SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549FORM 10-K
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31,
1999,2000, or
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from
toCommission file number 1-6368
Ford Motor Credit Company
(Exact name of registrant as specified in its charter)Delaware
(State of incorporation)One American Road, Dearborn, Michigan
(Address of principal executive offices)38-1612444(I.R.S. employer identification no.)48121
(Zip code)
RegistrantsRegistrant’s telephone number, including area code (313) 322-3000Securities registered pursuant to Section 12(b) of the Act:
Title of each class6 3/8% Notes due November 5, 20088 3/4% Senior Notes due December 1, 2001Name of each Exchangeon which registeredNew York Stock ExchangeThe American Stock Exchange
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
XNo
As of February 28,2000,2001, the registrant had outstanding 250,000 shares of Common Stock. No voting stock of the registrant is held by non-affiliates of the registrant.
The registrant meets the condition set forth in General Instruction I(1)(a) and (b) of Form 10-K and is therefore filing this Form with the reduced disclosure format.PART I
Item 1. Business
The registrant, Ford Motor Credit Company, was incorporated in Delaware in 1959 and is an indirectwholly ownedwholly-owned subsidiary of Ford Motor Company(Ford(“Ford”). As used hereinFord Credit“Ford Credit” refers to Ford Motor Credit Company and its subsidiaries unless the context otherwise requires.
Ford Creditand its subsidiaries provideprovides wholesale financing and capital loans to Ford Motor Company retail dealerships and associated non-Ford dealerships throughout the world, most of which are privately owned and financed, andpurchasepurchases retail installment sale contracts and retail leases from them. Ford Credit also makes loans to vehicle leasing companies, the majority of which are affiliated with such dealerships. In addition,subsidiaries ofFord Creditprovidedirectly and through its subsidiaries provides these financing servicesin the United States, Europe, Canada, Australia, Indonesia and Indiaworldwide to non-Ford dealerships. A substantial majority of all new vehicles financed by Ford Credit are manufactured by Ford and its affiliates. Ford Credit also provides retail financing for used vehicles built by Ford and other manufacturers. In addition to vehicle financing, Ford Credit makes loans to affiliates of Ford and finances certain receivables of Ford and its subsidiaries.
In19992000 and1998,1999, United States operations, conducted in all 50 states and the District of Columbia, accounted for74%78% and 75%, respectively, of FordCreditsCredit’s total revenue. European operations, conducted by FCE Bank plc (formerly Ford Credit Europe plc)((“Ford CreditEuropeEurope”), accounted for10%11% and 12%, respectively, of FordCreditsCredit’s total revenue in these periods. The balance was in Canada, Mexico, Brazil,Mexico,Australia,Argentina, Taiwan,Puerto Rico, Argentina, Japan, Taiwan, New Zealand,Japan, Indonesia,Thailand, the Philippines, India, Indonesia andIndia.Chile. In addition, Ford Credit manages the vehicle financing operations of Ford in other foreign countries which are conducted through other subsidiaries of Ford.
Outside the United States, Ford Credit Europe is FordCreditsCredit’s largest operation. Ford Creditowns approximately 81%Europe is an indirect wholly-owned subsidiary ofthe economic interest inFord Credit. Ford CreditEurope. The remainder is held by Ford Werke AG. Ford Credit EuropesEurope’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. Retail financing is provided by means of a number of title retention plansincluding conditional sale and hire purchase agreements,and personal loans. Operating and finance leases are provided to individual, corporate and other institutional customers, covering individual vehicles and large and small fleets. Wholesale financing is provided to Ford dealers for the stocking of new and used vehicles. In addition, Ford Credit Europe provides loans to dealers for working capital and property acquisitions and for a variety of finance plans.
Ford Credit also conducts insurance operations through The American Road Insurance Company(American Road(“TARIC”) and its subsidiaries in the United States and Canada.American RoadsTARIC’s business primarily consists of extended service plan contracts for new and used vehicles manufactured by affiliated and nonaffiliated companies, primarily originating from Ford dealers, physical damage insurance covering vehicles and equipment financed at wholesale by Ford Credit, and the reinsurance of credit life and credit disability insurance for retail purchasers of vehicles and equipment.
The business of Ford Credit is substantially dependent upon Ford Motor Company. SeeVehicle Financing“Vehicle Financing” andBorrowings“Borrowings and Other Sources ofFundsFunds” under the captionBusiness“Business of FordCreditCredit”. Also see Item7. Managements7, “Management’s Discussion and Analysis of Financial Condition and Results ofOperationsOperations”, and Item 7A, “Quantitative and Qualitative Disclosures About Market Risk”. Any protracted reduction or suspension ofFordsFord’s production or sale of vehicles, resulting from a decline in demand,awork stoppage, governmental action, adverse publicity, or other event, could have a substantial adverse effect on Ford Credit. For additional information concerningFordsFord’s results of operations, see Ford MotorCompanysCompany’s Annual Report on Form 10-K for the year ended December 31,19992000 filed with the Securities and Exchange Commission.
The mailing address of FordCreditsCredit’s executive offices is One American Road, Dearborn, Michigan 48121. The telephone number of such offices is (313) 322-3000.
SEGMENT INFORMATION
Segment information called for by Item 1 is set forth in Note 17 of Notes to Financial Statements and is incorporated herein by reference.BUSINESS OF FORD CREDIT
Ford Credit accounts for its financing business in three categories— retail (which consists of vehicle installment sale financing and vehicle lease financing), wholesale and other. Total net finance receivables and net investment in operating leases outstanding in these three categories and geographic regions were as follows at the end of the years indicated:
19991998199719961995(in millions)RetailInstallment sale/finance lease$75,188.1$66,567.8$54,545.3$52,352.1$47,087.0Operating lease32,838.234,566.534,746.030,645.225,680.2Wholesale26,341.922,561.221,519.722,621.922,043.8Other7,223.86,812.65,247.65,874.07,245.9Total$141,592.0$130,508.1$116,058.6$111,493.2$102,056.9United States$106,087.3$94,945.4$87,721.2$82,225.0$78,652.3Europe20,099.021,588.717,148.118,100.016,202.3Other international15,405.713,974.011,189.311,168.27,202.3Total$141,592.0$130,508.1$116,058.6$111,493.2$102,056.9
2000 1999 1998 1997 1996 (in millions) Retail Installment sale/finance lease $ 79,631.6 $ 75,188.1 $ 66,567.8 $ 54,545.3 $ 52,352.1 Operating lease 38,457.0 32,838.2 34,566.5 34,746.0 30,645.2 Wholesale 33,997.3 26,341.9 22,561.2 21,519.7 22,621.9 Other 9,109.5 7,223.8 6,812.6 5,247.6 5,874.0 Total $ 161,195.4 $ 141,592.0 $ 130,508.1 $ 116,058.6 $ 111,493.2 United States $ 123,602.2 $ 106,087.3 $ 94,945.4 $ 87,721.2 $ 82,225.0 Europe 20,583.2 20,099.0 21,588.7 17,148.1 18,100.0 Other international 17,010.0 15,405.7 13,974.0 11,189.3 11,168.2 Total $ 161,195.4 $ 141,592.0 $ 130,508.1 $ 116,058.6 $ 111,493.2
The shiftCompared with 1999, the increase inemphasis of retail marketing support from lease financing to special low-rate installment sale financing programs available exclusively through Ford Credit is reflected in Ford Credits 1999 year-endtotal net finance receivables and net investment in operatingleases.leases results primarily from Ford Motor Company-sponsored special financing and leasing programs that are available exclusively through Ford Credit, a higher volume of wholesale receivables, and inclusion of Volvo financing receivables. Theresult is a significantpercentage increase inthe financing of retailinstallment sale receivablesand a reductionwas less than the percentage increase inthe financingnet investment in operating leases or wholesale receivables, because sales ofoperating lease receivables.installment sale receivables more than doubled from 1999 levels.Vehicle Financing
Retail.Retail financing consists primarily of installment sale financing and retail lease financing of new and used vehicles and loans to vehicle leasing companies, most of which are affiliated with franchised Ford Motor Company dealerships. The number of installment sale and lease vehicles financed by Ford Credit in the categories and geographic regions shown below was as follows during the years indicated:
19991998199719961995(in thousands)Installment sale/finance lease3,4283,0302,3892,4362,557Operating lease1,0651,1381,2061,160965Total retail4,4934,1683,5953,5963,522United States3,1392,7942,5492,6522,499Europe829800727717723Other international525574319227300Total retail4,4934,1683,5953,5963,522
2000 1999 1998 1997 1996 (in thousands) Installment sale/finance lease 3,777 3,428 3,030 2,389 2,436 Operating lease 1,228 1,065 1,138 1,206 1,160 Total retail 5,005 4,493 4,168 3,595 3,596 United States 3,525 3,139 2,794 2,549 2,652 Europe 795 829 800 727 717 Other international 685 525 574 319 227 Total retail 5,005 4,493 4,168 3,595 3,596
Compared with 1999, the increase in installment sale and lease vehicles financed by Ford Credit reflects primarily Ford Motor Company-sponsored special financing and leasing programs that are available exclusively through Ford Credit and inclusion of installment sale and lease vehicles financed by Volvo.2
The levels of Ford
CreditsCredit’s retail financing volumes and outstanding finance receivables and net investment in operating leases are dependent on several factors, including new and used vehicle sales and leases, FordCreditsCredit’s share of those vehicle sales and leases and the average cost of vehicles financed. SeeCompetition“Competition in VehicleFinancingFinancing”. In addition, receivables levels may vary depending on sales of receivables.
2
The shift in emphasis of marketing support from lease financing to special low-rate installment sale financing programs available exclusively through Ford Credit is reflected in Ford Credits 1999 year-end total contract volumes. The result is a significant increase in the financing of retail installment sale contracts and a reduction in the financing of operating lease contracts.
Installment sale and retail lease financing consist principally of purchasing and servicing installment sale contracts and leasescoveringrelated to the sale or lease of new and used vehicles by vehicle dealers to retail customers. The amount paid by Ford Credit to the dealer for an installment sale contract or lease generally represents a negotiated amount agreed to between the dealer and the customer, less any trade-in or downpayment. In addition, a portion of the finance chargeis paid or credited tomay be retained by the dealer. Ford Credit requires a retail purchaser or lessee to carry fire, theft and collision insurance on the vehicle.In addition, retailRetail lessees also are required to carry liability insurance.
Installment sales contract terms range up to 72 months. In theU.S.,United States, the average repayment obligation for new vehicles covered by installment sale contracts purchased by Ford Credit in19992000 was$19,547.$21,205. The corresponding average monthly payment was$454$495 and the average original term was 53 months.
For retail leases, the monthly lease payment equals the amount paid to the dealer for the vehicle and lease (theacquisition cost“acquisition cost”) less the residual value of the vehicle established by Ford Credit, amortized over the lease term, plus the lease charge. The acquisition cost to Ford Credit of the vehicle, less the residual value, is depreciated on a straight line basis over the life of the lease. Residual value, the estimated value of the vehicle at lease end, is generally determined by Ford Credit after analyzing published residual values and FordCreditsCredit’s own econometric model that uses historical experiencein the used vehicle market. In addition, jointand forward-looking information available to Ford Credit. This information includes new product plans, marketing programswith Fords sales divisions can affect established residual values.and quality metrics. At lease termination, Ford Credit either sells the vehicle to the dealer for the established residual value or sells the vehicle at auction for the market price.
Retail lease terms range from 12 to 48 months. In theU.S.,United States, the average monthly payment of retail lease contracts purchased by Ford Credit in19992000 was$380$394 and the average original term was3132 months.
Ford Credit extends financing to leasing companies and daily rental companies. Financing charges in connection with such lease financing either are fixed or floating based on short-term interest rates in effect at the time financing is extended. These rates may be supplemented by payments from Ford whenever the rate payable is less than the specified minimum rate agreed between Ford Credit and Ford.
Wholesale.Wholesale financing consists of loans, under approved lines of credit, to dealers to assist them in carrying inventories of new and used vehicles. Ford Credit generally finances 100% of the wholesale price. Vehicles are insured against fire, theft and other risks under policies issued to Ford Credit. FordCreditsCredit’s United States car and truck wholesale receivables that liquidated were outstanding an average of about 60 days and 58 days in 2000 and65 days in1999,and 1998,respectively.
The levels of FordCreditsCredit’s wholesale financing volume and outstanding wholesale receivables are dependent on several factors, including sales by Ford to dealers, the level of dealer inventories, FordCreditsCredit’s share ofFordsFord’s sales to dealers, vehicle prices and sales of wholesale receivables.
Competition In Vehicle Financing.The vehicle financing business is highly competitive. FordCreditsCredit’s principal competitors are banks, credit unions and leasing companies.
Ford Credit financed the following percentages of new Ford cars and trucks sold or leased at retail and sold at wholesale in the United States and Europe during each of the years indicated:
2000 1999 1998 1997 1996 United States Retail* 50.9 % 47.2 % 42.3 % 37.5 % 37.6 % Wholesale 83.5 83.5 82.5 79.8 79.5 Europe Retail* 31.7 32.8 32.5 29.1 29.3 Wholesale 95.9 96.4 95.4 95.0 90.8
* | As a percentage of total sales and leases, including cash sales |
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The increase in the percentage of Ford Credit retail financing in the United States and Europe in 19992000 compared with 19981999 primarily reflects an increased level of Ford-sponsored special installment sale financing and vehicle leasing programs available exclusively through Ford Credit.
Other Financing Activities
Ford Credit makes capital loans to vehicle dealers for facilities expansion and working capital and to enable them to purchase dealership real estate. Such loans totaled $3,395.1$3,642.1 million at December 31, 1999.2000. From time to time, Ford Credit purchases accounts receivable of certain divisions and affiliates of Ford. At December 31, 1999,2000, such receivables totaled $3,658.4$3,518.9 million.
Credit Loss Experience
The following table sets forth information concerning Ford CreditsCredit’s credit loss experience with respect to the various categories and geographic regions of financing during the years indicated:
2000 | 1999 | 1998 | 1997 | 1996 | ||||||||||||||||||
(dollar amounts in millions) | ||||||||||||||||||||||
Net credit losses/(recoveries) | ||||||||||||||||||||||
Retail* | $ | 1,283.4 | $ | 994.8 | $ | 1,030.8 | $ | 1,004.4 | $ | 803.6 | ||||||||||||
Wholesale | 13.5 | 3.3 | 9.3 | (1.1 | ) | 18.6 | ||||||||||||||||
Other | 0.3 | 1.6 | (0.7 | ) | 3.8 | 7.8 | ||||||||||||||||
Total | $ | 1,297.2 | $ | 999.7 | $ | 1,039.4 | $ | 1,007.1 | $ | 830.0 | ||||||||||||
United States | $ | 1,205.3 | $ | 884.4 | $ | 916.2 | $ | 900.4 | $ | 707.0 | ||||||||||||
Europe | 61.7 | 65.7 | 57.1 | 66.5 | 95.5 | |||||||||||||||||
Other international | 30.2 | 49.6 | 66.1 | 40.2 | 27.5 | |||||||||||||||||
Total | $ | 1,297.2 | $ | 999.7 | $ | 1,039.4 | $ | 1,007.1 | $ | 830.0 | ||||||||||||
* | Includes net credit losses on operating leases |
Net losses as a percent of average net receivables* | |||||||||||||||||||||
Retail | 1.14 | % | 0.95 | % | 1.08 | % | 1.17 | % | 1.03 | % | |||||||||||
Total finance receivables | 0.84 | 0.74 | 0.86 | 0.89 | 0.78 | ||||||||||||||||
Provision for credit losses | $ | 1,670.8 | $ | 1,166.4 | $ | 1,179.5 | $ | 1,338.2 | $ | 993.3 | |||||||||||
Allowance for credit losses | 1,644.9 | 1,475.6 | 1,548.2 | 1,471.4 | 1,217.6 | ||||||||||||||||
As percent of net receivables* | 1.02 | % | 1.04 | % | 1.19 | % | 1.27 | % | 1.09 | % |
* | Includes net investment in operating leases |
The decreaseCredit losses as a percent of average net finance receivables including net investment in 1999 credit lossesoperating leases increased to 0.84% in 2000 compared with 1998 reflects an
improvement0.74% in portfolio credit quality. Improved portfolio
credit quality reflects1999. This increase is due primarily to the effectslaunch of collection activities at the regional service centers in the United States and Canada, as centers transitioned new staff and launched new collection tools. Higher losses also reflect growth in sub-prime financing at Ford Credits special low-rate financing programs which attract
higher creditworthy purchasers.
subsidiaries.
Allowances for estimated credit losses are established as required based on historical experience. Other factors that affect collectibility also are evaluated and additional allowances may be provided. The provision for credit losses generally varies with changes in the amount of loss exposure and the absolute level of financing. Ford CreditsCredit’s retail loss experience is dependent upon the number of repossessions, the unpaid balance outstanding at the time of repossession, and the net resale value of repossessed vehicles. Wholesale losses generally reflect the financial condition of dealers. For additional information regarding credit losses, see Notes 1 and 6 of Notes to Financial Statements and see Item 7. Managements“Management’s Discussion and Analysis of Financial Condition and Results of Operations.
”
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Security
Ford Credit generally either holds security interests in or is the title owner of the vehicles whichthat it finances or leases and generally is able to repossess a vehicle in the event of a default. The right to repossess under a security interest securing wholesale obligations generally is ineffectual, as a matter of law, against a retail buyer of a vehicle from a dealer. Under the wholesale installment sale plan, dealers are permitted
to delay payment of up to 10% of a vehicles financed
balance for up to 60 days after the dealer sells the
vehicle. A portion of such delayed payments may, under certain
circumstances, be unsecured. Obligations arising from lease financing extended to leasing companies are collateralized to the extent practicable by assignments of rentals under the related leases and, in almost all instances, by perfected liens on the vehicles.
Borrowings and Other Sources Of Funds
Ford Credit relies heavily on its ability to raise substantial amounts of funds. These funds are obtained primarily by the issuance of term debt, the sale of commercial paper and, in the case of Ford Credit Europe, the issuance of certificates of deposit. Funds also are provided by retained earnings and sales of receivables. The level of funds can be affected by certain transactions with Ford, such as capital contributions, interest supplements and other support costs from Ford for vehicles financed and leased by Ford Credit under Ford-sponsored special financing and leasing programs, and dividend payments, and the timing of payments for the financing of dealersdealers’ wholesale inventories and for income taxes. Ford CreditsCredit’s ability to obtain funds is affected by its debt ratings, which are closely related to the outlook for, and financial condition of Ford, and the nature and availability of support facilities. The long-term senior debt of Ford, Ford Credit and Ford Credit Europe are rated A1“A2” and A+“A” and the commercial paper of Ford Credit and Ford Credit Europe are rated Prime-1“Prime-1”, “A-1”, and A-1“F1” by MoodysMoody’s Investors Service, and Standard & Poors& Poor’s Ratings Group and Fitch, Inc., respectively. For additional information regarding Ford CreditsCredit’s association with Ford, see Certain“Certain Transactions with Ford and Affiliates.
”
Ford CreditsCredit’s outstanding debt at the end of each of the years indicated was as follows:
2000 | 1999 | 1998 | 1997 | 1996 | |||||||||||||||||
(in millions) | |||||||||||||||||||||
Commercial paper(a) and STBAs(b) | $ | 42,255 | $ | 43,078 | $ | 48,636 | $ | 42,311 | $ | 38,774 | |||||||||||
Other short-term debt(c) | 7,875 | 6,770 | 4,997 | 3,897 | 4,243 | ||||||||||||||||
Long-term debt (including current portion)(d) | 96,165 | 83,226 | 61,334 | 54,517 | 55,007 | ||||||||||||||||
Total debt | $ | 146,295 | $ | 133,074 | $ | 114,967 | $ | 100,725 | $ | 98,024 | |||||||||||
United States | $ | 116,427 | $ | 104,186 | $ | 85,394 | $ | 78,443 | $ | 76,635 | |||||||||||
Europe | 14,866 | 14,510 | 16,653 | 12,491 | 14,028 | ||||||||||||||||
Other international | 15,002 | 14,378 | 12,920 | 9,791 | 7,361 | ||||||||||||||||
Total debt | $ | 146,295 | $ | 133,074 | $ | 114,967 | $ | 100,725 | $ | 98,024 | |||||||||||
Memo: | |||||||||||||||||||||
Total support facilities (billions) as of December 31: | |||||||||||||||||||||
Ford Credit(e) | $ | 26.8 | $ | 26.0 | $ | 26.9 | $ | 26.6 | $ | 27.2 | |||||||||||
Ford Credit Europe | 5.2 | 5.2 | 5.3 | 5.2 | 5.7 |
(a) | Includes commercial paper of $1,031 million with an affiliated company at December 31, 1999. |
(b) Short-term borrowing agreements with bank trust departments.
(c) | Includes $571 million, $718 million, $989 million, $831 million |
(d) | Includes $2,576 million, $3,457 million, $2,878 million, $3,547 million |
(e) | Excludes support of Ford |
5
Outstanding commercial paper totaled $43.1$42.3 billion
(including $1 billion owed to Ford) at December 31, 1999,2000, down $3.1 billionapproximately $800 million from a year earlier. In 1999,2000, long-term debt placements were $34.1$33.8 billion compared with maturities and early redemptions of $12.3$21.9 billion. Long-term debt placements in 19981999 were $18.2$34.1 billion. In 1999,2000, Ford Credit also received $9.9$19.5 billion from sales of receivables compared with $8.0$9.9 billion in 1998.
1999.
Support facilities represent additional sources of funds, if required. At December 31, 1999,2000, Ford Credit had approximately $18.3$19.3 billion of contractually committed facilities. In addition, approximately $7.7$7.5 billion of Ford lines of credit may be used by Ford Credit at FordsFord’s option. These credit lines have various maturity dates through June 30, 20042005 and may be used, at Ford CreditsCredit’s option, by any of its direct or indirect majority-owned subsidiaries. Any such borrowings will be guaranteed by Ford Credit. Banks also provide $1.4 billion of contractually committed liquidity facilities to support Ford CreditsCredit’s asset backed commercial paper program.
Additionally, at December 31, 1999,2000, there was approximately $4.6 billion of contractually committed facilities available for Ford Credit EuropesEurope’s use. In addition, $615$598 million of Ford lines of credit lines may be used by Ford Credit Europe at FordsFord’s option. The lines have various maturity dates through June 30, 20042005 and may be used, at Ford Credit EuropesEurope’s option, by any of its direct or indirect majority-owned subsidiaries. Any such borrowingborrowings will be guaranteed by Ford Credit Europe.
FORD CREDIT EMPLOYEE RELATIONS
At December 31, 1999,2000, Ford Credit and its subsidiaries had 17,47018,704 employees. All such employees are salaried, and none is represented by a union. Ford Credit considers its employee relations to be satisfactory.
FORD CREDIT GOVERNMENTAL REGULATIONS
Certain aspects of Ford Credits U.S.Credit’s United States financing operations are regulated in the various jurisdictions in which it operates. Many jurisdictions require licenses to conduct financing of retail sale and lease transactions. Interest rates, particularly those with respect to consumer financing, generally are limited by law. In periods of high interest rates, these rate limitations can have a substantial adverse effect on operations in certain jurisdictions if Ford Credit is unable to pass on its increased costs of funds to customers.
During the past several years, legislative,Legislative, judicial and administrative authorities have evidencedcontinue to evidence a growing concern for the protection of consumers especially in connection with consumer financing transactions. As a result, significant changes
have been made in the methods by which Ford Credit and others in the financing industry are requiredhave made some changes to the way in which they conduct business. Many
additionaltheir financing transactions. Still other proposals have been made which if adopted would require further changes. None of thethese changes to date has had a substantialmaterial adverse effect on the operations of Ford Credit.
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CERTAIN TRANSACTIONS WITH FORD AND AFFILIATES
For information concerning transactions between Ford Credit and Ford or affiliates, see Note 13 of Notes to Financial Statements, Business“Business of Ford Credit — Other Financing
ActivitiesFinancial Activities”, Business“Business of Ford Credit — Borrowings and Other Sources of FundsFunds” and Item 6
Selected— “Selected Financial Data — Selected Income Statement Data.” The profit maintenance agreement referred to in the first paragraph of Note 13 of Notes to Financial Statements, under which Ford has agreed to maintain the income of Ford Credit at certain minimum levels, expires at the end of 2001. In addition, Ford Credit has agreed to maintain a minimum control interest in Ford Credit Europe and has agreed to maintain Ford Credit EuropesEurope’s net worth atabove a minimum level.
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BUSINESS OF FORD
Ford Motor Company was incorporated in Delaware in 1919. Ford acquired the business of a Michigan company, also known as Ford Motor Company, incorporated in 1903 to produce and sell automobiles designed and engineered by Henry Ford. Ford is the worlds largest producer of trucks and theworld’s second-largest producer of cars and trucks combined. Ford and its subsidiaries also engage in other businesses, including manufacturing
automotive components and systems and financing and renting vehicles and equipment.
Overview
FordsFord’s business is divided into two business sectors,sectors: the Automotive sector and itthe Financial Services sector. Ford manages these sectors as fourthree primary operating segments. These
business sectors and operating segments areas described below.
Business Sectors | Operating Segments | Description | ||||||
Automotive: | Automotive | design, manufacture, sale, and service of cars and trucks | ||||||
Financial Services: | Ford Motor Credit Company | vehicle-related financing, leasing, and insurance | ||||||
The Hertz Corporation | renting and leasing of cars and trucks and renting industrial and construction equipment, and other activities |
Automotive Sector
Ford sells cars and trucks and automotive components and systems
throughout the world. In 19992000, Ford sold 7.27.4 million vehicles throughout the world. FordsFord’s automotive vehicle brands include Ford, Mercury, Lincoln, Volvo, Jaguar, Land Rover, Aston Martin and TH!NK. In addition, Ford owns 33.4% of Mazda Motor Corporation (Mazda(“Mazda”). Ford completed the purchase of AB Volvosthe Land Rover worldwide passenger carsport utility vehicle business (Volvo Car(“Land Rover”) from the BMW Group on March 31, 1999.June 30, 2000. As a result, Fords 1999Ford’s 2000 results and financial condition include Volvo
CarsLand Rover’s results and financial condition since the date of the acquisition. In addition, on June 28, 2000, Ford distributed 130 million shares of Visteon Corporation (Ford’s former automotive systems and components division), which represented Ford’s 100% ownership interest, by means of a tax-free spin-off in the form of a dividend on Ford Common and Class B Stock. For the first half of 2000, Visteon is included in Ford’s results as a discontinued operation. Beginning with the third quarter of 2000, Visteon is excluded completely from Ford’s results and financial condition.
The worldwide automotive industry, Ford included, is affected significantly by a number of factors over which itFord has little control, including general economic conditions. In the United States, the automotive industry is a highly-competitive, cyclical business that has a wide variety of product offerings. The number of cars and trucks sold to retail buyers (commonly referred to as industry demand“industry demand”) can vary substantially from year to year. In any year, industry demand depends largely on general economic conditions, the cost of purchasing and operating cars and trucks, and the availability and cost of credit and fuel. Industry demand also reflects the fact that cars and trucks are durable items that people can wait to replace.
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 countries of origin. Most of the factors that affect the United States automotive industry and its sales volumes and profitability are equally relevant outside the United States.
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The worldwide automotive industry also is affected significantly by a substantial amount of costly governmentgovernmental regulation. In the United States and Europe, for example, governmentgovernmental regulation has arisen
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FordsFord’s unit sales vary with the level of total industry demand and itsFord’s share of that industry demand. FordsFord’s share is influenced by how its products compare with those offered by other manufacturers based on many factors, including design, driveability, price, quality, reliability, safety, and utility. FordsFord’s share also is affected by its timing of new model introductions and manufacturing capacity limitations. FordsFord’s ability to satisfy changing consumer preferences with respect to type or size of vehicle and its design and performance characteristics can impact itsFord’s sales and earnings significantly.
The profitability of vehicle sales is affected by many factors, including the following:
unit sales volume | ||
the mix of vehicles and options sold | ||
the margin of profit on each vehicle sold | ||
the level of | ||
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 manage costs | ||
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 (including relatively fixed labor costs), which can result in large changes in earnings from relatively small changes in unit volume.
Following is a discussion of the automotive industry in the principal markets where Ford competes, as well as a discussion of its Visteon operating segment, itsFord’s Automotive Consumer Services Group and itsFord’s ConsumerConnect e-commerce initiatives and strategy:
United States
Sales Data.The following table shows U.S. industry retail
deliveriessales of cars and trucks for the years indicated:
U. S. Industry Sales | ||||||||||||||||||||
(millions of units) | ||||||||||||||||||||
Years Ended December 31, | ||||||||||||||||||||
2000 | 1999 | 1998 | 1997 | 1996 | ||||||||||||||||
Cars | 8.8 | 8.7 | 8.2 | 8.3 | 8.6 | |||||||||||||||
Trucks | 9.0 | 8.7 | 7.8 | 7.2 | 6.9 | |||||||||||||||
Total | 17.8 | 17.4 | 16.0 | 15.5 | 15.5 | |||||||||||||||
Ford classifies cars by small, middle, large and luxury segments and trucks by compact pickup, compact bus/van/utility, full-size pickup, full-size bus/van/utility and medium/heavy segments. The large and luxury car segments and the compact bus/van/utility, full-size pickup and full-size bus/van/utility truck segments include the industrysindustry’s most profitable vehicle lines. The term bus“bus” as used in this discussion refers to vans designed to carry passengers. The following tables show the proportion of United States retail car and truck unit
8
U. S. Industry Vehicle Sales by Segment | ||||||||||||||||||||
Years Ended December 31, | ||||||||||||||||||||
2000 | 1999 | 1998 | 1997 | 1996 | ||||||||||||||||
CARS | ||||||||||||||||||||
Small | 16.7 | % | 16.1 | % | 16.9 | % | 18.1 | % | 19.1 | % | ||||||||||
Middle | 23.0 | 23.7 | 23.6 | 24.7 | 25.6 | |||||||||||||||
Large | 2.7 | 3.0 | 3.4 | 3.9 | 3.9 | |||||||||||||||
Luxury | 7.3 | 7.1 | 7.1 | 6.7 | 6.7 | |||||||||||||||
Total U.S. Industry Car Sales | 49.7 | 49.9 | 51.0 | 53.4 | 55.3 | |||||||||||||||
TRUCKS | ||||||||||||||||||||
Compact Pickup | 5.9 | % | 6.2 | % | 6.7 | % | 6.4 | % | 6.2 | % | ||||||||||
Compact Bus/ Van/ Utility | 23.2 | 22.1 | 21.1 | 20.0 | 19.0 | |||||||||||||||
Full-Size Pickup | 12.4 | 12.7 | 12.4 | 12.0 | 12.6 | |||||||||||||||
Full-Size Bus/ Van/ Utility | 6.6 | 6.5 | 6.5 | 6.1 | 5.0 | |||||||||||||||
Medium/ Heavy | 2.2 | 2.6 | 2.3 | 2.1 | 1.9 | |||||||||||||||
Total U.S. Industry Truck Sales | 50.3 | 50.1 | 49.0 | 46.6 | 44.7 | |||||||||||||||
Total U.S. Industry Vehicle Sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||
Ford Vehicle Sales by Segment in U.S. | ||||||||||||||||||||
Years Ended December 31, | ||||||||||||||||||||
2000 | 1999 | 1998 | 1997 | 1996 | ||||||||||||||||
CARS | ||||||||||||||||||||
Small | 14.5 | % | 13.5 | % | 13.1 | % | 12.7 | % | 13.4 | % | ||||||||||
Middle | 13.9 | 15.7 | 16.7 | 19.6 | 22.1 | |||||||||||||||
Large | 5.1 | 5.7 | 5.7 | 5.6 | 5.3 | |||||||||||||||
Luxury | 6.6 | 6.0 | 4.2 | 4.1 | 4.1 | |||||||||||||||
Total Ford U.S. Car Sales | 40.1 | 40.9 | 39.7 | 42.0 | 44.9 | |||||||||||||||
TRUCKS | ||||||||||||||||||||
Compact Pickup | 7.9 | % | 8.4 | % | 8.4 | % | 7.7 | % | 7.4 | % | ||||||||||
Compact Bus/ Van/ Utility | 19.1 | 17.7 | 18.1 | 18.9 | 20.0 | |||||||||||||||
Full-Size Pickup | 20.9 | 20.9 | 21.3 | 19.3 | 20.0 | |||||||||||||||
Full-Size Bus/ Van/ Utility | 11.7 | 11.8 | 12.1 | 11.0 | 6.6 | |||||||||||||||
Medium/ Heavy* | 0.3 | 0.3 | 0.4 | 1.1 | 1.1 | |||||||||||||||
Total Ford U.S. Truck Sales | 59.9 | 59.1 | 60.3 | 58.0 | 55.1 | |||||||||||||||
Total Ford U.S. Vehicle Sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||
* | In 1997 Ford sold its heavy truck businesses in North America and Australia/ New Zealand to Freightliner Corporation. Ford ceased production of heavy trucks in North America in December 1997. The transfer of the North American and |
As shown in the tables above, since 19951996 there has been a steady shift from cars to trucks for both industry sales and Ford sales. Ford’s sales of the middle car segment as a percentage of its total sales has deteriorated more than the general decline of the industry sales in that segment because of the discontinuance of certain product offerings in the segment (e.g., Ford Thunderbird and Contour and Mercury Mystique).
