UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND - ---- EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 OR -------------------------------- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES - --- EXCHANGE ACT OF 1934 For the transition period from to --------------- --------------- Commission file number 1-3950 ------ FORD MOTOR COMPANY ------------------ (Exact name of registrant as specified in its charter) Incorporated in Delaware 38-0549190 --------------------------------- ----------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) The American Road, Dearborn, Michigan 48121 ----------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 313-322-3000 ----------------- Indicate by checkmark 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 . APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: As of March 31, 1998, the Registrant had outstanding 1,142,136,738 shares of Common Stock and 70,852,076 shares of Class B Stock. Exhibit index located on sequential page number 17
<TABLE> <CAPTION> Ford Motor Company and Subsidiaries HIGHLIGHTS ---------- First Quarter ---------------------------- 1998 1997 ------------ ------------ <S> <C> <C> (unaudited) Worldwide vehicle unit sales of cars and trucks (in thousands) - North America 1,059 1,066 - Outside North America 662 615 ----- ----- Total 1,721 1,681 ===== ===== Sales and revenues (in millions) - Automotive $ 29,076 $ 30,037 - Financial Services 7,508 7,277 --------- --------- Total $ 36,584 $ 37,314 ========= ========= Net income (in millions) - Automotive $ 1,235 $ 1,004 - Financial Services (including income of The Associates through March 12, 1998) 456 465 --------- --------- Subtotal 1,691 1,469 - Gain on spin-off of The Associates 15,955 - --------- --------- Total $ 17,646 $ 1,469 ========= ========= Capital expenditures (in millions) - Automotive $ 2,101 $ 1,613 - Financial Services 98 126 --------- --------- Total $ 2,199 $ 1,739 ========= ========= Automotive capital expenditures as a percentage of sales 7.2% 5.4% Stockholders' equity at March 31 - Total (in millions) $ 21,497 $ 27,252 - After-tax return on Common and Class B stockholders' equity 24.8% 22.1% Automotive net cash at March 31 (in millions) - Cash and marketable securities $ 21,277 $ 15,967 - Debt 8,178 8,202 --------- --------- Automotive net cash $ 13,099 $ 7,765 ========= ========= After-tax return on sales - North American Automotive 5.0% 4.9% - Total Automotive 4.3% 3.4% Shares of Common and Class B Stock (in millions) - Average number outstanding 1,210 1,190 - Number outstanding at March 31 1,213 1,191 Common Stock price (per share) (adjusted to reflect The Associates spin-off) - High $43-7/8 $23-3/8 - Low 28-15/32 20-35/64 AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK AFTER PREFERRED STOCK DIVIDENDS Income assuming dilution - Automotive $ 0.99 $ 0.82 - Financial Services (including income of The Associates through March 12, 1998) 0.37 0.38 --------- --------- Subtotal 1.36 1.20 - Premium on Series B Preferred Stock repurchase (0.07) - - Gain on spin-off of The Associates 12.94 - --------- --------- Total $ 14.23 $ 1.20 ========= ========= Cash dividends $ 0.42 $ 0.385 </TABLE> -2-
<TABLE> <CAPTION> Ford Motor Company and Subsidiaries VEHICLE UNIT SALES ------------------ For the Periods Ended March 31, 1998 and 1997 (in thousands) First Quarter --------------------- 1998 1997 --------- -------- <S> <C> <C> (unaudited) North America United States Cars 391 367 Trucks 564 612 ----- ----- Total United States 955 979 Canada 76 69 Mexico 28 18 ----- ----- Total North America 1,059 1,066 Europe Britain 142 98 Germany 106 115 Italy 70 64 France 39 36 Spain 37 46 Other countries 100 97 ----- ----- Total Europe 494 456 Other international Brazil 42 41* Argentina 30 29* Australia 30 30 Taiwan 29 25 Japan 8 10 Other countries 29 24 ----- ----- Total other international 168 159 ----- ----- Total worldwide vehicle unit sales 1,721 1,681 ===== ===== </TABLE> Vehicle unit sales generally are reported worldwide on a "where sold" basis and include sales of all Ford-badged units, as well as units manufactured by Ford and sold to other manufacturers *Adjusted to reflect change in reporting practice -3-
