UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
- --- THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996 OR
--------------------------
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
- --- THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-3950
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FORD MOTOR COMPANY
-------------------
(Exact name of registrant as specified in its charter)
Incorporated in Delaware 38-0549190
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
The American Road, Dearborn, Michigan 48121
---------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 313-322-3000
------------
Indicate by checkmark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X . No .
------ ------
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the
latest practicable date: As of June 30, 1996, the Registrant had outstanding
1,111,830,290 shares of Common Stock and 70,852,076 shares of Class B Stock.
Page 1 of 23
Exhibit index located on sequential page number 19
Ford Motor Company and Subsidiaries
HIGHLIGHTS
----------
Second Quarter First Half
----------------------- -----------------------
1996 1995 1996 1995
-------- -------- -------- --------
(unaudited) (unaudited)
Worldwide vehicle unit sales of
cars and trucks (in thousands)
- - United States 1,067 1,082 2,007 2,169
- - Outside United States 743 729 1,441 1,412
----- ----- ----- -----
Total 1,810 1,811 3,448 3,581
===== ===== ===== =====
Sales and revenues (in millions)
- - Automotive $30,726 $29,861 $60,059 $58,462
- - Financial Services 7,211 6,528 14,139 12,710
------- ------- ------- -------
Total $37,937 $36,389 $74,198 $71,172
======= ======= ======= =======
Net income (in millions)
- - Automotive $ 1,108 $ 1,100 $ 1,250 $ 2,241
- - Financial Services 795 472 1,306 881
------- ------- ------- -------
Total $ 1,903 $ 1,572 $ 2,556 $ 3,122
======= ======= ======= =======
Capital expenditures (in millions)
- - Automotive $ 1,779 $ 1,819 $ 3,568 $ 3,950
- - Financial Services 87 80 200 147
------- ------- ------- -------
Total $ 1,866 $ 1,899 $ 3,768 $ 4,097
======= ======= ======= =======
Stockholders' equity at June 30
- - Total (in millions) $25,840 $25,240 $25,840 $25,240
- - After-tax return on Common and
Class B stockholders' equity 30.9% 28.3% 21.0% 29.5%
Automotive cash and marketable
securities at June 30 (in millions) $15,240 $14,011 $15,240 $14,011
Automotive debt at June 30
(in millions) $ 6,828 $ 6,866 $ 6,828 $ 6,866
Automotive after-tax return on sales 3.7% 3.7% 2.1% 3.9%
Shares of Common and Class B Stock
(in millions)
- - Average number outstanding 1,178 1,040 1,173 1,033
- - Number outstanding at June 30 1,182 1,074 1,182 1,074
AMOUNTS PER SHARE OF COMMON AND
CLASS B STOCK AFTER PREFERRED
STOCK DIVIDENDS
Income $ 1.60 $ 1.45 $ 2.15 $ 2.89
Income assuming full dilution
- - Automotive $ 0.91 $ 0.90 $ 1.02 $ 1.85
- - Financial Services 0.65 0.40 1.08 0.74
------- ------- ------- -------
Total $ 1.56 $ 1.30 $ 2.10 $ 2.59
======= ======= ======= =======
Cash dividends $ 0.35 $ 0.31 $ 0.70 $ 0.57
-2-
Ford Motor Company and Subsidiaries
VEHICLE UNIT SALES
------------------
For the Periods Ended June 30, 1996 and 1995
(in thousands)
Second Quarter First Half
----------------------------- ----------------------------
1996 1995 1996 1995
---------- ---------- ---------- --------
(unaudited) (unaudited)
North America
United States
Cars 463 447 841 956
Trucks 604 635 1,166 1,213
----- ----- ----- -----
Total United States 1,067 1,082 2,007 2,169
Canada 72 67 122 132
Mexico 14 7 26 18
----- ----- ----- -----
Total North America 1,153 1,156 2,155 2,319
Europe
Britain 158 162 276 266
Germany 128 114 246 232
France 54 40 105 84
Italy 43 56 99 108
Spain 39 48 87 96
Other countries 85 77 169 154
----- ----- ----- -----
Total Europe 507 497 982 940
Other international
Brazil 46 46 93 108
Australia 35 35 67 66
Taiwan 21 35 52 63
Japan 12 14 28 30
Argentina 15 11 31 21
Other countries 21 17 40 34
----- ----- ----- -----
Total other international 150 158 311 322
----- ----- ----- -----
Total worldwide vehicle unit sales 1,810 1,811 3,448 3,581
===== ===== ===== =====
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.
