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 March 31, 1998 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
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(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 March 31, 1998, the Registrant had outstanding 1,142,136,738 shares
of Common Stock and 70,852,076 shares of Class B Stock.
Exhibit index located on sequential page number 17
Ford Motor Company and Subsidiaries
HIGHLIGHTS
----------
First Quarter
----------------------------
1998 1997
------------ ------------
(unaudited)
Worldwide vehicle unit sales of cars and trucks
(in thousands)
- North America 1,059 1,066
- Outside North America 662 615
----- -----
Total 1,721 1,681
===== =====
Sales and revenues (in millions)
- Automotive $ 29,076 $ 30,037
- Financial Services 7,508 7,277
--------- ---------
Total $ 36,584 $ 37,314
========= =========
Net income (in millions)
- Automotive $ 1,235 $ 1,004
- Financial Services (including income of
The Associates through March 12, 1998) 456 465
--------- ---------
Subtotal 1,691 1,469
- Gain on spin-off of The Associates 15,955 -
--------- ---------
Total $ 17,646 $ 1,469
========= =========
Capital expenditures (in millions)
- Automotive $ 2,101 $ 1,613
- Financial Services 98 126
--------- ---------
Total $ 2,199 $ 1,739
========= =========
Automotive capital expenditures as a percentage
of sales 7.2% 5.4%
Stockholders' equity at March 31
- Total (in millions) $ 21,497 $ 27,252
- After-tax return on Common and Class B
stockholders' equity 24.8% 22.1%
Automotive net cash at March 31
(in millions)
- Cash and marketable securities $ 21,277 $ 15,967
- Debt 8,178 8,202
--------- ---------
Automotive net cash $ 13,099 $ 7,765
========= =========
After-tax return on sales
- North American Automotive 5.0% 4.9%
- Total Automotive 4.3% 3.4%
Shares of Common and Class B Stock (in millions)
- Average number outstanding 1,210 1,190
- Number outstanding at March 31 1,213 1,191
Common Stock price (per share)
(adjusted to reflect The Associates spin-off)
- High $43-7/8 $23-3/8
- Low 28-15/32 20-35/64
AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK
AFTER PREFERRED STOCK DIVIDENDS
Income assuming dilution
- Automotive $ 0.99 $ 0.82
- Financial Services (including income of
The Associates through March 12, 1998) 0.37 0.38
--------- ---------
Subtotal 1.36 1.20
- Premium on Series B Preferred Stock repurchase (0.07) -
- Gain on spin-off of The Associates 12.94 -
--------- ---------
Total $ 14.23 $ 1.20
========= =========
Cash dividends $ 0.42 $ 0.385
-2-
Ford Motor Company and Subsidiaries
VEHICLE UNIT SALES
------------------
For the Periods Ended March 31, 1998 and 1997
(in thousands)
First Quarter
---------------------
1998 1997
--------- --------
(unaudited)
North America
United States
Cars 391 367
Trucks 564 612
----- -----
Total United States 955 979
Canada 76 69
Mexico 28 18
----- -----
Total North America 1,059 1,066
Europe
Britain 142 98
Germany 106 115
Italy 70 64
France 39 36
Spain 37 46
Other countries 100 97
----- -----
Total Europe 494 456
Other international
Brazil 42 41*
Argentina 30 29*
Australia 30 30
Taiwan 29 25
Japan 8 10
Other countries 29 24
----- -----
Total other international 168 159
----- -----
Total worldwide vehicle unit sales 1,721 1,681
===== =====
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 March 31, 1998 and 1997
(in millions)
First Quarter
-------------------------
1998 1997
----------- ----------
(unaudited)
AUTOMOTIVE
Sales $29,076 $30,037
Costs and expenses (Note 2)
Costs of sales 25,584 26,795
Selling, administrative and other expenses 1,686 1,538
-------- -------
Total costs and expenses 27,270 28,333
Operating income 1,806 1,704
Interest income 322 249
Interest expense 199 194
-------- -------
Net interest income 123 55
Equity in net loss of affiliated companies (10) (144)
Net expense from transactions with
Financial Services (48) (19)
