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, 1998 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
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(Exact name of registrant as specified in its charter)
Incorporated in Delaware 38-0549190
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(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
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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, 1998, the Registrant had outstanding 1,140,779,222 shares
of Common Stock and 70,852,076 shares of Class B Stock.
Exhibit index located on sequential page number 24
Ford Motor Company and Subsidiaries
HIGHLIGHTS
Second Quarter First Half
---------------------------- --------------------------
1998 1997 1998 1997
------------ ------------ ----------- -----------
(unaudited) (unaudited)
Worldwide vehicle unit sales of
cars and trucks (in thousands)
- - North America 1,121 1,215 2,180 2,281
- - Outside North America 665 664 1,327 1,279
----- ----- ----- -----
Total 1,786 1,879 3,507 3,560
===== ===== ===== =====
Sales and revenues (in millions)
- - Automotive $ 31,309 $ 32,805 $ 60,385 $ 62,842
- - Financial Services 5,980 7,460 13,488 14,737
--------- --------- --------- ---------
Total $ 37,289 $ 40,265 $ 73,873 $ 77,579
========= ========= ========= =========
Net income (in millions)
- - Automotive $ 2,051 $ 1,735 $ 3,286 $ 2,739
- - Financial Services (excl. The Associates) 330 598 609 871
----------- --------- --------- ---------
Subtotal 2,381 2,333 3,895 3,610
- - The Associates - 197 177 389
- - Gain on spin-off of The Associates - - 15,955 -
--------- --------- --------- ---------
Total $ 2,381 $ 2,530 $ 20,027 $ 3,999
========= ========= ========= =========
Capital expenditures (in millions)
- - Automotive $ 1,659 $ 1,872 $ 3,760 $ 3,485
- - Financial Services 153 140 251 266
--------- --------- --------- ---------
Total $ 1,812 $ 2,012 $ 4,011 $ 3,751
========= ========= ========= =========
Automotive capital expenditures as a
percentage of sales 5.3% 5.7% 6.2% 5.5%
Stockholders' equity at June 30
- - Total (in millions) $ 23,070 $ 29,113 $ 23,070 $ 29,113
- - After-tax return on Common and
Class B stockholders' equity 43.0% 36.5% 33.2% 29.5%
Automotive net cash at June 30
(in millions)
- - Cash and marketable securities $ 22,276 $ 18,184 $ 22,276 $ 18,184
- - Debt 8,220 8,319 8,220 8,319
--------- --------- --------- ---------
Automotive net cash $ 14,056 $ 9,865 $ 14,056 $ 9,865
========= ========= ========= =========
After-tax return on sales
- - North American Automotive 7.3% 6.2% 6.2% 5.5%
- - Total Automotive 6.6% 5.3% 5.5% 4.4%
Shares of Common and Class B Stock
(in millions)
- - Average number outstanding 1,212 1,193 1,211 1,191
- - Number outstanding at June 30 1,212 1,194 1,212 1,194
Common Stock price (per share)
(adjusted to reflect The Associates
spin-off)
- - High $59-1/8 $26-25/64 $59-1/8 $26-25/64
- - Low 41-27/64 20-3/64 28-15/32 20-3/64
AMOUNTS PER SHARE OF COMMON AND
CLASS B STOCK AFTER PREFERRED
STOCK DIVIDENDS
Income assuming dilution
- - Automotive $ 1.65 $ 1.41 $ 2.65 $ 2.24
- - Financial Services (excl. The Associates) 0.26 0.49 0.49 0.71
--------- --------- --------- ---------
Subtotal 1.91 1.90 3.14 2.95
- - The Associates - 0.16 0.14 0.32
- - Premium on Series B Preferred Stock repurchase - - (0.07) -
- - Gain on spin-off of The Associates - - 12.90 -
--------- --------- --------- ---------
Total $ 1.91 $ 2.06 $ 16.11 $ 3.27
========= ========= ========= =========
Cash dividends $ 0.42 $ 0.42 $ 0.84 $ 0.805
-2-
Ford Motor Company and Subsidiaries
VEHICLE UNIT SALES
------------------
For the Periods Ended June 30, 1998 and 1997
(in thousands)
Second Quarter First Half
------------------------- -------------------------
1998 1997 1998 1997
-------- -------- -------- --------
(unaudited) (unaudited)
North America
United States
Cars 367 439 758 806
Trucks 662 671 1,226 1,283
----- ----- ----- -----
Total United States 1,029 1,110 1,984 2,089
Canada 65 86 141 155
Mexico 27 19 55 37
----- ----- ----- -----
Total North America 1,121 1,215 2,180 2,281
Europe
Britain 149 138 291 236
Germany 117 108 223 223
Italy 48 71 118 135
France 43 40 82 76
Spain 45 38 82 84
Other countries 98 85 198 182
----- ----- ----- -----
Total Europe 500 480 994 936
Other international
Brazil 52 59* 94 100*
Argentina 29 38* 59 67*
Australia 34 36 64 66
Taiwan 19 17 48 42
Japan 6 11 14 21
Other countries 25 23 54 47
----- ----- ----- -----
Total other international 165 184 333 343
----- ----- ----- -----
Total worldwide vehicle unit sales 1,786 1,879 3,507 3,560
===== ===== ===== =====
*Adjusted to reflect change in reporting practice
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.
