Ford Motor Company and Subsidiaries
-----------------------------------
HIGHLIGHTS
Fourth Quarter Full Year
---------------------------- ---------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
(unaudited)
Worldwide vehicle unit sales of
cars and trucks (in thousands)
- North America 1,280 1,197 4,787 4,370
- Outside North America 639 617 2,433 2,453
----- ----- ----- -----
Total 1,919 1,814 7,220 6,823
----- ----- ----- -----
----- ----- ----- -----
Sales and revenues (in millions)
- Automotive $ 37,781 $ 32,204 $ 136,973 $ 119,083
- Financial Services 6,637 5,699 25,585 25,333
--------- --------- --------- ---------
Total $ 44,418 $ 37,903 $ 162,558 $ 144,416
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income (in millions)
- Automotive $ 1,449 $ 820 $ 5,721 $ 4,752
- Financial Services (excl. The Associates) 357 223 1,516 1,187
- The Associates - - - 177
- Gain on spin-off of The Associates - - - 15,955
--------- --------- --------- ---------
Total $ 1,806 $ 1,043 $ 7,237 $ 22,071
--------- --------- --------- ---------
--------- --------- --------- ---------
Capital expenditures (in millions)
- Automotive $ 2,921 $ 2,445 $ 7,945 $ 8,113
- Financial Services 155 106 590 504
--------- --------- --------- ---------
Total $ 3,076 $ 2,551 $ 8,535 $ 8,617
--------- --------- --------- ---------
--------- --------- --------- ---------
Automotive capital expenditures as a
percentage of sales 7.7% 7.6% 5.8% 6.8%
Stockholders' equity at December 31
- Total (in millions) $ 27,537 $ 23,409 $ 27,537 $ 23,409
- After-tax return on Common and
Class B stockholders' equity 26.6% 17.8% 28.1% 25.4%
Automotive net cash at December 31
(in millions)
- Cash and marketable securities $ 23,585 $ 23,805 $ 23,585 $ 23,805
- Debt 12,144 9,834 12,144 9,834
--------- --------- --------- ---------
Automotive net cash $ 11,441 $ 13,971 $ 11,441 $ 13,971
--------- --------- --------- ---------
--------- --------- --------- ---------
After-tax return on sales
- North American Automotive 5.8% 4.5% 6.2% 5.3%
- Total Automotive 3.9% 2.6% 4.2% 4.0%
Shares of Common and Class B Stock
(in millions)
- Average number outstanding 1,207 1,210 1,210 1,211
- Number outstanding at December 31 1,207 1,209 1,207 1,209
Common Stock price (per share)
(adjusted to reflect The Associates
spin-off)
- High $ 54-7/8 $59-7/8 $ 67-7/8 $61-7/16
- Low 48-1/2 38-13/16 46-1/4 28-15/32
AMOUNTS PER SHARE OF COMMON AND CLASS B
STOCK AFTER PREFERRED STOCK DIVIDENDS
Income assuming dilution
- Automotive $ 1.18 $ 0.66 $ 4.63 $ 3.76
- Financial Services (excl. The Associates) 0.29 0.18 1.23 0.96
- The Associates - - - 0.14
- Gain on spin-off of The Associates - - - 12.90
--------- --------- --------- ---------
Total $ 1.47 $ 0.84 $ 5.86 $ 17.76
--------- --------- --------- ---------
--------- --------- --------- ---------
Cash dividends $ 0.50 $ 0.46 $ 1.88 $ 1.72
FS-1
Ford Motor Company and Subsidiaries
VEHICLE UNIT SALES
------------------
For the Periods Ended December 31, 1999 and 1998
(in thousands)
Fourth Quarter Full Year
------------------------ --------------------------
1999 1998 1999 1998
-------- -------- -------- --------
(unaudited) (unaudited)
North America
United States
Cars 497 428 1,725 1,563
Trucks 646 654 2,660 2,425
----- ----- ----- -----
Total United States 1,143 1,082 4,385 3,988
Canada 100 87 288 279
Mexico 37 28 114 103
----- ----- ----- -----
Total North America 1,280 1,197 4,787 4,370
Europe
Britain 122 102 518 498
Germany 80 143 353 444
Italy 59 56 209 205
Spain 45 46 180 155
France 44 54 172 171
Other countries 175 95 528 377
----- ----- ----- -----
Total Europe 525 496 1,960 1,850
Other international
Australia 30 35 125 133
Brazil 26 34 117 178
Argentina 16 16 60 97
Taiwan 11 12 56 77
Japan 8 5 32 25
Other countries 23 19 83 93
----- ----- ----- -----
Total other international 114 121 473 603
----- ----- ----- -----
Total worldwide vehicle unit sales 1,919 1,814 7,220 6,823
----- ----- ----- -----
----- ----- ----- -----
Vehicle unit sales generally are reported worldwide on a "where sold" basis and
include sales of all Ford-badged units, as well as units manufactured by Ford
and sold to other manufacturers.
Prior periods were restated to correct reported unit sales.
FS-2
Ford Motor Company and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
--------------------------------
For the Years Ended December 31, 1999, 1998 and 1997
(in millions, except amounts per share)
1999 1998 1997
------------ ------------ ------------
AUTOMOTIVE
Sales (Note 1) $136,973 $119,083 $122,935
Costs and expenses (Notes 1 and 16):
Costs of sales 119,046 103,905 107,994
Selling, administrative and other expenses 9,548 8,493 7,995
-------- -------- --------
Total costs and expenses 128,594 112,398 115,989
Operating income 8,379 6,685 6,946
Interest income 1,428 1,331 1,116
Interest expense 1,397 829 788
-------- -------- --------
Net interest income 31 502 328
Equity in net income/(loss) of affiliated companies (Note 1) 82 (38) (88)
Net expense from transactions with
Financial Services (Note 1) (45) (191) (104)
-------- -------- --------
Income before income taxes - Automotive 8,447 6,958 7,082
FINANCIAL SERVICES
Revenues (Note 1) 25,585 25,333 30,692
Costs and expenses (Note 1):
Interest expense 7,679 8,036 9,712
Depreciation 9,254 8,589 7,645
Operating and other expenses 4,653 4,618 6,621
Provision for credit and insurance losses 1,465 1,798 3,230
-------- -------- --------
Total costs and expenses 23,051 23,041 27,208
Net revenue from transactions with Automotive (Note 1) 45 191 104
Gain on spin-off of The Associates (Note 16) - 15,955 -
Gain on sale of Common Stock of a subsidiary (Note 16) - - 269
-------- -------- --------
Income before income taxes - Financial Services 2,579 18,438 3,857
-------- -------- --------
TOTAL COMPANY
Income before income taxes 11,026 25,396 10,939
Provision for income taxes (Note 7) 3,670 3,176 3,741
-------- -------- --------
Income before minority interests 7,356 22,220 7,198
Minority interests in net income of subsidiaries 119 149 278
-------- -------- --------
Net income $ 7,237 $ 22,071 $ 6,920
-------- -------- --------
-------- -------- --------
Income attributable to Common and Class B Stock
after preferred stock dividends (Note 1) $ 7,222 $ 21,964 $ 6,866
Average number of shares of Common and Class B
Stock outstanding (Note 1) 1,210 1,211 1,195
AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK (Note 1)
Basic income $ 5.99 $ 18.17 $ 5.75
Diluted income $ 5.86 $ 17.76 $ 5.62
Cash dividends $ 1.88 $ 1.72 $ 1.645
The accompanying notes are part of the financial statements.
Prior period costs of sales and selling, administrative and other expenses were
reclassified.
FS-3
Ford Motor Company and Subsidiaries
CONSOLIDATED BALANCE SHEET
--------------------------
(in millions)
December 31, December 31,
1999 1998
--------------- ----------------
ASSETS
Automotive
Cash and cash equivalents $ 4,642 $ 3,685
Marketable securities (Note 2) 18,943 20,120
-------- --------
Total cash and marketable securities 23,585 23,805
Receivables 3,769 2,604
Inventories (Note 5) 6,435 5,656
Deferred income taxes 3,872 3,239
Other current assets (Note 1) 4,126 3,405
Current receivable from Financial Services (Note 1) 2,304 0
-------- --------
Total current assets 44,091 38,709
Equity in net assets of affiliated companies (Note 1) 2,744 2,401
Net property (Note 6) 42,317 37,320
Deferred income taxes 2,816 3,175
Other assets (Note 1) 13,213 7,139
-------- --------
Total Automotive assets 105,181 88,744
Financial Services
Cash and cash equivalents 1,588 1,151
Investments in securities (Note 2) 733 968
Finance receivables (Note 3) 113,298 97,176
Net investment in operating leases (Note 4) 42,471 41,173
Other assets 11,123 7,445
Receivable from Automotive (Note 1) 1,835 888
-------- --------
Total Financial Services assets 171,048 148,801
-------- --------
Total assets $276,229 $237,545
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Automotive
Trade payables $ 14,450 $ 13,368
Other payables 4,156 2,755
Accrued liabilities (Note 8) 19,321 16,925
Income taxes payable 1,862 1,404
Debt payable within one year (Note 10) 1,602 1,121
Current payable to Financial Services (Note 1) 0 70
-------- --------
Total current liabilities 41,391 35,643
Long-term debt (Note 10) 10,542 8,713
Other liabilities (Note 8) 33,247 30,133
Deferred income taxes 1,376 751
Payable to Financial Services (Note 1) 1,835 818
-------- --------
Total Automotive liabilities 88,391 76,058
Financial Services
Payables 3,550 3,555
Debt (Note 10) 139,919 122,324
Deferred income taxes 7,078 5,488
Other liabilities and deferred income 6,775 6,034
Payable to Automotive (Note 1) 2,304 0
-------- --------
Total Financial Services liabilities 159,626 137,401
Company-obligated mandatorily redeemable preferred securities of a subsidiary
trust holding solely junior subordinated debentures of the Company (Note 1) 675 677
Stockholders' equity
Capital stock (Notes 11 and 12)
Preferred Stock, par value $1.00 per share (aggregate liquidation preference
of $177 million) * *
Common Stock, par value $1.00 per share (1,151 million shares issued) 1,151 1,151
Class B Stock, par value $1.00 per share (71 million shares issued) 71 71
Capital in excess of par value of stock 5,049 5,283
Accumulated other comprehensive income (1,923) (1,670)
ESOP loan and treasury stock (1,417) (1,085)
Earnings retained for use in business 24,606 19,659
-------- --------
Total stockholders' equity 27,537 23,409
-------- --------
Total liabilities and stockholders' equity $276,229 $237,545
-------- --------
-------- --------
- - - -
*Less than $1 million
The accompanying notes are part of the financial statements.
