Ford Motor Company and Subsidiaries HIGHLIGHTS ---------- Fourth Quarter Full Year ------------------------- -------------------------- 1995 1994 1995 1994 -------- -------- -------- -------- Worldwide vehicle unit sales of cars and trucks (in thousands) - - United States 955 1,051 3,993 4,218 - - Outside United States 635 656 2,613 2,635 ----- ----- ----- ----- Total 1,590 1,707 6,606 6,853 ===== ===== ===== ===== Sales and revenues (in millions) - - Automotive $27,597 $27,766 $110,496 $107,137 - - Financial Services 6,950 5,877 26,641 21,302 ------- ------- -------- -------- Total $34,547 $33,643 $137,137 $128,439 ======= ======= ======== ======== Net income (in millions) - - Automotive $ 16 $ 1,119 $ 2,056 $ 3,913 - - Financial Services 644 450 2,083 1,395* ------- ------- -------- -------- Total $ 660 $ 1,569 $ 4,139 $ 5,308 ======= ======= ======== ======== Capital expenditures (in millions) - - Automotive $ 2,472 $ 2,404 $ 8,676 $ 8,310 - - Financial Services 98 65 321 236 ------- ------- -------- -------- Total $ 2,570 $ 2,469 $ 8,997 $ 8,546 ======= ======= ======== ======== Stockholders' equity at December 31 - - Total (in millions) $24,547 $21,659 $ 24,547 $ 21,659 - - After-tax return on Common and Class B stockholders' equity 10.9% 34.5% 18.2% 33.6% Automotive cash, cash equivalents, and marketable securities at December 31 (in millions) $12,406 $12,083 $ 12,406 $ 12,083 Automotive debt at December 31 (in millions) $ 7,307 $ 7,258 $ 7,307 $ 7,258 Automotive after-tax returns on sales 0.1% 4.1% 1.9% 3.7% Shares of Common and Class B Stock (in millions) - - Average number outstanding 1,136 1,020 1,071 1,010 - - Number outstanding at December 31 1,159 1,023 1,159 1,023 AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK AFTER PREFERRED STOCK DIVIDENDS Income $ 0.49 $ 1.47 $ 3.58 $ 4.97 Income/(Loss) assuming full dilution - - Automotive $ (0.06) $ 0.93 $ 1.59 $ 3.25 - - Financial Services 0.54 0.38 1.74 1.19 ------- ------- -------- --------- Total $ 0.48 $ 1.31 $ 3.33 $ 4.44 ======= ======= ======== ========= Cash dividends $ 0.35 $ 0.26 $ 1.23 $ 0.91 - - - - - - *Includes a loss of $440 million related to the disposition of Granite Savings Bank (formerly First Nationwide Bank) Segment results for 1994 have been adjusted to reflect reclassification of certain tax amounts to conform with the 1995 presentation. FS-1 Ford Motor Company and Subsidiaries VEHICLE UNIT SALES ------------------ For the Periods Ended December 31, 1995 and 1994 (in thousands) Fourth Quarter Full Year --------------------------- ------------------------- 1995 1994 1995 1994 ----------- ---------- --------- -------- North America United States Cars 434 530 1,767 2,036 Trucks 521 521 2,226 2,182 ----- ----- ----- ----- Total United States 955 1,051 3,993 4,218 Canada 76 75 254 281 Mexico 11 27 32 92 ----- ----- ----- ----- Total North America 1,042 1,153 4,279 4,591 Europe Britain 125 109 496 520 Germany 84 104 409 386 Italy 54 39 193 179 France 41 45 165 180 Spain 31 41 160 163 Other countries 74 71 286 281 ----- ----- ----- ----- Total Europe 409 409 1,709 1,709 Other international Brazil 48 43 201 164 Australia 32 38 139 125 Taiwan 16 21 106 97 Japan 13 13 57 50 Argentina 14 13 48 54 Other countries 16 17 67 63 ----- ----- ----- ----- Total other international 139 145 618 553 ----- ----- ----- ----- Total worldwide vehicle unit sales 1,590 1,707 6,606 6,853 ===== ===== ===== ===== Vehicle unit sales are reported worldwide on a "where sold" basis and include sales of all Ford-badged units, as well as units manufactured by Ford and sold to other manufacturers. Fourth Quarter and Full Year 1994 unit sales have been restated to reflect the country where sold and to include sales of all Ford-badged units. Previously, factory unit sales were reported in North America on a "where sold" basis and overseas on a "where produced" basis. Also, Ford-badged unit sales of certain unconsolidated subsidiaries (primarily Autolatina -- Brazil and Argentina) were not previously reported. FS-2 Ford Motor Company and Subsidiaries CONSOLIDATED STATEMENT OF INCOME -------------------------------- For the Years Ended December 31, 1995, 1994 and 1993 (in millions, except amounts per share) 1995 1994 1993 -------- -------- ------- AUTOMOTIVE Sales (Note 1) $110,496 $107,137 $91,568 Costs and expenses (Note 1) Costs of sales 101,171 95,887 85,280 Selling, administrative, and other expenses 6,044 5,424 4,856 -------- -------- ------- Total costs and expenses 107,215 101,311 90,136 Operating income 3,281 5,826 1,432 Interest income 800 665 563 Interest expense 622 721 807 -------- -------- ------- Net interest income/(expense) 178 (56) (244) Equity in net (loss)/income of affiliated companies (Note 1) (154) 271 127 Net expense from transactions with Financial Services (Note 1) (139) (44) (24) -------- -------- ------- Income before income taxes - Automotive 3,166 5,997 1,291 FINANCIAL SERVICES Revenues (Note 1) 26,641 21,302 16,953 Costs and expenses (Note 1) Interest expense 9,424 7,023 6,482 Depreciation 6,500 4,910 3,064 Operating and other expenses 5,499 4,607 3,196 Provision for credit and insurance losses 1,818 1,539 1,523 Loss on disposition of Granite Savings Bank (formerly First Nationwide Bank) (Note 15) - 475 - -------- -------- ------- Total costs and expenses 23,241 18,554 14,265 Net revenue from transactions with Automotive (Note 1) 139 44 24 -------- -------- ------- Income before income taxes - Financial Services 3,539 2,792 2,712 -------- -------- ------- TOTAL COMPANY Income before income taxes 6,705 8,789 4,003 Provision for income taxes (Note 6) 2,379 3,329 1,350 -------- -------- ------- Income before minority interests 4,326 5,460 2,653 Minority interests in net income of subsidiaries 187 152 124 -------- -------- ------- Net income $ 4,139 $ 5,308 $ 2,529 ======== ======== ======= Income attributable to Common and Class B Stock after preferred stock dividends (Note 1) $ 3,839 $ 5,021 $ 2,241 Average number of shares of Common and Class B Stock outstanding 1,071 1,010 986 AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK (Note 1) Income $ 3.58 $ 4.97 $ 2.27 Income assuming full dilution $ 3.33 $ 4.44 $ 2.10 Cash dividends $ 1.23 $ 0.91 $ 0.80 The accompanying notes are part of the financial statements. FS-3 Ford Motor Company and Subsidiaries CONSOLIDATED BALANCE SHEET -------------------------- (in millions) December 31, December 31, 1995 1994 ------------- ------------- ASSETS Automotive Cash and cash equivalents $ 5,750 $ 4,481 Marketable securities (Note 2) 6,656 7,602 -------- -------- Total cash, cash equivalents, and marketable securities 12,406 12,083 Receivables 3,321 2,548 Inventories (Note 4) 7,162 6,487 Deferred income taxes 2,709 3,062 Other current assets 1,483 2,006 Net current receivable from Financial Services (Note 1) 200 677 -------- -------- Total current assets 27,281 26,863 Equity in net assets of affiliated companies (Note 1) 2,248 3,554 Net property (Note 5) 31,273 27,048 Deferred income taxes 4,802 4,414 Other assets (Notes 1 and 8) 7,168 6,760 -------- -------- Total Automotive assets 72,772 68,639 Financial Services Cash and cash equivalents 2,690 1,739 Investments in securities (Note 2) 4,553 6,105 Net receivables and lease investments (Note 3) 149,694 130,356 Other assets (Note 1) 13,574 12,783 -------- -------- Total Financial Services assets 170,511 150,983 -------- -------- Total assets $243,283 $219,622 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Automotive Trade payables $ 11,260 $ 10,777 Other payables 1,976 2,280 Accrued liabilities (Note 7) 13,392 11,943 Income taxes payable 316 316 Debt payable within one year (Note 9) 1,832 155 -------- -------- Total current liabilities 28,776 25,471 Long-term debt (Note 9) 5,475 7,103 Other liabilities (Note 7) 25,677 24,920 Deferred income taxes 1,186 1,216 -------- -------- Total Automotive liabilities 61,114 58,710 Financial Services Payables 5,476 2,361 Debt (Note 9) 141,317 123,713 Deferred income taxes 3,831 2,958 Other liabilities and deferred income 6,116 7,669 Net payable to Automotive (Note 1) 200 677 -------- -------- Total Financial Services liabilities 156,940 137,378 Company-obligated mandatorily redeemable preferred securities of a subsidiary trust (aggregate principal amount of $632 million) (Note 1) 682 - Preferred stockholders' equity in a subsidiary company (Note 1) - 1,875 Stockholders' equity Capital stock (Notes 10 and 11) Preferred Stock, par value $1.00 per share (aggregate liquidation preference of $1 billion and $3.4 billion) * * Common Stock, par value $1.00 per share (1,089 and 952 million shares issued) 1,089 952 Class B Stock, par value $1.00 per share (71 million shares issued) 71 71 Capital in excess of par value of stock 5,105 5,273 Foreign currency translation adjustments and other (Note 1) 594 189 Earnings retained for use in business 17,688 15,174 -------- -------- Total stockholders' equity 24,547 21,659 -------- -------- Total liabilities and stockholders' equity $243,283 $219,622 ======== ======== - - - - - - *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, 1995, 1994 and 1993 (in millions) 1995 1994 1993 ---------------------- --------------------- ---------------------- Financial Financial Financial Automotive Services Automotive Services Automotive Services ---------- --------- ---------- --------- ---------- --------- Cash and cash equivalents at January 1 $ 4,481 $ 1,739 $ 5,667 $ 2,555 $ 3,504 $ 3,182 Cash flows from operating activities (Note 16) 8,849 12,322 7,542 9,087 6,862 7,145 Cash flows from investing activities Capital expenditures (8,676) (321) (8,310) (236) (6,714) (100) Proceeds from sale and leaseback of fixed assets 0 - 0 - 884 - Acquisitions of other companies 0 0 0 (485) 0 (336) Proceeds from sales of subsidiaries 0 0 0 715 173 0 Acquisitions of receivables and lease investments - (99,967) - (90,824) - (76,566) Collections of receivables and lease investments - 71,149 - 61,111 - 55,552 Net acquisitions of daily rental vehicles - (1,459) - (924) - - Purchases of securities (Note 16) (51) (6,274) (412) (10,688) (100,493) (13,741) Sales and maturities of securities (Note 16) 325 5,052 511 9,649 101,927 12,426 Proceeds from sales of receivables - 4,360 - 3,622 - 4,794 Loans originated net of principal payments - (9) - (207) - (1,466) Net investing activity with Financial Services (19) - 355 - (117) - Other 558 (175) (331) (312) (69) 389 ------- -------- ------ -------- -------- -------- Net cash used in investing activities (7,863) (27,644) (8,187) (28,579) (4,409) (19,048) Cash flows from financing activities Cash dividends (1,559) - (1,205) - (1,086) - Issuance of Common Stock 601 - 715 - 394 - Changes in short-term debt 413 5,884 (795) 10,314 (66) 6,065 Proceeds from issuance of other debt 300 23,854 158 21,885 424 22,128 Principal payments on other debt (177) (11,489) (75) (14,088) (376) (13,791) Net financing activity with Automotive - 19 - (355) - 117 Changes in customers' deposits, excluding interest credited - - - (422) - (3,861) Receipts from annuity contracts - 283 - 1,124 - 821 Net (redemption)/issuance of subsidiary company preferred stock (Note 1) - (1,875) - 