UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
- --- Act of 1934 (No Fee Required)
For the fiscal year ended December 31, 2000
or
___ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
For the transition period from _______ to _______
Commission file number 1-3950
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FORD MOTOR COMPANY
(Exact name of Registrant as specified in its charter)
Delaware 38-0549190
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(State of incorporation) (I.R.S. employer identification no.)
One American Road, Dearborn, Michigan 48126
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(Address of principal executive offices) (Zip code)
313-322-3000
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered (a)
- ----------------------------------------- -----------------------------
Common Stock, par value $.01 per share New York Stock Exchange
Pacific Coast Stock Exchange
Depositary Shares, each representing New York Stock Exchange
1/2,000 of a share of Series B Cumulative
Preferred Stock, as described below
_______________
(a) In addition, shares of Common Stock of Ford are listed on certain stock
exchanges Europe.
[Cover page 1 of 2 pages]
Securities registered pursuant to Section 12(g) of the Act:
Series B Cumulative Preferred Stock, par value $1.00 per share, with an annual
dividend rate of $4,125 per share and a liquidation preference of $50,000 per
share.
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes __X__ No______
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of February 26, 2001, Ford had outstanding 1,764,198,802 shares of Common
Stock and 70,852,076 shares of Class B Stock. Based on the New York Stock
Exchange Composite Transaction closing price of the Common Stock on that date
($28.60 a share), the aggregate market value of such Common Stock was
$50,456,085,737. Although there is no quoted market for our Class B Stock,
shares of Class B Stock may be converted at any time into an equal number of
shares of Common Stock for the purpose of effecting the sale or other
disposition of such shares of Common Stock. The shares of Common Stock and Class
B Stock outstanding at February 26, 2000 included shares owned by persons who
may be deemed to be "affiliates" of Ford. We do not believe, however, that any
such person should be considered to be an affiliate. For information concerning
ownership of outstanding Common Stock and Class B Stock, see the Proxy Statement
for Ford's Annual Meeting of Stockholders to be held on May 10, 2001 (our "Proxy
Statement"), which is incorporated by reference under various Items of this
Report.
Document Incorporated by Reference*
-----------------------------------
Document Where Incorporated
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Proxy Statement Part III (Items 10,
11, 12 and 13)
__________________________
* As stated under various Items of this Report, only certain specified portions
of such document are incorporated by reference in this Report.
[Cover page 2 of 2 pages]
PART I
Item 1. Business
- -----------------
Ford Motor Company was incorporated in Delaware in 1919. We 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.
We are the world's second-largest producer of cars and trucks combined. We and
our subsidiaries also engage in other businesses, including financing and
renting vehicles and equipment.
Overview
Our business is divided into two business sectors: the Automotive sector
and the Financial Services sector. We manage these sectors as three primary
operating segments as 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
We provide financial information (such as, revenues, income, and assets)
for each of these business sectors and operating segments in three areas of this
Report: (1) Item 6. "Selected Financial Data" on pages 34 through 36; (2) Item
7. "Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 37 through 46; and (3) Note 21 of our Notes to Financial
Statements located at the end of this Report (pages FS-30 and FS-31). Financial
information relating to certain geographic areas is also included in the
above-mentioned areas of this Report.
Item 1. Business (Continued)
Automotive Sector
We sell cars and trucks throughout the world. In 2000, we sold 7.4 million
vehicles throughout the world. Our automotive vehicle brands include Ford,
Mercury, Lincoln, Volvo, Jaguar, Land Rover, Aston Martin and TH!NK. In
addition, we own 33.4% of Mazda Motor Corporation ("Mazda"). We completed the
purchase of the Land Rover worldwide sport utility vehicle business ("Land
Rover") from the BMW Group on June 30, 2000. As a result, our 2000 results and
financial condition include Land Rover's results and financial condition since
the date of the acquisition. In addition, on June 28, 2000, we distributed 130
million shares of Visteon Corporation (our former automotive systems and
components division), which represented our 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 our results and financial condition.
The worldwide automotive industry, Ford included, is affected significantly
by a number of factors over which we have 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") 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.
The worldwide automotive industry also is affected significantly by a
substantial amount of costly governmental regulation. In the United States and
Europe, for example, governmental regulation has arisen primarily out of concern
for the environment, for greater vehicle safety, and for improved fuel economy.
Many governments also regulate local content and/or impose import requirements
as a means of creating jobs, protecting domestic producers, or influencing their
balance of payments.
Our unit sales vary with the level of total industry demand and our share
of that industry demand. Our share is influenced by how our products compare
with those offered by other manufacturers based on many factors, including
design, driveability, price, quality, reliability, safety, and utility. Our
share also is affected by our timing of new model introductions and
manufacturing capacity limitations. Our ability to satisfy changing consumer
preferences with respect to type or size of vehicle and its design and
performance characteristics can impact our sales and earnings significantly.
2
Item 1. Business (Continued)
The profitability of vehicle sales is affected by many factors, including
the following:
o unit sales volume
o the mix of vehicles and options sold
o the margin of profit on each vehicle sold
o the level of "incentives" (price discounts) and other marketing costs
o the costs for customer warranty claims and other customer satisfaction
actions
o the costs for government-mandated safety, emission and fuel economy
technology and equipment
o the ability to manage costs
o 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 we compete, as well as a discussion of our Automotive Consumer
Services Group and our ConsumerConnect e-commerce initiatives and strategy:
United States
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Sales Data. The following table shows U.S. industry sales 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
==== ==== ==== ==== ====
3
Item 1. Business (Continued)
We classify 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 industry's most profitable vehicle lines. The term
"bus" as used in this discussion refers to vans designed to carry passengers.
The following tables show the proportion of United States car and truck unit
sales by segment for the industry (including Japanese and other foreign-based
manufacturers) and Ford for the years indicated:
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
Australian heavy truck businesses was completed in 1998.
As shown in the tables above, since 1996 there has been a 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).
4
Item 1. Business (Continued)
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, 1999 and Land Rover on June 30, 2000.
The figures shown here include Volvo Car and Land Rover on a pro forma
basis for the periods prior to their acquisition by Ford. During the period
from 1996 through 1998, Volvo Car represented no more than 1.2 percentage
points of total market share during any one year. During the period 1996
through 1999, Land Rover represented no more than 0.4 percentage points of
total market share during any one year.
*** 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.
**** "All Other" includes primarily companies based in various European
countries, Korea and other Japanese manufacturers. The increase in combined
market share shown for "All Others" reflects primarily increases in market
share for the Korean manufacturers.
*****"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.
The decline in car 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 with respect to certain
components due to stong demand.
Marketing Incentives and Fleet Sales. Automotive manufacturers that sell
vehicles in the United States typically 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
5
Item 1. Business (Continued)
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.
Our 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). These "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 our 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 our
fleet sales in the United States, and the amount of those sales as a percentage
of our 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. We presently provide warranty coverage for defects in
factory-supplied materials and workmanship on all vehicles (other than medium
trucks) 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, including tires beginning 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 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 Standards - Mobile Source Emissions Control", the Federal Clean
Air Act requires warranty coverage for a "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
costs") can be substantial. Estimated warranty costs for each vehicle sold by us
are accrued at the time of sale. Such accruals, however, are subject to
adjustment from time to time depending on actual experience.
Europe
- ------
Outside of the United States, Europe is our largest market for the sale of
cars and trucks. The automotive industry in Europe is intensely competitive.
Over the past year, 140 new or freshened vehicles, including derivatives of
existing vehicles, were introduced in the European market by various
manufacturers. For the past 14 years, the top six manufacturers have each
achieved a car market share in about the 10% to 18% range. (Manufacturers'
shares, however, vary considerably by country.) This competitive environment is
expected to intensify further as Japanese manufacturers, which together had a
European car market share of 11.4% for 2000, increase their production capacity
in Europe. We estimate that in 2000 the European automotive industry had excess
capacity of approximately 6 million units (based on a comparison of European
domestic demand and capacity).
In 2000, vehicle manufacturers sold approximately 17.8 million cars and
trucks in Europe, down 2% from 1999 levels. Our combined car and truck market
share in Europe in 2000 was 10.0%, down 2/10 of one percentage point from 1999.
6
Item 1. Business (Continued)
Britain and Germany are our 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 our
total automotive profits. For 2000 compared with 1999, total industry sales were
up 1% in Britain and down 10% in Germany.
For purposes of the figures shown in this section, we have considered
Europe to consist of the following 19 markets: Britain, Germany, France, Italy,
Spain, Austria, Belgium, Ireland, Netherlands, Portugal, Switzerland, Finland,
Sweden, Denmark, Norway, Czech Republic, Greece, Hungary, and Poland.
Other Markets
- -------------
Mexico and Canada. Mexico and Canada also are important markets for us. In
2000, industry sales of new cars and trucks in Mexico were approximately 886,000
units, up 28% from 1999 levels. In Canada, industry sales of new cars and trucks
in 2000 were approximately 1.59 million units, up 3% from 1999 levels. Our
combined car and truck market share in these markets in 2000 was 16.2% (Mexico)
and 17.8% (Canada).
South America. Brazil and Argentina are our 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 2000 were 1.45 million units in Brazil, up about 16% from
1999, and approximately 307,000 units in Argentina, down 19% from 1999. Brazil
shows signs of continued economic recovery and we expect industry volumes to
improve further in 2001. Economic conditions remain weak in Argentina, which
could lead to further deterioration of industry volumes in 2001. Our combined
car and truck market share in these markets in 2000 was 9.1% (Brazil) and 14.9%
(Argentina).
Ford has undertaken restructuring actions in recent years to reduce costs
and improve our competitiveness in South America. In addition, we are 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
our principal markets. Industry volumes in 2000 in this region were as follows:
approximately 788,000 units in Australia (up 0.1% from 1999), approximately
420,000 units in Taiwan (down 1% from 1999) and approximately 6 million units in
Japan (up 1.7% from 1999). In 2000, our combined car and truck market share in
Australia was 15.4%. In Taiwan, we had a combined car and truck market share in
2000 of 12.3%. Our combined car and truck market share in Japan has been less
than 1% in recent years. We own a 33.4% interest in Mazda and account for Mazda
on an equity basis. Mazda's market share in Japan has been in the 5 to 6% range
in recent years. Our principal competition in the Asia Pacific region has been
the Japanese manufacturers. We anticipate that the continuing relaxation of
import restrictions (including duty reductions) in Australia and Taiwan will
intensify competition in those markets.
We opened a new assembly plant in India in 1999, launching an all-new small
car (the 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. We expect
India to become one of our most important markets in Asia in the future.
Africa. In recent years, we have operated in the South African market as a
45% owner in the South African Motor Corporation (Pty.) Limited ("SAMCOR"). In
2000, we increased our ownership interest in SAMCOR to 100% by purchasing the
remaining 55% we did not previously own. Subsequent to this purchase, SAMCOR's
name was changed to Ford Motor Company of Southern Africa ("FMCSA").
7
Item 1. Business (Continued)
FMCSA assembles and distributes Ford, Mazda, Mitsubishi and, beginning in
2000, Volvo vehicles in South Africa. In addition, FMCSA distributes Jaguar
vehicles. In 2000, industry volume in South Africa was approximately 341,000
units, up 15% from 1999 levels. FMCSA's combined car and truck market share in
2000 was 15.5% for the five brands it distributes; the share for the Ford brands
(Ford, Mazda, Volvo and Jaguar) was 14.6%.
Automotive Consumer Services Group
- ----------------------------------
Automotive Consumer Services Group is a business unit within Ford that
includes Ford Customer Service Division and an all-makes channel, otherwise
known as our 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 our vehicle owners, traditionally recognized by the Quality CareSM
brand.
Through our 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. Our
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), MasterGroup (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 United States), Howard Basford (collision repair in the United
Kingdom), Automobile Protection Corporation (extended service business selling
all-makes policies through dealers in the United States), and GreenLeaf
(automotive recycling in the United States and Europe). The characteristics of
the Diversified Consumer Services organization align closely with the Ford
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 over 40 countries
and serves consumers through over 13,000 dealer outlets and over 2,500 all-makes
outlets.
ConsumerConnect
- ---------------
ConsumerConnect is a business unit within Ford dedicated 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 will provide consumers with an improved internet experience
in buying and owning a Ford vehicle. Ford owns 93% of the economic interest in
DelaerDirect 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 provides leading edge customer
relationship management services, was launched in 2000 as well. Ford's ownership
interests in Wingcast and Percepta are 80% and 45%, respectively.
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 industry supply chain
by providing efficiencies to manufacturers and suppliers in almost every stage
of the order-to-delivery process. Covisint was founded by Ford, General Motors
Corporation, DaimlerChrysler AG, Renault S.A. and Nissan Motor Co., Ltd.. Each
of these founding automotive manufacturers has an ownership interest in
Covisint, and Oracle Corporation and Commerce One, Inc. are the technology
partners. Ford's ownership interest in Covisint is approximately 31%.
8
Item 1. Business (Continued)
Financial Services Sector
Ford Motor Credit Company
- -------------------------
Ford Credit is an indirect wholly-owned subsidiary of Ford. Ford Credit and
its subsidiaries provide wholesale financing and capital loans to Ford retail
dealerships and associated non-Ford dealerships throughout the world. Most of
these dealerships are privately owned. Ford Credit also purchases from these
dealerships retail installment sale contracts and retail leases. In addition,
Ford Credit also makes loans to vehicle leasing companies, the majority of which
are affiliated with such dealerships. Ford Credit directly and through its
subsidiaries provides these financing services in North America, South America,
Europe, Australia, and Asia to Ford and non-Ford dealerships. A substantial
majority of all new vehicles financed by Ford Credit and its subsidiaries are
manufactured by Ford and our 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 our subsidiaries.
Outside the United States, FCE Bank plc ("Ford Credit Europe") is Ford
Credit's largest operation. Ford Credit Europe's primary business is to support
the sale of Ford vehicles in Europe through the Ford dealer network. A variety
of retail, leasing and wholesale finance plans are provided in most countries in
which it operates.
Ford Credit also conducts insurance operations through The American Road
Insurance Company and its subsidiaries in the United States and Canada. American
Road'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. A majority of the extended service plan contracts and all of the
warranty contract business of American Road is ceded to Gentle Winds
Reinsurance, Ltd., an off-shore subsidiary of Ford.
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 the last three years:
Years Ended December 31,
----------------------------------------------------
2000 1999 1998
--------------- --------------- --------------
United States
-------------
Retail*............................ 50.9% 47.2% 42.3%
Wholesale.......................... 83.5 83.5 82.5
Europe
------
Retail*............................ 31.7 32.8 32.5
Wholesale.......................... 95.9 96.4 95.4
___________________
* As a percentage of total sales and leases of Ford vehicles, including
cash sales.
9
Item 1. Business (Continued)
Ford Credit's net finance receivables and net investment in operating
leases were as follows at the dates indicated (in millions):
December 31,
-------------------------------------
2000 1999
---------------- ----------------
Net finance receivables
Retail $80,797 $76,182
Wholesale 34,122 26,450
Other 9,130 7,244
-------- --------
Total finance receivables, net of unearned income 124,049 109,876
Less: allowance for credit losses (1,311) (1,122)
-------- --------
Net finance receivables $122,738 $108,754
======== ========
Net investment in operating leases
Vehicles, at cost $48,491 $41,537
Lease origination costs 53 52
Less: Accumulated depreciation (9,753) (8,397)
Allowance for credit losses (334) (354)
------- -------
Net investment in operating leases $38,457 $32,838
======= =======
Ford Credit's total receivable balances related to accounts past due 60
days or more were as follows at the dates indicated (in millions):
December 31,
-------------------------------------
2000 1999
--------------- --------------
Retail $1,204 $ 868
Wholesale 234 128
Other 19 36
------ ------
Total $1,457 $1,032
====== ======
The following table sets forth information concerning Ford Credit's and its
affiliates' credit loss experience with respect to the various categories and
geographic regions of financing during the years indicated (in millions):
Years Ended or at December 31,
------------------------------------------------
2000 1999 1998
------------- ------------- -------------
Net credit losses/(recoveries)
Retail* $1,283 $ 995 $1,031
Wholesale 14 3 9
Other 0 2 (1)
------ ------ ------
Total $1,297 $1,000 $1,039
====== ====== ======
United States $1,205 $ 884 $ 916
Europe 65 66 57
Other international 27 50 66
------ ------ ------
Total $1,297 $1,000 $1,039
====== ====== ======
Net losses as a percentage of average net receivables**
Retail 1.14% 0.95% 1.08%
Total finance receivables 0.84 0.74 0.86
Provision for credit losses $1,671 $1,166 $1,180
Allowance for credit losses 1,645 1,476 1,548
Allowance for credit losses as a percentage
of net receivables** 1.02% 1.04% 1.19%
*Includes net credit losses on operating leases.
**Includes net investment in operating leases.
10
Item 1. Business (Continued)
Shown below is an analysis of Ford Credit's allowance for credit losses
related to finance receivables and operating leases for the years indicated (in
millions):
2000 1999 1998
------------- ------------- -------------
Balance, beginning of year $1,476 $1,548 $1,471
Additions 1,671 1,166 1,180
Deductions
Losses 1,597 1,274 1,243
Recoveries (300) (274) (203)
------ ------ ------
Net losses 1,297 1,000 1,040
Other changes, principally
amounts relating to finance
receivables and operating
leases sold 205 238 63
------ ------ ------
Net deductions 1,502 1,238 1,103
------ ------ ------
Balance, end of year $1,645 $1,476 $1,548
====== ====== ======
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 or leasing programs, and dividend payments.
Funds also can be affected by the timing of payments for the financing of
dealers' wholesale inventories and for income taxes.
The ability of Ford Credit 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 each of Ford, Ford Credit and Ford Credit Europe is rated "A2" (by Moody's
Investors Service) and "A" (by Standard & Poor's Ratings Group). The commercial
paper of each of Ford Credit and FCE Bank is rated "Prime-1" (by Moody's),
"A-1" (by S&P), and "F1" (by Fitch, Inc.).
For a discussion of how Ford Credit manages its and its subsidiaries'
credit risk, lease residual risks, financial market risks, and liquidity risks,
see Item 7A, "Quantitative and Qualitative Disclosure About Market Risk".
Under a profit maintenance agreement with Ford Credit, Ford has agreed to
make payments to maintain Ford Credit's earnings at certain levels. In addition,
under a support agreement with Ford Credit Europe, Ford Credit has agreed to
maintain Ford Credit Europe's net worth above a minimum level. No payments were
required under either of these agreements during the period 1988 through 2000.
11
Item 1. Business (Continued)
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.
They 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:
o rent and lease cars and trucks
o rent industrial and construction equipment
o sell their used cars and equipment
o provide third-party claim management services
o provide telecommunications services
These businesses are operated from approximately 7,000 locations throughout the
United States and in over 140 foreign countries and jurisdictions.
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, we 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, we acquired the publicly held shares
and, as a result, Hertz has become an indirect, wholly-owned subsidiary of Ford.
12
Item 1. Business (Continued)
Governmental Standards
A number of governmental standards and regulations relating to safety,
corporate average fuel economy ("CAFE"), emissions control, noise control,
damageability, and theft prevention are applicable to new motor vehicles,
engines, and equipment manufactured for sale in the United States, Europe and
elsewhere. In addition, manufacturing and assembly facilities in the United
States, Europe and elsewhere are subject to stringent standards regulating air
emissions, water discharges, and the handling and disposal of hazardous
substances. Such facilities in the United States and Europe also are subject to
comprehensive national, regional, and/or local permit programs with respect to
such matters.
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") 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 our
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, which could negatively impact fuel
economy performance. The EPA has also promulgated post-2004 emission standards
for "heavy-duty" trucks (8,500-14,000 lbs. gross vehicle weight). These
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's emissions requirements (the "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.
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. CARB's new
standards present a difficult engineering and technological challenge, and may
impact our 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 permits other states that do not meet national ambient
air quality standards to adopt California's motor vehicle emission standards no
later than two years before the affected model year. New York, Massachusetts,
Vermont, and Maine adopted the California standards effective with the
13
Item 1. Business (Continued)
2001 model year or before. New York, Massachusetts, and Vermont have either
previously adopted, or indicated an intention to adopt, the California ZEV
mandate; however, at this writing it is not clear whether these states will
adopt the ZEV regulations as modified by California in 2001. Maryland and New
Jersey have laws requiring the adoption of California standards if certain
triggers are met. There are problems with transferring California standards to
northeast states, including the following: 1) the driving range of ZEVs is
greatly diminished in cold weather, thereby limiting their market appeal; and 2)
the northeast states have refused to adopt the California reformulated gasoline
regulations, which may impair the ability of vehicles to meet California's
in-use standards.
Battery 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 modified 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 be a decade or more away.
Compliance with the ZEV mandate may eventually require costly actions that would
have a substantial adverse effect on Ford's sales volume and profits. For
example, we 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, thereby
increasing the costs to Ford.
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.
European Requirements. European Union ("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 apply to new car certifications beginning January
1, 2000 and to new car registrations beginning January 1, 2001 ("Stage III
Standards"). 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 IV 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 our 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") 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
14
Item 1. Business (Continued)
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 approximately 30
investigations relating to alleged safety defects in Ford vehicles as of
February 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 safety defect or a noncompliance
exists with respect to certain of Ford's vehicles, the costs of such recall
campaigns could be substantial.
The Transportation Recall Enhancement, Accountability, and Documentation
Act (the "TREAD Act") was signed into law in November 2000. The TREAD Act
establishes new reporting requirements for motor vehicles, motor vehicle
equipment, and tires, including reporting to the Safety Administration
information on foreign recalls and information received by the manufacturer that
may assist the agency in the identification of 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 new legislation. The Safety Administration is also
required to develop a new 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 reporting requirements. Criminal penalties are introduced for persons who
make false statements to the government or withhold information with the intent
to mislead the government about safety defects that have caused death or serious
bodily injury.
Canada, the 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 Corporate Average Fuel 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 model 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 our 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 Clinton's Climate Change Action Plan ("CCAP")
sets a goal to improve new vehicle fuel efficiency in an amount equivalent to at
least 2% per year over a 10 to 15 year period. In addition, international
concerns over global warming due to the emission of "greenhouse gasses" have
given rise to strong pressures to improve fuel 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
15
Item 1. Business (Continued)
their 1990 levels during the 2008-2012 period (the "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 EPA requesting that the
Agency regulate CO2 emissions from motor vehicles under the Clean Air Act. The
EPA has requested public comment on this 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 various costly actions that could have substantial adverse effects on its
sales volume and profits. For example, Ford might have to curtail production of
larger family-size and luxury cars and full-size light trucks, restrict
offerings of engines and popular options, and increase market support programs
for its most fuel-efficient cars and light trucks.
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") 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"). 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 Association'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 EU'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 the full
availability of improved fuels with low sulfur content in 2005. Average CO2
emissions of 140 grams per kilometer for new passenger cars corresponds to a 25%
reduction in average CO2 emissions compared to 1995.
The Environment Council requested the European Commission to review in 2003
the EU'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 1995, members of the German Automobile Manufacturers Association
(including Ford Werke AG) made a voluntary pledge to increase 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 our 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.
End-of-Life Vehicle Proposal - The European Parliament has published a
Directive imposing an obligation on motor vehicle manufacturers to take back
end-of-life vehicles registered after July 1, 2002 with no cost to the last
owner and to take back all other vehicles as of January 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 bans the use of certain substances in vehicles
16
Item 1. Business (Continued)
beginning with 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 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 2001 through 2005, we expect to
spend approximately $334 million on our North American and European facilities
to comply with air and water pollution and hazardous waste control standards,
which now are in effect or are scheduled to come into effect. Of this total, we
estimate spending approximately $60 million in 2001 and $94 million in 2002.
17
Item 1. Business (Continued)
Employment Data
The average number of people we 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 2000, the average number of people we employed decreased 7.5 percent.
The decrease was due to our 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 2000, notably Land Rover, which increased
employment levels by approximately 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 our collective bargaining agreement with the UAW,
remain Ford employees. Visteon reimburses Ford for all costs to Ford associated
with these employees. Most of our employees work in our Automotive operations.
For further information regarding employment statistics of Ford, see Item
6. "Selected Financial Data" later in this Report. For information concerning
employee retirement benefits, see Note 12 of our Notes to Consolidated Financial
Statements at the end of this Report.
Substantially all of the hourly employees in our Automotive operations in
the United States are represented by unions and covered by collective bargaining
agreements. Approximately 99% of these unionized hourly employees in our
Automotive segment are represented by the United Automobile Workers (the "UAW").
Approximately 3% of our salaried employees are represented by unions. Most
hourly employees and many non-management salaried employees of our subsidiaries
outside the United States also are represented by unions.
We have entered into a collective bargaining agreement with the UAW that
will expire on September 14, 2003. We also have entered into a collective
bargaining agreement with the Canadian Automobile Workers ("CAW") that will
expire on September 21, 2002. Among other things, our agreements with the UAW
and CAW provide for guaranteed wage and benefit levels throughout their terms
and provide for significant employment security.
We are or will be negotiating new collective bargaining agreements with
labor unions in 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 Ford's profits.
In recent years we have not had significant work stoppages at our
facilities, but they have occurred in some of our suppliers' facilities. Any
protracted work stoppages in the future, whether in our facilities or those of
certain suppliers, could substantially adversely affect our results of
operations.
18
Item 1. Business (Continued)
Engineering, Research and Development
We conduct engineering, research and development primarily to improve the
performance (including fuel efficiency), safety and customer satisfaction of our
products, and to develop new products. We also have staffs of scientists who
engage in basic research. We maintain extensive engineering, research and design
facilities for these purposes, including large centers in Dearborn, Michigan;
Dunton, England; and Merkenich, Germany. Most of our engineering research and
development relates to our Automotive operating segment.
During the last three years, we took charges to our consolidated income for
engineering, research and development we sponsored in the following amounts
(restated for prior years to exclude Visteon): $6.8 billion (2000), $6.0 billion
(1999) and $5.3 billion (1998). Any customer-sponsored research and development
activities that we conduct are not material.
Item 2. Properties
- -------------------
We own substantially all of our U.S. manufacturing and assembly facilities.
These facilities are situated in various sections of the country and include
assembly plants, engine plants, casting plants, metal stamping plants, and
transmission plants. We also own a majority of our distribution centers,
warehouses, and sales offices, with the remainder being leased.
In addition, we maintain and operate manufacturing plants, assembly
facilities, parts distribution centers, and engineering centers outside the
United States. We own substantially all of these facilities.
Our Automotive segment operates approximately 135 plants; 538 distribution,
engineering and research and development centers, and warehouses; and 311 owned
dealerships.
The furniture, equipment and other physical property owned by our Financial
Services operations are not material in relation to their total assets.
19
Item 3. Legal Proceedings
- --------------------------
Various legal actions, governmental investigations and proceedings and
claims are pending or may be instituted or asserted in the future against us and
our subsidiaries, including those arising out of the following: alleged defects
in our 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 campaigns, environmental remediation
programs, sanctions or other relief which, if granted, would require very large
expenditures. See Item 1,"Business - Governmental Standards". Included among the
foregoing matters are the following:
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. We believe 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. We are 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 our 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.