FS-4
Ford Motor Company and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
For the Years Ended December 31, 1999, 1998 and 1997
(in millions)
1999 1998 1997
------------------------ ------------------------ ------------------------
Financial Financial Financial
Automotive Services Automotive Services Automotive Services
------------- --------- ------------- --------- ------------- ---------
Cash and cash equivalents at January 1 $ 3,685 $ 1,151 $ 6,316 $ 1,618 $ 3,578 $ 3,689
Cash flows from operating activities
(Note 17) 17,271 12,540 9,622 13,478 13,984 13,650
Cash flows from investing activities
Capital expenditures (7,945) (590) (8,113) (504) (8,142) (575)
Purchase of leased assets - - (110) - (332) -
Acquisitions of other companies
(Note 16) (6,342) (144) - (344) - (40)
Acquisitions of receivables and lease
investments - (80,422) - (78,863) - (117,895)
Collections of receivables and lease
investments
investments - 46,646 - 49,303 - 86,842
Net acquisitions of daily rental vehicles - (1,739) - (1,790) - (958)
Purchases of securities (Note 17) (3,609) (900) (758) (2,102) (43) (3,067)
Sales and maturities of securities
(Note 17) 2,352 1,100 590 2,271 13 3,520
Proceeds from sales of receivables and
lease investments
lease investments - 9,931 - 8,413 - 5,197
Net investing activity with
Financial Services
Financial Services 1,329 - 642 - 258 -
Other (68) 119 (468) (463) (285) (569)
------- ------- ------- -------- ------- --------
Net cash used in investing activities (14,283) (25,999) (8,217) (24,079) (8,531) (27,545)
Cash flows from financing activities
Cash dividends
Cash dividends (2,290) - (5,348) - (2,020) -
Issuance of Common Stock 336 - 157 - 310 -
Issuance of Common Stock of a
subsidiary (Note 16) - - - - - 453
Purchase of Ford Treasury Stock (707) - (669) - (15) -
Preferred stock - Series B repurchase,
Series A redemption - - (420) - - -
Changes in short-term debt 64 5,547 497 7,475 (430) 6,210
Proceeds from issuance of other debt 3,428 37,184 2,403 21,776 1,100 22,923
Principal payments on other debt (1,182) (28,672) (1,434) (16,797) (668) (18,215)
Net financing activity with Automotive - (1,329) - (642) - (258)
Spin-off of The Associates cash - - - (508) - -
Other (254) 88 (472) (12) 16 (206)
------- ------- ------- -------- ------- --------
Net cash (used in)/provided by
financing activities
financing activities (605) 12,818 (5,286) 11,292 (1,707) 10,907
Effect of exchange rate changes on cash (69) (279) (54) 146 (119) 28
Net transactions with Automotive/
Financial Services
Financial Services (1,357) 1,357 1,304 (1,304) (889) 889
------- ------- ------- -------- ------- --------
Net (decrease)/increase in cash and
cash
equivalents
cash equivalents 957 437 (2,631) (467) 2,738 (2,071)
------- -------- ------- -------- ------- --------
Cash and cash equivalents at December 31 $ 4,642 $ 1,588 $ 3,685 $ 1,151 $ 6,316 $ 1,618
------- -------- ------- -------- ------- --------
------- -------- ------- -------- ------- --------
The accompanying notes are part of the financial statements.
FS-5
Ford Motor Company and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
----------------------------------------------
For the Years Ended December 31, 1997, 1998 and 1999
(in millions)
Capital Other Comprehensive Income
In Excess ----------------------------------------
Of Par Foreign Minimum Unrealized
Capital Value of Retained Currency Pension Holding
Stock Stock Earnings Translation Liability Gain/Loss Other Total
--------------------- ------------------------- ----------- --------------------------------
YEAR ENDED DECEMBER 31, 1997
----------------------------
Balance at beginning of year $1,189 $5,268 $20,334 $ 74 $ (267) $164 $ - $26,762
Comprehensive income
Net Income 6,920 6,920
Foreign currency translation (1,038) (1,038)
Minimum pension liability
(net of tax benefit of $36) (70) (70)
Net holding loss
(net of tax benefit of $47) (91) (91)
-------
Comprehensive Income 5,721
Common stock issued for Series A
Preferred Stock conversion,
Employee benefit plans and other 14 296 310
Treasury stock (39) (39)
Cash Dividends (2,020) (2,020)
------ ------ ------- -------- ------ ---- ------- -------
Balance at end of year $1,203 $5,564 $25,234 $ (964) $ (337) $ 73 $ (39) $30,734
------ ------ ------- -------- ------ ---- ------- -------
------ ------ ------- -------- ------ ---- ------- -------
YEAR ENDED DECEMBER 31, 1998
----------------------------
Balance at beginning of year $1,203 $5,564 $25,234 $ (964) $ (337) $ 73 $ (39) $30,734
Comprehensive income
Net income (excluding gain on
Spin-off of the Associates) 6,116 6,116
Gain on The Associates spin-off 15,955 15,955
Foreign currency translation (53) (53)
Minimum pension liability
(net of tax benefit of $184) (361) (361)
Net holding loss
(net of tax benefit of $3) (28) (28)
------
Comprehensive income 21,629
Common stock issued for Series A
Preferred Stock conversion,
Employee benefit plans and other 19 139 158
Preferred stock-Series B repurchase
and Series A redemption (420) (420)
ESOP loan and treasury stock (1,046) (1,046)
The Associates spin-off to Ford
Common stockholders (22,298) (22,928)
Cash dividends (5,348) (5,348)
------ ------ ------- ------- ------ ---- ------- -------
Balance at end of year $1,222 $5,283 $19,659 $ (1,017) $ (698) $ 45 $(1,085) $23,409
------ ------ ------- -------- ------ ---- ------- -------
------ ------ ------- -------- ------ ---- ------- -------
YEAR ENDED DECEMBER 31, 1999
----------------------------
Balance at beginning of year $1,222 $5,283 $19,659 $ (1,017) $ (698) $ 45 $(1,085) $23,409
Comprehensive income
Net income 7,237 7,237
Foreign currency translation (615) (615)
Minimum pension liability
(net of tax of $174) 324 324
Net holding gain
(net of tax of $20) 38 38
-------
Comprehensive income 6,984
Common stock issued for
employee benefit plans and other (234) (234)
ESOP loan and treasury stock (332) (332)
Cash dividends (2,290) (2,290)
------ ------ ------- -------- ------ ---- ------- -------
Balance at end of year $1,222 $5,049 $24,606 $ (1,632) $ (374) $ 83 $(1,417) $27,537
------ ------ ------- -------- ------ ---- ------- -------
------ ------ ------- -------- ------ ---- ------- -------
The accompanying notes are part of the financial statements.
FS-6
NOTE 1. Accounting Policies
----------------------------
Principles of Consolidation
---------------------------
The consolidated financial statements include all significant majority-owned
subsidiaries and reflect the operating results, assets, liabilities and cash
flows for the company's two business sectors: Automotive and Financial
Services. The assets and liabilities of the Automotive sector are classified
as current or noncurrent, and those of the Financial Services sector are
unclassified. Affiliates that are 20% to 50% owned, principally Mazda Motor
Corporation and AutoAlliance International Inc., and subsidiaries where
control is expected to be temporary, principally investments in certain
dealerships, are accounted for on an equity basis. Use of estimates and
assumptions as determined by management is required in the preparation of
consolidated financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those estimates and
assumptions. For purposes of Notes to Financial Statements, "Ford" or "the
company" means Ford Motor Company and its majority-owned consolidated
subsidiaries unless the context requires otherwise. Certain amounts for prior
periods are reclassified, if required, to conform with present period
presentations.
Structure of Operations
-----------------------
The company's sectors, Automotive and Financial Services, are managed as four
primary operating segments. A segment is defined as a component with business
activity resulting in revenue and expense that has separate financial
information evaluated regularly by the company's chief operating decision
maker in determining resource allocation and assessing performance (Note 18).
The Automotive sector is comprised of Automotive and Visteon. The Automotive
segment consists of the design, manufacture, sale and service of cars and
trucks; the Visteon segment consists of the design, manufacture and sale of
automotive components and systems. The Financial Services sector primarily
includes two segments, Ford Motor Credit Company and its subsidiaries ("Ford
Credit") and The Hertz Corporation and its subsidiaries ("Hertz"). The
Financial Services sector also includes less significant financial services
businesses (Note 18). Ford Credit leases and finances the purchase of cars
and trucks made by Ford and other companies. It also provides inventory and
capital financing to retail car and truck dealerships. Hertz rents cars and
trucks and industrial and construction equipment. Both Ford Credit and Hertz
also have insurance operations related to their businesses.
Intersector transactions represent principally transactions occurring in the
ordinary course of business, borrowings and related transactions between
entities in the Financial Services and Automotive sectors, and interest and
other support under special vehicle financing programs. These arrangements
are reflected in the respective business sectors. Intersegment transactions
are described in Note 18.
Revenue Recognition - Automotive Sector
---------------------------------------
Sales are recorded by the company when products are shipped to dealers and
other customers, except as described below. Estimated costs for approved
sales incentive programs normally are recognized as sales reductions at the
time of revenue recognition. Estimated costs for sales incentive programs
approved subsequent to the time that related sales were recorded are recognized
when the programs are approved.
Sales through dealers to certain daily rental companies where the daily rental
company has an option to require Ford to repurchase vehicles subject to
certain conditions, are recognized over the period of daily rental service in
a manner similar to lease accounting. The carrying value of these vehicles,
included in other current assets, was $2.0 billion at December 31, 1999, and
$2.1 billion at December 31, 1998.
FS-7
NOTE 1. Accounting Policies (continued)
----------------------------
Revenue Recognition - Financial Services Sector
-----------------------------------------------
Revenue from finance receivables is recognized over the term of the receivable
using the interest method. Certain loan origination costs are deferred and
amortized, using the interest method, over the term of the related receivable
as a reduction in financing revenue. Revenue from operating leases is
recognized on a straight-line basis over the term of the lease. Initial
direct costs net of acquisition fees related to leases are deferred and
amortized over the term of the lease. Agreements between the Automotive
sector operations and certain Financial Services sector operations provide for
interest supplements and other support costs to be paid by Automotive sector
operations on certain financing and leasing transactions. The Financial
Services sector recognizes this revenue in income over the period that the
related receivables and leases are outstanding; the estimated costs of
interest supplements and other support costs are recorded as sales incentives
by Automotive sector operations in the same manner as sales incentives
described above.
The accrual of interest on loans is discontinued at the time a loan is
determined to be impaired. Subsequent amounts of interest collected are
recognized in income only if full recovery of the remaining principal is
expected. Other amounts collected are generally recognized first as a
reduction of principal. Any remaining amounts are treated as a recovery.
The Financial Services sector periodically sells finance receivables through
special purpose subsidiaries, retains the servicing rights and certain other
beneficial interests, and receives a servicing fee which is recognized as
collected over the remaining term of the related sold finance receivables.
Estimated gains or losses from the sale of finance receivables are recognized
in the period in which the sale occurs. In determining the gain or loss on
each qualifying sale of finance receivables, the investment in the sold
receivable pool is allocated between the portion sold and the portion retained
based on their relative fair values at the date of sale.
Other Costs
-----------
Advertising and sales promotion costs are expensed as incurred. Advertising
costs were $2.8 billion in 1999, $2.2 billion in 1998 and $2.3 billion in
1997.
Estimated costs related to product warranty are accrued at the time of sale.
Engineering, research and development costs are expensed as incurred and were
$7.1 billion in 1999, $6.3 billion in 1998 and $6.3 billion in 1997.
Income Per Share of Common and Class B Stock
--------------------------------------------
Basic income per share of Common and Class B Stock is calculated by dividing
the income attributable to Common and Class B Stock by the average number of
shares of Common and Class B Stock outstanding during the applicable period,
adjusted for shares issuable under employee savings and compensation plans.
The calculation of diluted income per share of Common and Class B Stock takes
into account the effect of obligations, such as stock options, considered to
be potentially dilutive.
FS-8
NOTE 1. Accounting Policies (continued)
----------------------------
Income per share of Common and Class B Stock were as follows (in millions):
1999 1998 1997
-------------------- -------------------- ---------------------
Income Shares* Income Shares* Income Shares*
--------- ---------- --------- ---------- ---------- ----------
Net income $7,237 1,210 $22,071 1,211 $6,920 1,195
Preferred stock dividend requirements (15) - (22) - (54) -
Premium on Series B Tender Offer** - - (85) - - -
Issuable and uncommitted ESOP shares - (4) - (2) - (1)
------ ----- ------- ----- ------ -----
Basic income and shares $7,222 1,206 $21,964 1,209 $6,866 1,194
Basic income per share $ 5.99 $ 18.17 $ 5.75
Basic income and shares $7,222 1,206 $21,964 1,209 $6,866 1,194
Net dilutive effect of options - 27 - 28 - 20
Convertible preferred stock and other (1) - (1) - 8 10
------ ----- ------- ----- ------ -----
Diluted income and shares $7,221 1,233 $21,963 1,237 $6,874 1,224
Diluted income per share $ 5.86 $ 17.76 $ 5.62
- - - - -
*Average shares outstanding
**Represents a one-time reduction of $0.07 per share of Common and Class B
Stock resulting from the premium paid to repurchase the company's Series B
Cumulative Preferred Stock.
