form10k.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
_______________
FORM
10-K
(Mark
One)
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R
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Annual
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
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For
the fiscal year ended December 31, 2008
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or
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£
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Transition
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
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For
the transition period from __________ to
__________
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Commission
file number 1-3950
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Ford
Motor Company
(Exact
name of Registrant as specified in its charter)
Delaware
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38-0549190
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(State
of incorporation)
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(I.R.S.
employer identification no.)
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One
American Road, Dearborn, Michigan
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48126
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(Address
of principal executive offices)
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(Zip
code)
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313-322-3000
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
Title
of each class
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Name
of each exchange on which registered (a)
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Common
Stock, par value $.01 per share
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New
York Stock Exchange
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7.50%
Notes Due June 10, 2043
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New
York Stock Exchange
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Ford
Motor Company Capital Trust II
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New
York Stock Exchange
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6.50%
Cumulative Convertible Trust Preferred
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Securities,
liquidation preference $50 per share
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__________
(a)
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In
addition, shares of Common Stock of Ford are listed on certain stock
exchanges in Europe.
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Securities registered pursuant to
Section 12(g) of the Act: None.
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes R No £
Indicate
by check mark if the registrant is not required to file reports pursuant to
section 13 or Section 15(d) of the Act.
Yes £ No R
Indicate
by check mark if the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes R No £
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. R
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "
accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act. (Check one)
Large
accelerated filer R Accelerated
filer £ Non-accelerated
filer £
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes £ No R
As of
June 30, 2008, Ford had outstanding 2,182,758,311 shares of Common Stock
and 70,852,076 shares of Class B Stock. Based on the New York Stock
Exchange Composite Transaction closing price of the Common Stock on that date
($4.81 per share), the aggregate market value of such Common Stock was
$10,499,067,476. Although there is no quoted market for our Class B
Stock, shares of Class B Stock may be converted at any time into an equal number
of shares of Common Stock for the purpose of effecting the sale or other
disposition of such shares of Common Stock. The shares of Common
Stock and Class B Stock outstanding at June 30, 2008 included shares
owned by persons who may be deemed to be "affiliates" of Ford. We do
not believe, however, that any such person should be considered to be an
affiliate. For information concerning ownership of outstanding Common
Stock and Class B Stock, see the Proxy Statement for Ford’s Annual Meeting of
Stockholders currently scheduled to be held on May 14, 2009 (our
"Proxy Statement"), which is incorporated by reference under various Items of
this Report as indicated below.
As of
February 13, 2009, Ford had outstanding 2,325,468,761 shares of Common
Stock and 70,852,076 shares of Class B Stock. Based on the New York
Stock Exchange Composite Transaction closing price of the Common Stock on that
date ($1.76 per share), the aggregate market value of such Common Stock was
$4,092,825,019.
DOCUMENTS
INCORPORATED BY REFERENCE
Document
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Where
Incorporated
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Proxy
Statement*
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Part
III (Items 10, 11, 12, 13 and
14)
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__________
*
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As
stated under various Items of this Report, only certain specified portions
of such document are incorporated by reference in this
Report.
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Exhibit
Index begins on page 95.
PART
I
ITEM
1.
Business
Ford
Motor Company (referred to herein as "Ford", the "Company", "we", "our" or "us")
was incorporated in Delaware in 1919. We acquired the business of a
Michigan company, also known as Ford Motor Company, that had been incorporated
in 1903 to produce and sell automobiles designed and engineered by Henry
Ford. We are one of the world’s largest producers of cars and
trucks. We and our subsidiaries also engage in other businesses,
including financing vehicles.
In
addition to the information about Ford and its subsidiaries contained in this
Annual Report on Form 10-K for the year ended December 31, 2008 ("2008
Form 10-K Report" or "Report"), extensive information about our Company can be
found at www.ford.com,
including information about our management team, our brands and products, and
our corporate governance principles.
The
corporate governance information on our website includes our Corporate
Governance Principles, Code of Ethics for Senior Financial Personnel, Code of
Ethics for Directors, Standards of Corporate Conduct for all employees, and the
Charters for each of our Board Committees. In addition, any
amendments to our Code of Ethics or waivers granted to our directors and
executive officers will be posted in this area of our website. All of
these documents can be accessed by logging onto our website and clicking on the
"Investors," then "Company Information," and then "Corporate Governance" links,
and may be obtained free of charge by writing to our Shareholder Relations
Department, Ford Motor Company, One American Road, P.O. Box 1899, Dearborn,
Michigan 48126-1899.
In
addition, all of our recent periodic report filings with the Securities and
Exchange Commission ("SEC") pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended, are available free of charge through our
website. This includes recent Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q, and Current Reports on Form 8-K, as well as any
amendments to those Reports. Recent Section 16 filings made with
the SEC by the Company or any of its executive officers or directors with
respect to our Common Stock are made available free of charge through our
website. We post each of these documents on our website as soon as
reasonably practicable after it is electronically filed with the
SEC.
To access
our SEC reports or amendments or the Section 16 filings, log onto our website
and click "Investors," then "Company Reports," and then "View S.E.C. Filings"
which links to a list of reports filed with the SEC.
The
foregoing information regarding our website and its content is for convenience
only. The content of our website is not deemed to be incorporated by
reference into this report nor should it be deemed to have been filed with the
SEC.
ITEM
1. Business (continued)
OVERVIEW
Segments. We
review and present our business results in two sectors: Automotive
and Financial Services. Within these sectors, our business is divided
into reportable segments based upon the organizational structure that we use to
evaluate performance and make decisions on resource allocation, as well as
availability and materiality of separate financial results consistent with that
structure.
Our
Automotive and Financial Services segments as of December 31, 2008 are
described in the table below:
Business Sector
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Reportable
Segments*
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Description
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Automotive:
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Ford
North America
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Primarily
includes the sale of Ford, Lincoln and Mercury brand vehicles and related
service parts in North America (the United States, Canada and Mexico),
together with the associated costs to design, develop, manufacture and
service these vehicles and parts, as well as the sale
of Mazda6 vehicles produced by our consolidated subsidiary AutoAlliance
International, Inc. ("AAI").
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Ford
South America
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Primarily
includes the sale of Ford-brand vehicles and related service parts in
South America, together with the associated costs to design, develop,
manufacture and service these vehicles and parts.
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Ford
Europe
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Primarily
includes the sale of Ford-brand vehicles and related service parts in
Europe, Turkey and Russia, together with the associated costs to design,
develop, manufacture and service these vehicles and
parts.
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Volvo
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Primarily
includes the sale of Volvo brand vehicles and related service parts
throughout the world (including Europe, North and South America, and Asia
Pacific Africa), together with the associated costs to design, develop,
manufacture and service these vehicles and parts.
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Ford
Asia Pacific Africa
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Primarily
includes the sale of Ford-brand vehicles and related service parts in the
Asia Pacific region and South Africa, together with the associated costs
to design, develop, manufacture and service these vehicles and
parts.
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Financial
Services:
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Ford
Motor Credit Company
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Primarily
includes vehicle-related financing, leasing, and
insurance.
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Other
Financial Services
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Includes
a variety of businesses including holding companies, real estate, and the
financing and leasing of some Volvo vehicles in
Europe.
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__________
*
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As
reported in our Quarterly Report on Form 10-Q for the period ended
June 30, 2008, we sold Jaguar and Land Rover effective
June 2, 2008. Also, during the fourth quarter of
2008, we sold a portion of our equity in Mazda, reducing our ownership percentage
from approximately 33.4% to 13.78%. As a result, beginning with
the fourth quarter of 2008, we account for our interest in Mazda as
marketable securities and no longer report Mazda as an operating
segment.
|
We
provide financial information (such as revenues, income, and assets) for each of
these business sectors and reportable segments in three areas of this
Report: (1) "Item 6. Selected Financial Data," (2) "Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations," and (3) Note 26 of the Notes to the Financial Statements located at
the end of this Report. Financial information relating to certain
geographic areas also is included in the Notes.
ITEM
1. Business (continued)
AUTOMOTIVE
SECTOR
General
We sell
cars and trucks throughout the world. In 2008, our total ongoing
Automotive operations sold approximately 5,407,000 vehicles at wholesale
throughout the world. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations" for additional
discussion of wholesale unit volumes.
As of
December 31, 2008, our vehicle brands include Ford, Mercury, Lincoln,
and Volvo. Substantially all of our cars, trucks and parts are
marketed through retail dealers in North America, and through distributors and
dealers (collectively, "dealerships") outside of North America, the substantial
majority of which are independently owned. At
December 31, 2008, the approximate number of dealerships worldwide
distributing our vehicle brands was as follows:
Brand
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Number
of Dealerships at December 31,
2008*
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Ford
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11,827 |
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Mercury
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1,871 |
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Lincoln
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1,427 |
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Volvo
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2,341 |
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__________
*
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Because
many of these dealerships distribute more than one of our brands from the
same sales location, a single dealership may be counted under more than
one brand.
|
In
addition to the products we sell to our dealerships for retail sale, we also
sell cars and trucks to our dealerships for sale to fleet customers, including
daily rental car companies, commercial fleet customers, leasing companies, and
governments. We do not depend on any single customer or small group
of customers to the extent that the loss of such customer or group of customers
would have a material adverse effect on our business.
Through
our dealer network and other channels, we also provide retail customers with a
wide range of after-sale vehicle services and products, including maintenance
and light repair, heavy repair, collision, vehicle accessories and extended
service warranty. In North America, we market these products and
services under several brands, including Genuine Ford and Lincoln-Mercury Parts
and ServiceSM, Ford
Custom AccessoriesTM, Ford
Extended Service PlanSM, and
MotorcraftSM.
The
worldwide automotive industry, Ford included, is affected significantly by
general economic conditions (among other factors) over which we have little
control. This is especially so because vehicles are durable goods,
which provide consumers latitude to determine whether and when to replace an
existing vehicle, as evidenced by the recent sudden and dramatic drop in
industry sales volume with the current economic crisis. That decision
may be affected significantly by slowing economic growth, geo-political events,
and other factors (including the cost of purchasing and operating cars and
trucks and the availability and cost of credit and
fuel). Accordingly, the number of cars and trucks sold may vary
substantially from year to year. The automotive industry is also a
highly competitive, cyclical business that has a wide and growing variety of
product offerings from a growing number of manufacturers. See "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations – Overview" for discussion of the impact of the current global credit
and economic crisis on our worldwide vehicle sales.
Our
wholesale unit volumes vary with the level of total industry demand and our
share of that industry demand. In the short term, our wholesale unit
volumes also are influenced by the level of dealer inventory. Our
share is influenced by how our products are perceived in comparison to those
offered by other manufacturers based on many factors, including price, quality,
styling, reliability, safety, fuel efficiency, functionality, and
reputation. Our share also is affected by the timing and frequency of
new model introductions. Our ability to satisfy changing consumer
preferences with respect to type or size of vehicle, as well as design and
performance characteristics, impacts our sales and earnings
significantly.
ITEM
1. Business (continued)
The
profitability of our business is affected by many factors,
including:
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▪
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Wholesale
unit volumes;
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▪
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Margin
of profit on each vehicle sold; which in turn is affected by many factors,
including:
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·
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Mix
of vehicles and options sold;
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·
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Costs
of components and raw materials necessary for production of
vehicles;
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·
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Level
of "incentives" (e.g., price discounts) and other marketing
costs;
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·
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Costs
for customer warranty claims and additional service actions;
and
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·
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Costs
for safety, emission and fuel economy technology and equipment;
and
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▪
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As
with other manufacturers, a high proportion of relatively fixed costs,
including labor costs, such that small changes in wholesale unit volumes
can significantly affect overall
profitability.
|
In
addition, our industry continues to face a very competitive pricing environment,
driven in part by industry excess capacity. For the past several
decades, manufacturers typically have given price discounts and other marketing
incentives to maintain market share and production levels. A
discussion of our strategies to compete in this pricing environment is set forth
in "Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations – Overview."
Competitive
Position. The worldwide automotive industry consists of many
producers, with no single dominant producer. Certain manufacturers,
however, account for the major percentage of total sales within particular
countries, especially their countries of origin. Detailed information
regarding our competitive position in the principal markets where we compete may
be found below as part of the overall discussion of the automotive industry in
those markets.
Seasonality. We
generally record the sale of a vehicle (and recognize sales proceeds in revenue)
when it is produced and shipped or delivered to our customer (i.e., our dealer
or distributor). See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations – Overview" for
additional discussion of revenue recognition practices. We manage our
vehicle production schedule based on a number of factors, including dealer stock
levels (i.e., the number of units held in inventory by our dealers and
distributors for sale to retail and fleet customers) and retail sales
(i.e., units sold by our dealers and distributors to their customers at
retail). We also experience some seasonal fluctuation in the
business. Generally, production in many markets is higher in the
first half of the year to meet demand in the spring and summer, which are
usually the strongest sales months of the year. Third quarter
production is typically the lowest of the year, generally reflecting the annual
vacation shutdown of our manufacturing facilities during this
quarter. As a result, operating results for the third quarter
typically are less favorable than those of other quarters.
Raw Materials. We
purchase a wide variety of raw materials from numerous suppliers around the
world for use in production of our vehicles. These materials include
non-ferrous metals (e.g., aluminum), precious metals (e.g., palladium), ferrous
metals (e.g., steel and iron castings), energy (e.g., natural gas), and resins
(e.g., polypropylene). We believe that we have adequate
supplies or sources of availability of the raw materials necessary to meet our
needs. There are always risks and uncertainties, however, with
respect to the supply of raw materials that could impact their availability in
sufficient quantities to meet our needs. See
"Item 7. Management Discussion and Analysis of Financial Condition and
Results of Operations – Overview" for a discussion of commodity and energy price
trends, and "Item 7A. Quantitative and Qualitative Disclosures About Market
Risk – Commodity Price Risk" for a discussion of commodity price
risks.
Backlog Orders. We
generally produce and ship our products on average within approximately 20 days
after an order is deemed to become firm. Therefore, no significant
amount of backlog orders accumulates during any period.
Intellectual
Property. We own or hold licenses to use numerous patents,
copyrights and trademarks on a global basis. Our policy is to protect
our competitive position by, among other methods, filing U.S. and international
patent applications to protect technology and improvements that we consider
important to the development of our business. We have generated a
large number of patents, and expect this portfolio to continue to grow as we
actively pursue additional technological innovation. We currently
have approximately 15,000 active patents and pending patent applications
globally, with an average age for patents in our active patent portfolio of just
over 5 years. In addition to this intellectual property, we also rely
on our proprietary knowledge and ongoing technological innovation to develop and
maintain our competitive position. Although we believe that these
patents, patent applications, and know-how, in the aggregate, are important to
the conduct of our business, and we obtain licenses to use certain intellectual
property owned by others, none is individually considered material to our
business. We also own numerous trademarks and service marks that
contribute to the identity and recognition of our Company and its products and
services globally. Certain of these marks are integral to the conduct
of our business, a loss of any of which could have a material adverse effect on
our business.
ITEM
1. Business (continued)
Warranty Coverage and Additional
Service Actions. We currently provide warranties on vehicles
we sell. Warranties are offered for specific periods of time and/or
mileage, and vary depending upon the type of product, usage of the product and
the geographic location of its sale. Types of warranty coverage
offered include base coverage (e.g., "bumper-to-bumper" coverage in the United
States on Ford-brand vehicles for 36 months or 36,000 miles, whichever occurs
first), safety restraint coverage, and corrosion coverage. Beginning
with 2007 model-year passenger cars and light trucks, Ford extended the
powertrain warranty coverage offered on Ford, Lincoln and Mercury vehicles sold
in the United States, Canada, and select U.S. export markets (e.g., powertrain
coverage for certain vehicles sold in the United States from three years or
36,000 miles to five years or 60,000 miles on Ford and Mercury brands and from
four years or 50,000 miles to six years or 70,000 miles on the Lincoln
brand). In compliance with regulatory requirements, we also provide
emissions-defects and emissions-performance warranty
coverage. Pursuant to these warranties, Ford will repair, replace, or
adjust all parts on a vehicle that are defective in factory-supplied materials
or workmanship during the specified warranty period.
In
addition to the costs associated with the warranty coverage provided on our
vehicles, we also incur costs as a result of additional service actions not
covered by our warranties, including product recalls and customer satisfaction
actions.
Estimated
warranty and service action costs for each vehicle sold by us are accrued for at
the time of sale. Accruals for estimated warranty and service action
costs are based on historical experience and subject to adjustment from time to
time depending on actual experience. Warranty accrual adjustments
required when actual warranty claim experience differs from our estimates may
have a material impact on our results.
For
additional information with respect to costs for warranty and additional service
actions, see "Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations – Critical Accounting Estimates" and
Note 29 of the Notes to the Financial Statements.
Industry
Sales Volume
During
2008, the global economic crisis dramatically reduced industry sales volume in
the United States and Europe, and began to slow growth in other markets around
the world. The following chart shows industry sales volume for the
United States, and for the markets we track in Europe, South America and Asia
Pacific Africa for the last five years (in millions of units):
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United
States
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13.5 |
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16.5 |
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17.1 |
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17.5 |
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17.3 |
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Ford
Europe
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16.7 |
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18.1 |
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17.9 |
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17.6 |
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17.6 |
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Ford
South America
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4.3 |
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4.1 |
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3.2 |
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2.7 |
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2.2 |
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Ford
Asia Pacific Africa
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20.9 |
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20.4 |
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18.6 |
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17.3 |
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16.1 |
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__________
*
|
Throughout this
section, industry sales volume includes sales of medium and heavy
trucks. See discussion of each market
below for definition of the markets we
track.
|
Much of the decline in industry sales
volume in 2008 occurred toward the end of the year, with the seasonally adjusted
annual rate of sales in the fourth quarter of 2008 reaching 10.7 million
units and 14.8 million units in the United States and the markets we track
in Europe, respectively. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations – Overview" for
discussion of the impact of declining industry sales volume.
United
States
Industry Sales
Data. The following table shows U.S. industry sales of cars
and trucks (in millions of units):
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U.S.
Industry Sales
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Years
Ended December 31,
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Cars
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7.1 |
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7.9 |
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8.1 |
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7.9 |
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7.7 |
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Trucks
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6.4 |
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8.6 |
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9.0 |
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9.6 |
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9.6 |
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ITEM
1. Business (continued)
We
classify cars by small, medium, large, and premium segments, and trucks by
compact pickup, bus/van (including minivans), full-size pickup, sport utility
vehicles, and medium/heavy segments. With the introduction of
vehicles with sport utility features built on a car platform (crossover utility
vehicles or "CUVs"), however, the distinction between traditional cars and
trucks has become more difficult to draw, and these vehicles are not
consistently classified as either cars or trucks across vehicle
manufacturers. In the tables above and below, we have classified CUVs
(i.e., vehicles with sport utility features built on a car platform) as sport
utility vehicles ("SUVs"). In addition, we have classified all of our
luxury cars as "premium," regardless of size; premium SUVs and CUVs are included
in "trucks." Annually, we conduct a comprehensive review of many
factors to determine the appropriate classification of vehicle segments and the
vehicles within those segments, and this review occasionally results in a change
of classification for certain vehicles.
The
following tables show the proportion of U.S. car and truck unit sales by segment
for the industry (including domestic and foreign-based
manufacturers):
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U.S.
Industry Vehicle Mix of Sales by Segment
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Years
Ended December 31,
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CARS
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Small
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22.9 |
% |
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19.8 |
% |
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19.0 |
% |
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17.1 |
% |
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16.0 |
% |
Medium
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15.5 |
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13.6 |
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13.1 |
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13.1 |
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14.0 |
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Large
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6.1 |
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7.0 |
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7.5 |
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7.4 |
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6.8 |
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Premium
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7.8 |
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7.8 |
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7.6 |
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7.8 |
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7.7 |
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Total
U.S. Industry Car Sales
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52.3 |
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48.2 |
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47.2 |
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45.4 |
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44.5 |
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TRUCKS
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Compact
Pickup
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2.8 |
% |
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3.2 |
% |
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3.5 |
% |
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3.9 |
% |
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4.0 |
% |
Bus/Van
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6.1 |
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6.6 |
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7.8 |
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8.1 |
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8.5 |
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Full-Size
Pickup
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11.9 |
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13.5 |
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13.3 |
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14.6 |
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14.7 |
|
SUV/CUV
|
|
|
24.9 |
|
|
|
26.5 |
|
|
|
25.2 |
|
|
|
25.5 |
|
|
|
26.1 |
|
Medium/Heavy
|
|
|
2.0 |
|
|
|
2.0 |
|
|
|
3.0 |
|
|
|
2.5 |
|
|
|
2.2 |
|
Total
U.S. Industry Truck Sales
|
|
|
47.7 |
|
|
|
51.8 |
|
|
|
52.8 |
|
|
|
54.6 |
|
|
|
55.5 |
|
Total
U.S. Industry Vehicle Sales
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
Ford
U.S. Vehicle Mix of Sales by Segment*
|
|
|
|
Years
Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CARS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small
|
|
|
15.0 |
% |
|
|
12.8 |
% |
|
|
12.5 |
% |
|
|
11.6 |
% |
|
|
10.9 |
% |
Medium
|
|
|
9.3 |
|
|
|
7.8 |
|
|
|
12.9 |
|
|
|
8.2 |
|
|
|
9.4 |
|
Large
|
|
|
7.7 |
|
|
|
8.4 |
|
|
|
8.2 |
|
|
|
8.9 |
|
|
|
5.4 |
|
Premium
|
|
|
3.1 |
|
|
|
2.5 |
|
|
|
3.1 |
|
|
|
2.8 |
|
|
|
2.9 |
|
Total
Ford U.S. Car Sales
|
|
|
35.1 |
|
|
|
31.5 |
|
|
|
36.7 |
|
|
|
31.5 |
|
|
|
28.6 |
|
TRUCKS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compact
Pickup
|
|
|
3.4 |
% |
|
|
3.0 |
% |
|
|
3.4 |
% |
|
|
4.1 |
% |
|
|
5.0 |
% |
Bus/Van
|
|
|
6.5 |
|
|
|
7.2 |
|
|
|
8.6 |
|
|
|
8.9 |
|
|
|
9.4 |
|
Full-Size
Pickup
|
|
|
27.2 |
|
|
|
29.1 |
|
|
|
29.6 |
|
|
|
30.7 |
|
|
|
30.2 |
|
SUV/CUV
|
|
|
27.4 |
|
|
|
28.6 |
|
|
|
21.1 |
|
|
|
24.3 |
|
|
|
26.4 |
|
Medium/Heavy
|
|
|
0.4 |
|
|
|
0.6 |
|
|
|
0.6 |
|
|
|
0.5 |
|
|
|
0.4 |
|
Total
Ford U.S. Truck Sales
|
|
|
64.9 |
|
|
|
68.5 |
|
|
|
63.3 |
|
|
|
68.5 |
|
|
|
71.4 |
|
Total
Ford U.S. Vehicle Sales
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
__________
*
|
These
data include sales of Ford, Lincoln, and Mercury
vehicles.
|
As the
tables above indicate, the shift from cars to trucks that began in the 1980s
started to reverse in 2005. Prior to 2005, the proportion of trucks
sold in the industry and by Ford had been increasing, reflecting higher sales of
traditional, truck-based SUVs and full-size pickups. In recent years,
the percentage of cars sold in the overall market and by Ford trended higher,
primarily due to increases in the small car segment. In 2008, Ford's
overall vehicle mix changes in the United States generally mirrored the overall
industry. Gains in our small car segment market share were largely
explained by the strength of our redesigned Focus, with the Fusion and Milan
contributing to our increased medium car mix.
