form10q.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-Q
T
|
QUARTERLY REPORT PURSUANT TO
SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF
1934
|
For
the quarterly period ended September 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.
T
Yes £
No
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 T
|
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).
£
Yes T
No
As of
October 27, 2008, the registrant had outstanding 2,318,003,459 shares of Common Stock
and 70,852,076 shares of Class B Stock.
Exhibit
index located on page number 64.
PART
I. FINANCIAL INFORMATION
Item
1. Financial
Statements
FORD
MOTOR COMPANY AND SUBSIDIARIES
CONSOLIDATED
STATEMENT OF INCOME
For
the Periods Ended September 30, 2008 and 2007
(in
millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Sales
and revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
sales
|
|
$ |
27,733 |
|
|
$ |
36,270 |
|
|
$ |
103,907 |
|
|
$ |
115,006 |
|
Financial
Services revenues
|
|
|
4,312 |
|
|
|
4,808 |
|
|
|
13,178 |
|
|
|
13,333 |
|
Total
sales and revenues
|
|
|
32,045 |
|
|
|
41,078 |
|
|
|
117,085 |
|
|
|
128,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
cost of sales
|
|
|
24,999 |
|
|
|
33,238 |
|
|
|
100,450 |
|
|
|
104,135 |
|
Selling,
administrative and other expenses
|
|
|
4,574 |
|
|
|
4,904 |
|
|
|
16,974 |
|
|
|
15,828 |
|
Interest
expense
|
|
|
2,382 |
|
|
|
2,733 |
|
|
|
7,339 |
|
|
|
8,210 |
|
Financial
Services provision for credit and insurance losses
|
|
|
399 |
|
|
|
194 |
|
|
|
1,341 |
|
|
|
374 |
|
Total
costs and expenses
|
|
|
32,354 |
|
|
|
41,069 |
|
|
|
126,104 |
|
|
|
128,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
interest income and other non-operating income/(expense),
net
|
|
|
(244 |
) |
|
|
(216 |
) |
|
|
(344 |
) |
|
|
672 |
|
Automotive
equity in net income/(loss) of affiliated companies
|
|
|
13 |
|
|
|
51 |
|
|
|
109 |
|
|
|
262 |
|
Income/(Loss)
before income taxes
|
|
|
(540 |
) |
|
|
(156 |
) |
|
|
(9,254 |
) |
|
|
726 |
|
Provision
for/(Benefit from) income taxes
|
|
|
(462 |
) |
|
|
162 |
|
|
|
(811 |
) |
|
|
467 |
|
Income/(Loss)
before minority interests
|
|
|
(78 |
) |
|
|
(318 |
) |
|
|
(8,443 |
) |
|
|
259 |
|
Minority
interests in net income/(loss) of subsidiaries
|
|
|
51 |
|
|
|
62 |
|
|
|
262 |
|
|
|
205 |
|
Income/(Loss)
from continuing operations
|
|
|
(129 |
) |
|
|
(380 |
) |
|
|
(8,705 |
) |
|
|
54 |
|
Income/(Loss)
from discontinued operations (Note 8)
|
|
|
— |
|
|
|
— |
|
|
|
9 |
|
|
|
34 |
|
Net
income/(loss)
|
|
$ |
(129 |
) |
|
$ |
(380 |
) |
|
$ |
(8,696 |
) |
|
$ |
88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMOUNTS
PER SHARE OF COMMON AND CLASS B STOCK (Note 9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
income/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
from continuing operations
|
|
$ |
(0.06 |
) |
|
$ |
(0.19 |
) |
|
$ |
(3.89 |
) |
|
$ |
0.03 |
|
Income/(Loss)
from discontinued operations
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.02 |
|
Net
income/(loss)
|
|
$ |
(0.06 |
) |
|
$ |
(0.19 |
) |
|
$ |
(3.89 |
) |
|
$ |
0.05 |
|
Diluted
income/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
from continuing operations
|
|
$ |
(0.06 |
) |
|
$ |
(0.19 |
) |
|
$ |
(3.89 |
) |
|
$ |
0.03 |
|
Income/(Loss)
from discontinued operations
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.02 |
|
Net
income/(loss)
|
|
$ |
(0.06 |
) |
|
$ |
(0.19 |
) |
|
$ |
(3.89 |
) |
|
$ |
0.05 |
|
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 September 30, 2008 and 2007
(in
millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
AUTOMOTIVE
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
27,733 |
|
|
$ |
36,270 |
|
|
$ |
103,907 |
|
|
$ |
115,006 |
|
Costs
and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
24,999 |
|
|
|
33,238 |
|
|
|
100,450 |
|
|
|
104,135 |
|
Selling,
administrative and other expenses
|
|
|
2,740 |
|
|
|
3,016 |
|
|
|
8,804 |
|
|
|
10,314 |
|
Total
costs and expenses
|
|
|
27,739 |
|
|
|
36,254 |
|
|
|
109,254 |
|
|
|
114,449 |
|
Operating
income/(loss)
|
|
|
(6 |
) |
|
|
16 |
|
|
|
(5,347 |
) |
|
|
557 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
462 |
|
|
|
563 |
|
|
|
1,475 |
|
|
|
1,720 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income and other non-operating income/(expense), net
|
|
|
(244 |
) |
|
|
(216 |
) |
|
|
(344 |
) |
|
|
672 |
|
Equity
in net income/(loss) of affiliated companies
|
|
|
13 |
|
|
|
51 |
|
|
|
109 |
|
|
|
262 |
|
Income/(Loss)
before income taxes — Automotive
|
|
|
(699 |
) |
|
|
(712 |
) |
|
|
(7,057 |
) |
|
|
(229 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCIAL
SERVICES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
4,312 |
|
|
|
4,808 |
|
|
|
13,178 |
|
|
|
13,333 |
|
Costs
and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
1,920 |
|
|
|
2,170 |
|
|
|
5,864 |
|
|
|
6,490 |
|
Depreciation
|
|
|
1,596 |
|
|
|
1,620 |
|
|
|
7,544 |
|
|
|
4,599 |
|
Operating
and other expenses
|
|
|
238 |
|
|
|
268 |
|
|
|
626 |
|
|
|
915 |
|
Provision
for credit and insurance losses
|
|
|
399 |
|
|
|
194 |
|
|
|
1,341 |
|
|
|
374 |
|
Total
costs and expenses
|
|
|
4,153 |
|
|
|
4,252 |
|
|
|
15,375 |
|
|
|
12,378 |
|
Income/(Loss)
before income taxes — Financial Services
|
|
|
159 |
|
|
|
556 |
|
|
|
(2,197 |
) |
|
|
955 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
COMPANY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
before income taxes
|
|
|
(540 |
) |
|
|
(156 |
) |
|
|
(9,254 |
) |
|
|
726 |
|
Provision
for/(Benefit from) income taxes
|
|
|
(462 |
) |
|
|
162 |
|
|
|
(811 |
) |
|
|
467 |
|
Income/(Loss)
before minority interests
|
|
|
(78 |
) |
|
|
(318 |
) |
|
|
(8,443 |
) |
|
|
259 |
|
Minority
interests in net income/(loss) of subsidiaries
|
|
|
51 |
|
|
|
62 |
|
|
|
262 |
|
|
|
205 |
|
Income/(Loss)
from continuing operations
|
|
|
(129 |
) |
|
|
(380 |
) |
|
|
(8,705 |
) |
|
|
54 |
|
Income/(Loss)
from discontinued operations (Note 8)
|
|
|
— |
|
|
|
— |
|
|
|
9 |
|
|
|
34 |
|
Net
income/(loss)
|
|
$ |
(129 |
) |
|
$ |
(380 |
) |
|
$ |
(8,696 |
) |
|
$ |
88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMOUNTS
PER SHARE OF COMMON AND CLASS B STOCK (Note 9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
income/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
from continuing operations
|
|
$ |
(0.06 |
) |
|
$ |
(0.19 |
) |
|
$ |
(3.89 |
) |
|
$ |
0.03 |
|
Income/(Loss)
from discontinued operations
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.02 |
|
Net
income/(loss)
|
|
$ |
(0.06 |
) |
|
$ |
(0.19 |
) |
|
$ |
(3.89 |
) |
|
$ |
0.05 |
|
Diluted
income/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
from continuing operations
|
|
$ |
(0.06 |
) |
|
$ |
(0.19 |
) |
|
$ |
(3.89 |
) |
|
$ |
0.03 |
|
Income/(Loss)
from discontinued operations
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.02 |
|
Net
income/(loss)
|
|
$ |
(0.06 |
) |
|
$ |
(0.19 |
) |
|
$ |
(3.89 |
) |
|
$ |
0.05 |
|
The
accompanying notes are part of the financial statements
Item
1. Financial Statements (Continued)
FORD
MOTOR COMPANY AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEET
(in
millions)
|
|
September 30, 2008
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
24,894 |
|
|
$ |
35,283 |
|
Marketable
securities
|
|
|
16,907 |
|
|
|
5,248 |
|
Loaned
securities
|
|
|
— |
|
|
|
10,267 |
|
Finance
receivables, net
|
|
|
100,883 |
|
|
|
109,053 |
|
Other
receivables, net
|
|
|
7,529 |
|
|
|
8,210 |
|
Net
investment in operating leases
|
|
|
29,179 |
|
|
|
33,255 |
|
Retained
interest in sold receivables
|
|
|
154 |
|
|
|
653 |
|
Inventories (Note
2)
|
|
|
12,048 |
|
|
|
10,121 |
|
Equity
in net assets of affiliated companies
|
|
|
3,065 |
|
|
|
2,853 |
|
Net
property
|
|
|
30,253 |
|
|
|
36,239 |
|
Deferred
income taxes
|
|
|
3,032 |
|
|
|
3,500 |
|
Goodwill
and other net intangible assets (Note 4)
|
|
|
1,805 |
|
|
|
2,069 |
|
Assets
of discontinued/held-for-sale operations (Note 8)
|
|
|
— |
|
|
|
7,537 |
|
Other
assets
|
|
|
12,316 |
|
|
|
14,976 |
|
Total
assets
|
|
$ |
242,065 |
|
|
$ |
279,264 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Payables
|
|
$ |
20,358 |
|
|
$ |
20,832 |
|
Accrued
liabilities and deferred revenue
|
|
|
62,931 |
|
|
|
74,738 |
|
Debt
|
|
|
156,793 |
|
|
|
168,787 |
|
Deferred
income taxes
|
|
|
2,514 |
|
|
|
3,034 |
|
Liabilities
of discontinued/held-for-sale operations (Note 8)
|
|
|
— |
|
|
|
4,824 |
|
Total
liabilities
|
|
|
242,596 |
|
|
|
272,215 |
|
|
|
|
|
|
|
|
|
|
Minority
interests
|
|
|
1,458 |
|
|
|
1,421 |
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
|
|
|
|
|
|
Capital
stock
|
|
|
|
|
|
|
|
|
Common
Stock, par value $0.01 per share (2,304 million shares
issued)
|
|
|
23 |
|
|
|
21 |
|
Class
B Stock, par value $0.01 per share (71 million shares
issued)
|
|
|
1 |
|
|
|
1 |
|
Capital
in excess of par value of stock
|
|
|
8,910 |
|
|
|
7,834 |
|
Accumulated
other comprehensive income/(loss)
|
|
|
(571 |
) |
|
|
(558 |
) |
Treasury
stock
|
|
|
(183 |
) |
|
|
(185 |
) |
Retained
earnings/(Accumulated deficit)
|
|
|
(10,169 |
) |
|
|
(1,485 |
) |
Total
stockholders’ equity
|
|
|
(1,989 |
) |
|
|
5,628 |
|
Total
liabilities and stockholders’ equity
|
|
$ |
242,065 |
|
|
$ |
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
|
|
$ |
10,607 |
|
|
$ |
20,678 |
|
Marketable
securities
|
|
|
11,477 |
|
|
|
2,092 |
|
Loaned
securities
|
|
|
— |
|
|
|
10,267 |
|
Total
cash, marketable and loaned securities
|
|
|
22,084 |
|
|
|
33,037 |
|
Receivables,
net
|
|
|
4,623 |
|
|
|
4,530 |
|
Inventories
(Note 2)
|
|
|
12,048 |
|
|
|
10,121 |
|
Deferred
income taxes
|
|
|
333 |
|
|
|
532 |
|
Other
current assets
|
|
|
4,756 |
|
|
|
5,514 |
|
Current
receivable from Financial Services
|
|
|
1,177 |
|
|
|
509 |
|
Total
current assets
|
|
|
45,021 |
|
|
|
54,243 |
|
Equity
in net assets of affiliated companies
|
|
|
2,466 |
|
|
|
2,283 |
|
Net
property
|
|
|
30,027 |
|
|
|
35,979 |
|
Deferred
income taxes
|
|
|
6,992 |
|
|
|
9,268 |
|
Goodwill
and other net intangible assets (Note 4)
|
|
|
1,796 |
|
|
|
2,051 |
|
Assets
of discontinued/held-for-sale operations (Note 8)
|
|
|
— |
|
|
|
7,537 |
|
Other
assets
|
|
|
5,826 |
|
|
|
5,614 |
|
Non-current
receivable from Financial Services
|
|
|
2,520 |
|
|
|
1,514 |
|
Total
Automotive assets
|
|
|
94,648 |
|
|
|
118,489 |
|
Financial
Services
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
14,287 |
|
|
|
14,605 |
|
Marketable
securities
|
|
|
5,735 |
|
|
|
3,156 |
|
Finance
receivables, net
|
|
|
103,796 |
|
|
|
112,733 |
|
Net
investment in operating leases
|
|
|
25,838 |
|
|
|
30,309 |
|
Retained
interest in sold receivables
|
|
|
154 |
|
|
|
653 |
|
Equity
in net assets of affiliated companies
|
|
|
599 |
|
|
|
570 |
|
Goodwill
and other net intangible assets (Note 4)
|
|
|
9 |
|
|
|
18 |
|
Other
assets
|
|
|
5,492 |
|
|
|
7,217 |
|
Total
Financial Services assets
|
|
|
155,910 |
|
|
|
169,261 |
|
Intersector
elimination
|
|
|
(4,009 |
) |
|
|
(2,023 |
) |
Total
assets
|
|
$ |
246,549 |
|
|
$ |
285,727 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Automotive
|
|
|
|
|
|
|
|
|
Trade
payables
|
|
$ |
15,154 |
|
|
$ |
15,718 |
|
Other
payables
|
|
|
3,152 |
|
|
|
3,237 |
|
Accrued
liabilities and deferred revenue
|
|
|
25,036 |
|
|
|
27,672 |
|
Deferred
income taxes
|
|
|
2,728 |
|
|
|
2,671 |
|
Debt
payable within one year
|
|
|
1,282 |
|
|
|
1,175 |
|
Total
current liabilities
|
|
|
47,352 |
|
|
|
50,473 |
|
Long-term
debt
|
|
|
24,856 |
|
|
|
25,779 |
|
Other
liabilities
|
|
|
32,622 |
|
|
|
41,676 |
|
Deferred
income taxes
|
|
|
736 |
|
|
|
783 |
|
Liabilities
of discontinued/held-for-sale operations (Note 8)
|
|
|
— |
|
|
|
4,824 |
|
Total
Automotive liabilities
|
|
|
105,566 |
|
|
|
123,535 |
|
Financial
Services
|
|
|
|
|
|
|
|
|
Payables
|
|
|
2,052 |
|
|
|
1,877 |
|
Debt
|
|
|
130,960 |
|
|
|
141,833 |
|
Deferred
income taxes
|
|
|
3,534 |
|
|
|
6,043 |
|
Other
liabilities and deferred income
|
|
|
5,280 |
|
|
|
5,390 |
|
Payable
to Automotive
|
|
|
3,697 |
|
|
|
2,023 |
|
Total
Financial Services liabilities
|
|
|
145,523 |
|
|
|
157,166 |
|
Minority
interests
|
|
|
1,458 |
|
|
|
1,421 |
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
|
|
|
|
|
|
Capital
stock
|
|
|
|
|
|
|
|
|
Common
Stock, par value $0.01 per share (2,304 million shares
issued)
|
|
|
23 |
|
|
|
21 |
|
Class
B Stock, par value $0.01 per share (71 million shares
issued)
|
|
|
1 |
|
|
|
1 |
|
Capital
in excess of par value of stock
|
|
|
8,910 |
|
|
|
7,834 |
|
Accumulated
other comprehensive income/(loss)
|
|
|
(571 |
) |
|
|
(558 |
) |
Treasury
stock
|
|
|
(183 |
) |
|
|
(185 |
) |
Retained
earnings/(Accumulated deficit)
|
|
|
(10,169 |
) |
|
|
(1,485 |
) |
Total
stockholders' equity
|
|
|
(1,989 |
) |
|
|
5,628 |
|
Intersector
elimination
|
|
|
(4,009 |
) |
|
|
(2,023 |
) |
Total
liabilities and stockholders' equity
|
|
$ |
246,549 |
|
|
$ |
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 September 30, 2008 and 2007
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
Cash
flows from operating activities of continuing operations
|
|
|
|
Net
cash (used in)/provided by operating activities
|
|
$ |
3,269 |
|
|
$ |
13,242 |
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities of continuing operations
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(4,875 |
) |
|
|
(4,215 |
) |
Acquisitions
of retail and other finance receivables and operating
leases
|
|
|
(36,932 |
) |
|
|
(42,827 |
) |
Collections
of retail and other finance receivables and operating
leases
|
|
|
32,278 |
|
|
|
34,509 |
|
Purchases
of securities
|
|
|
(49,881 |
) |
|
|
(9,085 |
) |
Sales
and maturities of securities
|
|
|
47,852 |
|
|
|
14,805 |
|
Settlements
of derivatives
|
|
|
1,753 |
|
|
|
716 |
|
Proceeds
from sales of retail and other finance receivables and operating
leases
|
|
|
— |
|
|
|
705 |
|
Proceeds
from sale of businesses
|
|
|
6,293 |
|
|
|
1,236 |
|
Cash
paid for acquisitions
|
|
|
(13 |
) |
|
|
— |
|
Transfer
of cash balances upon disposition of discontinued/held-for-sale
operations
|
|
|
(925 |
) |
|
|
(83 |
) |
Other
|
|
|
421 |
|
|
|
185 |
|
Net
cash (used in)/provided by investing activities
|
|
|
(4,029 |
) |
|
|
(4,054 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities of continuing operations
|
|
|
|
|
|
|
|
|
Sales
of Common Stock
|
|
|
663 |
|
|
|
152 |
|
Purchases
of Common Stock
|
|
|
— |
|
|
|
(31 |
) |
Changes
in short-term debt
|
|
|
(4,422 |
) |
|
|
(2,558 |
) |
Proceeds
from issuance of other debt
|
|
|
27,565 |
|
|
|
24,018 |
|
Principal
payments on other debt
|
|
|
(32,768 |
) |
|
|
(32,457 |
) |
Other
|
|
|
(531 |
) |
|
|
151 |
|
Net
cash (used in)/provided by financing activities
|
|
|
(9,493 |
) |
|
|
(10,725 |
) |
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
(136 |
) |
|
|
64 |
|
|
|
|
|
|
|
|
|
|
Net
increase/(decrease) in cash and cash equivalents from continuing
operations
|
|
|
(10,389 |
) |
|
|
(1,473 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from discontinued operations
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities of discontinued operations
|
|
|
— |
|
|
|
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
|
|
$ |
(10,389 |
) |
|
$ |
(1,457 |
) |
|
|
|
|
|
|
|
|
|
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
|
|
|
(10,389 |
) |
|
|
(1,457 |
) |
Less:
cash and cash equivalents of discontinued/held-for-sale operations at
September 30
|
|
|
— |
|
|
|
— |
|
Cash
and cash equivalents at September 30
|
|
$ |
24,894 |
|
|
$ |
27,437 |
|
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 September 30, 2008 and 2007
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Cash
flows from operating activities of continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash (used in)/provided by operating activities
|
|
$ |
(7,242 |
) |
|
$ |
8,088 |
|
|
$ |
5,932 |
|
|
$ |
5,247 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(4,815 |
) |
|
|
(60 |
) |
|
|
(4,176 |
) |
|
|
(39 |
) |
Acquisitions
of retail and other finance receivables and operating
leases
|
|
|
— |
|
|
|
(36,932 |
) |
|
|
— |
|
|
|
(42,827 |
) |
Collections
of retail and other finance receivables and operating
leases
|
|
|
— |
|
|
|
32,643 |
|
|
|
— |
|
|
|
34,545 |
|
Net
(increase)/decrease of wholesale receivables
|
|
|
— |
|
|
|
2,058 |
|
|
|
— |
|
|
|
2,027 |
|
Purchases
of securities
|
|
|
(33,430 |
) |
|
|
(16,721 |
) |
|
|
(1,428 |
) |
|
|
(7,657 |
) |
Sales
and maturities of securities
|
|
|
33,676 |
|
|
|
14,176 |
|
|
|
1,469 |
|
|
|
13,336 |
|
Settlements
of derivatives
|
|
|
1,063 |
|
|
|
690 |
|
|
|
748 |
|
|
|
(32 |
) |
Proceeds
from sales of retail and other finance receivables and operating
leases
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
705 |
|
Proceeds
from sale of businesses
|
|
|
2,595 |
|
|
|
3,698 |
|
|
|
1,079 |
|
|
|
157 |
|
Cash
paid for acquisitions
|
|
|
(13 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Transfer
of cash balances upon disposition of discontinued/held-for-sale
operations
|
|
|
(925 |
) |
|
|
— |
|
|
|
(83 |
) |
|
|
— |
|
Investing
activity from Financial Services
|
|
|
9 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Investing
activity to Financial Services
|
|
|
— |
|
|
|
— |
|
|
|
(8 |
) |
|
|
— |
|
Other
|
|
|
144 |
|
|
|
277 |
|
|
|
(20 |
) |
|
|
205 |
|
Net
cash (used in)/provided by investing activities
|
|
|
(1,696 |
) |
|
|
(171 |
) |
|
|
(2,419 |
) |
|
|
420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
of Common Stock
|
|
|
663 |
|
|
|
— |
|
|
|
152 |
|
|
|
— |
|
Purchases
of Common Stock
|
|
|
— |
|
|
|
— |
|
|
|
(31 |
) |
|
|
— |
|
Changes
in short-term debt
|
|
|
56 |
|
|
|
(4,478 |
) |
|
|
(69 |
) |
|
|
(2,489 |
) |
Proceeds
from issuance of other debt
|
|
|
116 |
|
|
|
27,449 |
|
|
|
189 |
|
|
|
23,829 |
|
Principal
payments on other debt
|
|
|
(456 |
) |
|
|
(32,042 |
) |
|
|
(617 |
) |
|
|
(31,840 |
) |
Financing
activity from Automotive
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
8 |
|
Financing
activity to Automotive
|
|
|
— |
|
|
|
(9 |
) |
|
|
— |
|
|
|
— |
|
Other
|
|
|
(206 |
) |
|
|
(325 |
) |
|
|
207 |
|
|
|
(56 |
) |
Net
cash (used in)/provided by financing activities
|
|
|
173 |
|
|
|
(9,405 |
) |
|
|
(169 |
) |
|
|
(10,548 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
(64 |
) |
|
|
(72 |
) |
|
|
342 |
|
|
|
(278 |
) |
Net
change in intersector receivables/payables and other
liabilities
|
|
|
(1,242 |
) |
|
|
1,242 |
|
|
|
(777 |
) |
|
|
777 |
|
Net
increase/(decrease) in cash and cash equivalents from continuing
operations
|
|
|
(10,071 |
) |
|
|
(318 |
) |
|
|
2,909 |
|
|
|
(4,382 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities of discontinued operations
|
|
|
— |
|
|
|
— |
|
|
|
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
|
|
$ |
(10,071 |
) |
|
$ |
(318 |
) |
|
$ |
2,925 |
|
|
$ |
(4,382 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
(10,071 |
) |
|
|
(318 |
) |
|
|
2,925 |
|
|
|
(4,382 |
) |
Less:
cash and cash equivalents of discontinued/held-for-sale operations at
September 30
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Cash
and cash equivalents at September 30
|
|
$ |
10,607 |
|
|
$ |
14,287 |
|
|
$ |
18,945 |
|
|
$ |
8,492 |
|
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. PRINCIPLES OF PRESENTATION AND CONSOLIDATION
Our
financial statements are presented in accordance 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. We show our financial statements on both a
consolidated and a sector basis for our Automotive and Financial Services
sectors. All intercompany items and transactions have been eliminated
in both the consolidated and sector basis financial
statements. Reconciliations of certain line items are explained below
in this Note, where the presentation of these intercompany eliminations or
consolidated adjustments differ between the consolidated and sector financial
statements.