-3-
Part I. Financial Information
-----------------------------
Item 1. Financial Statements
- -----------------------------
Ford Motor Company and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
--------------------------------
For the Periods Ended June 30, 1998 and 1997
(in millions)
Second Quarter First Half
-------------------------- --------------------------
1998 1997 1998 1997
---------- ----------- ----------- ----------
(unaudited) (unaudited)
AUTOMOTIVE
Sales $31,309 $32,805 $60,385 $62,842
Costs and expenses (Note 2)
Costs of sales 26,317 28,659 51,787* 55,454
Selling, administrative and other expenses 2,070 1,702 3,870* 3,240
------- ------- -------- -------
Total costs and expenses 28,387 30,361 55,657 58,694
Operating income 2,922 2,444 4,728 4,148
Interest income 318 300 640 549
Interest expense 208 206 407 400
------- ------- ------- -------
Net interest income 110 94 233 149
Equity in net income/(loss) of affiliated companies 18 79 8 (65)
Net expense from transactions with
Financial Services (39) (34) (87) (53)
-------- ------- ------- -------
Income/(loss) before income taxes - Automotive 3,011 2,583 4,882 4,179
FINANCIAL SERVICES
Revenues 5,980 7,460 13,488 14,737
Costs and expenses
Interest expense 1,825 2,422 4,195 4,778
Depreciation 2,158 1,774 4,195 3,539
Operating and other expenses 1,086 1,574 2,669 3,074
Provision for credit and insurance losses 360 794 1,068 1,639
------- ------- ------- -------
Total costs and expenses 5,429 6,564 12,127 13,030
Net revenue from transactions with Automotive 39 34 87 53
Gain on spin-off of The Associates (Note 3) - - 15,955 -
Gain on sale of Common Stock of a subsidiary
(Note 4) - 269 - 269
------- ------- ------- -------
Income before income taxes - Financial Services 590 1,199 17,403 2,029
------- ------- ------- -------
TOTAL COMPANY
Income before income taxes 3,601 3,782 22,285 6,208
Provision for income taxes 1,192 1,182 2,164 2,080
------- ------- ------- -------
Income before minority interests 2,409 2,600 20,121 4,128
Minority interests in net income of subsidiaries 28 70 94 129
------- ------- ------- -------
Net income $ 2,381 $ 2,530 $20,027 $ 3,999
======= ======= ======= =======
Income attributable to Common and Class B Stock
after preferred stock dividends $ 2,377 $ 2,516 $19,928 $ 3,971
Average number of shares of Common and Class B
Stock outstanding 1,212 1,193 1,211 1,191
AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK
Basic Income (Note 5) $ 1.96 $ 2.11 $ 16.47 $ 3.34
Diluted Income (Note 5) $ 1.91 $ 2.06 $ 16.11 $ 3.27
Cash dividends $ 0.42 $ 0.42 $ 0.84 $ 0.805
- - - - -
* First quarter data has been restated to reflect accounting adjustments between
cost of sales and administrative expense with no effect on operating or net
income
The accompanying notes are part of the financial statements.
-4-
Ford Motor Company and Subsidiaries
CONSOLIDATED BALANCE SHEET
--------------------------
(in millions)
June 30, December 31,
1998 1997
---------------- --------------
(unaudited)
ASSETS
Automotive
Cash and cash equivalents $ 4,890 $ 6,316
Marketable securities 17,386 14,519
-------- --------
Total cash and marketable securities 22,276 20,835
Receivables 2,821 3,097
Inventories (Note 6) 5,551 5,468
Deferred income taxes 3,234 3,249
Other current assets 3,882 3,782
Net current receivable from Financial Services 0 416
-------- --------
Total current assets 37,764 36,847
Equity in net assets of affiliated companies 2,264 1,951
Net property 35,847 34,594
Deferred income taxes 3,562 3,712
Other assets 7,484 7,975
-------- --------
Total Automotive assets 86,921 85,079
Financial Services
Cash and cash equivalents 1,797 1,618
Investments in securities 1,454 2,207
Net receivables and lease investments 124,863 175,417
Other assets 13,194 14,776
Net receivable from Automotive 42 0
-------- --------
Total Financial Services assets 141,350 194,018
-------- --------
Total assets $228,271 $279,097
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Automotive
Trade payables $ 11,985 $ 11,997
Other payables 2,450 2,557
Accrued liabilities 18,296 16,250
Income taxes payable 2,049 1,358
Debt payable within one year 855 1,129
Net current payable to Financial Services 42 0
-------- --------
Total current liabilities 35,677 33,291
Long-term debt 7,365 7,047
Other liabilities 29,991 28,899
Deferred income taxes 1,253 1,210
-------- --------
Total Automotive liabilities 74,286 70,447
Financial Services
Payables 4,528 4,539
Debt 115,750 160,071
Deferred income taxes 4,550 4,347
Other liabilities and deferred income 5,409 7,865
Net payable to Automotive 0 416
-------- --------
Total Financial Services liabilities 130,237 177,238
Company-obligated mandatorily redeemable preferred securities of a subsidiary
trust holding solely junior subordinated debentures of the Company (Note 7) 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 (1,150 and 1,132 million shares issued) 1,150 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 5,337 5,564
Accumulated other comprehensive income (1,496) (1,228)
ESOP loan and treasury stock (680) (39)
Earnings retained for use in business 18,688 25,234
-------- --------
Total stockholders' equity 23,070 30,734
-------- --------
Total liabilities and stockholders' equity $228,271 $279,097
======== ========
- - - - -
*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, 1998 and 1997
(in millions)
First Half 1998 First Half 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 9,989 8,148 7,675 5,559
Net (purchases)/sales of trading securities (2,936) (43) (3,142) (309)
------- -------- ------- --------
Net cash flows from operating activities 7,053 8,105 4,533 5,250
Cash flows from investing activities
Capital expenditures (3,760) (251) (3,485) (266)
Purchase of leased assets (110) - - -
Acquisitions of receivables and lease investments - (45,322) - (58,064)
Collections of receivables and lease investments - 29,787 - 43,026
Net acquisitions of daily rental vehicles - (1,855) - (1,329)
Purchases of securities (341) (1,416) 0 (1,783)
Sales and maturities of securities 410 988 0 2,167
Proceeds from sales of receivables and lease investments - 5,448 - 1,547
Net investing activity with Financial Services 786 - 7 -
Other (89) (629) 35 (95)
------- --------- ------- --------
Net cash used in investing activities (3,104) (13,250) (3,443) (14,797)
Cash flows from financing activities
Cash dividends (4,274) - (987) -
Issuance of Common Stock 210 - 77 -
Issuance of Common Stock of a subsidiary (Note 4) - - - 453
Purchase of Ford treasury stock (389) - - -
Preferred stock - Series B repurchase, Series A redemption (420) - - -
Changes in short-term debt 180 3,871 (380) 2,406
Proceeds from issuance of other debt 337 14,820 1,150 12,313
Principal payments on other debt (1,182) (11,507) (606) (8,042)
Net financing activity with Automotive - (786) - (7)
Spin-off of The Associates cash - (508) - -
Other (269) (172) 0 (10)
------- -------- ------- --------
Net cash (used in)/provided by financing activities (5,807) 5,718 (746) 7,113
Effect of exchange rate changes on cash (26) 64 (53) (59)
Net transactions with Automotive/Financial Services 458 (458) (663) 663
------- -------- ------- --------
Net (decrease)/increase in cash and cash equivalents (1,426) 179 (372) (1,830)
------- -------- ------- --------
Cash and cash equivalents at June 30 $ 4,890 $ 1,797 $ 3,206 $ 1,859
======= ======== ======= ========
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 have been reclassified, if required, to
conform with 1998 presentations.
