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 (Fee Required)
For the fiscal year ended December 31, 1995
-----------------
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)
Registrant's telephone number, including area code: 313-322-3000
------------
Securities registered pursuant to Section 12(b) of the Act:
_____________
(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 A Cumulative Convertible Preferred Stock, par value $1.00
per share, with an annual dividend rate of $4,200 per share and a
liquidation preference of $50,000 per share.
Series B Cumulative Preferred Stock, par value $1.00 per share,
with an annual dividend rate of $4,125 per share and a liquidation
preference of $50,000 per share.
Indicate by check mark whether the Registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
------ ------
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
-------
As of February 1, 1996, the Registrant had outstanding
1,097,956,189 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 ($30-
1/2 a share), the aggregate market value of such Common Stock was
$33,487,663,764.50. 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 1, 1996 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 9, 1996 (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 second-largest producer
of cars and trucks in the world, and ranks among the largest
providers of financial services in the United States.
General
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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
insurance operations. These activities are conducted through the
Company's subsidiaries, Ford FSG, Inc. ("FFSGI"), Ford Holdings,
Inc. ("Ford Holdings"), The Hertz Corporation ("Hertz") and Granite
Management Corporation ("Granite"). FFSGI is a holding company
that owns primarily Ford Motor Credit Company ("Ford Credit"), a
majority of Ford Credit Europe plc ("Ford Credit Europe"), and
Associates First Capital Corporation ("The Associates"). Ford
Holdings is a holding company that owns primarily a portion of
FFSGI and all of USL Capital Corporation ("USL Capital") and The
American Road Insurance Company ("American Road").
See Note 17 of 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 and,
in any year, 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, and 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 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 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 with
relatively small changes in unit volume.
Ford has operations in over 30 countries and sells vehicles in
over 200 markets. These businesses frequently have foreign
currency exposures when they buy, sell, and finance in currencies
other than their local currencies. Ford's primary foreign currency
exposures, in terms of net corporate exposure, are in the German
Mark, Japanese Yen, Italian Lira and French Franc. The effect of
changes in exchange rates on income depends largely on the
relationship between revenues and costs incurred in the local
currency versus other currencies. Historically, the effect of
changes in exchange rates on Ford's earnings generally has been
small relative to other factors that also affect earnings (such as
unit sales).
United States
-------------
Sales Data. The following table shows U.S. industry demand
for the years indicated:
-2-
Item 1. Business (Continued)
---------------------------
Ford classifies cars by small, middle, large and luxury
segments and trucks by compact pickup, compact van/utility, full-
size pickup, full-size van/utility and medium/heavy segments. The
large and luxury car segments and the compact van/utility, full-
size pickup and full-size van/utility truck segments include the industry's
most profitable vehicle lines. 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:
As shown in the tables above, since 1991 there has been a
significant 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 middle, large
and luxury segments for Ford and increased sales of trucks in the
compact van/utility (e.g., Windstar and Explorer) and full-size
pickup segments for both the industry and Ford. The increased
sales of full-size pickups reflects the increased use of such
vehicles for personal (rather than commercial) purposes.
-3-
Item 1. Business (Continued)
---------------------------
Market Share Data. The following tables show changes in car
and truck market shares of United States and foreign-based
manufacturers for the years indicated:
__________________________
* 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 U.S. 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 25.5% in 1991 to 22.6% in 1995,
reflecting in part the effects of the strengthening of the Japanese
yen on the prices of vehicles produced by the Japanese
manufacturers, the overall market shift from cars to trucks and
improvements in the vehicles produced by U.S. 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, the significant growth of Japanese car
sales in the U.S. and international trade considerations. In
response to the strengthening of the Japanese yen to the U.S.
dollar, Japanese manufacturers are continuing to add production
capacity (particularly in the profitable truck segments) in the
United States. Production in the U.S. by Japanese transplants
reached about 2.3 million units in 1995 and is expected to increase
gradually over the next several years.
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 U.S. 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 exist.
Ford's marketing costs in North America as a percentage of
gross sales revenue for each of 1995, 1994, and 1993 were: 7.5%,
7.3%, and 8.7%, respectively. During the 1983-1988 period, such
costs as a percentage of sales revenue were in the 3% to 5% range.
In 1991, marketing costs peaked at 12% of gross revenues.
"Marketing costs" include (i) marketing incentives such as retail
rebates and special financing rates, (ii) reserves for residual
guaranties 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.
Sales by Ford to fleet customers were as follows for the years
indicated:
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 Coverages. In recent years, due to competitive
pressures, vehicle manufacturers have both expanded the coverages
and extended the terms of warranties on vehicles sold in the U.S.
Ford presently provides warranty coverage for defects in factory-
supplied materials and workmanship on all vehicles sold by it in
the U.S. 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.
Different warranty coverages are provided on vehicles sold outside
the U.S. 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 vehicles sold
in the U.S. As a result of these coverages 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.
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 16% 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 10.9% for 1995, increase their
production capacity in Europe and import restrictions on Japanese
built-up vehicles gradually are removed in total by December 31,
1999.
In 1995, European car industry sales were 11.8 million cars,
equal to 1994 levels. Truck sales were 1.6 million units, up 7%
from 1994 levels. Ford's European car share for 1995 was 11.9%, the
same as 1994, and its European truck share for 1995 was a record
14.8%, compared with 14.7% for 1994.
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 1995 compared with 1994, total industry
sales were up 1% in Great Britain and up 3% in Germany.
Other Foreign Markets
---------------------
Mexico and Canada. Mexico and Canada also are important
markets for Ford. Generally, industry conditions in Canada closely
follow conditions in the U.S. market. In 1995, industry sales of
cars and trucks in Canada were down 7% from 1994 levels, somewhat
worse than the decrease of 2% in the U.S. over the same period.
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.
Although the long-term outlook remains positive, industry volume
was down 62% in 1995. Ongoing financial effects on Ford of the
devaluation are expected to be unfavorable; the magnitude of these
effects will be dependent in large part upon overall economic conditions.
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. In 1995 , Ford's results in
the region declined compared with 1994. The decrease reflected
primarily losses for operations in Brazil, where higher import
duties and a market shift to small cars resulted in excess dealer
inventories and higher marketing costs. The lower results are
expected to continue into 1996. The Company is reestablishing
manufacturing capacity in Brazil for small cars, which should
assist in improving the Company's competitiveness in this region
longer term. Industry sales in 1995, compared with 1994, were up
19% in Brazil but down 35% in Argentina. Ford's future results in
the region largely will be dependent on the political and economic
environments in Brazil and Argentina, which historically have been
unpredictable and are expected to continue to be volatile and
subject to rapid change.
In November 1995, Ford and Volkswagen AG dissolved their
Autolatina joint venture in Brazil and Argentina. See Item 7.
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" for more information concerning the effects
of this dissolution.
Item 1. Business (Continued)
---------------------------
Asia Pacific. In the Asia Pacific region, Australia, Taiwan
and Japan are the principal markets for Ford products. In 1995,
Ford was the market share leader in Australia with a 21.5% combined
car and truck market share. In Taiwan (where sales of built-up
vehicles manufactured in Japan are prohibited), Ford was the market
share leader with a combined car and truck market share in 1995 of
18.9%. 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.
The Asia Pacific region offers many important opportunities
for the future. Ford believes that China is strategically
important to its long-term success in the Asia Pacific region. In
1995, Ford purchased a 20% equity interest in a Chinese light truck
manufacturer, Jiangling Motors Corporation, Ltd.; established a
wholly owned holding company in Beijing; and invested in an
aluminum radiator joint venture in China, in addition to the
previously established automotive component manufacturing joint
ventures in China (automotive interior trim, automotive glass and
automotive electronic/audio components). In late 1995, Ford
established a joint venture in Thailand with Mazda Motor
Corporation ("Mazda") to manufacture pickup trucks designed by
Mazda. In 1994, Ford purchased a 6.5% equity interest in Mahindra
and Mahindra Limited ("Mahindra"), an automotive and tractor
manufacturer in India. In 1995, Ford received governmental
approval to invest in an automobile manufacturing joint venture in
India with Mahindra. Ford is continuing to investigate additional
automotive component manufacturing and vehicle assembly
opportunities in those markets as well as others. In addition, Ford
is expanding the number of right-hand-drive vehicles it will offer
in Japan, including the Explorer and Taurus models.
Africa. In late 1994, Ford re-entered the South African
market by acquiring a 45% equity interest in South African Motor
Corporation (Pty.) Limited ("SAMCOR"). SAMCOR is an assembler of
Ford and other manufacturers' vehicles in South Africa.
Financial Services Operations
-----------------------------
Ford Holdings, Inc. and Ford FSG, Inc.
--------------------------------------
Ford Holdings was incorporated in 1989 for the principal
purpose of acquiring, owning and managing certain assets of Ford.
In December 1995, Ford Holdings merged with Ford Holdings Capital
Corporation, a wholly owned subsidiary of Ford Holdings, which
resulted in the cancellation of all of the voting preferred stock
of Ford Holdings. All of the outstanding common stock of Ford
Holdings, representing 100% of the voting power in Ford Holdings,
is owned beneficially by Ford.
In late 1995, Ford began a reorganization of its Financial
Services group in order to align more closely under a single
subsidiary legal ownership of the Financial Services affiliates
with management responsibility for such affiliates. As part of the
reorganization, Ford Holdings formed FFSGI to own primarily all of
the Financial Services affiliates. At the time, 55% of the common
stock of Ford Holdings was owned by Ford and 45% was owned by Ford
Credit.
After the formation of FFSGI, Ford Holdings contributed its
interest in The Associates to FFSGI in exchange for 100% of the
common stock of FFSGI and the assumption by FFSGI of certain debt
of Ford Holdings. Thereafter, Ford contributed to FFSGI all of its
interest in Ford Credit Europe. In exchange for this contribution,
Ford received a class of common stock in FFSGI that has controlling
voting power of FFSGI but otherwise is equal to all other common
stock of FFSGI as to the payment of dividends, etc. (the "Class F
Stock"). In February 1996, substantially all of the shares of Ford
Holdings common stock owned by Ford Credit were repurchased by Ford
Holdings in exchange for the issuance of a promissory note by Ford
Holdings. Thereafter, Ford contributed to FFSGI all of its
interest in Ford Credit in exchange for additional shares of Class
F Stock of FFSGI. In addition, Ford will contribute to FFSGI
certain of its international Financial Services affiliates managed
by Ford Credit in exchange for additional stock in FFSGI.
-7-
Item 1. Business (Continued)
---------------------------
It is also expected that Ford Holdings will contribute American
Road to FFSGI, which in turn is expected to contribute it to Ford
Credit. The percentages of economic interests of FFSGI held by
Ford and Ford Holdings are based on the relative value of the
entities contributed to FFSGI by Ford and Ford Holdings.
Currently, those percentages are approximately 78% for Ford and 22%
for Ford Holdings.
On February 9, 1996, The Associates filed a registration
statement with the Securities and Exchange Commission for an
initial public offering of its common stock representing up to a
19.8% economic interest in The Associates (the "IPO").
Substantially all of the net proceeds from the IPO are expected to
be used to repay indebtedness of The Associates, which will be
incurred to repay an intercompany debt owed to FFSGI in the amount
of $1.75 billion. Prior to completion of the IPO, Ford expects to
contribute to The Associates certain international affiliates owned
by Ford but managed by The Associates. Also, as announced by Ford
in the fourth quarter of 1995, Ford is investigating the sale of
all or a part of USL Capital.
Ford Motor Credit Company
-------------------------
Ford Credit is a wholly owned subsidiary of FFSGI. It
provides wholesale financing and capital loans to franchised Ford
dealers and other dealers associated with such franchisees and
purchases 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 dealers. In
addition, a wholly owned subsidiary of Ford Credit provides these
financing services in the U.S. and Canada to other vehicle dealers.
More than 80% of all new vehicles financed by Ford Credit are
manufactured by Ford or its affiliates. In addition to vehicle
financing, Ford Credit makes loans to affiliates of Ford, finances
certain receivables of Ford and its subsidiaries and offers
diversified financing services which are managed by USL Capital, a
wholly owned subsidiary of Ford Holdings. Ford Credit also manages
the activities of a number of international credit affiliates of
Ford and FFSGI. In addition, it is expected that Ford Credit will
become the owner of American Road, an insurance company discussed
further below. Currently, Ford Credit manages the activities of American
Road.
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 during each of the past five years:
___________________
* As a percentage of total sales and leases, including cash sales.
-8-
Item 1. Business (Continued)
---------------------------
Ford Credit's finance receivables and investments in operating
leases were as follows at the dates indicated (in millions):
Installments on finance receivables, including interest, past-due 60
days or more and the aggregate receivable balances related to such
past-due installments were as follows at the dates indicated (in millions):
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 (dollar amounts in millions):
-9-
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):
Ford Credit relies heavily on its ability to raise substantial
amounts of funds. These funds are obtained primarily by sales of
commercial paper and issuance of term debt. 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 by Ford Credit
under Ford-sponsored special financing or leasing programs, and the
timing of payments for the financing of dealers' wholesale
inventories and for income taxes. Ford Credit's ability to obtain
funds is affected by its debt 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-backed facilities.
The long-term senior debt of Ford and Ford Credit is rated
"A1" and "A+" and Ford Credit's commercial paper is rated "Prime-1"
and "A-1" by Moody's Investors Service, Inc. and Standard & Poor's
Ratings Group, respectively.
Ford and Ford Credit have a profit maintenance agreement which
provides for payments by Ford to the extent required to maintain
Ford Credit's earnings at specified minimum levels. No payments
were required under the agreement during the period 1988 through
1995.
Ford Credit Europe plc
----------------------
In 1993, most of the European credit operations of Ford, which generally
had been organized as subsidiaries of the respective automotive affiliates of
Ford throughout Europe, were consolidated into a single company, Ford Credit
Europe. Ford Credit Europe, which was originally incorporated in 1963 in
England as a private limited company, is now owned by FFSGI and Ford Werke
AG. 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. The business of Ford Credit Europe is substantially dependent
upon Ford's automotive operations in Europe. Ford Credit Europe issues
commercial paper, certificates of deposit and term debt to fund its credit
operations. One of the purposes of the consolidation described above is to
facilitate Ford Credit Europe's access to public debt markets. Ford Credit
Europe's ability to obtain funds in these markets is affected by its credit
ratings, which are closely related to the financial condition of and outlook
for Ford.
-10-
Item 1. Business (Continued)
---------------------------
Ford Credit Europe's finance receivables and investments in operating
leases were as follows at the dates indicated (in millions):
An analysis of Ford Credit Europe's allowance for credit losses
in finance receivables and operating leases is as follows for the years
indicated (in millions):
==== ==== ====
___________________________
* The reported amounts reflect primarily foreign currency
translation adjustments.
Associates First Capital Corporation
------------------------------------
The Associates conducts its operations primarily through its
principal operating subsidiary, Associates Corporation of North
America. The Associates' primary business activities are consumer
finance and commercial finance. The consumer finance operation
invests in home equity, personal lending and sales finance
receivables, and credit card receivables primarily through a wholly
owned credit card bank, in addition to providing financing in the
foregoing areas and in manufactured housing. The commercial
finance operation is principally engaged in financing and leasing
transportation and industrial equipment, and providing other
services, including automobile fleet leasing and management,
relocation services and automobile club and roadside assistance
services. The Associates has an insurance operation which
underwrites credit life, credit accident and health, property,
casualty and accidental death and dismemberment insurance,
principally for customers of the finance operations. Such
insurance activity is conducted by The Associates' licensed
insurance agents and is managed as a separate activity. Insurance
sales are dependent on the business activities and volumes of the
consumer and commercial business. As mentioned above, The
Associates has filed a registration statement with the Securities
and Exchange Commission for an initial public offering of its
common stock representing up to a 19.8% economic interest in The
Associates.
-11-
Item 1. Business (Continued)
---------------------------
The Associates' net finance receivables were as follows at the
dates indicated (in millions):
Credit loss experience, net of recoveries, of The Associates'
finance business was as follows for the years indicated (dollar
amounts in millions):
The following table shows total gross balances contractually
delinquent sixty days and more by type of business at the dates
indicated (dollar amounts in millions):
-12-
Item 1. Business (Continued)
---------------------------
An analysis of The Associates' allowance for losses on finance
receivables is as follows for the years indicated (in millions):
USL Capital Corporation
------------------------
USL Capital, a diversified commercial leasing and financing
organization, originally incorporated in 1956, was acquired by Ford
in 1987 and was transferred to Ford Holdings in 1989. The primary
operations of USL Capital include the leasing, financing, and
management of office, manufacturing and other general-purpose
business equipment; commercial fleets of automobiles, vans, and
trucks; large-balance transportation equipment (principally
commercial aircraft, rail, and marine equipment); industrial and
energy facilities; and essential-use equipment for state and local
governments. It also provides intermediate-term,
first-mortgage loans on commercial properties and invests in
corporate preferred stock and senior and subordinated debt
instruments. Certain of these financing transactions are
underwritten by Ford Credit. As mentioned above, Ford is
considering the sale of all or a part of USL Capital.
The following table sets forth certain information regarding
USL Capital's earning assets, credit losses, and delinquent
accounts at the dates indicated (dollar amounts in millions):
The American Road Insurance Company
-----------------------------------
American Road was incorporated by Ford in 1959, became a
wholly owned subsidiary of Ford Credit in 1966, and was transferred
to Ford Holdings in 1989. It is expected that American Road will
be transferred back to Ford Credit as part of the reorganization of
the Financial Services group. The operations of American Road
consist primarily of underwriting floor plan insurance related to
substantially all new vehicle inventories of dealers financed at
wholesale by Ford Credit in the United States and Canada, credit
life and disability insurance in connection with retail vehicle
financing, and insurance related to retail contracts sold by
automobile dealers to cover vehicle repairs. In late 1995,
American Road agreed to sell all of its interest in Ford Life
Insurance Company ("Ford Life"), a wholly owned subsidiary of
American Road, to SunAmerica Inc. At the time of the sale, Ford
-13-
Item 1. Business (Continued)
---------------------------
Life's business consisted of offering deferred annuities sold
primarily through banks and brokerage firms; the non-annuities
portion of the business was transferred to another subsidiary of American Road
prior to the sale of Ford Life.
The following table summarizes the revenues and net income of
American Road (in millions):
The detail of premiums earned by American Road was as follows
(in millions):
The Hertz Corporation
---------------------
Hertz was incorporated in 1967 and is a successor to
corporations which were engaged in the automobile and truck leasing
and rental business since 1924. During 1994, Ford entered into
various transactions which resulted in Hertz becoming a wholly
owned subsidiary of Ford. Hertz, its affiliates and independent
licensees are engaged principally in the business of renting
automobiles and renting and leasing trucks, without drivers, in the
U.S. and in approximately 150 foreign countries. Collectively, they
operate what Hertz believes is the largest car rental business in
the world and one of the largest one-way truck rental businesses in
the U.S. In addition, through its wholly owned subsidiary, Hertz
Equipment Rental Corporation, Hertz operates what it believes to be
the largest business in the U.S. involving the rental, lease and
sale of construction and materials handling equipment. Other
activities of Hertz include the sale of its used vehicles; the
leasing of automobiles in Australia and New Zealand and in Europe
through an affiliate; and providing claim management and
telecommunications services in the U.S.
Revenue earning equipment is used in the rental of vehicles
and construction equipment and the leasing of vehicles under
closed-end leases where the disposition of the vehicles upon
termination of the lease is for the account of Hertz.
-14-
Item 1. Business (Continued)
---------------------------
The cost and accumulated depreciation of revenue earning
equipment were as follows for the nine months ended December 31,
1994 and the year ended December 31, 1995 (in millions):
Granite Management Corporation
------------------------------
Granite, a savings and loan holding company organized in
Delaware in 1959, was acquired by Ford in December 1985. Until
September 30, 1994, the principal asset of Granite was the capital
stock of First Nationwide Bank, A Federal Savings Bank, since known
as Granite Savings Bank (the "Bank"). On September 30, 1994,
substantially all of the assets of the Bank were sold to, and
substantially all of the liabilities of the Bank were assumed by,
First Madison Bank, FSB ("First Madison").
At the time of the sale, Ford retained, through Granite,
approximately $1.2 billion of commercial real estate and other
assets formerly owned by the Bank. These retained assets generally
were of lower quality than those included in the sale and will be
liquidated over time as market conditions permit. In addition, for
the three-year period ending in November 1996, First Madison has
the option of requiring Granite to repurchase up to $500 million of
the assets included in the sale that become nonperforming. This repurchase
obligation is guaranteed by Ford. Through December 31, 1995, approximately
$387 million of such assets had been repurchased by Granite. At December 31,
1995, approximately $875 million of Granite's assets remained unsold.
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 - United States Requirements.
As amended in November 1990, 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. In addition, the Act requires that
emissions equipment for vehicles sold in the U.S. have a minimum "useful
life" during which compliance with the applicable standards must be achieved.
Passenger cars, for example, must comply for 10 years or 100,000
miles, whichever first occurs. The Act prohibits, among other
things, the sale in or importation into the U.S. of any new motor
vehicle or engine which is not covered by a certificate of
conformity issued by the United States Environmental Protection
Agency (the "EPA").
The Act also may require production of certain new cars and
trucks capable of operating on clean alternative fuels under a
-15-
Item 1. Business (Continued)
---------------------------
pilot test program to be conducted in California beginning in the
1996 model year. Under this pilot program, each manufacturer will
be required to sell its pro rata share of 150,000 alternative fuel
vehicles in each of the 1996, 1997 and 1998 model years and its pro
rata share of 300,000 alternative fuel vehicles in each model year
thereafter. The Act also authorizes certain states to establish
programs to encourage the purchase of such vehicles. Since the Act
considers California's already adopted reformulated (i.e., cleaner
burning) gasoline to be an alternative fuel, most manufacturers
will be able to comply with this requirement in California by
selling vehicles certified to California standards.
Motor vehicle emissions standards even more stringent than
those presently in effect will become effective as early as the
2004 model year, unless the EPA determines that such standards are
not necessary, technologically feasible or cost-effective.
The Act authorizes California to establish unique emissions
control standards that, in the aggregate, are at least as stringent
as the federal standards if it secures the requisite waiver of
federal preemption from the EPA. The Health and Safety Code of the
State of California prohibits, among other things, the sale to an
ultimate purchaser who is a resident of or doing business in
California of a new motor vehicle or engine which is intended for
use or registration in that state which has not been certified by
the California Air Resources Board (the "CARB"). The CARB received
a waiver from the EPA for a series of passenger car and light truck
emissions standards (the "low emission vehicle", or "LEV",
standards), effective beginning between the 1994 and 2003
model years, that are significantly more stringent than
those prescribed by the Act for the corresponding periods of time.
These California standards are intended to promote the
development of various classes of low emission vehicles.