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, updated in our Current Report on Form 8-K filed on June
2, 2008 ("2007 Form 10-K Report"). 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
Deferred Tax Assets and Liabilities.
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
|
|
$ |
333 |
|
|
$ |
532 |
|
Automotive
sector non-current deferred income tax assets
|
|
|
6,992 |
|
|
|
9,268 |
|
Financial
Services sector deferred income tax assets*
|
|
|
191 |
|
|
|
163 |
|
Total
|
|
|
7,516 |
|
|
|
9,963 |
|
Reclassification
for netting of deferred income taxes
|
|
|
(4,484 |
) |
|
|
(6,463 |
) |
Consolidated
balance sheet presentation of deferred income tax assets
|
|
$ |
3,032 |
|
|
$ |
3,500 |
|
|
|
|
|
|
|
|
|
|
Sector
balance sheet presentation of deferred income tax
liabilities:
|
|
|
|
|
|
|
|
|
Automotive
sector current deferred income tax liabilities
|
|
$ |
2,728 |
|
|
$ |
2,671 |
|
Automotive
sector non-current deferred income tax liabilities
|
|
|
736 |
|
|
|
783 |
|
Financial
Services sector deferred income tax liabilities
|
|
|
3,534 |
|
|
|
6,043 |
|
Total
|
|
|
6,998 |
|
|
|
9,497 |
|
Reclassification
for netting of deferred income taxes
|
|
|
(4,484 |
) |
|
|
(6,463 |
) |
Consolidated
balance sheet presentation of deferred income tax
liabilities
|
|
$ |
2,514 |
|
|
$ |
3,034 |
|
__________
*
|
Financial
Services deferred income tax assets are included in Financial Services other
assets on our sector balance
sheet.
|
Ford Acquisition of Ford Motor
Credit Company LLC ("Ford Credit") Debt. In
connection with our Registration Statement (No. 333-151355) filed on Form S-3
and the related prospectus dated June 2, 2008 and the prospectus supplements
dated August 14, 2008 and October 2, 2008, we issued shares of Ford Common Stock
from time to time in market transactions and used the proceeds therefrom to
purchase outstanding Ford Credit debt securities maturing prior to
2012.
As of
September 30, 2008, we issued 88,325,372 shares resulting in proceeds of $434
million. During the quarter, we purchased, with $270 million of cash,
debt securities of Ford Credit with a carrying value of $305 million and
recorded a gain on extinguishment of debt in the amount of $35 million in Automotive interest income and other
non-operating income/(expense), net.
On our
consolidated balance sheet, the debt is no longer reported in our Debt
balances.
Item
1. Financial Statements (Continued)
NOTE
1. PRINCIPLES OF PRESENTATION AND CONSOLIDATION (Continued)
On our
sector balance sheet, the debt is still considered outstanding as it has not
been retired or cancelled by Ford Credit. Accordingly, on our sector
balance sheet, the $305 million of debt is reported as Financial Services debt. Likewise,
included in Automotive
marketable securities
is $305 million related to Ford's purchase of the Ford Credit debt
securities. Consolidating elimination adjustments for these debt
securities, and a related $7 million of accrued interest, are included in the
Intersector elimination
lines on the sector balance sheet.
Presentation
of Cash Flows
Trading
Securities. 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.
Wholesale and Other Finance
Receivables. 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
|
|
$ |
846 |
|
|
$ |
11,179 |
|
Reclassification
of wholesale receivable cash flows from investing to operating for
consolidated presentation (a)
|
|
|
2,058 |
|
|
|
2,027 |
|
Reclassification
of finance receivable cash flows from investing to operating for
consolidated presentation (b)
|
|
|
365 |
|
|
|
36 |
|
Consolidated
cash flows from operating activities of continuing
operations
|
|
$ |
3,269 |
|
|
$ |
13,242 |
|
__________
(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 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.
|
Ford Acquisition of Ford
Credit Debt. The $270
million cash outflow related to our acquisition of Ford Credit's debt securities
is presented differently on our consolidated and sector statements of cash
flows. The cash outflow is reclassified from Automotive purchases of securities
within Cash flows from
investing activities on our sector statement of cash flows to Principal payments on other debt
line item within Cash
flows from financing activities on our consolidated statement of cash
flows.
NOTE
2. INVENTORIES
Inventories
are summarized as follows (in millions):
|
|
September 30, 2008
|
|
|
December 31, 2007
|
|
Raw
materials, work-in-process and supplies
|
|
$ |
4,367 |
|
|
$ |
4,360 |
|
Finished
products
|
|
|
8,722 |
|
|
|
6,861 |
|
Total
inventories under first-in, first-out method ("FIFO")
|
|
|
13,089 |
|
|
|
11,221 |
|
Less:
Last-in, first-out method ("LIFO") adjustment
|
|
|
(1,041 |
) |
|
|
(1,100 |
) |
Total
inventories
|
|
$ |
12,048 |
|
|
$ |
10,121 |
|
Inventories
are stated at lower of cost or market. About one-fourth of
inventories were determined under the LIFO method.
Item
1. Financial Statements (Continued)
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.
The table
below describes the significant components of the second quarter 2008 long-lived
asset impairment of the Ford North America segment (in millions):
|
|
|
|
Land
|
|
$ |
— |
|
Buildings
and land improvements
|
|
|
698 |
|
Machinery,
equipment and other
|
|
|
2,833 |
|
Special
tools
|
|
|
1,769 |
|
Total
|
|
$ |
5,300 |
|
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, in the second quarter of 2008 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.
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
|
|
|
— |
|
|
|
(2 |
) |
|
|
(65 |
) |
|
|
(67 |
) |
|
|
— |
|
|
|
(67 |
) |
Balances
at September 30, 2008
|
|
$ |
— |
|
|
$ |
35 |
|
|
$ |
1,295 |
|
|
$ |
1,330 |
|
|
$ |
9 |
|
|
$ |
1,339 |
|
__________
*
|
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.
|
Item
1. Financial Statements (Continued)
NOTE
4. GOODWILL AND OTHER NET INTANGIBLES (Continued)
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
|
|
$ |
322 |
|
|
$ |
(104 |
) |
|
$ |
218 |
|
|
$ |
335 |
|
|
$ |
(103 |
) |
|
$ |
232 |
|
Manufacturing
and production incentive rights
|
|
|
271 |
|
|
|
(118 |
) |
|
|
153 |
|
|
|
297 |
|
|
|
(74 |
) |
|
|
223 |
|
Other
|
|
|
191 |
|
|
|
(96 |
) |
|
|
95 |
|
|
|
199 |
|
|
|
(89 |
) |
|
|
110 |
|
Total
Automotive sector
|
|
|
784 |
|
|
|
(318 |
) |
|
|
466 |
|
|
|
831 |
|
|
|
(266 |
) |
|
|
565 |
|
Total
Financial Services Sector
|
|
|
4 |
|
|
|
(4 |
) |
|
|
— |
|
|
|
4 |
|
|
|
(4 |
) |
|
|
— |
|
Total
|
|
$ |
788 |
|
|
$ |
(322 |
) |
|
$ |
466 |
|
|
$ |
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
|
|
$ |
27 |
|
|
$ |
32 |
|
|
$ |
77 |
|
|
$ |
80 |
|
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.
The total
consolidated VIE assets reflected on our September 30, 2008 and December 31,
2007 balance sheets are as follows (in millions):
|
|
September 30, 2008
|
|
|
December 31, 2007
|
|
Automotive
Sector
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
938 |
|
|
$ |
742 |
|
Other
assets
|
|
|
5,088 |
|
|
|
5,599 |
|
Total
assets
|
|
$ |
6,026 |
|
|
$ |
6,341 |
|
|
|
|
|
|
|
|
|
|
Financial
Services Sector
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
4,407 |
|
|
$ |
4,605 |
|
Finance
receivables
|
|
|
61,513 |
|
|
|
60,361 |
|
Net
investment in operating leases
|
|
|
12,232 |
|
|
|
17,461 |
|
Total
assets
|
|
$ |
78,152 |
|
|
$ |
82,427 |
|
Ford
Credit uses special purpose entities ("SPEs") that are considered VIEs for most
of its on-balance sheet securitizations. Ford Credit's FCAR Owner
Trust retail securitization program ("FCAR") issues commercial paper
externally. On occasion, we purchase the debt issued by
FCAR. At September 30, 2008, the asset-backed securities of FCAR
supported $9.8 billion of FCAR's asset-backed commercial paper held by external
investors and the remaining $1.1 billion was held by Ford
Credit. Further, Ford Credit repurchased $2.5 billion of asset-backed
securities from FCAR during the third quarter of 2008 and FCAR used the proceeds
to pay off maturing FCAR commercial paper.
Item
1. Financial Statements (Continued)
NOTE
5. VARIABLE INTEREST ENTITIES (Continued)
We also
have investments in other non-securitization related 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. Therefore, we do not consolidate these
entities and we account for them as equity method investments. Our
maximum exposure at September 30, 2008 and December 31, 2007, respectively, was
$424 million and $357 million for our Automotive sector and $148 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.
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"). 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)
|
|
|
77 |
|
|
|
232 |
|
|
|
728 |
|
|
|
2,220 |
|
Voluntary
separations and relocations
|
|
|
(239 |
) |
|
|
(311 |
) |
|
|
(2,764 |
) |
|
|
(4,632 |
) |
Benefit
payments and other adjustments
|
|
|
(129 |
) |
|
|
(140 |
) |
|
|
(1,821 |
) |
|
|
— |
|
Ending
balance
|
|
$ |
526 |
|
|
$ |
817 |
|
|
|
4,459 |
|
|
|
8,316 |
|
Included
in "Benefit payments and other adjustments" above is a $344 million decrease in
the third quarter of 2008, primarily due to a reduction in the number of
employees in the reserve as a result of three ACH plants whose employees are no
longer probable to be permanently idled.
The
reserve balance above takes into account several factors, including 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.
Item
1. Financial Statements (Continued)
NOTE
6. JOB SECURITY BENEFITS RESERVE AND EMPLOYEE SEPARATION ACTIONS (Continued)
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
|
|
|
222 |
|
|
|
— |
|
|
|
1,832 |
|
|
|
— |
|
Payments/Terminations
|
|
|
(297 |
) |
|
|
(1,912 |
) |
|
|
(2,440 |
) |
|
|
(21,587 |
) |
Rescissions
and other adjustments
|
|
|
14 |
|
|
|
(298 |
) |
|
|
(61 |
) |
|
|
(3,390 |
) |
Ending
balance
|
|
$ |
164 |
|
|
$ |
225 |
|
|
|
705 |
|
|
|
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 are 3,389 acceptances during the
first nine months of 2008 of voluntary retirement incentive packages, the costs
for which are included in pension and other postretirement employee benefits
("OPEB") separation costs.
Other Employee Separation
Actions. In the second quarter of 2008, we announced plans to
reduce salaried employee costs in North America by 15%. We completed
those actions by the third quarter and recognized pre-tax charges in the United
States of $65 million and $78 million for the third quarter and first nine
months of 2008, respectively. 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 nine
months of 2007. These charges are reported in Automotive cost of sales
and Selling, administrative
and other expenses and exclude costs for pension and OPEB.
In
addition, we had pre-tax charges for other hourly and salaried employee
separation actions outside the United States. We recognized $70 million and $28
million for the third quarter of 2008 and 2007, respectively, and $108 million
and $280 million for the first nine months 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.
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.
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.
SFAS No.
109, Accounting for Income
Taxes ("SFAS No. 109") requires that the provision for/(benefit from)
income taxes be allocated between continuing operations and other categories of
earnings (such as discontinued operations or other comprehensive income) for
each tax jurisdiction. In periods in which there is a year-to-date
pre-tax loss from continuing operations and pre-tax income in other categories
of earnings, tax provision is first allocated to the other categories of
earnings. A related tax benefit is then recorded in continuing
operations. Included in Provision for/(Benefit from) income
taxes are tax benefits of $630 million for the third quarter of 2008 and
$1.3 billion for the first nine months of 2008 related to these intraperiod
allocations.
Also
included in third quarter 2008 Provision for/(Benefit from) income
taxes is a $94 million tax provision that represents a correction to
amounts that were incorrectly recorded in Accumulated other comprehensive
income for the periods beginning with the fourth quarter of 2006 related
to foreign deferred tax assets. We have not restated our prior-period
financial statements because we have concluded that the effect of correcting for
this item and other immaterial out-of-period adjustments is not
material.
Item
1. Financial Statements (Continued)
NOTE
7. INCOME TAXES (Continued)
Uncertain
tax benefits are recognized in accordance with FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes - an interpretation of FASB Statement No. 109 ("FIN 48") on a
more-likely-than-not standard. At any point in time, Ford's
cross-border transfer prices are being evaluated by multiple governments around
the world. Over the next several months, bilateral discussions are
expected to occur between the United States and a major trading
partner. It is reasonably possible that the total amount of
unrecognized tax benefits related to these unresolved transfer pricing disputes
may significantly increase or decrease in the next twelve months as a result of
these discussions; an estimate of the reasonably possible change cannot be made
at this time.
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. Third quarter and first nine months results
for this discontinued operation are shown in the table below (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
and revenues
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income/(loss) from discontinued operations
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2 |
|
Gain/(Loss)
on discontinued operations
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
51 |
|
(Provision
for)/Benefit from income taxes
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(19 |
) |
Income/(Loss)
from discontinued operations
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
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 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. At the time of
the sale, we received $2.4 billion in cash proceeds and recognized a second
quarter pre-tax loss of $106 million, reported in Automotive interest income and other
non-operating income/(expense), net.
During
the third quarter, we received $132 million in cash, which reflected final
settlement of purchase price adjustments and recognized an additional pre-tax
loss of $30 million reported in Automotive interest income and other
non-operating income/(expense), net. With this, our pre-tax loss is $136
million.
The
assets and liabilities of Jaguar Land Rover that were classified as
held-for-sale operations at December 31, 2007 are summarized as follows (in
millions):
|
|
|
|
Assets
|
|
|
|
Receivables
|
|
$ |
758 |
|
Inventories
|
|
|
1,530 |
|
Net
property
|
|
|
2,246 |
|
Goodwill
and other net intangibles
|
|
|
2,010 |
|
Pension
assets
|
|
|
696 |
|
Other
assets
|
|
|
297 |
|
Total
assets of the held-for-sale operations
|
|
$ |
7,537 |
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Payables
|
|
$ |
2,395 |
|
Pension
liabilities
|
|
|
19 |
|
Warranty
liabilities
|
|
|
645 |
|
Other
liabilities
|
|
|
1,765 |
|
Total
liabilities of the held-for-sale operations
|
|
$ |
4,824 |
|
Item
1. Financial Statements (Continued)
NOTE
8. DISCONTINUED OPERATIONS, HELD-FOR-SALE OPERATIONS, OTHER DISPOSITIONS, AND
ACQUISITIONS (Continued)
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 continue to
supply Ford with automotive glass products. As a result of the
transaction, we recognized a second quarter pre-tax loss of $285 million
reported in Automotive
interest income and other non-operating income/(expense), net. This loss was 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.
During
the third quarter of 2008, the sale agreement between Ford and Zeledyne, LLC was
amended resulting in an additional $19 million pre-tax loss reported in Automotive interest income and other
non-operating income/(expense), net. The third quarter loss is primarily
related to changes in long-term contractual restructuring
obligations. With this, our pre-tax loss is $304
million.
In the
second quarter of 2008, we disclosed that we expected the sale of the Milan
plant, which produces fuel tanks and bumper fascias, would be completed by the
end of this year. Accordingly, at June 30, 2008, ACH classified the
assets and liabilities of the Milan plant as held for sale in our balance
sheet. We also recorded a pre-tax impairment charge of $18 million in
the second quarter of 2008, which represented the excess of net book value of
the held-for-sale assets over the expected proceeds based on June 30, 2008
conditions.
During
the third quarter of 2008, deteriorating domestic economic and industry
conditions significantly reduced the probability of selling the Milan plant
within the next 12 months, although negotiations are
ongoing. Accordingly, at September 30, 2008, the Milan plant has been
reclassified and reported as held and used. The pre-tax impairment
charge of $18 million previously recorded in the second quarter of 2008
continues to be reported in Automotive cost of
sales.
Other
Dispositions
ACH. During 2008,
ACH terminated the non-binding agreement for the sale of the business at the
Sandusky plant, which primarily produces lighting components, and the Saline
plant, which primarily produces cockpit modules, instrument panels, door trim,
and floor console products. Neither of these businesses were
classified as held for sale at September 30, 2008.
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. For the nine months ended September 30, 2008, Ford Credit received
additional proceeds primarily based on better-than-anticipated securitized
portfolio performance, and recognized a $9 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 new legal entity and transferred into it the
majority of its business and assets from Denmark, Finland, Norway, and
Sweden. By the end of the second quarter, Ford Credit had sold 50% of
the new legal entity. As a result of the sale, Ford Credit reduced
Finance receivables,
net by $1.7 billion, and we recognized a pre-tax gain in Financial Services revenues
of $85 million, net of transaction costs and including $35 million of
foreign currency translation adjustments. Ford Credit reports its
ownership interest in the new legal entity as an equity method
investment. The new legal entity will support the sale of Ford
vehicles in these markets.
Item
1. Financial Statements (Continued)
NOTE
8. DISCONTINUED OPERATIONS, HELD-FOR-SALE OPERATIONS, OTHER DISPOSITIONS, AND
ACQUISITIONS (Continued)
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.
AB Volvofinans
("Volvofinans"). During the third quarter of 2007, Ford Credit
sold a majority of its interest in Volvofinans, an unconsolidated subsidiary
that finances the sale of Volvo and Renault vehicles through Volvo dealers in
Sweden. As a result of the transaction, we received $157 million as
proceeds from the sale, and recognized a pre-tax gain of $51 million reported in
Financial Services
revenues.
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):
|
|
Third Quarter
|
|
|
First Nine Months
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
2007
|
|
Basic
and Diluted Income/(Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
income/(loss) from continuing operations
|
|
$ |
(129 |
) |
|
$ |
(380 |
) |
|
$ |
(8,705 |
) |
|
$ |
54 |
|
Effect
of dilutive senior convertible notes (a)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Effect
of dilutive 6.50% Cumulative Convertible Trust Preferred Securities
("Trust Preferred Securities") (b)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Diluted
income/(loss) from continuing operations
|
|
$ |
(129 |
) |
|
$ |
(380 |
) |
|
$ |
(8,705 |
) |
|
$ |
54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
shares outstanding
|
|
|
2,280 |
|
|
2004
|
|
|
|
2,236 |
|
|
|
1,931 |
|
Restricted
and uncommitted-ESOP shares
|
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
Basic
shares
|
|
|
2,279 |
|
|
|
2,003 |
|
|
|
2,235 |
|
|
|
1,930 |
|
Net
dilutive options and restricted and uncommitted-ESOP
shares
|
|
|
— |
(c) |
|
|
— |
(c) |
|
|
— |
(c) |
|
|
12 |
|
Dilutive
senior convertible notes (a)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Dilutive
convertible trust preferred securities (b)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Diluted
shares
|
|
|
2,279 |
|
|
|
2,003 |
|
|
|
2,235 |
|
|
|
1,942 |
|
__________
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)
|
28
million, 19 million, and 26 million contingently-issuable shares
(primarily reflecting restricted stock units) for the third quarter of
2008, third quarter of 2007, and first nine months of 2008,
respectively.
|
Item
1. Financial Statements (Continued)
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 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.
