-----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, H7QbOhGYTlchXGu3zBmyZf5PnhTFK1HM+Y/6fDX0QnTUdrjzrDsygys8jAHkNq3a /BgaJ4OzJADucV8eIpLQEw== 0000037996-98-000014.txt : 19980319 0000037996-98-000014.hdr.sgml : 19980319 ACCESSION NUMBER: 0000037996-98-000014 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980318 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FORD MOTOR CO CENTRAL INDEX KEY: 0000037996 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLES & PASSENGER CAR BODIES [3711] IRS NUMBER: 380549190 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-03950 FILM NUMBER: 98567794 BUSINESS ADDRESS: STREET 1: THE AMERICAN RD CITY: DEARBORN STATE: MI ZIP: 48121 BUSINESS PHONE: 3133223000 10-K405 1 ANNUAL REPORT ON FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 FORM 10-K (Mark One) X Annual report pursuant to Section 13 or 15(d) of the Securities - ---- Exchange Act of 1934 (No Fee Required) For the fiscal year ended December 31, 1997 or Transition report pursuant to Section 13 or 15(d) of the Securities - ---- Exchange Act of 1934 (No Fee Required) For the transition period from to ------- ------- Commission file number 1-3950 ------ FORD MOTOR COMPANY ------------------ (Exact name of Registrant as specified in its charter) Delaware 38-0549190 -------- ---------- (State of incorporation) (I.R.S. employer identification no.) The American Road, Dearborn, Michigan 48121 ------------------------------------- ----- (Address of principal executive offices) (Zip code) 313-322-3000 ------------ (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered (a) ------------------- ------------------------ Common Stock, par value $1.00 per share New York Stock Exchange Pacific Coast Stock Exchange Depositary Shares, each representing New York Stock Exchange 1/2,000 of a share of Series B Cumulative Preferred Stock, as described below - --------------- (a) In addition, shares of Common Stock of the Registrant are listed on certain stock exchanges in the United Kingdom and Continental Europe. [Cover page 1 of 2 pages] Securities registered pursuant to Section 12(g) of the Act: Series B Cumulative Preferred Stock, par value $1.00 per share, with an annual dividend rate of $4,125 per share and a liquidation preference of $50,000 per share. Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X ----- As of February 27, 1998, the Registrant had outstanding 1,141,127,738 shares of Common Stock and 70,852,076 shares of Class B Stock. Based on the New York Stock Exchange Composite Transaction closing price of the Common Stock on that date ($56 9/16 a share), the aggregate market value of such Common Stock was $64,545,037,681. Although there is no quoted market for the Registrant's Class B Stock, shares of Class B Stock may be converted at any time into an equal number of shares of Common Stock for the purpose of effecting the sale or other disposition of such shares of Common Stock. The shares of Common Stock and Class B Stock outstanding at February 27, 1998 included shares owned by persons who may be deemed to be "affiliates" of the Registrant. The Registrant does not believe, however, that any such person should be considered to be an affiliate. For information concerning ownership of outstanding Common Stock and Class B Stock, see the Proxy Statement for the Registrant's Annual Meeting of Stockholders to be held on May 14, 1998 (the "Proxy Statement"), which is incorporated by reference under various Items of this Report. Document Incorporated by Reference* ----------------------------------- Document Where Incorporated -------- ------------------ Proxy Statement Part III (Items 10, 11, 12 and 13) - -------------------------- * As stated under various Items of this Report, only certain specified portions of such document are incorporated by reference herein. [Cover page 2 of 2 pages] PART I Item 1. Business - ----------------- Ford Motor Company (referred to herein as "Ford", the "Company" or the "Registrant") was incorporated in Delaware in 1919 and acquired the business of a Michigan company, also known as Ford Motor Company, incorporated in 1903 to produce automobiles designed and engineered by Henry Ford. Ford is the world's largest producer of trucks and the second largest producer of cars and trucks combined. Ford and its subsidiaries also engage in automotive-related businesses, such as, financing and renting vehicles and manufacturing automotive components and systems. General The Company's two principal business segments are Automotive and Financial Services. The activities of the Automotive segment consist of the design, manufacture, assembly and sale of cars and trucks and related parts and accessories. Substantially all of Ford's automotive products are marketed through retail dealerships, most of which are privately owned and financed. The primary activities of the Financial Services segment consist of financing operations, vehicle and equipment leasing and rental operations, and insurance operations. These activities are conducted primarily through the Company's subsidiaries, Ford Motor Credit Company ("Ford Credit") and The Hertz Corporation ("Hertz"). Ford also owns an 80.7% economic interest in Associates First Capital Corporation ("The Associates"), which, as Ford has recently announced, will be spun-off on April 7, 1998 to holders of Ford's Common and Class B Stock. See Note 17 (pages FS-32 and FS-33) of the Notes to Financial Statements and Item 6. "Selected Financial Data" for information relating to revenue, operating income/(loss) and assets attributable to Ford's industry segments. Also see Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" for information with respect to revenue, net income and other matters. Automotive Operations The worldwide automotive industry is affected significantly by a number of factors over which the industry has little control, including general economic conditions. In the United States, the automotive industry is a highly-competitive, cyclical business characterized by a wide variety of product offerings. The level of industry demand (retail deliveries of cars and trucks) can vary substantially from year to year. In any year, demand is dependent to a large extent on general economic conditions, the cost of purchasing and operating cars and trucks and the availability and cost of credit and of fuel. Industry demand also reflects the fact that cars and trucks are durable items, the replacement of which can be postponed. The automotive industry outside of the United States consists of many producers, with no single dominant producer. Certain manufacturers, however, account for the major percentage of total sales within particular countries, especially their respective countries of origin. Most of the factors that affect the U.S. automotive industry and its sales volumes and profitability are equally relevant outside the United States. Item 1. Business (Continued) - ---------------------------- The worldwide automotive industry also is affected significantly by a substantial amount of costly government regulation. In the United States and Europe, for example, government regulation has arisen primarily out of concern for the environment, for greater vehicle safety and for improved fuel economy. Many governments also regulate local content and/or impose import requirements as a means of creating jobs, protecting domestic producers or influencing their balance of payments. Unit sales of Ford vehicles vary with the level of total industry demand and as a result of Ford's share of industry sales. Ford's share is influenced by the quality, price, design, driveability, safety, reliability, economy and utility of its products compared with those offered by other manufacturers, as well as by the timing of new model introductions and capacity limitations. Ford's ability to satisfy changing consumer preferences with respect to type or size of vehicle and its design and performance characteristics can affect Ford's sales and earnings significantly. The profitability of vehicle sales is affected by many factors, including unit sales volume, the mix of vehicles and options sold, the level of "incentives" (price discounts) and other marketing costs, the costs for customer warranty claims and other customer satisfaction actions, the costs for government-mandated safety, emission and fuel economy technology and equipment, the ability to control costs and the ability to recover cost increases through higher prices. Further, because the automotive industry is capital intensive, it operates with a relatively high percentage of fixed costs which can result in large changes in earnings from relatively small changes in unit volume. United States - ------------- Sales Data. The following table shows U.S. industry demand for the years indicated:
U. S. Industry Retail Deliveries (millions of units) Years Ended December 31, ----------------------------------------------------------------- 1997 1996 1995 1994 1993 --------- --------- --------- ---------- --------- Cars........................................ 8.3 8.6 8.6 9.0 8.5 Trucks...................................... 7.2 6.9 6.5 6.4 5.7 ---- ---- --- ---- ---- Total....................................... 15.5 15.5 15.1 15.4 14.2 ==== ==== ==== ==== ====
-2- Item 1. Business (Continued) - ---------------------------- Ford classifies cars by small, middle, large and luxury segments and trucks by compact pickup, compact bus/van/utility, full-size pickup, full-size bus/van/utility and medium/heavy segments. The large and luxury car segments and the compact bus/van/utility, full-size pickup and full-size bus/van/utility truck segments include the industry's most profitable vehicle lines. The term "bus" as used herein refers to vans designed to carry passengers. The following tables show the proportion of retail car and truck sales by segment for the industry (including Japanese and other foreign-based manufacturers) and Ford for the years indicated:
U. S. Industry Vehicle Sales by Segment ----------------------------------------------------------------- Years Ended December 31, ----------------------------------------------------------------- 1997 1996 1995 1994 1993 --------- --------- --------- ---------- --------- CARS Small....................................... 18.1% 19.1% 19.6% 20.1% 19.8% Middle...................................... 24.7 25.6 26.4 26.8 28.8 Large....................................... 3.9 3.9 4.3 4.8 5.0 Luxury...................................... 6.7 6.7 6.8 6.6 6.4 ------ ------ ------ ------ ------ Total U.S. Industry Car Sales............... 53.4 55.3 57.1 58.3 60.0 ------ ------ ------ ------ ------ TRUCKS Compact Pickup.............................. 6.4 6.2 6.8 7.7 7.6 Compact Bus/Van/Utility..................... 20.0 19.0 18.0 16.9 16.5 Full-Size Pickup............................ 12.0 12.6 11.5 11.0 9.9 Full-Size Bus/Van/Utility................... 6.1 5.0 4.4 4.1 4.2 Medium/Heavy................................ 2.1 1.9 2.2 2.0 1.8 ------ ------ ------ ------ ------ Total U.S. Industry Truck Sales............. 46.6 44.7 42.9 41.7 40.0 ------ ------ ------ ------ ------ Total U.S. Industry Vehicle Sales 100.0% 100.0% 100.0% 100.0% 100.0% ===== ===== ===== ===== =====
Ford Vehicle Sales by Segment in U.S. ----------------------------------------------------------------- Years Ended December 31, ----------------------------------------------------------------- 1997 1996 1995 1994 1993 --------- --------- --------- ---------- --------- CARS Small....................................... 12.7% 13.4% 15.1% 17.5% 15.1% Middle...................................... 19.6 22.1 22.3 22.7 26.9 Large....................................... 5.6 5.3 4.9 5.2 5.1 Luxury...................................... 4.1 4.1 4.4 4.7 4.9 ------ ------ ------ ------ ------ Total Ford U.S. Car Sales................... 42.0 44.9 46.7 50.1 52.0 ------ ------ ------ ------ ------ TRUCKS Compact Pickup.............................. 7.7 7.4 8.0 8.9 9.5 Compact Bus/Van/Utility..................... 18.9 20.0 20.1 16.7 15.6 Full-Size Pickup............................ 19.3 20.0 17.9 16.7 15.6 Full-Size Bus/Van/Utility................... 11.0 6.6 5.9 6.2 6.0 Medium/Heavy*............................... 1.1 1.1 1.4 1.4 1.3 ------ ------ ------ ------ ------ Total Ford U.S. Truck Sales................. 58.0 55.1 53.3 49.9 48.0 ------ ------ ------ ------ ------ Total Ford U.S. Vehicle Sales............... 100.0% 100.0% 100.0% 100.0% 100.0% ===== ===== ===== ===== =====
- --------------------- *In May 1997, Ford and Freightliner Corporation ("Freightliner") entered into an agreement for the sale to Freightliner of Ford's heavy truck business in North America and Australia. Ford ceased production of heavy trucks in North America in December 1997. The transfer of the North American heavy truck business is expected to be completed by the end of the first quarter of 1998, and the transfer of the Australian business is expect to be completed by year-end 1998. As shown in the tables above, since 1993 there has been a steady shift from cars to trucks for both industry sales and Ford sales. Most of the shift reflects fewer sales of cars in the middle and large segments for the industry and in the small and middle segments for Ford, as well as increased sales of trucks in all segments with the exception of compact pickups and medium/heavy trucks. -3- Item 1. Business (Continued) - ---------------------------- Market Share Data. The following tables show changes in car and truck market shares of U.S. and foreign-based manufacturers for the years indicated:
U.S. Car Market Shares* ----------------------------------------------------------------- Years Ended December 31, ----------------------------------------------------------------- 1997 1996 1995 1994 1993 --------- --------- --------- ---------- --------- U.S. Manufacturers (Including Imports) Ford..................................... 19.7% 20.6% 20.9% 21.8% 22.3% General Motors........................... 32.2 32.3 33.9 34.0 34.1 Chrysler................................. 8.9 9.8 9.1 9.0 9.8 ----- ----- ----- ----- ----- Total U.S. Manufacturers.............. 60.8 62.7 63.9 64.8 66.2 Foreign-Based Manufacturers** Japanese................................. 30.9 30.0 29.7 29.6 29.1 All Other................................ 8.3 7.3 6.4 5.6 4.7 ----- ----- ----- ----- ----- Total Foreign-Based Manufacturers..... 39.2 37.3 36.1 35.2 33.8 ----- ----- ----- ----- ----- Total U.S. Car Retail Deliveries...... 100.0% 100.0% 100.0% 100.0% 100.0% ===== ===== ===== ===== =====
U.S. Truck Market Shares* ----------------------------------------------------------------- Years Ended December 31, ----------------------------------------------------------------- 1997 1996 1995 1994 1993 --------- --------- --------- ---------- --------- U.S. Manufacturers (Including Imports) Ford..................................... 31.2% 31.1% 31.9% 30.1% 30.5% General Motors........................... 28.8 29.0 29.9 30.9 31.4 Chrysler................................. 21.7 23.4 21.3 21.7 21.4 Navistar International................... 1.3 1.3 1.4 1.3 1.3 All Other................................ 1.8 1.8 2.0 1.8 1.6 ----- ----- ----- ----- ----- Total U.S. Manufacturers.............. 84.8 86.6 86.5 85.8 86.2 Foreign-Based Manufacturers** Japanese................................. 14.2 12.7 12.7 13.5 13.2 All Other................................ 1.0 0.7 0.8 0.7 0.6 ----- ----- ----- ----- ----- Total Foreign-Based Manufacturers..... 15.2 13.4 13.5 14.2 13.8 ----- ----- ----- ----- ----- Total U.S. Truck Retail Deliveries.... 100.0% 100.0% 100.0% 100.0% 100.0% ===== ===== ===== ===== =====
U.S. Combined Car and Truck Market Shares* ----------------------------------------------------------------- Years Ended December 31, ----------------------------------------------------------------- 1997 1996 1995 1994 1993 --------- --------- --------- ---------- --------- U.S. Manufacturers (Including Imports) Ford..................................... 25.0% 25.2% 25.6% 25.2% 25.5% General Motors........................... 30.6 30.8 32.2 32.7 33.1 Chrysler................................. 14.8 15.9 14.3 14.3 14.7 Navistar International................... 0.6 0.6 0.6 0.5 0.5 All Other................................ 0.9 0.7 0.9 0.8 0.7 ----- ----- ----- ----- ----- Total U.S. Manufacturers.............. 71.9 73.2 73.6 73.5 74.2 Foreign-Based Manufacturers** Japanese................................. 23.2 22.4 22.6 22.9 22.8 All Other................................ 4.9 4.4 3.8 3.6 3.0 ----- ----- ----- ----- ----- Total Foreign-Based Manufacturers..... 28.1 26.8 26.4 26.5 25.8 ----- ----- ----- ----- ----- Total U.S. Car and Truck Retail Deliveries ........................... 100.0% 100.0% 100.0% 100.0% 100.0% ===== ===== ===== ===== =====
- -------------------------- * All U.S. retail sales data are based on publicly available information from the American Automobile Manufacturers Association, the media and trade publications. ** Share data include cars and trucks assembled and sold in the U.S. by Japanese-based manufacturers selling through their own dealers as well as vehicles imported by them into the U.S. "All Other" includes primarily companies based in various European countries and in Korea. -4- Item 1. Business (Continued) - ---------------------------- Japanese Competition. The market share of Ford and other domestic manufacturers in the United States is affected by sales from Japanese manufacturers. As shown in the table above, the share of the U.S. combined car and truck industry held by the Japanese manufacturers decreased from 22.8% in 1993 to 22.4% in 1996. This trend reflected in part the effects of a strengthening Japanese yen, which put an upward pressure on the prices of vehicles produced by Japanese manufacturers, as well as the overall market shift from cars to trucks and improvements in vehicles produced by U.S. manufacturers. During 1997, however, the share of the U.S. combined car and truck market held by Japanese manufacturers increased to 23.2% as the Japanese yen weakened against the dollar. The recent disruption in Asian financial markets and associated further weakening of the yen creates additional competitive pressures in the United States by Japanese manufacturers. In the 1980s and continuing in the 1990s, Japanese manufacturers added assembly capacity in North America (frequently referred to as "transplants") in response to a variety of factors, including export restraints, movements in the exchange rate between the Japanese yen and the U.S. dollar, the significant growth of Japanese car sales in the United States and international trade considerations. Ford estimates that production in the United States by Japanese transplants was approximately 2.3 million units in 1997. Marketing Incentives and Fleet Sales. As a result of intense competition from new product offerings (from both domestic and foreign manufacturers) and the desire to maintain economic production levels, automotive manufacturers that sell vehicles in the United States have provided marketing incentives (price discounts) to retail and fleet customers (i.e., daily rental companies, commercial fleets, leasing companies and governments). Marketing incentives are particularly prevalent during periods of economic downturns, when excess capacity in the industry tends to increase. Ford's marketing costs in the United States as a percentage of gross sales revenue for each of 1997, 1996, and 1995 were 8.7%, 8.0%, and 8.2%, respectively. "Marketing costs" include (i) marketing incentives on vehicles such as retail rebates and costs for special financing rates, (ii) reserves for residual support on retail vehicle leases, (iii) reserves for costs and/or losses associated with obligatory repurchases of certain vehicles sold to daily rental companies and (iv) costs for advertising and sales promotions for vehicles. Sales by Ford to fleet customers were as follows for the years indicated:
Ford Fleet Sales ----------------------------------------------------------------- Years Ended December 31, ----------------------------------------------------------------- 1997 1996 1995 1994 1993 --------- --------- --------- ---------- --------- Units sold.................................. 923,000 936,000 971,000 924,000 881,000 Percent of Ford's total U.S. car and truck sales............................ 24% 24% 25% 24% 25%
Fleet sales generally are less profitable than retail sales, and sales to daily rental companies generally are less profitable than sales to other fleet purchasers. The mix between sales to daily rental companies and other fleet sales has been about evenly split in recent years. Warranty Coverage. Ford presently provides warranty coverage for defects in factory-supplied materials and workmanship on all vehicles (other than medium/heavy trucks) sold by it in the United States that extends for at least 36 months or 36,000 miles (whichever occurs first) and covers all components of the vehicle, other than tires which are warranted by the tire manufacturers. In general, different warranty coverage is provided on medium/heavy trucks and on vehicles sold outside the United States. In addition, as discussed below under "Governmental Standards - Mobile Source Emissions Control", the Federal Clean Air Act requires a useful life of 10 years or 100,000 miles (whichever occurs first) for emissions equipment on most light duty vehicles sold in the United States. As a result of the coverage of these warranties and the increased concern for customer satisfaction, costs for warranty repairs, emissions equipment repairs and customer satisfaction actions ("warranty costs") can be substantial. Estimated warranty costs for each vehicle sold by Ford are accrued at the time of sale. Such accruals, however, are subject to adjustment from time to time depending on actual experience. -5- Item 1. Business (Continued) - ---------------------------- Europe - ------ Europe is the largest market for the sale of Ford cars and trucks outside the United States. The automotive industry in Europe is intensely competitive; for the past 12 years, the top six manufacturers have each achieved a car market share in about the 10% to 17% range. (Manufacturers' shares, however, vary considerably by country.) This competitive environment is expected to intensify further as Japanese manufacturers, which together had a European car market share of 11% for 1997, increase their production capacity in Europe and import restrictions on Japanese built-up vehicles gradually are removed in total by December 31, 1999. Ford estimates that in 1997 the European automotive industry had excess capacity of approximately 5.5 million units (based on a comparison of European domestic demand and capacity). In 1997, European car industry sales were 13.2 million units, up 5% from 1996 levels. Truck sales were 1.8 million units, up 6% from 1996 levels. Ford's European car share for 1997 was 11.2%, down 3/10 of a point from 1996, and its European truck share for 1997 was 12.2%, down 9/10 of a point from 1996. For Ford, Great Britain and Germany are the most important markets within Europe, although the Southern European countries are becoming increasingly significant. Any adverse change in the British or German market has a significant effect on total automotive profits. For 1997 compared with 1996, total industry sales were up 7% in Great Britain and up 7% in Germany. A single currency called the euro will be introduced in Europe on January 1, 1999. The increased price transparency resulting from the use of a single currency may affect the ability of Ford and other companies to price their products differently in the various European markets. A possible result of this price harmonization is lower average prices for products sold in these markets. Other Foreign Markets - --------------------- Mexico and Canada. Mexico and Canada also are important markets for Ford. In 1997, industry sales of cars and trucks in Canada were 1.4 million units, up 18% from 1996 levels. The increase reflected economic growth and low Canadian interest rates. Mexico had been a growing market until late 1994. However, substantial devaluation of the Mexican peso in late 1994 created a high level of uncertainty regarding economic activity in Mexico. In 1996 and 1997, the Mexican economy recovered. In 1997, industry volume was 496,000 units, up 50% from 1996 levels. South America. Brazil and Argentina are the principal markets for Ford in South America. The economic environment in those countries has been volatile in recent years, leading to large variations in profitability. Results also have been influenced by government actions to reduce inflation and public deficits, and improve the balance of payments. Industry sales in 1997 were 1.9 million units in Brazil, up 11% from 1996, and 426,000 units in Argentina, up 13% from 1996. Brazilian government austerity measures in late 1997 adversely impacted industry vehicle sales in that country and are expected to continue to affect industry sales in 1998. Asia Pacific. In the Asia Pacific region, Australia, Taiwan and Japan are the principal markets for Ford products. Industry volumes in 1997 in this region were as follows: 722,000 units in Australia (up 11.1% from 1996), 482,000 units in Taiwan (up 2.3% from 1996) and 6.7 million units in Japan (down 5% from 1996). In 1997, Ford was the market share leader in Australia with an 18% combined car and truck market share. In Taiwan (where sales of built-up vehicles manufactured in Japan are prohibited), Ford had a combined car and truck market share in 1997 of 16.1%. Ford's combined car and truck market share in Japan has never exceeded 1%. Ford's principal competition in the Asia Pacific region has been the Japanese manufacturers. It is anticipated that the continuing relaxation of import restrictions (including duty reductions) in Australia and Taiwan will intensify competition in those markets. -6- Item 1.Business (Continued) - --------------------------- The financial crisis that began in Thailand in mid-year 1997, and spread to the neighboring Southeast Asian nations, particularly Indonesia, has resulted in a significant reduction of vehicle sales for the region. These markets had been expanding, but economic growth is now expected to remain subdued during a period of restructuring. Ford is positioning itself to actively participate in these markets in recognition of their long-term growth opportunities. Africa. Ford operates in the South African market through South African Motor Corporation (Pty.) Limited ("SAMCOR") in which Ford has a 45% equity interest. SAMCOR is an assembler of Ford and other manufacturers' vehicles in South Africa. In 1997, industry volume in South Africa was 367,000 units, down 7% from 1996 levels. Financial Services Operations Ford Motor Credit Company - ------------------------- Ford Credit is an indirect wholly owned subsidiary of Ford. Ford Credit and its subsidiaries provide wholesale financing and capital loans throughout the world to Ford retail dealerships and associated non-Ford dealerships, most of which are privately owned and financed, and purchase retail installment sale contracts and retail leases from them. Ford Credit also makes loans to vehicle leasing companies, the majority of which are affiliated with such dealerships. In addition, subsidiaries of Ford Credit provide these financing services in the United States, Europe, Canada and Australia to non-Ford dealerships. A substantial majority of all new vehicles financed by Ford Credit and its subsidiaries are manufactured by Ford and its affiliates. Ford Credit also provides retail financing for used vehicles built by Ford and other manufacturers. In addition to vehicle financing, Ford Credit makes loans to affiliates of Ford and finances certain receivables of Ford and its subsidiaries. Outside the United States, Ford Credit Europe plc ("Ford Credit Europe") is Ford Credit's largest operation. Ford Credit Europe is owned by Ford Credit (70.4%), Ford Werke AG (19.6%) and Ford (10%). Ford Credit Europe's primary business is to support the sale of Ford vehicles in Europe through the Ford dealer network. A variety of retail, leasing and wholesale finance plans is provided in most countries in which it operates. Ford Credit also conducts insurance operations through The American Road Insurance Company ("American Road") and its subsidiaries in the United States and Canada. American Road's business consists of extended service plan contracts for new and used vehicles manufactured by affiliated and nonaffiliated companies, primarily originating from Ford dealers, physical damage insurance covering vehicles and equipment financed at wholesale by Ford Credit, and the reinsurance of credit life and credit disability insurance for retail purchasers of vehicles and equipment. Ford Credit financed the following percentages of new Ford cars and trucks sold or leased at retail and sold at wholesale in the United States and Europe, respectively, during the years indicated:
Years Ended December 31, --------------------------------------------------- 1997 1996 1995 -------------- --------------- ------------- United States Retail*............................ 37.5% 37.6% 36.9% Wholesale.......................... 79.8 79.5 79.7 Europe Retail*............................ 29.1 29.3 30.2 Wholesale.......................... 95.0 90.8 89.2 ------------------- * As a percentage of total sales and leases, including cash sales.
-7- Item 1. Business (Continued) - ----------------------------- Ford Credit's finance receivables and retained interest in sold receivables and investments in operating leases were as follows at the dates indicated (in millions):
December 31, -------------------------------------- 1997 1996 ----------------- ----------------- Finance receivables and retained interest in sold receivables Retail $55,601 $53,141 Wholesale 21,605 22,706 Other 5,276 5,901 ------- ------- Total finance receivables, net of unearned income 82,482 81,748 Less: allowance for credit losses (1,170) (900) ------- ------- Finance receivables, net 81,312 80,848 Retained interest in sold receivables 999 1,124 ------- ------- Finance receivables, net and retained interest in sold receivables $82,311 $81,972 ======= ======= Investments in operating leases Vehicles, at cost $41,926 $36,951 Lease origination costs 65 60 Less: Accumulated depreciation (6,943) (6,049) Allowance for credit losses (302) (317) ------- ------- Net investment in operating leases $34,746 $30,645 ======= =======
The aggregated receivable balances related to accounts past due 60 days or more were as follows at the dates indicated (in millions):
December 31, -------------------------------------- 1997 1996 --------------- --------------- Retail $497 $807 Wholesale 35 53 Other 59 86 ---- ---- Total $591 $946 ==== ====
The following table sets forth information concerning Ford Credit's credit loss experience with respect to the various categories of financing during the years indicated (in millions):
Years Ended or at December 31, ------------------------------------------------- 1997 1996 1995 ------------- ------------- ------------- Net losses/(recoveries) Retail* $1,004 $ 804 $ 467 Wholesale (1) 19 10 Other 4 7 9 ------ ------ ------ Total $1,007 $ 830 $ 486 ====== ====== ====== Net losses as a percentage of average net receivables* Retail 1.17% 1.03% 0.68% Total finance receivables 0.89 0.78 0.51 Provision for credit losses $1,338 $ 993 $ 480 Allowance for credit losses 1,471 1,218 1,055 Allowance as a percentage of net receivables* 1.27% 1.09% 1.03%
- ---------------- *Includes investments in operating leases. -8- Item 1. Business (Continued) - ---------------------------- An analysis of Ford Credit's allowance for credit losses on finance receivables and operating leases is as follows for the years indicated (in millions):
1997 1996 1995 ------------- ------------- ------------- Balance, beginning of year $1,218 $1,055 $1,084 Additions 1,338 993 480 Deductions Losses 1,239 1,021 687 Recoveries (232) (191) (201) ------ ------ ------ Net losses 1,007 830 486 Other changes, principally amounts relating to finance receivables and operating leases sold 78 - 23 ------ ------ ------ Net deductions 1,085 830 509 ------ ------ ------ Balance, end of year $1,471 $1,218 $1,055 ====== ====== ======
Ford Credit and Ford Credit Europe rely heavily on their ability to raise substantial amounts of funds. These funds are obtained primarily by the sale of commercial paper, the issuance of term debt and, in the case of Ford Credit Europe, certificates of deposit. Funds also are provided by retained earnings and sales of receivables. The level of funds can be affected by certain transactions with Ford, such as capital contributions and dividend payments, interest supplements and other support from Ford for vehicles financed and leased by Ford Credit or Ford Credit Europe under Ford-sponsored special financing or leasing programs. Funds also can be affected by the timing of payments for the financing of dealers' wholesale inventories and for income taxes. The ability of Ford Credit and Ford Credit Europe to obtain funds is affected by their credit ratings, which are closely related to the financial condition of and the outlook for Ford, and the nature and availability of support facilities, such as revolving credit agreements and receivables sales facilities. The long-term senior debt of each of Ford, Ford Credit and Ford Credit Europe is rated "A1" and "A" and the commercial paper of each of Ford Credit and Ford Credit Europe is rated "Prime-1" and "A-1" by Moody's Investors Service and Standard & Poor's Ratings Group, respectively. Ford and Ford Credit are parties to a profit maintenance agreement which provides for payments by Ford to the extent required to maintain Ford Credit's earnings at specified minimum levels. In addition, Ford and Ford Credit Europe are parties to a support agreement which requires Ford to retain a certain direct or indirect ownership interest in Ford Credit Europe and to make (or cause Ford Credit to make) payments to the extent required to maintain Ford Credit Europe's net worth at specified minimum levels. No payments were required under either of these agreements during the period 1988 through 1997. The Hertz Corporation - --------------------- Hertz and its affiliates and independent licensees operate what Hertz believes is the largest car rental business in the world based upon revenues and volume of rental transactions and the largest industrial and construction equipment rental business in the United States based upon revenues. Hertz, together with its affiliates and independent licensees, rents and leases cars, rents industrial and construction equipment and operates its other businesses from approximately 5,500 locations throughout the United States and in approximately 140 foreign countries and jurisdictions. In April 1997, Hertz completed an initial public offering of common stock representing a 19.1% economic interest in Hertz. -9- Item 1. Business (Continued) - ---------------------------- Associates First Capital Corporation - ------------------------------------ The Associates is a leading, diversified consumer and commercial finance organization which provides finance, leasing and related services to individual consumers and businesses in the United States and internationally. On March 2, 1998, Ford's Board of Directors approved the spin-off of The Associates by declaring a dividend pursuant to which all of Ford's 279.5 million shares of The Associates will be distributed to Ford Common and Class B stockholders in proportion to their ownership of Common and Class B Stock. The distribution will be made on April 7, 1998 to holders of record on March 12, 1998. In 1996 and 1997, The Associates contributed 16.8% and 12%, respectively, to Ford's consolidated earnings. Generally, the earnings of The Associates have been retained by The Associates to fund its growth. Governmental Standards A number of governmental standards and regulations relating to safety, corporate average fuel economy ("CAFE"), emissions control, noise control, damageability and theft prevention are applicable to new motor vehicles, engines, and equipment manufactured for sale in the United States, Europe and elsewhere. In addition, manufacturing and assembly facilities in the United States, Europe and elsewhere are subject to stringent standards regulating air emissions, water discharges and the handling and disposal of hazardous substances. Such facilities in the United States also are subject to a comprehensive federal-state permit program relating to air emissions. Mobile Source Emissions Control -- U.S. Requirements. The Federal Clean Air Act (the "Clean Air Act" or the "Act") imposes stringent limits on the amount of regulated pollutants that lawfully may be emitted by new motor vehicles and engines produced for sale in the United States. Concurrently, most light duty vehicles sold in the United States must comply with these standards for 10 years or 100,000 miles, whichever first occurs. More stringent emissions standards will become effective as early as the 2004 model year, unless the U.S. Environmental Protection Agency (the "EPA") decides otherwise. Pursuant to the Act, California has received a waiver from the EPA to establish unique emissions control standards. New vehicles and engines sold in California must be certified by the California Air Resources Board (the "CARB"). The CARB's emissions requirements (the "California program") for model years 1994 through 2003 require manufacturers to meet a non-methane organic gasses fleet average requirement and are significantly more stringent than those prescribed by the Act for the corresponding periods of time. California initially required that a specified percentage of each manufacturer's vehicles produced for sale in California, beginning at 2% in 1998 and increasing to 10% in 2003, must be zero-emission vehicles ("ZEVs"), which produce no emissions of regulated pollutants. In 1996, however, the CARB eliminated the ZEV mandate until the 2003 model year. Around the same time, vehicle manufacturers voluntarily entered into an agreement with CARB to provide air quality benefits for California equivalent to a 49 state program (i.e., equivalent to providing vehicles certified to the California low emission vehicle standard nationwide beginning with the 2001 model year), to continue research and development of ZEV technology and to provide specific numbers of advanced technology battery vehicles through demonstration programs in California. Electric vehicles are the only presently known type of zero-emission vehicles. However, despite intensive research activities, technologies have not been identified that would allow manufacturers to produce an electric vehicle that either meets most customers' expectations or is commercially viable. Compliance with the ZEV mandate may require manufacturers to curtail the sale of non-electric vehicles or to offer substantial discounts on electric vehicles, selling them well below cost, while increasing the price on non-electric vehicles. The California program and ZEV mandates present significant -10- Item 1.Business (Continued) - --------------------------- technological challenges to manufacturers and compliance may require costly actions that would have a substantial adverse effect on Ford's sales volume and profits. The Act also permits other states which do not meet national ambient air quality standards to adopt the California program no later than two years before the affected model year. Under the Act, twelve northeastern states and the District of Columbia formed a group known as the Ozone Transport Commission (the "OTC"). Based on an OTC recommendation, the EPA required each OTC jurisdiction to adopt the California program. The OTC jurisdictions also may adopt California's ZEV mandates, if any, but were not required to do so by the EPA. In March 1997, the Circuit Court of Appeals for the District of Columbia vacated the EPA's rule requiring the OTC jurisdictions to adopt the California program. That decision did not affect California programs, including ZEV mandates, already adopted by individual states. There are major problems with transferring California standards to the Northeast -- many dealers sell vehicles in neighboring states and the driving range of present ZEVs is greatly diminished (by more than 50 percent) in cold weather. Also, the Northeast states have refused to adopt the California reformulated gasoline requirement, which makes the task of meeting standards even more difficult. The California program was adopted in New York and Massachusetts and is currently in effect for model years 1996 and beyond. In addition, these two states adopted ZEV mandates beginning with model year 1998. New York's mandate retains the now rescinded California ZEV requirements. The automotive industry is seeking to have New York's pre-2003 model year ZEV mandate declared invalid, and the case is now pending before the U.S. Court of Appeals for the Second Circuit. Massachusetts has attempted to adopt as a standard the ZEV obligations relating to California to which the auto manufacturers voluntarily agreed with CARB. A federal district court has invalidated these regulations, but Massachusetts has appealed the decision to the U.S. Court of Appeals for the First Circuit. Connecticut adopted the California program beginning with model year 1998. Rhode Island and Vermont have adopted the California program beginning in model year 1999 (with a ZEV mandate to be required in Vermont after certain determinations with respect to the advancement of ZEV technology have been made). Maine has adopted the California program beginning with the 2001 model year. Maryland and New Jersey have laws requiring adoption of the California program and ZEV mandates after certain conditions, relating to actions which may be taken by other OTC jurisdictions, have been met. In response to OTC actions, the automotive industry proposed a National Low Emissions Vehicle (NLEV) program, which the EPA promulgated as a rule and which has been agreed to by all manufacturers and all OTC jurisdictions except Maine, Massachusetts, New York and Vermont. This NLEV program will require manufacturers to sell low emission vehicles in the participating OTC jurisdictions beginning with the 1999 model year, and throughout the remainder of the country beginning with the 2001 model year. The OTC jurisdictions which have agreed to the NLEV program will for its duration substitute the NLEV program for any of their other emissions programs for passenger cars and light duty gasoline trucks. California and the non-participating OTC jurisdictions will retain their California-based programs. A petition seeking judicial review of the EPA's rule establishing NLEV has been filed by a coalition of environmental groups. The petition alleges that the rule violates the Clean Air Act. Under the Act, the EPA and CARB can require manufacturers to recall and repair non-conforming vehicles. The EPA, through its testing of production vehicles, can also halt the shipment of non-conforming vehicles. Ford may be required to recall, or may voluntarily recall, vehicles for such purposes in the future. The costs of related repairs or inspections associated with such recalls can be substantial. The Act generally prohibits the introduction of new fuel additives unless a waiver is granted by the EPA. In 1995, the EPA was ordered by a federal court to grant such a waiver to Ethyl Corporation for the additive MMT. Ford and other manufacturers believe that the use of MMT will impair the performance of current emissions systems and onboard diagnostics systems. Widespread use of MMT could increase Ford's future warranty costs and necessitate changes in the Company's warranties for emission control devices. -11- Item 1. Business (Continued) - ---------------------------- In January 1998, Ford announced that it would voluntarily re-engineer all of its 1999 model year sports utility vehicles and its 1999 model year Windstar minivan to emit 70% less pollutants than the level required by the Clean Air Act. Ford is certifying those vehicles under the Act's Clean Fuel Fleet Program. European Requirements. European Union directives and related legislation limit the amount of regulated pollutants that may be emitted by new motor vehicles and engines sold in the European Union. In June 1996, the European Commission published a draft proposal for new more stringent European emissions standards for 2000 (the "Stage III Directive"). That draft includes a new framework for emission-related fiscal incentives for the early introduction of vehicles capable of meeting Stage III standards before 2000 and vehicles capable of meeting newly proposed and even more stringent standards before 2005. The common position of the European Council of Environment Ministers (the "Environment Council") published in November 1997 provides that the European Commission should propose mandatory standards for 2005 by June 30, 1999 based on a study that would address air quality needs, vehicle and engine technology developments, the need for and availability of clean fuels, and other issues. The European Parliament has proposed various amendments to the Environment Council's common position that would make the proposed Stage III Directive even more stringent. The Environment Council and the European Parliament are expected to convene a conciliation committee to agree on the final form for the Stage III Directive. Certain European countries are conducting in-use emissions testing to ascertain compliance of motor vehicles with applicable emissions standards. These actions could lead to recalls of vehicles; the future costs of related inspection or repairs could be substantial. Motor Vehicle Safety -- The National Traffic and Motor Vehicle Safety Act of 1966 (the "Safety Act") regulates motor vehicles and motor vehicle equipment in two primary ways. First, the Safety Act prohibits the sale in the United States of any new vehicle or equipment that does not conform to applicable motor vehicle safety standards established by the National Highway Traffic Safety Administration (the "Safety Administration"). Meeting or exceeding many safety standards is costly because they tend to conflict with the need to reduce vehicle weight in order to meet emissions and fuel economy standards. Second, the Safety Act requires that defects related to motor vehicle safety be remedied through safety recall campaigns. There currently are pending before the Safety Administration a number of investigations relating to alleged safety defects in Ford vehicles. A manufacturer is also obligated to recall vehicles if it determines they contain a defect relating to motor vehicle safety or do not comply with a safety standard. Should Ford or the Safety Administration determine that either a safety defect or a noncompliance exists with respect to certain of Ford's vehicles, the costs of such recall campaigns could be substantial. In 1997, the Safety Administration amended a standard to permit vehicle manufacturers to reduce the inflation power in air bags in future models to further reduce the risk of air bag deployment-related injuries. Ford will incorporate lower output air bags in its 1998 and later model year vehicles. In 1997, the Safety Administration also adopted a rule permitting vehicle owners meeting certain criteria to have their air bags deactivated or have "on-off" switches installed in their vehicles. In June 1998, the Safety Administration is expected to initiate rulemaking relating to advanced air bags. The issue of truck-to-car compatibility