------- -------
Income before income taxes - Automotive 1,871 1,596
FINANCIAL SERVICES
Revenues 7,508 7,277
Costs and expenses
Interest expense 2,370 2,356
Depreciation 2,037 1,765
Operating and other expenses 1,583 1,500
Provision for credit and insurance losses 708 845
------- -------
Total costs and expenses 6,698 6,466
Net revenue from transactions with Automotive 48 19
Gain on spin-off of The Associates (Note 3) 15,955 -
------- -------
Income before income taxes - Financial Services 16,813 830
------- -------
TOTAL COMPANY
Income before income taxes 18,684 2,426
Provision for income taxes 972 898
------- -------
Income before minority interests 17,712 1,528
Minority interests in net income of subsidiaries 66 59
------- -------
Net income $17,646 $ 1,469
======= =======
Income attributable to Common and Class B Stock
after preferred stock dividends $17,551 $ 1,455
Average number of shares of Common and Class B
Stock outstanding 1,210 1,190
AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK
Basic income (Note 4) $ 14.48 $ 1.23
Diluted income (Note 4) $ 14.23 $ 1.20
Cash dividends $ 0.42 $ 0.385
The accompanying notes are part of the financial statements.
-4-
Ford Motor Company and Subsidiaries
CONSOLIDATED BALANCE SHEET
--------------------------
(in millions)
March 31, December 31,
1998 1997
---------------- --------------
(unaudited)
ASSETS
Automotive
Cash and cash equivalents $ 6,804 $ 6,316
Marketable securities 14,473 14,519
-------- --------
Total cash and marketable securities 21,277 20,835
Receivables 2,993 3,097
Inventories (Note 5) 6,340 5,468
Deferred income taxes 3,174 3,249
Other current assets 3,703 3,782
Net current receivable from Financial Services 0 416
-------- --------
Total current assets 37,487 36,847
Equity in net assets of affiliated companies 1,874 1,951
Net property 35,438 34,594
Deferred income taxes 3,643 3,712
Other assets 7,062 7,975
-------- --------
Total Automotive assets 85,504 85,079
Financial Services
Cash and cash equivalents 1,424 1,618
Investments in securities 1,117 2,207
Net receivables and lease investments 124,062 176,416
Other assets 11,128 13,777
Net receivable from Automotive 3 0
-------- --------
Total Financial Services assets 137,734 194,018
-------- --------
Total assets $223,238 $279,097
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Automotive
Trade payables $ 11,850 $ 11,997
Other payables (Note 3) 5,428 2,557
Accrued liabilities 17,539 16,250
Income taxes payable 1,366 1,358
Debt payable within one year 801 1,129
Net current payable to Financial Services 3 0
-------- --------
Total current liabilities 36,987 33,291
Long-term debt 7,377 7,047
Other liabilities 28,663 28,899
Deferred income taxes 1,203 1,210
-------- --------
Total Automotive liabilities 74,230 70,447
Financial Services
Payables 3,975 4,539
Debt 113,375 160,071
Deferred income taxes 4,430 4,347
Other liabilities and deferred income 5,053 7,865
Net payable to Automotive 0 416
-------- --------
Total Financial Services liabilities 126,833 177,238
Company-obligated mandatorily redeemable preferred securities of a subsidiary
trust holding solely junior subordinated debentures of the Company (Note 6) 678 678
Stockholders' equity
Capital stock
Preferred Stock, par value $1.00 per share (aggregate liquidation preference
of $177 million and $637 million) * *
Common Stock, par value $1.00 per share (1,144 and 1,132 million shares issued) 1,144 1,132
Class B Stock, par value $1.00 per share (71 million shares issued) 71 71
Capital in excess of par value of stock 5,225 5,564
Accumulated other comprehensive income (1,416) (1,228)
ESOP loan and other (346) (39)
Earnings retained for use in business 16,819 25,234
-------- --------
Total stockholders' equity 21,497 30,734
-------- --------
Total liabilities and stockholders' equity $223,238 $279,097
======== ========
The accompanying notes are part of the financial statements.