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 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 financial instruments, including marketable
securities, loaned securities, and those classified as cash
equivalents. 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.
Item
1. Financial Statements (Continued)
NOTE
10. FAIR VALUE MEASUREMENTS
(Continued)
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 September 30, 2008, our adjustment for non-performance
risk (relative to a measure based on unadjusted LIBOR) reduced derivative assets
by $14 million and $52 million for Automotive and Financial Services sectors,
respectively; and reduced derivative liabilities by $14 million and $88 million
for Automotive and Financial Services sectors, respectively.
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 where 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.
Item
1. Financial Statements (Continued)
NOTE
10. FAIR VALUE MEASUREMENTS (Continued)
The
following table summarizes the fair values of financial instruments measured at
fair value on a recurring basis at September 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 September 30,
2008
|
|
Automotive
Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
equivalents – financial instruments (a) (b)
|
|
$ |
538 |
|
|
$ |
5,231 |
|
|
$ |
— |
|
|
$ |
5,769 |
|
Marketable
securities (a) (c) (d)
|
|
|
5,986 |
|
|
|
4,849 |
|
|
|
337 |
|
|
|
11,172 |
|
Derivative
financial instruments
|
|
|
— |
|
|
|
665 |
|
|
|
26 |
|
|
|
691 |
|
Total
assets at fair value
|
|
$ |
6,524 |
|
|
$ |
10,745 |
|
|
$ |
363 |
|
|
$ |
17,632 |
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
financial instruments
|
|
$ |
— |
|
|
$ |
388 |
|
|
$ |
4 |
|
|
$ |
392 |
|
Total
liabilities at fair value
|
|
$ |
— |
|
|
$ |
388 |
|
|
$ |
4 |
|
|
$ |
392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Services Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
equivalents – financial instruments (a) (b)
|
|
$ |
1,799 |
|
|
$ |
4,309 |
|
|
$ |
— |
|
|
$ |
6,108 |
|
Marketable
securities (a)
|
|
|
3,215 |
|
|
|
2,515 |
|
|
|
5 |
|
|
|
5,735 |
|
Derivative
financial instruments
|
|
|
— |
|
|
|
1,831 |
|
|
|
354 |
|
|
|
2,185 |
|
Retained
interest in sold receivables
|
|
|
— |
|
|
|
— |
|
|
|
154 |
|
|
|
154 |
|
Total
assets at fair value
|
|
$ |
5,014 |
|
|
$ |
8,655 |
|
|
$ |
513 |
|
|
$ |
14,182 |
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
financial instruments
|
|
$ |
— |
|
|
$ |
646 |
|
|
$ |
309 |
|
|
$ |
955 |
|
Total
liabilities at fair value
|
|
$ |
— |
|
|
$ |
646 |
|
|
$ |
309 |
|
|
$ |
955 |
|
_________
|
(a)
|
At
September 30, 2008, approximately 85% of our financial instruments
(including marketable securities and those classified as cash equivalents)
were government securities, federal agency securities or equities for
which an active and liquid market exists. For all securities, we rely on
market observable data where available through our established pricing
processes and believe this data reflects the fair value of our investment
assets. 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 equivalents reported at
par value of $2 billion and $1.2 billion for Automotive sector and
Financial Services sector, respectively, which approximates fair
value.
|
|
(c)
|
Includes
marketable securities and loaned
securities.
|
|
(d)
|
Marketable
securities balance excludes a $305 million investment in Ford Credit bonds
held by the Automotive sector. See Note
1.
|
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 September 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 Sept 30,
2008
|
|
|
Change In Unrealized Gains/(Losses) on Instruments
Still Held (b)
|
|
Automotive
Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable
securities (c)
|
|
$ |
201 |
|
|
$ |
3 |
|
|
$ |
192 |
|
|
$ |
(59 |
) |
|
$ |
337 |
|
|
$ |
2 |
|
Derivative
financial instruments, net (d)
|
|
|
257 |
|
|
|
(62 |
) |
|
|
(91 |
) |
|
|
(82 |
) |
|
|
22 |
|
|
|
(57 |
) |
Total
Level 3 fair value
|
|
$ |
458 |
|
|
$ |
(59 |
) |
|
$ |
101 |
|
|
$ |
(141 |
) |
|
$ |
359 |
|
|
$ |
(55 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Services Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable
securities
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
5 |
|
|
$ |
— |
|
|
$ |
5 |
|
|
$ |
— |
|
Derivative
financial instruments, net (e)
|
|
|
(2 |
) |
|
|
59 |
|
|
|
19 |
|
|
|
(31 |
) |
|
|
45 |
|
|
|
42 |
|
Retained
interest in sold receivables (f)
|
|
|
653 |
|
|
|
61 |
|
|
|
(560 |
) |
|
|
— |
|
|
|
154 |
|
|
|
(44 |
) |
Total
Level 3 fair value
|
|
$ |
651 |
|
|
$ |
120 |
|
|
$ |
(536 |
) |
|
$ |
(31 |
) |
|
$ |
204 |
|
|
$ |
(2 |
) |
__________
(a)
|
Includes
option premiums paid/received on options traded during the
quarter.
|
(b)
|
For
those assets and liabilities still held at September 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 $8 million in the third quarter of 2008 and $3 million for the
first nine months of 2008.
|
(d)
|
Reflects
fair value of derivative assets, net of
liabilities. Realized/unrealized gains/(losses) on Automotive
sector derivative financial instruments for the period presented are
recorded to Automotive
cost of sales ($(225) million for third quarter of 2008, and $(58)
million for first nine months of 2008), and Automotive interest income and
other non-operating income/(expense), net ($(2) million for the
third quarter of 2008 and $(4) million for first nine months 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 ($4 million for the third quarter of 2008 and $11 million
for first nine months of 2008), and Financial Services
revenues ($34 million for the third quarter of 2008 and $48 million
for first nine months 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 sold receivables for the
period presented are recorded in Financial Services
revenues on the income statement ($42 million for the third quarter
of 2008 and $105 million for the first nine months of 2008) and Accumulated other
comprehensive income/(loss) on the balance sheet ($(28) for the
third quarter of 2008 and $(44) million for the first nine months of
2008).
|
Non-Recurring
Measurements. There were no non-recurring fair value
measurements recognized in the financial statements for the quarter ended
September 30, 2008. Total non-recurring fair value losses for the
first nine months of 2008 for the Automotive and Financial Services sectors were
$5.8 billion and $2.1 billion, respectively.
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,
beginning in the third quarter of 2008, we have de-designated certain foreign
exchange forwards and options designated as cash flow hedges of forecasted
transactions under critical terms match and re-designated under the "long-haul"
method using regression analysis to assess hedge effectiveness. Any
new cash flow hedges will be designated using the "long-haul"
method. 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. Hedges that receive designated hedge accounting treatment are
documented and evaluated for effectiveness at the time they are designated, as
well as throughout the hedge period. 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.
Item
1. Financial Statements (Continued)
NOTE
11. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)
Income
Statement Effect of Derivative Instruments
The
following table summarizes the estimated pre-tax gains/(losses) for each type of
hedge designation for our Automotive and Financial Services sectors (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Statement
Classification
|
Automotive
Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact
of discontinued hedges
|
|
$ |
1 |
|
|
$ |
— |
|
|
$ |
2 |
|
|
$ |
187 |
|
Automotive
cost of sales
|
Ineffectiveness
|
|
|
2 |
|
|
|
— |
|
|
|
2 |
|
|
|
— |
|
Automotive
cost of sales
|
Net
investment hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ineffectiveness
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1 |
) |
Automotive
cost of sales
|
Derivatives
not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodities
|
|
|
(468 |
) |
|
|
(26 |
) |
|
|
(45 |
) |
|
|
15 |
|
Automotive
cost of sales
|
Foreign
currency derivatives on operating exposures (a) (b)
|
|
|
145 |
|
|
|
285 |
|
|
|
671 |
|
|
|
306 |
|
Automotive
cost of sales
|
Foreign
currency derivatives on investment portfolios
|
|
|
39 |
|
|
|
— |
|
|
|
4 |
|
|
|
— |
|
Automotive
interest income and other non-operating income/(expense),
net
|
Other
|
|
|
(2 |
) |
|
|
— |
|
|
|
(4 |
) |
|
|
(58 |
) |
Automotive
cost of sales/Automotive interest income and other non-operating
income/(expense), net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Services Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ineffectiveness
|
|
$ |
(2 |
) |
|
$ |
— |
|
|
$ |
(45 |
) |
|
$ |
— |
|
Financial
Services revenues
|
Net
interest settlements and accruals excluded from the assessment of hedge
effectiveness
|
|
|
12 |
|
|
|
— |
|
|
|
51 |
|
|
|
— |
|
Interest
expense
|
Derivatives
not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate swaps
|
|
|
(4 |
) |
|
|
262 |
|
|
|
(49 |
) |
|
|
24 |
|
Financial
Services revenues
|
Foreign
currency swaps and forward contracts (a)
|
|
|
302 |
|
|
|
(37 |
) |
|
|
384 |
|
|
|
(498 |
) |
Selling,
administrative and other
expenses
|
__________
(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.
|
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
|
|
$ |
213 |
|
|
$ |
44 |
|
|
$ |
617 |
|
|
$ |
195 |
|
Derivatives
not designated as hedging instruments
|
|
|
478 |
|
|
|
348 |
|
|
|
757 |
|
|
|
188 |
|
Total
derivative instruments
|
|
$ |
691 |
|
|
$ |
392 |
|
|
$ |
1,374 |
|
|
$ |
383 |
|
Financial
Services Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value hedges
|
|
$ |
193 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Derivatives
not designated as hedging instruments
|
|
|
1,992 |
|
|
|
955 |
|
|
|
2,811 |
|
|
|
1,349 |
|
Total
derivative instruments
|
|
$ |
2,185 |
|
|
$ |
955 |
|
|
$ |
2,811 |
|
|
$ |
1,349 |
|
Refer to
Note 10 for details on fair value measurements.
Item
1. Financial Statements (Continued)
NOTE
12. RETIREMENT BENEFITS
New
UAW Retiree Health Care Settlement Agreement
The Ford
UAW Hospital-Surgical-Medical-Drug-Dental-Vision Program ("H-S-M-D-D-V Program")
currently provides selected health care benefits to eligible active UAW hourly
employees, eligible retired UAW hourly employees, and eligible spouses,
surviving spouses, and dependents (the "Benefit Group"). In
conjunction with negotiation of the 2007 collective bargaining agreement between
Ford and the UAW, in November 2007 we entered into a memorandum of understanding
("MOU") with the UAW to terminate our obligation for postretirement health care
benefits provided to the Benefit Group after December 31, 2009 (the
"Implementation Date"). In March 2008, based on the MOU, we entered
into a settlement agreement with the UAW and class representatives of former
UAW-represented Ford employees (the "Retiree Health Care Settlement Agreement")
and submitted it to the U.S. District Court for the Eastern District of Michigan
(the "Court") for approval. Effectiveness of the Retiree Health Care
Settlement Agreement was conditioned upon Court approval, and upon pre-clearance
with the Securities and Exchange Commission ("SEC") of satisfactory accounting
treatment for postretirement health care benefits provided to the Benefit
Group.
Each of
the conditions to effectiveness was satisfied during the third quarter of
2008. The Court approved the terms of the Retiree Health Care
Settlement Agreement on August 29, 2008, and the period for filing an appeal to
the approval order expired on September 29, 2008 without any appeal having been
filed. We also successfully concluded our pre-clearance review of the
accounting treatment with the SEC. As a result, the Retiree Health
Care Settlement Agreement is now effective (August 29, 2008 – the "Effective
Date"), with final implementation scheduled for December 31, 2009.
The terms
of the Retiree Health Care Settlement Agreement fundamentally change the
H-S-M-D-D-V Program benefits. The obligation to provide retiree
health care to the Benefit Group will transfer permanently to a new independent
Voluntary Employee Beneficiary Association Trust (the "New VEBA") at the
Implementation Date, in exchange for certain assets to be
transferred. The trustees of the New VEBA will establish a new
retiree health care plan (the "New Plan") for the Benefit Group which will be
responsible for administering these benefits. The 2005 UAW Benefit
Trust Agreement (described below) will be superseded, and the New Plan will be a
closed plan. UAW-represented individuals newly employed by Ford after
November 19, 2007 are eligible to participate only in a separate health care
plan that consists of defined contributions made by Ford to individual
participant accounts.
Pursuant
to the terms of the Retiree Health Care Settlement Agreement, we agreed to
provide the following consideration in exchange for a full discharge of any
obligation we may have to provide benefits to the Benefit Group:
|
•
|
A
$3 billion principal amount secured note, which bears interest from
January 1, 2008 at 9.5% per annum, matures on January 1, 2018, and is
secured on a second-lien basis with the collateral we have pledged as part
of our secured Credit Agreement;
|
|
•
|
A
$3.3 billion principal amount convertible note, which bears interest from
January 1, 2008 at 5.75% per annum, matures on January 1, 2013, and is
convertible into Ford Common Stock at a conversion price of $9.20 per
share; and
|
|
•
|
An
obligation to make 15 annual installment payments of $52.3 million
beginning in April 2008.
|
In
addition to the foregoing payments, we agreed to transfer the plan assets of the
H-S-M-D-D-V Program VEBA and the UAW Benefits Trust (described below)
(collectively, the "Plan Assets") to the New VEBA. The H-S-M-D-D-V
Program VEBA plan assets had a fair value of $3.5 billion at August 29,
2008. We also are obligated to continue to make payments for ongoing
retiree health care costs through 2009, which we estimate to have a present
value of $1.5 billion as of August 29, 2008.
Accounting for the Assets to
be Contributed Pursuant to the Retiree Health Care Settlement
Agreement
On
January 2, 2008, we established a Temporary Asset Account (the "TAA") which is
owned by a newly-created, wholly-owned separate legal entity, Ford-UAW Holdings
LLC (the "LLC"). The LLC was established for the purpose of holding
and investing assets that will be transferred to the New VEBA. The
cash of $2.73 billion, together with the interest payments of $238 million due
on the notes, and the first installment payment of $52.3 million, all referred
to above, have been transferred to the TAA and have been invested in a manner
consistent with the long-term nature of health care liabilities. The
TAA had a total market value of $2.8 billion and $2.5 billion reflecting
realized and unrealized losses of $234 million and $484 million at August 29,
2008 and September 30, 2008, respectively. The assets of the TAA do
not meet the definition of a plan asset and are recorded in Cash and cash equivalents and
Marketable securities
on our balance sheet; the earnings or losses earned on the assets are recorded
in Interest income and other
non-operating income/(expense), net.
Item
1. Financial Statements (Continued)
NOTE
12. RETIREMENT BENEFITS (Continued)
The $3
billion secured note and the $3.3 billion convertible note were both issued to
the LLC on April 9, 2008. Because the LLC is a wholly-owned
subsidiary, these obligations and related interest expense have been eliminated
in consolidation. The present value of the notes discounted in
accordance with their contractual terms was $3.1 billion for the secured note
and $3.4 billion for the convertible note as of August 29, 2008.
Accounting for the Retiree
Health Care Settlement Agreement
Effective
Date (August 29, 2008)
The terms
of the Retiree Health Care Settlement Agreement became effective as of the date
of Court approval. We re-measured the H-S-M-D-D-V Program relating to
the retiree health care benefits as of that date, and reduced the accumulated
postretirement benefit obligation from $19.4 billion to $14.7 billion (the "New
Benefit Obligation") and recognized an actuarial gain of $4.7
billion. The gain offsets pre-existing actuarial losses, and the
remaining net gain of $395 million will continue to be recognized as a component
of Accumulated other
comprehensive income.
The New
Benefit Obligation is composed of the following elements as follows (in
billions):
|
|
|
|
Fair
value of H-S-M-D-D-V Program VEBA assets
|
|
$ |
3.5 |
|
Fair
value of assets held in the TAA
|
|
|
2.8 |
|
Present
value of the convertible note
|
|
|
3.4 |
|
Present
value of secured note
|
|
|
3.1 |
|
Present
value of installment payments
|
|
|
0.4 |
|
Transfer
to New VEBA
|
|
|
13.2 |
|
Present
value of retained benefit payments through 2009
|
|
|
1.5 |
|
Total
New Benefit Obligation
|
|
$ |
14.7 |
|
Upon
adoption of the terms of the Retiree Health Care Settlement Agreement, we also
recognized in Automotive cost
of sales a curtailment gain of $2.6 billion, which represents
unrecognized prior service credits previously included as a component of Accumulated other comprehensive
income and attributable to years of service after December 31,
2009. We will continue to amortize the remaining prior service
credits of $421 million until the Implementation Date.
Subsequent
to the Effective Date and Prior to Implementation Date
We will
continue to record service costs and other elements of net periodic
postretirement benefit costs, and will reduce the accumulated postretirement
benefit obligation as benefit payments for postretirement health care claims are
paid. As a result of the terms of the Retiree Health Care Settlement
Agreement, however, the basis for determining the cost of benefits to which the
Benefit Group may be entitled has changed. The new benefit formula
provides that on the Implementation Date the Benefit Group will receive an
in-kind contribution to the New VEBA of the assets described above, that at
August 29, 2008 had a value of $13.2 billion, which will be adjusted for the
realized and unrealized return through the Implementation Date. Ford
does not guarantee or warrant the investment returns of these
assets.
Implementation
Date (December 31, 2009)
We expect
to fully settle our postretirement health care benefit obligation for the
Benefit Group on December 31, 2009, when we transfer the assets in the LLC and
the Plan Assets to the New VEBA. At that time, we will derecognize
the accumulated postretirement benefit obligation and related
assets. At settlement, all remaining gains and losses included as
components of Accumulated
other comprehensive income will be recognized in income.
We will
record the consideration transferred to the New VEBA, including the secured and
convertible notes, at fair value. Accordingly, we will recognize in
income an additional net gain or loss as a result of the
settlement. Subsequent to settlement accounting, there will be no
further accounting for postretirement health care benefits for the Benefit Group
because we will no longer be providing postretirement health care benefits to
the Benefit Group and will have settled irrevocably our obligation.
Item
1. Financial Statements (Continued)
NOTE
12. RETIREMENT BENEFITS (Continued)
Changes
to the UAW Benefits Trust
In 2005,
we entered into an agreement with the UAW (the "2005 Agreement") and a class of
employees and retirees to increase retiree health care cost sharing under the
H-S-M-D-D-V Program as part of our overall cost reduction efforts. On
July 13, 2006 we received the necessary court approval of the proposed
modifications to the H-S-M-D-D-V Program and cost savings began to accrue as of
that date. The 2005 Agreement provided for increased cost sharing of
health care expenses by retirees presently covered under the H-S-M-D-D-V Program
and established an independent Defined Contribution Retiree Health Benefit Trust
("UAW Benefit Trust") which serves as a non-Ford sponsored Voluntary Employee
Benefits Association ("VEBA"). The UAW Benefit Trust is used to
mitigate the reduction in health plan benefits for certain eligible present and
future retirees, surviving spouses, and other dependents, and is accounted for
as a separate plan from the H-S-M-D-D-V Program.
The terms
of the 2005 Agreement have been superseded by the terms of the Retiree Health
Care Settlement Agreement. Pursuant to the Retiree Health Care
Settlement Agreement, we remain obligated to make a third contribution of $43
million to the UAW Benefit Trust on January 1, 2009. In addition, we
made a cash contribution of $33 million on September 8, 2008 to the UAW Benefit
Trust in full settlement of the stock appreciation rights owned by the
trust.
The terms
of the 2005 Agreement also call for the diversion to the UAW Benefit Trust of
payments of a previously negotiated 2006 wage increase and a portion of
negotiated cost-of-living increases through 2011 as they are
earned. In accordance with the Retiree Health Care Settlement
Agreement, these wage diversions will discontinue as of December 31, 2009, when
the UAW Benefit Trust is expected to terminate in accordance with the terms of
the Retiree Health Care Settlement Agreement.
Pension
and OPEB expense is summarized as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
94 |
|
|
$ |
106 |
|
|
$ |
91 |
|
|
$ |
165 |
|
|
$ |
80 |
|
|
$ |
91 |
|
Interest
cost
|
|
|
672 |
|
|
|
658 |
|
|
|
357 |
|
|
|
409 |
|
|
|
356 |
|
|
|
453 |
|
Expected
return on assets
|
|
|
(865 |
) |
|
|
(869 |
) |
|
|
(382 |
) |
|
|
(480 |
) |
|
|
(64 |
) |
|
|
(65 |
) |
Amortization
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior
service costs/(credits)
|
|
|
93 |
|
|
|
65 |
|
|
|
24 |
|
|
|
27 |
|
|
|
(232 |
) |
|
|
(243 |
) |
(Gains)/Losses
and other
|
|
|
5 |
|
|
|
12 |
|
|
|
56 |
|
|
|
115 |
|
|
|
58 |
|
|
|
294 |
|
Separation
programs
|
|
|
43 |
|
|
|
(8 |
) |
|
|
24 |
|
|
|
20 |
|
|
|
1 |
|
|
|
(7 |
) |
(Gain)/Loss
from curtailment
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,603 |
) |
|
|
(213 |
) |
Costs
allocated to Visteon
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2 |
|
|
|
1 |
|
Net
expense/(income)
|
|
$ |
42 |
|
|
$ |
(36 |
) |
|
$ |
170 |
|
|
$ |
256 |
|
|
$ |
(2,402 |
) |
|
$ |
311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
283 |
|
|
$ |
332 |
|
|
$ |
327 |
|
|
$ |
486 |
|
|
$ |
236 |
|
|
$ |
280 |
|
Interest
cost
|
|
|
2,016 |
|
|
|
1,963 |
|
|
|
1,218 |
|
|
|
1,203 |
|
|
|
1,217 |
|
|
|
1,348 |
|
Expected
return on assets
|
|
|
(2,597 |
) |
|
|
(2,609 |
) |
|
|
(1,374 |
) |
|
|
(1,410 |
) |
|
|
(223 |
) |
|
|
(198 |
) |
Amortization
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior
service costs/(credits)
|
|
|
281 |
|
|
|
199 |
|
|
|
78 |
|
|
|
80 |
|
|
|
(670 |
) |
|
|
(757 |
) |
(Gains)/Losses
and other
|
|
|
13 |
|
|
|
38 |
|
|
|
164 |
|
|
|
336 |
|
|
|
232 |
|
|
|
665 |
|
Separation
programs
|
|
|
248 |
|
|
|
813 |
|
|
|
66 |
|
|
|
146 |
|
|
|
12 |
|
|
|
8 |
|
(Gain)/Loss
from curtailment
|
|
|
— |
|
|
|
176 |
|
|
|
— |
|
|
|
(14 |
) |
|
|
(2,714 |
) |
|
|
(1,321 |
) |
Costs
allocated to Visteon
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5 |
|
|
|
3 |
|
Net
expense/(income)
|
|
$ |
244 |
|
|
$ |
912 |
|
|
$ |
479 |
|
|
$ |
827 |
|
|
$ |
(1,905 |
) |
|
$ |
28 |
|
__________
*
|
Includes
Jaguar Land Rover.
|
Item
1. Financial Statements (Continued)
NOTE
12. RETIREMENT BENEFITS (Continued)
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. During
the first nine months of 2008, we contributed $1.9 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 $300 million in 2008, for a total of $2.2 billion this
year (including payments related to 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 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.