Derivative Financial Instruments
--------------------------------
Ford has operations in over 30 countries and sells vehicles in over 200
markets, and is exposed to a variety of market risks, including the effects
of changes in foreign currency exchange rates, interest rates and commodity
prices. These financial exposures are monitored and managed by the company
as an integral part of the company's overall risk management program, which
recognizes the unpredictability of financial markets and seeks to reduce the
potentially adverse effect on the company's results. The company uses
derivative financial instruments to manage the exposures to fluctuations in
exchange rates, interest rates and commodity prices. All derivative financial
instruments are classified as "held for purposes other than trading"; company
policy specifically prohibits the use of leveraged derivatives or use of any
derivatives for speculative purposes.
Ford's primary foreign currency exposures, in terms of net corporate exposure,
are in the Swedish Krona, Euro, British Pound Sterling, Japanese Yen,
Mexican Peso and Brazilian Real. Agreements to manage foreign currency
exposures include forward contracts, swaps and options. The company uses
these derivative instruments to hedge assets and liabilities denominated in
foreign currencies, firm commitments and certain investments in foreign
subsidiaries. Gains and losses on xxxxxx of firm commitments are deferred
and recognized with the related transactions. In the case of xxxxxx of net
investments in foreign subsidiaries, gains and losses are recognized in
other comprehensive income to the extent they are effective as xxxxxx. All
other gains and losses are recognized in cost of sales for the Automotive
sector and interest expense for the Financial Services sector. These
instruments usually mature in two years or less for Automotive sector
exposures and longer for Financial Services sector exposures, consistent
with the underlying transactions. The effect of changes in exchange rates
may not be fully offset by gains or losses on currency derivatives,
depending on the extent to which the exposures are hedged.
Interest rate swap agreements are used to manage the effects of interest rate
fluctuations by changing the interest rate characteristics of specific debt or
pools of debt to match the interest rate characteristics of corresponding
assets. These instruments mature consistent with underlying debt issues as
identified in Note 10. The differential paid or received on interest rate
swaps is recognized on an accrual basis as an adjustment to interest expense.
Gains and losses on terminated interest rate swaps are deferred and reflected
in interest expense over the remaining term of the underlying debt.
FS-9
NOTE 1. Accounting Policies (continued)
----------------------------
Ford has a commodity hedging program that uses primarily forward contracts
and options to manage the effects of changes in commodity prices on the
Automotive sector's results. Gains and losses are recognized in cost of
sales during the settlement period of the related transactions.
Foreign Currency Translation
----------------------------
Assets and liabilities of non-U.S. subsidiaries generally are translated to
U.S. Dollars at end-of-period exchange rates. The effects of this translation
for most non-U.S. subsidiaries are reported in other comprehensive income.
Remeasurement of assets and liabilities of non-U.S. subsidiaries that use the
U.S. Dollar as their functional currency are included in income as transaction
gains and losses. Income statement elements of all non-U.S. subsidiaries are
translated to U.S. Dollars at average-period exchange rates and are recognized
as part of revenues, costs and expenses. Also included in income are gains
and losses arising from transactions denominated in a currency other than the
functional currency of the subsidiary involved. Net transaction gains and
losses, as described above, increased net income by $284 million in 1999 and
by $97 million in 1998, and decreased net income by $164 million in 1997.
Impairment of Long-Lived Assets and Certain Identifiable Intangible
-------------------------------------------------------------------
The company evaluates the carrying value of goodwill for potential impairment
on an ongoing basis. Such evaluations compare operating income before
amortization of goodwill to the amortization recorded for the operations to
which the goodwill relates. The company also periodically evaluates the
carrying value of long-lived assets and long-lived assets to be disposed of
for potential impairment. The company considers projected future operating
results, cash flows, trends and other circumstances in making such estimates
and evaluations.
Goodwill
--------
Goodwill represents the excess of the purchase price over the fair value of
the net assets of acquired companies and is amortized using the straight-line
method for periods of up to 40 years. Total goodwill included in the
Automotive sector's other assets was $6.1 billion at December 31, 1999 and
$2.1 billion at December 31, 1998. The increase is primarily related to the
acquisitions of Volvo, Kwik-Fit, and Plastic Omnium (Note 16). Total goodwill
included in the Financial Services sector's other assets was $970 million at
December 31, 1999 and $743 million at December 31, 1998.
Company-Obligated Mandatorily Redeemable Preferred Securities of a Subsidiary
Trust
-----------------------------------------------------------------------------
During 1995, Ford Motor Company Capital Trust I (the "Trust") issued $632
million of its 9% Trust Originated Preferred Securities (the "Preferred
Securities") in a one-for-one exchange for 25,273,537 shares of the company's
outstanding Series B Depositary Shares (the "Depositary Shares"). Concurrent
with the exchange and the related purchase by Ford of the Trust's common
securities (the "Common Securities"), the company issued to the Trust $651
million aggregate principal amount of its 9% Junior Subordinated Debentures
due December 2025 (the "Debentures"). The sole assets of the Trust are and
will be the Debentures. The Debentures are redeemable, in whole or in part,
at the company's option on or after December 1, 2002, at a redemption price of
$25 per Debenture plus accrued and unpaid interest. If the company redeems
the Debentures, or upon maturity of the Debentures, the Trust is required to
redeem the Preferred Securities and Common Securities at $25 per share plus
accrued and unpaid distributions.
Ford guarantees to pay in full to the holders of the Preferred Securities all
distributions and other payments on the Preferred Securities to the extent not
paid by the Trust only if and to the extent that Ford has made a payment of
interest or principal on the Debentures. This guarantee, when taken together
with Ford's obligations under the Debentures and the Indenture relating
thereto and its obligations under the Declaration of Trust of the Trust,
including its obligation to pay certain costs and expenses of the Trust,
constitutes a full and unconditional guarantee by Ford of the Trust's
obligations under the Preferred Securities.
FS-10
NOTE 2. Marketable and Other Securities
---------------------------------------
Trading securities are recorded at fair value with unrealized gains and losses
included in income. Available-for-sale securities are recorded at fair value
with net unrealized gains and losses reported, net of tax, in other
comprehensive income. Held-to-maturity securities are recorded at amortized
cost. Equity securities which do not have readily determinable fair values
are recorded at cost. The basis of cost used in determining realized gains and
losses is specific identification.
The fair value of substantially all securities is determined by quoted market
prices. The estimated fair value of securities, for which there are no quoted
market prices, is based on similar types of securities that are traded in the
market. Book value approximates fair value for all securities.
Expected maturities of debt securities may differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without penalty.
Automotive Sector
-----------------
Investments in securities at December 31 were as follows (in millions):
Book/
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ----------- ------------ ------------
1999
----
Trading securities $17,243 $56 $123 $17,176
Available-for-sale securities - Corporate securities 1,004 - 8 996
Held-to-maturity securities 771 - - 771
------- --- ---- -------
Total investments in securities $19,018 $56 $131 $18,943
------- --- ---- -------
------- --- ---- -------
1998
----
Trading securities $19,534 $83 $ 40 $19,577
Available-for-sale securities - Corporate securities 543 - - 543
------- --- --- -------
Total investments in securities $20,077 $83 $ 40 $20,120
------- --- --- -------
------- --- --- -------
During 1997, $365 million of bonds issued by affiliates were reclassified from
equity in net assets of affiliated companies to available-for-sale marketable
securities; $163 million of the bonds matured in 1999 and $202 million matured
in 1998. Proceeds from sales of available-for-sale securities were $2,352
million in 1999 and $590 million in 1998. In 1999, gross gains of $11 million
were reported. Other comprehensive income included net unrealized gains of $13
million in 1999 and net unrealized losses of $5 million in 1998 on securities
owned by certain unconsolidated affiliates. The available-for-sale securities
at December 31, 1999 had contractual maturities between one and five years.
Financial Services Sector
-------------------------
Investments in securities at December 31, 1999 were as follows (in millions):
Book/
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------------------ ------------
Trading securities $190 $ - $ - $190
Available-for-sale securities
-----------------------------
Debt securities issued by the U.S.
government and agencies 89 - 3 86
Municipal securities 18 - 1 17
Debt securities issued by non-U.S. governments 19 - - 19
Corporate securities 156 - 6 150
Mortgage-backed securities 202 - 7 195
Equity securities 28 43 2 69
---- --- -- ----
Total available-for-sale securities 512 43 19 536
Held-to-maturity securities
---------------------------
Debt securities issued by the U.S.
government and agencies 6 - - 6
Corporate securities 1 - - 1
---- --- --- ----
Total held-to-maturity securities 7 - - 7
Total investments in securities $709 $43 $19 $733
---- --- --- ----
---- --- --- ----
FS-11
NOTE 2. Marketable and Other Securities (continued)
----------------------------------------
Investments in securities at December 31, 1998 were as follows (in millions):
Book/
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------------------ ------------
$231 $ 3 $4 $230
Trading securities
Available-for-sale securities
-----------------------------
Debt securities issued by the U.S.
government and agencies 153 3 - 156
Municipal securities 63 2 - 65
Debt securities issued by non-U.S. governments 25 - - 25
Corporate securities 192 3 2 193
Mortgage-backed securities 198 3 - 201
Equity securities 35 56 1 90
---- --- -- ----
Total available-for-sale securities 666 67 3 730
Held-to-maturity securities
---------------------------
Debt securities issued by the U.S.
government and agencies 6 - - 6
Corporate securities 2 - - 2
---- --- -- ----
Total held-to-maturity securities 8 - - 8
Total investments in securities $905 $70 $7 $968
---- --- -- ----
---- --- -- ----
The amortized cost and fair value of investments in available-for-sale
securities and held-to-maturity securities at December 31 by contractual
maturity, were as follows (in millions):
Available-for-sale Held-to-maturity
---------------------- ----------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---------------------- ----------------------
1999
----
Due in one year or less $ - $ - $- $-
Due after one year through five years 119 118 3 3
Due after five years through ten years 53 51 3 3
Due after ten years 110 104 1 1
Mortgage-backed securities 202 195 - -
Equity securities 28 68 - -
----- ----- -- --
Total $ 512 $ 536 $7 $7
----- ----- -- --
----- ----- -- --
1998
----
Due in one year or less $ 29 $ 29 $1 $1
Due after one year through five years 165 167 3 3
Due after five years through ten years 101 102 3 3
Due after ten years 138 141 1 1
Mortgage-backed securities 198 200 - -
Equity securities 35 91 - -
----- ----- -- --
Total $ 666 $ 730 $8 $8
----- ----- -- --
----- ----- -- --
Proceeds from sales of available-for-sale securities were $1.1 billion in
1999, $2.1 billion in 1998 and $2.9 billion in 1997. In 1999, gross gains of
$33 million and gross losses of $14 million were realized on those sales;
gross gains of $48 million and gross losses of $3 million were realized in
1998 and gross gains of $98 million and gross losses of $8 million were
realized in 1997.
FS-12
NOTE 3. Finance Receivables - Financial Services Sector
--------------------------------------------------------
Receivables
-----------
Included in finance receivables at December 31 were net finance receivables and
investment in direct financing leases. The investment in direct financing
leases relates to the leasing of vehicles, various types of transportation and
other equipment, and facilities.
Net finance receivables at December 31 were as follows (in millions):
1999 1998
------------ ------------
Retail $ 70,771 $60,653
Wholesale 27,298 22,650
Real estate 3,417 2,507
Other finance receivables 5,302 5,533
-------- -------
Total finance receivables 106,788 91,343
Allowance for credit losses (1,143) (1,229)
-------- -------
Total net finance receivables 105,645 90,114
Other 471 63
-------- -------
Net finance and other receivables $106,116 $90,177
-------- -------
-------- -------
Net finance receivables subject to
fair value* $105,577 $90,010
Fair value $106,552 $89,847
- - - - -
*Excludes certain diversified and other receivables of $539
million and $167 million at December 31, 1999 and 1998,
respectively
Included in finance receivables at December 31, 1999 and 1998 were a total of
$2.6 billion and $1.5 billion, respectively, owed by three customers with the
largest receivable balances. Other finance receivables consisted primarily of
commercial and other collateralized loans and accrued interest. Also included
in other finance receivables at December 31, 1999 and 1998 were $3.7 billion
and $3.9 billion, respectively, of accounts receivable purchased by certain
Financial Services sector operations from Automotive sector operations.