417 - 375 Other 121 102 31 (132) (124) (76) ------- -------- -------- -------- -------- ------- Net cash (used in)/provided by financing activities (301) 16,778 (1,171) 18,743 (834) 11,778 Effect of exchange rate changes on cash 107 (28) 397 166 17 25 Net transactions with Automotive/ Financial Services 477 (477) 233 (233) 527 (527) ------- -------- -------- -------- -------- -------- Net increase/(decrease) in cash and cash equivalents 1,269 951 (1,186) (816) 2,163 (627) ------- -------- -------- -------- -------- -------- Cash and cash equivalents at December 31 $ 5,750 $ 2,690 $ 4,481 $ 1,739 $ 5,667 $ 2,555 ======= ======== ======== ======== ======== ======== 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, 1995, 1994 and 1993 (in millions) 1995 1994 1993 ------- ------- ------- CAPITAL STOCK (Note 10) Common Stock - ------------ Balance at beginning of year $ 952 $ 464 $ 454 Issued for Series A Preferred Stock conversion, employee benefit plans and other 137 19 10 Stock split in form of a 100% stock dividend - 469 - ------- ------- ------- Balance at end of year 1,089 952 464 Class B Stock - ------------- Balance at beginning of year 71 35 35 Stock split in form of a 100% stock dividend - 36 - ------- ------- ------- Balance at end of year 71 71 35 Series A Preferred Stock * * * Series B Preferred Stock (Note 1) * * * CAPITAL IN EXCESS OF PAR VALUE OF STOCK Balance at beginning of year 5,273 5,082 4,698 Exchange of Series B Preferred Stock (Notes 1 and 10) (632) - - Issued for Series A Preferred Stock conversion, employee benefit plans and other 464 696 384 Stock split in form of a 100% stock dividend - (505) - ------- ------- ------- Balance at end of year 5,105 5,273 5,082 FOREIGN CURRENCY TRANSLATION ADJUSTMENTS AND OTHER (Note 1) Balance at beginning of year 189 (1,078) (62) Translation adjustments during year 250 800 (508) Minimum pension liability adjustment (108) 400 (400) Other 263 67 (108) ------- ------- ------- Balance at end of year 594 189 (1,078) EARNINGS RETAINED FOR USE IN THE BUSINESS Balance at beginning of year 15,174 11,071 9,628 Net income 4,139 5,308 2,529 Cash dividends (1,559) (1,205) (1,086) Fair value adjustment from exchange of Series B Preferred Stock (Note 1) (66) - - ------- ------- ------- Balance at end of year 17,688 15,174 11,071 ------- ------- ------- Total stockholders' equity $24,547 $21,659 $15,574 ======= ======= ======= Series A Series B Common Class B Preferred Preferred SHARES OF CAPITAL STOCK Stock Stock Stock Stock ------ ------- --------- --------- Issued at December 31, 1992 454 35 0.046 0.023 Additions 1993 10 0 0 0 1994 - Stock split in form of a 100% stock dividend 469 36 - - - Employee benefit plans and other 19 - - - 1995 - Conversion of Series A Preferred Stock 115 - (0.035) - - Employee benefit plans and other 22 - - - - Exchange of Series B Preferred Stock (Note 10) - - - (0.013) ----- --- ----- ----- Net additions 635 36 (0.035) (0.013) ----- --- ----- ----- Issued at December 31, 1995 1,089 71 0.011 0.010 ===== === ===== ===== Authorized at December 31, 1995 3,000 265 -- In total: 30 -- - - - - - - *The balances at the beginning and end of each period were less than $1 million. The accompanying notes are part of the financial statements. FS-6 Ford Motor Company and Subsidiaries Notes to Financial Statements NOTE 1. Accounting Policies - ---------------------------- Principles of Consolidation - --------------------------- The consolidated financial statements include all significant majority owned subsidiaries and reflect the operating results, assets, liabilities and cash flows for two business segments: Automotive and Financial Services. The assets and liabilities of the Automotive segment are classified as current or noncurrent, and those of the Financial Services segment are unclassified. Affiliates that are 20% to 50% owned, principally Mazda Motor Corporation and AutoAlliance International Inc., and subsidiaries where control is expected to be temporary, principally investments in certain dealerships, are generally accounted for on an equity basis. For purposes of Notes to Financial Statements, "Ford" or "the company" means Ford Motor Company and its majority owned consolidated subsidiaries unless the context requires otherwise. Use of estimates and assumptions as determined by management is required in the preparation of consolidated financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates and assumptions. Certain amounts for prior periods have been reclassified to conform with 1995 presentations. Nature of Operations - -------------------- The company operates in two principal business segments: Automotive and Financial Services. The Automotive segment consists of the design, manufacture, assembly and sale of cars, trucks and related parts and accessories. The Financial Services segment consists primarily of financing operations, insurance operations, and vehicle and equipment leasing operations. Intersegment transactions represent principally transactions occurring in the ordinary course of business, borrowings and related transactions between entities in the Financial Services and Automotive segments, and interest and other support under special vehicle financing programs. These arrangements are reflected in the respective business segments. Revenue Recognition - Automotive - -------------------------------- Sales are recorded by the company when products are shipped to dealers, except as described below. Estimated costs for approved sales incentive programs normally are recognized as sales reductions at the time of revenue recognition. Estimated costs for sales incentive programs approved subsequent to the time that related sales were recorded are recognized when the programs are approved. Beginning December 1, 1995, sales through dealers to certain daily rental companies where the daily rental company has an option to require the company to repurchase vehicles, subject to certain conditions, are recognized over the period of daily rental service in a manner similar to lease accounting. This change in accounting principle was made as a result of the consensus reached on November 15, 1995 by the Emerging Issues Task Force of the Financial Accounting Standards Board on Issue 95-1 concerning the timing of revenue recognition when a manufacturer conditionally guarantees the resale value of a product or agrees to repurchase the product at a fixed price. The company elected to recognize this change in accounting principle on a prospective basis. The effect on the company's 1995 consolidated results of operations was not material, nor is it expected to have a material effect in future years. Implementation of this change will not affect the company's cash flow. Previously, the company recognized revenue for these vehicles when shipped. FS-7 NOTE 1. Accounting Policies (Cont'd) - ---------------------------- Revenue Recognition - Financial Services - ---------------------------------------- Revenue from finance receivables is recognized over the term of the receivable using the interest method. Certain loan origination costs are deferred and amortized over the term of the related receivable as a reduction in financing revenue. Revenue from operating leases is recognized as scheduled payments become due. Agreements between Automotive operations and certain Financial Services operations provide for interest supplements and other support costs to be paid by Automotive operations on certain financing and leasing transactions. Financial Services operations recognize this revenue in income over the period that the related receivables and leases are outstanding; the estimated costs of interest supplements and other support costs are recorded as sales incentives by Automotive operations. Other Costs - ----------- Advertising and sales promotion costs are expensed as incurred. Advertising costs were $2,024 million in 1995, $1,823 million in 1994 and $1,610 million in 1993. Estimated costs related to product warranty are accrued at the time of sale. Research and development costs are expensed as incurred and were $6,509 million in 1995, $5,811 million in 1994, and $5,618 million in 1993. Income Per Share of Common and Class B Stock - -------------------------------------------- Income per share of Common and Class B Stock is calculated by dividing the income attributable to Common and Class B Stock by the average number of shares of Common Stock and Class B Stock outstanding during the applicable period. The company has outstanding securities, primarily Series A Preferred Stock, that could be converted to Common Stock. Other obligations, such as stock options, are considered to be common stock equivalents. The calculation of income per share of Common and Class B Stock assuming full dilution takes into account the effect of these convertible securities and common stock equivalents when the effect is material and dilutive. Income attributable to Common and Class B Stock was as follows (in millions): 1995 1994 1993 ------ ------ ------- Net income $4,139 $5,308 $2,529 Less: Preferred stock dividend requirements 234 287 288 Fair value adjustment from exchange of Series B Preferred Stock* 66 - - ------ ------ ----- Income attributable to Common and Class B Stock $3,839 $5,021 $2,241 ====== ====== ====== - - - - - * Represents a one-time reduction of $0.06 per share of Common and Class B Stock related to the exchange of Series B Preferred Stock for company-obligated mandatorily redeemable preferred securities of a subsidiary trust; this adjustment equals the excess of the fair value of company-obligated mandatorily redeemable preferred securities at the date of issuance over the carrying amount of exchanged Series B Preferred Stock FS-8 NOTE 1. Accounting Policies (Cont'd) - ---------------------------- Derivative Financial Instruments - -------------------------------- The company and many of its subsidiaries have entered into agreements to manage certain exposures to fluctuations in foreign exchange and interest rates. All derivative financial instruments are classified as "held for purposes other than trading;" company policy specifically prohibits the use of derivatives for speculative purposes. Ford has operations in many countries outside the U.S., and purchases and sales of finished vehicles and production parts, debt and other payables, subsidiary dividends, and investments in subsidiaries are frequently denominated in foreign currencies. Agreements to manage foreign exchange exposures include foreign currency forward contracts, currency swaps and, to a lesser extent, foreign currency options. Gains and losses on the various agreements are recognized in income during the period of the related transactions, included in the bases of the related transactions, or, in the case of hedges of net investments in foreign subsidiaries, recognized as an adjustment to the foreign currency translation component of stockholders' equity. Financial Services operations issue debt and other payables for which the maturity and interest rate structure differs from the invested assets to ensure continued access to capital markets and to