California also requires 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 February 1996, CARB issued a notice for eliminating
the ZEV mandate applicable before the 2003 model year. Final
action on the proposed rule change is expected at the March 1996
board meeting. If CARB eliminates the mandate, manufacturers have
volunteered to provide air quality benefits for California
equivalent to a 49 state program (i.e., providing vehicles
certified to California LEV emissions standards nationwide
beginning with the 2001 model year), to continue research and
development of EV 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
customer expectations or is commercially viable. Such vehicles
likely will run on lead-acid batteries with a limited range (well
under 100 miles per recharge in optimal conditions), have a long
recharge time (up to 8 hours), lack substantial infrastructure
support (home and public facilities for recharging) and have a
significant cost premium over conventional vehicles. The proposed
elimination of the ZEV mandate and the manufacturers' voluntary
program will better allow market forces to guide the introduction
of ZEVs into the market. If the mandate is not changed, compliance
may require manufacturers to offer substantial discounts on
electric vehicles, selling them well below cost, or increase the
price or curtail the sale of nonelectric vehicles.
The California LEV standards present significant technological
challenges to manufacturers and compliance may require costly
actions that would have a substantial adverse effect on Ford's
sales volume and profits.
The Act also permits other states which do not meet national
ambient air quality standards to adopt new motor vehicle emissions
standards identical to those adopted by California, if such states
lawfully adopt such standards two years before commencement of the
affected model year. Twelve northeastern states and the District
of Columbia organized under provisions of the Act into a group
known as the Ozone Transport Commission (the "OTC") and petitioned
the EPA to require California LEV standards in that region. There
are major problems with transferring California standards to the
Northeast - many dealers sell vehicles in neighboring states and
the 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 - the
absence of which makes the task of meeting standards even more
difficult. California LEV standards (including the ZEV
requirements) already have been adopted in New York and
Massachusetts. Connecticut also has adopted such standards, but
without the ZEV requirements.
-16-
Item 1. Business (Continued)
---------------------------
To mitigate these problems, the automobile industry proposed
to voluntarily meet emissions standards nationwide that are more
stringent than those required by the Act. The proposal was based
on using technology developed to meet the California LEV standards,
but adjusting for the absence of the California reformulated
gasoline and ZEV requirements. While there was a general
receptivity to the industry's proposal, some of the states are
insisting on either a ZEV mandate or a guarantee that "advanced
technology" vehicles will be sold in their states.
In December 1994, the EPA granted the OTC petition to impose
California LEV standards, while at the same time urging states and
manufacturers to agree on a national approach which the EPA
described as "environmentally superior" to the California
standards. The states will have until early 1996 to include in
their State Implementation Plans a California LEV program or an
acceptable alternative.
Under the Act, if the EPA determines that a substantial number
of any class or category of vehicles, although properly maintained
and used, do not conform to applicable emissions standards, a
manufacturer may be required to recall and remedy such
nonconformity at its expense. Further, if the EPA determines
through testing of production vehicles that emission control
performance requirements are not met, it can halt shipment of motor
vehicles of the configuration tested. California has similar, and
in some respects greater, authority to order manufacturers to
recall vehicles. Ford may be required to recall vehicles for such
purposes from time to time. In addition, as it has from time to
time in the past, Ford may voluntarily recall vehicles to fix
emissions-related concerns. 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 U.S.
Court of Appeals for the District of Columbia ordered the EPA to
grant such a waiver to Ethyl Corporation for the additive MMT, over
the objections of the EPA and U.S. automobile manufacturers,
including Ford. Ethyl Corporation can now market MMT for use in unleaded
gasoline. Ford and other manufacturers believe that the use of MMT
will impair the performance of current emissions systems and
onboard diagnostics systems. The introduction of MMT could
increase Ford's future warranty costs and necessitate changes in
the Company's warranties for emission control devices.
European Requirements. Council Directive 70/220/EEC (as
amended through Council Directive 94/12/EEC) and related European
legislation impose limits on the amount of regulated pollutants
that may be emitted by new motor vehicles and engines sold in the
European Union. Standards for vehicles homologated before January
1, 1996 are of generally equivalent stringency to 1983 model year
U.S. standards for gasoline powered vehicles and to 1987 model year
U.S. standards for diesel powered vehicles. All passenger cars
homologated from January 1, 1996 and all new passenger cars
registered from January 1, 1997 must comply with more stringent
standards that are of generally equivalent stringency to 1994 model
year U.S. standards. Similarly, new more stringent standards for
light duty trucks ("LDTs") have been proposed but not yet finally
enacted by the European Union. These would apply to passenger-car
derived LDTs from January 1, 1997 for new homologations and
October 1, 1997 for new registrations and would apply to other
classes of LDTs from January 1, 1998 for new homologations and
October 1, 1998 for new registrations. The European Commission is
presently preparing proposals for even more stringent emissions
standards and for new enforcement procedures for both passenger
cars and trucks (the "Stage III Directive"). It is proposed that
the Stage III Directive would become effective beginning in 2000
for new vehicle homologations and 2001 for new vehicle
registrations.
Certain European countries are conducting in-use emissions
testing to ascertain compliance of motor vehicles with applicable
emission standards. These actions could lead to recalls of
vehicles; the future costs of related inspection or repairs could
be substantial.
-17-
Item 1. Business (Continued)
---------------------------
Motor Vehicle Safety - Under the National Traffic and Motor
Vehicle Safety Act of 1966, as amended (the "Safety Act"), the
National Highway Traffic Safety Administration (the "Safety
Administration") is required to establish appropriate federal motor
vehicle safety standards that are practicable, meet the need for
motor vehicle safety and are stated in objective terms. The Safety
Act prohibits the sale in the United States of any new motor
vehicle or item of motor vehicle equipment that does not conform to
applicable federal motor vehicle safety standards. Compliance with
many safety standards is costly because doing so tends to conflict
with the need to reduce vehicle weight in order to meet stringent
emissions and fuel economy standards. The Safety Administration
also is required to make a determination on the basis of its
investigation whether motor vehicles or equipment contain defects
related to motor vehicle safety or fail to comply with applicable
safety standards and, generally, to require the manufacturer to
remedy any such condition at its own expense. The same obligation
is imposed on a manufacturer which learns that motor vehicles
manufactured by it contain a defect which the manufacturer decides
in good faith is related to motor vehicle safety. There currently
are pending before the Safety Administration a number of major
investigations relating to alleged safety defects or alleged
noncompliance with applicable safety standards in vehicles built,
imported or sold by Ford. The cost of recall programs to remedy
safety defects or noncompliance, should any be determined to exist
as a result of certain of such investigations, could be
substantial.
Canada, the European Union, individual member countries within
the European Union and other countries in Europe, Latin 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. The cost of complying with
these standards, as well as the cost of any recall programs to
remedy safety defects or noncompliance, could be substantial.
Motor Vehicle Fuel Economy - Passenger cars and trucks rated
at less than 8,500 pounds gross vehicle weight are required by
regulations issued by the Safety Administration pursuant to the
Motor Vehicle Information and Cost Savings Act (the "Cost Savings
Act") to meet separate minimum CAFE standards. Failure to meet the
CAFE standard in any model year, after taking into account all
available credits, would subject a manufacturer to the imposition
of a civil penalty of $5 for each one-tenth of a mile per gallon
("mpg") under the applicable standard multiplied by the number of
vehicles in the class (i.e., trucks, domestic cars, or imported
cars) produced in that model year. Each such class of vehicle may
earn credits either as a result of exceeding the standard in one or
more of the preceding three model years ("carryforward credits") or
pursuant to a plan, approved by the Safety Administration, under
which a manufacturer expects to exceed the standard in one or more
of the three succeeding model years ("carryback credits"), but
credits earned by a class may not be applied to any other class of
vehicles.
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 asserts it has the authority to amend to a level it
determines to be the "maximum feasible" level (considering the
following factors: technological feasibility, economic
practicality, the effect of other federal motor vehicle standards
on fuel economy, and the need of the nation to conserve energy).
Pursuant to the Cost Savings Act, the Safety Administration has
established a 20.7 mpg CAFE standard applicable to light trucks
(under 8,500 pounds gross vehicle weight on a combined two-wheel
drive/four-wheel drive basis) for model years 1996 and 1997 and has
proposed the same for 1998.
The EPA issued proposed regulations pursuant to the Clean Air
Act that would change the test procedures for measuring motor
vehicle emissions and fuel economy. If adopted without adequate adjustments,
these regulations may require costly measures to reduce tailpipe
emissions and to increase fuel economy.
Although Ford expects to be able to comply with the foregoing
CAFE standards, there are factors that could jeopardize its ability
to comply. These factors include the possibility of changes in
market conditions, including a shift in demand for larger vehicles
and a decline in demand for small and middle-size vehicles; or
-18-
Item 1. Business (Continued)
---------------------------
conversely, a shortage of reasonably priced gasoline resulting in
a decreased demand for more profitable vehicles and a corresponding
increase in demand for relatively less profitable vehicles.
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, using a combination of regulatory and
nonregulatory measures. The Safety Administration is considering
significant increases in the truck CAFE standard for the 1999 -
2006 model years that could be as high as 28 mpg by the 2006 model
year. If the CCAP 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 could find it necessary to
curtail or eliminate production of larger family-size and luxury
passenger 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 passenger cars and
light trucks.
International concerns over global warming due to the emission
of "greenhouse gasses" have given rise to strong pressures to
increase fuel economy of motor vehicles as a means of limiting
their emission of CO2. For example, the United Nations Climate
Change Convention held in Brazil in 1992 (the "U.N. Climate Change
Convention") sought to stabilize greenhouse gas emissions at 1990
levels by the year 2000. A subsequent meeting of the parties to
the U.N. Climate Change Convention in Berlin in March 1995 resulted
in an agreement to establish goals by 1997 for reductions in
greenhouse gas emissions after the year 2000.
In December 1994, the European Union Council of Environmental
Ministers directed the European Commission to develop proposals for
reducing CO2 emissions from passenger cars to 120 grams per
kilometer by 2005 (which equates to 5 liters consumed per 100
kilometers for gasoline engines and 4.5 liters consumed per 100
kilometers for diesel engines). Similar proposals have been made
within the European Parliament. In December 1995, the European
Commission issued a communication to the Council and the Parliament
proposing a package of potential measures for reducing CO2
emissions from passenger cars. These include fiscal measures
(taxes and incentives), fuel economy labeling, increased research
and development efforts, and a negotiated agreement with industry
for reduction in CO2 emissions from new cars of 25% from 1990
levels by 2005. The proposed agreement may also include
incremental targets and monitoring provisions for the years before
2005. Some of these proposals, if adopted, could require costly
actions that could have substantial adverse effects on Ford's sales
volumes and profits in Europe.
On March 23, 1995, the German Automobile Manufacturers
Association (of which Ford Werke A.G. is a member) undertook an
industry-wide voluntary agreement with the German government to
reduce the average fuel consumption of new cars sold in Germany by
25% from 1990 levels by 2005, 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. At the same
time, the German government undertook to improve traffic management
systems, eliminate infrastructure bottlenecks, integrate transport
modes, promote alternative fuels and improved drive systems, and
introduce an emission-based road tax system.
On January 26, 1996, French vehicle manufacturers made a
voluntary pledge to reduce the average fuel consumption of new
vehicles to a sales-weighted average of 150 grams of CO2 per
kilometer by 2005, to offer at least one vehicle that emits less
than 120 grams of CO2 per kilometer by 2005, to propose an
objective by 2000 for further reducing CO2 emissions by 2010, and
to promote alternative fuel technologies that result in reduced CO2
emissions. This pledge assumes a 50/50 mix of gasoline and diesel
engined vehicles, no change in the mix of vehicles by weight and
engine size class, no new regulatory requirement beyond those
forecast in 1995 for the year 2000, and that oil companies and tire
-19-
Item 1. Business (Continued)
---------------------------
producers will contribute to reduction in vehicle fuel consumption.
The pledge of the French vehicle manufacturers may create pressure
for similar pledges from automobile importers (such as Ford France
S.A.).
Other initiatives for reducing CO2 emissions from motor
vehicles may be proposed by other European countries. Taken
together such proposals could have substantial adverse effects on
Ford's sales volumes and profits in Europe.
Japan has adopted automobile fuel consumption goals that
manufacturers must attempt to achieve by the 2000 model year. The
consumption levels apply only to gasoline-powered vehicles, vary by vehicle
weight, and range from 5.8 km/I to 19.2 km/l. To achieve these
target fuel consumption levels for the vehicles Ford exports to Japan
may require costly actions that could have substantial adverse effects on
Ford's sales volume and profits in Japan.
The U.S. Energy Tax Act of 1978, as amended, imposes a federal
excise tax on automobiles which do not achieve prescribed fuel
economy levels. Additional legislative proposals could be
introduced that, if enacted, would increase excise taxes or create
economic disincentives to purchase any except the least fuel
consuming vehicles. Because of the uncertainties and variables
inherent in testing for fuel economy and the uncertain effect on
fuel economy of other government requirements, it is not possible
to predict the amount of excise tax, if any, which may be incurred.
Stationary Source Air Pollution Control - Pursuant to the
Clean Air Act the states are required to amend their implementation
plans to require more stringent limitations on the quantity of
pollutants which may be emitted into the atmosphere, and other
controls, to achieve national ambient air quality standards
established by the EPA. In addition, the Act requires reduced
emissions of substances that are classified as hazardous or that
contribute to acid deposition, imposes comprehensive permit
requirements for manufacturing facilities in addition to those
required by various states, and expands federal authority to impose
severe penalties and criminal sanctions. The Act requires the EPA
and the states to adopt regulations, and allows states to adopt
standards more stringent than those required by the Act. The costs
to comply with these provisions of the Act cannot presently be
quantified but could be substantial. In addition, the enormous
complexity and time-consuming nature of the comprehensive federal-
state permit program provided for by the Act may reduce operational
flexibility and may delay or prevent future competitive upgrading
of Ford's production facilities in the United States.
Water Pollution Control - Pursuant to the Federal Clean Water
Act (the "Clean Water Act"), Ford has been issued National
Pollutant Discharge Elimination System permits which establish
certain pollution control standards for its manufacturing
facilities that discharge wastewater into public waters. Ford,
among many other companies, also is required to comply with certain
standards and obtain permits relating to discharges into 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. These various requirements may necessitate the addition of
costly control equipment.
The EPA recently 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.
Hazardous 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. These regulations also require permits for
treatment, storage, and disposal facilities and corrective action
for prior releases at sites where permits are issued. The EPA has
delegated permit authority to states with programs equivalent to
-20-
Item 1. Business (Continued)
---------------------------
RCRA, and states may adopt even more extensive requirements. The
Federal Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended (the "Superfund Act"), requires
disclosure of certain releases from Ford facilities into the
environment, creates potential liability for remediation costs at
sites where Ford waste was disposed and for damage to natural
resources resulting from a release, and provides for citizens'
suits for failure to comply with final requirements of orders or
regulations. A number of states have enacted separate state 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 has banned production of polychlorinated biphenyls and
regulates their use in transformers, capacitors and other equipment
that may be located at Ford's facilities.
European Stationary Source Environmental Control - The
European Union by directives and regulations, and individual member
countries by legislation and regulations, 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.
Climate Change Convention - In response to the requirements of
the U.N. Climate Change Convention, national governments are
examining ways to reduce potential global warming risks. These
actions may restrict the use of certain chemicals that are used as
refrigerants (in vehicles and buildings), such as R-134a, and
cleaning solvents.
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. Also, vehicle safety is a priority with
customers in North America, Europe and key Asia-Pacific markets and
better global understanding of real-world accidents and injuries is
a competitive necessity.
The "traditional" and developed automotive markets have
developed their own bodies of regulation. Two sets of European
vehicle regulations overlay those of individual European countries:
1) European Union directives and regulations, which member
countries are obliged to implement; and 2) United Nations Economic
Commission for Europe (ECE) regulations, which member countries
have the option to implement. Although European Union directives
and regulations and ECE regulations generally are aligned (the
European Union directives cover about half of the 99 ECE
regulations), some variations exist in the manner in which they are
interpreted and enforced by each member country. The United States
and Canada use a substantially different regulatory system, and
Japan and Australia use a hybrid of the ECE system.
The ECE regulations are generally recognized outside the above
markets. Countries in the process of defining motor vehicle
regulations, such as China, India, Malaysia and Russia, are
adopting ECE (versus U.S.) regulations. As a result, U.S.-built
vehicles have to be modified for these markets.
The U.S. and Europe have so far shown limited willingness to
accept each other's regulations, and negotiations for acceptance of
U.S. regulations as being functionally equivalent to the ECE
standards in emerging markets have had limited success.
Pollution Control Costs - During the period 1996 through 2000,
Ford expects that approximately $700 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 $200 million will be spent in 1996 and
$150 million will be spent in 1997.
-21-
Item 1. Business (Continued)
---------------------------
Employment Data
---------------
In 1995, Ford's worldwide average employment increased to
346,990 from 337,728 in 1994. The increase in average employment
for 1995 resulted primarily from the full-year (versus partial-
year) inclusion of Hertz as a consolidated subsidiary. Worldwide
payrolls were $16.6 billion in 1995, an increase of $719 million
from 1994.
Average employment by geographic area in 1995 compared with
1994 levels was as follows:
-27-
Item 4A. Executive Officers of the Registrant (Continued)
--------------------------------------------------------
-28-
Item 4A. Executive Officers of the Registrant (Continued)
--------------------------------------------------------
Item 4A. Executive Officers of the Registrant (Continued)
--------------------------------------------------------
__________________
(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 Mr. Ross, have been
employed by the Registrant or its subsidiaries in one or more
capacities during the past five years. 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.
-30-
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters
------------------------------------------------------------
PART II
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 considering, however, the
withdrawal of its Common Stock from listing and registration on
certain of these foreign stock exchanges.
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 (in each
case, adjusted to reflect a 2-for-1 stock split in the form of a
100% stock dividend on Ford's Common and Class B Stock effective
June 6, 1994):
___________________________
* Prices reflect New York Stock Exchange Composite Transactions.
As of February 1, 1996, stockholders of record of Ford included
280,738 holders of Common Stock and 110 holders of Class B Stock.
Item 6. Selected Financial Data
---------------------------------
The following tables set forth selected financial data and other data
concerning Ford for each of the last ten years (dollar amounts in millions
except per share amounts):
-32-
_________________
d/ The cumulative effects of changes in accounting principles reduced equity
by $6,883 million in 1992.
e/ Per hour worked (in dollars). Excludes data for subsidiary companies.
-33-
-34-
Item 7. Managments's Discussion and Analysis of Financial Condition
and Results of Operations
-------------------------------------------------------------------
OVERVIEW
The Company's worldwide net income in 1995 was $4,139 million,
or $3.58 per share of Common and Class B stock, compared with
$5,308 million, or $4.97 per share in 1994. Fully diluted earnings
per share were $3.33 in 1995, compared with $4.44 a year ago. The
Company's worldwide sales and revenues were $137.1 billion in 1995,
up $8.7 billion, or 7% from 1994. Vehicle unit sales of cars and
trucks were 6,606,000, down 247,000 units, or 3.6%. Stockholders'
equity was $24.5 billion at December 31, 1995, up $2.9 billion from
December 31, 1994.
The Company's earnings in 1995 were down from 1994, a record
year, and reflected the effects of lower volumes in the U.S., costs
associated with introducing new products and lower earnings at
operations outside the U.S., primarily in Latin America. Earnings
from Financial Services operations were up $688 million compared
with 1994. The improvement reflected record earnings at Ford
Credit, The Associates, USL Capital and Hertz and the nonrecurrence
of a $440 million charge to net income in the first quarter of 1994
for the disposition of First Nationwide Bank.
In 1995, Automotive capital expenditures for new products and
facilities totaled $8.7 billion, up $366 million from 1994. Cash
and marketable securities of the Company's Automotive operations
were $12.4 billion at December 31, 1995, up $323 million from
December 31, 1994. Automotive debt at December 31, 1995 totaled
$7.3 billion, up $49 million from a year ago.
In 1994, the Company announced a reorganization of its
Automotive operations, called "Ford 2000." The reorganization is
a fundamental change intended to provide customers with a wider
array of vehicles in more markets, assure full competitiveness in
vehicle design, quality and value, and substantially reduce the
cost of operating Ford's automotive business. The new structure
reduces duplication of effort and facilitates best practices around
the world by merging Ford's North American Automotive Operations,
European Automotive Operations, and Automotive Components Group
into a single global organization, Ford Automotive Operations. The
new organization was implemented during 1995. The major operations
in Latin America and Asia Pacific will be integrated into Ford
Automotive Operations during 1996.
Ford is expanding its efforts in many new markets,
particularly in the Asia Pacific region including China, India and
Thailand. New market development encompasses a variety of business
arrangements to establish component manufacturing and vehicle
assembly capabilities. Entry into new markets is an integral part
of the Company's long-term strategy to improve its global
competitive position.
The Company's Financial Statements and Notes to Financial
Statements on pages FS-1 through FS-31, including the Report of
Independent Accountants, should be read as an integral part of this
review.
Fourth Quarter of 1995
----------------------
In the fourth quarter of 1995, the Company's worldwide net
income was $660 million, or $0.49 per share of Common and Class B
stock, compared with $1,569 million, or $1.47 per share in the
fourth quarter of 1994. Fully diluted earnings per share were
$0.48 in the fourth quarter of 1995, compared with $1.31 a year
ago.
Worldwide Automotive operations earned $16 million in the
fourth quarter of 1995, compared with $1,119 million a year ago.
U.S. Automotive operations earned $168 million in the fourth
quarter of 1995, compared with $745 million a year ago. The lower
results for U.S. Automotive operations reflected lower unit volume
and costs associated with introducing new products. Automotive
operations outside the U.S. incurred a loss of $152 million in the
fourth quarter of 1995, compared with earnings of $374 million a
year ago, reflecting primarily losses in Latin America and the
nonrecurrence of a one-time favorable effect from devaluation of
the Mexican Peso in 1994. Ford's European Automotive operations
incurred a loss of $48 million in the fourth quarter of 1995,
compared with a loss of $55 million a year ago.
-35-
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
-------------------------------------------------------------------
Financial Services operations earned a record $644 million in
the fourth quarter of 1995, compared with $450 million a year ago.
The improvement reflected primarily record earnings at Ford Credit,
The Associates, USL Capital and Hertz.
RESULTS OF OPERATIONS: 1995 COMPARED WITH 1994
Automotive Operations
---------------------
Ford's worldwide Automotive operations earned $2,056 million
in 1995 on sales of $110.5 billion, compared with $3,913 million in
1994 on sales of $107.1 billion.
In the U.S., Ford's Automotive operations earned
$1,843 million on sales of $73.9 billion, compared with
$3,002 million in 1994 on sales of $73.7 billion. The decline in
earnings reflected primarily lower unit volume (reflecting
nonrecurrence of a dealer inventory increase in 1994 and lower
industry sales) and costs associated with introducing new products
(mainly the all-new Taurus, Sable and F-150 pickup truck). U.S.