Finance receivables that originated outside the United States are $35.5 billion
and $35.6 billion at December 31, 1999 and 1998, respectively.
Contractual maturities of total finance receivables are as follows (in
millions): 2000 - $65,017; 2001 - $20,541; 2002 - $11,375; thereafter - $9,855.
Experience indicates that a substantial portion of the portfolio generally is
repaid before the contractual maturity dates.
The fair value of most receivables was estimated by discounting future cash
flows using an estimated discount rate that reflected the credit, interest rate
and prepayment risks associated with similar types of instruments. For
receivables with short maturities, the book value approximated fair value.
The Financial Services sector has sold receivables through special purpose
subsidiaries. The servicing portfolio related to these securitized assets
amounted to $19.6 billion, $13.9 billion and $10.9 billion at December 31,
1999, 1998 and 1997, respectively. The company retains certain beneficial
interests in the sold receivables which are subject to limited recourse
provisions. These financial instruments of $3.4 billion at December 31, 1999
and $1.3 billion at December 31, 1998 are included in other assets.
Direct Financing Leases
-----------------------
Net investment in direct financing leases at December 31 was as follows (in
millions):
1999 1998
------------ ------------
Total minimum lease rentals to be received $4,782 $4,406
Less: Unearned income (916) (1,106)
Loan origination costs 84 59
------ ------
Minimum lease rentals 3,950 3,359
Estimated residual values 3,283 3,720
Less: Allowance for credit losses (51) (80)
------ ------
Net investment in direct financing leases $7,182 $6,999
------ ------
------ ------
Minimum direct financing lease rentals are contractually due as follows (in
millions): 2000 - $1,705; 2001 - $1,327; 2002 - $1,011; 2003 - $561;
2004 - $151; thereafter - $27.
FS-13
NOTE 3. Finance Receivables - Financial Services Sector (continued)
--------------------------------------------------------
Credit Losses
-------------
Allowances for credit losses are estimated and established as required based on
historical experience and other factors that affect collectibility. The
allowance for estimated credit losses includes a provision for certain
non-homogeneous impaired loans. Impaired loans are measured based on the
present value of expected future cash flows discounted at the loan's effective
interest rate. Finance receivables and investment in direct financing leases
are charged to the allowances for credit losses when an account is deemed to be
uncollectible, taking into consideration the financial condition of the
borrower, the value of the collateral, recourse to guarantors and other
factors. Recoveries on finance receivables and investment in direct financing
leases previously charged-off as uncollectible are credited to the allowances
for credit losses.
Changes in the allowances for credit losses were as follows (in millions):
1999 1998 1997
------------ ------------ ------------
Beginning balance $1,309 $3,164 $2,478
Provision for credit losses 844 1,195 2,542
Total charge-offs and recoveries:
Charge-offs (903) (1,257) (2,130)
Recoveries 173 205 168
------ ------ ------
Net losses (730) (1,052) (1,962)
Other changes (229) (1,998)* 106
------ ------ ------
Ending balance $1,194 $1,309 $3,164
------ ------ ------
------ ------ ------
- - - - -
*Other changes includes $1,892 million to reflect the spin-off of
The Associates
NOTE 4. Net Investment in Operating Leases
-------------------------------------------
The net investment in operating leases relates to the leasing of vehicles,
various types of transportation and other equipment, and facilities. The net
investment in operating leases at December 31 was as follows (in millions):
1999 1998
------------ ------------
Vehicles and other equipment, at cost $53,018 $50,366
Lease origination costs 56 63
Accumulated depreciation (10,225) (8,988)
Allowances for credit losses (378) (268)
------- -------
Net investment in operating leases $42,471 $41,173
------- -------
------- -------
Minimum rentals on operating leases are contractually due as follows (in
millions): 2000 - $6,936; 2001 - $4,653; 2002 - $2,372; 2003 - $300;
2004 - $144; thereafter - $275.
Depreciation expense for assets subject to operating leases is provided
primarily on the straight-line method over the term of the lease in amounts
necessary to reduce the carrying amount of the asset to its estimated residual
value. Depreciation rates and amounts are based on assumptions as to used car
prices at lease termination and the number of vehicles that will be returned to
the company. Estimated and actual residual values are reviewed on a regular
basis to determine that depreciation amounts are appropriate. Gains and losses
upon disposal of the assets also are included in depreciation expense.
Depreciation expense was as follows: $8.8 billion in 1999, $8.4 billion in
1998 and $7.4 billion in 1997.
FS-14
NOTE 5. Inventories - Automotive Sector
----------------------------------------
Inventories at December 31 were as follows (in millions):
1999 1998
------------ ------------
Raw materials, work-in-process and supplies $2,688 $2,887
Finished products 3,747 2,769
------ ------
Total inventories $6,435 $5,656
------ ------
------ ------
U.S. inventories $2,245 $1,832
Inventories are stated at the lower of cost or market. The cost of most U.S.
inventories is determined by the last-in, first-out ("LIFO") method. The cost
of the remaining inventories is determined primarily by the first-in, first-out
("FIFO") method.
If the FIFO method had been used instead of the LIFO method, inventories would
have been higher by $1.1 billion and $1.2 billion at December 31, 1999 and
1998, respectively.
NOTE 6. Net Property, Depreciation and Amortization - Automotive Sector
-----------------------------------------------------------------------
Net property at December 31 was as follows (in millions):
1999 1998
------------ ------------
Land $ 518 $ 409
Buildings and land improvements 10,599 9,298
Machinery, equipment and other 47,550 43,562
Construction in progress 2,081 2,774
-------- --------
Total land, plant and equipment $ 60,748 $ 56,043
Accumulated depreciation (27,832) (26,840)
-------- --------
Net land, plant and equipment $ 32,916 $ 29,203
Special tools, net of amortization 9,401 8,117
-------- --------
Net property $ 42,317 $ 37,320
-------- --------
-------- --------
Property, equipment and special tools are stated at cost, less accumulated
depreciation and amortization. Property and equipment placed in service before
January 1, 1993 are depreciated using an accelerated method that results in
accumulated depreciation of approximately two-thirds of the asset cost during
the first half of the estimated useful life of the asset. Property and
equipment placed in service after December 31, 1992 are depreciated using the
straight-line method of depreciation over the estimated useful life of the
asset. On average, buildings and land improvements are depreciated based on a
30-year life; machinery and equipment are depreciated based on a 14-year life.
Cost of computer software developed or obtained for internal use are
capitalized beginning January 1, 1999. Special tools placed in service before
January 1, 1999 are amortized using an accelerated method over periods of time
representing the estimated life of those tools. Special tools placed in
service beginning in 1999 are amortized using the units-of-production method.
For property and equipment retired before January 1, 1999, the general policy
is to charge the cost of those assets, reduced by net salvage proceeds, to
accumulated depreciation. For property and equipment retired after December
31, 1998, the general policy is to charge the cost of those assets, reduced by
net salvage proceeds, to gain or loss on disposal of assets. These changes
did not have a material impact on the financial statements.
Depreciation and amortization expenses were as follows (in millions):
1999 1998 1997
------------ ------------ ------------
Depreciation $3,262 $2,804 $2,759
Amortization 2,427 2,936 3,179
------ ------ ------
Total $5,689 $5,740 $5,938
------ ------ ------
------ ------ ------
Maintenance, repairs and rearrangement costs are expensed as incurred and were
$2.2 billion in 1999, $2.2 billion in 1998 and $2.3 billion in 1997.
Expenditures that increase the value or productive capacity of assets are
capitalized. Preproduction costs related to new facilities are expensed as
incurred.
FS-15
NOTE 7. Income Taxes
---------------------
Income before income taxes, excluding equity in net income/(loss) of
affiliated companies, the provision for income taxes, and a reconciliation of
the provision for income taxes compared with the amounts at the U.S. statutory
tax rate, are as follows:
1999 1998 1997
------------ ------------ ------------
Income before income tax (in millions)
-------------------------------------
U.S. $10,273 $8,363 $ 8,353
Non-U.S. 688 1,114 2,404
------- ------- -------
Total income before income taxes $10,961 $9,477 $10,757
------- ------ -------
------- ------ -------
Provision for income taxes (in millions):
-----------------------------------------
U.S. federal $ 845 $ 785 $1,558
Non-U.S. 839 623 830
State and local 143 40 (25)
------- ------ ------
Total current income tax provision 1,827 1,448 2,363
U.S. federal 2,135 1,685 1,108
Non-U.S. (482) (109) 78
State and local 190 152 192
------- ------ ------
Total deferred income tax provision 1,843 1,728 1,378
------- ------ ------
Total provision $ 3,670 $3,176 $3,741
------- ------ ------
------- ------ ------
Reconciliation of the income tax provision:
-------------------------------------------
Tax provision at U.S. statutory rate of 35% 35 % 35 % 35 %
Effect of (in points):
Tax on non-U.S. income (1) 0 0
State and local income taxes 2 1 1
Other (2) (2) (1)
------ ------ ------
Provision for income taxes 34 % 34 % 35 %
------ ------ ------
------ ------ ------
- - - - -
Amounts shown exclude non-taxable gains from The Associates spin-off
(1998) and Hertz IPO (1997)
Deferred taxes are provided for earnings of non-U.S. subsidiaries which are
planned to be remitted. No provision for deferred taxes has been made on $2.1
billion of retained earnings (primarily prior to 1998) which are considered to
be indefinitely invested in the non-U.S. subsidiaries. Deferred taxes for the
undistributed earnings of non-U.S. subsidiaries are not practical to estimate.
Deferred tax assets and liabilities reflect the estimated tax effect of
accumulated temporary differences between assets and liabilities for financial
reporting purposes and those amounts as measured by tax laws and regulations.
The components of deferred tax assets and liabilities at December 31 were as
follows (in millions):
1999 1998
------------ ------------
Deferred tax assets
Employee benefit plans $ 6,300 $ 6,591
Dealer and customer allowances and claims 2,945 3,709
Allowance for credit losses 1,006 1,164
Net operating loss carryforwards 518 795
All other 1,824 1,717
Valuation allowances (115) (256)
------- -------
Total deferred tax assets 12,478 13,720
Deferred tax liabilities
Leasing transactions 6,520 6,324
Depreciation and amortization
(excluding leasing transactions) 4,344 4,221
Employee benefit plans 849 969
All other 2,891 2,316
------- -------
Total deferred tax liabilities 14,604 13,830
------- -------
Net deferred tax assets/(liabilities) $(2,126) $ (110)
------- -------
------- -------
Non-U.S. net operating loss carryforwards for tax purposes were $1.4 billion
at December 31, 1999. A substantial portion of these losses has an indefinite
carryforward period; the remaining losses have expiration dates beginning in
2000. The tax benefit of operating losses is recognized as a deferred tax
asset, subject to appropriate valuation allowances. We evaluate the tax
benefits of operating loss carryforwards on an ongoing basis. Such evaluations
include a review of historical and projected future operating results, the
eligible carryforward period and other circumstances.
