form10q.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-Q
S
|
QUARTERLY REPORT PURSUANT TO
SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF
1934
|
For
the quarterly period ended June 30,
2008
£
|
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)
|
(IRS
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)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of "large accelerated filer," "accelerated
filer" and "smaller reporting company in Rule 12b-2 of the Exchange
Act.
Large accelerated filer
S
|
Accelerated filer £
|
Non-accelerated filer
£
|
Smaller reporting company
£
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
As of
July 29, 2008, the registrant had outstanding 2,190,498,174 shares of Common Stock
and 70,852,076 shares of Class B Stock.
Exhibit
index located on page number 58.
PART
I. FINANCIAL INFORMATION
Item
1. Financial
Statements
FORD
MOTOR COMPANY AND SUBSIDIARIES
CONSOLIDATED
STATEMENT OF INCOME
For
the Periods Ended June 30, 2008 and 2007
(in
millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Sales
and revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
sales
|
|
$ |
37,057 |
|
|
$ |
40,106 |
|
|
$ |
76,174 |
|
|
$ |
78,736 |
|
Financial
Services revenues
|
|
|
4,455 |
|
|
|
4,136 |
|
|
|
8,866 |
|
|
|
8,525 |
|
Total
sales and revenues
|
|
|
41,512 |
|
|
|
44,242 |
|
|
|
85,040 |
|
|
|
87,261 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
cost of sales
|
|
|
39,995 |
|
|
|
36,182 |
|
|
|
75,451 |
|
|
|
70,897 |
|
Selling,
administrative and other expenses
|
|
|
7,305 |
|
|
|
4,952 |
|
|
|
12,400 |
|
|
|
10,924 |
|
Interest
expense
|
|
|
2,412 |
|
|
|
2,759 |
|
|
|
4,957 |
|
|
|
5,477 |
|
Financial
Services provision for credit and insurance losses
|
|
|
598 |
|
|
|
121 |
|
|
|
942 |
|
|
|
180 |
|
Total
costs and expenses
|
|
|
50,310 |
|
|
|
44,014 |
|
|
|
93,750 |
|
|
|
87,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
interest income and other non-operating income/(expense),
net
|
|
|
(192 |
) |
|
|
559 |
|
|
|
(100 |
) |
|
|
888 |
|
Automotive
equity in net income/(loss) of affiliated companies
|
|
|
(40 |
) |
|
|
139 |
|
|
|
96 |
|
|
|
211 |
|
Income/(Loss)
before income taxes
|
|
|
(9,030 |
) |
|
|
926 |
|
|
|
(8,714 |
) |
|
|
882 |
|
Provision
for/(Benefit from) income taxes
|
|
|
(444 |
) |
|
|
123 |
|
|
|
(349 |
) |
|
|
305 |
|
Income/(Loss)
before minority interests
|
|
|
(8,586 |
) |
|
|
803 |
|
|
|
(8,365 |
) |
|
|
577 |
|
Minority
interests in net income/(loss) of subsidiaries
|
|
|
89 |
|
|
|
85 |
|
|
|
211 |
|
|
|
143 |
|
Income/(Loss)
from continuing operations
|
|
|
(8,675 |
) |
|
|
718 |
|
|
|
(8,576 |
) |
|
|
434 |
|
Income/(Loss)
from discontinued operations (Note 8)
|
|
|
8 |
|
|
|
32 |
|
|
|
9 |
|
|
|
34 |
|
Net
income/(loss)
|
|
$ |
(8,667 |
) |
|
$ |
750 |
|
|
$ |
(8,567 |
) |
|
$ |
468 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMOUNTS
PER SHARE OF COMMON AND CLASS B STOCK (Note 9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
income/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
from continuing operations
|
|
$ |
(3.88 |
) |
|
$ |
0.38 |
|
|
$ |
(3.87 |
) |
|
$ |
0.23 |
|
Income/(Loss)
from discontinued operations
|
|
|
— |
|
|
|
0.02 |
|
|
|
— |
|
|
|
0.02 |
|
Net
income/(loss)
|
|
$ |
(3.88 |
) |
|
$ |
0.40 |
|
|
$ |
(3.87 |
) |
|
$ |
0.25 |
|
Diluted
income/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
from continuing operations
|
|
$ |
(3.88 |
) |
|
$ |
0.30 |
|
|
$ |
(3.87 |
) |
|
$ |
0.21 |
|
Income/(Loss)
from discontinued operations
|
|
|
— |
|
|
|
0.01 |
|
|
|
— |
|
|
|
0.01 |
|
Net
income/(loss)
|
|
$ |
(3.88 |
) |
|
$ |
0.31 |
|
|
$ |
(3.87 |
) |
|
$ |
0.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
The
accompanying notes are part of the financial statements
Item
1. Financial Statements (Continued)
FORD
MOTOR COMPANY AND SUBSIDIARIES
SECTOR
STATEMENT OF INCOME
For
the Periods Ended June 30, 2008 and 2007
(in
millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
AUTOMOTIVE
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
37,057 |
|
|
$ |
40,106 |
|
|
$ |
76,174 |
|
|
$ |
78,736 |
|
Costs
and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
39,995 |
|
|
|
36,182 |
|
|
|
75,451 |
|
|
|
70,897 |
|
Selling,
administrative and other expenses
|
|
|
2,955 |
|
|
|
3,224 |
|
|
|
6,064 |
|
|
|
7,298 |
|
Total
costs and expenses
|
|
|
42,950 |
|
|
|
39,406 |
|
|
|
81,515 |
|
|
|
78,195 |
|
Operating
income/(loss)
|
|
|
(5,893 |
) |
|
|
700 |
|
|
|
(5,341 |
) |
|
|
541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
485 |
|
|
|
577 |
|
|
|
1,013 |
|
|
|
1,157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income and other non-operating income/(expense), net
|
|
|
(192 |
) |
|
|
559 |
|
|
|
(100 |
) |
|
|
888 |
|
Equity
in net income/(loss) of affiliated companies
|
|
|
(40 |
) |
|
|
139 |
|
|
|
96 |
|
|
|
211 |
|
Income/(Loss)
before income taxes — Automotive
|
|
|
(6,610 |
) |
|
|
821 |
|
|
|
(6,358 |
) |
|
|
483 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCIAL
SERVICES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
4,455 |
|
|
|
4,136 |
|
|
|
8,866 |
|
|
|
8,525 |
|
Costs
and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
1,927 |
|
|
|
2,182 |
|
|
|
3,944 |
|
|
|
4,320 |
|
Depreciation
|
|
|
4,112 |
|
|
|
1,479 |
|
|
|
5,948 |
|
|
|
2,979 |
|
Operating
and other expenses
|
|
|
238 |
|
|
|
249 |
|
|
|
388 |
|
|
|
647 |
|
Provision
for credit and insurance losses
|
|
|
598 |
|
|
|
121 |
|
|
|
942 |
|
|
|
180 |
|
Total
costs and expenses
|
|
|
6,875 |
|
|
|
4,031 |
|
|
|
11,222 |
|
|
|
8,126 |
|
Income/(Loss)
before income taxes — Financial Services
|
|
|
(2,420 |
) |
|
|
105 |
|
|
|
(2,356 |
) |
|
|
399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
COMPANY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
before income taxes
|
|
|
(9,030 |
) |
|
|
926 |
|
|
|
(8,714 |
) |
|
|
882 |
|
Provision
for/(Benefit from) income taxes
|
|
|
(444 |
) |
|
|
123 |
|
|
|
(349 |
) |
|
|
305 |
|
Income/(Loss)
before minority interests
|
|
|
(8,586 |
) |
|
|
803 |
|
|
|
(8,365 |
) |
|
|
577 |
|
Minority
interests in net income/(loss) of subsidiaries
|
|
|
89 |
|
|
|
85 |
|
|
|
211 |
|
|
|
143 |
|
Income/(Loss)
from continuing operations
|
|
|
(8,675 |
) |
|
|
718 |
|
|
|
(8,576 |
) |
|
|
434 |
|
Income/(Loss)
from discontinued operations (Note 8)
|
|
|
8 |
|
|
|
32 |
|
|
|
9 |
|
|
|
34 |
|
Net
income/(loss)
|
|
$ |
(8,667 |
) |
|
$ |
750 |
|
|
$ |
(8,567 |
) |
|
$ |
468 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMOUNTS
PER SHARE OF COMMON AND CLASS B STOCK (Note 9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
income/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
from continuing operations
|
|
$ |
(3.88 |
) |
|
$ |
0.38 |
|
|
$ |
(3.87 |
) |
|
$ |
0.23 |
|
Income/(Loss)
from discontinued operations
|
|
|
— |
|
|
|
0.02 |
|
|
|
— |
|
|
|
0.02 |
|
Net
income/(loss)
|
|
$ |
(3.88 |
) |
|
$ |
0.40 |
|
|
$ |
(3.87 |
) |
|
$ |
0.25 |
|
Diluted
income/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
from continuing operations
|
|
$ |
(3.88 |
) |
|
$ |
0.30 |
|
|
$ |
(3.87 |
) |
|
$ |
0.21 |
|
Income/(Loss)
from discontinued operations
|
|
|
— |
|
|
|
0.01 |
|
|
|
— |
|
|
|
0.01 |
|
Net
income/(loss)
|
|
$ |
(3.88 |
) |
|
$ |
0.31 |
|
|
$ |
(3.87 |
) |
|
$ |
0.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
The
accompanying notes are part of the financial statements
Item
1. Financial Statements (Continued)
FORD
MOTOR COMPANY AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEET
(in
millions)
|
|
June 30,
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
30,066 |
|
|
$ |
35,283 |
|
Marketable
securities
|
|
|
12,525 |
|
|
|
5,248 |
|
Loaned
securities
|
|
|
7,347 |
|
|
|
10,267 |
|
Finance
receivables, net
|
|
|
106,928 |
|
|
|
109,053 |
|
Other
receivables, net
|
|
|
8,964 |
|
|
|
8,210 |
|
Net
investment in operating leases
|
|
|
31,074 |
|
|
|
33,255 |
|
Retained
interest in sold receivables
|
|
|
380 |
|
|
|
653 |
|
Inventories (Note
2)
|
|
|
12,987 |
|
|
|
10,121 |
|
Equity
in net assets of affiliated companies
|
|
|
3,189 |
|
|
|
2,853 |
|
Net
property
|
|
|
32,149 |
|
|
|
36,239 |
|
Deferred
income taxes
|
|
|
3,251 |
|
|
|
3,500 |
|
Goodwill
and other net intangible assets (Note 4)
|
|
|
2,044 |
|
|
|
2,069 |
|
Assets
of discontinued/held-for-sale operations (Note 8)
|
|
|
28 |
|
|
|
7,537 |
|
Other
assets
|
|
|
14,365 |
|
|
|
14,976 |
|
Total
assets
|
|
$ |
265,297 |
|
|
$ |
279,264 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Payables
|
|
$ |
24,216 |
|
|
$ |
20,832 |
|
Accrued
liabilities and deferred revenue
|
|
|
72,381 |
|
|
|
74,738 |
|
Debt
|
|
|
166,025 |
|
|
|
168,787 |
|
Deferred
income taxes
|
|
|
2,899 |
|
|
|
3,034 |
|
Liabilities
of discontinued/held-for-sale operations (Note 8)
|
|
|
— |
|
|
|
4,824 |
|
Total
liabilities
|
|
|
265,521 |
|
|
|
272,215 |
|
|
|
|
|
|
|
|
|
|
Minority
interests
|
|
|
1,459 |
|
|
|
1,421 |
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
|
|
|
|
|
|
Capital
stock
|
|
|
|
|
|
|
|
|
Common
Stock, par value $0.01 per share (2,198 million shares
issued)
|
|
|
22 |
|
|
|
21 |
|
Class
B Stock, par value $0.01 per share (71 million shares
issued)
|
|
|
1 |
|
|
|
1 |
|
Capital
in excess of par value of stock
|
|
|
8,386 |
|
|
|
7,834 |
|
Accumulated
other comprehensive income/(loss)
|
|
|
131 |
|
|
|
(558 |
) |
Treasury
stock
|
|
|
(183 |
) |
|
|
(185 |
) |
Retained
earnings/(Accumulated deficit)
|
|
|
(10,040 |
) |
|
|
(1,485 |
) |
Total
stockholders’ equity
|
|
|
(1,683 |
) |
|
|
5,628 |
|
Total
liabilities and stockholders’ equity
|
|
$ |
265,297 |
|
|
$ |
279,264 |
|
The
accompanying notes are part of the financial statements
Item
1. Financial Statements (Continued)
FORD
MOTOR COMPANY AND SUBSIDIARIES
SECTOR
BALANCE SHEET
(in
millions)
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Automotive
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
16,948 |
|
|
$ |
20,678 |
|
Marketable
securities
|
|
|
5,099 |
|
|
|
2,092 |
|
Loaned
securities
|
|
|
7,347 |
|
|
|
10,267 |
|
Total
cash, marketable and loaned securities
|
|
|
29,394 |
|
|
|
33,037 |
|
Receivables,
net
|
|
|
5,116 |
|
|
|
4,530 |
|
Inventories
(Note 2)
|
|
|
12,987 |
|
|
|
10,121 |
|
Deferred
income taxes
|
|
|
542 |
|
|
|
532 |
|
Other
current assets
|
|
|
7,035 |
|
|
|
5,514 |
|
Current
receivable from Financial Services
|
|
|
895 |
|
|
|
509 |
|
Total
current assets
|
|
|
55,969 |
|
|
|
54,243 |
|
Equity
in net assets of affiliated companies
|
|
|
2,558 |
|
|
|
2,283 |
|
Net
property
|
|
|
31,909 |
|
|
|
35,979 |
|
Deferred
income taxes
|
|
|
7,676 |
|
|
|
9,268 |
|
Goodwill
and other net intangible assets (Note 4)
|
|
|
2,034 |
|
|
|
2,051 |
|
Assets
of discontinued/held-for-sale operations (Note 8)
|
|
|
28 |
|
|
|
7,537 |
|
Other
assets
|
|
|
6,055 |
|
|
|
5,614 |
|
Non-current
receivable from Financial Services
|
|
|
2,110 |
|
|
|
1,514 |
|
Total
Automotive assets
|
|
|
108,339 |
|
|
|
118,489 |
|
Financial
Services
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
13,118 |
|
|
|
14,605 |
|
Marketable
securities
|
|
|
7,426 |
|
|
|
3,156 |
|
Finance
receivables, net
|
|
|
110,776 |
|
|
|
112,733 |
|
Net
investment in operating leases
|
|
|
27,152 |
|
|
|
30,309 |
|
Retained
interest in sold receivables
|
|
|
380 |
|
|
|
653 |
|
Equity
in net assets of affiliated companies
|
|
|
631 |
|
|
|
570 |
|
Goodwill
and other net intangible assets (Note 4)
|
|
|
10 |
|
|
|
18 |
|
Other
assets
|
|
|
5,623 |
|
|
|
7,217 |
|
Total
Financial Services assets
|
|
|
165,116 |
|
|
|
169,261 |
|
Intersector
elimination
|
|
|
(3,005 |
) |
|
|
(2,023 |
) |
Total
assets
|
|
$ |
270,450 |
|
|
$ |
285,727 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Automotive
|
|
|
|
|
|
|
|
|
Trade
payables
|
|
$ |
18,137 |
|
|
$ |
15,718 |
|
Other
payables
|
|
|
4,013 |
|
|
|
3,237 |
|
Accrued
liabilities and deferred revenue
|
|
|
28,471 |
|
|
|
27,672 |
|
Deferred
income taxes
|
|
|
2,748 |
|
|
|
2,671 |
|
Debt
payable within one year
|
|
|
1,432 |
|
|
|
1,175 |
|
Total
current liabilities
|
|
|
54,801 |
|
|
|
50,473 |
|
Long-term
debt
|
|
|
25,028 |
|
|
|
25,779 |
|
Other
liabilities
|
|
|
38,803 |
|
|
|
41,676 |
|
Deferred
income taxes
|
|
|
967 |
|
|
|
783 |
|
Liabilities
of discontinued/held-for-sale operations (Note 8)
|
|
|
— |
|
|
|
4,824 |
|
Total
Automotive liabilities
|
|
|
119,599 |
|
|
|
123,535 |
|
Financial
Services
|
|
|
|
|
|
|
|
|
Payables
|
|
|
2,066 |
|
|
|
1,877 |
|
Debt
|
|
|
139,565 |
|
|
|
141,833 |
|
Deferred
income taxes
|
|
|
4,337 |
|
|
|
6,043 |
|
Other
liabilities and deferred income
|
|
|
5,107 |
|
|
|
5,390 |
|
Payable
to Automotive
|
|
|
3,005 |
|
|
|
2,023 |
|
Total
Financial Services liabilities
|
|
|
154,080 |
|
|
|
157,166 |
|
|
|
|
|
|
|
|
|
|
Minority
interests
|
|
|
1,459 |
|
|
|
1,421 |
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
|
|
|
|
|
|
Capital
stock
|
|
|
|
|
|
|
|
|
Common
Stock, par value $0.01 per share (2,198 million shares
issued)
|
|
|
22 |
|
|
|
21 |
|
Class
B Stock, par value $0.01 per share (71 million shares
issued)
|
|
|
1 |
|
|
|
1 |
|
Capital
in excess of par value of stock
|
|
|
8,386 |
|
|
|
7,834 |
|
Accumulated
other comprehensive income/(loss)
|
|
|
131 |
|
|
|
(558 |
) |
Treasury
stock
|
|
|
(183 |
) |
|
|
(185 |
) |
Retained
earnings/(Accumulated deficit)
|
|
|
(10,040 |
) |
|
|
(1,485 |
) |
Total
stockholders' equity
|
|
|
(1,683 |
) |
|
|
5,628 |
|
Intersector
elimination
|
|
|
(3,005 |
) |
|
|
(2,023 |
) |
Total
liabilities and stockholders' equity
|
|
$ |
270,450 |
|
|
$ |
285,727 |
|
The accompanying notes are part of the
financial statements.
Item
1. Financial Statements (Continued)
FORD
MOTOR COMPANY AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS
For
the Periods Ended June 30, 2008 and 2007
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
Cash
flows from operating activities of continuing operations
|
|
|
|
Net
cash (used in)/provided by operating activities
|
|
$ |
2,161 |
|
|
$ |
5,227 |
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities of continuing operations
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(3,128 |
) |
|
|
(2,637 |
) |
Acquisitions
of retail and other finance receivables and operating
leases
|
|
|
(25,483 |
) |
|
|
(26,280 |
) |
Collections
of retail and other finance receivables and operating
leases
|
|
|
22,150 |
|
|
|
20,591 |
|
Purchases
of securities
|
|
|
(33,015 |
) |
|
|
(4,720 |
) |
Sales
and maturities of securities
|
|
|
28,390 |
|
|
|
12,088 |
|
Proceeds
from sales of retail and other finance receivables and operating
leases
|
|
|
— |
|
|
|
702 |
|
Proceeds
from sale of businesses
|
|
|
6,135 |
|
|
|
1,001 |
|
Cash
paid for acquisitions
|
|
|
(13 |
) |
|
|
— |
|
Transfer
of cash balances upon disposition of discontinued/held-for-sale
operations
|
|
|
(925 |
) |
|
|
(83 |
) |
Other
|
|
|
1,869 |
|
|
|
1,178 |
|
Net
cash (used in)/provided by investing activities
|
|
|
(4,020 |
) |
|
|
1,840 |
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities of continuing operations
|
|
|
|
|
|
|
|
|
Cash
dividends
|
|
|
— |
|
|
|
— |
|
Sales
of Common Stock
|
|
|
144 |
|
|
|
51 |
|
Purchases
of Common Stock
|
|
|
— |
|
|
|
(31 |
) |
Changes
in short-term debt
|
|
|
(1,049 |
) |
|
|
(1,396 |
) |
Proceeds
from issuance of other debt
|
|
|
20,726 |
|
|
|
17,165 |
|
Principal
payments on other debt
|
|
|
(23,396 |
) |
|
|
(19,768 |
) |
Other
|
|
|
(267 |
) |
|
|
(61 |
) |
Net
cash (used in)/provided by financing activities
|
|
|
(3,842 |
) |
|
|
(4,040 |
) |
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
469 |
|
|
|
71 |
|
|
|
|
|
|
|
|
|
|
Net
increase/(decrease) in cash and cash equivalents from continuing
operations
|
|
|
(5,232 |
) |
|
|
3,098 |
|
|
|
|
|
|
|
|
|
|
Cash
flows from discontinued operations
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities of discontinued operations
|
|
|
15 |
|
|
|
16 |
|
Cash
flows from investing activities of discontinued operations
|
|
|
— |
|
|
|
— |
|
Cash
flows from financing activities of discontinued operations
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Net
increase/(decrease) in cash and cash equivalents
|
|
$ |
(5,217 |
) |
|
$ |
3,114 |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at January 1
|
|
$ |
35,283 |
|
|
$ |
28,896 |
|
Cash
and cash equivalents of discontinued/held-for-sale operations at January
1
|
|
|
— |
|
|
|
(2 |
) |
Net
increase/(decrease) in cash and cash equivalents
|
|
|
(5,217 |
) |
|
|
3,114 |
|
Less:
cash and cash equivalents of discontinued/held-for-sale operations at June
30
|
|
|
— |
|
|
|
(8 |
) |
Cash
and cash equivalents at June 30
|
|
$ |
30,066 |
|
|
$ |
32,000 |
|
The
accompanying notes are part of the financial statements
Item
1. Financial Statements (Continued)
FORD
MOTOR COMPANY AND SUBSIDIARIES
CONDENSED
SECTOR STATEMENT OF CASH FLOWS
For
the Periods Ended June 30, 2008 and 2007
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Cash
flows from operating activities of continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash (used in)/provided by operating activities
|
|
$ |
(1,560 |
) |
|
$ |
5,151 |
|
|
$ |
2,810 |
|
|
$ |
3,358 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(3,077 |
) |
|
|
(51 |
) |
|
|
(2,616 |
) |
|
|
(21 |
) |
Acquisitions
of retail and other finance receivables and operating
leases
|
|
|
— |
|
|
|
(25,483 |
) |
|
|
— |
|
|
|
(26,280 |
) |
Collections
of retail and other finance receivables and operating
leases
|
|
|
— |
|
|
|
22,188 |
|
|
|
— |
|
|
|
20,427 |
|
Net
(increase)/decrease of wholesale receivables
|
|
|
— |
|
|
|
(1,468 |
) |
|
|
— |
|
|
|
(777 |
) |
Purchases
of securities
|
|
|
(23,683 |
) |
|
|
(9,332 |
) |
|
|
(924 |
) |
|
|
(3,796 |
) |
Sales
and maturities of securities
|
|
|
23,349 |
|
|
|
5,041 |
|
|
|
917 |
|
|
|
11,171 |
|
Proceeds
from sales of retail and other finance receivables and operating
leases
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
702 |
|
Proceeds
from sale of businesses
|
|
|
2,451 |
|
|
|
3,684 |
|
|
|
1,001 |
|
|
|
— |
|
Cash
paid for acquisitions
|
|
|
(13 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Transfer
of cash balances upon disposition of discontinued/held-for-sale
operations
|
|
|
(925 |
) |
|
|
— |
|
|
|
(83 |
) |
|
|
— |
|
Investing
activity to Financial Services
|
|
|
— |
|
|
|
— |
|
|
|
(6 |
) |
|
|
— |
|
Other
|
|
|
914 |
|
|
|
955 |
|
|
|
498 |
|
|
|
680 |
|
Net
cash (used in)/provided by investing activities
|
|
|
(984 |
) |
|
|
(4,466 |
) |
|
|
(1,213 |
) |
|
|
2,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Sales
of Common Stock
|
|
|
144 |
|
|
|
— |
|
|
|
51 |
|
|
|
— |
|
Purchases
of Common Stock
|
|
|
— |
|
|
|
— |
|
|
|
(31 |
) |
|
|
— |
|
Changes
in short-term debt
|
|
|
— |
|
|
|
(1,049 |
) |
|
|
6 |
|
|
|
(1,402 |
) |
Proceeds
from issuance of other debt
|
|
|
78 |
|
|
|
20,648 |
|
|
|
158 |
|
|
|
17,007 |
|
Principal
payments on other debt
|
|
|
(266 |
) |
|
|
(23,130 |
) |
|
|
(363 |
) |
|
|
(19,405 |
) |
Financing
activity from Automotive
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6 |
|
Other
|
|
|
(176 |
) |
|
|
(91 |
) |
|
|
(4 |
) |
|
|
(57 |
) |
Net
cash (used in)/provided by financing activities
|
|
|
(220 |
) |
|
|
(3,622 |
) |
|
|
(183 |
) |
|
|
(3,851 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
270 |
|
|
|
199 |
|
|
|
62 |
|
|
|
9 |
|
Net
change in intersector receivables/payables and other
liabilities
|
|
|
(1,236 |
) |
|
|
1,236 |
|
|
|
(435 |
) |
|
|
435 |
|
Net
increase/(decrease) in cash and cash equivalents from continuing
operations
|
|
|
(3,730 |
) |
|
|
(1,502 |
) |
|
|
1,041 |
|
|
|
2,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities of discontinued operations
|
|
|
— |
|
|
|
15 |
|
|
|
16 |
|
|
|
— |
|
Cash
flows from investing activities of discontinued operations
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Cash
flows from financing activities of discontinued operations
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase/(decrease) in cash and cash equivalents
|
|
$ |
(3,730 |
) |
|
$ |
(1,487 |
) |
|
$ |
1,057 |
|
|
$ |
2,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at January 1
|
|
$ |
20,678 |
|
|
$ |
14,605 |
|
|
$ |
16,022 |
|
|
$ |
12,874 |
|
Cash
and cash equivalents of discontinued/held-for-sale operations at January
1
|
|
|
— |
|
|
|
— |
|
|
|
(2 |
) |
|
|
— |
|
Net
increase/(decrease) in cash and cash equivalents
|
|
|
(3,730 |
) |
|
|
(1,487 |
) |
|
|
1,057 |
|
|
|
2,057 |
|
Less:
cash and cash equivalents of discontinued/held-for-sale operations at June
30
|
|
|
— |
|
|
|
— |
|
|
|
(8 |
) |
|
|
— |
|
Cash
and cash equivalents at June 30
|
|
$ |
16,948 |
|
|
$ |
13,118 |
|
|
$ |
17,069 |
|
|
$ |
14,931 |
|
The
accompanying notes are part of the financial statements
Item
1. Financial Statements (Continued)
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
1. FINANCIAL STATEMENTS
The
consolidated financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP") in the United States for
interim financial information and instructions to the Quarterly Report on Form
10-Q and Rule 10-01 of Regulation S-X. In the opinion of
management, these unaudited financial statements reflect a fair statement of the
results of operations and financial condition of Ford Motor Company and its
consolidated subsidiaries and consolidated variable interest entities ("VIEs")
of which we are the primary beneficiary for the periods and at the dates
presented. The operating results for interim periods are not
necessarily indicative of results that may be expected for any other interim
period or for the full year. Reference should be made to the
financial statements contained in our Annual Report on Form 10-K for the year
ended December 31, 2007 ("2007 Form 10-K Report"), updated in our Current
Report on Form 8-K filed on June 2, 2008. For purposes of this
report, "Ford," the "Company," "we," "our," "us" or similar references mean Ford
Motor Company and our consolidated subsidiaries and our consolidated VIEs of
which we are the primary beneficiary, unless the context requires
otherwise. All held-for-sale assets and liabilities are excluded from
the footnotes unless otherwise noted. See Note 8 for details of
held-for-sale operations.
