UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 FORM 10-K (Mark One) X Annual report pursuant to Section 13 or 15(d) of the - ------ Securities Exchange Act of 1934 (Fee Required) For the fiscal year ended December 31, 1995 ----------------- OR Transition report pursuant to Section 13 or 15(d) of - ------ the Securities Exchange Act of 1934 (No Fee Required) For the transition period from ______________ to______________ Commission file number 1-3950 ------ FORD MOTOR COMPANY ------------------ (Exact name of registrant as specified in its charter) Delaware 38-0549190 -------- ---------- (State of incorporation) (I.R.S. employer identification no.) The American Road, Dearborn, Michigan 48121 - ------------------------------------- ----- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: 313-322-3000 ------------ Securities registered pursuant to Section 12(b) of the Act: <TABLE> <CAPTION> Name of each exchange on Title of each class which registered (a) - --------------------------------------- --------------------------- <S> <C> Common Stock, par value $1.00 per share New York Stock Exchange Pacific Coast Stock Exchange Depositary Shares, each representing New York Stock Exchange 1/1,000 of a share of Series A Cumulative Convertible Preferred Stock, as described below Depositary Shares, each representing New York Stock Exchange 1/2,000 of a share of Series B Cumulative Preferred Stock, as described below </TABLE> _____________ (a) In addition, shares of Common Stock of the Registrant are listed on certain stock exchanges in the United Kingdom and Continental Europe. [Cover page 1 of 2 pages]
Securities registered pursuant to Section 12(g) of the Act: Series A Cumulative Convertible Preferred Stock, par value $1.00 per share, with an annual dividend rate of $4,200 per share and a liquidation preference of $50,000 per share. Series B Cumulative Preferred Stock, par value $1.00 per share, with an annual dividend rate of $4,125 per share and a liquidation preference of $50,000 per share. Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ ------ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] ------- As of February 1, 1996, the Registrant had outstanding 1,097,956,189 shares of Common Stock and 70,852,076 shares of Class B Stock. Based on the New York Stock Exchange Composite Transaction closing price of the Common Stock on that date ($30- 1/2 a share), the aggregate market value of such Common Stock was $33,487,663,764.50. Although there is no quoted market for the Registrant's Class B Stock, shares of Class B Stock may be converted at any time into an equal number of shares of Common Stock for the purpose of effecting the sale or other disposition of such shares of Common Stock. The shares of Common Stock and Class B Stock outstanding at February 1, 1996 included shares owned by persons who may be deemed to be "affiliates" of the Registrant. The Registrant does not believe, however, that any such person should be considered to be an affiliate. For information concerning ownership of outstanding Common Stock and Class B Stock, see the Proxy Statement for the Registrant's Annual Meeting of Stockholders to be held on May 9, 1996 (the "Proxy Statement"), which is incorporated by reference under various Items of this Report. Document Incorporated by Reference* ---------------------------------- Document Where Incorporated -------- ------------------ Proxy Statement Part III (Items 10, 11, 12 and 13) __________________________ * As stated under various Items of this Report, only certain specified portions of such document are incorporated by reference herein. [Cover page 2 of 2 pages]
PART I Item 1. Business - ----------------- Ford Motor Company (referred to herein as "Ford", the "Company" or the "Registrant") was incorporated in Delaware in 1919 and acquired the business of a Michigan company, also known as Ford Motor Company, incorporated in 1903 to produce automobiles designed and engineered by Henry Ford. Ford is the second-largest producer of cars and trucks in the world, and ranks among the largest providers of financial services in the United States. General ------- The Company's two principal business segments are Automotive and Financial Services. The activities of the Automotive segment consist of the design, manufacture, assembly and sale of cars and trucks and related parts and accessories. Substantially all of Ford's automotive products are marketed through retail dealerships, most of which are privately owned and financed. The primary activities of the Financial Services segment consist of financing operations, vehicle and equipment leasing and insurance operations. These activities are conducted through the Company's subsidiaries, Ford FSG, Inc. ("FFSGI"), Ford Holdings, Inc. ("Ford Holdings"), The Hertz Corporation ("Hertz") and Granite Management Corporation ("Granite"). FFSGI is a holding company that owns primarily Ford Motor Credit Company ("Ford Credit"), a majority of Ford Credit Europe plc ("Ford Credit Europe"), and Associates First Capital Corporation ("The Associates"). Ford Holdings is a holding company that owns primarily a portion of FFSGI and all of USL Capital Corporation ("USL Capital") and The American Road Insurance Company ("American Road"). See Note 17 of Notes to Financial Statements and Item 6. "Selected Financial Data" for information relating to revenue, operating income/(loss) and assets attributable to Ford's industry segments. Also see Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" for information with respect to revenue, net income and other matters. Automotive Operations --------------------- The worldwide automotive industry is affected significantly by a number of factors over which the industry has little control, including general economic conditions. In the United States, the automotive industry is a highly- competitive, cyclical business characterized by a wide variety of product offerings. The level of industry demand (retail deliveries of cars and trucks) can vary substantially from year to year and, in any year, is dependent to a large extent on general economic conditions, the cost of purchasing and operating cars and trucks and the availability and cost of credit and of fuel, and reflects the fact that cars and trucks are durable items, the replacement of which can be postponed. The automotive industry outside of the United States consists of many producers, with no single dominant producer. Certain manufacturers, however, account for the major percentage of total sales within particular countries, especially their respective countries of origin. Most of the factors that affect the U.S. automotive industry and its sales volumes and profitability are equally relevant outside the United States.
Item 1. Business (Continued) - --------------------------- The worldwide automotive industry also is affected significantly by a substantial amount of government regulation. In the United States and Europe, for example, government regulation has arisen primarily out of concern for the environment, for greater vehicle safety and for improved fuel economy. Many governments also regulate local content and/or impose import requirements as a means of creating jobs, protecting domestic producers or influencing their balance of payments. Unit sales of Ford vehicles vary with the level of total industry demand and Ford's share of industry sales. Ford's share is influenced by the quality, price, design, driveability, safety, reliability, economy and utility of its products compared with those offered by other manufacturers, as well as by the timing of new model introductions and capacity limitations. Ford's ability to satisfy changing consumer preferences with respect to type or size of vehicle and its design and performance characteristics can affect Ford's sales and earnings significantly. The profitability of vehicle sales is affected by many factors, including unit sales volume, the mix of vehicles and options sold, the level of "incentives" (price discounts) and other marketing costs, the costs for customer warranty claims and other customer satisfaction actions, the costs for government-mandated safety, emission and fuel economy technology and equipment, the ability to control costs and the ability to recover cost increases through higher prices. Further, because the automotive industry is capital intensive, it operates with a relatively high percentage of fixed costs which can result in large changes in earnings with relatively small changes in unit volume. Ford has operations in over 30 countries and sells vehicles in over 200 markets. These businesses frequently have foreign currency exposures when they buy, sell, and finance in currencies other than their local currencies. Ford's primary foreign currency exposures, in terms of net corporate exposure, are in the German Mark, Japanese Yen, Italian Lira and French Franc. The effect of changes in exchange rates on income depends largely on the relationship between revenues and costs incurred in the local currency versus other currencies. Historically, the effect of changes in exchange rates on Ford's earnings generally has been small relative to other factors that also affect earnings (such as unit sales). United States - ------------- Sales Data. The following table shows U.S. industry demand for the years indicated: <TABLE> <CAPTION> U.S. Industry Retail Deliveries (millions of units) -------------------------------------- Years Ended December 31 -------------------------------------- 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- <S> <C> <C> <C> <C> <C> Cars 8.6 9.0 8.5 8.2 8.2 Trucks 6.5 6.4 5.7 4.9 4.3 ---- ---- ---- ---- ---- Total 15.1 15.4 14.2 13.1 12.5 ==== ==== ==== ==== ==== </TABLE> -2-
Item 1. Business (Continued) - --------------------------- Ford classifies cars by small, middle, large and luxury segments and trucks by compact pickup, compact van/utility, full- size pickup, full-size van/utility and medium/heavy segments. The large and luxury car segments and the compact van/utility, full- size pickup and full-size van/utility truck segments include the industry's most profitable vehicle lines. The following tables show the proportion of retail car and truck sales by segment for the industry (including Japanese and other foreign-based manufacturers) and Ford for the years indicated: <TABLE> <CAPTION> U.S. Industry Vehicle Sales by Segment -------------------------------------- Years Ended December 31 -------------------------------------- 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- <S> <C> <C> <C> <C> <C> CARS Small 17.7% 18.4% 17.3% 18.3% 18.9% Middle 28.3 28.5 31.2 32.4 33.5 Large 4.3 4.8 5.1 5.8 6.3 Luxury 6.8 6.6 6.4 6.1 6.5 ----- ----- ----- ----- ----- Total U.S. Industry Car Sales 57.1 58.3 60.0 62.6 65.2 ----- ----- ----- ----- ----- TRUCKS Compact Pickup 6.8 7.7 7.6 7.8 7.8 Compact Van/Utility 18.0 16.9 16.5 15.0 13.5 Full-Size Pickup 11.5 11.0 9.9 9.0 8.7 Full-Size Van/Utility 4.4 4.1 4.2 4.0 3.3 Medium/Heavy 2.2 2.0 1.8 1.6 1.5 ----- ----- ----- ----- ----- Total U.S. Industry Truck Sales 42.9 41.7 40.0 37.4 34.8 ----- ----- ----- ----- ----- Total U.S. Industry Vehicle Sales 100.0% 100.0% 100.0% 100.0% 100.0% ===== ===== ===== ===== ===== </TABLE> <TABLE> <CAPTION> Ford Vehicle Sales by Segment in U.S. --------------------------------------- Years Ended December 31 --------------------------------------- 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- <S> <C> <C> <C> <C> <C> CARS Small 15.1% 17.5% 15.1% 14.6% 17.6% Middle 22.3 22.7 26.9 29.4 26.7 Large 4.9 5.2 5.1 5.8 5.7 Luxury 4.4 4.7 4.9 5.2 6.4 ----- ----- ----- ----- ----- Total Ford U.S. Car Sales 46.7 50.1 52.0 55.0 56.4 ----- ----- ----- ----- ----- TRUCKS Compact Pickup 8.0 8.9 9.5 7.6 8.1 Compact Van/Utility 20.1 16.7 15.6 15.1 13.7 Full-Size Pickup 17.9 16.7 15.6 15.1 15.6 Full-Size Van/Utility 5.9 6.2 6.0 5.9 5.1 Medium/Heavy 1.4 1.4 1.3 1.3 1.1 ----- ----- ----- ----- ----- Total Ford U.S. Truck Sales 53.3 49.9 48.0 45.0 43.6 ----- ----- ----- ----- ----- Total Ford U.S. Vehicle Sales 100.0% 100.0% 100.0% 100.0% 100.0% ===== ===== ===== ===== ===== </TABLE> As shown in the tables above, since 1991 there has been a significant shift from cars to trucks for both industry sales and Ford sales. Most of the shift reflects fewer sales of cars in the middle and large segments for the industry and in the middle, large and luxury segments for Ford and increased sales of trucks in the compact van/utility (e.g., Windstar and Explorer) and full-size pickup segments for both the industry and Ford. The increased sales of full-size pickups reflects the increased use of such vehicles for personal (rather than commercial) purposes. -3-
Item 1. Business (Continued) - --------------------------- Market Share Data. The following tables show changes in car and truck market shares of United States and foreign-based manufacturers for the years indicated: <TABLE> <CAPTION> U.S. Car Market Shares* -------------------------------------- Years Ended December 31 -------------------------------------- 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- <S> <C> <C> <C> <C> <C> U.S. Manufacturers (Including Imports) Ford 20.9% 21.8% 22.3% 21.8% 20.1% General Motors 33.9 34.0 34.1 34.6 35.6 Chrysler 9.1 9.0 9.8 8.3 8.6 ---- ---- ---- ---- ---- Total U.S. Manufacturers 63.9 64.8 66.2 64.7 64.3 Foreign-Based Manufacturers** Japanese 29.7 29.6 29.1 30.1 30.2 All Other 6.4 5.6 4.7 5.2 5.5 ----- ----- ----- ----- ----- Total Foreign-Based Manufacturers 36.1 35.2 33.8 35.3 35.7 ----- ----- ----- ----- ----- Total U.S. Car Retail Deliveries 100.0% 100.0% 100.0% 100.0% 100.0% ===== ===== ===== ===== ===== </TABLE> <TABLE> <CAPTION> U.S. Truck Market Shares* -------------------------------------- Years Ended December 31 -------------------------------------- 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- <S> <C> <C> <C> <C> <C> U.S. Manufacturers (Including Imports) Ford 31.9% 30.1% 30.5% 29.7% 28.9% General Motors 29.9 30.9 31.4 32.2 32.9 Chrysler 21.3 21.7 21.4 21.1 18.5 Navistar International 1.4 1.3 1.3 1.3 1.4 All Other 2.0 1.8 1.6 1.4 1.3 ----- ----- ----- ----- ---- Total U.S. Manufacturers 86.5 85.8 86.2 85.7 83.0 Foreign-Based Manufacturers** Japanese 12.7 13.5 13.2 13.8 16.5 All Other 0.8 0.7 0.6 0.5 0.5 ----- ----- ----- ----- ---- Total Foreign-Based Manufacturers 13.5 14.2 13.8 14.3 17.0 ----- ----- ----- ----- ---- Total U.S. Truck Retail Deliveries 100.0% 100.0% 100.0% 100.0% 100.0% ===== ===== ===== ===== ===== </TABLE> <TABLE> <CAPTION> U.S. Combined Car and Truck Market Shares* ------------------------------------------ Years Ended December 31 ------------------------------------------ 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- <S> <C> <C> <C> <C> <C> U.S. Manufacturers (Including Imports) Ford 25.6% 25.2% 25.5% 24.7% 23.2% General Motors 32.2 32.7 33.1 33.7 34.6 Chrysler 14.3 14.3 14.4 13.1 12.0 Navistar International 0.6 0.5 0.5 0.5 0.5 All Other 0.9 0.8 0.7 0.5 0.5 ----- ----- ----- ---- ----- Total U.S. Manufacturers 73.6 73.5 74.2 72.5 70.8 Foreign-Based Manufacturers** Japanese 22.6 22.9 22.8 24.0 25.5 All Other 3.8 3.6 3.0 3.5 3.7 ----- ----- ----- ----- ----- Total Foreign-Based Manufacturers 26.4 26.5 25.8 27.5 29.2 ----- ----- ----- ------ ---- Total U.S. Car and Truck Retail Deliveries 100.0% 100.0% 100.0% 100.0% 100.0% ===== ===== ===== ===== ===== </TABLE> __________________________ * All U.S. retail sales data are based on publicly available information from the American Automobile Manufacturers Association, the media and trade publications. ** Share data include cars and trucks assembled and sold in the U.S. by Japanese-based manufacturers selling through their own dealers as well as vehicles imported by them into the U.S. "All Other" includes primarily companies based in various European countries and in Korea. -4-
Item 1. Business (Continued) - --------------------------- Japanese Competition. The market share of Ford and other domestic manufacturers in the U.S. is affected by sales from Japanese manufacturers. As shown in the table above, the share of the U.S. combined car and truck industry held by the Japanese manufacturers decreased from 25.5% in 1991 to 22.6% in 1995, reflecting in part the effects of the strengthening of the Japanese yen on the prices of vehicles produced by the Japanese manufacturers, the overall market shift from cars to trucks and improvements in the vehicles produced by U.S. manufacturers. In the 1980s and continuing in the 1990s, Japanese manufacturers added assembly capacity in North America (frequently referred to as "transplants") in response to a variety of factors, including export restraints, the significant growth of Japanese car sales in the U.S. and international trade considerations. In response to the strengthening of the Japanese yen to the U.S. dollar, Japanese manufacturers are continuing to add production capacity (particularly in the profitable truck segments) in the United States. Production in the U.S. by Japanese transplants reached about 2.3 million units in 1995 and is expected to increase gradually over the next several years. Marketing Incentives and Fleet Sales. As a result of intense competition from new product offerings (from both domestic and foreign manufacturers) and the desire to maintain economic production levels, automotive manufacturers that sell vehicles in the U.S. have provided marketing incentives (price discounts) to retail and fleet customers (i.e., daily rental companies, commercial fleets, leasing companies and governments). Marketing incentives are particularly prevalent during periods of economic downturns, when excess capacity in the industry tends to exist. Ford's marketing costs in North America as a percentage of gross sales revenue for each of 1995, 1994, and 1993 were: 7.5%, 7.3%, and 8.7%, respectively. During the 1983-1988 period, such costs as a percentage of sales revenue were in the 3% to 5% range. In 1991, marketing costs peaked at 12% of gross revenues. "Marketing costs" include (i) marketing incentives such as retail rebates and special financing rates, (ii) reserves for residual guaranties on retail vehicle leases, (iii) reserves for costs and/or losses associated with obligatory repurchases of certain vehicles sold to daily rental companies and (iv) costs for advertising and sales promotions. Sales by Ford to fleet customers were as follows for the years indicated: <TABLE> <CAPTION> Ford Fleet Sales ---------------------------------------------------- Years Ended December 31 ---------------------------------------------------- 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- <S> <C> <C> <C> <C> <C> Units sold 931,000 924,000 881,000 882,000 782,000 Percent of Ford's total car and truck sales 24% 24% 25% 28% 27% </TABLE> Fleet sales generally are less profitable than retail sales, and sales to daily rental companies generally are less profitable than sales to other fleet purchasers. The mix between sales to daily rental companies and other fleet sales has been about evenly split in recent years. Warranty Coverages. In recent years, due to competitive pressures, vehicle manufacturers have both expanded the coverages and extended the terms of warranties on vehicles sold in the U.S. Ford presently provides warranty coverage for defects in factory- supplied materials and workmanship on all vehicles sold by it in the U.S. that extends for at least 36 months or 36,000 miles (whichever occurs first) and covers all components of the vehicle, other than tires which are warranted by the tire manufacturers. Different warranty coverages are provided on vehicles sold outside the U.S. In addition, as discussed below under "Governmental Standards - Mobile Source Emissions Control", the Federal Clean Air Act requires a useful life of 10 years or 100,000 miles (whichever occurs first) for emissions equipment on vehicles sold in the U.S. As a result of these coverages and the increased concern for customer satisfaction, costs for warranty repairs, emissions equipment repairs and customer satisfaction actions ("warranty costs") can be substantial. Estimated warranty costs for each vehicle sold by Ford are accrued at the time of sale. Such accruals, however, are subject to adjustment from time to time depending on actual experience.
Item 1. Business (Continued) - --------------------------- Europe - ------ Europe is the largest market for the sale of Ford cars and trucks outside the United States. The automotive industry in Europe is intensely competitive; for the past 12 years, the top six manufacturers have each achieved a car market share in about the 10% to 16% range. (Manufacturers' shares, however, vary considerably by country.) This competitive environment is expected to intensify further as Japanese manufacturers, which together had a European car market share of 10.9% for 1995, increase their production capacity in Europe and import restrictions on Japanese built-up vehicles gradually are removed in total by December 31, 1999. In 1995, European car industry sales were 11.8 million cars, equal to 1994 levels. Truck sales were 1.6 million units, up 7% from 1994 levels. Ford's European car share for 1995 was 11.9%, the same as 1994, and its European truck share for 1995 was a record 14.8%, compared with 14.7% for 1994. For Ford, Great Britain and Germany are the most important markets within Europe, although the Southern European countries are becoming increasingly significant. Any adverse change in the British or German market has a significant effect on total automotive profits. For 1995 compared with 1994, total industry sales were up 1% in Great Britain and up 3% in Germany. Other Foreign Markets - --------------------- Mexico and Canada. Mexico and Canada also are important markets for Ford. Generally, industry conditions in Canada closely follow conditions in the U.S. market. In 1995, industry sales of cars and trucks in Canada were down 7% from 1994 levels, somewhat worse than the decrease of 2% in the U.S. over the same period. Mexico had been a growing market until late 1994. However, substantial devaluation of the Mexican Peso in late 1994 created a high level of uncertainty regarding economic activity in Mexico. Although the long-term outlook remains positive, industry volume was down 62% in 1995. Ongoing financial effects on Ford of the devaluation are expected to be unfavorable; the magnitude of these effects will be dependent in large part upon overall economic conditions. South America. Brazil and Argentina are the principal markets for Ford in South America. The economic environment in those countries has been volatile in recent years, leading to large variations in profitability. Results also have been influenced by government actions to reduce inflation and public deficits, and improve the balance of payments. In 1995 , Ford's results in the region declined compared with 1994. The decrease reflected primarily losses for operations in Brazil, where higher import duties and a market shift to small cars resulted in excess dealer inventories and higher marketing costs. The lower results are expected to continue into 1996. The Company is reestablishing manufacturing capacity in Brazil for small cars, which should assist in improving the Company's competitiveness in this region longer term. Industry sales in 1995, compared with 1994, were up 19% in Brazil but down 35% in Argentina. Ford's future results in the region largely will be dependent on the political and economic environments in Brazil and Argentina, which historically have been unpredictable and are expected to continue to be volatile and subject to rapid change. In November 1995, Ford and Volkswagen AG dissolved their Autolatina joint venture in Brazil and Argentina. See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" for more information concerning the effects of this dissolution.