2. Selected Automotive costs and expenses are summarized as follows (in
millions):
Second Quarter First Half
--------------------- ---------------------
1998 1997 1998 1997
--------- -------- --------- --------
Depreciation $679 $667 $1,359 $1,350
Amortization 620 719 1,338 1,506
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 million 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 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 in first quarter 1998 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 half 1998 include Ford's share of The
Associates earnings through the record date, March 12, 1998 ($177 million).
-7-
Ford Motor Company and Subsidiaries
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(unaudited)
3. Spin-off of The Associates (continued)
Pro forma condensed income statement information of Ford and its
consolidated subsidiaries for the quarters ended March 31, June 30,
September 30, and December 31, 1997, the year ended December 31, 1997, and
the quarter ended March 31, 1998, reflecting Ford's results of operations
without The Associates for those time periods, is as follows:
1997 1998
---------------------------------------------------------------- -----------
First Second Third Fourth Full First
Quarter Quarter Quarter Quarter Year Quarter
------------ ------------ ----------- ----------- ----------- -----------
Sales and revenues $35,387 $38,216 $33,978 $37,767 $145,348 $34,834
Costs and expenses 33,241 35,256 32,659 35,366 136,522 32,567
------- ------- ------- ------- -------- -------
Operating income 2,146 2,960 1,319 2,401 8,826 2,267
Net interest income 55 94 61 118 328 123
Equity in net income/(loss)
of affiliated companies (144) 79 - (23) (88) (10)
Gain on sale of common stock
of a subsidiary - 269 - - 269 -
-------- -------- -------- -------- --------- -------
Income before income taxes 2,057 3,402 1,380 2,496 9,335 2,380
Provision for income taxes 758 1,038 433 904 3,133 843
-------- -------- -------- -------- --------- -------
Income before minority interest 1,299 2,364 947 1,592 6,202 1,537
Minority interest in net income
of subsidiaries 13 22 32 11 78 23
-------- -------- -------- -------- --------- -------
Net income $ 1,286 $ 2,342 $ 915 $ 1,581 $ 6,124 $ 1,514
======== ======== ======== ======== ========= =======
Amounts per share of Common
and Class B Stock
Basic income $ 1.07 $ 1.95 $ 0.75 $ 1.30 $ 5.08 $ 1.17
Diluted income 1.05 1.91 0.74 1.27 4.97 1.15
Before adjustment for goodwill
amortization
Net income $ 1,277 $ 2,333 $ 906 $ 1,572 $ 6,088 $ 1,514
Amounts per share of Common
and Class B Stock
Basic income $ 1.06 $ 1.95 $ 0.75 $ 1.30 $ 5.05 $ 1.17
Diluted income 1.04 1.90 0.73 1.27 4.94 1.15
4. 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.
5. 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 calculation of diluted income per share of Common and Class B Stock
takes into account the effect of dilutive potential common stock.
Obligations, such as stock options and securities convertible into common
stock, are considered to be dilutive potential common stock. The company
had Series A Preferred Stock convertible to Common Stock until January 9,
1998.
-8-
Ford Motor Company and Subsidiaries
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(unaudited)
5. Income Per Share of Common and Class B Stock (Continued)
Income per share of Common and Class B Stock was as follows (in millions,
except per share amounts):
Second Quarter 1998 Second Quarter 1997
---------------------- ----------------------
Income Shares Income Shares
----------- --------- ---------- ---------
Net income $ 2,381 1,212 $2,530 1,193
Preferred stock dividend requirements (4) - (14) -
Issuable and uncommitted ESOP shares - (2) - (2)
------- ----- ------ -----
Basic income and shares $ 2,377 1,210 $2,516 1,191
Basic income per share $ 1.96 $ 2.11
----------------------
Basic income and shares $ 2,377 1,210 $2,516 1,191
Net dilutive effect of options - 33 - 19
Convertible preferred stock and other - - 1 10
------- ----- ------ -----
Diluted income and shares $ 2,377 1,243 $2,517 1,220
Diluted income per share $ 1.91 $ 2.06
------------------------
First Half 1998 First Half 1997
---------------------- -----------------------
Income Shares Income Shares
----------- --------- ---------- ----------
Net income $20,027 1,211 $3,999 1,191
Preferred stock dividend requirements (99) - (28) -
Issuable and uncommitted ESOP shares - (1) - (2)
------- ----- ------ -----
Basic income and shares $19,928 1,210 $3,971 1,189
Basic income per share $ 16.47 $ 3.34
----------------------
Basic income and shares $19,928 1,210 $3,971 1,189
Net dilutive effect of options - 26 - 17
Convertible preferred stock and other - 1 5 11
------- ----- ------ -----
Diluted income and shares $19,928 1,237 $3,976 1,217
Diluted income per share $ 16.11 $ 3.27
------------------------
6. Automotive inventories are summarized as follows (in millions):
June 30, December 31,
1998 1997
------------ ---------------
Raw materials, work in process and supplies $2,738 $2,875
Finished products 2,813 2,593
------ ------
Total inventories $5,551 $5,468
====== ======
U.S. inventories $1,735 $1,993
7. 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.
-9-
Ford Motor Company and Subsidiaries
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(unaudited)
8. Comprehensive Income - Ford adopted Statement of Financial Accounting
Standards No. 131, "Reporting Comprehensive Income," as of January 1, 1998.
Other comprehensive income includes foreign currency translation
adjustments, minimum pension liability adjustments, and net unrealized
gains and losses on investments in equity securities.