FS-16
NOTE 8. Liabilities - Automotive Sector
----------------------------------------
Current Liabilities
-------------------
Included in accrued liabilities at December 31 were the following (in
millions):
1999 1998
------------ ------------
Dealer and customer allowances and claims $10,245 $ 8,765
Employee benefit plans 1,913 2,530
Deferred revenue 2,326 2,447
Salaries, wages and employer taxes 724 740
Postretirement benefits other than pensions 880 275
Other 3,233 2,168
------- -------
Total accrued liabilities $19,321 $16,925
------- -------
------- -------
Noncurrent Liabilities
----------------------
Included in other liabilities at December 31 were the following (in millions):
1999 1998
------------ ------------
Postretirement benefits other than pensions $15,458 $14,859
Dealer and customer allowances and claims 7,271 7,401
Employee benefit plans 4,525 3,762
Unfunded pension obligation 1,189 1,528
Minority interests in net assets of subsidiaries 177 103
Other 4,627 2,480
------- -------
Total other liabilities $33,247 $30,133
------- -------
------- -------
NOTE 9. Employee Retirement Benefits
-------------------------------------
Employee Retirement Plans
-------------------------
The company has two principal retirement plans in the U.S. The Ford-UAW
Retirement Plan covers hourly employees represented by the UAW, and the
General Retirement Plan covers substantially all other Ford employees of the
company in the U.S. The hourly plan provides noncontributory benefits related
to employee service. The salaried plan provides similar noncontributory
benefits and contributory benefits related to pay and service. Other U.S. and
non-U.S. subsidiaries have separate plans that generally provide similar types
of benefits for their employees.
In general, the company's plans are funded with the main exceptions of the
U.S. defined benefit plans for executives and certain plans in Germany; in
such cases an unfunded liability is recorded.
The company's policy for funded plans is to contribute annually, at a minimum,
amounts required by applicable law, regulations and union agreements. Plan
assets consist principally of investments in stocks, and government and other
fixed income securities.
Postretirement Health Care and Life Insurance Benefits
------------------------------------------------------
The company and certain of its subsidiaries sponsor unfunded plans to provide
selected health care and life insurance benefits for retired employees. The
company's U.S. and Canadian employees may become eligible for those benefits
if they retire while working for the company; however benefits and eligibility
rules may be modified from time to time. The estimated cost for these
benefits is accrued over periods of employee service on an actuarially
determined basis. The company has prepaid a portion of U.S. hourly retiree
health benefits by contributing to a Voluntary Employees' Beneficiary
Association ("VEBA") trust. At December 31, 1999, the market value of this
VEBA pre-funding was $1.7 billion.
Increasing the assumed health care cost trend rates by one percentage point is
estimated to increase the aggregate service and interest cost components of
net postretirement benefit expense for 1999 by about $260 million and the
accumulated postretirement benefit obligation at December 31, 1999 by
about $2.4 billion. A decrease of one percentage point would reduce
service and interest costs by $200 million and decrease the December 31, 1999
obligation by $2 billion.
FS-17
NOTE 9. Employee Retirement Benefits (continued)
-------------------------------------
Employee Retirement Benefit Expense
-----------------------------------
The company's expense for pensions, retirement health care and life insurance
was as follows (in millions):
Pension Benefits
-------------------------------------------------------------
U.S. Plans Non-U.S. Plans Other Benefits*
------------------------------ ------------------------------ ------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
-------- --------- ----------- -------- ---------- ---------- -------- --------- -----------
Costs Recognized in Income
--------------------------
Service cost $ 662 $ 596 $ 551 $ 436 $ 354 $ 331 $ 356 $ 265 $ 242
Interest cost 2,132 1,999 1,993 890 867 857 1,232 1,183 1,161
Expected return on plan
assets (3,086) (2,747) (2,505) (1,121) (986) (931) (109) (45) -
Amortization of:
Transition (asset)/obligation (21) (22) (22) 9 13 61 - - -
Plan amendments 586 729 515 118 114 92 (44) (42) (44)
(Gains)/losses and other (26) 25 30 195 129 56 276 95 13
------- ------- ------- ------- ----- ----- ------ ------ ------
Net pension/postretirement
expense $ 247 $ 580 $ 562 $ 527 $ 491 $ 466 $1,711 $1,456 $1,372
------- ------- ------- ------- ----- ----- ------ ------ ------
------- ------- ------- ------- ----- ----- ------ ------ ------
Discount rate for expense 6.25% 6.75% 7.25% 5.70% 6.50% 7.10% 6.50% 7.00% 7.50%
Assumed long-term rate of
return on assets 9.00% 9.00% 9.00% 9.30% 9.20% 9.20% 6.00% 6.20% -
Initial health care cost
trend rate - - - - - - 7.00% 6.60% 6.60%
Ultimate health care cost
trend rate - - - - - - 5.00% 5.00% 5.00%
Number of years to ultimate
trend rate - - - - - - 9 10 10
- - - - -
*Postretirement health care and life insurance benefits
Pension expense in 1999 decreased for U.S. plans primarily as a result of
increased return on plan assets and the year-to-year change in the cost of
special employee separation programs, partially offset by lower discount rates.
Pension expense in 1999 increased for non-U.S. plans primarily as a result of
lower discount rates and inclusion of Volvo partially offset by increased
return on plan assets and year-to-year change in the cost of special employee
separation programs.
FS-18
NOTE 9. Employee Retirement Benefits (continued)
-------------------------------------
The year-end status of these plans was as follows (in millions):
Pension Benefits
--------------------------------------------------
U.S. Plans Non-U.S. Plans Other Benefits*
------------------------ ------------------------ ------------------------
1999 1998 1999 1998 1999 1998
----------- ------------ ---------- ------------- ------------ -----------
Change in Benefit Obligation
----------------------------
Benefit obligation at January 1 $33,535 $30,923 $16,336 $13,311 $ 19,215 $ 17,522
Service cost 662 596 436 354 356 265
Interest cost 2,132 1,999 890 867 1,232 1,183
Amendments 3,113 10 414 26 37 -
Special programs 109 278 48 114 52 63
Net aquisitions/(sales) 74 (493) 784 - 37 (130)
Plan participant contributions 47 45 67 91 2 -
Benefits paid (1,977) (1,869) (699) (660) (922) (846)
Foreign exchange translation - - (952) 182 22 (22)
Actuarial loss/(gain) (5,371) 2,046 (817) 2,051 (146) 1,180
------- ------- ------- ------- -------- --------
Benefit obligation at December 31 $32,324 $33,535 $16,507 $16,336 $ 19,885 $ 19,215
------- ------- ------- ------- -------- --------
------- ------- ------- ------- -------- --------
Change in Plan Assets
---------------------
Fair value of plan assets at January 1 $39,122 $35,683 $13,255 $11,687 $ 2,001 $ 736
Actual return on plan assets 4,329 5,746 2,134 1,470 74 45
Company contributions 6 2 221 219 132 1,700
Special programs (32) (95) 0 (27) - -
Net acquisitions/(sales) 43 (473) 671 - - -
Plan participant contributions 47 45 67 91 - -
Benefits paid (1,977) (1,869) (699) (660) (530) (480)
Foreign exchange translation - - (447) 26 - -
Other 71 83 256 449 - -
------- ------- ------- ------- -------- --------
Fair value of plan assets at December 31 $41,609 $39,122 $15,458 $13,255 $ 1,677 $ 2,001
------- ------- ------- ------- -------- --------
------- ------- ------- ------- -------- --------
Funded Status of the Plan
-------------------------
Plan assets in excess of/(less than) $ 9,285 $ 5,587 $(1,049) $(3,081) $(18,208) $(17,214)
benefit obligations
Unamortized:
Transition (asset)/obligation (44) (68) 171 744 - -
Prior service cost 4,581 1,941 834 507 (38) (119)
Net (gains)/losses (12,246) (5,704) (1,058) 650 1,559 1,900
------- ------- ------- ------- -------- --------
Net amount recognized $ 1,576 $ 1,756 $(1,102) $(1,180) $(16,687) $(15,433)
------- ------- ------- ------- -------- --------
------- ------- ------- ------- -------- --------
Amounts Recognized in the
Balance Sheet Consists of Assets/(Liabilities)
---------------------------------------------
Prepaid assets $ 2,390 $ 2,437 $ 1,070 $ 1,176 $ - $ -
Accrued liabilities (1,118) (785) (3,061) (3,780) (16,687) (15,433)
Intangible assets 170 16 519 404 - -
Deferred income tax 46 34 84 376 - -
Accumulated other comprehensive income 88 54 286 644 - -
------- ------- ------- ------- -------- --------
Net amount recognized $ 1,576 $ 1,756 $(1,102) $(1,180) $(16,687) $(15,433)
------- ------- ------- ------- -------- --------
------- ------- ------- ------- -------- --------
Pension Plans in Which Accumulated Benefit
Obligation Exceeds Plan Assets at December 31
---------------------------------------------
Projected benefit obligation $ 1,109 $ 786 $ 5,731 $ 6,557
Accumulated benefit obligation 1,021 689 5,377 6,141
Fair value of plan assets 54 14 2,845 2,820
Assumptions as of December 31
-----------------------------
Discount rate 7.75% 6.25% 6.10% 5.70% 7.75% 6.50%
Expected return on assets 9.00% 9.00% 9.40% 9.30% 6.00% 6.00%
Average rate of increase in compensation 5.20% 5.20% 4.90% 5.10% - -
Initial health care cost trend rate - - - - 8.75% 7.00%
Ultimate health care cost trend rate - - - - 5.14% 5.00%
Number of years to ultimate trend rate - - - - 8 9
- - - - -
*Postretirement health care and life insurance benefits
FS-19
NOTE 10. Debt
--------------
The fair value of debt was estimated based on quoted market prices or
current rates for similar debt with the same remaining maturities.
Automotive Sector
-----------------
Debt at December 31 was as follows (in millions):
Weighted Average
Interest Rate* Book Value
------------------------ ------------------------
Maturity 1999 1998 1999 1998
------------- ----------- ------------ ----------- ------------
Debt payable within one year
----------------------------
Short-term debt 13.4% 9.8% $ 1,152 $ 1,076
Long-term debt payable within one year 450 45
------- -------
Total debt payable within one year 1,602 1,121
Long-term debt 2001-2097 7.5% 8.0% 10,542 8,713
-------------- ------- -------
Total debt $12,144 $ 9,834
------- -------
------- -------
Fair value $13,935 $10,809
- - - - -
*Excludes the effect of interest rate swap agreements; change in 1999 primarily
reflects short-term debt in South America.
Long-term debt at December 31, 1999 included maturities as follows (in
millions): 2000 - $450 (included in current liabilities); 2001 - $180;
2002 - $185; 2003 - $114; 2004 - $236; thereafter - $9,827.
Included in long-term debt at December 31, 1999 and 1998 were obligations
of $10,152 million and $7,944 million, respectively, with fixed interest
rates, and $390 million and $769 million, respectively, with variable
interest rates (generally based on LIBOR or other short-term rates).
Obligations payable in foreign currencies at December 31, 1999 and 1998
were $619 million and $544 million, respectively.
Agreements to manage exposures to fluctuations in interest rates, which
include primarily interest rate swap agreements and futures contracts, did
not affect the December 31, 1999 and December 31, 1998 overall
weighted-average interest rates on long-term debt or the obligations subject
to variable interest rates.
Financial Services Sector
-------------------------
Debt at December 31 was as follows (in millions):
Weighted Average
Interest Rate* Book Value
-------------------- --------------------------
Maturity 1999 1998 1999 1998
------------ ---------- --------- ----------- --------------
Debt payable within one year
----------------------------
Unsecured short-term debt $ 1,853 $ 2,998
Commercial paper 44,605 49,429
Other short-term debt 4,970 4,046
-------- --------
Total short-term debt 5.9% 5.6% 51,428 56,473
Long-term debt payable within one year 20,974 10,383
-------- --------
Total debt payable within one year 72,402 66,856
Long-term debt
--------------
Secured indebtedness 2001-2021 8.3% 10.2% 3 17
Unsecured senior indebtedness
Notes and bank debt 2001-2078 6.4% 6.2% 62,909 50,449
Debentures 2001-2006 3.2% 4.0% 2,142 1,661
Unamortized discount (87) (30)
-------- --------
Total unsecured senior indebtedness 64,964 52,080
Unsecured subordinated indebtedness
Notes 2001-2020 6.6% 7.7% 2,558 3,381
Unamortized discount (8) (10)
-------- --------
Total unsecured subordinated indebtedness 2,550 3,371
-------- --------
Total long-term debt 67,517 55,468
-------- --------
Total debt $139,919 $122,324
-------- --------
-------- --------
Fair value $139,979 $124,320
- - - - -
*Excludes the effect of interest rate swap agreements
FS-20
NOTE 10. Debt (continued)
-------------------------
Information concerning short-term borrowings (excluding long-term debt payable
within one year) is as follows (in millions)
1999 1998 1997
------------ ------------ ------------
Average amount of short-term borrowings $55,096 $49,099 $65,592
Weighted-average short-term interest rates per
annum (average year) 5.7% 5.7% 5.3%
Average remaining term of commercial paper
at December 31 24 days 31 days 30 days
Long-term debt at December 31, 1999 included maturities as follows (in
millions): 2000 - $20,974; 2001 - $14,504; 2002 - $12,571; 2003 - $10,149;
2004 - $10,397; thereafter - $19,896.