Market Share
Data. The competitive environment in the United States has
intensified and is expected to continue to intensify as Japanese and Korean
manufacturers increase imports to the United States and production capacity in
North America. Our principal competitors in the United States include
General Motors Corporation ("General Motors"), Chrysler LLC ("Chrysler"),
Toyota Motor Corporation ("Toyota"), Honda Motor Company ("Honda"), and Nissan
Motor Company ("Nissan"). The following tables show U.S. car and
truck market share for Ford (Ford, Lincoln, and Mercury brand vehicles only) and
for the other five leading vehicle manufacturers.
ITEM
1. Business (continued)
The
percentages in each of the following tables represent percentages of the
combined car and truck industry:
|
|
U.S.
Car Market Shares (a)
|
|
|
|
Years
Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
|
|
|
5.0 |
% |
|
|
4.6 |
% |
|
|
5.8 |
% |
|
|
5.4 |
% |
|
|
5.1 |
% |
General
Motors
|
|
|
10.0 |
|
|
|
9.8 |
|
|
|
10.0 |
|
|
|
10.2 |
|
|
|
10.7 |
|
Chrysler
|
|
|
3.6 |
|
|
|
4.2 |
|
|
|
4.1 |
|
|
|
4.0 |
|
|
|
3.6 |
|
Toyota
|
|
|
10.0 |
|
|
|
9.2 |
|
|
|
8.6 |
|
|
|
7.4 |
|
|
|
6.3 |
|
Honda
|
|
|
6.6 |
|
|
|
5.3 |
|
|
|
4.9 |
|
|
|
4.8 |
|
|
|
4.9 |
|
Nissan
|
|
|
4.4 |
|
|
|
3.8 |
|
|
|
3.2 |
|
|
|
3.3 |
|
|
|
3.0 |
|
All
Other (b)
|
|
|
12.7 |
|
|
|
11.3 |
|
|
|
10.6 |
|
|
|
10.3 |
|
|
|
10.9 |
|
Total
U.S. Car Deliveries
|
|
|
52.3 |
% |
|
|
48.2 |
% |
|
|
47.2 |
% |
|
|
45.4 |
% |
|
|
44.5 |
% |
|
|
U.S.
Truck Market Shares (a)
|
|
|
|
Years
Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
|
|
|
9.2 |
% |
|
|
10.0 |
% |
|
|
10.2 |
% |
|
|
11.6 |
% |
|
|
12.9 |
% |
General
Motors
|
|
|
12.1 |
|
|
|
13.6 |
|
|
|
14.1 |
|
|
|
15.6 |
|
|
|
16.4 |
|
Chrysler
|
|
|
7.2 |
|
|
|
8.4 |
|
|
|
8.4 |
|
|
|
9.2 |
|
|
|
9.1 |
|
Toyota
|
|
|
6.4 |
|
|
|
6.7 |
|
|
|
6.3 |
|
|
|
5.6 |
|
|
|
5.6 |
|
Honda
|
|
|
4.0 |
|
|
|
4.1 |
|
|
|
3.9 |
|
|
|
3.6 |
|
|
|
3.2 |
|
Nissan
|
|
|
2.7 |
|
|
|
2.7 |
|
|
|
2.8 |
|
|
|
2.9 |
|
|
|
2.7 |
|
All
Other (b)
|
|
|
6.1 |
|
|
|
6.3 |
|
|
|
7.1 |
|
|
|
6.1 |
|
|
|
5.6 |
|
Total
U.S. Truck Deliveries
|
|
|
47.7 |
% |
|
|
51.8 |
% |
|
|
52.8 |
% |
|
|
54.6 |
% |
|
|
55.5 |
% |
|
|
U.S.
Combined Car and Truck
Market
Shares (a)
|
|
|
|
Years
Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
|
|
|
14.2 |
% |
|
|
14.6 |
% |
|
|
16.0 |
% |
|
|
17.0 |
% |
|
|
18.0 |
% |
General
Motors
|
|
|
22.1 |
|
|
|
23.4 |
|
|
|
24.1 |
|
|
|
25.8 |
|
|
|
27.1 |
|
Chrysler
|
|
|
10.8 |
|
|
|
12.6 |
|
|
|
12.5 |
|
|
|
13.2 |
|
|
|
12.7 |
|
Toyota
|
|
|
16.4 |
|
|
|
15.9 |
|
|
|
14.9 |
|
|
|
13.0 |
|
|
|
11.9 |
|
Honda
|
|
|
10.6 |
|
|
|
9.4 |
|
|
|
8.8 |
|
|
|
8.4 |
|
|
|
8.1 |
|
Nissan
|
|
|
7.1 |
|
|
|
6.5 |
|
|
|
6.0 |
|
|
|
6.2 |
|
|
|
5.7 |
|
All
Other (b)
|
|
|
18.8 |
|
|
|
17.6 |
|
|
|
17.7 |
|
|
|
16.4 |
|
|
|
16.5 |
|
Total
U.S. Car and Truck Deliveries
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
__________
(a)
|
All
U.S. sales data are based on publicly available information from the media
and trade publications.
|
(b)
|
"All
Other" includes primarily companies based in Korea, other Japanese
manufacturers and various European manufacturers, and, with respect to the
U.S. Truck Market Shares table and U.S. Combined Car and Truck Market
Shares table, includes heavy truck
manufacturers.
|
Our
decline in overall market share is primarily the result of several factors,
including increased competition, an industry shift away from our traditionally
stronger segments (e.g., traditional SUVs and full-size pickups), reduced
vehicle sales to daily rental companies, and the discontinuation of a number of
our vehicle lines over the last several years.
In
addition to the Ford, Lincoln, and Mercury vehicles we sell in the U.S. market,
we also sell a significant number of Volvo vehicles. Our market share
for Volvo vehicles in the United States (which is reflected in "All Other" in
the tables above) was approximately 0.5% in 2008, down 0.1 percentage
points from 2007. This decline in market share primarily reflected
industry shift away from the premium SUV segment.
ITEM
1. Business (continued)
Fleet Sales. The
sales data and market share information provided above include both retail and
fleet sales. Fleet sales include sales to daily rental car companies,
commercial fleet customers, leasing companies, and governments. The
table below shows our fleet sales in the United States, and the amount of those
combined sales as a percentage of our total U.S. car and truck sales for the
last five years (in thousands):
|
|
Ford
Fleet Sales*
|
|
|
|
Years
Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daily
Rental Units
|
|
|
237 |
|
|
|
304 |
|
|
|
447 |
|
|
|
440 |
|
|
|
415 |
|
Commercial
and Other Units
|
|
|
217 |
|
|
|
268 |
|
|
|
277 |
|
|
|
256 |
|
|
|
243 |
|
Government
Units
|
|
|
153 |
|
|
|
158 |
|
|
|
162 |
|
|
|
141 |
|
|
|
133 |
|
Total
Fleet Units
|
|
|
607 |
|
|
|
730 |
|
|
|
886 |
|
|
|
837 |
|
|
|
791 |
|
Percent
of Total U.S. Car and Truck Sales
|
|
|
32 |
% |
|
|
30 |
% |
|
|
32 |
% |
|
|
28 |
% |
|
|
25 |
% |
__________
*
|
These
data include sales of Ford, Lincoln, and Mercury
vehicles.
|
Lower
fleet sales in 2008 primarily reflected planned reductions in sales to daily
rental car companies, combined with declines in rental, commercial and
government sectors. Although total fleet industry volume was down for
the year, we improved year-over-year market share in both the commercial and
government segments. We continue to maintain government segment
market share leadership over all brands.
Europe
Industry
Sales Data
Market Share
Information. Outside of the United States, Europe is our
largest market for the sale of cars and trucks. The automotive
industry in Europe is intensely competitive. Our principal
competitors in Europe include General Motors, Volkswagen A.G. Group, PSA Group,
Renault Group, and Fiat SpA. For the past 10 years, the top six
manufacturers have collectively held between 70% and 76% of the total
market. This competitive environment is expected to intensify further
as Japanese and Korean manufacturers increase their production capacity in
Europe, and as other manufacturers of premium brands (e.g., BMW, Mercedes-Benz,
and Audi) continue to broaden their product offerings.
For
purposes of this discussion, 2008 market data are based on estimated
registrations currently available; percentage change is measured from actual
2007 registrations. We track industry sales in Europe for the
following 19 markets: Britain, Germany, France, Italy, Spain, Austria, Belgium,
Ireland, Netherlands, Portugal, Switzerland, Finland, Sweden, Denmark, Norway,
Czech Republic, Greece, Hungary, and Poland. In 2008, vehicle
manufacturers sold approximately 16.7 million cars and trucks in these 19
markets, down 7.7% from 2007 levels. Ford's combined car and truck
market share in Europe (for our Ford and Volvo brands) in 2008 was approximately
10% (about the same as 2007).
Britain
and Germany are our highest-volume markets within Europe. Any change
in the British or German market has a significant effect on our total European
automotive profits. The global economic crisis appears to have
impacted the British market earlier than most, and we do not expect Germany to
experience as great an impact. For 2008 compared with 2007, total
industry sales were down 10.7% in Britain, and down 2.9% in
Germany. Our Ford-brand combined car and truck share in these markets
in 2008 was 16.3% in Britain (up 0.4 percentage points from the previous
year), and 7% in Germany (up 0.3 percentage points from the previous
year). Volvo market share in Europe was 1.3%, down
0.2 percentage points from 2007.
Although
not included in the 19 markets above, several additional markets in the region
contribute to our Ford Europe segment results. In 2008, Ford's share
of the Turkish market decreased by 2.1 percentage points to 14.7%, but was
still the seventh year in a row that the Ford brand led the market in sales in
Turkey. We also are experiencing strong sales in Russia, where sales
of Ford-brand vehicles increased approximately 6% to about 187,000 units in
2008. We believe that the impact of the global economic crisis began
to impact these markets during the fourth quarter of 2008, however, so that
full-year 2009 industry sales volumes are likely to decline from 2008
levels.
Motor Vehicle Distribution in
Europe. The Commission of the European Union ("Commission")
regulates the way motor vehicles are sold and repaired throughout the European
Community through its Block Exemption Regulation. Manufacturers must either
operate an "exclusive" distribution system – with exclusive dealer sales
territories combined with the possibility of sales to any reseller
(e.g., supermarket chains, internet agencies and other resellers not
authorized by the manufacturer), who in turn could sell to end customers both
within and outside of the dealer’s exclusive sales territory – or a "selective"
distribution system. These rules make it easier for a dealer to
display and sell multiple brands in one store without the need to maintain
separate facilities.
ITEM
1. Business (continued)
We, like
most other automotive manufacturers, use a "selective" distribution system,
allowing us to restrict the dealer’s ability to sell our vehicles to
unauthorized resellers. The Block Exemption Regulation also contains
rules concerning the repair industry. These rules permit a
manufacturer to require the use of its parts in warranty and recall work, but
allow repair facilities to use parts made by others that are of comparable
quality for all other repair work. We have negotiated and implemented
Dealer, Authorized Repairer and Spare Part Supply contracts on a
country-by-country level and, therefore, the Block Exemption Regulation applies
with respect to all of our dealers.
The
current Block Exemption Regulation, first adopted in 2002, has contributed and
continues to contribute to an increasingly competitive market for vehicles and
parts and ongoing price convergence. This has contributed to an
increase in marketing expenses, negatively affecting the profitability of our
Ford Europe and Volvo segments. We anticipate that this trend may
continue as dealers and parts suppliers become increasingly organized and
established. The current Block Exemption Regulation expires on
May 31, 2010.
Other Markets
Canada and
Mexico. Canada and Mexico also are important markets for
us. In Canada, industry sales of new cars and trucks in 2008 were
approximately 1.67 million units, down 1% from 2007 levels; industry sales
were better in 2008 than 2007 for the first ten months of the year, with
industry sales beginning to show signs of the impact of the global economic
slowdown in November 2008. Industry sales of new cars and trucks in
Mexico were approximately 1.07 million units in 2008, down about 6.5% from
2007; industry sales were stronger year-over-year for the first three quarters
of 2008, with a steep decline during the fourth quarter of 2008 due to the
global economic slowdown. Our combined car and truck market share
(including all of our brands sold in these markets) in 2008 was 12.6% in Canada
(down 0.7 percentage points from the previous year), and 12.1% in Mexico
(down 1.2 percentage points from the previous year).
South
America. Brazil, Argentina, and Venezuela are our principal
markets in South America. Industry sales in 2008 were approximately
2.8 million units in Brazil (up 14.5% from 2007), approximately
600,000 units in Argentina (up 7.9% from 2007), and approximately
270,000 units in Venezuela (down 44.8% from 2007). Our combined
car and truck share for Ford-brand vehicles in these markets was 10% in Brazil
(down 0.8 percentage points from 2007), 12.4% in Argentina (down
1.3 percentage points from 2007), and 15.7% in Venezuela (up 0.5 percentage
points from 2007). In Brazil and Argentina, 2008 industry sales were
strong in comparison to 2007 for the first nine months of the year; beginning in
October 2008, industry sales in both Brazil and Argentina experienced a steep
decline due to the impact of the global economic slowdown.
Asia
Pacific. Australia, China, India, South Africa, and Taiwan are
our principal markets in this region. Industry sales in 2008 were
approximately 1 million units in Australia (down 3.6% from 2007),
approximately 9.9 million units in China (up 8.5% from 2007), approximately
2 million units in India (about the same as 2007), approximately
490,000 units in South Africa (down 20.2% from 2007), and approximately
230,000 units in Taiwan (down 29.7% from 2007). Our combined car
and truck share in these markets (including sales of Ford-brand vehicles, and
market share for certain unconsolidated affiliates particularly in China) was
10.3% in Australia (about the same as 2007), 1.9% in China (down 0.2 percentage
points from 2007), 1.4% in India (down 0.5 percentage points from 2007), 6.9% in
South Africa (down 0.7 percentage points from 2007) and 5.5% in Taiwan
(down 2.1 percentage points from 2007). Our principal competition in
the Asia Pacific region has been the Japanese manufacturers. We
anticipate that the ongoing relaxation of import restrictions (including duty
reductions) will continue to intensify competition in the region.
We are in
the process of significantly increasing our presence in India with more
investment in manufacturing capacity. As announced in January 2008,
we are investing $500 million to expand our current manufacturing facility
in Chennai to begin production of a new small car and build a fully-integrated
and flexible engine manufacturing plant planned to begin production by
2010. We have also been increasing our presence in China, with
investment in manufacturing capacity, introduction of new products, and
expansion of distribution channels.
We also
have an ownership interest in Mazda, which we reduced during the fourth quarter
of 2008 from approximately 33.4% to 13.78%.
ITEM
1. Business (continued)
FINANCIAL
SERVICES SECTOR
Ford
Motor Credit Company LLC
Ford
Motor Credit Company LLC ("Ford Credit") offers a wide variety of automotive
financing products to and through automotive dealers throughout the
world. The predominant share of Ford Credit’s business consists of
financing our vehicles and supporting our dealers. Ford Credit’s
primary financing products fall into the following three
categories:
|
•
|
Retail
financing. Purchasing retail installment sale contracts
and retail lease contracts from dealers, and offering financing to
commercial customers – primarily vehicle leasing companies and fleet
purchasers – to purchase or lease vehicle
fleets;
|
|
•
|
Wholesale
financing. Making loans to dealers to finance the
purchase of vehicle inventory, also known as floorplan financing;
and
|
|
•
|
Other
financing. Making loans to dealers for working capital,
improvements to dealership facilities, and to purchase or finance
dealership real estate.
|
Ford
Credit also services the finance receivables and leases that it originates and
purchases, makes loans to our affiliates, purchases certain receivables from us
and our subsidiaries, and provides insurance services related to its financing
programs. Ford Credit’s revenues are earned primarily from payments
made under retail installment sale contracts and retail leases (including
interest supplements and other support payments it receives from us on
special-rate financing programs), and from payments made under wholesale and
other dealer loan financing programs.
Ford
Credit does business in all states in the United States and in all provinces in
Canada through automotive dealer financing branches and regional business
centers. Outside of the United States, FCE Bank plc ("FCE")
is Ford Credit’s largest operation. FCE's primary business is to
support the sale of our vehicles in Europe through our dealer
network. FCE offers a variety of retail, leasing and wholesale
finance plans in most countries in which it operates; FCE does business in the
United Kingdom, Germany, and most other European countries. Ford
Credit, through its subsidiaries, also operates in the Asia Pacific and Latin
American regions. In addition, FCE, through its Worldwide Trade
Financing division, provides financing to dealers in countries where typically
we have no established local presence.
Ford
Credit's share of retail financing for new Ford, Lincoln, and Mercury brand
vehicles sold by dealers in the United States and new Ford-brand vehicles sold
by dealers in Europe, as well as Ford Credit's share of wholesale financing for
new Ford, Lincoln and Mercury brand vehicles acquired by dealers in the United
States (excluding fleet) and of new Ford-brand vehicles acquired by dealers in
Europe, were as follows during the last three years:
United
States
|
|
Years
Ended
December
31,
|
|
Financing
share – Ford, Lincoln, and Mercury
|
|
|
|
|
|
|
|
|
|
Retail
installment and lease
|
|
|
39 |
% |
|
|
38 |
% |
|
|
44 |
% |
Wholesale
|
|
|
77 |
|
|
|
78 |
|
|
|
80 |
|
Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
share – Ford
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
installment and lease
|
|
|
28 |
% |
|
|
26 |
% |
|
|
27 |
% |
Wholesale
|
|
|
98 |
|
|
|
96 |
|
|
|
95 |
|
For a
detailed discussion of Ford Credit's receivables, credit losses, allowance for
credit losses, loss-to-receivables ratios, funding sources, and funding
strategies, see "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations." For a discussion of how Ford
Credit manages its financial market risks, see "Item 7A. Quantitative and
Qualitative Disclosures about Market Risk."
We
routinely sponsor special-rate financing programs available only through Ford
Credit. Pursuant to these programs, we make interest supplement or
other support payments to Ford Credit. These programs increase Ford
Credit's financing volume and share of financing sales of our
vehicles. See Note 1 of the Notes to the Financial Statements
and "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations" for more information about these support
payments.
ITEM
1. Business (continued)
On
November 6, 2008, we 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 Ford Credit’s then-most recent
Form 10-Q Report or Form 10-K Report), Ford Credit could 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 have been 11.5 to
1. A copy of the Support Agreement was filed as Exhibit 10 to our
Quarterly Report on Form 10-Q for the quarterly period ended September 30,
2008. No capital contributions have been made to Ford Credit pursuant
to the Support Agreement. In addition, Ford Credit has an agreement
to maintain FCE’s net worth in excess of $500 million. No
payments have been made by Ford Credit to FCE pursuant to the agreement during
the 2006 through 2008 period.
GOVERNMENTAL
STANDARDS
Many
governmental standards and regulations relating to safety, fuel economy,
emissions control, noise control, vehicle recycling, substances of concern,
vehicle damage, and theft prevention are applicable to new motor vehicles,
engines, and equipment manufactured for sale in the United States, Europe, and
elsewhere. In addition, manufacturing and other automotive assembly
facilities in the United States, Europe, and elsewhere are subject to stringent
standards regulating air emissions, water discharges, and the handling and
disposal of hazardous substances.
Mobile
Source Emissions Control
U.S. Requirements – Federal
Emissions Standards. The federal Clean Air Act imposes
stringent limits on the amount of regulated pollutants that lawfully may be
emitted by new motor vehicles and engines produced for sale in the United
States. The current ("Tier 2") emissions regulations promulgated by
the U.S. Environmental Protection Agency ("EPA") set standards for cars and
light trucks that grow increasingly more stringent through the 2009 model
year. The Tier 2 emissions standards also extend durability
requirements for emissions components to 120,000 or 150,000 miles (depending on
the specific standards to which the vehicle is certified). These
standards present compliance challenges and make it more costly and difficult to
utilize light-duty diesel technology, which in turn restricts our ability to
improve fuel economy for purposes of satisfying Corporate Average Fuel Economy
("CAFE") standards.
The EPA
also has standards and requirements for EPA-defined "heavy-duty" vehicles and
engines (those vehicles with 8,500-14,000 pounds gross vehicle
weight). These standards and requirements include stringent
evaporative hydrocarbon standards for gasoline vehicles, and stringent exhaust
emission standards for all vehicles. In order to meet the diesel
standards, manufacturers must employ after-treatment technologies, such as
diesel particulate filters, which require periodic customer
maintenance. These technologies add significant cost to the emissions
control system, and present potential issues associated with consumer
acceptance. The EPA and manufacturers are engaged in discussions over
the vehicle technologies for maintenance and emissions control and the warning
systems that will be used to alert motorists to the need for maintenance to
these systems.
U.S. Requirements – California and
Other State Emissions Standards. Pursuant to the Clean Air
Act, California may seek a waiver from the EPA to establish unique emissions
control standards; each new or modified proposal requires a new waiver of
preemption from the EPA. California has received a waiver from the
EPA to establish its own unique emissions control standards for certain
regulated pollutants. New vehicles and engines sold in California
must be certified by the California Air Resources Board
("CARB"). CARB's current low emission vehicle or "LEV II" emissions
standards treat most light-duty trucks the same as passenger cars, and require
both types of vehicles to meet stringent new emissions
requirements. Like the EPA's Tier 2 emissions standards, CARB's LEV
II vehicle emissions standards also present a difficult engineering challenge,
and impose even greater barriers to the use of light-duty diesel
technology. Rulemaking action to establish LEV III is expected to
begin in 2009, and is expected to impose increasingly stringent emissions
standards.
ITEM
1. Business (continued)
In 2004,
CARB enacted standards limiting emissions of "greenhouse" gases (e.g., carbon
dioxide) from new motor vehicles. CARB asserts that its vehicle
emissions regulations provide authority for it to adopt such
standards. Vehicle manufacturers are seeking through federal
litigation to invalidate these regulations on the grounds that greenhouse gas
standards are functionally equivalent to fuel economy standards and thus
preempted by the federal fuel economy law and/or the federal Clean Air
Act. Issues associated with greenhouse gas regulation are discussed
more fully in the "Motor Vehicle Fuel Economy" section below.
Since
1990, the California program has included requirements for manufacturers to
produce and deliver for sale zero-emission vehicles ("ZEVs"), which emit no
regulated pollutants. Typically, the only vehicles capable of meeting
these requirements are battery-powered vehicles, which have had narrow consumer
appeal due to their limited range, reduced functionality, and high
cost.
The ZEV
mandate initially required that a specified percentage of each manufacturer's
vehicles produced for sale in California be ZEVs. Over time, the
regulations were modified to reflect the fact that the development of
battery-electric technology progressed at a slower pace than anticipated by
CARB. In 2003, CARB adopted amendments to the ZEV mandate that
shifted the near-term focus of the regulation away from battery-electric
vehicles to advanced-technology vehicles (e.g., hybrid electric vehicles or
natural gas vehicles) with extremely low tailpipe emissions. The
rules also give some credit for so-called "partial zero-emission vehicles"
("PZEVs"), which can be internal combustion engine vehicles certified to very
low tailpipe emissions and zero evaporative emissions. In addition,
the rules provide a compliance path pursuant to which the auto industry would
need to produce specified numbers of zero-emission fuel cell
vehicles. In the aggregate, the rules call for production by the
industry of 250 zero-emission fuel cell vehicles by the 2008 model year, 2,500
more in the 2009-2011 model-year period, and 25,000 more in the 2012-2014
model-year period.
