Item 1. Business
Ford Motor Company (referred to herein as "Ford", the "Company" or the "Registrant") was incorporated in Delaware in 1919 and acquired the business of a Michigan company, also known as Ford Motor Company, incorporated in 1903 to produce automobiles designed and engineered by Henry Ford. Ford is the second-largest producer of cars and trucks in the world, and ranks among the largest providers of financial services in the United States.
General
The Company's two principal business segments are Automotive and Financial Services. The activities of the Automotive segment consist of the manufacture, assembly and sale of cars and trucks and related parts and accessories. Substantially all of Ford's automotive products are marketed through retail dealerships, most of which are privately owned and financed.
The Financial Services segment is comprised of the following subsidiaries: Ford Motor Credit Company ("Ford Credit"), Ford Credit Europe plc ("Ford Credit Europe"), First Nationwide Financial Corporation ("First Nationwide"), The Hertz Corporation ("Hertz"), Ford Holdings, Inc. ("Ford Holdings"), Associates First Capital Corporation ("The Associates"), The American Road Insurance Company ("American Road") and USL Capital Corporation (formerly United States Leasing International, Inc.) ("USL Capital"). The activities of these subsidiaries include financing operations, insurance operations, savings and loan operations and vehicle and equipment leasing.
See Note 16 of Notes to Financial Statements and Item 6. "Selected Financial Data" relating to revenue, operating income or loss and assets attributable to Ford's industry segments. Also see Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" for information with respect to revenue, net income and other matters.
Automotive Operations
The worldwide automotive industry is affected significantly by a number of factors over which the industry has little control, including general economic conditions.
In the United States, the automotive industry is a highly- competitive, cyclical business characterized by a wide variety of product offerings. The level of industry demand (retail deliveries of cars and trucks) can vary substantially from year to year and, in any year, is dependent to a large extent on general economic conditions, the cost of purchasing and operating cars and trucks and the availability and cost of credit and of fuel, and reflects the fact that cars and trucks are durable items, the replacement of which can be postponed.
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The automotive industry outside of the United States consists of many producers, with no single dominant producer. Certain manufacturers, however, account for the major percentage of total sales within particular countries, especially their respective countries of origin. Most of the factors that affect the U.S. automotive industry and its sales volumes and profitability are equally relevant outside the United States.
The worldwide automotive industry also is affected significantly by a substantial amount of government regulation. In the United States and Europe, for example, government regulation has arisen primarily out of concern for the environment, for greater vehicle safety and for improved fuel economy. Many governments also regulate local content and/or impose import requirements as a means of creating jobs, protecting domestic producers or influencing their balance of payments.
Unit sales of Ford vehicles vary with the level of total industry demand and Ford's share of industry sales. Ford's share is influenced by the quality, price, design, driveability, safety, reliability, economy and utility of its products compared with those offered by other manufacturers. Ford's ability to satisfy changing consumer preferences with respect to type or size of vehicle and its design and performance characteristics can affect Ford's sales and earnings significantly.
The profitability of vehicle sales is affected by many factors, including unit sales volume, the mix of vehicles and options sold, the level of "incentives" (price discounts) and other marketing costs, the costs for customer warranty claims and other customer satisfaction actions, the costs for government- mandated safety, emission and fuel economy technology and equipment, the ability to control costs and the ability to recover cost increases through higher prices. Further, because the automotive industry is capital intensive, it operates with a relatively high percentage of fixed costs which can result in large changes in earnings with relatively small changes in unit volume.
In recent years, due to competitive pressures, vehicle manufacturers have both expanded the coverages and extended the terms of warranties on vehicles sold in the U.S. Ford presently provides warranty coverage on most vehicles sold by it in the U.S that extends for 36 months or 36,000 miles (whichever occurs first) and covers nearly all components of the vehicle. Different warranty coverages are provided on vehicles sold outside the U.S. In addition, as discussed below under "Governmental Standards - Mobile Source Emissions Control", amendments to the Federal Clean Air Act extend the required useful life for emissions equipment on vehicles sold in the U.S. to 10 years or 100,000 miles (whichever occurs first). As a result of these coverages and the increased concern for customer satisfaction, costs for warranty repairs, emissions equipment repairs and customer satisfaction actions ("warranty costs") can be substantial. Estimated warranty costs for each vehicle sold by Ford are accrued at the time of sale. Such accruals, however, are subject to adjustment from time to time depending on actual experience.
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United States
Sales Data. The following table shows U.S. industry demand for the years indicated:
Ford classifies cars by small, middle, large and luxury segments and trucks by compact pickup, compact van/utility, full- size pickup, full-size van/utility and medium/heavy segments. The large and luxury car segments and the compact van/utility, full-size pickup and full-size van/utility truck segments include the industry's most profitable vehicle lines. The following tables show the proportion of retail car and truck sales by segment for the industry (including Japanese and other foreign-based manufacturers) and Ford for the years indicated:
As shown in the first table above, the percentages of industry sales in the various car segments have remained relatively stable since 1989. As shown in the second table above, Ford's proportion of sales in 1992 and 1993 has increased in the middle segment and decreased in the small and luxury segments, reflecting higher sales of Thunderbird, Cougar, Taurus, Sable, Tempo and Topaz models and lower sales of Escort, Festiva, Mark and Continental models.
Item 1. Business (Continued) U.S. Industry Truck Sales by Segment Years Ended December 31 ----------------------------------------- 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- Compact pickup........ 18.9% 20.8% 22.4% 22.9% 23.7% Compact van/utility... 41.1 40.1 38.8 34.7 31.2 Full-Size pickup...... 24.8 24.2 25.1 26.0 26.4 Full-Size van/utility.. 10.6 10.6 9.4 11.4 13.2 Medium/Heavy........... 4.6 4.3 4.3 5.0 5.5 ---- ----- ---- ---- ---- Total U.S. Industry Truck Sales.......... 100.0% 100.0% 100.0% 100.0% 100.0% ===== ===== ===== ===== =====
Ford Truck Sales by Segment in U.S. Years Ended December 31 ------------------------------------- 1993 1992 1991 1990 1989 ----- ----- ----- ----- ----- Compact pickup............ 19.7% 17.0% 18.5% 19.8% 19.5% Compact van/utility........ 32.6 33.5 31.5 25.3 20.4 Full-Size pickup........... 32.6 33.6 35.8 36.8 38.9 Full-Size van/utility..... 12.4 13.1 11.7 14.9 17.4 Medium/Heavy.............. 2.7 2.8 2.5 3.2 3.8 ---- ---- ---- ---- ---- Total Ford U.S. Truck Sales.............. 100.0% 100.0% 100.0% 100.0% 100.0% ===== ===== ===== ===== =====
As shown in the tables above, for both the industry and Ford, the compact van/utility segment has grown significantly since 1989, while the full-size segments (pickups and van/utility) have declined as a percentage of total truck sales.
Market Share Data. The following tables show changes in car and truck market shares of United States and foreign-based manufacturers for the years indicated:
____________________ * All U.S. retail sales data are based on publicly available information from the American Automobile Manufacturers Association, the media and trade publications. ** Includes Jaguar sales since 1990. *** Share data include cars and trucks assembled and sold in the U.S. by Japanese-based manufacturers selling through their own dealers as well as vehicles imported by them into the U.S. "All Other" includes primarily companies based in various European countries and in Korea and Taiwan.
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___________________ * All U.S. retail sales data are based on publicly available information from the American Automobile Manufacturers Association, the media and trade publications. ** Includes Jaguar sales since 1990. *** Share data include cars and trucks assembled and sold in the U.S. by Japanese-based manufacturers selling through their own dealers as well as vehicles imported by them into the U.S. "All Other" includes primarily companies based in various European countries and in Korea and Taiwan.
Japanese Competition. The market share of Ford and other domestic manufacturers in the U.S. is affected by sales from Japanese manufacturers. As shown in the table above, the share of the U.S. combined car and truck industry held by the Japanese manufacturers increased from 21.6% in 1989 to 25.5% in 1991, but declined to 22.8% in 1993, reflecting in part the effects of the strengthening of the Japanese yen on the prices of vehicles produced by the Japanese manufacturers.
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In the 1980s and continuing in the 1990s, Japanese manufacturers added assembly capacity in North America (frequently referred to as "transplants") in response to a variety of factors, including export restraints, the significant growth of Japanese car sales in the U.S. and international trade considerations. Production in the U.S. by Japanese transplants reached 1.6 million units in 1993 and is expected to reach about 2.5 million units a year when additional Japanese transplant capacity becomes fully operational.
Excess Capacity In North America. In 1993, automotive capacity in North America, including Japanese transplants, exceeded industry sales by over 5.2 million units. This excess capacity (which includes overtime capacity) reflected the effect of productivity gains made by manufacturers, added capacity of Japanese transplants and lower-than-normal industry-wide sales resulting from modest economic growth.
Marketing Incentives and Fleet Sales. As a result of intense competition from new product offerings (from both domestic and foreign manufacturers), excess industry capacity as discussed above and the desire to maintain economic production levels, automotive manufacturers that sell vehicles in the U.S. have provided marketing incentives (price discounts) to retail and fleet customers (i.e., daily rental companies, commercial fleets, leasing companies and governments).
Ford's U.S. marketing costs as a percentage of net sales revenue for each of 1993, 1992 and 1991 were: 10.9%, 12% and 16%, respectively. During the 1983-1988 period, such costs as a percentage of sales revenue were in the 4% to 7% range. "Marketing costs" include (i) marketing incentives such as retail rebates and special financing rates, (ii) reserves for residual guaranties on retail vehicle leases; (iii) reserves for costs and/or losses associated with obligatory repurchases of certain vehicles sold to daily rental companies and (iv) costs for advertising and sales promotions.
Sales by Ford to fleet customers were as follows for the years indicated:
Fleet sales generally are less profitable than retail sales. Within total fleet sales, the mix between sales to daily rental companies and sales to other fleet purchasers improved in 1992 and 1993; sales to daily rental companies declined, while other fleet sales (which tend to be more profitable) increased.
Europe
Europe is the largest market for the sale of Ford cars and trucks outside the United States. The automotive industry in Europe is intensely competitive; for the past 12 years, the top six manufacturers have each achieved a car market share in about the 10% to 16% range. (Manufacturers' shares, however, vary considerably by country.) This competitive environment is expected to intensify
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further as Japanese manufacturers, which together had a European car market share of 11.6% for 1993, increase their production capacity in Europe and import restrictions on Japanese built-up vehicles gradually are removed.
In 1993, European car industry sales were 10.8 million cars, down 16% from 1992 levels. Truck sales were 1.7 million units, down 17% from 1992 levels. Ford's European car share for 1993 was 11.8%, compared with 11.5% for 1992, and its European truck share for 1993 was 12.6%, compared with 11.7% for 1992.
For Ford, Great Britain and Germany are the most important markets within Europe, although the Southern European countries are becoming increasingly significant. Great Britain traditionally has been Ford's major source of European automotive profits, and any adverse change in this market has a strong effect on total automotive profits. For 1993 compared with 1992, total industry sales were up 10% in Great Britain and down 19% in Germany.
Other Foreign Markets
Mexico and Canada. Mexico and Canada also are important markets for Ford. Generally, industry conditions in Canada closely follow conditions in the U.S. market; however, Canada continues to be in a recessionary period. In 1993, industry sales of cars and trucks in Canada were down 3% from 1992 levels, while the U.S. experienced an 8% increase in industry sales. Mexico has been a growing market; however, in 1993, industry sales were down 15% to 603,000 units.
The North American Free Trade Agreement ("NAFTA") became effective January 1, 1994. NAFTA unites Canada, Mexico and the United States into the world's largest trading region by phasing out regulations which restricted trade between Mexico and the U.S. and Canada. The Company believes that NAFTA will benefit the economies of the three countries and the North American automobile industry in particular.
Latin America. Brazil, Argentina and Venezuela are the principal markets for Ford in South America. The economic environment in those countries has been volatile in recent years, leading to large variations in profitability. Results also have been influenced by government actions to reduce inflation and public deficits, and improve the balance of payments. In 1993, Ford's profitability in the region improved significantly compared with 1992, primarily reflecting strong results in Brazil. Autolatina (Ford's joint venture with Volkswagen in Brazil and Argentina) remained the market leader in Brazil. In Brazil, a new economic plan aimed at stabilizing the Brazilian economy and reducing inflation was unveiled in late 1993. It is presently unclear to what extent the new plan will affect overall economic conditions. In addition, duties on vehicles imported into Brazil have declined progressively from 85% in 1990 to 35% in October 1993. As a result, imports are expected to gain a progressively larger share of the car market in Brazil. Autolatina's future results largely will be dependent on the political and economic environments in Brazil and Argentina, which historically have been unpredictable.
Asia-Pacific. In the Asia-Pacific region, Australia and Taiwan are the principal markets for Ford products. In both markets, Ford is the car market share leader. In Taiwan (where sales of built-up vehicles manufactured in Japan are prohibited), Ford has total vehicle sales leadership. Ford's principal competition in the Asia-Pacific region has been the Japanese manufacturers. It
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is anticipated that the continuing relaxation of import restrictions (including duty reductions) in Australia and Taiwan will intensify competition in those markets.
Ford believes that the Asia-Pacific region offers many important opportunities for the future. Ford is investigating automotive component manufacturing and vehicle assembly opportunities in China and is expanding the number of right-hand- drive vehicles it will offer in Japan. A key element of Ford's presence in the Asia-Pacific region is its long-standing relationship with Mazda Motor Corporation, in which it has held a 25% ownership interest since 1979. Recent management appointments by Mazda of Ford personnel have been made to improve coordination of business and product plans in the Asia-Pacific region. Financial Services Operations
Ford Motor Credit Company
Ford Credit is a wholly owned subsidiary of Ford. It provides wholesale financing and capital loans to franchised Ford dealers and other dealers associated with such dealers and purchases retail installment sale contracts and retail leases from them. Ford Credit also makes loans to vehicle leasing companies, the majority of which are affiliated with such dealers. In addition, a wholly owned subsidiary of Ford Credit provides these financing services in the U.S. to other vehicle dealers. More than 85% of all new vehicles financed by Ford Credit are manufactured by Ford or its affiliates. In addition to vehicle financing, Ford Credit makes loans to affiliates of Ford, finances certain receivables of Ford and its subsidiaries and offers diversified financing services which are managed by USL Capital, a wholly owned subsidiary of Ford Holdings. Ford Credit also manages the activities of a number of international credit affiliates of Ford and the insurance business of American Road, a wholly owned subsidiary of Ford Holdings.
Ford Credit financed the following percentages of new Ford cars and trucks sold or leased at retail and sold at wholesale in the United States during each of the past five years:
Years ended December 31 ------------------------------------ 1993 1992 1991 1990 1989 ---- ---- ---- ---- ----
Retail*............... 38.5% 37.7% 35.2% 31.4% 29.7% Wholesale............. 81.4 77.6 74.9 71.0 69.8
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* As a percentage of total sales and leases, including cash sales.