-3-
Part I. Financial Information
-----------------------------
Item 1. Financial Statements
- ----------------------------
Ford Motor Company and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
--------------------------------
For the Periods Ended June 30, 1996 and 1995
(in millions)
Second Quarter First Half
------------------------- --------------------------
1996 1995 1996 1995
-------- ------- -------- --------
(unaudited) (unaudited)
AUTOMOTIVE
Sales $30,726 $29,861 $60,059 $58,462
Costs and expenses (Note 2)
Costs of sales 27,469 26,452 55,015 51,883
Selling, administrative and other expenses 1,633 1,635 3,105 3,023
------- ------- ------- -------
Total costs and expenses 29,102 28,087 58,120 54,906
Operating income 1,624 1,774 1,939 3,556
Interest income 217 216 401 423
Interest expense 210 174 382 340
------- ------- ------- -------
Net interest income 7 42 19 83
Equity in net income of affiliated companies 77 19 25 39
Net expense from transactions with
Financial Services (17) (36) (37) (59)
------- ------- ------- -------
Income before income taxes - Automotive 1,691 1,799 1,946 3,619
FINANCIAL SERVICES
Revenues 7,211 6,528 14,139 12,710
Costs and expenses
Interest expense 2,439 2,344 4,860 4,511
Depreciation 1,675 1,600 3,366 3,121
Operating and other expenses 1,507 1,292 2,935 2,628
Provision for credit and insurance losses 610 443 1,186 865
Write-down of investment in
Budget Rent a Car Corporation (Note 3) 700 - 700 -
------- ------- ------- -------
Total costs and expenses 6,931 5,679 13,047 11,125
Net revenue from transactions with Automotive 17 36 37 59
Gain on sale of The Associates'
common stock (Note 4) 650 - 650 -
------- ------- ------- -------
Income before income taxes - Financial Services 947 885 1,779 1,644
------- ------- ------- -------
TOTAL COMPANY
Income before income taxes 2,638 2,684 3,725 5,263
Provision for income taxes 694 1,053 1,107 2,041
------- ------- ------- -------
Income before minority interests 1,944 1,631 2,618 3,222
Minority interests in net income of subsidiaries 41 59 62 100
------- ------- ------- -------
Net income $ 1,903 $ 1,572 $ 2,556 $ 3,122
======= ======= ======= =======
Income attributable to Common and Class B Stock
after preferred stock dividends $ 1,887 $ 1,503 $ 2,521 $ 2,981
Average number of shares of Common and Class B
Stock outstanding 1,178 1,040 1,173 1,033
AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK
Income $ 1.60 $ 1.45 $ 2.15 $ 2.89
Income assuming full dilution $ 1.56 $ 1.30 $ 2.10 $ 2.59
Cash dividends $ 0.35 $ 0.31 $ 0.70 $ 0.57
The accompanying notes are part of the financial statements.
-4-
Ford Motor Company and Subsidiaries
CONSOLIDATED BALANCE SHEET
--------------------------
(in millions)
June 30, December 31,
1996 1995
------------ ------------
ASSETS (unaudited)
Automotive
Cash and cash equivalents $ 6,499 $ 5,750
Marketable securities 8,741 6,656
-------- --------
Total cash and marketable securities 15,240 12,406
Receivables 3,104 3,321
Inventories (Note 5) 6,908 7,162
Deferred income taxes 3,091 2,709
Other current assets 3,164 1,483
Net current receivable from Financial Services 455 200
-------- --------
Total current assets 31,962 27,281
Equity in net assets of affiliated companies 2,542 2,248
Net property 31,768 31,273
Deferred income taxes 4,590 4,802
Other assets 7,004 7,168
-------- --------
Total Automotive assets 77,866 72,772
Financial Services
Cash and cash equivalents 2,654 2,690
Investments in securities 3,602 4,553
Net receivables and lease investments 162,490 149,694
Other assets 13,954 13,574
-------- --------
Total Financial Services assets 182,700 170,511
-------- --------
Total assets $260,566 $243,283
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Automotive
Trade payables $ 12,241 $ 11,260
Other payables 1,867 1,976
Accrued liabilities 16,687 13,392
Income taxes payable 608 316
Debt payable within one year 1,913 1,832
-------- --------
Total current liabilities 33,316 28,776
Long-term debt 4,915 5,475
Other liabilities 26,676 25,677
Deferred income taxes 1,078 1,186
-------- --------
Total Automotive liabilities 65,985 61,114
Financial Services
Payables 3,716 5,476
Debt 151,866 141,317
Deferred income taxes 4,283 3,831
Other liabilities and deferred income 7,740 6,116
Net payable to Automotive 455 200
-------- --------
Total Financial Services liabilities 168,060 156,940
Company-obligated mandatorily redeemable preferred securities of
a subsidiary trust holding solely junior subordinated debentures
of the Company (Note 6) 681 682
Stockholders' equity
Capital stock
Preferred Stock, par value $1.00 per share (aggregate
liquidation preference of $770 million and $1,042 million) * *
Common Stock, par value $1.00 per share (1,112 and 1,089 million shares issued) 1,112 1,089
Class B Stock, par value $1.00 per share (71 million shares issued) 71 71
Capital in excess of par value of stock 5,198 5,105
Foreign currency translation adjustments and other 72 594
Earnings retained for use in business 19,387 17,688
-------- --------
Total stockholders' equity 25,840 24,547
-------- --------
Total liabilities and stockholders' equity $260,566 $243,283
======== ========
- - - - - -
*Less than $1 million
The accompanying notes are part of the financial statements.