Item 1. Business (Continued) - --------------------------- Asia Pacific. In the Asia Pacific region, Australia, Taiwan and Japan are the principal markets for Ford products. In 1995, Ford was the market share leader in Australia with a 21.5% combined car and truck market share. In Taiwan (where sales of built-up vehicles manufactured in Japan are prohibited), Ford was the market share leader with a combined car and truck market share in 1995 of 18.9%. Ford's principal competition in the Asia Pacific region has been the Japanese manufacturers. It is anticipated that the continuing relaxation of import restrictions (including duty reductions) in Australia and Taiwan will intensify competition in those markets. The Asia Pacific region offers many important opportunities for the future. Ford believes that China is strategically important to its long-term success in the Asia Pacific region. In 1995, Ford purchased a 20% equity interest in a Chinese light truck manufacturer, Jiangling Motors Corporation, Ltd.; established a wholly owned holding company in Beijing; and invested in an aluminum radiator joint venture in China, in addition to the previously established automotive component manufacturing joint ventures in China (automotive interior trim, automotive glass and automotive electronic/audio components). In late 1995, Ford established a joint venture in Thailand with Mazda Motor Corporation ("Mazda") to manufacture pickup trucks designed by Mazda. In 1994, Ford purchased a 6.5% equity interest in Mahindra and Mahindra Limited ("Mahindra"), an automotive and tractor manufacturer in India. In 1995, Ford received governmental approval to invest in an automobile manufacturing joint venture in India with Mahindra. Ford is continuing to investigate additional automotive component manufacturing and vehicle assembly opportunities in those markets as well as others. In addition, Ford is expanding the number of right-hand-drive vehicles it will offer in Japan, including the Explorer and Taurus models. Africa. In late 1994, Ford re-entered the South African market by acquiring a 45% equity interest in South African Motor Corporation (Pty.) Limited ("SAMCOR"). SAMCOR is an assembler of Ford and other manufacturers' vehicles in South Africa. Financial Services Operations ----------------------------- Ford Holdings, Inc. and Ford FSG, Inc. - -------------------------------------- Ford Holdings was incorporated in 1989 for the principal purpose of acquiring, owning and managing certain assets of Ford. In December 1995, Ford Holdings merged with Ford Holdings Capital Corporation, a wholly owned subsidiary of Ford Holdings, which resulted in the cancellation of all of the voting preferred stock of Ford Holdings. All of the outstanding common stock of Ford Holdings, representing 100% of the voting power in Ford Holdings, is owned beneficially by Ford. In late 1995, Ford began a reorganization of its Financial Services group in order to align more closely under a single subsidiary legal ownership of the Financial Services affiliates with management responsibility for such affiliates. As part of the reorganization, Ford Holdings formed FFSGI to own primarily all of the Financial Services affiliates. At the time, 55% of the common stock of Ford Holdings was owned by Ford and 45% was owned by Ford Credit. After the formation of FFSGI, Ford Holdings contributed its interest in The Associates to FFSGI in exchange for 100% of the common stock of FFSGI and the assumption by FFSGI of certain debt of Ford Holdings. Thereafter, Ford contributed to FFSGI all of its interest in Ford Credit Europe. In exchange for this contribution, Ford received a class of common stock in FFSGI that has controlling voting power of FFSGI but otherwise is equal to all other common stock of FFSGI as to the payment of dividends, etc. (the "Class F Stock"). In February 1996, substantially all of the shares of Ford Holdings common stock owned by Ford Credit were repurchased by Ford Holdings in exchange for the issuance of a promissory note by Ford Holdings. Thereafter, Ford contributed to FFSGI all of its interest in Ford Credit in exchange for additional shares of Class F Stock of FFSGI. In addition, Ford will contribute to FFSGI certain of its international Financial Services affiliates managed by Ford Credit in exchange for additional stock in FFSGI. -7-
Item 1. Business (Continued) - --------------------------- It is also expected that Ford Holdings will contribute American Road to FFSGI, which in turn is expected to contribute it to Ford Credit. The percentages of economic interests of FFSGI held by Ford and Ford Holdings are based on the relative value of the entities contributed to FFSGI by Ford and Ford Holdings. Currently, those percentages are approximately 78% for Ford and 22% for Ford Holdings. On February 9, 1996, The Associates filed a registration statement with the Securities and Exchange Commission for an initial public offering of its common stock representing up to a 19.8% economic interest in The Associates (the "IPO"). Substantially all of the net proceeds from the IPO are expected to be used to repay indebtedness of The Associates, which will be incurred to repay an intercompany debt owed to FFSGI in the amount of $1.75 billion. Prior to completion of the IPO, Ford expects to contribute to The Associates certain international affiliates owned by Ford but managed by The Associates. Also, as announced by Ford in the fourth quarter of 1995, Ford is investigating the sale of all or a part of USL Capital. Ford Motor Credit Company - ------------------------- Ford Credit is a wholly owned subsidiary of FFSGI. It provides wholesale financing and capital loans to franchised Ford dealers and other dealers associated with such franchisees and purchases retail installment sale contracts and retail leases from them. Ford Credit also makes loans to vehicle leasing companies, the majority of which are affiliated with such dealers. In addition, a wholly owned subsidiary of Ford Credit provides these financing services in the U.S. and Canada to other vehicle dealers. More than 80% of all new vehicles financed by Ford Credit are manufactured by Ford or its affiliates. In addition to vehicle financing, Ford Credit makes loans to affiliates of Ford, finances certain receivables of Ford and its subsidiaries and offers diversified financing services which are managed by USL Capital, a wholly owned subsidiary of Ford Holdings. Ford Credit also manages the activities of a number of international credit affiliates of Ford and FFSGI. In addition, it is expected that Ford Credit will become the owner of American Road, an insurance company discussed further below. Currently, Ford Credit manages the activities of American Road. Ford Credit financed the following percentages of new Ford cars and trucks sold or leased at retail and sold at wholesale in the United States during each of the past five years: <TABLE> <CAPTION> Years Ended December 31 --------------------------------------- 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- <S> <C> <C> <C> <C> <C> Retail* 36.9% 36.6% 38.5% 37.7% 35.2% Wholesale 79.7 81.5 81.4 77.6 74.9 </TABLE> ___________________ * As a percentage of total sales and leases, including cash sales. -8-
Item 1. Business (Continued) - --------------------------- Ford Credit's finance receivables and investments in operating leases were as follows at the dates indicated (in millions): <TABLE> <CAPTION> December 31, ----------------------- 1995 1994 -------- -------- <S> <C> <C> Finance receivables Retail $43,773 $40,567 Wholesale 16,507 15,253 Diversified 2,737 2,738 Other 4,631 4,264 ------- ------- Total finance receivables 67,648 62,822 Loan origination costs, net 220 156 Unearned income (6,155) (5,371) Allowance for credit losses (669) (660) ------- ------- Finance receivables, net $61,044 $56,947 ======= ======= Investments in operating leases $30,493 $24,853 Accumulated depreciation (5,424) (4,603) Allowance for credit losses (258) (256) ------ ------- Investments in operating leases, net $24,811 $19,994 ======= ======= </TABLE> Installments on finance receivables, including interest, past-due 60 days or more and the aggregate receivable balances related to such past-due installments were as follows at the dates indicated (in millions): <TABLE> <CAPTION> December 31, 1995 December 31, 1994 ----------------------- ------------------------- Installments Balances Installments Balances ------------- -------- ------------- -------- <S> <C> <C> <C> <C> Retail $66 $283 $27 183 Diversified - - 5 8 Other 10 38 1 7 --- --- --- ---- Total $76 $321 $33 $198 === ==== === ==== </TABLE> The following table sets forth information concerning Ford Credit's credit loss experience with respect to the various categories of financing during the years indicated (dollar amounts in millions): <TABLE> <CAPTION> Years Ended or at December 31, ---------------------------------- 1995 1994 1993 ---- ---- ---- <S> <C> <C> <C> Net losses Retail* $377 $221 $213 Wholesale 8 1 (4) Diversified 5 2 14 Other 4 5 5 ---- ---- ---- Total $394 $229 $228 ==== ==== ==== Net losses as a percentage of average receivables Retail* 0.57% 0.38% 0.46% Total finance receivables* 0.44 0.30 0.35 Provision for credit losses $438 $247 $270 Allowance for credit losses 927 916 916 Allowance as a percent of net receivables* 1.07% 1.18% 1.42% *Includes investments in operating leases. </TABLE> -9-
Item 1. Business (Continued) - --------------------------- An analysis of Ford Credit's allowance for credit losses on finance receivables and operating leases is as follows for the years indicated (in millions): <TABLE> <CAPTION> 1995 1994 1993 ---- ---- ---- <S> <C> <C> <C> Beginning balance $916 $916 $916 Additions 438 247 270 Deductions Losses 557 378 392 Recoveries (163) (149) (164) ---- ---- ---- Net losses 394 229 228 Other changes, including reclassifications and amounts related to finance receivables sold 33 18 42 ---- ---- ---- Net deductions 427 247 270 ---- ---- ---- Ending balance $927 $916 $916 ==== ==== ==== </TABLE> Ford Credit relies heavily on its ability to raise substantial amounts of funds. These funds are obtained primarily by sales of commercial paper and issuance of term debt. Funds also are provided by retained earnings and sales of receivables. The level of funds can be affected by certain transactions with Ford, such as capital contributions and dividend payments, interest supplements and other support from Ford for vehicles financed by Ford Credit under Ford-sponsored special financing or leasing programs, and the timing of payments for the financing of dealers' wholesale inventories and for income taxes. Ford Credit's ability to obtain funds is affected by its debt ratings, which are closely related to the financial condition of and the outlook for Ford, and the nature and availability of support facilities, such as revolving credit agreements and receivables-backed facilities. The long-term senior debt of Ford and Ford Credit is rated "A1" and "A+" and Ford Credit's commercial paper is rated "Prime-1" and "A-1" by Moody's Investors Service, Inc. and Standard & Poor's Ratings Group, respectively. Ford and Ford Credit have a profit maintenance agreement which provides for payments by Ford to the extent required to maintain Ford Credit's earnings at specified minimum levels. No payments were required under the agreement during the period 1988 through 1995. Ford Credit Europe plc - ---------------------- In 1993, most of the European credit operations of Ford, which generally had been organized as subsidiaries of the respective automotive affiliates of Ford throughout Europe, were consolidated into a single company, Ford Credit Europe. Ford Credit Europe, which was originally incorporated in 1963 in England as a private limited company, is now owned by FFSGI and Ford Werke AG. Ford Credit Europe's primary business is to support the sale of Ford vehicles in Europe through the Ford dealer network. A variety of retail, leasing and wholesale finance plans is provided in most countries in which it operates. The business of Ford Credit Europe is substantially dependent upon Ford's automotive operations in Europe. Ford Credit Europe issues commercial paper, certificates of deposit and term debt to fund its credit operations. One of the purposes of the consolidation described above is to facilitate Ford Credit Europe's access to public debt markets. Ford Credit Europe's ability to obtain funds in these markets is affected by its credit ratings, which are closely related to the financial condition of and outlook for Ford. -10-
Item 1. Business (Continued) - --------------------------- Ford Credit Europe's finance receivables and investments in operating leases were as follows at the dates indicated (in millions): <TABLE> <CAPTION> December 31, ----------------------- 1995 1994 ------- ------- <S> <C> <C> Finance receivables Retail $10,638 $9,356 Wholesale 5,616 4,615 Other 246 234 ------- ------- Total finance receivables 16,500 14,205 Loan origination costs, net 107 85 Unearned income (1,390) (1,159) Allowance for credit losses (119) (162) ------- ------- Finance receivables, net $15,098 $12,969 ======= ======= Investments in operating leases $ 1,146 $ 1,010 Accumulated depreciation (268) (231) Allowance for credit losses (9) (7) ------- ------- Investments in operating leases, net $ 869 $ 772 ======= ======= </TABLE> An analysis of Ford Credit Europe's allowance for credit losses in finance receivables and operating leases is as follows for the years indicated (in millions): <TABLE> <CAPTION> 1995 1994 1993 ---- ---- ---- <S> <C> <C> <C> Beginning balance $169 $90 $123 Additions 43 50 46 Net losses (92) (5) (72) Other changes* 8 24 (7) ---- ---- ---- Ending balance $128 $169 $ 90 </TABLE> ==== ==== ==== ___________________________ * The reported amounts reflect primarily foreign currency translation adjustments. Associates First Capital Corporation - ------------------------------------ The Associates conducts its operations primarily through its principal operating subsidiary, Associates Corporation of North America. The Associates' primary business activities are consumer finance and commercial finance. The consumer finance operation invests in home equity, personal lending and sales finance receivables, and credit card receivables primarily through a wholly owned credit card bank, in addition to providing financing in the foregoing areas and in manufactured housing. The commercial finance operation is principally engaged in financing and leasing transportation and industrial equipment, and providing other services, including automobile fleet leasing and management, relocation services and automobile club and roadside assistance services. The Associates has an insurance operation which underwrites credit life, credit accident and health, property, casualty and accidental death and dismemberment insurance, principally for customers of the finance operations. Such insurance activity is conducted by The Associates' licensed insurance agents and is managed as a separate activity. Insurance sales are dependent on the business activities and volumes of the consumer and commercial business. As mentioned above, The Associates has filed a registration statement with the Securities and Exchange Commission for an initial public offering of its common stock representing up to a 19.8% economic interest in The Associates. -11-
Item 1. Business (Continued) - --------------------------- The Associates' net finance receivables were as follows at the dates indicated (in millions): <TABLE> <CAPTION> December 31, ------------------------- 1995 1994 ------- ------- <S> <C> <C> Consumer finance Home equity lending $13,190 $11,455 Personal lending and retail sales finance 4,753 4,189 Credit card 4,858 4,035 Manufactured housing 2,049 1,681 ------- ------- Total consumer finance receivables 24,850 21,360 ------- ------- Commercial finance Truck and truck trailer 7,416 6,553 Equipment 3,959 2,970 Other 384 293 ------- ------- Total commercial finance receivables 11,759 9,816 ------- ------- Net finance receivables $36,609 $31,176 ======= ======= </TABLE> Credit loss experience, net of recoveries, of The Associates' finance business was as follows for the years indicated (dollar amounts in millions): <TABLE> <CAPTION> Years Ended or at December 31 ----------------------------------- 1995 1994 1993 ---- ---- ---- <S> <C> <C> <C> NET CREDIT LOSSES Consumer finance Amount $ 547 $ 456 $ 372 % of average net receivables 2.36% 2.33% 2.19% % of receivables liquidated 3.20 3.09 3.41 Commercial finance Amount $ 21 $ 8 $ 22 % of average net receivables .19% .09% .30% % of receivables liquidated .19 .08 .26 Total net credit losses Amount $ 568 $ 464 $ 394 % of average net receivables 1.68% 1.62% 1.61% % of receivables liquidated 2.03 1.84 2.03 ALLOWANCE FOR LOSSES Balance at end of period $1,124 $ 944 $ 809 % of net receivables 3.07% 3.03% 3.07% </TABLE> The following table shows total gross balances contractually delinquent sixty days and more by type of business at the dates indicated (dollar amounts in millions): <TABLE> <CAPTION> Consumer Finance Commercial Finance Total ------------------- ---------------------- ---------------------- Balances Delinquent Balances Delinquent Balances Delinquent 60 Days and More 60 Days and More 60 Days and More ------------------- ---------------------- ---------------------- Gross % of Gross % of Gross % of Amount Outstandings Amount Outstandings Amount Outstandings ------ ------------ ------ ------------ ------ ------------ <S> <C> <C> <C> <C> <C> <C> At December 31, 1995 $622 2.25% $85 0.64% $707 1.73% 1994 439 1.82 31 0.28 470 1.34 </TABLE> -12-
Item 1. Business (Continued) - --------------------------- An analysis of The Associates' allowance for losses on finance receivables is as follows for the years indicated (in millions): <TABLE> <CAPTION> 1995 1994 1993 ---- ---- ---- <S> <C> <C> <C> Beginning balance $944 $809 $699 Additions 743 577 477 Recoveries 116 101 88 Losses (684) (565) (482) Other adjustments, primarily reserves of acquired businesses 5 22 27 ------ ---- ---- Ending balance $1,124 $944 $809 ====== ==== ==== </TABLE> USL Capital Corporation - ------------------------ USL Capital, a diversified commercial leasing and financing organization, originally incorporated in 1956, was acquired by Ford in 1987 and was transferred to Ford Holdings in 1989. The primary operations of USL Capital include the leasing, financing, and management of office, manufacturing and other general-purpose business equipment; commercial fleets of automobiles, vans, and trucks; large-balance transportation equipment (principally commercial aircraft, rail, and marine equipment); industrial and energy facilities; and essential-use equipment for state and local governments. It also provides intermediate-term, first-mortgage loans on commercial properties and invests in corporate preferred stock and senior and subordinated debt instruments. Certain of these financing transactions are underwritten by Ford Credit. As mentioned above, Ford is considering the sale of all or a part of USL Capital. The following table sets forth certain information regarding USL Capital's earning assets, credit losses, and delinquent accounts at the dates indicated (dollar amounts in millions): <TABLE> <CAPTION> December 31, ----------------------------------- 1995 1994 1993 ------ ------ ------ <S> <C> <C> <C> Total earning assets Investments in finance leases - net $2,549 $2,435 $2,364 Investments in operating leases - net 904 712 695 Investments in leveraged leases - net 438 266 191 Notes receivable 1,040 825 721 Investments in securities 1,065 700 563 Inventory held for sale or lease 108 87 55 Investments in associated companies 17 18 18 ------ ------ ------ Total $6,121 $5,043 $4,607 ====== ====== ====== Allowance for doubtful accounts Beginning balance $ 58 $ 55 $ 40 Additions 6 8 25 Deductions (4) (5) (10) ------ ------ ------ Ending balance $ 60 $ 58 $ 55 ====== ====== ====== Allowance for doubtful accounts as a percent of earning assets 1.0% 1.2% 1.2% Total balance over 90 days past due at year end $ 23 $ 37 $ 44 Percent of earning assets 0.4% 0.7% 1.0% </TABLE> The American Road Insurance Company - ----------------------------------- American Road was incorporated by Ford in 1959, became a wholly owned subsidiary of Ford Credit in 1966, and was transferred to Ford Holdings in 1989. It is expected that American Road will be transferred back to Ford Credit as part of the reorganization of the Financial Services group. The operations of American Road consist primarily of underwriting floor plan insurance related to substantially all new vehicle inventories of dealers financed at wholesale by Ford Credit in the United States and Canada, credit life and disability insurance in connection with retail vehicle financing, and insurance related to retail contracts sold by automobile dealers to cover vehicle repairs. In late 1995, American Road agreed to sell all of its interest in Ford Life Insurance Company ("Ford Life"), a wholly owned subsidiary of American Road, to SunAmerica Inc. At the time of the sale, Ford -13-
Item 1. Business (Continued) - --------------------------- Life's business consisted of offering deferred annuities sold primarily through banks and brokerage firms; the non-annuities portion of the business was transferred to another subsidiary of American Road prior to the sale of Ford Life. The following table summarizes the revenues and net income of American Road (in millions): <TABLE> <CAPTION> Premiums Investment Annuities and Net Earned Income Other Income Total Income -------- ---------- ------------- ----- ------ <S> <C> <C> <C> <C> 1995 $310 $ 72 $ 215 $597 $ 28 1994 376 41 159 576 58* 1993 465 141 130 736 79 1992 519 175 42 736 63** 1991 706 211 2 919 126 ---------------- * Includes an increase of $26 million for nonrecurring recovery of income taxes in 1994 from prior years. ** Includes an increase of $16 million resulting from the cumulative effect of adopting new accounting rules on income taxes. </TABLE> The detail of premiums earned by American Road was as follows (in millions): <TABLE> <CAPTION> 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- <S> <C> <C> <C> <C> <C> Extended service contracts $ 92 $148 $211 $217 $318 Physical damage 113 119 139 176 227 Credit life and disability 105 109 115 126 161 ---- ---- ---- ---- ---- Total $310 $376 $465 $519 $706 ==== ==== ==== ==== ==== </TABLE> The Hertz Corporation - --------------------- Hertz was incorporated in 1967 and is a successor to corporations which were engaged in the automobile and truck leasing and rental business since 1924. During 1994, Ford entered into various transactions which resulted in Hertz becoming a wholly owned subsidiary of Ford. Hertz, its affiliates and independent licensees are engaged principally in the business of renting automobiles and renting and leasing trucks, without drivers, in the U.S. and in approximately 150 foreign countries. Collectively, they operate what Hertz believes is the largest car rental business in the world and one of the largest one-way truck rental businesses in the U.S. In addition, through its wholly owned subsidiary, Hertz Equipment Rental Corporation, Hertz operates what it believes to be the largest business in the U.S. involving the rental, lease and sale of construction and materials handling equipment. Other activities of Hertz include the sale of its used vehicles; the leasing of automobiles in Australia and New Zealand and in Europe through an affiliate; and providing claim management and telecommunications services in the U.S. Revenue earning equipment is used in the rental of vehicles and construction equipment and the leasing of vehicles under closed-end leases where the disposition of the vehicles upon termination of the lease is for the account of Hertz. -14-
Item 1. Business (Continued) - --------------------------- The cost and accumulated depreciation of revenue earning equipment were as follows for the nine months ended December 31, 1994 and the year ended December 31, 1995 (in millions): <TABLE> <CAPTION> Revenue Earning Equipment ---------------------------------------------------- Accumulated Cost Depreciation Net Book Value ---- ------------ -------------- <S> <C> <C> <C> Balance, March 31, 1994 $ 4,211 $ 441 $ 3,770 Additions 5,002 554 4,448 Retirements and other (4,402) (444) (3,958) ------ ---- ------ Balance, December 31, 1994 4,811 551 4,260 Additions 7,255 804 6,451 Retirements and other (7,410) (869) (6,541) ------ ---- ------ Balance, December 31, 1995 $ 4,656 $ 486 $ 4,170 ======= ===== ======= </TABLE> Granite Management Corporation - ------------------------------ Granite, a savings and loan holding company organized in Delaware in 1959, was acquired by Ford in December 1985. Until September 30, 1994, the principal asset of Granite was the capital stock of First Nationwide Bank, A Federal Savings Bank, since known as Granite Savings Bank (the "Bank"). On September 30, 1994, substantially all of the assets of the Bank were sold to, and substantially all of the liabilities of the Bank were assumed by, First Madison Bank, FSB ("First Madison"). At the time of the sale, Ford retained, through Granite, approximately $1.2 billion of commercial real estate and other assets formerly owned by the Bank. These retained assets generally were of lower quality than those included in the sale and will be liquidated over time as market conditions permit. In addition, for the three-year period ending in November 1996, First Madison has the option of requiring Granite to repurchase up to $500 million of the assets included in the sale that become nonperforming. This repurchase obligation is guaranteed by Ford. Through December 31, 1995, approximately $387 million of such assets had been repurchased by Granite. At December 31, 1995, approximately $875 million of Granite's assets remained unsold. Governmental Standards ---------------------- A number of governmental standards and regulations relating to safety, corporate average fuel economy ("CAFE"), emissions control, noise control, damageability and theft prevention are applicable to new motor vehicles, engines, and equipment manufactured for sale in the United States, Europe and elsewhere. In addition, manufacturing and assembly facilities in the United States, Europe and elsewhere are subject to stringent standards regulating air emissions, water discharges and the handling and disposal of hazardous substances. Such facilities in the United States also are subject to a comprehensive federal-state permit program relating to air emissions. Mobile Source Emissions Control - United States Requirements. As amended in November 1990, the Federal Clean Air Act (the "Clean Air Act" or the "Act") imposes stringent limits on the amount of regulated pollutants that lawfully may be emitted by new motor vehicles and engines produced for sale in the United States. In addition, the Act requires that emissions equipment for vehicles sold in the U.S. have a minimum "useful life" during which compliance with the applicable standards must be achieved. Passenger cars, for example, must comply for 10 years or 100,000 miles, whichever first occurs. The Act prohibits, among other things, the sale in or importation into the U.S. of any new motor vehicle or engine which is not covered by a certificate of conformity issued by the United States Environmental Protection Agency (the "EPA"). The Act also may require production of certain new cars and trucks capable of operating on clean alternative fuels under a -15-
Item 1. Business (Continued) - --------------------------- pilot test program to be conducted in California beginning in the 1996 model year. Under this pilot program, each manufacturer will be required to sell its pro rata share of 150,000 alternative fuel vehicles in each of the 1996, 1997 and 1998 model years and its pro rata share of 300,000 alternative fuel vehicles in each model year thereafter. The Act also authorizes certain states to establish programs to encourage the purchase of such vehicles. Since the Act considers California's already adopted reformulated (i.e., cleaner burning) gasoline to be an alternative fuel, most manufacturers will be able to comply with this requirement in California by selling vehicles certified to California standards. Motor vehicle emissions standards even more stringent than those presently in effect will become effective as early as the 2004 model year, unless the EPA determines that such standards are not necessary, technologically feasible or cost-effective. The Act authorizes California to establish unique emissions control standards that, in the aggregate, are at least as stringent as the federal standards if it secures the requisite waiver of federal preemption from the EPA. The Health and Safety Code of the State of California prohibits, among other things, the sale to an ultimate purchaser who is a resident of or doing business in California of a new motor vehicle or engine which is intended for use or registration in that state which has not been certified by the California Air Resources Board (the "CARB"). The CARB received a waiver from the EPA for a series of passenger car and light truck emissions standards (the "low emission vehicle", or "LEV", standards), effective beginning between the 1994 and 2003 model years, that are significantly more stringent than those prescribed by the Act for the corresponding periods of time. These California standards are intended to promote the development of various classes of low emission vehicles. California also requires that a specified percentage of each manufacturer's vehicles produced for sale in California, beginning at 2% in 1998 and increasing to 10% in 2003, must be "zero-emission vehicles" ("ZEVs"), which produce no emissions of regulated pollutants. In February 1996, CARB issued a notice for eliminating the ZEV mandate applicable before the 2003 model year. Final action on the proposed rule change is expected at the March 1996 board meeting. If CARB eliminates the mandate, manufacturers have volunteered to provide air quality benefits for California equivalent to a 49 state program (i.e., providing vehicles certified to California LEV emissions standards nationwide beginning with the 2001 model year), to continue research and development of EV technology and to provide specific numbers of advanced technology battery vehicles through demonstration programs in California. Electric vehicles are the only presently known type of zero- emission vehicles. However, despite intensive research activities, technologies have not been identified that would allow manufacturers to produce an electric vehicle that either meets customer expectations or is commercially viable. Such vehicles likely will run on lead-acid batteries with a limited range (well under 100 miles per recharge in optimal conditions), have a long recharge time (up to 8 hours), lack substantial infrastructure support (home and public facilities for recharging) and have a significant cost premium over conventional vehicles. The proposed elimination of the ZEV mandate and the manufacturers' voluntary program will better allow market forces to guide the introduction of ZEVs into the market. If the mandate is not changed, compliance may require manufacturers to offer substantial discounts on electric vehicles, selling them well below cost, or increase the price or curtail the sale of nonelectric vehicles. The California LEV standards present significant technological challenges to manufacturers and compliance may require costly actions that would have a substantial adverse effect on Ford's sales volume and profits. The Act also permits other states which do not meet national ambient air quality standards to adopt new motor vehicle emissions standards identical to those adopted by California, if such states lawfully adopt such standards two years before commencement of the affected model year. Twelve northeastern states and the District of Columbia organized under provisions of the Act into a group known as the Ozone Transport Commission (the "OTC") and petitioned the EPA to require California LEV standards in that region. There are major problems with transferring California standards to the Northeast - many dealers sell vehicles in neighboring states and the range of present ZEVs is greatly diminished (by more than 50 percent) in cold weather. Also, the Northeast states have refused to adopt the California reformulated gasoline requirement - the absence of which makes the task of meeting standards even more difficult. California LEV standards (including the ZEV requirements) already have been adopted in New York and Massachusetts. Connecticut also has adopted such standards, but without the ZEV requirements. -16-
Item 1. Business (Continued) - --------------------------- To mitigate these problems, the automobile industry proposed to voluntarily meet emissions standards nationwide that are more stringent than those required by the Act. The proposal was based on using technology developed to meet the California LEV standards, but adjusting for the absence of the California reformulated gasoline and ZEV requirements. While there was a general receptivity to the industry's proposal, some of the states are insisting on either a ZEV mandate or a guarantee that "advanced technology" vehicles will be sold in their states. In December 1994, the EPA granted the OTC petition to impose California LEV standards, while at the same time urging states and manufacturers to agree on a national approach which the EPA described as "environmentally superior" to the California standards. The states will have until early 1996 to include in their State Implementation Plans a California LEV program or an acceptable alternative. Under the Act, if the EPA determines that a substantial number of any class or category of vehicles, although properly maintained and used, do not conform to applicable emissions standards, a manufacturer may be required to recall and remedy such nonconformity at its expense. Further, if the EPA determines through testing of production vehicles that emission control performance requirements are not met, it can halt shipment of motor vehicles of the configuration tested. California has similar, and in some respects greater, authority to order manufacturers to recall vehicles. Ford may be required to recall vehicles for such purposes from time to time. In addition, as it has from time to time in the past, Ford may voluntarily recall vehicles to fix emissions-related concerns. The costs of related repairs or inspections associated with such recalls can be substantial. The Act generally prohibits the introduction of new fuel additives unless a waiver is granted by the EPA. In 1995, the U.S. Court of Appeals for the District of Columbia ordered the EPA to grant such a waiver to Ethyl Corporation for the additive MMT, over the objections of the EPA and U.S. automobile manufacturers, including Ford. Ethyl Corporation can now market MMT for use in unleaded gasoline. Ford and other manufacturers believe that the use of MMT will impair the performance of current emissions systems and onboard diagnostics systems. The introduction of MMT could increase Ford's future warranty costs and necessitate changes in the Company's warranties for emission control devices. European Requirements. Council Directive 70/220/EEC (as amended through Council Directive 94/12/EEC) and related European legislation impose limits on the amount of regulated pollutants that may be emitted by new motor vehicles and engines sold in the European Union. Standards for vehicles homologated before January 1, 1996 are of generally equivalent stringency to 1983 model year U.S. standards for gasoline powered vehicles and to 1987 model year U.S. standards for diesel powered vehicles. All passenger cars homologated from January 1, 1996 and all new passenger cars registered from January 1, 1997 must comply with more stringent standards that are of generally equivalent stringency to 1994 model year U.S. standards. Similarly, new more stringent standards for light duty trucks ("LDTs") have been proposed but not yet finally enacted by the European Union. These would apply to passenger-car derived LDTs from January 1, 1997 for new homologations and October 1, 1997 for new registrations and would apply to other classes of LDTs from January 1, 1998 for new homologations and October 1, 1998 for new registrations. The European Commission is presently preparing proposals for even more stringent emissions standards and for new enforcement procedures for both passenger cars and trucks (the "Stage III Directive"). It is proposed that the Stage III Directive would become effective beginning in 2000 for new vehicle homologations and 2001 for new vehicle registrations. Certain European countries are conducting in-use emissions testing to ascertain compliance of motor vehicles with applicable emission standards. These actions could lead to recalls of vehicles; the future costs of related inspection or repairs could be substantial. -17-