Total comprehensive income is summarized as follows (in millions):
Second Quarter First Half
--------------------- ----------------------
1998 1997 1998 1997
-------- -------- --------- --------
Net income $2,381 $2,530 $20,027 $3,999
Other comprehensive income (80) (209) (268) (739)
------ ------ ------- ------
Total comprehensive income $2,301 $2,321 $19,759 $3,260
====== ====== ======= ======
-10-
[PricewaterhouseCoopers LLP 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, 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 June
30, 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/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Detroit, Michigan
July 14, 1998
-11-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
OVERVIEW
The company's worldwide net income was $2,381 million in second quarter 1998, or
$1.91 per diluted share of Common and Class B Stock, compared with $2,530
million, or $2.06 per diluted share in second quarter 1997. Excluding The
Associates' earnings contribution of $197 million, and a net one-time gain of
$100 million, Ford's second quarter 1997 operating earnings were $2,233 million,
or $1.82 per diluted share. The company's worldwide sales and revenues were
$37.3 billion in second quarter 1998, down $3 billion from a year ago. Vehicle
unit sales of cars and trucks were 1,786,000, down 93,000 units. Stockholders'
equity was $23.1 billion at June 30, 1998, down $7.7 billion compared with
December 31, 1997, reflecting primarily The Associates spin-off.
RESULTS OF OPERATIONS
The company's worldwide net income for the Automotive sector in second quarter
1998 and 1997 and first half 1998 and 1997 was as follows (in millions):
Second Quarter First Half
----------------------------- ---------------------------
1998 1998
O/(U) O/(U)
1998 1997 1997 1998 1997 1997
--------- -------- ------- -------- ------- -------
North American Automotive $ 1,655 $1,441 $ 214 $2,665 $2,461 $204
Automotive Outside North America
- - Europe 310 157 153 540 262 278
- - South America 14 25 (11) (31) (22) (9)
- - Other 72 112 (40) 112 38 74
------ ------ ----- ------ ------ ----
Total Automotive Outside
North America 396 294 102 621 278 343
------ ------ ----- ------ ------ ----
Total Automotive Sector $2,051 $1,735 $ 316 $3,286 $2,739 $547
====== ====== ===== ====== ====== ====
The Automotive sector includes Automotive operations and Visteon Automotive
Systems, the company's automotive systems enterprise.
The company's worldwide net income for the Financial Services group in second
quarter 1998 and 1997 and first half 1998 and 1997 was as follows (in millions):
Second Quarter First Half
-------------------------------- ---------------------------
1998 1998
O/(U) O/(U)
1998 1997 1997 1998 1997 1997
-------- -------- ------- -------- ------- --------
Ford Credit $300 $279 $ 21 $ 578 $ 555 $ 23
Hertz 75 54 21 110 74 36
Gain on Hertz IPO - 269 (269) - 269 (269)
Minority interests, Eliminations,
and Other (45) (4) (41) (79) (27) (52)
---- ---- ----- ------- ------ ------
Financial Services (excluding
The Associates) 330 598 (268) 609 871 (262)
The Associates - 197 (197) 177* 389 (212)
Gain on spin-off of
The Associates - - - 15,955 - 15,955
---- ---- ----- ------- ------ -------
Total Financial Services $330 $795 $(465) $16,741 $1,260 $15,481
==== ==== ===== ======= ====== =======
Memo: Ford's share of earnings in
Hertz $ 60 $ 45 $ 15 $ 89 $ 65 $ 24
- - - - - -
* Through March 12, 1998
-12-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
- --------------------------------------------------------------------------------
SECOND QUARTER 1998 COMPARED WITH SECOND QUARTER 1997
Automotive Sector
- -----------------
Worldwide earnings for Ford's Automotive sector were $2,051 million in second
quarter 1998 on sales of $31.3 billion, compared with $1,735 million in second
quarter 1997 on sales of $32.8 billion. Excluding a one-time charge of $169
million for restructuring actions in second quarter 1997, earnings in second
quarter 1998 increased $147 million compared with a year ago. The improvement in
earnings reflects primarily continued cost reductions and improved product mix,
offset partially by lower market share and higher marketing incentives. Adjusted
for constant volume and mix, total automotive costs were down $900 million
compared with second quarter a year ago. In second half 1998, a sizable
restructuring charge is expected to be incurred for a voluntary
retirement/separation program to be offered to employees in the coming months.
Automotive sector earnings in North America were $1,655 million in second
quarter 1998, up $214 million compared with a year ago. The increase reflected
primarily cost reductions and nonrecurrence of second quarter 1997 restructuring
actions, offset partially by lower market share. The after-tax return on sales
was 7.3% in second quarter 1998, up 1.1 points from a year ago.
The seasonally-adjusted annual selling rate for the U.S. car and truck industry
was 16.5 million units in second quarter 1998, up from 14.8 million units in
second quarter 1997. The company expects car and truck industry sales for
full-year 1998 to be slightly higher than the 15.5 million units in 1997. Ford's
combined U.S. car and truck share was 24% in second quarter 1998, down 1.6
points from a year ago, reflecting primarily the discontinuation of five
low-margin vehicle lines and reduced low-margin fleet business.
Automotive sector earnings in Europe were $310 million, up $153 million compared
with second quarter a year ago. The improvement reflected primarily cost
reductions and higher dealer stocks. Higher marketing incentives were a partial
offset.
The seasonally-adjusted annual selling rate for the European car and truck
industry was 15.4 million units in second quarter 1998, up from 14.6 million
units in second quarter 1997. European car and truck industry sales for
full-year 1998 are expected to be higher than the 15 million units in 1997.
Ford's combined European car and truck market share was 10.4% in second quarter
1998, down 1.3 points from a year ago. The decline reflects primarily new model
launches by competitors and Ford production constraints.
Automotive sector earnings in South America were $14 million in second quarter
1998, down $11 million compared with second quarter a year ago. In second
quarter 1998, the seasonally-adjusted annual selling rate for the Brazilian car
and truck industry totaled 1.7 million units, compared with 2.1 million units in
second quarter a year ago. For full-year 1998, the company expects car and truck
industry sales in Brazil to be lower than the 1.9 million units in 1997. Ford's
combined car and truck share in Brazil was 13.8% in second quarter 1998, down
4/10 of a point from second quarter 1997.
Visteon earned $241 million on revenues of $4,725 million in second quarter
1998, compared with $210 million on revenues of $4,720 million in second quarter
a year ago. The improvement in earnings reflects primarily continuing cost
reductions. The after-tax return on sales was 5.1% in second quarter 1998, up
7/10 of a point from a year ago.
Financial Services Group
- ------------------------
With the completion of The Associates spin-off, Financial Services group
earnings now reflect primarily the results of Ford Credit and Ford's share of
the earnings of Hertz.
