-----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, A/p92dEORwKegLeGSKD4PVyRCnl+lF7NZWVZLNWhYhVuKY1E8wp9aGQSfaDV7RYq 6sB4C6tPU3P6HLDWE9n85Q== 0000037996-00-000098.txt : 20001227 0000037996-00-000098.hdr.sgml : 20001227 ACCESSION NUMBER: 0000037996-00-000098 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000628 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20000918 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FORD MOTOR CO CENTRAL INDEX KEY: 0000037996 STANDARD INDUSTRIAL CLASSIFICATION: 3711 IRS NUMBER: 380549190 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-19660 FILM NUMBER: 724493 BUSINESS ADDRESS: STREET 1: ONE AMERICAN ROAD CITY: DEARBORN STATE: MI ZIP: 48121 BUSINESS PHONE: 3133223000 8-K 1 0001.txt PRESS RELEASE SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report June 28, 2000 -------------- (Date of earliest event reported) FORD MOTOR COMPANY ------------------ (Exact name of registrant as specified in its charter) Delaware -------- (State or other jurisdiction of incorporation) 1-3950 38-0549190 ------ ---------- (Commission File Number) (IRS Employer Identification No.) One American Road, Dearborn, Michigan 48126 - - - -------------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 313-322-3000 ------------ -2- Item 5. Other Events. - - - --------------------- Visteon Spin-Off - - - ---------------- On June 28, 2000, we distributed to our shareholders 130 million shares of common stock of Visteon Corporation, which represented our 100% ownership interest in Visteon, by means of a tax-free spin-off in the form of a dividend on Ford common and Class B stock. Historically, Visteon's results of operations and financial condition have been included in our financial statements as a segment within the automotive sector. As a result of the spin-off of Visteon, our consolidated balance sheet as of December 31, 1999 and 1998, and our consolidated statements of income and cash flows for the years ended December 31, 1999, 1998 and 1997, and related footnotes, have been restated to reflect Visteon as a discontinued operation. These restated financial statements, filed as Exhibit 99 to this report, are incorporated by reference herein. Value Enhancement Plan - - - ---------------------- On August 7, 2000, we announced the final results of our recapitalization, known as our Value Enhancement Plan ("VEP"). Under the VEP, Ford shareholders exchanged each of their old Ford common or Class B shares for one new Ford common or Class B share, as the case may be, plus either $20 in cash, 0.748175 additional new Ford common shares, or a combination of $5.17 in cash and 0.555 additional new Ford shares. As a result of the elections made by shareholders under the VEP, the total number of new Ford common and Class B shares outstanding was 1.893 billion. For financial reporting purposes, under generally accepted accounting principles, prior period outstanding shares, diluted shares, and earnings per share ("EPS") amounts will not be adjusted. Third quarter diluted shares will be calculated based on a weighted average of 1.222 billion diluted shares for the period prior to the VEP and a weighted average of diluted shares for the period subsequent to the VEP, estimated to be approximately 1.923 billion. Diluted share amounts reflect actual outstanding shares adjusted for the effects of (i) issuable and uncommitted employee stock ownership plan shares and (ii) the dilutive effect of employee stock options. The following tables show, on a pro forma basis, how the results of the VEP would have adjusted prior period diluted share and EPS amounts had the VEP been structured as a 1.748175-for-1 stock split followed by a $5.7 billion share repurchase at a price per share of $26.7317. Such a stock split and share repurchase would have had substantially the same economic effect as the results of the VEP. The amounts in the tables are also adjusted to exclude (i) Visteon earnings and, for the second quarter of 2000, the $2,252 million one-time, non-cash charge resulting from the spin-off of Visteon on June 28, 2000 and (ii) special or one-time charges that we believe are not representative of our operating results on a continuing basis (e.g., second quarter 2000 after tax charges of $1,019 million for asset impairment and restructuring costs related to our Ford brand operations in Europe). -3-
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Full Year ------- ------- ------- ------- --------- 2000 - - - ---- Reported Net Income (Mils.) $ 2,079 $ (577) Avg. Number of Diluted Shares of Common & Class B Stock (Mils.) - - - - Pre VEP 1,222 1,222 - - - - Post VEP 2,136 2,136 1,994 * Diluted EPS Pre-VEP Reported $ 1.70 $ (0.47) Excluding Visteon 0.12 (1.71) ------- ------- Pre-VEP (Excluding Visteon) $ 1.58 $ 1.24 Excluding One-Time Factors** 0 (0.83) ------- ------- Pre-VEP Adjusted Diluted EPS $ 1.58 $ 2.07 Pro forma Adjusted Diluted EPS $ 0.90 $ 1.18 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Full Year ------- ------- ------- ------- --------- 1999 - - - ---- Reported Net Income (Mils.) $ 1,979 $ 2,338 $ 1,114 $ 1,806 $ 7,237 Avg. Number of Diluted Shares of Common & Class B Stock (Mils.) - - - - Pre VEP 1,237 1,237 1,231 1,229 1,233 - - - - Post VEP 2,162 2,162 2,152 2,149 2,155 Diluted EPS Pre-VEP Reported $ 1.60 $ 1.89 $ 0.90 $ 1.47 $ 5.86 Excluding Visteon 0.17 0.23 0.13 0.08 0.60 Pre-VEP (Excluding Visteon) $ 1.43 $ 1.66 $ 0.77 $ 1.39 $ 5.26 Excluding One-Time Factors*** 0.14 (0.11) (0.18) (0.06) (0.23) ------- ------- ------- -------- ------- Pre-VEP Adjusted Diluted EPS $ 1.29 $ 1.77 $ 0.95 $ 1.45 $ 5.49 Pro forma Adjusted Diluted EPS $ 0.74 $ 1.01 $ 0.54 $ 0.83 $ 3.14 - - - - - - - -
-4- * Estimated average number of diluted shares outstanding for the third quarter of 2000 assuming one month of 2,136 million diluted shares and two months of 1,923 million diluted shares. ** For detailed information on these one-time factors, see our Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations." ** For detailed information on these one-time factors, see our Annual Report on Form 10-K for the year ended December 31, 1999, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations." Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. - - - ----------------------------------------------------------------------------
