form10k.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
_______________
FORM
10-K
(Mark
One)
|
|
R
|
Annual
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
|
|
|
|
For
the fiscal year ended December 31, 2007
|
|
|
|
or
|
|
|
£
|
Transition
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
|
|
|
|
For
the transition period from __________ to
__________
|
|
|
|
Commission
file number 1-3950
|
Ford
Motor Company
(Exact
name of Registrant as specified in its charter)
Delaware
|
38-0549190
|
(State
of incorporation)
|
(I.R.S.
employer identification no.)
|
|
|
One
American Road, Dearborn, Michigan
|
48126
|
(Address
of principal executive offices)
|
(Zip
code)
|
313-322-3000
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
Title
of each class
|
|
Name
of each exchange on which registered (a)
|
Common
Stock, par value $.01 per share
|
|
New
York Stock Exchange
|
|
|
|
7.50%
Notes Due June 10, 2043
|
|
New
York Stock Exchange
|
|
|
|
Ford
Motor Company Capital Trust II
|
|
New
York Stock Exchange
|
6.50%
Cumulative Convertible Trust Preferred
|
|
|
Securities,
liquidation preference $50 per share
|
|
|
__________
(a)
|
In
addition, shares of Common Stock of Ford are listed on certain stock
exchanges in Europe.
|
Securities registered pursuant to
Section 12(g) of the Act: None.
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes R No £
Indicate
by check mark if the registrant is not required to file reports pursuant to
section 13 or Section 15(d) of the Act.
Yes £ No R
Indicate
by check mark if the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes R No £
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. R
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "
accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act. (Check one)
Large
accelerated filer R
Accelerated filer £
Non-accelerated filer £
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes £ No R
As of
June 29, 2007, Ford had outstanding 1,827,947,574 shares of Common Stock
and 70,852,076 shares of Class B Stock. Based on the New York Stock
Exchange Composite Transaction closing price of the Common Stock on that date
($9.42 per share), the aggregate market value of such Common Stock was
$17,219,266,147. Although there is no quoted market for our Class B
Stock, shares of Class B Stock may be converted at any time into an equal number
of shares of Common Stock for the purpose of effecting the sale or other
disposition of such shares of Common Stock. The shares of Common
Stock and Class B Stock outstanding at June 29, 2007 included shares
owned by persons who may be deemed to be "affiliates" of Ford. We do
not believe, however, that any such person should be considered to be an
affiliate. For information concerning ownership of outstanding Common
Stock and Class B Stock, see the Proxy Statement for Ford’s Annual Meeting of
Stockholders currently scheduled to be held on May 8, 2008 (our "Proxy
Statement"), which is incorporated by reference under various Items of this
Report as indicated below.
As of
February 11, 2008, Ford had outstanding 2,136,150,054 shares of Common
Stock and 70,852,076 shares of Class B Stock. Based on the New York
Stock Exchange Composite Transaction closing price of the Common Stock on that
date ($6.39 per share), the aggregate market value of such Common Stock was
$13,649,998,845.
DOCUMENTS
INCORPORATED BY REFERENCE
Document
|
|
Where
Incorporated
|
Proxy
Statement*
|
|
Part
III (Items 10, 11, 12, 13 and 14)
|
__________
*
|
As
stated under various Items of this Report, only certain specified portions
of such document are incorporated by reference in this
Report.
|
|
Exhibit
Index begins on page 83.
|
PART
I
ITEM
1.
Business
Ford
Motor Company (referred to herein as "Ford", the "Company", "we", "our" or "us")
was incorporated in Delaware in 1919. We acquired the business of a
Michigan company, also known as Ford Motor Company, that had been incorporated
in 1903 to produce and sell automobiles designed and engineered by Henry
Ford. We are one of the world’s largest producers of cars and trucks
combined. We and our subsidiaries also engage in other businesses,
including financing vehicles.
In
addition to the information about Ford and its subsidiaries contained in this
Annual Report on Form 10-K for the year ended December 31, 2007 ("2007
Form 10-K Report" or "Report"), extensive information about our Company can be
found throughout our website located at www.ford.com,
including information about our management team, our brands and products, and
our corporate governance principles.
The
corporate governance information on our website includes our Corporate
Governance Principles, our Code of Ethics for Senior Financial Personnel, our
Code of Ethics for Directors, our Standards of Corporate Conduct for all
employees, and the Charters for each of our Board Committees. In
addition, amendments to, and waivers granted to our directors and executive
officers under, our Codes of Ethics, if any, will be posted in this area of our
website. These corporate governance documents can be accessed by
logging onto our website and clicking on the "Investors," then "Company
Information, " and then "Corporate Governance" links.
Upon
accessing our website and clicking on the "Corporate Governance" link, viewers
will see a list of corporate governance documents and may click on the desired
document. In addition, printed versions of our Corporate Governance
Principles, our Code of Ethics for Senior Financial Personnel, our Standards of
Corporate Conduct, and the Charters for each of our Board Committees may be
obtained free of charge by writing to our Shareholder Relations Department, Ford
Motor Company, One American Road, P.O. Box 1899, Dearborn, Michigan
48126-1899.
In
addition to the Company information discussed above that is provided on our
website, all of our recent periodic report filings with the Securities and
Exchange Commission ("SEC") pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended, are made available free of charge through our
website. This includes recent Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q, and Current Reports on Form 8-K, as well as any
amendments to those Reports. Also, recent Section 16 filings
made with the SEC by the Company or any of its executive officers or directors
with respect to our Common Stock are made available free of charge through our
website. The periodic reports and amendments and the Section 16
filings are made available through our website as soon as reasonably practicable
after such report or amendment is electronically filed with the
SEC.
To access
our SEC reports or amendments or the Section 16 filings, log onto our website
and click on the following link on each successive screen:
|
•
|
"U.S.
S.E.C. EDGAR FILINGS"
|
Viewers
will then see a list of reports filed with the SEC and may click on the desired
document.
The
foregoing information regarding our website and its content is for convenience
only. The content of our website is not deemed to be incorporated by
reference into this report nor should it be deemed to have been filed with the
SEC.
ITEM
1. Business
(Continued)
OVERVIEW
Segments. We
review and present our business results in two sectors: Automotive
and Financial Services. Within these sectors, our business is divided
into reportable segments based upon the organizational structure that we use to
evaluate performance and make decisions on resource allocation, as well as
availability and materiality of separate financial results consistent with that
structure.
Our
Automotive and Financial Services segments as of December 31, 2007 are
described in the table below:
Business
Sector
|
|
Reportable
Segments
|
|
Description
|
|
|
|
|
|
Automotive:
|
|
Ford
North America
|
|
Primarily
includes the sale of Ford, Lincoln and Mercury brand vehicles and related
service parts in North America (the United States, Canada and Mexico),
together with the associated costs to design, develop, manufacture and
service these vehicles and parts.
|
|
|
|
|
|
|
|
Ford
South America
|
|
Primarily
includes the sale of Ford-brand vehicles and related service parts in
South America, together with the associated costs to design, develop,
manufacture and service these vehicles and parts.
|
|
|
|
|
|
|
|
Ford
Europe
|
|
Primarily
includes the sale of Ford-brand vehicles and related service parts in
Europe, Turkey and Russia, together with the associated costs to design,
develop, manufacture and service these vehicles and
parts.
|
|
|
|
|
|
|
|
Premier
Automotive Group*
|
|
Primarily
includes the sale of Premier Automotive Group ("PAG") brand vehicles
(i.e., Volvo, Jaguar, and Land Rover) and related service parts throughout
the world (including Europe, North and South America, Asia Pacific and
Africa), together with the associated costs to design, develop,
manufacture and service these vehicles and parts.
|
|
|
|
|
|
|
|
Ford
Asia Pacific and
Africa/Mazda
|
|
Primarily
includes the sale of Ford-brand vehicles and related service parts in the
Asia Pacific region and South Africa, together with the associated costs
to design, develop, manufacture and service these vehicles and parts, and
our share of the results of Mazda Motor Corporation (of which we own
approximately 33.4%) and certain of our Mazda-related
investments.
|
|
|
|
|
|
Financial
Services:
|
|
Ford
Motor Credit Company
|
|
Primarily
includes vehicle-related financing, leasing, and
insurance.
|
|
|
|
|
|
|
|
Other
Financial Services
|
|
Primarily
includes real-estate, and vehicle-related financing/leasing of Volvo
products.
|
*
|
As
reported in our Quarterly Report on Form
10-Q for the period ended June 30, 2007, we sold Aston Martin
effective May 31, 2007. We currently are negotiating
the sale of our Jaguar and Land Rover operations, which were held
for sale beginning in the fourth quarter of 2007. Beginning
with the first quarter of 2008, we intend to change
our segments by eliminating the PAG segment and replacing it
with a segment that will consist of our Volvo operations and, until we
complete the sale of our held-for-sale Jaguar and Land Rover
operations, a
segment consisting of our held-for-sale Jaguar and Land Rover
operations.
|
We
provide financial information (such as revenues, income, and assets) for each of
these business sectors and reportable segments in three areas of this
Report: (1) "Item 6. Selected Financial Data," (2) "Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations," and (3) Note 25 of the Notes to the Financial Statements located at
the end of this Report. Financial information relating to certain
geographic areas also is included in these Notes.
ITEM
1. Business
(Continued)
AUTOMOTIVE
SECTOR
General
We sell
cars and trucks throughout the world. In 2007, we sold approximately
6,553,000 vehicles at wholesale throughout the world. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" for additional discussion of wholesale unit volumes. Our
vehicle brands include Ford, Mercury, Lincoln, and Volvo; our Jaguar and Land
Rover brands are held for sale as of the fourth quarter of 2007.
Substantially
all of our cars, trucks and parts are marketed through retail dealers in North
America, and through distributors and dealers outside of North America, the
substantial majority of which are independently owned. At
December 31, 2007, the approximate number of dealers and distributors
worldwide distributing our vehicle brands was as follows:
Brand
|
|
Number
of Dealerships
at
December 31, 2007*
|
|
Ford
|
|
|
10,963 |
|
Mercury
|
|
|
1,916 |
|
Lincoln
|
|
|
1,466 |
|
Volvo
|
|
|
2,369 |
|
Land
Rover
|
|
|
1,397 |
|
Jaguar
|
|
|
859 |
|
__________
*
|
Because
many of these dealerships distribute more than one of our brands from the
same sales location, a single dealership may be counted under more than
one brand. With our Jaguar and Land Rover operations held for
sale as of the fourth quarter of 2007, we do not anticipate that Jaguar
and Land Rover dealers and distributors will be pertinent to our
disclosures going forward.
|
In
addition to the products we sell to our dealers for retail sale, we also sell
cars and trucks to our dealers for sale to fleet customers, including daily
rental car companies, commercial fleet customers, leasing companies, and
governments. Sales to all of our fleet customers in the United States
in the aggregate have represented between 23% and 31% of our total U.S. car and
truck sales for the last five years. We do not depend on any single
customer or small group of customers to the extent that the loss of such
customer or group of customers would have a material adverse effect on our
business.
In
addition to producing and selling cars and trucks, we also provide retail
customers with a wide range of after-the-sale vehicle services and products
through our dealer network and other channels, in areas such as maintenance and
light repair, heavy repair, collision, vehicle accessories and extended service
warranty. In North America, we market these products and services
under several brands, including Genuine Ford and Lincoln-Mercury Parts and
ServiceSM, Ford
Extended Service PlanSM, and
MotorcraftSM.
The
worldwide automotive industry, Ford included, is affected significantly by
general economic conditions (among other factors) over which we have little
control. This is especially so because vehicles are durable goods,
which provide consumers latitude in determining whether and when to replace an
existing vehicle. The decision whether and when to make a vehicle
purchase may be affected significantly by slowing economic growth, geo-political
events, and other factors (including the cost of purchasing and operating cars
and trucks and the availability and cost of credit and
fuel). Accordingly, the number of cars and trucks sold (commonly
referred to as "industry demand") may vary substantially from year to
year. The automotive industry is also a highly competitive, cyclical
business that has a wide and growing variety of product offerings from a growing
number of manufacturers.
Our
wholesale unit volumes vary with the level of total industry demand and our
share of that industry demand. In the short term, our wholesale unit
volumes also are influenced by the level of dealer inventory. Our
share is influenced by how our products are perceived in comparison to those
offered by other manufacturers based on many factors, including price, quality,
styling, reliability, safety, functionality, and corporate
reputation. Our share also is affected by the timing and frequency of
new model introductions. Our ability to satisfy changing consumer
preferences with respect to type or size of vehicle, as well as design and
performance characteristics, impacts our sales and earnings
significantly.
ITEM
1. Business
(Continued)
The
profitability of our business is affected by many factors,
including:
|
§
|
Wholesale
unit volumes;
|
|
§
|
Margin
of profit on each vehicle sold; which in turn is affected by many factors,
including:
|
|
·
|
Mix
of vehicles and options sold;
|
|
·
|
Costs
of components and raw materials necessary for production of
vehicles;
|
|
·
|
Level
of "incentives" (e.g., price discounts) and other marketing
costs;
|
|
·
|
Costs
for customer warranty claims and additional service actions;
and
|
|
·
|
Costs
for safety, emission and fuel economy technology and equipment; and, as
with other manufacturers,
|
|
§
|
A
high proportion of relatively fixed costs, including labor costs, such
that small changes in wholesale unit volumes can significantly affect
overall profitability.
|
In
addition, our industry continues to face a very competitive pricing environment,
driven in part by industry excess capacity. For the past several
decades, manufacturers typically have given price discounts and other marketing
incentives to maintain market share and production levels. A
discussion of our strategies to compete in this pricing environment is set forth
in "Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations – Overview."
Competitive
Position. The worldwide automotive industry 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 countries of origin. Detailed information
regarding our competitive position in the principal markets where we compete may
be found below as part of the overall discussion of the automotive industry in
those markets.
Seasonality. We
generally record the sale of a vehicle (and recognize sales proceeds in revenue)
when it is produced and shipped or delivered to our customer (i.e., our dealer
or distributor). See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations – Overview" for
additional discussion of revenue recognition practices. We manage our
vehicle production schedule based on a number of factors, including dealer stock
levels (i.e., the number of units held in inventory by our dealers and
distributors for sale to retail and fleet customers) and retail sales
(i.e., units sold by our dealers and distributors to their customers at
retail). We experience some fluctuation in the business of a seasonal
nature. Generally, production in many markets is higher in the first
half of the year to meet demand in the spring and summer, which are usually the
strongest sales months of the year. Third quarter production is
typically the lowest of the year, generally reflecting the annual two-week
vacation shutdown of our manufacturing facilities during this
quarter. As a result, operating results for the third quarter
typically are less favorable than those of other quarters.
Raw Materials. We
purchase a wide variety of raw materials for use in production of our vehicles
from numerous suppliers around the world. These materials include
non-ferrous metals (e.g., aluminum), precious metals (e.g., palladium), ferrous
metals (e.g., steel and iron castings), energy (e.g., natural gas), and resins
(e.g., polypropylene). We believe that we have adequate
supplies or sources of availability of the raw materials necessary to meet our
needs. However, there are always risks and uncertainties with
respect to the supply of raw materials that could impact their availability in
sufficient quantities to meet our needs. See
"Item 7. Management Discussion and Analysis of Financial Condition and
Results of Operations – Overview" for a discussion of commodity and energy price
trends, and "Item 7A. Quantitative and Qualitative Disclosures About Market
Risk – Commodity Price Risk" for a discussion of commodity price
risks.
Backlog Orders. We
generally produce and ship our products on average within approximately 20 days
after an order is deemed to become firm. Therefore, no significant
amount of backlog orders accumulates during any period.
Intellectual
Property. We own or hold licenses to use numerous patents,
copyrights and trademarks on a global basis. Our policy is to protect
our competitive position by, among other methods, filing U.S. and international
patent applications to protect technology and improvements that we consider
important to the development of our business. We have generated a
large number of patents related to the operation of our business, and expect
this portfolio to continue to grow as we actively pursue additional
technological innovation. We currently have approximately 14,400
active patents and pending patent applications globally, with an average age for
patents in our active patent portfolio of just over 5 years. In
addition to this intellectual property, we also rely on our proprietary
knowledge and ongoing technological innovation to develop and maintain our
competitive position. While we believe that these patents, patent
applications, and know-how, in the aggregate, are important to the conduct of
our business, and we obtain licenses to use certain intellectual property owned
by others, none is individually considered material to our
business. We also own numerous trademarks and service marks that
contribute to the identity and recognition of our company and its products and
services globally. Certain of these marks are integral to the conduct
of our business, a loss of any of which could have a material adverse effect on
our business.
ITEM
1. Business
(Continued)
Warranty Coverage and Additional
Service Actions. We presently provide warranties on vehicles
we sell. Warranties are offered for specific periods of time and/or
mileage, and vary depending upon the type of product, usage of the product and
the geographic location of its sale. Types of warranty coverage
offered include base coverage (e.g., "bumper-to-bumper" coverage in the United
States on Ford-brand vehicles for 36 months or 36,000 miles, whichever occurs
first), safety restraint coverage, and corrosion coverage. Beginning
with 2007 model-year passenger cars and light trucks, Ford extended the
powertrain warranty coverage offered on Ford, Lincoln and Mercury vehicles sold
in the United States, Canada and select U.S. export markets (e.g., powertrain
coverage for certain vehicles sold in the United States from three years or
36,000 miles to five years or 60,000 miles on Ford and Mercury brands and from
four years or 50,000 miles to six years or 70,000 miles on the Lincoln
brand). In compliance with regulatory requirements, we also provide
emissions-defects and emissions-performance warranty
coverage. Pursuant to these warranties, Ford will repair, replace, or
adjust all parts on a vehicle that are defective in factory-supplied materials
or workmanship during the specified warranty period.
In
addition to the costs associated with the contractual warranty coverage provided
on our vehicles, we also incur costs as a result of additional service actions
not covered by our warranties, including product recalls and customer
satisfaction actions.
Estimated
warranty and additional service action costs for each vehicle sold by us are
accrued for at the time of sale. Accruals for estimated warranty and
additional service action costs are based on historical experience and subject
to adjustment from time to time depending on actual
experience. Warranty accrual adjustments required when actual
warranty claim experience differs from our estimates may have a material impact
on our results.
For
additional information with respect to costs for warranty and additional service
actions, see "Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations – Critical Accounting Estimates" and
Note 28 of the Notes to the Financial Statements.
United
States
Sales Data. The
following table shows U.S. industry sales of cars and trucks for the years
indicated (in millions of units):
|
|
U.S.
Industry Sales*
|
|
|
Years
Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cars
|
|
|
8.0 |
|
|
|
8.1 |
|
|
|
7.9 |
|
|
|
7.7 |
|
|
|
7.8 |
|
Trucks
|
|
|
8.5 |
|
|
|
9.0 |
|
|
|
9.6 |
|
|
|
9.6 |
|
|
|
9.2 |
|
Total
|
|
|
16.5 |
|
|
|
17.1 |
|
|
|
17.5 |
|
|
|
17.3 |
|
|
|
17.0 |
|
__________
*
|
Throughout
this section, industry sales include sales of heavy
trucks.
|
We
classify cars by small, medium, large, and premium segments, and trucks by
compact pickup, bus/van (including minivans), full-size pickup, sport utility
vehicles, and medium/heavy segments. With the introduction of
crossover utility vehicles ("CUVs"), however, the distinction between
traditional cars and trucks has become more difficult to draw, and these
vehicles are not consistently classified as either cars or trucks across vehicle
manufacturers. In the tables above and below, we have classified CUVs
(i.e., vehicles with sport utility features built on a car platform) as sport
utility vehicles ("SUVs"). In addition, we have classified as
"premium" all of our luxury cars, regardless of size; premium SUVs and CUVs are
included in "trucks." Annually, we conduct a comprehensive review of
many factors to determine the appropriate classification of vehicle segments and
the vehicles within those segments, and this review occasionally results in a
change of classification for certain vehicles.
ITEM
1. Business
(Continued)
The
following tables show the proportion of U.S. car and truck unit sales by segment
for the industry (including domestic and foreign-based manufacturers) and Ford
(including all of our brands sold in the United States) for the years
indicated:
|
|
U.S.
Industry Vehicle Mix of Sales
by
Segment
|
|
|
|
Years
Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CARS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small
|
|
|
20.4 |
% |
|
|
19.8 |
% |
|
|
17.9 |
% |
|
|
16.9 |
% |
|
|
17.3 |
% |
Medium
|
|
|
13.0 |
|
|
|
12.3 |
|
|
|
12.3 |
|
|
|
13.1 |
|
|
|
14.4 |
|
Large
|
|
|
7.0 |
|
|
|
7.5 |
|
|
|
7.4 |
|
|
|
6.8 |
|
|
|
6.6 |
|
Premium
|
|
|
7.7 |
|
|
|
7.5 |
|
|
|
7.8 |
|
|
|
7.7 |
|
|
|
7.7 |
|
Total
U.S. Industry Car Sales
|
|
|
48.1 |
|
|
|
47.1 |
|
|
|
45.4 |
|
|
|
44.5 |
|
|
|
46.0 |
|
TRUCKS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compact
Pickup
|
|
|
3.2 |
% |
|
|
3.5 |
% |
|
|
3.9 |
% |
|
|
4.0 |
% |
|
|
4.4 |
% |
Bus/Van
|
|
|
6.6 |
|
|
|
7.8 |
|
|
|
8.1 |
|
|
|
8.5 |
|
|
|
8.2 |
|
Full-Size
Pickup
|
|
|
13.5 |
|
|
|
13.3 |
|
|
|
14.6 |
|
|
|
14.7 |
|
|
|
14.0 |
|
SUV/CUV
|
|
|
26.6 |
|
|
|
25.2 |
|
|
|
25.6 |
|
|
|
26.1 |
|
|
|
25.7 |
|
Medium/Heavy
|
|
|
2.0 |
|
|
|
3.1 |
|
|
|
2.4 |
|
|
|
2.2 |
|
|
|
1.7 |
|
Total
U.S. Industry Truck Sales
|
|
|
51.9 |
|
|
|
52.9 |
|
|
|
54.6 |
|
|
|
55.5 |
|
|
|
54.0 |
|
Total
U.S. Industry Vehicle Sales
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
Ford
Vehicle Mix of Sales
by
Segment in U.S.
|
|
|
|
Years
Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CARS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small
|
|
|
12.0 |
% |
|
|
11.8 |
% |
|
|
10.9 |
% |
|
|
10.2 |
% |
|
|
11.4 |
% |
Medium
|
|
|
7.2 |
|
|
|
12.1 |
|
|
|
7.7 |
|
|
|
8.7 |
|
|
|
10.4 |
|
Large
|
|
|
7.8 |
|
|
|
7.7 |
|
|
|
8.3 |
|
|
|
5.0 |
|
|
|
4.8 |
|
Premium
|
|
|
5.9 |
|
|
|
6.4 |
|
|
|
6.3 |
|
|
|
7.1 |
|
|
|
7.5 |
|
Total
Ford U.S. Car Sales
|
|
|
32.9 |
|
|
|
38.0 |
|
|
|
33.2 |
|
|
|
31.0 |
|
|
|
34.1 |
|
TRUCKS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compact
Pickup
|
|
|
2.8 |
% |
|
|
3.2 |
% |
|
|
3.8 |
% |
|
|
4.7 |
% |
|
|
6.0 |
% |
Bus/Van
|
|
|
6.7 |
|
|
|
8.0 |
|
|
|
8.4 |
|
|
|
8.8 |
|
|
|
8.4 |
|
Full-Size
Pickup
|
|
|
27.2 |
|
|
|
27.7 |
|
|
|
28.8 |
|
|
|
28.2 |
|
|
|
24.3 |
|
SUV/CUV
|
|
|
29.8 |
|
|
|
22.5 |
|
|
|
25.3 |
|
|
|
26.9 |
|
|
|
27.0 |
|
Medium/Heavy
|
|
|
0.6 |
|
|
|
0.6 |
|
|
|
0.5 |
|
|
|
0.4 |
|
|
|
0.2 |
|
Total
Ford U.S. Truck Sales
|
|
|
67.1 |
|
|
|
62.0 |
|
|
|
66.8 |
|
|
|
69.0 |
|
|
|
65.9 |
|
Total
Ford U.S. Vehicle Sales
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
As the
tables above indicate, the shift from cars to trucks that began in the 1980's
started to reverse in 2005. Prior to 2005, both industry and Ford's
truck mix generally had been increasing, reflecting higher sales of traditional,
truck-based SUVs and full-size pickups. In 2005 and 2006, however,
overall industry as well as Ford's car mix trended higher, primarily due to
increases in the small car segment. In 2007, contrary to industry
trends, Ford's overall car mix decreased, reflecting reduced sales to daily
rental companies. Gains in the SUV/CUV segment, largely explained by
the strength of our new Ford Edge and Lincoln MKX CUVs, also contributed to this
shift.
Market Share
Data. The competitive environment in the United States has
intensified and is expected to continue to intensify as Japanese and Korean
manufacturers increase imports to the United States and production capacity in
North America. Our principal competitors in the United States include
General Motors Corporation ("General Motors"), Chrysler Corporation
("Chrysler"), Toyota Motor Corporation ("Toyota"), Honda Motor Company
("Honda"), and Nissan Motor Company ("Nissan"). The following tables
show U.S. car and truck market share for Ford (including all of our brands sold
in the United States), and for the other five leading vehicle manufacturers for
the years indicated.
ITEM
1. Business
(Continued)
The
percentages in each of the following tables represent the percentage of the
combined car and truck industry:
|
|
U.S.
Car Market Shares (a)
|
|
|
|
Years
Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
|
|
|
5.1 |
% |
|
|
6.4 |
% |
|
|
6.1 |
% |
|
|
6.1 |
% |
|
|
6.9 |
% |
General
Motors
|
|
|
9.8 |
|
|
|
10.0 |
|
|
|
10.2 |
|
|
|
10.7 |
|
|
|
11.6 |
|
Chrysler
|
|
|
4.2 |
|
|
|
4.1 |
|
|
|
4.0 |
|
|
|
3.6 |
|
|
|
3.4 |
|
Toyota
|
|
|
9.2 |
|
|
|
8.6 |
|
|
|
7.4 |
|
|
|
6.3 |
|
|
|
6.0 |
|
Honda
|
|
|
5.3 |
|
|
|
4.9 |
|
|
|
4.8 |
|
|
|
4.9 |
|
|
|
4.9 |
|
Nissan
|
|
|
3.9 |
|
|
|
3.2 |
|
|
|
3.3 |
|
|
|
3.0 |
|
|
|
3.0 |
|
All
Other (b)
|
|
|
10.6 |
|
|
|
9.9 |
|
|
|
9.6 |
|
|
|
9.9 |
|
|
|
10.2 |
|
Total
U.S. Car Deliveries
|
|
|
48.1 |
% |
|
|
47.1 |
% |
|
|
45.4 |
% |
|
|
44.5 |
% |
|
|
46.0 |
% |
|
|
U.S.
Truck Market Shares (a)
|
|
|
|
Years
Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
|
|
|
10.5 |
% |
|
|
10.7 |
% |
|
|
12.1 |
% |
|
|
13.2 |
% |
|
|
13.6 |
% |
General
Motors
|
|
|
13.6 |
|
|
|
14.1 |
|
|
|
15.6 |
|
|
|
16.4 |
|
|
|
16.4 |
|
Chrysler
|
|
|
8.4 |
|
|
|
8.4 |
|
|
|
9.2 |
|
|
|
9.1 |
|
|
|
9.1 |
|
Toyota
|
|
|
6.7 |
|
|
|
6.3 |
|
|
|
5.6 |
|
|
|
5.6 |
|
|
|
5.0 |
|
Honda
|
|
|
4.1 |
|
|
|
3.9 |
|
|
|
3.6 |
|
|
|
3.2 |
|
|
|
3.1 |
|
Nissan
|
|
|
2.6 |
|
|
|
2.8 |
|
|
|
2.9 |
|
|
|
2.7 |
|
|
|
1.7 |
|
All
Other (b)
|
|
|
6.0 |
|
|
|
6.7 |
|
|
|
5.6 |
|
|
|
5.3 |
|
|
|
5.1 |
|
Total
U.S. Truck Deliveries
|
|
|
51.9 |
% |
|
|
52.9 |
% |
|
|
54.6 |
% |
|
|
55.5 |
% |
|
|
54.0 |
% |
|
|
U.S.
Combined Car and Truck
Market
Shares (a)
|
|
|
|
Years
Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
|
|
|
15.6 |
% |
|
|
17.1 |
% |
|
|
18.2 |
% |
|
|
19.3 |
% |
|
|
20.5 |
% |
General
Motors
|
|
|
23.4 |
|
|
|
24.1 |
|
|
|
25.8 |
|
|
|
27.1 |
|
|
|
28.0 |
|
Chrysler
|
|
|
12.6 |
|
|
|
12.5 |
|
|
|
13.2 |
|
|
|
12.7 |
|
|
|
12.5 |
|
Toyota
|
|
|
15.9 |
|
|
|
14.9 |
|
|
|
13.0 |
|
|
|
11.9 |
|
|
|
11.0 |
|
Honda
|
|
|
9.4 |
|
|
|
8.8 |
|
|
|
8.4 |
|
|
|
8.1 |
|
|
|
8.0 |
|
Nissan
|
|
|
6.5 |
|
|
|
6.0 |
|
|
|
6.2 |
|
|
|
5.7 |
|
|
|
4.7 |
|
All
Other (b)
|
|
|
16.6 |
|
|
|
16.6 |
|
|
|
15.2 |
|
|
|
15.2 |
|
|
|
15.3 |
|
Total
U.S. Car and Truck Deliveries
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
__________
(a)
|
All
U.S. sales data are based on publicly available information from the media
and trade publications.
|
(b)
|
"All
Other" includes primarily companies based in Korea, other Japanese
manufacturers and various European manufacturers, and, with respect to the
U.S. Truck Market Shares table and U.S. Combined Car and Truck Market
Shares table, includes heavy truck
manufacturers.
|
Our
decline in overall market share is primarily the result of several factors,
including increased competition, an industry shift away from our traditionally
stronger segments (e.g., traditional SUVs and full-size pickups), reduced
vehicle sales to daily rental companies, and the discontinuation of a number of
our vehicle lines over the last several years.
Fleet Sales. The
sales data and market share information provided above include both retail and
fleet sales. Fleet sales include sales to daily rental car companies,
commercial fleet customers, leasing companies and governments. The
table below shows our fleet sales (including all brands) in the United States,
and the amount of those sales as a percentage of our total U.S. car and truck
sales for the last five years (in thousands):
|
|
Ford
Fleet Sales
|
|
|
|
Years
Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daily
Rental Units
|
|
|
311 |
|
|
|
453 |
|
|
|
450 |
|
|
|
429 |
|
|
|
444 |
|
Commercial
and Other Units
|
|
|
275 |
|
|
|
287 |
|
|
|
263 |
|
|
|
248 |
|
|
|
227 |
|
Government
Units
|
|
|
158 |
|
|
|
162 |
|
|
|
141 |
|
|
|
133 |
|
|
|
124 |
|
Total
Fleet Units
|
|
|
744 |
|
|
|
902 |
|
|
|
854 |
|
|
|
810 |
|
|
|
795 |
|
Percent
of Ford's total U.S. car and truck sales
|
|
|
29 |
% |
|
|
31 |
% |
|
|
27 |
% |
|
|
24 |
% |
|
|
23 |
% |
Lower
fleet sales in 2007 primarily reflected planned reductions in sales to daily
rental car companies, and elimination of the former Ford Taurus sedan and
Freestar minivan. The decrease in commercial fleet sales reflected
lower industry volume. We continue to maintain a leadership position
in both sales and market share for government fleet sales. We expect
total fleet sales to decline slightly in 2008, primarily reflecting the
continuation of our strategy to reduce sales to daily rental car
companies.
ITEM
1. Business
(Continued)
Europe
Market Share
Information. Outside of the United States, Europe is our
largest market for the sale of cars and trucks. The automotive
industry in Europe is intensely competitive. Our principal
competitors in Europe include General Motors, Volkswagen A.G. Group, PSA Group,
Renault Group, and Fiat SpA. For the past 10 years, the top six
manufacturers have collectively held between 70% and 76% of the total
market. This competitive environment is expected to intensify further
as Japanese and Korean manufacturers increase their production capacity in
Europe, and as other manufacturers of premium brands (e.g., BMW, Mercedes Benz
and Audi) continue to broaden their product offerings.
For
purposes of this discussion, 2007 market data are based on estimated
registrations currently available; percentage change is measured from actual
2006 registrations. We track industry sales in Europe for the
following 19 markets: Britain, Germany, France, Italy, Spain, Austria, Belgium,
Ireland, Netherlands, Portugal, Switzerland, Finland, Sweden, Denmark, Norway,
Czech Republic, Greece, Hungary and Poland. In 2007, vehicle
manufacturers sold approximately 18 million cars and trucks in the 19
markets we track in Europe, up 1.3% from 2006 levels. Ford's combined
car and truck market share in Europe (including all of our brands sold in
Europe) in 2007 was 10.9% (up 0.2 percentage points from
2006).
Britain
and Germany are our highest-volume markets within Europe. Any change
in the British or German market has a significant effect on our total European
automotive profits. For 2007 compared with 2006, total industry sales
were up 2.5% in Britain, and down 7.7% in Germany. Our combined car
and truck market share in these markets (including all of our brands sold in
these markets) in 2007 was 19.5% in Britain (down 0.3 percentage points from the
previous year), and 8.0% in Germany (down 0.2 percentage points from the
previous year).
Although
not included in the primary 19 markets above, several additional
markets the region contribute to our Ford Europe segment
results. Ford's share of the Turkish market decreased by 0.4
percentage points to 16.7% – nonetheless, the sixth year in a row that the Ford
brand has led the market in sales in Turkey. We also are experiencing
strong sales in Russia, where sales of Ford-brand vehicles increased
approximately 50% to about 175,800 units in 2007.
Motor Vehicle Distribution in
Europe. On October 1, 2002, the Commission of the European
Union ("Commission") adopted a new regulation that changed the way motor
vehicles are sold and repaired throughout the European Community (the "Block
Exemption Regulation"). Under the Block Exemption Regulation,
manufacturers had the choice to either operate an "exclusive" distribution
system with exclusive dealer sales territories, but with the possibility of
sales to any reseller (e.g., supermarket chains, internet agencies and other
resellers not authorized by the manufacturer), who in turn could sell to end
customers both within and outside of the dealer’s exclusive sales territory, or
a "selective" distribution system. These rules make it easier for a
dealer to display and sell multiple brands in one store without the need to
maintain separate facilities.
We, as well as the vast majority of
the other automotive manufacturers, have elected to establish a "selective"
distribution system, allowing us to restrict the dealer’s ability to sell our
vehicles to unauthorized resellers. Within this regulation, the
Commission also has adopted sweeping changes to the repair industry, and while a
manufacturer may continue to require the use of its parts in warranty and recall
work, repair facilities may use parts made by others that are of comparable
quality for all other repair work. We have negotiated and implemented
Dealer, Authorized Repairer and Spare Part Supply contracts on a
country-by-country level and, therefore, the Block Exemption Regulation applies
with respect to all of our dealers.
With
these rules, the Commission intended to increase competition and narrow price
differences from country to country. The Block Exemption Regulation
has contributed and continues to contribute to an increasingly competitive
market for vehicles and parts and ongoing price convergence. This has
contributed to an increase in marketing expenses, thus negatively affecting the
profitability of our Ford Europe and PAG segments. We anticipate that
this trend may continue as dealers and parts suppliers become increasingly
organized and established. The current Block Exemption Regulation
expires on May 31, 2010.
ITEM
1. Business
(Continued)
Other
Markets
Canada and
Mexico. Canada and Mexico also are important markets for
us. In Canada, industry sales of new cars and trucks in 2007 were
approximately 1.69 million units, up 1.5% from 2006 levels. Industry
sales of new cars and trucks in Mexico for 2007 were approximately 1.1 million
units, down 2.8% from 2006. Our combined car and truck market share
(including all of our brands sold in these markets) in 2007 was 14.0% in Canada
(down 0.6 percentage points from the previous year), and 13.7% in Mexico (down
2.2 percentage points from the previous year).
South
America. Brazil, Argentina and Venezuela are our principal
markets in South America. Industry sales in 2007 were approximately
2.5 million units in Brazil (up 27.8% from 2006), approximately 557,000 units in
Argentina (up 26.8% from 2006), and approximately 492,000 units in Venezuela (up
46.6% from 2006). Our combined car and truck share in these markets
was 10.8% in Brazil (down 0.6 percentage points from 2006), 13.7% in Argentina
(down 0.9 percentage points from 2006), and 15.2% in Venezuela (down 3.2
percentage points from 2006).
Asia
Pacific. Australia, China, India, South Africa, and Taiwan are
our principal markets in this region. Industry sales in 2007 were
approximately 1.1 million units in Australia (up 9% from 2006), approximately
9.1 million units in China (up 24% from 2006), approximately 2 million units in
India (up 13% from 2006), approximately 600,000 units in South Africa (down 5%
from 2006), and approximately 300,000 units in Taiwan (down 11% from
2006). Our combined car and truck share in these markets (including
sales of all of our brands, and market share for certain unconsolidated
affiliates particularly in China) was 11.2% in Australia (down 1.6 percentage
points from 2006), 2.4% in China (up 0.1 percentage points from 2006), 1.9% in
India (down 0.5 percentage points from 2006), 12.4% in South Africa (down 0.4
percentage points from 2006) and 15.3% in Taiwan (down 1.8 percentage points
from 2006). Our principal competition in the Asia Pacific region has
been the Japanese manufacturers. We anticipate that the ongoing
relaxation of import restrictions (including duty reductions) will continue to
intensify competition in the region. We have an ownership interest in
Mazda Motor Corporation ("Mazda") of approximately 33.4%, and account for Mazda
on an equity basis.
We are in
the process of significantly increasing our presence in China, with more
investment in manufacturing capacity, introduction of new products and expansion
of distribution channels. Our joint venture, Changan Ford Mazda
Automobile Corporation, Ltd.
("CFMA"), located in Chongqing, began producing Ford vehicles in
2003. CFMA's Chongqing plant has production capacity of about 250,000
units per year. We opened a second assembly plant and a new engine
plant located in Nanjing in 2007, with initial capacity of about 160,000 units
annually, boosting our total annual passenger car production capacity in China
to more than 410,000 vehicles. In addition, our Jiangling Motors
Corporation, Ltd. joint venture has operations in Nanchang and assembles
light commercial vehicles for distribution in China. We continue to
operate a purchasing office in China to procure components for operations
outside of China. For additional discussion of our joint ventures,
see "Item 2. Properties."
ITEM
1. Business
(Continued)
FINANCIAL
SERVICES SECTOR
Ford
Motor Credit Company LLC
Ford
Motor Credit Company LLC ("Ford Credit") offers a wide variety of automotive
financing products to and through automotive dealers throughout the
world. The predominant share of Ford Credit’s business consists of
financing our vehicles and supporting our dealers. Ford Credit’s
primary financing products fall into the following three
categories:
|
•
|
Retail
financing. Purchasing retail installment sale contracts
and retail lease contracts from dealers, and offering financing to
commercial customers – primarily vehicle leasing companies and fleet
purchasers – to purchase or lease vehicle
fleets;
|
|
•
|
Wholesale
financing. Making loans to dealers to finance the
purchase of vehicle inventory, also known as floorplan financing;
and
|
|
•
|
Other
financing. Making loans to dealers for working capital,
improvements to dealership facilities, and to purchase or finance
dealership real estate.
|
Ford
Credit also services the finance receivables and leases that it originates and
purchases, makes loans to our affiliates, purchases certain receivables from us
and our subsidiaries, and provides insurance services related to its financing
programs. Ford Credit’s revenues are earned primarily from payments
made under retail installment sale contracts and retail leases (including
interest supplements and other support payments it receives from us on special
rate financing programs), and from payments made under wholesale and other
dealer loan financing programs.
Ford
Credit does business in all states in the United States and in all provinces in
Canada through automotive dealer financing branches and regional business
centers. Outside of the United States, FCE Bank plc ("FCE")
is Ford Credit’s largest operation. FCE's primary business is to
support the sale of our vehicles in Europe through our dealer
network. FCE offers a variety of retail, leasing and wholesale
finance plans in most countries in which it operates; FCE does business in the
United Kingdom, Germany and most other European countries. Ford
Credit, through its subsidiaries, also operates in the Asia Pacific and Latin
American regions. In addition, FCE, through its Worldwide Trade
Financing division, provides financing to dealers in countries where typically
we have no established local presence.
Ford
Credit's share of retail financing for new Ford, Lincoln and Mercury brand
vehicles sold by dealers in the United States and new Ford brand vehicles sold
by dealers in Europe, as well as Ford Credit's share of wholesale financing for
new Ford, Lincoln and Mercury brand vehicles acquired by dealers in the United
States (excluding fleet) and of new Ford brand vehicles acquired by dealers in
Europe, were as follows during the last three years:
|
|
Years
Ended
December
31,
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
|
|
|
|
|
|
|
|
Financing
share – Ford, Lincoln and Mercury
|
|
|
|
|
|
|
|
|
|
Retail
installment and lease
|
|
|
38 |
% |
|
|
44 |
% |
|
|
37 |
% |
Wholesale
|
|
|
78 |
|
|
|
80 |
|
|
|
81 |
|
Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
share – Ford
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
installment and lease
|
|
|
26 |
% |
|
|
27 |
% |
|
|
28 |
% |
Wholesale
|
|
|
96 |
|
|
|
95 |
|
|
|
96 |
|
The
decrease in Ford Credit's retail financing share in the United States in 2007
compared with 2006 primarily reflected changes in our marketing programs that
resulted in a reduced use of special-rate financing through Ford
Credit. For a detailed discussion of Ford Credit's receivables,
credit losses, allowance for credit losses, loss-to-receivables ratios, funding
sources and funding strategies, see "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations." For a
discussion of how Ford Credit manages its financial market risks, see "Item 7A.
Quantitative and Qualitative Disclosures about Market Risk."
ITEM
1. Business
(Continued)
We
routinely sponsor special-rate financing programs available only through Ford
Credit. Pursuant to these programs, we make interest supplement or
other support payments to Ford Credit. These programs increase Ford
Credit's financing volume and share of financing sales of our
vehicles. See Note 1 of the Notes to the Financial Statements
and "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations – Overview" for more information about these support
payments.
We have
in place a profit maintenance agreement with Ford Credit that requires us to
maintain consolidated income before income taxes and net income at specified
minimum levels. In addition, Ford Credit has an agreement to maintain
a minimum control interest in FCE and to maintain FCE’s net worth above a
minimum level. No payments were made pursuant to either of these
agreements during the 2005 through 2007 periods.
GOVERNMENTAL
STANDARDS
Many
governmental standards and regulations relating to safety, fuel economy,
emissions control, noise control, vehicle recycling, substances of concern,
vehicle damage, and theft prevention are applicable to new motor vehicles,
engines, and equipment manufactured for sale in the United States, Europe and
elsewhere. In addition, manufacturing and other automotive assembly
facilities in the United States, Europe and elsewhere are subject to stringent
standards regulating air emissions, water discharges, and the handling and
disposal of hazardous substances.
Mobile
Source Emissions Control
U.S. Requirements – Federal
Emissions Standards. The federal Clean Air Act imposes
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. The current ("Tier 2") emissions regulations promulgated by
the U.S. Environmental Protection Agency ("EPA") set standards for cars and
light trucks that grow increasingly more stringent through the 2009 model
year. The Tier 2 emissions standards also extend durability
requirements for emissions components to 120,000 or 150,000 miles (depending on
the specific standards to which the vehicle is certified). These
standards present compliance challenges and make it more costly and difficult to
utilize light-duty diesel technology, which in turn restricts our ability to
improve fuel economy for purposes of satisfying Corporate Average Fuel Economy
("CAFE") standards.
The EPA
also has promulgated new standards and requirements for EPA-defined "heavy-duty"
vehicles and engines (those vehicles with 8,500-14,000 pounds gross vehicle
weight) that went into effect for the 2007 model year for diesel engines and the
2008 model year for gasoline engines. These standards and
requirements include more stringent evaporative hydrocarbon standards for
gasoline vehicles, and more stringent exhaust emission standards for all
vehicles. In order to meet the new diesel standards, manufacturers
must employ new after-treatment technologies, such as diesel particulate
filters, which require periodic customer maintenance. These
technologies add significant cost to the emissions control system, and present
potential issues associated with consumer acceptance. The EPA and
manufacturers are engaged in discussions over the vehicle technologies for
maintenance and emissions control and the warning systems that will be used to
alert motorists to the need for maintenance to these systems.
U.S. Requirements – California and
Other State Emissions Standards. Pursuant to the Clean Air
Act, California may seek a waiver from the EPA to establish unique emissions
control standards; each new or modified proposal requires a new waiver of
preemption from the EPA. California has received a waiver from the
EPA to establish its own unique emissions control standards for certain
regulated pollutants. New vehicles and engines sold in California
must be certified by the California Air Resources Board
("CARB"). CARB's current "LEV II" emissions standards treat most
light-duty trucks the same as passenger cars, and require both types of vehicles
to meet stringent new emissions requirements. Like the EPA's Tier 2
emissions standards, CARB's LEV II vehicle emissions standards also present a
difficult engineering challenge, and impose even greater barriers to the use of
light-duty diesel technology. CARB is expected to promulgate
increasingly more stringent standards in the next several years.
In 2004,
CARB enacted standards limiting emissions of "greenhouse" gases (e.g., carbon
dioxide) from new motor vehicles. CARB asserts that its vehicle
emissions regulations provide authority for it to adopt such
standards. Vehicle manufacturers are seeking through federal
litigation to invalidate these regulations on the grounds that greenhouse gas
standards are functionally equivalent to fuel economy standards and thus
preempted by the federal fuel economy law and/or the federal Clean Air
Act. Issues associated with greenhouse gas regulation are discussed
more fully in the "Motor Vehicle Fuel Economy" section below.
ITEM
1. Business
(Continued)
Since
1990, the California program has included requirements for manufacturers to
produce and deliver for sale zero-emission vehicles ("ZEVs"), which emit no
regulated pollutants. Typically, the only vehicles capable of meeting
these requirements are battery-powered vehicles, which have had narrow consumer
appeal due to their limited range, reduced functionality, and high
cost.
The ZEV
mandate initially required that a specified percentage of each manufacturer's
vehicles produced for sale in California be ZEVs. Over time, the
regulations were modified to reflect the fact that the development of
battery-electric technology progressed at a slower pace than anticipated by
CARB. In 2003, CARB adopted amendments to the ZEV mandate that
shifted the near-term focus of the regulation away from battery-electric
vehicles to advanced-technology vehicles (e.g., hybrid electric vehicles or
natural gas vehicles) with extremely low tailpipe emissions. The
rules also give some credit for so-called "partial zero-emission vehicles"
("PZEVs"), which can be internal combustion engine vehicles certified to very
low tailpipe emissions and zero evaporative emissions. In addition,
the rules provide a compliance path pursuant to which the auto industry would
need to produce specified numbers of zero-emission fuel cell
vehicles. In the aggregate, the rules call for production by the
industry of 250 zero-emission fuel cell vehicles by the 2008 model year, 2,500
more in the 2009-2011 model-year period, and 25,000 more in the 2012-2014
model-year period.
Although
the 2003 amendments appear to reflect a recognition by CARB that
battery-electric vehicles do not currently have the potential to achieve
widespread consumer acceptance, the rules still require manufacturers to produce
a substantial number of either battery-electric or fuel cell vehicles in the
2012 model year and beyond. There are substantial questions about the
feasibility of producing the required number of zero-emission fuel cell
vehicles, due to the substantial engineering challenges and high costs
associated with this technology. It is also doubtful whether the
market will support the number of required ZEVs. Due to the
engineering challenges, the high cost of the technology, infrastructure needs,
and other issues, it does not appear that mass production of fuel cell vehicles
will be commercially feasible for years to come.
In
accordance with CARB's ZEV regulations, a panel of independent experts undertook
a review of the feasibility of the ZEV requirements and issued its findings in
2007. The panel found that both battery-electric and fuel cell
vehicles will be in a pre-commercial stage through 2015, and that they are not
likely to be produced in large volumes in that time frame due to issues of
technology and cost. In response to the panel's findings, CARB has
issued a new set of proposed amendments to the ZEV mandate. The
proposal is complex, but it would have the effect of reducing the number of
battery-electric or fuel cell vehicles necessary for compliance, while putting a
new emphasis on plug-in hybrids (i.e., hybrid vehicles capable of short
trips on battery-electric power alone) and hydrogen internal combustion engine
vehicles. CARB currently plans to hold a hearing in March 2008 to
finalize revisions to the ZEV mandate. Compliance with the ZEV
mandate may eventually require costly actions that would have a substantial
adverse effect on our sales volume and profits. For example, we could
be required to curtail the sale of non-ZEVs or offer to sell ZEVs,
advanced-technology vehicles, and PZEVs well below cost in order to
comply.
The Clean
Air Act permits other states that do not meet national ambient air quality
standards to adopt California's motor vehicle emissions standards no later than
two years before the affected model year. In addition to California,
twelve states, primarily located in the Northeast and Northwest, have adopted
the California standards (including California's greenhouse gas
provisions). Ten of these states also adopted the ZEV
requirements. These twelve states, together with California, account
for more than 30% of Ford's current light-duty vehicle sales volume in the
United States. More states are in the process of adopting or
considering adoption of the California standards. Unfortunately,
there are problems inherent in transferring California standards to other
states, including the following: 1) managing fleet average
emissions standards and ZEV mandate requirements on a state-by-state basis
presents a major challenge to automobile company distribution systems;
2) market acceptance of some ZEVs varies from state to state, depending on
weather and other factors; and 3) the states adopting the California
program have not adopted California's clean fuel regulations, which may impair
the ability of vehicles in other states to meet California's in-use
standards.
U.S. Requirements – Warranty,
Recall, and On-Board Diagnostics. The Clean Air Act permits
the EPA and CARB to require manufacturers to recall and repair non-conforming
vehicles (which may be identified by testing or analysis done by the
manufacturer, the EPA or CARB), and we may voluntarily stop shipment of or
recall non-conforming vehicles. The costs of related repairs or
inspections associated with such recalls, or a stop-shipment order, could be
substantial. In December 2007 CARB finalized a new set of regulations
governing warranty reporting and field actions. The new rules provide
for mandatory remedial action (typically either recall or an extended warranty)
if warranty claims and failure rates on emissions-related components reach
specified thresholds, even if the vehicles in the field continue to comply with
all applicable emissions standards. CARB's decision to disconnect
field action decisions from the emissions performance of
the
vehicles is unprecedented, and is likely to lead to an increase in the number
and cost of field actions relating to emissions-related
components. Various industry entities submitted comments during the
rulemaking process questioning the statutory authority for these new
rules. In January 2008, an aftermarket trade association initiated
litigation seeking to overturn certain aspects of the new
regulations. It is possible that other challenges will
follow.
ITEM
1. Business
(Continued)
Both CARB
and the EPA also have adopted on-board diagnostic ("OBD") regulations, which
require a vehicle to monitor its emissions control system and notify the vehicle
operator (via the "check engine" light) of any malfunction. These
regulations have become extremely complicated, and creation of a compliant
system requires substantial engineering resources. CARB's OBD rules
for vehicles under 14,000 pounds gross vehicle weight include a variety of
requirements that phase in between the 2006 and 2010 model
years. CARB also has adopted engine manufacturer diagnostic
requirements for heavy-duty gasoline and diesel engines that apply to the 2007
to 2009 model years, and additional OBD requirements for vehicles over 14,000
pounds gross vehicle weight in model years 2010 and beyond. The EPA's
OBD rules are generally less stringent than CARB's, so manufacturers typically
design for compliance with CARB's requirements in order to avoid designing two
systems. The complexity of the OBD requirements and the difficulties
of meeting all of the monitoring conditions and thresholds make OBD approval one
of the most challenging aspects of certifying vehicles for emissions
compliance. CARB regulations provide for automatic recalls of
vehicles that fail to comply with specified OBD requirements. In
addition, many other states have implemented OBD tests as part of their
inspection and maintenance programs. Failure of in-service compliance
tests could lead to vehicle recalls with substantial costs for related
inspections or repairs.
European
Requirements. European Union ("EU") directives and related
legislation limit the amount of regulated pollutants that may be emitted by new
motor vehicles and engines sold in the EU. Stringent new emissions
standards ("Stage IV Standards") were applied to new passenger car
certifications beginning January 1, 2005, and to new passenger car
registrations beginning January 1, 2006. The comparable
light commercial truck Stage III Standards and Stage IV Standards went into
effect for new certifications beginning January 1, 2006, and for new
registrations beginning January 1, 2007. This directive on
emissions also introduced OBD requirements, more stringent evaporative emissions
requirements, and in-service compliance testing and recall provisions for
emissions-related defects that occur in the first five years or
80,000 kilometers of vehicle life (extended to 100,000 kilometers in
2005). Failure of in-service compliance tests could lead to vehicle
recalls with substantial costs for related inspections or
repairs. The Stage IV Standards for diesel engines have proven
technologically difficult and precluded manufacturers from offering some
products in time to be eligible for certain government incentive
programs.
The EU
commenced a program in 2004 to determine the specifics for further changes to
vehicle emissions standards, and in 2007 the European Commission published a
proposed law for Stage V/VI emissions. The law would further restrict
the amount of particulate and nitrogen oxide emissions allowed from diesel
engines, and tighten some regulations for gasoline engines. Stage V
emissions requirements will be introduced beginning in September 2009,
and Stage VI requirements will apply beginning in September
2014. Both Stages V and VI will require the deployment of particulate
trap technology, and Stage VI will require additional after-treatment for
nitrogen oxides. These technology requirements will add cost and
further erode the fuel economy cost/benefit advantage of diesel
vehicles.
Other National
Requirements. Many countries, in an effort to address air
quality concerns, are adopting previous versions of European or United Nations
Economic Commission for Europe mobile source emissions
regulations. Some countries have adopted more advanced regulations
based on the most recent version of European or U.S. regulations; for example,
China has adopted the most recent European standards to be implemented in the
2008-2010 timeframe. Korea and Taiwan have adopted very stringent
U.S.-based standards for gasoline vehicles, and European-based standards for
diesel vehicles. Because fleet average requirements do not apply,
some vehicle emissions control systems may have to be redesigned to meet the
requirements in these markets. Furthermore, not all of these
countries have adopted appropriate fuel quality standards to accompany the
stringent emissions standards adopted. This could lead to compliance
problems, particularly if OBD or in-use surveillance requirements are
implemented. Japan has unique standards and test procedures, and is
considering more stringent standards for implementation in 2009. This
may require unique emissions control systems be designed for the Japanese
market. Canadian criteria emissions regulations are aligned with U.S.
federal Tier 2 requirements.
ITEM
1. Business
(Continued)
Stationary
Source Emissions Control
U.S.
Requirements. In the United States, the federal Clean Air Act
also requires the EPA to identify "hazardous air pollutants" from various
industries and promulgate rules restricting their emission. The EPA
has issued final rules for a variety of industrial categories, several of which
would further regulate emissions from our U.S. operations, including engine
testing, automobile surface coating, and iron casting. These
technology-based standards require some of our facilities to reduce their air
emissions significantly. Additional programs under the Clean Air Act,
including Compliance Assurance Monitoring and periodic monitoring, could require
our facilities to install additional emission monitoring
equipment. The cost of complying with these requirements could be
substantial.
The Clean
Air Act also requires the EPA to periodically review and update its National
Ambient Air Quality Standards ("NAAQS"), and to designate whether counties or
other local areas are in compliance with the new standards. If an
area or county does not meet the new standards ("non-attainment areas"), the
state must revise its implementation plans to achieve attainment. In
2006, the EPA issued a final rule revising the NAAQS for particulate
matter. For fine particulate matter (i.e., particles
2.5 micrometers in diameter or less), the EPA has issued a new standard
that is considerably more stringent than its predecessor. The EPA
estimates that the new standard will put approximately 124 counties into
non-attainment status for fine particulate matter. With respect to
coarse particulate matter (i.e., particles between 2.5 and 10 micrometers
in diameter), the EPA has retained the existing standard after considering an
alternative program that would have focused on urban and industrial
sources.
Various
parties have filed petitions for review of the final particulate-matter rules in
the United States Court of Appeals for the District of Columbia Circuit, in most
cases seeking more stringent standards that would create even more new
non-attainment areas. The Alliance of Automobile Manufacturers (an
industry trade group made up of nine leading automotive manufacturers including
BMW Group, Chrysler, Ford, General Motors, Mazda, Mitsubishi Motors, Porsche,
Toyota and Volkswagen (the "Alliance")) has intervened to oppose further changes
to the EPA's final rule. Even under the final rule as issued, the new
non-attainment areas will need to revise their implementation plans to require
additional emissions control equipment and impose more stringent permit
requirements on facilities in those areas. The cost of complying with
these requirements could be substantial. The EPA is currently in the
process of considering revisions to the ozone NAAQS that could have significant
implications for both stationary and mobile emissions sources.
European
Requirements. In Europe, environmental legislation is driven
by EU law, in most cases in the form of EU directives that must be converted
into national legislation. All of our European plants are located in
the EU region, with the exception of one in St. Petersburg,
Russia. One of the core EU directives is the Directive on Integrated
Pollution Prevention Control ("IPPC"). The IPPC regulates the permit
process for facilities, and thus the allowed emissions from these
facilities. As in the United States, engine testing, surface coating,
casting operations, and boiler houses all fall under this regime. The
Solvent Emission Directive which came into effect in October 2007
primarily affects vehicle manufacturing plants, which must upgrade their paint
shops to meet the new requirements. The cost of complying with these
requirements could be substantial.
Periodic
emission reporting also is required of EU Member States, in most cases defined
in the permits of the facility. The Release and Transfer Register
requires more reporting regarding emissions into air, water and soil than its
precursor. The information required by these reporting systems is
publicly available on the Internet.
Motor
Vehicle Safety
U.S.
Requirements. The National Traffic and Motor Vehicle Safety
Act of 1966 (the "Safety Act") regulates motor vehicles and motor vehicle
equipment in the United States in two primary ways. First, the Safety
Act prohibits the sale in the United States of any new vehicle or equipment that
does not conform to applicable motor vehicle safety standards established by the
National Highway Traffic Safety Administration ("NHTSA"). Meeting or
exceeding many safety standards is costly, in part because the standards tend to
conflict with the need to reduce vehicle weight in order to meet emissions and
fuel economy standards. Second, the Safety Act requires that defects
related to motor vehicle safety be remedied through safety recall
campaigns. A manufacturer is obligated to recall vehicles if it
determines that the vehicles do not comply with a safety
standard. Should we or NHTSA determine that either a safety defect or
a noncompliance exists with respect to any of our vehicles, the cost of such
recall campaigns could be substantial. As of January 22, 2008, there
were pending before NHTSA four investigations relating to alleged safety defects
or potential compliance issues in our vehicles.
ITEM
1. Business
(Continued)
The Safe,
Accountable, Flexible, and Efficient Transportation Equity Act: A Legacy for
Users ("SAFETEA-LU") was signed into law in 2005. SAFETEA-LU
establishes a number of substantive, safety-related rulemaking mandates for
NHTSA that can be expected to result in new regulations and product content
requirements.
The
Transportation Recall Enhancement, Accountability, and Documentation Act (the
"TREAD Act") was signed into law in November 2000. The TREAD Act
required NHTSA to establish several regulations, including reporting
requirements for motor vehicle manufacturers on foreign recalls and certain
information received by the manufacturer that may assist the agency in the early
identification of safety defects. Various groups have challenged the
categorical determination by NHTSA that certain areas of data, including
warranty claim information, field reports, and consumer complaint information,
were granted a presumption of confidentiality under the TREAD Act early warning
reporting requirements. Since that time, the United States District
Court for the District of Columbia has ruled that, while NHTSA had the authority
to make these categorical determinations, it did not provide adequate public
notice and opportunity to comment in so doing. NHTSA addressed this
issue in a final rule published on October 18, 2007 that re-established class
distinctions. However, the pending litigation may yet result in the
eventual publication of information (such as death and injury accident
information) that manufacturers have been submitting to NHTSA under the TREAD
Act's early warning reporting rules.
Foreign
Requirements. Canada, the EU, individual member countries
within the EU, and other countries in Europe, South America and the Asia Pacific
markets also have safety standards applicable to motor vehicles, and are likely
to adopt additional or more stringent standards in the future. Recent
examples of such legislation include an increase in the scope of existing
pedestrian protection legislation, and the introduction of a requirement that
all vehicles include mandatory dedicated daytime running lamps. As
previously reported, the European Automobile Manufacturers Association (also
known in Europe as "ACEA"), of which Ford is a member, made voluntary
commitments in 2001 and 2006 to introduce a range of safety measures
to improve pedestrian protection, and to increase the deployment of seatbelt
reminder systems and electronic stability control systems.
Motor
Vehicle Fuel Economy
Ford's
ability to comply with CAFE or greenhouse gas emissions standards depends
heavily on the alignment of those standards with actual consumer demand, as well
as adequate lead time to make the necessary product changes. Ford has
plans to increase the fuel economy of its vehicles through the deployment of
various fuel-saving technologies, some of which have been announced publicly,
and through a shift in its fleet mix toward smaller and lighter
vehicles. Even given these plans, there are limits on Ford's ability
to achieve required fuel economy increases in its vehicles in a given time
frame. These limits relate to the costs and effectiveness of the
available technologies; consumer acceptance of the new technologies and of
changes in fleet mix; the willingness of consumers to absorb the additional
costs of new technologies; the appropriateness (or lack thereof) of certain
technologies for use in particular vehicles; and the human and engineering
resources necessary to deploy new technologies across a wide range of products
and powertrains in a short time. If consumers continue to demand
vehicles that are relatively large, have high performance, and/or are
feature-laden, while regulatory standards require the production of vehicles
that are smaller and more economical, the mismatch of supply and demand would
have an adverse effect on both regulatory compliance and our
profitability. Moreover, if regulatory requirements call for rapid,
substantial increases in fleet average fuel economy (or decreases in fleet
average greenhouse gas emissions), we may not have adequate resources and time
to make major product changes across most or all of our vehicle fleet (assuming
the necessary technology can be developed).
U.S. Requirements – Federal
Standards. Federal law requires that vehicles meet minimum
corporate average fuel economy standards set by NHTSA. A manufacturer
is subject to potentially substantial civil penalties if it fails to meet the
CAFE standard in any model year, after taking into account all available credits
for the preceding three model years and expected credits for the three
succeeding model years.
Federal
law established a passenger car CAFE standard of 27.5 miles per gallon for 1985
and later model years. By rule, NHTSA has set light-truck CAFE
standards of 21.6 miles per gallon for model year 2006, and 22.2 miles per
gallon for model year 2007. In 2006, NHTSA issued a final rule
changing the structure of the light-truck fuel economy standards for model year
2008 and beyond. The final rule employs a new "reformed" approach to
fuel economy standards in which each manufacturer's CAFE obligation is based on
the specific mix of vehicles it sells. A manufacturer's light truck
CAFE is now calculated on a basis that relates fuel economy targets to vehicle
size. These fuel economy targets become
increasingly
stringent with each new model year. In model year 2011 and beyond,
the truck CAFE standards will apply for the first time to certain classes of
heavier passenger vehicles (SUVs and passenger vans with a gross vehicle weight
between 8,500 and 10,000 pounds, or with a gross vehicle weight below 8,500
pounds and a curb weight above 6,000 pounds).
ITEM
1. Business
(Continued)
A number
of groups filed petitions seeking judicial review of the 2006 light truck
rule. These petitions for review were consolidated into one case in
the United States Court of Appeals for the Ninth Circuit. In November
2007, the Ninth Circuit found some aspects of EPA’s light truck CAFE rules to be
arbitrary and capricious and remanded the rules back to NHTSA for expedited
rulemaking. Among the defects in NHTSA's rulemaking, according to the
Court, were NHTSA's failure to prepare an environmental impact statement;
NHTSA's decision to exclude certain trucks from CAFE standards; NHTSA's
inclusion of certain vehicles in the truck fleet rather than the car fleet; and
NHTSA's methodology for conducting its cost-benefit analysis of the
standards. The remand may lead to revisions that increase the
effective stringency of the rules, probably beginning with the 2011 model
year. However, NHTSA's new CAFE rules will also be affected by the
CAFE provisions of the new energy legislation discussed below, which may
supersede some parts of the Ninth Circuit decision.
In
December 2007, Congress enacted new energy legislation restructuring the CAFE
program and requiring NHTSA to set new CAFE standards beginning with the 2011
model year. The key features of the bill are as
follows: 1) it maintains the current distinction between cars and
trucks; 2) it requires NHTSA to set "reformed" CAFE standards for cars along the
lines of the reformed truck standards described above; 3) it calls for NHTSA to
set car and truck standards such that the combined fleet of cars and trucks in
the U.S. achieves a 35 mile per gallon fleet average by model year 2020; 4) it
allows manufacturers to trade credits among their CAFE fleets; and 5) it retains
CAFE credits for the manufacture of flexible-fuel vehicles, but phases them out
by model year 2020. Domestic passenger cars also are subject to a
minimum fleet average of the greater of 27.5 miles per gallon or 92% of NHTSA's
projected fleet average fuel economy for domestic and imported passenger cars
for that model year. In early 2008, NHTSA is expected to issue a
proposed rule setting light truck CAFE standards for model year 2012 and beyond,
based on the provisions of the new law. A proposed rule setting new
car CAFE standards is expected to follow.
Pressure
to increase CAFE standards stems in part from concerns about the impact of
carbon dioxide and other greenhouse gas emissions on the global
climate. In 1999, a petition was filed with the EPA requesting that
it regulate carbon dioxide emissions from motor vehicles under the Clean Air
Act. This is functionally equivalent to imposing fuel economy
standards, since the amount of carbon dioxide emitted by a vehicle is directly
proportional to the amount of fuel consumed. The petitioners later
filed suit in an effort to compel a formal response from the EPA. In
August 2003, the EPA denied the petition on the grounds that the Clean Air Act
does not authorize the EPA to regulate greenhouse gas emissions, and only NHTSA
is authorized to regulate fuel economy under the CAFE law. A number
of states, cities, and environmental groups filed for review of the EPA's
decision in the U.S. Court of Appeals for the District of Columbia
Circuit. A coalition of states and industry trade groups, including
the Alliance, intervened in support of the EPA's decision. In July 2005, the
Court held that the EPA had exercised reasonable discretion in determining not
to regulate carbon dioxide as a pollutant.
The
matter was appealed, and in April 2007 the U.S. Supreme Court ruled that
greenhouse gases constitute "air pollutants" subject to regulation pursuant to
the Clean Air Act. The ruling did not specifically require the EPA to
regulate greenhouse gases; rather, it directed the EPA to either issue an
"endangerment" finding pursuant to the Clean Air Act (that greenhouse gases
endanger public health or welfare), or explain why it could not or would not do
so. In the wake of this ruling, the Bush Administration announced its
intention to promulgate new federal rules regulating greenhouse gas emissions
from motor vehicles. President Bush signed an Executive Order
directing the Department of Transportation, the Department of Energy, and the
EPA to cooperate in this effort. This may lead to a new federal
program for regulating greenhouse gases from new motor vehicles in addition to
the existing CAFE program, which already constrains vehicle greenhouse gases
emissions by setting standards for fleet average fuel economy. The
stringency of such a program may depend, at least in part, on the specific
conclusions reached by the EPA in its endangerment analysis. If
such a new federal program were adopted, its impact on us would depend upon the
structure of the program and the nature of the
standards. Potentially, such a program could have effects similar to
a significant increase in CAFE standards. The EPA is reportedly
reevaluating its plans for federal greenhouse gas rules in light of the passage
of the new energy legislation described above.
ITEM
1. Business
(Continued)
U.S. Requirements – California and
Other State Standards. In July 2002, California enacted
Assembly Bill 1493 ("AB 1493"), a law mandating that CARB promulgate greenhouse
gas standards for light-duty vehicles beginning with model year
2009. In September 2004, CARB adopted California greenhouse gas
emissions regulations applicable to 2009-2016 model-year cars and trucks,
effectively imposing more stringent fuel economy standards than those set by
NHTSA. These regulations impose standards that are equivalent to a
CAFE standard of more than 43 miles per gallon for passenger cars and small
trucks, and approximately 27 miles per gallon for large light trucks and
medium-duty passenger vehicles by model year 2016. The Alliance and
individual companies (including Ford) submitted comments opposing the rules and
addressing errors in CARB's underlying economic and technical
analyses.
Whenever
California adopts new or modified vehicle emissions standards, the state must
apply to the EPA for a waiver of preemption of the new or modified standards
under Section 209 of the Clean Air Act. Since the AB 1493 rules were
adopted by California as "emissions" rules under the Clean Air Act, they require
this waiver of federal preemption. In December 2007, EPA announced
its intention to deny California's request for a waiver of
preemption. In January 2008, California and various other states that
had adopted the California standards filed a petition for review of the EPA's
decision in the U.S. Court of Appeals for the Ninth Circuit, before the EPA had
even released a formal decision document. It is anticipated that
litigation over the waiver decision will take place throughout
2008. If the EPA waiver decision is overturned via judicial review,
it is possible that EPA could grant the waiver, potentially allowing California
and other states to enforce the AB 1493 rules against automobile
manufacturers. In addition, because the EPA waiver decision is an
administrative decision, it is possible that a new federal administration could
reverse the EPA’s decision following the 2008 elections. Several of
the major presidential candidates have indicated their intent to do so, although
any such decision itself would be subject to judicial review.
In
addition to the question of Clean Air Act preemption, which is being addressed
through the EPA's waiver decision and the ensuing litigation, there is also the
question of preemption of the AB 1493 standards by the federal CAFE
law. The CAFE law prohibits states from enacting or enforcing
regulations "related to" fuel economy when federal standards are in
effect. In December 2004, the Alliance and other plaintiffs (several
automobile dealers, two individual automobile manufacturers, and another
automotive trade association) filed suit in federal district court in
California, seeking to overturn the AB 1493 standards. The suit
challenges the regulation on several bases, including preemption under the
federal CAFE law. In December 2007, the U.S. District Court ruled
that the federal CAFE law does not preempt the AB 1493
rules. The Court, however, also issued an injunction against the
enforcement of the AB 1493 rules pending the issuance of an EPA waiver, which
was denied as described above. Further proceedings in this case,
including a possible appeal of the CAFE preemption ruling, may depend on the
progress and outcome of the litigation over the EPA's waiver
decision.
Other
states have adopted, or are in the process of adopting, CARB's greenhouse gas
standards. These states include New York, Massachusetts, Maine,
Vermont, Rhode Island, Connecticut, New Jersey, Pennsylvania, Oregon,
Washington, Maryland, New Mexico, Florida, and Arizona. Several other
states are known to be considering the adoption of such rules.
The
Alliance, along with other plaintiffs, filed suit in federal court in Vermont
and Rhode Island challenging those states' adoption of the California AB 1493
rules. The Vermont case went to trial in April 2007. In
September 2007, the U.S. District Court for the District of Vermont upheld
Vermont's greenhouse gas rules, finding that they were not preempted by federal
fuel economy law. Specifically, the court held that the state
greenhouse gas rules were insulated from a preemption challenge because they
were subject to a waiver process under the federal Clean Air Act. The
court also held that, even if questions of federal preemption were applicable,
the greenhouse gas rules should be upheld because some portions of the
regulations give credit for vehicle modifications that do not relate
specifically to improving fleet average fuel economy. The Alliance is
appealing the District Court's decision to the U.S. Court of Appeals for the
Second Circuit. In the Rhode Island case, the District Court recently
held that the case is ripe for review, and the parties will likely proceed with
briefings on dispositive motions.
In
September 2006, California also enacted the Global Warming Solutions Act of 2006
(also known as Assembly Bill 32 ("AB 32")). This law mandates that
statewide greenhouse gas emissions be capped at 1990 levels by the year 2020,
which would represent a significant reduction from current greenhouse gas
levels. It also requires the monitoring and annual reporting of
greenhouse gas emissions by all "significant" sources, and delegates authority to
CARB to develop and implement greenhouse gas emissions reduction
measures. AB 32 also provides that, if the AB 1493 standards do not
take effect, CARB must implement alternative regulations to control mobile
sources of greenhouse gas emissions to achieve equivalent or greater reductions
than mandated by AB 1493. It is not clear at this time how this bill
would be implemented.
ITEM
1. Business
(Continued)
The
recent changes to the light truck CAFE standards, and the anticipated new CAFE
standards that will result from the passage of the energy legislation by
Congress, pose very significant challenges for us. If NHTSA builds
upon its history of setting tough but reasonable CAFE standards based on a
consideration of technological feasibility and economic practicability, we
believe it is likely that these federal standards can be workable, albeit
costly, within our business limitations. In contrast, the
state-promulgated AB 1493 rules impose fuel economy standards whose rapid rate
of increase and extreme stringency are unprecedented in the history of fuel
economy regulation, and which are not workable within our business
limitations. If extreme standards of this nature are imposed, we
likely would be forced to take various actions that could have substantial
adverse effects on our sales volume and profits. Such actions would
likely include restricting offerings of selected engines and popular options;
increasing market support programs for our most fuel-efficient cars and light
trucks in order to maintain compliance; and ultimately curtailing the production
and sale of certain vehicles such as family-size, luxury, and high-performance
cars, SUVs and "crossover" vehicles, and full-size light trucks, in order to
maintain compliance.
See "Item
3. Legal Proceedings" for a discussion of the public nuisance litigation filed
by the state of California against automobile manufacturers for alleged global
warming damages. Though that suit has been dismissed by the trial
court, California's Attorney General has filed notice of intent to
appeal. If California were to prevail in this litigation, it could
encourage similar suits in other states and municipalities. A
judgment against defendants also could result in the imposition of
judicially-mandated standards for greenhouse gas emissions that could arguably
supersede or augment existing fuel economy requirements; such a result could
compel us to implement product restrictions and/or other costly actions as
outlined above.
European
Requirements. The EU is a party to the Kyoto Protocol to the
United Nations Framework Convention on Climate Change, and has agreed to reduce
greenhouse gas emissions by eight percent below 1990 levels during the 2008-2012
period. In 1998, the EU agreed to support an environmental agreement
with ACEA (of which Ford is a member) on carbon dioxide emission reductions from
new passenger cars (the "ACEA Agreement"). The ACEA Agreement
established an emissions target of 140 grams of carbon dioxide per kilometer
("g/km") for the average of new cars sold in the EU by the ACEA's members in
2008. This corresponds to a 25% reduction in average carbon dioxide
emissions compared to 1995. To date, the industry has made good
progress, meeting an interim target for 2003 (165 – 170 grams of carbon dioxide
per kilometer); however, it is now apparent that the industry will not achieve
the 140 grams per kilometer target for the 2008 model year due to a number of
factors, including consumer demand and the challenges associated with
implementing various fuel-saving technologies.