-13-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
- --------------------------------------------------------------------------------
Earnings at Ford Credit in second quarter 1998 were $300 million, up $21 million
compared with second quarter a year ago. The increase reflects primarily
improved yields, lower credit loss reserve requirements, and increased gains on
receivable sales. Higher depreciation expense for leased vehicles (reflecting
lower-than-anticipated residual values on leased vehicles) and increased
operating costs were partial offsets. Compared with a year ago, lower financing
margins resulted from higher depreciation expense for leased vehicles, which is
expected to continue to adversely affect Ford Credit's earnings for the
remainder of 1998.
Earnings at Hertz in second quarter 1998 were a record $75 million (of which $60
million was Ford's share), up $21 million from the same period a year ago. The
increase reflects primarily higher revenues in U.S. car rental operations.
FIRST HALF 1998 COMPARED WITH FIRST HALF 1997
The company's operating earnings were $3,895 million, or $3.14 per diluted share
of Common and Class B Stock, in first half 1998, compared with $3,510 million,
or $2.87 per diluted share, in first half 1997 excluding The Associates.
Operating results in first half 1998 exclude a one-time gain of $15,955 million,
or $12.90 per diluted share, resulting from the spin-off of The Associates, 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.
Results in first half 1997 include a one-time gain of $269 million on the
initial public offering of the common stock of Hertz, offset partially by a
one-time charge of $169 million for restructuring actions. Including one-time
factors, the company's reported earnings in first half 1998 were $20,027
million, or $16.11 per diluted share, compared with $3,999 million, or $3.27 per
diluted share, in first half 1997. The company's results in first half 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 in first half 1998 were $73.9
billion, down $3.7 billion from a year ago. Vehicle unit sales of cars and
trucks were 3,507,000, down 53,000 units.
Automotive Sector
- -----------------
Worldwide earnings for Ford's Automotive sector were $3,286 million in first
half 1998 on sales of $60.4 billion, compared with $2,739 million in first half
1997 on sales of $62.8 billion. The increase was more than explained by cost
reductions.
Earnings for the Automotive sector in North America were $2,665 million in first
half 1998, up $204 million from first half 1997. The increase reflected
primarily cost reductions, higher industry volume, vehicle mix improvements, and
nonrecurrence of 1997 restructuring actions, offset partially by lower market
share and increased marketing incentives. The North American Automotive
after-tax return on sales was 6.2% in first half 1998, up 7/10 of a point from a
year ago.
The seasonally-adjusted annual selling rate for the U.S. car and truck industry
was 16 million units in first half 1998, compared with 15.3 million units in
first half 1997. Ford's combined U.S. car and truck market share was 24.2%, down
1.2 points compared with a year ago, reflecting primarily the discontinuation of
five low-margin vehicle lines and reduced low-margin fleet business.
Automotive sector earnings in Europe in first half 1998 were $540 million, up
$278 million from first half a year ago, reflecting primarily cost reductions
and improved volume and mix, offset partially by higher marketing incentives.
-14-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
- --------------------------------------------------------------------------------
The seasonally-adjusted annual selling rate for the European car and truck
industry was 15.6 million units in first half 1998, up from 14.4 million units
in first half 1997. Ford's combined European car and truck market share was 11%
in first half 1998, down 6/10 of a point from a year ago.
Automotive sector losses in South America were $31 million in first half 1998,
compared with a loss of $22 million in first half a year ago. In first half
1998, the seasonally-adjusted annual selling rate for the Brazilian car and
truck industry totaled 1.6 million units, compared with 2 million units in first
half 1997. Ford's combined car and truck share in Brazil was 13.7% in first half
1998, up one point from first half 1997.
Visteon earned $430 million on revenues of $9,103 million in first half 1998,
compared with $356 million on revenues of $8,873 million in first half a year
ago. The improvement in earnings reflects primarily continuing cost reductions.
The after-tax return on sales was 4.7% in first half 1998, up 7/10 of a point
from a year ago.
Financial Services Group
- ------------------------
Higher earnings at Ford Credit and Hertz in first half 1998, compared with first
half 1997, reflected primarily the same factors as those described in the
discussion of second quarter results of operations.
LIQUIDITY AND CAPITAL RESOURCES
Automotive Sector
- -----------------
Automotive cash and marketable securities were $22.3 billion at June 30, 1998,
up $1.4 billion from December 31, 1997. The company paid $1 billion in quarterly
cash dividends on its Common Stock, Class B Stock and Preferred Stock during
first half 1998, and $3.2 billion in cash dividends related to The Associates
spin-off .
Automotive capital expenditures were $3.8 billion in first half 1998, up $275
million from the same period a year ago. Capital expenditures were 6.2% of sales
in first half 1998, up 7/10 of a point from first half a year ago.
Automotive debt at June 30, 1998 totaled $8.2 billion, which was 26% of total
capitalization (stockholders' equity and Automotive debt), compared with 21% of
total capitalization at year-end 1997. The increase in the ratio in 1998
reflects the reduction in stockholders' equity resulting from The Associates
spin-off.
At July 1, 1998, Ford had long-term contractually committed global credit
agreements under which $8.5 billion is available from various banks; 94% of such
commitments are available through June 30, 2003. The entire $8.5 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 $8.3 billion of such credit lines in varying portions to
Ford Credit and FCE Bank plc (formerly known as Ford Credit Europe plc). In
addition, at July 1, 1998, $485 million of contractually committed credit
facilities were available to various Automotive affiliates outside the U.S.
Approximately $74 million of these facilities were in use at July 1, 1998.
-15-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
- --------------------------------------------------------------------------------
Financial Services Group
- ------------------------
The Associates spin-off explains primarily the declines discussed below.
Financial Services cash and investments in securities totaled $3.3 billion at
June 30, 1998, down $574 million from December 31, 1997.
Net receivables and lease investments were $124.9 billion at June 30, 1998, down
$50.6 billion from December 31, 1997.
Total debt was $115.8 billion at June 30, 1998, down $44.3 billion from December
31, 1997.
Outstanding commercial paper at June 30, 1998 totaled $40.9 billion at Ford
Credit and $2 billion at Hertz, with an average remaining maturity of 22 days
and 24 days, respectively.