Item 1. Business (Continued) - --------------------------- Motor Vehicle Safety - Under the National Traffic and Motor Vehicle Safety Act of 1966, as amended (the "Safety Act"), the National Highway Traffic Safety Administration (the "Safety Administration") is required to establish appropriate federal motor vehicle safety standards that are practicable, meet the need for motor vehicle safety and are stated in objective terms. The Safety Act prohibits the sale in the United States of any new motor vehicle or item of motor vehicle equipment that does not conform to applicable federal motor vehicle safety standards. Compliance with many safety standards is costly because doing so tends to conflict with the need to reduce vehicle weight in order to meet stringent emissions and fuel economy standards. The Safety Administration also is required to make a determination on the basis of its investigation whether motor vehicles or equipment contain defects related to motor vehicle safety or fail to comply with applicable safety standards and, generally, to require the manufacturer to remedy any such condition at its own expense. The same obligation is imposed on a manufacturer which learns that motor vehicles manufactured by it contain a defect which the manufacturer decides in good faith is related to motor vehicle safety. There currently are pending before the Safety Administration a number of major investigations relating to alleged safety defects or alleged noncompliance with applicable safety standards in vehicles built, imported or sold by Ford. The cost of recall programs to remedy safety defects or noncompliance, should any be determined to exist as a result of certain of such investigations, could be substantial. Canada, the European Union, individual member countries within the European Union and other countries in Europe, Latin America and the Asia-Pacific markets also have safety standards applicable to motor vehicles and are likely to adopt additional or more stringent standards in the future. The cost of complying with these standards, as well as the cost of any recall programs to remedy safety defects or noncompliance, could be substantial. Motor Vehicle Fuel Economy - Passenger cars and trucks rated at less than 8,500 pounds gross vehicle weight are required by regulations issued by the Safety Administration pursuant to the Motor Vehicle Information and Cost Savings Act (the "Cost Savings Act") to meet separate minimum CAFE standards. Failure to meet the CAFE standard in any model year, after taking into account all available credits, would subject a manufacturer to the imposition of a civil penalty of $5 for each one-tenth of a mile per gallon ("mpg") under the applicable standard multiplied by the number of vehicles in the class (i.e., trucks, domestic cars, or imported cars) produced in that model year. Each such class of vehicle may earn credits either as a result of exceeding the standard in one or more of the preceding three model years ("carryforward credits") or pursuant to a plan, approved by the Safety Administration, under which a manufacturer expects to exceed the standard in one or more of the three succeeding model years ("carryback credits"), but credits earned by a class may not be applied to any other class of vehicles. The Cost Savings Act established a passenger car CAFE standard of 27.5 mpg for the 1985 and later model years, which the Safety Administration asserts it has the authority to amend to a level it determines to be the "maximum feasible" level (considering the following factors: technological feasibility, economic practicality, the effect of other federal motor vehicle standards on fuel economy, and the need of the nation to conserve energy). Pursuant to the Cost Savings Act, the Safety Administration has established a 20.7 mpg CAFE standard applicable to light trucks (under 8,500 pounds gross vehicle weight on a combined two-wheel drive/four-wheel drive basis) for model years 1996 and 1997 and has proposed the same for 1998. The EPA issued proposed regulations pursuant to the Clean Air Act that would change the test procedures for measuring motor vehicle emissions and fuel economy. If adopted without adequate adjustments, these regulations may require costly measures to reduce tailpipe emissions and to increase fuel economy. Although Ford expects to be able to comply with the foregoing CAFE standards, there are factors that could jeopardize its ability to comply. These factors include the possibility of changes in market conditions, including a shift in demand for larger vehicles and a decline in demand for small and middle-size vehicles; or -18-
Item 1. Business (Continued) - --------------------------- conversely, a shortage of reasonably priced gasoline resulting in a decreased demand for more profitable vehicles and a corresponding increase in demand for relatively less profitable vehicles. It is anticipated that efforts may be made to raise the CAFE standard because of concerns for carbon dioxide ("CO2") emissions, energy security or other reasons. President Clinton's Climate Change Action Plan ("CCAP") sets a goal to improve new vehicle fuel efficiency in an amount equivalent to at least 2% per year over a 10 to 15 year period, using a combination of regulatory and nonregulatory measures. The Safety Administration is considering significant increases in the truck CAFE standard for the 1999 - 2006 model years that could be as high as 28 mpg by the 2006 model year. If the CCAP goals are partially or fully implemented through increases in the CAFE standard, or if significant increases in car or light truck CAFE standards for subsequent model years otherwise are imposed, Ford would find it necessary to take various costly actions that would have substantial adverse effects on its sales volume and profits. For example, Ford could find it necessary to curtail or eliminate production of larger family-size and luxury passenger cars and full-size light trucks, restrict offerings of engines and popular options, and continue or increase market support programs for its most fuel-efficient passenger cars and light trucks. International concerns over global warming due to the emission of "greenhouse gasses" have given rise to strong pressures to increase fuel economy of motor vehicles as a means of limiting their emission of CO2. For example, the United Nations Climate Change Convention held in Brazil in 1992 (the "U.N. Climate Change Convention") sought to stabilize greenhouse gas emissions at 1990 levels by the year 2000. A subsequent meeting of the parties to the U.N. Climate Change Convention in Berlin in March 1995 resulted in an agreement to establish goals by 1997 for reductions in greenhouse gas emissions after the year 2000. In December 1994, the European Union Council of Environmental Ministers directed the European Commission to develop proposals for reducing CO2 emissions from passenger cars to 120 grams per kilometer by 2005 (which equates to 5 liters consumed per 100 kilometers for gasoline engines and 4.5 liters consumed per 100 kilometers for diesel engines). Similar proposals have been made within the European Parliament. In December 1995, the European Commission issued a communication to the Council and the Parliament proposing a package of potential measures for reducing CO2 emissions from passenger cars. These include fiscal measures (taxes and incentives), fuel economy labeling, increased research and development efforts, and a negotiated agreement with industry for reduction in CO2 emissions from new cars of 25% from 1990 levels by 2005. The proposed agreement may also include incremental targets and monitoring provisions for the years before 2005. Some of these proposals, if adopted, could require costly actions that could have substantial adverse effects on Ford's sales volumes and profits in Europe. On March 23, 1995, the German Automobile Manufacturers Association (of which Ford Werke A.G. is a member) undertook an industry-wide voluntary agreement with the German government to reduce the average fuel consumption of new cars sold in Germany by 25% from 1990 levels by 2005, to review before the year 2000 the need for and feasibility of further reductions in average fuel consumption, to make regular reports on fuel consumption, and to increase industry research and development efforts. At the same time, the German government undertook to improve traffic management systems, eliminate infrastructure bottlenecks, integrate transport modes, promote alternative fuels and improved drive systems, and introduce an emission-based road tax system. On January 26, 1996, French vehicle manufacturers made a voluntary pledge to reduce the average fuel consumption of new vehicles to a sales-weighted average of 150 grams of CO2 per kilometer by 2005, to offer at least one vehicle that emits less than 120 grams of CO2 per kilometer by 2005, to propose an objective by 2000 for further reducing CO2 emissions by 2010, and to promote alternative fuel technologies that result in reduced CO2 emissions. This pledge assumes a 50/50 mix of gasoline and diesel engined vehicles, no change in the mix of vehicles by weight and engine size class, no new regulatory requirement beyond those forecast in 1995 for the year 2000, and that oil companies and tire -19-
Item 1. Business (Continued) - --------------------------- producers will contribute to reduction in vehicle fuel consumption. The pledge of the French vehicle manufacturers may create pressure for similar pledges from automobile importers (such as Ford France S.A.). Other initiatives for reducing CO2 emissions from motor vehicles may be proposed by other European countries. Taken together such proposals could have substantial adverse effects on Ford's sales volumes and profits in Europe. Japan has adopted automobile fuel consumption goals that manufacturers must attempt to achieve by the 2000 model year. The consumption levels apply only to gasoline-powered vehicles, vary by vehicle weight, and range from 5.8 km/I to 19.2 km/l. To achieve these target fuel consumption levels for the vehicles Ford exports to Japan may require costly actions that could have substantial adverse effects on Ford's sales volume and profits in Japan. The U.S. Energy Tax Act of 1978, as amended, imposes a federal excise tax on automobiles which do not achieve prescribed fuel economy levels. Additional legislative proposals could be introduced that, if enacted, would increase excise taxes or create economic disincentives to purchase any except the least fuel consuming vehicles. Because of the uncertainties and variables inherent in testing for fuel economy and the uncertain effect on fuel economy of other government requirements, it is not possible to predict the amount of excise tax, if any, which may be incurred. Stationary Source Air Pollution Control - Pursuant to the Clean Air Act the states are required to amend their implementation plans to require more stringent limitations on the quantity of pollutants which may be emitted into the atmosphere, and other controls, to achieve national ambient air quality standards established by the EPA. In addition, the Act requires reduced emissions of substances that are classified as hazardous or that contribute to acid deposition, imposes comprehensive permit requirements for manufacturing facilities in addition to those required by various states, and expands federal authority to impose severe penalties and criminal sanctions. The Act requires the EPA and the states to adopt regulations, and allows states to adopt standards more stringent than those required by the Act. The costs to comply with these provisions of the Act cannot presently be quantified but could be substantial. In addition, the enormous complexity and time-consuming nature of the comprehensive federal- state permit program provided for by the Act may reduce operational flexibility and may delay or prevent future competitive upgrading of Ford's production facilities in the United States. Water Pollution Control - Pursuant to the Federal Clean Water Act (the "Clean Water Act"), Ford has been issued National Pollutant Discharge Elimination System permits which establish certain pollution control standards for its manufacturing facilities that discharge wastewater into public waters. Ford, among many other companies, also is required to comply with certain standards and obtain permits relating to discharges into municipal sewerage systems. The EPA also requires management standards and, in some cases, permits for the discharge of storm water. The standards under the Clean Water Act are established by the EPA and by the state where a facility is located. Many states have requirements that go beyond those established under the Clean Water Act. These various requirements may necessitate the addition of costly control equipment. The EPA recently adopted regulations, pursuant to the Great Lakes Critical Programs Act of 1990, that require more restrictive standards for discharges into waters that impact the Great Lakes. These regulations may require the addition of costly control equipment. Hazardous Waste Control - Pursuant to the Federal Resource Conservation and Recovery Act ("RCRA"), the EPA has issued regulations establishing certain procedures and standards for persons who generate, transport, treat, store, or dispose of hazardous wastes. These regulations also require permits for treatment, storage, and disposal facilities and corrective action for prior releases at sites where permits are issued. The EPA has delegated permit authority to states with programs equivalent to -20-
Item 1. Business (Continued) - --------------------------- RCRA, and states may adopt even more extensive requirements. The Federal Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (the "Superfund Act"), requires disclosure of certain releases from Ford facilities into the environment, creates potential liability for remediation costs at sites where Ford waste was disposed and for damage to natural resources resulting from a release, and provides for citizens' suits for failure to comply with final requirements of orders or regulations. A number of states have enacted separate state laws of this type. In addition, under the Federal Toxic Substances Control Act ("TSCA"), the EPA evaluates environmental and health effects of existing chemicals and new substances. Pursuant to TSCA, the EPA has banned production of polychlorinated biphenyls and regulates their use in transformers, capacitors and other equipment that may be located at Ford's facilities. European Stationary Source Environmental Control - The European Union by directives and regulations, and individual member countries by legislation and regulations, impose requirements on waste and hazardous wastes, incineration, packaging, landfill, soil pollution, integrated pollution control, air emissions standards, import/export and use of dangerous substances, air and water quality standards, noise, environmental management systems, energy efficiency, emissions reporting, and planning and permitting. Additional or more stringent requirements (including tax measures and civil liability schemes for cleaning polluted sites) are likely to be adopted in the future. The cost of complying with these standards could be substantial. Climate Change Convention - In response to the requirements of the U.N. Climate Change Convention, national governments are examining ways to reduce potential global warming risks. These actions may restrict the use of certain chemicals that are used as refrigerants (in vehicles and buildings), such as R-134a, and cleaning solvents. Worldwide Regulatory Compatibility - Ford's efforts to develop new markets and increase imports are impeded by incompatible automotive safety, environmental and other product regulatory standards. At present, differing standards either restrict the vehicles Ford can export to serve new markets or increase the cost and complexity to do so. Also, vehicle safety is a priority with customers in North America, Europe and key Asia-Pacific markets and better global understanding of real-world accidents and injuries is a competitive necessity. The "traditional" and developed automotive markets have developed their own bodies of regulation. Two sets of European vehicle regulations overlay those of individual European countries: 1) European Union directives and regulations, which member countries are obliged to implement; and 2) United Nations Economic Commission for Europe (ECE) regulations, which member countries have the option to implement. Although European Union directives and regulations and ECE regulations generally are aligned (the European Union directives cover about half of the 99 ECE regulations), some variations exist in the manner in which they are interpreted and enforced by each member country. The United States and Canada use a substantially different regulatory system, and Japan and Australia use a hybrid of the ECE system. The ECE regulations are generally recognized outside the above markets. Countries in the process of defining motor vehicle regulations, such as China, India, Malaysia and Russia, are adopting ECE (versus U.S.) regulations. As a result, U.S.-built vehicles have to be modified for these markets. The U.S. and Europe have so far shown limited willingness to accept each other's regulations, and negotiations for acceptance of U.S. regulations as being functionally equivalent to the ECE standards in emerging markets have had limited success. Pollution Control Costs - During the period 1996 through 2000, Ford expects that approximately $700 million will be spent on its North American and European facilities to comply with air and water pollution and hazardous waste control standards which now are in effect or are scheduled to come into effect. Of this total, Ford estimates that approximately $200 million will be spent in 1996 and $150 million will be spent in 1997. -21-
Item 1. Business (Continued) - --------------------------- Employment Data --------------- In 1995, Ford's worldwide average employment increased to 346,990 from 337,728 in 1994. The increase in average employment for 1995 resulted primarily from the full-year (versus partial- year) inclusion of Hertz as a consolidated subsidiary. Worldwide payrolls were $16.6 billion in 1995, an increase of $719 million from 1994. Average employment by geographic area in 1995 compared with 1994 levels was as follows: <TABLE> <CAPTION> 1995 1994 ---- ---- <S> <C> <C> United States 185,960 180,460 Canada 17,602 16,840 Europe 105,019 102,887 Latin America 24,955 24,406 Asia Pacific 13,454 13,135 ------- ------- Total 346,990 337,728 ======= ======= For further information regarding employment statistics of Ford, see Item 6. "Selected Financial Data". For information concerning employee retirement benefits, see Note 8 of Notes to Financial Statements. Substantially all hourly employees of Ford in the United States are included in collective bargaining units represented by unions. Approximately 99% of these unionized hourly employees are represented by the United Automobile Workers (the "UAW"). Approximately 3% of salaried employees are represented by unions. Most hourly employees and many nonmanagement salaried employees of subsidiaries outside the United States also are represented by unions. Affiliates of Ford also are parties to collective bargaining agreements in Britain, Spain, Germany and France. Collective bargaining agreements between Ford and the UAW and between Ford of Canada and the Canadian Automobile Workers were entered into in 1993 and are scheduled to expire in September 1996. It is not known whether Ford will be able to reach new agreements without a work stoppage. If there should be a protracted work stoppage, Ford's profits could be substantially adversely affected. -22-
Item 1. Business (Continued) - --------------------------- Research and Development ------------------------ Ford and certain of its subsidiaries have staffs of professional employees whose activities are directed primarily to the improvement of the performance (including fuel efficiency), safety and comfort of the products of those companies and to the development of new products, and also have staffs of scientists engaged in basic research. Extensive engineering, research and design facilities are maintained for these purposes. Principal among them are the engineering, research and design centers of Ford at Dearborn, Michigan; of Ford Motor Company, Limited at Dunton, England; and of Ford Werke AG. at Merkenich, Germany. In 1995, 1994 and 1993, $6.5 billion, $5.8 billion and $5.6 billion, respectively, were charged to income of Ford and its consolidated subsidiaries for Ford-sponsored research and development activities relating to the development of new products and services and the improvement of existing products and services. In addition, $18 million, $38 million and $55 million were charged to income in 1995, 1994 and 1993, respectively, for customer- sponsored research and development activities. Item 2. Properties - ------------------- Ford's United States manufacturing and assembly facilities, substantially all of which are owned by Ford and its subsidiaries, are situated in various sections of the country and include assembly plants, engine plants, casting plants, metal stamping plants, electronic components plants, transmission and axle plants, glass plants and industrial equipment plants. A major portion of the distribution centers, warehouses and sales offices is owned by Ford, with the remainder being leased. In addition, Ford's foreign subsidiaries maintain and operate manufacturing plants, assembly facilities, parts distribution centers and engineering centers outside the United States, substantially all of which are owned by such subsidiaries. The furniture, equipment and other physical property owned by Ford's Financial Services operations are not significant in relation to their total assets. -23-
Item 3. Legal Proceedings - ------------------------- Various legal actions, governmental investigations and proceedings and claims are pending or may be instituted or asserted in the future against the Company and its subsidiaries, including those arising out of alleged defects in the Company's products; governmental regulations relating to safety, emissions and fuel economy; financial services; employment-related matters; intellectual property rights; product warranties; and environmental matters. Certain of the pending legal actions are, or purport to be, class actions. Some of the foregoing matters involve or may involve compensatory, punitive or antitrust or other treble damage claims in very large amounts, or demands for recall campaigns, environmental remediation programs, sanctions or other relief which, if granted, would require very large expenditures. See Item 1, "Business-Governmental Standards". Included among the foregoing matters are the following: Product Liability Matters - Ford is a defendant in various actions for damages arising out of automobile accidents where plaintiffs claim that the injuries resulted from (or were aggravated by) alleged defects in the occupant restraint systems in vehicle lines of various model years. The damages specified by the plaintiffs in these actions, including both actual and punitive damages, aggregated approximately $782 million at December 31, 1995. Ford is a defendant in various actions involving the alleged propensity of Bronco II utility vehicles to roll over. The damages specified in these actions, including both actual and punitive damages, aggregated approximately $1 billion at December 31, 1995. In most of the actions described in the foregoing paragraphs no dollar amount of damages is specified or the specific amount referred to is only the jurisdictional minimum. It has been Ford's experience that in cases that allege a specific amount of damages in excess of the jurisdictional minimum, such amounts, on average, bear little relation to the actual amounts of damages paid by Ford in such cases, which generally are, on average, substantially less than the amounts originally claimed. In addition to the pending actions, accidents have occurred and claims have arisen which also may result in lawsuits in which such a defect may be alleged. Ford is a defendant in various actions for injuries claimed to have resulted from alleged contact with certain Ford parts and other products containing asbestos. Damages specified by plaintiffs in complaints in these actions, including both actual and punitive damages, aggregated approximately $977 million at December 31, 1995. (In some of these actions no dollar amount of damages is specified or the specific amount referred to is only the jurisdictional minimum.) As distinguished from most lawsuits against Ford, in most of these asbestos-related cases, Ford is but one of many defendants, and many of these co-defendants have substantial resources. Environmental Matters - Ford has received two notices from a government environmental enforcement agency concerning matters which potentially involve monetary sanctions exceeding $100,000. The agency believes that Ford facilities may have violated regulations relating to the management of certain materials or relating to certain emissions from facility operations. Ford has received notices under RCRA, the Superfund Act and applicable state laws that it (along with others) may be a potentially responsible party for the costs associated with remediating numerous hazardous substance storage, recycling or disposal sites in many states and, in some instances, for natural resource damages. Ford also may have been a generator of hazardous substances at a number of other sites. The amount of any such costs or damages for which Ford may be held responsible could be substantial. Contingent losses expected to be incurred by Ford in connection with many of these sites have been accrued and are reflected in Ford's financial statements in accordance with generally accepted accounting principles. However, for many other of these sites the remediation costs and other damages for which Ford ultimately may be responsible are not reasonably estimable because of the uncertainties with respect to factors such as Ford's connection to the site or to materials there, the involvement of other potentially responsible parties, the application of laws and other standards or regulations, site conditions, and -24-
Item 3. Legal Proceedings - ------------------------- the nature and scope of investigations, studies and remediation to be undertaken (including the technologies to be required and the extent, duration and success of remediation). As a result, Ford is unable to determine or reasonably estimate the amount of costs or other damages for which it is potentially responsible in connection with these sites, although it could be substantial. Other Matters - A number of claims have been made or may be asserted in the future against Ford alleging infringement of patents held by others. Ford believes that it has valid defenses with respect to the claims that have been asserted. If some of such claims should lead to litigation, however, and if the claimant were to prevail, Ford could be required to pay substantial damages. In 1992, Ford was sued in federal court in Nevada by an individual patent owner (Lemelson) seeking damages and an injunction for alleged infringement of four U.S. patents characterized by Lemelson as covering machine vision inspection technologies, including bar code reading. Ford filed a declaratory judgment action in the same court to have these four patents as well as others of Lemelson's patents directed to machine vision and laser uses declared invalid, unenforceable and not infringed. Lemelson filed a counterclaim, alleging infringement of the patents added by Ford and several additional patents. If Lemelson were to prevail, Ford could be required to pay substantial damages of an as yet indeterminate amount and could become subject to an injunction preventing future use of any process or product found to be covered by a valid patent. In June of 1995, the magistrate judge handling this case recommended to the district court judge that he grant Ford's motion for summary judgment and hold that Lemelson's patents pertaining to machine vision inspection technology are unenforceable. The magistrate judge found that Lemelson engaged in "undue delay" by taking 35 years to prosecute the numerous patent applications for these patents and that he claimed the work of others as he saw the technologies develop. In late July, after a period of time for the filing of objections to the recommendation and replies to those objections, the case was submitted to the district judge for review. Ford believes there is a high probability that the district judge will adopt the magistrate judge's recommendation and issue an order granting Ford's motion. Currently, there are three purported class action lawsuits pending against the Company that allege defects in the paint processes used with respect to certain vehicles manufactured by Ford. Two lawsuits, Arnold and Landry, which are nationwide in scope, have been consolidated for pretrial proceedings in the U.S. District Court for the Eastern District of Louisiana. The other lawsuit, Sheldon, is pending in Texas state court is limited to Texas purchasers of the subject vehicles. Ford is attempting to consolidate Sheldon with the Arnold and Landry lawsuits. Three other nationwide lawsuits were dismissed pursuant to plaintiffs' motion, since such lawsuits were duplicative of Arnold and Landry. In each pending lawsuit, the plaintiffs seek unspecified compensatory damages, as well as punitive damages, attorneys' fees and costs. The lawsuits appear to focus on vehicles painted with a high-build electrocoat primer. The vehicles in this class are: 1985 through 1991 F-Series/Broncos, 1984 through 1989 Mustangs, 1985 through 1991 Rangers, and 1985 Bronco II's. E.I. DuPont De Nemours and Company, PPG Industries, Inc. and BASF Corporation have been added as defendants in the Landry action. If the plaintiffs were to prevail in these lawsuits, Ford could be required to pay substantial damages. Nine purported class action lawsuits seeking economic damages (including damages for diminution in value and rescission of purchase agreements) have been brought on behalf of all Bronco II owners in the United States and are currently pending against Ford. Each lawsuit expressly excludes personal injury claimants, whose claims are discussed above. Several of the lawsuits seek recovery of unspecified punitive damages. In addition, several of the lawsuits seek an order requiring the Company to recall and retrofit these vehicles. On Ford's motion, the federal Judicial Panel on Multidistrict Litigation consolidated seven of these cases for pretrial purposes before a federal judge in Louisiana. The other two cases remain pending in state courts in Alabama and Texas. A tentative settlement was reached in these matters in 1994, but was rejected by the federal multidistrict judge. The federal plaintiffs subsequently moved for certification of a nationwide class of Bronco II owners; Ford has vigorously opposed the motion. The plaintiffs' motion is currently pending before the federal multidistrict judge. -25-
Item 3. Legal Proceedings - ------------------------- In early 1996, Ford was served with seven purported nationwide class action lawsuits covering purchasers of numerous Ford vehicle lines, ranging in model years from 1983 to 1993. Plaintiffs allege the ignition switch equipped on these vehicles has a design defect that can cause the switch to short circuit, resulting in smoke and fire damage to the vehicle. In 1995, Ford voluntarily recalled 248,000 vehicles in Canada equipped with the allegedly defective ignition switch. In the U.S., however, no recall campaign has been instituted to date, in part because the overall incident rate is significantly lower in the U.S. than in Canada. Plaintiffs are seeking unspecified compensatory damages, punitive damages, attorneys' fees and costs, as well as injunctive relief requiring, among other things, that Ford replace the allegedly defective ignition switch in all affected vehicles. If the plaintiffs in the purported class actions were to prevail, Ford could be required to pay substantial damages. Ford will attempt to consolidate all seven lawsuits in one federal jurisdiction and vigorously oppose class certification. In addition to the foregoing purported class action lawsuits, the Safety Administration and Transport Canada are investigating ignition switch fires in certain of the vehicles included in the lawsuit. If the Safety Administration and Transport Canada order Ford to recall all or a substantial portion of the affected vehicles and retrofit them with a redesigned ignition switch, the aggregate cost would be substantial. The Federal Trade Commission and the Department of Justice are continuing their investigation, commenced in 1995, of the retail vehicle financing credit practices of Ford Credit for compliance with the Equal Credit Opportunity Act and Regulation B. Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------ Not required. -26-
Item 4A. Executive Officers of the Registrant - --------------------------------------------- The executive officers of the Registrant and their respective positions and ages at March 25, 1996 are shown in the table below: </TABLE> <TABLE> <CAPTION> Present Position with the Registrant Name Position Held Since Age ---- -------- ---------- --- <S> <C> <C> <C> Alex Trotman Chairman of the Board November 1993 62 (1)(2) of Directors, President and Chief Executive Officer Director W. Wayne Booker Executive Vice President October 1992 61 Edward E. Hagenlocker Executive Vice President May 1994 56 (President, Ford Automotive Operations) Peter J. Pestillo Executive Vice President - January 1993 58 Corporate Relations Kenneth Whipple Executive Vice President March 1988 61 (President, Ford Financial Services Group) John M. Devine Group Vice President and October 1994 51 Chief Financial Officer Jacques A. Nasser Group Vice President - May 1994 48 Product Development William E. Odom Group Vice President, Ford; December 1993 60 and Chairman of the Board of Directors and Chief Executive Officer, Ford Motor Credit Company Robert L. Rewey Group Vice President - December 1993 57 Marketing and Sales Robert H. Transou Group Vice President - May 1994 56 Manufacturing </TABLE> -27-
Item 4A. Executive Officers of the Registrant (Continued) - -------------------------------------------------------- <TABLE> <CAPTION> Present Position with the Registrant Name Position Held Since Age ---- -------- ---------- --- <S> <C> <C> <C> Albert Caspers Vice President, Ford; and May 1994 63 Chairman of the Board of Directors, Ford of Europe Incorporated Kenneth R. Dabrowski Vice President - May 1994 52 Vehicle Center 5 James D. Donaldson Vice President - May 1994 53 Vehicle Center 2 James E. Englehart Vice President - May 1994 59 Vehicle Center 4 Edsel B. Ford II Vice President and Director, December 1993 47 (2) Ford; and President and Chief Operating Officer, Ford Motor Credit Company Ronald E. Goldsberry Vice President-General February 1994 53 Manager, Ford Customer Service Division Elliott S. Hall Vice President-Washington July 1987 57 Affairs John T. Huston Vice President-Powertrain May 1994 53 Operations Kenneth K. Kohrs Vice President - May 1994 57 Vehicle Center 3 Vaughn A. Koshkarian Vice President (President, August 1995 54 Ford Motor (China) Ltd.) Robert O. Kramer Vice President - October 1995 57 Human Resources Malcolm S. Macdonald Treasurer January 1995 56 </TABLE> -28-
Item 4A. Executive Officers of the Registrant (Continued) - -------------------------------------------------------- <TABLE> <CAPTION> Present Position with the Registrant Name Position Held Since Age ---- -------- ---------- --- <S> <C> <C> <C> Frank E. Macher Vice President-General May 1994 55 Manager, Automotive Components Division Keith C. Magee Vice President-General February 1994 49 Manager, Lincoln-Mercury Division John W. Martin, Jr. Vice President-General April 1989 59 Counsel Carlos E. Mazzorin Vice President-Purchasing May 1994 54 David N. McCammon Vice President-Finance October 1987 61 W. Dale McKeehan Vice President-Vehicle May 1994 58 Operations John P. McTague Vice President-Technical March 1990 57 Affairs Richard Parry-Jones Vice President - May 1994 44 Vehicle Center 1 Helen O. Petrauskas Vice President-Environmental March 1983 51 and Safety Engineering William F. Powers Vice President - Research February 1996 55 Neil W. Ressler Vice President- Advanced May 1994 56 Vehicle Technology John M. Rintamaki Secretary July 1993 54 Ross H. Roberts Vice President-General May 1991 58 Manager, Ford Division Dennis E. Ross Chief Tax Officer April 1995 45 David W. Scott Vice President-Public Affairs July 1986 55 -29- </TABLE>
Item 4A. Executive Officers of the Registrant (Continued) - -------------------------------------------------------- <TABLE> <CAPTION> Present Position with the Registrant Name Position Held Since Age ---- -------- ---------- --- <S> <C> <C> <C> Charles W. Szuluk Vice President-Process May 1994 53 Leadership John J. Telnack Vice President-Design August 1993 58 Thomas J. Wagner Vice President-Customer February 1994 57 Communication and Satisfaction Dennis F. Wilkie Vice President-Business December 1994 53 Development Office </TABLE> __________________ (1) Also Chairman of the Organization Review and Nominating Committee of the Board of Directors. (2) Also a member of the Finance Committee of the Board of Directors. Some of the officers listed above also are members of one or more additional committees of the Registrant that are not committees of the Board of Directors. All of the above officers, other than Mr. Ross, have been employed by the Registrant or its subsidiaries in one or more capacities during the past five years. Before joining Ford, Mr. Ross had been a partner in the New York law firm of Davis, Polk & Wardwell since 1989. Under the By-Laws of the Registrant the executive officers are elected by the Board of Directors at the Annual Meeting of the Board of Directors held for this purpose, each to hold office until his or her successor shall have been chosen and shall have qualified or as otherwise provided in the By-Laws. -30-
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters - ------------------------------------------------------------ PART II The Common Stock of Ford presently is listed on the New York and Pacific Coast Stock Exchanges in the United States and on certain stock exchanges in Belgium, France, Germany, Switzerland and the United Kingdom. Ford is considering, however, the withdrawal of its Common Stock from listing and registration on certain of these foreign stock exchanges. The high and low sales prices for Ford Common Stock and the dividends paid per share of Common and Class B Stock for each full quarterly period in the years indicated were as follows (in each case, adjusted to reflect a 2-for-1 stock split in the form of a 100% stock dividend on Ford's Common and Class B Stock effective June 6, 1994): <TABLE> <CAPTION> 1995 1994 --------------------------------------- -------------------------------------- First Second Third Fourth First Second Third Fourth Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter ------- ------- ------- ------- ------- ------- ------- ------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Common Stock price per share* High $29 1/8 $31 1/8 $32 7/8 $32 3/8 $35 $31 1/8 $32 3/4 $30 Low 24 3/4 25 3/4 28 27 3/4 28 1/2 26 3/4 26 1/8 25 5/8 Dividends per share of Common and Class B Stock $0.26 $0.31 $0.31 $0.35 $0.20 $0.225 $0.225 $0.26 </TABLE> ___________________________ * Prices reflect New York Stock Exchange Composite Transactions. As of February 1, 1996, stockholders of record of Ford included 280,738 holders of Common Stock and 110 holders of Class B Stock.