In 2005,
ACEA and the European Commission reviewed the potential for additional carbon
dioxide reductions, with the goal of achieving the EU's objective of 120 g/km by
2012. The discussions have advanced using the concept of an
integrated approach to further reductions, involving the oil industry and other
sectors. In 2007, the discussions suggested a 120 g/km overall
target, with a vehicle target of 130 g/km and complementary measures making up
the other 10 g/km in emissions reductions. In December 2007, the
European Commission issued a proposal to regulate vehicle carbon dioxide from
2012 at a fleet average of 130 g/km, using a sliding scale based on vehicle
weight. This provides different targets for each manufacturer based
on their respective fleets of vehicles, weight and carbon dioxide
output. For manufacturers failing to meet their targets, a penalty
system is proposed of €20 per each g/km shortfall in 2012, rising to €95 in
2015. Manufacturers would be permitted to use a pooling agreement
between owned brands to share or minimize the burden. Further pooling
agreements between different manufacturers would also be allowed, although such
agreements could not be exclusive and would have to be open to all automobile
manufacturers. This proposal is likely to be finalized by the
European Parliament in 2008 or 2009. Some European countries are
considering other initiatives for reducing carbon dioxide emissions from motor
vehicles, including fiscal measures. For example, the U.K. introduced
a vehicle excise duty and company car taxation based on carbon dioxide emissions
in 2001, and other member states such as France and Portugal have announced
their intention to adopt carbon dioxide-based taxes for passenger
cars. The 2007 European Commission announcement is likely to trigger
further fiscal measures.
Other National
Requirements. Some Asian countries (such as China, Japan,
South Korea, and Taiwan) have also adopted fuel efficiency
targets. For example, Japan has fuel efficiency targets for 2010
passenger car and commercial trucks with incentives for early
adoption. China has adopted targets for 2005 and 2008, and is
expected to continue setting new targets to address energy security
issues.
ITEM
1. Business
(Continued)
Following
considerable discussion, the Canadian automobile industry signed a Memorandum of
Understanding ("MOU") dated April 5, 2005, with the Canadian government in which
the industry voluntarily committed to reduce the growth in greenhouse gas
emissions from the Canadian vehicle fleet by 5.3 megatons ("Mt") by 2010 (which
slightly exceeds the government's 5.2 Mt target under its Kyoto Protocol Climate
Change Action Plan). The MOU contains the following interim targets
for the entire Canadian automobile industry: 2.4 Mt reduction by
2007, total reduction of 3.0 Mt in 2008, total reduction of 3.9 Mt in 2009 and
the full 5.3 Mt reduction in 2010. Pursuant to the MOU, a committee
of industry and government representatives has been established to monitor the
industry's overall compliance with the annual MOU targets.
The
Canadian federal government recently proclaimed its Motor Vehicle Fuel
Consumption Standards Act. Regulations are expected to align Canadian
requirements with dominant US standards and are to be in place by model year
2011.
European
Chemicals Policy
The
European Commission finalized its regulatory framework in December 2006 for a
single system to register, evaluate, and authorize the use of chemicals with a
production volume above one ton per year ("REACH"). The rules took
effect on June 1, 2007, with a preparatory period through
June 1, 2008 followed by a six-month pre-registration
phase. Compliance with the legislation is likely to be
administratively burdensome for all entities in the supply chain, and research
and development resources may be redirected from "market-drive" to
"REACH-driven" activities. The regulation also may accelerate
restriction or banning of certain chemicals and materials, which could increase
the costs of certain products and processes used to manufacture vehicles and
parts. We are implementing and ensuring compliance within Ford and
our suppliers through a common implementing strategy together with the global
automotive industry.
Pollution
Control Costs
During
the period 2008 through 2012, we expect to spend approximately $249 million
on our North American and European facilities to comply with stationary source
air and water pollution and hazardous waste control standards which are now in
effect or are scheduled to come into effect during this period. Of
this total, we currently estimate spending approximately $54 million in
2008 and $49 million in 2009. These amounts exclude projections
for the Jaguar and Land Rover business units, which were held for sale as of the
fourth quarter of 2007. Specific environmental expenses are difficult
to isolate because expenditures may be made for more than one purpose, making
precise classification difficult.
ITEM
1. Business
(Continued)
EMPLOYMENT
DATA
The
approximate number of individuals employed by us and our consolidated entities
(including entities we do not control) at December 31, 2007 and 2006
was as follows (in thousands):
|
|
|
|
|
|
|
Business
Unit
|
|
|
|
|
|
|
Automotive
|
|
|
|
|
|
|
The
Americas
|
|
|
|
|
|
|
Ford
North America
|
|
|
94 |
|
|
|
128 |
|
Ford
South America
|
|
|
14 |
|
|
|
13 |
|
Ford
Europe and PAG
|
|
|
|
|
|
|
|
|
Ford
Europe
|
|
|
68 |
|
|
|
66 |
|
PAG
|
|
|
42 |
|
|
|
45 |
|
Ford
Asia Pacific and Africa
|
|
|
17 |
|
|
|
18 |
|
Financial
Services
|
|
|
|
|
|
|
|
|
Ford
Motor Credit Company
|
|
|
11 |
|
|
|
13 |
|
Total
|
|
|
246 |
|
|
|
283 |
|
The
decrease in employment levels primarily reflects implementation of our
personnel-reduction programs in North America.
Substantially
all of the hourly employees in our Automotive operations are represented by
unions and covered by collective bargaining agreements. In the United
States, approximately 99% of these unionized hourly employees in our Automotive
sector are represented by the International Union, United Automobile, Aerospace
and Agricultural Implement Workers of America ("UAW" or "United Automobile
Workers"). Approximately two percent of our U.S. salaried employees
are represented by unions. Most hourly employees and many
non-management salaried employees of our subsidiaries outside of the United
States also are represented by unions.
We have
entered into collective bargaining agreements with the UAW, and the National
Automobile, Aerospace, Transportation and General Workers Union of Canada ("CAW"
or "Canadian Automobile Workers"). Among other things, our agreements
with the UAW and CAW provide for guaranteed wage and benefit levels throughout
the term of the respective agreements, and provide for significant employment
security, subject to certain conditions. As a practical matter, these
agreements may restrict our ability to close plants and divest businesses during
the terms of the agreements. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operation –
Overview" for discussion of our recently-negotiated UAW
agreement. This agreement with the UAW expires on
September 14, 2011. Our agreement with the CAW expires on
September 16, 2008. Historically, negotiation of new
collective bargaining agreements with the UAW and CAW typically resulted in
increases in wages and benefits, including retirement benefits.
In 2007,
we negotiated new Ford collective bargaining agreements with labor unions in
Belgium, Brazil, France, Mexico, New Zealand, Russia, Southern Africa, Taiwan,
Thailand, United States (hourly and salaried), Venezuela and
Vietnam. We also negotiated collective bargaining agreements at our
Land Rover (Britain) and Volvo (Sweden) affiliates.
In 2008,
we are or will be negotiating new collective bargaining agreements with labor
unions in Argentina, Brazil, Britain, Canada, France, Germany, Mexico, New
Zealand, Romania, Russia, Taiwan, and Thailand, as well as our Volvo (U.S.)
affiliate.
ITEM
1. Business
(Continued)
ENGINEERING,
RESEARCH AND DEVELOPMENT
We engage
in engineering, research and development primarily to improve the performance
(including fuel efficiency), safety, and customer satisfaction of our products,
and to develop new products. We also have staffs of scientists who
engage in basic research. We maintain extensive engineering, research
and design centers for these purposes, including large centers in Dearborn,
Michigan; Dunton, Gaydon and Whitley, England; Gothenburg, Sweden; and Aachen
and Merkenich, Germany. Most of our engineering research and
development relates to our Automotive sector. In general, our
engineering activities that do not involve basic research or product
development, such as manufacturing engineering, are excluded from our
engineering, research and development charges discussed below.
During
the last three years, we recorded charges to our consolidated income for
engineering, research and development we sponsored in the following
amounts: $7.5 billion (2007), $7.2 billion (2006), and
$8 billion (2005) . Any customer-sponsored research and
development activities that we conduct are not material.
ITEM
1A. Risk
Factors
We have
listed below (not necessarily in order of importance or probability of
occurrence) the most significant risk factors applicable to us:
Continued decline
in market share. Our market share has declined in many regions
of the world over the last year. Our overall market share in the
United States, including PAG-brand vehicles, has declined in each of the past
five years, from 20.5% in 2003 to 15.6% in 2007. Because a high
proportion of our costs are fixed, these share declines and resulting volume
reductions have had an adverse impact on our results of
operations. While we are attempting to stabilize our market share and
reduce our capacity over time through the restructuring actions described in
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations – Overview" and "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations – Outlook," we cannot be certain
that we will be successful. Continued declines in our market share
could have a substantial adverse effect on our results of operations and
financial condition.
Continued or
increased price competition resulting from industry overcapacity, currency
fluctuations or other factors. The global automotive industry
is intensely competitive, with overall manufacturing capacity far exceeding
current demand. For example, according to CSM Worldwide, the global
automotive industry is estimated to have had excess capacity of
16.8 million units in 2007. Industry overcapacity has resulted
in many of our principal competitors offering marketing incentives on vehicles
in an attempt to maintain and grow market share. These marketing
incentives have included a combination of subsidized financing or leasing
programs, price rebates and other incentives. As a result, we have
not necessarily been able to increase prices sufficiently to offset higher costs
of marketing incentives or other cost increases (e.g., for commodities or health
care) or the impact of adverse currency fluctuations in either the U.S. or
European markets. While we, General Motors and Chrysler have each
announced plans to reduce capacity significantly, these reductions will take
several years to complete and will only partially address the industry's
overcapacity problems. A continuation or increase in these trends
could have a substantial adverse effect on our results of operations and
financial condition.
An increase in or
acceleration of market shift away from sales of trucks, sport utility vehicles,
or other more profitable vehicles in the United States. Trucks
and SUVs historically have represented some of our most profitable vehicle
segments, and the segment in which we have our highest market
share. During the past few years, there has been a general shift in
consumer preferences away from medium- and large-sized SUVs and trucks, which
has adversely affected our overall market share and our
profitability. A continuation or acceleration of this general shift
in consumer preferences away from SUVs and trucks, or a similar shift in
consumer preferences away from other more profitable vehicle sales, whether
because of higher fuel prices, declines in the construction industry, or
otherwise, could have an increasingly adverse effect on our results of
operations and financial condition.
ITEM 1A.
Risk Factors
(continued)
A significant
decline in industry sales, particularly in the United States or Europe,
resulting from slowing economic growth, geo-political events or other
factors. The worldwide automotive industry is affected
significantly by general economic conditions (among other factors) over which
automobile manufacturers have little control. This is especially so
because vehicles are durable goods, which provide consumers significant latitude
in determining whether and when to replace an existing vehicle. The
decision whether and when to make a vehicle purchase may be affected
significantly by slowing economic growth, geo-political events, and other
factors. Consumer demand may vary substantially from year to year,
and, in any given year, consumer demand may be affected significantly by general
economic conditions, including the cost of purchasing and operating a vehicle
and the availability and cost of credit and fuel.
Moreover, like other manufacturers, we
have a high proportion of costs that are fixed, so relatively small changes in
wholesale unit volumes may dramatically affect overall
profitability. In recent years, industry demand has remained at
relatively high levels. For 2008, we expect industry demand in the
United States will soften to about 16 million units, compared with
16.5 million units in 2007. Should industry demand soften beyond
our expectations because of slowing or negative economic growth in key markets
or other factors, our results of operations and financial condition could be
substantially adversely affected. For additional discussion of
economic trends, see "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations – Overview."
Lower-than-anticipated
market acceptance of new or existing products. Offering highly
desirable vehicles can mitigate the risks of increasing price competition and
declining demand. Conversely, offering vehicles that are perceived to
be less desirable (whether in terms of price, quality, styling, safety, overall
value or otherwise) can exacerbate these risks. For example, if a new
model were to experience quality issues at the time of launch, the vehicle's
perceived quality could be affected even after the issues had been corrected,
resulting in lower sales volumes, market share and profitability.
Continued or
increased high prices for or reduced availability of
fuel. Continued or increased high prices for fuel or reduced
availability of fuel, particularly in the United States, could result in further
weakening of demand for relatively more profitable large and luxury car and
truck models, and could increase demand for relatively less profitable small
cars and trucks. Continuation or acceleration of such a trend could
have a substantial adverse effect on our financial condition and results of
operations.
Currency or
commodity price fluctuations. As a resource-intensive
manufacturing operation, we are exposed to a variety of market and asset risks,
including the effects of changes in foreign currency exchange rates, commodity
prices, and interest rates. These risks affect our Automotive and
Financial Services sectors. We monitor and manage these exposures as
an integral part of our overall risk management program, which recognizes the
unpredictability of markets and seeks to reduce the potentially adverse effects
on our business. Nevertheless, changes in currency exchange rates,
commodity prices, and interest rates cannot always be predicted or
hedged. In addition, because of intense price competition and our
high level of fixed costs, we may not be able to address such changes even if
they are foreseeable. Substantial changes in these rates and prices
could have a substantial adverse effect on our financial condition and results
of operations. For additional discussion of currency or commodity
price risk, see "Item 7A. Quantitative and Qualitative Disclosures about
Market Risk."
Adverse effects
from the bankruptcy or insolvency of, change in ownership or control of, or
alliances entered into by a major competitor. We and certain
of our major competitors have substantial "legacy" costs (principally related to
employee benefits) that put each of us at a competitive disadvantage to other
competitors. The bankruptcy or insolvency of a major competitor with
substantial "legacy" costs could result in that competitor gaining a significant
cost advantage (by eliminating or reducing contractual obligations to unions and
other parties through bankruptcy proceedings). In addition, the
bankruptcy or insolvency of a major auto manufacturer likely could lead to
substantial disruptions in the automotive supply base, which could have a
substantial adverse impact on our financial condition and results of
operations.
ITEM 1A.
Risk Factors
(continued)
Economic distress
of suppliers that has in the past and may in the future require us to provide
financial support or take other measures to ensure supplies of components or
materials. Automobile manufacturers continue to experience
commodity cost pressures and the effects of industry
overcapacity. These factors have also increased pressure on the
industry's supply base, as suppliers cope with higher commodity costs, lower
production volumes and other challenges. As a result, suppliers have
been less able to absorb commodity cost increases or to achieve productivity
improvements, and, therefore, less willing to reduce prices to us. We
have taken and may continue to take actions to provide financial assistance to
certain suppliers to ensure an uninterrupted supply of materials and
components. For example, in 2005 we reacquired from Visteon
twenty-three North American facilities in order to protect our supply of
components. In connection with this transaction, we forgave
$1.1 billion of Visteon's liability to us for employee-related costs, and
incurred a pre-tax loss of $468 million.
Labor or other
constraints on our ability to restructure our
business. Substantially all of the hourly employees in our
Automotive operations in the United States and Canada are represented by unions
and covered by collective bargaining agreements. In November 2007, we
entered into a new agreement with the UAW, which expires in September 2011;
our agreement with the CAW expires in September 2008 and will be
renegotiated this year. These agreements provide for guaranteed wage
and benefit levels throughout their terms and provide for significant employment
security, subject to certain conditions. As a practical matter, these
agreements restrict our ability to close plants and divest businesses during the
terms of the agreements. These agreements may also limit our ability
to change local work rules and practices and implement other efficiency-related
improvements. Certain provisions within the UAW and CAW agreements
may impede our ability to restructure our business successfully to compete more
effectively in today's global marketplace. For discussion of our
restructuring plans and the anticipated impacts of our recently-negotiated
agreement with the UAW, see "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations – Overview" and "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations – Outlook."
Work stoppages at
Ford or supplier facilities or other interruptions of
supplies. A work stoppage could occur at Ford or supplier
facilities, as a result of disputes under existing collective bargaining
agreements with labor unions, in connection with negotiations of new collective
bargaining agreements, as a result of supplier financial distress, or for other
reasons. For example, many suppliers are experiencing financial
distress, in part due to decreasing volumes and increasing raw material prices,
which jeopardizes their ability to produce parts for us. A work
stoppage related to collective bargaining agreements or other reasons, at Ford
or its suppliers, or an interruption or shortage of supplies for any other
reason (including but not limited to financial distress, natural disaster or
production difficulties affecting a supplier) could substantially adversely
affect our financial condition and results of operations.
Single-source
supply of components or materials. Many components used in our
vehicles are available only from a single supplier and cannot be quickly or
inexpensively re-sourced to another supplier due to long lead times and
contractual commitments that might be required by another supplier in order to
provide the components or materials. In addition to the risks
described above regarding interruption of supplies, which are exacerbated in the
case of single-source suppliers, the exclusive supplier of a key component
potentially could exert significant bargaining power over price, quality,
warranty claims or other terms relating to a component. See, for
example, discussion of a supplier dispute regarding diesel engines in "Item 3.
Legal Proceedings – Other Matters."
Substantial
pension and postretirement health care and life insurance liabilities impairing
our liquidity or financial condition. We have two principal
qualified defined benefit retirement plans in the United States. The
Ford-UAW Retirement Plan covers hourly employees represented by the UAW, and the
General Retirement Plan covers substantially all other Ford employees in the
United States hired on or before December 31, 2003. 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. In addition,
we, and certain of our subsidiaries, sponsor plans to provide other
postretirement benefits for retired employees, primarily certain health care and
life insurance benefits. See Note 24 of the Notes to the
Financial Statements for more information about these plans, including funded
status.
ITEM 1A.
Risk Factors
(continued)
Our U.S.
defined benefit pension plans are subject to Title IV of the Employee Retirement
Income Security Act of 1974 ("ERISA"). Under Title IV of ERISA, the
Pension Benefit Guaranty Corporation ("PBGC") has the authority under certain
circumstances or upon the occurrence of certain events to terminate an
underfunded pension plan. One of those circumstances is the
occurrence of an event that unreasonably increases the risk of unreasonably
large losses to the PBGC. Although we believe that it is not likely
that the PBGC will terminate any of our plans, in the event that our U.S.
pension plans were to be terminated at a time when the liabilities of the plans
exceeded the assets of the plans, we would incur a liability to the PBGC that
could be equal to the entire amount of the underfunding.
If our
cash flows and capital resources were to be insufficient to fund our pension or
postretirement health care and life insurance obligations, we could be forced to
reduce or delay investments and capital expenditures, seek additional capital,
or restructure or refinance our indebtedness. In addition, if our
operating results and available cash were to be insufficient to meet our pension
or postretirement health care and life insurance obligations, we could face
substantial liquidity problems and might be required to dispose of material
assets or operations to meet our pension or postretirement health care and life
insurance obligations. We might not be able to consummate those
dispositions or to obtain the proceeds that we could realize from them, and
these proceeds might not be adequate to meet any pension and postretirement
health care or life insurance obligations then due.
Inability to
implement Memorandum of Understanding with UAW to fund and discharge retiree
health care obligations because of failure to obtain court approval or
otherwise. We entered into a Memorandum of Understanding
("MOU") with the UAW in November 2007 to fund and discharge retiree health care
obligations. As described in our Form 8-K Report dated
November 15, 2007, implementation of the MOU is subject to the
occurrence of several uncertain events in pending litigation, including class
certification, settlement, court approval of a final settlement agreement and
exhaustion of opportunities for appeal. A significant delay or a
materially adverse result in the pending litigation or otherwise that results in
our inability to implement, or a delay in the implementation of, the MOU would
adversely impact our financial condition and results of operations.
Worse-than-assumed
economic and demographic experience for our postretirement benefit plans (e.g.,
discount rates, investment returns, and health care cost
trends). The measurement of our obligations, costs and
liabilities associated with benefits pursuant to our postretirement benefit
plans requires that we estimate the present values of projected future payments
to all participants. We use many assumptions in calculating these
estimates, including assumptions related to discount rates, investment returns
on designated plan assets, health care cost trends, and demographic experience
(e.g., mortality and retirement rates). To the extent actual results
are less favorable than our assumptions, there could be a substantial adverse
impact on our financial condition and results of operations. For
additional discussion of our assumptions, see "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations –
Critical Accounting Estimates" and Note 24 of the Notes to Financial
Statements.
The discovery of
defects in vehicles resulting in delays in new model launches, recall campaigns
and/or increased warranty costs. Meeting or exceeding many
government-mandated safety standards is costly, especially where standards may
conflict with the need to reduce vehicle weight in order to meet
government-mandated emissions and fuel-economy standards. Government
safety standards also require manufacturers to remedy defects related to motor
vehicle safety through safety recall campaigns, and a manufacturer is obligated
to recall vehicles if it determines that they do not comply with a safety
standard. Should we or government safety regulators determine that a
safety or other defect or a noncompliance exists with respect to certain of our
vehicles prior to the start of production, the launch of such vehicle could be
delayed until such defect is remedied. The costs associated with any
protracted delay in new model launches necessary to remedy such defect, or the
cost of recall campaigns to remedy such defects in vehicles that have been sold,
could be substantial.
Increased safety,
emissions (e.g., CO2), fuel economy,
or other regulation resulting in higher costs, cash expenditures, and/or sales
restrictions. The worldwide automotive industry is governed by
a substantial number of governmental regulations, which often differ by state,
region and country. In the United States and Europe, for example,
governmental regulation has arisen primarily out of concern for the environment,
greater vehicle safety and a desire for improved fuel economy. For
discussion of the impact of such standards on our business, see
"Item 1. Governmental Standards." Many governments also
regulate local product content and/or impose import requirements as a means of
creating jobs, protecting domestic producers and influencing their balance of
payments. The cost of complying with these requirements can be
substantial, and the requirements could have a substantial adverse impact on our
financial condition and results of operations.
ITEM 1A.
Risk Factors
(continued)
Unusual or
significant litigation or governmental investigations arising out of alleged
defects in our products or otherwise. We spend substantial
resources ensuring compliance with governmental safety and other
standards. Compliance with governmental standards, however, does not
necessarily prevent individual or class action lawsuits, which can entail
significant cost and risk. For example, the preemptive effect of the
Federal Motor Vehicle Safety Standards is often a contested issue in litigation,
and some courts have permitted liability findings even where our vehicles comply
with federal law. Furthermore, simply responding to litigation or
government investigations of our compliance with regulatory standards requires
significant expenditures of time and other resources.
A change in our
requirements for parts or materials where we have entered into long-term supply
arrangements that commit us to purchase minimum or fixed quantities of certain
parts or materials, or to pay a minimum amount to the seller ("take-or-pay"
contracts). We have entered into a number of long-term supply
contracts that require us to purchase a fixed quantity of parts to be used in
the production of our vehicles. If our need for any of these parts
were to lessen, we could still be required to purchase a specified quantity of
the part or pay a minimum amount to the seller pursuant to the take-or-pay
contract. We also have entered into a small number of long-term
supply contracts for raw materials (for example, precious metals used in
catalytic converters) that require us to purchase a fixed percentage of mine
output. If our need for any of these raw materials were to lessen, or
if a supplier's output of materials were to increase, we could be required to
purchase more materials than we need.
Adverse effects
on our results from a decrease in or cessation of government
incentives. We receive economic benefits from various
governments related to investments we make. These benefits may accrue
from governments on the national (federal) level, as well as local levels
(states, provinces, etc.). These benefits generally take the form of
tax incentives, property tax abatements, infrastructure development, subsidized
training programs, and/or other operational grants and incentives, and the
amounts may be significant. A decrease in, expiration without renewal
of, or other cessation of such benefits could have an adverse impact on our
financial results, as well as our ability to fund new investments.
Adverse effects
on our operations resulting from certain geo-political or other
events. We
conduct a significant portion of our business in countries outside of the United
States, and are pursuing growth opportunities in a number of emerging
markets. These activities expose us to, among other things, risks
associated with geo-political events, such as a governmental takeover (i.e.,
nationalization) of our manufacturing facilities; disruption of operations in a
particular country as a result of political or economic instability, the
outbreak of war or the expansion of hostilities; or acts of
terrorism. Such events could have a substantial adverse effect on our
financial condition and results of operations.
Substantial
negative Automotive operating-related cash flows for the near- to medium-term
affecting our ability to meet our obligations, invest in our business or
refinance our debt.
During the next few years, we expect substantial negative
operating-related cash outflows. Future borrowings may not be
available to us under our credit facilities or otherwise in amounts sufficient
to enable us to pay our indebtedness and to fund our other liquidity
needs. For example, if we are unable to meet certain covenants of our
$11.5 billion secured credit facility established in December 2006
(e.g., if the value of assets pledged do not exceed outstanding borrowings), we
will not be able to borrow under the facility. If our cash flow is
worse than expected due to an economic recession, work stoppages, increased
pension contributions or otherwise, or if we are unable to borrow under our
credit facilities or otherwise for these purposes, we may need to refinance or
restructure all or a portion of our indebtedness on or before maturity, reduce
or delay capital investments, or seek to raise additional capital. We
may not be able to implement one or more of these alternatives on terms
acceptable to us, or at all. The terms of our existing or future debt
agreements may restrict us from pursuing any of these
alternatives. Should our cash flow be worse than anticipated or we
fail to achieve any of these alternatives, this could materially adversely
affect our ability to repay our indebtedness and otherwise have a substantial
adverse effect on our financial condition and results of
operations. For further information on our liquidity and capital
resources, see "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations – Liquidity and Capital Resources," "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations – Outlook," and Note 16 of the Notes to the Financial
Statements.
ITEM 1A.
Risk Factors
(continued)
Substantial
levels of Automotive indebtedness adversely affecting our financial condition or
preventing us from fulfilling our debt obligations (which may grow because we
are able to incur substantially more debt, including additional secured
debt). As a result of our December 2006 financing actions
and our other debt, we are a highly leveraged company. Our
significant Automotive debt service obligations could have important
consequences, including the following: our high level of indebtedness
could make it difficult for us to satisfy our obligations with respect to our
outstanding indebtedness; our ability to obtain additional financing for working
capital, capital expenditures, acquisitions, if any, or general corporate
purposes may be impaired; we must use a substantial portion of our cash flow
from operations to pay interest on our indebtedness, which will reduce the funds
available to us for operations and other purposes; and our high level of
indebtedness makes us more vulnerable to economic downturns and adverse
developments in our business. The more leveraged we become, the more
we become exposed to the risks described herein. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations – Liquidity and Capital Resources" and Note 16 of the Notes to
the Financial Statements for additional information regarding our
indebtedness.
Inability of Ford
Credit to access debt or securitization markets around the world at competitive
rates or in sufficient amounts due to additional credit rating downgrades,
market volatility, market disruption or otherwise. The lowering of credit
ratings for Ford and Ford Credit has increased borrowing costs and caused Ford
Credit's access to the unsecured debt markets to become more
restricted. In response, Ford Credit has increased its use of
securitization and other sources of liquidity. Over time, and
particularly in the event of any further credit rating downgrades, market
volatility, market disruption or otherwise, or a significant decline in the
demand for the types of securities it offers, Ford Credit may need to reduce the
amount of receivables it purchases or originates. A significant
reduction in the amount of receivables Ford Credit purchases or originates would
significantly reduce ongoing profits and could adversely affect Ford Credit's
ability to support the sale of Ford vehicles. For additional
discussion, see "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations – Liquidity and Capital
Resources."
Higher-than-expected
credit losses. Credit risk is the
possibility of loss from a customer's or dealer's failure to make payments
according to contract terms. Credit risk (which is heavily dependent
upon economic factors including unemployment, consumer debt service burden,
personal income growth, dealer profitability and used car prices) has a
significant impact on Ford Credit's business. The level of credit
losses Ford Credit may experience could exceed its expectations. For
additional discussion regarding credit losses, see "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations –
Critical Accounting Estimates."
Lower-than-anticipated
residual values or higher-than-expected return volumes for leased
vehicles.
Ford Credit projects expected residual values (including residual value support
payments from Ford) and return volumes of the vehicles it
leases. Actual proceeds realized by Ford Credit upon the sale of
returned leased vehicles at lease termination may be lower than the amount
projected, which reduces the profitability of the lease
transaction. Among the factors that can affect the value of returned
lease vehicles are the volume of vehicles returned, economic conditions, and the
quality or perceived quality, safety or reliability of the
vehicles. Actual return volumes may be higher than expected and can
be influenced by contractual lease end values relative to auction values,
marketing programs for new vehicles, and general economic
conditions. All of these factors, alone or in combination, have the
potential to adversely affect Ford Credit's profitability. For
additional discussion regarding residual values, see "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations –
Critical Accounting Estimates."
Increased
competition from banks or other financial institutions seeking to increase their
share of financing Ford vehicles. No single company is a dominant force
in the automotive finance industry. Most of Ford Credit's bank
competitors in the United States use credit aggregation systems that permit
dealers to send, through standardized systems, retail credit applications to
multiple finance sources to evaluate financing options offered by these finance
sources. This process has resulted in greater competition based on
financing rates. In addition, Ford Credit is facing increased
competition on wholesale financing for Ford dealers. Competition from
such competitors with lower borrowing costs may increase, which could adversely
affect Ford Credit's profitability and the volume of its business.
Changes in
interest rates. Ford Credit is exposed to interest rate risk, and the
interest rate to which it is most exposed is U.S. dollar London Interbank
Offered Rate ("LIBOR"). Ford Credit's interest rate risk exposure
results principally from "re-pricing risk,'' or differences in the re-pricing
characteristics of assets and liabilities. Any inability to
adequately control this exposure could adversely affect its
business.
ITEM 1A.
Risk Factors
(continued)
Collection and
servicing problems related to finance receivables and net investment in
operating leases. After Ford Credit
purchases retail installment sale contracts and leases from dealers and other
customers, it manages or services the receivables. Any disruption of
its servicing activity, due to inability to access or accurately maintain
customer account records or otherwise, could have a significant negative impact
on its ability to collect on those receivables and/or satisfy its
customers.
New or increased
credit, consumer or data protection or other regulations resulting in higher
costs and/or additional financing restrictions. As a finance company,
Ford Credit is highly regulated by governmental authorities in the locations
where it operates. In the United States, its operations are subject
to regulation, supervision and licensing under various federal, state and local
laws and regulations, including the federal Truth-in-Lending Act, Equal Credit
Opportunity Act and Fair Credit Reporting Act. In some countries
outside the United States, Ford Credit's subsidiaries are regulated banking
institutions and are required, among other things, to maintain minimum capital
reserves. In many other locations, governmental authorities require
companies to have licenses in order to conduct financing
businesses. Efforts to comply with these laws and regulations impose
significant costs on Ford Credit, and affect the conduct of its
business. Additional regulation could add significant cost or
operational constraints that might impair its profitability.
ITEM
1B. Unresolved
Staff Comments
None to
report.
ITEM
2. Properties
Our
principal properties include manufacturing and assembly facilities, distribution
centers, warehouses, sales or administrative offices and engineering
centers.
We own
substantially all of our U.S. manufacturing and assembly facilities, although
many of these properties have been pledged to secure
indebtedness. Our facilities are situated in various sections of the
country and include assembly plants, engine plants, casting plants, metal
stamping plants, transmission plants, and other component
plants. Most of our distribution centers are leased (we own
approximately 41% of the total square footage). A substantial amount
of our warehousing is provided by third-party providers under service
contracts. Because the facilities provided pursuant to third-party
service contracts need not be dedicated exclusively or even primarily to our
use, these spaces are not included in the number of distribution
centers/warehouses listed in the table below. All of the warehouses
that we operate are leased, although many of our manufacturing and assembly
facilities contain some warehousing space. Substantially all of our
sales offices are leased space. Approximately 98% of the total square
footage of our engineering centers and our supplementary research and
development space is owned by us.
In
addition, we maintain and operate manufacturing plants, assembly facilities,
parts distribution centers, and engineering centers outside of the United
States. We own substantially all of our non-U.S. manufacturing
plants, assembly facilities, and engineering centers. The majority of
our parts distribution centers outside of the United States are either leased or
provided by vendors under service contracts. As in the United States,
space provided by vendors under service contracts need not be dedicated
exclusively or even primarily to our use, and is not included in the number of
distribution centers/warehouses listed in the table below.
The total
number of plants, distribution centers/warehouses, engineering and research and
development sites, and sales offices used by our Automotive segments are shown
in the table below:
Segment
|
|
|
|
|
Distribution
Centers/Warehouses
|
|
|
Engineering,
Research/Development
|
|
|
|
|
Ford
North America
|
|
|
46 |
* |
|
|
33 |
|
|
|
37 |
|
|
|
51 |
|
Ford
South America
|
|
|
7 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
Ford
Europe
|
|
|
17 |
|
|
|
1 |
|
|
|
6 |
|
|
|
15 |
|
PAG
|
|
|
12 |
|
|
|
4 |
|
|
|
5 |
|
|
|
2 |
|
Ford
Asia Pacific and Africa/Mazda
|
|
|
13 |
|
|
|
3 |
|
|
|
2 |
|
|
|
4 |
|
Total
|
|
|
95 |
|
|
|
41 |
|
|
|
50 |
|
|
|
72 |
|
*
|
We
have announced plans to close a number of North American facilities as
part of our restructuring actions; facilities that have been closed to
date are not included in the table. For further discussion of
our restructuring, see "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations – Overview." The
table does include 11 facilities
operated by our subsidiary Automotive Components Holdings, LLC ("ACH"); we
have announced that we intend to sell or close essentially all ACH plants
by the end of 2008.
|
ITEM 2.
Properties
(Continued)
Included
in the number of plants shown above are several plants that are not operated
directly by us, but rather by consolidated joint ventures that operate plants
that support our Automotive sector. Following are the most
significant of these consolidated joint ventures and the number of plants they
own:
|
•
|
AutoAlliance International
("AAI") — a 50/50 joint venture with Mazda (of which we own
approximately 33.4%), which operates as its principal business an
automobile vehicle assembly plant in Flat Rock, Michigan. AAI
currently produces the Mazda6 and Ford Mustang models. Ford
supplies all of the hourly and substantially all of the salaried labor
requirements to AAI, and AAI reimburses Ford for the full cost of that
labor.
|
|
•
|
Ford Otosan — a joint
venture in Turkey between Ford (41% partner), the Koc Group of Turkey (41%
partner) and public investors (18%) that is our single source supplier of
the Ford Transit Connect vehicle and our sole distributor of Ford vehicles
in Turkey. In addition, Ford Otosan makes the Ford Transit
series and the Cargo truck for the Turkish and export markets, and certain
engines and transmissions, most of which are under
license. This joint venture owns and operates two plants and a
parts distribution depot in Turkey.
|
|
•
|
Getrag Ford Transmissions
GmbH — a 50/50 joint venture with Getrag Deutsche Venture GmbH and
Co. KG, a German company, to which we transferred our European manual
transmission operations in Halewood, England; Cologne, Germany; and
Bordeaux, France. In 2004, Volvo Car Corporation ("Volvo Cars")
transferred its manual transmission operations from its Köping, Sweden
plant to this joint venture. The Getrag joint venture produces
manual transmissions for our operations in Europe (Ford Europe and
PAG). Ford currently supplies most of the hourly and salaried
labor requirements of the operations transferred to this Getrag joint
venture. Ford employees who worked at the manual transmission
operations transferred at the time of formation of the joint venture are
assigned to the joint venture by Ford. In the event of surplus
labor at the joint venture, Ford employees assigned to the joint venture
may return to Ford. Employees hired in the future to work in
these operations will be employed directly by the joint
venture. Getrag Ford Transmissions GmbH reimburses Ford for the
full cost of the hourly and salaried labor supplied by
Ford. This joint venture operates three
plants.
|
|
•
|
Getrag All Wheel Drive
AB — a joint venture in Sweden between Getrag Dana Holding GmbH
("Getrag/Dana") (60% partner) and Volvo Cars (40% partner). In
January 2004, Volvo Cars transferred to this joint venture its plant in
Köping, Sweden. The joint venture produces all-wheel drive
components. As noted above, the manual transmission operations
at the Köping plant were transferred to Getrag Ford Transmissions
GmbH. The hourly and salaried employees at the plant have
become employees of the joint
venture.
|
|
•
|
Tekfor Cologne GmbH
("Tekfor") — a
50/50 joint venture of Ford-Werke GmbH ("Ford-Werke") and Neumayer Tekfor
GmbH, a German company, to which joint venture Ford-Werke transferred the
operations of the Ford forge in Cologne. The joint venture
produces forged components, primarily for transmissions and chassis, for
use in Ford vehicles and for sale to third parties. Those Ford
employees who worked at the Cologne Forge Plant at the time of the
formation of the joint venture are assigned to Tekfor by Ford and remain
Ford employees. In the event of surplus labor at the joint
venture, Ford employees assigned to Tekfor may return to
Ford. New workers at the joint venture will be hired as
employees of the joint venture. Tekfor reimburses Ford for the
full cost of Ford employees assigned to the joint venture. This
joint venture operates one plant.
|
|
•
|
Pininfarina Sverige, AB
— a joint venture between Volvo Cars (40% partner) and Pininfarina, S.p.A.
("Pininfarina") (60% partner). In September 2003, Volvo Cars
and Pininfarina established this joint venture for the engineering and
manufacture of niche vehicles, starting with a new, small convertible
(Volvo C70), which is distributed by Volvo. The joint venture
began production of the new car at the Uddevalla Plant in Sweden, which
was transferred from Volvo Cars to the joint venture in December 2005, and
is the joint venture's only plant.
|
|
•
|
Ford Vietnam Limited —
a joint venture between Ford (75% partner) and Song Cong Diesel (25%
partner). Ford Vietnam assembles and distributes several Ford
vehicles in Vietnam, including Escape, Everest, Focus, Mondeo, Ranger and
Transit models. This joint venture operates one
plant.
|
|
•
|
Ford Lio Ho Motor Company Ltd.
("FLH") — a joint venture in Taiwan among Ford (70% partner), the
Lio Ho Group (25% partner) and individual shareholders (5% ownership in
aggregate) that assembles a variety of Ford and Mazda vehicles sourced
from Ford as well as Mazda and Suzuki. In addition to domestic assembly,
FLH also has local product development capability to modify vehicle
designs for local needs, and imports Ford-brand built-up vehicles from
Europe and the United States. This joint venture operates one
plant.
|
ITEM 2.
Properties
(Continued)
In
addition to the plants that we operate directly or that are operated by
consolidated joint ventures, additional plants that support our Automotive
sector are operated by other, unconsolidated joint ventures of which we are a
partner. These additional plants are not included in the number of
plants shown in the table above. The most significant of these joint
ventures are:
|
•
|
AutoAlliance (Thailand) Co.
Ltd. ("AAT") — a joint venture among Ford (50%), Mazda (45%) and a
Thai affiliate of Mazda's (5%), which owns and operates a manufacturing
plant in Rayong, Thailand. AAT produces the Ford Everest, Ford
Ranger and Mazda B-Series pickup trucks for the Thai market and for export
to over 100 countries worldwide (other than North America), in both
built-up and kit form. AAT has announced plans to build a new,
highly flexible passenger car plant that will utilize state-of-the-art
manufacturing technologies and will produce both Ford and Mazda badged
small cars beginning in 2009.
|
|
•
|
Blue Diamond Truck, S de RL de
CV — a joint venture between Ford (49% partner) and International
Truck and Engine Corporation (51% partner), a subsidiary of Navistar
International Corporation ("Navistar"). Blue Diamond Truck
develops and manufactures selected medium and light commercial trucks in
Mexico and sells the vehicles to Ford and Navistar for their own
independent distribution. Blue Diamond Truck manufactures Ford
F-650/750 medium-duty commercial trucks that are sold in the United States
and Canada; Navistar medium-duty commercial trucks that are sold in
Mexico; and a low-cab-forward, light-/medium-duty commercial truck for
each of Ford and Navistar. On September 28, 2007,
International Truck and Engine Corporation provided written notice of
termination of the Blue Diamond Truck joint venture effective
September 28, 2009.
|
|
•
|
Tenedora Nemak, S.A. de
C.V. — a joint venture between Ford (6.75% partner) and a
subsidiary of Mexican conglomerate Alfa S.A. de C.V. (93.25% partner),
which owns and operates, among other facilities, a portion of our former
Canadian castings operations, and supplies engine blocks and heads to
several of our engine plants. Ford supplies a portion of the hourly labor
requirements for the Canadian plant, for which it is fully reimbursed by
the joint venture.
|
|
•
|
Changan Ford Mazda Automobile
Corporation, Ltd. ("CFMA") — a joint venture between Ford (35%
partner), Mazda (15% partner) and the Chongqing Changan Automobile Co.,
Ltd. ("Changan") (50% partner). Through its facility in the
Chinese cities of Chongqing and Nanjing, CFMA produces and distributes in
China the Ford Mondeo and Focus, the Mazda2, the Mazda3 and the Volvo
S40.
|
|
•
|
Changan Ford Mazda Engine
Company, Ltd. ("CFME") — a joint venture between Ford (25%
partner), Mazda (25% partner) and the Chongqing Changan Automobile Co.,
Ltd (50% partner). CFME is located in the City of Nanjing, and
produces the Ford New I4 and Mazda BZ engines in support of the assembly
of Ford- and Mazda-branded vehicles manufactured in
China.
|
|
•
|
Jiangling Motors Corporation,
Ltd. ("JMC") — a publicly-traded company in China with Ford (30%
shareholder) and Jiangxi Jiangling Holdings, Ltd. (41% shareholder) as its
controlling shareholders. Jiangxi Jiangling Holdings, Ltd. is a
50/50 joint venture between Chongqing Changan Automobile Co., Ltd. and
Jiangling Motors Company Group. The public investors of JMC own
29% of its outstanding shares. JMC assembles the Ford Transit
van and other non-Ford-technology-based vehicles for distribution in
China.
|
|
•
|
Ford Malaysia Sdn. Bhd.
— a joint venture between Ford (49% partner) and Sime Darby Motors, a
wholly-owned subsidiary of Sime Darby Berhad, a publicly-traded company
(51% partner). Ford Malaysia distributes Ford vehicles
assembled by its wholly-owned subsidiary Associated Motor Industries
Malaysia, Sdn. Bhd., an assembly company, including Econovan, Escape,
Everest, Laser and Ranger models.
|
The
facilities owned or leased by us or our subsidiaries and joint ventures
described above are, in the opinion of management, suitable and more than
adequate for the manufacture and assembly of our products.
The
furniture, equipment and other physical property owned by our Financial Services
operations are not material in relation to their total assets.
ITEM
3. Legal
Proceedings
OVERVIEW
Various
legal actions, governmental investigations and proceedings and claims are
pending or may be instituted or asserted in the future against us and our
subsidiaries, including, but not limited to, those arising out
of: alleged defects in our products; governmental regulations
covering safety, emissions and fuel economy; financial services;
employment-related matters; dealer, supplier, and other contractual
relationships; intellectual property rights; product warranties; environmental
matters; shareholder and investor matters; and financial reporting
matters. Some of the pending legal actions are, or purport to be,
class actions. Some of these matters may involve claims for
compensatory, punitive, or antitrust or other multiplied damage claims in very
large amounts, or demands for recall campaigns, environmental remediation
programs, sanctions or other relief that, if granted, would require very large
expenditures. We regularly evaluate the expected outcome of product
liability litigation and other litigation matters. We have accrued
expenses for probable losses on product liability matters, in the aggregate,
based on an analysis of historical litigation payouts and trends. We
have also accrued expenses for other litigation where losses are deemed probable
and reasonably estimable. These accruals are reflected in our
financial statements.
Following
is a discussion of our significant pending legal proceedings:
ASBESTOS
MATTERS
Asbestos
was used in brakes, clutches, and other automotive components from the early
1900s. Along with other vehicle manufacturers, we have been the
target of asbestos litigation and, as a result, we are a defendant in various
actions for injuries claimed to have resulted from alleged contact with Ford
parts and other products containing asbestos. Plaintiffs in these
personal injury cases allege various health problems as a result of asbestos
exposure, either from component parts found in older vehicles, insulation or
other asbestos products in our facilities, or asbestos aboard our former
maritime fleet.
Most of
the asbestos litigation we face involves mechanics or other individuals who have
worked on the brakes of our vehicles over the years. We believe we
are being more aggressively targeted in asbestos suits because many previously
targeted companies have filed for bankruptcy. We are prepared to
defend these cases and, with respect to the cases alleging exposure from our
brakes, believe that the scientific evidence confirms our long-standing position
that mechanics and others are not at an increased risk of asbestos-related
disease as a result of exposure to the type of asbestos formerly used in the
brakes on our vehicles.
The
extent of our financial exposure to asbestos litigation remains very difficult
to estimate. The majority of our asbestos cases do not specify a
dollar amount for damages, and in many of the other cases the dollar amount
specified is the jurisdictional minimum. The vast majority of these
cases involve multiple defendants, with the number in some cases exceeding one
hundred. Many of these cases also involve multiple plaintiffs, and we
are often unable to tell from the pleadings which of the plaintiffs are making
claims against us (as opposed to other defendants). With some
variation from year to year, our annual payout and related defense costs in
asbestos cases has generally been decreasing since 2003. These costs
may, however, become substantial in the future.
ITEM
3. Legal Proceedings
(Continued)
ENVIRONMENTAL
MATTERS
General. We have
received notices under various federal and state environmental laws that we
(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. We 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 we may be held responsible could be substantial. The contingent
losses that we expect to incur in connection with many of these sites have been
accrued and those losses are reflected in our financial statements in accordance
with generally accepted accounting principles. For many sites,
however, the remediation costs and other damages for which we ultimately may be
responsible are not reasonably estimable because of uncertainties with respect
to factors such as our 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, we are unable to determine or reasonably estimate the
amount of costs or other damages for which we are potentially responsible in
connection with these sites, although that total could be
substantial.
Edison Assembly Plant Concrete
Disposal. During demolition of our Edison Assembly Plant, we
discovered very low levels of contaminants in the concrete slab. The
concrete was crushed and reused by several developers as fill material at ten
different off-site locations. The New Jersey Department of
Environmental Protection ("DEP") asserts that some of these locations may not
have been authorized to receive the waste. In March 2006, the DEP
ordered Ford, its supplier MIG-Alberici, Inc., and the developer Edgewood
Properties, Inc., to investigate, and, if appropriate, remove contaminated
materials. Ford has substantially completed the work at a number of
locations, and Edgewood is completing the investigation and remediation at
several locations that it owns. In December 2007, we entered into an
Administrative Consent Order with the DEP that terminated the March 2006 orders
and resolved civil issues with the DEP surrounding the concrete
reuse. Pursuant to the Administrative Consent Order, we will pay
approximately $460,000 for oversight costs, penalties, and environmental
education projects, and we will donate emissions reduction credits to the State
of New Jersey. As previously reported, the New Jersey Attorney
General's office also issued a grand jury subpoena and civil information request
in March 2006. We are fully cooperating with the Attorney General's
office to resolve this matter.
California Environmental
Action. In September 2006, the California Attorney General
filed a complaint in the United States District Court for the Northern District
of California against Ford, General Motors, Toyota, Honda, Chrysler and Nissan,
seeking monetary damages on a joint and several basis for economic and
environmental harm to California caused by global warming. The
complaint alleged that cars and trucks sold in the United States constitute an
environmental public nuisance under federal and California state common
law. In September 2007, the U.S. District Court for the Northern
District of California dismissed the case, ruling that the federal claims
constituted nonjusticiable political questions. The Court did not
address the state claims, and indicated that California could refile those
claims in state court if desired. The California Attorney General has
filed a notice of appeal with the U.S. Court of Appeals for the Ninth
Circuit.
CLASS
ACTIONS
In light
of the fact that very few of the purported class actions filed against us in the
past have ever been certified by the courts as class actions, the actions listed
below are those (i) that have been certified as a class action by a court of
competent jurisdiction (and any additional purported class actions that raise
allegations substantially similar to a certified case), and (ii) that, if
resolved unfavorably to the Company, would likely involve a significant
cost.
Blue Oval Certified Program Class
Action. On January 31, 2007, the United States District Court
for the District of New Jersey certified a nationwide class of dealers who were
franchisees of Ford Motor Company's Ford Division at any time during the period
mid-2000 through March 2005. Plaintiffs allege that Ford's Blue Oval
Certified Program, which was designed to reward dealers who obtained high
customer satisfaction ratings, violated the Robinson-Patman Act, the Automobile
Dealer's Day in Court Act, and various state laws. The complaint
seeks injunctive and declaratory relief, and unspecified damages (including
compensatory, statutory, treble, and punitive damages). The U. S.
Court of Appeals for the Third Circuit has granted our petition for leave to
appeal the class certification order, and our appeal is
pending.
ITEM
3. Legal Proceedings
(Continued)
Canadian Export Antitrust Class
Actions. Eighty-three purported class actions on behalf of all
purchasers of new motor vehicles in the United States since January 1, 2001 have
been filed in various state and federal courts against numerous defendants,
including Ford, General Motors, Chrysler, Toyota, Honda, Nissan, BMW Group, the
National Automobile Dealers Association, and the Canadian Automobile Dealers
Association. The federal and state complaints allege, among other
things, that the manufacturers, aided by the dealer associations, conspired to
prevent the sale to U.S. citizens of vehicles produced for the Canadian market
and sold by dealers in Canada at lower prices than vehicles sold in the United
States. The complaints seek injunctive relief under federal antitrust
law and treble damages under federal and state antitrust laws.
The
federal court actions have been consolidated for coordinated pretrial
proceedings in the U.S. District Court for the District of Maine. In
early 2007, the U.S. District Court certified classes of all purchasers of new
vehicles in 20 states between January 1, 2001 and
April 30, 2003 for damages under various state law
theories. Our appeal of the class certification order is
pending.
OTHER
MATTERS
ERISA Fiduciary
Litigation. A purported class action lawsuit is pending in the
United States District Court for the Eastern District of Michigan naming as
defendants Ford Motor Company and several of our current or former employees and
officers (Nowak, et al. v.
Ford Motor Company, et al., along with three consolidated
cases). The lawsuit alleges that the defendants violated ERISA by
failing to prudently and loyally manage funds held in employee savings plans
sponsored by Ford. Specifically, the plaintiffs allege (among other
claims) that the defendants violated fiduciary duties owed to plan participants
by continuing to offer Ford Common Stock as an investment option in the savings
plans. The defendants deny the plaintiffs' allegations, and intend to
defend this matter vigorously. Our motion to dismiss currently is
pending before the court.
SEC Pension and Post-Employment
Benefit Accounting Inquiry. On October 14, 2004, the Division
of Enforcement of the Securities and Exchange Commission ("SEC") notified us
that it was conducting an inquiry into the methodology used to account for
pensions and other post-employment benefits. We are one of several
companies to have received request for information as part of this
inquiry. We have completed submission of requested
information.
Diesel Engine
Litigation. In January 2007, we filed suit against the
single-source supplier of diesel engines for our F-Series Super Duty and
Econoline vehicles. Among other things, we sought reimbursement for
warranty and related costs involving prior model-year diesel engines supplied by
International Truck and Engine Corporation ("International") (a subsidiary of
Navistar International Transportation Corporation). International
countersued, asserting damages in excess of $2 billion and alleging, among
other things, that we materially breached provisions of the supply agreement
with regard to warranty, pricing, and exclusivity. International also filed its
own suit in Cook County, Illinois, alleging breach of our diesel engine
pre-development contract. We believe that International's claims are
without merit, and we intend vigorously to prosecute our claims against
International and defend against this countersuit. As part of the
pending litigation, the court has issued an order requiring International to
ship engines to us, and permitting us to pay a disputed price under protest,
while reserving our right to pursue recovery of the disputed
amount.
ITEM
4. Submission of Matters to a
Vote of Security Holders
Not
required.
ITEM
4A. Executive Officers of
Ford
Our
executive officers and their positions and ages at February 1, 2008 are as
follows:
|
|
|
|
Present
Position
Held
Since
|
|
|
|
|
|
|
|
|
|
William
Clay Ford, Jr. (a)
|
|
Executive
Chairman and Chairman of the Board
|
|
September
2006
|
|
50
|
|
|
|
|
|
|
|
Alan
Mulally (b)
|
|
President
and Chief Executive Officer
|
|
September
2006
|
|
62
|
|
|
|
|
|
|
|
Michael
E. Bannister
|
|
Executive
Vice President –Chairman and Chief Executive Officer,
Ford
Motor Credit Company
|
|
October
2007
|
|
58
|
|
|
|
|
|
|
|
Lewis
W. K. Booth
|
|
Executive
Vice President – Ford Europe
and Premier Automotive Group; Chairman – Jaguar,
Land Rover, Volvo and Ford Europe
|
|
October
2005
|
|
59
|
|
|
|
|
|
|
|
Mark
Fields
|
|
Executive
Vice President
–President, The Americas
|
|
October
2005
|
|
47
|
|
|
|
|
|
|
|
Donat
R. Leclair, Jr.
|
|
Executive
Vice President and Chief Financial Officer
|
|
August
2003
|
|
55
|
|
|
|
|
|
|
|
John
G. Parker
|
|
Executive
Vice President
–Asia Pacific & Africa and Mazda
|
|
September
2006
|
|
60
|
|
|
|
|
|
|
|
James
D. Farley
|
|
Group
Vice President – Marketing and Communications and U.S. Marketing,
Sales and Service
|
|
November
2007
|
|
45
|
|
|
|
|
|
|
|
John
Fleming
|
|
Group
Vice President –President
and Chief Executive Officer, Ford Europe
|
|
October
2005
|
|
57
|
|
|
|
|
|
|
|
Joseph
R. Hinrichs
|
|
Group
Vice President – Global Manufacturing
|
|
January
2008
|
|
41
|
|
|
|
|
|
|
|
Derrick
M. Kuzak
|
|
Group
Vice President –Global
Product Development
|
|
December
2006
|
|
56
|
|
|
|
|
|
|
|
Joe
W. Laymon
|
|
Group
Vice President –Corporate
Human Resources and Labor Affairs
|
|
October
2003
|
|
55
|
|
|
|
|
|
|
|
J
C. Mays
|
|
Group
Vice President –Design and
Chief Creative Officer
|
|
August
2003
|
|
53
|
|
|
|
|
|
|
|
Ziad
S. Ojakli
|
|
Group
Vice President –Government
and Community Relations
|
|
January
2004
|
|
40
|
|
|
|
|
|
|
|
Peter
J. Daniel
|
|
Senior
Vice President and Controller
|
|
September
2006
|
|
60
|
|
|
|
|
|
|
|
David
G. Leitch
|
|
Senior
Vice President and General Counsel
|
|
April
2005
|
|
47
|
__________
(a)
|
|
Also
a Director, Chair of the Office of the Chairman and Chief Executive, Chair
of the Finance Committee and a member of the Environmental and Public
Policy Committee of the Board of Directors.
|
|
|
|
(b)
|
|
Also
a Director and member of the Office of the Chairman and Chief Executive
and the Finance Committee of the Board of Directors.
|
|
|
|
ITEM
4A. Executive Officers of Ford
(Continued)
All of
the above officers, except those noted below, have been employed by Ford or its
subsidiaries in one or more capacities during the past five
years. Described below are the recent positions (other than those
with Ford or its subsidiaries) held by those officers who have not yet been with
Ford or its subsidiaries for five years:
|
§
|
Prior
to joining Ford in November 2007, Mr. Farley was Group Vice President and
General Manager of Lexus, responsible for all sales, marketing and
customer satisfaction activities for Toyota’s luxury
brand. Before leading Lexus, he served as group vice president
of Toyota Division marketing and was responsible for all Toyota Division
market planning, advertising, merchandising, sales promotion, incentives
and Internet activities.
|
|
§
|
Prior
to joining Ford in September 2006, Mr. Mulally served as executive vice
president of The Boeing Company, and president and chief executive officer
of Boeing Commercial Airplanes. Mr. Mulally also was a member
of Boeing's Executive Council, and served as Boeing's senior executive in
the Pacific Northwest. He was named Boeing's president of
Commercial Airplanes in September 1998; the responsibility of chief
executive officer for the business unit was added in March
2001.
|
|
§
|
Mr.
Leitch served as the Deputy Assistant and Deputy Counsel to President
George W. Bush from December 2002 to
March 2005. From June 2001 until December 2002, he served
as Chief Counsel for the Federal Aviation Administration, overseeing a
staff of 290 in Washington and the agency's 11 regional
offices. Prior to June 2001, Mr. Leitch was a partner at Hogan
& Hartson LLP in Washington DC, where his practice focused on
appellate litigation in state and federal
court.
|
|
§
|
Mr.
Ojakli served as Principal Deputy for Legislative Affairs for President
George W. Bush from December 2002 to 2003, and was Deputy Assistant to the
President from 2001 to 2002. Prior to that, from 1998 to 2000,
he was the Policy Director and Chief of Staff to the Senate Republican
Conference Secretary.
|
Under our
By-Laws, the executive officers are elected by the Board of Directors at the
Annual Meeting of the Board of Directors held for this purpose. Each
officer is elected to hold office until his or her successor is chosen or as
otherwise provided in the By-Laws.
PART
II
ITEM
5. Market for Ford's Common
Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Our
Common Stock is listed on the New York Stock Exchange in the United States and
on certain stock exchanges in Belgium, France, Switzerland and the United
Kingdom.
The table
below shows the high and low sales prices for our Common Stock and the dividends
we paid per share of Common and Class B Stock for each quarterly period in 2006
and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
Common Stock price per share (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$ |
8.96 |
|
|
$ |
8.05 |
|
|
$ |
9.48 |
|
|
$ |
9.19 |
|
|
$ |
8.97 |
|
|
$ |
9.70 |
|
|
$ |
9.64 |
|
|
$ |
9.24 |
|
Low
|
|
|
7.39 |
|
|
|
6.17 |
|
|
|
6.06 |
|
|
|
6.85 |
|
|
|
7.43 |
|
|
|
7.67 |
|
|
|
7.49 |
|
|
|
6.65 |
|
Dividends
per share of Ford Common and Class B Stock (b)
|
|
$ |
0.10 |
|
|
$ |
0.10 |
|
|
$ |
0.05 |
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
__________
(a)
|
New
York Stock Exchange composite interday prices as listed in the price
history database available at www.NYSEnet.com.
|
|
|
(b)
|
On
December 15, 2006, we entered into a new secured credit facility which
contains a covenant prohibiting us from paying any dividends (other than
dividends payable solely in stock) on our Common and Class B Stock,
subject to certain limited exceptions. As a result, it is
unlikely that we will pay any dividends in the foreseeable
future. See Note 15 of the Notes to the Financial Statements
for more information regarding the secured credit facility and related
covenants.
|
As of
February 11, 2008, stockholders of record of Ford included 163,689 holders of
Common Stock (which number does not include 1,395 former holders of old Ford
Common Stock who have not yet tendered their shares pursuant to our
recapitalization, known as the Value Enhancement Plan, which became effective on
August 9, 2000) and 93 holders of Class B Stock.
On
December 7, 2007, we issued an aggregate of 62,000,761 shares of Ford
Common Stock, par value $0.01 per share, in exchange for $441,991,000 principal
amount of our 6⅜% Debentures due February 1, 2029 and $124,943,000
principal amount of our 6⅝% Debentures due October 1, 2028,
beneficially owned by an institutional holder of the Debentures. We
did not receive any cash proceeds as a result of the exchange of Ford Common
Stock for the Debentures, which Debentures have been retired and
cancelled. The shares of Ford Common Stock were issued pursuant to
the exemption from the registration requirements of the Securities Act of 1933,
as amended, contained in Section 3(a)(9) of such act on the basis that the offer
constituted an exchange with an existing holder of our securities and no
commission or other remuneration was paid to any party for soliciting such
exchange.
During
the fourth quarter of 2007, we purchased shares of our Common Stock as
follows:
Period
|
|
Total
Number of Shares Purchased*
|
|
|
Average
Price Paid per Share
|
|
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or
Programs
|
|
|
Maximum
Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased
Under the Plans or Programs
|
|
Oct.
1, 2007 through Oct. 31, 2007
|
|
|
– |
|
|
|
N/A |
|
|
|
– |
|
|
|
** |
|
Nov.
1, 2007 through Nov. 30, 2007
|
|
|
1,540 |
|
|
$ |
7.90 |
|
|
|
– |
|
|
|
** |
|
Dec.
1, 2007 through Dec. 31, 2007
|
|
|
6,787 |
|
|
$ |
6.70 |
|
|
|
– |
|
|
|
** |
|
Total/Average
|
|
|
8,327 |
|
|
$ |
6.92 |
|
|
|
– |
|
|
|
|
|
________
*
|
We
currently do not have a publicly announced repurchase program in
place. The 8,327 shares purchased were acquired from our
employees or directors in accordance with our various compensation plans
as a result of share withholdings to pay income taxes with respect to:
(i) the lapse
of restrictions on restricted stock; (ii) the issuance of unrestricted
stock, including issuances as a result of the conversion of restricted
stock equivalents; or (iii) to pay the exercise price and related
income taxes with respect to certain exercises of stock
options.
|
|
|
**
|
No
publicly announced repurchase program in
place.
|
ITEM
6. Selected Financial
Data
The
following table sets forth selected financial data for each of the last five
years (dollar amounts in millions, except per share amounts).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUMMARY
OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
and revenues
|
|
$ |
172,455 |
|
|
$ |
160,065 |
|
|
$ |
176,835 |
|
|
$ |
172,255 |
|
|
$ |
166,040 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
before income taxes
|
|
$ |
(3,746 |
) |
|
$ |
(15,074 |
) |
|
$ |
1,054 |
|
|
$ |
4,087 |
|
|
$ |
893 |
|
Provision/(Credit)
for income taxes
|
|
|
(1,294 |
) |
|
|
(2,655 |
) |
|
|
(855 |
) |
|
|
634 |
|
|
|
(54 |
) |
Minority
interests in net income of subsidiaries
|
|
|
312 |
|
|
|
210 |
|
|
|
280 |
|
|
|
282 |
|
|
|
314 |
|
Income/(Loss)
from continuing operations
|
|
|
(2,764 |
) |
|
|
(12,629 |
) |
|
|
1,629 |
|
|
|
3,171 |
|
|
|
633 |
|
Income/(Loss)
from discontinued operations
|
|
|
41 |
|
|
|
16 |
|
|
|
62 |
|
|
|
(133 |
) |
|
|
(130 |
) |
Cumulative
effects of change in accounting principle
|
|
|
— |
|
|
|
— |
|
|
|
(251 |
) |
|
|
— |
|
|
|
(264 |
) |
Net
income/(loss)
|
|
$ |
(2,723 |
) |
|
$ |
(12,613 |
) |
|
$ |
1,440 |
|
|
$ |
3,038 |
|
|
$ |
239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
154,379 |
|
|
$ |
143,249 |
|
|
$ |
153,413 |
|
|
$ |
147,058 |
|
|
$ |
139,378 |
|
Operating
income/(loss)
|
|
|
(4,268 |
) |
|
|
(17,944 |
) |
|
|
(4,211 |
) |
|
|
(221 |
) |
|
|
(1,056 |
) |
Income/(Loss)
before income taxes
|
|
|
(4,970 |
) |
|
|
(17,040 |
) |
|
|
(3,899 |
) |
|
|
(200 |
) |
|
|
(1,408 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Services Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
18,076 |
|
|
$ |
16,816 |
|
|
$ |
23,422 |
|
|
$ |
25,197 |
|
|
$ |
26,662 |
|
Income/(Loss)
before income taxes
|
|
|
1,224 |
|
|
|
1,966 |
|
|
|
4,953 |
|
|
|
4,287 |
|
|
|
2,301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Company Data Per Share of Common and Class B Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
from continuing operations
|
|
$ |
(1.40 |
) |
|
$ |
(6.73 |
) |
|
$ |
0.88 |
|
|
$ |
1.74 |
|
|
$ |
0.34 |
|
Income/(Loss)
from discontinued operations
|
|
|
0.02 |
|
|
|
0.01 |
|
|
|
0.04 |
|
|
|
(0.08 |
) |
|
|
(0.07 |
) |
Cumulative
effects of change in accounting principle
|
|
|
— |
|
|
|
— |
|
|
|
(0.14 |
) |
|
|
— |
|
|
|
(0.14 |
) |
Net
income/(loss)
|
|
$ |
(1.38 |
) |
|
$ |
(6.72 |
) |
|
$ |
0.78 |
|
|
$ |
1.66 |
|
|
$ |
0.13 |
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
from continuing operations
|
|
$ |
(1.40 |
) |
|
$ |
(6.73 |
) |
|
$ |
0.86 |
|
|
$ |
1.59 |
|
|
$ |
0.34 |
|
Income/(Loss)
from discontinued/held-for-sale operations
|
|
|
0.02 |
|
|
|
0.01 |
|
|
|
0.03 |
|
|
|
(0.07 |
) |
|
|
(0.07 |
) |
Cumulative
effects of change in accounting principle
|
|
|
— |
|
|
|
— |
|
|
|
(0.12 |
) |
|
|
— |
|
|
|
(0.14 |
) |
Net
income/(loss)
|
|
$ |
(1.38 |
) |
|
$ |
(6.72 |
) |
|
$ |
0.77 |
|
|
$ |
1.52 |
|
|
$ |
0.13 |
|
Cash
dividends
|
|
$ |
— |
|
|
$ |
0.25 |
|
|
$ |
0.40 |
|
|
$ |
0.40 |
|
|
$ |
0.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock price range (NYSE Composite)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$ |
9.70 |
|
|
$ |
9.48 |
|
|
$ |
14.75 |
|
|
$ |
17.34 |
|
|
$ |
17.33 |
|
Low
|
|
|
6.65 |
|
|
|
6.06 |
|
|
|
7.57 |
|
|
|
12.61 |
|
|
|
6.58 |
|
Average
number of shares of Ford Common and Class B Stock outstanding (in
millions)
|
|
|
1,979 |
|
|
|
1,879 |
|
|
|
1,846 |
|
|
|
1,830 |
|
|
|
1,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SECTOR
BALANCE SHEET DATA AT YEAR-END
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
sector
|
|
$ |
118,489 |
|
|
$ |
122,634 |
|
|
$ |
113,825 |
|
|
$ |
113,251 |
|
|
$ |
111,208 |
|
Financial
Services sector
|
|
|
169,261 |
|
|
|
169,691 |
|
|
|
162,194 |
|
|
|
189,188 |
|
|
|
195,509 |
|
Intersector
elimination
|
|
|
(2,023 |
) |
|
|
(1,467 |
) |
|
|
(83 |
) |
|
|
(2,753 |
) |
|
|
(3,356 |
) |
Total
assets
|
|
$ |
285,727 |
|
|
$ |
290,858 |
|
|
$ |
275,936 |
|
|
$ |
299,686 |
|
|
$ |
303,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
sector
|
|
$ |
25,777 |
|
|
$ |
28,512 |
|
|
$ |
16,896 |
|
|
$ |
17,245 |
|
|
$ |
18,752 |
|
Financial
Services sector
|
|
|
114,478 |
|
|
|
115,859 |
|
|
|
103,080 |
|
|
|
112,080 |
|
|
|
123,655 |
|
Total
long-term debt
|
|
$ |
140,255 |
|
|
$ |
144,371 |
|
|
$ |
119,976 |
|
|
$ |
129,325 |
|
|
$ |
142,407 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity
|
|
$ |
5,628 |
|
|
$ |
(3,465 |
) |
|
$ |
13,442 |
|
|
$ |
17,437 |
|
|
$ |
13,459 |
|
ITEM
7. Management's Discussion and
Analysis of Financial Condition and Results of Operations
OVERVIEW
Generation
of Revenue, Income and Cash
Our
Automotive sector's revenue, income, and cash are generated primarily from sales
of vehicles to our dealers and distributors (i.e., our
customers). Vehicles we produce generally are subject to firm orders
from our customers and are deemed sold (with the proceeds from such sale
recognized in revenue) immediately after they are produced and shipped or
delivered to our customers. This is not the case, however, with
respect to vehicles produced for sale to daily rental car companies that are
subject to a guaranteed repurchase option or vehicles produced for use in our
own fleet (including management evaluation vehicles). Vehicles sold
to daily rental car companies that are subject to a guaranteed repurchase option
are accounted for as operating leases, with lease revenue and profits recognized
over the term of the lease. When we sell the vehicle at auction, we
recognize a gain or loss on the difference, if any, between actual auction value
and the projected auction value. In addition, revenue for finished
vehicles we sell to customers or vehicle modifiers on consignment is not
recognized until the vehicle is sold to the ultimate
customer. Therefore, except for the impact of the daily rental units
sold subject to a guaranteed repurchase option, those units placed into our own
fleet, and those units for which recognition of revenue is otherwise deferred,
wholesale volumes to our customers and revenue from such sales are closely
linked with our production.
Most of
the vehicles sold by us to our dealers and distributors are financed at
wholesale by Ford Credit. Upon Ford Credit originating the wholesale
receivable related to a dealer's purchase of a vehicle, Ford Credit pays cash to
the relevant legal entity in our Automotive sector in payment of the dealer's
obligation for the purchase price of the vehicle. The dealer then
pays the wholesale finance receivable when it sells the vehicle to a retail
customer.
Our
Financial Services sector's revenue is generated primarily from interest on
finance receivables, net of certain deferred origination costs that are included
as a reduction of financing revenue, and such revenue is recognized over the
term of the receivable using the interest method. Also, revenue from
operating leases, net of certain deferred origination costs, is recognized on a
straight-line basis over the term of the lease. Income is generated
to the extent revenues exceed expenses, most of which are interest, depreciation
and operating expenses.
Transactions
between our Automotive and Financial Services sectors occur in the ordinary
course of business. For example, Ford Credit receives interest
supplements and other support cost payments from the Automotive sector in
connection with special-rate vehicle financing and leasing programs that we
sponsor. Ford Credit records these payments as revenue, and, for
contracts purchased prior to 2008, our Automotive sector made the related cash
payments, over the expected life of the related finance receivable or operating
lease. Effective January 1, 2008, to reduce ongoing
Automotive obligations to Ford Credit and to be consistent with general industry
practice, we began paying interest supplements and residual value support to
Ford Credit on an upfront, lump-sum basis at the time Ford Credit purchases
eligible contracts from dealers. See Note 1 of the Notes to the
Financial Statements for a more detailed discussion of transactions and payments
between our Automotive and Financial Services sectors. The Automotive
sector records the estimated costs of marketing incentives, including dealer and
retail customer cash payments (e.g., rebates) and costs of special rate
financing and leasing programs, as a reduction to revenue. These
reductions to revenue are accrued at the later of the date the related vehicle
sales to the dealer are recorded or at the date the incentive program is both
approved and communicated.
Key
Economic Factors and Trends Affecting the Automotive Industry
Excess
Capacity. According to CSM Worldwide, an automotive research
firm, in 2007 the estimated automotive industry global production capacity for
light vehicles (about 85.4 million units) exceeded global production by
about 16.8 million units. In North America and Europe, the two
regions where the majority of revenue and profits are earned in the industry,
excess capacity was an estimated 17% and 11%, respectively. According
to production capacity data projected by CSM Worldwide, significant global
excess capacity conditions could continue for several more years at an average
of 18.4 million units per year during the 2008-2014 period.
Pricing
Pressure. Excess capacity, coupled with a proliferation of new
products being introduced in key segments by the industry, will keep pressure on
manufacturers' ability to increase prices on their products. In
addition, the incremental new U.S. manufacturing capacity of Japanese and Korean
manufacturers in recent years has contributed, and is likely to continue to
contribute, to the severe pricing pressure in that market. For
example, in 2006, Toyota completed construction of an assembly plant in Texas
that is capable of producing 150,000 full-size pickup trucks annually as of
2007, and is projected to be able to produce 200,000 full-size pick-up
trucks beginning in 2008, according to CSM Worldwide. The reduction of real
prices for similarly contented vehicles in the United States has become more
pronounced since the late 1990s, and we expect that a challenging pricing
environment will continue for some time to come. In addition, the
relative weakness of the Japanese yen against the U.S. dollar, and more
substantially against the euro, contributes to Japanese vehicle manufacturers'
significant cost advantage, especially on exports from Japan to these
markets. In Europe, the automotive industry also has experienced
intense pricing pressure for several years, exacerbated in recent years by the
Block Exemption Regulation discussed in "Item 1. Business - Automotive
Sector."
ITEM 7.
Management's Discussion and
Analysis of Financial Condition and Results of Operations
(continued)
Consumer Spending
Trends. We expect, however, that a decline in or the inability
to increase vehicle prices could be offset at least in part by the long-term
trend of consumers' propensity to purchase higher-end, more expensive vehicles
and/or vehicles with more features. In the United States, for
example, consumers in the highest income brackets are buying more often and are
more frequently buying upscale.
Emerging
markets will also contribute an increasing share of global industry volume and
revenue, as growth in wholesales (i.e., volume) will be greatest in emerging
markets in the next decade. We believe, however, the mature
automotive markets (e.g., North America, Western Europe, and Japan) will
continue to be a significant driver of global industry revenue
growth.
Health Care
Expenses. In 2007, our health care expenses (excluding special
items) for U.S. employees, retirees, and their dependents were
$2.2 billion, with about $1.2 billion for postretirement health care
and the balance for active employee health care and other retiree
expense.
For 2008,
our trend assumptions for U.S. health care costs include an initial trend rate
of three percent. Over the long term, our steady-state trend rate
assumption is five percent, reached in 2011; in any given year, however, the
rate could be higher or lower. These assumptions reflect our ongoing
focus on health care cost control (including eligibility management, employee
education and wellness programs, competitive sourcing, and employee cost
sharing) and an assessment of likely long-term trends. They do not
include the impact of the recent Memorandum of Understanding with the UAW
relating to retiree health care, discussed in detail in this
Overview.
Commodity and Energy Price
Increases. Commodity prices, particularly for steel and resins
(which are our two largest commodity exposures and among the most difficult to
hedge), have continued to increase during a period of strong global demand for
these materials. In addition, energy prices also continued to
increase significantly in 2007. In particular, gasoline prices in the
United States rose to levels over $3.00 per gallon during
2007. Although prices have moderated somewhat, they are expected to
remain at high levels. This has had an adverse effect on the demand
for traditional full- and medium-sized SUVs and trucks in the United
States.
Currency Exchange Rate
Volatility. The U.S. dollar has depreciated against most major
currencies since 2002. This created downward margin pressure on auto
manufacturers that have U.S. dollar revenue with foreign currency
cost. Because we produce vehicles in Europe (e.g., Jaguar, Land
Rover, and Volvo models) for sale in the United States and produce components in
Europe (e.g., engines) for use in some of our North American vehicles, we
experienced margin pressure. Although this pressure was offset
partially by gains on foreign exchange derivatives, this offset declines over
time due to the expiration of favorable hedges previously put in
place. We, like many other automotive manufacturers with sales in the
United States and costs in foreign currencies, are not always able to price
for depreciation of the U.S. dollar due to the extremely competitive pricing
environment in the United States.
Other Economic
Factors. Additional factors have recently affected the
performance of the automotive industry. In the United States, 2007
was a period of a significant contraction in the housing market. As a
result, spending on new residential construction declined by 16.9% (after
inflation). This adjustment had two effects on automotive sales and
revenue – directly, through its adverse effect on GDP growth, and as a
contributing factor to potential softer demand for truck sales. Both
of these factors may continue to contribute to lower light vehicle sales in the
United States. In addition, during the second half of 2007, the
United States experienced a subprime mortgage contraction that resulted in an
associated contraction throughout the world in other types of credit market
activity, which impacted adversely certain of Ford Credit's capital market
funding activities. The contraction of credit market activity appears
to be continuing into 2008, which could result in higher costs of capital and
generally reduced economic activity.
ITEM 7.
Management's Discussion and
Analysis of Financial Condition and Results of Operations
(continued)
Emissions Standards for Medium and
Heavy Trucks. New, more stringent U.S. regulatory requirements
for truck emissions took effect on January 1, 2007, which increased
the cost primarily of diesel engines used in medium and heavy
trucks. These standards did not apply to vehicles purchased prior to
the implementation of the new regulations. As a result, sales of
medium and heavy trucks were elevated in 2006 as buyers pulled ahead orders that
they would otherwise have made at a later date. The payback from this
pull-ahead demand, which may continue into 2008, contributed to a 30% year over
year decline in sales of medium and heavy trucks in 2007.
