UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND
- ---- EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997 OR
--------------------------------
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the transition period from to
--------------- ---------------
Commission file number 1-3950
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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 September 30, 1997, the Registrant had outstanding 1,129,141,882
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
----------
Third Quarter Nine Months
---------------------------- ----------------------------
1997 1996 1997 1996
----------- --------- ---------- ----------
(unaudited) (unaudited)
Worldwide vehicle unit sales of
cars and trucks (in thousands)
- - United States 940 884 3,029 2,891
- - Outside United States 656 568 2,123 2,009
----- ----- ----- -----
Total 1,596 1,452 5,152 4,900
===== ===== ===== =====
Sales and revenues (in millions)
- - Automotive $ 28,196 $26,459 $ 89,926 $ 86,518
- - Financial Services 7,900 7,501 22,637 21,640
-------- ------- -------- -------
Total $ 36,096 $33,960 $112,563 $108,158
======== ======= ======== ========
Net income (in millions)
- - Automotive $ 634 $ 15 $ 3,373 $ 1,265
- - Financial Services 491 671 1,751 1,977
-------- ------- -------- --------
Total $ 1,125 $ 686 $ 5,124 $ 3,242
======== ======= ======== ========
Capital expenditures (in millions)
- - Automotive $ 2,268 $ 2,228 $ 5,753 $ 5,796
- - Financial Services 147 149 413 349
-------- ------- -------- --------
Total $ 2,415 $ 2,377 $ 6,166 $ 6,145
======== ======= ======== ========
Automotive capital expenditures as a
percentage of sales 8.0% 8.4% 6.4% 6.7%
Stockholders' equity at September 30
- - Total (in millions) $ 29,677 $26,152 $ 29,677 $ 26,152
- - After-tax return on Common and
Class B stockholders' equity 15.4% 10.5% 24.6% 17.4%
Automotive net cash at September 30
(in millions)
- - Cash and marketable securities $ 19,320 $12,960 $ 19,320 $ 12,960
- - Debt 8,207 7,296 8,207 7,296
-------- ------- -------- --------
Automotive net cash $ 11,113 $ 5,664 $ 11,113 $ 5,664
======== ======= ======== ========
After-tax return on sales
- - U.S. Automotive 2.6% 3.7% 4.3% 2.5%
- - Total Automotive 2.3% 0.1% 3.8% 1.5%
Shares of Common and Class B Stock
(in millions)
- - Average number outstanding 1,198 1,183 1,193 1,177
- - Number outstanding at Sept. 30 1,200 1,185 1,200 1,185
Common Stock price (per share)
- - High $46-1/8 $34-1/4 $ 46-1/8 $ 37-1/4
- - Low 38-3/16 30 30 27-1/4
AMOUNTS PER SHARE OF COMMON AND
CLASS B STOCK AFTER PREFERRED
STOCK DIVIDENDS
Income assuming full dilution
- - Automotive $ 0.51 $ 0.00 $ 2.72 $ 1.02
- - Financial Services 0.39 0.56 1.43 1.64
-------- ------- -------- --------
Total $ 0.90 $ 0.56 $ 4.15 $ 2.66
======== ======= ======== ========
Cash dividends $ 0.420 $ 0.385 $ 1.225 $ 1.085
-2-
Ford Motor Company and Subsidiaries
VEHICLE UNIT SALES
------------------
For the Periods Ended September 30, 1997 and 1996
(in thousands)
Third Quarter Nine Months
------------------------- -------------------------
1997 1996 1997 1996
-------- -------- -------- --------
(unaudited) (unaudited)
North America
United States
Cars 399 387 1,205 1,228
Trucks 541 497 1,824 1,663
----- ----- ----- -----
Total United States 940 884 3,029 2,891
Canada 73 52 228 174
Mexico 20 13 57 39
----- ----- ----- -----
Total North America 1,033 949 3,314 3,104
Europe
Britain 106 100 342 376
Germany 100 84 323 330
Italy 43 30 178 129
France 36 42 112 147
Spain 28 27 112 114
Other countries 45 67 227 236
----- ----- ----- -----
Total Europe 358 350 1,294 1,332
Other international
Brazil 65 44* 165* 114*
Argentina 45 17* 108* 71*
Australia 35 40 101 107
Taiwan 20 20 62 72
Japan 9 13 30 41
Other countries 31 19 78 59
----- ----- ----- -----
Total other international 205 153 544 464
----- ----- ----- -----
Total worldwide vehicle unit sales 1,596 1,452 5,152 4,900
===== ===== ===== =====
Vehicle unit sales generally are reported worldwide on a "where sold" basis and
include sales of all Ford-badged units, as well as units manufactured by Ford
and sold to other manufacturers
*Adjusted to reflect change in reporting practice
-3-
Part I. Financial Information
-----------------------------
Item 1. Financial Statements
- -----------------------------
Ford Motor Company and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
--------------------------------
For the Periods Ended September 30, 1997 and 1996
(in millions)
Third Quarter Nine Months
-------------------------- --------------------------
1997 1996 1997 1996
---------- ----------- ----------- ----------
(unaudited) (unaudited)
AUTOMOTIVE
Sales $28,196 $26,459 $89,926 $86,518
Costs and expenses (Note 2)
Costs of sales 25,681 24,926 80,023 79,941
Selling, administrative and other expenses 1,669 1,514 4,909 4,619
------- ------- ------- -------