The Company also has been served with shareholder derivative and securities
fraud lawsuits. The shareholder derivative actions filed against the Board of
Directors and the Company allege that the Company's board members breached their
fiduciary duties to the Company 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
20
Item 3. Legal Proceedings (Continued)
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.
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
$603 million at December 31, 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
$2.4 billion at December 31, 2000.
In most of the actions described in the two paragraphs above, no dollar
amount of damages is specified or the specific amount we refer to is only the
jurisdictional minimum. It has been our 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 damages we pay generally are, on
average, substantially less than the amounts originally claimed. In addition to
the pending actions, accidents have occurred and claims have arisen which also
may result in lawsuits in which the plaintiffs may allege similar defects.
Asbestos. We are 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
21
Item 3. Legal Proceedings (Continued)
damages, including both actual and punitive damages, of approximately $1.7
billion at December 31, 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 us, in
most of these asbestos-related cases, we are but one of many defendants.
Environmental Matters
- ---------------------
General. We have received notices under various federal and state
environmental laws that we (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. We 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 we may be held responsible could be substantial. The contingent losses
that we expect to incur in connection with many of these sites have been accrued
and those losses are reflected in our financial statements in accordance with
generally accepted accounting principles. However, for many sites, the
remediation costs and other damages for which we ultimately may be responsible
are not reasonably estimable because of uncertainties with respect to factors
such as our 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 extent, duration, and success of
remediation). As a result, we are unable to determine or reasonably estimate the
amount of costs or other damages for which we are potentially responsible in
connection with these sites, although that total could be substantial.
MFA Grand Jury Matter. The U.S. Department of Justice ("DOJ"), the EPA and
the Federal Bureau of Investigation are investigating the circumstances
surrounding Ford's past use of an engine control strategy that improved fuel
economy, but had the side effect of increasing nitrogen oxide emissions. The
engine control strategy (Managed Fuel Air, or "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 CARB. We have met with attorneys and
investigators from the government and are cooperating in the investigation.
Waste Disposal. The EPA has initiated a civil enforcement action against
Ford as a result of Ford Venezuela'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.
On-Board Diagnostics Investigation. The EPA has 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 Ford's certification
application. The EPA may request that Ford implement a recall to reprogram the
monitor.
Ohio Assembly Plant. In September 1999, the EPA filed an administrative
complaint against Ford alleging violations of the Resource Conservation and
Recovery Act ("RCRA") at Ford's Ohio Assembly Plant. The alleged violations are
related to Ford'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
22
Item 3. Legal Proceedings (Continued)
subject to discussion between Ford and the EPA. Subsequent to the Ohio Assembly
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 approximately
$110,000 and approximately $18,000 each year thereafter.
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") 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, attorneys' 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. On May 11,
2000, the Texas Supreme Court reversed the trial court, decertified the class
and remanded the case for further proceedings. Plaintiffs have filed a renewed
motion for class certification with the trial court. The Illinois case,
Phillips, is still in the early stages of litigation and there have been no
significant developments in that case. We intend to pursue aggressively summary
dismissal and oppose class certification.
TFI Module Class Actions. There are eight 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. The Howard
case in California is the lead case.
The Howard plaintiffs assert two claims for relief: violations of the
California Consumer Legal Remedies Act ("CLRA"), and violations of the
California Unfair Competition Law ("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 the 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,
plaintiffs seek a $1,000 statutory penalty per class member plus punitive
damages. Under the UCL, plaintiffs seek a recall or "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 $4 billion.
A jury trial on the CLRA claims in Howard began in May 1999 and ended in
November 1999 with a deadlocked jury and a mistrial. If the CLRA claims are
retried, the retrial will probably occur in the second quarter of 2001. On
October 11, the 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 replace distributor-mounted TFI modules were entitled to
restitution, that Ford would be required to recall
23
Item 3. Legal Proceedings (Continued)
the vehicles in the class, and that plaintiffs were entitled to attorneys' fees
and expenses. The amountand method of restitution and the nature and scope of
the recall will be determined after further hearings to be scheduled before a
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 attorneys' 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. We have appealed this ruling. Briefing
on the appeal has been completed and we are awaiting oral argument.
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 Credit's leasing
practices (Higginbotham v. Ford Credit). The counterclaim plaintiff, Carla
Higginbotham, is a member of a class that has been conditionally certified for
settlement purposes in Shore v. Ford Credit. In the Shore case, Ford Credit
commenced an action for deficiency against Virginia Shore, a Ford Credit lessee.
Shore counterclaimed for purported violations of the Truth-in-Leasing Act
(alleging that certain lease charges were excessive) and the Truth-in-Lending
Act (alleging that the lease lacked clarity). Shore purported to represent a
class of all similarly situated lessees. Ford was not a party to the Shore case.
Higginbotham objected to the proposed settlement of the Shore case, intervened
as a named defendant, filed separate counterclaims against Ford Credit, and
joined Ford as an additional counterclaim defendant. Higginbotham asserts claims
against Ford Credit for violations of the Consumer Leasing Act, declaratory
judgment concerning the enforceability of early termination provisions in Ford
Credit's leases, and fraud. She also asserts a claim against Ford Credit and
Ford for conspiracy to violate the Truth-in-Lending Act. The Higginbotham
counterclaims allege that Ford Credit inflates the residual values of its leased
vehicles, which results in lower monthly lease payments but higher termination
fees for lessees who exercise their right of early termination. Higginbotham
claims that the early termination fees were not adequately disclosed on the
lease form and that the fees are excessive and illegal because of the allegedly
inflated residual values. She also alleged that Ford dictated the residual
values to Ford Credit and thereby participated in an unlawful conspiracy. This
case was stayed pending the approval/rejection of the settlement in Shore. Ford
Credit has reached individual settlements with the Shore plaintiffs.
The Illinois court in Higginbotham found that the lease end residual value
of Ms. Higginbotham'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, the Higginbotham case is proceeding in
Florida and Ford Credit is in the process of responding to discovery requests.
In addition, Ford Credit has filed a response to Plaintiff's motion for class
certification and has renewed its motion for summary judgment based on
information obtained in 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
24
Item 3. Legal Proceedings (Continued)
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). The Company is required to defend and
indemnify Michigan Mutual. The complaint rests on an untenable interpretation of
the Michigan Mutual policy, which was intended to cover company cars and lease
evaluation vehicles. Unfortunately, however, the Florida Court of Appeals in a
prior action brought by a single individual, has accepted Plaintiffs'
interpretation of the policy. The Florida court's opinion should not be
controlling in federal court, however, and Ford has filed a motion for summary
judgment based on the policy language and the intention of the parties.
Plaintiffs responded to Ford's motion, cross-moved for summary judgment in their
favor, moved to amend their complaint, and moved for class certification. A
hearing on Ford's motion was held on October 27, 2000, and we expect a decision
sometime in 2001.
Throttle Body Assemblies Class Action. A purported nationwide class action
has been filed in Ohio on behalf of all persons who own or lease 1999 Mercury
Villagers. The complaint alleges that the vehicle has a defective throttle body
assembly that causes the gas pedal to intermittently lock or stick in the closed
position. The complaint alleges breach of warranty, negligence, and violation of
consumer protection statutes. Plaintiffs seek an order requiring Ford to recall
the vehicles. They also seek unspecified compensatory damages, treble damages,
attorneys fees, and costs. We are 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 the Company, The Hertz Corporation, and the directors of
Hertz, alleging that the Company 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 the Company. 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
attorneys' fees. These actions were consolidated on October 19, 2000. In January
2001, we agreed with a special committee of Hertz's board of directors to
increase our offer to $35.50 per share. In March 2001, through a cash tender
offer and merger transaction, we acquired the publicly held shares of Hertz and,
as a result, Hertz has become an indirect, wholly-owned subsidiary of Ford.
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 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 the seat backs are
"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 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. Plaintiffs seek "compensatory damages measured
by the cost of correcting the defect, not to exceed $5,000 for each class
vehicle." Ford's motions to dismiss were granted in
25
Item 3. Legal Proceedings (Continued)
Maryland, New Hampshire, and New York; plaintiffs' appeals from these rulings
are pending in New York and Maryland. The trial judge in the New Jersey case
denied Ford's motion to dismiss, and discovery is proceeding in that case.
Ford Credit 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 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 dismissed at the
trial court level and that decision was upheld by the appellate court.
Plaintiffs have appealed to the United States Supreme Court. Molloy v. PRIMUS
and Dubois v. Ford Credit are two nationwide class action lawsuits 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. In Molloy, our motion to dismiss was
denied and we are proceeding with discovery. In January 2001, the trial court
granted our motion to dismiss the Dubois case. We anticipate that plaintiffs
will appeal.
Late Charges Class Actions. There are two class actions, one in California
(Cumberland v. Ford Credit) and the other in Oklahoma (Crim v. Ford Credit), in
which the plaintiffs are contending that Ford Credit is engaged in unfair
business practices by assessing late charges on lease accounts that bear no
reasonable relation to our actual costs. In Cumberland (now captioned as Connie
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 our late charge of 7 1/2 % 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 our expert witness, Ford Credit
has filed a motion for continuance. In Crim, the plaintiff has made similar
allegations. After granting a statewide class, the court granted our motion for
summary judgment because it found that the plaintiff had voluntarily made the
late payments and was, therefore, precluded from bringing this action. We have
completed an extensive study of the costs incurred by Ford Credit on delinquent
accounts and are confident that we can justify the late charge fee.
Fair Lending Class Action. Ford Credit has been served with a class action
lawsuit in federal court in New York alleging that our 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 Credit
believe that Ford Credit's pricing practices are fair and are not
discriminatory.
Performance Management Process Class Action. A purported class action was
filed in Wayne County Circuit Court in February 2001 against Ford, alleging that
the Company's Performance Management Process unlawfully discriminates against
older workers. Individual claims in that case allege other forms of unlawful
discrimination. This case is in the early stage of litigation and Ford is
preparing its response.
Reverse Discrimination Class Action. A purported class action was filed in
the Eastern District of Michigan in February 2001 against Ford and Jacques
Nasser, President and Chief Executive Officer of Ford, alleging reverse
discrimination. Plaintiffs claim that the Company's diversity policies and
practices discriminate against older white males. This case is in the early
stage of litigation and Ford is preparing its response.
26
Item 3. Legal Proceedings (Continued)
Other Matters
- -------------
Red Carpet Lease Terminations. The Florida Attorney General issued a
subpoena asking for all Ford Credit Red Carpet Lease ("RCL") early termination
accounts going back to 1991. The Florida Attorney General has been investigating
leasing practices at the dealership level for years 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 dealers' 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, we are conspiring with our dealer to mislead the customer.
We believe that Ford Credit's business practices are fair under applicable law,
and we are 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. We are confident that an amicable resolution of this
matter will be reached.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
Ford held a special meeting of the stockholders of the Company on August 2,
2000. The Special Meeting was held to allow the stockholders to consider and
vote on a recapitalization proposal known as Ford's Value Enhancement Plan
("VEP"). The VEP, which was effected through a merger of a wholly-owned
subsidiary of Ford into Ford, consisted of the exchange by Ford with its
stockholders of cash and new shares of stock for existing shares of stock,
resulting in a reshuffling of the capital structure of Ford. The VEP proposal
was approved by the stockholders, with 1,436,008,238 votes cast For (86.041%),
226,322,070 votes cast Against (13.561%), and 6,642,569 votes abstained
(0.398%). There were no broker non-votes with respect to the proposal. 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.
27
Item 4A. Executive Officers of Ford
Our executive officers and their positions and ages at March 15, 2001,
unless otherwise noted, are shown in the table below:
Present Position
Name Position Held Since Age
---- -------- ---------- ---
Jacques Nasser* President and January 1999 53
Chief Executive Officer
(also a Director)
W. Wayne Booker Vice Chairman November 1996 66
James D. Donaldson Group Vice President- January 2000 58
Global Business Development
Carlos E. Mazzorin Group Vice President- January 2000 59
Global Purchasing and
South America
James J. Padilla Group Vice President- January 2000 54
Global Manufacturing
Richard Parry-Jones Group Vice President- January 2000 49
Global Product Development
and Quality
Wolfgang Reitzle Group Vice President- Premier March 1999 51
Automotive Group
Robert L. Rewey Group Vice President- January 2000 62
Global Consumer Services and
North America
John M. Rintamaki Group Vice President and January 2000 59
Chief of Staff
Henry D. G. Wallace Group Vice President and January 2000 55
Chief Financial Officer
Elizabeth S. Acton Vice President and Treasurer October 2000 49
Marvin W. Adams Vice President-Chief December 2000 43
Information Officer
Richard N. Beattie Vice President-Investor September 2000 46
Relations
Gurminder S. Bedi Vice President- January 2000 53
North American Truck
William W. Boddie Vice President- January 2000 55
Global Core Engineering
28
Item 4A. Executive Officers of Ford (Continued)
Present Position
Name Position Held Since Age
---- -------- ---------- ---
Mei Wei Cheng Vice President- January 1999 51
(President, Ford
Motor (China) Ltd.)
Susan M. Cischke Vice President- Environmental January 2001 47
and Safety Engineering
William J. Cosgrove Vice President July 1999 55
(Chief of Staff and Chief
Financial Officer, Premier
Automotive Group)
Terrell M. de Jonckheere Vice President-Ford South January 2000 56
America Operations
Mark Fields Vice President December 1999 39
Karen C. Francis** Vice President - April 2001 40
ConsumerConnect
Louise K. Goeser Vice President-Quality March 1999 47
Janet M. Grissom Vice President- January 1998 51
Washington Affairs
Elliott S. Hall Vice President- July 1998 62
Dealer Development
Lloyd E. Hansen Vice President and Controller October 2000 52
Earl J. Hesterberg Vice President- June 1999 47
(Vice President, Marketing,
Sales and Service, Ford of
Europe, Inc.)
Mark W. Hutchins Vice President- July 1998 55
(President, Lincoln and Mercury)
I. Martin Inglis Vice President- Ford January 2000 50
North America
Michael D. Jordan Vice President- January 1999 54
(President, Automotive Consumer
Services Group)
Brian P. Kelley Vice President- Global March 2001 40
Consumer Services
Janet E. Klug Vice President - Global Marketing March 2001 41
Vaughn A. Koshkarian Vice President-Ford Asia January 2000 60
Pacific Operations
29
Item 4A. Executive Officers of Ford (Continued)
Present Position
Name Position Held Since Age
---- -------- ---------- ---
Roman J. Krygier Vice President- January 1999 58
Powertrain Operations
Martin Leach Vice President- January 2000 43
(VP, Product Development,
Ford of Europe, Inc.)
Kathleen A. Ligocki Vice President-Mexico January 2001 44
(President and CEO)
Malcolm S. Macdonald Vice President-Finance October 2000 60
and Treasury Matters
J.C. Mays Vice President-Design October 1997 46
David L. Murphy Vice President- January 1999 55
Human Resources
James G. O'Connor Vice President June 1998 58
(President, Ford Division)
Helen O. Petrauskas Vice President-Environmental March 1983 56
and Safety Engineering
Dennis E. Ross Vice President and October 2000 50
General Counsel
Shamel T. Rushwin Vice President-Vehicle March 1999 53
Operations
Nicholas V. Scheele Vice President- February 1999 57
(Chairman, Ford of Europe, Inc.)
Gerhard F. A. Schmidt** Vice President - Research April 2001 55
Anne Stevens** Vice President - North America April 2001 52
Assembly Operations
Frank M. Taylor Vice President- Material July 1999 53
Planning and Logistics
Chris P. Theodore Vice President- North January 2000 50
America Car
David W. Thursfield Vice President- January 2000 55
(President and CEO,
Ford of Europe, Inc.)
Alex P. Ver Vice President- Advanced January 2000 54
Manufacturing Engineering
30
Item 4A. Executive Officers of Ford (Continued)
Present Position
Name Position Held Since Age
---- -------- ---------- ---
Jason H. Vines Vice President- February 2000 41
Communications
Donald A. Winkler Vice President- October 1999 52
(Chairman and CEO, Ford
Motor Credit Company)
James A. Yost Vice President-Strategy December 2000 51
Martin B. Zimmerman Vice President- January 1999 54
Governmental Affairs
Rolf Zimmermann** Vice President - Craftsmanship April 2001 54
and Launch, Ford of Europe
__________________
* Also a member of the Finance Committee and the Nominating and Governance
Committee of the Board of Directors.
** Appointment to be effective April 1, 2001.
All of the above officers, except those noted below, have been employed by
Ford or its subsidiaries in one or more capacities during the past five years.
Described below are the positions (other than those with Ford or its
subsidiaries) held by those officers who have not been with Ford or its
subsidiaries for five years:
o Mr. Adams was Executive Vice President, Bank One Operations and Technology,
Bank One from February 1997 until December 2000. From June 1996 until
February 1997 he was Chief Information Officer of Frontier Communications
Corporation and from April 1994 to June 1996 he served as President, Bank
One Financial Card Services Corporation.
o Mr. Cheng was President and Regional Executive of GE Appliances Ltd. in
Hong Kong from October 1996 until January 1998. From September 1994 until
September 1996 he was President of General Electric China.
o Ms. Cischke was Senior Vice President, Regulatory Affairs and Passenger Car
Operations, DaimlerChrysler from October 1999 until January 2001. From
December 1996 until September 1999, she served as Vice President, Vehicle
Certification, Compliance and Safety Affairs, DaimlerChrysler.
o Ms. Francis was Managing Director and Chief Marketing Officer, Internet
Capital Group from May 2000 until April 2001. From 1998 until May 2000 she
served as General Manager, Oldsmobile, General Motors Corporation.
o Ms. Goeser served as General Manager, Refrigeration Product Team Whirlpool
Corporation, Whirlpool North American Appliance Group, from September 1996
until March 1999. From January 1994 until September 1996, she served as
Vice President, Corporate Quality, Whirlpool Corporation.
o Ms. Ligocki served as Vice President, Strategy and Worldwide Sales, United
Technologies Automotive from February 1997 to August 1998. From June 1996
to February 1997 she served as Vice President and General Manager, United
Technologies Motor Systems. From March 1996 to April 1996 she was Senior
Vice President and Chief Financial Officer, Walt Disney Imagineering and
from October 1994 until March 1996 she served as Director, Manufacturing
and Purchasing, United Technologies Carrier Corporation.
31
Item 4A. Executive Officers of Ford (Continued)
o Mr. Kelley served as Vice President and General Manager for Sales and
Distribution with General Electric's Appliance Division from January 1997
until June 1999. From January 1995 until January 1997 he served as General
Manager, Laundry Products, General Electric's Appliance Division and as
Marketing Director, GE Brands Worldwide, General Electric Appliance
Division from January 1994 until January 1995.
o Ms. Klug served as Senior Vice President, Account Director, Lou Burnett
Advertising from 1997 until July 1998. From 1994 until July 1997, she
served as Vice President, Account Director, Lou Burnett Advertising.
o Mr. Mays was Vice President of Design Development at SHR Perceptual
Management in Scottsdale, Arizona from 1995 to October 1997. Prior to that
he was design director responsible for worldwide design strategy,
development and execution for Audi AG.
o Dr. Reitzle served as a member of the Board of Management of BMW AG, Market
and Product from March 1998 to February 1999. He served as Chairman of
Rover Group Board from October 1995 to March 1997 and was a member of the
Board of Management of BMW AG, Research and Development from July 1987 to
October 1995.
o Mr. Rushwin served as Vice President-International Manufacturing and
Minivan Assembly Operations at DaimlerChrysler AG and its predecessors from
October 1994 until March 1999.
o Dr. Schmidt served as Senior Vice President, Vehicle Integration, BMW from
August 2000 until April 2001. He was Senior Vice President, Powertrain
Development, BMW from 1990 until August 2000.
o Mr. Taylor was Executive Director, Production Control and Logistics -
General Motors Corporation Powertrain Group from March 1994 to July 1999.
o Mr. Theodore most recently was Senior Vice President-Platform Engineering
at DaimlerChrysler AG and its predecessors from January 1998 until March
1999. His prior positions at DaimlerChrysler AG were General Manager-Small
Car Platform Engineering from 1996 through December 1997 and General
Manager-Minivan Platform Engineering from 1992 through 1996.
o Mr. Vines served as Vice President - External Affairs, Nissan North America
from April 1998 until February 2000. From 1993 until 1995 while an employee
of Chrysler Corporation, he served as Public Relations Executive with the
American Automobile Manufacturers Association. From 1995 to April 1998 he
held a variety of labor relations, domestic/international public relations,
speechwriting and internal communication positions with Chrysler
Corporation.
o Mr. Winkler was Chairman and CEO of Finance One, a finance subsidiary of
Bank One Corporation and served as Executive Vice President of Bank One
Corporation from 1993 to October 1999.
Under Ford's By-Laws, the executive officers are elected by the Board of
Directors at the Annual Meeting of the Board of Directors held for this purpose.
Each officer is elected to hold office until his or her successor is chosen or
as otherwise provided in the By-Laws.
32
PART II
Item 5. Market for Ford's Common Stock and Related Stockholder Matters
- ----------------------------------------------------------------------
Our Common Stock is listed on the New York and Pacific Coast Stock
Exchanges in the United States and on certain stock exchanges in Belgium,
France, Germany, Switzerland and the United Kingdom.
The table below shows the high and low sales prices for our Common Stock
and the dividends we paid per share of Common and Class B Stock for each
quarterly period in 2000 and 1999.
2000 1999
----------------------------------------- ------------------------------------------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
------- ------- ------- ------- ------- ------- ------- -------
Common Stock price per share*
High $30.33 $31.46 $29.88 $27.00 $36.54 $37.30 $32.22 $30.16
Low 22.12 23.08 23.63 21.69 30.36 28.92 25.42 26.65
Dividends per share of
Common and Class B Stock* $0.286 $0.286 $0.286 $0.30 $0.263 $0.263 $0.263 $0.286
___________________________
* New York Stock Exchange composite interday prices as provided by the
www.NYSEnet.com price history database. All prices and dividends prior to August
9, 2000 have been adjusted to reflect the effects of the Value Enhancement Plan
and all prices prior to June 30, 2000 have been adjusted to reflect the Visteon
spin-off.
As of February 26, 2001, stockholders of record of Ford included 180,523
holders of Common Stock (which number does not include 38,743 former holders of
old Ford Common Stock who have not yet tendered their shares pursuant to the
VEP) and 109 holders of Class B Stock.
During 2000, we sold 500,520 shares of our Common Stock in private
transactions that were not registered with the Securities and Exchange
Commission. These transactions were exempt from registration requirements
because they were private placements under Section 4(2) of the Securities Act of
1933, as amended. These shares were sold in several, unrelated transactions to
owners of an automotive dealership, automotive recycling businesses, and other
businesses in exchange for those businesses. The consideration we received for
the shares was equal to the market value of the shares at the time of the
transactions.
33
Item 6. Selected Financial Data
- -------------------------------
The following tables set forth selected financial data and other data
concerning Ford for each of the last five 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/(loss) $ 3,467 $ 7,237 $22,071 $ 6,920 $ 4,446
======= ======= ======= ======= =======
Total Company Data Per Share of Common
and Class B Stock d/
Basic:
Income/(loss) from continuing operations $3.66 $5.38 $17.59 $5.32 $3.40
Income/(loss) before cumulative effects
of changes in accounting principles 2.34 5.99 18.17 5.75 3.73
Net income/(loss) 2.34 5.99 18.17 5.75 3.73
Diluted:
Income/(loss) from continuing operations $3.59 $5.26 $17.19 $5.20 $3.32
Income/(loss) before cumulative effects
of changes in accounting principles 2.30 5.86 17.76 5.62 3.64
Net income/(loss) 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
- - - - - -
a/ 1998 includes a non-cash gain of $15,955 million that resulted from Ford's
spin-off of The Associates.
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 Associates' Common
Stock.
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 our Value Enhancement Plan, and The
Associates Spin-off.
e/ Adjusted for the Value Enhancement Plan effected in August 2000, cash
dividends were $1.16 per share in 2000.
34
Item 6. Selected Financial Data (Continued)
SUMMARY OF OPERATIONS
(continued)
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.
35
Item 6. Selected Financial Data (Continued)
SUMMARY OF VEHICLE UNIT SALES a/
(in thousands) 2000 1999 1998 1997 1996
---- ---- ---- ---- ----
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 "where sold" basis
and include sales of all Ford-badged units, as well as units manufactured
by Ford and sold to other manufacturers.
36
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- -------------
In addition to specific explanations discussed below, comparisons between our
2000 and 1999 fourth quarter and full year results are affected by the following
important events:
o On August 7, 2000, we announced the final results of our
recapitalization, known as our 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. See Note 3 of our Notes to Consolidated Financial
Statements for a description of the effect of the VEP on earnings per
share.
o On June 30, 2000, we purchased the Land Rover business from the BMW
Group. Land Rover's results and financial condition are included in
our financial statements on a consolidated basis beginning in the
third quarter of 2000.
o On June 28, 2000, we distributed 130 million shares of Visteon
Corporation, which represented our 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. Our third and fourth quarter 2000 results and
financial condition exclude completely Visteon's results and financial
condition.
o On March 31, 1999, we purchased AB Volvo's worldwide passenger car
business ("Volvo Car"). Volvo Car's results and financial condition
have been included in our financial statements on a consolidated basis
since the second quarter of 1999.
FOURTH QUARTER 2000 RESULTS OF OPERATIONS
Our worldwide net income was $1,077 million in the fourth quarter of 2000,
or $0.57 per diluted share of Common and Class B Stock. In the fourth quarter of
1999, earnings from continuing operations were $1,711 million, or $1.39 per
diluted share. Worldwide sales and revenues were $42.6 billion in the fourth
quarter of 2000, 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 North America in response to weaker demand.
37
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Results of our operations by business sector for the fourth quarter of 2000
and 1999 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 Company net income $1,077 $1,806 $(729)
====== ====== =====
Automotive Sector
- -----------------
Worldwide earnings for our Automotive sector were $629 million in the
fourth quarter of 2000 on sales of $35.1 billion. Earnings in the fourth quarter
of 1999 were $1,354 million on sales of $37.3 billion.
Details of our Automotive sector earnings for the fourth quarter of 2000
and 1999 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 decrease in our fourth quarter Automotive sector earnings in North
America reflects primarily lower industry volume and market share and less
favorable product mix.
The improved fourth quarter results in Europe reflect continued cost
reductions. The improvement in South America reflects primarily cost reductions
and improved product mix.
38
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Financial Services Sector
- -------------------------
Details of our 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 Credit's consolidated net income in the fourth quarter of 2000 was
$410 million, up $101 million or 33% from 1999. The increase in earnings
reflects primarily higher volume and an improved net financing margin, offset
partially by higher credit losses.
Earnings at Hertz in the fourth quarter of 2000 were $56 million (of which
$45 million was Ford's share), compared with earnings of $60 million (of which
$49 million was Ford's share) a year ago. The profit decline reflects increased
pricing competition in the U.S. car rental and equipment rental businesses.