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Installments on finance receivables, including interest, past-due 60 days or more and the aggregate receivable balances related to such past-due installments were as follows at the dates indicated (in millions):
Installments past-due less than 60 days included in finance receivables at December 31, 1993 and 1992 were $298 million and $231 million, respectively.
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*Includes investments in operating leases.
An analysis of Ford Credit's allowance for credit losses on finance receivables and operating leases is as follows for the years indicated (in millions):
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Ford Credit relies heavily on its ability to raise substantial amounts of funds. These funds are obtained primarily by sales of commercial paper and issuance of term debt. Funds also are provided by retained earnings and sales of receivables. The level of funds can be affected by certain transactions with Ford, such as capital contributions and dividend payments, interest supplements and other support from Ford for vehicles financed by Ford Credit under Ford-sponsored special financing or leasing programs, and the timing of payments for the financing of dealers' wholesale inventories and for income taxes. Ford Credit's ability to obtain funds is affected by its debt ratings, which are closely related to the financial condition of and the outlook for Ford, and the nature and availability of support facilities, such as revolving credit and receivables sales agreements.
The long-term senior debt of Ford and Ford Credit is rated "A2" and "A" and Ford Credit's commercial paper is rated "Prime- 1" and "A-1" by Moody's Investors Service, Inc. and Standard & Poor's Corporation ("S&P"), respectively. Such ratings have been in effect since February 1991, when they were respectively reduced to the present levels from "Aa3" and "AA-" (in the case of long-term senior debt) and "Prime-1" and "A-1+" (in the case of commercial paper).
Ford and Ford Credit have entered into a profit maintenance agreement which provides for payments by Ford to the extent required to maintain Ford Credit's earnings at specified minimum levels. No payments were required under the agreement during the period 1988 through 1993.
Ford Credit Europe plc
In 1993, most of the European credit operations of Ford, which generally had been organized as subsidiaries of the respective automotive affiliates of Ford throughout Europe, were consolidated into a single company, Ford Credit Europe. Ford Credit Europe, which was originally incorporated in 1963 in England as a private limited company, is wholly owned by Ford and certain of its subsidiaries. Ford Credit Europe's primary business is to support the sale of Ford vehicles in Europe through the Ford dealer network. A variety of retail, leasing and wholesale finance plans is provided in most countries in which it operates. The business of Ford Credit Europe is substantially dependent upon Ford's automotive operations in Europe. Ford Credit Europe issues commercial paper, certificates of deposits and term debt to fund its credit operations. One of the purposes of the consolidation described above is to facilitate Ford Credit Europe's access to public debt markets. Ford Credit Europe's ability to obtain funds in these markets is affected by its credit ratings, which are closely related to the financial condition of and outlook for Ford.
First Nationwide Financial Corporation
First Nationwide, a savings and loan holding company organized in Delaware in 1959, was acquired by Ford in December 1985. It is a wholly owned subsidiary of Ford.
The principal asset of First Nationwide is the capital stock of First Nationwide Bank, A Federal Savings Bank ("First Nationwide Bank" or the "Bank"). The Bank is a federally chartered, capital stock savings bank which, with its predecessor institutions, has been in the savings and loan business since 1885. The principal business of the Bank consists of attracting savings deposits from
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the public and making loans collateralized by liens on residential and other real estate. Income is derived from interest charges on real estate loans and, to a lesser extent, from fees received in connection with such loans and interest on securities investments. The major expense of the Bank is the interest it pays on savings accounts and on borrowings.
First Nationwide's loans receivable (including those of the Bank) were as follows at the dates indicated (in millions):
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* Certain amounts for 1992 have been restated to conform with presentations adopted in 1993.
Included in the above receivables at December 31, 1993 and 1992 were $9.0 billion and $10.2 billion, respectively, of variable rate real estate loans. Loans held for sale, not included above, were $288 million and $195 million at December 31, 1993 and 1992, respectively.
The percentages of real estate loans by state were as follows at December 31, 1993, excluding accrued interest receivable, discounts and premiums, and loss reserves, and including $288 million of loans held for sale: California - 55.4%; New York - 10.8%; Florida - 3.8%; Illinois - 3.2%; and 46 other states, none of which exceeded 3.0% of total real estate loans.
The following table reflects at the dates indicated the amount of non-accrual, past due, and troubled debt restructured loans including the interest income recognized and total interest income that would have been recognized had the borrowers performed under the original terms of the loans (in millions):
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______________ * Certain amounts for 1992 have been restated to conform with presentations adopted in 1993.
At December 31, 1993, there were no commitments to lend additional funds to borrowers whose loans were on non-accrual status or were restructured.
An analysis of First Nationwide's allowance for losses on loans is as follows for the years indicated (in millions):
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Credit loss experience, net of recoveries, of The Associates' finance business was as follows for the years indicated (dollar amounts in millions):
The following table shows total balances delinquent sixty days and more by type of business at the dates indicated (dollar amounts in millions):
An analysis of The Associates' allowance for losses on finance receivables is as follows for the years indicated (in millions):
Governmental Standards
A number of governmental standards and regulations relating to safety, corporate average fuel economy ("CAFE"), emissions control, noise control, damageability and theft prevention are applicable to new motor vehicles, engines, and equipment manufactured for sale in the United States and Europe. In addition, manufacturing and assembly facilities in the United States and Europe are subject to stringent standards regulating air emissions, water discharges and the handling and disposal of hazardous substances. Such facilities in the United States also are subject to a comprehensive federal-state permit program relating to air emissions. Many of the standards will become increasingly stringent. Moreover, additional and even more stringent standards and regulations, notably car and truck emissions and CAFE standards, may be made applicable to future model vehicles as well as to existing and future facilities. The technological feasibility of achieving compliance with some of these standards and regulations has not been established on a commercial basis. Assuming that compliance with all applicable standards and regulations can be achieved within the prescribed time frame, it will be extremely costly and it could be necessary for Ford to take such actions as curtailing or eliminating production of certain cars, trucks and engines. Such actions could have substantial adverse effects on Ford's sales volume and profits.
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Mobile Source Emissions Control -- As amended in November 1990, the Federal Clean Air Act (the "Clean Air Act" or the "Act") imposes significantly more stringent limits on the amount of regulated pollutants that lawfully may be emitted by new motor vehicles and engines produced for sale in the United States than those previously in effect. The effective dates of these standards, some of which have phase-in periods, vary depending upon the type of vehicle, but begin to apply as early as the 1994 model year. In addition, the Act doubles the length of the "useful life" during which compliance with the applicable standards must be achieved. Passenger cars, for example, must comply for 10 years or 100,000 miles, whichever first occurs. The Act prohibits, among other things, the sale in or importation into the United States of any new motor vehicle or engine which is not covered by a certificate of conformity issued by the United States Environmental Protection Agency (the "EPA").
The Act also may require production of certain new cars and trucks capable of operating on fuels other than gasoline or diesel fuel ("alternative fuels") under a pilot test program to be conducted in California beginning in the 1996 model year. Under this pilot program, each manufacturer will be required to sell its pro rata share of 150,000 vehicles in each of the 1996, 1997 and 1998 model years and its pro rata share of 300,000 vehicles in each model year thereafter. The Act also authorizes certain states to establish programs to encourage the purchase of such vehicles.
Motor vehicle emissions standards even more stringent than those referred to above will become effective as early as the 2003 model year, unless the EPA determines that such standards are not necessary, technologically feasible or cost-effective.
The Act authorizes California to establish unique emissions control standards that, in the aggregate, are at least as stringent as the federal standards if it secures the requisite waiver of federal preemption from the EPA. The Health and Safety Code of the State of California prohibits, among other things, the sale to an ultimate purchaser who is a resident of or doing business in California of a new motor vehicle or engine which is intended for use or registration in that state which has not been certified by the California Air Resources Board (the "CARB"). The CARB received a waiver from the EPA for a series of passenger car and light truck emissions standards (the "low emission vehicle", or "LEV", standards), effective beginning between the 1994 and 2003 model years, that are more stringent than those prescribed by the Act for the corresponding periods of time. These California standards are intended to promote the development of various classes of low emission vehicles. California also requires that a specified percentage of each manufacturer's vehicles produced for sale in California, beginning at 2% in 1998 and increasing to 10% in 2003, must be "zero-emission vehicles" ("ZEVs"), which produce no emissions of regulated pollutants.
Electric vehicles are the only presently known type of zero-emission vehicles. However, despite intensive research activities, technologies have not been identified that would allow manufacturers to produce a commercially viable electric vehicle. To comply with the mandate, manufacturers may have to offer substantial discounts on electric vehicles, selling them well below cost, or increase the price or curtail the sale of non-electric vehicles. The California
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emissions standards present significant technological challenges to manufacturers and compliance may require costly actions that would have a substantial adverse effect on Ford's sales volume and profits.
The Act also permits other states with air quality problems to adopt new motor vehicle emissions standards identical to those adopted by California, if such states lawfully adopt such standards two years before commencement of the affected model year. In October 1991, a group of twelve northeastern states and the District of Columbia, the Ozone Transport Commission (the "OTC"), organized under provisions of the Act and executed a Memorandum of Understanding under which they agreed to propose adoption of the California LEV standards. On February 1, 1994, the OTC voted to recommend to the EPA that it require all member states to adopt the California LEV standards in their state implementation programs. The EPA must act on the petition within nine months after its receipt. Adoption of the California LEV standards by any state will present challenges and potential adverse effects similar to those that will be experienced in California, which may be further aggravated by conditions in a particular state.
In November 1990, the Department of Environmental Conservation (the "DEC") of the State of New York adopted regulations, effective beginning in the 1993 model year, that are intended to require that vehicles sold in that state comply with California's 1993 model year (pre-LEV) emissions standards. In May 1992, the DEC adopted regulations purporting to implement the California LEV standards beginning in the 1994 model year. The American Automobile Manufacturers Association ("AAMA"), of which Ford is a member, and the Association of International Automobile Manufacturers ("AIAM") challenged the legality of the DEC's adoption of the LEV standards, as inconsistent with its legal authority under the Act. A ruling by the U.S. District Court in Binghamton, New York, that the DEC's adoption of the LEV standards violated certain provisions of the Act (and was, therefore, invalid) was appealed to the U.S. Court of Appeals for the Second Circuit (the "Second Circuit Court"). On February 4, 1994, the Second Circuit Court upheld certain aspects of the State of New York's adoption of the California LEV standards, including the ZEV sales mandate. However, the Second Circuit Court also held that the standard would not apply to 1995 model year vehicles, thereby making the standard applicable to 1996 and beyond model year vehicles. A 1990 Massachusetts law, as implemented by regulations issued in 1992, purports to adopt the California LEV standards beginning in the 1995 model year. A special study commission established by the Massachusetts legislature to re-evaluate adoption of the California Act and standards recommended proceeding with their adoption. The AAMA and AIAM are challenging the adoption of the standards in the U.S. District Court in Massachusetts.
Under the Act, if the EPA determines that a substantial number of any class or category of vehicles, although properly maintained and used, do not conform to applicable emissions standards, a manufacturer may be required to recall and remedy such nonconformity at its expense. Further, if the EPA determines through testing of production vehicles that emission control performance requirements are not met, it can halt shipment of motor vehicles of the configuration tested. California has similar, and in some respects greater, authority to order manufacturers to recall vehicles. Ford has been required, and may in the future be required, to recall vehicles for such purposes from time to time. The costs of related repairs or inspections associated with such recalls can be substantial.
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The European Union has established standards which, in many cases, will require motor vehicle emissions control equipment similar to that used in the U.S. These standards, which are of generally equivalent stringency to 1983 model year U.S. standards for gasoline-powered vehicles and 1987 model year standards for diesel-powered vehicles, are applicable to vehicles type-approved after July 1, 1992, and registered after December 31, 1992. The EU Council of Ministers has unanimously adopted a common position approving a proposal by the European Commission to adopt more stringent motor vehicle emission standards. Under the European Union's new co-decision procedure, the Council's common position must be referred to the European Parliament (which may accept, modify or reject the proposal) for further action before the proposal can be adopted. Under the co-decision procedure, adoption is expected to be completed in the first half of 1994. The proposed standards would apply to vehicle homologations (i.e., the European regulatory certification process) beginning January 1, 1996 and to new vehicle registrations beginning January 1, 1997 and are of generally equivalent numerical stringency to those which begin to apply in the U.S. for the 1994 model year. The common position also provides for the European Commission to propose by the end of 1994 supplementary reductions in motor vehicle emissions that would take effect beginning January 1, 2000. Such supplemental reductions would be a function of technical progress achieved between now and 2000. When the more stringent standards are adopted, European Union member countries would be permitted to provide "green" incentives for the purchase of vehicles that comply with the new standards before their effective date. Certain other European countries also have established, and may in the future establish, unique automotive emissions standards.
Certain European countries, including member countries of the European Union, are conducting in-use emissions testing to ascertain compliance of motor vehicles with applicable emissions standards. These actions could lead to recalls of vehicles and the future costs of related repairs or inspections could be substantial.
Motor Vehicle Safety -- Under the National Traffic and Motor Vehicle Safety Act of 1966, as amended (the "Safety Act"), the National Highway Traffic Safety Administration (the "Safety Administration") is required to establish appropriate federal motor vehicle safety standards that are practicable, meet the need for motor vehicle safety and are stated in objective terms. Since 1968 the Safety Act has prohibited the sale in the United States of any new motor vehicle or item of motor vehicle equipment that does not conform to applicable federal motor vehicle safety standards. The Safety Administration has announced its intention to establish additional such standards in the near future, which Ford supports in principle. Ford expects to be able to comply with those standards but only at significantly increased costs, because doing so will tend to conflict with the need to reduce vehicle weight in order to meet stringent emissions and fuel economy standards. The Safety Administration also is required to make a determination on the basis of its investigation whether motor vehicles or equipment contain defects related to motor vehicle safety or fail to comply with applicable safety standards and, generally, to require the manufacturer to remedy any such condition at its own expense. The same obligation is imposed on a manufacturer which obtains knowledge that any motor vehicle manufactured by it contains a defect determined in good faith by it to be related to motor vehicle safety. There currently are pending before the Safety Administration a number of major investigations relating to alleged safety defects or alleged noncompliance with applicable safety standards in vehicles built, imported or
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sold by Ford. The cost of recall programs to remedy safety defects or noncompliance, should any be determined to exist as a result of certain of such investigations, could be substantial.
The European Union, individual Member States within the European Union and other countries in Europe also have safety standards applicable to motor vehicles and are likely to adopt additional or more stringent standards in the future. The cost of complying with these standards, as well as the cost of any recall programs to remedy safety defects or noncompliance, could be substantial.