Automotive after-tax return on sales was 2.5% in 1995, down 1.6
points from a year ago. It is expected that results in the first
half of 1996 will continue to be affected adversely by costs
associated with introducing new products (the F-150 pickup truck,
Escort and Tracer).
The U.S. economy grew at a moderate rate in 1995 with interest
rates and inflation at comparatively low levels. U.S. car and
truck industry volumes, however, decreased from 15.4 million units
in 1994 to 15.1 million units in 1995. Most of the decrease in
industry sales was attributable to cars. Ford's share of the U.S.
car market was 20.9%, down 9/10 of a point from 1994. Ford's U.S.
truck share was 31.9%, up 1.8 points from 1994. Ford's combined
U.S. car and truck share was 25.6%, up 4/10 of a point from 1994.
The increase in share reflected primarily higher sales of the
Explorer and F-Series trucks, offset partially by lower sales of
specialty vehicles and lower availability of the Taurus and Sable
due to model changeover.
Outside the U.S., Automotive operations earned $213 million in
1995 on sales of $36.6 billion, compared with $911 million in 1994
on sales of $33.4 billion. The decline reflected primarily lower
results in Latin America.
Ford's European Automotive operations earned $116 million in
1995, compared with $128 million in 1994. The decline reflected
primarily costs associated with introducing new products (the all-
new Galaxy minivan and Fiesta) and the unfavorable effect of
foreign exchange rate changes.
Car and truck industry sales in Europe were 13.4 million units
in 1995, compared with 13.3 million units in 1994. Ford's share of
the European car market was 11.9%, equal to a year ago. Ford's
European truck share was 14.8%, up 1/10 of a point from 1994.
Ford's combined European car and truck share was 12.3%, up 1/10 of
a point from 1994.
Outside the U.S. and Europe, Ford earned $97 million in 1995,
compared with $783 million in 1994. About half of the decrease
reflected primarily unfavorable results for operations in Brazil,
where higher import duties and a market shift to small cars
resulted in excess dealer inventories and higher marketing costs.
These conditions are expected to continue into 1996; business
conditions have been and are expected to continue to be volatile
and subject to rapid change, which can affect Ford's future
earnings. These factors were offset partially in 1995 by a one-
time gain from the dissolution of Ford's Autolatina joint venture
(discussed below). The decline in earnings outside the U.S. and
Europe also reflected the nonrecurrence of a one-time favorable
effect for devaluation of the Mexican Peso in 1994 and lower
results in Argentina.
-36-
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
-------------------------------------------------------------------
During the fourth quarter of 1995, the Company's Autolatina
joint venture in Brazil and Argentina with Volkswagen AG was
dissolved. The dissolution resulted in a gain of $230 million,
primarily from a one-time cash compensation payment to Ford.
Historically, earnings in Brazil and Argentina have represented a
significant portion of Ford's Automotive earnings outside the U.S.
and Europe. The long-term effect, if any, of the dissolution of
Autolatina on the Company's future results will depend on Ford's
ability to compete on its own in these markets. The Company is
reestablishing manufacturing capacity in Brazil for small cars,
which should assist in improving Ford's competitiveness.
Financial Services Operations
-----------------------------
The Company's Financial Services operations earned a record
$2,083 million in 1995, up $688 million from 1994. The improvement
reflected record earnings at Ford Credit, The Associates, USL
Capital and Hertz and the nonrecurrence of a $440 million charge to
net income in the first quarter of 1994 for the disposition of
First Nationwide Bank.
Ford Credit's consolidated net income was a record
$1,395 million in 1995, up $82 million from 1994. The improvement
reflected primarily higher levels of earning assets, favorable tax
adjustments and improved cost performance, offset partially by
lower net interest margins and higher credit losses. Depreciation
costs increased as a result of continued growth in operating
leases; the related lease revenues more than offset the increased
depreciation. Ford Credit's results for 1995 included $255 million
from equity in the net income of affiliated companies, primarily
Ford Holdings, compared with $233 million a year ago. Ford
Holdings is a holding company which, through December 1995, owned
primarily The Associates, USL Capital and American Road. The
international operations managed by Ford Credit, but not included
in its consolidated results, earned $265 million in 1995, up
$24 million from 1994, reflecting primarily higher levels of
earning assets, offset partially by lower net interest margins.
The Associates earned a record $632 million in the U.S. in
1995, up $84 million from 1994. The increase reflected higher
levels of earning assets and improved net interest margins. The
international operations managed by The Associates, but not
included in its consolidated results, earned $114 million in 1995,
up $38 million from 1994.
USL Capital earned a record $135 million in 1995, up
$26 million from 1994. The improvement resulted primarily from
higher levels of earning assets, higher gains on asset sales and
lower operating costs. Hertz earned a record $105 million in 1995,
up $13 million from 1994. The increase reflected primarily higher
volume in construction equipment rentals and sales, offset
partially by increased depreciation and borrowing costs. American
Road earned $28 million in 1995, down $30 million from 1994. The
decline reflected primarily the nonrecurrence of prior year tax
adjustments and a loss on disposition of the annuity business.
In December 1995, Ford Holdings merged with Ford Holdings
Capital Corporation, a subsidiary of Ford Holdings, which resulted
in the cancellation of the voting preferred stock of Ford Holdings
in exchange for payment by Ford Holdings of the liquidation
preference of the stock plus accrued dividends (totaling about $2
billion). Ford Holdings funded the payment to the holders of the
preferred stock, which occurred in January 1996, primarily with
bank loans.
In late 1995, Ford began a reorganization of its Financial
Services group in order to align management responsibility more
closely with the legal ownership of the Financial Services
affiliates. As part of this reorganization, substantially all of
the common stock of Ford Holdings owned by Ford Credit was
repurchased by Ford Holdings in exchange for a promissory note.
-37-
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
-------------------------------------------------------------------
Also, in February 1996, The Associates filed a registration
statement with the Securities and Exchange Commission for an
initial public offering of its common stock representing up to a
19.8% economic interest in The Associates. As previously
announced, Ford is investigating the sale of all or a part of USL
Capital. A fuller description of the reorganization is provided in
Item 1. "Business - Financial Services Operations - Ford Holdings,
Inc. and Ford FSG, Inc."
HISTORICAL REFERENCE: 1994 COMPARED WITH 1993
The Company's worldwide net income in 1994 was a record
$5,308 million, or $4.97 per share of Common and Class B stock,
compared with $2,529 million, or $2.27 per share in 1993. Fully
diluted earnings per share were $4.44, compared with $2.10 a year
ago. Sales and revenues totaled $128.4 billion in 1994, up 18%
from 1993. Vehicle unit sales of cars and trucks were 6,853,000,
up 669,000 units, or 11%.
On June 6, 1994, a 2-for-1 stock split in the form of a 100%
stock dividend on the Company's outstanding Common and Class B
stock became effective. Earnings per share for prior periods were
restated to reflect the stock split.
The Company's financial results in 1994 showed substantial
improvement compared with 1993. Improvements in U.S. Automotive
operations included the favorable effects of higher industry volume
and improved margins. Automotive operations outside the U.S. also
improved. The improvement reflected primarily higher unit volume,
lower manufacturing costs and improved margins in Europe. Earnings
from Financial Services operations were down $126 million compared
with 1993, which was more than explained by a $440 million write-
off for the disposition of First Nationwide Bank (discussed below).
The write-off was offset largely by substantially improved earnings
at the other operations.
Automotive Operations
---------------------
Net income from Ford's worldwide Automotive operations was
$3,913 million in 1994 on sales of $107.1 billion, compared with
$1,008 million in 1993 on sales of $91.6 billion.
In the U.S., Ford's Automotive operations earned
$3,002 million on sales of $73.7 billion, compared with $1,442
million in 1993 on sales of $62.1 billion. Higher vehicle
production, reflecting increased industry sales, accounted for most
of the improvement. Improved margins, reflecting mainly favorable
material costs, manufacturing efficiencies, and lower marketing
costs, were offset partially by higher costs for new products and
related facilities. Results in 1993 included the one-time
favorable effect of tax legislation ($171 million) for the
restatement of U.S. deferred tax balances, and the gain on the sale
of Ford's North American automotive seating and seat trim business
($73 million).
The U.S. economy grew at an above-trend rate in 1994, and
interest rates and inflation remained at comparatively low levels.
U.S. car and truck industry volumes increased from 14.2 million
units in 1993 to 15.4 million units in 1994. Over 70% of the
increase in industry sales was attributable to trucks (including
minivans, compact utility vehicles, full-size pickups and compact
pickups). Ford's share of the U.S. car market was 21.8%, down half
of a point from 1993, reflecting lower shares for the Tempo and
Topaz, which were discontinued in 1994. The Company's U.S. truck
share was 30.1%, down 4/10 of a point from 1993, reflecting
capacity constraints on the Explorer.
Outside the U.S., Ford's Automotive operations earned
$911 million in 1994 on sales of $33.4 billion, compared with a
loss of $434 million in 1993 on sales of $29.5 billion. The
improvement reflected primarily higher unit volumes, lower
manufacturing costs and improved margins in Europe. Ford's
European Automotive operations earned $128 million in 1994,
compared with a loss of $873 million in 1993. Results outside the
U.S. in 1993 included restructuring charges at Jaguar
($174 million) and at Ford of Australia ($57 million), offset
partially by the favorable one-time effect of a reduction in German
tax rates ($59 million).
-38-
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
-------------------------------------------------------------------
Car and truck industry sales in Europe were 13.3 million units
in 1994, compared with 12.6 million units in 1993. Ford's European
car market share was 11.9% in 1994, up 3/10 of a point from 1993.
Ford's European truck share improved 2/10 of a point to 14.7%.
Financial Services Operations
-----------------------------
The Company's Financial Services operations earned
$1,395 million in 1994, down $126 million from 1993. The decline
was more than explained by the charge to net income of $440 million
in 1994 related to the disposition of First Nationwide Bank. This
charge, however, was offset largely by record earnings at Ford
Credit, The Associates and USL Capital, and the consolidation of
results for Hertz. Results in 1993 included an unfavorable one-
time effect of $31 million from tax legislation in the U.S.
Ford Credit's consolidated net income was a record
$1,313 million in 1994, up $119 million from 1993. The improvement
reflected primarily higher levels of earning assets, the one-time
effect of the gain on sale of an interest in Manheim Auctions, Inc.
(an auto auction company), the nonrecurrence of the one-time tax
adjustment in 1993 for increased U.S. tax rates, and improved cost
performance; partial offsets included lower net interest margins
and lower gains from the sale of receivables. Ford Credit's
results in 1994 included $233 million from equity in the net income
of affiliated companies, primarily Ford Holdings, compared with
$198 million a year ago. Depreciation costs increased as a result
of continued growth in operating leases; the related lease revenues
more than offset the increased depreciation. The international
operations managed by Ford Credit, but not included in its
consolidated results, earned $241 million in 1994, up $42 million
from 1993, reflecting primarily higher levels of earning assets and
lower credit losses.
The Associates earned a record $548 million in the U.S. in
1994, up $78 million from 1993. The increase reflected higher
levels of earning assets and improved net interest margins. The
international operations managed by The Associates, but not
included in its consolidated results, earned $76 million in 1994,
up $38 million from 1993, reflecting primarily higher levels of
earning assets.
USL Capital earned a record $109 million in 1994, up
$32 million from 1993. The increase reflected higher earning
assets, lower operating costs and the nonrecurrence of the one-time
tax adjustment in 1993 for increased U.S. tax rates. American
Road earned $58 million in 1994, compared with $79 million in 1993.
The decline reflected primarily reduced investment income from
capital gains.
In April 1994, Hertz became a wholly owned subsidiary of Ford.
In 1994, Financial Services net income included $92 million for
Hertz. In 1993, Automotive net income included $26 million for
Hertz (reflecting Ford's prior equity interest).
On September 30, 1994, substantially all of the assets of
First Nationwide Bank, since known as Granite Savings Bank (the
"Bank"), were sold to, and substantially all of the Bank's
liabilities were assumed by, First Madison Bank, FSB. The Bank is
a wholly owned subsidiary of Granite Management Corporation
(formerly First Nationwide Financial Corporation) ("Granite"),
which in turn is a wholly owned subsidiary of Ford. In 1994,
Granite incurred a loss of $484 million including a charge of
$440 million related to the disposition of the Bank, reflecting the
nonrecovery of goodwill and reserves for estimated losses on assets
not included in the sale. Granite incurred a loss of $55 million
in 1993.
-39-
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
-------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
Automotive Operations
---------------------
Cash and marketable securities of the Company's Automotive
operations were $12.4 billion at December 31, 1995, up $323 million
from December 31, 1994. The Company paid $1.6 billion in cash
dividends on its Common Stock, Class B Stock and Preferred Stock
during 1995.
Automotive capital expenditures were $8.7 billion in 1995, up
$366 million from 1994. During the next several years, Ford's
spending for product change is expected to be at similar levels;
however, as a percent of sales, such spending is expected to be at
lower levels.
At December 31, 1995, Automotive debt totaled $7.3 billion,
which was 22% of total capitalization (stockholders' equity and
Automotive debt), compared with $7.3 billion, or 25% of total
capitalization, at December 31, 1994.
At December 31, 1995, Ford had long-term contractually
committed global credit agreements under which $8.4 billion is
available from various banks at least through June 30, 2000. The
entire $8.4 billion may be used, at Ford's option, by any affiliate
of Ford; however, any borrowing by an affiliate will be guaranteed
by Ford. In addition, Ford has the ability to transfer on a
nonguaranteed basis the entire $8.4 billion in varying portions to
Ford Credit and Ford Credit Europe. These facilities were unused
at December 31, 1995.
In addition, at December 31, 1995, Ford Brasil Ltda. had $276
million of contractually committed credit facilities with various
banks ranging in maturity from June 1996 to December 1996. None of
these facilities were in use at December 31, 1995.
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 certain transactions with Ford, such as capital
contributions, dividend payments and the timing of payments for
income taxes. Their ability to obtain funds also is affected by
their 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.
Ford Credit's outstanding commercial paper totaled $35 billion
at December 31, 1995 with an average remaining maturity of 29 days.
Support facilities represent additional sources of funds, if
required.
At December 31, 1995, Financial Services had a total of $48.5
billion of contractually committed support facilities. Of these
facilities, $23.8 billion (excluding the $8.4 billion of Ford
credit facilities) are contractually committed global credit
agreements under which $19.8 billion and $4 billion are available
to Ford Credit and Ford Credit Europe, respectively, from various
banks; 62% and 75%, respectively, of such facilities are available
through June 30, 2000. The entire $19.8 billion may be used, at
Ford Credit's option, by any subsidiary of Ford Credit, and the
entire $4 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, 1995, none of the Ford
Credit global facilities were in use; $742 million of the Ford
Credit Europe global facilities were in use. In addition to the
Ford, Ford Credit and Ford Credit Europe global credit agreements,
at December 31, 1995, international subsidiaries and other credit
operations managed by Ford Credit had $1.1 billion of contractually
committed support facilities available outside the U.S. At
December 31, 1995, approximately 29% of these facilities were in
use.
-40-
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
-------------------------------------------------------------------
At December 31, 1995, Ford Holdings had outstanding long-term
debt of $1.9 billion, of which $205 million matures in 1996. All
of the Ford Holdings debt held by nonaffiliated persons is
guaranteed by Ford. Ford Holdings has a $1.5 billion term loan
agreement available through December 13, 1996, none of which was in
use at December 31, 1995, but all of which has since been used to
fund the payment to the holders of Ford Holdings' preferred stock
discussed above.
At December 31, 1995, The Associates had contractually
committed lines of credit with banks of $3.9 billion, with various
maturities ranging from January 31, 1996 to December 30, 1996, none
of which were utilized at December 31, 1995. Also, at December 31,
1995, The Associates had $5.1 billion of contractually committed
revolving credit facilities with banks, with maturity dates ranging
from January 1, 1996 through April 1, 2001, and $1.3 billion of
contractually committed receivables sale facilities, $275 million
of which are available through April 24, 1996, $500 million of
which are available through April 15, 1997, and $500 million of
which are available through April 30, 1998; none of these
facilities were in use at December 31, 1995. At December 31, 1995,
international operations managed by The Associates, but not
included in its support facilities, had about $270 million of
contractually committed support facilities available outside the
U.S., of which $50 million were in use at December 31, 1995.
At December 31, 1995, USL Capital had $1.7 billion of
contractually committed credit facilities, of which 71% are
available through September 2000. These facilities included
$46 million of contractually committed receivables sale facilities,
of which 100% were in use at December 31, 1995. At December 31, 1995,
international operations managed by USL Capital, but not
included in its support facilities, had about $3 million of
contractually committed support facilities available outside the
U.S., of which 50% were in use at December 31, 1995.
American Road's principal sources of funds are insurance
premiums and investment income. American Road had no debt and none
of its own credit lines at December 31, 1995.
At December 31, 1995, Hertz had $2 billion of contractually
committed credit facilities in the U.S., none of which were
utilized at December 31, 1995. These facilities included $751
million and $1 billion of agreements with banks which mature
June 27, 1996 and June 30, 2000, respectively, and a $250 million
revolving credit facility with Ford which matures June 30, 1999.
In addition, at December 31, 1995, international operations of
Hertz had about $317 million of contractually committed support
facilities available outside the U.S., of which about 53% were in
use at December 31, 1995.
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-31 immediately following
the signature pages of this Report.
Selected quarterly financial data of Ford and its consolidated
subsidiaries for 1995 and 1994 are set forth in Note 18 of Notes to
Financial Statements.
Item 9. Disagreements With Accountants on Accounting and
Financial Disclosure
----------------------------------------------------------
Not required.
-41-
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 caption "Election of
Directors" 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 captions "Compensation of
Directors", "Compensation and Option Committee Report on Executive
Compensation" and "Compensation of Executive Officers" in the Proxy
Statement.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
-------------------------------------------------------------
The information called for by Item 12 is incorporated by
reference from the information on page 1 of, and under the caption
"Election of Directors" 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.
-42-
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, 1995, 1994 and 1993.
Consolidated Balance Sheet at December 31, 1995 and 1994.
Consolidated Statement of Cash Flows for the years ended
December 31, 1995, 1994 and 1993.
Consolidated Statement of Stockholders' Equity for the years
ended December 31, 1995, 1994 and 1993.
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-31
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-31. 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.
-43-
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K (Continued)
----------------------------------------------------------------
(a) 3. Exhibits
-44-
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K (Continued)
-------------------------------------------------------------
-45-
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K (Continued)
-----------------------------------------------------------------
-46-
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K (Continued)
----------------------------------------------------------------
-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, 1995, the Registrant filed
the following Current Reports on Form 8-K:
1. Current Report on Form 8-K dated October 12, 1995 that
included information regarding possible strategic actions
with respect to the Registrant's Financial Services group.
2. Current Report on Form 8-K dated October 18, 1995 that
included information 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, 1995.
3. Current Report on Form 8-K dated November 9, 1995 that
included information regarding the Registrant's 7-1/8%
Debentures due November 15, 2025.
4. Current Report on Form 8-K dated December 11, 1995 that
included information regarding extension of an exchange offer
for the Registrant's Series B Cumulative Preferred Stock.
-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)
Group Vice President and
Chief Financial Officer
Date: March 19, 1996
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.
-49-
- - - - -
*Includes a loss of $440 million related to the disposition of Granite
Savings Bank (formerly First Nationwide Bank)
Segment results for 1994 have been adjusted to reflect reclassification
of certain tax amounts to conform with the 1995 presentation.
FS-1
Vehicle unit sales 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.
Fourth Quarter and Full Year 1994 unit sales have been restated to reflect
the country where sold and to include sales of all Ford-badged units.
Previously, factory unit sales were reported in North America on a
"where sold" basis and overseas on a "where produced" basis. Also,
Ford-badged unit sales of certain unconsolidated subsidiaries
(primarily Autolatina -- Brazil and Argentina) were not previously reported.
FS-2
The accompanying notes are part of the financial statements.
FS-3
- - - - -
*Less than $1 million
The accompanying notes are part of the financial statements.
FS-4
The accompanying notes are part of the financial statements.
FS-5
- - - - -
*The balances at the beginning and end of each period were less
than $1 million.
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 generally accounted for
on an equity basis. 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.
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.
Certain amounts for prior periods have been reclassified to
conform with 1995 presentations.
Nature of Operations
--------------------
The company operates in two principal business segments:
Automotive and Financial Services. 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, insurance
operations, and vehicle and equipment leasing 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 the company 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 as a result of the
consensus reached on November 15, 1995 by the Emerging Issues
Task Force of the Financial Accounting Standards Board on Issue
95-1 concerning the timing of revenue recognition when a
manufacturer conditionally guarantees the resale value of a
product or agrees to repurchase the product at a fixed price.
The company elected to recognize this change in accounting
principle on a prospective basis. The effect on the company's
1995 consolidated results of operations was not material, nor is
it expected to have a material effect in future years.
Implementation of this change will not affect the company's cash
flow. Previously, the company recognized revenue for these
vehicles when shipped.
FS-7
NOTE 1. Accounting Policies (Cont'd)
----------------------------
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.
Other Costs
-----------
Advertising and sales promotion costs are expensed as incurred.
Advertising costs were $2,024 million in 1995, $1,823 million in
1994 and $1,610 million in 1993.
Estimated costs related to product warranty are accrued at the
time of sale.
Research and development costs are expensed as incurred and were
$6,509 million in 1995, $5,811 million in 1994, and $5,618
million in 1993.
Income Per Share of Common and Class B Stock
--------------------------------------------
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 Stock and Class B Stock
outstanding during the applicable period.
The company has outstanding securities, primarily Series A
Preferred Stock, that could be converted to Common Stock. Other
obligations, such as stock options, are considered to be common
stock equivalents. The calculation of income per share of Common
and Class B Stock assuming full dilution takes into account the
effect of these convertible securities and common stock
equivalents when the effect is material and dilutive.
Income attributable to Common and Class B Stock was as follows
(in millions):
- - - - -
* Represents a one-time reduction of $0.06 per share of Common and
Class B Stock related to the exchange of Series B Preferred Stock
for company-obligated mandatorily redeemable preferred securities
of a subsidiary trust; this adjustment equals the excess of the
fair value of company-obligated mandatorily redeemable preferred
securities at the date of issuance over the carrying amount of
exchanged Series B Preferred Stock
FS-8
NOTE 1. Accounting Policies (Cont'd)
----------------------------
Derivative Financial Instruments
--------------------------------
The company and many of its subsidiaries have entered into
agreements to manage certain exposures to fluctuations in foreign
exchange and interest rates. All derivative financial
instruments are classified as "held for purposes other than
trading;" company policy specifically prohibits the use of
derivatives for speculative purposes.
Ford has operations in many countries outside the U.S., and
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.
Agreements to manage foreign exchange exposures include foreign
currency forward contracts, currency swaps and, to a lesser
extent, foreign currency options. Gains and losses on the
various agreements are recognized in income during the period of
the related transactions, included in the bases of the related
transactions, or, in the case of hedges of net investments in
foreign subsidiaries, recognized as an adjustment to the foreign
currency translation component of stockholders' equity.