Although
the 2003 amendments appear to reflect a recognition by CARB that
battery-electric vehicles do not currently have the potential to achieve
widespread consumer acceptance, the rules still require manufacturers to produce
a substantial number of either battery-electric or fuel cell vehicles in the
2012 model year and beyond. There are substantial questions about the
feasibility of producing the required number of zero-emission fuel cell
vehicles, due to the substantial engineering challenges and high costs
associated with this technology. It is also doubtful whether the
market will support the number of required ZEVs. Due to the
engineering challenges, the high cost of the technology, infrastructure needs,
and other issues, it does not appear that mass production of fuel cell vehicles
will be commercially feasible for years to come.
In
accordance with CARB's ZEV regulations, a panel of independent experts undertook
a review of the feasibility of the ZEV requirements and issued its findings in
2007. The panel found that both battery-electric and fuel cell
vehicles will be in a pre-commercial stage through 2015, and that they are not
likely to be produced in large volumes in that time frame due to issues of
technology and cost. Partially in response to the panel's findings,
CARB finalized a set of revisions to its ZEV regulations in February
2009. For the 2012-2014 model years, the modifications reduce the
number of fuel cell and/or battery-electric vehicles necessary to satisfy the
regulations, but this reduction must be offset by the production of a
substantial number of plug-in hybrid vehicles or hydrogen internal combustion
vehicles instead. For the 2015 model year and beyond, CARB has
directed a complete overhaul of its ZEV, LEV, and greenhouse gas ("GHG")
regulations. Some current elements of the ZEV program (e.g.,
requirements to build low-emissions vehicles with zero evaporative emissions)
will be transferred to the LEV or GHG programs. The ZEV program will
focus exclusively on battery-electric, fuel cell, plug-in hybrid, and hydrogen
internal combustion engine technologies, and the regulations are likely to
require manufacturers to produce ever-increasing numbers of vehicles with these
technologies. Compliance with the ZEV mandate will require costly
actions that could have a substantial adverse effect on our sales volume and
profits, depending on consumer acceptance of the vehicles and the cost and
availability of ZEV components, among other things.
The Clean
Air Act permits other states that do not meet National Ambient Air Quality
Standards ("NAAQS") to adopt California's motor vehicle emissions standards no
later than two years before the affected model year. In addition to California,
fourteen states, primarily located in the Northeast and Northwest, have adopted
the California standards (including California's greenhouse gas provisions).
Twelve of these states also adopted the ZEV requirements. These fourteen states,
together with California, account for more than 30% of Ford's current light-duty
vehicle sales volume in the United States. More states are in the process of
adopting or considering adoption of the California standards. As a result of
EPA's 2006 NAAQS regulation, many new states are eligible to adopt California
emissions standards (see additional discussion in "Stationary Source Emissions
Control" below). Unfortunately, there are problems inherent in transferring
California standards to other states, including the following: 1) managing fleet
average emissions standards and ZEV
mandate requirements on a state-by-state basis presents a major challenge to
automobile company distribution systems; 2) market acceptance of some ZEVs
varies from state to state, depending on weather and other factors; and 3) the
states adopting the California program have not adopted California's clean fuel
regulations, which may impair the ability of vehicles in other states to meet
California's in-use standards.
ITEM
1. Business (continued)
U.S. Requirements – Warranty,
Recall, and On-Board Diagnostics. The Clean Air Act permits
the EPA and CARB to require manufacturers to recall and repair non-conforming
vehicles (which may be identified by testing or analysis done by the
manufacturer, the EPA or CARB), and we may voluntarily stop shipment of or
recall non-conforming vehicles. The costs of related repairs or
inspections associated with such recalls, or a stop-shipment order, could be
substantial. In December 2007, CARB finalized a new set of
regulations governing warranty reporting and field actions. The new
rules provide for mandatory remedial action (typically either recall or an
extended warranty) if warranty claims and failure rates on emissions-related
components reach specified thresholds, even if the vehicles in the field
continue to comply with all applicable emissions standards. CARB's
decision to disconnect field action decisions from the emissions performance of
the vehicles was unprecedented, and in January 2008 an aftermarket trade
association initiated litigation seeking to overturn certain aspects of the new
regulations. In March 2008, the Engine Manufacturers Association, of
which we are a member, initiated litigation challenging CARB's authority to
disconnect emissions performance from field action decisions and other related
claims. These lawsuits were subsequently merged. In
December 2008, the Superior Court of Los Angeles, California overturned
these regulations, holding that the disconnect between field action and
emissions performance was impermissible. The court also held that
extended warranties could continue to be utilized in lieu of recalls where
appropriate and mutually agreed to by CARB. CARB has until June 2009
to correct its regulations in accordance with the court decision. No
appeal has been filed.
Both CARB
and the EPA also have adopted on-board diagnostic ("OBD") regulations, which
require a vehicle to monitor its emissions control system and notify the vehicle
operator (via the "check engine" light) of any malfunction. These
regulations have become extremely complicated, and require substantial
engineering resources to create compliant systems. CARB's OBD rules
for vehicles under 14,000 pounds gross vehicle weight include a variety of
requirements that phase in between the 2006 and 2010 model
years. CARB also has adopted engine manufacturer diagnostic
requirements for heavy-duty gasoline and diesel engines that apply to the 2007
to 2009 model years, and additional OBD requirements for vehicles over 14,000
pounds gross vehicle weight in model years 2010 and beyond. The EPA's
OBD rules are generally less stringent than CARB's, so manufacturers typically
design for compliance with CARB's requirements in order to avoid designing two
systems. The complexity of the OBD requirements and the difficulties
of meeting all of the monitoring conditions and thresholds make OBD approval one
of the most challenging aspects of certifying vehicles for emissions
compliance. CARB regulations provide for automatic recalls of
vehicles that fail to comply with specified OBD requirements. In
addition, many other states have implemented OBD tests as part of their
inspection and maintenance programs. Failure of in-service compliance
tests could lead to vehicle recalls with substantial costs for related
inspections or repairs.
European
Requirements. European Union ("EU") directives and related
legislation limit the amount of regulated pollutants that may be emitted by new
motor vehicles and engines sold in the EU. Stringent new emissions
standards ("Stage IV Standards") were applied to new passenger car
certifications beginning January 1, 2005, and to new passenger car
registrations beginning January 1, 2006. The comparable
light commercial truck Stage IV Standards went into effect for new
certifications beginning January 1, 2006, and for new registrations
beginning January 1, 2007. This directive on emissions also
introduced OBD requirements, more stringent evaporative emissions requirements,
and in-service compliance testing and recall provisions for emissions-related
defects that occur in the first five years or 80,000 kilometers of vehicle
life (extended to 100,000 kilometers in 2005). Failure of
in-service compliance tests could lead to vehicle recalls with substantial costs
for related inspections or repairs. The Stage IV Standards for diesel
engines have proven technologically difficult and precluded manufacturers from
offering some products in time to be eligible for certain government incentive
programs.
The EU
commenced a program in 2004 to determine the specifics for further changes to
vehicle emission standards, and in 2007 the European Commission published a
proposed law for Stage V/VI emissions. The law would further restrict
the amount of particulate and nitrogen oxide emissions from diesel engines, and
tighten some regulations for gasoline engines. Stage V emissions
requirements will be introduced beginning in September 2009 for vehicle
registrations beginning in 2011, and Stage VI requirements will apply beginning
in September 2014. Both Stages V and VI will require the deployment
of particulate trap technology, and Stage VI will require additional
after-treatment for nitrogen oxides. These technology requirements
will add cost and further erode the fuel economy cost/benefit advantage of
diesel vehicles.
ITEM
1. Business (continued)
Particle
number measurement has been introduced for diesel vehicles beginning with
calendar year 2011, and for gasoline vehicles from Stage V. Stage V
gasoline particle number limit values and all Stage V OBD thresholds have yet to
be established by the Commission; proposed regulations are expected to be
introduced in 2010. Vehicles equipped with Selective Catalyst
Reduction systems require a driver inducement and warning system to prevent the
vehicle being operated for a significant period of time if the reductant (urea)
dosing tank is empty. The Stage V/VI emission legislation also
mandated the internet provision of all repair information (not just
emissions-related).
Other National
Requirements. Many countries, in an effort to address air
quality concerns, are adopting previous versions of European or United Nations
Economic Commission for Europe mobile source emissions
regulations. Some countries have adopted more advanced regulations
based on the most recent version of European or U.S. regulations; for example,
China has adopted the most recent European standards to be implemented in the
2008-2010 timeframe. Korea and Taiwan have adopted very stringent
U.S.-based standards for gasoline vehicles, and European-based standards for
diesel vehicles. Because fleet average requirements do not apply,
some vehicle emissions control systems may have to be redesigned to meet the
requirements in these markets. Furthermore, not all of these
countries have adopted appropriate fuel quality standards to accompany the
stringent emissions standards adopted. This could lead to compliance
problems, particularly if OBD or in-use surveillance requirements are
implemented. Japan has unique standards and test procedures, and is
considering more stringent standards for implementation in 2009. This
may require unique emissions control systems be designed for the Japanese
market. Canadian criteria emissions regulations are aligned with U.S.
federal Tier 2 requirements.
Stationary
Source Emissions Control
U.S.
Requirements. In the United States, the federal Clean Air Act
also requires the EPA to identify "hazardous air pollutants" from various
industries and promulgate rules restricting their emission. The EPA
has issued final rules for a variety of industrial categories, several of which
would further regulate emissions from our U.S. operations, including engine
testing, automobile surface coating, and iron casting. These
technology-based standards require some of our facilities to reduce their air
emissions significantly. Additional programs under the Clean Air Act,
including Compliance Assurance Monitoring and periodic monitoring, could require
our facilities to install additional emission monitoring
equipment. The cost of complying with these requirements could be
substantial.
The Clean
Air Act also requires the EPA to periodically review and update its NAAQS, and
to designate whether counties or other local areas are in compliance with the
new standards. If an area or county does not meet the new standards
("non-attainment areas"), the state must revise its implementation plans to
achieve attainment. In 2006, the EPA issued a final rule revising the
NAAQS for particulate matter increasing the stringency of the standard for fine
particulate matter (particles 2.5 micrometers in diameter or less), while
maintaining the existing standard for coarse particulate matter (particles
between 2.5 and 10 micrometers in diameter). The EPA estimates
that the new standard will put approximately 124 counties into non-attainment
status for fine particulate matter. Various parties filed
petitions for review of the final particulate matter rules in the U.S. Court of
Appeals for the District of Columbia Circuit, in most cases seeking more
stringent standards for both fine and coarse particulate matter. The
Alliance of Automobile Manufacturers (the "Alliance," an industry trade group
including BMW Group, Chrysler, Ford, General Motors, Mazda, Mitsubishi Motors,
Porsche, Toyota, and Volkswagen) intervened to oppose further changes to the
EPA's final rule. The case was argued in September 2008; no ruling
has yet been issued.
In March
2008, the EPA promulgated rules setting a new ozone NAAQS at a level more
stringent than the pre-existing standard. The EPA estimates that as a
result of the new standard, the number of counties out of attainment for the
ozone NAAQS could increase by 300%. A number of states and
environmental groups have filed suit seeking to compel EPA to issue an even more
stringent ozone standard. An industry coalition (not including the
Alliance) has intervened in support of the ozone standard as promulgated by the
EPA.
Even
under the particulate matter and ozone NAAQS as revised by the EPA, the new
non-attainment areas will need to revise their implementation plans to require
additional emissions control equipment and impose more stringent permit
requirements on facilities in those areas. The existence of
additional non-attainment areas can also lead to increased pressure for more
stringent mobile source emissions standards as well. The cost of
complying with the requirements necessary to help bring non-attainment areas
into compliance with the revised NAAQS could be substantial.
ITEM
1. Business (continued)
European
Requirements. In Europe, environmental legislation is driven
by EU law, in most cases in the form of EU directives that must be converted
into national legislation. All of our European plants are located in
the EU region, with the exception of one in St. Petersburg, Russia, and Ford
Otosan. One of the core EU directives is the Directive on Integrated
Pollution Prevention Control ("IPPC"). The IPPC regulates the permit
process for facilities, and thus the allowed emissions from these
facilities. As in the United States, engine testing, surface coating,
casting operations, and boiler houses all fall under this regime. The
Solvent Emission Directive which came into effect in October 2007 primarily
affects vehicle manufacturing plants, which must upgrade their paint shops to
meet the new requirements. The cost of complying with these
requirements could be substantial.
The
European Emission Trading Scheme requires large emitters of carbon dioxide
within the EU to monitor and annually report CO2 emissions,
and each is obliged every year to return an amount of emission allowances to the
government that is equivalent to its CO2 emissions
in that year. The impact of this regulation on Ford Europe primarily
involves our on-site combustion plants, and we expect that compliance with this
regulation may be costly as the system foresees stringent CO2 emission
reductions in progressive stages. Periodic emission reporting also is
required of EU Member States, in most cases defined in the permits of the
facility. The Release and Transfer Register requires more reporting
regarding emissions into air, water and soil than its precursor. The
information required by these reporting systems is publicly available on the
Internet.
Motor
Vehicle Safety
U.S.
Requirements. The National Traffic and Motor Vehicle Safety
Act of 1966 (the "Safety Act") regulates motor vehicles and motor vehicle
equipment in the United States in two primary ways. First, the Safety
Act prohibits the sale in the United States of any new vehicle or equipment that
does not conform to applicable motor vehicle safety standards established by the
National Highway Traffic Safety Administration ("NHTSA"). Meeting or
exceeding many safety standards is costly, in part because the standards tend to
conflict with the need to reduce vehicle weight in order to meet emissions and
fuel economy standards. Second, the Safety Act requires that defects
related to motor vehicle safety be remedied through safety recall
campaigns. A manufacturer is obligated to recall vehicles if it
determines that the vehicles do not comply with a safety
standard. Should we or NHTSA determine that either a safety defect or
a noncompliance exists with respect to any of our vehicles, the cost of such
recall campaigns could be substantial. As of
January 14, 2009, there were pending before NHTSA six investigations
relating to alleged safety defects or potential compliance issues in our
vehicles.
The Safe,
Accountable, Flexible, and Efficient Transportation Equity Act: A Legacy for
Users ("SAFETEA-LU") was signed into law in 2005. SAFETEA-LU
establishes a number of substantive, safety-related rulemaking mandates for
NHTSA which have already resulted in or are to result in new regulations and
product content requirements. Established regulations include window
sticker safety ratings ("Stars on Cars" ratings) and regulations that affect
power window switches, door retention and side-impact
protection. NHTSA has not yet established required regulations that
will affect ejection mitigation, rollover prevention, and roof
strength.
The
Transportation Recall Enhancement, Accountability, and Documentation Act (the
"TREAD Act") was signed into law in November 2000. The TREAD Act
required NHTSA to establish several regulations, including reporting
requirements for motor vehicle manufacturers on foreign recalls and certain
information received by the manufacturer that may assist the agency in the early
identification of safety defects. Various groups have challenged the
categorical determination by NHTSA that certain areas of data, including
warranty claim information, field reports, and consumer complaint information,
were granted a presumption of confidentiality under the TREAD Act early warning
reporting requirements. Since that time, the U.S. District Court for
the District of Columbia has ruled that, while NHTSA had the authority to make
these categorical determinations, it did not provide adequate public notice and
opportunity to comment in so doing. NHTSA addressed this issue in a
final rule published on October 18, 2007 that re-established class
distinctions. In September 2008, NHTSA began publishing
non-confidential TREAD data to the public.
The Cameron Gulbransen Kids
Transportation Safety Act of 2007 (Kids and Cars Safety Act) passed into law in
2008 mandates that NHTSA enact regulations related to rearward visibility and
brake-to-shift interlock, and mandates that NHTSA consider regulations related
to automatic reversal functions on power windows. The cost to comply
with these requirements may be substantial.
Foreign
Requirements. Canada, the EU, and countries in South America,
the Middle East, and Asia Pacific markets also have safety standards and
regulations applicable to motor vehicles, and are likely to adopt additional or
more stringent
requirements in the future. Recent examples of such legislation for
the EU include an increase in the scope and severity of the already existing
pedestrian protection legislation, the introduction of a requirement that all
vehicles include mandatory dedicated daytime running lamps for new vehicle types
as of 2011, and a general trend to extend the scope of passenger car regulations
from 2500 kilograms ("kg") up to 3500 kg gross vehicle
mass. Global Technical Regulations ("GTRs") developed under
the auspices of the United Nations ("UN") continue to have
increasing impact on automotive safety activities. In 2008, GTRs on
Electronic Stability Control, Head Restraints, and Pedestrian Protection were
each adopted by the UN "World Forum for the Harmonisation of Vehicle
Regulations," and are now in different stages of national
implementation. While global harmonization is fundamentally supported
by the auto industry in order to reduce complexity, national implementation yet
may introduce subtle differences into the system. South American
examples of more stringent safety requirements include more severe impact
requirements being developed in Brazil, the planned adoption of mandatory driver
and passenger frontal airbags in Argentina, Brazil and Ecuador, and the
introduction of mandatory antilock braking system in Argentina and
Brazil. Canadian safety legislation and regulations are similar to
those in the United States, and the differences that do exist generally have not
prevented the production of common product for both markets. Recent
amendments to Canadian standards have incorporated United Nations Economic
Commission for Europe standards as a compliance option, where equivalency
exists. The possibility of more stringent or different requirements
exists.
ITEM
1. Business (continued)
Motor
Vehicle Fuel Economy
Ford's
ability to comply with CAFE or greenhouse gas emissions standards depends
heavily on the alignment of those standards with actual consumer demand, as well
as adequate lead time to make the necessary product changes. Ford has
plans to increase the fuel economy of its vehicles through the deployment of
various fuel-saving technologies, some of which have been announced publicly,
and through a shift in its fleet mix toward smaller and lighter
vehicles. Even given these plans, there are limits on Ford's ability
to achieve required fuel economy increases in its vehicles in a given time
frame. These limits relate to the costs and effectiveness of the
available technologies; consumer acceptance of the new technologies and of
changes in fleet mix; the willingness of consumers to absorb the additional
costs of new technologies; the appropriateness (or lack thereof) of certain
technologies for use in particular vehicles; and the human and engineering
resources necessary to deploy new technologies across a wide range of products
and powertrains in a short time.
The
ongoing economic downturn may affect Ford's ability to absorb the costs of
deploying new fuel-efficient technologies. Another variable is
fluctuation in fuel prices. Consumers are more likely to pay for
vehicles with fuel-efficient technologies when fuel prices are relatively high,
as was the case in mid-2008; when fuel prices are relatively low as they were
toward the end of 2008, the extent of consumer demand for such technologies is
less clear. If consumers demand vehicles that are relatively large,
have high performance, and/or are feature-laden, while regulatory standards
require the production of vehicles that are smaller and more economical, the
mismatch of supply and demand would have an adverse effect on both regulatory
compliance and our profitability. Moreover, if regulatory
requirements call for rapid, substantial increases in fleet average fuel economy
(or decreases in fleet average greenhouse gas emissions), we may not have
adequate resources and time to make major product changes across most or all of
our vehicle fleet (assuming the necessary technology can be
developed).
U.S. Requirements – Federal
Standards. Federal law requires that vehicles meet minimum
corporate average fuel economy standards set by NHTSA. A manufacturer
is subject to potentially substantial civil penalties if it fails to meet the
CAFE standard in any model year, after taking into account all available credits
for the preceding three model years and expected credits for the three
succeeding model years.
Federal
law established a passenger car CAFE standard of 27.5 miles per gallon for 1985
and later model years; light truck standards are set by NHTSA under a rulemaking
process. In 2006, NHTSA issued a final rule changing the structure of
the light-truck fuel economy standards for model year 2008 and
beyond. The final rule employs a new "reformed" approach to fuel
economy standards in which each manufacturer's CAFE obligation is based on the
specific mix of vehicles it sells. A manufacturer's light truck CAFE
is now calculated on a basis that relates fuel economy targets to vehicle
size. These fuel economy targets become increasingly stringent with
each new model year. Through 2010, manufacturers have the option of
complying with the "reformed" program or an alternative set of "unreformed"
standards promulgated by NHTSA. Beginning with the 2011 model year,
all manufacturers must comply under the reformed program. Also in
model year 2011 and beyond, the truck CAFE standards will apply for the first
time to certain classes of heavier passenger vehicles (SUVs and passenger vans
with a gross vehicle weight between 8,500 and 10,000 pounds, or with a gross
vehicle weight below 8,500 pounds and a curb weight above 6,000
pounds).
ITEM
1. Business (continued)
In
December 2007, Congress enacted new energy legislation restructuring the CAFE
program and requiring NHTSA to set new CAFE standards beginning with the 2011
model year. The key features of the bill are as
follows: 1) it maintains the current distinction between cars and
trucks; 2) it requires NHTSA to set "reformed" CAFE standards for cars along the
lines of the reformed truck standards described above; 3) it calls for NHTSA to
set car and truck standards such that the combined fleet of cars and trucks in
the United States achieves a 35 mile per gallon fleet average by model year
2020; 4) it allows manufacturers to trade credits among their CAFE fleets;
and 5) it retains CAFE credits for the manufacture of flexible-fuel vehicles,
but phases them out by model year 2020. Domestic passenger cars also
are subject to a minimum fleet average of the greater of 27.5 miles per gallon
or 92% of NHTSA's projected fleet average fuel economy for domestic and imported
passenger cars for that model year.
In April
2008, NHTSA issued a proposed rule setting forth CAFE standards for cars and
light trucks for the 2011-2015 model years. The proposed standards
were based on the "reformed" approach to CAFE as required by
Congress. The proposal entailed a significantly more rapid rate of
increase in fuel economy than past NHTSA rulemakings on CAFE. The
proposed rule also contained new provisions on credit trading, intra-company
credit transfers between fleets, and incentives for the production of flexible
fuel vehicles, among other things. The proposed rule went through a
notice-and-comment process, and NHTSA was expected to issue a final rule at the
end of 2008. However, the Bush Administration ultimately decided not
to issue a final rule and to let the incoming Obama Administration complete the
rulemaking process.
Pressure
to increase CAFE standards stems in part from concerns about the impact of
carbon dioxide and other GHG emissions on the global climate. In
1999, a petition was filed with the EPA requesting that it regulate carbon
dioxide emissions from motor vehicles under the Clean Air Act. This
is functionally equivalent to imposing fuel economy standards, since the amount
of carbon dioxide emitted by a vehicle is directly proportional to the amount of
fuel consumed. The petitioners later filed suit in an effort to
compel a formal response from the EPA. In August 2003, the EPA denied
the petition on the grounds that the Clean Air Act does not authorize the EPA to
regulate greenhouse gas emissions, and only NHTSA is authorized to regulate fuel
economy under the CAFE law. A number of states, cities, and
environmental groups filed for review of the EPA's decision in the U.S. Court of
Appeals for the District of Columbia Circuit. A coalition of states
and industry trade groups, including the Alliance, intervened in support of the
EPA's decision. In July 2005, the Court held that the EPA had
exercised reasonable discretion in determining not to regulate carbon dioxide as
a pollutant.