FULL-YEAR 2000 RESULTS OF OPERATIONS
Our worldwide revenues were $170.1 billion in 2000, up $9.4 billion from
1999. We 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 our operations by business sector for 2000, 1999, and 1998 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
39
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
The following unusual items were included in our 2000, 1999, and 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 our 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 our 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 our net exposure in Kia Motors
Company in the fourth quarter (42) $(44) (86)
- - Charge in the fourth quarter to transfer our
Batavia, Ohio transmission plant to a new
joint venture company formed by
ZF Friedrichshafen AG and us to manufacture
continuously variable transmissions (73) (73)
------- ------- ---- ---- ------- -------
Total 1998 unusual items $ (340) $ (135) $(81) $(44) $ (600) $15,949
======= ======= ==== ==== ======= =======
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.
40
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
We established and communicated the financial milestones listed below for
2000. Our results against these milestones, excluding the unusual items
described above, are listed below.
2000 Milestone Actual Result Over/(Under) 1999
-------------- ------------- -----------------
Total Company
-------------
- Total Shareholder
Returns Top quartile of S&P 500 over time -16%
- Revenue Grow $5 billion $170 billion $9 billion
Automotive
----------
- North America Record earnings $5,032 million $(563) million
- Europe Improve results $(35) million $(45) million
- South America Improve results $(240) million $204 million
- Rest of World Improve results $125 million $35 million
- Total Costs 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
Financial Services
------------------
- 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
AUTOMOTIVE SECTOR RESULTS OF OPERATIONS
Details of our Automotive sector earnings from continuing operations for
2000, 1999, and 1998 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
======= ====== ======
2000 Compared with 1999
- -----------------------
Worldwide earnings from continuing operations for our Automotive sector
were $3,624 million in 2000 on sales of $141 billion, compared with $4,986
million in 1999 on sales of $135 billion. The decrease in earnings reflects
asset impairment and restructuring charges in Europe and lower earnings in North
America, offset partially by improved results in South America. Adjusted for
constant volume and mix, our total costs in the Automotive sector declined
$500 million compared with 1999.
Our Automotive sector earnings from continuing operations in North America
were $4,886 million in 2000 on sales of $103.9 billion, compared with $5,418
million in 1999 on sales of $99.2 billion. The earnings deterioration reflects
primarily costs associated with the Firestone tire recall and higher warranty
41
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
costs related to our 3.8 liter engine, offset partially by increased volume. The
after-tax return on sales for our Automotive sector in North America was 4.8% in
2000, down 7/10 of a percentage point from 1999.
In 2000, approximately 17.8 million new cars and trucks were sold in the
United States, up from 17.4 million units in 1999. Our share of those unit sales
was 23.7% in 2000, down 1/10 of a percentage point from a year ago.
Our Automotive sector losses in Europe were $1,130 million from continuing
operations in 2000, compared with earnings of $50 million a year ago. The
decline reflects primarily the second quarter 2000 charge of $1,019 million
related to asset impairment and restructuring costs for Ford brand operations
(see Note 19 of our Notes to Consolidated Financial Statements).
In 2000, approximately 17.8 million new cars and trucks were sold in our
nineteen primary European markets, down from 18.2 million units in 1999. Our
share of those unit sales was 10% in 2000, down 2/10 of a percentage point from
a year ago, reflecting primarily an increase in market share related to our
acquisitions of Volvo Car and Land Rover, offset by a decrease in market share
of Ford brand. The decrease in our Ford brand share reflects primarily continued
aggressive competition.
Our Automotive sector in South America lost $240 million from continuing
operations in 2000, compared with a loss of $444 million in 1999. The
improvement reflects primarily higher vehicle margins resulting from cost
reductions and improved product mix and pricing.
In 2000, approximately 1.5 million new cars and trucks were sold in Brazil,
compared with 1.3 million in 1999. Our share of those unit sales was 9.1% in
2000, down 6/10 of a percentage point from a year ago. The decline in market
share reflects increased competition.
Automotive sector earnings from continuing operations outside North
America, Europe, and South America ("Rest of World") were $108 million in 2000,
compared with earnings of $87 million in 1999.
New car and truck sales in Australia, our largest market in Rest of World,
were approximately 788,000 units in 2000, essentially unchanged from a year ago.
In 2000, our combined car and truck market share in Australia was 15.4%, down
1.1 percentage points from 1999, reflecting primarily strong competitive
pressures.
1999 Compared with 1998
- -----------------------
Worldwide earnings from continuing operations for our Automotive sector
were $4,986 million in 1999 on sales of $135 billion, compared with $4,049
million in 1998 on sales of $118 billion. The increase in earnings reflected
improved results in North America, offset partially by lower earnings in all
other geographic markets. Adjusted for constant volume and mix, our total costs
in the Automotive sector declined $1 billion compared with 1998.
Our Automotive sector earnings from continuing operations in North America
were $5,418 million in 1999 on sales of $99.2 billion, compared with $3,997
million in 1998 on sales of $86.7 billion. The earnings improvement reflected
primarily increased sales volume, an improved mix of light trucks and luxury
cars, lower costs, and the non-recurrence of 1998's unusual items, 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. The after-tax return on sales for our Automotive
sector in North America was 5.5% in 1999, up 8/10 of a percentage point from
1998.
In 1999, approximately 17.4 million new cars and trucks were sold in the
United States, up from 16 million units in 1998. Our share of those unit sales
was 23.8%, down 8/10 of a percentage point. The
42
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
decrease in market share reflected primarily capacity constraints on several key
products due to strong demand in the United States market.
Our Automotive sector earnings from continuing operations in Europe were
$50 million in 1999, $101 million worse than in 1998. The deterioration was
explained by lower market share for Ford-branded vehicles, primarily Mondeo and
Fiesta, and unfavorable vehicle mix, offset partially by the non-recurrence of
employee separation costs in 1998, lower taxes, the impact of unusual items in
1999, and the addition of Volvo Car.
In 1999, approximately 18.2 million new cars and trucks were sold in our
nineteen primary European markets, up from 17.2 million units in 1998. Our share
of those unit sales was 10.2% in 1999, up 2/10 of a percentage point from the
prior year. The increase in our share was more than explained by the addition of
Volvo Car.
Our Automotive sector in South America lost $444 million from continuing
operations in 1999, compared with losses of $278 million in 1998. The decline in
earnings reflected primarily lower industry sales, lower market share in Brazil,
weak economic conditions, devaluation of the Brazilian currency, and increased
competition, offset partially by lower costs and the non-recurrence of employee
separation costs in 1998.
In 1999, approximately 1.3 million new cars and trucks were sold in Brazil,
compared with 1.6 million in 1998. Our share of those unit sales was 9.7% in
1999, down 3.4 percentage points from 1998, reflecting increased competition.
Automotive sector earnings from continuing operations in Rest of World were
$87 million in 1999, down $92 million from 1998. The decline in earnings
reflected primarily higher taxes and lower sales volume, offset partially by our
share of the profit improvement at Mazda and the non-recurrence of a write-off
of our net exposure to Kia Motors Company in 1998.
New car and truck sales in Australia, our largest market in Rest of World,
were approximately 787,000 units in 1999, down 3% from 1998. In 1999, our
combined car and truck market share in Australia was 16.5%, up 4/10 of a
percentage point.
FINANCIAL SERVICES SECTOR RESULTS OF OPERATIONS
Earnings of our Financial Services sector consist primarily of two
segments, Ford Credit and Hertz. Details of our 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
43
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
2000 Compared with 1999
- -----------------------
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 earnings reflects
primarily improved net financing margins and a higher level of receivables,
offset partially by higher credit losses and operating costs.
Earnings at Hertz in 2000 were $358 million (of which $292 million was
Ford's share). In 1999, Hertz had earnings of $336 million (of which $273
million was Ford's share). The increase in earnings reflects primarily strong
volume-related performance, offset partially by downward pricing pressure and
higher interest costs.
1999 Compared with 1998
- -----------------------
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 earnings reflected
primarily higher financing volumes and improved credit loss performance, offset
partially by increased operating costs. Higher operating costs reflected
primarily operating costs of recent acquisitions, costs associated with the
restructuring of financing operations, and employee separation programs.
Earnings at Hertz in 1999 were $336 million (of which $273 million was
Ford's share). In 1998, Hertz had earnings of $277 million (of which $224
million was Ford's share). The increase in earnings reflected primarily strong
demand, improved car rental pricing, and continuing cost efficiency
improvements.
LIQUIDITY AND CAPITAL RESOURCES
Automotive Sector
- -----------------
At December 31, 2000, our Automotive sector had $16.5 billion of cash and
marketable securities, down $5.2 billion from December 31, 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, we 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, we expect to incur cash outlays of approximately $5
billion for employee compensation payments (primarily profit sharing), the final
payment to AB Volvo for our acquisition of Volvo Car, share repurchases, and our
acquisition of the minority interest in Hertz.
In 2000, we spent $7.4 billion for capital goods, such as machinery,
equipment, tooling, and facilities, used in our Automotive sector. This is up
$324 million from 1999, reflecting primarily the addition of Land Rover. Capital
expenditures were 5.2% of sales in 2000, unchanged from a year ago.
Our 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, 2000, our Automotive sector had total debt of $12 billion,
up $300 million. Debt at year-end 2000 was 39% of our total capitalization (that
is, the sum of our stockholders' equity and Automotive debt), compared with 30%
of total capitalization at year-end 1999. The increase reflected primarily lower
stockholders' equity, as explained above.
44
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
For a discussion of the credit and other financial support facilities for
our Automotive sector at December 31, 2000, see Note 13 (page FS-22) of our
Notes to Consolidated Financial Statements.
Financial Services Sector
- -------------------------
At December 31, 2000, our Financial Services sector had cash and marketable
securities totaling $1.5 billion, down $111 million from December 31, 1999.
Finance receivables and net investment in operating leases were $171.8
billion at December 31, 2000, up $16.0 billion from December 31, 1999,
reflecting higher volume.
Total debt was $153.5 billion at December 31, 2000, up $13.6 billion from
December 31, 1999. Outstanding commercial paper at December 31, 2000 totaled
$42.3 billion at Ford Credit and $2.3 billion at Hertz, with an average
remaining maturity of 35 days and 18 days, respectively.
For a discussion of the credit and other financial support facilities for
our Financial Services sector at December 31, 2000, see Note 13 (page FS-22) of
our Notes to Consolidated Financial Statements.
HERTZ PURCHASE
In March 2001, through a tender offer and a merger transaction, we acquired
(for a total price of about $750 million) the common stock of Hertz that we did
not own, which represented about 18% of the economic interest in Hertz. As a
result, Hertz has become an indirect, wholly-owned subsidiary.
NEW ACCOUNTING STANDARD
We will adopt Statement of Financial Accounting Standards (SFAS) 133,
"Accounting for Derivative Instruments and Hedging", on January 1, 2001, as
described in Note 1 (page FS-10) of our Notes to Consolidated Financial
Statements.
OUTLOOK
Industry Sales Volumes
- ----------------------
Our outlook for car and truck (including heavy trucks) industry sales in 2001 in
our major markets is as follows:
United States - between 16.0 million and 16.5 million units, compared with the 17.8 million units
sold in 2000
Europe - approximately 17.7 million units, compared with the 17.8 million units sold in 2000
(both figures based on 19 markets)
Brazil - approximately 1.6 million units, compared with the 1.5 million units sold in 2000
Australia - approximately 780,000 units, compared with the 788,000 units sold in 2000
45
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
2001 Financial Milestones
- -------------------------
We have set and communicated certain financial milestones for 2001. While
we hope to achieve these goals, they should not be interpreted as projections,
expectations or forecasts of 2001 results. The financial milestones for 2001 are
as follows:
2001 Milestone
--------------
Total Company
-------------
- Total Shareholder Returns Top quartile of S&P 500 over time
- Revenue Grow $5 billion
Automotive
----------
- North America Achieve 4%+ return on sales
- Europe Achieve 1%+ return on sales
- South America Improve results
- Rest of World Achieve profitability
- Total Costs Reduce $1 billion (at constant volume and mix)
- Capital Spending Contain at $8 billion or less
Financial Services
------------------
- Ford Credit Improve returns
Grow earnings 10%
Risk Factors
- ------------
Statements included or incorporated by reference herein may constitute
"forward looking statements" 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 United States or Europe, resulting from slowing economic
growth; market acceptance of our new products; currency fluctuations; economic
difficulties in South America or Asia; higher fuel prices; a market shift from
truck sales in the United States; lower-than-anticipated residual values for
leased vehicles; labor or other constraints on our ability to restructure our
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.
46
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
- --------------------------------------------------------------------
OVERVIEW
We are exposed to a variety of market and asset risks, including the
effects of changes in foreign currency exchange rates, commodity prices,
interest rates, and specific asset risks. These risks affect our Automotive and
Financial Services sectors differently. We monitor and manage these exposures as
an integral part of our overall risk management program, which recognizes the
unpredictability of markets and seeks to reduce the potentially adverse effect
on our results.
The effect of changes in exchange rates, commodity prices, and interest
rates on our earnings generally has been small relative to other factors that
also affect earnings, such as unit sales and operating margins. For more
information on these financial exposures, see Notes 1 and 18 of our Notes to
Consolidated Financial Statements.
The market risks of our Automotive sector and the market and other risks
and capital adequacy of Ford Credit, which comprises substantially all of our
Financial Services sector, are discussed and quantified below.
Automotive Market Risk
Our Automotive sector frequently has expenditures and receipts denominated
in foreign currencies, including the following: purchases and sales of finished
vehicles and production parts; debt and other payables; subsidiary dividends;
and investments in affiliates. These expenditures and receipts create exposures
to changes in exchange rates. We also are exposed to changes in prices of
commodities used in our Automotive sector.
Foreign Currency Risk
- ---------------------
We use derivative financial instruments to hedge assets, liabilities and
firm commitments denominated in foreign currencies. Our hedging policy is
defensive, based on clearly defined guidelines. Speculative actions are not
permitted. We do not use complex derivative instruments. We use a value-at-risk
("VAR") analysis to evaluate our exposure to changes in foreign currency
exchange rates. The primary assumptions used in the VAR analysis are as follows:
o A Monte Carlo simulation model is used to calculate changes in the
value of currency derivative instruments (e.g., forwards and options)
and all significant underlying exposures. The VAR analysis includes an
18-month exposure and derivative hedging horizon and a one-month
holding period.
o The VAR analysis calculates the potential risk, within a 99%
confidence level, on cross-border currency cash flow exposures,
including the effects of foreign currency derivatives. (Translation
exposures are not included in the VAR analysis). The Monte Carlo
simulation model uses historical volatility and correlation estimates
of the underlying assets to produce a large number of future price
scenarios which have a statistically lognormal distribution.
o Estimates of correlations and volatilities are drawn primarily from
the JP Morgan RiskMetricsTM datasets.
47
Item 7A. Quantitative and Qualitative Disclosures About Market Risk (Continued)
Based on our overall currency exposure (including derivative positions)
during 2000, the risk during 2000 to our pre-tax cash flow from currency
movements was on average less than $300 million, with a high of $350 million and
a low of $275 million. At December 31, 2000, currency movements are projected to
affect our pre-tax cash flow over the next 18 months by less than $300 million,
within a 99% confidence level. Compared with our projection at December 31,
1999, the 2000 VAR amount is approximately $125 million higher, primarily
because of significantly increased currency exchange rate volatility and the
inclusion of Land Rover currency exposures and hedges.
Commodity Price Risk
- --------------------
We enter into commodity forward and option contracts. Such contracts are
executed to offset our exposure to the potential change in prices mainly for
various non-ferrous metals (e.g., aluminum) used in the manufacturing of
automotive components. The fair value liability of such contracts, excluding the
underlying exposures, as of December 31, 2000 and 1999 was approximately $56
million and $223 million, respectively. The potential change in the fair value
of commodity forward and option contracts, assuming a 10% change in the
underlying commodity price, would be approximately $280 million and $300 million
at December 31, 2000 and 1999, respectively. This amount excludes the offsetting
impact of the price change in the physical purchase of the underlying
commodities.
FORD CREDIT MARKET AND OTHER RISKS
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 risk-adjusted basis and products are priced consistent with these
risks.
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 billion 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.
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. This segment data are used to assist with product pricing to
ensure risk factors are appropriately considered. Data segmentation is 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.
48
Item 7A. Quantitative and Qualitative Disclosures About Market Risk (Continued)
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 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 would yield the highest
resale value, net of transportation cost. Lease extensions or early terminations
also may be offered to take advantage of seasonal resale patterns.
Financial Market Risk
- ---------------------
The goal of financial market risk management is to reduce the profit
volatility effect of changes in interest rates and currency exchange rates.
Interest rate and currency exposures are monitored and managed by Ford Credit as
an integral part of its overall risk management program, which recognizes the
unpredictability of financial markets and seeks to reduce potential adverse
effects on Ford Credit's operating results. Risk is reduced in two ways: 1)
through the use of funding instruments that have interest and maturity profiles
similar to the assets they are funding, and 2) through the use of interest rate
and foreign exchange derivatives. Ford Credit's derivatives strategy is
defensive; derivatives are not used for speculative purposes.
49
Item 7A. Quantitative and Qualitative Disclosures About Market Risk (Continued)
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 are used to change the interest
characteristics of the debt to match the interest rate characteristics of Ford
Credit's assets. This 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 Ford 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 interest rates.
Assuming an instantaneous increase of one percentage point in interest
rates applied to all financial assets, debt and hedging instruments, Ford
Credit's after-tax earnings would decline by $54 million over the ensuing
twelve-month period.
Currency Risk
Ford Credit generally manages assets and liabilities in local country
currency, thus eliminating exposure to exchange rate movements. When a different
currency is used, Ford Credit typically uses foreign currency agreements to
hedge specific debt instruments and intercompany loans. Ford Credit's earnings
in the ensuing twelve-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 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 perodic 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 both growth
and refinancing 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.
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),
50
Item 7A. Quantitative and Qualitative Disclosures About Market Risk (Continued)
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 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
13 of Notes to Consolidated 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.
FORD CREDIT CAPITAL ADEQUACY
Underlying Ford Credit's risk and capital management strategies is the need
to effectively leverage capital in a way that:
o Protects creditors against worst-case unexpected losses consistent
with Ford Credit's debt ratings.
o 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 established in addition
to credit and residual loss expectation factors included in pricing, they
protect creditors if actual losses exceed initial loss expectations.
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.
51
Item 7A. Quantitative and Qualitative Disclosures About Market Risk (Continued)
Quantifying Risk Through Stress Testing
- ---------------------------------------
As part of Ford Credit's capital adequacy study, the asset portfolio is
stress tested semiannually 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:
o 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.
o 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.
52
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
Our Financial Statements, the accompanying Notes and the Report of
Independent Accountants that are filed as part of this Report are listed under
Item 14. "Exhibits, Financial Statement Schedules, and Reports on Form 8-K" and
are set forth on pages FS-1 through FS-31 immediately following the signature
pages of this Report.
Selected quarterly financial data for us and our consolidated subsidiaries
for 2000 and 1999 is in Note 22 of our Notes to Consolidated Financial
Statements.
Item 9. Changes in and Disagreements With Accountants on Accounting and
- --------------------------------------------------------------------------------
Financial Disclosure
- --------------------
Not required.
PART III
Item 10. Directors and Executive Officers of Ford
- --------------------------------------------------
The information required by Item 10 regarding our directors is incorporated
by reference from the information under the captions "Election of Directors" and
"Management Stock Ownership" in our Proxy Statement. The information required by
Item 10 regarding our executive officers appears as Item 4A under Part I of this
Report.
Item 11. Executive Compensation
- --------------------------------
The information required by Item 11 is incorporated by reference from the
information under the following captions in our Proxy Statement: "Compensation
of Directors", "Compensation Committee Report on Executive Compensation",
"Compensation of Executive Officers", "Stock Options", "Performance Stock Rights
and Restricted Stock Units", "Stock Performance Graphs" and "Retirement Plans".
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
The information required by Item 12 is incorporated by reference from the
information under the caption "Management Stock Ownership" in our Proxy
Statement.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
The information required by Item 13 is incorporated by reference from the
information under the caption "Certain Relationships and Related Transactions"
in our Proxy Statement.
53
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- --------------------------------------------------------------------------
(a) 1. Financial Statements - Ford Motor Company and Subsidiaries
- ------------------------------------------------------------------
Consolidated Statement of Income for the years ended December 31, 2000,
1999, and 1998.
Consolidated Balance Sheet at December 31, 2000 and 1999.
Consolidated Statement of Cash Flows for the years ended December 31, 2000,
1999, and 1998.
Consolidated Statement of Stockholders' Equity for the years ended December
31, 2000, 1999, and 1998.
Notes to Consolidated Financial Statements
Report of Independent Accountants
The Consolidated Financial Statements, the Notes to Consolidated Financial
Statements and the Report of Independent Accountants listed above are filed as
part of this Report and are set forth on pages FS-1 through FS-31 immediately
following the signatures pages of this Report.
(a) 2. Financial Statement Schedules
- --------------------------------------
Designation Description
- ----------- -----------
Supplemental
Schedule Financial Statements of Subsidiary
Report of Independent Accountants
on Supplemental Schedule
The Financial Statement Schedule and the Report of Independent Accountants
on Supplemental Schedule listed above are filed as part of this Report and are
set forth on pages FSS-1 through FSS-___ immediately following page FS-31. The
schedules not filed are 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.
54
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
(a) 3. Exhibits
- -----------------
Designation Description Method of Filing
- ----------- ----------- ----------------
Exhibit 3-A Restated Certificate of Incorporation, Filed with this Report.
dated August 2, 2000.
Exhibit 3-B By-Laws as amended Filed as Exhibit 3-B to Ford's Quarterly
through July 14, 2000. Report on Form 10-Q for the quarter
ended June 30, 2000.*
Exhibit 4 Form of Deposit Agreement dated as of Filed as Exhibit 4-E to Ford's
October 29, 1992 among Ford, Registration Statement No. 33-53092.*
Chemical Bank, as Depositary,
and the holders from time to time of
Depositary Shares, each representing
1/2,000 of a share of Ford's
Series B Cumulative Preferred Stock.
Exhibit 10-A Amended and Restated Profit Filed as Exhibit 10-A to the Registrant's
Maintenance Agreement, dated as of Annual Report on Form 10-K for the
January 1, 1999, between Ford year ended December 31, 1998.*
and Ford Credit.
Exhibit 10-B Executive Separation Allowance Plan Filed with this Report.
as amended and restated through
December 18, 2000 for separations on
or after January 1, 1981.**
Exhibit 10-C Description of Ford practices regarding Filed as Exhibit 10-I to Ford's
club memberships for executives.** Annual Report on Form 10-K for the
year ended December 31, 1981.*
Exhibit 10-D Description of Ford practices regarding Filed as Exhibit 10-J to Ford's
travel expenses of spouses of certain Annual Report on Form 10-K for the
executives.** year ended December 31, 1980.*
Exhibit 10-E Deferred Compensation Plan for Filed as Exhibit 10-H-1 to Ford's
Non-Employee Directors, as amended Annual Report on Form 10-K for the
on July 11, 1991.** year ended December 31, 1991.*
Exhibit 10-E-1 Amendments to Deferred Compensation Plan Filed as Exhibit 10-G-1 to Ford's
for Non-Employee Directors, effective as of Annual Report on Form 10-K for the
January 1, 1996.** year ended December 31, 1995.*
Exhibit 10-E-2 Amendment to Deferred Compensation Plan Filed as Exhibit 10-G-2 to Ford's
for Non-Employee Directors, effective as of Annual Report on Form 10-K for the
November 14, 1996.** year ended December 31, 1996.*
Exhibit 10-F Benefit Equalization Plan, as Filed with this Report.
amended and restated as of
December 18, 2000.**
55
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
Designation Description Method of Filing
- ----------- ----------- ----------------
Exhibit 10-G Description of financial counseling Filed as Exhibit 10-N to Ford's
services provided to certain executives.** Annual Report on Form 10-K for the
year ended December 31, 1983.*
Exhibit 10-H Supplemental Executive Retirement Plan, Filed with this Report.
as restated and incorporating amendments
through December 18, 2000.**
Exhibit 10-I Restricted Stock Plan for Non-Employee Filed as Exhibit 10-P to Ford's
Directors adopted by the Board of Annual Report on Form 10-K for the
Directors on November 10, 1988, year ended December 31, 1988.*
and approved by the stockholders at
the 1989 Annual Meeting.**
Exhibit 10-I-1 Amendment to Restricted Stock Plan for Filed as Exhibit 10.1 to Ford's
Non-Employee Directors, effective as of Quarterly Report on Form 10-Q for the
August 1, 1996.** quarter ended September 30, 1996.*
Exhibit 10-J 1990 Long-Term Incentive Plan, Filed as Exhibit 10-R to Ford's
amended as of June 1, 1990.** Annual Report on Form 10-K for the
year ended December 31, 1990.*
Exhibit 10-J-1 Amendment to 1990 Long-Term Incentive Filed as Exhibit 10-P-1 to Ford's
Plan, effective as of October 1, 1990.** Annual Report on Form 10-K for the
year ended December 31, 1991.*
Exhibit 10-J-2 Amendment to 1990 Long-Term Incentive Filed as Exhibit 10.2 to Ford's
Plan, effective as of March 8, 1995.** Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995.*
Exhibit 10-J-3 Amendment to 1990 Long-Term Filed as Exhibit 10-M-3 to Ford's
Incentive Plan, effective as of Annual Report on Form 10-K for the
October 1, 1997.** year ended December 31, 1997.*
Exhibit 10-J-4 Amendment to 1990 Long-Term Filed as Exhibit 10-M-4 to Ford's
Incentive Plan, effective as of Annual Report on Form 10-K for the
January 1, 1998.** year ended December 31, 1997.*
Exhibit 10-K Description of Matching Gift Program for Filed as Exhibit 10-Q to Ford's
Non-Employee Directors.** Annual Report on Form 10-K for the
year ended December 31, 1991.*
Exhibit 10-L Non-Employee Directors Life Insurance Filed as Exhibit 10-O to Ford's
and Optional Retirement Plan Annual Report on Form 10-K for the
(as amended as of January 1, 1993).** year ended December 31, 1994.*
Exhibit 10-M Description of Non-Employee Directors Filed as Exhibit 10-S to Ford's
Accidental Death, Dismemberment and Annual Report on Form 10-K for the
Permanent Total Disablement Indemnity.** year ended December 31, 1992.*
56
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
Designation Description Method of Filing
- ----------- ----------- ----------------
Exhibit 10-N Agreement dated December 10, 1992 Filed as Exhibit 10-T to Ford's
between Ford and William C. Ford.** Annual Report on Form 10-K for the
year ended December 31, 1992.*
Exhibit 10-O Support Agreement dated as of October 1, Filed as Exhibit 10-T to Ford's
1993 between Ford and FCE Bank. Annual Report on Form 10-K for the
year ended December 31, 1993.*
Exhibit 10-O-1 Amendment No. 1 dated as of November Filed as Exhibit 10-R-1 to Ford's
15, 1995 to Support Agreement between Annual Report on Form 10-K for the
Ford and FCE Bank. year ended December 31, 1995.*
Exhibit 10-P Select Retirement Plan Filed with this Report.
as amended and restated through
January 1, 2000.**
Exhibit 10-Q Deferred Compensation Plan, Filed as Exhibit 10-R to Ford's.
as amended and restated as of Annual Report on Form 10-K for the
January 1, 2000.** year ended December 31, 1999.*
Exhibit 10-Q-1 Amendment to Deferred Filed as Exhibit 4.2 to Ford's
Compensation Plan effective Registration Statement No. 333-
as of April 12, 2000.** 56660.*
Exhibit 10-Q-2 Amendment to Deferred Filed as Exhibit 4.3 to Ford's
Compensation Plan effective Registration Statement No. 333-
as of June 1, 2000.** 56660.*
Exhibit 10-R Annual Incentive Compensation Plan, Filed as Exhibit 10-T to Ford's
as amended and restated as of Annual Report on Form 10-K for the
January 1, 2000.** year ended December 31, 1999.*
Exhibit 10-S 1998 Long-Term Incentive Plan, Filed as Exhibit 10-W to Ford's
effective as of January 1, 1998.** Annual Report on Form 10-K for the
year ended December 31, 1997.*
Exhibit 10-S-1 Amendment to 1998 Long-Term Incentive Filed as Exhibit 10-W-1 to Ford's
Plan, effective as of January 1, 1999.** Annual Report on Form 10-K for
the year ended December 31, 1998.*
Exhibit 10-S-2 Amendment to 1998 Long-Term Incentive Filed as Exhibit 10-U-2 to Ford's
Plan, effective as of March 10, 2000.** Annual Report on Form 10-K for the
year ended December 31, 1999.*
Exhibit 10-T Agreement dated January 13, 1999 Filed as Exhibit 10-X to Ford's
between Ford and Edsel B. Ford II.** Annual Report on Form 10-K for
the year ended December 31, 1998.*
Exhibit 10-U Description of March 2001 agreement Filed with this Report.
with Robert L. Rewey .**
Exhibit 10-V Description of Agreement dated Filed with this Report.
