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 September 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file numbers 1-6368
FORD MOTOR CREDIT COMPANY
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 38-1612444
- -------------------- -----------------------------------
(State of Incorporation) (I.R.S. employer identification no.)
The American Road, Dearborn, Michigan 48121
- --------------------------------------- ---------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (313) 322-3000
Indicate by check mark 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 registrant's classes of
common stock, as of the latest practicable date: 250,000 shares
of common stock as of October 31, 1996.
The registrant meets the conditions set forth in General
Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing
this Form in reduced disclosure format.
PAGE 1 OF 21
EXHIBIT INDEX APPEARS AT PAGE 18.
<PAGE 2>
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements - The interim financial data presented herein
are unaudited, but in the opinion of management reflect all 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 for the year ended December 31,
1995 (the "10-K Report"). Information relating to earnings a share is not
presented because the registrant, Ford Motor Credit Company ("Ford
Credit"), is an indirect wholly owned subsidiary of Ford Motor Company
("Ford" or the "Company").
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
Condensed Consolidated Statement of Income
and of Earnings Retained for Use in the Business
For the Periods Ended September 30, 1996 and 1995
(in millions)
Third Quarter Nine Months
1996 1995 1996 1995
--------- ---------- ---------- ----------
(Unaudited) (Unaudited)
Financing Revenue
Operating leases $ 1,983.1 $ 1,809.0 $ 5,831.1 $ 5,188.1
Retail 1,049.4 935.7 2,977.4 2,657.5
Wholesale 249.9 318.4 855.1 1,061.3
Diversified 7.1 39.2 81.4 109.0
Other 90.4 82.6 273.3 247.9
---------- ---------- ---------- ----------
Total financing revenue 3,379.9 3,184.9 10,018.3 9,263.8
Insurance premium earned 74.7 0 157.6 0
Investment and other income 181.4 145.7 531.7 379.9
---------- ---------- ---------- ----------
Total revenue 3,636.0 3,330.6 10,707.6 9,643.7
Expenses
Depreciation on operating leases 1,311.9 1,303.8 3,930.6 3,744.2
Interest expense 1,261.0 1,222.2 3,827.1 3,623.9
Operating expenses 264.0 242.1 818.8 712.4
Provision for credit losses 267.8 132.9 628.2 289.4
Loss and loss adjustment expense 50.9 0 108.6 0
Amortization of policy acquisition cost 18.3 0 36.8 0
---------- ---------- ---------- ----------
Total expenses 3,173.9 2,901.0 9,350.1 8,369.9
---------- ---------- ---------- ----------
Equity in net income of affiliated
companies 0.9 67.7 50.7 174.7
Income before income taxes 463.0 497.3 1,408.2 1,448.5
Provision for income taxes 158.0 136.2 467.6 451.5
---------- ---------- ---------- ----------
Income before minority interest 305.0 361.1 940.6 997.0
Minority interest in net income of
subsidiaries 5.7 3.7 16.3 10.5
---------- ---------- ---------- ----------
Net income 299.3 357.4 924.3 986.5
Earnings retained for use in
the business
Beginning of period 6,944.8 6,478.3 6,643.8 5,849.2
Dividends (250.0) (350.0) (574.0) (350.0)
---------- ---------- ---------- ----------
End of period $ 6,994.1 $ 6,485.7 $ 6,994.1 $ 6,485.7
========== ========== ========== ==========
The accompanying notes are an integral part of the financial statements.