EXHIBITS -------- Designation Description Method of Filing - - - ----------- ----------- ---------------- Exhibit 5 Opinion of John M. Rintamaki, Group Vice President and Chief of Staff, General Counsel and Secretary as to the legality of certain debt securities Filed with this Report Exhibit 99 Restated Financial Statements Filed with this Report
SIGNATURE --------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on the date indicated. FORD MOTOR COMPANY ------------------------------- (Registrant) Date: September 13, 2000 By: /s/ ---------------------------- Kathryn S. Lamping Assistant Secretary -5- EXHIBIT INDEX ------------- Designation Description - - - ----------- ----------- Exhibit 5 Opinion of John M. Rintamaki, Group Vice President and Chief of Staff, General Counsel and Secretary, as to the legality of certain debt securities Exhibit 99 Restated Financial Statements EX-5 2 0002.txt EXHIBIT 5 [OBJECT OMITTED] Ford Motor Company One American Road P.O. Box 1899 Dearborn, Michigan 48126-1899 August 1, 2000 Salomon Smith Barney Inc. Merrill Lynch, Pierce, Fenner & Smith Incorporated Bear, Stearns & Co. Inc. as Representatives of the Several Underwriters named in Schedule I of the Pricing Agreement referred to below c/o Salomon Smith Barney Inc. 388 Greenwich Street New York, NY 10013 Ladies and Gentlemen: 7.45% Global Landmark Securities due July 16, 2031 I am the Group Vice President and Chief of Staff, General Counsel and Secretary of Ford Motor Company, a Delaware corporation (the "Company"), and am familiar with the Restated Certificate of Incorporation and the By-Laws of the Company. I also am familiar with the actions taken by the Company in connection with the registration under the Securities Act of 1933, as amended (the "Act"), of $3,000,000,000 aggregate principal amount of the Company's debt securities (the "Debt Securities"), issued or to be issued under an Indenture dated as of February 15, 1992, as supplemented by a First Supplemental Indenture dated as of December 5, 1996 (the "Indenture"), between the Company and The Bank of New York, as trustee (the "Trustee"), and the proposed sale by the Company to the Underwriters referred to below of a series of the Debt Securities designated as the Company's 7.45% Global Landmark Securities due July 16, 2031 in the aggregate principal amount of $1,500,000,000 (the "Notes"). The Notes are being issued as eight global notes, seven each in the principal amount of $200,000,000 and one in the principal amount of $100,000,000, representing all of the Notes (the "Global Notes") in accordance with the terms of the Indenture. The Notes are to be sold pursuant to the provisions of the Underwriting Agreement dated July 26, 2000 (the "Underwriting Agreement"), between the Company and Salomon Smith Barney Inc. and a Pricing Agreement dated July 26, 2000 between the Company and Salomon Smith Barney Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, and Bear, Stearns & Co. Inc., as representatives of the several Underwriters named in Schedule I thereto (the "Underwriters"). -2- In this connection, I have examined, or caused to be examined, the following: (a) signed copies of Registration Statement No. 333-86035 on Form S-3 filed by the Company with the Securities and Exchange Commission (the "Commission") on August 27, 1999 and Amendments No.1 and No. 2 thereto filed on October 12, 1999 and February 7, 2000, respectively (the "Registration Statement.") (b) copies of: (i) the prospectus included in the Registration Statement; and (ii) the prospectus dated February 9, 2000, as supplemented by a prospectus supplement dated July 26, 2000, as filed by the Company on July 28, 2000 pursuant to Rule 424(b)(5) promulgated under the Act (said prospectus and the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the Act, taken together, being hereinafter referred to as the "Prospectus"); and (c) signed copies of: (i) an order of the Commission dated February 9, 2000 declaring the Registration Statement effective on such date; (ii) the Indenture; (iii) the Underwriting Agreement; and (iv) the Pricing Agreement. I also have examined, or caused to be examined, such other documents and instruments and have made, or caused to be made, such further investigation as I have deemed necessary or appropriate in connection with this opinion. Based upon the foregoing, it is my opinion that: 1. The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, with corporate power under the laws of such State to own its properties and conduct its business as described in the Prospectus, and is duly qualified and in good standing to do business as a foreign corporation in the States of Michigan and Ohio. 2. The Underwriting Agreement and the Pricing Agreement have each been duly authorized, executed and delivered by the Company. 3. The Indenture has been duly authorized, executed and delivered by, and constitutes a valid and binding instrument of, the Company and has been duly qualified under the Trust Indenture Act of 1939, as amended. -3- 4. The Notes have been duly authorized by the Company, and the Global Notes, assuming their due authentication by the Trustee, in accordance with the Indenture, have been duly executed, authenticated, issued and delivered and constitute valid and binding obligations of the Company, entitled to the benefits provided by the Indenture; and if the Notes in definitive form are executed, authenticated, issued and delivered in exchange for the Global Notes in accordance with the Indenture, such Notes will constitute valid and binding obligations of the Company entitled to the benefits provided by the Indenture. 