Total costs and expenses 27,350 26,440 84,932 84,560
Operating income 846 19 4,994 1,958
Interest income 253 188 802 589
Interest expense 192 155 592 537
------- ------- ------- -------
Net interest income 61 33 210 52
Equity in net income/(loss) of affiliated companies 0 (68) (65) (43)
Net expense from transactions with
Financial Services (15) (25) (68) (62)
------- ------- ------- -------
Income/(loss) before income taxes - Automotive 892 (41) 5,071 1,905
FINANCIAL SERVICES
Revenues 7,900 7,501 22,637 21,640
Costs and expenses
Interest expense 2,430 2,458 7,208 7,318
Depreciation 2,011 1,768 5,550 5,134
Operating and other expenses 1,727 1,559 4,801 4,522
Provision for credit and insurance losses 835 708 2,474 1,894
Budget Rent a Car write-down and sale of
USL Capital - (235) - 437
------- ------- -------- -------
Total costs and expenses 7,003 6,258 20,033 19,305
Net revenue from transactions with Automotive 15 25 68 62
Gain on sale of Common Stock
of a subsidiary (Note 3) - - 269 650
------- ------- ------- -------
Income before income taxes - Financial Services 912 1,268 2,941 3,047
------- ------- ------- -------
TOTAL COMPANY
Income before income taxes 1,804 1,227 8,012 4,952
Provision for income taxes 595 474 2,675 1,581
------- ------- ------- -------
Income before minority interests 1,209 753 5,337 3,371
Minority interests in net income of subsidiaries 84 67 213 129
------- ------- ------- -------
Net income $ 1,125 $ 686 $ 5,124 $ 3,242
======= ======= ======= =======
Income attributable to Common and Class B Stock
after preferred stock dividends $ 1,112 $ 670 $ 5,083 $ 3,191
Average number of shares of Common and Class B
Stock outstanding 1,198 1,183 1,193 1,177
AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK
Income $ 0.93 $ 0.57 $ 4.26 $ 2.71
Income assuming full dilution $ 0.90 $ 0.56 $ 4.15 $ 2.66
Cash dividends $ 0.420 $ 0.385 $ 1.225 $ 1.085
The accompanying notes are part of the financial statements.
-4-
Ford Motor Company and Subsidiaries
CONSOLIDATED BALANCE SHEET
--------------------------
(in millions)
September 30, December 31,
1997 1996
---------------- -------------
(unaudited)
ASSETS
Automotive
Cash and cash equivalents $ 5,027 $ 3,578
Marketable securities 14,293 11,836
-------- --------
Total cash and marketable securities 19,320 15,414
Receivables 3,220 3,133
Inventories (Note 5) 6,320 6,656
Deferred income taxes 3,262 3,296
Other current assets 4,085 3,193
Net current receivable from Financial Services 443 0
-------- --------
Total current assets 36,650 31,692
Equity in net assets of affiliated companies 2,056 2,483
Net property 34,282 33,527
Deferred income taxes 4,154 4,429
Other assets 8,298 7,527
-------- --------
Total Automotive assets 85,440 79,658
Financial Services
Cash and cash equivalents 2,117 3,689
Investments in securities 2,155 2,307
Net receivables and lease investments 169,914 161,906
Other assets 14,597 14,834
Net receivable from Automotive 0 473
-------- --------
Total Financial Services assets 188,783 183,209
-------- --------
Total assets $274,223 $262,867
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Automotive
Trade payables $ 11,942 $ 11,735
Other payables 2,395 2,206
Accrued liabilities 18,352 16,587
Income taxes payable 1,718 508
Debt payable within one year 1,587 1,661
Net current payable to Financial Services 0 473
-------- --------
Total current liabilities 35,994 33,170
Long-term debt 6,620 6,495
Other liabilities 28,126 26,793
Deferred income taxes 1,175 1,225
-------- --------
Total Automotive liabilities 71,915 67,683
Financial Services
Payables 4,130 4,695
Debt 155,407 150,205
Deferred income taxes 4,006 4,338
Other liabilities and deferred income 7,966 8,504
Net payable to Automotive 443 0
-------- --------
Total Financial Services liabilities 171,952 167,742
Company-obligated mandatorily redeemable preferred securities of a subsidiary
trust holding solely junior subordinated debentures of the Company (Note 6) 679 680
Stockholders' equity
Capital stock
Preferred Stock, par value $1.00 per share (aggregate liquidation preference
of $642 million and $694 million) * *
Common Stock, par value $1.00 per share (1,131 and 1,118 million shares issued) 1,131 1,118
Class B Stock, par value $1.00 per share (71 million shares issued) 71 71
Capital in excess of par value of stock 5,484 5,268
Foreign currency translation adjustments and other (963) (29)
Earnings retained for use in business 23,954 20,334
-------- --------
Total stockholders' equity 29,677 26,762
-------- --------
Total liabilities and stockholders' equity $274,223 $262,867
======== ========
- - - - -
*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 September 30, 1997 and 1996
(in millions)
Nine Months 1997 Nine Months 1996
---------------------------- ---------------------------
Financial Financial
Automotive Services Automotive Services