- - - - -
*Less than $1 million
-5-
Ford Motor Company and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
----------------------------------------------
For the Periods Ended March 31, 1998 and 1997
(in millions)
First Quarter 1998 First Quarter 1997
---------------------------- ---------------------------
Financial Financial
Automotive Services Automotive Services
------------- ------------ ------------- -----------
(unaudited) (unaudited)
Cash and cash equivalents at January 1 $ 6,316 $ 1,618 $ 3,578 $ 3,689
Cash flows from operating activities before securities trading 3,138 4,463 3,161 2,342
Net sales/(purchases) of trading securities 108 (113) (832) 37
------- -------- ------- -------
Net cash flows from operating activities 3,246 4,350 2,329 2,379
Cash flows from investing activities
Capital expenditures (2,101) (98) (1,613) (126)
Purchase of leased assets (110) - - -
Acquisitions of receivables and lease investments - (27,772) - (26,481)
Collections of receivables and lease investments - 19,289 - 21,192
Net acquisitions of daily rental vehicles - (611) - (528)
Purchases of securities (123) (569) 0 (1,054)
Sales and maturities of securities 62 491 0 793
Proceeds from sales of receivables and lease investments - 2,368 - 807
Net investing activity with Financial Services 403 - 364 -
Other 269 (661) 78 151
------- -------- ------- -------
Net cash used in investing activities (1,600) (7,563) (1,171) (5,246)
Cash flows from financing activities
Cash dividends (519) (1) (472) (7)
Issuance of Common Stock 93 - 23 -
Preferred stock - Series B repurchase, Series A redemption (420) - - -
Changes in short-term debt 76 1,882 (101) 1,033
Proceeds from issuance of other debt 337 7,996 210 3,842
Principal payments on other debt (812) (5,650) (64) (3,839)
Net financing activity with Automotive - (403) - (364)
Spin-off of The Associates cash - (508) - -
Other (323) 53 0 106
------- --------- ------- -------
Net cash (used in)/provided by financing activities (1,568) 3,369 (404) 771
Effect of exchange rate changes on cash (9) 69 (35) (92)
Net transactions with Automotive/Financial Services 419 (419) (998) 998
------- -------- - ------- -------
Net increase/(decrease) in cash and cash equivalents 488 (194) (279) (1,190)
-------- -------- ------- -------
Cash and cash equivalents at March 31 $ 6,804 $ 1,424 $ 3,299 $ 2,499
======= ======== ======= =======
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,
1997. 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 are reclassified, if required, to conform
with 1998 presentations.
2. Selected Automotive costs and expenses are summarized as follows (in
millions):
First Quarter
--------------------
1998 1997
-------- --------
Depreciation $680 $683
Amortization 718 787
3. Spin-off of The Associates - On March 2, 1998, the Board of Directors of
the Company approved the spin-off of The Associates by declaring a dividend
on Ford's outstanding shares of Common and Class B Stock consisting of
Ford's 80.7% interest (279.5 millions shares) in The Associates. The Board
of Directors also declared a dividend in cash on shares of Company stock
held in U.S. employee savings plans equal to the market value of The
Associates stock to be distributed per share of the Company's Common and
Class B Stock. Both the spin-off dividend and the cash dividend were paid
on April 7, 1998 to stockholders of record on March 12, 1998.
Holders of Ford Common and Class B Stock on the record date received
0.262085 shares of The Associates common stock for each share of Ford
stock, and participants in U.S. employee savings plans on the record date
received $22.12 in cash per share of Ford stock, based on the
volume-weighted average price of The Associates stock of $84.3849 per share
on April 7, 1998. The total value of the distribution (including the $3.2
billion cash dividend) was $26.8 billion or $22.12 per share of Ford stock.