<PAGE 3>
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
(in millions)
September 30, December 31, September 30,
1996 1995 1995
----------- ----------- -----------
ASSETS (Unaudited) (Unaudited)
Cash and cash equivalents $ 3,361.4 $ 1,355.9 $ 564.3
Investments in securities 1,305.2 1,914.1 1,761.1
Finance receivables, net (Note 1) 63,179.5 61,043.8 59,280.2
Net investment, operating leases 28,669.6 24,810.8 23,890.4
Accounts and notes receivable from
affiliated companies (Note 3) 621.3 420.7 302.6
Equity in net assets of affiliated
companies (Note 3) 96.3 1,728.0 1,617.0
Other assets 2,703.5 3,293.4 2,635.7
----------- ----------- -----------
Total assets $ 99,936.8 $ 94,566.7 $ 90,051.3
=========== =========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Accounts payable
Trade, customer deposits, and
dealer reserves $ 1,998.5 $ 1,579.4 $ 1,447.3
Affiliated companies 602.2 608.7 431.5
----------- ----------- -----------
Total accounts payable 2,600.7 2,188.1 1,878.8
Debt (Note 2) 82,155.9 79,167.1 75,512.3
Deferred income taxes 3,899.1 3,027.0 2,920.8
Other liabilities and deferred income 2,089.1 1,913.6 1,681.1
Unearned insurance premiums 373.3 0 0
----------- ----------- -----------
Total liabilities 91,118.1 86,295.8 81,993.0
Minority interest in net assets of
subsidiaries 948.4 717.2 654.8
Stockholder's Equity
Capital stock, par value $100 a share,
250,000 shares authorized, issued and
outstanding 25.0 25.0 25.0
Paid-in surplus (contributions by
stockholder) (Note 3) 2,777.3 917.3 917.3
Note receivable from affiliated company
(Note 3) (1,917.0) 0 0
Unrealized gain on marketable
securities, net of taxes 48.3 30.9 23.0
Foreign-currency translation adjustments (57.4) (63.3) (47.5)
Earnings retained for use in the business 6,994.1 6,643.8 6,485.7
----------- ----------- -----------
Total stockholder's equity 7,870.3 7,553.7 7,403.5
----------- ----------- -----------
Total liabilities and stockholder's
equity $ 99,936.8 $ 94,566.7 $ 90,051.3
=========== =========== ===========
The accompanying notes are an integral part of the financial statements.
<PAGE 4>
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
Consolidated Statement of Cash Flows
For the Periods Ended September 30, 1996 and 1995
(in millions)
Nine Months
1996 1995
---------- ----------
(Unaudited)
Cash flows from operating activities
Net income $ 924.3 $ 986.5
Adjustments to reconcile net income to net
cash provided by operating activities
Provision for credit losses 628.2 289.4
Depreciation and amortization 4,160.8 3,909.8
Gain on sales of finance receivables (22.9) (12.8)
Equity in net income of affiliates (50.7) (174.7)
Deferred income taxes 836.3 513.4
Changes in the following items
Other assets 1,788.8 9.8
Other liabilities 326.4 229.2
Other (197.9) 17.0
---------- ----------
Net cash provided by operating activities 8,393.3 5,767.6
---------- ----------
Cash flows from investing activities
Purchase of finance receivables (other than wholesale) (25,584.6) (21,303.6)
Collection of finance receivables (other than wholesale) 18,130.3 16,756.7
Purchase of operating lease vehicles (15,389.3) (12,608.0)
Liquidation of operating lease vehicles 7,564.1 4,377.1
Purchase of investment securities (4,106.8) 0
Proceeds from sale of investment securities 6,522.8 0
Proceeds from sales of receivables 1,010.2 2,728.3
Cash received from donation of TARIC 181.8 0
Net change in wholesale receivables 2,329.2 11.9
Other (170.5) (192.8)
---------- ----------
Net cash used in investing activities (9,512.8) (10,230.4)
---------- ----------
Cash flows from financing activities
Proceeds from issuance of long-term debt 9,972.5 7,858.3
Principal payments on long-term debt (5,304.5) (3,993.9)
Change in short-term debt, net (1,550.0) 943.4
Cash dividends paid (250.0) (350.0)
Other 256.4 274.1
---------- ----------
Net cash provided by financing activities 3,124.4 4,731.9
---------- ----------
Effect of exchange rate changes on cash and cash
equivalents 0.6 3.2
---------- ----------
Net change in cash and cash equivalents 2,005.5 272.3
Cash and cash equivalents, beginning of period 1,355.9 292.0
---------- ----------
Cash and cash equivalents, end of period $ 3,361.4 $ 564.3
========== ==========
Supplementary cash flow information
Interest paid $ 3,789.9 $ 3,531.3
Taxes (refunded)/paid (282.2) 52.8
The accompanying notes are an integral part of the financial statements.