------------- ------------ ------------- -----------
(unaudited) (unaudited)
Cash and cash equivalents at January 1 $ 3,578 $ 3,689 $ 5,750 $ 2,690
Cash flows from operating activities before securities trading 11,835 9,449 8,462 10,839
Net (purchases)/sales of trading securities (2,075) 136 (2,844) (1,230)
------- -------- ------- --------
Net cash flows from operating activities 9,760 9,585 5,618 9,609
Cash flows from investing activities
Capital expenditures (5,753) (413) (5,796) (349)
Purchase of leased assets (332) - (130) -
Acquisitions of receivables and lease investments - (86,947) - (82,293)
Collections of receivables and lease investments - 67,246 - 62,469
Net acquisitions of daily rental vehicles - (1,231) - (1,995)
Net proceeds from USL Capital asset sales - - - 1,157
Purchases of securities 0 (2,329) (6) (8,362)
Sales and maturities of securities 0 2,835 7 10,266
Proceeds from sales of receivables and lease investments - 1,578 - 1,011
Net investing activity with Financial Services (23) - (254) -
Other 72 (150) (523) (204)
------- -------- ------- --------
Net cash used in investing activities (6,036) (19,411) (6,702) (18,300)
Cash flows from financing activities
Cash dividends (1,503) (25) (1,328) -
Issuance of Common Stock 229 - 124 -
Issuance of Common Stock of a subsidiary (Note 3) - 453 - 1,897
Changes in short-term debt (568) 1,376 395 1,465
Proceeds from issuance of other debt 1,225 17,823 300 18,650
Principal payments on other debt (655) (12,250) (671) (10,407)
Net financing activity with Automotive - 23 - 254
Other (8) (5) (43) (266)
------- -------- ------- --------
Net cash (used in)/provided by financing activities (1,280) 7,395 (1,223) 11,593
Effect of exchange rate changes on cash (79) (57) (73) (206)
Net transactions with Automotive/Financial Services (916) 916 91 (91)
------- -------- ------- --------
Net (decrease)/increase in cash and cash equivalents 1,449 (1,572) (2,289) 2,605
------- -------- ------- --------
Cash and cash equivalents at September 30 $ 5,027 $ 2,117 $ 3,461 $ 5,295
======= ======== ======= ========
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,
1996. 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 to conform with
1997 presentations.
2. Selected Automotive costs and expenses are summarized as follows (in
millions):
Third Quarter Nine Months
--------------------- ---------------------
1997 1996 1997 1996
--------- -------- --------- --------
Depreciation $701 $687 $2,051 $1,966
Amortization 824 828 2,330 2,278
3. Sale of Common Stock of a Subsidiary - During April 1997, The Hertz
Corporation ("Hertz") completed an initial public offering ("IPO") of its
common stock representing a 19.1% economic interest in Hertz. The Company
recognized in second quarter earnings a non-operating gain of $269 million
resulting from the IPO; the gain was not subject to income taxes. During
May 1996, The Associates completed an IPO of its common stock representing
a 19.3% economic interest in The Associates; this resulted in a
non-operating gain of $650 million.
4. Significant Items - The Company recorded a pre-tax charge in second quarter
totaling $272 million ($169 million after taxes) reflecting actions that
will be completed during 1997 and 1998. These include primarily the
discontinuation of passenger car production at the Lorain Assembly Plant
resulting in a write-down of surplus assets. The charge also included
employee termination costs related to the elimination of a shift at the
Halewood (England) Plant, and a loss on the sale of the Heavy Truck
business.
5. Automotive inventories are summarized as follows (in millions):
September 30, December 31,
1997 1996
------------- -------------
Raw materials, work in process and supplies $3,340 $3,374
Finished products 2,980 3,282
------ ------
Total inventories $6,320 $6,656
====== ======
U.S. inventories $2,336 $2,280
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 September 30, 1997 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 September 30, 1997. 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, 1996 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 27,
1997, we expressed an unqualified opinion on those consolidated financial
statements.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Detroit, Michigan
October 13, 1997
-8-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
OVERVIEW
The company's worldwide net income was a record $1,125 million in third quarter
1997, or $0.90 per share of Common and Class B Stock (fully diluted), compared
with $686 million, or $0.56 per share (fully diluted) in third quarter 1996. The
company's worldwide sales and revenues were $36.1 billion, up $2.1 billion from
a year ago. Vehicle unit sales of cars and trucks were 1,596,000, up 144,000
units. Stockholders' equity was $29.7 billion at September 30, 1997, up $2.9
billion compared with December 31, 1996.