Item 6. Selected Financial Data - --------------------------------- The following tables set forth selected financial data and other data concerning Ford for each of the last ten years (dollar amounts in millions except per share amounts): <TABLE> <CAPTION> SUMMARY OF OPERATIONS 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> Automotive Sales $110,496 $107,137 $91,568 $84,407 $72,051 $81,844 $82,879 $82,193 $71,797 $62,868 Operating income/(loss) 3,281 5,826 1,432 (1,775) (3,769) 316 4,252 6,612 6,256 4,142 Income/(loss) before income taxes and cumulative effects of changes in accounting principles` 3,166 5,997 1,291 (1,952) (4,052) 275 5,156 7,312 6,499 4,299 Income/(loss) before cumulative effects of changes in accounting principles a/ 2,056 3,913 1,008 (1,534) (3,186) 99 3,175 4,609 3,767 2,512 ----- ----- ----- ------ ------- ------- ------- ------- ------- ------- Net income/(loss) 2,056 3,913 1,008 (8,628) (3,186) 99 3,175 4,609 3,767 2,512 ----- ----- ----- ------ ------- ------- ------- ------- ------- ------- Financial Services Revenues $26,641 $21,302 $16,953 $15,725 $16,235 $15,806 $13,267 $10,253 $ 8,096 $ 6,826 Income before income taxes and cumulative effects of changes in accounting principles 3,539 2,792 2,712 1,825 1,465 1,220 874 1,031 1,386 1,321 Income before cumulative effects of changes in accounting principles b/ 2,083 1,395 1,521 1,032 928 761 660 691 858 773 ------- ------- ------- ------- ------- ------- ------- ------ ------- ------- Net income 2,083 1,395 1,521 1,243 928 761 660 691 858 773 ------- ------- ------- ------- ------- ------- ------- ------ ------- ------- Total Company Income/(loss) before income taxes and cumulative effects of changes in accounting principles $ 6,705 $ 8,789 $ 4,003 $ (127) $(2,587) $ 1,495 $ 6,030 $ 8,343 $ 7,885 $ 5,620 Provision/(credit) for income taxes 2,379 3,329 1,350 295 (395) 530 2,113 2,999 3,226 2,323 Minority interests in net income of subsidiaries 187 152 124 80 66 105 82 44 34 12 ------- ------ ------ ------ ------ ------- ------- ------- ------- ------- Income/(loss) before cumulative effects of changes in accounting principles a/, b/ 4,139 5,308 2,529 (502) (2,258) 860 3,835 5,300 4,625 3,285 Cumulative effects of changes in accounting principles _ _ _ (6,883) _ _ _ _ _ _ ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Net income/(loss) $ 4,139 $ 5,308 $ 2,529 $(7,385) $(2,258) $ 860 $ 3,835 $ 5,300 $ 4,625 $ 3,285 ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= Total Company Data Per Share of Common and Class B Stock c/ Income/(loss) before cumulative effects of changes in accounting principles $3.58 $4.97 $2.27 (0.73) $ (2.40) $ 0.93 $ 4.11 $ 5.48 $ 4.53 $ 3.08 Income/(loss) Assuming no dilution 3.58 4.97 2.27 (7.81) (2.40) 0.93 4.11 5.48 4.53 3.08 Assuming full dilution 3.33 4.44 2.10 (7.81) (2.40) 0.92 4.06 5.40 4.46 3.03 Cash dividends 1.23 0.91 0.80 0.80 0.98 1.50 1.50 1.15 0.79 0.56 Common stock price range (NYSE) High 32 7/8 35 33 1/16 24 7/16 18 7/8 24 9/16 28 5/16 27 1/2 28 5/32 15 7/8 Low 24 3/4 25 5/8 21 1/2 13 7/8 11 11/16 12 1/2 20 11/16 19 1/32 14 7/32 9 Average number of shares of Common and Class B stock outstanding (in millions) 1,071 1,010 986 972 952 926 934 968 1,022 1,066 ____________ a/ 1989 includes an after-tax loss of $424 million from the sale of Rouge Steel Company. b/ 1994 includes an after-tax loss of $440 million from the sale of Granite Savings Bank (formerly First Nationwide Bank). c/ Share data have been adjusted to reflect stock dividends and stock splits. </TABLE> -32-
<TABLE> <CAPTION> Item 6. Selected Financial Data (Continued) - ------------------------------------------- SUMMARY OF OPERATIONS (CONTINUED) 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> Total Company Balance Sheet Data at Year-End Assets Automotive $ 72,772 $ 68,639 $ 61,737 $ 57,170 $ 52,397 $ 50,824 $ 45,819 $ 43,128 $ 39,734 $ 34,021 Financial Services 170,511 150,983 137,201 123,375 122,032 122,839 115,074 100,239 76,260 59,211 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Total assets $243,283 $219,622 $198,938 $180,545 $174,429 $173,663 $160,893 $143,367 $115,994 $ 93,232 Long-term debt Automotive $ 5,475 $ 7,103 $ 7,084 $ 7,068 $ 6,539 $ 4,553 $ 1,137 $ 1,336 $ 2,058 $ 2,467 Financial Services 68,259 58,104 47,900 42,369 43,680 40,779 37,784 30,777 26,009 19,128 Stockholders' equity d/ 24,547 21,659 15,574 14,753 22,690 23,238 22,728 21,529 18,493 14,860 Total Company Facility and Tooling Data Capital expenditures for facilities (excluding special tools) $ 5,455 $ 5,236 $ 4,339 $ 3,613 $ 3,611 $ 4,702 $ 4,412 $ 3,148 $ 2,415 $ 2,179 Depreciation 8,954 7,207 5,456 4,658 3,956 3,185 2,720 2,458 2,107 1,859 Expenditures for special tools 3,542 3,310 2,475 2,177 2,236 2,556 2,354 1,634 1,343 1,285 Amortization of special tools 2,765 2,129 2,012 2,097 1,822 1,695 1,509 1,335 1,353 1,293 Total Company Employee Data - Worldwide Payroll $ 16,572 $ 15,853 $ 13,750 $ 13,754 $ 12,850 $ 14,014 $ 13,327 $ 13,010 $ 11,670 $ 11,290 Total labor costs 23,661 22,985 20,065 19,850 17,998 18,962 18,152 18,108 16,567 15,610 Average number of employees 346,990 337,728 321,925 325,333 331,977 369,547 366,641 358,939 350,320 382,274 Total Company Employee Data - U.S. Operations Payroll $ 10,482 $ 10,371 $ 8,888 $ 8,015 $ 7,389 $ 8,309 $ 8,650 $ 8,473 $ 7,762 $ 7,704 Average number of employees 185,960 180,460 166,593 158,377 156,079 180,104 188,286 185,540 180,838 181,476 Average hourly labor costs e/ Earnings $ 21.79 $ 21.81 $ 20.94 $ 19.92 $ 19.10 $ 18.44 $ 17.77 $ 17.39 $ 16.50 $ 16.12 Benefits 18.66 19.13 18.12 19.24 17.97 14.12 13.21 13.07 12.38 11.01 -------- ------- -------- -------- -------- -------- -------- -------- ------- ------- Total hourly labor costs $ 40.45 $ 40.94 $ 39.06 $ 39.16 $ 37.07 $ 32.56 $ 30.98 $ 30.46 $ 28.88 $ 27.13 ======== ======= ======== ======== ======== ======== ======== ======== ======= ======= </TABLE> _________________ d/ The cumulative effects of changes in accounting principles reduced equity by $6,883 million in 1992. e/ Per hour worked (in dollars). Excludes data for subsidiary companies. -33- <TABLE> <CAPTION> Item 6. Selected Financial Data (Continued) - ------------------------------------------- SUMMARY OF VEHICLE UNIT SALES f/ (in thousands) 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- North America <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> United States Cars 1,767 2,036 1,925 1,820 1,588 1,870 2,201 2,364 2,176 2,105 Trucks 2,226 2,182 1,859 1,510 1,253 1,416 1,517 1,537 1,480 1,406 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Total United States 3,993 4,218 3,784 3,330 2,841 3,286 3,718 3,901 3,656 3,511 Canada 254 281 256 237 259 257 326 349 349 321 Mexico 32 92 91 126 112 89 87 63 35 44 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Total North America 4,279 4,591 4,131 3,693 3,212 3,632 4,131 4,313 4,040 3,876 Europe Britain 496 520 464 420 471 607 739 753 628 596 Germany 409 386 340 407 501 361 326 332 328 320 France 165 180 150 194 190 185 192 168 162 151 Italy 193 179 172 266 301 219 153 98 93 85 Spain 160 163 117 165 128 155 173 158 159 112 Other countries 286 281 250 270 296 289 296 290 285 300 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Total Europe 1,709 1,709 1,493 1,722 1,887 1,816 1,879 1,799 1,655 1,564 Other international Brazil 201 164 151 117 137 137 157 154 129 177 Australia 139 125 120 105 104 134 154 132 128 139 Taiwan 106 97 122 119 107 115 115 88 55 31 Japan 57 50 53 64 83 99 82 60 49 40 Argentina 48 54 49 49 26 18 25 30 33 32 Other countries 67 63 65 71 67 72 65 86 82 92 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Total other international 618 553 560 525 524 575 598 550 476 511 Total worldwide cars and trucks 6,606 6,853 6,184 5,940 5,623 6,023 6,608 6,662 6,171 5,951 Total worldwide tractors g/ - - - - 13 66 72 77 64 68 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Total worldwide vehicle unit sales 6,606 6,853 6,184 5,940 5,636 6,089 6,680 6,739 6,235 6,019 ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== ____________ f/ Vehicle unit sales are reported worldwide on a "where sold" basis and include sales of all Ford-badged units, as well as units manufactured by Ford and sold to other manufacturers. Unit sales for 1986 through 1994 have been restated to reflect the country where sold and to include sales of all Ford-badged units. Previously, factory unit sales were reported in North America on a "where sold" basis and overseas on a "where produced" basis. Also, Ford-badged unit sales of certain unconsolidated subsidiaries (primarily Autolatina--Brazil and Argentina) were not previously reported. g/ Ford's tractor operation, Ford New Holland, was sold on May 6, 1991. </TABLE> -34-
Item 7. Managments's Discussion and Analysis of Financial Condition and Results of Operations - ------------------------------------------------------------------- OVERVIEW The Company's worldwide net income in 1995 was $4,139 million, or $3.58 per share of Common and Class B stock, compared with $5,308 million, or $4.97 per share in 1994. Fully diluted earnings per share were $3.33 in 1995, compared with $4.44 a year ago. The Company's worldwide sales and revenues were $137.1 billion in 1995, up $8.7 billion, or 7% from 1994. Vehicle unit sales of cars and trucks were 6,606,000, down 247,000 units, or 3.6%. Stockholders' equity was $24.5 billion at December 31, 1995, up $2.9 billion from December 31, 1994. The Company's earnings in 1995 were down from 1994, a record year, and reflected the effects of lower volumes in the U.S., costs associated with introducing new products and lower earnings at operations outside the U.S., primarily in Latin America. Earnings from Financial Services operations were up $688 million compared with 1994. The improvement reflected record earnings at Ford Credit, The Associates, USL Capital and Hertz and the nonrecurrence of a $440 million charge to net income in the first quarter of 1994 for the disposition of First Nationwide Bank. In 1995, Automotive capital expenditures for new products and facilities totaled $8.7 billion, up $366 million from 1994. Cash and marketable securities of the Company's Automotive operations were $12.4 billion at December 31, 1995, up $323 million from December 31, 1994. Automotive debt at December 31, 1995 totaled $7.3 billion, up $49 million from a year ago. In 1994, the Company announced a reorganization of its Automotive operations, called "Ford 2000." The reorganization is a fundamental change intended to provide customers with a wider array of vehicles in more markets, assure full competitiveness in vehicle design, quality and value, and substantially reduce the cost of operating Ford's automotive business. The new structure reduces duplication of effort and facilitates best practices around the world by merging Ford's North American Automotive Operations, European Automotive Operations, and Automotive Components Group into a single global organization, Ford Automotive Operations. The new organization was implemented during 1995. The major operations in Latin America and Asia Pacific will be integrated into Ford Automotive Operations during 1996. Ford is expanding its efforts in many new markets, particularly in the Asia Pacific region including China, India and Thailand. New market development encompasses a variety of business arrangements to establish component manufacturing and vehicle assembly capabilities. Entry into new markets is an integral part of the Company's long-term strategy to improve its global competitive position. The Company's Financial Statements and Notes to Financial Statements on pages FS-1 through FS-31, including the Report of Independent Accountants, should be read as an integral part of this review. Fourth Quarter of 1995 - ---------------------- In the fourth quarter of 1995, the Company's worldwide net income was $660 million, or $0.49 per share of Common and Class B stock, compared with $1,569 million, or $1.47 per share in the fourth quarter of 1994. Fully diluted earnings per share were $0.48 in the fourth quarter of 1995, compared with $1.31 a year ago. Worldwide Automotive operations earned $16 million in the fourth quarter of 1995, compared with $1,119 million a year ago. U.S. Automotive operations earned $168 million in the fourth quarter of 1995, compared with $745 million a year ago. The lower results for U.S. Automotive operations reflected lower unit volume and costs associated with introducing new products. Automotive operations outside the U.S. incurred a loss of $152 million in the fourth quarter of 1995, compared with earnings of $374 million a year ago, reflecting primarily losses in Latin America and the nonrecurrence of a one-time favorable effect from devaluation of the Mexican Peso in 1994. Ford's European Automotive operations incurred a loss of $48 million in the fourth quarter of 1995, compared with a loss of $55 million a year ago. -35-
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - ------------------------------------------------------------------- Financial Services operations earned a record $644 million in the fourth quarter of 1995, compared with $450 million a year ago. The improvement reflected primarily record earnings at Ford Credit, The Associates, USL Capital and Hertz. RESULTS OF OPERATIONS: 1995 COMPARED WITH 1994 Automotive Operations - --------------------- Ford's worldwide Automotive operations earned $2,056 million in 1995 on sales of $110.5 billion, compared with $3,913 million in 1994 on sales of $107.1 billion. In the U.S., Ford's Automotive operations earned $1,843 million on sales of $73.9 billion, compared with $3,002 million in 1994 on sales of $73.7 billion. The decline in earnings reflected primarily lower unit volume (reflecting nonrecurrence of a dealer inventory increase in 1994 and lower industry sales) and costs associated with introducing new products (mainly the all-new Taurus, Sable and F-150 pickup truck). U.S. Automotive after-tax return on sales was 2.5% in 1995, down 1.6 points from a year ago. It is expected that results in the first half of 1996 will continue to be affected adversely by costs associated with introducing new products (the F-150 pickup truck, Escort and Tracer). The U.S. economy grew at a moderate rate in 1995 with interest rates and inflation at comparatively low levels. U.S. car and truck industry volumes, however, decreased from 15.4 million units in 1994 to 15.1 million units in 1995. Most of the decrease in industry sales was attributable to cars. Ford's share of the U.S. car market was 20.9%, down 9/10 of a point from 1994. Ford's U.S. truck share was 31.9%, up 1.8 points from 1994. Ford's combined U.S. car and truck share was 25.6%, up 4/10 of a point from 1994. The increase in share reflected primarily higher sales of the Explorer and F-Series trucks, offset partially by lower sales of specialty vehicles and lower availability of the Taurus and Sable due to model changeover. Outside the U.S., Automotive operations earned $213 million in 1995 on sales of $36.6 billion, compared with $911 million in 1994 on sales of $33.4 billion. The decline reflected primarily lower results in Latin America. Ford's European Automotive operations earned $116 million in 1995, compared with $128 million in 1994. The decline reflected primarily costs associated with introducing new products (the all- new Galaxy minivan and Fiesta) and the unfavorable effect of foreign exchange rate changes. Car and truck industry sales in Europe were 13.4 million units in 1995, compared with 13.3 million units in 1994. Ford's share of the European car market was 11.9%, equal to a year ago. Ford's European truck share was 14.8%, up 1/10 of a point from 1994. Ford's combined European car and truck share was 12.3%, up 1/10 of a point from 1994. Outside the U.S. and Europe, Ford earned $97 million in 1995, compared with $783 million in 1994. About half of the decrease reflected primarily unfavorable results for operations in Brazil, where higher import duties and a market shift to small cars resulted in excess dealer inventories and higher marketing costs. These conditions are expected to continue into 1996; business conditions have been and are expected to continue to be volatile and subject to rapid change, which can affect Ford's future earnings. These factors were offset partially in 1995 by a one- time gain from the dissolution of Ford's Autolatina joint venture (discussed below). The decline in earnings outside the U.S. and Europe also reflected the nonrecurrence of a one-time favorable effect for devaluation of the Mexican Peso in 1994 and lower results in Argentina. -36-
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) - ------------------------------------------------------------------- During the fourth quarter of 1995, the Company's Autolatina joint venture in Brazil and Argentina with Volkswagen AG was dissolved. The dissolution resulted in a gain of $230 million, primarily from a one-time cash compensation payment to Ford. Historically, earnings in Brazil and Argentina have represented a significant portion of Ford's Automotive earnings outside the U.S. and Europe. The long-term effect, if any, of the dissolution of Autolatina on the Company's future results will depend on Ford's ability to compete on its own in these markets. The Company is reestablishing manufacturing capacity in Brazil for small cars, which should assist in improving Ford's competitiveness. Financial Services Operations - ----------------------------- The Company's Financial Services operations earned a record $2,083 million in 1995, up $688 million from 1994. The improvement reflected record earnings at Ford Credit, The Associates, USL Capital and Hertz and the nonrecurrence of a $440 million charge to net income in the first quarter of 1994 for the disposition of First Nationwide Bank. Ford Credit's consolidated net income was a record $1,395 million in 1995, up $82 million from 1994. The improvement reflected primarily higher levels of earning assets, favorable tax adjustments and improved cost performance, offset partially by lower net interest margins and higher credit losses. Depreciation costs increased as a result of continued growth in operating leases; the related lease revenues more than offset the increased depreciation. Ford Credit's results for 1995 included $255 million from equity in the net income of affiliated companies, primarily Ford Holdings, compared with $233 million a year ago. Ford Holdings is a holding company which, through December 1995, owned primarily The Associates, USL Capital and American Road. The international operations managed by Ford Credit, but not included in its consolidated results, earned $265 million in 1995, up $24 million from 1994, reflecting primarily higher levels of earning assets, offset partially by lower net interest margins. The Associates earned a record $632 million in the U.S. in 1995, up $84 million from 1994. The increase reflected higher levels of earning assets and improved net interest margins. The international operations managed by The Associates, but not included in its consolidated results, earned $114 million in 1995, up $38 million from 1994. USL Capital earned a record $135 million in 1995, up $26 million from 1994. The improvement resulted primarily from higher levels of earning assets, higher gains on asset sales and lower operating costs. Hertz earned a record $105 million in 1995, up $13 million from 1994. The increase reflected primarily higher volume in construction equipment rentals and sales, offset partially by increased depreciation and borrowing costs. American Road earned $28 million in 1995, down $30 million from 1994. The decline reflected primarily the nonrecurrence of prior year tax adjustments and a loss on disposition of the annuity business. In December 1995, Ford Holdings merged with Ford Holdings Capital Corporation, a subsidiary of Ford Holdings, which resulted in the cancellation of the voting preferred stock of Ford Holdings in exchange for payment by Ford Holdings of the liquidation preference of the stock plus accrued dividends (totaling about $2 billion). Ford Holdings funded the payment to the holders of the preferred stock, which occurred in January 1996, primarily with bank loans. In late 1995, Ford began a reorganization of its Financial Services group in order to align management responsibility more closely with the legal ownership of the Financial Services affiliates. As part of this reorganization, substantially all of the common stock of Ford Holdings owned by Ford Credit was repurchased by Ford Holdings in exchange for a promissory note. -37-
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) - ------------------------------------------------------------------- Also, in February 1996, The Associates filed a registration statement with the Securities and Exchange Commission for an initial public offering of its common stock representing up to a 19.8% economic interest in The Associates. As previously announced, Ford is investigating the sale of all or a part of USL Capital. A fuller description of the reorganization is provided in Item 1. "Business - Financial Services Operations - Ford Holdings, Inc. and Ford FSG, Inc." HISTORICAL REFERENCE: 1994 COMPARED WITH 1993 The Company's worldwide net income in 1994 was a record $5,308 million, or $4.97 per share of Common and Class B stock, compared with $2,529 million, or $2.27 per share in 1993. Fully diluted earnings per share were $4.44, compared with $2.10 a year ago. Sales and revenues totaled $128.4 billion in 1994, up 18% from 1993. Vehicle unit sales of cars and trucks were 6,853,000, up 669,000 units, or 11%. On June 6, 1994, a 2-for-1 stock split in the form of a 100% stock dividend on the Company's outstanding Common and Class B stock became effective. Earnings per share for prior periods were restated to reflect the stock split. The Company's financial results in 1994 showed substantial improvement compared with 1993. Improvements in U.S. Automotive operations included the favorable effects of higher industry volume and improved margins. Automotive operations outside the U.S. also improved. The improvement reflected primarily higher unit volume, lower manufacturing costs and improved margins in Europe. Earnings from Financial Services operations were down $126 million compared with 1993, which was more than explained by a $440 million write- off for the disposition of First Nationwide Bank (discussed below). The write-off was offset largely by substantially improved earnings at the other operations. Automotive Operations - --------------------- Net income from Ford's worldwide Automotive operations was $3,913 million in 1994 on sales of $107.1 billion, compared with $1,008 million in 1993 on sales of $91.6 billion. In the U.S., Ford's Automotive operations earned $3,002 million on sales of $73.7 billion, compared with $1,442 million in 1993 on sales of $62.1 billion. Higher vehicle production, reflecting increased industry sales, accounted for most of the improvement. Improved margins, reflecting mainly favorable material costs, manufacturing efficiencies, and lower marketing costs, were offset partially by higher costs for new products and related facilities. Results in 1993 included the one-time favorable effect of tax legislation ($171 million) for the restatement of U.S. deferred tax balances, and the gain on the sale of Ford's North American automotive seating and seat trim business ($73 million). The U.S. economy grew at an above-trend rate in 1994, and interest rates and inflation remained at comparatively low levels. U.S. car and truck industry volumes increased from 14.2 million units in 1993 to 15.4 million units in 1994. Over 70% of the increase in industry sales was attributable to trucks (including minivans, compact utility vehicles, full-size pickups and compact pickups). Ford's share of the U.S. car market was 21.8%, down half of a point from 1993, reflecting lower shares for the Tempo and Topaz, which were discontinued in 1994. The Company's U.S. truck share was 30.1%, down 4/10 of a point from 1993, reflecting capacity constraints on the Explorer. Outside the U.S., Ford's Automotive operations earned $911 million in 1994 on sales of $33.4 billion, compared with a loss of $434 million in 1993 on sales of $29.5 billion. The improvement reflected primarily higher unit volumes, lower manufacturing costs and improved margins in Europe. Ford's European Automotive operations earned $128 million in 1994, compared with a loss of $873 million in 1993. Results outside the U.S. in 1993 included restructuring charges at Jaguar ($174 million) and at Ford of Australia ($57 million), offset partially by the favorable one-time effect of a reduction in German tax rates ($59 million). -38-
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) - ------------------------------------------------------------------- Car and truck industry sales in Europe were 13.3 million units in 1994, compared with 12.6 million units in 1993. Ford's European car market share was 11.9% in 1994, up 3/10 of a point from 1993. Ford's European truck share improved 2/10 of a point to 14.7%. Financial Services Operations - ----------------------------- The Company's Financial Services operations earned $1,395 million in 1994, down $126 million from 1993. The decline was more than explained by the charge to net income of $440 million in 1994 related to the disposition of First Nationwide Bank. This charge, however, was offset largely by record earnings at Ford Credit, The Associates and USL Capital, and the consolidation of results for Hertz. Results in 1993 included an unfavorable one- time effect of $31 million from tax legislation in the U.S. Ford Credit's consolidated net income was a record $1,313 million in 1994, up $119 million from 1993. The improvement reflected primarily higher levels of earning assets, the one-time effect of the gain on sale of an interest in Manheim Auctions, Inc. (an auto auction company), the nonrecurrence of the one-time tax adjustment in 1993 for increased U.S. tax rates, and improved cost performance; partial offsets included lower net interest margins and lower gains from the sale of receivables. Ford Credit's results in 1994 included $233 million from equity in the net income of affiliated companies, primarily Ford Holdings, compared with $198 million a year ago. Depreciation costs increased as a result of continued growth in operating leases; the related lease revenues more than offset the increased depreciation. The international operations managed by Ford Credit, but not included in its consolidated results, earned $241 million in 1994, up $42 million from 1993, reflecting primarily higher levels of earning assets and lower credit losses. The Associates earned a record $548 million in the U.S. in 1994, up $78 million from 1993. The increase reflected higher levels of earning assets and improved net interest margins. The international operations managed by The Associates, but not included in its consolidated results, earned $76 million in 1994, up $38 million from 1993, reflecting primarily higher levels of earning assets. USL Capital earned a record $109 million in 1994, up $32 million from 1993. The increase reflected higher earning assets, lower operating costs and the nonrecurrence of the one-time tax adjustment in 1993 for increased U.S. tax rates. American Road earned $58 million in 1994, compared with $79 million in 1993. The decline reflected primarily reduced investment income from capital gains. In April 1994, Hertz became a wholly owned subsidiary of Ford. In 1994, Financial Services net income included $92 million for Hertz. In 1993, Automotive net income included $26 million for Hertz (reflecting Ford's prior equity interest). On September 30, 1994, substantially all of the assets of First Nationwide Bank, since known as Granite Savings Bank (the "Bank"), were sold to, and substantially all of the Bank's liabilities were assumed by, First Madison Bank, FSB. The Bank is a wholly owned subsidiary of Granite Management Corporation (formerly First Nationwide Financial Corporation) ("Granite"), which in turn is a wholly owned subsidiary of Ford. In 1994, Granite incurred a loss of $484 million including a charge of $440 million related to the disposition of the Bank, reflecting the nonrecovery of goodwill and reserves for estimated losses on assets not included in the sale. Granite incurred a loss of $55 million in 1993. -39-
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) - ------------------------------------------------------------------- LIQUIDITY AND CAPITAL RESOURCES Automotive Operations - --------------------- Cash and marketable securities of the Company's Automotive operations were $12.4 billion at December 31, 1995, up $323 million from December 31, 1994. The Company paid $1.6 billion in cash dividends on its Common Stock, Class B Stock and Preferred Stock during 1995. Automotive capital expenditures were $8.7 billion in 1995, up $366 million from 1994. During the next several years, Ford's spending for product change is expected to be at similar levels; however, as a percent of sales, such spending is expected to be at lower levels. At December 31, 1995, Automotive debt totaled $7.3 billion, which was 22% of total capitalization (stockholders' equity and Automotive debt), compared with $7.3 billion, or 25% of total capitalization, at December 31, 1994. At December 31, 1995, Ford had long-term contractually committed global credit agreements under which $8.4 billion is available from various banks at least through June 30, 2000. The entire $8.4 billion may be used, at Ford's option, by any affiliate of Ford; however, any borrowing by an affiliate will be guaranteed by Ford. In addition, Ford has the ability to transfer on a nonguaranteed basis the entire $8.4 billion in varying portions to Ford Credit and Ford Credit Europe. These facilities were unused at December 31, 1995. In addition, at December 31, 1995, Ford Brasil Ltda. had $276 million of contractually committed credit facilities with various banks ranging in maturity from June 1996 to December 1996. None of these facilities were in use at December 31, 1995. Financial Services Operations - ----------------------------- The Financial Services operations rely heavily on their ability to raise substantial amounts of funds in the capital markets in addition to collections on loans and retained earnings. The levels of funds for certain Financial Services operations are affected by certain transactions with Ford, such as capital contributions, dividend payments and the timing of payments for income taxes. Their ability to obtain funds also is affected by their debt ratings which, for certain operations, are closely related to the financial condition and outlook for Ford and the nature and availability of support facilities, such as revolving credit and receivables sales agreements. Ford Credit's outstanding commercial paper totaled $35 billion at December 31, 1995 with an average remaining maturity of 29 days. Support facilities represent additional sources of funds, if required. At December 31, 1995, Financial Services had a total of $48.5 billion of contractually committed support facilities. Of these facilities, $23.8 billion (excluding the $8.4 billion of Ford credit facilities) are contractually committed global credit agreements under which $19.8 billion and $4 billion are available to Ford Credit and Ford Credit Europe, respectively, from various banks; 62% and 75%, respectively, of such facilities are available through June 30, 2000. The entire $19.8 billion may be used, at Ford Credit's option, by any subsidiary of Ford Credit, and the entire $4 billion may be used, at Ford Credit Europe's option, by any subsidiary of Ford Credit Europe. Any borrowings by such subsidiaries will be guaranteed by Ford Credit or Ford Credit Europe, as the case may be. At December 31, 1995, none of the Ford Credit global facilities were in use; $742 million of the Ford Credit Europe global facilities were in use. In addition to the Ford, Ford Credit and Ford Credit Europe global credit agreements, at December 31, 1995, international subsidiaries and other credit operations managed by Ford Credit had $1.1 billion of contractually committed support facilities available outside the U.S. At December 31, 1995, approximately 29% of these facilities were in use. -40-