Trends
and Strategies
The
global automotive marketplace has become increasingly fragmented and crowded,
and we anticipate that this trend will continue to accelerate into the
future. Anticipating little growth in the overall volume of vehicles
sold in North America for the foreseeable future, we expect more manufacturers
to offer an increasing number of products in this market. To address
this market reality and the factors and trends affecting the automotive industry
discussed above, and towards the end of achieving profitable growth in all
markets, we have been focusing and continue to focus on the following four key
priorities:
|
·
|
Aggressively
restructure to operate profitably at the current demand and changing model
mix;
|
|
·
|
Accelerate
development of new products our customers want and
value;
|
|
·
|
Finance
our plan and improve our balance sheet;
and
|
|
·
|
Work
together effectively as one team.
|
Aggressively Restructure to
Operate Profitably at the Current Demand and Changing Model
Mix
To
compete more effectively in today's global marketplace, and particularly in
North America, we have been executing a plan to restructure aggressively our
Automotive business to address the realities of lower demand, higher fuel prices
and the shifting model mix from trucks and large SUVs to more fuel-efficient
vehicles.
On
January 23, 2006, we announced a major business improvement plan for
our North American Automotive operations, which we referred to as the Way
Forward plan. On September 15, 2006, responding to changing
facts and circumstances, we announced an acceleration of this plan, including
actions designed to further reduce operating costs and increase the flow of new
products. Key elements of our plan to restructure aggressively
our Automotive business include the following:
Personnel
reductions
To
contribute to our goal of reducing annual North America operating costs by about
$5 billion by the end of 2008 as compared with 2005, over the last two
years we have reduced by about 46,300 the employment levels in our Ford North
America business unit. At December 31, 2007, our Ford North
America business unit had approximately 23,700 salaried employees and
64,000 hourly about employees (including 6,100 working at our ACH facilities),
compared with approximately 34,500 salaried employees and
99,500 hourly employees (including 13,900 working at our ACH
facilities) at December 31, 2005. Most of these reductions
were the result of offers of early retirement or separation packages to U.S.
employees, including Ford employees at our ACH plants.
Although
we have achieved our previously announced goal to operate with between 55,000 to
60,000 hourly non-ACH employees in North America by the end of 2008, we
have embarked on additional personnel reduction actions, as announced on
January 24, 2008, to achieve even lower hourly employment levels in
North America. With the UAW, we are implementing an additional enterprise-wide
buyout program in two phases:
|
·
|
The
first phase is applicable to UAW-represented employees at select closed
facilities (i.e., the Atlanta, St. Louis, Edison (NJ) and Norfolk
Assembly Plants), with buyout offers running from
January 22, 2008 to
February 25, 2008. Employees who accept these offers
generally will be separated by
March 1, 2008.
|
|
·
|
The
second phase is applicable to all other UAW-represented employees, with
buyout offers being made from February 19, 2008 to
March 18, 2008. Employees who accept these offers
will be separated beginning April 1, 2008, with most separations
completed by June 30, 2008 and all completed by year-end
2008.
|
ITEM 7.
Management's Discussion and
Analysis of Financial Condition and Results of Operations
(continued)
Capacity
alignment
We also
have reduced and realigned our vehicle assembly capacity to bring it more in
line with demand and shifting customer preferences. There are several
ways to measure our vehicle assembly capacity, two of which are installed
capacity and manned capacity. Installed capacity refers to the
physical capability of the plant and equipment to assemble vehicles if fully
manned. Manned capacity refers to the degree to which the installed
capacity has been staffed. In addition, in North America there
generally exists the capability to work overtime or schedule downtime to adjust
the manned capacity in the short term to match sales.
Since
year-end 2005, we have reduced our North American manned capacity from
3.6 million units to 2.9 million units. Reducing our manned
capacity in this manner allows us to achieve major cost savings and coordinates
plant closures with planned product changes, which we believe is the best
economic approach. We plan to reduce our manned capacity in North
America by the end of the decade so that it closely matches projected sales of
Ford, Lincoln and Mercury units.
As part
of this reduction, we have closed or announced plans to close the following
North American manufacturing facilities:
CLOSED:
|
·
|
Atlanta
Assembly Plant (closed in 2006);
|
|
·
|
Essex
Engine Plant (closed in 2007);
|
|
·
|
Maumee
Stamping Plant (closed in 2007);
|
|
·
|
Norfolk
Assembly Plant (closed in 2007);
|
|
·
|
St.
Louis Assembly Plant (closed in
2006);
|
|
·
|
Windsor
Casting Plant (idled in 2007); and
|
|
·
|
Wixom
Assembly Plant (closed in 2007).
|
|
·
|
Batavia Transmission Plant (to be
closed in 2008);
|
|
·
|
Twin
Cities Assembly Plant (to be closed in 2009);
and
|
|
·
|
Cleveland
Casting Plant (to be closed in
2010).
|
Additionally,
we have sold or closed the ACH plants listed below, and plan to sell or close
essentially all of the 11 remaining ACH plants by the end
of 2008:
|
·
|
Chesterfield
(Michigan) Trim Plant, which produced seat foam, closed in
2006;
|
|
·
|
Kansas
City Regional Assembly, which performed final assembly of instrument
panels, closed in 2006;
|
|
·
|
El
Jarudo (Mexico), which produced automotive fuel rails, was sold in 2007;
and
|
|
·
|
Converca
(Mexico), which produced power transfer units, was sold in
2007.
|
New
UAW Collective Bargaining Agreement
On
November 3, 2007, we agreed in principle with the UAW on a new,
four-year collective bargaining agreement ("CBA") and a separate memorandum of
understanding relating to retiree health care benefits ("MOU", and together with
the CBA, "Agreements"). The Agreements were ratified by our
UAW-represented employees on November 14, 2007. The MOU is
subject to several additional conditions, including court approval of a final
settlement agreement and satisfactory accounting treatment of the retiree health
care benefits obligation.
The
Agreements will enable us to increase our competitiveness in the United States
through reduced retiree health care costs, more competitive wages and benefits,
and improved operational flexibility. Following are some of the
significant terms of the Agreements.
ITEM 7.
Management's Discussion and
Analysis of Financial Condition and Results of Operations
(continued)
Retiree Health Care
Benefits. Pursuant to the MOU, we agreed with the UAW to
permanently shift responsibility for providing retiree health care benefits for
current and former UAW-represented employees (measured at $20.2 billion on
our December 31, 2007 balance sheet) from the Company to a new retiree
plan funded by a new independent Voluntary Employee Benefit Association Trust
("New VEBA"). The effective date of the MOU is anticipated to occur
in the third quarter of 2008. This date is subject to, among other
conditions, federal district court approval of the final settlement agreement
relating to the MOU and SEC pre-clearance of the accounting treatment of the New
VEBA and our retiree health care obligation. Implementation of the
final settlement agreement relating to the MOU will not occur until the later of
January 1, 2010 or exhaustion of any appeals to district court
approval.
As part
of the MOU, we established a Temporary Asset Account ("TAA") as of
January 1, 2008 for purposes of segregating assets that will be
transferred to the New VEBA. We are obligated to transfer the
following assets to the TAA:
|
·
|
cash
of $2.73 billion, which we contributed to the TAA in January
2008;
|
|
·
|
a
$3 billion principal amount secured note, which will bear interest from
January 1, 2008 at 9.5% per annum, mature on
January 1, 2018, and be secured on a second-lien basis with the
collateral we have pledged as part of our secured Credit
Agreement;
|
|
·
|
a
$3.3 billion principal amount convertible note, which will bear
interest from January 1, 2008 at 5.75% per annum, mature on
January 1, 2013, and be convertible into Ford Common Stock at a
conversion price of $9.20 per share;
and
|
|
·
|
deferred
cash totaling $400 million, which represents the present value amount
of 15 annual installment payments of $52.3 million commencing
April 1, 2008 (initial payments made to the TAA, and remaining
payments made directly to the New
VEBA).
|
TAA
assets together with any earnings thereon, and the assets of our existing
internal health care VEBA ($3.74 billion at December 31, 2007)
together with any earnings thereon, will be transferred to the New VEBA upon
implementation of the final settlement agreement.
In
addition to the foregoing payments to fund the New VEBA, we are obligated to
continue to make payments for ongoing retiree health care costs during 2008 and
2009, which are estimated at a total present value of about
$2.3 billion.
If and
when the MOU is fully implemented, the financial impact of shifting to the New
VEBA our obligations to provide retiree health care benefits for our current and
former UAW-represented employees is estimated to be an improvement in our
ongoing annual net cash flow of about $1 billion and (subject to final
valuation assumptions) a reduction in our ongoing annual health care expense of
about $2 billion.
Pension
Enhancements. As part of the CBA, we agreed to enhance certain
pension benefits for current and former UAW-represented
employees. These enhancements include, but are not limited to,
increases in the basic monthly pension benefit for both current and future
retirees of $2.00 and $2.65, respectively, per year of credited service, and
lump-sum payments to current retirees of up to $700 per year over the term of
the CBA. These enhancements increased our pension benefit obligation
for current and former UAW-represented employees by $1.6 billion at
December 31, 2007.
Entry-Level Wage
Structure. Certain newly-hired UAW-represented hourly
employees (not to exceed at any time 20% of the total number of our
UAW-represented employees, subject to certain exceptions discussed below) would
have wage and benefit levels below those we are currently paying existing
UAW-represented employees. These entry-level wage and benefit levels
would be in the range of $26 to $31 per hour, which is about 50% of current
levels (excluding retiree health care benefit costs), and are intended to be
competitive with those provided by Japanese-based manufacturers to employees at
their U.S. plants. In the event that the 20% limitation is reached,
employees at entry-level wages could be elevated to the then-current traditional
UAW wage level; importantly, however, the benefits (including cash balance
pension benefits and defined contribution health care benefits) would remain
unchanged for these elevated employees. In any event, neither
entry-level employees hired into our Rawsonville or Sterling component plants,
nor any entry-level employees hired to perform work in our facilities that was
previously outsourced to suppliers but which is being brought back into our
facilities from suppliers (i.e., "insourced"), will be counted against the
20% limitation.
ITEM 7.
Management's Discussion and
Analysis of Financial Condition and Results of Operations
(continued)
Job Security. Our
obligation to pay substantially full wages and benefits to idled UAW-represented
employees ("Jobs Bank Benefits") continues, unless within two years from the
date of the new CBA we offer an employee one job (in the case of employees at an
idled facility) or two jobs (in the case of any other employee) at other Ford
facilities and that employee declines to accept the other employment
at the other facility or facilities. If these conditions are not met
within the two-year period ending in November 2009, the employee will be
entitled to receive Jobs Bank Benefits for the duration of the term of the
current CBA until one additional alternate job offer is made.
Plant Closures. As
part of our Way Forward plan, we announced plans to idle 16 North American
manufacturing facilities by the end of 2012. As part of the
Agreements, certain facilities that we had planned to idle will remain open, and
we agreed not to close or sell any additional U.S. plants – beyond the
manufacturing plants and ACH facilities (described above) that we had previously
announced would be closed or sold – during the four-year term of the
CBA.
Bonuses to UAW-Represented Hourly
Employees. We agreed to provide a lump-sum payment of $3,000
to each UAW-represented hourly employee who is on our active rolls as of the
date specified in the Agreements, as well as performance and other bonus
payments in the future according to a specified schedule set forth in the
Agreements. We accrued and paid most of this bonus obligation
aggregating $157 million in the fourth quarter of 2007.
Accelerate Development of
New Products our Customers Want and Value
As part
of our acceleration of the Way Forward plan, 70 percent of Ford, Lincoln,
and Mercury products (by volume) in North America will be new or significantly
upgraded by the end of 2008 compared with 2006 models; these efforts will
include the expansion of our product lineup in growth segments such as crossover
vehicles. We are also committed to introducing new products that
customers want and value and have most recently introduced or will introduce in
the next several months the following new models and products:
|
·
|
Ford North
America: the all-new (for 2007) Ford Edge and Lincoln
MKX crossover models, new versions of the 2007 Ford Expedition and Lincoln
Navigator models, new 2008 models of our segment-leading Ford Super Duty
trucks, new versions of the 2008 Ford Escape and Mercury Mariner compact
sport utility vehicles and hybrids; new versions of the 2008 Ford Focus;
the all-new 2009 Ford Flex full-size crossover model; the all-new 2009
Lincoln MKS full-size sedan; and new 2009 models of our segment-leading
F-150 pickup trucks.
|
|
·
|
Ford
Europe: the all-new Mondeo large passenger car (launched
in 2007), the new Focus medium passenger car and all-new Kuga 4x4
crossover vehicle (both to be launched in early 2008), followed later in
the year by the launch of our new Fiesta compact car and a new sub-compact
car.
|
|
·
|
Volvo: for
2007, the all-new V70 estate (i.e., wagon) and XC70 crossover and the new
V50 estate and S40 sedan, and, for 2008, the all-new XC60 crossover, one
of the first entries in the small premium utility
segment.
|
|
·
|
New Vehicle
Technologies: in 2007 we introduced in select models
Ford SYNC – a fully-integrated, voice-activated in-car communications and
entertainment system developed in association with Microsoft
Corporation. By the end of 2008, we plan to have Ford SYNC
available in nearly every Ford, Lincoln and Mercury model in North
America. In 2009, we plan to introduce on the Lincoln MKS the
first of our new EcoBoost family of gasoline engines. This
engine technology combines turbo-boosting and direct fuel-injection, which
will allow for engines with fewer cylinders or a smaller displacement so
as to improve fuel economy by up to 20% and reduce CO2
emissions by up to 15%, while at the same time improving or maintaining
(as compared with larger engines) vehicle performance (i.e., torque or
acceleration). Within the next five years we expect to produce
around 500,000 vehicles with EcoBoost technology annually, which we
believe will allow us to satisfy increasing consumer demand for improved
fuel efficiency without sacrificing vehicle performance, and meet
increasingly stringent government-mandated fuel economy and emission
standards. In addition, we are continuing to invest in other
new gasoline, flexible-fuel, diesel, hydrogen, and hybrid powertrains, as
well as fuel-saving six-speed transmission
technology.
|
We plan
to accelerate the development of new products designed to meet shifting consumer
preferences for more fuel-efficient, smaller vehicles. One goal, for
example, is to reduce the average age of Ford-brand vehicles in North America by
35% by 2009 compared with 2006. To facilitate this, we have
reorganized our product development activities into a unified and integrated
global organization that reports directly to our Chief Executive Officer, and we
are developing a truly global product plan that takes full advantage of our
global product development assets, technologies and people.
ITEM 7.
Management's Discussion and
Analysis of Financial Condition and Results of Operations
(continued)
By
leveraging our scale, we will be able to deploy our global product development
capital and engineering resources to fewer vehicle platforms, drivetrains and
powertrains. This commonality of platforms, drivetrains and
powertrains, in turn, will reduce complexity in our vehicles and
processes. Moreover, as we make our investments in new products, we
will continue to improve our production system's quality, productivity and
flexibility.
As an example of how commonality can
work for us, the new Fiesta compact car that we are introducing in Europe in
2008 also will be offered for sale in all major markets, including the United
States, over the next few years.
Finance our Plan and Improve
our Balance Sheet
As
discussed in "Liquidity and Capital Resources – Automotive Sector" and in Note 16 of the
Notes to the Financial Statements, we obtained $23.5 billion of new
liquidity in December 2006, including proceeds from a convertible debt
offering of $4.95 billion, proceeds from a secured term loan of
$7 billion and a secured revolving credit facility of
$11.5 billion. During 2007, also as discussed in “Liquidity and
Capital Resources – Automotive Sector” we took actions to reduce Automotive
long-term debt by $2.7 billion and monetized our investments in certain
non-core assets (e.g., Aston Martin Lagonda Group Limited ("Aston Martin") and
Automotive Protection Corporation ("APCO")). At year-end 2007, we had
total Automotive liquidity, consisting of gross cash and available credit
facilities, of about $46.5 billion, which we believe should allow us to
fund the restructuring and product development priorities discussed above, and
provide us with a cushion for a recession or other unforeseen events in the near
term.
Work Together Effectively as
One Team
Our
global management team is focused on a single, company-wide global business plan
that establishes clear performance goals for the entire Company. We
refer to this as "One Team, One Plan, One Goal." This requires all
functions – product development, purchasing, information technology,
manufacturing, etc. – across the globe to work together as a single, cohesive
team and be accountable to meet the performance goals established by our
business plan.
To
facilitate this, our senior management team meets weekly to assess our progress
against the business plan goals, to identify risks to meeting and opportunities
for exceeding those goals, and to make decisions about actions to take to
mitigate risks or implement opportunities to stay on track to meet or exceed
those goals.
Financial
Impact and Assumptions
Execution
of the four priorities discussed above is expected to result in our Ford North
America segment, and our Automotive sector overall, being profitable in
2009. This projection is based on the following operating assumptions
in the 2008 and 2009 time period:
|
·
|
Sales
volume and mix of products stabilizing in North America, with U.S. market
share for 2008 at the low-end of the 14% to 15% range for Ford,
Lincoln and Mercury brands.
|
|
·
|
Cumulative
reduction in annual operating costs for our Ford North America segment of
about $5 billion (at constant volume, mix and exchange, and excluding
special items) by the end of 2008 compared with 2005, with additional cost
reductions in 2009 and beyond.
|
For a
discussion of our liquidity needs and uses during this period, see "Liquidity
and Capital Resources – Automotive Sector." For a discussion
of the outlook for our 2008 full-year performance, see
"Outlook."
ITEM 7.
Management's Discussion and
Analysis of Financial Condition and Results of Operations
(continued)
RESULTS
OF OPERATIONS
FULL-YEAR
2007 RESULTS OF OPERATIONS
Our
worldwide net loss was $2.7 billion or $1.38 per share of Common and
Class B Stock in 2007, an improvement of $9.9 billion from a loss of
$12.6 billion or $6.72 per share in 2006.
Results
by business sector for 2007, 2006, and 2005 are shown below (in
millions):
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
before income taxes
|
|
|
|
|
|
|
|
|
|
Automotive
sector
|
|
$ |
(4,970 |
) |
|
$ |
(17,040 |
) |
|
$ |
(3,899 |
) |
Financial
Services sector
|
|
|
1,224 |
|
|
|
1,966 |
|
|
|
4,953 |
|
Total
Company
|
|
|
(3,746 |
) |
|
|
(15,074 |
) |
|
|
1,054 |
|
Provision
for/(Benefit from) income taxes (a)
|
|
|
(1,294 |
) |
|
|
(2,655 |
) |
|
|
(855 |
) |
Minority
interests in net income/(loss) of subsidiaries (b)
|
|
|
312 |
|
|
|
210 |
|
|
|
280 |
|
Income/(Loss)
from continuing operations
|
|
|
(2,764 |
) |
|
|
(12,629 |
) |
|
|
1,629 |
|
Income/(Loss)
from discontinued operations
|
|
|
41 |
|
|
|
16 |
|
|
|
62 |
|
Cumulative
effect of change in accounting principle (c)
|
|
|
— |
|
|
|
— |
|
|
|
(251 |
) |
Net
income/(loss)
|
|
$ |
(2,723 |
) |
|
$ |
(12,613 |
) |
|
$ |
1,440 |
|
__________
(a)
|
See
Note 19 of the Notes to the Financial Statements for disclosure regarding
2007 effective tax rate.
|
(b)
|
Primarily
related to Ford Europe's consolidated 41%-owned affiliate, Ford Otosan;
the increase in 2007 primarily reflected the non-recurrence of the impact
on deferred tax balances of tax law changes in Turkey. The
pre-tax results for Ford Otosan were $551 million in 2007,
$509 million in 2006, and $506 million in 2005. See
"Item 2. Properties" for additional discussion of Ford
Otosan.
|
(c)
|
See
Note 28 of the Notes to the Financial
Statements.
|
ITEM 7.
Management's Discussion and
Analysis of Financial Condition and Results of Operations
(continued)
Included
in Income/(Loss) before income
taxes are items we do not consider indicative of our ongoing operating
activities ("special items"). The following table details 2007, 2006,
and 2005 special items by segment or business unit (in millions):
|
|
|
|
|
|
|
|
|
|
Automotive
Sector
|
|
|
|
|
|
|
|
|
|
Ford
North America
|
|
|
|
|
|
|
|
|
|
Variable
marketing – change in business practice (a)
|
|
$ |
(1,099 |
) |
|
$ |
— |
|
|
$ |
— |
|
Jobs
Bank Benefits and personnel-reduction programs (b)
|
|
|
(749 |
) |
|
|
(4,760 |
) |
|
|
(401 |
) |
Pension
curtailment charges
|
|
|
(180 |
) |
|
|
(2,741 |
) |
|
|
— |
|
U.S.
plant idlings (primarily fixed-asset write-offs)
|
|
|
— |
|
|
|
(281 |
) |
|
|
— |
|
Retiree
health care curtailment gain
|
|
|
1,332 |
|
|
|
— |
|
|
|
— |
|
Fixed
asset impairment charges
|
|
|
— |
|
|
|
(2,200 |
) |
|
|
— |
|
Visteon-related
charges (primarily valuation allowance against employee-related
receivables) (c)
|
|
|
— |
|
|
|
— |
|
|
|
(468 |
) |
Fuel-cell
technology charges
|
|
|
— |
|
|
|
— |
|
|
|
(116 |
) |
Divestiture
of non-core business
|
|
|
3 |
|
|
|
— |
|
|
|
(59 |
) |
Changes
in state non-income tax law
|
|
|
— |
|
|
|
— |
|
|
|
85 |
|
Total
Ford North America
|
|
|
(693 |
) |
|
|
(9,982 |
) |
|
|
(959 |
) |
Ford
South America
|
|
|
|
|
|
|
|
|
|
|
|
|
Legal
settlement relating to social welfare tax liability
|
|
|
— |
|
|
|
110 |
|
|
|
— |
|
Ford
Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable
marketing – change in business practice (a)
|
|
|
(120 |
) |
|
|
— |
|
|
|
— |
|
Personnel-reduction
programs
|
|
|
(90 |
) |
|
|
(84 |
) |
|
|
(510 |
) |
Plant
idling/closure
|
|
|
(43 |
) |
|
|
— |
|
|
|
— |
|
Premier
Automotive Group ("PAG")
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
impairment charges (d)
|
|
|
(2,400 |
) |
|
|
(1,600 |
) |
|
|
(1,300 |
) |
Personnel-reduction
programs/Other
|
|
|
(187 |
) |
|
|
(378 |
) |
|
|
(245 |
) |
Variable
marketing – change in business practice (a)
|
|
|
(140 |
) |
|
|
— |
|
|
|
— |
|
Net
gains on certain undesignated hedges (relating to Jaguar and Land
Rover)
|
|
|
143 |
|
|
|
— |
|
|
|
— |
|
Sale
of Aston Martin
|
|
|
208 |
|
|
|
— |
|
|
|
— |
|
Ford
Asia Pacific and Africa/Mazda
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable
marketing – change in business practice (a)
|
|
|
(15 |
) |
|
|
— |
|
|
|
— |
|
Malaysia
investment impairment
|
|
|
(10 |
) |
|
|
— |
|
|
|
— |
|
Personnel-reduction
programs/Other – Asia Pacific
|
|
|
(13 |
) |
|
|
(65 |
) |
|
|
(33 |
) |
Personnel-reduction
programs – AutoAlliance International, Inc. ("AAI")
|
|
|
— |
|
|
|
(38 |
) |
|
|
— |
|
Mazda
pension transfer
|
|
|
— |
|
|
|
115 |
|
|
|
— |
|
Divestiture
of non-core business (certain Australia dealerships)
|
|
|
— |
|
|
|
— |
|
|
|
14 |
|
Other
Automotive
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
on conversion of 6.50% Cumulative Convertible Trust Preferred Securities
(the "Trust Preferred Securities")
|
|
|
(632 |
) |
|
|
— |
|
|
|
— |
|
Gain
on exchange of debt securities for equity
|
|
|
120 |
|
|
|
— |
|
|
|
— |
|
Divestiture
of non-core businesses (primarily related to Kwik-Fit Group
Limited)
|
|
|
— |
|
|
|
— |
|
|
|
152 |
|
Total
Automotive sector
|
|
|
(3,872 |
) |
|
|
(11,922 |
) |
|
|
(2,881 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Services Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
Divestiture
of non-core business (The Hertz Corporation ("Hertz"))
|
|
|
— |
|
|
|
— |
|
|
|
1,499 |
|
Total
|
|
$ |
(3,872 |
) |
|
$ |
(11,922 |
) |
|
$ |
(1,382 |
) |
__________
(a)
|
Represents
a one-time, non-cash charge related to a change in our business practice
for offering and announcing retail variable marketing incentives to our
dealers. Generally, we accrue incentives for vehicles that we
have produced based upon the incentive information we have communicated to
our dealers. In the fourth quarter of 2007, we changed from a
quarterly to an annual process for announcing and committing to our
dealers that incentives will be available depending on various market
factors. This triggered an acceleration of the recognition of
incentive costs for vehicles in dealer stocks that had not been expected
to be retailed during the previously-committed quarterly time frame, which
resulted in the one-time charge to increase our reserve level; our ongoing
cost run rate is not expected to change
significantly.
|
(b)
|
See
Note 18 of the Notes to the Financial Statements for definition and
discussion of Jobs Bank Benefits.
|
(c)
|
See
Note 20 of the Notes to the Financial Statements for discussion of
Visteon-related charges.
|
(d)
|
In
the fourth quarter of 2007, we recorded an impairment charge to Volvo's
goodwill of $2.4 billion. At December 31, 2007, the remaining
balance of goodwill at Volvo was $1.4 billion. See Note 13 of
the Notes to the Financial Statements for additional information regarding
this impairment. Also see our "Critical Accounting Estimates"
for a discussion of assumptions used in the measurement of
impairments.
|
Included
in Provision for/(Benefit
from) income taxes are tax benefits of $1.5 billion,
$2 billion, and $1.1 billion for 2007, 2006, and 2005, respectively,
that we consider to be special items. These consist of the tax
effects of the pre-tax special items listed above, the impact of changes in tax
rate on deferred tax balances, and, in 2007, a $1.5 billion benefit
reflecting the change in our deferred tax asset valuation allowance allocated to
Income/(Loss) from continuing
operations after taking into consideration income from Accumulated other comprehensive
income/(loss) when determining whether sufficient future taxable income
exists to realize deferred tax assets.
ITEM 7.
Management's Discussion and
Analysis of Financial Condition and Results of Operations
(continued)
AUTOMOTIVE
SECTOR RESULTS OF OPERATIONS
The
discussion below of Automotive and Financial Services sector results of
operations is on a pre-tax basis. Our results for interim periods are
not necessarily indicative of results for a full year. We believe
that the trends, particularly for year-over-year changes in profitability, cost
changes and market share, generally are important and are indicative of the
direction of our business unless our disclosures indicate
otherwise.
2007
Compared with 2006
Details
by Automotive segment or business unit of Income/(Loss) before income taxes
are shown below (in millions):
|
|
|
|
|
|
|
|
|
|
The
Americas
|
|
|
|
|
|
|
|
|
|
Ford
North America
|
|
$ |
(4,161 |
) |
|
$ |
(15,992 |
) |
|
$ |
11,831 |
|
Ford
South America
|
|
|
1,172 |
|
|
|
661 |
|
|
|
511 |
|
Total
The Americas
|
|
|
(2,989 |
) |
|
|
(15,331 |
) |
|
|
12,342 |
|
Ford
Europe and PAG
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
Europe
|
|
|
744 |
|
|
|
371 |
|
|
|
373 |
|
PAG
|
|
|
(1,872 |
) |
|
|
(2,322 |
) |
|
|
450 |
|
Total
Ford Europe and PAG
|
|
|
(1,128 |
) |
|
|
(1,951 |
) |
|
|
823 |
|
Ford
Asia Pacific and Africa/Mazda
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
Asia Pacific and Africa
|
|
|
2 |
|
|
|
(250 |
) |
|
|
252 |
|
Mazda
and Associated Operations
|
|
|
204 |
|
|
|
245 |
|
|
|
(41 |
) |
Total
Ford Asia Pacific and Africa/Mazda
|
|
|
206 |
|
|
|
(5 |
) |
|
|
211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Automotive
|
|
|
(1,059 |
) |
|
|
247 |
|
|
|
(1,306 |
) |
Total
|
|
$ |
(4,970 |
) |
|
$ |
(17,040 |
) |
|
$ |
12,070 |
|
Details
of Automotive sector sales and wholesale unit volumes by Automotive segment or
business unit for 2007 and 2006 are shown below:
|
|
|
|
|
Wholesales
(a)
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Americas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
North America
|
|
$ |
69.4 |
|
|
$ |
69.4 |
|
|
$ |
— |
|
|
|
— |
% |
|
|
2,836 |
|
|
|
3,051 |
|
|
|
(215 |
) |
|
|
(7 |
)% |
Ford
South America
|
|
|
7.6 |
|
|
|
5.7 |
|
|
|
1.9 |
|
|
|
33 |
|
|
|
436 |
|
|
|
381 |
|
|
|
55 |
|
|
|
14 |
|
Total
The Americas
|
|
|
77.0 |
|
|
|
75.1 |
|
|
|
1.9 |
|
|
|
3 |
|
|
|
3,272 |
|
|
|
3,432 |
|
|
|
(160 |
) |
|
|
(5 |
) |
Ford
Europe and PAG
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
Europe
|
|
|
36.3 |
|
|
|
30.4 |
|
|
|
5.9 |
|
|
|
20 |
|
|
|
1,918 |
|
|
|
1,846 |
|
|
|
72 |
|
|
|
4 |
|
PAG
|
|
|
33.1 |
|
|
|
30.0 |
|
|
|
3.1 |
|
|
|
10 |
|
|
|
774 |
|
|
|
730 |
|
|
|
44 |
|
|
|
6 |
|
Total
Ford Europe and PAG
|
|
|
69.4 |
|
|
|
60.4 |
|
|
|
9.0 |
|
|
|
15 |
|
|
|
2,692 |
|
|
|
2,576 |
|
|
|
116 |
|
|
|
5 |
|
Ford
Asia Pacific and Africa/Mazda
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
Asia Pacific and Africa (b)
|
|
|
7.0 |
|
|
|
6.5 |
|
|
|
0.5 |
|
|
|
8 |
|
|
|
535 |
|
|
|
517 |
|
|
|
18 |
|
|
|
3 |
|
Mazda
and Associated Operations (c)
|
|
|
1.0 |
|
|
|
1.3 |
|
|
|
(0.3 |
) |
|
|
(18 |
) |
|
|
54 |
|
|
|
72 |
|
|
|
(18 |
) |
|
|
(25 |
) |
Total
Ford Asia Pacific and Africa/Mazda
|
|
|
8.0 |
|
|
|
7.8 |
|
|
|
0.2 |
|
|
|
3 |
|
|
|
589 |
|
|
|
589 |
|
|
|
— |
|
|
|
— |
|
Total
|
|
$ |
154.4 |
|
|
$ |
143.3 |
|
|
$ |
11.1 |
|
|
|
8 |
% |
|
|
6,553 |
|
|
|
6,597 |
|
|
|
(44 |
) |
|
|
(1 |
)% |
__________
(a)
|
Wholesale
unit volumes generally are reported on a where-sold basis, and include all
Ford-badged units and units manufactured by Ford that are sold to other
manufacturers, as well as units distributed for other
manufacturers. Vehicles sold to daily rental car companies that
are subject to a guaranteed repurchase option, as well as other sales of
finished vehicles for which the recognition of revenue is
deferred (e.g., consignments), are included in wholesale unit
volumes. For a discussion of our revenue recognition policy for
these sales, see Note 2 of the Notes to the Financial
Statements.
|
(b)
|
Included
in wholesale unit volumes of Ford Asia Pacific and Africa are Ford-badged
vehicles sold in China and Malaysia by certain unconsolidated affiliates
totaling about 205,000 and 159,000 units in 2007 and 2006,
respectively. "Sales" above does not include revenue from these
units.
|
(c)
|
Reflects
sales of Mazda6 by our consolidated subsidiary,
AAI.
|
ITEM 7.
Management's Discussion and
Analysis of Financial Condition and Results of Operations
(continued)
Details
of Automotive sector market share for selected markets for 2007 and 2006, along
with the level of dealer stocks as of December 31, 2007 and 2006, are
shown below:
|
|
|
|
Dealer-Owned
Stocks (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
Over/(Under)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
(b)
|
|
|
14.6 |
% |
|
|
16.0 |
% |
|
|
(1.4 |
) |
pts.
|
|
|
533 |
|
|
|
570 |
|
|
|
(37 |
) |
South
America (b) (c)
|
|
|
10.7 |
|
|
|
11.5 |
|
|
|
(0.8 |
) |
|
|
|
36 |
|
|
|
40 |
|
|
|
(4 |
) |
Europe
(b) (d)
|
|
|
8.6 |
|
|
|
8.5 |
|
|
|
0.1 |
|
|
|
|
317 |
|
|
|
322 |
|
|
|
(5 |
) |
PAG
- U.S./Europe (d)
|
|
|
1.0/2.2 |
|
|
|
1.1/2.1 |
|
|
|
(0.1.)/0.1 |
|
|
|
|
39/64 |
|
|
|
34/67 |
|
|
|
5/(3 |
) |
Asia
Pacific and Africa (b) (e) (f)
|
|
|
2.3 |
|
|
|
2.4 |
|
|
|
(0.1 |
) |
|
|
|
58 |
|
|
|
50 |
|
|
|
8 |
|
__________
(a)
|
Dealer-owned
stocks represent our estimate of vehicles shipped to our customers
(dealers) and not yet sold by the dealers to their retail customers, as
well as some vehicles reflected in our inventory.
|
(b)
|
Includes
only Ford and, in certain markets (primarily U.S.), Lincoln and Mercury
brands.
|
(c)
|
South
America market share is based on estimated vehicle retail sales for our
six major markets (Argentina, Brazil, Chile, Colombia, Ecuador, and
Venezuela).
|
(d)
|
European
2007 market share is based, in part, on estimated vehicle registrations
for the 19 European markets we track. See "Item 1.
Business" for discussion of these markets.
|
(e)
|
Asia
Pacific and Africa 2007 market share is based on estimated vehicle retail
sales for our 12 major markets (Australia, China, Japan, India, Indonesia,
Malaysia, New Zealand, Philippines, South Africa, Taiwan, Thailand, and
Vietnam).
|
(f)
|
Dealer-owned
stocks for Asia Pacific and Africa include primarily Ford-brand vehicles
as well as a small number of units distributed for other
manufacturers.
|
Overall
Automotive Sector
The
improvement in earnings primarily reflected lower charges for Jobs Bank Benefits
and personnel-reduction programs in Ford North America ($4 billion),
favorable net pricing – including a variable marketing charge related to a
business practice change – ($2.6 billion), lower pension curtailment
charges ($2.6 billion), the non-recurrence of 2006 impairment charges
related to our long-lived assets in Ford North America ($2.2 billion),
favorable cost changes ($1.8 billion), and retiree health care curtailment
gains related to our hourly separation programs
($1.3 billion). These factors were offset partially by changes
in currency exchange rates (about $900 million), higher impairment charges
related to our PAG assets (about $800 million), and higher net interest
(about $800 million).
The
increase in revenue primarily reflected changes in currency exchange rates,
improved product mix, and higher net pricing, offset partially by lower volumes
(more than explained by North America). Higher net pricing in 2007
compared with 2006 was achieved despite the variable marketing charge related to
a business practice change.
The table
below details our 2007 cost changes at constant volume, mix, and exchange,
excluding special items and discontinued operations
(in billions):
Explanation
of Cost Changes
|
|
2007
Better/(Worse) Than
2006
|
|
Warranty-related
|
Primarily
the non-recurrence of adverse 2006 adjustments to Jaguar and Land Rover
warranty accruals, and improvements in most operations
|
|
$ |
1.0 |
|
Manufacturing
and engineering
|
Primarily
hourly and salaried personnel reductions and efficiencies in our plants
and processes
|
|
|
0.8 |
|
Pension
and Other
Postretirement
Employee
Benefits
("OPEB")
|
Primarily
the favorable impact associated with the mid-2006 implementation of our
2005 retiree health care cost sharing agreement with the UAW, ongoing
improvements related to curtailments, and higher pension asset
returns
|
|
|
0.8 |
|
Spending-related
|
Primarily
reduced depreciation resulting from 2006 asset impairments, as well as
lower accelerated depreciation related to our efforts to reduce production
capacity
|
|
|
0.8 |
|
Overhead
|
Primarily
salaried personnel reductions
|
|
|
0.5 |
|
Advertising
& sales promotions
|
Primarily
increased advertising costs
|
|
|
(0.2 |
) |
Net
product costs
|
Primarily
added product content (including diesel engine emission requirements) and
higher commodity costs, offset partially by material cost
reductions
|
|
|
(1.9 |
) |
Total
|
|
$ |
1.8 |
|
ITEM 7.
Management's Discussion and
Analysis of Financial Condition and Results of Operations
(continued)
The
Americas
Ford North America
Segment. The improvement in earnings primarily reflected lower
charges for Jobs Bank Benefits and personnel-reduction programs, lower pension
curtailment charges, the non-recurrence of 2006 impairment charges related to
our long-lived assets, higher net pricing, and retiree health care curtailment
gains related to our hourly separation programs.
Ford South America
Segment. The increase in earnings is more than explained by
higher net revenue and improved volume and mix, offset partially by unfavorable
cost changes and the non-recurrence of a 2006 gain associated with a legal
settlement relating to a social welfare tax liability. The
unfavorable cost changes primarily reflected higher net product costs and higher
manufacturing and engineering costs. The level of profitability that
our Ford South America segment achieved in 2007 is not likely to be sustained
over the next few years due in part to an expected increase in
competition.
Ford
Europe and PAG
Ford Europe
Segment. The increase in earnings is more than explained by
favorable cost changes and improved volume and mix, offset partially by costs
associated with a U.K. plant closure and changes in currency
exchange. The favorable cost changes primarily reflected lower
warranty-related costs and net product costs, offset partially by higher
manufacturing and engineering costs and advertising and sales promotion
costs.
PAG Segment. The
improvement in earnings primarily reflected favorable cost changes, improved
volume and mix, favorable net pricing, the effect of our sale of Aston Martin
(primarily the gain on sale), and lower charges for personnel-reduction
programs, offset partially by higher impairment charges related to PAG assets
and changes in currency exchange rates. The favorable cost changes
primarily reflected lower warranty-related costs (primarily the non-recurrence
of adverse 2006 adjustments to Jaguar and Land Rover warranty accruals),
overhead costs, and spending-related costs.
Ford
Asia Pacific and Africa/Mazda
Ford Asia Pacific and Africa/Mazda
Segment. The improvement in results for Ford Asia Pacific and
Africa primarily reflected favorable cost changes, higher net pricing, and lower
charges for personnel-reduction programs, offset partially by less favorable
volume and mix. The favorable cost changes primarily reflected lower
manufacturing and engineering costs, overhead costs, and net product
costs.
The
decrease in earnings for Mazda and Associated Operations primarily reflected the
decrease in net earnings at Mazda (including the non-recurrence of a gain Mazda
realized on the transfer of its pension liabilities back to the Japanese
government), offset partially by the non-recurrence of personnel-reduction
programs at AAI.
Other
Automotive
The
decline in results primarily reflected higher interest expense and related costs
associated with the higher debt levels that resulted from financing actions
taken in the fourth quarter of 2006, the non-recurrence in Other Automotive of
tax-related interest adjustments resulting from settlements with the Internal
Revenue Service in 2006, and a loss on the conversion of 43% of our Trust
Preferred Securities. These unfavorable factors were offset partially by higher
interest income reflecting higher average cash balances, mark-to-market
adjustments for changes in exchange rates on intercompany loans and related loan
hedges, and a gain on the exchange of debt securities for equity that occurred
in December 2007.
ITEM 7.
Management's Discussion and
Analysis of Financial Condition and Results of Operations
(continued)
2006
Compared with 2005
Details
by Automotive segment or business unit of Income/(Loss) before income taxes
are shown below (in millions):
|
|
|
|
|
|
|
|
|
|
The
Americas
|
|
|
|
|
|
|
|
|
|
Ford
North America
|
|
$ |
(15,992 |
) |
|
$ |
(2,469 |
) |
|
$ |
(13,523 |
) |
Ford
South America
|
|
|
661 |
|
|
|
399 |
|
|
|
262 |
|
Total
The Americas
|
|
|
(15,331 |
) |
|
|
(2,070 |
) |
|
|
(13,261 |
) |
Ford
Europe and PAG
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
Europe
|
|
|
371 |
|
|
|
(437 |
) |
|
|
808 |
|
PAG
|
|
|
(2,322 |
) |
|
|
(1,634 |
) |
|
|
(688 |
) |
Total
Ford Europe and PAG
|
|
|
(1,951 |
) |
|
|
(2,071 |
) |
|
|
120 |
|
Ford
Asia Pacific and Africa/Mazda
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
Asia Pacific and Africa
|
|
|
(250 |
) |
|
|
42 |
|
|
|
(292 |
) |
Mazda
and Associated Operations
|
|
|
245 |
|
|
|
255 |
|
|
|
(10 |
) |
Total
Ford Asia Pacific and Africa/Mazda
|
|
|
(5 |
) |
|
|
297 |
|
|
|
(302 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Automotive
|
|
|
247 |
|
|
|
(55 |
) |
|
|
302 |
|
Total
|
|
$ |
(17,040 |
) |
|
$ |
(3,899 |
) |
|
$ |
(13,141 |
) |
Details
of Automotive sector sales and wholesale unit volumes by Automotive segment or
business unit for 2006 and 2005 are shown below:
|
|
|
|
|
Wholesales
(a)
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Americas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
North America
|
|
$ |
69.4 |
|
|
$ |
80.6 |
|
|
$ |
(11.2 |
) |
|
|
(14 |
)% |
|
|
3,051 |
|
|
|
3,410 |
|
|
|
(359 |
) |
|
|
(11 |
)% |
Ford
South America
|
|
|
5.7 |
|
|
|
4.4 |
|
|
|
1.3 |
|
|
|
30 |
|
|
|
381 |
|
|
|
335 |
|
|
|
46 |
|
|
|
14 |
|
Total
The Americas
|
|
|
75.1 |
|
|
|
85.0 |
|
|
|
(9.9 |
) |
|
|
(12 |
) |
|
|
3,432 |
|
|
|
3,745 |
|
|
|
(313 |
) |
|
|
(8 |
) |
Ford
Europe and PAG
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
Europe
|
|
|
30.4 |
|
|
|
29.9 |
|
|
|
0.5 |
|
|
|
2 |
|
|
|
1,846 |
|
|
|
1,753 |
|
|
|
93 |
|
|
|
5 |
|
PAG
|
|
|
30.0 |
|
|
|
30.3 |
|
|
|
(0.3 |
) |
|
|
(1 |
) |
|
|
730 |
|
|
|
764 |
|
|
|
(34 |
) |
|
|
(4 |
) |
Total
Ford Europe and PAG
|
|
|
60.4 |
|
|
|
60.2 |
|
|
|
0.2 |
|
|
|
— |
|
|
|
2,576 |
|
|
|
2,517 |
|
|
|
59 |
|
|
|
2 |
|
Ford
Asia Pacific and Africa/Mazda
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
Asia Pacific and Africa (b)
|
|
|
6.5 |
|
|
|
7.7 |
|
|
|
(1.2 |
) |
|
|
(15 |
) |
|
|
517 |
|
|
|
473 |
|
|
|
44 |
|
|
|
9 |
|
Mazda
and Associated Operations (c)
|
|
|
1.3 |
|
|
|
0.6 |
|
|
|
0.7 |
|
|
|
— |
|
|
|
72 |
|
|
|
32 |
|
|
|
40 |
|
|
|
— |
|
Total
Ford Asia Pacific and Africa/Mazda
|
|
|
7.8 |
|
|
|
8.3 |
|
|
|
(0.5 |
) |
|
|
(6 |
) |
|
|
589 |
|
|
|
505 |
|
|
|
84 |
|
|
|
17 |
|
Total
|
|
$ |
143.3 |
|
|
$ |
153.5 |
|
|
$ |
(10.2 |
) |
|
|
(7 |
)% |
|
|
6,597 |
|
|
|
6,767 |
|
|
|
(170 |
) |
|
|
(3 |
)% |
__________
(a)
|
Wholesale
unit volumes generally are reported on a where-sold basis, and include all
Ford-badged units and units manufactured by Ford that are sold to other
manufacturers, as well as units distributed for other
manufacturers. Vehicles sold to daily rental car companies that
are subject to a guaranteed repurchase option, as well as other sales of
finished vehicles for which the recognition of revenue is deferred (e.g.,
consignments), are included in wholesale unit volumes. For a
discussion of our revenue recognition policy for such sales, see Note 2 of
the Notes to the Financial Statements.
|
(b)
|
Included
in wholesales of Ford Asia Pacific and Africa are Ford-badged vehicles
sold in China and Malaysia by certain unconsolidated affiliates totaling
about 159,000 and 87,000 units
in 2006 and 2005, respectively. "Sales" above does not include
revenue from these units.
|
(c)
|
Reflects
sales of Mazda6 by our consolidated subsidiary, AAI, beginning with the
consolidation of AAI in the third quarter of 2005. See Note 14
of the Notes to the Financial
Statements.
|
ITEM 7.
Management's Discussion and
Analysis of Financial Condition and Results of Operations
(continued)
Details
of Automotive sector market share for selected markets for 2006 and 2005, along
with the level of dealer stocks as of December 31, 2006 and 2005, are shown
below:
|
|
|
|
Dealer-Owned Stocks
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
Over/(Under)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
(b)
|
|
|
16.0 |
% |
|
|
17.0 |
% |
|
|
(1.0 |
) |
pts.
|
|
|
570 |
|
|
|
733 |
|
|
|
(163 |
) |
South
America (b) (c)
|
|
|
11.5 |
|
|
|
12.0 |
|
|
|
(0.5 |
) |
|
|
|
40 |
|
|
|
33 |
|
|
|
7 |
|
Europe
(b) (d)
|
|
|
8.5 |
|
|
|
8.5 |
|
|
|
— |
|
|
|
|
322 |
|
|
|
342 |
|
|
|
(20 |
) |
PAG
– U.S./Europe (d)
|
|
|
1.1/2.1 |
|
|
|
1.2/2.2 |
|
|
|
(0.1)/(0.1) |
|
|
|
|
34/67 |
|
|
|
45/69 |
|
|
|
(11)/(2) |
|
Asia
Pacific and Africa (b) (e) (f)
|
|
|
2.4 |
|
|
|
2.4 |
|
|
|
— |
|
|
|
|
50 |
|
|
|
50 |
|
|
|
— |
|
__________
(a)
|
Dealer-owned
stocks represent our estimate of vehicles shipped to our customers
(dealers) and not yet sold by the dealers to their retail customers, as
well as some vehicles reflected in our inventory.
|
(b)
|
Includes
only Ford and, in certain markets (primarily U.S.), Lincoln and Mercury
brands.
|
(c)
|
South
America market share is based on vehicle retail sales for our six major
markets (Argentina, Brazil, Chile, Colombia, Ecuador, and
Venezuela).
|
(d)
|
European
2006 market share is based, in part, on vehicle registrations for the 19
European markets we track.
|
(e)
|
Asia
Pacific and Africa 2006 market share is based on vehicle retail sales for
our 12 major markets (Australia, China, Japan, India, Indonesia, Malaysia,
New Zealand, Philippines, South Africa, Taiwan, Thailand, and
Vietnam).
|
(f)
|
Dealer-owned
stocks for Asia Pacific and Africa include primarily Ford-brand vehicles
as well as a small number of units distributed for other
manufacturers.
|
Overall
Automotive Sector
The
decline in earnings primarily reflected the effect of Jobs Bank Benefits charges
and higher personnel-reduction program charges in Ford North America
($4.3 billion), less favorable volume and mix – mainly lower market share,
adverse product mix in Ford North America, and lower dealer stock levels –
($3.2 billion), pension curtailment charges ($2.7 billion), impairment
charges related to our long-lived assets in Ford North America and Jaguar and
Land Rover operations ($2.5 billion), and lower net pricing ($2
billion). These adverse factors were offset partially by favorable
cost changes ($1.5 billion). Our efforts to restructure the Ford
North America business resulted in the Jobs Bank Benefits and
personnel-reduction program charges, and the related pension curtailment
charges. The favorable cost changes primarily reflected lower
manufacturing and engineering costs, pension and OPEB costs, and overhead
costs.
The
decline in revenue primarily reflected lower wholesale unit volumes in Ford
North America, adverse product mix, and lower net pricing.
The
Americas
Ford North America
Segment. The decline in earnings primarily reflected the
effect of Jobs Bank Benefits charges and higher personnel-reduction program
charges, less favorable volume and mix (mainly adverse product mix, lower market
share, a reduction in dealer stock levels, and lower industry volumes), pension
curtailment charges, lower net pricing, and impairment charges related to our
long-lived assets, offset partially by favorable cost changes. The
favorable cost changes reflected improvements in pension and OPEB costs,
manufacturing and engineering costs, warranty-related costs, and overhead
costs.
Ford South America
Segment. The increase in earnings primarily reflected higher
net pricing, improved volume and mix more than accounted for by higher industry
volume, and a legal settlement relating to social welfare tax liability, offset
partially by unfavorable cost changes. The unfavorable cost changes
primarily reflected higher net product costs, and manufacturing and engineering
costs.
Ford
Europe and PAG
Ford Europe
Segment. The improvement in results primarily reflected
reduced charges for personnel-reduction programs, improved volume and mix, and
favorable cost changes, offset partially by unfavorable changes in currency
exchange rates. The favorable cost changes primarily reflected lower
overhead costs, warranty-related costs, net product costs, and manufacturing and
engineering costs, offset partially by higher pension costs.
ITEM 7.
Management's Discussion and
Analysis of Financial Condition and Results of Operations
(continued)
PAG Segment. The
decline in earnings primarily reflected higher warranty-related costs mainly
associated with adjustments to warranty accruals for prior model-year vehicles
(mainly at Jaguar and Land Rover), unfavorable currency exchange (mainly related
to the expiration of favorable hedges), and higher impairment charges for
long-lived assets of the Jaguar and Land Rover operations. These
adverse factors were offset partially by lower manufacturing and engineering
costs, improved volume and mix (mainly improved product and market mix, offset
partially by lower market share primarily at Volvo and Jaguar and lower levels
of dealer stocks) and lower net product costs.
Ford
Asia Pacific and Africa/Mazda
Ford Asia Pacific and Africa/Mazda
Segment. The decline in results for Ford Asia Pacific and
Africa primarily reflected less favorable volume and mix (mainly adverse product
mix including lower large car sales in Australia, and lower market share) and
unfavorable changes in currency exchange rates. Wholesale unit
volumes for the year increased, while revenue for the same period
decreased. The increase in wholesale unit volumes is explained by
higher unit sales in China and India, offset partially by declines in other
markets (primarily Australia and Taiwan). Our revenue excludes
wholesale unit volumes at our unconsolidated affiliates, primarily those in
China. The decrease in revenue primarily reflects changes in currency
exchange rates and a higher mix of small cars relative to the same period last
year.
The
decrease in earnings for Mazda and Associated Operations primarily reflected the
non-recurrence of gains on our investment in Mazda convertible bonds, and
charges for personnel-reduction programs at AAI, offset partially by our share
of a gain Mazda realized on the transfer of its pension liabilities back to the
Japanese government. During the second half of 2005 and the first
quarter of 2006, we converted to equity all of our Mazda convertible bonds, and,
therefore, since then no longer had income effects from mark-to-market
adjustments for these bonds.
Other
Automotive
The
improvement in results primarily reflected higher returns on invested cash, and
a higher average cash portfolio, offset partially by the non-recurrence of a
gain on the sale of our remaining interest in Kwik-Fit Group
Limited.
FINANCIAL
SERVICES SECTOR RESULTS OF OPERATIONS
2007
Compared with 2006
Details
of the full-year Financial Services sector Revenues and Income/(Loss) before income taxes
for 2007 and 2006 are shown below:
|
|
|
|
|
Income/(Loss)
Before Income Taxes
(in
millions)
|
|
|
|
|
|
|
|
|
|
2007
Over/(Under)
|
|
|
|
|
|
|
|
|
2007
Over/(Under)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
Credit
|
|
$ |
17.8 |
|
|
$ |
16.5 |
|
|
$ |
1.3 |
|
|
$ |
1,215 |
|
|
$ |
1,953 |
|
|
$ |
(738 |
) |
Other
Financial Services
|
|
|
0.3 |
|
|
|
0.3 |
|
|
|
— |
|
|
|
9 |
|
|
|
13 |
|
|
|
(4 |
) |
Total
|
|
$ |
18.1 |
|
|
$ |
16.8 |
|
|
$ |
1.3 |
|
|
$ |
1,224 |
|
|
$ |
1,966 |
|
|
$ |
(742 |
) |
Ford
Credit
The
decrease in pre-tax earnings primarily reflected a higher provision for credit
losses primarily related to the non-recurrence of credit loss reserve reductions
(about $500 million), lower financing margin primarily related to higher
borrowing costs (about $400 million), unfavorable lease residual performance
reflected in higher depreciation expense for leased vehicles (about
$400 million), and higher other costs primarily due to Ford Credit's North
American business transformation initiative (about
$100 million). These factors were offset partially by lower
expenses primarily reflecting improved operating costs (about $400 million) and
lower net losses related to market valuation adjustments from derivatives (about
$300 million).
ITEM 7.
Management's Discussion and
Analysis of Financial Condition and Results of Operations
(continued)
Ford
Credit reviews its business performance from several perspectives,
including:
|
•
|
On-balance sheet
basis. Includes the receivables and leases Ford Credit
owns and securitized receivables and leases that remain on Ford Credit's
balance sheet (includes other structured financings and factoring
transactions that have features similar to
securitizations);
|
|
•
|
Securitized off-balance sheet
basis. Includes receivables sold in securitization
transactions that, when sold, do not remain on Ford Credit's balance
sheet;
|
|
•
|
Managed
basis. Includes on-balance sheet and securitized
off-balance sheet receivables and leases that Ford Credit continues to
service; and
|
|
•
|
Serviced
basis. Includes managed receivables and leases, and
receivables sold in whole-loan sale transactions where Ford Credit retains
no interest in the sold receivables, but which it continues to
service.
|
Ford
Credit analyzes its financial performance primarily on a managed and on-balance
sheet basis. It retains interests in receivables sold in off-balance
sheet securitizations and, with respect to subordinated retained interests, has
credit risk. As a result, it evaluates credit losses, receivables,
and leverage on a managed basis as well as on an on-balance sheet
basis. In contrast, Ford Credit does not have the same financial
interest in the performance of receivables sold in whole-loan sale transactions,
and, as a result, it generally reviews the performance of its serviced portfolio
only to evaluate the effectiveness of its origination and collection
activities. To evaluate the performance of these activities, Ford
Credit monitors a number of measures, such as delinquencies, repossession
statistics, losses on repossessions and the number of bankruptcy
filings.
Ford
Credit's receivable levels are shown in the table below (in
billions):
|
|
|
|
|
|
|
|
|
|
|
On-Balance
Sheet
|
|
|
|
|
|
|
Finance
receivables
|
|
|
|
|
|
|
Retail
installment
|
|
$ |
73.3 |
|
|
$ |
70.4 |
|
Wholesale
|
|
|
34.7 |
|
|
|
35.2 |
|
Other
|
|
|
3.4 |
|
|
|
3.8 |
|
Total
finance receivables, net
|
|
|
111.4 |
|
|
|
109.4 |
|
Net
investment in operating leases
|
|
|
29.7 |
|
|
|
25.9 |
|
Total
on-balance sheet*
|
|
$ |
141.1 |
|
|
$ |
135.3 |
|
Memo:
Allowance for credit losses included above
|
|
$ |
1.1 |
|
|
$ |
1.1 |
|
Securitized
Off-Balance Sheet
|
|
|
|
|
|
|
|
|
Finance
receivables
|
|
|
|
|
|
|
|
|
Retail
installment
|
|
$ |
6.0 |
|
|
$ |
12.2 |
|
Wholesale
|
|
|
— |
|
|
|
— |
|
Other
|
|
|
— |
|
|
|
— |
|
Total
finance receivables
|
|
|
6.0 |
|
|
|
12.2 |
|
Net
investment in operating leases
|
|
|
— |
|
|
|
— |
|
Total
securitized off-balance sheet
|
|
$ |
6.0 |
|
|
$ |
12.2 |
|
Managed
|
|
|
|
|
|
|
|
|
Finance
receivables
|
|
|
|
|
|
|
|
|
Retail
installment
|
|
$ |
79.3 |
|
|
$ |
82.6 |
|
Wholesale
|
|
|
34.7 |
|
|
|
35.2 |
|
Other
|
|
|
3.4 |
|
|
|
3.8 |
|
Total
finance receivables, net
|
|
|
117.4 |
|
|
|
121.6 |
|
Net
investment in operating leases
|
|
|
29.7 |
|
|
|
25.9 |
|
Total
managed
|
|
$ |
147.1 |
|
|
$ |
147.5 |
|
Serviced
|
|
$ |
148.0 |
|
|
$ |
149.5 |
|
__________
*
|
At
December 31, 2007 and 2006, includes finance receivables of $67.2 billion
and $56.5 billion, respectively, that have been sold for legal
purposes in securitizations that do not satisfy the requirements for
accounting sale treatment. In addition, at
December 31, 2007 and 2006, includes net investment in
operating leases of $18.9 billion and $15.2 billion,
respectively, that have been included in securitizations that do not
satisfy the requirements for accounting sale treatment. These
underlying securitized assets are available only for payment of the debt
or other obligations issued or arising in the securitization transactions;
they are not available to pay Ford Credit's other obligations or the
claims of Ford Credit's other
creditors.
|
ITEM 7.
Management's Discussion and
Analysis of Financial Condition and Results of Operations
(continued)
Managed
receivables decreased from year-end 2006, primarily reflecting lower U.S.
retail installment and wholesale receivables, offset partially by changes in
currency exchange rates and higher U.S. net investment in operating
leases.
The
following table shows worldwide credit losses net of recoveries (which are
referred to as charge-offs) for Ford Credit for the various categories of
financing during the periods indicated. The loss-to-receivables
ratios, which equal charge-offs on an annualized basis divided by the average
amount of receivables outstanding for the period, are shown below for Ford
Credit's on-balance sheet and managed portfolios.
|
|
|
|
|
|
|
|
|
|
Charge-offs
(in millions)
|
|
|
|
|
|
|
|
|
|
On-Balance
Sheet
|
|
|
|
|
|
|
|
|
|
Retail
installment and lease
|
|
$ |
608 |
|
|
$ |
465 |
|
|
$ |
143 |
|
Wholesale
|
|
|
17 |
|
|
|
44 |
|
|
|
(27 |
) |
Other
|
|
|
7 |
|
|
|
14 |
|
|
|
(7 |
) |
Total
on-balance sheet
|
|
$ |
632 |
|
|
$ |
523 |
|
|
$ |
109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reacquired Receivables
(retail)*
|
|
$ |
— |
|
|
$ |
2 |
|
|
$ |
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Securitized
Off-Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
installment and lease
|
|
$ |
65 |
|
|
$ |
84 |
|
|
$ |
(19 |
) |
Wholesale
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Other
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total
securitized off-balance sheet
|
|
$ |
65 |
|
|
$ |
84 |
|
|
$ |
(19 |
) |
Managed
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
installment and lease
|
|
$ |
673 |
|
|
$ |
551 |
|
|
$ |
122 |
|
Wholesale
|
|
|
17 |
|
|
|
44 |
|
|
|
(27 |
) |
Other
|
|
|
7 |
|
|
|
14 |
|
|
|
(7 |
) |
Total
managed
|
|
$ |
697 |
|
|
$ |
609 |
|
|
$ |
88 |
|
Loss-to-Receivables
Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
On-Balance
Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
installment and lease
|
|
|
0.60 |
% |
|
|
0.50 |
% |
|
0.10 pts.
|
|
Wholesale
|
|
|
0.05 |
|
|
|
0.12 |
|
|
|
(0.07 |
) |
Total
including other
|
|
|
0.46 |
% |
|
|
0.39 |
% |
|
0.07 pts.
|
|
Managed
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
installment and lease
|
|
|
0.61 |
% |
|
|
0.51 |
% |
|
0.10 pts.
|
|
Wholesale
|
|
|
0.05 |
|
|
|
0.12 |
|
|
|
(0.07 |
) |
Total
including other
|
|
|
0.47 |
% |
|
|
0.41 |
% |
|
0.06 pts.
|
|
__________
*
|
Reacquired
receivables reflect the amount of receivables that resulted from the
accounting consolidation of Ford Credit's FCAR Owner Trust retail
securitization program ("FCAR") in the second quarter of
2003.
|
Charge-offs
and loss-to-receivable ratios for Ford Credit's on-balance sheet and managed
portfolios increased from a year ago. These increases, principally in
the U.S. retail installment and lease portfolio, primarily reflected higher loss
severity consistent with an increase in amount financed for vehicles repossessed
in its portfolio, a higher mix of 72-month contracts and deterioration in
used-vehicle prices.
ITEM 7.
Management's Discussion and
Analysis of Financial Condition and Results of Operations
(continued)
Shown
below is an analysis of Ford Credit's allowance for credit losses and its
allowance for credit losses as a percentage of end-of-period receivables (net
finance receivables and net investment in operating leases) for its on-balance
sheet portfolio for the years ended December 31 (dollar amounts in
billions):
|
|
|
|
|
|
|
A
Allowance for Credit Losses
|
|
|
|
|
|
|
Balance,
beginning of year
|
|
$ |
1.1 |
|
|
$ |
1.6 |
|
Provision
for credit losses
|
|
|
0.6 |
|
|
|
0.1 |
|
Deductions
|
|
|
|
|
|
|
|
|
Charge-offs
before recoveries
|
|
|
1.1 |
|
|
|
1.0 |
|
Recoveries
|
|
|
(0.5 |
) |
|
|
(0.5 |
) |
Net
charge-offs
|
|
|
0.6 |
|
|
|
0.5 |
|
Other
changes, principally amounts related to finance receivables sold and
translation adjustments
|
|
|
— |
|
|
|
0.1 |
|
Net
deductions
|
|
|
0.6 |
|
|
|
0.6 |
|
Balance,
end of year
|
|
$ |
1.1 |
|
|
$ |
1.1 |
|
Allowance
for credit losses as a percentage of end-of-period net
receivables
|
|
|
0.77 |
% |
|
|
0.81 |
% |
Ford
Credit's allowance for credit losses totaled $1.1 billion at
December 31, 2007, including $88 million for assumption updates
pertaining to loss performance trends. The allowance for credit
losses is primarily a function of portfolio quality, historical loss performance
and receivable levels. Ford Credit's allowance for credit losses
reflects its high quality retail installment and lease
portfolio. Certain of Ford Credit's key credit loss metrics
(repossession ratio, over-60 day delinquency ratio and new bankruptcy
filings) are near historically low levels.
In
purchasing retail finance and lease contracts, Ford Credit uses a proprietary
scoring system that classifies contracts using several factors, such as credit
bureau information, FICO score, employment history, income, amount financed,
vehicle value and contract term. As of December 31, 2007, about 4% of
the outstanding U.S. retail finance and lease contracts in Ford Credit's
serviced portfolio were classified as high risk, down from about 8% in 2000,
consistent with its efforts to improve the quality of its
portfolio.
2006
Compared with 2005
Details
of full-year Financial Services sector Revenues and Income/(Loss) before income taxes
for are shown below:
|
|
|
|
|
Income/(Loss)
Before Income Taxes
(in
millions)
|
|
|
|
|
|
|
|
|
|
2006
Over/(Under)
|
|
|
|
|
|
|
|
|
2006
Over/(Under)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
Credit
|
|
$ |
16.5 |
|
|
$ |
15.9 |
|
|
$ |
0.6 |
|
|
$ |
1,953 |
|
|
$ |
2,923 |
|
|
$ |
(970 |
) |
Other
Financial Services
|
|
|
0.3 |
|
|
|
0.1 |
|
|
|
0.2 |
|
|
|
13 |
|
|
|
(39 |
) |
|
|
52 |
|
Hertz
operating results
|
|
|
— |
|
|
|
7.4 |
|
|
|
(7.4 |
) |
|
|
— |
|
|
|
974 |
|
|
|
(974 |
) |
Gain
on sale of Hertz*
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,095 |
|
|
|
(1,095 |
) |
Total
|
|
$ |
16.8 |
|
|
$ |
23.4 |
|
|
$ |
(6.6 |
) |
|
$ |
1,966 |
|
|
$ |
4,953 |
|
|
$ |
(2,987 |
) |
*
|
The
segment presentation of the gain on sale of Hertz in Note 25 of the Notes
to the Financial Statements is $1,006 million in the Hertz segment
and $89 million in Other Financial
Services.
|
We sold
Hertz during the fourth quarter of 2005, resulting in declines in Income/(loss) before income
taxes during 2006.
Ford
Credit
The
decrease in Ford Credit's full-year earnings primarily reflected higher
borrowing costs (about $800 million), higher depreciation expense (about $400
million), and the impact of lower average receivable levels in its managed
portfolio (about $400 million). These were offset partially by market
valuations, primarily related to non-designated derivatives (about $500 million)
and reduced operating costs (about $100 million).
Other
Financial Services
The
improvement in results primarily reflected the non-recurrence of the
2005 write-off of aircraft leases related to the bankruptcy of Delta Air
Lines, and, in 2006, higher property sales.
ITEM 7.
Management's Discussion and
Analysis of Financial Condition and Results of Operations
(continued)
LIQUIDITY
AND CAPITAL RESOURCES
Automotive
Sector
Our
strategy is to ensure that we have sufficient funding available with a high
degree of certainty throughout the business cycle. Our long-term goal
is to improve our core Automotive operations so that we have a high degree of
certainty about our capability to generate cash from our
operations. In addition, our strategy includes maintaining large
gross cash balances, having a long-dated debt maturity profile, maintaining
committed credit facilities, and funding long-term liabilities over
time.
Gross
Cash. Automotive gross cash includes cash and cash
equivalents, net marketable securities, loaned securities and certain assets
contained in a Voluntary Employee Beneficiary Association trust ("VEBA"), a
trust which may be used to pre-fund certain types of company-paid benefits for
U.S. employees and retirees. We have included in Automotive gross
cash those VEBA assets that are invested in shorter-duration fixed income
investments and can be used within 18 months to pay for benefits
("short-term VEBA assets"). As a result of our agreement with the UAW
regarding retiree health care obligations (discussed in "Overview"), we do not
expect to have significant short-term VEBA assets in 2008 and
beyond. Gross cash as of December 31, 2007, 2006,
and 2005 is detailed below (in billions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
20.7 |
|
|
$ |
16.0 |
|
|
$ |
13.4 |
|
Marketable
securities
|
|
|
2.0 |
|
|
|
11.3 |
|
|
|
6.9 |
|
Loaned
securities
|
|
|
10.3 |
|
|
|
5.3 |
|
|
|
3.4 |
|
Total
cash, marketable securities and loaned securities
|
|
|
33.0 |
|
|
|
32.6 |
|
|
|
23.7 |
|
Securities-in-transit
(a)
|
|
|
(0.3 |
) |
|
|
(0.5 |
) |
|
|
— |
|
Short-term
VEBA assets
|
|
|
1.9 |
|
|
|
1.8 |
|
|
|
1.4 |
|
Gross
cash (b)
|
|
$ |
34.6 |
|
|
$ |
33.9 |
|
|
$ |
25.1 |
|
__________
(a)
|
The
purchase or sale of marketable securities for which the cash settlement
was not made by period-end and for which there was a payable or receivable
recorded on the balance sheet at period-end.
|
(b)
|
Pursuant
to the MOU with the UAW (discussed in "Overview" above), in January 2008
we contributed $2.73 billion to a temporary asset account and invested
$1.8 billion of short-term VEBA assets in longer-term
instruments. These actions reduced Automotive gross cash by
$4.5 billion.
|
In
managing our business, we classify changes in Automotive gross cash into two
categories: operating-related, and other (which includes the impact
of certain special items, contributions to funded pension plans, the net effect
of the change in our VEBA on gross cash, tax-related transactions, acquisitions
and divestitures, capital transactions with the Financial Services sector,
dividends paid to shareholders, and other – primarily
financing-related). Our key metrics are operating-related cash flow,
which best represents the ability of our Automotive operations to generate cash,
and Automotive gross cash. We believe the cash flow analysis
reflected in the table below is useful to investors because it includes in
operating-related cash flow elements that we consider to be related to our
operating activities (e.g., capital spending) and excludes cash flow elements
that we do not consider to be related to the ability of our operations to
generate cash (e.g., tax refunds). This differs from a cash flow
statement presented in accordance with generally accepted accounting principles
("GAAP") in the United States and differs from Cash flows from operating activities
of continuing operations, the most directly comparable U.S. GAAP
financial measure.
ITEM 7.
Management's Discussion and
Analysis of Financial Condition and Results of Operations
(continued)
Changes
in Automotive gross cash for the last three years are summarized below (in
billions):
|
|
|
|
|
|
|
|
|
|
Gross
cash at end of period
|
|
$ |
34.6 |
|
|
$ |
33.9 |
|
|
$ |
25.1 |
|
Gross
cash at beginning of period
|
|
|
33.9 |
|
|
|
25.1 |
|
|
|
23.6 |
|
Total
change in gross cash
|
|
$ |
0.7 |
|
|
$ |
8.8 |
|
|
$ |
1.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating-related
cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
income/(loss) before income taxes
|
|
$ |
(5.0 |
) |
|
$ |
(17.0 |
) |
|
$ |
(3.9 |
) |
Special
items
|
|
|
3.9 |
|
|
|
11.9 |
|
|
|
2.9 |
|
Capital
expenditures
|
|
|
(6.0 |
) |
|
|
(6.8 |
) |
|
|
(7.1 |
) |
Depreciation
and special tools amortization
|
|
|
6.8 |
|
|
|
7.1 |
|
|
|
6.9 |
|
Changes
in receivables, inventory and trade payables
|
|
|
(0.7 |
) |
|
|
(2.0 |
) |
|
|
1.3 |
|
Other
(a)
|
|
|
1.4 |
|
|
|
1.2 |
|
|
|
(1.4 |
) |
Total
operating-related cash flows
|
|
|
0.4 |
|
|
|
(5.6 |
) |
|
|
(1.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
changes in cash
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
impact of personnel-reduction programs and Jobs Bank Benefits
accrual
|
|
|
(2.5 |
) |
|
|
(1.2 |
) |
|
|
(0.4 |
) |
Contributions
to funded pension plans
|
|
|
(1.6 |
) |
|
|
(0.8 |
) |
|
|
(2.5 |
) |
Net
effect of VEBA on gross cash
|
|
|
1.2 |
|
|
|
3.4 |
|
|
|
(0.2 |
) |
Capital
transactions with Financial Services sector (b)
|
|
|
— |
|
|
|
1.4 |
|
|
|
2.3 |
|
Tax
payments, tax refunds and tax receipts from affiliates
|
|
|
2.6 |
|
|
|
0.3 |
|
|
|
0.3 |
|
Acquisitions
and divestitures
|
|
|
1.1 |
|
|
|
0.2 |
|
|
|
5.3 |
|
Dividends
to shareholders
|
|
|
— |
|
|
|
(0.5 |
) |
|
|
(0.7 |
) |
Net
proceeds from/(Payments on) Automotive sector debt
|
|
|
(0.6 |
) |
|
|
11.7 |
|
|
|
(0.5 |
) |
Other
(c)
|
|
|
0.1 |
|
|
|
(0.1 |
) |
|
|
(0.8 |
) |
Total
change in gross cash
|
|
$ |
0.7 |
|
|
$ |
8.8 |
|
|
$ |
1.5 |
|
__________
|
|
(a)
|
Primarily
expense and payment timing differences for items such as pension and OPEB,
marketing, and warranty.
|
(b)
|
Primarily
dividends received from Ford Credit, excluding proceeds from Financial
Services sector divestitures paid to the Automotive
sector. Ford Credit suspended its regular dividend payments in
2007.
|
(c)
|
In
2007, primarily the net issuance of Ford Common Stock under employee
savings plans (an inflow of about $200 million) and dividends to
minority shareholders of consolidated subsidiaries (an outflow of about
$200 million).
|
Shown
below is a reconciliation between financial statement Cash flows from operating activities
of continuing operations and operating-related cash flows (calculated as
shown in the table above), for the last three years (in billions):
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities of continuing operations
|
|
$ |
8.7 |
|
|
$ |
(4.2 |
) |
|
$ |
5.4 |
|
Items
included in operating-related cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(6.0 |
) |
|
|
(6.8 |
) |
|
|
(7.1 |
) |
Net
transactions between Automotive and Financial Services
sectors*
|
|
|
(0.3 |
) |
|
|
(0.5 |
) |
|
|
(0.4 |
) |
Net
cash flows from non-designated derivatives
|
|
|
1.1 |
|
|
|
0.2 |
|
|
|
— |
|
Items
not included in operating-related cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
impact of personnel-reduction programs and Jobs Bank Benefits
accrual
|
|
|
2.5 |
|
|
|
1.2 |
|
|
|
0.4 |
|
Net
(sales)/purchases of trading securities
|
|
|
(4.5 |
) |
|
|
6.8 |
|
|
|
0.6 |
|
Contributions
to funded pension plans
|
|
|
1.6 |
|
|
|
0.8 |
|
|
|
2.5 |
|
VEBA
cash flows (reimbursement for benefits paid)
|
|
|
(1.1 |
) |
|
|
(2.9 |
) |
|
|
(2.8 |
) |
Tax
refunds, tax payments, and tax receipts from affiliates
|
|
|
(2.6 |
) |
|
|
(0.3 |
) |
|
|
(0.3 |
) |
Other
|
|
|
1.0 |
|
|
|
0.1 |
|
|
|
0.4 |
|
Operating-related
cash flows
|
|
$ |
0.4 |
|
|
$ |
(5.6 |
) |
|
$ |
(1.3 |
) |
________
*
|
Primarily
payables and receivables between the Automotive and Financial Services
sectors in the normal course of business. For example, vehicle
wholesale loans that are made by Ford Credit to Ford-owned
dealers.
|
Debt and Net
Cash. At December 31, 2007, our Automotive sector
had total debt of $26.7 billion, compared with $29.8 billion a year
ago. This reduction primarily reflected the conversion of 43% of our
Trust Preferred Securities with an aggregate liquidation preference of
$2.1 billion into shares of Ford Common Stock and the exchange of debt
securities with an aggregate principal amount of $567 million for shares of
Ford Common Stock.
At
December 31, 2007, our Automotive sector had net cash (defined as
gross cash less total debt) of $7.9 billion, compared with
$4.1 billion at the end of 2006.
ITEM 7.
Management's Discussion and
Analysis of Financial Condition and Results of Operations
(continued)
The
weighted-average maturity of our total Automotive debt is approximately
16 years, and is measured based on the maturity dates of our debt or the
first date of any put option available to the owners of our
debt. About $3 billion of debt matures by
December 31, 2012, and about $15 billion matures or has a put
option by December 31, 2017. For additional information on
debt, see Note 16 of the Notes to the Financial Statements.