<PAGE 5>
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
Notes To Financial Statements
Note 1. Finance Receivables, Net (in millions)
September 30, December 31, September 30,
1996 1995 1995
----------- ----------- -----------
(Unaudited) (Unaudited)
Retail $ 43,639.0 $ 38,350.0 $ 38,868.1
Wholesale 14,198.1 16,506.9 14,389.0
Diversified 1,916.7 2,225.4 2,267.5
Other 4,252.5 4,630.6 4,401.2
----------- ----------- -----------
Total finance receivables 64,006.3 61,712.9 59,925.8
Less allowance for credit losses (826.8) (669.1) (645.6)
----------- ----------- -----------
Finance receivables, net $ 63,179.5 $ 61,043.8 $ 59,280.2
=========== =========== ===========
<PAGE 6>
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
Notes To Financial Statements (continued)
Note 2. Debt (in millions)
September 30, December 31, September 30,
1996 1995 1995
----------- ----------- -----------
(Unaudited) (Unaudited)
PAYABLE WITHIN ONE YEAR:
Commercial paper $ 32,776.3 $ 34,978.3 $ 34,024.6
Other short-term debt* 1,712.3 1,523.1 1,412.7
----------- ----------- -----------
Total short-term debt 34,488.6 36,501.4 35,437.3
Senior notes payable
within one year** 6,197.1 6,626.9 6,493.5
----------- ----------- -----------
Total payable within
one year 40,685.7 43,128.3 41,930.8
----------- ----------- -----------
September 30, 1996
----------------------------
Weighted Average
Interest Rates*** Maturities
---------------- ----------
PAYABLE AFTER ONE YEAR:
Unsecured senior notes
Notes**** 6.79% 1997-2048 41,403.8 36,003.6 33,572.4
Debentures 2.82% 2001-2005 71.8 29.1 0
Unamortized
(discount)/premium (5.4) 6.1 9.1
----------- ----------- -----------
Total payable
after one year 41,470.2 36,038.8 33,581.5
----------- ----------- -----------
Total debt $ 82,155.9 $ 79,167.1 $ 75,512.3
=========== =========== ===========
<Page 6>
* Includes $50.3 million, $35.9 million, and $0 million with affiliated
companies at September 30, 1996, December 31, 1995, and September 30,
1995, respectively.
** Includes $493 million, $0 million, and $0 million with affiliated
companies at September 30, 1996, December 31, 1995, and September 30,
1995, respectively.
*** Rates were variable on 22.4% of the debt payable after one year including
the effects of interest rate swap agreements.
**** Includes $3,894.4 million, $1,174.4 million, and $1,149 million with an
affiliated company at September 30, 1996, December 31, 1995, and September
30, 1995, respectively.
<PAGE 7>
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
Notes To Financial Statements
Note 3. Equity Investment in Ford Holdings
On February 28, 1996, Ford Holdings, Inc. (FHI) purchased substantially all
of Ford Credit's common stock interest in FHI. The final valuation was
determined as $2,949.0 million. FHI issued a promissory note to Ford
Credit for the purchase amount. On April 2, 1996, Ford Credit received a
cash payment on the note of $1,032.0 million. The excess of the market
value of the FHI investment over the book value ($1,296.2 million) is
included in paid in surplus. The unpaid portion of the promissory note
($1,917.0 million) is reflected as a reduction to stockholder's equity.
Additionally, The American Road Insurance Company ("TARIC") was contributed
to Ford Credit on March 29, 1996. The transaction was recorded by Ford
Credit at Taric's book value and is included in paid in surplus. A
reconciliation of paid in surplus is as follows:
Paid in Surplus
---------------
(in millions)
Balance at December 31, 1995 $ 917.3
Add:
Excess of market value over
book value of FHI common stock 1,296.2
Contribution of TARIC 563.8
----------
Balance at September 30, 1996 $ 2,777.3
==========
Note 4. Transactions with Affiliated Companies
On June 28, 1996, Ford Credit transferred Budget Rent a Car Corporation
("BRAC") preferred stock to Ford FSG, Inc. ("FFSGI") as a dividend. Also,
Ford Credit wrote down a portion of the BRAC receivables and received
payment from FFSGI on July 11, 1996, the guarantor of the receivables.
<PAGE 8>
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
FORD CREDIT THIRD QUARTER 1996 RESULTS OF OPERATIONS
Ford Credit's consolidated net income for the third quarter of 1996 was $299
million, down $58 million or 16% compared with $357 million in the third
quarter of 1995. Compared with record results from a year ago, the decrease in
net income primarily reflects an increase in credit losses, and lower income
resulting from the repurchase in the first quarter in 1996 by Ford Holdings of
substantially all of the shares of Ford Holdings' common stock owned by Ford
Credit. Higher portfolio net interest margins and a higher level of earning
assets were a partial offset.
The deterioration in credit losses reflects an increase in repossession rates
and an increase in losses per repossession reflecting a weaker used vehicle
market. Credit losses as a percent of average net finance receivables
including net investment in operating leases were 0.89% in the third quarter of
1996 compared with 0.48% in the third quarter of 1995. Ford Credit expects
that the upward trend in increased credit losses will continue through the
remainder of 1996.