minimize overall borrowing costs. Agreements to manage interest rate exposures include primarily interest rate swap agreements. The differential paid or received on interest rate swap agreements is recognized as an adjustment to interest expense in the period. Foreign Currency Translation - ----------------------------- Revenues, costs and expenses of foreign subsidiaries are translated to U.S. dollars at average-period exchange rates. The effect of changes in foreign exchange rates on revenues and costs was generally unfavorable in 1995, 1994 and 1993. Assets and liabilities of foreign subsidiaries are translated to U.S. dollars at end-of-period exchange rates. The effects of this translation for most foreign subsidiaries and certain other foreign currency transactions are reported in a separate component of stockholders' equity. Translation gains and losses for foreign subsidiaries that are located in highly inflationary countries or conduct a major portion of their business with the company's U.S. operations are included in income. Also included in income are gains and losses arising from transactions denominated in a currency other than the functional currency of the subsidiary involved. The effect of changes in foreign exchange rates on assets and liabilities, as described above, increased net income by $13 million in 1995, $376 million in 1994, and $419 million in 1993. These amounts included net transaction and translation gains before taxes of $37 million in 1995, $574 million in 1994 and $988 million in 1993. These gains were offset by higher costs of sales that resulted from the use of historical exchange rates for inventories sold during the period in countries with high inflation rates. Impairment of Long-Lived Assets and Certain Identifiable Intangibles - -------------------------------------------------------- The company evaluates the carrying value of goodwill for potential impairment on an ongoing basis. Such evaluations compare operating income before amortization of goodwill to the amortization recorded for the operations to which the goodwill relates. The company also considers projected future operating results, trends and other circumstances in making such estimates and evaluations. Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to Be Disposed Of," was issued in March 1995. SFAS 121 requires that, effective January 1, 1996, long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. It also requires that long-lived assets and certain identifiable intangibles to be disposed of be reported at the lower of carrying amount or fair value less cost to sell. The effect of adopting SFAS 121 is not expected to be material. FS-9 NOTE 1. Accounting Policies (Cont'd) - ---------------------------- Goodwill - -------- Goodwill represents the excess of the purchase price over the fair value of the net assets of acquired companies and is amortized using the straight-line method principally over 40 years. Total goodwill included in Automotive and Financial Services other assets at December 31, 1995 was $2.3 billion and $3.2 billion, respectively. Company-Obligated Mandatorily Redeemable Preferred Securities of a Subsidiary Trust - ---------------------------------------------------------------- On December 21, 1995, Ford Motor Company Capital Trust I (the "Trust") issued $632 million of its 9% Trust Originated Preferred Securities (the "Preferred Securities") in a one-for-one exchange for 25,273,537 shares of the company's outstanding Series B Depositary Shares ("Depositary Shares"), each representing 1/2,000 of a share of Series B Preferred Stock of Ford. Concurrent with the issuance of the Preferred Securities in exchange for Depositary Shares and the related purchase by Ford of the Trust's common securities (the "Common Securities"), the company issued to the Trust $651 million aggregate principal amount of its 9% Junior Subordinated Debentures due December 2025 (the "Debentures"). The sole assets of the Trust are and will be the Debentures. The interest and other payment dates on the Debentures correspond to the distribution and other payment dates on the Preferred Securities and Common Securities. The Debentures are redeemable, in whole or in part, at the company's option on or after December 1, 2002, at a redemption price of $25 per Debenture plus accrued and unpaid interest. If the company redeems the Debentures, or upon maturity of the Debentures, the Trust is required to redeem the Preferred Securities and Common Securities at $25 per share plus accrued and unpaid distributions. Ford guarantees to pay in full to the holders of the Preferred Securities all distributions and other payments on the Preferred Securities to the extent not paid by the Trust only if and to the extent that Ford has made a payment of interest or principal on the Debentures. This guarantee, when taken together with Ford's obligations under the Debentures and the Indenture relating thereto and its obligations under the Declaration of Trust of the Trust, including its obligation to pay certain costs and expenses of the Trust, constitutes a full and unconditional guarantee by Ford of the Trust's obligations under the Preferred Securities. Preferred Stockholders' Equity in a Subsidiary Company - ------------------------------------------------------ During Fourth Quarter 1995, Ford Holdings, Inc. ("Ford Holdings"), a subsidiary of Ford, merged with Ford Holdings Capital Corporation, a subsidiary of Ford Holdings, which resulted in the cancellation of the voting preferred stock of Ford Holdings in exchange for payment by Ford Holdings of the liquidation preference of the stock plus accrued and unpaid dividends. Ford Holdings funded the payment to the holders of the preferred stock primarily with bank loans. FS-10 NOTE 2. Marketable and Other Securities - ---------------------------------------- Trading securities are recorded at fair value with unrealized gains and losses included in income. Available-for-sale securities are recorded at fair value with unrealized gains and losses excluded from income and reported, net of tax, in a separate component of stockholders' equity. Held-to-maturity securities are recorded at amortized cost. Equity securities which do not have readily determinable fair values are recorded at cost. The bases of cost used in determining realized gains and losses are specific identification for Automotive operations and first-in, first-out for Financial Services operations. The fair value of most securities was estimated based on quoted market prices. For those securities for which there were no quoted market prices, the estimate of fair value was based on similar types of securities that are traded in the market. Expected maturities of debt securities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalty. Automotive - ---------- Investments in securities at December 31, 1995 were as follows (in millions): Gross Gross Memo: Amortized Unrealized Unrealized Fair Book Cost Gains Losses Value Value --------- ---------- ---------- ----- ----- Trading securities $6,646 $12 $2 $6,656 $6,656 ====== === == ====== ====== Investments in securities at December 31, 1994 were as follows (in millions): Gross Gross Memo: Amortized Unrealized Unrealized Fair Book Cost Gains Losses Value Value --------- ---------- ---------- ------ ------ Trading securities $7,382 $3 $56 $7,329 $7,329 Available-for-sale securities - ----------------------------- Debt securities issued by foreign governments 23 0 0 23 23 Corporate securities 231 0 1 230 230 ------ -- --- ------- ------ Total available-for-sale securities 254 0 1 253 253 Held-to-maturity securities - --------------------------- Corporate securities 20 0 0 20 20 ------ -- --- ------ ------ Total investments in securities $7,656 $3 $57 $7,602 $7,602 ====== == === ====== ====== All debt securities classified as available-for-sale or held-to-maturity had contractual maturities of one year or less. Included in stockholders' equity at December 31, 1995 and 1994 was $146 million and $188 million, respectively, which represented principally the company's equity interest in the unrealized gains on securities owned by certain unconsolidated subsidiaries. FS-11 NOTE 2. Marketable and Other Securities (Cont'd) - ---------------------------------------- Financial Services - ------------------ Investments in securities at December 31, 1995 were as follows (in millions): Gross Gross Memo: Amortized Unrealized Unrealized Fair Book Cost Gains Losses Value Value --------- ----------- --------- ------ ------ Trading securities $ 477 $ 1 $ 2 $ 476 $ 476 Available-for-sale securities - ----------------------------- Debt securities issued by the U.S. government and agencies 574 20 0 594 594 Municipal securities 102 3 2 103 103 Debt securities issued by foreign governments 38 1 0 39 39 Corporate securities 579 12 9 582 582 Mortgage-backed securities 336 4 1 339 339 Other debt securities 13 0 0 13 13 Equity securities 300 58 0 358 358 ------ --- --- ------ ------ Total available-for-sale securities 1,942 98 12 2,028 2,028 Held-to-maturity securities - --------------------------- Debt securities issued by the U.S. government and agencies 8 1 0 9 8 Municipal securities 1,132 60 7 1,185 1,132 Corporate securities 585 15 2 598 585 ------ --- --- ------ ------ Total held-to-maturity securities 1,725 76 9 1,792 1,725 Total investments in securities with readily determinable fair value 4,144 $175 $23 $4,296 4,229 ==== ==== ====== Equity securities not practicable to fair value 324 324 ----- ------ Total investments in securities $4,468 $4,553 ====== ====== Investments in securities at December 31, 1994 were as follows (in millions): Gross Gross Memo: Amortized Unrealized Unrealized Fair Book Cost Gains Losses Value Value -------- ---------- ---------- ----- ------- Trading securities $ 715 $ 6 $ 10 $ 711 $ 711 Available-for-sale securities - ----------------------------- Debt securities issued by the U.S. government and agencies 692 1 38 655 655 Municipal securities 155 1 11 145 145 Debt securities issued by foreign governments 106 0 10 96 96 Corporate securities 1,929 3 152 1,780 1,780 Mortgage-backed securities 871 0 62 809 809 Other debt securities 22 0 0 22 22 Equity securities 172 34 6 200 200 ------ --- ---- ------ ------ Total available-for-sale securities 3,947 39 279 3,707 3,707 Held-to-maturity securities - --------------------------- Debt securities issued by the U.S. government and agencies 10 0 0 10 10 Municipal securities 783 0 12 771 783 Corporate securities 570 4 27 547 570 ------ --- ---- ------ ------ Total held-to-maturity securities 1,363 4 39 1,328 1,363 Total investments in securities with readily determinable fair value 6,025 $49 $328 $5,746 5,781 === ==== ====== Equity securities not practicable to fair value 324 324 ------ ------ Total investments in securities $6,349 $6,105 ====== ====== FS-12 NOTE 2. Marketable and Other Securities (Cont'd) - ---------------------------------------- Financial Services (Cont'd) - ------------------ The amortized cost and fair value of investments in available-for-sale securities and held-to-maturity securities at December 31, 