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) - ------------------------------------------------------------------- At December 31, 1995, Ford Holdings had outstanding long-term debt of $1.9 billion, of which $205 million matures in 1996. All of the Ford Holdings debt held by nonaffiliated persons is guaranteed by Ford. Ford Holdings has a $1.5 billion term loan agreement available through December 13, 1996, none of which was in use at December 31, 1995, but all of which has since been used to fund the payment to the holders of Ford Holdings' preferred stock discussed above. At December 31, 1995, The Associates had contractually committed lines of credit with banks of $3.9 billion, with various maturities ranging from January 31, 1996 to December 30, 1996, none of which were utilized at December 31, 1995. Also, at December 31, 1995, The Associates had $5.1 billion of contractually committed revolving credit facilities with banks, with maturity dates ranging from January 1, 1996 through April 1, 2001, and $1.3 billion of contractually committed receivables sale facilities, $275 million of which are available through April 24, 1996, $500 million of which are available through April 15, 1997, and $500 million of which are available through April 30, 1998; none of these facilities were in use at December 31, 1995. At December 31, 1995, international operations managed by The Associates, but not included in its support facilities, had about $270 million of contractually committed support facilities available outside the U.S., of which $50 million were in use at December 31, 1995. At December 31, 1995, USL Capital had $1.7 billion of contractually committed credit facilities, of which 71% are available through September 2000. These facilities included $46 million of contractually committed receivables sale facilities, of which 100% were in use at December 31, 1995. At December 31, 1995, international operations managed by USL Capital, but not included in its support facilities, had about $3 million of contractually committed support facilities available outside the U.S., of which 50% were in use at December 31, 1995. American Road's principal sources of funds are insurance premiums and investment income. American Road had no debt and none of its own credit lines at December 31, 1995. At December 31, 1995, Hertz had $2 billion of contractually committed credit facilities in the U.S., none of which were utilized at December 31, 1995. These facilities included $751 million and $1 billion of agreements with banks which mature June 27, 1996 and June 30, 2000, respectively, and a $250 million revolving credit facility with Ford which matures June 30, 1999. In addition, at December 31, 1995, international operations of Hertz had about $317 million of contractually committed support facilities available outside the U.S., of which about 53% were in use at December 31, 1995. Item 8. Financial Statements and Supplementary Data - ---------------------------------------------------- The Financial Statements and Notes to Financial Statements of the Registrant and the Report of Independent Accountants that are filed as part of this Report are listed under Item 14. "Exhibits, Financial Statement Schedules, and Reports on Form 8-K" and are set forth on pages FS-1 through FS-31 immediately following the signature pages of this Report. Selected quarterly financial data of Ford and its consolidated subsidiaries for 1995 and 1994 are set forth in Note 18 of Notes to Financial Statements. Item 9. Disagreements With Accountants on Accounting and Financial Disclosure - ---------------------------------------------------------- Not required. -41-
PART III Item 10. Directors and Executive Officers of the Registrant - ------------------------------------------------------------ The information called for by Item 10 is incorporated by reference from the information under the caption "Election of Directors" in the Proxy Statement, except that the information called for by Item 10 with respect to executive officers of the Registrant appears as Item 4A under Part I of this Report. Item 11. Executive Compensation - -------------------------------- The information called for by Item 11 is incorporated by reference from the information under the captions "Compensation of Directors", "Compensation and Option Committee Report on Executive Compensation" and "Compensation of Executive Officers" in the Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management - ------------------------------------------------------------- The information called for by Item 12 is incorporated by reference from the information on page 1 of, and under the caption "Election of Directors" in, the Proxy Statement. Item 13. Certain Relationships and Related Transactions - -------------------------------------------------------- The information called for by Item 13 is incorporated by reference from the information under the caption "Certain Relationships and Related Transactions" in the Proxy Statement. -42-
PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K - ----------------------------------------------------------------- (a) 1. Financial Statements - Ford Motor Company and Subsidiaries Consolidated Statement of Income for the years ended December 31, 1995, 1994 and 1993. Consolidated Balance Sheet at December 31, 1995 and 1994. Consolidated Statement of Cash Flows for the years ended December 31, 1995, 1994 and 1993. Consolidated Statement of Stockholders' Equity for the years ended December 31, 1995, 1994 and 1993. Notes to Financial Statements Report of Independent Accountants The Financial Statements, the Notes to Financial Statements and the Report of Independent Accountants listed above are filed as part of this Report and are set forth on pages FS-1 through FS-31 immediately following the signatures pages of this Report. (a) 2. Financial Statement Schedules Designation Description - ----------- ----------- Supplemental Schedule Condensed Financial Information of Subsidiary The Financial Statement Schedule listed above is filed as part of this Report and is set forth on page FSS-1 immediately following page FS-31. The schedules not filed are omitted because the information required to be contained therein is disclosed elsewhere in the Financial Statements or the amounts involved are not sufficient to require submission. -43-
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (Continued) - ---------------------------------------------------------------- (a) 3. Exhibits <TABLE> <CAPTION> Designation Description Method of Filing - ----------- ----------- ---------------- <S> <C> <C> Exhibit 3-A Restated Certificate of Incorporation, Filed as Exhibit 4.1 to the Registrant's of the Registrant dated June 6, 1994. Registration Statement No. 33-55171.* Exhibit 3-B By-Laws of the Registrant as Filed with this Report. amended through January 1, 1996. Exhibit 4-A Form of Deposit Agreement dated as of Filed as Exhibit 4-E to the Registrant's November 20, 1991 among Ford Motor Registration Statement No. 33-43085.* Company, Manufacturers Hanover Trust Company, as Depositary, and the holders from time to time of Depositary Shares, each representing 1/1,000 of a share of the Registrant's Series A Cumulative Convertible Preferred Stock. Exhibit 4-B Form of Deposit Agreement dated as of Filed as Exhibit 4-E to the Registrant's October 29, 1992 among Ford Motor Registration Statement No. 33-53092.* Company, Chemical Bank, as Depositary, and the holders from time to time of Depositary Shares, each representing 1/2,000 of a share of the Registrant's Series B Cumulative Preferred Stock. Exhibit 10-A Amended and Restated Agreement dated Filed as Exhibit 10-A to the Registrant's as of July 1, 1993 between the Annual Report on Form 10-K for the Registrant and Ford Credit. year ended December 31, 1993.* Exhibit 10-B 1985 Stock Option Plan of the Registrant.** Filed as Exhibit 10-D to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1985.* Exhibit 10-B-1 Amendment dated as of March 8, 1990 Filed as Exhibit 10-C-1 to the to 1985 Stock Option Plan.** Registrant's Annual Report on Form 10-K for the year ended December 31, 1989.* Exhibit 10-C Ford Motor Company Supplemental Filed as Exhibit 10-H to theRegistrant's Compensation Plan as amended through Annual Report on Form 10-K for the May 8, 1986.** year ended December 31, 1986.* Exhibit 10-C-1 Amendment to Ford Motor Company Filed as Exhibit 10-F-1 to the Supplemental Compensation Plan, dated Registrant's Annual Report on Form May 12, 1988.** 10-K for the year ended December 31, 1988.* </TABLE> -44-
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (Continued) - ------------------------------------------------------------- <TABLE> <CAPTION> Designation Description Method of Filing - ----------- ----------- ---------------- <S> <C> <C> Exhibit 10-C-2 Amendment to Ford Motor Company Filed as Exhibit 10-D-2 to the Supplemental Compensation Plan, dated Registrant's Annual Report on Form July 8, 1992.** 10-K for the year ended December 31, 1992.* Exhibit 10-C-3 Amendment to Ford Motor Company Filed as Exhibit 10.1 to the Registrant's Supplemental Compensation Plan, Quarterly Report on Form 10-Q for the effective as of March 8, 1995.** quarter ended March 31, 1995.* Exhibit 10-C-4 Amendment to Ford Motor Company Filed as Exhibit 10.1 to the Registrant's Supplemental Compensation Plan, Quarterly Report on Form 10-Q for the effective as of July 13, 1995.** quarter ended June 30, 1995.* Exhibit 10-C-5 Amendment to Ford Motor Company Filed with this Report. Supplemental Compensation Plan, effective January 10, 1996.** Exhibit 10-D Ford Motor Company Executive Separation Filed as Exhibit 10-D to the Registrant's Allowance Plan as amended through Annual Report on Form 10-K for the December 9, 1993 for separations on year ended December 31, 1994.* or after January 1, 1981.** Exhibit 10-E Description of Company practices regarding Filed as Exhibit 10-I to the Registrant's club memberships for executives.** Annual Report on Form 10-K for the year ended December 31, 1981.* Exhibit 10-F Description of Company practices regarding Filed as Exhibit 10-J to the Registrant's travel expenses of spouses of certain Annual Report on Form 10-K for the executives.** year ended December 31, 1980.* Exhibit 10-G Ford Motor Company Deferred Compensation Filed as Exhibit 10-H-1 to the Plan for Non-Employee Directors, as amended Registrant's Annual Report on Form on July 11, 1991.** 10-K for the year ended December 31, 1991.* Exhibit 10-G-1 Amendments to Deferred Compensation Plan Filed with this Report. for Non-Employee Directors, effective as of January 1, 1996.** Exhibit 10-H Ford Motor Company Benefit Equalization Filed as Exhibit 10-H to the Registrant's Plan, as amended as of January 1, Annual Report on Form 10-K for the 1989.** year ended December 31, 1994.* Exhibit 10-H-1 Description of Amendments to Benefit Filed with this Report. Equalization Plan, adopted January 11, 1996 and January 25, 1996.** </TABLE> -45-
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (Continued) - ----------------------------------------------------------------- <TABLE> <CAPTION> Designation Description Method of Filing - ----------- ----------- ---------------- <S> <C> <C> Exhibit 10-I Description of Financial Counseling Filed as Exhibit 10-N to the Registrant's Services provided to certain executives.** Annual Report on Form 10-K for the year ended December 31, 1983.* Exhibit 10-J 1986 Long-Term Incentive Plan of the Filed as Exhibit 10-Q to the Registrant's Registrant.** Annual Report on Form 10-K for the year ended December 31, 1985.* Exhibit 10-J-1 Amendment dated as of June 1, 1990 to Filed as Exhibit 10-N-1 to the 1986 Long-Term Incentive Plan of the Registrant's Annual Report on Form Registrant.** 10-K for the year ended December 31, 1990.* Exhibit 10-K Supplemental Executive Retirement Plan, Filed with this Report. as restated and incorporating amendments through December 12, 1995.** Exhibit 10-L Ford Motor Company Restricted Stock Filed as Exhibit 10-P to the Registrant's Plan for Non-Employee Directors adopted Annual Report on Form 10-K for the by the Board of Directors on November 10, year ended December 31, 1988.* 1988, and approved by the stockholders at the 1989 Annual Meeting.** Exhibit 10-M 1990 Long-Term Incentive Plan, amended Filed as Exhibit 10-R to the Registrant's as of June 1, 1990.** Annual Report on Form 10-K for the year ended December 31, 1990.* Exhibit 10-M-1 Amendment to 1990 Long-Term Incentive Filed as Exhibit 10-P-1 to the Plan, effective as of October 1, 1990.** Registrant's Annual Report on Form 10-K for the year ended December 31, 1991.* Exhibit 10-M-2 Amendment to 1990 Long-Term Incentive Filed as Exhibit 10.2 to the Registrant's Plan, effective as of March 8, 1995.** Quarterly Report on Form 10-Q for the quarter ended March 31, 1995.* Exhibit 10-N Description of Matching Gift Program for Filed as Exhibit 10-Q to the Registrant's Non-Employee Directors.** Annual Report on Form 10-K for the year ended December 31, 1991.* Exhibit 10-O Non-Employee Directors Life Insurance Filed as Exhibit 10-O to the Registrant's and Optional Retirement Plan Annual Report on Form 10-K for the (as amended as of January 1, 1993).** year ended December 31, 1994.* Exhibit 10-P Description of Non-Employee Directors Filed as Exhibit 10-S to the Registrant's Accidental Death, Dismemberment and Annual Report on Form 10-K for the Permanent Total Disablement Indemnity.** year ended December 31, 1992.* </TABLE> -46-
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (Continued) - ---------------------------------------------------------------- <TABLE> <CAPTION> Designation Description Method of Filing - ----------- ----------- ---------------- <S> <C> <C> Exhibit 10-Q Agreement dated December 10, 1992 Filed as Exhibit 10-T to the Registrant's between William C. Ford and the Annual Report on Form 10-K for the Registrant.** year ended December 31, 1992.* Exhibit 10-R Support Agreement dated as of October 1, Filed as Exhibit 10-T to the Registrant's 1993 between the Registrant and Ford Annual Report on Form 10-K for the Credit Europe. year ended December 31, 1993.* Exhibit 10-R-1 Amendment No. 1 dated as of November Filed with this Report. 15, 1995 to Support Agreement between the Registrant and Ford Credit Europe. Exhibit 10-S Description of Select Retirement Plan Filed as Exhibit 10 to the Registrant's adopted on June 9, 1994.** Quarterly Report on Form 10-Q for the quarter ended June 30, 1994.* Exhibit 10-T Ford Motor Company Deferred Filed as Exhibit 10.2 to the Registrant's Compensation Plan, effective as of Quarterly Report on Form 10-Q for the July 13, 1995.** quarter ended June 30, 1995.* Exhibit 10-T-1 Amendments to Ford Motor Company Filed with this Report. Deferred Compensation Plan, effective as of July 13, 1995 and October 1, 1995.** Exhibit 10-U Description of Amendments to Supplemental Filed with this Report. Executive Retirement Plan and Executive Separation Allowance Plan, adopted January 25, 1996.** Exhibit 11 Computation of Primary and Fully Diluted Filed with this Report. Earnings per Share. Exhibit 12 Computation of Ratio of Earnings to Filed with this Report. Combined Fixed Charges and Preferred Stock Dividends. Exhibit 21 List of Subsidiaries of the Registrant Filed with this Report. as of March 15, 1996. Exhibit 23 Consent of Independent Certified Public Filed with this Report. Accountants. Exhibit 24 Powers of Attorney. Filed with this Report. - ------------ * Incorporated by reference as an exhibit hereto ** Management contract or compensatory plan or arrangement </TABLE> -47-
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (Continued) - ---------------------------------------------------------------- Instruments defining the rights of holders of certain issues of long-term debt of the Registrant and of certain consolidated subsidiaries and of any unconsolidated subsidiary, for which financial statements are required to be filed with this Report, have not been filed as exhibits to this Report because the authorized principal amount of any one of such issues does not exceed 10% of the total assets of the Registrant and its subsidiaries on a consolidated basis. The Registrant agrees to furnish a copy of each of such instruments to the Commission upon request. (b) Reports on Form 8-K During the quarter ended December 31, 1995, the Registrant filed the following Current Reports on Form 8-K: 1. Current Report on Form 8-K dated October 12, 1995 that included information regarding possible strategic actions with respect to the Registrant's Financial Services group. 2. Current Report on Form 8-K dated October 18, 1995 that included information regarding the consolidated results of operations and financial condition of the Registrant and its subsidiaries for the three and nine-month periods ended or at September 30, 1995. 3. Current Report on Form 8-K dated November 9, 1995 that included information regarding the Registrant's 7-1/8% Debentures due November 15, 2025. 4. Current Report on Form 8-K dated December 11, 1995 that included information regarding extension of an exchange offer for the Registrant's Series B Cumulative Preferred Stock. -48-
SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. FORD MOTOR COMPANY By: John M. Devine* --------------- (John M. Devine) Group Vice President and Chief Financial Officer Date: March 19, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities on the date indicated. <TABLE> <CAPTION> Signature Title Date --------- ----- ---- <S> <C> <C> Alex Trotman* Director and March 19, 1996 - ---------------------------- Chairman of the Board (Alex Trotman) of Directors, President and Chief Executive Officer (principal executive officer) Colby H. Chandler* Director March 19, 1996 - ---------------------------- (Colby H. Chandler) Michael D. Dingman* Director March 19, 1996 - ---------------------------- (Michael D. Dingman) Edsel B. Ford II* March 19, 1996 - ---------------------------- Director and Vice (Edsel B. Ford II) President, Ford; and President and Chief Operating Officer, Ford Motor Credit Company William Clay Ford* Director March 19, 1996 - ---------------------------- (William Clay Ford) William Clay Ford, Jr.* - ---------------------------- Director and March 19, 1996 (William Clay Ford, Jr.) Chairman of the Finance Committee </TABLE> -49-
<TABLE> <CAPTION> Signature Title Date --------- ----- ---- <S> <C> <C> Roberto C. Goizueta* Director March 19, 1996 ---------------------------- (Roberto C. Goizueta) Irvine O. Hockaday, Jr.* Director March 19, 1996 - ----------------------------- (Irvine O. Hockaday, Jr.) Marie-Josee Kravis* Director March 19, 1996 - ----------------------------- (Marie-Josee Kravis) Drew Lewis* Director March 19, 1996 - ------------------------------- (Drew Lewis) Ellen R. Marram* Director March 19, 1996 - ------------------------------- (Ellen R. Marram) Kenneth H. Olsen* Director March 19, 1996 - ------------------------------- (Kenneth H. Olsen) Carl E. Reichardt* Director March 19, 1996 - ------------------------------- (Carl E. Reichardt) John L. Thornton* Director March 19, 1996 - ------------------------------ (John L. Thornton) Clifton R. Wharton, Jr.* Director March 19, 1996 - ------------------------------- (Clifton R. Wharton, Jr.) John M. Devine* - -------------------------------- Group Vice President and March 19, 1996 (John M. Devine) Chief Financial Officer (principal financial officer) Daniel R. Coulson* - -------------------------------- Director of Accounting March 19, 1996 (Daniel R. Coulson) (principal accounting officer) *By:/s/ John M. Rintamaki ----------------------- (John M. Rintamaki) Attorney-in-Fact -50-
</TABLE> <TABLE> <CAPTION> Ford Motor Company and Subsidiaries HIGHLIGHTS ---------- Fourth Quarter Full Year ------------------------- -------------------------- 1995 1994 1995 1994 -------- -------- -------- -------- (Unaudited) <S> <C> <C> <C> <C> Worldwide vehicle unit sales of cars and trucks (in thousands) - - United States 955 1,051 3,993 4,218 - - Outside United States 635 656 2,613 2,635 ----- ----- ----- ----- Total 1,590 1,707 6,606 6,853 ===== ===== ===== ===== Sales and revenues (in millions) - - Automotive $27,597 $27,766 $110,496 $107,137 - - Financial Services 6,950 5,877 26,641 21,302 ------- ------- -------- -------- Total $34,547 $33,643 $137,137 $128,439 ======= ======= ======== ======== Net income (in millions) - - Automotive $ 16 $ 1,119 $ 2,056 $ 3,913 - - Financial Services 644 450 2,083 1,395* ------- ------- -------- -------- Total $ 660 $ 1,569 $ 4,139 $ 5,308 ======= ======= ======== ======== Capital expenditures (in millions) - - Automotive $ 2,472 $ 2,404 $ 8,676 $ 8,310 - - Financial Services 98 65 321 236 ------- ------- -------- -------- Total $ 2,570 $ 2,469 $ 8,997 $ 8,546 ======= ======= ======== ======== Stockholders' equity at December 31 - - Total (in millions) $24,547 $21,659 $ 24,547 $ 21,659 - - After-tax return on Common and Class B stockholders' equity 10.9% 34.5% 18.2% 33.6% Automotive cash, cash equivalents, and marketable securities at December 31 (in millions) $12,406 $12,083 $ 12,406 $ 12,083 Automotive debt at December 31 (in millions) $ 7,307 $ 7,258 $ 7,307 $ 7,258 Automotive after-tax returns on sales 0.1% 4.1% 1.9% 3.7% Shares of Common and Class B Stock (in millions) - - Average number outstanding 1,136 1,020 1,071 1,010 - - Number outstanding at December 31 1,159 1,023 1,159 1,023 AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK AFTER PREFERRED STOCK DIVIDENDS Income $ 0.49 $ 1.47 $ 3.58 $ 4.97 Income/(Loss) assuming full dilution - - Automotive $ (0.06) $ 0.93 $ 1.59 $ 3.25 - - Financial Services 0.54 0.38 1.74 1.19 ------- ------- -------- --------- Total $ 0.48 $ 1.31 $ 3.33 $ 4.44 ======= ======= ======== ========= Cash dividends $ 0.35 $ 0.26 $ 1.23 $ 0.91 </TABLE> - - - - - - *Includes a loss of $440 million related to the disposition of Granite Savings Bank (formerly First Nationwide Bank) Segment results for 1994 have been adjusted to reflect reclassification of certain tax amounts to conform with the 1995 presentation. FS-1
<TABLE> <CAPTION> Ford Motor Company and Subsidiaries VEHICLE UNIT SALES ------------------ For the Periods Ended December 31, 1995 and 1994 (in thousands) Fourth Quarter Full Year --------------------------- ------------------------- 1995 1994 1995 1994 ----------- ---------- --------- -------- (Unaudited) (Unaudited) <S> <C> <C> <C> <C> North America United States Cars 434 530 1,767 2,036 Trucks 521 521 2,226 2,182 ----- ----- ----- ----- Total United States 955 1,051 3,993 4,218 Canada 76 75 254 281 Mexico 11 27 32 92 ----- ----- ----- ----- Total North America 1,042 1,153 4,279 4,591 Europe Britain 125 109 496 520 Germany 84 104 409 386 Italy 54 39 193 179 France 41 45 165 180 Spain 31 41 160 163 Other countries 74 71 286 281 ----- ----- ----- ----- Total Europe 409 409 1,709 1,709 Other international Brazil 48 43 201 164 Australia 32 38 139 125 Taiwan 16 21 106 97 Japan 13 13 57 50 Argentina 14 13 48 54 Other countries 16 17 67 63 ----- ----- ----- ----- Total other international 139 145 618 553 ----- ----- ----- ----- Total worldwide vehicle unit sales 1,590 1,707 6,606 6,853 ===== ===== ===== ===== </TABLE> Vehicle unit sales are reported worldwide on a "where sold" basis and include sales of all Ford-badged units, as well as units manufactured by Ford and sold to other manufacturers. Fourth Quarter and Full Year 1994 unit sales have been restated to reflect the country where sold and to include sales of all Ford-badged units. Previously, factory unit sales were reported in North America on a "where sold" basis and overseas on a "where produced" basis. Also, Ford-badged unit sales of certain unconsolidated subsidiaries (primarily Autolatina -- Brazil and Argentina) were not previously reported. FS-2
<TABLE> <CAPTION> Ford Motor Company and Subsidiaries CONSOLIDATED STATEMENT OF INCOME -------------------------------- For the Years Ended December 31, 1995, 1994 and 1993 (in millions, except amounts per share) 1995 1994 1993 -------- -------- ------- <S> <C> <C> <C> AUTOMOTIVE Sales (Note 1) $110,496 $107,137 $91,568 Costs and expenses (Note 1) Costs of sales 101,171 95,887 85,280 Selling, administrative, and other expenses 6,044 5,424 4,856 -------- -------- ------- Total costs and expenses 107,215 101,311 90,136 Operating income 3,281 5,826 1,432 Interest income 800 665 563 Interest expense 622 721 807 -------- -------- ------- Net interest income/(expense) 178 (56) (244) Equity in net (loss)/income of affiliated companies (Note 1) (154) 271 127 Net expense from transactions with Financial Services (Note 1) (139) (44) (24) -------- -------- ------- Income before income taxes - Automotive 3,166 5,997 1,291 FINANCIAL SERVICES Revenues (Note 1) 26,641 21,302 16,953 Costs and expenses (Note 1) Interest expense 9,424 7,023 6,482 Depreciation 6,500 4,910 3,064 Operating and other expenses 5,499 4,607 3,196 Provision for credit and insurance losses 1,818 1,539 1,523 Loss on disposition of Granite Savings Bank (formerly First Nationwide Bank) (Note 15) - 475 - -------- -------- ------- Total costs and expenses 23,241 18,554 14,265 Net revenue from transactions with Automotive (Note 1) 139 44 24 -------- -------- ------- Income before income taxes - Financial Services 3,539 2,792 2,712 -------- -------- ------- TOTAL COMPANY Income before income taxes 6,705 8,789 4,003 Provision for income taxes (Note 6) 2,379 3,329 1,350 -------- -------- ------- Income before minority interests 4,326 5,460 2,653 Minority interests in net income of subsidiaries 187 152 124 -------- -------- ------- Net income $ 4,139 $ 5,308 $ 2,529 ======== ======== ======= Income attributable to Common and Class B Stock after preferred stock dividends (Note 1) $ 3,839 $ 5,021 $ 2,241 Average number of shares of Common and Class B Stock outstanding 1,071 1,010 986 AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK (Note 1) Income $ 3.58 $ 4.97 $ 2.27 Income assuming full dilution $ 3.33 $ 4.44 $ 2.10 Cash dividends $ 1.23 $ 0.91 $ 0.80 </TABLE> The accompanying notes are part of the financial statements. FS-3
<TABLE> <CAPTION> Ford Motor Company and Subsidiaries CONSOLIDATED BALANCE SHEET -------------------------- (in millions) December 31, December 31, 1995 1994 ------------- ------------- <S> <C> <C> ASSETS Automotive Cash and cash equivalents $ 5,750 $ 4,481 Marketable securities (Note 2) 6,656 7,602 -------- -------- Total cash, cash equivalents, and marketable securities 12,406 12,083 Receivables 3,321 2,548 Inventories (Note 4) 7,162 6,487 Deferred income taxes 2,709 3,062 Other current assets 1,483 2,006 Net current receivable from Financial Services (Note 1) 200 677 -------- -------- Total current assets 27,281 26,863 Equity in net assets of affiliated companies (Note 1) 2,248 3,554 Net property (Note 5) 31,273 27,048 Deferred income taxes 4,802 4,414 Other assets (Notes 1 and 8) 7,168 6,760 -------- -------- Total Automotive assets 72,772 68,639 Financial Services Cash and cash equivalents 2,690 1,739 Investments in securities (Note 2) 4,553 6,105 Net receivables and lease investments (Note 3) 149,694 130,356 Other assets (Note 1) 13,574 12,783 -------- -------- Total Financial Services assets 170,511 150,983 -------- -------- Total assets $243,283 $219,622 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Automotive Trade payables $ 11,260 $ 10,777 Other payables 1,976 2,280 Accrued liabilities (Note 7) 13,392 11,943 Income taxes payable 316 316 Debt payable within one year (Note 9) 1,832 155 -------- -------- Total current liabilities 28,776 25,471 Long-term debt (Note 9) 5,475 7,103 Other liabilities (Note 7) 25,677 24,920 Deferred income taxes 1,186 1,216 -------- -------- Total Automotive liabilities 61,114 58,710 Financial Services Payables 5,476 2,361 Debt (Note 9) 141,317 123,713 Deferred income taxes 3,831 2,958 Other liabilities and deferred income 6,116 7,669 Net payable to Automotive (Note 1) 200 677 -------- -------- Total Financial Services liabilities 156,940 137,378 Company-obligated mandatorily redeemable preferred securities of a subsidiary trust (aggregate principal amount of $632 million) (Note 1) 682 - Preferred stockholders' equity in a subsidiary company (Note 1) - 1,875 Stockholders' equity Capital stock (Notes 10 and 11) Preferred Stock, par value $1.00 per share (aggregate liquidation preference of $1 billion and $3.4 billion) * * Common Stock, par value $1.00 per share (1,089 and 952 million shares issued) 1,089 952 Class B Stock, par value $1.00 per share (71 million shares issued) 71 71 Capital in excess of par value of stock 5,105 5,273 Foreign currency translation adjustments and other (Note 1) 594 189 Earnings retained for use in business 17,688 15,174 -------- -------- Total stockholders' equity 24,547 21,659 -------- -------- Total liabilities and stockholders' equity $243,283 $219,622 ======== ======== </TABLE> - - - - - - *Less than $1 million The accompanying notes are part of the financial statements. FS-4