Item
1. Financial Statements (Continued)
NOTE
13. SEGMENT INFORMATION (Continued)
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.
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jaguar Land Rover and Aston
Martin
|
|
|
|
|
|
|
|
THIRD
QUARTER 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales/Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
customer
|
|
$ |
10,748 |
|
|
$ |
2,712 |
|
|
$ |
9,660 |
|
|
$ |
2,916 |
|
|
$ |
1,697 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
27,733 |
|
Intersegment
|
|
|
172 |
|
|
|
— |
|
|
|
174 |
|
|
|
18 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
364 |
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
before income taxes
|
|
|
(36 |
) |
|
|
480 |
|
|
|
29 |
|
|
|
(484 |
) |
|
|
(24 |
) |
|
|
(1 |
) |
|
|
(37 |
) |
|
|
(626 |
) |
|
|
(699 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THIRD
QUARTER 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales/Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
customer
|
|
$ |
16,688 |
|
|
$ |
2,064 |
|
|
$ |
8,328 |
|
|
$ |
3,844 |
|
|
$ |
1,782 |
|
|
$ |
— |
|
|
$ |
3,564 |
|
|
$ |
— |
|
|
$ |
36,270 |
|
Intersegment
|
|
|
93 |
|
|
|
— |
|
|
|
88 |
|
|
|
25 |
|
|
|
— |
|
|
|
— |
|
|
|
42 |
|
|
|
— |
|
|
|
248 |
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
before income taxes
|
|
|
(689 |
) |
|
|
386 |
|
|
|
254 |
|
|
|
(174 |
) |
|
|
19 |
|
|
|
14 |
|
|
|
81 |
|
|
|
(603 |
) |
|
|
(712 |
) |
|
|
Financial Services Sector
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THIRD
QUARTER 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales/Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
customer
|
|
$ |
4,237 |
|
|
$ |
75 |
|
|
$ |
— |
|
|
$ |
4,312 |
|
|
$ |
— |
|
|
$ |
32,045 |
|
Intersegment
|
|
|
195 |
|
|
|
7 |
|
|
|
(2 |
) |
|
|
200 |
|
|
|
(564 |
) |
|
|
— |
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
before income taxes
|
|
|
161 |
|
|
|
(2 |
) |
|
|
— |
|
|
|
159 |
|
|
|
— |
|
|
|
(540 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THIRD
QUARTER 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales/Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
customer
|
|
$ |
4,718 |
|
|
$ |
90 |
|
|
$ |
— |
|
|
$ |
4,808 |
|
|
$ |
— |
|
|
$ |
41,078 |
|
Intersegment
|
|
|
210 |
|
|
|
7 |
|
|
|
— |
|
|
|
217 |
|
|
|
(465 |
) |
|
|
— |
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
before income taxes
|
|
|
546 |
|
|
|
10 |
|
|
|
— |
|
|
|
556 |
|
|
|
— |
|
|
|
(156 |
) |
__________
(a)
|
Financial
Services sector’s interest income is recorded as Financial Services
revenues.
|
(b)
|
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
NINE MONTHS 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales/Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
customer
|
|
$ |
42,077 |
|
|
$ |
6,900 |
|
|
$ |
31,374 |
|
|
$ |
11,439 |
|
|
$ |
5,143 |
|
|
$ |
— |
|
|
$ |
6,974 |
|
|
$ |
— |
|
|
$ |
103,907 |
|
Intersegment
|
|
|
461 |
|
|
|
— |
|
|
|
663 |
|
|
|
75 |
|
|
|
— |
|
|
|
— |
|
|
|
63 |
|
|
|
— |
|
|
|
1,262 |
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
before income taxes (a)
|
|
|
(7,634 |
) |
|
|
1,125 |
|
|
|
1,336 |
|
|
|
(787 |
) |
|
|
15 |
|
|
|
(63 |
) |
|
|
38 |
|
|
|
(1,087 |
) |
|
|
(7,057 |
) |
Total
assets at September 30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94,648 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FIRST
NINE MONTHS 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales/Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
customer
|
|
$ |
54,208 |
|
|
$ |
5,174 |
|
|
$ |
26,163 |
|
|
$ |
12,789 |
|
|
$ |
5,278 |
|
|
$ |
— |
|
|
$ |
11,394 |
|
|
$ |
— |
|
|
$ |
115,006 |
|
Intersegment
|
|
|
410 |
|
|
|
— |
|
|
|
513 |
|
|
|
93 |
|
|
|
— |
|
|
|
— |
|
|
|
112 |
|
|
|
— |
|
|
|
1,128 |
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
before income taxes
|
|
|
(1,458 |
) |
|
|
754 |
|
|
|
646 |
|
|
|
(175 |
) |
|
|
9 |
|
|
|
107 |
|
|
|
939 |
|
|
|
(1,051 |
) |
|
|
(229 |
) |
Total
assets at September 30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
123,349 |
|
|
|
Financial Services Sector
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FIRST
NINE MONTHS 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales/Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
customer
|
|
$ |
12,896 |
|
|
$ |
282 |
|
|
$ |
— |
|
|
$ |
13,178 |
|
|
$ |
— |
|
|
$ |
117,085 |
|
Intersegment
|
|
|
675 |
|
|
|
19 |
|
|
|
(4 |
) |
|
|
690 |
|
|
|
(1,952 |
) |
|
|
— |
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
before income taxes
|
|
|
(2,187 |
) |
|
|
(10 |
) |
|
|
— |
|
|
|
(2,197 |
) |
|
|
— |
|
|
|
(9,254 |
) |
Total
assets at September 30
|
|
|
155,305 |
|
|
|
10,237 |
|
|
|
(9,632 |
) |
|
|
155,910 |
|
|
|
(4,009 |
) |
|
|
246,549 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FIRST
NINE MONTHS 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales/Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
customer
|
|
$ |
13,112 |
|
|
$ |
221 |
|
|
$ |
— |
|
|
$ |
13,333 |
|
|
$ |
— |
|
|
$ |
128,339 |
|
Intersegment
|
|
|
651 |
|
|
|
21 |
|
|
|
(6 |
) |
|
|
666 |
|
|
|
(1,794 |
) |
|
|
— |
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
before income taxes
|
|
|
952 |
|
|
|
3 |
|
|
|
— |
|
|
|
955 |
|
|
|
— |
|
|
|
726 |
|
Total
assets at September 30
|
|
|
162,245 |
|
|
|
10,620 |
|
|
|
(10,193 |
) |
|
|
162,672 |
|
|
|
(1,438 |
) |
|
|
284,583 |
|
__________
(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
September 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 $7 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. 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). On October 1, 2008 we completed the transaction and settled
our obligation related to these Notes.
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 $15
million at September 30, 2008.
In
September 2008, we guaranteed debt of a joint venture to third party
banks. The maximum exposure as a result of these guarantees is $200
million, and the expiration dates of the guarantees range from 2014 to
2017. A payment by us would be triggered by failure of the guaranteed
party to fulfill its obligation covered by the guarantee. We have
recorded liabilities totaling $33 million related to these
guarantees.
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 relating to 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.
Item
1. Financial Statements (Continued)
NOTE
14. GUARANTEES (Continued)
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
|
|
|
(2,412 |
) |
|
|
(2,489 |
) |
Changes
in accrual related to warranties issued during the period
|
|
|
1,803 |
|
|
|
2,187 |
|
Changes
in accrual related to pre-existing warranties
|
|
|
(42 |
) |
|
|
(300 |
) |
Foreign
currency translation and other
|
|
|
(96 |
) |
|
|
207 |
|
Ending
balance
|
|
$ |
4,115 |
|
|
$ |
4,840 |
|
NOTE
15. COMPREHENSIVE INCOME/(LOSS)
Total
comprehensive income/(loss) is summarized as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income/(loss)
|
|
$ |
(129 |
) |
|
$ |
(380 |
) |
|
$ |
(8,696 |
) |
|
$ |
88 |
|
Other
comprehensive income/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation
|
|
|
(2,024 |
) |
|
|
872 |
|
|
|
(2,555 |
) |
|
|
1,558 |
|
Net
gain/(loss) on derivative instruments
|
|
|
(109 |
) |
|
|
141 |
|
|
|
(136 |
) |
|
|
(266 |
) |
Net
holding gain/(loss)
|
|
|
(12 |
) |
|
|
(8 |
) |
|
|
(45 |
) |
|
|
(40 |
) |
Employee
benefit-related
|
|
|
1,443 |
|
|
|
(131 |
) |
|
|
2,723 |
|
|
|
(678 |
) |
Total
other comprehensive income/(loss)
|
|
|
(702 |
) |
|
|
874 |
|
|
|
(13 |
) |
|
|
574 |
|
Total
comprehensive income/(loss)
|
|
$ |
(831 |
) |
|
$ |
494 |
|
|
$ |
(8,709 |
) |
|
$ |
662 |
|
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 September 30, 2008 and the related consolidated
statements of income for each of the three-month and nine-month periods ended
September 30, 2008 and 2007 and the condensed consolidated statement of cash
flows for the nine-month periods ended September 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
November
7, 2008
ITEM
2. Management's
Discussion and Analysis of Financial Condition and Results of
Operations.
OVERVIEW
– Impact of and Actions in Response to Global Credit Market Crisis.
Automotive
Sector. During the third quarter and into the fourth quarter
of 2008, a severe deterioration in global credit markets has adversely affected
economic conditions and automotive sales around the world. In the
United States, industry demand for cars and trucks fell in the third quarter of
2008 to a seasonally-adjusted annual selling rate ("SAAR") of 13.1 million
units. In October 2008, U.S. industry sales were at a SAAR of 10.8
million units. These compare with a SAAR of 15.1 million units in the
first half of 2008, and 16.5 million units of full-year actual sales in
2007.
Demand
for cars and trucks in the 19 European markets in which we participate also
deteriorated significantly in the third quarter of 2008 to a SAAR of 16.3
million units, compared with a SAAR of 17.6 million units in the first half of
2008, and 18 million units of full-year actual sales in 2007. In
addition, vehicle sales growth rates in South America and the Asia Pacific
region are slowing.
The
recent declines in industry sales have led us to conclude that the global
automotive industry downturn will be deeper, broader, and longer than previously
assumed; we expect
industry sales in 2009, compared with 2008, to decline, with some recovery
beginning in 2010.
Meanwhile,
commodity prices continue to be extremely volatile. Crude oil and
fuel prices declined significantly in September and October 2008, after having
increased substantially during the spring and summer. Steel prices
remain high, but scrap steel prices continue to decline. Prices of
base metals (copper, aluminum, lead, zinc, nickel) and precious metals
(platinum, palladium, rhodium), which we use in our business, also declined
significantly in September and October 2008.
Notwithstanding
lower-than-expected fuel prices, over the long term we expect that the shift in
consumer preferences in the United States away from trucks and traditional SUVs
to smaller, more fuel-efficient vehicles will continue.
As
discussed in more detail in "Liquidity and Capital Resources" below, we
experienced substantial cash outflow during the third quarter of 2008, with our
Automotive gross cash declining to $18.9 billion at September 30, 2008 from
$26.6 billion at June 30, 2008. In addition, we expect that our $11.5
billion revolving credit facility under our secured Credit Agreement will be
reduced to $10.6 billion as a result of Lehman Commercial Paper Inc. ("Lehman
CPI"), one the lenders thereunder, having filed for protection under Chapter 11
of the U.S. Bankruptcy Code on October 5, 2008.
We remain
committed to the four key priorities of our plan – to aggressively restructure
our business to operate profitably, accelerate development of new products our
customers want and value, finance our plan and improve our balance sheet, and
work together effectively as one team to leverage our global
resources. We plan to continue to make investments in products
that customers want and value, with planned actions including:
|
•
|
Delivering
best-in-class or among best-in-class fuel economy with every new vehicle
introduced globally.
|
|
•
|
Introducing
industry-leading, fuel-saving EcoBoost engines and doubling the number and
volume of hybrid vehicles.
|
|
•
|
Leveraging
our product strengths to deliver more global vehicles in the B, C, C/D
(i.e., sub-compact, compact and medium-sized vehicle) and commercial van
segments – by 2010, nearly 40% of our product entries in these segments
are expected to be shared between Ford North America and Ford Europe, with
100% alignment expected by 2013.
|
|
•
|
Upgrading
the Ford, Lincoln, Mercury lineup in North America almost completely by
the end of 2010.
|
|
•
|
Bringing
six European small vehicles to North America from global B-car and C-car
platforms.
|
|
•
|
Retooling
three North American truck plants to produce small, fuel efficient
vehicles.
|
|
•
|
Supporting
our global products with a lean, flexible global manufacturing
system.
|
To
support these new product investments and offset continued industry weakness, we
are implementing a series of actions through 2010 that are expected to result in
improvements to Automotive gross cash totaling a
cumulative $14 billion to $17 billion. These actions
include:
|
•
|
Reducing North
America salaried personnel-related costs by an additional 10% by the
end of January 2009, primarily through personnel reductions
or attrition. Additional actions
impacting compensation are also being implemented, as described
below. These reductions are in addition to global personnel-related
cost actions already taken
or underway.
|
|
•
|
Further
reduction of U.S. hourly employees by about 2,600 as a result of the most
recent round of targeted buyouts – bringing Ford's total U.S. hourly
reductions through buyouts in 2008 to about
7,000.
|
|
•
|
Eliminating
merit pay raises for North America salaried employees in
2009.
|
|
•
|
Eliminating
performance bonuses for salaried employees globally under the Annual
Incentive Compensation Program for the 2008 performance
year.
|
|
•
|
Suspending
matching funds for U.S. salaried employees participating in Ford’s Savings
and Stock Investment Plan, effective January 1,
2009.
|
Item
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
|
•
|
Reducing
annual capital spending to a range of $5 billion to $5.5 billion – enabled
by efficiencies in our global product development system and reduced
spending in declining product
segments.
|
|
•
|
Reducing
engineering, manufacturing, information technology, and advertising costs
through greater global efficiencies and alignment with volume
assumptions.
|
|
•
|
Reducing
inventories globally and achieving other working capital
improvements.
|
|
•
|
Returning about $3
billion in Ford Credit capital consistent with Ford Credit’s
smaller balance sheet and a focus on core Ford
brands.
|
|
•
|
Continuing
to develop incremental sources of Automotive funding, including divesting
of non-core operations and assets, and implementing equity-for-debt
swaps.
|
Because
of the uncertainty of timing and eligibility requirements, our revised plan as
described above does not include U.S. government assistance under recently
enacted programs (e.g., loans under the $25 billion "advanced technology
vehicle" loan program of the Energy Independence and Security Act of
2007). We do, however, plan to fully avail ourselves of any such
assistance.
Financial Services
Sector. Consistent with the overall market, Ford Credit has
been impacted by volatility and disruptions in the asset-backed securities
markets since August 2007. Ford Credit now faces the increased
challenges of the global credit crisis, including reduced access to public and
private securitization markets and a significant increase in the credit spreads
associated with both asset-backed and unsecured funding. Since
September 2008, consistent with the overall market, Ford Credit has experienced
further reductions in demand for the asset-backed commercial paper issued under
its FCAR Owner Trust retail securitization program (“FCAR”), and a greater
percentage of such issuance has been on an overnight basis. In
September 2008, Ford Credit decided to reduce the assets of the FCAR program by
$2.5 billion which lowered its outstanding FCAR asset-backed commercial paper,
and on September 30, 2008 it held $1.1 billion of FCAR asset-backed commercial
paper. Ford Credit was able to fund the reduction of the FCAR assets
and, in the second half of September 2008, overnight purchases of FCAR
commercial paper by utilizing a portion of its other asset-backed liquidity
programs. As a result, compared with the second quarter of 2008, Ford
Credit’s available capacity has become more heavily weighted in FCAR rather than
in bank-sponsored asset-backed commercial paper conduits
(“conduits”). With respect to its committed capacity renewals in the
third quarter of 2008, Ford Credit had a renewal rate of 73%, down from a first
half 2008 renewal rate of 90%. The renewals also required
significantly higher spreads.
Despite
these challenges, as more fully described in “Liquidity and Capital Resources"
below, Ford Credit has increased its liquidity available for use from $23
billion at June 30, 2008 to $24.8 billion at September 30, 2008. This
increase is primarily the result of a reduction in its managed receivables
balance from $140 billion to $130 billion. In addition to the $24.8
billion of liquidity available for use, Ford Credit continues to carry committed
capacity in excess of available assets of $5.5 billion that provides it with an
alternative to uncommitted sources for funding future purchases or
originations. In addition to its traditional liquidity sources, Ford
Credit registered to sell up to $16 billion of asset-backed commercial paper
under the U.S. Federal Reserve's Commercial Paper Funding Facility
(“CPFF”). Each sale under the CPFF is for a term of 90 days and sales
can be made up until April 30, 2009. Through October 31, 2008, Ford
Credit had sold to the CPFF about 25% of the total amount of asset-backed
commercial paper Ford Credit is registered to sell under this
program. In addition, FCE Bank plc ("FCE") has accessed short-term
European Central Bank (“ECB”) funding under its open market operations program,
the obligations of which are backed by either notes or receivables.
To
further support its liquidity, Ford Credit continues to implement asset-related
actions while continuing to provide dealer and consumer financing programs
focused on supporting the sale of Ford, Lincoln, Mercury, and Volvo
vehicles. These actions include: the transition of Jaguar, Land Rover
and Mazda originations to other finance sources; divestitures; and alternative
business and funding arrangements.
The
recent reduction in auction values for used full-size pick-up trucks and
traditional SUVs, together with the present credit market conditions, have made
leasing vehicles less economical than in the past. As a result, Ford
Credit has reduced its lease originations while still offering leasing to
consumers. In the United States and Canada, we continue to focus on
retail installment sale financing.
Ford
Credit also continues to apply consistent underwriting and originations, and
sound servicing practices. However, a continued weakening U.S.
economy has contributed to higher charge-offs in Ford Credit's consumer
portfolio. This increase primarily reflects both higher severities
and repossessions. While Ford Credit’s charge-offs are higher, the
third quarter 2008 charge-offs are well below our historical peak in
2002.
Ford
Credit recognizes that, among other things, lower industry sales could have a
significant adverse effect on dealer profitability and
creditworthiness. Dealers are required to submit monthly financial
statements that Ford Credit monitors for potential credit deterioration, which
allows it to quickly take risk mitigation actions as necessary.
Item
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
THIRD
QUARTER RESULTS OF OPERATIONS
Our
worldwide net loss was $129 million or $0.06 per share of Common and Class B
Stock in the third quarter of 2008, improved from a net loss of $380 million or
$0.19 per share in the third quarter of 2007.