Motor Vehicle Fuel Economy -- Passenger cars and trucks rated at less than 8,500 pounds gross vehicle weight are required by regulations issued by the Safety Administration pursuant to the Motor Vehicle Information and Cost Savings Act (the "Cost Savings Act") to meet separate minimum CAFE standards. Failure to meet the CAFE standard in any model year, after taking into account all available credits, is deemed to be unlawful conduct and would subject a manufacturer to the imposition of a civil penalty equivalent to $5 for each one-tenth of a mile per gallon ("mpg") under the applicable standard multiplied by the number of vehicles in the class (i.e., domestic cars, domestic trucks, imported cars or imported trucks) produced in that model year. Each such class of vehicle may earn credits either as a result of exceeding the standard in one or more of the preceding three model years ("carryforward credits") or pursuant to a plan, approved by the Safety Administration, under which a manufacturer expects to exceed the standard in one or more of the three succeeding model years ("carryback credits") but credits earned by a class may not be applied to any other class of vehicles.
The Cost Savings Act established a passenger car CAFE standard of 27.5 mpg for the 1985 and later model years, which the Safety Administration asserts it has the authority to amend to a level it determines to be the "maximum feasible" level (considering the following factors: technological feasibility, economic practicality, the effect of other federal motor vehicle standards on fuel economy, and the need of the nation to conserve energy). Pursuant to the Cost Savings Act, the Safety Administration established CAFE standards applicable to 1994 and 1995 model year light trucks (under 8,500 lbs. GVW) at 20.5 mpg and 20.6 mpg, respectively (on a combined two-wheel drive/four- wheel drive basis). It also has issued a Notice of Proposed Rulemaking ("NPRM") proposing to set standards for light trucks within the range of 20.5 mpg to 21.5 mpg for model years 1996 and 1997.
If the Safety Administration sets light truck standards for the 1996 and 1997 model years within the range proposed in the NPRM referred to above, Ford expects to be able to comply with the CAFE standards applicable to its 1994 through 1997 model year "domestic" and "import" cars and light trucks, although it may be necessary to use credits to do so.
Despite Ford's expectations of compliance, however, there are factors that could jeopardize its ability to comply. These factors include the possibility of changes in market conditions, including a shift in demand for larger vehicles and a decline in demand for small and middle-size vehicles; or conversely, a shortage of reasonably priced gasoline resulting in a decreased demand for more profitable vehicles and a corresponding increase in demand for relatively less profitable vehicles.
Item 1. Business (Continued)
It is anticipated that efforts may be made to raise the CAFE standard because of concerns for CO2 emissions, energy security or other reasons. President Clinton's Climate Change Action Plan sets a goal to improve new vehicle fuel efficiency in an amount equivalent to at least 2% per year over a 10 to 15 year period, using a combination of regulatory and non-regulatory measures. If the entire goal, or a substantial portion of the goal, is to be achieved through higher CAFE standards, Ford would find it necessary to take various costly actions that would have substantial adverse effects on its sales volume and profits. For example, Ford could find it necessary to curtail or eliminate production of larger family-size and luxury passenger cars and full-size light trucks, restrict offerings of engines and popular options, and continue or increase market support programs for its most fuel-efficient passenger cars and light trucks.
The Energy Tax Act of 1978, as amended, imposes a federal excise tax on automobiles which do not achieve prescribed fuel economy levels. Additional legislative proposals could be introduced that, if enacted, would increase excise taxes or create economic disincentives to purchase any except the least fuel consuming vehicles. Because of the uncertainties and variables inherent in testing for fuel economy and the uncertain effect on fuel economy of other government requirements, it is not possible to predict the amount of excise tax, if any, which may be incurred.
Stationary Source Air Pollution Control -- Pursuant to the Clean Air Act the states are required to amend their implementation plans to require more stringent limitations on the quantity of pollutants which may be emitted into the atmosphere, and other controls, to achieve national ambient air quality standards established by the EPA. In addition, the Act requires reduced emissions of substances that are classified as hazardous or that contribute to acid deposition, imposes comprehensive permit requirements for manufacturing facilities in addition to those required by various states, and expands federal authority to impose severe penalties and criminal sanctions. The Act requires the EPA and the states to adopt regulations, and allows states to adopt standards more stringent than those required by the Act. The costs to comply with these provisions of the Act cannot presently be quantified but could be substantial. In addition, the enormous complexity and time-consuming nature of the comprehensive federal-state permit program provided for by the Act may reduce operational flexibility and may delay or prevent future competitive upgrading of Ford's production facilities in the United States.
Water Pollution Control -- Pursuant to the Federal Clean Water Act (the "Clean Water Act"), Ford has been issued National Pollutant Discharge Elimination System permits which establish certain pollution control standards for its manufacturing facilities that discharge wastewater into public waters. Ford, among many other companies, also is required to comply with certain standards and obtain permits relating to discharges into municipal sewerage systems. The EPA also requires management standards and, in some cases, permits for the discharge of storm water. The standards under the Clean Water Act are established by the EPA and by the state where a facility is located. Many states have requirements that go beyond those established under the Clean Water Act. These various requirements may necessitate the addition of costly control equipment.
Item 1. Business (Continued)
The EPA recently issued proposed regulations, pursuant to the Great Lakes Critical Programs Act of 1990, that would require more restrictive standards for discharges into waters that impact the Great Lakes. Ford and many others have expressed opposition to these proposed regulations which, if adopted, could require the addition of costly control equipment.
Hazardous Waste Control -- Pursuant to the Federal Resource Conservation and Recovery Act ("RCRA"), the EPA has issued regulations establishing certain procedures and standards for persons who generate, transport, treat, store, or dispose of hazardous wastes. These regulations also require permits for treatment, storage, and disposal facilities and corrective action for prior releases at sites where permits are issued. The EPA has delegated permit authority to states with programs equivalent to RCRA, and states may adopt even more extensive requirements. The Federal Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (the "Superfund Act"), requires disclosure of certain releases from Ford facilities into the environment, creates potential liability for remediation costs at sites where Ford waste was disposed and for damage to natural resources resulting from a release, and provides for citizens' suits for failure to comply with final requirements of orders or regulations. A number of states have enacted separate state laws of this type. In addition, under the Federal Toxic Substances Control Act ("TSCA"), the EPA evaluates environmental and health effects of existing chemicals and new substances. Pursuant to TSCA, the EPA has banned production of polychlorinated biphenyls and regulates their use in transformers, capacitors and other equipment that may be located at Ford's facilities.
European Pollution and Waste Control -- The European Union, individual Member States within the European Union and other countries in Europe also have requirements governing air and water pollution and hazardous waste control and are likely to adopt additional or more stringent requirements in the future. The cost of complying with these standards could be substantial.
Ozone Depleting Chemicals -- An international agreement, the Montreal Protocol on Substances that Deplete the Ozone Layer, as amended (the "Montreal Protocol"), and the Clean Air Act require a phaseout beginning in 1993 of certain chemicals deemed to be ozone-depleting, including chlorofluorocarbons ("CFCs"), in both products and manufacturing processes. The EPA Administrator is required by the Clean Air Act to adopt regulations that are consistent with the Montreal Protocol. In February 1992, acting under provisions of the Clean Air Act, former President Bush announced the acceleration of the phase-out of CFCs by requiring the elimination of production of CFCs by December 31, 1995 (except for amounts necessary for essential uses and for servicing existing equipment) and directing CFC producers to reduce their production in each of the years 1992-1995 to one- half of 1986 production levels. In November 1992, the phaseout schedule for CFC production under the Montreal Protocol was accelerated even further, requiring CFC producers to reduce their production in 1994 and 1995 to one-quarter of 1986 production levels and requiring a complete phaseout of CFC production by January 1, 1996, except for production or importation of CFC's for "essential uses" only. The Act also specifies mandatory recycling of CFCs during vehicle air conditioning service.
Item 1. Business (Continued)
The Company expects that its vehicle air-conditioning systems and most of its manufacturing operations will become free of CFCs within the mandated phaseout and elimination schedule for these chemicals, but some continued need for them will exist to service existing equipment and vehicles.
Several states (e.g., Vermont and Maine) have enacted laws requiring a complete ban on CFCs in mobile air conditioners prior to imposition of the phaseout mandated by the Act. As a result, the Company may not be able to offer certain vehicles for sale with air conditioners in those states.
The European Union also has adopted provisions accelerating the Montreal Protocol schedule for CFC reduction. Under the proposal adopted by the European Council, CFCs and certain other ozone depleting chemicals must be completely phased out by January 1, 1995. In addition, the EU Council of Environmental Ministers have agreed to accelerate by 15 years the timetable agreed to in the Montreal Protocol for restrictions on the use and sale of hydrochlorofluoro-carbons ("HCFCs"). The use of HCFCs within the European Union must now be reduced by 35% from their peak 1995 usage by 2004 before being phased out completely by 2015. The Montreal Protocol establishes a final phase-out by 2030.
Pollution Control Costs -- During the period 1994 through 1998, Ford expects that approximately $700 million will be spent on its North American facilities (primarily all in the U.S.) to comply with air and water pollution and hazardous waste control standards which now are in effect or are scheduled to come into effect. Of this total, Ford estimates that approximately $140 million will be spent in 1994 and $150 million will be spent in 1995.
Employment Data
In 1993, Ford's worldwide employment decreased 1% to 322,213 from 325,333 in 1992. The decrease in average employment for 1993 resulted primarily from the ongoing cost-reduction programs in Europe. Worldwide payrolls were $13.8 billion in 1993, unchanged from 1992.
Average employment by geographic area in 1993 compared with 1992 levels was as follows:
1993 1992 United States 166,943 158,377 Canada 15,747 14,863 Europe 99,527 109,156 Latin-America 27,259 29,668 Asia Pacific 12,737 13,269 ------- ------- Total 322,213 325,333 ======= =======
For further information regarding employment statistics of Ford, see Item 6. "Selected Financial Data". For information concerning employee retirement benefits, see Note 8 of Notes to Financial Statements.
Substantially all hourly employees of Ford in the United States are included in collective bargaining units represented by unions. Approximately 99% of these unionized hourly employees are represented by the United Automobile Workers (the "UAW"). Approximately 3% of salaried employees are represented by unions. Most hourly employees and many nonmanagement salaried employees of subsidiaries outside the United States also are represented by
Item 1. Business (Continued)
unions. Affiliates of Ford also are parties to collective bargaining agreements in Britain, Spain, Germany and France.
Collective bargaining agreements between Ford and the UAW and between Ford of Canada and the Canadian Automobile Workers were entered into in 1993 and are scheduled to expire in September 1996.
Research and Development
Ford and certain of its subsidiaries have staffs of professional employees whose activities are directed primarily to the improvement of the performance (including fuel efficiency), safety and comfort of the products of those companies and to the development of new products, and also have staffs of scientists engaged in basic research. Extensive engineering, research and design facilities are maintained for these purposes. Principal among them are the engineering, research and design centers of Ford at Dearborn, Michigan; of Ford of Britain at Dunton, England; and of Ford of Germany at Merkenich, Germany.
In 1993, 1992 and 1991, $5 billion, $4.3 billion, and $3.7 billion, respectively, were charged to income of Ford and its consolidated subsidiaries for Ford-sponsored research and development activities relating to the development of new products and services and the improvement of existing products and services. In addition, $55 million, $46 million and $44 million were charged to income in 1993, 1992 and 1991, respectively, for customer-sponsored research and development activities.
Item 2.
Item 2. Properties
Ford's United States manufacturing and assembly facilities, substantially all of which are owned by Ford and its subsidiaries, are situated in various sections of the country and include assembly plants, engine plants, casting plants, metal stamping plants, electronic components plants, transmission and axle plants, glass plants and industrial equipment plants. A major portion of the distribution centers, warehouses and sales offices is owned by Ford, with the remainder being leased.
In addition, Ford's foreign subsidiaries maintain and operate manufacturing plants, assembly facilities, parts distribution centers and engineering centers outside the United States, substantially all of which are owned by such subsidiaries.
The furniture, equipment and other physical property owned by Ford's Financial Services operations are not significant in relation to their total assets.
Item 3.
Item 3. Legal Proceedings
Various legal actions, governmental investigations and proceedings and claims are pending or may be instituted or asserted in the future against the Company and its subsidiaries, including those arising out of alleged defects in the Company's products, governmental regulations relating to safety, emissions and fuel economy, financial services, intellectual property rights, product warranties and environmental matters. Certain of the pending legal actions are, or purport to be, class actions. Some of the foregoing matters involve or may involve compensatory, punitive or antitrust or other treble damage claims in very large amounts, or demands for recall campaigns, environmental remediation programs, sanctions or other relief which, if granted, would require very large expenditures. See Item 1, "Business--Governmental Standards". Included among the foregoing matters are the following:
Product Matters -- Three suits purporting to be nationwide class actions were filed by some of the plaintiffs of a previously dismissed federal action that allege claims that are substantially the same as those in the dismissed federal action - - - i.e., that they are or were purchasers or owners of or passengers in 1976 through 1979 model year Ford vehicles equipped with certain automatic transmissions who have incurred property damage, personal injury, economic losses or liability for such losses by reason of an alleged tendency of the vehicles to slip from park to reverse. A judgment dismissing the first such suit by the Superior Court for the District of Columbia was vacated by the local Court of Appeals for the District of Columbia, and renewed motions to dismiss are under consideration by the Superior Court. The second suit was filed in the Court of Common Pleas in Philadelphia, Pennsylvania, and has been stayed pending the entry of final and non-appealable orders in the action referred to in the immediately preceding sentence. The third suit was filed in the Circuit Court of Cook County, Illinois. That court granted the Company's motion to stay proceedings indefinitely and the plaintiffs have appealed that ruling to the Appellate Court of Illinois for the First Judicial District-Third Division.
Ford is a defendant in various actions for damages arising out of automobile accidents where plaintiffs claim that the injuries resulted from (or were aggravated by) alleged defects in the occupant restraint systems in vehicle lines of various model years. The damages specified by the plaintiffs in these actions, including both actual and punitive damages, aggregated approximately $439 million at January 1, 1994.
Ford is a defendant in various actions involving the alleged propensity of Bronco II utility vehicles to roll over. The damages specified in these actions, including both actual and punitive damages, aggregated approximately $367 million at January 1, 1994.
In some of the actions described in the foregoing paragraphs no dollar amount of damages is specified or the specific amount referred to is only the jurisdictional minimum. In addition to the pending actions, accidents have occurred and claims have arisen which also may result in lawsuits in which such a defect may be alleged.
Ford is a defendant in various actions for injuries claimed to have resulted from alleged contact with certain Ford parts and other products containing asbestos. Damages specified by plaintiffs in complaints in these actions, including both actual and punitive damages, aggregated approximately $163 million at January 1, 1994. (In some of these actions no dollar amount of damages is specified or the specific amount referred to is only the jurisdictional minimum.) As distinguished from most lawsuits against Ford, in
Item 3. Legal Proceedings (Continued)
most of these asbestos-related cases, Ford is but one of many defendants, and many of these co-defendants have substantial resources.
Environmental Matters -- Ford has received notices from two government environmental enforcement agencies concerning two separate matters, each potentially involving monetary sanctions exceeding $100,000. One agency believes a Ford facility may have violated regulations relating to the management of certain of the facility's wastes and the other agency believes a Ford facility may violate or may have violated limits established by regulations or permits for emissions or discharges.