<TABLE> <CAPTION> Part I. Financial Information ----------------------------- Item 1. Financial Statements - ------- -------------------- Ford Motor Company and Subsidiaries CONSOLIDATED STATEMENT OF INCOME -------------------------------- For the Periods Ended March 31, 1998 and 1997 (in millions) First Quarter ------------------------- 1998 1997 ----------- ---------- <S> <C> <C> (unaudited) AUTOMOTIVE Sales $29,076 $30,037 Costs and expenses (Note 2) Costs of sales 25,584 26,795 Selling, administrative and other expenses 1,686 1,538 -------- ------- Total costs and expenses 27,270 28,333 Operating income 1,806 1,704 Interest income 322 249 Interest expense 199 194 -------- ------- Net interest income 123 55 Equity in net loss of affiliated companies (10) (144) Net expense from transactions with Financial Services (48) (19) ------- ------- Income before income taxes - Automotive 1,871 1,596 FINANCIAL SERVICES Revenues 7,508 7,277 Costs and expenses Interest expense 2,370 2,356 Depreciation 2,037 1,765 Operating and other expenses 1,583 1,500 Provision for credit and insurance losses 708 845 ------- ------- Total costs and expenses 6,698 6,466 Net revenue from transactions with Automotive 48 19 Gain on spin-off of The Associates (Note 3) 15,955 - ------- ------- Income before income taxes - Financial Services 16,813 830 ------- ------- TOTAL COMPANY Income before income taxes 18,684 2,426 Provision for income taxes 972 898 ------- ------- Income before minority interests 17,712 1,528 Minority interests in net income of subsidiaries 66 59 ------- ------- Net income $17,646 $ 1,469 ======= ======= Income attributable to Common and Class B Stock after preferred stock dividends $17,551 $ 1,455 Average number of shares of Common and Class B Stock outstanding 1,210 1,190 AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK Basic income (Note 4) $ 14.48 $ 1.23 Diluted income (Note 4) $ 14.23 $ 1.20 Cash dividends $ 0.42 $ 0.385 </TABLE> The accompanying notes are part of the financial statements. -4-
<TABLE> <CAPTION> Ford Motor Company and Subsidiaries CONSOLIDATED BALANCE SHEET -------------------------- (in millions) March 31, December 31, 1998 1997 ---------------- -------------- <S> <C> <C> (unaudited) ASSETS Automotive Cash and cash equivalents $ 6,804 $ 6,316 Marketable securities 14,473 14,519 -------- -------- Total cash and marketable securities 21,277 20,835 Receivables 2,993 3,097 Inventories (Note 5) 6,340 5,468 Deferred income taxes 3,174 3,249 Other current assets 3,703 3,782 Net current receivable from Financial Services 0 416 -------- -------- Total current assets 37,487 36,847 Equity in net assets of affiliated companies 1,874 1,951 Net property 35,438 34,594 Deferred income taxes 3,643 3,712 Other assets 7,062 7,975 -------- -------- Total Automotive assets 85,504 85,079 Financial Services Cash and cash equivalents 1,424 1,618 Investments in securities 1,117 2,207 Net receivables and lease investments 124,062 176,416 Other assets 11,128 13,777 Net receivable from Automotive 3 0 -------- -------- Total Financial Services assets 137,734 194,018 -------- -------- Total assets $223,238 $279,097 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Automotive Trade payables $ 11,850 $ 11,997 Other payables (Note 3) 5,428 2,557 Accrued liabilities 17,539 16,250 Income taxes payable 1,366 1,358 Debt payable within one year 801 1,129 Net current payable to Financial Services 3 0 -------- -------- Total current liabilities 36,987 33,291 Long-term debt 7,377 7,047 Other liabilities 28,663 28,899 Deferred income taxes 1,203 1,210 -------- -------- Total Automotive liabilities 74,230 70,447 Financial Services Payables 3,975 4,539 Debt 113,375 160,071 Deferred income taxes 4,430 4,347 Other liabilities and deferred income 5,053 7,865 Net payable to Automotive 0 416 -------- -------- Total Financial Services liabilities 126,833 177,238 Company-obligated mandatorily redeemable preferred securities of a subsidiary trust holding solely junior subordinated debentures of the Company (Note 6) 678 678 Stockholders' equity Capital stock Preferred Stock, par value $1.00 per share (aggregate liquidation preference of $177 million and $637 million) * * Common Stock, par value $1.00 per share (1,144 and 1,132 million shares issued) 1,144 1,132 Class B Stock, par value $1.00 per share (71 million shares issued) 71 71 Capital in excess of par value of stock 5,225 5,564 Accumulated other comprehensive income (1,416) (1,228) ESOP loan and other (346) (39) Earnings retained for use in business 16,819 25,234 -------- -------- Total stockholders' equity 21,497 30,734 -------- -------- Total liabilities and stockholders' equity $223,238 $279,097 ======== ======== </TABLE> The accompanying notes are part of the financial statements. - - - - - *Less than $1 million -5-
