1999 or Transition report pursuant to Section 13 or 15(d) of the Securities - ---- Exchange Act of 1934 (No Fee Required) For the transition period from to ------- ------- Commission file number 1-3950 ------ FORD MOTOR COMPANY ------------------ (Exact name of Registrant as specified in its charter) Delaware 38-0549190 -------- ---------- (State of incorporation) (I.R.S. employer identification no.) One American Road, Dearborn, Michigan 48126 ------------------------------------- ----- (Address of principal executive offices) (Zip code) 313-322-3000 ------------ (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered (a) ------------------- ---------------------------- Common Stock, par value $1.00 per share New York Stock Exchange Pacific Coast Stock Exchange Depositary Shares, each representing New York Stock Exchange 1/2,000 of a share of Series B Cumulative Preferred Stock, as described below - --------------- (a) In addition, shares of Common Stock of Ford are listed on certain stock exchanges in the European Union. [Cover page 1 of 2 pages] Securities registered pursuant to Section 12(g) of the Act: Series B Cumulative Preferred Stock, par value $1.00 per share, with an annual dividend rate of $4,125 per share and a liquidation preference of $50,000 per share. Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes__X__ No______ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of February 25, 2000, Ford had outstanding 1,135,568,311 shares of Common Stock and 70,852,076 shares of Class B Stock. Based on the New York Stock Exchange Composite Transaction closing price of the Common Stock on that date ($42 15/16 a share), the aggregate market value of such Common Stock was $48,758,464,354. Although there is no quoted market for our Class B Stock, shares of Class B Stock may be converted at any time into an equal number of shares of Common Stock for the purpose of effecting the sale or other disposition of such shares of Common Stock. The shares of Common Stock and Class B Stock outstanding at February 25, 2000 included shares owned by persons who may be deemed to be "affiliates" of Ford. We do not believe, however, that any such person should be considered to be an affiliate. For information concerning ownership of outstanding Common Stock and Class B Stock, see the Proxy Statement for Ford's Annual Meeting of Stockholders to be held on May 11, 2000 (our "Proxy Statement"), which is incorporated by reference under various Items of this Report. Document Incorporated by Reference* ---------------------------------- Document Where Incorporated ------- ------------------ Proxy Statement Part III (Items 10, 11, 12 and 13) __________________________ * As stated under various Items of this Report, only certain specified portions of such document are incorporated by reference in this Report. [Cover page 2 of 2 pages] PART I Item 1. Business - ---------------- Ford Motor Company was incorporated in Delaware in 1919. We acquired the business of a Michigan company, also known as Ford Motor Company, incorporated in 1903 to produce and sell automobiles designed and engineered by Henry Ford. We are the world's largest producer of trucks and the second-largest producer of cars and trucks combined. We and our subsidiaries also engage in other businesses, including manufacturing automotive components and systems and financing and renting vehicles and equipment. Overview Ford's business is divided into two business sectors, and we manage these sectors as four primary operating segments. These business sectors and operating segments are described below.
Business Sectors Operating Segments Description - ---------------- ------------------ ------------ Automotive: Automotive design, manufacture, sale and service of cars and trucks Visteon Automotive Systems design, manufacture, sale and service of automotive components and systems Financial Services: Ford Motor Credit Company vehicle-related financing, leasing and insurance The Hertz Corporation renting and leasing of cars and trucks and renting industrial and construction equipment, and other activities
We provide financial information (such as, revenues, income and assets) for each of these business sectors and operating segments in three areas of this Report: (1) Item 6. "Selected Financial Data" on pages 36 through 38; (2) Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 39 through 50; and (3) Note 18 of our Notes to Financial Statements located at the end of this Report (pages FS-29 and FS-30). Financial information relating to certain geographic areas is also included in the above-mentioned areas of this Report. Item 1. Business (Continued) Automotive Sector We sell cars and trucks and automotive components and systems throughout the world. In 1999 we sold 7.2 million vehicles throughout the world. Our automotive vehicle brands include Ford, Mercury, Lincoln, Volvo, Jaguar, Aston Martin and TH!NK. In addition, we own 33.4% of Mazda Motor Corporation ("Mazda"). We completed the purchase of AB Volvo's worldwide passenger car business ("Volvo Car") on March 31, 1999. As a result, our 1999 results and financial condition include Volvo Car's results and financial condition since the date of the acquisition. The worldwide automotive industry, Ford included, is affected significantly by a number of factors over which we have little control, including general economic conditions. In the United States, the automotive industry is a highly-competitive, cyclical business that has a wide variety of product offerings. The number of cars and trucks sold to retail buyers (commonly referred to as "industry demand") can vary substantially from year to year. In any year, industry demand depends largely on general economic conditions, the cost of purchasing and operating cars and trucks and the availability and cost of credit and fuel. Industry demand also reflects the fact that cars and trucks are durable items that people can wait to replace. The automotive industry outside of the United States consists of many producers, with no single dominant producer. Certain manufacturers, however, account for the major percentage of total sales within particular countries, especially their countries of origin. Most of the factors that affect the United States automotive industry and its sales volumes and profitability are equally relevant outside the United States. The worldwide automotive industry also is affected significantly by a substantial amount of costly government regulation. In the United States and Europe, for example, government regulation has arisen primarily out of concern for the environment, for greater vehicle safety and for improved fuel economy. Many governments also regulate local content and/or impose import requirements as a means of creating jobs, protecting domestic producers or influencing their balance of payments. Our unit sales vary with the level of total industry demand and our share of that industry demand. Our share is influenced by how our products compare with those offered by other manufacturers based on many factors, including design, driveability, price, quality, reliability, safety and utility. Our share also is affected by our timing of new model introductions and manufacturing capacity limitations. Our ability to satisfy changing consumer preferences with respect to type or size of vehicle and its design and performance characteristics can impact our sales and earnings significantly. -2- Item 1. Business (Continued) The profitability of vehicle sales is affected by many factors, including the following: o unit sales volume o the mix of vehicles and options sold o the margin of profit on each vehicle sold o the level of "incentives" (price discounts) and other marketing costs o the costs for customer warranty claims and other customer satisfaction actions o the costs for government-mandated safety, emission and fuel economy technology and equipment o the ability to manage costs o the ability to recover cost increases through higher prices Further, because the automotive industry is capital intensive, it operates with a relatively high percentage of fixed costs, which can result in large changes in earnings from relatively small changes in unit volume. Following is a discussion of the automotive industry in the principal markets where we compete, as well as a discussion of our Visteon operating segment, our Automotive Consumer Services Group and our ConsumerConnect e-commerce initiatives and strategy: United States - ------------- Sales Data. The following table shows U.S. industry retail deliveries of cars and trucks for the years indicated:
U. S. Industry Retail Deliveries (millions of units) Years Ended December 31, ------------------------------------------------------------------ 1999 1998 1997 1996 1995 --------- --------- ---------- --------- ---------- Cars........................................ 8.7 8.2 8.3 8.6 8.6 Trucks...................................... 8.7 7.8 7.2 6.9 6.5 ---- ---- ---- ---- ---- Total....................................... 17.4 16.0 15.5 15.5 15.1 ==== ==== ==== ==== ====
-3- Item 1. Business (Continued) We classify cars by small, middle, large and luxury segments and trucks by compact pickup, compact bus/van/utility, full-size pickup, full-size bus/van/utility and medium/heavy segments. The large and luxury car segments and the compact bus/van/utility, full-size pickup and full-size bus/van/utility truck segments include the industry's most profitable vehicle lines. The term "bus" as used in this discussion refers to vans designed to carry passengers. The following tables show the proportion of United States retail car and truck unit sales by segment for the industry (including Japanese and other foreign-based manufacturers) and Ford for the years indicated:
U. S. Industry Vehicle Sales by Segment ------------------------------------------------------------------ Years Ended December 31, ------------------------------------------------------------------ 1999 1998 1997 1996 1995 --------- --------- ---------- --------- ---------- CARS Small....................................... 16.1% 16.9% 18.1% 19.1% 19.6% Middle...................................... 23.7 23.6 24.7 25.6 26.4 Large....................................... 3.0 3.4 3.9 3.9 4.3 Luxury...................................... 7.1 7.1 6.7 6.7 6.8 ----- ----- ----- ----- ----- Total U.S. Industry Car Sales............... 49.9 51.0 53.4 55.3 57.1 ----- ----- ----- ----- ----- TRUCKS Compact Pickup.............................. 6.2% 6.7 6.4 6.2 6.8 Compact Bus/Van/Utility..................... 22.1 21.1 20.0 19.0 18.0 Full-Size Pickup............................ 12.7 12.4 12.0 12.6 11.5 Full-Size Bus/Van/Utility................... 6.5 6.5 6.1 5.0 4.4 Medium/Heavy................................ 2.6 2.3 2.1 1.9 2.2 ----- ----- ----- ----- ----- Total U.S. Industry Truck Sales............. 50.1 49.0 46.6 44.7 42.9 ----- ----- ----- ----- ----- Total U.S. Industry Vehicle Sales........... 100.0% 100.0% 100.0% 100.0% 100.0% ===== ===== ===== ===== =====
Ford Vehicle Sales by Segment in U.S. ------------------------------------------------------------------ Years Ended December 31, ------------------------------------------------------------------ 1999 1998 1997 1996 1995 --------- --------- ---------- --------- ---------- CARS Small....................................... 13.5% 13.1% 12.7% 13.4% 15.1% Middle...................................... 15.7 16.7 19.6 22.1 22.3 Large....................................... 5.7 5.7 5.6 5.3 4.9 Luxury...................................... 6.0 4.2 4.1 4.1 4.4 ----- ----- ----- ----- ----- Total Ford U.S. Car Sales................... 40.9 39.7 42.0 44.9 46.7 ----- ----- ----- ----- ----- TRUCKS Compact Pickup.............................. 8.4% 8.4 7.7 7.4 8.0 Compact Bus/Van/Utility..................... 17.7 18.1 18.9 20.0 20.1 Full-Size Pickup............................ 20.9 21.3 19.3 20.0 17.9 Full-Size Bus/Van/Utility................... 11.8 12.1 11.0 6.6 5.9 Medium/Heavy*............................... 0.3 0.4 1.1 1.1 1.4 ----- ----- ----- ------ ----- Total Ford U.S. Truck Sales................. 59.1 60.3 58.0 55.1 53.3 ----- ----- ----- ------ ----- Total Ford U.S. Vehicle Sales............... 100.0% 100.0% 100.0% 100.0% 100.0% ===== ===== ===== ===== =====
- --------------------------- *In 1997 Ford sold its heavy truck businesses in North America and Australia/New Zealand to Freightliner Corporation. Ford ceased production of heavy trucks in North America in December 1997. The transfer of the North American and Australian/New Zealand heavy truck businesses was completed in 1998. As shown in the tables above, since 1995 there has been a steady shift from cars to trucks for both industry sales and Ford sales. -4- Item 1. Business (Continued) Market Share Data. The following tables show changes in car and truck United States market shares of the six leading vehicle manufacturers for the years indicated:
U.S. Car Market Shares* ------------------------------------------------------------------ Years Ended December 31, ------------------------------------------------------------------ 1999 1998 1997 1996 1995 --------- --------- ---------- --------- ---------- Ford**................................... 19.9% 20.4% 20.8% 21.6% 21.9% General Motors........................... 29.3 29.8 32.2 32.3 33.9 DaimlerChrysler***....................... 10.3 10.7 10.2 10.9 10.0 Toyota................................... 10.2 10.6 9.9 9.3 9.2 Honda.................................... 9.8 10.6 10.0 9.2 8.6 Nissan................................... 4.6 5.0 5.7 5.9 6.0 All Other****............................ 15.9 12.9 11.2 10.8 10.4 ----- ----- ----- ----- ----- Total U.S. Car Retail Deliveries 100.0% 100.0% 100.0% 100.0% 100.0% ===== ===== ===== ===== =====
U.S. Truck Market Shares* ------------------------------------------------------------------ Years Ended December 31, ------------------------------------------------------------------ 1999 1998 1997 1996 1995 --------- --------- ---------- --------- ---------- Ford..................................... 28.2% 30.2% 31.1% 31.1% 31.9% General Motors........................... 27.8 27.5 28.8 29.0 29.9 DaimlerChrysler***....................... 22.2 23.2 21.9 23.4 21.3 Toyota................................... 6.7 6.3 5.7 5.3 4.5 Honda.................................... 2.6 1.9 1.5 0.8 0.8 Nissan................................... 3.2 2.7 3.6 3.6 3.9 All Other****............................ 9.3 8.2 7.4 6.8 7.7 ----- ----- ----- ----- ----- Total U.S. Truck Retail Deliveries.... 100.0% 100.0% 100.0% 100.0% 100.0% ===== ===== ===== ===== =====
U.S. Combined Car and Truck Market Shares* ------------------------------------------------------------------ Years Ended December 31, ------------------------------------------------------------------ 1999 1998 1997 1996 1995 --------- --------- ---------- --------- ---------- Ford**................................... 24.1% 25.2% 25.6% 25.8% 26.2% General Motors........................... 28.5 28.7 30.6 30.8 32.2 DaimlerChrysler***....................... 16.3 16.8 15.6 16.5 14.8 Toyota................................... 8.5 8.5 7.9 7.5 7.2 Honda.................................... 6.2 6.3 6.0 5.5 5.3 Nissan................................... 3.9 3.9 4.7 4.8 5.1 All Other****............................ 12.5 10.6 9.6 9.1 9.2 ----- ----- ----- ----- ----- Total U.S. Car and Truck Retail Deliveries 100.0% 100.0% 100.0% 100.0% 100.0% ===== ===== ===== ===== =====
__________________________ * All U.S. retail sales data are based on publicly available information from the media and trade publications. ** Ford purchased Volvo Car on March 31, 1999. The figures shown here include Volvo Car on a pro forma basis for the periods prior to its acquisition by Ford. During the period from 1995 through 1998, Volvo Car represented no more than 1.2 percentage points of total market share during any one year. *** Chrysler and Daimler-Benz merged in late 1998. The figures shown here combine Chrysler and Daimler-Benz (excluding Freightliner and Sterling Heavy Trucks) on a pro forma basis for the periods prior to their merger. **** "All Other" includes primarily companies based in various European countries and in Korea. The increase in combined market share shown for "All Others" reflects primarily increases in market share for Volkswagen AG and the Korean manufacturers. The decline in United States market share for Ford is primarily the result of capacity constraints on several key products due to strong demand in that market. Marketing Incentives and Fleet Sales. Automotive manufacturers that sell vehicles in the United States frequently give purchasers price discounts or other marketing incentives. These incentives are the result of competition from new product offerings by manufacturers and the desire to maintain production levels and market shares. Manufacturers provide these incentives to both retail and fleet customers (fleet customers include daily rental companies, commercial fleet customers, leasing companies and governments). Marketing incentives generally are higher during periods of economic downturns, when excess capacity in the industry tends to increase. -5- Item 1. Business (Continued) Our marketing costs in the United States as a percentage of gross sales revenue were as follows for the following three years: 10.6% (1999), 10.4% (1998) and 8.7% (1997). These "marketing costs" include primarily (i) marketing incentives on vehicles, such as retail rebates and costs for special financing and lease programs, (ii) reserves for costs and/or losses associated with our required repurchase of certain vehicles sold to daily rental companies and (iii) costs for advertising and sales promotions for vehicles. The increase in marketing costs over the last several years is a result of intense competition in the United States market. Fleet sales generally are less profitable than retail sales, and sales to daily rental companies generally are less profitable than sales to other fleet purchasers. The mix between sales to daily rental companies and other fleet customers has been about evenly split in recent years. The table below shows our fleet sales in the United States, and the amount of those sales as a percentage of our total United States car and truck sales, for the last five years.
Ford Fleet Sales ------------------------------------------------------------------ Years Ended December 31, ------------------------------------------------------------------ 1999 1998 1997 1996 1995 --------- --------- ---------- --------- ---------- Units sold.................................. 940,000 878,000 923,000 936,000 971,000 Percent of Ford's total U.S. car and truck sales 23% 22% 24% 24% 25%
Warranty Coverage. We presently provide warranty coverage for defects in factory-supplied materials and workmanship on all vehicles (other than medium trucks) we sell in the United States. This warranty coverage for Ford/Mercury vehicles extends for 36 months or 36,000 miles (whichever occurs first) and covers components of the vehicle, other than tires which are warranted by the tire manufacturers. The United States warranty coverage for luxury vehicles (Lincoln, Jaguar, and Volvo) extends for 48 months or 50,000 miles (whichever occurs first). In general, different warranty coverage is provided on medium/heavy trucks and on vehicles sold outside the United States. In addition, as discussed below under "Governmental Standards - Mobile Source Emissions Control", the Federal Clean Air Act requires warranty coverage for a "useful life" of 10 years or 100,000 miles (whichever occurs first) for emissions equipment on most light duty vehicles sold in the United States. As a result of these warranties and the increased concern for customer satisfaction, costs for warranty repairs, emissions equipment repairs and customer satisfaction actions ("warranty costs") can be substantial. Estimated warranty costs for each vehicle sold by us are accrued at the time of sale. Such accruals, however, are subject to adjustment from time to time depending on actual experience. Europe - ------ Outside of the United States, Europe is our largest market for the sale of cars and trucks. The automotive industry in Europe is intensely competitive. Over the past year, 60 new or freshened vehicles were introduced in the European market by various manufacturers. For the past 13 years, the top six manufacturers have each achieved a car market share in about the 10% to 18% range. (Manufacturers' shares, however, vary considerably by country.) This competitive environment is expected to intensify further as a result of import restrictions on vehicles assembled in Japan having been removed in total on December 31, 1999, and as Japanese manufacturers, which together had a European car market share of 12% for 1999, increase their production capacity in Europe. We estimate that in 1999 the European automotive industry had excess capacity of approximately 6 million units (based on a comparison of European domestic demand and capacity). In 1999, vehicle manufacturers sold approximately 17 million cars and trucks in Europe, up 6% from 1998 levels. Ford's combined car and truck market share in Europe in 1999 was 10.6%, up 4/10 of one percentage point from 1998. Britain and Germany are our most important markets within Europe, although the Southern European countries are becoming increasingly significant. Any adverse change in the British or German market has a significant effect on our total automotive profits. For 1999 compared with 1998, total industry sales were down 2.3% in Britain and up 1.8% in Germany. -6- Item 1. Business (Continued) For purposes of the figures shown in this section for 1999 and prior years, we have considered Europe to consist of the following 15 markets: Britain, Germany, France, Italy, Spain, Austria, Belgium, Ireland, Netherlands, Portugal, Switzerland, Finland, Sweden, Denmark, and Norway. Beginning January 1, 2000 and going forward, we will include the following four additional markets as part of the European market: Czech Republic, Greece, Hungary, and Poland. Other Markets - ------------- Mexico and Canada. Mexico and Canada also are important markets for us. In 1999, industry sales of new cars and trucks in Mexico were approximately 690,000 units, up 4% from 1998 levels. In Canada, industry sales of new cars and trucks in 1999 were approximately 1.5 million units, up 7% from 1998 levels. Ford's combined car and truck market share in these markets in 1999 was 16.5% (Mexico) and 19% (Canada). South America. Brazil and Argentina are our principal markets in South America. The economic environment in those countries has been volatile in recent years, leading to large variations in industry sales. Results have also been influenced by the devaluation of the Brazilian currency and government actions to reduce inflation and public deficits. Industry sales in 1999 were 1.3 million units in Brazil, down about 19% from 1998, and approximately 380,000 units in Argentina, down 16% from 1998. The devaluation of the Brazilian Real and continued weak economic conditions will adversely affect industry sales in 2000. Ford's combined car and truck market share in these markets in 1999 was 9.7% (Brazil) and 15.3% (Argentina). Asia Pacific. In the Asia Pacific region, Australia, Taiwan and Japan are our principal markets. Industry volumes in 1999 in this region were as follows: approximately 787,000 units in Australia (down 3% from 1998), approximately 424,000 units in Taiwan (down 11% from 1998) and approximately 5.9 million units in Japan (unchanged from 1998). In 1999, Ford's combined car and truck market share in Australia was 16.1%. In Taiwan, we had a combined car and truck market share in 1999 of 12.6%. Our combined car and truck market share in Japan has been less than 1% in recent years. We own a 33.4% interest in Mazda Motor Corporation ("Mazda") and account for Mazda on an equity basis. Mazda's market share in Japan has been 5-6% in recent years. Our principal competition in the Asia Pacific region has been the Japanese manufacturers. We anticipate that the continuing relaxation of import restrictions (including duty reductions) in Australia and Taiwan will intensify competition in those markets. We opened a new assembly plant in India in 1999, launching an all-new small car (the IKON) designed specifically for that market. We expect India to become one of our most important markets in Asia in the future. Africa. We have operated in the South African market as a 45% owner in the South African Motor Corporation (Pty.) Limited ("SAMCOR"). In January 2000, Ford and its principal partner, Anglo American Corporation of South Africa Limited, announced that Ford will purchase Anglo's 45% interest in SAMCOR; 35% will be purchased during 2000 and the remaining 10% will be purchased in approximately two years. We have also agreed to purchase during 2000, the 10% interest in SAMCOR that is currently owned by the SAMCOR Employee Trust. Each of these purchases is subject to receiving prior regulatory approval. SAMCOR assembles and distributes Ford, Mazda, and Mitsubishi vehicles in South Africa, and is also expected to begin assembling and distributing Volvo vehicles. In addition, SAMCOR distributes Jaguar vehicles. In 1999, industry volume in South Africa was approximately 296,000 units, down 6.0% from 1998 levels. SAMCOR's combined car and truck market share in 1999 was 15% for the four brands it distributes; the share for the Ford brands was 6.1%. -7- Item 1. Business (Continued) Industry Consolidation and Global Competition - --------------------------------------------- The worldwide automotive industry is trending toward further consolidation, such as the DaimlerChrysler merger, our acquisition of Volvo Car and the recently announced alliance between General Motors and Fiat. Such consolidation could be good for the industry to the extent it reduces excess capacity. Consolidation could also result in there being fewer but stronger competitors in the industry. We believe that Ford is well-positioned and does not need to participate in the consolidation trend to compete globally. However, as with our purchase of Volvo Car, we consider opportunities with other manufacturers when we believe it would be beneficial to our business. Presently, our major competitors on a global basis are DaimlerChrysler, General Motors, Honda, Toyota and Volkswagen. Visteon Automotive Systems - -------------------------- Visteon is an enterprise of Ford and consists of certain subsidiaries and divisions of Ford. Visteon is a global provider of integrated systems and components to automotive manufacturers and other automotive suppliers. Visteon ranks as the third-largest automotive supplier in the world based on revenues of $19.4 billion for 1999. Visteon operates in three business segments: o Comfort, Communication & Safety, composed of climate control systems and interior/exterior systems product groups. The climate control systems product group produces fluid transport, air handling, heat exchange and compressor products. The interior/exterior product group produces cockpit, instrument panel, interior trim and seats, lighting and bumper products. o Dynamics & Energy Conversion, composed of energy transformation systems and chassis systems product groups. The energy transformation systems product group produces energy management, distributed power generation, electrical conversion, and fuel storage and delivery products. The chassis systems product group produces axle and driveline, steering and chassis component products. o Glass, which produces vehicle glass for Ford and aftermarket customers, and also produces architectural glass. Currently, most of Visteon's business is with Ford. In 1999 Visteon's mix of business was 88% Ford and 12% non-Ford. In addition, in 1999 most of Visteon's business was in North America (81%). Visteon's goal, however, is to continue to obtain new business from companies other than Ford and to further expand its business beyond North America. In 1999, 38% of Visteon's new business was from non-Ford customers and 39% was from outside North America. Below are some financial highlights for Visteon (in millions):
Years Ended December 31, ------------------------------------- 1999 1998 ---------------- ---------------- Revenue 19,366 $17,762 Pre-Tax Income 1,172 1,116 Net Income 735 703 After-Tax Return on Sales 3.9% 3.9%
We previously announced that one of our financial milestones for the year 2000 is for Visteon to achieve independence. We have taken a major step toward achieving greater independence for Visteon by starting the process of changing Visteon from an enterprise of Ford into a separate legal entity that will be a wholly-owned subsidiary of Ford. -8- Item 1. Business (Continued) Automotive Consumer Services Group - ---------------------------------- Automotive Consumer Services Group is a global automotive service organization within Ford that includes Ford Customer Service Division and an all-makes channel consisting of several leading automotive service brands. Ford Customer Service Division supports consumers of Ford vehicles through a network of franchised dealers. This is the principal source of vehicle service and customer support for Ford Motor Company vehicle owners, traditionally recognized by the Quality CareTM brand. In the all-makes channel, vehicle owners for all automotive brands can access services in areas of maintenance and light repair, collision repair, extended service business and recycling. Our all-makes channel of companies includes: Kwik-Fit (maintenance and light repair in Europe), Pit Stop (maintenance and light repair in Europe), Speedy (maintenance and light repair in Europe), Master Service (maintenance and light repair in Mexico), B-quik (maintenance and light repair in Thailand), Collision Team of America (collision repair in the U.S.), Howard Basford (collision repair in the U.K.), and Automobile Protection Corporation (extended service business selling all-makes policies through dealers in the U.S.). The characteristics of the all-makes channel align closely with the Group's core dealer business and expand the customer base to consumers previously outside the Ford network of service providers. Automotive Consumer Services Group conducts business in 38 countries and serves consumers through over 13,000 dealer outlets and over 2,000 all-makes outlets. ConsumerConnect - --------------- We believe we are one of the leading automotive companies in electronic commerce and have created a number of joint ventures with leading Internet and software companies that touch every aspect of our business. The most significant of these to date was announced on February 25, 2000, when Ford, General Motors and DaimlerChrysler announced plans to merge the two existing business-to-business Internet-based supplier exchanges into a single global portal, creating the world's largest virtual marketplace. This new venture will be open to all auto manufacturers, their suppliers and dealers, and eventually could be expanded to include other industries. Oracle Corporation and Commerce One, Inc. were announced as the technology partners in this venture. This announcement followed a number of others in which we established joint ventures or partnerships with leaders like Microsoft, Trilogy, Yahoo! an others to disseminate to consumers information about our car and truck brands, improve the purchase experience by reducing complexity and providing a more satisfying experience, attract target customers and build consumer loyalty through alliances with sites like iVillage and bolt.com and to improve our customer service centers through our joint venture with TeleTech Holdings, Inc. These and other initiatives are part of a cohesive, deliberate strategy to transform Ford into a consumer company and an automotive leader in e-commerce. -9- Item 1. Business (Continued) Financial Services Sector Ford Motor Credit Company - ------------------------- Ford Credit is an indirect wholly owned subsidiary of Ford. Ford Credit and its subsidiaries provide wholesale financing and capital loans to Ford retail dealerships and associated non-Ford dealerships throughout the world. Most of these dealerships are privately owned. Ford Credit also purchases from these dealerships retail installment sale contracts and retail leases. In addition, it makes loans to vehicle leasing companies, the majority of which are affiliated with such dealerships. Subsidiaries of Ford Credit provide these financing services in the United States, Europe, Canada, Australia, Indonesia, Brazil, Mexico, Argentina, Taiwan, Puerto Rico, New Zealand, Japan, Thailand, the Philippines and India to Ford and non-Ford dealerships. A substantial majority of all new vehicles financed by Ford Credit and its subsidiaries are manufactured by Ford and our affiliates. Ford Credit also provides retail financing for used vehicles built by Ford and other manufacturers. In addition to vehicle financing, Ford Credit makes loans to affiliates of Ford and finances certain receivables of Ford and our subsidiaries. Outside the United States, FCE Bank plc is Ford Credit's largest operation. FCE Bank's primary business is to support the sale of Ford vehicles in Europe through the Ford dealer network. It provides a variety of retail, leasing and wholesale finance plans in most countries in which it operates. Ford Credit also conducts insurance operations through The American Road Insurance Company and its subsidiaries in the United States and Canada. American Road's business primarily consists of: extended service plan contracts for new and used vehicles manufactured by affiliated and nonaffiliated companies, primarily originating from Ford dealers; physical damage insurance covering vehicles and equipment financed at wholesale by Ford Credit; and the reinsurance of credit life and credit disability insurance for retail purchasers of vehicles and equipment. Ford Credit financed the following percentages of new Ford cars and trucks sold or leased at retail and sold at wholesale in the United States and Europe during the last three years:
Years Ended December 31, ---------------------------------------------------- 1999 1998 1997 --------------- --------------- ------------- United States ------------- Retail*............................ 47.2% 42.3% 37.5% Wholesale.......................... 83.5 82.5 79.8 Europe ------ Retail*............................ 32.8 32.5 29.1 Wholesale.......................... 96.4 95.4 95.0
___________________ * As a percentage of total sales and leases of Ford vehicles, including cash sales. -10- Item 1. Business (Continued) Ford Credit's net finance receivables and net investment in operating leases were as follows at the dates indicated (in millions):
December 31, ------------------------------------- 1999 1998 ---------------- ---------------- Net finance receivables Retail $76,182 $67,733 Wholesale 26,450 22,650 Other 7,244 6,839 -------- ------- Total finance receivables, net of unearned income 109,876 97,222 Less: allowance for credit losses (1,122) (1,280) -------- ------- Net finance receivables $108,754 $95,942 ======== ======= Net investment in operating leases Vehicles, at cost $41,537 $42,663 Lease origination costs 52 63 Less: Accumulated depreciation (8,397) (7,891) Allowance for credit losses (354) (268) ------- ------- Net investment in operating leases $32,838 $34,567 ======= =======
Ford Credit's total receivable balances related to accounts past due 60 days or more were as follows at the dates indicated (in millions):
December 31, ------------------------------------- 1999 1998 --------------- -------------- Retail $620 $473 Wholesale 61 73 Other 46 32 ---- ---- Total $727 $578 ==== ====
The following table sets forth information concerning Ford Credit's credit loss experience with respect to the various categories and geographic regions of financing during the years indicated (in millions):
Years Ended or at December 31, ------------------------------------------------ 1999 1998 1997 ------------- ------------- ------------- Net credit losses/(recoveries) Retail* $995 $1,031 $1,004 Wholesale 3 9 (1) Other 2 (1) 4 ------ ------ ------ Total $1,000 $1,039 $1,007 ====== ====== ====== United States $884 $ 916 $ 900 Europe 66 57 67 Other international 50 66 40 ------ ------ ------ Total $1,000 $1,039 $1,007 ====== ====== ====== Net losses as a percentage of average net receivables** Retail 1.06% 1.10% 1.17% Total finance receivables 0.74 0.86 0.89 Provision for credit losses $1,166 $1,180 $1,338 Allowance for credit losses 1,476 1,548 1,471 Allowance for credit losses as a percentage of net receivables** 1.04% 1.19% 1.27%
- ------------------ *Includes net credit losses on operating leases. **Includes net investment in operating leases. -11- Item 1. Business (Continued) Shown below is an analysis of Ford Credit's allowance for credit losses related to finance receivables and operating leases for the years indicated (in millions):
1999 1998 1997 ------------- ------------- ------------- Balance, beginning of year $1,548 $1,471 $1,218 Additions 1,166 1,180 1,338 Deductions Losses 1,274 1,243 1,239 Recoveries (274) (203) (232) ------ ------ ------ Net losses 1,000 1,040 1,007 Other changes, principally amounts relating to finance receivables and operating leases sold 238 63 78 ------ ------ ------ Net deductions 1,238 1,103 1,085 ------ ------ ------ Balance, end of year $1,476 $1,548 $1,471 ====== ====== ======
Ford Credit and FCE Bank rely heavily on their ability to raise substantial amounts of funds. These funds are obtained primarily by the sale of commercial paper, the issuance of term debt and, in the case of FCE Bank, certificates of deposit. Funds also are provided by retained earnings and sales of receivables. The level of funds can be affected by certain transactions with Ford, such as capital contributions and dividend payments, interest supplements and other support from Ford for vehicles financed and leased by Ford Credit or FCE Bank under Ford-sponsored special financing or leasing programs. Funds also can be affected by the timing of payments for the financing of dealers' wholesale inventories and for income taxes. The ability of Ford Credit and FCE Bank to obtain funds is affected by their credit ratings and the nature and availability of support facilities, such as revolving credit agreements and receivables sales facilities. Ford Credit and FCE Bank's credit ratings are closely related to the financial condition of and the outlook for Ford. The long-term senior debt of each of Ford, Ford Credit and FCE Bank is rated "A1" (by Moody's Investors Service) and "A+" (by Standard & Poor's Ratings Group). The commercial paper of each of Ford Credit and FCE Bank is rated "Prime-1" (by Moody's) and "A-1" (by S&P). Under a profit maintenance agreement with Ford Credit, Ford has agreed to make payments to maintain Ford Credit's earnings at certain levels. In addition, under a support agreement with FCE Bank, Ford Credit has agreed to maintain a controlling interest in FCE Bank and to make payments to maintain FCE Bank's net worth at certain levels. No payments were required under either of these agreements during the period 1988 through 1999. -12- Item 1. Business (Continued) The Hertz Corporation - --------------------- Hertz and its affiliates and independent licensees operate what Hertz believes is the largest car rental business in the world based upon revenues. They also operate one of the largest industrial and construction equipment rental businesses in North America based upon revenues. Hertz and its affiliates, associates and independent licensees, do the following: o rent and lease cars and trucks o rent industrial and construction equipment o sell their used cars and equipment o provide third-party claim management services o provide telecommunications services These businesses are operated from approximately 6,500 locations throughout the United States and in approximately 140 foreign countries and jurisdictions. In April 1997, Hertz completed an initial public offering of common stock representing a 19.1% economic interest in Hertz. Below are some financial highlights for Hertz (in millions):
Years Ended December 31, ------------------------------------- 1999 1998 ---------------- ---------------- Revenue $4,728 $4,250 Pre-Tax Income 560 465 Net Income 336 277
-13- Item 1. Business (Continued) Governmental Standards A number of governmental standards and regulations relating to safety, corporate average fuel economy ("CAFE"), emissions control, noise control, damageability and theft prevention are applicable to new motor vehicles, engines, and equipment manufactured for sale in the United States, Europe and elsewhere. In addition, manufacturing and assembly facilities in the United States, Europe and elsewhere are subject to stringent standards regulating air emissions, water discharges and the handling and disposal of hazardous substances. Such facilities in the United States also are subject to a comprehensive federal-state permit program relating to air emissions. Mobile Source Emissions Control - U.S. Requirements. The Federal Clean Air Act imposes stringent limits on the amount of regulated pollutants that lawfully may be emitted by new motor vehicles and engines produced for sale in the United States. Currently, most light duty vehicles sold in the United States must comply with these standards for 10 years or 100,000 miles, whichever first occurs. The U.S. Environmental Protection Agency ("EPA") recently has promulgated post-2004 model year standards that are more stringent than the default standards contained in the Clean Air Act. These new regulations will require most light duty trucks to meet the same emissions standards as passenger cars by the 2007 model year. The stringency of the new standards may impact our ability to produce and offer a broad range of products with the characteristics and functionality that customers demand. The new standards also are likely to limit severely the use of diesel technology. In October, 1999, EPA also proposed new post-2004 emission standards for "heavy-duty" trucks (8,500-14,000 lbs. gross vehicle weight). These proposed standards are likely to pose technical challenges and may affect the competitive position of full-line vehicle manufacturers such as Ford. Pursuant to the Clean Air Act, California has received a waiver from the EPA to establish its own unique emissions control standards. New vehicles and engines sold in California must be certified by the California Air Resources Board ("CARB"). CARB's emissions requirements (the "California program") for model years 1994 through 2003 require manufacturers to meet a non-methane organic gases fleet average requirement that is significantly more stringent than that prescribed by the Clean Air Act for the corresponding periods of time. The California program initially required that a specified percentage of each manufacturer's vehicles produced for sale in California, beginning at 2% in 1998 and increasing to 10% in 2003, must be zero-emission vehicles ("ZEVs"), which produce no emissions of regulated pollutants. In 1996, CARB eliminated the ZEV mandate for the 1998-2002 model years; however, the 10% mandate remains in effect for the 2003 model year. Around the same time, vehicle manufacturers voluntarily entered into agreements with CARB that would essentially: (i) provide air quality benefits for California by certifying vehicles nationwide to standards comparable to the California low emission vehicle standards beginning with the 2001 model year, (ii) continue research and development of ZEV technology, and (iii) provide specific numbers of advanced technology battery vehicles through demonstration programs in California. Electric vehicles are the only presently known type of zero-emission vehicles. However, despite intensive research activities, technologies have not been identified that would allow manufacturers to produce an electric vehicle that either meets most customers' expectations or is commercially viable. Compliance with the ZEV mandate may require manufacturers to curtail the sale of non-electric vehicles or to offer substantial discounts on electric vehicles, selling them well below cost, while increasing the price on non-electric vehicles. The California program and ZEV mandates present significant technological challenges to manufacturers and compliance may require costly actions that would have a substantial adverse effect on Ford's sales volume and profits. In late 1998, CARB adopted stringent new vehicle emissions standards that must be phased in beginning in the 2004 model year. These new standards treat most light duty trucks the same as passenger cars and require both types of vehicles to meet new stringent emissions requirements. It is also expected that these new standards will essentially eliminate the use of diesel technology. CARB's new standards present a difficult engineering and technological challenge, and may impact our ability to produce and offer a broad range of products with the characteristics and functionality that customers demand. -14- Item 1. Business (Continued) The Clean Air Act also permits other states which do not meet national ambient air quality standards to adopt the California program no later than two years before the affected model year. New York, Massachusetts, Vermont, and Maine have adopted the California program (NY and MA effective in the 1998 model year; VT effective in the 2000 model year; and ME effective in the 2001 model year). Only NY and MA have adopted California's ZEV mandates (VT's law provides for possible future adoption of a ZEV mandate after certain findings have been made). Maryland and New Jersey have laws requiring adoption of the California program and ZEV mandates after certain conditions have been met. There are major problems with transferring California standards to the Northeast, including the following: 1) many dealers sell vehicles in neighboring (non-California program) states, creating confusion over which emissions warranty applies; 2) the driving range of present ZEVs is greatly diminished (by more than 50 percent) in cold weather; and 3) the Northeast states have refused to adopt the California reformulated gasoline requirement, which may impair the ability of vehicles to meet California's "in-use" standards. As noted previously, California eliminated its ZEV mandate for the 1998-2002 model years. New York refused to eliminate its 1998-2002 ZEV requirement despite the Clean Air Act requirement of identicality with California standards. In August 1998, as a result of a legal challenge from the automotive industry, New York's pre-2003 model year ZEV requirements were declared invalid by the U.S. Court of Appeals for the Second Circuit. Massachusetts has attempted to adopt a ZEV mandate mirroring the voluntary agreements in California between auto manufacturers and CARB. A federal district court invalidated these regulations, but Massachusetts has appealed the decision to the U.S. Court of Appeals for the First Circuit. In September 1999, responding to a referral by the Court, EPA expressed its view that the California agreements do constitute "standards" which could be adopted as regulations by Massachusetts. This issue is still in litigation. The automotive industry has entered into a National Low Emissions Vehicle (NLEV) program, which the EPA promulgated as a rule and which has been agreed to by all manufacturers and all states except Maine, Massachusetts, New York and Vermont. This NLEV program requires manufacturers to sell low emission vehicles in the participating northeastern states beginning with the 1999 model year, and throughout the remainder of the country beginning with the 2001 model year. Under the Clean Air Act, the EPA and CARB can require manufacturers to recall and repair non-conforming vehicles. The EPA, through its testing of production vehicles, also can halt the shipment of non-conforming vehicles. Ford may be required to recall, or may voluntarily recall, vehicles for such purposes in the future. The costs of related repairs or inspections associated with such recalls can be substantial. The Clean Air Act generally prohibits the introduction of new fuel additives unless a waiver is granted by the EPA. In 1995, the EPA was ordered by a federal court to grant such a waiver to Ethyl Corporation for the additive MMT. Ford and other manufacturers are concerned that the widespread use of MMT may impair the performance of current and future emissions systems and onboard diagnostics systems. European Requirements. European Union ("EU") directives and related legislation limit the amount of regulated pollutants that may be emitted by new motor vehicles and engines sold in the EU. In 1998, the EU adopted a new directive on emissions from passenger cars and light commercial trucks. More stringent emissions standards will apply to new car certifications beginning January 1, 2000 and to new car registrations beginning January 1, 2001 ("Stage III Standards"). A second level of even more stringent emission standards will apply to new car certifications beginning January 1, 2005 and to new car registrations beginning January 1, 2006 ("Stage lV Standards"). The comparable light commercial truck Stage III Standards and Stage IV Standards would come into effect one year later than the passenger car requirements. The directive includes a framework that permits EU member states to introduce fiscal incentives to promote early compliance with the Stage III and Stage IV Standards. The directive also introduces on-board diagnostic requirements, more stringent evaporative emission requirements, and in-service compliance testing and recall provisions for emissions-related defects that occur in the first five years or 80,000 kilometers of vehicle life (extended to 100,000 kilometers in 2005). The Stage IV Standards for diesel engines are not yet technically feasible and may impact our ability to produce and offer a broad range of products with the characteristics and functionality that customers want. A related EU directive was -15- Item 1. Business (Continued) adopted at the same time which establishes standards for cleaner fuels beginning in 2000 and even cleaner fuels in 2005. The EU is setting up a program to assess the need for further changes to vehicle emission and fuel standards after 2005. Certain European countries are conducting in-use emissions testing to ascertain compliance of motor vehicles with applicable emissions standards. These actions could lead to recalls of vehicles; the future costs of related inspection or repairs could be substantial. Motor Vehicle Safety - The National Traffic and Motor Vehicle Safety Act of 1966 (the "Safety Act") regulates motor vehicles and motor vehicle equipment in two primary ways. First, the Safety Act prohibits the sale in the United States of any new vehicle or equipment that does not conform to applicable motor vehicle safety standards established by the National Highway Traffic Safety Administration (the "Safety Administration"). Meeting or exceeding many safety standards is costly because the standards tend to conflict with the need to reduce vehicle weight in order to meet emissions and fuel economy standards. Second, the Safety Act requires that defects related to motor vehicle safety be remedied through safety recall campaigns. There were pending before the Safety Administration 28 investigations relating to alleged safety defects in Ford vehicles as of February 20, 2000. A manufacturer also is obligated to recall vehicles if it determines that they do not comply with a safety standard. Should Ford or the Safety Administration determine that either a safety defect or a noncompliance exists with respect to certain of Ford's vehicles, the costs of such recall campaigns could be substantial. In November 1999, the Safety Administration published a supplemental notice of a proposed advanced air bag rule. This proposed rule, which, among other things, requires a 30 mph, fixed barrier crash test utilizing an unbelted adult-sized male dummy, could significantly affect the design and testing of new vehicles. While Ford supports efforts to further improve air bag systems, and is working with suppliers to introduce new designs, we have concerns about the proposed rule. These concerns include a dramatic increase in the number of required tests, complex and vague requirements, the potential need to incorporate unproven technology, and a potential