-5-
Ford Motor Company and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
----------------------------------------------
For the Periods Ended June 30, 1996 and 1995
(in million)
First Half 1996 First Half 1995
---------------------- -----------------------
Financial Financial
Automotive Services Automotive Services
---------- --------- ---------- ---------
(unaudited) (unaudited)
Cash and cash equivalents at January 1 $ 5,750 $ 2,690 $ 4,481 $ 1,739
Cash flows from operating activities before securities trading 8,497 6,236 6,058 6,373
Net (purchases)/sales of trading securities (2,085) (242) 1,980 285
------- -------- ------- --------
Net cash flows from operating activities 6,412 5,994 8,038 6,658
Cash flows from investing activities
Capital expenditures (3,568) (200) (3,950) (147)
Acquisitions of receivables and lease investments - (57,024) - (51,051)
Collections of receivables and lease investments - 39,628 - 35,105
Net acquisitions of daily rental vehicles - (1,946) - (1,824)
Purchases of securities (6) (4,757) (41) (3,533)
Sales and maturities of securities 7 4,327 33 2,713
Proceeds from sales of receivables and lease investments - 2,764 - 634
Net investing activity with Financial Services 9 - (839) -
Other (557) 96 179 (109)
------- -------- ------- --------
Net cash used in investing activities (4,115) (17,112) (4,618) (18,212)
Cash flows from financing activities
Cash dividends (857) - (729) -
Issuance of Common Stock 116 - 218 -
Issuance of Common Stock of a subsidiary (Note 4) - 1,897 - -
Changes in short-term debt 176 4,890 696 4,207
Proceeds from issuance of other debt 0 11,239 0 12,301
Principal payments on other debt (651) (7,051) (207) (5,531)
Net financing activity with Automotive - (9) - 839
Other (13) 29 6 365
------- -------- ------- --------
Net cash (used in)/provided by financing activities (1,229) 10,995 (16) 12,181
Effect of exchange rate changes on cash (64) (168) 166 209
Net transactions with Automotive/Financial Services (255) 255 330 (330)
------- -------- ------- --------
Net increase/(decrease) in cash and cash equivalents 749 (36) 3,900 506
------- -------- ------- --------
Cash and cash equivalents at June 30 $ 6,499 $ 2,654 $ 8,381 $ 2,245
======= ======== ======= ========
The accompanying notes are part of the financial statements.
-6-
Ford Motor Company and Subsidiaries
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(unaudited)
1. Financial Statements - The financial data presented herein are unaudited,
but in the opinion of management reflect those adjustments necessary for
a fair presentation of such information. Results for interim periods
should not be considered indicative of results for a full year.
Reference should be made to the financial statements contained in
the registrant's Annual Report on Form 10-K (the "10-K Report") for the
year ended December 31, 1995. For purposes hereof, "Ford" or the
"Company" means Ford Motor Company and its majority owned subsidiaries
unless the context requires otherwise. Certain amounts for prior
periods have been reclassified.
2. Selected Automotive costs and expenses are summarized as follows
(in millions):
Second Quarter First Half
----------------------- -----------------------
1996 1995 1996 1995
------ ------ ------ ------
Depreciation $643 $605 $1,279 $1,194
Amortization 686 629 1,450 1,341
3. Write-down of Investment in Budget Rent a Car Corporation - The Company
recorded a pre-tax charge in second quarter 1996 totaling $700
million ($437 million after taxes) to recognize the estimated value of
its outstanding notes receivable from, and preferred stock investment in,
Budget Rent a Car Corporation ("BRAC"). The write-down resulted from
conclusions reached in a recent study of Ford's rental car business
strategy. In accordance with SFAS 114, the notes receivable write-down
reflected primarily the unsecured portion of financing provided
to BRAC by Ford. The preferred stock write-down reflected recognition
of the fair value of Ford's investment. Subject to governmental review,
the Company also intends to acquire all of the outstanding common stock
of BRAC at a future date.
4. Sale of The Associates' Common Stock - During May 1996, The Associates
completed an initial public offering of its common stock representing
a 19.3% economic interest in The Associates (the "IPO"). The Company
recorded in second quarter 1996 a non-operating gain of $650
million resulting from the IPO, to recognize the excess of the net
proceeds from the IPO over the proportionate share of the Company's
investment in The Associates. The gain was not subject to income taxes.
5. Automotive inventories are summarized as follows (in millions):
June 30, December 31,
1996 1995
--------- ------------
Raw materials, work in process and supplies $3,355 $3,717
Finished products 3,553 3,445
------ ------
Total inventories $6,908 $7,162
====== ======
U.S. inventories $2,338 $2,662
6. Company-Obligated Mandatorily Redeemable Preferred Securities of a
Subsidiary Trust - The sole asset of Ford Motor Company Capital Trust
I (the "Trust"), which is the obligor on the Preferred Securities of
such Trust, is $632 million principal amount of 9% Junior Subordinated
Debentures due 2025 of Ford Motor Company.
-7-
[Coopers & Lybrand L.L.P. letterhead]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Ford Motor Company
We have reviewed the consolidated balance sheet of Ford Motor Company
and Subsidiaries at June 30, 1996 and the related consolidated
statement of income and condensed consolidated statement of cash flows
for the periods set forth in the Ford Motor Company Quarterly Report
on Form 10-Q for the quarter ended June 30, 1996. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with
generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the financial statements referred to above for
them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet at December 31,
1995 and the related consolidated statements of income, stockholders'
equity and cash flows for the year then ended (not presented herein);
and in our report dated January 26, 1996, we expressed an unqualified
opinion on those consolidated financial statements.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Detroit, Michigan
July 15, 1996
-8-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
- ------------------------------------------------------------------------
RESULTS OF OPERATIONS: SECOND QUARTER 1996 COMPARED WITH SECOND QUARTER 1995
Overview
- --------
Ford earned $1,903 million, or $1.56 per share of Common and Class B Stock
(fully diluted), in second quarter 1996. This compares with $1,572 million,
or $1.30 per share (fully diluted), in second quarter 1995. Results in second
quarter 1996 included a one-time net gain of $213 million, or $0.18 per share,
relating to gain on sale of The Associates' common stock and write-down of
Ford's investment in Budget Rent a Car Corporation ("BRAC") (discussed below).