As a result of the spin-off of The Associates, Ford realized a gain of
$15,955 million based on the fair value of The Associates as of the record
date, March 12, 1998, in first quarter 1998. Ford has received a ruling
from the U.S. Internal Revenue Service that the distribution qualifies as a
tax-free transaction for U.S. federal income tax purposes.
The Company's results in first quarter 1998 include Ford's share of The
Associates earnings through the record date, March 12 ($177 million). The
balance sheet at March 31, 1998 no longer includes The Associates. Other
payables includes a $3.2 billion dividend payable generated by the cash
dividend to participants in U.S. employee savings plans.
4. Income Per Share of Common and Class B Stock - Basic income per share of
Common and Class B Stock is calculated by dividing the income attributable
to Common and Class B Stock by the average number of shares of Common and
Class B Stock outstanding during the applicable period, adjusted for
issuable shares and uncommitted ESOP shares.
The company had Series A Preferred Stock convertible to Common Stock until
January 9, 1998. Other obligations, such as stock options, are considered
to be dilutive potential common stock. The calculation of diluted income
per share of Common and Class B Stock takes into account the effect of
dilutive potential common stock.
Income per share of Common and Class B Stock was as follows (in millions,
except per share amounts):
First Quarter 1998 First Quarter 1997
----------------------- ----------------------
Income Shares Income Shares
----------- ---------- ---------- ----------
Net income $17,646 1,210 $1,469 1,190
Preferred stock dividend requirements (95) - (14) -
Issuable and uncommitted ESOP shares - 2 - (3)
------- ----- ------ -----
Basic income and shares $17,551 1,212 $1,455 1,187
Basic income per share $ 14.48 $ 1.23
----------------------
Basic income and shares $17,551 1,212 $1,455 1,187
Net dilutive effect of options - 20 - 14
Convertible preferred stock and other 0 1 4 12
------- ----- ------ -----
Diluted income and shares $17,551 1,233 $1,459 1,213
Diluted income per share $ 14.23 $ 1.20
------------------------
-7-
Ford Motor Company and Subsidiaries
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(unaudited)
5. Automotive inventories are summarized as follows (in millions):
March 31, December 31,
1998 1997
------------- -------------
Raw materials, work in process and supplies $3,357 $2,875
Finished products 2,983 2,593
------ ------
Total inventories $6,340 $5,468
====== ======
U.S. inventories $2,617 $1,993
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. Changes in stockholders' equity for the three months ended March 31, 1998
were as follows (in millions):
Earnings Capital
Retained Accum. in Excess
for Use Other of Par
in the Compr. Capital Value of
Total Business Income Other Stock Stock
-------------- --------------- ------------- ------------ ------------ ------------
Balance at January 1 $ 30,734 $ 25,234 $(1,228) $ (39) $1,203 $5,564
Comprehensive income
Net income 17,646 17,646
Other comprehensive income (188) (188)
--------
Total comprehensive income 17,458
Common stock issued for Series A Preferred
Stock conversion, employee benefit plans
and other 93 12 81
Associates spin-off to Ford Common
stockholders (22,298) (22,298)
Associates spin-off cash distribution to
savings plans (3,242) (3,242)
Preferred stock - Series B repurchase and
Series A redemption (420) (420)
ESOP loan and other (309) (2) (307)
Quarterly cash dividends (519) (519)
-------- -------- ------- ----- ------ ------
Balance at March 31 $ 21,497 $ 16,819 $(1,416) $(346) $1,215 $5,225
======== ======== ======= ===== ====== ======
-8-
[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 March 31, 1998 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 March
31, 1998. 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, 1997 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,
1998, we expressed an unqualified opinion on those consolidated financial
statements.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Detroit, Michigan
April 15, 1998
-9-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
- ------------------------------------------------------------------------
OVERVIEW
The company's worldwide operating earnings were $1,691 million in first quarter
1998, or $1.36 per diluted share of Common and Class B Stock in first quarter
1998, compared with $1,469 million, or $1.20 per diluted share in first quarter
1997.