in relation to collisions has received significant media attention recently and has been the subject of a Safety Administration report. Ford and its suppliers are continuing to work on this complex issue, and Ford will participate with the Safety Administration in a conference on this subject in early summer 1998. Government regulation to address vehicle compatibility also is possible. Canada, the European Union, individual member countries within the European Union and other countries in Europe, South America and the Asia Pacific markets also have safety standards applicable to motor vehicles and are likely to adopt additional or more stringent standards in the future. Motor Vehicle Fuel Economy -- U.S. Requirements. Under the Motor Vehicle Information and Cost Savings Act (the "Cost Savings Act") vehicles must meet minimum CAFE standards set by the Safety Administration. A manufacturer is subject to potentially substantial civil penalties if it fails to meet the CAFE standard in any model year, after taking into account all available credits for the preceding three model years and expected credits for the three succeeding model years. -12- Item 1. Business (Continued) - ---------------------------- The Cost Savings Act established a passenger car CAFE standard of 27.5 mpg for the 1985 and later model years, which the Safety Administration believes it has the authority to amend to a level it determines to be the maximum feasible level. The Safety Administration has established a 20.7 mpg CAFE standard applicable to light trucks. Ford expects to be able to comply with the foregoing CAFE standards, in some cases using credits from prior or succeeding years. However, a continued increase in demand for larger vehicles coupled with a decline in demand for small and middle-size vehicles could jeopardize its ability to comply. It is anticipated that efforts may be made to raise the CAFE standard because of concerns for carbon dioxide ("CO2") emissions, energy security or other reasons. President Clinton's Climate Change Action Plan ("CCAP") sets a goal to improve new vehicle fuel efficiency in an amount equivalent to at least 2% per year over a 10 to 15 year period. In addition, international concerns over global warming due to the emission of "greenhouse gasses" have given rise to strong pressures to increase fuel economy. During the December 1997 meeting of the parties to the United Nations Climate Change Convention in Kyoto, Japan, the United States agreed to reduce greenhouse gas emissions by 7% below their 1990 levels during the 2008-2012 period (the "Kyoto Protocol"). The Kyoto Protocol is not yet binding on the United States, pending signature by the President and ratification by the Senate. If the CCAP or Kyoto Protocol goals are partially or fully implemented through increases in the CAFE standard, or if significant increases in car or light truck CAFE standards for subsequent model years otherwise are imposed, Ford would find it necessary to take various costly actions that would have substantial adverse effects on its sales volume and profits. For example, Ford might have to curtail or eliminate production of larger family-size and luxury cars and full-size light trucks, restrict offerings of engines and popular options, and continue or increase market support programs for its most fuel-efficient cars and light trucks. Foreign Requirements. The European Union is also a party to the Kyoto Protocol and has agreed to reduce greenhouse gas emissions by 8% below their 1990 levels during the 2008-2012 period. In December 1997, the Environment Council reaffirmed its goal to reduce average CO2 emissions from new cars to 120 grams per kilometer by 2010 (at the latest) and invited European motor vehicle manufacturers to negotiate further with the European Commission on a satisfactory voluntary environmental agreement to help achieve this goal. In addition, the Environment Council directed the European Commission to propose legislation with binding CO2 limit values if such an agreement is determined to be unachievable. On March 10, 1998, representatives of the European automotive manufacturers association met with the European Environment Commissioner to present an industry proposal that would (among other things) reduce the average CO2 emissions of new cars sold in the European Union to 140 grams per kilometer by 2008, review in 2002-2003 the feasibility of further reductions for 2012, and offer for sale by 2000 vehicles that produce no more than 120 grams of CO2 per kilometer. This proposal assumes (among other things) that no negative measures will be implemented against diesel-fueled cars and the full availability of improved fuels with low sulphur content by 2005. The European Environment Commissioner will review the proposal with the member countries at a forthcoming Environment Council meeting. The European Parliament has considered even more stringent proposals for reducing CO2 emissions from new cars. If adopted, certain of the proposals being considered could have substantial adverse effects on Ford's sales volumes and profits in Europe. In 1995, members of the German Automobile Manufacturers Association (including Ford Werke AG) made a voluntary pledge to reduce by 2005 the average fuel consumption of new cars sold in Germany by 25% from 1990 levels, to review before the year 2000 the need for and feasibility of further reductions in average fuel consumption, to make regular reports on fuel consumption, and to increase industry research and development efforts toward this end. Other initiatives for reducing CO2 emissions from motor vehicles are being considered by other European countries. Taken together such proposals could have substantial adverse effects on Ford's sales volumes and profits in Europe. -13- Item 1. Business (Continued) - ---------------------------- Japan has adopted automobile fuel consumption goals that manufacturers must attempt to achieve by the 2000 model year. The consumption levels apply only to gasoline-powered vehicles, vary by vehicle weight, and range from 5.8 km/I to 19.2 km/l. U.S. Stationary Source Air Pollution Control -- The Clean Air Act limits various emissions into the atmosphere from stationary sources as well as mobile sources, and allows states to adopt even more stringent standards. The Act imposes comprehensive permit requirements for manufacturing facilities in addition to those required by various states. Regulations continue to be promulgated under the Act, and the costs to comply with the Act could be substantial. In addition, the enormous complexity and time-consuming nature of the comprehensive permit program provided for by the Act may reduce operational flexibility and may interfere with future competitive upgrading of Ford's U.S. production facilities. U.S. Water Pollution Control -- Pursuant to the Federal Water Pollution Control Act (the "Clean Water Act"), Ford is required to obtain permits for its manufacturing facilities that regulate the facilities' discharge of wastewater into public waters and municipal sewerage systems. The EPA also requires management standards and, in some cases, permits for the discharge of storm water. The standards under the Clean Water Act are established by the EPA and by the state where a facility is located. Many states have requirements that go beyond those established under the Clean Water Act. The EPA also adopted regulations, pursuant to the Great Lakes Critical Programs Act of 1990, that require more restrictive standards for discharges into waters that impact the Great Lakes. These regulations may require the addition of costly control equipment. U.S. Hazardous Substance and Waste Control -- Pursuant to the Federal Resource Conservation and Recovery Act ("RCRA"), the EPA has issued regulations establishing certain procedures and standards for persons who generate, transport, treat, store, or dispose of hazardous wastes and requiring corrective action for prior releases. States may adopt even more extensive requirements. The Federal Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA") requires notification regarding certain releases into the environment, and creates potential liability for remediation costs and for damage to natural resources at sites where Ford waste was taken for treatment or disposal. A number of states have enacted separate laws of this type. In addition, under the Federal Toxic Substances Control Act ("TSCA"), the EPA evaluates environmental and health effects of existing chemicals and new substances. Pursuant to TSCA, the EPA regulates the use of polychlorinated biphenyls in transformers, capacitors and other equipment that may be located at Ford's U.S. facilities. European Stationary Source Environmental Control -- The European Union and individual member countries impose requirements on waste and hazardous wastes, incineration, packaging, landfill, soil pollution, integrated pollution control, air emissions standards, import/export and use of dangerous substances, air and water quality standards, noise, environmental management systems, energy efficiency, emissions reporting, and planning and permitting. Additional or more stringent requirements (including tax measures and civil liability schemes for cleaning polluted sites) are likely to be adopted in the future. The cost of complying with these standards could be substantial. The European Commission has published a draft proposal to introduce an obligation for motor vehicle manufacturers to take back end-of-life vehicles on a cost-free basis beginning in 2003, to impose requirements on the proportion of the vehicle that may be disposed of in landfills and the proportion that must be reused or recycled beginning in 2005, and to ban the use of certain substances in vehicles beginning in 2003. Such proposals could, if adopted, impose a substantial cost on manufacturers. The German Automobile Association (including Ford Werke AG) and the German Automobile Importers Association made a voluntary pledge to establish a nationwide infrastructure network to take back passenger cars that are at least 12 years old (and meet certain other requirements) on a cost-free basis to their owners. Pollution Control Costs -- During the period 1998 through 2002, Ford expects that approximately $550 million will be spent on its North American and European facilities to comply with air and water pollution and hazardous waste control standards which now are in effect or are scheduled to come into effect. Of this total, Ford estimates that approximately $100 million will be spent in 1998 and $120 million will be spent in 1999. -14- Item 1. Business (Continued) - ---------------------------- Worldwide Regulatory Compatibility -- Ford's efforts to develop new markets and increase imports are impeded by incompatible automotive safety, environmental and other product regulatory standards. At present, differing standards either restrict the vehicles Ford can export to serve new markets or increase the cost and complexity to do so. Employment Data Average employment for Ford by geographic area was as follows for the years indicated:
1997 1996 ----------------- ----------------- United States 189,787 189,718 Europe 104,014 106,156 Other 70,091 75,828 ------- ------- Total 363,892 371,702 ======= =======
In 1997, average Ford employment decreased 2.1 percent reflecting reduced Automotive employment offset partially by increased employment in the Company's Financial Services operations. For further information regarding employment statistics of Ford, see Item 6. "Selected Financial Data". For information concerning employee retirement benefits, see Note 8 of Notes to Financial Statements. Substantially all hourly employees of Ford in the United States are included in collective bargaining units represented by unions. Approximately 99% of these unionized hourly employees are represented by the United Automobile Workers (the "UAW"). Approximately 3% of salaried employees are represented by unions. Most hourly employees and many nonmanagement salaried employees of subsidiaries outside the United States also are represented by unions. Affiliates of Ford also are parties to collective bargaining agreements in Britain, France, Germany and Spain. Collective bargaining agreements between Ford and the UAW and between Ford of Canada and the Canadian Automobile Workers were entered into in 1996 and are scheduled to expire in September 1999. Ford has not experienced significant work stoppages at its facilities in recent years, but work stoppages have occurred in supplier facilities. Any protracted work stoppages in the future, whether in Ford's facilities or those of certain suppliers, could substantially adversely affect Ford's results of operations. -15- Item 1. Business (Continued) - ---------------------------- Research and Development Ford and certain of its subsidiaries have staffs of professional employees whose activities are directed primarily to the improvement of the performance (including fuel efficiency), safety and comfort of the products of those companies and to the development of new products, and also have staffs of scientists engaged in basic research. Extensive engineering, research and design facilities are maintained for these purposes. Principal among them are the engineering, research and design centers of Ford at Dearborn, Michigan; of Ford Motor Company, Limited at Dunton, England; and of Ford Werke AG at Merkenich, Germany. In 1997, 1996 and 1995, $6.3 billion, $6.8 billion and $6.6 billion, respectively, were charged to income of Ford and its consolidated subsidiaries for Ford-sponsored research and development activities relating to the development of new products and services and the improvement of existing products and services. In addition, $20 million, $42 million and $18 million were charged to income in 1997, 1996 and 1995, respectively, for customer-sponsored research and development activities. Item 2. Properties - ------------------- Ford's U.S. manufacturing and assembly facilities, substantially all of which are owned by Ford and its subsidiaries, are situated in various sections of the country and include assembly plants, engine plants, casting plants, metal stamping plants, electronic components plants, transmission and axle plants, glass plants and industrial equipment plants. A major portion of the distribution centers, warehouses and sales offices is owned by Ford, with the remainder being leased. In addition, Ford's foreign subsidiaries maintain and operate manufacturing plants, assembly facilities, parts distribution centers and engineering centers outside the United States, substantially all of which are owned by such subsidiaries. The furniture, equipment and other physical property owned by Ford's Financial Services operations are not material in relation to their total assets. -16- Item 3. Legal Proceedings - -------------------------- Various legal actions, governmental investigations and proceedings and claims are pending or may be instituted or asserted in the future against 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; 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. See Item 1, "Business--Governmental Standards". Included among the foregoing matters are the following: Product Liability Matters - ------------------------- Occupant Restraint Systems. Ford is a defendant in various actions for damages arising out of automobile accidents where plaintiffs claim that the injuries resulted from (or were aggravated by) alleged defects in the occupant restraint systems in vehicle lines of various model years. The damages specified by the plaintiffs in these actions, including both actual and punitive damages, aggregated approximately $1 billion at December 31, 1997. Bronco II. Ford is a defendant in various actions involving the alleged propensity of Bronco II utility vehicles to roll over. The damages specified in these actions, including both actual and punitive damages, aggregated approximately $979 million at December 31, 1997. In most of the actions described in the foregoing paragraphs no dollar amount of damages is specified or the specific amount referred to is only the jurisdictional minimum. It has been Ford's experience that in cases that allege a specific amount of damages in excess of the jurisdictional minimum, such amounts, on average, bear little relation to the actual amounts of damages paid by Ford in such cases, which generally are, on average, substantially less than the amounts originally claimed. In addition to the pending actions, accidents have occurred and claims have arisen which also may result in lawsuits in which such a defect may be alleged. Asbestos. Ford is a defendant in various actions for injuries claimed to have resulted from alleged contact with certain Ford parts and other products containing asbestos. Damages specified by plaintiffs in complaints in these actions, including both actual and punitive damages, aggregated approximately $1.4 billion at December 31, 1997. (In some of these actions no dollar amount of damages is specified or the specific amount referred to is only the jurisdictional minimum.) As distinguished from most lawsuits against Ford, in most of these asbestos-related cases, Ford is but one of many defendants, and many of these co-defendants have substantial resources. Environmental Matters - --------------------- General. Ford has received notices from government environmental enforcement agencies concerning four matters which potentially involve monetary sanctions exceeding $100,000. The agencies believe that Ford facilities may have violated regulations relating to the management of certain materials or relating to certain emissions from facility operations. In Ford's prior reports, Ford included another environmental matter that related to certain emissions from one of its facilities. That matter was resolved in February 1998, with Ford paying a civil penalty of $135,000. -17- Item 3. Legal Proceedings (Continued) - ------------------------------------- Ford has received notices under RCRA, CERCLA and applicable state laws that it (along with others) may be a potentially responsible party for the costs associated with remediating numerous hazardous substance storage, recycling or disposal sites in many states and, in some instances, for natural resource damages. Ford also may have been a generator of hazardous substances at a number of other sites. The amount of any such costs or damages for which Ford may be held responsible could be substantial. Contingent losses expected to be incurred by Ford in connection with many of these sites have been accrued and are reflected in Ford's financial statements in accordance with generally accepted accounting principles. However, for many sites the remediation costs and other damages for which Ford ultimately may be responsible are not reasonably estimable because of uncertainties with respect to factors such as Ford's connection to the site or to materials there, the involvement of other potentially responsible parties, the application of laws and other standards or regulations, site conditions, and the nature and scope of investigations, studies and remediation to be undertaken (including the technologies to be required and the extent, duration and success of remediation). As a result, Ford is unable to determine or reasonably estimate the amount of costs or other damages for which it is potentially responsible in connection with these sites, although it could be substantial. CCA Lawsuit. The Corporation for Clean Air, Inc., a California non-profit group ("CCA"), filed a lawsuit in California against Ford and numerous other engine and vehicle manufacturers and owners of vehicle fleets, under California's Safe Drinking Water and Toxic Enforcement Act ("Proposition 65"). Under Proposition 65 any business that knowingly and intentionally exposes any person to certain carcinogens and reproductive toxins must provide that person with an advance clear and reasonable warning, unless the business can prove that the exposures are insignificant. CCA's complaint alleges that manufacturers and fleet owners of diesel powered vehicles are exposing California's citizens to diesel exhaust in violation of Proposition 65. Maximum penalties under Proposition 65 are $2,500 per vehicle per day of violation. Bridgend Plant. In November 1997, the Cardiff Crown Court imposed a fine of 10,000 Pounds Sterling on Ford's British subsidiary, Ford Motor Company, Limited ("Ford Britain"), for the discharge of certain pollutants into the River Ewenny by Ford Britain's Bridgend plant in September 1995. Ford Britain was also required to pay the United Kingdom Environmental Agency's costs of approximately 11,000 Pounds Sterling and to pay for the restocking of fish in the river. Class Actions - ------------- Described below are various class action lawsuits in which Ford has been named a defendant. Class action lawsuits can involve very large classes of plaintiffs, such as statewide or nationwide classes, if plaintiffs persuade the court to grant class certification. Ford believes it has valid defenses in each of these cases; however, if plaintiffs were to prevail in any of these lawsuits, Ford could be required to pay substantial damages. Paint. Pending against the Company are five purported class actions alleging defects in the paint processes used on more than nine million vehicles manufactured by the Company in model years 1984 through 1993. One case (Landry) is nationwide in scope and is pending in the U.S. District Court for the Eastern District of Louisiana. In January 1998, plaintiffs in Landry filed a motion for class certification, which Ford opposed. Of the five cases that were consolidated with Landry for pretrial proceedings, two were dismissed, and the plaintiffs in the other three did not file motions for class certification within the court-ordered deadline. In the remaining case (Sheldon), a Texas state court certified two subclasses of Texas residents for trial. The Texas Court of Appeals affirmed the class certification order. In its opinion, the Court of Appeals approved of a bifurcated trial process that would require class members to prove causation and damages in separate trials following a classwide trial on the existence of a defect and the Company's knowledge thereof. Ford will appeal the class certification to the Texas Supreme Court. In each pending lawsuit, the plaintiffs seek unspecified compensatory damages, as well as punitive damages, attorneys' fees and costs. Bronco II. Currently pending against Ford are two state and one federal purported class actions filed by Bronco II owners seeking recovery for economic injury attributable to the alleged rollover propensity of these vehicles. Each lawsuit expressly excludes personal injury claimants, whose claims are discussed -18- Item 3. Legal Proceedings (Continued) - ------------------------------------- above. Some of the lawsuits also seek recovery of unspecified punitive damages and an order requiring the Company to recall and retrofit these vehicles. Seven federal Bronco II cases had originally been consolidated for pretrial purposes in a Louisiana federal court. After the court denied plaintiffs' motion for class certification in these cases, six of the cases were dismissed either by the court or voluntarily by the plaintiffs. Plaintiffs in these cases have appealed the court's dismissal orders and denial of class certification to the U.S. Court of Appeals for the Fifth Circuit. Ford's motion for summary judgment is pending in the remaining federal case. The two state court cases are pending in Alabama and Texas. The Texas case is dormant. In October 1997, the Alabama court denied Ford's motion to dismiss plaintiffs' fraud claims and certified a class consisting of Alabama residents who owned a Bronco II vehicle any time between August 26, 1993 and May 31, 1997. The Alabama Supreme Court agreed to hear Ford's interlocutory appeal of the trial court's denial of Ford's motion to dismiss, but it has not yet ruled on Ford's petition to appeal the trial court's class certification order. The trial court proceedings are stayed pending the Supreme Court's decision on Ford's interlocutory appeal. A separate purported class action involving the Bronco II (Goff) is pending against Ford in federal court in the Southern District of West Virginia. The lawsuit purports to represent a class of former plaintiffs in Bronco II personal injury cases that have been settled or tried. Plaintiffs allege that Ford and a Ford expert on the design history of the Bronco II conspired to fraudulently conceal documents that would establish (a) that Ford paid the expert to offer false testimony in favor of Ford regarding the design of the Bronco II, and (b) that Ford knew the design of the Bronco II rendered the vehicle unstable and prone to rollover under normal driving conditions. Plaintiffs seek compensatory and punitive damages, prejudgment interest, costs and attorneys' fees. Plaintiffs also seek to prevent Ford from using as a defense in this case releases obtained in settled Bronco II personal injury lawsuits and defense verdicts in tried Bronco II personal injury lawsuits. Plaintiffs' motion for class certification and Ford's motion to dismiss are pending. Ignition Switch. In 1996, the Company was served with fourteen purported class action lawsuits alleging that certain 1983 to 1993 model year vehicles were equipped with defective ignition switches that could cause an electrical short circuit, resulting in smoke and fire damage. Most of the suits were brought on behalf of plaintiffs who have not experienced a problem, but who claim that their vehicles have diminished value because of the allegedly defective switches. Some of the lawsuits were purportedly brought on behalf of plaintiffs who claim to have suffered fire or smoke damage to their vehicles. Plaintiffs seek unspecified compensatory damages, punitive damages, attorneys' fees and costs, as well as injunctive relief requiring, among other things, that Ford replace the allegedly defective ignition switch in all affected vehicles. All fourteen lawsuits were consolidated for pretrial proceedings in federal court in New Jersey. In August 1997, the court denied plaintiffs' motion for class certification. In September 1997, the court dismissed all of the claims brought by the non-incident class members except the implied warranty claims brought under Louisiana law and the breach of contract claims. In October 1997, plaintiffs filed a motion with the court to remand all of the lawsuits to state courts and to vacate the court's ruling denying nationwide class certification and dismissing most of the underlying claims. The court deferred ruling on the matter pending additional discovery in the case. In a related matter, State Farm Mutual Automobile Insurance Company ("State Farm") filed a lawsuit in federal court in California in January 1998 against Ford and United Technologies Automotive, Inc. State Farm seeks damages for insurance claims it paid to cover vehicle damage caused by allegedly defective ignition switches, the deductible amounts paid by its insureds, other compensatory damages, and attorney's fees and costs. Ford has moved to dismiss State Farm's claims. Upon Ford's notice of the State Farm action, the Judicial Panel on Multidistrict Litigation conditionally transferred the action to the New Jersey federal court where the ignition switch class actions are pending. State Farm opposed the transfer. TFI Module. Six purported class actions are pending in state courts on behalf of owners and lessees of 1983 through 1995 model year Ford vehicles containing a distributor-mounted thick film ignition (TFI) module. The plaintiffs allege that distributor-mounted TFI modules are defective because they have a high propensity to fail due to exposure to engine heat, causing the engine to stumble, stall, or not start. The plaintiffs in these cases seek pre- and post-judgment interest, attorneys' fees, disgorgement of profits, compensatory damages, punitive damages, notice to the public, and the recall and retrofit of all vehicles with the allegedly defective TFI modules. The cases are -19- Item 3. Legal Proceedings (Continued) - ------------------------------------- pending in Alabama, California, Illinois, Maryland, Tennessee and Washington. The Alabama and Tennessee cases were conditionally certified as nationwide class actions (excluding California). The cases in Illinois, Maryland and Washington purport to be regional class actions, and the California case is statewide in scope. The California case is the "lead" case and proceedings in the other cases are stayed. The California court has certified a class of California residents who currently own or lease the subject vehicles and California residents who purchased such vehicles when they were new. The court also certified a sub-class of consumers pursuing Consumer Legal Remedies Act claims. In February 1998, the court ordered Ford to produce at its expense a mailing list for purposes of class notification. The court reserved final decision on all other aspects of class notice, but has indicated its intention to order the parties to share the costs of notice. Ford estimates the costs of such notice to be approximately $1 million to $2 million. Ford appealed the California court's class certification and class notice orders, but the appellate court has declined to hear Ford's appeals. Ford has filed a motion for leave to appeal these orders to the California Supreme Court. If leave to appeal is denied, Ford will have the right to appeal those orders after entry of any final judgment in the case. In related developments, Ford urged the Safety Administration to review allegations by plaintiffs and the Safety Administration's former chief investigator that Ford improperly withheld information and documents during prior Safety Administration investigations into this matter. In September 1997, the Safety Administration issued a Special Order requiring Ford to respond to those allegations under oath, and Ford did so. Air Bag. Three purported class action lawsuits were filed in Alabama, Louisiana and Texas state courts alleging that air bags are defective because they can cause injury, particularly to children and small adults. The Alabama action appears to be nationwide in scope and purports to represent owners of 1993 through 1996 (and some 1997) model year cars and light trucks with passenger air bags. The Louisiana and Texas actions purport to represent residents who purchased vehicles with driver and/or passenger air bags, and nonresidents who purchased such vehicles in those states. The Alabama action names as defendants Ford, General Motors Corporation, Chrysler Corporation, and an Alabama automobile dealership. The Louisiana action was brought against the same manufacturers, as well as Volvo of North America, Inc., Nissan Motor Corporation, Toyota Motor Corporation, Honda Motor Company, Ltd. and various dealerships. The Texas action was brought against Ford, General Motors, Chrysler and Volvo. However, in February 1998, plaintiffs in the Texas case filed an amended complaint that did not name Ford as a defendant. The Louisiana and Texas actions were removed to federal court and consolidated for pretrial proceedings. Plaintiffs allege that their vehicles are unsuitable for transporting children and small adults and, therefore, are not worth the purchase price they paid. They seek compensatory damages, including the alleged diminution in value of their vehicles and in the Alabama and Louisiana cases, the cost to disable the air bags or "repair" the vehicles. Ford/Citibank Visa. Following the June 1997 announcement of the termination of the Ford/Citibank credit card rebate program, five purported nationwide class actions and one purported statewide class action were filed against Ford; Citibank is also a defendant in some of these actions. The actions allege damages in an amount up to $3,500 for each cardholder who obtained a Ford/Citibank credit card in reliance on the rebate program and who is precluded from accumulating discounts toward the purchase or lease of new Ford vehicles after December 1997 as a result of the termination of the rebate program. Plaintiffs contend that defendants deceptively breached their contract by unilaterally terminating the program, that defendants have been unjustly enriched as a result of the interest charges and fees collected from cardholders, and further, that defendants conspired to deprive plaintiffs of the benefits of their credit card agreement. Plaintiffs seek compensatory damages, or alternatively, reinstatement of the rebate program, and punitive damages, costs, expenses and attorneys' fees. The five purported nationwide class actions were filed in state courts in Alabama, Illinois, New York, Oregon and Washington, and the purported statewide class action was filed in a California state court. The Alabama court has conditionally certified a class consisting of Alabama residents. Ford removed all of the cases to federal court and requested that the Judicial Panel on Multidistrict Litigation consolidate and transfer the cases to federal court in Washington for pretrial proceedings. Five of the cases were consolidated and transferred to federal court in Washington. Ford's request to consolidate and transfer the remaining case is pending. The plaintiff in the Oregon case has moved to remand the case to state court. -20- Item 3. Legal Proceedings (Continued) - ------------------------------------- Flat Glass. The Company has been named as a defendant in thirteen purported class actions brought on behalf of purchasers of flat glass alleging that Ford and other manufacturers fixed prices and allocated markets in violation of federal and state antitrust laws. Eleven of the class actions are nationwide in scope and are pending in federal court and the other two class actions are statewide in scope and are pending in state courts. The other defendants include Pilkington plc; Libbey-Owens Ford Co., Inc.; AFG Industries; PPG Industries, Inc.; Asahi Glass Co., Ltd.; and Guardian Industries Corp. There are nineteen similar purported class actions pending in various courts in which the Company is not currently named as a defendant. A total of 27 federal cases have been consolidated in a single federal court in Pennsylvania for pretrial proceedings under the multidistrict litigation rules. In the actions involving Ford, the plaintiffs are seeking economic and treble damages. Lease Residual. In January 1998 in connection with a case pending in Illinois state court, Ford and Ford Credit were served with a summons and intervention counterclaim complaint relating to Ford Credit's leasing practices (Higginbotham v. Ford Credit). The counterclaim plaintiff, Carla Higginbotham, is a member of a class that has been conditionally certified for settlement purposes in Shore v. Ford Credit. In the Shore case, Ford Credit commenced an action for deficiency against Virginia Shore, a Ford Credit lessee. Shore counterclaimed for purported violations of the Truth-in-Leasing Act (alleging that certain lease charges were excessive) and the Truth-in-Lending Act (alleging that the lease lacked clarity). Shore purported to represent a class of all similarly situated lessees. Ford was not a party to the Shore case. Higginbotham objected to the proposed settlement of the Shore case, intervened as a named defendant, filed separate counterclaims against Ford Credit, and joined Ford as an additional counterclaim defendant. Higginbotham asserts claims against Ford Credit for violations of the Consumer Leasing Act, declaratory judgment concerning the enforceability of early termination provisions in Ford Credit's leases, and fraud. She also asserts a claim against Ford Credit and Ford for conspiracy to violate the Truth-in-Lending Act. The Higginbotham counterclaims allege that Ford Credit inflates the residual values of its leased vehicles, which results in lower monthly lease payments but higher termination fees for lessees who exercise their right of early termination. Higginbotham claims that the early termination fees were not adequately disclosed on the lease form and that the fees are excessive and illegal because of the allegedly inflated residual values. She also alleges that Ford dictated the residual values to Ford Credit and thereby participated in an unlawful conspiracy. Other Matters - ------------- Patents--General. A number of claims have been made or may be asserted in the future against Ford alleging infringement of patents held by others. Ford believes that it has valid defenses with respect to the claims that have been asserted. If some of such claims should lead to litigation, however, and if the claimant were to prevail, Ford could be required to pay substantial damages. Lemelson Patent Case. In 1992, Ford was sued in federal court in Nevada by an individual patent owner (Lemelson) seeking damages and an injunction for alleged infringement of four U.S. patents characterized by Lemelson as covering machine vision inspection technologies, including bar code reading. Ford filed a declaratory judgment action in the same court to have these four patents as well as others of Lemelson's patents directed to machine vision and laser uses declared invalid, unenforceable and not infringed. Lemelson filed a counterclaim alleging infringement of the patents added by Ford and several additional patents. In 1995, Ford filed twelve summary judgment motions to dispose of large portions of the case. One motion to have the case dismissed was granted in 1996 and reversed in 1997. The U.S. Court of Appeals refused to hear Ford's appeal of the 1997 reversal until the case is tried. Ford and Lemelson then filed opposing motions for further proceedings. Lemelson requested that the case be scheduled for an immediate trial. Ford moved to have the case sent back to the magistrate judge for consideration of Ford's eleven pending motions for summary judgment. Mr. Lemelson died in October 1997. In January 1998 the court permitted the Lemelson Medical, Education & Research Foundation, Limited Partnership to be substituted as party to the lawsuit. The court also granted Ford's motion to have the case remanded back to the magistrate judge for further proceedings to recommend disposition of Ford's remaining summary judgment motions. If Lemelson were to prevail in this lawsuit, Ford could be required to pay substantial damages of an as yet indeterminate amount and could become subject to an injunction preventing future use of any process or product found to be covered by a valid patent. -21- Item 3. Legal Proceedings (Continued) - ------------------------------------- OFCCP Proceeding. In April 1997, Ford became the subject of a Department of Labor administrative enforcement proceeding challenging Ford's compliance with obligations imposed by Executive Order 11246, which prohibits employment discrimination and requires affirmative action by government contractors and subcontractors. The Office of Federal Contract Compliance Programs ("OFCCP") claims that Ford's Kentucky Truck Plant used a hiring process in 1993 for entry-level hourly laborer positions that discriminated against female applicants. OFCCP further claims that Ford failed to make available required records and otherwise cooperate with the agency during a 1993 compliance review. OFCCP seeks to cancel Ford's government contracts and to bar Ford from obtaining future government contracts and seeks an order awarding back pay to the "affected class of women." If OFCCP prevails, Ford's results of operations could be substantially adversely effected. Ford believes that, although the offer rate for women at the Kentucky Truck Plant was less than the percentage of female applicants in the 1993 interview process, there are sound gender-neutral explanations for this difference. The Department of Labor has indicated it has similar concerns about the hourly hiring practices at other Ford facilities and would like to resolve those concerns as part of a resolution of the Kentucky Truck proceeding. FTC Investigation. The Federal Trade Commission and the Department of Justice are continuing their investigation, commenced in 1995, of the retail vehicle financing credit practices of Ford Credit for compliance with the Equal Credit Opportunity Act and Regulation B. Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------ Not required. -22- Item 4A. Executive Officers of the Registrant - ---------------------------------------------- The executive officers of the Registrant and their respective positions and ages at March 15, 1998 are shown in the table below:
Present Position with the Registrant Name Position Held Since Age ---- -------- ---------- --- Alex Trotman Chairman of the Board November 1993 64 (1)(2) of Directors, President and Chief Executive Officer Director W. Wayne Booker Vice Chairman November 1996 63 Edward E. Hagenlocker Vice Chairman (Chairman, November 1996 58 Visteon Automotive Systems) John M. Devine Executive Vice President and November 1996 53 Chief Financial Officer Jacques A. Nasser Executive Vice President November 1996 50 (President, Ford Automotive Operations) Peter J. Pestillo Executive Vice President-- January 1993 59 Corporate Relations Kenneth Whipple Executive Vice President, March 1988 63 Ford (President, Ford Financial Services Group); and Chairman of the Board of Directors and Chief Executive Officer, Ford Motor Credit Company Richard Parry-Jones Group Vice President-- January 1998 46 Product Development Robert L. Rewey Group Vice President-- December 1993 59 Marketing, Sales and Service Charles W. Szuluk Group Vice President November 1996 55 (President, Visteon Automotive Systems)
-23- Item 4A. Executive Officers of the Registrant (Continued) - ---------------------------------------------------------
Present Position with the Registrant Name Position Held Since Age ---- -------- ---------- --- Robert H. Transou Group Vice President-- May 1994 58 Manufacturing Gurminder S. Bedi Vice President-- November 1997 50 Truck Vehicle Center William W. Boddie Vice President-- January 1998 52 Small and Medium Car Vehicle Center Kenneth R. Dabrowski Vice President -- November 1996 54 Quality and Process Leadership James D. Donaldson Vice President, Ford: and November 1997 55 President, Ford of Europe Incorporated Wayne S. Doran Vice President, Ford; and November 1997 63 Chairman of the Board of Directors, Ford Motor Land Development Corporation Edsel B. Ford II Vice President and Director, December 1993 49 (2) Ford; and President and Chief Operating Officer, Ford Motor Credit Company Ronald E. Goldsberry Vice President--General February 1994 55 Manager, Ford Customer Service Division Elliott S. Hall Vice President-- October 1997 59 Civic and External Affairs John T. Huston Vice President-- May 1994 55 Powertrain Operations I. Martin Inglis Vice President--Product November 1996 47 and Business Strategy Kenneth K. Kohrs Vice President-- November 1996 59 Large and Luxury Car Vehicle Center Vaughn A. Koshkarian Vice President, Ford; and August 1995 57 Chairman of the Board of Directors and Chief Operating Officer, Ford Motor (China) Ltd.
-24- Item 4A. Executive Officers of the Registrant (Continued) - ---------------------------------------------------------
Present Position with the Registrant Name Position Held Since Age ---- -------- ---------- --- Robert O. Kramer Vice President-- October 1995 59 Human Resources Roman J. Krygier Vice President--Advanced November 1997 55 Manufacturing Engineering Malcolm S. Macdonald Vice President and January 1995 57 Treasurer John W. Martin, Jr. Vice President-- April 1989 61 General Counsel J.C. Mays Vice President--Design October 1997 43 Carlos E. Mazzorin Vice President--Purchasing May 1994 56 John P. McTague Vice President-- March 1990 59 Technical Affairs James E. Miller Vice President November 1997 51 Janet G. Mullins Vice President-- January 1998 48 Washington Affairs James G. O'Connor Vice President-- April 1996 55 General Manager, Lincoln-Mercury Division James J. Padilla Vice President, Ford; and November 1996 51 President, Ford Brazil and Argentina Helen O. Petrauskas Vice President--Environmental March 1983 53 and Safety Engineering William F. Powers Vice President--Research February 1996 57 Neil W. Ressler Vice President--Advanced May 1994 58 Vehicle Technology John M. Rintamaki Secretary July 1993 56 Ross H. Roberts Vice President--General May 1991 60 Manager, Ford Division Dennis E. Ross Vice President and April 1995 47 Chief Tax Officer
-25- Item 4A. Executive Officers of the Registrant (Continued) - ---------------------------------------------------------
Present Position with the Registrant Name Position Held Since Age ---- -------- ---------- --- David W. Scott Vice President--Public Affairs July 1986 57 William A. Swift Vice President and Controller-- January 1998 54 Ford Automotive Operations David W. Thursfield Vice President-- January 1998 52 Vehicle Operations Henry D. G. Wallace Vice President (Chief Financial November 1997 52 Officer and Vice President, European Strategic Planning) Robert J. Womac Vice President (Executive November 1996 54 Vice President, Operations, Visteon Automotive Systems)
- ------------------ (1) Also Chairman of the Organization Review and Nominating Committee of the Board of Directors. (2) Also a member of the Finance Committee of the Board of Directors. Some of the officers listed above also are members of one or more additional committees of the Registrant that are not committees of the Board of Directors. All of the above officers, other than Messrs. Mays and Ross, have been employed by the Registrant or its subsidiaries in one or more capacities during the past five years. Immediately prior to joining Ford, Mr. Mays served as Vice President of Design Development at SHR Perceptual Management in Scottsdale, Arizona. Previously, and since 1993, Mr. Mays was design director responsible for worldwide design strategy, development and execution for Audi AG in Germany. Before joining Ford, Mr. Ross had been a partner in the New York law firm of Davis, Polk & Wardwell since 1989. Under the By-Laws of the Registrant the executive officers are elected by the Board of Directors at the Annual Meeting of the Board of Directors held for this purpose, each to hold office until his or her successor shall have been chosen and shall have qualified or as otherwise provided in the By-Laws. -26- PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters - ------------------------------------------------------------------------- The Common Stock of Ford presently is listed on the New York and Pacific Coast Stock Exchanges in the United States and on certain stock exchanges in Belgium, France, Germany, Switzerland and the United Kingdom. Ford is in the process of delisting its stock from stock exchanges in Belgium, France, Germany and Switzerland. The high and low sales prices for Ford Common Stock and the dividends paid per share of Common and Class B Stock for each full quarterly period in the years indicated were as follows:
1997 1996 --------------------------------------- -------------------------------------- First Second Third Fourth First Second Third Fourth Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter ------- ------- ------- ------- ------- ------- ------- ------- Common Stock price per share* High $35 $39 1/2 $46 1/8 $50 1/4 $34 7/8 $37 1/4 $34 1/4 $33 7/8 Low 30 3/4 30 38 3/16 41 1/2 27 1/4 31 1/2 29 7/8 30 3/8 Dividends per share of Common and Class B Stock $0.385 $0.42 $0.42 $0.42 $0.35 $0.35 $0.385 $0.385 - --------------------------- * Prices reflect New York Stock Exchange Composite Transactions.