The higher net interest margins reflect higher portfolio yields on finance
receivables and operating leases and a decrease in U.S. portfolio borrowing
rates from 6.5% to 6.2%. The increase in earning assets reflects a higher
level of operating leases and retail installment sale receivables. Total net
finance receivables and net investment in operating leases at September 30,
1996 were $91.8 billion, up $8.6 billion or 10% from a year earlier.
During the third quarter of 1996, Ford Credit financed 35.5% of all new cars
and trucks sold by Ford Motor Company dealers in the United States, compared
with 38.0% in the third quarter of 1995. The decrease reflected lower levels
of retail installment sale financing partially offset by higher levels of
operating lease financing and higher levels of lease financing extended to
leasing companies and daily rental companies. Ford Credit provided retail
financing for 631,000 new and used vehicles in the United States, down 4% from
a year ago. Ford Credit also provided wholesale financing for 78.5% of Ford
Motor Company factory sales to U.S. car and truck dealers during the quarter,
compared with 79.8% in the same period a year ago.
As part of Ford's sale of USL Capital's assets, a portion of Ford Credit's
diversified assets, managed by USL Capital, were sold. The sale of the
diversified assets did not have a material impact on Ford Credit's third
quarter results.
FORD CREDIT FIRST NINE MONTHS 1996 RESULTS OF OPERATIONS
For the first nine months of 1996, Ford Credit's consolidated net income was
$924 million, down $62 million from $986 million in 1995. The factors
affecting profits during the first nine months of 1996 were the same as those
affecting the third quarter results discussed above.
During the first nine months of 1996, Ford Credit provided retail financing for
38.3% of all new cars and trucks sold by Ford Motor Company dealers in the
United States, compared with 36.8% in the same period a year ago. The increase
resulted from higher levels of retail installment sale financing partially
offset by lower levels of lease financing extended to leasing companies and
daily rental companies. Ford Credit provided U.S. retail financing for
2,095,000 new and used vehicles compared with 1,892,000 vehicles in the first
nine months of 1995. Ford Credit also provided wholesale financing for 78.9%
of Ford Motor Company factory sales to U.S. car and truck dealers during the
first nine months of 1996, compared with 79.7% in the same period last year.
NEW ACCOUNTING STANDARD
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities, effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996. Ford Credit will adopt this accounting
standard on January 1, 1997. The impact of the adoption of this accounting
standard on Ford Credit's results has not been determined.
<PAGE 9>
Ford Credit Liquidity and Capital Resources
Ford Credit's outstanding debt at September 30, 1996 and at the end of each
of the last five years was as follows:
December 31
Sept 30, -------------------------------------------
1996 1995 1994 1993 1992 1991
------- ------- ------- ------- ------- -------
(in millions)
Commercial paper & STBA's(a) $32,776 $35,038 $33,300 $24,506 $21,210 $18,232
Other short-term debt (b) 2,205 1,463 1,065 1,001 1,785 1,642
Long-term debt (including
current portion)(c) 47,175 42,666 36,075 33,292 26,961 28,455
------- ------- ------- ------- ------- -------
Total debt $82,156 $79,167 $70,440 $58,799 $49,956 $48,329
======= ======= ======= ======= ======= =======
1996 1995 1994 1993 1992 1991
------- ------- ------- ------- ------- -------
Memo:
Total support facilities $27.2 $27.4 $22.3 $16.9 $13.9 $13.8
(billions -- as of
October 1, 1996 and
December 31, 1995-1991,
respectively)
- - - - - -
(a) Short-term borrowing agreements with bank trust departments.
(b) Includes $50 million, $36 million, $150 million, and $800 million with
affiliated companies at September 30, 1996, December 31, 1995, December 31,
1993, and December 31, 1992, respectively.
(c) Includes $4,387 million and $1,174 million with affiliated companies at
September 30, 1996 and December 31, 1995, respectively.
Support facilities represent additional sources of funds, if required. At
October 1, 1996, Ford Credit had approximately $27.2 billion of
contractually committed facilities (which included $7.6 billion of Ford
Motor Company bank lines that may be used by Ford Credit at Ford's option).
These facilities have various maturity dates through June 30, 2001. Up to
$19.6 billion ($27.2 billion with Ford's approval) may be used, at Ford
Credit's option, by any of its direct or indirect majority-owned
subsidiaries. Any such borrowing will be guaranteed by Ford Credit.
<PAGE 10>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None to report.
Item 2. Changes in securities
Not required.
Item 3. Defaults upon Senior Securities
Not required.
Item 4. Submission of Matters to a Vote of Secuirty Holders
Not required.