<TABLE> <CAPTION> Ford Motor Company and Subsidiaries CONSOLIDATED STATEMENT OF CASH FLOWS ------------------------------------ For the Years Ended December 31, 1995, 1994 and 1993 (in millions) 1995 1994 1993 ---------------------- --------------------- ---------------------- Financial Financial Financial Automotive Services Automotive Services Automotive Services ---------- --------- ---------- --------- ---------- --------- <S> <C> <C> <C> <C> <C> <C> Cash and cash equivalents at January 1 $ 4,481 $ 1,739 $ 5,667 $ 2,555 $ 3,504 $ 3,182 Cash flows from operating activities (Note 16) 8,849 12,322 7,542 9,087 6,862 7,145 Cash flows from investing activities Capital expenditures (8,676) (321) (8,310) (236) (6,714) (100) Proceeds from sale and leaseback of fixed assets 0 - 0 - 884 - Acquisitions of other companies 0 0 0 (485) 0 (336) Proceeds from sales of subsidiaries 0 0 0 715 173 0 Acquisitions of receivables and lease investments - (99,967) - (90,824) - (76,566) Collections of receivables and lease investments - 71,149 - 61,111 - 55,552 Net acquisitions of daily rental vehicles - (1,459) - (924) - - Purchases of securities (Note 16) (51) (6,274) (412) (10,688) (100,493) (13,741) Sales and maturities of securities (Note 16) 325 5,052 511 9,649 101,927 12,426 Proceeds from sales of receivables - 4,360 - 3,622 - 4,794 Loans originated net of principal payments - (9) - (207) - (1,466) Net investing activity with Financial Services (19) - 355 - (117) - Other 558 (175) (331) (312) (69) 389 ------- -------- ------ -------- -------- -------- Net cash used in investing activities (7,863) (27,644) (8,187) (28,579) (4,409) (19,048) Cash flows from financing activities Cash dividends (1,559) - (1,205) - (1,086) - Issuance of Common Stock 601 - 715 - 394 - Changes in short-term debt 413 5,884 (795) 10,314 (66) 6,065 Proceeds from issuance of other debt 300 23,854 158 21,885 424 22,128 Principal payments on other debt (177) (11,489) (75) (14,088) (376) (13,791) Net financing activity with Automotive - 19 - (355) - 117 Changes in customers' deposits, excluding interest credited - - - (422) - (3,861) Receipts from annuity contracts - 283 - 1,124 - 821 Net (redemption)/issuance of subsidiary company preferred stock (Note 1) - (1,875) - 417 - 375 Other 121 102 31 (132) (124) (76) ------- -------- -------- -------- -------- ------- Net cash (used in)/provided by financing activities (301) 16,778 (1,171) 18,743 (834) 11,778 Effect of exchange rate changes on cash 107 (28) 397 166 17 25 Net transactions with Automotive/ Financial Services 477 (477) 233 (233) 527 (527) ------- -------- -------- -------- -------- -------- Net increase/(decrease) in cash and cash equivalents 1,269 951 (1,186) (816) 2,163 (627) ------- -------- -------- -------- -------- -------- Cash and cash equivalents at December 31 $ 5,750 $ 2,690 $ 4,481 $ 1,739 $ 5,667 $ 2,555 ======= ======== ======== ======== ======== ======== </TABLE> The accompanying notes are part of the financial statements. FS-5
<TABLE> <CAPTION> Ford Motor Company and Subsidiaries CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY ---------------------------------------------- For the Years Ended December 31, 1995, 1994 and 1993 (in millions) 1995 1994 1993 ------- ------- ------- <S> <C> <C> <C> CAPITAL STOCK (Note 10) Common Stock - ------------ Balance at beginning of year $ 952 $ 464 $ 454 Issued for Series A Preferred Stock conversion, employee benefit plans and other 137 19 10 Stock split in form of a 100% stock dividend - 469 - ------- ------- ------- Balance at end of year 1,089 952 464 Class B Stock - ------------- Balance at beginning of year 71 35 35 Stock split in form of a 100% stock dividend - 36 - ------- ------- ------- Balance at end of year 71 71 35 Series A Preferred Stock * * * Series B Preferred Stock (Note 1) * * * CAPITAL IN EXCESS OF PAR VALUE OF STOCK Balance at beginning of year 5,273 5,082 4,698 Exchange of Series B Preferred Stock (Notes 1 and 10) (632) - - Issued for Series A Preferred Stock conversion, employee benefit plans and other 464 696 384 Stock split in form of a 100% stock dividend - (505) - ------- ------- ------- Balance at end of year 5,105 5,273 5,082 FOREIGN CURRENCY TRANSLATION ADJUSTMENTS AND OTHER (Note 1) Balance at beginning of year 189 (1,078) (62) Translation adjustments during year 250 800 (508) Minimum pension liability adjustment (108) 400 (400) Other 263 67 (108) ------- ------- ------- Balance at end of year 594 189 (1,078) EARNINGS RETAINED FOR USE IN THE BUSINESS Balance at beginning of year 15,174 11,071 9,628 Net income 4,139 5,308 2,529 Cash dividends (1,559) (1,205) (1,086) Fair value adjustment from exchange of Series B Preferred Stock (Note 1) (66) - - ------- ------- ------- Balance at end of year 17,688 15,174 11,071 ------- ------- ------- Total stockholders' equity $24,547 $21,659 $15,574 ======= ======= ======= </TABLE> <TABLE> <CAPTION> Series A Series B Common Class B Preferred Preferred SHARES OF CAPITAL STOCK Stock Stock Stock Stock ------ ------- --------- --------- <S> <C> <C> <C> <C> Issued at December 31, 1992 454 35 0.046 0.023 Additions 1993 10 0 0 0 1994 - Stock split in form of a 100% stock dividend 469 36 - - - Employee benefit plans and other 19 - - - 1995 - Conversion of Series A Preferred Stock 115 - (0.035) - - Employee benefit plans and other 22 - - - - Exchange of Series B Preferred Stock (Note 10) - - - (0.013) ----- --- ----- ----- Net additions 635 36 (0.035) (0.013) ----- --- ----- ----- Issued at December 31, 1995 1,089 71 0.011 0.010 ===== === ===== ===== Authorized at December 31, 1995 3,000 265 -- In total: 30 -- </TABLE> - - - - - - *The balances at the beginning and end of each period were less than $1 million. The accompanying notes are part of the financial statements. FS-6
Ford Motor Company and Subsidiaries Notes to Financial Statements NOTE 1. Accounting Policies - ---------------------------- Principles of Consolidation - --------------------------- The consolidated financial statements include all significant majority owned subsidiaries and reflect the operating results, assets, liabilities and cash flows for two business segments: Automotive and Financial Services. The assets and liabilities of the Automotive segment are classified as current or noncurrent, and those of the Financial Services segment are unclassified. Affiliates that are 20% to 50% owned, principally Mazda Motor Corporation and AutoAlliance International Inc., and subsidiaries where control is expected to be temporary, principally investments in certain dealerships, are generally accounted for on an equity basis. For purposes of Notes to Financial Statements, "Ford" or "the company" means Ford Motor Company and its majority owned consolidated subsidiaries unless the context requires otherwise. Use of estimates and assumptions as determined by management is required in the preparation of consolidated financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates and assumptions. Certain amounts for prior periods have been reclassified to conform with 1995 presentations. Nature of Operations - -------------------- The company operates in two principal business segments: Automotive and Financial Services. The Automotive segment consists of the design, manufacture, assembly and sale of cars, trucks and related parts and accessories. The Financial Services segment consists primarily of financing operations, insurance operations, and vehicle and equipment leasing operations. Intersegment transactions represent principally transactions occurring in the ordinary course of business, borrowings and related transactions between entities in the Financial Services and Automotive segments, and interest and other support under special vehicle financing programs. These arrangements are reflected in the respective business segments. Revenue Recognition - Automotive - -------------------------------- Sales are recorded by the company when products are shipped to dealers, except as described below. Estimated costs for approved sales incentive programs normally are recognized as sales reductions at the time of revenue recognition. Estimated costs for sales incentive programs approved subsequent to the time that related sales were recorded are recognized when the programs are approved. Beginning December 1, 1995, sales through dealers to certain daily rental companies where the daily rental company has an option to require the company to repurchase vehicles, subject to certain conditions, are recognized over the period of daily rental service in a manner similar to lease accounting. This change in accounting principle was made as a result of the consensus reached on November 15, 1995 by the Emerging Issues Task Force of the Financial Accounting Standards Board on Issue 95-1 concerning the timing of revenue recognition when a manufacturer conditionally guarantees the resale value of a product or agrees to repurchase the product at a fixed price. The company elected to recognize this change in accounting principle on a prospective basis. The effect on the company's 1995 consolidated results of operations was not material, nor is it expected to have a material effect in future years. Implementation of this change will not affect the company's cash flow. Previously, the company recognized revenue for these vehicles when shipped. FS-7
NOTE 1. Accounting Policies (Cont'd) - ---------------------------- Revenue Recognition - Financial Services - ---------------------------------------- Revenue from finance receivables is recognized over the term of the receivable using the interest method. Certain loan origination costs are deferred and amortized over the term of the related receivable as a reduction in financing revenue. Revenue from operating leases is recognized as scheduled payments become due. Agreements between Automotive operations and certain Financial Services operations provide for interest supplements and other support costs to be paid by Automotive operations on certain financing and leasing transactions. Financial Services operations recognize this revenue in income over the period that the related receivables and leases are outstanding; the estimated costs of interest supplements and other support costs are recorded as sales incentives by Automotive operations. Other Costs - ----------- Advertising and sales promotion costs are expensed as incurred. Advertising costs were $2,024 million in 1995, $1,823 million in 1994 and $1,610 million in 1993. Estimated costs related to product warranty are accrued at the time of sale. Research and development costs are expensed as incurred and were $6,509 million in 1995, $5,811 million in 1994, and $5,618 million in 1993. Income Per Share of Common and Class B Stock - -------------------------------------------- Income per share of Common and Class B Stock is calculated by dividing the income attributable to Common and Class B Stock by the average number of shares of Common Stock and Class B Stock outstanding during the applicable period. The company has outstanding securities, primarily Series A Preferred Stock, that could be converted to Common Stock. Other obligations, such as stock options, are considered to be common stock equivalents. The calculation of income per share of Common and Class B Stock assuming full dilution takes into account the effect of these convertible securities and common stock equivalents when the effect is material and dilutive. Income attributable to Common and Class B Stock was as follows (in millions): <TABLE> <CAPTION> 1995 1994 1993 ------ ------ ------- <S> <C> <C> <C> Net income $4,139 $5,308 $2,529 Less: Preferred stock dividend requirements 234 287 288 Fair value adjustment from exchange of Series B Preferred Stock* 66 - - ------ ------ ----- Income attributable to Common and Class B Stock $3,839 $5,021 $2,241 ====== ====== ====== </TABLE> - - - - - * Represents a one-time reduction of $0.06 per share of Common and Class B Stock related to the exchange of Series B Preferred Stock for company-obligated mandatorily redeemable preferred securities of a subsidiary trust; this adjustment equals the excess of the fair value of company-obligated mandatorily redeemable preferred securities at the date of issuance over the carrying amount of exchanged Series B Preferred Stock FS-8
NOTE 1. Accounting Policies (Cont'd) - ---------------------------- Derivative Financial Instruments - -------------------------------- The company and many of its subsidiaries have entered into agreements to manage certain exposures to fluctuations in foreign exchange and interest rates. All derivative financial instruments are classified as "held for purposes other than trading;" company policy specifically prohibits the use of derivatives for speculative purposes. Ford has operations in many countries outside the U.S., and purchases and sales of finished vehicles and production parts, debt and other payables, subsidiary dividends, and investments in subsidiaries are frequently denominated in foreign currencies. Agreements to manage foreign exchange exposures include foreign currency forward contracts, currency swaps and, to a lesser extent, foreign currency options. Gains and losses on the various agreements are recognized in income during the period of the related transactions, included in the bases of the related transactions, or, in the case of hedges of net investments in foreign subsidiaries, recognized as an adjustment to the foreign currency translation component of stockholders' equity. Financial Services operations issue debt and other payables for which the maturity and interest rate structure differs from the invested assets to ensure continued access to capital markets and to minimize overall borrowing costs. Agreements to manage interest rate exposures include primarily interest rate swap agreements. The differential paid or received on interest rate swap agreements is recognized as an adjustment to interest expense in the period. Foreign Currency Translation - ----------------------------- Revenues, costs and expenses of foreign subsidiaries are translated to U.S. dollars at average-period exchange rates. The effect of changes in foreign exchange rates on revenues and costs was generally unfavorable in 1995, 1994 and 1993. Assets and liabilities of foreign subsidiaries are translated to U.S. dollars at end-of-period exchange rates. The effects of this translation for most foreign subsidiaries and certain other foreign currency transactions are reported in a separate component of stockholders' equity. Translation gains and losses for foreign subsidiaries that are located in highly inflationary countries or conduct a major portion of their business with the company's U.S. operations are included in income. Also included in income are gains and losses arising from transactions denominated in a currency other than the functional currency of the subsidiary involved. The effect of changes in foreign exchange rates on assets and liabilities, as described above, increased net income by $13 million in 1995, $376 million in 1994, and $419 million in 1993. These amounts included net transaction and translation gains before taxes of $37 million in 1995, $574 million in 1994 and $988 million in 1993. These gains were offset by higher costs of sales that resulted from the use of historical exchange rates for inventories sold during the period in countries with high inflation rates. Impairment of Long-Lived Assets and Certain Identifiable Intangibles - -------------------------------------------------------- The company evaluates the carrying value of goodwill for potential impairment on an ongoing basis. Such evaluations compare operating income before amortization of goodwill to the amortization recorded for the operations to which the goodwill relates. The company also considers projected future operating results, trends and other circumstances in making such estimates and evaluations. Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to Be Disposed Of," was issued in March 1995. SFAS 121 requires that, effective January 1, 1996, long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. It also requires that long-lived assets and certain identifiable intangibles to be disposed of be reported at the lower of carrying amount or fair value less cost to sell. The effect of adopting SFAS 121 is not expected to be material. FS-9
NOTE 1. Accounting Policies (Cont'd) - ---------------------------- Goodwill - -------- Goodwill represents the excess of the purchase price over the fair value of the net assets of acquired companies and is amortized using the straight-line method principally over 40 years. Total goodwill included in Automotive and Financial Services other assets at December 31, 1995 was $2.3 billion and $3.2 billion, respectively. Company-Obligated Mandatorily Redeemable Preferred Securities of a Subsidiary Trust - ---------------------------------------------------------------- On December 21, 1995, Ford Motor Company Capital Trust I (the "Trust") issued $632 million of its 9% Trust Originated Preferred Securities (the "Preferred Securities") in a one-for-one exchange for 25,273,537 shares of the company's outstanding Series B Depositary Shares ("Depositary Shares"), each representing 1/2,000 of a share of Series B Preferred Stock of Ford. Concurrent with the issuance of the Preferred Securities in exchange for Depositary Shares and the related purchase by Ford of the Trust's common securities (the "Common Securities"), the company issued to the Trust $651 million aggregate principal amount of its 9% Junior Subordinated Debentures due December 2025 (the "Debentures"). The sole assets of the Trust are and will be the Debentures. The interest and other payment dates on the Debentures correspond to the distribution and other payment dates on the Preferred Securities and Common Securities. The Debentures are redeemable, in whole or in part, at the company's option on or after December 1, 2002, at a redemption price of $25 per Debenture plus accrued and unpaid interest. If the company redeems the Debentures, or upon maturity of the Debentures, the Trust is required to redeem the Preferred Securities and Common Securities at $25 per share plus accrued and unpaid distributions. Ford guarantees to pay in full to the holders of the Preferred Securities all distributions and other payments on the Preferred Securities to the extent not paid by the Trust only if and to the extent that Ford has made a payment of interest or principal on the Debentures. This guarantee, when taken together with Ford's obligations under the Debentures and the Indenture relating thereto and its obligations under the Declaration of Trust of the Trust, including its obligation to pay certain costs and expenses of the Trust, constitutes a full and unconditional guarantee by Ford of the Trust's obligations under the Preferred Securities. Preferred Stockholders' Equity in a Subsidiary Company - ------------------------------------------------------ During Fourth Quarter 1995, Ford Holdings, Inc. ("Ford Holdings"), a subsidiary of Ford, merged with Ford Holdings Capital Corporation, a subsidiary of Ford Holdings, which resulted in the cancellation of the voting preferred stock of Ford Holdings in exchange for payment by Ford Holdings of the liquidation preference of the stock plus accrued and unpaid dividends. Ford Holdings funded the payment to the holders of the preferred stock primarily with bank loans. FS-10
NOTE 2. Marketable and Other Securities - ---------------------------------------- Trading securities are recorded at fair value with unrealized gains and losses included in income. Available-for-sale securities are recorded at fair value with unrealized gains and losses excluded from income and reported, net of tax, in a separate component of stockholders' equity. Held-to-maturity securities are recorded at amortized cost. Equity securities which do not have readily determinable fair values are recorded at cost. The bases of cost used in determining realized gains and losses are specific identification for Automotive operations and first-in, first-out for Financial Services operations. The fair value of most securities was estimated based on quoted market prices. For those securities for which there were no quoted market prices, the estimate of fair value was based on similar types of securities that are traded in the market. Expected maturities of debt securities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalty. Automotive - ---------- Investments in securities at December 31, 1995 were as follows (in millions): <TABLE> <CAPTION> Gross Gross Memo: Amortized Unrealized Unrealized Fair Book Cost Gains Losses Value Value --------- ---------- ---------- ----- ----- <S> <C> <C> <C> <C> <C> Trading securities $6,646 $12 $2 $6,656 $6,656 ====== === == ====== ====== </TABLE> Investments in securities at December 31, 1994 were as follows (in millions): <TABLE> <CAPTION> Gross Gross Memo: Amortized Unrealized Unrealized Fair Book Cost Gains Losses Value Value --------- ---------- ---------- ------ ------ <S> <C> <C> <C> <C> <C> Trading securities $7,382 $3 $56 $7,329 $7,329 Available-for-sale securities - ----------------------------- Debt securities issued by foreign governments 23 0 0 23 23 Corporate securities 231 0 1 230 230 ------ -- --- ------- ------ Total available-for-sale securities 254 0 1 253 253 Held-to-maturity securities - --------------------------- Corporate securities 20 0 0 20 20 ------ -- --- ------ ------ Total investments in securities $7,656 $3 $57 $7,602 $7,602 ====== == === ====== ====== </TABLE> All debt securities classified as available-for-sale or held-to-maturity had contractual maturities of one year or less. Included in stockholders' equity at December 31, 1995 and 1994 was $146 million and $188 million, respectively, which represented principally the company's equity interest in the unrealized gains on securities owned by certain unconsolidated subsidiaries. FS-11
NOTE 2. Marketable and Other Securities (Cont'd) - ---------------------------------------- Financial Services - ------------------ Investments in securities at December 31, 1995 were as follows (in millions): <TABLE> <CAPTION> Gross Gross Memo: Amortized Unrealized Unrealized Fair Book Cost Gains Losses Value Value --------- ----------- --------- ------ ------ <S> <C> <C> <C> <C> <C> Trading securities $ 477 $ 1 $ 2 $ 476 $ 476 Available-for-sale securities - ----------------------------- Debt securities issued by the U.S. government and agencies 574 20 0 594 594 Municipal securities 102 3 2 103 103 Debt securities issued by foreign governments 38 1 0 39 39 Corporate securities 579 12 9 582 582 Mortgage-backed securities 336 4 1 339 339 Other debt securities 13 0 0 13 13 Equity securities 300 58 0 358 358 ------ --- --- ------ ------ Total available-for-sale securities 1,942 98 12 2,028 2,028 Held-to-maturity securities - --------------------------- Debt securities issued by the U.S. government and agencies 8 1 0 9 8 Municipal securities 1,132 60 7 1,185 1,132 Corporate securities 585 15 2 598 585 ------ --- --- ------ ------ Total held-to-maturity securities 1,725 76 9 1,792 1,725 Total investments in securities with readily determinable fair value 4,144 $175 $23 $4,296 4,229 ==== ==== ====== Equity securities not practicable to fair value 324 324 ----- ------ Total investments in securities $4,468 $4,553 ====== ====== </TABLE> Investments in securities at December 31, 1994 were as follows (in millions): <TABLE> <CAPTION> Gross Gross Memo: Amortized Unrealized Unrealized Fair Book Cost Gains Losses Value Value -------- ---------- ---------- ----- ------- <S> <C> <C> <C> <C> <C> Trading securities $ 715 $ 6 $ 10 $ 711 $ 711 Available-for-sale securities - ----------------------------- Debt securities issued by the U.S. government and agencies 692 1 38 655 655 Municipal securities 155 1 11 145 145 Debt securities issued by foreign governments 106 0 10 96 96 Corporate securities 1,929 3 152 1,780 1,780 Mortgage-backed securities 871 0 62 809 809 Other debt securities 22 0 0 22 22 Equity securities 172 34 6 200 200 ------ --- ---- ------ ------ Total available-for-sale securities 3,947 39 279 3,707 3,707 Held-to-maturity securities - --------------------------- Debt securities issued by the U.S. government and agencies 10 0 0 10 10 Municipal securities 783 0 12 771 783 Corporate securities 570 4 27 547 570 ------ --- ---- ------ ------ Total held-to-maturity securities 1,363 4 39 1,328 1,363 Total investments in securities with readily determinable fair value 6,025 $49 $328 $5,746 5,781 === ==== ====== Equity securities not practicable to fair value 324 324 ------ ------ Total investments in securities $6,349 $6,105 ====== ====== </TABLE> FS-12
NOTE 2. Marketable and Other Securities (Cont'd) - ---------------------------------------- Financial Services (Cont'd) - ------------------ The amortized cost and fair value of investments in available-for-sale securities and held-to-maturity securities at December 31, 1995, by contractual maturity, were as follows (in millions): <TABLE> <CAPTION> Available-for-sale Held-to-maturity --------------------- ---------------------- Amortized Amortized Cost Fair Value Cost Fair Value --------- ---------- ---------- ---------- <S> <C> <C> <C> <C> Due in one year or less $ 173 $ 173 $ 50 $ 47 Due after one year through five years 522 534 281 285 Due after five years through ten years 449 454 1,317 1,381 Due after ten years 283 293 77 79 Mortgage-backed securities 215 216 - - Equity securities 300 358 - - ------ ------ ------ ------ Total $1,942 $2,028 $1,725 $1,792 ====== ====== ====== ====== </TABLE> The amortized cost and fair value of investments in available-for-sale securities and held-to-maturity securities at December 31, 1994, by contractual maturity, were as follows (in millions): <TABLE> <CAPTION> Available-for-sale Held-to-maturity ----------------------- ---------------------- Amortized Amortized Cost Fair Value Cost Fair Value --------- ------------ --------- ----------- <S> <C> <C> <C> <C> Due in one year or less $ 113 $ 112 $ 59 $ 58 Due after one year through five years 755 728 184 184 Due after five years through ten years 637 596 782 768 Due after ten years 1,399 1,262 338 318 Mortgage-backed securities 871 809 - - Equity securities 172 200 - - ------ ------ ------ ------ Total $3,947 $3,707 $1,363 $1,328 ====== ====== ====== ====== </TABLE> Proceeds from sales of available-for-sale securities were $2.4 billion in 1995 and $9.1 billion in 1994; gross gains of $39 million and gross losses of $18 million were realized on those sales in 1995, and gross gains of $24 million and gross losses of $56 million were realized on those sales in 1994. Stockholders' equity included, net of tax, a net unrealized gain of $56 million at December 31, 1995 and a net unrealized loss of $155 million at December 31, 1994. Proceeds from sales of investments in debt securities were $11.2 billion in 1993; gross gains of $113 million and gross losses of $20 million were realized on those sales. FS-13
NOTE 3. Receivables - Financial Services - ----------------------------------------- Included in net receivables and lease investments at December 31 were net finance receivables, investments in direct financing leases and investments in operating leases. The investments in direct financing and operating leases relate to the leasing of vehicles, various types of transportation and other equipment, and facilities. Net finance receivables at December 31 were as follows (in millions): <TABLE> <CAPTION> 1995 1994 -------- -------- <S> <C> <C> Automotive $ 98,162 $ 87,858 Real estate, mainly residential 17,577 15,560 Other 7,732 6,237 -------- -------- Total finance receivables 123,471 109,655 Loan origination costs 268 194 Unearned income (11,045) (9,656) Allowance for credit losses (1,947) (1,762) Unearned insurance premiums and unpaid insurance claims related to finance receivables (2) (90) -------- -------- Net finance receivables $110,745 $ 98,341 ======== ======== Fair value $112,798 $ 99,518 </TABLE> Included in finance receivables at December 31, 1995 and 1994 were a total of $1.3 billion owed by three customers with the largest receivable balances. Other finance receivables consisted primarily of commercial and consumer loans, collateralized loans, credit card receivables, general corporate obligations and accrued interest. Also included in other finance receivables at December 31, 1995 and 1994 were $3.5 billion and $3.4 billion, respectively, of accounts receivable purchased by certain Financial Services operations from Automotive operations. Contractual maturities of automotive and other finance receivables are as follows (in millions): 1996 - $53,718; 1997 - $20,569; 1998 - $14,160; thereafter - $17,447. Experience indicates that a substantial portion of the portfolio generally is repaid before the contractual maturity dates. The fair value of most receivables was estimated by discounting future cash flows using an estimated discount rate that reflected the credit, interest rate and prepayment risks associated with similar types of instruments. For receivables with short maturities, the book value approximated fair value. Sales of finance receivables increased net income by $69 million in 1995, $15 million in 1994 and $60 million in 1993. Investments in direct financing leases at December 31 were as follows (in millions): <TABLE> <CAPTION> 1995 1994 ------- -------- <S> <C> <C> Minimum lease rentals $ 9,385 $ 8,321 Estimated residual values 3,960 3,715 Lease origination costs 81 70 Unearned income (2,439) (2,299) Allowance for credit losses (155) (185) ------- ------- Net investments in direct financing leases $10,832 $ 9,622 ======= ======= </TABLE> Minimum direct financing lease rentals (including executory costs of $31 million) are contractually due as follows (in millions): 1996 - $3,093; 1997 - $2,346; 1998 - $1,489; 1999 - $893; thereafter - $1,595. FS-14