increase in safety risks. We are moving to install advanced air bag restraint systems in our vehicles, but the proposed rule could interfere with these plans. If certain aspects of the rule were to become effective, it could significantly increase our costs, especially if it requires us to change our present advanced air bag design programs. We outlined our concerns in a December 1999 response to the Safety Administration's proposal. Several other companies and organizations including the National Transportation Safety Board, the Insurance Institute for Highway Safety and other automobile manufacturers share many of the same concerns and have also expressed their concerns with the government. The Safety Administration is expected to publish a final rule later this year. The Safety Administration is investigating the feasibility of a test to measure the propensity of a vehicle to roll. It is unlikely that an objective and meaningful stability test can be developed. Nonetheless, the Safety Administration has announced its intention to issue a final rule to require manufacturers to label vehicles based on their performance on the yet-to-be-determined stability test. Such a label could impact customer satisfaction and the sales of Ford products. Canada, the European Union, individual member countries within the EU and other countries in Europe, South America and the Asia Pacific markets also have safety standards applicable to motor vehicles and are likely to adopt additional or more stringent standards in the future. Motor Vehicle Fuel Economy - U.S. Requirements. Under 49 U.S.C. Chapter 329, vehicles must meet minimum CAFE (Corporate Average Fuel Economy) standards set by the Safety Administration. A manufacturer is subject to potentially substantial civil penalties if it fails to meet the CAFE standard in any model year, after taking into account all available credits for the preceding three model years and expected credits for the three succeeding model years. -16- Item 1. Business (Continued) The law established a passenger car CAFE standard of 27.5 mpg for 1985 and later model years, which the Safety Administration believes it has the authority to amend to a level it determines to be the maximum feasible level. The Safety Administration has established a 20.7 mpg CAFE standard applicable to light trucks. Ford expects to be able to comply with the foregoing CAFE standards, in some cases using credits from prior or succeeding years. In October 1999, we filed a plan to meet the 1998 and 1999 light truck standards and the 1999 domestic passenger car standards using credits to be generated in future years. In general, a continued increase in demand for larger vehicles, coupled with a decline in demand for small and middle-size vehicles could jeopardize our long-term ability to maintain compliance with CAFE standards. It is anticipated that efforts may be made to raise the CAFE standard because of concerns for carbon dioxide ("CO2") emissions, energy security or other reasons. President Clinton's Climate Change Action Plan ("CCAP") sets a goal to improve new vehicle fuel efficiency in an amount equivalent to at least 2% per year over a 10 to 15 year period. In addition, international concerns over global warming due to the emission of "greenhouse gasses" have given rise to strong pressures to increase fuel economy. During the December 1997 meeting of the parties to the United Nations Climate Change Convention in Kyoto, Japan, the United States agreed to reduce greenhouse gas emissions by 7% below their 1990 levels during the 2008-2012 period (the "Kyoto Protocol"). The Kyoto Protocol is not yet binding in the United States, pending ratification by the Senate. In addition, a petition has been filed with the Environmental Protection Agency requesting that the Agency regulate CO2 emissions from motor vehicles under the Clean Air Act. EPA is expected to seek public comment on this petition in the near future. If the CCAP or Kyoto Protocol goals are partially or fully implemented through increases in the CAFE standard, if significant increases in car or light truck CAFE standards for subsequent model years otherwise are imposed, or if EPA attempts to regulate CO2 from motor vehicles, Ford might find it necessary to take various costly actions that could have substantial adverse effects on its sales volume and profits. For example, Ford might have to curtail production of larger family-size and luxury cars and full-size light trucks, restrict offerings of engines and popular options, and increase market support programs for its most fuel-efficient cars and light trucks. Foreign Requirements. The EU is also a party to the Kyoto Protocol and has agreed to reduce greenhouse gas emissions by 8% below their 1990 levels during the 2008-2012 period. In December 1997, the European Council of Environment Ministers (the "Environment Council") reaffirmed its goal to reduce average CO2 emissions from new cars to 120 grams per kilometer by 2010 (at the latest) and invited European motor vehicle manufacturers to negotiate further with the European Commission on a satisfactory voluntary environmental agreement to help achieve this goal. In October 1998, the EU agreed to support an environmental agreement with the European Automotive Manufacturers Association (of which Ford is a member) on CO2 emission reductions from new passenger cars (the "Agreement"). The Agreement establishes an emission target of 140 grams of CO2 per kilometer for the average of new cars sold in the EU by the Association's members in 2008. In addition, the Agreement provides that certain Association members (including Ford) will introduce models emitting no more than 120 grams of CO2 per kilometer in 2000, and establishes an estimated target range of 165-170 grams of CO2 per kilometer for the average of new cars sold in 2003. Also in 2003, the Association will review the potential for additional CO2 reductions, with a view to moving further toward the EU's objective of 120 grams of CO2 per kilometer by 2012. The Agreement assumes (among other things) that no negative measures will be implemented against diesel-fueled cars and the full availability of improved fuels with low sulfur content in 2005. Average CO2 emissions of 140 grams per kilometer for new passenger cars corresponds to a 25% reduction in average CO2 emissions compared to 1995. The Environment Council requested the European Commission to review in 2003 the EU's progress toward reaching the 120 gram target by 2010, and to implement annual monitoring of the average CO2 emissions from new passenger cars and progress toward achievement of the objectives for 2000 and 2003. -17- Item 1. Business (Continued) In November 1999, the European Parliament published a Directive on the availability of consumer information about the fuel economy and CO2 emissions of new passenger cars. Although the Directive includes certain minimum EU requirements on the information to be made available, individual Member States would be able to set national requirements for (i) labels to be displayed on passenger cars at their point of sale, (ii) government published guides listing information on all passenger cars available for sale in the specific EU country, and (iii) posters to be displayed in dealerships ranking the fuel economy, CO2 emissions, and estimated fuel costs of passenger cars available for sale there. Member States have until January, 2001 to implement this Directive. In 1995, members of the German Automobile Manufacturers Association (including Ford Werke AG) made a voluntary pledge to reduce by 2005 the average fuel economy of new cars sold in Germany by 25% from 1990 levels, to make regular reports on fuel consumption, and to increase industry research and development efforts toward this end. The German Automobile Manufacturers Association has reported that the industry is on track to meet the pledge. Other European countries are considering other initiatives for reducing CO2 emissions from motor vehicles. Taken together such proposals could have substantial adverse effects on our sales volumes and profits in Europe. Japan has adopted automobile fuel consumption goals that manufacturers must attempt to achieve by the 2000 model year. The consumption levels apply only to gasoline-powered vehicles, vary by vehicle weight, and range from 5.8 km/I to 19.2 km/l. U.S. Stationary Source Air Pollution Control - The Clean Air Act limits various emissions into the atmosphere from stationary sources as well as mobile sources, and allows states to adopt even more stringent standards. The Act imposes comprehensive permit requirements for manufacturing facilities in addition to those required by various states. Regulations continue to be promulgated under the Act, and the costs to comply with the Act could be substantial. In addition, the enormous complexity and time-consuming nature of the comprehensive permit program provided for by the Act may reduce operational flexibility and may interfere with future competitive upgrading of Ford's U.S. production facilities. U.S. Water Pollution Control - Pursuant to the Federal Water Pollution Control Act (the "Clean Water Act"), Ford is required to obtain permits for its manufacturing facilities that regulate the facilities discharge of wastewater into public waters and municipal sewerage systems. The EPA also requires management standards and, in some cases, permits for the discharge of storm water. The standards under the Clean Water Act are established by the EPA and by the state where a facility is located. Many states have requirements that go beyond those established under the Clean Water Act. The EPA also adopted regulations, pursuant to the Great Lakes Critical Programs Act of 1990, that require more restrictive standards for discharges into waters that impact the Great Lakes. These regulations may require the addition of costly control equipment. U.S. Hazardous Substance and Waste Control - Pursuant to the Federal Resource Conservation and Recovery Act, the EPA has issued regulations establishing certain procedures and standards for persons who generate, transport, treat, store, or dispose of hazardous wastes and requiring corrective action for prior releases. States may adopt even more extensive requirements. The Federal Comprehensive Environmental Response, Compensation, and Liability Act requires notification regarding certain releases into the environment, and creates potential liability for remediation costs and for damage to natural resources at sites where our waste was taken for treatment or disposal. A number of states have enacted separate laws of this type. In addition, under the Federal Toxic Substances Control Act ("TSCA"), the EPA evaluates environmental and health effects of existing chemicals and new substances. Pursuant to TSCA, the EPA regulates the use of polychlorinated biphenyls in transformers, capacitors and other equipment that may be located at our U.S. facilities. -18- Item 1. Business (Continued) European Stationary Source Environmental Control - The European Union and individual member countries impose requirements on waste and hazardous wastes, incineration, packaging, landfill, soil pollution, integrated pollution control, air emissions standards, import/export and use of dangerous substances, air and water quality standards, noise, environmental management systems, energy efficiency, emissions reporting, and planning and permitting. Additional or more stringent requirements (including tax measures and civil liability schemes for cleaning polluted sites) are likely to be adopted in the future. The cost of complying with these standards could be substantial. End of Life Vehicle Proposal - The European Commission has published a draft proposal to introduce an obligation for motor vehicle manufacturers to take back end-of-life vehicles on a cost-free basis beginning in late 2001 for certain vehicles with full cost free take back of all vehicles in 2006, to impose requirements on the proportion of the vehicle that may be disposed of in landfills and the proportion that must be reused or recycled beginning in 2006, and to ban the use of certain substances in vehicles beginning in 2005. Such proposal could, if adopted, impose a substantial cost on manufacturers. The German Automobile Association (including Ford Werke AG) and the German Automobile Importers Association made a voluntary pledge to establish a nationwide infrastructure network to take back passenger cars that are at least 12 years old (and meet certain other requirements) on a cost-free basis to their owners. Pollution Control Costs - During the period 2000 through 2004, we expect to spend approximately $348 million on our North American and European facilities to comply with air and water pollution and hazardous waste control standards which now are in effect or are scheduled to come into effect. Of this total, we estimate spending approximately $74 million in 2000 and $73 million in 2001. Worldwide Regulatory Compatibility - Our efforts to develop new markets and increase imports are impeded by incompatible automotive safety, environmental and other product regulatory standards. At present, differing standards either restrict the vehicles we can export to serve new markets or increase the cost and complexity to do so. -19- Item 1. Business (Continued) Employment Data The average number of people we employed by geographic area was as follows for the years indicated:
1999 1998 ---------------- ---------------- United States 173,064 171,269 Europe 125,733 105,351 Other 65,753 65,925 ------- ------- Total 364,550 342,545 ======= =======
In 1999, the average number of people we employed increased 6.4 percent. The increase was due to a number of acquisitions during 1999, notably Volvo Car, which increased employment levels by approximately 20,000. Most of our employees work in our Automotive and Visteon operations. For further information regarding employment statistics of Ford, see Item 6. "Selected Financial Data" later in this Report. For information concerning employee retirement benefits, see Note 9 of our Notes to Financial Statements at the end of this Report. Substantially all of the hourly employees in our Automotive and Visteon operations in the United States are represented by unions and covered by collective bargaining agreements. Approximately 99% of these unionized hourly employees in our Automotive segment (as well as many of those in our Visteon segment) are represented by the United Automobile Workers (the "UAW"). Approximately 3% of our salaried employees are represented by unions. Most hourly employees and many non-management salaried employees of our subsidiaries outside the United States also are represented by unions. We have entered into a new collective bargaining agreement with the UAW that will expire on September 14, 2003. We also have entered into a new collective bargaining agreement with the Canadian Automobile Workers ("CAW") that will expire on September 21, 2002. All local CAW contracts are settled, but our management at several of our plants in the United States continue to negotiate to resolve local issues with the UAW. In addition, we are or will be negotiating new collective bargaining agreements with labor unions in Europe. A work stoppage could occur as a result of these negotiations, which, if protracted, could substantially adversely affect Ford's profits. As part of the new UAW agreement, we also agreed that in connection with any spin-off, sale or other transfer of our Visteon operations: (1) all of our employees who are represented by the UAW and who work at a Visteon facility on the date of such spin-off, sale or transfer will remain Ford employees indefinitely and will continue to be covered under our master agreement with the UAW; (2) Visteon will continue to use the services of such employees after any such spin-off, sale or transfer and will accept other UAW represented employees of Ford who are contractually entitled to fill open positions at Visteon facilities; (3) Visteon will agree to adopt a collective bargaining agreement for hourly employees hired by it after any such spin-off, sale or transfer that is an "exact mirror" of the current master agreement between Ford and the UAW and the next two immediately succeeding master agreements between Ford and the UAW; and (4) Visteon will be required to provide any UAW-represented employees hired by it during the terms of the three master agreements mentioned above, for the duration of such employee's employment with, and retirement from, Visteon, with wages, benefits and other terms and conditions of employment that are the "exact mirror" of the UAW-Ford Master Agreement. In recent years we have not had significant work stoppages at our facilities, but they have occurred in some of our suppliers' facilities. Any protracted work stoppages in the future, whether in our facilities or those of certain suppliers, could substantially adversely affect our results of operations. -20- Item 1. Business (Continued) Engineering, Research and Development We conduct engineering, research and development primarily to improve the performance (including fuel efficiency), safety and customer satisfaction of our products, and to develop new products. We also have staffs of scientists who engage in basic research. We maintain extensive engineering, research and design facilities for these purposes, including large centers in Dearborn, Michigan; Dunton, England; and Merkenich, Germany. Most of our engineering research and development relates to our Automotive and Visteon operating segments. During the last three years we took charges to our consolidated income for engineering, research and development we sponsored in the following amounts: $7.1 billion (1999), $6.3 billion (1998) and $6.3 billion (1997). The increase from 1998 to 1999 is due primarily to the inclusion of Volvo Car for 1999. Any customer-sponsored research and development activities that we conduct are not material. Item 2. Properties - ------------------- We own substantially all of our U.S. manufacturing and assembly facilities. These facilities are situated in various sections of the country and include assembly plants, engine plants, casting plants, metal stamping plants, components plants, transmission and axle plants and glass plants. We also own a majority of our distribution centers, warehouses and sales offices, with the remainder being leased. In addition, we maintain and operate manufacturing plants, assembly facilities, parts distribution centers and engineering centers outside the United States. We own substantially all of these facilities. Below is more information on the separate number of facilities operated by our Automotive and Visteon segments: o Automotive: Approximately 149 plants; 540 distribution, engineering and research and development centers and warehouses; and 314 owned dealerships. o Visteon: Approximately 83 plants and 49 sales, engineering and technical centers. The furniture, equipment and other physical property owned by our Financial Services operations are not material in relation to their total assets. -21- Item 3. Legal Proceedings - -------------------------- Various legal actions, governmental investigations and proceedings and claims are pending or may be instituted or asserted in the future against us and our subsidiaries, including those arising out of the following: alleged defects in our products; governmental regulations covering safety, emissions and fuel economy; financial services; employment-related matters; dealer, supplier and other contractual relationships; intellectual property rights; product warranties; and environmental matters. Some of the pending legal actions are, or purport to be, class actions. Some of the foregoing matters involve or may involve compensatory, punitive or antitrust or other multiplied damage claims in very large amounts, or demands for recall campaigns, environmental remediation programs, sanctions or other relief which, if granted, would require very large expenditures. See Item 1, "Business-Governmental Standards". Included among the foregoing matters are the following: Product Liability Matters - ------------------------- Occupant Restraint Systems. Ford is a defendant in various actions for damages arising out of automobile accidents where the plaintiffs claim that their injuries resulted from (or were aggravated by) alleged defects in the occupant restraint systems in vehicle lines of various model years. For those cases in which damages have been specified, the damages specified by the plaintiffs, including both actual and punitive damages, aggregated approximately $855 million at December 31, 1999. Bronco II. Ford is a defendant in various personal injury lawsuits involving the alleged propensity of Bronco II utility vehicles to roll over. For those cases in which damages have been specified, the damages specified by the plaintiffs, including both actual and punitive damages, aggregated approximately $4.1 billion at December 31, 1999. In most of the actions described in the two paragraphs above, no dollar amount of damages is specified or the specific amount we refer to is only the jurisdictional minimum. It has been our experience that in cases that allege a specific amount of damages in excess of the jurisdictional minimum, such amounts, on average, bear little relation to the actual amounts of damages, if any, paid by Ford in resolving such cases. Any damages we pay generally are, on average, substantially less than the amounts originally claimed. In addition to the pending actions, accidents have occurred and claims have arisen which also may result in lawsuits in which the plaintiffs may allege similar defects. Asbestos. We are a defendant in various actions for injuries claimed to have resulted from alleged contact with certain Ford parts and other products containing asbestos. The plaintiffs in these actions seek damages, including both actual and punitive damages, of approximately $2 billion at December 31, 1999. (In some of these actions, the plaintiffs have not specified a dollar amount of damages or the specific amount referred to is only the jurisdictional minimum.) As distinguished from most lawsuits against us, in most of these asbestos-related cases, we are but one of many defendants, and many of our co-defendants have substantial resources. Environmental Matters - --------------------- General. We have received notices under various federal and state environmental laws that we (along with others) may be a potentially responsible party for the costs associated with remediating numerous hazardous substance storage, recycling or disposal sites in many states and, in some instances, for natural resource damages. We also may have been a generator of hazardous substances at a number of other sites. The amount of any such costs or damages for which we may be held responsible could be substantial. The contingent losses that we expect to incur in connection with many of these sites have been accrued and those losses are reflected in our financial statements in accordance with generally accepted accounting principles. However, for many sites, the remediation costs and other damages for which we ultimately may be responsible are not reasonably estimable because of uncertainties with respect to factors such as our connection to the site or to materials there, the involvement of other potentially responsible parties, the -22- Item 3. Legal Proceedings (Continued) application of laws and other standards or regulations, site conditions, and the nature and scope of investigations, studies and remediation to be undertaken (including the technologies to be required and the extent, duration and success of remediation). As a result, we are unable to determine or reasonably estimate the amount of costs or other damages for which we are potentially responsible in connection with these sites, although that total could be substantial. MFA Grand Jury Matter. The U.S. Department of Justice ("DOJ"), the U.S. Environmental Protection Agency ("EPA") and the Federal Bureau of Investigation ("FBI") are investigating the circumstances surrounding Ford's past use of an engine control strategy that improved fuel economy, but had the side effect of increasing nitrogen oxide emissions. The investigation findings are being presented to a federal grand jury in Detroit, which will decide whether to issue a criminal indictment against Ford or Ford employees. The engine control strategy (Managed Fuel Air, or "MFA") was used on 1997 model year Econoline vans (about 60,000 vehicles). In an earlier civil investigation, Ford entered into a consent decree with DOJ and EPA and agreed to pay $8 million in fines and special projects, in addition to recalling the Econoline vans. Ford also settled similar issues with the California Air Resources Board ("CARB"). We have met with attorneys and investigators from the government and are cooperating in the investigation. Waste Disposal. The United States Environmental Protection Agency ("EPA") has initiated a civil enforcement action against Ford as a result of Ford Venezuela's shipment of industrial wastes from its Valencia Assembly Plant in Venezuela for disposal in Texas. Ford also has received a subpoena and been notified that it is the subject of a grand jury investigation based on the same facts. Ford Venezuela shipped the industrial waste to the U.S. for disposal under the more stringent U.S. disposal requirements because of the unavailability of adequate disposal facilities in Venezuela and to ensure proper disposal of the waste. Although Ford believes that the subject waste is properly classified as non-hazardous under U.S. environmental laws, the EPA contends that even if the wastes do not exhibit any hazardous characteristics, they nevertheless may be the product of a process that is automatically deemed hazardous under applicable regulations. If Ford is determined to have violated EPA regulations regarding the disposal of hazardous wastes, Ford could be required to pay substantial fines which could exceed $100,000. It is impossible at this point in the proceedings to determine what amount, if any, Ford may be required to pay. On-Board Diagnostics Investigation. CARB and EPA have notified Ford that the system for monitoring fuel vapor leaks on about 6 million 1997-98 model year vehicles is inadequate and was not described fully in Ford's certification application. CARB and the EPA have requested that Ford implement a recall to reprogram the monitor. The agencies also seek civil penalties, which are likely to be substantial. Ohio Assembly Plant. In September 1999, the EPA filed a complaint against Ford alleging violations of the Resource Conservation and Recovery Act ("RCRA") at Ford's Ohio Assembly Plant. The violations are related to Ford's storage of hazardous waste and the absence of a leak monitoring program for paint equipment. EPA has proposed a civil penalty of $303,745. Ford could be required to implement monitoring programs at all U.S. plants at an initial cost of $700,000 and $350,000 each year thereafter. Rawsonville Plant. The Michigan Department of Environmental Quality ("MDEQ") alleges that Ford failed to obtain a permit modification in connection with a raw material change at the Rawsonville Plant. MDEQ proposed a $204,000 fine and installation of additional pollution control equipment. The Plant recently installed the pollution control equipment, and final settlement discussions between Ford and MDEQ are in progress. -23- Item 3. Legal Proceedings (Continued) Michigan Truck, Dearborn and Wayne Assembly Plants. Ford received notices of violation ("NOVs") from the EPA, the MDEQ and Wayne County, Michigan, alleging regulatory violations related to volatile organic compound emissions at the Michigan Truck, Dearborn and Wayne Assembly Plants. The NOVs included allegations that the plants violated permit limitations at certain plant processes (total emissions remained well below allowable levels) and that production was increased at Michigan Truck in violation of its permit (notwithstanding written approval from the State permitting agency authorizing the production increase). In settlement of this matter, a Judicial Consent Decree is expected to be entered in the United States District Court, Eastern District of Michigan, during the first quarter of 2000. The settlement includes a $1.1 million payment divided equally between the three agencies and a supplemental environmental project involving the installation of a waterborne primer system at the new Dearborn Assembly Plant paint shop (representing an incremental investment of $10 million). Class Actions - ------------- Paint Class Actions. There are two purported class actions pending against Ford in Texas and Illinois alleging claims for fraud, breach of warranty, and violations of consumer protection statutes. The Texas case purports to assert claims on behalf of Texas residents who have experienced paint peeling in certain 1984 through 1992 Ford vehicles. The Illinois case purports to assert claims on behalf of residents of all states except Louisiana and Texas who have experienced paint peeling on most 1988 through 1997 Ford vehicles. Plaintiffs in both cases contend that their paint is defective and susceptible to peeling because Ford did not use spray primer between the high-build electrocoat ("HBEC") and the color coat. The lack of spray primer allegedly causes the adhesion of the color coat to the HBEC to deteriorate after extended exposure to ultraviolet radiation from sunlight. Plaintiffs in both cases seek unspecified compensatory damages (in an amount to cover the cost of repainting their vehicles and to compensate for alleged diminution in value), punitive damages, attorneys' fees and interest. In the Texas case, Sheldon, the trial court certified a class of Texas owners who experienced paint peeling because of the alleged defect. The order certifying the class is presently on appeal to the Texas Supreme Court. The Illinois case, Phillips, was just recently filed. We intend to pursue aggressively summary dismissal and oppose class certification. Ignition Switch Class Action. This litigation involves allegations that Ford concealed a defect in ignition switches in most 1983 through 1993 model vehicles that could cause short circuits, resulting in smoke and fire damage. At one time, more than a dozen class actions were pending, but now there is only one, Snodgrass, a purported nationwide class action pending in federal court in New Jersey. In that case, Plaintiffs seek damages allegedly caused by ignition switch fires. The trial court has already denied one motion for class certification. A renewed motion for class certification is pending. TFI Module Class Actions. There are six class actions pending in state courts in Alabama, California, Illinois, Maryland, Tennessee and Washington, alleging defects in thick film ignition modules in more than 22 million vehicles manufactured by Ford between 1983 and 1995. With minor variations based upon state law and differences in the scope of the classes alleged, all of the cases involve the same legal claims and theories. The Howard case in California, presently in trial, is the lead case; proceedings in the other five cases are stayed. The Howard plaintiffs assert two claims for relief: violations of the California Consumer Legal Remedies Act ("CLRA"), and violations of the California Unfair Competition Law ("UCL"). Both claims are based upon the allegation that Ford intentionally concealed a safety defect in the subject vehicles. The alleged defect is that distributor mounted TFI modules are inordinately prone to failure because they are exposed to excessive heat. Plaintiffs contend that TFI failure causes stalling at highway speeds and that stalling at highway speeds poses an unreasonable risk to motor vehicle safety. They further contend that Ford knew about the alleged defect and concealed it by withholding documents from NHTSA during investigations into stalling, secretly settling personal injury lawsuits in which TFI failure was at issue, -24- Item 3. Legal Proceedings (Continued) falsely advertising its vehicles as safe, conducting an owner notification campaign on certain vehicles rather than a safety recall, and failing to report TFI warranty claims and failures to the EPA. Under the CLRA, plaintiffs seek a $1,000 statutory penalty per class member plus punitive damages. Under the UCL, plaintiffs seek a recall or "disgorgement" of the amount Ford saved by not conducting a recall. If plaintiffs are successful on all of their claims, an adverse judgment in California could be as high as $4 billion. A jury trial on the CLRA claims in Howard began in May 1999 and ended in November 1999 with a deadlocked jury and a mistrial; the CLRA claims will be retried, probably in 2000. Before the second trial, however, the trial judge will decide, probably in the second or third quarter of 2000, whether to order a recall or "disgorgement" under the UCL. Ford/Citibank Visa Class Action. Following the June 1997 announcement of the termination of the Ford/Citibank credit card rebate program, five purported nationwide class actions and one purported statewide class action were filed against Ford; Citibank is also a defendant in some of these actions. The actions allege damages in an amount up to $3,500 for each cardholder who obtained a Ford/Citibank credit card in reliance on the rebate program and who is precluded from accumulating discounts toward the purchase or lease of new Ford vehicles after December 1997 as a result of the termination of the rebate program. Plaintiffs contend that defendants deceptively breached their contract by unilaterally terminating the program, that defendants have been unjustly enriched as a result of the interest charges and fees collected from cardholders, and further, that defendants conspired to deprive plaintiffs of the benefits of their credit card agreement. Plaintiffs seek compensatory damages, or alternatively, reinstatement of the rebate program, and punitive damages, costs, expenses and attorneys' fees. The five purported nationwide class actions were filed in state courts in Alabama, Illinois, New York, Oregon and Washington, and the purported statewide class action was filed in a California state court. The Alabama court has conditionally certified a class consisting of Alabama residents. Ford removed all of the cases to federal court, which consolidated and transferred the cases to federal court in Washington for pretrial proceedings. In October 1999, the federal court dismissed the consolidated proceedings for lack of jurisdiction and sent each action back to the state court in which it originated. We have appealed this ruling. Flat Glass Class Actions. Ford is a defendant in 15 purported class actions brought on behalf of purchasers of flat glass (and one individual suit brought by Allstate Insurance Company) alleging that we and other manufacturers fixed prices and allocated markets in violation of federal and state antitrust laws. Twelve of the class actions are nationwide in scope and pending in federal court and the other three class actions are statewide in scope and are pending in state courts. The other defendants include Pilkington, Libbey-Owens Ford, AFG Industries, PPG Industries, Asahi Glass, and Guardian Industries. A number of similar purported class actions are pending in various courts in which Ford is not currently named as a defendant. A total of 28 federal cases have been consolidated in a federal court in Pennsylvania for pretrial proceedings. Ford and PPG Industries are the only remaining defendants in the consolidated class actions, as a result of a settlement among plaintiffs and the other defendants. In November 1999, the trial judge granted plaintiffs' motion for class certification and certified two subclasses: (1) all individuals and entities who, between August 1, 1995 and December 31, 1995, purchased flat glass products in the U.S. from defendants, and (2) all individuals and entities who, between August 1, 1991 and December 31, 1995, purchased fabricated automotive replacement glass for domestic makes of cars in the U.S. from defendants. In January 2000, the Third Circuit Court of Appeals denied our request that it review this ruling. The parties will now begin pretrial discovery. In the actions against Ford, the plaintiffs seek economic and treble damages. Lease Residual Class Action. In January 1998 in connection with a case pending in Illinois state court, Ford and Ford Credit were served with a summons and intervention counterclaim complaint relating to Ford Credit's leasing practices (Higginbotham v. Ford Credit). The counterclaim plaintiff, Carla Higginbotham, is a member of a class that has been conditionally certified for settlement purposes in Shore v. Ford Credit. In the Shore case, Ford Credit commenced an action for deficiency against Virginia Shore, a Ford Credit lessee. Shore counterclaimed for purported violations of the Truth-in-Leasing Act (alleging that -25- Item 3. Legal Proceedings (Continued) certain lease charges were excessive) and the Truth-in-Lending Act (alleging that the lease lacked clarity). Shore purported to represent a class of all similarly situated lessees. Ford was not a party to the Shore case. Higginbotham objected to the proposed settlement of the Shore case, intervened as a named defendant, filed separate counterclaims against Ford Credit, and joined Ford as an additional counterclaim defendant. Higginbotham asserts claims against Ford Credit for violations of the Consumer Leasing Act, declaratory judgment concerning the enforceability of early termination provisions in Ford Credit's leases, and fraud. She also asserts a claim against Ford Credit and Ford for conspiracy to violate the Truth-in-Lending Act. The Higginbotham counterclaims allege that Ford Credit inflates the residual values of its leased vehicles, which results in lower monthly lease payments but higher termination fees for lessees who exercise their right of early termination. Higginbotham claims that the early termination fees were not adequately disclosed on the lease form and that the fees are excessive and illegal because of the allegedly inflated residual values. She also alleged that Ford dictated the residual values to Ford Credit and thereby participated in an unlawful conspiracy. This case was stayed pending the approval/rejection of the settlement in Shore. In November 1998, the court issued a ruling that rejected the proposed settlement in Shore. During the third quarter of 1999, however, Ford Credit reached individual settlements with the Shore plaintiffs. The Illinois court in Higginbotham found that the lease end residual value of Ms. Higginbotham's vehicle was properly valued and, as a result, Ms. Higginbotham was an inadequate representative for the class. Subsequently, Ms. Higginbotham voluntarily dismissed her intervention counterclaim without prejudice in the Illinois state court and has reactivated her initial suit in the Florida federal court, pursuing substantially similar claims on behalf of herself and others similarly situated. Consequently, the Higginbotham case is proceeding in Florida and Ford Credit is in the process of responding to discovery requests. Lease Agreement Disclosure Class Action. Twenty-one purported class action lawsuits have been filed in various courts against Ford Credit and, in all but three cases, Primus Automotive Financial Services, Inc., a subsidiary of Ford Credit. The lawsuits, each of which purports to be brought on behalf of a statewide class, allege that Ford Credit and Primus leasing contracts improperly failed to disclose acquisition and administrative fees that are included in the amount of a customer's monthly lease payment. Plaintiffs seek compensatory damages in the amount of all such undisclosed fees, an injunction prohibiting the companies from continuing the practice of not disclosing such fees, attorneys' fees, interest, costs and in some cases, punitive damages. Ford Credit has filed motions to dismiss in every one of these suits and was successful in getting all but one case dismissed. Plaintiffs in certain of these cases have appealed their dismissal. One case remains pending in Kentucky where we lost our motion to dismiss. We expect to file a motion for summary judgment in that case. Retail Lessee Insurance Coverage Class Action. 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 payments 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. Ford has filed a motion for summary judgment based on the policy language and the intention of the parties. Plaintiffs recently responded to Ford's motion, cross-moved for summary judgment in their favor, moved to amend their complaint, and moved for class certification. -26- Item 3. Legal Proceedings (Continued) 3.8 Liter Engine Transmissions Class Actions. There are four purported nationwide class actions pending against Ford alleging that the transmissions of 3.8 liter engines in 1995 Windstar minivans are defective, and that Ford sold the vehicles despite knowledge of the defect. One of the cases also alleges a defect in the transmissions of 3.8 liter engines in 1990-95 Taurus/Sables and 1990-94 Lincoln Continentals. One of these cases has been pending in California state court since 1998. Motions to dismiss that complaint are pending. If the motions are denied, class certification motions could be decided during late 2000. The other three cases were filed in state courts in early 2000 (two in Illinois and one in Pennsylvania), and may be removed to federal court. The complaints assert various theories, including breach of warranty and violation of state consumer protection laws, and seek various forms of relief, including compensatory damages in an amount to cover the cost of repairing or replacing the vehicles, plus punitive damages, interest and attorneys' fees. No specific amounts are sought, except that one of the Illinois complaints seeks compensatory damages in excess of $50,000 per class member. Some of the complaints also seek an order requiring Ford to recall the vehicles. Seat Back Class Action. Four purported statewide class actions have been filed in state courts in Maryland, New Hampshire, New Jersey and New York against Ford, General Motors Corporation and DaimlerChrysler AG alleging that seat backs with single recliner mechanisms are defective. Plaintiffs in each of these suits allege that seats installed in "class vehicles" are defective because they have a single recliner mechanism (the device that fixes the angle of the seat back) on the outboard side and no equivalent device on the inboard side. The absence of a similar mechanism on the inboard side, combined with other flaws (such as "inadequate bracing") allegedly makes the seats unreasonably dangerous because the seat backs are "unstable and susceptible to rearward collapse in the event of a rear-end collision. The purported class in each state consists of all persons who own a class 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. Plaintiffs allege causes of action for negligence, strict liability, implied warranty, fraud, and civil conspiracy. Plaintiffs also allege violations of the consumer protection statutes in the various states. For each of the eight counts alleged, Plaintiffs seek "compensatory damages measured by the cost of correcting the Defect, not to exceed $5,000 for each class vehicle." We have filed motions to dismiss each of the cases. On December 15, 1999, the trial judge in New Hampshire granted our motion to dismiss because Plaintiffs had suffered no injury. However, on January 7, 2000, the trial judge in the New Jersey case denied our motion to dismiss. We are seeking interlocutory review and, if necessary, we will file a motion for summary judgment after preliminary discovery. The motions to dismiss filed in Maryland and New York are still pending. Head Gasket Class Actions. In December 1999, a purported nationwide class action was filed in Illinois state court on behalf of owners and lessees of 1994-1995 vehicles with 3.8 liter engines who have paid for repairs resulting from head gasket failure. Ford removed the case to federal court. The federal court dismissed the complaint for technical reasons and granted plaintiffs leave to refile by March 1, 2000. Plaintiffs filed a motion for reconsideration, which the trial court is treating as a motion to remand to state court. That motion is pending. Coolant leakage from head gaskets was the subject of a Technical Service Bulletin in April 1998, an Owner Notification Program ("ONP") that extended warranty coverage on 1994-1995 vehicles with a 3.8 liter engine to 5 years or 60,000 miles, and a recent ONP that further extended coverage to 7 years or 100,000 miles. Plaintiffs allege that Ford's sale of the vehicles constituted violations of the Illinois and Michigan consumer protection statutes, and that Ford breached both the original warranty and the first ONP extended warranty by failing to pay for repair costs. In particular, plaintiffs point to the fact that the first ONP notification letter provided coverage to 5 years or 60,000 miles, and (inadvertently) did not contain the phrase "whichever occurs first." Plaintiffs seek reimbursement for the cost of repairing their vehicles in addition to punitive damages. A second purported nationwide class action alleging defective head gaskets was filed in federal court in Ohio on February 22, 2000. The complaint includes allegations similar to those asserted in the Illinois case, and also alleges similar problems with 4.2 liter engines and certain 1996-1997 vehicles. -27- Item 3. Legal Proceedings (Continued) Late Charges Class Actions. There are two class actions, one in California (Cumberland v. Ford Credit) and the other in Oklahoma (Crim v. Ford Credit), in which the plaintiffs are contending that Ford Motor Credit Company is engaged in unfair business practices by assessing late charges on lease accounts that bear no reasonable relation to our actual costs. In Cumberland the plaintiff has brought a purported nationwide class action filed in the Superior Court of San Francisco. Plaintiffs are seeking restitution, punitive damages and injunctive relief. Basically, the claim is that our late charge of 7 1/2 % or $50, whichever is less, is excessive. There has been extensive discovery and the court has granted nationwide class certification. In Crim, the plaintiff has made similar allegations. After granting a statewide class, the court granted our motion for summary judgment because it found that the plaintiff had voluntarily made the late payments and was therefore precluded from bringing this action. We have completed an extensive study of the costs incurred by Ford Credit on delinquent accounts and are confident that we can justify the late charge fee. Wartime Labor. Ford and Ford Germany are among hundreds of defendants in numerous class action lawsuits brought on behalf of millions of foreign workers forced by the Nazi government to work for industry during WWII as a result of German labor shortages. In September 1999, a New Jersey federal court dismissed one of the class action lawsuits against Ford and Ford Germany, ruling that such issues must be resolved by governments, not the courts. That lawsuit is on appeal, along with an appeal of the dismissal of another lawsuit not involving Ford. Three other lawsuits are pending against Ford in federal courts in New York and California. Ford is seeking the dismissal of those actions. In December 1999, German and U.S. negotiators announced the formation of a $5.2 billion humanitarian fund that is expected to shield companies from further lawsuits. Ford is evaluating the appropriateness of participating in the fund as a means of resolving the matter. Other Matters - ------------- Konrad Patent Litigation. A patent infringement suit naming Ford as a defendant has been filed in the U. S. District Court for the Eastern District of Texas by an individual, Allan Konrad, who holds three patents allegedly covering intranet/internet use. Mr. Konrad also owns a fourth patent application allegedly covering e-commerce. Thirty-eight other companies, including General Motors and DaimlerChrysler are codefendants in this litigation. The Company procures all products and services related to this infringement allegation from suppliers and believes that it is entitled to be indemnified by these suppliers for any loss that may result from this litigation. The technology covered in the Konrad patents relates to computer system configuration and a method of using that configuration. More specifically, a local host (personal workstation), remote host (server), a network connecting the local host to the remote host, and various computer service functionalities are claimed to be covered by these patents. Technology of this type is widely used in the Company and continued use is required. OFCCP Proceeding. In April 1997, the Department of Labor issued an administrative enforcement proceeding challenging our compliance with obligations imposed by Executive Order 11246, which prohibits employment discrimination and requires affirmative action by government contractors and subcontractors. The Office of Federal Contract Compliance Programs ("OFCCP") claims that our Kentucky Truck Plant used a hiring process in 1993 for entry-level hourly laborer positions that discriminated against female applicants. OFCCP sought an order awarding back pay to the "affected class of women," a job offer to each of these persons, and retroactive seniority for each person. A settlement was reached with OFCCP in February 2000. The settlement addressed all compliance investigations that had been pending, including the Kentucky matter. The accord requires the Company to pay $3.8 million in settlement and to hire 100 hourly workers (without retroactive seniority) scattered among nine manufacturing facilities within three years. -28- Item 3. Legal Proceedings (Continued) Red Carpet Lease Terminations. The Florida Attorney General issued a subpoena asking for all Ford Credit Red Carpet Lease ("RCL") early termination accounts going back to 1991. The Florida Attorney General has been investigating leasing practices at the dealership level for years. The Attorney General is representing a consortium of 37 states. The investigation focuses on whether Ford Credit RCL customers who want to terminate leases early and purchase the leased vehicle have been misled by the dealers' alleged improper failure to itemize: (i) the cost to terminating the lease, and (ii) the vehicle purchase price. They claim that because Ford Credit requires the customer to early terminate with the originating dealer, we are conspiring with our dealer to mislead the customer. We believe that Ford Credit's business practices are fair under applicable law, and we are attempting to negotiate a resolution of the matter. There have been numerous and extensive meetings with most of the Attorneys General involved in the 37 state consortium. We are confident that an amicable resolution of this matter will be reached. Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------ Not required. -29- Item 4A. Executive Officers of Ford - ------------------------------------ Our executive officers and their positions and ages at March 15, 2000 are shown in the table below:
Present Position Name Position Held Since Age ---- -------- ---------- --- Jacques A. Nasser* President and January 1999 52 Chief Executive Officer (also a Director) W. Wayne Booker Vice Chairman November 1996 65 Peter J. Pestillo Vice Chairman January 2000 61 (Chairman and CEO, Visteon Automotive Systems) James D. Donaldson Group Vice President- January 2000 57 Global Business Development Carlos E. Mazzorin Group Vice President- January 2000 58 Global Purchasing and South America James J. Padilla Group Vice President- January 2000 53 Global Manufacturing Richard Parry-Jones Group Vice President- January 2000 48 Global Product Development and Quality Wolfgang Reitzle Group Vice President- Premier March 1999 50 Automotive Group Robert L. Rewey Group Vice President- January 2000 61 Global Consumer Services and North America John M. Rintamaki Group Vice President and January 2000 58 Chief of Staff Henry D. G. Wallace Group Vice President and January 2000 54 Chief Financial Officer Gurminder S. Bedi Vice President- January 2000 52 North American Truck William W. Boddie Vice President- January 2000 54 Global Core Engineering Mei Wei Cheng Vice President- January 1999 50 (President, Ford Motor (China) Ltd.)