9
Market Share Data.The following tables show changes in car and truck United States market shares of the six leading vehicle manufacturers for the years indicated:
U.S. Car Market Shares* | |||||||||||||||||||||
Years Ended December 31, | |||||||||||||||||||||
2000 | 1999 | 1998 | 1997 | 1996 | |||||||||||||||||
Ford** | 19.1 | % | 19.9 | % | 20.4 | % | 20.8 | % | 21.6 | % | |||||||||||
General Motors | 28.6 | 29.3 | 29.8 | 32.2 | 32.3 | ||||||||||||||||
DaimlerChrysler*** | 9.1 | 10.3 | 10.7 | 10.2 | 10.9 | ||||||||||||||||
Toyota | 11.0 | 10.2 | 10.6 | 9.9 | 9.3 | ||||||||||||||||
Honda | 10.0 | 9.8 | 10.6 | 10.0 | 9.2 | ||||||||||||||||
Nissan | 4.8 | 4.6 | 5.0 | 5.7 | 5.9 | ||||||||||||||||
All Other**** | 17.4 | 15.9 | 12.9 | 11.2 | 10.8 | ||||||||||||||||
Total U.S. Car Retail Deliveries | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||
U.S. Truck Market Shares* | |||||||||||||||||||||
Years Ended December 31, | |||||||||||||||||||||
2000 | 1999 | 1998 | 1997 | 1996 | |||||||||||||||||
Ford** | 28.3 | % | 28.6 | % | 30.5 | % | 31.4 | % | 31.4 | % | |||||||||||
General Motors | 27.0 | 27.8 | 27.5 | 28.8 | 29.0 | ||||||||||||||||
DaimlerChrysler*** | 21.5 | 22.2 | 23.2 | 21.9 | 23.4 | ||||||||||||||||
Toyota | 7.2 | 6.7 | 6.3 | 5.7 | 5.3 | ||||||||||||||||
Honda | 3.1 | 2.6 | 1.9 | 1.5 | 0.8 | ||||||||||||||||
Nissan | 3.7 | 3.2 | 2.7 | 3.6 | 3.6 | ||||||||||||||||
All Other***** | 9.2 | 8.9 | 7.9 | 7.1 | 6.5 | ||||||||||||||||
Total U.S. Truck Retail Deliveries | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||
U.S. Combined Car and Truck Market Shares* | |||||||||||||||||||||
Years Ended December 31, | |||||||||||||||||||||
2000 | 1999 | 1998 | 1997 | 1996 | |||||||||||||||||
Ford** | 23.7 | % | 24.3 | % | 25.3 | % | 25.8 | % | 25.9 | % | |||||||||||
General Motors | 27.8 | 28.5 | 28.7 | 30.6 | 30.8 | ||||||||||||||||
DaimlerChrysler*** | 15.3 | 16.3 | 16.8 | 15.6 | 16.5 | ||||||||||||||||
Toyota | 9.1 | 8.5 | 8.5 | 7.9 | 7.5 | ||||||||||||||||
Honda | 6.6 | 6.2 | 6.3 | 6.0 | 5.5 | ||||||||||||||||
Nissan | 4.3 | 3.9 | 3.9 | 4.7 | 4.8 | ||||||||||||||||
All Other**** | 13.2 | 12.3 | 10.5 | 9.4 | 9.0 | ||||||||||||||||
Total U.S. Car and Truck Retail Deliveries | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||
All U.S. retail sales data are based on publicly available information from the media and trade publications. | |
| Ford purchased Volvo Car on March 31, |
| Chrysler and Daimler-Benz merged in late 1998. The figures shown here combine Chrysler and Daimler-Benz (excluding Freightliner and Sterling Heavy Trucks) on a pro forma basis for the periods prior to their merger. |
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***** | “All Other” in the U.S. Truck Market Shares table includes primarily companies based in various European countries, Korea and other Japanese manufacturers. The increase in combined market share shown for “All Others” in this table reflects primarily increases in market share for Mazda and Mitsubishi. |
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The decline in United Statescar market share for Ford in 2000 is primarily the result of the discontinuance of the Contour and Mystique products. The decline in truck market share for Ford since 1997 is primarily the result of recent new truck offerings by competitors and capacity constraints on several key products duewith respect to certain truck components during periods of strong demand in that market.
demand.
Marketing Incentives and Fleet Sales.Automotive manufacturers that sell vehicles in the United States frequentlytypically give purchasers price discounts or other marketing incentives. These incentives are the result of competition from new product offerings by manufacturers and the desire to maintain production levels and market shares. Manufacturers provide these incentives to both retail and fleet customers (fleet customers include daily rental companies, commercial fleet customers, leasing companies and governments). Marketing incentives generally are higher during periods of economic downturns, when excess capacity in the industry tends to increase.
FordsFord’s marketing costs in the United States as a percentage of gross sales revenue were as follows for the following three years: 11.1% (2000), 10.6% (1999), and 10.4% (1998) and 8.7% (1997). These marketing costs“marketing costs” include primarily (i) marketing incentives on vehicles, such as retail rebates and costs for special financing and lease programs, (ii) reserves for costs and/or losses associated with itsFord’s required repurchase of certain vehicles sold to daily rental companies, and (iii) costs for advertising and sales promotions for vehicles. The increase in marketing costs over the last several years is a result of intense competition in the United States market.
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 customers has been about evenly split in recent years. The table below shows FordsFord’s fleet sales in the United States, and the amount of those sales as a percentage of itsFord’s total United States car and truck sales, for the last five years.
Ford Fleet Sales | ||||||||||||||||||||
Years Ended December 31, | ||||||||||||||||||||
2000 | 1999 | 1998 | 1997 | 1996 | ||||||||||||||||
Units sold | 977,000 | 940,000 | 878,000 | 923,000 | 936,000 | |||||||||||||||
Percent of Ford’s total U.S. car and truck sales | 23% | 23% | 22% | 24% | 24% |
Warranty Coverage.Ford presently provides warranty coverage for defects in factory-supplied materials and workmanship on all vehicles (other than medium trucks) Ford sells in the United States. This warranty coverage for Ford/ Mercury vehicles extends for 36 months or 36,000 miles (whichever occurs first) and covers components of the vehicle, other thanincluding tires which arebeginning January 1, 2001 for 2001 and later model years. Prior to January 1, 2001 tires were warranted only by the tire manufacturers. The United States warranty coverage for luxury vehicles (Lincoln, Jaguar, Volvo, and Volvo)Land Rover) extends for 48 months or 50,000 miles (whichever occurs first). but, except for Lincoln beginning January 1, 2001, does not include tires, which are warranted by the tire manufacturers. In general, different warranty coverage is provided on medium/heavy trucks and on vehicles sold outside the United States. In addition, as discussed below under Governmental“Governmental Standards — Mobile Source Emissions ControlControl”, the Federal Clean Air Act requires warranty coverage for a useful life“useful life” of 10 years or 100,000 miles (whichever occurs first) for emissions equipment on most light duty vehicles sold in the United States. As a result of these warranties and the increased concern for customer satisfaction, costs for warranty repairs, emissions equipment repairs, and customer satisfaction actions ((“warranty costscosts”) 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.
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Europe
Outside of the United States, Europe is FordsFord’s largest market for the sale of cars and trucks. The automotive industry in Europe is intensely competitive. Over the past year, 60140 new or freshened vehicles, including derivatives of existing vehicles, were introduced in the European market by various manufacturers. For the past 1314 years, the top six manufacturers have each achieved a car market share in about the 10% to 18% range. (Manufacturers(Manufacturers’ shares, however, vary considerably by country.) This competitive environment is expected to intensify further as a result of import restrictions
on vehicles assembled in Japan having been removed in total on
December 31, 1999, and as Japanese manufacturers, which together had a European car market share of 12%11.4% for 1999,2000, increase their production capacity in Europe. Ford estimates that in 19992000 the European automotive industry had excess
11
In 1999,2000, vehicle manufacturers sold approximately 1717.8 million cars and trucks in Europe, up 6%down 2% from 19981999 levels. FordsFord’s combined car and truck market share in Europe in 19992000 was 10.6%10.0%, up 4/down 2/10 of one percentage point from 1998.
1999.
Britain and Germany are FordsFord’s 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 itsFord’s total automotive profits. For 19992000 compared with 1998,1999, total industry sales were down 2.3%up 1% in Britain and up 1.8%down 10% in Germany.
For purposes of the figures shown in this section, for 1999 and
prior years, Ford has considered Europe to consist of the following 1519 markets: Britain, Germany, France, Italy, Spain, Austria, Belgium, Ireland, Netherlands, Portugal, Switzerland, Finland, Sweden, Denmark, and Norway. Beginning January 1,
2000 and going forward, Ford will include the following four
additional markets as part of the European market:Norway, Czech Republic, Greece, Hungary, and Poland.
Other Markets
Mexico and Canada.Mexico and Canada also are important markets for Ford. In 1999,2000, industry sales of new cars and trucks in Mexico were approximately 690,000886,000 units, up 4%28% from 19981999 levels. In Canada, industry sales of new cars and trucks in 19992000 were approximately 1.51.59 million units, up 7%3% from 19981999 levels. FordsFord’s combined car and truck market share in these markets in 19992000 was 16.5%16.2% (Mexico) and 19%17.8% (Canada).
South America.Brazil and Argentina are FordsFord’s principal markets in South America. The economic environment in those countries has been volatile in recent years, leading to large variations in industry sales. Results have also been influenced by the devaluation of the Brazilian currency, continued weak economic conditions and government actions to reduce inflation and public deficits. Industry sales in 19992000 were 1.31.45 million units in Brazil, downup about 19%16% from 1998,1999, and approximately 380,000307,000 units in Argentina, down 16%19% from 1998. The devaluation1999. Brazil shows signs of the Brazilian
Realcontinued economic recovery and continuedFord expects industry volumes to improve further in 2001. Economic conditions remain weak economic conditions will adversely affectin Argentina, which could lead to further deterioration of industry salesvolumes in 2000. Fords2001. Ford’s combined car and truck market share in these markets in 19992000 was 9.7%9.1% (Brazil) and 15.3%14.9% (Argentina).
Ford has undertaken restructuring actions in recent years to reduce costs and improve its competitiveness in South America. In addition, Ford is building a new assembly plant in Brazil, which will manufacture a new family of vehicles for the South America markets. The new plant will start building the Courier this fall and begin producing an all-new vehicle next year.
Asia Pacific.In the Asia Pacific region, Australia, Taiwan and Japan are FordsFord’s principal markets. Industry volumes in 19992000 in this region were as follows: approximately 787,000788,000 units in Australia (down 3%(up 0.1% from 1998)1999), approximately 424,000420,000 units in Taiwan (down 11%1% from 1998)1999) and approximately 5.96 million units in Japan (unchanged(up 1.7% from 1998)1999). In 1999,
Fords2000, Ford’s combined car and truck market share in Australia was 16.1%15.4%. In Taiwan, Ford had a combined car and truck market share in 19992000 of 12.6%12.3%. FordsFord’s combined car and truck market share in Japan has been less than 1% in recent years. Ford owns a 33.4% interest in Mazda Motor Corporation (Mazda) and accountsaccount for Mazda on an equity basis. MazdasMazda’s market share in Japan has been 5-6%in the 5 to 6% range in recent years. FordsFord’s principal competition in the Asia Pacific region has been the Japanese manufacturers. Ford anticipates
12
Ford opened a new assembly plant in India in 1999, launching an all-new small car (the IKON)Ikon) designed specifically for that market. In 2000, approximately 17,000 Ikons were produced for sale in India. In addition, India commenced sale of Ikon CKD (completely knocked down) kits to Mexico and South Africa. Ford expects India to become one of its most important markets in Asia in the future.
Africa.In recent years, Ford has operated in the South African market as a 45% owner in the South African Motor Corporation (Pty.) Limited (SAMCOR(“SAMCOR”). In January 2000, Ford andincreased its principal
partner, Anglo American Corporation of South Africa Limited,
announced that Ford will purchase Anglos 45% interest in
SAMCOR; 35% will be purchased during 2000 and the remaining 10%
will be purchased in approximately two years. Ford has also
agreed to purchase during 2000, the 10%ownership interest in SAMCOR that
is currently ownedto 100% by purchasing the SAMCOR Employee Trust. Eachremaining 55% Ford did not previously own. Subsequent to this purchase, SAMCOR’s name was changed to Ford Motor Company of these
purchases is subject to receiving prior regulatory approval.
Southern Africa (“FMCSA”).
SAMCORFMCSA assembles and distributes Ford, Mazda, Mitsubishi and, Mitsubishibeginning in 2000, Volvo vehicles in South Africa, and is also expected to begin
assembling and distributing VolvoAfrica. In addition, FMCSA distributes Jaguar vehicles. In addition, SAMCOR
distributes Jaguar
12
Industry Consolidation and Global Competition
The worldwide automotive industry is trending toward further
consolidation, such as the DaimlerChrysler merger, Fords
acquisition of Volvo Car and the recently announced alliance
between General Motors and Fiat. Such consolidation could be good
for the industry to the extent it reduces excess capacity.
Consolidation could also result in there being fewer but stronger
competitors in the industry. Ford believes that it is
well-positioned and does not need to participate in the
consolidation trend to compete globally. However, as with its
purchase of Volvo Car, Ford considers opportunities with other
manufacturers when it believes it would be beneficial to its
business. Presently, its major competitors on a global basis are
DaimlerChrysler, General Motors, Honda, Toyota and Volkswagen.
Visteon Automotive Systems
Visteon is an enterprise of Ford and consists of certain
subsidiaries and divisions of Ford. Visteon is a global provider
of integrated systems and components to automotive manufacturers
and other automotive suppliers. Visteon ranks as the
third-largest automotive supplier in the world based on revenues
of $19.4 billion for 1999. Visteon operates in three
business segments:
Currently, most of Visteons business is with Ford. In 1999
Visteons mix of business was 88% Ford and 12% non-Ford. In
addition, in 1999 most of Visteons business was in North
America (81%). Visteons goal, however, is to continue to
obtain new business from companies other than Ford and to further
expand its business beyond North America. In 1999, 38% of
Visteons new business was from non-Ford customers and 39%
was from outside North America.
Below are some financial highlights for Visteon (in millions):
Ford previously announced that one of its financial milestones
for the year 2000 is for Visteon to achieve independence. Ford
has taken a major step toward achieving greater independence for
Visteon by starting the process of changing Visteon from an
enterprise of Ford into a separate legal entity that will be a
wholly-owned subsidiary of Ford.
13
Automotive Consumer Services Group
Automotive Consumer Services Group is a global automotive service
organizationbusiness unit within Ford that includes Ford Customer Service Division and an all-makes channel, otherwise known as Ford’s Diversified Consumer Services organization, consisting of several leading automotive service brands.
Ford Customer Service Division supports consumers of Ford, Lincoln and Mercury brand vehicles through a network of franchised dealers. This is the principal source of vehicle service and customer support for Ford
Motor CompanyFord’s vehicle owners, traditionally recognized by the Quality CareSM brand.
In the all-makes channel,Through Ford’s Diversified Consumer Services organization, vehicle owners for all automotive brands can access services in areas of maintenance and light repair, collision repair, extended service business, and recycling. FordsFord’s all-makes channel of companies includes: Kwik-Fit (maintenance and light repair in Europe), Pit Stop (maintenance and light repair in Europe), Speedy (maintenance and light repair in Europe), Master ServiceMasterGroup (maintenance and light repair, collision repair, and used car sales outlets in Mexico), B-quik (maintenance and light repair in Thailand), Collision Team of America (collision repair in the U.S.)United States), Howard Basford (collision repair in the U.K.)United Kingdom), and Automobile Protection Corporation (extended service business selling all-makes policies through dealers in the U.S.)United States), and GreenLeaf (automotive recycling in the United States and Europe). The characteristics of the all-makes channelDiversified Consumer Services organization align closely with the Groups core dealer businessFord Customer Service Division and expand the customer base to consumers previously outside the Ford network of service providers.
Automotive Consumer Services Group conducts business in 38over 40 countries and serves consumers through over 13,000 dealer outlets and over 2,0002,500 all-makes outlets.
ConsumerConnect
ConsumerConnect is a business unit within Ford believesdedicated to building e-business platforms across Ford which revolutionize core business processes within Ford globally and provide the consumer an enhanced purchase and ownership experience.
In 2000, ConsumerConnect was involved in the creation of several joint ventures. In the B2C (Business-to-Consumer) arena, ConsumerConnect established DealerDirect LLC which conducts business under the name FordDirect.com. This is the first e-commerce joint venture between an automotive manufacturer and its dealer body, and it is onewill provide consumers with an improved internet experience in buying and owning a Ford vehicle. Ford owns 93% of the economic interest in DealerDirect LLC and 20% of the general voting power. In the Mobile Commerce (M-commerce) arena, ConsumerConnect launched Wingcast, LLC, a joint venture with Qualcomm, Incorporated dedicated to providing wireless, digital information and entertainment services to consumers in their cars and trucks. Percepta, LLC, a joint venture with TeleTech Holdings, Inc. that
13
Finally, in the B2B (Business-to-Business) arena, ConsumerConnect was instrumental in launching Covisint, LLC — a business-to-business Internet based supplier exchange. Covisint will streamline the automotive companiesindustry supply chain by providing efficiencies to manufacturers and suppliers in electronic commerce and has created a numberalmost every stage of joint ventures
with leading Internet and software companies that touch every
aspect of its business. The most significant of these to datethe order-to-delivery process. Covisint was announced on February 25, 2000, whenfounded by Ford, General Motors Corporation, DaimlerChrysler AG, Renault S.A. and DaimlerChrysler announced plans to merge the two existing
business-to-business Internet-based supplier exchanges into a
single global portal, creating the worlds largest virtual
marketplace. This new venture will be open to all autoNissan Motor Co., Ltd. Each of these founding automotive manufacturers their suppliershas an ownership interest in Covisint, and dealers, and eventually could
be expanded to include other industries. Oracle Corporation and Commerce One, Inc. were announced asare the technology partnerspartners. Ford’s ownership interest in this venture.
Covisint is approximately 31%.
This announcement followed a number of others in which Ford
established joint ventures or partnerships with leaders like
Microsoft, Trilogy, Yahoo! and others to disseminate to consumers
information about Fords car and truck brands, improve the
purchase experience by reducing complexity and providing a more
satisfying experience, attract target customers and build
consumer loyalty through alliances with sites like iVillage and
bolt.com and to improve Fords customer service centers
through its joint venture with Teletech Holdings, Inc. These and
other initiatives are part of a cohesive, deliberate strategy to
transform Ford into a consumer company and an automotive leader
in e-commerce.
Ford Motor Credit Company
For information regarding the business of Ford Credit, see Business“Business of Ford Credit.
”
The Hertz Corporation
Hertz and its affiliates and independent licensees operate what Hertz believes is the largest car rental business in the world based upon revenues. HertzThey also operate one of the largest industrial and construction equipment rental businesses in North America based upon revenues. Hertz and its affiliates, associates and independent licensees, do the following:
rent and lease cars and trucks | ||
rent industrial and construction equipment |
14
• | sell | |
provide third-party claim management services | ||
provide telecommunications services |
These businesses are operated from approximately 6,5007,000 locations throughout the United States and in approximatelyover 140 foreign countries and jurisdictions. In April 1997, Hertz completed an
initial public offering of common stock representing a 19.1%
economic interest in Hertz.
Below are some financial highlights for Hertz (in millions):
Years Ended | ||||||||
December 31, | ||||||||
2000 | 1999 | |||||||
Revenue | $ | 5,087 | $ | 4,728 | ||||
Pre-Tax Income | 581 | 560 | ||||||
Net Income | 358 | 336 |
Between April 1997 and March 2001, Ford owned approximately 81% of the economic interest of Hertz, with the remaining 19% interest being represented by shares of Hertz common stock that were publicly traded. In March 2001, through a cash tender offer and a merger transaction, Ford acquired the publicly held shares and, as a result, Hertz has become an indirect, wholly-owned subsidiary of Ford.
Governmental Standards
A number of governmental standards and regulations relating to safety, corporate average fuel economy (CAFE(“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
14
Mobile Source Emissions Control — U.S. Requirements. The Federal Clean Air 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. Currently, most light duty vehicles sold in the United States must comply with these standards for 10 years or 100,000 miles, whichever first occurs. The U.S. Environmental Protection Agency (EPA(“EPA”) recently has promulgated post-2004 model year standards that are more stringent than the default standards contained in the Clean Air Act. These new regulations will require most light duty trucks to meet the same emissions standards as passenger cars by the 2007 model year. The stringency of the new standards may impact FordsFord’s ability to produce and offer a broad range of products with the characteristics and functionality that customers demand. The new standards also are likely to limit severely the use of diesel technology. In October, 1999,technology, which could negatively impact fuel economy performance. The EPA has also proposed newpromulgated post-2004 emission standards for heavy-duty“heavy-duty” trucks (8,500-14,000 lbs. gross vehicle weight). These proposed standards are likely to pose technical challenges and may affect the competitive position of full-line vehicle manufacturers such as Ford.
Pursuant to the Clean Air Act, California has received a waiver from the EPA to establish its own unique emissions control standards. New vehicles and engines sold in California must be certified by the California Air Resources Board (CARB(“CARB”). CARBsCARB’s emissions requirements (the California program“California program”) for model years 1994 through 2003 require manufacturers to meet a non-methane organic gases fleet average requirement that is significantly more stringent than that prescribed by the Clean Air Act for the corresponding periods of time. The California program initially required that a
specified percentage of each manufacturers vehicles
produced for sale in California, beginning at 2% in 1998 and
increasing to 10% in 2003, must be zero-emission vehicles
(ZEVs), which produce no emissions of regulated
pollutants. In 1996, CARB eliminated the ZEV mandate for the
1998-2002 model years; however, the 10% mandate remains in effect
for the 2003 model year. Around the same time, vehicle
manufacturers voluntarily entered into agreements with CARB that
would essentially: (i) provide air quality benefits for
California by certifying vehicles nationwide to standards
comparable to the California low emission vehicle standards
beginning with the 2001 model year, (ii) continue research
and development of ZEV technology, and (iii) provide
specific numbers of advanced technology battery vehicles through
demonstration programs in California.
15
Electric vehicles are the only presently known type of
zero-emission vehicles. However, despite intensive research
activities, technologies have not been identified that would
allow manufacturers to produce an electric vehicle that either
meets most customers expectations or is commercially
viable. Compliance with the ZEV mandate may require manufacturers
to curtail the sale of non-electric vehicles or to offer
substantial discounts on electric vehicles, selling them well
below cost, while increasing the price on non-electric vehicles.
The California program and ZEV mandates present significant
technological challenges to manufacturers and compliance may
require costly actions that would have a substantial adverse
effect on Fords sales volume and profits.
In late 1998, CARB adopted stringent new vehicle emissions standards that must be phased in beginning in the 2004 model year. These new standards treat most light duty trucks the same as passenger cars and require both types of vehicles to meet new stringent emissions requirements. It is also expected that these new standards will essentially eliminate the use of diesel technology. CARBsCARB’s new standards present a difficult engineering and technological challenge, and may impact FordsFord’s ability to produce and offer a broad range of products with the characteristics and functionality that customers demand.
Since 1990, the California program has included requirements for manufacturers to produce and deliver for sale “zero-emission vehicles” (“the ZEV mandate”). The ZEV mandate initially required that a specified percentage of each manufacturer’s vehicles produced for sale in California, beginning at 2% in 1998 and increasing to 10% in 2003, must be zero-emission vehicles (“ZEVs”), which produce no emissions of regulated pollutants. In 1996, CARB eliminated the ZEV mandate for the 1998-2002 model years, but retained the 10% mandate in a modified form beginning with the 2003 model year. Around the same time, vehicle manufacturers voluntarily entered into agreements with CARB to conduct ZEV demonstration programs.
In January 2001, CARB voted to approve a series of complex modifications to the ZEV mandate. These modifications require large-volume manufacturers such as Ford to produce “partial zero-emission vehicles” (“PZEVs”) and/or ZEVs beginning in the 2003 model year. PZEVs are vehicles certified to California’s “super-ultra-low emission vehicle” (“SULEV”) tailpipe standards, with zero evaporative emissions. Using a series of phase-in tables and credit adjustments, the number of ZEVs required under the modified mandate will increase substantially between 2003 and 2018.
The Clean Air Act also permits other states whichthat do not meet national ambient air quality standards to adopt the California
programCalifornia’s motor vehicle emission standards no later than two years before the affected model year. New York, Massachusetts, Vermont, and Maine have adopted the California program (NY and MAstandards effective in the 1998 model year;
VT effective in the 2000 model year; and ME effective inwith the 2001 model year). Only NYyear or before. New York, Massachusetts, and MAVermont have either previously adopted, or indicated an intention to adopt, the Californias ZEV mandates (VTs law provides for possible future adoption of
amandate; however, at this writing it is not clear whether these states will adopt the ZEV mandate after certain findings have been made).regulations as modified by California in 2001. Maryland and New Jersey have laws requiring the adoption of the California program and ZEV mandates afterstandards if certain conditions have beentriggers are met. There are major problems with transferring California standards to the Northeast,northeast states, including the following: 1) many dealers
sell vehicles in neighboring (non-California program) states,
creating confusion over which emissions warranty applies;
2) the driving range of present ZEVs is greatly diminished (by more than 50 percent) in cold weather;weather, thereby limiting their market appeal; and 3)2) the Northeastnortheast states have refused to
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As noted previously, California eliminated itsBattery electric vehicles are the only zero-emission vehicles currently feasible for mass production. Despite intensive research activities, battery technology has not made the major strides that were projected when the ZEV mandate was originally enacted in 1990. Battery-electric vehicles remain considerably more costly than gasoline-powered vehicles, and they have a relatively short driving range before they must be recharged. These factors limit the consumer appeal of battery-powered vehicles. Ford plans to comply with the early years of the modified ZEV mandate through sales of its Th!nk brand of electric vehicles, along with one or more PZEV models. In the longer term, however, it is doubtful whether the market will support the number of battery electric vehicles called for by the 1998-2002 model years. New York refusedmodified ZEV mandate. Fuel cell technology may in the future enable production of ZEVs with widespread consumer appeal, but commercially feasible fuel cell technology appears to eliminate its
1998-2002be a decade or more away. Compliance with the ZEV requirement despitemandate may eventually require costly actions that would have a substantial adverse effect on Ford’s sales volume and profits. For example, Ford could be required to curtail the sale of non-electric vehicles and/or offer to sell electric vehicles well below cost. Other states may seek to adopt the ZEV mandate pursuant to Section 177 of the Clean Air Act, requirement of identicality with California standards. In August
1998, as a result of a legal challenge fromthereby increasing the automotive
industry, New Yorks pre-2003 model year ZEV requirements
were declared invalid by the U.S. Court of Appeals for the Second
Circuit. Massachusetts has attemptedcosts to adopt a ZEV mandate
mirroring the voluntary agreements in California between auto
manufacturers and CARB. A federal district court invalidated
these regulations, but Massachusetts has appealed the decision to
the U.S. Court of Appeals for the First Circuit. In September
1999, responding to a referral by the Court, EPA expressed its
view that the California agreements do constitute
standards which could be adopted as regulations by
Massachusetts. This issue is still in litigation.
Ford.
The automotive industry has entered into a National Low Emissions
Vehicle (NLEV) program, which the EPA promulgated as a rule
and which has been agreed to by all manufacturers and all states
except Maine, Massachusetts, New York and Vermont. This NLEV
program requires manufacturers to sell low emission vehicles in
the participating northeastern states beginning with the 1999
model year, and throughout the remainder of the country beginning
with the 2001 model year.
Under the Clean Air Act, the EPA and CARB can require manufacturers to recall and repair non-conforming vehicles. The EPA, through its testing of production vehicles, also can halt the shipment of non-conforming vehicles. Ford may be required to recall, or may voluntarily recall, vehicles for such purposes in the future. The costs of related repairs or inspections associated with such recalls can be substantial.
The Clean Air Act generally prohibits the introduction of new
fuel additives unless a waiver is granted by the EPA. In 1995,
the EPA was ordered by a federal court to grant such a waiver to
Ethyl Corporation for the additive MMT. Ford and other
manufacturers are concerned that the widespread use of MMT may
impair the performance of current and future emissions systems
and onboard diagnostics systems.
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European Requirements. European Union (EU(“EU”) directives and related legislation limit the amount of regulated pollutants that may be emitted by new motor vehicles and engines sold in the EU. In 1998, the EU adopted a new directive on emissions from passenger cars and light commercial trucks. More stringent emissions standards will apply to new car certifications beginning January 1, 2000 and to new car registrations beginning January 1, 2001 ((“Stage III StandardsStandards”). A second level of even more stringent emission standards will apply to new car certifications beginning January 1, 2005 and to new car registrations beginning January 1, 2006 ((“Stage lV StandardsIV Standards”). The comparable light commercial truck Stage III Standards and Stage IV Standards would come into effect one year later than the passenger car requirements. The directive includes a framework that permits EU member states to introduce fiscal incentives to promote early compliance with the Stage III and Stage IV Standards. The directive also introduces on-board diagnostic requirements, more stringent evaporative emission requirements, and in-service compliance testing and recall provisions for emissions-related defects that occur in the first five years or 80,000 kilometers of vehicle life (extended to 100,000 kilometers in 2005). The Stage IV Standards for diesel engines are not yet technically feasible and may impact FordsFord’s ability to produce and offer a broad range of products with the characteristics and functionality that customers want. A related EU directive was adopted at the same time which establishes standards for cleaner fuels beginning in 2000 and even cleaner fuels in 2005. The EU is setting up a program to assess the need for further changes to vehicle emission and fuel standards after 2005.
Certain European countries are conducting in-use emissions testing to ascertain compliance of motor vehicles with applicable emissions standards. These actions could lead to recalls of vehicles; the future costs of related inspection or repairs could be substantial.
Motor Vehicle Safety — The National Traffic and Motor Vehicle Safety Act of 1966 (the Safety Act“Safety Act”) regulates motor vehicles and motor vehicle equipment in two primary ways. First, the Safety Act prohibits the sale in the United States of any new vehicle or equipment that does not conform to applicable motor vehicle safety standards established by the National Highway Traffic Safety Administration (the Safety Administration“Safety Administration”). Meeting or exceeding many safety standards is costly because the standards tend to conflict with the need to reduce vehicle weight in order to meet emissions and fuel economy standards. Second, the Safety Act requires that defects related to motor vehicle safety be remedied through safety recall campaigns. There were pending before the Safety Administration 28approximately 30 investigations relating to alleged safety defects in Ford vehicles as of February 20, 2000.7, 2001. A manufacturer also is obligated to recall vehicles if it determines that they do not comply with a safety standard. Should Ford or the Safety Administration determine that either a
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InThe Transportation Recall Enhancement, Accountability, and Documentation Act (the “TREAD Act”) was signed into law in November 1999,2000. The TREAD Act establishes new reporting requirements for motor vehicles, motor vehicle equipment, and tires, including reporting to the Safety Administration published a
supplemental notice of a proposed advanced air bag rule. This
proposed rule, which, among other things, requires a 30 mph,
fixed barrier crash test utilizing an unbelted adult-sized male
dummy, could significantly affectinformation on foreign recalls and information received by the design and testing of new
vehicles. While Ford supports efforts to further improve air bag
systems, and is working with suppliers to introduce new designs,
it has concerns aboutmanufacturer that may assist the proposed rule. These concerns include a
dramatic increaseagency in the numberidentification of required tests, complex and
vague requirements,safety defects. The obligation of vehicle manufacturers to provide, on a cost-free basis, a remedy for vehicles with an identified safety defect or non-compliance issue is extended from eight years to ten years by the potential need to incorporate unproven
technology, and a potential increase in safety risks. Ford is
moving to install advanced air bag restraint systems in its
vehicles, but the proposed rule could interfere with these plans.
If certain aspects of the rule were to become effective, it
could significantly increase Fords costs, especially if it
requires Ford to change its present advanced air bag design
programs. Ford outlined its concerns in a December 1999
response to the Safety Administrations proposal. Several
other companies and organizations including the National
Transportation Safety Board, the Insurance Institute for Highway
Safety and other automobile manufacturers share many of the same
concerns and have also expressed their concerns with the
government.new legislation. The Safety Administration is expectedalso required to publishdevelop a final rule later this year.
The Safety Administration is investigatingnew dynamic test on rollovers to be used for consumer information. Potential civil penalties are increased from $1,000 to $5,000 per day for certain statutory violations, with a maximum penalty of $15,000,000 for a related series of violations. Similar penalties are included for violation of the feasibility of a
testreporting requirements. Criminal penalties are introduced for persons who make false statements to measure the propensity of a vehiclegovernment or withhold information with the intent to roll. It is
unlikelymislead the government about safety defects that an objective and meaningful stability test can be
developed. Nonetheless, the Safety Administration has announced
its intention to issue a final rule to require manufacturers to
label vehicles based on their performance on the
yet-to-be-determined stability test. Such a label could impact
customer satisfaction and the sales of Ford products.
have caused death or serious bodily injury.
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Canada, the European Union,EU, individual member countries within the EU, and other countries in Europe, South America and the Asia Pacific markets also have safety standards applicable to motor vehicles and are likely to adopt additional or more stringent standards in the future.
Motor Vehicle Fuel Economy — U.S. Requirements.Under 49 U.S.C. Chapter 329, vehicles must meet minimum CAFE (CorporateCorporate Average Fuel Economy)Economy (“CAFE”) standards set by the Safety Administration. A manufacturer is subject to potentially substantial civil penalties if it fails to meet the CAFE standard in any model year, after taking into account all available credits for the preceding three model years and expected credits for the three succeeding model years.
The law established a passenger car CAFE standard of 27.5 mpg for 1985 and later model years, which the Safety Administration believes it has the authority to amend to a level it determines to be the maximum feasible level. The Safety Administration has established a 20.7 mpg CAFE standard applicable to light trucks.
Ford expects to be able to comply with the foregoing CAFE standards, in some cases using credits from prior or succeeding years. In October 1999, its filed a plan to meet the 1998
and 1999 light truck standards and the 1999 domestic passenger
car standards using credits to be generated in futuremodel years. In general, a continued increase in demand for larger vehicles, coupled with a decline in demand for small and middle-size vehicles could jeopardize FordsFord’s long-term ability to maintain compliance with CAFE standards.
At the request of Congress, the National Academy of Sciences (“NAS”), in conjunction with the Department of Transportation (“DOT”), is studying possible changes to the CAFE standards and/or regulations. The NAS study is scheduled to be completed by the third quarter of 2001. To the extent that NAS recommends changes, they will not take effect automatically. Modifications would need to be implemented either through DOT rulemaking or through amendments to the CAFE law.
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. Former President ClintonsClinton’s Climate Change Action Plan (CCAP(“CCAP”) sets a goal to improve new vehicle fuel efficiency in an amount equivalent to at least 2% per year over a 10 to 15 year period. In addition, international concerns over global warming due to the emission of greenhouse
gasses“greenhouse gasses” have given rise to strong pressures to increaseimprove fuel economy.economy performance. During the December 1997 meeting of the parties to the United Nations Climate Change Convention in Kyoto, Japan, the United States agreed to reduce greenhouse gas emissions by 7% below their 1990 levels during the 2008-2012 period (the Kyoto Protocol“Kyoto Protocol”). The Kyoto Protocol is not yet binding in the United States, pending ratification by the Senate. In addition, a petition has been filed with the Environmental
Protection AgencyEPA requesting that the Agency regulate CO2 emissions from motor vehicles under the Clean Air Act. The EPA is expected to seekhas requested public comment on this petition in the near
future.
petition.