As of February 27, 1998, stockholders of record of Ford included 241,815 holders of Common Stock and 109 holders of Class B Stock. -27- Item 6. Selected Financial Data - -------------------------------- The following tables set forth selected financial data and other data concerning Ford for each of the last eleven years (dollar amounts in millions except per share amounts):
SUMMARY OF OPERATIONS 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- Automotive Sales $122,935 $118,023 $110,496 $107,137 $91,568 $84,407 $72,051 $81,844 $82,879 $82,193 $71,797 Operating income/(loss) 6,946 2,516 3,281 5,826 1,432 (1,775) (3,769) 316 4,252 6,612 6,256 Income/(loss) before income taxes and cumulative effects of changes in accounting principles 7,082 2,571 3,166 5,997 1,291 (1,952) (4,052) 275 5,156 7,312 6,499 Income/(loss) before cumulative effects of changes in accounting principles a/, c/ 4,714 1,655 2,056 3,913 1,008 (1,534) (3,186) 99 3,175 4,609 3,767 -------- -------- -------- -------- ------- ------- ------- ------- ------- ------- ------- Net income/(loss) 4,714 1,655 2,056 3,913 1,008 (8,628) (3,186) 99 3,175 4,609 3,767 -------- -------- -------- -------- ------- ------- ------- ------- ------- ------- ------- Financial Services Revenues $ 30,692 $ 28,968 $ 26,641 $ 21,302 $16,953 $15,725 $16,235 $15,806 $13,267 $10,253 $ 8,096 Income before income taxes and cumulative effects of changes in accounting principles 3,857 4,222 3,539 2,792 2,712 1,825 1,465 1,220 874 1,031 1,386 Income before cumulative effects of changes in accounting principles b/, d/, e/ 2,206 2,791 2,083 1,395 1,521 1,032 928 761 660 691 858 -------- -------- -------- -------- ------- ------- ------- ------- ------- ------- ------- Net income 2,206 2,791 2,083 1,395 1,521 1,243 928 761 660 691 858 -------- -------- -------- -------- ------- ------- ------- ------- ------- ------- ------- Total Company Income/(loss) before income taxes and cumulative effects of changes in accounting principles $ 10,939 $ 6,793 $ 6,705 $ 8,789 $ 4,003 $ (127) $(2,587) $ 1,495 $ 6,030 $ 8,343 $ 7,885 Provision/(credit) for income taxes 3,741 2,166 2,379 3,329 1,350 295 (395) 530 2,113 2,999 3,226 Minority interests in net income of subsidiaries 278 181 187 152 124 80 66 105 82 44 34 -------- -------- -------- -------- ------- ------ ------- ------- ------- ------- ------- Income/(loss) before cumulative effects of changes in accounting principles a/, b/, c/, d/, e/ 6,920 4,446 4,139 5,308 2,529 (502) (2,258) 860 3,835 5,300 4,625 Cumulative effects of changes in accounting principles - - - - - (6,883) - - - - - -------- -------- -------- -------- ------- ------- ------- ------- ------- ------- ------- Net income/(loss) $ 6,920 $ 4,446 $ 4,139 $ 5,308 $ 2,529 $(7,385) $(2,258) $ 860 $ 3,835 $ 5,300 $ 4,625 ======== ======== ======== ======== ======= ======= ======= ======= ======= ======= ======= Total Company Data Per Share of Common and Class B Stock f/ Income/(loss) before cumulative effects of changes in accounting principles $ 5.75 $ 3.73 $ 3.58 $ 4.97 $ 2.27 $ (0.73) $ (2.40) $ 0.93 $ 4.11 $ 5.48 $ 4.53 Income/(loss) Basic 5.75 3.73 3.58 4.97 2.27 (7.81) (2.40) 0.93 4.11 5.48 4.53 Diluted 5.62 3.64 3.33 4.44 2.10 (7.81) (2.40) 0.92 4.06 5.40 4.46 Cash dividends 1.645 1.47 1.23 0.91 0.80 0.80 0.98 1.50 1.50 1.15 0.79 Common stock price range (NYSE) High 50-1/4 37-1/4 32-7/8 35 33-1/16 24-7/16 18-7/8 24-9/16 28-5/16 27-1/2 28-5/32 Low 30 27-1/4 24-3/4 25-5/8 21-1/2 13-7/8 11-11/16 12-1/2 20-11/16 19-1/32 14-7/32 Average number of shares of Common and Class B stock outstanding (in millions) 1,195 1,179 1,071 1,010 986 972 952 926 934 968 1,022
- - - - - - a/ 1989 includes an after-tax loss of $424 million from the sale of Rouge Steel Company. b/ 1994 includes an after-tax loss of $440 million from the sale of Granite Savings Bank (formerly First Nationwide Bank). c/ 1995 includes a gain of $230 million from the dissolution of Autolatina, the company's joint venture with Volkswagen AG in Brazil and Argentina. d/ 1996 includes gains of $650 million on the sale of The Associates' common stock and $95 million on the sale of USL Capital's assets, offset partially by a net write-down of $233 million for Budget Rent a Car Corporation. e/ 1997 includes a gain of $269 million on the sale of Hertz common stock. f/ Share data have been adjusted to reflect stock dividends and stock splits. -28- Item 6. Selected Financial Data (Continued) - --------------------------------------------
SUMMARY OF OPERATIONS 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 (continued) ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- Total Company Balance Sheet Data at Year-End Assets Automotive $ 85,079 $ 79,658 $ 72,772 $ 68,639 $ 61,737 $ 57,170 $ 52,397 $ 50,824 $ 45,819 $ 43,128 $ 39,734 Financial Services 194,018 183,209 170,511 150,983 137,201 123,375 122,032 122,839 115,074 100,239 76,260 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Total assets $279,097 $262,867 $243,283 $219,622 $198,938 $180,545 $174,429 $173,663 $160,893 $143,367 $115,994 Long-term debt Automotive $ 7,047 $ 6,495 $ 5,475 $ 7,103 $ 7,084 $ 7,068 $ 6,539 $ 4,553 $ 1,137 $ 1,336 $ 2,058 Financial Services 73,198 70,641 68,259 58,104 47,900 42,369 43,680 40,779 37,784 30,777 26,009 Stockholders' equity g/ 30,734 26,762 24,547 21,659 15,574 14,753 22,690 23,238 22,728 21,529 18,493 Total Company Facility and Tooling Data Capital expenditures for facilities (excluding special tools) $ 5,695 $ 5,362 $ 5,455 $ 5,236 $ 4,339 $ 3,613 $ 3,611 $ 4,702 $ 4,412 $ 3,148 $ 2,415 Depreciation 10,404 9,519 8,954 7,207 5,456 4,658 3,956 3,185 2,720 2,458 2,107 Expenditures for special tools 3,022 3,289 3,542 3,310 2,475 2,177 2,236 2,556 2,354 1,634 1,343 Amortization of special tools 3,179 3,272 2,765 2,129 2,012 2,097 1,822 1,695 1,509 1,335 1,353 Total Company Employee Data - Worldwide Payroll $ 17,187 $ 17,616 $ 16,567 $ 15,853 $ 13,750 $ 13,754 $ 12,850 $ 14,014 $ 13,327 $ 13,010 $ 11,670 Total labor costs 25,546 25,689 23,758 22,985 20,065 19,850 17,998 18,962 18,152 18,108 16,567 Average number of employees 363,892 371,702 346,989 337,728 321,925 325,333 331,977 369,547 366,641 358,939 350,320 Total Company Employee Data - U.S. Operations Payroll $ 10,840 $ 10,961 $ 10,488 $ 10,381 $ 8,889 $ 8,019 $ 7,393 $ 8,313 $ 8,654 $ 8,477 $ 7,765 Average number of employees 189,787 189,718 186,387 180,861 166,995 158,501 156,203 180,228 188,402 185,651 180,944 Average hourly labor costs h/ Earnings $ 22.97 $ 22.30 $ 21.79 $ 21.81 $ 20.94 $ 19.92 $ 19.10 $ 18.44 $ 17.77 $ 17.39 $ 16.50 Benefits 20.48 19.47 18.66 19.13 18.12 19.24 17.97 14.12 13.21 13.07 12.38 -------- -------- ------- -------- -------- -------- -------- -------- -------- -------- -------- Total hourly labor costs $ 43.45 $ 41.77 $ 40.45 $ 40.94 $ 39.06 $ 39.16 $ 37.07 $ 32.56 $ 30.98 $ 30.46 $ 28.88 ======== ======== ======== ======== ======== ======== ======== ======== ======== ======== ======== - - - - - -
g/ The cumulative effects of changes in accounting principles reduced equity by $6,883 million in 1992. h/ Per hour worked (in dollars). Excludes data for subsidiary companies. -29- Item 6. Selected Financial Data (Continued) - --------------------------------------------
SUMMARY OF VEHICLE UNIT SALES i/ (in thousands) 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- North America United States Cars 1,614 1,656 1,767 2,036 1,925 1,820 1,588 1,870 2,201 2,364 2,176 Trucks 2,402 2,241 2,226 2,182 1,859 1,510 1,253 1,416 1,517 1,537 1,480 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Total United States 4,016 3,897 3,993 4,218 3,784 3,330 2,841 3,286 3,718 3,901 3,656 Canada 319 258 254 281 256 237 259 257 326 349 349 Mexico 97 67 32 92 91 126 112 89 87 63 35 ----- ----- ------ ----- ----- ----- ----- ----- ----- ----- ----- Total North America 4,432 4,222 4,279 4,591 4,131 3,693 3,212 3,632 4,131 4,313 4,040 Europe Britain 466 516 496 520 464 420 471 607 739 753 628 Germany 460 436 409 386 340 407 501 361 326 332 328 Italy 248 180 193 179 172 266 301 219 153 98 93 Spain 155 155 160 163 117 165 128 155 173 158 159 France 153 194 165 180 150 194 190 185 192 168 162 Other countries 318 339 286 281 250 270 296 289 296 290 285 ----- ----- ------ ----- ----- ----- ----- ----- ----- ----- ----- Total Europe 1,800 1,820 1,709 1,709 1,493 1,722 1,887 1,816 1,879 1,799 1,655 Other international Brazil 214 190 201 164 151 117 137 137 157 154 129 Argentina 143 64 48 54 49 49 26 18 25 30 33 Australia 132 138 139 125 120 105 104 134 154 132 128 Taiwan 79 86 106 97 122 119 107 115 115 88 55 Japan 40 52 57 50 53 64 83 99 82 60 49 Other countries 103 81 67 63 65 71 67 72 65 86 82 ----- ----- --- --- --- --- --- --- ---- --- --- Total other international 711 611 618 553 560 525 524 575 598 550 476 Total worldwide cars and trucks 6,943 6,653 6,606 6,853 6,184 5,940 5,623 6,023 6,608 6,662 6,171 Total worldwide tractors j/ - - - - - - 13 66 72 77 64 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Total worldwide vehicle unit sales 6,943 6,653 6,606 6,853 6,184 5,940 5,636 6,089 6,680 6,739 6,235 ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== =====
- - - - - - i/ 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. j/ Ford's tractor operation, Ford New Holland, was sold on May 6, 1991. -30- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - ------------------------------------------------------------------------ OVERVIEW The Company's worldwide net income was a record $6,920 million in 1997, or $5.62 per diluted share of Common and Class B Stock, compared with $4,446 million, or $3.64 per diluted share in 1996. The Company's earnings in 1997 were up $2,474 million or 56% from 1996, reflecting primarily improved Automotive operating results in North America, South America and Europe, offset partially by lower earnings in Financial Services. The Company's worldwide sales and revenues were a record $153.6 billion in 1997, up $6.6 billion or 5% from 1996. Vehicle unit sales of cars and trucks were a record 6,943,000, up 290,000 units or 4% from a year ago. Stockholders' equity was $30.7 billion at December 31, 1997, compared with $26.8 billion at December 31, 1996. In 1997, Automotive capital expenditures for new products and facilities totaled $8.1 billion, down $67 million from 1996. Automotive cash and marketable securities were a record $20.8 billion at December 31, 1997, up $5.4 billion from December 31, 1996. Automotive debt at December 31, 1997 totaled $8.1 billion, unchanged from a year ago. Automotive net cash was a record $12.7 billion at December 31, 1997. The Company's Financial Statements and Notes to Financial Statements on pages FS-1 through FS-34, including the Report of Independent Accountants, should be read as an integral part of this review. Fourth Quarter 1997 - ------------------- In fourth quarter 1997, Ford earned a record $1,796 million, or $1.45 per diluted share of Common and Class B Stock, compared with $1,204 million, or $0.99 per diluted share in fourth quarter 1996. The Company's net income for fourth quarter 1997 and 1996 was as follows (in millions):
Net Income/(Loss) --------------------------------------------- Fourth Fourth Quarter Quarter 1997 1996 -------------------- -------------------- U.S. Automotive $1,193 $ 628 Automotive Outside U.S. - Europe 158 (88) - South America (71) (287) - Other 61 137 ------ ------- Total Automotive Outside U.S. 148 (238) ------ ------- Total Automotive 1,341 390 Financial Services 455 814 ------ ------ Total Company $1,796 $1,204 ====== ======
Earnings for Automotive operations in the U.S. improved in fourth quarter 1997, compared with fourth quarter 1996, primarily as a result of cost reductions (at constant volume and mix). -31- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) - ------------------------------------------------------------------------ Automotive operations in Europe earned a profit in fourth quarter 1997, compared with a loss a year ago. The improvement reflected primarily increased volume and nonrecurrence of 1996 separation costs. Lower losses in South America in fourth quarter 1997 reflected primarily nonrecurrence of 1996 separation costs, improved volume and mix, and cost reductions. Lower earnings for Financial Services operations reflected nonrecurrence of 1996 one-time actions and a higher effective tax rate. RESULTS OF OPERATIONS The Company's full year net income for worldwide Automotive operations in 1997, 1996 and 1995, was as follows (in millions):
Net Income/(Loss) ----------------------------------------------------------- 1997 1996 1995 ---------------- ---------------- ----------------- U.S. Automotive $3,706 $2,007 $1,843 Automotive Outside U.S. - Europe 273 (291) 116 - South America 40 (642) (94) - Other 695 581 191 ------ ------ ------ Total Automotive Outside U.S. 1,008 (352) 213 ------ ------ ------ Total Automotive $4,714 $1,655 $2,056 ====== ====== ======
The Company's full year net income for worldwide Financial Services operations in 1997, 1996 and 1995, was as follows (in millions):
Net Income/(Loss) ----------------------------------------------------------- 1997 1996 1995 ---------------- ---------------- ----------------- Ford Credit $1,031 $1,441 $1,579 The Associates 1,032 857 723 USL Capital - 191 135 Hertz 202 159 105 One-Time Actions - Gain on sale of Common Stock of The Associates and Hertz 269 650 - - Sale of USL Capital assets - 95 - - Budget Rent a Car write-down - (233) - Minority Interests, Eliminations and Other (328) (369) (459) ------ ------ ------ Total Financial Services $2,206 $2,791 $2,083 ====== ====== ====== Memo: Ford's share of earnings in ---------------------------------- The Associates $ 832 $ 745 $ 723 Hertz 168 159 105
-32- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) - ----------------------------------------------------------------------- 1997 COMPARED WITH 1996 Automotive Operations - --------------------- Earnings for Automotive operations in the U.S. were a record $3,706 million, up $1,699 million in 1997 compared with a year ago. The increase reflected higher margins from ongoing cost, quality, and vehicle mix improvements. The after-tax return on sales was 4.6% in 1997, up 1.9 points from a year ago. The U.S. economy continued on a path of strong growth, low unemployment, and moderate inflation in 1997. Car and truck industry volumes totaled 15.5 million units in 1997, about the same level as 1996. Ford's combined U.S. car and truck share was 25%, down 2/10 of a point from 1996. Automotive operations in Europe returned to profitability in 1997 with earnings of $273 million compared with a loss of $291 million a year ago. The improvement reflected primarily lower operating costs (at constant volume and mix), offset partially by lower volume. European car and truck industry volumes totaled 15 million units in 1997, compared with 14.3 million units in 1996. Ford's combined European car and truck share was 11.4%, down 4/10 of a point from 1996. Automotive operations in South America returned to profitability, earning $40 million in 1997 compared with a loss of $642 million a year ago. Higher earnings reflected primarily improved volume and mix, and lower material costs (at constant volume and mix). In 1997, car and truck industry volumes in Brazil (the largest market in South America) totaled 1.9 million units. Ford's combined car and truck market share in Brazil was 14.5% in 1997, up 3.8 points from 1996. Automotive Sales and Total Costs - -------------------------------- Automotive sales totaled $123 billion in 1997, up 4.2% from 1996. Sales in the U.S. were $81 billion in 1997 compared with $76 billion in 1996; sales outside the U.S. totaled $42 billion in 1997, unchanged from 1996. Total costs and expenses were $116 billion in 1997, up $482 million or 4/10 of one percent from 1996. The increases in sales and total costs and expenses were attributable to the effects of higher unit volume and a richer sales mix. Adjusted for constant volume and mix, total automotive costs declined $3 billion in 1997. Financial Services Operations - ----------------------------- Earnings for Financial Services operations in 1997 were down $585 million, compared with a year ago. Excluding the one-time actions in 1997 and 1996 shown above, results from operations were down $342 million from a year ago. Lower earnings at Ford Credit in 1997, compared with 1996, resulted primarily from lower net financing margins, higher credit losses and loss reserve requirements, and a higher effective tax rate; improved operating costs and higher financing volumes were a partial offset. Net financing margins decreased from a year ago, reflecting higher depreciation costs on leased vehicles (as a result of lower-than-anticipated residuals). These factors have continued to adversely affect Ford Credit's earnings in 1998. Credit losses as a percent of average net finance receivables (including net investment in operating leases) were 0.89% in 1997, compared with 0.78% a year ago, reflecting higher losses per repossession. Record earnings at The Associates reflected primarily higher levels of earning assets and improved net interest margins, offset partially by higher credit losses. Credit losses as a percent of average net finance receivables were 2.40% in 1997, compared with 2.03% in 1996. -33- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) - ----------------------------------------------------------------------- Record earnings at Hertz reflected continued strong performance in the U.S. car rental market both in terms of increased transaction volume and more favorable pricing. 1996 COMPARED WITH 1995 The Company's worldwide net income was $4,446 million in 1996, or $3.64 per diluted share of Common and Class B Stock, compared with $4,139 million, or $3.33 per diluted share in 1995. The Company's worldwide sales and revenues were $147 billion in 1996, up $9.9 billion, or 7% from 1995. Vehicle unit sales of cars and trucks were 6,653,000, up 47,000 units. Stockholders' equity was $26.8 billion at December 31, 1996, compared with $24.5 billion at December 31, 1995. The Company's earnings in 1996 were up $307 million from 1995, reflecting primarily improved Automotive results in North America and one-time actions and record operating earnings in Financial Services; higher operating losses in South America and Europe and a one-time charge for employee separation programs were partial offsets. Automotive Operations - --------------------- Earnings for Automotive operations in the U.S. were up $164 million in 1996 compared with 1995. The increase resulted from higher margins (reflecting improved sales mix and cost reductions), offset partially by higher product costs and costs for employee separation programs. The after-tax return on sales was 2.7% in 1996, up 2/10 of a point from 1995. The U.S. economy grew at a moderate rate in 1996, with interest rates and inflation at comparatively low levels. Car and truck industry volumes totaled 15.5 million units in 1996, compared with 15.1 million units in 1995. The increase in industry sales was more than explained by higher truck industry sales. Ford's combined U.S. car and truck share was 25.2%, down 4/10 of a point from 1995. Reduced sales of lower margin fleet vehicles accounted for the decline. Unfavorable results for Automotive operations in Europe in 1996, compared with 1995, reflected costs associated with launching new products, adverse vehicle mix, higher marketing costs, and costs for employee separation programs, offset partially by higher volume. In 1996, the European automotive industry experienced increased competition as a result of industry overcapacity, as well as a market shift to lower profit smaller cars. European car and truck industry volumes totaled 14.3 million units in 1996, compared with 13.4 million units in 1995. Ford's combined European car and truck share was 11.8%, down 4/10 of a point from 1995, reflecting primarily reduced sales of lower margin fleet vehicles. Higher losses in 1996 incurred by Automotive operations in South America reflected primarily higher losses for operations in Brazil as a result of a long and costly launch process following the dissolution of the Autolatina joint venture with Volkswagen AG. Costs for employee separation programs, in addition to increased competition and a market shift to smaller (Fiesta-sized) cars that resulted in lower market share, also affected results unfavorably. The Company reestablished operations in Brazil and Argentina in 1996. Financial Services Operations - ----------------------------- Earnings for Financial Services operations were up $708 million in 1996, compared with 1995, including $512 million from one-time actions for the sale of The Associates' common stock, the sale of USL Capital's assets, and the net write-down for Budget Rent A Car Corporation. Improvements from operations totaled $196 million. -34- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) - ----------------------------------------------------------------------- Ford Credit's earnings in 1996 include a majority ownership (78%) of Ford Credit Europe, and results for 1995 were restated to reflect this ownership change. Lower consolidated net income at Ford Credit in 1996, compared with 1995, resulted primarily from the absence of equity in the net income of Ford Holdings (reflecting the repurchase in first quarter 1996 by Ford Holdings of substantially all of the shares of Ford Holdings' stock owned by Ford Credit), higher credit losses and higher loss reserve requirements; higher levels of earning assets and improved net interest margins were partial offsets. (Ford Holdings is a holding company which in 1996 owned primarily USL Capital and, until December 1995, also owned The Associates. Presently, Ford Holdings primarily owns a minority interest in Ford FSG, Inc.) Depreciation costs increased as a result of continued growth in operating leases; the related lease revenues more than offset the increased depreciation. Credit losses as a percent of average net finance receivables (including net investment in operating leases) were 0.78% in 1996, compared with 0.51% in 1995. Record earnings at The Associates in 1996 reflected primarily higher levels of earning assets, lower operating costs and improved net interest margins, offset partially by higher credit losses. Credit losses as a percent of average net finance receivables were 2.03% in 1996, compared with 1.70% in 1995. Record earnings at Hertz in 1996 reflected primarily higher volume in U.S. car rental and equipment rental operations, compared with 1995. LIQUIDITY AND CAPITAL RESOURCES Automotive Operations - --------------------- Automotive cash and marketable securities were $20.8 billion at December 31, 1997, up $5.4 billion from December 31, 1996. The Company paid $2 billion in cash dividends on its Common Stock, Class B Stock and Preferred Stock during 1997. Automotive capital expenditures totaled $8.1 billion in 1997, down $67 million from 1996. Capital expenditures were 6.6% of sales in 1997, down 4/10 of a point from 1996. Ford's spending in 1998 for product change is expected to be at lower levels. Automotive debt at December 31, 1997 totaled $8.1 billion, which was 21% of total capitalization (stockholders' equity and Automotive debt), down from 23% of total capitalization a year ago. For a discussion of Ford's support facilities at December 31, 1997, see Note 9 (pages FS-22 and FS-23) of the Notes to Financial Statements. Financial Services Operations - ----------------------------- The Financial Services operations rely heavily on their ability to raise substantial amounts of funds in the capital markets in addition to collections on loans and retained earnings. The levels of funds for certain Financial Services operations are affected by transactions with Ford, such as capital contributions, dividend payments and the timing of payments for income taxes. The ability to obtain funds also is affected by debt ratings which, for certain operations, are closely related to the financial condition and outlook for Ford and the nature and availability of support facilities, such as revolving credit and receivables sales agreements. Outstanding commercial paper at December 31, 1997 totaled $40.9 billion at Ford Credit, $19.5 billion at The Associates, and $1.4 billion at Hertz, with an average remaining maturity of 24 days, 28 days, and 18 days, respectively. Support facilities represent additional sources of funds, if required. -35- Item 7. Management's Discussion and Analysis of Financial Contition and Results of Operations (Continued) - ----------------------------------------------------------------------- For a discussion of support facilities of Ford Credit and other Financial Services subsidiaries at December 31, 1997, see Note 9 (pages FS-22 and FS-23) of the Notes to Financial Statements. SPIN-OFF OF THE ASSOCIATES On March 2, 1998, the Board of Directors of the Company approved the spin-off of The Associates by declaring a dividend on Ford's outstanding shares of Common and Class B Stock consisting in the aggregate of Ford's 80.7% interest (279.5 million shares) in The Associates. The Board of Directors also declared a dividend in cash on shares of the Company stock held in employee savings plans equal to the market value of The Associates stock to be distributed per share of the Company's Common and Class B Stock. Both the spin-off dividend and the cash dividend are payable on April 7, 1998 to stockholders of record on March 12, 1998. Holders of Ford Common and Class B Stock on the record date will be entitled to receive 0.262085 shares of The Associates common stock for each share of Ford stock. Based on the closing sale price of The Associates stock of $81.25 per share on March 2, 1998, the total value of the distribution (including the cash dividend) will be $25.8 billion or $21.30 per share of Ford stock. The actual value of the total distribution will depend on the market value of The Associates stock on the distribution date. As a result of the spin-off of The Associates, Ford will realize a one-time, non-taxable gain of about $16.5 billion in first quarter 1998. In 1996 and 1997, The Associates contributed 16.8% and 12%, respectively, to Ford's consolidated earnings. Generally, the earnings of The Associates have been retained by The Associates to fund its growth. YEAR 2000 DATE CONVERSION An issue affecting Ford and most other companies is whether computer systems and applications will recognize and process the year 2000 and beyond. Ford has a central office to coordinate the identification, evaluation and implementation of changes to systems and applications to achieve compliance with the year 2000 date conversion. The Company is in the process of assessing and implementing necessary changes for all areas of the Company's business which could be impacted; these include such areas as business computer systems, technical infrastructure, dealership systems, plant floor equipment, building infrastructure, end-user computing, affiliates, suppliers and vehicle components. The Company has investigated the impact of the year 2000 issue on its vehicle components and does not anticipate any effect on the operational safety or performance of its vehicles. The electronic functionality of such components generally is based on engine cycles or the time elapsed since the vehicle was started, not any particular date. While the Company will continue to investigate its vehicle components, at present it does not anticipate any significant exposure related to the year 2000 issue for its current or future products. Ford has established accelerated conversion centers in various regions of the world, and is using these centers, as well as external resources, to address the year 2000 issue. The Company plans to have necessary modifications made to most of its critical systems and applications by the end of 1998 and to complete testing during 1999. The Company, however, has little to no control over whether its suppliers or dealers will make the appropriate modifications to their systems and applications on a timely basis. Ford is working actively through the Automotive Industry Action Group with other manufacturers in assessing and monitoring supplier readiness. In addition, Ford will rely to a certain extent on equipment suppliers for the modifications that must be made to certain Ford manufacturing equipment. -36- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) - ----------------------------------------------------------------------- Based on assessments completed to date and compliance plans in process, Ford does not expect that the year 2000 issue, including the cost of making its critical systems and applications compliant, will have a material effect on its business operations, consolidated financial condition, cash flows, or results of operations. However, if appropriate modifications are not made by the Company's suppliers or dealers on a timely basis, or if the Company's actual costs or timing for the year 2000 date conversion differ materially from its present estimates, the Company's operations and financial results could be significantly adversely affected. NEW ACCOUNTING STANDARDS AND INTERPRETATIONS New Standards - ------------- Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share," was issued by the Financial Accounting Standards Board in February 1997. Ford adopted SFAS 128 effective with the 1997 financial statements. Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income," was issued by the Financial Accounting Standards Board in June 1997. This Statement requires all items that must be recognized under accounting standards as components of comprehensive income to be reported in a financial statement that is displayed with the same prominence as other financial statements. Ford will adopt SFAS 130 for 1998. Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and Related Information," was issued by the Financial Accounting Standards Board in June 1997. This Statement establishes standards for reporting information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial reports issued to stockholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. Ford will adopt SFAS 131 for 1998. Management is evaluating the impact, if any, the Standard will have on the Company's present segment reporting. Interpretations - --------------- Brazil has been considered a highly inflationary economy since the implementation of Statement of Financial Accounting Standards No. 52 ("SFAS 52"), "Foreign Currency Translation," for fiscal years beginning on or after December 15, 1982. The instability of the local currency in a hyperinflationary economy precludes its use as the functional currency for the measurement of business operations. Ford has used the U.S. dollar as the functional currency for its Brazilian operations during this hyperinflationary period. Beginning January 1, 1998, Brazil no longer is considered a highly inflationary economy under SFAS 52. The U.S. dollar will continue to be the designated functional currency for Ford's Brazilian operations in 1998 because business transactions primarily are U.S. dollar based. Therefore, the change to a non-highly inflationary designation will have no effect on Ford's consolidated financial statements in 1998. The designated functional currency for Ford Brazil will be reviewed periodically. -37- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) - ----------------------------------------------------------------------- OUTLOOK Industry Sales Volumes - ---------------------- The Company's outlook for car and truck industry sales in 1998 in its major markets is as follows: United States - The Company expects car and truck industry sales in the U.S. in 1998 to be slightly lower than the 15.5 million units in 1997. Europe - European car and truck industry sales in 1998 are expected to be about equal to 1997, or about 15 million units. Brazil - Fiscal austerity measures implemented in late 1997 by the Brazilian government are expected to adversely impact 1998 car and truck industry sales in the region. 1998 Financial Targets - ---------------------- Ford's management has set and communicated certain Automotive financial targets for 1998. While the Company hopes to achieve these goals, they should not be interpreted as projections, expectations or forecasts of 1998 results. The Automotive financial targets for 1998 are as follows:
1998 Target ---------------------------- Automotive ---------- North America 5% return on sales Europe Profitable South America Breakeven (present status is a loss) Total costs Down $1 billion from 1997 (at constant volume and mix) Capital spending Lower than 1997
Risk Factors - ------------ Statements included in this report may constitute "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from those stated, including, without limitation: greater price competition in the U.S. and Europe resulting from further weakening of Asian currencies or industry overcapacity; a significant decline in U.S. or European industry sales resulting from slowing economic growth; economic difficulties in South America resulting from Brazilian government austerity programs; a market shift from truck sales in the U.S.; lower-than-anticipated residual values for leased vehicles; increased safety or emissions regulation resulting in higher costs and/or sales restrictions; work stoppages at key Company or supplier facilities; and the discovery of defects in vehicles resulting in recall campaigns or litigation. -38- Item 7A. Quantitative and Qualitative Disclosures About Market Risk - -------------------------------------------------------------------- Ford is exposed to a variety of market risks, including the effects of changes in foreign currency exchange rates, interest rates and commodity prices. For Automotive operations, purchases and sales of finished vehicles and production parts, debt and other payables, subsidiary dividends, and investments in subsidiaries are frequently denominated in foreign currencies, thereby creating exposures to changes in exchange rates. In addition, Ford also is exposed to changes in prices of commodities used in its Automotive operations. To ensure funding over business and economic cycles and to minimize overall borrowing costs, Financial Services operations issue debt and other payables with various maturity and interest rate structures. The maturity and interest rate structures frequently differ from the invested assets. Exposures to fluctuations in interest rates are created by the difference in maturities of liabilities versus the maturities of assets. 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 effect of changes in exchange rates, interest rates and commodity prices on Ford's earnings generally has been small relative to other factors that also affect earnings, such as unit sales and operating margins. For more information on these financial exposures, see Note 1 (pages FS-9 and FS-10) and Note 14 (pages FS-27 and FS-28) of the Notes to Financial Statements. The Company's interest rate risk and its foreign currency exchange rate risk (risks related to commodity derivative positions are not material) is quantified as follows. Interest Rate Risk -- Interest rate swaps (including those with a currency swap component) are used by Ford, primarily in its Financial Services operations, to mitigate the effects of interest rate fluctuations on earnings by changing the characteristics of debt to match the characteristics of assets. The Company uses a model to assess the sensitivity of its earnings to changes in market interest rates. The model recalculates earnings by adjusting the rates associated with variable rate instruments on the repricing date and adjusting the rates on fixed rate instruments scheduled to mature in the subsequent twelve months, effective on their scheduled maturity date. Interest income and interest expense are then recalculated based on the revised rates. Assuming an instantaneous increase or decrease of one percentage point in interest rates applied to all financial instruments and leased assets, Ford's after-tax earnings would change by $30 million over a 12-month period. Foreign Currency Risk -- The Company principally uses derivative financial instruments to hedge assets, liabilities and firm commitments denominated in foreign currencies. The Company uses a value-at-risk (VAR) analysis to assess its exposure to changes in foreign currency exchange rates. The primary assumptions used in the VAR analysis are as follows: - A Monte Carlo simulation was used to calculate changes in the value of currency derivative instruments (forwards and options) and all significant underlying exposures. The simulation generated currency rate scenarios over an 18-month exposure horizon and a one-month holding period. -39- Item 7A. Quantitative and Qualitative Disclosures About Market Risk (Continued) - -------------------------------------------------------------------------------- - The VAR analysis calculates the potential risk, with a 99% confidence level, on firm commitment exposures (cash flows), including the effects of foreign currency derivatives. (Translation exposures were not included in the VAR analysis.) The model assumes currency prices are generally normally distributed and draws volatility data from the currency markets. - Estimates of correlations of market factors primarily are drawn from the JP Morgan RiskMetrics(TM) dataset as of December 31, 1997. Based on the overall Company currency exposure at December 31, 1997, including derivative positions, currency movements are projected to affect pre-tax cash flow by less than $250 million, with a 99% confidence level. Item 8. Financial Statements and Supplementary Data - ---------------------------------------------------- The Financial Statements and Notes to Financial Statements of the Registrant and the Report of Independent Accountants that are filed as part of this Report are listed under Item 14. "Exhibits, Financial Statement Schedules, and Reports on Form 8-K" and are set forth on pages FS-1 through FS-34 immediately following the signature pages of this Report. Selected quarterly financial data of Ford and its consolidated subsidiaries for 1997 and 1996 are set forth in Note 18 of the Notes to Financial Statements. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure - ------------------------------------------------------------------------- Not required. -40- PART III Item 10. Directors and Executive Officers of the Registrant - ------------------------------------------------------------ The information called for by Item 10 is incorporated by reference from the information under the captions "Election of Directors" and "Management Stock Ownership" in the Proxy Statement, except that the information called for by Item 10 with respect to executive officers of the Registrant appears as Item 4A under Part I of this Report. Item 11. Executive Compensation - -------------------------------- The information called for by Item 11 is incorporated by reference from the information under the following captions in the Proxy Statement: "Compensation of Directors", "Compensation and Option Committee Report on Executive Compensation", "Compensation of Executive Officers", "Stock Options", "Contingent Stock Rights and Restricted Stock Units", "Stock Performance Graphs" and "Retirement Plans". Item 12. Security Ownership of Certain Beneficial Owners and Management - ------------------------------------------------------------------------ The information called for by Item 12 is incorporated by reference from the information under the caption "Management Stock Ownership" in the Proxy Statement. Item 13. Certain Relationships and Related Transactions - -------------------------------------------------------- The information called for by Item 13 is incorporated by reference from the information under the caption "Certain Relationships and Related Transactions" in the Proxy Statement. -41- PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K - -------------------------------------------------------------------------- (a) 1. Financial Statements - Ford Motor Company and Subsidiaries - ------------------------------------------------------------------- Consolidated Statement of Income for the years ended December 31, 1997, 1996 and 1995. Consolidated Balance Sheet at December 31, 1997 and 1996. Consolidated Statement of Cash Flows for the years ended December 31, 1997, 1996 and 1995. Consolidated Statement of Stockholders' Equity for the years ended December 31, 1997, 1996 and 1995. Notes to Financial Statements Report of Independent Accountants The Financial Statements, the Notes to Financial Statements and the Report of Independent Accountants listed above are filed as part of this Report and are set forth on pages FS-1 through FS-34 immediately following the signatures pages of this Report. (a) 2. Financial Statement Schedules - -------------------------------------- Designation Description - ----------- ----------- Supplemental Schedule Condensed Financial Information of Subsidiary The Financial Statement Schedule listed above is filed as part of this Report and is set forth on page FSS-1 immediately following page FS-34. The schedules not filed are omitted because the information required to be contained therein is disclosed elsewhere in the Financial Statements or the amounts involved are not sufficient to require submission. -42- Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (Continued) - ------------------------------------------------------------------------- (a) 3. Exhibits - -----------------
Designation Description Method of Filing - ----------- ----------- ---------------- Exhibit 3-A Restated Certificate of Incorporation, Filed as Exhibit 4.1 to the Registrant's of the Registrant dated June 6, 1994. Registration Statement No. 33-55171.* Exhibit 3-B By-Laws of the Registrant as Filed with this Report. amended through August 1, 1997. Exhibit 4 Form of Deposit Agreement dated as of Filed as Exhibit 4-E to the Registrant's October 29, 1992 among Ford Motor Registration Statement No. 33-53092.* Company, Chemical Bank, as Depositary, and the holders from time to time of Depositary Shares, each representing 1/2,000 of a share of the Registrant's Series B Cumulative Preferred Stock. Exhibit 10-A Amended and Restated Profit Filed as Exhibit 10-A to the Registrant's Maintenance Agreement dated as of Annual Report on Form 10-K for the July 1, 1993 between the Registrant year ended December 31, 1993.* and Ford Credit. Exhibit 10-B Ford Motor Company 1985 Stock Filed as Exhibit 10-D to the Registrant's Option Plan.** Annual Report on Form 10-K for the year ended December 31, 1985.* Exhibit 10-B-1 Amendment dated as of March 8, 1990 Filed as Exhibit 10-C-1 to the to 1985 Stock Option Plan.** Registrant's Annual Report on Form 10-K for the year ended December 31, 1989.* Exhibit 10-B-2 Amendment to 1985 Stock Option Plan, Filed as Exhibit 4.C to Amendment No. effective as of January 8, 1998.** 1 to the Registrant's Registration Statement No. 33-9722.* Exhibit 10-C Ford Motor Company Supplemental Filed as Exhibit 10-H to the Registrant's Compensation Plan as amended through Annual Report on Form 10-K for the May 8, 1986.** year ended December 31, 1986.* Exhibit 10-C-1 Amendment to Supplemental Filed as Exhibit 10-F-1 to the Compensation Plan, dated May 12, 1988.** Registrant's Annual Report on Form 10-K for the year ended Decmeber 31, 1988.*
-43- Item 14. Exhibits, Financial Statement Schedules and Reports on Form 10-K (Continued) - -------------------------------------------------------------------------
Designation Description Method of Filing - ----------- ----------- ---------------- Exhibit 10-C-2 Amendment to Supplemental Filed as Exhibit 10-D-2 to the Compensation Plan, dated Registrant's Annual Report on Form July 8, 1992.** 10-K for the year ended December 31, 1992.* Exhibit 10-C-2A Amendment to Supplemental Filed as Exhibit 10-C-2A to the Compensation Plan, effective as of Registrant's Annual Report on Form March 9, 1994.** 10-K for the year ended December 31, 1996.* Exhibit 10-C-3 Amendment to Supplemental Filed as Exhibit 10.1 to the Registrant's Compensation Plan, effective as of Quarterly Report on Form 10-Q for the March 8, 1995.** quarter ended March 31, 1995.* Exhibit 10-C-4 Amendment to Supplemental Filed as Exhibit 10.1 to the Registrant's Compensation Plan, effective as of Quarterly Report on Form 10-Q for the July 13, 1995.** quarter ended June 30, 1995.* Exhibit 10-C-5 Amendment to Supplemental Filed as Exhibit 10-C-5 to the Compensation Plan, effective as of Registrant's Annual Report on Form January 10, 1996.** 10-K for the year ended December 31, 1995.* Exhibit 10-C-6 Amendments to Supplemental Filed with this Report. Compensation Plan, effective as of October 1, 1997.** Exhibit 10-C-7 Amendment to Supplemental Filed with this Report. Compensation Plan, effective as of December 22, 1997.** Exhibit 10-C-8 Amendment to Supplemental Filed with this Report. Compensation Plan, effective as of May 14, 1998 (subject to shareholder approval).** Exhibit 10-D Ford Motor Company Executive Separation Filed as Exhibit 10-D to the Registrant's Allowance Plan as amended through Annual Report on Form 10-K for the December 9, 1993 for separations on year ended December 31, 1994.* or after January 1, 1981.** Exhibit 10-E Description of Company practices regarding Filed as Exhibit 10-I to the Registrant's club memberships for executives.** Annual Report on Form 10-K for the year ended December 31, 1981.* Exhibit 10-F Description of Company practices regarding Filed as Exhibit 10-J to the Registrant's travel expenses of spouses of certain Annual Report on Form 10-K for the executives.** year ended December 31, 1980.* Exhibit 10-G Ford Motor Company Deferred Compensation Filed as Exhibit 10-H-1 to the Plan for Non-Employee Directors, as amended Registrant's Annual Report on Form on July 11, 1991.** 10-K for the year ended December 31, 1991.*
-44- Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (Continued) - -------------------------------------------------------------------------
Designation Description Method of Filing - ----------- ----------- ---------------- Exhibit 10-G-1 Amendments to Deferred Compensation Plan Filed as Exhibit 10-G-1 to the for Non-Employee Directors, effective as of Registrant's Annual Report on Form January 1, 1996.** 10-K for the year ended December 31, 1995.* Exhibit 10-G-2 Amendment to Deferred Compensation Plan Filed as Exhibit 10-G-2 to the for Non-Employee Directors, effective as of Registrant's Annual Report on Form November 14, 1996.** 10-K for the year ended December 31, 1996.* Exhibit 10-H Ford Motor Company Benefit Equalization Filed as Exhibit 10-H to the Registrant's Plan, as amended as of January 1, Annual Report on Form 10-K for the 1989.** year ended December 31, 1994.* Exhibit 10-H-1 Description of Amendments to Benefit Filed as Exhibit 10-H-1 to the Equalization Plan, adopted January 11, Registrant's Annual Report on Form 1996 and January 25, 1996.** 10-K for the year ended December 31, 1995.* Exhibit 10-I Description of Financial Counseling Filed as Exhibit 10-N to the Registrant's Services provided to certain executives.** Annual Report on Form 10-K for the year ended December 31, 1983.* Exhibit 10-J Ford Motor Company 1986 Long-Term Filed as Exhibit 10-Q to the Registrant's Incentive Plan.** Annual Report on Form 10-K for the year ended December 31, 1985.* Exhibit 10-J-1 Amendment dated as of June 1, 1990 to Filed as Exhibit 10-N-1 to the 1986 Long-Term Incentive Plan. ** Registrant's Annual Report on Form 10-K for the year ended December 31, 1990.* Exhibit 10-K Supplemental Executive Retirement Plan, Filed as Exhibit 10-K to the as restated and incorporating amendments Registrant's Annual Report on Form through December 12, 1995.** 10-K for the year ended December 31, 1995.* Exhibit 10-L Ford Motor Company Restricted Stock Filed as Exhibit 10-P to the Registrant's Plan for Non-Employee Directors adopted Annual Report on Form 10-K for the by the Board of Directors on November 10, year ended December 31, 1988.* 1988, and approved by the stockholders at the 1989 Annual Meeting.** Exhibit 10-L-1 Amendment to Restricted Stock Plan for Filed as Exhibit 10.1 to the Registrant's Non-Employee Directors, effective as of Quarterly Report on Form 10-Q for the August 1, 1996.** quarter ended September 30, 1996.* Exhibit 10-M Ford Motor Company 1990 Long-Term Filed as Exhibit 10-R to the Registrant's Incentive Plan, amended as of June 1, Annual Report on Form 10-K for the 1990.** year ended December 31, 1990.*
-45- Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (Continued) - -------------------------------------------------------------------------
Designation Description Method of Filing - ----------- ----------- ---------------- Exhibit 10-M-1 Amendment to 1990 Long-Term Incentive Filed as Exhibit 10-P-1 to the Plan, effective as of October 1, 1990.** Registrant's Annual Report on Form 10-K for the year ended December 31, 1991.* Exhibit 10-M-2 Amendment to 1990 Long-Term Incentive Filed as Exhibit 10.2 to the Registrant's Plan, effective as of March 8, 1995.** Quarterly Report on Form 10-Q for the quarter ended March 31, 1995.* Exhibit 10-M-3 Amendment to 1990 Long-Term Filed with this Report. Incentive Plan, effective as of October 1, 1997.** Exhibit 10-M-4 Amendment to 1990 Long-Term Filed with this Report Incentive Plan, effective as of January 1, 1998 (subject to shareholder approval).** Exhibit 10-N Description of Matching Gift Program for Filed as Exhibit 10-Q to the Registrant's Non-Employee Directors.** Annual Report on Form 10-K for the year ended December 31, 1991.* Exhibit 10-O Non-Employee Directors Life Insurance Filed as Exhibit 10-O to the Registrant's and Optional Retirement Plan Annual Report on Form 10-K for the (as amended as of January 1, 1993).** year ended December 31, 1994.* Exhibit 10-P Description of Non-Employee Directors Filed as Exhibit 10-S to the Registrant's Accidental Death, Dismemberment and Annual Report on Form 10-K for the Permanent Total Disablement Indemnity.** year ended December 31, 1992.* Exhibit 10-Q Agreement dated December 10, 1992 Filed as Exhibit 10-T to the Registrant's between William C. Ford and the Annual Report on Form 10-K for the Registrant.** year ended December 31, 1992.* Exhibit 10-R Support Agreement dated as of October 1, Filed as Exhibit 10-T to the Registrant's 1993 between the Registrant and Ford Annual Report on Form 10-K for the Credit Europe. year ended December 31, 1993.* Exhibit 10-R-1 Amendment No. 1 dated as of November Filed as Exhibit 10-R-1 to the 15, 1995 to Support Agreement between Registrant's Annual Report on Form the Registrant and Ford Credit Europe. 10-K for the year ended December 31, 1995.* Exhibit 10-S Select Retirement Plan Filed as Exhibit 10-S to the Registrant's adopted on June 9, 1994.** Annual Report on Form 10-K for the year ended December 31, 1996.* Exhibit 10-T Ford Motor Company Deferred Filed as Exhibit 10.2 to the Registrant's Compensation Plan, effective as of Quarterly Report on Form 10-Q for the July 13, 1995.** quarter ended June 30, 1995.*
-46- Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (Continued) - -------------------------------------------------------------------------
Designation Description Method of Filing - ----------- ----------- ---------------- Exhibit 10-T-1 Amendments to Deferred Compensation Filed as Exhibit 10-T-1 to the Plan, effective as of July 13, 1995 and Registrant's Annual Report on Form October 1, 1995.** 10-K for the year ended December 31, 1995.* Exhibit 10-T-2 Amendments to Deferred Compensation Filed as Exhibit 10.2 to the Registrant's Plan, effective as of October 1, 1996.** Quarterly Report on Form 10-Q for the quarter ended September 30, 1996.* Exhibit 10-T-3 Amendment to Deferred Compensation Filed as Exhibit 4.4 to the Plan, effective as of October 1, 1997.** Registrant's Registration Statement No. 333-47733.* Exhibit 10-T-4 Amendments to Deferred Compensation Filed as Exhibit 4.5 to the Plan, effective as of January 1, 1998 Registrant's Registration (subject to shareholder approval).** Statement No. 333-47733.* Exhibit 10-U Description of Amendments to Supplemental Filed as Exhibit 10-U to the Registrant's Executive Retirement Plan and Executive Annual Report on Form 10-K for the Separation Allowance Plan, adopted year ended December 31, 1995.* January 25, 1996.** Exhibit 10-U-2 Description of Amendment to Supplemental Filed as Exhibit 10-U-2 to the Executive Retirement Plan and Executive Registrant's Annual Report on Separation Allowance Plan, effective as of Form 10-K for the year ended July 1, 1996.** December 31, 1996.* Exhibit 10-V Ford Motor Company Annual Incentive Filed with this Report. Compensation Plan, effective as of January 1, 1998 (subject to shareholder approval).** Exhibit 10-W Ford Motor Company 1998 Long-Term Filed with this Report. Incentive Plan, effective as of January 1, 1998 (subject to shareholder approval).** Exhibit 12 Computation of Ratio of Earnings to Filed with this Report. Combined Fixed Charges and Preferred Stock Dividends. Exhibit 21 List of Subsidiaries of the Registrant Filed with this Report. as of March 15, 1998. Exhibit 23 Consent of Independent Certified Public Filed with this Report. Accountants. Exhibit 24 Powers of Attorney. Filed with this Report.
- -------------------------- * Incorporated by reference as an exhibit hereto (file number reference 1-3950, unless otherwise indicated) ** Management contract or compensatory plan or arrangement -47- Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (Continued) - ------------------------------------------------------------------------- Instruments defining the rights of holders of certain issues of long-term debt of the Registrant and of certain consolidated subsidiaries and of any unconsolidated subsidiary, for which financial statements are required to be filed with this Report, have not been filed as exhibits to this Report because the authorized principal amount of any one of such issues does not exceed 10% of the total assets of the Registrant and its subsidiaries on a consolidated basis. The Registrant agrees to furnish a copy of each of such instruments to the Commission upon request. (b) Reports on Form 8-K - ------------------------- During the quarter ended December 31, 1997, the Registrant filed the following Current Reports on Form 8-K: 1. Current Report on Form 8-K dated October 8, 1997 concerning the Registrant's plan to spin off The Associates. 2. Current Report on Form 8-K dated October 9, 1997 concerning certain lowered debt ratings of the Registrant and certain of its affiliates. 3. Current Report on Form 8-K dated October 15, 1997 regarding the consolidated results of operations and financial condition of the Registrant and its subsidiaries for the three and nine-month periods ended or at September 30, 1997. -48- SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. FORD MOTOR COMPANY By: John M. Devine* ---------------------------- (John M. Devine) Executive Vice President and Chief Financial Officer Date: March 17, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities on the date indicated.