1995, by contractual maturity, were as follows (in millions): Available-for-sale Held-to-maturity --------------------- ---------------------- Amortized Amortized Cost Fair Value Cost Fair Value --------- ---------- ---------- ---------- Due in one year or less $ 173 $ 173 $ 50 $ 47 Due after one year through five years 522 534 281 285 Due after five years through ten years 449 454 1,317 1,381 Due after ten years 283 293 77 79 Mortgage-backed securities 215 216 - - Equity securities 300 358 - - ------ ------ ------ ------ Total $1,942 $2,028 $1,725 $1,792 ====== ====== ====== ====== The amortized cost and fair value of investments in available-for-sale securities and held-to-maturity securities at December 31, 1994, by contractual maturity, were as follows (in millions): Available-for-sale Held-to-maturity ----------------------- ---------------------- Amortized Amortized Cost Fair Value Cost Fair Value --------- ------------ --------- ----------- Due in one year or less $ 113 $ 112 $ 59 $ 58 Due after one year through five years 755 728 184 184 Due after five years through ten years 637 596 782 768 Due after ten years 1,399 1,262 338 318 Mortgage-backed securities 871 809 - - Equity securities 172 200 - - ------ ------ ------ ------ Total $3,947 $3,707 $1,363 $1,328 ====== ====== ====== ====== Proceeds from sales of available-for-sale securities were $2.4 billion in 1995 and $9.1 billion in 1994; gross gains of $39 million and gross losses of $18 million were realized on those sales in 1995, and gross gains of $24 million and gross losses of $56 million were realized on those sales in 1994. Stockholders' equity included, net of tax, a net unrealized gain of $56 million at December 31, 1995 and a net unrealized loss of $155 million at December 31, 1994. Proceeds from sales of investments in debt securities were $11.2 billion in 1993; gross gains of $113 million and gross losses of $20 million were realized on those sales. FS-13 NOTE 3. Receivables - Financial Services - ----------------------------------------- Included in net receivables and lease investments at December 31 were net finance receivables, investments in direct financing leases and investments in operating leases. The investments in direct financing and operating leases relate to the leasing of vehicles, various types of transportation and other equipment, and facilities. Net finance receivables at December 31 were as follows (in millions): 1995 1994 -------- -------- Automotive $ 98,162 $ 87,858 Real estate, mainly residential 17,577 15,560 Other 7,732 6,237 -------- -------- Total finance receivables 123,471 109,655 Loan origination costs 268 194 Unearned income (11,045) (9,656) Allowance for credit losses (1,947) (1,762) Unearned insurance premiums and unpaid insurance claims related to finance receivables (2) (90) -------- -------- Net finance receivables $110,745 $ 98,341 ======== ======== Fair value $112,798 $ 99,518 Included in finance receivables at December 31, 1995 and 1994 were a total of $1.3 billion owed by three customers with the largest receivable balances. Other finance receivables consisted primarily of commercial and consumer loans, collateralized loans, credit card receivables, general corporate obligations and accrued interest. Also included in other finance receivables at December 31, 1995 and 1994 were $3.5 billion and $3.4 billion, respectively, of accounts receivable purchased by certain Financial Services operations from Automotive operations. Contractual maturities of automotive and other finance receivables are as follows (in millions): 1996 - $53,718; 1997 - $20,569; 1998 - $14,160; thereafter - $17,447. Experience indicates that a substantial portion of the portfolio generally is repaid before the contractual maturity dates. The fair value of most receivables was estimated by discounting future cash flows using an estimated discount rate that reflected the credit, interest rate and prepayment risks associated with similar types of instruments. For receivables with short maturities, the book value approximated fair value. Sales of finance receivables increased net income by $69 million in 1995, $15 million in 1994 and $60 million in 1993. Investments in direct financing leases at December 31 were as follows (in millions): 1995 1994 ------- -------- Minimum lease rentals $ 9,385 $ 8,321 Estimated residual values 3,960 3,715 Lease origination costs 81 70 Unearned income (2,439) (2,299) Allowance for credit losses (155) (185) ------- ------- Net investments in direct financing leases $10,832 $ 9,622 ======= ======= Minimum direct financing lease rentals (including executory costs of $31 million) are contractually due as follows (in millions): 1996 - $3,093; 1997 - $2,346; 1998 - $1,489; 1999 - $893; thereafter - $1,595. FS-14 NOTE 3. Receivables - Financial Services (Cont'd) - ----------------------------------------- Investments in operating leases at December 31 were as follows (in millions): 1995 1994 ------- ------- Vehicles and other equipment, at cost $34,855 $28,050 Lease origination costs 50 38 Accumulated depreciation (6,499) (5,425) Allowance for credit losses (289) (270) ------- ------- Net investments in operating leases $28,117 $22,393 ======= ======= Minimum rentals on operating leases are contractually due as follows (in millions): 1996 - $6,364; 1997 - $2,694; 1998 - $431; 1999 - $131; thereafter - $222. Depreciation expense for assets subject to operating leases is provided primarily on the straight-line method over the term of the lease in amounts necessary to reduce the carrying amount of the asset to its estimated residual value. Gains and losses upon disposal of the asset also are included in depreciation expense. Depreciation expense was as follows (in millions): 1995 - $5,508; 1994 - $4,231; 1993 - $2,984. Allowances for credit losses are estimated and established as required based on historical experience. Other factors that affect collectibility also are evaluated, and additional amounts may be provided. Finance receivables and lease investments are charged to the allowances for credit losses when an account is deemed to be uncollectible, taking into consideration the financial condition of the borrower, the value of the collateral, recourse to guarantors and other factors. Recoveries on finance receivables and lease investments previously charged off as uncollectible are credited to the allowances for credit losses. Changes in the allowances for credit losses were as follows (in millions): 1995 1994 1993 ------- ------ ------ Beginning balance $ 2,217 $2,352 $2,257 Additions 1,327 988 1,019 Net losses (1,120) (826) (903) Other changes (33) (297) (21) ------- ------ ------ Ending balance $ 2,391 $2,217 $2,352 ======= ====== ====== Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan," was issued in May 1993 and amended in October 1994 by Statement of Financial Accounting Standards No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures." The Standards require that impaired loans be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate. The company adopted these standards as of January 1, 1995, and the effect was not material. NOTE 4. Inventories - Automotive - --------------------------------- Inventories at December 31 were as follows (in millions): 1995 1994 ------ ------ Raw materials, work in process and supplies $3,717 $3,192 Finished products 3,445 3,295 ------ ------ Total inventories $7,162 $6,487 ====== ====== U.S. inventories $2,662 $2,917 Inventories are stated at the lower of cost or market. The cost of most U.S. inventories is determined by the last-in, first-out ("LIFO") method. The cost of the remaining inventories is determined primarily by the first-in, first-out ("FIFO") method. If the FIFO method had been used instead of the LIFO method, inventories would have been higher by $1,406 million and $1,383 million at December 31, 1995 and 1994, respectively. FS-15 NOTE 5. Net Property, Depreciation and Amortization - Automotive - ----------------------------------------------------------------- Net property at December 31 was as follows (in millions): 1995 1994 -------- -------- Land $ 381 $ 359 Buildings and land improvements 7,539 6,939 Machinery, equipment and other 38,954 33,551 Construction in progress 1,609 1,685 -------- -------- Total land, plant and equipment 48,483 42,534 Accumulated depreciation (25,313) (22,738) -------- -------- Net land, plant and equipment 23,170 19,796 Unamortized special tools 8,103 7,252 -------- -------- Net property $ 31,273 $ 27,048 ======== ======== Property, equipment and special tools are stated at cost, less accumulated depreciation and amortization. Property and equipment placed in service before January 1, 1993 are depreciated using an accelerated method that results in accumulated depreciation of approximately two-thirds of asset cost during the first half of the estimated useful life of the asset. Property and equipment placed in service after December 31, 1992 are depreciated using the straight-line method of depreciation over the estimated useful life of the asset. On average, buildings and land improvements are depreciated based on a 30-year life; machinery and equipment are depreciated based on a 14-year life. Special tools are amortized using an accelerated method over periods of time representing the estimated productive life of those tools. Depreciation and amortization expenses were as follows (in millions): 1995 1994 1993 ------ ------ ------ Depreciation $2,454 $2,297 $2,392 Amortization 2,765 2,129 2,012 ------ ------ ------ Total $5,219 $4,426 $4,404 ====== ====== ====== When property and equipment are retired, the general policy is to charge the cost of those assets, reduced by net salvage proceeds, to accumulated depreciation. Maintenance, repairs, and rearrangement costs are expensed as incurred and were $2,529 million in 1995, $2,377 million in 1994, and $1,934 million in 1993. Expenditures that increase the value or productive capacity of assets are capitalized. Preproduction costs related to new facilities are expensed as incurred. NOTE 6. Income Taxes - --------------------- Income/(loss) before income taxes for U.S. and foreign operations, excluding equity in net (loss)/income of affiliated companies, was as follows (in millions): 1995 1994 1993 ------ ------ ------ U.S. $5,521 $6,944 $4,152 Foreign 1,338 1,574 (276) ------ ------ ------ Total income before income taxes $6,859 $8,518 $3,876 ====== ====== ====== The provision for income taxes was estimated as follows (in millions): 1995 1994 1993 ------ ------ ------ Currently payable U.S. federal $ 971 $1,640 $1,259 Foreign 578 690 169 State and local 17 165 123 ------ ------ ------ Total currently payable 1,566 2,495 1,551 Deferred tax liability/(benefit) U.S. federal 731 827 (161) Foreign (10) (71) (106) State and local 92 78 66 ------ ------ ------ Total deferred 813 834 (201) ------ ------ ------ Total provision $2,379 $3,329 $1,350 ====== ====== ====== FS-16 NOTE 6. Income Taxes (Cont'd) - --------------------- The provision includes estimated taxes payable on that portion of retained earnings of subsidiaries expected to be received by the