If the CCAP or Kyoto Protocol goals are partially or fully implemented through increases in the CAFE standard, if significant increases in car or light truck CAFE standards for subsequent model years otherwise are imposed, or if EPA attempts to regulate CO2 from motor vehicles, Ford might find it necessary to take
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Foreign Requirements. The EU is also a party to the Kyoto Protocol and has agreed to reduce greenhouse gas emissions by 8% below their 1990 levels during the 2008-2012 period. In December 1997, the European Council of Environment Ministers (the Environment Council“Environment Council”) reaffirmed its goal to reduce average CO2 emissions from new cars to 120 grams per kilometer by 2010 (at the latest) and invited European motor vehicle manufacturers to negotiate further with the European Commission on a satisfactory voluntary environmental agreement to help achieve this goal. In October 1998, the EU agreed to support an environmental agreement with the European Automotive Manufacturers Association (of which Ford is a member) on CO2 emission reductions from new passenger cars (the Agreement“Agreement”). The Agreement establishes an emission target of 140 grams of CO2 per kilometer for the average of new cars sold in the EU by the AssociationsAssociation’s members in 2008. In addition, the Agreement provides that certain Association members (including Ford) will introduce models emitting no more than 120 grams of CO2 per kilometer in 2000, and establishes an estimated target range of 165-170 grams of CO2 per kilometer for the average of new cars sold in 2003. Also in 2003, the Association will review the potential for additional CO2 reductions, with a view to moving further toward the EUsEU’s objective of 120 grams of CO2 per kilometer by 2012. The Agreement assumes (among other things) that no negative measures will be implemented against diesel-fueled cars and
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The Environment Council requested the European Commission to review in 2003 the EUsEU’s progress toward reaching the 120 gram target by 2010, and to implement annual monitoring of the average CO2 emissions from new passenger cars and progress toward achievement of the objectives for 2000 and 2003.
In November 1999, the European Parliament published a
Directive on the availability of consumer information about the
fuel economy and CO2 emissions of new passenger cars.
Although the Directive includes certain minimum EU requirements
on the information to be made available, individual Member States
would be able to set national requirements for (i) labels
to be displayed on passenger cars at their point of sale,
(ii) government published guides listing information on all
passenger cars available for sale in the specific EU country, and
(iii) posters to be displayed in dealerships ranking the
fuel economy, CO2 emissions, and estimated fuel costs
of passenger cars available for sale there. Member States have
until January, 2001 to implement this Directive.
In 1995, members of the German Automobile Manufacturers Association (including Ford Werke AG) made a voluntary pledge to reduceincrease by 2005 the average fuel economy of new cars sold in Germany by 25% from 1990 levels, to make regular reports on fuel consumption, and to increase industry research and development efforts toward this end. The German Automobile Manufacturers Association has reported that the industry is on track to meet the pledge.
Other European countries are considering other initiatives for reducing CO2 emissions from motor vehicles. Taken together, such proposals could have substantial adverse effects on ourFord’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/l to 19.2 km/l
l.
U.S. Stationary Source Air Pollution ControlEnd-of-Life Vehicle Proposal — The
Clean Air Act limits various emissions into the atmosphere from
stationary sources as well as mobile sources, and allows states
to adopt even more stringent standards. The Act imposes
comprehensive permit requirements for manufacturing facilities in
addition to those required by various states. Regulations
continue to be promulgated under the Act, and the costs to comply
with the Act could be substantial. In addition, the enormous
complexity and time-consuming nature of the comprehensive permit
program provided for by the Act may reduce operational
flexibility and may interfere with future competitive upgrading
of Fords U.S. production facilities.
U.S. Water Pollution Control Pursuant to the
Federal Water Pollution Control Act (the Clean Water
Act), Ford is required to obtain permits for its
manufacturing facilities that regulate the facilities
discharge of wastewater into public waters and municipal sewerage
systems. The EPA also requires management standards and, in some
cases, permits for the discharge of storm water. The standards
under the Clean Water Act are established by the EPA and by the
state where a facility is located. Many states have requirements
that go beyond those established under the Clean Water Act.
The EPA also adopted regulations, pursuant to the Great Lakes
Critical Programs Act of 1990, that require more restrictive
standards for discharges into waters that impact the Great Lakes.
These regulations may require the addition of costly control
equipment.
U.S. Hazardous Substance and Waste Control Pursuant
to the Federal Resource Conservation and Recovery Act, the EPA
has issued regulations establishing certain procedures and
standards for persons who generate, transport, treat, store, or
dispose of hazardous wastes and requiring corrective action for
prior releases. States may adopt even more extensive
requirements. The Federal Comprehensive Environmental Response,
Compensation, and Liability Act requires notification regarding
certain releases into the environment, and creates potential
liability for remediation costs and for damage to natural
resources at sites where waste was taken for treatment or
disposal. A number of states have enacted separate laws of this
type. In addition, under the Federal Toxic Substances Control Act
(TSCA), the EPA evaluates environmental and
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European Stationary Source Environmental Control
The European Union and individual member countries impose
requirements on waste and hazardous wastes, incineration,
packaging, landfill, soil pollution, integrated pollution
control, air emissions standards, import/export and use of
dangerous substances, air and water quality standards, noise,
environmental management systems, energy efficiency, emissions
reporting, and planning and permitting. Additional or more
stringent requirements (including tax measures and civil
liability schemes for cleaning polluted sites) are likely to be
adopted in the future. The cost of complying with these standards
could be substantial.
End of Life Vehicle Proposal The European
CommissionParliament has published a draft proposal to introduceDirective imposing an obligation foron motor vehicle manufacturers to take back end-of-life vehicles on a cost-free basis beginning in late 2001
for certain vehiclesregistered after July 1, 2002 with fullno cost freeto the last owner and to take back all other vehicles as of all
vehicles in 2006, to imposeJanuary 1, 2007. The Directive also imposes requirements on the proportion of the vehicle that may be disposed of in landfills and the proportion that must be reused or recycled beginning in 2006, and to banbans the use of certain substances in vehicles beginning in 2005. Such
proposal could, if adopted, imposewith vehicles registered after July 2003. Member states may apply these provisions prior to the dates mentioned above. This Directive imposes a substantial cost on manufacturers.
The German Automobile Manufacturers Association (including Ford Werke AG) and the German Automobile Importers Association made a voluntary pledge to establish a nationwide infrastructure network to take back passenger cars that are at least 12 years old (and meet certain other requirements) on a cost-free basis to their owners.
Pollution Control Costs — During the period 20002001 through 2004,2005, Ford expects to spend approximately $348$334 million on itsFord’s North American and European facilities to comply with air and water pollution and
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Worldwide Regulatory Compatibility Fords
efforts to develop new markets and increase imports are impeded
by incompatible automotive safety, environmental and other
product regulatory standards. At present, differing standards
either restrict the vehicles Ford can export to serve new markets
or increase the cost and complexity to do so.
Employment Data
The average number of people Ford employed by geographic area was as follows for the years indicated:
2000 | 1999 | ||||||||
United States | 163,236 | 173,045 | |||||||
Europe | 132,473 | 135,244 | |||||||
Other | 50,282 | 65,804 | |||||||
Total | 345,991 | 374,093 | |||||||
In 1999,2000, the average number of people Ford employed increased
6.4decreased 7.5 percent. The increasedecrease was due to Ford’s spin-off of Visteon Corporation and its 17,400 salaried employees and 34,800 non-U.S. hourly employees, offset partially by a number of acquisitions during 1999,2000, notably Volvo Car,Land Rover, which increased employment levels by approximately 20,000.6,300 people. The numbers above include approximately 23,000 hourly employees of Ford who are assigned to Visteon Corporation. These employees worked at Visteon facilities in the U.S. prior to the spin-off and, pursuant to Ford’s collective bargaining agreement with the UAW, remain Ford employees. Visteon reimburses Ford for all costs to Ford associated with these employees. Most of FordsFord’s employees work in its Automotive and Visteon operations.
Substantially all of the hourly employees in FordsFord’s Automotive and Visteon operations in the United States are represented by unions and covered by collective bargaining agreements. Approximately 99% of these unionized hourly employees in FordsFord’s Automotive segment (as well as many of those in
its Visteon segment) are represented by the United Automobile Workers (the UAW“UAW”). Approximately 3% of FordsFord’s salaried employees are represented by unions. Most hourly employees and many non-management salaried employees of FordsFord’s subsidiaries outside the United States also are represented by unions.
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Ford has entered into a new collective bargaining agreement with the UAW that will expire on September 14, 2003. Ford also has entered into a new collective bargaining agreement with the Canadian Automobile Workers (CAW(“CAW”) that will expire on September 21, 2002.
All local CAW contracts are settled, but Fords management
at several of its plants in the United States continue to
negotiate to resolve local issuesAmong other things, Ford’s agreements with the UAW. In addition,UAW and CAW provide for guaranteed wage and benefit levels throughout their terms and provide for significant employment security.
Ford is or will be negotiating new collective bargaining agreements with labor unions in Europe.Europe, Mexico and South America, where current agreements will expire in 2001. A work stoppage could occur as a result of these negotiations, which, if protracted, could substantially adversely affect FordsFord’s profits.
As part of the new UAW agreement, Ford also agreed that in
connection with any spin-off, sale or other transfer of its
Visteon operations: (1) all of Ford employees who are
represented by the UAW and who work at a Visteon facility on the
date of such spin-off, sale or transfer will remain Ford
employees indefinitely and will continue to be covered under its
master agreement with the UAW; (2) Visteon will continue to
use the services of such employees after any such spin-off, sale
or transfer and will accept other UAW represented employees of
Ford who are contractually entitled to fill open positions at
Visteon facilities; (3) Visteon will agree to adopt a
collective bargaining agreement for hourly employees hired by it
after any such spin-off, sale or transfer that is an exact
mirror of the current master agreement between Ford and the
UAW and the next two immediately succeeding master agreements
between Ford and the UAW; and (4) Visteon will be required
to provide any UAW-represented employees hired by it during the
terms of the three master agreements mentioned above, for the
duration of such employees employment with, and retirement
from, Visteon, with wages, benefits and other terms and
conditions of employment that are the exact mirror of
the UAW-Ford Master Agreement.
In recent years Ford has not had significant work stoppages at its facilities, but they have occurred in some of its supplierssuppliers’ facilities. Any protracted work stoppages in the future, whether in FordFord’s facilities or those of certain suppliers, could substantially adversely affect itsFord’s results of operations.
Legal Proceedings
Various legal actions, governmental investigations and proceedings and claims are pending or may be instituted or asserted in the future against Ford and its subsidiaries, including those arising out of the following: alleged defects in itsFord’s products; governmental regulations covering safety, emissions, and fuel economy; financial services; employment-related matters; dealer, supplier, and other contractual relationships; intellectual property rights; product warranties; and environmental matters. Some 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 multiplied damage claims in very large amounts, or demands for recall
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Firestone Matters.On August 9, 2000, Bridgestone/ Firestone, Inc. (“Firestone”) announced a recall of all Firestone ATX and ATX II tires (P235/75R15) produced in North America since 1991 and Wilderness AT tires of that same size manufactured at Firestone’s Decatur, Illinois plant. Firestone estimated that about 6.5 million of the affected tires were still in service on the date the recall was announced. The recall was announced following an analysis by Ford and Firestone that identified a statistically significant incidence of tread separation occurring in the affected tires. Most of the affected tires were installed as original equipment on Ford Explorer sport utility vehicles. Ford believes that sufficient tires to provide for the completion of the recall were available by the end of November 2000.
The Safety Administration is investigating this matter both to make a root cause assessment and to determine whether Firestone’s recall should be expanded to include other Firestone tires. Ford is actively cooperating with the Safety Administration in their investigation by providing technical assistance and sharing engineering analysis and root cause analysis.
In the United States, the recall of certain Firestone tires, most of which were installed as original equipment on Ford Explorers, has led to a significant number of personal injury and class action lawsuits against Ford and Firestone. Plaintiffs in the personal injury cases typically allege that their injuries were caused by defects in the tire that caused it to lose its tread and/or by defects in the Explorer that caused the vehicle to roll over. For those cases involving Explorer rollovers in which damages have been specified, the damages specified by the plaintiffs, including both actual and punitive damages, aggregated approximately $590 million. However, in most of the actions described above, 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, if any, paid by Ford in resolving such cases.
In contrast to the cases described in the preceding paragraph, most of the Firestone related class actions have been filed on behalf of persons who have never been in an accident. The class actions seek to expand the scope of the recall to include other tires and to award to consumers the cost of replacing those tires or the alleged diminution in the value of the vehicle caused by the allegedly defective tires or by alleged defects in the Explorer. Typically, the plaintiffs in both the personal injury lawsuits and the class actions seek punitive damages.
Ford also has been served with shareholder derivative and securities fraud lawsuits. The shareholder derivative actions filed against the Board of Directors and Ford allege that Ford’s board members breached their fiduciary duties to Ford and shareholders by failing to inform themselves adequately regarding Firestone tires, failing to take certain actions regarding the design of the Explorer, failing to report problems with Firestone tires and to stop using Firestone tires as original equipment, failing to recall all affected tires in a timely manner, and mismanaging the recall once it was announced. The plaintiffs seek injunctive relief and damages, a return of all director compensation during the period of the alleged breaches, and attorneys’ fees.
The securities fraud class actions allege that from early 1999 through the announcement of the Firestone tire recall, Ford made misrepresentations about the safety of Ford products and the Explorer in particular, and allegedly failed to disclose material facts about problems with Firestone tires and the safety of Explorers equipped with Firestone tires. The plaintiffs claim that, as a result of these misrepresentations or omissions, they purchased Ford stock at inflated prices and were damaged when the price of the stock fell upon announcement of the recall and subsequent revelations.
Several governmental authorities in Venezuela are conducting investigations of accidents in Venezuela involving Explorers equipped with Firestone tires most of which were locally made. Ford of Venezuela implemented a customer satisfaction program in May 2000 to replace all Firestone Wilderness tires on Explorers and light trucks in Venezuela, Columbia and Ecuador. Ford of Venezuela essentially completed the tire replacement customer satisfaction program in Venezuela in December 2000 and in Colombia and Ecuador in March 2001.
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An investigation is being conducted by the prosecutor’s office in Caracas to determine whether criminal charges should be brought against any Firestone and Ford of Venezuela directors, officers, and managers following a report submitted by the consumer protection agency of the Venezuelan government, INDECU, to the Venezuelan Attorney General. The report alleged that several unsubstantiated defects in the Explorer had contributed to the rollover accidents as well as recommending an additional investigation because the parties had not taken action sooner. INDECU also has indicated it may open an administrative proceeding to determine if fines up to $11,000 per complaint it has received from consumers should be levied against Firestone and/or Ford of Venezuela.
A committee of the Venezuelan National Assembly or congress is investigating the cause and handling of the Explorer accidents caused by Firestone tire tread separation and has designated a technical commission composed primarily of Venezuelan university professors to study the causes and provide a report on their findings. This investigation is continuing with full Ford cooperation.
Other Product Liability Matters
Occupant Restraint Systems.Ford is a defendant in various actions for damages arising out of automobile accidents where the plaintiffs claim that their injuries resulted from (or were aggravated by) alleged defects in the occupant restraint systems in vehicle lines of various model years. For those cases in which damages have been specified, the damages specified by the plaintiffs, including both actual and punitive damages, aggregated approximately $855$603 million at December 31, 1999.
2000.
Bronco II.Ford is a defendant in various personal injury lawsuits involving the alleged propensity of Bronco II utility vehicles to roll over. For those cases in which damages have been specified, the damages specified by the plaintiffs, including both actual and punitive damages, aggregated approximately $4.1$2.4 billion at December 31, 1999.
2000.
In most of the actions described in the two paragraphs above, no dollar amount of damages is specified or the specific amount referredFord refers to is only the jurisdictional minimum. It has been FordsFord’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, if any, paid by Ford in resolving such cases. Any
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Asbestos.Ford is a defendant in various actions for injuries claimed to have resulted from alleged contact with certain Ford parts and other products containing asbestos. The plaintiffs in these actions seek damages, including both actual and punitive damages, of approximately $2$1.7 billion at December 31, 1999.2000. (In some of these actions, the plaintiffs have not specified a dollar amount of damages or the specific amount referred to is only the jurisdictional minimum.) As distinguished from most lawsuits against Ford,us, in most of these asbestos-related cases, Ford is but one of many defendants, and
many of its co-defendants have substantial resources.
defendants.
Environmental Matters
General.Ford has received notices under various federal and state environmental laws that itFord (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 itFord may be held responsible could be substantial. The contingent losses that Ford expects to incur in connection with many of these sites have been accrued and those losses are reflected in FordsFord’s financial statements in accordance with generally accepted accounting principles. However, for many sites, the remediation costs and other damages for which Ford ultimately may be responsible are not reasonably estimable because of uncertainties with respect to factors such as FordsFord’s connection to the site or to materials there, the involvement of other potentially responsible parties, the application of laws and other standards or regulations, site conditions, and the nature and scope of investigations, studies, and remediation to be undertaken (including the technologies to be required and the
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MFA Grand Jury Matter.The U.S. Department of Justice (DOJ(“DOJ”), the U.S. Environmental Protection Agency
(EPA) and the Federal Bureau of Investigation (FBI) are investigating the circumstances surrounding FordsFord’s past use of an engine control strategy that improved fuel economy, but had the side effect of increasing nitrogen oxide emissions. The investigation findings are being presented
to a federal grand jury in Detroit, which will decide whether to
issue a criminal indictment against Ford or Ford employees. The
engine control strategy (Managed Fuel Air, or MFA“MFA”) was used on 1997 model year Econoline vans (about 60,000 vehicles). In an earlier civil investigation, Ford entered into a consent decree with the DOJ and the EPA and agreed to pay $8 million in fines and special projects, in addition to recalling the Econoline vans. Ford also settled similar issues with the California Air Resources Board (CARB).CARB. Ford has met with attorneys and investigators from the government and is cooperating in the investigation.
Waste Disposal.The United States Environmental Protection
Agency (EPA) has initiated a civil enforcement action against Ford as a result of Ford VenezuelasVenezuela’s shipment of industrial wastes from its Valencia Assembly Plant in Venezuela for disposal in Texas. Ford also has received a subpoena and been notified that it is the subject of a grand jury investigation based on the same facts. Ford Venezuela shipped the industrial waste to the U.S. for disposal under the more stringent U.S. disposal requirements because of the unavailability of adequate disposal facilities in Venezuela and to ensure proper disposal of the waste. Although Ford believes that the subject waste is properly classified as non-hazardous under U.S. environmental laws, the EPA contends that even if the wastes do not exhibit any hazardous characteristics, they nevertheless may be the product of a process that is automatically deemed hazardous under applicable regulations. If Ford is determined to have violated EPA regulations regarding the disposal of hazardous wastes, Ford could be required to pay substantial fines which could exceed $100,000. It is impossible at this point in the proceedings to determine what amount, if any, Ford may be required to pay.
22
On-Board Diagnostics Investigation.CARB andThe EPA havehas notified Ford that the system for monitoring fuel vapor leaks on about 6 million 1997-98 model year vehicles is inadequate and was not described fully in FordsFord’s certification application. CARB and theThe EPA have requestedmay request that Ford implement a recall to reprogram the monitor. The agencies also seek civil
penalties, which are likely to be substantial.
Ohio Assembly Plant.In September 1999, the EPA filed aan administrative complaint against Ford alleging violations of the Resource Conservation and Recovery Act (RCRA(“RCRA”) at FordsFord’s Ohio Assembly Plant. The alleged violations are related to FordsFord’s storage of hazardous waste and the absence of a leak monitoring program for paint equipment. The EPA has proposed a civil penalty of $303,745. The one remaining count alleging failure to implement a leak monitoring program for paint equipment remains subject to discussion between Ford and the EPA. Subsequent to the Ohio Assembly Plant enforcement action, Ford has received notices of violation alleging the same noncompliance at other facilities. Ford could be required to implement monitoring programs at all U.S. plants at an initial cost of $700,000approximately $110,000 and $350,000approximately $18,000 each year thereafter.
Rawsonville Plant. The Michigan Department of
Environmental Quality (MDEQ) alleges that Ford failed
to obtain a permit modification in connection with a raw
material change at the Rawsonville Plant. MDEQ proposed a
$204,000 fine and installation of additional pollution control
equipment. The Plant recently installed the pollution control
equipment, and final settlement discussions between Ford and MDEQ
are in progress.
Michigan Truck, Dearborn and Wayne Assembly Plants. Ford
received notices of violation (NOVs) from the EPA,
the MDEQ and Wayne County, Michigan, alleging regulatory
violations related to volatile organic compound emissions at the
Michigan Truck, Dearborn and Wayne Assembly Plants. The NOVs
included allegations that the plants violated permit limitations
at certain plant processes (total emissions remained well below
allowable levels) and that production was increased at Michigan
Truck in violation of its permit (notwithstanding written
approval from the State permitting agency authorizing the
production increase). In settlement of this matter, a Judicial
Consent Decree is expected to be entered in the United States
District Court, Eastern District of Michigan, during the first
quarter of 2000. The settlement includes a $1.1 million
payment divided equally between the three agencies and a
supplemental environmental project involving the installation of
a waterborne primer system at the new Dearborn Assembly Plant
paint shop (representing an incremental investment of
$10 million).
Class Actions
Paint Class Actions.There are two purported class actions pending against Ford in Texas and Illinois alleging claims for fraud, breach of warranty, and violations of consumer protection statutes. The Texas case purports to assert claims on behalf of Texas residents who have experienced paint peeling in certain 1984 through 1992 model year Ford vehicles. The Illinois case purports to assert claims on behalf of residents of all states except Louisiana and Texas who have experienced paint peeling on most 1988 through 1997 model year Ford vehicles. Plaintiffs in both cases contend that their paint is defective and susceptible to peeling because Ford did not use spray primer between the high-build electrocoat (HBEC(“HBEC”) and the color coat. The lack of spray primer allegedly causes the adhesion of the color coat to the HBEC to deteriorate after extended exposure to ultraviolet radiation from sunlight. Plaintiffs in both cases seek unspecified compensatory damages (in an amount to cover the cost of repainting their vehicles and to compensate for alleged diminution in value), punitive damages, attorneysattorneys’ fees, and interest.
In the Texas case,Sheldon, the trial court certified a class of Texas owners who experienced paint peeling because of the alleged defect. The order certifying the class is presently
on appeal toOn May 11, 2000, the Texas Supreme Court.Court reversed the trial court, decertified the class and remanded the case for further proceedings. Plaintiffs have filed a renewed motion for class
22
Ignition Switch Class Action. This litigation
involves allegations that Ford concealed a defect in ignition
switches in most 1983 through 1993 model vehicles that could
cause short circuits, resulting in smoke and fire damage. At one
time, more than a dozen class actions were pending, but now there
is only one, Snodgrass, a purported nationwide class
action pending in federal court in New Jersey. In that case,
Plaintiffs seek damages allegedly caused by ignition switch
fires. The trial court has already denied one motion for class
certification. A renewed motion for class certification is
pending.
23
TFI Module Class Actions.There are sixeight class actions pending in state courts in Alabama, California, Illinois (2 cases), Maryland, Missouri, Tennessee and Washington, alleging defects in thick film ignition modules in more than 22 million vehicles manufactured by Ford between 1983 and 1995. With minor variations based upon state law and differences in the scope of the classes alleged, all of the cases involve the same legal claims and theories. TheHoward case in California presently in
trial, is the lead case; proceedings in the other five cases are
stayed.
case.
TheHoward plaintiffs assert two claims for relief: violations of the California Consumer Legal Remedies Act (CLRA(“CLRA”), and violations of the California Unfair Competition Law (UCL(“UCL”). Both claims are based upon the allegation that Ford intentionally concealed a safety defect in the subject vehicles. The alleged defect is that distributor mounted TFI modules are inordinately prone to failure because they are exposed to excessive heat. Plaintiffs contend that TFI failure causes stalling at highway speeds and that stalling at highway speeds poses an unreasonable risk to motor vehicle safety. They further contend that Ford knew about the alleged defect and concealed it by withholding documents from NHTSAthe Safety Administration during investigations into stalling, secretly settling personal injury lawsuits in which TFI failure was at issue, falsely advertising its vehicles as safe, conducting an owner notification campaign on certain vehicles rather than a safety recall, and failing to report TFI warranty claims and failures to the EPA. Under the CLRA, Plaintiffsplaintiffs seek a $1,000 statutory penalty per class member plus punitive damages. Under the UCL, plaintiffs seek a recall or disgorgement“disgorgement” of the amount Ford saved by not conducting a recall. If plaintiffs are successful on all of their claims, an adverse judgment in California could be as high as $3-4$4 billion.
A jury trial on the CLRA claims inHoward began in May 1999 and ended in November 1999 with a deadlocked jury and a mistrial;mistrial. If the CLRA claims are retried, the retrial will be retried, probably in
2000. Before the second trial, however, the trial judge will
decide, probablyoccur in the second or third quarter of 2001. On October 11, 2000 whetherthe court, sitting without a jury, found that Ford violated California law by concealing a safety defect. The court ruled that California consumers who paid to orderreplace distributor-mounted TFI modules were entitled to restitution, that Ford would be required to recall the vehicles in the class, and that plaintiffs were entitled to attorneys’ fees and expenses. The amount and method of restitution and the nature and scope of the recall will be determined after further hearings to be scheduled before a recall or disgorgement under the UCL.
special master.
Ford/Citibank Visa Class Action.Following the June 1997 announcement of the termination of the Ford/ Citibank credit card rebate program, five purported nationwide class actions and one purported statewide class action were filed against Ford; Citibank is also a defendant in some of these actions. The actions allege damages in an amount up to $3,500 for each cardholder who obtained a Ford/ Citibank credit card in reliance on the rebate program and who is precluded from accumulating discounts toward the purchase or lease of new Ford vehicles after December 1997 as a result of the termination of the rebate program. Plaintiffs contend that defendants deceptively breached their contract by unilaterally terminating the program, that defendants have been unjustly enriched as a result of the interest charges and fees collected from cardholders, and further, that defendants conspired to deprive plaintiffs of the benefits of their credit card agreement. Plaintiffs seek compensatory damages, or alternatively, reinstatement of the rebate program, and punitive damages, costs, expenses, and attorneysattorneys’ fees. The five purported nationwide class actions were filed in state courts in Alabama, Illinois, New York, Oregon, and Washington, and the purported statewide class action was filed in a California state court. The Alabama court has conditionally certified a class consisting of Alabama residents. Ford removed all of the cases to federal court, which consolidated and transferred the cases to federal court in Washington for pretrial proceedings. In October 1999, the federal court dismissed the consolidated proceedings for lack of jurisdiction and sent each action back to the state court in which it originated. Ford has appealed this ruling.
Flat Glass Class Actions. Briefing on the appeal has been completed and Ford is a defendant in 15
purported class actions brought on behalf of purchasers of flat
glass (and one individual suit brought by Allstate Insurance
Company) alleging that Ford and other manufacturers fixed prices
and allocated markets in violation of federal and state antitrust
laws. Twelve of the class actions are nationwide in scope and
pending in federal court and the other three class actions are
statewide in scope and are pending in state courts. The other
defendants include Pilkington, Libbey-Owens Ford, AFG Industries,
PPG Industries, Asahi Glass, and Guardian Industries. A number
of similar purported class actions are pending in various courts
in which Ford is not currently named as a defendant. A total of
28 federal cases have been consolidated in a federal court in
Pennsylvania for pretrial proceedings. Ford and PPG Industries
are the only remaining defendants in the consolidated class
actions, as a result of a settlement among plaintiffs and the
other defendants.
awaiting oral argument.
24
In November 1999, the trial judge granted plaintiffs
motion for class certification and certified two subclasses:
(1) all individuals and entities who, between August 1,
1995 and December 31, 1995, purchased flat glass products
in the U.S. from defendants, and (2) all individuals and
entities who, between August 1, 1991 and December 31,
1995, purchased fabricated automotive replacement glass for
domestic makes of cars in the U.S. from defendants. In
January 2000, the Third Circuit Court of Appeals denied
Fords request that it review this ruling. The parties will
now begin pretrial discovery. In the actions against Ford, the
plaintiffs seek economic and treble damages.
Lease Residual Class Action.In January 1998, in connection with a case pending in Illinois state court, Ford and Ford Credit were served with a summons and intervention counterclaim complaint relating to Ford CreditsCredit’s leasing practices ((Higginbotham v. Ford Credit)Credit). The counterclaim plaintiff, Carla Higginbotham, is
23
In November 1998, the court issued a ruling that rejected
the proposed settlement in Shore. During the third quarter
of 1999, however, Ford Credit has reached individual settlements with theShore plaintiffs.
The Illinois court inHigginbotham found that the lease end residual value of Ms. HigginbothamsHigginbotham’s vehicle was properly valued and, as a result, Ms. Higginbotham was an inadequate representative for the class. Subsequently, Ms. Higginbotham voluntarily dismissed her intervention counterclaim without prejudice in the Illinois state court and has reactivated her initial suit against Ford Credit (Ford is no longer a party to this suit) in the Florida federal court, pursuing substantially similar claims on behalf of herself and others similarly situated. Consequently, theHigginbotham case is proceeding in Florida and Ford Credit is in the process of responding to discovery requests.
Lease Agreement Disclosure Class Action. Twenty-one
purported class action lawsuits have been filed in various courts
against Ford Credit and, in all but three cases, Primus
Automotive Financial Services, Inc., a subsidiary of Ford Credit.
The lawsuits, each of which purports to be brought on behalf of
a statewide class, allege that Ford Credit and Primus leasing
contracts improperly failed to disclose acquisition and
administrative fees that are included in the amount of a
customers monthly lease payment. Plaintiffs seek
compensatory damages in the amount of all such undisclosed fees,
an injunction prohibiting the companies from continuing the
practice of not disclosing such fees, attorneys fees,
interest, costs and in some cases, punitive damages.In addition, Ford Credit has filed motionsa response to dismiss in every one of these suitsPlaintiff’s motion for class certification and was
successful in getting all but one case dismissed. Plaintiffs in
certain of these cases have appealed their dismissal. One case
remains pending in Kentucky where Ford Credit losthas renewed its motion to
dismiss. Ford Credit expects to file a motion for summary judgment based on information obtained in that case.
discovery.
Retail Lessee Insurance Coverage Class Action.On May 24, 1999, Michigan Mutual Insurance Company was served with a purported class action complaint in federal court in Florida alleging that the Ford Commercial, General Liability and Business Automobile Insurance Policy, and the Personal Auto Supplement to that policy, provides uninsured/underinsured motorist coverage and medical payments coverage to retail lessees of Ford vehicles (e.g., to Red Carpet lessees). Ford is required to defend and indemnify Michigan Mutual. The complaint rests on an untenable interpretation of the Michigan Mutual policy, which
25
3.8 Liter Engine TransmissionsThrottle Body Assemblies Class Actions.Action. There are
fourA purported nationwide class actions pending against Ford
allegingaction has been filed in Ohio on behalf of all persons who own or lease 1999 Mercury Villagers. The complaint alleges that the transmissions of 3.8 liter engines in 1995
Windstar minivans arevehicle has a defective andthrottle body assembly that Ford soldcauses the vehicles
despite knowledge of the defect. One of the cases also alleges a
defectgas pedal to intermittently lock or stick in the transmissions of 3.8 liter engines in 1990-95
Taurus/ Sables and 1990-94 Lincoln Continentals. One of these
cases has been pending in California state court since 1998.
Motions to dismiss thatclosed position. The complaint are pending. If the motions are
denied, class certification motions could be decided during late
2000. The other three cases were filed in state courts in early
2000 (two in Illinois and one in Pennsylvania), and may be
removed to federal court. The complaints assert various theories,
includingalleges breach of warranty, negligence, and violation of state consumer protection laws, and seek various forms of relief, including
compensatory damages in an amount to cover the cost of repairing
or replacing the vehicles, plus punitive damages, interest and
attorneys fees. No specific amounts are sought, except that
one of the Illinois complaints seeks compensatory damages in
excess of $50,000 per class member. Some of the complaints alsostatutes. Plaintiffs seek an order requiring Ford to recall the vehicles. They also seek unspecified compensatory damages, treble damages, attorneys fees, and costs. Ford is seeking to have the case removed to federal court.
Hertz Stock Offer Class Actions.Twelve class actions have been filed in Delaware state court on behalf of the minority shareholders of The Hertz Corporation against Ford, The Hertz Corporation, and the directors of Hertz, alleging that Ford breached its fiduciary duties to the minority shareholders of Hertz by offering, on September 20, 2000, $30 per share for the remaining shares of Hertz stock not already owned by Ford. The plaintiffs alleged that the price offered was unfair and inadequate, was not negotiated at arms length and was designed to benefit Ford by “capping” the value of the stock, and would deny them the full value of their stock. They sought to enjoin or rescind the transaction, recover damages and profits, and an award of
24
Windstar Transmission Class Actions.Three purported class actions are pending, alleging that Ford marketed, advertised, sold, and leased 1995 Windstars in a deceptive manner by misrepresenting their quality and safety and actively concealing defects in the transmissions. One case is pending in California (state court) and is limited to owners and lessees of that state. Two cases are pending in Illinois (one in federal court and one in state court) and purport to represent owners and lessees from all states. Plaintiffs contend that transmissions in the Windstar have prematurely suffered from shifting problems and acceleration failures, requiring early replacement at substantial expense to owners. The cases assert several statutory and common law theories, and seek several types of relief, including unspecified compensatory damages, punitive damages, and injunctive relief. All three cases are in the very early stage of litigation. Discovery has just begun in California, and has not yet begun in the other two cases.
Seat Back Class Action. Actions.Four purported statewide class actions have been filed in state courts in Maryland, New Hampshire, New Jersey, and New York against Ford, General Motors Corporation and DaimlerChrysler AG alleging that seat backs with single recliner mechanisms are defective. Plaintiffs in each of these suits allege that seats installed in class vehicles (defined as almost all passenger cars made after 1991) are defective because they have a single recliner
mechanism (the device that fixes the angle of the seat back) on
the outboard side and no equivalent device on the inboard side.