These operating results exclude a one-time gain of $15,955 million, or $12.94
per diluted share, resulting from the spin-off of The Associates (discussed
below), and a one-time earnings per share reduction of $0.07 per share resulting
from the premium paid to repurchase the company's Series B Cumulative Preferred
Stock. Including both one-time factors, the company's reported first quarter
earnings were $17,646 million, or $14.23 per diluted share. The company's
results in first quarter 1998 include Ford's share of The Associates' earnings
through March 12, the record date for the spin-off of The Associates.
The company's worldwide sales and revenues were $36.6 billion in first quarter
1998, down $730 million from first quarter 1997. Vehicle unit sales of cars and
trucks were 1,721,000, up 40,000 units or 2% from a year ago. Stockholders'
equity was $21.5 billion at March 31, 1998, compared with $30.7 billion at
December 31, 1997. The reduction in stockholders' equity reflects primarily The
Associates spin-off.
RESULTS OF OPERATIONS
The company's net income for worldwide Automotive operations in first quarter
1998 and 1997 was as follows (in millions):
First Quarter 1998
--------------------- O/(U)
1998 1997 1997
-------- -------- -------
North America Automotive $1,010 $1,020 $(10)
Automotive Outside North America
- Europe 230 105 125
- South America (45) (47) 2
- Other 40 (74) 114
------ ------ ----
Total Automotive Outside North America 225 (16) 241
------ ------ ----
Total Automotive $1,235 $1,004 $231
====== ====== ====
The company's net income for worldwide Financial Services operations in first
quarter 1998 and 1997 was as follows (in millions):
First Quarter 1998
--------------------- O/(U)
1998 1997 1997
-------- -------- --------
Ford Credit $ 278 $ 276 $ 2
The Associates 220* 238 (18)
Hertz 35 20 15
Minority Interests, Eliminations and Other (77) (69) (8)
------- ------ -------
Financial Services (excluding the gain
on The Associates spin-off) 456 465 (9)
Gain on Spin-Off of The Associates 15,955 - 15,955
------- ------ -------
Total Financial Services $16,411 $ 465 $15,946
======= ====== =======
Memo: Ford's share of earnings in
The Associates $ 177* $ 192 (15)
Hertz 29 20 9
- - - - -
* Through March 12, 1998
-10-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
- ------------------------------------------------------------------------
FIRST QUARTER 1998 COMPARED WITH FIRST QUARTER 1997
Automotive Operations
- ---------------------
Ford's worldwide Automotive operations earned $1,235 million in first quarter
1998 on sales of $29.1 billion, compared with earnings of $1,004 million on
sales of $30 billion in first quarter 1997. Increased earnings in first quarter
1998 compared with first quarter 1997 reflect primarily continued cost
reductions, the effects of improved product mix, and higher volumes outside
North America. Adjusted for constant volume and mix, total automotive costs were
down $400 million compared with first quarter a year ago.
Earnings for Automotive operations in North America were $1,010 million in first
quarter 1998, down $10 million compared with first quarter a year ago. Cost
reductions in North America were offset by higher marketing costs. The after-tax
return on sales was 5%, up 1/10 of a point from first quarter 1997.
The U.S. economy continued on a path of strong growth, low unemployment, and
moderate inflation in first quarter 1998. The seasonally-adjusted annual selling
rate for the U.S. car and truck industry was 15.3 million units in first quarter
1998, down from 15.9 million units in first quarter 1997. The company expects
car and truck industry sales for full-year 1998 to be slightly lower than the
15.5 million units in 1997. Ford's combined U.S. car and truck share was 24.5%,
down 6/10 of a point from first quarter a year ago.
Automotive operations in Europe earned $230 million in first quarter 1998, up
$125 million compared with first quarter a year ago. The improvement reflected
primarily higher volumes and lower operating costs, offset partially by
increased marketing costs.