Presentation
of Balance Sheet
The
difference between the total assets and total liabilities as presented in our
sector balance sheet and consolidated balance sheet is the result of netting of
deferred income tax assets and liabilities. The reconciliation
between total sector and consolidated balance sheets is as follows (in
millions):
|
|
|
|
|
|
|
Sector
balance sheet presentation of deferred income tax assets:
|
|
|
|
|
|
|
Automotive
sector current deferred income tax assets
|
|
$ |
542 |
|
|
$ |
532 |
|
Automotive
sector non-current deferred income tax assets
|
|
|
7,676 |
|
|
|
9,268 |
|
Financial
Services sector deferred income tax assets*
|
|
|
186 |
|
|
|
163 |
|
Total
|
|
|
8,404 |
|
|
|
9,963 |
|
Reclassification
for netting of deferred income taxes
|
|
|
(5,153 |
) |
|
|
(6,463 |
) |
Consolidated
balance sheet presentation of deferred income tax assets
|
|
$ |
3,251 |
|
|
$ |
3,500 |
|
|
|
|
|
|
|
|
|
|
Sector
balance sheet presentation of deferred income tax
liabilities:
|
|
|
|
|
|
|
|
|
Automotive
sector current deferred income tax liabilities
|
|
$ |
2,748 |
|
|
$ |
2,671 |
|
Automotive
sector non-current deferred income tax liabilities
|
|
|
967 |
|
|
|
783 |
|
Financial
Services sector deferred income tax liabilities
|
|
|
4,337 |
|
|
|
6,043 |
|
Total
|
|
|
8,052 |
|
|
|
9,497 |
|
Reclassification
for netting of deferred income taxes
|
|
|
(5,153 |
) |
|
|
(6,463 |
) |
Consolidated
balance sheet presentation of deferred income tax
liabilities
|
|
$ |
2,899 |
|
|
$ |
3,034 |
|
__________
*
|
Financial
Services deferred income tax assets are included in Financial Services other
assets on our sector balance
sheet.
|
Presentation
of Cash Flows
Beginning
with our statement of cash flows for the period ended March 31, 2008,
we changed the presentation of cash flows to separately disclose the purchases
of trading securities and the sale and maturities of trading securities as gross
amounts within Cash flows from
investing activities instead of Cash flows from operating activities
of continuing operations. This change is in response to our
election to apply the fair value option to our available-for-sale and
held-to-maturity securities upon adoption of Statement of Financial Accounting
Standards ("SFAS") No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities – including an amendment of FASB Statement No.
115 ("SFAS No. 159") on January 1, 2008.
Item
1. Financial Statements (Continued)
NOTE
1. FINANCIAL STATEMENTS (Continued)
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
|
|
$ |
3,591 |
|
|
$ |
6,168 |
|
Reclassification
of wholesale receivable cash flows from investing to operating for
consolidated presentation (a)
|
|
|
(1,468 |
) |
|
|
(777 |
) |
Reclassification
of finance receivable cash flows from investing to operating for
consolidated presentation (b)
|
|
|
38 |
|
|
|
(164 |
) |
Consolidated
cash flows from operating activities of continuing
operations
|
|
$ |
2,161 |
|
|
$ |
5,227 |
|
__________
|
(a)
|
In
addition to vehicles sold by us, the cash flows from wholesale finance
receivables being reclassified from investing to operating include
financing by Ford Motor Credit Company LLC ("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 is
impracticable to separate.
|
|
(b)
|
Includes
cash flows of finance receivables purchased from certain divisions and
subsidiaries of the Automotive
sector.
|
NOTE
2. INVENTORIES
Inventories
are summarized as follows (in millions):
|
|
June
30,
|
|
|
December
31,
|
|
|
|
|
|
|
|
|
Raw
materials, work-in-process and supplies
|
|
$ |
4,506 |
|
|
$ |
4,360 |
|
Finished
products
|
|
|
9,540 |
|
|
|
6,861 |
|
Total
inventories under first-in, first-out method ("FIFO")
|
|
|
14,046 |
|
|
|
11,221 |
|
Less:
Last-in, first-out method ("LIFO") adjustment
|
|
|
(1,059 |
) |
|
|
(1,100 |
) |
Total
inventories
|
|
$ |
12,987 |
|
|
$ |
10,121 |
|
Inventories
are stated at lower of cost or market. About one-fourth of
inventories were determined under the LIFO method.
NOTE
3. IMPAIRMENT OF LONG-LIVED ASSETS
Automotive
Sector
Based
upon the financial impact of rapidly-changing U.S. market conditions during the
second quarter of 2008, we projected a decline in net cash flows for the Ford
North America segment. The decline primarily reflected: (1) a
more pronounced and accelerated shift in consumer preferences away from
full-size trucks and traditional sport utility vehicles ("SUVs") to smaller,
more fuel-efficient vehicles as a result of higher fuel prices;
(2) lower-than-anticipated U.S. industry demand; and
(3) greater-than-anticipated escalation of commodity costs. As a
result, in the second quarter of 2008 we tested the long-lived assets of this
segment for recoverability and recorded in Automotive cost of sales a
pre-tax impairment charge of $5.3 billion, representing the amount by which
the carrying value of these assets exceeded the estimated fair
value.
Financial
Services Sector
During
the second quarter of 2008, higher fuel prices and the weak economic climate in
the United States and Canada resulted in a more pronounced and accelerated shift
in consumer preferences away from full-size trucks and traditional SUVs to
smaller, more fuel-efficient vehicles. This shift in consumer
preferences combined with a weak economic climate caused a significant reduction
in auction values for used full-size trucks and traditional SUVs. As
a result, we tested Ford Credit's operating leases in its North America segment
for recoverability and recorded a pre-tax impairment charge in Selling, administrative and other
expenses on our consolidated income statement and in Financial Services
depreciation on our sector income statement of $2.1 billion, representing
the amount by which the carrying value of certain vehicle lines in Ford Credit's
lease portfolio exceeded the estimated fair value.
Item
1. Financial Statements (Continued)
NOTE
4. GOODWILL AND OTHER NET INTANGIBLES
Changes
in the carrying amount of goodwill are as follows (in millions):
|
|
|
|
|
Financial
Services Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at December 31, 2007
|
|
$ |
89 |
|
|
$ |
37 |
|
|
$ |
1,360 |
|
|
$ |
1,486 |
|
|
$ |
18 |
|
|
$ |
1,504 |
|
Changes
in goodwill:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
acquired
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Other
disposals
|
|
|
(1 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1 |
) |
|
|
(9 |
) |
|
|
(10 |
) |
Dealer
goodwill impairment*
|
|
|
(88 |
) |
|
|
— |
|
|
|
— |
|
|
|
(88 |
) |
|
|
— |
|
|
|
(88 |
) |
Effect
of foreign currency translation and other
|
|
|
— |
|
|
|
1 |
|
|
|
85 |
|
|
|
86 |
|
|
|
1 |
|
|
|
87 |
|
Balances at
June 30, 2008
|
|
$ |
— |
|
|
$ |
38 |
|
|
$ |
1,445 |
|
|
$ |
1,483 |
|
|
$ |
10 |
|
|
$ |
1,493 |
|
__________
*
|
Based
on our expected reduction of our Ford North America dealership base, we
recorded an other-than-temporary impairment of our investment in our
consolidated North America dealerships. We recorded the
$88 million impairment
of our investment in the first quarter of 2008 by writing down the
related goodwill to its fair value of
$0.
|
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
|
|
$ |
355 |
|
|
$ |
(113 |
) |
|
$ |
242 |
|
|
$ |
335 |
|
|
$ |
(103 |
) |
|
$ |
232 |
|
Manufacturing
and production incentive rights
|
|
|
333 |
|
|
|
(124 |
) |
|
|
209 |
|
|
|
297 |
|
|
|
(74 |
) |
|
|
223 |
|
Other
|
|
|
198 |
|
|
|
(98 |
) |
|
|
100 |
|
|
|
199 |
|
|
|
(89 |
) |
|
|
110 |
|
Total
Automotive sector
|
|
|
886 |
|
|
|
(335 |
) |
|
|
551 |
|
|
|
831 |
|
|
|
(266 |
) |
|
|
565 |
|
Total
Financial Services Sector
|
|
|
4 |
|
|
|
(4 |
) |
|
|
— |
|
|
|
4 |
|
|
|
(4 |
) |
|
|
— |
|
Total
|
|
$ |
890 |
|
|
$ |
(339 |
) |
|
$ |
551 |
|
|
$ |
835 |
|
|
$ |
(270 |
) |
|
$ |
565 |
|
Our
identifiable intangible assets are comprised of distribution networks with a
useful life of 40 years, manufacturing and production incentive rights
acquired in 2006 with a useful life of 4 years, and other intangibles with
various amortization periods (primarily patents, customer contracts, technology,
and land rights). Pre-tax amortization expense, excluding the effects
of foreign currency translation, was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax
amortization expense
|
|
$ |
26 |
|
|
$ |
25 |
|
|
$ |
50 |
|
|
$ |
47 |
|
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 per year
thereafter.
NOTE
5. 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 necessarily represent additional assets that could be used to
satisfy claims against our general assets.
Item
1. Financial Statements (Continued)
NOTE
5. VARIABLE INTEREST ENTITIES (Continued)
The total
consolidated VIE assets reflected on our June 30, 2008 and
December 31, 2007 balance sheets are as follows (in
millions):
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
Automotive
Sector
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
753 |
|
|
$ |
742 |
|
Other
assets
|
|
|
5,517 |
|
|
|
5,599 |
|
Total
assets
|
|
$ |
6,270 |
|
|
$ |
6,341 |
|
|
|
|
|
|
|
|
|
|
Financial
Services Sector
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
5,263 |
|
|
$ |
4,605 |
|
Finance
receivables
|
|
|
70,716 |
|
|
|
60,361 |
|
Net
investment in operating leases
|
|
|
15,133 |
|
|
|
17,461 |
|
Total
assets
|
|
$ |
91,112 |
|
|
$ |
82,427 |
|
We have
several investments in entities determined to be VIEs of which we are not the
primary beneficiary. The risks and rewards associated with our
interests in these entities are based primarily on ownership
percentages. Our maximum exposure at June 30, 2008 and
December 31, 2007, respectively, was $379 million and
$357 million for our Automotive sector and $150 million and
$76 million for our Financial Services sector. Any potential
losses associated with these VIEs would be limited to the value of our invested
capital or equity rights and, where applicable, receivables due from the
VIEs.
Ford
Credit uses special purpose entities ("SPEs") that are considered VIEs for most
of its on-balance sheet securitizations. 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 transactions constitute sales for legal
purposes, but some do not satisfy the requirements for accounting sale
treatment. The outstanding balance of these finance receivables was
approximately $2.6 billion and
$3.4 billion at June 30, 2008 and December 31, 2007,
respectively.
NOTE
6. JOB SECURITY BENEFITS RESERVE AND EMPLOYEE SEPARATION ACTIONS
Automotive
Sector
Job
Security Benefits Reserve
We are
required to pay most idled unionized hourly employees in North America a portion
of their wages and benefits for a specified period of time ("Job Security
Benefits") (previously referred to as Jobs Bank Benefits). We expense
in Automotive cost of sales
Job Security Benefits expected to be provided to our hourly employees at
facilities that will be closed or at which shifts will be eliminated or, in the
case of some Automotive Components Holdings, LLC ("ACH") plants, sold (see
Note 18 of the Notes to the Financial Statements in our 2007 Form 10-K
Report).
The Job
Security Benefits reserve includes an amount for benefits expected to be
provided in their present form under the current International Union, United
Automobile, Aerospace and Agricultural Implement Workers of America ("UAW") and
National Automobile, Aerospace, Transportation and General Workers Union of
Canada ("CAW") collective bargaining agreements. The Job Security
Benefits provided to our hourly employees are expensed when it becomes probable
that employees will be permanently idled. The following table
summarizes the activity in the related Job Security Benefits
reserve:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
817 |
|
|
$ |
1,036 |
|
|
|
8,316 |
|
|
|
10,728 |
|
Additions
to Job Security Benefits reserve/Transfers from voluntary separation
program (i.e., rescissions)
|
|
|
44 |
|
|
|
232 |
|
|
|
518 |
|
|
|
2,220 |
|
Voluntary
separations and relocations
|
|
|
(228 |
) |
|
|
(311 |
) |
|
|
(2,613 |
) |
|
|
(4,632 |
) |
Benefit
payments and other adjustments
|
|
|
238 |
|
|
|
(140 |
) |
|
|
— |
|
|
|
— |
|
Ending
balance
|
|
$ |
871 |
|
|
$ |
817 |
|
|
|
6,221 |
|
|
|
8,316 |
|
The
$238 million increase in the reserve during the first half of 2008 relates
to a lengthening of Job Security Benefits for certain employees. We
previously had assumed a shorter benefit period for these employees, who we now
expect to remain idled for a longer period of time due to lower vehicle
production volumes and recent capacity changes.
Item
1. Financial Statements (Continued)
NOTE
6. JOB SECURITY BENEFITS RESERVE AND EMPLOYEE SEPARATION ACTIONS (Continued)
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 costs
of voluntary employee separation actions are 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, the
affected employees have been identified, and termination is
probable.
UAW Voluntary
Separations. The following table summarizes the activity in
the related separation reserve, with the expense recorded in Automotive cost of
sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
225 |
|
|
$ |
2,435 |
|
|
|
1,374 |
|
|
|
26,351 |
|
Voluntary
acceptances
|
|
|
180 |
|
|
|
— |
|
|
|
1,461 |
|
|
|
— |
|
Payments/Terminations
|
|
|
(227 |
) |
|
|
(1,912 |
) |
|
|
(1,823 |
) |
|
|
(21,587 |
) |
Rescissions
and other adjustments
|
|
|
11 |
|
|
|
(298 |
) |
|
|
(61 |
) |
|
|
(3,390 |
) |
Ending
balance
|
|
$ |
189 |
|
|
$ |
225 |
|
|
|
951 |
|
|
|
1,374 |
|
The
ending balances shown above represent the cost of separation packages for
employees who accepted packages but have not yet left the Company, as well as
employees who accepted a retirement package and ceased duties, but who will
remain on our employment rolls until they reach retirement
eligibility. Excluded from the table above are 2,863 voluntary
acceptances of retirement incentive packages during the first half of 2008 the
costs for which are included in pension and other postretirement employee
benefits ("OPEB") benefit separation costs. See Note 12 for
employee separation costs related to pension and OPEB.
Other Employee Separation
Actions. In the second quarter of 2008, we announced plans to
reduce salaried employee costs in North America by 15%. In the United
States, we recognized pre-tax charges of $13 million related to those
actions which were probable to occur as of June 30, 2008; the
remaining charges, for separations that were not probable to occur by
June 30, 2008, will be accrued in the third quarter of
2008. Some of these actions have required the use of involuntary
separations. In 2007, we completed our previously-announced North
American salaried employee reduction and incurred $154 million of pre-tax
charges in the United States through the first half of 2007. These
charges are reported in Automotive cost of sales
and Selling, administrative
and other expenses.
In
addition, we had pre-tax charges for other hourly and salaried employee
separation actions outside the United States. We recognized $31 million and
$69 million for the second quarter of 2008 and 2007, respectively, and
$38 million and $252 million for the first half of 2008 and 2007,
respectively. These charges are reported in Automotive cost of sales and
Selling, administrative and
other expenses and exclude costs for pension and OPEB. See
Note 12 for employee separation costs related to pension and
OPEB.
Financial
Services Sector
Separation
Actions
In 2007,
we recognized pre-tax charges of $45 million in Selling, administrative and other
expenses for employee separation actions. The majority of
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 12 for employee
separation costs related to pension and OPEB.
Item
1. Financial Statements (Continued)
NOTE
7. INCOME TAXES
Generally,
for interim tax reporting we estimate one single tax rate for tax jurisdictions
not subject to a valuation allowance, which is applied to the year-to-date
ordinary income/(loss). However, we manage our operations by
multi-jurisdictional business units and thus are unable to reasonably compute
one overall effective tax rate. Accordingly, our worldwide tax
provision is calculated pursuant to Financial Accounting Standards Board
("FASB") Interpretation No. 18, Accounting for Income Taxes in
Interim Periods, which provides that tax (or benefit) in each foreign
jurisdiction not subject to valuation allowance be separately computed as
ordinary income/(loss) occurs within the jurisdiction.
NOTE
8. DISCONTINUED OPERATIONS, HELD-FOR-SALE OPERATIONS, OTHER DISPOSITIONS, AND
ACQUISITIONS
Automotive
Sector
Discontinued
Operations
Automotive Protection Corporation
("APCO"). Our North American operation APCO was sold in the second
quarter of 2007. Second quarter results for this discontinued
operation are shown in the table below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
and revenues
|
|
$ |
— |
|
|
$ |
1 |
|
|
$ |
— |
|
|
$ |
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income/(loss) from discontinued operations
|
|
$ |
— |
|
|
$ |
(1 |
) |
|
$ |
— |
|
|
$ |
2 |
|
Gain/(Loss)
on discontinued operations
|
|
|
— |
|
|
|
51 |
|
|
|
— |
|
|
|
51 |
|
(Provision
for)/Benefit from income taxes
|
|
|
— |
|
|
|
(18 |
) |
|
|
— |
|
|
|
(19 |
) |
Income/(Loss)
from discontinued operations
|
|
$ |
— |
|
|
$ |
32 |
|
|
$ |
— |
|
|
$ |
34 |
|
Held-for-Sale
Operations
Jaguar Land
Rover. During 2007, we committed to sell our Jaguar Land Rover
operations in order to focus on our core Automotive operations and to build
liquidity. At December 31, 2007, we classified the assets and
liabilities of these operations as held for sale on our balance
sheet. On March 25, 2008, we entered into a definitive
agreement with Tata Motors Limited pursuant to which we would sell all of our
interest in Jaguar Land Rover for $2.3 billion, subject to customary
purchase price adjustments upon completion (e.g., relating to working capital,
cash, and debt), and agreed to contribute up to about $600 million to the
Jaguar and Land Rover pension plans. In the first quarter of 2008, we
recorded a pre-tax impairment charge of $421 million reported in Automotive cost of sales
related to the disposal of these operations.
On
June 2, 2008, we completed the sale of Jaguar Land
Rover. We received $2.4 billion in cash proceeds and recorded a
$145 million receivable for additional proceeds related to final purchase
price adjustments. As a result of the sale, we recognized a pre-tax
loss of $106 million, reported in Automotive interest income and other
non-operating income/(expense), net. This loss includes the
recognition of $1.2 billion of accumulated other comprehensive income, the
settlement of about $550 million of net intercompany payables, and related
separation costs of about $150 million.
Item
1. Financial Statements (Continued)
NOTE
8. DISCONTINUED OPERATIONS, HELD-FOR-SALE OPERATIONS, OTHER DISPOSITIONS, AND
ACQUISITIONS (Continued)
The
assets and liabilities of our Jaguar Land Rover operations classified as held
for sale are summarized as follows (in millions):
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
900 |
|
|
$ |
— |
|
Receivables
|
|
|
1,172 |
|
|
|
758 |
|
Inventories
|
|
|
1,921 |
|
|
|
1,530 |
|
Net
property
|
|
|
2,199 |
|
|
|
2,246 |
|
Goodwill
and other net intangibles
|
|
|
2,002 |
|
|
|
2,010 |
|
Pension
assets
|
|
|
786 |
|
|
|
696 |
|
Other
assets
|
|
|
309 |
|
|
|
297 |
|
Impairment
of carrying value
|
|
|
(421 |
) |
|
|
— |
|
Total
assets of the held-for-sale operations
|
|
$ |
8,868 |
|
|
$ |
7,537 |
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Payables
|
|
$ |
2,628 |
|
|
$ |
2,395 |
|
Pension
liabilities
|
|
|
18 |
|
|
|
19 |
|
Warranty
liabilities
|
|
|
579 |
|
|
|
645 |
|
Debt
|
|
|
177 |
|
|
|
— |
|
Other
liabilities
|
|
|
2,340 |
|
|
|
1,765 |
|
Total
liabilities of the held-for-sale operations
|
|
$ |
5,742 |
|
|
$ |
4,824 |
|
The cash
balances we transferred upon sale consisted primarily of about $600 million
related to the committed pension funding under the definitive agreement and
$177 million related to debt which the buyer agreed to assume upon
sale.
As part
of the transaction, we will continue to supply Jaguar Land Rover with
powertrains, stampings, and other vehicle components. We also
committed to provide transitional support, including engineering, information
technology, accounting, and other services. Ford Credit will provide
financing for Jaguar Land Rover dealers and customers during a transition
period, which can vary by market, for up to 12 months.
ACH. On
April 14, 2008, ACH completed the sale of its glass business to
Zeledyne, LLC. The sale included the Nashville, Tulsa, and VidrioCar
plants, along with the research and development, engineering, sales and
aftermarket operations in Tennessee and Michigan. These facilities
will continue to supply Ford with automotive glass products. As a
result of this transaction, we recognized a pre-tax loss of $285 million
reported in Automotive
interest income and other non-operating income/(expense). This loss is comprised
of asset write-offs of $149 million, long-term contractual restructuring
obligations of $104 million, and $32 million of transaction costs and
other related expenses.
The
assets and liabilities of our glass business classified as held for sale are
summarized as follows (in millions):
|
|
|
|
Assets
|
|
|
|
Cash
|
|
$ |
25 |
|
Inventories
|
|
|
73 |
|
Net
property
|
|
|
75 |
|
Other
net intangibles
|
|
|
1 |
|
Other
assets
|
|
|
1 |
|
Total
assets of the held-for-sale operations
|
|
$ |
175 |
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Payables
|
|
$ |
1 |
|
Total
liabilities of the held-for-sale operations
|
|
$ |
1 |
|
During
the second quarter of 2008, the prospective buyer of the business at the Milan
plant, which produces fuel tanks and bumper fascias, reached an agreement on
labor terms with the UAW. This agreement was one of the conditions
referenced in the non-binding agreement between ACH and the prospective
buyer. At June 30, 2008, ACH classified the assets and
liabilities of Milan plant as held for sale in our balance sheet. In the second
quarter of 2008, we recorded a pre-tax impairment charge of $18 million
reported in Automotive cost of
sales related to the disposal of this business. The impairment
charge reflects the impact on expected proceeds based on June 30, 2008
conditions and the net book value of the held-for-sale assets. We
expect to complete the sale by the end of this year.
Item
1. Financial Statements (Continued)
NOTE
8. DISCONTINUED OPERATIONS, HELD-FOR-SALE OPERATIONS, OTHER DISPOSITIONS, AND
ACQUISITIONS (Continued)
The
assets of our Milan Plant classified as held for sale are summarized as follows
(in millions):
|
|
|
|
Assets
|
|
|
|
Inventories
|
|
$ |
12 |
|
Net
property
|
|
|
34 |
|
Impairment
of carrying value
|
|
|
(18 |
) |
Total
assets of the held-for-sale operations
|
|
$ |
28 |
|
Other
Dispositions
ACH. As of
June 30, 2008, in addition to its Milan plant, ACH had entered into a
non-binding, conditional agreement for the sale of the business at the Sheldon
Road plant. The primary products produced at the Sheldon Road plant
are heating, ventilating, and cooling assemblies; heat exchangers; and manual
control panel components. This sale is conditional upon reaching
agreement on a variety of issues, including successful negotiation by the
prospective buyer of labor terms with the UAW. ACH has terminated the
non-binding agreements for the sale of the businesses at the Sandusky and Saline
plants.