The Company's worldwide sales and revenues were $37.9 billion, up $1.5 billion
from a year ago. Vehicle unit sales of cars and trucks were 1,810,000, down
1,000 units. Stockholders' equity was $25.8 billion at June 30, 1996,
compared with $24.5 billion at December 31, 1995.
Automotive Operations
- ---------------------
Ford's worldwide Automotive operations earned $1,108 million in second quarter
1996 on sales of $30.7 billion, compared with $1,100 million in second quarter
1995 on sales of $29.9 billion. After-tax return on sales was 3.7% in second
quarter 1996, equal to a year ago.
In the U.S., Automotive operations earned $697 million in second quarter 1996 on
sales of $19.5 billion, compared with $663 million a year ago on sales of
$19.4 billion. Despite a small decline in unit sales, the increase in earnings
was explained by higher margins (reflecting improved sales mix) and increased
operating cost efficiencies; higher product costs were a partial offset.
In second quarter 1996, the seasonally-adjusted annual selling rate for the U.S.
car and truck industry was 15.5 million units, compared with 14.7 million units
in second quarter 1995. Ford's combined car and truck market share was 24.8% in
second quarter 1996, down 1.4 points from a year ago, and down 8/10 of a point
from full year 1995, reflecting primarily planned lower sales to daily rental
companies.
Outside the U.S., Automotive operations earned $411 million in second quarter
1996 on sales of $11.2 billion, compared with $437 million a year ago on sales
of $10.5 billion. The decline reflected primarily lower results in Europe and a
loss in Brazil, offset partially by increased earnings at most other activities.
European Automotive operations earned $196 million in second quarter 1996,
compared with $319 million in second quarter 1995. The decline reflected
primarily a leaner product line mix and higher product costs.
In second quarter 1996, the seasonally-adjusted annual selling rate for the
European car and truck industry was 14.3 million units, compared with 13.7
million units in second quarter 1995. Ford's combined car and truck market
share was 12% in second quarter 1996, down 2/10 of a point from a year ago, and
down 3/10 of a point from full year 1995.
In the Asia Pacific region, Ford earned $174 million in second quarter 1996,
compared with $78 million a year ago. The improvement reflected primarily
Ford's equity in net income of Mazda. In South America, Ford had a loss of $69
million in second quarter 1996, compared with a profit of $19 million a year
ago. The lower results reflected primarily a loss for operations in Brazil,
which continued to be affected by the lack of a domestically produced small car.
The Company has reestablished manufacturing capacity in Brazil for small cars
and, during May 1996, began producing a version of the Ford Fiesta. This should
assist in improving Ford's performance in Brazil in second half 1996, compared
with first half 1996.
-9-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
- -------------------------------------------------------------------------
Financial Services Operations
- -----------------------------
The Company's Financial Services operations earned $795 million in second
quarter 1996, compared with $472 million in second quarter 1995. Results in
second quarter 1996 included a one-time net gain of $213 million relating to
gain on sale of The Associates' common stock and write-down of Ford's investment
in BRAC (discussed below). Excluding the one-time net gain, Financial Services
operations earned a record $582 million. The improvement also reflected record
earnings at The Associates, USL Capital and Hertz, offset partially by lower
results at Ford Credit.
Ford Credit's consolidated net income was $332 million in second quarter 1996,
compared with $341 million a year ago. The decrease resulted primarily from an
increase in credit losses and the absence of the equity in net income of Ford
Holdings (reflecting repurchase in first quarter 1996 by Ford Holdings of
substantially all of the shares of Ford Holdings' common stock owned by Ford
Credit). Improved net interest margins and higher levels of earning assets were
partial offsets. Depreciation costs increased as a result of continued growth
in operating leases; the related lease revenues more than offset the increased
depreciation. International operations managed by Ford Credit, but not included
in its consolidated results, earned $61 million in second quarter 1996, compared
with $66 million a year ago.
The Associates earned a record $200 million in second quarter 1996 (Ford's
share was $177 million), compared with $162 million a year ago. The increase
reflected higher levels of earning assets, improved operating cost performance
and improved net interest margins, offset partially by higher credit losses.
USL Capital earned a record $41 million in second quarter 1996, compared with
$30 million a year ago. The increase reflected higher levels of earning assets,
higher gains on asset sales and improved net interest margins.
Hertz earned a record $40 million in second quarter 1996, compared with $20
million a year ago. The increase reflected rate increases in car rental
operations, higher volume in car rental and construction equipment rental and
sales operations, and lower interest costs.
One-Time Actions
- ----------------
The Company recorded a pre-tax charge in second quarter 1996 totaling $700
million ($437 million after taxes) to recognize the estimated value of its
outstanding notes receivable from, and preferred stock investment in, BRAC.
The write-down resulted from conclusions reached in a recent study of Ford's
rental car business strategy. In accordance with SFAS 114, the notes
receivable write-down reflected primarily the unsecured portion of financing
provided to BRAC by Ford. The preferred stock write-down reflected recognition
of the fair value of Ford's investment. Subject to governmental review, the
Company also intends to acquire all of the outstanding common stock of BRAC
at a future date.