Included in long-term debt at December 31, 1999 and 1998 were obligations of
$46.5 billion and $38.1 billion, respectively, with fixed interest rates and
$21 billion and $17.3 billion, respectively, with variable interest rates
(generally based on LIBOR or other short-term rates). Obligations payable in
foreign currencies at December 31, 1999 and 1998 were $31 billion and $30
billion, respectively. These obligations were issued primarily to fund
non-U.S. business operations.
Outstanding commercial paper at December 31, 1999 totaled $42.1 billion at
Ford Credit and $2.5 billion at Hertz, with an average remaining maturity of
25 days and 15 days, respectively.
Agreements to manage exposures to fluctuations in interest rates include
primarily interest rate swap agreements. At December 31, 1999, these
agreements decreased the weighted-average interest rate on long-term debt to
6.2% compared with 6.4% excluding these agreements, and effectively decreased
the obligations subject to variable interest rates to $199 million; the
weighted-average interest rate on short-term debt excluding these agreements
did not change materially. At December 31, 1998, these agreements decreased
the weighted-average interest rate on long-term debt to 6%, compared with 6.2%
excluding these agreements, and effectively decreased the obligations subject
to variable interest rates to zero; the weighted-average interest rate on
short-term debt excluding these agreements did not change materially.
Support Facilities
------------------
At December 31, 1999, Ford had long-term contractually committed global credit
agreements under which $8.6 billion is available from various banks; 87% are
available through June 30, 2004. The entire $8.6 billion may be used, at
Ford's option, by any affiliate of Ford; however, any borrowing by an
affiliate will be guaranteed by Ford. Ford also has the ability to transfer,
on a nonguaranteed basis, $8.3 billion of such credit lines in varying
portions to Ford Credit and FCE Bank plc (formerly known as Ford Credit Europe
plc). In addition, at December 31, 1999, $336 million of contractually
committed credit facilities were available to various Automotive Sector
affiliates outside the U.S. Approximately $56 million of these facilities
were in use at December 31, 1999.
At December 31, 1999, the Financial Services Sector had a total of $26.6
billion of contractually committed support facilities (excluding the $8.3
billion available under Ford's global credit agreements). Of these
facilities, $23 billion are contractually committed global credit agreements
under which $18.3 billion and $4.6 billion are available to Ford Credit and
FCE Bank plc, respectively, from various banks; 54% and 66%, respectively of
such facilities are available through June 30, 2004. The entire $18.3 billion
may be used, at Ford Credit's option, by any subsidiary of Ford Credit, and
the entire $4.6 billion may be used, at FCE Bank plc's option, by any
subsidiary of FCE Bank plc. Any borrowings by such subsidiaries will be
guaranteed by Ford Credit or FCE Bank plc, as the case may be. At December
31, 1999, $80 million of the Ford Credit global facilities were in use and
$165 million of the FCE Bank plc global facilities were in use. Other than
the global credit agreements, the remaining portion of the Financial Services
Sector support facilities at December 31, 1999 consisted of $2.5 billion of
contractually committed support facilities available to Hertz in the U.S. and
$1.2 billion of contractually committed support facilities available to
various affiliates outside the U.S.; at December 31, 1999, approximately $0.8
billion of these facilities were in use. Furthermore, banks provide $1.4
billion of liquidity facilities to support the asset-backed commercial paper
program of a Ford Credit sponsored special purpose entity.
FS-21
NOTE 11. Capital Stock
-----------------------
At December 31, 1999, all general voting power was vested in the holders of
Common Stock and the holders of Class B Stock, voting together without regard
to class. At that date, the holders of Common Stock were entitled to one vote
per share and, in the aggregate, had 60% of the general voting power; the
holders of Class B Stock were entitled to such number of votes per share as
would give them, in the aggregate, the remaining 40% of the general voting
power, as provided in the company's Restated Certificate of Incorporation.
The Restated Certificate of Incorporation provides that all shares of Common
Stock and Class B Stock share equally in dividends (other than dividends
declared with respect to any outstanding Preferred Stock), except that any
stock dividends are payable in shares of Common Stock to holders of that class
and in Class B Stock to holders of that class. Upon liquidation, all shares
of Common Stock and Class B Stock are entitled to share equally in the assets
of the company available for distribution to the holders of such shares.
On January 9, 1998, all outstanding shares of Series A Depositary Shares,
representing 1/1,000 of a share of Series A Cumulative Convertible Preferred
Stock, were redeemed at a price of $51.68 per Depositary Share plus an amount
equal to accrued and unpaid dividends.
Series B Depositary Shares, representing 1/2,000 of a share of $1.00 par value
Series B Cumulative Preferred Stock, have a liquidation preference of $25 per
Depositary Share. Shares outstanding at December 31, 1999 numbered 7,096,688
Depositary Shares. Dividends are payable at a rate of $2.0625 per year per
Depositary Share. Series B Cumulative Preferred Stock is not convertible into
shares of Common Stock of the company. On and after December 1, 2002, and
upon satisfaction of certain conditions, the stock is redeemable for cash at
the option of Ford, in whole or in part, at a redemption price equivalent to
$25 per Depositary Share, plus an amount equal to the sum of all accrued and
unpaid dividends.
On January 22, 1998, the company commenced an offer to purchase all Depositary
Shares representing its Series B Cumulative Preferred Stock at a price of
$31.40 per Depositary Share. The offer to purchase was in effect until
February 26, 1998. Depositary Shares purchased totaled 13,229,775.
The Series B Cumulative Preferred Stock ranks (and any other outstanding
Preferred Stock of the company would rank) senior to the Common Stock and
Class B Stock in respect of dividends and liquidation rights.
Changes to the number of shares of capital stock issued for the periods
indicated were as follows (shares in millions):
Preferred
Common Class B -------------------------
Stock Stock Series A Series B
------------ ------------ ------------ ------------
Issued at December 31, 1996 1,118 71 0.004 0.010
Changes:
1997 - Conversion of Series A Preferred Stock 4 (0.001)
- Employee benefit plans and other 10
1998 - Conversion and Redemption of Series A 8 (0.003)
Preferred Stock
- Employee benefit plans and other 11
- Repurchase of Series B Preferred Stock _____ __ _____ (0.006)
-----
Net change 33 0 (0.004) (0.006)
----- -- ----- -----
Issued at December 31, 1999 1,151 71 0.000 0.004
----- -- ----- -----
----- -- ----- -----
Authorized at December 31, 1999 3,000 265 Total Preferred: 30
FS-22
NOTE 12. Stock Options
-----------------------
The company has stock options outstanding under the 1990 Long-Term Incentive
Plan and the 1998 Long-Term Incentive Plan. These Plans were approved by the
stockholders. No further grants may be made under the 1990 Plan. Grants may
be made under the 1998 Plan through April 2008. In general, options granted
in 1997 under the 1990 Plan and subsequent years under the 1998 Plan become
exercisable 33% after one year from the date of grant, 66% after two years,
and in full after three years. In general, options granted prior to 1997
under the 1990 Plan become exercisable 25% after one year from the date of
grant, 50% after two years, 75% after three years, and in full after four
years. Options under the Plans expire after 10 years from the date of grant.
Certain participants were granted accompanying Stock Appreciation Rights under
the Plans which may be exercised in lieu of the related options. Under the
Plans, a Stock Appreciation Right entitles the holder to receive, without
payment, the excess of the fair market value of the Common Stock on the date
of exercise over the option price, either in Common Stock or cash or a
combination. In addition, grants of Performance/Contingent Stock Rights were
made with respect to 1,179,300 shares in 1999, 1,354,627 shares in 1998, and
936,300 shares in 1997. The number of shares ultimately awarded will depend on
the extent to which the performance targets specified in each Right is
achieved, individual performance of the recipients, and other factors, as
determined by the Compensation and Option Committee of the Board of Directors.
Under the 1998 Plan, up to 2% of Common Stock issued as of December 31 of any
year may be made available for stock options and other plan awards in the next
succeeding calendar year. That limit may be increased up to 3% in any year,
with a corresponding reduction in shares available for grants in future
years. Any unused portion of the 2% limit for any calendar year may be
carried forward and made available for Plan awards in succeeding calendar
years. At December 31, 1999, the number of unused shares carried forward
aggregated to 18,694,278 shares.
Information concerning stock options is as follows (shares in millions):
1999 1998 1997
---------------------- ---------------------- ----------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares subject to option Shares Price Shares Price Shares Price
------------------------ ---------- ----------- --------- ------------ --------- ------------
Outstanding at beginning of period 70.9 $25.67 50.0 $28.44 50.3 $26.93
New grants (based on fair value of
Common Stock at dates of grant) 14.9 57.84 12.7 58.07 8.6 32.05
Associates adjustment* 24.8
Exercised** (9.1) 20.26 (13.7) 19.97 (8.3) 23.19
Surrendered upon exercise of stock
appreciation rights (0.8) 21.14 (2.5) 22.79 (0.4) 22.44
Terminated and expired (0.6) 37.10 (0.4) 33.58 (0.2) 30.86
---- ---- ----
Outstanding at end of period 75.3*** 32.66 70.9 25.67 50.0 28.44
Outstanding but not exercisable (33.5) (34.9) (21.6)
---- ---- ----
Exercisable at end of period 41.8 23.51 36.0 19.53 28.4 25.84
---- ---- ----
---- ---- ----
- - - - -
*Outstanding stock options and related exercise prices were adjusted to
preserve the intrinsic value of options as a result of The Associates
spin-off in 1998.
** Exercised at option prices ranging from $10.43 to $44.75 during 1999,
$10.43 to $32.69 during 1998, and $15.00 to $32.69 during 1997.
*** Included 43.5 and 31.8 million shares under the 1990 and 1998 Plans,
respectively, at option prices ranging from $10.43 to $64.91 per share.
At December 31, 1999, the weighted-average remaining exercise period
relating to the outstanding options was 6.8 years.
FS-23
NOTE 12. Stock Options (continued)
-----------------------
The estimated fair value as of date of grant of options granted in 1999, 1998,
and 1997, using the Black-Scholes option-pricing model, was as follows:
1999 1998 1997
----------- ----------- -----------
Estimated fair value per share of
options granted during the year $17.53 $9.25 $5.76
Assumptions:
Annualized dividend yield 3.2% 4.1% 4.8%
Common Stock price volatility 36.5% 28.1% 22.1%
Risk-free rate of return 5.2% 5.7% 6.7%
Expected option term (in years) 5 5 5
The company measures compensation cost using the intrinsic value method.
Accordingly, no compensation cost for stock options has been recognized. If
compensation cost had been determined based on the estimated fair value of
options granted since 1995, the company's net income and income per share
would have been reduced to the pro forma amounts indicated below:
1999 1998 1997
---------------------- ---------------------- -----------------------
As Pro As Pro As Pro
Reported Forma* Reported Forma* Reported Forma*
----------- ---------- ---------- ----------- ----------- -----------
Net income (in millions) $7,237 $7,129 $22,071 $22,014 $6,920 $6,892
Income per share
----------------
Basic $ 5.99 $ 5.90 $ 18.17 $ 18.12 $ 5.75 $ 5.73
Diluted $ 5.86 $ 5.77 $ 17.76 $ 17.71 $ 5.62 $ 5.60
- - - - -
*The pro forma disclosures may not be representative of the effects on
reported net income and income per share for future periods because
only stock options that were granted beginning in 1995 are included in
the above table. The estimated fair value, before tax, of options
granted in 1999, 1998, and 1997 was $256 million, $162 million, and
$48 million, respectively.