The
matter was appealed, and in April 2007 the U.S. Supreme Court ruled that GHGs
constitute "air pollutants" subject to regulation pursuant to the Clean Air
Act. The ruling did not specifically require the EPA to regulate
greenhouse gases; rather, it directed the EPA to either issue an "endangerment"
finding pursuant to the Clean Air Act (that greenhouse gases endanger public
health or welfare), or explain why it could not or would not do
so. In the wake of this ruling, the Bush Administration announced its
intention to promulgate new federal rules regulating greenhouse gas emissions
from motor vehicles. President Bush signed an Executive Order
directing the Department of Transportation, the Department of Energy, and the
EPA to cooperate in this effort.
In July
2008, the EPA released an Advance Notice of Proposed Rulemaking ("ANPR") related
to the potential regulation of GHGs under the Clean Air Act. The ANPR
sought public comment on the appropriateness of a finding by EPA that GHGs
"endanger" public health and welfare, and on the ramifications of such a
finding. The ANPR included a lengthy discussion of potential
regulatory programs under the Clean Air Act that EPA might implement to reduce
GHG emissions from both mobile and stationary sources. With
respect to mobile sources, EPA sought comment on the possibility of setting
long-term, fleet-average CO2 standards
for motor vehicles, which would be the functional equivalent of establishing
fuel economy standards. Depending on the level of stringency, motor
vehicle GHG standards could effectively supplant any CAFE standards set by
NHTSA. The ANPR also discussed the possibility of establishing a
cap-and-trade system to reduce mobile source GHG emissions. The ANPR
addressed potential stationary source regulations as well. A wide
range of groups have filed comments on the ANPR; the task of reviewing the
comments and determining what action to take has been left to the Obama
Administration. At the time the ANPR was released, the Bush
Administration made it clear that the regulatory proposals outlined in the ANPR
did not represent Administration policy, primarily because of the burdensome
nature of the proposals and their potential adverse effect on the U.S.
economy.
U.S. Requirements – California and
Other State Standards. In July 2002, California enacted
Assembly Bill 1493 ("AB 1493"), a law mandating that CARB promulgate GHG
standards for light-duty vehicles beginning with model year 2009. In
September 2004, CARB adopted California GHG emissions regulations applicable to
2009-2016 model-year cars and trucks, effectively imposing more stringent fuel
economy standards than those set by NHTSA. These
regulations impose
standards that are equivalent to a CAFE standard of more than 43 miles per
gallon for passenger cars and small trucks, and approximately 27 miles per
gallon for large light trucks and medium-duty passenger vehicles by model year
2016. The Alliance and individual companies (including Ford)
submitted comments opposing the rules and addressing errors in CARB's underlying
economic and technical analyses.
ITEM
1. Business (continued)
Whenever
California adopts new or modified vehicle emissions standards, the state must
apply to the EPA for a waiver of preemption of the new or modified standards
under Section 209 of the Clean Air Act. Since the AB 1493 rules were
adopted by California as "emissions" rules under the Clean Air Act, they require
this waiver of federal preemption. In March 2008, EPA published a
decision formally denying California's request for a waiver of
preemption. California has challenged that decision 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. In January
2009, California submitted a petition for reconsideration of the March 2008
waiver denial, and President Obama issued a memorandum directing the EPA to
revisit the waiver decision. The EPA has initiated a new
notice-and-comment process as part of its reconsideration of the
waiver. It is also likely that the federal government will seek a
stay of the ongoing D.C. Circuit litigation over the March 2008 waiver denial
while it reconsiders the waiver request.
In
addition to the question of Clean Air Act preemption, which is being addressed
through the EPA's waiver decision and the ensuing litigation, there is also the
question of preemption of the AB 1493 standards by the federal CAFE
law. CAFE prohibits states from enacting or enforcing regulations
"related to" fuel economy when federal standards are in effect. In
December 2004, the Alliance and other plaintiffs (several automobile dealers,
two individual automobile manufacturers, and another automotive trade
association) filed suit in federal district court in California, seeking to
overturn the AB 1493 standards. The suit challenges the regulation on
several bases, including preemption under the federal CAFE law. In
2008, the U.S. District Court for the Eastern District of California issued a
final judgment holding that: i) California is enjoined from enforcing
AB 1493 regulations in the absence of an EPA waiver; and ii) the federal CAFE
law does not preempt California from regulating motor vehicle
GHGs. Plaintiffs appealed the second ruling to the U.S. Court of
Appeals for the Ninth Circuit, and briefing on the appeal is
underway.
Other
states have adopted, or are in the process of adopting, CARB's GHG
standards. These states include New York, Massachusetts, Maine,
Vermont, Rhode Island, Connecticut, New Jersey, Pennsylvania, Oregon,
Washington, Maryland, New Mexico, Florida, and Arizona. Several other
states are known to be considering the adoption of such rules.
The
Alliance, along with other plaintiffs, filed suit in federal court in Vermont
and Rhode Island challenging those states' adoption of California's AB 1493
rules. The Vermont case went to trial in April 2007. In
September 2007, the U.S. District Court for the District of Vermont upheld
Vermont's GHG rules, finding that they were not preempted by federal fuel
economy law. Specifically, the court held that the state GHG rules
were insulated from a preemption challenge because they were subject to a waiver
process under the federal Clean Air Act. The court also held that,
even if questions of federal preemption were applicable, the GHG rules should be
upheld because some portions of the regulations give credit for vehicle
modifications that do not relate specifically to improving fleet average fuel
economy. The Alliance is appealing the District Court's decision to
the U.S. Court of Appeals for the Second Circuit; briefing has been completed
and we are awaiting oral argument. In the Rhode Island case, the
District Court recently issued a ruling dismissing the claims of the automobile
trade association and automobile manufacturer plaintiffs on collateral estoppel
grounds; the dealer plaintiffs remain in the case. The trade
associations and manufacturers are seeking an immediate appeal of the collateral
estoppel ruling to the U.S. Court of Appeals for the First Circuit.
In
September 2006, California also enacted the Global Warming Solutions Act of 2006
(also known as Assembly Bill 32 ("AB 32")). This law mandates that
statewide GHG emissions be capped at 1990 levels by the year 2020, which would
represent a significant reduction from current levels. It also
requires the monitoring and annual reporting of GHG emissions by all
"significant" sources,
and delegates authority to CARB to develop and implement GHG emissions reduction
measures. AB 32 also provides that, if the AB 1493 standards do not
take effect, CARB must implement alternative regulations to control mobile
sources of GHG emissions to achieve equivalent or greater reductions than
mandated by AB 1493. Although the full ramifications of AB 32 are not
known, CARB has initiated a rulemaking process under AB 32 to develop so-called
"Cool Car Standards." The program is intended to set minimum
standards for reflectivity of automotive paints and glass. The goal
is to promote lower interior temperatures in vehicles, thereby reducing the air
conditioning load and leading to fewer GHG emissions. The automobile
industry has concerns about the availability
of paints and coatings to meet the reflectivity standards, along with the safety
implications of the standards. CARB is expected to issue a final rule
by the spring of 2009.
ITEM
1. Business (continued)
The
recent developments with respect to anticipated new CAFE standards, potential
EPA GHG standards for motor vehicles, and state-level attempts to impose GHG
standards on automobiles pose very significant concerns for us. These
regulatory initiatives have the potential to impose three different competing
and conflicting regimes of fuel economy standards. Compliance with
all three, or even two, of these regimes would at best add enormous complexity
to our planning processes, and at worst be virtually impossible. The
CAFE standards proposed by NHTSA in 2008 represented a significant challenge in
and of themselves, but if NHTSA builds upon its history of setting tough but
reasonable CAFE standards based on a consideration of technological feasibility
and economic practicability, we believe it is likely that the new
federal CAFE standards can be workable, albeit costly, within our business
limitations. It is highly questionable whether we could accommodate
an additional layer of GHG regulations imposed by EPA under the Clean Air Act,
which has a much more onerous certification and enforcement regime than the CAFE
law. Finally, California's AB 1493 rules seek to impose stringent,
state-specific requirements that are not workable within our current business
limitations.
If any of
one these regulatory regimes, or a combination of them, impose and enforce
extreme fuel economy or GHG standards, we likely would be forced to take various
actions that could have substantial adverse effects on our sales volume and
profits. Such actions likely would include restricting offerings of
selected engines and popular options; increasing market support programs for our
most fuel-efficient cars and light trucks in order to maintain compliance; and
ultimately curtailing the production and sale of certain vehicles such as
family-size, luxury, and high-performance cars, SUVs and "crossover" vehicles,
and full-size light trucks, in order to maintain compliance. These
actions might need to occur on a state-by-state basis, in response to the AB
1493 rules, or they may need to be taken at the national level if either the
CAFE standards or the EPA GHG standards are excessively stringent. We
believe it is critical that policymakers work toward a single, nationwide set of
fuel economy/GHG standards that achieve desired levels of fuel economy
improvement and GHG reductions in a workable fashion.
See "Item
3. Legal Proceedings" for a discussion of the public nuisance litigation filed
by the state of California against automobile manufacturers for alleged global
warming damages. Though that suit has been dismissed by the trial
court, California's Attorney General has filed an appeal. If
California were to prevail in this litigation, it could encourage similar suits
in other states and municipalities. A judgment against defendants
also could result in the imposition of judicially-mandated standards for GHG
emissions that could arguably supersede or augment existing fuel economy
requirements; such a result could compel us to implement product restrictions
and/or other costly actions as outlined above.
European
Requirements. The EU is a party to the Kyoto Protocol to the
United Nations Framework Convention on Climate Change, and has agreed to reduce
greenhouse gas emissions by eight percent below 1990 levels during the 2008-2012
period. In 1998, the EU agreed to support an environmental agreement
with the European Automobile Manufacturers' Association ("ACEA," of which
Ford is a member) on carbon dioxide emission reductions from new passenger cars
(the "ACEA Agreement"). The ACEA Agreement established an emissions
target of 140 grams of carbon dioxide per kilometer ("g/km") for the average of
new cars sold in the EU by the ACEA's members in 2008. It is presumed
that the industry has not achieved the 140 g/km target due to a number of
factors, including consumer demand and the challenges associated with
implementing various fuel-saving technologies.
In
December 2008, the EU approved a regulation of passenger car carbon dioxide
beginning in 2012 which limits the industry fleet average to a maximum of 130
g/km, using a sliding scale based on vehicle weight. This regulation
provides different targets for each manufacturer based on its respective fleet
of vehicles according to vehicle weight and carbon dioxide
output. Limited credits are available for CO2 off-cycle
actions ("eco-innovations"), certain alternative fuels, and vehicles with
CO2
emissions below 50 g/km. For manufacturers failing to meet targets, a
penalty system will apply with fees ranging from €3 to €95 per each g/km
shortfall in the years 2012-18, and €95 for each g/km shortfall for
2019. Manufacturers would be permitted to use a pooling agreement
between wholly-owned brands to share the burden. Further pooling
agreements between different manufacturers are also possible, although it is not
clear that they will be of much practical benefit under the
regulations. For 2020, an industry target of 95 g/km has been
set. This target will be further detailed in a review in
2013.
In
separate legislation, so-called "complementary measures" are
expected. These may include, for example, tire-related requirements,
and requirements related to gearshift indicators, fuel economy indicators, and
more efficient low-CO2 mobile air
conditioning systems. These proposals are likely to be finalized in
2009-10. The European Commission has
indicated that possible targets for commercial light duty vehicles may be around
160 g/km to 175 g/km, with specific legislative proposals expected this
year.
ITEM
1. Business (continued)
Some
European countries have implemented or are still considering other initiatives
for reducing carbon dioxide emissions from motor vehicles, including fiscal
measures. For example, the United Kingdom introduced a vehicle excise
duty and company car taxation based on carbon dioxide emissions in 2001, and
other member states such as France, Portugal and Germany have adopted or
announced their intention to adopt carbon dioxide-based taxes for passenger
cars. The EU CO2
requirements are likely to trigger further measures.
Other National
Requirements. Some Asian countries (such as China, Japan,
South Korea, and Taiwan) also have adopted fuel efficiency
targets. For example, Japan has fuel efficiency targets for 2015
which are even more stringent than the 2010 targets, with incentives for early
adoption. China implemented second-stage fuel economy targets from
2008, and is working on the third stage for 2012 phase-in. All of
these fuel efficiency targets will impact the cost of technology of our models
in the future.
Following
considerable discussion, the Canadian automobile industry signed a Memorandum of
Understanding ("MOU") dated April 5, 2005 with the Canadian government in which
the industry voluntarily committed to reduce the growth in greenhouse gas
emissions from the Canadian vehicle fleet by 5.3 megatons ("Mt") by 2010 (which
slightly exceeds the government's 5.2 Mt target under its Kyoto Protocol Climate
Change Action Plan). The Canadian federal government has issued the
Motor Vehicle Fuel Consumption Standards Act, which calls for new fuel economy
standards beginning with the 2011 model year. The standards are
likely to track the new CAFE standards in the United States, although it is
possible that Canada may consider increasing the stringency of the standards
based on the fleet mix in Canada. Several provinces, including
British Columbia, Quebec, Manitoba, and Prince Edward Island, have publicly
announced their intention to impose greenhouse gas standards at the provincial
level, likely modeled after California's AB 1493 standards. Such
regulations are likely to go into effect if California receives a waiver of
preemption in the United States.
Chemical
Regulation
U.S.
Requirements. Several states are considering moving beyond a
substance-by-substance approach to managing substances of concern, and are
moving towards adopting green chemistry legislation that give state governments
broad regulatory authority to determine, prioritize, and manage toxic
substances. In 2008, California became the first state to enact a
broad Green Chemistry Program, which will commence regulations in
2011. This new law may impose new vehicle end-of-life
responsibilities on vehicle manufacturers, and restrict, ban, or require
labeling of certain substances. This broad authority to regulate
substances could require changes in product chemistry, and greater complication
of fleet mix.
European
Requirements. The European Commission has implemented its
regulatory framework for a single system to register, evaluate, and authorize
the use of chemicals with a production volume above one ton per year
("REACH"). The rules took effect on June 1, 2007, with a
preparatory period through June 1, 2008 followed by a six-month
pre-registration phase. Compliance with the legislation is likely to
be administratively burdensome for all entities in the supply chain, and
research and development resources may be redirected from "market-driven" to
"REACH-driven" activities. We and our suppliers have pre-registered
those chemicals that were identified to fall within this
requirement. The regulation also will accelerate restriction or
banning of certain chemicals and materials, which could increase the costs of
certain products and processes used to manufacture vehicles and
parts. We are implementing and ensuring compliance within Ford and
our suppliers through a common strategy together with the global automotive
industry.
Pollution
Control Costs
During
the period 2009 through 2013, we expect to spend approximately $237 million
on our North American and European facilities to comply with stationary source
air and water pollution and hazardous waste control standards which are now in
effect or are scheduled to come into effect during this period. Of
this total, we currently estimate spending approximately $44 million in
2009 and $48 million in 2010. These amounts exclude projections
for Jaguar Land Rover operations, which were sold as of June 2,
2008. Specific environmental expenses are difficult to isolate
because expenditures may be made for more than one purpose, making precise
classification difficult.
ITEM
1. Business (continued)
EMPLOYMENT DATA
The
approximate number of individuals employed by us and our consolidated entities
(including entities we do not control) at December 31, 2008 and 2007
was as follows (in thousands):
|
|
|
|
|
|
|
Automotive
|
|
|
|
|
|
|
Ford
North America
|
|
|
79 |
|
|
|
94 |
|
Ford
South America
|
|
|
15 |
|
|
|
14 |
|
Ford
Europe
|
|
|
70 |
|
|
|
68 |
|
Volvo
|
|
|
24 |
|
|
|
26 |
|
Ford
Asia Pacific Africa
|
|
|
15 |
|
|
|
17 |
|
Jaguar
Land Rover*
|
|
|
– |
|
|
|
16 |
|
Financial
Services
|
|
|
|
|
|
|
|
|
Ford
Credit
|
|
|
10 |
|
|
|
11 |
|
Total
|
|
|
213 |
|
|
|
246 |
|
__________
*
|
As
reported in our Quarterly Report on Form 10-Q for the period ended June
30, 2008, we completed the sale of Jaguar Land Rover operations on June 2,
2008.
|
The
year-over-year decrease in employment levels primarily reflects the sale of
Jaguar Land Rover operations during 2008, as well as our implementation of
personnel-reduction programs in Ford North America.
Substantially
all of the hourly employees in our Automotive operations are represented by
unions and covered by collective bargaining agreements. In the United
States, approximately 99% of these unionized hourly employees in our Automotive
sector are represented by the International Union, United Automobile, Aerospace
and Agricultural Implement Workers of America ("UAW" or "United Auto
Workers"). Approximately two percent of our U.S. salaried employees are
represented by unions. Most hourly employees and many non-management
salaried employees of our subsidiaries outside of the United States also are
represented by unions.
We have
entered into collective bargaining agreements with the UAW, and the National
Automobile, Aerospace, Transportation and General Workers Union of Canada
("CAW"). Among other things, our agreements with the UAW and CAW
provide for guaranteed wage and benefit levels throughout the term of the
respective agreements, and provide for significant employment security, subject
to certain conditions. As a practical matter, these agreements may
restrict our ability to close plants and divest businesses during the terms of
the agreements. Our agreements with the UAW and CAW expire on
September 14, 2011.
In 2008,
we negotiated new Ford collective bargaining agreements with labor unions in
Argentina, Brazil, France, Mexico, New Zealand, Romania, Russia, Taiwan, and
Thailand. We also negotiated a collective bargaining agreement at our
Volvo (U.S.) affiliate. Britain and Germany began negotiations
in the fourth quarter of 2008 which are expected to be completed in
2009.
Additionally,
in 2009 we are or will be negotiating new collective bargaining agreements with
labor unions in Australia, Belgium, Brazil, France, Mexico, New Zealand, Russia,
Spain, Taiwan and Thailand.
ITEM
1. Business (continued)
ENGINEERING,
RESEARCH AND DEVELOPMENT
We engage
in engineering, research and development primarily to improve the performance
(including fuel efficiency), safety, and customer satisfaction of our products,
and to develop new products. We also have staffs of scientists who
engage in basic research. We maintain extensive engineering, research
and design centers for these purposes, including large centers in Dearborn,
Michigan; Dunton, England; Gothenburg, Sweden; and Aachen and Merkenich,
Germany. Most of our engineering, research and development relates to
our Automotive sector. In general, our engineering activities that do
not involve basic research or product development, such as manufacturing
engineering, are excluded from our engineering, research and development charges
discussed below.
During
the last three years, we recorded charges to our consolidated income for
engineering, research and development we sponsored in the following
amounts: $7.3 billion (2008), $7.5 billion (2007), and
$7.2 billion (2006). Any customer-sponsored research and
development activities that we conduct are not material.
ITEM
1A. Risk
Factors
We have
listed below (not necessarily in order of importance or probability of
occurrence) the most significant risk factors applicable to us:
Continued or
worsening financial crisis. The global economy is currently
facing a financial crisis and severe recession, which has led to significant
pressure on Ford and the automotive industry generally. As previously disclosed
in our business plan submission to Congress in December 2008 (filed as an
exhibit to our Current Report on Form 8-K dated December 1, 2008), in
this environment a number of scenarios could put severe pressure on our short-
and long-term Automotive liquidity, including most importantly: (i) a
significant industry event (such as the uncontrolled bankruptcy of a major
competitor or major suppliers) that causes a major disruption to our supply base
or dealers, or (ii) economic decline greater than presently forecast that causes
industry sales volume to decline to levels significantly below our current
planning assumptions (i.e., for 2009, 10.5 million to 12.5 million
units in the United States, and 12.5 million to 13.5 million units for
the 19 markets we track in Europe (each including heavy and medium
trucks)).
In such
an event, or in response to other unanticipated circumstances, we could require
additional financing. Because the global capital and credit markets
have been severely constrained, we may not be able to obtain such financing
other than through government assistance. Although the U.S.
Department of Treasury has outlined an Automotive Industry Financing Program
designed to prevent significant disruption of the American auto industry, we may
be deemed ineligible for funding under that program or any other government
funding program and, even if we did meet eligibility requirements, funding
availability may be exhausted by then. Even if we are able to obtain
such financing, the government likely would impose significant restrictions on
us that could adversely affect our ability to operate efficiently or
effectively. Inability to obtain additional financing in these
circumstances would have a material adverse effect on our financial condition
and results of operations.
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. The 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 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations – Liquidity and Capital Resources") may not be successful
in the near term. Moreover, it is possible that the disruption could
continue beyond the conclusion of the government-sponsored
programs. The government has announced additional programs, including
the Federal Reserve’s Term Asset-Backed Securities Loan Facility, but these
facilities have not yet become operational, and may not provide sufficient
assistance to fully reopen the securitization markets. Due to
the present global credit crisis and Ford Credit's limited access to
public and private securitization markets, we expect the majority of Ford
Credit's funding in 2009 will consist of eligible issuances pursuant to
government-sponsored programs. If these
programs are not available or workable and the disruption in the debt and
securitization markets continues, this 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. To the
extent Ford Credit's ability to provide wholesale financing to our dealers or
retail financing to those dealers' customers is limited, Ford's ability to sell
vehicles would be adversely affected.
ITEM
1A. Risk Factors (continued)
Further declines
in industry sales volume, particularly in the United States or Europe, due to
financial crisis, deepening recession, geo-political events, or other
factors. The global automotive industry is estimated to have
shrunk to 68 million units in 2008, a year-over-year decline of about 3.5
million units. In particular, industry sales volume in the United
States and in the 19 European markets that we track declined suddenly and
substantially in 2008 and continued at historically low levels into
2009. For full-year 2008, industry demand for cars and trucks in the
United States fell to 13.5 million units, compared with 16.5 million units
in 2007, and in the 19 European markets we track fell to 16.6 million
units, compared with 18.1 million units in 2007. These declines
occurred primarily in the second half of 2008, with a seasonally adjusted annual
selling rate in the fourth quarter of 2008 of 10.7 million units and
14.8 million units in the United States and Europe,
respectively. The decline in sales volume in the United States during
2008 was the biggest year-over-year decline since the 1980
recession. These sudden and substantial declines in sales volumes
have contributed to unprecedented Automotive gross cash outflow ($21.2 billion)
and total Company net loss ($14.7 billion) in 2008.
As discussed under the captions
"Overview" and "Outlook" in "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations," we forecast year-over-year
industry sales volume declines in many markets around the world during 2009 as a
result of the ongoing global economic recession. Because we, like
other manufacturers, have a high proportion of fixed costs, relatively small
changes in industry sales volume can have a substantial effect on our cash flow
and overall profitability. If industry vehicle sales were to decline
significantly from our current assumptions, particularly in the United States
and Europe, our financial condition and results of operations would be
substantially adversely affected. For additional discussion of
economic trends, see "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations – Overview."