5. The issue and sale of the Notes and the compliance by the Company with all provisions of the Notes, the Indenture, the Underwriting Agreement and the Pricing Agreement will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under (in each case material to the Company and its subsidiaries considered as a whole), or result in the creation or imposition of any lien, charge or encumbrance (in each case material to the Company and its subsidiaries considered as a whole) upon any of the property or assets of the Company pursuant to the terms of, any indenture, mortgage, deed of trust, loan agreement, guarantee, lease financing agreement or other similar agreement or instrument known to me under which the Company is a debtor or a guarantor, nor will such action result in any violation of the provisions of the Restated Certificate of Incorporation or the By-Laws of the Company. 6. The documents incorporated by reference in the Prospectus (other than the financial statements and other accounting information contained or incorporated by reference therein or omitted therefrom, as to which I express no opinion), when they were filed with the Commission, complied as to form in all material respects with the requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder. 7. The Registration Statement has become effective under the Act and, to the best of my knowledge, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or threatened by the Commission; the Registration Statement and the Prospectus (other than Exhibits 12 to the Registration Statement and the financial statements and other accounting information contained in the Registration Statement or the Prospectus, or omitted therefrom, as to which I express no opinion) comply as to form in all material respects with the requirements of the Act and the rules and regulations of the Commission thereunder, and the statements in the Registration Statement and the Prospectus in the sections thereof describing the Debt Securities and the Notes are accurate and fairly present the information required or purported to be shown. 8. I do not know of any contract or other document of a character required to be filed as an exhibit to the Registration Statement or required to be incorporated by reference in the Prospectus or required to be described in the Registration Statement or the Prospectus which is not filed or incorporated by reference or described as required. 9. I do not know of any legal or governmental proceeding pending to which the Company is a party, or of which any property of the Company is the subject, and no such proceedings are known by me to be threatened or contemplated by governmental authorities or threatened by others, other than as set forth or contemplated in the Prospectus and other than such proceedings which, in my opinion, will not have a material adverse effect upon the general affairs, financial position, net worth or results of operations (on an annual basis) of the Company and its subsidiaries considered as a whole. -4- In the course of the preparation of the Registration Statement and the Prospectus, I have made, or caused to be made, such investigation of the affairs of the Company and such inquiries of officers and employees of the Company and of the auditors for the Company as I have deemed necessary or appropriate. As a result of my examination of the Registration Statements and the Prospectus and the investigations and inquiries referred to above: a. I believe that the Registration Statement (other than Exhibits 12 thereto and the financial statements and other accounting information contained therein or omitted therefrom, as to which I express no opinion), at the time it became effective, did not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading. b. I believe that the Prospectus (other than the financial statements and other accounting information contained therein or omitted therefrom, as to which I express no opinion) (i) on July 26, 2000 did not and (ii) on the date hereof does not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. The opinions set forth above are subject to the qualification that the enforceability of the terms of the Indenture, the Global Notes or any Notes in definitive form issued in exchange therefor may be limited by bankruptcy, insolvency, reorganization or other similar laws relating to or affecting the enforcement of creditors' rights generally and by general equitable principles regardless of whether such enforceability is considered in a proceeding in equity or at law. In connection with the foregoing opinion, I wish to point out that I am a member of the Bar of the State of Michigan and do not hold myself out as expert in the laws of states other than Michigan. However, I have made, or caused to be made, such investigation as I -5- have deemed appropriate with respect to the laws of other states in connection with such opinion, and nothing has come to my attention in the course of such investigation which would lead me to question the correctness of such opinion. Very truly yours, /s/J. M. Rintamaki J. M. Rintamaki Group Vice President and Chief of Staff, General Counsel and Secretary EX-23 3 0003.txt EXHIBIT 23 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS ---------------------------------- Re: Ford Motor Company Registration Statements Nos. 2-95018, 2-95020, 33-14951, 33-19036, 33-36043, 33-36061, 33-39402, 33-50194, 33-50238, 33-54275, 33-54283, 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, 333-31466, 333-37542, 333-37536, 333-38586, 333-40260, 333-37396, 333-38580, and 333-40258 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 report dated January 24, 2000, except for note 2, which is as of June 28, 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 Form 8-K. PricewaterhouseCoopers LLP Detroit, Michigan September 13, 2000 EX-99 4 0004.txt EXHIBIT 99