Item 5. Other Information
INFORMATION CONCERNING FORD
Following is a condensed consolidated statement of income (unaudited) of Ford
for the periods ended September 30, 1996 and 1995 (in millions except amounts
per share):
Third Quarter Nine Months
------------- -----------------
1996 1995 1996 1995
---- ---- ---- ----
Sales and revenues $33,960 $31,418 $108,158 $102,590
Total costs and expenses 32,698 30,686 103,215 96,717
Operating income 1,262 732 4,943 5,873
Automotive net interest income/(expense) 33 20 52 103
Automotive equity in net/(loss)income
of affiliated companies (68) (190) (43) (151)
Income before income taxes 1,227 562 4,952 5,825
Provision for income taxes 474 157 1,581 2,198
Minority interests in net income
of subsidiaries 67 48 129 148
Net income 686 357 3,242 3,479
Amounts Per Share of Common Stock
and Class B Stock after Preferred
Stock Dividends
Income per share $ 0.57 $ 0.28 $ 2.71 $ 3.13
Income per share
assuming full dilution $ 0.56 $ 0.27 $ 2.66 $ 2.85
Cash Dividends per share of Common
and Class B Stock $ 0.385 $ 0.31 $ 1.085 $ 0.88
<Page 11>
THIRD QUARTER 1996 RESULTS OF OPERATIONS - FORD
Overview
- --------
Ford Motor Company earned $686 million, or $0.56 per share of Common and Class B
Stock (fully diluted), in third quarter 1996. This compares with $357 million,
or $0.27 per share (fully diluted), in third quarter 1995. Results in third
quarter 1996 included the net favorable effect of two one-time actions
(discussed below) totaling $37 million, or $0.03 per share. Ford's worldwide
sales and revenues were $34 billion, up $2.5 billion from a year ago. Vehicle
unit sales of cars and trucks were 1,452,000, up 17,000 units or 1%.
Stockholders' equity was $26.2 billion at September 30, 1996, compared with
$24.5 billion at December 31, 1995.
Automotive Operations
- ---------------------
Ford's worldwide Automotive operations earned $15 million in third quarter 1996
on sales of $26.5 billion, compared with a loss of $201 million in third quarter
1995 on sales of $24.4 billion. Improved Automotive results in the U.S. were
offset partially by increased losses in other markets.
In the U.S., Automotive operations earned a record $634 million in third quarter
1996 on sales of $17.7 billion, compared with $187 million a year ago on sales
of $16.8 billion. The increase in earnings was explained by higher margins
(reflecting improved sales mix), improved material costs and other operating
cost efficiencies, offset partially by higher product costs. Results in third
quarter 1996 included an initial charge of $39 million for special early
retirements and voluntary separation packages to selected U.S. salaried
employees.
In third quarter 1996, the seasonally-adjusted annual selling rate for the U.S.
car and truck industry was 15.4 million units, compared with 15.2 million units
in third quarter 1995. Ford's combined car and truck market share was 24.5% in
third quarter 1996, down 3/10 of a point from a year ago. Lower shares of small
and specialty cars were offset partially by strong acceptance of new product
offerings.
Outside the U.S., Automotive operations had a loss of $619 million in third
quarter 1996 on sales of $8.8 billion, compared with a loss of $388 million a
year ago on sales of $7.6 billion. The decline reflected primarily increased
losses in Europe and Brazil.
European Automotive operations had a loss of $472 million in third quarter 1996,
compared with a loss of $320 million in third quarter 1995. The higher loss
reflected costs associated with launching new products, adverse vehicle mix and
volume, and continued high marketing costs. High-volume launches are largely
completed. In addition, Ford is continuing to focus on cost reductions, and its
recently launched new products will strengthen its product offerings in Europe.
In third quarter 1996, the seasonally-adjusted annual selling rate for the
European car and truck industry was 14.6 million units, compared with 13.3
million units in third quarter 1995. Ford's combined car and truck market share
was 11.8% in third quarter 1996, down one point from a year ago, and down half a
point from full year 1995, reflecting primarily planned lower sales to daily
rental companies.
In South America, Ford had a loss of $226 million in third quarter 1996,
compared with a loss of $102 million a year ago. The decline reflected primarily
higher losses for operations in Brazil as a result of a long and costly launch
process following the dissolution of the Autolatina joint venture with
Volkswagen AG and higher levels of marketing costs. Losses in Brazil are
expected to continue in fourth quarter 1996 and in 1997. To improve the
competitiveness of its product offerings in Brazil, Ford plans to have three new
products (the Fiesta, Escort and Ranger) available for sale throughout most of
1997 and expects to introduce in 1997 a new, Brazilian-produced small car -- the
Ka.