Financial Services operations issue debt and other payables for
which the maturity and interest rate structure differs from the
invested assets to ensure continued access to capital markets and
to minimize overall borrowing costs. Agreements to manage
interest rate exposures include primarily interest rate swap
agreements. The differential paid or received on interest rate
swap agreements is recognized as an adjustment to interest
expense in the period.
Foreign Currency Translation
-----------------------------
Revenues, costs and expenses of foreign subsidiaries are
translated to U.S. dollars at average-period exchange rates. The
effect of changes in foreign exchange rates on revenues and costs
was generally unfavorable in 1995, 1994 and 1993.
Assets and liabilities of foreign subsidiaries are translated to
U.S. dollars at end-of-period exchange rates. The effects of this
translation for most foreign subsidiaries and certain other
foreign currency transactions are reported in a separate
component of stockholders' equity. Translation gains and losses
for foreign subsidiaries that are located in highly inflationary
countries or conduct a major portion of their business with the
company's U.S. operations are included in income. Also included
in income are gains and losses arising from transactions
denominated in a currency other than the functional currency of
the subsidiary involved.
The effect of changes in foreign exchange rates on assets and
liabilities, as described above, increased net income by $13
million in 1995, $376 million in 1994, and $419 million in 1993.
These amounts included net transaction and translation gains
before taxes of $37 million in 1995, $574 million in 1994 and
$988 million in 1993. These gains were offset by higher costs of
sales that resulted from the use of historical exchange rates for
inventories sold during the period in countries with high
inflation rates.
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 considers projected future operating
results, trends and other circumstances in making such estimates
and evaluations.
Statement of Financial Accounting Standards No. 121 ("SFAS 121"),
"Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of," was issued in March 1995.
SFAS 121 requires that, effective January 1, 1996, long-lived
assets and certain identifiable intangibles to be held and used
by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying value of an
asset may not be recoverable. It also requires that long-lived
assets and certain identifiable intangibles to be disposed of be
reported at the lower of carrying amount or fair value less cost
to sell. The effect of adopting SFAS 121 is not expected to be
material.
FS-9
NOTE 1. Accounting Policies (Cont'd)
----------------------------
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 and Financial
Services other assets at December 31, 1995 was $2.3 billion and
$3.2 billion, respectively.
Company-Obligated Mandatorily Redeemable Preferred Securities of
a Subsidiary Trust
----------------------------------------------------------------
On December 21, 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"), each representing
1/2,000 of a share of Series B Preferred Stock of Ford.
Concurrent with the issuance of the Preferred Securities in
exchange for Depositary Shares 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 interest and other payment dates on the
Debentures correspond to the distribution and other payment dates
on the Preferred Securities and Common Securities. 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.
Preferred Stockholders' Equity in a Subsidiary Company
------------------------------------------------------
During Fourth Quarter 1995, Ford Holdings, Inc. ("Ford
Holdings"), a subsidiary of Ford, merged with Ford Holdings
Capital Corporation, a subsidiary of Ford Holdings, which
resulted in the cancellation of the voting preferred stock of
Ford Holdings in exchange for payment by Ford Holdings of the
liquidation preference of the stock plus accrued and unpaid
dividends. Ford Holdings funded the payment to the holders of
the preferred stock primarily with bank loans.
FS-10
NOTE 2. Marketable and Other Securities
----------------------------------------
Trading securities are recorded at fair value with unrealized
gains and losses included in income. Available-for-sale
securities are recorded at fair value with 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 was estimated based on quoted
market prices. For those securities for which there were no
quoted market prices, the estimate of fair value was 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, 1995 were as follows (in
millions):
Investments in securities at December 31, 1994 were as follows (in millions):
All debt securities classified as available-for-sale or held-to-maturity
had contractual maturities of one year or less.
Included in stockholders' equity at December 31, 1995 and 1994 was $146
million and $188 million, respectively, which represented principally
the company's equity interest in the unrealized gains on securities
owned by certain unconsolidated subsidiaries.
FS-11
NOTE 2. Marketable and Other Securities (Cont'd)
----------------------------------------
Financial Services
------------------
Investments in securities at December 31, 1995 were as follows (in millions):
Investments in securities at December 31, 1994 were as follows (in millions):
FS-12
NOTE 2. Marketable and Other Securities (Cont'd)
----------------------------------------
Financial Services (Cont'd)
------------------
The amortized cost and fair value of investments in available-for-sale
securities and held-to-maturity securities at December 31, 1995, by
contractual maturity, were as follows (in millions):
The amortized cost and fair value of investments in available-for-sale
securities and held-to-maturity securities at December 31, 1994, by
contractual maturity, were as follows (in millions):
Proceeds from sales of available-for-sale securities were $2.4 billion
in 1995 and $9.1 billion in 1994; gross gains of $39 million and gross
losses of $18 million were realized on those sales in 1995, and gross
gains of $24 million and gross losses of $56 million were realized on
those sales in 1994. Stockholders' equity included, net of tax, a net
unrealized gain of $56 million at December 31, 1995 and a net unrealized
loss of $155 million at December 31, 1994. Proceeds from sales of
investments in debt securities were $11.2 billion in 1993; gross gains
of $113 million and gross losses of $20 million were realized on those sales.
FS-13
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):
Included in finance receivables at December 31, 1995 and 1994 were
a total of $1.3 billion 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, 1995 and 1994 were $3.5 billion and $3.4 billion,
respectively, of accounts receivable purchased by certain
Financial Services operations from Automotive operations.
Contractual maturities of automotive and other finance
receivables are as follows (in millions): 1996 - $53,718;
1997 - $20,569; 1998 - $14,160; thereafter - $17,447.
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.
Sales of finance receivables increased net income by $69 million
in 1995, $15 million in 1994 and $60 million in 1993.
Investments in direct financing leases at December 31 were as
follows (in millions):
Minimum direct financing lease rentals (including executory costs of
$31 million) are contractually due as follows (in millions):
1996 - $3,093; 1997 - $2,346; 1998 - $1,489; 1999 - $893; thereafter - $1,595.
FS-14
NOTE 3. Receivables - Financial Services (Cont'd)
-----------------------------------------
Investments in operating leases at December 31 were as follows (in millions):
Minimum rentals on operating leases are contractually due as
follows (in millions): 1996 - $6,364; 1997 - $2,694; 1998 -
$431; 1999 - $131; thereafter - $222.
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): 1995 -
$5,508; 1994 - $4,231; 1993 - $2,984.
Allowances for credit losses are estimated and established as
required based on historical experience. Other factors that
affect collectibility also are evaluated, and additional amounts
may be provided. 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.
Changes in the allowances for credit losses were as follows (in
millions):
Statement of Financial Accounting Standards No. 114, "Accounting
by Creditors for Impairment of a Loan," was issued in May 1993
and amended in October 1994 by Statement of Financial Accounting
Standards No. 118, "Accounting by Creditors for Impairment of a
Loan - Income Recognition and Disclosures." The Standards
require that impaired loans be measured based on the present
value of expected future cash flows discounted at the loan's
effective interest rate. The company adopted these standards as
of January 1, 1995, and the effect was not material.
NOTE 4. Inventories - Automotive
---------------------------------
Inventories at December 31 were as follows (in millions):
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 $1,406 million and $1,383
million at December 31, 1995 and 1994, respectively.
FS-15
NOTE 5. Net Property, Depreciation and Amortization - Automotive
-----------------------------------------------------------------
Net property at December 31 was as follows (in millions):
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.
Depreciation and amortization expenses were as follows (in
millions):
1995 1994 1993
------ ------ ------
Depreciation $2,454 $2,297 $2,392
Amortization 2,765 2,129 2,012
------ ------ ------
Total $5,219 $4,426 $4,404
====== ====== ======
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 $2,529
million in 1995, $2,377 million in 1994, and $1,934 million in
1993. 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/(loss) before income taxes for U.S. and foreign operations,
excluding equity in net (loss)/income of affiliated companies, was
as follows (in millions):
The provision for income taxes was estimated as follows (in millions):
FS-16
NOTE 6. Income Taxes (Cont'd)
---------------------
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 $2.6 billion of
retained earnings at December 31, 1995 that have been invested 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):
Deferred income taxes reflect the estimated tax effect of
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):
Foreign net operating loss carryforwards for tax purposes were
$2.4 billion at December 31, 1995. A substantial portion of these
losses has an indefinite carryforward period; the remaining losses
have expiration dates beginning in 1996. 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 consideration of 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):
Noncurrent Liabilities
----------------------
Included in other liabilities at December 31 were the following (in millions):
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, government and other fixed income securities and real
estate. 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):
FS-18
NOTE 8. Employee Retirement Benefits (Cont'd)
-------------------------------------
Pension expense in 1995 decreased for U.S. plans primarily as a
result of higher discount rates, and increased for non-U.S.
plans primarily as a result of benefit improvements and
unfavorable exchange rates. Pension expense increased in 1994
as a result of lower discount rates for both U.S. and non-U.S.
plans. In addition, amendments made in September 1993 to the
Ford-UAW Retirement Plan and the General Retirement Plan
provided benefit improvements that increased U.S. expense in
1995 and 1994.
The status of these plans at December 31 was as follows (in millions):
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 year-end 1995, the unfunded liability
in excess of $448 million is recorded net of deferred taxes as
a $108 million reduction in stockholders' equity, and at year-end
1994, the unfunded liability was offset by an intangible asset.
FS-19
NOTE 8. Employee Retirement Benefits (Cont'd)
-------------------------------------
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 postretirement
health care benefits is accrued over periods of employee service on
an actuarially determined basis.
Net postretirement benefit expense, including Financial Services,
was as follows (in millions):
The status of these plans at December 31 was as follows (in millions):
- - - - -
a/ The prior service effect of plan amendments deferred for
recognition over remaining service to retirement eligibility.
b/ 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 1995 by
about $245 million and the accumulated postretirement benefit
obligation at December 31, 1995 by about $2 billion. Health care
trend rates, together with other assumptions, are subject to review
annually in the first quarter. Based on estimates of recent
experience and the general health care cost trend outlook, it is
expected that these rates will be lowered.
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):
*Excludes the effect of interest rate swap agreements
Long-term debt at December 31, 1995 included maturities as
follows (in millions): 1996 - $960 (included in current
liabilities); 1997 - $580; 1998 - $351; 1999 - $53; 2000 -
$1,003; thereafter - $3,488.
Included in long-term debt at December 31, 1995 and 1994 were
obligations of $5,031 million and $6,567 million, respectively,
with fixed interest rates and $444 million and $536 million,
respectively, with variable interest rates (generally based on
LIBOR or other short-term rates). Obligations payable in foreign
currencies at December 31, 1995 and 1994 were $968 million and
$994 million, respectively.
Agreements to manage exposures to fluctuations in interest rates,
which include primarily interest rate swap agreements and futures
contracts, did not materially change the overall weighted-average
rate on long-term debt and effectively decreased the obligations
subject to variable interest rates to $287 million at
December 31, 1995 and $465 million at December 31, 1994.
Financial Services
------------------
*Excludes the effect of interest rate swap agreements
FS-21
NOTE 9. Debt (Cont'd)
-------------
Financial Services (Cont'd)
------------------
Information concerning short-term borrowings (excluding long-term debt
payable within one year) is as follows (in millions):
Long-term debt at December 31, 1995 included maturities as follows
(in millions): 1996 - $12,097; 1997 - $14,326; 1998 - $13,696;
1999 - $11,485; 2000 - $12,306; thereafter - $16,446.
Included in long-term debt at December 31, 1995 and 1994 were
obligations of $53.2 billion and $45.9 billion, respectively, with
fixed interest rates and $15.1 billion and $12.2 billion,
respectively, with variable interest rates (generally based on
LIBOR or other short-term rates). Obligations payable in foreign currencies
at December 31, 1995 and 1994 were $21 billion and $12.2 billion,
respectively. These obligations were issued primarily to fund foreign
business operations.
Agreements to manage exposures to fluctuations in interest rates
include primarily interest rate swap agreements. At December 31,
1995, these agreements did not change the overall weighted-average
rate on long-term debt of 7% excluding these agreements, and
effectively decreased the obligations subject to variable interest
rates to $11.9 billion. At December 31, 1995, the weighted-
average interest rate on short-term debt increased to 5.8%,
compared with 5.7% excluding these agreements. At
December 31, 1994, these agreements decreased the overall
weighted-average rate on long-term debt to 7.1%, compared with
7.2% excluding these agreements, and effectively decreased the
obligations subject to variable rates to $7.2 billion. At
December 31, 1994, the weighted-average interest rate on short-
term debt decreased to 5.6%, compared with 5.9% excluding these
agreements.
Support Facilities
------------------
At December 31, 1995, Ford had long-term contractually committed
global credit agreements under which $8.4 billion is available
from various banks at least through June 30, 2000. The entire
$8.4 billion may be used, at Ford's option, by any affiliate of
Ford; however, any borrowing by an affiliate will be guaranteed by
Ford. In addition, Ford has the ability to transfer on a
nonguaranteed basis the entire $8.4 billion in varying portions to
Ford Credit and Ford Credit Europe. These facilities were unused
at December 31, 1995.
At December 31, 1995, Financial Services had a total of $48.5
billion of contractually committed support facilities. Of these
facilities, $23.8 billion (excluding the $8.4 billion of Ford
credit facilities) are contractually committed global credit
agreements under which $19.8 billion and $4 billion are available
to Ford Credit and Ford Credit Europe, respectively, from various
banks; 62% and 75%, respectively, of such facilities are available
through June 30, 2000. The entire $19.8 billion may be used, at
Ford Credit's option, by any subsidiary of Ford Credit, and the
entire $4 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, 1995, none of the Ford
Credit global facilities were in use; $742 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, 1995 consisted of $22 billion of
contractually committed support facilities available to various
affiliates in the U.S. and $2.7 billion of contractually committed
support facilities available to various affiliates outside the U.S.;
at December 31, 1995, about $1 billion of these facilities were in use.
FS-22
NOTE 10. Capital Stock
------------------------
At December 31, 1995, 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 provides that all shares of Common Stock and Class
B Stock share equally in dividends (other than dividends declared
with respect to any outstanding Preferred Stock), except that any
stock dividends are payable in shares of Common Stock to holders
of that class and in Class B Stock to holders of that class. Upon
liquidation, all shares of Common Stock and Class B Stock are
entitled to share equally in the assets of the company available
for distribution to the holders of such shares.
On April 14, 1994, the company's Board of Directors declared a 2-
for-1 stock split in the form of a 100% stock dividend on the
company's Common Stock and Class B Stock effective June 6, 1994.
Share data were restated to reflect the split, where appropriate.
Information concerning the Preferred Stock of the company is as
follows:
The Series A and Series B Preferred Stock rank (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-23
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.
Information concerning stock options is as follows (shares in
millions):
- - - - -
a/ Fair market value of Common Stock at dates of grant.
b/ At option prices ranging from $9.09 to $29.06 during 1995, $9.09
to $28.84 during 1994, and $9.09 to $25.84 during 1993.
c/ Including 7.6 million and 40.9 million shares under the 1985
and 1990 Plans, respectively, at option prices ranging from
$13.42 to $32.00 per share.
d/ In addition, up to 1% of the issued Common Stock 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. At
December 31, 1995, this reduction aggregated 2.4 million shares.
No further grants may be made under the 1985 Plan. Grants may be
made under the 1990 Plan through April 2000. In general, options
granted under the 1985 Plan and options granted to date 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 with an
equal number of accompanying stock appreciation rights that 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 884,500 shares in 1995,
709,800 shares in 1994, and 2,327,200 shares in 1993 under the
1990 Long-Term Incentive Plan (not included in the table above).
The number of shares ultimately awarded will depend on the extent
to which the Performance Target specified in each Right is
achieved, the individual performance of the recipients and other
factors, as determined by the Compensation and Option Committee of
the Board of Directors.
Statement of Financial Accounting Standards No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation", was issued in October
1995. SFAS 123 permits entities to record expense for employee
stock compensation plans based on fair value at date of grant.
The company, however, plans to continue to measure compensation
cost using the intrinsic value method, in accordance with APB
Opinion No. 25, "Accounting for Stock Issued to Employees."
FS-24
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 reasonably be at December 31, 1995. 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, 1995, the company had the following minimum rental
commitments under non-cancelable operating leases (in millions):
1996 - $740; 1997 - $689; 1998 - $363; 1999 - $310; 2000 - $251;
thereafter - $456. These amounts include rental commitments
related to the sales and leasebacks of certain Automotive
machinery and equipment.
The company and certain of its subsidiaries have entered into
agreements with various banks to provide credit card programs that
offer rebates that can be applied against the purchase or lease of
Ford cars or trucks. The maximum amount of rebates available to
qualified cardholders at December 31, 1995 and 1994 was $3.1
billion and $2.3 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.
Certain Financial Services subsidiaries make credit lines
available to holders of their credit cards. At December 31, 1995
and 1994, the unused portion of available credit was approximately
$19.3 billion and $10.3 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.
FS-25
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.
Balance Sheet Financial Instruments
-----------------------------------
Information about specific valuation techniques and related
estimated fair value detail is provided throughout the footnotes.
The table below provides book value and estimated fair value
amounts (in millions) and a cross reference to the applicable
Note.
Foreign Currency Instruments
----------------------------
The fair value of foreign currency instruments generally was
estimated using current market prices provided by outside
quotation services. At December 31, 1995 and 1994, the fair value
of net receivable contracts was $373 million and $298 million,
respectively, and the fair value of net payable contracts was $316
million and $108 million, respectively. At December 31, 1995 and
1994, foreign currency instruments had a net deferred loss of $111
million and a net deferred gain of $59 million, respectively. In
the unlikely event that a counterparty fails to meet the terms of
a foreign currency agreement, the company's market risk is limited
to the exchange rate differential. In the case of currency swaps,
the company's market risk also may include an interest rate differential.
At December 31, 1995 and 1994, the total amount of the company's
foreign currency forward contracts (contracts purchased and sold)
and currency swaps and options outstanding was $24.5 billion and
$12.6 billion, respectively, maturing primarily through 1996.
Interest Rate Instruments
-------------------------
The fair value of interest rate instruments is the estimated
amount the company would receive or pay to terminate the
agreement. Fair value is calculated using information provided by
outside quotation services, taking into account current interest
rates and the current credit-worthiness of the swap parties. At
December 31, 1995 and 1994, the fair value of net receivable
contracts was $739 million and $452 million, respectively, and the
fair value of net payable contracts was $430 million and
$596 million, respectively. In the unlikely event that a
counterparty fails to meet the terms of an interest rate
agreement, the company's exposure is limited to the interest rate
differential. At December 31, 1995 and 1994, the underlying
principal amounts on which the company has interest rate swap
agreements outstanding aggregated $66.3 billion and $52.7 billion,
respectively, maturing primarily through 2001.
Other Financial Agreements
--------------------------
At December 31, 1995, the company had guaranteed $1.2 billion of
debt of unconsolidated subsidiaries, affiliates and others. The
potential risk of loss under other financial agreements was not
material.
FS-26
NOTE 15. Acquisitions and Dispositions
---------------------------------------
Dissolution of Autolatina Joint Venture
---------------------------------------
During 1995, the company's joint venture with Volkswagen AG in
Brazil and Argentina 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.
The company's income statement for 1995 included Ford's equity
share in the net loss of the Autolatina joint venture through the
dissolution date together with the gain on dissolution. The
assets and liabilities of the new entities in Brazil and Argentina
were consolidated in the company's balance sheet at
December 31, 1995.
Historically, earnings in Brazil and Argentina have represented a
significant portion of Ford's Automotive earnings outside the U.S.
and Europe. The long-term effect, if any, of the dissolution of
Autolatina on the company's future results will depend on Ford's
ability to compete on its own in these markets.
Sale of Annuity Business
------------------------
During 1995, the company agreed to sell its annuity business to
SunAmerica, Inc. for $173 million. The sale is expected to be
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 at December 31, 1995 were included in the balance sheet
under Financial Services - Other Assets; at December 31, 1994, the
assets and liabilities were consolidated as part of the Financial
Services segment.
Sale of First Nationwide Bank
-----------------------------
On September 30, 1994, substantially all of the assets of First
Nationwide Bank, since known as Granite Savings Bank (the "Bank"),
were sold to, and substantially all of the Bank's liabilities were
assumed by, First Madison Bank. The Bank is a wholly owned
subsidiary of Granite Management Corporation (formerly First
Nationwide Financial Corporation) ("Granite"), which in turn is a
wholly owned subsidiary of Ford.
The company recognized in First Quarter 1994 earnings a pre-tax
charge of $475 million ($440 million after taxes) related to the
disposition of the Bank, reflecting the non-recovery of goodwill
and reserves for estimated losses on assets not included in the
sale. The company's income statement included the results of
operations of Granite through March 31, 1994. The remaining net
assets of Granite at December 31, 1995 and 1994 were included in
the balance sheet under Financial Services - Other Assets.
Acquisition of The Hertz Corporation
------------------------------------
In April 1994, The Hertz Corporation ("Hertz") became a wholly
owned subsidiary of Ford. In 1993 and First Quarter 1994, Hertz
was accounted for on an equity basis as part of the Automotive
segment. In the balance of 1994 and in 1995, the operating
results, assets, liabilities and cash flows of Hertz were
consolidated as part of the Financial Services segment.
FS-27
NOTE 16. Cash Flows
--------------------
The reconciliation of net income to cash flows from operating
activities is as follows (in millions):
- - - - -
* 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 activities do not report operating income;
income before income taxes is representative of operating income
FS-29
NOTE 17. Segment Information (Cont'd)
-----------------------------
Financial Services (Cont'd)
------------------
NOTE 18. Summary Quarterly Financial Data (Unaudited)
------------------------------------------------------
(in millions, except amounts per share)
- - - - -
a/ Includes a loss of $440 million related to the disposition of
Granite Savings Bank (formerly First Nationwide Bank).
b/ The sum of the per share amounts in 1995 and 1994 is different
than the amounts reported for the full year because of the effect
that issuances of the company's stock had on average shares for
those periods.
FS-30
Coopers & Lybrand L.L.P.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Ford Motor Company
We have audited the consolidated financial statements and the
supplemental schedule of condensed financial information of
selected subsidiaries of Ford Motor Company and Subsidiaries listed
in Items 14(a)1 and 14(a)2 of this Form 10-K. These financial statements
and the supplemental schedule are the responsibility of the Company's
managment. Our responsibility is to express an opinion on these
financial statements and supplemental schedule 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 inthe financial statemetnts. An audit also includes
assessing the accounting pirnciples 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, 1995 and 1994
and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1995,
in conformity with generally accepted accounting principles. In
addition, in our opinion, the supplemental schedule referred to
above, when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the
information presented therein.