Signature Title Date --------- ----- ---- Alex Trotman* Director and March 17, 1998 - ------------------------------ Chairman of the Board (Alex Trotman) of Directors, President and Chief Executive Officer (principal executive officer) Michael D. Dingman* Director and March 17, 1998 - ------------------------------ Chairman of the (Michael D. Dingman) Compensation and Option Committee Edsel B. Ford II* Director and Vice March 17, 1998 - ------------------------------ President, Ford; and (Edsel B. Ford II) President and Chief Operating Officer, Ford Motor Credit Company William Clay Ford* Director March 17, 1998 - ------------------------------ (William Clay Ford) William Clay Ford, Jr.* Director and March 17, 1998 - ------------------------------ Chairman of the Finance (William Clay Ford, Jr.) Committee and the Environmental and Public Policy Committee
-49-
Signature Title Date --------- ----- ---- Irvine O. Hockaday, Jr.* Director and March 17, 1998 - ----------------------------- Chairman of the (Irvine O. Hockaday, Jr.) Audit Committee Marie-Josee Kravis* Director March 17, 1998 - ----------------------------- (Marie-Josee Kravis) Ellen R. Marram* Director March 17, 1998 - ----------------------------- (Ellen R. Marram) Homer A Neal* Director March 17, 1998 - ----------------------------- (Homer A. Neal) Carl E. Reichardt* Director March 17, 1998 - ----------------------------- (Carl E. Reichardt) John L. Thornton* Director March 17, 1998 - ----------------------------- (John L. Thornton) John M. Devine* Executive Vice President and March 17, 1998 - ----------------------------- Chief Financial Officer (John M. Devine) (principal financial officer) William J. Cosgrove* Corporate Controller March 17, 1998 - ----------------------------- (principal accounting officer) (William J. Cosgrove) *By: /s/ John M. Rintamaki ------------------------- (John M. Rintamaki) Attorney-in-Fact
Ford Motor Company and Subsidiaries HIGHLIGHTS ---------- Fourth Quarter Full Year ---------------------------- ----------------------------- 1997 1996 1997 1996 --------- ---------- ---------- ---------- (unaudited) Worldwide vehicle unit sales of cars and trucks (in thousands) - - United States 987 1,006 4,016 3,897 - - Outside United States 804 747 2,927 2,756 ----- ----- ----- ----- Total 1,791 1,753 6,943 6,653 ===== ===== ===== ===== Sales and revenues (in millions) - - Automotive $31,897 $31,505 $122,935 $118,023 - - Financial Services 8,055 7,328 30,692 28,968 ------- ------- -------- -------- Total $39,952 $38,833 $153,627 $146,991 ======= ======= ======== ======== Net income (in millions) - - Automotive $ 1,341 $ 390 $ 4,714 $ 1,655 - - Financial Services 455 814 2,206 2,791 ------- ------- -------- -------- Total $ 1,796 $ 1,204 $ 6,920 $ 4,446 ======= ======= ======== ======== Capital expenditures (in millions) - - Automotive $ 2,389 $ 2,413 $ 8,142 $ 8,209 - - Financial Services 162 93 575 442 ------- ------- -------- -------- Total $ 2,551 $ 2,506 $ 8,717 $ 8,651 ======= ======= ======== ======== Automotive capital expenditures as a percentage of sales 7.5% 7.7% 6.6% 7.0% Stockholders' equity at December 31 - - Total (in millions) $30,734 $26,762 $ 30,734 $ 26,762 - - After-tax return on Common and Class B stockholders' equity 24.1% 18.4% 24.4% 17.6% Automotive net cash at December 31 (in millions) - - Cash and marketable securities $20,835 $15,414 $ 20,835 $ 15,414 - - Debt 8,176 8,156 8,176 8,156 ------- ------- -------- -------- Automotive net cash $12,659 $ 7,258 $ 12,659 $ 7,258 ======= ======= ======== ======== After-tax return on sales - - U.S. Automotive 5.8% 3.2% 4.6% 2.7% - - Total Automotive 4.2% 1.3% 3.9% 1.4% Shares of Common and Class B Stock (in millions) - - Average number outstanding 1,201 1,187 1,195 1,179 - - Number outstanding at December 31 1,202 1,188 1,202 1,188 Common Stock price (per share) - - High $50-1/4 $33-7/8 $ 50-1/4 $ 37-1/4 - - Low 41-1/2 30-3/8 30 27-1/4 AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK AFTER PREFERRED STOCK DIVIDENDS Income assuming dilution - - Automotive $ 1.08 $ 0.32 $ 3.82 $ 1.33 - - Financial Services 0.37 0.67 1.80 2.31 ------- ------- -------- -------- Total $ 1.45 $ 0.99 $ 5.62 $ 3.64 ======= ======= ======== ======== Cash dividends $ 0.420 $ 0.385 $ 1.645 $ 1.47
FS-1
Ford Motor Company and Subsidiaries VEHICLE UNIT SALES ------------------ For the Periods Ended December 31, 1997 and 1996 (in thousands) Fourth Quarter Full Year ------------------------- ------------------------- 1997 1996 1997 1996 -------- -------- -------- -------- (unaudited) (unaudited) North America United States Cars 409 428 1,614 1,656 Trucks 578 578 2,402 2,241 ----- ----- ----- ----- Total United States 987 1,006 4,016 3,897 Canada 91 84 319 258 Mexico 40 28 97 67 ----- ----- ----- ----- Total North America 1,118 1,118 4,432 4,222 Europe Britain 124 140 466 516 Germany 137 106 460 436 Italy 70 51 248 180 Spain 43 41 155 155 France 41 47 153 194 Other countries 91 103 318 339 ----- ----- ----- ----- Total Europe 506 488 1,800 1,820 Other international Brazil 49 48 214 190 Argentina 35 21 143 64 Australia 31 31 132 138 Taiwan 17 14 79 86 Japan 10 11 40 52 Other countries 25 22 103 81 ----- ----- ----- ----- Total other international 167 147 711 611 ----- ----- ----- ----- Total worldwide vehicle unit sales 1,791 1,753 6,943 6,653 ===== ===== ===== =====
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. FS-2
Ford Motor Company and Subsidiaries CONSOLIDATED STATEMENT OF INCOME -------------------------------- For the Years Ended December 31, 1997, 1996 and 1995 (in millions, except amounts per share) 1997 1996 1995 ------------ ----------- ------------- AUTOMOTIVE Sales (Note 1) $122,935 $118,023 $110,496 Costs and expenses (Notes 1 and 15): Costs of sales 108,907 108,882 101,171 Selling, administrative and other expenses 7,082 6,625 6,044 -------- -------- -------- Total costs and expenses 115,989 115,507 107,215 Operating income 6,946 2,516 3,281 Interest income 1,116 841 800 Interest expense 788 695 622 -------- -------- -------- Net interest income 328 146 178 Equity in net loss of affiliated companies (Note 1) (88) (6) (154) Net expense from transactions with Financial Services (Note 1) (104) (85) (139) -------- -------- -------- Income before income taxes - Automotive 7,082 2,571 3,166 FINANCIAL SERVICES Revenues (Note 1) 30,692 28,968 26,641 Costs and expenses (Note 1): Interest expense 9,712 9,704 9,424 Depreciation 7,645 6,875 6,500 Operating and other expenses 6,621 6,217 5,499 Provision for credit and insurance losses 3,230 2,564 1,818 Asset write-downs and dispositions (Note 15) - 121 - -------- -------- -------- Total costs and expenses 27,208 25,481 23,241 Net revenue from transactions with Automotive (Note 1) 104 85 139 Gain on sale of Common Stock of a subsidiary (Note 15) 269 650 - -------- -------- -------- Income before income taxes - Financial Services 3,857 4,222 3,539 -------- -------- -------- TOTAL COMPANY Income before income taxes 10,939 6,793 6,705 Provision for income taxes (Note 6) 3,741 2,166 2,379 -------- -------- -------- Income before minority interests 7,198 4,627 4,326 Minority interests in net income of subsidiaries 278 181 187 -------- -------- -------- Net income $ 6,920 $ 4,446 $ 4,139 ======== ======== ======== Income attributable to Common and Class B Stock after preferred stock dividends (Note 1) $ 6,866 $ 4,381 $ 3,839 Average number of shares of Common and Class B Stock outstanding (Note 1) 1,195 1,179 1,071 AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK (Note 1) Basic income $ 5.75 $ 3.73 $ 3.58 Diluted income $ 5.62 $ 3.64 $ 3.33 Cash dividends $ 1.645 $ 1.47 $ 1.23
The accompanying notes are part of the financial statements. FS-3
Ford Motor Company and Subsidiaries CONSOLIDATED BALANCE SHEET -------------------------- (in millions) December 31, December 31, 1997 1996 --------------- ------------- ASSETS Automotive Cash and cash equivalents $ 6,316 $ 3,578 Marketable securities (Note 2) 14,519 11,836 -------- -------- Total cash and marketable securities 20,835 15,414 Receivables 3,097 3,133 Inventories (Note 4) 5,468 6,656 Deferred income taxes 3,249 3,296 Other current assets (Note 1) 3,782 3,193 Net current receivable from Financial Services (Note 1) 416 0 -------- -------- Total current assets 36,847 31,692 Equity in net assets of affiliated companies (Note 1) 1,951 2,483 Net property (Note 5) 34,594 33,527 Deferred income taxes 3,712 4,429 Other assets (Notes 1 and 8) 7,975 7,527 -------- -------- Total Automotive assets 85,079 79,658 Financial Services Cash and cash equivalents 1,618 3,689 Investments in securities (Note 2) 2,207 2,307 Net receivables and lease investments (Note 3) 176,416 163,030 Other assets (Note 1) 13,777 13,710 Net receivable from Automotive (Note 1) 0 473 -------- -------- Total Financial Services assets 194,018 183,209 -------- -------- Total assets $279,097 $262,867 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Automotive Trade payables $ 11,997 $ 11,735 Other payables 2,557 2,206 Accrued liabilities (Note 7) 16,250 16,587 Income taxes payable 1,358 508 Debt payable within one year (Note 9) 1,129 1,661 Net current payable to Financial Services (Note 1) 0 473 -------- -------- Total current liabilities 33,291 33,170 Long-term debt (Note 9) 7,047 6,495 Other liabilities (Note 7) 28,899 26,793 Deferred income taxes 1,210 1,225 -------- -------- Total Automotive liabilities 70,447 67,683 Financial Services Payables 4,539 4,695 Debt (Note 9) 160,071 150,205 Deferred income taxes 4,347 4,338 Other liabilities and deferred income 7,865 8,504 Net payable to Automotive (Note 1) 416 0 -------- -------- Total Financial Services liabilities 177,238 167,742 Company-obligated mandatorily redeemable preferred securities of a subsidiary trust holding solely junior subordinated debentures of the Company (Note 1) 678 680 Stockholders' equity Capital stock (Notes 10 and 11) Preferred Stock, par value $1.00 per share (aggregate liquidation preference of $637 million and $694 million) * * Common Stock, par value $1.00 per share (1,132 and 1,118 million shares issued) 1,132 1,118 Class B Stock, par value $1.00 per share (71 million shares issued) 71 71 Capital in excess of par value of stock 5,564 5,268 Foreign currency translation adjustments and other (Note 1) (1,267) (29) Earnings retained for use in business 25,234 20,334 -------- -------- Total stockholders' equity 30,734 26,762 -------- -------- Total liabilities and stockholders' equity $279,097 $262,867 ======== ======== - - - - - *Less than $500,000
The accompanying notes are part of the financial statements. FS-4
Ford Motor Company and Subsidiaries CONSOLIDATED STATEMENT OF CASH FLOWS ------------------------------------ For the Years Ended December 31, 1997, 1996 and 1995 (in millions) 1997 1996 1995 ---------------------------- ---------------------------- --------------------------- Financial Financial Financial Automotive Services Automotive Services Automotive Services -------------- ------------ -------------- ------------ ------------- ----------- Cash and cash equivalents at $ 3,578 $ 3,689 $ 5,750 $ 2,690 $ 4,481 $ 1,739 January 1 Cash flows from operating activities (Note 16) 13,984 13,650 6,576 12,681 8,849 12,322 Cash flows from investing activities Capital expenditures (8,142) (575) (8,209) (442) (8,676) (321) Purchase of leased assets (332) - (195) - 0 - Acquisitions of other companies 0 (40) 0 (166) 0 0 Acquisitions of receivables and lease investments - (117,895) - (109,087) - (99,967) Collections of receivables and lease investments - 86,842 - 82,398 - 71,149 Net acquisitions of daily rental vehicles - (958) - (1,759) - (1,459) Net proceeds from USL Capital asset sales (Note 15) - - - 1,157 - - Purchases of securities (Note 16) (43) (3,067) (6) (8,020) (51) (6,274) Sales and maturities of securities (Note 16) 13 3,520 7 9,863 325 5,052 Proceeds from sales of receivables and lease investments - 5,197 - 2,867 - 4,360 Net investing activity with Financial Services 258 - 416 - (19) - Other (285) (569) (586) (45) 558 (184) ------- -------- ------- -------- ------- ------- Net cash used in investing activities (8,531) (27,545) (8,573) (23,234) (7,863) (27,644) Cash flows from financing activities Cash dividends (2,020) - (1,800) - (1,559) - Issuance of Common Stock 310 - 192 - 601 - Issuance of Common Stock of a subsidiary (Note 15) - 453 - 1,897 - - Changes in short-term debt (430) 6,210 151 3,474 413 5,884 Proceeds from issuance of other debt 1,100 22,923 1,688 22,342 300 23,854 Principal payments on other debt (668) (18,215) (1,031) (14,428) (177) (11,489) Net financing activity with Automotive - (258) - (416) - 19 Receipts from annuity contracts - - - - - 283 Net redemption of subsidiary company preferred stock (Note 1) - - - - - (1,875) Other 1 (206) 37 (528) 121 102 ------- -------- ------- -------- ------- ------- Net cash (used in)/provided by financing activities (1,707) 10,907 (763) 12,341 (301) 16,778 Effect of exchange rate changes on cash (119) 28 (85) (116) 107 (28) Net transactions with Automotive/ Financial Services (889) 889 673 (673) 477 (477) ------- -------- ------- ------- ------- ------- Net increase/(decrease) in cash and cash equivalents 2,738 (2,071) (2,172) 999 1,269 951 ------- -------- ------- ------- ------- ------- Cash and cash equivalents at December 31 $ 6,316 $ 1,618 $ 3,578 $ 3,689 $ 5,750 $ 2,690 ======= ======== ======= ======= ======= =======
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, 1996 and 1995 (in millions) 1997 1996 1995 ----------- ---------- ---------- CAPITAL STOCK (Note 10) Common Stock: Balance at beginning of year $ 1,118 $ 1,089 $ 952 Issued for Series A Preferred Stock conversion, employee benefit plans and other 14 29 137 ------- ------- ------- Balance at end of year 1,132 1,118 1,089 Class B Stock: Balance at beginning of year 71 71 71 Changes during year - - - ------- ------- ------- Balance at end of year 71 71 71 Series A Preferred Stock * * * Series B Preferred Stock (Note 1) * * * CAPITAL IN EXCESS OF PAR VALUE OF STOCK Balance at beginning of year 5,268 5,105 5,273 Exchange of Series B Preferred Stock (Notes 1 and 10) - - (632) Issued for Series A Preferred Stock conversion, employee benefit plans and other 296 163 464 ------- ------- ------- Balance at end of year 5,564 5,268 5,105 FOREIGN CURRENCY TRANSLATION ADJUSTMENTS AND OTHER (Note 1) Balance at beginning of year (29) 594 189 Translation adjustments during year (1,038) (408) 250 Minimum pension liability adjustment (70) (159) (108) Other (130) (56) 263 ------- ------- ------- Balance at end of year (1,267) (29) 594 EARNINGS RETAINED FOR USE IN THE BUSINESS Balance at beginning of year 20,334 17,688 15,174 Net income 6,920 4,446 4,139 Cash dividends (2,020) (1,800) (1,559) Fair value adjustment from exchange of Series B Preferred Stock (Note 1) - - (66) ------- ------- ------- Balance at end of year 25,234 20,334 17,688 ------- ------- ------- Total stockholders' equity $30,734 $26,762 $24,547 ======= ======= =======
Series A Series B Common Class B Preferred Preferred Stock Stock Stock Stock ----- ----- ----- ----- SHARES OF CAPITAL STOCK Issued at December 31, 1994 952 71 0.046 0.023 Additions 1995 - Conversion of Series A Preferred Stock 115 - (0.035) - - Employee benefit plans and other 22 - - - - Exchange of Series B Preferred Stock (Note 10) - - - (0.013) 1996 - Conversion of Series A Preferred Stock 23 - (0.007) - - Employee benefit plans and other 6 - - - 1997 - Conversion of Series A Preferred Stock 4 - (0.001) - - Employee benefit plans and other 10 - - - ----- -- ------ ------ Net additions 180 - (0.043) (0.013) ----- -- ------ ------ Issued at December 31, 1997 1,132 71 0.003 0.010 ===== == ====== ====== Authorized at December 31, 1997 3,000 265 -- In total: 30 -- - - - - - -
*The balances at the beginning and end of each period were less than $500,000. The accompanying notes are part of the financial statements. FS-6 Ford Motor Company and Subsidiaries Notes to Financial Statements 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 two business segments: Automotive and Financial Services. The assets and liabilities of the Automotive segment are classified as current or noncurrent, and those of the Financial Services segment 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. Automotive revenues and costs for 1997 and 1996 include new entities in Brazil and Argentina resulting from the dissolution of Autolatina; amounts for 1995 exclude these entities (Note 15). Nature of Operations - -------------------- The company operates in two principal business segments. The Automotive segment consists of the design, manufacture, assembly and sale of cars, trucks and related parts and accessories. The Financial Services segment consists primarily of financing operations, vehicle and equipment leasing and rental operations, and insurance operations. Intersegment transactions represent principally transactions occurring in the ordinary course of business, borrowings and related transactions between entities in the Financial Services and Automotive segments, and interest and other support under special vehicle financing programs. These arrangements are reflected in the respective business segments. Revenue Recognition - Automotive - -------------------------------- Sales are recorded by the company when products are shipped to dealers, 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. Beginning December 1, 1995, 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. This change in accounting principle was made in accordance with the Emerging Issues Task Force consensus on Issue 95-1, "Revenue Recognition on Sales with a Guaranteed Minimum Residual Value." Ford elected to recognize this change in accounting principle on a prospective basis; the effect on the company's consolidated results of operations was not material. Previously, the company recognized revenue for these vehicles when shipped. The carrying value of these vehicles, included in other current assets, was $2,170 million at December 31, 1997, and $1,803 million at December 31, 1996. FS-7 NOTE 1. Accounting Policies (continued) - ---------------------------- Revenue Recognition - Financial Services - ---------------------------------------- Revenue from finance receivables is recognized over the term of the receivable using the interest method. Certain loan origination costs are deferred and amortized over the term of the related receivable as a reduction in financing revenue. Revenue from operating leases is recognized as scheduled payments become due. Agreements between Automotive operations and certain Financial Services operations provide for interest supplements and other support costs to be paid by Automotive operations on certain financing and leasing transactions. Financial Services operations recognize 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 operations in the same manner as sales incentives described above. Other Costs - ----------- Advertising and sales promotion costs are expensed as incurred. Advertising costs were $2,315 million in 1997, $2,155 million in 1996 and $2,024 million in 1995. Estimated costs related to product warranty are accrued at the time of sale. Research and development costs are expensed as incurred and were $6,327 million in 1997, $6,821 million in 1996 and $6,624 million in 1995. Income Per Share of Common and Class B Stock - -------------------------------------------- The company adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share," for financial statements for the year ended December 31, 1997. Adoption of this standard did not have a material effect on reported income per share. 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 issuable shares and uncommitted ESOP shares. The company had Series A Preferred Stock convertible to Common Stock. Other obligations, such as stock options, are considered to be potentially dilutive common stock. The calculation of diluted income per share of Common and Class B Stock takes into account the effect of these convertible securities and potentially dilutive common stock. FS-8 NOTE 1. Accounting Policies (continued) - ---------------------------- Income per share of Common and Class B Stock were as follows (in millions):
1997 1996 1995 -------------- -------------- --------------- Income Shares Income Shares Income Shares ------ ------ ------ ------ ------ ------ Net income $6,920 1,195 $4,446 1,179 $4,139 1,071 Preferred stock dividend requirements (54) - (65) - (234) - Exchange adjustment of Series B Pref. Stock* - - - - (66) - Issuable and uncommitted ESOP shares - (1) - (4) - 0 ------ ------ ------ ------ ------ ------ Basic income and shares $6,866 1,194 $4,381 1,175 $3,839 1,071 Basic Income Per Share $ 5.75 $ 3.73 $ 3.58 - ---------------------- Basic income and shares $6,866 1,194 $4,381 1,175 $3,839 1,071 Net dilutive effect of options - 20 - 16 - 15 Convertible preferred stock and other 8 10 24 19 141 110 ------ ------ ------ ------ ------ ------ Diluted income and shares $6,874 1,224 $4,405 1,210 $3,980 1,196 Diluted Income Per Share $ 5.62 $ 3.64 $ 3.33 - ------------------------
- - - - - - * Represents a one-time reduction of $0.06 per share of Common and Class B Stock to reflect the excess of the fair value of company-obligated mandatorily redeemable preferred securities of a subsidiary trust at date of issuance over the carrying amount of exchanged Series B 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 German Mark, Japanese Yen, British Pound Sterling, Brazilian Real and Spanish Peseta. 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 as an adjustment to the foreign currency translation component of stockholders' equity. All other gains and losses are recognized in cost of sales for Automotive and interest expense for Financial Services. These instruments usually mature in two years or less for Automotive exposures and longer for Financial Services 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. FS-9 NOTE 1. Accounting Policies (continued) - ---------------------------- Interest rate swap agreements are used to manage the effects of interest rate fluctuations by changing the interest rate characteristics of debt to match the interest rate characteristics of corresponding assets. These instruments mature consistent with underlying debt issues as identified in Note 9. 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 amortized and reflected in interest expense over the remaining term of the underlying debt. Ford has a commodity hedging program that uses primarily forward contracts and options to manage the effects of changes in commodity prices on Automotive results. The financial instruments used in this program mature in two years or less, consistent with the related purchase commitments. Gains and losses are recognized in cost of sales during the settlement period of the related transactions. Foreign Currency Translation - ---------------------------- Assets and liabilities of foreign subsidiaries generally are translated to U.S. dollars at end-of-period exchange rates. The effects of this translation for most foreign subsidiaries are reported in a separate component of stockholders' equity. Remeasurement of assets and liabilities of foreign 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 foreign 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, decreased net income by $164 million in 1997 and by $156 million in 1996, and increased net income by $13 million in 1995. 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 evaluates the carrying value of long-lived assets and long-lived assets to be disposed of for potential impairment periodically. 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 principally over 40 years. Total goodwill included in Automotive other assets was $2.1 billion at December 31, 1997, and $2.3 billion at December 31, 1996. Total goodwill included in Financial Services other assets was $2.7 billion at December 31, 1997, and $2.9 billion at December 31, 1996. FS-10 NOTE 1. Accounting Policies (continued) - ---------------------------- 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 ("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. NOTE 2. Marketable and Other Securities - ---------------------------------------- Trading securities are recorded at fair value with unrealized gains and losses included in income. Available-for-sale securities are recorded at fair value with unrealized gains and losses excluded from income and reported, net of tax, in a separate component of stockholders' equity. Held-to-maturity securities are recorded at amortized cost. Equity securities which do not have readily determinable fair values are recorded at cost. The bases of cost used in determining realized gains and losses are specific identification for Automotive operations and first-in, first-out for Financial Services operations. The fair value of most 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. 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 - ---------- Investments in securities at December 31 were as follows (in millions):
Gross Gross Memo: Amortized Unrealized Unrealized Fair Book Cost Gains Losses Value Value --------- ---------- ---------- ------- ------- 1997 - ---- Trading securities $14,114 $29 $ - $14,143 $14,143 Available-for-sale securities - Corporate securities 395 - 19 376 376 ------- --- --- ------- ------- Total investment in securities $14,509 $29 $19 $14,519 $14,519 ======= === === ======= ======= 1996 Trading securities $11,812 $25 $ 1 $11,836 $11,836
FS-11 NOTE 2. Marketable and Other Securities (continued) - ---------------------------------------- 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. In 1997, proceeds from sales of available-for-sale securities were $8 million; no gross gains or losses were realized on those sales. Stockholders' equity included, net of tax, net unrealized gains of $28 million in 1997 and $96 million in 1996 on securities owned by certain unconsolidated affiliates. The available-for-sale securities at December 31 by contractual maturity were due between one and five years. Financial Services - ------------------ Investments in securities at December 31, 1997 were as follows (in millions):
Gross Gross Memo: Amortized Unrealized Unrealized Fair Book Cost Gains Losses Value Value --------- ---------- ---------- ------- ------- Trading securities $ 267 $ 4 $1 $ 270 $ 270 Available-for-sale securities - ----------------------------- Debt securities issued by the U.S. government and agencies 385 4 1 388 388 Municipal securities 13 - - 13 13 Debt securities issued by foreign governments 36 - - 36 36 Corporate securities 489 7 1 495 495 Mortgage-backed securities 837 8 1 844 844 Other debt securities 14 - - 14 14 Equity securities 53 65 2 116 116 ------ --- -- ------ ------ Total available-for-sale securities 1,827 84 5 1,906 1,906 Held-to-maturity securities - --------------------------- Debt securities issued by the U.S. government and agencies 7 - - 7 7 Corporate securities 15 - - 15 15 Other debt securities 3 - - 3 3 ------ --- -- ------ ------ Total held-to-maturity securities 25 - - 25 25 Total investments in securities with readily determinable fair value 2,119 $88 $6 $2,201 2,201 === == ====== Equity securities not practicable to fair value 6 6 ------ ------ Total investments in securities $2,125 $2,207 ====== ======
Investments in securities at December 31, 1996 were as follows (in millions):
Gross Gross Memo: Amortized Unrealized Unrealized Fair Book Cost Gains Losses Value Value --------- ---------- ---------- ------- ------ Trading securities $ 410 $ 3 $ 1 $ 412 $ 412 Available-for-sale securities - ----------------------------- Debt securities issued by the U.S. government and agencies 429 6 2 433 433 Municipal securities 14 - - 14 14 Debt securities issued by foreign governments 42 1 - 43 43 Corporate securities 505 3 5 503 503 Mortgage-backed securities 682 3 5 680 680 Other debt securities 2 - - 2 2 Equity securities 107 89 3 193 193 ------ ---- --- ------ ------ Total available-for-sale securities 1,781 102 15 1,868 1,868 Held-to-maturity securities - --------------------------- Debt securities issued by the U.S. government and agencies 9 - - 9 9 Corporate securities 13 - - 13 13 ------ ---- --- ------ ------ Total held-to-maturity securities 22 - - 22 22 Total investments in securities with readily determinable fair value 2,213 $105 $16 $2,302 2,302 ==== === ====== Equity securities not practicable to fair value 5 5 ------ ------ Total investments in securities $2,218 $2,307 ====== ======
FS-12 NOTE 2. Marketable and Other Securities (continued) - ---------------------------------------- Financial Services (continued) - ------------------ 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 Amortized 1997 Cost Fair Value Cost Fair Value ---- --------- ---------- ---------- ---------- Due in one year or less $ 100 $ 101 $14 $14 Due after one year through five years 443 446 10 10 Due after five years through ten years 273 276 - - Due after ten years 121 124 1 1 Mortgage-backed securities 837 843 - - Equity securities 53 116 - - ------ ------ --- --- Total $1,827 $1,906 $25 $25 ====== ====== === === 1996 ---- Due in one year or less $ 70 $ 70 $ 5 $ 5 Due after one year through five years 503 508 14 14 Due after five years through ten years 355 353 1 1 Due after ten years 64 64 2 2 Mortgage-backed securities 682 680 - - Equity securities 107 193 - - ------ ------ --- --- Total $1,781 $1,868 $22 $22 ====== ====== === ===
Proceeds from sales of available-for-sale securities were $2.9 billion in 1997, $8.4 billion in 1996 and $2.4 billion in 1995. In 1997, gross gains of $98 million and gross losses of $8 million were realized on those sales; gross gains of $43 million and gross losses of $21 million were realized in 1996, and gross gains of $39 million and gross losses of $18 million were realized in 1995. Stockholders' equity included, net of tax, net unrealized gains of $50 million and $54 million at December 31, 1997 and 1996, respectively. NOTE 3. Receivables - Financial Services - ----------------------------------------- Included in net receivables and lease investments at December 31 were net finance receivables, investments in direct financing leases and investments in operating leases. The investments in direct financing and operating leases relate 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):
1997 1996 -------- -------- Retail $ 65,661 $ 61,197 Wholesale 24,520 25,066 Real estate, mainly residential 21,065 18,940 Other finance receivables 19,482 17,097 -------- -------- Total finance receivables 130,728 122,300 Allowance for credit losses (3,021) (2,364) -------- -------- Total net finance receivables 127,707 119,936 Retained interest in sold receivables 999 1,124 Other 85 76 -------- -------- Net finance and other receivables and retained interest in sold receivables $128,791 $121,136 ======== ======== Net finance receivables subject to fair value* $128,594 $120,832 Fair value $131,976 $122,104 - - - - -
*Excludes certain diversified and other receivables of $197 million and $304 million at December 31, 1997 and 1996, respectively FS-13 NOTE 3. Receivables - Financial Services (continued) - ----------------------------------------- Included in finance receivables at December 31, 1997 and 1996 were a total of $1 billion and $1.2 billion, respectively, owed by three customers with the largest receivable balances. Other finance receivables consisted primarily of commercial and consumer loans, collateralized loans, credit card receivables, general corporate obligations and accrued interest. Also included in other finance receivables at December 31, 1997 and 1996 were $3.7 billion and $4 billion, respectively, of accounts receivable purchased by certain Financial Services operations from Automotive operations. Contractual maturities of total finance receivables are as follows (in millions): 1998 - $62,057; 1999 - $22,318; 2000 - $13,625; thereafter - $32,728. 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. Investments in direct financing leases at December 31 were as follows (in millions):
1997 1996 ------- ------- Minimum lease rentals, net of unearned income $ 7,874 $6,816 Estimated residual values 2,923 2,938 Allowance for credit losses (143) (114) ------- ------ Net investments in direct financing leases $10,654 $9,640 ======= ======
Minimum direct financing lease rentals are contractually due as follows (in millions): 1998 - $2,843; 1999 - $2,152; 2000 - $1,551; 2001 - $843; 2002 - $347; thereafter - $138. Investments in operating leases at December 31 were as follows (in millions):
1997 1996 ------- ------- Vehicles and other equipment, at cost $44,705 $38,722 Lease origination costs 65 57 Accumulated depreciation (7,487) (6,204) Allowance for credit losses (312) (321) ------- ------- Net investments in operating leases $36,971 $32,254 ======= =======
Minimum rentals on operating leases are contractually due as follows (in millions): 1998 - $12,773; 1999 - $9,183; 2000 - $1,462; 2001 - $156; 2002 - $73; thereafter - $349. 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. Gains and losses upon disposal of the asset also are included in depreciation expense. Depreciation expense was as follows (in millions): 1997 - $6,505; 1996 - $5,867; 1995 - $5,508. Allowances for credit losses are estimated and established as required based on historical experience and other factors that affect collectibility. Finance receivables and lease investments 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 lease investments previously charged off as uncollectible are credited to the allowances for credit losses. FS-14 NOTE 3. Receivables - Financial Services (continued) - ----------------------------------------- Changes in the allowances for credit losses were as follows (in millions):
1997 1996 1995 ------- ------- ------- Beginning balance $ 2,799 $ 2,391 $ 2,217 Additions 2,759 2,092 1,327 Net losses (2,246) (1,720) (1,120) Other changes 164 36 (33) ------- ------- ------- Ending balance $ 3,476 $ 2,799 $ 2,391 ======= ======= =======
Statement of Financial Accounting Standards No. 125 ("SFAS 125") for sales of receivables was adopted January 1, 1997, and the effect was not material. NOTE 4. Inventories - Automotive - --------------------------------- Inventories at December 31 were as follows (in millions):
1997 1996 ------ ------ Raw materials, work in process and supplies $2,875 $3,374 Finished products 2,593 3,282 ------ ------ Total inventories $5,468 $6,656 ====== ====== U.S. inventories $1,993 $2,280
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 $1,397 million and $1,445 million at December 31, 1997 and 1996, respectively. NOTE 5. Net Property, Depreciation and Amortization - Automotive - ----------------------------------------------------------------- Net property at December 31 was as follows (in millions):
1997 1996 -------- -------- Land $ 393 $ 415 Buildings and land improvements 8,803 8,679 Machinery, equipment and other 41,510 40,702 Construction in progress 2,377 1,902 -------- -------- Total land, plant and equipment 53,083 51,698 Accumulated depreciation (26,004) (26,176) -------- -------- Net land, plant and equipment 27,079 25,522 Special tools, net of amortization 7,515 8,005 -------- -------- Net property $ 34,594 $ 33,527 ======== ========
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 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. Special tools are amortized using an accelerated method over periods of time representing the estimated productive life of those tools. FS-15 NOTE 5. Net Property, Depreciation and Amortization - Automotive (continued) - ----------------------------------------------------------------------------- Depreciation and amortization expenses were as follows (in millions):
1997 1996 1995 ------ ------ ------ Depreciation $2,759 $2,644 $2,454 Amortization 3,179 3,272 2,765 ------ ------ ------ Total $5,938 $5,916 $5,219 ====== ====== ======
When property and equipment are retired, the general policy is to charge the cost of those assets, reduced by net salvage proceeds, to accumulated depreciation. Maintenance, repairs and rearrangement costs are expensed as incurred and were $2,294 million in 1997, $2,325 million in 1996 and $2,206 million in 1995. Expenditures that increase the value or productive capacity of assets are capitalized. Preproduction costs related to new facilities are expensed as incurred. NOTE 6. Income Taxes - --------------------- Income before income taxes for U.S. and foreign operations, excluding equity in net (loss)/income of affiliated companies, was as follows (in millions):
1997 1996 1995 ------- ------ ------ U.S. $ 8,622 $6,283 $5,521 Foreign 2,404 516 1,338 ------- ------ ------ Total income before income taxes $11,026 $6,799 $6,859 ======= ====== ======
The provision for income taxes was estimated as follows (in millions):
1997 1996 1995 ------ ------ ------ Currently payable U.S. federal $2,130 $ 655 $ 971 Foreign 830 756 578 State and local (25) 151 17 ------ ------ ------ Total currently payable 2,935 1,562 1,566 Deferred tax liability/(benefit) U.S. federal 536 642 731 Foreign 78 (117) (10) State and local 192 79 92 ------ ------ ------ Total deferred 806 604 813 ------ ------ ------ Total provision $3,741 $2,166 $2,379 ====== ====== ======
The provision includes estimated taxes payable on that portion of retained earnings of subsidiaries expected to be received by the company. No provision was made with respect to $2.1 billion of retained earnings at December 31, 1997 that have been retained for use by foreign subsidiaries. It is not practicable to estimate the amount of unrecognized deferred tax liability for the undistributed foreign earnings. A reconciliation of the provision for income taxes compared with the amounts at the U.S. statutory tax rate is shown below (in millions):
1997 1996 1995 ------ ------ ------ Tax provision at U.S. statutory rate of 35% $3,859 $2,380 $2,400 Effect of: Tax on foreign income (30) 162 187 State and local income taxes 109 150 71 The Associates IPO - (228) - Hertz IPO (94) - - Other income not subject to tax or subject to tax at reduced rates (10) (33) (47) Other (93) (265) (232) ------ ------ ------ Provision for income taxes $3,741 $2,166 $2,379 ====== ====== ====== Effective tax rate 33.9% 31.9% 34.7%
FS-16 NOTE 6. Income Taxes (continued) - --------------------- Deferred income taxes 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 and net operating losses of subsidiaries. The components of deferred income tax assets and liabilities at December 31 were as follows (in millions):
1997 1996 ------- ------- Deferred tax assets Employee benefit plans $ 6,378 $ 6,989 Dealer and customer allowances and claims 4,320 4,073 Net operating loss carryforwards 802 887 Allowance for credit losses 1,270 1,162 All other 1,697 1,308 Valuation allowances (251) (396) ------- ------- Total deferred tax assets 14,216 14,023 Deferred tax liabilities Leasing transactions 5,588 5,488 Depreciation and amortization (excluding leasing transactions) 4,011 3,259 Employee benefit plans 997 1,275 All other 2,490 2,118 ------- ------- Total deferred tax liabilities 13,086 12,140 ------- ------- Net deferred tax assets $ 1,130 $ 1,883 ======= =======
Foreign net operating loss carryforwards for tax purposes were $2.3 billion at December 31, 1997. A substantial portion of these losses has an indefinite carryforward period; the remaining losses have expiration dates beginning in 2000. For financial statement purposes, the tax benefit of operating losses is recognized as a deferred tax asset, subject to appropriate valuation allowances. The company evaluates 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 7. Liabilities - Automotive - --------------------------------- Current Liabilities - ------------------- Included in accrued liabilities at December 31 were the following (in millions):
1997 1996 ------- ------- Dealer and customer allowances and claims $ 8,059 $ 8,738 Employee benefit plans 2,154 2,185 Deferred revenue 2,566 2,078 Salaries, wages and employer taxes 759 983 Postretirement benefits other than pensions 640 761 Other 2,072 1,842 ------- ------- Total accrued liabilities $16,250 $16,587 ======= =======
Noncurrent Liabilities - ---------------------- Included in other liabilities at December 31 were the following (in millions):
1997 1996 ------- ------- Postretirement benefits other than pensions $15,407 $15,189 Dealer and customer allowances and claims 7,049 5,919 Employee benefit plans 3,137 2,982 Unfunded pension obligation 1,009 1,126 Minority interests in net assets of subsidiaries 94 93 Other 2,203 1,484 ------- ------- Total other liabilities $28,899 $26,793 ======= =======
NOTE 8. 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 employees of the company and several finance subsidiaries 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 covering their employees. The company and its subsidiaries also have defined benefit plans applicable to certain executives which are not funded. The company's policy for funded plans is to contribute annually, at a minimum, amounts required by applicable law, regulations and union agreements. Plan assets consist principally of investments in stocks, and government and other fixed income securities. The various plans generally are funded, except in Germany, where this has not been the custom, and as noted above; in those cases, an unfunded liability is recorded. The company's pension expense, including Financial Services, was as follows (in millions):
1997 1996 1995 ------------------------ ------------------------ ------------------------ Non- Non- Non- U.S. Plans U.S. Plans U.S. Plans U.S. Plans U.S. Plans U.S. Plans ---------- ---------- ---------- ---------- ---------- ---------- Benefits attributed to employee service $ 551 $ 331 $ 532 $ 261 $ 435 $ 208 Interest on projected benefit obligation 1,993 857 1,838 819 1,776 785 Return on assets: Actual (gain)/loss (5,933) (1,533) (4,112) (958) (5,696) (1,201) Deferred gain/(loss) 3,428 602 1,802 168 3,565 435 ------- ------- ------- ----- ------- ------- Recognized (gain) (2,505) (931) (2,310) (790) (2,131) (766) Net amortization and other 523 209 608 237 408 234 ------- ------- ------- ----- ------- ------- Net pension expense $ 562 $ 466 $ 668 $ 527 $ 488 $ 461 ======= ======= ======= ===== ======= ======= Discount rate for expense 7.25% 7.1% 7.0% 7.6% 8.25% 8.3% Assumed long-term rate of return on assets 9.0% 9.2% 9.0% 9.2% 9.0% 9.0%
FS-18 NOTE 8. Employee Retirement Benefits (continued) - ------------------------------------- Pension expense in 1997 decreased for U.S. and non-U.S. plans as a result of increased return on plan assets and the year-to-year change in the cost of employee separation programs, offset by higher costs for pension benefit improvements and, for non-U.S. plans, lower discount rates. Pension expense in 1996 increased for U.S. and non-U.S. plans as a result of employee separation programs and lower discount rates. The status of these plans at December 31 was as follows (in millions):
1997 1996 ------------------------------ ------------------------------ Assets in Accum. Assets in Accum. Excess of Benefits Excess of Benefits Accum. in Excess Total Accum. in Excess Total Benefits of Assets Plans Benefits of Assets Plans --------- --------- ------- --------- --------- ------- U.S. Plans Plan assets at fair value $35,607 $ 76 $35,683 $30,931 $ 2 $30,933 Actuarial present value of: Vested benefits $25,049 $ 683 $25,732 $22,363 $ 568 $22,931 Accumulated benefits 28,363 688 29,051 25,908 569 26,477 Projected benefits 30,128 795 30,923 27,557 688 28,245 Plan assets in excess of/(less than) projected benefits $ 5,479 $ (719) $ 4,760 $ 3,374 $ (686) $ 2,688 Unamortized (net asset)/net transition obligation a/ (98) 11 (87) (122) 12 (110) Unamortized prior service cost b/ 2,339 54 2,393 2,789 82 2,871 Unamortized net (gains)/losses c/ (5,011) 210 (4,801) (3,082) 160 (2,922) ------- ------- ------- ------- ------- ------- Prepaid pension asset/(liability) 2,709 (444) 2,265 2,959 (432) 2,527 Adjustment required to recognize minimum liability d/ - (170) (170) - (136) (136) ------- ------- ------- ------- ------- ------- Prepaid pension asset/(liability) recognized in the balance sheet $ 2,709 $ (614) $ 2,095 $ 2,959 $ (568) $ 2,391 ======= ======= ======= ======= ======= ======= Plan assets in excess of/(less than) accumulated benefits $ 7,244 $ (612) $ 6,632 $ 5,023 $ (567) $ 4,456 Assumptions: Discount rate at year-end 6.75% 7.25% Average rate of increase in compensation 5.5% 5.5% Non-U.S. Plans - -------------- Plan assets at fair value $ 9,056 $ 2,631 $11,687 $ 8,052 $ 2,846 $10,898 Actuarial present value of: Vested benefits $ 6,735 $ 4,747 $11,482 $ 5,682 $ 5,263 $10,945 Accumulated benefits 6,855 5,024 11,879 5,966 5,556 11,522 Projected benefits 7,953 5,358 13,311 6,951 5,914 12,865 Plan assets in excess of/(less than) projected benefits $ 1,103 $(2,727) $(1,624) $ 1,101 $(3,068) $(1,967) Unamortized (net asset)/net transition obligation a/ (114) 326 212 (149) 421 272 Unamortized prior service cost b/ 442 128 570 391 151 542 Unamortized net (gains)/losses c/ (790) 727 (63) (670) 774 104 ------- ------- ------- ------- ------- ------- Prepaid pension asset/(liability) 641 (1,546) (905) 673 (1,722) (1,049) Adjustment required to recognize minimum liability d/ - (849) (849) - (990) (990) ------- ------- ------- ------- ------- ------- Prepaid pension asset/(liability) recognized in the balance sheet $ 641 $(2,395) $(1,754) $ 673 $(2,712) $(2,039) ======= ======= ======= ======= ======= ======= Plan assets in excess of/(less than) accumulated benefits $ 2,201 $(2,393) $ (192) $ 2,086 $(2,710) $ (624) Assumptions: Discount rate at year-end 6.5% 7.1% Average rate of increase in compensation 5.1% 5.2%
- - - - - - a/ The balance of the initial difference between assets and obligation deferred for recognition over a 15-year period. b/ The prior service effect of plan amendments deferred for recognition over remaining service. c/ The deferred gain or loss resulting from investments, other experience and changes in assumptions. d/ An adjustment to reflect the unfunded accumulated benefit obligation in the balance sheet for plans whose benefits exceed the assets. At December 31, 1997, the unfunded liability in excess of $500 million resulted in an increase in the charge to stockholders' equity of $70 million net of deferred taxes; at December 31, 1996, the charge to stockholders' equity was $159 million. FS-19 NOTE 8. Employee Retirement Benefits (continued) - ------------------------------------- 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 these 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. In June 1997, the company prepaid certain 1998 and 1999 hourly health benefits by contributing $1,590 million to a Voluntary Employees' Beneficiary Association (VEBA) trust; $736 million of this amount applies to retirees. Net postretirement benefit expense, including Financial Services, was as follows (in millions):
1997 1996 1995 -------- -------- ------- Benefits attributed to employee service $ 242 $ 268 $ 223 Interest on accumulated benefit obligation 1,161 1,195 1,160 Net amortization and other (31) (69) (68) ------- ------- ------ Net postretirement benefit expense $ 1,372 $ 1,394 $1,315 ======= ======= ====== Retiree benefit payments $ 793 $ 730 $ 698
The status of these plans at December 31 was as follows (in millions): 1997 1996 -------- -------- Accumulated postretirement benefit obligation: Retirees $10,098 $ 8,614 Active employees eligible to retire 3,027 3,047 Other active employees 4,397 4,842 ------- ------- Total accumulated obligation 17,522 16,503 Unamortized prior service cost* 162 256 Unamortized net losses** (757) (438) Less VEBA assets at fair value (736) - ------- ------- Accrued liability $16,191 $16,321 ======= ======= Assumptions: Discount rate 7.0% 7.5% Present health care cost trend rate 6.6% 6.6% Ultimate trend rate in ten years 5.0% 5.0% Weighted-average trend rate 5.5% 5.7%
- - - - - * The prior service effect of plan amendments deferred for recognition over remaining service to retirement eligibility ** The deferred gain or loss resulting from experience and changes in assumptions deferred for recognition over remaining service to retirement Changing the assumed health care cost trend rates by one percentage point is estimated to change the aggregate service and interest cost components of net postretirement benefit expense for 1997 by about $190 million and the accumulated postretirement benefit obligation at December 31, 1997 by about $2 billion. FS-20 NOTE 9. 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 - ---------- Debt at December 31 was as follows (in millions):
Weighted Average Interest Rate* Book Value ------------------ ----------------- Maturity 1997 1996 1997 1996 -------- ------ ------ ------ ------ Debt payable within one year ---------------------------- Short-term debt 7.9% 6.2% $ 592 $1,021 Long-term debt payable within one year 537 640 ------ ------ Total debt payable within one year 1,129 1,661 Long-term debt 1999-2097 8.5% 8.6% 7,047 6,495 ------ ------ Total debt $8,176 $8,156 ====== ====== Fair value $8,988 $8,680 - - - - - *Excludes the effect of interest rate swap agreements
Long-term debt at December 31, 1997 included maturities as follows (in millions): 1998 - $537 (included in current liabilities); 1999 - $144; 2000 - $984; 2001 - $1,138; 2002 - $436; thereafter - $4,345. Included in long-term debt at December 31, 1997 and 1996 were obligations of $6,864 million and $5,961 million, respectively, with fixed interest rates and $183 million and $534 million, respectively, with variable interest rates (generally based on LIBOR or other short-term rates). Obligations payable in foreign currencies at December 31, 1997 and 1996 were $372 million and $756 million, respectively. Agreements to manage exposures to fluctuations in interest rates, which include primarily interest rate swap agreements and futures contracts, did not change the overall weighted-average interest rate on long-term debt and the obligations subject to variable interest rates of $183 million at December 31, 1997. At December 31, 1996, these agreements decreased the weighted-average interest rate on long-term debt and effectively decreased the obligations subject to variable rates to $363 million. Financial Services - ------------------ Debt at December 31 was as follows (in millions):