Decline in market
share. Our overall market share in the United States has
declined in recent years, from 18% in 2004 to 14.2% in 2008. Market
share declines and resulting volume reductions in any of our major markets could
have an adverse impact on our financial condition and results of
operations. Although we are attempting to stabilize our market share
and reduce our capacity over time through the restructuring actions described in
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations – Overview," we cannot be certain that we will be
successful. Additional decline in market share could have a
substantial adverse effect on our financial condition and results of
operations.
Continued or
increased price competition resulting from industry overcapacity, currency
fluctuations, or other factors. The global automotive industry
is intensely competitive, with manufacturing capacity far exceeding current
demand. According to CSM Worldwide's January 2009 report, the global
automotive industry is estimated to have had excess capacity of 24 million
units in 2008. Industry overcapacity has resulted in many
manufacturers offering marketing incentives on vehicles in an attempt to
maintain and grow market share. These marketing incentives have
included a combination of subsidized financing or leasing programs, price
rebates, and other incentives. As a result, we are not necessarily
able to set our prices to offset higher costs of marketing incentives or other
cost increases or the impact of adverse currency fluctuations in either the U.S.
or European markets. While we, General Motors and Chrysler each have
announced plans to reduce capacity significantly, successful reductions will
require the cooperation of organized labor, will take several years to complete,
and only partially address the industry's overcapacity problems, particularly as
industry sales volume decreased dramatically in the final months of
2008. A continuation or increase in these trends likely would have a
substantial adverse effect on our financial condition and results of
operations.
A further
increase in or acceleration of market shift away from sales of trucks, SUVs, or
other more profitable vehicles, particularly in the United
States. Trucks and SUVs historically have represented some of
our most profitable vehicle segments, and the segments in which we have had our
highest market share. In recent years, the general shift in consumer
preferences away from medium- and large-sized SUVs and trucks has adversely
affected our overall market share and profitability. A continuation
or acceleration of this general shift in consumer preferences away from SUVs and
trucks, or a similar shift in consumer preferences away from other more
profitable vehicle sales, whether because of fuel prices, declines in the
construction industry, governmental actions or incentives, or other reasons,
could have a substantial adverse effect on our financial condition and results
of operations.
A return to
elevated gasoline prices, as well as the potential for volatile prices or
reduced availability. A return to elevated gas prices, as well
as the potential for volatility in gas prices or reduced availability of fuel,
particularly in the United States, could result in further weakening of demand
for relatively more profitable large and luxury car and truck models, and could
increase demand for relatively less profitable small cars and
trucks. Continuation or acceleration of such a trend could have a
substantial adverse effect on our financial condition and results of
operations.
ITEM
1A. Risk Factors (continued)
Lower-than-anticipated
market acceptance of new or existing products. Although we
conduct extensive market research before launching new or refreshed vehicles,
many factors both within and outside of our control affect the success of new or
existing products in the marketplace. Offering highly desirable
vehicles can mitigate the risks of increasing price competition and declining
demand, but vehicles that are perceived to be less desirable (whether in terms
of price, quality, styling, safety, overall value, fuel efficiency, or other
attributes) can exacerbate these risks. For example, if a new model
were to experience quality issues at the time of launch, the vehicle's perceived
quality could be affected even after the issues had been corrected, resulting in
lower sales volumes, market share, and profitability.
Fluctuations in
foreign currency exchange rates, commodity prices, and interest
rates. As a resource-intensive manufacturing operation, we are
exposed to a variety of market and asset risks, including the effects of changes
in foreign currency exchange rates, commodity prices, and interest
rates. These risks affect our Automotive and Financial Services
sectors. We monitor and manage these exposures as an integral part of
our overall risk management program, which recognizes the unpredictability of
markets and seeks to reduce the potentially adverse effects on our
business. Nevertheless, changes in currency exchange rates, commodity
prices, and interest rates cannot always be predicted or hedged. In
addition, because of intense price competition and our high level of fixed
costs, we may not be able to address such changes even if they are
foreseeable. Further, the global credit crisis and deterioration of
our credit ratings have significantly reduced our ability to obtain derivatives
to manage risks. As a result, substantial unfavorable changes in
foreign currency exchange rates, commodity prices or interest rates could have a
substantial adverse effect on our financial condition and results of
operations. For additional discussion of
currency, commodity price and interest rate risks, see "Item 7A.
Quantitative and Qualitative Disclosures about Market Risk."
Adverse effects
from the bankruptcy, insolvency, or government-funded restructuring of, change
in ownership or control of, or alliances entered into by a major
competitor. We and certain of our competitors have substantial
"legacy" costs (principally related to employee benefits), as well as a
substantial amount of debt, that put each of us at a competitive disadvantage to
other competitors manufacturing in the United States. The bankruptcy,
insolvency, or government-funded restructuring of such a competitor could result
in that competitor gaining a significant cost or pricing advantage (by
eliminating or reducing contractual obligations to unions or other parties),
thereby leaving us at a competitive disadvantage, which could have a substantial
adverse effect on our financial condition and results of
operations. Similarly, we could be adversely affected if one of our
competitors were acquired by, or entered into an alliance with, a stronger
competitor.
In
particular, two of our competitors with substantial legacy costs and debt,
General Motors and Chrysler, currently are engaged in discussions concerning
U.S. government-funded restructurings that, if successful, would reduce their
legacy costs, align their employee benefit costs with those of other
competitors, and substantially reduce their debt. For example, the
government proposal for restructuring would require that a significant portion
of our competitors’ debt and post-retirement benefit obligations be converted
into equity. While we do not anticipate entering into a
government-funded restructuring, we are pursuing similar restructuring
actions to remain competitive. We cannot guarantee that we will be
successful in achieving these actions and, even if we were successful, the
results could be dilutive to our shareholders.
Restriction on
Use of Tax Attributes from Tax Law "Ownership Change." Section
382 of the U.S. Internal Revenue Code restricts the ability of a corporation
that undergoes an ownership change to use its tax attributes, such as net
operating losses and tax credits. An ownership change occurs if 5%
shareholders of an issuer's outstanding common stock, collectively, increase
their ownership percentage by more than fifty percentage points within any
three-year period. As discussed above, we are pursuing further
restructuring actions to remain competitive with General Motors and Chrysler,
which are undergoing U.S. government-funded restructurings that, if successful,
would reduce their legacy costs, align their employee benefit costs with those
of other competitors, and substantially reduce their debt. New shares
of stock that we issue in connection with any restructuring actions we might
take, could contribute to such an ownership change under U.S. tax
law. Moreover, not every event that could contribute to such an
ownership change is within our control. If a tax law ownership change
were to occur, we would be at risk of having to pay cash taxes notwithstanding
the existence of sizeable tax attributes. For discussion of our
financial statement treatment of deferred tax assets, including deferred tax
assets related to these tax attributes, see "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations –
Critical Accounting Estimates" and Note 19 of the Notes to the Financial
Statements.
ITEM
1A. Risk Factors (continued)
Economic distress
of suppliers that may require us to
provide substantial financial support or take other measures to ensure supplies
of components or materials and could
increase our costs, affect our liquidity, or cause production
disruptions. Our
industry is highly interdependent, with broad overlap of supplier and dealer
networks among manufacturers, such that the uncontrolled bankruptcy or
insolvency of a major competitor or major suppliers could threaten our supplier
or dealer network and thus pose a threat to us as well.
Even in
the absence of such an event, our supply base has experienced increased economic
distress due to the sudden and substantial drop in industry sales volumes
affecting all manufacturers. Dramatically lower industry sales volume
has made existing debt obligations and fixed cost levels difficult for many
suppliers to manage, especially with the tight credit markets.
These
factors have increased pressure on the supply base, and, as a result, suppliers
not only have been less willing to reduce prices, but some have requested direct
or indirect price increases, as well as new and shorter payment
terms. Suppliers also are exiting certain lines of business or
closing facilities, which results in additional costs associated with
transitioning to new suppliers and which may cause supply disruptions that could
interfere with our production during any such transitional period. In
addition, in the past we have taken and may continue to take actions to provide
financial assistance to certain suppliers to ensure an uninterrupted supply of
materials and components. For example, in 2005 we reacquired from
Visteon 23 facilities in order to protect our supply of
components. In connection with this transaction, we forgave
$1.1 billion of Visteon's liability to us for employee-related costs, and
incurred a pre-tax loss of $468 million.
Single-source
supply of components or materials. Many components used in our
vehicles are available only from a single supplier and cannot be quickly or
inexpensively re-sourced to another supplier due to long lead times and new
contractual commitments that may be required by another supplier in order to
provide the components or materials. In addition to the risks
described above regarding interruption of supplies, which are exacerbated in the
case of single-source suppliers, the exclusive supplier of a key component
potentially could exert significant bargaining power over price, quality,
warranty claims, or other terms relating to a component.
Labor or other
constraints on our ability to restructure our
business. Substantially all of the hourly employees in our
Automotive operations in the United States and Canada are represented by unions
and covered by collective bargaining agreements. We negotiated a new
agreement with the UAW in 2007 and with the CAW in 2008, each of which expires
in September 2011. These agreements provide for guaranteed wage
and benefit levels throughout their terms and significant employment security,
subject to certain conditions. As a practical matter, these
agreements restrict our ability to close plants and divest businesses during the
terms of the agreements. These and other provisions within the UAW
and CAW agreements may impede our ability to restructure our business
successfully to compete more effectively in today's global
marketplace.
Work stoppages at
Ford or supplier facilities or other interruptions of
supplies. A work stoppage could occur at Ford or supplier
facilities, as a result of disputes under existing collective bargaining
agreements with labor unions, in connection with negotiations of new collective
bargaining agreements, as a result of supplier financial distress, or for other
reasons. For example, many suppliers are experiencing financial
distress due to decreasing production volume and increasing prices for raw
materials, jeopardizing their ability to produce parts for us. A work
stoppage related to collective bargaining agreements or other reasons, at Ford
or its suppliers, or an interruption or shortage of supplies for any other
reason (including but not limited to financial distress, natural disaster, or
production difficulties affecting a supplier) could substantially adversely
affect our financial condition and results of operations.
Substantial
pension and postretirement health care and life insurance liabilities impairing
our liquidity or financial condition. We have two principal
qualified defined benefit retirement plans in the United States. The
Ford-UAW Retirement Plan covers hourly employees represented by the UAW, and the
General Retirement Plan covers substantially all other Ford employees in the
United States hired on or before December 31, 2003. The
hourly plan provides noncontributory benefits related to employee
service. The salaried plan provides similar noncontributory benefits
and contributory benefits related to pay and service. In addition, we
and certain of our subsidiaries sponsor plans to provide other postretirement
benefits for retired employees, primarily health care and life insurance
benefits. See Note 23 of the Notes to the Financial Statements
for more information about these plans, including funded
status. These benefit plans impose significant liabilities on us
which are not fully funded and will require additional cash contributions by us,
which could impair our liquidity.
ITEM
1A. Risk Factors (continued)
Our U.S.
defined benefit pension plans are subject to Title IV of the Employee Retirement
Income Security Act of 1974 ("ERISA"). Under Title IV of ERISA, the
Pension Benefit Guaranty Corporation ("PBGC") has the authority under certain
circumstances or upon the occurrence of certain events to terminate an
underfunded pension plan. One such circumstance is the occurrence of
an event that unreasonably increases the risk of unreasonably large losses to
the PBGC. Although we believe that it is not likely that the PBGC
would terminate any of our plans, in the event that our U.S. pension plans were
terminated at a time when the liabilities of the plans exceeded the assets of
the plans, we would incur a liability to the PBGC that could be equal to the
entire amount of the underfunding.
If our
cash flows and capital resources were insufficient to fund our pension or
postretirement health care and life insurance obligations, we could be forced to
reduce or delay investments and capital expenditures, seek additional capital,
or restructure or refinance our indebtedness. In addition, if our
operating results and available cash were insufficient to meet our pension or
postretirement health care and life insurance obligations, we could face
substantial liquidity problems and might be required to dispose of material
assets or operations to meet our pension or postretirement health care and life
insurance obligations. We might not be able to consummate those
dispositions or to obtain the proceeds that we could realize from them, and
these proceeds might not be adequate to meet any pension and postretirement
health care or life insurance obligations then due.
Inability to
implement the Retiree Health Care Settlement Agreement to fund and discharge UAW
hourly retiree health care obligations. We received the
necessary approvals in the third quarter of 2008 to begin implementing our
Retiree Health Care Settlement Agreement (“Settlement”) to fund and discharge
our obligations related to UAW hourly retiree health care through a new,
external Voluntary Employee Benefit Association Trust ("VEBA"). See
Note 23 of the Notes to the Financial Statements for additional discussion of
the Settlement.
As
discussed in "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations – Overview," we have reached a tentative
agreement with the UAW allowing us, at our option, to convert a portion of our
obligations to the VEBA from a cash obligation to an equity
obligation. This tentative agreement is subject to various
conditions, including ratification by active Ford UAW-represented hourly
employees, court approval of the modification to the Settlement, approval by the
U.S. Securities and Exchange Commission of accounting treatment acceptable to
us, and receipt of a prohibited transaction exemption from the U.S. Department
of Labor. A significant delay or a materially adverse result relating
to any of these conditions that results in our inability to implement, or a
delay in implementation of, the modification to the Settlement or the Settlement
itself would adversely impact our financial condition and results of
operations.
Worse-than-assumed
economic and demographic experience for our postretirement benefit plans (e.g.,
discount rates or investment returns). The measurement of our
obligations, costs, and liabilities associated with benefits pursuant to our
postretirement benefit plans requires that we estimate the present values of
projected future payments to all participants. We use many
assumptions in calculating these estimates, including assumptions related to
discount rates, investment returns on designated plan assets, and demographic
experience (e.g., mortality and retirement rates). To the extent
actual results are less favorable than our assumptions, there could be a
substantial adverse impact on our financial condition and results of
operations. For additional discussion of our assumptions, see
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations – Critical Accounting Estimates" and Note 23 of the
Notes to Financial Statements.
The discovery of
defects in vehicles resulting in delays in new model launches, recall campaigns,
or increased warranty costs. Meeting or exceeding many
government-mandated safety standards is costly and often technologically
challenging, especially where standards may conflict with the need to reduce
vehicle weight in order to meet government-mandated emissions and fuel-economy
standards. Government safety standards also require manufacturers to
remedy defects related to motor vehicle safety through safety recall campaigns,
and a manufacturer is obligated to recall vehicles if it determines that they do
not comply with a safety standard. Should we or government safety
regulators determine that a safety or other defect or a noncompliance exists
with respect to certain of our vehicles prior to the start of production, the
launch of such vehicle could be delayed until such defect is
remedied. The costs associated with any protracted delay in new model
launches necessary to remedy such defect, or the cost of recall campaigns to
remedy such defects in vehicles that have been sold, could be
substantial.
Increased safety,
emissions, fuel economy, or other regulation resulting in higher costs, cash
expenditures, and/or sales restrictions. The worldwide
automotive industry is governed by a substantial number of governmental
regulations, which often differ by state, region, and country. In the
United States, for example, governmental regulation has arisen primarily out of
concern for the environment, greater vehicle safety, and a desire for improved
fuel economy. For discussion of the impact of such standards on our
global business, see "Item 1. Governmental Standards." As a
result of the change in Administration and increased public focus on climate
change, U.S. government regulation has increased recently and this trend may
continue. In its early days, for example, the Obama Administration
announced that it would revisit the decision of the Environmental Protection
Agency to deny a waiver that is necessary to permit California and other states
to regulate fuel economy through greenhouse gas regulations. If those
states are permitted to impose such regulations, we would see a dramatic
increase in the costs and complexity of our business over time and a decrease in
our ability to sell certain vehicles, particularly highly profitable trucks and
SUVs, in many jurisdictions, all of which would have an adverse affect on our
financial condition and results of operations. In addition, many
governments also regulate local product content and/or impose import
requirements as a means of creating jobs, protecting domestic producers, and
influencing their balance of payments. The cost of complying with
these requirements can be substantial, and the requirements could have a
substantial adverse impact on our financial condition and results of
operations.
ITEM
1A. Risk Factors (continued)
Unusual or
significant litigation or governmental investigations arising out of alleged
defects in our products or otherwise. We spend substantial
resources ensuring compliance with governmental safety and other
standards. Compliance with governmental standards, however, does not
necessarily prevent individual or class action lawsuits, which can entail
significant cost and risk. For example, the preemptive effect of the
Federal Motor Vehicle Safety Standards is often a contested issue in litigation,
and some courts have permitted liability findings even where our vehicles comply
with federal law. Furthermore, simply responding to litigation or
government investigations of our compliance with regulatory standards requires
significant expenditures of time and other resources.
A change in our
requirements for parts or materials where we have entered into long-term supply
arrangements that commit us to purchase minimum or fixed quantities of certain
parts or materials, or to pay a minimum amount to the seller ("take-or-pay"
contracts). We have entered into a number of long-term supply
contracts that require us to purchase a fixed quantity of parts to be used in
the production of our vehicles. If our need for any of these parts
were to lessen, we could still be required to purchase a specified quantity of
the part or pay a minimum amount to the seller pursuant to the take-or-pay
contract. We also have entered into a small number of long-term
supply contracts for raw materials (for example, precious metals used in
catalytic converters) that require us to purchase a fixed percentage of mine
output. If our need for any of these raw materials were to lessen, or
if a supplier's output of materials were to increase, we could be required to
purchase more materials than we need.
Adverse effects
on our results from a decrease in or cessation of government
incentives. We receive economic benefits from national, state,
and local governments related to investments we make. These benefits
generally take the form of tax incentives, property tax abatements,
infrastructure development, subsidized training programs, and/or other
operational grants and incentives, and the amounts may be
significant. A decrease in, expiration without renewal of, or other
cessation of such benefits could have a substantial adverse impact on our
financial condition and results of operations, as well as our ability to fund
new investments.
Adverse effects
on our operations resulting from certain geo-political or other
events. We
conduct a significant portion of our business in countries outside of the United
States, and are pursuing growth opportunities in a number of emerging
markets. These activities expose us to, among other things, risks
associated with geo-political events, such as: governmental takeover
(i.e., nationalization) of our manufacturing facilities; disruption of
operations in a particular country as a result of political or economic
instability, outbreak of war or expansion of hostilities; or acts of
terrorism. Such events could have a substantial adverse effect on our
financial condition and results of operations.
Substantial
negative Automotive operating-related cash flows for the near- to medium-term
affecting our ability to meet our obligations, invest in our business, or
refinance our debt.
During the past year we experienced substantial negative
operating-related cash flows, and we expect that trend to continue, at a reduced
rate, for the near-term. As a result of the global financial crisis,
we may not be able to obtain future liquidity in amounts sufficient to enable us
to pay our indebtedness and to fund our other liquidity needs. In
addition, if we are unable to meet certain covenants of our $11.5 billion
secured credit facility established in December 2006 (e.g., if the
borrowing base value of assets pledged does not exceed outstanding borrowings),
we may be required to repay borrowings under the facility prior to their
maturity in December 2011 (for revolver borrowings) and December 2013 (for term
loan borrowings).
ITEM
1A. Risk Factors (continued)
If our
cash flow is worse than expected due to worsening of the economic recession,
work stoppages, supply base disruptions, increased pension contributions, or
other reasons, or if we are unable to find additional liquidity sources for
these purposes, we may need to refinance or restructure all or a portion of our
indebtedness on or before maturity, reduce or delay capital investments, or seek
to raise additional capital. We may not be able to implement one or
more of these alternatives on terms acceptable to us, or at all. The
terms of our existing or future debt agreements may restrict us from pursuing
any of these alternatives. Should our cash flow be worse than
anticipated or we fail to achieve any of these alternatives, this could
materially adversely affect our ability to repay our indebtedness and otherwise
have a substantial adverse effect on our financial condition and results of
operations. For further information on our liquidity and capital
resources, including our secured credit agreement, see the discussion under the
captions "Liquidity and Capital Resources" and "Outlook" in "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations," and Note 16 of the Notes to the Financial
Statements.
Substantial
levels of Automotive indebtedness adversely affecting our financial condition or
preventing us from fulfilling our debt obligations (which may grow because we
are able to incur substantially more debt, including additional secured
debt). As a result of our December 2006 financing actions
and our other debt, we are a highly leveraged company. Our
significant Automotive debt service obligations could have important
consequences, including the following: our high level of indebtedness
could make it difficult for us to satisfy our obligations with respect to our
outstanding indebtedness; our ability to obtain additional financing for working
capital, capital expenditures, acquisitions, if any, or general corporate
purposes may be impaired; we must use a substantial portion of our cash flow
from operations to pay interest on our indebtedness, which will reduce the funds
available to us for operations and other purposes; and our high level of
indebtedness makes us more vulnerable to economic downturns and adverse
developments in our business. The more leveraged we become, the more
we become exposed to the risks described herein. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations – Liquidity and Capital Resources" and Note 16 of the Notes to
the Financial Statements for additional information regarding our
indebtedness.
Failure of
financial institutions to fulfill commitments under committed credit
facilities. As discussed in "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations –
Liquidity and Capital Resources," when we borrowed the full amount available
under our $11.5 billion revolving credit facility in February 2009,
the $890 million commitment of Lehman Commercial Paper Inc. ("LCPI")
was not fully funded as a result of LCPI having filed for protection under
Chapter 11 of the U.S. Bankruptcy Code in October 2008. To
the extent we repay amounts under our revolving credit facility, we can
re-borrow those amounts. If the financial institutions that provide
these or other committed credit facilities were to default on their obligation
to fund the commitments, these facilities would not be available to us, which
could substantially adversely affect our liquidity and financial
condition.
Ford Credit's
need for substantial liquidity to finance its business. Ford
Credit requires substantial liquidity to finance its operations on a profitable
basis. If Ford Credit is unable to obtain such liquidity, it would
need to curtail its operations, which include providing credit to our dealers
and to retail customers to purchase our cars. This would adversely
affect our automotive operations. As a result of the financial crisis
and the global recession, which has reduced automotive sales, Ford Credit’s
access to liquidity has become more constrained. Ford Credit is
taking a number of steps, as outlined below, to ensure continued access to
liquidity but these steps involve a number of risks.
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, and we cannot assure that Ford Credit will obtain such
approval. Other institutions that provide automotive financing have
access to relatively low-cost FDIC-insured funding. Access by these
competitors to FDIC-insured or other government funding programs that are not
available to Ford Credit could adversely affect Ford Credit's ability to support
the sale of Ford vehicles at competitive rates. 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 other
factors. The lower credit ratings assigned to Ford Credit, as
well as the continued financial crisis, 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 and
certain other asset-backed securitizations is subject to having a sufficient
amount of assets eligible for these programs as well as Ford Credit’s ability to
obtain appropriate credit ratings and 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 other factors, Ford
Credit may need to reduce the amount of receivables it purchases or
originates. A significant reduction in the amount of receivables Ford
Credit purchases or originates would significantly reduce its ongoing profits
and could adversely affect its ability to support the sale of Ford
vehicles.
ITEM
1A. Risk Factors (continued)
Higher-than-expected
credit losses. Credit risk is the
possibility of loss from a customer's or dealer's failure to make payments
according to contract terms. Credit risk (which is heavily dependent
upon economic factors including unemployment, consumer debt service burden,
personal income growth, dealer profitability, and used car prices) has a
significant impact on Ford Credit's business. The level of credit
losses Ford Credit may experience could exceed its expectations and adversely
affect its financial condition and results of operations. For
additional discussion regarding credit losses, see "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations –
Critical Accounting Estimates."