For a
discussion of the impact of the agreement with the UAW to fund and discharge
retiree health care liabilities on our debt and cash, see
"Overview."
Credit Facilities.* At
December 31, 2007, we had $13.1 billion of
contractually-committed credit facilities with financial institutions, including
$11.5 billion pursuant to a senior secured credit facility (the "Credit
Agreement") established in December 2006, $1.1 billion of global
Automotive unsecured credit facilities, and about $500 million of local
credit facilities available to foreign Automotive affiliates. At
December 31, 2007, $11.9 billion of these facilities were
available for use. Of the lines available for use, 95% (or
$11.3 billion) are committed through December 15, 2011, and the
remainder are committed for a shorter period of time. For further
discussion of our committed credit facilities, see Note 16 of the Notes to
the Financial Statements.
During
the period 2007 through 2009, we expect cumulative Automotive operating-related
cash outflows of about $7 billion to $8 billion, and cumulative cash
expenditures for restructuring actions of $5 billion to
$6 billion. This cash outflow primarily reflects the cash impact
of accelerating interest supplement and lease support payments to Ford Credit
beginning in 2008 (about $5 billion) described in "Outlook," anticipated
operating losses in our Automotive sector through 2008, and cash expenditures
incurred in connection with personnel separations. It also reflects
our expectation to continue to invest in new products throughout this period at
about the same level as we have during the past few years at $6 billion to
$7 billion annually.
Pension Plan
Contributions. Our policy for funded plans is to contribute
annually, at a minimum, amounts required by applicable laws, regulations, and
union agreements. We do from time to time make contributions beyond
those legally required.
In 2007,
we made $1.6 billion of cash contributions to our funded pension
plans. During 2008, we expect to contribute to our worldwide
pension plans (including Jaguar and Land Rover plans) $2.3 billion from
available Automotive cash and cash equivalents. This amount includes
about $400 million of benefit payments paid directly by us for unfunded
plans. Based on current assumptions and regulations, we do not expect
to have a legal requirement to fund our major U.S. pension plans in
2008.
For a
further discussion of our pension plans, see Note 24 of the Notes to the
Financial Statements.
Financial
Services Sector
Ford
Credit
Ford
Credit's funding strategy is to maintain a high level of liquidity by having a
substantial cash balance and committed funding capacity, allowing it to meet its
short-term funding obligations. As a result of lower credit ratings
over the past few years, its unsecured funding costs have increased over
time. While Ford Credit continues to access the unsecured debt market
when it makes sense to do so, Ford Credit has increased its use of
securitization funding as it is presently more cost effective than unsecured
funding and allows Ford Credit access to a broad investor base. Ford
Credit plans to meet a significant portion of its 2008 funding requirements
through securitizations, and to continue to diversify its asset-backed funding
by asset class and region. In addition, Ford Credit has various
alternative business arrangements for select products and markets that reduce
its funding requirements while allowing it to support us (e.g., Ford
Credit's partnering in Brazil for retail financing and FCE Bank plc's ("FCE")
partnering with various financial institutions in Europe for full service
leasing and retail financing). Ford Credit
is continuing to pursue and execute such alternative business
arrangements.
__________
|
*
Credit facilities of our VIEs are excluded as we do not control their
use.
|
ITEM 7.
Management's Discussion and
Analysis of Financial Condition and Results of Operations
(continued)
Consistent
with the overall market, Ford Credit was impacted by volatility in the
asset-backed securities markets during the second half of 2007. Since
August 2007, Ford Credit has experienced higher credit spreads and, in certain
circumstances, shorter maturities in its public and private securitization
issuances. Given present market conditions, Ford Credit expects that
its credit spreads and the cost of renewing its committed liquidity programs
will increase in 2008.
If there
were reductions in the market capacity for the types of asset-backed securities
used in Ford Credit's asset-backed funding, there could be increased risk to its
available funding sources. As a result, Ford Credit may need to
reduce the amount of receivables and operating leases it purchases or
originates. A significant reduction in Ford Credit's managed
receivables would reduce its ongoing profits, and could adversely affect its
ability to support the sale of Ford vehicles.
Debt and
Cash. Ford Credit's total debt plus securitized off-balance
sheet funding was $144.7 billion at December 31, 2007, $6.2
billion lower compared with a year ago. At
December 31, 2007, Ford Credit's cash, cash equivalents and marketable
securities (excluding marketable securities related to insurance activities)
totaled $16.7 billion (including $4.7 billion to be used only to
support on-balance sheet securitizations), compared with $21.8 billion at
year-end 2006. In the normal course of its funding activities, Ford
Credit may generate more proceeds than are necessary for its immediate funding
needs. These excess amounts are maintained primarily as highly liquid
investments, which provide liquidity for Ford Credit's short-term funding needs
and give Ford Credit flexibility in the use of its other funding
programs.
Funding. Ford Credit requires
substantial funding in the normal course of business. Its funding
requirements are driven mainly by the need to: (i) purchase
retail installment sale contracts and retail lease contracts to support the sale
of Ford products, which are influenced by Ford-sponsored special-rate financing
programs that are available exclusively through Ford Credit, (ii) provide
wholesale financing and capital financing for Ford dealers, and (iii) repay
its debt obligations.
Ford
Credit's funding sources include primarily securitizations and unsecured
debt. Ford Credit issues both short- and long-term debt that is held
by both institutional and retail investors, with long-term debt having an
original maturity of more than 12 months. During 2007, Ford Credit
continued to meet a significant portion of its funding requirements through
securitizations because of their lower relative costs given its credit ratings
(as described below) and the diversity of funding sources that they
provide. Securitized funding (both on- and off-balance sheet, net of
retained interests), as a percent of total managed receivables, was as follows
at the end of each of the last three years: 2007 – 51%, 2006 – 48%,
2005 – 38%.
Ford
Credit obtains short-term unsecured funding from the sale of floating rate
demand notes under its Ford Interest Advantage program and by issuing unsecured
commercial paper in the United States, Europe, and other international
markets. At December 31, 2007, the principal amount
outstanding of Ford Interest Advantage notes, which may be redeemed at any time
at the option of the holders thereof without restriction, was
$5.4 billion. At December 31, 2007, the principal amount
outstanding of Ford Credit's unsecured commercial paper was about $500
million. Ford Credit does not hold reserves specifically to fund the
payment of any of its short-term funding obligations. Instead, Ford
Credit maintains multiple sources of liquidity, including cash, cash
equivalents, and marketable securities (excluding marketable securities related
to insurance activities), unused committed liquidity programs, excess
securitizable assets, and committed and uncommitted credit facilities, which
Ford Credit believes should be sufficient for its short-term funding
obligations.
The
following table illustrates Ford Credit's public and private term funding
issuances for 2006 and 2007 and its planned issuances for 2008 (in
billions):
|
|
|
|
|
|
|
|
|
|
Public
Term Funding
|
|
|
|
|
|
|
|
|
|
Unsecured
|
|
$ |
0 –
2 |
|
|
$ |
6 |
|
|
$ |
9 |
|
Securitizations
(a)
|
|
|
8 – 14 |
|
|
|
6 |
|
|
|
14 |
|
Total
public term funding
|
|
$ |
8 – 16 |
|
|
$ |
12 |
|
|
$ |
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Term Funding
(b)
|
|
$ |
10
– 20 |
|
|
$ |
28 |
|
|
$ |
29 |
|
__________
(a)
|
Reflects
new issuance; excludes whole loan sales and other structured
financings.
|
(b)
|
Includes
private term debt, securitizations, other structured financings and whole
loan sales; excludes sales to Ford Credit's on-balance sheet asset-backed
commercial paper programs
|
The cost
of securitizations and unsecured debt funding is based on a margin or spread
over a benchmark interest rate. Spreads are typically measured in
basis points. Ford Credit's asset-backed funding and unsecured
long-term debt costs are based on spreads over U.S. Treasury securities of
similar maturities, a comparable LIBOR or other comparable benchmark
rates. Ford Credit's unsecured commercial paper funding costs are
based on spreads to LIBOR. Ford Credit's floating rate demand notes
funding costs are changed depending on market conditions. Prior to
August 2007, Ford Credit's securitized funding spreads (which are based on the
creditworthiness of the underlying securitized asset and enhancements) were not
volatile, while its unsecured long-term spreads were
volatile. Consistent with the overall market, Ford Credit was
impacted by volatility in the asset-backed securities markets during the second
half of 2007. Ford Credit experienced higher spreads for several of
its committed liquidity programs as well as its public and private
issuances. During 2007, Ford Credit's spreads on the fixed rate notes
offered in its U.S. public retail securitizations ranged between six and eleven
basis points during the first half of the year and between 37 and 43 basis
points during the second half of the year over the relevant benchmark rates,
while its U.S. unsecured long-term debt funding spreads as measured by the
five-year credit default swap market have fluctuated between 219 and
750 basis points over LIBOR. In January 2008, Ford Credit
completed a U.S. public retail securitization with spreads on the fixed rate
notes between 80 and 110 basis points over the relevant benchmark
rates.
ITEM 7.
Management's Discussion and
Analysis of Financial Condition and Results of Operations
(continued)
Ford
Credit's funding plan is subject to risks and uncertainties, many of which are
beyond its control. If credit markets continue to constrain term
securitization funding, Ford Credit will consider reducing its assets below the
low-end of its projected managed receivables balance (i.e., below
$130 billion).
Credit Facilities and Committed
Liquidity Programs. See Note 16 of the Notes to the
Financial Statements for more information regarding credit facilities and
committed liquidity programs for Ford Credit. As a result of the
continued asset-backed securities market disruption that began in August 2007,
there is a risk to the renewal of some of these committed liquidity programs,
which could lead to a reduction in the size of these programs and/or higher
costs.
Balance Sheet Liquidity
Profile. Ford Credit defines its balance sheet liquidity
profile as the cumulative contractual maturities of its finance receivables,
investment in operating leases, and cash less the cumulative contractual debt
maturities, over upcoming annual periods. The following table shows
Ford Credit's balance sheet liquidity profile for the periods presented as of
December 31, 2007 (in billions):
|
|
Cumulative
Contractual Maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance
receivables (a), investment in operating leases (b) and cash
(c)
|
|
$ |
92.2 |
|
|
$ |
123.1 |
|
|
$ |
143.8 |
|
|
$ |
158.9 |
|
Debt
|
|
|
(59.8 |
) |
|
|
(88.1 |
) |
|
|
(104.0 |
) |
|
|
(139.4 |
) |
Finance
receivables, investment in operating leases and cash over/(under)
debt
|
|
$ |
32.4 |
|
|
$ |
35.0 |
|
|
$ |
39.8 |
|
|
$ |
19.5 |
|
__________
(a)
|
Finance
receivables net of unearned income.
|
(b)
|
Investment
in operating leases net of accumulated
depreciation.
|
(c)
|
Includes
cash, cash equivalents and marketable securities (excludes marketable
securities related to insurance
activities).
|
Ford
Credit's balance sheet is inherently liquid because of the short-term nature of
its finance receivables, investment in operating leases, and
cash. Contractual maturities of investment in operating leases
consist primarily of depreciation over the remaining life of the lease and the
expected residual value at lease termination.
Leverage. Ford
Credit uses leverage, or the debt-to-equity ratio, to make various business
decisions, including establishing pricing for retail, wholesale, and lease
financing, and assessing our capital structure. Ford Credit refers to
its shareholder's interest and its historical stockholder's equity as
equity. Ford Credit calculates leverage on a financial statement
basis and on a managed basis using the following formulas:
Financial
Statement Leverage
|
=
|
Total Debt
|
|
|
Equity
|
|
|
Total
Debt
|
+
|
Securitized
Off-Balance Sheet Receivables
|
-
|
Retained
Interest in Securitized Off-Balance Sheet Receivables
|
-
|
Cash
and Cash Equivalents and Marketable Securities (a)
|
-
|
Adjustments for
Hedge Accounting on Total Debt (b)
|
Managed
Leverage
|
=
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
+
|
Minority
Interest
|
-
|
Adjustments
for Hedge Accounting on Equity (b)
|
|
|
__________
(a)
|
Excluding
marketable securities related to insurance
activities.
|
(b)
|
Primarily
related to market valuation adjustments from derivatives due to movements
in interest rates.
|
ITEM 7.
Management's Discussion and
Analysis of Financial Condition and Results of Operations
(continued)
The
following table illustrates the calculation of Ford Credit's financial statement
leverage (in billions, except for ratios):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
debt
|
|
$ |
139.4 |
|
|
$ |
139.7 |
|
|
$ |
133.4 |
|
Total
equity
|
|
|
13.4 |
|
|
|
11.8 |
|
|
|
11.4 |
|
Financial
statement leverage (to 1)
|
|
|
10.4 |
|
|
|
11.9 |
|
|
|
11.7 |
|
The
following table illustrates the calculation of Ford Credit's managed leverage
(in billions, except for ratios):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
debt
|
|
$ |
139.4 |
|
|
$ |
139.7 |
|
|
$ |
133.4 |
|
Securitized
off-balance sheet receivables outstanding
|
|
|
6.0 |
|
|
|
12.2 |
|
|
|
18.0 |
|
Retained
interest in securitized off-balance sheet receivables
|
|
|
(0.7 |
) |
|
|
(1.0 |
) |
|
|
(1.4 |
) |
Adjustments
for cash, cash equivalents and marketable securities (a)
|
|
|
(16.7 |
) |
|
|
(21.8 |
) |
|
|
(17.9 |
) |
Adjustments
for hedge accounting (b)
|
|
|
— |
|
|
|
(0.1 |
) |
|
|
(0.5 |
) |
Total
adjusted debt
|
|
$ |
128.0 |
|
|
$ |
129.0 |
|
|
$ |
131.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
equity (including minority interest)
|
|
$ |
13.4 |
|
|
$ |
11.8 |
|
|
$ |
11.4 |
|
Adjustments
for hedge accounting (b)
|
|
|
(0.3 |
) |
|
|
(0.5 |
) |
|
|
(0.7 |
) |
Total
adjusted equity
|
|
$ |
13.1 |
|
|
$ |
11.3 |
|
|
$ |
10.7 |
|
Managed
leverage (to 1)
|
|
|
9.8 |
|
|
|
11.4 |
|
|
|
12.3 |
|
__________
(a)
|
Excluding
marketable securities related to insurance activities.
|
(b)
|
Primarily
related to market valuation adjustments from derivatives due to movements
in interest rates.
|
Ford
Credit believes that managed leverage is useful to its investors because it
reflects the way Ford Credit manages its business. Ford Credit
retains interests in receivables sold in off-balance sheet securitization
transactions and, with respect to subordinated retained interests, is exposed to
credit risk. Accordingly, Ford Credit evaluates charge-offs,
receivables and leverage on a managed as well as a financial statement
basis. Ford Credit also deducts cash and cash equivalents and
marketable securities (excluding marketable securities related to insurance
activities) because they generally correspond to excess debt beyond the amount
required to support its operations and amounts to support its on-balance sheet
securitizations.
In
addition, Ford Credit adds its minority interests to its financial statement
equity because all of the debt of such consolidated entities is included in its
total debt. Ford Credit makes hedge accounting adjustments to its
assets, debt and equity positions to reflect the impact of interest rate
instruments Ford Credit uses in connection with its term-debt issuances and
securitizations. The hedge accounting adjustments vary over the term
of the underlying debt and securitized funding obligations based on changes in
market interest rates. Ford Credit generally repays its debt
obligations as they mature. As a result, Ford Credit excludes the
impact of the hedge accounting adjustments on both the numerator and denominator
in order to exclude the interim effects of changes in market interest
rates. Ford Credit believes the managed leverage measure provides its
investors with meaningful information regarding management's decision-making
processes.
Ford
Credit plans its managed leverage by considering prevailing market conditions
and the risk characteristics of its business. At
December 31, 2007, Ford Credit's managed leverage was
9.8 to 1, compared with 11.4 to 1 a year ago. In
2006, Ford Credit paid cash dividends of $1.35 billion. In 2007,
Ford Credit did not pay any distributions or dividends.
Total
Company
Stockholders'
Equity. Our stockholders' equity was $5.6 billion at
December 31, 2007, improved by about $9.1 billion compared with
December 31, 2006. The improvement primarily reflected
favorable changes in Accumulated other comprehensive
income/(loss), the conversion of 43% of our Trust Preferred Securities
into shares of Ford Common Stock, and favorable changes in Retained earnings due to the
adoption of Accounting for
Uncertainty in Income Taxes – an interpretation of FASB Statement
No. 109 ("FIN 48"), offset partially by 2007 net
losses. See the Consolidated Statement of Stockholders' Equity in our
Financial Statements for details of Comprehensive income/(loss), and Note 19 of
the Notes to the Financial Statements for details of FIN 48.
ITEM 7.
Management's Discussion and
Analysis of Financial Condition and Results of Operations
(continued)
Credit
Ratings. Our short- and long-term debt is rated by four credit
rating agencies designated as nationally recognized statistical rating
organizations ("NRSROs") by the SEC:
|
•
|
Dominion
Bond Rating Service Limited
("DBRS");
|
|
•
|
Moody’s
Investors Service, Inc. ("Moody’s");
and
|
|
•
|
Standard
& Poor’s Rating Services, a division of The McGraw-Hill Companies,
Inc. ("S&P").
|
In
several markets, locally recognized rating agencies also rate us. A
credit rating reflects an assessment by the rating agency of the credit risk
associated with a corporate entity or particular securities issued by that
entity. Their ratings of us are based on information provided by us
and other sources. Credit ratings are not recommendations to buy,
sell or hold securities and are subject to revision or withdrawal at any time by
the assigning rating agency. Each rating agency may have different
criteria for evaluating company risk and, therefore, ratings should be evaluated
independently for each rating agency. Lower credit ratings generally
result in higher borrowing costs and reduced access to capital
markets. The NRSROs have indicated that our lower ratings are
primarily a reflection of the rating agencies' concerns regarding our automotive
cash flow and profitability, declining market share and product portfolio
strength, excess industry capacity and industry pricing pressure.
The
following ratings actions were taken in the fourth
quarter 2007:
Ford
|
·
|
DBRS: In
November 2007, DBRS changed Ford's trend to "Stable" from
"Negative."
|
|
·
|
Fitch: No
ratings actions taken in Q4 2007.
|
|
·
|
Moody's: In
November 2007, Moody's changed Ford's outlook to "Stable" from
"Negative."
|
|
·
|
S&P: In
November 2007, S&P changed Ford's outlook to "Stable" from
"Negative."
|
Ford
Credit
|
·
|
DBRS: In
November 2007, DBRS changed Ford Credit's trend to "Stable" from
"Negative."
|
|
·
|
Fitch: No
ratings actions taken in Q4 2007.
|
|
·
|
Moody's: In
November 2007, Moody's changed Ford Credit's outlook to "Stable" from
"Negative."
|
|
·
|
S&P: In
November 2007, S&P changed Ford Credit's outlook to "Stable" from
"Negative."
|
The
following summarizes certain of the credit ratings and the outlook presently
assigned to Ford and Ford Credit by these four NRSROs:
|
|
|
|
|
|
|
Issuer
Default/ Corporate/ Issuer Rating
|
|
Long-Term
Senior Unsecured
|
|
|
|
|
|
Long-Term
Senior Unsecured
|
|
|
|
|
DBRS
|
B
(low)
|
|
CCC
(high)
|
|
B
(high)
|
|
Stable
|
|
B
|
|
R-4
|
|
Stable
|
Fitch
|
B
|
|
B-
|
|
BB
|
|
Negative
|
|
BB-
|
|
B
|
|
Negative
|
Moody's
|
B3
|
|
Caa1
|
|
Ba3
|
|
Stable
|
|
B1
|
|
NP
|
|
Stable
|
S&P
|
B
|
|
CCC+
|
|
B+
|
|
Stable
|
|
B**
|
|
B-3
|
|
Stable
|
__________
*
|
The
SEC recognized Rating and Investment Information, Inc. ("R&I") and
Japan Credit Rating Agency, Ltd. ("JCR") as NRSROs in May 2007 and
September 2007 respectively. Both agencies assign long-term
issue ratings to Ford Credit's February 2005 ¥160 billion 1.71% issuance
which matures in February 2008. R&I assigns a rating of BB-
with a negative outlook and JCR assigns a rating of B+ with a negative
outlook.
|
|
**
|
S&P
rates FCE's long-term senior unsecured rating as B+, maintaining a one
notch differential versus Ford
Credit.
|
ITEM 7.
Management's Discussion and
Analysis of Financial Condition and Results of Operations
(continued)
OUTLOOK
The
following discussion of our 2008 outlook does not include the Jaguar and Land
Rover operations that were held for sale as of the fourth quarter of
2007. These business units are not included in the forward-looking
projections, and thus the 2007 data in this Outlook discussion also have been
adjusted to exclude Jaguar and Land Rover results for purposes of year-over-year
comparison.
Our
current projection of first quarter 2008 vehicle production for certain segments
is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Ford
North America
|
|
|
685 |
|
|
|
(55 |
) |
Ford
Europe
|
|
|
530 |
|
|
|
7 |
|
Volvo
|
|
|
112 |
|
|
|
(23 |
) |
We have
set and communicated the following 2008 planning assumptions and operational
metrics:
Planning
Assumptions
|
Plan
|
Industry
volume (SAAR incl. heavy trucks):
|
|
U.S.
(million units)
|
16.0
|
Europe
(million units) (a)
|
17.6
|
|
|
Operational
Metrics
|
|
Compared
with 2007:
|
|
Quality
|
Improve
|
Automotive
costs (b)
|
Improve
by about $3 billion
|
U.S.
market share (Ford and Lincoln Mercury)
|
Low
end of 14-15% range
|
|
|
Absolute
Amount:
|
|
Operating-related
cash flow
|
Negative
|
Capital
spending
|
Around
$6 billion
|
___________
(a)
|
The
19 markets we track in Europe.
|
(b)
|
At
constant volume, mix and exchange; excluding special
items.
|
We expect our full-year 2008 Automotive
pre-tax results, including special items, though still a loss, to be better than
our 2007 results.
We remain committed to our plan to
return to profitability in North America and in our total Automotive operations
in 2009. We also remain committed to our plan to reduce annual North
America operating costs by about $5 billion by the end of 2008 as compared
with 2005. The following data summarize our progress to date, and
provide additional detail regarding our plan to reduce North America Automotive
operating costs by about $3 billion during 2008 in keeping with this goal
(all at constant mix, volume, and exchange, and excluding special items) (in
billions):
|
|
|
|
|
|
|
|
|
|
Net
Product Costs
|
|
|
|
|
|
|
|
|
|
Product
adds
|
|
$ |
(0.9 |
) |
|
$ |
(2.0 |
) |
|
$ |
(0.6 |
) |
Commodities
|
|
|
(0.3 |
) |
|
|
(0.8 |
) |
|
|
(0.3) –
(0.4 |
)
|
Material
cost reductions
|
|
|
1.2 |
|
|
|
0.8 |
|
|
|
0.9 –
1.2 |
|
Subtotal
|
|
$ |
— |
|
|
$ |
(2.0 |
) |
|
$ |
0 – 0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Structural
/ Other
|
|
|
1.5 |
|
|
|
2.6 |
|
|
|
2.6 – 3.0 |
|
Total
|
|
$ |
1.5 |
|
|
$ |
0.6 |
|
|
$ |
2.6 – 3.2 |
|
ITEM 7.
Management's Discussion and
Analysis of Financial Condition and Results of Operations
(continued)
Our plan to achieve structural and
other cost reductions in our North America Automotive operations in 2008
includes the following key elements:
|
·
|
Another
round of enterprise-wide buyout offers to our hourly UAW-represented
employees and continued progress on reducing our manufacturing capacity,
as described in "Overview;"
|
|
·
|
Sale
or closure of essentially all of the ACH businesses by the end of
2008;
|
|
·
|
Continued
reduction of salaried employment, primarily through
attrition;
|
|
·
|
Acceleration
of global product development initiatives to leverage our global assets
and technologies, as well as more efficient capital spending and product
engineering;
|
|
·
|
Efficiencies
in advertising, merchandising and other overhead
costs;
|
|
·
|
Acceleration
of vehicle complexity reductions, which also will assist material cost
reduction efforts.
|
During
the period 2007 through 2009, we expect cumulative Automotive operating-related
cash outflows of $7 billion to $8 billion, and cumulative cash
expenditures for personnel separations of $5 billion to $6
billion. The operating-related cash outflow primarily reflects the
cash impact of accelerating interest supplement and lease support payments to
Ford Credit beginning this year (about $5 billion) as described below, and
anticipated operating losses in our Automotive sector through
2008. The cash outflows also reflect our expectation to continue to
invest in new products throughout this period at about the same level as we have
during the past few years (i.e., $6 billion to $7 billion
annually). We do not expect the benefits of our recent labor
agreement with the UAW to begin contributing meaningfully to our cash flow prior
to 2010.
Within
our Financial Services sector, we expect Ford Credit to be profitable in 2008,
although at a lower level than in 2007. This is down from our outlook
of "about equal" announced on January 24, 2008. Our revised
outlook primarily reflects higher depreciation expense and severity as a result
of continued auction market weakness. The lower earnings expected in
2008 compared with 2007 primarily reflect our expectation of higher credit
losses, lower volume, higher net losses related to market valuation adjustments
from derivatives, and higher depreciation expense, partially offset by higher margin
and lower operating costs. At year-end 2008, we anticipate managed
receivables to be in the range of $130 billion to $140
billion. This anticipated decrease in managed receivables levels
primarily reflects the expected impact of net receivable liquidations and
the implementation of
alternative business arrangements and other
strategic actions.
Effective
January 1, 2008, to reduce ongoing Automotive obligations to Ford Credit and
consistent with general industry practice, we began paying interest supplements
and residual value support to Ford Credit on an upfront, lump-sum basis at the
time Ford Credit purchases eligible contracts from dealers. This
differs from our past practice of spreading these payments over the expected
life of the contracts, which will continue for contracts purchased by Ford
Credit prior to 2008 (at December 31, 2007, the outstanding amount of
interest supplement and lease support payments owed to Ford Credit was
$6.3 billion, which is expected to be paid by the end of
2011). The change to upfront, lump-sum payments for contracts
purchased after 2007 is expected to result in the acceleration of payments
totaling about $5 billion through 2009 that, under the past practice,
otherwise would have been paid after 2009. This change will not have
a significant impact on Ford Credit's income statement or statement of
shareholder's interest/equity because Ford Credit will continue to recognize the
income over the term of the contract.
Subject
to Ford Credit's ability to execute its funding plan and maintain sufficient
liquidity, Ford Credit plans to increase its managed leverage to about 11.5 to 1
by the end of 2008, up from 9.8 to 1 at year-end 2007, and pay dividend
distributions beginning in 2008. These distributions will reflect
Ford Credit's 2008 net income plus a return of capital reflecting the planned
increase in leverage, as well as a projected smaller receivable
base. Based upon these factors, we forecast the distributions to
total about $5 billion through 2009.
U.S. economic conditions have softened
during the course of 2007, with difficulties for the U.S. automotive industry
primarily associated with three factors: significant declines in
homebuilding, home sales, and home prices; further increases in oil and gasoline
prices; and subprime mortgage contraction and associated contraction in other
types of credit market activity. Sales of full-size pickup trucks are
closely correlated with the housing sector; as the housing sector slows, we
expect lower pickup truck sales. Together, these adverse factors
increase the risk of recession. Additional concerns include the
near-term impact of rising commodity prices (oil, steel, aluminum, and resins)
and the ongoing weakness in the U.S. dollar.
Nevertheless, based on the assumptions
and metrics set forth above, we expect our total Company full-year 2008 pre-tax
results, including special items, to be a loss, though improved from 2007
results. We anticipate 2008 special items will be lower than 2007,
and will include personnel separation costs of up to
$1 billion.
ITEM 7.
Management's Discussion and
Analysis of Financial Condition and Results of Operations
(continued)
Risk
Factors
Statements
included or incorporated by reference herein may constitute “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act
of 1995. Forward-looking statements are based on expectations,
forecasts and assumptions by our management and involve a number of risks,
uncertainties, and other factors that could cause actual results to differ
materially from those stated, including, without limitation:
·
|
Continued
decline in market share;
|
·
|
Continued
or increased price competition resulting from industry overcapacity,
currency fluctuations or other
factors;
|
·
|
An
increase in or acceleration of market shift away from sales of trucks,
sport utility vehicles, or other more profitable vehicles, particularly in
the United States;
|
·
|
A
significant decline in industry sales, particularly in the United States
or Europe, resulting from slowing economic growth, geo-political events or
other factors;
|
·
|
Lower-than-anticipated
market acceptance of new or existing
products;
|
·
|
Continued
or increased high prices for or reduced availability of
fuel;
|
·
|
Currency
or commodity price fluctuations;
|
·
|
Adverse
effects from the bankruptcy or insolvency of, change in ownership or
control of, or alliances entered into by a major
competitor;
|
·
|
Economic
distress of suppliers that has in the past and may in the future require
us to provide financial support or take other measures to ensure supplies
of components or materials;
|
·
|
Labor
or other constraints on our ability to restructure our
business;
|
·
|
Work
stoppages at Ford or supplier facilities or other interruptions of
supplies;
|
·
|
Single-source
supply of components or materials;
|
·
|
Substantial
pension and postretirement health care and life insurance liabilities
impairing our liquidity or financial
condition;
|
·
|
Inability
to implement Memorandum of Understanding with UAW to fund and discharge
retiree health care obligations because of failure to obtain court
approval or otherwise;
|
·
|
Worse-than-assumed
economic and demographic experience for our postretirement benefit plans
(e.g., discount rates, investment returns, and health care cost
trends);
|
·
|
The
discovery of defects in vehicles resulting in delays in new model
launches, recall campaigns or increased warranty
costs;
|
·
|
Increased
safety, emissions (e.g., CO2),
fuel economy, or other regulation resulting in higher costs, cash
expenditures, and/or sales
restrictions;
|
·
|
Unusual
or significant litigation or governmental investigations arising out of
alleged defects in our products or
otherwise;
|
·
|
A
change in our requirements for parts or materials where we have entered
into long-term supply arrangements that commit us to purchase minimum or
fixed quantities of certain parts or materials, or to pay a minimum amount
to the seller ("take-or-pay"
contracts);
|
·
|
Adverse
effects on our results from a decrease in or cessation of government
incentives;
|
·
|
Adverse
effects on our operations resulting from certain geo-political or other
events;
|
·
|
Substantial
negative Automotive operating-related cash flows for the near- to
medium-term affecting our ability to meet our obligations, invest in our
business or refinance our debt;
|
·
|
Substantial
levels of Automotive indebtedness adversely affecting our financial
condition or preventing us from fulfilling our debt obligations (which may
grow because we are able to incur substantially more debt, including
additional secured debt);
|
·
|
Inability
of Ford Credit to access debt or securitization markets around the world
at competitive rates or in sufficient amounts due to additional credit
rating downgrades, market volatility, market disruption or
otherwise;
|
·
|
Higher-than-expected
credit losses;
|
·
|
Increased
competition from banks or other financial institutions seeking to increase
their share of financing Ford
vehicles;
|
·
|
Changes
in interest rates;
|
·
|
Collection
and servicing problems related to finance receivables and net investment
in operating leases;
|
·
|
Lower-than-anticipated
residual values or higher-than-expected return volumes for leased
vehicles; and
|
·
|
New
or increased credit, consumer or data protection or other regulations
resulting in higher costs and/or additional financing
restrictions.
|
We cannot
be certain that any expectation, forecast or assumption made by management in
preparing forward-looking statements will prove accurate, or that any projection
will be realized. It is to be expected that there may be differences
between projected and actual results. Our forward-looking statements
speak only as of the date of their initial issuance, and we do not undertake any
obligation to update or revise publicly any forward-looking statement, whether
as a result of new information, future events or otherwise. For
additional discussion of these risks, see "Item 1A. Risk
Factors."
ITEM 7.
Management's Discussion and
Analysis of Financial Condition and Results of Operations
(continued)
CRITICAL
ACCOUNTING ESTIMATES
We
consider an accounting estimate to be critical if: 1) the accounting
estimate requires us to make assumptions about matters that were highly
uncertain at the time the accounting estimate was made, and 2) changes in the
estimate that are reasonably likely to occur from period to period, or use of
different estimates that we reasonably could have used in the current period,
would have a material impact on our financial condition or results of
operations.
Management
has discussed the development and selection of these critical accounting
estimates with the Audit Committee of our Board of Directors. In
addition, there are other items within our financial statements that require
estimation, but are not deemed critical as defined above. Changes in estimates
used in these and other items could have a material impact on our financial
statements.
Warranty
and Additional Service Actions
Nature of Estimates
Required. The estimated warranty and additional service action
costs are accrued for each vehicle at the time of sale. Estimates are
principally based on assumptions regarding the lifetime warranty costs of each
vehicle line and each model year of that vehicle line, where little or no claims
experience may exist. In addition, the number and magnitude of
additional service actions expected to be approved, and policies related to
additional service actions, are taken into consideration. Due to the
uncertainty and potential volatility of these estimated factors, changes in our
assumptions could materially affect net income.
Assumptions and Approach
Used. Our estimate of warranty and additional service action
obligations is re-evaluated on a quarterly basis. Experience has shown that
initial data for any given model year can be volatile; therefore, our process
relies upon long-term historical averages until sufficient data are
available. As actual experience becomes available, it is used to
modify the historical averages to ensure that the forecast is within the range
of likely outcomes. Resulting accruals are then compared with present
spending rates to ensure that the balances are adequate to meet expected future
obligations.
See
Note 28 of the Notes to the Financial Statements for more information
regarding costs and assumptions for warranties and additional service
actions.
Pensions
Nature of Estimates
Required. The estimation of our pension obligations, costs and
liabilities requires that we make use of estimates of the present value of the
projected future payments to all participants, taking into consideration the
likelihood of potential future events such as salary increases and demographic
experience. These assumptions may have an effect on the amount and
timing of future contributions.
Assumptions and Approach
Used. The assumptions used in developing the required
estimates include the following key factors:
|
·
|
Discount
rates. We base the discount rate assumption primarily on
the results of a cash flow matching analysis, which matches the future
cash outflows for each major plan to a yield curve comprised of high
quality bonds specific to the country of the plan. Benefit
payments are discounted at the rates on the curve and a single discount
rate specific to the plan is
determined.
|
|
·
|
Expected return on plan
assets. The expected return on plan assets assumption
reflects historical returns and long-run inputs from a range of advisors
for capital market returns, inflation, bond yields, and other variables,
adjusted for specific aspects of our investment strategy. The
assumption is based on consideration of all inputs, with a focus on
long-term trends to avoid short-term market
influences. Assumptions are not changed unless structural
trends in the underlying economy are identified, our asset strategy
changes, or there are significant changes in other
inputs.
|
|
·
|
Salary
growth. The salary growth assumption reflects our
long-term actual experience, outlook and assumed
inflation.
|
|
·
|
Inflation. Our
inflation assumption is based on an evaluation of external market
indicators.
|
ITEM 7.
Management's Discussion and
Analysis of Financial Condition and Results of Operations
(continued)
|
·
|
Expected
contributions. The expected amount and timing of
contributions is based on an assessment of minimum requirements, and
additional amounts based on cash availability and other considerations
(e.g., funded status, avoidance of Pension Benefit Guaranty Corporation
("PBGC") penalty premiums, U.K. Pension Protection Fund levies, and tax
efficiency).
|
|
·
|
Retirement
rates. Retirement rates are developed to reflect actual
and projected plan experience.
|
|
·
|
Mortality
rates. Mortality rates are developed to reflect actual
and projected plan experience.
|
Plan
obligations and costs are based on existing retirement plan
provisions. No assumption is made regarding any potential future
changes to benefit provisions beyond those to which we are presently committed
(e.g., in existing labor contracts).
The
effects of actual results differing from our assumptions and the effects of
changing assumptions are included in unamortized net gains and
losses. Unamortized gains and losses are amortized over future
periods and, therefore, generally affect our recognized expense in future
periods. Amounts are recognized as a component of net expense over
the expected future years of service (approximately 12 years for the major U.S.
plans). In 2007, the U.S. actual return on assets was 11%, which
exceeded the expected return of 8.5%. The year-end 2007 weighted
average discount rates for the U.S. and non-U.S. plans increased by 39 and
69 basis points, respectively. These differences resulted in an
unamortized gain of about $6 billion (excluding Jaguar and Land
Rover). These gains are only amortized to the extent they exceed 10%
of the higher of the market-related value of assets or the projected benefit
obligation of the respective plan. For the major U.S. plans, the
gains do not exceed this threshold and recognition will begin at a future
measurement date.
See
Note 24 of the Notes to the Financial Statements for more information
regarding costs and assumptions for employee retirement benefits.
Sensitivity
Analysis. The December 31, 2007 pension funded
status and 2008 expense are affected by year-end 2007
assumptions. These sensitivities may be asymmetric and are specific
to the time periods noted. They also may not be additive, so the
impact of changing multiple factors simultaneously cannot be calculated by
combining the individual sensitivities shown. The effect of the
indicated increase/(decrease) in selected factors is shown below (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
U.S.
Plans
|
|
|
Non-U.S.
Plans
|
|
|
Total
Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate
|
|
+/-
1.0
|
pt. |
|
$ |
4,050/$(4,480)
|
|
|
$ |
3,230/$(3,710)
|
|
|
$ |
7,280/$(8,190)
|
|
|
$ |
30/$(90)
|
|
|
$ |
(170)/$220
|
|
Actual
return on assets
|
|
|
+/-
1.0 |
|
|
|
430/(430)
|
|
|
|
210/(210)
|
|
|
|
640/(640)
|
|
|
|
(10)/10
|
|
|
|
(10)/10
|
|
Expected
return on assets
|
|
|
+/-
1.0 |
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(420)/420
|
|
|
|
(210)/210
|
|
_______
* Excludes
Jaguar and Land Rover.
The
foregoing indicates that changes in the discount rate and return on assets can
have a significant effect on the funded status of our pension plans,
stockholders' equity and expense. We cannot predict these changes in
discount rates or investment returns and, therefore, cannot reasonably estimate
whether adjustments to our stockholders' equity in subsequent years will be
significant.
Other
Postretirement Employee Benefits
Nature of Estimates
Required. The estimation of our obligations, costs and
liabilities associated with OPEB, primarily retiree health care and life
insurance, requires that we make use of estimates of the present value of the
projected future payments to all participants, taking into consideration the
likelihood of potential future events such as health care cost increases, salary
increases and demographic experience, which may have an effect on the amount and
timing of future payments.
ITEM 7.
Management's Discussion and
Analysis of Financial Condition and Results of Operations
(continued)
Assumptions and Approach
Used. The assumptions used in developing the required
estimates include the following key factors:
|
·
|
Discount
rates. We base the discount rate assumption primarily on
the results of a cash flow matching analysis, which matches the future
cash outflows for each plan to a yield curve comprised of high quality
bonds specific to the country of the plan. Benefit payments are
discounted at the rates on the curve and a single discount rate specific
to the plan is determined.
|
|
·
|
Health care cost
trends. Our health care cost trend assumptions are
developed based on historical cost data, the near-term outlook,
anticipated efficiencies and other cost-mitigation actions (including
eligibility management, employee education and wellness, competitive
sourcing and appropriate employee cost sharing) and an assessment of
likely long-term trends.
|
|
·
|
Expected return on
short-duration plan assets. The expected return on
short-duration plan assets assumption reflects external investment
managers' expectations of likely returns on short-duration VEBA assets
over the next several years.
|
|
·
|
Expected return on
long-duration plan assets. The expected return on
long-duration plan assets assumption reflects historical returns and
long-run inputs from a range of advisors for capital market returns,
inflation, bond yields, and other variables, adjusted for specific aspects
of our investment strategy. The assumption is based on
consideration of all inputs, with a focus on long-term trends to avoid
short-term market influences. Assumptions are not changed
unless structural trends in the underlying economy are identified, our
asset strategy changes, or there are significant changes in other
inputs.
|
|
·
|
Salary
growth. The salary growth assumptions reflect our
long-term actual experience, outlook and assumed
inflation.
|
|
·
|
Expected VEBA
drawdowns. The expected amount and timing of VEBA
drawdowns is based on an assessment of hourly retiree benefit payments to
be reimbursed, tax efficiency, cash availability, and our
previously-discussed MOU with the
UAW.
|
|
·
|
Retirement
rates. Retirement rates are developed to reflect actual
and projected plan experience.
|
|
·
|
Mortality
rates. Mortality rates are developed to reflect actual
and projected plan experience.
|
Plan
obligations and costs are based on existing retirement plan
provisions. No assumption is made regarding any potential future
changes to benefit provisions beyond those to which we are presently committed
(e.g., in existing labor contracts).
The
effects of actual results differing from our assumptions and the effects of
changing assumptions are included in unamortized net gains and
losses. Unamortized gains and losses are amortized over future
periods and, therefore, generally affect our recognized expense in future
periods. In 2007, the U.S. actual health care trend was 3%, which was
less than the expected trend of 6%. The year-end 2007 weighted
average discount rate for the U.S. increased by 47 basis
points. These differences, as well as updates related to employee
separation programs, resulted in an unamortized gain of about
$4 billion. This amount is expected to be recognized as a
component of net expense over the expected future years of service
(approximately 14 years).
See
Note 24 of the Notes to the Financial Statements for more information
regarding costs and assumptions for employee retirement benefits.
Sensitivity
Analysis. The December 31, 2007 OPEB funded status
and 2008 expense are affected by year-end 2007
assumptions. These sensitivities may be asymmetric and are specific
to the time periods noted. They are not additive, so the impact of
changing multiple factors simultaneously cannot be calculated by combining the
individual sensitivities shown. The effect of the indicated
increase/(decrease) in selected assumptions is shown below (in
millions):
|
|
|
|
|
Effect
on U.S. and Canadian Plans: Increase/(Decrease)
|
|
Assumption
|
|
|
|
|
December
31, 2007 Funded Status and Equity
|
|
|
|
|
Discount
rate
|
|
+/-
1.0
|
pt. |
|
$ |
3,190/$(3,940)
|
|
|
$ |
(230)/$280
|
|
Health
care cost trend rates — total expense
|
|
|
+/-
1.0 |
|
|
|
(3,490)/2,830
|
|
|
|
530/(430)
|
|
Health
care cost trend rates — service and interest expense
|
|
|
+/-
1.0 |
|
|
|
(3,490)/2,830
|
|
|
|
310/(240)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ITEM 7.
Management's Discussion and
Analysis of Financial Condition and Results of Operations
(continued)
Impairment
of Goodwill and Long-Lived Assets
Nature of Estimates Required –
Goodwill. Goodwill is not amortized, but is subject to
periodic assessments of impairment. We test goodwill for impairment
annually during the fourth quarter, or when changes in circumstances indicate
that the carrying value may not be recoverable. Recoverability of
goodwill is evaluated using a two-step process. The first step
involves a comparison of the fair value of a reporting unit with its carrying
value. If the carrying value of the reporting unit exceeds its fair
value, the second step of the process involves a comparison of the implied fair
value of goodwill (based on a purchase price allocation methodology) with its
carrying value. If the carrying value of the reporting unit's
goodwill exceeds the implied fair value of that goodwill, an impairment loss is
recognized in an amount equal to the excess. Restoration of a
previously-recognized goodwill impairment loss is not allowed.
Nature of Estimates Required –
Long-Lived Assets. Long-lived asset groups are tested for
recoverability when changes in circumstances indicate the carrying value may not
be recoverable. Events that trigger a test for recoverability include
material adverse changes in the projected revenues and expenses, significant
underperformance relative to historical or projected future operating results,
and significant negative industry or economic trends. A test for
recoverability also is performed when management has committed to a plan to sell
or otherwise dispose of an asset group and the plan is expected to be completed
within a year. Recoverability of an asset group is evaluated by
comparing its carrying value to the future net undiscounted cash flows expected
to be generated by the asset group. If the comparison indicates that
the carrying value of an asset group is not recoverable, an impairment loss is
recognized. The impairment loss is measured by the amount by which
the carrying amount of the asset group exceeds the estimated fair
value. When an impairment loss is recognized for assets to be held
and used, the adjusted carrying amount of those assets is depreciated over its
remaining useful life. Restoration of a previously-recognized
long-lived asset impairment loss is not allowed.
Assumptions and Approach
Used. We estimate the fair value of a reporting unit or asset
group based on market prices (i.e., the amount for which the asset could be
bought by or sold to a third party), when available. When market
prices are not available, we estimate the fair value of the reporting unit or
asset group using the income approach and/or the market approach. The
income approach uses cash flow projections. Inherent in our
development of cash flow projections are assumptions and estimates derived from
a review of our operating results, approved business plans, expected growth
rates, cost of capital, and tax rates. We also make certain
assumptions about future economic conditions, interest rates, and other market
data. Many of the factors used in assessing fair value are outside
the control of management, and these assumptions and estimates can change in
future periods.
Changes
in assumptions or estimates could materially affect the determination of fair
value of an asset group, and therefore could affect the amount of potential
impairment of the asset. The following assumptions are key to our
income approach:
|
·
|
Business Projections –
We make assumptions about the level of product acceptance in the
marketplace. These assumptions drive our planning assumptions
for volumes, mix, and pricing. We also make assumptions about
our cost levels (e.g., capacity utilization, cost performance,
etc.). These assumptions are key inputs for developing our cash
flow projections. These projections are derived using our
internal business plans that are updated quarterly and reviewed by the
Board of Directors;
|
|
·
|
Growth Rate – A growth
rate is used to calculate the terminal value of the business, and is added
to the present value of the debt-free interim cash flows. The
growth rate is the expected rate at which a business unit's earnings
stream is projected to grow beyond the planning
period;
|
|
·
|
Economic Projections –
Assumptions regarding general economic conditions are included in and
affect our assumptions regarding industry sales and pricing estimates for
our vehicles. These macro-economic assumptions include, but are
not limited to, industry volumes, inflation, interest rates, prices of raw
materials (commodities), and foreign currency exchange rates;
and
|
|
·
|
Discount Rates – When
measuring a possible impairment, future cash flows are discounted at a
rate that is consistent with a weighted average cost of capital for a
potential market participant. The weighted average cost of
capital is an estimate of the overall after-tax rate of return required by
equity and debt holders of a business enterprise, which is developed with
the assistance of external financial
advisors.
|
The
market approach is one of the other primary methods used for estimating fair
value of a reporting unit, asset, or asset group. This assumption
relies on the market value (market capitalization) of companies that are engaged
in the same or similar line of business.
ITEM 7.
Management's Discussion and
Analysis of Financial Condition and Results of Operations
(continued)
See Notes
2, 12 and 13 of the Notes to the Financial Statements for more information
regarding the costs and assumptions for impairment of goodwill and long-lived
assets.
Sensitivity
Analysis. Due to changes in business conditions (discussed in
Note 13 of the Notes to the Financial Statements) our fourth quarter 2007
impairment testing of goodwill included changes in our assumptions used to
measure the fair value of Volvo, a component of PAG. Specifically, we
changed our business projections (most notably, lowering net revenues and new
vehicle volumes), our projected growth rates, and our assumptions of economic
projections (specifically foreign currency exchange rates). As a
result, we recorded a $2.4 billion goodwill impairment.
After the
impairment, $1.4 billion of goodwill remains in PAG related solely to
Volvo. A worsening of the business climate would impact the
assumptions we use in performing our future impairment tests and could result in
additional impairment of goodwill. We estimate that a 0.5 percentage
point decrease in the long-term growth rate would decrease the fair value
estimate by about $250 million. A 0.5 percentage point increase in
the discount rate assumption would decrease the fair value estimate by about
$350 million.
Valuation
of Deferred Tax Assets
Nature of
Estimates Required. Deferred tax assets and liabilities are
recognized based on the future tax consequences attributable to temporary
differences that exist between the financial statement carrying value of assets
and liabilities and their respective tax bases, and operating loss and tax
credit carryforwards on a taxing jurisdiction basis. We measure
deferred tax assets and liabilities using enacted tax rates that will apply in
the years in which we expect the temporary differences to be recovered or
paid.
SFAS
No. 109, Accounting for
Income Taxes ("SFAS No. 109"),
requires a reduction of the carrying amounts of deferred tax assets by recording
a valuation allowance if, based on the available evidence, it is more likely
than not (defined by SFAS No. 109 as a likelihood of more than 50 percent) such
assets will not be realized. The valuation of deferred tax assets
requires judgment in assessing the likely future tax consequences of events that
have been recognized in our financial statements or tax returns and future
profitability. Our accounting for deferred tax consequences
represents our best estimate of those future events. Changes in our
current estimates, due to unanticipated events or otherwise, could have a
material impact on our financial condition and results of
operations.
Assumptions and
Approach Used. In assessing the need for a valuation
allowance, we consider both positive and negative evidence related to the
likelihood of realization of the deferred tax assets. If, based on
the weight of available evidence, it is more likely than not the deferred tax
assets will not be realized, we record a valuation allowance. The
weight given to the positive and negative evidence is commensurate with the
extent to which the evidence may be objectively verified. As such, it
is generally difficult for positive evidence regarding projected future taxable
income exclusive of reversing taxable temporary differences to outweigh
objective negative evidence of recent financial reporting
losses. SFAS No. 109 states that a cumulative loss in recent years is
a significant piece of negative evidence that is difficult to overcome in
determining that a valuation allowance is not needed against deferred tax
assets.
This
assessment, which is completed on a taxing jurisdiction basis, takes into
account a number of types of evidence, including the following:
|
·
|
Nature, frequency, and
severity of current and cumulative financial reporting losses – A
pattern of objectively measured recent financial reporting losses is
heavily weighted as a source of negative evidence. In certain
circumstances, historical information may not be as relevant due to
changed circumstances;
|
|
·
|
Sources of future taxable
income – Future reversals of existing temporary differences are
heavily-weighted sources of objectively verifiable positive
evidence. Projections of future taxable income exclusive of
reversing temporary differences are a source of positive evidence only
when the projections are combined with a history of recent profits and can
be reasonably estimated. Otherwise, these projections are
considered inherently subjective and generally will not be sufficient to
overcome negative evidence that includes relevant cumulative losses in
recent years, particularly if the projected future taxable income is
dependent on an anticipated turnaround to profitability that has not yet
been achieved. In such cases, we generally give these
projections of future taxable income no weight for the purposes of our
valuation allowance assessment pursuant to SFAS No. 109;
and
|
|
·
|
Tax planning strategies
– If necessary and available, tax planning strategies would be
implemented to accelerate taxable amounts to utilize expiring
carryforwards. These strategies would be a source of additional
positive evidence and, depending on their nature, could be heavily
weighted.
|
See
Note 19 of the Notes to the Financial Statements for more information regarding
deferred tax assets.
Sensitivity
Analysis. In 2006, our net deferred tax position at our U.S.,
Jaguar, and Land Rover entities changed from a net deferred tax liability
position to a net deferred tax asset position. In our assessment of
the need for a valuation allowance, and as required by SFAS No. 109, we heavily
weighted the negative evidence of cumulative financial reporting losses in
recent periods and the positive evidence of future reversals of existing
temporary differences. Although a sizable portion of our North
American losses in recent years were the result of charges incurred for
restructuring actions, impairments, and other special items, even without these
charges we still would have incurred significant operating
losses. Accordingly, we considered our pattern of recent losses to be
relevant to our analysis. Considering this pattern of recent relevant
losses and the uncertainties associated with projected future taxable income
exclusive of reversing temporary differences, we gave no weight to projections
showing future U.S. taxable income for purposes of assessing the need for a
valuation allowance. As a result of our assessment, we concluded that
the net deferred tax assets at our U.S., Jaguar, and Land Rover entities
required a full valuation allowance.
ITEM 7.
Management's Discussion and
Analysis of Financial Condition and Results of Operations
(continued)
At
December 31, 2006, we reported a $7.2 billion valuation allowance against our
deferred tax assets (including $2.7 billion resulting from the adoption of SFAS
No. 158, Employers' Accounting for Defined Benefit Pension and Other
Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106, and
132(R) ("SFAS No. 158")). During 2007, we recorded an additional
valuation allowance for our U.S., Jaguar, and Land Rover entities of $1.4
billion (including about $700 million resulting from the adoption of FIN
48).
A return
to profitability in our North America operations would result in a reversal of a
portion of the valuation allowance relating to realized deferred tax assets, but
we may not change our judgment of the need for a full valuation allowance on our
remaining deferred tax assets. A sustained period of North America
profitability could cause a change in our judgment about the realizability of
the remaining deferred tax assets. In that case, it is likely that we
would reverse some or all of the remaining deferred tax asset valuation
allowance. However, as discussed above, since we have heavily
weighted objectively measured recent financial reporting losses and given no
weight to subjectively determined projections of future taxable income exclusive
of reversing temporary differences, we have concluded as of December 31, 2007
and 2006 that it is more likely than not such deferred tax assets will not be
realized (in whole or in part), and accordingly, we have recorded a full
valuation allowance against the net deferred tax assets.
At
December 31, 2007 and 2006, our deferred tax assets, net of the valuation
allowances of $8.6 billion and $7.2 billion respectively, were
$466 million and $2.2 billion, respectively. These net
deferred tax assets related to operations outside North America where we
believed it was more likely than not that these net deferred tax assets would be
realized through future taxable earnings. Accordingly, no valuation
allowance has been established on our remaining net deferred tax
assets. Most notably, at December 31, 2007 and 2006, we continued to
recognize a net deferred tax asset of $1.5 billion and $1.7 billion,
respectively, in our U.K. Automotive operations, primarily based upon the tax
return consolidation of our Automotive operations with our U.K. FCE
operation. Our U.K. FCE operation has a long history of profitability
and we believe it will provide a source of future taxable income that can be
reasonably estimated. If, in the future, we are not able to
consolidate FCE profits in the U.K., additional valuation allowances may be
required. We will continue to assess the need for a valuation
allowance in the future.
Accumulated
Depreciation on Vehicles Subject to Operating Leases
Accumulated
depreciation on vehicles subject to operating leases reduces the value of the
leased vehicles in our operating lease portfolio from their original acquisition
value to their expected residual value at the end of the lease
term. These vehicles primarily consist of retail lease contracts for
Ford Credit and vehicles sold to daily rental car companies subject to a
guaranteed repurchase option ("rental repurchase vehicles") for the Automotive
sector.
We
monitor residual values each month, and we review the adequacy of our
accumulated depreciation on a quarterly basis. If we believe that the
expected residual values for our vehicles have changed, we revise depreciation
to ensure that our net investment in operating leases (equal to our acquisition
value of the vehicles less accumulated depreciation) will be adjusted to reflect
our revised estimate of the expected residual value at the end of the lease
term. Such adjustments to depreciation expense would result in a
change in the depreciation rates of the vehicles subject to operating leases,
and are recorded prospectively on a straight-line basis.
For
retail leases, each lease customer has the option to buy the leased vehicle at
the end of the lease or to return the vehicle to the dealer. If the
customer returns the vehicle to the dealer, the dealer may buy the vehicle from
Ford Credit or return it to Ford Credit. Ford Credit's North America
operating lease activity was as follows for each of the last three years (in
thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
Vehicle
return volume
|
|
|
300 |
|
|
|
237 |
|
|
|
286 |
|
Return
rate
|
|
|
79 |
% |
|
|
72 |
% |
|
|
67 |
% |
For
rental repurchase vehicles, practically all vehicles have been returned to
us.
Nature of Estimates Required.
Each operating lease in our portfolio represents a vehicle we own that
has been leased to a customer. At the time we purchase a lease, we
establish an expected residual value for the vehicle. We estimate the
expected residual value by evaluating historical auction values, historical
return volumes for our leased vehicles, industry-wide used vehicle prices, our
marketing plans and vehicle quality data.
Assumptions
Used. For retail leases, our accumulated depreciation on
vehicles subject to operating leases is based on our assumptions
of:
|
•
|
Auction
value. The market value of the vehicles when we sell
them at the end of the lease; and
|
|
•
|
Return
volume. The number of vehicles that will be returned to
us at lease end.
|
ITEM 7.
Management's Discussion and
Analysis of Financial Condition and Results of Operations
(continued)
See
Note 5 of the Notes to the Financial Statements for more information
regarding accumulated depreciation on vehicles subject to operating
leases.
Sensitivity
Analysis. For returned vehicles, we face a risk that the
amount we obtain from the vehicle sold at auction will be less than our estimate
of the expected residual value for the vehicle. At
December 31, 2007, if future auction values for Ford Credit's existing
portfolio of operating leases on Ford, Lincoln and Mercury brand vehicles in the
U.S. were to decrease by one percent from its present estimates, the effect
would be to increase the depreciation on these vehicles by about
$60 million. Similarly, if return volumes for Ford Credit's
existing portfolio of operating leases on Ford, Lincoln and Mercury brand
vehicles in the U.S. were to increase by one percentage point from its present
estimates, the effect would be to increase the depreciation on these vehicles by
about $10 million. These increases in depreciation would be
charged to depreciation expense during the 2008 through 2011 period so that
the net investment in operating leases at the end of the lease term for these
vehicles is equal to the revised expected residual value. Adjustments
to the amount of accumulated depreciation on operating leases will be reflected
on our balance sheet as Net
investment in operating leases and on the income statement in Depreciation, in each case
under the Financial Services sector.
Allowance
for Credit Losses
The
allowance for credit losses is Ford Credit's estimate of the probable credit
losses inherent in finance receivables and operating leases at the date of the
balance sheet. Consistent with its normal practices and policies,
Ford Credit assesses the adequacy of its allowance for credit losses quarterly
and regularly evaluates the assumptions and models used in establishing the
allowance. Because credit losses can vary substantially over time,
estimating credit losses requires a number of assumptions about matters that are
uncertain.
Nature
of Estimates Required. Ford Credit
estimates the probable credit losses inherent in finance receivables and
operating leases based on several factors.
Retail Installment and Lease
Portfolio. The retail installment and lease portfolio is evaluated using
a combination of models and management judgment, and is based on factors such as
historical trends in credit losses and recoveries (including key metrics such as
delinquencies, repossessions, and bankruptcies), the composition of our present
portfolio (including vehicle brand, term, risk evaluation, and new/used
vehicles), trends in historical and projected used vehicle values, and economic
conditions. Estimates from models may not fully reflect losses
inherent in the present portfolio, and an element of the allowance for credit
losses is established for the imprecision inherent in loan loss
models. Reasons for imprecision include changes in economic trends
and conditions, portfolio composition and other relevant factors.
Assumptions
Used. Ford Credit makes projections of two key
assumptions:
|
•
|
Frequency. The
number of finance receivables and operating lease contracts that Ford
Credit expects will default over a period of time, measured as
repossessions; and
|
|
•
|
Loss
severity. The expected difference between the amount a
customer owes Ford Credit when Ford Credit charges off the finance
contract and the amount Ford Credit receives, net of expenses, from
selling the repossessed vehicle, including any recoveries from the
customer.
|
Ford
Credit uses these assumptions to assist in estimating its allowance for credit
losses. See Note 6 of the Notes to the Financial Statements for
more information regarding allowance for credit losses.
Sensitivity
Analysis. Changes in the assumptions used to derive frequency
and severity would affect the allowance for credit losses. The effect
of the indicated increase/decrease in the assumptions is shown below for Ford,
Lincoln and Mercury brand vehicles in the United States retail and lease
portfolio (in millions):
|
|
|
|
|
|
|
Assumption
|
|
|
|
|
December
31, 2007 Allowance for Credit Losses
|
|
|
|
|
Repossession
rates *
|
|
+/-
0.1
|
pt. |
|
$ |
40/$(40)
|
|
|
$ |
40/$(40)
|
|
Loss
severity
|
|
|
+/-
1.0 |
|
|
|
10/(10)
|
|
|
|
10/(10)
|
|
__________
* Reflects
the number of finance receivables and operating lease contracts that Ford Credit
expects will default over a period of time relative to the average number of
contracts outstanding.
ITEM 7.
Management's Discussion and
Analysis of Financial Condition and Results of Operations
(continued)
Wholesale and Dealer Loan
Portfolio. The wholesale and dealer loan portfolio is
evaluated by segmenting individual loans into risk pools, which are determined
by the risk characteristics of the loan (such as the amount of the loan, the
nature of collateral, and the financial status of the dealer). The
risk pools are analyzed to determine if individual loans are impaired, and an
allowance is estimated for the expected loss of these loans.
Changes
in Ford Credit's assumptions affect the Provision
for credit and insurance losses on our income statement and the allowance
for credit losses contained within Finance
receivables, net and Net
investment in operating
leases on our balance sheet, in each case under the Financial Services
sector.
ACCOUNTING
STANDARDS ISSUED BUT NOT YET ADOPTED
In
September 2006, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 157, Fair Value
Measurements ("SFAS No. 157"). This standard
defines fair value, establishes a framework for measuring fair value in U.S.
GAAP, and expands disclosures about fair value
measurements. SFAS No. 157 does not introduce new
requirements for when fair value measures must be used, but focuses on how to
measure fair value. SFAS No. 157 establishes a fair value
hierarchy to classify the sources of information used to measure fair
value. SFAS No. 157 is effective for us as of
January 1, 2008. We are assessing the potential impact on
present fair value measurement techniques, on our disclosures, and on our
financial position.
In
September 2006, the FASB issued SFAS No. 158. This standard has
certain recognition and disclosure requirements that we adopted as of year-end
December 31, 2006. Additionally, SFAS No. 158 requires an
employer to measure the funded status of a plan as of the date of its year-end
statement of financial position. This requirement is not effective
until December 2008. The measurement date for substantially all
of our worldwide postretirement benefit plans is
December 31. The potential impact on our financial condition for
those plans in which we have not adopted the requirement to measure plan assets
and benefit obligation as of the date of our present statement of financial
position is minimal.
In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities – Including an amendment of FASB Statement No.
115 ("SFAS No. 159"). This standard permits entities
to measure certain financial assets and liabilities at fair
value. The fair value option may be elected on an instrument by
instrument basis and any election is irrevocable. Unrealized gains
and losses on items for which the fair value option has been elected will be
recognized in earnings at each subsequent reporting
date. SFAS No. 159 is effective for us as of
January 1, 2008. We will adopt the fair value option for
available-for-sale securities, which will result in a cumulative after-tax
effect increase of approximately $12 million to the opening balance of
Retained earnings as of
January 1, 2008.
In
December 2007, the FASB issued SFAS No. 141R, Business Combinations ("SFAS
No. 141R"). This standard establishes principles and
requirements for how the acquirer recognizes and measures the acquired
identifiable assets, assumed liabilities, noncontrolling interest in the
acquiree, and acquired goodwill or gain from a bargain
purchase. SFAS No. 141R also determines what information
the acquirer must disclose to enable users of the financial statements to
evaluate the nature and financial effects of the business
combination. SFAS No. 141R applies prospectively
to business combinations for which the acquisition date is on or after
January 1, 2009. We are assessing the potential impact of
this standard on our financial condition and results of operations.
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No. 51
("SFAS No. 160"). This standard establishes accounting and
reporting standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. SFAS No. 160 clarifies that a
noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated
financial statements. SFAS No. 160 is effective for us as
of January 1, 2009 with early adoption
prohibited. SFAS No. 160 shall be applied prospectively as
of the beginning of the fiscal year in which this standard is initially
applied. The presentation and disclosure requirements of this
standard shall be applied retrospectively for all periods presented and will
impact how we present and disclose noncontrolling interests and income from
noncontrolling interests in our financial statements.
ITEM 7.
Management's Discussion and
Analysis of Financial Condition and Results of Operations
(continued)
OFF-BALANCE
SHEET ARRANGEMENTS
We have
entered into various arrangements not reflected on our balance sheet that have
or are reasonably likely to have a current or future effect on our financial
condition, results of operations or liquidity. These include
securitizations by Ford Credit in off-balance sheet transactions, variable
interest entities ("VIEs") and guarantees. For a discussion of our
VIEs and guarantees, see Notes 14 and 28, respectively, of the Notes to the
Financial Statements.
Securitizations
by Ford Credit
Securitization. Ford
Credit securitizes finance receivables and net investment in operating leases
through a variety of programs, utilizing amortizing, variable funding and
revolving structures. Most of Ford Credit's securitizations do not
satisfy the requirements for accounting sale treatment, and the securitized
assets and associated debt remain on Ford Credit's balance
sheet. Some of Ford Credit's securitizations, however, do satisfy
accounting sale treatment and are not reflected on its balance sheet in the same
way as debt funding. Both on- and off-balance sheet securitizations
have an effect on its financial condition, operating results and
liquidity.
In a
securitization transaction, the securitized assets are generally held by a
bankruptcy-remote special purpose entity ("SPE") in order to isolate the
securitized assets from the claims of Ford Credit's other creditors and to
insure that the cash flows on the securitized assets are available for the
benefit of securitization investors. As a result, payments to
securitization investors are based on the creditworthiness of the securitized
assets and any enhancements, and not on Ford Credit's
creditworthiness. Senior asset-backed securities issued by the SPEs
generally receive the highest short-term credit ratings and among the highest
long-term credit ratings from the rating agencies that rate them.
In order
to be eligible for inclusion in a securitization transaction, each asset must
satisfy certain eligibility criteria designed for the specific
transaction. For example, for securitizations of retail installment
sale contracts, the selection criteria may be based on factors such as location
of the obligor, contract term, payment schedule, interest rate, financing
program, the type of financed vehicle, and whether the contracts are active and
in good standing (e.g., when the obligor is not more than 30-days delinquent or
bankrupt). Generally, Ford Credit selects the assets to be included
in a particular securitization randomly from its entire portfolio of assets that
satisfy the applicable eligibility criteria. Specific assets are
usually not identified until the month in which the securitization
occurs.
Securitization
SPEs have limited purposes and generally are only permitted to purchase the
securitized assets, issue the asset-backed securities and make payments on the
securities. Some SPEs, such as the trusts that issue securities
backed by retail installment sale contracts, only issue a single series of
securities and generally are dissolved when those securities have been paid in
full. Other SPEs, such as the trusts that issue securities backed by
wholesale receivables, issue multiple series of securities from time to time and
are not dissolved until the last series of securities is paid in
full.
Ford
Credit's use of SPEs in its securitizations is consistent with conventional
practices in the securitization industry. Ford Credit sponsors the
SPEs used in all of its securitization programs with the exception of
bank-sponsored conduits. None of Ford Credit's officers, directors or
employees holds any equity interests in its SPEs or receives any direct or
indirect compensation from the SPEs. These SPEs do not own Ford
Credit's shares or shares of any of its affiliates. Ford Credit
has no direct exposure to monoline insurance companies (i.e., insurance
companies that operate in a single industry and guarantee the timely repayment
of bond principal and interest in the event an issuer defaults).
Ford
Credit retains interests in its securitization transactions, including senior
and subordinated securities issued by the SPE, rights to cash held for the
benefit of the securitization investors (for example, a reserve fund) and
residual interests. Residual interests represent the right to receive
collections on the securitized assets in excess of amounts needed to pay
securitization investors and to pay other transaction participants and
expenses. Ford Credit retains credit risk in securitizations because
its retained interests include the most subordinated interests in the
securitized assets, which are the first to absorb credit losses on the
securitized assets. Based on past experience, Ford Credit expects
that any credit losses in the pool of securitized assets would likely be limited
to its retained interests.
At
December 31, 2007 and 2006, the total outstanding principal amount of
finance receivables sold by Ford Credit in off-balance sheet securitizations was
$6 billion and $12.2 billion, respectively. At
December 31, 2007 and 2006, Ford Credit's retained interests in such
sold receivables were $653 million and $990 million,
respectively.
ITEM 7.
Management's Discussion and
Analysis of Financial Condition and Results of Operations
(continued)
At
December 31, 2007 and 2006, Ford Credit's total outstanding principal amount of
finance receivables and net investment in operating leases included in
on-balance sheet securitizations was $86.1 billion and $71.7 billion,
respectively. The cash balances to be used only to support the
on-balance sheet securitizations at December 31, 2007 and 2006, were
approximately $4.7 billion and $3.7 billion,
respectively. Debt issued that is payable only out of collections on
the underlying securitized assets and related enhancements totaled
$69.2 billion and $59.6 billion at December 31, 2007 and
2006, respectively.
Ford
Credit generally has no obligation to repurchase or replace any securitized
asset that subsequently becomes delinquent in payment or otherwise is in
default. Securitization investors have no recourse to Ford Credit or
its non-securitized assets for credit losses on the securitized assets and have
no right to require Ford Credit to repurchase their investments. Ford
Credit does not guarantee any asset-backed securities and has no obligation to
provide liquidity or make monetary contributions or contributions of additional
assets to its SPEs either due to the performance of the securitized assets or
the credit rating of its short-term or long-term debt. However, as
the seller and servicer of the securitized assets, Ford Credit is obligated to
provide certain kinds of support to its securitizations, which are customary in
the securitization industry. These obligations consist of
indemnifications, repurchase obligations on assets that do not meet eligibility
criteria or that have been materially modified, the mandatory sale of additional
assets in revolving transactions and, in some cases, servicer advances of
interest shortfalls or other amounts.
Risks to Continued Funding under
Securitization Programs. The following securitization programs
contain structural features that could prevent Ford Credit from using these
sources of funding in certain circumstances:
|
·
|
Retail
Securitization. If the credit enhancement on any
asset-backed security held by FCAR is reduced to zero, FCAR may not
purchase any additional asset-backed securities and would wind down its
operations. In addition, if credit losses or delinquencies in
Ford Credit's portfolio of retail assets exceed specified levels, FCAR is
not permitted to purchase additional asset-backed securities for so long
as such levels are exceeded.
|
|
·
|
Retail Conduits. If
credit losses or delinquencies on the pool of assets held by a conduit
exceed specified levels, or if the level of over-collateralization for
such pool decreases below a specified level, Ford Credit will not have the
right to sell additional pools of assets to that
conduit.
|
|
·
|
Wholesale
Securitization. If the payment rates on wholesale
receivables are lower than specified levels, or if there are significant
dealer defaults, Ford Credit will be unable to obtain additional funding
and any existing funding would begin to
amortize.
|
|
·
|
Retail
Warehouse. If credit losses or delinquencies in Ford
Credit's portfolio of retail assets exceed specified levels, Ford Credit
will be unable to obtain additional funding from the securitization of
retail installment sale contracts through its retail warehouse facility
(i.e., a short-term credit facility under which draws are backed by the
retail contracts).
|
|
·
|
Revolving and Variable Funding
Note Structures in Europe. If FCE fails to add the
required amount of additional assets, or if cash reserves fall below
certain levels, FCE will be unable to obtain additional funding through
its revolving/variable funding note securitization programs and any
existing funding would begin to
amortize.
|
In the
past, these features have not limited Ford Credit's ability to use
securitization to fund its operations.
In
addition to the specific transaction-related structural features discussed
above, Ford Credit's securitization programs may be affected by the following
factors: market disruption and volatility, the market capacity for
Ford Credit and Ford Credit's sponsored investments, the general demand for the
type of assets supporting the asset-backed securities, the availability of
liquidity facilities, the amount and credit quality of assets available, the
performance of assets in its previous securitizations, accounting and regulatory
changes, and Ford Credit's credit ratings. If, as a result of any of
these or other factors, the cost of securitization funding were to increase
significantly or funding through securitizations were no longer available to
Ford Credit, it would have a material adverse impact on Ford Credit's financial
condition, results of operations or liquidity.
ITEM 7.
Management's Discussion and
Analysis of Financial Condition and Results of Operations
(continued)
AGGREGATE
CONTRACTUAL OBLIGATIONS
We are
party to many contractual obligations involving commitments to make payments to
third parties. Most of these are debt obligations incurred by our
Financial Services sector. Long-term debt may have fixed or variable
interest rates. For long-term debt with variable rate interest, we
estimate the future interest payments based on projected market interest rates
for various floating-rate benchmarks received from third parties. In
addition, as part of our normal business practices, we enter into contracts with
suppliers for purchases of certain raw materials, components and
services. These arrangements may contain fixed or minimum quantity
purchase requirements. We enter into such arrangements to facilitate
adequate supply of these materials and services. "Purchase
obligations" are defined as off-balance sheet agreements to purchase goods or
services that are enforceable and legally binding on the Company and that
specify all significant terms.
The table
below summarizes our contractual obligations as of December 31, 2007
(in millions):
|
|
|
|
|
|
|
|
|
|
|
Payments
Due by Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009-2010
|
|
|
|
2011-2012
|
|
|
|
|
On-balance
sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt* (excluding capital leases)
|
|
$ |
25,963 |
|
|
$ |
114,478 |
|
|
$ |
140,441 |
|
|
$ |
33,242 |
|
|
$ |
46,027 |
|
|
$ |
26,219 |
|
|
$ |
34,953 |
|
Interest
payments relating to long-term debt
|
|
|
27,820 |
|
|
|
21,106 |
|
|
|
48,926 |
|
|
|
7,996 |
|
|
|
10,939 |
|
|
|
6,425 |
|
|
|
23,566 |
|
Capital
leases
|
|
|
335 |
|
|
|
— |
|
|
|
335 |
|
|
|
56 |
|
|
|
132 |
|
|
|
97 |
|
|
|
50 |
|
Off-balance
sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
obligations
|
|
|
3,626 |
|
|
|
97 |
|
|
|
3,723 |
|
|
|
1,473 |
|
|
|
1,886 |
|
|
|
240 |
|
|
|
124 |
|
Operating
leases
|
|
|
1,543 |
|
|
|
505 |
|
|
|
2,048 |
|
|
|
599 |
|
|
|
779 |
|
|
|
300 |
|
|
|
370 |
|
Total
|
|
$ |
59,287 |
|
|
$ |
136,186 |
|
|
$ |
195,473 |
|
|
$ |
43,366 |
|
|
$ |
59,763 |
|
|
$ |
33,281 |
|
|
$ |
59,063 |
|
_________
* Amount
includes $521 million for the Automotive sector and $32.8 billion for the
Financial Services sector for the current portion of long-term
debt. See Note 16 of the Notes to the Financial Statements for
additional discussion.
Liabilities
recognized under FIN 48 for uncertain tax benefits of $2.1 billion (see
Note 19 of the Notes to the Financial Statements) are excluded from the table
above. Final settlement of a significant portion of these obligations
will require bilateral tax agreements among us and various countries, the timing
of which cannot be reasonably estimated.
For
additional information regarding long-term debt, operating lease obligations,
and pension and OPEB obligations, see Notes 16, 5 and 24, respectively, of the
Notes to the Financial Statements.
ITEM 7A. Quantitative and
Qualitative Disclosures About Market Risk
OVERVIEW
We are
exposed to a variety of market and other risks, including the effects of changes
in foreign currency exchange rates, commodity prices, interest rates, as well as
risks to availability of funding sources, hazard events, and specific asset
risks.
These
risks affect our Automotive and Financial Services sectors
differently. We monitor and manage these exposures as an integral
part of our overall risk management program, which includes regular reports to a
central management committee, the Global Risk Management Committee
("GRMC"). The GRMC is chaired by our Chief Financial Officer, and its
members include our Treasurer, our Controller, and other members of senior
management.
Our
Automotive and Financial Services sectors are exposed to liquidity risk, or the
possibility of having to curtail their businesses or being unable to meet
present and future financial obligations as they come due because funding
sources may be reduced or become unavailable. We maintain plans for
sources of funding to ensure liquidity through a variety of economic or business
cycles. As discussed in greater detail in
"Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations," our funding sources include sales of receivables in
securitizations and other structured financings, unsecured debt issuances and
bank borrowings.