Ford has received notices under RCRA, the Superfund Act and applicable state laws that it (along with others) may be a potentially responsible party for the costs associated with remediating numerous hazardous substance storage, recycling or disposal sites in many states and, in some instances, for natural resource damages. Ford also may have been a generator of hazardous substances at a number of other sites. The amount of any such costs or damages for which Ford may be held responsible could be substantial. Contingent losses expected to be incurred by Ford in connection with many of these sites have been accrued and are reflected in Ford's financial statements in accordance with generally accepted accounting principles. However, for many other of these sites the remediation costs and other damages for which Ford ultimately may be responsible are not reasonably estimable because of the uncertainties with respect to factors such as Ford's connection to the site or to materials there, the involvement of other potentially responsible parties, the application of laws and other standards or regulations, site conditions, and the nature and scope of investigations, studies and remediation to be undertaken (including the technologies to be required and the extent, duration and success of remediation). As a result, Ford is unable to determine or reasonably estimate the amount of costs or other damages for which it is potentially responsible in connection with these sites, although it could be substantial.
Other Matters -- A number of claims have been made or may be asserted in the future against Ford alleging infringement of patents held by others. Ford believes that it has valid defenses with respect to the claims that have been asserted. If some of such claims should lead to litigation, however, and if the claimant were to prevail, Ford could be required to pay substantial damages.
On August 7, 1992, Ford was sued in federal court in Nevada by an individual patent owner seeking damages and an injunction for alleged infringement of three (later amended to four) U.S. patents characterized by the individual as covering machine vision inspection technologies, including bar code reading. Ford and one of its suppliers, Motorola, have filed a declaratory judgment action in the same court to have those patents and several other patents directed to machine vision, radiation beam (e.g., laser and electron beam) uses and semiconductor manufacturing (17 patents in all) declared invalid, unenforceable and not infringed. If the patent holder were to prevail, Ford could be required to pay substantial damages of an as yet indeterminate amount and could become subject to an injunction preventing future uses of any process or product found to be covered by a valid patent.
Item 3. Legal Proceedings (Continued)
On March 15, 1993, Ford was served with a private purported class action lawsuit in Texas relating to allegations of paint peeling on unspecified Ford vehicles. The purported class would include all persons who purchased new or used Ford vehicles in Texas and who experienced paint peeling as a result of unspecified defects in Ford's paint process. The plaintiffs seek an unspecified amount of damages.
Ford has been served with various private purported class action lawsuits seeking economic damages (including damages for diminution in value and rescission of purchase agreements) on behalf of Bronco II vehicle owners relating to the alleged propensity of such vehicles to roll over. The purported classes include all Bronco II owners in the United States. Each lawsuit expressly excludes personal injury claimants, whose claims are discussed above. Several of the lawsuits seek recovery of unspecified punitive damages. In addition, several of the lawsuits seek an order requiring the Company to recall and retrofit these vehicles.
Ford of Germany and Volkswagen AG have formed a joint venture to produce a multi-purpose vehicle ("MPV") in Portugal. The Portuguese government has agreed to grant an incentive package to the joint venture. On June 15, 1993 the European Court of Justice rejected a claim filed by a French manufacturer of MPVs challenging the legality of the grant. The same manufacturer has filed an appeal with the European Court challenging the decision of the European Commission in December 1992 granting antitrust approval of the joint venture. Ford has intervened in these proceedings. If the French manufacturer succeeds in the antitrust case, which Ford considers unlikely, the joint venture could be dissolved, the grants may have to be repaid and the participants in the joint venture might have to write off substantial development costs.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
Not required.
Item 4A. Executive Officers of the Registrant
The executive officers of the Registrant and their respective positions and ages at March 25, 1994 are shown in the table below:
Item 4A. Executive Officers of the Registrant (Continued)
Item 4A. Executive Officers of the Registrant (Continued)
(1) Also Chairman of the Organization Review and Nominating Committee of the Board of Directors. (2) Also a member of the Finance Committee of the Board of Directors.
Item 4A. Executive Officers of the Registrant (Continued)
Alex Trotman, Allan D. Gilmour, Louis R. Ross, Stanley A. Seneker and Kenneth Whipple are members of the Office of the Chief Executive of the Registrant.
Some of the officers listed above also are members of one or more additional committees of the Registrant that are not committees of the Board of Directors.
General Notes:
All of the above officers have been employed by the Registrant or its subsidiaries in one or more executive capacities during the past five years.
Under the By-Laws of the Registrant the executive officers are elected by the Board of Directors at the Annual Meeting of the Board of Directors held for this purpose, each to hold office until his or her successor shall have been chosen and shall have qualified or as otherwise provided in the By-Laws.
PART II
Item 5.
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
The Common Stock of Ford presently is listed on the New York, Boston, Philadelphia, Midwest and Pacific Coast Stock Exchanges in the United States; on the Montreal and Toronto Stock Exchanges in Canada; the Tokyo Stock Exchange in Japan; and on certain stock exchanges in Belgium, France, Germany, Switzerland and the United Kingdom. Ford is considering, however, the withdrawal of its Common Stock from listing and registration on certain of these U.S. regional and foreign stock exchanges.
The high and low sales prices for Ford Common Stock and the dividends paid per share of Common and Class B Stock for each full quarterly period in the years indicated were as follows:
*Prices reflect New York Stock Exchange Composite Transactions
As of January 31, 1994, stockholders of record of Ford included 255,378 holders of Common Stock and 107 holders of Class B Stock.
J:\10K\10kpth
Item 6.
Item 6. Selected Financial Data
The following tables set forth selected financial data and other data concerning Ford for each of the last ten years (dollar amounts in millions except per share amounts):
(5) Includes units manufactured by other companies and sold by Ford.
(6) Factory sales are by source of manufacture, except that Canadian, Mexican and Australian exports to the United States are included as U.S. vehicle sales, and U.S. exports to Canada are included as Canadian vehicle sales.
(7) Includes units sold by Ford in Brazil and Argentina through June 30, 1987, and excludes units sold by Autolatina.
(8) Ford's tractor operation, Ford New Holland, was sold on May 6, 1991.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
The Company's worldwide net income in 1993 was $2,529 million, or $4.55 per share of Common and Class B Stock, compared with a loss of $7,385 million, or $15.61 per share in 1992. Sales and revenues totaled $108.5 billion in 1993, up 8% from 1992. Factory unit sales of cars and trucks were 5,964,000, up 200,000 or 3%.
In 1992, Ford adopted new accounting standards for postretirement benefits (principally retiree health care) and income taxes that resulted in a one-time charge to net income in 1992 for prior years of $6,883 million. Excluding the one-time effects of these accounting changes, the Company incurred a net loss of $502 million or $1.46 per share in 1992.
The Company's financial results in 1993 showed substantial improvement compared with 1992. Improvements in U.S. Automotive operations included the favorable effects of higher industry volume, higher share, and improved margins. Automotive operations outside the U.S. also improved, despite lower industry volumes in Europe. Earnings from Financial Services operations were a record and increased 54% compared with 1992.
The Company continued its product development and cost reduction programs to strengthen its competitive position. In 1993, capital spending for new products and facilities was $6.8 billion, up $1 billion from 1992. Automotive debt at the end of 1993 was $8,016 million, down $301 million from year-end 1992. Cash and marketable securities for the Company's Automotive segment totaled $9,752 million, up $717 million from year-end 1992.
In 1994, the Company expects continued improvements in operating results from cost reduction efforts, new product introductions, and a moderate rate of economic growth in the United States. The Company expects sales for the U.S. car and truck industry to reach about 15 million units in 1994. Several new products will be introduced in 1994, including the Ford Windstar, Ford Aspire, Ford Contour and Mercury Mystique. Per-unit U.S. marketing costs for Ford, which declined in 1993, should decline further in 1994 as industry sales increase and new products are introduced.
The Company expects industry sales in Europe to be up slightly in 1994, compared with 1993. As a result of an expected continuation of the gradual economic recovery in Great Britain and the restructuring actions undertaken in Europe during 1993, the operating results of European Automotive operations are projected to improve in 1994, compared with 1993. In Latin America, the near-term business outlook is favorable, but business conditions have historically been volatile and subject to rapid change.
Fourth Quarter of 1993
In the fourth quarter of 1993, the Company's worldwide net income was $719 million or $1.30 per share of Common and Class B Stock, compared with a loss of $840 million, or $1.85 per share in the fourth quarter of 1992.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Worldwide Automotive operations earned $297 million in the fourth quarter of 1993, compared with a loss of $1,037 million a year ago. U.S. Automotive operations earned $669 million in the fourth quarter of 1993, compared with a loss of $128 million a year ago, while Automotive operations outside the U.S. incurred a loss of $372 million, compared with a loss of $909 million a year ago. Financial Services earned $422 million in the fourth quarter of 1993, compared with $197 million a year ago.
Net income for Automotive operations outside the U.S. were adversely affected in the fourth quarter of 1993 by restructuring actions at Jaguar ($109 million) and Ford of Australia ($57 million), offset partially by the favorable one-time effects of a reduction in German tax rates ($59 million). Automotive operations in the U.S. were favorably affected by the gain on the sale of Ford's North American automotive seating and seat trim business ($73 million). The loss a year ago included one-time European restructuring charges of $334 million for Automotive operations and $85 million for Financial Services operations.
The following discussion of the results of operations excludes the one- time effects associated with accounting changes in 1992 as discussed above. The consolidated financial statements on pages FS-1 through FS-28 should be read as an integral part of this review.
RESULTS OF OPERATIONS: 1993 COMPARED WITH 1992
Automotive Operations
Net income from Ford's worldwide Automotive operations was $940 million in 1993 on sales of $91.6 billion. In 1992, worldwide Automotive operations incurred a loss of $1,534 million (excluding the accounting changes) on sales of $84.4 billion.
In the U.S., Ford's Automotive operations earned $1,482 million on sales of $61.6 billion, compared with a loss of $405 million in 1992 on sales of $51.9 billion. Higher vehicle production, reflecting higher industry sales and a higher Ford market share, accounted for most of the improvement. Improved margins, reflecting mainly favorable material costs, manufacturing efficiencies, and lower marketing costs, were offset partially by higher costs for new products and related facilities. Results in 1993 included the one-time favorable effect of tax legislation ($171 million) for the restatement of U.S. deferred tax balances for the Federal income tax rate increase from 34% to 35% and the gain on the sale of Ford's North American automotive seating and seat trim business ($73 million). On an ongoing basis, the effect of the tax rate change on future tax expense will be unfavorable.
In 1993, the U.S. economy continued to grow at a modest rate. In the eleven quarters since the recovery began in the Spring of 1991, the rate of growth in the gross domestic product (GDP) has averaged 2.7%, 60% of the rate over the comparable period during the last six recoveries. Slow growth has helped reduce interest rates and inflation to low levels. Industry sales of cars and trucks in the United States have gradually increased from 12.5 million units in 1991 to 14.2 million units in
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
1993. Over this period, Ford's combined U.S. car and truck market share has improved -- from 23.2% in 1991 to 25.5% in 1993 -- to the highest level since 1978. The Company also has benefited from reduced marketing incentives, lower supplier cost increases, and other cost efficiencies.
Full year U.S. car and truck industry volumes increased from 13.1 million units in 1992 to 14.2 million units in 1993. Over 70% of the increase in industry sales was attributable to trucks (including minivans, compact utility vehicles, and compact pickups). Ford's share of the U.S. car market (including Jaguar) was 22.3%, up 5/10 of a point from 1992. The Company's U.S. truck share was 30.5%, up 8/10 of a point from 1992. The improved market share for cars and trucks reflected strong product acceptance.
Outside the U.S., Ford's Automotive operations lost $542 million in 1993 on sales of $30.0 billion, compared with a loss of $1,129 million in 1992 on sales of $32.5 billion. Results improved despite a weak economy in Europe that resulted in the lowest level of industry sales in eight years. Savings from cost reduction actions in Europe and improved results in Latin America, reflecting primarily higher industry volume in Brazil, more than offset the effects of lower volume in Europe. The loss in 1993 included restructuring charges at Jaguar ($174 million), primarily for resourcing stamping and restructuring other operations to improve efficiency, and at Ford of Australia ($57 million) related to discontinuing production of the Capri and Laser models, offset partially by the favorable one-time effect of a reduction in German tax rates ($59 million). Losses in 1992 included restructuring charges of $334 million.
Ford's European Automotive operations (excluding Jaguar) lost $407 million, compared with a loss of $647 million in 1992. The improvement reflected nonrecurrence of the one-time restructuring charge ($334 million) in the fourth quarter of 1992, primarily for planned reductions in employment levels. Lower vehicle production, reflecting lower industry sales (down 16%), higher costs for new products, and the unfavorable effect of fluctuations in foreign currency exchange rates were partially offset by manufacturing efficiencies and other cost improvements.
Car and truck industry sales in Europe were 12.5 million units in 1993, compared with 15 million units in 1992. Ford's European car market share (including Jaguar) was 11.8% in 1993, up 3/10 of a point from 1992. Ford's European truck share improved 9/10 of a point to 12.6%.
Financial Services Operations
The Company's Financial Services operations earned a record $1,589 million in 1993, up $557 million from 1992. Higher volume, reduced interest rates and operating costs, and lower credit losses contributed to record earnings at Financial Services operations, including Ford Credit, The Associates, and USL Capital. Results in 1993 included an unfavorable one- time effect of $31 million from tax legislation in the U.S. Results in 1992 of $1,032 million excluded a favorable effect of $211 million associated with one-time accounting changes, mainly for income taxes, but include organizational restructuring charges relating to European Financial Services operations ($85 million).
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Ford Credit's consolidated net income was a record $1,194 million in 1993, up $302 million or 34% from 1992 and included income from its financing operations and its equity in the net income of affiliated companies, primarily Ford Holdings. Ford Holdings is a holding company that owns primarily The Associates, American Road and USL Capital (formerly U.S. Leasing). Ford Credit's financing operations earned a record $996 million in 1993, up $259 million from 1992. Operating improvements resulted primarily from higher levels of earning assets, lower credit losses and higher gains on the sales of receivables, offset partially by the unfavorable effect of tax legislation in the U.S. and lower net interest margins. In addition, international operations managed by Ford Credit earned $199 million in 1993, up $11 million from 1992, primarily reflecting improved net interest margins and lower credit losses offset partially by the unfavorable effect of exchange rates.
The Associates earned a record $470 million in the U.S. in 1993, up $77 million from 1992. The improvement was more than explained by improved credit loss performance and higher levels of earning assets. In addition, international operations managed by The Associates earned $38 million in 1993, the same as in 1992.
First Nationwide incurred a loss of $55 million in 1993, compared with a loss of $81 million in 1992. The improvement resulted primarily from reduced borrowing costs, continued improvements in operating costs, a lower adjustment in 1993 to the carrying value of derivative securities and the gain on sale of certain branches. These factors were partially offset by lower levels of earning assets, lower yields from the reinvestment of FDIC proceeds, and a reduction in income tax benefits.