Increased
competition from banks or other financial institutions seeking to increase their
share of financing Ford vehicles. No single company is a
dominant force in the automotive finance industry. Most of Ford
Credit's bank competitors in the United States use credit aggregation systems
that permit dealers to send, through standardized systems, retail credit
applications to multiple finance sources to evaluate financing options offered
by these finance sources. This process has resulted in greater
competition based on financing rates. In addition, Ford Credit may
face increased competition on wholesale financing for Ford
dealers. Competition from such competitors with lower borrowing costs
may increase, which could adversely affect Ford Credit's profitability and the
volume of its business.
Collection and
servicing problems related to finance receivables and net investment in
operating leases. After Ford Credit
purchases retail installment sale contracts and leases from dealers and other
customers, it manages or services the receivables. Any disruption of
its servicing activity, due to inability to access or accurately maintain
customer account records or otherwise, could have a significant negative impact
on its ability to collect on those receivables and/or satisfy its
customers.
Lower-than-anticipated
residual values or higher-than-expected return volumes for leased
vehicles.
Ford Credit projects expected residual values (including residual value support
payments from Ford) and return volumes of the vehicles it
leases. Actual proceeds realized by Ford Credit upon the sale of
returned leased vehicles at lease termination may be lower than the amount
projected, which reduces the profitability of the lease
transaction. Among the factors that can affect the value of returned
lease vehicles are the volume of vehicles returned, economic conditions, and the
quality or perceived quality, safety, or reliability of the
vehicles. Actual return volumes may be higher than expected and can
be influenced by contractual lease end values relative to auction values,
marketing programs for new vehicles, and general economic
conditions. All of these factors, alone or in combination, have the
potential to adversely affect Ford Credit's profitability.
For
example, in the second quarter of 2008, higher fuel prices and the weak economic
environment in North America resulted in a pronounced shift in consumer
preferences from full-size trucks and traditional SUVs to smaller, more
fuel-efficient vehicles. This shift in consumer preferences caused a
significant reduction in auction values. This in turn resulted in
Ford Credit recording a pre-tax impairment charge of $2.1 billion, representing
the amount by which the carrying value of certain vehicle lines in its lease
portfolio exceeded their fair value. For additional discussion of
residual values, see "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations – Critical Accounting
Estimates."
New or increased
credit, consumer, or data protection or other regulations resulting in higher
costs and/or additional financing restrictions. As a finance company,
Ford Credit is highly regulated by governmental authorities in the locations
where it operates. In the United States, its operations are subject
to regulation, supervision and licensing under various federal, state and local
laws and regulations, including the federal Truth-in-Lending Act, Equal Credit
Opportunity Act, and Fair Credit Reporting Act. In some countries
outside the United States, Ford Credit's subsidiaries are regulated banking
institutions and are required, among other things, to maintain minimum capital
reserves. In many other locations, governmental authorities require
companies to have licenses in order to conduct financing
businesses. Efforts to comply with these laws and regulations impose
significant costs on Ford Credit, and affect the conduct of its
business. Additional regulation could add significant cost or
operational constraints that might impair its profitability.
ITEM
1A. Risk Factors (continued)
Inability to
implement our plans to further reduce structural costs and increase
liquidity. As discussed in "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations –
Overview," 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
1B. Unresolved
Staff Comments
None to
report.
ITEM
2. Properties
Our
principal properties include manufacturing and assembly facilities, distribution
centers, warehouses, sales or administrative offices, and engineering
centers.
We own
substantially all of our U.S. manufacturing and assembly facilities, although
many of these properties have been pledged to secure indebtedness or other
obligations. Our facilities are situated in various sections of the
country and include assembly plants, engine plants, casting plants, metal
stamping plants, transmission plants, and other component
plants. Most of our distribution centers are leased (we own
approximately 44% of the total square footage). A substantial amount
of our warehousing is provided by third-party providers under service
contracts. Because the facilities provided pursuant to third-party
service contracts need not be dedicated exclusively or even primarily to our
use, these spaces are not included in the number of distribution
centers/warehouses listed in the table below. All of the warehouses
that we operate are leased, although many of our manufacturing and assembly
facilities contain some warehousing space. Substantially all of our
sales offices are leased space. Approximately 97% of the total square
footage of our engineering centers and our supplementary research and
development space is owned by us.
In
addition, we maintain and operate manufacturing plants, assembly facilities,
parts distribution centers, and engineering centers outside of the United
States. We own substantially all of our non-U.S. manufacturing
plants, assembly facilities, and engineering centers. The majority of
our parts distribution centers outside of the United States are either leased or
provided by vendors under service contracts. As in the United States,
space provided by vendors under service contracts need not be dedicated
exclusively or even primarily to our use, and is not included in the number of
distribution centers/warehouses listed in the table below.
The total
number of plants, distribution centers/warehouses, engineering and research and
development sites, and sales offices used by our Automotive segments are shown
in the table below:
Segment
|
|
|
|
|
Distribution
Centers/Warehouses
|
|
|
Engineering,
Research/Development
|
|
|
|
|
Ford
North America
|
|
|
41 |
* |
|
|
32 |
|
|
|
31 |
|
|
|
55 |
|
Ford
South America
|
|
|
7 |
|
|
|
1 |
|
|
|
– |
|
|
|
8 |
|
Ford
Europe
|
|
|
19 |
|
|
|
9 |
|
|
|
6 |
|
|
|
14 |
|
Volvo
|
|
|
9 |
|
|
|
9 |
|
|
|
2 |
|
|
|
8 |
|
Ford
Asia Pacific Africa
|
|
|
12 |
|
|
|
6 |
|
|
|
2 |
|
|
|
19 |
|
Total
|
|
|
88 |
|
|
|
57 |
|
|
|
41 |
|
|
|
104 |
|
__________
*
|
We
have announced plans to close a number of North American facilities as
part of our restructuring actions; facilities that have been closed to
date are not included in the table. For further discussion of our
restructuring, see "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations – Overview." The
table includes six facilities operated by Automotive Components Holdings,
LLC ("ACH"), which is controlled by us. We had 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 ACH plants and closed another four. We plan to close a
fifth during 2009, and a sixth in 2011. We are exploring our
options for the remaining ACH plants (Milan, Sheldon Road, Saline and
Sandusky), and intend to transition these businesses to the supply base as
soon as practicable.
|
ITEM
2. Properties (continued)
Included
in the number of plants shown above are several plants that are not operated
directly by us, but rather by consolidated joint ventures that operate plants
that support our Automotive sector. Following are the significant
consolidated joint ventures and the number of plants they own:
|
•
|
AutoAlliance International,
Inc. ("AAI") — a 50/50 joint venture with Mazda (of which we own
approximately 13.78%), which operates as its principal business an
automobile vehicle assembly plant in Flat Rock, Michigan. AAI
currently produces the Mazda6 and Ford Mustang models. Ford
supplies all of the hourly and substantially all of the salaried labor
requirements to AAI, and AAI reimburses Ford for the full cost of that
labor.
|
|
•
|
Ford Otomotiv Sanayi Anonim
Sirketi ("Ford Otosan") — a joint venture in Turkey between Ford
(41% partner), the Koc Group of Turkey (41% partner), and public investors
(18%) that is our single-source supplier of the Ford Transit Connect
vehicle and our sole distributor of Ford vehicles in Turkey. In
addition, Ford Otosan makes the Ford Transit series and the Cargo truck
for the Turkish and export markets, and certain engines and transmissions,
most of which are under license. This joint venture owns and
operates two plants, a parts distribution depot, and a newly opened
Product Development Center in
Turkey.
|
|
•
|
Getrag Ford Transmissions
GmbH ("Getrag
Ford") — a 50/50 joint venture with Getrag Deutsche Venture GmbH
and Co. KG, a German company, to which we transferred our European manual
transmission operations, including plants, from Halewood, England;
Cologne, Germany; and Bordeaux, France. In 2004, Volvo Car
Corporation ("Volvo Cars") transferred its manual transmission business
from its Köping, Sweden plant to Getrag Ford. In 2008, we added
the Kechnec plant in Slovakia. Getrag Ford produces manual
transmissions for Ford Europe and Volvo. We currently supply
most of the hourly and salaried labor requirements of the operations
transferred to this joint venture. Our employees who worked at
the manual transmission operations transferred at the time of formation of
the joint venture are assigned to the joint venture. In the
event of surplus labor at the joint venture, our employees assigned to
Getrag Ford may return to Ford. Employees hired in the future
to work in these operations will be employed directly by Getrag
Ford. Getrag Ford reimburses us for the full cost of the hourly
and salaried labor we supply. This joint venture now operates
four plants.
|
|
•
|
Getrag All Wheel Drive
AB — a joint venture in Sweden between Getrag Dana Holding GmbH
(60% partner) and Volvo Cars (40% partner). In January 2004,
Volvo Cars transferred to this joint venture its All Wheel Drive business
and its plant in Koping, Sweden. The joint venture produces
all-wheel drive components. As noted above, the manual
transmission operations at the Köping plant were transferred to Getrag
Ford. The hourly and salaried employees at the plant have
become employees of the joint
venture.
|
|
•
|
Tekfor Cologne GmbH
("Tekfor") — a
50/50 joint venture of Ford-Werke GmbH ("Ford-Werke") and Neumayer Tekfor
GmbH, a German company, to which joint venture Ford-Werke transferred the
operations of the Ford forge in Cologne. The joint venture
produces forged components, primarily for transmissions and chassis, for
use in Ford vehicles and for sale to third parties. Those Ford
employees who worked at the Cologne Forge Plant at the time of the
formation of the joint venture are assigned to Tekfor by us and remain our
employees. In the event of surplus labor at the joint venture,
Ford employees assigned to Tekfor may return to Ford. New
workers at the joint venture will be hired as employees of the joint
venture. Tekfor reimburses us for the full cost of our
employees assigned to the joint venture. This joint venture
operates one plant.
|
|
•
|
Pininfarina Sverige, AB
— a joint venture between Volvo Cars (40% partner) and Pininfarina, S.p.A.
("Pininfarina") (60% partner). In September 2003, Volvo Cars
and Pininfarina established this joint venture for the engineering and
manufacture of niche vehicles, starting with a new, small convertible
(Volvo C70), which is distributed by Volvo. The joint venture
began production of the new car at the Uddevalla Plant in Sweden, which
was transferred from Volvo Cars to the joint venture in December 2005, and
is the joint venture's only plant.
|
|
•
|
Ford Vietnam Limited —
a joint venture between Ford (75% partner) and Song Cong Diesel (25%
partner). Ford Vietnam assembles and distributes several Ford
vehicles in Vietnam, including Escape, Everest, Focus, Mondeo, Ranger and
Transit models. This joint venture operates one
plant.
|
|
•
|
Ford Lio Ho Motor Company Ltd.
("FLH") — a joint venture in Taiwan among Ford (70% partner), the
Lio Ho Group (25% partner) and individual shareholders (5% ownership in
aggregate) that assembles a variety of Ford and Mazda vehicles sourced
from Ford as well as Mazda. In addition to domestic assembly, FLH also has
local product development capability to modify vehicle designs for local
needs, and imports Ford-brand built-up vehicles from Europe and the United
States. This joint venture operates one
plant.
|
ITEM
2. Properties (continued)
In
addition to the plants that we operate directly or that are operated by
consolidated joint ventures, additional plants that support our Automotive
sector are operated by other, unconsolidated joint ventures of which we are a
partner. These additional plants are not included in the number of
plants shown in the table above. The most significant of these joint
ventures are:
|
•
|
AutoAlliance (Thailand) Co.
Ltd. ("AAT") — a joint venture among Ford (50%), Mazda (45%) and a
Thai affiliate of Mazda's (5%), which owns and operates a manufacturing
plant in Rayong, Thailand. AAT produces the Ford Everest, Ford
Ranger and Mazda B-Series pickup trucks for the Thai market and for export
to over 100 countries worldwide (other than North America), in both
built-up and kit form. AAT has announced plans to build a new,
highly flexible passenger car plant that will utilize state-of-the-art
manufacturing technologies and will produce both Ford and Mazda badged
small cars beginning in 2009.
|
|
•
|
Blue Diamond Truck, S. de R.L.
de C.V. ("Blue
Diamond Truck") — a joint venture between Ford (49% partner) and
Navistar International Corporation (formerly known as International Truck
and Engine Corporation) (51% partner) ("Navistar"). Blue
Diamond Truck develops and manufactures selected medium and light
commercial trucks in Mexico and sells the vehicles to Ford and Navistar
for their own independent distribution. Blue Diamond Truck
manufactures Ford F-650/750 medium-duty commercial trucks that are sold in
the United States and Canada; Navistar medium-duty commercial trucks that
are sold in Mexico; and a low-cab-forward, light-/medium-duty commercial
truck for each of Ford and Navistar. By agreement of the
parties in January 2009, the joint venture will continue and, among other
things, over the next several months, Navistar will acquire additional
equity in the joint venture such that Navistar's percentage interest in
the joint venture will be 75% and Ford's interest will be
25%.
|
|
•
|
Tenedora Nemak, S.A. de
C.V. — a joint venture between Ford (6.75% partner) and a
subsidiary of Mexican conglomerate Alfa S.A. de C.V. (93.25% partner),
which owns and operates, among other facilities, a portion of our former
Canadian castings operations, and supplies engine blocks and heads to
several of our engine plants. Ford supplies a portion of the hourly labor
requirements for the Canadian plant, for which it is fully reimbursed by
the joint venture.
|
|
•
|
Changan Ford Mazda Automobile
Corporation, Ltd. ("CFMA") — a joint venture among Ford (35%
partner), Mazda (15% partner), and the Chongqing Changan Automobile Co.,
Ltd. ("Changan") (50% partner). Through its facility in the
Chinese cities of Chongqing and Nanjing, CFMA produces and distributes in
China the Ford Mondeo, Focus, S-max and Fiesta, the Mazda2, the Mazda3 and
the Volvo S40.
|
|
•
|
Changan Ford Mazda Engine
Company, Ltd. ("CFME") — a joint venture among Ford (25% partner),
Mazda (25% partner), and the Chongqing Changan Automobile Co., Ltd (50%
partner). CFME is located in the City of Nanjing, and produces
the Ford New I4 and Mazda BZ engines in support of the assembly of Ford-
and Mazda-branded vehicles manufactured in
China.
|
|
•
|
Jiangling Motors Corporation,
Ltd. ("JMC") — a publicly-traded company in China with Ford (30%
shareholder) and Jiangxi Jiangling Holdings, Ltd. (41% shareholder) as its
controlling shareholders. Jiangxi Jiangling Holdings, Ltd. is a
50/50 joint venture between Chongqing Changan Automobile Co., Ltd. and
Jiangling Motors Company Group. The public investors of JMC own
29% of its outstanding shares. JMC assembles the Ford Transit
van and other non-Ford-technology-based vehicles for distribution in
China.
|
The
facilities owned or leased by us or our subsidiaries and joint ventures
described above are, in the opinion of management, suitable and more than
adequate for the manufacture and assembly of our products.
The
furniture, equipment and other physical property owned by our Financial Services
operations are not material in relation to their total assets.
ITEM
3. Legal
Proceedings
Various
legal actions, governmental investigations, proceedings, and claims are pending
or may be instituted or asserted in the future against us and our subsidiaries,
including, but not limited to, those arising out of: alleged defects
in our products; governmental regulations covering safety, emissions, and fuel
economy; financial services; employment-related matters; dealer, supplier, and
other contractual relationships; intellectual property rights; product
warranties; environmental matters; shareholder and investor matters; and
financial reporting matters. Some of the pending legal actions are,
or purport to be, class actions, and some involve claims for compensatory,
punitive, or antitrust or other multiplied damage claims in very large amounts,
or demands for recall campaigns, environmental remediation programs, sanctions,
or other relief that, if granted, would require very large
expenditures. We regularly evaluate the expected outcome of product
liability litigation and other legal proceedings. We have accrued
expenses for probable losses on product liability matters, in the aggregate,
based on an analysis of historical litigation payouts and trends. We
also have accrued expenses for other legal proceedings where losses are deemed
probable and reasonably estimable. These accruals are reflected in
our financial statements.
Following
is a discussion of our significant pending legal proceedings:
ASBESTOS
MATTERS
Asbestos
was used in brakes, clutches, and other automotive components from the early
1900s. Along with other vehicle manufacturers, we have been the
target of asbestos litigation and, as a result, are a defendant in various
actions for injuries claimed to have resulted from alleged exposure to Ford
parts and other products containing asbestos. Plaintiffs in these
personal injury cases allege various health problems as a result of asbestos
exposure, either from component parts found in older vehicles, insulation or
other asbestos products in our facilities, or asbestos aboard our former
maritime fleet. We believe that we are being more aggressively
targeted in asbestos suits because many previously targeted companies have filed
for bankruptcy.
Most of
the asbestos litigation we face involves individuals who worked on the brakes of
our vehicles over the years. We are prepared to defend these cases,
and believe that the scientific evidence confirms our long-standing position
that there is no increased risk of asbestos-related disease as a result of
exposure to the type of asbestos formerly used in the brakes on our
vehicles.
The
extent of our financial exposure to asbestos litigation remains very difficult
to estimate. The majority of our asbestos cases do not specify a
dollar amount for damages, and in many of the other cases the dollar amount
specified is the jurisdictional minimum. The vast majority of these
cases involve multiple defendants, with the number in some cases exceeding one
hundred. Many of these cases also involve multiple plaintiffs, and we
are often unable to tell from the pleadings which of the plaintiffs are making
claims against us (as opposed to other defendants). Annual payout and
defense costs may become substantial in the future.
ENVIRONMENTAL
MATTERS
General. We have
received notices under various federal and state environmental laws that we
(along with others) are or may be a potentially responsible party for the costs
associated with remediating numerous hazardous substance storage, recycling, or
disposal sites in many states and, in some instances, for natural resource
damages. We also may have been a generator of hazardous substances at
a number of other sites. The amount of any such costs or damages for
which we may be held responsible could be significant. The contingent
losses that we expect to incur in connection with many of these sites have been
accrued and those accruals are reflected in our financial
statements. For many sites, however, the remediation costs and other
damages for which we ultimately may be responsible are not reasonably estimable
because of uncertainties with respect to factors such as our connection to the
site or to materials there, the involvement of other potentially responsible
parties, the application of laws and other standards or regulations, site
conditions, and the nature and scope of investigations, studies, and remediation
to be undertaken (including the technologies to be required and the extent,
duration, and success of remediation). As a result, we are unable to
determine or reasonably estimate the amount of costs or other damages for which
we are potentially responsible in connection with these sites, although that
total could be significant.
ITEM
3. Legal Proceedings (continued)
Edison Assembly Plant Concrete
Disposal. During demolition of our Edison Assembly Plant, we
discovered very low levels of contaminants in the concrete slab. The
concrete was crushed and reused by several developers as fill material at ten
different off-site locations. The New Jersey Department of
Environmental Protection ("DEP") asserts that some of these locations may not
have been authorized to receive the waste. In March 2006, the DEP
ordered Ford, its supplier MIG-Alberici, Inc., and the developer Edgewood
Properties, Inc., to investigate, and, if appropriate, remove contaminated
materials. Ford has substantially completed the work at a number of
locations, and Edgewood is completing the investigation and remediation at
several locations that it owns. Pursuant to the Administrative
Consent Order, in January 2008 we paid approximately $460,000 for oversight
costs, penalties, and environmental education projects, and donated emissions
reduction credits to the State of New Jersey. After receiving our
payment, the DEP determined that the Consent Order could not be finalized unless
it first was submitted for public comment. It provided public notice
regarding the settlement in April 2008. We expect that after
completing its review of the comments, the DEP will finalize the Consent Order
without any material changes. As previously reported, the New Jersey
Attorney General's office also issued a grand jury subpoena and civil
information request in March 2006. We are fully cooperating with the
Attorney General's office to resolve this matter.
California Environmental
Action. In September 2006, the California Attorney General
filed a complaint in the U.S. District Court for the Northern District of
California against Ford, General Motors, Toyota, Honda, Chrysler and Nissan,
seeking monetary damages on a joint and several basis for economic and
environmental harm to California caused by global warming. The
complaint alleged that cars and trucks sold in the United States constitute an
environmental public nuisance under federal and California state common
law. In September 2007, the U.S. District Court for the Northern
District of California dismissed the case, ruling that the federal claims
constituted nonjusticiable political questions. The Court did not
address the state claims, and indicated that California could refile those
claims in state court if desired. The California Attorney General has
appealed the dismissal to the U.S. Court of Appeals for the Ninth
Circuit.
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.
CLASS
ACTIONS
In light
of the fact that very few of the purported class actions filed against us in the
past have ever been certified by the courts as class actions, the actions listed
below are those (i) that have been certified as a class action by a court of
competent jurisdiction (and any additional purported class actions that raise
allegations substantially similar to a certified case), and (ii) that, if
resolved unfavorably to the Company, would likely involve a significant
cost.
Canadian Export Antitrust Class
Actions. Eighty-three purported class actions on behalf of all
purchasers of new motor vehicles in the United States since January 1, 2001 have
been filed in various state and federal courts against numerous defendants,
including Ford, General Motors, Chrysler, Toyota, Honda, Nissan, BMW Group, the
National Automobile Dealers Association, and the Canadian Automobile Dealers
Association. The federal and state complaints allege, among other
things, that the manufacturers, aided by the dealer associations, conspired to
prevent the sale to U.S. citizens of vehicles produced for the Canadian market
and sold by dealers in Canada at lower prices than vehicles sold in the United
States. The complaints seek injunctive relief under federal antitrust
law and treble damages under federal and state antitrust laws. The
federal court actions have been consolidated for coordinated pretrial
proceedings in the U.S. District Court for the District of Maine.
TAX
MATTERS
Government Transfer Pricing
Dispute. As discussed in Note 19 of the Notes to the
Financial Statements, the U.S. and Canadian governments will continue to have
discussions in coming months to resolve issues involving transfer
pricing. While these discussions are pending, we could receive audit
adjustments from Canada that we would have to pay, either in cash or with
collateral acceptable to the government. Any cash payments, which
could be significant, would defease any tax liability ultimately
determined.
ITEM
3. Legal Proceedings (continued)
OTHER
MATTERS
ERISA Fiduciary
Litigation. A purported class action lawsuit is pending in the
U.S. District Court for the Eastern District of Michigan naming as defendants
Ford Motor Company and several of our current or former employees and officers
(Nowak, et al. v. Ford Motor
Company, et al., along with three consolidated cases). The
lawsuit alleges that the defendants violated the Employee Retirement Income
Security Act (“ERISA”) by failing to prudently and loyally manage funds held in
employee savings plans sponsored by Ford. Specifically, the
plaintiffs allege (among other claims) that the defendants violated fiduciary
duties owed to plan participants by continuing to offer Ford Common Stock as an
investment option in the savings plans. In December 2008, the Court
denied Ford's motion to dismiss on the pleadings.
SEC Pension and Post-Employment
Benefit Accounting Inquiry. On October 14, 2004, the Division
of Enforcement of the Securities and Exchange Commission ("SEC") notified us
that it was conducting an inquiry into the methodology used to account for
pensions and other post-employment benefits. We were one of several
companies to receive requests for information as part of this
inquiry. We completed submission of all information requested to date
as of April 2007.