Financial
Services Sector
Discontinued
Operations
Triad Financial Corporation
("Triad"). In 2005, Ford Credit 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. In the second quarter of 2008, Ford Credit received
additional proceeds primarily based on better-than-anticipated securitized
portfolio performance, and recognized an additional $8 million after-tax
gain in Income/(Loss) from
discontinued operations.
Other
Dispositions
Nordic
Operations. During the second quarter of 2008, Ford Credit
completed the creation of a joint venture finance company and transferred the
majority of its business and assets from Denmark, Finland, Norway, and Sweden
into the joint venture. The joint venture will support the sale of
Ford vehicles in these markets. As a result of the sale, Finance receivables, net were
reduced by $1.7 billion, and we recognized a pre-tax gain of
$85 million, net of transaction costs and including $35 million of
foreign currency translation adjustments, in Financial Services
revenues. Ford Credit reports its ownership interest in the
joint venture as an equity method investment.
PRIMUS Financial Services Inc.
("PRIMUS Japan"). In April 2008, Ford Credit completed
the sale of 96% of its ownership interest in PRIMUS Japan, Ford Credit's
operation in Japan that offers automotive retail and wholesale financing of Ford
and Mazda vehicles. As a result of the sale, Finance Receivables, net were
reduced by $1.8 billion, Debt was reduced by
$252 million, and we recognized a pre-tax gain of $22 million, net of
transaction costs and including $28 million of foreign currency translation
adjustments, in Financial
Services revenues. Ford Credit reports its remaining ownership
interest as a cost method investment.
Primus Finance and Leasing, Inc.
("Primus Philippines"). During the second quarter of 2008,
Ford Credit completed the sale of its 60% ownership interest in Primus
Philippines, which is Ford Credit's operation in the Philippines offering
automotive retail and wholesale financing of Ford and Mazda
vehicles. Ford Credit also completed the sale of its 40% ownership
interest in PFL Holdings, Inc., a holding company in the Philippines that owns
the remaining 40% ownership interest in Primus Philippines. As a
result of the sale, we recognized a pre-tax gain of $5 million, net of
transactions costs and including $1 million of foreign currency translation
adjustments, in Financial
Services revenues.
Item
1. Financial Statements (Continued)
NOTE
9. AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK
The
calculation of diluted income per share of Common and Class B Stock takes into
account the effect of common stock equivalents, such as stock options and
convertible securities, considered to be potentially dilutive. Basic
and diluted income/(loss) per share were calculated using the following (in
millions):
|
|
|
|
|
First
Half
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted Income/(Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
income/(loss) from continuing operations
|
|
$ |
(8,675 |
) |
|
$ |
718 |
|
|
$ |
(8,576 |
) |
|
$ |
434 |
|
Effect
of dilutive senior convertible notes
|
|
|
— |
(a) |
|
|
34 |
|
|
|
— |
(a) |
|
|
69 |
|
Effect
of dilutive 6.50% Cumulative Convertible Trust Preferred Securities
("Trust Preferred Securities")
|
|
|
— |
(b) |
|
|
54 |
|
|
|
— |
(b) |
|
|
— |
(b) |
Diluted
income/(loss) from continuing operations
|
|
$ |
(8,675 |
) |
|
$ |
806 |
|
|
$ |
(8,576 |
) |
|
$ |
503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
shares outstanding
|
|
|
2,238 |
|
|
|
1,896 |
|
|
|
2,214 |
|
|
|
1,895 |
|
Restricted
and uncommitted-ESOP shares
|
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(2 |
) |
Basic
shares
|
|
|
2,237 |
|
|
|
1,895 |
|
|
|
2,213 |
|
|
|
1,893 |
|
Net
dilutive options and restricted and uncommitted-ESOP
shares
|
|
|
— |
(c) |
|
|
11 |
|
|
|
— |
(c) |
|
|
10 |
|
Dilutive
senior convertible notes
|
|
|
— |
(a) |
|
|
538 |
|
|
|
— |
(a) |
|
|
538 |
|
Dilutive
convertible trust preferred securities
|
|
|
— |
(b) |
|
|
282 |
|
|
|
— |
(b) |
|
|
— |
(b) |
Diluted
shares
|
|
|
2,237 |
|
|
|
2,726 |
|
|
|
2,213 |
|
|
|
2,441 |
|
__________
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.
|
|
(b)
|
282 million shares
and the related income effect for 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. For further
discussion of the conversion, see Note 16 of the Notes to the
Financial Statements in our 2007 Form 10-K
Report.
|
|
(c)
|
29
million and 25 million contingently-issuable shares (primarily reflecting
restricted stock units) for the second quarter and first half of 2008,
respectively.
|
NOTE
10. FAIR VALUE MEASUREMENTS
We
adopted SFAS No. 157, Fair Value Measurements
("SFAS No.157"), on January 1, 2008. SFAS No. 157
defines fair value, establishes a framework for measuring fair value, and
expands disclosures about fair value measurements. SFAS No. 157
defines fair value as the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants at
the measurement date. The fair value should be based on assumptions
that market participants would use, including a consideration of non-performance
risk.
In
determining fair value, we use various valuation techniques and, as required by
SFAS No. 157, prioritize the use of observable inputs. The
availability of observable inputs varies from instrument to instrument and
depends on a variety of factors including the type of instrument, whether the
instrument is actively traded, and other characteristics particular to the
transaction. For many financial instruments, pricing inputs are
readily observable in the market, the valuation methodology used is widely
accepted by market participants, and the valuation does not require significant
management discretion. For other financial instruments, pricing
inputs are less observable in the marketplace and may require management
judgment.
We assess
the inputs used to measure fair value using a three-tier hierarchy based on the
extent to which inputs used in measuring fair value are observable in the
market. Level 1 inputs include quoted prices for identical
instruments and are the most observable. Level 2 inputs include
quoted prices for similar assets and observable inputs such as interest rates,
currency exchange rates, commodity rates, and yield
curves. Level 3 inputs are not observable in the market and
include management's judgments about the assumptions market participants would
use in pricing the asset or liability. The use of observable and
unobservable inputs is reflected in our hierarchy assessment disclosed in the
tables below.
Our fair
value processes include controls that are designed to ensure that fair values
are appropriate. Such controls include model validation, review of
key model inputs, analysis of period-over-period fluctuations, and reviews by
senior management.
Item
1. Financial Statements (Continued)
NOTE
10. FAIR VALUE MEASUREMENTS (Continued)
The
following section describes the valuation methodologies used to measure fair
value, key inputs, and significant assumptions:
Cash Equivalents – Financial
Instruments. We classify highly liquid investments, with a
maturity of 90 days or less at the date of purchase, including U.S.
Treasury bills, federal agency securities, and commercial paper rated A-1 / P-1
(or higher) as cash equivalents. Prior to the adoption of SFAS
No. 157, we carried cash equivalents at amortized cost, which approximates
fair value. Effective January 1, 2008, we measure financial
instruments classified as cash equivalents at fair value. We use
quoted prices where available to determine fair value for U.S. Treasury notes,
and industry-standard valuation models using market-based inputs when quoted
prices are unavailable, such as for government agency securities and corporate
obligations.
Marketable
Securities. Our marketable securities portfolios include
investments in U.S. government and non-U.S. government securities, corporate
obligations and equities, and asset-backed securities with a maturity of greater
than 90 days at the date of purchase. Where available, including
for U.S. Treasury notes and equities, we use quoted market prices to measure
fair value. If quoted market prices are not available, such as for
government agency securities, asset-backed securities, and corporate
obligations, prices for similar assets and matrix pricing models are
used. In certain cases, where there is limited transparency to
valuation inputs, we may contact securities dealers and obtain dealer
quotes.
Concurrent
with our adoption of SFAS No. 157, we elected to apply the fair value
option under SFAS No. 159 to our marketable securities (including loaned
securities). SFAS No. 159 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 is
irrevocable. Unrealized gains and losses on items for which the fair
value option has been elected are recognized in earnings at each subsequent
reporting date. This election resulted in a cumulative after-tax
increase of approximately $12 million to the opening balance of Retained
earnings. Prior to the election of SFAS No. 159, we
classified our securities as trading, available-for-sale, or
held-to-maturity. The unrealized gains and losses for
available-for-sale securities were recorded in Accumulated other comprehensive
income/(loss), and the unrealized gains and losses for held-to-maturity
securities were not recognized.
Derivative Financial
Instruments. As part of our risk management strategy, we enter
into derivative transactions to mitigate exposures. Our derivative
instruments include interest rate swaps, currency swaps, currency and commodity
forwards, currency and commodity options, and currency futures. The
vast majority of our derivatives are not exchange-traded and are
over-the-counter customized derivative transactions. Substantially
all of our derivative exposures are with counterparties that have long-term
credit ratings of single-A or better.
We
estimate the fair value of our derivatives using industry-standard valuation
models, including Black-Scholes and Curran's Approximation. These
models project future cash flows and discount the future amounts to a present
value using market-based expectations for interest rates, foreign exchange
rates, and commodity prices, and the contractual terms of the derivative
instruments.
We
include an adjustment for non-performance risk in the recognized measure of fair
value of derivative instruments. The adjustment reflects the full
credit default spread (“CDS”) applied to a net exposure, by
counterparty. We use our counterparty's CDS when we are in a net
asset position and our own CDS when we are in a net liability
position. At June 30, 2008, our derivative assets were
reduced by $40 million, and our derivative liabilities were reduced by
$73 million. These adjustments resulted in increased pre-tax
earnings of $33 million (a decrease of $7 million recorded to Automotive cost of sales, and
an increase of $40 million recorded to Financial Services
revenues). At March 31, 2008, we measured the fair
value of our derivative assets and liabilities by discounting the cash flows
using LIBOR, but without a quantitative adjustment for non-performance risk
beyond that which is implied by LIBOR. The $33 million second
quarter adjustment included a $23 million cumulative adjustment to correct
the March 31, 2008 derivative valuation to reflect non-performance
risk. The impact on our previously-issued first quarter 2008
financial statements is not deemed to be material, and there is no impact to
previous annual periods.
Item
1. Financial Statements (Continued)
NOTE
10. FAIR VALUE MEASUREMENTS (Continued)
In
certain cases, market data is not available and we use management judgment to
develop assumptions which are used to determine fair value. This
includes situations where there is illiquidity for a particular currency or
commodity, or for longer-dated instruments. For longer-dated
instruments with regard to which observable interest rates or foreign exchange
rates are not available for all periods through maturity, we hold the last
available data point constant through maturity. For certain commodity
contracts, observable market data may be limited and, in those cases, we
generally survey brokers and use the average of the surveyed prices in
estimating fair value.
Retained Interests in Sold
Receivables. We retain certain interests in receivables sold
in off-balance sheet securitization transactions, including residual interest in
securitizations and restricted cash. We estimate the fair value of
retained interests using internal valuation models, market inputs, and our own
assumptions. The three key inputs that affect the valuation of the
residual interest cash flows include credit losses, prepayment speed, and the
discount rate. The fair value of residual interest is estimated based
on 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. The fair value of the
residual interest in securitizations and the cash reserve account is determined
using a discounted cash flow analysis.
The
following table summarizes the fair values of financial instruments measured at
fair value on a recurring basis at June 30, 2008 (in
millions):
|
|
Items
Measured at Fair Value on a Recurring Basis
|
|
|
|
Quoted
Price in Active Markets for Identical Assets
(Level
1)
|
|
|
Significant
Other Observable Inputs
(Level
2)
|
|
|
Significant
Unobservable Inputs
(Level
3)
|
|
|
Balance
as of June 30,
2008
|
|
Automotive
Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
equivalents – financial instruments (a) (b)
|
|
$ |
— |
|
|
$ |
9,884 |
|
|
$ |
— |
|
|
$ |
9,884 |
|
Marketable
securities (a) (c)
|
|
|
4,066 |
|
|
|
8,062 |
|
|
|
318 |
|
|
|
12,446 |
|
Derivative
financial instruments
|
|
|
— |
|
|
|
1,127 |
|
|
|
299 |
|
|
|
1,426 |
|
Total
assets at fair value
|
|
$ |
4,066 |
|
|
$ |
19,073 |
|
|
$ |
617 |
|
|
$ |
23,756 |
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
financial instruments
|
|
$ |
1 |
|
|
$ |
293 |
|
|
$ |
23 |
|
|
$ |
317 |
|
Total
liabilities at fair value
|
|
$ |
1 |
|
|
$ |
293 |
|
|
$ |
23 |
|
|
$ |
317 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Services Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
equivalents – financial instruments (a)
(b)
|
|
$ |
— |
|
|
$ |
2,367 |
|
|
$ |
— |
|
|
$ |
2,367 |
|
Marketable
securities (a)
|
|
|
809 |
|
|
|
6,617 |
|
|
|
— |
|
|
|
7,426 |
|
Derivative
financial instruments
|
|
|
— |
|
|
|
1,691 |
|
|
|
457 |
|
|
|
2,148 |
|
Retained
interest in sold receivables
|
|
|
— |
|
|
|
— |
|
|
|
380 |
|
|
|
380 |
|
Total
assets at fair value
|
|
$ |
809 |
|
|
$ |
10,675 |
|
|
$ |
837 |
|
|
$ |
12,321 |
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
financial instruments
|
|
$ |
— |
|
|
$ |
828 |
|
|
$ |
467 |
|
|
$ |
1,295 |
|
Total
liabilities at fair value
|
|
$ |
— |
|
|
$ |
828 |
|
|
$ |
467 |
|
|
$ |
1,295 |
|
_______
|
(a)
|
Approximately
90% of Cash equivalents – financial instruments and Marketable
securities presented are U.S. Treasuries, federal agency securities,
high-quality corporate bonds, and A-1/P-1 unsecured commercial
paper. Instruments presented in Level 1 include U.S.
Treasuries and equities. Instruments presented in Level 2
include federal agency securities, corporate obligations, and
asset-backed securities. Instruments presented in Level 3
include certain corporate obligations and
asset-backed securities.
|
|
(b)
|
Cash
equivalents – financial instruments excludes time deposits, certificates
of deposit, money market accounts, and other cash which are reported at
par value.
|
|
(c)
|
Includes
marketable securities and loaned
securities.
|
Item
1. Financial Statements (Continued)
NOTE
10. FAIR VALUE MEASUREMENTS (Continued)
The
following table summarizes the changes in Level 3 financial instruments measured
at fair value on a recurring basis for the period ended June 30, 2008 (in
millions):
|
|
Fair
Value Measurements Using Significant Unobservable
Inputs
|
|
|
|
|
|
|
Fair
Value at January 1, 2008
|
|
|
Total
Realized/
Unrealized
Gains/ (Losses)
|
|
|
Net
Purchases/ (Settlements) (a)
|
|
|
Net
Transfers Into/(Out of)
Level
3
|
|
|
Fair
Value at
June
30,
2008
|
|
|
Change
in Unrealized Gains/
(Losses)
on Instruments
Still
Held (b)
|
|
Automotive
Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable
securities (c)
|
|
$ |
201 |
|
|
$ |
(5 |
) |
|
$ |
205 |
|
|
$ |
(83 |
) |
|
$ |
318 |
|
|
$ |
(7 |
) |
Derivative
financial instruments, net (d)
|
|
|
257 |
|
|
|
165 |
|
|
|
(70 |
) |
|
|
(76 |
) |
|
|
276 |
|
|
|
145 |
|
Total
Level 3 fair value
|
|
$ |
458 |
|
|
$ |
160 |
|
|
$ |
135 |
|
|
$ |
(159 |
) |
|
$ |
594 |
|
|
$ |
138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Services Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
financial instruments, net (e)
|
|
$ |
(2 |
) |
|
$ |
21 |
|
|
$ |
2 |
|
|
$ |
(31 |
) |
|
$ |
(10 |
) |
|
$ |
9 |
|
Retained
interest in sold receivables (f)
|
|
|
653 |
|
|
|
47 |
|
|
|
(320 |
) |
|
|
— |
|
|
|
380 |
|
|
|
(16 |
) |
Total
Level 3 fair value
|
|
$ |
651 |
|
|
$ |
68 |
|
|
$ |
(318 |
) |
|
$ |
(31 |
) |
|
$ |
370 |
|
|
$ |
(7 |
) |
__________
(a)
|
Includes
option premiums paid/received on options traded during the
quarter.
|
(b)
|
For
those assets and liabilities still held at
June 30, 2008.
|
(c)
|
Realized/unrealized
gains/(losses) on marketable securities for the period presented are
recorded in Automotive
interest income and other non-operating
income/(expenses), net on the income statement. We
recorded $(5) million in second quarter of 2008, and
$(5) million for the first half of
2008.
|
(d)
|
Reflects
fair value of derivative assets, net of
liabilities. Realized/unrealized gains/(losses) on Automotive
sector derivative financial instruments for the period presented are
recorded to Automotive
cost of sales ($4 million for
second quarter of 2008, and $167 million for first half of
2008), and Automotive interest income and
other non-operating income/(expense), net ($(2) million
for second quarter of 2008, and $(2) million for first half of 2008)
on the income statement. See Note 11 for income
statement classification by hedge
designation.
|
(e)
|
Reflects
fair value of derivative assets, net of
liabilities. Realized/unrealized gains/(losses) on Financial
Services sector derivative financial instruments for the period presented
are recorded to Interest
expense ($8 million for
second quarter of 2008, and $7 million for first half of 2008),
and Financial
Services revenues ($(59) million for second
quarter of 2008, and $14 million for first half of 2008) on
the income statement. See Note 11 for income statement
classification by hedge
designation.
|
(f)
|
Realized/unrealized
gains/(losses) on the retained interests in securitized assets for the
period presented are recorded in Financial Services
revenues on the income statement ($48 million
for second quarter of 2008, and $63 million for first half of 2008)
and Accumulated
other comprehensive income/(loss) on the balance sheet ($0 for the second
quarter of 2008, and $(16) million for the first half of
2008).
|
The
following table summarizes the fair values of items measured at fair value on a
nonrecurring basis for the quarter ended June 30, 2008 (in
millions):
|
|
Items
Measured at Fair Value on a Nonrecurring Basis
|
|
|
|
|
|
|
Quoted
Price in Active Markets for Identical Assets
|
|
|
Significant
Other Observable Inputs
|
|
|
Significant
Unobservable Inputs
|
|
|
|
|
|
|
|
Automotive
Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America net property (a)
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
11,009 |
|
|
$ |
11,009 |
|
|
$ |
(5,300 |
) |
Held-for-sale
operations (b)
|
|
|
— |
|
|
|
— |
|
|
|
28 |
|
|
|
28 |
|
|
|
(18 |
) |
Total
assets at fair value
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
11,037 |
|
|
$ |
11,037 |
|
|
$ |
(5,318 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Services Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
investment in certain operating leases (c)
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
9,414 |
|
|
$ |
9,414 |
|
|
$ |
(2,086 |
) |
Total
assets at fair value
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
9,414 |
|
|
$ |
9,414 |
|
|
$ |
(2,086 |
) |
__________
(a)
|
In
accordance with the provisions of SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets ("SFAS No. 144"), a
pre-tax impairment charge of $5.3 billion was recorded related to the
long-lived assets in the Ford North America segment. The
fair value measurement used to determine the impairment was based on the
income approach which utilized cash flow projections consistent with the
most recent Ford North America business plan approved by our Board of
Directors, a terminal value, and a discount rate equivalent to a market
participant's weighted average cost of capital. See
Note 3 for additional discussion of this
impairment.
|
(b)
|
In accordance with
the provisions of SFAS No. 144, we recorded a pre-tax impairment of
$18 million related to the ACH Milan plant classified as held for
sale. The fair value measurement used to determine the
impairment reflects the expected proceeds based on June 30, 2008
conditions. See Note 8 for additional discussion of this
impairment.
|
(c)
|
In
accordance with the provisions of SFAS No. 144, we recorded a pre-tax
impairment of $2.1 billion
related to certain vehicle lines
included in our Financial Services sector Net
investment in operating leases. The fair value used to
determine the impairment was measured by discounting the contractual
payments and estimated auction proceeds. The discount rate
reflected hypothetical market assumptions regarding borrowing rates,
credit loss patterns, and residual value risk. See Note 3 for
additional discussion of this
impairment.
|
Including
the second quarter losses shown above, losses for the first half of 2008 for the
Automotive and Financial Services sectors were $5.8 billion and
$2.1 billion, respectively.
Item
1. Financial Statements (Continued)
NOTE
11. 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. We enter into various derivatives, including interest rate,
foreign currency and commodity forwards, options and swaps, to manage the
financial and operational exposure arising from these risks.
We have
elected to apply hedge accounting to certain derivative instruments in both the
Automotive and Financial Services sectors. For the Automotive sector,
our hedge accounting policies are consistent with the prior year. For
the Financial Services sector, beginning in the first quarter of 2008, we have
designated certain receive-fixed, pay-float interest rate swaps as fair value
hedges of fixed-rate debt. The risk being hedged is the risk of
changes in fair value of the hedged item attributable to changes in the
benchmark interest rate. We use regression analysis to assess fair
value hedge effectiveness under the "long-haul" method. See
Note 23 of the Notes to the Financial Statements in our
2007 Form 10-K Report for a detailed description of our derivative
instruments and hedge accounting designations.
Income
Statement Effect of Derivative Instruments
The
following table summarizes the estimated pre-tax gains/(losses) for each type of
hedge designation for our Automotive and Financial Services sectors
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
Statement Classification
|
Automotive
Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact
of discontinued hedges
|
|
$ |
— |
|
|
$ |
177 |
|
|
$ |
1 |
|
|
$ |
187 |
|
Automotive
cost of sales
|
Net
investment hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ineffectiveness
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1 |
) |
Automotive
cost of sales
|
Derivatives
not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodities
|
|
|
75 |
|
|
|
9 |
|
|
|
423 |
|
|
|
41 |
|
Automotive
cost of sales
|
Foreign
currency derivatives on operating exposures (a) (b)
|
|
|
18 |
|
|
|
13 |
|
|
|
526 |
|
|
|
21 |
|
Automotive
cost of sales
|
Foreign
currency derivatives on investment portfolios
|
|
|
(1 |
) |
|
|
— |
|
|
|
(35 |
) |
|
|
— |
|
Automotive
interest income and other non-operating income/(expense),
net
|
Other
|
|
|
(2 |
) |
|
|
(4 |
) |
|
|
(2 |
) |
|
|
(58 |
) |
Automotive
cost of sales/Automotive interest income and other non-operating
income/(expense), net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Services Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ineffectiveness
|
|
$ |
(30 |
) |
|
$ |
— |
|
|
$ |
(43 |
) |
|
$ |
— |
|
Financial
Services revenues
|
Net
interest settlements and accruals excluded from the assessment of hedge
effectiveness
|
|
|
18 |
|
|
|
— |
|
|
|
39 |
|
|
|
— |
|
Interest
expense
|
Derivatives
not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate swaps
|
|
|
35 |
|
|
|
(268 |
) |
|
|
(45 |
) |
|
|
(238 |
) |
Financial
Services revenues
|
Foreign
currency swaps and forward contracts (a)
|
|
|
(315 |
) |
|
|
(454 |
) |
|
|
81 |
|
|
|
(461 |
) |
Financial
Services revenues
|
Other
|
|
|
(1 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Financial
Services revenues
|
__________
(a)
|
These
gains/(losses) were related to foreign currency derivatives and were
partially offset by net revaluation impacts on foreign denominated assets
and liabilities, which were recorded to the same income statement line
item as the hedge gains/(losses).
|
(b)
|
Includes
amounts released from Accumulated other
comprehensive income/(loss) to income related to cash flow hedges
de-designated prior to maturity.
|
Item
1. Financial Statements (Continued)
NOTE
11. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)
Balance
Sheet Effect of Derivative Instruments
We do not net positions with our
counterparties for purposes of our balance sheet presentation and
disclosure. The following table summarizes the estimated fair
value of our derivative instruments (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flow hedges
|
|
$ |
485 |
|
|
$ |
131 |
|
|
$ |
617 |
|
|
$ |
195 |
|
Derivatives
not designated as hedging instruments
|
|
|
941 |
|
|
|
186 |
|
|
|
757 |
|
|
|
188 |
|
Total
derivative instruments
|
|
$ |
1,426 |
|
|
$ |
317 |
|
|
$ |
1,374 |
|
|
$ |
383 |
|
Financial
Services Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value hedges
|
|
$ |
140 |
|
|
$ |
25 |
|
|
$ |
— |
|
|
$ |
— |
|
Derivatives
not designated as hedging instruments
|
|
|
2,008 |
|
|
|
1,270 |
|
|
|
2,811 |
|
|
|
1,349 |
|
Total
derivative instruments
|
|
$ |
2,148 |
|
|
$ |
1,295 |
|
|
$ |
2,811 |
|
|
$ |
1,349 |
|
NOTE
12. RETIREMENT BENEFITS
Pension
and OPEB expense is summarized as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
95 |
|
|
$ |
105 |
|
|
$ |
113 |
|
|
$ |
161 |
|
|
$ |
78 |
|
|
$ |
95 |
|
Interest
cost
|
|
|
672 |
|
|
|
658 |
|
|
|
418 |
|
|
|
399 |
|
|
|
428 |
|
|
|
449 |
|
Expected
return on assets
|
|
|
(866 |
) |
|
|
(870 |
) |
|
|
(474 |
) |
|
|
(467 |
) |
|
|
(80 |
) |
|
|
(66 |
) |
Amortization
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior
service costs/(credits)
|
|
|
94 |
|
|
|
66 |
|
|
|
27 |
|
|
|
27 |
|
|
|
(222 |
) |
|
|
(246 |
) |
(Gains)/Losses
and other
|
|
|
4 |
|
|
|
13 |
|
|
|
57 |
|
|
|
110 |
|
|
|
87 |
|
|
|
181 |
|
Separation
programs
|
|
|
32 |
|
|
|
(11 |
) |
|
|
18 |
|
|
|
49 |
|
|
|
4 |
|
|
|
(7 |
) |
(Gain)/Loss
from curtailment
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(100 |
) |
|
|
(148 |
) |
Costs
allocated to Visteon
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
1 |
|
Net
expense/(income)
|
|
$ |
31 |
|
|
$ |
(39 |
) |
|
$ |
159 |
|
|
$ |
279 |
|
|
$ |
196 |
|
|
$ |
259 |
|
__________
*
|
Includes
held-for-sale operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
189 |
|
|
$ |
226 |
|
|
$ |
236 |
|
|
$ |
321 |
|
|
$ |
156 |
|
|
$ |
189 |
|
Interest
cost
|
|
|
1,344 |
|
|
|
1,305 |
|
|
|
861 |
|
|
|
794 |
|
|
|
861 |
|
|
|
895 |
|
Expected
return on assets
|
|
|
(1,732 |
) |
|
|
(1,740 |
) |
|
|
(992 |
) |
|
|
(930 |
) |
|
|
(159 |
) |
|
|
(133 |
) |
Amortization
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior
service costs/(credits)
|
|
|
188 |
|
|
|
134 |
|
|
|
54 |
|
|
|
53 |
|
|
|
(438 |
) |
|
|
(514 |
) |
(Gains)/Losses
and other
|
|
|
8 |
|
|
|
26 |
|
|
|
108 |
|
|
|
221 |
|
|
|
174 |
|
|
|
371 |
|
Separation
programs
|
|
|
205 |
|
|
|
821 |
|
|
|
42 |
|
|
|
126 |
|
|
|
11 |
|
|
|
15 |
|
(Gain)/Loss
from curtailment
|
|
|
— |
|
|
|
176 |
|
|
|
— |
|
|
|
(14 |
) |
|
|
(111 |
) |
|
|
(1,108 |
) |
Costs
allocated to Visteon
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3 |
|
|
|
2 |
|
Net
expense/(income)
|
|
$ |
202 |
|
|
$ |
948 |
|
|
$ |
309 |
|
|
$ |
571 |
|
|
$ |
497 |
|
|
$ |
(283 |
) |
__________
*
|
Includes
held-for-sale operations.
|
In the
second quarter of 2008, we recorded a $100 million OPEB curtailment gain
associated with employee separations in Automotive cost of
sales. As a result of this curtailment, we remeasured the U.S.
hourly retiree health care plan as of June 30, 2008, which reduced our
obligation by about $1.1 billion.