At July 1, 1998, Financial Services had a total of $27.9 billion of
contractually committed support facilities (excluding the $8.3 billion available
under Ford's global credit agreements). Of these facilities, $23.9 billion are
contractually committed global credit agreements under which $19.1 billion and
$4.8 billion are available to Ford Credit and FCE Bank, respectively, from
various banks; 58% and 75%, respectively, of such facilities are available
through June 30, 2003. The entire $19.1 billion may be used, at Ford Credit's
option, by any subsidiary of Ford Credit, and the entire $4.8 billion may be
used, at FCE Bank's option, by any subsidiary of FCE Bank. Any borrowings by
such subsidiaries will be guaranteed by Ford Credit or FCE Bank, as the case may
be. At July 1, 1998, $205 million of the Ford Credit global facilities were in
use and $738 million of the FCE Bank global facilities were in use. Other than
the global credit agreements, the remaining portion of the Financial Services
support facilities at July 1, 1998 consisted of $2.1 billion of contractually
committed support facilities available to Hertz in the U.S., and $1.9 billion of
contractually committed support facilities available to various affiliates
outside the U.S.; at July 1, 1998, approximately $967 million of these
facilities were in use. Furthermore, banks provide $1.5 billion of liquidity
facilities to support the asset-backed commercial paper program of a Ford Credit
sponsored special purpose entity.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting
for Derivative Instruments and Hedging Activities," was issued by the Financial
Accounting Standards Board in June 1998. This Statement establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
recognition of all derivatives as either assets or liabilities on the balance
sheet and measurement of those instruments at fair value. If certain conditions
are met, a derivative may be designated specifically as (a) a hedge of the
exposure to changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment (a fair value hedge), (b) a hedge of the exposure
to variable cash flows of a forecasted transaction (a cash flow hedge), or (c) a
hedge of the foreign currency exposure of a net investment in a foreign
operation, an unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction. Ford anticipates having
each of these types of hedges, and will comply with requirements of SFAS 133
when adopted.
This Statement is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. Ford expects to adopt SFAS 133 beginning January 1, 2000.
The effect of adopting SFAS 133 is not expected to be material.
-16-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
- --------------------------------------------------------------------------------
Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities," was issued by the American Institute of Certified Public
Accountants in April 1998. Effective for fiscal years beginning after December
15, 1998, this SOP provides guidance on the financial reporting of start-up
costs and organization costs. It requires start-up activities and organization
costs to be expensed as incurred. Presently, Ford expenses start-up costs and
organization costs as incurred.
OTHER FINANCIAL INFORMATION
PricewaterhouseCoopers LLP, Ford's independent public accountants, performed a
limited review of the financial data presented on pages 4 through 10 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, PricewaterhouseCoopers LLP did
not express an opinion on the aforementioned data. The financial data include
any material adjustments or disclosures proposed by PricewaterhouseCoopers LLP
as a result of their review.
-17-
Part II. Other Information
--------------------------
Item 1. Legal Proceedings
- --------------------------
Environmental Matters
- ---------------------
Mobile Source Emissions Alleged Violation. In June 1998, the United States
Department of Justice (the "DOJ"), at the request of the Environmental
Protection Agency (the "EPA"), lodged a complaint against Ford. The complaint
alleged that certain vehicles produced by Ford contained an engine control
strategy that was not fully explained in the certification application and, in
some applications, was an impermissible "defeat device" because it would result
in higher emissions of nitrogen oxides under certain operating conditions. The
vehicles in question included certain 1997 model year Econolines and 1991
through 1995 model year Escorts. The DOJ, EPA and Ford agreed upon a consent
decree which was filed the same day as the complaint. Under the terms of the
consent decree Ford denies any wrongdoing and will pay $2.5 million in civil
penalties, spend $1.5 million on supplemental environmental projects, recall the
Econolines for recalibration (costing approximately $1.3 million) and retire
2,500 tons of nitrogen oxide emissions credits (at an estimated cost of $2.5
million). A notice of settlement was published in the Federal Register on July 1
and allows for a thirty-day comment period on the proposed settlement. The
consent decree should be entered shortly after the government has reviewed and
considered the comments, absent any major concerns by the government. These same
issues have been resolved with the State of California by an agreement which
requires Ford to recall the California Econolines (the cost of which is included
in the above description of the federal settlement) and to pay $350,000 in civil
penalties.
Class Actions
- -------------
Lease Agreement Disclosure. Six purported class actions recently were filed
against Ford Credit and its subsidiary, Primus Automotive Financial Services,
Inc., in state courts in Arkansas, Georgia, Minnesota, Ohio, Oregon and
Wisconsin. The lawsuits, each of which purports to be brought on behalf of a
statewide class, allege that Ford Credit and Primus leasing contracts improperly
failed to disclose certain acquisition or administrative fees that are included
in the amount of a customer's monthly lease payment. Plaintiffs seek
compensatory damages in the amount of all such undisclosed fees, an injunction
prohibiting the companies from continuing the practice of not disclosing such
fees, attorneys' fees, interest, costs and, in some cases, punitive damages.
Ford Credit and Primus believe that their leasing contracts conform with
applicable federal and state laws and will move to dismiss the lawsuits.
However, if plaintiffs were to prevail in these actions, Ford Credit and Primus
could be required to pay substantial damages.
Lifetime Service Guarantee. In June 1998, Edward Elbert commenced a purported
class action against the Company in California state court with respect to the
Company's termination of the Lifetime Service Guarantee program as of January 1,
1992. The program, which ran from 1983 until its termination, provided new
vehicle buyers with a lifetime warranty on replaced parts for, and repairs on,
their vehicles that were not otherwise warrantied and were performed by a
participating dealer. Mr. Elbert alleges that the program constituted a product
warranty that could not be terminated. He alleges claims for violation of the
federal Magnuson-Moss Warranty Act, breach of contract, negligent
misrepresentation, violation of the California Song-Beverly Consumer Warranty
Act, violation of the California Consumers Legal Remedies Act ("CLRA"),
violations of the California Unfair Competition Law ("UCL"), and declaratory
relief. The Magnuson-Moss and declaratory relief claims are alleged on behalf of
a purported national class. The breach of contract, negligent misrepresentation,
and Song-Beverly claims are alleged on behalf of a purported subclass of
California residents. The CLRA and UCL claims are alleged on behalf of "the
general public" ostensibly under "private attorney general" provisions in those
statutes. Plaintiff claims compensatory, exemplary, and punitive damages,
attorneys' fees, civil penalties, disgorgement, and interest in unspecified
amounts. He is also seeking an injunction to compel the Company to reinstate the
Lifetime Service Guarantee program. Ford believes it has valid defenses to the
plaintiff's claims; however, if plaintiff were to prevail in their lawsuit, Ford
could be required to pay substantial damages and possibly incur substantial
future costs.