Diesel Engine
Litigation. In 2007, we filed suit against Navistar
International Corporation, formerly known as International Truck and Engine
Corporation ("Navistar"), the supplier of diesel engines for our F-Series Super
Duty and Econoline vehicles. Navistar countersued, and also initiated
its own lawsuit. In January 2009, we reached agreement with Navistar
to restructure our ongoing business relationship, and to settle all existing
litigation between the companies. As part of the agreement, we made a
cash payment to Navistar; Navistar will increase its equity ownership in our
Blue Diamond Truck and Blue Diamond Parts joint ventures that will supply Ford
with new medium-duty trucks and components; and the parties agreed to terminate
effective December 31, 2009 their diesel engine supply agreement originally
scheduled to expire in 2012, under which Navistar was required to be Ford's
sole, exclusive source of diesel truck engines in North America.
Apartheid Litigation. Along
with other prominent multinational companies, we are defendants in purported
class action lawsuits seeking unspecified damages on behalf of South African
citizens who suffered violence and oppression under South Africa's apartheid
regime. The lawsuits allege that, by doing business in South Africa,
the defendant companies “aided and abetted” the apartheid regime and its human
rights violations. These cases, collectively referred to as In re South African Apartheid
Litigation, were initially filed in 2002 and 2003, and are being handled
together as coordinated "multidistrict litigation" in the U.S. District Court
for the Southern District of New York. The District Court dismissed
these cases in 2004, but in 2007 the U.S. Court of Appeals for the Second
Circuit reversed and remanded the cases to the District Court for further
proceedings. Amended complaints were filed during 2008.
ITEM
4. Submission of Matters to a
Vote of Security Holders
Not
required.
ITEM
4A. Executive Officers of
Ford
Our
executive officers and their positions and ages at February 1, 2009 are as
follows:
|
|
|
|
Present
Position
Held
Since
|
|
|
|
|
|
|
|
|
|
William
Clay Ford, Jr. (a)
|
|
Executive
Chairman and Chairman of the Board
|
|
September
2006
|
|
51
|
|
|
|
|
|
|
|
Alan
Mulally (b)
|
|
President
and Chief Executive Officer
|
|
September
2006
|
|
63
|
|
|
|
|
|
|
|
Michael
E. Bannister
|
|
Executive
Vice President – Chairman and Chief Executive Officer, Ford
Motor Credit Company
|
|
October
2007
|
|
59
|
|
|
|
|
|
|
|
Lewis
W. K. Booth
|
|
Executive
Vice President and Chief Financial Officer
|
|
November
2008
|
|
60
|
|
|
|
|
|
|
|
Mark
Fields
|
|
Executive Vice
President – President, The Americas
|
|
October
2005
|
|
48
|
|
|
|
|
|
|
|
John
Fleming
|
|
Executive
Vice President – Chairman, Ford Europe and Volvo
|
|
November
2008
|
|
58
|
|
|
|
|
|
|
|
John
G. Parker
|
|
Executive
Vice President – Asia Pacific Africa
|
|
September
2006
|
|
61
|
|
|
|
|
|
|
|
Tony
Brown
|
|
Group Vice
President – Purchasing
|
|
April
2008
|
|
52
|
|
|
|
|
|
|
|
Mei-Wei
Cheng
|
|
Group
Vice President – Executive Chairman, Ford Motor Company
China
|
|
April
2008
|
|
58
|
|
|
|
|
|
|
|
Sue
Cischke
|
|
Group
Vice President – Sustainability, Environment and Safety
Engineering
|
|
April
2008
|
|
54
|
|
|
|
|
|
|
|
James
D. Farley
|
|
Group
Vice President – Sales, Marketing and Communications
|
|
November
2007
|
|
46
|
|
|
|
|
|
|
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Felicia
Fields
|
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Group
Vice President – Human Resources and Corporate Services
|
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April
2008
|
|
43
|
|
|
|
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Bennie
Fowler
|
|
Group
Vice President – Quality
|
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April
2008
|
|
52
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|
|
|
|
|
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|
Joseph
R. Hinrichs
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Group
Vice President – Manufacturing
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January
2008
|
|
42
|
|
|
|
|
|
|
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Derrick
M. Kuzak
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|
Group
Vice President – Product Development
|
|
December
2006
|
|
57
|
|
|
|
|
|
|
|
David
G. Leitch
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|
Group
Vice President and General Counsel
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April
2005
|
|
48
|
|
|
|
|
|
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J
C. Mays
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|
Group Vice
President – Design and Chief Creative Officer
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August
2003
|
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54
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|
|
|
|
|
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Ziad
S. Ojakli
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|
Group
Vice President – Government and Community Relations
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January
2004
|
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41
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|
|
|
|
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Nick
Smither
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Group
Vice President – Information Technology
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|
April
2008
|
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50
|
|
|
|
|
|
|
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Peter
J. Daniel
|
|
Senior
Vice President and Controller
|
|
September
2006
|
|
61
|
__________
(a)
|
Also
a Director, Chair of the Office of the Chairman and Chief Executive, Chair
of the Finance Committee and a member of the Sustainability Committee of
the Board of Directors.
|
(b)
|
Also a Director and member of the
Office of the Chairman and Chief Executive and the Finance Committee of
the Board of Directors.
|
ITEM
4A. Executive Officers of Ford (continued)
All of
the above officers, except those noted below, have been employed by Ford or its
subsidiaries in one or more capacities during the past five
years. Described below are the recent positions (other than those
with Ford or its subsidiaries) held by those officers who have not yet been with
Ford or its subsidiaries for five years:
|
§
|
Prior
to joining Ford in November 2007, Mr. Farley was Group Vice President and
General Manager of Lexus, responsible for all sales, marketing and
customer satisfaction activities for Toyota’s luxury
brand. Before leading Lexus, he served as group vice president
of Toyota Division marketing and was responsible for all Toyota Division
market planning, advertising, merchandising, sales promotion, incentives
and Internet activities.
|
|
§
|
Prior
to joining Ford in September 2006, Mr. Mulally served as Executive Vice
President of The Boeing Company, and President and Chief Executive Officer
of Boeing Commercial Airplanes. Mr. Mulally also was a member
of Boeing's Executive Council, and served as Boeing's senior executive in
the Pacific Northwest. He was named Boeing's president of
Commercial Airplanes in September 1998; the responsibility of chief
executive officer for the business unit was added in March
2001.
|
|
§
|
Mr.
Leitch served as the Deputy Assistant and Deputy Counsel to President
George W. Bush from December 2002 to March 2005. From
June 2001 until December 2002, he served as Chief Counsel for the Federal
Aviation Administration, overseeing a staff of 290 in Washington and the
agency's 11 regional offices. Prior to June 2001, Mr. Leitch
was a partner at Hogan & Hartson LLP in Washington D.C., where his
practice focused on appellate litigation in state and federal
court.
|
Under our
By-Laws, the executive officers are elected by the Board of Directors at the
Annual Meeting of the Board of Directors held for this purpose. Each
officer is elected to hold office until his or her successor is chosen or as
otherwise provided in the By-Laws.
PART
II
ITEM
5. Market for Ford's Common
Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Our
Common Stock is listed on the New York Stock Exchange in the United States and
on certain stock exchanges in Belgium, France, Switzerland, and the United
Kingdom.
The table
below shows the high and low sales prices for our Common Stock and the dividends
we paid per share of Common and Class B Stock for each quarterly period in 2007
and 2008:
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Ford
Common Stock price per share (a)
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|
|
|
|
|
|
High
|
|
$ |
8.97 |
|
|
$ |
9.70 |
|
|
$ |
9.64 |
|
|
$ |
9.24 |
|
|
$ |
6.94 |
|
|
$ |
8.79 |
|
|
$ |
6.33 |
|
|
$ |
5.47 |
|
Low
|
|
|
7.43 |
|
|
|
7.67 |
|
|
|
7.49 |
|
|
|
6.65 |
|
|
|
4.95 |
|
|
|
4.46 |
|
|
|
4.17 |
|
|
|
1.01 |
|
Dividends
per share of Ford Common and Class B Stock (b)
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
__________
(a)
|
New
York Stock Exchange composite interday prices as listed in the price
history database available at
www.NYSEnet.com.
|
(b)
|
On
December 15, 2006, we entered into a secured credit facility which
contains a covenant prohibiting us from paying dividends (other than
dividends payable solely in stock) on our Common and Class B Stock,
subject to certain limited exceptions. As a result, it is
unlikely that we will pay any dividends in the foreseeable
future. See Note 16 of the Notes to the Financial Statements
for more information regarding the secured credit facility and related
covenants.
|
As of
February 13, 2009, stockholders of record of Ford included 164,005 holders
of Common Stock (which number does not include 290 former holders of old
Ford Common Stock who have not yet tendered their shares pursuant to our
recapitalization, known as the Value Enhancement Plan, which became effective on
August 9, 2000) and 93 holders of Class B Stock.
During
the fourth quarter of 2008, we purchased shares of our Common Stock as
follows:
Period
|
|
Total
Number of Shares Purchased*
|
|
|
Average
Price Paid per Share
|
|
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or
Programs**
|
|
|
Maximum
Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased
Under the Plans or Programs**
|
|
Oct.
1, 2008 through Oct. 31, 2008
|
|
|
98,811 |
|
|
$ |
2.19 |
|
|
|
– |
|
|
|
– |
|
Nov.
1, 2008 through Nov. 30, 2008
|
|
|
9,165 |
|
|
|
1.80 |
|
|
|
– |
|
|
|
– |
|
Dec.
1, 2008 through Dec. 31, 2008
|
|
|
8,807 |
|
|
|
2.41 |
|
|
|
– |
|
|
|
– |
|
Total/Average
|
|
|
116,783 |
|
|
|
2.18 |
|
|
|
– |
|
|
|
– |
|
__________
*
|
The
shares purchased were acquired from our employees or directors in
accordance with our various compensation plans as a result of share
withholdings to pay income taxes with respect to: (i) the lapse
of restrictions on restricted stock; (ii) the issuance of unrestricted
stock, including issuances as a result of the conversion of restricted
stock equivalents; or
(iii) payment of the exercise price and related income taxes with
respect to certain exercises of stock
options.
|
**
|
No
publicly announced repurchase program in
place.
|
ITEM
6. Selected Financial
Data
The
following table sets forth selected financial data for each of the last five
years (dollar amounts in millions, except per share amounts).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUMMARY
OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
and revenues
|
|
$ |
146,277 |
|
|
$ |
172,455 |
|
|
$ |
160,065 |
|
|
$ |
176,835 |
|
|
$ |
172,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
before income taxes
|
|
$ |
(14,404 |
) |
|
$ |
(3,746 |
) |
|
$ |
(15,074 |
) |
|
$ |
1,054 |
|
|
$ |
4,087 |
|
Provision
for/(Benefit from) income taxes
|
|
|
63 |
|
|
|
(1,294 |
) |
|
|
(2,655 |
) |
|
|
(855 |
) |
|
|
634 |
|
Minority
interests in net income/(loss) of subsidiaries
|
|
|
214 |
|
|
|
312 |
|
|
|
210 |
|
|
|
280 |
|
|
|
282 |
|
Income/(Loss)
from continuing operations
|
|
|
(14,681 |
) |
|
|
(2,764 |
) |
|
|
(12,629 |
) |
|
|
1,629 |
|
|
|
3,171 |
|
Income/(Loss)
from discontinued operations
|
|
|
9 |
|
|
|
41 |
|
|
|
16 |
|
|
|
62 |
|
|
|
(133 |
) |
Cumulative
effects of change in accounting principle
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(251 |
) |
|
|
— |
|
Net
income/(loss)
|
|
$ |
(14,672 |
) |
|
$ |
(2,723 |
) |
|
$ |
(12,613 |
) |
|
$ |
1,440 |
|
|
$ |
3,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
129,166 |
|
|
$ |
154,379 |
|
|
$ |
143,249 |
|
|
$ |
153,413 |
|
|
$ |
147,058 |
|
Operating
income/(loss)
|
|
|
(9,293 |
) |
|
|
(4,268 |
) |
|
|
(17,944 |
) |
|
|
(4,211 |
) |
|
|
(221 |
) |
Income/(Loss)
before income taxes
|
|
|
(11,823 |
) |
|
|
(4,970 |
) |
|
|
(17,040 |
) |
|
|
(3,899 |
) |
|
|
(200 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Services Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
17,111 |
|
|
$ |
18,076 |
|
|
$ |
16,816 |
|
|
$ |
23,422 |
|
|
$ |
25,197 |
|
Income/(Loss)
before income taxes
|
|
|
(2,581 |
) |
|
|
1,224 |
|
|
|
1,966 |
|
|
|
4,953 |
|
|
|
4,287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Company Data Per Share of Common and Class B Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
from continuing operations
|
|
$ |
(6.46 |
) |
|
$ |
(1.40 |
) |
|
$ |
(6.73 |
) |
|
$ |
0.88 |
|
|
$ |
1.74 |
|
Income/(Loss)
from discontinued operations
|
|
|
— |
|
|
|
0.02 |
|
|
|
0.01 |
|
|
|
0.04 |
|
|
|
(0.08 |
) |
Cumulative
effects of change in accounting principle
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.14 |
) |
|
|
— |
|
Net
income/(loss)
|
|
$ |
(6.46 |
) |
|
$ |
(1.38 |
) |
|
$ |
(6.72 |
) |
|
$ |
0.78 |
|
|
$ |
1.66 |
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
from continuing operations
|
|
$ |
(6.46 |
) |
|
$ |
(1.40 |
) |
|
$ |
(6.73 |
) |
|
$ |
0.86 |
|
|
$ |
1.59 |
|
Income/(Loss)
from discontinued operations
|
|
|
— |
|
|
|
0.02 |
|
|
|
0.01 |
|
|
|
0.03 |
|
|
|
(0.07 |
) |
Cumulative
effects of change in accounting principle
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.12 |
) |
|
|
— |
|
Net
income/(loss)
|
|
$ |
(6.46 |
) |
|
$ |
(1.38 |
) |
|
$ |
(6.72 |
) |
|
$ |
0.77 |
|
|
$ |
1.52 |
|
Cash
dividends
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
0.25 |
|
|
$ |
0.40 |
|
|
$ |
0.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock price range (NYSE Composite Interday)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$ |
8.79 |
|
|
$ |
9.70 |
|
|
$ |
9.48 |
|
|
$ |
14.75 |
|
|
$ |
17.34 |
|
Low
|
|
|
1.01 |
|
|
|
6.65 |
|
|
|
6.06 |
|
|
|
7.57 |
|
|
|
12.61 |
|
Average
number of shares of Ford Common and Class B Stock outstanding
(in millions)
|
|
|
2,273 |
|
|
|
1,979 |
|
|
|
1,879 |
|
|
|
1,846 |
|
|
|
1,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SECTOR
BALANCE SHEET DATA AT YEAR-END
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
sector
|
|
$ |
73,845 |
|
|
$ |
118,489 |
|
|
$ |
122,634 |
|
|
$ |
113,825 |
|
|
$ |
113,251 |
|
Financial
Services sector
|
|
|
151,667 |
|
|
|
169,261 |
|
|
|
169,691 |
|
|
|
162,194 |
|
|
|
189,188 |
|
Intersector
elimination
|
|
|
(2,535 |
) |
|
|
(2,023 |
) |
|
|
(1,467 |
) |
|
|
(83 |
) |
|
|
(2,753 |
) |
Total
assets
|
|
$ |
222,977 |
|
|
$ |
285,727 |
|
|
$ |
290,858 |
|
|
$ |
275,936 |
|
|
$ |
299,686 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
sector
|
|
$ |
25,846 |
|
|
$ |
26,954 |
|
|
$ |
29,796 |
|
|
$ |
17,849 |
|
|
$ |
18,220 |
|
Financial
Services sector
|
|
|
128,842 |
|
|
|
141,833 |
|
|
|
142,036 |
|
|
|
135,400 |
|
|
|
144,198 |
|
Intersector
elimination *
|
|
|
(492 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total
debt
|
|
$ |
154,196 |
|
|
$ |
168,787 |
|
|
$ |
171,832 |
|
|
$ |
153,249 |
|
|
$ |
162,418 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity
|
|
$ |
(17,311 |
) |
|
$ |
5,628 |
|
|
$ |
(3,465 |
) |
|
$ |
13,442 |
|
|
$ |
17,437 |
|
__________
* Debt
related to Ford's acquisition of Ford Credit debt securities. See
Note 1 of the Notes to the Financial Statements for additional
detail.
ITEM
7. Management's Discussion and
Analysis of Financial Condition and Results of Operations
OVERVIEW
Generation
of Revenue, Income and Cash
Our
Automotive sector's revenue, income, and cash are generated primarily from sales
of vehicles to our dealers and distributors (i.e., our
customers). Vehicles we produce generally are subject to firm orders
from our customers and are deemed sold (with the proceeds from such sale
recognized in revenue) after they are produced and shipped or delivered to our
customers. This is not the case, however, with respect to vehicles
produced for sale to daily rental car companies that are subject to a guaranteed
repurchase option or vehicles produced for use in our own fleet (including
management evaluation vehicles). Vehicles sold to daily rental car
companies that are subject to a guaranteed repurchase option are accounted for
as operating leases, with lease revenue and profits recognized over the term of
the lease. When we sell the returned vehicle at auction, we recognize
a gain or loss on the difference, if any, between actual auction value and the
projected auction value. In addition, revenue for finished vehicles
we sell to customers or vehicle modifiers on consignment is not recognized until
the vehicle is sold to the ultimate customer. Therefore, except for
the impact of the daily rental units sold subject to a guaranteed repurchase
option, those units placed into our own fleet, and those units for which
recognition of revenue is otherwise deferred, wholesale volumes to our customers
and revenue from such sales are closely linked with our production.
Most of
the vehicles sold by us to our dealers and distributors are financed at
wholesale by Ford Credit. Upon Ford Credit originating the wholesale
receivable related to a dealer's purchase of a vehicle, Ford Credit pays cash to
the relevant legal entity in our Automotive sector in payment of the dealer's
obligation for the purchase price of the vehicle. The dealer then
pays the wholesale finance receivable to Ford Credit when it sells the vehicle
to a retail customer.
Our
Financial Services sector's revenue is generated primarily from interest on
finance receivables, net of certain deferred origination costs that are included
as a reduction of financing revenue, and such revenue is recognized over the
term of the receivable using the interest method. Also, revenue from
operating leases, net of certain deferred origination costs, is recognized on a
straight-line basis over the term of the lease. Income is generated
to the extent revenues exceed expenses, most of which are interest,
depreciation, and operating expenses.
Transactions
between our Automotive and Financial Services sectors occur in the ordinary
course of business. For example, Ford Credit receives interest
supplements and other support cost payments from the Automotive sector in
connection with special-rate vehicle financing and leasing programs that we
sponsor. Ford Credit records these payments as revenue, and, for
contracts purchased prior to 2008, our Automotive sector made the related cash
payments, over the expected life of the related finance receivable or operating
lease. Effective January 1, 2008, to reduce ongoing
Automotive obligations to Ford Credit and to be consistent with general industry
practice, we began paying interest supplements and residual value support to
Ford Credit on an upfront, lump-sum basis at the time Ford Credit purchases
eligible contracts from dealers. See Note 1 of the Notes to the
Financial Statements for a more detailed discussion of transactions and payments
between our Automotive and Financial Services sectors. The Automotive
sector records the estimated costs of marketing incentives, including dealer and
retail customer cash payments (e.g., rebates) and costs of special-rate
financing and leasing programs, as a reduction to revenue. These
reductions to revenue are accrued at the later of the date the related vehicle
sales to the dealer are recorded or at the date the incentive program is both
approved and communicated.
Key
Economic Factors and Trends Affecting the Automotive Industry
Global Economic and Financial Market
Crisis. The global economy has entered a period of very weak
economic growth, led by the recession in the United States and followed by
declines in other major markets around the world. The financial
market crisis set off a series of events that generated conditions more severe
than those experienced in several decades. The characteristics of the
financial crisis are unique, in part due to the complex structure of
housing-related securities that were at the epicenter of the financial market
turmoil. A steep housing correction, especially in the U.S. and U.K.
markets, along with downward valuations of mortgage-backed and related
securities, combined to foster a crisis in confidence. Although
several other factors contributed to current economic and financial conditions,
the influence of these financial developments was very prominent. The
interrelationships among financial markets worldwide ultimately resulted in a
synchronous global economic downturn, the effects of which became evident in the
fourth quarter of 2008 as major markets around the world all suffered
setbacks.
ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
The
economic outlook is negative, with a range of possible outcomes due to the
uncertain financial market environment and ongoing policy
responses. In 2009, global industry sales volume is projected to
weaken, with a full-year decline in the range of 15% from 2008
levels. Consumer and business spending has been severely constrained
by credit conditions and economic weakness. The effectiveness of
prior and prospective policy actions to confront the crisis is not clearly
apparent at this juncture; hence, the current outlook is particularly
uncertain.
Excess
Capacity. According to CSM Worldwide, an automotive research
firm, in 2008 the estimated automotive industry global production capacity for
light vehicles (about 90 million units) exceeded global production by about
24 million units. In North America and Europe, the two regions
where the majority of revenue and profits are earned in the industry, excess
capacity was an estimated 44% and 23%, respectively, with North America in
particular driven up from recent rates of around 20% due to the industry
conditions in that market last year. According to production capacity
data projected by CSM Worldwide, significant global excess capacity conditions
could continue for several years at an average of 30.5 million units per
year during the 2009-2011 period.
Pricing
Pressure. Excess capacity, coupled with a proliferation of new
products being introduced in key segments by the industry, will keep pressure on
manufacturers' ability to increase prices on their products. In
addition, the incremental new U.S. manufacturing capacity of Japanese and Korean
manufacturers in recent years has contributed, and is likely to continue to
contribute, to pricing pressure in the U.S. market. The reduction of
real prices for similarly contented vehicles in the United States has become
more pronounced since the late 1990s, and we expect that a challenging pricing
environment will continue for some time to come.
Consumer Spending and
Credit. Limited ability to increase vehicle prices has been
offset in recent years, at least in part, by the long-term trend toward purchase
of higher-end, more expensive vehicles and/or vehicles with more
features. The current retrenchment in consumer spending is likely to
dampen that trend in the near-term, and, even consumers who are willing to spend
often find that availability of automotive loans has been diminished as a result
of the credit crisis. Over the long term, spending on new vehicles is
expected to resume its correlation with growth in per capita
incomes. Emerging markets also will contribute an increasing share of
global industry sales volume and revenue, as growth in wholesales (i.e., volume)
will be greatest in emerging markets in the next decade. We believe,
however, the mature automotive markets (e.g., North America, Western Europe, and
Japan) will retain the largest share of global revenue over the coming
decade.
Health Care
Expenses. In 2008, our health care expenses (excluding special
items) for U.S. employees, retirees, and their dependents were
$1.3 billion, with about $500 million for postretirement health care
and the balance for active employee health care and other retiree
expense.
For 2009,
the initial health care cost trend rate for U.S. postretirement health care
plans is 5%. The ultimate trend rate no longer applies beyond 2008,
since we have capped our obligation for hourly and salaried retiree health care
costs.