<TABLE> <CAPTION> Ford Motor Company and Subsidiaries CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS ---------------------------------------------- For the Periods Ended March 31, 1998 and 1997 (in millions) First Quarter 1998 First Quarter 1997 ---------------------------- --------------------------- Financial Financial Automotive Services Automotive Services ------------- ------------ ------------- ----------- <S> <C> <C> <C> <C> (unaudited) (unaudited) Cash and cash equivalents at January 1 $ 6,316 $ 1,618 $ 3,578 $ 3,689 Cash flows from operating activities before securities trading 3,138 4,463 3,161 2,342 Net sales/(purchases) of trading securities 108 (113) (832) 37 ------- -------- ------- ------- Net cash flows from operating activities 3,246 4,350 2,329 2,379 Cash flows from investing activities Capital expenditures (2,101) (98) (1,613) (126) Purchase of leased assets (110) - - - Acquisitions of receivables and lease investments - (27,772) - (26,481) Collections of receivables and lease investments - 19,289 - 21,192 Net acquisitions of daily rental vehicles - (611) - (528) Purchases of securities (123) (569) 0 (1,054) Sales and maturities of securities 62 491 0 793 Proceeds from sales of receivables and lease investments - 2,368 - 807 Net investing activity with Financial Services 403 - 364 - Other 269 (661) 78 151 ------- -------- ------- ------- Net cash used in investing activities (1,600) (7,563) (1,171) (5,246) Cash flows from financing activities Cash dividends (519) (1) (472) (7) Issuance of Common Stock 93 - 23 - Preferred stock - Series B repurchase, Series A redemption (420) - - - Changes in short-term debt 76 1,882 (101) 1,033 Proceeds from issuance of other debt 337 7,996 210 3,842 Principal payments on other debt (812) (5,650) (64) (3,839) Net financing activity with Automotive - (403) - (364) Spin-off of The Associates cash - (508) - - Other (323) 53 0 106 ------- --------- ------- ------- Net cash (used in)/provided by financing activities (1,568) 3,369 (404) 771 Effect of exchange rate changes on cash (9) 69 (35) (92) Net transactions with Automotive/Financial Services 419 (419) (998) 998 ------- -------- - ------- ------- Net increase/(decrease) in cash and cash equivalents 488 (194) (279) (1,190) -------- -------- ------- ------- Cash and cash equivalents at March 31 $ 6,804 $ 1,424 $ 3,299 $ 2,499 ======= ======== ======= ======= </TABLE> The accompanying notes are part of the financial statements. -6-
Ford Motor Company and Subsidiaries NOTES TO FINANCIAL STATEMENTS ----------------------------- (unaudited) 1. Financial Statements - The financial data presented herein are unaudited, but in the opinion of management reflect those adjustments necessary for a fair presentation of such information. Results for interim periods should not be considered indicative of results for a full year. Reference should be made to the financial statements contained in the registrant's Annual Report on Form 10-K (the "10-K Report") for the year ended December 31, 1997. For purposes hereof, "Ford" or the "Company" means Ford Motor Company and its majority owned subsidiaries unless the context requires otherwise. Certain amounts for prior periods are reclassified, if required, to conform with 1998 presentations. 2. Selected Automotive costs and expenses are summarized as follows (in millions): <TABLE> <CAPTION> First Quarter -------------------- 1998 1997 -------- -------- <S> <C> <C> Depreciation $680 $683 Amortization 718 787 </TABLE> 3. Spin-off of The Associates - On March 2, 1998, the Board of Directors of the Company approved the spin-off of The Associates by declaring a dividend on Ford's outstanding shares of Common and Class B Stock consisting of Ford's 80.7% interest (279.5 millions shares) in The Associates. The Board of Directors also declared a dividend in cash on shares of Company stock held in U.S. employee savings plans equal to the market value of The Associates stock to be distributed per share of the Company's Common and Class B Stock. Both the spin-off dividend and the cash dividend were paid on April 7, 1998 to stockholders of record on March 12, 1998. Holders of Ford Common and Class B Stock on the record date received 0.262085 shares of The Associates common stock for each share of Ford stock, and participants in U.S. employee savings plans on the record date received $22.12 in cash per share of Ford stock, based on the volume-weighted average price of The Associates stock of $84.3849 per share on April 7, 1998. The total value of the distribution (including the $3.2 billion cash dividend) was $26.8 billion or $22.12 per share of Ford stock. As a result of the spin-off of The Associates, Ford realized a gain of $15,955 million based on the fair value of The Associates as of the record date, March 12, 1998, in first quarter 1998. Ford has received a ruling from the U.S. Internal Revenue Service that the distribution qualifies as a tax-free transaction for U.S. federal income tax purposes. The Company's results in first quarter 1998 include Ford's share of The Associates earnings through the record date, March 12 ($177 million). The balance sheet at March 31, 1998 no longer includes The Associates. Other payables includes a $3.2 billion dividend payable generated by the cash dividend to participants in U.S. employee savings plans. 