company. No provision was made with respect to $2.6 billion of retained earnings at December 31, 1995 that have been invested by foreign subsidiaries. It is not practicable to estimate the amount of unrecognized deferred tax liability for the undistributed foreign earnings. A reconciliation of the provision for income taxes compared with the amounts at the U.S. statutory tax rate is shown below (in millions): 1995 1994 1993 ------- ------- ------- Tax provision at U.S. statutory rate of 35% $2,400 $2,981 $1,357 Effect of: Foreign taxes over U.S. tax rate 100 68 219 State and local income taxes 71 158 118 Rate adjustments on U.S. and foreign deferred taxes - - (199) Income not subject to tax or subject to tax at reduced rates (47) (62) (70) Other (145) 184 (75) ------ ------ ------ Provision for income taxes $2,379 $3,329 $1,350 ====== ====== ====== Effective tax rate 34.7% 39.1% 34.8% Deferred income taxes reflect the estimated tax effect of temporary differences between assets and liabilities for financial reporting purposes and those amounts as measured by tax laws and regulations and net operating losses of subsidiaries. The components of deferred income tax assets and liabilities at December 31 were as follows (in millions): 1995 1994 -------- -------- Deferred tax assets ------------------- Employee benefit plans $ 6,672 $ 5,951 Dealer and customer allowances and claims 3,750 3,375 Allowance for credit losses 921 821 Net operating loss carryforwards 844 1,152 Alternative minimum tax 440 318 Depreciation and amortization (excludes leasing transactions) - 39 All other 1,711 1,466 Valuation allowances (158) (159) ------- ------- Total deferred tax assets 14,180 12,963 Deferred tax liabilities ------------------------ Leasing transactions 4,933 3,935 Depreciation and amortization (excludes leasing transactions) 3,626 2,804 Employee benefit plans 1,486 1,443 All other 1,920 1,604 ------- ------- Total deferred tax liabilities 11,965 9,786 ------- ------- Net deferred tax assets $ 2,215 $ 3,177 ======= ======= Foreign net operating loss carryforwards for tax purposes were $2.4 billion at December 31, 1995. A substantial portion of these losses has an indefinite carryforward period; the remaining losses have expiration dates beginning in 1996. For financial statement purposes, the tax benefit of operating losses is recognized as a deferred tax asset, subject to appropriate valuation allowances. The company evaluates the tax benefits of operating loss carryforwards on an ongoing basis. Such evaluations include a review of historical and consideration of projected future operating results, the eligible carryforward period and other circumstances. FS-17 NOTE 7. Liabilities - Automotive - --------------------------------- Current Liabilities - ------------------- Included in accrued liabilities at December 31 were the following (in millions): 1995 1994 -------- ------- Dealer and customer allowances and claims $ 7,824 $ 7,115 Employee benefit plans 2,225 2,130 Salaries, wages, and employer taxes 843 598 Postretirement benefits other than pensions 782 688 Other 1,718 1,412 ------- ------ Total accrued liabilities $13,392 $11,943 ======= ======= Noncurrent Liabilities - ---------------------- Included in other liabilities at December 31 were the following (in millions): 1995 1994 ------- -------- Postretirement benefits other than pensions $14,533 $14,025 Dealer and customer allowances and claims 5,514 6,044 Employee benefit plans 2,657 2,232 Unfunded pension obligation 627 362 Minority interests in net assets of subsidiaries 121 118 Other 2,225 2,139 ------- ------- Total other liabilities $25,677 $24,920 ======= ======= NOTE 8. Employee Retirement Benefits - ------------------------------------- Employee Retirement Plans - ------------------------- The company has two principal retirement plans in the U.S. The Ford-UAW Retirement Plan covers hourly employees represented by the UAW, and the General Retirement Plan covers substantially all other employees of the company and several finance subsidiaries in the U.S. The hourly plan provides noncontributory benefits related to employee service. The salaried plan provides similar noncontributory benefits and contributory benefits related to pay and service. Other U.S. and non-U.S. subsidiaries have separate plans that generally provide similar types of benefits covering their employees. The company and its subsidiaries also have defined benefit plans applicable to certain executives which are not funded. The company's policy for funded plans is to contribute annually, at a minimum, amounts required by applicable law, regulations and union agreements. Plan assets consist principally of investments in stocks, government and other fixed income securities and real estate. The various plans generally are funded, except in Germany, where this has not been the custom, and as noted above; in those cases, an unfunded liability is recorded. The company's pension expense, including Financial Services, was as follows (in millions): 1995 1994 1993 ---------------------- ------------------------ ------------------------ Non- Non- Non- U.S. Plans U.S. Plans U.S. Plans U.S. Plans U.S. Plans U.S. Plans ---------- ---------- ---------- ---------- ---------- ---------- Benefits attributed to employees' service $ 435 $ 208 $ 526 $ 236 $ 419 $ 181 Interest on projected benefit obligation 1,776 785 1,639 677 1,517 667 Return on assets: Actual (gain)/loss (5,696) (1,201) (74) 137 (2,264) (1,370) Deferred gain/(loss) 3,565 435 (1,928) (759) 389 677 ------- ------- ------- ----- ------- ------- Recognized (gain) (2,131) (766) (2,002) (622) (1,875) (693) Net amortization and other 408 234 452 151 259 169 ------- ------- ------- ----- ------- ------- Net pension expense $ 488 $ 461 $ 615 $ 442 $ 320 $ 324 ======= ======= ======= ===== ======= ======= Discount rate for expense 8.25% 8.3% 7.0% 7.2% 8.0% 8.6% Assumed long-term rate of return on assets 9.0 % 9.0% 9.0% 9.0% 9.5% 9.5% FS-18 NOTE 8. Employee Retirement Benefits (Cont'd) - ------------------------------------- Pension expense in 1995 decreased for U.S. plans primarily as a result of higher discount rates, and increased for non-U.S. plans primarily as a result of benefit improvements and unfavorable exchange rates. Pension expense increased in 1994 as a result of lower discount rates for both U.S. and non-U.S. plans. In addition, amendments made in September 1993 to the Ford-UAW Retirement Plan and the General Retirement Plan provided benefit improvements that increased U.S. expense in 1995 and 1994. The status of these plans at December 31 was as follows (in millions): 1995 1994 ------------------------------ ------------------------------- Assets in Accum. Assets in Accum. Excess of Benefits Excess of Benefits Accum. in Excess Total Accum. in Excess Total Benefits of Assets Plans Benefits of Assets Plans --------- --------- -------- --------- --------- ------- U.S. Plans - ---------- Plan assets at fair value $27,921 $ 154 $28,075 $23,264 $ 132 $23,396 Actuarial present value of: Vested benefits $20,641 $ 516 $21,157 $17,217 $ 404 $17,621 Accumulated benefits 23,980 568 24,548 20,256 453 20,709 Projected benefits 25,607 670 26,277 21,404 541 21,945 Plan assets in excess of/(less than) projected benefits $ 2,314 $ (516) $ 1,798 $ 1,860 $ (409) $ 1,451 Unamortized (net asset)/net transition obligation a/ (142) 10 (132) (164) 12 (152) Unamortized prior service cost b/ 1,808 60 1,868 2,134 86 2,220 Unamortized net (gains)/losses c/ (758) 144 (614) (717) 56 (661) ------- ------- ------- ------- ------- ------- Prepaid pension asset/(liability) 3,222 (302) 2,920 3,113 (255) 2,858 Adjustment required to recognize minimum liability d/ - (114) (114) - (77) (77) ------- ------- ------- ------- ------- ------- Prepaid pension asset/(liability) recognized in the balance sheet $ 3,222 $ (416) $ 2,806 $ 3,113 $ (332) $ 2,781 ======= ======= ======= ======= ======= ======= Plan assets in excess of/(less than) accumulated benefits $ 3,941 $ (414) $ 3,527 $ 3,008 $ (321) $ 2,687 Assumptions: Discount rate at year-end 7.0% 8.25% Average rate of increase in compensation 5.5% 5.5 % Non-U.S. Plans - -------------- Plan assets at fair value $ 8,447 $ 938 $ 9,385 $ 7,018 $ 950 $ 7,968 Actuarial present value of: Vested benefits $ 6,468 $ 3,478 $ 9,946 $ 5,318 $ 2,895 $ 8,213 Accumulated benefits 6,556 3,506 10,062 5,419 3,053 8,472 Projected benefits 7,751 3,654 11,405 6,321 3,240 9,561 Plan assets in excess of/(less than) projected benefits $ 696 $(2,716) $(2,020) $ 697 $(2,290) $(1,593) Unamortized net transition obligation a/ 63 230 293 32 241 273 Unamortized prior service cost b/ 330 170 500 227 248 475 Unamortized net (gains)/losses c/ (184) 255 71 (81) (25) (106) ------- ------- ------- ------- ------- ------- Prepaid pension asset/(liability) 905 (2,061) (1,156) 875 (1,826) (951) Adjustment required to recognize minimum liability d/ - (517) (517) - (284) (284) ------- ------- ------- ------- ------- ------- Prepaid pension asset/(liability) recognized in the balance sheet $ 905 $(2,578) $(1,673) $ 875 $(2,110) $(1,235) ======= ======= ======= ======= ======= ======= Plan assets in excess of/(less than) accumulated benefits $ 1,891 $(2,568) $ (677) $ 1,599 $(2,103) $ (504) Assumptions: Discount rate at year-end 7.6% 8.3% Average rate of increase in compensation 5.1% 5.2% - - - - - - a/ The balance of the initial difference between assets and obligation deferred for recognition over a 15-year period. b/ The prior service effect of plan amendments deferred for recognition over remaining service. c/ The deferred gain or loss resulting from investments, other experience and changes in assumptions. d/ An adjustment to reflect the unfunded accumulated benefit obligation in the balance sheet for plans whose benefits exceed the assets -- at year-end 1995, the unfunded liability in excess of $448 million is recorded net of deferred taxes as a $108 million reduction in stockholders' equity, and at year-end 1994, the unfunded liability was offset by an intangible asset. FS-19 NOTE 8. Employee Retirement Benefits (Cont'd) - ------------------------------------- Postretirement Health Care and Life Insurance Benefits - ------------------------------------------------------ The company and certain of its subsidiaries sponsor unfunded plans to provide selected health care and life insurance benefits for retired employees. The company's U.S. and Canadian employees may become eligible for these benefits if they retire while working for the company; however, benefits and eligibility rules may be modified from time to time. The estimated cost for postretirement health care benefits is accrued over periods of employee service on an actuarially determined basis. Net postretirement benefit expense, including Financial Services, was as follows (in millions): 1995 1994 1993 ------- ------- ------- Benefits attributed to employees' service $ 223 $ 263 $ 240 Interest on accumulated benefit obligation 1,160 1,088 1,207 Net amortization (68) (32) - ------ ------ ------ Net postretirement benefit expense $1,315 $1,319 $1,447 ====== ====== ====== Retiree benefit payments $ 698 $ 639 $ 654 The status of these plans at December 31 was as follows (in millions): 1995 1994 ------- ------- Accumulated postretirement benefit obligation: Retirees $ 8,413 $ 6,720 Active employees eligible to retire 3,014 2,282 Other active employees 5,717 4,266 ------- ------- Total accumulated obligation 17,144 13,268 Unamortized prior service cost a/ 270 321 Unamortized net (losses)/gains b/ (1,756) 1,440 ------- ------- Accrued liability $15,658 $15,029 ======= ======= Assumptions: Discount rate 7.25% 8.75% Present health care cost trend rate 9.5 % 5.9 % Ultimate trend rate in ten years 5.5 % 5.5 % Weighted-average trend rate 6.6 % 6.6 % - - - - - - a/ The prior service effect of plan amendments deferred for recognition over remaining service to retirement eligibility. b/ The deferred gain or loss resulting from experience and changes in assumptions deferred for recognition over remaining service to retirement. Changing the assumed health care cost trend rates by one percentage point is estimated to change the aggregate service and interest cost components of net postretirement benefit expense for 1995 by about $245 million and the accumulated postretirement benefit obligation at December 31, 1995 by about $2 billion. Health care trend rates, together with other assumptions, are subject to review annually in the first quarter. Based on estimates of recent experience and the general health care cost trend outlook, it is expected that these rates will be lowered. FS-20 NOTE 9. Debt - ------------- The fair value of debt was estimated based on quoted market prices or current rates for similar debt with the same remaining maturities. Automotive - ---------- Debt at December 31 was as follows (in millions): Weighted Average Interest Rate* Book Value ------------------- ------------------- Maturity 1995 1994 1995 1994 --------- -------- -------- -------- --------- Debt payable within one year ---------------------------- Short-term debt 6.6% 10.0% $ 872 $ 112 Long-term debt payable within one year 960 43 ------ ------ Total debt payable within one year 1,832 155 Long-term debt 1997-2043 9.2% 9.0% 5,475 7,103 ------ ------ Total debt $7,307 $7,258 ====== ====== Fair value $8,160 $7,492 - - - - - - *Excludes the effect of interest rate swap agreements Long-term debt at December 31, 1995 included maturities as follows (in millions): 1996 - $960 (included in current liabilities); 1997 - $580; 1998 - $351; 1999 - $53; 2000 - $1,003; thereafter - $3,488. Included in long-term debt at December 31, 1995 and 1994 were obligations of $5,031 million and $6,567 million, respectively, with fixed interest rates and $444 million and $536 million, respectively, with variable interest rates (generally based on LIBOR or other short-term rates). Obligations payable in foreign currencies at December 31, 1995 and 1994 were $968 million and $994 million, respectively. Agreements to manage exposures to fluctuations in interest rates, which include primarily interest rate swap agreements and futures contracts, did not materially change the overall weighted-average rate on long-term debt and effectively decreased the obligations subject to variable interest rates to $287 million at December 31, 1995 and $465 million at December 31, 1994. Financial Services - ------------------ Debt at December 31 was as follows (in millions): Weighted Average Interest Rate* Book Value ------------------- ------------------- Maturity 1995 1994 1995 1994 --------- -------- -------- -------- --------- Debt payable within one year ---------------------------- Unsecured short-term debt $ 3,032 $ 2,990 Commercial paper 56,002 51,008 Other short-term debt 1,927 2,301 --------- -------- Total short-term debt 5.7% 5.9% 60,961 56,299 Long-term debt payable within one year 12,097 9,310 --------- -------- Total debt payable within one year 73,058 65,609 Long-term debt -------------- Secured indebtedness 1997-2005 7.7% 6.7% 89 98 Unsecured senior indebtedness Notes and bank debt 1997-2048 6.9% 7.1% 64,810 54,248 Debentures 1997-2010 7.4% 7.8% 591 560 Unamortized (discount) (5) (61) -------- -------- Total unsecured senior indebtedness 65,396 54,747 Unsecured subordinated indebtedness Notes 1997-2021 8.8% 9.2% 2,665 3,159 Debentures 1997-2009 8.1% 8.1% 141 141 Unamortized (discount) (32) (41) -------- -------- Total unsecured subordinated indebtedness 2,774 3,259 -------- -------- Total long-term debt 68,259 58,104 -------- -------- Total debt $141,317 $123,713 ======== ======== Fair value $144,730 $122,252 - - - - - - *Excludes the effect of interest rate swap agreements FS-21 NOTE 9. Debt (Cont'd) - ------------- Financial Services (Cont'd) - ------------------ Information concerning short-term borrowings (excluding long-term debt payable within one year) is as follows (in millions): 1995 1994 1993 -------- -------- --------- Average amount of short-term borrowings $60,203 $50,106 $38,353 Weighted-average short-term interest rates per annum (average year) 6.0% 4.6% 3.8% Average remaining term of commercial paper at December 31 34 days 27 days 29 days Long-term debt at December 31, 1995 included maturities as follows (in millions): 1996 - $12,097; 1997 - $14,326; 1998 - $13,696; 1999 - $11,485; 2000 - $12,306; thereafter - $16,446. Included in long-term debt at December 31, 1995 and 1994 were obligations of $53.2 billion and $45.9 billion, respectively, with fixed interest rates and $15.1 billion and $12.2 billion, respectively, with variable interest rates (generally based on LIBOR or other short-term rates). Obligations payable in foreign currencies at December 31, 1995 and 1994 were $21 billion and $12.2 billion, respectively. These obligations were issued primarily to fund foreign business operations. Agreements to manage exposures to fluctuations in interest rates include primarily interest rate swap agreements. At December 31, 1995, these agreements did not change the overall weighted-average rate on long-term debt of 7% excluding these agreements, and effectively decreased the obligations subject to variable interest rates to $11.9 billion. At December 31, 1995, the weighted- average interest rate on short-term debt increased to 5.8%, compared with 5.7% excluding these agreements. At December 31, 1994, these agreements decreased the overall weighted-average rate on long-term debt to 7.1%, compared with 7.2% excluding these agreements, and effectively decreased the obligations subject to variable rates to $7.2 billion. At December 31, 1994, the weighted-average interest rate on short- term debt decreased to 5.6%, compared with 5.9% excluding these agreements. Support Facilities - ------------------ At December 31, 1995, Ford had long-term contractually committed global credit agreements under which $8.4 billion is available from various banks at least through June 30, 2000. The entire $8.4 billion may be used, at Ford's option, by any affiliate of Ford; however, any borrowing by an affiliate will be guaranteed by Ford. In addition, Ford has the ability to transfer on a nonguaranteed basis the entire $8.4 billion in varying portions to Ford Credit and Ford Credit Europe. These facilities were unused at December 31, 1995. At December 31, 1995, Financial Services had a total of $48.5 billion of contractually committed support facilities. Of these facilities, $23.8 billion (excluding the $8.4 billion of Ford credit facilities) are contractually committed global credit agreements under which $19.8 billion and $4 billion are available to Ford Credit and Ford Credit Europe, respectively, from various banks; 62% and 75%, respectively, of such facilities are available through June 30, 2000. The entire $19.8 billion may be used, at Ford Credit's option, by any subsidiary of Ford Credit, and the entire $4 billion may be used, at Ford Credit Europe's option, by any subsidiary of Ford Credit Europe. Any borrowings by such subsidiaries will be guaranteed by Ford Credit or Ford Credit Europe, as the case may be. At December 31, 1995, none of the Ford Credit global facilities were in use; $742 million of the Ford Credit Europe global facilities were in use. Other than the global credit agreements, the remaining portion of the Financial Services support facilities at December 31, 1995 consisted of $22 billion of contractually committed support facilities available to various affiliates in the U.S. and $2.7 billion of contractually committed support facilities available to various affiliates outside the U.S.; at December 31, 1995, about $1 billion of these facilities were in use. FS-22 NOTE 10. Capital Stock - ------------------------ At December 31, 1995, all general voting power was vested in the holders of Common Stock and the holders of Class B Stock, voting together without regard to class. At that date, the holders of Common Stock were entitled to one vote per share and, in the aggregate, had 60% of the general voting power; the holders of Class B Stock were entitled to such number of votes per share as would give them, in the aggregate, the remaining 40% of the general voting power, as provided in the company's Certificate of Incorporation. The Certificate provides that all shares of Common Stock and Class B Stock share equally in dividends (other than dividends declared with respect to any outstanding Preferred Stock), except that any stock dividends are payable in shares of Common Stock to holders of that class and in Class B Stock to holders of that class. Upon liquidation, all shares of Common Stock and Class B Stock are entitled to share equally in the assets of the company available for distribution to the holders of such shares. On April 14, 1994, the company's Board of Directors declared a 2- for-1 stock split in the form of a 100% stock dividend on the company's Common Stock and Class B Stock effective June 6, 1994. Share data were restated to reflect the split, where appropriate. Information concerning the Preferred Stock of the company is as follows: Series A Series B Cumulative Convertible Preferred Stock Cumulative Preferred Stock -------------------------------------- --------------------------------------- Liquidation preference $50 per Depositary Share $25 per Depositary Share and shares outstanding $534 million and 10,681 shares $508 million and 10,163 shares at December 31, 1995 outstanding (10,680,665 Depositary outstanding (20,326,463 Depositary Shares) Shares) Dividends $4.20 per year per Depositary Share $2.0625 per year per Depositary Share Conversion Shares can be converted at any time None into shares of Common Stock of the company at a rate equivalent to 3.2654 shares of Common Stock for each Depositary Share (equivalent to a conversion price of $15.3121 per share of Common Stock) Redemption Not redeemable prior to Not redeemable prior to December 7, 1997 December 1, 2002 On and after December 7, 1997, the On and after December 1, 2002, and stock is redeemable for cash at the upon satisfaction of certain company's option, in whole or in conditions, the stock is redeemable part, initially at an amount equi- for cash at the option of Ford, in valent to $51.68 per Depositary whole or in part, at a redemption Share and thereafter at