/s/Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
400 Renaissance Center
Detroit, Michigan 48243
313-446-7100
January 26, 1996
FS-31
Supplemental Schedule
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) B.V.,
and Ford Motor Company A/S (Denmark). 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
-2-
-4-
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 (Fee Required)
For the fiscal year ended December 31, 1995
-----------------
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)
Registrant's telephone number, including area code: 313-322-3000
------------
Securities registered pursuant to Section 12(b) of the Act:
_____________
(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 A Cumulative Convertible Preferred Stock, par value $1.00
per share, with an annual dividend rate of $4,200 per share and a
liquidation preference of $50,000 per share.
Series B Cumulative Preferred Stock, par value $1.00 per share,
with an annual dividend rate of $4,125 per share and a liquidation
preference of $50,000 per share.
Indicate by check mark whether the Registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
------ ------
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
-------
As of February 1, 1996, the Registrant had outstanding
1,097,956,189 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 ($30-
1/2 a share), the aggregate market value of such Common Stock was
$33,487,663,764.50. 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 1, 1996 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 9, 1996 (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 second-largest producer
of cars and trucks in the world, and ranks among the largest
providers of financial services in the United States.
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
insurance operations. These activities are conducted through the
Company's subsidiaries, Ford FSG, Inc. ("FFSGI"), Ford Holdings,
Inc. ("Ford Holdings"), The Hertz Corporation ("Hertz") and Granite
Management Corporation ("Granite"). FFSGI is a holding company
that owns primarily Ford Motor Credit Company ("Ford Credit"), a
majority of Ford Credit Europe plc ("Ford Credit Europe"), and
Associates First Capital Corporation ("The Associates"). Ford
Holdings is a holding company that owns primarily a portion of
FFSGI and all of USL Capital Corporation ("USL Capital") and The
American Road Insurance Company ("American Road").
See Note 17 of 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 and,
in any year, 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, and 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 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 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 with
relatively small changes in unit volume.
Ford has operations in over 30 countries and sells vehicles in
over 200 markets. These businesses frequently have foreign
currency exposures when they buy, sell, and finance in currencies
other than their local currencies. Ford's primary foreign currency
exposures, in terms of net corporate exposure, are in the German
Mark, Japanese Yen, Italian Lira and French Franc. The effect of
changes in exchange rates on income depends largely on the
relationship between revenues and costs incurred in the local
currency versus other currencies. Historically, the effect of
changes in exchange rates on Ford's earnings generally has been
small relative to other factors that also affect earnings (such as
unit sales).
United States
-------------
Sales Data. The following table shows U.S. industry demand
for the years indicated:
-2-
Item 1. Business (Continued)
---------------------------
Ford classifies cars by small, middle, large and luxury
segments and trucks by compact pickup, compact van/utility, full-
size pickup, full-size van/utility and medium/heavy segments. The
large and luxury car segments and the compact van/utility, full-
size pickup and full-size van/utility truck segments include the industry's
most profitable vehicle lines. 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:
As shown in the tables above, since 1991 there has been a
significant 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 middle, large
and luxury segments for Ford and increased sales of trucks in the
compact van/utility (e.g., Windstar and Explorer) and full-size
pickup segments for both the industry and Ford. The increased
sales of full-size pickups reflects the increased use of such
vehicles for personal (rather than commercial) purposes.
-3-
Item 1. Business (Continued)
---------------------------
Market Share Data. The following tables show changes in car
and truck market shares of United States and foreign-based
manufacturers for the years indicated:
__________________________
* 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 U.S. 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 25.5% in 1991 to 22.6% in 1995,
reflecting in part the effects of the strengthening of the Japanese
yen on the prices of vehicles produced by the Japanese
manufacturers, the overall market shift from cars to trucks and
improvements in the vehicles produced by U.S. 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, the significant growth of Japanese car
sales in the U.S. and international trade considerations. In
response to the strengthening of the Japanese yen to the U.S.
dollar, Japanese manufacturers are continuing to add production
capacity (particularly in the profitable truck segments) in the
United States. Production in the U.S. by Japanese transplants
reached about 2.3 million units in 1995 and is expected to increase
gradually over the next several years.
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 U.S. 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 exist.
Ford's marketing costs in North America as a percentage of
gross sales revenue for each of 1995, 1994, and 1993 were: 7.5%,
7.3%, and 8.7%, respectively. During the 1983-1988 period, such
costs as a percentage of sales revenue were in the 3% to 5% range.
In 1991, marketing costs peaked at 12% of gross revenues.
"Marketing costs" include (i) marketing incentives such as retail
rebates and special financing rates, (ii) reserves for residual
guaranties 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.
Sales by Ford to fleet customers were as follows for the years
indicated:
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 Coverages. In recent years, due to competitive
pressures, vehicle manufacturers have both expanded the coverages
and extended the terms of warranties on vehicles sold in the U.S.
Ford presently provides warranty coverage for defects in factory-
supplied materials and workmanship on all vehicles sold by it in
the U.S. 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.
Different warranty coverages are provided on vehicles sold outside
the U.S. 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 vehicles sold
in the U.S. As a result of these coverages 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.
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 16% 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 10.9% for 1995, increase their
production capacity in Europe and import restrictions on Japanese
built-up vehicles gradually are removed in total by December 31,
1999.
In 1995, European car industry sales were 11.8 million cars,
equal to 1994 levels. Truck sales were 1.6 million units, up 7%
from 1994 levels. Ford's European car share for 1995 was 11.9%, the
same as 1994, and its European truck share for 1995 was a record
14.8%, compared with 14.7% for 1994.
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 1995 compared with 1994, total industry
sales were up 1% in Great Britain and up 3% in Germany.
Other Foreign Markets
---------------------
Mexico and Canada. Mexico and Canada also are important
markets for Ford. Generally, industry conditions in Canada closely
follow conditions in the U.S. market. In 1995, industry sales of
cars and trucks in Canada were down 7% from 1994 levels, somewhat
worse than the decrease of 2% in the U.S. over the same period.
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.
Although the long-term outlook remains positive, industry volume
was down 62% in 1995. Ongoing financial effects on Ford of the
devaluation are expected to be unfavorable; the magnitude of these
effects will be dependent in large part upon overall economic conditions.
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. In 1995 , Ford's results in
the region declined compared with 1994. The decrease reflected
primarily losses for operations in Brazil, where higher import
duties and a market shift to small cars resulted in excess dealer
inventories and higher marketing costs. The lower results are
expected to continue into 1996. The Company is reestablishing
manufacturing capacity in Brazil for small cars, which should
assist in improving the Company's competitiveness in this region
longer term. Industry sales in 1995, compared with 1994, were up
19% in Brazil but down 35% in Argentina. Ford's future results in
the region largely will be dependent on the political and economic
environments in Brazil and Argentina, which historically have been
unpredictable and are expected to continue to be volatile and
subject to rapid change.
In November 1995, Ford and Volkswagen AG dissolved their
Autolatina joint venture in Brazil and Argentina. See Item 7.
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" for more information concerning the effects
of this dissolution.
Item 1. Business (Continued)
---------------------------
Asia Pacific. In the Asia Pacific region, Australia, Taiwan
and Japan are the principal markets for Ford products. In 1995,
Ford was the market share leader in Australia with a 21.5% combined
car and truck market share. In Taiwan (where sales of built-up
vehicles manufactured in Japan are prohibited), Ford was the market
share leader with a combined car and truck market share in 1995 of
18.9%. 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.
The Asia Pacific region offers many important opportunities
for the future. Ford believes that China is strategically
important to its long-term success in the Asia Pacific region. In
1995, Ford purchased a 20% equity interest in a Chinese light truck
manufacturer, Jiangling Motors Corporation, Ltd.; established a
wholly owned holding company in Beijing; and invested in an
aluminum radiator joint venture in China, in addition to the
previously established automotive component manufacturing joint
ventures in China (automotive interior trim, automotive glass and
automotive electronic/audio components). In late 1995, Ford
established a joint venture in Thailand with Mazda Motor
Corporation ("Mazda") to manufacture pickup trucks designed by
Mazda. In 1994, Ford purchased a 6.5% equity interest in Mahindra
and Mahindra Limited ("Mahindra"), an automotive and tractor
manufacturer in India. In 1995, Ford received governmental
approval to invest in an automobile manufacturing joint venture in
India with Mahindra. Ford is continuing to investigate additional
automotive component manufacturing and vehicle assembly
opportunities in those markets as well as others. In addition, Ford
is expanding the number of right-hand-drive vehicles it will offer
in Japan, including the Explorer and Taurus models.
Africa. In late 1994, Ford re-entered the South African
market by acquiring a 45% equity interest in South African Motor
Corporation (Pty.) Limited ("SAMCOR"). SAMCOR is an assembler of
Ford and other manufacturers' vehicles in South Africa.
Financial Services Operations
-----------------------------
Ford Holdings, Inc. and Ford FSG, Inc.
--------------------------------------
Ford Holdings was incorporated in 1989 for the principal
purpose of acquiring, owning and managing certain assets of Ford.
In December 1995, Ford Holdings merged with Ford Holdings Capital
Corporation, a wholly owned subsidiary of Ford Holdings, which
resulted in the cancellation of all of the voting preferred stock
of Ford Holdings. All of the outstanding common stock of Ford
Holdings, representing 100% of the voting power in Ford Holdings,
is owned beneficially by Ford.
In late 1995, Ford began a reorganization of its Financial
Services group in order to align more closely under a single
subsidiary legal ownership of the Financial Services affiliates
with management responsibility for such affiliates. As part of the
reorganization, Ford Holdings formed FFSGI to own primarily all of
the Financial Services affiliates. At the time, 55% of the common
stock of Ford Holdings was owned by Ford and 45% was owned by Ford
Credit.
After the formation of FFSGI, Ford Holdings contributed its
interest in The Associates to FFSGI in exchange for 100% of the
common stock of FFSGI and the assumption by FFSGI of certain debt
of Ford Holdings. Thereafter, Ford contributed to FFSGI all of its
interest in Ford Credit Europe. In exchange for this contribution,
Ford received a class of common stock in FFSGI that has controlling
voting power of FFSGI but otherwise is equal to all other common
stock of FFSGI as to the payment of dividends, etc. (the "Class F
Stock"). In February 1996, substantially all of the shares of Ford
Holdings common stock owned by Ford Credit were repurchased by Ford
Holdings in exchange for the issuance of a promissory note by Ford
Holdings. Thereafter, Ford contributed to FFSGI all of its
interest in Ford Credit in exchange for additional shares of Class
F Stock of FFSGI. In addition, Ford will contribute to FFSGI
certain of its international Financial Services affiliates managed
by Ford Credit in exchange for additional stock in FFSGI.
-7-
Item 1. Business (Continued)
---------------------------
It is also expected that Ford Holdings will contribute American
Road to FFSGI, which in turn is expected to contribute it to Ford
Credit. The percentages of economic interests of FFSGI held by
Ford and Ford Holdings are based on the relative value of the
entities contributed to FFSGI by Ford and Ford Holdings.
Currently, those percentages are approximately 78% for Ford and 22%
for Ford Holdings.
On February 9, 1996, The Associates filed a registration
statement with the Securities and Exchange Commission for an
initial public offering of its common stock representing up to a
19.8% economic interest in The Associates (the "IPO").
Substantially all of the net proceeds from the IPO are expected to
be used to repay indebtedness of The Associates, which will be
incurred to repay an intercompany debt owed to FFSGI in the amount
of $1.75 billion. Prior to completion of the IPO, Ford expects to
contribute to The Associates certain international affiliates owned
by Ford but managed by The Associates. Also, as announced by Ford
in the fourth quarter of 1995, Ford is investigating the sale of
all or a part of USL Capital.
Ford Motor Credit Company
-------------------------
Ford Credit is a wholly owned subsidiary of FFSGI. It
provides wholesale financing and capital loans to franchised Ford
dealers and other dealers associated with such franchisees and
purchases 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 dealers. In
addition, a wholly owned subsidiary of Ford Credit provides these
financing services in the U.S. and Canada to other vehicle dealers.
More than 80% of all new vehicles financed by Ford Credit are
manufactured by Ford or its affiliates. In addition to vehicle
financing, Ford Credit makes loans to affiliates of Ford, finances
certain receivables of Ford and its subsidiaries and offers
diversified financing services which are managed by USL Capital, a
wholly owned subsidiary of Ford Holdings. Ford Credit also manages
the activities of a number of international credit affiliates of
Ford and FFSGI. In addition, it is expected that Ford Credit will
become the owner of American Road, an insurance company discussed
further below. Currently, Ford Credit manages the activities of American
Road.
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 during each of the past five years:
___________________
* As a percentage of total sales and leases, including cash sales.
-8-
Item 1. Business (Continued)
---------------------------
Ford Credit's finance receivables and investments in operating
leases were as follows at the dates indicated (in millions):
Installments on finance receivables, including interest, past-due 60
days or more and the aggregate receivable balances related to such
past-due installments were as follows at the dates indicated (in millions):
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 (dollar amounts in millions):
-9-
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):
Ford Credit relies heavily on its ability to raise substantial
amounts of funds. These funds are obtained primarily by sales of
commercial paper and issuance of term debt. 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 by Ford Credit
under Ford-sponsored special financing or leasing programs, and the
timing of payments for the financing of dealers' wholesale
inventories and for income taxes. Ford Credit's ability to obtain
funds is affected by its debt 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-backed facilities.
The long-term senior debt of Ford and Ford Credit is rated
"A1" and "A+" and Ford Credit's commercial paper is rated "Prime-1"
and "A-1" by Moody's Investors Service, Inc. and Standard & Poor's
Ratings Group, respectively.
Ford and Ford Credit have a profit maintenance agreement which
provides for payments by Ford to the extent required to maintain
Ford Credit's earnings at specified minimum levels. No payments
were required under the agreement during the period 1988 through
1995.
Ford Credit Europe plc
----------------------
In 1993, most of the European credit operations of Ford, which generally
had been organized as subsidiaries of the respective automotive affiliates of
Ford throughout Europe, were consolidated into a single company, Ford Credit
Europe. Ford Credit Europe, which was originally incorporated in 1963 in
England as a private limited company, is now owned by FFSGI and Ford Werke
AG. 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. The business of Ford Credit Europe is substantially dependent
upon Ford's automotive operations in Europe. Ford Credit Europe issues
commercial paper, certificates of deposit and term debt to fund its credit
operations. One of the purposes of the consolidation described above is to
facilitate Ford Credit Europe's access to public debt markets. Ford Credit
Europe's ability to obtain funds in these markets is affected by its credit
ratings, which are closely related to the financial condition of and outlook
for Ford.
-10-
Item 1. Business (Continued)
---------------------------
Ford Credit Europe's finance receivables and investments in operating
leases were as follows at the dates indicated (in millions):
An analysis of Ford Credit Europe's allowance for credit losses
in finance receivables and operating leases is as follows for the years
indicated (in millions):
___________________________
* The reported amounts reflect primarily foreign currency
translation adjustments.
Associates First Capital Corporation
------------------------------------
The Associates conducts its operations primarily through its
principal operating subsidiary, Associates Corporation of North
America. The Associates' primary business activities are consumer
finance and commercial finance. The consumer finance operation
invests in home equity, personal lending and sales finance
receivables, and credit card receivables primarily through a wholly
owned credit card bank, in addition to providing financing in the
foregoing areas and in manufactured housing. The commercial
finance operation is principally engaged in financing and leasing
transportation and industrial equipment, and providing other
services, including automobile fleet leasing and management,
relocation services and automobile club and roadside assistance
services. The Associates has an insurance operation which
underwrites credit life, credit accident and health, property,
casualty and accidental death and dismemberment insurance,
principally for customers of the finance operations. Such
insurance activity is conducted by The Associates' licensed
insurance agents and is managed as a separate activity. Insurance
sales are dependent on the business activities and volumes of the
consumer and commercial business. As mentioned above, The
Associates has filed a registration statement with the Securities
and Exchange Commission for an initial public offering of its
common stock representing up to a 19.8% economic interest in The
Associates.
-11-
Item 1. Business (Continued)
---------------------------
The Associates' net finance receivables were as follows at the
dates indicated (in millions):
Credit loss experience, net of recoveries, of The Associates'
finance business was as follows for the years indicated (dollar
amounts in millions):
The following table shows total gross balances contractually
delinquent sixty days and more by type of business at the dates
indicated (dollar amounts in millions):
-12-
Item 1. Business (Continued)
---------------------------
An analysis of The Associates' allowance for losses on finance
receivables is as follows for the years indicated (in millions):
USL Capital Corporation
------------------------
USL Capital, a diversified commercial leasing and financing
organization, originally incorporated in 1956, was acquired by Ford
in 1987 and was transferred to Ford Holdings in 1989. The primary
operations of USL Capital include the leasing, financing, and
management of office, manufacturing and other general-purpose
business equipment; commercial fleets of automobiles, vans, and
trucks; large-balance transportation equipment (principally
commercial aircraft, rail, and marine equipment); industrial and
energy facilities; and essential-use equipment for state and local
governments. It also provides intermediate-term,
first-mortgage loans on commercial properties and invests in
corporate preferred stock and senior and subordinated debt
instruments. Certain of these financing transactions are
underwritten by Ford Credit. As mentioned above, Ford is
considering the sale of all or a part of USL Capital.
The following table sets forth certain information regarding
USL Capital's earning assets, credit losses, and delinquent
accounts at the dates indicated (dollar amounts in millions):
The American Road Insurance Company
-----------------------------------
American Road was incorporated by Ford in 1959, became a
wholly owned subsidiary of Ford Credit in 1966, and was transferred
to Ford Holdings in 1989. It is expected that American Road will
be transferred back to Ford Credit as part of the reorganization of
the Financial Services group. The operations of American Road
consist primarily of underwriting floor plan insurance related to
substantially all new vehicle inventories of dealers financed at
wholesale by Ford Credit in the United States and Canada, credit
life and disability insurance in connection with retail vehicle
financing, and insurance related to retail contracts sold by
automobile dealers to cover vehicle repairs. In late 1995,
American Road agreed to sell all of its interest in Ford Life
Insurance Company ("Ford Life"), a wholly owned subsidiary of
American Road, to SunAmerica Inc. At the time of the sale, Ford
-13-
Item 1. Business (Continued)
---------------------------
Life's business consisted of offering deferred annuities sold
primarily through banks and brokerage firms; the non-annuities
portion of the business was transferred to another subsidiary of American Road
prior to the sale of Ford Life.
The following table summarizes the revenues and net income of
American Road (in millions):
The detail of premiums earned by American Road was as follows
(in millions):
The Hertz Corporation
---------------------
Hertz was incorporated in 1967 and is a successor to
corporations which were engaged in the automobile and truck leasing
and rental business since 1924. During 1994, Ford entered into
various transactions which resulted in Hertz becoming a wholly
owned subsidiary of Ford. Hertz, its affiliates and independent
licensees are engaged principally in the business of renting
automobiles and renting and leasing trucks, without drivers, in the
U.S. and in approximately 150 foreign countries. Collectively, they
operate what Hertz believes is the largest car rental business in
the world and one of the largest one-way truck rental businesses in
the U.S. In addition, through its wholly owned subsidiary, Hertz
Equipment Rental Corporation, Hertz operates what it believes to be
the largest business in the U.S. involving the rental, lease and
sale of construction and materials handling equipment. Other
activities of Hertz include the sale of its used vehicles; the
leasing of automobiles in Australia and New Zealand and in Europe
through an affiliate; and providing claim management and
telecommunications services in the U.S.
Revenue earning equipment is used in the rental of vehicles
and construction equipment and the leasing of vehicles under
closed-end leases where the disposition of the vehicles upon
termination of the lease is for the account of Hertz.
-14-
Item 1. Business (Continued)
---------------------------
The cost and accumulated depreciation of revenue earning
equipment were as follows for the nine months ended December 31,
1994 and the year ended December 31, 1995 (in millions):
Granite Management Corporation
------------------------------
Granite, a savings and loan holding company organized in
Delaware in 1959, was acquired by Ford in December 1985. Until
September 30, 1994, the principal asset of Granite was the capital
stock of First Nationwide Bank, A Federal Savings Bank, since known
as Granite Savings Bank (the "Bank"). On September 30, 1994,
substantially all of the assets of the Bank were sold to, and
substantially all of the liabilities of the Bank were assumed by,
First Madison Bank, FSB ("First Madison").
At the time of the sale, Ford retained, through Granite,
approximately $1.2 billion of commercial real estate and other
assets formerly owned by the Bank. These retained assets generally
were of lower quality than those included in the sale and will be
liquidated over time as market conditions permit. In addition, for
the three-year period ending in November 1996, First Madison has
the option of requiring Granite to repurchase up to $500 million of
the assets included in the sale that become nonperforming. This repurchase
obligation is guaranteed by Ford. Through December 31, 1995, approximately
$387 million of such assets had been repurchased by Granite. At December 31,
1995, approximately $875 million of Granite's assets remained unsold.
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 - United States Requirements.
As amended in November 1990, 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. In addition, the Act requires that
emissions equipment for vehicles sold in the U.S. have a minimum "useful
life" during which compliance with the applicable standards must be achieved.
Passenger cars, for example, must comply for 10 years or 100,000
miles, whichever first occurs. The Act prohibits, among other
things, the sale in or importation into the U.S. of any new motor
vehicle or engine which is not covered by a certificate of
conformity issued by the United States Environmental Protection
Agency (the "EPA").
The Act also may require production of certain new cars and
trucks capable of operating on clean alternative fuels under a
-15-
Item 1. Business (Continued)
---------------------------
pilot test program to be conducted in California beginning in the
1996 model year. Under this pilot program, each manufacturer will
be required to sell its pro rata share of 150,000 alternative fuel
vehicles in each of the 1996, 1997 and 1998 model years and its pro
rata share of 300,000 alternative fuel vehicles in each model year
thereafter. The Act also authorizes certain states to establish
programs to encourage the purchase of such vehicles. Since the Act
considers California's already adopted reformulated (i.e., cleaner
burning) gasoline to be an alternative fuel, most manufacturers
will be able to comply with this requirement in California by
selling vehicles certified to California standards.
Motor vehicle emissions standards even more stringent than
those presently in effect will become effective as early as the
2004 model year, unless the EPA determines that such standards are
not necessary, technologically feasible or cost-effective.
The Act authorizes California to establish unique emissions
control standards that, in the aggregate, are at least as stringent
as the federal standards if it secures the requisite waiver of
federal preemption from the EPA. The Health and Safety Code of the
State of California prohibits, among other things, the sale to an
ultimate purchaser who is a resident of or doing business in
California of a new motor vehicle or engine which is intended for
use or registration in that state which has not been certified by
the California Air Resources Board (the "CARB"). The CARB received
a waiver from the EPA for a series of passenger car and light truck
emissions standards (the "low emission vehicle", or "LEV",
standards), effective beginning between the 1994 and 2003
model years, that are significantly more stringent than
those prescribed by the Act for the corresponding periods of time.
These California standards are intended to promote the
development of various classes of low emission vehicles.