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 $ 37,285 $ 31,918 $ 135,073 $ 118,017 - - - - Financial Services 6,637 5,699 25,585 25,333 --------- --------- --------- --------- Total $ 43,922 $ 37,617 $ 160,658 $ 143,350 ========= ========= ========= ========= Income from continuing operations (in millions) - - - - Automotive $ 1,354 $ 692 $ 4,986 $ 4,049 - - - - Financial Services (excl. The Associates) 357 223 1,516 1,187 - - - - The Associates - - - 177 - - - - Gain on spin-off of The Associates - - - 15,955 --------- --------- --------- --------- Total $ 1,711 $ 915 $ 6,502 $ 21,368 ========= ========= ========= ========= Capital expenditures (in millions) - - - - Automotive $ 2,548 $ 2,151 $ 7,069 $ 7,252 - - - - Financial Services 155 106 590 504 --------- --------- --------- --------- Total $ 2,703 $ 2,257 $ 7,659 $ 7,756 ========= ========= ========= ========= Automotive capital expenditures as a percentage of sales 6.8% 6.7% 5.2% 6.1% Stockholders' equity at December 31 - - - - Total (in millions) $ 27,604 $ 23,434 $ 27,604 $ 23,434 - - - - After-tax return on Common and Class B Stockholders' equity 25.2% 15.3% 24.6% 22.5% Automotive net cash at December 31 (in millions) - - - - Cash and marketable securities $ 21,736 $ 23,263 $ 21,736 $ 23,263 - - - - Debt 11,736 9,596 11,736 9,596 --------- --------- --------- --------- Automotive net cash $ 10,000 $ 13,667 $ 10,000 $ 13,667 ========= ========= ========= ========= After-tax return on sales - - - - North American Automotive 5.5% 3.8% 5.5% 4.7% - - - - Total Automotive 3.7% 2.2% 3.7% 3.5% 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 $ 1.10 $ 0.56 $ 4.03 $ 3.19 - - - - 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 income from continuing operations $ 1.39 $ 0.74 $ 5.26 $ 17.19 ========= ========= ========= ========= 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) $135,073 $118,017 $121,976 Costs and expenses (Notes 1 and 17) Costs of sales 118,985 104,616 108,392 Selling, administrative and other expenses 8,874 7,834 7,420 -------- -------- -------- Total costs and expenses 127,859 112,450 115,812 Operating income 7,214 5,567 6,164 Interest income 1,418 1,325 1,112 Interest expense 1,347 795 788 -------- -------- -------- Net interest income 71 530 324 Equity in net income/(loss) of affiliated companies (Note 1) 35 (64) (117) Net expense from transactions with Financial Services (Note 1) (45) (191) (104) -------- -------- -------- Income before income taxes - Automotive 7,275 5,842 6,267 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 17) - 15,955 - Gain on sale of Common Stock of a subsidiary (Note 17) - - 269 -------- -------- -------- Income before income taxes - Financial Services 2,579 18,438 3,857 -------- -------- -------- TOTAL COMPANY Income before income taxes 9,854 24,280 10,124 Provision for income taxes (Note 8) 3,248 2,760 3,436 -------- -------- -------- Income before minority interests 6,606 21,520 6,688 Minority interests in net income of subsidiaries 104 152 279 -------- -------- -------- Income from continuing operations 6,502 21,368 6,409 Income from discontinued operation (Note 2) 735 703 511 -------- -------- -------- 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 Income from continuing operations $ 5.38 $ 17.59 $ 5.32 Net income 5.99 18.17 5.75 Diluted income Income from continuing operations $ 5.26 $ 17.19 $ 5.20 Net 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 $ 2,793 $ 3,143 Marketable securities (Note 3) 18,943 20,120 -------- -------- Total cash and marketable securities 21,736 23,263 Receivables 4,570 2,816 Inventories (Note 6) 5,684 5,050 Deferred income taxes 3,762 3,100 Other current assets (Note 1) 4,528 3,404 Current receivable from Financial Services (Note 1) 2,304 0 -------- -------- Total current assets 42,584 37,633 Equity in net assets of affiliated companies (Note 1) 2,539 2,187 Net property (Note 7) 36,528 31,929 Deferred income taxes 2,454 2,819 Net assets of discontinued operations (Note 2) 1,566 1,680 Other assets (Note 1) 13,530 7,663 -------- -------- Total Automotive assets 99,201 83,911 Financial Services Cash and cash equivalents 1,588 1,151 Investments in securities (Note 3) 733 968 Finance receivables (Note 4) 113,298 97,176 Net investment in operating leases (Note 5) 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 $270,249 $232,712 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Automotive Trade payables $ 14,292 $ 13,478 Other payables 3,778 2,447 Accrued liabilities (Note 9) 18,488 16,273 Income taxes payable 1,709 1,372 Debt payable within one year (Note 11) 1,338 1,007 Current payable to Financial Services (Note 1) 0 70 -------- -------- Total current liabilities 39,605 34,647 Long-term debt (Note 11) 10,398 8,589 Other liabilities (Note 9) 29,283 26,547 Deferred income taxes 1,223 599 Payable to Financial Services (Note 1) 1,835 818 -------- -------- Total Automotive liabilities 82,344 71,200 Financial Services Payables 3,550 3,555 Debt (Note 11) 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 12 and 13) 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 (1,856) (1,645) ESOP loan and treasury stock (1,417) (1,085) Earnings retained for use in business 24,606 19,659 -------- -------- Total stockholders' equity 27,604 23,434 -------- -------- Total liabilities and stockholders' equity $270,249 $232,712 ======== ======== - - - - - - -
*Less than $1 million The accompanying notes are part of the financial statements. FS-4
Ford Motor Company and Subsidiaries CONSOLIDATED STATEMENT OF CASH FLOW ----------------------------------- 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 $ 3,143 $ 1,151 $ 5,972 $ 1,618 $ 3,441 $ 3,689 Cash flows from operating activities (Note 18) 14,789 12,540 8,246 13,478 12,573 13,650 Cash flows from investing activities Capital expenditures (7,069) (590) (7,252) (504) (7,225) (575) Purchase of leased assets - - (110) - (332) - Acquisitions of other companies (Note 17) (5,763) (144) - (344) - (40) Acquisitions of receivables and lease investments - (80,422) - (78,863) - (117,895) Collections of receivables and lease 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 - 9,931 - 8,413 - 5,197 Net investing activity with Financial Services 1,329 - 642 - 258 - Other (70) 119 (389) (463) (259) (569) -------- -------- -------- -------- -------- -------- Net cash used in investing activities (12,830) (25,999) (7,277) (24,079) (7,588) (27,545) Cash flows from financing activities Cash dividends (2,290) - (5,348) - (2,020) - Issuance of Common Stock 336 - 157 - 310 - Issuance of Common Stock of a subsidiary (Note 17) - - - - - 453 Purchase of Ford treasury stock (707) - (669) - (15) - Preferred Stock - Series B repurchase, Series A redemption - - (420) - - - Changes in short-term debt (429) 5,547 463 7,475 (459) 6,210 Proceeds from issuance of other debt 3,143 37,184 2,307 21,776 946 22,923 Principal payments on other debt (821) (28,672) (1,285) (16,797) (602) (18,215) Net financing activity with Automotive - (1,329) - (642) - (258) Spin-off of The Associates cash - - - (508) - - Other (127) 88 (257) (12) 384 (206) -------- -------- -------- -------- -------- -------- Net cash (used in)/provided by financing activities (895) 12,818 (5,052) 11,292 (1,456) 10,907 Effect of exchange rate changes on cash (57) (279) (50) 146 (109) 28 Net transactions with Automotive/ Financial Services (1,357) 1,357 1,304 (1,304) (889) 889 -------- -------- -------- -------- -------- -------- Net (decrease)/increase in cash and cash equivalents (350) 437 (2,829) (467) 2,531 (2,071) -------- -------- -------- -------- -------- -------- Cash and cash equivalents at December 31 $ 2,793 $ 1,588 $ 3,143 $ 1,151 $ 5,972 $ 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 $ 77 $ (267) $164 $ - $26,765 Comprehensive income Net Income 6,920 6,920 Foreign currency translation (988) (988) Minimum pension liability (net of tax benefit of $36) (70) (70) Net holding loss (net of tax benefit of $47) (91) (91) ------- Comprehensive Income 5,771 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 $ (911) $ (337) $ 73 $ (39) $30,787 ====== ====== ======= ======== ====== ==== ======= ======= YEAR ENDED DECEMBER 31, 1998 - - - ---------------------------- Balance at beginning of year $1,203 $5,564 $25,234 $ (911) $ (337) $ 73 $ (39) $30,787 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 (81) (81) Minimum pension liability (net of tax benefit of $184) (361) (361) Net holding loss (net of tax benefit of $3) (28) (28) ------ Comprehensive income 21,601 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 $ (992) $ (698) $ 45 $(1,085) $23,434 ====== ====== ======= ======== ====== ==== ======= ======= YEAR ENDED DECEMBER 31, 1999 - - - ---------------------------- Balance at beginning of year $1,222 $5,283 $19,659 $ (992) $ (698) $ 45 $(1,085) $23,434 Comprehensive income Net income 7,237 7,237 Foreign currency translation (573) (573) Minimum pension liability (net of tax of $174) 324 324 Net holding gain (net of tax of $20) 38 38 ------- Comprehensive income 7,026 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 $ (1,565) $ (374) $ 83 $(1,417) $27,604 ====== ====== ======= ======== ====== ==== ======= =======
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 three 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 19). The Automotive sector consists of the design, manufacture, sale, and service of cars and trucks. 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 19). 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 19. 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 $2.7 billion in 1999, $2.1 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 $6.0 billion in 1999, $5.3 billion in 1998 and $5.5 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* --------- --------- -------- --------- --------- ---------- Income from continuing operations $6,502 1,210 $21,368 1,211 $6,409 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 continuing income and shares $6,487 1,206 $21,261 1,209 $6,355 1,194 Basic income per share from continuing operations $ 5.38 $ 17.59 $ 5.32 Basic income per share from discontinued operation 0.61 0.58 0.43 ------ ------- ------ Basic income per share $ 5.99 $ 18.17 $ 5.75 Basic continuing income and shares $6,487 1,206 $21,261 1,209 $6,355 1,194 Net dilutive effect of options - 27 - 28 - 20 Convertible Preferred Stock and other (1) - (1) - 8 10 ------ ----- ------- ----- ------ ----- Diluted continuing income and shares $6,486 1,233 $21,260 1,237 $6,363 1,224 Diluted income per share from continuing operations $ 5.26 $ 17.19 $ 5.20 Diluted income per share from discontinued operation 0.60 0.57 0.42 ------ ------- ------ 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 11. 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 $308 million in 1999 and by $84 million in 1998, and decreased net income by $144 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 $5.7 billion at December 31, 1999 and $2.1 billion at December 31, 1998. The increase is primarily related to the acquisitions of Volvo and Kwik-Fit (Note 17). 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. Discontinued Operation - - - ------------------------------- On June 28, 2000, Ford distributed 130 million shares of Visteon, which represented its 100% ownership interest, by means of a tax-free spin-off in the form of a dividend on Ford Common and Class B Stock. Holders of Ford Common and Class B Stock on the record date received 0.130933 shares of Visteon common stock for each share of Ford stock, and participants in U.S. employee savings plans on the record date received $1.72 in cash per share of Ford stock, based on the volume-weighted average price of Visteon stock of $13.1326 per share on June 28, 2000. The total value of the distribution (including the $365 million cash dividend) was $2.1 billion or $1.72 per diluted share of Ford stock. As a result of the spin-off of Visteon, Ford recorded an after-tax loss of $2.3 billion in the second quarter of 2000. This represents the excess of the carrying value of Ford's net investment in Visteon over the market value of Visteon on the distribution date. Our financial statements have been restated to report Visteon as a "discontinued operation" for all periods shown. Sales and selected income data for Visteon were (in millions):
1999 1998 1997 ---------- ---------- ---------- Revenues $19,366 $17,762 $17,220 Income before income taxes 1,172 1,116 815 Provision for income taxes 422 416 305 Minority interest in net income (loss) of subsidiaries 15 (3) (1) ------- ------- ------- Net income $ 735 $ 703 $ 511 ======= ======= =======