The absence of a similar mechanism on the inboard side, combined
with other flaws (such as inadequate bracing)
allegedly makes the seats unreasonably dangerous because the seat backs are unstable“unstable and susceptible to rearward collapse in the event of a rear-end collision.” The purported class in each state consists of all persons who own a class vehicle (defined as
various 1993-1998 model lines for each manufacturer) and specifically excludes all persons who have suffered personal injury as a result of the rearward collapse of a seat. Plaintiffs allege causes of action for negligence, strict liability, implied warranty, fraud, and civil conspiracy. Plaintiffs also allege violations of the consumer protection statutes in the various states. For each of the eight counts alleged, Plaintiffs seek compensatory“compensatory damages measured by the cost of correcting the Defect,defect, not to exceed $5,000 for each class vehicle. Ford has filed” Ford’s motions to dismiss each of the
cases.
On December 15, 1999, the trial judgewere granted in Maryland, New Hampshire, and New York; plaintiffs’ appeals from these rulings are pending in New Hampshire
granted Fords motion to dismiss because Plaintiffs had
suffered no injury. However, on January 7, 2000, theYork and Maryland. The trial judge in the New Jersey case denied FordsFord’s motion to dismiss. dismiss, and discovery is proceeding in that case.
Ford is seeking interlocutory review and, if necessary,
it will file a motion for summary judgment after preliminary
discovery. The motions to dismiss filed in Maryland and New York
are still pending.
Head GasketCredit Debt Collection Class Actions.Three class actions have been filed against Ford Credit and PRIMUS Automotive Financial Services, Inc. (“PRIMUS”) alleging unfair debt collection practices. In December, 1999,Pertuso v. Ford Credit, a purported nationwide class action, plaintiffs allege that Ford Credit’s policies and practices for obtaining reaffirmation agreements violate Federal law and constitute an unfair collection practice. This case was filed in Illinois state court on
behalf of owners and lessees of 1994-1995 vehicles with 3.8 liter
engines who have paid for repairs resulting from head gasket
failure. Ford removed the case to federal court. The federal
court dismissed the complaint for technical reasons and granted
Plaintiffs leave to refile by March 1, 2000. Plaintiffs
filed a motion for reconsideration, whichat the trial court is
treating as a motion to remand to state court. That motion is
pending.
Coolant leakage from head gaskets was the subject of a Technical
Service Bulletin in April 1998, an Owner Notification
Program (ONP) that extended warranty coverage on
1994-1995 vehicles with a 3.8 liter engine to 5 years or
60,000 miles, and a recent ONP that further extended
coverage to 7 years or 100,000 miles. Plaintiffs allege
that Fords sale of the vehicles constituted violations of
the Illinois and
26
A second purportedDubois v. Ford Credit are two nationwide class action alleging defective
head gasketslawsuits brought by the same group of plaintiff attorneys. Both cases allege that Ford Credit attempts to collect on discharged, non-reaffirmed debts in violation of the Bankruptcy Code, the Fair Debt Collection Practices Act and the Racketeer Influenced and Corrupt Organization Act. InMolloy, PRIMUS’ motion to dismiss was filed in federaldenied and PRIMUS is proceeding with discovery. In January 2001, the trial court in Ohio on
February 22, 2000. The complaint includes allegations
similargranted Ford Credit’s motion to those asserted indismiss the Illinois case, and also alleges
similar problems with 4.2 liter engines and certain 1996-1997
vehicles.
Dubois case. Ford Credit anticipates that plaintiffs will appeal.
Late Charges Class Actions.There are two class actions, one in California ((Cumberland v. Ford Credit)Credit) and the other in Oklahoma ((Crim v. Ford Credit)Credit), in which the plaintiffs are contending that Ford Motor Credit
Company is engaged in unfair business practices by assessing late charges on lease accounts that bear no reasonable relation to itsFord Credit’s actual costs. InCumberland (now captioned asConnie Stickles et al. v. Ford Credit) the plaintiff has brought a purported nationwide class action filed in the Superior Court of San Francisco. Plaintiffs are seeking restitution, punitive damages, and injunctive relief. Basically, the claim is that theFord Credit’s late charge of 7 1/2%2 % or $50, whichever is less, is excessive. There has been extensive discovery and the court has granted nationwide class certification. Trial is set to begin in the second quarter 2001. However, due to the unexpected death of Ford Credit’s expert witness, Ford Credit has filed a motion for continuance. InCrim, the plaintiff has made similar allegations. After granting a statewide class, the court granted Ford CreditsCredit’s motion for summary judgment because it found that the plaintiff had voluntarily made the late
25
Wartime Labor. Fair Lending Class Action.Ford Credit has been served with a class action lawsuit in federal court in New York alleging that its pricing practices discriminate against African Americans. Specifically, plaintiffs allege that although Ford Credit’s initial credit risk scoring analysis applies objective criteria to calculate the risk-related “Buy Rate,” Ford Credit then authorizes dealers to impose a subjective component in its credit pricing system — the Mark-up Policy — to impose additional non-risk charges. It is the alleged subjective mark-up that plaintiffs allege discriminates against African Americans. Ford Credit has filed a motion to dismiss. Ford and Ford GermanyCredit believe that Ford Credit’s pricing practices are among hundreds of
defendants in numerousfair and are not discriminatory.
Performance Management Process Class Action.A purported class action lawsuits brought on behalfwas filed in Wayne County Circuit Court in February 2001 against Ford, alleging that Ford’s Performance Management Process unlawfully discriminates against older workers. Individual claims in that case allege other forms of millionsunlawful discrimination. This case is in the early stage of foreign workers forced by the Nazi government to
work for industry during WWII as a result of German labor
shortages. In September 1999, a New Jersey federal court
dismissed one of thelitigation and Ford is preparing its response.
Reverse Discrimination Class Action.A purported class action lawsuits against Ford and Ford
Germany, ruling that such issues must be resolved by governments,
not the courts. That lawsuit is on appeal, along with an appeal
of the dismissal of another lawsuit not involving Ford. Three
other lawsuits are pending against Ford in federal courts in
New York and California. Ford is seeking the dismissal of
those actions. In December 1999, German and U.S. negotiators
announced the formation of a $5.2 billion humanitarian fund
that is expected to shield companies from further lawsuits. Ford
is evaluating the appropriateness of participating in the fund as
a means of resolving the matter.
Other Matters
Konrad Patent Litigation. A patent infringement suit
naming Ford as a defendant has beenwas filed in the
U.S. District Court for the Eastern District of Texas by an
individual, Allan Konrad, who holds three patents allegedly
covering intranet/ internet use. Mr. Konrad also owns a
fourth patent application allegedly covering e-commerce.
Thirty-eight other companies, including General MotorsMichigan in February 2001 against Ford and DaimlerChrysler are codefendants in this litigation.Jacques Nasser, President and Chief Executive Officer of Ford, procures all productsalleging reverse discrimination. Plaintiffs claim that Ford’s diversity policies and services related to this infringement
allegation from suppliers and believes that itpractices discriminate against older white males. This case is entitled to be
indemnified by these suppliers for any loss that may result from
this litigation.
The technology covered in the Konrad patents relates to computer
system configurationearly stage of litigation and a method of using that configuration.
More specifically, a local host (personal workstation), remote
host (server), a network connecting the local host to the remote
host, and various computer service functionalities are claimed to
be covered by these patents. Technology of this typeFord is widely
used by Ford and continued use is required.
preparing its response.
OFCCP Proceeding. Other MattersIn April 1997, the Department of Labor
issued an administrative enforcement proceeding challenging
Fords compliance with obligations imposed by Executive
Order 11246, which prohibits employment discrimination and
requires affirmative action by government contractors and
subcontractors. The Office of Federal Contract Compliance
Programs (OFCCP) claims that Fords Kentucky
Truck Plant used a hiring process in 1993 for entry-level hourly
laborer positions that discriminated against female applicants.
OFCCP sought an order awarding back pay to the affected
class of women, a job offer to each of these persons, and
retroactive seniority for each person. A settlement was reached
with OFCCP in February 2000. The settlement addressed all
compliance investigations that had been pending, including the
27
Red Carpet Lease Terminations.The Florida Attorney General issued a subpoena asking for all Ford Credit Red Carpet Lease (RCL(“RCL”) early termination accounts going back to 1991. The Florida Attorney General has been investigating leasing practices at the dealership level for years. The Attorney
Generalyears and is representing a consortium of 37 states. The investigation focuses on whether Ford Credit RCL customers who want to terminate leases early and purchase the leased vehicle have been misled by the dealersdealers’ alleged improper failure to itemize: (i) the cost to terminating the lease, and (ii) the vehicle purchase price. They claim that because Ford Credit requires the customer to early terminate with the originating dealer, Ford Credit is conspiring with itsthe dealer to mislead the customer. Ford Credit believes that Ford Creditsits business practices are fair under applicable law, and it is attempting to negotiate a resolution of the matter. There have been numerous and extensive meetings with most of the Attorneys General involved in the 37 state consortium. Ford Credit is confident that an amicable resolution of this matter will be reached.
28
26
Item 6. Selected Financial Data
The following tables set forth selected financial data and other data concerning Ford for each of the last elevenfive years (dollar amounts in millions, except per share amounts):
. 1996-1999 data (except employee data) have been restated to reflect Visteon as a discontinued operation.
Summary of Operations
2000 | 1999 | 1998 | 1997 | 1996 | |||||||||||||||||
Automotive sector | |||||||||||||||||||||
Sales | $ | 141,230 | $ | 135,073 | $ | 118,017 | $ | 121,976 | $ | 116,886 | |||||||||||
Operating income | 5,226 | 7,214 | 5,567 | 6,164 | 1,928 | ||||||||||||||||
Income before income taxes | 5,267 | 7,275 | 5,842 | 6,267 | 1,967 | ||||||||||||||||
Net income | 3,624 | 4,986 | 4,049 | 4,203 | 1,271 | ||||||||||||||||
Financial Services sector | |||||||||||||||||||||
Revenues | $ | 28,834 | $ | 25,585 | $ | 25,333 | $ | 30,692 | $ | 28,968 | |||||||||||
Income before income taxes | 2,967 | 2,579 | 18,438 | 3,857 | 4,222 | ||||||||||||||||
Net income(a)(b)(c) | 1,786 | 1,516 | 17,319 | 2,206 | 2,791 | ||||||||||||||||
Total Company Income before income taxes | $ | 8,234 | $ | 9,854 | $ | 24,280 | $ | 10,124 | $ | 6,189 | |||||||||||
Provision for income taxes | 2,705 | 3,248 | 2,760 | 3,436 | 1,943 | ||||||||||||||||
Minority interests in net income of subsidiaries | 119 | 104 | 152 | 279 | 184 | ||||||||||||||||
Income from continuing operations(a)(b)(c) | 5,410 | 6,502 | 21,368 | 6,409 | 4,062 | ||||||||||||||||
Income from discontinued operation | 309 | 735 | 703 | 511 | 384 | ||||||||||||||||
Loss on spin-off of discontinued operation | (2,252 | ) | — | — | — | — | |||||||||||||||
Net income | $ | 3,467 | $ | 7,237 | $ | 22,071 | $ | 6,920 | $ | 4,446 | |||||||||||
Total Company Data Per Share of Common and Class B Stock(d) | |||||||||||||||||||||
Basic: | |||||||||||||||||||||
Income from continuing operations | $ | 3.66 | $ | 5.38 | $ | 17.59 | $ | 5.32 | $ | 3.40 | |||||||||||
Income before cumulative effects of changes in accounting principles | 2.34 | 5.99 | 18.17 | 5.75 | 3.73 | ||||||||||||||||
Net income | 2.34 | 5.99 | 18.17 | 5.75 | 3.73 | ||||||||||||||||
Diluted: | |||||||||||||||||||||
Income from continuing operations | $ | 3.59 | $ | 5.26 | $ | 17.19 | $ | 5.20 | $ | 3.32 | |||||||||||
Income before cumulative effects of changes in accounting principles | 2.30 | 5.86 | 17.76 | 5.62 | 3.64 | ||||||||||||||||
Net income | 2.30 | 5.86 | 17.76 | 5.62 | 3.64 | ||||||||||||||||
Cash dividends(e) | $ | 1.80 | $ | 1.88 | $ | 1.72 | $ | 1.645 | $ | 1.47 | |||||||||||
Common stock price range (NYSE) | |||||||||||||||||||||
High | 31.46 | 37.30 | 33.76 | 18.34 | 13.59 | ||||||||||||||||
Low | 21.69 | 25.42 | 15.64 | 10.95 | 9.94 | ||||||||||||||||
Average number of shares of Common and Class B stock outstanding (in millions) | 1,483 | 1,210 | 1,211 | 1,195 | 1,179 |
[Additional columns below]
[Continued from above table, first column(s) repeated]
29
[Additional columns below]
[Continued from above table, first column(s) repeated]
(a) | 1998 includes a non-cash gain of $15,955 million that resulted from |
(b) | 1997 includes a gain of $269 million on the sale of Hertz Common Stock. |
(c) | 1996 includes a gain of $650 million on the sale of The |
(d) | Share data have been adjusted to reflect stock dividends and stock splits. Common stock price range (NYSE) has been adjusted to reflect the Visteon spin-off, a recapitalization known as Ford’s Value Enhancement Plan, and The Associates Spin-off. |
(e) |
27
2000 | 1999 | 1998 | 1997 | 1996 | ||||||||||||||||||
Total Company Balance Sheet Data at Year-End | ||||||||||||||||||||||
Assets | ||||||||||||||||||||||
Automotive sector | $ | 95,343 | $ | 99,201 | $ | 83,911 | $ | 80,339 | $ | 75,008 | ||||||||||||
Financial Services sector | 189,078 | 171,048 | 148,801 | 194,018 | 183,209 | |||||||||||||||||
Total assets | $ | 284,421 | $ | 270,249 | $ | 232,712 | $ | 274,357 | $ | 258,217 | ||||||||||||
Long-term debt | ||||||||||||||||||||||
Automotive | $ | 11,769 | $ | 10,398 | $ | 8,589 | $ | 6,964 | $ | 6,385 | ||||||||||||
Financial Services | 87,118 | 67,517 | 55,468 | 73,198 | 70,641 | |||||||||||||||||
Stockholders’ equity | 18,610 | 27,604 | 23,434 | 30,787 | 26,765 | |||||||||||||||||
Total Company Facility and Tooling Data | ||||||||||||||||||||||
Capital expenditures for facilities (excluding special tools) | $ | 5,315 | $ | 4,332 | $ | 4,369 | $ | 4,906 | $ | 4,529 | ||||||||||||
Depreciation | 12,915 | 11,846 | 10,890 | 9,865 | 9,070 | |||||||||||||||||
Expenditures for special tools | 3,033 | 3,327 | 3,388 | 2,894 | 3,154 | |||||||||||||||||
Amortization of special tools | 2,451 | 2,459 | 2,880 | 3,126 | 3,211 | |||||||||||||||||
Total Company Employee Data — Worldwide | ||||||||||||||||||||||
Payroll | $ | 17,983 | $ | 18,390 | $ | 16,757 | $ | 17,187 | $ | 17,616 | ||||||||||||
Total labor costs | 25,653 | 26,881 | 25,606 | 25,546 | 25,689 | |||||||||||||||||
Average number of employees | 345,991 | 374,093 | 342,545 | 363,892 | 371,702 | |||||||||||||||||
Total Company Employee Data — U.S. Operations | ||||||||||||||||||||||
Payroll | $ | 11,203 | $ | 11,418 | $ | 10,548 | $ | 10,840 | $ | 10,961 | ||||||||||||
Average number of employees | 163,236 | 173,045 | 171,269 | 189,787 | 189,718 | |||||||||||||||||
Average hourly labor costs(f) | ||||||||||||||||||||||
Earnings | $ | 26.73 | $ | 25.58 | $ | 24.30 | $ | 22.95 | $ | 22.30 | ||||||||||||
Benefits | 21.71 | 21.79 | 21.42 | 20.60 | 19.47 | |||||||||||||||||
Total hourly labor costs | $ | 48.44 | $ | 47.37 | $ | 45.72 | $ | 43.55 | $ | 41.77 | ||||||||||||
(f) | Per hour worked (in dollars). Excludes data for subsidiary companies. |
28
Summary of Vehicle Unit Sales(a)
2000 | 1999 | 1998 | 1997 | 1996 | ||||||||||||||||||
(in thousands) | ||||||||||||||||||||||
North America | ||||||||||||||||||||||
United States | ||||||||||||||||||||||
Cars | 1,775 | 1,725 | 1,563 | 1,614 | 1,656 | |||||||||||||||||
Trucks | 2,711 | 2,660 | 2,425 | 2,402 | 2,241 | |||||||||||||||||
Total United States | 4,486 | 4,385 | 3,988 | 4,016 | 3,897 | |||||||||||||||||
Canada | 300 | 288 | 279 | 319 | 258 | |||||||||||||||||
Mexico | 147 | 114 | 103 | 97 | 67 | |||||||||||||||||
Total North America | 4,933 | 4,787 | 4,370 | 4,432 | 4,222 | |||||||||||||||||
Europe | ||||||||||||||||||||||
Britain | 476 | 518 | 498 | 466 | 516 | |||||||||||||||||
Germany | 320 | 353 | 444 | 460 | 436 | |||||||||||||||||
Italy | 222 | 209 | 205 | 248 | 180 | |||||||||||||||||
Spain | 180 | 180 | 155 | 155 | 155 | |||||||||||||||||
France | 158 | 172 | 171 | 153 | 194 | |||||||||||||||||
Other countries | 606 | 528 | 377 | 318 | 339 | |||||||||||||||||
Total Europe | 1,962 | 1,960 | 1,850 | 1,800 | 1,820 | |||||||||||||||||
Other international | ||||||||||||||||||||||
Brazil | 134 | 117 | 178 | 214 | 190 | |||||||||||||||||
Australia | 125 | 125 | 133 | 132 | 138 | |||||||||||||||||
Taiwan | 63 | 56 | 77 | 79 | 86 | |||||||||||||||||
Argentina | 49 | 60 | 97 | 147 | 64 | |||||||||||||||||
Japan | 26 | 32 | 25 | 40 | 52 | |||||||||||||||||
Other countries | 132 | 83 | 93 | 103 | 81 | |||||||||||||||||
Total other international | 529 | 473 | 603 | 715 | 611 | |||||||||||||||||
Total worldwide vehicle unit sales | 7,424 | 7,220 | 6,823 | 6,947 | 6,653 | |||||||||||||||||
(a) | |
Vehicle unit sales generally are reported worldwide on a |
30
29
Overview
On March 31, 1999, Ford purchased AB Volvos worldwide
passenger car business (Volvo Car). Fords 1999
results and financial conditionIn addition to specific explanations discussed below, includecomparisons between Ford’s 2000 and 1999 fourth quarter and full year results are affected by the following important events:
• | On August 7, 2000, Ford announced the final results of its recapitalization, known as its Value Enhancement Plan (“VEP”), which became effective on August 2, 2000. Under the VEP, Ford shareholders exchanged each of their old Ford Common or Class B shares for one new Ford Common or Class B share, as the case may be, plus, at their election, either $20 in cash, 0.748 additional new Ford Common shares, or a combination of $5.17 in cash and 0.555 additional new Ford Common shares. As a result of the elections made by shareholders under the VEP, the total cash elected was $5.7 billion and the total number of new Ford Common and Class B shares that became issued and outstanding was 1.893 billion. | |
• | On June 30, 2000, Ford purchased the Land Rover business from the BMW Group. Land Rover’s results and financial condition are included in Ford’s financial statements on a consolidated basis beginning in the third quarter of 2000. | |
• | On June 28, 2000, Ford distributed 130 million shares of Visteon Corporation, which represented Ford’s 100% ownership interest, by means of a tax-free spin-off in the form of a dividend on Ford Common and Class B Stock. Visteon has been reflected as a discontinued operation through June 30, 2000. Ford’s third and fourth quarter 2000 results and financial condition exclude completely Visteon’s results and financial condition. | |
• | On March 31, 1999, Ford purchased AB Volvo’s worldwide passenger car business (“Volvo Car”). Volvo Car’s results and financial condition have been included in Ford’s financial statements on a consolidated basis since the second quarter of 1999. |
Fourth Quarter 2000 Results of Volvo Car since the date of
acquisition.
Operations
FordsFord’s worldwide net income was $7,237$1,077 million in 1999,the fourth quarter of 2000, or $5.86$0.57 per diluted share of Common and Class B Stock. Earnings in 1998 were $22,071 million, or $17.76 per diluted
share. This includes a one-time, non-cash gain of
$15,955 million that resulted from its spin-off of The
Associates in 1998. The following unusual items were included in
Fords 1999, 1998, and 1997 net income (in millions):
31
Fords worldwide revenues were $162.6 billion in 1999,
up $18.2 billion from 1998. It sold 7,220,000 cars and
trucks in 1999, up 397,000 units from 1998. This increase in unit
sales reflects primarily the addition of Volvo Car. Ford
stockholders equity was $27.5 billion at
December 31, 1999, up $4.1 billion compared with
December 31, 1998.
Fourth Quarter 1999 Results of Operations
In the fourth quarter of 1999, Ford earned $1,806earnings from continuing operations were $1,711 million, or $1.47$1.39 per diluted share of Commonshare. Worldwide sales and Class B Stock,
compared with $1,043 million, or $0.84 per diluted share,revenues were $42.6 billion in the fourth quarter of 1998. The increase2000, down $1.3 billion, reflecting primarily lower unit volume. Unit sales of cars and trucks were 1,840,000 units, down 79,000 units, reflecting primarily lower production in earnings reflects
primarily the non-recurrence of 1998s unusual items and
lower costs, offset partially by lump-sum payments relatingNorth America in response to the ratification of union contracts.
weaker demand.
Results of FordsFord’s operations by business sector for the fourth quarter of 19992000 and 19981999 are shown below (in millions):
Fourth Quarter | |||||||||||||
Net Income | |||||||||||||
2000 | |||||||||||||
Over/(Under) | |||||||||||||
2000 | 1999 | 1999 | |||||||||||
Automotive sector | $ | 629 | $ | 1,354 | $ | (725 | ) | ||||||
Financial Services sector | 448 | 357 | 91 | ||||||||||
Income from continuing operations | $ | 1,077 | $ | 1,711 | $ | (634 | ) | ||||||
Income from discontinued operation | — | 95 | (95 | ) | |||||||||
Total Ford net income | $ | 1,077 | $ | 1,806 | $ | (729 | ) | ||||||
Automotive Sector
Worldwide earnings for FordsFord’s Automotive sector were $1,449$629 million in the fourth quarter of 19992000 on sales of $37.8$35.1 billion. Earnings in the fourth quarter of 19981999 were $820$1,354 million on sales of $32.2$37.3 billion.
32
30
Details of FordsFord’s Automotive sector earnings for the fourth quarter of 19992000 and 19981999 are shown below (in millions):
Fourth Quarter | |||||||||||||||
Net Income/(Loss) | |||||||||||||||
2000 | |||||||||||||||
Over/(Under) | |||||||||||||||
2000 | 1999 | 1999 | |||||||||||||
North American Automotive | $ | 607 | $ | 1,474 | $ | (867 | ) | ||||||||
Automotive Outside North America | |||||||||||||||
— Europe | 33 | (30 | ) | 63 | |||||||||||
— South America | (31 | ) | (100 | ) | 69 | ||||||||||
— Rest of World | 20 | 10 | 10 | ||||||||||||
Total Automotive Outside North America | 22 | (120 | ) | 142 | |||||||||||
Total Automotive sector | $ | 629 | $ | 1,354 | $ | (725 | ) | ||||||||
The increasedecrease in FordsFord’s fourth quarter Automotive sector earnings in North America reflects primarily the non-recurrence
of last years unusual items, lower costs, higherindustry volume and a moremarket share and less favorable vehicle mix, offset partially by the lump-sum
payments relating to the ratification of union contracts.
product mix.
The improved fourth quarter results in Europe reflect the
non-recurrence of 1998s charge for employee separation
costs, the addition of Volvo Car earnings and lower taxes, offset
partially by lower volumes and market share for Ford-branded
vehicles, primarily the Ka, Fiesta and Mondeo.continued cost reductions. The improvement in South America reflects primarily lower costscost reductions and the
non-recurrence of the charge for employee separation costs,
offset partially by lower revenue.
improved product mix.
Financial Services Sector
Details of FordsFord’s Financial Services sector earnings are shown below (in millions):
Fourth Quarter | |||||||||||||
Net Income/(Loss) | |||||||||||||
2000 | |||||||||||||
Over/(Under) | |||||||||||||
2000 | 1999 | 1999 | |||||||||||
Ford Credit | $ | 410 | $ | 309 | $ | 101 | |||||||
Hertz | 56 | 60 | (4 | ) | |||||||||
Minority Interests, Eliminations, and Other | (18 | ) | (12 | ) | (6 | ) | |||||||
Total Financial Services sector | $ | 448 | $ | 357 | $ | 91 | |||||||
Memo: Ford’s share of earnings in Hertz | $ | 45 | $ | 49 | $ | (4 | ) |
Ford CreditsCredit’s consolidated net income in the fourth quarter of 19992000 was $309$410 million, up $75$101 million or 32%33% from 1998.1999. The increase in earnings reflects primarily a higher level
of finance receivablesvolume and an improved credit loss performance,net financing margin, offset partially by higher operating costs.
credit losses.
Earnings at Hertz in the fourth quarter of 19992000 were $60$56 million (of which $50$45 million was FordsFord’s share), compared with earnings of $48$60 million (of which $39$49 million was FordsFord’s share) a year ago. The profit decline reflects increased pricing competition in the U.S. car rental and equipment rental businesses.
33
31
Full-Year 19992000 Results of Operations
Ford’s worldwide revenues were $170.1 billion in 2000, up $9.4 billion from 1999. Ford sold 7,424,000 cars and trucks in 2000, up 204,000 units, reflecting primarily the addition of Land Rover and strong U.S. industry sales.
Results of FordsFord’s operations by business sector for the
full-year2000, 1999, 1998, and 19971998 are shown below (in millions):
Net Income/(Loss) | |||||||||||||
2000 | 1999 | 1998 | |||||||||||
Automotive sector | $ | 3,624 | $ | 4,986 | $ | 4,049 | |||||||
Financial Services sector (excluding The Associates) | 1,786 | 1,516 | 1,187 | ||||||||||
Gain on spin-off of The Associates | — | — | 15,955 | ||||||||||
The Associates (net of Minority Interest) | — | — | 177 | * | |||||||||
Income from continuing operations | $ | 5,410 | $ | 6,502 | $ | 21,368 | |||||||
Income from discontinued operation | 309 | 735 | 703 | ||||||||||
Loss on spin-off of discontinued operation | (2,252 | ) | — | — | |||||||||
Total Company net income | $ | 3,467 | $ | 7,237 | $ | 22,071 | |||||||
* | Through March 12, 1998 |
Review of The following unusual items were included in Ford’s 2000, 1999, Financial Milestonesand 1998 income from continuing operations (in millions):
Automotive Sector | ||||||||||||||||||||||||||
Rest | Total | Financial | ||||||||||||||||||||||||
North | South | Of | Auto | Services | ||||||||||||||||||||||
America | Europe | America | World | Sector | Sector | |||||||||||||||||||||
2000 | ||||||||||||||||||||||||||
Asset impairment and restructuring costs for Ford brand operations in Europe in the second quarter | $ | (1,019 | ) | $ | (1,019 | ) | ||||||||||||||||||||
Inventory-related profit reduction for Land Rover in the third quarter | $ | (13 | ) | (76 | ) | $ | (17 | ) | (106 | ) | ||||||||||||||||
Write-down of assets associated with the Nemak joint venture in the fourth quarter | (133 | ) | (133 | ) | ||||||||||||||||||||||
Total 2000 unusual items | $ | (146 | ) | $ | (1,095 | ) | — | $ | (17 | ) | $ | (1,258 | ) | $ | — | |||||||||||
1999 | ||||||||||||||||||||||||||
Gain from the sale of Ford’s interest in AutoEuropa to Volkswagen AG in the first quarter | $ | 165 | $ | 165 | ||||||||||||||||||||||
Inventory-related profit reduction for Volvo Car in the second quarter | $ | (16 | ) | (125 | ) | $ | (5 | ) | (146 | ) | ||||||||||||||||
Visteon-related postretirement adjustment in the third quarter (incl. in Total Auto sector) | (125 | ) | ||||||||||||||||||||||||
Employee separation costs in the third quarter | (79 | ) | (79 | ) | $ | (23 | ) | |||||||||||||||||||
Lump-sum payments relating to ratification of the 1999 United Auto Workers and Canadian Auto Workers contracts in the fourth quarter | (80 | ) | (80 | ) | ||||||||||||||||||||||
Total 1999 unusual items | $ | (175 | ) | $ | 40 | — | $ | (5 | ) | $ | (265 | ) | $ | (23 | ) | |||||||||||
1998 | ||||||||||||||||||||||||||
Non-cash gain from Ford’s spin-off of The Associates in the first quarter | $ | 15,955 | ||||||||||||||||||||||||
Employee separation costs in the fourth | ||||||||||||||||||||||||||
quarter | $ | (225 | ) | $ | (135 | ) | $ | (81 | ) | $ | (441 | ) | (6 | ) | ||||||||||||
Write-off of Ford’s net exposure in Kia Motors Company in the fourth quarter | (42 | ) | $ | (44 | ) | (86 | ) | |||||||||||||||||||
Charge in the fourth quarter to transfer Ford’s Batavia, Ohio transmission plant to a new joint venture company formed by ZF Friedrichshafen AG and Ford to manufacture continuously variable transmissions | (73 | ) | (73 | ) | ||||||||||||||||||||||
Total 1998 unusual items | $ | (340 | ) | $ | (135 | ) | $ | (81 | ) | $ | (44 | ) | $ | (600 | ) | $ | 15,949 | |||||||||
32
Excluding these unusual items, income from continuing operations would have been $6,668 million in 2000, compared with $6,790 million in 1999 and $6,019 million in 1998.
Ford established and communicated the financial milestones listed below for 1999. Results2000. Ford’s results against these milestones, excluding the unusual items described above, are listed below.
Actual Result | Over/(Under) 1999 | ||||||||||||
Total Ford | |||||||||||||
Total Shareholder Returns | over time | -16% | |||||||||||
Revenue | Grow | $170 billion | $9 billion | ||||||||||
Automotive | |||||||||||||
North America | $5,032 million | $(563) million | |||||||||||
Europe | $(35) million | $(45) million | |||||||||||
South America | $(240) million | $204 million | |||||||||||
Rest of World | $125 million | $35 million | |||||||||||
Total | Reduce $1 billion | $500 million | |||||||||||
Capital Spending | $8 billion (excluding Visteon) | $7.4 billion | $0.3 billion | ||||||||||
Visteon | Achieve independence | Spun-off June 28, 2000 | |||||||||||
Ford Credit | Grow earnings 10% | $1,536 million | +22% | ||||||||||
Improve return on equity | 13.1% | 1.6 points | |||||||||||
Hertz | Record earnings | $358 million | $22 million |
34
Automotive Sector Results of Operations
Details of Fords full-yearFord’s Automotive sector earnings from continuing operations for 2000, 1999, 1998, and 19971998 are shown below (in millions):
Net Income/(Loss) | |||||||||||||
2000 | 1999 | 1998 | |||||||||||
North American Automotive | $ | 4,886 | $ | 5,418 | $ | 3,997 | |||||||
Automotive Outside North America | |||||||||||||
— Europe | (1,130 | ) | 50 | 151 | |||||||||
— South America | (240 | ) | (444 | ) | (278 | ) | |||||||
— Rest of World | 108 | 87 | 179 | ||||||||||
Total Automotive Outside North America | (1,262 | ) | (307 | ) | 52 | ||||||||
Visteon-related postretirement adjustment | — | (125 | ) | — | |||||||||
Total Automotive sector | $ | 3,624 | $ | 4,986 | $ | 4,049 | |||||||
19992000 Compared with 19981999
Worldwide earnings from continuing operations for FordsFord’s Automotive sector were $5,721$3,624 million in 2000 on sales of $141 billion, compared with $4,986 million in 1999 on sales of $137 billion,
compared with $4,752 million in 1998 on sales of
$119.1$135 billion. The increasedecrease in earnings reflects improved
resultsasset impairment and restructuring charges in Europe and lower earnings in North America, offset partially by lower earningsimproved results in all other geographic markets.South America. Adjusted for constant volume and mix, Ford’s total costs in the Automotive sector declined $1 billion$500 million, compared with 1998.
1999.
FordsFord’s Automotive sector earnings from continuing operations in North America were $6,137$4,886 million in 2000 on sales of $103.9 billion, compared with $5,418 million in 1999 on sales of $100.3 billion,
compared with $4,612 million in 1998 on sales of
$87.4$99.2 billion. The earnings improvementdeterioration reflects primarily increased sales volume, an improved mix of light truckscosts associated with the Firestone tire recall and luxury cars, lowerhigher warranty costs and the non-recurrence of 1998s
unusual items,related to Ford’s 3.8 liter engine, offset partially by higher interest expense,
lump-sum payments related to the ratification of union contracts
in 1999, and costs related to employee separation programs in
1999.increased volume. The after-tax return on sales for FordsFord’s Automotive sector in North America was 6.2%4.8% in 1999, up 9/2000, down 7/10 of a percentage point from 1998.
1999.
33
In 1999,2000, approximately 17.417.8 million new cars and trucks were sold in the United States, up from 1617.4 million units in 1998. Fords1999. Ford’s share of those unit sales was 23.9%23.7% in 1999,2000, down 7/1/10 of a percentage point. The decrease in market share
reflects primarily capacity constraints on several key products
due to strong demand in the United States market.
point from a year ago.
FordsFord’s Automotive sector earningslosses in Europe were $28$1,130 million from continuing operations in 1999, a $1652000, compared with earnings of $50 million reduction from a year ago. The deterioration is explained by lower market sharedecline reflects primarily the second quarter 2000 charge of $1,019 million related to asset impairment and restructuring costs for Ford-branded vehicles, primarily Mondeo and Fiesta, and
unfavorable vehicle mix, offset partially by the non-recurrence
of 1998s employee separation costs, lower taxes, the impact
of 1999s unusual items, and the addition of Volvo Car.
Ford brand operations.
In 1999,2000, approximately 1717.8 million new cars and trucks were sold in Fords fifteenFord’s nineteen primary European markets, updown from 16.118.2 million units in 1998. Fords1999. Ford’s share of those unit sales was 10.6%10% in 1999, up 4/2000, down 2/10 of a percentage point from a year ago. Theago, reflecting primarily an increase in Fordsmarket share is more than
explained by the additionrelated to Ford’s acquisitions of Volvo Car.