Results
by business sector for the third quarter of 2008 and 2007 are shown below (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
before income taxes
|
|
|
|
|
|
|
|
|
|
Automotive
sector
|
|
$ |
(699 |
) |
|
$ |
(712 |
) |
|
$ |
13 |
|
Financial
Services sector
|
|
|
159 |
|
|
|
556 |
|
|
|
(397 |
) |
Total
Company
|
|
|
(540 |
) |
|
|
(156 |
) |
|
|
(384 |
) |
Provision
for/(Benefit from) income taxes
|
|
|
(462 |
) |
|
|
162 |
|
|
|
(624 |
) |
Minority
interests in net income/(loss) of subsidiaries *
|
|
|
51 |
|
|
|
62 |
|
|
|
(11 |
) |
Income/(Loss)
from continuing operations
|
|
|
(129 |
) |
|
|
(380 |
) |
|
|
251 |
|
Income/(Loss)
from discontinued operations
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net
income/(loss)
|
|
$ |
(129 |
) |
|
$ |
(380 |
) |
|
$ |
251 |
|
*
|
Primarily
related to Ford Europe's consolidated 41%-owned affiliate, Ford
Otosan. The pre-tax results for Ford Otosan were $106 million
and $136 million in the third 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 third
quarter 2008 and 2007 special items by segment or business unit (in
millions):
|
|
Third Quarter –
Income/(Loss)
|
|
Automotive
Sector
|
|
2008
|
|
|
2007
|
|
Ford
North America
|
|
|
|
|
|
|
Personnel-reduction
programs
|
|
$ |
(197 |
) |
|
$ |
35 |
|
Accelerated
depreciation related to AAI's acquisition of leased
facility
|
|
|
(82 |
) |
|
|
— |
|
U.S.
dealer reductions
|
|
|
(38 |
) |
|
|
— |
|
Gain/(Loss)
on sale of ACH plants/assets
|
|
|
(19 |
) |
|
|
5 |
|
Job
Security Benefits (a)
|
|
|
320 |
|
|
|
75 |
|
Retiree
health care (primarily curtailment gain) (b)
|
|
|
2,569 |
|
|
|
213 |
|
Total
Ford North America
|
|
|
2,553 |
|
|
|
328 |
|
Ford
Europe
|
|
|
|
|
|
|
|
|
Personnel-reduction
programs/Other
|
|
|
(40 |
) |
|
|
(39 |
) |
Volvo
|
|
|
|
|
|
|
|
|
Personnel-reduction
programs/Other
|
|
|
(26 |
) |
|
|
(7 |
) |
Ford
Asia Pacific Africa
|
|
|
|
|
|
|
|
|
Personnel-reduction
programs
|
|
|
(28 |
) |
|
|
(1 |
) |
Impairment
of equity interest in Malaysian joint venture
|
|
|
— |
|
|
|
(10 |
) |
Total
Ford Asia Pacific Africa
|
|
|
(28 |
) |
|
|
(11 |
) |
Other
Automotive
|
|
|
|
|
|
|
|
|
Returns
on the assets held in the TAA
|
|
|
(250 |
) |
|
|
— |
|
Gain
on purchase of debt securities
|
|
|
35 |
|
|
|
— |
|
Loss
on conversion of Trust Preferred Securities
|
|
|
— |
|
|
|
(632 |
) |
Total
Other Automotive
|
|
|
(215 |
) |
|
|
(632 |
) |
Jaguar
Land Rover and Aston Martin
|
|
|
|
|
|
|
|
|
Loss
on sale of Jaguar Land Rover
|
|
|
(30 |
) |
|
|
— |
|
Sale
of Aston Martin
|
|
|
— |
|
|
|
(1 |
) |
Personnel-reduction
programs/Net gains on certain undesignated hedges/Other
|
|
|
(7 |
) |
|
|
12 |
|
Total
Jaguar Land Rover and Aston Martin
|
|
|
(37 |
) |
|
|
11 |
|
Total
Automotive sector
|
|
$ |
2,207 |
|
|
$ |
(350 |
) |
__________
(a)
|
Primarily
reserve adjustments for ACH plants whose employees are no longer probable
to be permanently idled.
|
(b)
|
See
Note 12 of the Notes to the Financial Statements for an explanation of the
2008 retiree health care curtailment gain related to the Retiree Health
Care Settlement Agreement.
|
Included
in Provision for/(Benefit
from) income taxes are tax benefits of $641 million for the third quarter
of 2008 that we consider to be special items. This amount primarily
consists of a $630 million benefit resulting from the intraperiod tax allocation
after taking into consideration both the pre-tax loss from continuing operations
and the pre-tax income from other categories of earnings (e.g., other
comprehensive income) for the first nine months of 2008. Since this
tax benefit is calculated on a year-to-date basis, fourth quarter 2008 pre-tax
results from continuing operations and other categories of earnings could result
in a partial or full reversal of the tax benefits claimed in the first
nine-months of 2008.
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.
AUTOMOTIVE
SECTOR
Details
by segment or business unit of Income/(Loss) before income taxes
for the third 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
|
|
$ |
(36 |
) |
|
$ |
(689 |
) |
|
$ |
653 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
South America
|
|
|
480 |
|
|
|
386 |
|
|
|
94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
Europe
|
|
|
29 |
|
|
|
254 |
|
|
|
(225 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Volvo
|
|
|
(484 |
) |
|
|
(174 |
) |
|
|
(310 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
Asia Pacific Africa
|
|
|
(24 |
) |
|
|
19 |
|
|
|
(43 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Mazda
|
|
|
(1 |
) |
|
|
14 |
|
|
|
(15 |
) |
Total
ongoing Automotive operations
|
|
|
(36 |
) |
|
|
(190 |
) |
|
|
154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Automotive
|
|
|
(626 |
) |
|
|
(603 |
) |
|
|
(23 |
) |
Total
ongoing Automotive
|
|
|
(662 |
) |
|
|
(793 |
) |
|
|
131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jaguar
Land Rover and Aston Martin
|
|
|
(37 |
) |
|
|
81 |
|
|
|
(118 |
) |
Total
Automotive sector
|
|
$ |
(699 |
) |
|
$ |
(712 |
) |
|
$ |
13 |
|
Details
by segment of Automotive revenues ("sales") and wholesale unit volumes for the
third quarter of 2008 and 2007 are shown below:
|
|
|
|
|
|
|
|
|
Wholesales (b) (in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
North America (c)
|
|
$ |
10.8 |
|
|
$ |
16.7 |
|
|
$ |
(5.9 |
) |
|
|
(36 |
)% |
|
|
462 |
|
|
|
649 |
|
|
|
(187 |
) |
|
|
(29 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
South America
|
|
|
2.7 |
|
|
|
2.1 |
|
|
|
0.6 |
|
|
|
31 |
|
|
|
125 |
|
|
|
116 |
|
|
|
9 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
Europe
|
|
|
9.7 |
|
|
|
8.3 |
|
|
|
1.4 |
|
|
|
16 |
|
|
|
410 |
|
|
|
422 |
|
|
|
(12 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volvo
|
|
|
2.9 |
|
|
|
3.8 |
|
|
|
(0.9 |
) |
|
|
(24 |
) |
|
|
66 |
|
|
|
102 |
|
|
|
(36 |
) |
|
|
(35 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
Asia Pacific Africa (d)
|
|
|
1.7 |
|
|
|
1.8 |
|
|
|
(0.1 |
) |
|
|
(5 |
) |
|
|
111 |
|
|
|
129 |
|
|
|
(18 |
) |
|
|
(14 |
) |
Total
ongoing Automotive operations
|
|
|
27.8 |
|
|
|
32.7 |
|
|
|
(4.9 |
) |
|
|
(15 |
) |
|
|
1,174 |
|
|
|
1,418 |
|
|
|
(244 |
) |
|
|
(17 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jaguar
Land Rover and Aston Martin
|
|
|
— |
|
|
|
3.6 |
|
|
|
(3.6 |
) |
|
|
(100 |
) |
|
|
— |
|
|
|
69 |
|
|
|
(69 |
) |
|
|
(100 |
) |
Total
Automotive sector
|
|
$ |
27.8 |
|
|
$ |
36.3 |
|
|
$ |
(8.5 |
) |
|
|
(24 |
) |
|
|
1,174 |
|
|
|
1,487 |
|
|
|
(313 |
) |
|
|
(21 |
) |
__________
(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 41,000 and 51,000 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 third quarter of
2008 and 2007, along with the level of dealer stocks as of September 30, 2008
and 2007, are shown below:
|
|
|
|
|
Dealer-Owned Stocks (a) (in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States (b)
|
|
|
12.4 |
% |
|
|
13.4 |
% |
|
(1.0
|
)
pts. |
|
|
478 |
|
|
|
538 |
|
|
|
(60 |
) |
South
America (b) (c)
|
|
|
9.7 |
|
|
|
10.3 |
|
|
|
(0.6 |
) |
|
|
46 |
|
|
|
30 |
|
|
|
16 |
|
Europe
(b) (d)
|
|
|
8.6 |
|
|
|
8.6 |
|
|
|
— |
|
|
|
342 |
|
|
|
299 |
|
|
|
43 |
|
Volvo
– United States/Europe (d)
|
|
|
0.4/1.2 |
|
|
|
0.6/1.3 |
|
|
|
(0.2)/(0.1) |
|
|
|
16/36 |
|
|
|
21/44 |
|
|
|
(5)/(8) |
|
Asia
Pacific Africa (b) (e) (f)
|
|
|
2.1 |
|
|
|
2.4 |
|
|
|
(0.3 |
) |
|
|
56 |
|
|
|
54 |
|
|
|
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
improvement in earnings primarily reflected higher retiree health care
curtailment gains ($2.4 billion) and the non-recurrence of a loss on the
conversion of 43% of our Trust Preferred Securities (about $600
million). These favorable factors were offset partially by
unfavorable volume and mix, mainly in the North American full-size pickup truck
segment ($2.1 billion); lower interest income, lower returns on the assets held
in the TAA, and unfavorable mark-to-market adjustments for changes in currency
exchange rates on intercompany loans, offset partially by lower interest expense
(about $700 million); and higher personnel-reduction costs mainly in North
America (about $200 million).
The table
below details our third quarter 2008 cost changes at constant volume, mix and
exchange, excluding special items (in billions):
Explanation of Cost
Changes
|
|
2008 Better/(Worse) Than
2007
|
|
Pension
and OPEB
|
Primarily
health care efficiencies
|
|
$ |
0.4 |
|
Spending-related
|
Primarily
the non-recurrence of accelerated depreciation and amortization related to
recently-closed facilities
|
|
|
0.3 |
|
Overhead
|
Primarily
savings related to previous salaried personnel reductions
|
|
|
0.3 |
|
Manufacturing
and engineering
|
More
than explained by hourly and salaried personnel reductions in North
America and efficiencies in our plants and processes
|
|
|
0.2 |
|
Advertising
& sales promotions
|
Primarily
lower costs in North America, offset by South America and
Europe
|
|
|
— |
|
Warranty-related
|
Primarily
a slight cost underrun in Europe, offset by overruns in other
locations
|
|
|
— |
|
Net
product costs
|
More
than explained by higher commodity costs and unfavorable mark-to-market
adjustments on commodity hedges
|
|
|
(0.9 |
) |
|
Total
|
|
$ |
0.3 |
|
The
decline in revenue primarily reflected lower volumes more than explained by
North America, the non-recurrence of 2007 Jaguar Land Rover revenue, unfavorable
product mix mainly in North America, and lower net pricing, offset partially by
favorable changes in currency exchange rates.
Ford North America
Segment. The improvement in earnings primarily reflected
higher retiree health care curtailment gains ($2.4 billion), favorable cost
changes (primarily reflecting lower pension and OPEB, manufacturing and
engineering, spending-related, and overhead costs, offset partially by higher
net product costs) (about $500 million), and a reduction in reserves for Job
Security Benefits (about $200 million). These factors were offset
partially by unfavorable volume and mix ($1.9 billion), lower net pricing (about
$400 million), and higher personnel-reduction costs (about $200
million). Unfavorable volume and mix primarily reflected a decline in
U.S. industry volumes, unfavorable product mix, very low production of full-size
pickup trucks during the third quarter of 2008 as we sold down dealer stocks
of 2008 models prior to the launch of 2009 models, and lower market
share.
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, favorable volume and mix, and favorable changes in currency
exchange rates, offset partially by unfavorable cost changes. The
unfavorable cost changes primarily reflected higher net product
costs.
Ford Europe Segment. The decrease in
earnings primarily reflected unfavorable cost changes and unfavorable changes in
currency exchange rates, offset partially by favorable net
pricing. The unfavorable cost changes were more than explained by
higher net product costs mainly due to unfavorable mark-to-market adjustments
for commodity hedges, and higher manufacturing and engineering costs,
offset partially by lower overhead costs and lower pension costs.
Volvo Segment. The
decline in earnings primarily reflected unfavorable volume and mix, mainly in
the United States and Europe, largely due to lower industry volumes, lower
market share, and unfavorable product mix. The decrease in market
share in the United States reflects in part a decision to decrease emphasis on
small vehicles that have become less profitable with changes in currency
exchange rates, and market segmentation shift away from SUVs.
Ford Asia Pacific Africa
Segment. The decline in results was more than explained by
lower volume and mix and higher charges for personnel-reduction programs, offset
partially by higher net pricing.
Mazda Segment. The
decline in results primarily reflected our share of a decrease in U.S. GAAP net
earnings in Mazda.
Other
Automotive. The decrease in earnings primarily reflected lower
returns on our cash portfolio and on the assets held in the TAA established
pursuant to the terms of the Retiree Health Care Settlement Agreement, and
unfavorable mark-to-market adjustments for changes in currency exchange rates on
intercompany loans. These factors were offset partially by the
non-recurrence of a loss on the conversion of 43% of our Trust Preferred
Securities and lower interest expense.
Jaguar Land Rover and Aston Martin
Segment. The decline in results reflected the non-recurrence
of 2007 profits and an additional loss on the sale of Jaguar Land
Rover.
FINANCIAL
SERVICES SECTOR
Details
of Financial Services sector Income/(Loss) before income taxes
for the third quarter of 2008 and 2007 are shown below (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
Credit
|
|
$ |
161 |
|
|
$ |
546 |
|
|
$ |
(385 |
) |
Other
Financial Services
|
|
|
(2 |
) |
|
|
10 |
|
|
|
(12 |
) |
Total
|
|
$ |
159 |
|
|
$ |
556 |
|
|
$ |
(397 |
) |
Ford
Credit
The
decrease in earnings primarily reflected the non-recurrence of net gains related
to market valuation adjustments to derivatives (about $200 million), a higher
provision for credit losses (about $200 million), lower volume primarily related
to lower average receivables (about $100 million), and the non-recurrence of the
gain related to the sale of a majority of Ford Credit's interest in AB
Volvofinans (about $100 million). These factors were offset partially
by higher financing margin primarily attributable to lower borrowing costs
(about $100 million) and lower expenses including improved operating costs
(about $100 million).
Item
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Ford
Credit's net finance receivables and net investment in operating leases are
shown below (in billions):
|
|
September 30, 2008
|
|
|
December 31, 2007
|
|
|
Sept. 30, 2008
Over/(Under)
|
|
On-balance
sheet (including on-balance sheet securitizations)*
|
|
$ |
127.3 |
|
|
$ |
141.1 |
|
|
$ |
(13.8 |
) |
Unearned
interest supplements – finance receivables
|
|
|
1.3 |
|
|
|
— |
|
|
|
1.3 |
|
Securitized
off-balance sheet
|
|
|
1.1 |
|
|
|
6.0 |
|
|
|
(4.9 |
) |
Managed
|
|
$ |
129.7 |
|
|
$ |
147.1 |
|
|
$ |
(17.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Serviced
|
|
$ |
130.1 |
|
|
$ |
148.0 |
|
|
$ |
(17.9 |
) |
__________
*
|
At
September 30, 2008 and December 31, 2007, includes finance receivables of
$72 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 September 30, 2008
and December 31, 2007, includes net investment in operating leases of
$12.4 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 alternative
business arrangements, changes in currency exchange rates, and the second
quarter 2008 impairment charge for its North America segment operating
leases.
The
following table shows worldwide charge-offs (defined as credit losses, net of
recoveries) 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs
(in millions)
|
|
|
|
|
|
|
|
|
|
On-balance
sheet
|
|
$ |
296 |
|
|
$ |
184 |
|
|
$ |
112 |
|
Managed
|
|
|
303 |
|
|
|
200 |
|
|
|
103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss-to-Receivables
Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
On-balance
sheet
|
|
|
0.89 |
% |
|
|
0.53 |
% |
|
0.36 6
|
pts. |
Managed
|
|
|
0.89 |
|
|
|
0.54 |
|
|
|
0.35 |
|
The
increase in charge-offs and loss-to-receivables 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) and higher repossessions. The higher
severity is mainly due to the overall auction value deterioration in the used
vehicle market, an increase in amount financed, and a higher mix of 72-month
contracts for vehicles repossessed in Ford Credit's 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:
|
|
|
|
|
|
|
|
Sept. 30, 2008 Over/(Under) Dec. 31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for credit losses (in millions)
|
|
$ |
1,547 |
|
|
$ |
1,090 |
|
|
$ |
457 |
|
Allowance
as a percentage of end-of-period receivables
|
|
|
1.19 |
% |
|
|
0.77 |
% |
|
0.42
|
pts. |
At
September 30, 2008, Ford Credit's allowance for credit losses included about
$150 million to reflect higher severities consistent with its second quarter
2008 updated assumptions. The increase in allowance for credit losses
is consistent with the increase in charge-offs. The allowance for
credit losses is primarily a function of portfolio quality, historical loss
performance, and receivable levels.
Item
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
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, customer characteristics, and contract
characteristics. In addition to our proprietary scoring system, we
consider other factors in the lending process, such as employment history,
income, and capacity to pay. As of September 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.
FIRST NINE MONTHS RESULTS OF
OPERATIONS
Our
worldwide net loss was $8.7 billion or $3.89 per share of Common and Class B
Stock in the first nine months of 2008, down from net income of $88 million or
$0.05 per share in the first nine months of 2007.
Results
by business sector for the first nine months of 2008 and 2007 are shown below
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
before income taxes
|
|
|
|
|
|
|
|
|
|
Automotive
sector
|
|
$ |
(7,057 |
) |
|
$ |
(229 |
) |
|
$ |
(6,828 |
) |
Financial
Services sector
|
|
|
(2,197 |
) |
|
|
955 |
|
|
|
(3,152 |
) |
Total
Company
|
|
|
(9,254 |
) |
|
|
726 |
|
|
|
(9,980 |
) |
Provision
for/(Benefit from) income taxes
|
|
|
(811 |
) |
|
|
467 |
|
|
|
(1,278 |
) |
Minority
interests in net income/(loss) of subsidiaries *
|
|
|
262 |
|
|
|
205 |
|
|
|
57 |
|
Income/(Loss)
from continuing operations
|
|
|
(8,705 |
) |
|
|
54 |
|
|
|
(8,759 |
) |
Income/(Loss)
from discontinued operations
|
|
|
9 |
|
|
|
34 |
|
|
|
(25 |
) |
Net
income/(loss)
|
|
$ |
(8,696 |
) |
|
$ |
88 |
|
|
$ |
(8,784 |
) |
*
|
Primarily
related to Ford Europe's consolidated 41%-owned affiliate, Ford
Otosan. The pre-tax results for Ford Otosan were $476 million
and $372 million in the first nine months 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
nine months 2008 and 2007 special items by segment or business unit (in
millions):
|
|
First Nine Months –
Income/(Loss)
|
|
|
|
2008
|
|
|
2007
|
|
Automotive
Sector
|
|
|
|
|
|
|
Ford
North America
|
|
|
|
|
|
|
Fixed
asset impairment charges
|
|
$ |
(5,300 |
) |
|
$ |
— |
|
Personnel-reduction
programs
|
|
|
(644 |
) |
|
|
(800 |
) |
Gain/(Loss)
on sale of ACH plants/assets
|
|
|
(324 |
) |
|
|
5 |
|
U.S.
dealer consolidation (including dealer goodwill
impairment)
|
|
|
(185 |
) |
|
|
— |
|
Accelerated
depreciation related to AAI's acquisition of leased
facility
|
|
|
(82 |
) |
|
|
— |
|
Ballard
restructuring
|
|
|
(70 |
) |
|
|
— |
|
Pension
curtailment charges
|
|
|
— |
|
|
|
(175 |
) |
Job
Security Benefits
|
|
|
262 |
|
|
|
91 |
|
Retiree
health care (primarily curtailment gains)
|
|
|
2,680 |
|
|
|
1,321 |
|
Total
Ford North America
|
|
|
(3,663 |
) |
|
|
442 |
|
Ford
Europe
|
|
|
|
|
|
|
|
|
Personnel-reduction
programs/Other
|
|
|
(54 |
) |
|
|
(128 |
) |
Volvo
|
|
|
|
|
|
|
|
|
Personnel-reduction
programs/Other
|
|
|
(58 |
) |
|
|
(11 |
) |
Ford
Asia Pacific Africa
|
|
|
|
|
|
|
|
|
Personnel-reduction
programs/Other
|
|
|
(40 |
) |
|
|
(11 |
) |
Impairment
of equity interest in Malaysian joint venture
|
|
|
— |
|
|
|
(10 |
) |
Total
Ford Asia Pacific Africa
|
|
|
(40 |
) |
|
|
(21 |
) |
Mazda
|
|
|
|
|
|
|
|
|
Impairment
of dealer network goodwill
|
|
|
(214 |
) |
|
|
— |
|
Other
Automotive
|
|
|
|
|
|
|
|
|
Returns
on the assets held in the TAA
|
|
|
(250 |
) |
|
|
— |
|
Gain
on exchange and purchase of debt securities
|
|
|
108 |
|
|
|
— |
|
Loss
on conversion of Trust Preferred Securities
|
|
|
— |
|
|
|
(632 |
) |
Total
Other Automotive
|
|
|
(142 |
) |
|
|
(632 |
) |
Jaguar
Land Rover and Aston Martin
|
|
|
|
|
|
|
|
|
Jaguar
Land Rover held-for-sale impairment
|
|
|
(421 |
) |
|
|
— |
|
Loss
on sale of Jaguar Land Rover
|
|
|
(136 |
) |
|
|
— |
|
Net
gains/(losses) on certain Jaguar Land Rover undesignated
hedges
|
|
|
(19 |
) |
|
|
219 |
|
Personnel-reduction
programs
|
|
|
(4 |
) |
|
|
(102 |
) |
Jaguar
Land Rover operating profits for 2008/Other
|
|
|
618 |
|
|
|
— |
|
Sale
of Aston Martin (primarily the gain on sale)
|
|
|
— |
|
|
|
213 |
|
Total
Jaguar Land Rover and Aston Martin
|
|
|
38 |
|
|
|
330 |
|
Total
Automotive sector
|
|
|
(4,133 |
) |
|
|
(20 |
) |
|
|
|
|
|
|
|
|
|
Financial
Services Sector
|
|
|
|
|
|
|
|
|
Ford
Credit net operating lease impairment charges
|
|
|
(2,086 |
) |
|
|
— |
|
Total
|
|
$ |
(6,219 |
) |
|
$ |
(20 |
) |
Included
in Provision for/(Benefit
from) income taxes are tax benefits of $1.4 billion for the first nine
months of 2008 that we consider to be special items. This amount
primarily consists of the tax effects of a $1.3 billion benefit resulting from
the intraperiod tax allocation after taking into consideration both the pre-tax
loss from continuing operations and the pre-tax income from other categories of
earnings (e.g., other comprehensive income) for the first nine months of
2008. Since this tax benefit is calculated on a year-to-date basis,
fourth quarter 2008 pre-tax results from continuing operations and other
categories of earnings could result in a partial or full reversal of the tax
benefits claimed in the first nine-months of 2008.