Weighted Average Interest Rate* Book Value ------------------ ----------------- Maturity 1997 1996 1997 1996 --------- ------ ------ ------ ------ Debt payable within one year ---------------------------- Unsecured short-term debt $ 3,684 $ 2,489 Commercial paper 63,834 57,726 Other short-term debt 3,985 4,757 -------- -------- Total short-term debt 6.0% 5.6% 71,503 64,972 Long-term debt payable within one year 15,370 14,592 -------- -------- Total debt payable within one year 86,873 79,564 Long-term debt -------------- Secured indebtedness 1999-2005 9.3% 8.5% 64 70 Unsecured senior indebtedness Notes and bank debt 1999-2048 6.6% 6.7% 67,477 66,893 Debentures 2006-2037 5.6% 5.6% 2,313 1,787 Unamortized (discount) (6) (19) -------- -------- Total unsecured senior indebtedness 69,784 68,661 Unsecured subordinated indebtedness Notes 2002-2021 8.5% 8.8% 2,946 1,500 Debentures 2009 7.3% 7.3% 425 425 Unamortized (discount) (21) (15) -------- -------- Total unsecured subordinated indebtedness 3,350 1,910 -------- -------- Total long-term debt 73,198 70,641 -------- -------- Total debt $160,071 $150,205 ======== ======== Fair value $161,872 $150,939 - - - - - *Excludes the effect of interest rate swap agreements
FS-21 NOTE 9. Debt (continued) - ------------- Financial Services (continued) - ------------------ Information concerning short-term borrowings (excluding long-term debt payable within one year) is as follows (in millions):
1997 1996 1995 -------- -------- -------- Average amount of short-term borrowings $65,592 $62,529 $60,203 Weighted-average short-term interest rates per annum (average year) 5.3% 5.7% 6.0% Average remaining term of commercial paper at December 31 30 days 33 days 34 days
Long-term debt at December 31, 1997 included maturities as follows (in millions): 1998 - $15,370; 1999 - $16,343; 2000 - $13,474; 2001 - $12,258; 2002 - - 13,475; thereafter - $17,648. Included in long-term debt at December 31, 1997 and 1996 were obligations of $56.7 billion and $55.8 billion, respectively, with fixed interest rates and $16.5 billion and $14.8 billion, respectively, with variable interest rates (generally based on LIBOR or other short-term rates). Obligations payable in foreign currencies at December 31, 1997 and 1996 were $27 billion and $28 billion, respectively. These obligations were issued primarily to fund foreign business operations. Outstanding commercial paper at December 31, 1997 totaled $40.9 billion at Ford Credit, $19.5 billion at The Associates, and $1.4 billion at Hertz, with an average remaining maturity of 24 days, 28 days, and 18 days, respectively. Agreements to manage exposures to fluctuations in interest rates include primarily interest rate swap agreements. At December 31, 1997, these agreements decreased the weighted-average interest rate on long-term debt to 6.5%, compared with 6.6% excluding these agreements, and effectively decreased the obligations subject to variable interest rates to $11.8 billion; the weighted-average interest rate on short-term debt excluding these agreements did not change materially. At December 31, 1996, these agreements decreased the weighted-average interest rate on long-term debt to 6.4%, compared with 6.7% excluding these agreements, and effectively decreased the obligations subject to variable rates to $13.6 billion; the weighted-average interest rate on short-term debt increased to 5.7%, compared with 5.6% excluding these agreements. Support Facilities - ------------------ At December 31, 1997 Ford had long-term contractually committed global credit agreements under which $8.3 billion is available from various banks at least through June 30, 2002. The entire $8.3 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 billion of such credit lines in varying portions to Ford Motor Credit Company ("Ford Credit"), a subsidiary of Ford, and to Ford Credit Europe plc ("Ford Credit Europe"), a subsidiary of Ford Credit. In addition, at December 31, 1997, $471 million of contractually committed credit facilities were available to various Automotive affiliates outside the U.S. Approximately $66 million of these facilities were in use at December 31, 1997. FS-22 NOTE 9. Debt (continued) - ------------- At December 31, 1997, Financial Services had a total of $42.9 billion of contractually committed support facilities (excluding the $8 billion available under Ford's global credit agreements). Of these facilities, $23.8 billion are contractually committed global credit agreements under which $19.2 billion and $4.6 billion are available to Ford Credit and Ford Credit Europe, respectively, from various banks; 61% and 77%, respectively, of such facilities are available through June 30, 2002. The entire $19.2 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 Ford Credit Europe's option, by any subsidiary of Ford Credit Europe. Any borrowings by such subsidiaries will be guaranteed by Ford Credit or Ford Credit Europe, as the case may be. At December 31, 1997, $154 million of the Ford Credit global facilities were in use; $597 million of the Ford Credit Europe global facilities were in use. Other than the global credit agreements, the remaining portion of the Financial Services support facilities at December 31, 1997 consisted of $17 billion of contractually committed support facilities available to various affiliates in the U.S. and $2.1 billion of contractually committed support facilities available to various affiliates outside the U.S.; at December 31, 1997, approximately $1 billion of these facilities were in use. Furthermore, banks provide $1.6 billion of liquidity facilities to support the asset-backed commercial paper program of a Ford Credit sponsored special purpose entity. FS-23 NOTE 10. Capital Stock - ----------------------- At December 31, 1997, 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 Certificate of Incorporation. The 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. Information concerning the Preferred Stock of the company is as follows:
Series A Series B Cumulative Convertible Preferred Stock Cumulative Preferred Stock -------------------------------------- ------------------------------------ Liquidation preference $50 per Depositary Share $25 per Depositary Share and shares outstanding $129 million and 2,580 shares $508 million and 10,163 shares at December 31, 1997 outstanding (2,579,962 Depositary outstanding (20,326,463 Depositary Shares) Shares) Dividends $4.20 per year per Depositary Share $2.0625 per year per Depositary Share Conversion Shares can be converted at any time None into shares of Common Stock of the company at a rate equivalent to 3.2654 shares of Common Stock for each Depositary Share (equivalent to a conversion price of $15.3121 per share of Common Stock) Redemption Not redeemable prior to Not redeemable prior to December 7, 1997 December 1, 2002 On or after December 7, 1997, the On and after December 1, 2002, and stock is redeemable for cash at the upon satisfaction of certain company's option, in whole or in conditions, the stock is redeemable part, initially at an amount for cash at the option of Ford, in equivalent to $51.68 per Depositary whole or in part, at a redemption Share and thereafter at prices price equivalent to $25 per Depositary declining to $50 per Depositary Share, plus an amount equal to the sum Share on and after December 1, 2001, of all accrued and unpaid dividends plus, in each case, an amount equal to the sum of all accrued and unpaid 25,273,537 Depositary Shares were dividends exchanged during 1995 (see Note 1, "Company-Obligated Mandatorily Redeemable Preferred Securities of a Subsidiary Trust")
On January 9, 1998, all outstanding shares of Series A Preferred Stock were redeemed at an amount equivalent to $51.68 per Depositary Share plus unpaid dividends. On January 22, 1998, the company announced 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. The Series B 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. FS-24 NOTE 11. Stock Options - ----------------------- The company has stock options outstanding under the 1985 Stock Option Plan and the 1990 Long-Term Incentive Plan. These Plans were approved by the stockholders. No further grants may be made under the 1985 Plan. Grants may be made under the 1990 Plan through April 2000. Options granted in 1997 and subsequent years under the 1990 Plan become exercisable 33% after one year from the date of grant, 67% after two years and in full after three years. In general, options granted under the 1985 Plan and 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 both Plans expire after 10 years. Certain options outstanding under the Plans were granted an equal number of accompanying stock appreciation rights which may be exercised in lieu of the 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 Contingent Stock Rights were made with respect to 936,300 shares in 1997, 865,100 shares in 1996 and 884,500 shares in 1995 under the 1990 Long-Term Incentive Plan (not included in the tables below). The number of shares ultimately awarded will depend on the extent to which the Performance Target 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 1990 Plan, up to 1% 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 2% in any year, with a corresponding reduction in shares available for grants in future years. Any unused portion of the 1% limit for any calendar year may be carried forward and made available for Plan awards in succeeding calendar years. At December 31, 1997, the number of unused shares carried forward aggregated to 1,130,322 shares. Information concerning stock options is as follows (shares in millions):
1997 1996 1995 ------------------ ------------------ ------------------ Weighted- Weighted- Weighted- Average Average Average Exercise Exercise Exercise Shares subject to option Shares Price Shares Price Shares Price ------------------------ ------ --------- ------ ---------- ------ --------- Outstanding at beginning of period 50.3 $26.93 48.5 $25.22 43.3 $23.24 New grants (based on fair value of Common Stock at dates of grant) 8.6 32.05 8.0 32.69 9.7 32.00 Exercised* (8.3) 23.19 (5.2) 20.32 (3.4) 19.62 Surrendered upon exercise of stock appreciation rights (0.4) 22.44 (0.7) 23.03 (0.9) 23.19 Terminated and expired (0.2) 30.86 (0.3) 31.14 (0.2) 28.05 ----- ----- ----- Outstanding at end of period 50.0** 28.44 50.3 26.93 48.5 25.22 Outstanding but not exercisable (21.6) (21.5) (22.6) ----- ----- ----- Exercisable at end of period 28.4 25.84 28.8 23.61 25.9 21.77 ===== ===== =====
- - - - - * Exercised at option prices ranging from $15.00 to $32.69 during 1997, $13.42 to $29.06 during 1996, and $9.09 to $29.06 during 1995 ** Included 2.0 and 48.0 million shares under the 1985 and 1990 Plans, respectively, at option prices ranging from $15.00 to $45.84 per share. At December 31, 1997, the weighted-average remaining exercise period relating to the outstanding options was 6.9 years The estimated fair value as of date of grant of options granted in 1997, 1996 and 1995, using the Black-Scholes option-pricing model, was as follows:
1997 1996 1995 ------ ------ ------ Estimated fair value per share of options granted during the year $5.76 $6.93 $7.16 Assumptions: Annualized dividend yield 4.8% 4.3% 3.9% Common Stock price volatility 22.1% 25.2% 26.2% Risk-free rate of return 6.7% 6.2% 5.8% Expected option term (in years) 5 5 5
FS-25 NOTE 11. Stock Options (continued) - ----------------------- The company adopted the disclosure requirements of Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation," effective with 1996 financial statements, but elected to continue to measure compensation cost using the intrinsic value method, in accordance with APB Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees." 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 in 1997, 1996 and 1995, the company's net income and income per share would have been reduced to the pro forma amounts indicated below:
1997 1996 1995 ------------------- ------------------- ------------------- As Pro As Pro As Pro Reported Forma* Reported Forma* Reported Forma* -------- ------ -------- ------ -------- ------ Net income (in millions) $6,920 $6,892 $4,446 $4,428 $4,139 $4,138 Income per share - ---------------- Basic $ 5.75 $ 5.73 $ 3.73 $ 3.71 $ 3.58 $ 3.58 Diluted $ 5.62 $ 5.60 $ 3.64 $ 3.63 $ 3.33 $ 3.33
- - - - - - * 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 1997, 1996 and 1995 was $48 million, $54 million and $68 million respectively. FS-26 NOTE 12. 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; 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, 1997. 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 13. Commitments and Contingencies - --------------------------------------- At December 31, 1997, the company had the following minimum rental commitments under non-cancelable operating leases (in millions): 1998 - $524; 1999 - $400; 2000 - $301; 2001 - $182; 2002 - $132; thereafter -$254. These amounts include rental commitments related to the sale and leaseback of certain Automotive machinery and equipment. Ford in the U.S. and Ford of Canada have entered into agreements with banks to provide credit card programs that offer rebates that can be applied against the purchase or lease of Ford vehicles. The maximum amount of rebates available to qualified cardholders at December 31, 1997 and 1996 was $1.8 billion and $1.6 billion, respectively. The company has provided for the estimated net cost of these programs as a sales incentive based on the estimated number of participants who ultimately will purchase vehicles. The U.S. program was discontinued December 31, 1997; rebates earned prior to program discontinuance will be valid for up to five years following the calendar year in which earned, subject to certain restrictions. Certain Financial Services subsidiaries make credit lines available to holders of their credit cards. At December 31, 1997 and 1996, the unused portion of available credit was approximately $29.3 billion and $18.8 billion, respectively, and is revocable under specified conditions. The fair value of unused credit lines and the potential risk of loss were not considered to be material. NOTE 14. 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. Accordingly, the estimates of fair value presented herein may not be indicative of the amounts that could be realized in a current market exchange. FS-27 NOTE 14. Financial Instruments (continued) - ------------------------------- 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):
1997 1996 ----------------------- ------------------------ Book Fair Book Fair Fair Value Value Value Value Value Reference -------- ------- -------- ------- ----------- Automotive Marketable securities $ 14,519 $ 14,519 $ 11,836 $ 11,836 Note 2 Debt 8,176 8,988 8,156 8,680 Note 9 Financial Services Marketable securities $ 2,201 $ 2,201 $ 2,302 $ 2,302 Note 2 Receivables 128,594 131,976 120,832 122,104 Note 3 Debt 160,071 161,872 150,205 150,939 Note 9
Foreign Currency and Interest Rate Instruments - ---------------------------------------------- The fair value of foreign currency and interest rate instruments was estimated using current market prices provided by outside quotation services. The estimated fair value, notional amount and deferred loss at December 31 were as follows (in millions):
1997 1996 ------------------- ------------------- Fair Deferred Fair Deferred Value (Loss)* Value (Loss)* ------ --------- ------ -------- Foreign currency instruments $(63) $(132) - Assets $ 289 $ 259 - Liabilities 1,207 1,168 Interest rate instruments - - - Assets 548 436 - Liabilities 182 319 - - - - - * Deferred losses are offset by unrecognized gains on the underlying transactions or commitments
The notional amount represents the contract amount, not the amount at risk. The notional amount for foreign currency instruments was $30,977 million at December 31 1997, and $29,700 million at December 31, 1996. The notional amount for interest rate instruments was $90,428 million at December 31, 1997, and $76,200 million at December 31, 1996. 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, 1997, the notional amount of commodity hedging contracts outstanding totaled $496 million; the notional amount at December 31, 1996 was $505 million. The company also had guaranteed $860 million of debt of unconsolidated subsidiaries, affiliates and others. The risk of loss under these financial agreements is not material. FS-28 NOTE 15. Acquisitions, Dispositions and Restructuring - ------------------------------------------------------ Asset Write-Downs and Dispositions - Financial Services - ------------------------------------------------------- During third quarter 1996, Ford Leasing Corporation, then known as USL Capital Corporation ("USL Capital'), a subsidiary of Ford Holdings, concluded a series of transactions for the sale of substantially all of its assets, as well as certain assets owned by Ford Credit and managed by USL Capital. Proceeds from the sale were used to pay down related liabilities and debt. The company recorded a pre-tax charge in 1996 totaling $384 million ($233 million after taxes) to recognize the estimated value of its outstanding notes receivable from, and preferred stock investment in, Budget Rent a Car Corporation ("BRAC"). The initial provision taken in second quarter 1996 totaling $700 million ($437 million after taxes) resulted from conclusions reached in a study of Ford's rental car business strategy. In accordance with SFAS 114, the notes receivable provision reflected primarily the unsecured portion of financing provided to BRAC by Ford. The preferred stock write-down reflected recognition of the fair value of Ford's investment at the time. In fourth quarter 1996, the notes receivable provision was reduced by $316 million ($204 million after taxes), reflecting a strengthening of the rental car business, recent sales of rental car franchises, and increased investor interest that led to a reassessment of the value of notes receivable from BRAC to Ford. During 1997, Team Rental Group, Inc. ("Team Rental") acquired all of the outstanding common stock of BRAC; Ford became the owner of approximately 22% of Team Rental as a result of the partial repayment in Team Rental stock of Ford's loans to BRAC. In fourth quarter 1997, Ford sold its shares of Budget Group (formerly "Team Rental") stock. The gain on sale was not material. The effect of the USL Capital disposition and BRAC write-down on the company's results from operations are summarized below (in millions):
1996 ----------------------------- Income/(Loss) Net Before Taxes Income/(Loss) ------------- ------------- Sale of USL Capital's assets $ 263 $ 95 Write-down for Budget Rent a Car Corporation (384) (233) ----- ----- Total $(121) $(138) ===== =====
Sale of Common Stock of a Subsidiary - ------------------------------------ During April 1997, The Hertz Corporation ("Hertz"), a subsidiary of Ford, completed an initial public offering ("IPO") of its common stock representing a 19.1% economic interest in Hertz. Ford recorded in second quarter 1997 a non-operating gain of $269 million resulting from the IPO; the gain was not subject to income taxes. During May 1996, Associates First Capital Corporation ("The Associates"), a subsidiary of Ford, completed an IPO of its common stock representing a 19.3% economic interest in The Associates. Ford recorded in second quarter 1996 a non-operating gain of $650 million resulting from the IPO; the gain was not subject to income taxes. Investment in Mazda Motor Corporation - ------------------------------------- During May 1996, Ford increased its investment in Mazda Motor Corporation ("Mazda") from its existing 24.5% ownership interest to a 33.4% ownership interest by purchasing from Mazda newly-issued shares of common stock for an aggregate purchase price of $484 million. In connection with the purchase of shares, Mazda agreed to coordinate more closely with Ford its strategies and plans, particularly in the areas of product development, manufacturing and distribution of vehicles, so as to improve the competitiveness and economies of scale of both companies. Ford and Mazda remain separate public companies with separate identities. Ford is not responsible for any of Mazda's liabilities, debts or other obligations, and Mazda's operating results and financial position are not consolidated with those of Ford; Mazda continues to be reflected in Ford's consolidated financial statements on an equity basis. FS-29 NOTE 15. Acquisitions, Dispositions and Restructuring (continued) - ----------------------------------------------------- Dissolution of Autolatina Joint Venture - --------------------------------------- During fourth quarter 1995, the company's joint venture with Volkswagen AG in Brazil and Argentina (Autolatina) was dissolved. The dissolution resulted in a gain of $230 million, primarily from a one-time cash compensation payment to Ford. Prior to dissolution, the company held a 49% interest in Autolatina and accounted for it on an equity basis. Effective December 31, 1995, the assets and liabilities of the new entities in Brazil and Argentina were consolidated in the company's balance sheet; revenues and costs for 1996 were consolidated in the company's income statement. Automotive revenues and costs for 1995 exclude these entities; the company's income statement for 1995 included Ford's equity share in the results of the Autolatina joint venture. Sale of Annuity Business - ------------------------ During 1995, the company agreed to sell its annuity business to SunAmerica, Inc. for $173 million. The sale was completed in early 1996. The company recognized a one-time charge related to the sale that was not material. The company's income statement included the results of operations of the annuity business through December 31, 1995. Net assets of the annuity business were included in the balance sheet under Financial Services - Other Assets at December 31, 1995. Restructurings - -------------- The company recorded a pre-tax charge in second quarter 1997 totaling $272 million ($169 million after taxes) reflecting actions that will be completed during 1997 and 1998. These include 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. Costs for special voluntary employee separation programs reduced the company's Automotive net income for 1996 and 1995 by $436 million and $146 million, respectively. These programs affected about 3,500 salaried employees in 1996, primarily in the U.S.; there also were reductions in hourly employment outside the U.S. Costs for voluntary separation programs are recognized in expense when employees accept offers of early retirement or termination and the costs can be reasonably estimated. FS-30 NOTE 16. Cash Flows - -------------------- The reconciliation of net income to cash flows from operating activities is as follows (in millions):
1997 1996 1995 --------------------- --------------------- --------------------- Financial Financial Financial Automotive Services Automotive Services Automotive Services ---------- --------- ---------- --------- ---------- --------- Net income $ 4,714 $ 2,206 $ 1,655 $ 2,791 $ 2,056 $ 2,083 Adjustments to reconcile net income to cash flows from operating activities: Depreciation and amortization 5,938 7,645 5,916 6,875 5,219 6,500 Losses/(earnings) of affiliated companies in excess of dividends remitted 127 (1) 44 (16) 191 7 Provision for credit and insurance losses - 3,230 - 2,564 - 1,818 Foreign currency adjustments (27) - 156 - (64) - Net (purchases)/sales of trading securities (2,307) 67 (5,180) 62 672 239 Provision for deferred income taxes 908 (102) 74 530 88 725 Gain on sale of common stock of a subsidiary (Note 15) - (269) - (650) - - Changes in assets and liabilities: (Increase)/decrease in accounts receivable and other current assets (179) 256 (2,183) (1,328) 129 (843) Decrease/(increase) in inventory 1,234 - 553 - (46) - Increase/(decrease) in accounts payable and accrued and other liabilities 3,854 (121) 5,447 1,303 730 1,461 Other (278) 739 94 550 (126) 332 ------- ------- ------- ------- ------- ------- Cash flows from operating activities $13,984 $13,650 $ 6,576 $12,681 $ 8,849 $12,322 ======= ======= ======= ======= ======= =======
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 cash equivalents at December 31, 1997 and 1996 were $5.8 billion and $2.8 billion, respectively; Financial Services cash equivalents at December 31, 1997 and 1996 were $0.8 billion and $2.8 billion, 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):
1997 1996 1995 ------- ------- ------ Interest $10,430 $10,250 $9,586 Income taxes 1,301 1,285 1,425
FS-31 NOTE 17. Segment Information - ----------------------------- The company's major geographic areas are the United States and Europe. Other geographic areas (primarily Canada, Mexico, South America and Asia Pacific) individually are not material. Financial information segregated by major geographic area is as follows (in millions):
Automotive - ---------- 1997 1996 1995 -------- -------- -------- Sales to unaffiliated customers United States $ 81,313 $ 76,048 $ 73,870 Europe 24,424 27,006 26,132 All other 17,198 14,969 10,494 -------- -------- -------- Total $122,935 $118,023 $110,496 ======== ======== ======== Intercompany sales among geographic areas* United States $ 14,893 $ 11,232 $ 10,438 Europe 3,602 2,900 2,765 All other 15,500 14,812 12,060 -------- -------- -------- Total $ 33,995 $ 28,944 $ 25,263 ======== ======== ======== Total sales United States $ 96,206 $ 87,280 $ 84,308 Europe 28,026 29,906 28,897 All other 32,698 29,781 22,554 Elimination of intercompany sales (33,995) (28,944) (25,263) -------- -------- -------- Total $122,935 $118,023 $110,496 ======== ======== ======== Operating income/(loss) United States $ 5,433 $ 2,800 $ 2,409 Europe 343 (497) 20 All other 1,170 213 852 -------- ------- -------- Total $ 6,946 $ 2,516 $ 3,281 ======== ======== ======== Net income/(loss) United States $ 3,706 $ 2,007 $ 1,843 Europe 273 (291) 116 All other 735 (61) 97 -------- -------- -------- Total $ 4,714 $ 1,655 $ 2,056 ======== ======== ======== Assets at December 31 United States $ 52,301 $ 48,064 $ 43,421 Europe 16,306 15,121 15,137 All other 16,472 16,473 14,214 -------- -------- -------- Total $ 85,079 $ 79,658 $ 72,772 ======== ======== ======== Capital expenditures (facilities, machinery and equipment and tooling) United States $ 4,494 $ 4,493 $ 5,296 Europe 2,411 1,905 1,892 All other 1,237 1,811 1,488 -------- -------- -------- Total $ 8,142 $ 8,209 $ 8,676 ======== ======== ========
- - - - - - * Intercompany sales among geographic areas consist primarily of vehicles, parts and components manufactured by the company and various subsidiaries and sold to different entities within the consolidated group; transfer prices for these transactions are established by agreement between the affected entities
Financial Services - ------------------ 1997 1996 1995 -------- -------- ------- Revenues United States $ 24,268 $ 22,839 $ 21,383 Europe 3,194 3,472 3,144 All other 3,230 2,657 2,114 -------- -------- -------- Total $ 30,692 $ 28,968 $ 26,641 ======== ======== ======== Income before income taxes** United States $ 2,837 $ 3,363 $ 2,822 Europe 506 454 493 All other 514 405 224 -------- -------- -------- Total $ 3,857 $ 4,222 $ 3,539 ======== ======== ========
- - - - - - ** Financial Services activities do not report operating income; income before income taxes is representative of operating income FS-32 NOTE 17. Segment Information (continued) - ----------------------------- Financial Services (continued) - ------------------
1997 1996 1995 -------- -------- -------- Net income United States $ 1,656 $ 2,216 $ 1,718 Europe 331 268 321 All other 219 307 44 -------- -------- -------- Total $ 2,206 $ 2,791 $ 2,083 ======== ======== ======== Assets at December 31 United States $154,263 $144,494 $137,154 Europe 20,850 22,788 20,237 All other 18,905 15,927 13,120 -------- -------- -------- Total $194,018 $183,209 $170,511 ======== ======== ========
NOTE 18. Summary Quarterly Financial Data (Unaudited) - ------------------------------------------------------ (in millions, except amounts per share)
1997 1996 ---------------------------------------- ---------------------------------------- First Second Third Fourth First Second Third Fourth Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter ------- ------- ------- ------- ------- ------- ------- ------- Automotive Sales $30,037* $32,805 $28,196 $31,897 $28,297* $31,762* $26,459 $31,505 Operating income/(loss) 1,704 2,444 846 1,952 315 1,624 19 558 Financial Services Revenues 7,277 7,460 7,900 8,055 6,928 7,211 7,501 7,328 Income before income taxes 830 1,199 912 916 832 947 1,268 1,175 Total Company Net income $ 1,469 $ 2,530 $ 1,125 $ 1,796 $ 653 $ 1,903 $ 686 $ 1,204 Less: Preferred stock dividend requirements 14 14 13 13 19 16 16 14 ------- ------- ------- ------- ------- ------- ------- ------- Income attributable to Common and Class B Stock $ 1,455 $ 2,516 $ 1,112 $ 1,783 $ 634 $ 1,887 $ 670 $ 1,190 ======= ======= ======= ======= ======= ======= ======= ======= AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK AFTER PREFERRED STOCK DIVIDENDS** Basic income $ 1.23 $ 2.11 $ 0.93 $ 1.48 $ 0.54 $ 1.61 $ 0.57 $ 1.01 Diluted income 1.20 2.06 0.91 1.45 0.53 1.56 0.56 0.99 Cash dividends 0.385 0.42 0.42 0.42 0.35 0.35 0.385 0.385 - - - - - -
* Restated to reflect accounting adjustments to revenues (and costs) with no effect on operating or net income ** Amounts for prior periods have been restated, where applicable, to reflect adoption of Statement of Financial Accounting Standards No. 128, "Earnings per Share" FS-33 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders Ford Motor Company We have audited the consolidated balance sheet of Ford Motor Company and Subsidiaries at December 31, 1997 and 1996, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1997. 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 in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Ford Motor Company and Subsidiaries at December 31, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/Coopers & Lybrand L.L.P. COOPERS & LYBRAND L.L.P. 400 Renaissance Center Detroit, Michigan 48243 313-446-7100 January 26, 1998 FS-34
Supplemental Schedule Ford Motor Company CONDENSED FINANCIAL INFORMATION OF SUBSIDIARY --------------------------------------------- (in millions) FORD CAPITAL B.V. December 31, December 31, 1997 1996 ------------ ------------ Current assets $2,046 $1,660 Noncurrent assets 2,390 3,491 ------ ------ Total assets $4,436 $5,151 ====== ====== Current liabilities $1,551 $1,116 Noncurrent liabilities 2,433 3,544 Minority interests in net assets of subsidiaries 14 18 Stockholder's equity 438 473 ------ ------ Total liabilities and stockholder's equity $4,436 $5,151 ====== ======
1997 1996 1995 ---------- ---------- ---------- Sales and other revenue $2,527 $2,760 $2,623 Operating income 47 73 224 Income before income taxes 4 18 166 Net (loss)/income (21) (4) 116
Ford Capital B.V., a wholly-owned subsidiary of Ford Motor Company, was established primarily for the purpose of raising funds through the issuance of commercial paper and debt securities. Ford Capital B.V. also holds shares of the capital stock of Ford Nederland B.V., Ford Motor Company (Belgium) N.V., Ford Motor Company A/S (Denmark), Ford Poland S.A., and Ford Distribution Sp. z.o.o., Ltd. Substantially all of the assets of Ford Capital B.V., other than its ownership interests in subsidiaries, represent receivables from Ford Motor Company or its consolidated subsidiaries. FSS-1 EXHIBIT INDEX
Designation Description Method of Filing - ----------- ----------- ---------------- Exhibit 3-A Restated Certificate of Incorporation, Filed as Exhibit 4.1 to the Registrant's of the Registrant dated June 6, 1994. Registration Statement No. 33-55171.* Exhibit 3-B By-Laws of the Registrant as Filed with this Report. amended through August 1, 1997. Exhibit 4 Form of Deposit Agreement dated as of Filed as Exhibit 4-E to the Registrant's October 29, 1992 among Ford Motor Registration Statement No. 33-53092.* Company, Chemical Bank, as Depositary, and the holders from time to time of Depositary Shares, each representing 1/2,000 of a share of the Registrant's Series B Cumulative Preferred Stock. Exhibit 10-A Amended and Restated Profit Filed as Exhibit 10-A to the Registrant's Maintenance Agreement dated as of Annual Report on Form 10-K for the July 1, 1993 between the Registrant year ended December 31, 1993.* and Ford Credit. Exhibit 10-B Ford Motor Company 1985 Stock Filed as Exhibit 10-D to the Registrant's Option Plan.** Annual Report on Form 10-K for the year ended December 31, 1985.* Exhibit 10-B-1 Amendment dated as of March 8, 1990 Filed as Exhibit 10-C-1 to the to 1985 Stock Option Plan.** Registrant's Annual Report on Form 10-K for the year ended December 31, 1989.* Exhibit 10-B-2 Amendment to 1985 Stock Option Plan, Filed as Exhibit 4.C to Amendment No. effective as of January 8, 1998.** 1 to the Registrant's Registration Statement No. 33-9722.* Exhibit 10-C Ford Motor Company Supplemental Filed as Exhibit 10-H to the Registrant's Compensation Plan as amended through Annual Report on Form 10-K for the May 8, 1986.** year ended December 31, 1986.* Exhibit 10-C-1 Amendment to Supplemental Filed as Exhibit 10-F-1 to the Compensation Plan, dated May 12, 1988.** Registrant's Annual Report on Form 10-K for the year ended Decmeber 31, 1988.* Exhibit 10-C-2 Amendment to Supplemental Filed as Exhibit 10-D-2 to the Compensation Plan, dated Registrant's Annual Report on Form July 8, 1992.** 10-K for the year ended December 31, 1992.*
EXHIBIT INDEX (Continued)
Designation Description Method of Filing - ----------- ----------- ---------------- Exhibit 10-C-2A Amendment to Supplemental Filed as Exhibit 10-C-2A to the Compensation Plan, effective as of Registrant's Annual Report on Form March 9, 1994.** 10-K for the year ended December 31, 1996.* Exhibit 10-C-3 Amendment to Supplemental Filed as Exhibit 10.1 to the Registrant's Compensation Plan, effective as of Quarterly Report on Form 10-Q for the March 8, 1995.** quarter ended March 31, 1995.* Exhibit 10-C-4 Amendment to Supplemental Filed as Exhibit 10.1 to the Registrant's Compensation Plan, effective as of Quarterly Report on Form 10-Q for the July 13, 1995.** quarter ended June 30, 1995.* Exhibit 10-C-5 Amendment to Supplemental Filed as Exhibit 10-C-5 to the Compensation Plan, effective as of Registrant's Annual Report on Form January 10, 1996.** 10-K for the year ended December 31, 1995.* Exhibit 10-C-6 Amendments to Supplemental Filed with this Report. Compensation Plan, effective as of October 1, 1997.** Exhibit 10-C-7 Amendment to Supplemental Filed with this Report. Compensation Plan, effective as of December 22, 1997.** Exhibit 10-C-8 Amendment to Supplemental Filed with this Report. Compensation Plan, effective as of May 14, 1998 (subject to shareholder approval).** Exhibit 10-D Ford Motor Company Executive Separation Filed as Exhibit 10-D to the Registrant's Allowance Plan as amended through Annual Report on Form 10-K for the December 9, 1993 for separations on year ended December 31, 1994.* or after January 1, 1981.** Exhibit 10-E Description of Company practices regarding Filed as Exhibit 10-I to the Registrant's club memberships for executives.** Annual Report on Form 10-K for the year ended December 31, 1981.* Exhibit 10-F Description of Company practices regarding Filed as Exhibit 10-J to the Registrant's travel expenses of spouses of certain Annual Report on Form 10-K for the executives.** year ended December 31, 1980.* Exhibit 10-G Ford Motor Company Deferred Compensation Filed as Exhibit 10-H-1 to the Plan for Non-Employee Directors, as amended Registrant's Annual Report on Form on July 11, 1991.** 10-K for the year ended December 31, 1991.*
-2-
EXHIBIT INDEX (Continued) Designation Description Method of Filing - ----------- ----------- ---------------- Exhibit 10-G-1 Amendments to Deferred Compensation Plan Filed as Exhibit 10-G-1 to the for Non-Employee Directors, effective as of Registrant's Annual Report on Form January 1, 1996.** 10-K for the year ended December 31, 1995.* Exhibit 10-G-2 Amendment to Deferred Compensation Plan Filed as Exhibit 10-G-2 to the for Non-Employee Directors, effective as of Registrant's Annual Report on Form November 14, 1996.** 10-K for the year ended December 31, 1996.* Exhibit 10-H Ford Motor Company Benefit Equalization Filed as Exhibit 10-H to the Registrant's Plan, as amended as of January 1, Annual Report on Form 10-K for the 1989.** year ended December 31, 1994.* Exhibit 10-H-1 Description of Amendments to Benefit Filed as Exhibit 10-H-1 to the Equalization Plan, adopted January 11, Registrant's Annual Report on Form 1996 and January 25, 1996.** 10-K for the year ended December 31, 1995.* Exhibit 10-I Description of Financial Counseling Filed as Exhibit 10-N to the Registrant's Services provided to certain executives.** Annual Report on Form 10-K for the year ended December 31, 1983.* Exhibit 10-J Ford Motor Company 1986 Long-Term Filed as Exhibit 10-Q to the Registrant's Incentive Plan.** Annual Report on Form 10-K for the year ended December 31, 1985.* Exhibit 10-J-1 Amendment dated as of June 1, 1990 to Filed as Exhibit 10-N-1 to the 1986 Long-Term Incentive Plan. ** Registrant's Annual Report on Form 10-K for the year ended December 31, 1990.* Exhibit 10-K Supplemental Executive Retirement Plan, Filed as Exhibit 10-K to the as restated and incorporating amendments Registrant's Annual Report on Form through December 12, 1995.** 10-K for the year ended December 31, 1995.* Exhibit 10-L Ford Motor Company Restricted Stock Filed as Exhibit 10-P to the Registrant's Plan for Non-Employee Directors adopted Annual Report on Form 10-K for the by the Board of Directors on November 10, year ended December 31, 1988.* 1988, and approved by the stockholders at the 1989 Annual Meeting.** Exhibit 10-L-1 Amendment to Restricted Stock Plan for Filed as Exhibit 10.1 to the Registrant's Non-Employee Directors, effective as of Quarterly Report on Form 10-Q for the August 1, 1996.** quarter ended September 30, 1996.* Exhibit 10-M Ford Motor Company 1990 Long-Term Filed as Exhibit 10-R to the Registrant's Incentive Plan, amended as of June 1, Annual Report on Form 10-K for the 1990.** year ended December 31, 1990.*
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EXHIBIT INDEX (Continued) Designation Description Method of Filing - ----------- ----------- ---------------- Exhibit 10-M-1 Amendment to 1990 Long-Term Incentive Filed as Exhibit 10-P-1 to the Plan, effective as of October 1, 1990.** Registrant's Annual Report on Form 10-K for the year ended December 31, 1991.* Exhibit 10-M-2 Amendment to 1990 Long-Term Incentive Filed as Exhibit 10.2 to the Registrant's Plan, effective as of March 8, 1995.** Quarterly Report on Form 10-Q for the quarter ended March 31, 1995.* Exhibit 10-M-3 Amendment to 1990 Long-Term Filed with this Report. Incentive Plan, effective as of October 1, 1997.** Exhibit 10-M-4 Amendment to 1990 Long-Term Filed with this Report Incentive Plan, effective as of January 1, 1998 (subject to shareholder approval).** Exhibit 10-N Description of Matching Gift Program for Filed as Exhibit 10-Q to the Registrant's Non-Employee Directors.** Annual Report on Form 10-K for the year ended December 31, 1991.* Exhibit 10-O Non-Employee Directors Life Insurance Filed as Exhibit 10-O to the Registrant's and Optional Retirement Plan Annual Report on Form 10-K for the (as amended as of January 1, 1993).** year ended December 31, 1994.* Exhibit 10-P Description of Non-Employee Directors Filed as Exhibit 10-S to the Registrant's Accidental Death, Dismemberment and Annual Report on Form 10-K for the Permanent Total Disablement Indemnity.** year ended December 31, 1992.* Exhibit 10-Q Agreement dated December 10, 1992 Filed as Exhibit 10-T to the Registrant's between William C. Ford and the Annual Report on Form 10-K for the Registrant.** year ended December 31, 1992.* Exhibit 10-R Support Agreement dated as of October 1, Filed as Exhibit 10-T to the Registrant's 1993 between the Registrant and Ford Annual Report on Form 10-K for the Credit Europe. year ended December 31, 1993.* Exhibit 10-R-1 Amendment No. 1 dated as of November Filed as Exhibit 10-R-1 to the 15, 1995 to Support Agreement between Registrant's Annual Report on Form the Registrant and Ford Credit Europe. 10-K for the year ended December 31, 1995.* Exhibit 10-S Select Retirement Plan Filed as Exhibit 10-S to the Registrant's adopted on June 9, 1994.** Annual Report on Form 10-K for the year ended December 31, 1996.* Exhibit 10-T Ford Motor Company Deferred Filed as Exhibit 10.2 to the Registrant's Compensation Plan, effective as of Quarterly Report on Form 10-Q for the July 13, 1995.** quarter ended June 30, 1995.*
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EXHIBIT INDEX (Continued) Designation Description Method of Filing - ----------- ----------- ---------------- Exhibit 10-T-1 Amendments to Deferred Compensation Filed as Exhibit 10-T-1 to the Plan, effective as of July 13, 1995 and Registrant's Annual Report on Form October 1, 1995.** 10-K for the year ended December 31, 1995.* Exhibit 10-T-2 Amendments to Deferred Compensation Filed as Exhibit 10.2 to the Registrant's Plan, effective as of October 1, 1996.** Quarterly Report on Form 10-Q for the quarter ended September 30, 1996.* Exhibit 10-T-3 Amendment to Deferred Compensation Filed as Exhibit 4.4 to the Plan, effective as of October 1, 1997.** Registrant's Registration Statement No. 333-47733.* Exhibit 10-T-4 Amendments to Deferred Compensation Filed as Exhibit 4.5 to the Plan, effective as of January 1, 1998 Registrant's Registration (subject to shareholder approval).** Statement No. 333-47733.* Exhibit 10-U Description of Amendments to Supplemental Filed as Exhibit 10-U to the Registrant's Executive Retirement Plan and Executive Annual Report on Form 10-K for the Separation Allowance Plan, adopted year ended December 31, 1995.* January 25, 1996.** Exhibit 10-U-2 Description of Amendment to Supplemental Filed as Exhibit 10-U-2 to the Executive Retirement Plan and Executive Registrant's Annual Report on Separation Allowance Plan, effective as of Form 10-K for the year ended July 1, 1996.** December 31, 1996.* Exhibit 10-V Ford Motor Company Annual Incentive Filed with this Report. Compensation Plan, effective as of January 1, 1998 (subject to shareholder approval).** Exhibit 10-W Ford Motor Company 1998 Long-Term Filed with this Report. Incentive Plan, effective as of January 1, 1998 (subject to shareholder approval).** Exhibit 12 Computation of Ratio of Earnings to Filed with this Report. Combined Fixed Charges and Preferred Stock Dividends. Exhibit 21 List of Subsidiaries of the Registrant Filed with this Report. as of March 15, 1998. Exhibit 23 Consent of Independent Certified Public Filed with this Report. Accountants. Exhibit 24 Powers of Attorney. Filed with this Report. - -------------------------- * Incorporated by reference as an exhibit hereto (file number reference 1-3950, unless otherwise indicated) ** Management contract or compensatory plan or arrangement
-5- EX-3.B 2 BY-LAWS Ford Motor Company By-Laws As Amended Through August 1, 1997 BY-LAWS OF FORD MOTOR COMPANY TABLE OF CONTENTS
Page ARTICLE I - Offices..........................................................................1 ARTICLE II - Stockholders.....................................................................1 Section 1. Annual Meeting..................................................................1 Section 2. Special Meetings................................................................1 Section 3. Notice of Meetings..............................................................2 Section 4. Quorum..........................................................................2 Section 5. Organization....................................................................2 Section 6. Proxies and Voting..............................................................2 Section 7. Stock Lists.....................................................................2 Section 8. Ratification....................................................................3 Section 9. Judges..........................................................................3 ARTICLE III - Board of Directors...............................................................3 Section 1. Number, Term of Office and Eligibility..........................................3 Section 2. Meetings........................................................................3 Section 3. Notice of Meetings..............................................................4 Section 4. Quorum and Organization of Meetings.............................................4 Section 5. Powers..........................................................................4 Section 6. Reliance upon Books, Reports and Records........................................6 Section 7. Compensation of Directors.......................................................6 ARTICLE IV - Committees.......................................................................6 Section 1. Committees of the Board of Directors............................................6 Section 2. Audit Committee.................................................................7 Section 3. Compensation and Option Committee...............................................7 Section 4. Environmental and Public Policy Committee.......................................7 Section 5. Finance Committee...............................................................8 Section 6. Organization Review and Nominating Committee....................................8 Section 7. Other Committees................................................................9 Section 8. Rules and Procedures............................................................9 Section 9. Application of Article..........................................................9 ARTICLE V - Officers.........................................................................9 Section 1. Officers........................................................................9 Section 2. Office of the Chief Executive..................................................10 Section 3. Chairman of the Board of Directors.............................................10 Section 4. Vice Chairmen of the Board of Directors........................................10 Section 5. President......................................................................10 Section 6. Chief Operating Officer........................................................10 Section 7. Vice Chairmen of the Company, Executive Vice Presidents, Group Vice Presidents and Vice Presidents................................11 Section 8. Treasurer and Assistant Treasurer..............................................11
Page Section 9. Secretary and Assistant Secretary..............................................11 Section 10. General Counsel................................................................12 Section 11. Controller.....................................................................12 Section 12. Salaries.......................................................................12 ARTICLE VI - Resignations, Removals and Vacancies...........................................12 Section 1. Resignations..................................................................12 Section 2. Removals......................................................................13 Section 3. Vacancies.....................................................................13 ARTICLE VII - Capital Stock - Dividends - Seal...............................................13 Section 1. Certificates of Shares........................................................13 Section 2. Addresses of Stockholders.....................................................13 Section 3. Lost, Destroyed or Stolen Certificate.........................................14 Section 4. Fixing a Record Date..........................................................14 Section 5. Regulations...................................................................14 Section 6. Corporate Seal................................................................14 ARTICLE VIII - Execution of Contracts and Other Documents.....................................15 Section 1. Contracts, etc................................................................15 Section 2. Checks, Drafts, etc...........................................................15 ARTICLE IX - Fiscal Year....................................................................15 ARTICLE X - Miscellaneous..................................................................15 Section 1. Original Stock Ledger.........................................................15 Section 2. Notices and Waivers Thereof...................................................16 Section 3. Voting upon Stocks............................................................16 ARTICLE XI - Amendments.....................................................................17