4. Income Per Share of Common and Class B Stock - Basic income per share of Common and Class B Stock is calculated by dividing the income attributable to Common and Class B Stock by the average number of shares of Common and Class B Stock outstanding during the applicable period, adjusted for issuable shares and uncommitted ESOP shares. The company had Series A Preferred Stock convertible to Common Stock until January 9, 1998. Other obligations, such as stock options, are considered to be dilutive potential common stock. The calculation of diluted income per share of Common and Class B Stock takes into account the effect of dilutive potential common stock. Income per share of Common and Class B Stock was as follows (in millions, except per share amounts): <TABLE> <CAPTION> First Quarter 1998 First Quarter 1997 ----------------------- ---------------------- Income Shares Income Shares ----------- ---------- ---------- ---------- <S> <C> <C> <C> <C> Net income $17,646 1,210 $1,469 1,190 Preferred stock dividend requirements (95) - (14) - Issuable and uncommitted ESOP shares - 2 - (3) ------- ----- ------ ----- Basic income and shares $17,551 1,212 $1,455 1,187 Basic income per share $ 14.48 $ 1.23 ---------------------- Basic income and shares $17,551 1,212 $1,455 1,187 Net dilutive effect of options - 20 - 14 Convertible preferred stock and other 0 1 4 12 ------- ----- ------ ----- Diluted income and shares $17,551 1,233 $1,459 1,213 Diluted income per share $ 14.23 $ 1.20 ------------------------ </TABLE> -7-
<TABLE> <CAPTION> Ford Motor Company and Subsidiaries NOTES TO FINANCIAL STATEMENTS ----------------------------- (unaudited) 5. Automotive inventories are summarized as follows (in millions): March 31, December 31, 1998 1997 ------------- ------------- <S> <C> <C> Raw materials, work in process and supplies $3,357 $2,875 Finished products 2,983 2,593 ------ ------ Total inventories $6,340 $5,468 ====== ====== U.S. inventories $2,617 $1,993 </TABLE> 6. Company-Obligated Mandatorily Redeemable Preferred Securities of a Subsidiary Trust - The sole asset of Ford Motor Company Capital Trust I (the "Trust"), which is the obligor on the Preferred Securities of such Trust, is $632 million principal amount of 9% Junior Subordinated Debentures due 2025 of Ford Motor Company. 7. Changes in stockholders' equity for the three months ended March 31, 1998 were as follows (in millions): <TABLE> <CAPTION> Earnings Capital Retained Accum. in Excess for Use Other of Par in the Compr. Capital Value of Total Business Income Other Stock Stock -------------- --------------- ------------- ------------ ------------ ------------ <S> <C> <C> <C> <C> <C> <C> Balance at January 1 $ 30,734 $ 25,234 $(1,228) $ (39) $1,203 $5,564 Comprehensive income Net income 17,646 17,646 Other comprehensive income (188) (188) -------- Total comprehensive income 17,458 Common stock issued for Series A Preferred Stock conversion, employee benefit plans and other 93 12 81 Associates spin-off to Ford Common stockholders (22,298) (22,298) Associates spin-off cash distribution to savings plans (3,242) (3,242) Preferred stock - Series B repurchase and Series A redemption (420) (420) ESOP loan and other (309) (2) (307) Quarterly cash dividends (519) (519) -------- -------- ------- ----- ------ ------ Balance at March 31 $ 21,497 $ 16,819 $(1,416) $(346) $1,215 $5,225 ======== ======== ======= ===== ====== ====== </TABLE> -8-
[Coopers & Lybrand L.L.P. letterhead] REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders Ford Motor Company We have reviewed the consolidated balance sheet of Ford Motor Company and Subsidiaries at March 31, 1998 and the related consolidated statement of income and condensed consolidated statement of cash flows for the periods set forth in the Ford Motor Company Quarterly Report on Form 10-Q for the quarter ended March 31, 1998. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet at December 31, 1997 and the related consolidated statements of income, stockholders' equity and cash flows for the year then ended (not presented herein); and in our report dated January 26, 1998, we expressed an unqualified opinion on those consolidated financial statements. /s/ COOPERS & LYBRAND L.L.P. COOPERS & LYBRAND L.L.P. Detroit, Michigan April 15, 1998 -9-