We are
exposed to a variety of insurable risks, such as loss or damage to property,
liability claims, and employee injury. We protect against these risks
through a combination of self-insurance and the purchase of commercial insurance
designed to protect against events that could generate significant
losses.
Direct
responsibility for the execution of our market risk management strategies
resides with our Treasurer's Office and is governed by written polices and
procedures. Separation of duties is maintained between the
development and authorization of derivative trades, the transaction of
derivatives, and the settlement of cash flows. Regular audits are
conducted to ensure that appropriate controls are in place and that they remain
effective. In addition, our market risk exposures and our use of
derivatives to manage these exposures are reviewed by the GRMC, and the Audit
and Finance Committees of our Board of Directors.
In
accordance with corporate risk management policies, we use derivative
instruments, such as forward contracts, swaps and options that economically
hedge certain exposures (foreign currency, commodity, and interest
rates). Derivative positions are used to manage underlying exposures;
we do not use derivative contracts for trading, market-making or speculative
purposes. In certain instances, we forgo hedge accounting, which
results in unrealized gains and losses that are recognized currently in net
income. For additional information on our derivatives, see
Note 23 of the Notes to the Financial Statements.
The
market and counterparty risks of our Automotive sector and Ford Credit are
discussed and quantified below.
AUTOMOTIVE
MARKET AND COUNTERPARTY RISK
Our
Automotive sector frequently has expenditures and receipts denominated in
foreign currencies, including the following: purchases and sales of finished
vehicles and production parts, debt and other payables, subsidiary dividends,
and investments in foreign operations. These expenditures and
receipts create exposures to changes in exchange rates. We also are
exposed to changes in prices of commodities used in our Automotive sector and
changes in interest rates.
Foreign
currency risk and commodity risk are measured and quantified using a model to
evaluate the sensitivity of the fair value of currency and commodity derivative
instruments with exposure to market risk that assumes instantaneous, parallel
shifts in rates and/or prices. For options and instruments with
non-linear returns, appropriate models are utilized to determine the impact of
shifts in rates and prices.
ITEM 7A.
Quantitative and Qualitative
Disclosures About Market Risk (continued)
Foreign Currency
Risk. Foreign currency risk is the possibility that our
financial results could be better or worse than planned because of changes in
foreign currency exchange rates. Accordingly, we use derivative
instruments to hedge our economic exposure with respect to forecasted revenues
and costs, assets, liabilities, investments in foreign operations, and firm
commitments denominated in foreign currencies. In our hedging
actions, we use primarily instruments commonly used by corporations to reduce
foreign exchange risk (e.g., forward contracts and options).
The net
fair value of foreign exchange forward and option contracts as of
December 31, 2007 was an asset of $632 million compared to an
asset of $705 million as of December 31, 2006. The
potential decrease in fair value of foreign exchange forward and option
contracts, assuming a 10% adverse change in the underlying foreign currency
exchange rates, would be about $2.0 billion and $2.1 billion at
December 31, 2007 and 2006, respectively.
Commodity Price
Risk. Commodity price risk is the possibility that our
financial results could be better or worse than planned because of changes in
the prices of commodities used in the production of motor vehicles, such as
non-ferrous metals (e.g., aluminum), precious metals (e.g., palladium), ferrous
metals (e.g., steel and iron castings), energy (e.g., natural gas and
electricity), and plastics/resins (e.g., polypropylene). Steel and
resins are our two largest commodity exposures and are among the most difficult
to hedge.
We use
derivative instruments to hedge the price risk associated with the purchase of
those commodities that we can economically hedge (primarily non-ferrous metals,
precious metals and energies). In our hedging actions, we primarily
use instruments commonly used by corporations to reduce commodity price risk
(e.g., financially settled forward contracts, swaps, and options).
The net
fair value of commodity forward and option contracts as of
December 31, 2007 was an asset of $353 million compared to an
asset of $750 million as of December 31, 2006. The
potential decrease in fair value of commodity forward and option contracts,
assuming a 10% adverse change in the underlying commodity price, would be about
$100 million and $200 million at December 31, 2007
and 2006, respectively.
In
addition, our purchasing organization (with guidance from the GRMC as
appropriate) negotiates contracts to ensure continuous supply of raw
materials. In some cases, these contracts stipulate minimum purchase
amounts and specific prices, and as such, play a role in managing price
risk.
Interest Rate
Risk. Interest rate risk relates to the gain or loss we could
incur in our Automotive investment portfolio due to a change in interest
rates. Our interest rate sensitivity analysis on the investment
portfolio includes cash and cash equivalents, net marketable and loaned
securities. At December 31, 2007, we had $33 billion
in our Automotive investment portfolio, compared to $32.6 billion at
December 31, 2006. We invest the portfolio in securities of
various types and maturities, the value of which are subject to fluctuations in
interest rates. These securities are generally classified as either
trading or available-for-sale. The trading portfolio gains and losses
(unrealized and realized) are reported in the income statement. The
available-for-sale portfolio realized gains or losses are reported in the income
statement, and unrealized gains and losses are reported in the Consolidated
Statement of Stockholders' Equity in Accumulated other comprehensive
income/(loss). The investment strategy is based on clearly
defined risk and liquidity guidelines to maintain liquidity, minimize risk, and
earn a reasonable return on the short-term investment.
At any
time, a rise in interest rates could have a material adverse impact on the fair
value of our trading and available-for-sale portfolios. As of
December 31, 2007, the value of our trading portfolio (including cash
and cash equivalents) was $31.2 billion, which is $300 million higher
than December 31, 2006. The value of our available-for-sale
portfolio (including cash equivalents) was about $1.6 billion, which is
about $50 million lower than December 31, 2006.
Assuming
a hypothetical increase in interest rates of one percentage point, the value of
our trading and available-for-sale portfolios would be reduced by about
$61 million and $24 million, respectively. This compares to
$92 million and $23 million, respectively, as calculated as of
December 31, 2006. While these are our best estimates of
the impact of the specified interest rate scenario, actual results could differ
from those projected. The sensitivity analysis presented assumes
interest rate changes are instantaneous, parallel shifts in the yield
curve. In reality, interest rate changes of this magnitude are rarely
instantaneous or parallel.
ITEM 7A.
Quantitative and Qualitative
Disclosures About Market Risk (continued)
Counterparty
Risk. The use of derivatives to manage market risk results in
counterparty risk, which is the loss we could incur if counterparty defaulted on
a derivative contract. We enter into master agreements with
counterparties that allow netting of certain exposures in order to manage this
risk. Exposures primarily relate to derivative contracts used for
managing interest rate, foreign currency exchange rate and commodity price
risk. We, together with Ford Credit, establish exposure limits for
each counterparty to minimize risk and provide counterparty
diversification.
Our
approach to managing counterparty risk is forward-looking and proactive,
allowing us to take risk mitigation actions before risks become
losses. We establish exposure limits for both net fair value and
future potential exposure, based on our overall risk tolerance and ratings-based
historical default probabilities. The exposure limits are lower for
lower-rated counterparties and for longer-dated exposures. We use a
Monte Carlo simulation technique to assess our potential exposure by tenor,
defined at a 95% confidence level. We monitor and report our
exposures to the Treasurer on a periodic basis.
Substantially
all of our counterparty exposures are with counterparties that are rated
single-A or better. Our guideline for counterparty minimum long-term
ratings is BBB-.
For
additional information about derivative notional amount and fair value of
derivatives, please refer to Note 23 of the Notes to the Financial
Statements.
FORD
CREDIT MARKET RISKS
Overview. Ford
Credit is exposed to a variety of risks in the normal course of its business
activities. In addition to counterparty risk discussed above, Ford
Credit is subject to the following additional types of risks that it seeks to
identify, assess, monitor and manage, in accordance with defined policies and
procedures:
|
•
|
Market
risk. The possibility that changes in interest and
currency exchange rates will adversely affect Ford Credit's cash flow and
economic value;
|
|
•
|
Credit
risk. The possibility of loss from a customer's failure
to make payments according to contract
terms;
|
|
•
|
Residual risk. The
possibility that the actual proceeds Ford Credit receives at lease
termination will be lower than its projections or return rates will be
higher than its projections; and,
|
|
•
|
Liquidity
risk. The possibility that Ford Credit may be unable to
meet all current and future obligations in a timely
manner.
|
Each form
of risk is uniquely managed in the context of its contribution to Ford Credit's
overall global risk. Business decisions are evaluated on a
risk-adjusted basis and products are priced consistent with these
risks. Credit and residual risks are discussed above in "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations – Critical Accounting Estimates" and liquidity risk is discussed
above in "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations – Liquidity and Capital
Resources". A discussion of Ford Credit's market risks is included
below.
Foreign Currency
Risk. To meet funding objectives, Ford Credit issues debt or,
for its international affiliates, draws on local credit lines in a variety of
currencies. Ford Credit faces exposure to currency exchange rate
changes if a mismatch exists between the currency of its receivables and the
currency of the debt funding those receivables. When possible,
receivables are funded with debt in the same currency, minimizing exposure to
exchange rate movements. When a different currency is used, Ford
Credit seeks to minimize its exposure to changes in currency exchange rates by
executing foreign currency derivatives. These derivatives convert
substantially all of its foreign currency debt obligations to the local country
currency of the receivables. As a result, Ford Credit's market risk
exposure relating to currency exchange rates is believed to be
insignificant.
ITEM 7A.
Quantitative and Qualitative
Disclosures About Market Risk (continued)
Interest Rate
Risk. Interest rate risk is the primary market risk to which
Ford Credit is exposed and consists principally of "re-pricing risk" or
differences in the re-pricing characteristics of assets and
liabilities. An instrument's re-pricing period is a term used by
financial institutions to describe how an interest rate-sensitive instrument
responds to changes in interest rates. It refers to the time it takes
an instrument's interest rate to reflect a change in market interest
rates. For fixed-rate instruments, the re-pricing period is equal to
the maturity for repayment of the instrument's principal because, with a fixed
interest rate, the principal is considered to re-price only when re-invested in
a new instrument. For a floating-rate instrument, the re-pricing
period is the period of time before the interest rate adjusts to the market
rate. For instance, a floating-rate loan whose interest rate is reset
to a market index annually on December 31 would have a re-pricing period of
one year on January 1, regardless of the instrument's
maturity.
Ford
Credit's receivables consist primarily of fixed-rate retail installment sale and
lease contracts and floating-rate wholesale receivables. Fixed-rate
retail installment sale and lease contracts are originated principally with
maturities ranging between two and six years and generally require customers to
make equal monthly payments over the life of the contract. Wholesale
receivables are originated to finance new and used vehicles held in dealers'
inventory and generally require dealers to pay a floating rate. Ford
Credit's funding sources consist primarily of securitizations and short- and
long-term unsecured debt. In the case of unsecured term debt, and in
an effort to have funds available throughout the business cycle, Ford Credit may
issue debt with five- to ten-year maturities, which is generally longer than the
terms of its assets. These debt instruments are principally
fixed-rate and require fixed and equal interest payments over the life of the
instrument and a single principal payment at maturity.
Ford
Credit is exposed to interest rate risk to the extent that a difference exists
between the re-pricing profile of its assets and debt. Specifically,
without derivatives, Ford Credit's assets would re-price more quickly than its
debt.
Ford
Credit's interest rate risk management objective is to maximize its economic
value while limiting the impact of changes in interest rates. Ford
Credit achieves this objective by setting an established risk tolerance and
staying within this tolerance through the following risk management
process:
Ford
Credit determines the sensitivity of the economic value of its portfolio of
interest rate-sensitive assets and liabilities (its economic value) to
hypothetical changes in interest rates. Economic value is a measure
of the present value of all future expected cash flows, discounted by market
interest rates, and is equal to the present value of interest rate-sensitive
assets minus the present value of interest rate-sensitive
liabilities. Ford Credit then enters into interest rate swaps, to
economically convert portions of its floating-rate debt to fixed or its
fixed-rate debt to floating, to ensure that the sensitivity of its economic
value falls within an established tolerance. Ford Credit also
monitors its pre-tax cash flow sensitivity over a twelve-month horizon using
simulation techniques. This simulation determines the sensitivity of
cash flows associated with the re-pricing characteristics of interest
rate-sensitive assets, liabilities and derivatives under various hypothetical
interest rate scenarios including both parallel and non-parallel shifts in the
yield curve. This sensitivity calculation does not take into account
any future actions Ford Credit may take to reduce the risk profile that arises
from a change in interest rates. These quantifications of interest
rate risk are reported to our Treasurer regularly (either monthly or quarterly
dependent on the market).
The
process described above is used to measure and manage the interest rate risk of
Ford Credit's operations in the United States, Canada and the United Kingdom,
which together represented approximately 78% of its total on-balance sheet
finance receivables at December 31, 2007. For its other
international affiliates, Ford Credit uses a technique commonly referred to as
"gap analysis," to measure re-pricing mismatch. This process uses
re-pricing schedules, which group assets, debt and swaps into discrete time
bands based on their re-pricing characteristics. Under this process,
Ford Credit enters into interest rate swaps, which effectively change the
re-pricing profile of its debt, to ensure that any re-pricing mismatch (between
assets and liabilities) existing in a particular time band falls within an
established tolerance.
ITEM 7A.
Quantitative and Qualitative
Disclosures About Market Risk (continued)
As a
result of its interest rate risk management process, Ford Credit's debt,
combined with the derivative instruments economically hedging its debt,
re-prices faster than its assets. Other things equal, this means that
during a period of rising interest rates, the interest rates paid on Ford
Credit's debt will increase more rapidly than the interest rates earned on its
assets, thereby initially reducing Ford Credit's pre-tax cash
flow. Correspondingly, during a period of falling interest rates,
Ford Credit's pre-tax cash flow would be expected to initially
increase. To provide a quantitative measure of the sensitivity of its
pre-tax cash flow to changes in interest rates, Ford Credit uses interest rate
scenarios that assume a hypothetical, instantaneous increase or decrease in
interest rates of one percentage point across all maturities (a "parallel
shift"), as well as a base case that assumes that interest rates remain constant
at existing levels. The differences between these scenarios and the
base case over a twelve-month period represent an estimate of the sensitivity of
Ford Credit's pre-tax cash flow. The sensitivity as of year-end 2007
and 2006 was as follows (in millions):
|
|
|
|
|
|
|
Pre-tax
Cash Flow sensitivity given a one percentage point instantaneous increase
in interest rates
|
|
$ |
(16 |
) |
|
$ |
(86 |
) |
Pre-tax
Cash Flow sensitivity given a one percentage point instantaneous decrease
in interest rates
|
|
|
16 |
|
|
|
86 |
|
Based on
assumptions included in the analysis, sensitivity to a one percentage point
instantaneous change in interest rates was lower at year-end 2007 than at
year-end 2006. This change primarily reflects the results of
normal fluctuations within the approved tolerances of risk management
strategy. While the sensitivity analysis presented is Ford Credit's
best estimate of the impacts of specified assumed interest rate scenarios, the
model Ford Credit uses for this analysis is heavily dependent on assumptions, so
that actual results could differ from those projected. Embedded in
the model Ford Credit uses are assumptions regarding the reinvestment of
maturing asset principal, refinancing of maturing debt, replacement of maturing
derivatives, exercise of options embedded in debt and derivatives, and predicted
repayment of retail installment sale and lease contracts ahead of contractual
maturity. Ford Credit's repayment projections of retail installment
sale and lease contracts ahead of contractual maturity are based on historical
experience. If interest rates or other factors were to change, the
actual prepayment experience could be different than projected.
Additionally,
interest rate changes of one percentage point or more are rarely instantaneous
or parallel, and rates could move more or less than the one percentage point
assumed in Ford Credit's analysis. As a result, the actual impact to
pre-tax cash flow could be higher or lower than the results detailed
above. The model used to conduct this analysis also relies heavily on
assumptions regarding the reinvestment of maturing asset principal, refinancing
of maturing debt, and predicted repayment of sale and lease contracts ahead of
contractual maturity.
The fair
value of Ford Credit's net derivative financial instruments (derivative assets
less derivative liabilities) as reported in Note 23 of the Notes to the
Financial Statements as of December 31, 2007 was $1.4 billion compared with
$1.5 billion at December 31, 2006. For additional
information on Ford Credit derivatives, please refer to the "Financial Services
Sector" discussion in Note 23 of the Notes to the Financial
Statements.
ITEM
8. Financial Statements and
Supplementary Data
Our
Financial Statements, the accompanying Notes to the Financial Statements, the
Report of Independent Registered Public Accounting Firm, and the Financial
Statement Schedule are filed as part of this Report are listed under
"Item 15. Exhibits and Financial Statement Schedules" and are set forth on
pages FS-1 through FS-67 and FSS-1 immediately following the signature pages of
this Report.
Selected
quarterly financial data for 2007 and 2006 is provided in Note 27 of the
Notes to the Financial Statements.
ITEM
9. Changes in and
Disagreements with Accountants on Accounting and Financial
Disclosure
None.
ITEM
9A. Controls and
Procedures
EVALUATION
OF DISCLOSURE CONTROLS AND PROCEDURES
Alan
Mulally, our Chief Executive Officer ("CEO"), and Donat R. Leclair, Jr., our
Chief Financial Officer ("CFO"), have performed an evaluation of the Company’s
disclosure controls and procedures, as that term is defined in Rule 13a-15(e) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as of
December 31, 2007 and each has concluded that such disclosure controls
and procedures were effective to ensure that information required to be
disclosed in our periodic reports filed under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified by the
Securities and Exchange Commission's rules and forms and such information is
accumulated and communicated to our management as appropriate to allow for
timely decisions regarding required disclosure.
MANAGEMENT'S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rule
13a-15(f). The Company's internal control over financial reporting is
a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions or because the degree of
compliance with policies or procedures may deteriorate.
Under the
supervision and with the participation of our management, including our CEO and
CFO, we conducted an assessment of the effectiveness of our internal control
over financial reporting as of December 31, 2007. The
assessment was based on criteria established in the framework Internal Control – Integrated
Framework, issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this assessment, management concluded
that our internal control over financial reporting was effective as of
December 31, 2007.
The
effectiveness of the Company's internal control over financial reporting as of
December 31, 2007 has been audited by PricewaterhouseCoopers LLP, an
independent registered public accounting firm, as stated in their report
included herein.
MATERIAL
CHANGES IN INTERNAL CONTROL
During
the fourth quarter of 2007, we had the following changes in our business
processes or practices that have resulted or likely will result in significant
changes in our internal control over financial reporting:
·
|
We
changed our global business practice for offering and announcing retail
variable marketing incentives to our dealers. Generally, we
accrue incentives for vehicles that we have produced based upon the
incentive information we have communicated to our dealers. In
the fourth quarter of 2007, we changed from a quarterly to an annual
process for announcing and committing to our dealers that incentives will
be available depending on various market
factors.
|
·
|
As
discussed in "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operation – Overview," Ford and the UAW
entered into a new Collective Bargaining Agreement, as well as a
Memorandum of Understanding concerning retiree health care
liability. Among other things, the new CBA provides for an
entry-level wage and post-retirement benefit structure and significant
limitations on Jobs Bank Benefits. The MOU essentially provides
for shifting to a new external VEBA, to which we will make specified
contributions, our obligation to provide retiree health care benefits to
current and former UAW-represented
employees.
|
·
|
Our
Ford Europe business unit partially insourced the provision of
transportation and logistics services in Europe. As
a result, revenue from the sale of vehicles that were previously shipped
via an outside service provider is now recognized at the time at which the
vehicles are delivered to our dealer customers, whereas prior to the
insourcing of the transportation services, revenue was recognized when the
vehicles were shipped via the outside service
provider.
|
ITEM
9B. Other
Information
None.
PART
III
ITEM
10. Directors, Executive
Officers of Ford and Corporate Governance
The
information required by Item 10 regarding our directors is incorporated by
reference from the information under the captions "Election of Directors,"
"Section 16(a) Beneficial Ownership Reporting Compliance" and "Management Stock
Ownership" in our Proxy Statement. The information required by Item
10 regarding our executive officers appears as Item 4A under Part I of this
Report. The information required by Item 10 regarding an audit
committee financial expert is incorporated by reference from the information
under the caption "Corporate Governance" in our Proxy Statement. The
information required by Item 10 regarding the members of our Audit Committee of
the Board of Directors is incorporated by reference from the information under
the caption "Committees of the Board of Directors" in our Proxy
Statement. The information required by Item 10 regarding the Audit
Committee's review and discussion of the audited financial statements is
incorporated by reference from information under the caption "Audit Committee
Report" in our Proxy Statement. The information required by Item 10
regarding our codes of ethics is incorporated by reference from the information
under the caption "Corporate Governance" in our Proxy Statement. In
addition, we have included in "Item 1. Business" instructions for how to access
our codes of ethics on our website and our Internet
address. Amendments to, and waivers granted under, our Code of Ethics
for Senior Financial Personnel, if any, will be posted to our website as
well.
ITEM
11. Executive
Compensation
The
information required by Item 11 is incorporated by reference from the
information under the following captions in our Proxy
Statement: "Director Compensation," "Compensation Discussion and
Analysis," "Compensation Committee Report," "Compensation Committee Interlocks
and Insider Participation," "Compensation of Executive Officers," "Grants of
Plan-Based Awards," "Outstanding Equity Awards at Fiscal Year-End," "Option
Exercises and Stock Vested," "Pension Benefits," "Nonqualified Deferred
Compensation," and "Post-Employment Compensation."
ITEM
12. Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder
Matters
The
information required by Item 12 is incorporated by reference from the
information under the captions "Equity Compensation Plan Information" and
"Management Stock Ownership" in our Proxy Statement.
ITEM
13. Certain Relationships and
Related Transactions, and Director Independence
The
information required by Item 13 is incorporated by reference from the
information under the captions "Certain Relationships and Related Transactions"
and "Corporate Governance" in our Proxy Statement.
ITEM
14. Principal Accounting Fees
and Services
The
information required by Item 14 is incorporated by reference from the
information under the caption "Audit Committee Report" in our Proxy
Statement.
PART
IV
ITEM
15. Exhibits and
Financial Statement Schedules
(a)
1. Financial Statements – Ford Motor Company and Subsidiaries
The
following are contained in this 2007 Form 10-K Report:
|
·
|
Consolidated
Statement of Income and Sector Statement of Income for the years ended
December 31, 2007, 2006, and
2005.
|
|
·
|
Consolidated
Balance Sheet and Sector Balance Sheet at December 31, 2007 and
2006.
|
|
·
|
Consolidated
Statement of Cash Flows and Sector Statement of Cash Flows for the years
ended December 31, 2007, 2006, and
2005.
|
|
·
|
Consolidated
Statement of Stockholders' Equity for the years ended December 31, 2007,
2006, and 2005.
|
|
·
|
Notes
to the Financial Statements.
|
|
·
|
Report
of Independent Registered Public Accounting
Firm.
|
The
Consolidated and Sector Financial Statements, the Notes to the Financial
Statements and the Report of Independent Registered Public Accounting Firm
listed above are filed as part of this Report and are set forth on pages FS-1
through FS-67 immediately following the signature pages of this
Report.
(a)
2. Financial Statement Schedules
Designation
|
Description
|
|
|
Schedule
II
|
Valuation
and Qualifying Accounts
|
Schedule
II is filed as part of this Report and is set forth on page FSS-1 immediately
following the Notes to the Financial Statements referred to
above. The other schedules are omitted because they are not
applicable, the information required to be contained in them is disclosed
elsewhere in our Consolidated and Sector Financial Statements or the amounts
involved are not sufficient to require submission.
(a)
3. Exhibits
Designation
|
|
Description
|
|
Method of
Filing
|
|
|
|
|
|
Exhibit
2
|
|
Stock
Purchase Agreement dated as of September 12, 2005 between
CCMG Holdings, Inc., Ford Holdings LLC and Ford Motor
Company.
|
|
Filed
as Exhibit 2 to our Quarterly Report on Form 10-Q for the period ended
September 30, 2005.*
|
|
|
|
|
|
Exhibit
3-A
|
|
Restated
Certificate of Incorporation, dated August 2, 2000.
|
|
Filed
as Exhibit 3-A to our Annual Report on Form 10-K for the year ended
December 31, 2000.*
|
|
|
|
|
|
Exhibit
3-B
|
|
By-Laws
as amended through December 14, 2006.
|
|
Filed
as Exhibit 3-B to our Annual Report on Form 10-K for the year ended
December 31, 2006.*
|
|
|
|
|
|
Exhibit
10-A
|
|
Amended
and Restated Profit Maintenance Agreement, dated as of
January 1, 2002, between Ford and Ford Credit.
|
|
Filed
as Exhibit 10-A to our Annual Report on Form 10-K for the
year ended December 31, 2001.*
|
|
|
|
|
|
Exhibit
10-B
|
|
Executive
Separation Allowance Plan as amended through October 1, 2006 for
separations on or after January 1, 1981.**
|
|
Filed
as Exhibit 10-B to our Quarterly Report on Form 10-Q for the quarter
ended
September 30, 2006.*
|
ITEM
15. Exhibits and Financial Statement Schedules (continued)
Designation |
|
Description |
|
Method
of Filing |
Exhibit
10-C
|
|
Deferred
Compensation Plan for Non- Employee Directors, as amended and restated as
of January 1, 2005.**
|
|
Filed
as Exhibit 10-D to our Annual Report on Form 10-K for the
year ended December 31, 2004.*
|
|
|
|
|
|
Exhibit
10-D
|
|
Benefit
Equalization Plan, as amended as of
October 1, 2006.**
|
|
Filed
as Exhibit 10-D to our Quarterly Report on Form 10-Q for the quarter
ended September 30, 2006.*
|
|
|
|
|
|
Exhibit
10-D-1
|
|
Amendment
to Benefit Equalization Plan, adopted in October 2002 and effective as of
November 1, 2001.**
|
|
Filed
as Exhibit 10 to our Quarterly Report on Form 10-Q for the
quarter ended September 30, 2002.*
|
|
|
|
|
|
Exhibit
10-E
|
|
Description
of financial counseling services provided to certain
executives.**
|
|
Filed
as Exhibit 10-F to Ford's Annual Report on Form 10-K for
the year ended December 31, 2002.*
|
|
|
|
|
|
Exhibit
10-F
|
|
Supplemental
Executive Retirement Plan, as amended through
October 1, 2006.**
|
|
Filed
as Exhibit 10-F to our Quarterly Report on Form 10-Q for the quarter
ended September 30, 2006.*
|
|
|
|
|
|
Exhibit
10-G
|
|
Restricted
Stock Plan for Non-Employee Directors adopted by the Board of Directors on
November 10, 1988.**
|
|
Filed
as Exhibit 10-P to our Annual Report on Form 10-K for the
year ended December 31, 1988.*
|
|
|
|
|
|
Exhibit
10-G-1
|
|
Amendment
to Restricted Stock Plan for Non-Employee Directors, effective as of
August 1, 1996.**
|
|
Filed
as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996.*
|
|
|
|
|
|
Exhibit
10-G-2
|
|
Amendment
to Restricted Stock Plan for Non-Employee Directors, effective as of
July 1, 2004.**
|
|
Filed
as Exhibit 10 to our Quarterly Report on Form 10-Q for the
quarter ended September 30, 2004.*
|
|
|
|
|
|
Exhibit
10-G-3
|
|
Description
of Director Compensation as of July 13, 2006.**
|
|
Filed
as Exhibit 10-G-3 to our Quarterly Report on Form 10-Q for the quarter
ended September 30, 2006.*
|
|
|
|
|
|
Exhibit
10-H
|
|
1990
Long-Term Incentive Plan, amended as of
June 1, 1990.**
|
|
Filed
as Exhibit 10-R to our Annual Report on Form 10-K for the
year ended December 31, 1990.*
|
|
|
|
|
|
Exhibit
10-H-1
|
|
Amendment
to 1990 Long-Term Incentive Plan, effective as of
October 1, 1990.**
|
|
Filed
as Exhibit 10-P-1 to our Annual Report on Form 10-K for the year
ended December 31, 1991.*
|
|
|
|
|
|
Exhibit
10-H-2
|
|
Amendment
to 1990 Long-Term Incentive Plan, effective as of
March 8, 1995.**
|
|
Filed
as Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995.*
|
|
|
|
|
|
Exhibit
10-H-3
|
|
Amendment
to 1990 Long-Term Incentive Plan, effective as of
October 1, 1997.**
|
|
Filed
as Exhibit 10-M-3 to our Annual Report on Form 10-K for the year
ended December 31, 1997.*
|
|
|
|
|
|
Exhibit
10-H-4
|
|
Amendment
to 1990 Long-Term Incentive Plan, effective as of
January 1, 1998.**
|
|
Filed
as Exhibit 10-M-4 to our Annual Report on Form 10-K for the year
ended December 31, 1997.*
|
|
|
|
|
|
Exhibit
10-I
|
|
Description
of Matching Gift Program and Vehicle Evaluation Program for Non-Employee
Directors.**
|
|
Filed
as Exhibit 10-I to our Annual Report
on Form 10-K/A for the year ended December 31,
2005.*
|
|
|
|
|
|
Exhibit
10-J
|
|
Non-Employee
Directors Life Insurance and Optional Retirement Plan (as amended as of
October 1, 2006).**
|
|
Filed
as Exhibit 10-J to our Quarterly Report on Form 10-Q for the quarter
ended
September 30, 2006.*
|
ITEM
15. Exhibits and Financial Statement Schedules (continued)
Designation |
|
Description |
|
Method
of Filing |
Exhibit
10-K
|
|
Description
of Non-Employee Directors Accidental Death, Dismemberment and Permanent
Total Disablement Indemnity.**
|
|
Filed
as Exhibit 10-S to our Annual Report on Form 10-K for the
year ended December 31, 1992.*
|
|
|
|
|
|
Exhibit
10-L
|
|
Agreement
dated December 10, 1992 between Ford and William C.
Ford.**
|
|
Filed
as Exhibit 10-T to our Annual Report on Form 10-K
for the year ended December 31, 1992.*
|
|
|
|
|
|
Exhibit
10-M
|
|
Select
Retirement Plan, as amended through
October 1, 2006.**
|
|
Filed
as Exhibit 10-M to our Quarterly Report on Form 10-Q for the quarter
ended September 30, 2006.*
|
|
|
|
|
|
Exhibit
10-N
|
|
Deferred
Compensation Plan, as amended and restated as of
July 12, 2006.**
|
|
Filed
as Exhibit 10-N to our Quarterly Report on Form 10-Q for the quarter
ended September 30, 2006.*
|
|
|
|
|
|
Exhibit
10-N-1
|
|
Amendments
to Deferred Compensation Plan, effective as of
December 1, 2006.**
|
|
Filed
as Exhibit 10-N-1 to our Annual Report on Form 10-K for the year
ended December 31, 2006.*
|
|
|
|
|
|
Exhibit
10-O
|
|
Annual
Incentive Compensation Plan, as amended and restated as of
January 1, 2000.**
|
|
Filed
as Exhibit 10-T to our Annual Report on Form 10-K
for the year ended December 31, 1999.*
|
|
|
|
|
|
Exhibit
10-O-1
|
|
Annual
Incentive Compensation Plan Metrics for 2007.**
|
|
Filed
as Exhibit 10-O-1 to our Annual Report on Form 10-K for the year
ended December 31, 2006.*
|
|
|
|
|
|
Exhibit
10-O-2
|
|
Annual
Incentive Compensation Plan Metrics for 2008.**
|
|
Filed
with this Report.
|
|
|
|
|
|
Exhibit
10-O-3
|
|
Performance-Based
Restricted Stock Unit Metrics for 2008.**
|
|
Filed
with this Report.
|
|
|
|
|
|
Exhibit
10-P
|
|
1998
Long-Term Incentive Plan, as amended and restated effective as of
January 1, 2003.**
|
|
Filed
as Exhibit 10-R to our Annual Report on Form 10-K for the
year ended December 31, 2002.*
|
|
|
|
|
|
Exhibit
10-P-1
|
|
Amendment
to Ford Motor Company 1998 Long-Term Incentive Plan (effective as of
January 1, 2006).**
|
|
Filed
as Exhibit 10-P-1 to our Annual Report on Form 10-K/A for the year
ended December 31, 2005.*
|
|
|
|
|
|
Exhibit
10-P-2
|
|
Form
of Stock Option Agreement (NQO) with Terms and
Conditions.**
|
|
Filed
as Exhibit 10-P-2 to our Annual Report on Form 10-K/A for the year
ended December 31, 2005.*
|
|
|
|
|
|
Exhibit
10-P-3
|
|
Form
of Stock Option Agreement (ISO) with Terms and
Conditions.**
|
|
Filed
as Exhibit 10-P-3 to our Annual Report on Form 10-K/A for the year
ended December 31, 2005.*
|
|
|
|
|
|
Exhibit
10-P-4
|
|
Form
of Stock Option Agreement (U.K. NQO) with Terms and
Conditions.**
|
|
Filed
as Exhibit 10-P-4 to our Annual Report on Form 10-K/A for the year
ended December 31, 2005.*
|
|
|
|
|
|
Exhibit
10-P-5
|
|
Performance
Stock Rights Description for 2005-2007 Performance
Period.**
|
|
Filed
as Exhibit 10-Q-4 to our Annual Report on Form 10-K for the year
ended December 31, 2004.*
|
|
|
|
|
|
Exhibit
10-P-6
|
|
Performance
Stock Rights Description for 2006-2008 Performance
Period.**
|
|
Filed
as Exhibit 10-P-6 to our Annual Report on Form 10-K/A for the year
ended December 31, 2005.*
|
|
|
|
|
|
Exhibit
10-P-7
|
|
Form
of Final Award Notification Letter For 2005-2007 Performance
Period.**
|
|
Filed
with this Report.
|
|
|
|
|
|
ITEM
15. Exhibits and Financial Statement Schedules (continued)
Designation |
|
Description |
|
Method
of Filing |
Exhibit
10-P-8
|
|
Form
of Restricted Stock Equivalent Grant Letter.**
|
|
Filed
as Exhibit 10-Q-6 to our Annual Report on Form 10-K for the year
ended December 31, 2004.*
|
|
|
|
|
|
Exhibit
10-P-9
|
|
Form
of Performance-Based Restricted Stock Equivalent Opportunity Letter for
2005.**
|
|
Filed
as Exhibit 10-Q-7 to our Annual Report on Form 10-K for the year
ended December 31, 2004.*
|
|
|
|
|
|
Exhibit
10-P-10
|
|
Form
of Performance-Based Restricted Stock Equivalent Opportunity Letter for
2006.**
|
|
Filed
as Exhibit 10-P-10 to our Annual Report on Form 10-K/A for the year
ended December 31, 2005.*
|
|
|
|
|
|
Exhibit
10-P-11
|
|
Form
of Restricted Stock Grant Letter.**
|
|
Filed
as Exhibit 10-Q-8 to our Annual Report on Form 10-K for the year
ended December 31, 2004.*
|
|
|
|
|
|
Exhibit
10-P-12
|
|
Form
of Final Award Notification Letter for 2005 Performance-Based Restricted
Stock Equivalents.**
|
|
Filed
as Exhibit 10-P-12 to our Annual Report on Form 10-K/A for the year
ended December 31, 2005.*
|
|
|
|
|
|
Exhibit
10-P-13
|
|
Form
of Final Award Notification Letter for 2006 Performance-Based Restricted
Stock Equivalents.**
|
|
Filed
as Exhibit 10-P-13 to our Annual Report on Form 10-K for the year
ended December 31, 2006.*
|
|
|
|
|
|
Exhibit
10-P-14
|
|
Description
of Performance-Based Restricted Stock Units for 2007.**
|
|
Filed
as Exhibit 10-P-14 to our Annual Report on Form 10-K for the year
ended December 31, 2006.*
|
|
|
|
|
|
Exhibit
10-P-15
|
|
Form
of Final Award Notification Letter for 2007 Performance-Based Restricted
Stock Units.**
|
|
Filed
with this Report.
|
|
|
|
|
|
Exhibit
10-P-16
|
|
Form
of Performance-Based Restricted Stock Unit Opportunity Letter for
2008.**
|
|
Filed
with this Report.
|
|
|
|
|
|
Exhibit
10-P-17
|
|
Form
of Final Award Notification Letter for 2004-2006 Performance
Period.**
|
|
Filed
as Exhibit 10-P-15 to our Annual Report on Form 10-K for the year
ended December 31, 2006.*
|
|
|
|
|
|
Exhibit
10-P-18
|
|
Description
of Time-Based Restricted Stock Units.**
|
|
Filed
as Exhibit 10-P-16 to our Annual Report on Form 10-K for the year
ended December 31, 2006.*
|
|
|
|
|
|
Exhibit
10-P-19
|
|
1998
Long-Term Incentive Plan Restricted Stock Unit
Agreement.**
|
|
Filed
with this Report.
|
|
|
|
|
|
Exhibit
10-P-20
|
|
1998
Long-Term Incentive Plan Restricted Stock Unit Terms and
Conditions.**
|
|
Filed
with this Report.
|
|
|
|
|
|
Exhibit
10-P-21
|
|
Form
of Final Award Agreement for Performance-Based Restricted Stock Units
under 1998 Long-Term Incentive Plan.**
|
|
Filed
with this Report.
|
|
|
|
|
|
Exhibit
10-P-22
|
|
Form
of Final Award Terms and Conditions for Performance-Based Restricted Stock
Units under 1998 Long-Term Incentive Plan.**
|
|
Filed
with this Report.
|
|
|
|
|
|
Exhibit
10-Q
|
|
Agreement
dated January 13, 1999 between Ford and Edsel B. Ford
II.**
|
|
Filed
as Exhibit 10-X to our Annual Report on Form 10-K for the
year ended December 31, 1998.*
|
ITEM
15. Exhibits and Financial Statement Schedules (continued)
Designation |
|
Description |
|
Method
of Filing |
Exhibit
10-R
|
|
Amended
and Restated Agreement between Ford Motor Company and Ford Motor Credit
Company dated as of December 12, 2006.
|
|
Filed
as Exhibit 10-R to our Annual Report on Form 10-K for the
year ended December 31, 2006.*
|
|
|
|
|
|
Exhibit
10-S
|
|
Agreement
between Ford and Carl Reichardt, entered into in June
2002.**
|
|
Filed
as Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarter
ended June 30, 2002.*
|
|
|
|
|
|
Exhibit
10-T
|
|
Form
of Trade Secrets/Non-Compete Statement between Ford and certain of its
Executive Officers.**
|
|
Filed
as Exhibit 10-V to our Annual Report on Form 10-K for the
year ended December 31, 2003.*
|
|
|
|
|
|
Exhibit
10-U
|
|
Form
of Special 2006-2008 Retention Incentive Opportunity
Letter.**
|
|
Filed
as Exhibit 10-U to our Annual Report on Form 10-K/A for
the year ended December 31, 2005.*
|
|
|
|
|
|
Exhibit
10-U-1
|
|
Description
of Settlement of Special 2006 – 2008 Senior Executive Retention
Program.**
|
|
Filed
as Exhibit 10-U-1 to our Annual Report on Form 10-K for the year
ended December 31, 2006.*
|
|
|
|
|
|
Exhibit
10-U-2
|
|
Form
of Final Award Letter for Performance-Based Restricted Stock Unit Enhanced
Grant.**
|
|
Filed
with this Report.
|
|
|
|
|
|
Exhibit
10-V
|
|
Form
of Special 2006 Performance Incentive Opportunity
Letter.**
|
|
Filed
as Exhibit 10-V to our Annual Report on Form 10-K/A for
the year ended December 31, 2005.*
|
|
|
|
|
|
Exhibit
10-V-1
|
|
Form
of Final Award Letter for Performance Incentive
Opportunity.**
|
|
Filed
with this Report.
|
|
|
|
|
|
Exhibit
10-W
|
|
Arrangement
between Ford Motor Company and William Clay Ford, Jr., dated February 27,
2008.**
|
|
Filed
with this Report.
|
|
|
|
|
|
Exhibit
10-X
|
|
Agreement
between Ford Motor Company and Mark Fields dated October 5,
2005.**
|
|
Filed
as Exhibit 10-CC to our Annual Report on Form 10-K/A for the year
ended December 31, 2005.*
|
|
|
|
|
|
Exhibit
10-X-1
|
|
Arrangement
between Ford Motor Company and Mark Fields dated February 7,
2007.**
|
|
Filed
as Exhibit 10-AA-1 to our Annual Report on Form 10-K for the year
ended December 31, 2006.*
|
|
|
|
|
|
Exhibit
10-Y
|
|
Description
of Company Practices regarding Club Memberships for
Executives.**
|
|
Filed
as Exhibit 10-BB to our Annual Report on Form 10-K for the year ended
December 31, 2006.*
|
|
|
|
|
|
Exhibit
10-Z
|
|
Accession
Agreement between Ford Motor Company and Alan Mulally as of
September 1, 2006.**
|
|
Filed
as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended
September 30, 2006.*
|
|
|
|
|
|
Exhibit
10-Z-1
|
|
Description
of Special Terms and Conditions for Stock Options Granted to Alan
Mulally.**
|
|
Filed
as Exhibit 10-CC-1 to our Annual Report on Form 10-K for the year
ended December 31, 2006.*
|
|
|
|
|
|
Exhibit
10-Z-2
|
|
Description
of President and CEO Compensation Arrangements.**
|
|
Filed
as Exhibit 10-CC-2 to our Annual Report on Form 10-K for the year
ended December 31, 2006.*
|
|
|
|
|
|
Exhibit
10-AA
|
|
Consulting
Agreement between Ford Motor Company and Sir John Bond dated
September 13, 2006.**
|
|
Filed
as Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarter ended
September 30, 2006.*
|
|
|
|
|
|
Exhibit
10-BB
|
|
Credit
Agreement dated as of December 15, 2006.
|
|
Filed
as Exhibit 10-EE to our Annual Report on Form 10-K for the year ended
December 31, 2006.*
|
|
|
|
|
|
Exhibit
10-CC
|
|
Memorandum
of Understanding regarding Post-Retirement Medical Care.
|
|
Filed
as Exhibit 10 to our Current Report on Form 8-K dated
November 15, 2007.*
|
ITEM
15. Exhibits and Financial Statement Schedules (continued)
Designation |
|
Description |
|
Method
of Filing |
Exhibit
12
|
|
Calculation
of Ratio of Earnings to Combined Fixed Charges and Preferred Stock
Dividends.
|
|
Filed
with this Report.
|
|
|
|
|
|
Exhibit
21
|
|
List
of Subsidiaries of Ford as of February 21, 2008.
|
|
Filed
with this Report.
|
|
|
|
|
|
Exhibit
23
|
|
Consent
of Independent Registered Public Accounting Firm.
|
|
Filed
with this Report.
|
|
|
|
|
|
Exhibit
24
|
|
Powers
of Attorney.
|
|
Filed
with this Report.
|
|
|
|
|
|
Exhibit
31.1
|
|
Rule
15d-14(a) Certification of CEO.
|
|
Filed
with this Report.
|
|
|
|
|
|
Exhibit
31.2
|
|
Rule
15d-14(a) Certification of CFO.
|
|
Filed
with this Report.
|
|
|
|
|
|
Exhibit
32.1
|
|
Section
1350 Certification of CEO.
|
|
Furnished
with this Report.
|
|
|
|
|
|
Exhibit
32.2
|
|
Section
1350 Certification of CFO.
|
|
Furnished
with this Report.
|
__________
* Incorporated
by reference as an exhibit to this Report (file number reference 1-3950, unless
otherwise indicated).
** Management
contract or compensatory plan or arrangement.
Instruments
defining the rights of holders of certain issues of long-term debt of Ford 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 Ford and our
subsidiaries on a consolidated basis. Ford agrees to furnish a copy
of each of such instruments to the Commission upon request.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, Ford has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
FORD
MOTOR COMPANY
By:
|
/s/
Peter J. Daniel
|
|
|
Peter
J. Daniel
|
|
|
Senior
Vice President and Controller
|
|
|
|
|
Date:
|
February
27, 2008
|
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, this
Report has been signed below by the following persons on behalf of Ford and in
the capacities on the date indicated:
|
|
|
|
|
|
|
|
|
|
William
Clay Ford, Jr.
|
|
Director,
Chairman of the Board, Executive Chairman, Chair of the Office of the
Chairman and Chief Executive, and Acting Chair of the Finance
Committee
|
|
February
27, 2008
|
|
|
|
|
|
Alan
Mulally
|
|
Director,
President and Chief Executive Officer
(principal
executive officer)
|
|
February
27, 2008
|
|
|
|
|
|
|
|
Director
|
|
February
27, 2008
|
John
R. H. Bond
|
|
|
|
|
|
|
|
|
|
|
|
Director
and Chair of the Audit Committee
|
|
February
27, 2008
|
Stephen
G. Butler
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
February
27, 2008
|
Kimberly
A. Casiano
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
February
27, 2008
|
Edsel
B. Ford II
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
February
27, 2008
|
Irvine
O. Hockaday, Jr.
|
|
|
|
|
|
|
|
|
|
|
|
Director
and Chair of the Compensation Committee
|
|
February
27, 2008
|
Richard
A. Manoogian
|
|
|
|
|
|
|
|
|
|
|
|
Director
and Chair of the Nominating and
|
|
February
27, 2008
|
Ellen
R. Marram
|
|
Governance
Committee
|
|
|
|
|
|
|
|
|
|
Director
and Chair of the Environmental and
|
|
February
27, 2008
|
Homer
A. Neal
|
|
Public
Policy Committee
|
|
|
|
|
|
|
|
|
|
Director
|
|
February
27, 2008
|
Jorma
Ollila
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
February
27, 2008
|
Gerald
L. Shaheen
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
February
27, 2008
|
John
L. Thornton
|
|
|
|
|
|
|
|
|
|
DONAT R. LECLAIR,
JR,*
Donat R. Leclair,
Jr.
|
|
Executive
Vice President and Chief Financial Officer (principal financial
officer)
|
|
February
27, 2008
|
|
|
|
|
|
PETER
J. DANIEL*
Peter
J. Daniel
|
|
Senior
Vice President and Controller
(principal
accounting officer)
|
|
February
27, 2008
|
|
|
|
|
|
*By:
/s/ PETER J. SHERRY, JR.
|
|
|
|
February
27, 2008
|
(Peter
J. Sherry, Jr.)
Attorney-in-Fact
|
|
|
|
|
|
|
|
|
|
FORD
MOTOR COMPANY AND SUBSIDIARIES
CONSOLIDATED
STATEMENT OF INCOME
For
the Years Ended December 31, 2007, 2006 and 2005
(in
millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
Sales
and revenues
|
|
|
|
|
|
|
|
|
|
Automotive
sales
|
|
$ |
154,379 |
|
|
$ |
143,249 |
|
|
$ |
153,413 |
|
Financial
Services revenues
|
|
|
18,076 |
|
|
|
16,816 |
|
|
|
23,422 |
|
Total
sales and revenues
|
|
|
172,455 |
|
|
|
160,065 |
|
|
|
176,835 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
cost of sales
|
|
|
142,587 |
|
|
|
148,866 |
|
|
|
144,920 |
|
Selling,
administrative and other expenses
|
|
|
21,169 |
|
|
|
19,148 |
|
|
|
24,588 |
|
Goodwill
impairment
|
|
|
2,400 |
|
|
|
— |
|
|
|
— |
|
Interest
expense
|
|
|
10,927 |
|
|
|
8,783 |
|
|
|
8,417 |
|
Financial
Services provision for credit and insurance losses
|
|
|
668 |
|
|
|
241 |
|
|
|
483 |
|
Total
costs and expenses
|
|
|
177,751 |
|
|
|
177,038 |
|
|
|
178,408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
interest income and other non-operating income/(expense),
net
|
|
|
1,161 |
|
|
|
1,478 |
|
|
|
1,247 |
|
Automotive
equity in net income/(loss) of affiliated companies
|
|
|
389 |
|
|
|
421 |
|
|
|
285 |
|
Gain
on sale of The Hertz Corporation ("Hertz") (Note 20)
|
|
|
— |
|
|
|
— |
|
|
|
1,095 |
|
Income/(Loss)
before income taxes
|
|
|
(3,746 |
) |
|
|
(15,074 |
) |
|
|
1,054 |
|
Provision
for/(Benefit from) income taxes (Note 19)
|
|
|
(1,294 |
) |
|
|
(2,655 |
) |
|
|
(855 |
) |
Income/(Loss)
before minority interests
|
|
|
(2,452 |
) |
|
|
(12,419 |
) |
|
|
1,909 |
|
Minority
interests in net income/(loss) of subsidiaries
|
|
|
312 |
|
|
|
210 |
|
|
|
280 |
|
Income/(Loss)
from continuing operations
|
|
|
(2,764 |
) |
|
|
(12,629 |
) |
|
|
1,629 |
|
Income/(Loss)
from discontinued operations (Note 20)
|
|
|
41 |
|
|
|
16 |
|
|
|
62 |
|
Income/(Loss)
before cumulative effects of changes in accounting
principles
|
|
|
(2,723 |
) |
|
|
(12,613 |
) |
|
|
1,691 |
|
Cumulative
effects of changes in accounting principles (Note 28)
|
|
|
— |
|
|
|
— |
|
|
|
(251 |
) |
Net
income/(loss)
|
|
$ |
(2,723 |
) |
|
$ |
(12,613 |
) |
|
$ |
1,440 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
number of shares of Common and Class B Stock outstanding
|
|
|
1,979 |
|
|
|
1,879 |
|
|
|
1,846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMOUNTS
PER SHARE OF COMMON AND CLASS B STOCK (Note 21)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
income/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
from continuing operations
|
|
$ |
(1.40 |
) |
|
$ |
(6.73 |
) |
|
$ |
0.88 |
|
Income/(Loss)
from discontinued operations
|
|
|
0.02 |
|
|
|
0.01 |
|
|
|
0.04 |
|
Cumulative
effects of changes in accounting principles
|
|
|
— |
|
|
|
— |
|
|
|
(0.14 |
) |
Net
income/(loss)
|
|
$ |
(1.38 |
) |
|
$ |
(6.72 |
) |
|
$ |
0.78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
income/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
from continuing operations
|
|
$ |
(1.40 |
) |
|
$ |
(6.73 |
) |
|
$ |
0.86 |
|
Income/(Loss)
from discontinued operations
|
|
|
0.02 |
|
|
|
0.01 |
|
|
|
0.03 |
|
Cumulative
effects of changes in accounting principles
|
|
|
— |
|
|
|
— |
|
|
|
(0.12 |
) |
Net
income/(loss)
|
|
$ |
(1.38 |
) |
|
$ |
(6.72 |
) |
|
$ |
0.77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends
|
|
$ |
— |
|
|
$ |
0.25 |
|
|
$ |
0.40 |
|
The
accompanying notes are part of the financial statements.
FORD
MOTOR COMPANY AND SUBSIDIARIES
SECTOR
STATEMENT OF INCOME
For
the Years Ended December 31, 2007, 2006 and 2005
(in
millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
AUTOMOTIVE
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
154,379 |
|
|
$ |
143,249 |
|
|
$ |
153,413 |
|
Costs
and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
142,587 |
|
|
|
148,866 |
|
|
|
144,920 |
|
Selling,
administrative and other expenses
|
|
|
13,660 |
|
|
|
12,327 |
|
|
|
12,704 |
|
Goodwill
impairment
|
|
|
2,400 |
|
|
|
— |
|
|
|
— |
|
Total
costs and expenses
|
|
|
158,647 |
|
|
|
161,193 |
|
|
|
157,624 |
|
Operating
income/(loss)
|
|
|
(4,268 |
) |
|
|
(17,944 |
) |
|
|
(4,211 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
2,252 |
|
|
|
995 |
|
|
|
1,220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income and other non-operating income/(expense), net
|
|
|
1,161 |
|
|
|
1,478 |
|
|
|
1,247 |
|
Equity
in net income/(loss) of affiliated companies
|
|
|
389 |
|
|
|
421 |
|
|
|
285 |
|
Income/(Loss)
before income taxes — Automotive
|
|
|
(4,970 |
) |
|
|
(17,040 |
) |
|
|
(3,899 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCIAL
SERVICES
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
18,076 |
|
|
|
16,816 |
|
|
|
23,422 |
|
Costs
and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
8,675 |
|
|
|
7,788 |
|
|
|
7,197 |
|
Depreciation
|
|
|
6,289 |
|
|
|
5,295 |
|
|
|
5,854 |
|
Operating
and other expenses
|
|
|
1,220 |
|
|
|
1,526 |
|
|
|
6,030 |
|
Provision
for credit and insurance losses
|
|
|
668 |
|
|
|
241 |
|
|
|
483 |
|
Total
costs and expenses
|
|
|
16,852 |
|
|
|
14,850 |
|
|
|
19,564 |
|
Gain
on sale of Hertz (Note 20)
|
|
|
— |
|
|
|
— |
|
|
|
1,095 |
|
Income/(Loss)
before income taxes — Financial Services
|
|
|
1,224 |
|
|
|
1,966 |
|
|
|
4,953 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
COMPANY
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
before income taxes
|
|
|
(3,746 |
) |
|
|
(15,074 |
) |
|
|
1,054 |
|
Provision
for/(Benefit from) income taxes (Note 19)
|
|
|
(1,294 |
) |
|
|
(2,655 |
) |
|
|
(855 |
) |
Income/(Loss)
before minority interests
|
|
|
(2,452 |
) |
|
|
(12,419 |
) |
|
|
1,909 |
|
Minority
interests in net income/(loss) of subsidiaries
|
|
|
312 |
|
|
|
210 |
|
|
|
280 |
|
Income/(Loss)
from continuing operations
|
|
|
(2,764 |
) |
|
|
(12,629 |
) |
|
|
1,629 |
|
Income/(Loss)
from discontinued operations (Note 20)
|
|
|
41 |
|
|
|
16 |
|
|
|
62 |
|
Income/(Loss)
before cumulative effects of changes in accounting
principles
|
|
|
(2,723 |
) |
|
|
(12,613 |
) |
|
|
1.691 |
|
Cumulative
effects of changes in accounting principles (Note 28)
|
|
|
— |
|
|
|
— |
|
|
|
(251 |
) |
Net
income/(loss)
|
|
$ |
(2,723 |
) |
|
$ |
(12,613 |
) |
|
$ |
1,440 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
number of shares of Common and Class B Stock outstanding
|
|
|
1,979 |
|
|
|
1,879 |
|
|
|
1,846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMOUNTS
PER SHARE OF COMMON AND CLASS B STOCK (Note 21)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
income/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
from continuing operations
|
|
$ |
(1.40 |
) |
|
$ |
(6.73 |
) |
|
$ |
0.88 |
|
Income/(Loss)
from discontinued operations
|
|
|
0.02 |
|
|
|
0.01 |
|
|
|
0.04 |
|
Cumulative
effects of changes in accounting principles
|
|
|
— |
|
|
|
— |
|
|
|
(0.14 |
) |
Net
income/(loss)
|
|
$ |
(1.38 |
) |
|
$ |
(6.72 |
) |
|
$ |
0.78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
income/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
from continuing operations
|
|
$ |
(1.40 |
) |
|
$ |
(6.73 |
) |
|
$ |
0.86 |
|
Income/(Loss)
from discontinued operations
|
|
|
0.02 |
|
|
|
0.01 |
|
|
|
0.03 |
|
Cumulative
effects of changes in accounting principles
|
|
|
— |
|
|
|
— |
|
|
|
(0.12 |
) |
Net
income/(loss)
|
|
$ |
(1.38 |
) |
|
$ |
(6.72 |
) |
|
$ |
0.77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends
|
|
$ |
— |
|
|
$ |
0.25 |
|
|
$ |
0.40 |
|
The
accompanying notes are part of the financial statements.
FORD
MOTOR COMPANY AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEET
(in
millions)
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
35,283 |
|
|
$ |
28,896 |
|
Marketable
securities (Note 3)
|
|
|
5,248 |
|
|
|
21,472 |
|
Loaned
securities (Note 3)
|
|
|
10,267 |
|
|
|
5,256 |
|
Finance
receivables, net
|
|
|
109,053 |
|
|
|
106,863 |
|
Other
receivables, net
|
|
|
8,210 |
|
|
|
7,067 |
|
Net
investment in operating leases (Note 5)
|
|
|
33,255 |
|
|
|
29,787 |
|
Retained
interest in sold receivables (Note 7)
|
|
|
653 |
|
|
|
990 |
|
Inventories
(Note 8)
|
|
|
10,121 |
|
|
|
10,017 |
|
Equity
in net assets of affiliated companies (Note 9)
|
|
|
2,853 |
|
|
|
2,790 |
|
Net
property (Note 11)
|
|
|
36,239 |
|
|
|
36,055 |
|
Deferred
income taxes
|
|
|
3,500 |
|
|
|
4,922 |
|
Goodwill
and other net intangible assets (Note 13)
|
|
|
2,069 |
|
|
|
3,611 |
|
Assets
of discontinued/held-for-sale operations
|
|
|
7,537 |
|
|
|
8,215 |
|
Other
assets
|
|
|
14,976 |
|
|
|
13,255 |
|
Total
assets
|
|
$ |
279,264 |
|
|
$ |
279,196 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Payables
|
|
$ |
20,832 |
|
|
$ |
21,214 |
|
Accrued
liabilities and deferred revenue (Note 15)
|
|
|
74,738 |
|
|
|
80,058 |
|
Debt
(Note 16)
|
|
|
168,530 |
|
|
|
171,832 |
|
Deferred
income taxes
|
|
|
3,034 |
|
|
|
2,744 |
|
Liabilities
of discontinued/held-for-sale operations
|
|
|
5,081 |
|
|
|
5,654 |
|
Total
liabilities
|
|
|
272,215 |
|
|
|
281,502 |
|
|
|
|
|
|
|
|
|
|
Minority
interests
|
|
|
1,421 |
|
|
|
1,159 |
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
|
|
|
|
|
|
Capital
stock (Note 21)
|
|
|
|
|
|
|
|
|
Common
Stock, par value $0.01 per share (2,124 million shares issued and 6,000
million authorized)
|
|
|
21 |
|
|
|
18 |
|
Class
B Stock, par value $0.01 per share (71 million shares issued and 530
million authorized)
|
|
|
1 |
|
|
|
1 |
|
Capital
in excess of par value of stock
|
|
|
7,834 |
|
|
|
4,562 |
|
Accumulated
other comprehensive income/(loss)
|
|
|
(558 |
) |
|
|
(7,846 |
) |
Treasury
stock
|
|
|
(185 |
) |
|
|
(183 |
) |
Retained
earnings/(Accumulated deficit)
|
|
|
(1,485 |
) |
|
|
(17 |
) |
Total
stockholders' equity
|
|
|
5,628 |
|
|
|
(3,465 |
) |
Total
liabilities and stockholders' equity
|
|
$ |
279,264 |
|
|
$ |
279,196 |
|
The
accompanying notes are part of the financial statements.
FORD
MOTOR COMPANY AND SUBSIDIARIES
SECTOR
BALANCE SHEET
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Automotive
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
20,678 |
|
|
$ |
16,022 |
|
Marketable
securities (Note 3)
|
|
|
2,092 |
|
|
|
11,310 |
|
Loaned
securities (Note 3)
|
|
|
10,267 |
|
|
|
5,256 |
|
Total
cash, marketable and loaned securities
|
|
|
33,037 |
|
|
|
32,588 |
|
Receivables,
less allowances of $196 and $174
|
|
|
4,530 |
|
|
|
3,163 |
|
Inventories
(Note 8)
|
|
|
10,121 |
|
|
|
10,017 |
|
Deferred
income taxes
|
|
|
532 |
|
|
|
1,569 |
|
Other
current assets
|
|
|
5,514 |
|
|
|
7,616 |
|
Current
receivable from Financial Services (Note 1)
|
|
|
509 |
|
|
|
— |
|
Total
current assets
|
|
|
54,243 |
|
|
|
54,953 |
|
Equity
in net assets of affiliated companies (Note 9)
|
|
|
2,283 |
|
|
|
2,029 |
|
Net
property (Note 11)
|
|
|
35,979 |
|
|
|
35,786 |
|
Deferred
income taxes
|
|
|
9,268 |
|
|
|
14,851 |
|
Goodwill
and other net intangible assets (Note 13)
|
|
|
2,051 |
|
|
|
3,594 |
|
Assets
of discontinued/held-for-sale operations
|
|
|
7,537 |
|
|
|
8,215 |
|
Other
assets
|
|
|
5,614 |
|
|
|
3,206 |
|
Non-current
receivable from Financial Services (Note 1)
|
|
|
1,514 |
|
|
|
— |
|
Total
Automotive assets
|
|
|
118,489 |
|
|
|
122,634 |
|
Financial
Services
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
14,605 |
|
|
|
12,874 |
|
Marketable
securities (Note 3)
|
|
|
3,156 |
|
|
|
10,162 |
|
Finance
receivables, net (Note 4)
|
|
|
112,733 |
|
|
|
110,767 |
|
Net
investment in operating leases (Note 5)
|
|
|
30,309 |
|
|
|
26,606 |
|
Retained
interest in sold receivables (Note 7)
|
|
|
653 |
|
|
|
990 |
|
Equity
in net assets of affiliated companies (Note 9)
|
|
|
570 |
|
|
|
761 |
|
Goodwill
and other net intangible assets (Note 13)
|
|
|
18 |
|
|
|
17 |
|
Other
assets
|
|
|
7,217 |
|
|
|
6,047 |
|
Receivable
from Automotive (Note 1)
|
|
|
— |
|
|
|
1,467 |
|
Total
Financial Services assets
|
|
|
169,261 |
|
|
|
169,691 |
|
Intersector
elimination
|
|
|
(2,023 |
) |
|
|
(1,467 |
) |
Total
assets
|
|
$ |
285,727 |
|
|
$ |
290,858 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Automotive
|
|
|
|
|
|
|
|
|
Trade
payables
|
|
$ |
15,718 |
|
|
$ |
15,346 |
|
Other
payables
|
|
|
3,237 |
|
|
|
4,281 |
|
Accrued
liabilities and deferred revenue (Note 15)
|
|
|
27,672 |
|
|
|
27,001 |
|
Deferred
income taxes
|
|
|
2,671 |
|
|
|
3,138 |
|
Debt
payable within one year (Note 16)
|
|
|
920 |
|
|
|
1,284 |
|
Current
payable to Financial Services (Note 1)
|
|
|
— |
|
|
|
640 |
|
Total
current liabilities
|
|
|
50,218 |
|
|
|
51,690 |
|
Long-term
debt (Note 16)
|
|
|
25,777 |
|
|
|
28,512 |
|
Other
liabilities (Note 15)
|
|
|
41,676 |
|
|
|
48,291 |
|
Deferred
income taxes
|
|
|
783 |
|
|
|
441 |
|
Net
liabilities of discontinued/held-for-sale operations
|
|
|
5,081 |
|
|
|
5,654 |
|
Non-current
payable to Financial Services (Note 1)
|
|
|
— |
|
|
|
827 |
|
Total
Automotive liabilities
|
|
|
123,535 |
|
|
|
135,415 |
|
Financial
Services
|
|
|
|
|
|
|
|
|
Payables
|
|
|
1,877 |
|
|
|
1,587 |
|
Debt
(Note 16)
|
|
|
141,833 |
|
|
|
142,036 |
|
Deferred
income taxes
|
|
|
6,043 |
|
|
|
10,827 |
|
Other
liabilities and deferred income
|
|
|
5,390 |
|
|
|
4,766 |
|
Payable
to Automotive (Note 1)
|
|
|
2,023 |
|
|
|
— |
|
Total
Financial Services liabilities
|
|
|
157,166 |
|
|
|
159,216 |
|
|
|
|
|
|
|
|
|
|
Minority
interests
|
|
|
1,421 |
|
|
|
1,159 |
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
|
|
|
|
|
|
Capital
stock (Note 21)
|
|
|
|
|
|
|
|
|
Common
Stock, par value $0.01 per share (2,124 million shares issued and 6,000
million authorized)
|
|
|
21 |
|
|
|
18 |
|
Class
B Stock, par value $0.01 per share (71 million shares issued and 530
million authorized)
|
|
|
1 |
|
|
|
1 |
|
Capital
in excess of par value of stock
|
|
|
7,834 |
|
|
|
4,562 |
|
Accumulated
other comprehensive income/(loss)
|
|
|
(558 |
) |
|
|
(7,846 |
) |
Treasury
stock
|
|
|
(185 |
) |
|
|
(183 |
) |
Retained
earnings/(Accumulated deficit)
|
|
|
(1,485 |
) |
|
|
(17 |
) |
Total
stockholders' equity
|
|
|
5,628 |
|
|
|
(3,465 |
) |
Intersector
elimination
|
|
|
(2,023 |
) |
|
|
(1,467 |
) |
Total
liabilities and stockholders' equity
|
|
$ |
285,727 |
|
|
$ |
290,858 |
|
The
accompanying notes are part of the financial statements.
FORD
MOTOR COMPANY AND SUBSIDIARIES
CONSOLIDATED
STATEMENT OF CASH FLOWS
For
the Years Ended December 31, 2007, 2006 and 2005
(in
millions)
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities of continuing operations
|
|
|
|
|
|
|
|
|
|
Net
cash flows from operating activities (Note 22)
|
|
$ |
17,074 |
|
|
$ |
9,622 |
|
|
$ |
20,392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities of continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(6,022 |
) |
|
|
(6,848 |
) |
|
|
(7,516 |
) |
Acquisitions
of retail and other finance receivables and operating
leases
|
|
|
(55,681 |
) |
|
|
(59,793 |
) |
|
|
(54,024 |
) |
Collections
of retail and other finance receivables and operating
leases
|
|
|
45,498 |
|
|
|
41,502 |
|
|
|
48,257 |
|
Net
acquisitions of daily rental vehicles
|
|
|
— |
|
|
|
— |
|
|
|
(1,552 |
) |
Purchases
of securities
|
|
|
(11,423 |
) |
|
|
(23,678 |
) |
|
|
(11,883 |
) |
Sales
and maturities of securities
|
|
|
18,660 |
|
|
|
18,456 |
|
|
|
8,735 |
|
Proceeds
from sales of retail and other finance receivables and operating
leases
|
|
|
708 |
|
|
|
5,120 |
|
|
|
17,288 |
|
Proceeds
from sale of businesses
|
|
|
1,236 |
|
|
|
56 |
|
|
|
7,937 |
|
Cash
paid for acquisitions
|
|
|
(26 |
) |
|
|
— |
|
|
|
(2,031 |
) |
Transfer
of cash balances upon disposition of discontinued/held-for-sale
operations
|
|
|
(83 |
) |
|
|
(4 |
) |
|
|
(1,255 |
) |
Other
|
|
|
650 |
|
|
|
325 |
|
|
|
1,849 |
|
Net
cash (used in)/provided by investing activities
|
|
|
(6,483 |
) |
|
|
(24,864 |
) |
|
|
5,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities of continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends
|
|
|
— |
|
|
|
(468 |
) |
|
|
(738 |
) |
Sales
of Common Stock
|
|
|
250 |
|
|
|
431 |
|
|
|
895 |
|
Purchases
of Common Stock
|
|
|
(31 |
) |
|
|
(183 |
) |
|
|
(570 |
) |
Changes
in short-term debt
|
|
|
919 |
|
|
|
(5,825 |
) |
|
|
(8,713 |
) |
Proceeds
from issuance of other debt
|
|
|
33,113 |
|
|
|
58,258 |
|
|
|
24,559 |
|
Principal
payments on other debt
|
|
|
(39,431 |
) |
|
|
(36,601 |
) |
|
|
(36,080 |
) |
Other
|
|
|
(62 |
) |
|
|
(339 |
) |
|
|
(153 |
) |
Net
cash (used in)/provided by financing activities
|
|
|
(5,242 |
) |
|
|
15,273 |
|
|
|
(20,800 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
1,014 |
|
|
|
464 |
|
|
|
(496 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase/(decrease) in cash and cash equivalents from continuing
operations
|
|
|
6,363 |
|
|
|
495 |
|
|
|
4,901 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities of discontinued operations
|
|
|
26 |
|
|
|
(11 |
) |
|
|
49 |
|
Cash
flows from investing activities of discontinued operations
|
|
|
— |
|
|
|
— |
|
|
|
(49 |
) |
Cash
flows from financing activities of discontinued operations
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase/(decrease) in cash and cash equivalents
|
|
$ |
6,389 |
|
|
$ |
484 |
|
|
$ |
4,901 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at January 1
|
|
$ |
28,896 |
|
|
$ |
28,391 |
|
|
$ |
22,806 |
|
Cash
and cash equivalents of discontinued/held-for-sale operations at January
1
|
|
|
(2 |
) |
|
|
19 |
|
|
|
703 |
|
Net
increase/(decrease) in cash and cash equivalents
|
|
|
6,389 |
|
|
|
484 |
|
|
|
4,901 |
|
Less:
Cash and cash equivalents of discontinued/held-for-sale operations at
December 31
|
|
|
— |
|
|
|
2 |
|
|
|
(19 |
) |
Cash
and cash equivalents at December 31
|
|
$ |
35,283 |
|
|
$ |
28,896 |
|
|
$ |
28,391 |
|
The
accompanying notes are part of the financial statements.
FORD
MOTOR COMPANY AND SUBSIDIARIES
SECTOR
STATEMENT OF CASH FLOWS
For
the Years Ended December 31, 2007, 2006 and 2005
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities of continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash flows from operating activities (Note 22)
|
|
$ |
8,725 |
|
|
$ |
6,402 |
|
|
$ |
(4,172 |
) |
|
$ |
7,316 |
|
|
$ |
5,438 |
|
|
$ |
6,912 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities of continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(5,971 |
) |
|
|
(51 |
) |
|
|
(6,809 |
) |
|
|
(39 |
) |
|
|
(7,122 |
) |
|
|
(394 |
) |
Acquisitions
of retail and other finance receivables and operating
leases
|
|
|
— |
|
|
|
(55,681 |
) |
|
|
— |
|
|
|
(59,793 |
) |
|
|
— |
|
|
|
(54,024 |
) |
Collections
of retail and other finance receivables and operating
leases
|
|
|
— |
|
|
|
45,518 |
|
|
|
— |
|
|
|
41,867 |
|
|
|
— |
|
|
|
48,245 |
|
Net
(increase)/decrease in wholesale receivables
|
|
|
— |
|
|
|
1,927 |
|
|
|
— |
|
|
|
6,113 |
|
|
|
— |
|
|
|
4,751 |
|
Net
acquisitions of daily rental vehicles
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,988 |
) |
Purchases
of securities
|
|
|
(2,628 |
) |
|
|
(8,795 |
) |
|
|
(4,068 |
) |
|
|
(19,610 |
) |
|
|
(5,714 |
) |
|
|
(6,169 |
) |
Sales
and maturities of securities
|
|
|
2,686 |
|
|
|
15,974 |
|
|
|
4,865 |
|
|
|
13,591 |
|
|
|
5,106 |
|
|
|
3,629 |
|
Proceeds
from sales of retail and other finance receivables and operating
leases
|
|
|
— |
|
|
|
708 |
|
|
|
— |
|
|
|
5,120 |
|
|
|
— |
|
|
|
17,288 |
|
Proceeds
from sale of wholesale receivables
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,739 |
|
Proceeds
from sale of businesses
|
|
|
1,079 |
|
|
|
157 |
|
|
|
56 |
|
|
|
— |
|
|
|
280 |
|
|
|
7,657 |
|
Cash
paid for acquisitions
|
|
|
(26 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,031 |
) |
|
|
— |
|
Transfer
of cash balances upon disposition of discontinued/held-for-sale
operations
|
|
|
(83 |
) |
|
|
— |
|
|
|
(4 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1,255 |
) |
Investing
activity from Financial Services
|
|
|
— |
|
|
|
— |
|
|
|
1,185 |
|
|
|
— |
|
|
|
8,407 |
|
|
|
— |
|
Investing
activity to Financial Services
|
|
|
(18 |
) |
|
|
— |
|
|
|
(1,400 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Other
|
|
|
1,070 |
|
|
|
(420 |
) |
|
|
18 |
|
|
|
307 |
|
|
|
387 |
|
|
|
1,462 |
|
Net
cash (used in)/provided by investing activities
|
|
|
(3,891 |
) |
|
|
(663 |
) |
|
|
(6,157 |
) |
|
|
(12,444 |
) |
|
|
(687 |
) |
|
|
22,941 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities of continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends
|
|
|
— |
|
|
|
— |
|
|
|
(468 |
) |
|
|
— |
|
|
|
(738 |
) |
|
|
— |
|
Sales
of Common Stock
|
|
|
250 |
|
|
|
— |
|
|
|
431 |
|
|
|
— |
|
|
|
895 |
|
|
|
— |
|
Purchases
of Common Stock
|
|
|
(31 |
) |
|
|
— |
|
|
|
(183 |
) |
|
|
— |
|
|
|
(570 |
) |
|
|
— |
|
Changes
in short-term debt
|
|
|
(90 |
) |
|
|
1,009 |
|
|
|
414 |
|
|
|
(6,239 |
) |
|
|
(115 |
) |
|
|
(8,598 |
) |
Proceeds
from issuance of other debt
|
|
|
240 |
|
|
|
32,873 |
|
|
|
12,254 |
|
|
|
46,004 |
|
|
|
385 |
|
|
|
24,174 |
|
Principal
payments on other debt
|
|
|
(837 |
) |
|
|
(38,594 |
) |
|
|
(758 |
) |
|
|
(35,843 |
) |
|
|
(758 |
) |
|
|
(35,322 |
) |
Financing
activity from Automotive
|
|
|
— |
|
|
|
18 |
|
|
|
— |
|
|
|
1,400 |
|
|
|
— |
|
|
|
— |
|
Financing
activity to Automotive
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,185 |
) |
|
|
— |
|
|
|
(8,407 |
) |
Other
|
|
|
61 |
|
|
|
(123 |
) |
|
|
(147 |
) |
|
|
(192 |
) |
|
|
(177 |
) |
|
|
24 |
|
Net
cash (used in)/provided by financing activities
|
|
|
(407 |
) |
|
|
(4,817 |
) |
|
|
11,543 |
|
|
|
3,945 |
|
|
|
(1,078 |
) |
|
|
(28,129 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
506 |
|
|
|
508 |
|
|
|
104 |
|
|
|
360 |
|
|
|
(23 |
) |
|
|
(473 |
) |
Net
change in intersector receivables/payables and other
liabilities
|
|
|
(291 |
) |
|
|
291 |
|
|
|
1,321 |
|
|
|
(1,321 |
) |
|
|
(394 |
) |
|
|
394 |
|
Net
increase/(decrease) in cash and cash equivalents from continuing
operations
|
|
|
4,642 |
|
|
|
1,721 |
|
|
|
2,639 |
|
|
|
(2,144 |
) |
|
|
3,256 |
|
|
|
1,645 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities of discontinued operations
|
|
|
16 |
|
|
|
10 |
|
|
|
(11 |
) |
|
|
— |
|
|
|
(22 |
) |
|
|
71 |
|
Cash
flows from investing activities of discontinued operations
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
17 |
|
|
|
(66 |
) |
Cash
flows from financing activities of discontinued operations
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase/(decrease) in cash and cash equivalents
|
|
$ |
4,658 |
|
|
$ |
1,731 |
|
|
$ |
2,628 |
|
|
$ |
(2,144 |
) |
|
$ |
3,251 |
|
|
$ |
1,650 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at January 1
|
|
$ |
16,022 |
|
|
$ |
12,874 |
|
|
$ |
13,373 |
|
|
$ |
15,018 |
|
|
$ |
10,117 |
|
|
$ |
12,689 |
|
Cash
and cash equivalents of discontinued/held-for-sale operations at
January 1
|
|
|
(2 |
) |
|
|
— |
|
|
|
19 |
|
|
|
— |
|
|
|
24 |
|
|
|
679 |
|
Net
increase/(decrease) in cash and cash equivalents
|
|
|
4,658 |
|
|
|
1,731 |
|
|
|
2,628 |
|
|
|
(2,144 |
) |
|
|
3,251 |
|
|
|
1,650 |
|
Less:
Cash and cash equivalents of discontinued/held-for-sale operations at
December 31
|
|
|
— |
|
|
|
— |
|
|
|
2 |
|
|
|
— |
|
|
|
(19 |
) |
|
|
— |
|
Cash
and cash equivalents at December 31
|
|
$ |
20,678 |
|
|
$ |
14,605 |
|
|
$ |
16,022 |
|
|
$ |
12,874 |
|
|
$ |
13,373 |
|
|
$ |
15,018 |
|
The
accompanying notes are part of the financial statements.