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.
AUTOMOTIVE
SECTOR
Details
by segment or business unit of Income/(Loss) before income taxes
for the first nine months 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
|
|
$ |
(7,634 |
) |
|
$ |
(1,458 |
) |
|
$ |
(6,176 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
South America
|
|
|
1,125 |
|
|
|
754 |
|
|
|
371 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
Europe
|
|
|
1,336 |
|
|
|
646 |
|
|
|
690 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volvo
|
|
|
(787 |
) |
|
|
(175 |
) |
|
|
(612 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
Asia Pacific Africa
|
|
|
15 |
|
|
|
9 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mazda
|
|
|
(63 |
) |
|
|
107 |
|
|
|
(170 |
) |
Total
ongoing Automotive operations
|
|
|
(6,008 |
) |
|
|
(117 |
) |
|
|
(5,891 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Automotive
|
|
|
(1,087 |
) |
|
|
(1,051 |
) |
|
|
(36 |
) |
Total
ongoing Automotive
|
|
|
(7,095 |
) |
|
|
(1,168 |
) |
|
|
(5,927 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Jaguar
Land Rover and Aston Martin
|
|
|
38 |
|
|
|
939 |
|
|
|
(901 |
) |
Total
Automotive sector
|
|
$ |
(7,057 |
) |
|
$ |
(229 |
) |
|
$ |
(6,828 |
) |
Details
by segment of sales and wholesale unit volumes for the first nine months of 2008
and 2007 are shown below:
|
|
|
|
|
|
|
|
|
Wholesales (b) (in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
North America (c)
|
|
$ |
42.1 |
|
|
$ |
54.2 |
|
|
$ |
(12.1 |
) |
|
|
(22 |
)% |
|
|
1,845 |
|
|
|
2,209 |
|
|
|
(364 |
) |
|
|
(16 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
South America
|
|
|
6.9 |
|
|
|
5.2 |
|
|
|
1.7 |
|
|
|
33 |
|
|
|
335 |
|
|
|
310 |
|
|
|
25 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
Europe
|
|
|
31.4 |
|
|
|
26.1 |
|
|
|
5.3 |
|
|
|
20 |
|
|
|
1,442 |
|
|
|
1,431 |
|
|
|
11 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volvo
|
|
|
11.4 |
|
|
|
12.8 |
|
|
|
(1.4 |
) |
|
|
(11 |
) |
|
|
279 |
|
|
|
355 |
|
|
|
(76 |
) |
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
Asia Pacific Africa (d)
|
|
|
5.1 |
|
|
|
5.3 |
|
|
|
(0.2 |
) |
|
|
(3 |
) |
|
|
365 |
|
|
|
390 |
|
|
|
(25 |
) |
|
|
(6 |
) |
Total
ongoing Automotive operations
|
|
|
96.9 |
|
|
|
103.6 |
|
|
|
(6.7 |
) |
|
|
(6 |
) |
|
|
4,266 |
|
|
|
4,695 |
|
|
|
(429 |
) |
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jaguar
Land Rover and Aston Martin
|
|
|
7.0 |
|
|
|
11.4 |
|
|
|
(4.4 |
) |
|
|
(39 |
) |
|
|
125 |
|
|
|
215 |
|
|
|
(90 |
) |
|
|
(42 |
) |
Total
Automotive sector
|
|
$ |
103.9 |
|
|
$ |
115.0 |
|
|
$ |
(11.1 |
) |
|
|
(10 |
) |
|
|
4,391 |
|
|
|
4,910 |
|
|
|
(519 |
) |
|
|
(11 |
) |
__________
(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 145,000 and 144,000 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 nine months
of 2008 and 2007, along with the level of dealer stocks as of September 30, 2008
and 2007, are shown below:
|
|
|
|
|
Dealer-Owned Stocks (a) (in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States (b)
|
|
|
14.0 |
% |
|
|
14.7 |
% |
|
(0.7
|
)
pts. |
|
|
478 |
|
|
|
538 |
|
|
|
(60 |
) |
South
America (b) (c)
|
|
|
9.5 |
|
|
|
10.7 |
|
|
|
(1.2 |
) |
|
|
46 |
|
|
|
30 |
|
|
|
16 |
|
Europe
(b) (d)
|
|
|
8.7 |
|
|
|
8.7 |
|
|
|
— |
|
|
|
342 |
|
|
|
299 |
|
|
|
43 |
|
Volvo
– United States/Europe (d)
|
|
|
0.5/1.3 |
|
|
|
0.6/1.4 |
|
|
|
(0.1)/(0.1) |
|
|
|
16/36 |
|
|
|
21/44 |
|
|
|
(5)/(8) |
|
Asia
Pacific Africa (b) (e) (f)
|
|
|
2.0 |
|
|
|
2.2 |
|
|
|
(0.2 |
) |
|
|
56 |
|
|
|
54 |
|
|
|
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 earnings primarily reflected fixed asset impairment charges in Ford
North America ($5.3 billion); unfavorable volume and mix ($4.1 billion); lower
interest income and lower returns on assets held in the TAA, offset partially by
lower interest expense and favorable mark-to-market adjustments for changes in
currency exchange rates on intercompany loans (about $800 million); lower net
pricing (about $500 million); and the Jaguar Land Rover held-for-sale impairment
of carrying value in the first quarter of 2008 (about $400
million). These unfavorable factors were offset partially by
favorable cost changes ($3 billion) and higher retiree health care curtailment
gains ($1.4 billion).
The table
below details our first nine months 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 and lower depreciation related to the North
America impairment in the second quarter
|
|
$ |
0.9 |
|
Manufacturing
and engineering
|
More
than explained by hourly and salaried personnel reductions in North
America and efficiencies in our plants and processes
|
|
|
0.7 |
|
Pension
and OPEB
|
Primarily
health care efficiencies
|
|
|
0.7 |
|
Overhead
|
Primarily
savings related to previous salaried personnel reductions
|
|
|
0.6 |
|
Advertising
& sales promotions
|
Primarily
lower costs in North America
|
|
|
0.2 |
|
Warranty-related
|
Primarily
favorable adjustments to Ford Europe warranty reserves
|
|
|
0.2 |
|
Net
product costs
|
More
than explained by commodity cost increases and product content, offset
partially by material cost reductions
|
|
|
(0.3 |
) |
|
Total
|
|
$ |
3.0 |
|
The
decline in revenue primarily reflected lower volumes in North America and Volvo
and lower Jaguar Land Rover revenue, offset partially by favorable changes in
currency exchange rates.
Ford North America
Segment. The decline in earnings primarily reflected fixed
asset impairment charges ($5.3 billion), unfavorable volume and mix ($3.8
billion), and lower net pricing ($1.1 billion), offset partially by favorable
cost changes ($2.3 billion), higher retiree health care curtailment gains ($1.4
billion), and favorable changes in currency exchange rates (about $400
million). The favorable cost changes are more than explained by lower
manufacturing and engineering costs, spending-related 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, favorable volume and mix, and higher income from the parts and
accessories business, offset partially by unfavorable cost
changes. The unfavorable cost changes primarily reflected higher net
product costs.
Ford Europe
Segment. The increase in earnings primarily reflected
favorable volume and mix, favorable cost changes, favorable net pricing, higher
subsidiary profits mainly at Ford Otosan, and higher income from the parts and
accessories business, offset partially by unfavorable currency exchange
rates. The favorable cost changes primarily reflected lower pension,
warranty, overhead, and net product costs, offset partially by higher
manufacturing and engineering costs.
Volvo Segment. The
decline in earnings primarily reflected unfavorable volume and mix, unfavorable
changes in currency exchange rates, and lower net pricing, offset partially by
favorable cost changes. The favorable cost changes primarily
reflected lower manufacturing and engineering, net product, overhead,
advertising and sales promotion, and warranty-related costs.
Ford Asia Pacific Africa
Segment. The increase in earnings primarily reflected
favorable cost changes and higher net pricing and income from the parts and
accessories business, offset partially by unfavorable currency exchange and
unfavorable volume and mix. The favorable cost changes primarily
reflected lower net product, overhead, spending-related, 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, offset by our share of an increase in net earnings in
Mazda.
Other
Automotive. The decline in earnings primarily reflected lower
returns on our cash portfolio and on the assets held in the TAA established
pursuant to the terms of Retiree Health Care Settlement
Agreement. These factors were offset partially by the non-recurrence
of a loss on the conversion of 43% of our Trust Preferred Securities, lower
interest expense, favorable mark-to-market adjustments for changes in currency
exchange rates on intercompany loans, and gains on exchanges and purchases of
debt securities.
Jaguar Land Rover and Aston Martin
Segment. The decrease in earnings was primarily explained by
the Jaguar Land Rover held-for-sale impairment of carrying value in the first
quarter of 2008, the change from net gains to net losses on certain Jaguar Land
Rover undesignated hedges, and the non-recurrence of the gain on sale of Aston
Martin.
FINANCIAL
SERVICES SECTOR
Details
of Financial Services sector Income/(Loss) before income taxes
for the first nine months of 2008 and 2007 are shown below (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
Credit
|
|
$ |
(2,187 |
) |
|
$ |
952 |
|
|
$ |
(3,139 |
) |
Other
Financial Services
|
|
|
(10 |
) |
|
|
3 |
|
|
|
(13 |
) |
Total
|
|
$ |
(2,197 |
) |
|
$ |
955 |
|
|
$ |
(3,152 |
) |
Ford
Credit
The
decline in results 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 $900 million); and higher depreciation expense for leased vehicles (about
$600 million). Other factors to explain the decline in earnings
included lower volume primarily related to lower average receivables (about $100
million), and the non-recurrence of the gain related to the sale of a majority
of Ford Credit's interest in AB Volvofinans (about $100
million). These factors were offset partially by higher financing
margin primarily attributable to lower borrowing costs (about $300 million), the
non-recurrence of costs associated with Ford Credit's North American business
transformation initiative (about $200 million), lower expenses primarily
reflecting improved operating costs (about $100 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 charge-offs (defined as credit losses, net of
recoveries) 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs
(in millions)
|
|
|
|
|
|
|
|
|
|
On-balance
sheet
|
|
$ |
771 |
|
|
$ |
416 |
|
|
$ |
355 |
|
Managed
|
|
|
800 |
|
|
|
464 |
|
|
|
336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss-to-Receivables
Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
On-balance
sheet
|
|
|
0.74 |
% |
|
|
0.40 |
% |
|
0.34
|
pts. |
Managed
|
|
|
0.75 |
|
|
|
0.42 |
|
|
|
0.33 |
|
The
increase in charge-offs and loss-to-receivables 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) and higher repossessions. The higher
severity is mainly due to the overall auction value deterioration in the used
vehicle market, 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.
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 September 30, 2008 (in thousands, except
for percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Placements
|
|
|
68 |
|
|
|
127 |
|
|
|
287 |
|
|
|
376 |
|
Terminations
|
|
|
97 |
|
|
|
98 |
|
|
|
301 |
|
|
|
297 |
|
Returns
|
|
|
84 |
|
|
|
78 |
|
|
|
257 |
|
|
|
235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memo:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
rates
|
|
|
86 |
% |
|
|
80 |
% |
|
|
85 |
% |
|
|
79 |
% |
The
decline in placement volumes in the third quarter of 2008 compared with the same
period a year ago primarily reflected lower industry volumes, lower Ford market
share, and changes in our marketing programs which emphasized retail installment
sale contracts. 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.
The
recent reduction in auction values for used full-size trucks and traditional
SUVs, together with the present credit market conditions, have made leasing
vehicles less economical than in the past. As a result, Ford Credit
has reduced lease originations while still offering leasing to
consumers.
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 third 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
|
|
|
18 |
|
|
|
18 |
|
|
|
71 |
|
|
|
65 |
|
36-Month
term
|
|
|
15 |
|
|
|
16 |
|
|
|
43 |
|
|
|
46 |
|
39-Month
term/Other term
|
|
|
6 |
|
|
|
9 |
|
|
|
16 |
|
|
|
28 |
|
Total
returns
|
|
|
39 |
|
|
|
43 |
|
|
|
130 |
|
|
|
139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memo: Return
rates
|
|
|
88 |
% |
|
|
83 |
% |
|
|
87 |
% |
|
|
83 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction
Values at Constant Third Quarter 2008 Vehicle Mix
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24-Month
term
|
|
$ |
14,715 |
|
|
$ |
16,995 |
|
|
$ |
15,085 |
|
|
$ |
17,075 |
|
36-Month
term
|
|
|
13,005 |
|
|
|
14,855 |
|
|
|
13,175 |
|
|
|
15,115 |
|
In the
third quarter of 2008, Ford, Lincoln and Mercury brand U.S. return volumes were
down 4,000 units compared with the same period a year ago. However,
the return rate increased to 88%, 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 from full-size
trucks and traditional SUVs. Auction values at constant third quarter
2008 mix for vehicles under 24-month and 36-month leases were down $2,280 per
unit and $1,850 per unit, respectively, from year-ago levels, primarily
reflecting the overall auction value deterioration in the used vehicle
market. Auction values at constant third quarter 2008 mix improved
compared with the second quarter of 2008 for vehicles under 24-month and
36-month leases by $240 per unit and $190 per unit, respectively.
In the
first nine months of 2008, trends and causal factors compared with the same
period a year ago were consistent with those described above.
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 assets contained in a VEBA trust
that were used to pay 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").
Consistent
with our Retiree Health Care Settlement Agreement, our 2008 gross cash
calculations do not include VEBA assets or TAA securities. Gross cash
is detailed below as of the dates shown (in billions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
10.6 |
|
|
$ |
16.9 |
|
|
$ |
20.7 |
|
|
$ |
18.9 |
|
|
$ |
17.1 |
|
|
$ |
16.0 |
|
Marketable
securities
|
|
|
11.5 |
|
|
|
5.1 |
|
|
|
2.0 |
|
|
|
7.2 |
|
|
|
13.7 |
|
|
|
11.3 |
|
Loaned
securities
|
|
|
— |
|
|
|
7.4 |
|
|
|
10.3 |
|
|
|
7.8 |
|
|
|
4.6 |
|
|
|
5.3 |
|
Total
cash, marketable securities and loaned securities
|
|
|
22.1 |
|
|
|
29.4 |
|
|
|
33.0 |
|
|
|
33.9 |
|
|
|
35.4 |
|
|
|
32.6 |
|
Securities-in-transit
*
|
|
|
(0.7 |
) |
|
|
(0.1 |
) |
|
|
(0.3 |
) |
|
|
(0.4 |
) |
|
|
(0.3 |
) |
|
|
(0.5 |
) |
UAW-Ford
TAA
|
|
|
(2.5 |
) |
|
|
(2.7 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Short-term
VEBA assets
|
|
|
— |
|
|
|
— |
|
|
|
1.9 |
|
|
|
2.1 |
|
|
|
2.3 |
|
|
|
1.8 |
|
Gross
cash
|
|
$ |
18.9 |
|
|
$ |
26.6 |
|
|
$ |
34.6 |
|
|
$ |
35.6 |
|
|
$ |
37.4 |
|
|
$ |
33.9 |
|
________
|
*
|
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.
|
Item
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
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 the TAA and 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 third quarter and first nine months of 2008 and
2007 are summarized below (in billions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
cash at end of period
|
|
$ |
18.9 |
|
|
$ |
35.6 |
|
|
$ |
18.9 |
|
|
$ |
35.6 |
|
Gross
cash at beginning of period
|
|
|
26.6 |
|
|
|
37.4 |
|
|
|
34.6 |
|
|
|
33.9 |
|
Total
change in gross cash (a)
|
|
$ |
(7.7 |
) |
|
$ |
(1.8 |
) |
|
$ |
(15.7 |
) |
|
$ |
1.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating-related
cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
income/(loss) before income taxes (excl. special items)
|
|
$ |
(2.9 |
) |
|
$ |
(0.4 |
) |
|
$ |
(2.9 |
) |
|
$ |
(0.2 |
) |
Capital
expenditures
|
|
|
(1.8 |
) |
|
|
(1.6 |
) |
|
|
(4.7 |
) |
|
|
(4.2 |
) |
Depreciation
and special tools amortization
|
|
|
1.3 |
|
|
|
1.6 |
|
|
|
4.3 |
|
|
|
5.1 |
|
Changes
in receivables, inventories, and trade payables
|
|
|
(1.4 |
) |
|
|
(0.6 |
) |
|
|
(2.9 |
) |
|
|
— |
|
Other
(b)
|
|
|
(2.2 |
) |
|
|
(0.3 |
) |
|
|
(3.8 |
) |
|
|
1.0 |
|
Subtotal
|
|
|
(7.0 |
) |
|
|
(1.3 |
) |
|
|
(10.0 |
) |
|
|
1.7 |
|
Up-front
subvention payments to Ford Credit
|
|
|
(0.7 |
) |
|
|
— |
|
|
|
(2.3 |
) |
|
|
— |
|
Total
operating-related cash flows
|
|
|
(7.7 |
) |
|
|
(1.3 |
) |
|
|
(12.3 |
) |
|
|
1.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
changes in gross cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel
separation payments
|
|
|
(0.2 |
) |
|
|
(0.4 |
) |
|
|
(0.5 |
) |
|
|
(2.1 |
) |
Contributions
to funded pension plans
|
|
|
(0.1 |
) |
|
|
(0.2 |
) |
|
|
(0.9 |
) |
|
|
(1.4 |
) |
Net
effect of TAA/VEBA on gross cash
|
|
|
(0.1 |
) |
|
|
0.3 |
|
|
|
(4.6 |
) |
|
|
1.0 |
|
Tax
refunds and tax payments from affiliates
|
|
|
— |
|
|
|
(0.2 |
) |
|
|
0.9 |
|
|
|
1.9 |
|
Acquisitions
and divestitures
|
|
|
0.2 |
|
|
|
0.1 |
|
|
|
2.0 |
|
|
|
1.1 |
|
Other
(c)
|
|
|
0.2 |
|
|
|
(0.1 |
) |
|
|
(0.3 |
) |
|
|
(0.5 |
) |
Total
change in gross cash
|
|
$ |
(7.7 |
) |
|
$ |
(1.8 |
) |
|
$ |
(15.7 |
) |
|
$ |
1.7 |
|
__________
(a)
|
Total
change in Automotive gross cash attributable to Jaguar Land Rover
operations was $300 million net cash outflow for the first nine months 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 gross
cash."
|
(b)
|
In
the third quarter of 2008, Other within "Operating-related 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)
|
In
the third quarter of 2008, Other primarily reflects issuance of Common
Stock.
|
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 third quarter and first nine months of 2008
and 2007 (in billions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities of continuing operations
(b)
|
|
$ |
(5.6 |
) |
|
$ |
3.2 |
|
|
$ |
(7.2 |
) |
|
$ |
5.9 |
|
Items
included in operating-related cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(1.8 |
) |
|
|
(1.6 |
) |
|
|
(4.7 |
) |
|
|
(4.2 |
) |
Net
transactions between Automotive and Financial Services sectors
(c)
|
|
|
(0.1 |
) |
|
|
(0.3 |
) |
|
|
(1.4 |
) |
|
|
(0.8 |
) |
Net
cash flows from non-designated derivatives
|
|
|
0.3 |
|
|
|
0.2 |
|
|
|
1.1 |
|
|
|
0.7 |
|
Items
not included in operating-related cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
impact of personnel-reduction programs and changes in Job Security
Benefits reserve
|
|
|
0.2 |
|
|
|
0.4 |
|
|
|
0.5 |
|
|
|
2.1 |
|
Net
(sales)/purchases of trading securities
|
|
|
(0.5 |
) |
|
|
(3.4 |
) |
|
|
(0.8 |
) |
|
|
(1.9 |
) |
Contributions
to funded pension plans
|
|
|
0.1 |
|
|
|
0.2 |
|
|
|
0.9 |
|
|
|
1.4 |
|
VEBA
cash flows (reimbursements for benefits paid)
|
|
|
— |
|
|
|
(0.5 |
) |
|
|
— |
|
|
|
(0.8 |
) |
Tax
refunds, tax payments, and tax receipts from affiliates
|
|
|
— |
|
|
|
0.2 |
|
|
|
(0.9 |
) |
|
|
(1.9 |
) |
Other
(b)
|
|
|
(0.3 |
) |
|
|
0.3 |
|
|
|
0.2 |
|
|
|
1.2 |
|
Operating-related
cash flows
|
|
$ |
(7.7 |
) |
|
$ |
(1.3 |
) |
|
$ |
(12.3 |
) |
|
$ |
1.7 |
|
__________
(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 September 30, 2008, our Automotive sector had total
debt of $26.1 billion, compared with $27 billion at December 31,
2007. At September 30, 2008, our Automotive sector had negative net
cash (defined as gross cash less total debt) of about $7.2 billion, compared
with positive net cash of $7.6 billion at the end of 2007. The $14.8
billion reduction in net cash reflects a $15.7 billion reduction in gross cash,
offset partially by about $900 million in lower debt.
To
enhance Automotive liquidity, from August 14, 2008 through October 31, 2008, we
have issued in market transactions 88.3 million shares of Ford Common Stock for
an aggregate price of $434 million, and have used the proceeds therefrom to
purchase $493 million principal amount of outstanding Ford Credit debt
securities maturing prior to 2012 for an aggregate price of $434
million. Pending their maturity, the Ford Credit debt securities are
reflected in Automotive gross cash and, as and when the debt securities mature,
their par value will be paid in cash by Ford Credit. At September 30,
2008, $305 million of marketable securities included in Automotive gross cash
represented Ford Credit debt securities that had been purchased through that
date. The market value of these debt securities at September 30, 2008
was $274 million.