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - ------------------------------------------------------------------------ OVERVIEW The company's worldwide operating earnings were $1,691 million in first quarter 1998, or $1.36 per diluted share of Common and Class B Stock in first quarter 1998, compared with $1,469 million, or $1.20 per diluted share in first quarter 1997. These operating results exclude a one-time gain of $15,955 million, or $12.94 per diluted share, resulting from the spin-off of The Associates (discussed below), and a one-time earnings per share reduction of $0.07 per share resulting from the premium paid to repurchase the company's Series B Cumulative Preferred Stock. Including both one-time factors, the company's reported first quarter earnings were $17,646 million, or $14.23 per diluted share. The company's results in first quarter 1998 include Ford's share of The Associates' earnings through March 12, the record date for the spin-off of The Associates. The company's worldwide sales and revenues were $36.6 billion in first quarter 1998, down $730 million from first quarter 1997. Vehicle unit sales of cars and trucks were 1,721,000, up 40,000 units or 2% from a year ago. Stockholders' equity was $21.5 billion at March 31, 1998, compared with $30.7 billion at December 31, 1997. The reduction in stockholders' equity reflects primarily The Associates spin-off. RESULTS OF OPERATIONS The company's net income for worldwide Automotive operations in first quarter 1998 and 1997 was as follows (in millions): <TABLE> <CAPTION> First Quarter 1998 --------------------- O/(U) 1998 1997 1997 -------- -------- ------- <S> <C> <C> <C> North America Automotive $1,010 $1,020 $(10) Automotive Outside North America - Europe 230 105 125 - South America (45) (47) 2 - Other 40 (74) 114 ------ ------ ---- Total Automotive Outside North America 225 (16) 241 ------ ------ ---- Total Automotive $1,235 $1,004 $231 ====== ====== ==== </TABLE> The company's net income for worldwide Financial Services operations in first quarter 1998 and 1997 was as follows (in millions): <TABLE> <CAPTION> First Quarter 1998 --------------------- O/(U) 1998 1997 1997 -------- -------- -------- <S> <C> <C> <C> Ford Credit $ 278 $ 276 $ 2 The Associates 220* 238 (18) Hertz 35 20 15 Minority Interests, Eliminations and Other (77) (69) (8) ------- ------ ------- Financial Services (excluding the gain on The Associates spin-off) 456 465 (9) Gain on Spin-Off of The Associates 15,955 - 15,955 ------- ------ ------- Total Financial Services $16,411 $ 465 $15,946 ======= ====== ======= Memo: Ford's share of earnings in The Associates $ 177* $ 192 (15) Hertz 29 20 9 - - - - - * Through March 12, 1998 </TABLE> -10-
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) - ------------------------------------------------------------------------ FIRST QUARTER 1998 COMPARED WITH FIRST QUARTER 1997 Automotive Operations - --------------------- Ford's worldwide Automotive operations earned $1,235 million in first quarter 1998 on sales of $29.1 billion, compared with earnings of $1,004 million on sales of $30 billion in first quarter 1997. Increased earnings in first quarter 1998 compared with first quarter 1997 reflect primarily continued cost reductions, the effects of improved product mix, and higher volumes outside North America. Adjusted for constant volume and mix, total automotive costs were down $400 million compared with first quarter a year ago. Earnings for Automotive operations in North America were $1,010 million in first quarter 1998, down $10 million compared with first quarter a year ago. Cost reductions in North America were offset by higher marketing costs. The after-tax return on sales was 5%, up 1/10 of a point from first quarter 1997. The U.S. economy continued on a path of strong growth, low unemployment, and moderate inflation in first quarter 1998. The seasonally-adjusted annual selling rate for the U.S. car and truck industry was 15.3 million units in first quarter 1998, down from 15.9 million units in first quarter 1997. The company expects car and truck industry sales for full-year 1998 to be slightly lower than the 15.5 million units in 1997. Ford's combined U.S. car and truck share was 24.5%, down 6/10 of a point from first quarter a year ago. Automotive operations in Europe earned $230 million in first quarter 1998, up $125 million compared with first quarter a year ago. The improvement reflected primarily higher volumes and lower operating costs, offset partially by increased marketing costs. The seasonally-adjusted annual selling rate for the European car and truck industry was 15.5 million units in first quarter 1998, compared with 14.3 million units in first quarter 1997. European car and truck industry sales in full-year 1998 are expected to be about equal to or slightly higher than the 15 million units in 1997. Ford's combined European car and truck share was 11.5% in first quarter 1998, unchanged from first quarter a year ago. Automotive