CERTIFICATION The undersigned officer of Ford Motor Company, a Delaware corporation, does hereby certify that the following is a true and correct copy of the By-Laws of the Company in effect on the date hereof. Witness my hand and the seal of the Company this day of 19 --------------------- Secretary BY-LAWS OF FORD MOTOR COMPANY ARTICLE I OFFICES The registered office of the Company shall be in the City of Wilmington, County of New Castle, State of Delaware. The Company may also have an office in the City of Dearborn, State of Michigan, and at such other places as the Board of Directors may from time to time determine or as the business of the Company may require. The books and records of the Company may be kept (except as otherwise provided by law) at the office of the Company in the City of Dearborn, State of Michigan, outside of the State of Delaware, or at such other places as from time to time may be determined by the Board of Directors. ARTICLE II STOCKHOLDERS Section 1. Annual Meeting. The annual meeting of the stockholders for the purpose of electing directors and of transacting such other business as may come before it shall be held in the City of Detroit, State of Michigan, unless otherwise determined by the Board of Directors, on the second Thursday of May in each and every year, if not a legal holiday, and if a legal holiday then on the next day not a legal holiday. The Board of Directors shall, by resolution duly adopted, fix the place within the City of Detroit, Michigan, or elsewhere if so determined, and the time for the holding of each such meeting. At least twenty (20) days' notice shall be given to each stockholder entitled to vote at such meeting of the place and time so fixed. Section 2. Special Meetings. Special meetings of the stockholders shall be held at the office of the Company in the City of Dearborn, State of Michigan, unless otherwise determined by resolution of the stockholders or of the Board of Directors, whenever called in the manner required by law for purposes as to which there are special statutory provisions, and for other purposes whenever called by the Chairman of the Board of Directors, a Vice Chairman of the Board of Directors or the President, or by resolution of the Board of Directors, and whenever the holders of thirty percent (30%) or more of the total number of outstanding shares of any class of stock the holders of which are entitled to vote on every matter that is to be voted on without regard to class at such meeting shall file with the Secretary a written application for such meeting stating the time and purpose thereof. -1- Section 3. Notice of Meetings. Except as otherwise provided by law, at least twenty (20) days' notice of stockholders' meetings stating the time and place and the objects thereof shall be given by the Chairman of the Board of Directors, a Vice Chairman of the Board of Directors, the President or the Secretary to each stockholder of record having voting power in respect of the business to be transacted thereat. No business other than that stated in the notice shall be transacted at any meeting. Section 4. Quorum. At any meeting of the stockholders the number of shares the holders of which shall be present or represented by proxy in order to constitute a quorum for, and the votes that shall be necessary for, the transaction of any business shall be as expressly provided in Article FOURTH of the Certificate of Incorporation, as amended. At any meeting of stockholders at which a quorum is not present, the holders of shares entitled to cast a majority of all of the votes (computed, in the case of each share of Class B Stock, as provided in subsection 1.3 of said Article FOURTH) which could be cast at such meeting by the holders of outstanding shares of stock of the Company who are present in person or by proxy and who are entitled to vote on every matter that is to be voted on without regard to class at such meeting may adjourn the meeting from time to time. Section 5. Organization. The Chairman of the Board of Directors shall act as chairman of meetings of the stockholders. The Board of Directors may designate any other officer or director of the Company to act as chairman of any meeting in the absence of the Chairman of the Board of Directors, and the Board of Directors may further provide for determining who shall act as chairman of any stockholders meeting in the absence of the Chairman of the Board of Directors and such designee. The Secretary of the Company shall act as secretary of all meetings of the stockholders, but in the absence of the Secretary the presiding officer may appoint any other person to act as secretary of any meeting. Section 6. Proxies and Voting. Every stockholder entitled to vote at any meeting may vote in person, or by proxy appointed by an instrument in writing, subscribed by such stockholder or by his or her duly authorized attorney, and filed with the Secretary before being voted on, but no proxy shall be voted after three years from its date unless such proxy provides expressly for a longer period. Shares of the Company's stock belonging to the Company shall not be voted upon directly or indirectly. Section 7. Stock Lists. A complete list of stockholders entitled to vote at any meeting of stockholders shall be prepared, in alphabetical order by class, by the Secretary and shall be open to the examination of any stockholder, at the place where the meeting is to be held, for at least ten days before the meeting and during the whole time of the meeting. -2- Section 8. Ratification. Any transaction questioned in any stockholders' derivative suit, or any other suit to enforce alleged rights of the Company or any of its stockholders, on the ground of lack of authority, defective or irregular execution, adverse interest of any director, officer or stockholder, nondisclosure, miscomputation or the application of improper principles or practices of accounting may be approved, ratified and confirmed before or after judgment by the Board of Directors or by the holders of Common Stock and the holders of Class B Stock voting as provided in subsection 1.6 of Article FOURTH of the Certificate of Incorporation, as amended, and, if so approved, ratified or confirmed, shall have the same force and effect as if the questioned transaction had been originally duly authorized, and said approval, ratification or confirmation shall be binding upon the Company and all of its stockholders and shall constitute a bar to any claim or execution of any judgment in respect of such questioned transaction. Section 9. Judges. All votes by ballot at any meeting of stockholders shall be conducted by two judges appointed for the purpose either by the directors or by the meeting. The judges shall decide upon the qualifications of voters, count the votes and declare the result. ARTICLE III BOARD OF DIRECTORS Section 1. Number, Term of Office and Eligibility. Except as provided by the laws of the State of Delaware or by the Certificate of Incorporation, as amended, the business and the property of the Company shall be managed by or under the direction of a Board of not less than ten and not more than twenty directors, the exact number of which shall be fixed from time to time by resolution of the Board. Each director shall be elected annually by ballot by the holders of Common Stock and the holders of Class B Stock voting as provided in subsection 1.6 of Article FOURTH of the Certificate of Incorporation, as amended, at the annual meeting of stockholders, to serve until his or her successor shall have been elected and shall have qualified, except as provided in this Section. No person may be elected or re-elected a director of the Company if at the time of his or her election or re-election he or she shall have attained the age of seventy years, and the term of any director who shall have attained such age while serving as a director shall terminate as of the time of the first annual meeting of stockholders following his or her seventieth birthday; provided, however, that the Board by resolution may waive such age limitation in any year and from year to year with respect to any director or directors. Section 2. Meetings. The directors may hold their meetings outside of the State of Delaware, at the office of the Company in the City of Dearborn, State of Michigan, or at such other place as from time to time they may determine. -3- The annual meeting of the Board of Directors, for the election of officers and the transaction of other business, shall be held at the World Headquarters of the Company in Dearborn, Michigan, on the same day as, and as soon as practicable following, the annual meeting of stockholders, or at such other time or place as shall be determined by the Board at its regular meeting next preceding said annual meeting of stockholders. No notice of said annual meeting of the Board shall be required to be given to the directors. Regular meetings of the Board of Directors may be held at such time and place as shall from time to time be determined by the Board. Special meetings of the Board of Directors shall be held whenever called by direction of the Chairman of the Board of Directors, a Vice Chairman of the Board of Directors or the President or by one-third of the directors then in office. Section 3. Notice of Meetings. The Secretary or an Assistant Secretary shall give notice of the time and place of holding of meetings of the Board of Directors (excepting the annual meeting of directors) by mailing such notice not later than during the second day preceding the day on which such meeting is to be held, or by sending a cablegram, facsimile transmission, mailgram, radiogram, telegram or other form of recorded communication containing such notice or delivering such notice personally or by telephone not later than during the first day preceding the day on which such meeting is to be held to each director. Unless otherwise stated in the notice thereof any and all business may be transacted at any meeting. Section 4. Quorum and Organization of Meetings. A third of the total number of members of the Board of Directors as constituted from time to time, but in no event less than three, shall constitute a quorum for the transaction of business; but if at any meeting of the Board of Directors there shall be less than a quorum present, a majority of those present may adjourn the meeting from time to time, and the meeting may be held as adjourned without further notice or waiver. Except as otherwise provided by law or by the Certificate of Incorporation, as amended, or by these By-Laws, a majority of the directors present at any duly constituted meeting may decide any question brought before such meeting. Meetings shall be presided over by the Chairman of the Board of Directors, or in his or her absence, by a Vice Chairman of the Board of Directors or the President, as designated by the Board of Directors, or in the absence of all of the aforesaid officers by such other person as the Board of Directors may designate or the members present may select. Section 5. Powers. In addition to the powers and authorities by these By-Laws expressly conferred upon them, the Board of Directors shall have and may exercise all such powers of the Company and do all such lawful acts and things that are not by statute or by the Certificate of Incorporation, as amended, or by these By-Laws directed or required to be exercised or done by the stockholders. Without prejudice to or limitation of such general powers and any other powers conferred by statute, or by the Certificate of Incorporation, as amended, or by these By-Laws, the Board of Directors shall have the following powers: -4- (1) To determine, subject to the requirements of law and of Section 5 of Article FOURTH of the Certificate of Incorporation, as amended, what, if any, dividends shall be declared and paid to the stockholders out of net profits, current or accumulated, or out of surplus or other assets of the Company available for dividends. (2) To fix, and from time to time to vary, the amount of working capital of the Company, and to set aside from time to time out of net profits, current or accumulated, or surplus of the Company such amount or amounts as they in their discretion may deem necessary and proper as, or as a safeguard to the maintenance of, working capital, as a reserve for contingencies, as a reserve for repairs, maintenance, or rehabilitation, or as a reserve for revaluation of profits of the Company or for such other proper purpose as may in the opinion of the directors be in the best interests of the Company; and in their sole discretion to abolish or modify any such provision for working capital or any such reserve, and to credit the amount thereof to net profits, current or accumulated, or to the surplus of the Company. (3) To purchase, or otherwise acquire for the Company, any business, property, rights or privileges which the Company may at the time be authorized to acquire, at such price or consideration and generally on such terms and conditions as they think fit; and at their discretion to pay therefor either wholly or partly in money, stock, bonds, debentures or other securities of the Company. (4) To create, make and issue mortgages, bonds, deeds of trust, trust agreements or negotiable or transferable instruments or securities, secured by mortgage or otherwise, and to do every other act and thing necessary to effect the same. (5) To appoint any person or corporation to accept and hold in trust for the Company any property belonging to the Company, or in which it is interested, or for any other purpose, and to execute such deeds and do all things requisite in relation to any such trust. (6) To delegate any of the powers of the Board in the course of the business of the Company to any officer, employee or agent, and to appoint any person the agent of the Company, with such powers (including the power to subdelegate) and upon such terms as the Board may think fit. (7) To remove any officer of the Company with or without cause, and from time to time to devolve the powers and duties of any officer upon any other person for the time being. (8) To confer upon any officer of the Company the power to appoint, remove and suspend subordinate officers, agents and employees. (9) To determine who shall be authorized on the Company's behalf, either generally or specifically, to make and sign bills, notes, acceptances, endorsements, checks, releases, receipts, contracts, conveyances, and all other written instruments executed on behalf of the Company. -5- (10) To make and change regulations, not inconsistent with these By-Laws, for the management of the Company's business and affairs. (11) To adopt and, unless otherwise provided therein, to amend and repeal, from time to time, a bonus or supplemental compensation plan for employees (including employees who are officers or directors) of the Company or any subsidiary. Power to construe, interpret, administer, modify or suspend such plan shall be vested in the Board of Directors or a committee thereof. (12) To adopt a retirement plan, or plans, for the purpose of making retirement payments to employees (including employees who are officers or directors) of the Company or of any subsidiary thereof; and to adopt a group insurance plan, or plans, for the purpose of enabling employees (including employees who are officers or directors) of the Company or of any subsidiary thereof to acquire insurance protection; any such retirement plan or insurance plan, unless otherwise provided therein, shall be subject to amendment or revocation by the Board of Directors. Section 6. Reliance upon Books, Reports and Records. Each director, each member of any committee designated by the Board of Directors and each officer, in the performance of his or her duties, shall be fully protected in relying in good faith upon the books of account or reports made to the Company by any of its officials, or by an independent certified public accountant, or by an appraiser selected with reasonable care by the Board of Directors or by any such committee, or in relying in good faith upon other records of the Company. Section 7. Compensation of Directors. Directors, as such, may receive, pursuant to resolution of the Board of Directors, fixed fees and other compensation for their services as directors, including, without limitation, services as members of committees of the directors; provided, however, that nothing herein contained shall be construed to preclude any director from serving the Company in any other capacity and receiving compensation therefor. ARTICLE IV COMMITTEES Section 1. Committees of the Board of Directors. There are hereby established as committees of the Board of Directors an Audit Committee, a Compensation and Option Committee, an Environmental and Public Policy Committee, a Finance Committee, and an Organization Review and Nominating Committee, each of which shall have the powers and functions set forth in Sections 2, 3, 4, 5, and 6 hereof, respectively, and such additional powers as may be delegated to it by the Board of Directors. The Board of Directors may from time to time establish additional standing committees or special committees of the Board of Directors, each of which shall have such powers and functions as may be delegated to it by the Board of Directors. The Board of Directors may abolish any committee established by or pursuant to this Section 1 as it may -6- deem advisable. Each such committee shall consist of two or more directors, the exact number being determined from time to time by the Board of Directors; provided, however, that membership on the Audit Committee and on the Compensation and Option Committee shall be limited to directors who are not officers or employees of the Company. Designations of the Chairman and members of each such committee, and, if desired, a Vice Chairman and alternates for members, shall be made by the Board of Directors. Each such committee shall have a secretary who shall be designated by its chairman. A vice chairman of a committee shall act as the chairman of the committee in the absence or disability of the chairman. Section 2. Audit Committee. The Audit Committee shall select and engage, on behalf of the Company, independent public accountants to (1) audit the books of account and other corporate records of the Company and (2) perform such other duties as the Committee may from time to time prescribe. The Committee shall transmit financial statements certified by such independent public accountants to the Board of Directors after the close of each fiscal year. The selection of independent public accountants for each fiscal year shall be made in advance of the annual meeting of stockholders in such fiscal year and shall be submitted for ratification or rejection at such meeting. The Committee shall confer with such accountants and review and approve the scope of the audit of the books of account and other corporate records of the Company. The Committee shall have the power to confer with and direct the officers of the Company to the extent necessary to review the internal controls, accounting practices, financial structure and financial reporting of the Company. From time to time the Committee shall report to and advise the Board of Directors concerning the results of its consultation and review and such other matters relating to the internal controls, accounting practices, financial structure and financial reporting of the Company as the Committee believes merit review by the Board of Directors. The Committee also shall perform such other functions and exercise such other powers as may be delegated to it from time to time by the Board of Directors. Section 3. Compensation and Option Committee. The Compensation and Option Committee shall fix from time to time the salaries of members of the Board of Directors who are officers or employees of the Company and of any and all Vice Chairmen of the Company, Executive Vice Presidents, Group Vice Presidents and Vice Presidents of the Company. It also shall perform such functions as may be delegated to it under the provisions of any bonus, supplemental compensation, special compensation or stock option plan of the Company. Section 4. Environmental and Public Policy Committee. The Environmental and Public Policy Committee shall review all aspects of the Company's policies and practices that relate to environmental and public policy considerations facing the Company worldwide. From time to time the Committee shall report and make recommendations to the Board of Directors concerning the results of its review and such other matters relating to the foregoing matters as the Committee believes merit consideration by the Board of Directors. The Committee also shall perform such other functions and exercise such other powers as may be delegated to it from time to time by the Board of Directors. -7- Section 5. Finance Committee. The Finance Committee shall include the Chairman of the Board of Directors together with such other directors as the Board of Directors shall designate. The Committee during intervals between meetings of the Board of Directors shall have, and may exercise in such manner as it shall deem to be in the best interests of the Company, all the powers of the Board of Directors (except with respect to matters within the powers of the Audit Committee, the Environmental and Public Policy Committee, or the Compensation and Option Committee) concerning the determination of financial policies of the Company and the management of its financial affairs, not inconsistent, however, with law or with such specific directions as to the conduct of affairs as shall have been given by the Board of Directors. The Committee also shall perform such other functions and exercise such other powers as may be delegated to it from time to time by the Board of Directors. The Committee may redelegate from time to time and to the full extent permitted by law, in writing, to any officer or employee of the Company any of such powers. During intervals between meetings of the Committee, the Chairman, and, if any, the Vice Chairman, of the Committee shall have and may exercise such of the powers of the Committee as from time to time shall be conferred upon them by resolution of the Board of Directors or of the Finance Committee. All actions by the Committee shall be reported to the Board of Directors and shall be subject to revision by the Board of Directors, provided no acts or rights of third parties shall be affected thereby. Section 6. Organization Review and Nominating Committee. The Organization Review and Nominating Committee from time to time shall consider and make recommendations to the Board of Directors, to the Chairman of the Board of Directors and to the Chief Operating Officer with respect to the management organization of the Company, the nominations or elections of directors and officers of the Company and the appointments of such other employees of the Company as shall be referred to the Committee. The Committee from time to time shall consider the size and composition of the Board of Directors and make recommendations to the Board of Directors with respect to such matters. Prior to the annual meeting of stockholders each year, and prior to any special meeting of stockholders at which a director is to be elected, the Committee shall recommend to the Board of Directors persons proposed to constitute the nominees whose election at such meeting will be recommended by the Board of Directors. The authority vested in the Committee by this section shall not derogate from the power of individual members of the Board of Directors to recommend or place in nomination persons other than those recommended by the Committee. The Committee also shall perform such other functions and exercise such other powers as may be delegated to it from time to time by the Board of Directors. -8- Section 7. Other Committees. The Board of Directors, or any committee, officer or employee of the Company may establish additional standing committees or special committees to serve in an advisory capacity or in such other capacities as may be permitted by law, by the Certificate of Incorporation and by the By-Laws. The members of any such committee need not be members of the Board of Directors. Any committee established pursuant to this Section 6 may be abolished by the person or body by whom it was established as he, she or it may deem advisable. Each such committee shall consist of two or more members, the exact number being determined from time to time by such person or body. Designations of members of each such committee and, if desired, alternates for members, shall be made by such person or body, at whose will all such members and alternates shall serve. The chairman of each such committee shall be designated by such person or body. Each such committee shall have a secretary who shall be designated by the chairman. Section 8. Rules and Procedures. Each committee may fix its own rules and procedures and shall meet at such times and places as may be provided by such rules, by resolution of the committee, or by call of the chairman or vice chairman. Notice of meeting of each committee, other than of regular meetings provided for by its rules or resolutions, shall be given to committee members. The presence of one-third of its members, but not less than two, shall constitute a quorum of any committee, and all questions shall be decided by a majority vote of the members present at the meeting. All action taken at each committee meeting shall be recorded in minutes of the meeting. Section 9. Application of Article. Whenever any provision of any other document relating to any committee of the Company named therein shall be in conflict with any provision of this Article IV, the provisions of this Article IV shall govern, except that if such other document shall have been approved by the stockholders, voting as provided in the Certificate of Incorporation, or by the Board of Directors, the provisions of such other document shall govern. ARTICLE V OFFICERS Section 1. Officers. The Officers of the Company shall include a Chairman of the Board of Directors and may include one or more Vice Chairmen of the Board of Directors and a President, each of whom shall be chosen from among the directors, and one or more Vice Chairmen of the Company, one or more Executive Vice Presidents, one or more Group Vice Presidents, one or more Vice Presidents, a Treasurer, a Controller and a Secretary, each of whom shall be elected by the Board of Directors to hold office until his or her successor shall have been chosen and shall have qualified. The Board of Directors may elect or appoint one or more Assistant Treasurers, one or more Assistant Secretaries, and such other officers as it may deem necessary, or desirable, each of whom shall have such authority, shall perform such duties and shall hold office for such term as may be prescribed by the Board of Directors from time to time. Any person may hold at one time more than one office. -9- Section 2. Office of the Chief Executive. The Chairman of the Board of Directors and such other members as the Chief Executive Officer shall designate shall constitute the Office of the Chief Executive. Subject to the provisions of these By-Laws and to the direction of the Board of Directors and the Chief Executive Officer, the members of this Office shall share in the responsibilities for the general management and control of the affairs and business of the Company. Section 3. Chairman of the Board of Directors. The Chairman of the Board of Directors shall be the Chief Executive Officer of the Company. He or she shall be a member of the Office of the Chief Executive and, a subject to the provisions of these By-Laws and to the direction of the Board of Directors, shall have ultimate authority for decisions relating to the general management and control of the affairs and business of the Company and shall perform all other duties and exercise all other powers commonly incident to the position of Chief Executive Officer or which are or from time to time may be delegated to him or her by the Board of Directors, or which are or may at any time be authorized or required by law. He or she shall preside at all meetings of the Board of Directors. He or she may redelegate from time to time and to the full extent permitted by law, in writing, to officers or employees of the Company any or all of such duties and powers, and any such redelegation may be either general or specific. Whenever he or she so shall delegate any of his or her authority, he or she shall file a copy of the redelegation with the Secretary of the Company. Section 4. Vice Chairmen of the Board of Directors. Subject to the provisions of these By-Laws and to the direction of the Board of Directors and of the Chief Executive Officer, the Vice Chairmen of the Board of Directors shall have such powers and shall perform such duties as from time to time may be delegated to them by the Board of Directors or by the Chief Executive Officer, or which are or may at any time be authorized or required by law. Section 5. President. Subject to the provisions of these By-Laws and to the direction of the Board of Directors and of the Chief Executive Officer, the President shall have such powers and shall perform such duties as from time to time may be delegated to him or her by the Board of Directors or by the Chief Executive Officer, or which are or may at any time be authorized or required by law. Section 6. Chief Operating Officer. The Chief Operating Officer shall be selected by the Board of Directors from among the Vice Chairmen of the Board of Directors and the President. Subject to the provisions of these By-Laws and to the direction of the Board of Directors and of the Chief Executive Officer, he or she shall have such powers and shall perform such duties as from time to time may be delegated to him or her by the Board of Directors or by the Chief Executive Officer, or which are or may at any time be authorized or required by law. In the absence or disability of the Chairman of the Board of Directors, or in the event of, and during the period of, a vacancy in such office, the Chief Operating Officer also shall be the Chief Executive Officer. -10- Section 7. Vice Chairmen of the Company, Executive Vice Presidents, Group Vice Presidents and Vice Presidents. Each of the Vice Chairmen of the Company, each of the Executive Vice Presidents, each of the Group Vice Presidents and each of the other Vice Presidents shall have such powers and shall perform such duties as may be delegated to him or her by the Board of Directors, by the Chairman of the Board of Directors or by the Chief Operating Officer. In addition, the Board of Directors shall designate one of the Vice Chairmen of the Company, Executive Vice Presidents, Group Vice Presidents, or Vice Presidents as the Chief Financial Officer, who, among his or her other powers and duties, shall provide and maintain, subject to the direction of the Board of Directors and the Finance Committee, financial and accounting controls over the business and affairs of the Company. Such office shall maintain, among others, adequate records of the assets, liabilities and financial transactions of the Company, and shall direct the preparation of financial statements, reports and analyses. The Chief Financial Officer shall perform such other duties and exercise such other powers as are incident to such functions, subject to the control of the Board of Directors. Section 8. Treasurer and Assistant Treasurer. The Treasurer, subject to the direction of the Board of Directors, shall have the care and custody of all funds and securities which may come into his or her hands. When necessary or proper he or she shall endorse on behalf of the Company, for collection, checks, notes and other obligations, and shall deposit all funds of the Company in such banks or other depositaries as may be designated by the Board of Directors or by such officers or employees as may be authorized by the Board of Directors so to designate. He or she shall perform all acts incident to the office of Treasurer, subject to the control of the Board of Directors. He or she may be required to give a bond for the faithful discharge of his or her duties, in such sum and upon such conditions as the Board of Directors may require. At the request of the Treasurer, any Assistant Treasurer, in the case of the absence or inability to act of the Treasurer, temporarily may act in his or her place. In the case of the death of the Treasurer, or in the case of his or her absence or inability to act without having designated an Assistant Treasurer to act temporarily in his or her place, the Assistant Treasurer so to perform the duties of the Treasurer shall be designated by the Chairman of the Board of Directors, the Chief Operating Officer, a Vice Chairman of the Company or an Executive Vice President. Section 9. Secretary and Assistant Secretary. The Secretary shall keep the minutes of the meetings of the stockholders and of the Board of Directors, and, when required, the minutes of meetings of the committees, and shall be responsible for the custody of all such minutes. Subject to the direction of the Board of Directors, the Secretary shall have custody of the stock ledgers and documents of the Company. He or she shall have custody of the corporate seal and shall affix and attest such seal to any instrument whose execution under seal shall have been duly authorized. He or she -11- shall give notice of meetings and, subject to the direction of the Board of Directors, shall perform all other duties and enjoy all other powers commonly incident to his or her office. At the request of the Secretary, any Assistant Secretary, in the case of the absence or inability to act of the Secretary, temporarily may act in his or her place. In the case of the death of the Secretary, or in the case of his or her absence or inability to act without having designated an Assistant Secretary to act temporarily in his or her place, the Assistant Secretary or other person so to perform the duties of the Secretary shall be designated by the Chairman of the Board of Directors, the Chief Operating Officer, a Vice Chairman of the Company or an Executive Vice President. Section 10. General Counsel. The Company may have a General Counsel who shall be appointed by the Board of Directors and who shall have general supervision of all matters of a legal nature concerning the Company. Section 11. Controller. The Controller shall have such powers and shall perform such duties as may be delegated to him or her by the Board of Directors, the Chairman of the Board of Directors, the Chief Operating Officer or the appropriate Vice Chairman of the Company, Executive Vice President, Group Vice President or Vice President. Section 12. Salaries. Salaries of officers, agents or employees shall be fixed from time to time by the Board of Directors or by such committee or committees, or person or persons, if any, to whom such power shall have been delegated by the Board of Directors. An employment contract, whether with an officer, agent or employee, if expressly approved or specifically authorized by the Board of Directors, may fix a term of employment thereunder; and such contract, if so approved or authorized, shall be valid and binding upon the Company in accordance with the terms thereof, provided that this provision shall not limit or restrict in any way the right of the Company at any time to remove from office, discharge or terminate the employment of any such officer, agent or employee prior to the expiration of the term of employment under any such contract, except that the Company shall not thereby be relieved of any continuing liability for salary or other compensation provided for in such contract. ARTICLE VI RESIGNATIONS, REMOVALS AND VACANCIES Section 1. Resignations. Any director, officer or agent of the Company, or any member of any committee, may resign at any time by giving written notice to the Board of Directors, to the Chairman of the Board of Directors, to a Vice Chairman of the Board of Directors, to the President or to the Secretary of the Company. Any such resignation shall take effect at the time specified therein, or if the time be not specified therein, then upon receipt thereof. The acceptance of such resignation shall not be necessary to make it effective. -12- Section 2. Removals. At any meeting thereof called for the purpose, the holders of Common Stock and the holders of Class B Stock voting as provided in subsection 1.6 of Article FOURTH of the Certificate of Incorporation, as amended, may remove from office or terminate the employment of any director, officer or agent with or without cause; and the Board of Directors, by vote of not less than a majority of the entire Board at any meeting thereof called for the purpose, may, at any time, remove from office or terminate the employment of any officer, agent or member of any committee. Section 3. Vacancies. Subject to the last sentence of Section 1 of Article III, any vacancy in the office of any director, officer or agent through death, resignation, removal, disqualification, increase in the number of directors or other cause may be filled by the Board of Directors (in the case of vacancies in the Board, by the affirmative vote of a majority of the directors then in office, even though less than a quorum remains) and the person so elected shall hold office until his or her successor shall have been elected and shall have qualified. ARTICLE VII CAPITAL STOCK-DIVIDENDS-SEAL Section 1. Certificates of Shares. The certificates for shares of the capital stock of the Company shall be in such form, not inconsistent with the Certificate of Incorporation, as amended, as shall be approved by the Board of Directors. The certificates shall be signed by the Chairman of the Board of Directors, a Vice Chairman of the Board of Directors, the President, a Vice Chairman of the Company, an Executive Vice President, a Group Vice President or a Vice President, and also by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary. Any and all signatures may be facsimiles. All certificates shall bear the name of the person owning the shares represented thereby, shall state the number of shares represented by such certificate and the date of issue; and such information shall be entered in the Company's original stock ledger. Section 2. Addresses of Stockholders. It shall be the duty of every stockholder to notify the Company of his or her post office address and of any change therein. The latest address furnished by each stockholder shall be entered on the original stock ledger of the Company and the latest address appearing on such original stock ledger shall be deemed conclusively to be the post office address and the last-known post office address of such stockholder. If any stockholder shall fail to notify the Company of his or her post office address, it shall be sufficient to send corporate notices to such stockholder at the address, if any, understood by the Secretary to be his or her post office address, or in the absence of such address, to such stockholder, at the General Post Office in the City of Wilmington, State of Delaware. -13- Section 3. Lost, Destroyed or Stolen Certificate. Any person claiming a stock certificate in lieu of one lost, destroyed or stolen, shall give the Company an affidavit as to his, her or its ownership of the certificate and of the facts which go to prove that it has been lost, destroyed or stolen. If required by the Board of Directors, he, she or it also shall give the Company a bond, in such form as may be approved by the Board of Directors, sufficient to indemnify the Company against any claim that may be made against it on account of the alleged loss of the certificate or the issuance of a new certificate. Section 4. Fixing a Record Date. The Board of Directors may fix in advance a date not exceeding (i) sixty (60) days preceding the date of any meeting of stockholders, or the date for payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of stock shall go into effect (other than conversions or exchanges pursuant to Sections 2, 3 or 4 of Article FOURTH of the Certificate of Incorporation, as amended), as a record date for the determination of the stockholders entitled to notice of and to vote at any such meeting and any adjournment thereof, or entitled to payment of any such dividend or to any such allotment of rights or to exercise the rights in respect of any such change, or conversion or exchange of stock (other than conversions or exchanges pursuant to Sections 2, 3 or 4 of Article FOURTH of the Certificate of Incorporation, as amended), or (ii), ten (10) days after adoption of the resolution fixing such date, as a record date for the determination of the stockholders entitled to consent in writing to corporate action; and in any such case, such stockholders and only such stockholders, as shall be stockholders of record on the date so fixed, shall be entitled, subject to the provisions of Article FOURTH of the Certificate of Incorporation, as amended, to such notice of and to vote at such meeting and any adjournment thereof or to receive payment of such dividend or to receive such allotment of rights or to exercise such rights or to give such consent, as the case may be, notwithstanding any transfer of any stock on the books of the Company after such record date. Section 5. Regulations. The Board of Directors shall have power and authority to make all such rules and regulations not inconsistent with any of the provisions of Sections 2, 3, 4 or 5 of Article FOURTH of the Certificate of Incorporation, as amended, as it may deem expedient, concerning the issue, transfer and registration of certificates for shares of the stock of the Company. Section 6. Corporate Seal. The corporate seal shall have inscribed thereon the name of the Company, the year of its organization, and the words "Corporate Seal" and "Delaware." If and when so authorized by the Board of Directors, a duplicate of the seal may be kept and used by the Secretary or Treasurer or by any Assistant Secretary or Assistant Treasurer. -14- ARTICLE VIII EXECUTION OF CONTRACTS AND OTHER DOCUMENTS Section 1. Contracts, etc. Except as otherwise prescribed in these By-Laws, such officers, employees or agents of the Company as shall be specified by the Board of Directors shall sign, in the name and on behalf of the Company, all deeds, bonds, contracts, mortgages and other instruments or documents, the execution of which shall be authorized by the Board of Directors; and such authority may be general or confined to specific instances. Except as so authorized by the Board of Directors, no officer, agent or employee of the Company shall have power or authority to bind the Company by any contract or engagement or to pledge, mortgage, sell or otherwise dispose of its credit or any of its property or to render it pecuniarily liable for any purpose or in any amount. Section 2. Checks, Drafts, etc. Except as otherwise provided in these By-Laws, all checks, drafts, notes, bonds, bills of exchange or other orders, instruments or obligations for the payment of money shall be signed by such officer or officers, employee or employees, or agent or agents, as the Board of Directors shall by resolution direct. The Board of Directors may, in its discretion, also provide by resolution for the countersignature or registration of any or all such orders, instruments or obligations for the payment of money. ARTICLE IX FISCAL YEAR The fiscal year of the Company shall begin the first day of January in each year. ARTICLE X MISCELLANEOUS Section 1. Original Stock Ledger. As used in these By-Laws and in the Certificate of Incorporation, as amended, the words "original stock ledger" shall mean the record maintained by the Secretary of the Company of the name and address of each of the holders of shares of any class of stock of the Company, and the number of shares and the numbers of the certificates for such shares held by each of them, taking into account transfers at the time made by and recorded on the transfer sheets of each of the Transfer Agents of the Company although such transfers may not then have been posted in the record maintained by the Secretary. -15- Section 2. Notices and Waivers Thereof. Whenever any notice whatever is required by these By-Laws or by the Certificate of Incorporation, as amended, or by any of the laws of the State of Delaware to be given to any stockholder, director or officer, such notice, except as otherwise provided by the laws of the State of Delaware, may be given personally or by telephone or be given by cablegram, facsimile transmission, mailgram, radiogram, telegram or other form of recorded communication, addressed to such stockholder at the address set forth as provided in Section 2 of Article VII, or to such director or officer at his or her Company location, if any, or at such address as appears on the books of the Company, or the notice may be given in writing by depositing the same in a post office, or in a regularly maintained letter box, in a postpaid, sealed wrapper addressed to such stockholder at the address set forth in Section 2 of Article VII, or to such director or officer at his or her Company location, if any, or such address as appears on the books of the Company. Any notice given by cablegram, mailgram, radiogram or telegram shall be deemed to have been given when it shall have been delivered for transmission. Any notice given by facsimile transmission or other form of recorded communication shall be deemed to have been given when it shall have been transmitted. Any notice given by mail shall be deemed to have been given when it shall have been mailed. A waiver of any such notice in writing, including by cablegram, facsimile transmission, mailgram or telegram, signed or dispatched by the person entitled to such notice or by his or her duly authorized attorney, whether before or after the time stated therein, shall be deemed equivalent to the notice required to be given, and the presence at any meeting of any person entitled to notice thereof shall be deemed a waiver of such notice as to such person. Section 3. Voting upon Stocks. The Board of Directors (whose authorization in this connection shall be necessary in all cases) may from time to time appoint an attorney or attorneys or agent or agents of the Company, or may at any time or from time to time authorize the Chairman of the Board of Directors, any Vice Chairman of the Board of Directors, the President, any Vice Chairman of the Company, any Executive Vice President, any Group Vice President, any Vice President, the Treasurer or the Secretary to appoint an attorney or attorneys or agent or agents of the Company, in the name and on behalf of the Company, to cast the votes which the Company may be entitled to cast as a stockholder or otherwise in any other corporation or association, any of the stock or securities of which may be held by the Company, at meetings of the holders of the stock or other securities of such other corporation or association, or to consent in writing to any action by any such other corporation or association, and the Board of Directors or any aforesaid officer so authorized may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent, and the Board of Directors or any aforesaid officer so authorized may from time to time authorize the execution and delivery, on behalf of the Company and under its corporate seal, or otherwise, of such written proxies, consents, waivers or other instruments as may be deemed necessary or proper in the premises. -16- ARTICLE XI AMENDMENTS The Board of Directors shall have power to make, alter, amend or repeal the By-Laws of the Company by vote of not less than a majority of the entire Board at any meeting of the Board. The holders of Common Stock and the holders of Class B Stock voting as provided in subsection 1.6 of Article FOURTH of the Certificate of Incorporation, as amended, shall have power to make, alter, amend or repeal the By-Laws at any regular or special meeting, if the substance of such amendment be contained in the notice of such meeting of stockholders. -17- EX-10.C.6 3 EXHIBIT 10-C-6 Exhibit 10-C-6 AMENDMENTS TO FORD MOTOR COMPANY SUPPLEMENTAL COMPENSATION PLAN (Effective as of October 1, 1997) Paragraph 23c is amended to read as follows: "23c. The term 'Subsidiary' shall mean, as applied with respect to any person or legal entity specified, (i) a person or legal entity a majority of the voting stock of which is owned or controlled, directly or indirectly, by the person or legal entity specified or (ii) a limited liability company a majority of the membership interest of which is owned or controlled, directly or indirectly, by the person or legal entity specified." The first sentence of Paragraph 23e is amended to read as follows: "The term 'Eligible Subsidiary' shall mean, for any particular year for which awards are made, (i) any Consolidated Subsidiary which does not have a Subsidiary Reserve Plan in effect for such year (provided, however, that any Consolidated Subsidiary which has a Subsidiary Reserve Plan in effect for any year shall constitute an Eligible Subsidiary for such year (a) with respect to all persons employed by such Consolidated Subsidiary who are not eligible for awards under such Subsidiary Reserve Plan and (b) if the Compensation and Option Committee shall so determine, with respect to all persons employed by such Consolidated Subsidiary who are eligible for awards under such Subsidiary Reserve Plan, during a transition period of not more than five years (as determined by such Committee) following the effective date of such Subsidiary Reserve Plan), or (ii) any unconsolidated Subsidiary substantially all of the voting stock or membership interest, as applicable, of which is owned, directly or indirectly, by the Company or by a Consolidated Subsidiary at any time during such year and which the Compensation and Option Committee in its sole discretion shall have determined should be regarded as eligible for the purposes of this Plan for such year." EX-10.C.7 4 EXHIBIT 10-C-7 AMENDMENT TO SUPPLEMENTAL COMPENSATION PLAN ------------------------------------------- (Effective December 22, 1997) Paragraph 10 is amended by adding the following new Paragraph 10h at the end thereof: "10h. Deferral of Awards of Common Stock. Anything in this Plan to the contrary notwithstanding, the Compensation and Option Committee may determine the manner and extent to which Employees who are eligible to participate in this Plan may defer awards of Common Stock made under the 1986 Long-term Incentive Plan or the 1990 Long-Term Incentive Plan as if such awards of Common Stock had been awards of supplemental compensation. In no event shall any such awards of Common Stock be debited to the Reserve under this Plan" EX-10.C.8 5 EXHIBIT 10-C-8 Exhibit 10-C-8 AMENDMENT OF FORD MOTOR COMPANY SUPPLEMENTAL COMPENSATION PLAN Partial Termination of Plan - --------------------------- 1. Subject to approval of the stockholders of the Company, the Ford Motor Company Supplemental Compensation Plan adopted in 1955, as amended (the "1955 Plan"), is hereby terminated effective as of May 14, 1998 (the "Effective Date"), except as hereinafter provided, and no further awards shall be made under the 1955 Plan. Definitions - ----------- 2. As used in this Amendment, terms that are not defined herein shall have the meanings ascribed to them in the 1955 Plan. Payment of Previous Awards - -------------------------- 3. Subject to the provisions contained in Paragraphs 4 and 5 hereof, with respect to the payment in stock or cash of all or part of certain "contingent credits" (as such term is used in the 1955 Plan) and/or other outstanding unpaid amounts of supplemental compensation and earnings thereon ("other deferred amounts") deferred under the Company's Deferred Compensation Plan (the "DC Plan"), each award and each installment of contingent credits or other deferred amounts which shall not have been paid prior to the Effective Date, shall continue to be payable, and shall be paid, in the manner and subject to all of the terms and conditions provided in the 1955 Plan and the DC Plan, as applicable, and all of the provisions of the 1955 Plan necessary or desirable to carry out the intent of this Paragraph 3 are hereby continued in effect for such purpose, it being understood that no Employee or other person shall have under any circumstances any interest, vested or contingent, in any particular share of stock, property or asset of the Company or of any Eligible Subsidiary by virtue of any award of supplemental compensation or any contingent credit or other deferred amounts. The Reserve - ----------- 4. As of the Effective Date, the Reserve shall be debited by an amount equal to the total amount of the Reserve on such date and a corresponding amount shall be credited to the income of the Company. In the event that any debit to the Reserve is required to be made after the Effective Date under the 1955 Plan, the aforementioned debit shall constitute full compliance with and satisfaction of such requirement. Continuation in Effect of Other Provisions of the 1955 Plan - --------------------------------- 5. In addition to the provisions of the 1955 Plan which are continued in effect by Paragraph 3 hereof, Paragraphs 4 and 5 (except as such Paragraphs are amended by Paragraph 4 hereof) and Paragraphs 15, 16, 17, 18, 19, 20, 21, 22, 23 and 24 of the 1955 Plan are hereby continued in effect, except that no amendment, modification, suspension or termination of the 1955 Plan, as hereby amended, after the Effective Date shall affect any right or obligation with respect to any award made prior to such date. EX-10.M.3 6 EXHIBIT 10-M-3 Exhibit 10-M-3 AMENDMENT TO FORD MOTOR COMPANY 1990 LONG-TERM INCENTIVE PLAN ----------------------------- (Effective as of October 1, 1997) The second sentence of paragraph (b) of Article 1 is amended to read as follows: "The term 'subsidiary' as used herein shall mean (i) any corporation a majority of the voting stock of which is owned directly or indirectly by the Company or (ii) any limited liability company a majority of the membership interest of which is owned directly or indirectly by the Company." EX-10.M.4 7 EX-10-M-4 Exhibit 10-M-4 AMENDMENT TO FORD MOTOR COMPANY 1990 LONG-TERM INCENTIVE PLAN ----------------------------- (Effective as of January 1, 1998, subject to shareholder approval of terms of options and stock awards under 1998 Long-Term Incentive Plan) Paragraph (a) of Article 14 of the Plan is amended to read as follows: "14. (a) Term. The Plan shall terminate as of January 1, 1998 except with respect to Plan Awards then outstanding." EX-10.V 8 EX-10-V Exhibit 10-V FORD MOTOR COMPANY ANNUAL INCENTIVE COMPENSATION PLAN (Effective as of January 1, 1998, subject to shareholder approval) 1. Purpose. This Plan, which shall be known as the "Ford Motor Company Annual Incentive Compensation Plan" and is hereinafter referred to as the "Plan", is intended to provide annual incentive compensation to Plan participants based on the achievement of established performance objectives. 