-30- Item 4A. Executive Officers of Ford (Continued)
Present Position Name Position Held Since Age ---- -------- ---------- --- William J. Cosgrove Vice President July 1999 54 (Chief of Staff and Chief Financial Officer, Premier Automotive Group) Terrell M. de Jonckheere Vice President-Ford South January 2000 55 South America Operations Wayne S. Doran Vice President November 1997 65 (Chairman, Ford Motor Land Development Corporation) Mark Fields Vice President December 1999 38 Bobbie A. Gaunt Vice President- July 1999 53 (President and CEO, Ford of Canada, Ltd.) Louise K. Goeser Vice President-Quality March 1999 46 Elliott S. Hall Vice President- July 1998 61 Dealer Development Earl J. Hesterberg Vice President- June 1999 46 (Vice President, Marketing, Sales and Service, Ford of Europe, Inc.) Mark W. Hutchins Vice President- July 1998 54 (President, Lincoln and Mercury) I. Martin Inglis Vice President- Ford January 2000 49 North America Michael D. Jordan Vice President- January 1999 53 (President, Automotive Consumer Services Group) Brian P. Kelley Vice President- Consumer June 1999 39 Connect (COO, Ford Investment Enterprises Corporation) Vaughn A. Koshkarian Vice President-Ford Asia January 2000 59 Pacific Operations Roman J. Krygier Vice President- January 1999 57 Powertrain Operations Martin Leach Vice President- January 2000 42 (VP, Product Development, Ford of Europe, Inc.)
-31- Item 4A. Executive Officers of Ford (Continued)
Present Position Name Position Held Since Age ---- -------- ---------- --- Malcolm S. Macdonald Vice President and January 1998 59 Treasurer J.C. Mays Vice President-Design October 1997 45 James E. Miller Vice President January 1998 53 Craig H. Muhlhauser Vice President January 1999 51 (President, Visteon Automotive Systems) Janet G. Mullins Vice President- January 1998 50 Washington Affairs David L. Murphy Vice President- January 1999 54 Human Resources James G. O'Connor Vice President June 1998 57 (President, Ford Division) Helen O. Petrauskas Vice President-Environmental March 1983 55 and Safety Engineering William F. Powers Vice President-Research February 1996 59 Neil W. Ressler Vice President and January 1999 60 Chief Technical Officer Research and Vehicle Technology Dennis E. Ross Vice President and January 1998 49 Chief Tax Officer Shamel T. Rushwin Vice President-Vehicle March 1999 52 Operations Nicholas V. Scheele Vice President- February 1999 56 (Chairman, Ford of Europe, Inc.) James C. Schroer Vice President- Global July 1999 48 Marketing William A. Swift Vice President and Controller January 1999 56 Frank M. Taylor Vice President- Material July 1999 52 Planning and Logistics Chris P. Theodore Vice President- North January 2000 49 America Car David W. Thursfield Vice President- January 2000 54 (President, Ford of Europe, Inc.)
-32- Item 4A. Executive Officers of Ford (Continued)
Present Position Name Position Held Since Age ---- -------- ---------- --- Alex P. Ver Vice President- Advanced January 2000 53 Manufacturing Engineering Jason H. Vines Vice President- February 2000 40 Communications Donald A. Winkler Vice President- October 1999 51 (Chairman and CEO, Ford Motor Credit Company) Robert J. Womac Vice President (Executive November 1996 56 Vice President, Operations, Visteon Automotive Systems) James A. Yost Vice President and Chief July 1999 50 Information Officer Martin B. Zimmerman Vice President- January 1999 53 Governmental Affairs Rolf Zimmermann Vice President November 1998 53 (Chairman, Ford Werke AG)
________________________ * Also a member of the Finance Committee and the Organization Review and Nominating Committee of the Board of Directors. All of the above officers, except those noted below, have been employed by Ford or its subsidiaries in one or more capacities during the past five years. Described below are the positions (other than those with Ford or its subsidiaries) held by those officers who have not been with Ford or its subsidiaries for five years: o Mr. Cheng was President and Regional Executive of GE Appliances Ltd. in Hong Kong from October 1996 until January 1998. From September 1994 until September 1996 he was President of General Electric China. o Ms. Goeser served as General Manager, Refrigeration Product Team Whirlpool Corporation, Whirlpool North American Appliance Group, from September 1996 until March 1999. From January 1994 until September 1996, she served as Vice President, Corporate Quality, Whirlpool Corporation. o Mr. Kelley served as Vice President and General Manager for Sales and Distribution with General Electric's Appliance Division from January 1997 until June 1999. From January 1995 until January 1997 he served as General Manager, Laundry Products, General Electric's Appliance Division and as Marketing Director, GE Brands Worldwide, General Electric Appliance Division from January 1994 until January 1995. o Mr. Mays was Vice President of Design Development at SHR Perceptual Management in Scottsdale, Arizona from 1995 to 1997. Prior to that he was design director responsible for worldwide design strategy, development and execution for Audi AG. o Mr. Muhlhauser was an officer of United Technologies Corporation and held the positions of Senior Vice President, Sales and Service-Americas, and Senior Vice President, Worldwide Aftermarket - Pratt & Whitney from June 1995 to July 1997. -33- Item 4A. Executive Officers of Ford (Continued) o Dr. Reitzle was a member of the Board of Management of BMW AG, Research and Development from July 1987 to October 1995. He served as Chairman of Rover Group Board from October 1995 to March 1997 and as a member of the Board of Management of BMW AG, Market and Product from March 1998 to February 1999. o Mr. Ross was a partner in the New York law firm of Davis, Polk & Wardwell from May 1989 to May 1995. o Mr. Rushwin served as Vice President-International Manufacturing and Minivan Assembly Operations at DaimlerChrysler AG and its predecessors from October 1994 until March 1999. o Mr. Taylor was Executive Director, Production Control and Logistics - General Motors Corporation Powertrain Group from March 1994 to July 1999. o Mr. Theodore most recently was Senior Vice President-Platform Engineering at DaimlerChrysler AG and its predecessors from January 1998 until March 1999. His prior positions at DaimlerChrysler AG were General Manager-Small Car Platform Engineering from 1996 through December 1997 and General Manager-Minivan Platform Engineering from 1992 through 1996. o Mr. Vines served as Vice President - External Affairs, Nissan North America from April 1998 until February 2000. From 1993 until 1995 while an employee of Chrysler Corporation, he served as Public Relations Executive with the American Automobile Manufacturers Association. o Mr. Winkler was Chairman and CEO of Finance One, a finance subsidiary of Bank One Corporation and served as Executive Vice President of Bank One Corporation from 1993 to October 1999. Under Ford's By-Laws, the executive officers are elected by the Board of Directors at the Annual Meeting of the Board of Directors held for this purpose. Each officer is elected to hold office until his or her successor is chosen or as otherwise provided in the By-Laws. -34- PART II Item 5. Market for Ford's Common Stock and Related Stockholder Matters - ---------------------------------------------------------------------- Our Common Stock is listed on the New York and Pacific Coast Stock Exchanges in the United States and on certain stock exchanges in Belgium, France, Germany, Switzerland and the United Kingdom. The table below shows the high and low sales prices for our Common Stock and the dividends we paid per share of Common and Class B Stock for each quarterly period in 1999 and 1998.
1999 1998 ----------------------------------------- ------------------------------------------ First Second Third Fourth First Second Third Fourth Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter ------- ------- ------- ------- ------- ------- ------- ------- Common Stock price per share* High $66-1/2 $67-7/8 $58-5/8 $54-7/8 $43-5/8 $59-1/8 $61-7/16 $59-7/8 Low 55-1/4 52-5/8 46-1/4 48-1/2 28-5/16 41-11/64 40-5/8 38-13/16 Dividends per share of Common and Class B Stock $0.46 $0.46 $0.46 $0.50 $0.42 $0.42 $0.42 $0.46
______________________________ * New York Stock Exchange composite interday prices as provided by the www.NYSEnet.com price history database. All prices prior to April 8, 1998 have been adjusted to reflect The Associates spin-off. As of February 25, 2000, stockholders of record of Ford included 217,801 holders of Common Stock and 101 holders of Class B Stock. During 1999 we sold 1,001,513 shares of our Common Stock in private transactions that were not registered with the Securities and Exchange Commission. These transactions were exempt from registration requirements because they were private placements under Section 4(2) of the Securities Act of 1933, as amended. These shares were sold to owners of automotive dealership, automotive recycling and other businesses in exchange for those businesses. The consideration we received for the shares was equal to the market value of the shares at the time of the transactions. -35- Item 6. Selected Financial Data - -------------------------------- The following tables set forth selected financial data and other data concerning Ford for each of the last eleven years (dollar amounts in millions, except per share amounts):
SUMMARY OF OPERATIONS 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- Automotive Sector Sales $136,973 $119,083 $122,935 $118,023 $110,496 $107,137 $91,568 $84,407 $72,051 $81,844 $82,879 Operating income/(loss) 8,379 6,685 6,946 2,516 3,281 5,826 1,432 (1,775) (3,769) 316 4,252 Income/(loss) before income taxes and cumulative effects of changes in accounting principles 8,447 6,958 7,082 2,571 3,166 5,997 1,291 (1,952) (4,052) 275 5,156 Income/(loss) before cumulative effects of changes in accounting principles 5,721 4,752 4,714 1,655 2,056 3,913 1,008 (1,534) (3,186) 99 3,175 Net income/(loss) 5,721 4,752 4,714 1,655 2,056 3,913 1,008 (8,628) (3,186) 99 3,175 Financial Services Sector Revenues $ 25,585 $ 25,333 $ 30,692 $ 28,968 $ 26,641 $ 21,302 $16,953 $15,725 $16,235 $15,806 $13,267 Income before income taxes and cumulative effects of changes in accounting principles 2,579 18,438 3,857 4,222 3,539 2,792 2,712 1,825 1,465 1,220 874 Income before cumulative effects of changes in accounting principles a/,b/, c/ 1,516 17,319 2,206 2,791 2,083 1,395 1,521 1,032 928 761 660 Net income 1,516 17,319 2,206 2,791 2,083 1,395 1,521 1,243 928 761 660 Total Company Income/(loss) before income taxes and cumulative effects of changes in accounting principles $ 11,026 $ 25,396 $ 10,939 $ 6,793 $ 6,705 $ 8,789 $ 4,003 $ ( 127) $(2,587) $ 1,495 $ 6,030 Provision/(credit) for income taxes 3,670 3,176 3,741 2,166 2,379 3,329 1,350 295 (395) 530 2,113 Minority interests in net income of subsidiaries 119 149 278 181 187 152 124 80 66 105 82 -------- -------- -------- -------- -------- -------- ------- ------- ------- ------- ------- Income/(loss) before cumulative effects of changes in accounting principles a/, b/, c/ $ 7,237 22,071 6,920 4,446 4,139 5,308 2,529 (502) (2,258) 860 3,835 Cumulative effects of changes in accounting principles - - - - - - - (6,883) - - - -------- -------- -------- -------- -------- -------- ------- ------- ------- ------- ------- Net income/(loss) 7,237 $ 22,071 $ 6,920 $ 4,446 $ 4,139 $ 5,308 $ 2,529 $(7,385) $(2,258) $ 860 $ 3,835 ======== ======== ======== ======== ======== ======== ======= ======= ======= ======= ======= Total Company Data Per Share of Common and Class B Stock d/ Income/(loss) before cumulative effects of changes in accounting principles $ 5.99 $ 18.17 $ 5.75 $ 3.73 $ 3.58 $ 4.97 $ 2.27 $ (0.73) $ (2.40) $ 0.93 $ 4.11 Income/(loss) Basic 5.99 18.17 5.75 3.73 3.58 4.97 2.27 (7.81) (2.40) 0.93 4.11 Diluted 5.86 17.76 5.62 3.64 3.33 4.44 2.10 (7.81) (2.40) 0.92 4.06 Cash dividends 1.88 1.72 1.645 1.47 1.23 0.91 0.80 0.80 0.98 1.50 1.50 Common stock price range (NYSE) High 67-7/8 61-7/16 33-3/8 24-47/64 21-53/64 23-1/4 21-61/64 16-15/64 12-17/32 16-5/16 18-51/64 Low 46-1/4 28-15/32 19-59/64 18-3/32 16-7/16 17-11/64 14-9/32 9-7/32 7-49/64 8-19/64 13-47/64 Average number of shares of Common and Class B stock outstanding (in millions) 1,210 1,211 1,195 1,179 1,071 1,010 986 972 952 926 934
- - - - - - a/ 1998 includes a non-cash gain of $15,955 million that resulted from Ford's spin-off of The Associates. b/ 1997 includes a gain of $269 million on the sale of Hertz Common Stock. c/ 1996 includes a gain of $650 million on the sale of The Associates Common Stock. d/ Share data have been adjusted to reflect stock dividends and stock splits. Common stock price range (NYSE) has been adjusted to reflect The Associates Spin-off. -36- Item 6. Selected Financial Data (Continued)
SUMMARY OF OPERATIONS (continued) 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- Total Company Balance Sheet Data at Year-End Assets Automotive Sector $105,181 $ 88,744 $ 85,079 $ 79,658 $ 72,772 $ 68,639 $ 61,737 $ 57,170 $ 52,397 $ 50,824 $ 45,819 Financial Services Sector 171,048 148,801 194,018 183,209 170,511 150,983 137,201 123,375 122,032 122,839 115,074 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Total assets $276,229 $237,545 $279,097 $262,867 $243,283 $219,622 $198,938 $180,545 $174,429 $173,663 $160,893 Long-term debt ======== ======== ======== ======== ======== ======== ======== ======== ======== ======== ======== Automotive Sector $ 10,542 $ 8,713 $ 7,047 $ 6,495 $ 5,475 $ 7,103 $ 7,084 $ 7,068 $ 6,539 $ 4,553 $ 1,137 Financial Services Sector 67,517 55,468 73,198 70,641 68,259 58,104 47,900 42,369 43,680 40,779 37,784 Stockholders' equity e/ 27,537 23,409 30,734 26,762 24,547 21,659 15,574 14,753 22,690 23,238 22,728 Total Company Facility and Tooling Data Capital expenditures for facilities (excluding special tools) $ 5,088 $ 5,109 $ 5,695 $ 5,362 $ 5,455 $ 5,236 $ 4,339 $ 3,613 $ 3,611 $ 4,702 $ 4,412 Depreciation 12,516 11,393 10,404 9,519 8,954 7,207 5,456 4,658 3,956 3,185 2,720 Expenditures for special tools 3,447 3,508 3,022 3,289 3,542 3,310 2,475 2,177 2,236 2,556 2,354 Amortization of special tools 2,427 2,936 3,179 3,272 2,765 2,129 2,012 2,097 1,822 1,695 1,509 Total Company Employee Data - Worldwide Payroll $ 18,307 $ 16,757 $ 17,187 $ 17,616 $ 16,567 $ 15,853 $ 13,750 $ 13,754 $ 12,850 $ 14,014 $ 13,327 Total labor costs $ 27,568 $ 25,606 $ 25,546 $ 25,689 $ 23,758 $ 22,985 $ 20,065 $ 19,850 $ 17,998 $ 18,962 $ 18,152 Average number of employees 364,550 342,545 363,892 371,702 346,989 337,728 321,925 325,333 331,977 369,547 366,641 Total Company Employee Data - U.S. Operations Payroll $ 11,483 $ 10,548 $ 10,840 $ 10,961 $ 10,488 $ 10,381 $ 8,889 $ 8,019 $ 7,393 $ 8,313 $ 8,654 Average number of employees 173,064 171,269 189,787 189,718 186,387 180,861 166,995 158,501 156,203 180,228 188,402 Average hourly labor costs f/ Earnings $ 25.58 $ 24.30 $ 22.95 $ 22.30 $ 21.79 $ 21.81 $ 20.94 $ 19.92 $ 19.10 $ 18.44 $ 17.77 Benefits 21.79 21.42 20.60 19.47 18.66 19.13 18.12 19.24 17.97 14.12 13.21 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Total hourly labor costs $ 47.37 $ 45.72 $ 43.55 $ 41.77 $ 40.45 $ 40.94 $ 39.06 $ 39.16 $ 37.07 $ 32.56 $ 30.98 ======== ======== ======== ======== ======== ======== ======== ======== ======== ======== ========
- - - - - - e/ The cumulative effects of changes in accounting principles reduced equity by $6,883 million in 1992. f/ Per hour worked (in dollars). Excludes data for subsidiary companies. -37- Item 6. Selected Financial Data (Continued)
SUMMARY OF VEHICLE UNIT SALES g/ (in thousands) 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- North America United States Cars 1,725 1,563 1,614 1,656 1,767 2,036 1,925 1,820 1,588 1,870 2,201 Trucks 2,660 2,425 2,402 2,241 2,226 2,182 1,859 1,510 1,253 1,416 1,517 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Total United States 4,385 3,988 4,016 3,897 3,993 4,218 3,784 3,330 2,841 3,286 3,718 Canada 288 279 319 258 254 281 256 237 259 257 326 Mexico 114 103 97 67 32 92 91 126 112 89 87 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Total North America 4,787 4,370 4,432 4,222 4,279 4,591 4,131 3,693 3,212 3,632 4,131 Europe Britain 518 498 466 516 496 520 464 420 471 607 739 Germany 353 444 460 436 409 386 340 407 501 361 326 Italy 209 205 248 180 193 179 172 266 301 219 153 Spain 180 155 155 155 160 163 117 165 128 155 173 France 172 171 153 194 165 180 150 194 190 185 192 Other countries 528 377 318 339 286 281 250 270 296 289 296 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Total Europe 1,960 1,850 1,800 1,820 1,709 1,709 1,493 1,722 1,887 1,816 1,879 Other international Australia 125 133 132 138 139 125 120 105 104 134 154 Brazil 117 178 214 190 201 164 151 117 137 137 157 Argentina 60 97 147 64 48 54 49 49 26 18 25 Taiwan 56 77 79 86 106 97 122 119 107 115 115 Japan 32 25 40 52 57 50 53 64 83 99 82 Other countries 83 93 103 81 67 63 65 71 67 72 65 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Total other international 473 603 715 611 618 553 560 525 524 575 598 Total worldwide cars and trucks 7,220 6,823 6,947 6,653 6,606 6,853 6,184 5,940 5,623 6,023 6,608 ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== =====
- - - - - - g/ 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. -38- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - ---------------------------------------------------------------------------- OVERVIEW On March 31, 1999, we purchased AB Volvo's worldwide passenger car business ("Volvo Car"). Our 1999 results and financial condition discussed below include the results and financial condition of Volvo Car since the date of acquisition. Our worldwide net income was $7,237 million in 1999, or $5.86 per diluted share of Common and Class B Stock. Earnings in 1998 were $22,071 million, or $17.76 per diluted share. This includes a one-time, non-cash gain of $15,955 million that resulted from our spin-off of The Associates in 1998. The following unusual items were included in our 1999, 1998, and 1997 net income (in millions):
Automotive Sector ----------------------------------------------------------- Rest Total Financial North South of Auto Services America Europe America World Sector Sector ----------- ---------- ------------ ----------- ----------- ----------- 1999 - ---- - - Gain from the sale of our interest in AutoEuropa to Volkswagen AG in the first quarter $ 165 $ 165 - - Inventory-related profit reduction for Volvo Car in the second quarter $ (16) $(125) $ (5) $(146) - - Visteon-related postretirement adjustment in the third quarter (incl. in Total Auto Sector) $(125) - - Employee separation costs in the third quarter $ (88) $ (88) $ (23) - - Lump-sum payments relating to ratification of the 1999 United Auto Workers and Canadian Auto Workers contracts in the fourth quarter $(103) $(103) ----- ----- ----- ---- ----- ------- Total 1999 unusual items $(207) $ 40 - $ (5) $(297) $ (23) ===== ===== ===== ==== ===== ======= - ------------------------------------------------------------------------------------------------------------------------------ 1998 - ---- - - Non-cash gain from our spin-off of The Associates in the first quarter $15,955 - - Employee separation costs in the fourth quarter $(248) $(137) $(81) $(466) $ (6) - - Write-off of our net exposure in Kia Motors Company in the fourth quarter $ (42) $(44) $ (86) - - Charge in the fourth quarter to transfer our Batavia, Ohio transmission plant to a new joint venture company formed by ZF Friedrichshafen AG and us to manufacture continuously variable transmissions $ (73) $ (73) ----- ----- ---- ----- ----- ------- Total 1998 unusual items $(363) $(137) $(81) $( 44) $(625) $15,949 ===== ===== ==== ===== ===== ======= - ------------------------------------------------------------------------------------------------------------------------------ 1997 - ---- - - Gain resulting from Hertz IPO in the second quarter $ 269 - - Write-down of surplus assets in the second quarter resulting from the discontinuation of passenger car production at the Lorain Assembly Plant $ (97) $ (97) - - Employee termination costs in the second quarter relating to the elimination of a shift at the Halewood (England) Plant $ (44) $ (44) - - Loss on the sale of the heavy truck business in the second quarter $ (28) $ (28) ----- ----- ---- ---- ----- ------ Total 1997 unusual items $(125) $( 44) - - $(169) $ 269 ===== ===== ==== ==== ===== ======
For more details regarding some of these unusual items, see Note 16 (pages FS-26 through FS-28) of our Notes to Financial Statements. -39- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Our worldwide revenues were $162.6 billion in 1999, up $18.2 billion from 1998. We sold 7,220,000 cars and trucks in 1999, up 397,000 units from 1998. This increase in unit sales reflects primarily the addition of Volvo Car. Our stockholders' equity was $27.5 billion at December 31, 1999, up $4.1 billion compared with December 31, 1998. FOURTH QUARTER 1999 RESULTS OF OPERATIONS In the fourth quarter of 1999, we earned $1,806 million, or $1.47 per diluted share of Common and Class B Stock, compared with $1,043 million, or $0.84 per diluted share, in the fourth quarter of 1998. The increase in earnings reflects primarily the non-recurrence of 1998's unusual items and lower costs, offset partially by lump-sum payments relating to the ratification of union contracts. Results of our operations by business sector for the fourth quarter of 1999 and 1998 are shown below (in millions):
Fourth Quarter Net Income ------------------------------------ 1999 O/(U) 1999 1998 1998 ----------- ------------ ----------- Automotive Sector $1,449 $ 820 $629 Financial Services Sector 357 223 134 ------ ------ ---- Total Company $1,806 $1,043 $763 ====== ====== ====
Automotive Sector - ----------------- Worldwide earnings for our Automotive sector were $1,449 million in the fourth quarter of 1999 on sales of $37.8 billion. Earnings in the fourth quarter of 1998 were $820 million on sales of $32.2 billion. Details of our Automotive sector earnings for the fourth quarter of 1999 and 1998 are shown below (in millions):
Fourth Quarter Net Income/(Loss) ------------------------------------ 1999 O/(U) 1999 1998 1998 ----------- ------------ ----------- North American Automotive $1,576 $1,047 $529 Automotive Outside North America -Europe (55) (74) 19 -South America (95) (151) 56 -Rest of World 23 (2) 25 ------ ------ ---- Total Automotive Outside North America (127) (227) 100 ------ ------ ---- Total Automotive Sector $1,449 $ 820 $629 ====== ====== ====
The increase in our fourth quarter Automotive sector earnings in North America reflects primarily the non-recurrence of last year's unusual items, lower costs, higher volume and a more favorable vehicle mix, offset partially by the lump-sum payments relating to the ratification of union contracts. -40- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) The improved fourth quarter results in Europe reflect the non-recurrence of 1998's charge for employee separation costs, the addition of Volvo Car earnings and lower taxes, offset partially by lower volumes and market share for Ford-branded vehicles, primarily the Ka, Fiesta and Mondeo. The improvement in South America reflects primarily lower costs and the non-recurrence of the charge for employee separation costs, offset partially by lower revenue. Financial Services Sector - ------------------------- Details of our Financial Services sector earnings are shown below (in millions):
Fourth Quarter Net Income/(Loss) ------------------------------------ 1999 O/(U) 1999 1998 1998 ----------- ----------- ------------ Ford Credit $309 $234 $ 75 Hertz 60 48 12 Minority Interests, Eliminations, and Other (12) (59) 47 ---- ---- ---- Total Financial Services Sector $357 $223 $134 ==== ==== ==== Memo: Ford's share of earnings in Hertz $ 49 $ 39 $ 10
Ford Credit's consolidated net income in the fourth quarter of 1999 was $309 million, up $75 million or 32% from 1998. The increase in earnings reflects primarily a higher level of finance receivables and improved credit loss performance, offset partially by higher operating costs. Earnings at Hertz in the fourth quarter of 1999 were $60 million (of which $50 million was Ford's share), compared with earnings of $48 million (of which $39 million was Ford's share) a year ago. FULL-YEAR 1999 RESULTS OF OPERATIONS Results of our operations by business sector for the full-year 1999, 1998, and 1997 are shown below (in millions):
Full Year Net Income ------------------------------------- 1999 1998 1997 ------------ ----------- ----------- Automotive Sector $5,721 $ 4,752 $4,714 Financial Services Sector (excluding The Associates) 1,516 1,187 1,374 Gain on spin-off of The Associates - 15,955 - The Associates (net of Minority Interest) - 177* 832 ------ ------- ------ Total Company $7,237 $22,071 $6,920 ====== ======= ======
_ _ _ _ _ * Through March 12, 1998 -41- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Review of 1999 Financial Milestones - ----------------------------------- We established and communicated the financial milestones listed below for 1999. Our results against these milestones are listed below.
Full-Year 1999 Milestone 1999 Result ------------------------ ----------- Automotive Sector ----------------- o North America 5%+ return on sales 6.2% return on sales o Europe Grow earnings $165 million worse o South America Improve results $226 million worse o Total Costs Down $1 billion from 1998 (at constant volume and mix) Down $1 billion o Capital Spending $8.5 billion (includes capitalized software) $7.9 billion o Visteon Grow earnings Earnings up 5% $2 billion of new business $2 billion of new business Financial Services Sector ------------------------- o Ford Credit Grow earnings by 10% Earnings up 16% o Hertz Record earnings Record, earnings up 21% Total Company ------------- o Total Shareholder Returns Top quartile of S&P 500 over time o 1999 No (-6%) o 1998 Yes (+89%) o 1997-1999 Yes (+41% avg.)