operations in South America lost $45 million in first quarter 1998, compared with a loss of $47 million in first quarter a year ago. In first quarter 1998, the seasonally-adjusted annual selling rate for the Brazilian car and truck industry totaled 1.6 million units, compared with 1.8 million units in first quarter a year ago. For full-year 1998, the company expects the car and truck industry in Brazil to be lower than the 1.9 million units in 1997. Ford's combined car and truck share in Brazil was 13.7% in first quarter 1998, up 2.7 points from first quarter 1997. Financial Services Operations - ----------------------------- Operating results for Financial Services operations in first quarter 1998 were $456 million, down $9 million compared with first quarter a year ago. Including the gain on the spin-off of The Associates in first quarter 1998, results were $16,411 million, up $15,946 million from first quarter 1997. Excluding Ford's share of The Associates operating income in first quarter 1998 ($177 million through March 12) and the gain on the spin-off, operating results were $279 million, compared with $273 million in first quarter 1997 on a comparable basis. -11-
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) - ------------------------------------------------------------------------- Earnings at Ford Credit in first quarter 1998 were $278 million, up $2 million compared with first quarter a year ago. The increase reflects primarily a smaller increase in credit loss reserve requirements and higher levels of earning assets compared with a year ago; lower net financing margins, higher credit losses, and higher operating costs were partial offsets. Net financing margins decreased in first quarter 1998 compared with first quarter a year ago, reflecting primarily higher depreciation expense for leased vehicles, offset partially by lower borrowing costs. Higher depreciation expense for leased vehicles reflects primarily lower-than-anticipated residual values on leased vehicles, and is expected to adversely affect Ford Credit's earnings for the remainder of 1998. As a result, based on the present outlook, the goal of 10 percent or greater earnings growth for Ford Credit in 1998 will be very difficult to achieve. Earnings at Hertz in first quarter 1998 were a record $35 million (of which $29 million was Ford's share), up $15 million from the same period a year ago. The increase reflects primarily higher revenues in U.S. car rental operations. LIQUIDITY AND CAPITAL RESOURCES Automotive Operations - --------------------- Automotive cash and marketable securities were $21.3 billion at March 31, 1998, up $442 million from December 31, 1997. The company paid $519 million in cash dividends on its Common Stock, Class B Stock and Preferred Stock during first quarter 1998. As described below, in connection with The Associates spin-off, a $3.2 billion cash dividend on shares of Ford stock held in U.S. employee savings plans was paid on April 7, 1998. Automotive capital expenditures totaled $2.1 billion in first quarter 1998, up $488 million from first quarter 1997. Capital expenditures were 7.2% of sales in first quarter 1998, up 1.8 points from first quarter 1997. Automotive debt at March 31, 1998 totaled $8.2 billion, which was 28% of total capitalization (stockholders' equity and Automotive debt), compared with $8.1 billion, or 21% of total capitalization at December 31, 1997. The increase in the ratio in 1998 reflects the reduction in stockholders' equity resulting from The Associates spin-off. For a discussion of support facilities available to the company's Automotive and Financial Services operations, see Note 9 of the company's Notes to Financial Statements for the year ended December 31, 1997, which are included in the company's Annual Report on Form 10-K for such year. Financial Services Operations - ----------------------------- The company's balance sheet at March 31, 1998 does not include The Associates, which explains primarily the declines discussed below. Financial Services cash and investments in securities totaled $2.5 billion at March 31, 1998, down $1.3 billion from December 31, 1997. Net receivables and lease investments were $124.1 billion at March 31, 1998, down $52.3 billion from December 31, 1997. Total debt was $113.4 billion at March 31, 1998, down $46.7 billion from December 31, 1997. Outstanding commercial paper at March 31, 1998 totaled $42.3 billion at Ford Credit, and $1.5 billion at Hertz, with an average remaining maturity of 22 days and 42 days, respectively. -12-