March 18, 2001 with Wolfgang Reitzle.**
57
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
Designation Description Method of Filing
- ----------- ----------- ----------------
Exhibit 12 Computation of Ratio of Earnings to Filed with this Report.
Combined Fixed Charges and Preferred
Stock Dividends.
Exhibit 21 List of Subsidiaries of Ford Filed with this Report.
as of March 15, 2001.
Exhibit 23 Consent of Independent Certified Public Filed with this Report.
Accountants.
Exhibit 24 Powers of Attorney. Filed with this Report.
- ---------------------------
* Incorporated by reference as an exhibit to this Report (file number
reference 1-3950, unless otherwise indicated)
** Management contract or compensatory plan or arrangement
Instruments defining the rights of holders of certain issues of long-term
debt of Ford and of certain consolidated subsidiaries and of any unconsolidated
subsidiary, for which financial statements are required to be filed with this
Report, have not been filed as exhibits to this Report because the authorized
principal amount of any one of such issues does not exceed 10% of the total
assets of Ford and our subsidiaries on a consolidated basis. Ford agrees to
furnish a copy of each of such instruments to the Commission upon request.
58
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
(b) Reports on Form 8-K
- ------------------------
Ford filed the following Current Reports on Form 8-K during the quarter
ended December 31, 2000:
Current Report on Form 8-K dated October 3, 2000 included information
relating to Ford's September 2000 U.S. sales results and Ford's North American
production and overseas sales schedule.
Current Report on Form 8-K dated October 18, 2000 included information
relating to Ford's third quarter 200 financial results.
Current Report on Form 8-K dated November 1, 2000 included information
relating to Ford's North American production and overseas sales schedule.
Current Report on Form 8-K dated November 1, 2000 included information
relating to Ford's October 2000 U.S. sales results.
Current Report on Form 8-K dated December 1, 2000 included information
relating to Ford's November 2000 U.S. sales results and Ford's North American
production and overseas sales schedules.
Current Report on Form 8-K dated December 21, 2000 included information
relating to Ford's vehicle production in the fourth quarter of 2000 and first
quarter of 2001.
59
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, Ford has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FORD MOTOR COMPANY
By: Henry D. G. Wallace*
-------------------------
(Henry D. G. Wallace)
Group Vice President and
Chief Financial Officer
Date: March 21, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of Ford and in
the capacities on the date indicated.
Signature Title Date
--------- ----- ----
William Clay Ford, Jr.* Director, Chairman of the
- ----------------------------- Board and Chairman of the
(William Clay Ford, Jr.) Environmental and Public
Policy Committee, the Finance
Committee and the Nominating
and Governance Committee
Jacques Nasser* Director and President
- ----------------------------- and Chief Executive Officer
(Jacques Nasser) (principal executive officer)
John R. H. Bond* Director
- -----------------------------
(John R. H. Bond)
Michael D. Dingman* Director and March 21, 2001
- ----------------------------- Chairman of the
(Michael D. Dingman) Compensation
Committee
Edsel B. Ford II* Director
- -----------------------------
(Edsel B. Ford II)
William Clay Ford* Director
- -----------------------------
(William Clay Ford)
Irvine O. Hockaday, Jr.* Director and
- ----------------------------- Chairman of the
(Irvine O. Hockaday, Jr.) Audit Committee
60
Signature Title Date
--------- ----- ----
Marie-Josee Kravis* Director
- -----------------------------
(Marie-Josee Kravis)
Ellen R. Marram* Director
- -----------------------------
(Ellen R. Marram)
Homer A Neal* Director
- -----------------------------
(Homer A. Neal)
Jorma Ollila* Director
- -----------------------------
(Jorma Ollila)
Carl E. Reichardt* Director March 21, 2001
- -----------------------------
(Carl E. Reichardt)
Robert E. Rubin* Director
- -----------------------------
(Robert E. Rubin)
John L. Thornton* Director
- -----------------------------
(John L. Thornton)
Henry D. G. Wallace* Group Vice President and
- ----------------------------- Chief Financial Officer
(Henry D. G. Wallace) (principal financial officer)
Lloyd E. Hansen* Vice President and
- ----------------------------- Controller
(Lloyd E. Hansen) (principal accounting officer)
*By: /s/ Peter Sherry, Jr.
---------------------
(Peter Sherry, Jr.)
Attorney-in-Fact
61
Ford Motor Company and Subsidiaries
HIGHLIGHTS
----------
Fourth Quarter Full Year
---------------------------- ---------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
Worldwide vehicle unit sales of
cars and trucks (in thousands)
- - North America 1,209 1,280 4,933 4,787
- - Outside North America 631 639 2,491 2,433
----- ----- ----- -----
Total 1,840 1,919 7,424 7,220
===== ===== ===== =====
Sales and revenues (in millions)
- - Automotive $ 35,107 $ 37,285 $ 141,230 $ 135,073
- - Financial Services 7,480 6,637 28,834 25,585
--------- --------- --------- ---------
Total $ 42,587 $ 43,922 $ 170,064 $ 160,658
========= ========= ========= =========
Net income (in millions)
- - Automotive $ 629 $ 1,354 $ 3,624 $ 4,986
- - Financial Services 448 357 1,786 1,516
--------- --------- --------- ---------
Income from continuing operations 1,077 1,711 5,410 6,502
- - Discontinued operation (Visteon) - 95 309 735
- - Loss on spin-off of Visteon - - (2,252) -
--------- --------- --------- ---------
Total $ 1,077 $ 1,806 $ 3,467 $ 7,237
========= ========= ========= =========
Capital expenditures (in millions)
- - Automotive $ 2,510 $ 2,548 $ 7,393 $ 7,069
- - Financial Services 390 155 955 590
--------- --------- --------- ---------
Total $ 2,900 $ 2,703 $ 8,348 $ 7,659
========= ========= ========= =========
Automotive capital expenditures as a
percentage of sales 7.1% 6.8% 5.2% 5.2%
Stockholders' equity at December 31
- - Total (in millions) $ 18,610 $ 27,604 $ 18,610 $ 27,604
- - Annualized after-tax return on Common
and Class B stockholders' equity 25.5% 26.6% 14.9% 28.2%
Automotive net cash at December 31
(in millions)
- - Cash and marketable securities $ 16,490 $ 21,736 $ 16,490 $ 21,736
- - Debt 12,046 11,736 12,046 11,736
--------- --------- --------- ---------
Automotive net cash $ 4,444 $ 10,000 $ 4,444 $ 10,000
========= ========= ========= =========
After-tax return on sales
- - North American Automotive 2.4% 5.5% 4.8% 5.5%
- - Total Automotive 1.8% 3.7% 2.6% 3.7%
Shares of Common and Class B Stock
(in millions)
- - Average number outstanding 1,873 1,207 1,483 1,210
- - Number outstanding at December 31 1,854 1,207 1,854 1,207
Common Stock price (per share)
(adjusted to reflect Visteon spin-off
and Value Enhancement Plan)
- - High $ 27 $ 30-1/8 $ 31-1/2 $ 37-1/4
- - Low 21-5/8 26-5/8 21-5/8 25-3/8
AMOUNTS PER SHARE OF COMMON AND CLASS B
STOCK AFTER PREFERRED STOCK DIVIDENDS
Income assuming dilution
- - Automotive $ 0.33 $ 1.10 $ 2.40 $ 4.03
- - Financial Services 0.24 0.29 1.19 1.23
--------- --------- --------- ---------
Subtotal 0.57 1.39 3.59 5.26
- - Discontinued operation (Visteon) - 0.08 0.21 0.60
- - Loss on spin-off of Visteon - - (1.50) -
--------- --------- --------- ---------
Total $ 0.57 $ 1.47 $ 2.30 $ 5.86
========= ========= ========= =========
Cash dividends $ 0.30 $ 0.50 $ 1.80 $ 1.88
FS-1
Ford Motor Company and Subsidiaries
VEHICLE UNIT SALES
------------------
For the Periods Ended December 31, 2000 and 1999
(in thousands)
Fourth Quarter Full Year
------------------------ --------------------------
2000 1999 2000 1999
-------- -------- -------- --------
North America
United States
Cars 433 497 1,775 1,725
Trucks 643 646 2,711 2,660
----- ----- ----- -----
Total United States 1,076 1,143 4,486 4,385
Canada 83 100 300 288
Mexico 50 37 147 114
----- ----- ----- -----
Total North America 1,209 1,280 4,933 4,787
Europe
Britain 108 122 476 518
Germany 79 80 320 353
Italy 65 59 222 209
Spain 51 45 180 180
France 39 44 158 172
Sweden 42 40 132 94
Other countries 122 135 474 434
----- ----- ----- -----
Total Europe 506 525 1,962 1,960
Other international
Brazil 37 26 134 117
Australia 30 30 125 125
Taiwan 9 11 63 56
Argentina 10 16 49 60
South Africa 8 4 30 18
Other countries 31 27 128 97
----- ----- ----- -----
Total other international 125 114 529 473
----- ----- ----- -----
Total worldwide vehicle unit sales 1,840 1,919 7,424 7,220
===== ===== ===== =====
Vehicle unit sales generally are reported worldwide on a "where sold" basis and
include sales of all Ford Motor Company units, as well as units manufactured by
Ford and sold to other manufacturers.
Prior periods were restated to correct reported unit sales.
FS-2
Ford Motor Company and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
--------------------------------
For the Years Ended December 31, 2000, 1999 and 1998
(in millions, except amounts per share)
2000 1999 1998
------------ ------------ ------------
AUTOMOTIVE
Sales (Note 1) $141,230 $135,073 $118,017
Costs and expenses (Notes 1 and 19)
Costs of sales 126,120 118,985 104,616
Selling, administrative and other expenses 9,884 8,874 7,834
-------- -------- --------
Total costs and expenses 136,004 127,859 112,450
Operating income 5,226 7,214 5,567
Interest income 1,488 1,418 1,325
Interest expense 1,383 1,347 795
-------- -------- --------
Net interest income 105 71 530
Equity in net income/(loss) of affiliated companies (Note 1) (70) 35 (64)
Net income/(expense) from transactions with
Financial Services (Note 1) 6 (45) (191)
-------- -------- --------
Income before income taxes - Automotive 5,267 7,275 5,842
FINANCIAL SERVICES
Revenues (Note 1) 28,834 25,585 25,333
Costs and expenses (Note 1)
Interest expense 9,519 7,679 8,036
Depreciation 9,408 9,254 8,589
Operating and other expenses 4,971 4,653 4,618
Provision for credit and insurance losses 1,963 1,465 1,798
-------- -------- --------
Total costs and expenses 25,861 23,051 23,041
Net income/(expense)from transactions with Automotive (Note 1) (6) 45 191
Gain on spin-off of The Associates (Note 19) - - 15,955
-------- -------- --------
Income before income taxes - Financial Services 2,967 2,579 18,438
-------- -------- --------
TOTAL COMPANY
Income before income taxes 8,234 9,854 24,280
Provision for income taxes (Note 10) 2,705 3,248 2,760
-------- -------- --------
Income before minority interests 5,529 6,606 21,520
Minority interests in net income of subsidiaries 119 104 152
-------- -------- --------
Income from continuing operations 5,410 6,502 21,368
Income from discontinued operation (Note 2) 309 735 703
Loss on spin-off of discontinued operation (Note 2) (2,252) - -
-------- -------- --------
Net income $ 3,467 $ 7,237 $ 22,071
======== ======== ========
Income attributable to Common and Class B Stock
after Preferred Stock dividends (Note 1) $ 3,452 $ 7,222 $ 21,964
Average number of shares of Common and Class B
Stock outstanding (Note 1) 1,483 1,210 1,211
AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK (Note 1)
Basic income
Income from continuing operations $ 3.66 $ 5.38 $ 17.59
Net income 2.34 5.99 18.17
Diluted income
Income from continuing operations $ 3.59 $ 5.26 $ 17.19
Net income 2.30 5.86 17.76
Cash dividends $ 1.80 $ 1.88 $ 1.72
The accompanying notes are part of the financial statements.
FS-3
Ford Motor Company and Subsidiaries
CONSOLIDATED BALANCE SHEET
--------------------------
As of December 31, 2000 and 1999
(in millions)
2000 1999
--------------- ----------------
ASSETS
Automotive
Cash and cash equivalents $ 3,374 $ 2,793
Marketable securities (Note 4) 13,116 18,943
-------- --------
Total cash and marketable securities 16,490 21,736
Receivables 4,685 5,267
Inventories (Note 8) 7,514 5,684
Deferred income taxes 2,239 3,762
Other current assets (Note 1) 5,318 3,831
Current receivable from Financial Services (Note 1) 1,587 2,304
-------- --------
Total current assets 37,833 42,584
Equity in net assets of affiliated companies (Note 1) 2,949 2,539
Net property (Note 9) 37,508 36,528
Deferred income taxes 3,342 2,454
Net assets of discontinued operation (Note 2) - 1,566
Other assets (Note 1) 13,711 13,530
-------- --------
Total Automotive assets 95,343 99,201
Financial Services
Cash and cash equivalents 1,477 1,588
Investments in securities (Note 4) 817 733
Finance receivables (Notes 5 and 7) 125,164 113,298
Net investment in operating leases (Notes 6 and 7) 46,593 42,471
Other assets 12,390 11,123
Receivable from Automotive (Note 1) 2,637 1,835
-------- --------
Total Financial Services assets 189,078 171,048
-------- --------
Total assets $284,421 $270,249
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Automotive
Trade payables $ 15,075 $ 14,292
Other payables 4,011 3,778
Accrued liabilities (Note 11) 23,515 18,488
Income taxes payable 449 1,709
Debt payable within one year (Note 13) 277 1,338
-------- --------
Total current liabilities 43,327 39,605
Long-term debt (Note 13) 11,769 10,398
Other liabilities (Note 11) 30,495 29,283
Deferred income taxes 353 1,223
Payable to Financial Services (Note 1) 2,637 1,835
-------- --------
Total Automotive liabilities 88,581 82,344
Financial Services
Payables 5,297 3,550
Debt (Note 13) 153,510 139,919
Deferred income taxes 8,677 7,078
Other liabilities and deferred income 7,486 6,775
Payable to Automotive (Note 1) 1,587 2,304
-------- --------
Total Financial Services liabilities 176,557 159,626
Company-obligated mandatorily redeemable preferred securities of a subsidiary
trust holding solely junior subordinated debentures of the Company (Note 1) 673 675
Stockholders' equity
Capital stock (Notes 14 and 15)
Preferred Stock, par value $1.00 per share (aggregate liquidation preference
of $177 million) * *
Common Stock (par value $0.01 and $1.00 per share as of 2000 and 1999, 18 1,151
respectively; 1,837 and 1,151 million shares issued as of 2000 and 1999,
respectively) (Note 3)
Class B Stock, par value $0.01 and $1.00 per share as of 2000 and 1 71
1999, respectively (71 million shares issued) (Note 3)
Capital in excess of par value of stock 6,174 5,049
Accumulated other comprehensive loss (3,432) (1,856)
ESOP loan and treasury stock (2,035) (1,417)
Earnings retained for use in business 17,884 24,606
-------- --------
Total stockholders' equity 18,610 27,604
-------- --------
Total liabilities and stockholders' equity $284,421 $270,249
======== ========
- - - - -
*Less than $1 million
The accompanying notes are part of the financial statements.
FS-4
Ford Motor Company and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Years Ended December 31, 2000, 1999 and 1998
(in millions)
2000 1999 1998
---------------------------- ----------------------------- ---------------------------
Financial Financial Financial
Automotive Services Automotive Services Automotive Services
-------------- ------------- --------------- ------------- --------------- -----------
Cash and cash equivalents at January 1 $ 2,793 $ 1,588 $ 3,143 $ 1,151 $ 5,972 $ 1,618
Cash flows from operating activities
(Note 20) 18,307 15,457 14,851 12,540 8,249 13,478
Cash flows from investing activities
Capital expenditures (7,393) (955) (7,069) (590) (7,252) (504)
Purchase of leased assets - - - - (110) -
Acquisitions of other companies
(Note 19) (2,662) (112) (5,763) (144) - (344)
Acquisitions of receivables and lease
investments - (96,512) - (80,422) - (78,863)
Collections of receivables and lease
investments - 54,290 - 46,646 - 49,303
Net acquisitions of daily rental vehicles - (2,107) - (1,739) - (1,790)
Purchases of securities (5,395) (564) (3,609) (900) (758) (2,102)
Sales and maturities of securities 4,938 557 2,352 1,100 590 2,271
Proceeds from sales of receivables and
lease investments - 19,439 - 9,931 - 8,413
Net investing activity with
Financial Services 645 - 1,329 - 642 -
Other - (320) (70) 119 (389) (463)
-------- -------- -------- -------- -------- --------
Net cash used in investing activities (9,867) (26,284) (12,830) (25,999) (7,277) (24,079)
Cash flows from financing activities
Cash dividends (2,751) - (2,290) - (5,348) -
Issuance of Common Stock 592 - 274 - 154 -
Purchase of Ford treasury stock (1,821) - (707) - (669) -
Preferred Stock - Series B repurchase,
Series A redemption - - - - (420) -
Changes in short-term debt (776) (6,406) (429) 5,547 463 7,475
Proceeds from issuance of other debt 2,363 37,086 3,143 37,184 2,307 21,776
Principal payments on other debt (1,277) (17,158) (821) (28,672) (1,285) (16,797)
Value Enhancement Plan payments (Note 3) (5,555) - - - - -
Net debt repayments from discontinued
operation 650 - - - - -
Net cash distribution to
discontinued operation (85) - - - - -
Net financing activity with Automotive - (645) - (1,329) - (642)
Spin-off of The Associates cash - - - - - (508)
Other 139 (585) (127) 88 (257) (12)
-------- -------- -------- -------- -------- --------
Net cash (used in)/provided by
financing activities (8,521) 12,292 (957) 12,818 (5,055) 11,292
Effect of exchange rate changes on cash (55) (859) (57) (279) (50) 146
Net transactions with Automotive/
Financial Services 717 (717) (1,357) 1,357 1,304 (1,304)
-------- -------- -------- -------- -------- --------
Net increase/(decrease) in cash and
cash equivalents 581 (111) (350) 437 (2,829) (467)
-------- -------- -------- -------- -------
Cash and cash equivalents at December 31 $ 3,374 $ 1,477 $ 2,793 $ 1,588 $ 3,143 $ 1,151
======== ======== ======== ======== =======
The accompanying notes are part of the financial statements.
FS-5
Ford Motor Company and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
----------------------------------------------
For the Years Ended December 31, 1998, 1999 and 2000
(in millions)
Capital Other Comprehensive Income
in Excess ----------------------------------------
of Par Foreign Minimum Unrealized
Capital Value of Retained Currency Pension Holding
Stock Stock Earnings Translation Liability Gain/Loss Other Total
---------- ------------ --------- -------------- ----------- ------------- ------- ---------
YEAR ENDED DECEMBER 31, 1998
- ----------------------------
Balance at beginning of year $1,203 $5,564 $25,234 $ (911) $ (337) $ 73 $ (39) $30,787
Comprehensive income
Net income (excluding gain on
spin-off of The Associates) 6,116 6,116
Gain on The Associates spin-off 15,955 15,955
Foreign currency translation (81) (81)
Minimum pension liability
(net of tax benefit of $184) (361) (361)
Net holding loss
(net of tax benefit of $3) (28) (28)
-------
Comprehensive income 21,601
Common Stock issued for Series A
Preferred Stock conversion,
employee benefit plans and other 19 139 158
Preferred Stock-Series B repurchase
and Series A redemption (420) (420)
ESOP loan and treasury stock (1,046) (1,046)
The Associates spin-off to Ford
Common stockholders (22,298) (22,298)
Cash dividends (5,348) (5,348)
------ ------ ------- -------- ------ ---- ------- -------
Balance at end of year $1,222 $5,283 $19,659 $ (992) $ (698) $ 45 $(1,085) $23,434
====== ====== ======= ======== ====== ==== ======= =======
YEAR ENDED DECEMBER 31, 1999
- ----------------------------
Balance at beginning of year $1,222 $5,283 $19,659 $ (992) $ (698) $ 45 $(1,085) $23,434
Comprehensive income
Net income 7,237 7,237
Foreign currency translation (573) (573)
Minimum pension liability
(net of tax of $174) 324 324
Net holding gain
(net of tax of $20) 38 38
-------
Comprehensive income 7,026
Common Stock issued for
employee benefit plans and other (234) (234)
ESOP loan and treasury stock (332) (332)
Cash dividends (2,290) (2,290)
------ ------ ------- -------- ------ ---- ------- -------
Balance at end of year $1,222 $5,049 $24,606 $ (1,565) $ (374) $ 83 $(1,417) $27,604
====== ====== ======= ======== ====== ==== ======= =======
YEAR ENDED DECEMBER 31, 2000
- ----------------------------
Balance at beginning of year $1,222 $5,049 $24,606 $ (1,565) $ (374) $ 83 $(1,417) $27,604
Comprehensive income
Net income 3,467 3,467
Foreign currency translation (1,538) (1,538)
Minimum pension liability
(net of tax benefit of $36) (66) (66)
Net holding gain
(net of tax of $15) 28 28
-------
Comprehensive income 1,891
Common Stock issued for
employee benefit plans and other (78) (78)
ESOP loan and treasury stock (618) (618)
Value Enhancement Plan (1,203) 1,203 (5,731) (5,731)
Stock dividend (Spin-off of Visteon) (1,707) (1,707)
Cash dividends (2,751) (2,751)
------- ------ ------- -------- ------ ---- ------- -------
Balance at end of year $ 19 $6,174 $17,884 $ (3,103) $ (440) $111 $(2,035) $18,610
======= ====== ======= ======== ====== ==== ======= =======
The accompanying notes are part of the financial statements.
FS-6
Ford Motor Company and Subsidiaries
Notes to Consolidated Financial Statements
------------------------------------------
NOTE 1. Accounting Policies
- ----------------------------
Principles of Consolidation
- ---------------------------
The consolidated financial statements include all majority-owned subsidiaries
and reflect the operating results, assets, liabilities and cash flows for the
Company's two business sectors: Automotive and Financial Services. The assets
and liabilities of the Automotive sector are classified as current or
noncurrent, and those of the Financial Services sector are unclassified.
Affiliates that are 20% to 50% owned, principally Mazda Motor Corporation and
AutoAlliance International Inc., and subsidiaries where control is expected to
be temporary, principally investments in certain dealerships, are accounted for
on an equity basis. Use of estimates and assumptions as determined by management
is required in the preparation of consolidated financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates and assumptions. For purposes of these Notes to
Consolidated Financial Statements, "Ford" or "the Company" means Ford Motor
Company and its majority-owned consolidated subsidiaries unless the context
requires otherwise. Certain amounts for prior periods are reclassified, if
required, to conform to present period presentations.
Structure of Operations
- -----------------------
The Company's sectors, Automotive and Financial Services, are managed as three
primary operating segments. A segment is defined as a component with business
activity resulting in revenue and expense that has separate financial
information evaluated regularly by the Company's chief operating decision maker
in determining resource allocation and assessing performance (Note 21). The
Automotive sector (and segment) consists of the design, manufacture, sale, and
service of cars and trucks. The Financial Services sector primarily includes two
segments, Ford Motor Credit Company and its subsidiaries ("Ford Credit") and The
Hertz Corporation and its subsidiaries ("Hertz"). The Financial Services sector
also includes less significant financial services businesses. Ford Credit leases
and finances the purchase of cars and trucks made by Ford and other companies.
It also provides inventory and capital financing to retail car and truck
dealerships. Hertz rents cars and trucks and industrial and construction
equipment. Both Ford Credit and Hertz also have insurance operations related to
their businesses.
Intersector transactions represent principally transactions occurring in the
ordinary course of business, borrowings and related transactions between
entities in the Financial Services and Automotive sectors, and interest and
other support under special vehicle financing programs. These arrangements are
reflected in the respective business sectors.
Revenue Recognition - Automotive Sector
- ---------------------------------------
Sales are generally recorded by the Company when products are shipped to dealers
and other customers and title is transferred, except as described below.
Estimated costs for approved sales incentive programs normally are recognized as
sales reductions at the latter of a) the time of revenue recognition or b) the
date the incentive program is approved.
Sales through dealers to certain daily rental companies where the daily rental
company has an option to require Ford to repurchase vehicles subject to certain
conditions are recognized over the period of daily rental service in a manner
similar to lease accounting. The carrying value of these vehicles, included in
other current assets, was $2.0 billion at both December 31, 2000 and 1999.
FS-7
NOTE 1. Accounting Policies (continued)
- ----------------------------
Revenue Recognition - Financial Services Sector
- -----------------------------------------------
Revenue from finance receivables is recognized over the term of the receivable
using the interest method. Certain loan origination costs are deferred and
amortized, using the interest method, over the term of the related receivable as
a reduction in financing revenue. Revenue from operating leases is recognized on
a straight-line basis over the term of the lease. Initial direct costs, net of
acquisition fees related to leases, are deferred and amortized over the term of
the lease. Agreements between Automotive sector operations and certain Financial
Services sector operations provide for interest and residual value supplements
and other support costs to be paid by Automotive sector operations on certain
financing and leasing transactions. The Financial Services sector recognizes
this revenue in income over the period that the related receivables and leases
are outstanding; the estimated costs of interest and residual value supplements
and other support costs are recorded as sales incentives by Automotive sector
operations in the same manner as sales incentives described above.