FORD
MOTOR COMPANY AND SUBSIDIARIES
CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY
For
the Years Ended December 31, 2007, 2006 and 2005
|
|
|
|
|
Capital
in
|
|
|
|
|
|
Accumulated
Other Comprehensive
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess
|
|
|
Retained
|
|
|
Income/(Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
of
Par
|
|
|
Earnings/
|
|
|
Foreign
|
|
|
Employee
|
|
|
Derivative
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Value
of
|
|
|
(Accumulated
|
|
|
Currency
|
|
|
Benefit
|
|
|
Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YEAR
ENDED DECEMBER 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
$ |
19 |
|
|
$ |
5,321 |
|
|
$ |
12,362 |
|
|
$ |
4,012 |
|
|
$ |
(3,971 |
) |
|
$ |
1,422 |
|
|
$ |
(1,728 |
) |
|
$ |
17,437 |
|
Comprehensive
income/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income/(loss)
|
|
|
— |
|
|
|
— |
|
|
|
1,440 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,440 |
|
Foreign
currency translation (net of $299 of tax benefit)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,684 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,684 |
) |
Net
gain/(loss) on derivative instruments (net of $527 of tax
benefit)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
285 |
|
|
|
— |
|
|
|
(1,264 |
) |
|
|
— |
|
|
|
(979 |
) |
Minimum
pension liability (net of $229 of tax benefit)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(425 |
) |
|
|
— |
|
|
|
— |
|
|
|
(425 |
) |
Net
holding gain/(loss) (net of $30 of tax benefit)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(55 |
) |
|
|
— |
|
|
|
(55 |
) |
Comprehensive
income/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,703 |
) |
Common
Stock issued for employee benefit plans and other
|
|
|
— |
|
|
|
(449 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(449 |
) |
ESOP
loan and treasury stock
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
895 |
|
|
|
895 |
|
Cash
dividends
|
|
|
— |
|
|
|
— |
|
|
|
(738 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(738 |
) |
Balance
at end of year
|
|
$ |
19 |
|
|
$ |
4,872 |
|
|
$ |
13,064 |
|
|
$ |
613 |
|
|
$ |
(4,396 |
) |
|
$ |
103 |
|
|
$ |
(833 |
) |
|
$ |
13,442 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YEAR
ENDED DECEMBER 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
$ |
19 |
|
|
$ |
4,872 |
|
|
$ |
13,064 |
|
|
$ |
613 |
|
|
$ |
(4,396 |
) |
|
$ |
103 |
|
|
$ |
(833 |
) |
|
$ |
13,442 |
|
Comprehensive
income/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income/(loss)
|
|
|
— |
|
|
|
— |
|
|
|
(12,613 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(12,613 |
) |
Foreign
currency translation (net of $3 of tax benefit)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,585 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,585 |
|
Net
gain/(loss) on derivative instruments (net of $266 of tax)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
17 |
|
|
|
— |
|
|
|
477 |
|
|
|
— |
|
|
|
494 |
|
Minimum
pension liability (net of $819 of tax)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,542 |
|
|
|
— |
|
|
|
— |
|
|
|
1,542 |
|
Net
holding gain/(loss) (net of $31 of tax benefit)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(59 |
) |
|
|
— |
|
|
|
(59 |
) |
Comprehensive
income/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,051 |
) |
Adoption
of Statement of Financial Accounting Standards No. 158
(net of $646 of tax benefit)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(8,728 |
) |
|
|
— |
|
|
|
— |
|
|
|
(8,728 |
) |
Common
Stock issued for employee benefit plans and other
|
|
|
— |
|
|
|
(310 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(310 |
) |
ESOP
loan and treasury stock
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
650 |
|
|
|
650 |
|
Cash
dividends
|
|
|
— |
|
|
|
— |
|
|
|
(468 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(468 |
) |
Balance
at end of year
|
|
$ |
19 |
|
|
$ |
4,562 |
|
|
$ |
(17 |
) |
|
$ |
3,215 |
|
|
$ |
(11,582 |
) |
|
$ |
521 |
|
|
$ |
(183 |
) |
|
$ |
(3,465 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YEAR
ENDED DECEMBER 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
$ |
19 |
|
|
$ |
4,562 |
|
|
$ |
(17 |
) |
|
$ |
3,215 |
|
|
$ |
(11,582 |
) |
|
$ |
521 |
|
|
$ |
(183 |
) |
|
$ |
(3,465 |
) |
Comprehensive
income/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income/(loss)
|
|
|
— |
|
|
|
— |
|
|
|
(2,723 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,723 |
) |
Foreign
currency translation (net of $0 of tax)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,780 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,780 |
|
Net
gain/(loss) on derivative instruments (net of $126 of tax
benefit)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2 |
|
|
|
— |
|
|
|
(66 |
) |
|
|
— |
|
|
|
(64 |
) |
Employee
benefit related (net of $1,870 of tax)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5,620 |
|
|
|
— |
|
|
|
— |
|
|
|
5,620 |
|
Net
holding gain/(loss) (net of $6 of tax benefit)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(48 |
) |
|
|
— |
|
|
|
(48 |
) |
Comprehensive
income/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,565 |
|
Adoption
of FASB Interpretation No. 48
|
|
|
— |
|
|
|
— |
|
|
|
1,255 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,255 |
|
Common
Stock issued for debt conversion, employee benefit plans, and
other
|
|
|
3 |
|
|
|
3,272 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,275 |
|
ESOP
loan and treasury stock
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2 |
) |
|
|
(2 |
) |
Cash
dividends
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Balance
at end of year
|
|
$ |
22 |
|
|
$ |
7,834 |
|
|
$ |
(1,485 |
) |
|
$ |
4,997 |
|
|
$ |
(5,962 |
) |
|
$ |
407 |
|
|
$ |
(185 |
) |
|
$ |
5,628 |
|
The
accompanying notes are part of the financial statements.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
1. PRINCIPLES OF PRESENTATION AND CONSOLIDATION
Principles
of Presentation and Consolidation
Our
financial statements are presented in accordance with generally accepted
accounting principles ("GAAP") in the United States and are shown on a
consolidated basis, and on a sector basis for Automotive and Financial
Services. We believe the additional information provided in the
sector statements enables the reader to better understand the operating
performance, financial position, cash flows, and liquidity of our two very
different businesses. The difference between the total assets and
total liabilities as presented in our sector balance sheet and our consolidated
balance sheet is the result of netting of deferred tax assets and
liabilities.
Our
financial statements include consolidated majority-owned subsidiaries and
consolidated variable interest entities ("VIEs") of which we are the primary
beneficiary. The equity method of accounting is used for our
investments in entities for which we do not have control or are not the primary
beneficiary, but over whose operating and financial policies we have the ability
to exercise significant influence.
To
provide comparative prior-year balance sheets, certain amounts on our
December 31, 2006 consolidated and sector balance sheets and related
footnotes have been reclassified for operations held for sale in
2007. See Note 20 for information about our held-for-sale
operations.
Certain
Transactions Between Automotive and Financial Services Sectors
Intersector
transactions occur in the ordinary course of business. We formally
documented certain long-standing business practices with Ford Motor Credit
Company LLC ("Ford Credit"), our indirect wholly-owned subsidiary, in a 2001
agreement that was amended in 2006. Additional details on certain
transactions and the effect on each sector's balance sheet at December 31
are shown below (in billions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance
receivables, net (a)
|
|
|
|
|
|
$ |
3.7 |
|
|
|
|
|
|
$ |
3.9 |
|
Wholesale
receivables/Other (b)
|
|
|
|
|
|
|
1.8 |
|
|
|
|
|
|
|
1.9 |
|
Net
investment in operating leases (c)
|
|
|
|
|
|
|
0.7 |
|
|
|
|
|
|
|
0.8 |
|
Other
assets (d)
|
|
|
|
|
|
|
1.2 |
|
|
|
|
|
|
|
0.7 |
|
Intersector
receivables/(payables) (e)
|
|
$ |
2.0 |
|
|
|
(2.0 |
) |
|
$ |
(1.5 |
) |
|
|
1.5 |
|
__________
(a)
|
Automotive
sector receivables (generated primarily from vehicle and parts sales to
third parties) sold to Ford Credit. These receivables are
classified as Other
receivables, net on our consolidated balance sheet and
Finance receivables, net
on our sector balance sheet.
|
(b)
|
Primarily
wholesale receivables with entities that are consolidated subsidiaries of
Ford. The consolidated subsidiaries include dealerships that
are partially owned by Ford and consolidated as VIEs, and also certain
overseas affiliates.
|
(c)
|
Sale-leaseback
agreement between Automotive and Financial Services sectors relating to
vehicles that we lease to our employees and employees of our
subsidiaries.
|
(d)
|
Primarily
used vehicles purchased by Ford Credit pursuant to the Automotive sector's
obligation to repurchase such vehicles from daily rental car
companies. These vehicles are subsequently sold at
auction.
|
(e)
|
Amounts
owed to the Automotive sector by Ford Credit, or vice versa, under a tax
sharing agreement.
|
Additionally,
amounts recorded as revenue by the Financial Services sector and billed to the
Automotive sector for interest supplements and other support costs for special
financing and leasing programs were $4.6 billion in 2007, $3.5 billion
in 2006, and $3.3 billion in 2005. The Automotive sector had
accrued in Accrued liabilities
and deferred revenue $5.4 billion and $4.6 billion for interest
supplements at December 31, 2007 and 2006, respectively, and about
$900 million for residual-value supplements in the United States and Canada
to be paid to Ford Credit over the term of the related finance contracts at
December 31, 2007 and 2006.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
2. SUMMARY OF ACCOUNTING POLICIES
Automotive
sales consist primarily of revenue generated from the sale of
vehicles. Sales are recorded when the risks and rewards of ownership
are transferred to our customers (generally dealers and
distributors). For the majority of our sales, this occurs when
products are shipped from our manufacturing facilities. When vehicles
are shipped to customers or modifiers on consignment, revenue is recognized when
the vehicle is sold to the ultimate customer. We also sell vehicles
to daily rental car companies subject to guaranteed repurchase
options. These vehicles are accounted for as operating
leases. At the time of transfer, the proceeds are recorded as
deferred revenue in Accrued
liabilities and deferred revenue. The difference between the
proceeds and the guaranteed repurchase amount is recognized in Automotive sales over the term of the
lease, using a straight-line method. Also at the time of transfer,
the cost of the vehicles is recorded as an operating lease in Other current
assets. The difference between the cost of the vehicle and the
estimated auction value is depreciated in Automotive cost of sales over the term of
the lease. At December 31, 2007 and 2006, included in
Accrued liabilities and
deferred revenue was $3.2 billion and $3.6 billion,
respectively, and included in Other current assets was
$2.9 billion and $3.2 billion, respectively, for these
vehicles.
Income
generated from cash and cash equivalents, investments in marketable securities,
loaned securities and other miscellaneous receivables is reported in Automotive interest income and other
non-operating income/(expense), net.
Revenue
Recognition — Financial Services Sector
Revenue
from finance receivables (including direct financing leases) is recognized using
the interest method. Certain origination costs on receivables are
deferred and amortized, using the interest method, over the term of the related
receivable as a reduction in financing revenue. Rental revenue on
operating leases is recognized on a straight-line basis over the term of the
lease. Initial direct costs related to leases are deferred and
amortized on a straight-line basis over the term of the lease. The
accrual of rental payments on operating leases and interest on receivables is
discontinued at the time a receivable is determined to be
uncollectible.
Income
generated from cash and cash equivalents, investments in marketable securities,
and other miscellaneous receivables is reported in Financial Services
revenues.
Marketing
Incentives and Interest Supplements
Marketing
incentives, including customer and dealer cash payments and costs for special
financing and leasing programs paid to the Financial Services sector, are
recognized by the Automotive sector as revenue reductions. These
revenue reductions are accrued at the later of the date the related vehicle
sales to the dealers are recorded or the date the incentive program is both
approved and communicated. We generally estimate these accruals using
marketing incentives that are approved as of the balance sheet date and are
expected to be effective at the beginning of the subsequent
period. The Financial Services sector identifies payments for special
financing and leasing programs as interest supplements or other support costs
and recognizes them consistent with the earnings process of the underlying
receivable or operating lease.
Supplier
Price Adjustments
We
frequently negotiate price adjustments with our suppliers throughout a
production cycle, even after receiving production material. These
price adjustments relate to changes in design specifications or to other
commercial terms such as economics, productivity, and competitive
pricing. We recognize price adjustments when we reach final agreement
with our suppliers. In general, we avoid direct price changes in
consideration of future business; however, when these occur, our policy is to
defer the financial statement impact of any such price change given explicitly
in consideration of future business where guaranteed volumes are
specified.
Raw
Material Arrangements
We
negotiate prices for and facilitate the purchase of raw materials on behalf of
our suppliers. These raw material arrangements, which take place
independently of any purchase orders being issued to our suppliers, are
negotiated at arms length and do not involve volume guarantees to either
party. When we pass the risks and rewards of ownership to our
suppliers, including inventory risk, market price risk, and credit risk for the
raw material, we record both the cost of the
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
2. SUMMARY OF ACCOUNTING POLICIES (Continued)
raw
material and the income from the subsequent sale to the supplier in Automotive cost of
sales. When we retain the risks and rewards of ownership, we
account for the raw material as Inventory on our balance
sheet until the resulting vehicle is sold.
Warranty
and Extended Service Plans
Estimated
warranty costs and additional service actions are accrued for at the time the
vehicle is sold to a dealer, including costs for basic warranty coverage on
vehicles sold, product recalls, and other customer service
actions. Fees or premiums for the issuance of extended service plans
are recognized in income over the contract period in proportion to the costs
expected to be incurred in performing services under the contract.
Government
Grants and Loan Incentives
From time
to time, we receive grants and loan incentives from domestic and foreign
governments. They are recorded in the financial statements as
dictated by the grant agreement, either as a reduction of expenses or a
reduction of the cost of the capital investment. The benefit of
grants and loan incentives is recorded when performance is complete and all
conditions as specified in the agreement are fulfilled. When recorded
as a reduction of expense, grants and loan incentives are recorded as a
reduction in Automotive cost
of sales.
Foreign
Currency Translation
The
assets and liabilities of foreign subsidiaries using the local currency as their
functional currency are translated to U.S. dollars using end-of-period exchange
rates and any resulting translation adjustments are contained in Accumulated other comprehensive
income/(loss). The net translation adjustments for 2007 and
2006 were an increase in net assets and Accumulated other comprehensive
income/(loss) of $1.8 billion and $2.6 billion (net of tax of
$0 for 2007 and $3 million benefit for 2006), respectively. In
2005, the net translation adjustment was a decrease in net assets
and Accumulated
other comprehensive income/(loss) of $3.7 billion (net of tax of
$299 million). This net translation adjustment also reflects
amounts transferred to net income as a result of the sale or liquidation of an
entity, resulting in a gain of $116 million (primarily from the sale of
Hertz) in 2005.
Also
included in Automotive cost of
sales, Automotive interest income and other non-operating
income/(expense), net, and Financial Services revenues
are gains or losses arising from transactions denominated in currencies other
than the functional currency of the locations, the effect of remeasuring assets
and liabilities of foreign subsidiaries using U.S. dollars as their functional
currency, and the results of our foreign currency hedging
activities. For additional discussion of hedging activities, see
Note 23. The net after-tax income effects of these adjustments
were a gain of $217 million in 2007, a loss of $17 million in 2006,
and a gain of $621 million in 2005.
Presentation
of Sales and Sales-Related Taxes
We
collect and remit taxes assessed by different governmental authorities that are
both imposed on and concurrent with a revenue-producing transaction between us
and our customers. These taxes may include, but are not limited to,
sales, use, value-added, and some excise taxes. We report the
collection of these taxes on a net basis (excluded from revenues).
Selected
Other Costs
Freight,
engineering and research and development costs are included in Automotive cost of sales;
advertising costs are included in Selling, administrative and other
expenses. Engineering, research and development, and
advertising costs are expensed as incurred and were as follows (in
billions):
|
|
|
|
|
|
|
|
|
|
Engineering,
research and development
|
|
$ |
7.5 |
|
|
$ |
7.2 |
|
|
$ |
8.0 |
|
Advertising
|
|
|
5.4 |
|
|
|
5.1 |
|
|
|
5.0 |
|
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
2. SUMMARY OF ACCOUNTING POLICIES (Continued)
Cash
and Cash Equivalents
Cash and
all highly-liquid investments with a maturity of 90 days or less at the
date of purchase, including short-term time deposits, government agency
securities, and corporate obligations, are classified in Cash and cash
equivalents. Cash and cash equivalents and investments that
are restricted as to withdrawal or usage under the terms of certain contractual
arrangements are recorded in Other assets on our
consolidated balance sheet. We
review our disbursement accounts and reclassify any aggregate negative balances
to a liability account included in Payables on our balance
sheet. See Note 7
for additional information regarding cash that supports Financial Services'
on-balance sheet securitizations.
Marketable,
Loaned and Other Securities
We
classify securities as trading, available-for-sale, or
held-to-maturity. Trading and available-for-sale securities are
recorded at fair value, and held-to-maturity securities are recorded at
amortized cost. The fair value of trading and available-for-sale
securities is determined by quoted market prices. The estimated fair
value of securities for which there are no quoted market prices is based on
similar types of securities traded in the market. Realized gains and
losses are accounted for using the specific identification method.
Unrealized
gains and losses on trading securities, as well as realized gains and losses for
all securities, are recorded in Automotive interest income and other
non-operating income/(expense), net and Financial Services
revenues. Unrealized holding gains and losses for
available-for-sale securities are reported, net of tax, in Accumulated other comprehensive
income/(loss).
We
utilize a systematic process to evaluate whether unrealized losses related to
investments in debt and equity securities are temporary in
nature. Factors considered in determining whether a loss is temporary
include the length of time and extent to which the fair value has been below
cost, the financial condition and near-term prospects of the issuer, and our
ability and intent to hold the investment for a period of time sufficient to
allow for any anticipated recovery. If losses are determined to be
other than temporary, the investment carrying amount is considered impaired and
adjusted downward to a revised fair basis.
Expected
maturities of debt securities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
penalty.
We loan
certain securities from our portfolio to other institutions. Such
securities are classified as Loaned
securities. Collateral for the loaned securities, consisting
of cash or other securities, is maintained at a rate of 102% of the market value
of a loaned security. We have securities as collateral in the amount
of $10 billion and $4.4 billion for 2007 and 2006,
respectively. These securities have not been pledged or
sold. We have cash as collateral in the amount of $480 million
and $931 million for 2007 and 2006, respectively. This cash
collateral is recorded in Other assets on the
consolidated balance sheet and Other current assets on the sector balance
sheet, offset by a
current obligation to return the collateral in Payables on the consolidated
balance sheet and Other
payables on the sector balance sheet. Income received from
loaning securities is recorded as earned in Automotive interest income and other
non-operating income/(expense), net.
Allowance
for Credit Losses
The
allowance for credit losses is our estimate of the probable credit losses
inherent in finance receivables and operating leases at the date of the balance
sheet and is included in Finance receivables, net and
Net investment in operating
leases. The allowance is based on factors such as historical
trends in credit losses and recoveries (including key metrics such as
delinquencies, repossessions, and bankruptcies), the composition of our present
portfolio (including vehicle brand, term, risk evaluation, and new/used
vehicles), trends in historical and projected used vehicle values and economic
conditions. Additions to the allowance for credit losses are recorded
as charges to the Financial
Services provision for credit and insurance losses. Finance receivables
and lease investments are charged to the allowance for credit losses at the
earlier of the time an account is deemed to be uncollectible or the account is
120 days delinquent, taking into consideration the financial condition of the
borrower or lessee, 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 allowance for credit
losses.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
2. SUMMARY OF ACCOUNTING POLICIES (Continued)
Sales
of Receivables
Ford
Credit securitizes finance receivables and net investment in operating leases
and sells retail installment sale contracts in whole-loan sale transactions to
fund operations and to maintain liquidity. Most of its
securitizations do not meet the criteria for off-balance sheet
treatment. As a result, the securitized assets and associated debt
remain on its balance sheet and no gain or loss is recorded for these
transactions.
Ford
Credit records its sales of receivables as off-balance sheet when each of the
following criteria is met:
|
·
|
The
receivables are isolated from the transferor (i.e., Ford Credit transfers
the receivables to bankruptcy-remote special purpose entities ("SPEs") or
other independent entities).
|
|
·
|
The
receivables are transferred to an entity that has the right to pledge or
exchange the assets, or to a qualifying SPE whose beneficial interest
holders have the right to pledge or exchange their beneficial
interests. In its off-balance sheet transactions, Ford Credit
generally uses a qualifying SPE or it sells the receivables to an
independent entity. In either case, Ford Credit does not
restrict the transferee from pledging or exchanging the receivables or
beneficial interests.
|
|
·
|
The
transferor does not maintain control over the receivables (i.e., Ford
Credit is not permitted to regain control over the transferred receivables
or cause the return of specific receivables, other than through a
"cleanup" call, an optional repurchase of the remaining transferred
financial assets at a point where the cost of servicing the outstanding
assets becomes burdensome in relation to the
benefits).
|
For
off-balance sheet sales of receivables, gains or losses are recognized in the
period in which the sale occurs. Ford Credit retains certain
interests in receivables sold in off-balance sheet securitization
transactions. In determining the gain or loss on each sale of finance
receivables, the investment in the sold receivables pool is allocated between
the portions sold and retained based on their relative fair values at the date
of sale. Retained interests may include residual interest in
securitizations, restricted cash held for the benefit of securitization
investors, and subordinated securities. These interests are recorded at fair
value with unrealized gains recorded, net of tax, as a separate component of
Accumulated other
comprehensive income/(loss). Residual interests in
securitizations represent the present value of monthly collections on the sold
finance receivables in excess of amounts needed for payment of the debt and
other obligations issued or arising in the securitization
transactions. Ford Credit does not retain any interests in the
whole-loan sale transactions but continues to service the sold
receivables.
In both
off-balance sheet securitization transactions and whole-loan sales, Ford Credit
also retains the servicing rights and generally receives a servicing
fee. The fee is recognized as collected over the remaining term of
the related sold finance receivables. Ford Credit establishes a servicing asset
or liability when the servicing fee does not adequately compensate for retaining
the servicing rights. Interest supplement payments due from
affiliates related to receivables sold in off-balance sheet securitizations or
whole-loan sale transactions are recorded, on a present value basis, as a
receivable in Other
assets on its balance sheet at the time the receivables are
sold. Present value accretion is recognized in Financial Services
revenues.
Depreciation
and Amortization
Property
and equipment are stated at cost and depreciated primarily using the
straight-line method over the estimated useful life of the
asset. Useful lives range from 3 years to
36 years. The estimated useful lives generally are
14.5 years for machinery and equipment, and 30 years for buildings and
land improvements. Maintenance, repairs, and rearrangement costs are
expensed as incurred.
Beginning
January 1, 2006, we changed our method of amortization for special
tools from an activity-based method (units-of-production) to a time-based
method. The time-based method amortizes the cost of special tools
over their expected useful lives using a straight-line method or, if the
production volumes for major product programs associated
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
2. SUMMARY OF ACCOUNTING POLICIES (Continued)
with the
tools are expected to materially decline over the life of the tool, an
accelerated method reflecting the rate of decline. For 2006, this
change in method decreased Automotive cost of sales by
$135 million.
Goodwill
Beginning
with 2006, our policy is to perform annual testing of goodwill and certain other
net intangible assets during the fourth quarter to determine whether any
impairment has occurred. Goodwill impairment testing is also
performed following an allocation of goodwill to a business to be disposed, or
following a triggering event for the long-lived asset impairment
test. Testing is conducted at the reporting unit level, which is
generally the same level as our operating segments. To test for
goodwill impairment, the carrying value of each reporting unit is compared with
its fair value. Fair value is estimated using the present value of
free cash flows method. Prior to 2006, our policy was to test in the
second quarter; in 2005, we tested in both the second and fourth
quarters. Fourth quarter testing is considered preferable because it
allows us to use more current financial information and matches our business
plan timing. This change in accounting principle does not delay,
accelerate or avoid an impairment charge or affect our financial
statements.
Asset
Impairments
Held-for-Sale and Discontinued
Operations. We perform an impairment test on an asset group to
be discontinued, held for sale, or otherwise disposed of when management has
committed to the action and the action is expected to be completed within one
year. We estimate fair value to approximate the expected proceeds to
be received, less transaction costs, and compare it to the carrying value of the
asset group. An impairment charge is recognized when the carrying
value exceeds the estimated fair value.
Held-and-Used Long-Lived
Assets. We monitor the carrying value of long-lived asset
groups held and used for potential impairment when certain triggering events
have occurred. These events include current period losses combined
with a history of losses or a projection of continuing losses. When a
triggering event occurs, a test for recoverability is performed, comparing
projected undiscounted future cash flows (utilizing current cash flow
information and expected growth rates) to the carrying value of the asset
group. If the test for recoverability identifies a possible
impairment, the asset group's fair value is measured relying primarily on the
discounted cash flow methodology. Additionally, we consider various
market multiples (e.g., revenue and earnings before interest, taxes, and
depreciation and amortization ("EBITDA")) and consult with external valuation
experts. An impairment charge is recognized for the amount by which
the carrying value of the asset group exceeds its estimated fair
value.
Use
of Estimates
The
preparation of financial statements in accordance with U.S. GAAP requires us to
make estimates and assumptions that affect our reported amounts of assets and
liabilities, our disclosure of contingent assets and liabilities at the date of
the financial statements, and our revenue and expenses during the periods
reported. Estimates are used when accounting for certain items such
as marketing accruals, warranty costs, employee benefit programs,
etc. Estimates are based on historical experience, where applicable,
and assumptions that we believe are reasonable under the
circumstances. Due to the inherent uncertainty involved with
estimates, actual results may differ.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
3. MARKETABLE AND OTHER SECURITIES
Investments
in marketable and loaned securities at December 31 were as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading
|
|
$ |
10,956 |
|
|
$ |
37 |
|
|
$ |
92 |
|
|
$ |
10,901 |
|
|
$ |
15,060 |
|
|
$ |
27 |
|
|
$ |
18 |
|
|
$ |
15,069 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
government
|
|
|
214 |
|
|
|
1 |
|
|
|
— |
|
|
|
215 |
|
|
|
185 |
|
|
|
— |
|
|
|
1 |
|
|
|
184 |
|
Mortgage-backed
securities
|
|
|
575 |
|
|
|
6 |
|
|
|
1 |
|
|
|
580 |
|
|
|
595 |
|
|
|
1 |
|
|
|
3 |
|
|
|
593 |
|
Other
debt securities
|
|
|
660 |
|
|
|
3 |
|
|
|
— |
|
|
|
663 |
|
|
|
724 |
|
|
|
— |
|
|
|
4 |
|
|
|
720 |
|
Subtotal
|
|
|
1,449 |
|
|
|
10 |
|
|
|
1 |
|
|
|
1,458 |
|
|
|
1,504 |
|
|
|
1 |
|
|
|
8 |
|
|
|
1,497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Automotive sector
|
|
$ |
12,405 |
|
|
$ |
47 |
|
|
$ |
93 |
|
|
$ |
12,359 |
|
|
$ |
16,564 |
|
|
$ |
28 |
|
|
$ |
26 |
|
|
$ |
16,566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Services Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading
|
|
$ |
1 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1 |
|
|
$ |
1 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
government
|
|
|
632 |
|
|
|
1 |
|
|
|
— |
|
|
|
633 |
|
|
|
3,710 |
|
|
|
4 |
|
|
|
1 |
|
|
|
3,713 |
|
Government-sponsored
enterprises
|
|
|
1,944 |
|
|
|
4 |
|
|
|
— |
|
|
|
1,948 |
|
|
|
4,968 |
|
|
|
5 |
|
|
|
— |
|
|
|
4,973 |
|
Mortgage-backed
securities
|
|
|
324 |
|
|
|
2 |
|
|
|
1 |
|
|
|
325 |
|
|
|
263 |
|
|
|
1 |
|
|
|
4 |
|
|
|
260 |
|
Other
debt securities
|
|
|
139 |
|
|
|
2 |
|
|
|
1 |
|
|
|
140 |
|
|
|
1,113 |
|
|
|
1 |
|
|
|
2 |
|
|
|
1,112 |
|
Equity
securities
|
|
|
99 |
|
|
|
2 |
|
|
|
— |
|
|
|
101 |
|
|
|
60 |
|
|
|
36 |
|
|
|
1 |
|
|
|
95 |
|
Subtotal
|
|
|
3,138 |
|
|
|
11 |
|
|
|
2 |
|
|
|
3,147 |
|
|
|
10,114 |
|
|
|
47 |
|
|
|
8 |
|
|
|
10,153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity
|
|
|
8 |
|
|
|
— |
|
|
|
— |
|
|
|
8 |
|
|
|
8 |
|
|
|
— |
|
|
|
— |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Financial Services sector
|
|
$ |
3,147 |
|
|
$ |
11 |
|
|
$ |
2 |
|
|
$ |
3,156 |
|
|
$ |
10,123 |
|
|
$ |
47 |
|
|
$ |
8 |
|
|
$ |
10,162 |
|
The
proceeds from maturities and sales of available-for-sale securities were as
follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
sector
|
|
$ |
— |
|
|
$ |
496 |
|
|
$ |
321 |
|
|
$ |
2,686 |
|
|
$ |
4,369 |
|
|
$ |
4,785 |
|
Financial
Services sector
|
|
|
7,900 |
|
|
|
9,157 |
|
|
|
2,381 |
|
|
|
8,074 |
|
|
|
4,434 |
|
|
|
691 |
|
Realized
gains and losses on sales of available-for-sale securities were as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
sector
|
|
$ |
10 |
|
|
$ |
4 |
|
|
$ |
2 |
|
|
$ |
7 |
|
|
$ |
22 |
|
|
$ |
59 |
|
Financial
Services sector
|
|
|
45 |
|
|
|
19 |
|
|
|
7 |
|
|
|
5 |
|
|
|
4 |
|
|
|
3 |
|
The
amortized cost and fair value of investments in available-for-sale and
held-to-maturity securities by contractual maturity for our sectors at
December 31, 2007 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
year
|
|
$ |
51 |
|
|
$ |
51 |
|
|
$ |
2,384 |
|
|
$ |
2,387 |
|
|
$ |
1 |
|
|
$ |
1 |
|
2-5
years
|
|
|
792 |
|
|
|
796 |
|
|
|
228 |
|
|
|
229 |
|
|
|
3 |
|
|
|
3 |
|
6-10
years
|
|
|
10 |
|
|
|
10 |
|
|
|
51 |
|
|
|
52 |
|
|
|
2 |
|
|
|
2 |
|
11
years and later
|
|
|
21 |
|
|
|
21 |
|
|
|
52 |
|
|
|
53 |
|
|
|
2 |
|
|
|
2 |
|
Mortgage-backed
securities
|
|
|
575 |
|
|
|
580 |
|
|
|
324 |
|
|
|
325 |
|
|
|
— |
|
|
|
— |
|
Equity
securities
|
|
|
— |
|
|
|
— |
|
|
|
99 |
|
|
|
101 |
|
|
|
— |
|
|
|
— |
|
Total
|
|
$ |
1,449 |
|
|
$ |
1,458 |
|
|
$ |
3,138 |
|
|
$ |
3,147 |
|
|
$ |
8 |
|
|
$ |
8 |
|
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
3. MARKETABLE AND OTHER SECURITIES (Continued)
The fair
value of our investments in an unrealized loss position at
December 31, 2007, aggregated by investment category and length of
time the investments have been in a continuous loss position, were as follows
(in millions):
|
|
|
|
|
|
|
|
|
|
Description
of Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed
securities
|
|
$ |
8 |
|
|
$ |
— |
|
|
$ |
67 |
|
|
$ |
1 |
|
|
$ |
75 |
|
|
$ |
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Services Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed
securities
|
|
$ |
9 |
|
|
$ |
— |
|
|
$ |
100 |
|
|
$ |
1 |
|
|
$ |
109 |
|
|
$ |
1 |
|
Other
debt securities
|
|
|
14 |
|
|
|
— |
|
|
|
16 |
|
|
|
1 |
|
|
|
30 |
|
|
|
1 |
|
Total
Financial Services sector
|
|
$ |
23 |
|
|
$ |
— |
|
|
$ |
116 |
|
|
$ |
2 |
|
|
$ |
139 |
|
|
$ |
2 |
|
Not
included in the tables above are cost method investments totaling
$82 million included in Other assets. Our
largest cost method investment relates to our ownership in Primrose Cove Limited
of $69 million, preferred shares of which we received as part of the sale
of Aston Martin Lagonda Group Limited ("Aston Martin"). See
Note 20 for further discussion of the sale of Aston Martin.
NOTE
4. FINANCE RECEIVABLES — FINANCIAL SERVICES SECTOR
Net
finance receivables at December 31 were as follows (in
millions):
|
|
|
|
|
|
|
Retail
|
|
$ |
75,442 |
|
|
$ |
72,513 |
|
Wholesale
|
|
|
33,457 |
|
|
|
33,813 |
|
Other
finance receivables
|
|
|
4,753 |
|
|
|
5,396 |
|
Total
finance receivables
|
|
|
113,652 |
|
|
|
111,722 |
|
Allowance
for credit losses
|
|
|
(948 |
) |
|
|
(995 |
) |
Other
|
|
|
29 |
|
|
|
40 |
|
Net
finance and other receivables
|
|
$ |
112,733 |
|
|
$ |
110,767 |
|
|
|
|
|
|
|
|
|
|
Net
finance receivables subject to fair value*
|
|
$ |
107,432 |
|
|
$ |
105,324 |
|
Fair
Value
|
|
$ |
103,954 |
|
|
$ |
104,066 |
|
__________
|
*
|
At
December 31, 2007 and 2006, excludes $5.3 billion and
$5.4 billion, respectively, of certain receivables (primarily direct
financing leases) that are not subject to fair value disclosure
requirements.
|
Finance
receivables that originated outside of the United States were $55.7 billion
and $49.4 billion at December 31, 2007 and 2006,
respectively. Other finance receivables consisted primarily of real
estate, commercial and other collateralized loans and accrued
interest. At December 31, 2007, finance receivables
included $1.7 billion owed by the three customers with the largest
receivables balances.
Included
in net finance and other receivables at December 31, 2007
and 2006 were $67.2 billion and $56.5 billion, respectively, of
finance receivables that have been sold for legal purposes in securitizations
that do not satisfy the requirements for accounting sale
treatment. These receivables are available only for payment of the
debt or other obligations issued or arising in the securitization transactions;
they are not available to pay our other obligations or the claims of our other
creditors.
The fair
value of finance receivables is generally calculated by discounting future cash
flows using an estimated discount rate that reflects the current credit,
interest rate, and prepayment risks associated with similar types of
instruments. For finance receivables with short maturities (generally
three months or less), the book value approximates fair value.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
4. FINANCE RECEIVABLES — FINANCIAL SERVICES SECTOR (Continued)
Future
maturities of total finance receivables, including minimum lease rentals, are as
follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
finance receivables, including minimum lease rentals
|
|
$ |
62,961 |
|
|
$ |
20,965 |
|
|
$ |
14,540 |
|
|
$ |
14,041 |
|
Experience
indicates that a portion of the portfolio is repaid before the contractual
maturity dates.
Included
in retail receivables above are investments in direct financing
leases. The net investment at December 31 was as follows
(in millions):
|
|
|
|
|
|
|
Total
minimum lease rentals to be received
|
|
$ |
3,430 |
|
|
$ |
3,516 |
|
Less:
Unearned income
|
|
|
(512 |
) |
|
|
(504 |
) |
Loan
origination costs
|
|
|
57 |
|
|
|
49 |
|
Estimated
residual values
|
|
|
2,356 |
|
|
|
2,349 |
|
Less:
Allowance for credit losses
|
|
|
(52 |
) |
|
|
(52 |
) |
Net
investment in direct financing leases
|
|
$ |
5,279 |
|
|
$ |
5,358 |
|
The
investment in direct financing leases primarily relates to the leasing of
vehicles. Future maturities of minimum lease rentals, as included
above, are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
rentals on direct financing leases
|
|
$ |
1,352 |
|
|
$ |
1,012 |
|
|
$ |
724 |
|
|
$ |
342 |
|
NOTE
5. NET INVESTMENT IN OPERATING LEASES
The net
investment in operating leases at December 31 was as follows (in
millions):
|
|
|
|
|
|
|
Automotive
Sector
|
|
|
|
|
|
|
Vehicles,
net of depreciation
|
|
$ |
2,946 |
|
|
$ |
3,181 |
|
Financial
Services Sector
|
|
|
|
|
|
|
|
|
Vehicles
and other equipment, at cost
|
|
|
38,956 |
|
|
|
33,974 |
|
Accumulated
depreciation
|
|
|
(8,493 |
) |
|
|
(7,242 |
) |
Allowance
for credit losses
|
|
|
(154 |
) |
|
|
(126 |
) |
Total
Financial Services sector
|
|
|
30,309 |
|
|
|
26,606 |
|
Total
|
|
$ |
33,255 |
|
|
$ |
29,787 |
|
Automotive
Sector
Included
in Net investment in operating
leases for the Automotive sector are vehicles sold to daily rental car
companies subject to guaranteed repurchase options. Assets subject to
operating leases are depreciated on the straight-line method over the projected
service life of the lease to reduce the asset to its estimated residual
value. Operating lease depreciation expense (which excludes gains and
losses on disposal of assets) was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
Operating
lease depreciation expense
|
|
$ |
979 |
|
|
$ |
1,384 |
|
|
$ |
307 |
|
Included
in Automotive sales are
rents on operating leases. The amount contractually due for minimum
rentals on operating leases is $100 million for 2008.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE 5. NET INVESTMENT IN
OPERATING LEASES (Continued)
Financial
Services Sector
Included
in Net investment in operating
leases at December 31, 2007 and 2006 were interests
of $18.9 billion and $15.2 billion, respectively, that have been
included in securitizations that do not satisfy the requirements for accounting
sale treatment. These net investments in operating leases are
available only for payment of the debt or other obligations issued or arising in
the securitization transactions; they are not available to pay our other
obligations or the claims of our other creditors.
Included
in Financial Services
revenues are rents on operating leases. The amounts
contractually due for minimum rentals on operating leases are as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
rentals on operating leases
|
|
$ |
5,118 |
|
|
$ |
3,584 |
|
|
$ |
1,980 |
|
|
$ |
641 |
|
|
$ |
82 |
|
|
$ |
250 |
|
Assets
subject to operating leases are depreciated on the straight-line method over the
term of the lease to reduce the asset to its estimated residual
value. Estimated residual values are based on assumptions for used
vehicle prices at lease termination and the number of vehicles that are expected
to be returned. Operating lease depreciation expense (which includes
gains and losses on disposal of assets) was as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
Operating
lease depreciation expense
|
|
$ |
6,212 |
|
|
$ |
5,214 |
|
|
$ |
5,666 |
|
NOTE
6. ALLOWANCE FOR CREDIT LOSSES — FINANCIAL SERVICES
SECTOR
Changes
in the allowance for credit losses for finance receivables, investment in direct
financing leases, and investment in operating leases were as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
1,121 |
|
|
$ |
1,594 |
|
|
$ |
2,471 |
|
Provision
for credit losses
|
|
|
592 |
|
|
|
100 |
|
|
|
167 |
|
Total
charge-offs and recoveries
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs
|
|
|
(1,105 |
) |
|
|
(995 |
) |
|
|
(1,184 |
) |
Recoveries
|
|
|
470 |
|
|
|
470 |
|
|
|
478 |
|
Net
charge-offs
|
|
|
(635 |
) |
|
|
(525 |
) |
|
|
(706 |
) |
Other
changes, principally amounts related to finance receivables sold and
translation adjustments
|
|
|
24 |
|
|
|
(48 |
) |
|
|
(338 |
) |
Ending
balance
|
|
$ |
1,102 |
|
|
$ |
1,121 |
|
|
$ |
1,594 |
|
NOTE
7. SALES OF RECEIVABLES — FINANCIAL SERVICES SECTOR
Servicing
Portfolio
Ford
Credit retains servicing rights for receivables sold in off-balance sheet
securitization and whole-loan sale transactions. The servicing
portfolio is summarized in the following table for the years ended December 31
(in millions):
|
|
|
|
Servicing
portfolio at December 31, 2005
|
|
$ |
20,921 |
|
Receivables
sales
|
|
|
5,531 |
|
Collections
and re-acquired receivables
|
|
|
(12,218 |
) |
Servicing
portfolio at December 31, 2006
|
|
|
14,234 |
|
Receivables
sales
|
|
|
815 |
|
Collections
and re-acquired receivables
|
|
|
(8,151 |
) |
Servicing
portfolio at December 31, 2007
|
|
$ |
6,898 |
|
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
7. SALES OF RECEIVABLES — FINANCIAL SERVICES SECTOR (Continued)
Retained
Interest in Securitized Assets
Components
of retained interest in off-balance sheet securitized assets at December 31
included the following (in millions):
|
|
|
|
|
|
|
Residual
interest in securitization transactions
|
|
$ |
466 |
|
|
$ |
709 |
|
Restricted
cash held for benefit of securitization investors
|
|
|
135 |
|
|
|
204 |
|
Subordinated
securities
|
|
|
52 |
|
|
|
77 |
|
Retained
interest in securitized assets
|
|
$ |
653 |
|
|
$ |
990 |
|
Investments
in subordinated securities and restricted cash are senior to the residual
interest in securitization transactions. Retained interests are
recorded at fair value. The fair value of restricted cash held for
investors is calculated based on the projected amortization of the cash and
discounted at the transaction discount rate. In determining the fair
value of residual interest in securitization transactions, Ford Credit discounts
the projected cash flows retained at the transaction discount
rates.
Investment
and Other Income
The
following table summarizes the activity related to off-balance sheet sales of
receivables reported in Financial Services revenues
for the years ended December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
Income
on residual interests
|
|
$ |
157 |
|
|
$ |
137 |
|
|
$ |
468 |
|
Servicing
fees
|
|
|
122 |
|
|
|
198 |
|
|
|
376 |
|
Interest
income on retained interests
|
|
|
34 |
|
|
|
32 |
|
|
|
327 |
|
Net
gain on sale of receivables
|
|
|
5 |
|
|
|
88 |
|
|
|
87 |
|
Other
|
|
|
73 |
|
|
|
213 |
|
|
|
255 |
|
Investment
and other income related to sales of receivables
|
|
$ |
391 |
|
|
$ |
668 |
|
|
$ |
1,513 |
|
For the
year ended December 31, 2007, Ford Credit utilized certain
point-of-sale assumptions to value the residual interest in its retail
transactions, which included a discount rate of 12.5%, prepayment speeds of 1.5%
(which represent expected payments earlier than scheduled maturity dates), and
net credit losses of 1.3% over the life of sold receivables. The
weighted-average life of the underlying assets was
56.1 months. For the year ended December 31, 2006,
Ford Credit utilized certain point-of-sale assumptions to value the residual
interest in its retail transactions, which included a discount rate of 11.0%,
prepayment speeds of 0.9% to 1.5% (which represent expected payments earlier
than scheduled maturity dates), and net credit losses of 0.1% to 2.3% over the
life of sold receivables. The weighted-average life of the underlying
assets was 45.8 months.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
7. SALES OF RECEIVABLES — FINANCIAL SERVICES SECTOR (Continued)
Cash
Flow
The
following table summarizes the cash flow movements between the transferees and
Ford Credit in its off-balance sheet sales of receivables for the years ended
December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
Proceeds
from sales of receivables and retained interests
|
|
|
|
|
|
|
|
|
|
Proceeds
from sales of retail receivables
|
|
$ |
697 |
|
|
$ |
4,863 |
|
|
$ |
15,549 |
|
Proceeds
from interest in sold wholesale receivables
|
|
|
— |
|
|
|
— |
|
|
|
3,739 |
|
Proceeds
from revolving-period securitizations
|
|
|
— |
|
|
|
217 |
|
|
|
1,349 |
|
Proceeds
from sale of retained notes – retail
|
|
|
— |
|
|
|
40 |
|
|
|
298 |
|
Total
|
|
$ |
697 |
|
|
$ |
5,120 |
|
|
$ |
20,935 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows related to net change in retained interest
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
in sold retail receivables
|
|
$ |
401 |
|
|
$ |
672 |
|
|
$ |
708 |
|
Interest
in sold wholesale receivables
|
|
|
— |
|
|
|
— |
|
|
|
2,684 |
|
Total
|
|
$ |
401 |
|
|
$ |
672 |
|
|
$ |
3,392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing
fees
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
$ |
122 |
|
|
$ |
198 |
|
|
$ |
260 |
|
Wholesale
|
|
|
— |
|
|
|
— |
|
|
|
116 |
|
Total
|
|
$ |
122 |
|
|
$ |
198 |
|
|
$ |
376 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
cash flows received on retained interests (which are reflected in
securitization income)
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
$ |
147 |
|
|
$ |
115 |
|
|
$ |
276 |
|
Wholesale
|
|
|
— |
|
|
|
— |
|
|
|
507 |
|
Total
|
|
$ |
147 |
|
|
$ |
115 |
|
|
$ |
783 |
|
During
the fourth quarter of 2005, Ford Credit consolidated its off-balance sheet
wholesale securitization program as a result of certain changes authorized in
accordance with the transaction documents. The accounting
consolidation did not have an impact on Ford Credit's earnings, credit
facilities, unsecured debt programs or other securitization
programs. This transaction was primarily non-cash and increased
receivables by $17.9 billion and debt by $15.8 billion upon
consolidation.
Ford
Credit repurchased $36 million, $36 million, and $43 million of
receivables in 2007, 2006, and 2005, respectively, relating to
off-balance sheet sales of receivables due to receivable contract modifications
or breach of initial eligibility criteria representations.
Other
Disclosures
The
following table summarizes key assumptions used at December 31, 2007
in estimating cash flows from off-balance sheet sales of retail receivables, and
the corresponding sensitivity of the current fair values to 10% and 20% adverse
changes (in millions, except percentages):
|
|
Assumption
|
|
|
Impact
on Fair Value Based
|
|
|
|
Percentage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flow discount rate
|
|
|
12.5%
|
|
|
$ |
(5 |
) |
|
$ |
(9 |
) |
Estimated
net credit loss rate
|
|
|
0.3%
- 2.6%
|
|
|
|
(4 |
) |
|
|
(9 |
) |
Prepayment
speed
|
|
|
0.8%
- 1.5%
|
|
|
|
(2 |
) |
|
|
(2 |
) |
The
effect of a variation in a particular assumption on the fair value of residual
interest in securitization transactions was calculated without changing any
other assumptions, although changes in one factor may result in changes in
another.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
7. SALES OF RECEIVABLES — FINANCIAL SERVICES SECTOR (Continued)
Outstanding
delinquencies over 30 days related to the off-balance sheet securitized
portfolio were $180 million and $208 million at
December 31, 2007 and 2006, respectively. Credit
losses, net of recoveries, were $65 million and $84 million for the
years ended December 31, 2007 and 2006,
respectively. Expected static pool credit losses related
to
outstanding
securitized retail receivables were 1.1% at
December 31, 2007. To calculate the static pool credit
losses, actual and projected future credit losses are added together and divided
by the original balance of each pool of assets.
On-Balance
Sheet Securitizations
At
December 31, 2007 and 2006, finance receivables of $67.2 billion
and $56.5 billion, respectively, have been sold for legal purposes in
securitizations that do not satisfy the requirements for accounting sale
treatment. In addition, at December 31, 2007 and 2006, net
investment in operating leases of $18.9 billion and $15.2 billion,
respectively, have been included in securitizations that do not satisfy the
requirements for accounting sale treatment. These receivables and net
investment in operating leases are available only for payment of the debt or
other obligations issued or arising in the securitization
transactions. At December 31, 2007 and 2006,
associated debt of $69.2 billion and $59.6 billion, respectively, is
reported on Ford Credit balance sheet for financial statement reporting
purposes. This debt includes long-term and short-term asset-backed
debt that is payable only out of collections on the underlying securitized
assets and related enhancements. The cash balances to be used only to
support the on-balance sheet securitizations at
December 31, 2007 and 2006 were $4.7 billion and
$3.7 billion, respectively. On-balance sheet securitizations
generally use VIEs of which Ford Credit is the primary beneficiary.
NOTE
8. INVENTORIES
Inventories
at December 31 were as follows (in millions):
|
|
|
|
|
|
|
Raw
materials, work-in-process and supplies
|
|
$ |
4,360 |
|
|
$ |
4,334 |
|
Finished
products
|
|
|
6,861 |
|
|
|
6,698 |
|
Total
inventories under first-in, first-out method ("FIFO")
|
|
|
11,221 |
|
|
|
11,032 |
|
Less:
Last-in, first-out method ("LIFO") adjustment
|
|
|
(1,100 |
) |
|
|
(1,015 |
) |
Total
inventories
|
|
$ |
10,121 |
|
|
$ |
10,017 |
|
Inventories
are stated at lower of cost or market. About one-fourth of
inventories were determined under LIFO method.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
9. EQUITY IN NET ASSETS OF AFFILIATED COMPANIES
The
following table reflects our effective December 31, 2007 ownership
percentages, and balances of equity method investments at
December 31, 2007 and 2006 (in millions, except
percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
Sector
|
|
|
|
|
|
|
|
|
|
Mazda
Motor Corporation ("Mazda")
|
|
|
33.4%
|
|
|
$ |
1,322 |
|
|
$ |
1,135 |
|
AutoAlliance
(Thailand) Co., Ltd.
|
|
|
50.0%
|
|
|
|
202 |
|
|
|
157 |
|
Changan
Ford Mazda Automobile Corporation, Limited
|
|
|
35.0%
|
|
|
|
183 |
|
|
|
140 |
|
Jiangling
Motors Corporation, Limited
|
|
|
30.0%
|
|
|
|
159 |
|
|
|
136 |
|
Ford
Motor Company Capital Trust II ("Trust II")
|
|
|
5.0%
|
|
|
|
155 |
|
|
|
155 |
|
Tenedora
Nemak S.A. de C.V.
|
|
|
6.8%
|
|
|
|
76 |
|
|
|
74 |
|
Blue
Diamond Truck, S. de R.L. de C.V.
|
|
|
49.0%
|
|
|
|
45 |
|
|
|
59 |
|
Getrag
Asia Pacific GmbH & Co. KG
|
|
|
25.0%
|
|
|
|
25 |
|
|
|
— |
|
Ballard
Power Systems, Inc. ("Ballard")
|
|
|
11.2%
|
|
|
|
22 |
|
|
|
41 |
|
Centre
for Engineering and Manufacturing Excellence Limited
("CEME")
|
|
|
33.3%
|
|
|
|
17 |
|
|
|
17 |
|
Changan
Ford Mazda Engine Company, Ltd.
|
|
|
25.0%
|
|
|
|
15 |
|
|
|
26 |
|
NuCellsys
Holding GmbH
|
|
|
50.0%
|
|
|
|
14 |
|
|
|
15 |
|
Ford
Performance Vehicles Pty Ltd.
|
|
|
49.0%
|
|
|
|
7 |
|
|
|
5 |
|
Lindsay
Cars Limited
|
|
|
49.0%
|
|
|
|
7 |
|
|
|
6 |
|
Blue
Diamond Parts, LLC ("Blue Diamond Parts")
|
|
|
51.0%
|
|
|
|
5 |
|
|
|
8 |
|
OEConnection
LLC
|
|
|
25.0%
|
|
|
|
5 |
|
|
|
6 |
|
Percepta,
LLC
|
|
|
45.0%
|
|
|
|
5 |
|
|
|
7 |
|
Ford
Malaysia Sdn. Bhd.
|
|
|
49.0%
|
|
|
|
2 |
|
|
|
9 |
|
Perth
Auto Alliance Pty Ltd.
|
|
|
—%
|
|
|
|
— |
|
|
|
8 |
|
Other
|
|
Various
|
|
|
|
17 |
|
|
|
25 |
|
Total
Automotive sector
|
|
|
|
|
|
|
2,283 |
|
|
|
2,029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Services Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
DFO
Partnership
|
|
|
50.0%
|
|
|
|
468 |
|
|
|
575 |
|
Ford
Credit South Africa (Pty) Limited
|
|
|
50.0%
|
|
|
|
42 |
|
|
|
37 |
|
AB
Volvofinans
|
|
|
10.0%
|
|
|
|
38 |
|
|
|
127 |
|
RouteOne
LLC
|
|
|
30.0%
|
|
|
|
19 |
|
|
|
20 |
|
Other
|
|
Various
|
|
|
|
3 |
|
|
|
2 |
|
Total
Financial Services sector
|
|
|
|
|
|
|
570 |
|
|
|
761 |
|
Total
|
|
|
|
|
|
$ |
2,853 |
|
|
$ |
2,790 |
|
We
received $216 million, $166 million, and $122 million of
dividends from these affiliated companies for the years ended
December 31, 2007, 2006, and 2005,
respectively. The market value of our investment in Mazda and Ballard
at December 31, 2007 was $2.4 billion and $68 million,
respectively.
NOTE
10. SIGNIFICANT UNCONSOLIDATED AFFILIATES
Presented
below is summarized financial information for Mazda and Blue Diamond
Parts. Mazda is considered to be a significant unconsolidated
affiliate in 2007, and both Mazda and Blue Diamond Parts were considered
significant unconsolidated affiliates in 2005. Mazda and Blue Diamond
Parts are accounted for under the equity method.
Mazda-Related
Investments. Included in our Automotive equity in net assets of affiliated
companies at December 31, 2007 and 2006 was $1.3 billion
and $1.1 billion, respectively, associated with our investment in
Mazda. Our investment in Mazda included $207 million of goodwill
included in Automotive equity
in net assets of affiliated companies at December 31, 2007 and
2006. Dividends received from Mazda were $36 million,
$20 million and $11 million for the years ended
December 31, 2007, 2006, and 2005,
respectively.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
10. SIGNIFICANT UNCONSOLIDATED AFFILIATES (Continued)
Summarized
income statement information from Mazda's published financial statements,
prepared in accordance with Japanese GAAP, for the twelve months ended
September 30, 2007, 2006, and 2005 and summarized balance sheet
information from Mazda's published financial statements at September 30, 2007,
2006, and 2005 is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
28,108 |
|
|
$ |
26,640 |
|
|
$ |
26,555 |
|
Cost
and expenses
|
|
|
26,763 |
|
|
|
25,395 |
|
|
|
25,696 |
|
Income
from continuing operations
|
|
|
698 |
|
|
|
611 |
|
|
|
333 |
|
Net
income
|
|
|
628 |
|
|
|
542 |
|
|
|
566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
16,776 |
|
|
$ |
15,008 |
|
|
$ |
15,218 |
|
Total
liabilities
|
|
|
12,430 |
|
|
|
11,408 |
|
|
|
12,207 |
|
Included
in our Automotive equity in
net income/(loss) of affiliated companies was the following income for
the years ended December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
Ford's
share of Mazda's net income/(loss)
|
|
$ |
189 |
|
|
$ |
256 |
|
|
$ |
148 |
|
Ford's
share of Mazda's net income/(loss) in the table above represents our share of
Mazda's results on a U.S. GAAP basis. There have been no events at
Mazda subsequent to September 30, 2007 that would materially affect
our balance sheet or income statement.
During
the second half of 2005 and the first quarter of 2006, we converted to equity
all of our Mazda convertible bonds. The bonds were previously
accounted for as an available-for-sale security, and at
December 31, 2005 the bonds had a fair value of
$52 million.
Blue Diamond
Parts. Blue Diamond Parts manages sourcing, merchandising, and
distribution of various replacement parts. Included in our Automotive equity in net assets of affiliated
companies at December 31, 2007 and 2006 was $5 million and
$8 million, respectively, associated with our investment in Blue Diamond
Parts. Dividends received from Blue Diamond Parts were
$79 million, $87 million and $99 million for the years ended
December 31, 2007, 2006, and 2005,
respectively.
Summarized
income statement information from Blue Diamond Parts' financial statements for
the twelve months ended December 31, 2007, 2006, and 2005 and
summarized balance sheet information from Blue Diamonds Parts' financial
statements at December 31, 2007, 2006, and 2005 is as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
Net
service revenue
|
|
$ |
184 |
|
|
$ |
212 |
|
|
$ |
187 |
|
Net
other expenses
|
|
|
32 |
|
|
|
30 |
|
|
|
27 |
|
Income
from continuing operations
|
|
|
152 |
|
|
|
181 |
|
|
|
160 |
|
Net
income
|
|
|
151 |
|
|
|
180 |
|
|
|
158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
72 |
|
|
$ |
43 |
|
|
$ |
56 |
|
Total
liabilities
|
|
|
62 |
|
|
|
26 |
|
|
|
48 |
|
Included
in our Automotive equity in
net income/(loss) of affiliated companies was the following income for
the years ended December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
Ford's
share of Blue Diamond Parts' net income/(loss)
|
|
$ |
77 |
|
|
$ |
89 |
|
|
$ |
83 |
|
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
11. NET PROPERTY AND RELATED EXPENSES
Net
property at December 31 was as follows (in millions):
|
|
|
|
|
|
|
Land
|
|
$ |
764 |
|
|
$ |
802 |
|
Buildings
and land improvements
|
|
|
14,402 |
|
|
|
13,719 |
|
Machinery,
equipment and other
|
|
|
45,303 |
|
|
|
43,913 |
|
Construction
in progress
|
|
|
2,031 |
|
|
|
2,224 |
|
Total
land, plant and equipment
|
|
|
62,500 |
|
|
|
60,658 |
|
Accumulated
depreciation
|
|
|
(36,561 |
) |
|
|
(34,983 |
) |
Net
land, plant and equipment
|
|
|
25,939 |
|
|
|
25,675 |
|
Special
tools, net of amortization
|
|
|
10,040 |
|
|
|
10,111 |
|
Net
Automotive sector property
|
|
|
35,979 |
|
|
|
35,786 |
|
Net
Financial Services sector property
|
|
|
260 |
|
|
|
269 |
|
Total
|
|
$ |
36,239 |
|
|
$ |
36,055 |
|
Automotive
sector property-related expenses for the years ended December 31 were as follows
(in millions):
|
|
|
|
|
|
|
|
|
|
Depreciation
and other amortization
|
|
$ |
3,474 |
|
|
$ |
6,487 |
|
|
$ |
4,180 |
|
Amortization
of special tools
|
|
|
3,289 |
|
|
|
4,671 |
|
|
|
3,976 |
|
Total
|
|
$ |
6,763 |
|
|
$ |
11,158 |
|
|
$ |
8,156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maintenance
and rearrangement
|
|
$ |
2,014 |
|
|
$ |
2,081 |
|
|
$ |
1,894 |
|
NOTE
12. IMPAIRMENT OF LONG-LIVED ASSETS
During
2006, we projected a decline in net cash flows for the Ford North America
segment, primarily reflecting lower market share assumptions and capacity
reductions. As a result, in the third quarter of 2006, we tested the
long-lived assets of this segment for recoverability and recorded a pre-tax
impairment charge of $2.2 billion in Automotive cost of sales,
representing the amount by which the carrying value of these assets exceeded the
fair value.
During
the third quarter of 2006, we also reviewed our business plan for the Jaguar and
Land Rover operating unit within our Premier Automotive Group ("PAG") segment
and, consistent with 2006 operating results, projected lower sales, a decline in
net cash flows for this operating unit based on cost performance shortfalls and
currency exchange deterioration. As a result, we tested the
long-lived assets of this operating unit for recoverability and recorded a
pre-tax impairment charge of $1.6 billion in Automotive cost of sales,
representing the amount by which the carrying value of these assets exceeded the
fair value.
During
2005, we updated our PAG Improvement Plan for the Jaguar and Land Rover
operating unit. We projected a decline in net cash flows for the
Jaguar and Land Rover operating unit, based on updated market projections
primarily reflecting recent market performance for Jaguar. As a
result, we tested the long-lived assets of this operating unit for
recoverability and recorded a pre-tax impairment charge of $1.3 billion in Automotive cost of sales,
representing the amount by which the carrying value of these assets
exceeded the fair value.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
13. GOODWILL AND OTHER NET INTANGIBLES
Goodwill
|
Changes
in the carrying amount of goodwill are as follows (in
millions):
|
|
|
|
|
|
Financial
Services
Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at December 31, 2006
|
|
$ |
95 |
|
|
$ |
35 |
|
|
$ |
2,896 |
|
|
$ |
3,026 |
|
|
$ |
17 |
|
|
$ |
3,043 |
|
Add: Goodwill
balances classified as held for sale at December 31, 2006
(a)
|
|
|
112 |
|
|
|
— |
|
|
|
2,684 |
|
|
|
2,796 |
|
|
|
— |
|
|
|
2,796 |
|
Changes
in goodwill:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
acquired
|
|
|
11 |
|
|
|
— |
|
|
|
— |
|
|
|
11 |
|
|
|
— |
|
|
|
11 |
|
Sale
of Automotive Protection Corporation ("APCO") (b)
|
|
|
(112 |
) |
|
|
— |
|
|
|
— |
|
|
|
(112 |
) |
|
|
— |
|
|
|
(112 |
) |
Sale
of Aston Martin (c)
|
|
|
— |
|
|
|
— |
|
|
|
(434 |
) |
|
|
(434 |
) |
|
|
— |
|
|
|
(434 |
) |
Other
disposals
|
|
|
(17 |
) |
|
|
— |
|
|
|
(6 |
) |
|
|
(23 |
) |
|
|
— |
|
|
|
(23 |
) |
Adjustment
related to Land Rover deferred taxes
(c)
|
|
|
— |
|
|
|
— |
|
|
|
(230 |
) |
|
|
(230 |
) |
|
|
— |
|
|
|
(230 |
) |
Volvo
goodwill impairment (c)
|
|
|
— |
|
|
|
— |
|
|
|
(2,400 |
) |
|
|
(2,400 |
) |
|
|
— |
|
|
|
(2,400 |
) |
Effect
of foreign currency translation and other
|
|
|
— |
|
|
|
2 |
|
|
|
288 |
|
|
|
290 |
|
|
|
1 |
|
|
|
291 |
|
Less:
Goodwill balances classified as held for sale at December 31, 2007
(c)
|
|
|
— |
|
|
|
— |
|
|
|
(1,438 |
) |
|
|
(1,438 |
) |
|
|
— |
|
|
|
(1,438 |
) |
Balances
at December 31, 2007
|
|
$ |
89 |
|
|
$ |
37 |
|
|
$ |
1,360 |
|
|
$ |
1,486 |
|
|
$ |
18 |
|
|
$ |
1,504 |
|
__________
|
(a)
|
During 2007, APCO in Ford North
America, Aston Martin subsidiaries in PAG, and Jaguar and Land Rover
subsidiaries in PAG were classified as held for sale. As a
result, the remaining balances reflecting originally purchased goodwill
for these entities were reclassified at December 31, 2006 to Assets of
discontinued/held for sale on our balance
sheet.
|
|
(b)
|
During the second quarter of
2007, we sold APCO. APCO was not an integrated component of our
Ford North America reporting unit. The $112 million of
APCO goodwill classified within Assets
of discontinued/held-for-sale operations at
December 31, 2006 was
removed from our balance sheet upon the sale and is not included within
our December 31, 2007 balance sheet.
|
|
(c)
|
At
December 31, 2006, our PAG reporting unit consisted of three
integrated operations: Volvo, Jaguar and Land Rover, and Aston
Martin. These operations shared, among other things, certain
facilities and tooling, intellectual property, in-bound logistics,
information technology services, and parts
supply.
|
(i) Sale of Aston
Martin. In the first quarter of 2007 we classified Aston
Martin as a held-for-sale operation. Accordingly, we determined an
appropriate allocation of goodwill for Aston Martin based on its fair value
relative to the overall fair value of PAG. We used discounted cash
flow and market methods of determining fair value, which resulted
in $434 million of goodwill being allocated to Aston Martin. The
goodwill remaining in our PAG reporting unit was tested at
March 31, 2007, and no goodwill impairment was
necessary. Aston Martin was sold in the second quarter of
2007.
(ii) Land Rover Deferred
Taxes. During the second and third quarters of 2007, we
settled tax matters related to the acquisition of Land Rover with the U.K. tax
authorities. The final resolution resulted in an increase in deferred
tax assets and a corresponding decrease in goodwill of
$230 million.
(iii) Jaguar and Land
Rover Held for Sale. In the fourth quarter of 2007, we
classified Jaguar and Land Rover as a held-for-sale
operation. Accordingly, we determined an appropriate allocation of
PAG goodwill
for Jaguar and Land Rover based on its fair value relative to the overall fair
value of PAG. This resulted in $1.4 billion of PAG goodwill being allocated to Jaguar
and Land Rover, which we classified within Assets of
discontinued/held-for-sale operations at
December 31, 2007.
(iv) Volvo Goodwill
Impairment. After allocating goodwill to Jaguar and Land Rover
in the fourth quarter of 2007, what remained in PAG was $3.8 billion of
Volvo goodwill. Volvo goodwill was tested for
impairment at December 31, 2007
by comparing the carrying value of the Volvo reporting unit
to its estimated fair
value using the same discounted cash flow and market methods used in the
allocation of goodwill. As a result of this testing, we recorded a
fourth quarter 2007
goodwill impairment charge of $2.4 billion in Goodwill
impairment. Volvo's fair value had declined
throughout 2007 primarily related to three factors. First, the
weakening of the U.S. dollar resulted in lower sales revenues relative to euro
and Swedish krona material costs; approximately 25% of Volvo vehicle sales are
in the United States. Second, higher gas prices and other factors
have caused a shift from larger to smaller vehicle segments in the United States
and other markets. This has resulted in lower-than-planned volumes
for new vehicles, especially high-margin SUVs. Third, to encourage
sales in the face of lower-than-planned volumes for Volvo vehicles in the United
States and other markets, we offered higher-than-anticipated marketing
incentives on the sale of these vehicles. These higher marketing
incentives led to a reduction in revenues and profits. The $1.4
billion goodwill balance at December 31, 2007 relates to
Volvo. Further deterioration in Volvo's estimated fair value may
result in additional
impairment of this goodwill.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE 13. GOODWILL AND
OTHER NET INTANGIBLES (Continued)
Excluded
from the table above is goodwill within Automotive equity in net assets of
affiliated companies of $247 million and $249 million at
December 31, 2007 and 2006, respectively.
Other
Net Intangibles
The
components of net identifiable intangible assets are as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
Less:
Accumulated Amortization
|
|
|
|
|
|
|
|
|
Less:
Accumulated Amortization
|
|
|
|
|
Automotive
Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution
Networks
|
|
$ |
335 |
|
|
$ |
(103 |
) |
|
$ |
232 |
|
|
$ |
317 |
|
|
$ |
(89 |
) |
|
$ |
228 |
|
Manufacturing
and production incentive rights
|
|
|
297 |
|
|
|
(74 |
) |
|
|
223 |
|
|
|
246 |
|
|
|
— |
|
|
|
246 |
|
Other
|
|
|
199 |
|
|
|
(89 |
) |
|
|
110 |
|
|
|
167 |
|
|
|
(73 |
) |
|
|
94 |
|
Total
Automotive sector
|
|
|
831 |
|
|
|
(266 |
) |
|
|
565 |
|
|
|
730 |
|
|
|
(162 |
) |
|
|
568 |
|
Total
Financial Services Sector
|
|
|
4 |
|
|
|
(4 |
) |
|
|
— |
|
|
|
4 |
|
|
|
(4 |
) |
|
|
— |
|
Total
|
|
$ |
835 |
|
|
$ |
(270 |
) |
|
$ |
565 |
|
|
$ |
734 |
|
|
$ |
(166 |
) |
|
$ |
568 |
|
Our
identifiable net intangible assets are comprised of distribution networks with a
useful life of 40 years, manufacturing and production incentive rights with
a useful life of 4 years, and other intangibles with various amortization
periods (primarily patents, customer contracts, technology, and land
rights).
During
the fourth quarter of 2007, Jaguar and Land Rover were classified as held for
sale. Accordingly, we excluded from the table above and reclassified
net intangible assets of $572 million and $526 million, primarily
comprised of a non-amortizable tradename, within Assets of discontinued/held-for-sale
operations at December 31, 2007 and 2006,
respectively. In addition, we excluded from the table above and
reclassified $4 million of net intangible assets related to Aston Martin to
Assets of
discontinued/held-for-sale operations at
December 31, 2006.
Pre-tax
amortization expense related to these intangible assets was as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
Pre-tax
amortization expense
|
|
$ |
106 |
|
|
$ |
66 |
|
|
$ |
55 |
|
Excluding
the impact of foreign currency translation, intangible asset amortization is
forecasted to range from $95 million to $105 million per year for the
next three years, and $20 million to $30 million
thereafter.
NOTE
14. VARIABLE INTEREST ENTITIES
We
consolidate VIEs of which we are the primary beneficiary. The
liabilities recognized as a result of consolidating these VIEs do not
necessarily represent additional claims on our general assets; rather, they
represent claims against the specific assets of the consolidated
VIEs. Conversely, assets recognized as a result of consolidating
these VIEs do not represent additional assets that could be used to satisfy
claims against our general assets. Reflected in our
December 31, 2007 and 2006 balance sheets are consolidated VIE assets
of $6.3 billion and $5.6 billion, respectively, for the Automotive
sector and $82.4 billion and $69.5 billion, respectively, for the
Financial Services sector. Included in Automotive consolidated VIE
assets are $742 million and $488 million of cash and cash equivalents
at December 31, 2007 and 2006, respectively. For the
Financial Services sector, consolidated assets related to securitizations
included $4.6 billion and $3.7 billion in cash and cash equivalents,
and $77.8 billion and $65.8 billion of receivables and beneficial
interests in net investment in operating leases at December 31, 2007
and 2006, respectively.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE 14. VARIABLE INTEREST
ENTITIES (Continued)
Automotive
Sector
VIEs
of which we are the primary beneficiary:
Activities
with the joint ventures described below include purchasing substantially all of
the joint ventures' output under a cost-plus-margin arrangement and/or volume
dependent pricing. Described below are the most significant of the
VIEs that were consolidated.
AutoAlliance
International, Inc. ("AAI") is a 50/50 joint venture with Mazda in North
America. AAI is engaged in the manufacture of automobiles on behalf
of Ford and Mazda, primarily for sale in North America.
Ford
Otosan ("Otosan") is a joint venture in Turkey with the Koc Group of Turkey (41%
partner) and public investors (18%). Otosan is the single-source
supplier of the Ford Transit Connect model, and an assembly supplier of the Ford
Transit van model, both of which we sell primarily in Europe.
Getrag
Ford Transmissions GmbH ("GFT") is a 50/50 joint venture with Getrag Deutsche
Venture GmbH and Co. KG. GFT is the primary supplier of manual
transmissions for use in our European vehicles.
Getrag
All Wheel Drive AB is a 40/60 joint venture between Volvo Cars and Getrag Dana
Holding GmbH. The joint venture produces all-wheel-drive
components.
Tekfor
Cologne GmbH ("Tekfor") is a 50/50 joint venture with Neumayer Tekfor GmbH.
Tekfor produces transmission and chassis components for use in our
vehicles.
Pininfarina
Sverige, AB is a 40/60 joint venture between Volvo Cars and Pininfarina, S.p.A.
The joint venture was established to engineer and manufacture niche
vehicles.
We also
hold interests in certain Ford and/or Lincoln Mercury dealerships. At
December 31, 2007, we consolidated a portfolio of approximately
83 dealerships that are part of our Dealer Development
program. The program's purpose is to facilitate the establishment of
independent franchised dealers by allowing a participating dealership to become
the sole owner of a Ford and/or Lincoln Mercury dealership corporation by
purchasing equity from us using the operator's share of dealership net
profits. We supply and finance the majority of vehicles and parts to
these dealerships, and the operators have a contract to buy our equity interest
over a period of time.
VIEs
of which we are not the primary beneficiary:
In 2005,
as part of the Hertz transaction, we provided cash-collateralized letters of
credit to support the payment obligations of Hertz Vehicle Financing, a VIE
which is wholly owned by Hertz and of which we are not the primary
beneficiary. The fair value of our obligation related to these
letters of credit, which will expire no later than December 21, 2011,
was approximately $18 million at
December 31, 2007. For additional discussion of these
letters of credit, see Note 28.
The risks
and rewards associated with our interests in joint ventures deemed to be VIEs of
which we are not the primary beneficiary are based primarily on ownership
percentages. Our maximum exposure (approximately $357 million at
December 31, 2007) to any potential losses, should they occur,
associated with these VIEs is limited to equity investments.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
14. VARIABLE INTEREST ENTITIES (Continued)
Financial
Services Sector
VIEs
of which we are the primary beneficiary:
Ford
Credit uses SPEs in a variety of securitizations. Some on-balance
sheet securitizations discussed in Note 7 use SPEs that are considered VIEs
of which Ford Credit is the primary beneficiary, and these SPEs have been
consolidated.
VIEs
of which we are not the primary beneficiary:
Ford
Credit has investments in certain joint ventures deemed to be VIEs of which it
is not the primary beneficiary. The risks and rewards associated with
Ford Credit's interests in these entities are based primarily on ownership
percentages. Ford Credit's maximum exposure (approximately
$76 million at December 31, 2007) to any potential losses, should
they occur, associated with these VIEs is limited to its equity investments and,
where applicable, receivables due from the VIEs.
Ford
Credit also sells finance receivables to bank-sponsored asset-backed commercial
paper issuers that are SPEs of the sponsor bank. These SPEs are not
consolidated by Ford Credit. All of these sales constitute sales for
legal purposes, but some of the sales do not satisfy the requirement for
accounting sale treatment. The outstanding balance of finance
receivables was approximately $3.4 billion and $5.2 billion at
December 31, 2007 and 2006, respectively.