RESULTS OF OPERATIONS
The company's net income for worldwide Automotive operations in third quarter
1997 and 1996 and first nine months 1997 and 1996 was as follows (in millions):
Third Quarter Nine Months
---------------- ----------------
1997 1996 1997 1996
------ ------ ------ ------
U.S. Automotive $ 485 $ 634 $2,513 $1,379
Automotive Outside U.S.
- Europe (147) (472) 115 (203)
- South America 133 (226) 111 (355)
- Other 163 79 634 444
----- ----- ------ ------
Total Automotive Outside U.S. 149 (619) 860 (114)
----- ----- ------ ------
Total Automotive $ 634 $ 15 $3,373 $1,265
===== ===== ====== ======
The company's net income for worldwide Financial Services operations in third
quarter 1997 and 1996 and first nine months 1997 and 1996 was as follows
(in millions):
Third Quarter Nine Months
----------------- -------------------
1997 1996 1997 1996
------- ------ ------ ------
Ford Credit $ 258 $ 341 $ 813 $1,056
The Associates 271 230 754 623
USL Capital - 117 - 198
Hertz 93 74 167 123
One-Time Actions
- Gain on sale of Common Stock
of The Associates and Hertz - - 269 650
- Budget Rent a Car write-down
and sale of USL Capital - 76 - (342)
Minority Interests, Eliminations,
and Other (131) (167) (252) (331)
----- ----- ------ ------
Total Financial Services $ 491 $ 671 $1,751 $1,977
===== ===== ====== ======
Memo: Ford's share of earnings in
----------------------------------
The Associates $219 $186 $ 608 $ 555
Hertz 75 74 140 123
THIRD QUARTER 1997 COMPARED WITH THIRD QUARTER 1996
Automotive Operations
- ---------------------
Ford's worldwide Automotive operations earned $634 million in third quarter 1997
on sales of $28.2 billion, compared with $15 million in third quarter 1996 on
sales of $26.5 billion. Overall, the increase was more than explained by
improved results in South America and Europe.
Earnings for Automotive operations in the U.S. were down $149 million in third
quarter 1997 compared with a year ago. The decrease reflected primarily a lower
1996 effective tax rate and higher marketing costs, offset partially by improved
volumes and vehicle mix. The U.S. Automotive after-tax return on sales was 2.6%
in third quarter 1997, down 1.1 points from a year ago.
-9-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
- ------------------------------------------------------------------------
The seasonally-adjusted annual selling rate for the U.S. car and truck industry
was 15.8 million units in third quarter 1997, up from 15.4 million units in
third quarter 1996. The company expects car and truck industry sales for
full-year 1997 to be about equal to 1996. Ford's combined U.S. car and truck
share was 24.6% in third quarter 1997, up 1/10 of a point from a year ago.
Lower losses for Automotive operations in Europe reflected primarily lower
operating costs (at constant volume and mix). The European automotive industry
continues to be extremely competitive as a result of excess industry capacity;
this trend is expected to continue in fourth quarter 1997 and beyond.
The seasonally-adjusted annual selling rate for the European car and truck
industry was 15.7 million units in third quarter 1997, up from 14.6 million
units in third quarter 1996. The company expects car and truck industry sales
for full-year 1997 to be slightly above 1996. Ford's combined European car and
truck market share was 11.4% in third quarter 1997, down 6/10 of a point from a
year ago. The lower European market share resulted primarily from aggressive
marketing efforts by competitors in Germany.
Automotive operations in South America earned a profit in third quarter 1997,
compared with a loss a year ago. The improvement reflected primarily lower costs
(at constant volume and mix), higher volumes, and a favorable tax rate.
Financial Services Operations
- -----------------------------
Financial Services operations earned $491 million in third quarter 1997, down
$180 million compared with a year ago. Excluding a $76-million gain on sale of
USL Capital assets in third quarter 1996, earnings were down $104 million. The
net reduction reflects a decline in earnings at Ford Credit and the absence of
earnings from USL Capital.
Ford Credit's earnings were down $83 million from a year ago, reflecting
primarily lower net margins, higher credit losses and loss reserve requirements,
and higher operating costs. Higher levels of earning assets were a partial
offset. Net financing margins have deteriorated from a year ago, reflecting
higher depreciation costs on leased vehicles and higher borrowing costs (6.49%
net borrowing rate in 1997 compared with 6.41% in 1996). Higher depreciation
costs on leased vehicles (reflecting lower-than-anticipated residuals) are
expected to continue to depress Ford Credit's earnings in fourth quarter 1997.