The accrual of interest on loans is discontinued at the time a loan is
determined to be impaired. Subsequent amounts of interest collected are
recognized in income only if full recovery of the remaining principal is
probable. Other amounts collected are generally recognized first as a reduction
of principal. Any remaining amounts are treated as a recovery.
The Financial Services sector periodically sells finance receivables through
special purpose subsidiaries, retains the servicing rights and certain other
beneficial interests, and receives a servicing fee which is recognized as
collected over the remaining term of the related sold finance receivables.
Estimated gains or losses from the sale of finance receivables are recognized in
the period in which the sale occurs. In determining the gain or loss on each
qualifying sale of finance receivables, the investment in the sold receivable
pool is allocated between the portion sold and the portion retained based on
their relative fair values at the date of sale.
Other Costs
- -----------
Advertising and sales promotion costs are expensed as incurred and are included
in selling, administrative, and other expenses. Advertising costs were
$3.0 billion in 2000, $2.7 billion in 1999 and $2.1 billion in 1998.
Estimated costs related to product warranty are accrued at the time of sale and
are included in cost of sales.
Engineering, research and development costs are included in cost of sales, are
expensed as incurred, and were $6.8 billion in 2000, $6.0 billion in 1999, and
$5.3 billion in 1998.
Income Per Share of Common and Class B Stock
- --------------------------------------------
Basic income per share of Common and Class B Stock is calculated by dividing the
income attributable to Common and Class B Stock by the average number of shares
of Common and Class B Stock outstanding during the applicable period, adjusted
for shares issuable under employee savings and compensation plans.
The calculation of diluted income per share of Common and Class B Stock takes
into account the effect of obligations, such as stock options, considered to be
potentially dilutive.
FS-8
NOTE 1. Accounting Policies (continued)
- ----------------------------
Income per share of Common and Class B Stock was as follows (in millions):
2000 1999 1998
------------------ ------------------- -------------------
Income Shares* Income Shares* Income Shares*
------------------ ------------------- -------------------
Income from continuing operations and shares $5,410 1,483 $6,502 1,210 $21,368 1,211
Preferred Stock dividend requirements (15) - (15) - (22) -
Premium on Series B Tender Offer** - - - - (85) -
Issuable and uncommitted ESOP shares - (9) - (4) - (2)
------ ----- ------ ----- ------- -----
Basic continuing income and shares $5,395 1,474 $6,487 1,206 $21,261 1,209
Basic income per share from continuing operations $ 3.66 $ 5.38 $ 17.59
Basic income per share from discontinued operation 0.21 0.61 0.58
Basic loss per share on spin-off of discontinued operation (1.53) - -
------ ------ -------
Basic income per share $ 2.34 $ 5.99 $ 18.17
Basic continuing income and shares $5,395 1,474 $6,487 1,206 $21,261 1,209
Net dilutive effect of options - 30 - 27 - 28
Convertible Preferred Stock and other - - (1) - (1) -
------ ----- ------ ----- ------- -----
Diluted continuing income and shares $5,395 1,504 $6,486 1,233 $21,260 1,237
Diluted income per share from continuing operations $ 3.59 $ 5.26 $ 17.19
Diluted income per share from discontinued operation 0.21 0.60 0.57
Diluted loss per share on spin-off of discontinued operation (1.50) - -
------ ------ -------
Diluted income per share $ 2.30 $ 5.86 $ 17.76
- - - - - -
*Average shares outstanding (Note 3)
**Represents a one-time reduction of $0.07 per share of Common and Class B Stock
resulting from the premium paid to repurchase the Company's Series B
Cumulative Preferred Stock.
Derivative Financial Instruments
- --------------------------------
Ford has operations in over 30 countries and sells vehicles in over 200 markets,
and is exposed to a variety of market risks, including the effects of changes in
foreign currency exchange rates, interest rates, and commodity prices. These
financial exposures are monitored and managed by the Company as an integral part
of the Company's overall risk management program, which recognizes the
unpredictability of financial markets and seeks to reduce the potentially
adverse effect on the Company's results. The Company uses derivative financial
instruments to manage the exposures to fluctuations in exchange rates, interest
rates, and commodity prices. All derivative financial instruments are classified
as "held for purposes other than trading"; company policy specifically prohibits
the use of leveraged derivatives or use of any derivatives for speculative
purposes.
Ford's primary foreign currency exposures, in terms of net corporate exposure,
are in the Swedish krona, euro, British pound sterling, Japanese yen, Mexican
peso, and Brazilian real. Agreements to manage foreign currency exposures
include forward contracts, swaps, and options. The Company uses these derivative
instruments to hedge assets and liabilities denominated in foreign currencies,
firm commitments, and certain investments in foreign subsidiaries. Gains and
losses on hedges of firm commitments are deferred and recognized with the
related transactions. In the case of hedges of net investments in foreign
subsidiaries, gains and losses are recognized in other comprehensive income to
the extent they are effective as hedges. All other gains and losses are
recognized in cost of sales for the Automotive sector and interest expense for
the Financial Services sector. These instruments usually mature in three years
or less for Automotive sector exposures and longer for Financial Services sector
exposures, consistent with the underlying transactions. The effect of changes in
exchange rates may not be fully offset by gains or losses on currency
derivatives, depending on the extent to which the exposures are hedged.
Interest rate swap agreements are used to manage the effects of interest rate
fluctuations by changing the interest rate characteristics of specific debt or
pools of debt to match the interest rate characteristics of corresponding
assets. These instruments mature consistent with underlying debt issues as
identified in Note 13. The differential paid or received on interest rate swaps
is recognized on an accrual basis as an adjustment to interest expense. Gains
and losses on terminated interest rate swaps are deferred and reflected in
interest expense over the remaining term of the underlying debt.
FS-9
NOTE 1. Accounting Policies (continued)
- ----------------------------
Ford has a commodity hedging program that uses primarily forward contracts and
options to manage the effects of changes in commodity prices on the Automotive
sector's results. Gains and losses are recognized in cost of sales during the
settlement period of the related transactions.
The Company will adopt Statement of Financial Accounting Standards (SFAS) 133,
"Accounting for Derivative Instruments and Hedging", on January 1, 2001. Based
on present interpretation of this new standard, the Company estimates that it
will record a transition adjustment that will reduce 2001 net income by $70
million and reduce other comprehensive income by $550 million. Adoption of this
standard will result in non-cash adjustments to income and equity by
unpredictable amounts, based mainly on periodic changes in interest rates,
exchange rates, and commodity prices. The amount of these non-cash effects will
be disclosed each quarter.
Foreign Currency Translation
- ----------------------------
Assets and liabilities of non-U.S. subsidiaries for which the functional
currency is other than the U.S. dollar are generally translated to U.S. dollars
at end-of-period exchange rates. The effects of this translation for most
non-U.S. subsidiaries are reported in other comprehensive income. Remeasurement
of assets and liabilities of non-U.S. subsidiaries that use the U.S. dollar as
their functional currency are included in income as transaction gains and
losses. Income statement elements of all non-U.S. subsidiaries are translated to
U.S. dollars at average-period exchange rates. Also included in income are gains
and losses arising from transactions denominated in a currency other than the
functional currency of the entity involved. Net transaction gains and losses, as
described above, decreased income from continuing operations by $115 million in
2000, increased income from continuing operations by $308 million in 1999, and
increased income from continuing operations by $84 million in 1998.
Impairment of Long-Lived Assets and Certain Identifiable Intangibles
- --------------------------------------------------------------------
The Company evaluates the carrying value of goodwill for potential impairment on
an ongoing basis. Such evaluations compare operating income before amortization
of goodwill to the amortization recorded for the operations to which the
goodwill relates. When appropriate, the Company also periodically evaluates the
carrying value of long-lived assets and long-lived assets to be disposed of for
potential impairment. The Company considers projected future operating results,
cash flows, trends, and other circumstances in making such estimates and
evaluations.
Goodwill
- --------
Goodwill represents the excess of the purchase price over the fair value of the
net assets of acquired companies and is amortized using the straight-line method
for periods of up to 40 years. Total goodwill included in the Automotive
sector's other assets was $5.8 billion at December 31, 2000 and $5.7 billion at
December 31, 1999. Total goodwill included in the Financial Services sector's
other assets was $993 million at December 31, 2000 and $970 million at
December 31, 1999.
Company-Obligated Mandatorily Redeemable Preferred Securities of a Subsidiary
Trust
- -------------------------------------------------------------------------------
During 1995, Ford Motor Company Capital Trust I (the "Trust") issued $632
million of its 9% Trust Originated Preferred Securities (the "Preferred
Securities") in a one-for-one exchange for 25,273,537 shares of the Company's
outstanding Series B Depositary Shares (the "Depositary Shares"). Concurrent
with the exchange and the related purchase by Ford of the Trust's Common
Securities (the "Common Securities"), the Company issued to the Trust $651
million aggregate principal amount of its 9% Junior Subordinated Debentures due
December 2025 (the "Debentures"). The sole assets of the Trust are and will be
the Debentures. The Debentures are redeemable, in whole or in part, at the
Company's option on or after December 1, 2002, at a redemption price of $25 per
Debenture plus accrued and unpaid interest. If the Company redeems the
Debentures, or upon maturity of the Debentures, the Trust is required to redeem
the Preferred Securities and Common Securities at $25 per share plus accrued and
unpaid distributions.
FS-10
NOTE 1. Accounting Policies (continued)
- ----------------------------
Ford guarantees to pay in full to the holders of the Preferred Securities all
distributions and other payments on the Preferred Securities to the extent not
paid by the Trust only if and to the extent that Ford has made a payment of
interest or principal on the Debentures. This guarantee, when taken together
with Ford's obligations under the Debentures and the indenture relating thereto
and its obligations under the Declaration of Trust of the Trust, including its
obligation to pay certain costs and expenses of the Trust, constitutes a full
and unconditional guarantee by Ford of the Trust's obligations under the
Preferred Securities.
NOTE 2. Discontinued Operation
- -------------------------------
On June 28, 2000, Ford distributed 130 million shares of Visteon Corporation
("Visteon"), which represented its 100% ownership interest, by means of a
tax-free spin-off in the form of a dividend on Ford Common and Class B Stock.
Holders of Ford Common and Class B Stock on the record date received 0.130933
shares of Visteon common stock for each share of Ford stock, and participants in
U.S. employee savings plans on the record date received $1.72 in cash per share
of Ford stock, based on the volume-weighted average price of Visteon stock of
$13.1326 per share on June 28, 2000. The total value of the distribution
(including the $365 million cash dividend) was $2.1 billion, or $1.72 per
diluted share of Ford stock.
As a result of the spin-off of Visteon, Ford recorded an after-tax loss of $2.3
billion in the second quarter of 2000. This loss represents the excess of the
carrying value of Ford's net investment in Visteon over the market value of
Visteon on the distribution date. Ford's financial statements reflect Visteon as
a "discontinued operation" for all periods shown. Through the date of the
spin-off, Visteon's net assets were aggregated in Ford's balance sheet as "net
assets of discontinued operation".
In connection with the spin-off of Visteon, Ford and Visteon have entered into a
series of agreements that provide for (i) certain hourly employees (numbering
approximately 24,000) working for Visteon that remain Ford employees, with
Visteon reimbursing Ford for the expenses related thereto, (ii) Ford's retention
of certain pension and postretirement benefit obligations for qualified
employees that are or have worked for Visteon, (iii) predetermined pricing terms
for Visteon's products purchased by Ford through 2003, and (iv) reimbursement to
Ford for other post-spin services provided to Visteon and tax activity incurred
on Visteon's behalf.
Visteon revenues included in discontinued operations totaled $10.5 billion,
$19.4 billion, and $17.8 billion for the years ended December 31, 2000, 1999,
and 1998, respectively. Income from discontinued operations for the years ended
December 31, 2000, 1999, and 1998 is reported net of income tax expense of $182
million, $422 million, and $416 million, respectively.
NOTE 3. Value Enhancement Plan
- -------------------------------
On August 7, 2000, the Company announced the final results of its
recapitalization, known as the Value Enhancement Plan ("VEP"). 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. As a result of the
VEP, approximately $1.2 billion was transferred from capital stock to capital in
excess of par value of stock.
In accordance with generally accepted accounting principles, prior period shares
and earnings per share amounts were not adjusted. 2000 average diluted shares of
1.504 billion were calculated based on an average of 1.222 billion shares for
the period prior to the VEP and an average of 1.9 billion shares for the period
subsequent to the VEP.
FS-11
NOTE 4. Marketable and Other Securities
- ----------------------------------------
Trading securities are recorded at fair value with unrealized gains and losses
included in income. Available-for-sale securities are recorded at fair value
with net unrealized gains and losses reported, net of tax, in other
comprehensive income. Held-to-maturity securities are recorded at amortized
cost. Equity securities that do not have readily determinable fair values are
recorded at cost. The basis of cost used in determining realized gains and
losses is specific identification.
The fair value of substantially all securities is determined by quoted market
prices. The estimated fair value of securities, for which there are no quoted
market prices, is based on similar types of securities that are traded in the
market. Book value approximates fair value for all securities.
Expected maturities of debt securities may differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without penalty.
Automotive Sector
- -----------------
Investments in securities at December 31 were as follows (in millions):
Book/
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ------------ ------------- ---------
2000
----
Trading securities $10,214 $73 $ 4 $10,283
Available-for-sale securities - Corporate debt securities 1,480 8 - 1,488
Held-to-maturity securities 1,345 - - 1,345
------- --- ---- -------
Total investments in securities $13,039 $81 $ 4 $13,116
======= === ==== =======
1999
----
Trading securities $17,243 $56 $123 $17,176
Available-for-sale securities - Corporate debt securities 1,004 - 8 996
Held-to-maturity securities 771 - - 771
------- --- ---- -------
Total investments in securities $19,018 $56 $131 $18,943
======= === ==== =======
Proceeds from sales of available-for-sale securities were $4,938 million in 2000
and $2,352 million in 1999. There were no material gains or losses in either
year. The available-for-sale securities and held-to-maturity securities at
December 31, 2000 had contractual maturities of between one and five years, and
one and four years, respectively.
Financial Services Sector
- -------------------------
Investments in securities at December 31, 2000 were as follows (in millions):
Book/
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ----------- ----------- ------------
Trading securities $258 $ 1 $ 1 $258
Available-for-sale securities
-----------------------------
Debt securities issued by the U.S.
government and agencies 94 4 - 98
Municipal securities 13 1 - 14
Debt securities issued by non-U.S. governments 14 1 - 15
Corporate debt securities 198 4 1 201
Mortgage-backed securities 167 2 2 167
Equity securities 27 34 3 58
---- --- --- ----
Total available-for-sale securities 513 46 6 553
Held-to-maturity securities
---------------------------
Debt securities issued by the U.S.
government and agencies 6 - - 6
Corporate securities - - - -
---- --- --- ----
Total held-to-maturity securities 6 - - 6
Total investments in securities $777 $47 $ 7 $817
==== === === ====
FS-12
NOTE 4. Marketable and Other Securities (continued)
- ----------------------------------------
Investments in securities at December 31, 1999 were as follows (in millions):
Book/
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ----------- ------------ ------------
Trading securities $190 $ - $ - $190
Available-for-sale securities
-----------------------------
Debt securities issued by the U.S.
government and agencies 89 - 3 86
Municipal securities 18 - 1 17
Debt securities issued by non-U.S. governments 19 - - 19
Corporate securities 156 - 6 150
Mortgage-backed securities 202 - 7 195
Equity securities 28 43 2 69
---- --- --- ----
Total available-for-sale securities 512 43 19 536
Held-to-maturity securities
---------------------------
Debt securities issued by the U.S.
government and agencies 6 - - 6
Corporate securities 1 - - 1
---- --- --- ----
Total held-to-maturity securities 7 - - 7
Total investments in securities $709 $43 $19 $733
==== === === ====
The amortized cost and fair value of investments in available-for-sale
securities and held-to-maturity securities at December 31 by contractual
maturity, were as follows (in millions):
Available-for-sale Held-to-maturity
---------------------- ----------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
------------ --------- ------------ ---------
2000
----
Due in one year or less $ 19 $ 19 $2 $2
Due after one year through five years 132 133 - -
Due after five years through ten years 79 81 3 3
Due after ten years 93 96 1 1
Mortgage-backed securities 167 169 - -
Equity securities 23 55 - -
---- ---- -- --
Total $513 $553 $6 $6
==== ==== == ==
1999
----
Due in one year or less $ - $ - $- $-
Due after one year through five years 119 118 3 3
Due after five years through ten years 53 51 3 3
Due after ten years 110 104 1 1
Mortgage-backed securities 202 195 - -
Equity securities 28 68 - -
---- ---- -- --
Total $512 $536 $7 $7
==== ==== == ==
Proceeds from sales of available-for-sale securities were $557 million in 2000,
and $1.1 billion in 1999. There were no material gains or losses in either year.
FS-13
NOTE 5. Finance Receivables - Financial Services Sector
- --------------------------------------------------------
Included in finance receivables at December 31 were net finance receivables and
investment in direct financing leases. The investment in direct financing leases
relates to the leasing of vehicles, various types of transportation and other
equipment, and facilities.
Receivables
- -----------
Net finance receivables at December 31 were as follows (in millions):
2000 1999
------------ ------------
Retail $ 74,220 $ 70,771
Wholesale 34,303 27,298
Real estate 3,950 3,417
Other finance receivables 6,496 5,302
-------- --------
Total finance receivables 118,969 106,788
Allowance for credit losses (1,240) (1,143)
-------- --------
Total net finance receivables 117,729 105,645
Other 417 471
-------- --------
Net finance and other receivables $118,146 $106,116
======== ========
Net finance receivables subject to
fair value* $117,664 $105,577
Fair value $118,988 $106,552
- - - - - -
*Excludes certain diversified and other receivables of $482 million
and $539 million at December 31, 2000 and 1999, respectively
Included in finance receivables at December 31, 2000 and 1999 were a total of
$2.2 billion and $2.6 billion, respectively, owed by three customers with the
largest receivable balances. Other finance receivables consisted primarily of
commercial and other collateralized loans and accrued interest. Also included in
other finance receivables at December 31, 2000 and 1999 were $3.5 billion and
$3.7 billion, respectively, of accounts receivable purchased by certain
Financial Services sector operations from Automotive sector operations. Finance
receivables that originated outside the United States are $37.6 billion and
$35.5 billion at December 31, 2000 and 1999, respectively.
Contractual maturities of total finance receivables are as follows (in
millions): 2001 - $75,622; 2002 - $21,517; 2003 - $10,729; thereafter - $11,101.
Experience indicates that a substantial portion of the portfolio generally is
repaid before the contractual maturity dates.
The fair value of most receivables was estimated by discounting future cash
flows using an estimated discount rate that reflected the credit, interest rate
and prepayment risks associated with similar types of instruments. For
receivables with short maturities, the book value approximated fair value.
The Financial Services sector has sold receivables through special purpose
subsidiaries. The servicing portfolio related to these securitized assets
amounted to $28.4 billion and $19.6 billion at December 31, 2000 and 1999,
respectively. The Company retains certain beneficial interests in the sold
receivables which are subject to limited recourse provisions. These financial
instruments of $3.7 billion at December 31, 2000 and $3.4 billion at December
31, 1999 are included in other assets.
Direct Financing Leases
- -----------------------
Net investment in direct financing leases at December 31 was as follows (in
millions):
2000 1999
------------ ------------
Total minimum lease rentals to be received $4,922 $4,782
Less: Unearned income (923) (916)
Loan origination costs 58 84
------ ------
Minimum lease rentals 4,057 3,950
Estimated residual values 3,081 3,283
Less: Allowance for credit losses (120) (51)
------ ------
Net investment in direct financing leases $7,018 $7,182
====== ======
Minimum direct financing lease rentals are contractually due as follows (in
millions): 2001 - $1,930; 2002 - $1,396; 2003 - $972; 2004 - $472; 2005 - $118;
thereafter - $34.
FS-14
NOTE 6. Net Investment in Operating Leases
- -------------------------------------------
The net investment in operating leases relates to the leasing of vehicles,
various types of transportation and other equipment, and facilities. The net
investment in operating leases at December 31 was as follows (in millions):
2000 1999
------------ ------------
Vehicles and other equipment, at cost $ 58,029 $ 53,018
Lease origination costs 53 56
Accumulated depreciation (11,155) (10,225)
Allowances for credit losses (334) (378)
-------- --------
Net investment in operating leases $ 46,593 $ 42,471
======== ========
Minimum rentals on operating leases are contractually due as follows (in
millions): 2001 - $8,785; 2002 - $6,441; 2003 - $3,259; 2004 - $415; 2005 -
$176; thereafter - $300.
Depreciation expense for assets subject to operating leases is provided
primarily on the straight-line method over the term of the lease in amounts
necessary to reduce the carrying amount of the asset to its estimated residual
value. Depreciation rates and amounts are based on assumptions as to used car
prices at lease termination and the number of vehicles that will be returned to
the Company. Estimated and actual residual values are reviewed on a regular
basis to determine whether depreciation amounts are appropriate. Gains and
losses upon disposal of the assets also are included in depreciation expense.
Depreciation expense was as follows: $9.2 billion in 2000, $8.8 billion in 1999,
and $8.4 billion in 1998.
NOTE 7. Allowance for Credit Losses
- ------------------------------------
An allowances for credit losses is estimated and established as required based
on historical experience and other factors that affect collectibility. The
allowance for estimated credit losses includes a provision for certain
non-homogeneous impaired loans. Impaired loans are measured based on the present
value of expected future cash flows discounted at the loan's effective interest
rate. Finance receivables and 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, the value of the
collateral, recourse to guarantors and other factors. Recoveries on finance
receivables and lease investments previously charged-off as uncollectible are
credited to the allowance for credit losses.
Changes in the allowance for credit losses were as follows (in millions):
2000 1999 1998
------------ ------------ ------------
Beginning balance $1,572 $1,577 $ 3,476
Provision for credit losses 1,706 1,211 1,489
Total charge-offs and recoveries:
Charge-offs (1,618) (1,287) (1,640)
Recoveries 300 275 262
------ ------ -------
Net losses (1,318) (1,012) (1,378)
Other changes (266) (204) (2,010)*
------ ------ -------
Ending balance $1,694 $1,572 $ 1,577
====== ====== =======
- - - - - -
*Other changes includes $1,892 million to reflect the spin-off of
The Associates
FS-15
NOTE 8. Inventories - Automotive Sector
- ---------------------------------------
Inventories at December 31 were as follows (in millions):
2000 1999
------------ ------------
Raw materials, work-in-process and supplies $2,798 $2,035
Finished products 4,716 3,649
------ ------
Total inventories $7,514 $5,684
====== ======
U.S. inventories $2,095 $1,811
Inventories are stated at the lower of cost or market. The cost of most U.S.
inventories is determined by the last-in, first-out ("LIFO") method. The cost of
the remaining inventories is determined primarily by the first-in, first-out
("FIFO") method.
If the FIFO method had been used instead of the LIFO method, inventories would
have been higher by $1.1 billion and $1.0 billion at December 31, 2000 and 1999,
respectively.
NOTE 9. Net Property, Depreciation and Amortization - Automotive Sector
- -----------------------------------------------------------------------
Net property at December 31 was as follows (in millions):
2000 1999
------------ ------------
Land $ 639 $ 529
Buildings and land improvements 9,896 9,460
Machinery, equipment and other 38,434 37,809
Construction in progress 2,333 1,966
-------- --------
Total land, plant and equipment $ 51,302 $ 49,764
Accumulated depreciation (24,327) (22,898)
-------- --------
Net land, plant and equipment $ 26,975 $ 26,866
Special tools, net of amortization 10,533 9,662
-------- --------
Net property $ 37,508 $ 36,528
======== ========
Property, equipment, and special tools are stated at cost, less accumulated
depreciation and amortization. Property and equipment placed in service before
January 1, 1993 are depreciated using an accelerated method that results in
accumulated depreciation of approximately two-thirds of the asset cost during
the first half of the estimated useful life of the asset. Property and equipment
placed in service after December 31, 1992 are depreciated using the
straight-line method of depreciation over the estimated useful life of the
asset. On average, buildings and land improvements are depreciated based on a
30-year life; machinery and equipment are depreciated based on a 14-year life.
Costs of computer software developed or obtained for internal use are
capitalized beginning January 1, 1999. Special tools placed in service before
January 1, 1999 are amortized using an accelerated method over periods of time
representing the estimated life of those tools. Special tools placed in service
beginning in 1999 are amortized using the units-of-production method.
Depreciation and amortization expenses were as follows (in millions):
2000 1999 1998
------------ ------------ ------------
Depreciation $3,507 $2,592 $2,301
Amortization 2,451 2,459 2,880
------ ------ ------
Total $5,958 $5,051 $5,181
====== ====== ======
Maintenance, repairs, and rearrangement costs are expensed as incurred and were
$1.6 billion in 2000, $1.7 billion in 1999, and $1.7 billion in 1998.
FS-16
NOTE 10. Income Taxes
- ----------------------
Income before income taxes, excluding equity in net income/(loss) of affiliated
companies, the provision for income taxes, and a reconciliation of the provision
for income taxes compared with the amounts at the U.S. statutory tax rate, are
as follows:
2000 1999 1998
------------ ------------ ------------
Income before income tax (in millions)
-------------------------------------
U.S. $ 9,559 $9,299 $7,617*
Non-U.S. (1,241) 537 770
------- ------ ------
Total income before income taxes $ 8,318 $9,836 $8,387
======= ====== ======
Provision for income taxes (in millions)
---------------------------------------
U.S. federal $ 661 $ 581 $ 620
Non-U.S. 760 727 474
State and local 116 117 14
------- ------ ------
Total current income tax provision 1,537 1,425 1,108
------- ------ ------
U.S. federal 2,110 2,088 1,614
Non-U.S. (1,153) (455) (114)
State and local 211 190 152
------- ------ ------
Total deferred income tax provision 1,168 1,823 1,652
------- ------ ------
Total provision $ 2,705 $3,248 $2,760
======= ====== ======
Reconciliation of the income tax provision
------------------------------------------
Tax provision at U.S. statutory rate 35 % 35 % 35 %
Effect of (in points):
Tax on non-U.S. income (2) (2) (1)
State and local income taxes 3 2 1
Other (3) (2) (2)
------- ------ ------
Provision for income taxes 33 % 33 % 33 %
======= ====== ======
- - - - - -
* Excludes non-taxable gain on spin-off of The Associates.
Deferred taxes are provided for earnings of non-U.S. subsidiaries which are
planned to be remitted. No provision for deferred taxes has been made on $2.0
billion of unremitted earnings (primarily prior to 1998) which are considered to
be indefinitely invested in non-U.S. subsidiaries. Deferred taxes for these
unremitted earnings are not practical to estimate.
Deferred tax assets and liabilities reflect the estimated tax effect of
accumulated temporary differences between assets and liabilities for financial
reporting purposes and those amounts as measured by tax laws and regulations.