NOTE 3. Receivables - Financial Services (Cont'd) - ----------------------------------------- Investments in operating leases at December 31 were as follows (in millions): <TABLE> <CAPTION> 1995 1994 ------- ------- <S> <C> <C> Vehicles and other equipment, at cost $34,855 $28,050 Lease origination costs 50 38 Accumulated depreciation (6,499) (5,425) Allowance for credit losses (289) (270) ------- ------- Net investments in operating leases $28,117 $22,393 ======= ======= </TABLE> Minimum rentals on operating leases are contractually due as follows (in millions): 1996 - $6,364; 1997 - $2,694; 1998 - $431; 1999 - $131; thereafter - $222. Depreciation expense for assets subject to operating leases is provided primarily on the straight-line method over the term of the lease in amounts necessary to reduce the carrying amount of the asset to its estimated residual value. Gains and losses upon disposal of the asset also are included in depreciation expense. Depreciation expense was as follows (in millions): 1995 - $5,508; 1994 - $4,231; 1993 - $2,984. Allowances for credit losses are estimated and established as required based on historical experience. Other factors that affect collectibility also are evaluated, and additional amounts may be provided. Finance receivables and lease investments are charged to the allowances for credit losses when an account is deemed to be uncollectible, taking into consideration the financial condition of the borrower, the value of the collateral, recourse to guarantors and other factors. Recoveries on finance receivables and lease investments previously charged off as uncollectible are credited to the allowances for credit losses. Changes in the allowances for credit losses were as follows (in millions): <TABLE> <CAPTION> 1995 1994 1993 ------- ------ ------ <S> <C> <C> <C> Beginning balance $ 2,217 $2,352 $2,257 Additions 1,327 988 1,019 Net losses (1,120) (826) (903) Other changes (33) (297) (21) ------- ------ ------ Ending balance $ 2,391 $2,217 $2,352 ======= ====== ====== </TABLE> Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan," was issued in May 1993 and amended in October 1994 by Statement of Financial Accounting Standards No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures." The Standards require that impaired loans be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate. The company adopted these standards as of January 1, 1995, and the effect was not material. NOTE 4. Inventories - Automotive - --------------------------------- Inventories at December 31 were as follows (in millions): <TABLE> <CAPTION> 1995 1994 ------ ------ <S> <C> <C> Raw materials, work in process and supplies $3,717 $3,192 Finished products 3,445 3,295 ------ ------ Total inventories $7,162 $6,487 ====== ====== U.S. inventories $2,662 $2,917 </TABLE> Inventories are stated at the lower of cost or market. The cost of most U.S. inventories is determined by the last-in, first-out ("LIFO") method. The cost of the remaining inventories is determined primarily by the first-in, first-out ("FIFO") method. If the FIFO method had been used instead of the LIFO method, inventories would have been higher by $1,406 million and $1,383 million at December 31, 1995 and 1994, respectively. FS-15
NOTE 5. Net Property, Depreciation and Amortization - Automotive - ----------------------------------------------------------------- Net property at December 31 was as follows (in millions): <TABLE> <CAPTION> 1995 1994 -------- -------- <S> <C> <C> Land $ 381 $ 359 Buildings and land improvements 7,539 6,939 Machinery, equipment and other 38,954 33,551 Construction in progress 1,609 1,685 -------- -------- Total land, plant and equipment 48,483 42,534 Accumulated depreciation (25,313) (22,738) -------- -------- Net land, plant and equipment 23,170 19,796 Unamortized special tools 8,103 7,252 -------- -------- Net property $ 31,273 $ 27,048 ======== ======== </TABLE> Property, equipment and special tools are stated at cost, less accumulated depreciation and amortization. Property and equipment placed in service before January 1, 1993 are depreciated using an accelerated method that results in accumulated depreciation of approximately two-thirds of asset cost during the first half of the estimated useful life of the asset. Property and equipment placed in service after December 31, 1992 are depreciated using the straight-line method of depreciation over the estimated useful life of the asset. On average, buildings and land improvements are depreciated based on a 30-year life; machinery and equipment are depreciated based on a 14-year life. Special tools are amortized using an accelerated method over periods of time representing the estimated productive life of those tools. Depreciation and amortization expenses were as follows (in millions): 1995 1994 1993 ------ ------ ------ Depreciation $2,454 $2,297 $2,392 Amortization 2,765 2,129 2,012 ------ ------ ------ Total $5,219 $4,426 $4,404 ====== ====== ====== When property and equipment are retired, the general policy is to charge the cost of those assets, reduced by net salvage proceeds, to accumulated depreciation. Maintenance, repairs, and rearrangement costs are expensed as incurred and were $2,529 million in 1995, $2,377 million in 1994, and $1,934 million in 1993. Expenditures that increase the value or productive capacity of assets are capitalized. Preproduction costs related to new facilities are expensed as incurred. NOTE 6. Income Taxes - --------------------- Income/(loss) before income taxes for U.S. and foreign operations, excluding equity in net (loss)/income of affiliated companies, was as follows (in millions): <TABLE> <CAPTION> 1995 1994 1993 ------ ------ ------ <S> <C> <C> <C> U.S. $5,521 $6,944 $4,152 Foreign 1,338 1,574 (276) ------ ------ ------ Total income before income taxes $6,859 $8,518 $3,876 ====== ====== ====== </TABLE> The provision for income taxes was estimated as follows (in millions): <TABLE> <CAPTION> 1995 1994 1993 ------ ------ ------ <S> <C> <C> <C> Currently payable U.S. federal $ 971 $1,640 $1,259 Foreign 578 690 169 State and local 17 165 123 ------ ------ ------ Total currently payable 1,566 2,495 1,551 Deferred tax liability/(benefit) U.S. federal 731 827 (161) Foreign (10) (71) (106) State and local 92 78 66 ------ ------ ------ Total deferred 813 834 (201) ------ ------ ------ Total provision $2,379 $3,329 $1,350 ====== ====== ====== </TABLE> FS-16
NOTE 6. Income Taxes (Cont'd) - --------------------- The provision includes estimated taxes payable on that portion of retained earnings of subsidiaries expected to be received by the company. No provision was made with respect to $2.6 billion of retained earnings at December 31, 1995 that have been invested by foreign subsidiaries. It is not practicable to estimate the amount of unrecognized deferred tax liability for the undistributed foreign earnings. A reconciliation of the provision for income taxes compared with the amounts at the U.S. statutory tax rate is shown below (in millions): <TABLE> <CAPTION> 1995 1994 1993 ------- ------- ------- <S> <C> <C> <C> Tax provision at U.S. statutory rate of 35% $2,400 $2,981 $1,357 Effect of: Foreign taxes over U.S. tax rate 100 68 219 State and local income taxes 71 158 118 Rate adjustments on U.S. and foreign deferred taxes - - (199) Income not subject to tax or subject to tax at reduced rates (47) (62) (70) Other (145) 184 (75) ------ ------ ------ Provision for income taxes $2,379 $3,329 $1,350 ====== ====== ====== Effective tax rate 34.7% 39.1% 34.8% </TABLE> Deferred income taxes reflect the estimated tax effect of temporary differences between assets and liabilities for financial reporting purposes and those amounts as measured by tax laws and regulations and net operating losses of subsidiaries. The components of deferred income tax assets and liabilities at December 31 were as follows (in millions): <TABLE> <CAPTION> 1995 1994 -------- -------- <S> <C> <C> Deferred tax assets ------------------- Employee benefit plans $ 6,672 $ 5,951 Dealer and customer allowances and claims 3,750 3,375 Allowance for credit losses 921 821 Net operating loss carryforwards 844 1,152 Alternative minimum tax 440 318 Depreciation and amortization (excludes leasing transactions) - 39 All other 1,711 1,466 Valuation allowances (158) (159) ------- ------- Total deferred tax assets 14,180 12,963 Deferred tax liabilities ------------------------ Leasing transactions 4,933 3,935 Depreciation and amortization (excludes leasing transactions) 3,626 2,804 Employee benefit plans 1,486 1,443 All other 1,920 1,604 ------- ------- Total deferred tax liabilities 11,965 9,786 ------- ------- Net deferred tax assets $ 2,215 $ 3,177 ======= ======= </TABLE> Foreign net operating loss carryforwards for tax purposes were $2.4 billion at December 31, 1995. A substantial portion of these losses has an indefinite carryforward period; the remaining losses have expiration dates beginning in 1996. For financial statement purposes, the tax benefit of operating losses is recognized as a deferred tax asset, subject to appropriate valuation allowances. The company evaluates the tax benefits of operating loss carryforwards on an ongoing basis. Such evaluations include a review of historical and consideration of projected future operating results, the eligible carryforward period and other circumstances. FS-17
NOTE 7. Liabilities - Automotive - --------------------------------- Current Liabilities - ------------------- Included in accrued liabilities at December 31 were the following (in millions): <TABLE> <CAPTION> 1995 1994 -------- ------- <S> <C> <C> Dealer and customer allowances and claims $ 7,824 $ 7,115 Employee benefit plans 2,225 2,130 Salaries, wages, and employer taxes 843 598 Postretirement benefits other than pensions 782 688 Other 1,718 1,412 ------- ------ Total accrued liabilities $13,392 $11,943 ======= ======= </TABLE> Noncurrent Liabilities - ---------------------- Included in other liabilities at December 31 were the following (in millions): <TABLE> <CAPTION> 1995 1994 ------- -------- <S> <C> <C> Postretirement benefits other than pensions $14,533 $14,025 Dealer and customer allowances and claims 5,514 6,044 Employee benefit plans 2,657 2,232 Unfunded pension obligation 627 362 Minority interests in net assets of subsidiaries 121 118 Other 2,225 2,139 ------- ------- Total other liabilities $25,677 $24,920 ======= ======= </TABLE> NOTE 8. Employee Retirement Benefits - ------------------------------------- Employee Retirement Plans - ------------------------- The company has two principal retirement plans in the U.S. The Ford-UAW Retirement Plan covers hourly employees represented by the UAW, and the General Retirement Plan covers substantially all other employees of the company and several finance subsidiaries in the U.S. The hourly plan provides noncontributory benefits related to employee service. The salaried plan provides similar noncontributory benefits and contributory benefits related to pay and service. Other U.S. and non-U.S. subsidiaries have separate plans that generally provide similar types of benefits covering their employees. The company and its subsidiaries also have defined benefit plans applicable to certain executives which are not funded. The company's policy for funded plans is to contribute annually, at a minimum, amounts required by applicable law, regulations and union agreements. Plan assets consist principally of investments in stocks, government and other fixed income securities and real estate. The various plans generally are funded, except in Germany, where this has not been the custom, and as noted above; in those cases, an unfunded liability is recorded. The company's pension expense, including Financial Services, was as follows (in millions): <TABLE> <CAPTION> 1995 1994 1993 ---------------------- ------------------------ ------------------------ Non- Non- Non- U.S. Plans U.S. Plans U.S. Plans U.S. Plans U.S. Plans U.S. Plans ---------- ---------- ---------- ---------- ---------- ---------- <S> <C> <C> <C> <C> <C> <C> Benefits attributed to employees' service $ 435 $ 208 $ 526 $ 236 $ 419 $ 181 Interest on projected benefit obligation 1,776 785 1,639 677 1,517 667 Return on assets: Actual (gain)/loss (5,696) (1,201) (74) 137 (2,264) (1,370) Deferred gain/(loss) 3,565 435 (1,928) (759) 389 677 ------- ------- ------- ----- ------- ------- Recognized (gain) (2,131) (766) (2,002) (622) (1,875) (693) Net amortization and other 408 234 452 151 259 169 ------- ------- ------- ----- ------- ------- Net pension expense $ 488 $ 461 $ 615 $ 442 $ 320 $ 324 ======= ======= ======= ===== ======= ======= Discount rate for expense 8.25% 8.3% 7.0% 7.2% 8.0% 8.6% Assumed long-term rate of return on assets 9.0 % 9.0% 9.0% 9.0% 9.5% 9.5% </TABLE> FS-18
NOTE 8. Employee Retirement Benefits (Cont'd) - ------------------------------------- Pension expense in 1995 decreased for U.S. plans primarily as a result of higher discount rates, and increased for non-U.S. plans primarily as a result of benefit improvements and unfavorable exchange rates. Pension expense increased in 1994 as a result of lower discount rates for both U.S. and non-U.S. plans. In addition, amendments made in September 1993 to the Ford-UAW Retirement Plan and the General Retirement Plan provided benefit improvements that increased U.S. expense in 1995 and 1994. The status of these plans at December 31 was as follows (in millions): <TABLE> <CAPTION> 1995 1994 ------------------------------ ------------------------------- Assets in Accum. Assets in Accum. Excess of Benefits Excess of Benefits Accum. in Excess Total Accum. in Excess Total Benefits of Assets Plans Benefits of Assets Plans --------- --------- -------- --------- --------- ------- <S> <C> <C> <C> <C> <C> <C> U.S. Plans - ---------- Plan assets at fair value $27,921 $ 154 $28,075 $23,264 $ 132 $23,396 Actuarial present value of: Vested benefits $20,641 $ 516 $21,157 $17,217 $ 404 $17,621 Accumulated benefits 23,980 568 24,548 20,256 453 20,709 Projected benefits 25,607 670 26,277 21,404 541 21,945 Plan assets in excess of/(less than) projected benefits $ 2,314 $ (516) $ 1,798 $ 1,860 $ (409) $ 1,451 Unamortized (net asset)/net transition obligation a/ (142) 10 (132) (164) 12 (152) Unamortized prior service cost b/ 1,808 60 1,868 2,134 86 2,220 Unamortized net (gains)/losses c/ (758) 144 (614) (717) 56 (661) ------- ------- ------- ------- ------- ------- Prepaid pension asset/(liability) 3,222 (302) 2,920 3,113 (255) 2,858 Adjustment required to recognize minimum liability d/ - (114) (114) - (77) (77) ------- ------- ------- ------- ------- ------- Prepaid pension asset/(liability) recognized in the balance sheet $ 3,222 $ (416) $ 2,806 $ 3,113 $ (332) $ 2,781 ======= ======= ======= ======= ======= ======= Plan assets in excess of/(less than) accumulated benefits $ 3,941 $ (414) $ 3,527 $ 3,008 $ (321) $ 2,687 Assumptions: Discount rate at year-end 7.0% 8.25% Average rate of increase in compensation 5.5% 5.5 % Non-U.S. Plans - -------------- Plan assets at fair value $ 8,447 $ 938 $ 9,385 $ 7,018 $ 950 $ 7,968 Actuarial present value of: Vested benefits $ 6,468 $ 3,478 $ 9,946 $ 5,318 $ 2,895 $ 8,213 Accumulated benefits 6,556 3,506 10,062 5,419 3,053 8,472 Projected benefits 7,751 3,654 11,405 6,321 3,240 9,561 Plan assets in excess of/(less than) projected benefits $ 696 $(2,716) $(2,020) $ 697 $(2,290) $(1,593) Unamortized net transition obligation a/ 63 230 293 32 241 273 Unamortized prior service cost b/ 330 170 500 227 248 475 Unamortized net (gains)/losses c/ (184) 255 71 (81) (25) (106) ------- ------- ------- ------- ------- ------- Prepaid pension asset/(liability) 905 (2,061) (1,156) 875 (1,826) (951) Adjustment required to recognize minimum liability d/ - (517) (517) - (284) (284) ------- ------- ------- ------- ------- ------- Prepaid pension asset/(liability) recognized in the balance sheet $ 905 $(2,578) $(1,673) $ 875 $(2,110) $(1,235) ======= ======= ======= ======= ======= ======= Plan assets in excess of/(less than) accumulated benefits $ 1,891 $(2,568) $ (677) $ 1,599 $(2,103) $ (504) Assumptions: Discount rate at year-end 7.6% 8.3% Average rate of increase in compensation 5.1% 5.2% - - - - - - </TABLE> a/ The balance of the initial difference between assets and obligation deferred for recognition over a 15-year period. b/ The prior service effect of plan amendments deferred for recognition over remaining service. c/ The deferred gain or loss resulting from investments, other experience and changes in assumptions. d/ An adjustment to reflect the unfunded accumulated benefit obligation in the balance sheet for plans whose benefits exceed the assets -- at year-end 1995, the unfunded liability in excess of $448 million is recorded net of deferred taxes as a $108 million reduction in stockholders' equity, and at year-end 1994, the unfunded liability was offset by an intangible asset. FS-19
NOTE 8. Employee Retirement Benefits (Cont'd) - ------------------------------------- Postretirement Health Care and Life Insurance Benefits - ------------------------------------------------------ The company and certain of its subsidiaries sponsor unfunded plans to provide selected health care and life insurance benefits for retired employees. The company's U.S. and Canadian employees may become eligible for these benefits if they retire while working for the company; however, benefits and eligibility rules may be modified from time to time. The estimated cost for postretirement health care benefits is accrued over periods of employee service on an actuarially determined basis. Net postretirement benefit expense, including Financial Services, was as follows (in millions): <TABLE> <CAPTION> 1995 1994 1993 ------- ------- ------- <S> <C> <C> <C> Benefits attributed to employees' service $ 223 $ 263 $ 240 Interest on accumulated benefit obligation 1,160 1,088 1,207 Net amortization (68) (32) - ------ ------ ------ Net postretirement benefit expense $1,315 $1,319 $1,447 ====== ====== ====== Retiree benefit payments $ 698 $ 639 $ 654 </TABLE> The status of these plans at December 31 was as follows (in millions): <TABLE> <CAPTION> 1995 1994 ------- ------- <S> <C> <C> Accumulated postretirement benefit obligation: Retirees $ 8,413 $ 6,720 Active employees eligible to retire 3,014 2,282 Other active employees 5,717 4,266 ------- ------- Total accumulated obligation 17,144 13,268 Unamortized prior service cost a/ 270 321 Unamortized net (losses)/gains b/ (1,756) 1,440 ------- ------- Accrued liability $15,658 $15,029 ======= ======= Assumptions: Discount rate 7.25% 8.75% Present health care cost trend rate 9.5 % 5.9 % Ultimate trend rate in ten years 5.5 % 5.5 % Weighted-average trend rate 6.6 % 6.6 % </TABLE> - - - - - - a/ The prior service effect of plan amendments deferred for recognition over remaining service to retirement eligibility. b/ The deferred gain or loss resulting from experience and changes in assumptions deferred for recognition over remaining service to retirement. Changing the assumed health care cost trend rates by one percentage point is estimated to change the aggregate service and interest cost components of net postretirement benefit expense for 1995 by about $245 million and the accumulated postretirement benefit obligation at December 31, 1995 by about $2 billion. Health care trend rates, together with other assumptions, are subject to review annually in the first quarter. Based on estimates of recent experience and the general health care cost trend outlook, it is expected that these rates will be lowered. FS-20
NOTE 9. Debt - ------------- The fair value of debt was estimated based on quoted market prices or current rates for similar debt with the same remaining maturities. Automotive - ---------- Debt at December 31 was as follows (in millions): <TABLE> <CAPTION> Weighted Average Interest Rate* Book Value ------------------- ------------------- Maturity 1995 1994 1995 1994 --------- -------- -------- -------- --------- <S> <C> <C> <C> <C> <C> Debt payable within one year ---------------------------- Short-term debt 6.6% 10.0% $ 872 $ 112 Long-term debt payable within one year 960 43 ------ ------ Total debt payable within one year 1,832 155 Long-term debt 1997-2043 9.2% 9.0% 5,475 7,103 ------ ------ Total debt $7,307 $7,258 ====== ====== Fair value $8,160 $7,492 - - - - - - </TABLE> *Excludes the effect of interest rate swap agreements Long-term debt at December 31, 1995 included maturities as follows (in millions): 1996 - $960 (included in current liabilities); 1997 - $580; 1998 - $351; 1999 - $53; 2000 - $1,003; thereafter - $3,488. Included in long-term debt at December 31, 1995 and 1994 were obligations of $5,031 million and $6,567 million, respectively, with fixed interest rates and $444 million and $536 million, respectively, with variable interest rates (generally based on LIBOR or other short-term rates). Obligations payable in foreign currencies at December 31, 1995 and 1994 were $968 million and $994 million, respectively. Agreements to manage exposures to fluctuations in interest rates, which include primarily interest rate swap agreements and futures contracts, did not materially change the overall weighted-average rate on long-term debt and effectively decreased the obligations subject to variable interest rates to $287 million at December 31, 1995 and $465 million at December 31, 1994. Financial Services - ------------------ <TABLE> <CAPTION> Debt at December 31 was as follows (in millions): Weighted Average Interest Rate* Book Value ------------------- ------------------- Maturity 1995 1994 1995 1994 --------- -------- -------- -------- --------- <S> <C> <C> <C> <C> <C> Debt payable within one year ---------------------------- Unsecured short-term debt $ 3,032 $ 2,990 Commercial paper 56,002 51,008 Other short-term debt 1,927 2,301 --------- -------- Total short-term debt 5.7% 5.9% 60,961 56,299 Long-term debt payable within one year 12,097 9,310 --------- -------- Total debt payable within one year 73,058 65,609 Long-term debt -------------- Secured indebtedness 1997-2005 7.7% 6.7% 89 98 Unsecured senior indebtedness Notes and bank debt 1997-2048 6.9% 7.1% 64,810 54,248 Debentures 1997-2010 7.4% 7.8% 591 560 Unamortized (discount) (5) (61) -------- -------- Total unsecured senior indebtedness 65,396 54,747 Unsecured subordinated indebtedness Notes 1997-2021 8.8% 9.2% 2,665 3,159 Debentures 1997-2009 8.1% 8.1% 141 141 Unamortized (discount) (32) (41) -------- -------- Total unsecured subordinated indebtedness 2,774 3,259 -------- -------- Total long-term debt 68,259 58,104 -------- -------- Total debt $141,317 $123,713 ======== ======== Fair value $144,730 $122,252 - - - - - - </TABLE> *Excludes the effect of interest rate swap agreements FS-21
NOTE 9. Debt (Cont'd) - ------------- Financial Services (Cont'd) - ------------------ Information concerning short-term borrowings (excluding long-term debt payable within one year) is as follows (in millions): <TABLE> <CAPTION> 1995 1994 1993 -------- -------- --------- <S> <C> <C> <C> Average amount of short-term borrowings $60,203 $50,106 $38,353 Weighted-average short-term interest rates per annum (average year) 6.0% 4.6% 3.8% Average remaining term of commercial paper at December 31 34 days 27 days 29 days </TABLE> Long-term debt at December 31, 1995 included maturities as follows (in millions): 1996 - $12,097; 1997 - $14,326; 1998 - $13,696; 1999 - $11,485; 2000 - $12,306; thereafter - $16,446. Included in long-term debt at December 31, 1995 and 1994 were obligations of $53.2 billion and $45.9 billion, respectively, with fixed interest rates and $15.1 billion and $12.2 billion, respectively, with variable interest rates (generally based on LIBOR or other short-term rates). Obligations payable in foreign currencies at December 31, 1995 and 1994 were $21 billion and $12.2 billion, respectively. These obligations were issued primarily to fund foreign business operations. Agreements to manage exposures to fluctuations in interest rates include primarily interest rate swap agreements. At December 31, 1995, these agreements did not change the overall weighted-average rate on long-term debt of 7% excluding these agreements, and effectively decreased the obligations subject to variable interest rates to $11.9 billion. At December 31, 1995, the weighted- average interest rate on short-term debt increased to 5.8%, compared with 5.7% excluding these agreements. At December 31, 1994, these agreements decreased the overall weighted-average rate on long-term debt to 7.1%, compared with 7.2% excluding these agreements, and effectively decreased the obligations subject to variable rates to $7.2 billion. At December 31, 1994, the weighted-average interest rate on short- term debt decreased to 5.6%, compared with 5.9% excluding these agreements. Support Facilities - ------------------ At December 31, 1995, Ford had long-term contractually committed global credit agreements under which $8.4 billion is available from various banks at least through June 30, 2000. The entire $8.4 billion may be used, at Ford's option, by any affiliate of Ford; however, any borrowing by an affiliate will be guaranteed by Ford. In addition, Ford has the ability to transfer on a nonguaranteed basis the entire $8.4 billion in varying portions to Ford Credit and Ford Credit Europe. These facilities were unused at December 31, 1995. At December 31, 1995, Financial Services had a total of $48.5 billion of contractually committed support facilities. Of these facilities, $23.8 billion (excluding the $8.4 billion of Ford credit facilities) are contractually committed global credit agreements under which $19.8 billion and $4 billion are available to Ford Credit and Ford Credit Europe, respectively, from various banks; 62% and 75%, respectively, of such facilities are available through June 30, 2000. The entire $19.8 billion may be used, at Ford Credit's option, by any subsidiary of Ford Credit, and the entire $4 billion may be used, at Ford Credit Europe's option, by any subsidiary of Ford Credit Europe. Any borrowings by such subsidiaries will be guaranteed by Ford Credit or Ford Credit Europe, as the case may be. At December 31, 1995, none of the Ford Credit global facilities were in use; $742 million of the Ford Credit Europe global facilities were in use. Other than the global credit agreements, the remaining portion of the Financial Services support facilities at December 31, 1995 consisted of $22 billion of contractually committed support facilities available to various affiliates in the U.S. and $2.7 billion of contractually committed support facilities available to various affiliates outside the U.S.; at December 31, 1995, about $1 billion of these facilities were in use. FS-22
NOTE 10. Capital Stock - ------------------------ At December 31, 1995, all general voting power was vested in the holders of Common Stock and the holders of Class B Stock, voting together without regard to class. At that date, the holders of Common Stock were entitled to one vote per share and, in the aggregate, had 60% of the general voting power; the holders of Class B Stock were entitled to such number of votes per share as would give them, in the aggregate, the remaining 40% of the general voting power, as provided in the company's Certificate of Incorporation. The Certificate provides that all shares of Common Stock and Class B Stock share equally in dividends (other than dividends declared with respect to any outstanding Preferred Stock), except that any stock dividends are payable in shares of Common Stock to holders of that class and in Class B Stock to holders of that class. Upon liquidation, all shares of Common Stock and Class B Stock are entitled to share equally in the assets of the company available for distribution to the holders of such shares. On April 14, 1994, the company's Board of Directors declared a 2- for-1 stock split in the form of a 100% stock dividend on the company's Common Stock and Class B Stock effective June 6, 1994. Share data were restated to reflect the split, where appropriate. Information concerning the Preferred Stock of the company is as follows: <TABLE> <CAPTION> Series A Series B Cumulative Convertible Preferred Stock Cumulative Preferred Stock -------------------------------------- --------------------------------------- <S> <C> <C> Liquidation preference $50 per Depositary Share $25 per Depositary Share and shares outstanding $534 million and 10,681 shares $508 million and 10,163 shares at December 31, 1995 outstanding (10,680,665 Depositary outstanding (20,326,463 Depositary Shares) Shares) Dividends $4.20 per year per Depositary Share $2.0625 per year per Depositary Share Conversion Shares can be converted at any time None into shares of Common Stock of the company at a rate equivalent to 3.2654 shares of Common Stock for each Depositary Share (equivalent to a conversion price of $15.3121 per share of Common Stock) Redemption Not redeemable prior to Not redeemable prior to December 7, 1997 December 1, 2002 On and after December 7, 1997, the On and after December 1, 2002, and stock is redeemable for cash at the upon satisfaction of certain company's option, in whole or in conditions, the stock is redeemable part, initially at an amount equi- for cash at the option of Ford, in valent to $51.68 per Depositary whole or in part, at a redemption Share and thereafter at prices price equivalent to $25 per Depositary declining to $50 per Depositary Share, plus an amount equal to the sum Share on and after December 1, 2001, of all accrued and unpaid dividends plus, in each case, an amount equal to the sum of all accrued and unpaid 25,273,537 Depositary Shares were dividends exchanged during 1995 (see Note 1, "Company-Obligated Mandatorily Redeemable Preferred Securities of a Subsidiary Trust") </TABLE> The Series A and Series B Preferred Stock rank (and any other outstanding Preferred Stock of the company would rank) senior to the Common Stock and Class B Stock in respect of dividends and liquidation rights. FS-23
NOTE 11. Stock Options - ----------------------- The company has stock options outstanding under the 1985 Stock Option Plan and the 1990 Long-Term Incentive Plan. These plans were approved by the stockholders. Information concerning stock options is as follows (shares in millions): <TABLE> <CAPTION> 1995 1994 1993 ------ ------ ------- <S> <C> <C> <C> Option price of new grants a/ $32.00, $29.06 $28.84 $29.50, and $28.06 $28.63 and $28.56 Shares subject to option ------------------------ Outstanding at beginning of period 43.3 37.4 41.1 New grants 9.7 9.5 7.1 Exercised b/ (3.4) (2.6) (6.7) Surrendered upon exercise of stock appreciation rights (0.9) (0.9) (3.9) Terminated and expired (0.2) (0.1) (0.2) ----- ----- ----- Outstanding at end of period 48.5 c/ 43.3 37.4 Outstanding but not exercisable (22.6) (21.3) (19.3) ----- ----- ----- Exercisable at end of period 25.9 22.0 18.1 ===== ===== ===== Shares authorized for future grants (as of December 31) d/ 0 0 0 </TABLE> - - - - - - a/ Fair market value of Common Stock at dates of grant. b/ At option prices ranging from $9.09 to $29.06 during 1995, $9.09 to $28.84 during 1994, and $9.09 to $25.84 during 1993. c/ Including 7.6 million and 40.9 million shares under the 1985 and 1990 Plans, respectively, at option prices ranging from $13.42 to $32.00 per share. d/ In addition, up to 1% of the issued Common Stock as of December 31 of any year may be made available for stock options and other plan awards in the next succeeding calendar year. That limit may be increased up to 2% in any year, with a corresponding reduction in shares available for grants in future years. At December 31, 1995, this reduction aggregated 2.4 million shares. No further grants may be made under the 1985 Plan. Grants may be made under the 1990 Plan through April 2000. In general, options granted under the 1985 Plan and options granted to date under the 1990 Plan become exercisable 25% after one year from the date of grant, 50% after two years, 75% after three years and in full after four years. Options under both Plans expire after 10 years. Certain options outstanding under the Plans were granted with an equal number of accompanying stock appreciation rights that may be exercised in lieu of the options. Under the Plans, a stock appreciation right entitles the holder to receive, without payment, the excess of the fair market value of the Common Stock on the date of exercise over the option price, either in Common Stock or cash or a combination. In addition, grants of Contingent Stock Rights were made with respect to 884,500 shares in 1995, 709,800 shares in 1994, and 2,327,200 shares in 1993 under the 1990 Long-Term Incentive Plan (not included in the table above). The number of shares ultimately awarded will depend on the extent to which the Performance Target specified in each Right is achieved, the individual performance of the recipients and other factors, as determined by the Compensation and Option Committee of the Board of Directors. Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation", was issued in October 1995. SFAS 123 permits entities to record expense for employee stock compensation plans based on fair value at date of grant. The company, however, plans to continue to measure compensation cost using the intrinsic value method, in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees." FS-24