NOTE 13. Litigation and Claims
-------------------------------
Various legal actions, governmental investigations and proceedings and claims
are pending or may be instituted or asserted in the future against the company
and its subsidiaries, including those arising out of alleged defects in the
company's products; governmental regulations relating to safety, emissions and
fuel economy; financial services; employment-related matters; dealer, supplier
and other contractual relationships; intellectual property rights; product
warranties; and environmental matters. Certain of the pending legal actions
are, or purport to be, class actions. Some of the foregoing matters involve
or may involve compensatory, punitive, or antitrust or other treble damage
claims in very large amounts, or demands for recall campaigns, environmental
remediation programs, sanctions, or other relief which, if granted, would
require very large expenditures.
Litigation is subject to many uncertainties, and the outcome of individual
litigated matters is not predictable with assurance. Reserves have been
established by the company for certain of the matters discussed in the
foregoing paragraph where losses are deemed probable. It is reasonably
possible, however, that some of the matters discussed in the foregoing
paragraph for which reserves have not been established could be decided
unfavorably to the company or the subsidiary involved and could require the
company or such subsidiary to pay damages or make other expenditures in
amounts or a range of amounts that cannot be estimated at December 31, 1999.
The company does not reasonably expect, based on its analysis, that any
adverse outcome from such matters would have a material effect on future
consolidated financial statements for a particular year, although such an
outcome is possible.
NOTE 14. Commitments and Contingencies
---------------------------------------
At December 31, 1999, the company had the following minimum rental commitments
under non-cancelable operating leases (in millions): 2000 - $437; 2001 - $346;
2002 - $278; 2003 - $157; 2004 - $107; thereafter- $238. These amounts include
rental commitments related to the sale and leaseback of certain automotive
sector machinery and equipment.
FS-24
NOTE 15. Financial Instruments
-------------------------------
Estimated fair value amounts have been determined using available market
information and various valuation methods depending on the type of
instrument. In evaluating the fair value information, considerable judgment
is required to interpret the market data used to develop the estimates. The
use of different market assumptions and/or different valuation techniques may
have a material effect on the estimated fair value amounts. Further, it
should be noted that fair value at a particular point in time gives no
indication of future gain or loss, or what the dimensions of that gain or loss
are likely to be.
Balance Sheet Financial Instruments
-----------------------------------
Information about specific valuation techniques and estimated fair values is
provided throughout the Notes to Financial Statements. Book value and estimated
fair value amounts at December 31 were as follows (in millions):
1999 1998
----------------------- -----------------------
Book Fair Book Fair Fair Value
Value Value Value Value Reference
----------------------- ----------- ----------- -------------
Automotive Sector
-----------------
Marketable securities $ 18,943 $ 18,943 $ 20,120 $ 20,120 Note 2
Debt 12,144 13,935 9,834 10,809 Note 10
Financial Services Sector
-------------------------
Marketable securities $ 733 $ 733 $ 968 $ 968 Note 2
Receivables 105,577 106,552 90,010 89,847 Note 3
Debt 139,919 139,979 122,324 124,320 Note 10
Foreign Currency and Interest Rate Instruments
----------------------------------------------
The fair value of foreign currency and interest rate instruments was estimated
using current market rates provided by outside quotation services. The
estimated notional amount and fair value at December 31 were as follows (in
millions):
Fair Value
----------------------------
1999 Notional Amount Asset Liability
---- ------------------ -------------- -------------
Interest Rate Products $125,329 $397 $ 478
Currency Products 44,340 674 1,664
1998
----
Interest Rate Products 96,061 922 309
Currency Products 33,066 721 704
The notional amount represents the contract amount, not the amount at risk.
The deferred loss for foreign currency instruments was $285 million at
December 31, 1999, compared to a deferred gain of $28 million at December
31, 1998. The deferred loss for 1999 is the sum of unrecognized gains and
losses on the underlying transactions or commitments.
Counterparty Credit Risk
------------------------
Ford manages its foreign currency and interest rate counterparty credit
risks by limiting exposure to and by monitoring the financial condition of
each counterparty. The amount of exposure Ford may have to a single
counterparty on a worldwide basis is limited by company policy. In the
unlikely event that a counterparty fails to meet the terms of a foreign
currency or an interest rate instrument, the company's risk is limited to
the fair value of the instrument.
Other Financial Agreements
--------------------------
At December 31, 1999, the notional amount of commodity hedging contracts
outstanding totaled $2,700 million: the notional amount at December 31, 1998
was $853 million. The company also had guaranteed $586 million of debt of
unconsolidated subsidiaries, affiliates and others at December 31, 1999.
The risk of loss under these financial agreements is not material.
FS-25
NOTE 16. Acquisitions, Dispositions and Restructuring
-----------------------------------------------------
Automotive Sector
-----------------
Acquisitions
------------
Purchase of AB Volvo's Worldwide Passenger Car Business ("Volvo Car") -
On March 31, 1999, we purchased Volvo Car for approximately $6.45
billion. The acquisition price consisted of a cash payment of
approximately $2 billion on March 31, 1999, a deferred payment obligation
to AB Volvo of approximately $1.6 billion due March 31, 2001, and Volvo
Car automotive net indebtedness of approximately $2.9 billion. Most
automotive indebtedness was repaid on April 12, 1999. The purchase price
payment and automotive debt repayments were funded from our cash reserves.
The acquisition has been accounted for as a purchase. The assets
purchased, liabilities assumed and the results of operations, since the
date of acquisition, are included in our financial statements on a
consolidated basis.
The purchase price for Volvo Car has been allocated to the assets
acquired and liabilities assumed based on the estimated fair values as of
the acquisition date. The excess of the purchase price over the estimated
fair value of net assets acquired is approximately $2.5 billion and is
being amortized on a straight-line basis over 40 years. Value assigned
to identified intangible assets is approximately $400 million and is
being amortized on a straight-line basis over periods ranging from 12 to
40 years. The purchase price allocation included a write-up of inventory
to fair value; the sale of this inventory in the second quarter of 1999
resulted in a one-time increase in cost of sales of $146 million
after-tax.
Purchase of Kwik-Fit Holdings plc - During the third quarter of 1999, we
completed the purchase of all the outstanding stock of Kwik-Fit Plc
("Kwik-Fit"). Kwik-Fit is Europe's largest independent vehicle
maintenance and light repair chain, with over 1,600 service centers in
the United Kingdom, Ireland, and continental Europe. The acquisition
price was approximately $1.6 billion and consisted of cash payments of
approximately $1.4 billion and loan notes to certain Kwik-Fit
shareholders of approximately $0.2 billion, redeemable beginning on April
30, 2000 and on any subsequent interest payment date. The
purchase price payments were funded from our cash reserves.
The acquisition has been accounted for as a purchase. The assets
purchased, liabilities assumed and the results of operations, since June
30, 1999, are included in our financial statements on a consolidated
basis.
The purchase price for Kwik-Fit has been allocated to the assets acquired
and liabilities assumed based on the estimated fair values as of the
acquisition date. The excess of the purchase price over the estimated
fair value of the net assets acquired is approximately $1.1 billion and
is being amortized on a straight-line basis over 30 years. Value
assigned to identified intangible assets is approximately $400 million
and is being amortized on a straight-line basis over periods ranging from
10 to 30 years.
Purchase of Plastic Omnium - On June 30, 1999, we purchased (through
Visteon) Plastic Omnium's automotive interior business for approximately
$500 million. The automotive interior business of Plastic Omnium has 14
facilities in four countries in Europe: France, Spain, Italy and the UK.
The purchase was funded from our cash reserves.
The acquisition has been accounted for as a purchase. The assets
purchased, liabilities assumed and the results of operations, since the
date of acquisition, are included in our financial statements on a
consolidated basis.
The purchase price for Plastic Omnium has been allocated to the assets
acquired and liabilities assumed based on estimated fair values as of the
acquisition date. The excess of the purchase price over the estimated
fair value of net assets acquired is approximately $300 million and is
being amortized on a straight-line basis over 20 years.
FS-26
NOTE 16. Acquisitions, Dispositions and Restructuring (continued)
------------------------------------------------------
Assuming the acquisitions described above had taken place on January 1, 1999
and 1998, our total (Automotive and Financial Services) pro forma revenue, net
income, and earnings per share for the fourth quarter and twelve months ended
December 31, 1999 would not have been materially affected. For the twelve
month period ended December 31, 1998, unaudited pro forma revenue would have
been $158.7 billion. Net income and earnings per share for this period would
not be materially affected.
Dissolution of AutoEuropa Joint Venture
---------------------------------------
Effective January 1, 1999, our joint venture for the production of minivans
with Volkswagen AG in Portugal (AutoEuropa) was dissolved resulting in a $255
million pre-tax gain ($165 million after-tax). The gain was recorded in the
first quarter 1999 and credited to cost of sales.
Write-Down of Kia Motors Corporation
------------------------------------
During the fourth quarter of 1998, Ford recorded a pre-tax charge of $111
million ($86 million after taxes) to write-off its net exposure to Kia Motors
Corporation ("Kia"). The write-off of Xxxx's exposure was recorded in cost of
sales. Ford's share of Mazda Motor Corporation's ("Mazda") exposure was
recorded in equity in net income of affiliates.
Batavia/ZF Friedrichshafen AG Joint Venture
-------------------------------------------
During the fourth quarter of 1998, Ford recorded in cost of sales a pre-tax
charge of $112 million ($73 million after taxes) related to the fair value
transfer of its Batavia (Ohio) Transmission Plant to a new joint venture
company formed by Ford and ZF Friedrichshafen AG of Germany. The new joint
venture is reflected in Ford's consolidated financial statements on an equity
basis.
Restructurings
--------------
Ford recorded a pre-tax charge of $726 million ($472 million after taxes) in
the fourth quarter of 1998, reflecting retirement and separation program
actions that were completed during 1998 and 1999. These special voluntary and
involuntary programs reduced the workforce by 2,184 persons in North America
(all salaried), 1,977 in Europe (1,304 hourly and 673 salaried) and 4,650 in
South America (4,400 hourly and 250 salaried). The costs were charged to the
Automotive segment ($674 million) in cost of sales, Visteon segment ($38
million) in cost of sales, Ford Credit segment ($9 million) in operating and
other expenses, and other Financial Services operations ($5 million) in
operating and other expenses.
Ford recorded a pre-tax charge of $272 million ($169 million after taxes) in
the second quarter of 1997, reflecting actions that were completed during 1997
and 1998. These included primarily the discontinuation of passenger car
production at the Lorain Assembly Plant resulting in a write-down of surplus
assets. The charge also included employee termination costs related to the
elimination of a shift at the Halewood (England) Plant, and a loss on the sale
of the heavy truck business.
Financial Services Sector
-------------------------
Associates First Capital Corporation ("The Associates")
-------------------------------------------------------
During the second quarter of 1998, the company completed a spin-off of Ford's
80.7% (279.5 million shares) interest in The Associates. As a result of the
spin-off of The Associates, Ford recorded a gain of $15,955 million in the
first quarter of 1998 based on the fair value of The Associates as of the
record date, March 12, 1998. The spin-off qualified as a tax-free transaction
for U.S. federal income tax purposes. During the second quarter of 1996, The
Associates completed an initial public offering ("IPO") of its common stock
representing a 19.3% economic interest in The Associates. Ford recorded a
second quarter 1996 gain of $650 million resulting from the IPO; the gain was
not subject to income taxes.
FS-27
NOTE 16. Acquisitions, Dispositions and Restructuring (continued)
------------------------------------------------------
The Hertz Corporation ("Hertz")
-------------------------------
In the second quarter of 1997, Hertz, a subsidiary of Ford, completed an IPO
of its common stock representing a 19.1% economic interest in Hertz. Ford
recorded a second quarter 1997 gain of $269 million resulting from the IPO;
the gain was not subject to income taxes.