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) - ------------------------------------------------------------------------- SPIN-OFF OF THE ASSOCIATES On March 2, 1998, the Board of Directors of the company approved the spin-off of The Associates by declaring a dividend on Ford's outstanding shares of Common and Class B Stock consisting of Ford's 80.7% interest (279.5 millions shares) in The Associates. The Board of Directors also declared a dividend in cash on shares of company stock held in U.S. employee savings plans equal to the market value of The Associates stock to be distributed per share of the company's Common and Class B Stock. Both the stock dividend and the cash dividend were paid on April 7, 1998 to stockholders of record on March 12, 1998. Holders of Ford Common and Class B Stock on the record date received 0.262085 shares of The Associates common stock for each share of Ford stock, and participants in U.S. employee savings plans who held Ford stock in such plans on the record date received $22.12 in cash per share of Ford stock, which amount was based on the volume-weighted average price of The Associates stock of $84.3849 per share on the New York Stock Exchange on April 7, 1998. The total value of the distribution (including the $3.2 billion cash dividend) was $26.8 billion or $22.12 per share of Ford stock. As a result of the spin-off of The Associates, Ford realized a gain of $15,955 million based on the fair value of The Associates as of the record date, March 12, 1998. Ford has received a ruling from the U.S. Internal Revenue Service that the distribution qualifies as a tax-free transaction for U.S. federal income tax purposes. The company's results in first quarter 1998 include Ford's share of The Associates earnings through the record date, March 12 ($177 million). The balance sheet at March 31, 1998 does not include The Associates, but it includes in "Other payables" a $3.2 billion dividend payable generated by the cash dividend to participants in U.S. employee savings plans. NEW ACCOUNTING STANDARDS Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and Related Information," effective for 1998, establishes standards for reporting information about operating segments in annual financial statements and, beginning in 1999, requires reporting of selected information about operating segments in interim financial reports issued to stockholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. Ford will adopt SFAS 131 for its financial statements for the year ending December 31, 1998. Management is evaluating the impact, if any, the Statement will have on the company's present segment reporting. Statement of Financial Accounting Standards No. 132 ("SFAS 132"), "Employers' Disclosures about Pensions and Other Postretirement Benefits," was issued by the Financial Accounting Standards Board in February 1998. This Statement revises employers' disclosures about pension and other postretirement benefit plans. It does not change the measurement or recognition of those plans. This Statement standardizes the disclosure requirements for pensions and other postretirement benefits to the extent practicable, requires additional information on changes in the benefit obligations and fair values of plan assets, and eliminates certain disclosures. Restatement of disclosures for earlier periods is required. The Statement is effective for Ford's financial statements for the year ended December 31, 1998. Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," was issued by the American Institute of Certified Public Accountants in March 1998. This SOP provides guidance on accounting for the costs of computer software developed or obtained for internal use. Effective for fiscal years beginning after December 15, 1998, this SOP requires capitalization of certain internal-use computer software costs. Presently, Ford expenses the costs of developing or obtaining internal-use software. -13-
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) - ------------------------------------------------------------------------ OTHER FINANCIAL INFORMATION Coopers & Lybrand L.L.P., Ford's independent public accountants, performed a limited review of the financial data presented on pages 4 through 8 inclusive. The review was performed in accordance with standards for such reviews established by the American Institute of Certified Public Accountants. The review did not constitute an audit; accordingly, Coopers & Lybrand L.L.P. did not express an opinion on the aforementioned data. The financial data include any material adjustments or disclosures proposed by Coopers & Lybrand L.L.P. as a result of their review. Part II. Other Information -------------------------- Item 5. Other Information Final regulations implementing the Fastener Quality Act of 1990 are applicable to certain fasteners (i.e., nuts, bolts, washers and screws) manufactured after July 26, 1998. The regulations impose burdensome and costly testing, certification and record keeping requirements which are not compatible with quality assurance systems used in the automotive industry. Unless the regulations are delayed or modified, there is a risk that fastener manufacturers that supply Ford and its suppliers will not be able to timely comply with the regulations. As a result, Ford's ability to produce vehicles could be adversely affected. -14-