The seasonally-adjusted annual selling rate for the European car and truck
industry was 15.5 million units in first quarter 1998, compared with 14.3
million units in first quarter 1997. European car and truck industry sales in
full-year 1998 are expected to be about equal to or slightly higher than the 15
million units in 1997. Ford's combined European car and truck share was 11.5% in
first quarter 1998, unchanged from first quarter a year ago.
Automotive operations in South America lost $45 million in first quarter 1998,
compared with a loss of $47 million in first quarter a year ago. In first
quarter 1998, the seasonally-adjusted annual selling rate for the Brazilian car
and truck industry totaled 1.6 million units, compared with 1.8 million units in
first quarter a year ago. For full-year 1998, the company expects the car and
truck industry in Brazil to be lower than the 1.9 million units in 1997. Ford's
combined car and truck share in Brazil was 13.7% in first quarter 1998, up 2.7
points from first quarter 1997.
Financial Services Operations
- -----------------------------
Operating results for Financial Services operations in first quarter 1998 were
$456 million, down $9 million compared with first quarter a year ago. Including
the gain on the spin-off of The Associates in first quarter 1998, results were
$16,411 million, up $15,946 million from first quarter 1997. Excluding Ford's
share of The Associates operating income in first quarter 1998 ($177 million
through March 12) and the gain on the spin-off, operating results were $279
million, compared with $273 million in first quarter 1997 on a comparable basis.
-11-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
- -------------------------------------------------------------------------
Earnings at Ford Credit in first quarter 1998 were $278 million, up $2 million
compared with first quarter a year ago. The increase reflects primarily a
smaller increase in credit loss reserve requirements and higher levels of
earning assets compared with a year ago; lower net financing margins, higher
credit losses, and higher operating costs were partial offsets. Net financing
margins decreased in first quarter 1998 compared with first quarter a year ago,
reflecting primarily higher depreciation expense for leased vehicles, offset
partially by lower borrowing costs. Higher depreciation expense for leased
vehicles reflects primarily lower-than-anticipated residual values on leased
vehicles, and is expected to adversely affect Ford Credit's earnings for the
remainder of 1998. As a result, based on the present outlook, the goal of 10
percent or greater earnings growth for Ford Credit in 1998 will be very
difficult to achieve.
Earnings at Hertz in first quarter 1998 were a record $35 million (of which $29
million was Ford's share), up $15 million from the same period a year ago. The
increase reflects primarily higher revenues in U.S. car rental operations.
LIQUIDITY AND CAPITAL RESOURCES
Automotive Operations
- ---------------------
Automotive cash and marketable securities were $21.3 billion at March 31, 1998,
up $442 million from December 31, 1997. The company paid $519 million in cash
dividends on its Common Stock, Class B Stock and Preferred Stock during first
quarter 1998. As described below, in connection with The Associates spin-off, a
$3.2 billion cash dividend on shares of Ford stock held in U.S. employee savings
plans was paid on April 7, 1998.
Automotive capital expenditures totaled $2.1 billion in first quarter 1998, up
$488 million from first quarter 1997. Capital expenditures were 7.2% of sales in
first quarter 1998, up 1.8 points from first quarter 1997.
Automotive debt at March 31, 1998 totaled $8.2 billion, which was 28% of total
capitalization (stockholders' equity and Automotive debt), compared with $8.1
billion, or 21% of total capitalization at December 31, 1997. The increase in
the ratio in 1998 reflects the reduction in stockholders' equity resulting from
The Associates spin-off.
For a discussion of support facilities available to the company's Automotive and
Financial Services operations, see Note 9 of the company's Notes to Financial
Statements for the year ended December 31, 1997, which are included in the
company's Annual Report on Form 10-K for such year.
Financial Services Operations
- -----------------------------
The company's balance sheet at March 31, 1998 does not include The Associates,
which explains primarily the declines discussed below.
Financial Services cash and investments in securities totaled $2.5 billion at
March 31, 1998, down $1.3 billion from December 31, 1997.