Car and Land Rover, offset by a decrease in market share of Ford brand. The decrease in the Ford brand share reflects primarily continued aggressive competition.
FordsFord’s Automotive sector in South America lost $452$240 million from continuing operations in 1999,2000, compared with a loss of $226$444 million in 1998.1999. The decline in earningsimprovement reflects primarily lower industry sales, lower market share in Brazil,
weak economic conditions, devaluation of the Brazilian currency,higher vehicle margins resulting from cost reductions and increased competition, offset partially by lower costsimproved product mix and the non-recurrence of 1998s employee separation costs.
pricing.
In 1999,2000, approximately 1.31.5 million new cars and trucks were sold in Brazil, compared with 1.61.3 million in 1998.
Fords1999. Ford’s share of those unit sales was 9.7%9.1% in 1999,2000, down 3.46/10 of a percentage pointspoint from a year ago. In the fourth quarter
of 1999, Fords market share in Brazil was 10.8%, down 8/10
of a percentage point. These declinesThe decline in market share reflectreflects increased competition from new and existing manufacturers who are
aggressively competing for the lower industry volume.
competition.
35
During December 1999, Ford completed the legal restructuring
of its operations in Brazil, which included the realignment of
its operations and the retirement of U.S. Dollar debt. Based on
business changes, events in 1999, and the current business plan
for Ford in Brazil, management has decided that a change in
functional currency from the U.S. Dollar to the Real is required
by Statement of Financial Accounting Standards No. 52
(SFAS 52) for Fords Automotive Segment. The
Real will be the primary currency of the environment in which
Ford Brazil will operate. This change, effective January 1,
2000, will result in a one-time write-down of Ford Brazils
fixed assets and inventories of $348 million, which will be
reflected in Fords first quarter Other Comprehensive Income
shown in Fords Consolidated Statement of
Stockholders Equity. Visteons Brazilian operations
will continue to use the U.S. Dollar as its functional currency.
Automotive sector earnings from continuing operations outside North America, Europe, and South America ((“Rest of WorldWorld”) were $133$108 million in 1999,2000, compared with earnings of $173$87 million in 1998. The
decline in earnings reflects primarily higher taxes and lower
sales volume, offset partially by Fords share of the profit
improvement at Mazda and the non-recurrence of a write-off of
its net exposure to Kia Motors Company in 1998.1999.
New car and truck sales in Australia, FordsFord’s largest market in Rest of World, were approximately 787,000788,000 units in 1999, down 2.6 percentage
points2000, essentially unchanged from a year ago. In 1999, Fords2000, Ford’s combined car and truck market share in Australia was 16.1%15.4%, up 2/10 of adown 1.1 percentage pointpoints from 1998.
Fords Visteon operations, included in the Automotive
sector, earned $735 million on revenues of $19,366 million
in 1999, compared with $703 million on revenues of
$17,762 million in 1998. This earnings improvement reflectsreflecting primarily cost reductions, the consolidation of Halla Climate
Control, and increased North American truck volume, offset
partially by negotiated price reductions, compensation factors,
and foreign currency translation. Visteons after-tax return
on sales in 1999 was 3.9%, unchanged from a year ago.
strong competitive pressures.
Ford and Visteon are close to completing a market-pricing review
begun in 1999 of various carry-over components and systems Ford
purchases from Visteon. When the review is completed and a final
pricing level is agreed to, it is expected that Visteon will
reduce prices to Ford.
Financial Services Sector Results of Operations
Details of Fords full-year Financial Services sector
earnings for 1999, 1998, and 1997 are shown below (in millions):
1999 Compared with 1998
Earnings of FordsFord’s Financial Services sector consist primarily of two segments, Ford Credit and Hertz. Details of Ford’s Financial Services sector earnings for 2000, 1999, and 1998 are shown below (in millions):
Net Income/(Loss) | ||||||||||||||
2000 | 1999 | 1998 | ||||||||||||
Ford Credit | $ | 1,536 | $ | 1,261 | $ | 1,084 | ||||||||
Hertz | 358 | 336 | 277 | |||||||||||
Minority Interests, Eliminations, and Other | (108 | ) | (81 | ) | (174 | ) | ||||||||
Financial Services (excluding The Associates) | 1,786 | 1,516 | 1,187 | |||||||||||
The Associates (net of Minority Interest) | — | — | 177 | * | ||||||||||
Gain on spin-off of The Associates | — | — | 15,955 | |||||||||||
Total Financial Services sector | $ | 1,786 | $ | 1,516 | $ | 17,319 | ||||||||
Memo: Ford’s share of earnings in Hertz | $ | 292 | $ | 273 | $ | 224 |
* | Through March 12, 1998 |
2000 Compared with 1999
SeeFor a discussion of Ford Credit’s 2000 results of operations, see Item 7., Managements“Management’s Discussion and Analysis of Financial Conditions and Results of Operations for
discussion of Ford Credits 1999 results of operations.
Operations”.
36
Earnings at Hertz in 2000 were $358 million (of which $292 million was Ford’s share). In 1999, wereHertz had earnings of $336 million (of which $273 million was Fords share). In 1998, Hertz had
earnings of $277 million (of which $224 million was
FordsFord’s share). The increase in earnings reflects primarily strong demandvolume-related performance, offset partially by downward pricing pressure and continuing cost efficiency improvements.
higher interest costs.
34
Liquidity and Capital Resources
Automotive Sector
At December 31, 1999, Fords2000, Ford’s Automotive sector had $23.6$16.5 billion of cash and marketable securities. Despite
cash outflows of $6.3securities, down $5.2 billion for acquisitions and
$2.3 billion in cash dividends, Fords cash and
marketable securities only decreased by $220 million from December 31, 1998.
1999, more than explained by distributions for the Value Enhancement Plan ($5.6 billion), share repurchases ($1.1 billion), and acquisitions ($2.7 billion, mainly Land Rover). In addition to the cash on the balance sheet, Ford pre-funded certain employee health benefit obligations in a Voluntary Employee Beneficiary Association trust totaling $3.7 billion at December 31, 2000. In the first quarter and early second quarter of 2001, Ford expects to incur cash outlays of approximately $5 billion for employee compensation payments (primarily profit sharing), the final payment to AB Volvo for Ford’s acquisition of Volvo Car, share repurchases, and Ford’s acquisition of the minority interest in Hertz.
In 1999,2000, Ford spent $7.9$7.4 billion for capital goods, such as machinery, equipment, tooling, and facilities, used in theits Automotive sector. This is down $168up $324 million from 1998.1999, reflecting primarily the addition of Land Rover. Capital expenditures were 5.8%5.2% of sales in 1999, down one
percentage point2000, unchanged from a year ago.
Ford’s stockholders’ equity was $18.6 billion at December 31, 2000, down $9 billion compared with December 31, 1999. This decrease reflects primarily the Value Enhancement Plan, cash dividends, the Visteon spin-off, the share repurchase program, and a reduction in other comprehensive income reflecting foreign currency translation adjustments related primarily to the strengthening of the U.S. dollar relative to European currencies, offset partially by net income.
At December 31, 1999, Fords2000, Ford’s Automotive sector had total debt of $12.1 billion. This amount$12 billion, up $300 million. Debt at year-end 2000 was 31%39% of FordsFord’s total capitalization (that is, the sum of stockholdersFord’s stockholders’ equity and Automotive debt) at the end of 1999,, compared with 30% of total capitalization at year-end 1998.
1999. The increase reflected primarily lower stockholders’ equity, as explained above.
Financial Services Sector
At December 31, 1999, Fords2000, Ford’s Financial Services sector had cash and marketable securities totaling $1.6$1.5 billion, up
$437down $111 million from December 31, 1998.
1999.
Finance receivables and net investment in operating leases were $155.8$171.8 billion at December 31, 1999,2000, up $17.4$16.0 billion from December 31, 1998.
1999, reflecting higher volume.
Total debt was $139.9$153.5 billion at December 31, 1999,2000, up $17.6$13.6 billion from December 31, 1998.1999. Outstanding commercial paper at December 31, 19992000 totaled $43.1$42.3 billion at Ford Credit (including $1 billion owed
to Ford), and $2.5$2.3 billion at Hertz, with an average remaining maturity of 2535 days and 1518 days, respectively.
Year 2000 Date ConversionHertz Purchase
AsIn March 2001, through a tender offer and a merger transaction, Ford acquired (for a total price of December 31, 1999, all critical business systems had
been remediated and tested to ensure their ability to processabout $750 million) the year 2000 date change (Y2K). The remediation and
testing programs scope included other impact areas as well,
including suppliers, plant floor equipment, affiliates, dealers,
product development test equipment, technical infrastructure,
physical infrastructure, vehicle components, and end-user
computing.
Ford entered into the year 2000 smoothly and without disruption
to the business due to Y2K.common stock of Hertz that Ford did not experience any
significant malfunctions or errors in operating or business
systems when the date changed from 1999 to 2000. Based on
operations since the date change, Ford does not expect any
significant impact to its business as a result of Y2K. Reports
from Fords suppliers regarding Y2K have exceeded
expectations and have been uniformly positive. Fords
business systems and technical infrastructure are processing
normally.
Ford estimates its total cost for Y2K compliance efforts will beown, which represented about $394 million, which it will have incurred over about a
three-year period that commenced mid-1997. Y2K compliance costs
incurred through December 31, 1999 were about
$388 million. Fords annual Y2K costs relating to
information technology have represented and are expected through
year-end 2000 to represent about 10% of its total annual
information technology budget.
Euro Conversion
The increased price transparency that may result from the use of
a single currency in the eleven participating countries that have
adopted the euro as their common legal currency could affect the
ability of Ford and other companies to price their products
differently in the various European markets. A possible result of
this is price harmonization at lower average prices for products
sold in some markets. Nevertheless,
37
Introduction of the euro may reduce the amount of Fords
exposure to changeseconomic interest in foreign exchange rates, due to the netting
effect of having imports and exports denominated in a single
currency as opposed to the various legacy currencies.Hertz. As a result, the complexity of Fords foreign exchange hedgingHertz has been reduced. Conversely, because there will be less
diversity in its exposure to foreign currencies, movements in the
euros value could have a more pronounced effect, whether
positive or negative, on Ford.
become an indirect, wholly-owned subsidiary.
Ford has budgeted up to $50 million (including
contingencies) for the period from 1997 through 2003 to cover the
worldwide costs of preparing for and making operational changes
to accommodate introduction of the euro. Certain of Fords
business functions introduced euro-capability as of
January 1, 1999, including, for example, systems for making
and receiving certain payments, pricing and invoicing. Other
business functions will be converted for the euro by the end of
the transition period (December 31, 2001), but may be
converted earlier where operationally efficient or
cost-effective, or to meet customer needs.
New Accounting Standards and Changes
New StandardsStandard
In the first quarter of 1999, Ford adopted Statement of Position
(SOP) 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use.
This SOP requires entities to capitalize certain internal-use
software costs once certain criteria are met. Fords
practice has been to expense the costs of obtaining or developing
internal-use software as incurred. Adoption of this standard did
not have a material effect on earnings.
will adopt Statement of Financial Accounting Standards No.(SFAS) 133, (SFAS 133), Accounting“Accounting for Derivative Instruments and Hedging Activities, was issued by the
Financial Accounting Standards Board in June 1998. This
Statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It
requires recognition of all derivatives as either assets or
liabilitiesHedging”, on the balance sheet and measurement of those
instruments at fair value. If certain conditions are met, a
derivative may be designated specifically as (a) a hedge of
the exposure to changes in the fair value of a recognized asset
or liability or an unrecognized firm commitment referred to as a
fair value hedge, (b) a hedge of the exposure to variability
in cash flows of a forecasted transaction (a cash flow hedge),
or (c) a hedge of the foreign currency exposure of a net
investment in a foreign operation, an unrecognized firm
commitment, an available-for-sale security, or a forecasted
transaction. Ford anticipates having each of these types of
hedges, and will comply with the requirements of SFAS 133
when adopted. Ford expects to adopt SFAS 133 beginning January 1, 2001 and has not yet determined the effect of
adopting SFAS 133.
2001.
Accounting Changes
Beginning in 1999, Ford changed from an accelerated method to the
units-of-production method for special tooling amortization.
This change was made to recognize that special tooling retains
its value more uniformly over time and more closely aligns
tooling amortization with vehicle production volumes, providing a
better matching of costs and revenues.
Also beginning in 1999, Ford modified its plant and equipment
retirement policy to reflect gains and losses in income in the
year of retirement. Previously, the cost of retired assets, net
of salvage proceeds, was charged to accumulated depreciation. The
change in accounting principle for plant and equipment
retirement was made to better reflect the results of asset
disposal/sale decisions.
Adoption of these changes did not have a material effect on
financial statements.
38
35
Outlook
Industry Sales Volumes
FordsFord’s outlook for car and truck (including heavy trucks) industry sales in 20002001 in its major markets is as follows:
United States | |||||
Europe | — approximately | ||||
Brazil | |||||
Australia |
20002001 Financial Milestones
Ford has set and communicated certain financial milestones for 2000.2001. While Ford hopes to achieve these goals, they should not be interpreted as projections, expectations or forecasts of 20002001 results. The financial milestones for 20002001 are as follows:
Total Company | |||
Top quartile of S | |||
Grow $5 billion | |||
Automotive | |||
Europe | Achieve 1%+ return on sales | ||
Improve results | |||
Reduce $1 billion (at constant volume and mix) | |||
Contain at $8 billion or less | |||
Financial Services | |||
Grow earnings 10% | |||
Risk Factors
Statements included or incorporated by reference herein may constitute forward“forward looking statementsstatements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from those stated, including, without limitation: greater price competition in the U.S. and Europe resulting from currency fluctuations, industry overcapacity or other factors; a significant decline in industry sales, particularly in the U.S.United States or Europe, resulting from slowing economic growth; market acceptance of Ford’s new products; currency or
commodity price fluctuations; further economic difficulties in South America or Asia; higher fuel prices; a market shift from truck sales in the U.S.;United States; lower-than-anticipated residual values for leased vehicles; labor or other constraints on FordsFord’s ability to restructure its business; increased safety or emissions regulation resulting in higher costs and/or sales restrictions; work stoppages at key Ford or supplier facilities; and the discovery of defects in vehicles resulting in delays in new model launches, recall campaigns, increased warranty costs or litigation.
39
36
Quantitative and Qualitative Disclosures About Market Risk
Overview
Ford is exposed to a variety of market and asset risks, including the effects of changes in interest rates, foreign currency exchange rates, commodity prices, interest rates, and commodity prices.
specific asset risks. These risks affect Ford’s Automotive and Financial Services sectors differently. Ford monitors and manages these financial exposures as an integral part of its overall risk management program, which recognizes the unpredictability of financial markets and seeks to reduce the potentially adverse effect on its results.
The effect of changes in exchange rates, commodity prices, and interest rates and commodity
prices on FordsFord’s earnings generally has been small relative to other factors that also affect earnings, such as unit sales and operating margins.
The market risks of Ford’s Automotive sector and the market and other risks and capital adequacy of Fords interest rate risk, foreign currency exchange rate
risk Credit, which comprises substantially all of Ford’s Financial Services sector, are discussed and commodity risk are quantified below.
Automotive Market Risk
Interest Rate Risk Ford uses interest rate swaps
(including those with a currency swap component) primarily at
Ford Credit to mitigateFord’s Automotive sector frequently has expenditures and receipts denominated in foreign currencies, including the effectsfollowing: purchases and sales of interest rate fluctuations
on earnings by changing the characteristics of assetsfinished vehicles and liabilities to match each other. All interest rate swap
agreements are designated to hedge either a specific balance
sheet item or pool of items. Ford uses a model to assess the
sensitivity of its earningsproduction parts; debt and other payables; subsidiary dividends; and investments in affiliates. These expenditures and receipts create exposures to changes in market interestexchange rates. The model recalculates earnings by adjusting rates associated
with variable rate instruments on the repricing date and by
adjusting rates on fixed rate instruments scheduledFord also is exposed to maturechanges in the subsequent twelve months, effective on their scheduled
maturity date. Interest income and interest expense are then
recalculated based on the revised rates. Assuming an
instantaneous increase or decreaseprices of one percentage pointcommodities used in interest rates applied to all financial instruments and leased
assets, Fords after-tax earnings would change by
$29 million over a 12-month period.
its Automotive sector.
Foreign Currency Risk
Ford uses derivative financial instruments to hedge assets, liabilities and firm commitments denominated in foreign currencies. FordsFord’s hedging policy is defensive, based on clearly defined guidelines. Speculative actions are not permitted. Ford does not use complex derivative instruments such as interest only or principal only
derivatives.instruments. Ford uses a value-at-risk (VAR(“VAR”) analysis to evaluate its exposure to changes in foreign currency exchange rates. The primary assumptions used in the VAR analysis are as follows:
A Monte Carlo simulation model is used to calculate changes in the value of currency derivative instruments | ||
The VAR analysis calculates the potential risk, within a 99% confidence level, on | ||
Estimates of correlations and volatilities are drawn primarily from the JP Morgan RiskMetrics |
Based on FordsFord’s overall currency exposure (including derivative positions) during 1999,2000, the risk during 19992000 to its pre-tax cash flow from currency movements was on average less than $225$300 million, with a high of
40
Commodity Price Risk
Ford enters into commodity forward and option contracts. Such contracts are executed to offset FordsFord’s exposure to the potential change in prices mainly for various non-ferrous metals (e.g., aluminum) used in the
37
Ford Credit Market and Other Risks
For a complete discussion of Ford Credit’s market and other risks, see Item 7A “Quantitative and Qualitative Disclosures About Market Risk.”
Item 2. Ford Credit Properties
Substantially all of Ford CreditsCredit’s branch operations presently are being conducted from leased properties. At December 31, 1999,2000, Ford CreditsCredit’s aggregate obligation under leases of real property was $118.8$110.2 million.
Item 3. Ford Credit Legal Proceedings
Various legal actions, governmental proceedings, and other claims are pending or may be instituted or asserted in the future against Ford Credit and its subsidiaries.
Credit.
Ford Credit is a defendant in actions alleging violations of various state and federal regulatory laws concerning financing and insurance, based upon technical interpretations of their requirements. Some of these matters involve or may involve class actions, compensatory, punitive or treble damage claims and attorneys fees in very large amounts, or other requested relief which, if granted, would require very large expenditures.
For a discussion of pending cases against Ford and Ford Credit regarding Ford CreditsCredit’s leasing and lending practices, see Business“Business of Ford — Legal ProceedingsProceedings” under the headings Lease Agreement Disclosure Class Action,
Lease“Lease Residual Class Action, Red” “Red Carpet Lease TerminationsTerminations”, “Late Charges Class Action”, “Ford Credit Debt Collection Class Actions”, and Late Changes“Fair Lending Class ActionAction”.
PART II
Item 5. Market for RegistrantsRegistrant’s Common Equity and Related Stockholder Matters
All shares of the registrantsregistrant’s Common Stock at December 31, 19992000 were owned by Ford FSG, Inc., a wholly
ownedwholly-owned subsidiary of Ford, and, accordingly, there was no market for such stock. During 2000, Ford Credit declared cash dividends of $119.7 million. During 1999, Ford Credit declared and paid cash dividends of $2,167$2,317.0 million. Ford Credit declared an
additional cash dividend of $150 million in 1999 that was paid in
February 2000. Dividends also were paid in 1998, 1997, 1996 1995 and 1994.1995. Ford Credit may pay additional dividends from time to time depending on Ford CreditsCredit’s receivables levels, capital requirements, and profitability.
41
38
Item 6. Selected Financial Data
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
2000 | 1999 | 1998 | 1997 | 1996 | ||||||||||||||||||
Selected Income Statement (in millions) | ||||||||||||||||||||||
Financing revenue | ||||||||||||||||||||||
Operating leases | $ | 11,054 | $ | 9,850 | $ | 9,661 | $ | 8,895 | $ | 8,224 | ||||||||||||
Retail | 8,146 | 6,931 | 6,210 | 5,227 | 5,001 | |||||||||||||||||
Wholesale | 2,442 | 1,683 | 1,620 | 1,588 | 1,646 | |||||||||||||||||
Other | 526 | 421 | 399 | 392 | 477 | |||||||||||||||||
Total finance revenue | 22,168 | 18,885 | 17,890 | 16,102 | 15,348 | |||||||||||||||||
Depreciation on operating leases | 7,846 | 7,564 | 7,327 | 6,188 | 5,538 | |||||||||||||||||
Interest expense | 8,970 | 7,193 | 6,910 | 6,268 | 6,260 | |||||||||||||||||
Net financing margin | 5,352 | 4,128 | 3,653 | 3,646 | 3,550 | |||||||||||||||||
Insurance premiums earned | 226 | 236 | 293 | 298 | 226 | |||||||||||||||||
Investment and other income | 1,212 | 1,238 | 1,119 | 945 | 1,132 | |||||||||||||||||
Total financing margin and revenue | 6,790 | 5,602 | 5,065 | 4,889 | 4,908 | |||||||||||||||||
Operating expenses | 2,415 | 2,125 | 1,777 | 1,478 | 1,468 | |||||||||||||||||
Provision for credit losses | 1,671 | 1,166 | 1,180 | 1,338 | 993 | |||||||||||||||||
Other insurance expenses | 209 | 207 | 296 | 267 | 207 | |||||||||||||||||
Total expenses | 4,295 | 3,498 | 3,253 | 3,083 | 2,668 | |||||||||||||||||
Income before income taxes | 2,495 | 2,104 | 1,812 | 1,806 | 2,240 | |||||||||||||||||
Provision for income taxes | 926 | 791 | 680 | 727 | 731 | |||||||||||||||||
Minority interests in net income of subsidiaries | 33 | 52 | 48 | 48 | 68 | |||||||||||||||||
Net income | $ | 1,536 | $ | 1,261 | $ | 1,084 | $ | 1,031 | $ | 1,441 | ||||||||||||
Net income from financing operations | $ | 1,514 | $ | 1,236 | $ | 1,082 | $ | 1,030 | $ | 1,386 | ||||||||||||
Net income from affiliated companies | 22 | 25 | 2 | 1 | 55 | |||||||||||||||||
Cash dividends | 120 | 2,317 | 500 | 596 | 949 | |||||||||||||||||
Return on equity | 13.1 | % | 11.5 | % | 10.6 | % | 10.8 | % | 16.1 | % | ||||||||||||
Earnings-to-fixed charges ratio | 1.3 | 1.3 | 1.3 | 1.3 | 1.3 | |||||||||||||||||
Selected Balance Sheet (in billions) | ||||||||||||||||||||||
Finance Receivables | ||||||||||||||||||||||
Retail | $ | 80.8 | $ | 76.2 | $ | 67.7 | $ | 55.6 | $ | 53.1 | ||||||||||||
Wholesale | 34.1 | 26.5 | 22.7 | 21.6 | 22.7 | |||||||||||||||||
Other | 9.1 | 7.2 | 6.8 | 5.3 | 5.9 | |||||||||||||||||
Total finance receivables, net of unearned income | 124.0 | 109.9 | 97.2 | 82.5 | 81.7 | |||||||||||||||||
Deduct: Allowance for credit losses | (1.3 | ) | (1.1 | ) | (1.3 | ) | (1.2 | ) | (0.9 | ) | ||||||||||||
Finance receivables, net | $ | 122.7 | $ | 108.8 | $ | 95.9 | $ | 81.3 | $ | 80.8 | ||||||||||||
Operating leases, net | $ | 38.5 | $ | 32.8 | $ | 34.6 | $ | 34.8 | $ | 30.7 | ||||||||||||
Assets | ||||||||||||||||||||||
Financing operations | $ | 174.3 | $ | 156.6 | $ | 137.2 | $ | 122.0 | $ | 121.7 | ||||||||||||
Total assets | $ | 174.3 | $ | 156.6 | $ | 137.2 | $ | 122.0 | $ | 121.7 | ||||||||||||
Capitalization (in billions) | ||||||||||||||||||||||
Debt payable within one year | $ | 63.0 | $ | 69.8 | $ | 63.3 | $ | 55.8 | $ | 52.2 | ||||||||||||
Debt payable after one year | ||||||||||||||||||||||
Senior | 83.3 | 63.2 | 51.6 | 44.8 | 45.5 | |||||||||||||||||
Subordinated and other | — | 0.1 | 0.1 | 0.1 | 0.3 | |||||||||||||||||
Total debt payable after one year | 83.3 | 63.3 | 51.7 | 44.9 | 45.8 | |||||||||||||||||
Total debt | 146.3 | 133.1 | 115.0 | 100.7 | 98.0 | |||||||||||||||||
Stockholder’s equity | 12.2 | 10.9 | 10.6 | 9.6 | 9.2 | |||||||||||||||||
Total capital | $ | 158.5 | $ | 144.0 | $ | 125.6 | $ | 110.3 | $ | 107.2 | ||||||||||||
Debt-to-equity ratio (to 1) | 12.0 | 12.2 | 10.8 | 10.5 | 10.6 | |||||||||||||||||
Debt payable within one year as percent of total capital | 39.7 | % | 48.5 | % | 50.4 | % | 50.6 | % | 48.7 | % |
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Item 7. |
Overview
The principal factors that influence the earnings of Ford Credit are interest margins and the levels of finance receivables and net investment in operating leases.
Net interest margins reflect the difference between interest rates earned on finance receivables, including operating leases net of depreciation (yields(“yields”), and the rates paid on borrowed funds. Yields on most receivables and operating leases generally are fixed at the time the contracts are acquired. On some receivables, primarily wholesale financing, yields vary with changes in short-term interest rates. Borrowed funds include short-term debt, the cost of which reflects changes in short- term interest rates, and long- term debt, the cost of which generally is fixed at the time of the debt placement.
The levels of finance receivables and net investment in operating leases depend primarily on the volume of Ford Motor Company vehicle sales, the extent to which Ford Credit provides the wholesale and retail financing of those sales, and sales of receivables. Ford periodically sponsors special financing programs that are available exclusively through Ford Credit which provide payments to Ford Credit for interest supplements and other support costs on certain financing and leasing transactions. These programs can increase Ford CreditsCredit’s financing volume of Ford Motor Company vehicles.
2000 Results of Operations
Ford Credit’s full-year 2000 financial statements include Volvo financing operations in the following regions: North America, Belgium, Britain, the Netherlands, Norway, and Switzerland. Volvo financing operations in Finland and Spain are included in second, third, and fourth quarter 2000 financial statements. Additional Volvo financing operations will be consolidated into Ford Credit’s financial results in 2001.
Ford Credit is restructuring its operations in the United States and Canada. This restructuring involves the centralizing of collections and administrative functions, historically performed in Ford Credit’s 136 branches, into eight regional service centers. This process began in 1999 and currently five of the service centers are fully operational. The remaining three service centers are expected to be fully operational by May 2001.
2000 Compared with 19981999
Ford Credit’s consolidated net income in 2000 was $1,536 million, up $275 million or 22% from 1999. Compared with 1999, the increase in full-year earnings reflects primarily improved net financing margins and a higher level of receivables, offset partially by higher credit losses and operating costs.
Total net finance receivables and net investment in operating leases at December 31, 2000 were $161 billion, up $19 billion or 13% from a year earlier. The increase in total net finance receivables and net investment in operating leases results primarily from Ford Motor Company-sponsored special financing and leasing programs that are available exclusively through Ford Credit,s a higher volume of wholesale receivables, and inclusion of Volvo financing receivables. The percentage increase in installment sale receivables was less than the percentage increase in net investment in operating leases or wholesale receivables, because sales of installment sale receivables more than doubled from 1999 levels.
Improved net financing margins reflect primarily lower depreciation expense resulting from fewer leased vehicles returned to Ford Credit at lease termination, offset partially by an increase in borrowing costs.
Credit losses as a percent of average net finance receivables including net investment in operating leases increased to 0.84% in 2000 compared with 0.74% in 1999. This increase is due primarily to the launch of collection activities at the regional service centers in the United States and Canada, as the centers transitioned new staff and launched new collection tools. Increased losses also reflected growth in sub-prime financing at Ford Credit subsidiaries.
Higher operating costs reflect primarily the servicing of a higher level of receivables, inclusion of operating expenses of recently acquired subsidiaries, and costs associated with the restructuring of United States and Canadian operations.
40
During 2000, Ford Credit financed 51% of all new cars and trucks sold by Ford, Lincoln, and Mercury dealers in the United States compared with 47% in 1999. In Europe, Ford Credit financed 32% of all new vehicles sold by Ford dealers, compared with 33% a year ago. Ford Credit’s retail financing for new and used vehicles totaled about 3.5 million in the United States and about 800,000 in Europe during 2000. Ford Credit provided wholesale financing for 84% of Ford, Lincoln, and Mercury factory sales in the United States and 96% of Ford factory sales in Europe, unchanged from 1999.
In the fourth quarter of 2000, Ford Credit’s consolidated net income was $410 million, up $101 million or 33% from 1999 earnings of $309 million. Compared with 1999, the increase in earnings reflects primarily improved net financing margins and a higher level of receivables, offset partially by higher credit losses associated with the restructuring of operations in the United States and Canada.
1999 Results of Operations
Ford Credit’s consolidated net income in 1999 was $1,261 million, up $177 million or 16% from 1998. Compared with 1998, the increase in full-yearfull year earnings reflects primarily higher financing volumes and improved credit loss performance, offset partially by increased operating expenses.
expense.
Credit losses as a percent of average net finance receivables including net investment in operating leases decreased to 0.74% in 1999 compared with 0.86% in 1998, reflecting an improvement in portfolio credit quality.
The effective income tax rate was 37.6% for 1999, unchanged from
1998.
Higher operating expenses reflect primarily operating costsexpenses of
recent acquisitions, costs associated with the restructuring of financing operations in the United States and Canada, and employee separation programs.
Total net finance receivables and net investment in operating leases at December 31, 1999 were $141.6$142 billion, up $11.1$11 billion or 9% from a year earlier. The increase results primarily from Ford-sponsored special retail financing programs that are available exclusively through Ford Credit.
During 1999, Ford Credit financed 47% of all new cars and trucks sold by Ford, Lincoln, and Mercury dealers in the U.S.United States compared with 42% in 1998. In Europe, Ford Credit financed 33% of all new vehicles sold by Ford dealers, unchanged from a year ago.earlier. Ford Credit providedCredit’s retail financing for 3.1 million and 800,000 new and used vehicles totaled about 3.1 million in the U.S.United States and about 800,000 in Europe respectively.during 1999. In 1999, Ford Credit provided wholesale financing for 84% of Ford, Lincoln, and Mercury factory sales in the U.S.United States and 96% of Ford factory sales in Europe compared with 83% for the U.S.United States and 95% for Europe last year.
in 1998.
In the fourth quarter of 1999, Ford CreditsCredit’s consolidated net income was $309 million, up $75 million or 32% from 1998 earnings of $234 million. Compared with 1998, the increase in fourth-quarter earnings reflects primarily a higher level of finance receivables and improved credit loss performance offset partially by higher operating expenses.
1998 ResultsNew Accounting Standards
In September 2000, the Financial Accounting Standards Board issued Statement of Operations
Ford Credits consolidated net income in 1998 was $1,084
million, up $53 million or 5% from 1997. ComparedFinancial Accounting Standards No. 140 (“SFAS 140”), “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” which supersedes SFAS No. 125, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” SFAS No. 140 is effective for transfers occurring after March 31, 2001, with 1997,
the increase in full-year earnings reflects primarily improved
credit loss performance,
43
Credit losses as a percent of average net finance receivables
including net investment in operating leases decreased to 0.86%
in 1998 compared with 0.89% in 1997 reflecting an improvement in
portfolio quality.
The effective income tax rate was 37.6% for the year endedfiscal years ending after December 31, 1998 compared with 40.3% for the year ended
December 31, 1997. The decrease15, 2000. Applicable disclosure requirements have been made in the effective tax rate
resulted from reduced tax on foreign income.
financial statements.
The deterioration in net financing margins reflects higher
depreciation on operating leases. Higher depreciation resulted
from higher residual losses on off-lease vehicles and higher
residual reserves.
Total net finance receivables and net investment in operating
leases at December 31, 1998 were $130.5 billion, up
$14.4 billion or 12% from a year earlier. The increase
reflects primarily Ford-sponsored special financing programs that
are available exclusively through Ford Credit.
During 1998, Ford Credit financed 42% of all new cars and trucks
sold by Ford dealers in the U.S. compared with 38% in 1997. In
Europe during 1998, Ford Credit financed 33% of all new vehicles
sold by Ford dealers compared with 29% in 1997. In 1998, Ford
Credit provided retail financing for 2.8 million and 800,000
new and used vehicles in the United States and Europe
respectively. In 1998, Ford Credit provided wholesale financing
for 83% of Ford factory sales in the U.S. and 95% of Ford factory
sales in Europe compared with 80% for the U.S. and 95% for
Europe in 1997.
In the fourth quarter of 1998, Ford Credits consolidated
net income was $234 million, up $16 million or 7% from 1997
earnings of $218 million. The increase reflects primarily
improved credit loss performance, lower effective tax rates, and
higher financing volumes, offset partially by lower net financing
margins and higher operating costs.
New Accounting Standard
In the first quarter of 1999, Ford Credit adopted Statement of
Position (SOP) 98-1, Accounting for the Costs
of Computer Software Developed or Obtained for Internal
Use. This SOP requires entities to capitalize certain
internal-use software costs once certain criteria are met. Ford
Credits practice has been to expense the costs of obtaining
or developing internal-use software as incurred. Adoption of
this standard did not have a material effect on earnings.
Statement of Financial Accounting Standards No. 133 ((“SFAS 133133”), Accounting“Accounting for Derivative Instruments and Hedging Activities,” was issued by the Financial Accounting Standards Board in June 1998. This Statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires recognition of all derivatives as either assets or liabilities on the balance sheet and measurement of those instruments at fair
41
Year 2000 Date Conversion
As of December 31, 1999, all Ford Credits critical
business systems hadthis statement have been remediated and tested to ensure their
ability to process the year 2000 date change (Y2K).
The remediation and testing programs scope included other
impact areas as well, including affiliates, dealers, technical
infrastructure, physical infrastructure and end-user computing.