AUTOMOTIVE SECTOR RESULTS OF OPERATIONS Details of our full-year Automotive sector earnings for 1999, 1998, and 1997 are shown below (in millions):
Full-Year Net Income/(Loss) ------------------------------------ 1999 1998 1997 ---------- ------------ ------------ North American Automotive $6,137 $4,612 $4,434 Automotive Outside North America -Europe 28 193 273 -South America (452) (226) 40 -Rest of World 133 173 (33) ------ ------ ------ Total Automotive Outside North America (291) 140 280 Visteon-related postretirement adjustment (125) - - ------ ------ ------ Total Automotive Sector $5,721 $4,752 $4,714 ====== ====== ======
-42- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) 1999 Compared with 1998 - ----------------------- Worldwide earnings for our Automotive sector were $5,721 million in 1999 on sales of $137 billion, compared with $4,752 million in 1998 on sales of $119.1 billion. The increase in earnings reflects improved results in North America, offset partially by lower earnings in all other geographic markets. Adjusted for constant volume and mix, our total costs in the Automotive sector declined $1 billion compared with 1998. Our Automotive sector earnings in North America were $6,137 million in 1999 on sales of $100.3 billion, compared with $4,612 million in 1998 on sales of $87.4 billion. The earnings improvement reflects primarily increased sales volume, an improved mix of light trucks and luxury cars, lower costs, and the non-recurrence of 1998's unusual items, offset partially by higher interest expense, lump-sum payments related to the ratification of union contracts in 1999, and costs related to employee separation programs in 1999. The after-tax return on sales for our Automotive sector in North America was 6.2% in 1999, up 9/10 of a percentagepoint from 1998. In 1999, approximately 17.4 million new cars and trucks were sold in the United States, up from 16 million units in 1998. Our share of those unit sales was 23.9% in 1999, down 7/10 of a percentage point. The decrease in market share reflects primarily capacity constraints on several key products due to strong demand in the United States market. Our Automotive sector earnings in Europe were $28 million in 1999, a $165 million reduction from a year ago. The deterioration is explained by lower market share for Ford-branded vehicles, primarily Mondeo and Fiesta, and unfavorable vehicle mix, offset partially by the non-recurrence of 1998's employee separation costs, lower taxes, the impact of 1999's unusual items, and the addition of Volvo Car. In 1999, approximately 17 million new cars and trucks were sold in our fifteen primary European markets, up from 16.1 million units in 1998. Our share of those unit sales was 10.6% in 1999, up 4/10 of a percentage point from a year ago. The increase in our share is more than explained by the addition of Volvo Car. Our Automotive sector in South America lost $452 million in 1999, compared with a loss of $226 million in 1998. The decline in earnings reflects primarily lower industry sales, lower market share in Brazil, weak economic conditions, devaluation of the Brazilian currency, and increased competition, offset partially by lower costs and the non-recurrence of 1998's employee separation costs. In 1999, approximately 1.3 million new cars and trucks were sold in Brazil, compared with 1.6 million in 1998. Our share of those unit sales was 9.7% in 1999, down 3.4 percentage points from a year ago. In the fourth quarter of 1999, our market share in Brazil was 10.8%, down 8/10 of a percentage point. These declines in market share reflect increased competition from new and existing manufacturers who are aggressively competing for the lower industry volume. During December 1999, Ford completed the legal restructuring of its operations in Brazil, which included the realignment of its operations and the retirement of U.S. Dollar debt. Based on business changes, events in 1999, and the current business plan for Ford in Brazil, management has decided that a change in functional currency from the U.S. Dollar to the Real is required by Statement of Financial Accounting Standards No. 52 ("SFAS 52") for our Automotive Segment. The Real will be the primary currency of the environment in which Ford Brazil will operate. This change, effective January 1, 2000, will result in a one-time write-down of Ford Brazil's fixed assets and inventories of $348 million, which will be reflected in our first quarter Other Comprehensive Income shown in our Consolidated Statement of Stockholders' Equity. Visteon's Brazilian operations will continue to use the U.S. Dollar as its functional currency. -43- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Automotive sector earnings outside North America, Europe and South America ("Rest of World") were $133 million in 1999, compared with earnings of $173 million in 1998. The decline in earnings reflects primarily higher taxes and lower sales volume, offset partially by our share of the profit improvement at Mazda and the non-recurrence of a write-off of our net exposure to Kia Motors Company in 1998. New car and truck sales in Australia, our largest market in Rest of World, were approximately 787,000 units in 1999, down 2.6 percentage points from a year ago. In 1999, our combined car and truck market share in Australia was 16.1%, up 2/10 of a percentage point from 1998. Our Visteon operations, included in our Automotive sector, earned $735 million on revenues of $19,366 million in 1999, compared with $703 million on revenues of $17,762 million in 1998. This earnings improvement reflects primarily cost reductions, the consolidation of Halla Climate Control, and increased North American truck volume, offset partially by negotiated price reductions, compensation factors, and foreign currency translation. Visteon's after-tax return on sales in 1999 was 3.9%, unchanged from a year ago. We and Visteon are close to completing a market-pricing review begun in 1999 of various carry-over components and systems we purchase from Visteon. When the review is completed and a final pricing level is agreed to, it is expected that Visteon will reduce prices to us. 1998 Compared with 1997 - ----------------------- Our Automotive sector earnings in North America were $4,612 million in 1998 on sales of $87.4 billion, compared with $4,434 million in 1997 on sales of $88.6 billion. The increase reflects primarily continued cost reductions and improved vehicle mix, offset partially by lower volumes and higher marketing costs. The after-tax return on sales for our Automotive sector in North America was 5.3% in 1998, up 2/10 of a percentage point from 1997. In 1998, approximately 16 million new cars and trucks were sold in the United States, up from 15.5 million units in 1997. Our share of those unit sales was 24.6% in 1998, down 4/10 of a percentage point, more than explained by the discontinuation of low margin vehicle lines. Our Automotive sector earnings in Europe were $193 million in 1998, $80 million worse than in 1997. The deterioration reflected higher restructuring costs, lower export sales, and costs associated with the Focus car line launch, offset partially by cost reductions. In 1998, approximately 16.1 million new cars and trucks were sold in our fifteen primary European markets, up from 15 million units in 1997. Our share of those unit sales was 10.2% in 1998, down 1.2 percentage points from the prior year. In the fourth quarter of 1998, our market share in Europe was 9.4%, down 1.7 percentage points. Our market share declined because of intense competitive conditions in Europe and limited availability of our new Focus car line during its launch. Our Automotive sector in South America lost $226 million in 1998, compared with a profit of $40 million in 1997. The decline was the result of lower volume and revenue resulting from weak economic conditions and charges we incurred for employee reductions, offset partially by lower costs. We reduced production in Brazil and Argentina in the fourth quarter because of anticipated weaker demand in those markets in 1999. -44- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) In 1998, approximately 1.6 million new cars and trucks were sold in Brazil, compared with 1.9 million in 1997. Our share of those unit sales was 13.1% in 1998, down 1.2 percentage points from 1997. In the fourth quarter of 1998, our market share in Brazil declined to 11.6%, down 5.2 percentage points. These declines in market share reflect new product entries from other manufacturers and an increasingly competitive market. Automotive sector earnings in Rest of World were $173 million in 1998, up $206 million from 1997. The improvement in earnings reflects primarily foreign tax credits and our share of the profit improvement at Mazda, offset partially by a write-off of our net exposure to Kia Motors Company in 1998. New car and truck sales in Australia were approximately 808,000 units in 1998, up 11.9 percentage points from 1997. In 1998, our combined car and truck market share in Australia was 15.9%, down 2.1 percentage points from 1997. Our Visteon operations, included in our Automotive sector, earned $703 million on revenues of $17,762 million in 1998, compared with $511 million on revenues of $17,220 million in 1997. This earnings improvement reflects primarily cost reductions and increased revenue for customer-driven design changes. Visteon's after-tax return on sales in 1998 was 3.9%, up 9/10 of a percentage point compared with the prior year. FINANCIAL SERVICES SECTOR RESULTS OF OPERATIONS Details of our full-year Financial Services sector earnings for 1999, 1998, and 1997 are shown below (in millions):
Full-Year Net Income/(Loss) ----------------------------------- 1999 1998 1997 ----------- ----------- ----------- Ford Credit $1,261 $ 1,084 $1,031 Hertz 336 277 202 Gain on sale of Common Stock of Hertz - - 269 Minority Interests, Eliminations, and Other (81) (174) (128) ------ ------- ------ Financial Services (excluding The Associates) 1,516 1,187 1,374 The Associates (net of Minority Interest) - 177* 832 Gain on spin-off of The Associates - 15,955 - ------ ------- ------ Total Financial Services Sector $1,516 $17,319 $2,206 ====== ======= ====== Memo: Ford's share of earnings in Hertz $ 273 $ 224 $ 168
_ _ _ _ _ * Through March 12, 1998 1999 Compared with 1998 - ----------------------- Earnings of our Financial Services sector consist primarily of two segments, Ford Credit and Hertz. Ford Credit's consolidated net income in 1999 was $1,261 million, up $177 million or 16% from 1998. Compared with 1998, the increase in full-year earnings reflects primarily higher financing volumes and improved credit loss performance, offset partially by higher operating costs. Higher operating costs reflect primarily operating costs of recent acquisitions, costs associated with the restructuring of financing operations, and employee separation programs. Earnings at Hertz in 1999 were $336 million (of which $273 million was Ford's share). In 1998, Hertz had earnings of $277 million (of which $224 million was Ford's share). The increase in earnings reflects primarily strong demand and continuing cost efficiency improvements. -45- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) 1998 Compared with 1997 - ----------------------- In 1998 we spun-off The Associates to our shareholders, resulting in a $15,955 million gain to Ford. For details of the spin-off see Note 16 (page FS-27) of our Notes to Financial Statements. Ford Credit's consolidated net income in 1998 was $1,084 million, up $53 million or 5% from 1997. Compared with 1997, the increase in full-year earnings reflects primarily improved credit loss performance, higher gains on receivable sales, lower effective tax rates, and higher financing volumes, offset partially by lower net financing margins and higher operating costs. Lower financing margins reflect higher depreciation expense for leased vehicles as a result of lower-than-anticipated residual values and higher residual reserves. Earnings at Hertz in 1998 were $277 million (of which $224 million was Ford's share). In 1997, Hertz had earnings of $202 million (of which $168 million was Ford's share). The increase in earnings reflects primarily higher revenues and improved profit margins in worldwide car rental operations. LIQUIDITY AND CAPITAL RESOURCES Automotive Sector - ----------------- At December 31, 1999, our Automotive sector had $23.6 billion of cash and marketable securities. Despite cash outflows of $6.3 billion for acquisitions and $2.3 billion in cash dividends, our cash and marketable securities only decreased by $220 million from December 31, 1998. In 1999, we spent $7.9 billion for capital goods, such as machinery, equipment, tooling and facilities, used in our Automotive sector. This is down $168 million from 1998. Capital expenditures were 5.8% of sales in 1999, down one percentage point from a year ago. At December 31, 1999, our Automotive sector had total debt of $12.1 billion. This amount was 31% of our total capitalization (that is, the sum of our stockholders' equity and Automotive debt) at the end of 1999, compared with 30% of total capitalization at year-end 1998. Financial Services Sector - ------------------------- At December 31, 1999, our Financial Services sector had cash and marketable securities totaling $1.6 billion, up $437 million from December 31, 1998. Finance receivables and net investment in operating leases were $155.8 billion at December 31, 1999, up $17.4 billion from December 31, 1998. Total debt was $139.9 billion at December 31, 1999, up $17.6 billion from December 31, 1998. Outstanding commercial paper at December 31, 1999 totaled $43.1 billion at Ford Credit (including $1 billion owed to Ford), and $2.5 billion at Hertz, with an average remaining maturity of 25 days and 15 days, respectively. For a discussion of the credit and other financial support facilities for our Automotive and Financial Services sectors at December 31, 1999, see Note 10 (page FS-21) of our Notes to Financial Statements. -46- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) YEAR 2000 DATE CONVERSION As of December 31, 1999, all critical business systems had been remediated and tested to ensure their ability to process the year 2000 date change ("Y2K"). The remediation and testing program's scope included other impact areas as well, including suppliers, plant floor equipment, affiliates, dealers, product development test equipment, technical infrastructure, physical infrastructure, vehicle components, and end-user computing. We entered into the year 2000 smoothly and without disruption to the business due to Y2K. We did not experience any significant malfunctions or errors in our operating or business systems when the date changed from 1999 to 2000. Based on operations since the date change, we do not expect any significant impact to our business as a result of Y2K. Reports from our suppliers regarding Y2K have exceeded expectations and have been uniformly positive. Our business systems and technical infrastructure are processing normally. We estimate our total cost for Y2K compliance efforts will be about $394 million, which we will have incurred over about a three-year period that commenced mid-1997. Y2K compliance costs incurred through December 31, 1999 were about $388 million. Our annual Y2K costs relating to information technology have represented and are expected through year-end 2000 to represent about 10% of our total annual information technology budget. EURO CONVERSION The increased price transparency that may result from the use of a single currency in the eleven participating countries that have adopted the euro as their common legal currency could affect the ability of Ford and other companies to price their products differently in the various European markets. A possible result of this is price harmonization at lower average prices for products sold in some markets. Nevertheless, differences in national value added tax regimes, national vehicle registration taxes, customer preferences for equipment and options, sizes and types of vehicles and engines, and trade-in values may reduce the potential for price harmonization. In the year since the euro's introduction, it is uncertain what affect, if any, the euro has had on the pricing of automobiles. Other factors, such as intense competition in the European markets and consumer preferences, also affect how our vehicles are priced. It is impossible to determine how the introduction of the euro has impacted pricing relative to these other factors. Introduction of the euro may reduce the amount of Ford's exposure to changes in foreign exchange rates, due to the netting effect of having imports and exports denominated in a single currency as opposed to the various legacy currencies. As a result, the complexity of our foreign exchange hedging has been reduced. Conversely, because there will be less diversity in our exposure to foreign currencies, movements in the euro's value could have a more pronounced effect, whether positive or negative, on Ford. We have budgeted up to $50 million (including contingencies) for the period from 1997 through 2003 to cover the worldwide costs of preparing for and making operational changes to accommodate introduction of the euro. Certain of our business functions introduced euro-capability as of January 1, 1999, including, for example, systems for making and receiving certain payments, pricing and invoicing. Other business functions will be converted for the euro by the end of the transition period (December 31, 2001), but may be converted earlier where operationally efficient or cost-effective, or to meet customer needs. -47- Item 7. 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 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, 2001. 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 was 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 was 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. -48- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) OUTLOOK Industry Sales Volumes - ---------------------- Our outlook for car and truck (including heavy trucks) industry sales in 2000 in our major markets is as follows: United States - approximately 17 million units, compared with the 17.4 million units sold in 1999 Europe - approximately 18 million units, compared with the 18.3 million units sold in 1999 (both figures based on 19 markets) Brazil - between 1.3 and 1.5 million units, compared with the 1.3 million units sold in 1999 Australia - slightly lower than the 787,000 units sold in 1999 2000 Financial Milestones - ------------------------- We have set and communicated certain financial milestones for 2000. While we hope to achieve these goals, they should not be interpreted as projections, expectations or forecasts of 2000 results. The financial milestones for 2000 are as follows:
Full-Year 2000 Milestone -------------------------------------------------------------- Total Company ------------- o Total Shareholder Returns Top quartile of S&P 500 over time o Revenue Grow $5 billion Automotive Sector ----------------- o North America Record earnings o Europe Improve results o South America Improve results o Rest of World Improve results o Total Costs Reduce $1 billion (at constant volume and mix) o Capital Spending $9 billion o Visteon Achieve independence Financial Services Sector ------------------------- o Ford Credit Grow earnings 10% & improve returns o Hertz Record earnings (ninth consecutive year of increased earnings)
-49- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Risk Factors - ------------ Statements included or incorporated by reference herein may constitute "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from those stated, including, without limitation: greater price competition in the U.S. and Europe resulting from currency fluctuations, industry overcapacity or other factors; a significant decline in industry sales, particularly in the U.S. or Europe, resulting from slowing economic growth; currency or commodity price fluctuations; further economic difficulties in South America or Asia; higher fuel prices; a market shift from truck sales in the U.S.; lower-than-anticipated residual values for leased vehicles; labor or other constraints on our ability to restructure our business; increased safety or emissions regulation resulting in higher costs and/or sales restrictions; work stoppages at key Ford or supplier facilities; and the discovery of defects in vehicles resulting in recall campaigns, increased warranty costs or litigation. Item 7A. Quantitative and Qualitative Disclosures About Market Risk - -------------------------------------------------------------------- Ford is exposed to a variety of market risks, including the effects of changes in interest rates, foreign currency exchange rates and commodity prices. o To ensure funding over business and economic cycles and to minimize overall borrowing costs, our Financial Services sector issues debt and other payables with various maturity and interest rate structures. The maturity and interest rate structures frequently differ from the invested assets. Exposures to fluctuations in interest rates are created by the difference in the interest rate structure of assets and liabilities. o Our Automotive sector frequently has expenditures and receipts denominated in foreign currencies, including the following: purchases and sales of finished vehicles and production parts; debt and other payables; subsidiary dividends; and investments in subsidiaries. These expenditures and receipts create exposures to changes in exchange rates. o We also are exposed to changes in prices of commodities used in our Automotive sector. We monitor and manage these financial exposures as an integral part of our overall risk management program, which recognizes the unpredictability of financial markets and seeks to reduce the potentially adverse effect on our results. The effect of changes in exchange rates, interest rates and commodity prices on our earnings generally has been small relative to other factors that also affect earnings, such as unit sales and operating margins. For more information on these financial exposures, see Note 1 (pages FS-9 and FS-10) and Note 15 (page FS-25) of our Notes to Financial Statements. Our interest rate risk, foreign currency exchange rate risk and commodity risk are quantified below. -50- Item 7A. Quantitative and Qualitative Disclosures About Market Risk (Continued) Interest Rate Risk -- We use interest rate swaps (including those with a currency swap component) primarily at Ford Credit to mitigate the effects of interest rate fluctuations on earnings by changing the characteristics of assets and liabilities to match each other. All interest rate swap agreements are designated to hedge either a specific balance sheet item or pool of items. We use a model to assess the sensitivity of our earnings to changes in market interest rates. The model recalculates earnings by adjusting rates associated with variable rate instruments on the repricing date and by adjusting rates on fixed rate instruments scheduled to mature in the subsequent twelve months, effective on their scheduled maturity date. Interest income and interest expense are then recalculated based on the revised rates. Assuming an instantaneous increase or decrease of one percentage point in interest rates applied to all financial instruments and leased assets, our after-tax earnings would change by $29 million over a 12-month period. Foreign Currency Risk -- We use derivative financial instruments to hedge assets, liabilities and firm commitments denominated in foreign currencies. Our hedging policy is defensive, based on clearly defined guidelines. Speculative actions are not permitted. We do not use complex derivative instruments such as interest only or principal only derivatives. We use a value-at-risk ("VAR") analysis to evaluate our exposure to changes in foreign currency exchange rates. The primary assumptions used in the VAR analysis are as follows: o A Monte Carlo simulation model is used to calculate changes in the value of currency derivative instruments (forwards and options) and all significant underlying exposures. The VAR includes an 18-month exposure and derivative hedging horizon and a one-month holding period. o The VAR analysis calculates the potential risk, within a 99% confidence level, on firm commitment exposures (cash flows), including the effects of foreign currency derivatives. (Translation exposures are not included in the VAR analysis). The Monte Carlo simulation model uses historical volatility and correlation estimates of the underlying assets to produce a large number of future price scenarios which have a lognormal distribution. o Estimates of correlations and volatilities are drawn primarily from the JP Morgan RiskMetricsTM datasets. Based on our overall currency exposure (including derivative positions) during 1999, the risk during 1999 to our pre-tax cash flow from currency movements was on average less than $225 million, with a high of $250 million and a low of $175 million. At December 31, 1999, currency movements are projected to affect our pre-tax cash flow over the next 18 months by less than $175 million, within a 99% confidence level. Compared with our projection at December 31, 1998, the 1999 VAR amount is approximately $150 million lower, primarily because of significantly reduced currency exchange rate volatility and higher levels of hedging, partially offset by the inclusion of Volvo currency exposures and hedges. Commodity Price Risk -- Ford enters into commodity forward and option contracts. Such contracts are executed to offset Ford's exposure to the potential change in prices mainly for various non-ferrous metals used in the manufacturing of automotive components. The fair value liability of such contracts, excluding the underlying exposures, as of December 31 1999 and 1998 was approximately $223 and $(48) million, respectively. The potential change in the fair value of commodity forward and option contracts, assuming a 10% change in the underlying commodity price, would be approximately $300 and $69 million at December 31, 1999 and 1998, respectively. This amount excludes the offsetting impact of the price change in the physical purchase of the underlying commodities. -51- Item 8. Financial Statements and Supplementary Data - ---------------------------------------------------- Our Financial Statements, the accompanying Notes and the Report of Independent Accountants that are filed as part of this Report are listed under Item 14. "Exhibits, Financial Statement Schedules, and Reports on Form 8-K" and are set forth on pages FS-1 through FS-32 immediately following the signature pages of this Report. Selected quarterly financial data for us and our consolidated subsidiaries for 1999 and 1998 is in Note 19 of our Notes to Financial Statements. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure - -------------------------------------------------------------------------- Not required. PART III Item 10. Directors and Executive Officers of Ford - -------------------------------------------------- The information required by Item 10 regarding our directors is incorporated by reference from the information under the captions "Election of Directors" and "Management Stock Ownership" in our Proxy Statement. The information required by Item 10 regarding our executive officers appears as Item 4A under Part I of this Report. Item 11. Executive Compensation - -------------------------------- The information required by Item 11 is incorporated by reference from the information under the following captions in our Proxy Statement: "Compensation of Directors", "Compensation and Option Committee Report on Executive Compensation", "Compensation of Executive Officers", "Stock Options", "Performance Stock Rights and Restricted Stock Units", "Stock Performance Graphs" and "Retirement Plans". Item 12. Security Ownership of Certain Beneficial Owners and Management - ------------------------------------------------------------------------ The information required by Item 12 is incorporated by reference from the information under the caption "Management Stock Ownership" in our Proxy Statement. Item 13. Certain Relationships and Related Transactions - -------------------------------------------------------- The information required by Item 13 is incorporated by reference from the information under the caption "Certain Relationships and Related Transactions" in our Proxy Statement. -52- PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K - -------------------------------------------------------------------------- (a) 1. Financial Statements - Ford Motor Company and Subsidiaries - ------------------------------------------------------------------- Consolidated Statement of Income for the years ended December 31, 1999, 1998, and 1997. Consolidated Balance Sheet at December 31, 1999 and 1998. Consolidated Statement of Cash Flows for the years ended December 31, 1999, 1998, and 1997. Consolidated Statement of Stockholders' Equity for the years ended December 31, 1999, 1998, and 1997. Notes to Financial Statements Report of Independent Accountants The Consolidated Financial Statements, the Notes to Financial Statements and the Report of Independent Accountants listed above are filed as part of this Report and are set forth on pages FS-1 through FS-32 immediately following the signatures pages of this Report. (a) 2. Financial Statement Schedules - -------------------------------------- Designation Description - ----------- ----------- Supplemental Schedule Condensed Financial Information of Subsidiary Report of Independent Accountants on Supplemental Schedule The Financial Statement Schedule and the Report of Independent Accountants on Supplemental Schedule listed above are filed as part of this Report and are set forth on pages FSS-1 and FSS-2 immediately following page FS-32. The schedules not filed are omitted because the information required to be contained in them is disclosed elsewhere in the Financial Statements or the amounts involved are not sufficient to require submission. -53- Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (Continued) (a) 3. Exhibits - -----------------
Designation Description Method of Filing - ----------- ----------- ---------------- Exhibit 3-A Restated Certificate of Incorporation, Filed as Exhibit 3.1 to Ford's Quarterly dated April 9, 1998. Report on Form 10-Q for the quarter ended March 31, 1998.* Exhibit 3-B By-Laws as amended Filed as Exhibit 3-B to Ford's Annual through January 1, 1999. Report on Form 10-K for the year ended December 31, 1998.* Exhibit 4 Form of Deposit Agreement dated as of Filed as Exhibit 4-E to Ford's October 29, 1992 among Ford, Registration Statement No. 33-53092.* Chemical Bank, as Depositary, and the holders from time to time of Depositary Shares, each representing 1/2,000 of a share of Ford's Series B Cumulative Preferred Stock. Exhibit 10-A Amended and Restated Profit Filed as Exhibit 10-A to the Registrant's Maintenance Agreement, dated as of Annual Report on Form 10-K for the January 1, 1999, between Ford year ended December 31, 1998.* and Ford Credit. Exhibit 10-B 1985 Stock Option Plan.** Filed as Exhibit 10-D to Ford's Annual Report on Form 10-K for the year ended December 31, 1985.* Exhibit 10-B-1 Amendment dated as of March 8, 1990 Filed as Exhibit 10-C-1 to Ford's to 1985 Stock Option Plan.** Annual Report on Form 10-K for the year ended December 31, 1989.* Exhibit 10-B-2 Amendment to 1985 Stock Option Plan, Filed as Exhibit 4.C to Amendment No. effective as of January 8, 1998.** 1 to Ford's Registration Statement No. 33-9722.* Exhibit 10-C Executive Separation Allowance Plan Filed as Exhibit 10-D to Ford's as amended through December 9, 1993 Annual Report on Form 10-K for the for separations on or after January 1, 1981.** year ended December 31, 1994.* Exhibit 10-D Description of Ford practices regarding Filed as Exhibit 10-I to Ford's club memberships for executives.** Annual Report on Form 10-K for the year ended December 31, 1981.*
-54- Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (Continued)
Designation Description Method of Filing - ----------- ----------- ---------------- Exhibit 10-E Description of Ford practices regarding Filed as Exhibit 10-J to Ford's travel expenses of spouses of certain Annual Report on Form 10-K for the executives.** year ended December 31, 1980.* Exhibit 10-F Deferred Compensation Plan for Filed as Exhibit 10-H-1 to Ford's Non-Employee Directors, as amended Annual Report on Form 10-K for the on July 11, 1991.** year ended December 31, 1991.* Exhibit 10-F-1 Amendments to Deferred Compensation Plan Filed as Exhibit 10-G-1 to Ford's for Non-Employee Directors, effective as of Annual Report on Form 10-K for the January 1, 1996.** year ended December 31, 1995.* Exhibit 10-F-2 Amendment to Deferred Compensation Plan Filed as Exhibit 10-G-2 to Ford's for Non-Employee Directors, effective as of Annual Report on Form 10-K for the November 14, 1996.** year ended December 31, 1996.* Exhibit 10-G Benefit Equalization Plan, as Filed as Exhibit 10-H to Ford's amended as of January 1, 1989.** Annual Report on Form 10-K for the year ended December 31, 1994.* Exhibit 10-G-1 Description of Amendments to Benefit Filed as Exhibit 10-H-1 to Ford's Equalization Plan, adopted January 11, Annual Report on Form 10-K for the 1996 and January 25, 1996.** year ended December 31, 1995.* Exhibit 10-H Description of financial counseling Filed as Exhibit 10-N to Ford's services provided to certain executives.** Annual Report on Form 10-K for the year ended December 31, 1983.* Exhibit 10-I Supplemental Executive Retirement Plan, Filed as Exhibit 10-K to Ford's as restated and incorporating amendments Annual Report on Form 10-K for the through December 12, 1995.** year ended December 31, 1995.* Exhibit 10-J Restricted Stock Plan for Non-Employee Filed as Exhibit 10-P to Ford's Directors adopted by the Board of Annual Report on Form 10-K for the Directors on November 10, 1988, year ended December 31, 1988.* and approved by the stockholders at the 1989 Annual Meeting.**
-55- Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (Continued)
Designation Description Method of Filing - ----------- ----------- ---------------- Exhibit 10-J-1 Amendment to Restricted Stock Plan for Filed as Exhibit 10.1 to Ford's Non-Employee Directors, effective as of Quarterly Report on Form 10-Q for the August 1, 1996.** quarter ended September 30, 1996.* Exhibit 10-K 1990 Long-Term Incentive Plan, Filed as Exhibit 10-R to Ford's amended as of June 1, 1990.** Annual Report on Form 10-K for the year ended December 31, 1990.* Exhibit 10-K-1 Amendment to 1990 Long-Term Incentive Filed as Exhibit 10-P-1 to Ford's Plan, effective as of October 1, 1990.** Annual Report on Form 10-K for the year ended December 31, 1991.* Exhibit 10-K-2 Amendment to 1990 Long-Term Incentive Filed as Exhibit 10.2 to Ford's Plan, effective as of March 8, 1995.** Quarterly Report on Form 10-Q for the quarter ended March 31, 1995.* Exhibit 10-K-3 Amendment to 1990 Long-Term Filed as Exhibit 10-M-3 to Ford's Incentive Plan, effective as of Annual Report on Form 10-K for the October 1, 1997.** year ended December 31, 1997.* Exhibit 10-K-4 Amendment to 1990 Long-Term Filed as Exhibit 10-M-4 to Ford's Incentive Plan, effective as of Annual Report on Form 10-K for the January 1, 1998.** year ended December 31, 1997.* Exhibit 10-L Description of Matching Gift Program for Filed as Exhibit 10-Q to Ford's Non-Employee Directors.** Annual Report on Form 10-K for the year ended December 31, 1991.* Exhibit 10-M Non-Employee Directors Life Insurance Filed as Exhibit 10-O to Ford's and Optional Retirement Plan Annual Report on Form 10-K for the (as amended as of January 1, 1993).** year ended December 31, 1994.* Exhibit 10-N Description of Non-Employee Directors Filed as Exhibit 10-S to Ford's Accidental Death, Dismemberment and Annual Report on Form 10-K for the Permanent Total Disablement Indemnity.** year ended December 31, 1992.* Exhibit 10-O Agreement dated December 10, 1992 Filed as Exhibit 10-T to Ford's between Ford and William C. Ford.** Annual Report on Form 10-K for the year ended December 31, 1992.* Exhibit 10-P Support Agreement dated as of October 1, Filed as Exhibit 10-T to Ford's 1993 between Ford and FCE Bank. Annual Report on Form 10-K for the year ended December 31, 1993.* Exhibit 10-P-1 Amendment No. 1 dated as of November Filed as Exhibit 10-R-1 to Ford's 15, 1995 to Support Agreement between Annual Report on Form 10-K for the Ford and FCE Bank. year ended December 31, 1995.*
-56- Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (Continued)
Designation Description Method of Filing - ----------- ----------- ---------------- Exhibit 10-Q Select Retirement Plan Filed as Exhibit 10-S to Ford's adopted on June 9, 1994.** Annual Report on Form 10-K for the year ended December 31, 1996.* Exhibit 10-R Deferred Compensation Plan, Filed with this Report. as amended and restated as of January 1, 2000.** Exhibit 10-S Description of Amendments to Supplemental Filed as Exhibit 10-U to Ford's Executive Retirement Plan and Executive Annual Report on Form 10-K for the Separation Allowance Plan, adopted year ended December 31, 1995.* January 25, 1996.** Exhibit 10-S-2 Description of Amendment to Supplemental Filed as Exhibit 10-U-2 to Ford's Executive Retirement Plan and Executive Annual Report on Form 10-K for the Separation Allowance Plan, effective as of year ended December 31, 1996.* July 1, 1996.** Exhibit 10-S-3 Description of Amendment to Supplemental Filed as Exhibit 10-U-3 to Ford's Executive Retirement Plan adopted Annual Report on Form 10-K for September 10, 1998. ** the year ended December 31, 1998.* Exhibit 10-T Annual Incentive Compensation Plan, Filed with this Report. as amended and restated as of January 1, 2000.** Exhibit 10-U 1998 Long-Term Incentive Plan, Filed as Exhibit 10-W to Ford's effective as of January 1, 1998.** Annual Report on Form 10-K for the year ended December 31, 1997.* Exhibit 10-U-1 Amendment to 1998 Long-Term Incentive Filed as Exhibit 10-W-1 to Ford's Plan, effective as of January 1, 1999.** Annual Report on Form 10-K for the year ended December 31, 1998.* Exhibit 10-U-2 Amendment to 1998 Long-Term Incentive Filed with this Report. Plan, effective as of March 10, 2000.** Exhibit 10-V Agreement dated January 13, 1999 Filed as Exhibit 10-X to Ford's between Ford and Edsel B. Ford II.** Annual Report on Form 10-K for the year ended December 31, 1998.* Exhibit 12 Computation of Ratio of Earnings to Filed with this Report. Combined Fixed Charges and Preferred Stock Dividends. Exhibit 21 List of Subsidiaries of Ford Filed with this Report. as of March 15, 2000.
-57- Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (Continued)
Designation Description Method of Filing - ----------- ----------- ---------------- Exhibit 23 Consent of Independent Certified Public Filed with this Report. Accountants. Exhibit 24 Powers of Attorney. Filed with this Report.
- ------------------------- * Incorporated by reference as an exhibit to this Report (file number reference 1-3950, unless otherwise indicated) ** Management contract or compensatory plan or arrangement Instruments defining the rights of holders of certain issues of long-term debt of Ford and of certain consolidated subsidiaries and of any unconsolidated subsidiary, for which financial statements are required to be filed with this Report, have not been filed as exhibits to this Report because the authorized principal amount of any one of such issues does not exceed 10% of the total assets of Ford and our subsidiaries on a consolidated basis. Ford agrees to furnish a copy of each of such instruments to the Commission upon request. (b) Reports on Form 8-K - ---------------------------- Ford filed the following Current Reports on Form 8-K during the quarter ended December 31, 1999: Current Report on Form 8-K dated October 18, 1999 included information relating to Ford's third quarter 1999 financial results. -58- SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, Ford has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. FORD MOTOR COMPANY By: Henry D. G. Wallace* ------------------------ (Henry D. G. Wallace) Group Vice President and Chief Financial Officer Date: March 16, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of Ford and in the capacities on the date indicated.