During May 1996, The Associates completed an initial public offering of its
common stock representing a 19.3% economic interest in The Associates (the
"IPO"). The Company recorded in second quarter 1996 a non-operating gain of
$650 million resulting from the IPO, to recognize the excess of the net proceeds
from the IPO over the proportionate share of the Company's investment in The
Associates. The gain was not subject to income taxes.
-10-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
- -------------------------------------------------------------------------
On July 1, 1996, USL Capital sold its vehicle fleet leasing business to The
Associates for $901 million and, on July 31, 1996, sold its rail services
business to First Union Rail Corp. for $957 million (subject to post-closing
adjustments). In addition, during July 1996, USL Capital sold assets in its
municipal and corporate financing business valued at about 1.2 billion, and
assets valued at about $1 billion were sold from Ford Credit's portfolio of
municipal and corporate securities that had been managed by USL Capital.
Also, Ford and BankAmerica Corporation recently announced that an agreement
had been reached (1) for the sale of all the assets of USL Capital's
transportation and industrial financing business to BankAmerica Leasing and
Capital Corporation for approximately $1.8 billion and (2) for affiliates of
Ford Credit, USL Capital and BankAmerica to enter into a partnership to which
will be contributed approximately $1.7 billion of nonautomotive financing
assets currently owned by Ford Credit and managed by USL Capital. During
second half 1996, USL Capital intends to sell its remaining businesses.
The effect of these transactions, including the sale of USL Capital's
remaining businesses, on the Company's consolidated financial statements is
not expected to be material.
The Company recently announced plans to offer special early retirement and
voluntary separation packages to selected U.S. salaried employees over the next
several months. These programs are voluntary -- no layoffs of salaried
employees are planned. There will be a charge to earnings in second half 1996
for these programs; the amount will depend on the number and timing of
acceptances but is presently estimated to range from $200 million to $300
million after taxes.
Outlook
- -------
Results for second quarter 1996 are higher compared with the year ago period for
the first time in four quarters. Results were dampened in second half 1995 and
first half 1996 primarily by costs associated with high-volume product launches
and the effect of dealer inventory rebalancing. At this point, the peak in
launch costs has passed, ongoing cost reductions are taking effect, and dealer
inventories are in line with industry demand. It is expected that the economy
will continue to be healthy, with a sustainable rate of growth and moderate
inflation. The Company expects U.S. car and truck industry sales to total 15.5
million units in the full year, compared with 15.1 million units in 1995. In
Europe, car and truck industry sales are expected to total 14 million units,
compared with 13.4 million units in 1995. Stable external factors, in
combination with the continued success of a strong product line-up and ongoing
efforts to improve profitability, are expected to result in earnings for the
second half and full year that are higher than the year ago period.
Factors that could affect these projections unfavorably include an unexpected
decline in the U.S. economy (or other major markets) resulting in lower industry
volumes, a significant increase in interest rates, significant changes in
currency exchange rates, or work stoppages resulting from the failure to
negotiate new labor agreements with the United Automobile Workers or the
Canadian Automobile Workers.
FIRST HALF 1996 COMPARED WITH FIRST HALF 1995
Overview
- --------
Ford earned $2,556 million, or $2.10 per share of Common and Class B Stock
(fully diluted), in first half 1996. This compares with $3,122 million, or
$2.59 per share (fully diluted), in first half 1995. Results in first half 1996
included a one-time net gain of $213 million relating to gain on sale of The
Associates' common stock and write-down of Ford's investment in BRAC (discussed
above). The Company's worldwide sales and revenues were $74.2 billion, up $3
billion from a year ago. Vehicle unit sales of cars and trucks were 3,448,000,
down 133,000 units or 4%.
Automotive Operations
- ---------------------
Ford's worldwide Automotive operations earned $1,250 million in first half 1996
on sales of $60.1 billion, compared with $2,241 million in first half 1995 on
sales of $58.5 billion. After-tax return on sales was 2.1% in first half 1996,
down 1.8 points from a year ago.
-11-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
- -------------------------------------------------------------------------
In the U.S., Automotive operations earned $745 million in first half 1996 on
sales of $38.3 billion, compared with $1,488 million a year ago on sales of
$38.9 billion. The decline in earnings was explained by lower unit volume
(reflecting dealer inventory rebalancing) and costs associated with introducing
high-volume new products; increased operating cost efficiencies were a partial
offset.
In first half 1996, the seasonally-adjusted annual selling rate for the U.S. car
and truck industry was 15.6 million units, compared with 14.9 million units a
year ago. Ford's combined car and truck market share was 25.3% in first half
1996, down 1.2 points from a year ago, and down 3/10 of a point from full year
1995, reflecting primarily planned lower sales to daily rental companies.
Outside the U.S., Automotive operations earned $505 million in first half 1996
on sales of $21.8 billion, compared with $753 million a year ago on sales of
$19.6 billion. The decline reflected primarily lower results in Europe and a
loss in Brazil.
European Automotive operations earned $269 million in first half 1996, compared
with $484 million in first half 1995. The decline reflected primarily a leaner
product line mix and costs associated with introducing high-volume new products.
In first half 1996, the seasonally-adjusted annual selling rate for the European
car and truck industry was 14.2 million units, compared with 13.6 million units
a year ago. Ford's combined car and truck market share was 12.1% in first half
1996, down 2/10 of a point from a year ago and full year 1995.
Outside the U.S. and Europe, Automotive operations earned $236 million in first
half 1996, compared with $269 million a year ago. The decrease reflected
primarily a loss for operations in Brazil, as described in the discussion of
second quarter results of operations.