44
Ford Credit entered into the year 2000 smoothly and without
disruption to business due to Y2K. Ford Credit did not experience
any significant malfunctions or errors in its operating or
business systems when the date changed from 1999 to 2000. Based
on operations since the date change, Ford Credit does not expect
any significant impact to its business as a result of Y2K. Ford
Credits business systems and technical infrastructure are
processing normally.
Ford Credit has shared many of the Ford Motor Company Y2K
compliance tools. Ford Credit estimates that its incremental
costs will be about $25 million for Y2K compliance efforts.
This amount will be incurred over about a three-year period that
commenced mid-1997 and will end mid-2000. Y2K compliance costs
incurred through December 31, 1999 are estimated at
$23 million. Ford Credits annual Y2K costs relating to
information technology have represented and are expecteddisclosed in the future to represent less than 10% of Ford Credits total
annual information technology budget.
financial statements.
Euro Conversion
Ford Credit, including Ford Credit Europe, made necessary changes
to accounting, operational, and payment systems to accommodate
introduction of the euro on January 1, 1999. Certain of Ford
Credits business functions introduced euro-capability as
of January 1, 1999, including, for example, systems for
making and receiving certain payments and denominating certain
types of new loans in euro. Other business functions of Ford
Credit will be converted for the euro by the end of the
transition period (December 31, 2001), but may be converted
earlier where operationally efficient or cost-effective, or to
meet customer needs.
Ford Credit plans no changes in its funding strategies or
asset-liability management policies as a result of the
introduction of the euro, and will continue to fund in all
markets which are cost-effective. Ford Credit generally hedges
all foreign exchange exposure associated with its funding
activities. As a result, Ford Credits exposure to movements
in foreign exchange rates is limited and introduction of the
euro should have no material effect on Ford Credit.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Risk and capital management have been identified as two of Ford Credit’s key strategic initiatives. Ford Credit’s risk and capital management policies and practices are intended to:
• | Ensure compliance with all legal and regulatory requirements. | |
• | Maintain sufficient capital to protect creditors against unexpected events, consistent with that of other companies having a U.S. public debt rating similar to Ford Credit. | |
• | Provide funding availability throughout various economic and credit cycles. | |
• | Measure and manage risk appropriately. |
RISK MANAGEMENT ORGANIZATION
Ford Credit’s Global Risk Management (“GRM”) organization, which consists of more than 150 risk management professionals worldwide, is led by an Executive Vice President who reports to Ford Credit’s Chairman and Chief Executive Officer. GRM has developed a comprehensive plan to update and implement risk management policies and procedures, improve risk measurement and management across Ford Credit, assess portfolio diversification, validate existing controls, and partner with operating management and the Chief Financial Officer’s organization to identify opportunities that could enhance shareholder value.
In addition to GRM at Ford Credit, Ford has a team of professionals in its Treasurer’s Office that manages interest rate, currency, liquidity, and counterparty risks of Ford and Ford Credit collectively. This team reports jointly to the Vice President and Treasurer of Ford, and the Executive Vice President and Chief Financial Officer of Ford Credit. GRM, the Treasurer’s Office and the Chief Financial Officer’s organization are jointly responsible for assessing capital adequacy.
Ford’s Office of the General Counsel and Ford Credit’s Legal Office are responsible for ensuring compliance with all legal and regulatory requirements.
TYPES OF RISK AND RISK MANAGEMENT
In the normal course of business, Ford Credit is exposed to several types of risk. These risks include primarily credit, residual, interest rate, currency and liquidity risks. Each form of risk is uniquely managed in the context of its contribution to Ford Credit’s overall global risk. Business decisions are evaluated on a varietyrisk-adjusted basis and products are priced consistent with these risks.
As an indirect, wholly-owned subsidiary of Ford, Ford Credit has access to proprietary Ford information, including new product plans, production schedules and marketing programs. This information is used to coordinate efforts within all areas of Ford to minimize risk and maximize opportunities in order to increase shareholder value.
Following is a discussion of Ford Credit’s risk management practices used to manage more than 90% of Ford Credit’s worldwide net finance receivables and operating leases, which equaled $122.7 and $38.5 billion respectively at December 31, 2000, and essentially all liabilities and equity. Ford Credit is continuously reviewing and improving its risk management practices and extending these risk management practices to its remaining portfolio around the world.
Credit Risk
Credit risk is the possibility of loss from a customer’s failure to make payments according to contract terms. Ford Credit actively manages credit risk of consumer and non-consumer products to balance the level of risk and return.
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Consumer Credit
Retail products (vehicle installment sale and lease contracts) are divided into more than 75 segments by risk tier, term and whether the vehicle financed is new or used. These segment data are used to assist with product pricing to ensure risk factors are appropriately considered. Segmentation data are also used in contract servicing to make certain that contracts receive attention appropriate to their risk level. In addition, Ford Credit is reorganizing into regional service centers to streamline retail customer service activities and to realize economies of scale from the latest servicing technology.
Credit investigations include a credit bureau review of each applicant together with an internal review and verification process. Retail credit loss management strategy is based on historical experience of more than 15 million contracts. Statistically-based retail credit risk rating models are used to determine the creditworthiness of applicants. The accuracy of these models is reviewed and revalidated quarterly against actual performance and recalibrated, as necessary.
Ford Credit has developed behavioral models to assist in determining optimal collection strategies. Accounts are placed in risk categories for collection follow-up. Reasonable efforts are made to collect on delinquent accounts and keep accounts current. Repossession is considered a last resort. A repossessed vehicle is sold and proceeds are applied to the amount owing on the receivable. Ford’s Vehicle Remarketing Department manages the sale of repossessed vehicles, seeking the highest net price for the vehicle. Collection of the remaining balance continues after repossession until the account is paid in full or is deemed uncollectible by Ford Credit.
Non-Consumer Credit
Ford Credit extends non-consumer credit primarily to vehicle dealers in the form of approved lines of credit to purchase inventories of new and used vehicles. In addition, Ford Credit provides mortgage, working capital and other types of loans to dealers. Ford Credit also provides state and local governments, leasing and daily rental companies as well as other commercial entities with financing for their automotive needs.
Each non-consumer loan is evaluated, taking into consideration the borrower’s financial condition, collateral, debt servicing capacity, and numerous other financial and qualitative factors. All credit exposures are reviewed at least annually with special loan committees reviewing higher credit exposures.
To monitor potential credit deterioration, dealers are required to submit monthly financial statements. An evaluation rating is assigned to each dealer and physical audits of vehicle inventory are performed periodically, with higher audit frequency for higher risk dealers. In addition, inventory financing payoffs are monitored daily to detect adverse deviations from typical payoff patterns, in which case appropriate actions are taken.
Residual Risk
Residual risk is the possibility that the actual proceeds realized by Ford Credit upon the sale of returned vehicles at lease termination will be lower than the present internal forecast of residual values.
In general, lease contracts are written with vehicle lease-end values based on Automotive Leasing Guide (ALG) residual guidelines. For financial reporting purposes, however, Ford Credit sets the internal value of expected residual values (net of costs) based on a proprietary econometric model that uses historical experience and forward-looking information available to Ford Credit. This information includes new product plans, marketing programs and quality metrics. Any unfavorable gap between Ford Credit’s internal forecast and contract lease-end value is reserved on the balance sheet as depreciation. Reserve adequacy is reviewed quarterly to reflect changes in the projected values.
At lease termination, Ford Credit maximizes residual proceeds through the use of models to determine which geographic market risks, includingwould yield the effectshighest resale value, net of transportation cost. Lease extensions or early terminations also may be offered to take advantage of seasonal resale patterns.
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Financial Market Risk
The goal of financial market risk management is to reduce the profit volatility effect of changes in foreign currency exchange rates and
interest rates. To ensure funding over business and economic
cycles and to minimize overall borrowing costs, Ford Credit
issues debt and other payables with various maturity and interest
rate structures. The maturity and interest rate structures
frequently differ from the invested assets. Exposures to
fluctuations in interest rates are created by the difference
between interest rates and maturity dates on assetscurrency exchange rates. Interest rate and liabilities.
These financialcurrency exposures are monitored and managed by Ford Credit as an integral part of theits overall risk management program, which recognizes the unpredictability of financial markets and seeks to reduce the potentiallypotential adverse effects on Ford CreditsCredit’s operating results. The effectRisk is reduced in two ways: 1) through the use of changes in
exchange ratesfunding instruments that have interest and interest rates on Ford Credits results
generally has been small relativematurity profiles similar to other factors.
The following quantifies Ford Creditsthe assets they are funding, and 2) through the use of interest rate risk
and foreign currency exchange rate risk.
derivatives. Ford Credit’s derivatives strategy is defensive; derivatives are not used for speculative purposes.
Interest Rate Risk
Ford Credit’s asset base consists primarily of fixed-rate retail installment sale and lease contracts, with an average life of about two years, and floating rate inventory financing receivables. Funding sources consist of short-term commercial paper, term debt and receivable sales. To ensure funding availability over a business cycle, Ford Credit often borrows longer-term debt (five to ten years). Interest rate swaps (including those with a currency swap
component) are used by Ford Credit to mitigatechange the effects of
interest rate fluctuations on earnings by changing the characteristics of itsthe debt to match the interest rate characteristics of itsFord Credit’s assets. Ford Credit uses a model to assessThis matching locks in margins and reduces profit volatility. A portion of assets are funded with equity, and volatility can occur as changes in interest rates impact the market value of equity. This volatility is usually small.
The interest rate sensitivity of its
earningsFord Credit’s assets and liabilities, including hedges, is evaluated each month. In addition, the hedging strategy is stress-tested periodically to ensure it remains effective over a range of potential changes in market interest rates. The model
recalculates earnings by adjusting the rates associated with
variable rate instruments on the repricing date and adjusting the
rates on fixed rate instruments scheduled to mature in the
subsequent twelve months, effective on their scheduled maturity
date. Interest income and interest expense are then recalculated
based on the revised rates.
Assuming an instantaneous decreaseincrease of one percentage point in interest rates applied to all financial assets, debt and hedging instruments, and leased assets, Ford CreditsCredit’s after-tax earnings would decline by $29$54 million over the ensuing twelve
monthtwelve-month period.
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Foreign Currency Risk
Ford Credits foreign generally manages assets and liabilities in local country currency, riskthus eliminating exposure to exchange rate movements. When a different currency is substantially reduced
by the natural hedging process of both borrowing and lending in
the local currencies of the home countries. Additionally,used, Ford Credit typically uses foreign currency agreements to hedge specific debt instruments and intercompany loans. Ford CreditsCredit’s earnings in the ensuing twelve monthtwelve-month period would not be materially affected by the change in the value of Ford Credit’s financial assets, debt and hedging instruments resulting from an instantaneous 10% change in foreign currency exchange rates.
rates relative to the U.S. dollar.
Counterparty Risk
Counterparty risk relates to the loss to Ford Credit that could occur if the counterparty to an interest rate or foreign currency hedging or similar contract with Ford Credit defaults. Ford and Ford Credit jointly establish exposure limits for each counterparty to minimize risk and provide counterparty diversification. Exposures to counterparties, including the mark-to-market on derivatives, are monitored on a periodic basis.
Liquidity Risk
Liquidity risk is the possibility of being unable to meet all present and future financial obligations as they come due. One of Ford Credit’s major objectives is to maintain funding availability through any economic or business cycle. Ford Credit focuses on developing funding sources to support growth and refinancing of maturing debt. Ford Credit also issues debt that, on average, matures later than assets liquidate, further enhancing overall liquidity.
Ford Credit is one of the world’s largest issuers of corporate debt. Global funding activities include the direct sale of commercial paper, the placement of term debt to retail and institutional investors and the sale of receivables.
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Management closely monitors the amount of short-term funding and mix of short-term funding to total debt, the overall composition of total debt and the availability of committed credit facilities in relation to the level of outstanding short-term debt. Stress testing of Ford Credit’s liquidity position is conducted periodically.
Recent efforts to provide additional sources of liquidity and further diversify Ford Credit’s funding base include the reduction in the reliance on short-term debt and the development of more efficient term debt instruments. In 1999, Ford Credit implemented the first Corporate Global Bond Program (GlobLSTM), which offers large liquid transactions with broad investor participation, investor loyalty, and enhanced secondary market performance. Other major initiatives include a multi-issuer Euro medium-term note program for certain international affiliates and the first corporate Internet bond offering. Also, the sale of receivables through an asset-backed securitization “ABS” program was expanded to appeal to a global investor base — the first global ABS transaction was issued by Ford Credit in 2000. The sale of asset-backed commercial paper also adds to Ford Credit’s funding capacity.
Ford Credit has, and has the ability to use Ford’s, committed lines of credit from major banks, which provide additional levels of liquidity. (See Note 10 of Notes to Financial Statements for a detailed discussion of these credit lines). About 70% of these facilities have five-year terms. These facilities do not contain restrictive financial covenants (e.g., debt-to-equity limitations) or material adverse change clauses that could preclude borrowing under these facilities.
CAPITAL ADEQUACY
Underlying Ford Credit’s risk and capital management strategies is the need to effectively leverage capital in a way that:
• | Protects creditors against worst-case unexpected losses consistent with Ford Credit’s debt ratings. | |
• | Provides adequate returns by pricing products commensurate with the level of risk. |
Ford Credit’s capital management framework optimizes the use of capital by sizing equity in proportion to risk. Ford Credit manages its capital structure and makes adjustments as the level of portfolio risk changes. A capital adequacy study that quantifies the sources of creditors’ risk protection and stress tests risks is performed semi-annually.
Sources of Creditor Risk Protection
In evaluating the sources of creditor risk protection, Ford Credit looks beyond equity stated in its financial statements, and analyzes cash flows in the event of worst-case unexpected losses. Net revenue from the existing asset portfolio, credit loss reserves, residual loss reserves, and net deferred tax liabilities provide incremental creditor risk protection, in addition to stated equity on the balance sheet. Ford Credit believes that the traditional view of capital adequacy, expressed as debt-to-equity ratios, excludes other sources of creditor risk protection, understating creditor risk protection.
Ford Credit’s objective is to provide customers with competitively priced financing products. In addition to taking into consideration borrowing and operating costs, Ford Credit’s pricing model includes factors related to credit and residual risks, profits and related income taxes. To date, total net revenue from the existing asset portfolio has been sufficient to cover both expected and unexpected losses. For example, Ford Credit continued to be profitable even in periods when it experienced higher-than-normal credit losses (late 1980’s) and residual losses (late 1990’s). Creditor risk protection associated with total net revenue is evaluated using a conservative estimate of lifetime expected net income and related income taxes from the existing portfolio, after consideration of defaults associated with stress testing.
Additional sources of creditor risk protection, in the form of reserves on the balance sheet, include credit loss reserves and residual loss reserves. Credit and residual loss reserves are established to reflect partial impairment of underlying asset values as recorded on the balance sheet due to expected losses. Establishment of these reserves results in a charge to earnings (equity) before actual losses occur. Because these reserves are
45
Net deferred tax liabilities reflect timing differences between the financial statement and tax treatment of revenues and expenses. In the event of unexpected losses, the net deferred tax liability is reduced or eliminated without any actual tax payment, thus providing an additional source of creditor risk protection.
Quantifying Risk Through Stress Testing
As part of Ford Credit’s capital adequacy study, the asset portfolio is stress tested semi-annually to simulate lifetime worst-case unexpected losses and define the level of capital required. The results of this study are integrated into the pricing of Ford Credit’s products by allocating a capital charge to all products consistent with the underlying risks of each product.
The stress test study is based on statistical modeling of lifetime worst-case unexpected losses for each asset class. Worst-case unexpected losses are calculated at a 99.9% confidence level, consistent with bond default levels for single A rated companies. All risk drivers in the portfolio are stress tested, including the likelihood that all segments of the portfolio will experience worst-case losses at the same time. Following is a discussion of the methodology used to stress test consumer credit risk and residual losses:
• | Consumer credit loss stress testing is based on the historical experience of nearly fifteen million liquidated contracts purchased since 1984. The historic portfolio is stratified and the distribution and correlations of defaults for each group are analyzed. Finally, a simulation model is used to replicate potential retail portfolio behavior in worst-case scenarios, assuming that distribution of defaults is statistically lognormal. | |
• | Residual loss stress testing is based on the historical experience of dispositions since 1993 and assumes that all of the vehicles from non-defaulting leases will be returned to Ford Credit at the end of the lease term. The historic portfolio is stratified and a statistical model is used to estimate the volatility of auction values. Finally, to compensate for limited historical data, 30 years of used vehicle price volatility is incorporated. |
Capital Adequacy Study Conclusions
To assess Ford Credit’s capital adequacy, stress-testing results (total lifetime worst-case unexpected losses) are compared against all sources of creditor risk protection. At December 31, 2000, Ford Credit believed that its creditors had risk protection of more than 150% of modeled worst-case unexpected losses for any operational and other risks that may not have been quantified in the study. Ford Credit updates the capital adequacy study semi-annually. Capital will be adjusted as the level of risk and other sources of creditor risk protection changes.
Additional information called for by Item 7 and Item 7A is incorporated herein by reference from Item 1 — Business Business— “Business of Ford Credit — Credit Loss ExperienceExperience”, Business“Business of Ford Credit — Borrowings and Other Sources of FundsFunds”, and Certain“Certain Transactions with Ford and AffiliatesAffiliates”, and Item 8
Financial— “Financial Statements and Supplementary DataData”.
Item 8. Financial Statements And Supplementary Data
The information called for by Item 8 is set forth at pages FC-1 through FC-26FC-27 of this Form 10-K Report, is incorporated herein by reference and is listed in the Index to Financial Statements as set forth in Item 14(a)(1) and 14(a)(2).
PART IV
Item 14. Exhibits, Financial Statement Schedules, And Reports On Form 8-K
(a) 1. Financial Statements
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Report of Independent Accountants
Ford Motor Credit Company and Subsidiaries
Consolidated Statement of Income for the Years Ended December 31, 2000, 1999 | |
Consolidated Balance Sheet, December 31, 2000 and 1999. | |
Consolidated Statement of Stockholder’s Equity, 2000, 1999 and 1998. | |
Consolidated Statement of Cash Flows for the Years Ended December 31, 2000, 1999 |
Notes to Financial Statements.
The Financial Statements and Notes to Financial Statements listed above are incorporated by reference in Item 8 of this Report from pages FC-1 through FC-26FC-27 of this Form 10-K Report.
Information regarding significant restrictions on the ability of subsidiaries to transfer funds to the registrant, and condensed financial information of the registrant are omitted because the amounts related to such restrictions are not sufficient to require submission.
(a) 2. Financial Statement Schedules
Schedules have been omitted because the information required to be contained in them is disclosed elsewhere in the Financial Statements or the amounts involved are not sufficient to require submission. |
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(a) 3. Exhibits
Designation | Description | Method of Filing | ||
Exhibit 3-A | Restated Certificate of Incorporation of Ford Motor Credit Company. | Filed as Exhibit 3-A to Ford Motor Credit Company Report on Form 10-K for the year ended December 31, 1987 and incorporated herein by reference. File No. 1-6368. | ||
Exhibit 3-B | By-Laws of Ford Motor Credit Company as amended through March 2, 1988. | Filed as Exhibit 3-B to Ford Motor Credit Company Report on Form 10-K for the year ended December 31, 1987 and incorporated herein by reference. File No. 1-6368. | ||
Exhibit 4-A | Form of Indenture dated as of February | Filed as Exhibit 4-A to Ford Motor Credit Company Registration Statement No. 2-95568 and incorporated herein by reference. | ||
Exhibit 4-A-1 | Form of First Supplemental Indenture dated as of April 1, 1986 between Ford Motor Credit Company and Manufacturers Hanover Trust Company supplementing the Indenture designated as Exhibit 4-A. | Filed as Exhibit 4-B to Ford Motor Credit Company Current Report on Form 8-K dated April 29, 1986 and incorporated herein by reference. File No. 1-6368. |
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Designation | ||||
Description | Method of Filing | |||
Exhibit 4-A-2 | Form of Second Supplemental Indenture dated as of September 1, 1986 between Ford Motor Credit Company and Manufacturers Hanover Trust Company supplementing the Indenture designated as Exhibit 4-A. | Filed as Exhibit 4-B to Ford Motor Credit Company Current Report on Form 8-K dated August 28, 1986 and incorporated herein by reference. File No. 1-6368. | ||
Exhibit 4-A-3 | Form of Third Supplemental Indenture dated as of March 15, 1987 between Ford Motor Credit Company and Manufacturers Hanover Trust Company supplementing the Indenture designated as Exhibit 4-A. | Filed as Exhibit 4-E to Ford Motor Credit Company Registration Statement No. 33-12928 and incorporated herein by reference. | ||
Exhibit 4-A-4 | Form of Fourth Supplemental Indenture dated as of April 15, 1988 between Ford Motor Credit Company and Manufacturers Hanover Trust Company supplementing the Indenture designated as Exhibit 4-A. | Filed as Exhibit 4-F to Post-Effective Amendment No. 1 to Ford Motor Credit Company Registration No. 33-20081 and incorporated herein by reference. | ||
Exhibit 4-A-5 | Form of Fifth Supplemental Indenture dated as of September 1, 1990 between Ford Motor Credit Company and Manufacturers Hanover Trust Company supplementing the Indenture designated as Exhibit 4-A. | Filed as Exhibit 4-G to Ford Motor Credit Company Registration Statement No. 33-36946 and incorporated hereby by reference. |
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Exhibit 4-A-6 | |||||
Form of Sixth Supplemental Indenture dates as of June 1, 1998 between Ford Motor Credit Company and The Chase Manhattan Bank supplementing the Indenture designated as Exhibit 4-A. | Filed as Exhibit 4.1 to Ford Motor Credit Company Current Report on Form 8-K dated June 15, 1998 and incorporated herein by reference. File No. 1-6368. | ||||
Exhibit 4-B | Indenture dated as of November 1, 1987 between Ford Motor Credit Company and Continental Bank, National Association relating to Debt Securities. | Filed as Exhibit 4-A to Ford Motor Credit Company Current Report on Form 8-K dated December 10, 1990 and incorporated herein by reference. File No. 1-6368. | |||
Exhibit 4-C | Indenture dated as of August 1, 1994 between Ford Motor Credit Company and First Union National Bank relating to Debt Securities. | Filed as Exhibit 4-A to Ford Motor Credit Company Registration Statement No. 33-55237. | |||
Exhibit 10-J | Copy of Amended and Restated Profit Maintenance Agreement dated as of January 1, 1999 between Ford Motor Credit Company and Ford Motor Company. | Filed as Exhibit 99 to Ford Motor Credit Company Report on Form 8-K dated January 11, 1999 and incorporated herein by reference. File No. 1-6368. |
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Designation | ||||
Description | Method of Filing | |||
Exhibit 10-X | Copy of Agreement dated as of February | Filed as Exhibit 10-X to Ford Motor Credit Company Report on Form 10-K for the year ended December 31, 1980 and incorporated herein by reference. File No. 1-6368. | ||
Exhibit 12-A | Computation of Ratio of Earnings to Fixed Charges of Ford Credit. | Filed with this Report. | ||
Exhibit 12-B | Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends of Ford. | Filed with this Report. | ||
Exhibit 23 | Consent of Independent Accountants. | Filed with this Report. | ||
Exhibit 24 | Powers of Attorney. | Filed with this Report. |
Instruments defining the rights of holders of certain issues of long-term debt of the registrant 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. The registrant agrees to furnish a copy of each of such instruments to the Commission upon request.
(b) Reports on Form 8-K
Ford Credit filed the following Report on Form 8-K during the quarter ended December 31, 1999,2000, which did not contain financial statements:
Date of Report | Item | |
Item 5 | ||
Item 5 | ||
December 1, 2000 | Item 5 — Other Events | |
December 22, 2000 | Item 5 — Other Events |
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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 Credit Company |
By |
(Donald A. Winkler, | |
| Chairman of the Board of Directors) |
Date: March |
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 and on the date indicated.
Signature | Title | Date | ||
DONALD A. WINKLER* (Donald A. Winkler) | Chairman of the Board of Directors, Chief Executive Officer and Director (principal executive officer) | |||
March 28, 2001 | ||||
( | Executive Vice President, | |||
March | ||||
BARRETT BURNS* (Barrett Burns) | Director | March 28, 2001 | ||
TERRY D. CHENAULT* (Terry D. Chenault) | ||||
March 28, 2001 | ||||
DAVID C. FLANIGAN* (David C. Flanigan) | ||||
March 28, 2001 | ||||
ELIZABETH S. ACTON* (Elizabeth S. Acton) | Director | March 28, 2001 | ||
GREGORY C. SMITH* (Gregory C. Smith) | ||||
Director | March 28, 2001 | |||
( | Director | March 28, 2001 |
*By |
Attorney-in-Fact) |
49
50
INDEX TO FINANCIAL STATEMENTS
Ford Motor Credit Company and Subsidiaries | ||
Report of Independent Accountants | FC-1 | |
Consolidated Statement of Income | FC-2 | |
Consolidated Balance Sheet | FC-3 | |
Consolidated Statement of | FC-4 | |
Consolidated Statement of Cash Flows | FC-5 | |
Notes to Financial Statements | FC-6 |
To the Board of Directors and Stockholder of
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, and
stockholdersof stockholder’s equity and of cash flows present fairly, in all material respects, the financial position of Ford Motor Credit Company and its subsidiaries at December 31, 19992000 and 1998,1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 19992000 in conformity with accounting principles generally accepted in the United States.States of America. These financial statements are the responsibility of the CompanysCompany’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
our opinion.
Detroit, Michigan
/s/ PRICEWATERHOUSECOOPERS LLP
DETROIT, MICHIGAN
FC-1
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
For the Years Ended December 31 | ||||||||||||||
2000 | 1999 | 1998 | ||||||||||||
Financing revenue | ||||||||||||||
Operating leases | $ | 11,054.4 | $ | 9,850.0 | $ | 9,661.4 | ||||||||
Retail | 8,145.7 | 6,931.1 | 6,209.6 | |||||||||||
Wholesale | 2,442.4 | 1,683.2 | 1,620.4 | |||||||||||
Other | 525.3 | 421.1 | 398.9 | |||||||||||
Total financing revenue | 22,167.8 | 18,885.4 | 17,890.3 | |||||||||||
Depreciation on operating leases | (7,845.7 | ) | (7,564.5 | ) | (7,327.4 | ) | ||||||||
Interest expense | (8,970.1 | ) | (7,193.4 | ) | (6,910.4 | ) | ||||||||
Net financing margin | 5,352.0 | 4,127.5 | 3,652.5 | |||||||||||
Other revenue | ||||||||||||||
Insurance premiums earned | 225.6 | 236.6 | 292.9 | |||||||||||
Investment and other income | 1,212.3 | 1,237.7 | 1,119.3 | |||||||||||
Total financing margin and revenue | 6,789.9 | 5,601.8 | 5,064.7 | |||||||||||
Expenses | ||||||||||||||
Operating expenses | 2,415.4 | 2,124.5 | 1,777.0 | |||||||||||
Provision for credit losses | 1,670.8 | 1,166.4 | 1,179.5 | |||||||||||
Other insurance expenses | 208.7 | 207.1 | 296.0 | |||||||||||
Total expenses | 4,294.9 | 3,498.0 | 3,252.5 | |||||||||||
Income before income taxes | 2,495.0 | 2,103.8 | 1,812.2 | |||||||||||
Provision for income taxes | 925.6 | 790.6 | 680.2 | |||||||||||
Income before minority interests | 1,569.4 | 1,313.2 | 1,132.0 | |||||||||||
Minority interests in net income of subsidiaries | 32.9 | 52.1 | 47.8 | |||||||||||
Net income | $ | 1,536.5 | $ | 1,261.1 | $ | 1,084.2 | ||||||||
The accompanying notes are an integral part of the financial statements.
FC-2
December 31 | |||||||||||
2000 | 1999 | ||||||||||
ASSETS | |||||||||||
Cash and cash equivalents | $ | 1,123.4 | $ | 942.2 | |||||||
Investments in securities | 547.4 | 524.4 | |||||||||
Finance receivables, net | 122,738.4 | 108,753.8 | |||||||||
Net investment, operating leases | 38,457.0 | 32,838.2 | |||||||||
Retained interest in securitized assets | 3,686.6 | 3,442.8 | |||||||||
Notes and accounts receivable from affiliated companies | 2,489.1 | 6,128.2 | |||||||||
Other assets | 5,215.9 | 4,001.1 | |||||||||
Total assets | $ | 174,257.8 | $ | 156,630.7 | |||||||
LIABILITIES AND STOCKHOLDER’S EQUITY | |||||||||||
Liabilities | |||||||||||
Accounts payable | |||||||||||
Trade, customer deposits, and dealer reserves | $ | 4,758.1 | $ | 2,908.3 | |||||||
Affiliated companies | 1,036.9 | 1,235.2 | |||||||||
Total accounts payable | 5,795.0 | 4,143.5 | |||||||||
Debt | 146,294.7 | 133,073.7 | |||||||||
Deferred income taxes | 4,495.4 | 3,564.0 | |||||||||
Other liabilities and deferred income | 5,468.8 | 4,511.0 | |||||||||
Total liabilities | 162,053.9 | 145,292.2 | |||||||||
Minority interests in net assets of subsidiaries | 17.3 | 414.4 | |||||||||
Stockholder’s Equity | |||||||||||
Capital stock, par value $100 a share, 250,000 shares authorized, issued and outstanding | 25.0 | 25.0 | |||||||||
Paid-in surplus (contributions by stockholder) | 4,273.0 | 4,341.6 | |||||||||
Accumulated other comprehensive loss | (383.7 | ) | (298.0 | ) | |||||||
Retained earnings | 8,272.3 | 6,855.5 | |||||||||
Total stockholder’s equity | 12,186.6 | 10,924.1 | |||||||||
Total liabilities and stockholder’s equity | $ | 174,257.8 | $ | 156,630.7 | |||||||
The accompanying notes are an integral part of the financial statements.
FC-3
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
Accumulated Other | ||||||||||||||||||||||||||||||||||
Comprehensive Income/(Loss) | ||||||||||||||||||||||||||||||||||
Unrealized | Unrealized | |||||||||||||||||||||||||||||||||
Note | Gain on | Gain/(Loss) | ||||||||||||||||||||||||||||||||
Receivable | Retained | on | ||||||||||||||||||||||||||||||||
from | Interest in | Foreign | Investments | |||||||||||||||||||||||||||||||
Capital | Paid in | Affiliated | Retained | Securitized | Currency | in | ||||||||||||||||||||||||||||
Stock | Surplus | Company | Earnings | Assets | Translation | Securities | Total | |||||||||||||||||||||||||||
Balance at January 1, 1998 | $ | 25.0 | $ | 3,891.6 | $ | (1,517.0 | ) | $ | 7,327.4 | $ | — | $ | (189.4 | ) | $ | 46.9 | $ | 9,584.5 | ||||||||||||||||
Comprehensive income | ||||||||||||||||||||||||||||||||||
Net income | — | — | — | 1,084.2 | — | — | — | 1,084.2 | ||||||||||||||||||||||||||
Foreign currency translation | — | — | — | — | — | 29.3 | — | 29.3 | ||||||||||||||||||||||||||
Unrealized gain (net of tax of $12.3) | — | — | — | — | — | — | 20.5 | 20.5 | ||||||||||||||||||||||||||
Less: Reclassification adjustment for gains realized in net income (net of tax of $15.3) | — | — | — | — | — | — | (25.4 | ) | (25.4 | ) | ||||||||||||||||||||||||
Total comprehensive income, net of tax | — | — | — | 1,084.2 | — | 29.3 | (4.9 | ) | 1,108.6 | |||||||||||||||||||||||||
Paid-in surplus | — | 451.8 | — | — | — | — | — | 451.8 | ||||||||||||||||||||||||||
Cash dividends | — | — | — | (500.2 | ) | — | — | — | (500.2 | ) | ||||||||||||||||||||||||
Year ended December 31, 1998 | $ | 25.0 | $ | 4,343.4 | $ | (1,517.0 | ) | $ | 7,911.4 | $ | — | $ | (160.1 | ) | $ | 42.0 | $ | 10,644.7 | ||||||||||||||||
Comprehensive income | ||||||||||||||||||||||||||||||||||
Net income | — | — | — | 1,261.1 | — | — | — | 1,261.1 | ||||||||||||||||||||||||||
Retained interest in securitized assets (net of tax of $33.4) | — | — | — | — | 55.4 | — | — | 55.4 | ||||||||||||||||||||||||||
Foreign currency translation | — | — | — | — | — | (209.4 | ) | — | (209.4 | ) | ||||||||||||||||||||||||
Unrealized loss (net of tax of $1.9) | — | — | — | — | — | — | (3.2 | ) | (3.2 | ) | ||||||||||||||||||||||||
Less: Reclassification adjustment for gains realized in net income (net of tax of $13.7) | — | — | — | — | — | — | (22.7 | ) | (22.7 | ) | ||||||||||||||||||||||||
Total comprehensive income, net of tax | — | — | — | 1,261.1 | 55.4 | (209.4 | ) | (25.9 | ) | 1,081.2 | ||||||||||||||||||||||||
Settlement of Note Receivable | — | — | 1,517.0 | — | — | — | — | 1,517.0 | ||||||||||||||||||||||||||
Paid-in surplus | — | (1.8 | ) | — | — | — | — | — | (1.8 | ) | ||||||||||||||||||||||||
Cash dividends | — | — | — | (2,317.0 | ) | — | — | — | (2,317.0 | ) | ||||||||||||||||||||||||
Year ended December 31, 1999 | $ | 25.0 | $ | 4,341.6 | $ | 0.0 | $ | 6,855.5 | $ | 55.4 | $ | (369.5 | ) | $ | 16.1 | $ | 10,924.1 | |||||||||||||||||
Comprehensive income | ||||||||||||||||||||||||||||||||||
Net income | — | — | — | 1,536.5 | — | — | — | 1,536.5 | ||||||||||||||||||||||||||
Retained interest in securitized assets (net of tax of $66.8) | — | — | — | — | 113.3 | — | — | 113.3 | ||||||||||||||||||||||||||
Foreign currency translation | — | — | — | — | — | (208.4 | ) | — | (208.4 | ) | ||||||||||||||||||||||||
Unrealized gain (net of tax of $7.0) | — | — | — | — | — | — | 19.6 | 19.6 | ||||||||||||||||||||||||||
Less: Reclassification adjustment for gains realized in net income (net of tax of $6.0) | — | — | — | — | — | — | (10.2 | ) | (10.2 | ) | ||||||||||||||||||||||||
Total comprehensive income, net of tax | — | — | — | 1,536.5 | 113.3 | (208.4 | ) | 9.4 | 1,450.8 | |||||||||||||||||||||||||
Paid-in surplus | — | (68.6 | ) | — | — | — | — | — | (68.6 | ) | ||||||||||||||||||||||||
Cash dividends | — | — | — | (119.7 | ) | — | — | — | (119.7 | ) | ||||||||||||||||||||||||
Year ended December 31, 2000 | $ | 25.0 | $ | 4,273.0 | $ | 0.0 | $ | 8,272.3 | $ | 168.7 | $ | (577.9 | ) | $ | 25.5 | $ | 12,186.6 | |||||||||||||||||
The accompanying notes are an integral part of the financial statements.