Item
1. Financial Statements (Continued)
NOTE
12. RETIREMENT BENEFITS (Continued)
Effective
August 1, 2008, the Company-paid retiree basic life insurance benefit
was capped at $25,000 for eligible existing and future salaried
retirees. Salaried employees hired on or after
January 1, 2004 are not eligible for retiree basic life
insurance. The obligation decreased by about $850 million as a
result of this benefit change.
Plan
Contributions and Drawdowns
Our
policy for funded plans is to contribute, at a minimum, amounts required by
applicable laws, regulations, and union agreements. From time to
time, we make contributions beyond those legally required.
Pension. On
June 2, 2008, in connection with the sale of Jaguar Land Rover, we
contributed about $600 million to the Jaguar and Land Rover pension
plans. In addition to this amount, during the first half of 2008, we
contributed $1.1 billion to our worldwide pension plans, including benefit
payments paid directly by the Company for unfunded plans. We expect
to contribute from Automotive cash and cash equivalents an additional
$500 million in 2008, for a total of $2.2 billion this year (including
Jaguar Land Rover). 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.
Life
Insurance. During 2008 we expect to withdraw about
$80 million from our Voluntary Employee Beneficiary Association trust
("VEBA") as reimbursement for U.S. hourly retiree life insurance benefit
payments.
NOTE
13. 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
In the
first quarter of 2008, we changed the reporting structure of our Automotive
sector to separately disclose the following seven segments: 1) Ford
North America, 2) Ford South America, 3) Ford Europe, 4) Volvo, 5) Ford Asia
Pacific Africa, 6) Mazda, and 7) Jaguar Land Rover and Aston
Martin. Automotive sector prior period information has been
reclassified into these seven segments, and is provided for these segments in
the table below. Included in each segment described below 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). In the first quarter of 2008, we changed the
reporting structure of this segment to include the sale of Mazda6 vehicles by
our consolidated subsidiary, AutoAlliance International, Inc. ("AAI")
(previously included in the results for Ford Asia Pacific Africa). We
have reclassified prior period information to reflect this structural change to
our segment reporting.
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 (including all parts of Turkey and Russia).
The Volvo
segment includes primarily the sale of Volvo-brand vehicles and related service
parts throughout the world (including in North America, South America, Europe,
Asia Pacific, and Africa).
Ford Asia
Pacific Africa segment includes primarily the sale of Ford-brand vehicles and
related service parts in the Asia Pacific region and Africa.
The Mazda
segment includes the equity income/(loss) associated with our investment in
Mazda (33.4% of Mazda's profit after tax), as well as certain of our
Mazda-related investments.
Prior to
the sale of these brands, the Jaguar Land Rover and Aston Martin segment
included primarily the sale of Jaguar Land Rover and Aston Martin vehicles and
related service parts throughout the world (including in North America, South
America, Europe, Asia Pacific, and Africa). In May 2007 and
June 2008, respectively, we completed the sale of Aston Martin and Jaguar
Land Rover; sales of Aston Martin and Jaguar Land Rover vehicles and related
service parts throughout the world are included within this segment for the
period until each brand's respective date of sale.
Item
1. Financial Statements (Continued)
NOTE
13. SEGMENT INFORMATION (Continued)
The Other
Automotive component of the Automotive sector consists primarily of
centrally-managed net interest expense and related fair market value
adjustments.
Transactions
among Automotive segments generally are presented on a "where-sold,"
absolute-cost basis, which reflects the profit/(loss) on the sale within the
segment making the ultimate sale to an external entity. This
presentation generally eliminates the effect of legal entity transfer prices
within the Automotive sector for vehicles, components, and product
engineering. Beginning with the first quarter of 2008, income/(loss)
before income taxes on vehicle component sales by Volvo or Jaguar Land Rover to
each other or to any other segment and by the Ford-brand segments to either
Volvo or Jaguar Land Rover are reflected in the results for the segment making
the vehicle component sale.
Financial
Services Sector
The
Financial Services sector includes the following segments: 1) Ford Credit and 2)
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 some Volvo vehicles in Europe.
(In
millions)
|
|
Automotive Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jaguar
Land Rover and
Aston
Martin
|
|
|
|
|
|
|
|
SECOND
QUARTER 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales/Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
customer
|
|
$ |
14,219 |
|
|
$ |
2,346 |
|
|
$ |
11,559 |
|
|
$ |
4,326 |
|
|
$ |
1,778 |
|
|
$ |
— |
|
|
$ |
2,829 |
|
|
$ |
— |
|
|
$ |
37,057 |
|
Intersegment
|
|
|
71 |
|
|
|
— |
|
|
|
263 |
|
|
|
30 |
|
|
|
— |
|
|
|
— |
|
|
|
22 |
|
|
|
— |
|
|
|
386 |
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
before income taxes (a)
|
|
|
(7,153 |
) |
|
|
388 |
|
|
|
579 |
|
|
|
(152 |
) |
|
|
43 |
|
|
|
(111 |
) |
|
|
75 |
|
|
|
(279 |
) |
|
|
(6,610 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SECOND
QUARTER 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales/Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
customer
|
|
$ |
18,961 |
|
|
$ |
1,827 |
|
|
$ |
9,203 |
|
|
$ |
4,373 |
|
|
$ |
1,727 |
|
|
$ |
— |
|
|
$ |
4,015 |
|
|
$ |
— |
|
|
$ |
40,106 |
|
Intersegment
|
|
|
65 |
|
|
|
— |
|
|
|
238 |
|
|
|
41 |
|
|
|
— |
|
|
|
— |
|
|
|
34 |
|
|
|
— |
|
|
|
378 |
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
before income taxes
|
|
|
(67 |
) |
|
|
255 |
|
|
|
184 |
|
|
|
(91 |
) |
|
|
18 |
|
|
|
72 |
|
|
|
557 |
|
|
|
(107 |
) |
|
|
821 |
|
|
|
Financial
Services Sector (b)
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
|
|
|
Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SECOND
QUARTER 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales/Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
customer
|
|
$ |
4,346 |
|
|
$ |
109 |
|
|
$ |
— |
|
|
$ |
4,455 |
|
|
$ |
— |
|
|
$ |
41,512 |
|
Intersegment
|
|
|
242 |
|
|
|
6 |
|
|
|
(1 |
) |
|
|
247 |
|
|
|
(633 |
) |
|
|
— |
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
before income taxes
|
|
|
(2,380 |
) |
|
|
(40 |
) |
|
|
— |
|
|
|
(2,420 |
) |
|
|
— |
|
|
|
(9,030 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SECOND
QUARTER 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales/Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
customer
|
|
$ |
4,075 |
|
|
$ |
61 |
|
|
$ |
— |
|
|
$ |
4,136 |
|
|
$ |
— |
|
|
$ |
44,242 |
|
Intersegment
|
|
|
223 |
|
|
|
8 |
|
|
|
(4 |
) |
|
|
227 |
|
|
|
(605 |
) |
|
|
— |
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
before income taxes
|
|
|
112 |
|
|
|
(7 |
) |
|
|
— |
|
|
|
105 |
|
|
|
— |
|
|
|
926 |
|
__________
(a)
|
For
our Mazda segment, Income/(Loss) before income taxes primarily reflects a
charge as determined under U.S. GAAP representing the impact on Ford of a
goodwill impairment related to Mazda-owned dealerships in
Japan.
|
(b)
|
Financial
Services sector’s interest income is recorded as Financial
Services revenues.
|
(c)
|
Includes
intersector transactions occurring in the ordinary course of
business.
|
Item
1. Financial Statements (Continued)
NOTE
13. SEGMENT INFORMATION (Continued)
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jaguar
Land Rover and
Aston
Martin
|
|
|
|
|
|
|
|
FIRST
HALF 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales/Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
customer
|
|
$ |
31,329 |
|
|
$ |
4,188 |
|
|
$ |
21,714 |
|
|
$ |
8,523 |
|
|
$ |
3,446 |
|
|
$ |
— |
|
|
$ |
6,974 |
|
|
$ |
— |
|
|
$ |
76,174 |
|
Intersegment
|
|
|
289 |
|
|
|
— |
|
|
|
489 |
|
|
|
57 |
|
|
|
— |
|
|
|
— |
|
|
|
63 |
|
|
|
— |
|
|
|
898 |
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
before income taxes (a)
|
|
|
(7,598 |
) |
|
|
645 |
|
|
|
1,307 |
|
|
|
(303 |
) |
|
|
39 |
|
|
|
(62 |
) |
|
|
75 |
|
|
|
(461 |
) |
|
|
(6,358 |
) |
Total
assets at June 30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FIRST
HALF 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales/Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
customer
|
|
$ |
37,520 |
|
|
$ |
3,110 |
|
|
$ |
17,835 |
|
|
$ |
8,945 |
|
|
$ |
3,496 |
|
|
$ |
— |
|
|
$ |
7,830 |
|
|
$ |
— |
|
|
$ |
78,736 |
|
Intersegment
|
|
|
317 |
|
|
|
— |
|
|
|
425 |
|
|
|
68 |
|
|
|
— |
|
|
|
— |
|
|
|
70 |
|
|
|
— |
|
|
|
880 |
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
before income taxes
|
|
|
(769 |
) |
|
|
368 |
|
|
|
392 |
|
|
|
(1 |
) |
|
|
(10 |
) |
|
|
93 |
|
|
|
858 |
|
|
|
(448 |
) |
|
|
483 |
|
Total
assets at June 30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
123,192 |
|
|
|
Financial
Services Sector (b)
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
|
|
|
Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FIRST
HALF 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales/Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
customer
|
|
$ |
8,659 |
|
|
$ |
207 |
|
|
$ |
— |
|
|
$ |
8,866 |
|
|
$ |
— |
|
|
$ |
85,040 |
|
Intersegment
|
|
|
480 |
|
|
|
12 |
|
|
|
(2 |
) |
|
|
490 |
|
|
|
(1,388 |
) |
|
|
— |
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
before income taxes
|
|
|
(2,348 |
) |
|
|
(8 |
) |
|
|
— |
|
|
|
(2,356 |
) |
|
|
— |
|
|
|
(8,714 |
) |
Total
assets at June 30
|
|
|
164,401 |
|
|
|
10,485 |
|
|
|
(9,770 |
) |
|
|
165,116 |
|
|
|
(3,005 |
) |
|
|
270,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FIRST
HALF 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales/Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
customer
|
|
$ |
8,394 |
|
|
$ |
131 |
|
|
$ |
— |
|
|
$ |
8,525 |
|
|
$ |
— |
|
|
$ |
87,261 |
|
Intersegment
|
|
|
441 |
|
|
|
14 |
|
|
|
(6 |
) |
|
|
449 |
|
|
|
(1,329 |
) |
|
|
— |
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
before income taxes
|
|
|
406 |
|
|
|
(7 |
) |
|
|
— |
|
|
|
399 |
|
|
|
— |
|
|
|
882 |
|
Total
assets at June 30
|
|
|
165,461 |
|
|
|
10,647 |
|
|
|
(10,634 |
) |
|
|
165,474 |
|
|
|
(727 |
) |
|
|
287,939 |
|
__________
(a)
|
For
our Mazda segment, Income/(Loss) before income taxes primarily reflects a
charge as determined under U.S. GAAP representing the impact on Ford of a
goodwill impairment related to Mazda-owned dealerships in
Japan.
|
(b)
|
Financial
Services sector’s interest income is recorded as Financial
Services revenues.
|
(c)
|
Includes
intersector transactions occurring in the ordinary course of
business.
|
Item
1. Financial Statements (Continued)
NOTE
14. GUARANTEES
At
June 30, 2008, 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 our 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 $8 million; the fair value ascribed to these
guarantees was determined to be insignificant. These guarantees and
the guarantee of the Notes described in the succeeding paragraph were issued
prior to December 31, 2002. Therefore, fair value
measurement and recognition is not required.
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).
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 31, 2011 and supports the
payment obligations of Hertz Vehicle Finance LLC under one or more series of
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
$16 million at June 30, 2008.
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 but are
not limited to 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 also are party to numerous indemnifications which 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.
Product
Performance
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
|
|
$ |
4,862 |
|
|
$ |
5,235 |
|
Payments
made during the period
|
|
|
(1,642 |
) |
|
|
(1,685 |
) |
Changes
in accrual related to warranties issued during the period
|
|
|
1,338 |
|
|
|
1,587 |
|
Changes
in accrual related to pre-existing warranties
|
|
|
(72 |
) |
|
|
(162 |
) |
Foreign
currency translation and other
|
|
|
110 |
|
|
|
103 |
|
Ending
balance
|
|
$ |
4,596 |
|
|
$ |
5,078 |
|
Item
1. Financial Statements (Continued)
NOTE
15. COMPREHENSIVE INCOME/(LOSS)
Total
comprehensive income/(loss) is summarized as follows
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income/(loss)
|
|
$ |
(8,667 |
) |
|
$ |
750 |
|
|
$ |
(8,567 |
) |
|
$ |
468 |
|
Other
comprehensive income/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation
|
|
|
(1,452 |
) |
|
|
658 |
|
|
|
(531 |
) |
|
|
686 |
|
Employee
benefit-related
|
|
|
1,184 |
|
|
|
375 |
|
|
|
1,280 |
|
|
|
(547 |
) |
Gain/(loss)
on derivative instruments
|
|
|
(252 |
) |
|
|
(78 |
) |
|
|
(27 |
) |
|
|
(407 |
) |
Net
holding gain/(loss)
|
|
|
(6 |
) |
|
|
5 |
|
|
|
(33 |
) |
|
|
(32 |
) |
Total
other comprehensive income/(loss)
|
|
|
(526 |
) |
|
|
960 |
|
|
|
689 |
|
|
|
(300 |
) |
Total
comprehensive income/(loss)
|
|
$ |
(9,193 |
) |
|
$ |
1,710 |
|
|
$ |
(7,878 |
) |
|
$ |
168 |
|
Report
of Independent Registered Public Accounting Firm
To Board
of Directors and Stockholders
Ford
Motor Company:
We have
reviewed the accompanying consolidated balance sheet of Ford Motor Company and
its subsidiaries as of June 30, 2008 and the related consolidated statements of
income for each of the three-month and six-month periods ended June 30, 2008 and
2007 and the condensed consolidated statement of cash flows for the six-month
periods ended June 30, 2008 and 2007. These interim financial
statements are the responsibility of the Company’s management.
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 review procedures applied in the review of the basic
financial statements.
We
conducted our review in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim
financial information consists principally of applying analytical procedures and
making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with the standards of the Public Company Accounting Oversight Board
(United States), the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we
do not express such an opinion.
Based on
our review, we are not aware of any material modifications that should be made
to the accompanying consolidated interim financial statements for them to be in conformity with
accounting principles generally accepted in the United States of
America.
We
previously audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet as of
December 31, 2007, and the related consolidated statements of income, of cash
flows and of stockholders’ equity for the year then ended (not presented
herein), and in our report dated February 27, 2008, except with
respect to our opinion on the consolidated financial statements insofar as it
relates to the effects of the change in reportable segments discussed in Notes
13, 18 and 25 to the consolidated financial statements, as to which the date is
June 2, 2008, we expressed an unqualified opinion (with explanatory paragraphs
relating to changes in the method of accounting for conditional asset retirement
obligations in 2005, the method of accounting for defined benefit pension and
other postretirement plans, the timing of the annual goodwill and other
intangible assets impairment testing, and the amortization method for special
tools in 2006 and the method of accounting for uncertain tax positions in 2007)
on those consolidated financial statements. In our opinion, the
information set forth in the accompanying consolidated balance sheet as of
December 31, 2007 is fairly stated in all material respects in relation to the
consolidated balance sheet from which it has been derived.
/s/
PricewaterhouseCoopers LLP
PricewaterhouseCoopers
LLP
Detroit,
Michigan
August 8,
2008
ITEM 2. Management's
Discussion and Analysis of Financial Condition and Results of
Operations.
SECOND
QUARTER RESULTS OF OPERATIONS
Our
worldwide net loss was $8.7 billion or $3.88 per share of Common and
Class B Stock in the second quarter of 2008, down from net income of
$750 million or $0.31 per share in the second quarter of
2007.
Results
by business sector for the second quarter of 2008 and 2007 are shown below (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
before income taxes
|
|
|
|
|
|
|
|
|
|
Automotive
sector
|
|
$ |
(6,610 |
) |
|
$ |
821 |
|
|
$ |
(7,431 |
) |
Financial
Services sector
|
|
|
(2,420 |
) |
|
|
105 |
|
|
|
(2,525 |
) |
Total
Company
|
|
|
(9,030 |
) |
|
|
926 |
|
|
|
(9,956 |
) |
Provision
for/(Benefit from) income taxes
|
|
|
(444 |
) |
|
|
123 |
|
|
|
(567 |
) |
Minority
interests in net income/(loss) of subsidiaries *
|
|
|
89 |
|
|
|
85 |
|
|
|
4 |
|
Income/(Loss)
from continuing operations
|
|
|
(8,675 |
) |
|
|
718 |
|
|
|
(9,393 |
) |
Income/(Loss)
from discontinued operations
|
|
|
8 |
|
|
|
32 |
|
|
|
(24 |
) |
Net
income/(loss)
|
|
$ |
(8,667 |
) |
|
$ |
750 |
|
|
$ |
(9,417 |
) |
___________
*
|
Primarily
related to Ford Europe's consolidated 41%-owned affiliate, Ford
Otosan. The pre-tax results for Ford Otosan were $156 million and
$139 million in
the second quarter of 2008 and 2007,
respectively.
|
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 the second
quarter 2008 and 2007 special items by segment or business unit
(in millions):
|
|
Second
Quarter – Income/(Loss)
|
|
Automotive
Sector
|
|
|
|
|
|
|
Ford
North America
|
|
|
|
|
|
|
Fixed
asset impairment charges
|
|
$ |
(5,300 |
) |
|
$ |
— |
|
Gain/(Loss)
on sale of ACH plants/assets
|
|
|
(303 |
) |
|
|
— |
|
Job
Security Benefits and personnel-reduction programs
|
|
|
(274 |
) |
|
|
55 |
|
U.S.
dealer reductions (including investment write-offs)
|
|
|
(39 |
) |
|
|
— |
|
Retiree
health care curtailment gain
|
|
|
100 |
|
|
|
148 |
|
Total
Ford North America
|
|
|
(5,816 |
) |
|
|
203 |
|
Ford
Europe
|
|
|
|
|
|
|
|
|
Personnel-reduction
programs/Other
|
|
|
(3 |
) |
|
|
(78 |
) |
Volvo
|
|
|
|
|
|
|
|
|
Personnel-reduction
programs
|
|
|
(23 |
) |
|
|
— |
|
U.S.
dealer reductions (including investment write-offs)
|
|
|
(9 |
) |
|
|
— |
|
Ford
Asia Pacific Africa
|
|
|
|
|
|
|
|
|
Personnel-reduction
programs
|
|
|
(7 |
) |
|
|
(8 |
) |
Mazda
|
|
|
|
|
|
|
|
|
Impairment
of dealer network goodwill
|
|
|
(214 |
) |
|
|
— |
|
Other
Automotive
|
|
|
|
|
|
|
|
|
Gain
on exchange of debt securities for equity
|
|
|
57 |
|
|
|
— |
|
Jaguar
Land Rover and Aston Martin
|
|
|
|
|
|
|
|
|
Loss
on sale of Jaguar Land Rover
|
|
|
(106 |
) |
|
|
— |
|
Net
gains/(losses) on certain Jaguar Land Rover undesignated
hedges
|
|
|
(1 |
) |
|
|
182 |
|
Personnel-reduction
programs
|
|
|
(1 |
) |
|
|
(32 |
) |
Sale
of Aston Martin (primarily the gain on sale)
|
|
|
— |
|
|
|
206 |
|
Jaguar
Land Rover operating profits for 2008/Other
|
|
|
183 |
|
|
|
(30 |
) |
Total
Jaguar Land Rover and Aston Martin
|
|
|
75 |
|
|
|
326 |
|
Total
Automotive sector
|
|
|
(5,940 |
) |
|
|
443 |
|
|
|
|
|
|
|
|
|
|
Financial
Services Sector
|
|
|
|
|
|
|
|
|
Ford
Credit net operating lease impairment charges
|
|
|
(2,086 |
) |
|
|
— |
|
Total
|
|
$ |
(8,026 |
) |
|
$ |
443 |
|
Included
in Provision for/(Benefit
from) income taxes are tax benefits of $727 million for the second
quarter of 2008 that we consider to be special items. This amount
primarily consists of the tax effects of the pre-tax special items listed above,
and a $645 million 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
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
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 may be indicative of the
direction of our business unless our disclosures indicate
otherwise.