-18-
Item 1. Legal Proceedings (Continued)
- --------------------------
Paint. (Previously discussed in the last paragraph on page 18 of Ford's Annual
Report on Form 10-K for the year ended December 31, 1997 (the "10-K Report").)
In April 1998, the Louisiana federal court heard oral argument on plaintiffs'
motion for nationwide class certification in the Landry case. The court deferred
ruling on the motion and requested additional briefing from the parties on the
feasibility of trying the case as a class action. During the second quarter two
new purported class actions concerning alleged defects in paint processes were
filed against the Company. The first, Nienhuis, was filed in Illinois state
court in May 1998. This case raises the same allegations as in the other paint
cases with respect to a somewhat larger group of vehicles. This action seeks a
nationwide class or, alternatively, a class of Illinois residents. Ford has
removed the action to federal court, and the Judicial Panel on Multidistrict
Litigation has conditionally transferred the action to the Louisiana federal
court where Landry is pending. The other new case, Clayman, was filed in
Pennsylvania state court in June 1998. The action asserts allegations similar to
the other cases on behalf of a proposed class of Pennsylvania residents.
Bronco II. (Previously discussed in the second paragraph on page 19 of the 10-K
Report.) The federal court in West Virginia denied plaintiffs' motion for class
certification in the Goff case. The court also dismissed the claims of one
plaintiff and ordered the other plaintiff to file a more definite statement of
the fraud allegations. Trial of the remaining plaintiff's claims is scheduled
for November 1998.
Ignition Switch. (Previously discussed in the third paragraph on page 19 of the
10-K Report.) In June 1998, the federal court in New Jersey indicated that it
would issue a written order denying the plaintiffs' motion to remand all of the
lawsuits to state courts and to vacate the court's rulings denying nationwide
class certification and dismissing most of the claims of the plaintiffs who have
had no "incidents" with their vehicles. In May 1998, plaintiffs who claim to
have had "incidents" with their vehicles filed an amended complaint on behalf of
a proposed class of all persons who have experienced "incidents" in a subject
vehicle, attempting to consolidate all such claims in a single action. The
complaint proposes alternative classes and several subclasses. Plaintiffs have
indicated that the proposed classes and subclasses may be amended following
further discovery. Over the past several weeks, Ford has been served with three
new purported class actions concerning ignition switch issues. Two of the cases
were filed in Illinois and California state courts and propose to include
individuals or entities that own or currently lease Illinois and
California-registered vehicles, respectively, equipped with allegedly defective
ignition switches that have not been recalled by the Company. The third case was
filed in another Illinois state court and proposes to include individuals or
entities nationwide that currently own or that have previously owned vehicles
equipped with allegedly defective ignitions switches that have been recalled by
the Company.
TFI Module. (Previously discussed in the first and second paragraphs on page 20
of the 10-K Report.) The California Supreme Court has declined to hear Ford's
appeal of the trial court's class certification and class notice orders. Ford
will have the right to appeal those orders after entry of any adverse final
judgment in the case. In addition, the trial court modified its earlier class
notice order and indicated that it will require plaintiffs to bear most of the
expense of disseminating notice to the class. In related developments, in June
1998 the Chief Counsel of the National Highway Traffic Safety Administration
(the "Safety Administration") released a letter rejecting many of the
allegations made by the plaintiffs and the Safety Administration's former chief
investigator that Ford improperly withheld information and documents during
prior investigations of the TFI module. The Chief Counsel's letter did, however,
state that Ford had failed to produce six documents responsive to agency
information requests. The Safety Administration declined to impose a civil
penalty but directed Ford to alter its approach to responding to agency
information requests. The Safety Administration also declined to consider
whether the receipt of the six documents would have caused the agency to alter
its decision to close the TFI-related investigations without action.
-19-
Item 1. Legal Proceedings (Continued)
- --------------------------
Airbag. (Previously discussed in the third paragraph on page 20 of the 10-K
Report.) The Company moved for dismissal or summary judgment on claims asserted
by plaintiffs in the Louisiana case (which was consolidated in federal court)
and in the Alabama case. In May 1998, the federal court in Louisiana dismissed
all claims asserted in that case. The deadline for appeal of this dismissal has
passed, and the plaintiffs have not filed a notice of appeal. In the Alabama
lawsuit, the trial court denied Ford's motion for change of venue and Ford has
petitioned the Alabama Supreme Court for review. The trial court has stayed the
case pending a decision by the Alabama Supreme Court on the venue issue. Ford's
motion to dismiss the Alabama action is pending.
Other Matters
- -------------
Lemelson Patent Case. (Previously discussed in the last paragraph on page 21 of
the 10-K Report.) Ford and the Lemelson interests settled their patent
litigation in May 1998. The settlement with Lemelson resolves all issues
involved in the lawsuit and provides Ford with a license under more than 200
Lemelson patents that currently exist, as well as future Lemelson patents that
may issue. The amount of the settlement payment, which is required to be kept
confidential by the terms of the settlement, is not material. The settlement
also includes an option for Ford suppliers to settle their individual
differences with Lemelson at royalty rates that are significantly better than
those offered to others in the past.
Item 4. Submission of Matters to a Vote of Security-Holders
- ------------------------------------------------------------
On May 14, 1998, the 1998 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:
Proposal 1 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 1,723,594,962 12,007,994
Edsel B. Ford II 1,724,795,208 10,807,748
William C. Ford 1,724,394,522 11,208,434
William C. Ford, Jr. 1,724,634,448 10,968,508
Irvine O. Hockaday, Jr. 1,724,890,703 10,712,253
Marie-Josee Kravis 1,724,037,150 11,565,806
Ellen R. Marram 1,724,939,214 10,663,742
Homer A. Neal 1,724,046,895 11,556,061
Carl E. Reichardt 1,722,497,672 13,105,284
John L. Thornton 1,721,296,822 14,306,134
Alex Trotman 1,724,267,682 11,335,274
There were no broker non-votes with respect to the election of directors.