prices price equivalent to $25 per Depositary declining to $50 per Depositary Share, plus an amount equal to the sum Share on and after December 1, 2001, of all accrued and unpaid dividends plus, in each case, an amount equal to the sum of all accrued and unpaid 25,273,537 Depositary Shares were dividends exchanged during 1995 (see Note 1, "Company-Obligated Mandatorily Redeemable Preferred Securities of a Subsidiary Trust") The Series A and Series B Preferred Stock rank (and any other outstanding Preferred Stock of the company would rank) senior to the Common Stock and Class B Stock in respect of dividends and liquidation rights. FS-23 NOTE 11. Stock Options - ----------------------- The company has stock options outstanding under the 1985 Stock Option Plan and the 1990 Long-Term Incentive Plan. These plans were approved by the stockholders. Information concerning stock options is as follows (shares in millions): 1995 1994 1993 ------ ------ ------- Option price of new grants a/ $32.00, $29.06 $28.84 $29.50, and $28.06 $28.63 and $28.56 Shares subject to option ------------------------ Outstanding at beginning of period 43.3 37.4 41.1 New grants 9.7 9.5 7.1 Exercised b/ (3.4) (2.6) (6.7) Surrendered upon exercise of stock appreciation rights (0.9) (0.9) (3.9) Terminated and expired (0.2) (0.1) (0.2) ----- ----- ----- Outstanding at end of period 48.5 c/ 43.3 37.4 Outstanding but not exercisable (22.6) (21.3) (19.3) ----- ----- ----- Exercisable at end of period 25.9 22.0 18.1 ===== ===== ===== Shares authorized for future grants (as of December 31) d/ 0 0 0 - - - - - - a/ Fair market value of Common Stock at dates of grant. b/ At option prices ranging from $9.09 to $29.06 during 1995, $9.09 to $28.84 during 1994, and $9.09 to $25.84 during 1993. c/ Including 7.6 million and 40.9 million shares under the 1985 and 1990 Plans, respectively, at option prices ranging from $13.42 to $32.00 per share. d/ In addition, up to 1% of the issued Common Stock as of December 31 of any year may be made available for stock options and other plan awards in the next succeeding calendar year. That limit may be increased up to 2% in any year, with a corresponding reduction in shares available for grants in future years. At December 31, 1995, this reduction aggregated 2.4 million shares. No further grants may be made under the 1985 Plan. Grants may be made under the 1990 Plan through April 2000. In general, options granted under the 1985 Plan and options granted to date under the 1990 Plan become exercisable 25% after one year from the date of grant, 50% after two years, 75% after three years and in full after four years. Options under both Plans expire after 10 years. Certain options outstanding under the Plans were granted with an equal number of accompanying stock appreciation rights that may be exercised in lieu of the options. Under the Plans, a stock appreciation right entitles the holder to receive, without payment, the excess of the fair market value of the Common Stock on the date of exercise over the option price, either in Common Stock or cash or a combination. In addition, grants of Contingent Stock Rights were made with respect to 884,500 shares in 1995, 709,800 shares in 1994, and 2,327,200 shares in 1993 under the 1990 Long-Term Incentive Plan (not included in the table above). The number of shares ultimately awarded will depend on the extent to which the Performance Target specified in each Right is achieved, the individual performance of the recipients and other factors, as determined by the Compensation and Option Committee of the Board of Directors. Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation", was issued in October 1995. SFAS 123 permits entities to record expense for employee stock compensation plans based on fair value at date of grant. The company, however, plans to continue to measure compensation cost using the intrinsic value method, in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees." FS-24 NOTE 12. Litigation and Claims - ------------------------------- Various legal actions, governmental investigations and proceedings and claims are pending or may be instituted or asserted in the future against the company and its subsidiaries, including those arising out of alleged defects in the company's products, governmental regulations relating to safety, emissions and fuel economy, financial services, intellectual property rights, product warranties and environmental matters. Certain of the pending legal actions are, or purport to be, class actions. Some of the foregoing matters involve or may involve compensatory, punitive, or antitrust or other treble damage claims in very large amounts, or demands for recall campaigns, environmental remediation programs, sanctions, or other relief which, if granted, would require very large expenditures. Litigation is subject to many uncertainties, and the outcome of individual litigated matters is not predictable with assurance. Reserves have been established by the company for certain of the matters discussed in the foregoing paragraph where losses are deemed probable. It is reasonably possible, however, that some of the matters discussed in the foregoing paragraph for which reserves have not been established could be decided unfavorably to the company or the subsidiary involved and could require the company or such subsidiary to pay damages or make other expenditures in amounts or a range of amounts that cannot reasonably be at December 31, 1995. The company does not reasonably expect, based on its analysis, that any adverse outcome from such matters would have a material effect on future consolidated financial statements for a particular year, although such an outcome is possible. NOTE 13. Commitments and Contingencies - --------------------------------------- At December 31, 1995, the company had the following minimum rental commitments under non-cancelable operating leases (in millions): 1996 - $740; 1997 - $689; 1998 - $363; 1999 - $310; 2000 - $251; thereafter - $456. These amounts include rental commitments related to the sales and leasebacks of certain Automotive machinery and equipment. The company and certain of its subsidiaries have entered into agreements with various banks to provide credit card programs that offer rebates that can be applied against the purchase or lease of Ford cars or trucks. The maximum amount of rebates available to qualified cardholders at December 31, 1995 and 1994 was $3.1 billion and $2.3 billion, respectively. The company has provided for the estimated net cost of these programs as a sales incentive based on the estimated number of participants who ultimately will purchase vehicles. Certain Financial Services subsidiaries make credit lines available to holders of their credit cards. At December 31, 1995 and 1994, the unused portion of available credit was approximately $19.3 billion and $10.3 billion, respectively, and is revocable under specified conditions. The fair value of unused credit lines and the potential risk of loss were not considered to be material. FS-25 NOTE 14. Financial Instruments - ------------------------------- Estimated fair value amounts have been determined using available market information and various valuation methods depending on the type of instrument. In evaluating the fair value information, considerable judgment is required to interpret the market data used to develop the estimates. The use of different market assumptions and/or different valuation techniques may have a material effect on the estimated fair value amounts. Accordingly, the estimates of fair value presented herein may not be indicative of the amounts that could be realized in a current market exchange. Balance Sheet Financial Instruments - ----------------------------------- Information about specific valuation techniques and related estimated fair value detail is provided throughout the footnotes. The table below provides book value and estimated fair value amounts (in millions) and a cross reference to the applicable Note. December 31, 1995 December 31, 1994 ----------------------- ---------------------- Book Fair Book Fair Fair Value Value Value Value Value Reference --------- -------- --------- -------- ---------- Automotive ---------- Marketable securities $ 6,656 $ 6,656 $ 7,602 $ 7,602 Note 2 Debt 7,307 8,160 7,258 7,492 Note 9 Financial Services ------------------ Marketable securities $ 4,229 $ 4,296 $ 5,781 $ 5,746 Note 2 Receivables 110,745 112,798 98,341 99,518 Note 3 Debt 141,317 144,730 123,713 122,252 Note 9 Foreign Currency Instruments - ---------------------------- The fair value of foreign currency instruments generally was estimated using current market prices provided by outside quotation services. At December 31, 1995 and 1994, the fair value of net receivable contracts was $373 million and $298 million, respectively, and the fair value of net payable contracts was $316 million and $108 million, respectively. At December 31, 1995 and 1994, foreign currency instruments had a net deferred loss of $111 million and a net deferred gain of $59 million, respectively. In the unlikely event that a counterparty fails to meet the terms of a foreign currency agreement, the company's market risk is limited to the exchange rate differential. In the case of currency swaps, the company's market risk also may include an interest rate differential. At December 31, 1995 and 1994, the total amount of the company's foreign currency forward contracts (contracts purchased and sold) and currency swaps and options outstanding was $24.5 billion and $12.6 billion, respectively, maturing primarily through 1996. Interest Rate Instruments - ------------------------- The fair value of interest rate instruments is the estimated amount the company would receive or pay to terminate the agreement. Fair value is calculated using information provided by outside quotation services, taking into account current interest rates and the current credit-worthiness of the swap parties. At December 31, 1995 and 1994, the fair value of net receivable contracts was $739 million and $452 million, respectively, and the fair value of net payable contracts was $430 million and $596 million, respectively. In the unlikely event that a counterparty fails to meet the terms of an interest rate agreement, the company's exposure is limited to the interest rate differential. At December 31, 1995 and 1994, the underlying principal amounts on which the company has interest rate swap agreements outstanding aggregated $66.3 billion and $52.7 billion, respectively, maturing primarily through 2001. Other Financial Agreements - -------------------------- At December 31, 1995, the company had guaranteed $1.2 billion of debt of unconsolidated subsidiaries, affiliates and others. The potential risk of loss under other financial agreements was not material. FS-26 NOTE 15. Acquisitions and Dispositions - --------------------------------------- Dissolution of Autolatina Joint Venture - --------------------------------------- During 1995, the company's joint venture with Volkswagen AG in Brazil and Argentina was dissolved. The dissolution resulted in a gain