Signature Title Date --------- ----- ---- William Clay Ford, Jr.* Director, Chairman of the March 16, 2000 ------------------------ Board and Chairman of the (William Clay Ford, Jr.) Environmental and Public Policy Committee, the Finance Committee and the Organization Review and Nominating Committee Jacques A. Nasser* Director and President March 16, 2000 ------------------------ and Chief Executive Officer (Jacques A. Nasser) (principal executive officer) Michael D. Dingman* Director and ------------------------ Chairman of the March 16, 2000 (Michael D. Dingman) Compensation and Option Committee Edsel B. Ford II* Director March 16, 2000 ------------------------ (Edsel B. Ford II) William Clay Ford* Director March 16, 2000 ------------------------ (William Clay Ford) Irvine O. Hockaday, Jr.* Director and March 16, 2000 ------------------------ Chairman of the (Irvine O. Hockaday, Jr.) Audit Committee
-59-
Signature Title Date --------- ----- ---- Marie-Josee Kravis* Director March 16, 2000 ------------------------ Marie-Josee Kravis) Ellen R. Marram* Director March 16, 2000 ------------------------ (Ellen R. Marram) Homer A Neal* Director March 16, 2000 ------------------------ (Homer A. Neal) Jorma J. Ollila* Director March 16, 2000 ------------------------ (Jorma J. Ollila) Carl E. Reichardt* Director March 16, 2000 ------------------------ (Carl E. Reichardt) Robert E. Rubin* Director March 16, 2000 ------------------------ (Robert E. Rubin) John L. Thornton* Director March 16, 2000 ------------------------ (John L. Thornton) Henry D. G. Wallace* Group Vice President and March 16, 2000 ------------------------ Chief Financial Officer (Henry D. G. Wallace) (principal financial officer) William A. Swift* Vice President and Controller March 16, 2000 ------------------------ (principal accounting officer) (William A. Swift)
*By: /s/ Peter Sherry, Jr. --------------------- (Peter Sherry, Jr.) Attorney-in-Fact -60-
Ford Motor Company and Subsidiaries ----------------------------------- HIGHLIGHTS ---------- Fourth Quarter Full Year ---------------------------- --------------------------- 1999 1998 1999 1998 ------------ ------------ ------------ ------------ (unaudited) Worldwide vehicle unit sales of cars and trucks (in thousands) - - North America 1,280 1,197 4,787 4,370 - - Outside North America 639 617 2,433 2,453 ----- ----- ----- ----- Total 1,919 1,814 7,220 6,823 ===== ===== ===== ===== Sales and revenues (in millions) - - Automotive $ 37,781 $ 32,204 $ 136,973 $ 119,083 - - Financial Services 6,637 5,699 25,585 25,333 --------- --------- --------- --------- Total $ 44,418 $ 37,903 $ 162,558 $ 144,416 ========= ========= ========= ========= Net income (in millions) - - Automotive $ 1,449 $ 820 $ 5,721 $ 4,752 - - Financial Services (excl. The Associates) 357 223 1,516 1,187 - - The Associates - - - 177 - - Gain on spin-off of The Associates - - - 15,955 --------- --------- --------- --------- Total $ 1,806 $ 1,043 $ 7,237 $ 22,071 ========= ========= ========= ========= Capital expenditures (in millions) - - Automotive $ 2,921 $ 2,445 $ 7,945 $ 8,113 - - Financial Services 155 106 590 504 --------- --------- --------- --------- Total $ 3,076 $ 2,551 $ 8,535 $ 8,617 ========= ========= ========= ========= Automotive capital expenditures as a percentage of sales 7.7% 7.6% 5.8% 6.8% Stockholders' equity at December 31 - - Total (in millions) $ 27,537 $ 23,409 $ 27,537 $ 23,409 - - After-tax return on Common and Class B stockholders' equity 26.6% 17.8% 28.1% 25.4% Automotive net cash at December 31 (in millions) - - Cash and marketable securities $ 23,585 $ 23,805 $ 23,585 $ 23,805 - - Debt 12,144 9,834 12,144 9,834 --------- --------- --------- --------- Automotive net cash $ 11,441 $ 13,971 $ 11,441 $ 13,971 ========= ========= ========= ========= After-tax return on sales - - North American Automotive 5.8% 4.5% 6.2% 5.3% - - Total Automotive 3.9% 2.6% 4.2% 4.0% Shares of Common and Class B Stock (in millions) - - Average number outstanding 1,207 1,210 1,210 1,211 - - Number outstanding at December 31 1,207 1,209 1,207 1,209 Common Stock price (per share) (adjusted to reflect The Associates spin-off) - - High $ 54-7/8 $59-7/8 $ 67-7/8 $61-7/16 - - Low 48-1/2 38-13/16 46-1/4 28-15/32 AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK AFTER PREFERRED STOCK DIVIDENDS Income assuming dilution - - Automotive $ 1.18 $ 0.66 $ 4.63 $ 3.76 - - Financial Services (excl. The Associates) 0.29 0.18 1.23 0.96 - - The Associates - - - 0.14 - - Gain on spin-off of The Associates - - - 12.90 --------- --------- --------- --------- Total $ 1.47 $ 0.84 $ 5.86 $ 17.76 ========= ========= ========= ========= Cash dividends $ 0.50 $ 0.46 $ 1.88 $ 1.72
FS-1
Ford Motor Company and Subsidiaries VEHICLE UNIT SALES ------------------ For the Periods Ended December 31, 1999 and 1998 (in thousands) Fourth Quarter Full Year ------------------------ -------------------------- 1999 1998 1999 1998 -------- -------- -------- -------- (unaudited) (unaudited) North America United States Cars 497 428 1,725 1,563 Trucks 646 654 2,660 2,425 ----- ----- ----- ----- Total United States 1,143 1,082 4,385 3,988 Canada 100 87 288 279 Mexico 37 28 114 103 ----- ----- ----- ----- Total North America 1,280 1,197 4,787 4,370 Europe Britain 122 102 518 498 Germany 80 143 353 444 Italy 59 56 209 205 Spain 45 46 180 155 France 44 54 172 171 Other countries 175 95 528 377 ----- ----- ----- ----- Total Europe 525 496 1,960 1,850 Other international Australia 30 35 125 133 Brazil 26 34 117 178 Argentina 16 16 60 97 Taiwan 11 12 56 77 Japan 8 5 32 25 Other countries 23 19 83 93 ----- ----- ----- ----- Total other international 114 121 473 603 ----- ----- ------ ----- Total worldwide vehicle unit sales 1,919 1,814 7,220 6,823 ===== ===== ===== =====
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 periods were restated to correct reported unit sales. FS-2
Ford Motor Company and Subsidiaries CONSOLIDATED STATEMENT OF INCOME -------------------------------- For the Years Ended December 31, 1999, 1998, and 1997 (in millions, except amounts per share) 1999 1998 1997 ------------ ------------ --------- AUTOMOTIVE Sales (Note 1) $136,973 $119,083 $122,935 Costs and expenses (Notes 1 and 16) Costs of sales 119,046 103,905 107,994 Selling, administrative and other expenses 9,548 8,493 7,995 -------- -------- -------- Total costs and expenses 128,594 112,398 115,989 Operating income 8,379 6,685 6,946 Interest income 1,428 1,331 1,116 Interest expense 1,397 829 788 -------- -------- -------- Net interest income 31 502 328 Equity in net income/(loss) of affiliated companies (Note 1) 82 (38) (88) Net expense from transactions with Financial Services (Note 1) (45) (191) (104) -------- -------- -------- Income before income taxes - Automotive 8,447 6,958 7,082 FINANCIAL SERVICES Revenues (Note 1) 25,585 25,333 30,692 Costs and expenses (Note 1) Interest expense 7,679 8,036 9,712 Depreciation 9,254 8,589 7,645 Operating and other expenses 4,653 4,618 6,621 Provision for credit and insurance losses 1,465 1,798 3,230 -------- -------- -------- Total costs and expenses 23,051 23,041 27,208 Net revenue from transactions with Automotive (Note 1) 45 191 104 Gain on spin-off of The Associates (Note 16) - 15,955 - Gain on sale of Common Stock of a subsidiary (Note 16) - - 269 -------- -------- -------- Income before income taxes - Financial Services 2,579 18,438 3,857 -------- -------- -------- TOTAL COMPANY Income before income taxes 11,026 25,396 10,939 Provision for income taxes (Note 7) 3,670 3,176 3,741 -------- -------- -------- Income before minority interests 7,356 22,220 7,198 Minority interests in net income of subsidiaries 119 149 278 -------- -------- -------- Net income $ 7,237 $ 22,071 $ 6,920 ======== ======== ======== Income attributable to Common and Class B Stock after Preferred Stock dividends (Note 1) $ 7,222 $ 21,964 $ 6,866 Average number of shares of Common and Class B Stock outstanding (Note 1) 1,210 1,211 1,195 AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK (Note 1) Basic income $ 5.99 $ 18.17 $ 5.75 Diluted income $ 5.86 $ 17.76 $ 5.62 Cash dividends $ 1.88 $ 1.72 $ 1.645
The accompanying notes are part of the financial statements. Prior period costs of sales and selling, administrative and other expenses were reclassified. FS-3
Ford Motor Company and Subsidiaries CONSOLIDATED BALANCE SHEET -------------------------- As of December 31, 1999 and 1998 (in millions) 1999 1998 --------------- ---------------- ASSETS Automotive Cash and cash equivalents $ 4,642 $ 3,685 Marketable securities (Note 2) 18,943 20,120 -------- -------- Total cash and marketable securities 23,585 23,805 Receivables 3,769 2,604 Inventories (Note 5) 6,435 5,656 Deferred income taxes 3,872 3,239 Other current assets (Note 1) 4,126 3,405 Current receivable from Financial Services (Note 1) 2,304 0 -------- -------- Total current assets 44,091 38,709 Equity in net assets of affiliated companies (Note 1) 2,744 2,401 Net property (Note 6) 42,317 37,320 Deferred income taxes 2,816 3,175 Other assets (Note 1) 13,213 7,139 -------- -------- Total Automotive assets 105,181 88,744 Financial Services Cash and cash equivalents 1,588 1,151 Investments in securities (Note 2) 733 968 Finance receivables (Note 3) 113,298 97,176 Net investment in operating leases (Note 4) 42,471 41,173 Other assets 11,123 7,445 Receivable from Automotive (Note 1) 1,835 888 -------- -------- Total Financial Services assets 171,048 148,801 -------- -------- Total assets $276,229 $237,545 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Automotive Trade payables $ 14,450 $ 13,368 Other payables 4,156 2,755 Accrued liabilities (Note 8) 19,321 16,925 Income taxes payable 1,862 1,404 Debt payable within one year (Note 10) 1,602 1,121 Current payable to Financial Services (Note 1) 0 70 -------- -------- Total current liabilities 41,391 35,643 Long-term debt (Note 10) 10,542 8,713 Other liabilities (Note 8) 33,247 30,133 Deferred income taxes 1,376 751 Payable to Financial Services (Note 1) 1,835 818 -------- -------- Total Automotive liabilities 88,391 76,058 Financial Services Payables 3,550 3,555 Debt (Note 10) 139,919 122,324 Deferred income taxes 7,078 5,488 Other liabilities and deferred income 6,775 6,034 Payable to Automotive (Note 1) 2,304 0 -------- -------- Total Financial Services liabilities 159,626 137,401 Company-obligated mandatorily redeemable preferred securities of a subsidiary trust holding solely junior subordinated debentures of the Company (Note 1) 675 677 Stockholders' equity Capital stock (Notes 11 and 12) 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 5,049 5,283 Accumulated other comprehensive income (1,923) (1,670) ESOP loan and treasury stock (1,417) (1,085) Earnings retained for use in business 24,606 19,659 -------- -------- Total stockholders' equity 27,537 23,409 -------- -------- Total liabilities and stockholders' equity $276,229 $237,545 ======== ========
- - - - - *Less than $1 million The accompanying notes are part of the financial statements. FS-4
Ford Motor Company and Subsidiaries CONSOLIDATED STATEMENT OF CASH FLOWS ------------------------------------ For the Years Ended December 31, 1999, 1998, and 1997 (in millions) 1999 1998 1997 --------------------------- --------------------------- --------------------------- Financial Financial Financial Automotive Services Automotive Services Automotive Services ------------ ------------ ------------ ------------ ------------ ------------ Cash and cash equivalents at January 1 $ 3,685 $ 1,151 $ 6,316 $ 1,618 $ 3,578 $ 3,689 Cash flows from operating activities (Note 17) 17,271 12,540 9,622 13,478 13,984 13,650 Cash flows from investing activities Capital expenditures (7,945) (590) (8,113) (504) (8,142) (575) Purchase of leased assets - - (110) - (332) - Acquisitions of other companies (Note 16) (6,342) (144) - (344) - (40) Acquisitions of receivables and lease investments - (80,422) - (78,863) - (117,895) Collections of receivables and lease investments investments - 46,646 - 49,303 - 86,842 Net acquisitions of daily rental vehicles - (1,739) - (1,790) - (958) Purchases of securities (3,609) (900) (758) (2,102) (43) (3,067) Sales and maturities of securities 2,352 1,100 590 2,271 13 3,520 Proceeds from sales of receivables and lease investments lease investments - 9,931 - 8,413 - 5,197 Net investing activity with Financial Services Financial Services 1,329 - 642 - 258 - Other (68) 119 (468) (463) (285) (569) ------- ------- ------- ------- ------- ------- Net cash used in investing activities (14,283) (25,999) (8,217) (24,079) (8,531) (27,545) Cash flows from financing activities Cash dividends Cash dividends (2,290) - (5,348) - (2,020) - Issuance of Common Stock 336 - 157 - 310 - Issuance of Common Stock of a subsidiary (Note 16) - - - - - 453 Purchase of Ford treasury stock (707) - (669) - (15) - Preferred Stock - Series B repurchase, Series A redemption - - (420) - - - Changes in short-term debt 64 5,547 497 7,475 (430) 6,210 Proceeds from issuance of other debt 3,428 37,184 2,403 21,776 1,100 22,923 Principal payments on other debt (1,182) (28,672) (1,434) (16,797) (668) (18,215) Net financing activity with Automotive - (1,329) - (642) - (258) Spin-off of The Associates cash - - - (508) - - Other (254) 88 (472) (12) 16 (206) ------- ------- ------- ------- ------- ------- Net cash (used in)/provided by financing activities financing activities (605) 12,818 (5,286) 11,292 (1,707) 10,907 Effect of exchange rate changes on cash (69) (279) (54) 146 (119) 28 Net transactions with Automotive/ Financial Services Financial Services (1,357) 1,357 1,304 (1,304) (889) 889 ------- ------- ------- ------- ------- ------- Net (decrease)/increase in cash and cash equivalents cash equivalents 957 437 (2,631) (467) 2,738 (2,071) ------- ------- ------- ------- ------- ------- Cash and cash equivalents at December 31 $ 4,642 $ 1,588 $ 3,685 $ 1,151 $ 6,316 $ 1,618 ======== ======== ======== ======== ======= ========
The accompanying notes are part of the financial statements. FS-5
Ford Motor Company and Subsidiaries CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY ---------------------------------------------- For the Years Ended December 31, 1997, 1998, and 1999 (in millions) Capital Other Comprehensive Income in Excess ----------------------------------------- of Par Foreign Minimum Unrealized Capital Value of Retained Currency Pension Holding Stock Stock Earnings Translation Liability Gain/Loss Other Total ------- --------- -------- ------------- --------- ---------- --------- --------- YEAR ENDED DECEMBER 31, 1997 - ---------------------------- Balance at beginning of year $1,189 $5,268 $20,334 $ 74 $ (267) $164 $ - $26,762 Comprehensive income Net Income 6,920 6,920 Foreign currency translation (1,038) (1,038) Minimum pension liability (net of tax benefit of $36) (70) (70) Net holding loss (net of tax benefit of $47) (91) (91) ------- Comprehensive Income 5,721 Common Stock issued for Series A Preferred Stock conversion, employee benefit plans and other 14 296 310 Treasury stock (39) (39) Cash Dividends (2,020) (2,020) ------ ------ ------- -------- ------ ---- ------- ------ Balance at end of year $1,203 $5,564 $25,234 $ (964) $ (337) $ 73 $ (39) $30,734 ====== ====== ======= ======== ====== ==== ======= ======= YEAR ENDED DECEMBER 31, 1998 - ---------------------------- Balance at beginning of year $1,203 $5,564 $25,234 $ (964) $ (337) $ 73 $ (39) $30,734 Comprehensive income Net income (excluding gain on spin-off of The Associates) 6,116 6,116 Gain on The Associates spin-off 15,955 15,955 Foreign currency translation (53) (53) Minimum pension liability (net of tax benefit of $184) (361) (361) Net holding loss (net of tax benefit of $3) (28) (28) ------ Comprehensive income 21,629 Common Stock issued for Series A Preferred Stock conversion, employee benefit plans and other 19 139 158 Preferred Stock-Series B repurchase and Series A redemption (420) (420) ESOP loan and treasury stock (1,046) (1,046) The Associates spin-off to Ford Common stockholders (22,298) (22,298) Cash dividends (5,348) (5,348) ------ ------ ------- -------- ------ ---- ------- ------- Balance at end of year $1,222 $5,283 $19,659 $ (1,017) $ (698) $ 45 $(1,085) $23,409 ====== ====== ======= ======== ====== ==== ======= ======= YEAR ENDED DECEMBER 31, 1999 - ---------------------------- Balance at beginning of year $1,222 $5,283 $19,659 $ (1,017) $ (698) $ 45 $(1,085) $23,409 Comprehensive income Net income 7,237 7,237 Foreign currency translation (615) (615) Minimum pension liability (net of tax of $174) 324 324 Net holding gain (net of tax of $20) 38 38 ------- Comprehensive income 6,984 Common Stock issued for employee benefit plans and other (234) (234) ESOP loan and treasury stock (332) (332) Cash dividends (2,290) (2,290) ------ ------ ------- -------- ------ ---- ------ ------- Balance at end of year $1,222 $5,049 $24,606 $ (1,632) $ (374) $ 83 $(1,417) $27,537 ====== ====== ======= ======== ====== ==== ======= =======
The accompanying notes are part of the financial statements. FS-6 NOTE 1. Accounting Policies - --------------------------- Principles of Consolidation - --------------------------- The consolidated financial statements include all significant majority-owned subsidiaries and reflect the operating results, assets, liabilities and cash flows for the company's two business sectors: Automotive and Financial Services. The assets and liabilities of the Automotive sector are classified as current or noncurrent, and those of the Financial Services sector are unclassified. Affiliates that are 20% to 50% owned, principally Mazda Motor Corporation and AutoAlliance International Inc., and subsidiaries where control is expected to be temporary, principally investments in certain dealerships, are accounted for on an equity basis. Use of estimates and assumptions as determined by management is required in the preparation of consolidated financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates and assumptions. For purposes of Notes to Financial Statements, "Ford" or "the company" means Ford Motor Company and its majority-owned consolidated subsidiaries unless the context requires otherwise. Certain amounts for prior periods are reclassified, if required, to conform with present period presentations. Structure of Operations - ----------------------- The company's sectors, Automotive and Financial Services, are managed as four primary operating segments. A segment is defined as a component with business activity resulting in revenue and expense that has separate financial information evaluated regularly by the company's chief operating decision maker in determining resource allocation and assessing performance (Note 18). The Automotive sector is comprised of Automotive and Visteon. The Automotive segment consists of the design, manufacture, sale and service of cars and trucks; the Visteon segment consists of the design, manufacture and sale of automotive components and systems. The Financial Services sector primarily includes two segments, Ford Motor Credit Company and its subsidiaries ("Ford Credit") and The Hertz Corporation and its subsidiaries ("Hertz"). The Financial Services sector also includes less significant financial services businesses (Note 18). Ford Credit leases and finances the purchase of cars and trucks made by Ford and other companies. It also provides inventory and capital financing to retail car and truck dealerships. Hertz rents cars and trucks and industrial and construction equipment. Both Ford Credit and Hertz also have insurance operations related to their businesses. Intersector transactions represent principally transactions occurring in the ordinary course of business, borrowings and related transactions between entities in the Financial Services and Automotive sectors, and interest and other support under special vehicle financing programs. These arrangements are reflected in the respective business sectors. Intersegment transactions are described in Note 18. Revenue Recognition - Automotive Sector - --------------------------------------- Sales are recorded by the company when products are shipped to dealers and other customers, except as described below. Estimated costs for approved sales incentive programs normally are recognized as sales reductions at the time of revenue recognition. Estimated costs for sales incentive programs approved subsequent to the time that related sales were recorded are recognized when the programs are approved. Sales through dealers to certain daily rental companies where the daily rental company has an option to require Ford to repurchase vehicles subject to certain conditions, are recognized over the period of daily rental service in a manner similar to lease accounting. The carrying value of these vehicles, included in other current assets, was $2.0 billion at December 31, 1999, and $2.1 billion at December 31, 1998. FS-7 NOTE 1. Accounting Policies (continued) - --------------------------------------- Revenue Recognition - Financial Services Sector - ----------------------------------------------- Revenue from finance receivables is recognized over the term of the receivable using the interest method. Certain loan origination costs are deferred and amortized, using the interest method, over the term of the related receivable as a reduction in financing revenue. Revenue from operating leases is recognized on a straight-line basis over the term of the lease. Initial direct costs net of acquisition fees related to leases are deferred and amortized over the term of the lease. Agreements between the Automotive sector operations and certain Financial Services sector operations provide for interest supplements and other support costs to be paid by Automotive sector operations on certain financing and leasing transactions. The Financial Services sector recognizes this revenue in income over the period that the related receivables and leases are outstanding; the estimated costs of interest supplements and other support costs are recorded as sales incentives by Automotive sector operations in the same manner as sales incentives described above. The accrual of interest on loans is discontinued at the time a loan is determined to be impaired. Subsequent amounts of interest collected are recognized in income only if full recovery of the remaining principal is expected. Other amounts collected are generally recognized first as a reduction of principal. Any remaining amounts are treated as a recovery. The Financial Services sector periodically sells finance receivables through special purpose subsidiaries, retains the servicing rights and certain other beneficial interests, and receives a servicing fee which is recognized as collected over the remaining term of the related sold finance receivables. Estimated gains or losses from the sale of finance receivables are recognized in the period in which the sale occurs. In determining the gain or loss on each qualifying sale of finance receivables, the investment in the sold receivable pool is allocated between the portion sold and the portion retained based on their relative fair values at the date of sale. Other Costs - ----------- Advertising and sales promotion costs are expensed as incurred. Advertising costs were $2.8 billion in 1999, $2.2 billion in 1998 and $2.3 billion in 1997. Estimated costs related to product warranty are accrued at the time of sale. Engineering, research and development costs are expensed as incurred and were $7.1 billion in 1999, $6.3 billion in 1998 and $6.3 billion in 1997. 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 calculation of diluted income per share of Common and Class B Stock takes into account the effect of obligations, such as stock options, considered to be potentially dilutive. FS-8 NOTE 1. Accounting Policies (continued) - ---------------------------- Income per share of Common and Class B Stock were as follows (in millions):
1999 1998 1997 -------------------- -------------------- --------------------- Income Shares* Income Shares* Income Shares* --------- ---------- --------- ---------- ---------- ---------- Net income $7,237 1,210 $22,071 1,211 $6,920 1,195 Preferred Stock dividend requirements (15) - (22) - (54) - Premium on Series B Tender Offer** - - (85) - - - Issuable and uncommitted ESOP shares - (4) - (2) - (1) ------ ----- ------- ----- ------ ----- Basic income and shares $7,222 1,206 $21,964 1,209 $6,866 1,194 Basic income per share $ 5.99 $ 18.17 $ 5.75 - ---------------------- Basic income and shares $7,222 1,206 $21,964 1,209 $6,866 1,194 Net dilutive effect of options - 27 - 28 - 20 Convertible Preferred Stock and other (1) - (1) - 8 10 ------ ----- ------- ----- ------ ----- Diluted income and shares $7,221 1,233 $21,963 1,237 $6,874 1,224 Diluted income per share $ 5.86 $ 17.76 $ 5.62 - ------------------------
- - - - - - *Average shares outstanding **Represents a one-time reduction of $0.07 per share of Common and Class B Stock resulting from the premium paid to repurchase the company's Series B Cumulative Preferred Stock. Derivative Financial Instruments - -------------------------------- Ford has operations in over 30 countries and sells vehicles in over 200 markets, and is exposed to a variety of market risks, including the effects of changes in foreign currency exchange rates, interest rates and commodity prices. These financial exposures are monitored and managed by the company as an integral part of the company's overall risk management program, which recognizes the unpredictability of financial markets and seeks to reduce the potentially adverse effect on the company's results. The company uses derivative financial instruments to manage the exposures to fluctuations in exchange rates, interest rates and commodity prices. All derivative financial instruments are classified as "held for purposes other than trading"; company policy specifically prohibits the use of leveraged derivatives or use of any derivatives for speculative purposes. Ford's primary foreign currency exposures, in terms of net corporate exposure, are in the Swedish Krona, Euro, British Pound Sterling, Japanese Yen, Mexican Peso and Brazilian Real. Agreements to manage foreign currency exposures include forward contracts, swaps and options. The company uses these derivative instruments to hedge assets and liabilities denominated in foreign currencies, firm commitments and certain investments in foreign subsidiaries. Gains and losses on hedges of firm commitments are deferred and recognized with the related transactions. In the case of hedges of net investments in foreign subsidiaries, gains and losses are recognized in other comprehensive income to the extent they are effective as hedges. All other gains and losses are recognized in cost of sales for the Automotive sector and interest expense for the Financial Services sector. These instruments usually mature in two years or less for Automotive sector exposures and longer for Financial Services sector exposures, consistent with the underlying transactions. The effect of changes in exchange rates may not be fully offset by gains or losses on currency derivatives, depending on the extent to which the exposures are hedged. Interest rate swap agreements are used to manage the effects of interest rate fluctuations by changing the interest rate characteristics of specific debt or pools of debt to match the interest rate characteristics of corresponding assets. These instruments mature consistent with underlying debt issues as identified in Note 10. The differential paid or received on interest rate swaps is recognized on an accrual basis as an adjustment to interest expense. Gains and losses on terminated interest rate swaps are deferred and reflected in interest expense over the remaining term of the underlying debt. FS-9 NOTE 1. Accounting Policies (continued) - ---------------------------- Ford has a commodity hedging program that uses primarily forward contracts and options to manage the effects of changes in commodity prices on the Automotive sector's results. Gains and losses are recognized in cost of sales during the settlement period of the related transactions. Foreign Currency Translation - ---------------------------- Assets and liabilities of non-U.S. subsidiaries generally are translated to U.S. Dollars at end-of-period exchange rates. The effects of this translation for most non-U.S. subsidiaries are reported in other comprehensive income. Remeasurement of assets and liabilities of non-U.S. subsidiaries that use the U.S. Dollar as their functional currency are included in income as transaction gains and losses. Income statement elements of all non-U.S. subsidiaries are translated to U.S. Dollars at average-period exchange rates and are recognized as part of revenues, costs and expenses. Also included in income are gains and losses arising from transactions denominated in a currency other than the functional currency of the subsidiary involved. Net transaction gains and losses, as described above, increased net income by $284 million in 1999 and by $97 million in 1998, and decreased net income by $164 million in 1997. Impairment of Long-Lived Assets and Certain Identifiable Intangibles - -------------------------------------------------------------------- The company evaluates the carrying value of goodwill for potential impairment on an ongoing basis. Such evaluations compare operating income before amortization of goodwill to the amortization recorded for the operations to which the goodwill relates. The company also periodically evaluates the carrying value of long-lived assets and long-lived assets to be disposed of for potential impairment. The company considers projected future operating results, cash flows, trends and other circumstances in making such estimates and evaluations. Goodwill - -------- Goodwill represents the excess of the purchase price over the fair value of the net assets of acquired companies and is amortized using the straight-line method for periods of up to 40 years. Total goodwill included in the Automotive sector's other assets was $6.1 billion at December 31, 1999 and $2.1 billion at December 31, 1998. The increase is primarily related to the acquisitions of Volvo, Kwik-Fit, and Plastic Omnium (Note 16). Total goodwill included in the Financial Services sector's other assets was $970 million at December 31, 1999 and $743 million at December 31, 1998. Company-Obligated Mandatorily Redeemable Preferred Securities of a Subsidiary Trust - ----------------------------------------------------------------------------- During 1995, Ford Motor Company Capital Trust I (the "Trust") issued $632 million of its 9% Trust Originated Preferred Securities (the "Preferred Securities") in a one-for-one exchange for 25,273,537 shares of the company's outstanding Series B Depositary Shares (the "Depositary Shares"). Concurrent with the exchange and the related purchase by Ford of the Trust's common securities (the "Common Securities"), the company issued to the Trust $651 million aggregate principal amount of its 9% Junior Subordinated Debentures due December 2025 (the "Debentures"). The sole assets of the Trust are and will be the Debentures. The Debentures are redeemable, in whole or in part, at the company's option on or after December 1, 2002, at a redemption price of $25 per Debenture plus accrued and unpaid interest. If the company redeems the Debentures, or upon maturity of the Debentures, the Trust is required to redeem the Preferred Securities and Common Securities at $25 per share plus accrued and unpaid distributions. Ford guarantees to pay in full to the holders of the Preferred Securities all distributions and other payments on the Preferred Securities to the extent not paid by the Trust only if and to the extent that Ford has made a payment of interest or principal on the Debentures. This guarantee, when taken together with Ford's obligations under the Debentures and the indenture relating thereto and its obligations under the Declaration of Trust of the Trust, including its obligation to pay certain costs and expenses of the Trust, constitutes a full and unconditional guarantee by Ford of the Trust's obligations under the Preferred Securities. FS-10 NOTE 2. Marketable and Other Securities - ---------------------------------------- Trading securities are recorded at fair value with unrealized gains and losses included in income. Available-for-sale securities are recorded at fair value with net unrealized gains and losses reported, net of tax, in other comprehensive income. Held-to-maturity securities are recorded at amortized cost. Equity securities which do not have readily determinable fair values are recorded at cost. The basis of cost used in determining realized gains and losses is specific identification. The fair value of substantially all securities is determined by quoted market prices. The estimated fair value of securities, for which there are no quoted market prices, is based on similar types of securities that are traded in the market. Book value approximates fair value for all securities. Expected maturities of debt securities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalty. Automotive Sector - ----------------- Investments in securities at December 31 were as follows (in millions):
Book/ Amortized Unrealized Unrealized Fair Cost Gains Losses Value ----------- ---------- ---------- ---------- 1999 ---- Trading securities $17,243 $56 $123 $17,176 Available-for-sale securities - Corporate securities 1,004 - 8 996 Held-to-maturity securities 771 - - 771 ------- --- ---- ------- Total investments in securities $19,018 $56 $131 $18,943 ======= === ==== ======= 1998 ---- Trading securities $19,534 $83 $ 40 $19,577 Available-for-sale securities - Corporate securities 543 - - 543 ------- --- ---- ------- Total investments in securities $20,077 $83 $ 40 $20,120 ======= === ==== =======
During 1997, $365 million of bonds issued by affiliates were reclassified from equity in net assets of affiliated companies to available-for-sale marketable securities; $163 million of the bonds matured in 1999 and $202 million matured in 1998. Proceeds from sales of available-for-sale securities were $2,352 million in 1999 and $586 million in 1998. In 1999, gross gains of $11 million were reported. Other comprehensive income included net unrealized gains of $13 million in 1999 and net unrealized losses of $5 million in 1998 on securities owned by certain unconsolidated affiliates. The available-for-sale securities at December 31, 1999 had contractual maturities between one and five years. Financial Services Sector - ------------------------- Investments in securities at December 31, 1999 were as follows (in millions):
Book/ Amortized Unrealized Unrealized Fair Cost Gains Losses Value ----------- ----------- ------------ ---------- Trading securities $190 $ - $ - $190 Available-for-sale securities ----------------------------- Debt securities issued by the U.S. government and agencies 89 - 3 86 Municipal securities 18 - 1 17 Debt securities issued by non-U.S. governments 19 - - 19 Corporate securities 156 - 6 150 Mortgage-backed securities 202 - 7 195 Equity securities 28 43 2 69 ---- --- --- ---- Total available-for-sale securities 512 43 19 536 Held-to-maturity securities --------------------------- Debt securities issued by the U.S. government and agencies 6 - - 6 Corporate securities 1 - - 1 ---- --- --- ---- Total held-to-maturity securities 7 - - 7 Total investments in securities $709 $43 $19 $733 ==== === === ====
FS-11 NOTE 2. Marketable and Other Securities (continued) - --------------------------------------- Investments in securities at December 31, 1998 were as follows (in millions):
Book/ Amortized Unrealized Unrealized Fair Cost Gains Losses Value ------------ ------------------------ ------------ $231 $ 3 $4 $230 Trading securities Available-for-sale securities ----------------------------- Debt securities issued by the U.S. government and agencies 153 3 - 156 Municipal securities 63 2 - 65 Debt securities issued by non-U.S. governments 25 - - 25 Corporate securities 192 3 2 193 Mortgage-backed securities 198 3 - 201 Equity securities 35 56 1 90 ---- --- -- ---- Total available-for-sale securities 666 67 3 730 Held-to-maturity securities --------------------------- Debt securities issued by the U.S. government and agencies 6 - - 6 Corporate securities 2 - - 2 ---- --- -- ---- Total held-to-maturity securities 8 - - 8 Total investments in securities $905 $70 $7 $968 ==== === == ====
The amortized cost and fair value of investments in available-for-sale securities and held-to-maturity securities at December 31 by contractual maturity, were as follows (in millions):
Available-for-sale Held-to-maturity ---------------------- ---------------------- Amortized Fair Amortized Fair Cost Value Cost Value ---------- ---------- ---------- ---------- 1999 ---- Due in one year or less $ - $ - $- $- Due after one year through five years 119 118 3 3 Due after five years through ten years 53 51 3 3 Due after ten years 110 104 1 1 Mortgage-backed securities 202 195 - - Equity securities 28 68 - - ---- ---- -- -- Total $512 $536 $7 $7 ==== ==== == == 1998 ---- Due in one year or less $ 29 $ 29 $1 $1 Due after one year through five years 165 167 3 3 Due after five years through ten years 101 102 3 3 Due after ten years 138 141 1 1 Mortgage-backed securities 198 200 - - Equity securities 35 91 - - ---- ---- -- -- Total $666 $730 $8 $8 ==== ==== == ==
Proceeds from sales of available-for-sale securities were $1.1 billion in 1999, $2.1 billion in 1998 and $2.9 billion in 1997. In 1999, gross gains of $33 million and gross losses of $14 million were realized on those sales; gross gains of $48 million and gross losses of $3 million were realized in 1998 and gross gains of $98 million and gross losses of $8 million were realized in 1997. FS-12 NOTE 3. Finance Receivables - Financial Services Sector - ------------------------------------------------------- Receivables - ----------- Included in finance receivables at December 31 were net finance receivables and investment in direct financing leases. The investment in direct financing leases relates to the leasing of vehicles, various types of transportation and other equipment, and facilities. Net finance receivables at December 31 were as follows (in millions):
1999 1998 ------------ ------------ Retail $ 70,771 $60,653 Wholesale 27,298 22,650 Real estate 3,417 2,507 Other finance receivables 5,302 5,533 -------- ------- Total finance receivables 106,788 91,343 Allowance for credit losses (1,143) (1,229) -------- ------- Total net finance receivables 105,645 90,114 Other 471 63 -------- ------- Net finance and other receivables $106,116 $90,177 ======== ======= Net finance receivables subject to fair value* $105,577 $90,010 Fair value $106,552 $89,847
- - - - - *Excludes certain diversified and other receivables of $539 million and $167 million at December 31, 1999 and 1998, respectively Included in finance receivables at December 31, 1999 and 1998 were a total of $2.6 billion and $1.5 billion, respectively, owed by three customers with the largest receivable balances. Other finance receivables consisted primarily of commercial and other collateralized loans and accrued interest. Also included in other finance receivables at December 31, 1999 and 1998 were $3.7 billion and $3.9 billion, respectively, of accounts receivable purchased by certain Financial Services sector operations from Automotive sector operations. Finance receivables that originated outside the United States are $35.5 billion and $35.6 billion at December 31, 1999 and 1998, respectively. Contractual maturities of total finance receivables are as follows (in millions): 2000 - $65,017; 2001 - $20,541; 2002 - $11,375; thereafter - $9,855. Experience indicates that a substantial portion of the portfolio generally is repaid before the contractual maturity dates. The fair value of most receivables was estimated by discounting future cash flows using an estimated discount rate that reflected the credit, interest rate and prepayment risks associated with similar types of instruments. For receivables with short maturities, the book value approximated fair value. The Financial Services sector has sold receivables through special purpose subsidiaries. The servicing portfolio related to these securitized assets amounted to $19.6 billion, $13.9 billion and $10.9 billion at December 31, 1999, 1998 and 1997, respectively. The company retains certain beneficial interests in the sold receivables which are subject to limited recourse provisions. These financial instruments of $3.4 billion at December 31, 1999 and $1.3 billion at December 31, 1998 are included in other assets. Direct Financing Leases - ----------------------- Net investment in direct financing leases at December 31 was as follows (in millions):
1999 1998 ------------ ------------ Total minimum lease rentals to be received $4,782 $ 4,406 Less: Unearned income (916) (1,106) Loan origination costs 84 59 ------ ------- Minimum lease rentals 3,950 3,359 Estimated residual values 3,283 3,720 Less: Allowance for credit losses (51) (80) ------ ------- Net investment in direct financing leases $7,182 $ 6,999 ====== =======
Minimum direct financing lease rentals are contractually due as follows (in millions): 2000 - $1,705; 2001 - $1,327; 2002 - $1,011; 2003 - $561; 2004 - $151; thereafter - $27. FS-13 NOTE 3. Finance Receivables - Financial Services Sector (continued) - -------------------------------------------------------- Credit Losses - ------------- Allowances for credit losses are estimated and established as required based on historical experience and other factors that affect collectibility. The allowance for estimated credit losses includes a provision for certain non-homogeneous impaired loans. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan's effective interest rate. Finance receivables and investment in direct financing leases are charged to the allowances for credit losses when an account is deemed to be uncollectible, taking into consideration the financial condition of the borrower, the value of the collateral, recourse to guarantors and other factors. Recoveries on finance receivables and investment in direct financing leases previously charged-off as uncollectible are credited to the allowances for credit losses. Changes in the allowances for credit losses were as follows (in millions):
1999 1998 1997 ------------ ------------ ------------ Beginning balance $1,309 $ 3,164 $ 2,478 Provision for credit losses 844 1,195 2,542 Total charge-offs and recoveries: Charge-offs (903) (1,257) (2,130) Recoveries 173 205 168 ------ ------- ------- Net losses (730) (1,052) (1,962) Other changes (229) (1,998)* 106 ------ ------- ------- Ending balance $1,194 $ 1,309 $ 3,164 ====== ======= =======
- - - - - *Other changes includes $1,892 million to reflect the spin-off of The Associates NOTE 4. Net Investment in Operating Leases - ------------------------------------------- The net investment in operating leases relates to the leasing of vehicles, various types of transportation and other equipment, and facilities. The net investment in operating leases at December 31 was as follows (in millions):
1999 1998 ------------ ------------ Vehicles and other equipment, at cost $ 53,018 $50,366 Lease origination costs 56 63 Accumulated depreciation (10,225) (8,988) Allowances for credit losses (378) (268) -------- ------- Net investment in operating leases $ 42,471 $41,173 ======== =======
Minimum rentals on operating leases are contractually due as follows (in millions): 2000 - $6,936; 2001 - $4,653; 2002 - $2,372; 2003 - $300; 2004 - $144; thereafter - $275. Depreciation expense for assets subject to operating leases is provided primarily on the straight-line method over the term of the lease in amounts necessary to reduce the carrying amount of the asset to its estimated residual value. Depreciation rates and amounts are based on assumptions as to used car prices at lease termination and the number of vehicles that will be returned to the company. Estimated and actual residual values are reviewed on a regular basis to determine that depreciation amounts are appropriate. Gains and losses upon disposal of the assets also are included in depreciation expense. Depreciation expense was as follows: $8.8 billion in 1999, $8.4 billion in 1998 and $7.4 billion in 1997. FS-14 NOTE 5. Inventories - Automotive Sector - ---------------------------------------- Inventories at December 31 were as follows (in millions):