The components of deferred tax assets and liabilities at December 31 were as
follows (in millions):
2000 1999
------------ ------------
Deferred tax assets
-------------------
Employee benefit plans $ 6,100 $ 5,057
Dealer and customer allowances and claims 2,364 2,709
Net operating loss carryforwards 1,377 740
Allowance for credit losses 1,067 1,006
Tax on unremitted foreign earnings 567 156
All other 2,329 1,087
Valuation allowances (171) (115)
------- -------
Total deferred tax assets 13,633 10,640
Deferred tax liabilities
------------------------
Leasing transactions 8,306 6,520
Depreciation and amortization
(excluding leasing transactions) 3,924 3,382
Finance receivables 2,593 1,328
Employee benefit plans 962 862
All other 1,593 976
------- -------
Total deferred tax liabilities 17,378 13,068
------- -------
Net deferred tax liabilities $ 3,745 $ 2,428
======= =======
Non-U.S. net operating loss carryforwards for tax purposes were $3.6 billion at
December 31, 2000. A substantial portion of these losses has an indefinite
carryforward period; the remaining losses have expiration dates beginning in
2001. The tax benefit of operating losses is recognized as a deferred tax asset,
subject to an appropriate valuation allowance. Tax benefits of operating loss
carryforwards are evaluated on an ongoing basis. Such evaluations include a
review of historical and projected future operating results, the eligible
carryforward period, and other circumstances.
FS-17
NOTE 11. Liabilities - Automotive Sector
- -----------------------------------------
Current Liabilities
- -------------------
Included in accrued liabilities at December 31 were the following (in millions):
2000 1999
------------ ------------
Dealer and customer allowances and claims $11,660 $10,180
Deferred revenue 2,209 2,326
Employee benefit plans 2,029 1,675
Deferred obligation to AB Volvo (Note 19) 1,585 -
Postretirement benefits other than pensions 1,076 694
Salaries, wages and employer taxes 528 548
Other 4,428 3,065
------- -------
Total accrued liabilities $23,515 $18,488
======= =======
Noncurrent Liabilities
- ----------------------
Included in other liabilities at December 31 were the following (in millions):
2000 1999
------------ ------------
Postretirement benefits other than pensions $14,093 $12,158
Dealer and customer allowances and claims 6,202 7,158
Employee benefit plans 4,145 4,167
Unfunded pension obligation 1,188 1,189
Deferred obligation to BMW (Note 19) 741 -
Minority interests in net assets of subsidiaries 8 86
Deferred obligation to AB Volvo (Note 19) - 1,485
Other 4,118 3,040
------- -------
Total other liabilities $30,495 $29,283
======= =======
NOTE 12. Employee Retirement Benefits
- --------------------------------------
Employee Retirement Plans
- -------------------------
The Company has two principal retirement plans in the U.S. The Ford-UAW
Retirement Plan covers hourly employees represented by the UAW, and the General
Retirement Plan covers substantially all other Ford employees in the U.S. The
hourly plan provides noncontributory benefits related to employee service. The
salaried plan provides similar noncontributory benefits and contributory
benefits related to pay and service. Other U.S. and non-U.S. subsidiaries have
separate plans that generally provide similar types of benefits for their
employees. Ford-UAW Retirement Plan expense accruals for employees assigned to
Visteon are charged to Visteon.
In general, the Company's plans are funded, with the main exceptions of the U.S.
defined benefit plans for executives and certain plans in Germany; in such
cases, an unfunded liability is recorded.
The Company's policy for funded plans is to contribute annually, at a minimum,
amounts required by applicable laws, regulations, and union agreements. Plan
assets consist principally of investments in stocks and government and other
fixed income securities.
Postretirement Health Care and Life Insurance Benefits
- ------------------------------------------------------
The Company and certain of its subsidiaries sponsor plans to provide selected
health care and life insurance benefits for retired employees. The Company's
U.S. and Canadian employees may become eligible for those benefits if they
retire while working for the Company; however, benefits and eligibility rules
may be modified from time to time. The estimated cost for these benefits is
accrued over periods of employee service on an actuarially determined basis.
Postretirement health care and life insurance expense accruals for hourly
employees assigned to Visteon and for salaried Visteon employees who met certain
age and service conditions at June 30, 2000 are charged to Visteon. A portion of
U.S. hourly and salary retiree health and life insurance benefits has been
prepaid. At December 31, 2000, the market value of this pre-funding was $3.1
billion, including $1.4 billion of assets contributed by Visteon to a segregated
trust.
FS-18
NOTE 12. Employee Retirement Benefits (continued)
- --------------------------------------
Increasing the assumed health care cost trend rates by one percentage point is
estimated to increase the aggregate service and interest cost components of net
postretirement benefit expense for 2000 by about $250 million and the
accumulated postretirement benefit obligation at December 31, 2000 by about $2.8
billion. A decrease of one percentage point would reduce service and interest
costs by $195 million and decrease the December 31, 2000 obligation by $2.3
billion.
Employee Retirement Benefit Expense
- -----------------------------------
The Company's expense for pensions, retirement health care and life insurance
was as follows (in millions):
Pension Benefits
-------------------------------------------------------------
U.S. Plans Non-U.S. Plans Other Benefits*
------------------------------ ------------------------------ ------------------------------
2000 1999 1998 2000 1999 1998 2000 1999 1998
-------- --------- ----------- -------- ---------- ---------- --------- --------- ----------
Costs Recognized in Income
- --------------------------
Service cost $ 495 $ 522 $ 475 $ 405 $ 402 $ 324 $ 320 $ 275 $ 213
Interest cost 2,345 1,714 1,609 918 823 802 1,483 972 946
Expected return on plan
assets (3,281) (2,475) (2,208) (1,162) (1,026) (898) (135) (82) (34)
Amortization of:
Transition (asset)/obligation (13) (22) (23) 7 10 15 - - -
Plan amendments 742 471 565 133 105 103 (38) (35) (32)
(Gains)/losses and other (405) (20) 53 64 183 127 82 77 84
Allocated costs to Visteon (71) - - - - - (159) - -
------- ------- ------- ------- ------- ----- ------ ------ ------
Net pension/postretirement
expense/(income) $ (188) $ 190 $ 471 $ 365 $ 497 $ 473 $1,553 $1,207 $1,177
======= ======= ======= ======= ======= ===== ====== ====== ======
Discount rate for expense 7.75% 6.25% 6.75% 6.10% 5.70% 6.50% 7.75% 6.50% 7.00%
Assumed long-term rate of
return on assets 9.00% 9.00% 9.00% 9.40% 9.30% 9.20% 6.00% 6.00% 6.20%
Initial health care cost
trend rate - - - - - - 8.75% 7.00% 6.60%
Ultimate health care cost
trend rate - - - - - - 5.00% 5.00% 5.00%
Number of years to ultimate
trend rate - - - - - - 8 9 10
- - - - - -
*Postretirement health care and life insurance benefits
Pension expense in 2000 decreased primarily as a result of increased return on
plan assets and higher discount rates.
FS-19
NOTE 12. Employee Retirement Benefits (continued)
- --------------------------------------
The year-end status of these plans was as follows (in millions):
Pension Benefits
--------------------------------------------------
U.S. Plans Non-U.S. Plans Other Benefits*
------------------------ ------------------------ ------------------------
2000 1999 2000 1999 2000 1999
---------- ------------- ---------- ------------- ----------- ------------
Change in Benefit Obligation
- ----------------------------
Benefit obligation at January 1 $31,846 $33,003 $16,484 $16,312 $ 15,744 $ 15,230
Service cost 535 650 405 434 320 275
Interest cost 2,388 2,099 918 888 1,483 971
Amendments - 3,113 232 413 (226) 8
Special programs 141 109 83 48 54 46
Net acquisitions/(divestitures) (89) 74 357 784 3,714 37
Plan participant contributions 45 46 71 67 - -
Benefits paid (2,273) (1,950) (744) (698) (1,055) (742)
Foreign exchange translation - - (1,117) (951) 2 22
Actuarial loss/(gain) 689 (5,298) 229 (813) 3,338 (103)
------- ------- ------- ------- -------- --------
Benefit obligation at December 31 $33,282 $31,846 $16,918 $16,484 $ 23,374 $ 15,744
======= ======= ======= ======= ======== ========
Change in Plan Assets
- ---------------------
Fair value of plan assets at January 1 $40,845 $38,417 $15,432 $13,235 $ 1,258 $ 1,501
Actual return on plan assets 979 4,239 233 2,131 168 55
Company contributions 8 6 185 217 1,935 99
Special programs (7) (32) (1) - - -
Net acquisitions/(divestitures) 90 43 520 671 425 -
Plan participant contributions 45 46 71 67 - -
Benefits paid (2,273) (1,950) (744) (698) (651) (397)
Foreign exchange translation - - (1,041) (447) - -
Other 143 76 59 256 - -
------- ------- ------- ------- -------- --------
Fair value of plan assets at December 31 $39,830 $40,845 $14,714 $15,432 $ 3,135 $ 1,258
======= ======= ======= ======= ======== ========
Funded Status of the Plan
- -------------------------
Plan assets in excess of/(less than)
projected benefits $ 6,548 $ 8,999 $(2,204) $(1,052) $(20,239) $(14,486)
Unamortized:
Transition (asset)/obligation (17) (36) 94 164 - -
Prior service cost 3,912 4,548 814 833 (231) (46)
Net (gains)/losses (8,540) (12,037) 336 (1,053) 4,850 1,330
------- ------- ------- ------- -------- --------
Net amount recognized $ 1,903 $ 1,474 $ (960) $(1,108) $(15,620) $(13,202)
======= ======= ======= ======= ======== ========
Amounts Recognized in the
Balance Sheet Consists of Assets/(Liabilities)
- ----------------------------------------------
Prepaid assets $ 2,856 $ 2,288 $ 1,040 $ 1,064 $ - $ -
Accrued liabilities (1,244) (1,118) (2,900) (3,061) (15,620) (13,202)
Intangible assets 116 170 490 519 - -
Deferred income tax 65 46 80 84 - -
Accumulated other comprehensive income 110 88 330 286 - -
------- ------- ------- ------- -------- --------
Net amount recognized $ 1,903 $ 1,474 $ (960) $(1,108) $(15,620) $(13,202)
======= ======= ======= ======= ======== ========
Pension Plans in Which Accumulated Benefit
Obligation Exceeds Plan Assets at December 31
- ---------------------------------------------
Projected benefit obligation $ 1,173 $ 1,109 $ 5,424 $ 5,721
Accumulated benefit obligation 1,085 1,021 5,174 5,366
Fair value of plan assets 62 54 2,751 2,837
Assumptions as of December 31
- -----------------------------
Discount rate 7.50% 7.75% 6.10% 6.10% 7.50% 7.75%
Expected return on assets 9.50% 9.00% 8.80% 9.40% 6.00% 6.00%
Average rate of increase in compensation 5.20% 5.20% 4.20% 4.90% - -
Initial health care cost trend rate - - - - 8.97% 8.75%
Ultimate health care cost trend rate - - - - 5.00% 5.00%
Number of years to ultimate trend rate - - - - 7 8
- - - - - -
*Postretirement health care and life insurance benefits
Postretirement health care and life insurance obligations increased in 2000
primarily as a result of retention of obligations previously allocated to
Visteon and higher than expected cost trends.
FS-20
NOTE 13. Debt
- --------------
The fair value of debt was estimated based on quoted market prices or current
rates for similar debt with the same remaining maturities.
Automotive Sector
- -----------------
Debt at December 31 was as follows (in millions):
Weighted Average
Interest Rate* Book Value
------------------------ ------------------------
Maturity 2000 1999 2000 1999
------------- ----------- ------------ ----------- ------------
Debt payable within one year
----------------------------
Short-term debt 9.0% 14.3% $ 225 $ 1,001
Long-term debt payable within one year 52 337
------- -------
Total debt payable within one year 277 1,338
Long-term debt 2002-2097 7.5% 7.5% 11,769 10,398
-------------- -------- -------
Total debt $12,046 $11,736
======= =======
Fair value $11,970 $13,528
- - - - - -
*Excludes the effect of interest rate swap agreements; change in 2000 primarily
reflects settlement of short-term debt in South America.
Long-term debt at December 31, 2000 included maturities as follows (in
millions): 2001 - $52 (included in current liabilities); 2002 - $78; 2003 - $90;
2004 - $128; 2005 - $600; thereafter - $10,873.
Included in long-term debt at December 31, 2000 and 1999 were obligations of
$11,426 million and $10,057 million, respectively, with fixed interest rates,
and $343 million and $341 million, respectively, with variable interest rates
(generally based on LIBOR or other short-term rates). Obligations payable in
foreign currencies at December 31, 2000 and 1999 were $663 million and $516
million, respectively.
Financial Services Sector
- -------------------------
Debt at December 31 was as follows (in millions):
Weighted Average
Interest Rate* Book Value
---------------------- --------------------------
Maturity 2000 1999 2000 1999
------------- ---------- ----------- ------------ -------------
Debt payable within one year
----------------------------
Unsecured short-term debt $ 1,904 $ 1,853
Commercial paper 44,596 44,605
Other short-term debt 6,234 4,970
-------- --------
Total short-term debt 6.8% 5.9% 52,734 51,428
Long-term debt payable within one year 13,658 20,974
-------- --------
Total debt payable within one year 66,392 72,402
Long-term debt
--------------
Secured indebtedness 2002-2021 8.3% 8.3% 3 3
Unsecured senior indebtedness
Notes and bank debt 2002-2078 6.9% 6.4% 85,731 64,543
Debentures - 508
Unamortized discount (108) (87)
-------- --------
Total unsecured senior indebtedness 85,623 64,964
Unsecured subordinated indebtedness
Notes 2002-2021 8.2% 6.6% 1,500 2,558
Unamortized discount (8) (8)
-------- --------
Total unsecured subordinated indebtedness 1,492 2,550
-------- --------
Total long-term debt 87,118 67,517
-------- --------
Total debt $153,510 $139,919
======== ========
Fair value $155,862 $139,979
- - - - - -
*Excludes the effect of interest rate swap agreements
FS-21
NOTE 13. Debt (continued)
- --------------
Information concerning short-term borrowings (excluding long-term debt payable
within one year) is as follows (in millions):
2000 1999 1998
------------ ------------ ------------
Average amount of short-term borrowings $47,788 $55,096 $49,099
Weighted-average short-term interest rates per
annum (average year) 6.6% 5.7% 5.7%
Average remaining term of commercial paper
At December 31 34 days 24 days 31 days
Long-term debt at December 31, 2000 included maturities as follows (in
millions): 2001 - $13,658; 2002 - $19,313; 2003 - $18,224; 2004 - $11,725; 2005
- - $15,904; thereafter - $21,952.
Included in long-term debt at December 31, 2000 and 1999 were obligations of
$53.7 billion and $46.5 billion, respectively, with fixed interest rates and
$33.4 billion and $21.0 billion, respectively, with variable interest rates
(generally based on LIBOR or other short-term rates). Obligations payable in
foreign currencies at December 31, 2000 and 1999 were $33 billion and $31
billion, respectively. These obligations were issued primarily to fund non-U.S.
business operations.
Outstanding commercial paper at December 31, 2000 totaled $42.3 billion at Ford
Credit and $2.3 billion at Hertz, with an average remaining maturity of 35 days
and 18 days, respectively.
Agreements to manage exposures to fluctuations in interest rates include
primarily interest rate swap agreements. At December 31, 2000, these agreements
decreased the weighted-average interest rate on long-term debt to 6.7% compared
with 6.9% excluding these agreements, and effectively decreased the obligations
subject to variable interest rates to $22.8 billion; the weighted-average
interest rate on short-term debt excluding these agreements did not change
materially. At December 31, 1999, these agreements decreased the
weighted-average interest rate on long-term debt to 6.2%, compared with 6.4%
excluding these agreements, and effectively decreased the obligations subject to
variable interest rates to $199 million; the weighted-average interest rate on
short-term debt excluding these agreements did not change materially.
Support Facilities
- ------------------
At December 31, 2000, Ford had long-term contractually committed global credit
agreements under which $8.4 billion is available from various banks; 87% are
available through June 30, 2005. The entire $8.4 billion may be used, at Ford's
option, by any affiliate of Ford; however, any borrowing by an affiliate will be
guaranteed by Ford. Ford also has the ability to transfer, on a nonguaranteed
basis, $8.1 billion of such credit lines in varying portions to Ford Credit and
FCE Bank plc.
At December 31, 2000, the Financial Services sector had a total of $27.7 billion
of contractually committed support facilities (excluding the $8.1 billion
available under Ford's global credit agreements). Of these facilities, $23.9
billion are contractually committed global credit agreements under which $19.3
billion and $4.6 billion are available to Ford Credit and FCE Bank plc,
respectively, from various banks; 55% and 64%, respectively, of such facilities
are available through June 30, 2005. The entire $19.3 billion may be used, at
Ford Credit's option, by any subsidiary of Ford Credit, and the entire $4.6
billion may be used, at FCE Bank plc's option, by any subsidiary of FCE Bank
plc. Any borrowings by such subsidiaries will be guaranteed by Ford Credit or
FCE Bank plc, as the case may be. At December 31, 2000, $173 million of the Ford
Credit global facilities were in use and $130 million of the FCE Bank plc global
facilities were in use. Other than the global credit agreements, the remaining
portion of the Financial Services Sector support facilities at December 31, 2000
consisted of $2.5 billion of contractually committed support facilities
available to Hertz in the U.S. and $1.3 billion of contractually committed
support facilities available to various affiliates outside the U.S.; at December
31, 2000, approximately $0.9 billion of these facilities were in use.
Furthermore, banks provide $1.4 billion of liquidity facilities to support the
asset-backed commercial paper program of a Ford Credit sponsored special purpose
entity.
FS-22
NOTE 14. Capital Stock
- -----------------------
At December 31, 2000, all general voting power was vested in the holders of
Common Stock and the holders of Class B Stock, voting together without regard to
class. At that date, the holders of Common Stock were entitled to one vote per
share and, in the aggregate, had 60% of the general voting power; the holders of
Class B Stock were entitled to such number of votes per share as would give
them, in the aggregate, the remaining 40% of the general voting power, as
provided in the Company's Restated Certificate of Incorporation.
The Restated Certificate of Incorporation provides that all shares of Common
Stock and Class B Stock share equally in dividends (other than dividends
declared with respect to any outstanding Preferred Stock), except that any stock
dividends are payable in shares of Common Stock to holders of that class and in
Class B Stock to holders of that class. Upon liquidation, subject to the rights
of any other class or series of stock having a preference on liquidation, each
share of Common Stock will be entitled to the first $0.50 available for
distribution to holders of Common Stock and Class B Stock, each share of Class B
Stock will be entitled to the next $1.00 so available, each share of Common
Stock will be entitled to the next $0.50 so available and each share of Common
and Class B Stock will be entitled to an equal amount thereafter.
For a discussion of Ford's recapitalization effected in August 2000, see Note 3.
On January 9, 1998, all outstanding shares of Series A Depositary Shares,
representing 1/1,000 of a share of Series A Cumulative Convertible Preferred
Stock, were redeemed at a price of $51.68 per Depositary Share plus an amount
equal to accrued and unpaid dividends.
Series B Depositary Shares, representing 1/2,000 of a share of $1.00 par value
Series B Cumulative Preferred Stock, have a liquidation preference of $25 per
Depositary Share. Shares outstanding at December 31, 2000 numbered 7,096,688
Depositary Shares. Dividends are payable at a rate of $2.0625 per year per
Depositary Share. Series B Cumulative Preferred Stock is not convertible into
shares of Common Stock of the Company. On and after December 1, 2002, and upon
satisfaction of certain conditions, the stock is redeemable for cash at the
option of Ford, in whole or in part, at a redemption price equivalent to $25 per
Depositary Share, plus an amount equal to the sum of all accrued and unpaid
dividends.
In 1998, pursuant to an offer to purchase all Depositary Shares representing its
Series B Cumulative Preferred Stock at a price of $31.40 per Depositary Share,
the Company purchased a total of 13,229,775 Depositary Shares.
The Series B Cumulative Preferred Stock ranks (and any other outstanding
Preferred Stock of the Company would rank) senior to the Common Stock and Class
B Stock in respect of dividends and liquidation rights.
Changes to the number of shares of capital stock issued for the periods
indicated were as follows (shares in millions):
Preferred
Common Class B -------------------------
Stock Stock Series A Series B
------------ ------------ ------------ ------------
Issued at December 31, 1997 1,132 71 0.003 0.010
Changes:
1998 - Conversion and Redemption of Series A
Preferred Stock 8 (0.003)
- Employee benefit plans and other 11
- Repurchase of Series B Preferred Stock (0.006)
2000 - Value Enhancement Plan 686
----- --- ----- -----
Net change 705 - (0.003) (0.006)
----- --- ----- -----
Issued at December 31, 2000 1,837 71 0.000 0.004
===== === ===== =====
Authorized at December 31, 2000 6,000 530 Total Preferred: 30
FS-23
NOTE 15. Stock Options
- -----------------------
The Company has stock options outstanding under the 1990 Long-Term Incentive
Plan and the 1998 Long-Term Incentive Plan. These Plans were approved by the
stockholders. No further grants may be made under the 1990 Plan. Grants may be
made under the 1998 Plan through April 2008. In general, options granted in 1997
under the 1990 Plan and subsequent years under the 1998 Plan become exercisable
33% after one year from the date of grant, 66% after two years, and in full
after three years. In general, options granted prior to 1997 under the 1990 Plan
become exercisable 25% after one year from the date of grant, 50% after two
years, 75% after three years, and in full after four years. Options under the
Plans expire after 10 years from the date of grant. Certain participants were
granted accompanying Stock Appreciation Rights under the Plans which may be
exercised in lieu of the related options. Under the Plans, a Stock Appreciation
Right entitles the holder to receive, without payment, the excess of the fair
market value of the Common Stock on the date of exercise over the option price,
either in Common Stock or cash or a combination. In addition, grants of
Performance/Contingent Stock Rights were made with respect to 1.2 million shares
in 2000, 1.2 million shares in 1999, and 1.4 million shares in 1998. The number
of shares ultimately awarded will depend on the extent to which the performance
targets specified in each Right is achieved, individual performance of the
recipients, and other factors, as determined by the Compensation Committee of
the Board of Directors.
Under the 1998 Plan, up to 2% of Common Stock issued as of December 31 of any
year may be made available for stock options and other plan awards in the next
succeeding calendar year. That limit may be increased up to 3% in any year, with
a corresponding reduction in shares available for grants in future years. Any
unused portion of the 2% limit for any calendar year may be carried forward and
made available for Plan awards in succeeding calendar years. At
December 31, 2000, the number of unused shares carried forward aggregated to
43.1 million shares.
Information concerning stock options is as follows (shares in millions):
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 75.3 $32.66 70.9 $25.67 50.0 $28.44
New grants (based on fair value of
Common Stock at dates of grant) 15.8 41.02 14.9 57.84 12.7 58.07
Adjustment* 71.4 24.8
Exercised** (6.9) 15.15 (9.1) 20.26 (13.7) 19.97
Surrendered upon exercise of Stock
Appreciation Rights (0.2) 9.05 (0.8) 21.14 (2.5) 22.79
Terminated and expired (1.7) 35.75 (0.6) 37.10 (0.4) 33.58
----- ---- ----
Outstanding at end of period 153.7*** 19.16 75.3 32.66 70.9 25.67
Outstanding but not exercisable (53.4) (33.5) (34.9)
----- ---- ----
Exercisable at end of period 100.3 15.59 41.8 23.51 36.0 19.53
===== ==== ====
- - - - - -
*Outstanding stock options and related exercise prices were adjusted to
preserve the intrinsic value of options as a result of the Visteon spin-off
and Value Enhancement Plan in 2000, and The Associates spin-off in 1998.
** Exercised at option prices ranging from $5.75 to $23.87 during 2000, $10.43
to $44.75 during 1999, and $10.43 to $32.69 during 1998.
***Included 70.6 and 83.1 million shares under the 1990 and 1998 Plans,
respectively, at option prices ranging from $5.75 to $35.79 per share. At
December 31, 2000, the weighted-average remaining exercise period relating
to the outstanding options was 6.5 years.
FS-24
NOTE 15. Stock Options (continued)
- -----------------------
The estimated fair value as of date of grant of options granted in 2000, 1999,
and 1998, 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
-----
*Estimated fair value at date of grant adjusted
for the Value Enhancement Plan.
The Company measures compensation cost using the intrinsic value method.
Accordingly, and because option exercise price is set at fair value at the date
of grant, no compensation cost for stock options has been recognized. If
compensation cost had been determined based on the estimated fair value of
options granted since 1995, the Company's net income and income per share would
have been reduced to the pro forma amounts indicated below:
2000 1999 1998
---------------------- ---------------------- -----------------------
As Pro As Pro As Pro
Reported Forma* Reported Forma* Reported Forma*
----------- ---------- ---------------------- -----------------------
Net income (in millions) $3,467 $3,343 $7,237 $7,129 $22,071 $22,014
Income per share
----------------
Basic $ 2.34 $ 2.26 $ 5.99 $ 5.90 $ 18.17 $ 18.12
Diluted $ 2.30 $ 2.22 $ 5.86 $ 5.77 $ 17.76 $ 17.71
- - - - -
*The pro forma disclosures may not be representative of the effects on
reported net income and income per share for future periods because only
stock options that were granted beginning in 1995 are included in the above
table. The estimated fair value, before tax, of options granted in 2000,
1999, and 1998 was $172 million, $256 million, and $162 million,
respectively.
NOTE 16. Litigation and Claims
- -------------------------------
Various legal actions, governmental investigations and proceedings and
claims are pending or may be instituted or asserted in the future against the
Company and its subsidiaries, including those arising out of alleged defects in
the Company's products; governmental regulations relating to safety, emissions
and fuel economy; financial services; employment-related matters; dealer,
supplier and other contractual relationships; intellectual property rights;
product warranties; and environmental matters. Certain of the pending legal
actions are, or purport to be, class actions. Some of the foregoing matters
involve or may involve compensatory, punitive, or antitrust or other treble
damage claims in very large amounts, or demands for recall campaigns,
environmental remediation programs, sanctions, or other relief which, if
granted, would require very large expenditures.
Litigation is subject to many uncertainties, and the outcome of individual
litigated matters is not predictable with assurance. Reserves have been
established by the Company for certain of the matters discussed in the foregoing
paragraph where losses are deemed probable. It is reasonably possible, however,
that some of the matters discussed in the foregoing paragraph for which reserves
have not been established could be decided unfavorably to the Company or the
subsidiary involved and could require the Company or such subsidiary to pay
damages or make other expenditures in amounts or a range of amounts that cannot
be estimated at December 31, 2000. The Company does not reasonably expect, based
on its analysis, that such matters would have a material effect on future
consolidated financial statements for a particular year, although such an
outcome is possible.