NOTE 12. Litigation and Claims - ------------------------------- Various legal actions, governmental investigations and proceedings and claims are pending or may be instituted or asserted in the future against the company and its subsidiaries, including those arising out of alleged defects in the company's products; governmental regulations relating to safety, emissions and fuel economy; financial services; employment related matters; intellectual property rights; product warranties; and environmental matters. Certain of the pending legal actions are, or purport to be, class actions. Some of the foregoing matters involve or may involve compensatory, punitive, or antitrust or other treble damage claims in very large amounts, or demands for recall campaigns, environmental remediation programs, sanctions, or other relief which, if granted, would require very large expenditures. Litigation is subject to many uncertainties, and the outcome of individual litigated matters is not predictable with assurance. Reserves have been established by the company for certain of the matters discussed in the foregoing paragraph where losses are deemed probable. It is reasonably possible, however, that some of the matters discussed in the foregoing paragraph for which reserves have not been established could be decided unfavorably to the company or the subsidiary involved and could require the company or such subsidiary to pay damages or make other expenditures in amounts or a range of amounts that cannot reasonably be at December 31, 1995. The company does not reasonably expect, based on its analysis, that any adverse outcome from such matters would have a material effect on future consolidated financial statements for a particular year, although such an outcome is possible. NOTE 13. Commitments and Contingencies - --------------------------------------- At December 31, 1995, the company had the following minimum rental commitments under non-cancelable operating leases (in millions): 1996 - $740; 1997 - $689; 1998 - $363; 1999 - $310; 2000 - $251; thereafter - $456. These amounts include rental commitments related to the sales and leasebacks of certain Automotive machinery and equipment. The company and certain of its subsidiaries have entered into agreements with various banks to provide credit card programs that offer rebates that can be applied against the purchase or lease of Ford cars or trucks. The maximum amount of rebates available to qualified cardholders at December 31, 1995 and 1994 was $3.1 billion and $2.3 billion, respectively. The company has provided for the estimated net cost of these programs as a sales incentive based on the estimated number of participants who ultimately will purchase vehicles. Certain Financial Services subsidiaries make credit lines available to holders of their credit cards. At December 31, 1995 and 1994, the unused portion of available credit was approximately $19.3 billion and $10.3 billion, respectively, and is revocable under specified conditions. The fair value of unused credit lines and the potential risk of loss were not considered to be material. FS-25
NOTE 14. Financial Instruments - ------------------------------- Estimated fair value amounts have been determined using available market information and various valuation methods depending on the type of instrument. In evaluating the fair value information, considerable judgment is required to interpret the market data used to develop the estimates. The use of different market assumptions and/or different valuation techniques may have a material effect on the estimated fair value amounts. Accordingly, the estimates of fair value presented herein may not be indicative of the amounts that could be realized in a current market exchange. Balance Sheet Financial Instruments - ----------------------------------- Information about specific valuation techniques and related estimated fair value detail is provided throughout the footnotes. The table below provides book value and estimated fair value amounts (in millions) and a cross reference to the applicable Note. <TABLE> <CAPTION> December 31, 1995 December 31, 1994 ----------------------- ---------------------- Book Fair Book Fair Fair Value Value Value Value Value Reference --------- -------- --------- -------- ---------- <S> <C> <C> <C> <C> <C> Automotive ---------- Marketable securities $ 6,656 $ 6,656 $ 7,602 $ 7,602 Note 2 Debt 7,307 8,160 7,258 7,492 Note 9 Financial Services ------------------ Marketable securities $ 4,229 $ 4,296 $ 5,781 $ 5,746 Note 2 Receivables 110,745 112,798 98,341 99,518 Note 3 Debt 141,317 144,730 123,713 122,252 Note 9 </TABLE> Foreign Currency Instruments - ---------------------------- The fair value of foreign currency instruments generally was estimated using current market prices provided by outside quotation services. At December 31, 1995 and 1994, the fair value of net receivable contracts was $373 million and $298 million, respectively, and the fair value of net payable contracts was $316 million and $108 million, respectively. At December 31, 1995 and 1994, foreign currency instruments had a net deferred loss of $111 million and a net deferred gain of $59 million, respectively. In the unlikely event that a counterparty fails to meet the terms of a foreign currency agreement, the company's market risk is limited to the exchange rate differential. In the case of currency swaps, the company's market risk also may include an interest rate differential. At December 31, 1995 and 1994, the total amount of the company's foreign currency forward contracts (contracts purchased and sold) and currency swaps and options outstanding was $24.5 billion and $12.6 billion, respectively, maturing primarily through 1996. Interest Rate Instruments - ------------------------- The fair value of interest rate instruments is the estimated amount the company would receive or pay to terminate the agreement. Fair value is calculated using information provided by outside quotation services, taking into account current interest rates and the current credit-worthiness of the swap parties. At December 31, 1995 and 1994, the fair value of net receivable contracts was $739 million and $452 million, respectively, and the fair value of net payable contracts was $430 million and $596 million, respectively. In the unlikely event that a counterparty fails to meet the terms of an interest rate agreement, the company's exposure is limited to the interest rate differential. At December 31, 1995 and 1994, the underlying principal amounts on which the company has interest rate swap agreements outstanding aggregated $66.3 billion and $52.7 billion, respectively, maturing primarily through 2001. Other Financial Agreements - -------------------------- At December 31, 1995, the company had guaranteed $1.2 billion of debt of unconsolidated subsidiaries, affiliates and others. The potential risk of loss under other financial agreements was not material. FS-26
NOTE 15. Acquisitions and Dispositions - --------------------------------------- Dissolution of Autolatina Joint Venture - --------------------------------------- During 1995, the company's joint venture with Volkswagen AG in Brazil and Argentina was dissolved. The dissolution resulted in a gain of $230 million, primarily from a one-time cash compensation payment to Ford. Prior to dissolution, the company held a 49% interest in Autolatina and accounted for it on an equity basis. The company's income statement for 1995 included Ford's equity share in the net loss of the Autolatina joint venture through the dissolution date together with the gain on dissolution. The assets and liabilities of the new entities in Brazil and Argentina were consolidated in the company's balance sheet at December 31, 1995. Historically, earnings in Brazil and Argentina have represented a significant portion of Ford's Automotive earnings outside the U.S. and Europe. The long-term effect, if any, of the dissolution of Autolatina on the company's future results will depend on Ford's ability to compete on its own in these markets. Sale of Annuity Business - ------------------------ During 1995, the company agreed to sell its annuity business to SunAmerica, Inc. for $173 million. The sale is expected to be completed in early 1996. The company recognized a one-time charge related to the sale that was not material. The company's income statement included the results of operations of the annuity business through December 31, 1995. Net assets of the annuity business at December 31, 1995 were included in the balance sheet under Financial Services - Other Assets; at December 31, 1994, the assets and liabilities were consolidated as part of the Financial Services segment. Sale of First Nationwide Bank - ----------------------------- On September 30, 1994, substantially all of the assets of First Nationwide Bank, since known as Granite Savings Bank (the "Bank"), were sold to, and substantially all of the Bank's liabilities were assumed by, First Madison Bank. The Bank is a wholly owned subsidiary of Granite Management Corporation (formerly First Nationwide Financial Corporation) ("Granite"), which in turn is a wholly owned subsidiary of Ford. The company recognized in First Quarter 1994 earnings a pre-tax charge of $475 million ($440 million after taxes) related to the disposition of the Bank, reflecting the non-recovery of goodwill and reserves for estimated losses on assets not included in the sale. The company's income statement included the results of operations of Granite through March 31, 1994. The remaining net assets of Granite at December 31, 1995 and 1994 were included in the balance sheet under Financial Services - Other Assets. Acquisition of The Hertz Corporation - ------------------------------------ In April 1994, The Hertz Corporation ("Hertz") became a wholly owned subsidiary of Ford. In 1993 and First Quarter 1994, Hertz was accounted for on an equity basis as part of the Automotive segment. In the balance of 1994 and in 1995, the operating results, assets, liabilities and cash flows of Hertz were consolidated as part of the Financial Services segment. FS-27
NOTE 16. Cash Flows - -------------------- The reconciliation of net income to cash flows from operating activities is as follows (in millions): <TABLE> <CAPTION> 1995 1994 1993 -------------------- --------------------- --------------------- Financial Financial Financial Automotive Services Automotive Services Automotive Services --------- --------- ---------- --------- ---------- --------- <S> <C> <C> <C> <C> <C> <C> Net income $2,056 $ 2,083 $3,913 $1,395 $1,008 $1,521 Adjustments to reconcile net income to cash flows from operating activities: Depreciation and amortization 5,219 6,500 4,426 4,910 4,404 3,064 Losses/(Earnings) of affiliated companies in excess of dividends remitted 191 7 (171) (2) (21) (9) Provision for credit and insurance losses - 1,818 - 1,539 - 1,523 Foreign currency adjustments (64) - (384) - (650) - Net sales/(purchases) of trading securities 672 239 (3,616) (41) - - Provision/(Credit) for deferred income taxes 88 725 424 410 (796) 595 Changes in assets and liabilities: Decrease/(Increase) in accounts receivable and other current assets 129 - (1,096) - 34 - (Increase) in inventory (46) - (894) - (275) - Increase in accounts payable and accrued and other liabilities 730 1,461 4,949 1,077 3,735 594 Other (126) (511) (9) (201) (577) (143) ------ ------- ------ ------ ------ ------ Cash flows from operating activities $8,849 $12,322 $7,542 $9,087 $6,862 $7,145 ====== ======= ====== ====== ====== ====== The company considers all highly liquid investments purchased with a maturity of three months or less, including short-term time deposits and government, agency and corporate obligations, to be cash equivalents. Automotive cash equivalents at December 31, 1995 and 1994 were $4.7 billion and $3.4 billion, respectively; Financial Services cash equivalents at December 31, 1995 and 1994 were $1.8 billion and $1.4 billion, respectively. Cash flows resulting from futures contracts, forward contracts and options that are accounted for as hedges of identifiable transactions are classified in the same category as the item being hedged. With the adoption of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," as of January 1, 1994, purchases, sales and maturities of trading securities are included in cash flows from operating activities. Purchases, sales and maturities of available-for-sale and held-to-maturity securities are included in cash flows from investing activities. Cash paid for interest and income taxes was as follows (in millions): 1995 1994 1993 ------ ------ ------- Interest $9,586 $7,718 $6,969 Income taxes 1,425 2,042 1,522 FS-28
NOTE 17. Segment Information - ----------------------------- Financial information segregated by major geographic area is as follows (in millions): </TABLE> <TABLE> <CAPTION> Automotive - ---------- 1995 1994 1993 --------- --------- --------- <S> <C> <C> <C> Sales to unaffiliated customers United States $ 73,870 $ 73,759 $ 62,108 Europe 26,132 22,623 19,468 All other 10,494 10,755 9,992 -------- -------- -------- Total $110,496 $107,137 $ 91,568 ======== ======== ======== Intercompany sales among geographic areas* United States $ 10,438 $ 11,206 $ 9,320 Europe 2,765 2,303 2,269 All other 12,060 11,217 8,613 -------- -------- -------- Total $ 25,263 $ 24,726 $ 20,202 ======== ======== ======== Total sales United States $ 84,308 $ 84,965 $ 71,428 Europe 28,897 24,926 21,737 All other 22,554 21,972 18,605 Elimination of intercompany sales (25,263) (24,726) (20,202) -------- -------- -------- Total $110,496 $107,137 $ 91,568 ======== ======== ======== Operating income/(loss) United States $ 2,409 $ 4,131 $ 1,677 Europe 20 611 (531) All other 852 1,084 286 -------- ------- -------- Total $ 3,281 $ 5,826 $ 1,432 ======== ======== ======== Net income/(loss) United States $ 1,843 $ 3,002 $ 1,442 Europe 116 128 (873) All other 97 783 439 -------- -------- -------- Total $ 2,056 $ 3,913 $ 1,008 ======== ======== ======== Assets at December 31 United States $ 45,841 $ 45,889 $ 39,959 Europe 17,010 16,880 16,210 All other 18,842 16,798 15,197 Net receivable from Financial Services 200 677 910 Elimination of intercompany receivables (9,121) (11,605) (10,539) -------- -------- -------- Total $ 72,772 $ 68,639 $ 61,737 ======== ======== ======== Capital expenditures (facilities, machinery and equipment and tooling) United States $ 5,296 $ 5,429 $ 4,289 Europe 1,892 1,393 1,490 All other 1,488 1,488 935 -------- -------- -------- Total $ 8,676 $ 8,310 $ 6,714 ======== ======== ======== </TABLE> - - - - - - * Intercompany sales among geographic areas consist primarily of vehicles, parts and components manufactured by the company and various subsidiaries and sold to different entities within the consolidated group; transfer prices for these transactions are established by agreement between the affected entities <TABLE> <CAPTION> Financial Services - ------------------ 1995 1994 1993 -------- -------- --------- <S> <C> <C> <C> Revenues United States $ 21,383 $ 17,356 $ 14,102 Europe 3,144 2,336 1,673 All other 2,114 1,610 1,178 -------- -------- -------- Total $ 26,641 $ 21,302 $ 16,953 ======== ======== ======== Income before income taxes** United States $ 2,822 $ 2,185 $ 2,311 Europe 493 419 285 All other 224 188 116 -------- -------- -------- Total $ 3,539 $ 2,792 $ 2,712 ======== ======== ======== </TABLE> - - - - - - ** Financial Services activities do not report operating income; income before income taxes is representative of operating income FS-29
NOTE 17. Segment Information (Cont'd) - ----------------------------- Financial Services (Cont'd) - ------------------ <TABLE> <CAPTION> 1995 1994 1993 -------- -------- --------- <S> <C> <C> <C> Net income United States $ 1,718 $ 1,119 $ 1,340 Europe 321 218 140 All other 44 58 41 -------- -------- -------- Total $ 2,083 $ 1,395 $ 1,521 ======== ======== ======== Assets at December 31 United States $137,154 $124,120 $117,290 Europe 20,237 16,507 12,132 All other 13,120 10,356 7,779 -------- -------- -------- Total $170,511 $150,983 $137,201 ======== ======== ======== </TABLE> NOTE 18. Summary Quarterly Financial Data (Unaudited) - ------------------------------------------------------ (in millions, except amounts per share) <TABLE> <CAPTION> 1995 1994 ------------------------------------ ------------------------------------ First Second Third Fourth First Second Third Fourth Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter ------- ------- ------- ------- ------- ------- ------- -------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Automotive Sales $28,601 $29,861 $24,437 $27,597 $26,070 $28,375 $24,926 $27,766 Operating income/(loss) 1,782 1,774 (204) (71) 1,559 1,966 989 1,312 Financial Services Revenues 6,182 6,528 6,981 6,950 4,332 5,397 5,696 5,877 Income before income taxes 759 885 978 917 196 911 896 789 Total Company Net income $ 1,550 $ 1,572 $ 357 $ 660 $ 904a/ $ 1,711 $ 1,124 $ 1,569 Less: Preferred stock dividend requirements 72 69 55 38 72 72 72 71 Fair value adjustment from exchange of Series B Preferred Stock - - - 66 - - - - ------ ------- ------- ------- ------- ------- ------- ------- Income attributable to Common and Class B Stock $ 1,478 $ 1,503 $ 302 $ 556 $ 832 $ 1,639 $ 1,052 $ 1,498 ======= ======= ======= ======= ======= ======= ======= ======= AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK AFTER PREFERRED STOCK DIVIDENDS b/ Income $ 1.44 $ 1.45 $ 0.28 $ 0.49 $ 0.83 $ 1.63 $ 1.04 $ 1.47 Income assuming full dilution $ 1.28 $ 1.30 $ 0.27 $ 0.48 $ 0.75 $ 1.44 $ 0.93 $ 1.31 Cash dividends $ 0.26 $ 0.31 $ 0.31 $ 0.35 $ 0.20 $ 0.225 $ 0.225 $ 0.26 </TABLE> - - - - - - a/ Includes a loss of $440 million related to the disposition of Granite Savings Bank (formerly First Nationwide Bank). b/ The sum of the per share amounts in 1995 and 1994 is different than the amounts reported for the full year because of the effect that issuances of the company's stock had on average shares for those periods. FS-30 Coopers & Lybrand L.L.P. REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders Ford Motor Company We have audited the consolidated financial statements and the supplemental schedule of condensed financial information of selected subsidiaries of Ford Motor Company and Subsidiaries listed in Items 14(a)1 and 14(a)2 of this Form 10-K. These financial statements and the supplemental schedule are the responsibility of the Company's managment. Our responsibility is to express an opinion on these financial statements and supplemental schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures inthe financial statemetnts. An audit also includes assessing the accounting pirnciples used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Ford Motor Company and Subsidiaries at December 31, 1995 and 1994 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. In addition, in our opinion, the supplemental schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information presented therein. /s/Coopers & Lybrand L.L.P. COOPERS & LYBRAND L.L.P. 400 Renaissance Center Detroit, Michigan 48243 313-446-7100 January 26, 1996 FS-31
Supplemental Schedule <TABLE> <CAPTION> Ford Motor Company CONDENSED FINANCIAL INFORMATION OF SUBSIDIARY --------------------------------------------- (in millions) FORD CAPITAL B.V. - ----------------- December 31, December 31, 1995 1994 ------------ ------------- <S> <C> <C> Current assets $1,251 $1,048 Noncurrent assets 4,662 4,845 ------ ------ Total assets $5,913 $5,893 ====== ====== Current liabilities $ 626 $ 486 Noncurrent liabilities 4,661 4,909 Minority interests in net assets of subsidiaries 22 12 Stockholder's equity 604 486 ------ ------ Total liabilities and stockholder's equity $5,913 $5,893 ====== ====== </TABLE> <TABLE> <CAPTION> 1995 1994 1993 ---------- ---------- ---------- <S> <C> <C> <C> Sales and other revenue $2,623 $2,355 $1,935 Operating income 224 164 2 Income before income taxes 166 123 18 Net income 116 97 14 </TABLE> Ford Capital B.V., a wholly-owned subsidiary of Ford Motor Company, was established primarily for the purpose of raising funds through the issuance of commercial paper and debt securities. Ford Capital B.V. also holds shares of the capital stock of Ford Nederland B.V., Ford Motor Company (Belgium) B.V., and Ford Motor Company A/S (Denmark). Substantially all of the assets of Ford Capital B.V., other than its ownership interests in subsidiaries, represent receivables from Ford Motor Company or its consolidated subsidiaries. FSS-1 EXHIBIT INDEX <TABLE> <CAPTION> Designation Description Method of Filing - ----------- ----------- ---------------- <S> <C> <C> Exhibit 3-A Restated Certificate of Incorporation, Filed as Exhibit 4.1 to the Registrant's of the Registrant dated June 6, 1994. Registration Statement No. 33-55171.* Exhibit 3-B By-Laws of the Registrant as Filed with this Report. amended through January 1, 1996. Exhibit 4-A Form of Deposit Agreement dated as of Filed as Exhibit 4-E to the Registrant's November 20, 1991 among Ford Motor Registration Statement No. 33-43085.* Company, Manufacturers Hanover Trust Company, as Depositary, and the holders from time to time of Depositary Shares, each representing 1/1,000 of a share of the Registrant's Series A Cumulative Convertible Preferred Stock. Exhibit 4-B Form of Deposit Agreement dated as of Filed as Exhibit 4-E to the Registrant's October 29, 1992 among Ford Motor Registration Statement No. 33-53092.* Company, Chemical Bank, as Depositary, and the holders from time to time of Depositary Shares, each representing 1/2,000 of a share of the Registrant's Series B Cumulative Preferred Stock. Exhibit 10-A Amended and Restated Agreement dated Filed as Exhibit 10-A to the Registrant's as of July 1, 1993 between the Annual Report on Form 10-K for the Registrant and Ford Credit. year ended December 31, 1993.* Exhibit 10-B 1985 Stock Option Plan of the Registrant.** Filed as Exhibit 10-D to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1985.* Exhibit 10-B-1 Amendment dated as of March 8, 1990 Filed as Exhibit 10-C-1 to the to 1985 Stock Option Plan.** Registrant's Annual Report on Form 10-K for the year ended December 31, 1989.* Exhibit 10-C Ford Motor Company Supplemental Filed as Exhibit 10-H to the Registrant's Compensation Plan as amended through Annual Report on Form 10-K for the May 8, 1986.** year ended December 31, 1986.* Exhibit 10-C-1 Amendment to Ford Motor Company Filed as Exhibit 10-F-1 to the Supplemental Compensation Plan, dated Registrant's Annual Report on Form May 12, 1988.** 10-K for the year ended December 31, 1988.* Exhibit 10-C-2 Amendment to Ford Motor Company Filed as Exhibit 10-D-2 to the Supplemental Compensation Plan, dated Registrant's Annual Report on Form July 8, 1992.** 10-K for the year ended December 31, 1992.* </TABLE>
<TABLE> <CAPTION> Designation Description Method of Fililng - ----------- ----------- ----------------- <S> <C> <C> Exhibit 10-C-3 Amendment to Ford Motor Company Filed as Exhibit 10.1 to the Registrant's Supplemental Compensation Plan, Quarterly Report on Form 10-Q for the effective as of March 8, 1995.** quarter ended March 31, 1995.* Exhibit 10-C-4 Amendment to Ford Motor Company Filed as Exhibit 10.1 to the Registrant's Supplemental Compensation Plan, Quarterly Report on Form 10-Q for the effective as of July 13, 1995.** quarter ended June 30, 1995.* Exhibit 10-C-5 Amendment to Ford Motor Company Filed with this Report. Supplemental Compensation Plan, effective January 10, 1996.** Exhibit 10-D Ford Motor Company Executive Separation Filed as Exhibit 10-D to the Registrant's Allowance Plan as amended through Annual Report on Form 10-K for the December 9, 1993 for separations on year ended December 31, 1994.* or after January 1, 1981.** Exhibit 10-E Description of Company practices regarding Filed as Exhibit 10-I to the Registrant's club memberships for executives.** Annual Report on Form 10-K for the year ended December 31, 1981.* Exhibit 10-F Description of Company practices regarding Filed as Exhibit 10-J to the Registrant's travel expenses of spouses of certain Annual Report on Form 10-K for the executives.** year ended December 31, 1980.* Exhibit 10-G Ford Motor Company Deferred Compensation Filed as Exhibit 10-H-1 to the Plan for Non-Employee Directors, as amended Registrant's Annual Report on Form on July 11, 1991.** 10-K for the year ended December 31, 1991.* Exhibit 10-G-1 Amendments to Deferred Compensation Plan Filed with this Report. for Non-Employee Directors, effective as of January 1, 1996.* Exhibit 10-H Ford Motor Company Benefit Equalization Filed as Exhibit 10-H to the Registrant's Plan, as amended as of January 1, Annual Report on Form 10-K for the 1989.** year ended December 31, 1994.* Exhibit 10-H-1 Description of Amendments to Benefit Filed with this Report. Equalization Plan, adopted January 11, 1996 and January 25, 1996.** Exhibit 10-I Description of Financial Counseling Filed as Exhibit 10-N to the Registrant's Services provided to certain executives.** Annual Report on Form 10-K for the year ended December 31, 1983.* Exhibit 10-J 1986 Long-Term Incentive Plan of the Filed as Exhibit 10-Q to the Registrant's Registrant.** Annual Report on Form 10-K for the year ended December 31, 1985.* </TABLE> -2-
<TABLE> <CAPTION> Designation Description Method of Filing - ----------- ----------- ---------------- <S> <C> <C> Exhibit 10-J-1 Amendment dated as of June 1, 1990 to Filed as Exhibit 10-N-1 to the 1986 Long-Term Incentive Plan of the Registrant's Annual Report on Form Registrant.** 10-K for the year ended December 31, 1990.* Exhibit 10-K Supplemental Executive Retirement Plan, Filed with this Report. as restated and incorporating amendments through December 12, 1995.** Exhibit 10-L Ford Motor Company Restricted Stock Filed as Exhibit 10-P to the Registrant's Plan for Non-Employee Directors adopted Annual Report on Form 10-K for the by the Board of Directors on November 10, year ended December 31, 1988.* 1988, and approved by the stockholders at the 1989 Annual Meeting.** Exhibit 10-M 1990 Long-Term Incentive Plan, amended Filed as Exhibit 10-R to the Registrant's as of June 1, 1990.** Annual Report on Form 10-K for the year ended December 31, 1990.* Exhibit 10-M-1 Amendment to 1990 Long-Term Incentive Filed as Exhibit 10-P-1 to the Plan, effective as of October 1, 1990.** Registrant's Annual Report on Form 10-K for the year ended December 31, 1991.* Exhibit 10-M-2 Amendment to 1990 Long-Term Incentive Filed as Exhibit 10.2 to the Registrant's Plan, effective as of March 8, 1995.** Quarterly Report on Form 10-Q for the quarter ended March 31, 1995.* Exhibit 10-N Description of Matching Gift Program for Filed as Exhibit 10-Q to the Registrant's Non-Employee Directors.** Annual Report on Form 10-K for the year ended December 31, 1991.* Exhibit 10-O Non-Employee Directors Life Insurance Filed as Exhibit 10-O to the Registrant's and Optional Retirement Plan Annual Report on Form 10-K for the (as amended as of January 1, 1993).** year ended December 31, 1994.* Exhibit 10-P Description of Non-Employee Directors Filed as Exhibit 10-S to the Registrant's Accidental Death, Dismemberment and Annual Report on Form 10-K for the Permanent Total Disablement Indemnity.** year ended December 31, 1992.* Exhibit 10-Q Agreement dated December 10, 1992 Filed as Exhibit 10-T to the Registrant's between William C. Ford and the Annual Report on Form 10-K for the Registrant.** year ended December 31, 1992.* Exhibit 10-R Support Agreement dated as of October 1, Filed as Exhibit 10-T to the Registrant's 1993 between the Registrant and Ford Annual Report on Form 10-K for the Credit Europe. year ended December 31, 1993.*
Exhibit 10-R-1 Amendment No. 1 dated as of November Filed with this Report. 15, 1995 to Support Agreement between the Registrant and Ford Credit Europe. -3-
Exhibit 10-S Description of Select Retirement Plan Filed as Exhibit 10 to the Registrant's adopted on June 9, 1994.** Quarterly Report on Form 10-Q for the quarter ended June 30, 1994.* Exhibit 10-T Ford Motor Company Deferred Filed as Exhibit 10.2 to the Registrant's Compensation Plan, effective as of Quarterly Report on Form 10-Q for the July 13, 1995.** quarter ended June 30, 1995.* Exhibit 10-T-1 Amendments to Ford Motor Company Filed with this Report. Deferred Compensation Plan, effective as of July 13, 1995 and October 1, 1995.** Exhibit 10-U Description of Amendments to Supplemental Filed with this Report. Executive Retirement Plan and Executive Separation Allowance Plan, adopted January 25, 1996.** Exhibit 11 Computation of Primary and Fully Diluted Filed with this Report. Earnings per Share. Exhibit 12 Computation of Ratio of Earnings to Filed with this Report. Combined Fixed Charges and Preferred Stock Dividends. Exhibit 21 List of Subsidiaries of the Registrant Filed with this Report. as of December 31, 1995. Exhibit 23 Consent of Independent Certified Public Filed with this Report. Accountants. Exhibit 24 Powers of Attorney. Filed with this Report. - -------------- * Incorporated by reference as an exhibit hereto ** Management contract or compensatory plan or arrangement </TABLE> -4-