of $230 million, primarily from a one-time cash compensation payment to Ford. Prior to dissolution, the company held a 49% interest in Autolatina and accounted for it on an equity basis. The company's income statement for 1995 included Ford's equity share in the net loss of the Autolatina joint venture through the dissolution date together with the gain on dissolution. The assets and liabilities of the new entities in Brazil and Argentina were consolidated in the company's balance sheet at December 31, 1995. Historically, earnings in Brazil and Argentina have represented a significant portion of Ford's Automotive earnings outside the U.S. and Europe. The long-term effect, if any, of the dissolution of Autolatina on the company's future results will depend on Ford's ability to compete on its own in these markets. Sale of Annuity Business - ------------------------ During 1995, the company agreed to sell its annuity business to SunAmerica, Inc. for $173 million. The sale is expected to be completed in early 1996. The company recognized a one-time charge related to the sale that was not material. The company's income statement included the results of operations of the annuity business through December 31, 1995. Net assets of the annuity business at December 31, 1995 were included in the balance sheet under Financial Services - Other Assets; at December 31, 1994, the assets and liabilities were consolidated as part of the Financial Services segment. Sale of First Nationwide Bank - ----------------------------- On September 30, 1994, substantially all of the assets of First Nationwide Bank, since known as Granite Savings Bank (the "Bank"), were sold to, and substantially all of the Bank's liabilities were assumed by, First Madison Bank. The Bank is a wholly owned subsidiary of Granite Management Corporation (formerly First Nationwide Financial Corporation) ("Granite"), which in turn is a wholly owned subsidiary of Ford. The company recognized in First Quarter 1994 earnings a pre-tax charge of $475 million ($440 million after taxes) related to the disposition of the Bank, reflecting the non-recovery of goodwill and reserves for estimated losses on assets not included in the sale. The company's income statement included the results of operations of Granite through March 31, 1994. The remaining net assets of Granite at December 31, 1995 and 1994 were included in the balance sheet under Financial Services - Other Assets. Acquisition of The Hertz Corporation - ------------------------------------ In April 1994, The Hertz Corporation ("Hertz") became a wholly owned subsidiary of Ford. In 1993 and First Quarter 1994, Hertz was accounted for on an equity basis as part of the Automotive segment. In the balance of 1994 and in 1995, the operating results, assets, liabilities and cash flows of Hertz were consolidated as part of the Financial Services segment. FS-27 NOTE 16. Cash Flows - -------------------- The reconciliation of net income to cash flows from operating activities is as follows (in millions): 1995 1994 1993 -------------------- --------------------- --------------------- Financial Financial Financial Automotive Services Automotive Services Automotive Services --------- --------- ---------- --------- ---------- --------- Net income $2,056 $ 2,083 $3,913 $1,395 $1,008 $1,521 Adjustments to reconcile net income to cash flows from operating activities: Depreciation and amortization 5,219 6,500 4,426 4,910 4,404 3,064 Losses/(Earnings) of affiliated companies in excess of dividends remitted 191 7 (171) (2) (21) (9) Provision for credit and insurance losses - 1,818 - 1,539 - 1,523 Foreign currency adjustments (64) - (384) - (650) - Net sales/(purchases) of trading securities 672 239 (3,616) (41) - - Provision/(Credit) for deferred income taxes 88 725 424 410 (796) 595 Changes in assets and liabilities: Decrease/(Increase) in accounts receivable and other current assets 129 - (1,096) - 34 - (Increase) in inventory (46) - (894) - (275) - Increase in accounts payable and accrued and other liabilities 730 1,461 4,949 1,077 3,735 594 Other (126) (511) (9) (201) (577) (143) ------ ------- ------ ------ ------ ------ Cash flows from operating activities $8,849 $12,322 $7,542 $9,087 $6,862 $7,145 ====== ======= ====== ====== ====== ====== The company considers all highly liquid investments purchased with a maturity of three months or less, including short-term time deposits and government, agency and corporate obligations, to be cash equivalents. Automotive cash equivalents at December 31, 1995 and 1994 were $4.7 billion and $3.4 billion, respectively; Financial Services cash equivalents at December 31, 1995 and 1994 were $1.8 billion and $1.4 billion, respectively. Cash flows resulting from futures contracts, forward contracts and options that are accounted for as hedges of identifiable transactions are classified in the same category as the item being hedged. With the adoption of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," as of January 1, 1994, purchases, sales and maturities of trading securities are included in cash flows from operating activities. Purchases, sales and maturities of available-for-sale and held-to-maturity securities are included in cash flows from investing activities. Cash paid for interest and income taxes was as follows (in millions): 1995 1994 1993 ------ ------ ------- Interest $9,586 $7,718 $6,969 Income taxes 1,425 2,042 1,522 FS-28 NOTE 17. Segment Information - ----------------------------- Financial information segregated by major geographic area is as follows (in millions): Automotive - ---------- 1995 1994 1993 --------- --------- --------- Sales to unaffiliated customers United States $ 73,870 $ 73,759 $ 62,108 Europe 26,132 22,623 19,468 All other 10,494 10,755 9,992 -------- -------- -------- Total $110,496 $107,137 $ 91,568 ======== ======== ======== Intercompany sales among geographic areas* United States $ 10,438 $ 11,206 $ 9,320 Europe 2,765 2,303 2,269 All other 12,060 11,217 8,613 -------- -------- -------- Total $ 25,263 $ 24,726 $ 20,202 ======== ======== ======== Total sales United States $ 84,308 $ 84,965 $ 71,428 Europe 28,897 24,926 21,737 All other 22,554 21,972 18,605 Elimination of intercompany sales (25,263) (24,726) (20,202) -------- -------- -------- Total $110,496 $107,137 $ 91,568 ======== ======== ======== Operating income/(loss) United States $ 2,409 $ 4,131 $ 1,677 Europe 20 611 (531) All other 852 1,084 286 -------- ------- -------- Total $ 3,281 $ 5,826 $ 1,432 ======== ======== ======== Net income/(loss) United States $ 1,843 $ 3,002 $ 1,442 Europe 116 128 (873) All other 97 783 439 -------- -------- -------- Total $ 2,056 $ 3,913 $ 1,008 ======== ======== ======== Assets at December 31 United States $ 45,841 $ 45,889 $ 39,959 Europe 17,010 16,880 16,210 All other 18,842 16,798 15,197 Net receivable from Financial Services 200 677 910 Elimination of intercompany receivables (9,121) (11,605) (10,539) -------- -------- -------- Total $ 72,772 $ 68,639 $ 61,737 ======== ======== ======== Capital expenditures (facilities, machinery and equipment and tooling) United States $ 5,296 $ 5,429 $ 4,289 Europe 1,892 1,393 1,490 All other 1,488 1,488 935 -------- -------- -------- Total $ 8,676 $ 8,310 $ 6,714 ======== ======== ======== - - - - - - * Intercompany sales among geographic areas consist primarily of vehicles, parts and components manufactured by the company and various subsidiaries and sold to different entities within the consolidated group; transfer prices for these transactions are established by agreement between the affected entities Financial Services - ------------------ 1995 1994 1993 -------- -------- --------- Revenues United States $ 21,383 $ 17,356 $ 14,102 Europe 3,144 2,336 1,673 All other 2,114 1,610 1,178 -------- -------- -------- Total $ 26,641 $ 21,302 $ 16,953 ======== ======== ======== Income before income taxes** United States $ 2,822 $ 2,185 $ 2,311 Europe 493 419 285 All other 224 188 116 -------- -------- -------- Total $ 3,539 $ 2,792 $ 2,712 ======== ======== ======== - - - - - - ** Financial Services activities do not report operating income; income before income taxes is representative of operating income FS-29 NOTE 17. Segment Information (Cont'd) - ----------------------------- Financial Services (Cont'd) - ------------------ 1995 1994 1993 -------- -------- --------- Net income United States $ 1,718 $ 1,119 $ 1,340 Europe 321 218 140 All other 44 58 41 -------- -------- -------- Total $ 2,083 $ 1,395 $ 1,521 ======== ======== ======== Assets at December 31 United States $137,154 $124,120 $117,290 Europe 20,237 16,507 12,132 All other 13,120 10,356 7,779 -------- -------- -------- Total $170,511 $150,983 $137,201 ======== ======== ======== NOTE 18. Summary Quarterly Financial Data (Unaudited) - ------------------------------------------------------ (in millions, except amounts per share) 1995 1994 ------------------------------------ ------------------------------------ First Second Third Fourth First Second Third Fourth Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter ------- ------- ------- ------- ------- ------- ------- -------- Automotive Sales $28,601 $29,861 $24,437 $27,597 $26,070 $28,375 $24,926 $27,766 Operating income/(loss) 1,782 1,774 (204) (71) 1,559 1,966 989 1,312 Financial Services Revenues 6,182 6,528 6,981 6,950 4,332 5,397 5,696 5,877 Income before income taxes 759 885 978 917 196 911 896 789 Total Company Net income $ 1,550 $ 1,572 $ 357 $ 660 $ 904a/ $ 1,711 $ 1,124 $ 1,569 Less: Preferred stock dividend requirements 72 69 55 38 72 72 72 71 Fair value adjustment from exchange of Series B Preferred Stock - - - 66 - - - - ------ ------- ------- ------- ------- ------- ------- ------- Income attributable to Common and Class B Stock $ 1,478 $ 1,503 $ 302 $ 556 $ 832 $ 1,639 $ 1,052 $ 1,498 ======= ======= ======= ======= ======= ======= ======= ======= AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK AFTER PREFERRED STOCK DIVIDENDS b/ Income $ 1.44 $ 1.45 $ 0.28 $ 0.49 $ 0.83 $ 1.63 $ 1.04 $ 1.47 Income assuming full dilution $ 1.28 $ 1.30 $ 0.27 $ 0.48 $ 0.75 $ 1.44 $ 0.93 $ 1.31 Cash dividends $ 0.26 $ 0.31 $ 0.31 $ 0.35 $ 0.20 $ 0.225 $ 0.225 $ 0.26 - - - - - - a/ Includes a loss of $440 million related to the disposition of Granite Savings Bank (formerly First Nationwide Bank). b/ The sum of the per share amounts in 1995 and 1994 is different than the amounts reported for the full year because of the effect that issuances of the company's stock had on average shares for those periods. FS-30 Coopers & Lybrand L.L.P. REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders Ford Motor Company We have audited the consolidated balance sheet of Ford Motor Company and Subsidiaries at December 31, 1995 and 1994, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995. 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 in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Ford Motor Company and Subsidiaries at December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. /s/Coopers & Lybrand L.L.P. 400 Renaissance Center Detroit, Michigan 48243 313-446-7100 January 26, 1996