Net receivables and lease investments were $124.1 billion at March 31, 1998,
down $52.3 billion from December 31, 1997.
Total debt was $113.4 billion at March 31, 1998, down $46.7 billion from
December 31, 1997.
Outstanding commercial paper at March 31, 1998 totaled $42.3 billion at Ford
Credit, and $1.5 billion at Hertz, with an average remaining maturity of 22 days
and 42 days, respectively.
-12-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
- -------------------------------------------------------------------------
SPIN-OFF OF THE ASSOCIATES
On March 2, 1998, the Board of Directors of the company approved the spin-off of
The Associates by declaring a dividend on Ford's outstanding shares of Common
and Class B Stock consisting of Ford's 80.7% interest (279.5 millions shares) in
The Associates. The Board of Directors also declared a dividend in cash on
shares of company stock held in U.S. employee savings plans equal to the market
value of The Associates stock to be distributed per share of the company's
Common and Class B Stock. Both the stock dividend and the cash dividend were
paid on April 7, 1998 to stockholders of record on March 12, 1998.
Holders of Ford Common and Class B Stock on the record date received 0.262085
shares of The Associates common stock for each share of Ford stock, and
participants in U.S. employee savings plans who held Ford stock in such plans on
the record date received $22.12 in cash per share of Ford stock, which amount
was based on the volume-weighted average price of The Associates stock of
$84.3849 per share on the New York Stock Exchange on April 7, 1998. The total
value of the distribution (including the $3.2 billion cash dividend) was $26.8
billion or $22.12 per share of Ford stock.
As a result of the spin-off of The Associates, Ford realized a gain of $15,955
million based on the fair value of The Associates as of the record date, March
12, 1998. Ford has received a ruling from the U.S. Internal Revenue Service that
the distribution qualifies as a tax-free transaction for U.S. federal income tax
purposes.
The company's results in first quarter 1998 include Ford's share of The
Associates earnings through the record date, March 12 ($177 million). The
balance sheet at March 31, 1998 does not include The Associates, but it includes
in "Other payables" a $3.2 billion dividend payable generated by the cash
dividend to participants in U.S. employee savings plans.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures
about Segments of an Enterprise and Related Information," effective for 1998,
establishes standards for reporting information about operating segments in
annual financial statements and, beginning in 1999, requires reporting of
selected information about operating segments in interim financial reports
issued to stockholders. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. Ford will
adopt SFAS 131 for its financial statements for the year ending December 31,
1998. Management is evaluating the impact, if any, the Statement will have on
the company's present segment reporting.
Statement of Financial Accounting Standards No. 132 ("SFAS 132"), "Employers'
Disclosures about Pensions and Other Postretirement Benefits," was issued by the
Financial Accounting Standards Board in February 1998. This Statement revises
employers' disclosures about pension and other postretirement benefit plans. It
does not change the measurement or recognition of those plans. This Statement
standardizes the disclosure requirements for pensions and other postretirement
benefits to the extent practicable, requires additional information on changes
in the benefit obligations and fair values of plan assets, and eliminates
certain disclosures. Restatement of disclosures for earlier periods is required.
The Statement is effective for Ford's financial statements for the year ended
December 31, 1998.
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," was issued by the American
Institute of Certified Public Accountants in March 1998. This SOP provides
guidance on accounting for the costs of computer software developed or obtained
for internal use. Effective for fiscal years beginning after December 15, 1998,
this SOP requires capitalization of certain internal-use computer software
costs. Presently, Ford expenses the costs of developing or obtaining
internal-use software.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
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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 8 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.
Part II. Other Information
--------------------------
Item 5. Other Information
Final regulations implementing the Fastener Quality Act of 1990 are applicable
to certain fasteners (i.e., nuts, bolts, washers and screws) manufactured after
July 26, 1998. The regulations impose burdensome and costly testing,
certification and record keeping requirements which are not compatible with
quality assurance systems used in the automotive industry. Unless the
regulations are delayed or modified, there is a risk that fastener manufacturers
that supply Ford and its suppliers will not be able to timely comply with the
regulations. As a result, Ford's ability to produce vehicles could be adversely
affected.