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 amount of the Automotive sector debt increase will be
dependent on market yields for similar debt. 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 September 30, 2008, we
had $12.3 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 $800
million of Automotive unsecured credit facilities. As discussed above
in "Overview," however, we assume that the $890 million commitment of Lehman CPI
under our $11.5 billion revolving credit facility is not presently and will not
in the future be available as a result of Lehman CPI having filed for protection
under Chapter 11 of the U.S. Bankruptcy Code on October 5,
2008. Excluding Lehman CPI's commitment from our committed credit
facility levels, we had $11.4 billion in total committed credit facilities at
September 30, 2008, of which $10.7 billion were available for use. Of
these facilities available for use, 98% (or $10.5 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.
_______________________________
* 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)
Financial
Services Sector
Ford
Credit
Debt. At September
30, 2008, unsecured long-term debt (including notes payable within one year) was
$54.3 billion, down about $8 billion from year-end 2007, primarily reflecting
about $11 billion of debt maturities. These maturities were offset
partially by public and private unsecured debt issuances of about $3
billion. Asset-backed long-term debt (including notes payable within
one year) at September 30, 2008 was $52.3 billion, up about $3 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 about $900 million at September 30, 2008, down about $4 billion from
year-end 2007, reflecting the amortization of previous
securitizations. Since June 30, 2008, Ford Credit has
experienced a steady reduction in the balance of Ford Interest Advantage
(“FIA”), its
unsecured demand notes program. At September 30, 2008, the FIA
balance was $3.7 billion, and at October 31, 2008, the balance was $2.5
billion.
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 has been 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. Ford Credit’s securitization transactions continue
to perform within expectations. No transactions have been downgraded,
and year-to-date, rating agencies have affirmed certain ratings of Ford Credit’s
rated U.S. lease and wholesale securitizations, and have upgraded some of its
rated U.S. retail securitizations. 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's partnering with
various institutions in Europe for full-service leasing, retail, and wholesale
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 and
disruptions in the asset-backed securities markets since August
2007. Ford Credit now faces the challenges of the global credit
crisis, including higher credit spreads and associated funding costs, higher
renewal costs on its committed liquidity programs, higher enhancements resulting
in reduced net proceeds from securitizations and, in certain circumstances,
shorter maturities in its public and private securitization
issuances. Given present market conditions, Ford Credit does not
expect a significant near-term reduction in its credit spreads or the cost of
renewing its committed liquidity programs. About 11% of Ford Credit's
committed capacity is up for renewal in the fourth quarter of
2008. Given the nature of many of Ford Credit's asset-backed
committed facilities, it 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 ability to obtain funding under its committed
asset-backed liquidity programs is subject to having a sufficient amount of
assets eligible for these programs, as well as its ability to obtain derivatives
to manage its interest rate risk.
Ford
Credit's funding plan is subject to risks and uncertainties, many of which are
beyond its control. If auction values for used vehicles weaken
further or there is continued disruption in the market capacity for the types of
asset-backed securities used in Ford Credit's asset-backed funding, there will
be increased risk to Ford Credit's funding plan. As a result, Ford
Credit may need to further reduce the amount of finance receivables and
operating leases it purchases or originates; this reduction could
reduce Ford Credit's ongoing profits and 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 October 31, 2008, and its
planned issuances for full-year 2008 (in billions):
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Public
Transactions
|
|
|
|
|
|
|
|
|
|
Unsecured
|
|
$ |
2 |
|
|
$ |
2 |
|
|
$ |
6 |
|
Securitizations
(a)
|
|
|
10 – 13 |
|
|
|
10 |
|
|
|
6 |
|
Total
public transactions
|
|
$ |
12 – 15 |
|
|
$ |
12 |
|
|
$ |
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Transactions
(b)
|
|
$ |
23
– 26 |
|
|
$ |
23 |
|
|
$ |
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.
|
Item
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Through
October 31, 2008, Ford Credit completed about $12 billion of public term funding
transactions, including: about $2 billion of unsecured long-term debt in the
United States and Europe; about $9 billion of retail asset-backed
securitizations in the United States; and the remainder consisting of a retail
asset-backed securitization in Germany. Ford Credit expects its
full-year 2008 public term funding to be between $12 billion and $15
billion.
Through
October 31, 2008, Ford Credit completed about $23 billion of private term
funding transactions (excluding its on-balance sheet asset-backed commercial
paper program) in several markets. These private transactions
included retail, wholesale, and lease asset-backed securitizations, and
unsecured term debt.
Through
October 31, 2008, Ford Credit completed about $35 billion of public and private
term funding, which is about 90% of its full-year plan.
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*
|
|
$ |
19.1 |
|
|
$ |
16.7 |
|
|
|
|
|
|
|
|
|
|
Committed
liquidity programs
|
|
|
32.6 |
|
|
|
36.8 |
|
Asset-backed
commercial paper ("FCAR")
|
|
|
16.4 |
|
|
|
16.9 |
|
Credit
facilities
|
|
|
2.4 |
|
|
|
3.0 |
|
Committed
capacity
|
|
|
51.4 |
|
|
|
56.7 |
|
Committed
capacity and cash
|
|
|
70.5 |
|
|
|
73.4 |
|
Less:
Capacity in excess of eligible receivables
|
|
|
(5.5 |
) |
|
|
(4.7 |
) |
Less:
Cash to support on-balance sheet securitizations
|
|
|
(4.7 |
) |
|
|
(4.7 |
) |
Liquidity
|
|
|
60.3 |
|
|
|
64.0 |
|
Less:
Utilization
|
|
|
(35.5 |
) |
|
|
(36.1 |
) |
Liquidity
available for use
|
|
$ |
24.8 |
|
|
$ |
27.9 |
|
__________
*
|
Excludes
marketable securities related to insurance
activities.
|
At
September 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 $70.5 billion. Of this
amount, Ford Credit could utilize $60.3 billion (after adjusting for capacity in
excess of eligible receivables of $5.5 billion and cash required to support
on-balance sheet securitizations of $4.7 billion), of which $35.5 billion was
utilized as of September 30, 2008, leaving $24.8 billion (including $14.4
billion of cash, cash equivalents, and marketable securities and excluding
marketable securities related to insurance activities) available for
use. In addition to the $24.8 billion of liquidity available for use,
the $5.5 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 September 30, 2008, Ford Credit's
cash, cash equivalents, and marketable securities (excluding marketable
securities related to insurance activities) totaled $19.1 billion (including
$4.7 billion to be used only to support on-balance sheet securitizations),
compared with $16.7 billion at year-end 2007 (including $4.7 billion to be used
only to support on-balance sheet securitizations). 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 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 or to
purchase or make advances under asset-backed securities backed by retail or
wholesale assets for proceeds of up to $26.6 billion at September 30, 2008 ($15
billion retail and $11.6 billion wholesale), of which $9.8 billion are
commitments to FCE. These committed liquidity programs have varying
maturity dates, with $18.4 billion having maturities within the next twelve
months (of which $3.1 billion relates to FCE commitments), and the balance
having maturities between December 2009 and September 2011. As a
result of the continued asset-backed securities market volatility that began in
August 2007 and significantly worsened in September 2008, 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 as well as Ford Credit's
ability to obtain derivatives to manage the interest rate risk. At
September 30, 2008, $20.8 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.
Item
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
In
addition, Ford Credit has a committed liquidity program for the purchase of up
to $6 billion of multiple asset classes including U.S. lease, dealer, floorplan,
and assets that are more difficult to securitize, of which $4 billion is
committed through 2009. Ford Credit's ability to obtain funding under
this program is subject to having a sufficient amount of assets available to
issue the securities, as well as Ford Credit’s ability to obtain derivatives to
manage the interest rate risk. This program also is free of material
adverse change clauses, restrictive financial covenants, and credit rating
triggers that could limit Ford Credit's ability to obtain funding. At
September 30, 2008, Ford Credit had $3.9 billion of outstanding funding in this
program.
Credit
Facilities. At September 30, 2008, Ford Credit and its
subsidiaries, including FCE, had $2.4 billion of contractually-committed
unsecured credit facilities with financial institutions, of which $1.7 billion
were available for use. Of the lines available for use, 41% ($698
million) are committed through at least June 30, 2010, including 33% ($553
million) which are committed through December 31, 2011. Of the $2.4
billion, $345 million constitute Ford Credit bank lines (of which $70 million
are worldwide) and $2.1 billion are FCE bank lines (of which $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 September 30, 2008, Ford Credit is reporting $16.4 billion of
contractually-committed liquidity facilities provided by banks to support its
FCAR program. Included in this total is a $238 million
contractually-committed liquidity facility provided by Lehman Brothers Bank, FSB
("Lehman Brothers Bank"). As disclosed in our Current Report on Form
8-K dated September 16, 2008, the contractually-committed liquidity facilities
provided by Lehman Brothers Bank are guaranteed by Lehman Brothers Holdings Inc.
("Lehman"), the parent company of Lehman Brothers Bank. On September
15, 2008, Lehman filed for protection under Chapter 11 of the U.S. Bankruptcy
Code.
Of the
$16.4 billion of reported contractually-committed liquidity facilities at
September 30, 2008, 39% ($6.4 billion) of these facilities are committed through
June 29, 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 September 30, 2008, $16 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 $412 million of FCAR's bank liquidity facilities were
available to support FCAR's purchase of Ford Credit's asset-backed
securities. At September 30, 2008, $9.8 billion of FCAR's
asset-backed commercial paper was held by external investors and the remaining
$1.1 billion was held by Ford Credit. Further, Ford Credit decided to
reduce the assets of the FCAR program by $2.5 billion during the third quarter
of 2008, and FCAR used the proceeds to pay off maturing FCAR commercial
paper.
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):
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
Total
debt
|
|
$ |
129.1 |
|
|
$ |
139.4 |
|
Total
equity
|
|
|
11.7 |
|
|
|
13.4 |
|
Debt-to-equity
ratio (to 1)
|
|
|
11.0 |
|
|
|
10.4 |
|
Item
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
The
following table illustrates the calculation of Ford Credit’s managed leverage
(in billions, except for ratios):
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
Total
debt
|
|
$ |
129.1 |
|
|
$ |
139.4 |
|
Securitized
off-balance sheet receivables outstanding
|
|
|
1.1 |
|
|
|
6.0 |
|
Retained
interest in securitized off-balance sheet receivables
|
|
|
(0.2 |
) |
|
|
(0.7 |
) |
Adjustments
for cash, cash equivalents, and marketable securities (a)
|
|
|
(19.1 |
) |
|
|
(16.7 |
) |
Adjustments
for hedge accounting (b)
|
|
|
(0.2 |
) |
|
|
— |
|
Total
adjusted debt
|
|
$ |
110.7 |
|
|
$ |
128.0 |
|
|
|
|
|
|
|
|
|
|
Total
equity (including minority interest)
|
|
$ |
11.7 |
|
|
$ |
13.4 |
|
Adjustments
for hedge accounting (b)
|
|
|
(0.2 |
) |
|
|
(0.3 |
) |
Total
adjusted equity
|
|
$ |
11.5 |
|
|
$ |
13.1 |
|
|
|
|
|
|
|
|
|
|
Managed
debt-to-equity ratio (to 1)
|
|
|
9.6 |
|
|
|
9.8 |
|
__________
(a)
|
Excludes
marketable securities related to insurance
activities.
|
(b)
|
Primarily
related to market valuation adjustments to 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 September 30, 2008,
Ford Credit's managed leverage was 9.6 to 1, compared with 9.8 to 1 at December
31, 2007. Ford Credit did not pay any distributions in the first nine
months of 2008.
Total
Company
Stockholders'
Equity. Our stockholders' equity was negative $2 billion at
September 30, 2008, down $7.6 billion compared with December 31,
2007. The decrease primarily reflected net losses in the first nine
months of 2008, offset partially by 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 August
2008, DBRS lowered our senior secured rating to B from B (high). In
October 2008, Fitch lowered our long-term senior unsecured rating to CC from
CCC+ and our issuer default rating to CCC from B-. Also in October
2008, S&P placed our ratings on CreditWatch with negative implications, and
Moody's placed our ratings on review for possible downgrade.
Ford Credit. In
October 2008, Fitch lowered Ford Credit's long-term senior unsecured rating to
B- from B+, its short-term rating to C from B, and its issuer default rating to
CCC from B-. Also in October 2008, S&P placed Ford Credit's
ratings on CreditWatch with negative implications, and Moody's lowered Ford
Credit's long-term senior unsecured rating to B2 from B1. Moody's
also placed the rating on review for further possible downgrade.
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
|
|
Negative
|
|
B
|
|
R-4
|
|
Negative
|
Fitch
|
CCC
|
|
CC
|
|
B
|
|
Negative
|
|
B-
|
|
C
|
|
Negative
|
Moody's
|
B3
|
|
Caa1
|
|
Ba3
|
|
Negative**
|
|
B2
|
|
NP
|
|
Negative**
|
S&P*
|
B-
|
|
CCC
|
|
B-
|
|
Negative**
|
|
B-
|
|
NR
|
|
Negative**
|
__________
|
*
|
S&P
assigns FCE a long-term senior unsecured rating of B, maintaining a one
notch differential versus Ford
Credit.
|
|
**
|
Moody's
has placed Ford and Ford Credit ratings on review for further possible
downgrade; S&P has placed Ford and Ford Credit ratings on CreditWatch
with negative implications.
|
Item
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
OFF-BALANCE
SHEET ARRANGEMENTS
In the
first nine months 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 September 30, 2008 and December 31,
2007, the total outstanding principal amount of receivables sold by Ford Credit
in off-balance sheet securitizations was $1.1 billion and $6 billion,
respectively. At September 30, 2008 and December 31, 2007, Ford
Credit's retained interests in such sold receivables were $154 million and $653
million, respectively.
OUTLOOK
Our
current projection of upcoming vehicle production for certain segments is as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
North America
|
|
|
430 |
|
|
|
(211 |
) |
|
|
2,225 |
|
|
|
(604 |
) |
Ford
Europe
|
|
|
400 |
|
|
|
(89 |
) |
|
|
1,898 |
|
|
|
(42 |
) |
Volvo
|
|
|
77 |
|
|
|
(40 |
) |
|
|
373 |
|
|
|
(88 |
) |
Reduced
Ford North America planned vehicle production for the fourth quarter of 2008
largely reflects our belief that reduced industry demand will continue in the
United States as a result of the continuing deterioration in economic conditions
(as discussed in "Overview" above), as well as the segmentation shift in
consumer preferences that has taken place (away from full-size pickup trucks and
traditional SUVs and toward smaller, more fuel-efficient vehicles).
We have
set and communicated the following 2008 planning assumptions and operational
metrics, and provide the accompanying results from the first nine months of the
year and updated full-year outlook:
Planning Assumptions
|
Full-Year Plan
|
|
First Nine Months
|
|
Full-Year Outlook
|
Industry
Volume (SAAR)
|
|
|
|
|
|
–U.S.
(million units) (a)
|
16.0
|
|
14.4
|
|
13.7
|
–Europe
(million units) (b)
|
17.6
|
|
17.2
|
|
16.7
|
|
|
|
|
|
|
Operational Metrics
|
|
|
|
|
|
Compared
with 2007:
|
|
|
|
|
|
–Quality
|
Improve
|
|
Improved
|
|
On
Track
|
–Automotive
Costs (c)
|
Improve
by about $3 Billion
|
|
Improved
by $3 Billion
|
|
About
$4 Billion
|
Absolute
Amount:
|
|
|
|
|
|
–U.S.
Market Share (Ford Lincoln Mercury)
|
Low
End of 14%-15% Range
|
|
14%
|
|
High
13%
|
–Operating-Related
Cash Flow
|
Negative
|
|
$(12.3)
Billion (d)
|
|
Greater
Outflow than Plan
|
–Capital
Spending
|
About
$6 Billion
|
|
$4.7
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.
|
(d) |
See
“Liquidity
and Capital Resources” above for reconciliation
to U.S. GAAP. |
Although
we expect the fourth quarter 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 development of new products our
customers want and value, 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. For additional discussion of
our updated operating assumptions and forward-year plans, see the "Overview"
discussion above.
Item
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
During
the first nine months of the year, we realized an additional $2.3 billion toward
our goal of reducing by $5 billion cumulatively our 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, reflects $350 million
of reduced OPEB expense resulting from the favorable court ruling and accounting
treatment for our Retiree Health Care Settlement Agreement as of August 29,
2008. The following data summarize our progress to date, and provide
additional detail regarding our plan to reduce Ford North America operating
costs by about $3.4 billion in total during 2008:
|
|
Operating Cost Reductions (in
billions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Product Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
Adds
|
|
$ |
(0.9 |
) |
|
$ |
(2.0 |
) |
|
$ |
(0.1 |
) |
|
$ |
(0.1 |
) |
|
$ |
(0.2 |
) |
|
$ |
(0.7 |
) |
Commodities
|
|
|
(0.3 |
) |
|
|
(0.8 |
) |
|
|
0.1 |
|
|
|
(0.2 |
) |
|
|
(0.7 |
) |
|
|
(1.1 |
) |
Material
Cost Reductions/Other
|
|
|
1.2 |
|
|
|
0.8 |
|
|
|
0.3 |
|
|
|
0.3 |
|
|
|
0.2 |
|
|
|
1.2 |
|
Subtotal
|
|
|
- |
|
|
|
(2.0 |
) |
|
|
0.3 |
|
|
|
- |
|
|
|
(0.7 |
) |
|
|
(0.6 |
) |
Structural/Other
|
|
|
1.5 |
|
|
|
2.6 |
|
|
|
0.9 |
|
|
|
0.6 |
|
|
|
1.2 |
|
|
|
4.0 |
|
Total
|
|
$ |
1.5 |
|
|
$ |
0.6 |
|
|
$ |
1.2 |
|
|
$ |
0.6 |
|
|
$ |
0.5 |
|
|
$ |
3.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memo: Cumulative
savings
|
|
$ |
1.5 |
|
|
$ |
2.1 |
|
|
$ |
3.3 |
|
|
$ |
3.9 |
|
|
$ |
4.4 |
|
|
$ |
5.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memo: Cumulative,
excluding depreciation and amortization impact of 2008
impairment
|
|
$ |
1.5 |
|
|
$ |
2.1 |
|
|
$ |
3.3 |
|
|
$ |
3.9 |
|
|
$ |
4.2 |
|
|
$ |
5.0 |
|
Despite
all of the cost reduction actions that have been implemented and those that are
planned, we expect total Company operating and overall results for full-year
2008 to be worse than full-year 2007. We expect our year-over-year
profit decline in the fourth quarter of 2008, excluding special items, may
exceed that for the third quarter of 2008, with a resultant impact on our cash
flows.
In
October 2008, Volvo announced additional personnel-reduction actions; including
actions announced in June 2008, Volvo is reducing by about 6,000 its personnel
levels worldwide. Many of the reductions are expected to take place
by year-end 2008, with the remainder to be completed in early
2009.
As
previously disclosed, we have been working to sell or close the majority of the
15 ACH component manufacturing plants by year-end 2008. To date, we
have sold five plants. We have closed two plants, and have plans to
close an additional two plants during the fourth quarter of 2008. We
plan to close a fifth plant in 2009, and to close a sixth in
2010. While we remain engaged in discussions with prospective buyers
for three of the four remaining ACH plants, we currently expect that we will
continue to operate at least portions of these plants (Milan, Saline, Sandusky,
and Sheldon Road), but are intent on transitioning these businesses to the
supply base as soon as practicable in an orderly and economical
manner.
Given the
continued volatility in the financial markets and the impact that this
turbulence has on our investment portfolio returns, we are not providing
guidance for our Other Automotive segment at this time. 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.
Within
our Financial Services sector, we anticipate that Ford Credit will incur a
pre-tax loss for full-year 2008. Ford Credit's 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 a higher provision for credit
losses, higher depreciation expense for leased vehicles, lower volume, and
higher net losses related to market valuation adjustments to
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 that is smaller than its first-half 2008
pre-tax loss (excluding its lease 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. Ford Credit anticipates its
year-end 2008 managed leverage to be about the same as September 2008, which is
lower than the 11.5 to 1 managed leverage planned at the beginning of
2008.
Beginning
in 2009, Ford Credit expects to make cash distributions of about $3 billion
through 2010 to return capital as its receivables portfolio
declines. Ford Credit will balance returns of capital with the
successful execution of its funding plan, thereby allowing it to continue to
support the sale of Ford, Lincoln, Mercury, and Volvo vehicles. In
addition, Ford Credit will make cash payments to Ford in 2009 and 2010 for
settlement of U.S. federal and state income tax liabilities pursuant to our tax
sharing agreement.
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;
|
•
|
Further
significant decline in industry sales, resulting from slowing economic
growth, geo-political events, or other
factors;
|
•
|
Lower-than-anticipated
market acceptance of new or existing
products;
|
•
|
Further
increases in the price 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 of the type 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 to fund and
discharge UAW hourly retiree health care
obligations;
|
•
|
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, 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);
|
•
|
Failure
of financial institutions to fulfill commitments under committed credit
facilities;
|
•
|
Inability
of Ford Credit to obtain an industrial bank charter or otherwise obtain
competitive funding;
|
•
|
Inability
of Ford Credit to access debt, securitization, or derivative markets
around the world at competitive rates or in sufficient amounts due to
additional credit rating downgrades, market volatility, market disruption,
or otherwise;
|
•
|
A
prolonged disruption of the debt and securitization
markets;
|
•
|
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;
|
•
|
New
or increased credit, consumer or data protection or other regulations
resulting in higher costs and/or additional financing restrictions;
and
|
•
|
Inability
to implement our plans to further reduce structural costs and increase
liquidity.
|
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, and "Item 1A. Risk Factors" below.
Item
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
CRITICAL
ACCOUNTING ESTIMATES
Based on
events occurring subsequent to December 31, 2007, 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 UAW hourly retiree health care
plan as of August 29, 2008 as a result of the Retiree Health Care Settlement
Agreement reached with the UAW (see Note 12 for further
discussion). The remeasurement reduced our obligation by $4.7
billion. The weighted average discount rate used to determine the
benefit obligation for U.S. plans at September 30, 2008 was 4.52%, 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. Due to the change in our UAW hourly retiree health
care plan, the sensitivities related to other postretirement benefit plans have
changed materially from those in our 2007 Form 10-K
Report. Accordingly, the table below provides an update to key
sensitivities.