AUTOMOTIVE
SECTOR
Details
by segment or business unit of Income/(Loss) before income taxes
for the second quarter of 2008 and 2007 are shown below (in millions),
with Jaguar Land Rover and Aston Martin segment separated out from "ongoing"
subtotals:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
North America
|
|
$ |
(7,153 |
) |
|
$ |
(67 |
) |
|
$ |
(7,086 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
South America
|
|
|
388 |
|
|
|
255 |
|
|
|
133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
Europe
|
|
|
579 |
|
|
|
184 |
|
|
|
395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volvo
|
|
|
(152 |
) |
|
|
(91 |
) |
|
|
(61 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
Asia Pacific Africa
|
|
|
43 |
|
|
|
18 |
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mazda
|
|
|
(111 |
) |
|
|
72 |
|
|
|
(183 |
) |
Total
ongoing Automotive operations
|
|
|
(6,406 |
) |
|
|
371 |
|
|
|
(6,777 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Automotive
|
|
|
(279 |
) |
|
|
(107 |
) |
|
|
(172 |
) |
Total
ongoing Automotive
|
|
|
(6,685 |
) |
|
|
264 |
|
|
|
(6,949 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Jaguar
Land Rover and Aston Martin
|
|
|
75 |
|
|
|
557 |
|
|
|
(482 |
) |
Total
Automotive sector
|
|
$ |
(6,610 |
) |
|
$ |
821 |
|
|
$ |
(7,431 |
) |
Details
by segment of Automotive revenues ("sales") and wholesale unit volumes for the
second quarter of 2008 and 2007 are shown below:
|
|
|
|
|
|
|
|
|
Wholesales
(b)
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
North America (c)
|
|
$ |
14.2 |
|
|
$ |
19.0 |
|
|
$ |
(4.8 |
) |
|
|
(25 |
)% |
|
|
679 |
|
|
|
816 |
|
|
|
(137 |
) |
|
|
(17 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
South America
|
|
|
2.4 |
|
|
|
1.8 |
|
|
|
0.6 |
|
|
|
28 |
|
|
|
118 |
|
|
|
110 |
|
|
|
8 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
Europe
|
|
|
11.5 |
|
|
|
9.2 |
|
|
|
2.3 |
|
|
|
26 |
|
|
|
532 |
|
|
|
509 |
|
|
|
23 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volvo
|
|
|
4.3 |
|
|
|
4.4 |
|
|
|
(0.1 |
) |
|
|
(1 |
) |
|
|
107 |
|
|
|
125 |
|
|
|
(18 |
) |
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
Asia Pacific Africa (d)
|
|
|
1.7 |
|
|
|
1.7 |
|
|
|
— |
|
|
|
3 |
|
|
|
125 |
|
|
|
135 |
|
|
|
(10 |
) |
|
|
(7 |
) |
Total
ongoing Automotive operations
|
|
|
34.1 |
|
|
|
36.1 |
|
|
|
(2.0 |
) |
|
|
(5 |
) |
|
|
1,561 |
|
|
|
1,695 |
|
|
|
(134 |
) |
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jaguar
Land Rover and Aston Martin
|
|
|
2.9 |
|
|
|
4.0 |
|
|
|
(1.1 |
) |
|
|
(30 |
) |
|
|
51 |
|
|
|
78 |
|
|
|
(27 |
) |
|
|
(35 |
) |
Total
Automotive sector
|
|
$ |
37.0 |
|
|
$ |
40.1 |
|
|
$ |
(3.1 |
) |
|
|
(8 |
) |
|
|
1,612 |
|
|
|
1,773 |
|
|
|
(161 |
) |
|
|
(9 |
) |
__________
(a)
|
2008
over/(under) 2007 sales percentages are computed using unrounded sales
numbers.
|
(b)
|
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.
|
(c)
|
Includes
sales of Mazda6 by our consolidated subsidiary,
AAI.
|
(d)
|
Included
in wholesale unit volumes of Ford Asia Pacific Africa are Ford-badged
vehicles sold in China and Malaysia by certain unconsolidated affiliates
totaling about 49,000 and 55,000 units in 2008 and 2007,
respectively. "Sales" above does not include revenue from these
units.
|
Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Details
of Automotive sector market share for selected markets for the second quarter of
2008 and 2007, along with the level of dealer stocks as of June 30, 2008 and
2007, are shown below:
|
|
|
|
Dealer-Owned
Stocks (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
Over/(Under)
|
|
United
States (b)
|
|
|
14.4 |
% |
|
|
15.6 |
% |
|
|
(1.2 |
)
pts |
|
|
559 |
|
|
|
557 |
|
|
|
2 |
|
South
America (b) (c)
|
|
|
9.5 |
|
|
|
10.9 |
|
|
|
(1.4 |
) |
|
|
38 |
|
|
|
29 |
|
|
|
9 |
|
Europe
(b) (d)
|
|
|
8.5 |
|
|
|
8.3 |
|
|
|
0.2 |
|
|
|
361 |
|
|
|
338 |
|
|
|
23 |
|
Volvo
–
United States/Europe (d)
|
|
|
0.5/1.3 |
|
|
|
0.6/1.4 |
|
|
|
(0.1)/(0.1 |
) |
|
|
20/41 |
|
|
|
24/46 |
|
|
|
(4)/(5 |
) |
Asia
Pacific Africa (b) (e) (f)
|
|
|
1.9 |
|
|
|
2.2 |
|
|
|
(0.3 |
) |
|
|
62 |
|
|
|
60 |
|
|
|
2 |
|
_________
(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,
including some vehicles reflected in our
inventory.
|
(b)
|
Market
share includes only Ford and, in certain markets (primarily United
States), Lincoln and Mercury
brands.
|
(c)
|
South
America market share is based, in part, on estimated vehicle registrations
for our six major markets (Argentina, Brazil, Chile, Colombia, Ecuador and
Venezuela).
|
(d)
|
Europe 2008 market
share is based, in part, on estimated vehicle registrations for the
19 European markets we track (described in "Item 1. Business"
of our 2007 Form 10-K Report). Europe 2007 market share is
based on actual vehicle registrations for these
markets.
|
(e)
|
Asia
Pacific Africa 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 Africa include primarily Ford-brand vehicles as
well as a small number of units distributed for other
manufacturers.
|
Overall
Automotive Sector
The
decline in results primarily reflected fixed asset impairment charges in Ford
North America ($5.3 billion), unfavorable volume and mix
($1.3 billion), higher charges for Job Security Benefits and
personnel-reduction programs (about $300 million), a loss on the sale
of ACH plants and assets (about $300 million), lower interest income and
mark-to-market adjustments for changes in currency exchange rates on
intercompany loans offset partially by lower interest expense (about
$200 million), a charge as determined under U.S. GAAP representing the
impact on Ford of a goodwill impairment related to Mazda-owned dealerships in
Japan (about $200 million), the non-recurrence of the gain on sale of Aston
Martin (about $200 million), lower net pricing (about $200 million),
the reduction of net gains on certain Jaguar Land Rover undesignated hedges
(about $200 million), and unfavorable changes in currency exchange rates
(about $200 million). These factors were offset partially by
favorable cost changes ($1 billion).
The table
below details our second quarter 2008 cost changes at constant volume, mix and
exchange, excluding special items (in billions):
Explanation
of Cost Changes
|
|
2008
Better/(Worse) Than 2007
|
|
Spending-related
|
Primarily
the non-recurrence of accelerated depreciation and amortization related to
recently-closed facilities.
|
|
$ |
0.3 |
|
Overhead
|
Primarily
salaried personnel reductions.
|
|
|
0.2 |
|
Pension
and OPEB
|
Primarily
health care efficiencies.
|
|
|
0.2 |
|
Manufacturing
and engineering
|
Primarily
hourly and salaried personnel reductions in North America and efficiencies
in our plants and processes, offset partially by higher engineering
expenses.
|
|
|
0.2 |
|
Advertising
& sales promotions
|
Primarily
lower costs in North America.
|
|
|
0.1 |
|
Warranty-related
|
Primarily
favorable adjustments to Volvo and South America warranty costs, offset
partially by the non-recurrence of adjustments to North America warranty
reserves.
|
|
|
— |
|
Net
product costs
|
Primarily
commodity cost increases and added product content, offset partially by
material cost reductions.
|
|
|
— |
|
|
Total
|
|
$ |
1.0 |
|
The
decline in revenue was more than explained by North America results including
lower wholesale unit volumes, adverse product mix, and lower net pricing, offset
partially by favorable changes in currency exchange rates in all other
segments.
Ford North America
Segment. The decline in earnings primarily reflected fixed
asset impairment charges, unfavorable volume and mix, higher charges for Job
Security Benefits and personnel-reduction programs, lower net pricing, and a
loss on the sale of ACH plants and assets, offset partially by favorable cost
changes. The favorable cost changes primarily reflected lower
spending-related costs, manufacturing and engineering costs, pension and OPEB
costs, and overhead costs.
Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Ford South America
Segment. The increase in earnings primarily reflected higher
net pricing and favorable volume and mix, offset partially by unfavorable
changes in currency exchange.
Ford Europe
Segment. The increase in earnings primarily reflected
favorable volume and mix, favorable cost changes, lower charges for
personnel-reduction programs, and favorable net pricing, offset partially by
unfavorable changes in currency exchange rates. The favorable cost
changes primarily reflected lower overhead costs, pension costs, advertising and
sales promotion costs, and net product costs, offset partially by higher
manufacturing and engineering costs.
Volvo Segment. The
decline in earnings primarily reflected unfavorable volume and mix, lower net
pricing, unfavorable changes in currency exchange rates, and higher charges for
personnel-reduction programs, offset partially by favorable cost
changes. The favorable cost changes primarily reflected lower
manufacturing and engineering costs, overhead costs, warranty-related costs,
advertising and sales promotion costs, and spending-related costs.
Ford Asia Pacific Africa
Segment. The increase in earnings was more than explained by
higher net pricing.
Mazda Segment. The
decline in results primarily reflected a charge as determined under U.S. GAAP
representing the impact on Ford of a goodwill impairment related to
Mazda-owned dealerships in Japan.
Other
Automotive. The decline in earnings primarily reflected lower
interest income (primarily reflecting lower interest rates) and mark-to-market
adjustments for changes in exchange rates on intercompany loans, offset
partially by lower interest expense.
Jaguar Land Rover and Aston Martin
Segment. The decrease in earnings primarily reflected the
non-recurrence of the gain on sale of Aston Martin, the reduction of net gains
on certain Jaguar Land Rover undesignated hedges, and the loss on the sale of
Jaguar Land Rover.
FINANCIAL
SERVICES SECTOR
Details
of Financial Services sector Income/(Loss) before income taxes
for the second quarter of 2008 and 2007 are shown below (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
2008
Over/(Under)
|
|
Ford
Credit
|
|
$ |
(2,380 |
) |
|
$ |
112 |
|
|
$ |
(2,492 |
) |
Other
Financial Services
|
|
|
(40 |
) |
|
|
(7 |
) |
|
|
(33 |
) |
Total
|
|
$ |
(2,420 |
) |
|
$ |
105 |
|
|
$ |
(2,525 |
) |
Ford
Credit
The
decrease in earnings primarily reflected the significant decline in used vehicle
auction values during the second quarter of 2008. This decline in
auction values contributed to: an impairment charge to Ford Credit's
North America segment operating lease portfolio for contracts terminating
beginning third quarter of 2008 ($2.1 billion), higher depreciation expense
for lease vehicles (about $500 million), and a higher provision for credit
losses (about $500 million). These factors were offset partially
by the non-recurrence of net losses related to market valuation adjustments from
derivatives (about $300 million), higher financing margin primarily
attributable to lower borrowing costs (about $100 million), a gain related
to the sale of approximately half of Ford Credit's ownership interest in
its Nordic operations (about $100 million), and lower expenses primarily
reflecting improved operating costs (about $100 million).
During
the second quarter of 2008, higher fuel prices and the weak economic climate in
the United States and Canada resulted in a more pronounced and accelerated shift
in consumer preferences away from full-size trucks and traditional SUVs to
smaller, more fuel-efficient vehicles. This shift in consumer
preferences combined with a weak economic climate caused a significant reduction
in auction values, in particular for used full-size trucks and traditional
SUVs. At the end of the quarter, Ford Credit completed its quarterly
North America operating lease portfolio adequacy study for accumulated
depreciation and projected that lease-end residual values would be significantly
lower than previously expected for full-size trucks and traditional
SUVs.
As a
result of the market factors and Ford Credit's adequacy study results, Ford
Credit tested the operating leases of its North America segment for
recoverability as of June 30, 2008 and recorded a pre-tax impairment
charge of $2.1 billion. This charge represents the amount by
which the carrying value of certain vehicle lines, primarily full-size trucks
and traditional SUVs, in Ford Credit's lease portfolio exceeded their fair
value.
Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
About 60%
of Ford Credit's net investment in operating leases is included in on-balance
sheet private securitizations, and $1.3 billion of the impairment charge is
attributable to the assets included in these securitizations. Ford
Credit structured the enhancements in its operating lease securitizations to
protect investors against residual and credit losses. Ford Credit
expects that these enhancements will be sufficient to cover projected residual
losses that supported the impairment charge.
Ford
Credit's net finance receivables and net investment in operating leases are
shown below (in billions):
|
|
June 30,
|
|
|
December 31,
|
|
|
2008
Over/(Under)
|
|
On-balance
sheet (including on-balance sheet securitizations)*
|
|
$ |
135.7 |
|
|
$ |
141.1 |
|
|
$ |
(5.4 |
) |
Unearned
interest supplements – Finance receivables
|
|
|
1.0 |
|
|
|
— |
|
|
|
1.0 |
|
Securitized
off-balance sheet
|
|
|
3.0 |
|
|
|
6.0 |
|
|
|
(3.0 |
) |
Managed
|
|
$ |
139.7 |
|
|
$ |
147.1 |
|
|
$ |
(7.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Serviced
|
|
$ |
140.2 |
|
|
$ |
148.0 |
|
|
$ |
(7.8 |
) |
__________
*
|
At
June 30, 2008 and December 31, 2007, includes finance
receivables of $77.4 billion
and $67.2 billion,
respectively, which have been sold for legal purposes in securitizations
that do not satisfy the requirements for accounting sale
treatment. In addition, at June 30, 2008
and December 31, 2007, includes net
investment in operating leases of $15.2 billion
and $18.9 billion, respectively, which 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 until the
associated debt or other obligations are
satisfied.
|
The
decrease in managed receivables from year-end 2007 was more than explained by
lower North America receivables, the impact of divestitures, and the impairment
charge for operating leases, offset partially by changes in currency exchange
rates.
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, excluding the allowance for credit losses and unearned interest
supplements related to finance receivables, are shown below for Ford Credit's
on-balance sheet and managed portfolios.
|
|
|
|
|
|
|
|
|
|
|
2008
Over/(Under)
|
Charge-offs
(in millions)
|
|
|
|
|
|
|
|
|
|
On-balance
sheet
|
|
$ |
246 |
|
|
$ |
125 |
|
|
$ |
121 |
|
Managed
|
|
|
254 |
|
|
|
139 |
|
|
|
115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss-to-Receivables
Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
On-balance
sheet
|
|
|
0.70 |
% |
|
|
0.36 |
% |
|
|
0.34 |
pts. .
|
Managed
|
|
|
0.70 |
|
|
|
0.38 |
|
|
|
0.32 |
|
The
increases in charge-offs and loss-to-receivable ratios for Ford Credit's
on-balance sheet and managed portfolios, principally in the U.S. retail
installment and lease portfolio, primarily reflected higher severity (i.e.,
average loss per repossession) mainly due to the overall auction value
deterioration in the used vehicle market, along with an increase in amount
financed, and a higher mix of 72-month contracts for vehicles repossessed in its
portfolio.
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 ( i.e.,
finance receivables, excluding unearned interest supplements, and net investment
in operating leases, excluding the allowance for credit losses) for its
on-balance sheet portfolio:
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for credit losses (in millions)
|
|
$ |
1,493 |
|
|
$ |
1,090 |
|
|
$ |
403 |
|
Allowance
as a percentage of end-of-period receivables
|
|
|
1.08 |
% |
|
|
0.77 |
% |
|
|
0.31 |
pts. |
Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
In the
second quarter of 2008, Ford Credit updated its assumptions to reflect higher
severities, which increased its allowance for credit losses by about
$190 million at June 30, 2008. The total increase in
allowance for credit losses is consistent with the increase in charge-offs and
the change in Ford Credit's severity assumptions. The allowance for
credit losses is primarily a function of portfolio quality, historical loss
performance, and receivable 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 June 30, 2008,
about 4% of the outstanding U.S. retail finance and lease contracts in Ford
Credit's serviced portfolio were classified as high risk at contract inception,
about the same as year-end 2007 and down from about 8% in 2000, consistent with
Ford Credit's efforts to improve the credit quality of its
portfolio.
Other
Financial Services
The
decrease in earnings primarily reflected the non-recurrence of gains related to
real estate sales transactions and market valuation adjustments from
derivatives.
FIRST HALF RESULTS OF
OPERATIONS
Our
worldwide net loss was $8.6 billion or $3.87 per share of Common and
Class B Stock in the first half of 2008, down from net income of
$468 million or $0.22 per share in the first half of
2007.
Results
by business sector for the first half of 2008 and 2007 are shown below (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
before income taxes
|
|
|
|
|
|
|
|
|
|
Automotive
sector
|
|
$ |
(6,358 |
) |
|
$ |
483 |
|
|
$ |
(6,841 |
) |
Financial
Services sector
|
|
|
(2,356 |
) |
|
|
399 |
|
|
|
(2,755 |
) |
Total
Company
|
|
|
(8,714 |
) |
|
|
882 |
|
|
|
(9,596 |
) |
Provision
for/(Benefit from) income taxes
|
|
|
(349 |
) |
|
|
305 |
|
|
|
(654 |
) |
Minority
interests in net income/(loss) of subsidiaries *
|
|
|
211 |
|
|
|
143 |
|
|
|
68 |
|
Income/(Loss)
from continuing operations
|
|
|
(8,576 |
) |
|
|
434 |
|
|
|
(9,010 |
) |
Income/(Loss)
from discontinued operations
|
|
|
9 |
|
|
|
34 |
|
|
|
(25 |
) |
Net
income/(loss)
|
|
$ |
(8,567 |
) |
|
$ |
468 |
|
|
$ |
(9,035 |
) |
___________
*
|
Primarily
related to Ford Europe's consolidated 41%-owned affiliate, Ford
Otosan. The pre-tax results for Ford Otosan were $370 million and
$237 million in
the first half of 2008 and 2007,
respectively.
|
Item
2. 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 the first
half 2008 and 2007 special items by segment or business unit
(in millions):
|
|
First Half –
Income/(Loss)
|
|
|
|
|
|
|
|
|
Ford
North America
|
|
|
|
|
|
|
Fixed
asset impairment charges
|
|
$ |
(5,300 |
) |
|
$ |
— |
|
Job
Security Benefits and personnel-reduction programs
|
|
|
(505 |
) |
|
|
(819 |
) |
Gain/(Loss)
on sale of ACH plants/assets
|
|
|
(305 |
) |
|
|
— |
|
U.S.
dealer reductions (including investment write-offs)
|
|
|
(147 |
) |
|
|
— |
|
Ballard
restructuring
|
|
|
(70 |
) |
|
|
— |
|
Pension
curtailment charges
|
|
|
— |
|
|
|
(175 |
) |
Retiree
health care curtailment gain
|
|
|
111 |
|
|
|
1,108 |
|
Total
Ford North America
|
|
|
(6,216 |
) |
|
|
114 |
|
Ford
Europe
|
|
|
|
|
|
|
|
|
Personnel-reduction
programs/Other
|
|
|
(14 |
) |
|
|
(89 |
) |
Volvo
|
|
|
|
|
|
|
|
|
Personnel-reduction
programs
|
|
|
(23 |
) |
|
|
(4 |
) |
U.S.
dealer reductions (including investment write-offs)
|
|
|
(9 |
) |
|
|
— |
|
Ford
Asia Pacific Africa
|
|
|
|
|
|
|
|
|
Personnel-reduction
programs
|
|
|
(12 |
) |
|
|
(10 |
) |
Mazda
|
|
|
|
|
|
|
|
|
Impairment
of dealer network goodwill
|
|
|
(214 |
) |
|
|
— |
|
Other
Automotive
|
|
|
|
|
|
|
|
|
Gain
on exchange of debt securities for equity
|
|
|
73 |
|
|
|
— |
|
Jaguar
Land Rover and Aston Martin
|
|
|
|
|
|
|
|
|
Jaguar
Land Rover held-for-sale impairment
|
|
|
(421 |
) |
|
|
— |
|
Loss
on sale of Jaguar Land Rover
|
|
|
(106 |
) |
|
|
— |
|
Net
gains/(losses) on certain Jaguar Land Rover undesignated
hedges
|
|
|
(19 |
) |
|
|
182 |
|
Personnel-reduction
programs
|
|
|
(4 |
) |
|
|
(39 |
) |
Sale
of Aston Martin (primarily the gain on sale)
|
|
|
— |
|
|
|
214 |
|
Jaguar
Land Rover operating profits for 2008/Other
|
|
|
625 |
|
|
|
(38 |
) |
Total
Jaguar Land Rover and Aston Martin
|
|
|
75 |
|
|
|
319 |
|
Total
Automotive sector
|
|
|
(6,340 |
) |
|
|
330 |
|
|
|
|
|
|
|
|
|
|
Financial
Services Sector
|
|
|
|
|
|
|
|
|
Ford
Credit net operating lease impairment charges
|
|
|
(2,086 |
) |
|
|
— |
|
Total
|
|
$ |
(8,426 |
) |
|
$ |
330 |
|
Included
in Provision for/(Benefit
from) income taxes are tax benefits of $719 million for the first
half of 2008 that we consider to be special items. This amount
primarily consists of the tax effects of the pre-tax special items listed above,
and a $645 million 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
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
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 may be indicative of the
direction of our business unless our disclosures indicate
otherwise.
AUTOMOTIVE
SECTOR
Details
by segment or business unit of Income/(Loss) before income taxes
for the first half of 2008 and 2007 are shown below (in millions), with
Jaguar Land Rover and Aston Martin segment separated out from "ongoing"
subtotals:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
North America
|
|
$ |
(7,598 |
) |
|
$ |
(769 |
) |
|
$ |
(6,829 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
South America
|
|
|
645 |
|
|
|
368 |
|
|
|
277 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
Europe
|
|
|
1,307 |
|
|
|
392 |
|
|
|
915 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volvo
|
|
|
(303 |
) |
|
|
(1 |
) |
|
|
(302 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
Asia Pacific Africa
|
|
|
39 |
|
|
|
(10 |
) |
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mazda
|
|
|
(62 |
) |
|
|
93 |
|
|
|
(155 |
) |
Total
ongoing Automotive operations
|
|
|
(5,972 |
) |
|
|
73 |
|
|
|
(6,045 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Automotive
|
|
|
(461 |
) |
|
|
(448 |
) |
|
|
(13 |
) |
Total
ongoing Automotive
|
|
|
(6,433 |
) |
|
|
(375 |
) |
|
|
(6,058 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Jaguar
Land Rover and Aston Martin
|
|
|
75 |
|
|
|
858 |
|
|
|
(783 |
) |
Total
Automotive sector
|
|
$ |
(6,358 |
) |
|
$ |
483 |
|
|
$ |
(6,841 |
) |
Details
by segment of sales and wholesale unit volumes for the first half of 2008 and
2007 are shown below:
|
|
|
|
|
|
|
|
|
Wholesales
(b)
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
North America (c)
|
|
$ |
31.3 |
|
|
$ |
37.5 |
|
|
$ |
(6.2 |
) |
|
|
(17 |
)% |
|
|
1,383 |
|
|
|
1,560 |
|
|
|
(177 |
) |
|
|
(11 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
South America
|
|
|
4.2 |
|
|
|
3.1 |
|
|
|
1.1 |
|
|
|
35 |
|
|
|
210 |
|
|
|
194 |
|
|
|
16 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
Europe
|
|
|
21.7 |
|
|
|
17.8 |
|
|
|
3.9 |
|
|
|
22 |
|
|
|
1,032 |
|
|
|
1,009 |
|
|
|
23 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volvo
|
|
|
8.5 |
|
|
|
9.0 |
|
|
|
(0.5 |
) |
|
|
(5 |
) |
|
|
213 |
|
|
|
253 |
|
|
|
(40 |
) |
|
|
(16 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
Asia Pacific Africa (d)
|
|
|
3.4 |
|
|
|
3.5 |
|
|
|
(0.1 |
) |
|
|
— |
|
|
|
254 |
|
|
|
261 |
|
|
|
(7 |
) |
|
|
(3 |
) |
Total
ongoing Automotive operations
|
|
|
69.1 |
|
|
|
70.9 |
|
|
|
(1.8 |
) |
|
|
(2 |
) |
|
|
3,092 |
|
|
|
3,277 |
|
|
|
(185 |
) |
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jaguar
Land Rover and Aston Martin
|
|
|
7.0 |
|
|
|
7.8 |
|
|
|
(0.8 |
) |
|
|
(11 |
) |
|
|
125 |
|
|
|
146 |
|
|
|
(21 |
) |
|
|
(14 |
) |
Total
Automotive sector
|
|
$ |
76.1 |
|
|
$ |
78.7 |
|
|
$ |
(2.6 |
) |
|
|
(3 |
) |
|
|
3,217 |
|
|
|
3,423 |
|
|
|
(206 |
) |
|
|
(6 |
) |
__________
(a)
|
2008
over/(under) 2007 sales percentages are computed using unrounded sales
numbers.
|
(b)
|
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.
|
(c)
|
Includes
sales of Mazda6 by our consolidated subsidiary,
AAI.
|
(d)
|
Included
in wholesale unit volumes of Ford Asia Pacific Africa are Ford-badged
vehicles sold in China and Malaysia by certain unconsolidated affiliates
totaling about 104,000 and 93,000 units in 2008 and 2007,
respectively. "Sales" above does not include revenue from these
units.
|
Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Details
of Automotive sector market share for selected markets for the first half of
2008 and 2007, along with the level of dealer stocks as of June 30, 2008 and
2007, are shown below:
|
|
|
|
Dealer-Owned
Stocks (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
Over/(Under)
|
|
United
States (b)
|
|
|
14.7 |
% |
|
|
15.4 |
% |
|
|
(0.7 |
)
pts. |
|
|
559 |
|
|
|
557 |
|
|
|
2 |
|
South
America (b) (c)
|
|
|
9.5 |
|
|
|
11.0 |
|
|
|
(1.5 |
) |
|
|
38 |
|
|
|
29 |
|
|
|
9 |
|
Europe
(b) (d)
|
|
|
8.7 |
|
|
|
8.7 |
|
|
|
— |
|
|
|
361 |
|
|
|
338 |
|
|
|
23 |
|
Volvo
–
United States/Europe (d)
|
|
|
0.6/1.4 |
|
|
|
0.6/1.5 |
|
|
|
—/(0.1
|
) |
|
|
20/41 |
|
|
|
24/46 |
|
|
|
(4)/(5) |
|
Asia
Pacific Africa (b) (e) (f)
|
|
|
1.9 |
|
|
|
2.2 |
|
|
|
(0.3 |
) |
|
|
62 |
|
|
|
60 |
|
|
|
2 |
|
_________
(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,
including some vehicles reflected in our
inventory.
|
(b)
|
Includes
only Ford and, in certain markets (primarily United States), Lincoln and
Mercury brands.
|
(c)
|
South
America market share is based, in part, on estimated vehicle registrations
for our six major markets (Argentina, Brazil, Chile, Colombia, Ecuador and
Venezuela).
|
(d)
|
Europe
2008 market share is based, in part, on estimated vehicle registrations
for the 19
European markets we track (described in "Item 1. Business" of our
2007 Form 10-K Report). Europe 2007 market share is
based on actual vehicle registrations for these
markets.
|
(e)
|
Asia
Pacific Africa 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 Africa include primarily Ford-brand vehicles as
well as a small number of units distributed for other
manufacturers.
|
Overall
Automotive Sector
The
decline in results primarily reflected fixed asset impairment charges in Ford
North America ($5.3 billion), unfavorable volume and mix ($2 billion),
lower retiree health care curtailment gains related to our hourly separation
programs ($1 billion), the Jaguar Land Rover held-for-sale impairment of
carrying value in the first quarter of 2008 (about $400 million),
unfavorable changes in currency exchange rates (about $400 million), and a
loss on the sale of ACH plants and assets (about
$300 million). These factors were offset partially by favorable
cost changes ($2.7 billion).