Credit losses as a percent of average net finance receivables (including net
investment in operating leases) were 0.85% in third quarter 1997, compared with
0.82% in third quarter a year ago; the increase reflected higher losses per
repossession offset partially by a decrease in repossession rates.
Earnings at the Associates in third quarter 1997 were an all-time record for any
quarter. Compared with third quarter 1996, the improved earnings reflected
primarily higher levels of earning assets and improved net interest margins,
offset partially by higher credit losses. Credit losses as a percent of average
net finance receivables were 2.45% in third quarter 1997, compared with 2.14% in
third quarter 1996, reflecting primarily losses in unsecured portfolios.
Unsecured losses have been driven by increases in consumer bankruptcy filings.
The Associates believes the higher levels of credit losses may continue.
Earnings at Hertz in third quarter 1997 also were an all-time record for any
quarter. Compared with third quarter 1996, improved earnings reflected continued
strong performance in the U.S. car rental market both in terms of increased
transaction volume and more favorable pricing.
-10-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
- ------------------------------------------------------------------------
FIRST NINE MONTHS 1997 COMPARED WITH FIRST NINE MONTHS 1996
Ford earned a record $5,124 million, or $4.15 per share of Common and Class B
Stock (fully diluted), in first nine months 1997, compared with $3,242 million,
or $2.66 per share (fully diluted), in first nine months 1996. One-time actions
at Financial Services operations in first nine months 1997 and 1996 are included
in the table above. Results for Automotive operations for first nine months 1997
included a $169 million charge for manufacturing restructuring actions.
Automotive results for first nine months 1996 included a $100 million charge for
employee separation programs.
The company's worldwide sales and revenues in first nine months 1997 were $112.6
billion, up $4.4 billion from a year ago. Vehicle unit sales of cars and trucks
were 5,152,000, up 252,000 units.
Automotive Operations
- ---------------------
Ford's worldwide Automotive operations earned $3,373 million in first nine
months 1997 on sales of $89.9 billion, compared with $1,265 million in first
nine months 1996 on sales of $86.5 billion. The increase was explained primarily
by improved earnings in all major regions.
Earnings on Automotive operations in the U.S. were up $1,134 million in first
nine months 1997 compared with a year ago. The increase reflected primarily
higher margins from on-going cost and quality improvements, and vehicle mix
improvements. The U.S. Automotive after-tax return on sales was 4.3% in first
nine months 1997, up 1.8 points from a year ago.
The seasonally-adjusted annual selling rate for the U.S. car and truck industry
was 15.5 million units in first nine months 1997, compared with 15.6 million
units in first nine months 1996. Ford's combined U.S. car and truck market share
was 25.1%, up 1/10 of a point compared with a year ago, and down 1/10 of a point
from full year 1996.
Earnings on Automotive operations in Europe in first nine months 1997 were up
$318 million from a year ago, reflecting primarily lower operating costs (at
constant volume and mix), offset partially by lower volumes.
The seasonally-adjusted annual selling rate for the European car and truck
industry was 14.8 million units in first nine months 1997, up from 14.3 million
units in first nine months 1996. Ford's combined European car and truck market
share was 11.5% in first nine months 1997, down half of a point from a year ago,
and down 3/10 of a point from full year 1996.
Automotive operations in South America earned a profit in first nine months
1997, compared with a loss a year ago. The improvement reflected primarily
improved volume and mix, lower material costs (at constant volume and mix), and
a favorable tax rate.
Financial Services Operations
- -----------------------------
Earnings for Financial Services operations were $1,751 million in first nine
months 1997, down $226 million compared with a year ago. Results in first nine
months 1997 and first nine months 1996 included the one-time actions shown in
the table above; excluding these items, earnings were down $187 million.
Lower consolidated net income at Ford Credit in first nine months 1997, compared
with first nine months 1996, resulted primarily from higher credit losses and
loss reserve requirements, lower net margins (resulting from the same factors as
described in the discussion of third quarter results of operations), and higher
taxes. Higher levels of earning assets were a partial offset.
-11-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
- ------------------------------------------------------------------------
Higher earnings at The Associates and at Hertz in first nine months 1997,
compared with first nine months 1996, reflected primarily the same factors as
those described in the discussion of third quarter results of operations.
LIQUIDITY AND CAPITAL RESOURCES
Automotive Operations
- ---------------------
Automotive cash and marketable securities were $19.3 billion at September 30,
1997, up $3.9 billion from December 31, 1996. The company paid $1,503 million in
cash dividends on its Common Stock, Class B Stock and Preferred Stock during
first nine months 1997.
Automotive capital expenditures were $5.8 billion in first nine months 1997,
down $43 million from the same period a year ago. For full year 1997, Ford's
capital spending is expected to be about the same as it was in 1996; however, as
a percentage of sales, spending is expected to be lower.
Automotive debt at September 30, 1997 totaled $8.2 billion, which was 22% of
total capitalization (stockholders' equity and Automotive debt), compared with
23% of total capitalization at year-end 1996.