2. Definitions. As used in the Plan, the following terms shall have the following meanings, respectively: (a) The term "Affiliate" shall mean, as applied with respect to any person or legal entity specified, a person or legal entity that directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, the person or legal entity specified. (b) The term "Annual Incentive Compensation Committee" shall mean the committee comprised of two or more officers of the Company designated members of such Committee by the Compensation and Option Committee. (c) The term "Award" shall mean the cash compensation awarded under the Plan with respect to a Performance Period to a participant eligible under Section 5(b). (d) The term "Committee" shall mean, unless the context otherwise requires: (i) The Compensation and Option Committee for all matters affecting any Section 16 Person. (ii) The Annual Incentive Compensation Committee for all matters affecting employees other than Section 16 Persons. (e) The term "Company" or "Ford" generally shall mean Ford Motor Company. When used in the Plan with respect to employment, the term "Company" shall include subsidiaries of the Company. (f) The term "Compensation and Option Committee" shall mean the Compensation and Option Committee of the Board of Directors of the Company. (g) The term "Covered Employee" shall mean a Key Employee who is a "covered employee" within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended. -1- (h) The term "DC Plan" shall mean the Company's Deferred Compensation Plan, as amended. (i) The term "Employee'" shall mean any person who is regularly employe by the Company or one of its Subsidiaries at a salary (as distinguished from a pension, retirement allowance, severance pay, retainer, commission, fee under a contract or other arrangement, or hourly, piecework or other wage) and is enrolled on the active employment rolls of the Company or a Subsidiary, including, but without limitation, any employee who also is an officer or director of the Company or one of its Subsidiaries. (j) The term "Exceptional Contribution Fund" shall mean, with respect to Awards for a Performance Period, the dollar amount designated by the Compensation and Option Committee pursuant to Section 13 for purposes of increasing the amount of Awards to be made to participants who are not Covered Employees based on exceptional individual, unit, group or Company performance. (k) The term "Key Employee" shall mean an Employee of the Company determined by the Committee to be a Key Employee for purposes of the Plan. (l) The term "Maximum Award Pool" shall mean the maximum aggregate amount of all Awards which may be made to participants for a Performance Period determined by the Compensation and Option Committee pursuant to Section 12. (m) The term "Maximum Individual Award" shall mean the maximum amount of an Award to a Covered Employee for a Performance Period, as set forth in Section 10. (n) The term "participant" shall mean a Key Employee selected by the Committee to participate in the Plan for a Performance Period. (o) The term "Performance Criteria" shall mean, with respect to any Award for a Performance Period that may be made to a participant who is a Covered Employee, one or more of the following objective business criteria established by the Compensation and Option Committee with respect to the Company and/or any Subsidiary, division, business unit or component thereof upon which the Performance Goals for a Performance Period are based: asset charge, asset turnover, automotive return on sales, capacity utilization, capital employed in the business, capital spending, cash flow, cost structure improvements, complexity reductions, customer loyalty, diversity, earnings growth, earnings per share, economic value added, environmental health and safety, facilities and tooling spending, hours per vehicle, increase in customer base, inventory turnover, market price appreciation, market share, net cash balance, net income, net income margin, net operating cash flow, operating profit margin, order to delivery time, plant capacity, process time, profits before tax, quality/customer satisfaction, return on assets, return on capital, return on equity, return on net operating assets, return on sales, revenue growth, sales margin, sales volume, total shareholder return, vehicles per employee, warranty performance to budget, variable margin and working capital. The term "Performance Criteria" shall mean, with respect to any Award that may be made to a participant who is not a Covered Employee, one or more of the business criteria applicable to Covered Employees for the Performance Period and any other criteria based on individual, business unit, group or Company performance selected by the Compensation and Option Committee. -2- (p) The term "Performance Goals" shall mean the one or more goals established by the Compensation and Option Committee based on one or more Performance Criteria pursuant to Section 7 for the purpose of measuring performance in determining the amount, if any, of an Award for a Performance Period. (q) The term "Performance Formula" shall mean, with respect to a Performance Period, the one or more objective formulas established by the Compensation and Option Committee pursuant to Section 7 and applied against the Performance Goals in determining whether and the extent to which Awards have been earned for the Performance Period. (r) The term "Performance Period" or "Period" shall mean, with respect to which a particular Award may be made under the Plan, the Company's fiscal year or other twelve consecutive month period designated by the Compensation and Option Committee for the purpose of measuring performance against Performance Goals. (s) The term "Pro Forma Award Amount" shall mean, with respect to an Award to be made for a Performance Period, the amount determined by the Committee pursuant to Section 9. (t) The term "SC Plan" shall mean the Company's Supplemental Compensation Plan, as amended. (u) The term "Section 16 Person" shall mean any employee who is subject to the reporting requirements of Section 16(a) or the liability provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended. (v) The term "Subsidiary" shall mean (i) any corporation a majority of the voting stock of which is owned or controlled, directly or indirectly, by the Company or (ii) any limited liability company a majority of the membership interest of which is owned or controlled, directly or indirectly, by the Company. (w) The term "Target Award" shall mean, with respect to a Performance Period, the Target Award amount established for each applicable salary grade or band of participants by the Committee pursuant to Section 6 hereof. (x) The term "Total Pro Forma Award Pool" shall mean, with respect to Awards for a Performance Period, the amount described in Section 11. 3. Effective Date. The Plan shall be effective as of January 1, 1998. -3- 4. Administration. Except as otherwise expressly provided, the Compensation and Option Committee shall have full power and authority to construe, interpret and administer the Plan. The Compensation and Option Committee shall make all decisions relating to matters affecting Section 16 Persons, but may otherwise delegate any of its authority under the Plan. The Compensation and Option Committee and the Annual Incentive Compensation Committee each may at any time adopt or terminate, and may from time to time, amend, modify or suspend such rules, regulations, policies and practices as they in their sole discretion may determine in connection with the administration of, or the performance of their respective responsibilities under, the Plan. 5. Eligibility. (a) Eligibility to Participate. All Key Employees are eligible to be selected to participate in the Plan. The Committee shall, in its sole discretion, designate which Key Employees will be participants for the applicable Performance Period. (b) Eligibility for Awards. An Award with respect to a Performance Period may be made pursuant to Section 14 of the Plan to (i) participants for such Performance Period who shall have been an employee at any time during such Performance Period, or to (ii) the spouse, children or legal representatives, as the Committee in its sole discretion shall determine, of any such person whose employment shall have been terminated by reason of his or her death during such Performance Period. (c) Eligibility of Compensation and Option Committee Members. No person while a member of the Compensation and Option Committee shall be eligible to participate under the Plan or receive an Award. 6. Determination of Target Awards. Within 90 days of the commencement of a Performance Period, the Committee shall establish the Target Award for each applicable salary grade or band of Key Employees selected to participate in the Plan with respect to a Performance Period, subject to any limitations established by the Compensation and Option Committee. The fact that a Target Award is established for a participant's salary grade or band for a Performance Period shall not entitle such participant to receive an Award. 7. Selection of Performance Criteria and Establishment of Performance Goals and Performance Formula; Minimum Threshold Objective. Within 90 days of the commencement of a Performance Period, the Compensation and Option Committee shall select the Performance Criteria and establish the related Performance Goals be used to measure performance for a Performance Period and the Performance Formula to be used to determine what portion, if any, of an Award has been earned for the Performance Period. The Performance Criteria may be expressed in absolute terms or relate to the performance of other companies or to an index. Within that same 90 day period, the Compensation and Option Committee may establish a minimum threshold objective for any Performance Goal for any Performance Period, which if not met, would result in no Award being made to any participant with such Performance Goal for such Performance Period. -4- 8. Adjustments to Performance Goals, Performance Formula or Performance Criteria. For purposes of determining Awards for participants who are not Covered Employees, the Compensation and Option Committee may adjust or modify any of the Performance Goals, Performance Formula and/or the Performance Criteria for any Performance Period in order to prevent the dilution or enlargement of the rights of such participants under the Plan (i) in the event of, or in anticipation of, any unusual or extraordinary item, transaction, event or development, (ii) in recognition of, or in anticipation of, any other unusual or nonrecurring event affecting the Company or the financial statements of the Company or Ford Credit, or in anticipation of, changes in applicable laws, regulations, accounting principles or business conditions, and (iii) for any other reason or circumstance deemed relevant to the Compensation and Option Committee in its sole discretion. 9. Determination of Pro Forma Award Amount. As soon as practicable following the end of a Performance Period, the Committee shall determine the Pro Forma Award Amount for any Award to be made to a participant for a Performance Period by applying the applicable Performance Formula for the participant for the Performance Period against the accomplishment of the related Performance Goals for such participant. 10. Maximum Individual Award for Covered Employees.. The Maximum Individual Award for a Performance Period to a participant who is a Covered Employee is $10,000,000. 11. Total Pro Forma Award Pool. The Total Pro Forma Award Pool for all Awards for a Performance Period shall equal the sum of the Pro Forma Award Amounts for all participants for the Performance Period. 12. Determination of Maximum Award Pool. The Compensation and Option Committee shall determine the amount of the Maximum Award Pool for a Performance Period which shall not exceed the sum of the Total Pro Forma Award Pool plus the amount of the Exceptional Contribution Fund for such Period. 13. Determination of Exceptional Contribution Fund. The Compensation and Option Committee shall determine the amount of the Exceptional Contribution Fund which may be used for increasing the size of Awards for a Performance Period above the applicable Pro Forma Award Amount to participants who are not Covered Employees. Unless otherwise determined by the Compensation and Option Committee, the amount of the Exceptional Contribution Fund shall not exceed 15% of the Total Pro Forma Award Pool for the applicable Performance Period. 14. Determination of Individual Awards. Subject to achievement of any applicable minimum threshold objectives established under Section 7, fulfillment of the conditions set forth in Section 17 and compliance with the Maximum Individual Award limitation under Section 10 and the eligibility requirements set forth in paragraph (b) of Section 5, the Committee shall, as soon as practicable following the end of a Performance Period, determine the amount of each Award to be made to a participant under the Plan for the Performance Period, which amount shall, except as otherwise provided below, be the Pro Forma Award Amount determined for such participant for such Period pursuant to Section 9. The Committee may in its sole discretion reduce the amount of any Award that otherwise would be awarded to any participant for any Performance Period. In addition, the Committee may in its sole discretion increase the amount of any Award that otherwise would be awarded to any participant who is not a Covered Employee for a Performance Period to an amount that is higher than the -5- applicable Pro Forma Award Amount based on exceptional individual, unit, group or Company performance; provided, however, that the total amount of all Awards made for a Performance Period shall not exceed the related Maximum Award Pool. Individual Award amounts may be less than or greater than 100% of the related Target Award. The determinations by the Annual Incentive Compensation Committee of individual Award amounts for Employees who are not Section 16 Persons shall be subject to a maximum funding amount and any other limitations specified by the Compensation and Option Committee. Notwithstanding anything contained in the Plan to the contrary, the Committee may determine in its sole discretion not to make an Award to a particular participant or to all participants selected to participate in the Plan for any Performance Period. 15. Distribution and Form of Awards. (a) General. Except as otherwise provided in paragraph (b) or (c) of this Section 15 or in Section 17, distribution of Awards for a Performance Period shall be made on or as soon as practicable after the distribution date for such Awards determined by the Compensation and Option Committee, which date shall in no event be later than the March 15 following the end of the applicable Performance Period, and shall be payable in cash. (b) Deferral of Awards. Subject to the terms, conditions and eligibility requirements of the DC Plan, Key Employees who receive an Award under the Plan are eligible to defer payment of all or part of such Award under the DC Plan under the same terms as if such Award had been an award of supplemental compensation made under the SC Plan. (c) Mandatory Deferral of Awards. The Compensation and Option Committee shall determine whether and the extent to which any Awards under the Plan will be mandatorily deferred and the terms of any such deferral. Unless otherwise determined by the Compensation and Option Committee, Awards may be mandatorily deferred by such Committee in the same manner as if they had been awards of supplemental compensation made under the SC Plan. 16. Designation of Beneficiaries and Effect of Death. -6- (a) Designation of Beneficiaries. A participant may file with the Company a written designation of a beneficiary or beneficiaries (subject to such limitations as to the classes and number of beneficiaries and contingent beneficiaries and such other limitations as the Compensation and Option Committee from time to time may prescribe) to receive, in the event of the death of the participant, undistributed amounts of any Award that would have been payable to such participant had he or she been living and that was not deferred under any Company deferral arrangement or plan. A participant shall be deemed to have designated as beneficiary or beneficiaries under the Plan the person or persons who receive such participant's life insurance proceeds under the basic Company Life Insurance Plan unless such participant shall have assigned such life insurance or shall have filed with the Company a written designation of a different beneficiary or beneficiaries under the Plan. A participant may from time to time revoke or change any such designation of beneficiary and any designation of beneficiary under the Plan shall be controlling over any testamentary or other disposition; provided, however, that if the Committee shall be in doubt as to the right of any such beneficiary to receive any such payment, the same may be paid to the legal representatives of the participant, in which case the Company, the Committee and the members thereof shall not be under any further liability to anyone. (b) Distribution Upon Death. Subject to the provisions of Section 15, paragraph (a) of this Section 16 and, if applicable, the DC Plan or any other deferral plan or arrangement, in the event of the death of any participant prior to distribution of an Award, the total value of such participant's Award shall be distributed in cash in one lump sum in accordance with paragraph (a) of Section 15 to any beneficiary or beneficiaries designated or deemed designated by the participant pursuant to paragraph (a) of this Section 16 who shall survive such participant (to the extent such designation is effective and enforceable at the time of such participant's death) or, in the absence of such designation or such surviving beneficiary, to the legal representative of such person, at such time (or as soon thereafter as practicable) and otherwise as if such person were living and had fulfilled all applicable conditions as to earning out set forth in, or established pursuant to Section 17 and, if applicable, the DC Plan or any other deferral plan or arrangement, provided such conditions shall have been fulfilled by such person until the time of his or her death. 17. Conditions to Payment of Awards. (a) Effect of Competitive Activity. Anything in the Plan notwithstanding, and subject to paragraph (c) hereof and, if applicable, any conditions under the DC Plan or any other deferral plan or arrangement relating to payment of an Award, if the employment of any participant shall terminate, for any reason other than death, prior to the distribution date established pursuant to paragraph (a) of Section 15 for payment of an Award, such participant shall receive payment of an Award only if, during the entire period from the making of an Award until such distribution date, such participant shall have earned out such Award. -7- (i) by continuing in the employ of the Company or a Subsidiary thereof, or (ii) if his or her employment shall have been terminated for any reason other than death, by (a) making himself or herself available, upon request, at reasonable times and upon a reasonable basis, to consult with, supply information to and otherwise cooperate with the Company or any Subsidiary thereof with respect to any matter that shall have been handled by him or her or under his or her supervision while he or she was in the employ of the Company or any Subsidiary thereof, and (b) refraining from engaging in any activity that is directly or indirectly in competition with any activity of the Company or any Subsidiary thereof. (b) Nonfulfillment of Competitive Activity Conditions; Waiver of Conditions Under the Plan. In the event of a participant's nonfulfillment of any condition set forth in paragraph (a) above, such participant's rights under the Plan to receive or defer payment of an Award under the Plan shall be forfeited and canceled; provided, however, that the nonfulfillment of such condition may at any time (whether before, at the time of or subsequent to termination of employment) be waived in the following manner: (i) with respect to a participant who at any time shall have been a Section 16 Person, such waiver may be granted by the Compensation and Option Committee upon its determination that in its sole judgment there shall not have been and will not be any substantial adverse effect upon the Company or any Subsidiary thereof; and (ii) with respect to any other participant, such waiver may be granted by the Annual Incentive Compensation Committee (or any committee appointed by it) upon its determination that in its sole judgment there shall not have been and will not be any such substantial adverse effect. (c) Effect of Inimical Conduct. Anything in the Plan to the contrary, the right of a participant, following termination of such participant's employment with the Company, to receive payment or to defer payment of an Award under Section 15 shall terminate on and as of the date on which it his been determined that such participant at any time (whether before or subsequent to termination of such participant's employment) acted in a manner inimical to the best interests of the Company. Any such determination shall be made by (i) the Compensation and Option Committee with respect to any participant who at any time shall have been a Section 16 Person, and (ii) the Annual Incentive Compensation Committee (or any committee appointed by it for the purpose) with respect to any other participant. Such Committee (or any such other committee) may make such determination at any time prior to payment in full of an Award. Conduct which constitutes engaging in any activity that is directly or indirectly in competition with any activity of the Company or any Subsidiary thereof shall be governed by paragraph (a)(ii) of this Section 17 and shall not be subject to any determination under this paragraph (c). 18. Limitations. A participant shall not have any interest in any Award until it is distributed in accordance with the Plan. The fact that a Key Employee has been selected to be a participant for a Performance Period shall not in any manner entitle such participant to receive an Award for such period. The determination as to whether or not such participant shall be paid an Award for such Performance Period shall be determined solely in accordance with the provisions of Sections 14 and 17 hereof. All payments and distributions to be made thereunder shall be paid from the general assets of the Company. Nothing contained in the Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Company and any employee, former employee or any other person. The Plan shall not constitute part of any participant's or employee's employment contract with the Company or any participating subsidiary. Participation in the Plan shall not create or imply a right to continued employment. -8- 19. Withholding of Taxes, etc. The Company shall have the right to withhold an amount sufficient to satisfy any federal, state or local income taxes, FICA or Medicare taxes or other amounts that the Company may be required by law to pay with respect to any Award, including withholding payment from a participant's current compensation. 20. No Assignment of Benefits. No rights or benefits under the Plan shall, except as otherwise specifically provided by law, be subject to assignment (except for the designation of beneficiaries pursuant to paragraph (a) of Section 16), nor shall such rights or benefits be subject to attachment or legal process for or against a participant or his or her beneficiary or beneficiaries, as the case may be. 21. Administration Expense. The entire expense of offering and administering the Plan shall be borne by the Company and its participating Subsidiaries and shall not be charged against the Reserve under the SC Plan. 22. Access of Independent Certified Public Accountants and Committee to Information. The Company's independent certified public accountants shall have full access to the books and records of the Company and its Subsidiaries, and the Company shall furnish to such accountants such information as to the financial condition and operations of the Company and its Subsidiaries as such accountants may from time to time request, in order that such accountants may take any action required or requested to be taken by them under the Plan. The Executive Vice President and Chief Financial Officer or, in the event of his or her absence or disability to act, the principal accounting officer of the Company shall furnish to the Committee such information as the Committee may request to assist it in carrying out or interpreting this Plan. Neither such accountants, in reporting amounts required or requested under the Plan, nor the Executive Vice President and Chief Financial Officer, or any other director, officer or employee of the Company, in furnishing information to such accountants or to the Committee, shall be liable for any error therein, if such accountants or other person, as the case may be, shall have acted in good faith. 23. Amendment, Modification, Suspension and Termination of the Plan; Rescissions and Corrections. The Compensation and Option Committee, at any time may terminate, and at any time and from time to time, and in any respect, may amend or modify the Plan or suspend any of its provisions; provided, however, that no such amendment, modification, suspension or termination shall, without the consent of a participant, adversely affect any right or obligation with respect to any Award theretofore made. The Committee at any time may rescind or correct any actions made in error or that jeopardize the intended tax status or legal compliance of the Plan. 24. Indemnification and Exculpation. (a) Indemnification. Each person who is or shall have been a member of the Compensation and Option Committee or a member of the Annual Incentive Compensation Committee shall be indemnified and held harmless by the Company against and from any and all loss, cost, liability or expense that may be imposed upon or reasonably incurred by such person in connection with or resulting from any claim, action, suit or proceeding to which such person may be or become a party or in which such person may be or become involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by such person in settlement thereof (with the Company's written approval) or paid by such person in satisfaction of a judgment in any such action, suit or proceeding, except a judgment in favor of the Company based upon a finding of such person's lack of good faith; subject, however, to the condition that upon the institution of any claim, action, suit or proceeding against such person, such person shall in writing give the Company an opportunity, at its own expense, to handle and defend the same before such person undertakes to handle and defend it on such person's behalf. The right of indemnification shall not be exclusive of any other right to which such person may be entitled as a matter of law or otherwise, or any power that the Company may have to indemnify or hold such person harmless. -9- (b) Exculpation. Each member of the Compensation and Option Committee and each member of the Annual Incentive Compensation Committee shall be fully justified in relying or acting in good faith upon any information furnished in connection with the administration of the Plan or any appropriate person or persons other than such person. In no event shall any person who is or shall have been a member of the Compensation and Option Committee or a member of the Annual Incentive Compensation Committee be held liable for any determination made or other action taken or any omission to act in reliance upon any such information, or for any action (including the furnishing of information) taken or any failure to act, if in good faith. 25. Finality of Determinations. Each determination, interpretation or other action made or taken pursuant to the provisions of the Plan by the Compensation and Option Committee or the Annual Incentive Compensation Committee shall be final and shall be binding and conclusive for all purposes and upon all persons, including, but without limitation thereto, the Company, its stockholders, the Compensation and Option Committee and each of the members thereof, the Annual Incentive Compensation Committee and each of the members thereof, and the directors, officers, and employees of the Company, the Plan participants, and their respective successors in interest. 26. Governing Law. The Plan shall be governed by and construed in accordance with the laws of the State of Michigan. EX-10.W 9 EXHIBIT 10-W Exhibit 10-W FORD MOTOR COMPANY 1998 LONG-TERM INCENTIVE PLAN (Effective as of January 1, 1998, subject to shareholder approval) PURPOSE 1.(a) Purpose. This Plan, known as the "1998 Long-Term Incentive Plan" (the "Plan"), is intended to provide an incentive to certain salaried employees of Ford Motor Company (the "Company"), and of its subsidiaries, in order to encourage them to remain in the employ of the Company and to increase their interest in the Company's success. It is intended that this purpose be effected through awards or grants of stock options and various other rights with respect to shares of the Company's Common Stock (collectively, the "Plan Awards"), as provided herein, to eligible employees ("Participants"). (b) Company; Subsidiary; Employee. The term "Company" when used with reference to employment shall include subsidiaries of the Company. The term "subsidiary" shall mean (i) any corporation a majority of the voting stock of which is owned directly or indirectly by the Company or (ii) any limited liability company a majority of the membership interest of which is owned, directly or indirectly, by the Company. The term "employee" shall be deemed to include any person who is an employee of any joint venture corporation or partnership, or comparable entity, in which the Company has a substantial equity interest (a "Joint Venture"), provided such person was an employee of the Company immediately prior to becoming employed by such Joint Venture. -1- ADMINISTRATION 2.(a) Compensation and Option Committee. The Compensation and Option Committee of the Company's Board of Directors (the "Committee") shall administer the Plan and perform such other functions as are assigned to it under the Plan. The Committee is authorized, subject to the provisions of the Plan, from time to time to establish such rules and regulations as it may deem appropriate for the proper administration of the Plan, and to make such determinations under, and such interpretations of, and to take such steps in connection with, the Plan and the Plan Awards as it may deem necessary or advisable, in each case in its sole discretion. (b) Delegation of Authority. The Committee may delegate any or all of its powers and duties under the Plan, including, but not limited to, its authority to grant waivers pursuant to Article 8, to one or more other committees as it shall appoint, pursuant to such conditions or limitations as the Committee may establish; provided, however, that the Committee shall not delegate its authority to (1) make Plan Awards under the Plan, except as otherwise provided in Articles 4 and 5, (2) act on matters affecting any Participant who is subject to the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or the liability provisions of Section 16(b) of the Exchange Act (any such Participant being called a "Section 16 Person") or (3) amend or modify the Plan pursuant to the provisions of paragraph (b) of Article 14. (c) Eligibility of Committee Members. No person while a member of the Committee or any committee of the Board of Directors administering the Plan shall be eligible to hold or receive a Plan Award. -2- STOCK AVAILABLE FOR PLAN AWARDS 3.(a) Stock Subject to Plan. The stock to be subject to or related to Plan Awards shall be shares of the Company's Common Stock of the par value of $1.00 per share ("Stock"), and may be either authorized and unissued or held in the treasury of the Company. The maximum number of shares of Stock with respect to which Plan Awards may be granted under the Plan, subject to adjustment in accordance with the provisions of Article 11, in each calendar year during any part of which the Plan is in effect shall be 2% of the total number of issued shares of Stock as of December 31 of the calendar year immediately preceding such year (the number of shares determined by application of such percentage in any calendar year being called the "2% Limit" for such year); provided, however, that such percentage may be increased to up to 3% in any one or more calendar years, in which event the excess over 2% in any such calendar year shall be applied to the reduction of the aggregate number of shares that otherwise would have been available for Plan Awards pursuant to this paragraph (a) and paragraph (c) of this Article 3 in subsequent calendar years during the term of the Plan, in inverse order commencing with the year 2008. Notwithstanding the foregoing, (i) the aggregate number of shares that may be issued upon exercise of "incentive stock options" (as defined in paragraph (a)(l) of Article 5) shall not exceed 2% of the number of shares authorized under the Company's Certificate of Incorporation at the date of adoption of the Plan (subject to adjustment in accordance with the provisions of Article 11), (ii) the maximum number of shares subject to Options (as defined below), with or without any related Stock Appreciation Rights (as defined below), that may be granted pursuant to Article 5 to any Covered Executive during any calendar year during any part of which the Plan is in effect shall be 2.5% of the maximum number of shares of Stock with respect to which Plan Awards may be granted during such year under the Plan determined in accordance with this paragraph (a), subject to adjustment in accordance with the provisions of Article 11 and (iii) the maximum number of shares of Stock that may be granted as Final Awards (as defined below) pursuant to Article 4 to any Covered Executive during any calendar year during any part of which the Plan is in effect shall be 500,000, subject to adjustment in accordance with the provisions of Article 11. -3- (b) Computation of Stock Available for Plan Awards. For the purpose of computing the total number of shares of Stock remaining available for Plan Awards at any time in each calendar year during which the Plan is in effect, there shall be debited against the total number of shares determined to be available pursuant to paragraphs (a) and (c) of this Article 3 (i) the maximum number of shares of Stock subject to issuance upon exercise of Options (as defined below) granted in such year, (ii) the number of shares of Stock representing 150% of the Target Awards under Performance Stock Rights (as defined below) granted in such calendar year, and (iii) the number of shares of Stock related to Other Stock-Based Awards (as defined below) granted in such year, as determined by the Committee in each case as at the dates on which such Plan Awards were granted. (c) Unused, Forfeited and Reacquired Shares. Any unused portion of the 2% Limit for any calendar year shall be carried forward and shall be made available for Plan Awards in succeeding calendar years. The shares involved in the unexercised or undistributed portion of any terminated, expired or forfeited Plan Award (including, without limitation, the shares representing 150% of any Target Award that are not included in the related Final Award also shall be made available for further Plan Awards. Any shares of Stock made available for Plan Awards pursuant to this paragraph (c) shall be in addition to the shares available pursuant to paragraph (a) of this Article 3. PERFORMANCE STOCK RIGHTS AND FINAL AWARDS 4.(a) Grant of Performance Stock Rights. The term "Performance Stock Right" ("Right"), shall mean the right to receive, without payment to the Company, up to the number of shares of Stock described therein, subject to the terms and provisions of the Right and the Plan. The Committee, at any time and from time to time while the Plan is in effect, may grant, or authorize the granting of, Rights to such officers and other key salaried employees of the Company, whether or not members of the Board of Directors, as it may select and for such numbers of shares based on such dollar amounts as it shall designate, subject to the provisions of this Article 4 and Article 3. Notwithstanding anything contained in the Plan to the contrary, the Committee may authorize a committee of two or more Company officers appointed by it to determine the amount of individual grants of Rights and related Final Awards to key employees of the Company selected by such committee who are not officers or directors of the Company, subject to the provisions of Articles 3 and 4 and subject to a maximum number of shares of Stock and any other limitations specified by the Committee. (b) Terms and Provisions of Performance Stock Rights. Prior to the grant of any Right, the Committee shall determine the terms and provisions of each Right, including, without limitation, (i) the number of shares of Stock to be earned under such Right if 100% of each of the Performance Goals is achieved (the "Target Award"), as adjusted pursuant to Article 11, (ii) one or more performance goals ("Performance Goals") based on one or more Performance Criteria (as defined below) to be used to measure performance under such Right, (iii) the formula (the "Performance Formula") to be applied against the Performance Goals in determining the percentage (which shall not exceed 150%) of the Target Award (as adjusted pursuant to Article 11) used to determine the -4- number of shares of Stock earned under such Right, (iv) the period of time for which such performance is to be measured (the "Performance Period"), which shall commence not earlier than 90 days prior to the date of grant of such Right, and (v) the period of time, if any, during which the disposition of shares of Stock covered by any Final Award relating to such Right shall be restricted as provided in paragraph (a) of Article 9 (the "Restriction Period"); provided, however, that the Committee may establish the Restriction Period applicable to any Right at the time of or at any time prior to the granting of the related Final Award rather that at the time of granting such Right. Within 90 days of commencement of a Performance Period, the Committee may establish a minimum threshold objective for any Performance Goal for such Performance Period, which if not met, would result in no Final Award being made to any Participant with such Goal for such Period. During and after the Performance Period, but prior to the grant of a Final Award relating to any Right granted to a Participant who is not a "Covered Executive" (as defined below), the Committee may adjust the Performance Goals, Performance Formula and Target Award and otherwise modify the terms and provisions of such Right, subject to the terms and conditions of the Plan. Each Right shall be evidenced by a letter, an agreement or such other document as the Committee may determine. The term "Performance Criteria" shall mean, with respect to any Right granted to a Participant who is a Covered Executive, one or more of the following objective business criteria established by the Committee with respect to the Company and/or any subsidiary, division, business unit or component thereof upon which the Performance Goals for a Performance Period are based: asset charge, asset turnover, automotive return on sales, capacity utilization, capital employed in the business, capital spending, cash flow, cost structure improvements, complexity reductions, customer loyalty, diversity, earnings growth, earnings per share, economic value added, environmental health and safety, facilities and tooling spending, hours per vehicle, increase in customer base, inventory turnover, market price appreciation, market share, net cash balance, net income, net income margin, net operating cash flow, operating profit margin, order to delivery time, plant capacity, process time, profits before tax, quality/customer satisfaction, return on assets, return on capital, return on equity, return on net operating assets, return on sales, revenue growth, sales margin, sales volume, total shareholder return, vehicles per employee, warranty performance to budget, variable margin and working capital. The term "Performance Criteria" shall mean, with respect to any Right granted to a Participant who is not a Covered Executive, one or more of the business criteria applicable to Covered Executives for the Performance Period and any other criteria based on individual, business unit, group or Company performance selected by the Committee. The Performance Criteria may be expressed in absolute terms or relate to the performance of other companies or to an index. The term "Covered Executive" shall mean the Chief Executive Officer and the other four highest compensated officers of the Company at year-end whose compensation is required to be reported in the Summary Compensation Table of the Proxy Statement. -5- (c) Dividend Equivalents on Rights. (1) If the Committee shall determine, each Participant to whom a Right is granted shall be entitled to receive payment of the same amount of cash that such Participant would have received as cash dividends if, on each record date during the entire Performance Period relating to such Right, such Participant had been the holder of record of a number of shares of Stock equal to 100% of the related Target Award (as adjusted pursuant to Article 11). In the case of any Right granted to a Participant after the commencement of the related Performance Period, any such payment relating to any dividend payable prior to the date of grant of such Right shall be made at the same time as the payment relating to the first dividend paid after such date of grant. Such cash payments are hereinafter called "dividend equivalents". (2) Notwithstanding the provisions of paragraph (c)(1) of this Article 4 relating to dividend equivalents, the Committee may determine that, in lieu of receiving all or any portion of any such dividend equivalent in cash, a Participant shall receive an award of full shares of Stock having a value (as determined by the Committee) approximately equal to the portion of such dividend equivalent that was not paid in cash. Certificates for shares of Stock so awarded shall be issued as of the payment date for the related cash dividend, and the shares of Stock covered thereby shall be treated in the same manner as shares of Stock representing Final Awards, subject to the terms and conditions of the Plan, including, without limitation, the provisions of paragraphs (b), (d) and (e) of Article 4 and Articles 8, 9, and 11. (d) Final Awards. (1) As soon as practicable following the completion of the Performance Period relating to any Right, but not later than 12 months following such completion, the Committee shall determine the percentage (which shall not exceed 150%) of the Target Award (as adjusted pursuant to Article 11) which shall be used to determine the number of shares of Stock to be awarded finally to the Participant who holds such Right. Such number of shares of Stock is called the "Final Award". Each Final Award shall represent only full shares of Stock, and any fractional share that would otherwise result from such Final Award calculation shall be disregarded. In making such determination, the Committee shall apply the applicable Performance Formula for the Participant for the Performance Period against the accomplishment of the related Performance Goals. The Committee may, in its sole discretion, reduce the amount of any Final Award that otherwise would be awarded to any Participant for any Performance Period. In addition, the Committee may, in its sole discretion, increase the amount of any Final Award that otherwise would be awarded to any Participant who is not a Covered Executive, subject to the maximum Final Award amount of 150% of the related Target Award (as adjusted pursuant to Article 11), taking into account (i) the extent to which the Performance Goals provided in such Right was, in the Committee's sole opinion, achieved, (ii) the individual performance of such Participant during the related Performance Period and (iii) such other factors as the Committee may deem relevant, including, without limitation, any change in circumstances or unforeseen events, relating to the Company, the economy or otherwise, since the date of grant of such Right. The Committee shall notify such Participant of such Participant's Final Award as soon as practicable following such determination. -6- (2) Following the determination of each Final Award, the Company shall issue or cause to be issued certificates for the number of shares of Stock representing such Final Award, registered in the name of the Participant who received such Final Award. Such Participant shall thereupon become the holder of record of the number of shares of Stock evidenced by such certificates, entitled to dividends, voting rights and other rights of a holder thereof, subject to the terms and provisions of the Plan, including, without limitation, the provisions of paragraph (e) of this Article 4 and Articles 8, 9 and 11. If the Committee has determined that dividend equivalents shall be payable to a Participant with respect to any Right pursuant to paragraph (c) of this Article 4, concurrently with the issuance of such certificates, the Company shall deliver to such Participant an amount equal to the amount of the cash dividends that such Participant would have received with respect to the shares of Stock representing such Final Award, prior to the date on which such Participant shall have become the holder of record of such shares, if such Participant had become such a holder of record immediately following completion of the Performance Period relating to such Final Award. The Committee may require that such certificates bear such restrictive legend as the Committee may specify and be held by the Company in escrow or otherwise pursuant to any form of agreement or instrument that the Committee may specify. (3) Notwithstanding the provisions of paragraphs (d)(l) and (2) of this Article 4 or any other provision of the Plan, in the case of any Right held by a Participant who is an employee of a foreign subsidiary or foreign branch of the Company or of a foreign Joint Venture, or held by a Participant who is in any other category specified by the Committee, the Committee may specify that such Participant's Final Award shall not be represented by certificates for shares of Stock but shall be represented by rights approximately equivalent (as determined by the Committee) to the rights that such Participant would have received if certificates for shares of Stock had been issued in the name of such Participant in accordance with paragraphs (d)(l) and (2) of this Article 4 (such rights being called "Stock Equivalents"). Subject to the provisions of Article 11 and the other terms and provisions of the Plan, if the Committee shall so determine, each Participant who holds Stock Equivalents shall be entitled to receive the same amount of cash that such Participant would have received as dividends if certificates for shares of Stock had been issued in the name of such Participant pursuant to paragraphs (d)(l) and (2) of this Article 4 covering the number of shares equal to the number of shares to which such Stock Equivalents relate. Notwithstanding any other provision of the Plan to the contrary, the Stock Equivalents representing any Final Award may, at the option of the Committee, be converted into an equivalent number of shares of Stock or, upon the expiration of the applicable Restriction Period, into cash, under such circumstances and in such manner as the Committee may determine. -7- (4) If the Restriction Period relating to any Final Award shall expire while the Participant who was granted such Award is employed by the Company, the certificates for the shares of Stock issued in such Participant's name with respect to such Final Award, and certificates for a number of shares of Stock equal to the number of shares represented by any Stock Equivalents then held by such Participant with respect to such Final Award, shall be delivered to such Participant as soon as practicable, free of all restrictions and restrictive legends. (e) Effect of Termination of Employment or Death. (1) If a Participant's employment with the Company shall be terminated, prior to the expiration of the Restriction Period relating to any Right granted to such Participant, by reason of discharge, release in the best interest of the Company, voluntary quit or retirement without the approval of the Company, such Right, and any shares of Stock or Stock Equivalents issued in the name of such Participant as a Final Award relating to such Right, shall be forfeited and cancelled forthwith unless the Committee shall grant an appropriate waiver. Any such waiver shall be granted in accordance with the procedure specified in paragraph (b) of Article 8 (in which event the reference in such paragraph (b) to "the nonfulfillment of such condition" shall be deemed to refer to such Participant's termination for any of the reasons specified above). (2) If a Participant's employment with the Company shall be terminated for any reason other than a reason specified in paragraph (e)(l) of this Article 4, except death, prior to or concurrently with the expiration of the Restriction Period relating to any Right granted to such Participant, (i) certificates for any shares of Stock issued in such Participant's name prior to such termination of employment as a Final Award relating to such Right, and certificates for a number of shares of Stock equal to the number of shares represented by any Stock Equivalents then held by such Participant with respect to such Final Award, shall be delivered to such Participant as soon as practicable, free of all restrictions and restrictive legends; and (ii) subject to the provisions of Article 8, certificates for any shares of Stock issued in such Participant's name following such termination of employment as a Final Award relating to such Right (whether relating to a Performance Period ended prior to such termination or subsequent thereto) shall be delivered to such Participant as soon as practicable, free of all restrictions and restrictive legends. (3) If a Participant's employment with the Company shall be terminated at any time by reason of a sale or other disposition (including, without limitation, a transfer to a Joint Venture) of the division, operation or subsidiary in which such Participant was employed or to which such Participant was assigned, unless the Committee shall specify otherwise, any Rights then held by such Participant, and any shares of Stock or Stock Equivalents issued in the name of such Participant as a Final Award relating to such Rights, shall be dealt with as provided in paragraph (e)(2) of this Article 4. (4) If a Participant shall die while in the employ of the Company, any Rights then held by such Participant shall remain in effect. Such Rights, and any shares of Stock then issued in the name of such Participant (but not yet distributed to such Participant), and any such shares thereafter issuable with respect to such Rights, as Final Awards under the Plan, shall be transferred or issued and delivered to the beneficiary designated pursuant to Article 10 or, if no such designation is in effect, to the executor or administrator of the estate of such Participant, free of all restrictions and restrictive legends. With regard to any Stock Equivalents then held by such Participant, certificates for a number of shares of Stock equal to the number of shares represented thereby shall be issued and delivered to such beneficiary, executor or administrator, free of all restrictions and restrictive legends. -8- (5) Subject to the provisions of Article 8, if a Participant shall die following termination of employment, any rights then held by such Participant shall remain in effect. Such Rights, and any shares of Stock then issued in Rights then held by such Participant shall remain in effect. Such Rights, and any shares of Stock then issued in the name of such Participant (but not yet distributed to such Participant), and any such shares thereafter issuable with respect to such Rights, as Final Awards under the Plan, shall be transferred or issued and delivered to the beneficiary designated pursuant to Article 10 or, if no such designation is in effect, to the executor or administrator of the estate of such Participant, free of all restrictions and restrictive legends. With regard to any Stock Equivalents then held by such Participant, certificates for a number of shares of Stock equal to the number of shares represented thereby shall be issued and delivered to such beneficiary, executor or administrator, free of all restrictions and restrictive legends. (6) Notwithstanding any other provision of the Plan to the contrary, if a Participant's employment with the Company shall for any reason terminate prior to the later of (a) the date of expiration of the period of six months following the commencement of the Performance Period relating to any Right (or such other period as the Committee may specify) or (b) the date six months following the date of grant of such Right, such Right shall be forfeited and cancelled forthwith unless the Committee shall determine otherwise. (7) Notwithstanding any provision of the Plan to the contrary, (i) the Committee may at any time establish a Restriction Period applicable to the Stock to be represented by any Final Award, and such Restriction Period shall remain in effect until such time (which may be later than the date of the Participant's retirement or other termination of employment) as the Committee may determine; and (ii) the Committee may determine that no shares of Stock or certificates therefor shall be delivered to any Participant until the date of expiration of the applicable Restriction Period (or such earlier date as the Committee may determine). OPTIONS AND STOCK APPRECIATION RIGHTS 5.