The table
below details our first half 2008 cost changes at constant volume, mix and
exchange, excluding special items (in billions):
Explanation
of Cost Changes
|
|
2008
Better/(Worse) Than 2007
|
|
Spending-related
|
Primarily
the non-recurrence of accelerated depreciation and amortization related to
recently-closed facilities.
|
|
$ |
0.6 |
|
Net
product costs
|
Primarily
favorable material cost reductions, offset partially by added product
content and commodity cost increases in excess of favorable mark-to-market
adjustments on commodity hedges.
|
|
|
0.6 |
|
Manufacturing
and engineering
|
Primarily
hourly and salaried personnel reductions in North America and efficiencies
in our plants and processes, offset partially by higher engineering
expenses.
|
|
|
0.5 |
|
Overhead
|
Primarily
salaried personnel reductions.
|
|
|
0.3 |
|
Pension
and OPEB
|
Primarily
health care efficiencies.
|
|
|
0.3 |
|
Advertising
& sales promotions
|
Primarily
lower costs in North America.
|
|
|
0.2 |
|
Warranty-related
|
Primarily
favorable adjustments to Ford Europe warranty reserves.
|
|
|
0.2 |
|
|
Total
|
|
$ |
2.7 |
|
The
decline in revenue primarily reflected North America results including lower
wholesale unit volumes and adverse product mix, offset partially by changes in
favorable currency exchange rates in all other segments.
Ford North America
Segment. The decline in earnings primarily reflected fixed
asset impairment charges, unfavorable volume and mix, lower retiree health care
curtailment gains related to our hourly separation programs, and lower net
pricing, offset partially by favorable cost changes and lower charges for Job
Security Benefits and personnel-reduction programs. The favorable
cost changes primarily reflected lower spending-related costs, manufacturing and
engineering costs, net product costs, overhead costs and pension and OPEB
costs.
Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Ford South America
Segment. The increase in earnings primarily reflected higher
net pricing and favorable volume and mix, offset partially by unfavorable cost
changes. The unfavorable cost changes primarily reflected higher net
product costs and manufacturing and engineering costs, offset partially by lower
warranty-related costs.
Ford Europe
Segment. The increase in earnings primarily reflected
favorable cost changes, favorable volume and mix, higher net pricing, improved
profits at Ford Otosan, and lower charges for personnel-reduction programs,
offset partially by unfavorable changes in currency exchange
rates. The favorable cost changes primarily reflected lower net
product costs, warranty-related costs, pension costs, overhead costs,
spending-related costs, and advertising and sales promotion costs, offset
partially by higher manufacturing and engineering costs.
Volvo Segment. The
decline in earnings primarily reflected unfavorable volume and mix, lower net
pricing, unfavorable changes in currency exchange rates, and higher charges for
personnel-reduction programs, offset partially by favorable cost
changes. The favorable cost changes primarily reflected lower
manufacturing and engineering costs, net product costs, warranty-related costs,
overhead costs, and advertising and sales promotion costs.
Ford Asia Pacific Africa
Segment. The improvement in results primarily reflected
favorable cost changes and higher net pricing, offset partially by unfavorable
changes in currency exchange. The favorable cost changes primarily
reflected lower net product costs, warranty-related costs, overhead costs,
manufacturing and engineering costs, and advertising and sales promotion
costs.
Mazda Segment. The decline in
results primarily reflected a charge as determined under U.S. GAAP representing
the impact on Ford of a goodwill impairment related to Mazda-owned
dealerships in Japan.
Other
Automotive. The decline in earnings primarily reflected lower
returns on our cash portfolio and on the assets held in the temporary asset
account ("Temporary Asset Account") established pursuant to the terms of the
settlement agreement dated March 28, 2008 among us, the UAW and class
representatives concerning retiree health care obligations for current and
former UAW-represented Ford employees (the "Retiree Health Care Settlement
Agreement"). These factors were offset partially by mark-to-market
adjustments for changes in exchange rates on intercompany loans, lower interest
expense, and gains on exchanges of debt securities for equity.
Jaguar Land Rover and Aston Martin
Segment. The decline in earnings was more than explained by
the Jaguar Land Rover held-for-sale impairment of carrying value in the first
quarter of 2008, the non-recurrence of the gain on sale of Aston Martin, and the
reduction of net gains on certain Jaguar Land Rover undesignated
hedges.
FINANCIAL
SERVICES SECTOR
Details
of Financial Services sector Income/(Loss) before income taxes
for the first half of 2008 and 2007 are shown below (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
2008
Over/(Under)
|
|
|
|
|
|
|
|
|
|
|
|
Ford
Credit
|
|
$ |
(2,348 |
) |
|
$ |
406 |
|
|
$ |
(2,754 |
) |
Other
Financial Services
|
|
|
(8 |
) |
|
|
(7 |
) |
|
|
(1 |
) |
Total
|
|
$ |
(2,356 |
) |
|
$ |
399 |
|
|
$ |
(2,755 |
) |
Ford
Credit
The
decrease in earnings primarily reflected the significant decline in used vehicle
auction values during the second quarter of 2008. This decline in
auction values contributed to: an impairment charge to Ford Credit's North
America segment operating lease portfolio for contracts terminating beginning
third quarter of 2008 ($2.1 billion); a higher provision for credit losses
(about $800 million); and higher depreciation expense for leased vehicles
(about $600 million). These factors were offset partially by
lower expenses primarily reflecting improved operating costs and the
non-recurrence of costs associated with Ford Credit's North American business
transformation initiative (about $200 million), the non-recurrence of net
losses related to market valuation adjustments from derivatives (about
$200 million), higher financing margin primarily attributable to lower
borrowing costs (about $200 million), and a gain related to the sale of
approximately half of Ford Credit's ownership interest in its Nordic operations
(about $100 million).
Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
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, excluding the allowance for
credit losses and unearned interest supplements related to finance receivables,
are shown below for Ford Credit's on-balance sheet and managed
portfolios.
|
|
|
|
|
|
|
|
|
|
|
2008
Over/(Under)
|
Charge-offs
(in millions)
|
|
|
|
|
|
|
|
|
|
On-balance
sheet
|
|
$ |
475 |
|
|
$ |
232 |
|
|
$ |
243 |
|
Managed
|
|
|
497 |
|
|
|
264 |
|
|
|
233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss-to-Receivables
Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
On-balance
sheet
|
|
|
0.67 |
% |
|
|
0.34 |
% |
|
|
0.33 |
pts..
|
Managed
|
|
|
0.68 |
|
|
|
0.36 |
|
|
|
0.32 |
|
The
increases in charge-offs and loss-to-receivable ratios for Ford Credit's
on-balance sheet and managed portfolios, principally in the U.S. retail
installment and lease portfolio, primarily reflected higher severity mainly due
to the overall auction value deterioration in the used vehicle market, along
with an increase in amount financed, and a higher mix of 72-month contracts for
vehicles repossessed in its portfolio.
Residual
Risk
Ford
Credit is exposed to residual risk on operating leases and similar balloon
payment products where the customer may return the financed vehicle to Ford
Credit. Residual risk is the possibility that the amount Ford Credit
obtains from returned vehicles will be less than its estimate of the expected
residual value for the vehicle. Ford Credit estimates the expected
residual value by evaluating recent auction values, return volumes for its
leased vehicles, industry-wide used vehicle prices, marketing incentive plans,
and vehicle quality data.
In the
second quarter of 2008, Ford Credit recorded a pre-tax impairment charge of
$2.1 billion on its North America segment operating lease
portfolio.
North America Retail Operating Lease
Experience. Ford Credit uses various statistics to monitor its
residual risk:
|
•
|
Placement
volume measures the number of leases Ford Credit purchases in a given
period;
|
|
•
|
Termination
volume measures the number of vehicles for which the lease has ended in
the given period; and
|
|
•
|
Return
volume reflects the number of vehicles returned to Ford Credit by
customers at lease end.
|
The
following table shows operating lease placement, termination and return volumes
for Ford Credit's North America segment, which accounted for about 97% of its
total investment in operating leases at June 30, 2008 (in thousands,
except for percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Placements
|
|
|
106 |
|
|
|
139 |
|
|
|
219 |
|
|
|
249 |
|
Terminations
|
|
|
110 |
|
|
|
108 |
|
|
|
204 |
|
|
|
199 |
|
Returns
|
|
|
94 |
|
|
|
85 |
|
|
|
173 |
|
|
|
157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memo:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
rates
|
|
|
85 |
% |
|
|
78 |
% |
|
|
85 |
% |
|
|
79 |
% |
The
decline in placement volumes in the second quarter of 2008 compared with the
same period a year ago primarily reflected lower U.S. industry volumes and
market share. The higher return volumes and rates are consistent with
a decrease in auction values relative to Ford Credit's expectations at the time
of contract purchase and a shift in consumer preferences from full-size trucks
and traditional SUVs. Lease placements, which have grown annually
since 2003, began to decrease in the first half of 2008.
Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
U.S. Ford, Lincoln and Mercury Brand Retail Operating
Lease Experience. The following
table shows return volumes for Ford Credit's Ford, Lincoln and Mercury brand
U.S. operating lease portfolio. Also included are auction values at
constant second quarter 2008 vehicle mix for lease terms comprising about 70% of
Ford Credit's active Ford, Lincoln and Mercury brand U.S. operating lease
portfolio (in thousands, except for percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Returns
|
|
|
|
|
|
|
|
|
|
|
|
|
24-Month
term
|
|
|
24 |
|
|
|
22 |
|
|
|
53 |
|
|
|
47 |
|
36-Month
term
|
|
|
14 |
|
|
|
16 |
|
|
|
28 |
|
|
|
30 |
|
39-Month
term/Other term
|
|
|
5 |
|
|
|
10 |
|
|
|
10 |
|
|
|
19 |
|
Total
returns
|
|
|
43 |
|
|
|
48 |
|
|
|
91 |
|
|
|
96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memo:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
rates
|
|
|
87 |
% |
|
|
81 |
% |
|
|
87 |
% |
|
|
82 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction
Values at Constant Second Quarter 2008 Vehicle Mix
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24-Month
term
|
|
$ |
14,570 |
|
|
$ |
17,305 |
|
|
$ |
15,345 |
|
|
$ |
17,260 |
|
36-Month
term
|
|
|
12,685 |
|
|
|
15,060 |
|
|
|
13,160 |
|
|
|
15,110 |
|
In the
second quarter of 2008, Ford, Lincoln and Mercury brand U.S. return volumes were
down 5,000 units compared with the same period a year ago. However,
the return rate increased to 87% consistent with a decrease in auction values
compared to Ford Credit's expectations of lease-end values at the time of
contract purchase, and reflecting a shift in consumer preferences away from
full-size trucks and traditional SUVs. Auction values at constant
second quarter 2008 mix for 24-month and 36-month lease vehicles were down
$2,735 per unit or 15.8% and $2,375 per unit or 15.8%, respectively, from
year ago levels, primarily reflecting the overall auction value deterioration in
the used vehicle market.
In the
second quarter of 2008, overall auction values for Ford, Lincoln and Mercury
brand U.S. vehicles for 24-month and 36-month leases were down $1,415 or 8.9%
and $970 or 7.1%, respectively, compared with the first quarter of 2008, at
constant second quarter 2008 mix. For the same periods, full-size
truck and traditional SUV auction values for 24-month and 36-month leases were
down $1,965 or 11.6% and $1,890 or 12.3%, respectively, also at constant second
quarter 2008 mix.
In the
first half of 2008, trends and causal factors compared with the same period a
year ago were consistent with those described above.
The
recent, rapid decline in auction values for used full-size trucks and
traditional SUVs, together with difficult credit market conditions, has made
leasing vehicles less economical than in the past. Accordingly, Ford
Credit is planning to reduce lease originations, while still offering leasing to
consumers who prefer this product.
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, and maintaining
committed credit facilities.
Gross
Cash. Automotive gross cash includes cash and cash
equivalents, net marketable securities, and loaned securities. Prior
to 2008, we included in Automotive gross cash those assets contained in a VEBA
trust that could be used to pre-fund certain types of company-paid benefits for
U.S. employees and retirees, which were invested in shorter-duration fixed
income investments and could be used within 18 months to pay for benefits
("short-term VEBA assets").
Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Consistent
with our Retiree Health Care Settlement Agreement, our 2008 gross cash
calculations do not include short-term VEBA assets and Temporary Asset Account
securities. Gross cash is detailed below as of the dates shown
(in billions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
16.9 |
|
|
$ |
18.7 |
|
|
$ |
20.7 |
|
|
$ |
17.1 |
|
|
$ |
15.7 |
|
|
$ |
16.0 |
|
Marketable
securities
|
|
|
5.1 |
|
|
|
6.6 |
|
|
|
2.0 |
|
|
|
13.7 |
|
|
|
16.8 |
|
|
|
11.3 |
|
Loaned
securities
|
|
|
7.4 |
|
|
|
6.7 |
|
|
|
10.3 |
|
|
|
4.6 |
|
|
|
0.7 |
|
|
|
5.3 |
|
Total
cash, marketable securities and loaned securities
|
|
|
29.4 |
|
|
|
32.0 |
|
|
|
33.0 |
|
|
|
35.4 |
|
|
|
33.2 |
|
|
|
32.6 |
|
Securities-in-transit
(a)
|
|
|
(0.1 |
) |
|
|
(0.7 |
) |
|
|
(0.3 |
) |
|
|
(0.3 |
) |
|
|
(0.2 |
) |
|
|
(0.5 |
) |
UAW-Ford
Temporary Asset Account (b)
|
|
|
(2.7 |
) |
|
|
(2.6 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Short-term
VEBA assets
|
|
|
— |
|
|
|
— |
|
|
|
1.9 |
|
|
|
2.3 |
|
|
|
2.2 |
|
|
|
1.8 |
|
Gross
cash
|
|
$ |
26.6 |
|
|
$ |
28.7 |
|
|
$ |
34.6 |
|
|
$ |
37.4 |
|
|
$ |
35.2 |
|
|
$ |
33.9 |
|
________
(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)
|
At
June 30, 2008, includes about $100 million of
securities-in-transit; account value net of offsetting liability is
$2.6 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 U.S. GAAP and differs from Cash flows from operating activities
of continuing operations, the most directly comparable U.S. GAAP
financial measure.
Changes
in Automotive gross cash for the second quarter and first half of 2008 and 2007
are summarized below (in billions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
cash at end of period
|
|
$ |
26.6 |
|
|
$ |
37.4 |
|
|
$ |
26.6 |
|
|
$ |
37.4 |
|
Gross
cash at beginning of period
|
|
|
28.7 |
|
|
|
35.2 |
|
|
|
34.6 |
|
|
|
33.9 |
|
Total
change in gross cash (a)
|
|
$ |
(2.1 |
) |
|
$ |
2.2 |
|
|
$ |
(8.0 |
) |
|
$ |
3.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating-related
cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
income/(loss) before income taxes
|
|
$ |
(0.7 |
) |
|
$ |
0.8 |
|
|
$ |
— |
|
|
$ |
0.5 |
|
Capital
expenditures
|
|
|
(1.6 |
) |
|
|
(1.3 |
) |
|
|
(2.9 |
) |
|
|
(2.6 |
) |
Depreciation
and special tools amortization
|
|
|
1.5 |
|
|
|
1.8 |
|
|
|
3.0 |
|
|
|
3.5 |
|
Changes
in receivables, inventories, and trade payables
|
|
|
(2.2 |
) |
|
|
(0.1 |
) |
|
|
(1.6 |
) |
|
|
0.7 |
|
Other
(b)
|
|
|
0.7 |
|
|
|
0.6 |
|
|
|
(1.5 |
) |
|
|
0.8 |
|
Subtotal
|
|
|
(2.3 |
) |
|
|
1.8 |
|
|
|
(3.0 |
) |
|
|
2.9 |
|
Up-front
subvention payments to Ford Credit (c)
|
|
|
(0.8 |
) |
|
|
— |
|
|
|
(1.6 |
) |
|
|
— |
|
Total
operating-related cash flows
|
|
|
(3.1 |
) |
|
|
1.8 |
|
|
|
(4.6 |
) |
|
|
2.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
changes in cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel
separation payments
|
|
|
(0.2 |
) |
|
|
(0.4 |
) |
|
|
(0.3 |
) |
|
|
(1.7 |
) |
Contributions
to funded pension plans
|
|
|
(0.2 |
) |
|
|
(0.4 |
) |
|
|
(0.8 |
) |
|
|
(1.2 |
) |
Net
effect of VEBA on cash
|
|
|
— |
|
|
|
0.4 |
|
|
|
(4.5 |
) |
|
|
0.7 |
|
Tax
refunds and tax payments from affiliates
|
|
|
— |
|
|
|
— |
|
|
|
0.9 |
|
|
|
2.0 |
|
Acquisitions
and divestitures
|
|
|
1.7 |
|
|
|
0.9 |
|
|
|
1.8 |
|
|
|
1.0 |
|
Other
(d)
|
|
|
(0.3 |
) |
|
|
(0.1 |
) |
|
|
(0.5 |
) |
|
|
(0.2 |
) |
Total
change in gross cash
|
|
$ |
(2.1 |
) |
|
$ |
2.2 |
|
|
$ |
(8.0 |
) |
|
$ |
3.5 |
|
__________
(a)
|
Total
change in Automotive gross cash attributable to Jaguar Land Rover
operations was de
minimis in
the second quarter of 2008, and was a $300 million net cash
outflow for the first half of 2008. Except for up-front
subvention payments to Ford Credit, Jaguar Land Rover cash outflows are
excluded from each line item of this table and included in Other within
Other changes in
cash.
|
(b)
|
In
the second quarter of 2008, Other Operating cash flows were primarily
driven by timing differences between the expensing of marketing, warranty
and other accrued liabilities and the payment of those
expenses.
|
(c)
|
Includes
Jaguar Land Rover.
|
(d)
|
In
the second quarter of 2008, Other primarily reflects debt reductions
related to the sale of Jaguar Land
Rover.
|
Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Shown in
the table 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 second quarter and first half of 2008 and 2007
(in billions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities of continuing operations
(b)
|
|
$ |
(2.2 |
) |
|
$ |
1.3 |
|
|
$ |
(1.6 |
) |
|
$ |
2.8 |
|
Items
included in operating-related cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(1.6 |
) |
|
|
(1.3 |
) |
|
|
(2.9 |
) |
|
|
(2.6 |
) |
Net
transactions between Automotive and Financial Services sectors
(c)
|
|
|
(0.7 |
) |
|
|
0.1 |
|
|
|
(1.3 |
) |
|
|
(0.4 |
) |
Net
cash flows from non-designated derivatives
|
|
|
0.6 |
|
|
|
0.3 |
|
|
|
0.8 |
|
|
|
0.5 |
|
Items
not included in operating-related cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
impact of personnel-reduction programs and Job Security Benefits
accrual
|
|
|
0.2 |
|
|
|
0.4 |
|
|
|
0.3 |
|
|
|
1.7 |
|
Net
(sales)/purchases of trading securities
|
|
|
— |
|
|
|
0.7 |
|
|
|
— |
|
|
|
1.5 |
|
Contributions
to funded pension plans
|
|
|
0.2 |
|
|
|
0.4 |
|
|
|
0.8 |
|
|
|
1.2 |
|
VEBA
cash flows (reimbursements for benefits paid)
|
|
|
— |
|
|
|
(0.3 |
) |
|
|
— |
|
|
|
(0.3 |
) |
Tax
refunds, tax payments, and tax receipts from affiliates
|
|
|
— |
|
|
|
— |
|
|
|
(0.9 |
) |
|
|
(2.0 |
) |
Other
(b)
|
|
|
0.4 |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.5 |
|
Operating-related
cash flows
|
|
$ |
(3.1 |
) |
|
$ |
1.8 |
|
|
$ |
(4.6 |
) |
|
$ |
2.9 |
|
__________
(a)
|
Except
as noted (see note (b) below), 2008 data exclude Jaguar Land Rover,
reflecting the operations' held-for-sale
status.
|
(b)
|
Includes
Jaguar Land Rover.
|
(c)
|
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 June 30, 2008, our Automotive sector had
total debt of $26.5 billion, compared with $27 billion at
December 31, 2007. At June 30, 2008, our
Automotive sector had net cash (defined as gross cash less total debt) of about
$100 million, compared with $7.6 billion at the end of
2007. The $7.5 billion reduction in net cash reflects an
$8 billion reduction in gross cash including $4.5 billion related to
the VEBA, and about $500 million in lower debt.
As
disclosed in our Current Report on Form 8-K filed May 1, 2008, we issued an
aggregate of 37,459,540 shares of Ford Common Stock on
April 30, 2008 in exchange for $360 million principal amount of
our outstanding publicly-issued debt securities beneficially owned by an
institutional holder of those debt securities.
Pursuant
to the Retiree Health Care Settlement Agreement, on April 9, 2008 we
issued to a wholly-owned subsidiary $3.3 billion principal amount of our
5.75% Senior Convertible Note Due 2013 (the "Convertible Note") and
$3 billion principal amount of our 9.50% Guaranteed Secured Note Due
January 1, 2018 (the "Second Lien Note"). Upon the required
transfer of the Convertible Note and Second Lien Note to a new external VEBA
established pursuant to the Retiree Health Care Settlement Agreement, which is
expected to occur at December 31, 2009, our Automotive sector debt
will increase, and our net cash will decrease, by about $6.3 billion as a
result of the Convertible Note and Second Lien Note becoming outstanding at that
time for financial reporting purposes. The Convertible Note, or a
portion thereof, could become outstanding prior to December 31, 2009,
if we and the UAW decide to monetize all or a portion of it prior to its
transfer to the new external VEBA.
Credit Facilities.* At July
1, 2008, we had $12.2 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 and about $700 million of Automotive unsecured credit
facilities. At June 30, 2008, $11.6 billion of these
facilities were available for use. Of the lines available for use,
98% (or $11.4 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 in our 2007 Form 10-K Report.
Financial
Services Sector
Ford
Credit
Debt. At
June 30, 2008, unsecured long-term debt (including notes payable
within one year) was $55.6 billion, down about $7 billion from
year-end 2007, primarily reflecting about $10 billion of debt
maturities. These maturities were offset partially by unsecured debt
issuances of about $2 billion and
an increase of about $1 billion primarily reflecting changes in currency
exchange rates. Asset-backed long-term debt (including notes payable
within one year) at June 30, 2008 was $55.7 billion, up about
$6 billion from
year-end 2007, reflecting asset-backed long-term debt issuances in excess of
amortization of asset-backed debt. Securitized off-balance sheet
funding was $2.6 billion at June 30, 2008, down
about $3 billion from year-end 2007, reflecting the amortization of
previous securitizations.
______________________________
* Credit facilities
of our VIEs are excluded as we do not control their
use.
Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Funding Strategy. As a
result of lower credit ratings over the past few years, Ford Credit's unsecured
funding costs have increased over time. While it has continued 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 has allowed 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 institutions in Europe for full
service leasing and retail financing). Ford Credit is continuing to explore
and execute such alternative business arrangements.