California also requires 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 February 1996, CARB issued a notice for eliminating
the ZEV mandate applicable before the 2003 model year. Final
action on the proposed rule change is expected at the March 1996
board meeting. If CARB eliminates the mandate, manufacturers have
volunteered to provide air quality benefits for California
equivalent to a 49 state program (i.e., providing vehicles
certified to California LEV emissions standards nationwide
beginning with the 2001 model year), to continue research and
development of EV 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
customer expectations or is commercially viable. Such vehicles
likely will run on lead-acid batteries with a limited range (well
under 100 miles per recharge in optimal conditions), have a long
recharge time (up to 8 hours), lack substantial infrastructure
support (home and public facilities for recharging) and have a
significant cost premium over conventional vehicles. The proposed
elimination of the ZEV mandate and the manufacturers' voluntary
program will better allow market forces to guide the introduction
of ZEVs into the market. If the mandate is not changed, compliance
may require manufacturers to offer substantial discounts on
electric vehicles, selling them well below cost, or increase the
price or curtail the sale of nonelectric vehicles.
The California LEV standards present significant technological
challenges to manufacturers and compliance may require costly
actions that would have a substantial adverse effect on Ford's
sales volume and profits.
The Act also permits other states which do not meet national
ambient air quality standards to adopt new motor vehicle emissions
standards identical to those adopted by California, if such states
lawfully adopt such standards two years before commencement of the
affected model year. Twelve northeastern states and the District
of Columbia organized under provisions of the Act into a group
known as the Ozone Transport Commission (the "OTC") and petitioned
the EPA to require California LEV standards in that region. There
are major problems with transferring California standards to the
Northeast - many dealers sell vehicles in neighboring states and
the 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 - the
absence of which makes the task of meeting standards even more
difficult. California LEV standards (including the ZEV
requirements) already have been adopted in New York and
Massachusetts. Connecticut also has adopted such standards, but
without the ZEV requirements.
-16-
Item 1. Business (Continued)
---------------------------
To mitigate these problems, the automobile industry proposed
to voluntarily meet emissions standards nationwide that are more
stringent than those required by the Act. The proposal was based
on using technology developed to meet the California LEV standards,
but adjusting for the absence of the California reformulated
gasoline and ZEV requirements. While there was a general
receptivity to the industry's proposal, some of the states are
insisting on either a ZEV mandate or a guarantee that "advanced
technology" vehicles will be sold in their states.
In December 1994, the EPA granted the OTC petition to impose
California LEV standards, while at the same time urging states and
manufacturers to agree on a national approach which the EPA
described as "environmentally superior" to the California
standards. The states will have until early 1996 to include in
their State Implementation Plans a California LEV program or an
acceptable alternative.
Under the Act, if the EPA determines that a substantial number
of any class or category of vehicles, although properly maintained
and used, do not conform to applicable emissions standards, a
manufacturer may be required to recall and remedy such
nonconformity at its expense. Further, if the EPA determines
through testing of production vehicles that emission control
performance requirements are not met, it can halt shipment of motor
vehicles of the configuration tested. California has similar, and
in some respects greater, authority to order manufacturers to
recall vehicles. Ford may be required to recall vehicles for such
purposes from time to time. In addition, as it has from time to
time in the past, Ford may voluntarily recall vehicles to fix
emissions-related concerns. 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 U.S.
Court of Appeals for the District of Columbia ordered the EPA to
grant such a waiver to Ethyl Corporation for the additive MMT, over
the objections of the EPA and U.S. automobile manufacturers,
including Ford. Ethyl Corporation can now market MMT for use in unleaded
gasoline. Ford and other manufacturers believe that the use of MMT
will impair the performance of current emissions systems and
onboard diagnostics systems. The introduction of MMT could
increase Ford's future warranty costs and necessitate changes in
the Company's warranties for emission control devices.
European Requirements. Council Directive 70/220/EEC (as
amended through Council Directive 94/12/EEC) and related European
legislation impose limits on the amount of regulated pollutants
that may be emitted by new motor vehicles and engines sold in the
European Union. Standards for vehicles homologated before January
1, 1996 are of generally equivalent stringency to 1983 model year
U.S. standards for gasoline powered vehicles and to 1987 model year
U.S. standards for diesel powered vehicles. All passenger cars
homologated from January 1, 1996 and all new passenger cars
registered from January 1, 1997 must comply with more stringent
standards that are of generally equivalent stringency to 1994 model
year U.S. standards. Similarly, new more stringent standards for
light duty trucks ("LDTs") have been proposed but not yet finally
enacted by the European Union. These would apply to passenger-car
derived LDTs from January 1, 1997 for new homologations and
October 1, 1997 for new registrations and would apply to other
classes of LDTs from January 1, 1998 for new homologations and
October 1, 1998 for new registrations. The European Commission is
presently preparing proposals for even more stringent emissions
standards and for new enforcement procedures for both passenger
cars and trucks (the "Stage III Directive"). It is proposed that
the Stage III Directive would become effective beginning in 2000
for new vehicle homologations and 2001 for new vehicle
registrations.
Certain European countries are conducting in-use emissions
testing to ascertain compliance of motor vehicles with applicable
emission standards. These actions could lead to recalls of
vehicles; the future costs of related inspection or repairs could
be substantial.
-17-
Item 1. Business (Continued)
---------------------------
Motor Vehicle Safety - Under the National Traffic and Motor
Vehicle Safety Act of 1966, as amended (the "Safety Act"), the
National Highway Traffic Safety Administration (the "Safety
Administration") is required to establish appropriate federal motor
vehicle safety standards that are practicable, meet the need for
motor vehicle safety and are stated in objective terms. The Safety
Act prohibits the sale in the United States of any new motor
vehicle or item of motor vehicle equipment that does not conform to
applicable federal motor vehicle safety standards. Compliance with
many safety standards is costly because doing so tends to conflict
with the need to reduce vehicle weight in order to meet stringent
emissions and fuel economy standards. The Safety Administration
also is required to make a determination on the basis of its
investigation whether motor vehicles or equipment contain defects
related to motor vehicle safety or fail to comply with applicable
safety standards and, generally, to require the manufacturer to
remedy any such condition at its own expense. The same obligation
is imposed on a manufacturer which learns that motor vehicles
manufactured by it contain a defect which the manufacturer decides
in good faith is related to motor vehicle safety. There currently
are pending before the Safety Administration a number of major
investigations relating to alleged safety defects or alleged
noncompliance with applicable safety standards in vehicles built,
imported or sold by Ford. The cost of recall programs to remedy
safety defects or noncompliance, should any be determined to exist
as a result of certain of such investigations, could be
substantial.
Canada, the European Union, individual member countries within
the European Union and other countries in Europe, Latin 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. The cost of complying with
these standards, as well as the cost of any recall programs to
remedy safety defects or noncompliance, could be substantial.
Motor Vehicle Fuel Economy - Passenger cars and trucks rated
at less than 8,500 pounds gross vehicle weight are required by
regulations issued by the Safety Administration pursuant to the
Motor Vehicle Information and Cost Savings Act (the "Cost Savings
Act") to meet separate minimum CAFE standards. Failure to meet the
CAFE standard in any model year, after taking into account all
available credits, would subject a manufacturer to the imposition
of a civil penalty of $5 for each one-tenth of a mile per gallon
("mpg") under the applicable standard multiplied by the number of
vehicles in the class (i.e., trucks, domestic cars, or imported
cars) produced in that model year. Each such class of vehicle may
earn credits either as a result of exceeding the standard in one or
more of the preceding three model years ("carryforward credits") or
pursuant to a plan, approved by the Safety Administration, under
which a manufacturer expects to exceed the standard in one or more
of the three succeeding model years ("carryback credits"), but
credits earned by a class may not be applied to any other class of
vehicles.
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 asserts it has the authority to amend to a level it
determines to be the "maximum feasible" level (considering the
following factors: technological feasibility, economic
practicality, the effect of other federal motor vehicle standards
on fuel economy, and the need of the nation to conserve energy).
Pursuant to the Cost Savings Act, the Safety Administration has
established a 20.7 mpg CAFE standard applicable to light trucks
(under 8,500 pounds gross vehicle weight on a combined two-wheel
drive/four-wheel drive basis) for model years 1996 and 1997 and has
proposed the same for 1998.
The EPA issued proposed regulations pursuant to the Clean Air
Act that would change the test procedures for measuring motor
vehicle emissions and fuel economy. If adopted without adequate adjustments,
these regulations may require costly measures to reduce tailpipe
emissions and to increase fuel economy.
Although Ford expects to be able to comply with the foregoing
CAFE standards, there are factors that could jeopardize its ability
to comply. These factors include the possibility of changes in
market conditions, including a shift in demand for larger vehicles
and a decline in demand for small and middle-size vehicles; or
-18-
Item 1. Business (Continued)
---------------------------
conversely, a shortage of reasonably priced gasoline resulting in
a decreased demand for more profitable vehicles and a corresponding
increase in demand for relatively less profitable vehicles.
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, using a combination of regulatory and
nonregulatory measures. The Safety Administration is considering
significant increases in the truck CAFE standard for the 1999 -
2006 model years that could be as high as 28 mpg by the 2006 model
year. If the CCAP 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 could find it necessary to
curtail or eliminate production of larger family-size and luxury
passenger 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 passenger cars and
light trucks.
International concerns over global warming due to the emission
of "greenhouse gasses" have given rise to strong pressures to
increase fuel economy of motor vehicles as a means of limiting
their emission of CO2. For example, the United Nations Climate
Change Convention held in Brazil in 1992 (the "U.N. Climate Change
Convention") sought to stabilize greenhouse gas emissions at 1990
levels by the year 2000. A subsequent meeting of the parties to
the U.N. Climate Change Convention in Berlin in March 1995 resulted
in an agreement to establish goals by 1997 for reductions in
greenhouse gas emissions after the year 2000.
In December 1994, the European Union Council of Environmental
Ministers directed the European Commission to develop proposals for
reducing CO2 emissions from passenger cars to 120 grams per
kilometer by 2005 (which equates to 5 liters consumed per 100
kilometers for gasoline engines and 4.5 liters consumed per 100
kilometers for diesel engines). Similar proposals have been made
within the European Parliament. In December 1995, the European
Commission issued a communication to the Council and the Parliament
proposing a package of potential measures for reducing CO2
emissions from passenger cars. These include fiscal measures
(taxes and incentives), fuel economy labeling, increased research
and development efforts, and a negotiated agreement with industry
for reduction in CO2 emissions from new cars of 25% from 1990
levels by 2005. The proposed agreement may also include
incremental targets and monitoring provisions for the years before
2005. Some of these proposals, if adopted, could require costly
actions that could have substantial adverse effects on Ford's sales
volumes and profits in Europe.
On March 23, 1995, the German Automobile Manufacturers
Association (of which Ford Werke A.G. is a member) undertook an
industry-wide voluntary agreement with the German government to
reduce the average fuel consumption of new cars sold in Germany by
25% from 1990 levels by 2005, 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. At the same
time, the German government undertook to improve traffic management
systems, eliminate infrastructure bottlenecks, integrate transport
modes, promote alternative fuels and improved drive systems, and
introduce an emission-based road tax system.
On January 26, 1996, French vehicle manufacturers made a
voluntary pledge to reduce the average fuel consumption of new
vehicles to a sales-weighted average of 150 grams of CO2 per
kilometer by 2005, to offer at least one vehicle that emits less
than 120 grams of CO2 per kilometer by 2005, to propose an
objective by 2000 for further reducing CO2 emissions by 2010, and
to promote alternative fuel technologies that result in reduced CO2
emissions. This pledge assumes a 50/50 mix of gasoline and diesel
engined vehicles, no change in the mix of vehicles by weight and
engine size class, no new regulatory requirement beyond those
forecast in 1995 for the year 2000, and that oil companies and tire
-19-
Item 1. Business (Continued)
---------------------------
producers will contribute to reduction in vehicle fuel consumption.
The pledge of the French vehicle manufacturers may create pressure
for similar pledges from automobile importers (such as Ford France
S.A.).
Other initiatives for reducing CO2 emissions from motor
vehicles may be proposed by other European countries. Taken
together such proposals could have substantial adverse effects on
Ford's sales volumes and profits in Europe.
Japan has adopted automobile fuel consumption goals that
manufacturers must attempt to achieve by the 2000 model year. The
consumption levels apply only to gasoline-powered vehicles, vary by vehicle
weight, and range from 5.8 km/I to 19.2 km/l. To achieve these
target fuel consumption levels for the vehicles Ford exports to Japan
may require costly actions that could have substantial adverse effects on
Ford's sales volume and profits in Japan.
The U.S. Energy Tax Act of 1978, as amended, imposes a federal
excise tax on automobiles which do not achieve prescribed fuel
economy levels. Additional legislative proposals could be
introduced that, if enacted, would increase excise taxes or create
economic disincentives to purchase any except the least fuel
consuming vehicles. Because of the uncertainties and variables
inherent in testing for fuel economy and the uncertain effect on
fuel economy of other government requirements, it is not possible
to predict the amount of excise tax, if any, which may be incurred.
Stationary Source Air Pollution Control - Pursuant to the
Clean Air Act the states are required to amend their implementation
plans to require more stringent limitations on the quantity of
pollutants which may be emitted into the atmosphere, and other
controls, to achieve national ambient air quality standards
established by the EPA. In addition, the Act requires reduced
emissions of substances that are classified as hazardous or that
contribute to acid deposition, imposes comprehensive permit
requirements for manufacturing facilities in addition to those
required by various states, and expands federal authority to impose
severe penalties and criminal sanctions. The Act requires the EPA
and the states to adopt regulations, and allows states to adopt
standards more stringent than those required by the Act. The costs
to comply with these provisions of the Act cannot presently be
quantified but could be substantial. In addition, the enormous
complexity and time-consuming nature of the comprehensive federal-
state permit program provided for by the Act may reduce operational
flexibility and may delay or prevent future competitive upgrading
of Ford's production facilities in the United States.
Water Pollution Control - Pursuant to the Federal Clean Water
Act (the "Clean Water Act"), Ford has been issued National
Pollutant Discharge Elimination System permits which establish
certain pollution control standards for its manufacturing
facilities that discharge wastewater into public waters. Ford,
among many other companies, also is required to comply with certain
standards and obtain permits relating to discharges into 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. These various requirements may necessitate the addition of
costly control equipment.
The EPA recently 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.
Hazardous 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. These regulations also require permits for
treatment, storage, and disposal facilities and corrective action
for prior releases at sites where permits are issued. The EPA has
delegated permit authority to states with programs equivalent to
-20-
Item 1. Business (Continued)
---------------------------
RCRA, and states may adopt even more extensive requirements. The
Federal Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended (the "Superfund Act"), requires
disclosure of certain releases from Ford facilities into the
environment, creates potential liability for remediation costs at
sites where Ford waste was disposed and for damage to natural
resources resulting from a release, and provides for citizens'
suits for failure to comply with final requirements of orders or
regulations. A number of states have enacted separate state 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 has banned production of polychlorinated biphenyls and
regulates their use in transformers, capacitors and other equipment
that may be located at Ford's facilities.
European Stationary Source Environmental Control - The
European Union by directives and regulations, and individual member
countries by legislation and regulations, 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.
Climate Change Convention - In response to the requirements of
the U.N. Climate Change Convention, national governments are
examining ways to reduce potential global warming risks. These
actions may restrict the use of certain chemicals that are used as
refrigerants (in vehicles and buildings), such as R-134a, and
cleaning solvents.
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. Also, vehicle safety is a priority with
customers in North America, Europe and key Asia-Pacific markets and
better global understanding of real-world accidents and injuries is
a competitive necessity.
The "traditional" and developed automotive markets have
developed their own bodies of regulation. Two sets of European
vehicle regulations overlay those of individual European countries:
1) European Union directives and regulations, which member
countries are obliged to implement; and 2) United Nations Economic
Commission for Europe (ECE) regulations, which member countries
have the option to implement. Although European Union directives
and regulations and ECE regulations generally are aligned (the
European Union directives cover about half of the 99 ECE
regulations), some variations exist in the manner in which they are
interpreted and enforced by each member country. The United States
and Canada use a substantially different regulatory system, and
Japan and Australia use a hybrid of the ECE system.
The ECE regulations are generally recognized outside the above
markets. Countries in the process of defining motor vehicle
regulations, such as China, India, Malaysia and Russia, are
adopting ECE (versus U.S.) regulations. As a result, U.S.-built
vehicles have to be modified for these markets.
The U.S. and Europe have so far shown limited willingness to
accept each other's regulations, and negotiations for acceptance of
U.S. regulations as being functionally equivalent to the ECE
standards in emerging markets have had limited success.
Pollution Control Costs - During the period 1996 through 2000,
Ford expects that approximately $700 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 $200 million will be spent in 1996 and
$150 million will be spent in 1997.
-21-
Item 1. Business (Continued)
---------------------------
Employment Data
---------------
In 1995, Ford's worldwide average employment increased to
346,990 from 337,728 in 1994. The increase in average employment
for 1995 resulted primarily from the full-year (versus partial-
year) inclusion of Hertz as a consolidated subsidiary. Worldwide
payrolls were $16.6 billion in 1995, an increase of $719 million
from 1994.
Average employment by geographic area in 1995 compared with
1994 levels was as follows:
-27-
Item 4A. Executive Officers of the Registrant (Continued)
--------------------------------------------------------
-28-
Item 4A. Executive Officers of the Registrant (Continued)
--------------------------------------------------------
Item 4A. Executive Officers of the Registrant (Continued)
--------------------------------------------------------
__________________
(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 Mr. Ross, have been
employed by the Registrant or its subsidiaries in one or more
capacities during the past five years. 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.
-30-
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters
------------------------------------------------------------
PART II
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 considering, however, the
withdrawal of its Common Stock from listing and registration on
certain of these foreign stock exchanges.
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 (in each
case, adjusted to reflect a 2-for-1 stock split in the form of a
100% stock dividend on Ford's Common and Class B Stock effective
June 6, 1994):
___________________________
* Prices reflect New York Stock Exchange Composite Transactions.
As of February 1, 1996, stockholders of record of Ford included
280,738 holders of Common Stock and 110 holders of Class B Stock.
Item 6. Selected Financial Data
---------------------------------
The following tables set forth selected financial data and other data
concerning Ford for each of the last ten years (dollar amounts in millions
except per share amounts):
-32-
_________________
d/ The cumulative effects of changes in accounting principles reduced equity
by $6,883 million in 1992.
e/ Per hour worked (in dollars). Excludes data for subsidiary companies.
-33-
-34-
Item 7. Managments's Discussion and Analysis of Financial Condition
and Results of Operations
-------------------------------------------------------------------
OVERVIEW
The Company's worldwide net income in 1995 was $4,139 million,
or $3.58 per share of Common and Class B stock, compared with
$5,308 million, or $4.97 per share in 1994. Fully diluted earnings
per share were $3.33 in 1995, compared with $4.44 a year ago. The
Company's worldwide sales and revenues were $137.1 billion in 1995,
up $8.7 billion, or 7% from 1994. Vehicle unit sales of cars and
trucks were 6,606,000, down 247,000 units, or 3.6%. Stockholders'
equity was $24.5 billion at December 31, 1995, up $2.9 billion from
December 31, 1994.
The Company's earnings in 1995 were down from 1994, a record
year, and reflected the effects of lower volumes in the U.S., costs
associated with introducing new products and lower earnings at
operations outside the U.S., primarily in Latin America. Earnings
from Financial Services operations were up $688 million compared
with 1994. The improvement reflected record earnings at Ford
Credit, The Associates, USL Capital and Hertz and the nonrecurrence
of a $440 million charge to net income in the first quarter of 1994
for the disposition of First Nationwide Bank.
In 1995, Automotive capital expenditures for new products and
facilities totaled $8.7 billion, up $366 million from 1994. Cash
and marketable securities of the Company's Automotive operations
were $12.4 billion at December 31, 1995, up $323 million from
December 31, 1994. Automotive debt at December 31, 1995 totaled
$7.3 billion, up $49 million from a year ago.
In 1994, the Company announced a reorganization of its
Automotive operations, called "Ford 2000." The reorganization is
a fundamental change intended to provide customers with a wider
array of vehicles in more markets, assure full competitiveness in
vehicle design, quality and value, and substantially reduce the
cost of operating Ford's automotive business. The new structure
reduces duplication of effort and facilitates best practices around
the world by merging Ford's North American Automotive Operations,
European Automotive Operations, and Automotive Components Group
into a single global organization, Ford Automotive Operations. The
new organization was implemented during 1995. The major operations
in Latin America and Asia Pacific will be integrated into Ford
Automotive Operations during 1996.
Ford is expanding its efforts in many new markets,
particularly in the Asia Pacific region including China, India and
Thailand. New market development encompasses a variety of business
arrangements to establish component manufacturing and vehicle
assembly capabilities. Entry into new markets is an integral part
of the Company's long-term strategy to improve its global
competitive position.
The Company's Financial Statements and Notes to Financial
Statements on pages FS-1 through FS-31, including the Report of
Independent Accountants, should be read as an integral part of this
review.
Fourth Quarter of 1995
----------------------
In the fourth quarter of 1995, the Company's worldwide net
income was $660 million, or $0.49 per share of Common and Class B
stock, compared with $1,569 million, or $1.47 per share in the
fourth quarter of 1994. Fully diluted earnings per share were
$0.48 in the fourth quarter of 1995, compared with $1.31 a year
ago.
Worldwide Automotive operations earned $16 million in the
fourth quarter of 1995, compared with $1,119 million a year ago.
U.S. Automotive operations earned $168 million in the fourth
quarter of 1995, compared with $745 million a year ago. The lower
results for U.S. Automotive operations reflected lower unit volume
and costs associated with introducing new products. Automotive
operations outside the U.S. incurred a loss of $152 million in the
fourth quarter of 1995, compared with earnings of $374 million a
year ago, reflecting primarily losses in Latin America and the
nonrecurrence of a one-time favorable effect from devaluation of
the Mexican Peso in 1994. Ford's European Automotive operations
incurred a loss of $48 million in the fourth quarter of 1995,
compared with a loss of $55 million a year ago.
-35-
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
-------------------------------------------------------------------
Financial Services operations earned a record $644 million in
the fourth quarter of 1995, compared with $450 million a year ago.
The improvement reflected primarily record earnings at Ford Credit,
The Associates, USL Capital and Hertz.
RESULTS OF OPERATIONS: 1995 COMPARED WITH 1994
Automotive Operations
---------------------
Ford's worldwide Automotive operations earned $2,056 million
in 1995 on sales of $110.5 billion, compared with $3,913 million in
1994 on sales of $107.1 billion.
In the U.S., Ford's Automotive operations earned
$1,843 million on sales of $73.9 billion, compared with
$3,002 million in 1994 on sales of $73.7 billion. The decline in
earnings reflected primarily lower unit volume (reflecting
nonrecurrence of a dealer inventory increase in 1994 and lower
industry sales) and costs associated with introducing new products
(mainly the all-new Taurus, Sable and F-150 pickup truck). U.S.