1999 1998 ------------ ------------ Raw materials, work-in-process and supplies $2,688 $2,887 Finished products 3,747 2,769 ------ ------ Total inventories $6,435 $5,656 ====== ====== U.S. inventories $2,245 $1,832
Inventories are stated at the lower of cost or market. The cost of most U.S. inventories is determined by the last-in, first-out ("LIFO") method. The cost of the remaining inventories is determined primarily by the first-in, first-out ("FIFO") method. If the FIFO method had been used instead of the LIFO method, inventories would have been higher by $1.1 billion and $1.2 billion at December 31, 1999 and 1998, respectively. NOTE 6. Net Property, Depreciation and Amortization - Automotive Sector - ----------------------------------------------------------------------- Net property at December 31 was as follows (in millions):
1999 1998 ------------ ------------ Land $ 518 $ 409 Buildings and land improvements 10,599 9,298 Machinery, equipment and other 47,550 43,562 Construction in progress 2,081 2,774 -------- -------- Total land, plant and equipment $ 60,748 $ 56,043 Accumulated depreciation (27,832) (26,840) -------- -------- Net land, plant and equipment $ 32,916 $ 29,203 Special tools, net of amortization 9,401 8,117 -------- -------- Net property $ 42,317 $ 37,320 ======== ========
Property, equipment and special tools are stated at cost, less accumulated depreciation and amortization. Property and equipment placed in service before January 1, 1993 are depreciated using an accelerated method that results in accumulated depreciation of approximately two-thirds of the asset cost during the first half of the estimated useful life of the asset. Property and equipment placed in service after December 31, 1992 are depreciated using the straight-line method of depreciation over the estimated useful life of the asset. On average, buildings and land improvements are depreciated based on a 30-year life; machinery and equipment are depreciated based on a 14-year life. Costs of computer software developed or obtained for internal use are capitalized beginning January 1, 1999. Special tools placed in service before January 1, 1999 are amortized using an accelerated method over periods of time representing the estimated life of those tools. Special tools placed in service beginning in 1999 are amortized using the units-of-production method. For property and equipment retired before January 1, 1999, the general policy is to charge the cost of those assets, reduced by net salvage proceeds, to accumulated depreciation. For property and equipment retired after December 31, 1998, the general policy is to charge the cost of those assets, reduced by net salvage proceeds, to gain or loss on disposal of assets. These changes did not have a material impact on the financial statements. Depreciation and amortization expenses were as follows (in millions):
1999 1998 1997 ------------ ------------ ------------ Depreciation $3,262 $2,804 $2,759 Amortization 2,427 2,936 3,179 ------ ------ ------ Total $5,689 $5,740 $5,938 ====== ====== =======
Maintenance, repairs and rearrangement costs are expensed as incurred and were $2.2 billion in 1999, $2.2 billion in 1998 and $2.3 billion in 1997. Expenditures that increase the value or productive capacity of assets are capitalized. Preproduction costs related to new facilities are expensed as incurred. FS-15 NOTE 7. Income Taxes - --------------------- Income before income taxes, excluding equity in net income/(loss) of affiliated companies, the provision for income taxes, and a reconciliation of the provision for income taxes compared with the amounts at the U.S. statutory tax rate, are as follows:
1999 1998 1997 ------------ ------------ ------------ Income before income tax (in millions) -------------------------------------- U.S. $10,273 $8,363 $ 8,353 Non-U.S. 688 1,114 2,404 ------- ------ ------- Total income before income taxes $10,961 $9,477 $10,757 ======= ====== ======= Provision for income taxes (in millions) --------------------------------------- U.S. federal $ 845 $ 785 $1,558 Non-U.S. 839 623 830 State and local 143 40 (25) ------- ------ ------ Total current income tax provision 1,827 1,448 2,363 U.S. federal 2,135 1,685 1,108 Non-U.S. (482) (109) 78 State and local 190 152 192 ------- ------ ------ Total deferred income tax provision 1,843 1,728 1,378 ------- ------ ------ Total provision $ 3,670 $3,176 $3,741 ======= ====== ====== Reconciliation of the income tax provision ------------------------------------------ Tax provision at U.S. statutory rate of 35% 35 % 35 % 35 % Effect of (in points): Tax on non-U.S. income (1) 0 0 State and local income taxes 2 1 1 Other (2) (2) (1) ------- ------ ------ Provision for income taxes 34 % 34 % 35 % ======= ====== ======
- - - - - Amounts shown exclude non-taxable gains from The Associates spin-off (1998) and Hertz IPO (1997) Deferred taxes are provided for earnings of non-U.S. subsidiaries which are planned to be remitted. No provision for deferred taxes has been made on $2.1 billion of retained earnings (primarily prior to 1998) which are considered to be indefinitely invested in the non-U.S. subsidiaries. Deferred taxes for the undistributed earnings of non-U.S. subsidiaries are not practical to estimate. Deferred tax assets and liabilities reflect the estimated tax effect of accumulated temporary differences between assets and liabilities for financial reporting purposes and those amounts as measured by tax laws and regulations. The components of deferred tax assets and liabilities at December 31 were as follows (in millions):
1999 1998 ------------ ------------ Deferred tax assets ------------------- Employee benefit plans $ 6,300 $ 6,591 Dealer and customer allowances and claims 2,945 3,709 Allowance for credit losses 1,006 1,164 Net operating loss carryforwards 518 795 All other 1,824 1,717 Valuation allowances (115) (256) ------- ------- Total deferred tax assets 12,478 13,720 Deferred tax liabilities ------------------------ Leasing transactions 6,520 6,324 Depreciation and amortization (excluding leasing transactions) 4,344 4,221 Employee benefit plans 849 969 All other 2,891 2,316 ------- ------- Total deferred tax liabilities 14,604 13,830 ------- ------- Net deferred tax assets/(liabilities) $(2,126) $ (110) ======= =======
Non-U.S. net operating loss carryforwards for tax purposes were $1.4 billion at December 31, 1999. A substantial portion of these losses has an indefinite carryforward period; the remaining losses have expiration dates beginning in 2000. The tax benefit of operating losses is recognized as a deferred tax asset, subject to appropriate valuation allowances. We evaluate the tax benefits of operating loss carryforwards on an ongoing basis. Such evaluations include a review of historical and projected future operating results, the eligible carryforward period and other circumstances. FS-16 NOTE 8. Liabilities - Automotive Sector - ---------------------------------------- Current Liabilities - ------------------- Included in accrued liabilities at December 31 were the following (in millions):
1999 1998 ------------ ------------ Dealer and customer allowances and claims $10,245 $ 8,765 Employee benefit plans 1,913 2,530 Deferred revenue 2,326 2,447 Salaries, wages and employer taxes 724 740 Postretirement benefits other than pensions 880 275 Other 3,233 2,168 ------- ------- Total accrued liabilities $19,321 $16,925 ======= =======
Noncurrent Liabilities - ---------------------- Included in other liabilities at December 31 were the following (in millions):
1999 1998 ------------ ------------ Postretirement benefits other than pensions $15,458 $14,859 Dealer and customer allowances and claims 7,271 7,401 Employee benefit plans 4,525 3,762 Unfunded pension obligation 1,189 1,528 Minority interests in net assets of subsidiaries 177 103 Other 4,627 2,480 ------- ------- Total other liabilities $33,247 $30,133 ======= =======
NOTE 9. Employee Retirement Benefits - ------------------------------------- Employee Retirement Plans - ------------------------- The company has two principal retirement plans in the U.S. The Ford-UAW Retirement Plan covers hourly employees represented by the UAW, and the General Retirement Plan covers substantially all other Ford employees of the company in the U.S. The hourly plan provides noncontributory benefits related to employee service. The salaried plan provides similar noncontributory benefits and contributory benefits related to pay and service. Other U.S. and non-U.S. subsidiaries have separate plans that generally provide similar types of benefits for their employees. In general, the company's plans are funded with the main exceptions of the U.S. defined benefit plans for executives and certain plans in Germany; in such cases an unfunded liability is recorded. The company's policy for funded plans is to contribute annually, at a minimum, amounts required by applicable law, regulations and union agreements. Plan assets consist principally of investments in stocks, and government and other fixed income securities. Postretirement Health Care and Life Insurance Benefits - ------------------------------------------------------ The company and certain of its subsidiaries sponsor unfunded plans to provide selected health care and life insurance benefits for retired employees. The company's U.S. and Canadian employees may become eligible for those benefits if they retire while working for the company; however benefits and eligibility rules may be modified from time to time. The estimated cost for these benefits is accrued over periods of employee service on an actuarially determined basis. The company has prepaid a portion of U.S. hourly retiree health benefits by contributing to a Voluntary Employees' Beneficiary Association ("VEBA") trust. At December 31, 1999, the market value of this VEBA pre-funding was $1.7 billion. Increasing the assumed health care cost trend rates by one percentage point is estimated to increase the aggregate service and interest cost components of net postretirement benefit expense for 1999 by about $260 million and the accumulated postretirement benefit obligation at December 31, 1999 by about $2.4 billion. A decrease of one percentage point would reduce service and interest costs by $200 million and decrease the December 31, 1999 obligation by $2 billion. FS-17 NOTE 9. Employee Retirement Benefits (continued) - ------------------------------------- Employee Retirement Benefit Expense - ----------------------------------- The company's expense for pensions, retirement health care and life insurance was as follows (in millions):
Pension Benefits ---------------------------------------------------------- U.S. Plans Non-U.S. Plans Other Benefits* ---------------------------- ---------------------------- ------------------------------- 1999 1998 1997 1999 1998 1997 1999 1998 1997 -------- -------- -------- -------- -------- -------- --------- --------- --------- Costs Recognized in Income - -------------------------- Service cost $ 662 $ 596 $ 551 $ 436 $ 354 $ 331 $ 356 $ 265 $ 242 Interest cost 2,132 1,999 1,993 890 867 857 1,232 1,183 1,161 Expected return on plan assets (3,086) (2,747) (2,505) (1,121) (986) (931) (109) (45) - Amortization of: Transition (asset)/obligation (21) (22) (22) 9 13 61 - - - Plan amendments 586 729 515 118 114 92 (44) (42) (44) (Gains)/losses and other (26) 25 30 195 129 56 276 95 13 ------- ------- ------- ------- ----- ----- ------ ------ ------ Net pension/postretirement expense $ 247 $ 580 $ 562 $ 527 $ 491 $ 466 $1,711 $1,456 $1,372 ======= ======= ======= ======= ===== ===== ====== ====== ====== Discount rate for expense 6.25% 6.75% 7.25% 5.70% 6.50% 7.10% 6.50% 7.00% 7.50% Assumed long-term rate of return on assets 9.00% 9.00% 9.00% 9.30% 9.20% 9.20% 6.00% 6.20% - Initial health care cost trend rate - - - - - - 7.00% 6.60% 6.60% Ultimate health care cost trend rate - - - - - - 5.00% 5.00% 5.00% Number of years to ultimate trend rate - - - - - - 9 10 10
- - - - - - *Postretirement health care and life insurance benefits Pension expense in 1999 decreased for U.S. plans primarily as a result of increased return on plan assets and the year-to-year change in the cost of special employee separation programs, partially offset by lower discount rates. Pension expense in 1999 increased for non-U.S. plans primarily as a result of lower discount rates and inclusion of Volvo partially offset by increased return on plan assets and year-to-year change in the cost of special employee separation programs. FS-18 NOTE 9. Employee Retirement Benefits (continued) - ------------------------------------- The year-end status of these plans was as follows (in millions):
Pension Benefits -------------------------------------------------- U.S. Plans Non-U.S. Plans Other Benefits* ------------------------ ------------------------ ------------------------ 1999 1998 1999 1998 1999 1998 ----------- ----------- ----------- ----------- ----------- ----------- Change in Benefit Obligation - ---------------------------- Benefit obligation at January 1 $33,535 $30,923 $16,336 $13,311 $ 19,215 $ 17,522 Service cost 662 596 436 354 356 265 Interest cost 2,132 1,999 890 867 1,232 1,183 Amendments 3,113 10 414 26 37 - Special programs 109 278 48 114 52 63 Net aquisitions/(sales) 74 (493) 784 - 37 (130) Plan participant contributions 47 45 67 91 2 - Benefits paid (1,977) (1,869) (699) (660) (922) (846) Foreign exchange translation - - (952) 182 22 (22) Actuarial loss/(gain) (5,371) 2,046 (817) 2,051 (146) 1,180 ------- ------- ------- ------- -------- -------- Benefit obligation at December 31 $32,324 $33,535 $16,507 $16,336 $ 19,885 $ 19,215 ======= ======= ======= ======= ======== ======== Change in Plan Assets - --------------------- Fair value of plan assets at January 1 $39,122 $35,683 $13,255 $11,687 $ 2,001 $ 736 Actual return on plan assets 4,329 5,746 2,134 1,470 74 45 Company contributions 6 2 221 219 132 1,700 Special programs (32) (95) 0 (27) - - Net acquisitions/(sales) 43 (473) 671 - - - Plan participant contributions 47 45 67 91 - - Benefits paid (1,977) (1,869) (699) (660) (530) (480) Foreign exchange translation - - (447) 26 - - Other 71 83 256 449 - - ------- ------- ------- ------- -------- -------- Fair value of plan assets at December 31 $41,609 $39,122 $15,458 $13,255 $ 1,677 $ 2,001 ======= ======= ======= ======= ======== ======== Funded Status of the Plan - ------------------------- Plan assets in excess of/(less than) $ 9,285 $ 5,587 $(1,049) $(3,081) $(18,208) $(17,214) benefit obligations Unamortized: Transition (asset)/obligation (44) (68) 171 744 - - Prior service cost 4,581 1,941 834 507 (38) (119) Net (gains)/losses (12,246) (5,704) (1,058) 650 1,559 1,900 ------- ------- ------- ------- -------- -------- Net amount recognized $ 1,576 $ 1,756 $(1,102) $(1,180) $(16,687) $(15,433) ======= ======= ======= ======= ======== ======== Amounts Recognized in the Balance Sheet Consists of Assets/(Liabilities) - --------------------------------------------- Prepaid assets $ 2,390 $ 2,437 $ 1,070 $ 1,176 $ - $ - Accrued liabilities (1,118) (785) (3,061) (3,780) (16,687) (15,433) Intangible assets 170 16 519 404 - - Deferred income tax 46 34 84 376 - - Accumulated other comprehensive income 88 54 286 644 - - ------- ------- ------- ------- -------- -------- Net amount recognized $ 1,576 $ 1,756 $(1,102) $(1,180) $(16,687) $(15,433) ======= ======= ======= ======= ======== ======== Pension Plans in Which Accumulated Benefit Obligation Exceeds Plan Assets at December 31 - --------------------------------------------- Projected benefit obligation $ 1,109 $ 786 $ 5,731 $ 6,557 Accumulated benefit obligation 1,021 689 5,377 6,141 Fair value of plan assets 54 14 2,845 2,820 Assumptions as of December 31 - ----------------------------- Discount rate 7.75% 6.25% 6.10% 5.70% 7.75% 6.50% Expected return on assets 9.00% 9.00% 9.40% 9.30% 6.00% 6.00% Average rate of increase in compensation 5.20% 5.20% 4.90% 5.10% - - Initial health care cost trend rate - - - - 8.75% 7.00% Ultimate health care cost trend rate - - - - 5.14% 5.00% Number of years to ultimate trend rate - - - - 8 9
- - - - - - *Postretirement health care and life insurance benefits FS-19 NOTE 10. Debt - -------------- The fair value of debt was estimated based on quoted market prices or current rates for similar debt with the same remaining maturities. Automotive Sector - ---------------- Debt at December 31 was as follows (in millions):
Weighted Average Interest Rate* Book Value ----------------------- ----------------------- Maturity 1999 1998 1999 1998 ------------ ----------- ---------- ----------- ----------- Debt payable within one year ---------------------------- Short-term debt 13.4% 9.8% $ 1,152 $ 1,076 Long-term debt payable within one year 450 45 ------- ------- Total debt payable within one year 1,602 1,121 Long-term debt 2001-2097 7.5% 8.0% 10,542 8,713 -------------- ------- ------- Total debt $12,144 $ 9,834 ======= ======= Fair value $13,935 $10,809
- - - - - - *Excludes the effect of interest rate swap agreements; change in 1999 primarily reflects short-term debt in South America. Long-term debt at December 31, 1999 included maturities as follows (in millions): 2000 - $450 (included in current liabilities); 2001 - $180; 2002 - $185; 2003 - $114; 2004 - $236; thereafter - $9,827. Included in long-term debt at December 31, 1999 and 1998 were obligations of $10,152 million and $7,944 million, respectively, with fixed interest rates, and $390 million and $769 million, respectively, with variable interest rates (generally based on LIBOR or other short-term rates). Obligations payable in foreign currencies at December 31, 1999 and 1998 were $619 million and $544 million, respectively. Agreements to manage exposures to fluctuations in interest rates, which include primarily interest rate swap agreements and futures contracts, did not affect the December 31, 1999 and December 31, 1998 overall weighted-average interest rates on long-term debt or the obligations subject to variable interest rates. Financial Services Sector - ------------------------- Debt at December 31 was as follows (in millions):
Weighted Average Interest Rate* Book Value ----------------------- ----------------------- Maturity 1999 1998 1999 1998 ------------ ----------- ----------- ----------- ----------- Debt payable within one year ---------------------------- Unsecured short-term debt $ 1,853 $ 2,998 Commercial paper 44,605 49,429 Other short-term debt 4,970 4,046 -------- -------- Total short-term debt 5.9% 5.6% 51,428 56,473 Long-term debt payable within one year 20,974 10,383 -------- -------- Total debt payable within one year 72,402 66,856 Long-term debt -------------- Secured indebtedness 2001-2021 8.3% 10.2% 3 17 Unsecured senior indebtedness Notes and bank debt 2001-2078 6.4% 6.2% 62,909 50,449 Debentures 2001-2006 3.2% 4.0% 2,142 1,661 Unamortized discount (87) (30) -------- -------- Total unsecured senior indebtedness 64,964 52,080 Unsecured subordinated indebtedness Notes 2001-2020 6.6% 7.7% 2,558 3,381 Unamortized discount (8) (10) -------- -------- Total unsecured subordinated indebtedness 2,550 3,371 -------- -------- Total long-term debt 67,517 55,468 -------- -------- Total debt $139,919 $122,324 ======== ======== Fair value $139,979 $124,320
- - - - - - *Excludes the effect of interest rate swap agreements FS-20 NOTE 10. Debt (continued) - -------------- Information concerning short-term borrowings (excluding long-term debt payable within one year) is as follows (in millions):
1999 1998 1997 ------------ ------------ ------------ Average amount of short-term borrowings $55,096 $49,099 $65,592 Weighted-average short-term interest rates per annum (average year) 5.7% 5.7% 5.3% Average remaining term of commercial paper at December 31 24 days 31 days 30 days
Long-term debt at December 31, 1999 included maturities as follows (in millions): 2000 - $20,974; 2001 - $14,504; 2002 - $12,571; 2003 - $10,149; 2004 - $10,397; thereafter - $19,896. Included in long-term debt at December 31, 1999 and 1998 were obligations of $46.5 billion and $38.1 billion, respectively, with fixed interest rates and $21 billion and $17.3 billion, respectively, with variable interest rates (generally based on LIBOR or other short-term rates). Obligations payable in foreign currencies at December 31, 1999 and 1998 were $31 billion and $30 billion, respectively. These obligations were issued primarily to fund non-U.S. business operations. Outstanding commercial paper at December 31, 1999 totaled $42.1 billion at Ford Credit and $2.5 billion at Hertz, with an average remaining maturity of 25 days and 15 days, respectively. Agreements to manage exposures to fluctuations in interest rates include primarily interest rate swap agreements. At December 31, 1999, these agreements decreased the weighted-average interest rate on long-term debt to 6.2% compared with 6.4% excluding these agreements, and effectively decreased the obligations subject to variable interest rates to $199 million; the weighted-average interest rate on short-term debt excluding these agreements did not change materially. At December 31, 1998, these agreements decreased the weighted-average interest rate on long-term debt to 6%, compared with 6.2% excluding these agreements, and effectively decreased the obligations subject to variable interest rates to zero; the weighted-average interest rate on short-term debt excluding these agreements did not change materially. Support Facilities - ------------------ At December 31, 1999, Ford had long-term contractually committed global credit agreements under which $8.6 billion is available from various banks; 87% are available through June 30, 2004. The entire $8.6 billion may be used, at Ford's option, by any affiliate of Ford; however, any borrowing by an affiliate will be guaranteed by Ford. Ford also has the ability to transfer, on a nonguaranteed basis, $8.3 billion of such credit lines in varying portions to Ford Credit and FCE Bank plc (formerly known as Ford Credit Europe plc). In addition, at December 31, 1999, $336 million of contractually committed credit facilities were available to various Automotive Sector affiliates outside the U.S. Approximately $56 million of these facilities were in use at December 31, 1999. At December 31, 1999, the Financial Services Sector had a total of $26.6 billion of contractually committed support facilities (excluding the $8.3 billion available under Ford's global credit agreements). Of these facilities, $23 billion are contractually committed global credit agreements under which $18.3 billion and $4.6 billion are available to Ford Credit and FCE Bank plc, respectively, from various banks; 54% and 66%, respectively of such facilities are available through June 30, 2004. The entire $18.3 billion may be used, at Ford Credit's option, by any subsidiary of Ford Credit, and the entire $4.6 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 December 31, 1999, $80 million of the Ford Credit global facilities were in use and $165 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 December 31, 1999 consisted of $2.5 billion of contractually committed support facilities available to Hertz in the U.S. and $1.2 billion of contractually committed support facilities available to various affiliates outside the U.S.; at December 31, 1999, approximately $0.8 billion of these facilities were in use. Furthermore, banks provide $1.4 billion of liquidity facilities to support the asset-backed commercial paper program of a Ford Credit sponsored special purpose entity. FS-21 NOTE 11. Capital Stock - ----------------------- At December 31, 1999, all general voting power was vested in the holders of Common Stock and the holders of Class B Stock, voting together without regard to class. At that date, the holders of Common Stock were entitled to one vote per share and, in the aggregate, had 60% of the general voting power; the holders of Class B Stock were entitled to such number of votes per share as would give them, in the aggregate, the remaining 40% of the general voting power, as provided in the company's Restated Certificate of Incorporation. The Restated Certificate of Incorporation provides that all shares of Common Stock and Class B Stock share equally in dividends (other than dividends declared with respect to any outstanding Preferred Stock), except that any stock dividends are payable in shares of Common Stock to holders of that class and in Class B Stock to holders of that class. Upon liquidation, all shares of Common Stock and Class B Stock are entitled to share equally in the assets of the company available for distribution to the holders of such shares. On January 9, 1998, all outstanding shares of Series A Depositary Shares, representing 1/1,000 of a share of Series A Cumulative Convertible Preferred Stock, were redeemed at a price of $51.68 per Depositary Share plus an amount equal to accrued and unpaid dividends. Series B Depositary Shares, representing 1/2,000 of a share of $1.00 par value Series B Cumulative Preferred Stock, have a liquidation preference of $25 per Depositary Share. Shares outstanding at December 31, 1999 numbered 7,096,688 Depositary Shares. Dividends are payable at a rate of $2.0625 per year per Depositary Share. Series B Cumulative Preferred Stock is not convertible into shares of Common Stock of the company. On and after December 1, 2002, and upon satisfaction of certain conditions, the stock is redeemable for cash at the option of Ford, in whole or in part, at a redemption price equivalent to $25 per Depositary Share, plus an amount equal to the sum of all accrued and unpaid dividends. On January 22, 1998, the company commenced an offer to purchase all Depositary Shares representing its Series B Cumulative Preferred Stock at a price of $31.40 per Depositary Share. The offer to purchase was in effect until February 26, 1998. Depositary Shares purchased totaled 13,229,775. The Series B Cumulative Preferred Stock ranks (and any other outstanding Preferred Stock of the company would rank) senior to the Common Stock and Class B Stock in respect of dividends and liquidation rights. Changes to the number of shares of capital stock issued for the periods indicated were as follows (shares in millions):
Preferred Common Class B ------------------------- Stock Stock Series A Series B ------------ ------------ ------------ ------------ Issued at December 31, 1996 1,118 71 0.004 0.010 Changes: 1997 - Conversion of Series A Preferred Stock 4 (0.001) - Employee benefit plans and other 10 1998 - Conversion and Redemption of Series A 8 (0.003) Preferred Stock - Employee benefit plans and other 11 - Repurchase of Series B Preferred Stock (0.006) ----- --- ----- ----- Net change 33 0 (0.004) (0.006) ----- --- ----- ----- Issued at December 31, 1999 1,151 71 0.000 0.004 ===== === ===== ===== Authorized at December 31, 1999 3,000 265 Total Preferred: 30
FS-22 NOTE 12. Stock Options - ----------------------- The company has stock options outstanding under the 1990 Long-Term Incentive Plan and the 1998 Long-Term Incentive Plan. These Plans were approved by the stockholders. No further grants may be made under the 1990 Plan. Grants may be made under the 1998 Plan through April 2008. In general, options granted in 1997 under the 1990 Plan and subsequent years under the 1998 Plan become exercisable 33% after one year from the date of grant, 66% after two years, and in full after three years. In general, options granted prior to 1997 under the 1990 Plan become exercisable 25% after one year from the date of grant, 50% after two years, 75% after three years, and in full after four years. Options under the Plans expire after 10 years from the date of grant. Certain participants were granted accompanying Stock Appreciation Rights under the Plans which may be exercised in lieu of the related options. Under the Plans, a Stock Appreciation Right entitles the holder to receive, without payment, the excess of the fair market value of the Common Stock on the date of exercise over the option price, either in Common Stock or cash or a combination. In addition, grants of Performance/Contingent Stock Rights were made with respect to 1,179,300 shares in 1999, 1,354,627 shares in 1998, and 936,300 shares in 1997. The number of shares ultimately awarded will depend on the extent to which the performance targets specified in each Right is achieved, individual performance of the recipients, and other factors, as determined by the Compensation and Option Committee of the Board of Directors. Under the 1998 Plan, up to 2% of Common Stock issued as of December 31 of any year may be made available for stock options and other plan awards in the next succeeding calendar year. That limit may be increased up to 3% in any year, with a corresponding reduction in shares available for grants in future years. Any unused portion of the 2% limit for any calendar year may be carried forward and made available for Plan awards in succeeding calendar years. At December 31, 1999, the number of unused shares carried forward aggregated to 18,694,278 shares. Information concerning stock options is as follows (shares in millions):
1999 1998 1997 -------------------- -------------------- -------------------- Weighted- Weighted- Weighted- Average Average Average Exercise Exercise Exercise Shares subject to option Shares Price Shares Price Shares Price - ------------------------ --------- ---------- ---------- --------- ---------- ---------- Outstanding at beginning of period 70.9 $25.67 50.0 $28.44 50.3 $26.93 New grants (based on fair value of Common Stock at dates of grant) 14.9 57.84 12.7 58.07 8.6 32.05 Associates adjustment* 24.8 Exercised** (9.1) 20.26 (13.7) 19.97 (8.3) 23.19 Surrendered upon exercise of Stock Appreciation Rights (0.8) 21.14 (2.5) 22.79 (0.4) 22.44 Terminated and expired (0.6) 37.10 (0.4) 33.58 (0.2) 30.86 --- --- --- Outstanding at end of period 75.3*** 32.66 70.9 25.67 50.0 28.44 Outstanding but not exercisable (33.5) (34.9) (21.6) ---- ---- ---- Exercisable at end of period 41.8 23.51 36.0 19.53 28.4 25.84 ==== ==== ====
- - - - - - *Outstanding stock options and related exercise prices were adjusted to preserve the intrinsic value of options as a result of The Associates spin-off in 1998. **Exercised at option prices ranging from $10.43 to $44.75 during 1999, $10.43 to $32.69 during 1998, and $15.00 to $32.69 during 1997. ***Included 43.5 and 31.8 million shares under the 1990 and 1998 Plans, respectively, at option prices ranging from $10.43 to $64.91 per share. At December 31, 1999, the weighted-average remaining exercise period relating to the outstanding options was 6.8 years. FS-23 NOTE 12. Stock Options (continued) - ----------------------- The estimated fair value as of date of grant of options granted in 1999, 1998, and 1997, using the Black-Scholes option-pricing model, was as follows:
1999 1998 1997 ----------- ----------- ----------- Estimated fair value per share of options granted during the year $17.53 $9.25 $5.76 Assumptions: Annualized dividend yield 3.2% 4.1% 4.8% Common Stock price volatility 36.5% 28.1% 22.1% Risk-free rate of return 5.2% 5.7% 6.7% Expected option term (in years) 5 5 5
The company measures compensation cost using the intrinsic value method. Accordingly, no compensation cost for stock options has been recognized. If compensation cost had been determined based on the estimated fair value of options granted since 1995, the company's net income and income per share would have been reduced to the pro forma amounts indicated below:
1999 1998 1997 ---------------------- ---------------------- ----------------------- As Pro As Pro As Pro Reported Forma* Reported Forma* Reported Forma* ----------- ---------- ---------- ----------- ----------- ----------- Net income (in millions) $7,237 $7,129 $22,071 $22,014 $6,920 $6,892 Income per share ---------------- Basic $ 5.99 $ 5.90 $ 18.17 $ 18.12 $ 5.75 $ 5.73 Diluted $ 5.86 $ 5.77 $ 17.76 $ 17.71 $ 5.62 $ 5.60
- - - - - *The pro forma disclosures may not be representative of the effects on reported net income and income per share for future periods because only stock options that were granted beginning in 1995 are included in the above table. The estimated fair value, before tax, of options granted in 1999, 1998, and 1997 was $256 million, $162 million, and $48 million, respectively. NOTE 13. Litigation and Claims - ------------------------------- Various legal actions, governmental investigations and proceedings and claims are pending or may be instituted or asserted in the future against the company and its subsidiaries, including those arising out of alleged defects in the company's products; governmental regulations relating to safety, emissions and fuel economy; financial services; employment-related matters; dealer, supplier and other contractual relationships; intellectual property rights; product warranties; and environmental matters. Certain of the pending legal actions are, or purport to be, class actions. Some of the foregoing matters involve or may involve compensatory, punitive, or antitrust or other treble damage claims in very large amounts, or demands for recall campaigns, environmental remediation programs, sanctions, or other relief which, if granted, would require very large expenditures. Litigation is subject to many uncertainties, and the outcome of individual litigated matters is not predictable with assurance. Reserves have been established by the company for certain of the matters discussed in the foregoing paragraph where losses are deemed probable. It is reasonably possible, however, that some of the matters discussed in the foregoing paragraph for which reserves have not been established could be decided unfavorably to the company or the subsidiary involved and could require the company or such subsidiary to pay damages or make other expenditures in amounts or a range of amounts that cannot be estimated at December 31, 1999. The company does not reasonably expect, based on its analysis, that any adverse outcome from such matters would have a material effect on future consolidated financial statements for a particular year, although such an outcome is possible. NOTE 14. Commitments and Contingencies - -------------------------------------- At December 31, 1999, the company had the following minimum rental commitments under non-cancelable operating leases (in millions): 2000 - $437; 2001 - $346; 2002 - $278; 2003 - $157; 2004 - $107; thereafter- $238. These amounts include rental commitments related to the sale and leaseback of certain automotive sector machinery and equipment. FS-24 NOTE 15. Financial Instruments - ------------------------------- Estimated fair value amounts have been determined using available market information and various valuation methods depending on the type of instrument. In evaluating the fair value information, considerable judgment is required to interpret the market data used to develop the estimates. The use of different market assumptions and/or different valuation techniques may have a material effect on the estimated fair value amounts. Further, it should be noted that fair value at a particular point in time gives no indication of future gain or loss, or what the dimensions of that gain or loss are likely to be. Balance Sheet Financial Instruments - ----------------------------------- Information about specific valuation techniques and estimated fair values is provided throughout the Notes to Financial Statements. Book value and estimated fair value amounts at December 31 were as follows (in millions):
1999 1998 ----------------------- ----------------------- Book Fair Book Fair Fair Value Value Value Value Value Reference ----------- ----------- ----------- ----------- ----------- Automotive Sector ----------------- Marketable securities $ 18,943 $ 18,943 $ 20,120 $ 20,120 Note 2 Debt 12,144 13,935 9,834 10,809 Note 10 Financial Services Sector ------------------------- Marketable securities $ 733 $ 733 $ 968 $ 968 Note 2 Receivables 105,577 106,552 90,010 89,847 Note 3 Debt 139,919 139,979 122,324 124,320 Note 10
Foreign Currency and Interest Rate Instruments - ---------------------------------------------- The fair value of foreign currency and interest rate instruments was estimated using current market rates provided by outside quotation services. The estimated notional amount and fair value at December 31 were as follows (in millions):
Fair Value ---------------------------- 1999 Notional Amount Asset Liability ---- ------------------ -------------- ------------- Interest rate products $125,329 $397 $ 478 Currency products 44,340 674 1,664 1998 ---- Interest rate products 96,061 922 309 Currency products 33,066 721 704
The notional amount represents the contract amount, not the amount at risk. The deferred loss for foreign currency instruments was $285 million at December 31, 1999, compared to a deferred gain of $28 million at December 31, 1998. The deferred loss for 1999 is the sum of unrecognized gains and losses on the underlying transactions or commitments. Counterparty Credit Risk - ------------------------ Ford manages its foreign currency and interest rate counterparty credit risks by limiting exposure to and by monitoring the financial condition of each counterparty. The amount of exposure Ford may have to a single counterparty on a worldwide basis is limited by company policy. In the unlikely event that a counterparty fails to meet the terms of a foreign currency or an interest rate instrument, the company's risk is limited to the fair value of the instrument. Other Financial Agreements - -------------------------- At December 31, 1999, the notional amount of commodity hedging contracts outstanding totaled $2,700 million: the notional amount at December 31, 1998 was $853 million. The company also had guaranteed $586 million of debt of unconsolidated subsidiaries, affiliates and others at December 31, 1999. The risk of loss under these financial agreements is not material. FS-25 NOTE 16. Acquisitions, Dispositions and Restructuring - ------------------------------------------------------ Automotive Sector - ----------------- Acquisitions - ------------ Purchase of AB Volvo's Worldwide Passenger Car Business ("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 to the assets acquired and liabilities assumed based on the 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. Value assigned to identified intangible assets is approximately $400 million and is being amortized on a straight-line basis over periods ranging from 12 to 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. Purchase of Kwik-Fit Holdings plc - During the third quarter of 1999, we completed the purchase of all the outstanding stock of Kwik-Fit Plc ("Kwik-Fit"). Kwik-Fit is Europe's largest independent vehicle maintenance and light repair chain, with over 1,900 outlets in the United Kingdom, Ireland, and continental Europe. The acquisition price was approximately $1.6 billion and consisted of cash payments of approximately $1.4 billion and loan notes to certain Kwik-Fit shareholders of approximately $0.2 billion, redeemable beginning on April 30, 2000 and on any subsequent interest payment date. The purchase price payments 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 June 30, 1999, are included in our financial statements on a consolidated basis. The purchase price for Kwik-Fit has been allocated to the assets acquired and liabilities assumed based on the estimated fair values as of the acquisition date. The excess of the purchase price over the estimated fair value of the net assets acquired is approximately $1.1 billion and is being amortized on a straight-line basis over 30 years. Value assigned to identified intangible assets is approximately $400 million and is being amortized on a straight-line basis over periods ranging from 10 to 30 years. 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 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 Plastic Omnium has been allocated 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 $300 million and is being amortized on a straight-line basis over 20 years. FS-26 NOTE 16. Acquisitions, Dispositions and Restructuring (continued) - ------------------------------------------------------ Assuming the acquisitions described above had taken place on January 1, 1999 and 1998, our total (Automotive and Financial Services) pro forma revenue, net income, and earnings per share for the fourth quarter and twelve months ended December 31, 1999 would not have been materially affected. For the twelve month period ended December 31, 1998, unaudited pro forma revenue would have been $158.7 billion. Net income and earnings per share for this period would not be materially affected. 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). The gain was recorded in the first quarter 1999 and credited to cost of sales. Write-Down of Kia Motors Corporation - ------------------------------------ During the fourth quarter of 1998, Ford recorded a pre-tax charge of $111 million ($86 million after taxes) to write-off its net exposure to Kia Motors Corporation ("Kia"). The write-off of Ford's exposure was recorded in cost of sales. Ford's share of Mazda Motor Corporation's ("Mazda") exposure was recorded in equity in net income of affiliates. Batavia/ZF Friedrichshafen AG Joint Venture - ------------------------------------------- During the fourth quarter of 1998, Ford recorded in cost of sales a pre-tax charge of $112 million ($73 million after taxes) related to the fair value transfer of its Batavia (Ohio) Transmission Plant to a new joint venture company formed by Ford and ZF Friedrichshafen AG of Germany. The new joint venture is reflected in Ford's consolidated financial statements on an equity basis. Restructurings - -------------- Ford recorded a pre-tax charge of $726 million ($472 million after taxes) in the fourth quarter of 1998, reflecting retirement and separation program actions that were completed during 1998 and 1999. These special voluntary and involuntary programs reduced the workforce by 2,184 persons in North America (all salaried), 1,977 in Europe (1,304 hourly and 673 salaried) and 4,650 in South America (4,400 hourly and 250 salaried). The costs were charged to the Automotive segment ($674 million) in cost of sales, Visteon segment ($38 million) in cost of sales, Ford Credit segment ($9 million) in operating and other expenses, and other Financial Services operations ($5 million) in operating and other expenses. Ford recorded a pre-tax charge of $272 million ($169 million after taxes) in the second quarter of 1997, reflecting actions that were completed during 1997 and 1998. These included primarily the discontinuation of passenger car production at the Lorain Assembly Plant resulting in a write-down of surplus assets. The charge also included employee termination costs related to the elimination of a shift at the Halewood (England) Plant, and a loss on the sale of the heavy truck business. Financial Services Sector - ------------------------- Associates First Capital Corporation ("The Associates") - ------------------------------------------------------- During the second quarter of 1998, the company completed a spin-off of Ford's 80.7% (279.5 million shares) interest in The Associates. As a result of the spin-off of The Associates, Ford recorded a gain of $15,955 million in the first quarter of 1998 based on the fair value of The Associates as of the record date, March 12, 1998. The spin-off qualified as a tax-free transaction for U.S. federal income tax purposes. During the second quarter of 1996, The Associates completed an initial public offering ("IPO") of its Common Stock representing a 19.3% economic interest in The Associates. Ford recorded a second quarter 1996 gain of $650 million resulting from the IPO; the gain was not subject to income taxes. FS-27 NOTE 16. Acquisitions, Dispositions and Restructuring (continued) - ----------------------------------------------------- The Hertz Corporation ("Hertz") - ------------------------------- In the second quarter of 1997, Hertz, a subsidiary of Ford, completed an IPO of its Common Stock representing a 19.1% economic interest in Hertz. Ford recorded a second quarter 1997 gain of $269 million resulting from the IPO; the gain was not subject to income taxes. NOTE 17. Cash Flows - ------------------- The reconciliation of net income to cash flows from operating activities is as follows (in millions):