First Nationwide's 1993 revenues included $72 million from the Federal Savings and Loan Insurance Corporation Resolution Fund (FSLIC/RF), compared with $221 million in 1992. These revenues represented reimbursements for losses or guaranteed yields on covered assets paid pursuant to First Nationwide's agreements with FSLIC/RF to acquire certain savings and loan institutions, as described below in the discussion of 1992 compared with 1991.
USL Capital earned a record $77 million in 1993, up $17 million from 1992. The improvement resulted primarily from higher earning assets and continued operating cost reductions. American Road earned $79 million in 1993, compared with $47 million in 1992. The increase resulted primarily from improved underwriting experience in extended service plan and floor plan products, partially offset by lower investment income.
HISTORICAL REFERENCE: 1992 COMPARED WITH 1991
Automotive Operations
In 1992, Ford's worldwide Automotive operations lost $1,534 million on sales of $84.4 billion. The losses include the portion of one-time European restructuring charges relating to Automotive operations ($334 million). As noted previously, these results exclude the one-time effects of accounting changes adopted in 1992. In 1991, the Company's Automotive operations lost $3.2 billion on sales of $72.1 billion.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
In the U.S., Ford's Automotive operations lost $405 million in 1992 on sales of $51.9 billion, compared with a loss of $2.2 billion in 1991 on sales of $40.6 billion. Higher vehicle production, reflecting higher industry sales and a higher Ford market share, accounted for most of the improvement. Improved margins, reflecting mainly lower supplier cost increases and lower marketing costs, were offset partially by the ongoing effect of the accounting change for retiree health care and by revised accruals for estimates of costs for prior model-year customer satisfaction claims.
Full year U.S. car and truck industry volumes increased from 12.5 million units in 1991 to 13.1 million units in 1992. Ford's share of the U.S. car market was 21.8%, up 1.7 percentage points from 1991, primarily reflecting record sales of the Ford Taurus. The Company's U.S. truck share was 29.7%, up 8/10 of a point from 1991, reflecting strong performance of the Econoline Van and Club Wagon, Explorer, and the new Mercury Villager minivan. The strong share performance and improved industry sales helped to reduce U.S. marketing costs from 16% of revenue in 1991 to 12% of revenue in 1992.
Outside the U.S., Ford's Automotive operations lost $1,129 million in 1992 on sales of $32.5 billion, compared with a loss of $970 million in 1991 on sales of $31.4 billion. One-time restructuring charges and lower volume in Europe more than accounted for the decline. Partially offsetting these adverse factors were lower costs in Europe and improved operating results in Latin America and Asia-Pacific.
Ford's European Automotive operations (excluding Jaguar operating results and acquisition costs) lost $647 million in 1992, compared with a loss of $478 million in 1991. The decline was more than accounted for by the one-time restructuring charge and lower volume, primarily reflecting lower Ford car market share. Ford's 1992 European car market share was 11.5%, down 6/10 of a percentage point from 1991, reflecting mainly reduced sales of the Sierra which was replaced by the all-new Mondeo in early 1993. Ford's European truck share improved 1.3 points to 11.7%. Car and truck industry sales in Europe were 15 million units in 1992. Manufacturing efficiencies and other cost improvements were offset partially by higher marketing incentives and the unfavorable effect of fluctuations in foreign currency exchange rates, primarily the devaluation of the Italian lira and British pound compared with the German mark.
Financial Services Operations
The Company's Financial Services operations earned $1,032 million in 1992, up $105 million or 11% from 1991. Results in 1992 exclude a favorable effect of $211 million associated with one-time effects of accounting changes, mainly for income taxes, but include organizational restructuring charges relating to European Financial Services operations ($85 million). The increase resulted primarily from lower credit losses and improved net interest margins, offset in part by adjustments to the carrying value of derivative securities, lower gains from sales of receivables and a decline in insurance underwriting and investment income. Depreciation costs increased in 1992 as a result of continued growth in operating leases at Ford Credit; the related lease revenues more than offset the increased depreciation.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Ford Credit's consolidated net income was $892 million in 1992, up $143 million or 19% from 1991 and included income from its financing operations and its equity in the net income of affiliated companies, primarily Ford Holdings. Ford Credit's financing operations earned $737 million in 1992, up $179 million from 1991. The improvement in 1992 was more than explained by lower credit losses and improved net interest margins, offset partially by lower gains from sales of receivables. In addition, international operations managed by Ford Credit earned $188 million in 1992, up $23 million from 1991, primarily reflecting higher levels of receivables and lower credit losses.
The Associates earned $393 million in the U.S. in 1992, up $46 million from 1991. The improvement resulted primarily from higher levels of receivables and improved net interest margins. In addition, international operations managed by The Associates earned $38 million in 1992, compared with $25 million in 1991.
First Nationwide incurred a loss of $81 million in 1992, compared with a loss of $73 million in 1991. The decline resulted primarily from a lower level of earning assets, reductions in the carrying value of derivative securities, lower yields from reinvestment of proceeds received from a settlement with FSLIC/RF discussed below, and lower gains on sales of mortgage securities. These factors were offset partially by reduced borrowing costs, lower credit loss provisions, and continued reductions in operating costs.
First Nationwide's 1992 revenues included $221 million from FSLIC/RF, compared with $310 million in 1991. These revenues represented reimbursements for losses or guaranteed yields on covered assets paid pursuant to First Nationwide's agreements with FSLIC/RF to acquire certain savings and loan institutions. During the second quarter of 1992, First Nationwide entered into a settlement agreement with the Resolution Trust Corporation ("RTC") which substantially terminated the assistance agreements between First Nationwide and the FSLIC/RF relating to the acquisitions. The proceeds from the assets that were reacquired by the FSLIC/RF as part of the agreement were used to reduce associated debt and to reinvest in other earning assets. Although the settlement is not expected to have a material effect on the longer-term earnings of First Nationwide, 1992 earnings were reduced because yields obtained from the reinvestment of the settlement proceeds were lower than yields obtained from the previously held assets.
American Road earned $47 million in 1992, compared with $126 million in 1991. The decline resulted primarily from discontinuance of the sale of collateral protection insurance to Ford Credit and lower investment income. USL Capital earned $60 million in 1992, up $5 million from 1991.
LIQUIDITY AND CAPITAL RESOURCES
Automotive Operations
Cash and marketable securities of the Company's Automotive operations were $9,752 million at December 31, 1993, up $717 million from December 31, 1992. The Company paid $1,086 million in cash dividends on its capital stock during 1993. In 1993, the Company contributed $1 billion to its pension funds.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Automotive capital expenditures were $6.7 billion in 1993, up $1 billion from 1992. Over the last five years (1989 through 1993), the Company's worldwide capital spending totaled $32 billion. During the next several years, the pace of spending for product change at Ford will continue at similar or higher levels.
At December 31, 1993, Automotive debt totaled $8,016 million, which was 34% of total capitalization (stockholders' equity and Automotive debt), compared with $8,317 million, or 36% of total capitalization, at year-end 1992.
At December 31, 1993, Ford (parent company only) had long-term contractually committed credit agreements for use in the U.S. under which $4.8 billion is available from various banks at least through June 30, 1998. The entire $4.8 billion may be used, at Ford's option, by either Ford or Ford Credit. As of December 31, 1993, these facilities were unused.
Outside the U.S., Ford has additional long-term contractually committed credit-line facilities of approximately $2.4 billion. These facilities are available in varying amounts from 1994 through 1998; none had been utilized at December 31, 1993.
Financial Services Operations
The Financial Services operations rely heavily on their ability to raise substantial amounts of funds in capital markets in addition to collections on loans and retained earnings. The levels of funds for certain Financial Services operations are affected by certain transactions with Ford, such as capital contributions, dividend payments and the timing of payments for income taxes. Their ability to obtain funds also is affected by their debt ratings which, for certain operations, are closely related to the financial condition and outlook for Ford and the nature and availability of support facilities, such as revolving credit and receivables sales agreements.
Ford Credit's outstanding commercial paper totaled $24.5 billion at December 31, 1993. Support facilities represent additional sources of funds, if required. At December 31, 1993, Ford Credit had approximately $15.4 billion of contractually committed facilities for use in the United States, 84% of which are available through June 30, 1998. These facilities included $12.5 billion of revolving credit agreements with banks (which included $4.8 billion of Ford bank lines that may be used either by Ford or Ford Credit at Ford's option) and $2.9 billion of agreements to sell retail automotive receivables. At December 31, 1993, all of the U.S. facilities were unused. In addition, at December 31, 1993, international subsidiaries and other credit operations managed by Ford Credit had $14.2 billion of support facilities available outside the U.S., approximately 44% of which were contractually committed. At December 31, 1993, approximately 42% of these support facilities outside the U.S. were in use.
First Nationwide's principal sources of funds include borrowings, collections on loans, proceeds from the sale of loans, and customers' deposits. In addition, the Federal Home Loan Bank System provides both short- and long-term alternative sources of funds. Other sources include the sale of mortgage pass-through securities and
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
reverse repurchase agreements. Federal regulations require that an insured institution maintain certain regulatory capital requirements. New minimum regulatory capital standards were established in 1989 and will be phased in through 1994. First Nationwide Bank met all of the minimum capital requirements in effect at December 31, 1993.
At December 31, 1993, The Associates had contractually committed lines of credit with banks of $3.1 billion, with various maturities ranging from January 30, 1994 to December 31, 1994, none of which was utilized at December 31, 1993. Also, at December 31, 1993, The Associates had $4.1 billion of contractually committed revolving credit facilities with banks, with maturity dates ranging from February 1, 1994 through October 1, 1997, and $1 billion of contractually committed receivables sale facilities, $500 million of which are available through April 15, 1994 and $500 million of which are available through April 30, 1995; none of these facilities was in use at December 31, 1993. At December 31, 1993, foreign operations managed by The Associates had $195 million of support facilities available outside the U.S., approximately 64% of which were contractually committed. At December 31, 1993, about 15% of these support facilities outside the U.S. were in use.
At December 31, 1993, Ford Holdings had outstanding debt of $1.9 billion, all of which was long-term. All of the Ford Holdings debt held by nonaffiliated persons is guaranteed by Ford. Ford Holdings had no contractually committed lines of credit at December 31, 1993. In 1993, Ford Holdings sold 1,728 shares of its Series B Cumulative Preferred Stock having an aggregate liquidation preference of $173 million and 2,000 shares of its Series C Cumulative Preferred Stock having an aggregate liquidation preference of $200 million.
American Road's principal sources of funds are insurance premiums, annuity deposits and investment income. American Road had no debt or credit lines at December 31, 1993.
At December 31, 1993, USL Capital had $1.4 billion of contractually committed credit facilities, 70% of which are available through September 1998. These facilities included $200 million of contractually committed receivables sale facilities, of which about 86% were in use at December 31, 1993. At December 31, 1993, foreign operations managed by USL Capital had approximately $90 million of contractually committed support facilities available outside the U.S., of which about 75% were in use at December 31, 1993.
NEW ACCOUNTING STANDARDS
In November 1992, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 112, "Employers' Accounting for Postemployment Benefits", which requires companies to account for employee benefits on an accrual basis for periods when employees are no longer actively employed but have not yet reached retirement. The effect on the Company's financial statements was not material.
In May 1993, the FASB issued SFAS 114, "Accounting by Creditors for Impairment of a Loan". The standard requires that impaired loans be measured based on the
Item 7. Managment's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
present value of expected future cash flows discounted at the loan's effective interest rate. The Company does not plan to adopt this standard until January 1, 1995, and the effect is not expected to be material.
In May 1993, the FASB issued SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities". The standard establishes financial accounting and reporting requirements for investments in equity securities (excluding those accounted for under the equity method and investments in consolidated subsidiaries) that have readily determinable fair values and for all investments in debt securities. The Company has adopted this standard effective January 1, 1994, and the effect is not expected to be material.
Item 8.
Item 8. Financial Statements and Supplementary Data
The Financial Statements and Notes to Financial Statements of the Registrant and the Report of Independent Accountants that are filed as part of this Report are listed under Item 14. "Exhibits, Financial Statement Schedules, and Reports on Form 8-K" and are set forth on pages FS-1 through FS-28 immediately following the signature pages of this Report.
Selected quarterly financial data of Ford and its consolidated subsidiaries for 1992 and 1993 are set forth in Note 17 of Notes to Financial Statements.
Item 9.
Item 9. Disagreements With Accountants on Accounting and Financial Disclosure
Not required.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
The information called for by Item 10 is incorporated by reference from the information under the caption "Election of Directors" in the Proxy Statement, except that the information called for by Item 10 with respect to executive officers of the Registrant appears as Item 4A under Part I of this Report.
Item 11.
Item 11. Executive Compensation
The information called for by Item 11 is incorporated by reference from the information under the captions "Compensation of Directors", "Compensation and Option Committee Report on Executive Compensation", and "Compensation of Executive Officers" in the Proxy Statement.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information called for by Item 12 is incorporated by reference from the information on page 1 of, and under the caption "Election of Directors" in, the Proxy Statement.
Item 13.
Item 13. Certain Relationships and Related Transactions
The information called for by Item 13 is incorporated by reference from the information under the caption "Compensation of Directors" in the Proxy Statement.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial Statements - Ford Motor Company and Subsidiaries
Consolidated Statement of Income, for the years ended December 31, 1993, 1992 and 1991.
Consolidated Balance Sheet, December 31, 1993 and 1992.
Consolidated Statement of Cash Flows, for the years ended December 31, 1993, 1992 and 1991.
Consolidated Statement of Stockholders' Equity, for the years ended December 31, 1993, 1992 and 1991.
Notes to Financial Statements
Report of Independent Accountants
The Financial Statements, the Notes to Financial Statements and the Report of Independent Accountants listed above are filed as part of this Report and are set forth on pages FS-1 through FS-28 immediately following the signatures pages of this Report.
(a) 2. Financial Statement Schedules
Designation Description - ----------- ----------- Schedule IX Short-Term Borrowings
Schedule X Supplementary Income Statement Information
Supplemental Schedule Condensed Financial Information of Subsidiary
The Financial Statement Schedules listed above are filed as part of this Report and are set forth on pages FSS-1 through FSS-4 immediately following page FS-28. The schedules not filed are omitted because the information required to be contained therein is disclosed elsewhere in the Financial Statements or the amounts involved are not sufficient to require submission.
(a) 3. Exhibits
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (Continued)
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (Continued)
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (Continued)
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (Continued)
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (Continued)
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (Continued)
- ------------------- * Incorporated by reference as an exhibit hereto ** Management contract or compensatory plan or arrangement
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (Continued)
Instruments defining the rights of holders of certain issues of long-term debt of the Registrant and of certain consolidated subsidiaries and of any unconsolidated subsidiary, for which financial statements are required to be filed with this Report, have not been filed as exhibits to this Report because the authorized principal amount of any one of such issues does not exceed 10% of the total assets of the Registrant and its subsidiaries on a consolidated basis. The Registrant agrees to furnish a copy of each of such instruments to the Commission upon request.
(b) Reports on Form 8-K
During the quarter ended December 31, 1993, the Registrant filed the following Current Reports on Form 8-K:
1. Current Report on Form 8-K dated September 29, 1993 that included information relating to the ratification of a new collective bargaining agreement between the Registrant and the UAW.