The net assets of Visteon were (in millions):
1999 1998 ----------- ----------- Cash and marketable securities $ 1,849 $ 542 Inventories 751 606 Other current assets 2,596 2,043 ------- ------ Total current assets 5,196 3,191 Net property 5,789 5,391 Other assets 1,464 791 ------- ------ Total assets 12,449 9,373 Current liabilities (5,475) (3,164) Long-term debt (1,358) (816) Other liabilities (4,117) (3,738) ------- ------ Total liabilities (10,950) (7,718) Accumulated other comprehensive income 67 25 ------- ------ Net assets $ 1,566 $1,680 ======= ======
FS-11 NOTE 3 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-12 NOTE 3 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-13 NOTE 4 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-14 NOTE 4 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 5. 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-15 NOTE 6 Inventories - Automotive Sector - - - --------------------------------------- Inventories at December 31 were as follows (in millions):
1999 1998 ------------ ------------ Raw materials, work-in-process and supplies $2,035 $2,320 Finished products 3,649 2,730 ------ ------ Total inventories $5,684 $5,050 ====== ====== U.S. inventories $1,811 $1,469
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 $1.0 billion and $1.1 billion at December 31, 1999 and 1998, respectively. NOTE 7 Net Property, Depreciation and Amortization - Automotive Sector - - - ----------------------------------------------------------------------- Net property at December 31 was as follows (in millions):
1999 1998 ------------ ------------ Land $ 433 $ 365 Buildings and land improvements 9,256 8,037 Machinery, equipment and other 39,010 35,690 Construction in progress 1,654 2,328 -------- -------- Total land, plant and equipment $ 50,353 $ 46,420 Accumulated depreciation (22,976) (22,396) -------- -------- Net land, plant and equipment $ 27,377 $ 24,024 Special tools, net of amortization 9,151 7,905 -------- -------- Net property $ 36,528 $ 31,929 ======== ========
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 $2,690 $2,301 $2,220 Amortization 2,361 2,880 3,126 ------ ------ ------ Total $5,051 $5,181 $5,346 ====== ====== ======
Maintenance, repairs and rearrangement costs are expensed as incurred and were $1.7 billion in 1999, $1.7 billion in 1998 and $1.8 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-16 NOTE 8 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. $9,299 $7,617 $7,882 Non-U.S. 537 770 2,089 ------ ------ ------ Total income before income taxes $9,836 $8,387 $9,971 ====== ====== ====== Provision for income taxes (in millions) --------------------------------------- U.S. federal $ 581 $ 620 $1,598 Non-U.S. 727 474 750 State and local 117 14 (42) ------ ------ ------ Total current income tax provision 1,425 1,108 2,306 U.S. federal 2,088 1,614 927 Non-U.S. (455) (114) 15 State and local 190 152 188 ------ ------ ------ Total deferred income tax provision 1,823 1,652 1,130 ------ ------ ------ Total provision $3,248 $2,760 $3,436 ====== ====== ====== 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 (2) (1) (1) State and local income taxes 2 1 1 Other (2) (2) (1) ------ ------ ------ Provision for income taxes 33 % 33 % 34 % ====== ====== ====== - - - - -
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 $2.0 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 $ 5,148 $ 5,193 Dealer and customer allowances and claims 2,887 3,652 Allowance for credit losses 1,006 1,164 Net operating loss carryforwards 518 795 All other 1,676 1,579 Valuation allowances (115) (256) ------- ------- Total deferred tax assets 11,120 12,127 Deferred tax liabilities ------------------------ Leasing transactions 6,520 6,324 Depreciation and amortization (excluding leasing transactions) 3,413 3,229 Employee benefit plans 815 785 All other 2,800 2,222 ------- ------- Total deferred tax liabilities 13,548 12,560 ------- ------- Net deferred tax assets/(liabilities) $(2,428) $ (433) ======= =======
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-17 NOTE 9. 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 $10,180 $ 8,697 Employee benefit plans 1,675 2,215 Deferred revenue 2,326 2,447 Salaries, wages and employer taxes 548 639 Postretirement benefits other than pensions 694 244 Other 3,065 2,031 ------- ------- Total accrued liabilities $18,488 $16,273 ======= =======
Noncurrent Liabilities - - - ---------------------- Included in other liabilities at December 31 were the following (in millions):
1999 1998 ------------ ------------ Postretirement benefits other than pensions $12,158 $11,829 Dealer and customer allowances and claims 7,158 7,278 Employee benefit plans 4,167 3,463 Unfunded pension obligation 1,189 1,528 Minority interests in net assets of subsidiaries 86 87 Other 4,525 2,362 ------- ------- Total other liabilities $29,283 $26,547 ======= =======
NOTE 10. 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 laws, 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 $1.3 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 $200 million and the accumulated postretirement benefit obligation at December 31, 1999 by about $1.9 billion. A decrease of one percentage point would reduce service and interest costs by $150 million and decrease the December 31, 1999 obligation by $1.5 billion. FS-18 NOTE 10. 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 $ 522 $ 475 $ 432 $ 402 $ 324 $ 303 $ 275 $ 213 $ 194 Interest cost 1,714 1,609 1,591 823 802 795 972 946 900 Expected return on plan assets (2,475) (2,208) (1,991) (1,026) (898) (851) (82) (34) - Amortization of: Transition (asset)/obligation (22) (23) (24) 10 15 63 - - - Plan amendments 471 565 405 105 103 82 (35) (32) (34) (Gains)/losses and other (20) 53 25 183 127 58 77 84 11 ------- ------- ------- ------- ----- ----- ------ ------- ------ Net pension/postretirement expense $ 190 $ 471 $ 438 $ 497 $ 473 $ 450 $1,207 $1,177 $1,071 ======= ======= ======= ======= ===== ===== ====== ====== ====== 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-19 NOTE 10. 