Financial Services Operations
- -----------------------------
The Company's Financial Services operations earned $1,306 million in first half
1996, compared with $881 million in first half 1995. Results in first half 1996
included a one-time net gain of $213 million relating to gain on sale of The
Associates' common stock and write-down of Ford's investment in BRAC (discussed
above). The improvement also reflected record earnings at The Associates and
USL Capital, and higher earnings at Hertz, offset partially by lower results at
Ford Credit.
Ford Credit's consolidated net income was $625 million in first half 1996,
compared with $629 million a year ago. The decrease reflected primarily the
same factors as those described in the discussion of second quarter results of
operations. Ford Credit's results in first half 1996 included $49 million from
equity in the net income of affiliated companies, primarily Ford Holdings,
compared with $107 million a year ago. International operations managed by Ford
Credit, but not included in its consolidated results, earned $129 million in
first half 1996, compared with $131 million a year ago.
The Associates earned a record $392 million in first half 1996 (Ford's share was
$369 million), compared with $330 million a year ago. USL Capital earned a
record $81 million in first half 1996, compared with $56 million a year ago.
Hertz earned $48 million in first half 1996, compared with $19 million a year
ago. These changes reflected primarily the same factors as those described in
the discussion of second quarter results of operations.
LIQUIDITY AND CAPITAL RESOURCES
Automotive Operations
- ---------------------
Automotive cash and marketable securities were $15.2 billion at June 30, 1996,
up $2.8 billion from December 31, 1995. The amount of cash and marketable
securities is expected to decline during third quarter 1996 because of planned
lower production volume, reflecting normal seasonal factors. The
-12-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
- -------------------------------------------------------------------------
Company paid $857 million in cash dividends on its Common Stock, Class B Stock
and Preferred Stock during first half 1996.
Automotive capital expenditures were $3.6 billion in first half 1996, down $382
million from the same period a year ago. For full year 1996, Ford's spending
for product change is projected to be about the same compared with 1995;
however, as a percent of sales, such spending is expected to be at lower levels.
Automotive debt at June 30, 1996 totaled $6.8 billion, which was 20% of total
capitalization (stockholders' equity and Automotive debt), compared with
$7.3 billion, or 22% of total capitalization, at December 31, 1995.
At July 1, 1996, Ford had long-term contractually committed global credit
agreements under which $8.3 billion is available from various banks through
June 30, 2001. The entire $8.3 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 $8.3 billion in varying portions to Ford Credit and Ford Credit
Europe. These facilities were unused at July 1, 1996.
Financial Services Operations
- -----------------------------
Financial Services cash and investments in securities totaled $6.3 billion at
June 30, 1996, down $987 million from December 31, 1995.
Net receivables and lease investments were $162.5 billion at June 30, 1996, up
$12.8 billion from December 31, 1995. The increase reflected continued growth
in earning assets at Ford Credit and The Associates.
Total debt was $151.9 billion at June 30, 1996, up $10.5 billion from December
31, 1995. The increase resulted from higher debt levels required to finance
growth in earning assets at Ford Credit, The Associates and Hertz, and to fund
the payment to holders of Ford Holdings' voting preferred stock; the preferred
stock was canceled in December 1995.
At July 1, 1996, Financial Services had a total of $49.8 billion of
contractually committed support facilities. Of these facilities, $23.6
billion (excluding the $8.3 billion of Ford credit facilities) are contractually
committed global credit agreements under which $19.3 billion and $4.3 billion
are available to Ford Credit and Ford Credit Europe, respectively, from various
banks; 62% and 76%, respectively, of such facilities are available through June
30, 2001. The entire $19.3 billion may be used, at Ford Credit's option, by any
subsidiary of Ford Credit, and the entire $4.3 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 July 1, 1996, none of the Ford Credit global facilities
were in use; $669 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 July 1, 1996 consisted of $23.6 billion
of contractually committed support facilities available to various affiliates in
the U.S. and $2.6 billion of contractually committed support facilities
available to various affiliates outside the U.S.; at July 1, 1996, approximately
$1.8 billion of these facilities were in use.
OTHER FINANCIAL INFORMATION
Coopers & Lybrand L.L.P., Ford's independent public accountants, performed a
limited review of the financial data presented on pages 4 through 7 inclusive.
The review was performed in accordance with standards for such reviews
established by the American Institute of Certified Public Accountants. The
review did not constitute an audit; accordingly, Coopers & Lybrand L.L.P. did
not express an opinion on the aforementioned data. The financial data include
any material adjustments or disclosures proposed by Coopers & Lybrand L.L.P. as
a result of their review.
-13-
Part II. Other Information
- ---------------------------
Item 1. Legal Proceedings
- --------------------------
With respect to the patent infringement lawsuit in federal court in Nevada in
which an individual patent owner (Lemelson) is seeking damages and an injunction
for alleged infringement of four U.S. patents characterized as covering machine
vision inspection technologies, including bar code reading, referred to in the
second full paragraph on page 25 of the 10-K Report and on page 13 of the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, on
June 5, 1996, Lemelson filed a motion for reconsideration of the district court
judge's entry of an order which adopted the magistrate judge's recommendation
and granted Ford's motion to dismiss the case.