2. Current Report on Form 8-K dated October 27, 1993 that included information regarding the consolidated results of operations and financial condition of the Registrant and its subsidiaries for the three and nine-month periods ended or at September 30, 1993.
3. Current Report on Form 8-K dated December 1, 1993 that included information regarding certain comments made by Alex Trotman, Chairman of the Board of Directors, President and Chief Executive Officer of the Registrant.
4. Current Report on Form 8-K dated December 13, 1993 that included information regarding certain comments made by W. Wayne Booker, Executive Vice President--International Automotive Operations of the Registrant.
SIGNATURES
Pursuant to the requirements of Section 13 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
By: Murray L. Reichenstein* (Murray L. Reichenstein) Vice President--Controller (principal accounting officer)
Date: March 21, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
- - - - - - *Automotive cash, cash equivalents, and marketable securities on December 31 were as follows (in millions): 1993 - $9,752 ; 1992 - $9,035; 1991 - $9,753
The accompanying notes are part of the financial statements.
FS-6
[TEXT]
Ford Motor Company and Subsidiaries
Notes to Financial Statements
NOTE 1. Accounting Policies - ---------------------------- Principles of Consolidation - --------------------------- The consolidated financial statements include all significant majority-owned subsidiaries and reflect the operating results, assets, liabilities and cash flows for two business segments: Automotive and Financial Services. The assets and liabilities of the Automotive segment are classified as current or noncurrent, and those of the Financial Services segment are unclassified. Affiliates that are 20% to 50% owned, principally Mazda Motor Corporation, Autolatina and AutoAlliance International Inc., and subsidiaries where control is expected to be temporary, principally investments in certain dealerships, are generally accounted for on an equity basis. For purposes of Notes to Financial Statements, "Ford" or "the company" means Ford Motor Company and its majority-owned subsidiaries unless the context requires otherwise.
Revenue Recognition - Automotive - -------------------------------- Sales are recorded by the company when products are shipped to dealers. Provisions for approved sales incentive programs normally are recognized as sales reductions at the time of sale. Sales incentive programs approved subsequent to the time that related sales were recorded are recognized when the programs are approved.
Revenue Recognition - Financial Services - ---------------------------------------- Revenue from finance receivables is recognized over the term of the receivable using the interest method. Certain loan origination costs are deferred and amortized over the term of the related receivable as a reduction in financing revenue. Revenue from operating leases is recognized as scheduled payments become due. Agreements between Automotive operations and certain Financial Services operations provide for interest supplements and other support to be paid by Automotive operations on certain financing and leasing transactions. Financial Services operations recognize this revenue in income over the period that the related receivables and leases are outstanding; these interest supplements and other support costs are recorded as sales reductions by the Automotive operations at the time of sale of the related vehicle.
Other Costs - ----------- Advertising and sales promotion costs are expensed as incurred.
Anticipated costs related to product warranty are accrued at the time of sale.
Research and development costs are expensed as incurred and were $5,021 million in 1993, $4,332 million in 1992 and $3,728 million in 1991. FS-8
NOTE 1. Accounting Policies - Continued - ---------------------------------------
Income/(Loss) Per Share of Common and Class B Stock - --------------------------------------------------- Income/(loss) per share of Common and Class B Stock is calculated by dividing income/(loss) attributable to Common and Class B Stock by the average number of shares of Common Stock and Class B Stock outstanding during the applicable period.
The company has outstanding securities, primarily Series A Preferred Stock and certain convertible debt of subsidiary companies, which could be converted to Common Stock. Other obligations, such as stock options, are considered to be common stock equivalents. The calculation of income/(loss) per share of Common and Class B Stock assuming full dilution takes into account the effect of these convertible securities and common stock equivalents when the effect is material and dilutive.
Foreign-Currency Translation - ---------------------------- Revenues, costs and expenses of foreign subsidiaries are translated to U.S. dollars at average-period exchange rates. The effect of changes in foreign exchange rates on revenues and costs was generally unfavorable in 1993, particularly in Europe.
Assets and liabilities of foreign subsidiaries are translated to U.S. dollars at end-of-period exchange rates. The effects of this translation for most foreign subsidiaries and certain other foreign currency transactions are reported in a separate component of stockholders' equity. Translation gains and losses for foreign subsidiaries that are located in highly inflationary countries or conduct a major portion of their business with the company's U.S. operations are included in income. Also included in income are gains and losses arising from transactions denominated in a currency other than the functional currency of the entity involved.
The effect of changes in foreign exchange rates on assets and liabilities, as described above, increased net income by $419 million in 1993 and decreased the net loss by $132 million in 1992 and by $81 million in 1991. These amounts included net transaction and translation gains before taxes of $988 million in 1993, $557 million in 1992 and $662 million in 1991. These gains were offset substantially by costs of sales that reflected historical exchange rates for costs associated with inventories in countries with high inflation rates.
Goodwill - -------- Goodwill represents the excess of the purchase price over the fair value of the net assets of acquired companies and is being amortized using the straight-line method principally over 40 years. Total goodwill included in Automotive and Financial Services other assets at December 31, 1993 was $2.6 billion and $2.9 billion, respectively.
Preferred Stockholders' Equity in a Subsidiary Company - ------------------------------------------------------ Preferred stockholders' equity in a subsidiary company refers to the outstanding preferred stock of Ford Holdings, Inc. ("Ford Holdings"), a subsidiary of Ford. All the outstanding common stock of Ford Holdings, representing 75% of the combined voting power of all classes of capital stock of Ford Holdings, is owned directly or indirectly by Ford. The balance of the capital stock and voting power is owned by persons other than Ford.
FS-9
NOTE 2. Marketable and Other Securities - ---------------------------------------- Automotive - ---------- Automotive marketable securities are recorded at cost plus accrued interest, which approximates fair value.
Financial Services - ------------------ Investments in debt securities are recorded at amortized cost because of the ability to hold such securities until maturity and the intent to hold them for the foreseeable future. If market conditions change, however, certain of these securities may be sold prior to maturity. Marketable equity securities are recorded at fair value.
Investments in debt securities at December 31 were as follows (in millions):
The fair value of most securities was estimated based on quoted market prices for those securities. For those securities for which there were no quoted market prices, the estimate of fair value was based on similar types of securities that are traded in the market.
The book value and fair value of investments in debt securities at December 31, by contractual maturity, are shown below (in millions). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalty.
Proceeds from sales of investments in debt securities were $11.2 billion in 1993, $10.5 billion in 1992 and $13.9 billion in 1991. In 1993, gross gains of $113 million and gross losses of $20 million were realized on those sales; gross gains of $142 million and gross losses of $86 million were realized in 1992, and gross gains of $141 million and gross losses of $22 million were realized in 1991.
Investments in securities other than debt securities totaled $2,472 million at December 31, 1993 and $2,475 million at December 31, 1992. The estimated fair value in excess of book value of those securities which were practicable to value was $59 million at December 31, 1993 and $2 million at December 31, 1992. It was not practicable to calculate the fair value of certain securities totaling $660 million at December 31, 1993 and $740 million at December 31, 1992 because they represented preferred stocks of non-traded companies with whom the company does business and for which similar market-traded securities were not available for comparison.
FS-10
NOTE 3. Net Receivables and Lease Investments - Financial Services - ---------------------------------------------------------- Included in net receivables and lease investments at December 31 were net finance receivables, investments in direct financing leases and investments in operating leases. The investments in direct financing and operating leases relate to the leasing of motor vehicles and various types of transportation and other equipment and facilities.
Net finance receivables at December 31 were as follows (in millions):
1993 1992 --------- -------- Automotive $ 58,738 $54,807 Real estate, mainly residential 24,152 24,421 Other 24,968 19,945 --------- ------ Total finance receivables 107,858 99,173 Loan origination costs 124 158 Unearned income (9,037) (8,325) Allowance for credit losses (2,017) (1,948) Unearned insurance premiums and unpaid insurance claims related to finance receivables (139) (199) -------- ------- Net finance receivables $ 96,789 $88,859 ======== =======
Fair value $ 98,505 $90,992
Included in finance receivables was a total of $1.5 billion for 1993 and $1.9 billion for 1992 owed by three customers with the largest receivable balances. Other finance receivables consisted primarily of commercial and consumer loans, collateralized loans, credit card receivables, general corporate obligations and accrued interest. Also included in other finance receivables at December 31, 1993 and 1992 were $2,430 million and $1,767 million, respectively, of accounts receivable purchased by certain Financial Services operations from Automotive operations.
Contractual maturities of automotive and other finance receivables are as follows (in millions): 1994 - $41,376; 1995 - $16,316; 1996 - $11,321; thereafter - $14,693. Experience indicates that a substantial portion of the portfolio generally is repaid before contractual maturity dates.
The fair value of most receivables was estimated by discounting future cash flows using an estimated discount rate which reflected the credit, interest rate and prepayment risks associated with similar types of instruments. For receivables with short maturities, the book value approximated fair value.
Sales of finance receivables increased net income by $60 million in 1993, $7 million in 1992 and $84 million in 1991. Allowances for anticipated credit losses are made where limited guarantee provisions of the sales contracts exist.
Investments in direct financing leases at December 31 were as follows (in millions):
1993 1992 ---- ---- Minimum lease rentals $ 7,382 $ 7,673 Estimated residual values 2,764 2,395 Lease origination costs 69 47 Unearned income (2,010) (2,169) Allowance for credit losses (133) (154) ------- ----- Net investments in direct financing leases $ 8,072 $ 7,792 ======= =======
Minimum direct financing lease rentals (including executory costs of $68 million) are as follows (in millions): 1994 - $2,485; 1995 - $1,731; 1996 - $1,031; 1997 - $576; thereafter - $1,627.
FS-11
NOTE 3. Net Receivables and Lease Investments - Financial Services (Continued) - -------------------------------------------------------------------
Investments in operating leases at December 31 were as follows (in millions):
1993 1992 ---- ---- Vehicles and other equipment, at cost $18,589 $12,231 Lease origination costs 23 8 Accumulated depreciation (3,736) (2,591) Allowance for credit losses (202) (155) ------- ------- Net investments in operating leases $14,674 $ 9,493 ======= =======
Future minimum rentals on operating leases are as follows (in millions): 1994 - $3,719; 1995 - $1,837; 1996 - $387; 1997 - $77; thereafter - $118.
Depreciation expense on operating leases reflects primarily the straight-line method over the term of the leases and was as follows (in millions): 1993 - $2,984; 1992 - $2,000; 1991 - $1,400.
Allowances For Credit Losses - ---------------------------- Allowances for credit losses are established as required based on historical experience. Other factors that affect collectibility also are evaluated, and additional amounts may be provided. Finance receivables and lease investments are charged to the allowances for credit losses when an account is deemed to be uncollectible, taking into consideration the financial condition of the borrower, the value of the collateral, recourse to guarantors and other factors. Recoveries on finance receivables and lease investments previously charged off as uncollectible are credited to the allowances for credit losses.
Changes in the allowances for credit losses were as follows (in millions):
1993 1992 1991
Beginning Balance $2,257 $2,078 $1,847 Additions 1,019 1,218 1,485 Net losses (903) (993) (1,304) Other changes (21) (46) 50
Ending Balance $2,352 $2,257 $2,078 ====== ====== ======
NOTE 4. Inventories - Automotive - --------------------------------- Inventories are stated at the lower of cost or market. The cost of most U.S. inventories is determined by the last-in, first-out ("LIFO") method. The cost of the remaining inventories is determined substantially by the first-in, first-out ("FIFO") method.
If FIFO was the only method of inventory accounting used by the company, inventories would have been $1,342 million and $1,365 million higher than reported at December 31, 1993 and 1992, respectively.
The major classes of inventories at December 31 were as follows (in millions):
1993 1992
Raw materials, work in process and supplies $2,937 $2,959 Finished products 2,601 2,492 ------ ------ Total Inventories $5,538 $5,451 ====== ====== Inventories - U.S. Automotive $2,575 $2,401
FS-12
NOTE 5. Net Property, Depreciation and Amortization - Automotive - ----------------------------------------------------------------- Net property, at cost, at December 31 was as follows (in millions):
1993 1992
Land $ 360 $ 362 Buildings and land improvements 5,923 6,059 Machinery, equipment and other 29,655 28,294 Construction in progress 1,551 1,493
Total land, plant and equipment 37,489 36,208 Accumulated depreciation (20,691) (19,991)
Net land, plant and equipment 16,798 16,217 Unamortized special tools 6,261 5,943
Net Property $ 23,059 $ 22,160 ======== ========
Assets placed in service before January 1, 1993 are depreciated using an accelerated method that results in accumulated depreciation of approximately two-thirds of asset cost during the first half of the asset's estimated useful life. Assets placed in service after December 31, 1992 are depreciated using the straight-line method of depreciation. This change in accounting principle was made to reflect improvements in the design and flexibility of manufacturing machinery and equipment and improvements in maintenance practices. These improvements have resulted in more uniform productive capacities and maintenance costs over the useful life of an asset, and straight-line depreciation is preferable in these circumstances. The effect of this change was not significant in 1993.
On average, buildings and land improvements are depreciated based on a 30-year life; automotive machinery and equipment are depreciated based on a 14-year life.
When plant and equipment are retired, the general policy is to charge the cost of those assets, reduced by net salvage proceeds, to accumulated depreciation. All maintenance, repair and rearrangement costs are expensed as incurred. Expenditures that increase the value or productive capacity of assets are capitalized. Special tools are amortized over periods of time representing the productive use of those tools. Preproduction costs related to new facilities are expensed as incurred.
Depreciation and amortization expenses were as follows (in millions):
1993 1992 1991
Depreciation $2,392 $2,569 $2,456 Amortization 2,012 2,097 1,822 ------ ------ ------ Total $4,404 $4,666 $4,278 ====== ====== ======
NOTE 6. Income Taxes - --------------------- The provision/(credit) for income taxes was as follows (in millions):
1993 1992 1991
Currently payable/(refundable) U.S. federal $1,259 $(122) $ 92 Foreign 169 427 445 State and local 123 104 82 ------ ----- ------- Total currently payable 1,551 409 619 Deferred tax liability/(benefit) U.S. federal (161) 434 (742) Foreign (106) (499) (272) State and local 66 (49) 0 ------ ----- ------ Total deferred (201) (114) (1,014) ------- ------ ------ Total provision/(credit) $1,350 $ 295* $ (395) ====== ===== =======
- - - - - - *Excludes cumulative effects of changes in accounting principles
The provision/(credit) includes estimated taxes payable on that portion of retained earnings of subsidiaries expected to be received by the company. No provision was made with respect to $4.9 billion of retained earnings at December 31, 1993 which have been invested by foreign subsidiaries. These retained earnings have incurred foreign income taxes that would have the effect of reducing substantially income tax liabilities that could result from their distribution.