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 $33,003 $30,456 $16,312 $13,299 $ 15,230 $ 14,038 Service cost 650 584 434 352 275 213 Interest cost 2,099 1,966 888 866 971 946 Amendments 3,113 - 413 17 8 - Special programs 109 277 48 114 46 56 Net aquisitions/(sales) 74 (493) 784 - 37 (130) Plan participant contributions 46 44 67 91 - - Benefits paid (1,950) (1,843) (698) (660) (742) (668) Foreign exchange translation - - (951) 182 22 (21) Actuarial loss/(gain) (5,298) 2,012 (813) 2,051 (103) 796 ------- ------- ------- ------- -------- -------- Benefit obligation at December 31 $31,846 $33,003 $16,484 $16,312 $ 15,744 $ 15,230 ======= ======= ======= ======= ======== ======== Change in Plan Assets - - - --------------------- Fair value of plan assets at January 1 $38,417 $35,051 $13,235 $11,671 $ 1,501 $ 565 Actual return on plan assets 4,239 5,647 2,131 1,468 55 34 Company contributions 6 2 217 216 99 1,275 Special programs (32) (93) - (27) - - Net acquisitions/(sales) 43 (473) 671 - - - Plan participant contributions 46 44 67 91 - - Benefits paid (1,950) (1,843) (698) (660) (397) (373) Foreign exchange translation - - (447) 26 - - Other 76 82 256 450 - - ------- ------- ------- ------- -------- -------- Fair value of plan assets at December 31 $40,845 $38,417 $15,432 $13,235 $ 1,258 $ 1,501 ======= ======= ======= ======= ======== ======== Funded Status of the Plan - - - ------------------------- Plan assets in excess of/(less than) projected benefits $ 8,999 $ 5,414 $(1,052) $(3,077) $(14,486) $(13,729) Unamortized: Transition (asset)/obligation (36) (55) 164 737 - - Prior service cost 4,548 1,909 833 506 (46) (88) Net (gains)/losses (12,037) (5,605) (1,053) 652 1,330 1,444 ------- ------- ------- ------- -------- -------- Net amount recognized $ 1,474 $ 1,663 $(1,108) $(1,182) $(13,202) $(12,373) ======= ======= ======= ======= ======== ======== Amounts Recognized in the Balance Sheet Consists of Assets/(Liabilities) - - - --------------------------------------------- Prepaid assets $ 2,288 $ 2,344 $ 1,064 $ 746 $ - $ - Accrued liabilities (1,118) (786) (3,061) (3,353) (13,202) (12,373) Intangible assets 170 16 519 405 - - Deferred income tax 46 34 84 376 - - Accumulated other comprehensive income 88 55 286 644 - - ------- ------- ------- ------- -------- -------- Net amount recognized $ 1,474 $ 1,663 $(1,108) $(1,182) $(13,202) $(12,373) ======= ======= ======= ======= ======== ======== Pension Plans in Which Accumulated Benefit Obligation Exceeds Plan Assets at December 31 - - - --------------------------------------------- Projected benefit obligation $ 1,109 $ 786 $ 5,721 $ 6,533 Accumulated benefit obligation 1,021 689 5,366 6,118 Fair value of plan assets 54 14 2,837 2,800 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-20 NOTE 11. 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 14.3% 10.0% $ 1,001 $ 959 Long-term debt payable within one year 337 48 ------- ------- Total debt payable within one year 1,338 1,007 Long-term debt 2001-2097 7.5% 8.0% 10,398 8,589 -------------- ------- ------- Total debt $11,736 $ 9,596 ======= ======= Fair value $13,528 $10,573 - - - - - - - -
*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 - $337 (included in current liabilities); 2001 - $139; 2002 - $133; 2003 - $71; 2004 - $232; thereafter - $9,823. Included in long-term debt at December 31, 1999 and 1998 were obligations of $10,057 million and $7,855 million, respectively, with fixed interest rates, and $341 million and $734 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 $516 million and $461 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-21 NOTE 11. 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-22 NOTE 12. 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) - 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-23 NOTE 13. 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-24 NOTE 13. 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 14. 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 15. Commitments and Contingencies - - - --------------------------------------- At December 31, 1999, the company had the following minimum rental commitments under non-cancelable operating leases (in millions): 2000 - $427; 2001 - $337; 2002 - $270; 2003 - $151; 2004 - $102; thereafter - $219. These amounts include rental commitments related to the sale and leaseback of certain automotive sector machinery and equipment. FS-25 NOTE 16. 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 3 Debt 11,736 13,528 9,596 10,573 Note 11 Financial Services Sector ------------------------- Marketable securities $ 733 $ 733 $ 968 $ 968 Note 3 Receivables 105,577 106,552 90,010 89,847 Note 4 Debt 139,919 139,979 122,324 124,320 Note 11
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-26 NOTE 17. 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. 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 $157.2 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. FS-27 NOTE 17. Acquisitions, Dispositions and Restructuring (continued) - - - ------------------------------------------------------ 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 $688 million ($447 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 1,947 persons in North America (all salaried), 1,951 in Europe (1,304 hourly and 647 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, 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. 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. FS-28 NOTE 18. 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 from continuing operations $ 4,986 $ 1,516 $ 4,049 $ 17,319 $ 4,203 $ 2,206 Adjustments to reconcile net income to cash flows from operating activities: Depreciation and amortization 5,244 9,298 5,279 8,624 5,430 7,764 Losses/(earnings) of affiliated companies in excess of dividends remitted (14) 25 91 (2) 140 (1) Provision for credit and insurance losses - 1,465 - 1,798 - 3,230 Foreign currency adjustments 284 - (192) - (59) - Net (purchases)/sales of trading securities 2,316 (157) (5,434) (205) (2,307) 67 Provision for deferred income taxes 258 1,565 345 1,307 660 (102) Gain on spin-off of The Associates (Note 17) - - - (15,955) - - Gain on sale of Common Stock of a subsidiary (Note 17) - - - - - (269) Changes in assets and liabilities: Decrease/(increase) in accounts receivable and other current assets (822) (331) 1,164 (1,189) 32 256 Decrease/(increase) in inventory 955 - (173) - 1,207 - Increase/(decrease) in accounts payable and accrued and other liabilities 1,154 (1,213) 2,479 890 3,494 (240) Other 428 372 638 891 (227) 739 ------- ------- ------- -------- ------- ------- Cash flows from operating activities $14,789 $12,540 $ 8,246 $ 13,478 $12,573 $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 $8,381 $9,039 $10,335 Income taxes 844 1,456 1,205