<Page 12>
Financial Services Operations
- -----------------------------
Ford's Financial Services operations earned a record $671 million in
third quarter 1996, compared with $558 million in third quarter 1995. The
improvement reflected a one-time gain on sale of USL Capital Corporation's (USL
Capital") assets (discussed below) and record earnings at The Associates First
Capital Corporation ("The Associates") and The Hertz Corporation ("Hertz"),
offset partially by lower results at Ford Credit.
For a discussion of Ford Credit's results of operations in the third quarter of
1996, see Item 2. "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Ford Credit Third Quarter 1996 Results of
Operations." In addition, the International operations managed by Ford Credit,
but not included in its consolidated results, earned $61 million in third
quarter 1996, compared with $69 million a year ago.
The Associates earned a record $230 million in third quarter 1996 (Ford's share
was $186 million), compared with $197 million a year ago. The increase reflected
primarily higher levels of earning assets, offset partially by higher credit
losses.
Hertz earned a record $74 million in third quarter 1996, compared with $65
million a year ago. The increase reflected primarily higher volume in car rental
and construction equipment rental and sales operations.
During third quarter 1996, USL Capital concluded a series of transactions for
the sale of substantially all of its assets, as well as certain assets owned by
Ford Credit and managed by USL Capital. Proceeds from the sale were used to pay
down related liabilities and debt. These transactions resulted in a gain in
third quarter 1996 of $235 million before taxes ($76 million after taxes).
Excluding the one-time gain on sale of assets, USL Capital earned $18 million in
third quarter 1996, compared with $31 million a year ago. The decline reflected
the absence of earnings from operations sold during the quarter.
Outlook
- -------
It is expected that the U.S. economy will continue to be healthy into 1997, with
a sustainable rate of growth and moderate inflation. The Company expects U.S.
car and truck industry sales to total 15.5 million units in full year 1996,
compared with 15.1 million units in 1995. In Europe, car and truck industry
sales are expected to total 14.2 million units in full year 1996, compared with
13.4 million units in 1995. Earnings for fourth quarter 1996 are expected to be
higher than earnings in fourth quarter 1995 (despite expected additional charges
of $300 million to $400 million after taxes for early retirement programs), but
earnings for full year 1996 might be lower than earnings in full year 1995.
Factors that could result in lower industry volumes than expected and, in turn,
lower earnings include an unexpected decline in the U.S. economy (or other major
markets), an outbreak of hostilities in the Middle East resulting in higher fuel
prices, or increases in interest rates. Other factors that could adversely
affect Ford's earnings include unfavorable market reception to new products,
production or launch problems associated with new products, or significant
escalation in marketing incentives.
<Page 13>
FIRST NINE MONTHS RESULTS OF OPERATIONS - FORD
Overview
- --------
Ford earned $3,242 million, or $2.66 per share of Common and Class B Stock
(fully diluted), in first nine months 1996. This compares with $3,479 million,
or $2.85 per share (fully diluted), in first nine months 1995. Results in first
nine months 1996 included a net one-time gain of $308 million, or $0.25 per
share, relating to gain on sale of The Associates' common stock, write-down of
Ford's investment in Budget Rent a Car Corporation ("BRAC") (discussed below),
and gain on sale of USL Capital's assets. Ford's worldwide sales and
revenues were $108.2 billion, up $5.6 billion from a year ago. Vehicle unit
sales of cars and trucks were 4,900,000, down 116,000 units or 2%.
During May 1996, The Associates completed an initial public offering of its
common stock representing a 19.3% economic interest in The Associates (the
"IPO"). Ford recorded in second quarter 1996 a non-operating gain of $650
million resulting from the IPO, to recognize the excess of the net proceeds from
the IPO over the proportionate share of Ford's investment in The Associates. The
gain was not subject to income taxes.
Ford recorded a pre-tax charge in second quarter 1996 totaling $700
million ($437 million after taxes) to recognize the estimated value of its
outstanding notes receivable from, and preferred stock investment in, BRAC. The
write-down resulted from conclusions reached in a study of Ford's rental car
business strategy. In accordance with SFAS 114, the notes receivable write-down
reflected primarily the unsecured portion of financing provided to BRAC by Ford.
The preferred stock write-down reflected recognition of the fair value of Ford's
investment. Ford previously announced its intention to acquire all of the
outstanding common stock of BRAC at a future date, subject to governmental
review.