FS-13
NOTE 6. Income Taxes (Continued) - --------------------------------
The company adopted Statement of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes," as of January 1, 1992. The cumulative effect of this change in accounting principle decreased the net loss in 1992 by $657 million. Financial statements for prior years were not restated to apply the provisions of SFAS 109. The adoption of SFAS 109 changes the method of accounting for income taxes from the deferred method using Accounting Principles Board Opinion No. 11 ("APB 11") to an asset and liability approach.
Under SFAS 109, deferred income taxes reflect the estimated tax effect of temporary differences between assets and liabilities for financial reporting purposes and those amounts as measured by tax laws and regulations.
The components of deferred income tax assets and liabilities at December 31 were as follows (in millions):
Net foreign operating loss carryforwards for tax purposes were $3.7 billion at December 31, 1993. A significant portion of these losses have an indefinite carryforward period; the remaining losses have expiration dates beginning in 1995. For financial statement purposes, the tax benefit of operating losses is recognized as a deferred tax asset, subject to appropriate valuation allowances.
Deferred income taxes for 1991 were derived using the guidelines in APB 11. Under APB 11, deferred income taxes result from timing differences in the recognition of revenues and expenses between financial statements and tax returns. The principal sources of these differences and the related effect of each on the provision for income taxes were as follows (in millions):
Depreciation and amortization (excludes leasing transactions) $ 191 Dealer and customer allowances and claims (542) Employee benefit plans (442) Net operating loss carryforwards - foreign (399) Leasing transactions 377 Alternative minimum tax (26)
Income/(loss) before income taxes and cumulative effects of changes in accounting principles for U.S. and foreign operations, excluding equity in net income/(loss) of affiliated companies, was as follows (in millions):
1993 1992 1991 ------ ------- ------- U.S. $4,152 $ 889 $(2,049) Foreign (276) (1,031) (509) ------ ------- ------- Total income/(loss) before income taxes $3,876 $ (142)* $(2,558) ====== ======= =======
- - - - - - *Excludes cumulative effects of changes in accounting principles
FS-14
NOTE 6. Income Taxes (Continued) - --------------------------------
A reconciliation of the provision/(credit) for income taxes compared with the amounts at the U.S. statutory tax rate is shown below (in millions):
1993 1992 1991 ----- ----- ---- Tax provision/(credit) at U.S. statutory rate of 35% for 1993 and 34% for 1992 and 1991 $1,357 $ (48) $(870)
Effect of: Foreign taxes over U.S. tax rate 219 263 345 State and local income taxes 118 36 54 Rate adjustments on U.S. and foreign deferred taxes (199) - - Income not subject to tax or subject to tax at reduced rates (70) (112) (121) Other (75) 156 197 ------ ----- ----- Provision/(credit) for income taxes $1,350 $ 295* $(395) ====== ===== ===== Effective Tax Rate 34.8% - 15.4%
- - - - - - *Excludes cumulative effects of changes in accounting principles
NOTE 7. Liabilities - Automotive - --------------------------------- Current Liabilities - ------------------- Included in accrued liabilities at December 31 were the following (in millions):
1993 1992 ------- ------ Dealer and customer allowances and claims $ 6,645 $6,266 Employee benefit plans 1,415 1,471 Salaries, wages, and employer taxes 594 562 Postretirement benefits other than pensions 674 595 Other 1,487 1,089
Total accrued liabilities $10,815 $9,983 ======= ======
Noncurrent Liabilities - ---------------------- Included in other liabilities at December 31 were the following (in millions):
1993 1992 ------- ------- Postretirement benefits other than pensions $13,288 $12,744 Dealer and customer allowances and claims 5,170 4,348 Employee benefit plans 2,353 2,241 Minority interests in net assets of subsidiaries 161 144 Unfunded pension obligation 2,873 136 Other 2,066 2,253
Total other liabilities $25,911 $21,866 ======= =======
- - - - - - Certain amounts for 1992 have been reclassified to conform with presentations adopted in 1993.
FS-15
NOTE 8. Employee Retirement Benefits - ------------------------------------- Employee Retirement Plans - ------------------------- The company has two principal retirement plans in the U.S. The Ford- UAW Retirement Plan covers hourly employees represented by the UAW, and the General Retirement Plan covers substantially all other employees of the company and several finance subsidiaries in the U.S. The hourly plan provides noncontributory benefits related to employee service. The salaried plan provides similar noncontributory benefits and contributory benefits related to pay and service. Other U.S. and non-U.S. subsidiaries have separate plans which generally provide similar types of benefits covering their employees. The company and its subsidiaries also have defined benefit plans applicable to certain executives that provide unfunded benefits.
The company's policy for funded plans is to contribute annually, at a minimum, amounts required by applicable law, regulations and union agreements. Plan assets consist principally of investments in stocks, government and other fixed income securities and real estate. The various plans generally are funded, except in Germany where this has not been the custom, and as such, an unfunded liability is recorded.
The company's pension expense, including Financial Services, reflected the following (in millions):
Costs associated with amendments made in 1993 to the Ford-UAW Retirement Plan and to the General Retirement Plan were more than offset by an increased return on assets that decreased net pension expense in 1993 compared with 1992. Non-U.S. pension expense also decreased in 1993, reflecting the result of restructuring actions in Europe.
FS-16
NOTE 8. Employee Retirement Benefits (Continued) - ------------------------------------------------
The status of these plans at December 31 was as follows (in millions):
FS-17
NOTE 8. Employee Retirement Benefits (Continued) - -------------------------------------------------
Postretirement Health Care and Life Insurance Benefits - ------------------------------------------------------ The company and certain of its subsidiaries sponsor unfunded plans to provide selected health care and life insurance benefits for retired employees. The company's U.S. and Canadian employees may become eligible for those benefits if they retire while working for the company; however, benefits and eligibility rules may be modified from time to time. Prior to 1992, the expense recognized for postretirement health care benefits was based on actual expenditures for the year. Beginning in 1992, the estimated cost for postretirement health care benefits is accrued on an actuarially determined basis, in accordance with the requirements of Statement of Financial Accounting Standards No. 106 ("SFAS 106"), "Employer's Accounting for Postretirement Benefits Other Than Pensions". Implementation of SFAS 106 has not increased the company's cash expenditures for postretirement benefits. The company elected to recognize immediately the prior-year unaccrued accumulated postretirement benefit obligation, resulting in an adverse effect on income of $7,540 million in the first quarter of 1992. The charge reflected an unaccrued retiree benefit obligation liability of $12 billion, offset partially by projected tax benefits of $4.5 billion. In addition, the loss in 1992 was increased by $455 million ($723 million before taxes) for the ongoing effect of adopting SFAS 106.
Net postretirement benefit expense included the following (in millions):
1993 1992
Benefits attributed to employees' service $ 240 $ 235 Interest on accumulated benefit obligation 1,207 1,129 ------ ------ Net postretirement benefit expense $1,447 $1,364 ====== ======
Retiree benefit payments were as follows (in millions): 1993 - $654; 1992 - $641; 1991 - $628.
The status of these plans, reconciled with the amounts recognized in the company's balance sheet at December 31, was as follows (in millions):
1993 1992 Accumulated postretirement benefit obligation: Retirees $ 8,147 $ 7,035 Active employees eligible to retire 2,725 2,269 Other active employees 5,984 5,091 ------- ------- Total accumulated obligation 16,856 14,395 Unamortized amendments 387 0 Unamortized net (loss) (2,880) (807) ------- ------- Accrued liability $14,363 $13,588 ======= ======= Assumptions: Discount rate at year-end 7.5% 8.5% Present health care cost trend rate 9.7% 10.3% Ultimate trend rate in ten years 5.5% 5.5% Weighted-average trend rate 6.8% 6.9%
Changing the assumed health care cost trend rates by one percentage point would change the aggregate service and interest cost components of net periodic postretirement benefit cost for 1993 by $240 million and the accumulated postretirement benefit obligation at December 31, 1993 by $2.4 billion.
FS-18
NOTE 9. Debt - ------------- Automotive - ---------- Debt at December 31 was as follows (in millions):
The fair value of debt was estimated based on quoted market prices or current rates for similar debt with the same remaining maturities.
Long-term debt at December 31, 1993 included maturities as follows (in millions): 1994 - $45 (included in current liabilities); 1995 - $44; 1996 - $998; 1997 - $599; 1998 - $1,738; thereafter - $3,705.
Included in debt at December 31, 1993 and December 31, 1992 were obligations payable in foreign currencies of $970 million and $957 million, respectively.
Financial Services - ------------------ Debt at December 31 was as follows (in millions):
The fair value of debt was estimated based on quoted market prices or current rates for similar debt with the same remaining maturities.
FS-19
NOTE 9. Debt (Continued) - -----------------------
Information concerning short-term borrowings (excluding long-term debt payable within one year) is as follows (in millions):
1993 1992 1991 ------- ------- ------- Average amount of short-term borrowings $38,353 $33,993 $32,568 Weighted average short-term interest rates per annum 3.8% 5.2% 7.7% Average remaining term of commercial paper at December 31 29 days 29 days 33 days
Secured indebtedness is collateralized by pledges of real estate loans, mortgage-backed certificates and municipal securities having an aggregate carrying amount of $5,926 million at December 31, 1993.
Long-term debt at December 31, 1993 included maturities as follows (in millions): 1994 - $12,304; 1995 - $9,362; 1996 - $11,042; 1997 - $5,810; 1998 - $8,502; thereafter - $13,184.
Included in debt at December 31, 1993 and December 31, 1992 were obligations payable in foreign currencies of $12.9 billion and $14.7 billion, respectively. These obligations were issued primarily to fund foreign business operations.
Support Facilities - ------------------ At December 31, 1993, Ford (parent company only) had long-term contractually committed credit agreements in the U.S. under which $4.8 billion is available from various banks at least through June 30, 1998. The entire $4.8 billion may be used, at Ford's option, by either Ford or Ford Credit. These facilities were unused at December 31, 1993.
Outside the U.S., Ford had additional long-term contractually committed credit-line facilities of $2.4 billion. These facilities are available in varying amounts from 1994 through 1998; these facilities were unused at December 31, 1993.
At December 31, 1993, Financial Services had $24.9 billion of support facilities (including the $4.8 billion of the Ford credit agreements) for use in the U.S., all of which were contractually committed. At December 31, 1993, less than 1% of these facilities, excluding the Ford credit agreements, were in use. At that date, an additional $14.5 billion of support facilities were available outside the U.S., of which $6.4 billion were contractually committed. At December 31, 1993, $6 billion of these support facilities outside the U.S. were in use.
NOTE 10. Deposit Accounts and Annuity Contracts - Financial Services - ------------------------------------------------------------ Deposit accounts by category at December 31 were as follows (in millions):
The fair value of demand deposits, savings accounts, and certain money market deposits was the amount payable on demand at December 31, 1993. The fair value of fixed-maturity certificates of deposit was estimated using the rate currently offered for deposits with similar remaining maturities.
At December 31, 1993, term accounts included scheduled maturities as follows (in millions): 1994 - $3,846; 1995 - $596; 1996 - $596; 1997 - $214; 1998 - $145; thereafter - $20.
FS-20
NOTE 10. Deposit Accounts and Annuity Contracts - Financial Services - --------------------------------------------------------------------
The liability for annuity contracts, included in other liabilities, was $1,598 million at December 31, 1993 and $777 million at December 31, 1992, and reflected deposits received and interest credited, less related withdrawals. The weighted-average interest rate on annuity contracts outstanding at December 31, 1993 and 1992 was 6.2% and 7.3%, respectively. Interest rates offered are initially guaranteed for periods of either one or five years. Interest credited to annuity account balances is recognized as expense; surrender charges are recognized as a reduction of interest credited to annuitants. The fair value of annuity contracts at December 31, 1993 and 1992 approximated book value because the contractual interest rate due holders is reset annually for more than 97% of contracts outstanding.
NOTE 11. Capital Stock - ----------------------- The authorized capital stock of the company consists of Common Stock, Class B Stock and Preferred Stock. Authorized shares of stock at December 31, 1993 were as follows: 1 billion shares of Common Stock; 88.4 million shares of Class B Stock; and 30 million shares of Preferred Stock.
At December 31, 1993, all general voting power was vested in the holders of Common Stock and the holders of Class B Stock, voting together without regard to class. At that date, the holders of Common Stock were entitled to one vote per share and, in the aggregate, had 60% of the general voting power; the holders of Class B Stock were entitled to such number of votes per share as would give them, in the aggregate, the remaining 40% of the general voting power, as provided in the company's Certificate of Incorporation.
The Certificate provides that all shares of Common Stock and Class B Stock share equally in dividends (other than dividends declared with respect to any outstanding Preferred Stock), except that any stock dividends are payable in shares of Common Stock to holders of that class and in Class B Stock to holders of that class. Upon liquidation, all shares of Common Stock and Class B Stock are entitled to share equally in the assets of the company available for distribution to the holders of such shares.
In 1991, the company sold 46,000,000 Depositary Shares, each representing 1/1,000 of a share of Series A Cumulative Convertible Preferred Stock ("Series A Preferred Stock"), for a total public offering price of $2.3 billion. As a result, 46,000 shares of Series A Preferred Stock were issued. The Series A Preferred Stock has a liquidation preference equivalent to $50 per Depositary Share and dividends accumulate on the Series A Preferred Stock at a rate equivalent to $4.20 per year per Depositary Share. The Series A Preferred Stock is convertible at the option of the holder at any time into shares of Common Stock of the company at a rate equivalent to 1.6327 shares of Common Stock for each Depositary Share (equivalent to a conversion price of $30.625 per share of Common Stock). The Series A Preferred Stock and the Depositary Shares representing such stock are not redeemable prior to December 7, 1997. On and after December 7, 1997, the Series A Preferred Stock is redeemable for cash at the company's option, in whole or in part, initially at an amount equivalent to $51.68 per Depositary Share and thereafter at prices declining to $50 per Depositary Share on and after December 1, 2001, plus, in each case, an amount equal to the sum of all accrued and unpaid dividends. At December 31, 1993, the liquidation preference of Series A Preferred Stock was $2.3 billion, and 45,994 shares were outstanding.
In 1992, the company sold 45,600,000 Depositary Shares, each representing 1/2,000 of a share of Series B Cumulative Preferred Stock ("Series B Preferred Stock"), for a total public offering price of $1.1 billion. As a result, 22,800 shares of Series B Preferred Stock were issued. The Series B Preferred Stock has a liquidation preference equivalent to $25 per Depositary Share and dividends accumulate at a rate equivalent to $2.0625 per year per Depositary Share. The Series B Preferred Stock and the Depositary Shares representing such stock are not redeemable prior to December 1, 2002. On and after December 1, 2002 and upon satisfaction of certain conditions, the Series B Preferred Stock is redeemable for cash at the option of Ford, in whole or in part, at a redemption price equivalent to $25 per Depositary Share, plus an amount equal to the sum of all accrued and unpaid dividends. The Series B Preferred Stock does not have any sinking fund and is not convertible into any other securities. At December 31, 1993, the liquidation preference of the Series B Preferred Stock was $1.1 billion, and 22,800 shares were outstanding.