(a) Grant of Options. (1) The Board of Directors, at any time and from time to time while the Plan is in effect, may authorize the granting of Options to such officers and other key salaried employees of the Company, whether or not members of the Board of Directors, as it may select from among those nominated by the Committee, and for such numbers of shares as it shall designate, subject to the provisions of this Article 5 and Article 3; provided, however, that no Option shall be granted to a Participant for a larger number of shares than the Committee shall recommend for such Participant. Each Option granted pursuant to the Plan shall be designated at the time of grant as either an "incentive stock option" ("ISO"), as such term is defined in the Internal Revenue Code of 1986, as amended (the "Code"), or its successors (or shall otherwise be designated as an option entitled to favorable treatment under the Code) or as a "nonqualified stock option" ("NQO") (ISOs and NQOs being individually called an "Option" and collectively called "Options"). (2) Without in any way limiting the authority provided in paragraph (a)(l) of this Article 5, the Board of Directors may authorize the Committee to authorize the granting of Options, at any time and from time to time while the Plan is in effect, to such officers and other key salaried employees of the Company, whether or not members of the Board of Directors, as the Committee may select, subject to the provisions of this Article 5 and Article 3 and subject to such other limitations as the Board of Directors may specify. In addition, to the extent such authority has been delegated to the Committee pursuant to this Article 5, the Committee may authorize a committee of two or more Company officers appointed by it to determine the amount and date of individual Option grants for key employees selected by such committee who are not officers or directors of the Company, subject to Articles 3 and 5 and subject to a maximum number of shares of Stock and any other limitations specified by the Committee. -9- (3) The date on which an Option shall be granted shall be the date of authorization of such grant or such later date as may be determined at the time such grant is authorized. Any individual may hold more than one Option. (b) Price. In the case of each Option granted under the Plan the option price shall be the fair market value of Stock on the date of grant of such Option; provided, however, that in the case of any Option granted to an employee of a foreign subsidiary or a foreign branch of the Company or of a foreign Joint Venture the Board of Directors may in its discretion fix an option price in excess of the fair market value of Stock on such date. The term "fair market value" when used with reference to the option price shall mean the average of the highest price and the lowest price at which Stock shall have been sold regular way on the New York Stock Exchange on the date of grant of such Option. In the event that any Option shall be granted on a date on which there were no such sales of Stock on such Exchange, the fair market value of Stock on such date shall be deemed to be the average of such highest price and lowest price on the next preceding day on which there were such sales. (c) Grant of Stock Appreciation Rights. (1) The Board of Directors may authorize the granting of Stock Appreciation Rights (as defined below) to such Participants who are granted Options under the Plan as it may select from among those nominated therefor by the Committee. The Committee may authorize the granting of Stock Appreciation Rights to such Participants as are granted Options under the Plan pursuant to paragraph (a) of this Article 5. Each Stock Appreciation Right shall relate to a specific Option granted under the Plan and may be granted concurrently with the Option to which it relates or at any time prior to the exercise, termination or expiration of such Option. (2) The term "Stock Appreciation Right" shall mean the right to receive, without payment to the Company and as the Participant may elect, either (a) that number of shares of Stock determined by dividing (i) the total number of shares of Stock subject to the related Option (or the portion or portions thereof which the Participant from time to time elects to use for purposes of this clause (a), multiplied by the amount by which the fair market value of a share of Stock on the day the right is exercised exceeds the option price (such amount being hereinafter referred to as the "Spread"), by (ii) the fair market value of a share of Stock on the exercise date; or (b) cash in an amount determined by multiplying (i) the total number of shares of Stock subject to the related Option (or the portion or portions thereof which the Participant from time to time elects to use for purposes of this clause (b)), by (ii) the amount of the Spread; or (c) a combination of shares of Stock and cash, in amounts determined as set forth in clauses (a) and (b) above; provided, however, that the total number of shares which may be received upon exercise of a Stock Appreciation Right for Stock shall not exceed the total number of shares subject to the related Option or portion thereof, and the total amount of cash which may be received upon exercise of a Stock Appreciation Right for cash shall not exceed the fair market value on the date of exercise of the total number of shares subject to the related Option or portion thereof. -10- (3) The Committee may impose such conditions as it may deem appropriate upon the exercise of an Option or a Stock Appreciation Right, including, without limitation, a condition that the Stock Appreciation Right may be exercised only in accordance with rules and regulations adopted by the Committee from time to time. (4) The right of a Participant to exercise a Stock Appreciation Right shall be cancelled if and to the extent the related Option is exercised. The right of a Participant to exercise an Option shall be cancelled if and to the extent that shares covered by such Option are used to calculate shares or cash received upon exercise of a related Stock Appreciation Right. (5) The fair market value of Stock on the date of exercise of a Stock Appreciation Right shall be determined as of such exercise date in the same manner as the fair market value of Stock on the date of grant of an Option is determined pursuant to paragraph (b) of this Article 5. (6) If any fractional share of Stock would otherwise be payable to a Participant upon the exercise of a Stock Appreciation Right, the Participant shall be paid a cash amount equal to the same fraction of the fair market value (determined as described above) of the Stock on the date of exercise. (d) Stock Option Agreement. Each Option and related Stock Appreciation Right shall be evidenced by a Stock Option Agreement in such form and containing such provisions not inconsistent with the provisions of the Plan as the Committee from time to time shall approve. Each Stock Option Agreement shall provide that the Participant shall agree to remain in the employ of the Company for such period from the date of grant of such Option or combination of Options or related Stock Appreciation Rights as shall be provided in the Stock Option Agreement; provided, however, that the Company's right to terminate the employment of the Participant at any time, with or without cause, shall not be restricted by such agreement. (e) Terms of Options and Stock Appreciation Rights. Each Option and related Stock Appreciation Right granted under the Plan shall be exercisable on such date or dates, during such period, for such number of shares and subject to such further conditions as shall be determined pursuant to the provisions of the Stock Option Agreement with respect to such Option and related Stock Appreciation Right; provided, however, that a Stock Appreciation Right shall not be exercisable prior to or later than the time the related Option could be exercised; and provided, further, that in any event no Option or related Stock Appreciation Right shall be exercised beyond ten years from the date of grant of the Option. (f) Effect of Termination of Employment or Death. (1) Except as provided in paragraphs (f)(2), (3) and (4) of this Article 5, if, prior to the date that any Option or Stock Appreciation Right shall first have become exercisable, the Participant's employment with the Company shall be terminated by the Company, with or without cause, or by the act, death, incapacity or retirement of the Participant, the Participant's right to exercise such Option or Stock Appreciation Right shall terminate on the date of such termination of employment and all rights thereunder shall cease. -11- (2) Notwithstanding the provisions of paragraph (f)(l) of this Article 5, if the Participant's employment with the Company shall be terminated by reason of retirement, release because of disability or death, and the Participant had remained in the employ of the Company for at least six months following the date of any Stock Option Agreement under the Plan between such Participant and the Company, and subject to the provisions of Article 8, all such Participant's rights under such Stock Option Agreement shall continue in effect or continue to accrue for the period ending on the date ten years from the date of grant of any Option (or such shorter period as the Committee may specify), subject, in the event of the Participant's death prior to such date, to the provisions of paragraph (f)(7) of this Article 5 and subject to any other limitation on the exercise of such rights in effect at the date of exercise. (3) Notwithstanding the provisions of paragraph (f)(l) of this Article 5, if the Participant's employment with the Company shall be terminated under mutually satisfactory conditions, and the Participant had remained in the employ of the Company for at least six months following the date of any Stock Option Agreement under the Plan between the Participant and the Company, and subject to the provisions of Article 8, all such Participant's rights under such Stock Option Agreement shall continue in effect or continue to accrue until the date three months after the date of such termination (but not later than the date ten years from the date of grant of any Option), subject, in the event of the Participant's death during such three-month period, to the provisions of paragraph (f)(7) of this Article 5 and subject to any other limitation on the exercise of such rights in effect at the date of exercise. (4) Notwithstanding any other provision of the Plan to the contrary, if a Participant's employment with the Company shall be terminated at any time by reason of a sale or other disposition (including, without limitation, a transfer to a Joint Venture) of the division, operation or subsidiary in which such Participant was employed or to which such Participant was assigned, all such Participant's rights under any Option and any related Stock Appreciation Right granted to him or her shall continue in effect and continue to accrue until the date five years after the date of such termination or such earlier or later date as the Committee may specify (but not later than the date ten years from the date of grant of any Option), provided such Participant shall satisfy both of the following conditions: (a) such Participant, at the date of such termination, had remained in the employ of the Company for at least three months following the grant of such Option and Stock Appreciation Right, and -12- (b) such Participant continues to be or becomes employed in such division, operation or subsidiary following such sale or other disposition and remains in such employ until the date of exercise of such Option or Stock Appreciation Right (unless the Committee, or any committee appointed by it for the purpose, shall waive this condition (b)). Upon termination of such Participant's employment with such (former) division, operation or subsidiary following such sale or other disposition, any then existing right of such Participant to exercise any such Option or Stock Appreciation Right shall be subject to the following limitations: (i) if such Participant's employment is terminated by reason of disability, death or retirement with the approval of his or her employer, such Participant's rights shall continue as provided in the preceding sentence with the same effect as if his or her employment had not terminated; (ii) if such Participant's employment is terminated by reason of discharge or voluntary quit, such Participant's rights shall terminate on the date of such termination of employment and all rights under such Option and Stock Appreciation Right shall cease; and (iii) if such Participant's employment is terminated for any reason other than a reason set forth in the preceding clauses (i) and (ii), such Participant shall have the right, within three months after such termination, to exercise such Option or Stock Appreciation Right to the extent that it or any installment thereof shall have accrued at the date of such termination and shall not have been exercised, subject in the case of any such termination to the provisions of Article 8 and any other limitation on the exercise of such Option and Stock Appreciation Right in effect at the date of exercise. (5) If, on or after the date that any Option or Stock Appreciation Right shall first have become exercisable, a Participant's employment with the Company shall be terminated for any reason except retirement, release because of disability, death, release because of a sale or other disposition of the division, operation or subsidiary in which such Participant was employed or to which such Participant was assigned, release under mutually satisfactory conditions, discharge, release in the best interest of the Company or voluntary quit, such Participant shall have the right, within three months after such termination, to exercise such Option or Stock Appreciation Right to the extent that it or any installment thereof shall have accrued at the date of such termination of employment and shall not have been exercised, subject to the provisions of Article 8 and any other limitation on the exercise of such Option or Stock Appreciation Right in effect at the date of exercise. (6) If a Participant's employment with the Company shall be terminated at any time by reason of discharge, release in the best interest of the Company or voluntary quit, the Participant's right to exercise such Option or Stock Appreciation Right shall terminate on the date of such termination of employment and all rights thereunder shall cease. -13- (7) If a Participant shall die within the applicable period specified in paragraph (f)(2), (3), (4) or (5) of this Article 5, the beneficiary designated pursuant to Article 10 or, if no such designation is in effect, the executor or administrator of the estate of the decedent or the person or persons to whom the Option or Stock Appreciation Right shall have been validly transferred by the executor or administrator pursuant to will or the laws of descent and distribution shall have the right, within the same period of time as the period during which the Participant would have been entitled to exercise such Option or Stock Appreciation Right (except that (a) in the case of a Participant to whom paragraph (f)(5) of this Article 5 applies, such Participant's Option or Stock Appreciation Right may be exercised only to the extent that it or any installment thereof shall have accrued at the date of death and shall not have been exercised; and (b) the period of time within which any Option or Stock Appreciation Right shall be exercisable following the date of the Participant's death shall not be less than one year (unless the Option by its terms expires earlier)), subject to the provision that no Option or related Stock Appreciation Right shall be exercised under any circumstances beyond ten years from the date of grant of such Option, and to any other limitation on the exercise of such Option or Stock Appreciation Right in effect at the date of exercise. No transfer of an Option or Stock Appreciation Right by the Participant, other than by filing a written designation of beneficiary pursuant to Article 10, shall be effective to bind the Company unless the Company shall have been furnished with written notice of such transfer and a copy of the will and/or such other evidence as the Committee may deem necessary to establish the validity of the transfer. No transfer shall be effective without the acceptance by the designated beneficiary or other transferee of the terms and conditions of such Option or Stock Appreciation Right. (g) Payment for Option Shares. (1) Payment for shares of Stock purchased upon exercise of an Option granted hereunder shall be made, either in full or, if the Committee shall so determine and at the election of the Participant, in installments, in such manner as provided in the applicable Stock Option Agreement. (2) Unless the Committee shall provide otherwise in any form of Stock Option Agreement, any payment for shares of Stock purchased upon exercise of an Option granted hereunder may be made in cash, by delivery of shares of Stock beneficially owned by the Participant or by a combination of cash and Stock, at the election of the Participant; provided, however, that any shares of Stock so delivered shall have been beneficially owned by the Participant for a period of not less than six months prior to the date of exercise. Any such shares of Stock so delivered shall be valued at their fair market value on the date of such exercise, which shall be determined as of such date in the same manner as the fair market value of Stock on the date of grant of an Option is determined pursuant to paragraph (b) of this Article 5. The Committee shall determine whether and if so the extent to which actual delivery of share certificates to the Company shall be required. -14- STOCK AND OTHER STOCK-BASED AND COMBINATION AWARDS 6.(a) Grants of Other Stock-Based Awards. The Committee, at any time and from time to time while the Plan is in effect, may grant to such officers and other salaried employees of the Company, whether or not members of the Board of Directors, as it may select, Plan Awards pursuant to which Stock is or may in the future be acquired, or Plan Awards valued or determined in whole or part by reference to, or otherwise based on, Stock (including but not limited to Plan Awards denominated in the form of "stock units", grants of so-called "phantom stock" and options containing terms or provisions differing in whole or in part from Options granted pursuant to Article 5) (such Plan Awards being hereinafter called "Other Stock-Based Awards"). Other Stock-Based Awards may be granted either alone, in addition to, in tandem with or as an alternative to any other kind of Plan Award, grant or benefit granted under the Plan or under any other employee plan of the Company, including a plan of any acquired entity. (b) Terms and Conditions. Subject to the provisions of the Plan, the Committee shall have authority to determine the time or times at which Other Stock-Based Awards shall be made, the number of shares of Stock or stock units and the like to be granted or covered pursuant to such Plan Awards (subject to the provisions of Article 3) and all other terms and conditions of such Plan Awards, including, but not limited to, whether such Plan Awards shall be payable or paid in cash, Stock or otherwise. (c) Consideration for Other Stock-Based Awards. In the discretion of the Committee, any Other-Stock Based Award may be granted as a Stock bonus for no consideration other than services rendered; provided, however, that in the event an Other Stock-Based Award shall be granted to a Participant who is a Section 16 Person under which shares of Stock are or may in the future be issued for any other type of consideration, the amount of such consideration shall either be (i) equal to the amount (such as the par value of such shares) required to be received by the Company in order to assure compliance with applicable state law or (ii) equal to or greater than 50% of the fair market value of such shares (as determined in accordance with paragraph (b) of Article 5) on the date of grant of such Other Stock-Based Award. CASH AWARDS TO EMPLOYEES OF FOREIGN SUBSIDIARIES OR BRANCHES OR JOINT VENTURES 7. Notwithstanding any other provision of the Plan to the contrary, the Committee may determine to permit a Participant, other than a Section 16 Person, who is an employee of a foreign subsidiary or a foreign branch of the Company or of a foreign Joint Venture to receive cash in lieu of any Plan Award or shares of Stock that would otherwise have been granted to or delivered to such Participant under the Plan, in such amount as the Committee may determine in its sole discretion. PAYMENT OF PLAN AWARDS AND CONDITIONS THEREON 8.(a) Effect of Competitive Activity. Anything contained in the Plan to the contrary notwithstanding, if the employment of any Participant shall terminate, for any reason other than death, while any Plan Award to such Participant is outstanding hereunder, and such Participant has not yet received the Stock covered by such Plan Award or otherwise received the full benefit of such Plan Award, such Participant, if otherwise entitled thereto, shall receive such Stock or benefit only if, during the entire period from the date of such Participant's termination to the date of such receipt, such Participant shall have earned out such Plan Award by (i) making himself or herself available, upon request, at reasonable times and upon a reasonable basis, to consult with, supply information to and otherwise cooperate with the Company or any subsidiary thereof with respect to any matter that shall have been handled by him or her or under his or her supervision while he or she was in the employ of the Company or of any subsidiary thereof, and (ii) refraining from engaging in any activity that is directly or indirectly in competition with any activity of the Company or any subsidiary thereof. -15- (b) Nonfulfillment of Competitive Activity Conditions: Waivers Under the Plan. In the event of a Participant's nonfulfillment of any condition set forth in paragraph (a) of this Article 8 such Participant's rights under any Plan Award shall be forfeited and cancelled forthwith; provided, however, that the nonfulfillment of such condition may at any time (whether before, at the time of or subsequent to termination of employment) be waived in the following manner: (i) with respect to any such Participant who at any time shall have been a Section 16 Person, such waiver may be granted by the Committee upon its determination that in its sole judgment there shall not have been and will not be any substantial adverse effect upon the Company or any subsidiary thereof by reason of the nonfulfillment of such condition; and (ii) with respect to any other such Participant, such waiver may be granted by the Committee (or any committee appointed by it for the purpose) upon its determination that in its sole judgment there shall not have been and will not be any such substantial adverse effect. (c) Effect of Inimical Conduct. Anything contained in the Plan to the contrary notwithstanding, all rights of a Participant under any Plan Award shall cease on and as of the date on which it has been determined by the Committee that such Participant at any time (whether before or subsequent to termination of such Participant's employment) acted in a manner inimical to the best interests of the Company or any subsidiary thereof. (d) Tax and Other Withholding. Prior to any distribution of cash, Stock or Other Stock-Based Awards (including payments under paragraph (c) of Article 4) to any Participant, appropriate arrangements (consistent with the Plan and any rules adopted hereunder) shall be made for the payment of any taxes and other amounts required to be withheld by federal, state or local law. (e) Substitution. The Committee, in its sole discretion, may substitute a Plan Award (except ISOs) for another Plan Award or Plan Awards of the same or different type. NON-TRANSFERABILITY OF PLAN AWARDS; RESTRICTIONS ON DISPOSITION AND EXERCISE OF PLAN AWARDS 9.(a) Restrictions on Transfer of Rights or Final Awards. (i) No Right or (ii) until the expiration of the applicable Restriction Period, no shares of Stock covered by any Final Award determined under paragraph (d) of Article 4, shall be transferred, pledged, assigned or otherwise disposed of by a Participant, except as permitted by the Plan, without the consent of the Committee, otherwise than by will or the laws of descent and distribution; provided, however, that the Committee may permit, on such terms as it may deem appropriate, use of Stock included in any Final Award as partial or full payment upon exercise of an Option under the Plan or a stock option under any Stock Option Plan of the Company prior to the expiration of the Restriction Period relating to such Final Award. -16- (b) Restrictions on Transfer of Options or Stock Appreciation Rights. Unless the Committee determines otherwise, no Option or related Stock Appreciation Right shall be transferable by a Participant otherwise than by will or the laws of descent and distribution, and during the lifetime of a Participant the Option or Stock Appreciation Right shall be exercisable only by such Participant or such Participant's guardian or legal representative. (c) Restrictions on Transfer of Certain Other Stock-Based Awards. Unless the Committee determines otherwise, no Other-Stock Based Award which constitutes an option or similar right shall be transferable by a Participant otherwise than by will or the laws of descent and distribution, and during the lifetime of a Participant any such Other-Stock Based Award shall be exercisable only by such Participant or such Participant's guardian or legal representative. DESIGNATION OF BENEFICIARIES 10. Anything contained in the Plan to the contrary notwithstanding, a Participant may file with the Company a written designation of a beneficiary or beneficiaries under the Plan (subject to such limitations as to the classes and number of beneficiaries and contingent beneficiaries and such other limitations as the Committee from time to time may prescribe), subject to the provisions of paragraph (e) of Article 4 and paragraph (f) of Article 5. A Participant shall be deemed to have designated as beneficiary or beneficiaries under the Plan the person or persons who receive such Participant's life insurance proceeds under the basic Company Life Insurance Plan unless such Participant shall have assigned such life insurance or shall have filed with the Company a written designation of a different beneficiary or beneficiaries under the Plan. A Participant may from time to time revoke or change any such designation of beneficiary. Any designation of beneficiary under the Plan shall be controlling over any other disposition, testamentary or otherwise; provided, however, that if the Committee shall be in doubt as to the entitlement of any such beneficiary to any Right, Final Award, Option, Stock Appreciation Right or Other Stock-Based Award, the Committee may determine to recognize only the legal representative of such Participant, in which case the Company, the Committee and the members thereof shall not be under any further liability to anyone. In the event of the death of any Participant, the term "Participant" as used in the Plan shall thereafter be deemed to refer to the beneficiary designated pursuant to this Article 10 or, if no such designation is in effect, the executor or administrator of the estate of such Participant, unless the context otherwise requires. -17- MERGER, CONSOLIDATION, STOCK DIVIDENDS, ETC. ll.(a) Adjustments. In the event of any merger, consolidation, reorganization, stock split, stock dividend or other event affecting Stock, an appropriate adjustment shall be made in the total number of shares available for Plan Awards and in all other provisions of the Plan that include a reference to a number of shares, and in the numbers of shares covered by, and other terms and provisions of, outstanding Plan Awards. (b) Committee Determinations. The foregoing adjustments and the manner of application of the foregoing provisions shall be determined by the Committee in its sole discretion. Any such adjustment may provide for the elimination of any fractional share which might otherwise become subject to a Plan Award. ACCELERATION OF PAYMENT OR MODIFICATION OF PLAN AWARDS 12. Notwithstanding any other provision of the Plan, the Committee, in the event of the death of a Participant or in any other circumstance, may accelerate distribution of any Plan Award in its entirety or in a reduced amount, in cash or in Stock, or modify any Plan Award, in each case on such basis and in such manner as the Committee may determine in its sole discretion. RIGHTS AS A STOCKHOLDER 13. A Participant shall not have any rights as a stockholder with respect to any share covered by any Plan Award until such Participant shall have become the holder of record of such share. TERM, AMENDMENT, MODIFICATION AND TERMINATION OF THE PLAN 14. (a) Term. The Plan shall terminate on May 1, 2008, except with respect to Plan Awards then outstanding. (b) Amendment, Modification and Termination. The Board of Directors, upon recommendation of the Committee, at any time may amend, modify or terminate the Plan, and the Committee at any time may amend or modify the Plan; provided, however, that no such action of the Board of Directors or the Committee, without approval of the stockholders, may (a) increase the total number of shares of Stock with respect to which Plan Awards may be granted under the Plan, (b) extend the term of the Plan as set forth in paragraph (a) of this Article 14 or (c) permit any person while a member of the Committee or any committee of the Board of Directors administering the Plan to be eligible to receive or hold a Plan Award; provided, however, that neither the Board of Directors nor the Committee may amend or modify the Plan so as to increase the maximum number of shares determinable pursuant to the last sentence of paragraph (a) of Article 3. -18- INDEMNIFICATION AND EXCULPATION 15.(a) Indemnification. Each person who is or shall have been a member of the Board of Directors or of the Committee or of any committee of the Board of Directors administering the Plan or of any committee appointed by the foregoing committees shall be indemnified and held harmless by the Company against and from any and all loss, cost, liability or expense that may be imposed upon or reasonably incurred by such person in connection with or resulting from any claim, action, suit or proceeding to which such person may be or become a party or in which such person may be or become involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by such person in settlement thereof (with the Company's written approval) or paid by such person in satisfaction of a judgment in any such action, suit or proceeding, except a judgment in favor of the Company based upon a finding of such person's lack of good faith; subject, however, to the condition that, upon the institution of any claim, action, suit or proceeding against such person, such person shall in writing give the Company an opportunity, at its own expense, to handle and defend the same before such person undertakes to handle and defend it on such person's behalf. The foregoing right of indemnification shall not be exclusive of any other right to which such person may be entitled as a matter of law or otherwise, or any power that the Company may have to indemnify or hold such person harmless. (b) Exculpation. Each member of the Board of Directors or of the Committee or of any committee of the Board of Directors administering the Plan or any committee appointed by the foregoing committees, and each officer and employee of the Company, shall be fully justified in relying or acting in good faith upon any information furnished in connection with the administration of the Plan by any appropriate person or persons other than such person. In no event shall any person who is or shall have been a member of the Board of Directors or of the Committee or of any committee of the Board of Directors administering the Plan or of any committee appointed by the foregoing committees, or an officer or employee of the Company, be held liable for any determination made or other action taken or any omission to act in reliance upon any such information, or for any action (including the furnishing of information) taken or any failure to act, if in good faith. EXPENSES OF PLAN 16. The entire expense of offering and administering the Plan shall be borne by the Company and its participating subsidiaries. FINALITY OF DETERMINATIONS 17. Each determination, interpretation, or other action made or taken pursuant to the provisions of the Plan by the Board of Directors or the Committee or any committee of the Board of Directors administering the Plan or any committee appointed by the foregoing committees shall be final and shall be binding and conclusive for all purposes and upon all persons, including, but without limitation thereto, the Company, the stockholders, the Committee and each of the members thereof, and the directors, officers, and employees of the Company and its subsidiaries, the Participants, and their respective successors in interest. -19- EX-12 10 EXHIBIT 12 Exhibit 12
Ford Motor Company and Subsidiaries CALCULATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS ---------------------------------------------------------------------------------------- (in millions) For the Years Ended December 31 ----------------------------------------------------------- 1997 1996 1995 1994 1993 ------- ------- ------- ------- ------- Earnings Income/(Loss) before income taxes and cumulative effects of changes in accounting principles $10,939 $ 6,793 $ 6,705 $ 8,789 $ 4,003 Equity in net loss/(income) of affiliates plus dividends from affiliates 121 36 179 (182) (98) Adjusted fixed charges a/ 10,911 10,801 10,556 8,122 7,648 ------- ------- ------- ------- ------- Earnings $21,971 $17,630 $17,440 $16,729 $11,553 ======= ======= ======= ======= ======= Combined Fixed Charges and Preferred Stock Dividends Interest expense b/ $10,570 $10,464 $10,121 $ 7,787 $ 7,351 Interest portion of rental expense c/ 309 300 396 265 266 Preferred stock dividend requirements of majority owned subsidiaries and trusts d/ 55 55 199 160 115 ------- ------- ------- ------- ------- Fixed charges 10,934 10,819 10,716 8,212 7,732 Ford preferred stock dividend requirements e/ 82 95 459 472 442 ------- ------- ------- ------- ------- Total combined fixed charges and preferred stock dividends $11,016 $10,914 $11,175 $ 8,684 $ 8,174 ======= ======= ======= ======= ======= Ratios Ratio of earnings to fixed charges 2.0 1.6 1.6 2.0 1.5 Ratio of earnings to combined fixed charges and preferred stock dividends 2.0 1.6 1.6 1.9 1.4
- - - - - - a/ Fixed charges, as shown below, adjusted to exclude the amount of interest capitalized during the period and preferred stock dividend requirements of majority owned subsidiaries and trusts. b/ Includes interest, whether expensed or capitalized, and amortization of debt expense and discount or premium relating to any indebtedness. c/ One-third of all rental expense is deemed to be interest. d/ Preferred stock dividend requirements of Ford Holdings, Inc. (1995 - 1993), increased to an amount representing the pre-tax earnings which would be required to cover such dividend requirements based on Ford's effective income tax rates. Beginning in the fourth quarter 1995, includes requirements related to company-obligated mandatorily redeemable preferred securities of a subsidiary trust. e/ Preferred stock dividend requirements of Ford Motor Company, increased to an amount representing the pre-tax earnings which would be required to cover such dividend requirements based on Ford's effective income tax rates. EX-21 11 EXHIBIT 21 Exhibit 21 Ford Motor Company SUBSIDIARIES OF THE REGISTRANT AS OF MARCH 15, 1998* ---------------------------------------------------- Organization Jurisdiction - ------------ ------------ Cadiz Electronica, S.A. Spain Carplastic S.A. de C.V. Mexico Ford Argentina S.A. Argentina Ford Automotive Holdings England Ford Motor Company Limited England Jaguar Limited England Ford Brasil Ltda. Brazil Ford Capital B.V. The Netherlands Ford Electronics and Refrigeration Corporation Delaware, U.S.A. Ford Electronics Manufacturing Corporation Canada Ford Enhanced Investment Partnership Michigan, U.S.A. Ford Espana S.A. Spain Ford Export Services B.V. The Netherlands Ford FSG, Inc. Delaware, U.S.A. Associates First Capital Corporation** Delaware, U.S.A. Associates Corporation of North America** Delaware, U.S.A. ACONA B.V.** The Netherlands AIC Corporation** Japan Ford Motor Credit Company Delaware, U.S.A. The American Road Insurance Company Michigan, U.S.A. Ford Credit Auto Receivables Corporation Delaware, U.S.A. Ford Credit International, Inc. Delaware, U.S.A. Ford Credit Canada Limited Canada Ford Credit Europe plc England Primus Automotive Financial Services, Inc. New York, U.S.A. Ford Global Technologies, Inc. Michigan, U.S.A. Ford Holdings, Inc. Delaware, U.S.A. Ford Motor Land Development Delaware, U.S.A. Ford International Capital Corporation Delaware, U.S.A. Ford Investment Partnership Michigan, U.S.A. Ford Italiana S.p.A. Italy Ford Motor Company (Austria) K.G. Austria Ford Motor Company (Belgium) N.V. Belgium Ford Motor Company of Canada, Limited Ontario, Canada Essex Manufacturing Ontario, Canada Ford Motor Company of Australia Limited Australia Ford Lio Ho Motor Company Ltd. Taiwan Ford Motor Company (Japan), Ltd. Japan Ford Motor Company, S.A. de C.V. Mexico Ford Motor de Venezuela, S.A. Venezuela Ford Nederland B.V. The Netherlands Ford Treasury Services Dublin Ireland Ford Werke AG Germany Groupe Ford France SAS France Ford Aquitaine Industrie SAS France Ford Ardennes Industrie SAS France Ford France Automobile SAS France The Hertz Corporation Delaware, U.S.A. Transcon Insurance Limited 452 Other U.S. Subsidiaries 324 Other Non-U.S. Subsidiaries * Subsidiaries are not shown by name in the above list if, considered in the aggregate as a single subsidiary, they would not constitute a significant subsidiary. **Following the spin-off to the Registrant's shareholders of Associates First Capital Corporation on April 7, 1998, these companies will no longer be subsidiaries of the Registrant. EX-23 12 CONSENT LETTER Ford Motor Company The American Road Dearborn, Michigan CONSENT OF COOPERS & LYBRAND L.L.P. Re: Ford Motor Company Registration Statements Nos. 2-95018, 2-95020, 33-9722, 33-14951, 33-19036, 33-36043, 33-36061, 33-39402, 33-50087, 33-50194, 33-50238, 33-54304, 33-54344, 33-54348, 33-54275, 33-54283, 33-54735, 33-54737, 33-55847, 33-56785, 33-58255, 33-58785, 33-58861, 33-61107, 33-62227, 33-64605, 33-64607, 333-02407, 333-02735, 333-20725, 333-27993, 333-28181, 333-46295, 333-47443, 333-47445, 333-47451, 333-47733 and 333-47735 on Form S-8, and 2-42133, 33-32641, 33-40638, 33-43085, 33-55474, 33-55171, 33-64247 and 333-14297 on Form S-3 We consent to the incorporation by reference in the above Registration Statements of our report dated January 26, 1998 to the Board of Directors and Stockholders of Ford Motor Company which is included in this Annual Report on Form 10-K. /s/Coopers & Lybrand L.L.P. COOPERS & LYBRAND L.L.P. 400 Renaissance Center Detroit, Michigan 48243 March 17, 1998 EX-24 13 POWER OF ATTORNEY Exhibit 24 FORD MOTOR COMPANY Certificate of Assistant Secretary ----------------------------------- The undersigned, Peter J. Sherry, Jr., an Assistant Secretary of FORD MOTOR COMPANY, a Delaware corporation (the "Company"), DOES HEREBY CERTIFY that the following resolutions were adopted at a meeting of the Board of Directors of the Company duly called and held on March 12, 1998 and that the same are in full force and effect: RESOLVED, That preparation of an Annual Report of the Company on Form 10-K for the year ended December 31, 1997 (the "10-K Report"), including exhibits and other documents, to be filed with the Securities and Exchange Commission (the "Commission") under the Securities Exchange Act of 1934, as amended, be and hereby is in all respects authorized and approved; that the draft 10-K Report presented to this meeting be and hereby is approved in all respects; that the directors and appropriate officers of the Company, and each of them, be and hereby are authorized to sign and execute in their own behalf, or in the name and on behalf of the Company, or both, as the case may be, the 10-K Report, and any and all amendments thereto, with such changes therein as such directors and officers may deem necessary, appropriate or desirable, as conclusively evidenced by their execution thereof; and that the appropriate officers of the Company, and each of them, be and hereby are authorized to cause the 10-K Report and any such amendments, so executed, to be filed with the Commission. RESOLVED, That each officer and director who may be required to sign and execute the 10-K Report or any amendment thereto or document in connection therewith (whether in the name and on behalf of the Company, or as an officer or director of the Company, or otherwise), be and hereby is authorized to execute a power of attorney appointing J. M. Devine, W. J. Cosgrove, J. W. Martin, Jr., J. M. Rintamaki, L. J. Ghilardi and N. A. Patino, and each of them, severally, his or her true and lawful attorney or attorneys to sign in his or her name, place and stead in any such capacity the 10-K Report and any and all amendments thereto and documents in connection therewith, and to file the same with the Commission, each of said attorneys to have power to act with or without the other, and to have full power and authority to do and perform in the name and on behalf of each of said officers and directors who shall have executed such power of attorney, every act whatsoever which such attorneys, or any of them, may deem necessary, appropriate or desirable to be done in connection therewith as fully and to all intents and purposes as such officers or directors might or could do in person. WITNESS my hand as of this 17th day of March, 1998. /s/Peter J. Sherry, Jr. ----------------------- Peter J. Sherry, Jr. Assistant Secretary (SEAL) POWER OF ATTORNEY WITH RESPECT TO ANNUAL REPORT OF FORD MOTOR COMPANY ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997 Each of the undersigned, a director, officer or employee of FORD MOTOR COMPANY, appoints each of J. M. Devine, W. J. Cosgrove, J. W. Martin, Jr., J. M. Rintamaki, L. J. Ghilardi and N. A. Patino his or her true and lawful attorney and agent to do any and all acts and things and execute any and all instruments which the attorney and agent may deem necessary or advisable in order to enable FORD MOTOR COMPANY to comply with the Securities Exchange Act of 1934, and any requirements of the Securities and Exchange Commission, in connection with the Annual Report of FORD MOTOR COMPANY on Form 10-K for the year ended December 31, 1997 and any and all amendments thereto, as authorized at a meeting of the Board of Directors of FORD MOTOR COMPANY held on March 12, 1998, including, but not limited to, power and authority to sign his or her name (whether on behalf of FORD MOTOR COMPANY, or as a director, officer or employee of FORD MOTOR COMPANY, or by attesting the seal of FORD MOTOR COMPANY, or otherwise) to such instruments and to such Annual Report and any amendments thereto, and to file them with the Securities and Exchange Commission. The undersigned ratifies and confirms all that any of the attorneys and agents shall do or cause to be done by virtue hereof. Any one of the attorneys and agents shall have, and may exercise, all the powers conferred by this instrument. Each of the undersigned has signed his or her name as of the 12th day of March, 1998. /s/Alex Trotman /s/Michael D. Dingman - ---------------------------- ----------------------------- (Alex Trotman) (Michael D. Dingman) /s/Edsel B. Ford II /s/William Clay Ford - ---------------------------- ----------------------------- (Edsel B. Ford II) (William Clay Ford) /s/William Clay Ford, Jr. /s/Irvine O. Hockaday, Jr. - ---------------------------- ----------------------------- (William Clay Ford, Jr.) (Irvine O. Hockaday, Jr.) /s/Marie-Josee Kravis /s/Ellen R. Marram - ---------------------------- ------------------------------ (Marie-Josee Kravis) (Ellen R. Marram) /s/Homer A. Neal /s/Carl E. Reichardt - ---------------------------- ------------------------------- (Homer A. Neal) (Carl E. Reichardt) /s/John L. Thornton /s/John M. Devine - ---------------------------- ------------------------------- (John L. Thornton) (John M. Devine) /s/William J. Cosgrove - ---------------------------- (William J. Cosgrove) -----END PRIVACY-ENHANCED MESSAGE-----