NOTE
15. ACCRUED LIABILITIES AND DEFERRED REVENUE
Accrued
liabilities and deferred revenue at December 31 was as follows (in
millions):
|
|
|
|
|
|
|
Automotive
Sector
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Dealer
and customer allowances and claims
|
|
$ |
13,604 |
|
|
$ |
12,283 |
|
Deferred
revenue
|
|
|
4,093 |
|
|
|
4,558 |
|
Employee
benefit plans
|
|
|
2,892 |
|
|
|
4,702 |
|
Other
postretirement employee benefits ("OPEB")
|
|
|
457 |
|
|
|
566 |
|
Accrued
interest
|
|
|
514 |
|
|
|
867 |
|
Pension
|
|
|
439 |
|
|
|
330 |
|
Other
|
|
|
5,673 |
|
|
|
3,695 |
|
Total
Automotive current
|
|
|
27,672 |
|
|
|
27,001 |
|
Non-current
|
|
|
|
|
|
|
|
|
OPEB
|
|
|
23,760 |
|
|
|
25,372 |
|
Pension
|
|
|
6,678 |
|
|
|
8,938 |
|
Dealer
and customer allowances and claims
|
|
|
7,149 |
|
|
|
7,791 |
|
Employee
benefit plans
|
|
|
934 |
|
|
|
1,600 |
|
Deferred
revenue
|
|
|
1,989 |
|
|
|
2,045 |
|
Other
|
|
|
1,166 |
|
|
|
2,545 |
|
Total
Automotive non-current
|
|
|
41,676 |
|
|
|
48,291 |
|
Total
Automotive sector
|
|
|
69,348 |
|
|
|
75,292 |
|
Financial
Services Sector
|
|
|
5,390 |
|
|
|
4,766 |
|
Total
|
|
$ |
74,738 |
|
|
$ |
80,058 |
|
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
16. DEBT AND COMMITMENTS
Debt at
December 31 was as follows (in millions, except percentages):
|
|
|
|
|
|
|
|
|
Average
Contractual
(a)
|
|
|
Weighted
Average
(b)
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
Automotive
Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
payable within one year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
|
|
|
5.4%
|
|
|
|
5.0%
|
|
|
|
5.4%
|
|
|
|
5.0%
|
|
|
$ |
399 |
|
|
$ |
499 |
|
Long-term
payable within one year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior
indebtedness
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
521 |
|
|
|
785 |
|
Total
debt payable within one year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
920 |
|
|
|
1,284 |
|
Long-term
debt payable after one year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior
indebtedness
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
and bank debt
|
|
|
7.2%
|
|
|
|
7.2%
|
|
|
|
7.2%
|
|
|
|
7.2%
|
|
|
|
22,902 |
|
|
|
23,522 |
|
Unamortized
discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(153 |
) |
|
|
(165 |
) |
Total
senior indebtedness
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,749 |
|
|
|
23,357 |
|
Subordinated
indebtedness
|
|
|
6.5%
|
|
|
|
6.5%
|
|
|
|
6.5%
|
|
|
|
6.5%
|
|
|
|
3,028 |
|
|
|
5,155 |
|
Total
long-term debt payable after one year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,777 |
|
|
|
28,512 |
|
Total
Automotive debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
26,697 |
|
|
$ |
29,796 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value (c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
22,729 |
|
|
$ |
22,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Services Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
debt (d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed
commercial paper (e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
13,518 |
|
|
$ |
16,480 |
|
Other
asset-backed short-term debt (e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,196 |
|
|
|
1,197 |
|
Ford
Interest Advantage (f)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,408 |
|
|
|
5,611 |
|
Unsecured
commercial paper
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
526 |
|
|
|
400 |
|
Other
short-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,707 |
|
|
|
2,489 |
|
Total
short-term debt
|
|
|
5.5%
|
|
|
|
5.6%
|
|
|
|
5.7%
|
|
|
|
5.8%
|
|
|
|
27,355 |
|
|
|
26,177 |
|
Long-term
debt (g)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior
indebtedness
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable within one year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,656 |
|
|
|
17,450 |
|
Notes
payable after one year (h)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,623 |
|
|
|
56,521 |
|
Unamortized
discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(91 |
) |
|
|
(109 |
) |
Asset-backed
debt (e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable within one year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,121 |
|
|
|
17,330 |
|
Notes
payable after one year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,169 |
|
|
|
24,667 |
|
Total
long-term debt
|
|
|
6.5%
|
|
|
|
6.1%
|
|
|
|
6.3%
|
|
|
|
5.9%
|
|
|
|
114,478 |
|
|
|
115,859 |
|
Total
Financial Services debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
141,833 |
|
|
$ |
142,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value (c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
138,434 |
|
|
$ |
143,676 |
|
__________
|
(a)
|
Excludes
the effect of interest rate swap agreements and facility
fees.
|
|
(b)
|
Includes
the effect of interest rate swap agreements and facility
fees.
|
|
(c)
|
Based
on quoted market prices or current rates for similar debt with the same
remaining maturities.
|
|
(d)
|
For
Financial Services sector, we consider any debt with an original maturity
of 12 months or less to be short-term
debt.
|
|
(e)
|
Obligations
issued or arising in securitizations that are payable only out of
collections on the underlying securitized assets and related
enhancements.
|
|
(f)
|
The
Ford Interest Advantage program consists of our floating rate demand
notes.
|
|
(g)
|
For
Financial Services sector, we consider any debt with an original maturity
of more than 12 months to be long-term debt.
|
|
(h)
|
Includes
$11 million and $14 million payable to affiliated companies at December
31, 2007 and 2006,
respectively.
|
Debt
maturities at December 31, 2007 were as follows (in
millions):
Total
debt maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
sector
|
|
$ |
920 |
|
|
$ |
649 |
|
|
$ |
807 |
|
|
$ |
159 |
|
|
$ |
98 |
|
|
$ |
24,064 |
|
|
$ |
26,697 |
|
Financial
Services sector
|
|
|
60,132 |
|
|
|
28,566 |
|
|
|
16,137 |
|
|
|
16,871 |
|
|
|
9,188 |
|
|
|
10,939 |
|
|
|
141,833 |
|
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
16. DEBT AND COMMITMENTS (Continued)
On
December 7, 2007, pursuant to an agreement entered into on
December 4, 2007, we issued an aggregate of 62,000,761 shares of
Ford Common Stock, par value $0.01 per share, in exchange for $441,991,000
principal amount of our 6⅜% Debentures due
February 1, 2029 and $124,943,000 principal amount of our 6⅝% Debentures due
October 1, 2028 (collectively, the "Debentures"), beneficially owned
by an institutional holder of the Debentures. We did not receive any
cash proceeds as a result of the exchange of Ford Common Stock for the
Debentures, which have been retired and cancelled. As a result of the
exchange, we recorded a pre-tax gain of $120 million in Automotive interest income and other
non-operating income/(expense), net.
Senior
Convertible Indebtedness
At
December 31, 2007, we have outstanding $4.95 billion in principal
amount of unsecured Senior Convertible Notes (the "Convertible Notes") that
mature in 2036. The Convertible Notes pay interest semiannually at a
rate of 4.25% per annum. The Convertible Notes are convertible into
shares of Ford Common Stock, based on a conversion rate (subject to adjustment)
of 108.6957 shares per $1,000 principal amount of Convertible Notes (which
is equal to a conversion price of $9.20 per share, representing a 25%
conversion premium based on the closing price of $7.36 per share on
December 6, 2006). Holders may require us to purchase all
or a portion of the Convertible Notes for cash on December 20, 2016
and December 15, 2026 or upon a change in control of the Company or
for shares of Ford Common Stock upon a designated event, in each case for a
price equal to 100% of the principal amount of the Convertible Notes being
repurchased, plus any accrued and unpaid interest to, but not including, the
date of repurchase. We may redeem for cash all or a portion of the
Convertible Notes at our option at any time or from time to time on or after
December 20, 2016 at a price equal to 100% of the principal amount of
the Convertible Notes to be redeemed, plus accrued and unpaid interest to, but
not including, the redemption date. We also may terminate the
conversion rights at any time on or after December 20, 2013 if the
closing price of Ford Common Stock exceeds 140% of the then-prevailing
conversion price for twenty trading days during any consecutive thirty trading
day period.
Subordinated
Convertible Indebtedness
At
December 31, 2007, Ford Motor Company Capital Trust II ("Trust II"), a
subsidiary trust, had outstanding 6.50% Cumulative Convertible Trust
Preferred Securities with an aggregate liquidation preference of
$2.9 billion (the “Trust Preferred Securities”). The sole assets
of Trust II are $3 billion of 6.50% Junior Subordinated Convertible
Debentures due 2032 of Ford Motor Company (the "Subordinated
Debentures"). As of January 15, 2007, the Subordinated Debentures had
become redeemable at our option. We guarantee the payment of all
distribution and other payments of the Trust Preferred Securities to the
extent not paid by Trust II, but only if and to the extent we have made a
payment of interest or principal on the Subordinated
Debentures. Trust II is not consolidated by us as it is a VIE in
which we do not have a significant variable interest and of which we are not the
primary beneficiary.
On
August 3, 2007, pursuant to an exchange or conversion offer made by
Trust II and Ford to holders of Trust Preferred Securities, holders of
42,543,071 then-outstanding Trust Preferred Securities with an aggregate
liquidation preference of $2.1 billion elected to convert such securities
into an aggregate 194,494,157 shares of Ford Common Stock. The
conversion offer provided for a premium of 1.7468 additional shares of Ford
Common Stock, over the 2.8249 shares of Ford Common Stock into which each
Trust Preferred Security was convertible pursuant to its conversion
terms. As a result of the exchange, we recorded a pre-tax loss of
$632 million in Automotive interest income and other
non-operating income/(expense), net.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
16. DEBT AND COMMITMENTS (Continued)
Credit
Facilities*
Automotive
Sector
On
December 15, 2006,
we entered into an agreement (the "Credit Agreement") which provides for a
seven-year $7 billion term-loan facility and a five-year revolving credit
facility of $11.5 billion. At December 31, 2007,
$10.9 billion of the revolving credit facility was available for
use. We may designate certain of our domestic and foreign
subsidiaries, including Ford Credit, as borrowers under the revolving
facility. We and certain of our domestic subsidiaries that constitute
a substantial portion of our domestic automotive assets (excluding cash) are
guarantors under the Credit Agreement, and future material domestic subsidiaries
will become guarantors when formed or acquired.
Collateral. The
borrowings of the Company, the subsidiary borrowers, and the guarantors under
the Credit Agreement are secured by a substantial portion of our domestic
automotive assets (excluding cash). The collateral includes a
majority of our principal domestic manufacturing facilities, excluding
facilities to be closed, subject to limitations set forth in existing public
indentures and other unsecured credit agreements; domestic accounts receivable;
domestic inventory; up to $4 billion of marketable securities or cash
proceeds therefrom; 100% of the stock of our principal domestic subsidiaries,
including Ford Credit (but excluding the assets of Ford Credit); certain
intercompany notes of Ford VHC AB, a holding company for Volvo, Ford Motor
Company of Canada, Limited ("Ford Canada") and Grupo Ford S. de R.L. de C.V. (a
Mexican subsidiary); 66% to 100% of the stock of all major first tier foreign
subsidiaries (including Volvo); and certain domestic intellectual property,
including trademarks.
Covenants. The
Credit Agreement requires ongoing compliance with a borrowing base covenant and
contains other restrictive covenants, including a restriction on our ability to
pay dividends. The Credit Agreement prohibits the payment of
dividends (other than dividends payable solely in stock) on Ford Common and
Class B Stock, subject to certain limited exceptions. In
addition, the Credit Agreement contains a liquidity covenant requiring us to
maintain a minimum of $4 billion in the aggregate of domestic cash, cash
equivalents, loaned and marketable securities and short-term Voluntary Employee
Benefit Association ("VEBA") assets and/or availability under the revolving
credit facility.
With
respect to the borrowing base covenant, we are required to limit the outstanding
amount of debt under the Credit Agreement as well as certain permitted
additional indebtedness secured by the collateral described above such that the
total debt outstanding does not exceed the value of the collateral as calculated
in accordance with the Credit Agreement (the "Borrowing Base
value").
The
following table provides detail of Borrowing Base values for various categories
of collateral, which reflects our Jaguar and Land Rover operations (in billions,
except percentages):
|
|
|
|
|
|
|
|
|
|
U.S.
receivables
|
|
$ |
0.6 |
|
|
|
75%
|
|
|
$ |
0.5 |
|
U.S.
inventory
|
|
|
3.0 |
|
|
|
60%
|
|
|
|
1.8 |
|
Pledge
of intercompany notes
|
|
|
8.3 |
|
|
|
N/A
|
|
|
|
4.9 |
|
Pledge
of equity in Ford Credit and certain foreign subsidiaries (net of
intercompany transactions)
|
|
|
10.2 |
|
|
|
75%
|
|
|
|
7.6 |
|
U.S.
property, plant and equipment subject to indenture
limitation
|
|
|
7.1 |
|
|
|
N/A
|
|
|
|
3.2 |
|
Other
U.S. machinery and equipment
|
|
|
4.5 |
|
|
|
40%
|
|
|
|
1.8 |
|
Intellectual
property and U.S. trademarks (b)
|
|
|
7.9 |
|
|
|
N/A
|
|
|
|
2.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eligible
value/borrowing base
|
|
$ |
41.6 |
|
|
|
|
|
|
$ |
22.3 |
|
_________
|
(a)
|
Based
on formulas set forth in the Credit Agreement, and not necessarily
indicative of fair market value (which could be materially higher or
lower); receivables, inventory, intercompany notes, and property, plant
and equipment reflect net book value at
December 31, 2007; equity of Ford Credit is based on its book
value at December 31, 2007, net of certain intercompany
transactions, and equity in other subsidiaries is based on a multiple of
their two-year average EBITDA less
debt.
|
|
(b)
|
Value
reflects independent third party valuation of
trademarks.
|
__________
* Credit
facilities of our VIEs are excluded as we do not control their use.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
16. DEBT AND COMMITMENTS (Continued)
Based on
the Borrowing Base value of $22.3 billion and the total outstanding amount
of debt secured by collateral of $7.5 billion, the resulting collateral
coverage ratio is 2.96. Assuming the $11.5 billion revolving
credit facility were fully drawn and the $1.5 billion of non-loan exposure
permitted under the facility were fully utilized, the collateral coverage ratio
would have been 1.12.
Events of
Default. In addition to customary payment, representation,
bankruptcy and judgment defaults, the Credit Agreement contains cross-payment
and cross-acceleration defaults with respect to other debt for borrowed money,
and a change in control default.
Other Automotive Credit
Facilities. At
December 31, 2007, we had $1.6 billion of other Automotive credit
facilities with financial institutions, including $1.1 billion of worldwide
Automotive unsecured credit facilities and about $500 million of local
credit facilities to foreign Automotive affiliates. Of the lines
available for use, 51% (or about $500 million) are committed through June
30, 2009, including 37% (or about $400 million) which are committed through
December 31, 2011. The worldwide credit facilities may be
used, at Ford's option, by any of its direct or indirect, majority-owned
subsidiaries on a guaranteed basis. All of the worldwide unsecured
credit facilities are free of material adverse change clauses, restrictive
financial covenants (for example, debt-to-equity limitations and minimum net
worth requirements), and credit rating triggers that would limit our ability to
obtain funding.
Financial
Services Sector
Credit
Facilities. At December 31, 2007, Ford Credit and
its majority-owned subsidiaries, including FCE Bank, plc ("FCE"), had
$3 billion of contractually-committed unsecured credit facilities with
financial institutions, of which $2.1 billion were available for
use. Of the lines available for use, 56% (or about $1.1 billion)
are committed through June 30, 2009, including 19% (or about
$400 million) which are committed through December 31, 2011. Of
the $3 billion, $500 million constitute Ford Credit bank lines (of
which about $200 million are worldwide) and $2.5 billion are FCE bank
lines (of which $2.4 billion are worldwide). The Ford Credit
worldwide credit facilities may be used, at Ford Credit's option, by any of its
direct or indirect, majority-owned subsidiaries. Similarly, the FCE
worldwide credit facilities may be used, at FCE's option, by any of FCE's direct
or indirect, majority-owned subsidiaries. Ford Credit or FCE, as the
case may be, will guarantee any such borrowings. All of the worldwide
credit facilities are free of material adverse change clauses, restrictive
financial covenants (for example, debt-to-equity limitations and minimum net
worth requirements) and credit rating triggers that could limit Ford Credit's
ability to obtain funding.
In
addition, at December 31, 2007, banks provided $17.2 billion of
contractually-committed liquidity facilities to support Ford Credit's two
on-balance sheet, asset-backed commercial paper programs; $16.9 billion
supported Ford Credit's retail securitization program ("FCAR") and
$300 million supported Ford Credit's Motown NotesSM
wholesale securitization program ("Motown Notes"). Of the
contractually-committed liquidity facilities, 48% (or $8 billion) are
committed through June 30, 2012, and the remainder are committed for a
shorter period of time. Utilization of each of these facilities is
subject to conditions specific to each program and Ford Credit having a
sufficient amount of eligible assets for securitization. The FCAR
program must be supported by liquidity facilities equal to at least 100% of its
outstanding balance. At December 31, 2007,
$16.7 billion of FCAR's bank liquidity facilities were available to support
FCAR's asset-backed commercial paper, subordinated debt or FCAR's purchase of
Ford Credit's asset-backed securities, and the remaining $200 million of
bank liquidity facilities were available to support FCAR's purchase of Ford
Credit's asset-backed securities. The Motown Notes program must be supported by
liquidity facilities equal to at least 5% of its outstanding
balance. The Motown Notes program bank liquidity facilities are
available to support the issuance of Motown Notes, but these facilities cannot
be accessed directly to fund the purchase of Ford Credit's wholesale
receivables. Ford Credit is not presently issuing Motown Notes and
does not intend to use this program in the foreseeable future as there is
presently a lack of investor demand for extendible commercial
paper. At December 31, 2007, the outstanding balances were
$13.7 billion for the FCAR program and zero for the Motown Notes
program.
Committed Liquidity
Programs. Ford Credit and its subsidiaries, including FCE,
have entered into agreements with a number of bank-sponsored asset-backed
commercial paper conduits ("conduits") and other financial institutions, whereby
such parties are contractually committed, at Ford Credit's option, to purchase
from Ford Credit's eligible retail or wholesale assets or to purchase or make
advances under asset-backed securities backed by retail or wholesale assets for
proceeds up to $30.8 billion at December 31, 2007
($18.1 billion retail and $12.7 billion wholesale) of which
$10 billion are
commitments to FCE. These committed liquidity programs have varying
maturity dates, with $21.2 billion having maturities within the next twelve
months (of which $3.4 billion relates to FCE commitments), and the balance
having maturities
between February 2009 and September 2011. Ford Credit's
ability to obtain funding under these programs is subject to it having a
sufficient amount of assets eligible for these programs. At
December 31, 2007, $17.1 billion of these commitments were in
use. These programs are extremely liquid funding sources as Ford
Credit is able to obtain funding from available capacity generally within two
days. These programs are free of material adverse change clauses, restrictive
financial covenants (for example, debt-to-equity limitations and minimum net
worth requirements) and credit rating triggers that could limit Ford Credit's
ability to obtain funding. However, the unused portion of these
commitments may be terminated if the performance of the underlying assets
deteriorates beyond specified levels. Based on Ford Credit's
experience and knowledge as servicer of the related assets, we do not expect any
of these programs to be terminated due to such events.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
16. DEBT AND COMMITMENTS (Continued)
In
addition, Ford Credit has a committed liquidity program for the purchase of up
to $6 billion of unrated asset-backed securities, of which $4 billion
is committed through 2009 that at Ford Credit's option can be supported with
various retail, wholesale, or lease assets. Ford Credit's ability to
obtain funding under this program is subject to it having a sufficient amount of
assets available to issue the securities. This program is also free
of material adverse change clauses, restrictive financial covenants (for
example, debt-to-equity limitations and minimum net worth requirements), and
credit rating triggers that could limit Ford Credit's ability to obtain
funding. At December 31, 2007, Ford Credit had
$3.9 billion of outstanding funding in this program.
NOTE
17. SHARE-BASED COMPENSATION
At
December 31, 2007, a variety of Ford stock-based compensation grants
or awards were outstanding for employees (including officers) and members of the
Board of Directors. All stock-based compensation plans are approved
by the shareholders.
We have
stock-based compensation outstanding under two Long-term Incentive Plans
("LTIP"), the 1990 LTIP and the 1998 LTIP. No further
grants may be made under the 1990 LTIP and all outstanding units thereunder
are exercisable. All outstanding stock-based compensation under the
1990 LTIP continues to be governed by the terms and conditions of the
existing agreements for those grants. Grants may continue to be made
under the 1998 LTIP through April 2008.
Under the
1998 LTIP, 2% of our issued Common Stock as of December 31 becomes
available for granting plan awards in the succeeding calendar
year. Any unused portion is available for later years. The
limit may be increased up to 3% in any year, with a corresponding reduction in
shares available for grants in future years. At
December 31, 2007, the number of unused shares carried forward was
88.1 million shares.
Upon
stock-settled compensation exercises and awards, shares were either new issues
or were issued from treasury stock. We do not expect to repurchase a
significant number of shares for treasury stock during 2008.
Stock
Options
We
measure the fair value of the majority of our stock options using the
Black-Scholes option-pricing model, using historical volatility and the
simplified method of calculating the expected term. Our expected term
is calculated by averaging the vesting term (3 years) and the contractual
term of the option (10 years). Historical data is also used to
estimate option exercise behaviors and employee termination experience within
the valuation model. Based on our assessment of employee groupings
and observable behaviors, we determined that a single grouping is
appropriate.
Under the
1998 LTIP, 33% of the options are generally exercisable after the first
anniversary of the date of grant, 66% after the second anniversary, and 100%
after the third anniversary. Stock options expire ten years from the
grant date and are expensed in Selling, administrative, and other
expenses using a three-year cliff vesting methodology.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE 17. SHARE-BASED
COMPENSATION (Continued)
Stock
option activity was as follows:
|
|
|
|
|
|
|
|
|
|
Stock
Option Activity
|
|
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
|
|
|
Weighted-
Average
Exercise
Price
|
|
Outstanding,
beginning of year
|
|
|
255.6 |
|
|
$ |
17.83 |
|
|
|
245.2 |
|
|
$ |
18.72 |
|
|
|
245.4 |
|
|
$ |
19.13 |
|
Granted
|
|
|
16.3 |
|
|
|
7.56 |
|
|
|
29.1 |
|
|
|
7.89 |
|
|
|
27.6 |
|
|
|
12.46 |
|
Exercised*
|
|
|
(1.2 |
) |
|
|
7.61 |
|
|
|
(0.5 |
) |
|
|
7.55 |
|
|
|
(3.7 |
) |
|
|
9.14 |
|
Forfeited
(including expirations)
|
|
|
(23.4 |
) |
|
|
14.00 |
|
|
|
(18.2 |
) |
|
|
14.26 |
|
|
|
(24.1 |
) |
|
|
17.13 |
|
Outstanding,
end of year
|
|
|
247.3 |
|
|
|
17.57 |
|
|
|
255.6 |
|
|
|
17.83 |
|
|
|
245.2 |
|
|
|
18.72 |
|
Exercisable,
end of year
|
|
|
205.6 |
|
|
|
19.38 |
|
|
|
203.2 |
|
|
|
19.81 |
|
|
|
191.9 |
|
|
|
20.61 |
|
__________
|
*
|
Exercised
at option price ranging from $7.12 to $7.83 during 2007, option price of
$7.55 during 2006, and option price ranging from $7.40 to $12.53 during
2005.
|
The total
fair value of options that vested during the years ended December 31 was as
follows (in millions):
|
|
|
|
|
|
|
|
|
|
Fair
value of vested options
|
|
$ |
81 |
|
|
$ |
93 |
|
|
$ |
145 |
|
We have
205.6 million fully-vested stock options, with a weighted-average exercise
price of $19.38 and remaining term of 3.8 years. We expect
40.9 million stock options (after forfeitures), with a weighted-average
exercise price of $8.63 and remaining term of 8.4 years to vest in the
future. There is no intrinsic value for unvested and vested options
at December 31, 2007.
We
received about $9 million from the exercise of stock options in
2007. The tax benefit realized was de minimis. An
equivalent of about $11 million in treasury shares and new issues were used
to settle exercised options. For options exercised during the years
ended December 31, 2007, 2006, and 2005, the difference between the
fair value of the common shares issued and their respective exercise price was
about $1 million, $1 million, and $9 million,
respectively.
Compensation
cost was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
Compensation
cost
|
|
$ |
75 |
|
|
$ |
77 |
|
|
$ |
116 |
|
Taxes
|
|
|
(18 |
) |
|
|
(19 |
) |
|
|
(23 |
) |
Compensation
cost, net of taxes
|
|
$ |
57 |
|
|
$ |
58 |
|
|
$ |
93 |
|
As of
December 31, 2007, there
was about $30 million in unrealized compensation cost related to non-vested
stock options. This expense will be recognized over a weighted
average period of 1.3 years. A summary of the status of our
non-vested shares and changes during 2007 follows:
|
|
|
|
|
|
|
Non-vested
beginning of year
|
|
|
52.4 |
|
|
$ |
3.22 |
|
Granted
|
|
|
16.3 |
|
|
|
3.57 |
|
Vested
|
|
|
(22.6 |
) |
|
|
3.62 |
|
Forfeited
(including expirations)
|
|
|
(4.4 |
) |
|
|
3.65 |
|
Non-vested
end of year
|
|
|
41.7 |
|
|
|
3.09 |
|
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE 17. SHARE-BASED
COMPENSATION (Continued)
The
estimated fair value of stock options at the time of grant using the
Black-Scholes option-pricing model was as follows:
|
|
|
|
|
|
|
|
|
|
Fair
value per option
|
|
$ |
3.57 |
|
|
$ |
2.07 |
|
|
$ |
4.44 |
|
Assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized
dividend yield
|
|
|
— |
% |
|
|
4.9 |
% |
|
|
3.2 |
% |
Expected
volatility
|
|
|
39.2 |
% |
|
|
39.7 |
% |
|
|
41.9 |
% |
Risk-free
interest rate
|
|
|
4.8 |
% |
|
|
4.9 |
% |
|
|
4.4 |
% |
Expected
option term (in years)
|
|
|
6.5 |
|
|
|
6.5 |
|
|
|
7.0 |
|
Details
on various stock option exercise price ranges are as follows:
|
|
|
|
|
|
|
|
Range
of Exercise Prices
|
|
|
|
|
|
Weighted-
Average
Life
(years)
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
|
|
|
Weighted-
Average
Exercise
Price
|
|
$ |
6.84
- 10.58
|
|
|
|
66.2 |
|
|
|
7.4 |
|
|
$ |
7.85 |
|
|
|
32.3 |
|
|
$ |
7.96 |
|
|
10.62
- 15.81
|
|
|
|
50.2 |
|
|
|
6.5 |
|
|
|
13.02 |
|
|
|
42.4 |
|
|
|
13.12 |
|
|
15.91
- 23.88
|
|
|
|
80.9 |
|
|
|
2.6 |
|
|
|
20.05 |
|
|
|
80.9 |
|
|
|
20.05 |
|
|
23.97
- 35.79
|
|
|
|
49.4 |
|
|
|
2.3 |
|
|
|
30.86 |
|
|
|
49.4 |
|
|
|
30.86 |
|
|
41.03
- 42.52
|
|
|
|
0.6 |
|
|
|
0.3 |
|
|
|
41.42 |
|
|
|
0.6 |
|
|
|
41.42 |
|
Total
options
|
|
|
|
247.3 |
|
|
|
|
|
|
|
|
|
|
|
205.6 |
|
|
|
|
|
Restricted
Stock Units
We grant
performance and time-based restricted stock units to employees under the
1998 LTIP. Restricted stock units awarded in stock ("RSU-stock")
provide the recipients with the right to shares of stock after a restriction
period. Outstanding RSU-stock are either strictly time-based or a
combination of performance and time-based. The restriction periods
vary dependent upon the specific grant (1-5 years). The fair
value of the units is the average of the high and low market price of our Common
Stock on the grant date.
Time-based
RSU-stock awards issued in 2006 and prior vest at the end of the restriction
period. The expense is taken equally over the restriction
period. For time-based RSU-stock awards issued in 2007, the
awards vest under the graded vesting method. One-third of the
RSU-stock awards vest after the first anniversary of the grant date, one-third
after the second anniversary, and one-third after the third
anniversary. The expense is recognized in accordance with this graded
vesting method. Under both methods, at the end of the restriction
period, the RSU-stock is fully expensed in Selling, administrative, and other
expenses.
Performance
RSU-stock have a performance period (usually 1-3 years) and a restriction
period (usually 1-3 years). Compensation expense for these
awards is not recognized until it is probable and estimable. Expense
is then recognized over the performance and restriction periods based on the
fair market value of Ford stock at grant date.
RSU-stock
activity during 2007 was as follows:
|
|
|
|
|
Weighted-
Average
Grant-Date
Fair
value
|
|
|
Aggregate
Intrinsic
Value
(millions)
|
|
Outstanding,
beginning of year
|
|
|
3.8 |
|
|
$ |
7.92 |
|
|
|
|
Granted
|
|
|
15.8 |
|
|
|
7.55 |
|
|
|
|
Vested
|
|
|
(1.2 |
) |
|
|
7.83 |
|
|
|
|
Forfeited
|
|
|
(0.8 |
) |
|
|
7.58 |
|
|
|
|
Outstanding,
end of year
|
|
|
17.6 |
|
|
|
7.61 |
|
|
$ |
118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSU-stock
expected to vest
|
|
|
16.9 |
|
|
|
N/A |
|
|
|
113 |
|
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE 17. SHARE-BASED
COMPENSATION (Continued)
The fair
value and intrinsic value of RSU-stock during 2007, 2006, and 2005 were as
follows (in millions, except per RSU amounts):
|
|
|
|
|
|
|
|
|
|
Fair
value
|
|
|
|
|
|
|
|
|
|
Granted
|
|
$ |
119 |
|
|
$ |
28 |
|
|
$ |
3 |
|
Weighted
average grant date (per RSU)
|
|
|
7.55 |
|
|
|
7.83 |
|
|
|
10.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
9 |
|
|
|
8 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intrinsic
value
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
8 |
|
|
|
5 |
|
|
|
2 |
|
Compensation
cost was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
Compensation
cost
|
|
$ |
76 |
|
|
$ |
15 |
|
|
$ |
6 |
|
Taxes
|
|
|
(27 |
) |
|
|
(5 |
) |
|
|
(2 |
) |
Compensation
cost, net of taxes
|
|
$ |
49 |
|
|
$ |
10 |
|
|
$ |
4 |
|
As of
December 31, 2007, there
was approximately $54 million in unrealized compensation cost related to
non-vested RSU-stock. This expense will be recognized over a weighted
average period of 1.4 years.
Other
Share-Based Awards
Pursuant
to the 1998 LTIP we also grant other share-based awards to select
executives and other key employees, in addition to stock options and restricted
stock units. These awards include restricted stock, cash awarded
restricted stock units, performance stock rights, and stock appreciation
rights. These awards have various vesting criteria which may include
service requirements, individual performance targets, and company-wide
performance targets.
Other
share-based compensation cost was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
Compensation
cost
|
|
$ |
9 |
|
|
$ |
19 |
|
|
$ |
24 |
|
Taxes
|
|
|
(3 |
) |
|
|
(7 |
) |
|
|
(8 |
) |
Compensation
cost, net of taxes
|
|
$ |
6 |
|
|
$ |
12 |
|
|
$ |
16 |
|
NOTE
18. EMPLOYEE SEPARATION ACTIONS AND EXIT AND DISPOSAL
ACTIVITIES
Automotive
Sector
General
We began
implementing a number of different employee separation actions during 2006, our
accounting for which is dependent on the design of the individual benefit
action.
Jobs
Bank Benefits Reserve
As part
of our plan to reduce and realign vehicle assembly capacity and related
manufacturing to bring it more in line with demand and shifting customer
preferences, we announced plans to close a number of North American
manufacturing facilities. Additionally, we plan to sell or close
essentially all of the remaining Automotive Components Holdings, LLC
("ACH") plants. Hourly employees working at these U.S. plants are
represented by the International Union, United Automobile, Aerospace and
Agricultural Implement Workers of America ("UAW"); hourly employees working at
the Canadian plants identified above are represented by the National Automobile,
Aerospace, Transportation and General Workers Union of Canada
("CAW"). Our 2003 collective bargaining agreement with the UAW
expired in September 2007. The new 2007 collective bargaining agreement
continues a job security program, pursuant to which we are required to pay idled
employees who meet certain conditions a portion of their wages and benefits for
a specified period of time.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE 18. EMPLOYEE
SEPARATION ACTIONS AND EXIT AND DISPOSAL ACTIVITIES (Continued)
Our
collective bargaining agreement with the CAW contains a provision pursuant to
which we are required to pay idled employees a portion of their wages and
certain benefits for a specified period of time based on the number of credits
an employee has received. This agreement is scheduled to expire in
September 2008. We refer to these benefits under the UAW and CAW
agreements as "Jobs Bank Benefits."
The Jobs
Bank Benefits reserve includes an amount for benefits expected to be
provided in their present form under the current UAW and CAW collective
bargaining agreements. The Jobs Bank Benefits provided to our hourly
employees at facilities that will be closed by 2010 are expensed when it becomes
probable that the employees will be permanently idled.
We
recorded the expense in Automotive cost of sales, and
the following table summarizes the activity in the related Jobs Bank Benefits
reserve:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
1,036 |
|
|
$ |
— |
|
|
|
10,728 |
|
|
|
— |
|
Additions
to Jobs Bank/Transfers from voluntary separation program (i.e.,
rescissions)
|
|
|
232 |
|
|
|
2,583 |
|
|
|
2,220 |
|
|
|
25,849 |
|
Voluntary
separations and relocations
|
|
|
(311 |
) |
|
|
(1,445 |
) |
|
|
(4,632 |
) |
|
|
(15,121 |
) |
Benefit
payments and other adjustments
|
|
|
(140 |
) |
|
|
(102 |
) |
|
|
— |
|
|
|
— |
|
Ending
balance
|
|
$ |
817 |
|
|
$ |
1,036 |
|
|
|
8,316 |
|
|
|
10,728 |
|
The
reserve balance above takes into account several factors: the demographics of
the population at each affected facility, redeployment alternatives, and recent
experience relative to voluntary redeployments. Due to the complexities inherent
in estimating this reserve, our actual costs could differ materially. We
continue to expense costs associated with the small number of employees who are
temporarily idled on an as-incurred basis.
Separation
Actions
The cost
of voluntary employee separation actions is recorded at the time of an
employee's acceptance, unless the acceptance requires explicit approval by the
Company. The costs of conditional voluntary separations are accrued
when all conditions are satisfied. The costs of involuntary
separation programs are accrued when management has approved the program and the
affected employees are identified.
UAW Voluntary
Separations. During 2006, we offered voluntary separation
packages to our entire UAW hourly workforce, established a reserve for the costs
associated with this action., and recorded an expense in Automotive cost of
sales. The following table summarizes the activity in the
related separation reserve:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
2,435 |
|
|
$ |
— |
|
|
|
26,351 |
|
|
|
— |
|
Voluntary
acceptances
|
|
|
— |
|
|
|
3,240 |
|
|
|
— |
|
|
|
36,623 |
|
Payments/Terminations
|
|
|
(1,912 |
) |
|
|
(788 |
) |
|
|
(21,587 |
) |
|
|
(10,084 |
) |
Rescissions
|
|
|
(298 |
) |
|
|
(17 |
) |
|
|
(3,390 |
) |
|
|
(188 |
) |
Ending
balance
|
|
$ |
225 |
|
|
$ |
2,435 |
|
|
|
1,374 |
|
|
|
26,351 |
|
The 2007
ending balance in the reserve represents, in part, the cost of separation
packages for employees (1,374 shown in the table above) who accepted a
retirement package and ceased duties, but who will remain on our employment
rolls until they reach retirement eligibility. The reserve for these
employees will be released over the period through the end of
2009. The remaining balance of the reserve reflects costs associated
with employee tuition programs.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE 18. EMPLOYEE
SEPARATION ACTIONS AND EXIT AND DISPOSAL ACTIVITIES (Continued)
Other Employee Separation
Actions. Most salaried employee separations within the United
States were completed by the end of the first quarter of 2007, and were achieved
through early retirements, voluntary separations, and involuntary separations
where necessary. These actions resulted in pre-tax charges of
$154 million and $22 million in 2007 and 2006, respectively, reported
in Automotive cost of
sales and Selling,
administrative and other expenses.
The
following table shows pre-tax charges for other hourly and salaried employee
separation actions for the full year 2007 and 2006 (in
millions). These charges are reported in Automotive cost of sales and
Selling, administrative and
other expenses.
|
|
|
|
|
|
|
|
|
|
|
Ford
Canada
|
|
$ |
223 |
|
|
$ |
14 |
|
Ford
Europe
|
|
|
45 |
|
|
|
109 |
|
PAG
|
|
|
44 |
|
|
|
160 |
|
Ford
Asia Pacific and Africa
|
|
|
5 |
|
|
|
61 |
|
The
charges above exclude costs for pension and OPEB. See Note 24
for employee separation costs related to pension and OPEB.
Financial
Services Sector
Business
Restructuring - Germany
In 2006,
FCE announced a plan to restructure its business in Germany that supports the
sales activities of automotive financial services of Ford, Jaguar, Land Rover
and Mazda vehicles. The plan included the consolidation of branches
into district offices and reduced ongoing costs. We recognized
pre-tax charges of $30 million in 2006. In 2007, we released
$12 million of the reserve related to lower-than-expected separations and
paid out $14 million. The costs associated with the business
restructuring were charged to Selling, administrative and other
expenses. The restructuring was completed in
2007.
The table
below summarizes the activity in the reserve as of December 31, 2007
and 2006 (in millions):
|
|
|
|
|
|
|
|
|
|
|
Liability
at beginning of period
|
|
$ |
31 |
|
|
$ |
— |
|
(Released)/Accrued
during period
|
|
|
(12 |
) |
|
|
30 |
|
Paid
during period
|
|
|
(14 |
) |
|
|
— |
|
Foreign
currency translation
|
|
|
2 |
|
|
|
1 |
|
Liability
at end of period
|
|
$ |
7 |
|
|
$ |
31 |
|
Separation
Actions
In 2007,
we recognized pre-tax charges of $45 million in Selling, administrative and other
expenses for employee separation actions in the United States and Canada.
These actions were associated with Ford Credit's North American business
transformation initiative (i.e., the consolidation of its North American
branches into its seven existing business centers).
These
charges exclude costs for pension and OPEB. See Note 24 for
employee separation costs related to pension and OPEB.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
19. INCOME TAXES
Components
of income taxes, excluding discontinued operations, cumulative effects of
changes in accounting principles and equity in net results of affiliated
companies accounted for after-tax, are as follows:
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
before income taxes, excluding equity in net results of affiliated
companies accounted for after-tax (in millions)
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$ |
(6,374 |
) |
|
$ |
(15,814 |
) |
|
$ |
40 |
|
Non-U.S.
|
|
|
2,225 |
|
|
|
335 |
|
|
|
743 |
|
Total
|
|
$ |
(4,149 |
) |
|
$ |
(15,479 |
) |
|
$ |
783 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for/(Benefit from) income taxes (in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
(39 |
) |
|
$ |
— |
|
|
$ |
26 |
|
Non-U.S.
|
|
|
313 |
|
|
|
372 |
|
|
|
764 |
|
State
and local
|
|
|
1 |
|
|
|
(8 |
) |
|
|
43 |
|
Total
current
|
|
|
275 |
|
|
|
364 |
|
|
|
833 |
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(1,710 |
) |
|
|
(4,281 |
) |
|
|
(762 |
) |
Non-U.S.
|
|
|
410 |
|
|
|
1,112 |
|
|
|
(822 |
) |
State
and local
|
|
|
(269 |
) |
|
|
150 |
|
|
|
(104 |
) |
Total
deferred
|
|
|
(1,569 |
) |
|
|
(3,019 |
) |
|
|
(1,688 |
) |
Total
|
|
$ |
(1,294 |
) |
|
$ |
(2,655 |
) |
|
$ |
(855 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
of effective tax rate
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
tax at statutory rate
|
|
|
35 |
% |
|
|
35 |
% |
|
|
35 |
% |
Non-U.S.
income taxes
|
|
|
1 |
|
|
|
1 |
|
|
|
(11 |
) |
State
and local income taxes
|
|
|
4 |
|
|
|
2 |
|
|
|
(4 |
) |
Deductible
dividends
|
|
|
— |
|
|
|
1 |
|
|
|
(20 |
) |
General
business credits
|
|
|
6 |
|
|
|
1 |
|
|
|
(15 |
) |
Dispositions
and restructurings
|
|
|
(6 |
) |
|
|
— |
|
|
|
16 |
|
Medicare
prescription drug benefit
|
|
|
2 |
|
|
|
1 |
|
|
|
(13 |
) |
Repatriation
of foreign earnings under The American Jobs Creation Act
of 2004
|
|
|
— |
|
|
|
— |
|
|
|
(33 |
) |
Prior
year settlements and claims
|
|
|
1 |
|
|
|
3 |
|
|
|
(50 |
) |
Tax-related
interest
|
|
|
(2 |
) |
|
|
— |
|
|
|
— |
|
Other
|
|
|
3 |
|
|
|
(1 |
) |
|
|
(13 |
) |
Valuation
allowance
|
|
|
(13 |
) |
|
|
(26 |
) |
|
|
— |
|
Effective
rate
|
|
|
31 |
% |
|
|
17 |
% |
|
|
(108 |
)% |
No
provision for deferred taxes has been made on $715 million of unremitted
earnings that are considered to be indefinitely invested in non-U.S.
subsidiaries. Deferred taxes for these unremitted earnings are not
practicable to estimate.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE 19. INCOME
TAXES (Continued)
The
components of deferred tax assets and liabilities at December 31 were as follows
(in millions):
|
|
|
|
|
|
|
Deferred
tax assets*
|
|
|
|
|
|
|
Employee
benefit plans
|
|
$ |
10,020 |
|
|
$ |
12,723 |
|
Net
operating loss carryforwards
|
|
|
2,095 |
|
|
|
3,132 |
|
Tax
credit carryforwards
|
|
|
1,169 |
|
|
|
2,649 |
|
Dealer
and customer allowances and claims
|
|
|
2,436 |
|
|
|
2,572 |
|
Other
foreign deferred tax assets
|
|
|
3,364 |
|
|
|
2,379 |
|
Allowance
for credit losses
|
|
|
1,655 |
|
|
|
1,696 |
|
All
other
|
|
|
2,873 |
|
|
|
3,531 |
|
Total
gross deferred tax assets
|
|
|
23,612 |
|
|
|
28,682 |
|
Less:
valuation allowance
|
|
|
(8,560 |
) |
|
|
(7,180 |
) |
Total
net deferred tax assets
|
|
|
15,052 |
|
|
|
21,502 |
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities*
|
|
|
|
|
|
|
|
|
Leasing
transactions
|
|
|
5,694 |
|
|
|
7,610 |
|
Depreciation
and amortization (excluding leasing transactions)
|
|
|
3,877 |
|
|
|
4,082 |
|
Finance
receivables
|
|
|
866 |
|
|
|
2,631 |
|
All
other
|
|
|
4,149 |
|
|
|
4,973 |
|
Total
deferred tax liabilities
|
|
|
14,586 |
|
|
|
19,296 |
|
Net
deferred tax assets/(liabilities)
|
|
$ |
466 |
|
|
$ |
2,206 |
|
_______
* Includes
Jaguar and Land Rover.
Operating
loss carryforwards for tax purposes were $3.5 billion at
December 31, 2007. A substantial portion of those losses
have a remaining carryforward period beyond 2015; the remaining losses will
begin to expire in 2008. Tax credits available to offset future tax
liabilities are $1.2 billion. A substantial portion of these
credits have a remaining carryforward period of 10 years or
more. Tax benefits of operating loss and tax credit carryforwards are
evaluated on an ongoing basis, including a review of historical and projected
future operating results, the eligible carryforward period, and other
circumstances. Effective September 30, 2006, the balance of
deferred taxes primarily at our U.S., Jaguar, and Land Rover entities has
changed from a net deferred tax liability position to a net deferred tax asset
position. Due to the cumulative losses we have incurred at these
operations and their near-term financial outlook, we have established a
valuation allowance of $8.6 billion against the net deferred tax
asset.
We
adopted the provisions of Interpretation No. 48, Accounting for Uncertainty in Income
Taxes – an interpretation of FASB Statement No. 109 ("FIN 48")
on January 1, 2007. As a result of the implementation of FIN 48,
we recorded an increase of $1.3 billion to Retained
earnings. The favorable impact to Retained earnings was
primarily the result of recognizing a receivable of approximately
$1.5 billion associated with refund claims and related interest for prior
years that met the "more-likely-than-not" recognition threshold of FIN 48.
These prior year refund claims and related interest were not recognized as of
December 31, 2006 because they were considered gain contingencies
under Statement of Financial Accounting Standards ("SFAS") No. 5,
Accounting for
Contingencies and could not be recognized until the
contingency lapsed. The
amount of unrecognized tax benefits at January 1, 2007 was
$1.9 billion. A reconciliation of the beginning and ending
amount of unrecognized tax benefits is as follows (in millions):
|
|
|
|
Balance
at January 1
|
|
$ |
1,947 |
|
Increase
– tax positions in prior periods
|
|
|
226 |
|
Increase
– tax positions in current period
|
|
|
105 |
|
Decrease
– tax positions in prior periods
|
|
|
(264 |
) |
Settlements
|
|
|
(266 |
) |
Lapse
of statute of limitations
|
|
|
(37 |
) |
Foreign
currency translation adjustment
|
|
|
99 |
|
Balance
at December 31
|
|
$ |
1,810 |
|
The
amount of unrecognized tax benefits at December 31, 2007 that would
affect the effective tax rate if recognized was $837 million.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE 19. INCOME
TAXES (Continued)
We do not
believe it is reasonably possible that the total amounts of unrecognized tax
benefits will significantly increase or decrease during the next twelve
months.
Examinations
by tax authorities have been completed through 2004 in the United Kingdom, 1999
in Germany, 2000 in Sweden, 2002 in Canada, and 2003 in the United
States. Although examinations have been completed in these
jurisdictions, various unresolved transfer pricing disputes exist for years
dating back to 1994.
Effective
with the adoption of FIN 48, we have elected to recognize accrued interest
related to unrecognized tax benefits and tax related penalties in the Provision for/(Benefit from) income
taxes on our consolidated income statement. During 2007, we
recorded approximately $62 million in interest and penalties to our
consolidated income statement. As of December 31, 2007, we
had recorded a liability of $216 million for the payment of tax related
interest and penalties.
NOTE
20. DISCONTINUED OPERATIONS, HELD-FOR-SALE OPERATIONS, OTHER
DISPOSITIONS, AND ACQUISITIONS
Automotive
Sector
Discontinued
Operations
APCO. In the
second quarter of 2007, the management team of APCO, together with Trident IV,
L.P., a private equity fund managed by Stone Point Capital LLC, purchased APCO
from us. This transaction was the result of our ongoing strategic
review of our operations. As a result of the transaction, we realized
a pre-tax gain of $51 million (net of transaction costs and working capital
adjustments), reported in Income/(Loss) from discontinued
operations.
The
assets and liabilities of APCO that were classified as a discontinued operation
at December 31, 2006 are summarized as follows (in
millions):
|
|
|
|
Assets
|
|
|
|
Cash
and cash equivalents
|
|
$ |
— |
|
Receivables
|
|
|
20 |
|
Net
property
|
|
|
8 |
|
Goodwill
|
|
|
112 |
|
Other
assets
|
|
|
16 |
|
Total
assets of the discontinued operations
|
|
$ |
156 |
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Payables
|
|
$ |
16 |
|
Other
liabilities
|
|
|
22 |
|
Total
liabilities of the discontinued operations
|
|
$ |
38 |
|
The
results of all discontinued Automotive sector operations are as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
13 |
|
|
$ |
59 |
|
|
$ |
64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income/(loss) from discontinued operations
|
|
$ |
2 |
|
|
$ |
23 |
|
|
$ |
20 |
|
Gain/(Loss)
on discontinued operations
|
|
|
51 |
|
|
|
3 |
|
|
|
13 |
|
(Provision
for)/Benefit from income taxes
|
|
|
(18 |
) |
|
|
(10 |
) |
|
|
(12 |
) |
Income/(Loss)
from discontinued operations
|
|
$ |
35 |
|
|
$ |
16 |
|
|
$ |
21 |
|
At
December 31, 2007, there were no significant assets or liabilities
remaining on our balance sheet related to discontinued operations.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
20. DISCONTINUED OPERATIONS, HELD-FOR-SALE OPERATIONS, OTHER
DISPOSITIONS, AND ACQUISITIONS (Continued)
Held-for-Sale
Operations
Jaguar and Land
Rover. During 2007, management committed to sell Jaguar and
Land Rover in order to restructure our core Automotive operations and build
liquidity. Any transaction that we enter into would be expected to
close during the second quarter of 2008. Accordingly, we have
reported Jaguar and Land Rover as held for sale and have ceased depreciating its
long-lived assets.
The
assets and liabilities of Jaguar and Land Rover classified as held-for-sale
operations are summarized as follows (in millions):
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Receivables
|
|
$ |
758 |
|
|
$ |
590 |
|
Inventories
|
|
|
1,530 |
|
|
|
1,404 |
|
Net
property
|
|
|
2,246 |
|
|
|
2,119 |
|
Goodwill
and other net intangibles*
|
|
|
2,010 |
|
|
|
3,210 |
|
Pension
assets
|
|
|
696 |
|
|
|
3 |
|
Other
assets
|
|
|
297 |
|
|
|
122 |
|
Total
assets of the held-for-sale operations
|
|
$ |
7,537 |
|
|
$ |
7,448 |
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Payables
|
|
$ |
2,395 |
|
|
$ |
2,202 |
|
Pension
liabilities
|
|
|
19 |
|
|
|
380 |
|
Warranty
liabilities
|
|
|
645 |
|
|
|
759 |
|
Other
liabilities
|
|
|
2,022 |
|
|
|
2,050 |
|
Total
liabilities of the held-for-sale operations
|
|
$ |
5,081 |
|
|
$ |
5,391 |
|
__________
* For
further discussion of goodwill allocated to Jaguar and Land Rover, see Note
13.
Aston Martin. In
2007, Ford Motor Company and its subsidiary, Jaguar Cars Limited, completed the
sale of our 100% interest in Aston Martin. As a result of the sale, we
recognized a pre-tax gain of $181 million (net of transaction costs and
working capital adjustments) reported in Automotive interest income and other
non-operating income/(expense), net.
The
assets and liabilities of Aston Martin that were classified as a held-for-sale
operation at December 31, 2006 are summarized as follows (in
millions):
|
|
|
|
Assets
|
|
|
|
Cash
and cash equivalents
|
|
$ |
(2 |
) |
Receivables
|
|
|
80 |
|
Inventories
|
|
|
93 |
|
Net
property
|
|
|
251 |
|
Other
net intangibles
|
|
|
4 |
|
Other
assets
|
|
|
22 |
|
Total
assets of the held-for-sale operations
|
|
$ |
448 |
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Payables
|
|
$ |
106 |
|
Warranty
liabilities
|
|
|
38 |
|
Other
liabilities
|
|
|
64 |
|
Total
liabilities of the held-for-sale operations
|
|
$ |
208 |
|
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
20. DISCONTINUED OPERATIONS, HELD-FOR-SALE OPERATIONS, OTHER
DISPOSITIONS, AND ACQUISITIONS (Continued)
Converca
Plant. In 2007, we sold to the Linamar Corporation the
major part of our Converca plant, a component of ACH in Mexico, which produces
power transfer units. As a result of the transaction, ACH reported a
pre-tax gain on the sale of $3 million, net of transaction costs and
liabilities assumed, reported in Automotive interest income and other
non-operating income/(expense), net.
The
Converca assets sold in 2007 that were classified as a held-for-sale operation
at December 31, 2006 are summarized as follows (in
millions):
|
|
|
|
Assets
|
|
|
|
Inventories
|
|
$ |
15 |
|
Net
property
|
|
|
50 |
|
Total
assets of the held-for-sale operation
|
|
$ |
65 |
|
El Jarudo
Plant. In 2007, we completed a sale agreement with
Cooper-Standard Automotive Inc. for our El Jarudo plant, a component of ACH in
Mexico, which produces fuel rails, fuel charging assemblies, and spring lock
connectors. As a result of the sale, we recognized a de minimis pre-tax
loss.
European
dealerships. In 2007, Ford Motor Company and its
subsidiary, FIECO Holdings GmbH, completed the sale of its interest in three
European dealerships to MVC Automotive Group B.V. As a result of the
transaction, we recognized a pre-tax loss on the sale of $14 million, net
of transaction costs and recognition of foreign currency translation
adjustments. This was reported in Automotive interest income and
other non-operating income/(expense), net.
The
assets and liabilities of the three dealerships classified as held-for-sale
operations at December 31, 2006 are summarized as follows (in
millions):
|
|
|
|
Assets
|
|
|
|
Receivables
|
|
$ |
25 |
|
Inventories
|
|
|
46 |
|
Net
property
|
|
|
14 |
|
Other
assets
|
|
|
1 |
|
Total
assets of the held-for-sale operations
|
|
$ |
86 |
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Payables
|
|
$ |
11 |
|
Other
liabilities
|
|
|
6 |
|
Total
liabilities of the held-for-sale operations
|
|
$ |
17 |
|
Beanstalk Group, LLC
("Beanstalk"). In 2005, we completed the sale of Beanstalk and
recorded pre-tax charges of $53 million for the impairment of intangible
assets and goodwill in Automotive cost of sales and
$12 million in Automotive
interest income and other non-operating income/(expense), net for the
loss on sale.
Asia Pacific and Africa/Mazda
dealerships. In 2005, we completed the sale of certain consolidated
dealerships in the Ford Asia Pacific and Africa/Mazda segment and recognized a
pre-tax gain of $14 million reflected in Automotive interest income and other
non-operating income/(expense), net.
Other
Dispositions
In 2005,
we completed the sale of our interests in Mahindra & Mahindra Ltd.
(approximately 5% interest), Vastera, Inc. (approximately 19% interest), and
Kwik-Fit Group Limited (approximately 18% interest). As a result of
the sales, we recognized pre-tax gains of approximately $22 million,
$11 million, and $152 million, respectively, in Automotive interest income and other
non-operating income/(expense), net in 2005.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
20. DISCONTINUED OPERATIONS, HELD-FOR-SALE OPERATIONS, OTHER
DISPOSITIONS, AND ACQUISITIONS (Continued)
We also
completed the exchange of 8.3 million shares in Ballard for an equity
interest (50%) in NuCellsys Holding GmbH, a 50/50 joint venture with Daimler AG
("Daimler"). As a result of the exchange and the retirement of
certain restrictions, we recognized in Automotive cost of sales a
pre-tax charge of $61 million in 2005. At
December 31, 2007, our remaining ownership interest in Ballard was
11.2%. In the first quarter of 2008, Ford and Daimler entered into a
restructuring agreement with Ballard to sell Ballard's automotive fuel unit to
Ford and Daimler. As a result, Ford recorded a loss of about
$70 million in the first quarter of 2008.
Acquisitions
Troller Veiculos Especiais LTDA
("Troller"). In December 2006, we purchased Troller, a
Brazilian manufacturer of vehicles in the light duty segment, for a
present-value cash amount of $214 million and liabilities amounting to
$32 million. In accordance with the purchase agreement, we paid
$27 million (including interest) in 2007. The remaining balance, which has
been classified as debt, will be paid over the course of three years. As part of
the transaction related to this acquisition, we have recorded an intangible
asset of $246 million.
Visteon Corporation
("Visteon"). In 2005, we finalized an agreement with Visteon,
our largest supplier, in which we assumed control of 17 plants and
6 other
facilities in the United
States and
Mexico. These
assets were transferred to ACH, a temporary business controlled and managed by
us, to protect the flow of critical parts and components in the near-term and,
over time, to improve our sourcing flexibility and cost
competitiveness. We consolidated ACH on October 1, 2005 as
part of our Ford North America segment.
The total
2005 pre-tax loss from the transaction was $468 million reflected in Automotive cost of sales,
summarized as follows (in millions):
Value
of ACH Assets/(Liabilities) Received on October 1, 2005
|
|
|
|
Net
property
|
|
$ |
427 |
|
Inventory
|
|
|
299 |
|
Warrants
for purchase of Visteon stock
|
|
|
165 |
|
Other
net liabilities
|
|
|
(10 |
) |
Total
|
|
$ |
881 |
|
|
|
|
|
|
Cash
Paid/Liabilities Assumed
|
|
|
|
|
Forgiveness
of employee-related liabilities*
|
|
$ |
(500 |
) |
Cash
paid to escrow account for Visteon restructuring
|
|
|
(400 |
) |
Cash
paid for inventories
|
|
|
(299 |
) |
Liability
recorded for Visteon restructuring
|
|
|
(150 |
) |
Total
|
|
$ |
(1,349 |
) |
__________
|
*
|
As
part of the transaction, we forgave $1.1 billion of Visteon's liability to
us for employee-related costs of which $600 million was recognized in
2004 as an allowance for doubtful
accounts.
|
ACH. ACH has
entered into non-binding or conditional agreements for the sale of five of its
businesses. The following table lists the businesses and their
primary products:
Sheldon
Road plant
|
Heating,
ventilating and cooling assemblies; heat exchangers; and manual control
panel components
|
|
|
Milan
plant
|
Fuel
tanks and bumper fascias
|
|
|
Nashville,
Tulsa, and VidrioCar (Mexico) plants
|
Automotive
and architectural glass products
|
|
|
Sandusky
plant
|
Lighting
components
|
|
|
Saline
plant
|
Cockpit
module, instrument panel, door trim and floor console
products
|
Each of
these sales is conditional on a successful negotiation by the buyer of labor
terms with the UAW, which had not been completed by
year-end. Therefore, none was classified as held for sale at
December 31, 2007.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
20. DISCONTINUED OPERATIONS, HELD-FOR-SALE OPERATIONS, OTHER
DISPOSITIONS, AND ACQUISITIONS (Continued)
In
addition, on January 23, 2008, ACH entered into a definitive agreement
for the sale of the driveshaft assets at the Monroe plant to Neapco Drivelines,
LLC, following the successful negotiation by the buyer of labor terms with the
UAW.
Land Rover. In
June 2000, we purchased the Land Rover sport utility vehicle business from
the BMW Group. As part of the acquisition, we agreed to pay
two-thirds of the purchase price at closing with the remainder being paid in
2005. During 2005, we made the final payment of approximately
$1.3 billion.
Financial
Services Sector
Discontinued
Operations
Triad Financial Corporation
("Triad"). During the second quarter of 2005, we completed the sale of
Triad. Triad specialized in automobile retail installment sales
contracts with borrowers who generally would not be expected to qualify, based
on their credit worthiness, for traditional financing sources such as those
provided by commercial banks or automobile manufacturers' affiliated finance
companies primarily through non-Ford dealerships. In 2005, Ford
Credit recognized a $4 million after-tax gain on disposal of discontinued
operations. During the fourth quarter of 2007, Ford Credit received additional
proceeds primarily based on better-than-anticipated securitized portfolio
performance, pursuant to a contractual agreement entered into at the closing of
the sale, and recognized in Financial Services revenues
an additional $6 million after-tax gain on disposal of discontinued
operations.
The
results of all discontinued Financial Services sector operations are as follows
(in millions):
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income/(loss) from discontinued operations
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
59 |
|
Gain/(Loss)
on discontinued operations
|
|
|
10 |
|
|
|
— |
|
|
|
(16 |
) |
(Provision
for)/Benefit from income taxes
|
|
|
(4 |
) |
|
|
— |
|
|
|
(2 |
) |
Income/(Loss)
from discontinued operations
|
|
$ |
6 |
|
|
$ |
— |
|
|
$ |
41 |
|
At
December 31, 2007 and 2006, there were no significant assets or
liabilities remaining on our balance sheet related to discontinued
operations.
Held-for-Sale
Operations
Hertz. In 2005, we sold our
100% ownership interest in Hertz as it is not core to our Automotive
business. As part of the transaction, we provided cash-collateralized
letters of credit in an aggregate amount of $200 million to support the
asset-backed portion of the buyer's financing for the
transaction. These letters of credit will expire no later than
December 21, 2011. As a result of the sale, we recognized
in Gain on sale of Hertz,
a pre-tax gain of $1.1 billion, inclusive of $27 million of
charges to record the estimated fair value of the letters of
credit. For further discussion of these letters of credit, see
Note 28.
At
December 31, 2007 and 2006, there were no assets or liabilities on our
balance sheet related to held-for-sale operations.
Other
Dispositions
AB Volvofinans
("Volvofinans"). In 2007, we sold a majority of our interest in
Volvofinans, an unconsolidated subsidiary that finances the sale of Volvo and
Renault vehicles through Volvo dealers in Sweden. As a result of the
transaction, we received $157 million as proceeds from the sale and recognized a
pre-tax gain of $51 million reported in Financial Services
revenues.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
21. CAPITAL STOCK AND AMOUNTS PER SHARE
All
general voting power is vested in the holders of Common Stock and Class B
Stock. Holders of our Common Stock have 60% of the general voting
power and holders of our Class B Stock are entitled to such number of votes per
share as will give them the remaining 40%. Shares of Common Stock and
Class B Stock share equally in dividends, with stock dividends payable in shares
of stock of the class held. As discussed in Note 16, we are
prohibited from paying dividends (other than dividends payable in stock) under
the terms of the Credit Agreement.
If
liquidated, each share of Common Stock will be entitled to the first $0.50
available for distribution to holders of Common Stock and Class B Stock, each
share of Class B Stock will be entitled to the next $1.00 so available, each
share of Common Stock will be entitled to the next $0.50 so available and each
share of Common and Class B Stock will be entitled to an equal amount
thereafter.
As
discussed in Note 16, Convertible Notes with a principal amount of
$4.95 billion are outstanding. At the option of the holder, each
Convertible Note is convertible at any time on or before
December 15, 2036, into shares of our Common Stock at a rate of
108.6957 shares per $1,000 principal amount of Convertible Notes
(equivalent to a conversion price of $9.20 per
share). Conversion of all shares of such Convertible Notes would
result in the issuance of 538 million shares of our Common
Stock.
As
discussed in Note 16, Trust Preferred Securities with an aggregate
liquidation preference of $2.9 billion are outstanding, following the
conversion of 42,543,071 of Trust Preferred Securities on
August 3, 2007. At the option of the holder, each Preferred
Security is convertible, at any time on or before January 15, 2032,
into shares of our Common Stock at a rate of 2.8249 shares for each Trust
Preferred Security (equivalent to a conversion price of $17.70 per
share). Conversion of all shares of such Trust Preferred Securities
would result in the issuance of 162 million shares of our Common
Stock.
As
discussed in Note 16, on December 7, 2007, we issued an aggregate
of 62,000,761 shares of Ford Common Stock in exchange for about
$442 million principal amount of our 6 ⅜% Debentures due
February 1, 2029 and about $125 million principal amount of our 6
⅝% Debentures due
October 1, 2028.
Amounts
Per Share of Common and Class B Stock
The
calculation of diluted income per share of Common Stock and Class B Stock takes
into account the effect of obligations, such as RSU-stock awards, stock options,
and convertible notes and securities, considered to be potentially
dilutive. Basic and diluted income/(loss) per share were calculated
using the following (in millions):
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted Income/(Loss)
|
|
|
|
|
|
|
|
|
|
Basic
income/(loss) from continuing operations attributable to Common Stock and
Class B Stock
|
|
$ |
(2,764 |
) |
|
$ |
(12,629 |
) |
|
$ |
1,629 |
|
Effect
of dilutive senior convertible notes (a)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Effect
of dilutive convertible preferred securities (b)
|
|
|
— |
|
|
|
— |
|
|
|
213 |
|
Diluted
income/(loss) from continuing operations attributable to Common Stock and
Class B Stock
|
|
$ |
(2,764 |
) |
|
$ |
(12,629 |
) |
|
$ |
1,842 |
|
Diluted
Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
shares outstanding
|
|
|
1,979 |
|
|
|
1,879 |
|
|
|
1,846 |
|
Restricted
and uncommitted-ESOP shares
|
|
|
(1 |
) |
|
|
(2 |
) |
|
|
(3 |
) |
Basic
shares
|
|
|
1,978 |
|
|
|
1,877 |
|
|
|
1,843 |
|
Net
dilutive options and restricted and uncommitted ESOP shares
(c)
|
|
|
— |
|
|
|
— |
|
|
|
10 |
|
Dilutive
senior convertible notes (a)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Dilutive
convertible preferred securities (b)
|
|
|
— |
|
|
|
— |
|
|
|
282 |
|
Diluted
shares
|
|
|
1,978 |
|
|
|
1,877 |
|
|
|
2,135 |
|
__________
In 2007,
not included in calculation of diluted earnings per share due to their
antidilutive effect:
|
(a)
|
538
million shares and the related income effect for senior convertible notes
(issued December
15, 2006).
|
|
(b)
|
282
million shares and the related income effect for convertible Trust
Preferred Securities through August 2, 2007. As of
August 3, 2007, following the conversion of about 43
million of our Trust Preferred Securities, 162 million shares and the
related income effect are not included in the
calculation.
|
|
(c)
|
14
million contingently issuable
shares.
|
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
22. OPERATING CASH FLOWS
The
reconciliation of Net
income/(loss) to cash flows from operating activities of continuing
operations is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income/(loss)
|
|
$ |
(3,480 |
) |
|
$ |
757 |
|
|
$ |
(2,723 |
) |
(Income)/Loss
of discontinued operations
|
|
|
(35 |
) |
|
|
(6 |
) |
|
|
(41 |
) |
Depreciation
and special tools amortization
|
|
|
6,763 |
|
|
|
6,289 |
|
|
|
13,052 |
|
Amortization
of intangibles
|
|
|
106 |
|
|
|
— |
|
|
|
106 |
|
Other
amortization
|
|
|
57 |
|
|
|
521 |
|
|
|
578 |
|
Net
losses/(earnings) from equity investments in excess of dividends
received
|
|
|
(175 |
) |
|
|
— |
|
|
|
(175 |
) |
Provision
for credit/insurance losses
|
|
|
— |
|
|
|
668 |
|
|
|
668 |
|
Foreign
currency adjustments
|
|
|
206 |
|
|
|
— |
|
|
|
206 |
|
Net
(gain)/loss on sale of businesses
|
|
|
(172 |
) |
|
|
(7 |
) |
|
|
(179 |
) |
Net
(gain)/loss on debt conversions
|
|
|
512 |
|
|
|
— |
|
|
|
512 |
|
Net
(gain)/loss on pension and OPEB curtailment
|
|
|
(1,164 |
) |
|
|
— |
|
|
|
(1,164 |
) |
(Gain)/Loss
on goodwill impairment
|
|
|
2,400 |
|
|
|
— |
|
|
|
2,400 |
|
Stock
option expense
|
|
|
70 |
|
|
|
6 |
|
|
|
76 |
|
Cash
changes in operating assets and liabilities were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for deferred income taxes
|
|
|
(880 |
) |
|
|
(4,597 |
) |
|
|
(5,477 |
) |
Decrease/(Increase)
in accounts receivable and other assets
|
|
|
313 |
|
|
|
(268 |
) |
|
|
45 |
|
Decrease/(Increase)
in inventory
|
|
|
371 |
|
|
|
— |
|
|
|
371 |
|
Increase/(Decrease)
in accounts payable and accrued and other liabilities
|
|
|
(1,041 |
) |
|
|
2,389 |
|
|
|
1,348 |
|
Net
sales/(purchases) of trading securities
|
|
|
4,537 |
|
|
|
2 |
|
|
|
4,539 |
|
Other
|
|
|
337 |
|
|
|
648 |
|
|
|
985 |
|
Cash
flows from operating activities of continuing operations
|
|
$ |
8,725 |
|
|
$ |
6,402 |
|
|
$ |
15,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income/(loss)
|
|
$ |
(13,912 |
) |
|
$ |
1,299 |
|
|
$ |
(12,613 |
) |
(Income)/Loss
of discontinued operations
|
|
|
(16 |
) |
|
|
— |
|
|
|
(16 |
) |
Depreciation
and special tools amortization
|
|
|
11,158 |
|
|
|
5,295 |
|
|
|
16,453 |
|
Amortization
of intangibles
|
|
|
66 |
|
|
|
— |
|
|
|
66 |
|
Net
losses/(earnings) from equity investments in excess of dividends
received
|
|
|
(253 |
) |
|
|
— |
|
|
|
(253 |
) |
Provision
for credit/insurance losses
|
|
|
— |
|
|
|
241 |
|
|
|
241 |
|
Foreign
currency adjustments
|
|
|
112 |
|
|
|
— |
|
|
|
112 |
|
(Gain)/Loss
on sale of business
|
|
|
— |
|
|
|
(33 |
) |
|
|
(33 |
) |
Stock
option expense
|
|
|
72 |
|
|
|
5 |
|
|
|
77 |
|
Cash
changes in operating assets and liabilities were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for deferred income taxes
|
|
|
(2,577 |
) |
|
|
77 |
|
|
|
(2,500 |
) |
Decrease/(Increase)
in accounts receivable and other assets
|
|
|
1,622 |
|
|
|
657 |
|
|
|
2,279 |
|
Decrease/(Increase)
in inventory
|
|
|
(695 |
) |
|
|
— |
|
|
|
(695 |
) |
Increase/(Decrease)
in accounts payable and accrued and other liabilities
|
|
|
7,112 |
|
|
|
(578 |
) |
|
|
6,534 |
|
Net
sales/(purchases) of trading securities
|
|
|
(6,762 |
) |
|
|
(9 |
) |
|
|
(6,771 |
) |
Other
|
|
|
(99 |
) |
|
|
362 |
|
|
|
263 |
|
Cash
flows from operating activities of continuing operations
|
|
$ |
(4,172 |
) |
|
$ |
7,316 |
|
|
$ |
3,144 |
|
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
22. OPERATING CASH FLOWS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income/(loss)
|
|
$ |
(1,884 |
) |
|
$ |
3,324 |
|
|
$ |
1,440 |
|
(Income)/Loss
of discontinued operations
|
|
|
(21 |
) |
|
|
(41 |
) |
|
|
(62 |
) |
Cumulative
effects of changes in accounting principles
|
|
|
251 |
|
|
|
— |
|
|
|
251 |
|
Depreciation
and special tools amortization
|
|
|
8,156 |
|
|
|
5,854 |
|
|
|
14,010 |
|
Amortization
of intangibles
|
|
|
49 |
|
|
|
6 |
|
|
|
55 |
|
Net
losses/(earnings) from equity investments in excess of dividends
received
|
|
|
(135 |
) |
|
|
— |
|
|
|
(135 |
) |
Provision
for credit/insurance losses
|
|
|
— |
|
|
|
483 |
|
|
|
483 |
|
Foreign
currency adjustments
|
|
|
36 |
|
|
|
— |
|
|
|
36 |
|
(Gain)/Loss
on sale of business
|
|
|
— |
|
|
|
(1,099 |
) |
|
|
(1,099 |
) |
Stock
option expense
|
|
|
103 |
|
|
|
13 |
|
|
|
116 |
|
Cash
changes in operating assets and liabilities were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for deferred income taxes
|
|
|
(960 |
) |
|
|
1,664 |
|
|
|
704 |
|
Decrease/(Increase)
in accounts receivable and other assets
|
|
|
(2,083 |
) |
|
|
(727 |
) |
|
|
(2,810 |
) |
Decrease/(Increase)
in inventory
|
|
|
(94 |
) |
|
|
— |
|
|
|
(94 |
) |
Increase/(Decrease)
in accounts payable and accrued and other liabilities
|
|
|
2,306 |
|
|
|
(2,343 |
) |
|
|
(37 |
) |
Net
sales/(purchases) of trading securities
|
|
|
(579 |
) |
|
|
(50 |
) |
|
|
(629 |
) |
Other
|
|
|
293 |
|
|
|
(172 |
) |
|
|
121 |
|
Cash
flows from operating activities of continuing operations
|
|
$ |
5,438 |
|
|
$ |
6,912 |
|
|
$ |
12,350 |
|
The
reconciliation between total sector and consolidated cash flows from operating
activities of continuing operations is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
Sum
of sector cash flows from operating activities of continuing
operations
|
|
$ |
15,127 |
|
|
$ |
3,144 |
|
|
$ |
12,350 |
|
Reclassification
of wholesale receivable cash flows from investing to operating for
consolidated presentation*
|
|
|
1,947 |
|
|
|
6,478 |
|
|
|
8,478 |
|
Reclassification
relating to sale of vehicles to Hertz and related auction proceeds for
consolidated presentation.
|
|
|
— |
|
|
|
— |
|
|
|
(436 |
) |
Consolidated
cash flows from operating activities of continuing
operations
|
|
$ |
17,074 |
|
|
$ |
9,622 |
|
|
$ |
20,392 |
|
__________
*
|
In
addition to vehicles sold by us, the cash flows from wholesale finance
receivables being reclassified from investing to operating include
financing by Ford Credit of used and non-Ford vehicles. 100% of
cash flows from wholesale finance receivables have been reclassified for
consolidated presentation as the portion of these cash flows from used and
non-Ford vehicles are impracticable to
separate.
|
Cash
paid/(received) for interest and income taxes for continuing operations was as
follows (in millions):
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
|
|
|
Automotive
sector
|
|
$ |
2,584 |
|
|
$ |
1,419 |
|
|
$ |
1,506 |
|
Financial
Services sector
|
|
|
8,346 |
|
|
|
7,483 |
|
|
|
6,319 |
|
Total
interest paid
|
|
$ |
10,930 |
|
|
$ |
8,902 |
|
|
$ |
7,825 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
$ |
(223 |
) |
|
$ |
423 |
|
|
$ |
382 |
|
NOTE
23. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING
ACTIVITIES
Our
operations are exposed to global market risks, including the effect of changes
in foreign currency exchange rates, certain commodity prices and interest
rates. The objective of our risk management program is to manage the
financial and operational exposure arising from these risks by offsetting gains
and losses on the underlying exposures with gains and losses on derivatives used
to hedge them. We document our hedging objectives, practices,
procedures, and accounting treatment. In addition, we review our
hedging program and our derivative positions, as well as our strategy, on a
regular basis.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
23. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)
Our use
of derivatives to manage market risk results in the risk of a counterparty
defaulting on a derivative contract. We establish exposure limits for
each counterparty to minimize this risk and provide counterparty
diversification. We also enter into master netting agreements with
counterparties that usually allow for netting of certain
exposures. Many of these agreements permit netting between derivative
and non-derivative exposures and our accounting policy is to not offset fair
value amounts of our derivative assets and liabilities. For Ford
Credit, this policy represents a change as of December 31, 2007 and has been
applied retrospectively to the 2006 balance sheet. Substantially all
of our counterparties have long-term debt ratings of single-A or
better. The aggregate fair value of derivative instruments in asset
positions on December 31, 2007, is $4.2 billion, and represents the
maximum loss that would be recognized at the reporting date if all
counterparties failed to perform as contracted.
Hedge
Accounting Designations
We have
elected to apply hedge accounting to certain derivatives. Derivatives
that receive designated hedge accounting treatment are documented and evaluated
for effectiveness in accordance with our policies. Some derivatives
do not qualify for hedge accounting; for others, we elect not to apply hedge
accounting treatment. With the exception of certain electricity
supply contracts, we have elected to apply the normal purchase and normal sales
classification to all physical supply contracts that are entered into for the
purpose of procuring commodities to be used in production within a reasonable
time during the normal course of our business. We do not apply normal
purchase and normal sales to certain electricity physical supply contracts which
had notional balances of $65 million and $51 million on
December 31, 2007 and 2006, respectively. We report changes
in the fair value of these derivatives through Automotive cost of sales.