NOTE 17. Cash Flows
--------------------
The reconciliation of net income to cash flows from operating activities is as
follows (in millions):
1999 1998 1997
------------------------ ----------------------- -----------------------
Financial Financial Financial
Automotive Services Automotive Services Automotive Services
----------- ------------ ----------- ----------- ----------- -----------
Net income $ 5,721 $ 1,516 $ 4,752 $17,319 $ 4,714 $ 2,206
Adjustments to reconcile net income
to cash flows from operating activities:
Depreciation and amortization 5,895 9,298 5,844 8,624 6,020 7,764
Losses/(earnings) of affiliated
companies in excess of dividends
remitted (37) 25 82 (2) 127 (1)
Provision for credit and
insurance losses - 1,465 - 1,798 - 3,230
Foreign currency adjustments 316 - (208) - (27) -
Net (purchases)/sales of trading
securities 2,316 (157) (5,434) (205) (2,307) 67
Provision for deferred income taxes 278 1,565 421 1,307 908 (102)
Gain on spin-off of The Associates
(Note 16) - - - (15,955) - -
Gain on sale of common stock of a
subsidiary (Note 15) - - - - - (269)
Changes in assets and liabilities:
Decrease/(increase) in accounts
receivable and other current assets (1,107) (331) 1,027 (1,189) (179) 256
(Increase)/decrease in inventory 893 - (254) - 1,234 -
Increase/(decrease) in accounts payable
and accrued and other liabilities 2,648 (1,213) 2,915 890 3,772 (240)
Other 348 372 477 891 (278) 739
------- ------- ------- ------- ------- -------
Cash flows from operating activities $17,271 $12,540 $ 9,622 $13,478 $13,984 $13,650
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
The company considers all highly liquid investments purchased with a maturity
of three months or less, including short-term time deposits and government,
agency and corporate obligations, to be cash equivalents. Automotive sector
cash equivalents at December 31, 1999 and 1998 were $3.1 billion and
$3.4 billion, respectively; Financial Services sector cash equivalents at
December 31, 1999 and 1998 were $1.1 billion and $500 million, respectively.
Cash flows resulting from futures contracts, forward contracts and options
that are accounted for as xxxxxx of identifiable transactions are classified
in the same category as the item being hedged. Purchases, sales and
maturities of trading securities are included in cash flows from operating
activities. Purchases, sales and maturities of available-for-sale and
held-to-maturity securities are included in cash flows from investing
activities.
Xxxx paid for interest and income taxes was as follows (in millions):
1999 1998 1997
----------- ----------- -----------
Interest $8,524 $9,120 $10,430
Income taxes 1,125 1,764 1,289
FS-28
NOTE 18. Segment Information
----------------------------
Ford adopted Statement of Financial Accounting Standards No. 131, Disclosures
about Segments of an Enterprise and Related Information, effective with
year-end 1998. This standard requires companies to disclose selected financial
data by operating segment (defined in Note 1). Ford has identified four primary
operating segments: Automotive, Visteon, Ford Credit, and Hertz. Segment
selection was based upon internal organizational structure, the way in which
these operations are managed and their performance evaluated by management and
Ford's Board of Directors, the availability of separate financial results, and
materiality considerations. Segment detail is summarized as follows
(in millions):
Automotive Sector Financial Services Sector Total Total
----------------------- -----------------------------------
Auto- Ford Other Elims/ Auto Fin Svcs
motive Visteon Credit Hertz Fin Svcs Other Sector Sector
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
1999
----
Revenues
External customer $135,073 $ 2,261 a/ $ 20,020 $ 4,695 $ 866 $ (357) $136,973 $ 25,585
Intersegment 4,514 17,105 340 33 170 (22,162) 0 0
-------- ------- -------- ------- ------- -------- -------- --------
Total Revenues $139,587 $19,366 $ 20,360 $ 4,728 $ 1,036 $(22,519) $136,973 $ 25,585
-------- ------- -------- ------- ------- -------- -------- --------
-------- ------- -------- ------- ------- -------- -------- --------
Income
Income before taxes $ 7,467 $ 1,172 $ 2,104 $ 560 $ (85) $ (192) $ 8,447 $ 2,579
Provision for income tax 2,318 422 791 224 (18) (67) 2,673 997
Net income 5,111 735 1,261 336 (15) (191) 5,721 1,516
Other Disclosures
Depreciation/amortization $ 5,244 $ 651 $ 7,565 b/ $ 1,357 $ 326 $ 50 $ 5,895 $ 9,298
Interest income 1,584 79 - - - (235) 1,428 -
Interest expense 1,488 143 7,193 354 633 (735) 1,397 7,679
Capital expenditures 7,069 876 82 351 157 0 7,945 590
Unconsolidated affiliates
Equity in net income 35 47 (25) 0 0 0 82 (25)
Investments in 2,539 205 97 0 8 0 2,744 105
Total assets at year-end 100,132 12,506 156,631 10,137 12,427 (15,604) 105,181 171,048
---------------------------------------------------------------------------------------------------------------------------------
1998
----
Revenues
External customer $118,017 $ 1,412 a/ $ 19,095 $ 4,241 $ 1,997 $ (346) $119,083 $ 25,333
Intersegment 3,839 16,350 208 9 272 (20,678) 0 0
-------- ------- -------- ------- ------- -------- -------- --------
Total Revenues $121,856 $17,762 $ 19,303 $ 4,250 $ 2,269 $(21,024) $119,083 $ 25,333
-------- ------- -------- ------- ------- --------- -------- --------
-------- ------- -------- ------- ------- --------- -------- --------
Income
Income before taxes $ 5,829 $ 1,116 $ 1,812 $ 465 $16,161 c/ $ 13 $ 6,958 $ 18,438
Provision for income tax 1,739 416 680 188 149 4 2,159 1,017
Net income 4,040 703 1,084 277 16,060 c/ (93) 4,752 17,319
Other Disclosures
Depreciation/amortization $ 5,279 $ 565 $ 7,327 b/ $ 1,212 $ 54 $ 31 $ 5,844 $ 8,624
Interest income 1,453 38 - - - (160) 1,331 -
Interest expense 1,109 82 6,910 318 1,114 (668) 829 8,036
Capital expenditures 7,252 861 67 317 120 0 8,113 504
Unusual items 0 0 0 0 15,955 c/ 0 0 15,955
Unconsolidated affiliates
Equity in net income (64) 26 2 0 0 0 (38) 2
Investments in 2,191 214 76 0 0 0 2,401 76
Total assets at year-end 83,390 9,373 137,248 8,873 6,181 (7,520) 88,744 148,801
---------------------------------------------------------------------------------------------------------------------------------
1997
----
Revenues
External customer $121,976 $ 1,217 a/ $ 17,144 $ 3,895 $ 9,653 $ (258) $122,935 $ 30,692
Intersegment 4,749 16,003 201 10 266 (21,229) 0 0
-------- ------- -------- ------- ------- -------- -------- --------
Total Revenues $126,725 $17,220 $ 17,345 $ 3,905 $ 9,919 $(21,487) $122,935 $ 30,692
-------- ------- -------- ------- ------- -------- -------- --------
-------- ------- -------- ------- ------- -------- -------- --------
Income
Income before taxes $ 6,257 $ 815 $ 1,806 $ 343 $ 1,708 d/ $ 10 $ 7,082 $ 3,857
Provision for income tax 2,014 305 727 142 550 3 2,322 1,419
Net income 4,196 511 1,031 202 1,205 d/ (225) 4,714 2,206
Other Disclosures
Depreciation/amortization $ 5,430 $ 590 $ 6,188 b/ $ 1,088 $ 463 $ 25 $ 6,020 $ 7,764
Interest income 1,228 17 - - - (129) 1,116 -
Interest expense 904 82 6,268 316 3,523 (593) 788 9,712
Capital expenditures 7,225 917 49 211 315 0 8,142 575
Unusual items 0 0 0 0 269 d/ 0 0 269
Unconsolidated affiliates
Equity in net income (117) 29 1 0 0 0 (88) 1
Investments in 1,782 195 84 0 0 0 1,951 84
Total assets at year-end 82,306 8,471 121,973 7,436 68,348 (9,437) 85,079 194,018
- - - - -
a/ Includes sales to outside fabricators for inclusion in components sold to
Ford's Automotive segment. These sales are eliminated in total Automotive
sector reporting.
b/ Includes depreciation of operating leases only. Other types of
Depreciation/amortization for Ford Credit are included in the Elims/Other
column.
c/ Includes $15,955 non-cash gain (not taxed) on spin-off of The Associates in
the first quarter of 1998 (Note 16).
d/ Includes $269 gain (not taxed) on Hertz IPO in the second quarter of 1997
(Note 16).
FS-29
NOTE 18. Segment Information (continued)
-----------------------------
"Other Financial Services" data is an aggregation of miscellaneous smaller
Financial Services sector business components, including Ford Motor Land
Development Corporation, Ford Leasing Development Company, Ford Leasing
Corporation, and Granite Management Corporation, and certain unusual
transactions (footnoted). Also included is data for The Associates, which was
spun-off from Ford in 1998.
"Eliminations/Other" data includes intersegment eliminations and minority
interest calculations. Data for "Depreciation/amortization" includes
depreciation of fixed assets and assets subject to operating leases,
amortization of special tools, and amortization of intangible assets. Interest
income for the operating segments in the Financial Services sector is reported
as "Revenue".
Information concerning principal geographic areas was as follows (in millions):
Geographic Areas United All Total
---------------- States Europe Other Company
----------- ----------- ----------- -----------
1999
----
External revenues $112,420 $33,182 $16,956 $162,558
Net property 27,738 14,372 7,642 49,752
1998
----
External revenues $100,597 $27,026 $16,793 $144,416
Net property 25,761 11,018 7,260 44,039
1997
----
External revenues $105,581 $27,618 $20,428 $153,627
Net property 23,948 9,596 7,090 40,634
FS-30
NOTE 19. Summary Quarterly Financial Data (Unaudited
-----------------------------------------------------
(in millions, except amounts per share)
1999 1998
---------------------------------------- ----------------------------------------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
--------- --------- -------------------- --------- --------- --------- ----------
Automotive
Sales $31,933 $35,921 $31,338 $37,781 $29,076 $31,309 $26,494 $32,204
Operating income 2,387 2,898 1,010 2,084 1,806 2,922 777 1,180
Financial Services
Revenues 5,952 6,361 6,635 6,637 7,508 5,980 6,146 5,699
Income before income taxes 547 689 742 601 16,813 590 645 390
Total Company
Net income $ 1,979 $ 2,338 $ 1,114 $ 1,806 $17,646 $ 2,381 $ 1,001 $ 1,043
Less:
Preferred stock dividend
requirements 4 4 4 3 95 4 4 4
------- ------- ------- ------- ------- ------- ------- -------
Income attributable
to Common and
Class B Stock $ 1,975 $ 2,334 $ 1,110 $ 1,803 $17,551 $ 2,377 $ 997 $ 1,039
------- -------- ------- ------- ------- ------- ------- -------
------- -------- ------- ------- ------- ------- ------- -------
AMOUNTS PER SHARE OF COMMON
AND CLASS B STOCK AFTER
PREFERRED STOCK DIVIDENDS
Basic income $ 1.64 $ 1.93 $ 0.92 $ 1.50 $ 14.48 $ 1.96 $ 0.82 $ 0.86
Diluted income 1.60 1.89 0.90 1.47 14.23 1.91 0.80 0.84
Cash dividends 0.46 0.46 0.46 0.50 0.42 0.42 0.42 0.46
FS-31
PricewaterhouseCoopers LLP
Report of Independent Accountants
To the Board of Directors and Stockholders
Ford Motor Company:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, stockholders' equity and cash flows present
fairly, in all material respects, the financial position of Ford Motor Company
and Subsidiaries at December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
January 24, 2000