At September 30, 1997, Ford had long-term contractually committed global credit
agreements under which $8.3 billion is available from various banks at least
through June 30, 2002. 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. Ford also has the ability to transfer on a nonguaranteed basis $8
billion of such credit lines in varying portions to Ford Credit and Ford Credit
Europe. In addition, at September 30, 1997, $465 million of contractually
committed credit facilities were available to various Automotive affiliates
outside the U.S. Approximately $71 million of these facilities were in use at
September 30, 1997.
Financial Services Operations
- -----------------------------
Financial Services cash and investments in securities totaled $4.3 billion at
September 30, 1997, down $1.7 billion from December 31, 1996.
Net receivables and lease investments were $169.9 billion at September 30, 1997,
up $8 billion from December 31, 1996.
Total debt was $155.4 billion at September 30, 1997, up $5.2 billion from
December 31, 1996.
Outstanding commercial paper at September 30, 1997 totaled $35.2 billion at Ford
Credit, $19.5 billion at The Associates, and $1.4 billion at Hertz, with an
average remaining maturity of 31 days, 24 days, and 27 days, respectively.
-12-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
- ------------------------------------------------------------------------
At September 30, 1997, Financial Services had a total of $42 billion of
contractually committed support facilities (excluding the $8 billion available
under Ford's global credit agreements). Of these facilities, $23.8 billion are
contractually committed global credit agreements under which $19.2 billion and
$4.6 billion are available to Ford Credit and Ford Credit Europe, respectively,
from various banks; 61% and 77%, respectively, of such facilities are available
through June 30, 2002. The entire $19.2 billion may be used, at Ford Credit's
option, by any subsidiary of Ford Credit, and the entire $4.6 billion may be
used, at 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 September 30, 1997, $100 million of the
Ford Credit global facilities were in use and $363 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 September
30, 1997 consisted of $16.1 billion of contractually committed support
facilities available to various affiliates in the U.S, and $2.1 billion of
contractually committed support facilities available to various affiliates
outside the U.S.; at September 30, 1997, approximately $1.3 billion of these
facilities were in use. Furthermore, banks provide $1.6 billion of liquidity
facilities to support the asset-backed commercial paper program of a Ford Credit
sponsored special purpose entity.
Debt Rating Revision
- --------------------
On October 8, 1997, Standard & Poor's Rating Group ("S&P") announced that it had
lowered certain debt ratings of Ford and certain of its subsidiaries as a result
of Ford's announced plan to spin off The Associates (discussed below). Among
others, Ford's, Ford Credit's and Ford Credit Europe's senior long-term debt
ratings were lowered from A+ to A, and Hertz' senior long-term debt and
commercial paper ratings were lowered from A- and A-1 to BBB+ and A-2,
respectively. The debt ratings of The Associates and its subsidiaries were
affirmed by S&P.
Also on October 8, 1997, Moody's Investor Service confirmed all of the debt
ratings of Ford and its subsidiaries, including the senior long-term debt
ratings of A1 for Ford, Ford Credit, and Ford Credit Europe and A3 for Hertz,
and the commercial paper rating of Prime-1 for Ford Credit, Ford Credit Europe
and Hertz.
DISTRIBUTION OF INTEREST IN ASSOCIATES FIRST CAPITAL CORPORATION
On October 8, 1997, Ford announced its plan to "spin off" or distribute its
80.7% interest in The Associates to Ford Common and Class B stockholders. The
spin-off is subject to the receipt of a ruling from the U.S. Internal Revenue
Service that the transaction will be tax-free to Ford and its stockholders. The
ruling process is expected to take several months. Upon receipt of a favorable
ruling, Ford plans to distribute its 279.5 million shares of The Associates to
Ford stockholders in proportion to their ownership of Common and Class B stock.
In 1996 and in first nine months 1997, The Associates contributed 16.8% and
11.9%, respectively, to Ford's consolidated earnings. Generally, the earnings of
The Associates have been retained by The Associates to fund its growth.
ACCOUNTING CHANGES
Brazil has been considered a highly inflationary economy since the
implementation of Statement of Financial Accounting Standards No. 52, "Foreign
Currency Translation". The instability of the local currency in a
hyperinflationary economy precludes its use as the functional currency for the
measurement of business operations. Ford has used the U.S. dollar as the
functional currency for its Brazilian operations during this hyperinflationary
period.
-13-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
- ------------------------------------------------------------------------
Beginning January 1, 1998, Brazil will no longer be considered a highly
inflationary economy. The U.S. dollar will continue to be the designated
functional currency for Ford's Brazilian operations in 1998 based on the primary
economic environment in which the operations are conducted. Therefore, the
change to a non-highly inflationary designation will have no effect on Ford's
consolidated financial statements in 1998.
The designated functional currency for Ford Brazil will be reviewed
periodically.
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.