1999 1998 1997 ------------------------ ---------------------- ------------------------- Financial Financial Financial Automotive Services Automotive Services Automotive Services ----------- ------------ ----------- ---------- ------------ ------------ Net income $ 5,721 $ 1,516 $ 4,752 $ 17,319 $ 4,714 $ 2,206 Adjustments to reconcile net income to cash flows from operating activities: Depreciation and amortization 5,895 9,298 5,844 8,624 6,020 7,764 Losses/(earnings) of affiliated companies in excess of dividends remitted (37) 25 82 (2) 127 (1) Provision for credit and insurance losses - 1,465 - 1,798 - 3,230 Foreign currency adjustments 316 - (208) - (27) - Net (purchases)/sales of trading securities 2,316 (157) (5,434) (205) (2,307) 67 Provision for deferred income taxes 278 1,565 421 1,307 908 (102) Gain on spin-off of The Associates (Note 16) - - - (15,955) - - Gain on sale of Common Stock of a subsidiary (Note 16) - - - - - (269) Changes in assets and liabilities: Decrease/(increase) in accounts receivable and other current assets (1,107) (331) 1,027 (1,189) (179) 256 (Increase)/decrease in inventory 893 - (254) - 1,234 - Increase/(decrease) in accounts payable and accrued and other liabilities 2,648 (1,213) 2,915 890 3,772 (240) Other 348 372 477 891 (278) 739 ------- ------- ------- -------- ------- ------- Cash flows from operating activities $17,271 $12,540 $ 9,622 $ 13,478 $13,984 $13,650 ======= ======= ======= ======== ======= =======
The company considers all highly liquid investments purchased with a maturity of three months or less, including short-term time deposits and government, agency and corporate obligations, to be cash equivalents. Automotive sector cash equivalents at December 31, 1999 and 1998 were $3.1 billion and $3.4 billion, respectively; Financial Services sector cash equivalents at December 31, 1999 and 1998 were $1.1 billion and $500 million, respectively. Cash flows resulting from futures contracts, forward contracts and options that are accounted for as hedges of identifiable transactions are classified in the same category as the item being hedged. Purchases, sales and maturities of trading securities are included in cash flows from operating activities. Purchases, sales and maturities of available-for-sale and held-to-maturity securities are included in cash flows from investing activities. Cash paid for interest and income taxes was as follows (in millions):
1999 1998 1997 ----------- ----------- ----------- Interest $8,524 $9,120 $10,430 Income taxes 1,125 1,764 1,289
FS-28 NOTE 18. Segment Information - ----------------------------- Ford adopted Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information, effective with year-end 1998. This standard requires companies to disclose selected financial data by operating segment (defined in Note 1). 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 Ford's 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 Auto- Ford Other Elims/ Auto Fin Svcs motive Visteon Credit Hertz Fin Svcs Other Sector Sector ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- 1999 - ---- Revenues External customer $135,073 $ 2,261 a/ $ 20,020 $ 4,695 $ 866 $ (357) $136,973 $ 25,585 Intersegment 4,514 17,105 340 33 170 (22,162) 0 0 -------- ------- -------- ------- ------- -------- -------- -------- Total Revenues $139,587 $19,366 $ 20,360 $ 4,728 $ 1,036 $(22,519) $136,973 $ 25,585 ======== ======= ======== ======= ======= ======== ======== ======== Income Income before taxes $ 7,467 $ 1,172 $ 2,104 $ 560 $ (85) $ (192) $ 8,447 $ 2,579 Provision for income tax 2,318 422 791 224 (18) (67) 2,673 997 Net income 5,111 735 1,261 336 (15) (191) 5,721 1,516 Other Disclosures Depreciation/amortization $ 5,244 $ 651 $ 7,565 b/ $ 1,357 $ 326 $ 50 $ 5,895 $ 9,298 Interest income 1,584 79 - - - (235) 1,428 - Interest expense 1,488 143 7,193 354 633 (735) 1,397 7,679 Capital expenditures 7,069 876 82 351 157 0 7,945 590 Unconsolidated affiliates Equity in net income 35 47 (25) 0 0 0 82 (25) Investments in 2,539 205 97 0 8 0 2,744 105 Total assets at year-end 100,132 12,506 156,631 10,137 12,427 (15,604) 105,181 171,048 - --------------------------------------------------------------------------------------------------------------------------------- 1998 - ---- Revenues External customer $118,017 $ 1,412 a/ $ 19,095 $ 4,241 $ 1,997 $ (346) $119,083 $ 25,333 Intersegment 3,839 16,350 208 9 272 (20,678) 0 0 -------- ------- -------- ------- ------- -------- -------- -------- Total Revenues $121,856 $17,762 $ 19,303 $ 4,250 $ 2,269 $(21,024) $119,083 $ 25,333 ======== ======= ======== ======= ======= ======== ======== ======== Income Income before taxes $ 5,829 $ 1,116 $ 1,812 $ 465 $16,161 c/ $ 13 $ 6,958 $ 18,438 Provision for income tax 1,739 416 680 188 149 4 2,159 1,017 Net income 4,040 703 1,084 277 16,060 c/ (93) 4,752 17,319 Other Disclosures Depreciation/amortization $ 5,279 $ 565 $ 7,327 b/ $ 1,212 $ 54 $ 31 $ 5,844 $ 8,624 Interest income 1,453 38 - - - (160) 1,331 - Interest expense 1,109 82 6,910 318 1,114 (668) 829 8,036 Capital expenditures 7,252 861 67 317 120 0 8,113 504 Gain on spin-off of The Associates 0 0 0 0 15,955 c/ 0 0 15,955 Unconsolidated affiliates Equity in net income (64) 26 2 0 0 0 (38) 2 Investments in 2,187 214 76 0 0 0 2,401 76 Total assets at year-end 83,390 9,373 137,248 8,873 6,181 (7,520) 88,744 148,801 - --------------------------------------------------------------------------------------------------------------------------------- 1997 - ---- Revenues External customer $121,976 $ 1,217 a/ $ 17,144 $ 3,895 $ 9,653 $ (258) $122,935 $ 30,692 Intersegment 4,749 16,003 201 10 266 (21,229) 0 0 -------- ------- -------- ------- ------- -------- -------- -------- Total Revenues $126,725 $17,220 $ 17,345 $ 3,905 $ 9,919 $(21,487) $122,935 $ 30,692 ======== ======= ======== ======= ======= ======== ======== ======== Income Income before taxes $ 6,257 $ 815 $ 1,806 $ 343 $ 1,708 d/ $ 10 $ 7,082 $ 3,857 Provision for income tax 2,014 305 727 142 550 3 2,322 1,419 Net income 4,196 511 1,031 202 1,205 d/ (225) 4,714 2,206 Other Disclosures Depreciation/amortization $ 5,430 $ 590 $ 6,188 b/ $ 1,088 $ 463 $ 25 $ 6,020 $ 7,764 Interest income 1,228 17 - - - (129) 1,116 - Interest expense 904 82 6,268 316 3,523 (593) 788 9,712 Capital expenditures 7,225 917 49 211 315 0 8,142 575 Gain on Hertz IPO 0 0 0 0 269 d/ 0 0 269 Unconsolidated affiliates Equity in net income (117) 29 1 0 0 0 (88) 1 Investments in 1,756 195 84 0 0 0 1,951 84 Total assets at year-end 82,306 8,471 121,973 7,436 68,348 (9,437) 85,079 194,018
- - - - - - a/ Includes sales to outside fabricators for inclusion in components sold to Ford's Automotive segment. These sales are eliminated in total Automotive sector reporting. b/ Includes depreciation of operating leases only. Other types of Depreciation/amortization for Ford Credit are included in the Elims/Other column. c/ Includes $15,955 non-cash gain (not taxed) on spin-off of The Associates in the first quarter of 1998 (Note 16). d/ Includes $269 gain (not taxed) on Hertz IPO in the second quarter of 1997 (Note 16). FS-29 NOTE 18. Segment Information (continued) - ----------------------------- "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. Data for "Depreciation/amortization" includes depreciation of fixed assets and assets subject to operating leases, amortization of special tools, and amortization of intangible assets. Interest income for the operating segments in the Financial Services sector is reported as "Revenue". Information concerning principal geographic areas was as follows (in millions):
Geographic Areas United All Total ---------------- States Europe Other Company ----------- ----------- ----------- ----------- 1999 ---- External revenues $112,420 $33,182 $16,956 $162,558 Net property 27,738 14,372 7,642 49,752 1998 ---- External revenues $100,597 $27,026 $16,793 $144,416 Net property 25,761 11,018 7,260 44,039 1997 ---- External revenues $105,581 $27,618 $20,428 $153,627 Net property 23,948 9,596 7,090 40,634
FS-30 NOTE 19. Summary Quarterly Financial Data (Unaudited) - ----------------------------------------------------- (in millions, except amounts per share)
1999 1998 ---------------------------------------- ---------------------------------------- First Second Third Fourth First Second Third Fourth Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter --------- --------- --------- ---------- --------- --------- --------- ---------- Automotive Sales $31,933 $35,921 $31,338 $37,781 $29,076 $31,309 $26,494 $32,204 Operating income 2,387 2,898 1,010 2,084 1,806 2,922 777 1,180 Financial Services Revenues 5,952 6,361 6,635 6,637 7,508 5,980 6,146 5,699 Income before income taxes 547 689 742 601 16,813 590 645 390 Total Company Net income $ 1,979 $ 2,338 $ 1,114 $ 1,806 $17,646 $ 2,381 $ 1,001 $ 1,043 Less: Preferred Stock dividend requirements 4 4 4 3 95 4 4 4 ------- ------- ------- ------- ------- ------- ------- ------- Income attributable to Common and Class B Stock $ 1,975 $ 2,334 $ 1,110 $ 1,803 $17,551 $ 2,377 $ 997 $ 1,039 ======= ======= ======= ======= ======= ======= ======= ======= AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK AFTER PREFERRED STOCK DIVIDENDS Basic income $ 1.64 $ 1.93 $ 0.92 $ 1.50 $ 14.48 $ 1.96 $ 0.82 $ 0.86 Diluted income 1.60 1.89 0.90 1.47 14.23 1.91 0.80 0.84 Cash dividends 0.46 0.46 0.46 0.50 0.42 0.42 0.42 0.46
FS-31 PricewaterhouseCoopers LLP 400 Renaissance Center Detroit, MI 48243-1507 Telephone (313)394-6000 Facsimile (313)394-6555 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders Ford Motor Company: In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of income, stockholders' equity and cash flows present fairly, in all material respects, the financial position of Ford Motor Company and Subsidiaries at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/PricewaterhouseCoopers LLP January 24, 2000 FS-32
Supplemental Schedule Ford Motor Company CONDENSED FINANCIAL INFORMATION OF SUBSIDIARY --------------------------------------------- (in millions) FORD CAPITAL B.V. - ----------------- December 31, December 31, 1999 1998 ------------ ------------ Current assets $ 579 $ 621 Noncurrent assets 2,372 2,388 ------ ------ Total assets $2,951 $3,009 ====== ====== Current liabilities $1,088 $ 394 Noncurrent liabilities 1,680 2,430 Minority interests in net assets of subsidiaries 2 15 Stockholder's equity 181 170 ------ ------ Total liabilities and stockholder's equity $2,951 $3,009 ====== ======
1999 1998 1997 -------- -------- -------- Sales and other revenue $2,556 $2,381 $2,527 Operating income 112 73 47 Income before income taxes 65 63 4 Net (loss)/income 34 52 (21)
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. FSS-1 PricewaterhouseCoopers LLP 400 Renaissance Center Detroit, MI 48243-1507 Telephone (313)394-6000 Facsimile (313)394-6555 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors and Stockholders Ford Motor Company: Our audits of the consolidated financial statements of Ford Motor Company and Subsidiaries referred to in our report dated January 24, 2000 in this Annual Report on Form 10-K also included an audit of the financial statement schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction, with the consolidated financial statement of Ford Motor Company and Subsidiaries. /s/PricewaterhouseCoopers LLP January 24, 2000 FSS-2
EXHIBIT INDEX Designation Description Method of Filing - ----------- ----------- ---------------- Exhibit 3-A Restated Certificate of Incorporation, Filed as Exhibit 3.1 to Ford's Quarterly dated April 9, 1998. Report on Form 10-Q for the quarter ended March 31, 1998.* Exhibit 3-B By-Laws as amended Filed as Exhibit 3-B to Ford's Annual through January 1, 1999. Report on Form 10-K for the year ended December 31, 1998.* Exhibit 4 Form of Deposit Agreement dated as of Filed as Exhibit 4-E to Ford's October 29, 1992 among Ford, Registration Statement No. 33-53092.* Chemical Bank, as Depositary, and the holders from time to time of Depositary Shares, each representing 1/2,000 of a share of Ford's Series B Cumulative Preferred Stock. Exhibit 10-A Amended and Restated Profit Filed as Exhibit 10-A to the Registrant's Maintenance Agreement, dated as of Annual Report on Form 10-K for the January 1, 1999, between Ford year ended December 31, 1998.* and Ford Credit. Exhibit 10-B 1985 Stock Option Plan.** Filed as Exhibit 10-D to Ford's Annual Report on Form 10-K for the year ended December 31, 1985.* Exhibit 10-B-1 Amendment dated as of March 8, 1990 Filed as Exhibit 10-C-1 to Ford's to 1985 Stock Option Plan.** Annual Report on Form 10-K for the year ended December 31, 1989.* Exhibit 10-B-2 Amendment to 1985 Stock Option Plan, Filed as Exhibit 4.C to Amendment No. effective as of January 8, 1998.** 1 to Ford's Registration Statement No. 33-9722.* Exhibit 10-C Executive Separation Allowance Plan Filed as Exhibit 10-D to Ford's as amended through December 9, 1993 Annual Report on Form 10-K for the for separations on or after January 1, 1981.** year ended December 31, 1994.* Exhibit 10-D Description of Ford practices regarding Filed as Exhibit 10-I to Ford's club memberships for executives.** Annual Report on Form 10-K for the year ended December 31, 1981.* Exhibit 10-E Description of Ford practices regarding Filed as Exhibit 10-J to Ford's travel expenses of spouses of certain Annual Report on Form 10-K for the executives.** year ended December 31, 1980.* Exhibit 10-F Deferred Compensation Plan for Filed as Exhibit 10-H-1 to Ford's Non-Employee Directors, as amended Annual Report on Form 10-K for the on July 11, 1991.** year ended December 31, 1991.* Exhibit 10-F-1 Amendments to Deferred Compensation Plan Filed as Exhibit 10-G-1 to Ford's for Non-Employee Directors, effective as of Annual Report on Form 10-K for the January 1, 1996.** year ended December 31, 1995.*
EXHIBIT INDEX (continued)
Designation Description Method of Filing - ----------- ----------- ---------------- Exhibit 10-F-2 Amendment to Deferred Compensation Plan Filed as Exhibit 10-G-2 to Ford's for Non-Employee Directors, effective as of Annual Report on Form 10-K for the November 14, 1996.** year ended December 31, 1996.* Exhibit 10-G Benefit Equalization Plan, as Filed as Exhibit 10-H to Ford's amended as of January 1, 1989.** Annual Report on Form 10-K for the year ended December 31, 1994.* Exhibit 10-G-1 Description of Amendments to Benefit Filed as Exhibit 10-H-1 to Ford's Equalization Plan, adopted January 11, Annual Report on Form 10-K for the 1996 and January 25, 1996.** year ended December 31, 1995.* Exhibit 10-H Description of financial counseling Filed as Exhibit 10-N to Ford's services provided to certain executives.** Annual Report on Form 10-K for the year ended December 31, 1983.* Exhibit 10-I Supplemental Executive Retirement Plan, Filed as Exhibit 10-K to Ford's as restated and incorporating amendments Annual Report on Form 10-K for the through December 12, 1995.** year ended December 31, 1995.* Exhibit 10-J Restricted Stock Plan for Non-Employee Filed as Exhibit 10-P to Ford's Directors adopted by the Board of Annual Report on Form 10-K for the Directors on November 10, 1988, year ended December 31, 1988.* and approved by the stockholders at the 1989 Annual Meeting.** Exhibit 10-J-1 Amendment to Restricted Stock Plan for Filed as Exhibit 10.1 to Ford's Non-Employee Directors, effective as of Quarterly Report on Form 10-Q for the August 1, 1996.** quarter ended September 30, 1996.* Exhibit 10-K 1990 Long-Term Incentive Plan, Filed as Exhibit 10-R to Ford's amended as of June 1, 1990.** Annual Report on Form 10-K for the year ended December 31, 1990.* Exhibit 10-K-1 Amendment to 1990 Long-Term Incentive Filed as Exhibit 10-P-1 to Ford's Plan, effective as of October 1, 1990.** Annual Report on Form 10-K for the year ended December 31, 1991.* Exhibit 10-K-2 Amendment to 1990 Long-Term Incentive Filed as Exhibit 10.2 to Ford's Plan, effective as of March 8, 1995.** Quarterly Report on Form 10-Q for the quarter ended March 31, 1995.* Exhibit 10-K-3 Amendment to 1990 Long-Term Filed as Exhibit 10-M-3 to Ford's Incentive Plan, effective as of Annual Report on Form 10-K for the October 1, 1997.** year ended December 31, 1997.* Exhibit 10-K-4 Amendment to 1990 Long-Term Filed as Exhibit 10-M-4 to Ford's Incentive Plan, effective as of Annual Report on Form 10-K for the January 1, 1998.** year ended December 31, 1997.*
-2- EXHIBIT INDEX (continued)
Designation Description Method of Filing - ----------- ----------- ---------------- Exhibit 10-L Description of Matching Gift Program for Filed as Exhibit 10-Q to Ford's Non-Employee Directors.** Annual Report on Form 10-K for the year ended December 31, 1991.* Exhibit 10-M Non-Employee Directors Life Insurance Filed as Exhibit 10-O to Ford's and Optional Retirement Plan Annual Report on Form 10-K for the (as amended as of January 1, 1993).** year ended December 31, 1994.* Exhibit 10-N Description of Non-Employee Directors Filed as Exhibit 10-S to Ford's Accidental Death, Dismemberment and Annual Report on Form 10-K for the Permanent Total Disablement Indemnity.** year ended December 31, 1992.* Exhibit 10-O Agreement dated December 10, 1992 Filed as Exhibit 10-T to Ford's between Ford and William C. Ford.** Annual Report on Form 10-K for the year ended December 31, 1992.* Exhibit 10-P Support Agreement dated as of October 1, Filed as Exhibit 10-T to Ford's 1993 between Ford and FCE Bank. Annual Report on Form 10-K for the year ended December 31, 1993.* Exhibit 10-P-1 Amendment No. 1 dated as of November Filed as Exhibit 10-R-1 to Ford's 15, 1995 to Support Agreement between Annual Report on Form 10-K for the Ford and FCE Bank. year ended December 31, 1995.* Exhibit 10-Q Select Retirement Plan Filed as Exhibit 10-S to Ford's adopted on June 9, 1994.** Annual Report on Form 10-K for the year ended December 31, 1996.* Exhibit 10-R Deferred Compensation Plan, Filed with this Report. amended and restated as of January 1, 2000.** Exhibit 10-S Description of Amendments to Supplemental Filed as Exhibit 10-U to Ford's Executive Retirement Plan and Executive Annual Report on Form 10-K for the Separation Allowance Plan, adopted year ended December 31, 1995.* January 25, 1996.** Exhibit 10-S-2 Description of Amendment to Supplemental Filed as Exhibit 10-U-2 to Ford's Executive Retirement Plan and Executive Annual Report on Form 10-K for the Separation Allowance Plan, effective as of year ended December 31, 1996.* July 1, 1996.** Exhibit 10-S-3 Description of Amendment to Supplemental Filed as Exhibit 10-U-3 to Ford's Executive Retirement Plan adopted Annual Report on Form 10-K for September 10, 1998. ** the year ended December 31, 1998.* Exhibit 10-T Annual Incentive Compensation Plan, Filed with this Report. as amended and restated as of January 1, 2000.**
-3- EXHIBIT INDEX (continued)
Designation Description Method of Filing - ----------- ----------- ---------------- Exhibit 10-U 1998 Long-Term Incentive Plan, Filed as Exhibit 10-W to Ford's effective as of January 1, 1998.** Annual Report on Form 10-K for the year ended December 31, 1997.* Exhibit 10-U-1 Amendment to 1998 Long-Term Incentive Filed as Exhibit 10-W-1 to Ford's Plan, effective as of January 1, 1999.** Annual Report on Form 10-K for the year ended December 31, 1998.* Exhibit 10-U-2 Amendment to 1998 Long-Term Incentive Filed with this Report. Plan, effective as of March 10, 2000.** Exhibit 10-V Agreement dated January 13, 1999 Filed as Exhibit 10-X to Ford's Annual between Ford and Edsel B. Ford II.** Report on Form 10-K for the year ended December 31, 1998.* Exhibit 12 Computation of Ratio of Earnings to Filed with this Report. Combined Fixed Charges and Preferred Stock Dividends. Exhibit 21 List of Subsidiaries of Ford Filed with this Report. as of March 15, 2000. Exhibit 23 Consent of Independent Certified Public Filed with this Report. Accountants. Exhibit 24 Powers of Attorney. Filed with this Report.
- ------------------------- * Incorporated by reference as an exhibit to this Report (file number reference 1-3950, unless otherwise indicated) ** Management contract or compensatory plan or arrangement -4- EX-10.R 2 EXHIBIT 10-R EXHIBIT 10-R FORD MOTOR COMPANY DEFERRED COMPENSATION PLAN (Amended and Restated as of January 1, 2000) 1. Purpose. This Plan, which shall be known as the "Ford Motor Company Deferred Compensation Plan" and is hereinafter referred to as the "Plan", is intended to provide for the deferment of payment of (i) awards of incentive compensation under the Ford Motor Company Annual Incentive Compensation Plan and similar plans, (ii) base salary, (iii) incentive awards payable in cash or stock under the Ford Motor Company 1990 Long-Term Incentive Plan, Ford Motor Company 1998 Long-Term Incentive Plan or any other incentive compensation plan of the Company and (iv) new hire payments. 2. Definitions. As used in the Plan, the following terms shall have the following meanings, respectively: (a) The term "AIC Plan" shall mean the Ford Motor Company Annual Incentive Compensation Pan, as amended. (b) The term "ARC Plan" shall mean the Automotive Rental Corporation Executive Management Incentive Plan, as amended. (c) The term "Committee" shall mean, unless the context otherwise requires, the following as they from time to time may be constituted: (i) The Compensation and Option Committee with respect to all matters affecting any Section 16 Person. (ii) The Deferred Compensation Committee with respect to all matters affecting employees other than Section 16 Persons. (d) The term "Company" when used in the Plan with reference to employment shall include subsidiaries of the Company. (e) The term "Compensation and Option Committee" shall mean the Compensation and Option Committee of the Board of Directors of the Company. (f) The term "Deferred Compensation" shall mean compensation deferred pursuant to paragraph (a), (b), (c) or (d) of Section 5 hereto, and any interest equivalents, 2 dividend equivalents or other earnings or return on such amounts determined in accordance with the Plan. (g) The term "Deferred Compensation Account" with respect to a participant shall mean the book entry account established by the Company for such participant with respect to his or her Deferred Compensation. (h) The term "Deferred Compensation Committee" shall mean the committee comprised of the Vice President - Human Resources, the Group Vice President and Chief Financial Officer and the Vice President - General Counsel or such other persons as may be designated members of such Committee by the Compensation and Option Committee. (i) The term "employee" shall mean any person who is regularly employed by the Company or a subsidiary at a salary (as distinguished from a pension, retirement allowance, severance pay, retainer, commission, fee under a contract or other arrangement, or hourly, piecework or other wage) and is enrolled on the active employment rolls of the Company or a subsidiary, including, but without limitation, any employee who also is an officer or director of the Company or a subsidiary. (j) The term "Ford Stock" shall mean Ford Common Stock. (k) The term "Ford Stock Unit" shall mean a unit having a value based upon Ford Stock. (l) The term "LTI Plan" shall mean the Ford Motor Company 1990 Long-Term Incentive Plan, as amended, the Ford Motor Company 1998 Long-Term Incentive Plan, as amended, or any other long-term incentive plans subsequently adopted by the Company that are substantially similar to such plans. (m) The term "RPM Plan" shall mean the Ford Motor Credit Company Rewarding Performance Management Plan, as amended. (n) The term "SC Plan" shall mean the Ford Motor Company Supplemental Compensation Plan, as amended. (o) The term "Section 16 Person" shall mean any employee who is subject to the reporting requirements of Section 16(a) or the liability provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended. (p) The term "SSIP" shall mean the Company's Savings and Stock Investment Plan for Salaried Employees, as amended. 3 (q) The term "subsidiary" shall mean (i) any corporation a majority of the voting stock of which is owned directly or indirectly by the Company or (ii) any limited liability company a majority of the membership interest of which is owned directly or indirectly by the Company. 3. Administration. Except as otherwise herein expressly provided, the Compensation and Option Committee shall have full power and authority to construe, interpret and administer the Plan. The Compensation and Option Committee shall make all decisions relating to matters affecting any Section 16 Person, but may otherwise delegate any of its authority under the Plan. The Compensation and Option Committee and the Deferred Compensation Committee each may at any time adopt or terminate, and may from time to time amend, modify or suspend such rules, regulations, policies and practices as they in their sole discretion may determine in connection with the administration of, or the performance of their respective responsibilities under, the Plan. 4. Eligibility of Participants; Amounts Deferrable. (a) Participating Subsidiaries and Foreign Location Participants. The Deferred Compensation Committee shall determine the extent to which subsidiaries and employees at foreign locations may participate in the Plan or similar plans and the type and amount of compensation that may be deferred under, or the type and amount of account balances that may be transferred to, the Plan pursuant to this paragraph (a). (b) Annual Incentive Compensation Deferrals Under the AIC Plan and Other Similar Plans. Subject to any limitations determined under paragraph (a) or paragraph (g) of this Section 4, U.S. employees who receive an award or an installment of an award payable in cash under the AIC Plan, are eligible to defer payment under the Plan from 1% to 100%, in 1% increments, of such amount net of applicable taxes, but not less than $1,000, provided that such employees are actively employed by the Company in Leadership Level 1-5 or the equivalent at the time of the election to defer. Notwithstanding the foregoing, the Compensation and Option Committee may in its sole discretion allow deferrals under this paragraph (b) by persons that do not meet the eligibility requirements described above. (c) Base Salary Deferrals. Subject to any limitations determined under paragraph (a) or paragraph (g) of this Section 4, U.S. employees who are eligible to participate in the AIC Plan or the RPM Plan, and who are actively employed by the Company in Leadership Level 1-5 or the equivalent at the time a salary deferral election is made are eligible to defer payment of from 1% to 50% of base salary in 1% increments, provided that the Compensation and Option Committee has determined that base salary deferrals may be made for the employment period covered by such deferral. Notwithstanding the foregoing, the Compensation and Option Committee may impose such additional limitations on eligibility as it deems appropriate in its sole discretion. (d) Deferrals of Incentive Compensation. Subject to any limitations determined under paragraph (a) or paragraph (g) of this Section 4, U.S. employees who are eligible to participate in the AIC Plan or the RPM Plan, and who are actively employed by the Company at the time an election is made to defer payment of an award payable under the LTI Plan or other incentive compensation plan are eligible to defer payment of from 1% to 100%, in 1% increments, of such award net of applicable taxes, but not less than $1,000 or the equivalent value determined at the time of the deferral, provided that the Compensation and Option Committee has determined that deferrals may be made for such awards. Notwithstanding the foregoing, the Compensation and Option Committee may in its sole discretion allow deferrals under this paragraph (d) by persons that do not meet the eligibility requirements described above. (e) Deferral of Awards under SC Plan. Notwithstanding anything in the Plan to the contrary, deferrals of awards of supplemental compensation made under the SC Plan for years 1995-1997 shall be governed by the same provisions of the Plan that apply to awards of incentive compensation under the AIC Plan. Any references to the AIC Plan shall be deemed to cover awards under the SC Plan. (f) Deferral of New Hire Payments. Notwithstanding anything contained in the Plan to the contrary, subject to any limitations determined under paragraph (a) or paragraph (e) of this Section 4, newly hired U.S. employees who are eligible to participate in the AIC Plan or the RPM Plan, and who received an employment offer from the Company that included a new hire payment in cash are eligible to defer payment from 1% to 100%, in 1% increments, of such new hire payment net of applicable taxes, but not less than $1,000, provided that such employees are actively employed by the Company in Leadership Level 1-5 or the equivalent at the time the new hire payment would otherwise be payable in the absence of such deferral. (g) Eligibility of Compensation and Option Committee Members. No person while a member of the Compensation and Option Committee shall be eligible to participate under the Plan. (h) Transfer of Deferral Accounts from SC Plan. Effective as of the close of business on October 16, 1998, all outstanding book entry accounts maintained under the SC Plan in the form of contingent credits for cash and/or Ford Common Stock shall be transferred to the Plan and governed by the provisions of the Plan. Upon such transfer, contingent credits for cash shall be valued based on the Fidelity Retirement Money Market Portfolio and contingent credits for Ford Common Stock shall be valued based on the Ford Stock Fund until such time, if any, as all or any part of such amounts are transferred by the applicable participants to other investment options available under the Plan. Ultimate payout of a transferred deferral account shall be in cash, except that, to the extent that the transferred account is valued based on the Ford Stock 5 Fund, the participant may make an election prior to the transfer of the account to receive the ultimate payout in whole shares of Common Stock. 5. Deferral Elections. (a) Annual Incentive Compensation Deferrals. A participant's decision to defer payment of annual incentive compensation under paragraph (b) of Section 4 under the Plan must be made prior to October 31 of the performance year for which the compensation is determined. (b) Base Salary Deferrals. A participant's decision to defer payment of base salary under the Plan must be made prior to the calendar year during which the base salary will be earned; provided, however, that such decision may be made with respect to base salary earned during the first calendar year that base salary deferrals are permitted under the Plan within thirty days of implementation of the base salary component of the Plan but prior to earning any such salary. (c) Incentive Compensation Deferrals. Subject to the limitations set forth in Section 4 hereof, the Compensation and Option Committee shall determine the required timing for participants to make elections to defer payment of awards payable only in cash under the LTI Plan or other incentive compensation plan. (d) New Hire Payment Deferrals. A participant's decision to defer payment of a new hire payment must be made no later than the day the payment would otherwise be made. (e) Mandatory Deferrals. The Compensation and Option Committee may mandatorily defer payment under the Plan of a portion of certain annual incentive compensation awards pursuant to the AIC Plan. The Compensation and Option Committee may determine the extent to which it may mandatorily defer payment under the Plan of compensation payable only in cash under the LTI Plan or other incentive compensation plan. (f) Deferred Compensation Accounts. Amounts deferred pursuant to paragraphs (a), (b), (c), (d) or (e) of Section 5, and deferral amounts relating to any transfer to the Plan pursuant to paragraph (h) of Section 4, will be credited by book entry to the participant's Deferred Compensation Account. All such amounts shall be held in the general funds of the Company. Each participant shall have the status of an unsecured general creditor of the Company with respect to his or her Deferred Compensation Account. The participant shall designate the percentage of the amount elected for deferral to be allocated to each investment option available under the Plan for purposes of accounting only and not for actual investment. In addition, with respect to any particular deferral under the Plan, the participant shall elect (i) the year in which distribution shall be made or distribution upon retirement and (ii) the method of 6 distribution desired with respect to any such deferral election if the participant elected distribution upon retirement, i.e., in a lump sum payment or in up to ten annual installments. 6. Investment Options; Methodology; No Ownership Rights. (a) General. Unless otherwise delegated to the Deferred Compensation Committee, the Compensation and Option Committee has the sole discretion to determine the investment options available as the measurement mechanism for deferrals and redesignations under the Plan, the manner and extent to which elections may be made, the method of valuing the various investment options and the Deferred Compensation Accounts and the method of crediting the Deferred Compensation Accounts with, or making other adjustments as a result of, dividend equivalents, interest equivalents or other earnings or return on such Accounts. (b) Investment Options. Unless otherwise determined by the Compensation and Option Committee, the investment options available as the measurement mechanism for deferrals and redesignations under the Plan shall be some or all of those provided in the Company's SSIP. (c) Methodology. Unless otherwise determined by the Compensation and Option Committee, the methodology for valuing the various investment options and the Deferred Compensation Accounts and for calculating amounts to be credited or debited or other adjustments to any Deferred Compensation Account with respect to any investment options shall be the same as that used under the SSIP. (d) No Ownership Rights. Investment options available under the Plan shall be used solely for measuring the value of Deferred Compensation Accounts and accounting, on a book entry basis, as if the deferred amounts had been invested in actual investments, but no such investments shall be made on behalf of participants. Participants shall not have any voting rights or any other ownership rights with respect to the investment options selected as the measuring mechanism for their Deferred Compensation Accounts. 7. Redesignation Within a Deferred Compensation Account. (a) General. Except as otherwise provided in paragraph (f) of this Section 7, a participant or the beneficiary or legal representative of a deceased participant, may redesignate amounts credited to a Deferred Compensation Account among the investments available under the Plan. No redesignations relating to a particular deferral may occur on or after the scheduled distribution date for the deferral under the Plan. 7 (b) Eligible Participants. Active employees and retired participants are eligible to redesignate. (c) Permitted Frequency. Redesignations may be made at the same frequency as transfers may be made under the SSIP. (d) Amount of Redesignation. Any redesignation relating to a particular deferral shall be in a specified percentage or dollar amount of the investment option from which the redesignation is being made. (e) Timing. Redesignation shall occur on the day the participant's written redesignation election form or telephonic election is received by the Company or its agent designated for this purpose; provided, however, that if such redesignation request is received after 4 p.m. Eastern Time, or on a day that is not a business day (i.e., a day that either the Company's World Headquarters offices in Dearborn, Michigan or the principal offices of its designated agent are not open to the public for business), then such redesignation shall be effective on the next business day. (f) Limitations on Redesignations Involving Ford Stock Units. The Committee in its sole discretion at any time may rescind a redesignation in or out of Ford Stock Units if such redesignation was made by a participant who (i) at the time of the redesignation the Committee believes was in the possession of material, nonpublic information with respect to the Company and (ii) in the Committee's estimation benefited from such information by the timing of his or her redesignation. In the event of a rescission, the participant's Deferred Compensation Account shall be restored to a status as though such redesignation had not occurred. 8. Adjustments. In the event of a reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation, rights offering or any other change in the corporate structure of the Company or shares of Ford Stock or units of any other investment option provided under the Plan, the Compensation and Option Committee shall make such adjustments, if any, as it may deem appropriate in the number of Ford Stock Units, shares of Ford Stock represented by Ford Stock Units or shares or units of other investment options credited to participants' Deferred Compensation Accounts. 9. Distribution of Deferred Compensation; Financial Hardship. (a) General. Except as otherwise provided in paragraph (b) of this Section 9 or in Section 11, or as otherwise determined by the Committee, distribution of all or any part of a participant's Deferred Compensation Account shall be made on, or as soon thereafter as practicable, (i) March 15 of the year selected by the participant for distribution with respect to the particular deferral if the participant is an active employee of the Company on the distribution 8 date, (ii) the March 15 following death or termination for reasons other than retirement, notwithstanding any prior selection by the participant of a subsequent year for distribution with respect to the particular deferral, (iii) the March 15 following retirement if the participant selected distribution upon retirement with respect to the particular deferral and a lump sum distribution was selected, or if the participant selected a particular year for distribution with respect to the particular deferral but retired prior to the year selected, or (iv) the March 15 following retirement with respect to the first annual installment and continuing on the applicable number of consecutive anniversaries of such date if no more than ten annual installments were selected by the participant with respect to the particular deferral. Unless otherwise determined by the Committee, a Deferred Compensation Account or part thereof relating to a particular distribution shall be valued, for purposes of the distribution, as of the following applicable date or as soon thereafter as practicable: March 15 of the year of distribution or the next preceding day for which valuation information is available. (b) Financial Hardship. At the written request of a participant, the Committee, in its sole discretion, may authorize the cessation of deferrals under the Plan by such participant and distribution of all or any part of the participant's Deferred Compensation Account prior to his or her scheduled distribution date or dates, or accelerate payment of any installment payable with respect to Deferred Compensation, upon a showing of unforeseeable emergency by the participant. For purposes of this paragraph, "unforeseeable emergency" shall mean severe financial hardship resulting from extraordinary and unforeseeable circumstances arising as a result of one or more recent events beyond the control of the participant. In any event, payment shall not be made to the extent such emergency is or may be relieved (i) through reimbursement or compensation by insurance or otherwise, (ii) by liquidation of the participant's assets, to the extent the liquidation of such assets would not itself cause severe financial hardship and (iii) by cessation of deferrals under the Plan. Withdrawals of amounts because of unforeseeable emergency shall only be permitted to the extent reasonably necessary to satisfy the emergency. Examples of what are not considered to be unforeseeable emergencies include the need to send a participant's child to college or the desire to purchase a home. The Committee shall determine the applicable distribution date and the date as of which the amount to be distributed shall be valued with respect to any financial hardship withdrawal or distribution made pursuant to this paragraph (b) of this Section 9. Any participant whose deferrals have ceased under the Plan pursuant to this paragraph may not elect to recommence deferrals until the next applicable deferral period. 10. Designation of Beneficiaries and Effect of Death. (a) Designation of Beneficiaries. A participant may file with the Company a written designation of a beneficiary or beneficiaries (subject to such limitations as to the classes and number of beneficiaries and contingent beneficiaries and such other limitations as the Compensation and Option Committee from time to time may prescribe) to receive, in the event 9 of the death of the participant, undistributed amounts of Deferred Compensation that would have been payable to such participant had he or she been living. A participant shall be deemed to have designated as beneficiary or beneficiaries under the Plan the person or persons who receive such participant's life insurance proceeds under the Company-paid basic Life Insurance Plan unless such participant shall have assigned such life insurance or shall have filed with the Company a written designation of a different beneficiary or beneficiaries under the Plan. A participant may from time to time revoke or change any such designation of beneficiary and any designation of beneficiary under the Plan shall be controlling over any testamentary or other disposition; provided, however, that if the Committee shall be in doubt as to the right of any such beneficiary to receive any such payment, or if applicable law requires the Company to do so, the same may be paid to the legal representatives of the participant, in which case the Company, the Committee and the members thereof shall not be under any further liability to anyone. (b) Distribution Upon Death. Subject to the provisions of Section 9 hereof, in the event of the death of any participant prior to distribution of all or part of such participant's Deferred Compensation Account, the total value of such participant's entire Deferred Compensation Account shall be distributed in cash, except as otherwise provided in paragraph (h) of Section 4, in one lump sum in accordance with paragraph (a) of Section 9 to any beneficiary or beneficiaries designated or deemed designated by the participant pursuant to paragraph (a) of this Section 10 who shall survive such participant (to the extent such designation is effective and enforceable at the time of such participant's death) or, in the absence of such designation or such surviving beneficiary, or if applicable law requires the Company to do so, to the legal representative of such person, at such time (or as soon thereafter as practicable) and otherwise as if such person were living and had fulfilled all applicable conditions as to earning out set forth in, or established pursuant to the Plan, provided such conditions shall have been fulfilled by such person until the time of his or her death. 11. Effect of Inimical Conduct. Anything contained in the Plan notwithstanding, all rights of a participant under the Plan to receive distribution of all or any part of his or her Deferred Compensation Account shall cease on and as of the date on which it has been determined by the Committee that such participant at any time (whether before or subsequent to termination of such participant's employment) acted in a manner inimical to the best interests of the Company. 12. Limitations. A participant shall not have any interest in any Deferred Compensation credited to his or her Deferred Compensation Account until it is distributed in accordance with the Plan. All amounts deferred under the Plan shall remain the sole property of the Company, subject to the claims of its general creditors and available for use for whatever purposes are desired. With respect to Deferred Compensation, a participant shall be merely a general creditor of the Company and the obligation of the Company hereunder shall be purely contractual and shall not be funded or secured in any way. The Plan shall not constitute part of 10 any participant's or employee's employment contract with the Company or any participating subsidiary. Participation in the Plan shall not create or imply a right to continued employment. 