FC-4
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
For the Years Ended December 31 | |||||||||||||||
2000 | 1999 | 1998 | |||||||||||||
Cash flows from operating activities | |||||||||||||||
Net income | $ | 1,536.5 | $ | 1,261.1 | $ | 1,084.2 | |||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||
Provision for credit losses | 1,670.8 | 1,166.4 | 1,179.5 | ||||||||||||
Depreciation and amortization | 8,333.2 | 7,995.1 | 7,366.3 | ||||||||||||
Gain on sales of finance receivables | (13.8 | ) | (82.6 | ) | (192.7 | ) | |||||||||
Increase in deferred income taxes | 765.6 | 432.2 | 356.4 | ||||||||||||
Decrease/(increase) in other assets | 226.4 | (1,343.7 | ) | (1,353.6 | ) | ||||||||||
Increase/(decrease) in other liabilities | 1,190.1 | 127.0 | (52.8 | ) | |||||||||||
Other | 458.0 | 110.5 | 260.2 | ||||||||||||
Net cash provided by operating activities | 14,166.8 | 9,666.0 | 8,647.5 | ||||||||||||
Cash flows from investing activities | |||||||||||||||
Purchase of finance receivables (other than wholesale) | (62,216.2 | ) | (54,525.8 | ) | (48,886.3 | ) | |||||||||
Collection of finance receivables (other than wholesale) | 35,390.9 | 33,575.6 | 28,033.7 | ||||||||||||
Purchase of operating lease vehicles | (26,945.0 | ) | (23,334.9 | ) | (19,156.7 | ) | |||||||||
Liquidation of operating lease vehicles | 15,285.9 | 16,668.2 | 12,798.1 | ||||||||||||
Net change in wholesale receivables | (7,136.9 | ) | (4,026.2 | ) | (797.6 | ) | |||||||||
Proceeds from sales of receivables | 19,544.4 | 9,928.9 | 7,907.8 | ||||||||||||
Decrease/(increase) in note receivable with affiliate | 3,619.2 | (4,757.6 | ) | — | |||||||||||
Proceeds from settlement of intercompany note receivable | — | 1,517.0 | — | ||||||||||||
Purchase of investment securities | (559.2 | ) | (894.4 | ) | (1,911.7 | ) | |||||||||
Proceeds from sale/maturity of investment securities | 550.6 | 1,095.8 | 2,073.8 | ||||||||||||
Acquisition of minority interest | (659.4 | ) | — | — | |||||||||||
Other | (484.9 | ) | (217.8 | ) | (37.7 | ) | |||||||||
Net cash used in investing activities | (23,610.6 | ) | (24,971.2 | ) | (19,976.6 | ) | |||||||||
Cash flows from financing activities | |||||||||||||||
Proceeds from issuance of long-term debt | 33,837.7 | 34,128.4 | 18,186.7 | ||||||||||||
Principal payments on long-term debt | (21,947.6 | ) | (12,266.0 | ) | (12,922.1 | ) | |||||||||
Change in short-term debt, net | (775.2 | ) | (3,974.5 | ) | 6,541.2 | ||||||||||
Cash dividends paid | (269.7 | ) | (2,167.0 | ) | (500.2 | ) | |||||||||
Other | (382.6 | ) | 7.4 | 35.6 | |||||||||||
Net cash provided by financing activities | 10,462.6 | 15,728.3 | 11,341.2 | ||||||||||||
Effect of exchange rate changes on cash and cash equivalents | (837.6 | ) | (261.7 | ) | 79.2 | ||||||||||
Net change in cash and cash equivalents | 181.2 | 161.4 | 91.3 | ||||||||||||
Cash and cash equivalents, beginning of year | 942.2 | 780.8 | 689.5 | ||||||||||||
Cash and cash equivalents, end of year | $ | 1,123.4 | $ | 942.2 | $ | 780.8 | |||||||||
Supplementary cash flow information | |||||||||||||||
Interest paid | $ | 8,533.0 | $ | 6,681.6 | $ | 6,526.6 | |||||||||
Taxes paid | 178.5 | 215.1 | 325.9 |
The accompanying notes are an integral part of the financial statements.
FC-5
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTE 1. ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of
Ford Motor Credit Company and its controlled domestic and foreign subsidiaries and controlled joint ventures ((“Ford CreditCredit”). Affiliates that are 20-50 percent owned are included in the consolidated financial statements on an equity basis. Ford Credit is an indirect wholly owned subsidiary of Ford Motor Company (Ford(“Ford”). Use of estimates, as determined by management, isare required in the preparation of consolidated financial statements in conformity with generally accepted accounting principles. ActualDue to the inherent uncertainty involved in making estimates, actual results couldreported in future periods may be based upon amounts which differ from these
estimates and assumptions.those estimates. Certain amounts in prior yearsyears’ financial statements have been reclassified to conform with current year presentation.
Nature of Operations
Ford Credit operates in many locations around the world, the most significant of which are the United States and Europe. Ford CreditsCredit’s reportable operating segments include Ford Credit North America and Ford Credit International, and Personal Financial
Services.International. Ford Credit North America consists of the United States and Canada. Ford Credit International consists of all other countries. Personal Financial Services consists of insurance
operations and new business ventures.
Ford CreditsCredit’s financing operations primarily consist of: the purchase from franchised Ford vehicle dealers of retail installment sale contracts and retail leases;leases from franchised Ford vehicle dealers; wholesale financing and capital loans to franchised Ford vehicle dealers and other franchises associated with such dealers; and loans to vehicle leasing companies. Ford Credit conducts insurance operations through its wholly owned subsidiary, The American Road Insurance Company (TARIC(“TARIC”).
Revenue Recognition
Revenue from finance receivables is recognized using the interest (actuarial) method. Certain origination costs on receivables are deferred and amortized, to financing revenueusing the interest method, over the lifeterm of the related receivable using the interest method.as a reduction in financing revenue. Rental revenue on operating leases is recognized on a straight-line basis over the term of the lease. Initial direct costs related to leases are deferred and amortized over the term of the lease. The accrual of interest on receivables is discontinued at the time a receivable is determined to be impaired. Subsequent amounts of interest collected are recognized in income only if full recovery of the remaining principal is expected. Other amounts collected are generally recognized first as a reduction of principal. Any remaining amounts are treated as a recovery.
Agreements with Ford and other affiliates provide for interest supplements and other support payments to Ford Credit on certain financing and leasing transactions. These payments are recognized as income over the period that the related finance receivables and leases are outstanding.
Insurance premiums are earned over the policy periods on bases
related to amounts at risk.periods. Premiums from extended service plan contracts and other contractual liability coverages are earned over the life of the policy based on historical loss experience. Physical damage insurance premiums covering vehicles financed at wholesale by Ford Credit and its finance subsidiaries are recognized asin income on a monthly basis as billed. Other physical damage, credit life, and credit disability premiums are earned over the life of the related policies, primarily on the sum-of-the-digits basis. Certain costs of acquiring new business are deferred and amortized over the terms of the related policies on the same basis on which premiums are earned. Direct and ceded insurance premiums are earned over the life of the policy based on historical loss experience for contractual liability policies, and on the sum-of-the-digits basis for credit life and disability policies. Ceded insurance agreements do not relieve TARIC of its primary obligation to policyholders.
FC-6
NOTES TO FINANCIAL STATEMENTS — Continued
Sale of Receivables and Operating Leases
Ford Credit periodically sells finance receivables through special purpose subsidiaries, retains the servicing rights and certain other beneficial interests, and receives a servicing fee which is recognized as collected over the remaining term of the related sold finance receivables. Estimated gains or losses from the sale of finance receivables are recognized in the period in which the sale occurs. In determining the gain or loss on each qualifying sale of finance receivables, the investment in the sold receivable pool is allocated between the portion sold and the portion retained based on their relative fair values at the date of sale (see Note 7).sale. The retained interest includes senior notes, interest-only strips, subordinated certificates, and
restricted cash held by securitization trusts.trusts, and allowance for credit losses. These financial instruments are recorded at marketfair value with the resultant unrealized gains or losses excluded from income and reported, net of tax, as a separate component of accumulated other comprehensive income in stockholdersstockholder’s equity.
Ford Credit also periodically sells vehicles subject to operating leases to special purpose subsidiaries under sale-leaseback arrangements. The leaseback arrangements are structured as operating leases. Pursuant to these transactions, the vehicles sold are removed from the balance sheet and any gain on sale is deferred and amortized over the period of the leaseback arrangement. Ford Credit continues to service the leases and is paid a servicing fee which is recognized as received. Ford Credit also retains certain residual value and credit riskrisks which isare considered in the calculation of the gain on sale.
Depreciation
Depreciation expense on operating leases is providedrecorded on a straight-line basis over the term of the lease in an amount necessary to reduce the leased vehicle to its estimated residual value at the end of the lease term. Gains or losses upon disposal and adjustments to reflect impairment of the vehiclesvehicle’s residual value are also included in depreciation expense.
Residual Values
The Company has significant investments in the residual values of its leasing portfolios. Residual values represent estimates of the value of the assets at the end of the lease terms and are initially calculated based on appraisals and estimates. Residual values are reviewed on a regular basis to determine that recorded amounts are appropriate. Estimated reserves for residual values are based on various assumptions as towhich include used car prices at lease termination and the number of vehicles that will be returned to the Company. These assumptions and the related reserve may change based on changing market conditions.
Allowance for Credit Losses
An allowance for estimated credit losses is established during the period in which receivables or vehicles leased are acquired and is based on historical experience and other factors that affect collectibility. The allowance for estimated credit losses includes a provision for certain non-homogenous impaired receivables. Impaired receivables are measured based on the present value of expected future cash flows discounted at the receivablesreceivable’s effective interest rate. Finance receivables and lease investments are charged to the allowance for credit losses when an account is deemed to be uncollectible, taking into consideration the financial condition of the borrower or lessee, the value of the collateral, recourse to guarantors and other factors. Collateral held for resale, included in other assets, is carried at its estimated fair value at the date of repossession net of estimated disposal costs. Recoveries on finance receivables and lease investments previously charged off as uncollectible are credited to the allowance for credit losses.
FC-7
NOTES TO FINANCIAL STATEMENTS — Continued
Insurance Liabilities
A liability for reported insurance claims and an estimate of unreported insurance claims, which is based on past experience, is included in other liabilities and deferred income.
Derivative Financial Instruments
Ford Credit operates in many countries, worldwide, and is exposed to market risks, including the effects of changes in interest rates and foreign currency exchange rates. Ford Credit issues debt and other payables with various maturities and interest rate structures in various currencies to ensure funding over business and economic cycles and to minimize overall borrowing costs. The maturity and interest rate structures frequently differ from the invested assets. Exposure to fluctuations in interest rates is createdcaused by differences in maturities of liabilities versuscompared with maturities of assets. Financial exposure is monitored and managed in accordance with Ford CreditsCredit’s established policies and procedures.
Ford Credit has entered into agreements to manage exposures to fluctuations in interest rates and foreign exchange.currency exchange rates. These agreements are used to hedge interest rate exposure and to hedge debt and intercompany loans denominated in foreign currencies. All such instruments are classified as held“held for purposes other than tradingtrading”; companyCompany policy specifically prohibits the use of derivatives for speculative purposes.
Interest rate swap agreements are used to manage the effects of interest rate fluctuations by changing the interest rate characteristics of Ford CreditsCredit’s debt to match the interest rate characteristics of related assets. All interestInterest rate swap agreements are designated to hedge either a specific debt issue, or pool of debt.debt or retail installment sale contracts. The differential paid or received on interest rate swap agreements is recognized on an accrual basis as an adjustment to interest expense.expense or interest income. Gains and losses on terminated interest rate swaps are amortized and reflected in interest expense or interest income over the shorter of the remaining term of the swap or the underlying debt.
debt or retail installment sale contracts.
Foreign currency exchange agreements, including swaps and forward contracts, are used to manage foreign exchange exposure. All currency swaps and forward contracts are designated to hedge specific foreign currency denominated debt instruments or intercompany loans. The differential paid or received on these contracts is recognized on an accrual basis as an adjustment to interest expense. UnrealizedGains and losses related to foreign currency exchange agreements are recognized concurrently in earnings with gains orand losses related to the revaluation of underlying debt. In the case of hedges of net investments in foreign subsidiaries, gains and losses are recognized concurrently with foreign currency translation gainsin other comprehensive income to the extent they are effective as hedges.
Statement of Financial Accounting Standards No. 133 (“SFAS 133”), Accounting for Derivative Instruments and lossesHedging Activities”, was issued by the Financial Accounting Standards Board in June 1998. This Statement is effective for the Company as of January 1, 2001. SFAS 133 requires that all derivative instruments be recorded on the underlying debt.
balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. For fair-value hedge transactions the fair value of the derivative instrument will generally be offset in the income statement by changes in the hedged item’s fair value. For cash-flow hedge transactions, the fair value of the derivative instrument will be reported in other comprehensive income. The ineffective portion of all hedges will be recognized in current-period earnings.
Ford Credit estimates that it will record a net-of-tax cumulative-effect-type adjustment of approximately $200 million charge in accumulated other comprehensive income to recognize at fair value all derivative instruments that will be either non-designated or designated as cash-flow and fair-value hedges. The
FC-8
NOTES TO FINANCIAL STATEMENTS — Continued
adjustment to current earnings is not material. The adoption of this standard will also impact assets and liabilities on the balance sheet. In addition, there are a number of interpretive issues that are being considered by the Derivatives Implementation Group that could materially affect the transition adjustment, future net income and future accumulated other comprehensive income, depending on the outcome.
Foreign Currency Translation
Revenues, costs and expenses of foreign subsidiaries are translated to U.S. dollars at average-period exchange rates. Assets and liabilities of foreign subsidiaries are translated to U.S. dollars at year-end exchange rates with the effects of these translation adjustments being reported as a separate component of accumulated other comprehensive income in stockholdersstockholder’s equity. The changeGains and losses arising from transactions denominated in this account results from translation
adjustments recorded duringa currency other than the year.
functional currency of the subsidiary involved are included in income.
Cash Equivalents
Ford Credit considers investments purchased with a maturity of three months or less to be cash equivalents.
NOTE 2. ADDITIONS TO PAID-IN SURPLUS
AdditionsChanges to paid-in surplus represent contributionsinvestment activity from Ford forrelated to various financial services subsidiaries.
FC-8
NOTES TO FINANCIAL STATEMENTS Continued
NOTE 3. INVESTMENTS IN SECURITIES
Investments in securities consist of debt, municipal, corporate, mortgage-backed and other securities. Available-for-sale securities are recorded at fair value with unrealized gains and losses excluded from income and reported, net of tax, as a separate component of accumulated other comprehensive income in stockholdersstockholder’s 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 basis of cost used in determining realized gains and losses is specific identification.
The fair value of substantially all securities was estimated based on quoted market prices. For 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.
Investments in securitiesBalance at December 31, 1999 were as
follows:
2000:
Gross | Gross | ||||||||||||||||
Amortized | Unrealized | Unrealized | Fair | ||||||||||||||
Cost | Gains | Losses | Value | ||||||||||||||
(in millions) | |||||||||||||||||
Available-for-sale securities | $ | 502.1 | $ | 44.5 | $ | (5.4 | ) | $ | 541.2 | ||||||||
Held-to-maturity securities | 6.2 | 0.2 | 0.0 | 6.4 | |||||||||||||
Total investments in securities | $ | 508.3 | $ | 44.7 | $ | (5.4 | ) | $ | 547.6 | ||||||||
FC-9
NOTES TO FINANCIAL STATEMENTS — Continued
Investments in securitiesBalance at December 31, 1998 were as
follows:
1999:
Gross | Gross | ||||||||||||||||
Amortized | Unrealized | Unrealized | Fair | ||||||||||||||
Cost | Gains | Losses | Value | ||||||||||||||
(in millions) | |||||||||||||||||
Available-for-sale securities | $ | 493.6 | $ | 42.4 | $ | (18.2 | ) | $ | 517.8 | ||||||||
Held-to-maturity securities | 6.6 | 0.1 | (0.3 | ) | 6.4 | ||||||||||||
Total investments in securities | $ | 500.2 | $ | 42.5 | $ | (18.5 | ) | $ | 524.2 | ||||||||
The amortized cost and fair value of investments in available-for-sale securities and held-to-maturity securities at December 31, 1999,2000, by contractual maturity, were as follows:
Available-for-Sale | Held-to-Maturity | ||||||||||||||||
Amortized | Fair | Amortized | Fair | ||||||||||||||
Cost | Value | Cost | Value | ||||||||||||||
(in millions) | |||||||||||||||||
Due in one year or less | $ | 19.0 | $ | 18.9 | $ | 2.5 | $ | 2.6 | |||||||||
Due after one year through five years | 123.9 | 125.0 | 0.2 | 0.2 | |||||||||||||
Due after five years through ten years | 75.8 | 77.6 | 3.0 | 3.0 | |||||||||||||
Due after ten years | 92.8 | 96.3 | 0.5 | 0.6 | |||||||||||||
Mortgage-backed securities | 23.1 | 54.4 | — | — | |||||||||||||
Equity securities | 167.5 | 169.0 | — | — | |||||||||||||
Total | $ | 502.1 | $ | 541.2 | $ | 6.2 | $ | 6.4 | |||||||||
Proceeds from sales of available-for-sale securities were $551 million and $1.1 billion in 2000 and $2.1 billion in 1999, and 1998,
respectively. GrossIn 2000, gross realized gains and losses forwere $9.5 million and $6.7 million, respectively. In 1999, gross realized gains and losses were $32.8 million and $14.2 million, respectively. GrossIn 1998, gross realized gains and losses for 1998 were $48.1 million and $3.4 million, respectively. Gross realized gains and losses
for 1997 were $95.1 million and $7.4 million,
respectively.
FC-10
NOTES TO FINANCIAL STATEMENTS Continued
NOTE 4. FINANCE RECEIVABLES
Net finance receivables at December 31 were as follows:
2000 | 1999 | ||||||||
(in millions) | |||||||||
Retail | $ | 80,797.2 | $ | 76,181.6 | |||||
Wholesale | 34,122.0 | 26,450.0 | |||||||
Other | 9,129.9 | 7,244.3 | |||||||
Total finance receivables, net of unearned income | 124,049.1 | 109,875.9 | |||||||
Less: Allowance for credit losses | (1,310.7 | ) | (1,122.1 | ) | |||||
Finance receivables, net | $ | 122,738.4 | $ | 108,753.8 | |||||
At December 31, 19992000 finance receivables include $2.6$2.2 billion owed by three customers with the largest receivable balances.
FC-10
NOTES TO FINANCIAL STATEMENTS — Continued
The contractual maturities of total finance receivables outstanding at December 31, 1999,2000, net of unearned income, and
adjusted for estimated prepayments, were as follows:
Due in Year Ending December 31 | Due After | ||||||||||||||||||||
2001 | 2002 | 2003 | 2003 | Total | |||||||||||||||||
(in millions) | |||||||||||||||||||||
Retail | $ | 37,174.5 | $ | 23,065.1 | $ | 11,707.4 | $ | 8,850.2 | $ | 80,797.2 | |||||||||||
Wholesale | 34,102.4 | 4.4 | 1.1 | 14.1 | 34,122.0 | ||||||||||||||||
Other | 5,452.1 | 276.4 | 203.0 | 3,198.4 | 9,129.9 | ||||||||||||||||
Total | $ | 76,729.0 | $ | 23,345.9 | $ | 11,911.5 | $ | 12,062.7 | $ | 124,049.1 | |||||||||||
It is Ford CreditsCredit’s experience that a substantial portion of finance receivables are repaid before contractual maturity dates. The above table, therefore, is not to be regarded as a forecast of future cash collections.
The aggregate receivable balances related to accounts past due 60 days or more at December 31 were as follows:
2000 | 1999 | ||||||||
(in millions) | |||||||||
Retail | $ | 1,203.8 | $ | 868.0 | |||||
Wholesale | 233.7 | 127.7 | |||||||
Other | 19.5 | 36.6 | |||||||
Total | $ | 1,457.0 | $ | 1,032.3 | |||||
FC-11
NOTES TO FINANCIAL STATEMENTS Continued
Included in retail and other receivables are investments in direct financing leases related to the leasing of motor vehicles.
2000 | 1999 | ||||||||
(in millions) | |||||||||
Net investment in direct financing leases | |||||||||
Minimum lease rentals to be received | $ | 4,611.0 | $ | 4,506.7 | |||||
Estimated residual values | 3,081.3 | 2,895.5 | |||||||
Less: Unearned income | (923.0 | ) | (901.6 | ) | |||||
Origination costs | 58.0 | 56.8 | |||||||
Less: Allowance for credit losses | (116.3 | ) | (50.8 | ) | |||||
Net investment in direct financing leases | $ | 6,711.0 | $ | 6,506.6 | |||||
Minimum direct financing lease rentals for each of the five succeeding years are as follows (in millions): 2000
$1,693.6; 2001 $1,222.5;— $1,820.9; 2002 $908.0;— $1,301.8; 2003 $516.7;— $904.7; 2004 $121.7;— $444.3; 2005 — $104.7; thereafter $17.3.
— $34.6.
FC-11
NOTES TO FINANCIAL STATEMENTS — Continued
NOTE 5. NET INVESTMENT, OPERATING LEASES
Operating leases at December 31 were as follows:
2000 | 1999 | ||||||||
(in millions) | |||||||||
Investment in operating leases | |||||||||
Vehicles, at cost | $ | 48,491.2 | $ | 41,537.1 | |||||
Lease initial direct costs | 53.0 | 51.7 | |||||||
Less: Accumulated depreciation | (9,753.0 | ) | (8,397.1 | ) | |||||
Allowance for credit losses | (334.2 | ) | (353.5 | ) | |||||
Net investment in operating leases | $ | 38,457.0 | $ | 32,838.2 | |||||
Future minimum rentals on operating leases are as follows (in millions): 2000 $6,702.5; 2001 $4,489.9;— $8,665.3; 2002 $2,238.3;— $6,332.9; 2003 $228.3;— $3,174.6; 2004 $98.8.
— $355.7, 2005 — $128.2.
FC-12
NOTES TO FINANCIAL STATEMENTS Continued
NOTE 6. ALLOWANCE FOR CREDIT LOSSES
Following is an analysis of the allowance for credit losses related to finance receivables and operating leases for the years ended December 31:
2000 | 1999 | 1998 | |||||||||||||
(in millions) | |||||||||||||||
Balance, beginning of year | $ | 1,475.6 | $ | 1,548.2 | $ | 1,471.4 | |||||||||
Provision charged to operations | 1,670.8 | 1,166.4 | 1,179.5 | ||||||||||||
Deductions | |||||||||||||||
Losses | 1,596.8 | 1,274.2 | 1,242.7 | ||||||||||||
Recoveries | (299.6 | ) | (274.5 | ) | (203.3 | ) | |||||||||
Net losses | 1,297.2 | 999.7 | 1,039.4 | ||||||||||||
Other changes, principally amounts related to finance | |||||||||||||||
receivables sold and translation adjustments | 204.3 | 239.3 | 63.3 | ||||||||||||
Net deductions | 1,501.5 | 1,239.0 | 1,102.7 | ||||||||||||
Balance, end of year | $ | 1,644.9 | $ | 1,475.6 | $ | 1,548.2 | |||||||||
NOTE 7. RETAINED INTEREST IN SECURITIZED ASSETS
Ford Credit has sold retail and wholesale receivables through special purpose subsidiaries. Ford CreditsCredit’s servicing portfolio relatingrelated to these finance receivable sales amounted to $19.5$28.4 billion and $13.5$19.5 billion at December 31, 2000 and 1999, respectively. Components of retained interest in securitized assets for the years ended December 31 include:
2000 | 1999 | ||||||||
(in millions) | |||||||||
Senior notes | $ | 1,664.4 | $ | 1,983.5 | |||||
Interest-only strips | 698.0 | 336.7 | |||||||
Subordinated certificates | 1,067.5 | 939.9 | |||||||
Restricted cash held by securitization trusts | 256.7 | 182.7 | |||||||
Total | $ | 3,686.6 | $ | 3,442.8 | |||||
FC-12
NOTES TO FINANCIAL STATEMENTS — Continued
For the years ended December 31, 2000 and 1998 respectively.1999, at point-of-sale, Ford Credit periodically sells vehicles
subject to operating leases toassumed a discount rate between 12% and 14%, a prepayment speed of 1.50% which represents expected payments in excess of normal scheduled maturity rates, and average credit losses of 1.32% over the life of the pool. The following table summarizes the cash flow movements between the special purpose subsidiaries under
sale-leaseback arrangements.and Ford Credits servicingCredit:
2000 | 1999 | |||||||
(in millions) | ||||||||
Proceeds from new securitizations | $ | 18,918.3 | $ | 9,167.3 | ||||
Proceeds reinvested in revolving-period securitizations | 626.1 | 761.6 | ||||||
Purchases of delinquent or foreclosed loans | 108.7 | 103.6 | ||||||
Gain on sales of finance receivables | 13.8 | 82.6 | ||||||
Servicing fees collected | 190.2 | 135.6 | ||||||
Principal and interest received on interests retained | 1,168.6 | 1,328.5 |
Outstanding delinquencies on Ford Credit’s securitized portfolio related to these sales amounted to $144.3were $414.9 million and $394.9$236.6 million at December 31, 2000 and 1999, respectively. Credit losses, net of recoveries, were $91.1 million and 1998,$74.1 million at December 31, 2000 and 1999, respectively.
The interest-only strips, subordinated certificates, and restricted cash held by securitization trusts are subject to limited recourse provisions. Retained interests are recorded at fair value. In determining the fair value of the assets,interest-only strips, the Company discounts the present value of the projected cash flows (which considers anticipated credit losses and prepayment rates) retained at various discount rates based on economic factors in individual countries. The weighted average discount rate of the projected cash flows was 13.57%12.58% at December 31, 1999.2000. Estimated credit losses related to these assets are based principally on historical and projected loss experience over the life of the finance receivables and operating leases. At December 31, 1999, theThe assumed annual credit loss rate was 1.54% over1.38% (weighted average rate for all pools) at December 31, 2000. Static pool losses are calculated by summing the lifeactual and projected future credit losses and dividing them by the original balance of the pool.each pool of assets. Expected static pool losses were 1.55% (weighted average rate for all pools) at December 31, 2000. The assumed prepayment rate, which represents expected payments in excess of normal schedulescheduled maturity rates, was 1.46%1.50% (weighted average rate for all pools) at December 31, 1999.2000. The following summarizesestimated remaining weighted average life of prepayable assets was 12.1 months at December 31, 2000. The fair value of senior notes and subordinated certificates are estimated based on market prices. Book value of restricted cash held by securitization trusts represents discounted future value of estimated cash releases from securitization trusts.
At December 31, 2000, the componentssensitivity of the current fair value of residual cash flows to a 10% adverse change in key assumptions were as follows: prepayment speed — $11.4 million decrease; expected credit losses — $32.4 million decrease; and discount rate — $14.1 million decrease. The sensitivity of the current fair value of residual cash flows to a 20% adverse change in key assumptions were as follows: prepayment speed — $18.4 million decrease; expected credit losses — $64.6 million decrease; and discount rate — $27.8 million decrease. The effect of a variation in a particular assumption on the fair value of retained interest was calculated without changing any other assumptions and changes in securitized assets for the
years ended December 31:
FC-13
NOTES TO FINANCIAL STATEMENTS — Continued
NOTE 8. OTHER ASSETS
Other assets at December 31 were as follows:
2000 | 1999 | ||||||||
(in millions) | |||||||||
Investment in used vehicles held for resale, at estimated fair value | $ | 2,094.3 | $ | 1,533.1 | |||||
Deferred charges and other assets | 1,461.0 | 1,259.1 | |||||||
Prepaid reinsurance premiums | 1,305.4 | 952.0 | |||||||
Property and equipment, net of accumulated depreciation of $169.8 in 2000 and $164.5 in 1999 | 355.2 | 256.9 | |||||||
Total | $ | 5,215.9 | $ | 4,001.1 | |||||
NOTE 9. DEBT
Debt at December 31 was as follows:
Weighted- | ||||||||||||||||||
Average(a) | ||||||||||||||||||
Interest Rates | Book Value | |||||||||||||||||
2000 | 1999 | 2000 | 1999 | |||||||||||||||
(in millions) | ||||||||||||||||||
Payable Within One Year | ||||||||||||||||||
Commercial paper(b) | $ | 42,254.8 | $ | 43,077.9 | ||||||||||||||
Other short-term debt(c) | 7,875.1 | 6,769.8 | ||||||||||||||||
Total short-term debt | 6.80 | % | 5.99 | % | 50,129.9 | 49,847.7 | ||||||||||||
Long-term indebtedness payable within one year(d) | 6.68 | % | 6.24 | % | 12,856.6 | 19,893.4 | ||||||||||||
Total payable within one year | 6.77 | % | 6.06 | % | 62,986.5 | 69,741.1 | ||||||||||||
Payable After One Year | ||||||||||||||||||
Unsecured senior indebtedness Notes(e) | 6.83 | % | 6.37 | % | 83,402.6 | 62,814.0 | ||||||||||||
Debentures | — | 1.41 | % | — | 508.5 | |||||||||||||
Unamortized discount | (94.4 | ) | (84.2 | ) | ||||||||||||||
Total unsecured senior indebtedness | 83,308.2 | 63,238.3 | ||||||||||||||||
Unsecured long-term subordinated notes | — | 8.51 | % | — | 94.3 | |||||||||||||
Total payable after one year (f) | 83,308.2 | 63,332.6 | ||||||||||||||||
Total debt | 6.81 | % | 6.19 | % | $ | 146,294.7 | $ | 133,073.7 | ||||||||||
Interest Rate Characteristics of Debt Payable After One Year(a) | ||||||||||||||||||
Fixed interest rates | $ | 49,872.9 | $ | 40,608.3 | ||||||||||||||
Variable interest rates (generally based on LIBOR or other short-term rates) | 33,435.3 | 22,724.3 | ||||||||||||||||
Total payable after one year | $ | 83,308.2 | $ | 63,332.6 | ||||||||||||||
(a) | |||||||||||||||||||
Excludes the effect of interest rate swap agreements. | ||
The average remaining maturities of commercial paper was 35 days at December 31, 2000 and 25 days at December 31, |
FC-14
NOTES TO FINANCIAL STATEMENTS — Continued
Includes | ||
Includes | ||
Includes $1,663.8 million and $2,693.2 million with affiliated companies at December 31, 2000 and 1999, respectively. | ||
(f) | Unsecured senior notes and debentures mature at various dates through 2078. Maturities are as follows (in millions): | |
FC-14
NOTES TO FINANCIAL STATEMENTS Continued
Payable After One Year (A)
Ford Credit and certain of its subsidiaries have entered into interest rate swap agreements to manage exposures to fluctuations in interest rates. The agreements decreased the overall weighted-average interest rate on total debt from 6.81% to 6.69% as of December 31, 2000 and from 6.19% to 6.08% as of December 31, 1999 and decreased the overall
weighted-average interest rate on total debt from 5.91% to 5.75%
as of December 31, 1998.1999. In addition, the agreements decreased Ford CreditsCredit’s overall weighted-average effective interest rates for full year 2000 from 6.44% to 6.34% and for 1999 from 5.82% to 5.76% and decreased full
year 1998 from 6.46% to 6.42%. The agreements effectively
converted alldecreased the long-term obligations payable after one year subject to variable interest rates to fixed rates,$22,799.7 million and $0 million, as of December 31, 19992000 and 1998. Additionally, the Company
manages the anticipated refinancing of commercial paper. The
agreements decreased commercial paper subject to variable
interest rates as of December 31, 1999, and 1998 to $36,498.5
and $35,370.1, respectively. The effect of these agreements is to reduce the effect of interest rate changes on profitability. Approximately 29% of Ford CreditsCredit’s interest rate swaps mature in 20002001 and approximately 89% mature by 2004.
2005.
Certain of these obligations are denominated in currencies other than the currency of the issuing country. Foreign currency swap and forward agreements are used to hedge exposure to changes in exchange rates of these obligations.
NOTE 10. SUPPORT FACILITIES
Support facilities represent additional sources of funds, if required. At December 31, 1999,2000, Ford Credit had approximately $18.3$19.3 billion of contractually committed facilities. In addition, $7.7$7.5 billion of Ford lines of credit may be used by Ford Credit at FordsFord’s option. The lines have various maturity dates through June 30, 20042005 and may be used, at Ford CreditsCredit’s option, by any of its direct or indirect majority-owned subsidiaries. Any such borrowings will be guaranteed by Ford Credit. Banks also provide $1.4 billion of contractually committed liquidity facilities to support Ford CreditsCredit’s asset backed commercial paper program.
Additionally, at December 31, 1999,2000, there were approximately $4.6 billion of contractually committed facilities available for FCE Bank plcs (plc’s (“FCE BankBank”) use. In addition, $615$598 million of Ford credit lines may be used by FCE Bank at FordsFord’s option. The lines have various maturity dates through June 30, 20042005 and may be used, at FCE BanksBank’s option, by any of its direct or indirect majority-owned subsidiaries. Any such borrowings will be guaranteed by FCE Bank.