FS-25
NOTE 17. Commitments and Contingencies
- ---------------------------------------
At December 31, 2000, the Company had the following minimum rental commitments
under non-cancelable operating leases (in millions): 2001 - $678; 2002 - $543;
2003 - $421; 2004 - $284; 2005 - $203; thereafter - $798. These amounts include
rental commitments related to the sale and leaseback of certain Automotive
sector machinery and equipment. Rental expense for all operating leases was $873
million in 2000; $847 million in 1999; and $747 million in 1998.
NOTE 18. Financial Instruments
- -------------------------------
Estimated fair value amounts have been determined using available market
information and various valuation methods depending on the type of instrument.
In evaluating the fair value information, considerable judgment is required to
interpret the market data used to develop the estimates. The use of different
market assumptions and/or different valuation techniques may have a material
effect on the estimated fair value amounts. Further, it should be noted that
fair value at a particular point in time gives no indication of future gain or
loss, or what the dimensions of that gain or loss are likely to be.
Balance Sheet Financial Instruments
- -----------------------------------
Information about specific valuation techniques and estimated fair values is
provided throughout the Notes to Consolidated Financial Statements. Book value
and estimated fair value amounts at December 31 were as follows (in millions):
2000 1999
----------------------- -----------------------
Book Fair Book Fair Fair Value
Value Value Value Value Reference
------------ ---------- ----------- ----------- -------------
Automotive Sector
Marketable securities $ 13,116 $ 13,116 $ 18,943 $ 18,943 Note 4
Debt 12,046 11,970 11,736 13,528 Note 13
Financial Services Sector
Marketable securities $ 817 $ 817 $ 733 $ 733 Note 4
Receivables 117,664 118,988 105,577 106,552 Note 5
Debt 153,510 155,862 139,919 139,979 Note 13
Foreign Currency, Interest Rate, and Commodity Instruments
- ----------------------------------------------------------
The fair value of foreign currency, interest rate, and commodity instruments was
estimated using current market rates provided by outside quotation services. The
notional amount (the contract amount, not the amount at risk), book value, and
estimated fair value at December 31 were as follows (in millions):
Book Value Fair Value
Notional -------------------------- ------------------------
Amount Asset Liability Asset Liability
-------------- ---------- --------------- ---------- -------------
2000
Interest rate products $139,536 $ 101 $ 72 $ 818 $ 293
Currency products 51,606 1,351 2,238 1,048 1,821
Commodity products 2,836 93 18 75 23
1999
Interest rate products $125,329 $ 103 $ 48 $ 331 $ 322
Currency products 39,908 760 1,460 291 1,298
Commodity products 3,020 256 - 219 -
Counterparty Credit Risk
- ------------------------
Ford manages its foreign currency, interest rate, and commodity counterparty
credit risks by limiting exposure to and by monitoring the financial condition
of each counterparty. The amount of exposure Ford may have to a single
counterparty on a worldwide basis is limited by company policy. In the unlikely
event that a counterparty fails to meet the terms of a foreign currency,
interest rate, or commodity instrument, the Company's risk is limited to the
fair value of the instrument.
FS-26
NOTE 19. Acquisitions, Dispositions and Restructurings
- -------------------------------------------------------
Automotive Sector
- -----------------
Acquisitions
- ------------
Purchase of Land Rover Business - On June 30, 2000, Ford purchased the Land
Rover business from the BMW Group for approximately $2.6 billion.
Approximately two-thirds of the purchase price was paid at time of closing;
the remainder will be paid in 2005 (Note 11). The acquisition involves the
entire Land Rover line of products, and related assembly and engineering
facilities. It does not include Rover's passenger car business or financial
services business.
The acquisition has been accounted for as a purchase. The assets acquired,
liabilities assumed, and the results of operations since the date of
acquisition are included in Ford's financial statements on a consolidated
basis.
The purchase price for Land Rover has been allocated to the assets acquired
and liabilities assumed based on the estimated fair value as of the
acquisition date. The excess of the purchase price over the estimated fair
value of net assets acquired is approximately $775 million and is being
amortized on a straight-line basis over 40 years. Value assigned to
identified intangible assets is approximately $275 million and is being
amortized on a straight-line basis over periods ranging from 8 to 40 years.
The purchase price allocation included a write-up of inventory to fair
value; the sale of this inventory in the third quarter of 2000 resulted in
a one-time increase in cost of sales of $106 million after tax.
Assuming the Land Rover acquisition had taken place on January 1, 2000 and
1999, Ford's total (Automotive and Financial Services) pro forma revenue,
net income, and earnings per share for the years ended December 31, 2000
and 1999 would not have been materially affected.
Purchase of AB Volvo's Worldwide Passenger Car Business ("Volvo Car") - On
March 31, 1999, Ford purchased Volvo Car for approximately $6.45 billion.
The acquisition price consisted of a cash payment of approximately $2
billion on March 31, 1999, a deferred payment obligation to AB Volvo of
approximately $1.6 billion due March 31, 2001 (Note 11), and Volvo Car
automotive net indebtedness of approximately $2.9 billion. Most automotive
indebtedness was repaid on April 12, 1999.
The acquisition has been accounted for as a purchase. The assets purchased,
liabilities assumed, and the results of operations since the date of
acquisition are included in our financial statements on a consolidated
basis.
The purchase price for Volvo Car has been allocated to the assets acquired
and liabilities assumed based on the estimated fair values as of the
acquisition date. The excess of the purchase price over the estimated fair
value of net assets acquired is approximately $2.5 billion and is being
amortized on a straight-line basis over 40 years. Value assigned to
identified intangible assets is approximately $400 million and is being
amortized on a straight-line basis over periods ranging from 12 to 40
years. The purchase price allocation included a write-up of inventory to
fair value; the sale of this inventory in the second quarter of 1999
resulted in a one-time increase in cost of sales of $146 million after-tax.
Purchase of Kwik-Fit Holdings plc - During the third quarter of 1999, Ford
completed the purchase of all the outstanding stock of Kwik-Fit plc
("Kwik-Fit"). At the time, Kwik-Fit was Europe's largest independent
vehicle maintenance and light repair chain. The acquisition price was
approximately $1.6 billion and consisted of cash payments of approximately
$1.4 billion and loan notes to certain Kwik-Fit shareholders of
approximately $200 million, redeemable beginning on April 30, 2000 and on
any subsequent interest payment date.
The acquisition has been accounted for as a purchase. The assets purchased,
liabilities assumed, and the results of operations since June 30, 1999 are
included in our financial statements on a consolidated basis.
FS-27
NOTE 19. Acquisitions, Dispositions and Restructurings (continued)
- -------------------------------------------------------
The purchase price for Kwik-Fit has been allocated to the assets acquired
and liabilities assumed based on the estimated fair values as of the
acquisition date. The excess of the purchase price over the estimated fair
value of the net assets acquired is approximately $1.1 billion and is being
amortized on a straight-line basis over 30 years. Value assigned to
identified intangible assets is approximately $400 million and is being
amortized on a straight-line basis over periods ranging from 10 to 30
years.
Assuming the Volvo Car and Kwik-Fit acquisitions had taken place on January
1, 1999 and 1998, Ford's total (Automotive and Financial Services) pro
forma revenue, net income, and earnings per share for the years ended
December 31, 1999 and 1998 would not have been materially affected.
European Charges
- ----------------
Following an extensive business review of the Ford brand Automotive operations
in Europe, the Company recorded a pre-tax charge in Automotive cost of sales of
$1.6 billion in the second quarter of 2000. This charge included $1.1 billion
for asset impairments and $468 million for restructuring costs. The effect on
after-tax earnings was $1 billion. As of December 31, 2000, we have spent or
utilized approximately $150 million related to the restructuring charge.
The asset impairment charge, attributable to excess capacity related to Ford's
performance in the competitive and regulatory environment in Europe, reflected
the write-down of certain long-lived assets from their carrying value to their
estimated fair value, as determined by an independent valuation of Ford brand
Automotive operations in Europe.
The restructuring charge included employee separation costs of $426 million and
other exit-related costs of $42 million. Employee separation included a
workforce reduction of about 3,300 employees (2,900 hourly and 400 salaried)
related to the planned cessation of vehicle production at the Dagenham (U.K.)
Body and Assembly Plant
Nemak Joint Venture
- -------------------
During the fourth quarter of 2000, Ford recorded in cost of sales a pre-tax
charge of $205 million ($133 million after taxes) related to the fair value
transfer of its Windsor Aluminum Plant, Essex Aluminum Plant, and its Casting
Process Development Center for an increased equity interest in its Nemak Joint
Venture. The new joint venture is reflected in Ford's consolidated financial
statements on an equity basis.
Dissolution of AutoEuropa Joint Venture
- ---------------------------------------
Effective January 1, 1999, Ford's joint venture for the production of minivans
with Volkswagen AG in Portugal (AutoEuropa) was dissolved resulting in a $255
million pre-tax gain ($165 million after taxes). The gain was recorded in the
first quarter 1999 and credited to cost of sales.
Write-Down of Kia Motors Corporation
- ------------------------------------
During the fourth quarter of 1998, Ford recorded a pre-tax charge of $111
million ($86 million after taxes) to write-off its net exposure to Kia Motors
Corporation. The write-off of Ford's exposure was recorded in cost of sales.
Ford's share of Mazda Motor Corporation's exposure was recorded in equity in net
income of affiliated companies.
Batavia/ZF Friedrichshafen AG Joint Venture
- -------------------------------------------
During the fourth quarter of 1998, Ford recorded in cost of sales a pre-tax
charge of $112 million ($73 million after taxes) related to the fair value
transfer of its Batavia (Ohio) Transmission Plant to a new joint venture company
formed by Ford and ZF Friedrichshafen AG of Germany. The joint venture is
reflected in Ford's consolidated financial statements on an equity basis.
FS-28
NOTE 19. Acquisitions, Dispositions and Restructurings (continued)
- -------------------------------------------------------
Restructurings
- --------------
Ford recorded a pre-tax charge of $688 million ($447 million after taxes) in the
fourth quarter of 1998, reflecting retirement and separation program actions
that were completed during 1998 and 1999. These special voluntary and
involuntary programs reduced the workforce by 1,947 persons in North America
(all salaried), 1,951 in Europe (1,304 hourly and 647 salaried) and 4,650 in
South America (4,400 hourly and 250 salaried). The costs were primarily charged
to the Automotive sector.
Financial Services Sector
- -------------------------
Associates First Capital Corporation ("The Associates")
- -------------------------------------------------------
During the second quarter of 1998, the Company completed a spin-off of Ford's
80.7% (279.5 million shares) interest in The Associates. As a result of the
spin-off of The Associates, Ford recorded a gain of $15,955 million in the first
quarter of 1998 based on the fair value of The Associates as of the record date,
March 12, 1998. The spin-off qualified as a tax-free transaction for U.S.
federal income tax purposes.
NOTE 20. Cash Flows
- --------------------
The reconciliation of net income to cash flows from operating activities is as
follows (in millions):
2000 1999 1998
------------------------ ------------------------------------------------
Financial Financial Financial
Automotive Services Automotive Services Automotive Services
----------- ------------ ----------- ---------- ------------ ------------
Net income from continuing operations $ 3,624 $ 1,786 $ 4,986 $ 1,516 $ 4,049 $ 17,319
Adjustments to reconcile net income
to cash flows from operating activities:
Depreciation and amortization 5,397 9,452 5,244 9,298 5,279 8,624
European charges (depreciation and
amortization) 1,100 - - - - -
Losses/(earnings) of affiliated
companies in excess of dividends
remitted 86 17 (14) 25 91 (2)
Provision for credit and
insurance losses - 1,963 - 1,465 - 1,798
Foreign currency adjustments (58) - 284 - (192) -
Net (purchases)/sales of trading
Securities 6,284 122 2,316 (157) (5,434) (205)
Provision for deferred income taxes 706 1,449 258 1,565 345 1,307
Gain on spin-off of The Associates
(Note 19) - - - - - (15,955)
Changes in assets and liabilities:
Decrease/(increase) in accounts
receivable and other current assets (509) (695) (822) (331) 1,164 (1,189)
Decrease/(increase) in inventory (1,369) - 955 - (173) -
Increase/(decrease) in accounts payable
and accrued and other liabilities 2,444 1,509 1,154 (1,213) 2,479 890
Other 602 (146) 490 372 641 891
------- ------- ------- ------- ------- --------
Cash flows from operating activities $18,307 $15,457 $14,851 $12,540 $ 8,249 $ 13,478
======= ======= ======= ======= ======= ========
The Company considers all highly liquid investments purchased with a maturity of
three months or less, including short-term time deposits and government, agency
and corporate obligations, to be cash equivalents. Automotive sector cash
equivalents at December 31, 2000 and 1999 were $2.9 billion and $3.1 billion,
respectively; Financial Services sector cash equivalents at December 31, 2000
and 1999 were $1.0 billion and $1.1 billion, respectively. Cash flows resulting
from futures contracts, forward contracts and options that are accounted for as
hedges of identifiable transactions are classified in the same category as the
item being hedged.
Cash paid for interest and income taxes was as follows (in millions):
2000 1999 1998
----------- ----------- -----------
Interest $10,354 $8,381 $9,039
Income taxes 2,031 844 1,456
FS-29
NOTE 21. Segment Information
- -----------------------------
Ford has identified three primary operating segments: Automotive, Ford Credit,
and Hertz. Segment selection was based upon internal organizational structure,
the way in which these operations are managed and their performance evaluated by
management and Ford's Board of Directors, the availability of separate financial
results, and materiality considerations. Segment detail is summarized as follows
(in millions):
Financial Services Sector
-----------------------------------
Auto- Ford Other Elims/
motive Credit Hertz Fin Svcs Other Total
---------- ----------- ---------- ----------- ----------- ----------
2000
----
Revenues
External customer $141,230 $ 23,412 $ 5,057 $ 342 $ 23 $170,064
Intersegment 3,783 194 30 154 (4,161) -
-------- -------- ------- ------- -------- --------
Total Revenues $145,013 $ 23,606 $ 5,087 $ 496 $ (4,138) $170,064
======== ======== ======= ======= ======== ========
Income
Income before taxes $ 5,267 $ 2,495 $ 581 $ (109) $ - $ 8,234
Provision for income tax 1,597 926 223 (41) - 2,705
Income from continuing operations 3,624 1,536 358 (35) (73) 5,410
Other Disclosures
Depreciation/amortization $ 6,497 $ 7,846 a/ $ 1,504 $ 46 $ 56 $ 15,949
Interest income 1,649 - - - (161) 1,488
Interest expense 1,589 8,970 428 459 (544) 10,902
Capital expenditures 7,393 168 291 496 - 8,348
Unconsolidated affiliates
Equity in net income/(loss) (70) (22) - 1 - (91)
Investments in 2,949 79 - 7 - 3,035
Total assets at year-end 98,157 174,258 10,620 7,668 (6,282) 284,421
-------------------------------------------------------------------------------------------------------------------
1999
----
Revenues
External customer $135,073 $ 20,020 $ 4,695 $ 866 $ 4 $160,658
Intersegment 4,082 340 33 170 (4,625) -
-------- -------- ------- ------- -------- --------
Total Revenues $139,155 $ 20,360 $ 4,728 $ 1,036 $ (4,621) $160,658
======== ======== ======= ======= ======== ========
Income
Income before taxes $ 7,275 $ 2,104 $ 560 $ (85) $ - $ 9,854
Provision for income tax 2,251 791 224 (18) - 3,248
Income from continuing operations 4,986 1,261 336 (15) (66) 6,502
Other Disclosures
Depreciation/amortization $ 5,244 $ 7,565 a/ $ 1,357 $ 326 $ 50 $ 14,542
Interest income 1,532 - - - (114) 1,418
Interest expense 1,469 7,193 354 633 (623) 9,026
Capital expenditures 7,069 82 351 157 - 7,659
Unconsolidated affiliates
Equity in net income/(loss) 35 (25) - - - 10
Investments in 2,539 97 - 8 - 2,644
Total assets at year-end 102,608 156,631 10,137 12,427 (11,554) 270,249
-------------------------------------------------------------------------------------------------------------------
1998
----
Revenues
External customer $118,017 $ 19,095 $ 4,241 $ 1,997 $ - $143,350
Intersegment 3,333 208 9 272 (3,822) -
-------- -------- ------- ------- -------- --------
Total Revenues $121,350 $ 19,303 $ 4,250 $ 2,269 $ (3,822) $143,350
======== ======== ======= ======= ======== ========
Income
Income before taxes $ 5,842 $ 1,812 $ 465 $16,161 b/ $ - $ 24,280
Provision for income tax 1,743 680 188 149 - 2,760
Income from continuing operations 4,049 1,084 277 16,060 b/ (102) 21,368
Other Disclosures
Depreciation/amortization $ 5,279 $ 7,327 a/ $ 1,212 $ 54 $ 31 $ 13,903
Interest income 1,340 - - - (15) 1,325
Interest expense 999 6,910 318 1,114 (510) 8,831
Capital expenditures 7,252 67 317 120 - 7,756
Gain on spin-off of
The Associates - - - 15,955 - 15,955
Unconsolidated affiliates
Equity in net income/(loss) (64) 2 - - - (62)
Investments in 2,187 76 - - - 2,263
Total assets at year-end 85,008 137,248 8,873 6,181 (4,598) 232,712
- - - - - -
a/ Includes depreciation of operating leases only. Other types of
depreciation/amortization for Ford Credit are included in the Elims/Other
column.
b/ Includes $15,955 million non-cash gain (not taxed) on spin-off of The
Associates in the first quarter of 1998 (Note 19).
FS-30
NOTE 21. Segment Information (continued)
- -----------------------------
"Other Financial Services" data is an aggregation of miscellaneous smaller
Financial Services sector business components, including Ford Motor Land
Development Corporation, Ford Leasing Development Company, Ford Leasing
Corporation, and Granite Management Corporation. Also included is data for The
Associates, which was spun-off from Ford in 1998.
"Eliminations/Other" data includes intersegment eliminations and minority
interest calculations. Data for "Depreciation/amortization" includes
depreciation of fixed assets and assets subject to operating leases,
amortization of special tools, and amortization of intangible assets. Interest
income for the operating segments in the Financial Services sector is reported
as "Revenue".
Information concerning principal geographic areas was as follows (in millions):
Geographic Areas United All Total
States Europe Other Company
------------ ------------ ------------ -------------
2000
----
External revenues $118,373 $32,132 $19,559 $170,064
Income from continuing operations 6,009 (862) 263 5,410
Net property 25,930 13,614 6,260 45,804
1999
----
External revenues $111,423 $32,709 $16,526 $160,658
Income from continuing operations 6,008 376 118 6,502
Net property 24,146 13,098 6,719 43,963
1998
----
External revenues $ 99,879 $26,795 $16,676 $143,350
Income from continuing operations 20,856 445 67 21,368
Net property 22,266 9,774 6,608 38,648
NOTE 22. Summary Quarterly Financial Data (Unaudited)
- ------------------------------------------------------
(in millions, except amounts per share)
2000 1999
------------------------------------ ------------------------------------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
--------- ------- ------- ---------- ------- --------- -------- ---------
Automotive
Sales $36,175 $37,366 $32,582 $35,107 $31,597 $35,546 $30,645 $37,285
Operating income 2,332 1,393 565 936 2,083 2,454 737 1,940
Financial Services
Revenues 6,719 7,153 7,482 7,480 5,952 6,361 6,635 6,637
Income before income taxes 643 764 856 704 547 689 742 601
Total Company
Income from continuing operations 1,932 1,513 888 1,077 1,774 2,058 959 1,711
Less: Preferred Stock dividend
Requirements 4 3 4 4 4 4 4 3
------- ------- ------- ------- ------- ------- ------- -------
Income attributable
to Common and
Class B Stock $ 1,928 $ 1,510 $ 884 $ 1,073 $ 1,770 $ 2,054 $ 955 $ 1,708
======= ======= ======= ======= ======= ======= ======= =======
AMOUNTS PER SHARE OF COMMON
AND CLASS B STOCK AFTER
PREFERRED STOCK DIVIDENDS
Basic income from continuing operations $ 1.61 $ 1.26 $ 0.54 $ 0.58 $ 1.47 $ 1.70 $ 0.79 $ 1.42
Diluted income from continuing operations 1.58 1.24 0.53 0.57 1.43 1.66 0.78 1.39
Cash dividends 0.50 0.50 0.50 0.30 0.46 0.46 0.46 0.50
FS-31
Report of Independent Accountants
To the Board of Directors and Stockholders
Ford Motor Company:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, stockholders' equity and cash flows present
fairly, in all material respects, the financial position of Ford Motor Company
and Subsidiaries at December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000 in conformity with accounting principles generally accepted in
the United States of America. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States 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 our opinion.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Detroit, Michigan
January 18, 2001
FS-32
Supplemental Schedule
Ford Capital BV and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
--------------------------------
For the Years Ended December 31, 2000, 1999 and 1998
(in millions)
2000 1999 1998
------------ ------------ ------------
Sales (Note 1) $1,815 $2,057 $1,906
Costs and expenses (Note 1)
Costs of sales 1,691 1,920 1,776
Selling, administrative and other expenses 106 122 108
------ ------ ------
Total costs and expenses 1,797 2,042 1,884
Operating income 18 15 22
Interest income 256 278 334
Interest expense 215 234 270
------ ------ ------
Net interest income 41 44 64
Income before income taxes 59 59 86
Provision for income taxes (Note 5) 26 24 33
------ ------ ------
Income before minority interests 33 35 53
Minority interests in net income of subsidiaries 1 2 3
------ ------ ------
Net income $ 32 $ 33 $ 50
====== ====== ======
The accompanying notes are part of the financial statements.
FSS-1
Ford Capital BV and Subsidiaries
CONSOLIDATED BALANCE SHEET
--------------------------
As of December 31, 2000 and 1999
(in millions)
2000 1999
--------------- ----------------
ASSETS
Cash and cash equivalents $ 18 $ 49
Receivables - trade, affiliate and other (Note 2) 55 103
Notes receivable, affiliate (Note 15) 411 351
Inventories (Note 3) 41 35
Deferred income taxes (Note 5) 24 5
Other current assets (Note 1) 28 38
------- -------
Total current assets 577 581
Notes receivable, affiliate (Note 15) 1,391 2,319
Net property (Note 4) 14 26
Other assets 104 59
------- -------
Total assets $ 2,086 $ 2,985
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Trade payables $ 63 $ 87
Payables - affiliate and other 71 43
Accrued liabilities (Note 6) 156 224
Income taxes payable 31 17
Debt payable within one year (Note 8) 567 933
------- -------
Total current liabilities 888 1,304
Long-term debt (Note 8) 900 1,450
Deferred tax liability (Note 5) 16 19
Other liabilities 10 13
------- -------
Total liabilities 1,814 2,786
Minority interests 1 6
Stockholders' equity
Capital stock, 255,140 shares issued with a par value of $593 each and 623,392 shares
issued with a par value of $133 each (Note 9) 236 236
Capital in excess of par value (Note 9) 72 -
Accumulated other comprehensive income/(loss) (15) 11
Accumulated deficit (22) (54)
------- -------
Total stockholders' equity 271 193
------- -------
Total liabilities and stockholders' equity $ 2,086 $ 2,985
======= =======
- - - - -
The accompanying notes are part of the financial statements.
FSS-2
Ford Capital BV and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
For the Years Ended December 31, 2000, 1999 and 1998
(in millions)
2000 1999 1998
----------------- --------------- --------------
Cash and cash equivalents at January 1 $ 49 $ 11 $ 16
Cash flows from operating activities
(Note 14) 29 39 (15)
Cash flows from investing activities
Acquisitions of other companies (Note 13) (31) - -
Changes in notes receivable 868 29 1,375
Other 20 (18) 14
-------- ------- ------
Net cash provided by investing activities 857 11 1,389
Cash flows from financing activities
Cash dividends - - (63)
Capital stock redemption - - (259)
Changes in short-term debt 17 - -
Principal payments on other debt (935) (14) (1,055)
-------- ------- ------
Net cash used by financing activities (918) (14) (1,377)
Effect of exchange rate changes on cash 1 2 (2)
-------- ------- ------
Net (decrease)/increase in cash and
cash equivalents (31) 38 (5)
-------- ------- ------
Cash and cash equivalents at December 31 $ 18 $ 49 $ 11
======== ======= ======
The accompanying notes are part of the financial statements.
FSS-3
Ford Capital BV and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
----------------------------------------------
For the Years Ended December 31, 2000, 1999 and 1998
(in millions)
Capital in Accumulated
excess of Other
Capital par value Accumulated Comprehensive
Stock of stock Deficit Income/ (loss) Total
--------- --------------- ------------- ------------------ ----------------
YEAR ENDED DECEMBER 31, 1998
- ----------------------------
Balance at beginning of year $ 495 $ - $ (74) $ 28 $ 449
Comprehensive income
Net income 50 50
Foreign currency translation 3 3
-------
Comprehensive income 53
Common Stock redemption (259) (259)
Cash dividends (63) (63)
------ ------ ------- -------- -------
Balance at end of year $ 236 $ - $ (87) $ 31 $ 180
====== ====== ======= ======== =======
YEAR ENDED DECEMBER 31, 1999
- ----------------------------
Balance at beginning of year $ 236 $ - $ (87) $ 31 $ 180
Comprehensive income
Net income 33 33
Foreign currency translation (20) (20)
-------
Comprehensive income 13
------ ------ ------- -------- -------
Balance at end of year $ 236 $ - $ (54) $ 11 $ 193
====== ====== ======= ======== =======
YEAR ENDED DECEMBER 31, 2000
- ----------------------------
Balance at beginning of year $ 236 $ - $ (54) $ 11 $ 193
Comprehensive income
Net income 32 32
Foreign currency translation (26) (26)
-------
Comprehensive income 6
Capital contribution 72 72
------ ------ ------- -------- -------
Balance at end of year $ 236 $ 72 $ (22) $ (15) $ 271
====== ====== ======= ======== =======
The accompanying notes are part of the financial statements.
FSS-4
NOTE 1. Accounting Policies
- ----------------------------
Description of Business
- -----------------------
Ford Capital BV and its subsidiaries are engaged in the importation and sale of
vehicles and parts in the markets of Belgium, Denmark, Finland, Netherlands,
Norway and Poland. A subsidiary company which produced vehicles in Poland ceased
manufacturing operations during 2000.
Principles of Consolidation
- ---------------------------
The consolidated financial statements include all majority-owned subsidiaries.
Use of estimates and assumptions as determined by management is required in the
preparation of consolidated financial statements in conformity with generally
accepted accounting principles. Actual results could differ from those estimates
and assumptions. The functional currency of Ford Capital BV is U.S. dollars. For
purposes of Notes to Financial Statements, "the Company" means Ford Capital BV
and its majority-owned consolidated subsidiaries unless the context requires
otherwise. Certain amounts for prior periods are reclassified, if required, to
conform to present period presentations.
Revenue Recognition
- -------------------
Sales are recorded by the Company when products are shipped to dealers and other
customers, except as described below. Estimated costs for approved sales
incentive programs normally are recognized as sales reductions at the time of
revenue recognition. Estimated costs for sales incentive programs approved
subsequent to the time that related sales were recorded are recognized when the
programs are approved.