Proposal 2 Ratification of Selection of Independent Public Accountants. A
proposal to ratify the selection of PricewaterhouseCoopers LLP (successor to
Coopers & Lybrand L.L.P.) as independent public accountants to audit the books
of account and other corporate records of the Company for 1998 was adopted, with
1,726,819,761 votes cast for, 4,388,477 votes cast against, 4,394,718 votes
abstained and no broker non-votes.
-20-
Item 4. Submission of Matters to a Vote of Security-Holders (Continued)
- ------------------------------------------------------------
Proposal 3 Relating to the Company's Annual Incentive Compensation Plan. A
proposal relating to the approval of Annual Incentive Awards to Certain
Executives under the Company's Annual Incentive Compensation Plan and
termination of the Company's Supplemental Compensation Plan was adopted, with
1,671,842,967 votes cast for, 53,146,694 votes cast against, 10,613,295 votes
abstained and no broker non-votes.
Proposal 4 Relating to the Company's 1998 Long-Term Incentive Plan. A proposal
relating to the approval of stock options and stock awards to certain executives
under the Company's 1998 Long-Term Incentive Plan was adopted, with
1,229,983,439 votes cast for, 386,267,273 votes cast against, 13,113,261 votes
abstained and 106,238,983 broker non-votes.
Proposal 5 Relating to the Company's Savings and Stock Investment Plan. A
proposal relating to the approval of an amendment to the Company's Savings and
Stock Investment Plan for Salaried Employees was adopted, with 1,690,793,269
votes cast for, 28,544,032 votes cast against, 16,265,655 votes abstained and no
broker non-votes.
Proposal 6 Relating to Political Non-partisanship. A proposal relating to the
affirmation of the Company's Political Non-partisanship was rejected, with
1,525,194,983 votes cast against, 50,217,254 votes cast for, 42,569,912 votes
abstained and 117,620,807 broker non-votes.
Proposal 7 Relating to the Company's Dealings with China and the former Soviet
Union. A proposal relating to the Company's dealings with China and the former
Soviet Union was rejected, with 1,519,731,025 votes cast against, 46,616,777
votes cast for, 51,634,347 votes abstained and 117,620,807 broker non-votes.
Proposal 8 Relating to a Report on Global Warming. A proposal relating to a
Company report on Global Warming was rejected, with 1,530,749,878 votes cast
against, 47,957,192 votes cast for, 39,275,079 votes abstained and 117,620,807
broker non-votes.
Proposal 9 Relating to a Proposed Review of Executive Compensation. A proposal
relating to a review and report on the Company's executive compensation was
rejected, with 1,503,703,516 votes cast against, 69,737,461 votes cast for,
44,541,172 votes abstained and 117,620,807 broker non-votes.
Proposal 10 Relating to Independent Directors on Key Board Committees. A
proposal relating to independent directors on key board committees was rejected,
with 1,358,955,615 votes cast against, 234,217,230 votes cast for, 24,796,804
votes abstained and 117,633,307 broker non-votes.
Item 5. Other Information
- --------------------------
Fastener Quality Act. (Previously discussed in the second paragraph on page 14
of Ford's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998.)
The effective date for the implementation of the Fastener Quality Act of 1990
has been administratively extended to October 24, 1998. Congress is considering
a bill which would delay the effective date of the Act by up to one year and
would require the Secretary of Commerce to review the Act and make
recommendations regarding necessary and appropriate changes to the Act. The
House of Representatives has passed the bill, and it is currently pending in the
Senate.
-21-
Supplemental Schedule
Ford Motor Company
CONDENSED FINANCIAL INFORMATION OF SUBSIDIARY
---------------------------------------------
(in millions)
Ford Capital B.V.
June 30, December 31,
1998 1997
-------------- --------------
(unaudited)
Current assets $1,280 $2,046
Noncurrent assets 2,391 2,390
------ ------
Total assets $3,671 $4,436
====== ======
Current liabilities $ 766 $1,551
Noncurrent liabilities 2,437 2,433
Minority interests in net
assets of subsidiaries 15 14
Stockholder's equity 453 438
------ ------
Total liabilities and
stockholder's equity $3,671 $4,436
====== ======
Second Quarter First Half
--------------------- --------------------
1998 1997 1998 1997
-------- --------- -------- --------
(unaudited) (unaudited)
Sales and other revenue $638 $637 $1,279 $1,381
Operating income 3 12 30 46
Income before income taxes 12 0 30 21
Net income/(loss) 8 (11) 14 (3)
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.
-22-
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
--------
Please refer to the Exhibit Index on page 24.
(b) Reports on Form 8-K
-------------------
The Registrant filed the following Current Reports on Form 8-K during
the quarter ended June 30, 1998:
Current Report on Form 8-K dated April 7, 1998 included pro forma
condensed statements of income of Ford and its consolidated
subsidiaries for the year ended December 31, 1997 and the quarter
ended March 31, 1998, reflecting Ford's results of operations without
The Associates for those periods.
Current Report on Form 8-K dated April 8, 1998 included information
relating to Ford's completion of its distribution of The Associates
stock and cash to shareholders.
Current Report on Form 8-K dated April 16, 1998 included information
relating to Ford's first quarter 1998 financial results.
Current Report on Form 8-K dated June 23, 1998 included information
relating to the reinvestment in Ford common stock by participants in
U.S. employee savings plans of a portion of the cash distribution
made by Ford to its U.S. employee savings plans on April 7,1998 in
connection with the 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: July 15, 1998 By: /s/ William J. Cosgrove
------------- ----------------------------------
William J. Cosgrove
Corporate Controller
(principal accounting officer)
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EXHIBIT INDEX
-------------
Designation Description
----------------------- -----------------------------------------------------------------------------
Exhibit 10 Amendments to Ford Motor Company Deferred Compensation Plan, effective as of
July 8, 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 PricewaterhouseCoopers LLP,
Independent Public Accountants, dated July 14,
1998, relating to Financial Information.
Exhibit 27.1 Financial Data Schedule, Conglomerate Totals, for the Six Months Ended June 30,
1998 (included with electronic EDGAR filing only).
Exhibit 27.2 Financial Data Schedule, Automotive Segment, for the Six Months Ended June 30,
1998 (included with electronic EDGAR filing only).
Exhibit 27.3 Financial Data Schedule, Financial Services Segment, for the Six Months Ended
June 30, 1998 (included with electronic EDGAR filing only).
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