FC-15
NOTES TO FINANCIAL STATEMENTS — Continued
NOTE 11. INCOME TAXES
Ford Credit and certain of its domestic subsidiaries join Fordare included in filingFord’s consolidated United StatedStates federal and state income tax returns. In accordance with its intercompany tax sharing agreement with Ford, United States income tax liabilities or credits are allocated to Ford Credit generally on a separate return basis. The provision for income taxes was estimated as follows:
2000 | 1999 | 1998 | ||||||||||||
(in millions) | ||||||||||||||
Currently payable | ||||||||||||||
U.S. federal | $ | — | $ | — | $ | 15.9 | ||||||||
Foreign | 210.0 | 246.5 | 264.3 | |||||||||||
State and local | — | — | — | |||||||||||
Total currently payable | 210.0 | 246.5 | 280.2 | |||||||||||
Deferred tax (benefit)/ liability | ||||||||||||||
U.S. federal | 670.5 | 464.8 | 390.5 | |||||||||||
Foreign | (50.0 | ) | 14.2 | (37.8 | ) | |||||||||
State and local | 95.1 | 65.1 | 47.3 | |||||||||||
Total deferred | 715.6 | 544.1 | 400.0 | |||||||||||
Total provision | $ | 925.6 | $ | 790.6 | $ | 680.2 | ||||||||
A reconciliation of the provision for income taxes as a percentage of income before income taxes, excluding equity in net income of affiliated companies and minority interest in net income of a joint venture, with the United States statutory tax rate for the last three years is shown below:
2000 | 1999 | 1998 | ||||||||||||
U.S. statutory tax rate | 35.0 | % | 35.0 | % | 35.0 | % | ||||||||
Effect of (in percentage points): | ||||||||||||||
Taxes attributable to foreign source income | — | 0.5 | 0.6 | |||||||||||
State and local income taxes | 2.1 | 1.8 | 1.7 | |||||||||||
Investment income not subject to tax or subject to tax at reduced rates | (0.2 | ) | (0.2 | ) | (0.2 | ) | ||||||||
Rate adjustments on deferred taxes | 0.4 | 0.2 | — | |||||||||||
Other | (0.2 | ) | 0.3 | 0.5 | ||||||||||
Effective tax rate | 37.1 | % | 37.6 | % | 37.6 | % | ||||||||
FC-16
NOTES TO FINANCIAL STATEMENTS — Continued
Deferred income taxestax assets and liabilities reflect the estimated tax effect of accumulated temporary differences between the bases of assets and liabilities for financial reporting purposes and those amounts as measured by tax laws and regulations. The components of deferred income
tax assets and liabilities as of December 31 were as follows:
2000 | 1999 | |||||||||
(in millions) | ||||||||||
Deferred Tax Assets | ||||||||||
Net operating losses and foreign tax credits | $ | 3,963.2 | $ | 1,752.0 | ||||||
Provision for credit losses | 1,067.2 | 997.2 | ||||||||
Alternative minimum tax | 298.0 | 296.6 | ||||||||
Employee benefit plans | 148.7 | 141.6 | ||||||||
Other | 382.4 | 212.6 | ||||||||
Total deferred tax assets | 5,859.5 | 3,400.0 | ||||||||
Deferred Tax Liabilities | ||||||||||
Leasing transactions | 6,653.9 | 4,824.6 | ||||||||
Finance receivables | 2,592.9 | 1,327.7 | ||||||||
Sales of receivables | 471.0 | 216.2 | ||||||||
Purchased tax benefits | 270.6 | 274.5 | ||||||||
Other | 366.5 | 321.0 | ||||||||
Total deferred tax liabilities | 10,354.9 | 6,964.0 | ||||||||
Net deferred tax liabilities | $ | 4,495.4 | $ | 3,564.0 | ||||||
NOTE 12. POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
Ford Credit and certain of its subsidiaries provide selected health care and life insurance benefits for retired salaried employees under unfunded plans sponsored by Ford and certain of its subsidiaries. Ford CreditsCredit’s U.S. and Canadian salaried employees may become eligible for those benefits if they retire while working for Ford Credit; however, benefits and eligibility rules may be modified from time to time. The estimated cost for post-retirement health care benefits is accrued on an actuarially determined basis.
basis over periods of employee service.
Increasing the assumed health care cost trend rate by one percentage point is estimated to increase the aggregate service and interest cost components of net post-retirement benefit expense for 19992000 by approximatelyabout $8 million and the accumulated post-retirement benefit obligation at December 31, 19992000 by approximately $53about $70 million. A decrease of one percentage point would reduce service and interest cost by about $6 million and decrease the December 31, 19992000 post-retirement benefit obligation by about $41$55 million.
FC-17
NOTES TO FINANCIAL STATEMENTS — Continued
NOTE 12. | POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE |
Net post-retirement benefit expense included the following for the years ended December 31:
2000 | 1999 | 1998 | ||||||||||||
(in millions) | ||||||||||||||
Costs Recognized in Income | ||||||||||||||
Service cost | $ | 16.6 | $ | 14.4 | $ | 9.7 | ||||||||
Interest cost | 27.4 | 20.5 | 16.4 | |||||||||||
Curtailments | 41.6 | 13.1 | 1.5 | |||||||||||
Amortization of prior service cost | (0.5 | ) | (0.4 | ) | (0.2 | ) | ||||||||
Amortization of losses | 0.9 | 0.5 | 0.1 | |||||||||||
Net post-retirement benefit expense | $ | 86.0 | $ | 48.1 | $ | 27.5 | ||||||||
Discount rate for expense | 7.8 | % | 6.5 | % | 7.0 | % | ||||||||
Initial health care cost trend rate | 9.0 | % | 7.1 | % | 6.6 | % | ||||||||
Ultimate health care cost trend rate | 5.0 | % | 5.0 | % | 5.0 | % | ||||||||
Number of years to ultimate trend rate | 8 | 9 | 10 |
The year-end status of these plans was as follows for the years ended December 31:
2000 | 1999 | ||||||||||
(in millions) | |||||||||||
Change in Benefit Obligation | |||||||||||
Benefit obligation at January 1 | $ | 348.2 | $ | 300.7 | |||||||
Service cost | 16.6 | 14.4 | |||||||||
Interest cost | 27.4 | 20.5 | |||||||||
Amendments | (17.3 | ) | (4.6 | ) | |||||||
Curtailments | 41.6 | 13.1 | |||||||||
Benefits paid | (9.7 | ) | (8.9 | ) | |||||||
Foreign exchange | — | 0.1 | |||||||||
Actuarial loss | 62.0 | 12.9 | |||||||||
Benefit obligation at December 31 | $ | 468.8 | $ | 348.2 | |||||||
Funded Status of the Plan | |||||||||||
Plan assets less than projected benefits | $ | (468.8 | ) | $ | (348.2 | ) | |||||
Unamortized prior service cost | (22.0 | ) | (5.2 | ) | |||||||
Unamortized net losses | 99.0 | 37.6 | |||||||||
Net amount recognized | $ | (391.8 | ) | $ | (315.8 | ) | |||||
Amounts Recognized in the Balance Sheet consist of: | |||||||||||
Accrued liabilities | $ | (391.8 | ) | $ | (315.8 | ) | |||||
Assumptions as of December 31 | |||||||||||
Discount rate | 7.5 | % | 7.8 | % | |||||||
Initial health care cost trend rate | 9.4 | % | 9.0 | % | |||||||
Ultimate health care cost trend rate | 5.0 | % | 5.0 | % | |||||||
Number of years to ultimate trend rate | 7 | 8 |
FC-18
NOTES TO FINANCIAL STATEMENTS — Continued
NOTE 13. TRANSACTIONS WITH AFFILIATED COMPANIES
An agreement with Ford provides for payments by Ford to Ford Credit that would maintain Ford CreditsCredit’s consolidated income before income taxes and net income at specified minimum levels. No payments were required under the agreement during 2000, 1999, 1998,
or 1997.
1998.
Ford Credit and its subsidiaries, from time to time, purchase accounts receivable of certain divisions and subsidiaries of Ford. The amount of such receivables outstanding was $3,518.9 million at December 31, 2000 and $3,658.4 million at December 31, 1999 and
$3,887.4 million at December 31, 1998.1999. Agreements with Ford and other affiliates also provide for payments to Ford Credit for interest supplements and other support costs on certain financing and leasing transactions. Amounts included in the income statement for these and other transactions with Ford were as follows (in millions): 2000 — $3,363.6; 1999 — $3,186.2; 1998
$2,395.2; 1997 $1,778.5.— $2,395.2. Ford Credit and its subsidiaries purchase from Ford and affiliates certain vehicles which were previously acquired by Ford principally from its fleet and rental car customers. The fair values of these vehicles held for resale and included in other assets at December 31 were as follows (in millions): 2000 — $1,062.5; 1999 $1,305.5; 1998 $862.8.— $1,305.5. Ford Credit also has entered into a sale-leaseback agreement with Ford for vehicles leased to employees of Ford and its subsidiaries. The net investment in these vehicles included in operating leases at December 31 was as follows (in millions): 2000 — $1,000.8; 1999
$824.9; 1998 $796.9.
— $824.9.
Ford Credit, soldfrom time to time, sells commercial paper to Ford during 1999.Ford. Interest expense associated with the commercial paper was as follows (in millions): 2000 — $9.2; 1999 — $5.9; 1998 $0; 1997 — $0. Ford Credit also incurred interest expense on debt with affiliated companies as follows (in millions): 2000 — $171.3; 1999 — $185.6; 1998 $193.8; 1997 $327.8.
— $193.8.
Ford Credit and Ford revised their intercompany tax sharing agreement in 1997 effective for years ended after December 31, 1994. Ford Credit recorded a deferred tax asset for amounts due from Ford under the revised agreement. Ford compensates Ford Credit for the temporary use of these funds. The interest income earned and included in income was as follows (in millions): 2000 — $100.0; 1999 — $55.8; 1998 $49.9; 1997
$41.6.
— $49.9.
Ford Credit and its subsidiaries, from time to time, provide loans to Ford and other affiliates. The amount of such loans was $1,150.6 million at December 31, 2000 and $4,769.8 million at December 31, 1999 and
$12.9 million at December 31, 1998.1999. Interest income earned and included in income was as follows (in millions): 2000 — $85.6; 1999 — $162.1; 1998 $3.1; 1997 $0.— $3.1. Ford CreditsCredit’s promissory note from Ford Holdings, Inc. for $1,517 million was settled in the Fourth Quarter 1999. Interest income earned on the promissory note was as follows (in millions): 2000 — $0; 1999 — $63.5; 1998 $88.5; 1997 -$91.6.
— $88.5.
Ford Credit and its subsidiaries receive technical and administrative advice and services from Ford and its subsidiaries, occupy office space furnished by Ford and its subsidiaries and utilize data processing facilities maintained by Ford. Payments to Ford and its subsidiaries for such advice and services are charged to operating expenses and were as follows (in millions): 2000 — $165.1; 1999 — $166.9; 1998 $130.6;
1997 $120.7.
— $130.6.
Retirement benefits are provided under defined benefit plans for employees of Ford Credit and its subsidiaries in the United States by the Ford General Retirement Plan and for employees of the foreign subsidiaries in Europe, Australia, and Canada by the respective Ford retirement plans. Employee retirement plan costs allocated to Ford Credit and its subsidiaries from Ford and charged to operating expenses were as follows (in millions): 2000 — $12.9; 1999 — $15.4; 1998 $16.9; 1997 $13.6.
— $16.9.
Earned premiums reinsuredceded to a Ford-owned affiliate were as follows (in millions): 2000 — $400.5; 1999 — $236.8; 1998 $53.0; 1997 $1.5.— $53.0. Loss and loss adjustment expense recoveries from the same affiliate were as follows (in millions): 2000 — $221.4; 1999 — $121.9; 1998 $29.4;
1997 $0.6.
— $29.4.
Ford Credit has sold notes backed by retail receivables through special purpose subsidiaries. Ford purchased a portion of these notes as part of their investment portfolio. TheThere was no outstanding balance of these notes are $94.1 million and $0 at December 31, 19992000 and 1998, respectively.
$94.1 million at December 31, 1999.
FC-19
NOTES TO FINANCIAL STATEMENTS — Continued
Agreements with Ford and other affiliates also provide guarantees for Ford Credit and its subsidiaries related to certain finance receivables. The amount of such receivables was $238.0 million at December 31, 2000 and $472.8 million at December 31, 1999 and $0 at
December 31, 1998.
1999.
NOTE 14. LITIGATION, CLAIMS, AND LEASE COMMITMENTS
Various legal actions, governmental proceedings and other claims are pending or may be instituted or asserted in the future against Ford Credit and its subsidiaries. Certain of the pending legal actions are, or purport to be, class actions. Some of these matters involve or may involve compensatory, punitive, antitrust or other treble damage claims in very significant amounts or other relief which, if granted, would require very significant expenditures.
Litigation is subject to many uncertainties, the outcome of individual litigated matters is not predictable with assurance and it is reasonably possible that some of the foregoing matters could be decided unfavorably to Ford Credit or the subsidiary involved. Although the amount of liability at December 31, 19992000 with respect to these matters cannot be ascertained, Ford Credit believes that any resulting liability should not materially affect the consolidated financial position or results of operations of Ford Credit and its subsidiaries.
At December 31, 19992000 the companyCompany had the following minimum rental commitments under non-cancelable operating leases (in millions): 2000 $82; 2001 — $103; 2002 — $83; 2003 — $70; 2002 $56;
2003 $13; 2004 $7;— $20; 2005 — $12; thereafter $9.— $25. These amounts include rental commitments for certain land, buildings, machinery and equipment.
NOTE 15. FINANCIAL INSTRUMENTS
Book and Estimated Fair Value of Financial Instruments
The estimated fair value of financial instruments held by Ford Credit and its subsidiaries at December 31, and the valuation techniques used to estimate the fair value, were as follows:
2000 | 1999 | |||||||||||||||||
Estimated | Estimated | |||||||||||||||||
Book Value | Fair Value | Book Value | Fair Value | |||||||||||||||
(in millions) | ||||||||||||||||||
Assets | ||||||||||||||||||
Cash and cash equivalents | $ | 1,123.4 | $ | 1,123.4 | $ | 942.2 | $ | 942.2 | ||||||||||
Investments in securities | 547.4 | 547.6 | 524.4 | 524.2 | ||||||||||||||
Finance receivables, net | 115,962.9 | 117,274.4 | 101,796.6 | 102,475.3 | ||||||||||||||
Retained interest in securitized assets | 3,686.6 | 3,686.6 | 3,442.8 | 3,442.8 | ||||||||||||||
Liabilities | ||||||||||||||||||
Debt payable within one year | $ | 62,986.5 | $ | 63,158.4 | $ | 69,741.1 | $ | 69,978.6 | ||||||||||
Debt payable after one year | 83,308.2 | 85,323.7 | 63,332.6 | 62,425.8 | ||||||||||||||
Derivative Contracts: | ||||||||||||||||||
Foreign exchange instruments | ||||||||||||||||||
Contracts with unrealized gains | $ | 232.1 | $ | 263.1 | $ | 161.8 | $ | 159.7 | ||||||||||
Contracts with unrealized losses | (1,108.0 | ) | (840.7 | ) | (602.5 | ) | (498.1 | ) | ||||||||||
Interest rate instruments | ||||||||||||||||||
Contracts with unrealized gains | 100.8 | 818.3 | 101.8 | 329.9 | ||||||||||||||
Contracts with unrealized losses | (72.1 | ) | (292.5 | ) | (48.3 | ) | (321.9 | ) |
FC-20
NOTES TO FINANCIAL STATEMENTS — Continued
Cash and Cash Equivalents.The book value approximates fair value because of the short maturity of these instruments.
Investments in Securities.The estimated fair value of investments in marketable equity and debt securities are estimated based on market prices. Book value of investments in non-marketable equity securities approximate fair value.
Finance Receivables, Net.The fair value of substantially all finance receivables is estimated by discounting future cash flows using an estimated discount rate which reflects the current credit, interest rate and prepayment risks associated with similar types of instruments. For receivables with short maturities, the book values approximate fair values. Certain leases are excluded from the fair market valuation of finance receivables.
Retained Interest in Securitized Assets.The fair value of interest-only strips are recorded at the present value of actual and estimated future cash flows discounted at rates commensurate with this type of instrument. The fair value of senior notes and subordinated certificates are estimated based on market prices. Book value of restricted cash approximates fair value.
represents the discounted future value of estimated cash releases from securitization trusts.
Debt Payable Within One Year.For maturities of 3 months or less, the book value approximates fair value because of the short maturities of these instruments. For maturities of 3 months to one year, fair value is estimated based on quoted market prices or current rates for similar debt with the same maturities.
Debt Payable After One Year.The fair value is estimated based on quoted market prices or current rates for similar debt with the same remaining maturities.
Financial Instruments with Off-Balance-Sheet Risk
The following sections describe the various off-balance-sheet financial instruments that Ford Credit and its subsidiaries held as of December 31, 19992000 and 1998.1999. Also included is a brief discussion of the estimated fair value of those contracts and certain risks associated with holding those contracts through maturity.
Foreign Exchange Instruments.Ford Credit and certain of its subsidiaries have entered into foreign currency swap and forward agreements to manage exposure to foreign exchange rate fluctuations. At December 31, 19992000 and 1998,1999, the total notional amount of Ford CreditsCredit’s foreign exchange instruments outstanding was $17.1$21.6 billion and $14.5$17.1 billion, respectively. These agreements hedge principal and interest payments on debt and intercompany loans denominated in foreign currencies. The fair value of these foreign exchange agreements was estimated using current market interest and foreign exchange rates.
Interest Rate Instruments.Ford Credit and certain of its subsidiaries have entered into interest rate instrument agreements to manage exposure to fluctuations in interest rates. The underlying notional amount of interest rate instruments was $139.5 billion at December 31, 2000 and $125.2 billion at December 31, 1999, and
$97.3 billion at December 31, 1998, respectively.
The differential paid or received on interest rate swap agreements is recognized on an accrual basis as an adjustment to interest expense.expense or interest income. The book value of an interest rate swap agreement represents the differential receivable or payable with a swap counterparty since the last settlement date.
The fair value of an interest rate swap is the estimated amount Ford Credit would receive or pay to terminate the agreement. The fair value is calculated using current market rates for similar instruments with the same remaining maturities. Unrealized gains and losses are netted for individual counterparties where legally permissible.
FC-21
NOTES TO FINANCIAL STATEMENTS — Continued
Counterparty Credit Risk
Ford Credit manages its foreign currency and interest rate counterparty credit risks by limiting exposure and by monitoring the financial condition of counterparties. The amount of exposure Ford Credit may have to a single counterparty on a worldwide basis is limited by company policy. In the unlikely event that a counterparty fails to meet the terms of a foreign currency or an interest rate instrument, risk is limited to the fair value of the instrument.
Concentrations
The business of Ford Credit is substantially dependent upon Ford Motor Company. Any protracted reduction or suspension of FordsFord’s production or sale of vehicles, resulting from a decline in demand, a work stoppage, governmental action, adverse publicity, or other event, could have a substantial adverse effect on Ford Credit.
The majority of Ford CreditsCredit’s finance receivables are geographically diversified throughthroughout the United States. Foreign finance receivables are concentrated in Europe, Canada, and Australia. Ford Credit controls its credit risk through credit standards, limits on exposure and by monitoring the financial condition of other parties. TARIC has credit risk related to receivables from reinsurers which are collateralized by trust funds, letters of credit, or custodial accounts.
NOTE 16. STOCK OPTIONS
Certain Ford Credit employees participate in the stock option plans of Ford. Ford Credit has stock options outstanding under FordsFord’s 1990 Long-Term Incentive Plan and the 1998 Long-Term Incentive Plan.(“Plans”). Grants may be made under the 1998 Plan through April 2008. No further grants may be made under the 1990 Plan. Options granted in 1997 under the 1990 Plan and options granted under the 1998 Plan become exercisable 33% after one year from the date of grant, 67% after two years and in full after three years. In general, options granted prior to 1997 under the 1990 Plan become exercisable 25% after one year from the date of grant, 50% after two years, 75% after three years and in full after four years. Options under both plans expire after 10 years.
The estimated fair value as of date of grant of options granted in 2000, 1999, 1998, and 19971998 using the Black-Scholes option-pricing model, was as follows:
2000 | 1999 | 1998 | |||||||||||
Estimated fair value per share of options granted during the year | $ | 6.27 | $ | 17.53 | $ | 9.25 | |||||||
Assumptions: | |||||||||||||
Annualized dividend yield | 4.9 | % | 3.2 | % | 4.1 | % | |||||||
Common stock price volatility | 38.8 | % | 36.5 | % | 28.1 | % | |||||||
Risk-free rate of return | 6.3 | % | 5.2 | % | 5.7 | % | |||||||
Expected option term (in years) | 5 | 5 | 5 |
Ford Credit measures compensation cost using the intrinsic value method. Accordingly, no compensation cost for stock options has been recognized. If compensation cost had been determined based on the estimated fair value of options granted since 1995, the pro forma effects on Ford CreditsCredit’s net income would not have been material.
FC-22
NOTES TO FINANCIAL STATEMENTS — Continued
Information concerning stock options for Ford CreditsCredit’s employees is as follows (shares in thousands):
2000 | 1999 | 1998 | |||||||||||||||||||||||
Weighted- | Weighted- | Weighted- | |||||||||||||||||||||||
Average | Average | Average | |||||||||||||||||||||||
Exercise | Exercise | Exercise | |||||||||||||||||||||||
Shares Subject to Option | Shares | Price | Shares | Price | Shares | Price | |||||||||||||||||||
Outstanding at beginning of period | 3,773 | $ | 34.56 | 3,200 | $ | 26.39 | 2,419 | $ | 28.44 | ||||||||||||||||
New grants (based on fair value of common stock at dates of grant) | 1,647 | 23.02 | 906 | 57.75 | 912 | 41.28 | |||||||||||||||||||
Visteon Adjustment(a) | 140 | ||||||||||||||||||||||||
Value Enhancement Plan(b) | 2,927 | ||||||||||||||||||||||||
Associates adjustment(c) | — | — | 1,057 | ||||||||||||||||||||||
Transferred into Ford Credit | 359 | 15.43 | 177 | 29.64 | 331 | 21.26 | |||||||||||||||||||
Exercised(d) | (262 | ) | 27.89 | (438 | ) | 59.40 | (1,005 | ) | 45.13 | ||||||||||||||||
Transferred out of Ford Credit | (887 | ) | 17.72 | (68 | ) | 33.22 | (492 | ) | 20.47 | ||||||||||||||||
Terminated and expired | (410 | ) | 30.09 | (4 | ) | 43.87 | (22 | ) | 37.82 | ||||||||||||||||
Outstanding at end of period | 7,287 | 19.95 | 3,773 | 34.56 | 3,200 | 26.39 | |||||||||||||||||||
Outstanding but not exercisable | (2,995 | ) | (1,892 | ) | (1,721 | ) | |||||||||||||||||||
Exercisable at end of period | 4,292 | 16.00 | 1,881 | 23.49 | 1,479 | 19.58 | |||||||||||||||||||
(a) | ||||||||||||||||||||||||||
Outstanding stock option grants were adjusted to restore the option | ||
(b) | Outstanding stock option grants were adjusted to restore the option holder’s economic position as a result of the Value Enhancement Plan (VEP) on August 2, 2000. | |
(c) | Outstanding stock option grants were adjusted to restore the option holder’s economic position as a result of the Associates spin-off | |
Exercised at prices ranging from $24.44 to $31.43 during 2000, $49.81 to $67.00 during 1999, $20.06 to $61.13 during |
NOTE 17. SEGMENT INFORMATION
Financial results for Ford Credits operating segments have
been prepared using a management approach which included certain
securitized assets not included in Ford Credits balance
sheet. This is consistent with the basis and manner in which Ford
Credit management internally reviews financial information for
the purposes of assisting in making internal operating decisions.
Results were as follows (in millions):
FC-23
NOTES TO FINANCIAL STATEMENTS — Continued
NOTE 17. SEGMENT INFORMATION - Continued
Ford Credit manages its operations through two segments, Ford Credit North America and Ford Credit International. In the Third Quarter of 2000, the Company merged the Personal Financial Services segment into these segments.
Ford Credit | Ford Credit | |||||||||||||||||
North | Ford Credit | Eliminations/ | Financial | |||||||||||||||
America | International | Reclassifications | Statements | |||||||||||||||
2000 | ||||||||||||||||||
Revenue | $ | 21,361.1 | $ | 3,713.9 | $ | (1,469.3 | ) | $ | 23,605.7 | |||||||||
Income | ||||||||||||||||||
Income before income taxes | 2,182.6 | 317.4 | (5.0 | ) | 2,495.0 | |||||||||||||
Provision for income taxes | 813.0 | 111.1 | 1.5 | 925.6 | ||||||||||||||
Net income | 1,369.6 | 206.3 | (39.4 | ) | 1,536.5 | |||||||||||||
Other disclosures | ||||||||||||||||||
Depreciation on operating Leases | 7,016.9 | 808.3 | 20.5 | 7,845.7 | ||||||||||||||
Interest expense | 8,640.3 | 1,594.5 | (1,264.7 | ) | 8,970.1 | |||||||||||||
Finance receivables (including net investment operating leases) | 159,961.1 | 29,279.1 | (28,044.8 | ) | 161,195.4 | |||||||||||||
Total assets | 165,301.8 | 31,429.1 | (22,473.1 | ) | 174,257.8 |
Ford Credit | Ford Credit | |||||||||||||||||
North | Ford Credit | Eliminations/ | Financial | |||||||||||||||
America | International | Reclassifications | Statements | |||||||||||||||
1999 | ||||||||||||||||||
Revenue | $ | 17,484.6 | $ | 3,559.8 | $ | (684.7 | ) | $ | 20,359.7 | |||||||||
Income | ||||||||||||||||||
Income before income taxes | 1,518.0 | 605.0 | (19.2 | ) | 2,103.8 | |||||||||||||
Provision for income taxes | 542.5 | 253.4 | (5.3 | ) | 790.6 | |||||||||||||
Net income | 975.5 | 351.6 | (66.0 | ) | 1,261.1 | |||||||||||||
Other disclosures | ||||||||||||||||||
Depreciation on operating leases | 6,827.5 | 664.7 | 72.3 | 7,564.5 | ||||||||||||||
Interest expense | 6,687.0 | 1,529.8 | (1,023.4 | ) | 7,193.4 | |||||||||||||
Finance receivables (including net investment operating leases) | 134,013.1 | 28,202.6 | (20,623.7 | ) | 141,592.0 | |||||||||||||
Total assets | 141,649.9 | 29,730.3 | (14,749.5 | ) | 156,630.7 |
FC-24
NOTES TO FINANCIAL STATEMENTS — Continued
Ford Credit | Ford Credit | |||||||||||||||||
North | Ford Credit | Eliminations/ | Financial | |||||||||||||||
America | International | Reclassifications | Statements | |||||||||||||||
1998 | ||||||||||||||||||
Revenue | $ | 16,647.6 | $ | 3,542.4 | $ | (887.5 | ) | $ | 19,302.5 | |||||||||
Income | ||||||||||||||||||
Income before income taxes | 1,205.0 | 545.3 | 61.9 | 1,812.2 | ||||||||||||||
Provision for income taxes | 425.7 | 230.0 | 24.5 | 680.2 | ||||||||||||||
Net income | 779.3 | 315.3 | (10.4 | ) | 1,084.2 | |||||||||||||
Other disclosures | ||||||||||||||||||
Depreciation on operating leases | 6,922.4 | 537.4 | (132.4 | ) | 7,327.4 | |||||||||||||
Interest expense | 6,042.1 | 1,646.7 | (778.4 | ) | 6,910.4 | |||||||||||||
Finance receivables (including net investment operating leases) | 117,424.6 | 28,361.6 | (15,278.1 | ) | 130,508.1 | |||||||||||||
Total assets | 116,833.8 | 29,818.2 | (9,404.2 | ) | 137,247.8 |
FC-25
NOTES TO FINANCIAL STATEMENTS — Continued
Total revenue, income before income taxes, net income, finance receivables, and assets identifiable with United States, Europe, and other foreign operations were as follows:
2000 | 1999 | 1998 | ||||||||||||
(in millions) | ||||||||||||||
Revenue | ||||||||||||||
United States operations | $ | 18,421.3 | $ | 15,321.1 | $ | 14,396.8 | ||||||||
European operations | 2,554.7 | 2,432.9 | 2,314.4 | |||||||||||
Other foreign operations | 2,629.7 | 2,605.7 | 2,591.3 | |||||||||||
Total revenue | $ | 23,605.7 | $ | 20,359.7 | $ | 19,302.5 | ||||||||
Income before income taxes | ||||||||||||||
United States operations | $ | 2,069.4 | $ | 1,524.0 | $ | 1,292.4 | ||||||||
European operations | 277.6 | 466.3 | 431.7 | |||||||||||
Other foreign operations | 148.0 | 113.5 | 88.1 | |||||||||||
Total income before income taxes | $ | 2,495.0 | $ | 2,103.8 | $ | 1,812.2 | ||||||||
Net income | ||||||||||||||
United States operations | $ | 1,278.6 | $ | 941.7 | $ | 791.8 | ||||||||
European operations | 186.9 | 272.5 | 246.1 | |||||||||||
Other foreign operations | 71.0 | 46.9 | 46.3 | |||||||||||
Total net income | $ | 1,536.5 | $ | 1,261.1 | $ | 1,084.2 | ||||||||
Finance receivables at December 31 | ||||||||||||||
(including net investment operating leases) | ||||||||||||||
United States operations | $ | 123,602.2 | $ | 106,087.3 | $ | 94,945.4 | ||||||||
European operations | 20,583.2 | 20,099.0 | 21,588.7 | |||||||||||
Other foreign operations | 17,010.0 | 15,405.7 | 13,974.0 | |||||||||||
Total finance receivables | $ | 161,195.4 | $ | 141,592.0 | $ | 130,508.1 | ||||||||
Assets at December 31 | ||||||||||||||
United States operations | $ | 133,899.7 | $ | 118,541.8 | $ | 99,991.8 | ||||||||
European operations | 22,268.0 | 21,435.2 | 22,473.0 | |||||||||||
Other foreign operations | 18,090.1 | 16,653.7 | 14,783.0 | |||||||||||
Total assets | $ | 174,257.8 | $ | 156,630.7 | $ | 137,247.8 | ||||||||
FC-25
FC-26
NOTES TO FINANCIAL STATEMENTS — Continued
NOTE 18. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected financial data by calendar quarter were as follows:
First | Second | Third | Fourth | |||||||||||||||||||
Quarter | Quarter | Quarter | Quarter | Full Year | ||||||||||||||||||
(in millions) | ||||||||||||||||||||||
2000 | ||||||||||||||||||||||
Total financing revenue | $ | 5,203.4 | $ | 5,404.1 | $ | 5,678.2 | $ | 5,882.1 | $ | 22,167.8 | ||||||||||||
Depreciation on operating leases | 1,858.4 | 2,018.1 | 1,982.0 | 1,987.2 | 7,845.7 | |||||||||||||||||
Interest expense | 2,069.7 | 2,195.2 | 2,300.4 | 2,404.8 | 8,970.1 | |||||||||||||||||
Total financing margin and revenue | 1,601.6 | 1,605.8 | 1,707.8 | 1,874.7 | 6,789.9 | |||||||||||||||||
Provision for credit losses | 377.5 | 310.4 | 409.7 | 573.2 | 1,670.8 | |||||||||||||||||
Net income | 353.1 | 387.7 | 385.5 | 410.2 | 1,536.5 | |||||||||||||||||
1999 | ||||||||||||||||||||||
Total financing revenue | $ | 4,646.5 | $ | 4,584.1 | $ | 4,758.4 | $ | 4,896.4 | $ | 18,885.4 | ||||||||||||
Depreciation on operating leases | 1,841.3 | 1,954.1 | 1,864.8 | 1,904.3 | 7,564.5 | |||||||||||||||||
Interest expense | 1,761.5 | 1,706.7 | 1,836.9 | 1,888.3 | 7,193.4 | |||||||||||||||||
Total financing margin and revenue | 1,317.0 | 1,358.1 | 1,430.3 | 1,496.4 | 5,601.8 | |||||||||||||||||
Provision for credit losses | 325.1 | 281.4 | 301.4 | 258.5 | 1,166.4 | |||||||||||||||||
Net income | 299.8 | 335.3 | 316.9 | 309.1 | 1,261.1 |
FC-26
FC-27
EXHIBIT INDEX
Designation | Description | |||
Exhibit 3-A* | Restated Certificate of Incorporation of Ford Motor Credit Company. | |||
Exhibit 3-B* | By-Laws of Ford Motor Credit Company as amended through March 2, 1988. | |||
Exhibit 4-A* | Form of Indenture dated as of February 1, 1985 between Ford Motor Credit Company and Manufacturers Hanover Trust Company relating to Debt Securities. | |||
Exhibit 4-A-1* | Form of First Supplemental Indenture dated as of April 1, 1986 between Ford Motor Credit Company and Manufacturers Hanover Trust Company supplementing the Indenture designated as Exhibit 4-A. | |||
Exhibit 4-A-2* | Form of Second Supplemental Indenture dated as of September | |||
Exhibit 4-A-3* | Form of Third Supplemental Indenture dated as of March 15, 1987 between Ford Motor Credit Company and Manufacturers Hanover Trust Company supplementing the Indenture designated as Exhibit 4-A. | |||
Exhibit 4-A-4* | Form of Fourth Supplemental Indenture dated as of April 15, 1988 between Ford Motor Credit Company and Manufacturers Hanover Trust Company supplementing the Indenture designated as Exhibit 4-A. | |||
Exhibit 4-A-5* | Form of Fifth Supplemental Indenture dated as of September | |||
Exhibit 4-A-6* | Form of Sixth Supplemental Indenture dated as of June 1, 1998 between Ford Motor Credit Company and The Chase Manhattan Bank supplementing the Indenture designated as Exhibit 4-A. | |||
Exhibit 4-B* | Indenture dated as of November 1, 1987 between Ford Motor Credit Company and Continental Bank, National Association relating to Debt Securities. | |||
Exhibit 4-C* | Indenture dated as of August 1, 1994 between Ford Motor Credit Company and First Fidelity Bank, National Association, relating to Debt Securities. | |||
Exhibit 10-J* | Copy of Amended and Restated Profit Maintenance Agreement dated as of January 1, 1999 between Ford Motor Credit Company and Ford Motor Company. | |||
Exhibit 10-X* | Copy of Agreement dated as of February 1, 1980 between Ford Motor Company and Ford Motor Credit Company. | |||
Exhibit 12-A | Calculation of Ratio of Earnings to Fixed Charges of Ford Credit. | |||
Exhibit 12-B | Calculation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends of Ford. | |||
Exhibit 23 | Consent of Independent Accountants. | |||
Exhibit 24 | Powers of Attorney. |