Automotive Operations
- ---------------------
Ford's worldwide Automotive operations earned $1,265 million in first nine
months 1996 on sales of $86.5 billion, compared with $2,040 million in first
nine months 1995 on sales of $82.9 billion. After-tax return on sales was 1.5%
in first nine months 1996, down one point from a year ago.
In the U.S., Automotive operations earned $1,379 million in first nine months
1996 on sales of $55.9 billion, compared with $1,675 million a year ago on sales
of $55.7 billion. The decline in earnings was explained by lower unit volume
(reflecting lower market share and dealer inventory rebalancing) and costs
associated with launching high-volume new products. Increased operating cost
efficiencies and improved sales mix were partial offsets.
In first nine months 1996, the seasonally-adjusted annual selling rate for the
U.S. car and truck industry was 15.6 million units, compared with 15 million
units a year ago. Ford's combined car and truck market share was 25% in first
nine months 1996, down 9/10 of a point from a year ago, and down 6/10 of a point
from full year 1995, reflecting primarily planned lower sales to daily rental
companies and reduced marketing support for low margin small cars.
Outside the U.S., Automotive operations had a loss of $114 million in first nine
months 1996 on sales of $30.6 billion, compared with a profit of $365 million a
year ago on sales of $27.2 billion. The decline reflected primarily lower
results in Brazil and Europe.
European Automotive operations had a loss of $203 million in first nine months
1996, compared with a profit of $164 million in first nine months 1995. The
lower results reflected primarily costs associated with launching new products
and adverse product line mix.
<Page 14>
In first nine months 1996, the seasonally-adjusted annual selling rate for the
European car and truck industry was 14.3 million units, compared with 13.4
million units a year ago. Ford's combined car and truck market share was 12% in
first nine months 1996, down half a point from a year ago, and down 3/10 of a
point from full year 1995.
Outside the U.S. and Europe, Automotive operations earned $89 million in first
nine months 1996, compared with $201 million a year ago. The decline reflected
primarily costs associated with launching new products and other costs
associated with new operations in Brazil and other emerging markets.
Financial Services Operations
- -----------------------------
Ford's Financial Services operations earned $1,977 million in first nine
months 1996, compared with $1,439 million in first nine months 1995. Results in
first nine months 1996 included a net one-time gain of $308 million relating to
gain on sale of The Associates' common stock, write-down of Ford's investment in
BRAC, and gain on sale of USL Capital's assets ($95 million). The improvement
also reflected record earnings at The Associates and Hertz, offset partially by
lower results at Ford Credit.
For a discussion of Ford Credit's results of operations in the first nine months
of 1996, see Item 2. "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Ford Credit First Nine Months 1996 Results
of Operations." In addition, International operations managed by Ford Credit,
but not included in its consolidated results, earned $190 million in first nine
months 1996, compared with $200 million a year ago.
The Associates earned a record $623 million in first nine months 1996 (Ford's
share was $555 million), compared with $529 million a year ago. Hertz earned a
record $123 million in first nine months 1996, compared with $84 million a year
ago. These changes reflected primarily the same factors as those described in
the discussion of third quarter results of operations. Excluding a one-time gain
on sale of USL Capital's assets, USL Capital earned $99 million in first nine
months 1996, compared with $87 million a year ago.
LIQUIDITY AND CAPITAL RESOURCES
Automotive Operations
- ---------------------
Automotive cash and marketable securities were $13 billion at September 30,
1996, up $554 million from December 31, 1995. Ford paid $1,328 million in
cash dividends on its Common Stock, Class B Stock and Preferred Stock during
first nine months 1996.
Automotive capital expenditures were $5.9 billion in first nine months 1996,
down $278 million from the same period a year ago. For full year 1996, Ford's
spending for product change is projected to be about the same compared with
1995; however, as a percent of sales, such spending is expected to be at lower
levels.
Automotive debt at September 30, 1996 totaled $7.3 billion, which was 21% of
total capitalization (stockholders' equity and Automotive debt), compared with
$7.3 billion, or 22% of total capitalization, at December 31, 1995.
At October 1, 1996, Ford had long-term contractually committed global credit
agreements under which $8.4 billion is available from various banks through June
30, 2001. The entire $8.4 billion may be used, at Ford's option, by any
affiliate of Ford; however, any borrowing by an affiliate will be guaranteed by
Ford. In addition, Ford has the ability to transfer on a nonguaranteed basis the
entire $8.4 billion in varying portions to Ford Credit and Ford Credit Europe.
These facilities were unused at October 1, 1996.
<Page 15>
Financial Services Operations
- -----------------------------
Financial Services cash and investments in securities totaled $8.9 billion at
September 30, 1996, up $1.6 billion from December 31, 1995, reflecting primarily
net proceeds from the sale of USL Capital's assets.