Consistent
with the overall market, Ford Credit has been impacted by volatility in the
asset-backed securities markets that began in August
2007. Since then, Ford Credit has experienced higher credit spreads
and, in certain circumstances, shorter maturities in its public and private
securitization issuances. In addition, committed liquidity program
renewals have come at a higher cost. Given present market conditions,
Ford Credit expects that its credit spreads and the cost of renewing its
committed liquidity programs will continue to be higher in 2008 than prior to
August 2007. About 25% of Ford Credit's committed capacity is up
for renewal during the remainder of 2008. Given the nature of its
asset-backed committed facilities, Ford Credit has the ability to obtain term
funding up to the time that the facilities mature. Any outstanding
debt at the maturity of the facilities remains outstanding through the term of
the underlying assets.
Ford
Credit's funding plan is subject to risks and uncertainties, many of which are
beyond its control. If auction values for used vehicles continue to
weaken or further reductions occur 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 Ford Credit's funding plan. 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.
Term Funding
Plan. The following table shows Ford Credit's completed public
and private term funding issuances in 2007 and through July 31, 2008,
and its planned issuances for full-year 2008 (in billions):
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Public
Transactions
|
|
|
|
|
|
|
|
|
|
Unsecured
|
|
$ |
1
–
3 |
|
|
$ |
1 |
|
|
$ |
6 |
|
Securitizations
(a)
|
|
|
12 – 15 |
|
|
|
10 |
|
|
|
6 |
|
Total
public transactions
|
|
$ |
13 – 18 |
|
|
$ |
11 |
|
|
$ |
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Transactions
(b)
|
|
$ |
12 –
18 |
|
|
$ |
11 |
|
|
$ |
28 |
|
__________
(a)
|
Reflects
new issuance; excludes whole-loan sales and other structured
financings.
|
(b)
|
Includes
private term debt, securitizations, whole-loan sales and other structured
financings; excludes sales to Ford Credit's on-balance sheet asset-backed
commercial paper programs.
|
Through
July 31, 2008, Ford Credit completed about $11 billion of
public term funding transactions, including: about $1 billion of
unsecured long-term debt; about $9 billion of retail asset-backed
securitizations in the United States, including a $5.4 billion transaction
in May 2008; and the remainder consisting of a retail asset-backed
securitization in Germany. Ford Credit expects its full-year 2008
public term funding requirements to be between $13 billion and
$18 billion.
Through
July 31, 2008, Ford Credit completed about $11 billion of
private term funding transactions (excluding its on-balance sheet asset-backed
commercial paper program and proceeds from revolving transactions) in several
markets. These private transactions included wholesale, retail and
lease asset-backed securitizations, and unsecured term debt.
Through
July 31, 2008, Ford Credit has completed about $22 billion of public
and private term funding, which is about two-thirds of its full-year
plan.
Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Liquidity. The
following table illustrates the various sources of Ford Credit's liquidity as of
the dates shown (in billions):
|
|
|
|
|
|
|
Cash,
cash equivalents and marketable securities (a)
|
|
$ |
19.6 |
|
|
$ |
16.7 |
|
|
|
|
|
|
|
|
|
|
Committed
liquidity programs
|
|
|
35.4 |
|
|
|
36.8 |
|
Asset-backed
commercial paper ("FCAR")
|
|
|
16.3 |
(b) |
|
|
16.9 |
|
Credit
facilities
|
|
|
2.7 |
(b) |
|
|
3.0 |
|
Committed
capacity
|
|
|
54.4 |
(b) |
|
|
56.7 |
|
Committed
capacity and cash
|
|
|
74.0 |
|
|
|
73.4 |
|
Less:
Capacity in excess of eligible receivables
|
|
|
(7.8 |
) |
|
|
(4.7 |
) |
Less:
Cash to support on-balance sheet securitizations
|
|
|
(5.4 |
) |
|
|
(4.7 |
) |
Liquidity
|
|
|
60.8 |
(b) |
|
|
64.0 |
|
Less:
Utilization
|
|
|
(37.8 |
) |
|
|
(36.1 |
) |
Liquidity
available for use
|
|
$ |
23.0 |
(b) |
|
$ |
27.9 |
|
__________
(a)
|
Excludes
marketable securities related to insurance
activities.
|
At
June 30, 2008, the capacity of Ford Credit's liquidity sources (which
include committed liquidity programs, its asset-backed commercial paper program,
and credit facilities) and its cash totaled $74 billion. Of
this amount, Ford Credit could utilize $60.8 billion
(after adjusting for capacity in excess of eligible receivables of $7.8 billion
and cash required to support on-balance sheet securitizations of
$5.4 billion), of which $37.8 billion was
utilized as of June 30, 2008, leaving $23 billion (including
$14.2 billion of cash, cash equivalents, and marketable securities and
excluding marketable securities related to insurance activities) available for
use. In addition to the $23 billion of liquidity available for
use, the $7.8 billion of capacity in excess of eligible receivables
provides an alternative to uncommitted sources for funding future purchases or
originations and gives Ford Credit flexibility to efficiently shift capacity to
markets and asset classes where it can be used.
Cash, Cash Equivalents and
Marketable Securities. At June 30, 2008, Ford
Credit's cash, cash equivalents, and marketable securities (excluding marketable
securities related to insurance activities) totaled $19.6 billion
(including $5.4 billion to be used only to support on-balance sheet
securitizations), compared with $16.7 billion at year-end
2007. In the normal course of its funding activities, Ford Credit may
generate more proceeds than are required 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.
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
eligible retail or wholesale assets up to $29.4 billion at
June 30, 2008 ($17.5 billion retail and $11.9 billion
wholesale), of which $10.4 billion are commitments to FCE. These
committed liquidity programs have varying maturity dates, with
$20.3 billion having maturities within the next twelve months (of which
$3.8 billion relates to FCE commitments), and the balance having maturities
between August 2009 and September 2011. As a result of the
continued asset-backed securities market volatility 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. Ford Credit's ability to obtain funding under these programs
is subject to having a sufficient amount of assets eligible for these
programs. At June 30, 2008, $19.1 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, Ford Credit does not expect any of these programs to be
terminated due to such events.
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. At its option, this program can be
supported with retail, wholesale, or lease assets. Ford Credit's
ability to obtain funding under this program is subject to having a sufficient
amount of assets available to issue the securities. This program is
also free of material adverse change clauses, restrictive financial covenants
and credit rating triggers that could limit Ford Credit's ability to obtain
funding. At June 30, 2008, Ford Credit had
$3.1 billion of outstanding funding in this program.
Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Credit
Facilities. At July 1, 2008, Ford Credit and its subsidiaries,
including FCE, had $2.7 billion of contractually-committed unsecured credit
facilities with financial institutions, of which $1.9 billion were
available for use. Of the lines available for use, 41% ($771 million)
are committed through at least June 30, 2010, including 33%
($611 million) of which are committed through December 31,
2011. Of the $2.7 billion, $359 million constitute Ford
Credit bank lines (of which $70 million are worldwide) and $2.3 billion are
FCE bank lines (of which $2.2 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, and credit rating triggers that could limit
Ford Credit's ability to obtain funding.
In
addition, at July 1, 2008, banks provided $16.3 billion of
contractually-committed liquidity facilities to support Ford Credit's FCAR
program. Of the contractually-committed liquidity facilities, 39%
($6.4 billion) are committed through June 30, 2012, and the
remainder are committed for a shorter period of time. Utilization of
these facilities is subject to conditions specific to the FCAR 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
July 1, 2008, $16.1 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 $174 million of FCAR's bank liquidity facilities were available
to support FCAR's purchase of Ford Credit's asset-backed
securities. At July 1, 2008, the outstanding balance for
the FCAR program was $14.3 billion.
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 its capital structure. Ford Credit refers to
its shareholder's interest as equity. Ford Credit calculates leverage
on a financial statement basis and on a managed basis.
The
following table illustrates the calculation of Ford Credit’s financial statement
leverage (in billions, except for ratios):
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
debt
|
|
$ |
137.5 |
|
|
$ |
139.4 |
|
Total
equity
|
|
|
12.3 |
|
|
|
13.4 |
|
Debt-to-equity
ratio (to 1)
|
|
|
11.2 |
|
|
|
10.4 |
|
The
following table illustrates the calculation of Ford Credit’s managed leverage
(in billions, except for ratios):
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
debt
|
|
$ |
137.5 |
|
|
$ |
139.4 |
|
Securitized
off-balance sheet receivables outstanding
|
|
|
3.0 |
|
|
|
6.0 |
|
Retained
interest in securitized off-balance sheet receivables
|
|
|
(0.4 |
) |
|
|
(0.7 |
) |
Adjustments
for cash, cash equivalents, and marketable securities (a)
|
|
|
(19.6 |
) |
|
|
(16.7 |
) |
Adjustments
for hedge accounting (b)
|
|
|
(0.1 |
) |
|
|
— |
|
Total
adjusted debt
|
|
$ |
120.4 |
|
|
$ |
128.0 |
|
|
|
|
|
|
|
|
|
|
Total
equity (including minority interest)
|
|
$ |
12.3 |
|
|
$ |
13.4 |
|
Adjustments
for hedge accounting (b)
|
|
|
(0.2 |
) |
|
|
(0.3 |
) |
Total
adjusted equity
|
|
$ |
12.1 |
|
|
$ |
13.1 |
|
|
|
|
|
|
|
|
|
|
Managed
debt-to-equity ratio (to 1)
|
|
|
10.0 |
|
|
|
9.8 |
|
__________
(a)
|
Excludes
marketable securities related to insurance
activities.
|
(b)
|
Primarily
related to market valuation adjustments for derivatives due to movements
in interest rates.
|
Ford
Credit plans its managed leverage by considering prevailing market conditions
and the risk characteristics of its business. At
June 30, 2008, Ford Credit's managed leverage was 10 to 1, compared
with 9.8 to 1 at December 31, 2007. Ford Credit did not pay
any distributions in the first half of 2008.
Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Total
Company
Stockholders'
Equity. Our stockholders' equity was negative
$1.7 billion at June 30, 2008, down $7.3 billion compared
with December 31, 2007. The decrease primarily reflected
net losses in the first half of 2008, offset partially by favorable changes in
Accumulated other
comprehensive income/(loss) (see Note 15 of the Notes to the
Financial Statements for details of Other comprehensive income/(loss)) and
favorable changes in Capital
in excess of par value of stock resulting from conversion of debt to
equity and issuance of new stock.
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
Securities and Exchange Commission ("SEC"):
|
·
|
Moody’s
Investors Service, Inc. ("Moody’s");
and
|
|
·
|
Standard
& Poor’s Rating Services, a division of McGraw-Hill Companies, Inc.
("S&P").
|
Ford. In June
2008, DBRS placed our ratings under review with negative implications, Moody's
changed our outlook from stable to negative, and S&P placed our ratings on
CreditWatch with negative implications. In July 2008, S&P
lowered our issuer rating to B- from B, our long-term senior unsecured rating to
CCC from CCC+, and our senior secured rating to B- from B+. Also in
July 2008, S&P removed our ratings from CreditWatch while maintaining a
negative outlook. In August 2008, Fitch lowered our issuer default
rating to B- from B, our senior secured rating to BB- from BB, and our long-term
senior unsecured rating to CCC+ from B-.
Ford Credit. In
June 2008, DBRS placed Ford Credit's ratings under review with negative
implications, Moody's changed Ford Credit's outlook from stable to negative, and
S&P placed Ford Credit's ratings on CreditWatch with negative
implications. In July 2008, S&P lowered Ford Credit's
long-term senior unsecured rating to B- from B, and stopped rating Ford Credit's
short-term unsecured debt. Also in July 2008, S&P removed Ford Credit's
ratings from CreditWatch while maintaining a negative outlook. In
August 2008, Fitch lowered Ford Credit's issuer default rating to B- from B
and its long-term senior unsecured rating to B+ from BB-.
The
following chart 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)
|
|
|
Negative*
|
|
|
B
|
|
|
R-4
|
|
|
Negative*
|
Fitch
|
|
B-
|
|
|
CCC+
|
|
|
BB-
|
|
|
Negative
|
|
|
B+
|
|
|
B-
|
|
|
Negative
|
Moody's
|
|
B3
|
|
|
Caa1
|
|
|
Ba3
|
|
|
Negative
|
|
|
B1
|
|
|
NP
|
|
|
Negative
|
S&P**
|
|
B-
|
|
|
CCC
|
|
|
B-
|
|
|
Negative
|
|
|
B-
|
|
|
NR
|
|
|
Negative
|
__________
|
*
|
DBRS
has placed our ratings Under
Review.
|
|
**
|
S&P
assigns FCE a long-term senior unsecured rating of B, maintaining a
one-notch differential versus Ford
Credit.
|
OFF-BALANCE
SHEET ARRANGEMENTS
In the
first half of 2008, Ford Credit did not enter into any off-balance sheet
arrangements (off-balance sheet securitization transactions and whole-loan sale
transactions), consistent with its plan to fund securitizations through
on-balance sheet transactions. At June 30, 2008 and
December 31, 2007, the total outstanding principal amount of
receivables sold by Ford Credit in off-balance sheet securitizations was
$3 billion and $6 billion, respectively. At
June 30, 2008 and December 31, 2007, Ford Credit's retained
interests in such sold receivables were $380 million and $653 million,
respectively.
Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
OUTLOOK
Our
current projection of upcoming vehicle production for certain segments is as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
North America
|
|
|
440 |
|
|
|
(197 |
) |
|
|
500 |
|
|
|
(141 |
) |
Ford
Europe
|
|
|
400 |
|
|
|
(16 |
) |
|
|
490 |
|
|
|
1 |
|
Volvo
|
|
|
80 |
|
|
|
(13 |
) |
|
|
110 |
|
|
|
(7 |
) |
Reduced
Ford North America planned vehicle production for the second half of 2008
largely reflects our expectation of lower industry demand in the United States
due to continuing deterioration of economic conditions, as discussed below, as
well as the shift in consumer preferences away from full-size trucks and
traditional SUVs.
We have
set and communicated the following 2008 planning assumptions and operational
metrics:
Planning
Assumptions
|
|
Full-Year Plan
|
|
|
First Half
|
|
|
Full-Year Outlook
|
|
Industry
Volume (SAAR)
|
|
|
|
|
|
|
|
|
|
–U.S.
(million units)
(a)
|
|
16.0
|
|
|
15.1
|
|
|
14.0
–
14.5
|
|
–Europe
(million units) (b)
|
|
17.6
|
|
|
17.5
|
|
|
17.2 –
17.4
|
|
|
|
|
|
|
|
|
|
|
|
Operational
Metrics
|
|
|
|
|
|
|
|
|
|
Compared
with 2007:
|
|
|
|
|
|
|
|
|
|
--Quality
|
|
Improve
|
|
|
Improved
|
|
|
On
Track
|
|
--Automotive
Costs (c)
|
|
Improve
by about $3 Billion
|
|
|
Improved
by $2.7 Billion
|
|
|
Over
$3 Billion
|
|
Absolute
Amount:
|
|
|
|
|
|
|
|
|
|
--U.S.
Market Share (Ford Lincoln Mercury)
|
|
Low
End of 14%-15% Range
|
|
|
14.7%
|
|
|
High
13%
|
|
--Operating-Related
Cash Flow
|
|
Negative
|
|
|
$(4.6) Billion
|
|
|
Greater
Outflow than Plan
|
|
--Capital
Spending
|
|
About
$6 Billion
|
|
|
$2.9 Billion
|
|
|
On
Track
|
|
__________
(a)
|
SAAR
includes medium and heavy vehicles.
|
(b)
|
For
the 19 markets we track in Europe.
|
(c)
|
At
constant volume, mix and exchange; excluding special
items.
|
Although
we expect the second half of 2008 to be challenging, we remain confident that
execution of the four key priorities of our plan – to aggressively restructure
our business to operate profitably, accelerate product development, finance our
plan and improve our balance sheet, and work together effectively as one team to
leverage our global resources – will help us meet our long-term
objectives.
As
disclosed in our Current Reports on Form 8-K filed May 22, 2008, June 20, 2008
and July 24, 2008, we experienced rapidly-changing market conditions in North
America during the second quarter of 2008. These changes in market
condition included: (1) a more pronounced and accelerated shift in
consumer preferences away from full-size trucks and traditional SUVs to smaller
and more fuel-efficient vehicles as a result of higher fuel prices; (2)
lower-than-anticipated U.S. industry demand; (3) and
greater-than-anticipated escalation of commodity costs. Accordingly,
as previously disclosed, we no longer expect our North American Automotive
operations to return to profitability by 2009.
Our
current planning assumptions for North America reflecting this economic
environment include:
|
·
|
The
U.S. economy will not begin to recover until early
2010;
|
|
·
|
U.S.
industry sales will return to trend levels (i.e., about 17 million units)
as the economy recovers subsequent
to 2010;
|
|
·
|
Recent
product mix shifts will be largely permanent, with some recovery from
current share-of-industry for full-size trucks as the economy and the
housing market recover (but not back to previous
levels);
|
|
·
|
Fuel
prices will remain volatile, at or about current
levels;
|
|
·
|
No
near-term relief from current level of commodity prices;
and
|
|
·
|
U.S.
market share for Ford, Lincoln and Mercury brands will be about 14% over
the next few years.
|
Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Consistent
with our current planning assumptions, we are taking the following
actions:
|
·
|
Introducing
to North America several Ford Europe-derived smaller vehicles, including
in 2010 the Ford Fiesta and Ford
Focus;
|
|
·
|
Commonizing
products and vehicle platforms across the globe, with a goal of reducing
the 25 different platforms in use today to about nine, excluding
low-volume applications;
|
|
·
|
Ensuring
each new product introduced in North America is the best or among the best
in its segment for fuel economy, supported by extensive powertrain
updates, including:
|
|
§
|
Additional
hybrid offerings,
|
|
§
|
Expanded
four-cylinder engine production,
|
|
§
|
EcoBoost
engine technology (i.e., gas turbocharged direct-injection technology),
and
|
|
§
|
Six-speed
transmissions; and
|
|
·
|
Continuing
to transform our North American manufacturing base, with three truck
assembly plants to be converted to support small car production, nearly
all assembly plant body shops and nearly half of transmission and engine
plants to have flexible manufacturing capability, and assembly capacity
reduced to match industry demand (including targeted hourly employee
separation packages at select U.S.
facilities).
|
In
addition to the actions planned for Ford North America, during the second
quarter we reduced hourly personnel in North America by about 4,000, and largely
completed our announced 15% reduction of salaried-related personnel costs as of
August 1, 2008. Also, Volvo has announced accelerated
actions to be implemented in the second half of 2008, including a reduction of
2,000 personnel.
We
continue to work to sell or close the majority of our ACH facilities by the end
of 2008. We now expect that portions of our Indianapolis, Saline
and Sandusky plants will remain open beyond 2008 to provide for an orderly
and economical transition of the business to the supply base.
During
the first six months of the year, we realized an additional $1.8 billion
toward our goal of reducing $5 billion of annual Automotive operating costs
in Ford North America by year-end 2008, as compared with year-end 2005 (at
constant volume, mix and exchange, excluding special items). Our
projection for structural cost savings, set forth below, assumes a favorable
court ruling and accounting treatment for our Retiree Health Care Settlement
Agreement during the second half of this year. The following data
summarize our progress to date, and provide additional detail regarding our plan
to reduce Ford North America operating costs by about $2.9 billion in total
during 2008:
|
Operating
Cost Reductions (in billions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Product
Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
Adds
|
|
$ |
(0.9 |
) |
|
$ |
(2.0 |
) |
|
$ |
(0.1 |
) |
|
$ |
(0.1 |
) |
|
$ |
(0.5 |
) |
|
$ |
(0.7 |
) |
Commodities
|
|
|
(0.3 |
) |
|
|
(0.8 |
) |
|
|
0.1 |
|
|
|
(0.2 |
) |
|
|
(0.8 |
) |
|
|
(0.9 |
) |
Material
Cost Reductions/Other
|
|
|
1.2 |
|
|
|
0.8 |
|
|
|
0.3 |
|
|
|
0.3 |
|
|
|
0.7 |
|
|
|
1.3 |
|
Subtotal
|
|
|
- |
|
|
|
(2.0 |
) |
|
|
0.3 |
|
|
|
- |
|
|
|
(0.6 |
) |
|
|
(0.3 |
) |
Structural/Other
|
|
|
1.5 |
|
|
|
2.6 |
|
|
|
0.9 |
|
|
|
0.6 |
|
|
|
1.7 |
|
|
|
3.2 |
|
Total
|
|
$ |
1.5 |
|
|
$ |
0.6 |
|
|
$ |
1.2 |
|
|
$ |
0.6 |
|
|
$ |
1.1 |
|
|
$ |
2.9 |
|
|
|
|
|
|
|
|
|
$5
Billion
|
|
|
|
|
|
Despite
these cost reductions, we expect total company operating and overall results for
full-year 2008 to be worse than full-year 2007. Looking at our
Automotive segments, we expect operating losses (excluding special items) for
Ford North America to increase in the second half of 2008 as compared with the
first half, primarily due to lower volume and less favorable mix, consistent
with deterioration in the economic environment. We presently project
that our U.S. market share for Ford, Lincoln and Mercury products will decline
in the second half compared with 2007 due to the continuing shift in consumer
preferences away from our areas of traditional strength (i.e., full-size trucks
and SUVs). We expect Ford Europe to be profitable in the second half
of 2008, though we expect its second half results to be somewhat lower than
results for the same period last year. We expect
Volvo's results for the second half of 2008 to improve compared with the first
half of the year. We expect continued good results for Ford South
America in the second half – about equal to the same period a year ago, and we
expect profitability at Ford Asia Pacific Africa and Mazda for the remainder of
the year.
Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
We
anticipate net interest expense for Other Automotive will be in the range of
$250 million to $300 million per quarter this year, although this
amount will continue to be subject to market volatility, in part because the
Temporary Asset Account is largely invested in equities. See
"Liquidity and Capital Resources" above for further discussion of the impact on
our debt and net cash of the Retiree Health Care Settlement
Agreement.
During
the period 2007 through 2009, we expect cumulative Automotive operating-related
cash outflows and cumulative cash expenditures for personnel separations to
exceed $16 billion (of which $7 billion has already been
expended). Operating-related cash outflow primarily reflects the
impact of anticipated operating losses in our Automotive sector, and accelerated
interest supplement and lease support payments to Ford Credit beginning this
year as described in our 2007 Form 10-K Report. 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., about $6 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.
As noted
under "Liquidity and Capital Resources" above, our Automotive liquidity was
$38.2 billion at June 30, 2008, consisting of $26.6 billion in
Automotive gross cash and $11.6 billion in available credit
facilities. We will continue to evaluate our overall liquidity and
take actions to improve our balance sheet.
Turning
to our Financial Services sector, we anticipate that Ford Credit will incur a
pre-tax loss for full-year 2008. The anticipated year-over-year decline in
earnings primarily reflects the impact of the second quarter 2008 impairment
charge to Ford Credit's North America segment operating lease portfolio, and
Ford Credit's projection of higher provision for credit losses, higher
depreciation expense for leased vehicles, lower volume, and higher net losses
related to market valuation adjustments from derivatives. Ford Credit
expects these unfavorable factors to be offset partially by the non-recurrence
of costs associated with its North American business transformation initiative,
reductions in other operating costs, and higher financing
margin. Ford Credit anticipates a pre-tax loss for the second half of
2008, at about the same level as, or better than, its first-half pre-tax loss
(excluding its impairment charge).
Ford
Credit previously planned to pay regular distributions to Ford in 2008, but
given the present credit market conditions and to maintain greater flexibility
in the execution of its funding plan, we have elected that Ford Credit not
reinstate these distributions in 2008. As a result, Ford Credit's
managed leverage, which was 10 to 1 at June 30, 2008, will be lower than the
previously-anticipated 11.5 to 1. Ford Credit anticipates its
year-end 2008 managed receivables will be in the range of $130 billion to $135
billion.
Item
2. 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;
|
·
|
A further
increase in or acceleration of the market shift away from sales of trucks,
SUVs, or other more profitable vehicles, particularly in the United
States;
|
·
|
A
significant decline in industry sales, particularly in the United States,
Europe, or South America, 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 the Retiree Health Care Settlement Agreement with the 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" in our
2007 Form 10-K Report.
Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
CRITICAL
ACCOUNTING ESTIMATES
Based on
second quarter events, we are updating certain of the Critical Accounting
Estimates disclosed in our 2007 Form 10-K Report.
Other
Postretirement Employee Benefits
Remeasurement
Assumptions. We remeasured the U.S. hourly retiree health care
plan as of June 30, 2008 as a result of a curtailment related to the
termination of hourly employees. The remeasurement reduced our
obligation by about $1.1 billion. The weighted average discount
rate used to determine the benefit obligation for U.S. plans at
June 30, 2008 was 6.66%, compared with 6.45% at
December 31, 2007. The weighted average initial health care
cost trend rate was 1% for the 2008 calendar year, compared with the 2007 trend
rate of 3%.
Sensitivity
Analysis. The sensitivity analysis has not changed materially
from that in our 2007 Form 10-K Report.
Impairment
of Goodwill and Long-Lived Assets
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 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 the amount by which the carrying
value 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.
Automotive
Sector – Ford North America Fixed Assets
Assumptions and Approach
Used. We measure the fair value of an asset group based on
market prices (i.e., the amount for which the asset could be sold to a third
party), when available. When market prices are not available, we
estimate the fair value of the 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, and cost of capital, similar to
those a market participant would use to assess fair value. We also
make certain assumptions about future economic conditions and other
data. Many of the factors used in assessing fair value are outside
the control of management, and these assumptions and estimates may change in
future periods.