With respect to the purported class action lawsuits seeking economic damages
that have been brought on behalf of all Bronco II owners in the U.S., referred
to in the fourth full paragraph on page 25 of the 10-K Report, there are
currently ten such suits pending. The federal Panel on Multidistrict Litigation
has consolidated seven of the lawsuits. Of the three cases that have not been
consolidated, one of the cases remains pending in state court in Alabama, one of
the lawsuits is pending in a Texas state court, and the remaining case is on
appeal in Eleventh Circuit U.S. Court of Appeals.
With respect to the seven purported class action lawsuits involving an alleged
defective ignition switch equipped on numerous Ford vehicle lines, referred to
in the first paragraph on page 26 of the 10-K Report, six additional such suits
have been filed. Two of the lawsuits purport to include a statewide class, and
the remaining eleven lawsuits are nationwide in scope. Six of the lawsuits have
been consolidated for class certification proceedings in federal court in
Camden, New Jersey. Five of the cases are pending in various federal courts
around the country, and Ford has moved to have them consolidated with the six
cases pending in the New Jersey federal court. One of the cases is pending in
state court in Texas after being remanded from a federal Texas court and one is
pending in state court in Alabama.
Six purported class action lawsuits, one filed in February 1996 and five in June
1996, have been brought on behalf of purchasers or lessees of Ford manufactured
vehicles with distributor-mounted thick film ignition (TFI) modules. The
plaintiffs allege that vehicles with the distributor-mounted TFI modules are
defective due to a propensity to fail when subjected to overheating, which
causes the engine to stumble, stall, or not start. The lawsuits were filed in
state courts in Tennessee, California, Washington, Illinois, Maryland, and
Alabama. The lawsuits in Washington, Illinois, Maryland and Alabama have been
removed to federal court. The California lawsuit was removed, but was
subsequently remanded to state court. The plaintiffs seek pre- and post-
judgment interest, attorney fees, disgorgement of all "ill gotten profits",
compensatory damages, punitive damages and the recall and retrofit of all
vehicles with the allegedly defective TFI modules. If the plaintiffs were to
prevail in these lawsuits, Ford could be required to pay substantial damages.
-14-
Item 4. Submission of Matters to a Vote of Security-Holders
- ------------------------------------------------------------
On May 9, 1996, the 1996 Annual Meeting of Stockholders of the Company was
held. Following is a brief description of the matters voted upon at the
meeting and a tabulation of the voting therefor:
Election of Directors. The following persons were elected directors of the
Company based on the number of votes set forth opposite their respective names:
Number of Votes
------------------------------------
Nominee For Not For
--------------------- ------------- ---------
Michael D. Dingman 1,520,946,391 7,386,069
Edsel B. Ford II 1,521,588,893 6,743,567
William C. Ford 1,521,193,767 7,138,693
William C. Ford, Jr. 1,521,612,825 6,719,635
Roberto C. Goizueta 1,521,464,317 6,868,143
Irvine O. Hockaday, Jr. 1,521,826,159 6,506,301
Marie-Josee Kravis 1,520,737,056 7,595,404
Drew Lewis 1,521,417,918 6,914,542
Ellen R. Marram 1,521,546,656 6,785,804
Carl E. Reichardt 1,521,628,394 6,704,066
John L. Thornton 1,520,879,376 7,453,084
Alex Trotman 1,519,885,617 8,446,843
Clifton R. Wharton, Jr. 1,520,093,823 8,238,677
There were no broker non-votes with respect to the election of directors.
Proposal 1 Ratification of Selection of Independent Public Accountants.
- ----------------------------------------------------------------------
A proposal to ratify the selection of Coopers & Lybrand L.L.P. as independent
public accountants to audit the books of account and other corporate records
of the Company for 1996 was adopted, with 1,513,853,386 votes cast for,
9,695,155 votes cast against, 4,783,918 votes abstained and 1 broker non-vote.
Proposal 2 Relating to the Establishment of Term Limits for Outside Directors.
- -----------------------------------------------------------------------------
A proposal relating to the establishment of term limits for outside directors
was rejected, with 1,337,119,540 votes cast against, 64,357,817 votes cast for,
13,468,393 votes abstained and 113,386,710 broker non-votes.
Proposal 3 Relating to the Discontinuance of Options, Rights and Stock
Appreciation Rights for Management and the Board of Directors.
- ----------------------------------------------------------------------
A proposal relating to the discontinuance of all options, rights, and stock
appreciation rights for management and the Board of Directors was rejected,
with 1,338,892,123 votes cast against, 60,923,824 votes cast for, 15,099,803
votes abstained and 113,416,710 broker non-votes.
Proposal 4 Relating to Salary Increases and Stock Option Grants in the Event
the Dividend is Cut.
- ----------------------------------------------------------------------------
A proposal relating to salary increases and stock option grants for executive
officers and directors in the event of a decrease in the dividend was
rejected, with 1,318,726,375 votes cast against, 79,093,741 votes cast for,
17,121,858 votes abstained and 113,390,486 broker non-votes.
Proposal 5 Relating to a Report on the Company's Standards for its
International Operations.
- ------------------------------------------------------------------
A proposal relating to a report on the Company's standards for its
international operations was rejected, with 1,307,662,845 votes cast against,
52,052,193 votes cast for, 55,243,964 votes abstained and 113,373,458 broker
non-votes.
Proposal 6 Relating to the MacBride Principals.
- ----------------------------------------------
A proposal relating to the MacBride Principles for employment in Northern
Ireland was rejected, with 1,290,723,910 votes cast against, 81,753,818 votes
cast for, 42,247,438 votes abstained and 113,607,294 broker non-votes.