FS-29 NOTE 19. 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 three primary operating segments: Automotive, 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):
Financial Services Sector ----------------------------------- Auto- Ford Other Elims/ motive Credit Hertz Fin Svcs Other Total ---------- ----------- ---------- ----------- ----------- ----------- 1999 ---- Revenues External customer $135,073 $ 20,020 $ 4,695 $ 866 $ 4 $160,658 Intersegment 4,082 340 33 170 (4,625) - -------- -------- ------- ------- -------- -------- Total Revenues $139,155 $ 20,360 $ 4,728 $ 1,036 $ (4,621) $160,658 ======== ======== ======= ======= ======== ======== Income Income before taxes $ 7,275 $ 2,104 $ 560 $ (85) $ - $ 9,854 Provision for income tax 2,251 791 224 (18) - 3,248 Income from continuing operations 4,986 1,261 336 (15) (66) 6,502 Other Disclosures Depreciation/amortization $ 5,244 $ 7,565 a/ $ 1,357 $ 326 $ 50 $ 14,542 Interest income 1,532 - - - (114) 1,418 Interest expense 1,469 7,193 354 633 (623) 9,026 Capital expenditures 7,069 82 351 157 - 7,659 Unconsolidated affiliates Equity in net income 35 (25) - - - 10 Investments in 2,539 97 - 8 - 2,644 Total assets at year-end 102,608 156,631 10,137 12,427 (11,554) 270,249 ---------------------------------------------------------------------------------------------------------------- 1998 ---- Revenues External customer $118,017 $ 19,095 $ 4,241 $ 1,997 $ - $143,350 Intersegment 3,333 208 9 272 (3,822) - -------- -------- ------- ------- -------- -------- Total Revenues $121,350 $ 19,303 $ 4,250 $ 2,269 $ (3,822) $143,350 ======== ======== ======= ======= ======== ======== Income Income before taxes $ 5,842 $ 1,812 $ 465 $16,161 b/ $ - $ 24,280 Provision for income tax 1,743 680 188 149 - 2,760 Income from continuing operations 4,049 1,084 277 16,060 b/ (102) 21,368 Other Disclosures Depreciation/amortization $ 5,279 $ 7,327 a/ $ 1,212 $ 54 $ 31 $ 13,903 Interest income 1,340 - - - (15) 1,325 Interest expense 999 6,910 318 1,114 (510) 8,831 Capital expenditures 7,252 67 317 120 - 7,756 Gain on spin-off of The Associates - - - 15,955 b/ - 15,955 Unconsolidated affiliates Equity in net income (64) 2 - - - (62) Investments in 2,187 76 - - - 2,263 Total assets at year-end 85,008 137,248 8,873 6,181 (4,598) 232,712 ---------------------------------------------------------------------------------------------------------------- 1997 ---- Revenues External customer $121,976 $ 17,144 $ 3,895 $ 9,653 $ - $152,668 Intersegment 3,924 201 10 266 (4,401) - -------- -------- ------- ------- -------- -------- Total Revenues $125,900 $ 17,345 $ 3,905 $ 9,919 $ (4,401) $152,668 ======== ======== ======= ======= ======== ======== Income Income before taxes $ 6,267 $ 1,806 $ 343 $ 1,708 c/ $ - $ 10,124 Provision for income tax 2,017 727 142 550 - 3,436 Income from continuing operations 4,203 1,031 202 1,205 c/ (232) 6,409 Other Disclosures Depreciation/amortization $ 5,430 $ 6,188 a/ $ 1,088 $ 463 $ 25 $ 13,194 Interest income 1,145 - - - (33) 1,112 Interest expense 903 6,268 316 3,523 (510) 10,500 Capital expenditures 7,225 49 211 315 - 7,800 Gain on Hertz IPO - - - 269 c/ - 269 Unconsolidated affiliates Equity in net income (117) 1 - - - (116) Investments in 1,756 84 - - - 1,840 Total assets at year-end 81,620 121,973 7,436 68,348 (5,020) 274,357 - - - - - - - -
a/ Includes depreciation of operating leases only. Other types of Depreciation/amortization for Ford Credit are included in the Elims/Other column. b/ Includes $15,955 non-cash gain (not taxed) on spin-off of The Associates in the first quarter of 1998 (Note 17). c/ Includes $269 gain (not taxed) on Hertz IPO in the second quarter of 1997 (Note 17). FS-30 NOTE 19. 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 $111,423 $32,709 $16,526 $160,658 Net property 24,146 13,098 6,719 43,963 1998 ---- External revenues $ 99,879 $26,795 $16,676 $143,350 Net property 22,266 9,774 6,608 38,648 1997 ---- External revenues $104,911 $27,403 $20,354 $152,668 Net property 20,624 8,521 6,620 35,765
FS-31 NOTE 20. 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 $31,597 $35,546 $30,645 $37,285 $28,865 $31,042 $26,192 $31,918 Operating income 2,083 2,454 737 1,940 1,515 2,551 531 970 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 Income from continuing operations $ 1,774 $ 2,058 $ 959 $ 1,711 $17,459 $ 2,142 $ 852 $ 915 Less: Preferred Stock dividend requirements 4 4 4 3 95 4 4 4 ------- ------- ------- ------- ------- ------- ------- ------- Income attributable to Common and Class B Stock $ 1,770 $ 2,054 $ 955 $ 1,708 $17,364 $ 2,138 $ 848 $ 911 ======= ======= ======= ======= ======= ======= ======= ======= AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK AFTER PREFERRED STOCK DIVIDENDS Basic income $ 1.47 $ 1.70 $ 0.79 $ 1.42 $ 14.33 $ 1.77 $ 0.70 $ 0.76 Diluted income 1.43 1.66 0.77 1.39 14.08 1.72 0.68 0.74 Cash dividends 0.46 0.46 0.46 0.50 0.42 0.42 0.42 0.46
FS-32 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 of America. 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 of America, 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 our opinion. /s/PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Detroit, Michigan January 24, 2000, except for note 2, which is as of June 28, 2000 -----END PRIVACY-ENHANCED MESSAGE-----