Sales through dealers to certain daily rental companies, where the daily rental
company has an option to require the Company to repurchase vehicles subject to
certain conditions, are recognized over the period of daily rental service in a
manner similar to lease accounting. The carrying value of these vehicles,
included in other current assets, was $24 million at December 31, 2000 and $26
million at December 31, 1999.
Other Costs
- -----------
Advertising and sales promotion costs are expensed as incurred. Advertising
costs were $65 million in 2000, $58 million in 1999 and $44 million in 1998.
Estimated costs related to product warranty are accrued at the time of sale.
Derivative Financial Instruments
- --------------------------------
The Company uses derivative financial instruments to manage exposure to
fluctuations in exchange rates. All derivative financial instruments are
classified as "held for purposes other than trading"; company policy
specifically prohibits the use of leveraged derivatives or use of any
derivatives for speculative purposes.
The Company has two long-term receivable instruments with Ford Motor Company
that are denominated in British pounds and two long-term debt obligations to the
public market denominated in U.S. dollars. The Company purchased cross currency
pound-to-dollar swaps to offset the exchange exposure. Terms of the swaps mirror
those contained in the receivable instruments.
Statement of Financial Accounting Standards (SFAS) 133, "Accounting for
Derivative Instruments and Hedging" will be adopted on January 1, 2001. Based on
present interpretation of this new standard, the Company estimates that it will
record a transition adjustment that will reduce 2001 other comprehensive income
by $63 million.
FSS-5
NOTE 1. Accounting Policies (continued)
- ----------------------------
Foreign Currency Translation
- ----------------------------
Assets and liabilities of subsidiaries are translated to U.S. dollars at
end-of-period exchange rates. The effects of this translation are reported in
other comprehensive income. Remeasurement of assets and liabilities of locations
that use the U.S. dollar as their functional currency are included in income as
transaction gains and losses. Income statement elements of subsidiaries are
translated to U.S. dollars at average-period exchange rates. Also included in
income are gains and losses arising from transactions denominated in a currency
other than the functional currency of the entity involved. Net transaction gains
and losses, as described above, decreased net income by $19 million in 2000, $25
million in 1999, and $4 million in 1998
Impairment of Long-Lived Assets and Certain Identifiable Intangibles
- --------------------------------------------------------------------
The Company evaluates the carrying value of goodwill for potential impairment on
an ongoing basis. Such evaluations compare operating income before amortization
of goodwill to the amortization recorded for the operations to which the
goodwill relates. The Company also periodically evaluates the carrying value of
long-lived assets and long-lived assets to be disposed of for potential
impairment. The Company considers projected future operating results, cash
flows, trends, and other circumstances in making such estimates and evaluations.
Goodwill
- --------
Goodwill represents the excess of the purchase price over the fair value of the
net assets of acquired companies and is amortized using the straight-line method
for a period of 20 years. Total goodwill included in other assets was $14
million at December 31, 2000 and $2 million at December 31, 1999.
NOTE 2. Allowance for Doubtful Accounts
- ----------------------------------------
Receivables are disclosed net of allowances for doubtful accounts. The movement
in the allowance for doubtful accounts is as follows (in millions):
2000 1999 1998
------------ ------------ ------------
Beginning balance $ 2 $ 2 $ 2
Charge to profit 1 1 -
Write-off of doubtful accounts - (1) -
Other, including exchange differences 1* - -
---- ---- ----
Ending balance $ 4 $ 2 $ 2
==== ==== ====
* Includes effect of acquisition of Ford Finland
NOTE 3. Inventories
- --------------------
Inventories at December 31 were as follows (in millions):
2000 1999
------------ ------------
Raw materials, work-in-process and supplies $ - $ 4
Finished products 41 31
----- ------
Total inventories $ 41 $ 35
===== ======
Inventories are stated at the lower of cost or market. The cost of the
inventories is determined by the first-in, first-out ("FIFO") method.
FSS-6
NOTE 4. Net Property & Depreciation
- ------------------------------------
Net property at December 31 was as follows (in millions):
2000 1999
----------- -----------
Land $ 5 $ 6
Buildings and land improvements 19 23
Machinery, equipment and other 22 24
Construction in progress - 1
------ -------
Total land, plant and equipment $ 46 $ 54
Accumulated depreciation (32) (28)
------ -------
Net property $ 14 $ 26
====== =======
Property and equipment are stated at cost, less accumulated depreciation.
Property and equipment placed in service before January 1, 1993 are depreciated
using an accelerated method that results in accumulated depreciation of
approximately two-thirds of the asset cost during the first half of the
estimated useful life of the asset. Property and equipment placed in service
after December 31, 1992 are depreciated using the straight-line method of
depreciation over the estimated useful life of the asset. On average, buildings
and land improvements are depreciated based on a 30-year life. Furniture,
fixtures and equipment are depreciated based on lives ranging from 8 to 14
years.
NOTE 5. Income Taxes
- ---------------------
Income before income taxes, the provision for income taxes, and a reconciliation
of the provision for income taxes compared with the amounts at the Netherlands
statutory tax rate, are as follows:
2000 1999 1998
------------ ------------ ------------
Income before income tax (in millions)
--------------------------------------
Netherlands (22) 37 72
Non-Netherlands 81 22 14
------ ------ ------
Total income before income taxes $ 59 $ 59 $ 86
====== ====== ======
Provision for income taxes (in millions)
----------------------------------------
Netherlands
Current $ (5) $ 15 $ 28
Deferred (3) (2) (3)
------ ------ ------
(8) 13 25
Non-Netherlands
Current 53 17 (2)
Deferred (19) (6) 10
------ ------ ------
34 11 8
------ ------ ------
Total provision $ 26 $ 24 $ 33
====== ====== ======
Reconciliation of the income tax provision
------------------------------------------
Tax provision at Netherlands statutory rate 35 % 35 % 35 %
Effect of (in points):
Penalties 8 - -
Nondeductible expense 4 4 2
Subsidiary tax rate difference (2) 2 1 %
------ ------ ------
Provision for income taxes 45 % 41 % 38 %
====== ====== ======
Deferred tax assets and liabilities reflect the estimated tax effect of
accumulated temporary differences between assets and liabilities for financial
reporting purposes and those amounts as measured by tax laws and regulations.
The components of deferred tax assets and liabilities at December 31 were as
follows (in millions):
2000 1999
------------ ------------
Deferred tax assets
-------------------
Dealer and customer allowances and claims $ 17 $ 5
Other 7 -
------ ------
Total deferred tax assets 24 5
Deferred tax liabilities (16) (19)
------ ------
Net deferred tax assets $ 8 $ (14)
====== ======
FSS-7
NOTE 6. Liabilities
- --------------------
Current Liabilities
- -------------------
Included in accrued liabilities at December 31 were the following (in millions):
2000 1999
---------- ---------
Dealer and customer allowances and claims $ 93 $ 110
Interest payable 26 44
State and local taxes 7 21
Payroll accruals 6 9
Other 24 40
---- -----
Total accrued liabilities $156 $ 224
==== =====
NOTE 7. Employee Retirement Benefits
- -------------------------------------
Employee Retirement Plans
- -------------------------
In general, the Company has separate plans for hourly and salaried employees.
The hourly plans provide noncontributory benefits related to employee service
and the salaried plans provide similar noncontributory benefits and contributory
benefits related to pay and service.
In general, the Company's plans are funded. The policy for funded plans is to
contribute annually, at a minimum, amounts required by applicable laws,
regulations and union agreements. Plan assets consist principally of investments
in stocks, and government and other fixed income securities.
Retirement benefits are provided under defined benefit plans for employees of
the sales operations of Ford Belgium by the Pension and Benefit Fund for
personnel at Ford companies in Belgium. Employee retirement plan costs allocated
to the sales operations of Ford Belgium and charged to operating expenses of
Ford Capital BV were as follows (in millions): 2000 - $2; 1999 - $1; 1998 - $2.
Employee Retirement Benefit Expense
- -----------------------------------
The company's expense for pensions was as follows (in millions):
2000 1999 1998
----------- ----------- -------------
Costs Recognized in Income
- --------------------------
Service cost $ 2 $ 2 $ 2
Interest cost 4 4 4
Expected return on plan assets (11) (10) (11)
Amortization of (gains)/losses and other (5) - 1
---- ----- ----
Net pension income $(10) $ (4) $ (4)
==== ===== ====
FSS-8
NOTE 7. Employee Retirement Benefits (continued)
- -------------------------------------
The year-end status of these plans was as follows (in millions):
2000 1999
---------------- ------------------
Change in Benefit Obligation
- ----------------------------
Benefit obligation at January 1 $ 83 $ 111
Service cost 2 2
Interest cost 4 4
Amendments 2 2
Benefits paid (4) (4)
Foreign exchange translation (6) (16)
Actuarial loss/(gain) 7 (16)
------- ------
Benefit obligation at December 31 $ 88 $ 83
======= ======
Change in Plan Assets
- ---------------------
Fair value of plan assets at January 1 $ 191 $ 185
Actual return on plan assets (1) 46
Company contributions (16) (9)
Benefits paid (4) (4)
Foreign exchange translation (14) (27)
Other (1) -
------- ------
Fair value of plan assets at December 31 $ 155 $ 191
======= ======
Funded Status of the Plan
- -------------------------
Plan assets in excess of
projected benefits $ 68 $ 109
Unamortized:
Prior service cost 1 2
Net (gains)/losses (22) (57)
------- ------
Net amount recognized $ 47 $ 54
======= ======
Amounts Recognized in the
Balance Sheet Consists of Assets
- --------------------------------
Prepaid assets $ 47 $ 54
======= ======
Assumptions as of December 31
- -----------------------------
Discount rate 5.75 % 5.75 %
Expected return on assets 6.25 % 6.25 %
Average rate of increase in compensation 3.20 % 3.20 %
FSS-9
NOTE 8. Debt
- -------------
The fair value of debt was estimated based on quoted market prices or current
rates for similar debt with the same remaining maturities.
Debt at December 31 was as follows (in millions):
Weighted Average
Interest Rate Book Value
------------------------ ------------------------
Maturity 2000 1999 2000 1999
------------- ----------- ------------ ----------- ------------
Debt payable within one year
----------------------------
Short-term debt 5.0% - $ 17 $ -
Long-term debt payable within one year 9.4% 9.4% 550 933
------- -------
Total debt payable within one year 567 933
Long-term debt 2002 - 2010 9.7% 9.6% 900 1,450
------- -------
--------------
Total debt $ 1,467 $ 2,383
======= =======
Fair value $ 1,642 $ 2,487
Long-term debt at December 31, 2000 and 1999 were obligations with fixed
interest rates and is guaranteed by Ford Motor Company. Obligations payable in
foreign currencies at December 31, 2000 were $17 million and at December 31,
1999 were $183 million. There are no agreements to manage exposures to
fluctuations in interest rates. Maturities of the long-term debt are as follows:
2001 - $550 million; 2002 - $400 million; 2010 - $500 million.
NOTE 9. Capital Stock and Contributions
- ----------------------------------------
On January 1, 1998, 887,532 shares with a par value of $593 were issued out of
the 1,000,000 authorized.
On October 12, 1998, the authorized share capital was reduced from 1,000,000
shares of par value $593 to 255,140 shares of par values $593 and 643,000 shares
of par value $133 each. At the same time, the Company made a capital redemption
of $259 million to Ford Motor Company.
In 2000, the Company received a non-cash capital contribution of $72 million
from Ford Motor Company (Note 13).
NOTE 10. Litigation and Claims
- -------------------------------
In the normal course of business, various legal actions, proceedings and claims
are made against the Company, including those arising out of alleged defects in
the products sold by the Company, in contractual disputes and environmental
matters. Litigation is subject to many uncertainties, and the outcome of
individual litigated matters is not predictable with assurance. Reserves have
been established by the Company for certain of these matters where losses are
deemed probable.
In addition, the Company has made offers to purchase the minority shares of Ford
Motor Company AS in Denmark and Oy Ford Ab in Finland. Certain of the
shareholders are disputing the price offered. In Denmark the Court has stated a
valuation of the Company and a share price, which all relevant parties are
considering. In Finland a formal valuation of the Court of Arbitration is
awaited.
The Company does not reasonably expect, based on its analysis, that any adverse
outcome from such matters would have a material effect on future consolidated
financial statements for a particular year, although such an outcome is
possible.
FSS-10
NOTE 11. Commitments and Contingencies
- ---------------------------------------
At December 31, 2000, the Company had the following minimum rental commitment
under non-cancelable operating leases: 2001 - $2 million; 2002 - $2 million;
2003 - $1 million; 2004 - $1 million; 2005 - $1 million. Rental expense for all
operating lease was: $3 million in 2000, $4 million in 1999 and $3 million in
1998.
NOTE 12. Financial Instruments
- -------------------------------
Estimated fair value amounts have been determined using available market
information and various valuation methods depending on the type of instrument.
In evaluating the fair value information, considerable judgment is required to
interpret the market data used to develop the estimates. The use of different
market assumptions and/or different valuation techniques may have a material
effect on the estimated fair value amounts. Further, it should be noted that
fair value at a particular point in time gives no indication of future gain or
loss, or what the dimensions of that gain or loss are likely to be.
Foreign Currency Instruments
- ----------------------------
The fair value of foreign currency instruments was estimated using current
market rates provided by outside quotation services. The estimated notional
amount and fair value of the Company's currency products at December 31 were as
follows (in millions):
Fair Value
----------------------------
Notional Amount Asset Liability
------------------ -------------- -------------
2000 $ 567 $ 26 $ 14
1999 $ 900 $ 7 $ 58
Counterparty Credit Risk
- ------------------------
Ford manages its foreign currency by limiting exposure to and by monitoring the
financial condition of each counterparty. The amount of exposure Ford may have
to a single counterparty on a worldwide basis is limited by company policy. In
the unlikely event that a counterparty fails to meet the terms of a foreign
currency, the Company's risk is limited to the fair value of the instrument.
NOTE 13. Acquisitions and Restructuring
- ----------------------------------------
Acquisition of Ford Finland
- ---------------------------
In March 2000, Ford Motor Company transferred 984,469 shares of Ford Finland,
representing its 91.2% ownership interest, to Ford Capital BV. Ford Capital BV's
share of net assets at the date of transfer was $72 million which reflects
historical cost. Ford Finland's results and financial condition are included in
Ford Capital BV's financial statements on a consolidated basis.
Minority Shareholdings Buy-out
- ------------------------------
During 2000, Ford Capital BV acquired (for a total price of $21 million) the
Common Stock of Ford Finland and Ford Belgium that it did not previously own,
which represented approximately 8.8% and 15.8% of the economic interests,
respectively. Additionally, the Company began to acquire the 11.3% of
outstanding Common Stock of Ford Denmark that it did not already own. As of
December 31, 2000, Ford Capital BV owned approximately 99.2% of the outstanding
Common Stock of Ford Denmark. As a result of these acquisitions, the Company
recorded approximately $12 million of goodwill, which is being amortized over 20
years.
Closure of Plonsk Manufacturing Plant
- -------------------------------------
In July 2000, Ford of Poland, a subsidiary of the Company, ceased assembly
operations in its Plonsk Plant. The related closure cost charged to income in
2000 was $8 million.
FSS-11
NOTE 14. Cash Flows
- --------------------
The reconciliation of net income to cash flows from operating activities is as
follows (in millions):
2000 1999 1998
-------------- -------------- -------------
Net income $ 32 $ 33 $ 50
Adjustments to reconcile net income
to cash flows from operating activities:
Depreciation and amortization (2000 Ford Poland
Closure cost) 12 3 2
Foreign currency adjustments 19 22 4
Provision for deferred income taxes (22) (8) 7
Changes in assets and liabilities:
Decrease/(increase) in accounts
receivable and other current assets 71 (59) 2
Decrease/(increase) in inventory (6) 77 (6)
Increase/(decrease) in accounts payable
and accrued and other liabilities (81) (30) (63)
Other 4 1 (11)
------- -------- --------
Cash flows from/(used in) operating activities $ 29 $ 39 $ (15)
======= ======== ========
The Company considers all highly liquid investments purchased with a maturity of
three months or less, including short-term time deposits and government, agency
and corporate obligations, to be cash equivalents. Cash equivalents at December
31, 2000 and 1999 were $18 million and $49 million, respectively. Cash flows
resulting from futures contracts, forward contracts and options that are
accounted for as hedges of identifiable transactions are classified in the same
category as the item being hedged.
Cash paid for interest and income taxes was as follows (in millions):
2000 1999 1998
----------- ----------- -----------
Interest $232 $234 $305
Income taxes 30 23 9
NOTE 15. Related Party transactions
- ------------------------------------
Purchases of Vehicles and Parts
- -------------------------------
The Company purchases vehicles and parts from Ford Motor Company and its
subsidiaries. These purchases represented 91% of cost of sales in 2000, 82% in
1999 and 86% in 1998. Balances with Ford Motor Company and its subsidiaries were
a payable of $36 million at December 31, 2000 and a receivable of $12 million at
December 31, 1999.
Servicing of Assets between the Company and Ford Credit
- -------------------------------------------------------
A Ford Credit subsidiary buys the majority of receivable balances for vehicles
and parts. Receivables sold to Ford Credit were (in billions): 2000 - $2.2; 1999
- - $2.5; 1998 - $2.2.
Sales of Vehicles to Rental Companies
- -------------------------------------
The Company sells vehicles to certain daily rental companies owned by Ford Motor
Company. The daily rental company has an option to require the Company to
repurchase the vehicles, subject to certain conditions (Note 1). Vehicle units
still subject to the repurchase option at December 31, 2000 and 1999 were 3,600
and 3,900, respectively.
FSS-12
NOTE 15. Related Party transactions (continued)
- ------------------------------------
Notes Receivable - Affiliate
- ----------------------------
Notes receivable comprises (in millions):
2000 1999
----------- -------------
Short-term notes receivable from a subsidiary of Ford
Motor Company $ 411 $ 351
====== ======
Long-term notes receivable from Ford Motor Company:
U.S. dollar notes redeemable on fixed dates
between 2000 and 2001. Fixed interest rates
varying between 9.125% and 10.125% 883 1,050
U.K. pound sterling notes redeemable on fixed
dates between 2000 and 2010. Fixed interest
rates varying between 12.75% and 13.38% 508 1,200
Other - 69
------ ------
Total long term notes receivable $1,391 $2,319
====== ======
Fair value $1,500 $2,316
Interest income on the notes totaled $246 million in 2000, $274 million in 1999
and $325 million in 1998. Interest receivable was $30 million at December 31,
2000 and $50 million at December 31, 1999. The fair value of notes receivable
was estimated based on quoted market prices or current rates for similar notes
receivable with the same remaining maturities.
FSS-13
Report of Independent Accountants
To the Board of Directors and Stockholders
Ford Motor Company:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, stockholders' equity and cash flows present
fairly, in all material respects, the financial position of Ford Capital BV and
Subsidiaries at December 31, 2000 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2000 in conformity with accounting principles generally accepted in the
United States of America. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States 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 our opinion.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Detroit, Michigan
March 19, 2001
FSS-14
EXHIBIT INDEX
Designation Description Method of Filing
Exhibit 3-A Restated Certificate of Incorporation, Filed with this Report.
dated August 2, 2000.
Exhibit 3-B By-Laws as amended Filed as Exhibit 3-B to Ford's Quarterly
through July 14, 2000. Report on Form 10-Q for the quarter
ended June 30, 2000.*
Exhibit 4 Form of Deposit Agreement dated as of Filed as Exhibit 4-E to Ford's
October 29, 1992 among Ford, Registration Statement No. 33-53092.*
Chemical Bank, as Depositary,
and the holders from time to time of
Depositary Shares, each representing
1/2,000 of a share of Ford's
Series B Cumulative Preferred Stock.
Exhibit 10-A Amended and Restated Profit Filed as Exhibit 10-A to the Registrant's
Maintenance Agreement, dated as of Annual Report on Form 10-K for the
January 1, 1999, between Ford year ended December 31, 1998.*
and Ford Credit.
Exhibit 10-B Executive Separation Allowance Plan Filed with this Report.
as amended and restated through
December 18, 2000 for separations on
or after January 1, 1981.**
Exhibit 10-C Description of Ford practices regarding Filed as Exhibit 10-I to Ford's
club memberships for executives.** Annual Report on Form 10-K for the
year ended December 31, 1981.*
Exhibit 10-D Description of Ford practices regarding Filed as Exhibit 10-J to Ford's
travel expenses of spouses of certain Annual Report on Form 10-K for the
executives.** year ended December 31, 1980.*
Exhibit 10-E Deferred Compensation Plan for Filed as Exhibit 10-H-1 to Ford's
Non-Employee Directors, as amended Annual Report on Form 10-K for the
on July 11, 1991.** year ended December 31, 1991.*
Exhibit 10-E-1 Amendments to Deferred Compensation Plan Filed as Exhibit 10-G-1 to Ford's
for Non-Employee Directors, effective as of Annual Report on Form 10-K for the
January 1, 1996.** year ended December 31, 1995.*
Exhibit 10-E-2 Amendment to Deferred Compensation Plan Filed as Exhibit 10-G-2 to Ford's
for Non-Employee Directors, effective as of Annual Report on Form 10-K for the
November 14, 1996.** year ended December 31, 1996.*
Exhibit 10-F Benefit Equalization Plan, as Filed with this Report.
amended and restated as of
December 18, 2000.**
Exhibit 10-G Description of financial counseling Filed as Exhibit 10-N to Ford's
services provided to certain executives.** Annual Report on Form 10-K for the
year ended December 31, 1983.*
Exhibit 10-H Supplemental Executive Retirement Plan, Filed with this Report.
as restated and incorporating amendments
through December 18, 2000.**
Exhibit 10-I Restricted Stock Plan for Non-Employee Filed as Exhibit 10-P to Ford's
Directors adopted by the Board of Annual Report on Form 10-K for the
Directors on November 10, 1988, year ended December 31, 1988.*
and approved by the stockholders at
the 1989 Annual Meeting.**
Exhibit 10-I-1 Amendment to Restricted Stock Plan for Filed as Exhibit 10.1 to Ford's
Non-Employee Directors, effective as of Quarterly Report on Form 10-Q for the
August 1, 1996.** quarter ended September 30, 1996.*
Exhibit 10-J 1990 Long-Term Incentive Plan, Filed as Exhibit 10-R to Ford's
amended as of June 1, 1990.** Annual Report on Form 10-K for the
year ended December 31, 1990.*
Exhibit 10-J-1 Amendment to 1990 Long-Term Incentive Filed as Exhibit 10-P-1 to Ford's
Plan, effective as of October 1, 1990.** Annual Report on Form 10-K for the
year ended December 31, 1991.*
Exhibit 10-J-2 Amendment to 1990 Long-Term Incentive Filed as Exhibit 10.2 to Ford's
Plan, effective as of March 8, 1995.** Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995.*
Exhibit 10-J-3 Amendment to 1990 Long-Term Filed as Exhibit 10-M-3 to Ford's
Incentive Plan, effective as of Annual Report on Form 10-K for the
October 1, 1997.** year ended December 31, 1997.*
Exhibit 10-J-4 Amendment to 1990 Long-Term Filed as Exhibit 10-M-4 to Ford's
Incentive Plan, effective as of Annual Report on Form 10-K for the
January 1, 1998.** year ended December 31, 1997.*
Exhibit 10-K Description of Matching Gift Program for Filed as Exhibit 10-Q to Ford's
Non-Employee Directors.** Annual Report on Form 10-K for the
year ended December 31, 1991.*
Exhibit 10-L Non-Employee Directors Life Insurance Filed as Exhibit 10-O to Ford's
and Optional Retirement Plan Annual Report on Form 10-K for the
(as amended as of January 1, 1993).** year ended December 31, 1994.*
Exhibit 10-M Description of Non-Employee Directors Filed as Exhibit 10-S to Ford's
Accidental Death, Dismemberment and Annual Report on Form 10-K for the
Permanent Total Disablement Indemnity.** year ended December 31, 1992.*
Exhibit 10-N Agreement dated December 10, 1992 Filed as Exhibit 10-T to Ford's
between Ford and William C. Ford.** Annual Report on Form 10-K for the
year ended December 31, 1992.*
Exhibit 10-O Support Agreement dated as of October 1, Filed as Exhibit 10-T to Ford's
1993 between Ford and FCE Bank. Annual Report on Form 10-K for the
year ended December 31, 1993.*
Exhibit 10-O-1 Amendment No. 1 dated as of November Filed as Exhibit 10-R-1 to Ford's
15, 1995 to Support Agreement between Annual Report on Form 10-K for the
Ford and FCE Bank. year ended December 31, 1995.*
Exhibit 10-P Select Retirement Plan Filed with this Report.
As amended and restated through
January 1, 2000.**
Exhibit 10-Q Deferred Compensation Plan, Filed as Exhibit 10-R to Ford's.
as amended and restated as of Annual Report on Form 10-K for the
January 1, 2000.** year ended December 31, 1999.*
Exhibit 10-Q-1 Amendment to Deferred Filed as Exhibit 4.2 to Ford's
Compensation Plan effective Registration Statement No. 333-
as of April 12, 2000.** 56660.*
Exhibit 10-Q-2 Amendment to Deferred Filed as Exhibit 4.3 to Ford's
Compensation Plan effective Registration Statement No. 333-
as of June 1, 2000.** 56660.*
Exhibit 10-R Annual Incentive Compensation Plan, Filed as Exhibit 10-T to Ford's
as amended and restated as of Annual Report on Form 10-K for the
January 1, 2000.** year ended December 31, 1999.*
Exhibit 10-S 1998 Long-Term Incentive Plan, Filed as Exhibit 10-W to Ford's
effective as of January 1, 1998.** Annual Report on Form 10-K for the
year ended December 31, 1997.*
Exhibit 10-S-1 Amendment to 1998 Long-Term Incentive Filed as Exhibit 10-W-1 to Ford's
Plan, effective as of January 1, 1999.** Annual Report on Form 10-K for
the year ended December 31, 1998.*
Exhibit 10-S-2 Amendment to 1998 Long-Term Incentive Filed as Exhibit 10-U-2 to Ford's
Plan, effective as of March 10, 2000.** Annual Report on Form 10-K for the
year ended December 31, 1999.*
Exhibit 10-T Agreement dated January 13, 1999 Filed as Exhibit 10-X to Ford's
between Ford and Edsel B. Ford II.** Annual Report on Form 10-K for
the year ended December 31, 1998.*
Exhibit 10-U Description of March 2001 agreement Filed with this Report.
with Robert L. Rewey.**
Exhibit 10-V Description of Agreement dated Filed with this Report.
March 18, 2001 with Wolfgang Reitzle.**
Exhibit 12 Computation of Ratio of Earnings to Filed with this Report.
Combined Fixed Charges and Preferred
Stock Dividends.
Exhibit 21 List of Subsidiaries of Ford Filed with this Report.
as of March 15, 2001.
Exhibit 23 Consent of Independent Certified Public Filed with this Report.
Accountants.
Exhibit 24 Powers of Attorney. Filed with this Report.
- ----------------------------
* Incorporated by reference as an exhibit to this Report (file number
reference 1-3950, unless otherwise indicated)
** Management contract or compensatory plan or arrangement