-14-
Part II. Other Information
--------------------------
Item 1. Legal Proceedings
- --------------------------
Environmental Matters
- ---------------------
Bridgend Plant. Britain's Environment Agency recently began prosecuting Ford's
British subsidiary, Ford Motor Company Limited ("Ford Britain"), for an alleged
discharge into the River Ewenny in September 1995 of pollutive matter from Ford
Britain's plant in Bridgend. Fines in excess of the equivalent of $100,000 could
be imposed and Ford Britain may be required to pay for the cost of restocking
the river with fish.
Other Matters
- -------------
Lemelson Patent Case. (Previously discussed in the second paragraph on page 19
of Ford's Annual Report on Form 10-K for the year ended December 31, 1996 (the
"10-K Report") and the third paragraph on page 14 of Ford's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997 (the "Second Quarter 10-Q
Report").) In August 1997, the Court of Appeals for the Federal Circuit in
Washington, D.C. denied Ford's request to hear an appeal at this time of the
District Court's decision to dismiss Ford's defense that Lemelson engaged in
undue delay in prosecuting the patent applications. Lemelson has requested that
the case be scheduled for an immediate trial, but Ford has moved to have the
case sent back to the magistrate judge for consideration of Ford's eleven
pending motions for summary judgment. A hearing to resolve these issues is
expected to be scheduled soon. In October 1997, Mr. Lemelson died; Ford
anticipates that the partnership which owns Mr. Lemelson's patents will be
substituted as a party to the lawsuit.
Paint Class Actions. (Previously discussed in the third paragraph on page 19 of
the 10-K Report and the fourth paragraph on page 14 of the Second Quarter 10-Q
Report.) The federal court in Louisiana granted in part and denied in part
Ford's most recent motion to dismiss one of the purported nationwide class
actions (Landry) relating to alleged defects in paint processes. The court
permitted certain plaintiffs to amend their complaint, and Ford will be filing
another motion to dismiss some of the claims in the amended complaint.
Plaintiffs in that case also have moved for class certification; Ford will
oppose that motion.
Bronco II Class Actions. (Previously discussed in the fourth paragraph on page
19 of the 10-K Report.) Two of the purported Bronco II class actions
consolidated before the Louisiana federal court have been dismissed. The first
(Kloster) was voluntarily dismissed by the plaintiffs in August 1997; the second
(Washington) was dismissed by the court in September 1997. Ford has motions for
summary judgment pending in the five remaining federal cases. With respect to
the case pending in Alabama state court (Rice), the court recently denied Ford's
motion to vacate the conditional class certification order and certified a class
of Alabama-only owners of Bronco II vehicles. Ford will seek Alabama Supreme
Court review of this ruling. The Alabama court also denied Ford's motion for
summary judgment. Because the court believed such motion involved a controlling
question of law on which there was substantial grounds for difference of
opinion, it asked the Alabama Supreme Court to review the ruling. Class action
proceedings at the trial level were stayed pending this review. The other
purported class action remains pending in Texas state court. Also continuing is
the purported class action in West Virginia relating to alleged concealment of
Bronco II documents (previously discussed in the second paragraph on page 13 of
Ford's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997 (the
"First Quarter 10-Q Report")).
Item 1. Legal Proceedings (Continued)
- --------------------------------------
Ignition Switch Class Actions. (Previously discussed in the first paragraph on
page 20 of the 10-K Report and the fifth paragraph on page 14 of the Second
Quarter 10-Q Report.) In August 1997, the federal court in New Jersey denied the
plaintiffs' motion for class certification in all fourteen cases relating to
allegedly defective ignition switches. The court held that whether an ignition
switch is defective depends on facts particular to each vehicle and other
claimant-specific issues. The court also held that the National Highway Traffic
Safety Administration ("NHTSA") is the appropriate forum for addressing whether
a defect exists. Also, in September 1997, the court dismissed all of plaintiffs'
non-incident claims except the breach of contact, voiding of sale, and strict
liability claims of the Louisiana plaintiffs. Plaintiffs have filed a motion to
remand the cases to the courts from which they originated. Plaintiffs also have
moved to overturn the court's denial of class certification on the basis that
the court lacked subject matter jurisdiction once the federal law claims were
dismissed. Ford will move for summary judgment in each of the individual
actions. The court's denial of class certification in these actions moots the
petition of State Farm Insurance Company to intervene and assert subrogation
rights relating to payments made to members of one of the purported classes.
TFI Module Class Actions. (Previously discussed in the third paragraph on page
20 of the 10-K Report.) The California court certified a class of plaintiffs
consisting of California residents who are owners (original or current) or
lessees of 1983 through 1995 model year vehicles equipped with
distributor-mounted thick film ignition (TFI) modules. The court's ruling is
conditional, and evidence developed during discovery may later indicate that
class certification is inappropriate. Ford will appeal the decision and, if
necessary, move the court to decertify the class before the trial date has been
set. In related developments, Ford has urged NHTSA to review allegations by
plaintiffs and NHTSA's former chief investigator that Ford improperly withheld
information and documents during prior NHTSA investigations into this matter. In
September 1997, NHTSA issued a Special Order requiring Ford to respond to those
allegations under oath, and Ford has done so.