<TABLE> <CAPTION> Supplemental Schedule Ford Motor Company CONDENSED FINANCIAL INFORMATION OF SUBSIDIARY --------------------------------------------- (in millions) Ford Capital B.V. ----------------- March 31, December 31, 1998 1997 --------------- --------------- <S> <C> <C> (unaudited) Current assets $1,696 $2,046 Noncurrent assets 2,399 2,390 ------ ------ Total assets $4,095 $4,436 ====== ====== Current liabilities $1,200 $1,551 Noncurrent liabilities 2,435 2,433 Minority interests in net assets of subsidiaries 16 14 Stockholder's equity 444 438 ------ ------ Total liabilities and stockholder's equity $4,095 $4,436 ====== ====== First Quarter ---------------------------------- 1998 1997 --------------- ------------- (unaudited) Sales and other revenue $641 $744 Operating income 27 34 Income before income taxes 18 21 Net income 6 8 </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) N.V., Ford Motor Company A/S (Denmark), Ford Poland S.A., and Ford Distribution Sp. z.o.o., Ltd. Substantially all of the assets of Ford Capital B.V., other than its ownership interests in subsidiaries, represent receivables from Ford Motor Company or its consolidated subsidiaries. -15-
Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- (a) Exhibits Please refer to the Exhibit Index on page 17. (b) Reports on Form 8-K The Registrant filed the following Current Reports on Form 8-K during the quarter ended March 31, 1998: Current Report on Form 8-K dated January 27, 1998 included information relating to Ford's 1997 financial results. Current Report on Form 8-K dated February 2, 1998 included the consolidated financial statements of Ford and its subsidiaries for the year ended December 31, 1997. Current Report on Form 8-K dated March 3, 1998 included information relating to the timing of Ford's spin-off of The Associates and the related cash dividend to U.S. employee savings plans. Current Report on Form 8-K dated March 13, 1998 included information relating to the distribution ratio for Ford's spin-off of The Associates. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FORD MOTOR COMPANY ------------------------------------------- (Registrant) Date: May 12, 1998 By: /s/ W. J. Cosgrove ------------ ---------------------------------------- W. J. Cosgrove Corporate Controller (principal accounting officer) -16-
EXHIBIT INDEX Designation Description ----------------------- ------------------------------------------------- Exhibit 3.1 Restated Certificate of Incorporation of Ford Motor Company dated April 9, 1998. Exhibit 3.2 By-Laws of Ford Motor Company as amended through March 12, 1998. Exhibit 12 Ford Motor Company and Subsidiaries Calculation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends. Exhibit 15 Letter of Coopers & Lybrand L.L.P., Independent Public Accountants, dated May 12, 1998, relating to Financial Information. Exhibit 27.1 Restated Financial Data Schedule, Conglomerate Totals, for the Nine Months Ended September 30, 1997 (included with electronic EDGAR filing only). Exhibit 27.2 Restated Financial Data Schedule, Automotive Segment, for the Nine Months Ended September 30, 1997 (included with electronic EDGAR filing only). Exhibit 27.3 Restated Financial Data Schedule, Financial Services Segment, for the Nine Months Ended September 30, 1997 (included with electronic EDGAR filing only). Exhibit 27.4 Restated Financial Data Schedule, Conglomerate Totals, for the Six Months Ended June 30, 1997 (included with electronic EDGAR filing only). Exhibit 27.5 Restated Financial Data Schedule, Automotive Segment, for the Six Months Ended June 30, 1997 (included with electronic EDGAR filing only). Exhibit 27.6 Restated Financial Data Schedule, Financial Services Segment, for the Six Months Ended June 30, 1997 (included with electronic EDGAR filing only). Exhibit 27.7 Restated Financial Data Schedule, Conglomerate Totals, for the Three Months Ended March 31, 1997 (included with electronic EDGAR filing only). Exhibit 27.8 Restated Financial Data Schedule, Conglomerate Totals, for the Year Ended December 31, 1996 (included with electronic EDGAR filing only). Exhibit 27.9 Restated Financial Data Schedule, Conglomerate Totals, for the Nine Months Ended September 30, 1996 (included with electronic EDGAR filing only). -17-