Automotive after-tax return on sales was 2.5% in 1995, down 1.6
points from a year ago. It is expected that results in the first
half of 1996 will continue to be affected adversely by costs
associated with introducing new products (the F-150 pickup truck,
Escort and Tracer).
The U.S. economy grew at a moderate rate in 1995 with interest
rates and inflation at comparatively low levels. U.S. car and
truck industry volumes, however, decreased from 15.4 million units
in 1994 to 15.1 million units in 1995. Most of the decrease in
industry sales was attributable to cars. Ford's share of the U.S.
car market was 20.9%, down 9/10 of a point from 1994. Ford's U.S.
truck share was 31.9%, up 1.8 points from 1994. Ford's combined
U.S. car and truck share was 25.6%, up 4/10 of a point from 1994.
The increase in share reflected primarily higher sales of the
Explorer and F-Series trucks, offset partially by lower sales of
specialty vehicles and lower availability of the Taurus and Sable
due to model changeover.
Outside the U.S., Automotive operations earned $213 million in
1995 on sales of $36.6 billion, compared with $911 million in 1994
on sales of $33.4 billion. The decline reflected primarily lower
results in Latin America.
Ford's European Automotive operations earned $116 million in
1995, compared with $128 million in 1994. The decline reflected
primarily costs associated with introducing new products (the all-
new Galaxy minivan and Fiesta) and the unfavorable effect of
foreign exchange rate changes.
Car and truck industry sales in Europe were 13.4 million units
in 1995, compared with 13.3 million units in 1994. Ford's share of
the European car market was 11.9%, equal to a year ago. Ford's
European truck share was 14.8%, up 1/10 of a point from 1994.
Ford's combined European car and truck share was 12.3%, up 1/10 of
a point from 1994.
Outside the U.S. and Europe, Ford earned $97 million in 1995,
compared with $783 million in 1994. About half of the decrease
reflected primarily unfavorable results for operations in Brazil,
where higher import duties and a market shift to small cars
resulted in excess dealer inventories and higher marketing costs.
These conditions are expected to continue into 1996; business
conditions have been and are expected to continue to be volatile
and subject to rapid change, which can affect Ford's future
earnings. These factors were offset partially in 1995 by a one-
time gain from the dissolution of Ford's Autolatina joint venture
(discussed below). The decline in earnings outside the U.S. and
Europe also reflected the nonrecurrence of a one-time favorable
effect for devaluation of the Mexican Peso in 1994 and lower
results in Argentina.
-36-
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
-------------------------------------------------------------------
During the fourth quarter of 1995, the Company's Autolatina
joint venture in Brazil and Argentina with Volkswagen AG was
dissolved. The dissolution resulted in a gain of $230 million,
primarily from a one-time cash compensation payment to Ford.
Historically, earnings in Brazil and Argentina have represented a
significant portion of Ford's Automotive earnings outside the U.S.
and Europe. The long-term effect, if any, of the dissolution of
Autolatina on the Company's future results will depend on Ford's
ability to compete on its own in these markets. The Company is
reestablishing manufacturing capacity in Brazil for small cars,
which should assist in improving Ford's competitiveness.
Financial Services Operations
-----------------------------
The Company's Financial Services operations earned a record
$2,083 million in 1995, up $688 million from 1994. The improvement
reflected record earnings at Ford Credit, The Associates, USL
Capital and Hertz and the nonrecurrence of a $440 million charge to
net income in the first quarter of 1994 for the disposition of
First Nationwide Bank.
Ford Credit's consolidated net income was a record
$1,395 million in 1995, up $82 million from 1994. The improvement
reflected primarily higher levels of earning assets, favorable tax
adjustments and improved cost performance, offset partially by
lower net interest margins and higher credit losses. Depreciation
costs increased as a result of continued growth in operating
leases; the related lease revenues more than offset the increased
depreciation. Ford Credit's results for 1995 included $255 million
from equity in the net income of affiliated companies, primarily
Ford Holdings, compared with $233 million a year ago. Ford
Holdings is a holding company which, through December 1995, owned
primarily The Associates, USL Capital and American Road. The
international operations managed by Ford Credit, but not included
in its consolidated results, earned $265 million in 1995, up
$24 million from 1994, reflecting primarily higher levels of
earning assets, offset partially by lower net interest margins.
The Associates earned a record $632 million in the U.S. in
1995, up $84 million from 1994. The increase reflected higher
levels of earning assets and improved net interest margins. The
international operations managed by The Associates, but not
included in its consolidated results, earned $114 million in 1995,
up $38 million from 1994.
USL Capital earned a record $135 million in 1995, up
$26 million from 1994. The improvement resulted primarily from
higher levels of earning assets, higher gains on asset sales and
lower operating costs. Hertz earned a record $105 million in 1995,
up $13 million from 1994. The increase reflected primarily higher
volume in construction equipment rentals and sales, offset
partially by increased depreciation and borrowing costs. American
Road earned $28 million in 1995, down $30 million from 1994. The
decline reflected primarily the nonrecurrence of prior year tax
adjustments and a loss on disposition of the annuity business.
In December 1995, Ford Holdings merged with Ford Holdings
Capital Corporation, a subsidiary of Ford Holdings, which resulted
in the cancellation of the voting preferred stock of Ford Holdings
in exchange for payment by Ford Holdings of the liquidation
preference of the stock plus accrued dividends (totaling about $2
billion). Ford Holdings funded the payment to the holders of the
preferred stock, which occurred in January 1996, primarily with
bank loans.
In late 1995, Ford began a reorganization of its Financial
Services group in order to align management responsibility more
closely with the legal ownership of the Financial Services
affiliates. As part of this reorganization, substantially all of
the common stock of Ford Holdings owned by Ford Credit was
repurchased by Ford Holdings in exchange for a promissory note.
-37-
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
-------------------------------------------------------------------
Also, in February 1996, The Associates filed a registration
statement with the Securities and Exchange Commission for an
initial public offering of its common stock representing up to a
19.8% economic interest in The Associates. As previously
announced, Ford is investigating the sale of all or a part of USL
Capital. A fuller description of the reorganization is provided in
Item 1. "Business - Financial Services Operations - Ford Holdings,
Inc. and Ford FSG, Inc."
HISTORICAL REFERENCE: 1994 COMPARED WITH 1993
The Company's worldwide net income in 1994 was a record
$5,308 million, or $4.97 per share of Common and Class B stock,
compared with $2,529 million, or $2.27 per share in 1993. Fully
diluted earnings per share were $4.44, compared with $2.10 a year
ago. Sales and revenues totaled $128.4 billion in 1994, up 18%
from 1993. Vehicle unit sales of cars and trucks were 6,853,000,
up 669,000 units, or 11%.
On June 6, 1994, a 2-for-1 stock split in the form of a 100%
stock dividend on the Company's outstanding Common and Class B
stock became effective. Earnings per share for prior periods were
restated to reflect the stock split.
The Company's financial results in 1994 showed substantial
improvement compared with 1993. Improvements in U.S. Automotive
operations included the favorable effects of higher industry volume
and improved margins. Automotive operations outside the U.S. also
improved. The improvement reflected primarily higher unit volume,
lower manufacturing costs and improved margins in Europe. Earnings
from Financial Services operations were down $126 million compared
with 1993, which was more than explained by a $440 million write-
off for the disposition of First Nationwide Bank (discussed below).
The write-off was offset largely by substantially improved earnings
at the other operations.
Automotive Operations
---------------------
Net income from Ford's worldwide Automotive operations was
$3,913 million in 1994 on sales of $107.1 billion, compared with
$1,008 million in 1993 on sales of $91.6 billion.
In the U.S., Ford's Automotive operations earned
$3,002 million on sales of $73.7 billion, compared with $1,442
million in 1993 on sales of $62.1 billion. Higher vehicle
production, reflecting increased industry sales, accounted for most
of the improvement. Improved margins, reflecting mainly favorable
material costs, manufacturing efficiencies, and lower marketing
costs, were offset partially by higher costs for new products and
related facilities. Results in 1993 included the one-time
favorable effect of tax legislation ($171 million) for the
restatement of U.S. deferred tax balances, and the gain on the sale
of Ford's North American automotive seating and seat trim business
($73 million).
The U.S. economy grew at an above-trend rate in 1994, and
interest rates and inflation remained at comparatively low levels.
U.S. car and truck industry volumes increased from 14.2 million
units in 1993 to 15.4 million units in 1994. Over 70% of the
increase in industry sales was attributable to trucks (including
minivans, compact utility vehicles, full-size pickups and compact
pickups). Ford's share of the U.S. car market was 21.8%, down half
of a point from 1993, reflecting lower shares for the Tempo and
Topaz, which were discontinued in 1994. The Company's U.S. truck
share was 30.1%, down 4/10 of a point from 1993, reflecting
capacity constraints on the Explorer.
Outside the U.S., Ford's Automotive operations earned
$911 million in 1994 on sales of $33.4 billion, compared with a
loss of $434 million in 1993 on sales of $29.5 billion. The
improvement reflected primarily higher unit volumes, lower
manufacturing costs and improved margins in Europe. Ford's
European Automotive operations earned $128 million in 1994,
compared with a loss of $873 million in 1993. Results outside the
U.S. in 1993 included restructuring charges at Jaguar
($174 million) and at Ford of Australia ($57 million), offset
partially by the favorable one-time effect of a reduction in German
tax rates ($59 million).
-38-
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
-------------------------------------------------------------------
Car and truck industry sales in Europe were 13.3 million units
in 1994, compared with 12.6 million units in 1993. Ford's European
car market share was 11.9% in 1994, up 3/10 of a point from 1993.
Ford's European truck share improved 2/10 of a point to 14.7%.
Financial Services Operations
-----------------------------
The Company's Financial Services operations earned
$1,395 million in 1994, down $126 million from 1993. The decline
was more than explained by the charge to net income of $440 million
in 1994 related to the disposition of First Nationwide Bank. This
charge, however, was offset largely by record earnings at Ford
Credit, The Associates and USL Capital, and the consolidation of
results for Hertz. Results in 1993 included an unfavorable one-
time effect of $31 million from tax legislation in the U.S.
Ford Credit's consolidated net income was a record
$1,313 million in 1994, up $119 million from 1993. The improvement
reflected primarily higher levels of earning assets, the one-time
effect of the gain on sale of an interest in Manheim Auctions, Inc.
(an auto auction company), the nonrecurrence of the one-time tax
adjustment in 1993 for increased U.S. tax rates, and improved cost
performance; partial offsets included lower net interest margins
and lower gains from the sale of receivables. Ford Credit's
results in 1994 included $233 million from equity in the net income
of affiliated companies, primarily Ford Holdings, compared with
$198 million a year ago. Depreciation costs increased as a result
of continued growth in operating leases; the related lease revenues
more than offset the increased depreciation. The international
operations managed by Ford Credit, but not included in its
consolidated results, earned $241 million in 1994, up $42 million
from 1993, reflecting primarily higher levels of earning assets and
lower credit losses.
The Associates earned a record $548 million in the U.S. in
1994, up $78 million from 1993. The increase reflected higher
levels of earning assets and improved net interest margins. The
international operations managed by The Associates, but not
included in its consolidated results, earned $76 million in 1994,
up $38 million from 1993, reflecting primarily higher levels of
earning assets.
USL Capital earned a record $109 million in 1994, up
$32 million from 1993. The increase reflected higher earning
assets, lower operating costs and the nonrecurrence of the one-time
tax adjustment in 1993 for increased U.S. tax rates. American
Road earned $58 million in 1994, compared with $79 million in 1993.
The decline reflected primarily reduced investment income from
capital gains.
In April 1994, Hertz became a wholly owned subsidiary of Ford.
In 1994, Financial Services net income included $92 million for
Hertz. In 1993, Automotive net income included $26 million for
Hertz (reflecting Ford's prior equity interest).
On September 30, 1994, substantially all of the assets of
First Nationwide Bank, since known as Granite Savings Bank (the
"Bank"), were sold to, and substantially all of the Bank's
liabilities were assumed by, First Madison Bank, FSB. The Bank is
a wholly owned subsidiary of Granite Management Corporation
(formerly First Nationwide Financial Corporation) ("Granite"),
which in turn is a wholly owned subsidiary of Ford. In 1994,
Granite incurred a loss of $484 million including a charge of
$440 million related to the disposition of the Bank, reflecting the
nonrecovery of goodwill and reserves for estimated losses on assets
not included in the sale. Granite incurred a loss of $55 million
in 1993.
-39-
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
-------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
Automotive Operations
---------------------
Cash and marketable securities of the Company's Automotive
operations were $12.4 billion at December 31, 1995, up $323 million
from December 31, 1994. The Company paid $1.6 billion in cash
dividends on its Common Stock, Class B Stock and Preferred Stock
during 1995.
Automotive capital expenditures were $8.7 billion in 1995, up
$366 million from 1994. During the next several years, Ford's
spending for product change is expected to be at similar levels;
however, as a percent of sales, such spending is expected to be at
lower levels.
At December 31, 1995, Automotive debt totaled $7.3 billion,
which was 22% of total capitalization (stockholders' equity and
Automotive debt), compared with $7.3 billion, or 25% of total
capitalization, at December 31, 1994.
At December 31, 1995, Ford had long-term contractually
committed global credit agreements under which $8.4 billion is
available from various banks at least through June 30, 2000. The
entire $8.4 billion may be used, at Ford's option, by any affiliate
of Ford; however, any borrowing by an affiliate will be guaranteed
by Ford. In addition, Ford has the ability to transfer on a
nonguaranteed basis the entire $8.4 billion in varying portions to
Ford Credit and Ford Credit Europe. These facilities were unused
at December 31, 1995.
In addition, at December 31, 1995, Ford Brasil Ltda. had $276
million of contractually committed credit facilities with various
banks ranging in maturity from June 1996 to December 1996. None of
these facilities were in use at December 31, 1995.
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 certain transactions with Ford, such as capital
contributions, dividend payments and the timing of payments for
income taxes. Their ability to obtain funds also is affected by
their 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.
Ford Credit's outstanding commercial paper totaled $35 billion
at December 31, 1995 with an average remaining maturity of 29 days.
Support facilities represent additional sources of funds, if
required.
At December 31, 1995, Financial Services had a total of $48.5
billion of contractually committed support facilities. Of these
facilities, $23.8 billion (excluding the $8.4 billion of Ford
credit facilities) are contractually committed global credit
agreements under which $19.8 billion and $4 billion are available
to Ford Credit and Ford Credit Europe, respectively, from various
banks; 62% and 75%, respectively, of such facilities are available
through June 30, 2000. The entire $19.8 billion may be used, at
Ford Credit's option, by any subsidiary of Ford Credit, and the
entire $4 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, 1995, none of the Ford
Credit global facilities were in use; $742 million of the Ford
Credit Europe global facilities were in use. In addition to the
Ford, Ford Credit and Ford Credit Europe global credit agreements,
at December 31, 1995, international subsidiaries and other credit
operations managed by Ford Credit had $1.1 billion of contractually
committed support facilities available outside the U.S. At
December 31, 1995, approximately 29% of these facilities were in
use.
-40-
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
-------------------------------------------------------------------
At December 31, 1995, Ford Holdings had outstanding long-term
debt of $1.9 billion, of which $205 million matures in 1996. All
of the Ford Holdings debt held by nonaffiliated persons is
guaranteed by Ford. Ford Holdings has a $1.5 billion term loan
agreement available through December 13, 1996, none of which was in
use at December 31, 1995, but all of which has since been used to
fund the payment to the holders of Ford Holdings' preferred stock
discussed above.
At December 31, 1995, The Associates had contractually
committed lines of credit with banks of $3.9 billion, with various
maturities ranging from January 31, 1996 to December 30, 1996, none
of which were utilized at December 31, 1995. Also, at December 31,
1995, The Associates had $5.1 billion of contractually committed
revolving credit facilities with banks, with maturity dates ranging
from January 1, 1996 through April 1, 2001, and $1.3 billion of
contractually committed receivables sale facilities, $275 million
of which are available through April 24, 1996, $500 million of
which are available through April 15, 1997, and $500 million of
which are available through April 30, 1998; none of these
facilities were in use at December 31, 1995. At December 31, 1995,
international operations managed by The Associates, but not
included in its support facilities, had about $270 million of
contractually committed support facilities available outside the
U.S., of which $50 million were in use at December 31, 1995.
At December 31, 1995, USL Capital had $1.7 billion of
contractually committed credit facilities, of which 71% are
available through September 2000. These facilities included
$46 million of contractually committed receivables sale facilities,
of which 100% were in use at December 31, 1995. At December 31, 1995,
international operations managed by USL Capital, but not
included in its support facilities, had about $3 million of
contractually committed support facilities available outside the
U.S., of which 50% were in use at December 31, 1995.
American Road's principal sources of funds are insurance
premiums and investment income. American Road had no debt and none
of its own credit lines at December 31, 1995.
At December 31, 1995, Hertz had $2 billion of contractually
committed credit facilities in the U.S., none of which were
utilized at December 31, 1995. These facilities included $751
million and $1 billion of agreements with banks which mature
June 27, 1996 and June 30, 2000, respectively, and a $250 million
revolving credit facility with Ford which matures June 30, 1999.
In addition, at December 31, 1995, international operations of
Hertz had about $317 million of contractually committed support
facilities available outside the U.S., of which about 53% were in
use at December 31, 1995.
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-31 immediately following
the signature pages of this Report.
Selected quarterly financial data of Ford and its consolidated
subsidiaries for 1995 and 1994 are set forth in Note 18 of Notes to
Financial Statements.
Item 9. Disagreements With Accountants on Accounting and
Financial Disclosure
----------------------------------------------------------
Not required.
-41-
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 caption "Election of
Directors" 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 captions "Compensation of
Directors", "Compensation and Option Committee Report on Executive
Compensation" and "Compensation of Executive Officers" in the Proxy
Statement.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
-------------------------------------------------------------
The information called for by Item 12 is incorporated by
reference from the information on page 1 of, and under the caption
"Election of Directors" 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.
-42-
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, 1995, 1994 and 1993.
Consolidated Balance Sheet at December 31, 1995 and 1994.
Consolidated Statement of Cash Flows for the years ended
December 31, 1995, 1994 and 1993.
Consolidated Statement of Stockholders' Equity for the years
ended December 31, 1995, 1994 and 1993.
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-31
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-31. 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.
-43-
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K (Continued)
----------------------------------------------------------------
(a) 3. Exhibits
-44-
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K (Continued)
-------------------------------------------------------------
-45-
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K (Continued)
-----------------------------------------------------------------
-46-
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K (Continued)
----------------------------------------------------------------
-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, 1995, the Registrant filed
the following Current Reports on Form 8-K:
1. Current Report on Form 8-K dated October 12, 1995 that
included information regarding possible strategic actions
with respect to the Registrant's Financial Services group.
2. Current Report on Form 8-K dated October 18, 1995 that
included information 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, 1995.
3. Current Report on Form 8-K dated November 9, 1995 that
included information regarding the Registrant's 7-1/8%
Debentures due November 15, 2025.
4. Current Report on Form 8-K dated December 11, 1995 that
included information regarding extension of an exchange offer
for the Registrant's Series B Cumulative Preferred Stock.
-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)
Group Vice President and
Chief Financial Officer
Date: March 19, 1996
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.
-49-
- - - - -
*Includes a loss of $440 million related to the disposition of Granite
Savings Bank (formerly First Nationwide Bank)
Segment results for 1994 have been adjusted to reflect reclassification
of certain tax amounts to conform with the 1995 presentation.
FS-1
Vehicle unit sales 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.
Fourth Quarter and Full Year 1994 unit sales have been restated to reflect
the country where sold and to include sales of all Ford-badged units.
Previously, factory unit sales were reported in North America on a
"where sold" basis and overseas on a "where produced" basis. Also,
Ford-badged unit sales of certain unconsolidated subsidiaries
(primarily Autolatina -- Brazil and Argentina) were not previously reported.
FS-2
The accompanying notes are part of the financial statements.
FS-3
- - - - -
*Less than $1 million
The accompanying notes are part of the financial statements.
FS-4
The accompanying notes are part of the financial statements.
FS-5
- - - - -
*The balances at the beginning and end of each period were less
than $1 million.
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 generally accounted for
on an equity basis. 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.
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.
Certain amounts for prior periods have been reclassified to
conform with 1995 presentations.
Nature of Operations
--------------------
The company operates in two principal business segments:
Automotive and Financial Services. 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, insurance
operations, and vehicle and equipment leasing 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 the company 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 as a result of the
consensus reached on November 15, 1995 by the Emerging Issues
Task Force of the Financial Accounting Standards Board on Issue
95-1 concerning the timing of revenue recognition when a
manufacturer conditionally guarantees the resale value of a
product or agrees to repurchase the product at a fixed price.
The company elected to recognize this change in accounting
principle on a prospective basis. The effect on the company's
1995 consolidated results of operations was not material, nor is
it expected to have a material effect in future years.
Implementation of this change will not affect the company's cash
flow. Previously, the company recognized revenue for these
vehicles when shipped.
FS-7
NOTE 1. Accounting Policies (Cont'd)
----------------------------
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.
Other Costs
-----------
Advertising and sales promotion costs are expensed as incurred.
Advertising costs were $2,024 million in 1995, $1,823 million in
1994 and $1,610 million in 1993.
Estimated costs related to product warranty are accrued at the
time of sale.
Research and development costs are expensed as incurred and were
$6,509 million in 1995, $5,811 million in 1994, and $5,618
million in 1993.
Income Per Share of Common and Class B Stock
--------------------------------------------
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 Stock and Class B Stock
outstanding during the applicable period.
The company has outstanding securities, primarily Series A
Preferred Stock, that could be converted to Common Stock. Other
obligations, such as stock options, are considered to be common
stock equivalents. The calculation of income per share of Common
and Class B Stock assuming full dilution takes into account the
effect of these convertible securities and common stock
equivalents when the effect is material and dilutive.
Income attributable to Common and Class B Stock was as follows
(in millions):
- - - - -
* Represents a one-time reduction of $0.06 per share of Common and
Class B Stock related to the exchange of Series B Preferred Stock
for company-obligated mandatorily redeemable preferred securities
of a subsidiary trust; this adjustment equals the excess of the
fair value of company-obligated mandatorily redeemable preferred
securities at the date of issuance over the carrying amount of
exchanged Series B Preferred Stock
FS-8
NOTE 1. Accounting Policies (Cont'd)
----------------------------
Derivative Financial Instruments
--------------------------------
The company and many of its subsidiaries have entered into
agreements to manage certain exposures to fluctuations in foreign
exchange and interest rates. All derivative financial
instruments are classified as "held for purposes other than
trading;" company policy specifically prohibits the use of
derivatives for speculative purposes.
Ford has operations in many countries outside the U.S., and
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.
Agreements to manage foreign exchange exposures include foreign
currency forward contracts, currency swaps and, to a lesser
extent, foreign currency options. Gains and losses on the
various agreements are recognized in income during the period of
the related transactions, included in the bases of the related
transactions, or, in the case of hedges of net investments in
foreign subsidiaries, recognized as an adjustment to the foreign
currency translation component of stockholders' equity.