FS-21
NOTE 11. Capital Stock (Continued) - ----------------------------------
The Series A Preferred Stock and Series B Preferred Stock rank (and any other outstanding Preferred Stock of the company would rank) senior to the Common Stock and Class B Stock in respect of dividends and liquidation rights.
NOTE 12. Stock Options - ----------------------- The company has stock options outstanding under the 1985 Stock Option Plan and the 1990 Long-term Incentive Plan. These plans were approved by the stockholders.
Information concerning stock options for the last three years is shown below (shares in millions):
1993 1992 1991 ------ ------ ------ Option price of new grants a/ $57.69 $37.00 $30.00 and $24.13 Shares subject to option - ---------------------- Outstanding at beginning of period 20.6 16.5 13.3 New grants 3.6 4.8 3.6 Exercised b/ (3.4) (0.5) (0.1) Surrendered upon exercise of stock appreciation rights (1.9) (0.2) (0.1) Terminated and expired (0.1) * (0.2) ---- ----- ----- Outstanding at end of period 18.8 c/ 20.6 16.5 Outstanding but not exercisable (9.7) (9.8) (8.1) ---- ----- ----- Exercisable at end of period 9.1 10.8 8.4 ===== ====== ====== Shares authorized for future grants (as of December 31)d/ 0 0 0.9
- - - - - - * Less than 50,000 shares. a/ Fair market value of Common Stock at dates of grant. b/ At option prices ranging from $18.19 to $51.69 during 1993, from $7.03 to $30.69 during 1992, and from 4.25 to $26.84 during 1991. c/ Including 6.0 and 12.8 million shares under the 1985 and 1990 Plans, respectively, at option prices ranging from $18.19 to $57.69 per share. d/ In addition, up to 1% of the issued Common Stock as of December 31 of any year may be made available for stock options and other plan awards in the next succeeding calendar year. That limit may be increased up to 2% in any year, with a corresponding reduction in shares available for grants in future years.
No further grants may be made under the 1985 Plan. Grants may be made under the 1990 Plan through April 2000. In general, options granted under the 1985 Plan and options granted to date under the 1990 Plan become exercisable 25% after one year from the date of grant, 50% after two years, 75% after three years and in full after four years. Options under both Plans expire after 10 years. Certain options outstanding under the plans were granted with an equal number of accompanying stock appreciation rights which may be exercised in lieu of the options. Under the Plans, a stock appreciation right entitles the holder to receive, without payment, the excess of the fair market value of the Common Stock on the date of exercise over the option price, either in Common Stock or cash or a combination. In addition, grants of Contingent Stock Rights were made with respect to 1,163,600 shares in 1993, 632,400 shares in 1992 and 1,015,500 shares in 1991 under the 1990 Long-Term Incentive Plan (not included in the table above). The number of shares ultimately awarded will depend on the extent to which the Performance Target specified in each Right is achieved, the individual performances of the recipients and other factors. FS-22
NOTE 13. Litigation and Claims - ------------------------------- Various legal actions, governmental investigations and proceedings and claims are pending or may be instituted or asserted in the future against the company and its subsidiaries, including those arising out of alleged defects in the company's products, governmental regulations relating to safety, emissions and fuel economy, financial services, intellectual property rights, product warranties and environmental matters. Certain of the pending legal actions are, or purport to be, class actions. Some of the foregoing matters involve or may involve compensatory, punitive, or antitrust or other treble damage claims in very large amounts, or demands for recall campaigns, environmental remediation programs, sanctions, or other relief which, if granted, would require very large expenditures.
Litigation is subject to many uncertainties, the outcome of individual litigated matters is not predictable with assurance, and it is reasonably possible that some of the foregoing matters could be decided unfavorably to the company or the subsidiary involved. Although the amount of the ultimate liability at December 31, 1993 with respect to these matters cannot be ascertained, the company believes that any resulting liability should not materially affect the consolidated financial position of the company at December 31, 1993.
NOTE 14. Commitments and Contingencies - --------------------------------------- At December 31, 1993, the company had the following minimum rental commitments under non-cancelable operating leases (in millions): 1994 - $509; 1995 - $573; 1996 - $501; 1997 - $463; 1998 - $201; thereafter - $708.
These amounts include rental commitments related to the sales and leasebacks of certain Automotive machinery and equipment.
During 1993, the company and certain of its subsidiaries entered into agreements with various banks to introduce credit card programs that offer rebates which can be applied against the purchase or lease of Ford cars or trucks. The maximum amount of rebates available to qualified cardholders at December 31, 1993 was $1.7 billion. The company has provided for the estimated net cost of these programs as a vehicle marketing cost based on the estimated number of participants who will ultimately purchase vehicles.
The company and many of its subsidiaries have entered into foreign exchange agreements to manage exposure to foreign exchange rate fluctuations. These exchange agreements hedge primarily debt, firm commitments and dividends that are denominated in foreign currencies and net investments in foreign subsidiaries. Agreements entered into to manage these exposures include foreign currency forward contracts, currency swaps and foreign currency options. Gains or losses on the various agreements are either recognized during the period or included in the bases of the related transactions.
The fair value of these foreign exchange agreements generally was estimated using current market prices provided by outside quotation services. The fair value was estimated to be a net receivable of $124 million at December 31, 1993 and $302 million at December 31, 1992. In the unlikely event that a counterparty fails to meet the terms of a foreign exchange agreement, the company's market risk is limited to the currency rate differential. In the case of currency swaps, the company's market risk also may include an interest rate differential. At December 31, 1993 and 1992, the total amount of the company's foreign currency forward contracts, option contracts and currency swaps outstanding was $8.6 billion and $11.3 billion, respectively, maturing primarily through 1995.
The company and many of its subsidiaries have entered into arrangements to manage exposure to fluctuations in interest rates. These arrangements include primarily interest-rate swap agreements and, to a lesser extent, interest-rate futures contracts. The differential paid or received on interest-rate swap agreements is recognized as an adjustment to interest expense. Realized and unrealized gains and losses on interest-rate futures contracts are deferred and recognized as adjustments to interest income or expense.
FS-23
NOTE 14. Commitments and Contingencies (Continued) - ---------------------------------------------------
The fair value of interest-rate swaps is the estimated amount the company would receive or pay to terminate the swap agreement. The fair value is calculated using information provided by outside quotation services, taking into account current interest rates and the current credit-worthiness of the swap counterparties. The fair value was estimated to be a net receivable of $585 million at December 31, 1993 and $371 million at December 31, 1992. In the unlikely event that a counterparty fails to meet the terms of an interest-rate swap agreement, the company's exposure is limited to the interest rate differential. The underlying principal amounts on which the company has interest-rate swap agreements and futures contracts outstanding aggregated $36.5 billion at December 31, 1993 and $21.1 billion at December 31, 1992.
Certain Financial Services subsidiaries make credit lines available to holders of their credit cards. At December 31, 1993 and 1992, the unused portion of available credit was approximately $9.9 billion and $5.5 billion, respectively, and is revocable under specified conditions. The fair value of unused credit lines and the potential risk of loss was not considered to be significant.
In addition, the company and its subsidiaries have entered into a variety of other financial agreements which contain potential risk of loss. These agreements include limited guarantees under sales of receivables agreements, financial guarantees, letters of credit, interest rate caps and floors and government security repurchase agreements. The fair value of these agreements and the potential risk of loss was not considered to be significant.
NOTE 15. Cash Flows - -------------------- The reconciliation of net income/(loss) to cash flows from operating activities is as follows (in millions):
The company considers all highly-liquid investments purchased with a maturity of three months or less to be cash equivalents. The book value of these investments approximates fair value because of the short maturity. Cash flows resulting from futures contracts, forward contracts and options that are accounted for as hedges of identifiable transactions are classified in the same category as the item being hedged.
Cash paid for interest and income taxes was as follows (in millions):
1993 1992 1991 ------ ------ ------ Interest $6,969 $8,255 $9,458 Income taxes 1,522 31 356
FS-24
NOTE 16. Segment Information - ---------------------------- The company operates in two principal business segments: Automotive and Financial Services. The Automotive segment consists of the manufacture, assembly and sale of cars, trucks and related parts and accessories. The Financial Services segment consists primarily of financing operations, insurance operations, savings and loan operations, and vehicle and equipment leasing operations.
Intersegment transactions represent principally transactions occurring in the ordinary course of business, borrowings and related transactions between entities in the Financial Services and Automotive segments, and interest and other support under special vehicle financing programs. These arrangements are reflected in the respective business segments.
Intercompany sales among geographic areas consist primarily of vehicles, parts and components manufactured by the company and various subsidiaries and sold to different entities within the consolidated group. Transfer prices for these transactions are established through negotiations between the affected entities.
Financial information segregated by major geographic area is as follows (in millions):
Automotive - ---------- 1993 1992 1991 -------- ------- -------- Sales to unaffiliated customers United States $ 61,559 $ 51,918 $ 40,627 Europe* 18,507 21,579 21,012 All other 11,502 10,910 10,412 -------- -------- -------- Total $ 91,568 $ 84,407 $ 72,051 ======== ======== ========
Intercompany sales among geographic areas United States $ 8,721 $ 6,978 $ 7,094 Europe* 1,690 1,717 1,619 All other 9,791 10,120 8,644 -------- -------- -------- Total $ 20,202 $ 18,815 $ 17,357 ======== ======== ========
Total sales United States $ 70,280 $ 58,896 $ 47,721 Europe* 20,197 23,296 22,631 All other 21,293 21,030 19,056 Elimination of intercompany sales (20,202) (18,815) (17,357) -------- ------- --------- Total $ 91,568 $ 84,407 $ 72,051 ======== ======== ========
Operating income/(loss) United States $ 1,677 $ (582) $ (3,238) Europe* (402) (924) (280) All Other 157 (269) (251) -------- -------- -------- Total $ 1,432 $ (1,775) $ (3,769) ======== ======== ========
Net income/(loss) before cumulative effects of changes in accounting principles United States $ 1,482 $ (405) $ (2,215) Europe* (407) (647) (478) All other (135) (482) (492) -------- -------- -------- Total $ 940 $ (1,534) $ (3,185) ======== ======== ========
Assets at December 31 United States $ 39,666 $ 34,334 $ 26,728 Europe* 13,452 13,414 15,950 All Other 18,248 17,534 17,938 Net receivables from Financial Services 910 1,437 156 Elimination of intercompany receivables (10,539) (9,549) (8,375) -------- -------- -------- Total $ 61,737 $ 57,170 $ 52,397 ======== ======== ========
Capital expenditures (facilities, machinery and equipment and tooling) United States $ 4,289 $ 3,018 $ 3,042 Europe* 1,376 1,857 1,979 All Other 1,049 822 702 -------- -------- -------- Total $ 6,714 $ 5,697 $ 5,723 ======== ======== ========
- - - - - - *Excludes Jaguar Certain amounts for 1992 and 1991 have been reclassified to conform with presentations adopted in 1993.
FS-25
NOTE 16. Segement Information (Continued) - ----------------------------------------
Financial Services - ------------------ 1993 1992 1991 ------- -------- ------ Revenues United States $ 14,102 $ 12,514 $ 13,182 Europe 1,673 2,051 1,847 All other 1,178 1,160 1,206 -------- -------- -------- Total $ 16,953 $ 15,725 $ 16,235 ======== ======== ========
Income before income taxes and cumulative effects of changes in accounting principles** United States $ 2,311 $ 1,452 $ 1,163 Europe 285 266 184 All other 116 107 118 -------- -------- -------- Total $ 2,712 $ 1,825 $ 1,465 ======== ======== ======== - - - - - - ** Financial Services activities do not report operating income; income before income taxes is representative of operating income.
Net income before cumulative effects of changes in accounting principles United States $ 1,340 $ 919 $ 768 Europe 187 68 118 All other 62 45 41 -------- -------- -------- Total $ 1,589 $ 1,032 $ 927 ======== ======== ======== Assets at December 31 United States $117,290 $104,749 $100,730 Europe 12,132 11,512 13,662 All other 7,779 7,114 7,640 -------- -------- -------- Total $137,201 $123,375 $122,032 ======== ======== ========
Financial Services revenues included $72 million in 1993, $221 million in 1992 and $310 million in 1991 from the Federal Savings and Loan Insurance Corporation Resolution Fund in connection with the acquisition by First Nationwide of certain savings and loan institutions. During 1992, First Nationwide entered into a settlement agreement with the Resolution Trust Corporation which substantially terminated these assistance agreements.
FS-26
Note 17. Summary Quarterly Financial Data (Unaudited) - ----------------------------------------------------- (in millions except amounts per share)
FS-27
Coopers & Lybrand certified public accountants
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders Ford Motor Company
We have audited the consolidated financial statements, the financial statement schedules and the supplemental schedule of condensed financial information of selected subsidiaries of Ford Motor Company and Subsidiaries listed in Items 14(a)1 and 14(a)2 of this Form 10-K. These financial statements, financial statement schedules and supplemental schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements, financial statement schedules and supplemental schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Ford Motor Company and Subsidiaries at December 31, 1993 and 1992 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedules and supplemental schedule referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein.
As discussed in Notes 6 and 8 to the consolidated financial statements, the Company changed its methods of accounting for postretirement benefits other than pensions and income taxes in 1992.
/s/ COOPERS & LYBRAND COOPERS & LYBRAND
400 Renaissance Center Detroit, Michigan 48243 313-446-7100 February 1, 1994 FS-28 Schedule IX
- - - - - - a/At December 31, 1993, Ford (parent company only) had long-term contractually committed credit agreements in the U.S. under which $4.8 billion is available from various banks at least through June 30, 1998. The entire $4.8 billion may be used, at Ford's option, by either Ford or Ford Credit. These facilities were unused at December 31, 1993.
Outside the U.S., Ford has additional long-term contractually committed credit-line facilities of approximately $2.4 billion. These facilities are available in varying amounts from 1994 through 1998; these facilities were unused at December 31, 1993.
b/For Automotive operations, the maximum amount outstanding during the period represents the maximum quarter-end balance.
c/For Automotive operations, the average amount outstanding during the period represents the average of quarter-end balances.
d/For Automotive operations, the weighted average interest rate represents total annual short-term interest expense divided by the average quarter-end short-term debt outstanding.
FSS-1
Schedule IX
Ford Capital B.V., a wholly-owned subsidiary of Ford Motor Company, was established on February 2, 1990 primarily for the purpose of raising funds through the issuance of commercial paper and debt securities. Under a reorganization in December 1990, Ford Motor Company contributed all of its shares of the capital stock of Ford Nederland B.V., Ford Motor Company (Belgium) B.V. and Ford Motor Company A/S (Denmark) to Ford Capital B.V. This reorganization of entities under common control has been accounted for at historical cost in a manner similar to a pooling-of-interests combination from January 1, 1990 forward. Substantially all of the assets of Ford Capital B.V. represent receivables from Ford Motor Company or its consolidated subsidiaries.
FSS-4
Exhibit Index (Continued)
Exhibit Index (Continued)
Exhibit Index (Continued)
Exhibit Index (Continued)
Exhibit Index (Continued)