Airbag Class Actions. (Previously discussed in the last paragraph on page 13 of
the First Quarter 10-Q Report and the last paragraph on page 14 of the Second
Quarter 10-Q Report.) The purported airbag class actions in Louisiana and Texas
were removed to federal court and consolidated for pretrial proceedings in the
Eastern District of Louisiana pursuant to the multidistrict litigation rules.
The other class action remains pending in Alabama state court. In a related
development, NHTSA is expected to issue a rule that will increase the
availability of airbag deactivation. Ford understands that the rule is being
reviewed by the federal Office of Management and Budget. An important unresolved
issue is whether vehicle owners can self-certify that they meet certain criteria
to have "on-off" switches installed in their vehicles. Presently, each vehicle
owner must ask NHTSA for an exemption to have such switches installed.
Ford Citibank Visa Class Actions. (Previously discussed on page 15 of the Second
Quarter 10-Q Report.) Three additional purported nationwide class actions were
filed in state courts in Alabama, New York and Oregon on behalf of cardholders
challenging the termination of the Ford Citibank Visa credit card rebate
program. These cases, along with the previously pending cases in Illinois and
Washington, were removed to federal courts. Ford has requested the Judicial
Panel on Multidistrict Litigation to consolidate and transfer the cases to a
single federal court in Washington for pretrial proceedings. In the Alabama
action, the court has conditionally certified a class consisting of Alabama
residents.
Flat Glass Class Actions. Since July 1997, eight purported nationwide class
actions have been brought on behalf of purchasers of flat glass alleging that
Ford and other manufacturers fixed prices and allocated markets in violation of
federal antitrust laws. The cases are pending in federal courts in California,
Illinois, Minnesota and Pennsylvania. The other defendants include Pilkington
plc; Libbey-Owens Ford Co., Inc.; AFG Industries; PPG Industries, Inc.; Asahi
Glass Co., Ltd.; and Guardian Industries Corp. There are sixteen similar cases
pending in various courts in which Ford is not named as a defendant. Motions are
pending to consolidate all of the federal cases in a single federal court for
pretrial proceedings under the multidistrict litigation rules. Plaintiffs in the
actions involving Ford are seeking economic and treble damages.
-16-
Supplemental Schedule
Ford Motor Company
CONDENSED FINANCIAL INFORMATION OF SUBSIDIARY
---------------------------------------------
(in millions)
Ford Capital B.V.
- -----------------
September 30, December 31,
1997 1996
--------------- --------------
(unaudited)
Current assets $2,037 $1,660
Noncurrent assets 2,396 3,491
------ ------
Total assets $4,433 $5,151
====== ======
Current liabilities $1,962 $1,116
Noncurrent liabilities 1,992 3,544
Minority interests in net
assets of subsidiaries 16 18
Stockholder's equity 463 473
------ ------
Total liabilities and
stockholder's equity $4,433 $5,151
====== ======
Third Quarter Nine Months
--------------------- ---------------------
1997 1996 1997 1996
-------- --------- -------- ---------
(unaudited) (unaudited)
Sales and other revenue $505 $508 $1,886 $2,083
Operating income 12 45 58 56
Income before income taxes 3 30 24 14
Net income/(loss) 0 21 (3) (22)
Ford Capital B.V., a wholly owned subsidiary of Ford Motor Company, was
established primarily for the purpose of raising funds through the issuance of
commercial paper and debt securities. Ford Capital B.V. also holds shares of the
capital stock of Ford Nederland B.V., Ford Motor Company (Belgium) N.V., Ford
Motor Company A/S (Denmark), Ford Poland S.A., and Ford Distribution Sp. z.o.o.,
Ltd. Substantially all of the assets of Ford Capital B.V., other than its
ownership interests in subsidiaries, represent receivables from Ford Motor
Company or its consolidated subsidiaries.
-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 September 30, 1997:
Current Report on Form 8-K dated July 16, 1997 included information
relating to Ford's second quarter 1997 financial results.
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: November 5, 1997 By: /s/ W. J. Cosgrove
---------------- -------------------------------------
W. J. Cosgrove
Corporate Controller
(principal accounting officer)
-18-
EXHIBIT INDEX
-------------
Sequential
Page Number
Designation Description at Which Found
- ------------- ---------------------------------------------------------- ------------------
Exhibit 11 Ford Motor Company and Subsidiaries Computation of Primary 20-21
and Fully Diluted Earnings Per Share in Accordance with
Opinion 15 of the Accounting Principles Board.
Exhibit 12 Ford Motor Company and Subsidiaries Calculation of Ratio of 22
Earnings to Combined Fixed Charges and Preferred Stock Dividends.
Exhibit 15 Letter of Coopers & Lybrand L.L.P., Independent Public 23
Accountants, dated November 5, 1997, relating to Financial
Information.
-19-