Changes
in assumptions or estimates can materially affect the fair value measurement of
an asset group, and therefore can affect the amount of the
impairment. The following are key assumptions we use in making cash
flow projections:
|
·
|
Business Projections –
We make assumptions about the demand for our products in the
marketplace. These assumptions drive our planning assumptions
for volume, mix, and pricing. We also make assumptions about
our cost levels (e.g., capacity utilization, cost performance,
etc.). These projections are derived using our internal
business plans that are updated quarterly and reviewed by our Board of
Directors.
|
|
·
|
Long-Term 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.
|
|
·
|
Discount Rate – When
measuring a possible impairment, future cash flows are discounted at a
rate that is consistent with a weighted-average cost of capital that we
anticipate a potential market participant would
use. Weighted-average cost of capital is an estimate of the
overall risk-adjusted 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.
|
|
·
|
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 (i.e., commodities), and foreign currency exchange
rates.
|
The
market approach is another method for measuring the fair value of an asset
group. This approach relies on the market value (i.e., market
capitalization) of companies that are engaged in the same or similar line of
business.
Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
See Note
2 of the Notes to the Financial Statements in our 2007 Form 10-K Report and
Notes 3 and 10 of the Notes to the Financial Statements for more information
regarding impairment of long-lived assets.
Sensitivity
Analysis. Due to rapidly-changing U.S. market conditions in
the second quarter of 2008 (discussed in Note 3 of the Notes to the
Financial Statements), we tested the long-lived assets of our Ford North America
segment. The resulting impairment reflected changes in the
assumptions used to measure the fair value of the asset group based on these
rapidly-changing market conditions (including changes to our business
projections). The most notable changes in our business and economic
projections included: (1) a more pronounced and accelerated
shift in consumer preferences away from full-size trucks and traditional SUVs to
smaller and more fuel-efficient vehicles as a result of higher fuel prices, with
a return over time to a level between today's mix and recent levels; (2) lowered
U.S. industry demand in the near term, with a return to trend levels as the U.S.
economy recovers subsequent to 2010; and (3) higher commodity costs over
the business plan period compared with prior projections. See Outlook
above for additional discussion of our current planning
assumptions.
Our
testing during the second quarter of 2008 resulted in a pre-tax impairment
charge of $5.3 billion. The impairment was driven almost
entirely by deterioration in projected cash flows for our near-term business
plan period, attributable to changes in our business and economic projections as
discussed above. Following this impairment, Ford North America had
$11 billion of net property recorded in our financial statements as of
June 30, 2008.
Beyond
the business and economic projections discussed above, we also have updated our
assumptions with regard to long-term growth and discount rates. Our
present long-term growth rate assumption is similar to that used in our 2006
North America impairment testing, when we last had an impairment of North
America fixed assets. This growth rate, however, when applied to our
lowered business plan period projections, results in a less favorable
undiscounted long-term outlook. This outlook is consistent with our
present projection of lower margins, resulting primarily from the recent shift
in consumer preferences discussed above. We estimate that a 0.5
percentage point decrease in the long-term growth rate assumed in our second
quarter impairment testing would have decreased the fair value estimate by about
$800 million.
The
discount rate that we used in our second quarter impairment testing was
consistent with a weighted-average cost of capital that we estimate a potential
market participant would use. This discount rate was lower than that
used in our 2006 impairment testing, primarily reflecting the change in
long-term outlook discussed above. A 0.5 percentage point
increase in the discount rate assumption used in the impairment testing would
have decreased the fair value estimate by about $1.4 billion.
Although
at this time we do not anticipate additional impairment charges, a worsening of
the business climate would impact the assumptions we use in performing future
impairment tests and could result in additional impairments. Over
time, as we expand our product line-up in the United States to include
additional small, more fuel-efficient vehicles, our product portfolio will more
closely match the overall market. We then will be less exposed to
rapid changes in vehicle mix, and should be less susceptible to future
impairment.
Financial
Services Sector – Ford Credit North America Investment in Operating
Leases
Assumptions and Approach
Used. As noted above, we measure the fair value of an asset
group based on market prices (i.e., the amount for which the asset could be sold
to a third party), when available. When market prices are not
available, we estimate the fair value of the asset group using the income
approach. The income approach uses discounted cash flow
projections. Ford Credit measures the fair value of its North America
operating lease portfolio using the projected cash flow based on the terms of
the operating lease contracts. Inherent in the cash flow assumptions
are estimates derived from its quarterly operating lease portfolio adequacy
study for accumulated depreciation. Many of the factors used in
measuring fair value are outside the control of management, and these
assumptions and estimates may change in future periods.
Changes
in assumptions or estimates can materially affect the fair value measurement of
an asset group, and therefore can affect the amount of the
impairment. The following are key assumptions we use in making cash
flow projections for Ford Credit's operating leases:
|
·
|
Auction Values – Ford
Credit's projection of the market value of the vehicles when Ford Credit
sells them at the end of the lease.
|
|
·
|
Return Volume – Ford
Credit's projection of the number of vehicles that will be returned at
lease end.
|
|
·
|
Discount Rate – Ford
Credit's estimation of the discount rate, reflecting hypothetical market
assumptions regarding borrowing rates, credit loss patterns, and residual
value risk.
|
See Note
2 of the Notes to the Financial Statements in our 2007 Form 10-K Report and
Notes 3 and 10 of the Notes to the Financial Statements for more information
regarding impairment of long-lived assets.
Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Sensitivity
Analysis. Higher fuel prices and the weak economic climate in
the United States and Canada during the second quarter of 2008 caused a more
pronounced and accelerated shift in consumer preferences away from full-size
trucks and traditional SUVs to smaller, more fuel-efficient
vehicles. This shift in consumer preferences, combined with the weak
economic climate, caused a significant reduction in auction values for used
full-size trucks and traditional SUVs (as discussed in Note 3 of the Notes to
the Financial Statements). Recognizing these rapidly-changing market
conditions, Ford Credit tested its U.S. and Canadian investments in operating
leases for recoverability. As a result of this testing, we concluded
the operating lease portfolio was impaired and recorded a pre-tax charge of
$2.1 billion in our and Ford Credit's second quarter 2008 financial
statements. This charge represents the amount by which the carrying
value of certain vehicle lines in Ford Credit's lease portfolio, primarily
full-size trucks and traditional SUVs, exceeded their fair value. See
Residual Risk discussion above for additional information regarding the
significant decrease in auction values.
Following
this impairment, Ford Credit's total investment in operating leases was
$26.6 billion as of June 30, 2008. Ford Credit
estimates that a one percentage point decrease in the auction value of the
impaired vehicles assumed in the impairment testing would have decreased the
fair value estimate by about $50 million. A one percentage point
increase in the return rate of the impaired vehicles assumed in the impairment
testing would have decreased the fair value estimate by about
$30 million. A one percentage point increase in the discount
rate assumed in the impairment testing would have decreased the fair value
estimate by about $100 million.
Ford
Credit assesses the adequacy of its accumulated depreciation quarterly and will
prospectively increase depreciation expense if auction values decline further or
return volumes increase (see Critical Accounting Estimate – Accumulated
Depreciation on Vehicles Subject to Operating Leases in "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" in our 2007 Form 10-K Report). Although at this time we
do not anticipate additional impairment charges, a significant worsening of the
business climate could trigger future impairment testing and would impact the
assumptions we use therein, which could result in additional
impairments.
ACCOUNTING
STANDARDS ISSUED BUT NOT YET ADOPTED
In
June 2008, the Financial Accounting Standards Board ("FASB") issued FASB
Staff Position ("FSP") EITF 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities
("FSP EITF 03-6-1"). FSP EITF 03-6-1 addresses whether
instruments granted in share-based payment transactions are participating
securities prior to vesting, and therefore need to be included in the earnings
allocation in computing earnings per share under the two-class method as
described in SFAS No. 128, Earnings per
Share. Under the guidance of FSP
EITF 03-6-1, unvested share-based payment awards that contain
nonforfeitable rights to dividends or dividend equivalents (whether paid or
unpaid) are participating securities and shall be included in the computation of
earnings-per-share pursuant to the two-class method. FSP EITF 03-6-1
is effective for financial statements issued for fiscal years beginning after
December 15, 2008 and all prior-period earnings per share data
presented shall be adjusted retrospectively. Early application is not
permitted. We are assessing the potential impact of this FSP on our
earnings per share calculation.
In
June 2008, FASB ratified EITF No. 07-5, Determining Whether an Instrument
(or an Embedded Feature) Is Indexed to an Entity's Own Stock ("EITF
07-5"). EITF 07-5 provides that an entity should use a two-step
approach to evaluate whether an equity-linked financial instrument (or embedded
feature) is indexed to its own stock, including evaluating the instrument's
contingent exercise and settlement provisions. EITF 07-5 is effective
for financial statements issued for fiscal years beginning after
December 15, 2008. Early application is not
permitted. We are assessing the potential impact of this EITF on our
financial condition and results of operations.
In
May 2008, FASB issued FSP APB 14-1, Accounting for Convertible Debt
Instruments that may be Settled in Cash upon Conversion (Including Partial Cash
Settlement) ("FSP APB 14-1"). FSP APB 14-1 applies to
convertible debt securities that, upon conversion, may be settled by the issuer
fully or partially in cash. FSP APB 14-1 specifies that
issuers of such instruments should separately account for the liability and
equity components in a manner that will reflect the entity's nonconvertible debt
borrowing rate when interest cost is recognized in subsequent
periods. FSP APB 14-1 is effective for financial statements
issued for fiscal years after December 15, 2008, and must be applied
on a retrospective basis. Early adoption is not
permitted. We are assessing the potential impact of this FSP on our
convertible debt issuances.
We have
not yet adopted SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities – an amendment of FASB Statement
No. 133. See "Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations" in our Quarterly
Report on Form 10-Q for the period ended March 31, 2008 for further
discussion.
We have
not yet adopted SFAS No. 141R, Business Combinations or
SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No.
51. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations" in our 2007 Form
10-K Report for further discussion.
Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
OTHER
FINANCIAL INFORMATION
The
interim financial information included in this Quarterly Report on Form 10-Q for
the periods ended June 30, 2008 and 2007 has not been audited by
PricewaterhouseCoopers LLP ("PricewaterhouseCoopers"). In reviewing
such information, PricewaterhouseCoopers has applied limited procedures in
accordance with professional standards for reviews of interim financial
information. Readers should restrict their reliance on
PricewaterhouseCoopers' reports on such information
accordingly. PricewaterhouseCoopers is not subject to the liability
provisions of Section 11 of the Securities Act of 1933 for their reports on the
interim financial information, because such reports do not constitute "reports"
or "parts" of the registration statements prepared or certified by
PricewaterhouseCoopers within the meaning of Sections 7 and 11 of the Securities
Act of 1933.
ITEM
3. Quantitative and
Qualitative Disclosures About Market Risk.
Automotive
Sector
Foreign Currency Risk. The
net asset fair value of foreign exchange forward and option contracts as of
June 30, 2008 was $507 million, compared to $632 million as
of December 31, 2007. 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 approximately
$1.2 billion at June 30, 2008, compared with $2 billion at
December 31, 2007.
Commodity Price
Risk. The net asset fair value of commodity forward and option
contracts as of June 30, 2008 was $599 million, compared to
$353 million as of December 31, 2007. The potential
decrease in fair value of commodity forward and option contracts, assuming a 10%
adverse change in the underlying commodity prices, would be approximately
$200 million at June 30, 2008, compared with $100 million at
December 31, 2007.
Financial
Services Sector
Interest Rate
Risk. To provide a quantitative measure of the sensitivity of Ford Credit's 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
100 basis points (or 1%) across all maturities, as well as a base case that
assumes that interest rates remain constant at existing levels. These
interest rate scenarios are purely hypothetical and do not represent Ford
Credit's view of future interest rate movements. The differences in
pre-tax cash flow 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. Under
this model, Ford Credit estimates that at June 30, 2008, all else
constant, such an increase in interest rates would reduce Ford Credit's pre-tax cash flow by approximately $24 million over
the next twelve months, compared with $5 million at March 31, 2008. The sensitivity
analysis presented above assumes a one-percentage point interest rate change to
the yield curve that is both instantaneous and parallel. In reality,
interest rate changes are rarely instantaneous or parallel and rates could move
more or less than the one percentage point assumed in our analysis. As a result, the actual impact
to pre-tax cash flow could be higher or lower than the results detailed
above.
ITEM
4. 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 (“Exchange Act”), as of June 30, 2008, and each has
concluded that such disclosure controls and procedures are 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 SEC rules and forms, and that such information is
accumulated and communicated to the CEO and CFO to allow timely decisions
regarding required disclosures.
Changes in Internal Control over
Financial Reporting. On June 2, 2008, Ford sold its Jaguar Land Rover
operations to Tata Motors Limited. As part of the transaction, Ford
will continue to supply Jaguar Land Rover for differing periods with
powertrains, stampings, and other vehicle components, in addition to a variety
of technologies, such as environmental and platform
technologies. Ford also has committed to provide engineering support
(including research and development) and information technology, accounting, and
other services. The transaction results in the separation of systems
and business processes, thereby affecting our internal control over financial
reporting.
During
the second quarter of 2008, Volvo launched a new budgeting, forecasting, and
financial reporting system. During this period, we also completed the
re-sourcing from one bank to another of our international cash management
services.
PART
II. OTHER INFORMATION
ITEM
1. Legal
Proceedings.
Environmental
Matters
Cleveland
Casting Plant (previously reported on page 42 of our Quarterly Report on Form
10-Q for the period ended March 31, 2008). As
reported, federal air regulations (referred to as the MACT standards) required
our Cleveland Casting Plant to make significant changes to its cupola furnaces
and associated pollution control equipment by April 2008. When we
announced the plant's 2010 closure, we had already invested significant
resources in the necessary equipment upgrade, but the upgrade was not yet
complete. We now have reached agreement with the Ohio Environmental
Protection Agency to resolve this matter. The settlement agreement
allows us to gradually wrap up operations at the facility, while requiring us to
pay $1.4 million in penalties. We still expect the plant's
emissions to decrease significantly leading up to its
closure.
Other
Matters
Apartheid Litigation. Along
with more than 30 other prominent multinational companies, we are defendants in
purported class action lawsuits seeking more than $400 billion in damages
on behalf of South African citizens who suffered violence and oppression under
South Africa's apartheid regime. The lawsuits allege that, by doing
business in South Africa, the defendant companies “aided and abetted” the
apartheid regime and its human rights violations. These cases,
collectively referred to as In
re South African Apartheid Litigation, were initially filed in 2002 and
2003, and are being handled together as coordinated "multidistrict litigation"
in the U.S. District Court for the Southern District of New York. The
District Court dismissed these cases in 2004, but in 2007 the U.S. Court of
Appeals for the Second Circuit reversed and remanded the cases to the District
Court for further proceedings. In May 2008, the U.S. Supreme Court
denied defendants' petition for a writ of certiorari due to a lack of
quorum. The cases have therefore returned to the District Court,
where further proceedings are likely to include amended complaints and further
motions to dismiss. We believe these lawsuits are without foundation
and intend to continue to vigorously defend against the claims.
ITEM
2. Unregistered
Sales of Equity Securities and Use of Proceeds.
During
the second quarter of 2008, we purchased shares of Ford Common Stock as
follows:
|
|
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
|
|
April
1, 2008 through April 30, 2008
|
|
|
0 |
|
|
$ |
-- |
|
|
|
0 |
|
|
|
** |
|
May
1, 2008 through May 31, 2008
|
|
|
25,622 |
|
|
|
8.15 |
|
|
|
0 |
|
|
|
** |
|
June
1, 2008 through June 30, 2008
|
|
|
191,191 |
|
|
|
6.70 |
|
|
|
0 |
|
|
|
** |
|
Total/Average
|
|
|
216,813 |
|
|
|
6.87 |
|
|
|
0 |
|
|
|
** |
|
_____________
*
|
We
presently have no publicly-announced repurchase program in
place. Shares 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. There were no share purchases from the
Ford Motor Savings and Stock Investment Plan for Salaried Employees
("SSIP") or the Tax Efficient Savings Plan for Hourly Employees
("TESPHE"). Purchase of shares when participants in those plans
elect to sell units in the Ford Stock Fund
ceased as of
February 9, 2007.
|
**
|
No
publicly announced repurchase program in
place.
|
ITEM
4. Submission of
Matters to a Vote of Security-Holders.
On May 8,
2008, we held our 2008 Annual Meeting of Shareholders. The following
is a brief description of the matters voted on at the meeting and tabulation of
the voting therefor:
Proposal
One: Election of Directors.
|
|
|
|
Nominee
|
|
For
|
|
|
Against
|
|
|
|
|
|
|
|
|
John
R. H. Bond
|
|
|
2,811,859,806 |
|
|
|
444,048,758 |
|
Stephen
G. Butler
|
|
|
3,179,807,051 |
|
|
|
76,101,513 |
|
Kimberly
A. Casiano
|
|
|
3,172,095,830 |
|
|
|
83,812,734 |
|
Edsel
B. Ford II
|
|
|
3,150,401,490 |
|
|
|
105,507,074 |
|
William
C. Ford, Jr.
|
|
|
3,166,263,563 |
|
|
|
89,645,001 |
|
Irvine
O. Hockaday, Jr.
|
|
|
3,161,703,333 |
|
|
|
94,205,231 |
|
Richard
A. Manoogian
|
|
|
3,144,348,149 |
|
|
|
111,560,415 |
|
Ellen
R. Marram
|
|
|
3,103,932,407 |
|
|
|
151,976,157 |
|
Alan
Mulally
|
|
|
3,174,854,466 |
|
|
|
81,054,098 |
|
Homer
A. Neal
|
|
|
3,170,970,434 |
|
|
|
84,938,130 |
|
Jorma
Ollila
|
|
|
3,178,143,283 |
|
|
|
77,765,281 |
|
Gerald
L. Shaheen
|
|
|
3,181,957,712 |
|
|
|
73,950,852 |
|
John
L. Thornton
|
|
|
3,106,449,106 |
|
|
|
149,459,458 |
|
There
were no broker non-votes with respect to the election of directors.
Proposal
Two: Ratification of Selection of Independent Registered Public
Accounting Firm. A proposal to ratify the selection of
PricewaterhouseCoopers LLP as the Company's independent registered public
accounting firm to audit the books of account and other corporate records of the
Company for 2008 was adopted, with 3,197,587,653 votes cast for, 32,147,816
votes cast against, 26,173,095 votes abstained and 0 broker
non-votes.
Proposal Three: Approval
of the Terms of the Company's Annual Incentive Compensation
Plan. A proposal to approve the terms of the Company's Annual
Incentive Compensation Plan was adopted, with 3,053,883,140 votes cast for,
162,738,939 votes cast against, 39,196,485 votes abstained and 90,000 broker
non-votes.
Proposal Four: Approval
of the Company's 2008 Long-Term Incentive Plan. A proposal to
approve the terms of the Company's 2008 Long-Term Incentive Plan was adopted,
with 2,167,609,358 votes cast for, 563,171,162 votes against, 31,720,533 votes
abstained and 493,407,511 broker non-votes.
Proposal Five: Relating
to Discontinuing Granting Stock Options to Senior
Executives. A proposal relating to discontinuing granting
stock options to senior executives was rejected, with 2,574,096,306 votes cast
against, 154,740,716 votes cast for, 33,664,031 votes abstained and 493,407,511
broker non-votes.
Proposal Six: Relating to
Permitting the Minimum Percent of Holders of Common Stock Allowed by Law to Call
Special Shareholder Meetings. A proposal relating to permitting the
minimum percent of holders of common stock allowed by law to call special
shareholder meetings was rejected, with 2,233,923,348 votes cast against,
492,652,336 votes cast for, 35,925,369 votes abstained and 493,407,511 broker
non-votes.
Proposal Seven: Relating
to Consideration of a Recapitalization Plan to Provide that All of the Company's
Outstanding Stock Have One Vote Per Share. A proposal relating
to consideration of a recapitalization plan to provide that all of the Company's
outstanding stock have one vote per share was rejected, with 1,952,120,067 votes
cast against, 730,471,803 votes cast for, 79,909,183 votes abstained and
493,407,511 broker non-votes.
Proposal Eight: Relating
to the Company Issuing a Report Disclosing Policies and Procedures Related to
Political Contributions. A proposal relating to the Company
issuing a report disclosing policies and procedures related to political
contributions was rejected, with 2,258,210,407 votes cast against, 250,837,128
votes cast for, 253,453,518 votes abstained and 493,407,511 broker
non-votes.
Item
4. Submission of Matters to a Vote of Security-Holders (Continued)
Proposal Nine: Relating
to the Company Adopting Comprehensive Health Care Reform
Principles. A proposal relating to the Company adopting
comprehensive health care reform principles was rejected, with
2,433,127,650 votes cast against, 116,037,250 votes cast for, 213,336,153 votes
abstained and 493,407,511 broker non-votes.
Proposal Ten: Relating to
the Company Issuing a Report on the Effect of the Company's Actions to Reduce
Its Impact on Global Climate Change. A proposal relating to
the Company issuing a report on the effect of the Company's actions to reduce
its impact on global climate change was rejected, with 2,475,491,179 votes cast
against, 77,446,726 votes cast for, 209,562,148 votes abstained and 493,408,511
broker non-votes.
Proposal Eleven: Relating
to Limiting Executive Compensation Until the Company Achieves Five Consecutive
Years of Profitability. A proposal relating to limiting
executive compensation until the Company achieves five consecutive years of
profitability was rejected, with 2,553,584,476 votes cast against, 177,579,772
votes cast for, 31,336,805 votes abstained and 493,407,511 broker
non-votes.
ITEM
5. Other
Information.
Governmental
Standards
Motor Vehicle Fuel
Economy. The U. S. Environmental Protection Agency ("EPA") has
released an Advance Notice of Proposed Rulemaking ("ANPR") related to the
potential regulation of greenhouse gases under the federal Clean Air Act
("CAA"). The ANPR seeks public comment on the appropriateness of a
finding by EPA that greenhouse gases "endanger" public health and welfare, and
on the ramifications of such a finding. The ANPR includes a lengthy
discussion of potential regulatory programs under the CAA that EPA might
implement to reduce greenhouse gas emissions from both mobile and stationary
sources.
With
respect to mobile sources, EPA seeks comment on the possibility of setting
long-term, fleet-average CO2 standards
for motor vehicles, which would be the functional equivalent of establishing
fuel economy standards. Depending on the level of stringency, motor
vehicle greenhouse gas standards could effectively supplant any Corporate
Average Fuel Economy standards set by the National Highway Traffic Safety
Administration. The ANPR also discusses the possibility of
establishing a cap-and-trade system to reduce mobile source greenhouse gas
emissions. With respect to stationary source emissions, the ANPR
discusses a host of potential greenhouse gas regulatory programs, including the
setting of National Ambient Air Quality Standards, the establishment of
performance standards for stationary sources, and the establishment of hazardous
air pollutant standards.
The Bush
Administration has made it clear that the regulatory proposals outlined in the
ANPR do not represent Administration policy. Simultaneous with the
release of the ANPR, the White House and a number of federal agencies (such as
Departments of Commerce, Transportation, Energy, and Agriculture) issued
statements taking the position that greenhouse gases should not be regulated
under the Clean Air Act, primarily because of the burdensome nature of the
regulations and their adverse effect on the U.S. economy. The public
will have 120 days to comment on the ANPR. It is likely that the
Alliance of Automobile Manufacturers (an industry trade group representing nine
leading domestic and foreign automakers, including Ford) will submit
comments. The task of reviewing the comments and determining what, if
any, action to take will be left to the next Administration; there is no
specific deadline or timetable for EPA decisions on this issue.
ITEM
6. Exhibits.
Please
see exhibit index below.
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
FORD
MOTOR COMPANY
|
|
|
|
|
|
(Registrant)
|
|
|
|
|
|
Date: August 8,
2008
|
By:
|
/s/
Peter J. Daniel
|
|
|
|
Peter
J. Daniel
|
|
|
|
Senior
Vice President and
Controller
|
|
EXHIBIT
INDEX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
Long-Term Incentive Plan
|
|
Filed
with this Report
|
|
|
|
|
|
|
|
Annual
Incentive Compensation Plan, as amended and restated as of March 1,
2008
|
|
Filed
with this Report
|
|
|
|
|
|
|
|
Ford
Motor Company and Subsidiaries Calculation of Ratio of Earnings to
Combined Fixed Charges and Preferred Stock Dividends
|
|
Filed
with this Report
|
|
|
|
|
|
|
|
Letter
of PricewaterhouseCoopers LLP, Independent Registered Public Accounting
Firm, dated August 8, 2008, relating to Financial
Information
|
|
Filed
with this Report
|
|
|
|
|
|
|
|
Rule
15d-14(a) Certification of CEO
|
|
Filed
with this Report
|
|
|
|
|
|
|
|
Rule
15d-14(a) Certification of CFO
|
|
Filed
with this Report
|
|
|
|
|
|
|
|
Section
1350 Certification of CEO
|
|
Furnished
with this Report
|
|
|
|
|
|
|
|
Section
1350 Certification of CFO
|
|
Furnished
with this Report
|
58