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Supplemental Schedule
Ford Motor Company
CONDENSED FINANCIAL INFORMATION OF SUBSIDIARY
---------------------------------------------
(in millions)
Ford Capital B.V.
-----------------
March 31, December 31,
1998 1997
--------------- ---------------
(unaudited)
Current assets $1,696 $2,046
Noncurrent assets 2,399 2,390
------ ------
Total assets $4,095 $4,436
====== ======
Current liabilities $1,200 $1,551
Noncurrent liabilities 2,435 2,433
Minority interests in net
assets of subsidiaries 16 14
Stockholder's equity 444 438
------ ------
Total liabilities and
stockholder's equity $4,095 $4,436
====== ======
First Quarter
----------------------------------
1998 1997
--------------- -------------
(unaudited)
Sales and other revenue $641 $744
Operating income 27 34
Income before income taxes 18 21
Net income 6 8
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.
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Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
Please refer to the Exhibit Index on page 17.
(b) Reports on Form 8-K
The Registrant filed the following Current Reports on Form 8-K during
the quarter ended March 31, 1998:
Current Report on Form 8-K dated January 27, 1998 included
information relating to Ford's 1997 financial results.
Current Report on Form 8-K dated February 2, 1998 included the
consolidated financial statements of Ford and its subsidiaries for
the year ended December 31, 1997.
Current Report on Form 8-K dated March 3, 1998 included
information relating to the timing of Ford's spin-off of The
Associates and the related cash dividend to U.S. employee savings
plans.
Current Report on Form 8-K dated March 13, 1998 included
information relating to the distribution ratio for Ford's spin-off
of The Associates.
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: May 12, 1998 By: /s/ W. J. Cosgrove
------------ ----------------------------------------
W. J. Cosgrove
Corporate Controller
(principal accounting officer)
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EXHIBIT INDEX
Designation Description
----------------------- -------------------------------------------------
Exhibit 3.1 Restated Certificate of Incorporation of Ford
Motor Company dated April 9, 1998.
Exhibit 3.2 By-Laws of Ford Motor Company as amended through
March 12, 1998.
Exhibit 12 Ford Motor Company and Subsidiaries Calculation
of Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends.
Exhibit 15 Letter of Coopers & Lybrand L.L.P., Independent
Public Accountants, dated May 12, 1998, relating
to Financial Information.
Exhibit 27.1 Restated Financial Data Schedule,
Conglomerate Totals, for the Nine Months Ended
September 30, 1997 (included with electronic
EDGAR filing only).
Exhibit 27.2 Restated Financial Data Schedule, Automotive
Segment, for the Nine Months Ended September 30,
1997 (included with electronic EDGAR filing
only).
Exhibit 27.3 Restated Financial Data Schedule, Financial
Services Segment, for the Nine Months Ended
September 30, 1997 (included with electronic
EDGAR filing only).
Exhibit 27.4 Restated Financial Data Schedule, Conglomerate
Totals, for the Six Months Ended June 30, 1997
(included with electronic EDGAR filing only).
Exhibit 27.5 Restated Financial Data Schedule, Automotive
Segment, for the Six Months Ended June 30, 1997
(included with electronic EDGAR filing only).
Exhibit 27.6 Restated Financial Data Schedule, Financial
Services Segment, for the Six Months Ended June
30, 1997 (included with electronic EDGAR filing
only).
Exhibit 27.7 Restated Financial Data Schedule, Conglomerate
Totals, for the Three Months Ended March 31, 1997
(included with electronic EDGAR filing only).
Exhibit 27.8 Restated Financial Data Schedule, Conglomerate
Totals, for the Year Ended December 31, 1996
(included with electronic EDGAR filing only).
Exhibit 27.9 Restated Financial Data Schedule, Conglomerate
Totals, for the Nine Months Ended September 30,
1996 (included with electronic EDGAR filing
only).
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