These
sensitivities may be asymmetric and are specific to the time periods
noted. They are not additive, so the impact of changing multiple
factors simultaneously cannot be calculated by combining the individual
sensitivities shown. The effect of the indicated increase/(decrease)
in selected assumptions is shown below (in millions):
|
|
|
|
|
Effect on U.S. and
Canadian Plans: Increase/(Decrease)
|
|
|
|
|
|
|
September 30, 2008
Obligation
|
|
|
|
|
Discount
rate
|
|
+/-
1.0
|
pt. |
|
$ |
(720)/$850 |
|
|
$ |
(30)/$40 |
|
Health
care cost trend rates — total expense
|
|
|
+/-
1.0 |
|
|
|
350/(280 |
) |
|
|
50/(40 |
) |
Health
care cost trend rates — service and interest expense
|
|
|
+/-
1.0 |
|
|
|
350/(280 |
) |
|
|
30/(20 |
) |
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 and projected future operating results,
and significant negative industry or economic trends. When a
triggering event occurs, a test for recoverability is performed, comparing
projected undiscounted future cash flows to the carrying value of the asset
group. If the test for recoverability identifies a possible
impairment, the asset group's fair value is measured relying primarily on a
discounted cash flow methodology. An impairment charge is recognized
for the amount by which the carrying value of the asset group exceeds its
estimated fair value. 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. 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.
Item
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
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 at least annually 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.
See Note
2 of the Notes to the Financial Statements in our 2007 Form 10-K Report and Note
3 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. For additional
discussion of the planning assumptions used, see the Outlook discussion in the
Management's Discussion and Analysis of Financial Condition and Results of
Operations in our Quarter Report on Form 10-Q for the period ended June 30,
2008.
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 updated our
assumptions with regard to long-term growth and discount rates. The
long-term growth rate assumption used in our second quarter 2008 testing 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 lowered business plan period projections, resulted 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.
Item
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
During
the third quarter of 2008, we experienced a severe deterioration in U.S. credit
markets, which adversely affected economic conditions and depressed automotive
sales. As a result of this significant adverse change in the U.S.
business climate, we again tested the long-lived assets of our Ford North
America segment. Using updated business and economic projections, we
assessed that the carrying value of our long-lived assets at September 30, 2008
did not exceed their fair value. We used the same long-term growth
rate as used in our second quarter testing as we believe that long-term economic
conditions have not deteriorated as a result of the present credit
crisis. We estimate that a 0.5 percentage point decrease in the
long-term growth rate assumed in our third quarter impairment testing would have
decreased the fair value estimate by about $800
million. Additionally, we used the same discount rate as used in our
second quarter testing. This is based on the assumption that the
present credit crisis does not have a material impact on the weighted cost of
capital in the medium- to long-term (consistent with our planning
horizon). 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 $1.3 billion.
Although
at this time we do not anticipate additional impairment charges, a further
deterioration 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. Additionally, we continue to take steps to more closely align
our production capacity with industry volume and market share. As our
plan progresses, we will be less exposed to rapid changes in vehicle mix and
demand, and less susceptible to future impairment of long-lived
assets. For further discussion of actions we are taking to respond to
changing market conditions, see "Overview" above.
Automotive
Sector – Volvo Goodwill and Long-lived Assets
At
September 30, 2008, $1.3 billion of goodwill remained on our balance sheet
related to Volvo. We will be performing our annual goodwill testing
in the fourth quarter of 2008. In Note 2 of the Notes to the
Financial Statements in our 2007 Form 10-K Report, we discussed our impairment
of Volvo goodwill and noted that a worsening of the business climate would
impact the assumptions we use in performing our future impairment tests and
could result in additional impairment of goodwill or long-lived
assets. In our Current Report on Form 8-K dated October 1, 2008, we
disclosed that deteriorating economic conditions and other factors were causing
Volvo's second-half 2008 financial results to decline below our previous
expectations. If the present business climate continues without
indication of a medium-term improvement, revised business projection and growth
rate assumptions could result in additional impairments.
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 Note
3 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
prospectively increases depreciation rates 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" of our
2007 Form 10-K Report). Auction values and return volumes for the
third quarter of 2008 did not change meaningfully compared with the preceding
quarter. As a result, Ford Credit has not increased its depreciation
rates for these factors. For additional discussion, see "Residual
Risk" above.
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.
Valuation
of Deferred Tax Assets
Nature of Estimates
Required. Deferred tax assets and liabilities are recognized
based on the future tax consequences attributable to temporary differences that
exist between the financial statement carrying value of assets and liabilities
and their respective tax bases, and operating loss and tax credit carryforwards
on a taxing jurisdiction basis. We measure deferred tax assets and
liabilities using enacted tax rates that will apply in the years in which we
expect the temporary differences to be recovered or paid.
SFAS No.
109 requires a reduction of the carrying amounts of deferred tax assets by
recording a valuation allowance if, based on the available evidence, it is more
likely than not (defined by SFAS No. 109 as a likelihood of more than 50%) such
assets will not be realized. The valuation of deferred tax assets
requires judgment in assessing the likely future tax consequences of events that
have been recognized in our financial statements or tax returns and future
profitability. Our accounting for deferred tax consequences
represents our best estimate of those future events. Changes in our
current estimates, due to unanticipated events or otherwise, could have a
material impact on our financial condition and results of
operations.
Assumptions and Approach
Used. In assessing the need for a valuation allowance, we
consider both positive and negative evidence related to the likelihood of
realization of the deferred tax assets. If, based on the weight of
available evidence, it is more likely than not the deferred tax assets will not
be realized, we record a valuation allowance. The weight given to the
positive and negative evidence is commensurate with the extent to which the
evidence may be objectively verified. As such, it is generally
difficult for positive evidence regarding projected future taxable income
exclusive of reversing taxable temporary differences to outweigh objective
negative evidence of recent financial reporting losses. SFAS No. 109
states that a cumulative loss in recent years is a significant piece of negative
evidence that is difficult to overcome in determining that a valuation allowance
is not needed against deferred tax assets.
This
assessment, which is completed on a taxing jurisdiction basis, takes into
account a number of types of evidence, including the following:
|
·
|
Nature, frequency, and
severity of current and cumulative financial reporting losses – A
pattern of objectively measured recent financial reporting losses is
heavily weighted as a source of negative evidence. In certain
circumstances, historical information may not be as relevant due to
changed circumstances;
|
Item
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
|
·
|
Sources of future taxable
income – Future reversals of existing temporary differences are
heavily-weighted sources of objectively verifiable positive
evidence. Projections of future taxable income exclusive of
reversing temporary differences are a source of positive evidence only
when the projections are combined with a history of recent profits and can
be reasonably estimated. Otherwise, these projections are
considered inherently subjective and generally will not be sufficient to
overcome negative evidence that includes relevant cumulative losses in
recent years, particularly if the projected future taxable income is
dependent on an anticipated turnaround to profitability that has not yet
been achieved. In such cases, we generally give these
projections of future taxable income no weight for the purposes of our
valuation allowance assessment pursuant to SFAS No. 109;
and
|
|
·
|
Tax planning strategies
– If necessary and available, tax planning strategies would be
implemented to accelerate taxable amounts to utilize expiring
carryforwards. These strategies would be a source of additional
positive evidence and, depending on their nature, could be heavily
weighted.
|
See Note
19 of the Notes to the Financial Statements in our 2007 Form 10-K Report for
more information regarding deferred tax assets.
Sensitivity
Analysis. In 2006, our net deferred tax position in the United
States changed from a net deferred tax liability position to a net deferred tax
asset position. In our assessment of the need for a valuation
allowance, and as required by SFAS No. 109, we heavily weighted the negative
evidence of cumulative financial reporting losses in recent periods and the
positive evidence of future reversals of existing temporary
differences. Although a sizable portion of our North American losses
in recent years were the result of charges incurred for restructuring actions,
impairments, and other special items, even without these charges we still would
have incurred significant operating losses. Accordingly, we
considered our pattern of recent losses to be relevant to our
analysis. Considering this pattern of recent relevant losses and the
uncertainties associated with projected future taxable income exclusive of
reversing temporary differences, we gave no weight to projections showing future
U.S. taxable income for purposes of assessing the need for a valuation
allowance. As a result of our assessment, we concluded that the net
deferred tax assets of our U.S. entities required a full valuation
allowance. We also recorded a full valuation allowance on the net
deferred tax assets of certain foreign entities, such as Germany, Canada, and
Spain, as the realization of these foreign deferred tax assets are reliant upon
U.S.-source taxable income.
At
December 31, 2006, we reported a $7.2 billion valuation allowance against our
deferred tax assets (including $2.7 billion resulting from the adoption of SFAS
No. 158, Employers' Accounting
for Defined Benefit Pension and Other Postretirement Plans – an amendment of
FASB Statements No. 87, 88, 106, and 132(R) ("SFAS No.
158")). During 2007, we recorded an additional valuation allowance of
$1.4 billion (including about $700 million resulting from the adoption of FIN
48). Taxable losses in the first nine months of 2008, primarily in
the United States, increased the valuation allowance by $4.7 billion to a
balance of $13.3 billion at September 30, 2008.
A return
to profitability in our North America operations would result in a reversal of a
portion of the valuation allowance relating to realized deferred tax assets, but
we may not change our judgment of the need for a full valuation allowance on our
remaining deferred tax assets. A sustained period of North America
profitability could cause a change in our judgment about the realizability of
the remaining deferred tax assets. In that case, it is likely that we
would reverse some or all of the remaining deferred tax asset valuation
allowance. However, as discussed above, since we have heavily
weighted objectively measured recent financial reporting losses and given no
weight to subjectively determined projections of future taxable income exclusive
of reversing temporary differences, we have concluded as of September 30, 2008
that it is more likely than not such deferred tax assets will not be realized
(in whole or in part), and accordingly, we have recorded a full valuation
allowance against the net deferred tax assets.
At
September 30, 2008 and December 31, 2007, our net deferred tax assets, net of
the valuation allowances of $13.3 billion and $8.6 billion respectively, were
$518 million and $466 million, respectively. These net deferred tax
assets related to operations outside North America where we believed it was more
likely than not that these net deferred tax assets would be realized through
future taxable earnings. Accordingly, no valuation allowance has been
established on our remaining net deferred tax assets. Most notably,
at September 30, 2008 and December 31, 2007, we continued to recognize a net
deferred tax asset of $1.2 billion and $1.5 billion, respectively, in our U.K.
Automotive operations, primarily based upon the tax return consolidation of our
Automotive operations with our U.K. FCE operation. Our U.K. FCE
operation has a long history of profitability and we believe it will provide a
source of future taxable income that can be reasonably estimated. If,
in the future, we are not able to consolidate FCE profits in the United Kingdom,
additional valuation allowances may be required. We will continue to
assess the need for a valuation allowance in the future.
Item
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
ACCOUNTING
STANDARDS ISSUED BUT NOT YET ADOPTED
In May
2008, the 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 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. We are adopting
the FSP as of January 1, 2009 and we expect a $1.9 billion increase to beginning
equity as a result of this adoption. We will also record a pre-tax
adjustment of approximately $240 million to 2008 retained earnings that
represents the debt discount accretion in 2006, 2007, and 2008.
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.
OTHER
FINANCIAL INFORMATION
The
interim financial information included in this Quarterly Report on Form 10-Q for
the periods ended September 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 fair value of foreign exchange forward and
option contracts at September 30, 2008 was an asset of approximately $254
million compared to a net fair value asset of $632 million at 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 about $500 million at September 30,
2008 and was $2 billion as of December 31, 2007.
Commodity Price
Risk. The net asset fair value of commodity forward and option
contracts at September 30, 2008 was $44 million, compared to a net fair value
asset of $353 million at 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 $89 million at
September 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 September 30, 2008, all else constant, such an
increase in interest rates would reduce Ford Credit's pre-tax cash flow by
approximately $30 million over the next twelve months, compared with $16 million
at December 31, 2007. 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 Lewis Booth, 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 September 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. During the third quarter of 2008, Ford Europe began
sourcing some manufacturing to Fiat S.p.A., which resulted in modifications to
various business processes and systems. Also during the third
quarter, Volvo launched a new vehicle invoicing and accounting
system.
Don
Leclair, Executive Vice President and CFO, retired effective November 1,
2008. He is succeeded by Lewis Booth, formerly Executive Vice
President, Ford Motor Company and Chairman, Ford Europe and Volvo.
PART
II. OTHER INFORMATION
ITEM
1. Legal
Proceedings.
Class
Actions
Blue Oval Certified Program Class
Action (previously
reported on p.31 of our 2007 Form 10-K Report). In September
2008, the U.S. Court of Appeals for the Third Circuit reversed the order
certifying a nationwide class of dealers and remanded the case to the district
court for further proceedings.
Environmental
Matters
Sterling Axle
Plant. The Michigan Department of Environmental Quality
("MDEQ") issued four Letters of Violation to the Sterling Axle Plant between
April 17, 2008 and October 7, 2008, and has commenced a civil administrative
enforcement proceeding against the Company. The Letters of Violation
arise from the plant's disclosure of several potential violations of its air
permits. We are working with the MDEQ to resolve the enforcement
proceeding, and the plant has taken steps to correct and prevent recurrence of
the potential violations.
Tax Matters
Government Transfer Pricing
Dispute. As discussed in the last paragraph of Note 7 of
the Notes to the Financial Statements above, the U.S. government and the
government of one of its major trading partners are expected to have discussions
in coming months to resolve issues involving transfer pricing
between Ford entities in each jurisdiction. While these discussions
are pending, we could receive audit adjustments from the foreign government that
we would have to pay, either in cash or with other collateral acceptable to
the government. Any cash payments, which could be substantial, would
defease any tax liability ultimately determined.
ITEM
1A. Risk
Factors.
In
addition to the risk factors applicable to us that are disclosed in "Item 1A.
Risk Factors" of our 2007 Form 10-K Report, we have identified the following
material changes to the reported risks:
Further
significant declines in industry vehicle sales, resulting from slowing economic
growth, geo-political events, or other factors. In "Item 1A.
Risk Factors" in our 2007 Form 10-K Report, we identified that a significant
decline in industry sales, particularly in the United States or Europe, would
pose a risk to our financial condition and results of operations. At
the time of filing our 2007 Form 10-K Report, we had projected that for 2008
U.S. industry demand would soften to about 16 million units, compared with
actual volume of 16.5 million units in 2007, and industry demand in the 19
European markets we track would be about 17.6 million units, compared with
actual volume of 18 million units in 2007. As discussed above, under
the captions "Overview" and "Outlook" in "Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations," we now expect
industry demand in the United States and Europe for 2008 to be significantly
below those levels. In addition, compared with 2008, we expect
industry volume declines in 2009 many markets around the
world. Because we have a high proportion of costs that are fixed,
relatively small changes in wholesale unit volumes can dramatically affect our
cash flow and profitability. If industry vehicle sales were to
decline significantly from currently-projected levels, particularly in the
United States and Europe, our financial condition and results of operations
would be substantially adversely affected.
Failure of
financial institutions to fulfill commitments under committed credit
facilities. As discussed in "Item 2. Management's Discussion
and Analysis of Financial Condition and Results of Operations – Liquidity and
Capital Resources" above, we assume that the $890 million commitment of Lehman
CPI under our $11.5 billion revolving credit facility is not presently and will
not in the future be available as a result of Lehman CPI having filed for
protection under Chapter 11 of the U.S. Bankruptcy Code on October 5,
2008. As discussed above, at September 30, 2008 (excluding Lehman
CPI's commitment), we had $10.7 billion of Automotive and $15.9 billion of
Financial Services committed credit and liquidity facilities available for use
for which we pay commitment fees. To the extent that the financial
institutions that provide these committed credit facilities were to default on
their obligation to fund the commitments, these facilities would not be
available to us.
Item
1A. Risk Factors (Continued)
Inability of Ford
Credit to obtain an industrial bank charter or otherwise obtain competitive
funding. Ford Credit is pursuing an industrial bank charter
from the State of Utah. Such a charter requires approval from the
Federal Deposit Insurance Corporation (“FDIC”) to obtain federal deposit
insurance. Other automotive captive finance companies have industrial
banks that provide them with access to relatively low-cost FDIC-insured deposit
funding. If these finance companies have access to FDIC-insured or
other government funding programs and Ford Credit does not, then Ford Credit's
ability to competitively support the sale of Ford vehicles could be adversely
affected. This in turn would adversely affect the marketability of
Ford vehicles in comparison to certain competitive brands.
Inability of Ford
Credit to access debt, securitization, or derivative markets around the world at
competitive rates or in sufficient amounts due to additional credit rating
downgrades, market volatility, market disruption, or
otherwise. The lower credit ratings assigned to Ford Credit
have increased its unsecured borrowing costs and have caused its access to the
unsecured debt markets to be more restricted. In response, Ford
Credit has increased its use of securitization and other sources of
liquidity. Ford Credit’s ability to obtain funding under its
committed asset-backed liquidity programs is subject to having a sufficient
amount of assets eligible for these programs as well as Ford Credit’s ability to
obtain derivatives to manage the interest rate risk. Over time, and
particularly in the event of any further credit rating downgrades, market
volatility, market disruption, or otherwise, Ford Credit may need to reduce the
amount of receivables it purchases or originates. In addition, Ford
Credit would need to reduce the amount of receivables it purchases or originates
if there is a significant decline in the demand for the types of securities it
offers or Ford Credit is unable to obtain derivatives to manage the interest
rate risk associated with its securitizations. A significant
reduction in the amount of receivables Ford Credit purchases or originates would
significantly reduce its ongoing profits and could adversely affect its ability
to support the sale of Ford vehicles.
A prolonged
disruption of the debt and securitization markets. As a result of
the global credit crisis, the disruption in the debt and securitization markets
that began in August 2007 increased significantly in September 2008 and is
continuing. It is possible that this disruption could continue beyond
the conclusion of government-sponsored programs that are intended to improve
conditions in the credit markets (e.g., the Commercial Paper Funding Facility,
Ford Credit's participation in which is described in "Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations –
Overview" above). Such a sustained disruption in the debt and
securitization markets would result in Ford Credit further reducing the amount
of receivables it purchases or originates. A significant reduction in
the amount of receivables Ford Credit purchases or originates would
significantly reduce its ongoing profits, and could adversely affect its ability
to support the sale of Ford vehicles.
Inability to
implement our plans to further reduce structural costs and increase
liquidity. As discussed in "Item 2. Management's Discussion
and Analysis of Financial Condition and Results of Operations – Overview" above,
we are taking a number of additional actions in executing the four priorities of
our plan in order to address the impact of current economic conditions,
including the deteriorating credit market and automotive sales. To
the extent that we are unable to implement these additional actions or implement
other alternative actions our financial condition and results of operations
would be substantially adversely affected.
ITEM
2. Unregistered
Sales of Equity Securities and Use of Proceeds.
During
the third 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
|
|
July
1, 2008 through July 31, 2008
|
|
|
5,191 |
|
|
$ |
4.88 |
|
|
|
0 |
|
|
|
** |
|
Aug.
1, 2008 through Aug. 31, 2008
|
|
|
1,498 |
|
|
|
5.11 |
|
|
|
0 |
|
|
|
** |
|
Sept.
1, 2008 through Sept. 30, 2008
|
|
|
5,927 |
|
|
|
5.20 |
|
|
|
0 |
|
|
|
** |
|
Total/Average
|
|
|
12,616 |
|
|
|
5.06 |
|
|
|
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
5. Other
Information.
Governmental
Standards
Motor Vehicle Fuel
Economy. California had filed petitions in both the U.S. Court
of Appeals for the Ninth Circuit and the U.S. Court of Appeals for the District
of Columbia Circuit seeking review of the denial by the Environmental Protection
Agency ("EPA") of a Clean Air Act waiver for California's AB 1493
regulations. The U.S. Court of Appeals for the Ninth Circuit
dismissed the petition for lack of jurisdiction, and the case is now proceeding
in the U.S. Court of Appeals for the District of Columbia
Circuit. The court has set a briefing schedule pursuant to which
briefing on the petition will be concluded by March 2009; no date for oral
argument has been set.
The U.S.
District Court for the Eastern District of California has issued a final
judgment in the suit by automobile manufacturers and dealers seeking to overturn
the AB 1493 regulations on the grounds they are preempted by federal
law. The final judgment reiterates the court's prior rulings
that: i) California is enjoined from enforcing AB 1493 regulations in
the absence of an EPA waiver; and ii) the federal Corporate Average Fuel Economy
law does not preempt California from regulating motor vehicle greenhouse
gases. Plaintiffs have filed a notice of appeal with the U.S. Court
of Appeals for the Ninth Circuit on the second ruling.
Ford
Credit Support Agreement
On
November 6, 2008, Ford and Ford Credit entered into an Amended and Restated
Support Agreement ("Support Agreement") (formerly known as the Amended and
Restated Profit Maintenance Agreement). Pursuant to the Support
Agreement, if Ford Credit's managed leverage for a calendar quarter were to be
higher than 11.5 to 1 (as reported in its then-most recent Form 10-Q Report or
Form 10-K Report), Ford Credit can require us to make or cause to be made a
capital contribution to Ford Credit in an amount sufficient to have caused such
managed leverage to be 11.5 to 1. A copy of the Support Agreement is
filed as Exhibit 10 hereto.
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
|
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|
|
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(Registrant)
|
|
|
|
|
|
|
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Date: November 7,
2008
|
By:
|
/s/ Peter J. Daniel
|
|
|
|
Peter
J. Daniel
|
|
|
|
Senior
Vice President
|
|
|
|
and
Controller
|
|
EXHIBIT
INDEX
|
|
|
|
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|
|
|
|
|
|
|
Amended
and Restated Support Agreement (formerly known as Amended and Restated
Profit Maintenance Agreement) dated November 6, 2008 between Ford Motor
Company and Ford Motor Credit Company LLC
|
|
Filed
with this Report
|
|
|
|
|
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|
|
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 November 7, 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
|
64