-15-
Item 5. Other Information
- --------------------------
Governmental Standards
- ----------------------
Mobile Source Emissions Control -- European Requirements. With respect to the
discussion of European vehicle emission control standards on page 17 of the 10-
K Report, the European Commission published a draft Stage III Directive on June
19, 1996. This draft includes a new framework for emission-related fiscal
incentives for the early introduction of vehicles capable of meeting Stage III
standards before 2000 and vehicles capable of meeting newly proposed and even
more stringent indicative limit values before 2005. The draft directive
provides that prior to December 31, 1998 a technical feasibility and cost-
effectiveness study will be conducted to determine appropriate mandatory
standards for 2005.
Motor Vehicle Fuel Economy. With respect to the international concerns over
global warming due to the emission of "greenhouse gasses", such as carbon
dioxide ("CO2") emitted by motor vehicles, discussed on page 19 of the 10-K
Report, during a July 1996 meeting of the parties to the U.N. Climate Control
Convention, the U.S. indicated its conceptual support for amending the
agreement among the parties to incorporate binding emission reduction levels.
If such an amendment were adopted, it could require Ford to curtail or
eliminate the production and sale of large and luxury cars and most truck
models, which would have a substantial adverse effect on Ford's sales volumes
and profits.
With respect to the discussion of European proposals to reduce the average CO2
emissions from new cars on pages 19-20 of the 10-K Report, the Council of
Environmental Ministers of June 25-26, 1996 declared that an agreement with the
automobile industry in combination with market incentives and consumer
information should be priority actions for reducing CO2 emissions. The Council
affirmed as a medium-term objective an average of CO2-emission value for new
cars of 120 grams per kilometer. Recognizing that this may not be achievable
by 2005, the Council directed the European Commission to consider intermediate
objectives for 2005 and extension of the 120 grams per kilometers target until
2010. The Council also directed the European Commission to report back by the
end of 1996 on the progress of discussions with the automobile industry about a
possible agreement for reducing average new car CO2 emissions limit values.
With respect to the discussion of the voluntary pledge offered by French
automobile manufacturers for the reduction of average CO2 emissions from new
cars on page 19 of the 10-K Report, the French government has not accepted the
pledge offered by the French automobile manufacturers, but is continuing
discussions with them on appropriate strategies for CO2 reductions.
-16-
Supplemental Schedule
Ford Motor Company
CONDENSED FINANCIAL INFORMATION OF SUBSIDIARY
---------------------------------------------
(in millions)
Ford Capital B.V.
- -----------------
June 30, December 31,
1996 1995
-------- ------------
(unaudited)
Current assets $1,745 $1,251
Noncurrent assets 3,496 4,662
------ ------
Total assets $5,241 $5,913
====== ======
Current liabilities $1,116 $ 626
Noncurrent liabilities 3,561 4,661
Minority interests in net
assets of subsidiaries 12 22
Stockholder's equity 552 604
------ ------
Total liabilities and
stockholder's equity $5,241 $5,913
====== ======
Second Quarter First Half
------------------------ -----------------------
1996 1995 1996 1995
-------- -------- -------- --------
(unaudited) (unaudited)
Sales and other revenue $753 $690 $1,575 $1,346
Operating income 14 52 11 129
Income/(loss) before income taxes 1 35 (16) 99
Net (loss)/income (14) 27 (43) 83
Ford Capital B.V., a wholly owned subsidiary of Ford Motor Company, was
established primarily for the purpose of raising funds through the
issuance of commercial paper and debt securities. Ford Capital B.V.
also holds shares of the capital stock of Ford Nederland B.V., Ford
Motor Company (Belgium) B.V., and Ford Motor Company A/S (Denmark).
Substantially all of the assets of Ford Capital B.V., other than its
ownership interests in subsidiaries, represent receivables from Ford
Motor Company or its consolidated subsidiaries.
-17-
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
--------
Please refer to the Exhibit Index on page 19.
(b) Reports on Form 8-K
--------------------
The Registrant filed the following Current Reports on Form 8-K
during the quarter ended June 30, 1996:
Current Report on Form 8-K dated April 12, 1996 included information
regarding Ford's increase in ownership of Mazda Motor Corporation.
Current Report on Form 8-K dated April 17, 1996 included information
relating to Ford's first quarter 1996 financial results.
Current Report on Form 8-K dated May 23, 1996 included information
regarding Ford's announcement of an agreement to sell all of the
assets of USL Capital's Rail Services to First Union Corp.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
FORD MOTOR COMPANY
------------------
(Registrant)
Date: August 1, 1996 By: /s/ D. R. Coulson
-------------- ------------------------------
D. R. Coulson
Director of Accounting
Ford Automotive Operations
(principal accounting officer)
-18-
EXHIBIT INDEX
-------------
Sequential
Page Number
Designation Description at Which Found
- ----------- ----------- --------------
Exhibit 11 Ford Motor Company and Subsidiaries Computation 20-21
of Primary and Fully Diluted Earnings Per Share
in Accordance with Opinion 15 of the Accounting
Principles Board.
Exhibit 12 Ford Motor Company and Subsidiaries Calculation 22
of Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends.
Exhibit 15 Letter of Coopers & Lybrand L.L.P., Independent 23
Public Accountants, dated July 30, 1996 relating to
Financial Information.
-19-