Automotive
Sector
Cash Flow
Hedges. We use forward and option contracts to manage our
exposure to foreign currency exchange and commodity price risks. We
apply the critical terms method of assessing effectiveness for derivatives
designated as hedging forecasted transactions. The effective portion
of changes in the fair value of cash flow hedges is deferred in Accumulated other comprehensive
income/(loss) and is recognized in Automotive cost of sales when
the hedged item affects earnings. Our policy is to cease hedge accounting at the
time forecasted transactions are recognized as assets or liabilities on the
balance sheet and report subsequent changes in fair value through Automotive cost of
sales. An amount is also reclassified from Accumulated other comprehensive
income/(loss) and recognized in earnings if it becomes probable that the
original forecasted transaction will not occur. Our cash flow hedges mature
within two years or less. The exchange of cash associated with cash
flow hedges which are de-designated prior to maturity is reported in Net cash (used in)/provided by
investing activities in our statements of cash flows. The
exchange of cash associated with cash flow hedges which are designated through
maturity is reported in Net
cash flows from operating activities in our statements of cash
flows.
Net Investment
Hedges. We have used foreign currency forward exchange
contracts to hedge the net assets of certain foreign entities to offset the
translation and economic exposures related to our investment in these
entities. We assessed effectiveness based upon a comparison of the
hedge with the beginning balance of the net investment level hedged, with
subsequent quarterly tests based upon changes in spot rates to determine the
effective portion of the hedge. Changes in the value of these
derivative instruments, excluding the ineffective portion of the hedge, were
included in Accumulated other
comprehensive income/(loss) as a foreign currency translation
adjustment. The exchange of cash associated with these derivative
transactions was reported in Net cash flows from operating
activities in our statements of cash flows.
Derivatives not designated as
hedging instruments. Some derivatives do not qualify for hedge accounting
treatment or we elect not to apply hedge accounting. We report
changes in the fair value of these derivatives through Automotive cost of sales or
Automotive interest income and
other non-operating income/(expense), net depending on the
underlying exposure. The earnings impact primarily relates to the
revaluation of certain foreign currency derivatives and changes in fair value of
commodity derivatives and warrants. The exchange of cash associated
with these derivative transactions is recorded in Net cash (used in)/provided by
investing activities in our statements of cash flows.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
23. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)
Financial
Services Sector
Ford
Credit is exposed to interest rate changes and foreign currency exchange rate
fluctuations in the normal course of business. Interest rate and
currency exposures are monitored and managed by us as an integral part of our
overall risk management program, which recognizes the unpredictability of
financial markets and seeks to reduce potential adverse effects on our operating
results. Risk is reduced in two ways: (1) through the use
of funding instruments that have interest and maturity profiles similar to the
assets they are funding, and (2) through the use of interest rate and foreign
exchange derivatives. Interest rate swaps are used to manage the
effects of interest rate fluctuations. Foreign currency exchange
agreements, including forward contracts and swaps, are used to manage foreign
exchange exposure. We adhere to a risk management policy that is reviewed on a
regular basis by our management. We do not engage in any speculative
activities in the derivative markets
In 2007,
we did not apply designated hedge accounting to any of our derivative
instruments. In prior periods presented, we elected to apply hedge accounting to
certain derivatives. Derivatives that received designated hedge
accounting treatment were documented and the relationships were evaluated for
effectiveness at the time they were designated as well as throughout the hedge
period.
Fair Value
Hedges. Ford Credit uses certain derivatives to reduce the
risk of changes in the fair value of liabilities. We have designated
receive-fixed, pay-float interest rate swaps as hedges of existing fixed-rate
debt. The risk being hedged was the risk of changes in the fair value
of the hedged item attributable to changes in the benchmark interest
rate. For certain interest rate swaps we used the dollar-offset
method to assess hedge effectiveness. Hedge ineffectiveness was the
difference between the change in fair value of the entire derivative instrument
and the change in fair value of the hedged item attributable to changes in the
benchmark interest rate. Ineffectiveness was recorded directly in
earnings. The notional balances for these highly effective interest
rate swaps were $0, $1.1 billion, and $1.8 billion at
December 31, 2007, 2006, and 2005, respectively. Other
interest rate swaps met the specific criteria to assume no ineffectiveness in
the hedge relationship. These interest rate swaps had notional
balances of $0, $0, and $3.8 billion at December 31, 2007, 2006,
and 2005, respectively.
Cash Flow
Hedges. Ford Credit has designated receive-float, pay-fixed
interest rate swaps as hedges of existing floating rate debt. The
risk being hedged was the risk of changes in the cash flows of the hedged item
attributable to changes in the benchmark interest rate. We used the
change in variable cash flows method to measure hedge ineffectiveness, which was
the difference between the change in the fair value of the float leg of the swap
and the change in fair value of the hedged item. Hedge
ineffectiveness was recorded directly in earnings. Ford Credit had no
receive-float, pay-fixed interest rates swaps classified as cash flow hedges at
December 31, 2007, 2006, and 2005.
Net Investment Hedges. Ford
Credit has used foreign currency forwards and options to hedge the net assets of
certain foreign entities to offset the translation and economic exposures
related to its investment in these entities. We assessed
effectiveness based upon a comparison of the hedge with the beginning balance of
the net investment level hedged, with subsequent quarterly tests based upon
changes in spot rates to determine the effective portion of the
hedge. Ford Credit had no foreign currency forwards or options
classified as net investment hedges at December 31, 2007, 2006, and
2005.
Derivatives not designated as
hedging instruments. In 2007, we did not apply hedge accounting to our
derivatives. Some derivatives did not qualify for hedge accounting;
for others, we elected not to apply hedge accounting. We report changes in the
fair value of these derivatives through Financial Services
revenues. The earnings impact primarily relates to interest
rate swaps, which are included in evaluating Ford Credit's overall risk
management objective, and foreign currency derivatives, which are offset by the
revaluation of foreign denominated debt. The notional amount of
derivatives not designated for hedge accounting was $181.8 billion,
$158.7 billion, and $143.7 billion at December 31, 2007,
2006, and 2005, respectively.
We report
the exchange of cash related to all of Ford Credit's derivative transactions,
regardless of designation, in Net cash (used in)/provided by
investing activities in our statements of cash flows.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
23. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)
Income
Statement Effect of Derivative Instruments
The
following table summarizes the estimated pre-tax gains/(losses) for each type of
hedge designation described above for the Automotive and Financial Services
sectors, for the years ended December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
Income
Statement Classification
|
Automotive
Sector
|
|
|
|
|
|
|
|
|
|
|
Cash
flow hedges:
|
|
|
|
|
|
|
|
|
|
|
Impact
of discontinued hedges (a)
|
|
$ |
190 |
|
|
$ |
(8 |
) |
|
$ |
(1 |
) |
Automotive
cost of sales
|
Net
investment hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ineffectiveness
|
|
|
(1 |
) |
|
|
40 |
|
|
|
20 |
|
Automotive
cost of sales
|
Derivatives
not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodities
|
|
|
33 |
|
|
|
333 |
|
|
|
254 |
|
Automotive
cost of sales
|
Foreign
currency forward contracts (b)
|
|
|
420 |
|
|
|
71 |
|
|
|
(383 |
) |
Automotive
cost of sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
(53 |
) |
|
|
88 |
|
|
|
7 |
|
Automotive
cost of sales/Automotive interest income and other non-operating
income/(expense), net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Services Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ineffectiveness
|
|
$ |
— |
|
|
$ |
11 |
|
|
$ |
(1 |
) |
Financial
Services revenues
|
Net
interest settlements and accruals excluded from the assessment of
hedge effectiveness
|
|
|
— |
|
|
|
19 |
|
|
|
257 |
|
Interest
expense
|
Foreign
exchange revaluation adjustments excluded from the assessment of hedge
effectiveness (b) (c)
|
|
|
— |
|
|
|
160 |
|
|
|
(350 |
) |
Financial
Services revenues
|
Cash
flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ineffectiveness
|
|
|
— |
|
|
|
— |
|
|
|
(8 |
) |
Financial
Services revenues
|
Net
interest settlements and accruals excluded from the assessment of
hedge effectiveness
|
|
|
— |
|
|
|
— |
|
|
|
(45 |
) |
Interest
expense
|
Net
investment hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ineffectiveness
|
|
|
— |
|
|
|
— |
|
|
|
(13 |
) |
Financial
Services revenues
|
Derivatives
not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate swaps
|
|
|
139 |
|
|
|
(181 |
) |
|
|
(231 |
) |
Financial
Services revenues
|
Foreign
currency swaps and forward contracts (b)
|
|
|
(338 |
) |
|
|
(149 |
) |
|
|
(1,308 |
) |
Financial
Services revenues
|
Other
|
|
|
1 |
|
|
|
1 |
|
|
|
— |
|
Financial
Services revenues
|
__________
|
(a)
|
Includes
reclassifications in the second quarter of 2007 from Accumulated other
comprehensive income/(loss) in the amount of $182 million
attributable to Jaguar and Land Rover forecasted transactions probable to
not occur.
|
|
(b)
|
These
gains/(losses) were related to foreign currency derivatives and were
substantially offset by net revaluation impacts on foreign denominated
debt, which were recorded to the same income statement line item as the
hedge gains/(losses).
|
|
(c)
|
Amount
represents the portion of the derivative's fair value attributable to the
change in foreign currency exchange
rates.
|
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
23. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)
Balance
Sheet Effect of Derivative Instruments
The fair
value of derivatives reflects the price that a third party would be willing to
pay or receive in arm's length transactions and includes mark-to-market
adjustments to reflect the effects of changes in the related
index. The following tables summarize the estimated fair value of our
derivative financial instruments at December 31 (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flow hedges
|
|
$ |
617 |
|
|
$ |
195 |
|
|
$ |
1,736 |
|
|
$ |
860 |
|
Net
investment hedges
|
|
|
— |
|
|
|
— |
|
|
|
6 |
|
|
|
— |
|
Derivatives
not designated as hedging instruments
|
|
|
757 |
|
|
|
188 |
|
|
|
977 |
|
|
|
256 |
|
Total
derivative financial instruments
|
|
$ |
1,374 |
|
|
$ |
383 |
|
|
$ |
2,719 |
|
|
$ |
1,116 |
|
Financial
Services Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value hedges
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
111 |
|
|
$ |
1 |
|
Derivatives
not designated as hedging instruments
|
|
|
2,811 |
|
|
|
1,349 |
|
|
|
2,334 |
|
|
|
891 |
|
Total
derivative financial instruments
|
|
$ |
2,811 |
|
|
$ |
1,349 |
|
|
$ |
2,445 |
|
|
$ |
892 |
|
Accumulated
Other Comprehensive Income/(Loss) Activity
The
following table summarizes activity in Accumulated other comprehensive
income/(loss) excluding foreign currency translation adjustments on net
investment hedges for both the Automotive and Financial Services sectors during
the years ended December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
Beginning
of year: net unrealized gain/(loss) on derivative financial
instruments
|
|
$ |
434 |
|
|
$ |
(43 |
) |
|
$ |
1,221 |
|
Increase/(Decrease)
in fair value of derivatives
|
|
|
178 |
|
|
|
742 |
|
|
|
(664 |
) |
Gains
reclassified from Accumulated other
comprehensive income/(loss)
|
|
|
(244 |
) |
|
|
(265 |
) |
|
|
(600 |
) |
End
of year: net unrealized gain/(loss) on derivative financial
instruments
|
|
$ |
368 |
|
|
$ |
434 |
|
|
$ |
(43 |
) |
We expect
to reclassify existing net gains of $352 million from Accumulated other comprehensive
income/(loss) to Net
income/(loss) during the next twelve months as the underlying exposures
are realized.
NOTE
24. RETIREMENT BENEFITS
Employee
Retirement and Savings Plans
We have
two principal qualified defined benefit retirement plans in the United
States. The Ford-UAW Retirement Plan covers hourly employees
represented by the UAW, and the General Retirement Plan covers substantially all
other Ford employees in the United States hired on or before
December 31, 2003. 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
that generally provide similar types of benefits for their
employees. We established, effective January 1, 2004, a
defined contribution plan generally covering new salaried U.S. employees hired
on or after that date. Ford-UAW Retirement Plan expense accruals for
UAW-represented Ford employees previously assigned to Visteon ("Visteon Hourly
Employees") were charged to Visteon. Pursuant to definitive
agreements with Visteon signed on September 12, 2005, these charges
were discontinued effective October 1, 2005.
For our
plans that provide benefits based on salary, we project employee future salary
growth for such salary-related benefits. Certain of our defined
benefit pension plans provide benefits that are not based on salary (e.g., U.S.
Ford-UAW Retirement Plan, noncontributory portion of the U.S. General Retirement
Plan, and Canada Ford-UAW Retirement Plan). The salary growth
assumption is not applicable to these benefits.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
24. RETIREMENT BENEFITS (Continued)
Plan
obligations and costs are based on existing retirement plan
provisions. No assumption is made regarding any potential future
changes to benefit provisions beyond those to which we are presently committed
(e.g., in existing labor contracts).
In
general, our plans are funded, with the main exceptions being certain plans in
Germany and U.S. defined benefit plans for senior management. In such
cases, an unfunded liability is recorded.
The
expense for our worldwide defined contribution plans was $130 million in
2007, $80 million in 2006 and $134 million in 2005. This
includes the expense for company matching contributions to our primary employee
savings plans (United States and Canada) of $34 million in 2007, $0 in 2006
and $44 million in 2005. Company matching contributions were
reinstated in June 2007.
Other
Postretirement Employee Benefits
We, and
certain of our subsidiaries, sponsor plans to provide other postretirement
benefits for retired employees, primarily certain health care and life insurance
benefits. The Ford UAW Hospital-Surgical-Medical-Drug-Dental-Vision
Program ("H-S-M-D-D-V Program") covers hourly employees represented by the UAW,
and the Ford Salaried Health Care Plan covers substantially all other Ford
employees in the United States hired before
June 1, 2001. U.S. salaried employees hired on or after
June 1, 2001 are covered by a separate plan that provides for annual
company allocations to employee-specific notional accounts to be used to fund
postretirement health care benefits. We also provide company-paid
postretirement life insurance benefits to U.S. salaried employees hired before
January 1, 2004 and all U.S. hourly employees. Our
employees generally may become eligible for benefits when they retire; however,
benefits and eligibility rules may be modified from time to time.
Effective
January 1, 2007 for U.S. salaried employees hired before
June 1, 2001, we established a company contribution limit set at 2006
levels for retiree health care benefits. U.S. salaried employees
hired on or after June 1, 2001 participate in a defined contribution
retiree health care plan. In addition, for U.S. salaried employees
hired before January 1, 2004 who are retirement eligible after
June 1, 2006, company-paid retiree life insurance benefits are limited
to $50,000 (employees hired on or after January 1, 2004 do not receive
company-paid life insurance benefits). These benefit changes resulted
in a reduction in 2006 and ongoing expense of about $400 million annually
as well as a decrease in the year-end 2005 OPEB obligation of about
$3 billion.
Effective
January 1, 2008 for U.S. salaried employees hired before June 1, 2001,
we replaced health care coverage (including prescription drugs and dental) for
retirees and surviving spouses who are age 65 and older or Medicare
eligible with a new Health Reimbursement Arrangement ("HRA"). Each
such surviving spouse, retiree and his or her eligible spouse are provided an
annual amount of up to $1,800 in an HRA account. The HRA may be used
to help offset health care, dental, vision and hearing costs. This
benefit change resulted in a decrease in the year-end 2006 OPEB obligation of
about $500 million and a reduction in 2006 and ongoing expense of about
$80 million annually.
On
November 3, 2007, we agreed in principle with the UAW on a Memorandum of
Understanding that permanently shifts responsibility for providing retiree
health care benefits to current and former UAW-represented employees from the
Company to a New Retiree Plan ("New Plan") funded by a new independent Voluntary
Employee Benefit Association Trust ("New VEBA", and together with the New Plan,
"MOU"). The effective date of the MOU is anticipated to occur in the
third quarter of 2008. This date is subject to, among other
conditions, federal district court approval of the final settlement agreement
relating to the MOU and SEC pre-clearance of the accounting treatment of the New
VEBA and our retiree health care obligation.
In 2005,
we entered into an agreement with the UAW ("Agreement") to increase retiree
health care cost sharing as part of our overall cost reduction
efforts. On July 13, 2006 we received the necessary court approval of
a settlement of a lawsuit challenging proposed modifications to the H-S-M-D-D-V
Program and cost savings began to accrue as of that date. The
Agreement provides for increased cost sharing of health care expenses by
retirees presently covered under the H-S-M-D-D-V Program ("Plan Amendment") and
established an independent Defined Contribution Retiree Health Benefit Trust
("UAW Benefit Trust") which serves as a non-Ford sponsored Voluntary Employee
Benefits Association. The UAW Benefit Trust is used to mitigate the
reduction in health plan benefits for certain eligible present and future retirees,
surviving spouses and other dependents. This settlement agreement
will remain in effect until September 14, 2011, at which point either
Ford or the UAW may provide notice of a desire to terminate the
Agreement. If and when the MOU is implemented, which is the later of
January 1, 2010 or the date on which any appeals or challenges to court approval
are exhausted, the Agreement will be superseded by the MOU.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
24. RETIREMENT BENEFITS (Continued)
The
Agreement was accounted for as a negative amendment to the H-S-M-D-D-V Program
in the amount of $4 billion, net of $90 million representing the
present value of our commitment to fund the UAW Benefit Trust (discussed below)
discounted at 6.5%. We are amortizing the negative plan amendment on
a straight-line basis over 12 years (which represented the average
remaining service period of our active workforce at the effective date of the
plan amendment). In addition we are accreting interest expense on the
discounted value of the funding commitment noted above. The interest
expense recorded was $4 million and $2 million for 2007 and 2006,
respectively.
Our
commitment to fund the UAW Benefit Trust consists of three non-contingent cash
payments ("buy-down") totaling $108 million. We paid the first
installment of $30 million in cash on August 10, 2006. As
allowed by the Agreement, the second installment of $35 million was paid in cash
on January 2, 2008. We are committed to make a third contribution of
$43 million in 2009.
The UAW
Benefit Trust is controlled by the UAW Benefit Association Plan Committee
("Committee") which is appointed by the UAW. The Committee does not
and will not include any representatives of the Company. The
Committee has the right to appoint an independent trustee ("Trustee") for
purposes of managing the assets. The assets of the UAW Benefit Trust
are the responsibility of the Committee, which has full fiduciary responsibility
for the investment strategy, safeguarding of assets, and execution of the
benefit plan as designed. Benefit payments to eligible participants
in the UAW Benefit Trust are limited in amount to the assets held by the UAW
Benefit Trust. Each year, the Committee will determine the level of
benefits to be paid to eligible participants. If the value of the
assets in the UAW Benefit Trust is deemed insufficient by the Trustee, the
Trustee may accelerate our obligation for the third contribution to the extent
necessary to enable the UAW Benefit Trust to continue paying
benefits.
As part
of the Agreement, we also agreed to transfer to the UAW Benefit Trust the right
to an amount of cash determined by the appreciation of 8.75 million shares
of Ford Common Stock above $8.145 per share. These stock appreciation
rights were exercisable for three years from the effective date of the Plan
Amendment. One third of the 8.75 million stock appreciation
rights were available on July 13, 2006. On the first
anniversary of the effective date of the Agreement, another third of the 8.75
stock appreciation rights were available. As of November 3, 2007,
these stock appreciation rights had not been exercised. As allowed by
the Agreement, we agreed with the UAW to satisfy this obligation by making an
aggregate cash contribution of $33 million to the UAW Benefit Trust on the
effective date of the MOU. Using the Black-Scholes model to measure
the fair value of stock appreciation rights on a graded vesting schedule, we
expensed $8 million related to stock appreciation rights in 2006. An
additional $25 million was expensed in 2007, recorded in Automotive cost of
sales.
As part
of the Agreement, UAW members also agreed to divert to the UAW Benefit Trust
payments of a previously-negotiated 2006 wage increase and a portion of
negotiated cost-of-living increases through 2011 as they are
earned. This is subject to change based on court approval of the
final settlement agreement of the MOU. In 2007 and 2006,
respectively, we expensed $152 million and $44 million of diverted
wage increases .
The
average annual cost savings to Ford from the Plan Amendment is about $650
million, with annual cash savings of about $200 million.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
24. RETIREMENT BENEFITS (Continued)
The
following table summarizes the assets held by the UAW Benefit Trust and the
related obligation (in millions). These amounts are excluded from our
worldwide OPEB benefit obligation and plan asset values shown on the following
page.
|
|
|
|
|
|
|
|
|
|
|
Change
in Benefit Obligation
|
|
|
|
|
|
|
Benefit
obligation at January 1
|
|
$ |
12 |
|
|
$ |
— |
|
Benefits
paid
|
|
|
(152 |
) |
|
|
(48 |
) |
Contributions
|
|
|
154 |
|
|
|
60 |
|
Actual
return on trust assets
|
|
|
1 |
|
|
|
— |
|
Benefit
obligation at December 31
|
|
$ |
15 |
|
|
$ |
12 |
|
|
|
|
|
|
|
|
|
|
Change
in Plan Assets
|
|
|
|
|
|
|
|
|
Fair
value of plan assets at January 1
|
|
$ |
12 |
|
|
$ |
— |
|
Benefits
paid
|
|
|
(152 |
) |
|
|
(48 |
) |
Contributions
|
|
|
154 |
|
|
|
60 |
|
Actual
return on trust assets
|
|
|
1 |
|
|
|
— |
|
Fair
value of plan assets at December 31
|
|
$ |
15 |
|
|
$ |
12 |
|
|
|
|
|
|
|
|
|
|
Net
Liability Recognized
|
|
$ |
— |
|
|
$ |
— |
|
In 2005,
an agreement was reached with Visteon which included forgiving a receivable
related to Visteon's remaining UAW OPEB obligation and a portion of Visteon's
salary obligation for former Ford employees and retirees. The total
receivable forgiven was about $800 million, of which $600 million was
recorded in 2004 as an allowance for doubtful receivables. At
December 31, 2007 and 2006, we had a long-term receivable of
$121 million and $127 million, respectively, representing Visteon's
remaining responsibility for the benefits of the Visteon salaried
employees.
The
measurement date for substantially all of our worldwide postretirement benefit
plans is December 31. Our expense for defined benefit pension
and OPEB was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
464 |
|
|
$ |
680 |
|
|
$ |
734 |
|
|
$ |
632 |
|
|
$ |
704 |
|
|
$ |
630 |
|
|
$ |
369 |
|
|
$ |
617 |
|
|
$ |
710 |
|
Interest
cost
|
|
|
2,621 |
|
|
|
2,431 |
|
|
|
2,398 |
|
|
|
1,650 |
|
|
|
1,396 |
|
|
|
1,408 |
|
|
|
1,805 |
|
|
|
2,004 |
|
|
|
2,188 |
|
Expected
return on assets
|
|
|
(3,479 |
) |
|
|
(3,379 |
) |
|
|
(3,363 |
) |
|
|
(1,905 |
) |
|
|
(1,643 |
) |
|
|
(1,633 |
) |
|
|
(256 |
) |
|
|
(479 |
) |
|
|
(500 |
) |
Amortization
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior
service cost/(credit)
|
|
|
265 |
|
|
|
444 |
|
|
|
500 |
|
|
|
109 |
|
|
|
120 |
|
|
|
126 |
|
|
|
(996 |
) |
|
|
(815 |
) |
|
|
(245 |
) |
(Gains)/Losses
and other
|
|
|
24 |
|
|
|
99 |
|
|
|
102 |
|
|
|
460 |
|
|
|
568 |
|
|
|
352 |
|
|
|
812 |
|
|
|
763 |
|
|
|
893 |
|
Separation
programs
|
|
|
814 |
|
|
|
440 |
|
|
|
97 |
|
|
|
190 |
|
|
|
263 |
|
|
|
422 |
|
|
|
7 |
|
|
|
84 |
|
|
|
1 |
|
(Gain)/Loss
from curtailment
|
|
|
176 |
|
|
|
2,535 |
|
|
|
— |
|
|
|
(8 |
) |
|
|
206 |
|
|
|
— |
|
|
|
(1,332 |
) |
|
|
3 |
|
|
|
— |
|
Allocated
costs to Visteon
|
|
|
— |
|
|
|
— |
|
|
|
(84 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5 |
|
|
|
6 |
|
|
|
(246 |
) |
Net
expense
|
|
$ |
885 |
|
|
$ |
3,250 |
|
|
$ |
384 |
|
|
$ |
1,128 |
|
|
$ |
1,614 |
|
|
$ |
1,305 |
|
|
$ |
414 |
|
|
$ |
2,183 |
|
|
$ |
2,801 |
|
_______
* Includes
Jaguar and Land Rover.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
24. RETIREMENT BENEFITS (Continued)
The
year-end status of these plans was as follows (dollar amounts in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in Benefit Obligation (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
obligation at January 1
|
|
$ |
45,252 |
|
|
$ |
43,561 |
|
|
$ |
27,371 |
|
|
$ |
25,113 |
|
|
$ |
30,863 |
|
|
$ |
39,274 |
|
Service
cost
|
|
|
464 |
|
|
|
680 |
|
|
|
452 |
|
|
|
513 |
|
|
|
369 |
|
|
|
617 |
|
Interest
cost
|
|
|
2,619 |
|
|
|
2,429 |
|
|
|
1,324 |
|
|
|
1,124 |
|
|
|
1,805 |
|
|
|
2,004 |
|
Amendments
|
|
|
1,623 |
|
|
|
(19 |
) |
|
|
12 |
|
|
|
38 |
|
|
|
(20 |
) |
|
|
(5,268 |
) |
Separation
programs
|
|
|
813 |
|
|
|
441 |
|
|
|
169 |
|
|
|
189 |
|
|
|
7 |
|
|
|
84 |
|
Curtailments
|
|
|
118 |
|
|
|
1,696 |
|
|
|
10 |
|
|
|
81 |
|
|
|
6 |
|
|
|
(47 |
) |
Settlements
|
|
|
(3 |
) |
|
|
— |
|
|
|
(146 |
) |
|
|
(98 |
) |
|
|
— |
|
|
|
— |
|
Plan
participant contributions
|
|
|
34 |
|
|
|
39 |
|
|
|
99 |
|
|
|
88 |
|
|
|
64 |
|
|
|
44 |
|
Benefits
paid
|
|
|
(3,937 |
) |
|
|
(3,003 |
) |
|
|
(1,660 |
) |
|
|
(1,362 |
) |
|
|
(1,699 |
) |
|
|
(1,623 |
) |
Medicare
D subsidy
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
85 |
|
|
|
76 |
|
Foreign
exchange translation
|
|
|
— |
|
|
|
— |
|
|
|
2,297 |
|
|
|
2,627 |
|
|
|
398 |
|
|
|
2 |
|
Divestiture
|
|
|
— |
|
|
|
— |
|
|
|
(75 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Actuarial
(gain)/loss and other
|
|
|
(2,490 |
) |
|
|
(572 |
) |
|
|
(2,895 |
) |
|
|
(942 |
) |
|
|
(3,782 |
) |
|
|
(4,300 |
) |
Benefit
obligation at December 31
|
|
$ |
44,493 |
|
|
$ |
45,252 |
|
|
$ |
26,958 |
|
|
$ |
27,371 |
|
|
$ |
28,096 |
|
|
$ |
30,863 |
|
Change
in Plan Assets (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of plan assets at January 1
|
|
$ |
44,696 |
|
|
$ |
41,827 |
|
|
$ |
20,183 |
|
|
$ |
17,138 |
|
|
$ |
4,921 |
|
|
$ |
6,497 |
|
Actual
return on plan assets
|
|
|
4,860 |
|
|
|
5,684 |
|
|
|
900 |
|
|
|
1,817 |
|
|
|
79 |
|
|
|
510 |
|
Company
contributions
|
|
|
148 |
|
|
|
149 |
|
|
|
1,515 |
|
|
|
890 |
|
|
|
— |
|
|
|
— |
|
Plan
participant contributions
|
|
|
34 |
|
|
|
39 |
|
|
|
99 |
|
|
|
88 |
|
|
|
— |
|
|
|
— |
|
Benefits
paid
|
|
|
(3,937 |
) |
|
|
(3,003 |
) |
|
|
(1,660 |
) |
|
|
(1,362 |
) |
|
|
(1,125 |
) |
|
|
(2,086 |
) |
Settlements
|
|
|
(3 |
) |
|
|
— |
|
|
|
(146 |
) |
|
|
(109 |
) |
|
|
— |
|
|
|
— |
|
Foreign
exchange translation
|
|
|
— |
|
|
|
— |
|
|
|
1,623 |
|
|
|
1,725 |
|
|
|
— |
|
|
|
— |
|
Divestiture
|
|
|
— |
|
|
|
— |
|
|
|
(75 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Other
|
|
|
(39 |
) |
|
|
— |
|
|
|
(10 |
) |
|
|
(4 |
) |
|
|
— |
|
|
|
— |
|
Fair
value of plan assets at December 31
|
|
$ |
45,759 |
|
|
$ |
44,696 |
|
|
$ |
22,429 |
|
|
$ |
20,183 |
|
|
$ |
3,875 |
|
|
$ |
4,921 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded
status at December 31
|
|
$ |
1,266 |
|
|
$ |
(556 |
) |
|
$ |
(4,529 |
) |
|
$ |
(7,188 |
) |
|
$ |
(24,221 |
) |
|
$ |
(25,942 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
Recognized on the Balance Sheet (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid
assets
|
|
$ |
2,984 |
|
|
$ |
1,423 |
|
|
$ |
894 |
|
|
$ |
143 |
|
|
$ |
— |
|
|
$ |
— |
|
Accrued
liabilities
|
|
|
(1,718 |
) |
|
|
(1,979 |
) |
|
|
(5,423 |
) |
|
|
(7,331 |
) |
|
|
(24,221 |
) |
|
|
(25,942 |
) |
Total
|
|
$ |
1,266 |
|
|
$ |
(556 |
) |
|
$ |
(4,529 |
) |
|
$ |
(7,188 |
) |
|
$ |
(24,221 |
) |
|
$ |
(25,942 |
) |
Amounts
Recognized in Accumulated Other Comprehensive Loss (b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized
prior service costs/(credits)
|
|
$ |
2,639 |
|
|
$ |
1,338 |
|
|
$ |
645 |
|
|
$ |
701 |
|
|
$ |
(6,242 |
) |
|
$ |
(8,514 |
) |
Unamortized
net (gains)/losses and other
|
|
|
(2,288 |
) |
|
|
1,581 |
|
|
|
3,973 |
|
|
|
6,924 |
|
|
|
7,674 |
|
|
|
11,867 |
|
Total
|
|
$ |
351 |
|
|
$ |
2,919 |
|
|
$ |
4,618 |
|
|
$ |
7,625 |
|
|
$ |
1,432 |
|
|
$ |
3,353 |
|
Pension
Plans in Which Accumulated Benefit Obligation Exceeds Plan Assets at
December 31 (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
benefit obligation
|
|
$ |
1,702 |
|
|
$ |
26,124 |
|
|
$ |
13,579 |
|
|
$ |
18,783 |
|
|
|
|
|
|
|
|
|
Fair
value of plan assets
|
|
|
64 |
|
|
|
24,241 |
|
|
|
9,244 |
|
|
|
13,327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
Benefit Obligation at December 31 (a)
|
|
$ |
43,497 |
|
|
$ |
43,925 |
|
|
$ |
25,227 |
|
|
$ |
24,325 |
|
|
|
|
|
|
|
|
|
_______
(a)
|
Excludes
Jaguar and Land Rover.
|
(b)
|
Includes
Jaguar and Land Rover.
|
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
24. RETIREMENT BENEFITS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Assumptions at December 31 (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate
|
|
|
6.25%
|
|
|
|
5.86%
|
|
|
|
5.58%
|
|
|
|
4.89%
|
|
|
|
6.45%
|
|
|
|
5.98%
|
|
Expected
return on assets
|
|
|
8.25%
|
|
|
|
8.50%
|
|
|
|
7.26%
|
|
|
|
7.53%
|
|
|
|
8.40%
|
|
|
|
5.50%
|
|
Average
rate of increase in compensation
|
|
|
3.80%
|
|
|
|
3.80%
|
|
|
|
3.21%
|
|
|
|
3.61%
|
|
|
|
3.80%
|
|
|
|
3.80%
|
|
Initial
health care cost trend rate
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3%
|
|
|
|
6%
|
|
Ultimate
health care cost trend rate
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5%
|
|
|
|
5%
|
|
Year
ultimate trend rate is reached
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
2011
|
|
|
2011
|
|
Assumptions
Used to Determine Net Benefit Cost for the Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate
|
|
|
5.86%
|
|
|
|
5.61%
|
|
|
|
4.91%
|
|
|
|
4.58%
|
|
|
|
5.98%
|
|
|
|
5.73%
|
|
Expected
return on assets
|
|
|
8.50%
|
|
|
|
8.50%
|
|
|
|
7.64%
|
|
|
|
7.78%
|
|
|
|
5.50%
|
|
|
|
8.28%
|
|
Average
rate of increase in compensation
|
|
|
3.80%
|
|
|
|
4.00%
|
|
|
|
3.30%
|
|
|
|
3.44%
|
|
|
|
3.80%
|
|
|
|
4.00%
|
|
Weighted
Average Asset Allocation at December 31 (b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities
|
|
|
51.3%
|
|
|
|
72.1%
|
|
|
|
55.2%
|
|
|
|
63.7%
|
|
|
|
—
|
|
|
|
—
|
|
Debt
securities
|
|
|
46.2%
|
|
|
|
26.6%
|
|
|
|
43.6%
|
|
|
|
35.0%
|
|
|
|
100.0%
|
|
|
|
100.0%
|
|
Real
estate
|
|
|
—
|
|
|
|
—
|
|
|
|
0.7%
|
|
|
|
0.8%
|
|
|
|
—
|
|
|
|
—
|
|
Other
assets
|
|
|
2.5%
|
|
|
|
1.3%
|
|
|
|
0.5%
|
|
|
|
0.5%
|
|
|
|
—
|
|
|
|
— |
|
_______
(a)
|
Excludes
Jaguar and Land Rover.
|
(b)
|
Weighted
average asset allocation based on major non-U.S. plans including U.K.,
Canada, Germany, Sweden, Netherlands, Belgium and Australia. Excludes
Jaguar and Land Rover plans.
|
A one
percentage point increase/(decrease) in the assumed health care cost trend rates
would increase/(decrease) the postretirement health care benefit obligation for
year-end 2007 by approximately $3.5 billion/$(2.8) billion and the
service and interest component of health care expense for 2007 by
$340 million/$(270) million.
As a
result of plans to close North American manufacturing facilities and providing
various separation programs (both discussed in Note 18), we have recognized
curtailments due to the significant reduction in the expected aggregate years of
future service of the employees in the U.S. and Canadian pension and OPEB
plans. The financial impact of the curtailments is reflected in the
tables above and are recorded in Automotive cost of sales and
Selling, administrative and
other expenses.
On December 31,
2006, we adopted certain recognition and disclosure provisions of SFAS No.
158, Employers'
Accounting for Defined Benefit Pension and Other Postretirement Plans - an
amendment of FASB Statements No. 87, 88, 106 and 132R ("SFAS No.
158"). This standard requires employers that sponsor defined benefit plans
to recognize the over-funded or under-funded status of a defined benefit
postretirement plan as an asset or liability on its balance sheet, and to
recognize changes in that funded status in the year in which the changes
occur. Unrecognized prior service credits/costs and net actuarial
gains/losses are recognized as a component of Accumulated
other comprehensive income/(loss).
The
amounts in Accumulated other
comprehensive income/(loss) that are expected to be recognized as
components of net expense/(income) during the next year are as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior
service cost/(credit)*
|
|
$ |
370 |
|
|
$ |
100 |
|
|
$ |
(860 |
) |
|
$ |
(390 |
) |
(Gains)/Losses
and other*
|
|
|
20 |
|
|
|
170 |
|
|
|
350 |
|
|
|
540 |
|
_______
* Excludes
Jaguar and Land Rover.
Plan
Contributions and Drawdowns
Pension. Our
policy for funded pension plans is to contribute annually, at a minimum, amounts
required by applicable laws, regulations, and union agreements. We do
from time to time make contributions beyond those legally
required. In 2007, we made $1.6 billion of cash contributions to our
funded pension plans. During 2008, we expect to contribute to
our worldwide pension plans (including Jaguar and Land Rover plans) $2.3 billion
from available Automotive cash and cash equivalents. This amount
includes about $400 million of benefit payments paid directly by us for
unfunded plans. Based on current assumptions and regulations, we do
not expect to have a legal requirement to fund our major U.S. pension plans in
2008.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE 24. RETIREMENT
BENEFITS
(Continued)
Health Care and Life
Insurance. In 2007, we withdrew $1.1 billion from the
VEBA as reimbursement for U.S. hourly retiree health care and life insurance
benefit payments. During 2008 we expect to withdraw about
$90 million from the VEBA as reimbursement for U.S. hourly retiree life
insurance benefit payments. As part of the MOU, we agreed with the
UAW to not make any further withdrawals from the VEBA for health care benefits
after December 31, 2007.
Estimated
Future Benefit Payments
The
following table presents estimated future gross benefit payments and subsidy
receipts related to the Medicare Prescription Drug Improvement and Modernization
Act of 2003 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
$ |
3,910 |
|
|
$ |
1,510 |
|
|
$ |
1,820 |
|
|
$ |
(70 |
) |
2009
|
|
|
3,850 |
|
|
|
1,480 |
|
|
|
1,900 |
|
|
|
(70 |
) |
2010
|
|
|
3,770 |
|
|
|
1,500 |
|
|
|
1,910 |
|
|
|
(80 |
) |
2011
|
|
|
3,620 |
|
|
|
1,520 |
|
|
|
1,950 |
|
|
|
(80 |
) |
2012
|
|
|
3,530 |
|
|
|
1,550 |
|
|
|
1,980 |
|
|
|
(90 |
) |
2013
- 2017
|
|
|
16,390 |
|
|
|
8,130 |
|
|
|
10,400 |
|
|
|
(560 |
) |
_______
* Excludes
Jaguar and Land Rover.
Plan
Asset Information
Pension. Our
investment strategy for pension assets has a long-term horizon, in keeping with
the long-term nature of the liabilities. Our prior target pension
asset allocations disclosed in our 2006 Form 10-K Report were about
70% equity investments and 30% fixed income investments, with less than one
percent in alternative investments (such as private equity). In
July 2007, to reduce the volatility of the value of our U.S. pension assets
relative to U.S. pension liabilities, we revised our investment strategy to
reduce the proportion of equity investments and increase the proportion of
assets in fixed income and alternative investments. Specifically, we
disclosed a revised target asset allocation for year-end 2007 of about 50%
public equity investments, 45% fixed income investments, and up to 5%
alternative investments. The target asset allocation for Ford U.K.
plans is about 65% public equity investments and 35% fixed income
investments.
In order
to reduce the volatility of the value of our U.S. pension assets relative to
U.S. pension liabilities, we have made further changes to our investment
strategy to reduce the proportion of public equity investments and increase the
proportion of assets in alternative investments. Our new target asset
allocation, which we expect to reach within the next five years, is about 30%
public equity investments, 45% fixed income investments, and up to 25%
alternative investments (e.g., private equity, real estate, and hedge
funds).
All
assets are externally managed and most assets are actively
managed. Ford securities comprised less than five percent of the
total market value of our assets in major worldwide plans (including U.S., U.K.,
Canada, Germany, Sweden, Netherlands, Belgium, and Australia) during 2007 and
2006.
Public
equity and fixed income investment managers are permitted to use derivatives as
efficient substitutes for traditional securities and to manage exposure to
foreign exchange and interest rate risks. Interest rate and foreign
currency derivative instruments are used for the purpose of hedging changes in
the fair value of assets that result from interest rate changes and currency
fluctuations. Interest rate derivatives are also used to adjust
portfolio duration. Derivatives may not be used to leverage or to
alter the economic exposure to an asset class outside the scope of the mandate
to which an investment manager has been appointed.
Alternative
investment managers are permitted to employ leverage (including through the use
of derivatives or other tools) that may alter economic exposure.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE 24. RETIREMENT
BENEFITS
(Continued)
The
equity allocation shown at year-end 2007 and 2006 includes public equity
securities. Other assets include private equity investments, hedge
funds, and cash held for near-term benefit funding; cash held by investment
managers for liquidity purposes is included in the appropriate asset class
balance.
The
long-term return assumption at year-end 2007 is 8.25% for U.S. plans, 7.75% for
U.K. plans and averages 7.26% for non-U.S. plans. A generally
consistent approach is used worldwide to develop this
assumption. This approach considers various sources, primarily inputs
from a range of advisors for long-term capital market returns, inflation, bond
yields and other variables, adjusted for specific aspects of our investment
strategy by plan. Historical returns are also considered where
appropriate.
At
December 31, 2007, our actual 10-year annual rate of return on pension
plan assets was 8.84% and 6.45% for U.S. and the U.K. plans,
respectively. At December 31, 2006, our actual 10-year
annual rate of return on pension plan assets was 9.71% and 7.91% for U.S. and
the U.K. plans, respectively.
Health Care and Life
Insurance. At December 31, 2007, we had
$3.9 billion of VEBA assets all of which were invested in shorter-duration
fixed income investments. All of the assets are managed
externally. Ford securities comprised less than five percent of the
market value of the total assets during 2007 and 2006.
As part
of the MOU, we agreed with the UAW to not make further withdrawals from the VEBA
for health care benefits after December 31, 2007. The
target asset allocation will change from shorter-duration fixed income to about
70% public equity investments and 30% longer –duration fixed income investments
in 2008 for the retiree health care VEBA.
Investment
managers are permitted to use derivatives as efficient substitutes for
traditional securities and to manage exposure to foreign exchange and interest
rate risks. Interest rate and foreign currency derivative instruments
are used for the purpose of hedging changes in the fair value of assets that
result from interest rate changes and currency
fluctuations. Derivatives may not be used to leverage or to alter the
economic exposure to an asset class outside the scope of the mandate to which an
investment manager has been appointed. Cash held by investment
managers for liquidity purposes is included in the appropriate asset class
balance.
The
expected return assumption applicable to the retiree health care VEBA is 8.50%,
which reflects historical returns and long-run inputs from a range of advisors
for capital market returns, inflation, bond yields, and other variables,
adjusted for specific aspects of our investment strategy.
The
expected return assumption applicable to the retiree life insurance VEBA is
5.50%. This assumption reflects the external investment managers'
expectations of likely returns on short-duration VEBA assets over the next
several years.
NOTE
25. SEGMENT INFORMATION
Our
operating activity consists of two operating sectors, Automotive and Financial
Services. Segment selection is based on the organizational structure
we use to evaluate performance and make decisions on resource allocation, as
well as availability and materiality of separate financial results consistent
with that structure.
Automotive
Sector
Beginning
with the second quarter of 2006, we changed the reporting of our Automotive
sector to separately disclose the following five segments: Ford North
America, Ford South America, Ford Europe, PAG, and Ford Asia Pacific and
Africa/Mazda. Automotive sector prior period information has been
reclassified and is provided for these segments in the table
below. Included in each segment described below with the exception of
our interest in Mazda are the associated costs to design, develop, manufacture,
and service vehicles and parts.
Ford
North America segment includes primarily the sale of Ford, Lincoln and Mercury
brand vehicles and related service parts in North America (the United States,
Canada and Mexico).
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE 25. SEGMENT
INFORMATION
(Continued)
Ford
South America segment includes primarily the sale of Ford-brand vehicles and
related service parts in South America.
Ford
Europe segment includes primarily the sale of Ford-brand vehicles and related
service parts in Europe, Turkey, and Russia.
The PAG
segment includes primarily the sale of PAG-brand vehicles (i.e., Volvo, Jaguar,
and Land Rover) and related service parts throughout the world (including North
America, South America, Europe, Asia Pacific and Africa).
Ford Asia
Pacific and Africa/Mazda segment includes primarily the sale of Ford-brand
vehicles and related service parts in the Asia Pacific region and South Africa
and also includes our share of the results of Mazda, of which we owned 33.4% at
December 31, 2007, and certain of our Mazda-related
investments.
The Other
Automotive component of the Automotive sector consists primarily of centrally
managed net interest expense, which is not managed individually by the five
segments.
Transactions
among Automotive segments are presented generally on a "where-sold," absolute
cost basis, eliminating the effect of legal entity transfer prices within the
Automotive sector for vehicles, components and product engineering.
Financial
Services Sector
The
Financial Services sector includes the following segments: Ford Credit and Other
Financial Services. Ford Credit provides vehicle-related financing,
leasing, and insurance. Other Financial Services includes a variety
of business including holding companies, real-estate, and the financing and
leasing of Volvo vehicles. The Hertz segment was sold in
December 2005.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
25. SEGMENT INFORMATION (Continued)
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
Asia Pacific
&
Africa/ Mazda
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales/Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
customer
|
|
$ |
69,365 |
|
|
$ |
7,585 |
|
|
$ |
76,950 |
|
|
$ |
36,330 |
|
|
$ |
33,067 |
|
|
$ |
69,397 |
|
|
$ |
8,032 |
|
|
$ |
— |
|
|
$ |
154,379 |
|
Intersegment
|
|
|
523 |
|
|
|
— |
|
|
|
523 |
|
|
|
712 |
|
|
|
271 |
|
|
|
983 |
|
|
|
— |
|
|
|
— |
|
|
|
1,506 |
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
before income taxes
|
|
|
(4,161 |
) |
|
|
1,172 |
|
|
|
(2,989 |
) |
|
|
744 |
|
|
|
(1,872 |
) |
|
|
(1,128 |
) |
|
|
206 |
|
|
|
(1,059 |
) |
|
|
(4,970 |
) |
Other
disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and special tools amortization
|
|
|
3,685 |
|
|
|
117 |
|
|
|
3,802 |
|
|
|
1,423 |
|
|
|
1,153 |
|
|
|
2,576 |
|
|
|
385 |
|
|
|
— |
|
|
|
6,763 |
|
Amortization
of intangibles
|
|
|
17 |
|
|
|
69 |
|
|
|
86 |
|
|
|
7 |
|
|
|
12 |
|
|
|
19 |
|
|
|
1 |
|
|
|
— |
|
|
|
106 |
|
Interest
expense
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,252 |
|
|
|
2,252 |
|
Automotive
interest income
|
|
|
87 |
|
|
|
— |
|
|
|
87 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,626 |
|
|
|
1,713 |
|
Cash
outflow for capital expenditures
|
|
|
2,825 |
|
|
|
183 |
|
|
|
3,008 |
|
|
|
1,366 |
|
|
|
1,269 |
|
|
|
2,635 |
|
|
|
328 |
|
|
|
— |
|
|
|
5,971 |
|
Unconsolidated
affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in net income/(loss)
|
|
|
155 |
|
|
|
— |
|
|
|
155 |
|
|
|
4 |
|
|
|
— |
|
|
|
4 |
|
|
|
230 |
|
|
|
— |
|
|
|
389 |
|
Total
assets at year-end
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
118,489 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales/Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
customer
|
|
$ |
69,367 |
|
|
$ |
5,697 |
|
|
$ |
75,064 |
|
|
$ |
30,394 |
|
|
$ |
30,028 |
|
|
$ |
60,422 |
|
|
$ |
7,763 |
|
|
$ |
— |
|
|
$ |
143,249 |
|
Intersegment
|
|
|
393 |
|
|
|
— |
|
|
|
393 |
|
|
|
878 |
|
|
|
233 |
|
|
|
1,111 |
|
|
|
4 |
|
|
|
— |
|
|
|
1,508 |
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
before income taxes
|
|
|
(15,992 |
) |
|
|
661 |
|
|
|
(15,331 |
) |
|
|
371 |
|
|
|
(2,322 |
) |
|
|
(1,951 |
) |
|
|
(5 |
) |
|
|
247 |
|
|
|
(17,040 |
) |
Other
disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and special tools amortization
|
|
|
6,753 |
|
|
|
77 |
|
|
|
6,830 |
|
|
|
1,289 |
|
|
|
2,716 |
|
|
|
4,005 |
|
|
|
323 |
|
|
|
— |
|
|
|
11,158 |
|
Amortization
of intangibles
|
|
|
7 |
|
|
|
1 |
|
|
|
8 |
|
|
|
6 |
|
|
|
51 |
|
|
|
57 |
|
|
|
1 |
|
|
|
— |
|
|
|
66 |
|
Interest
expense
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
995 |
|
|
|
995 |
|
Automotive
interest income
|
|
|
75 |
|
|
|
— |
|
|
|
75 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,334 |
|
|
|
1,409 |
|
Cash
outflow for capital expenditures
|
|
|
3,626 |
|
|
|
122 |
|
|
|
3,748 |
|
|
|
1,404 |
|
|
|
1,375 |
|
|
|
2,779 |
|
|
|
282 |
|
|
|
— |
|
|
|
6,809 |
|
Unconsolidated
affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in net income/(loss)
|
|
|
138 |
|
|
|
— |
|
|
|
138 |
|
|
|
(3 |
) |
|
|
— |
|
|
|
(3 |
) |
|
|
286 |
|
|
|
— |
|
|
|
421 |
|
Total
assets at year-end
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
122,634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales/Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
customer
|
|
$ |
80,601 |
|
|
$ |
4,366 |
|
|
$ |
84,967 |
|
|
$ |
29,918 |
|
|
$ |
30,283 |
|
|
$ |
60,201 |
|
|
$ |
8,245 |
|
|
$ |
— |
|
|
$ |
153,413 |
|
Intersegment
|
|
|
3,398 |
|
|
|
— |
|
|
|
3,398 |
|
|
|
1,613 |
|
|
|
541 |
|
|
|
2,154 |
|
|
|
131 |
|
|
|
— |
|
|
|
5,683 |
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
before income taxes
|
|
|
(2,469 |
) |
|
|
399 |
|
|
|
(2,070 |
) |
|
|
(437 |
) |
|
|
(1,634 |
) |
|
|
(2,071 |
) |
|
|
297 |
|
|
|
(55 |
) |
|
|
(3,899 |
) |
Other
disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and special tools amortization
|
|
|
3,745 |
|
|
|
68 |
|
|
|
3,813 |
|
|
|
1,285 |
|
|
|
2,764 |
|
|
|
4,049 |
|
|
|
294 |
|
|
|
— |
|
|
|
8,156 |
|
Amortization
of intangibles
|
|
|
28 |
|
|
|
1 |
|
|
|
29 |
|
|
|
7 |
|
|
|
12 |
|
|
|
19 |
|
|
|
1 |
|
|
|
— |
|
|
|
49 |
|
Interest
expense
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,220 |
|
|
|
1,220 |
|
Automotive
interest income
|
|
|
46 |
|
|
|
— |
|
|
|
46 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,139 |
|
|
|
1,185 |
|
Cash
outflow for capital expenditures
|
|
|
3,874 |
|
|
|
84 |
|
|
|
3,958 |
|
|
|
1,232 |
|
|
|
1,673 |
|
|
|
2,905 |
|
|
|
259 |
|
|
|
— |
|
|
|
7,122 |
|
Unconsolidated
affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in net income/(loss)
|
|
|
92 |
|
|
|
— |
|
|
|
92 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
193 |
|
|
|
— |
|
|
|
285 |
|
Total
assets at year-end
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113,825 |
|
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
25. SEGMENT INFORMATION (Continued)
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Services Sector (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
|
|
|
|
|
|
Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales/Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
customer
|
|
$ |
17,772 |
|
|
$ |
— |
|
|
$ |
304 |
|
|
$ |
— |
|
|
$ |
18,076 |
|
|
$ |
— |
|
|
$ |
172,455 |
|
Intersegment
|
|
|
866 |
|
|
|
— |
|
|
|
29 |
|
|
|
(7 |
) |
|
|
888 |
|
|
|
(2,394 |
) |
|
|
— |
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
before income taxes
|
|
|
1,215 |
|
|
|
— |
|
|
|
9 |
|
|
|
— |
|
|
|
1,224 |
|
|
|
— |
|
|
|
(3,746 |
) |
Other
disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and special tools amortization
|
|
|
6,257 |
|
|
|
— |
|
|
|
32 |
|
|
|
— |
|
|
|
6,289 |
|
|
|
— |
|
|
|
13,052 |
|
Amortization
of intangibles
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
106 |
|
Interest
expense
|
|
|
8,630 |
|
|
|
— |
|
|
|
45 |
|
|
|
— |
|
|
|
8,675 |
|
|
|
— |
|
|
|
10,927 |
|
Automotive
interest income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,713 |
|
Cash
outflow for capital expenditures
|
|
|
2 |
|
|
|
— |
|
|
|
49 |
|
|
|
— |
|
|
|
51 |
|
|
|
— |
|
|
|
6,022 |
|
Unconsolidated
affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in net income/(loss)
|
|
|
14 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
14 |
|
|
|
— |
|
|
|
403 |
|
Total
assets at year-end
|
|
|
169,023 |
|
|
|
— |
|
|
|
10,520 |
|
|
|
(10,282 |
) |
|
|
169,261 |
|
|
|
(2,023 |
) |
|
|
285,727 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales/Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
customer
|
|
$ |
16,553 |
|
|
$ |
— |
|
|
$ |
263 |
|
|
$ |
— |
|
|
$ |
16,816 |
|
|
$ |
— |
|
|
$ |
160,065 |
|
Intersegment
|
|
|
694 |
|
|
|
— |
|
|
|
31 |
|
|
|
(7 |
) |
|
|
718 |
|
|
|
(2,226 |
) |
|
|
— |
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
before income taxes
|
|
|
1,953 |
|
|
|
— |
|
|
|
13 |
|
|
|
— |
|
|
|
1,966 |
|
|
|
— |
|
|
|
(15,074 |
) |
Other
disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and special tools amortization
|
|
|
5,262 |
|
|
|
— |
|
|
|
33 |
|
|
|
— |
|
|
|
5,295 |
|
|
|
— |
|
|
|
16,453 |
|
Amortization
of intangibles
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
66 |
|
Interest
expense
|
|
|
7,818 |
|
|
|
— |
|
|
|
(30 |
) |
|
|
— |
|
|
|
7,788 |
|
|
|
— |
|
|
|
8,783 |
|
Automotive
interest income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,409 |
|
Cash
outflow for capital expenditures
|
|
|
25 |
|
|
|
— |
|
|
|
14 |
|
|
|
— |
|
|
|
39 |
|
|
|
— |
|
|
|
6,848 |
|
Unconsolidated
affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in net income/(loss)
|
|
|
7 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
7 |
|
|
|
— |
|
|
|
428 |
|
Total
assets at year-end
|
|
|
167,973 |
|
|
|
— |
|
|
|
10,554 |
|
|
|
(8,836 |
) |
|
|
169,691 |
|
|
|
(1,467 |
) |
|
|
290,858 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales/Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
customer
|
|
$ |
15,883 |
|
|
$ |
7,403 |
|
|
$ |
136 |
|
|
$ |
— |
|
|
$ |
23,422 |
|
|
$ |
— |
|
|
$ |
176,835 |
|
Intersegment
|
|
|
597 |
|
|
|
20 |
|
|
|
55 |
|
|
|
(47 |
) |
|
|
625 |
|
|
|
(6,308 |
) |
|
|
— |
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
before income taxes
|
|
|
2,923 |
|
|
|
1,980 |
|
|
|
50 |
|
|
|
— |
|
|
|
4,953 |
|
|
|
— |
|
|
|
1,054 |
|
Other
disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and special tools amortization
|
|
|
4,507 |
|
|
|
1,310 |
|
|
|
37 |
|
|
|
— |
|
|
|
5,854 |
|
|
|
— |
|
|
|
14,010 |
|
Amortization
of intangibles
|
|
|
— |
|
|
|
6 |
|
|
|
— |
|
|
|
— |
|
|
|
6 |
|
|
|
— |
|
|
|
55 |
|
Interest
expense
|
|
|
6,616 |
|
|
|
511 |
|
|
|
70 |
|
|
|
— |
|
|
|
7,197 |
|
|
|
— |
|
|
|
8,417 |
|
Automotive
interest income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,185 |
|
Cash
outflow for capital expenditures
|
|
|
48 |
|
|
|
335 |
|
|
|
11 |
|
|
|
— |
|
|
|
394 |
|
|
|
— |
|
|
|
7,516 |
|
Unconsolidated
affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in net income/(loss)
|
|
|
11 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
11 |
|
|
|
— |
|
|
|
296 |
|
Total
assets at year-end
|
|
|
162,262 |
|
|
|
— |
|
|
|
10,328 |
|
|
|
(10,396 |
) |
|
|
162,194 |
|
|
|
(83 |
) |
|
|
275,936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
__________
(a)
|
Financial
Services sector's interest income is recorded as Financial Services
revenues.
|
(b)
|
Includes
intersector transactions occurring in the ordinary course of
business.
|
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
26. GEOGRAPHIC INFORMATION (in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$ |
80,874 |
|
|
$ |
37,355 |
|
|
$ |
81,096 |
|
|
$ |
36,094 |
|
|
$ |
96,643 |
|
|
$ |
37,671 |
|
Canada
|
|
|
9,363 |
|
|
|
10,311 |
|
|
|
8,075 |
|
|
|
9,279 |
|
|
|
7,939 |
|
|
|
8,061 |
|
Mexico
|
|
|
2,826 |
|
|
|
1,052 |
|
|
|
3,461 |
|
|
|
992 |
|
|
|
3,374 |
|
|
|
1,057 |
|
Total
North America
|
|
|
93,063 |
|
|
|
48,718 |
|
|
|
92,632 |
|
|
|
46,365 |
|
|
|
107,956 |
|
|
|
46,789 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
Kingdom
|
|
|
17,277 |
|
|
|
3,559 |
|
|
|
15,850 |
|
|
|
3,544 |
|
|
|
15,264 |
|
|
|
3,132 |
|
Germany
|
|
|
8,381 |
|
|
|
5,484 |
|
|
|
7,006 |
|
|
|
4,974 |
|
|
|
7,642 |
|
|
|
4,518 |
|
Sweden
|
|
|
5,240 |
|
|
|
4,413 |
|
|
|
4,290 |
|
|
|
4,241 |
|
|
|
4,412 |
|
|
|
3,399 |
|
Other
|
|
|
29,146 |
|
|
|
3,409 |
|
|
|
22,934 |
|
|
|
3,349 |
|
|
|
23,201 |
|
|
|
3,136 |
|
Total
Europe
|
|
|
60,044 |
|
|
|
16,865 |
|
|
|
50,080 |
|
|
|
16,108 |
|
|
|
50,519 |
|
|
|
14,185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
Other
|
|
|
19,348 |
|
|
|
3,911 |
|
|
|
17,353 |
|
|
|
3,369 |
|
|
|
18,360 |
|
|
|
3,148 |
|
Total
|
|
$ |
172,455 |
|
|
$ |
69,494 |
|
|
$ |
160,065 |
|
|
$ |
65,842 |
|
|
$ |
176,835 |
|
|
$ |
64,122 |
|
NOTE
27. SUMMARY QUARTERLY FINANCIAL DATA (unaudited)
|
|
|
|
|
|
|
(In
millions, except per share amounts)
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
38,630 |
|
|
$ |
40,106 |
|
|
$ |
36,270 |
|
|
$ |
39,373 |
|
|
$ |
36,961 |
|
|
$ |
37,811 |
|
|
$ |
32,541 |
|
|
$ |
35,936 |
|
Operating
income/(loss)
|
|
|
(159 |
) |
|
|
700 |
|
|
|
16 |
|
|
|
(4,825 |
) |
|
|
(2,670 |
) |
|
|
(1,262 |
) |
|
|
(7,802 |
) |
|
|
(6,210 |
) |
Income/(Loss)
before income taxes
|
|
|
(338 |
) |
|
|
821 |
|
|
|
(712 |
) |
|
|
(4,741 |
) |
|
|
(2,723 |
) |
|
|
(1,093 |
) |
|
|
(7,114 |
) |
|
|
(6,110 |
) |
Financial
Services Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
4,389 |
|
|
|
4,136 |
|
|
|
4,808 |
|
|
|
4,743 |
|
|
|
3,828 |
|
|
|
4,067 |
|
|
|
4,554 |
|
|
|
4,367 |
|
Income/(Loss)
before income taxes
|
|
|
294 |
|
|
|
105 |
|
|
|
556 |
|
|
|
269 |
|
|
|
375 |
|
|
|
425 |
|
|
|
750 |
|
|
|
416 |
|
Total
Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
before income taxes
|
|
|
(44 |
) |
|
|
926 |
|
|
|
(156 |
) |
|
|
(4,472 |
) |
|
|
(2,348 |
) |
|
|
(668 |
) |
|
|
(6,364 |
) |
|
|
(5,694 |
) |
Income/(Loss)
before cumulative effects of changes in accounting
principles
|
|
|
(282 |
) |
|
|
750 |
|
|
|
(380 |
) |
|
|
(2,811 |
) |
|
|
(1,423 |
) |
|
|
(317 |
) |
|
|
(5,248 |
) |
|
|
(5,625 |
) |
Net
income/(loss)
|
|
|
(282 |
) |
|
|
750 |
|
|
|
(380 |
) |
|
|
(2,811 |
) |
|
|
(1,423 |
) |
|
|
(317 |
) |
|
|
(5,248 |
) |
|
|
(5,625 |
) |
Common
and Class B per share from income/(loss) before cumulative effects of
changes in accounting principles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
(0.15 |
) |
|
$ |
0.40 |
|
|
$ |
(0.19 |
) |
|
$ |
(1.33 |
) |
|
$ |
(0.76 |
) |
|
$ |
(0.17 |
) |
|
$ |
(2.79 |
) |
|
$ |
(2.98 |
) |
Diluted
|
|
|
(0.15 |
) |
|
|
0.31 |
|
|
|
(0.19 |
) |
|
|
(1.33 |
) |
|
|
(0.76 |
) |
|
|
(0.17 |
) |
|
|
(2.79 |
) |
|
|
(2.98 |
) |
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
28. COMMITMENTS AND CONTINGENCIES
Lease
Commitments
We lease
land, buildings and equipment under agreements that expire in various
years. Minimum rental commitments under non-cancellable operating
leases were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
sector
|
|
$ |
471 |
|
|
$ |
347 |
|
|
$ |
236 |
|
|
$ |
137 |
|
|
$ |
76 |
|
|
$ |
276 |
|
|
$ |
1,543 |
|
Financial
Services sector
|
|
|
128 |
|
|
|
110 |
|
|
|
86 |
|
|
|
52 |
|
|
|
35 |
|
|
|
90 |
|
|
|
501 |
|
Rental
expense was as follows (in billions):
|
|
|
|
|
|
|
|
|
|
Rental
expense
|
|
$ |
1.0 |
|
|
$ |
1.0 |
|
|
$ |
1.5 |
|
Guarantees
The fair
values of guarantees and indemnifications during 2007 and 2006 are recorded in
the financial statements. At December 31, 2007 and 2006,
the following guarantees and indemnifications were issued and
outstanding:
Guarantees related to affiliates and
third parties. We guarantee debt and lease obligations of
certain joint ventures, as well as certain financial obligations of outside
third parties to support business and economic growth. Expiration
dates vary, and guarantees will terminate on payment and/or cancellation of the
obligation. A payment by us would be triggered by failure of the
guaranteed party to fulfill its obligation covered by the
guarantee. In some circumstances, we are entitled to recover from the
third party amounts paid by us under the guarantee. However, our
ability to enforce these rights is sometimes stayed until the guaranteed party
is paid in full, and may be limited in the event of insolvency of the third
party or other circumstances. The maximum potential payments under
these guarantees total $7.6 million for 2007 and $100 million for
2006, the majority of which relates to the Automotive sector. The
decrease in potential payments is due primarily to the expiration of guarantees
related to a joint venture.
In
December 2005, we completed the sale of Hertz. As part of this
transaction, we provided cash-collateralized letters of credit in an aggregate
amount of $200 million to support the asset-backed portion of the buyer's
financing for the transaction. Our commitment to provide the letters
of credit expires no later than December 21, 2011 and supports the
payment obligations of Hertz Vehicle Finance LLC under one or more series of
asset-backed notes ("asset-backed notes"). The letters of credit can
be drawn upon on any date funds allocated to pay interest on the asset-backed
notes are insufficient to pay scheduled interest payments, principal amounts due
on the legal final maturity date, or when the balance of assets supporting the
asset-backed notes is less than the outstanding balance of the asset-backed
notes. The carrying value of our deferred gain related to the letters
of credit was $18 million for 2007 and $23 million for 2006, which
represents the estimated fair value of our guarantee.
In 1996,
we issued $500 million of 7.25% Notes due
October 1, 2008. In 1999, we entered into a de-recognition
transaction to defease our obligation as primary obligor with respect to the
principal of these notes. As part of this transaction, we placed
certain financial assets into an escrow trust for the benefit of the
noteholders, and the trust became the primary obligor with respect to the
principal (we became secondarily liable for the entire principal
amount).
We also
have guarantees outstanding associated with a subsidiary trust, Ford Motor
Company Capital Trust II. On August 3, 2007, we
completed a conversion offer related to our Trust Preferred
Securities. For further discussion of our Trust Preferred Securities,
see Notes 16 and 21.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE 28. COMMITMENTS AND
CONTINGENCIES (Continued)
Indemnifications. In
the ordinary course of business, we execute contracts involving indemnifications
standard in the industry and indemnifications specific to a transaction, such as
the sale of a business. These indemnifications might include claims
against any of the following: environmental, tax, and shareholder matters;
intellectual
property rights; power generation contracts; governmental regulations and
employment-related matters; dealers, supplier, and other commercial contractual
relationships; and financial matters, such as
securitizations. Performance under these indemnities would generally
be triggered by a breach of terms of the contract or by a third-party
claim. We regularly evaluate the probability of having to incur costs
associated with these indemnifications and have accrued for expected losses that
are probable. We are party to numerous indemnifications and many of
these indemnities do not limit potential payment; therefore, we are unable to
estimate a maximum amount of potential future payments that could result from
claims made under these indemnities.
Warranty
Included
in the warranty cost accruals are costs for basic warranty coverages on vehicles
sold. Additional service actions, such as product recalls and other
customer service actions, are not included in the warranty reconciliation below,
but are also accrued for at the time of sale. Estimates for warranty
costs are made based primarily on historical warranty claim
experience. The following is a tabular reconciliation of the product
warranty accruals (in millions):
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
5,235 |
|
|
$ |
5,849 |
|
Payments
made during the period
|
|
|
(3,287 |
) |
|
|
(3,508 |
) |
Changes
in accrual related to warranties issued during the period
|
|
|
2,894 |
|
|
|
3,005 |
|
Changes
in accrual related to pre-existing warranties
|
|
|
(232 |
) |
|
|
(280 |
) |
Foreign
currency translation and other
|
|
|
252 |
|
|
|
169 |
|
Ending
balance
|
|
$ |
4,862 |
|
|
$ |
5,235 |
|
The
warranty reconciliation excludes divested and held-for-sale operations as of
2007 and 2006. For further discussion of these amounts, see Note
20.
Litigation
and Claims
Various
legal actions, governmental investigations and proceedings and claims are
pending or may be instituted or asserted in the future against us, including but
not limited to those arising out of alleged defects in our products;
governmental regulations relating to safety, emissions and fuel economy;
financial services; employment-related matters; dealer, supplier and other
contractual relationships; intellectual property rights; product warranties;
environmental matters; shareholder or investor matters; and financial reporting
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, and the outcome of individual litigated
matters is not predictable with assurance. We have established
accruals for certain of the matters discussed in the foregoing paragraph where
losses are deemed probable and reasonably estimable. It is reasonably
possible, however, that some of the matters discussed in the foregoing paragraph
for which accruals have not been established could be decided unfavorably to us
and could require us to pay damages or make other expenditures in amounts or a
range of amounts that cannot be estimated at
December 31, 2007. We do not reasonably expect, based on
our analysis, that such matters would have a material effect on future financial
statements for a particular year, although such an outcome is
possible.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE 28. COMMITMENTS AND
CONTINGENCIES (Continued)
Conditional
Asset Retirement Obligations
On
December 31, 2005, we adopted FASB Interpretation No. 47, Accounting for Conditional Asset
Retirement Obligations ("FIN 47"). In accordance with FIN 47,
we accrue for costs related to legal obligations to perform certain activities
in connection with the retirement, disposal or abandonment of assets for which
the fair value of the liability can be reasonably estimated.
We have
identified asbestos abatement and PCB removal as conditional asset retirement
obligations. Asbestos abatement was estimated using site-specific
surveys where available and a per/square foot estimate where surveys were
unavailable. PCB removal costs were based on historical removal costs
per transformer and applied to transformers identified by a PCB transformer
global survey we conducted.
Other
conditional asset retirement obligations exist, including regulated
substances. These costs, however, are not estimable until a
triggering event occurs (e.g., plant closing) due to the absence of historical
cost, range of potential settlement dates and variability among
plants. Once a triggering event occurs and additional regulated
substance asset retirement obligations can be estimated, those costs are
included as part of the liability.
Upon
adoption of FIN 47, the full amount of our estimate of conditional asset
retirement obligations related to asbestos abatement and PCB removal was
expensed, as an after-tax charge of $251 million shown in Cumulative effects of changes in
accounting principles at December 31, 2005. The
liability for conditional asset retirement obligations was $390 million and $399
million at December 31, 2007 and 2006, respectively.
Report
of Independent Registered Public Accounting Firm
To the
Board of Directors and Stockholders
Ford
Motor Company:
In our
opinion, the consolidated financial statements listed in the index appearing
under Item 15(a)(1) present fairly, in all material respects, the financial
position of Ford Motor Company and its subsidiaries at December 31, 2007 and
December 31, 2006, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2007 in
conformity with accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement
schedule listed in the index appearing under Item 15(a)(2) presents fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. Also
in our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2007, based on
criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company's management is responsible
for these financial statements and financial statement schedule, for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in
Management's Report on Internal Control Over Financial Reporting appearing under
Item 9A. Our responsibility is to express opinions on these financial
statements, on the financial statement schedule, and on the Company's internal
control over financial reporting based on our integrated audits. We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material
respects. Our audits of the financial statements included examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our
audits provide a reasonable basis for our opinions.
Our
audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying sector
balance sheets and the related sector statements of income and of cash flows are
presented for purposes of additional analysis and are not a required part of the
basic financial statements. Such information has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, are fairly stated in all material respects in relation to
the basic financial statements taken as a whole.
As
discussed in Note 19 to the consolidated financial statements, the Company
changed the manner in which it accounts for uncertain tax positions in
2007. As discussed in Note 24, the Company changed the manner in
which it accounts for defined benefit pension and other postretirement plans
and, as discussed in Note 2, the Company changed the timing of its annual
goodwill and other intangible assets impairment testing and its amortization
method for special tools in 2006. As discussed in Note 28, the
Company changed the manner in which it accounts for conditional asset retirement
obligations in 2005.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of
the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and
(iii) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/s/
PricewaterhouseCoopers LLP
PricewaterhouseCoopers
LLP
Detroit,
Michigan
February
27, 2008
FORD
MOTOR COMPANY AND SUBSIDIARIES
Schedule
II — Valuation and Qualifying Accounts
(in
millions)
|
|
Balance
at
Beginning
of Period
|
|
|
Charged
to
Costs
and
Expenses
|
|
|
Deductions
|
|
|
Balance
at
End of
Period
|
|
For
the Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances
deducted from assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for credit losses
|
|
$ |
1,121 |
|
|
$ |
592 |
|
|
$ |
611 |
(a) |
|
$ |
1,102 |
|
Allowance
for doubtful receivables (b)
|
|
|
173 |
|
|
|
5 |
|
|
|
(19 |
)
(c) |
|
|
197 |
|
Inventories
(primarily service part obsolescence) (b)
|
|
|
353 |
|
|
|
(40 |
)
(e) |
|
|
— |
|
|
|
313 |
|
Allowance
for deferred tax assets (f)
|
|
|
7,865 |
(i) |
|
|
695 |
(g) |
|
|
— |
|
|
|
8,560 |
|
Total
allowances deducted from assets
|
|
$ |
9,512 |
|
|
$ |
1,252 |
|
|
$ |
592 |
|
|
$ |
10,172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances
deducted from assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for credit losses
|
|
$ |
1,594 |
|
|
$ |
100 |
|
|
$ |
573 |
(a) |
|
$ |
1,121 |
|
Allowance
for doubtful receivables (b)
|
|
|
294 |
|
|
|
14 |
|
|
|
135 |
(c) |
|
|
173 |
(d) |
Inventories
(primarily service part obsolescence) (b)
|
|
|
303 |
|
|
|
50 |
(e) |
|
|
— |
|
|
|
353 |
|
Allowance
for deferred tax assets (f)
|
|
|
252 |
|
|
|
6,928 |
(g) |
|
|
— |
|
|
|
7,180 |
|
Total
allowances deducted from assets
|
|
$ |
2,443 |
|
|
$ |
7,092 |
|
|
$ |
708 |
|
|
$ |
8.827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Year Ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances
deducted from assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for credit losses
|
|
$ |
2,471 |
|
|
$ |
167 |
|
|
$ |
1,044 |
(a) |
|
$ |
1,594 |
|
Allowance
for doubtful receivables (b)
|
|
|
944 |
|
|
|
527 |
(h) |
|
|
1,177 |
(c) |
|
|
294 |
(d) |
Inventories
(primarily service part obsolescence) (b)
|
|
|
256 |
|
|
|
47 |
(e) |
|
|
— |
|
|
|
303 |
|
Allowance
for deferred tax assets (f)
|
|
|
172 |
|
|
|
80 |
|
|
|
— |
|
|
|
252 |
|
Total
allowances deducted from assets
|
|
$ |
3,843 |
|
|
$ |
821 |
|
|
$ |
2.221 |
|
|
$ |
2,443 |
|
__________
(a)
|
Finance
receivables and lease investments deemed to be uncollectible and other
changes, principally amounts related to finance receivables sold and
translation adjustments.
|
(b)
|
Excludes
Jaguar and Land Rover.
|
(c)
|
Accounts and
notes receivable deemed to be uncollectible as well as translation
adjustments. Included in 2005 is a write-off of Visteon-related
receivables of $1.1 billion.
|
(d)
|
Includes
non-current Visteon-related receivables of $1 million and $19 million at
December 31, 2006 and 2005, respectively, which are netted against Other
assets – Automotive on the sector balance
sheet.
|
(e)
|
Net
change in inventory allowances.
|
(f)
|
Includes
Jaguar and Land Rover.
|
(g)
|
Includes
$156 million and
$2.7 billion in 2007 and 2006, respectively, of allowance for
deferred tax assets through Accumulated other
comprehensive income/(loss) and $539 million and
$4.2 billion
in 2007 and 2006, respectively, of allowance for deferred tax assets
through the income statement.
|
(h)
|
Includes
Visteon-related increases of $500 million in
2005.
|
(i)
|
Includes
$685 million
increase to balance at January 1, 2007 due to the adoption of FIN
48.
|