Financial Services operations issue debt and other payables for
which the maturity and interest rate structure differs from the
invested assets to ensure continued access to capital markets and
to minimize overall borrowing costs. Agreements to manage
interest rate exposures include primarily interest rate swap
agreements. The differential paid or received on interest rate
swap agreements is recognized as an adjustment to interest
expense in the period.
Foreign Currency Translation
-----------------------------
Revenues, costs and expenses of foreign subsidiaries are
translated to U.S. dollars at average-period exchange rates. The
effect of changes in foreign exchange rates on revenues and costs
was generally unfavorable in 1995, 1994 and 1993.
Assets and liabilities of foreign subsidiaries are translated to
U.S. dollars at end-of-period exchange rates. The effects of this
translation for most foreign subsidiaries and certain other
foreign currency transactions are reported in a separate
component of stockholders' equity. Translation gains and losses
for foreign subsidiaries that are located in highly inflationary
countries or conduct a major portion of their business with the
company's U.S. operations are included in income. Also included
in income are gains and losses arising from transactions
denominated in a currency other than the functional currency of
the subsidiary involved.
The effect of changes in foreign exchange rates on assets and
liabilities, as described above, increased net income by $13
million in 1995, $376 million in 1994, and $419 million in 1993.
These amounts included net transaction and translation gains
before taxes of $37 million in 1995, $574 million in 1994 and
$988 million in 1993. These gains were offset by higher costs of
sales that resulted from the use of historical exchange rates for
inventories sold during the period in countries with high
inflation rates.
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 considers projected future operating
results, trends and other circumstances in making such estimates
and evaluations.
Statement of Financial Accounting Standards No. 121 ("SFAS 121"),
"Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of," was issued in March 1995.
SFAS 121 requires that, effective January 1, 1996, long-lived
assets and certain identifiable intangibles to be held and used
by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying value of an
asset may not be recoverable. It also requires that long-lived
assets and certain identifiable intangibles to be disposed of be
reported at the lower of carrying amount or fair value less cost
to sell. The effect of adopting SFAS 121 is not expected to be
material.
FS-9
NOTE 1. Accounting Policies (Cont'd)
----------------------------
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 and Financial
Services other assets at December 31, 1995 was $2.3 billion and
$3.2 billion, respectively.
Company-Obligated Mandatorily Redeemable Preferred Securities of
a Subsidiary Trust
----------------------------------------------------------------
On December 21, 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"), each representing
1/2,000 of a share of Series B Preferred Stock of Ford.
Concurrent with the issuance of the Preferred Securities in
exchange for Depositary Shares 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 interest and other payment dates on the
Debentures correspond to the distribution and other payment dates
on the Preferred Securities and Common Securities. 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.
Preferred Stockholders' Equity in a Subsidiary Company
------------------------------------------------------
During Fourth Quarter 1995, Ford Holdings, Inc. ("Ford
Holdings"), a subsidiary of Ford, merged with Ford Holdings
Capital Corporation, a subsidiary of Ford Holdings, which
resulted in the cancellation of the voting preferred stock of
Ford Holdings in exchange for payment by Ford Holdings of the
liquidation preference of the stock plus accrued and unpaid
dividends. Ford Holdings funded the payment to the holders of
the preferred stock primarily with bank loans.
FS-10
NOTE 2. Marketable and Other Securities
----------------------------------------
Trading securities are recorded at fair value with unrealized
gains and losses included in income. Available-for-sale
securities are recorded at fair value with 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 was estimated based on quoted
market prices. For those securities for which there were no
quoted market prices, the estimate of fair value was 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, 1995 were as follows (in
millions):
Investments in securities at December 31, 1994 were as follows (in millions):
All debt securities classified as available-for-sale or held-to-maturity
had contractual maturities of one year or less.
Included in stockholders' equity at December 31, 1995 and 1994 was $146
million and $188 million, respectively, which represented principally
the company's equity interest in the unrealized gains on securities
owned by certain unconsolidated subsidiaries.
FS-11
NOTE 2. Marketable and Other Securities (Cont'd)
----------------------------------------
Financial Services
------------------
Investments in securities at December 31, 1995 were as follows (in millions):
Investments in securities at December 31, 1994 were as follows (in millions):
FS-12
NOTE 2. Marketable and Other Securities (Cont'd)
----------------------------------------
Financial Services (Cont'd)
------------------
The amortized cost and fair value of investments in available-for-sale
securities and held-to-maturity securities at December 31, 1995, by
contractual maturity, were as follows (in millions):
The amortized cost and fair value of investments in available-for-sale
securities and held-to-maturity securities at December 31, 1994, by
contractual maturity, were as follows (in millions):
Proceeds from sales of available-for-sale securities were $2.4 billion
in 1995 and $9.1 billion in 1994; gross gains of $39 million and gross
losses of $18 million were realized on those sales in 1995, and gross
gains of $24 million and gross losses of $56 million were realized on
those sales in 1994. Stockholders' equity included, net of tax, a net
unrealized gain of $56 million at December 31, 1995 and a net unrealized
loss of $155 million at December 31, 1994. Proceeds from sales of
investments in debt securities were $11.2 billion in 1993; gross gains
of $113 million and gross losses of $20 million were realized on those sales.
FS-13
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):
Included in finance receivables at December 31, 1995 and 1994 were
a total of $1.3 billion 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, 1995 and 1994 were $3.5 billion and $3.4 billion,
respectively, of accounts receivable purchased by certain
Financial Services operations from Automotive operations.
Contractual maturities of automotive and other finance
receivables are as follows (in millions): 1996 - $53,718;
1997 - $20,569; 1998 - $14,160; thereafter - $17,447.
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.
Sales of finance receivables increased net income by $69 million
in 1995, $15 million in 1994 and $60 million in 1993.
Investments in direct financing leases at December 31 were as
follows (in millions):
Minimum direct financing lease rentals (including executory costs of
$31 million) are contractually due as follows (in millions):
1996 - $3,093; 1997 - $2,346; 1998 - $1,489; 1999 - $893; thereafter - $1,595.
FS-14
NOTE 3. Receivables - Financial Services (Cont'd)
-----------------------------------------
Investments in operating leases at December 31 were as follows (in millions):
Minimum rentals on operating leases are contractually due as
follows (in millions): 1996 - $6,364; 1997 - $2,694; 1998 -
$431; 1999 - $131; thereafter - $222.
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): 1995 -
$5,508; 1994 - $4,231; 1993 - $2,984.
Allowances for credit losses are estimated and established as
required based on historical experience. Other factors that
affect collectibility also are evaluated, and additional amounts
may be provided. 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.
Changes in the allowances for credit losses were as follows (in
millions):
Statement of Financial Accounting Standards No. 114, "Accounting
by Creditors for Impairment of a Loan," was issued in May 1993
and amended in October 1994 by Statement of Financial Accounting
Standards No. 118, "Accounting by Creditors for Impairment of a
Loan - Income Recognition and Disclosures." The Standards
require that impaired loans be measured based on the present
value of expected future cash flows discounted at the loan's
effective interest rate. The company adopted these standards as
of January 1, 1995, and the effect was not material.
NOTE 4. Inventories - Automotive
---------------------------------
Inventories at December 31 were as follows (in millions):
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 $1,406 million and $1,383
million at December 31, 1995 and 1994, respectively.
FS-15
NOTE 5. Net Property, Depreciation and Amortization - Automotive
-----------------------------------------------------------------
Net property at December 31 was as follows (in millions):
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.
Depreciation and amortization expenses were as follows (in
millions):
1995 1994 1993
------ ------ ------
Depreciation $2,454 $2,297 $2,392
Amortization 2,765 2,129 2,012
------ ------ ------
Total $5,219 $4,426 $4,404
====== ====== ======
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 $2,529
million in 1995, $2,377 million in 1994, and $1,934 million in
1993. 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/(loss) before income taxes for U.S. and foreign operations,
excluding equity in net (loss)/income of affiliated companies, was
as follows (in millions):
The provision for income taxes was estimated as follows (in millions):
FS-16
NOTE 6. Income Taxes (Cont'd)
---------------------
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 $2.6 billion of
retained earnings at December 31, 1995 that have been invested 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):
Deferred income taxes reflect the estimated tax effect of
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):
Foreign net operating loss carryforwards for tax purposes were
$2.4 billion at December 31, 1995. A substantial portion of these
losses has an indefinite carryforward period; the remaining losses
have expiration dates beginning in 1996. 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 consideration of 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):
Noncurrent Liabilities
----------------------
Included in other liabilities at December 31 were the following (in millions):
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, government and other fixed income securities and real
estate. 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):
FS-18
NOTE 8. Employee Retirement Benefits (Cont'd)
-------------------------------------
Pension expense in 1995 decreased for U.S. plans primarily as a
result of higher discount rates, and increased for non-U.S.
plans primarily as a result of benefit improvements and
unfavorable exchange rates. Pension expense increased in 1994
as a result of lower discount rates for both U.S. and non-U.S.
plans. In addition, amendments made in September 1993 to the
Ford-UAW Retirement Plan and the General Retirement Plan
provided benefit improvements that increased U.S. expense in
1995 and 1994.
The status of these plans at December 31 was as follows (in millions):
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 year-end 1995, the unfunded liability
in excess of $448 million is recorded net of deferred taxes as
a $108 million reduction in stockholders' equity, and at year-end
1994, the unfunded liability was offset by an intangible asset.
FS-19
NOTE 8. Employee Retirement Benefits (Cont'd)
-------------------------------------
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 postretirement
health care benefits is accrued over periods of employee service on
an actuarially determined basis.
Net postretirement benefit expense, including Financial Services,
was as follows (in millions):
The status of these plans at December 31 was as follows (in millions):
- - - - -
a/ The prior service effect of plan amendments deferred for
recognition over remaining service to retirement eligibility.
b/ 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 1995 by
about $245 million and the accumulated postretirement benefit
obligation at December 31, 1995 by about $2 billion. Health care
trend rates, together with other assumptions, are subject to review
annually in the first quarter. Based on estimates of recent
experience and the general health care cost trend outlook, it is
expected that these rates will be lowered.
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):
*Excludes the effect of interest rate swap agreements
Long-term debt at December 31, 1995 included maturities as
follows (in millions): 1996 - $960 (included in current
liabilities); 1997 - $580; 1998 - $351; 1999 - $53; 2000 -
$1,003; thereafter - $3,488.
Included in long-term debt at December 31, 1995 and 1994 were
obligations of $5,031 million and $6,567 million, respectively,
with fixed interest rates and $444 million and $536 million,
respectively, with variable interest rates (generally based on
LIBOR or other short-term rates). Obligations payable in foreign
currencies at December 31, 1995 and 1994 were $968 million and
$994 million, respectively.
Agreements to manage exposures to fluctuations in interest rates,
which include primarily interest rate swap agreements and futures
contracts, did not materially change the overall weighted-average
rate on long-term debt and effectively decreased the obligations
subject to variable interest rates to $287 million at
December 31, 1995 and $465 million at December 31, 1994.
Financial Services
------------------
*Excludes the effect of interest rate swap agreements
FS-21
NOTE 9. Debt (Cont'd)
-------------
Financial Services (Cont'd)
------------------
Information concerning short-term borrowings (excluding long-term debt
payable within one year) is as follows (in millions):
Long-term debt at December 31, 1995 included maturities as follows
(in millions): 1996 - $12,097; 1997 - $14,326; 1998 - $13,696;
1999 - $11,485; 2000 - $12,306; thereafter - $16,446.
Included in long-term debt at December 31, 1995 and 1994 were
obligations of $53.2 billion and $45.9 billion, respectively, with
fixed interest rates and $15.1 billion and $12.2 billion,
respectively, with variable interest rates (generally based on
LIBOR or other short-term rates). Obligations payable in foreign currencies
at December 31, 1995 and 1994 were $21 billion and $12.2 billion,
respectively. These obligations were issued primarily to fund foreign
business operations.
Agreements to manage exposures to fluctuations in interest rates
include primarily interest rate swap agreements. At December 31,
1995, these agreements did not change the overall weighted-average
rate on long-term debt of 7% excluding these agreements, and
effectively decreased the obligations subject to variable interest
rates to $11.9 billion. At December 31, 1995, the weighted-
average interest rate on short-term debt increased to 5.8%,
compared with 5.7% excluding these agreements. At
December 31, 1994, these agreements decreased the overall
weighted-average rate on long-term debt to 7.1%, compared with
7.2% excluding these agreements, and effectively decreased the
obligations subject to variable rates to $7.2 billion. At
December 31, 1994, the weighted-average interest rate on short-
term debt decreased to 5.6%, compared with 5.9% excluding these
agreements.
Support Facilities
------------------
At December 31, 1995, Ford had long-term contractually committed
global credit agreements under which $8.4 billion is available
from various banks at least through June 30, 2000. The entire
$8.4 billion may be used, at Ford's option, by any affiliate of
Ford; however, any borrowing by an affiliate will be guaranteed by
Ford. In addition, Ford has the ability to transfer on a
nonguaranteed basis the entire $8.4 billion in varying portions to
Ford Credit and Ford Credit Europe. These facilities were unused
at December 31, 1995.
At December 31, 1995, Financial Services had a total of $48.5
billion of contractually committed support facilities. Of these
facilities, $23.8 billion (excluding the $8.4 billion of Ford
credit facilities) are contractually committed global credit
agreements under which $19.8 billion and $4 billion are available
to Ford Credit and Ford Credit Europe, respectively, from various
banks; 62% and 75%, respectively, of such facilities are available
through June 30, 2000. The entire $19.8 billion may be used, at
Ford Credit's option, by any subsidiary of Ford Credit, and the
entire $4 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, 1995, none of the Ford
Credit global facilities were in use; $742 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, 1995 consisted of $22 billion of
contractually committed support facilities available to various
affiliates in the U.S. and $2.7 billion of contractually committed
support facilities available to various affiliates outside the U.S.;
at December 31, 1995, about $1 billion of these facilities were in use.
FS-22
NOTE 10. Capital Stock
------------------------
At December 31, 1995, 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 provides that all shares of Common Stock and Class
B Stock share equally in dividends (other than dividends declared
with respect to any outstanding Preferred Stock), except that any
stock dividends are payable in shares of Common Stock to holders
of that class and in Class B Stock to holders of that class. Upon
liquidation, all shares of Common Stock and Class B Stock are
entitled to share equally in the assets of the company available
for distribution to the holders of such shares.
On April 14, 1994, the company's Board of Directors declared a 2-
for-1 stock split in the form of a 100% stock dividend on the
company's Common Stock and Class B Stock effective June 6, 1994.
Share data were restated to reflect the split, where appropriate.
Information concerning the Preferred Stock of the company is as
follows:
The Series A and Series B Preferred Stock rank (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-23
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.
Information concerning stock options is as follows (shares in
millions):
- - - - -
a/ Fair market value of Common Stock at dates of grant.
b/ At option prices ranging from $9.09 to $29.06 during 1995, $9.09
to $28.84 during 1994, and $9.09 to $25.84 during 1993.
c/ Including 7.6 million and 40.9 million shares under the 1985
and 1990 Plans, respectively, at option prices ranging from
$13.42 to $32.00 per share.
d/ In addition, up to 1% of the issued Common Stock 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. At
December 31, 1995, this reduction aggregated 2.4 million shares.
No further grants may be made under the 1985 Plan. Grants may be
made under the 1990 Plan through April 2000. In general, options
granted under the 1985 Plan and options granted to date 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 with an
equal number of accompanying stock appreciation rights that 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 884,500 shares in 1995,
709,800 shares in 1994, and 2,327,200 shares in 1993 under the
1990 Long-Term Incentive Plan (not included in the table above).
The number of shares ultimately awarded will depend on the extent
to which the Performance Target specified in each Right is
achieved, the individual performance of the recipients and other
factors, as determined by the Compensation and Option Committee of
the Board of Directors.
Statement of Financial Accounting Standards No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation", was issued in October
1995. SFAS 123 permits entities to record expense for employee
stock compensation plans based on fair value at date of grant.
The company, however, plans to continue to measure compensation
cost using the intrinsic value method, in accordance with APB
Opinion No. 25, "Accounting for Stock Issued to Employees."
FS-24
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 reasonably be at December 31, 1995. 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, 1995, the company had the following minimum rental
commitments under non-cancelable operating leases (in millions):
1996 - $740; 1997 - $689; 1998 - $363; 1999 - $310; 2000 - $251;
thereafter - $456. These amounts include rental commitments
related to the sales and leasebacks of certain Automotive
machinery and equipment.
The company and certain of its subsidiaries have entered into
agreements with various banks to provide credit card programs that
offer rebates that can be applied against the purchase or lease of
Ford cars or trucks. The maximum amount of rebates available to
qualified cardholders at December 31, 1995 and 1994 was $3.1
billion and $2.3 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.
Certain Financial Services subsidiaries make credit lines
available to holders of their credit cards. At December 31, 1995
and 1994, the unused portion of available credit was approximately
$19.3 billion and $10.3 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.
FS-25
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.
Balance Sheet Financial Instruments
-----------------------------------
Information about specific valuation techniques and related
estimated fair value detail is provided throughout the footnotes.
The table below provides book value and estimated fair value
amounts (in millions) and a cross reference to the applicable
Note.
Foreign Currency Instruments
----------------------------
The fair value of foreign currency instruments generally was
estimated using current market prices provided by outside
quotation services. At December 31, 1995 and 1994, the fair value
of net receivable contracts was $373 million and $298 million,
respectively, and the fair value of net payable contracts was $316
million and $108 million, respectively. At December 31, 1995 and
1994, foreign currency instruments had a net deferred loss of $111
million and a net deferred gain of $59 million, respectively. In
the unlikely event that a counterparty fails to meet the terms of
a foreign currency agreement, the company's market risk is limited
to the exchange rate differential. In the case of currency swaps,
the company's market risk also may include an interest rate differential.
At December 31, 1995 and 1994, the total amount of the company's
foreign currency forward contracts (contracts purchased and sold)
and currency swaps and options outstanding was $24.5 billion and
$12.6 billion, respectively, maturing primarily through 1996.
Interest Rate Instruments
-------------------------
The fair value of interest rate instruments is the estimated
amount the company would receive or pay to terminate the
agreement. Fair value is calculated using information provided by
outside quotation services, taking into account current interest
rates and the current credit-worthiness of the swap parties. At
December 31, 1995 and 1994, the fair value of net receivable
contracts was $739 million and $452 million, respectively, and the
fair value of net payable contracts was $430 million and
$596 million, respectively. In the unlikely event that a
counterparty fails to meet the terms of an interest rate
agreement, the company's exposure is limited to the interest rate
differential. At December 31, 1995 and 1994, the underlying
principal amounts on which the company has interest rate swap
agreements outstanding aggregated $66.3 billion and $52.7 billion,
respectively, maturing primarily through 2001.
Other Financial Agreements
--------------------------
At December 31, 1995, the company had guaranteed $1.2 billion of
debt of unconsolidated subsidiaries, affiliates and others. The
potential risk of loss under other financial agreements was not
material.
FS-26
NOTE 15. Acquisitions and Dispositions
---------------------------------------
Dissolution of Autolatina Joint Venture
---------------------------------------
During 1995, the company's joint venture with Volkswagen AG in
Brazil and Argentina 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.
The company's income statement for 1995 included Ford's equity
share in the net loss of the Autolatina joint venture through the
dissolution date together with the gain on dissolution. The
assets and liabilities of the new entities in Brazil and Argentina
were consolidated in the company's balance sheet at
December 31, 1995.
Historically, earnings in Brazil and Argentina have represented a
significant portion of Ford's Automotive earnings outside the U.S.
and Europe. The long-term effect, if any, of the dissolution of
Autolatina on the company's future results will depend on Ford's
ability to compete on its own in these markets.
Sale of Annuity Business
------------------------
During 1995, the company agreed to sell its annuity business to
SunAmerica, Inc. for $173 million. The sale is expected to be
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 at December 31, 1995 were included in the balance sheet
under Financial Services - Other Assets; at December 31, 1994, the
assets and liabilities were consolidated as part of the Financial
Services segment.
Sale of First Nationwide Bank
-----------------------------
On September 30, 1994, substantially all of the assets of First
Nationwide Bank, since known as Granite Savings Bank (the "Bank"),
were sold to, and substantially all of the Bank's liabilities were
assumed by, First Madison Bank. The Bank is a wholly owned
subsidiary of Granite Management Corporation (formerly First
Nationwide Financial Corporation) ("Granite"), which in turn is a
wholly owned subsidiary of Ford.
The company recognized in First Quarter 1994 earnings a pre-tax
charge of $475 million ($440 million after taxes) related to the
disposition of the Bank, reflecting the non-recovery of goodwill
and reserves for estimated losses on assets not included in the
sale. The company's income statement included the results of
operations of Granite through March 31, 1994. The remaining net
assets of Granite at December 31, 1995 and 1994 were included in
the balance sheet under Financial Services - Other Assets.
Acquisition of The Hertz Corporation
------------------------------------
In April 1994, The Hertz Corporation ("Hertz") became a wholly
owned subsidiary of Ford. In 1993 and First Quarter 1994, Hertz
was accounted for on an equity basis as part of the Automotive
segment. In the balance of 1994 and in 1995, the operating
results, assets, liabilities and cash flows of Hertz were
consolidated as part of the Financial Services segment.
FS-27
NOTE 16. Cash Flows
--------------------
The reconciliation of net income to cash flows from operating
activities is as follows (in millions):
- - - - -
* 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 activities do not report operating income;
income before income taxes is representative of operating income
FS-29
NOTE 17. Segment Information (Cont'd)
-----------------------------
Financial Services (Cont'd)
------------------
NOTE 18. Summary Quarterly Financial Data (Unaudited)
------------------------------------------------------
(in millions, except amounts per share)
- - - - -
a/ Includes a loss of $440 million related to the disposition of
Granite Savings Bank (formerly First Nationwide Bank).
b/ The sum of the per share amounts in 1995 and 1994 is different
than the amounts reported for the full year because of the effect
that issuances of the company's stock had on average shares for
those periods.
FS-30
Coopers & Lybrand L.L.P.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Ford Motor Company
We have audited the consolidated financial statements and the
supplemental schedule of condensed financial information of
selected subsidiaries of Ford Motor Company and Subsidiaries listed
in Items 14(a)1 and 14(a)2 of this Form 10-K. These financial statements
and the supplemental schedule are the responsibility of the Company's
managment. Our responsibility is to express an opinion on these
financial statements and supplemental schedule 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 inthe financial statemetnts. An audit also includes
assessing the accounting pirnciples 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, 1995 and 1994
and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1995,
in conformity with generally accepted accounting principles. In
addition, in our opinion, the supplemental schedule referred to
above, when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the
information presented therein.
/s/Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
400 Renaissance Center
Detroit, Michigan 48243
313-446-7100
January 26, 1996
FS-31
Supplemental Schedule
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) B.V.,
and Ford Motor Company A/S (Denmark). 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
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