13. Annual Statements of Account. Account statements shall be sent to participants as soon as practicable following the end of each year as to the balances of their respective Deferred Compensation Accounts as of the end of the previous calendar year. 14. Withholding of Taxes. The Company shall have the right to withhold an amount sufficient to satisfy any federal, state or local income taxes or FICA or medicare taxes that the Company may be required by law to pay with respect to any Deferred Compensation Account, including withholding payment from a participant's current compensation. 15. No Assignment of Benefits. No rights or benefits under the Plan shall, except as otherwise specifically provided by law, be subject to assignment (except for the designation of beneficiaries pursuant to paragraph (a) of Section 10), nor shall such rights or benefits be subject to attachment or legal process for or against a participant or his or her beneficiary or beneficiaries, as the case may be. 16. Administration Expense. The entire expense of offering and administering the Plan shall be borne by the Company and its participating subsidiaries. 17. Amendment, Modification, Suspension and Termination of the Plan; Rescissions and Corrections. The Compensation and Option Committee, at any time may terminate, and at any time and from time to time, and in any respect, may amend or modify the Plan or suspend any of its provisions; provided, however, that no such amendment, modification, suspension or termination shall, without the consent of a participant, adversely affect such participant's rights with respect to amounts credited to or accrued in his or her Deferred Compensation Account. The Committee at any time may rescind or correct any deferrals or credits to any Deferred Compensation Account made in error or that jeopardize the intended tax status or legal compliance of the Plan. 18. Indemnification and Exculpation. (a) Indemnification. Each person who is or shall have been a member of the Compensation and Option Committee or a member of the Deferred Compensation Committee shall be indemnified and held harmless by the Company against and from any and all loss, cost, liability or expense that may be imposed upon or reasonably incurred by such person in connection with or resulting from any claim, action, suit or proceeding to which such person may be or become a party or in which such person may be or become involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by such person in settlement thereof (with the Company's written approval) or paid by such person 11 in satisfaction of a judgment in any such action, suit or proceeding, except a judgment in favor of the Company based upon a finding of such person's lack of good faith; subject, however, to the condition that upon the institution of any claim, action, suit or proceeding against such person, such person shall in writing give the Company an opportunity, at its own expense, to handle and defend the same before such person undertakes to handle and defend it on such person's behalf. The foregoing right of indemnification shall not be exclusive of any other right to which such person may be entitled as a matter of law or otherwise, or any power that the Company may have to indemnify or hold such person harmless. (b) Exculpation. Each member of the Compensation and Option Committee and each member of the Deferred Compensation Committee shall be fully justified in relying or acting in good faith upon any information furnished in connection with the administration of the Plan or any appropriate person or persons other than such person. In no event shall any person who is or shall have been a member of the Compensation and Option Committee or a member of the Deferred Compensation Committee be held liable for any determination made or other action taken or any omission to act in reliance upon any such information, or for any action (including the furnishing of information) taken or any failure to act, if in good faith. 19. Finality of Determinations. Each determination, interpretation or other action made or taken pursuant to the provisions of the Plan by the Compensation and Option Committee or the Deferred Compensation Committee shall be final and shall be binding and conclusive for all purposes and upon all persons, including, but without limitation thereto, the Company, its stockholders, the Compensation and Option Committee and each of the members thereof, the Deferred Compensation Committee and each of the members thereof, and the directors, officers, and employees of the Company, the Plan participants, and their respective successors in interest. 20. Governing Law. The Plan shall be governed by and construed in accordance with the laws of the State of Michigan. EX-10.T 3 EXHIBIT 10-T EXHIBIT 10-T FORD MOTOR COMPANY ANNUAL INCENTIVE COMPENSATION PLAN (Amended and Restated as of January 1, 2000) 1. Purpose. This Plan, which shall be known as the "Ford Motor Company Annual Incentive Compensation Plan" and is hereinafter referred to as the "Plan", is intended to provide annual incentive compensation to Plan participants based on the achievement of established performance objectives. 2. Definitions. As used in the Plan, the following terms shall have the following meanings, respectively: (a) The term "Affiliate" shall mean, as applied with respect to any person or legal entity specified, a person or legal entity that directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, the person or legal entity specified. (b) The term "Annual Incentive Compensation Committee" shall mean the committee comprised of two or more officers of the Company designated members of such Committee by the Compensation and Option Committee. (c) The term "Award" shall mean the cash compensation awarded under the Plan with respect to a Performance Period to a participant eligible under Section 5(b). (d) The term "Committee" shall mean, unless the context otherwise requires: (i) The Compensation and Option Committee for all matters affecting any Section 16 Person. (ii) The Annual Incentive Compensation Committee for all matters affecting employees other than Section 16 Persons. (e) The term "Company" or "Ford" generally shall mean Ford Motor Company. When used in the Plan with respect to employment, the term "Company" shall include subsidiaries of the Company. (f) The term "Compensation and Option Committee" shall mean the Compensation and Option Committee of the Board of Directors of the Company. (g) The term "Covered Employee" shall mean a Key Employee who is a "covered employee" within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended. (h) The term "DC Plan" shall mean the Company's Deferred Compensation Plan, as amended. 2 (i) The term "Employee'" shall mean any person who is regularly employed by the Company or one of its Subsidiaries at a salary (as distinguished from a pension, retirement allowance, severance pay, retainer, commission, fee under a contract or other arrangement, or hourly, piecework or other wage) and is enrolled on the active employment rolls of the Company or a Subsidiary in Leadership Level 1-5 or the equivalent, including, but without limitation, any employee who also is an officer or director of the Company or one of its Subsidiaries. (j) The term "Exceptional Contribution Fund" shall mean, with respect to Awards for a Performance Period, the dollar amount designated by the Compensation and Option Committee pursuant to Section 13 for purposes of increasing the amount of Awards to be made to participants who are not Covered Employees based on exceptional individual, unit, group or Company performance. (k) The term "Key Employee" shall mean an Employee of the Company determined by the Committee to be a Key Employee for purposes of the Plan. (l) The term "Maximum Award Pool" shall mean the maximum aggregate amount of all Awards which may be made to participants for a Performance Period determined by the Compensation and Option Committee pursuant to Section 12. (m) The term "Maximum Individual Award" shall mean the maximum amount of an Award to a Covered Employee for a Performance Period, as set forth in Section 10. (n) The term "participant" shall mean a Key Employee selected by the Committee to participate in the Plan for a Performance Period. (o) The term "Performance Criteria" shall mean, with respect to any Award for a Performance Period that may be made to a participant who is a Covered Employee, one or more of the following objective business criteria established by the Compensation and Option Committee with respect to the Company and/or any Subsidiary, division, business unit or component thereof upon which the Performance Goals for a Performance Period are based: asset charge, asset turnover, automotive return on sales, capacity utilization, capital employed in the business, capital spending, cash flow, cost structure improvements, complexity reductions, customer loyalty, diversity, earnings growth, earnings per share, economic value added, environmental health and safety, facilities and tooling spending, hours per vehicle, increase in customer base, inventory turnover, market price appreciation, market share, net cash balance, net income, net income margin, net operating cash flow, operating profit margin, order to delivery time, plant capacity, process time, profits before tax, quality/customer satisfaction, return on assets, return on capital, return on equity, return on net operating assets, return on sales, revenue growth, sales margin, sales volume, total shareholder return, vehicles per employee, warranty performance to budget, variable margin and working capital. The term "Performance Criteria" shall mean, with respect to any Award that may be made to a participant who is not a Covered Employee, one or more of the business criteria applicable to Covered Employees for the Performance Period and any other criteria based on individual, business unit, group or Company performance selected by the Compensation and Option Committee. 3 (p) The term "Performance Goals" shall mean the one or more goals established by the Compensation and Option Committee based on one or more Performance Criteria pursuant to Section 7 for the purpose of measuring performance in determining the amount, if any, of an Award for a Performance Period. (q) The term "Performance Formula" shall mean, with respect to a Performance Period, the one or more objective formulas established by the Compensation and Option Committee pursuant to Section 7 and applied against the Performance Goals in determining whether and the extent to which Awards have been earned for the Performance Period. (r) The term "Performance Period" or "Period" shall mean, with respect to which a particular Award may be made under the Plan, the Company's fiscal year or other twelve consecutive month period designated by the Compensation and Option Committee for the purpose of measuring performance against Performance Goals. (s) The term "Pro Forma Award Amount" shall mean, with respect to an Award to be made for a Performance Period, the amount determined by the Committee pursuant to Section 9. (t) The term "SC Plan" shall mean the Company's Supplemental Compensation Plan, as amended. (u) The term "Section 16 Person" shall mean any employee who is subject to the reporting requirements of Section 16(a) or the liability provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended. (v) The term "Subsidiary" shall mean (i) any corporation a majority of the voting stock of which is owned or controlled, directly or indirectly, by the Company or (ii) any limited liability company a majority of the membership interest of which is owned or controlled, directly or indirectly, by the Company. (w) The term "Target Award" shall mean, with respect to a Performance Period, the Target Award amount established for each applicable Leadership Level, band or other group of participants by the Committee pursuant to Section 6 hereof. (x) The term "Total Pro Forma Award Pool" shall mean, with respect to Awards for a Performance Period, the amount described in Section 11. 3. Effective Date. The Plan shall be effective as of January 1, 1998. 4. Administration. Except as otherwise expressly provided, the Compensation and Option Committee shall have full power and authority to construe, interpret and administer the Plan. The Compensation and Option Committee shall make all decisions relating to matters affecting Section 16 Persons, but may otherwise delegate any of its authority under the Plan. The Compensation and Option Committee and the Annual Incentive Compensation Committee each may at any time adopt or terminate, and may from time to time, amend, modify or suspend such rules, regulations, policies and practices 4 as they in their sole discretion may determine in connection with the administration of, or the performance of their respective responsibilities under, the Plan. 5. Eligibility. (a) Eligibility to Participate. All Key Employees are eligible to be selected to participate in the Plan. The Committee shall, in its sole discretion, designate which Key Employees will be participants for the applicable Performance Period. (b) Eligibility for Awards. An Award with respect to a Performance Period may be made pursuant to Section 14 of the Plan to (i) participants for such Performance Period who shall have been an employee at any time during such Performance Period, or to (ii) the beneficiary or beneficiaries or legal representatives, as the Committee in its sole discretion shall determine, of any such person whose employment shall have been terminated by reason of his or her death during such Performance Period. (c) Eligibility of Compensation and Option Committee Members. No person while a member of the Compensation and Option Committee shall be eligible to participate under the Plan or receive an Award. 6. Determination of Target Awards. Within 90 days of the commencement of a Performance Period, the Committee shall establish the Target Award for each applicable Leadership Level, band or other group of Key Employees selected to participate in the Plan with respect to a Performance Period, subject to any limitations established by the Compensation and Option Committee. The fact that a Target Award is established for a participant's Leadership Level, band or other group for a Performance Period shall not entitle such participant to receive an Award. 7. Selection of Performance Criteria and Establishment of Performance Goals and Performance Formula; Minimum Threshold Objective. Within 90 days of the commencement of a Performance Period, the Compensation and Option Committee shall select the Performance Criteria and establish the related Performance Goals be used to measure performance for a Performance Period and the Performance Formula to be used to determine what portion, if any, of an Award has been earned for the Performance Period. The Performance Criteria may be expressed in absolute terms or relate to the performance of other companies or to an index. Within that same 90 day period, the Compensation and Option Committee may establish a minimum threshold objective for any Performance Goal for any Performance Period, which if not met, would result in no Award being made to any participant with such Performance Goal for such Performance Period. 8. Adjustments to Performance Goals, Performance Formula or Performance Criteria. For purposes of determining Awards for participants who are not Covered Employees, the Compensation and Option Committee may adjust or modify any of the Performance Goals, Performance Formula and/or the Performance Criteria for any Performance Period in order to prevent the dilution or enlargement of the rights of such participants under the Plan (i) in the event of, or in anticipation of, any unusual or extraordinary item, transaction, event or development, (ii) in recognition of, or in anticipation of, any other unusual or nonrecurring event affecting the Company or the 5 financial statements of the Company or Ford Credit, or in anticipation of, changes in applicable laws, regulations, accounting principles or business conditions, and (iii) for any other reason or circumstance deemed relevant to the Compensation and Option Committee in its sole discretion. 9. Determination of Pro Forma Award Amount. As soon as practicable following the end of a Performance Period, the Committee shall determine the Pro Forma Award Amount for any Award to be made to a participant for a Performance Period by applying the applicable Performance Formula for the participant for the Performance Period against the accomplishment of the related Performance Goals for such participant. 10. Maximum Individual Award for Covered Employees. The Maximum Individual Award for a Performance Period to a participant who is a Covered Employee is $10,000,000. 11. Total Pro Forma Award Pool. The Total Pro Forma Award Pool for all Awards for a Performance Period shall equal the sum of the Pro Forma Award Amounts for all participants for the Performance Period. 12. Determination of Maximum Award Pool. The Compensation and Option Committee shall determine the amount of the Maximum Award Pool for a Performance Period which shall not exceed the sum of the Total Pro Forma Award Pool plus the amount of the Exceptional Contribution Fund for such Period. 13. Determination of Exceptional Contribution Fund. The Compensation and Option Committee shall determine the amount of the Exceptional Contribution Fund which may be used for increasing the size of Awards for a Performance Period above the applicable Pro Forma Award Amount to participants who are not Covered Employees. Unless otherwise determined by the Compensation and Option Committee, the amount of the Exceptional Contribution Fund shall not exceed 15% of the Total Pro Forma Award Pool for the applicable Performance Period. 14. Determination of Individual Awards. Subject to achievement of any applicable minimum threshold objectives established under Section 7, fulfillment of the conditions set forth in Section 17 and compliance with the Maximum Individual Award limitation under Section 10 and the eligibility requirements set forth in paragraph (b) of Section 5, the Committee shall, as soon as practicable following the end of a Performance Period, determine the amount of each Award to be made to a participant under the Plan for the Performance Period, which amount shall, except as otherwise provided below, be the Pro Forma Award Amount determined for such participant for such Period pursuant to Section 9. The Committee may in its sole discretion reduce the amount of any Award that otherwise would be awarded to any participant for any Performance Period. In addition, the Committee may in its sole discretion increase the amount of any Award that otherwise would be awarded to any participant who is not a Covered Employee for a Performance Period to an amount that is higher than the applicable Pro Forma Award Amount based on exceptional individual, unit, group or Company performance; provided, however, that the total amount of all Awards made for a Performance Period shall not exceed the related Maximum Award Pool. Individual Award amounts may be less than or greater than 100% 6 of the related Target Award. The determinations by the Annual Incentive Compensation Committee of individual Award amounts for Employees who are not Section 16 Persons shall be subject to a maximum funding amount and any other limitations specified by the Compensation and Option Committee. Notwithstanding anything contained in the Plan to the contrary, the Committee may determine in its sole discretion not to make an Award to a particular participant or to all participants selected to participate in the Plan for any Performance Period. 15. Distribution and Form of Awards. (a) General. Except as otherwise provided in paragraph (b) or (c) of this Section 15 or in Section 17, distribution of Awards for a Performance Period shall be made on or as soon as practicable after the distribution date for such Awards determined by the Compensation and Option Committee, which date shall in no event be later than the March 15 following the end of the applicable Performance Period, and shall be payable in cash. (b) Deferral of Awards. Subject to the terms, conditions and eligibility requirements of the DC Plan, Key Employees who receive an Award under the Plan are eligible to defer payment of all or part of such Award under the DC Plan under the same terms as if such Award had been an award of supplemental compensation made under the SC Plan. (c) Mandatory Deferral of Awards. The Compensation and Option Committee shall determine whether and the extent to which any Awards under the Plan will be mandatorily deferred and the terms of any such deferral. Unless otherwise determined by the Compensation and Option Committee, Awards may be mandatorily deferred by such Committee in the same manner as if they had been awards of supplemental compensation made under the SC Plan. 16. Designation of Beneficiaries and Effect of Death. (a) Designation of Beneficiaries. A participant may file with the Company a written designation of a beneficiary or beneficiaries (subject to such limitations as to the classes and number of beneficiaries and contingent beneficiaries and such other limitations as the Compensation and Option Committee from time to time may prescribe) to receive, in the event of the death of the participant, undistributed amounts of any Award that would have been payable to such participant had he or she been living and that was not deferred under any Company deferral arrangement or plan. A participant shall be deemed to have designated as beneficiary or beneficiaries under the Plan the person or persons who receive such participant's life insurance proceeds under the basic Company Life Insurance Plan unless such participant shall have assigned such life insurance or shall have filed with the Company a written designation of a different beneficiary or beneficiaries under the Plan. A participant may from time to time revoke or change any such designation of beneficiary and any designation of beneficiary under the Plan shall be controlling over any testamentary or other disposition; provided, however, that if the Committee shall be in doubt as to the right of any such beneficiary to receive any such payment, or if applicable law requires the Company to do so, the same may be paid to the legal representatives of 7 the participant, in which case the Company, the Committee and the members thereof shall not be under any further liability to anyone. (b) Distribution Upon Death. Subject to the provisions of Section 15, paragraph (a) of this Section 16 and, if applicable, the DC Plan or any other deferral plan or arrangement, in the event of the death of any participant prior to distribution of an Award, the total value of such participant's Award shall be distributed in cash in one lump sum in accordance with paragraph (a) of Section 15 to any beneficiary or beneficiaries designated or deemed designated by the participant pursuant to paragraph (a) of this Section 16 who shall survive such participant (to the extent such designation is effective and enforceable at the time of such participant's death) or, in the absence of such designation or such surviving beneficiary, or if applicable law requires the Company to do so, to the legal representative of such person, at such time (or as soon thereafter as practicable) and otherwise as if such person were living and had fulfilled all applicable conditions as to earning out set forth in, or established pursuant to Section 17 and, if applicable, the DC Plan or any other deferral plan or arrangement, provided such conditions shall have been fulfilled by such person until the time of his or her death. 17. Conditions to Payment of Awards. (a) Effect of Competitive Activity. Anything in the Plan notwithstanding, and subject to paragraph (c) hereof and, if applicable, any conditions under the DC Plan or any other deferral plan or arrangement relating to payment of an Award, if the employment of any participant shall terminate, for any reason other than death, prior to the distribution date established pursuant to paragraph (a) of Section 15 for payment of an Award, such participant shall receive payment of an Award only if, during the entire period from the making of an Award until such distribution date, such participant shall have earned out such Award (i) by continuing in the employ of the Company or a Subsidiary thereof, or (ii) if his or her employment shall have been terminated for any reason other than death, by (a) making himself or herself available, upon request, at reasonable times and upon a reasonable basis, to consult with, supply information to and otherwise cooperate with the Company or any Subsidiary thereof with respect to any matter that shall have been handled by him or her or under his or her supervision while he or she was in the employ of the Company or any Subsidiary thereof, and (b) refraining from engaging in any activity that is directly or indirectly in competition with any activity of the Company or any Subsidiary thereof. (b) Nonfulfillment of Competitive Activity Conditions; Waiver of Conditions Under the Plan. In the event of a participant's nonfulfillment of any condition set forth in paragraph (a) above, such participant's rights under the Plan to receive or defer payment of an Award under the Plan shall be forfeited and canceled; provided, however, that the nonfulfillment of such condition may at any time (whether before, at the time of or subsequent to termination of employment) be waived in the following manner: 8 (i) with respect to a participant who at any time shall have been a Section 16 Person, such waiver may be granted by the Compensation and Option Committee upon its determination that in its sole judgment there shall not have been and will not be any substantial adverse effect upon the Company or any Subsidiary thereof; and (ii) with respect to any other participant, such waiver may be granted by the Annual Incentive Compensation Committee (or any committee appointed by it) upon its determination that in its sole judgment there shall not have been and will not be any such substantial adverse effect. (c) Effect of Inimical Conduct. Anything in the Plan to the contrary, the right of a participant, following termination of such participant's employment with the Company, to receive payment or to defer payment of an Award under Section 15 shall terminate on and as of the date on which it his been determined that such participant at any time (whether before or subsequent to termination of such participant's employment) acted in a manner inimical to the best interests of the Company. Any such determination shall be made by (i) the Compensation and Option Committee with respect to any participant who at any time shall have been a Section 16 Person, and (ii) the Annual Incentive Compensation Committee (or any committee appointed by it for the purpose) with respect to any other participant. Such Committee (or any such other committee) may make such determination at any time prior to payment in full of an Award. Conduct which constitutes engaging in any activity that is directly or indirectly in competition with any activity of the Company or any Subsidiary thereof shall be governed by paragraph (a)(ii) of this Section 17 and shall not be subject to any determination under this paragraph (c). 18. Limitations. A participant shall not have any interest in any Award until it is distributed in accordance with the Plan. The fact that a Key Employee has been selected to be a participant for a Performance Period shall not in any manner entitle such participant to receive an Award for such period. The determination as to whether or not such participant shall be paid an Award for such Performance Period shall be determined solely in accordance with the provisions of Sections 14 and 17 hereof. All payments and distributions to be made thereunder shall be paid from the general assets of the Company. Nothing contained in the Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Company and any employee, former employee or any other person. The Plan shall not constitute part of any participant's or employee's employment contract with the Company or any participating subsidiary. Participation in the Plan shall not create or imply a right to continued employment. 19. Withholding of Taxes, etc. The Company shall have the right to withhold an amount sufficient to satisfy any federal, state or local income taxes, FICA or Medicare taxes or other amounts that the Company may be required by law to pay with respect to any Award, including withholding payment from a participant's current compensation. 20. No Assignment of Benefits. No rights or benefits under the Plan shall, except as otherwise specifically provided by law, be subject to assignment (except for the designation of beneficiaries pursuant to paragraph (a) of Section 16), nor shall such rights 9 or benefits be subject to attachment or legal process for or against a participant or his or her beneficiary or beneficiaries, as the case may be. 21. Administration Expense. The entire expense of offering and administering the Plan shall be borne by the Company and its participating Subsidiaries. 22. Access of Independent Certified Public Accountants and Committee to Information. The Company's independent certified public accountants shall have full access to the books and records of the Company and its Subsidiaries, and the Company shall furnish to such accountants such information as to the financial condition and operations of the Company and its Subsidiaries as such accountants may from time to time request, in order that such accountants may take any action required or requested to be taken by them under the Plan. The Group Vice President and Chief Financial Officer or, in the event of his or her absence or disability to act, the principal accounting officer of the Company shall furnish to the Committee such information as the Committee may request to assist it in carrying out or interpreting this Plan. Neither such accountants, in reporting amounts required or requested under the Plan, nor the Group Vice President and Chief Financial Officer, or any other director, officer or employee of the Company, in furnishing information to such accountants or to the Committee, shall be liable for any error therein, if such accountants or other person, as the case may be, shall have acted in good faith. 23. Amendment, Modification, Suspension and Termination of the Plan; Rescissions and Corrections. The Compensation and Option Committee, at any time may terminate, and at any time and from time to time, and in any respect, may amend or modify the Plan or suspend any of its provisions; provided, however, that no such amendment, modification, suspension or termination shall, without the consent of a participant, adversely affect any right or obligation with respect to any Award theretofore made. The Committee at any time may rescind or correct any actions made in error or that jeopardize the intended tax status or legal compliance of the Plan. 24. Indemnification and Exculpation. (a) Indemnification. Each person who is or shall have been a member of the Compensation and Option Committee or a member of the Annual Incentive Compensation Committee shall be indemnified and held harmless by the Company against and from any and all loss, cost, liability or expense that may be imposed upon or reasonably incurred by such person in connection with or resulting from any claim, action, suit or proceeding to which such person may be or become a party or in which such person may be or become involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by such person in settlement thereof (with the Company's written approval) or paid by such person in satisfaction of a judgment in any such action, suit or proceeding, except a judgment in favor of the Company based upon a finding of such person's lack of good faith; subject, however, to the condition that upon the institution of any claim, action, suit or proceeding against such person, such person shall in writing give the Company an opportunity, at its own expense, to handle and defend the same before such person undertakes to handle and defend it on such person's behalf. The right of indemnification shall not be exclusive of any other right to which such person may be 10 entitled as a matter of law or otherwise, or any power that the Company may have to indemnify or hold such person harmless. (b) Exculpation. Each member of the Compensation and Option Committee and each member of the Annual Incentive Compensation Committee shall be fully justified in relying or acting in good faith upon any information furnished in connection with the administration of the Plan or any appropriate person or persons other than such person. In no event shall any person who is or shall have been a member of the Compensation and Option Committee or a member of the Annual Incentive Compensation Committee be held liable for any determination made or other action taken or any omission to act in reliance upon any such information, or for any action (including the furnishing of information) taken or any failure to act, if in good faith. 25. Finality of Determinations. Each determination, interpretation or other action made or taken pursuant to the provisions of the Plan by the Compensation and Option Committee or the Annual Incentive Compensation Committee shall be final and shall be binding and conclusive for all purposes and upon all persons, including, but without limitation thereto, the Company, its stockholders, the Compensation and Option Committee and each of the members thereof, the Annual Incentive Compensation Committee and each of the members thereof, and the directors, officers, and employees of the Company, the Plan participants, and their respective successors in interest. 26. Governing Law. The Plan shall be governed by and construed in accordance with the laws of the State of Michigan. EX-10.U2 4 EXHIBIT 10-U-2 EXHIBIT 10-U-2 AMENDMENT TO FORD MOTOR COMPANY 1998 LONG-TERM INCENTIVE PLAN ----------------------------- (Effective as of March 10, 2000) The following new paragraph (f)(8) is added to Article 5: "(f)(8) Notwithstanding anything contained in the Plan to the contrary, in the event of a change in the rules or interpretations of the Financial Accounting Standards Board that would result in negative accounting treatment for Options that continue to vest after termination of employment for the reason specified below, for any Options granted under the Plan on or after March 10, 2000 to Participants whose employment with the Company terminates by reason of a sale or other disposition (including, without limitation, a transfer to a Joint Venture) of the division, operation or subsidiary in which such Participant was employed or to which such Participant was assigned, effective as of the later of (i) the date of such termination of employment or (ii) the effective date of such accounting change, all such Participant's rights under such Options shall become immediately vested and continue for the period specified in paragraph (f)(4) of this Article 5, subject to the conditions specified therein and in Article 8." EX-12 5 EXHIBIT 12
EXHIBIT 12 Ford Motor Company and Subsidiaries CALCULATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS -------------------------------------------- (in millions) For the Years Ended December 31 ---------------------------------------------------------- 1999 1998 1997 1996 1995 ----------- ----------- ----------- ---------- ----------- Earnings - -------- Income before income taxes $11,026 $25,396 $10,939 $ 6,793 $ 6,705 Equity in net (income)/loss of affiliates plus dividends from affiliates (35) 78 121 36 179 Adjusted fixed charges a/ 9,459 9,215 10,911 10,801 10,556 ------- ------- ------- ------- ------- Earnings $20,450 $34,689 $21,971 $17,630 $17,440 ======= ======= ======= ======= ======= Combined Fixed Charges and Preferred Stock Dividends - -------------------------- Interest expense b/ $ 9,114 $ 8,919 $10,570 $10,464 $10,121 Interest portion of rental expense c/ 282 245 309 300 396 Preferred stock dividend requirements of majority owned subsidiaries and trusts d/ 55 55 55 55 199 ------- ------- ------- ------- ------- Fixed charges 9,451 9,219 10,934 10,819 10,716 Ford preferred stock dividend requirements e/ 23 122 82 95 459 ------- ------- ------- ------- ------- Total combined fixed charges and preferred stock dividends $ 9,474 $ 9,341 $11,016 $10,914 $11,175 ======= ======= ======= ======= ====== Ratios - ------ Ratio of earnings to fixed charges 2.2 3.8f/ 2.0 1.6 1.6 Ratio of earnings to combined fixed charges and preferred stock dividends 2.2 3.7f/ 2.0 1.6 1.6
- - - - - - 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) 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-21 6 EXHIBIT 21 EXHIBIT 21
SUBSIDIARIES OF FORD MOTOR COMPANY AS OF MARCH 15, 2000* -------------------------------------------------------- Organization Jurisdiction - ------------ ------------ FAH Investments England Kwik-Fit plc England Ford Ardennes Industrie SAS France Ford Argentina S.A. Argentina Ford Brasil Ltda. Brazil Ford Capital B.V. The Netherlands Ford Motor Company (Belgium) N.V. Belgium Ford Nederland B.V. The Netherlands Ford Electronica Portuguesa, Ltd. Bermuda Ford Electronics and Refrigeration LLC Delaware, U.S.A. Ford Electronics Manufacturing Corporation Canada Ford Enhanced Investment Partnership Michigan, U.S.A. Ford Enhanced Return Partnership Michigan, U.S.A. Ford Espana S.A. Spain Ford Export Services B.V. The Netherlands Ford European Holdings, Inc. Delaware, U.S.A. Ford Deutschland Holding, GmbH Germany Ford Werke AG Germany Ford Motor Company (Austria) K.G. Austria Ford Treasury Services Dublin Ireland Ford Global Technologies, Inc. Michigan, U.S.A. Ford FSG, Inc. Delaware, U.S.A. Ford Motor Credit Company Delaware, U.S.A. The American Road Insurance Company Michigan, U.S.A. Ford Credit Auto Receivables Corporation Delaware, U.S.A. Ford Credit Auto Receivables LLC Delaware, U.S.A. Ford Credit International, Inc. Delaware, U.S.A. Ford Credit Canada Limited Canada Ford Credit Canada Leasing Limited Canada Primus Automotive Financial Services, Inc. New York, U.S.A. The Hertz Corporation Delaware, U.S.A. Hertz Equipment Rental Corporation Delaware, U.S.A. Ford Holdings, Inc. Delaware, U.S.A. Ford Motor Land Development Corporation Delaware, U.S.A. Ford International Capital Corporation Delaware, U.S.A. Ford Automotive Holdings England FCE Bank plc England Ford Motor Company Limited England Jaguar Cars Export Limited England Jaguar Cars Limited England Volvo Car UK Limited England Ford Investment Partnership Michigan, U.S.A. Ford Italiana S.p.A. Italy Ford Japan Limited Delaware, U.S.A. Ford Motor Company of Canada, Limited Ontario, Canada Essex Manufacturing Ontario, Canada Ford Motor Company of Australia Limited Australia Ford Lio Ho Motor Company Ltd. Taiwan Ford Motor de Venezuela, S.A. Venezuela Ford Motor Vehicle Assurance Company Michigan, U.S.A. Ford Super Enhanced Return Partnership Michigan, U.S.A.
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SUBSIDIARIES OF FORD MOTOR COMPANY AS OF MARCH 15, 2000* (Continued) ------------------------------------------------------------------- Organization Jurisdiction - ------------ ------------ Ford VAC Corporation Delaware, U.S.A. Ford VHC AB Sweden Volvo Personvagnar Holding AB Sweden Volvo Personvagnar AB Sweden Snebe Holding B.V. Netherlands Volvo Cars Europe Industry NV Belgium Swene Holding B.V. Netherlands Volvo Cars Japan Corporation Japan Volvo Car Holding Germany GmbH Germany Volvo Deutschland GmbH Germany Volvo Personbilar Sverige Aktiebolag Sweden Volvo Personvagnar Komponenter Aktiebolag Sweden Gentle Winds Reinsurance, Ltd. Cayman Islands Groupe Ford France SAS France Ford Automotive Group SAS France Ford Aquitaine Industrie SAS France Ford France Automobile SAS France Grupo Ford S. de R.L. de C.V. Mexico Ford Motor Company, S.A. de C.V. Mexico Transcon Insurance Limited Bermuda Visteon Automotive Holdings, LLC Delaware, U.S.A. Grupo Visteon S de R.L. de C.V. Mexico Carplastic S.A. de C.V. Mexico Volvo Car Holdings (U.S.), Inc. Delaware, U.S.A. Volvo Cars of North America, Inc. Delaware, U.S.A.
287 Other U.S. Subsidiaries 420 Other Non-U.S. Subsidiaries * Subsidiaries are not shown by name in the above list if, considered in the aggregate as a single subsidiary, they would not constitute a significant subsidiary. Page 2 of 2 EX-23 7 EXHIBIT 23 PricewaterhouseCoopers LLP 400 Renaissance Center Detroit, MI 48243-1507 Telephone (313)394-6000 Facsimile (313)394-6555 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS ---------------------------------- 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, 33-56785, 33-58255, 33-58785, 33-61107, 33-64605, 33-64607, 333-02735, 333-20725, 333-27993, 333-28181, 333-46295, 333-47443, 333-47445, 333-47733, 333-47735, 333-52399, 333-58695, 333-58697, 333-58701, 333-65703, 333-70447, 333-74313, 333-86127, 333-87619, and 333-31466 on Form S-8, and 333-67209 and 333-86035 on Form S-3. We hereby consent to the incorporation by reference in the above Registration Statements of our reports dated January 24, 2000 on our audits of the consolidated financial statements of Ford Motor Company and Subsidiaries as of December 31, 1999 and 1998, and for the years ended December 31, 1999, 1998 and 1997, which report is included in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedule which report is also included in this Annual Report on Form 10-K. /s/PricewaterhouseCoopers LLP Detroit, Michigan March 16, 2000 EX-24 8 EXHIBIT 24 EXHIBIT 24 POWER OF ATTORNEY WITH RESPECT TO ANNUAL REPORT OF FORD MOTOR COMPANY ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999 ---------------------------------------------- Each of the undersigned, a director or officer of FORD MOTOR COMPANY, appoints each of H. D. G. Wallace, W. A. Swift, J. M. Rintamaki, L. J. Ghilardi and D. J. Cropsey his or her true and lawful attorney and agent to do any and all acts and things and execute any and all instruments which the attorney and agent may deem necessary or advisable in order to enable FORD MOTOR COMPANY to comply with the Securities Exchange Act of 1934, and any requirements of the Securities and Exchange Commission, in connection with the Annual Report of FORD MOTOR COMPANY on Form 10-K for the year ended December 31, 1999 and any and all amendments thereto, as authorized at a meeting of the Board of Directors of FORD MOTOR COMPANY held on March 8, 2000, including, but not limited to, power and authority to sign his or her name (whether on behalf of FORD MOTOR COMPANY, or as a director or officer of FORD MOTOR COMPANY, or by attesting the seal of FORD MOTOR COMPANY, or otherwise) to such instruments and to such Annual Report and any amendments thereto, and to file them with the Securities and Exchange Commission. The undersigned ratifies and confirms all that any of the attorneys and agents shall do or cause to be done by virtue hereof. Any one of the attorneys and agents shall have, and may exercise, all the powers conferred by this instrument. Each of the undersigned has signed his or her name as of the 8th day of March, 2000. /s/ William Clay Ford, Jr. /s/ Jacques A. Nasser - ----------------------------- ------------------------------ (William Clay Ford, Jr.) (Jacques A. Nasser) /s/ Michael D. Dingman /s/ Edsel B. Ford II - ----------------------------- ------------------------------ (Michael D. Dingman) (Edsel B. Ford II) /s/ William Clay Ford /s/ Irvine O. Hockaday, Jr. - ----------------------------- ------------------------------ (William Clay Ford) (Irvine O. Hockaday, Jr.) /s/ Marie-Josee Kravis /s/ Ellen R. Marram - ----------------------------- ------------------------------ (Marie-Josee Kravis) (Ellen R. Marram) /s/ Homer A. Neal /s/ Jorma J. Ollila - ----------------------------- ------------------------------ (Homer A. Neal) (Jorma J. Ollila) /s/ Carl E. Reichardt /s/ Robert E. Rubin - ----------------------------- ------------------------------ (Carl E. Reichardt) (Robert E. Rubin) /s/ John L. Thornton /s/ William A. Swift - ----------------------------- ------------------------------ (John L. Thornton) (William A. Swift) /s/ Henry D. G. Wallace - ----------------------------- (Henry D. G. Wallace) -----END PRIVACY-ENHANCED MESSAGE-----