Net receivables and lease investments were $158.4 billion at September 30, 1996,
up $8.7 billion from December 31, 1995. The increase reflected continued growth
in earning assets at Ford Credit and The Associates, offset partially by the
sale of USL Capital's assets.
Total debt was $148.3 billion at September 30, 1996, up $7 billion from December
31, 1995. The increase resulted from higher debt levels required to finance
growth in earning assets at The Associates, Ford Credit and Hertz, offset
partially by a decrease in debt at USL Capital as a result of the sale of USL
Capital's assets.
At October 1, 1996, Financial Services had a total of $48.9 billion of
contractually committed support facilities. Of these facilities, $24 billion
(excluding the $8.4 billion of Ford's credit facilities) are contractually
committed global credit agreements under which $19.7 billion and $4.3 billion
are available to Ford Credit and Ford Credit Europe, respectively, from various
banks; 62% and 76%, respectively, of such facilities are available through June
30, 2001. The entire $19.7 billion may be used, at Ford Credit's option, by any
subsidiary of Ford Credit, and the entire $4.3 billion may be used, at Ford
Credit Europe's option, by any subsidiary of Ford Credit Europe. Any borrowings
by such subsidiaries will be guaranteed by Ford Credit or Ford Credit Europe, as
the case may be. At October 1, 1996, none of the Ford Credit global facilities
were in use; $544 million of the Ford Credit Europe global facilities were in
use. Other than the global credit agreements, the remaining portion of the
Financial Services support facilities at October 1, 1996 consisted of $22.3
billion of contractually committed support facilities available to various
affiliates in the U.S. and $2.6 billion of contractually committed support
facilities available to various affiliates outside the U.S.; at October 1, 1996,
approximately $1.3 billion of these facilities were in use.
<Page 16>
Item 5. Other Information
- --------------------------
Ford and the United Automobile Workers ("UAW") have entered into a new
collective bargaining agreement that will expire on September 14, 1999. The new
agreement includes provisions that will increase Ford's labor costs by
approximately 4% per year over the term of the contract, in respect of its
employees who are UAW members. Ford's existing agreement with the Canadian
Automobile Workers ("CAW") was scheduled to expire on September 14, 1996, but
has been extended pending negotiations of a new agreement. It is not known
whether Ford will be able to reach a new agreement with the CAW without a work
stoppage. If there should be a protracted work stoppage, Ford's profits could be
substantially adversely affected.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Please refer to the Exhibit Index on page 18.
(b) Reports on Form 8-K during the quarter ended September 30, 1996:
FINANCIAL
DATE OF REPORT ITEM STATEMENTS FILED
- -------------- --------------------- ----------------
September 10, 1996 Item 5 - Other Events None
September 23, 1996 Item 5 - Other Events None
September 30, 1996 Item 5 - Other Events None
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 CREDIT COMPANY
(Registrant)
November 4, 1996
/s/ Kenneth J. Coates
--------------------------
Kenneth J. Coates
Executive Vice President -
Finance and Administration
(Chief Financial Officer)
<Page 17>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder
of Ford Motor Credit Company:
We have reviewed the condensed consolidated balance sheet of Ford Motor
Credit Company and Subsidiaries at September 30, 1996 and 1995, and the
related condensed consolidated statements of income and of earnings
retained for use in the business and cash flows for the periods set forth
in this Form 10-Q for the quarter ended September 30, 1996. These financial
statements are the responsibility of the company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion regarding
the financial statements taken as a whole. Accordingly, we do not express
such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet at December 31, 1995 and the
related consolidated statements of income and of earnings retained for use
in the business and cash flows for the year then ended (not presented
herein); and in our report dated January 26, 1996 unqualified
opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying condensed
consolidated balance sheet at December 31, 1995 is fairly stated in all
material respects in relation to the consolidated balance sheet from which
it has been derived.
/s/ Coopers & Lybrand
COOPERS & LYBRAND L.L.P.
Detroit, Michigan
October 16, 1996
<PAGE 18>
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
EXHIBIT INDEX
Sequential
Designation Description Method of Filing
- ----------- ------------ -----------------
12-A Calculation of ratio of Filed with this
earnings to fixed charges Report.
of Ford Credit
12-B Calculation of ratio of Filed with this
earnings to fixed charges Report.
of Ford.
15 Letter from Coopers & Filed with this
Lybrand L.L.P. dated Report.
November 4, 1996,
regarding unaudited
interim financial infor-
mation.