Commodity and Energy Price
Increases. Commodity prices, particularly for steel and resins
(our two largest commodity exposures and among the most difficult to hedge),
have declined in recent months due to the downward trend in global
demand. We expect this slight decrease to flow through to our results
in the second half of 2009 as prevailing commodity costs are reflected in new
supply contracts. Despite this cyclical reduction in commodity
prices, a return to elevated prices, as well as the potential for volatility, is
quite possible once global demand recovers. Higher fuel prices,
combined with efforts to achieve environmental policy objectives, are likely to
continue to generate demand for more fuel efficient vehicles.
Currency Exchange Rate
Volatility. The ongoing deleveraging in financial markets has
generated significant volatility in currencies as well. For example,
the U.S. dollar has strengthened against the euro and significantly against the
British pound, and weakened against the Japanese yen.
Other Economic
Factors. Additional factors continue to affect the performance
of the automotive industry. In the United States, declines in
residential construction spending have continued, down 21% in 2008 after an 18%
decline in the prior year (after inflation adjustment). This trend
has had two effects on automotive sales and revenue – directly, through its
adverse effect on GDP growth, and as a contributing factor to soft demand for
truck sales. Both of these factors may continue to contribute to
lower light vehicle sales in the United States this year. In
addition, weaker travel demand and lack of financing have softened demand for
new vehicles from rental fleet customers. The eventual implications
of significant fiscal stimulus currently being enacted, including higher
government deficits generating potentially higher long-term interest rates,
could drive a higher cost of capital over our planning period.
ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Trends
and Strategies
As
indicated, we are in the midst of a global economic crisis that has included a
sudden and substantial decline in global automotive industry sales
volume. The dramatic decline in industry sales volume, combined with
tight credit markets, other economic factors and trends described above, and the
costs associated with transforming our business, have put significant pressure
on our liquidity (as evidenced during 2008 by negative Automotive gross cash
flow of $21.2 billion and total Company net loss of
$14.7 billion).
While the
economic environment worsens, we believe that our continued focus on executing
these four pillars of our plan is the right strategy to achieve our
objectives:
|
·
|
Aggressively
restructure to operate profitably at the current demand and changing model
mix;
|
|
·
|
Accelerate
development of new products our customers want and
value;
|
|
·
|
Finance
our plan and improve our balance sheet;
and
|
|
·
|
Work
together effectively as one team, leveraging our global
assets.
|
Despite
the worsening external economic environment, we have made significant progress
in transforming our business. As we continue to execute the four
pillars of our plan, we have achieved key milestones for our Automotive sector
as of year-end 2008 compared with 2005:
|
·
|
Reduced
hourly and salaried personnel levels in North America (including ACH) by
more than 60,000 employees, with additional salaried personnel
reductions of about 1,200 in January
2009;
|
|
·
|
Negotiated
transformational labor agreement with the UAW in 2007, including lower
wage structure for new employees, flexible work rules, and transfer of
long-term responsibility for retiree health care as described in more
detail in our 2007 Form 10-K
Report;
|
|
·
|
Closed
12 manufacturing facilities in North America (including ACH
facilities);
|
|
·
|
Divested
substantial non-core assets, including Aston Martin and Jaguar Land Rover
operations, allowing us to further focus our resources on our "One Ford"
vision;
|
|
·
|
Sold
a significant portion of our ownership in
Mazda;
|
|
·
|
Improved
vehicle quality around the world, and undertaken plans to introduce our
smaller, more fuel-efficient European vehicles to the North American
market; and
|
|
·
|
Exceeded
our goal of reducing cumulative annual North America Automotive operating
costs by more than $5 billion (at constant volume, mix and exchange,
excluding special items).
|
As we
execute our plan, we have stated that we are committed to taking necessary steps
to continue to match our manufacturing capacity to demand. In keeping
with that commitment, we are taking additional steps discussed below and in
"Outlook," particularly in North America, to continue our aggressive
restructuring and to finance our plan and improve our balance
sheet. In addition, we have announced that we are re-evaluating
strategic options for Volvo, including possible sale.
Aggressively Restructure to
Operate Profitably
Manufacturing. Our U.S. manufacturing
presence includes 10 vehicle assembly plants and 24 powertrain, stamping, and
components plants. We are converting three of these assembly plants
from production of large SUVs and trucks to small car production to support what
we believe is a permanent shift in consumer preferences to smaller, more
fuel-efficient vehicles. To this end, approximately 50% of future
U.S. manufacturing capacity will be allocated to small- and medium-size
vehicles. In addition, nearly all of our U.S. assembly plants will
have flexible body shops by 2012 to enable quick response to changing consumer
demands, and nearly half of our transmission and engine plants will be flexible,
capable of manufacturing various combinations of transmission and engine
families. In addition, we have announced plans to close two Ford and
two ACH plants in the 2009–2011 period. We are exploring our options
for the remaining ACH plants, and intend to transition these businesses to the
supply base as soon as practicable.
Product
Development. In combination with the business improvements
being achieved, we expect our "One Ford" product development vision and process
to deliver a broad range of highly acclaimed global vehicles, and, as announced,
we plan to accelerate the development of new products designed to meet shifting
consumer preferences for smaller, more fuel-efficient vehicles. With
our “One Ford” product development vision, we are working to make all small- and
medium-sized Ford vehicles competing in global segments common in North America,
Europe and Asia by 2013. This will include Fiesta- and Focus-sized
small cars, Fusion- and Mondeo-sized mid-size cars and utilities, and commercial
vans. As an example of how commonality can work for us, the new
Fiesta compact car that we introduced in Europe in 2008 also will be offered for
sale in all major markets, including the United States, over the next few
years.
ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Suppliers. We
continue to work to strengthen our supply base in the United States, which
represent 80% of our North American purchases. As part of this
process, we have been reducing the total number of production suppliers eligible
for major U.S. sourcing from 3,300 in 2004 to approximately 1,600 suppliers
today, with a further reduction to 750 suppliers planned. We believe
that our efforts at consolidation will result in more business for our major
suppliers, which is increasingly important as industry sales volume
declines. In addition, our move to global vehicle platforms should
increase our ability to source to common suppliers for the total global volume
of vehicle components, so that a smaller number of suppliers will receive a
greater volume of the purchases we make to support our global vehicle
platforms.
Dealers. Our
dealers are a source of strength in North America and around the world,
especially in rural areas and small towns where they represent the face of
Ford. At our current and expected future market share, however, we
have too many dealers, particularly in U.S. metropolitan areas, which makes it
increasingly difficult to sustain a healthy and profitable dealer
base. To address this overcapacity, we are working with our dealers
in efforts to downsize, consolidate and restructure our Ford, Lincoln, and
Mercury network in our largest 130 metropolitan market areas in the United
States to provide targeted average-year sales for Ford dealers of more than
1,500 units and for Lincoln Mercury dealers of more than 600
units. This should result in sustainable dealer profits. As part of
these efforts, the number of dealers in our Ford, Lincoln and Mercury network in
the United States has been reduced from about 4,400 at the end of 2005 to about
3,800 at the end of 2008. These efforts, which include funding dealer
consolidations to enhance our representation in the marketplace, will continue
in the future to reduce further our dealer network to match our sales and dealer
sales objectives.
Ford Credit. Ford
Credit also is further restructuring its operations and improving its cost
structure to reflect lower financing volumes resulting from lower automotive
industry sales volumes, lower financing volumes resulting from the sale of
Jaguar Land Rover operations, and its agreement
with Mazda to discontinue providing financial services. These actions
include forming new strategic alliances and partnerships, and reducing capital
needs in international markets while continuing to streamline its operations
globally. In the United States, Ford Credit continues to restructure
its operations and reduce personnel, including current plans described in its
Current Report on Form 8-K filed January 29, 2009.
Accelerate Development of
New Products
We are
committed to introducing new products that consumers want and value, and we are
receiving very positive reactions from consumers, media, and independent
evaluators in response to the products we introduced in 2008, which we plan to
build on in 2009.
Ford North
America. Ford, Lincoln and Mercury collectively increased U.S.
overall and retail market share in October, November, and December 2008 – the
first time the brands have posted three consecutive months of market share
improvements in 12 years. Our new 2009 Ford F-150 introduced in the
fourth quarter was named Motor
Trend magazine’s Truck of the Year and awarded the title of North
American Truck of the Year at the North American International Auto Show in
January 2009; the F-Series pickup has been the best-selling truck in the United
States for 32 straight years. The F-150 also was named “Top
Safety Pick” by the U.S. Insurance Institute for Highway Safety ("IIHS"), and we
now have the highest number of vehicles with the IIHS “Top Safety Picks” in the
industry. Ford also has more U.S.-government five-star safety-rated
vehicles than any other brand. In the fourth quarter of 2008, we also
began production of the 2010 Ford Fusion, Mercury Milan and Lincoln MKZ sedans,
as well as Fusion and Milan hybrids; the Fusion and Milan gasoline and hybrid
versions offer best-in-class fuel economy. The 2010 Ford Mustang
debuted with a new exterior and interior, and will arrive in dealerships in
spring 2009.
Ford Europe. In
Europe, 2009 will mark the first full sales year for the Fiesta, which was named
“Car of the Year” by What
Car? magazine, Britain’s leading source of new car
advice. Fiesta was the United Kingdom's best-selling model in
November and December of 2008 and again in January 2009, and is already the
second best-selling Ford model in Europe. The new Ford Ka reached
full production in Europe and is off to a strong sales start. Ford
Galaxy and Ford S-MAX were named No. 1 for reliability among Multi-Activity
Vehicles by DEKRA, the German vehicle testing agency. In addition,
the Ford Kuga crossover will be available for the first time with a 2.5-litre
5-cylinder Duratec Turbo gas engine and Durashift 5-tronic automatic
transmission. Based on the strength of its product portfolio, Ford
Europe improved its fourth quarter and full-year 2008 market share in the 19
markets we track, and Ford became the No. 2 selling brand in
Europe.
ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Ford South
America. In South America, 2009 will demonstrate the growing
strength of our “One Ford” plan. We are bringing the new
European-based Ford Focus to Brazil, Argentina, and Venezuela. Also
in Brazil, the North American-based Ford Edge will arrive in dealerships, along
with the European-based Transit, building on Ford South America’s business and
product success. Six additional product actions also are planned for
introduction in the region in 2009.
Ford Asia Pacific
Africa. In Asia, 2009 marks the introduction in China of the
all-new Ford Fiesta five-door and four-door sedan built in
Nanjing. The Fiesta also currently is being introduced in Australia
and New Zealand, where our FG Falcon XT was named "Best Large Car" in the
highly-regarded Australia's Best Cars Awards in 2008, and Falcon G6E Turbo named
2008 Carguide Car of The Year: People's Choice Award. Other product
introductions in 2009 include the new Ranger compact pickup and the Everest SUV,
both with advanced, efficient TDCi turbo-diesel engines. In 2008, we
launched a freshened Ford Focus in China and Ford Escape in key Asia Pacific
Africa markets.
Volvo. Volvo is
launching the XC60 crossover in Europe, and in the U.S. market this
spring. It also will introduce during 2009 low-emission versions of
seven cars, and a freshened S80 for Volvo’s flagship sedan.
Drive Quality. We
have made significant strides to improve quality through a renewed commitment
that touches every aspect of the vehicle process -- from design to manufacturing
to product launch – so that quality is designed- and built-into the
vehicle. We have established a global set of disciplined,
standardized processes aimed at making us the world's leader in automotive
quality. Through a single, global management team, we are leveraging
our assets by eliminating duplication, implementing best practices and a
systematic approach to quality, and utilizing common components for the
advantage of scale. The new integrated approach can be seen in the
upcoming Fiesta, our first of this generation of global cars. Selling
one high-volume version of this vehicle helps us cut costs, reduce defects, and
improve overall craftsmanship. In North America, we expect to launch
our all-new B- and C-cars with best-in-class quality in 2010. The
cumulative effect of these disciplined, global quality standards has been
improved owner satisfaction. For example, our domestic initial
quality for the 2008 model year is now statistically equivalent to Toyota and
Honda, based on internal and external surveys. In the past two years,
we have reduced warranty repairs, leading to $1.2 billion in warranty cost
savings. We expect improved quality discipline will lead to continued
improvement in long-term reliability.
Drive Green. Our
goal is to deliver best in class or among the best in class in fuel efficiency
in every new vehicle we produce. For example, soon-to-be launched
2010 Ford Fusion and Ford Fusion Hybrid will be the most fuel efficient mid-size
sedans in the market. In 2009, we begin the introduction of our new
EcoBoost family of gasoline engines, first in the Lincoln MKS and MKT and the
Ford Flex, and then across many vehicles in coming years. By
combining direct fuel-injection and turbo boosting, the engines can deliver up
to 20% better fuel economy and up to 15% fewer CO2 emissions versus larger
displacement engines, without sacrificing driving performance. By
2013, we expect to produce 750,000 EcoBoost engines in North America on an
annual basis. We have developed a sustainability strategy that
outlines future technology pathways for our vehicle production in the near, mid
and long term. Near term we are introducing EcoBoost, doubling the
number and volume production of our hybrids and implementing fuel saving
technologies such as six-speed transmissions and electric power assist steering
in the product line up. With our “One Ford” product development
vision, we are working to make all small- and medium-sized Ford vehicles
competing in global segments common in North America, Europe and Asia within the
next five years. This will include Fiesta- and Focus-sized small
cars, Fusion- and Mondeo-sized mid-size cars and utilities, and commercial
vans. Moreover, Ford recently announced an accelerated electric
vehicle strategy. We plan to produce at least four new electric
vehicles within the next four years, including a small battery electric
commercial van in 2010, a battery electric passenger sedan in 2011, and the next
generation hybrid and a plug-in hybrid in 2012. We have entered into
a number of collaborative agreements to address the many challenges that remain
for electrified transportation, including battery development, standardization,
cost, electric infrastructure and connectivity to the national power
grid.
Drive Safe. We are
expanding on our heritage of leading vehicle safety with both advanced crash
protection and crash avoidance technology. The Ford brand has the
most U.S. government five-star rated vehicles of any vehicle brand, and we are
building on our safety leadership by increasingly addressing driver behavior and
broadening “active” collision-avoidance technologies. For example, we
are introducing a new feature called MyKey to help parents encourage their
teen-agers to drive more safely and more fuel efficiently, and increase safety
belt usage. MyKey – which debuts on the 2010 Focus and will quickly
become standard on many other Ford, Lincoln and Mercury models – allows owners
to program a key that can limit the vehicle’s top speed and audio
volume. We also will offer a new advanced collision-avoidance
technology, Collision Warning with Brake Support, on certain Ford and Lincoln
vehicles in 2009. The feature uses radar to detect slowing or
stationary vehicles directly ahead, and warns the driver with an authoritative
beep and a red warning light projected on the windshield.
ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Drive Smart. We
have significantly accelerated the development of industry-leading technology
and innovations that are affordable for millions of customers. We
have been recognized as a leader in connectivity with our award-winning SYNC
system, which allows for hands-free mobile phone and music player
operation. We have upgraded SYNC with features such as 911 Assist and
Vehicle Health Reports, and will upgrade SYNC again in the summer of 2009 with
new features such as real-time traffic reports and turn-by-turn
directions. We currently offer SYNC in North America and plan to roll
out the technology globally beginning in 2010, starting in Europe and then
migrating to Asia Pacific. We also are developing industry-leading
human-machine interface technology to improve the overall driving
experience. SmartGauge™ with EcoGuide helps coach Fusion Hybrid
drivers to optimize performance of their vehicle for maximum fuel
efficiency. It features two high-resolution, full-color liquid
crystal display screens on either side of the analog speedometer that can be
configured to show different levels of information, including fuel and battery
power levels, and average and instant miles per gallon reports.
Finance Our Plan and Improve
Our Balance Sheet
The costs
associated with the transformation of our business, combined with the effects of
the sudden and substantial decline in industry sales volume that accompanied
this global economic crisis and other pressures, contributed to substantial
negative operating-related and other cash flow during 2008. We have
announced and are on track to achieve $14 billion to $17 billion in
Automotive cash improvement actions designed to improve our balance sheet in the
2009 – 2010 period, with about one half of the efforts occurring by the end of
2009 and the remainder in 2010. These announced actions
include:
|
·
|
Reducing
North American salaried personnel-related costs by an additional 10
percent by the end of January 2009, in addition to personnel-related cost
actions already taken or underway
globally.
|
|
·
|
Eliminating
merit pay increases for North America salaried employees in 2009, and
eliminating performance bonuses for global salaried employees, including
the Annual Incentive Compensation Plan for the 2008 performance
year.
|
|
·
|
Suspending
matching funds for U.S. salaried employees participating in Ford’s Savings
and Stock Investment Plan.
|
|
·
|
Reducing
annual capital spending to between $5 billion and $5.5 billion, primarily
enabled by reduced launch costs and increased efficiencies in Ford’s
global product development system.
|
|
·
|
Reducing
engineering, manufacturing, information technology and advertising costs
through greater global
efficiencies.
|
|
·
|
Reducing
inventories globally and achieving other working capital
improvements.
|
|
·
|
Returning
capital from Ford Credit consistent with its plan for a smaller balance
sheet and focus on core Ford
brands.
|
|
·
|
Continuing
to develop incremental sources of Automotive funding, including divesting
non-core operations and assets, and reducing our
debt.
|
See
"Outlook" for discussion of additional factors that we expect will improve our
Automotive cash flow in 2009 as compared with 2008.
In addition, as discussed
in "Liquidity and Capital Resources," we already have taken further actions in
2009 to improve our Automotive liquidity, including obtaining access to
$2.3 billion of Temporary Asset Account ("TAA") assets (as defined in Note
23 of the Notes to the Financial Statements) for use during 2009 and borrowing
$10.1 billion under our secured revolving credit facility.
We also
applied for $11 billion in loans over time pursuant to Section 136 of the
Energy Independence and Security Act of 2007 for the design and production of
"advanced technology vehicles" (as defined in the Act). Our
application has been determined by the U.S. Department of Energy ("DOE") to be
"substantially complete," but remains pending and we have not received notice of
the timing by which the loans may be funded. In addition, we are
applying for loans from the European Investment Bank ("EIB") of up to
€2.3 billion for eligible CO2/emissions-reduction
projects over the 2008 to 2012 period. Between the DOE and EIB loans
for which we have applied, we expect to receive about $2 billion in
2009.
Two of
our competitors with substantial legacy costs and debt, General Motors and
Chrysler, currently are engaged in discussions concerning U.S. government-funded
restructurings that, if successful, would reduce their legacy costs, align their
employee benefit costs with those of other competitors, and substantially reduce
their debt. For example, the government proposal for restructuring
would require that a significant portion of our competitors’ debt and
post-retirement benefit obligations be converted into equity. While
we do not anticipate entering into a government-funded restructuring, we
are pursuing similar restructuring actions to remain
competitive.
In
February 2009, for example, we reached a tentative agreement with the UAW that
includes modified labor costs, benefits, and operating practices to allow us to
reach competitive parity with foreign automakers’ U.S. manufacturing
operations. In addition to this tentative agreement, we tentatively
reached agreement with the UAW to provide us the option to settle with Ford
Common Stock up to 50% of our future cash payment obligations to the Voluntary
Employee Benefits Association retiree health care trust ("VEBA") required by the
Retiree Health Care Settlement Agreement. Both the operating-related
and VEBA-related tentative agreements are subject to vote and ratification
by active UAW-represented Ford hourly employees and to other conditions,
including our pursuit of restructuring actions with other
stakeholders. The VEBA-related tentative agreement also is subject to
court approval and SEC approval of the appropriate accounting treatment
acceptable to Ford.
Notwithstanding
our option to pay our VEBA obligations in stock in lieu of cash, we will use our
discretion in determining which form of payment makes sense at the time of each
required payment, balancing liquidity needs and preservation of shareholder
value. In making such a determination, we will consider facts and
circumstances existing at the time of each required payment, including market
and economic conditions, our available liquidity, and the price of Ford Common
Stock.
ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Ford
Credit has been able to fund its business and support the sale of Ford vehicles
despite the challenges of the global economic crisis, largely by reducing
receivables, and using its committed liquidity programs and government-sponsored
funding programs in the United States and Europe.
Work Together Effectively as
One Team
As part
of the One Team approach, we have implemented a disciplined business plan
process to regularly review our business environment, risks and opportunities,
our strategy, our plan, and identify areas of our plan that need special
attention and pursue opportunities to improve our plan. Everyone is
included and contributes, openness is encouraged, our leaders are responsible
and accountable, we use facts and data to make our decisions, high performance
teamwork is a performance criteria and we follow this process every week, every
month, and every quarter, driving continuous improvement. We believe
this process gives us a clear picture of our business in real time and the
ability to respond quickly and decisively to new issues and changing conditions
– as we have done in the face of rapid changes in the market and business
environment in 2008 and into 2009.
In
addition, we are partnering with and enlisting all of our stakeholders to help
us execute our plan to deal with our business realities and create an exciting
and viable Ford business going forward. We are reaching out and
listening to customers, dealers, employees, the UAW, suppliers, investors,
communities, retirees, and federal, state and local governments. Each
of these constituencies is a critical part of, and critical to, the success of
our business going forward. Realizing our goal of profitable growth
for all is as important to these stakeholders as it is to our
shareholders.
RESULTS
OF OPERATIONS
FULL-YEAR
2008 RESULTS OF OPERATIONS
Our
worldwide net loss was $14.7 billion or $6.46 per share of Common and
Class B Stock in 2008, a decline of $12 billion from a loss of
$2.7 billion or $1.38 per share in 2007.
Results
by business sector for 2008, 2007, and 2006 are shown below (in
millions):
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
before income taxes
|
|
|
|
|
|
|
|
|
|
Automotive
sector
|
|
$ |
(11,823 |
) |
|
$ |
(4,970 |
) |
|
$ |
(17,040 |
) |
Financial
Services sector
|
|
|
(2,581 |
) |
|
|
1,224 |
|
|
|
1,966 |
|
Total
Company
|
|
|
(14,404 |
) |
|
|
(3,746 |
) |
|
|
(15,074 |
) |
Provision
for/(Benefit from) income taxes (a)
|
|
|
63 |
|
|
|
(1,294 |
) |
|
|
(2,655 |
) |
Minority
interests in net income/(loss) of subsidiaries (b)
|
|
|
214 |
|
|
|
312 |
|
|
|
210 |
|
Income/(Loss)
from continuing operations
|
|
|
(14,681 |
) |
|
|
(2,764 |
) |
|
|
(12,629 |
) |
Income/(Loss)
from discontinued operations
|
|
|
9 |
|
|
|
41 |
|
|
|
16 |
|
Net
income/(loss)
|
|
$ |
(14,672 |
) |
|
$ |
(2,723 |
) |
|
$ |
(12,613 |
) |
__________
(a)
|
See
Note 19 of the Notes to the Financial Statements for disclosure regarding
2008 effective tax rate.
|
(b)
|
Primarily
related to Ford Europe's consolidated 41%-owned affiliate, Ford
Otosan. The pre-tax results for Ford Otosan were $531 million
in 2008, $551 million in 2007, and $509 million in
2006. See "Item 2. Properties" for additional discussion of
Ford Otosan. The decrease in 2008 primarily reflected the
accelerated depreciation related to AAI's acquisition of leased
facility.
|
ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Included
in Income/(Loss) before income
taxes are items we do not consider indicative of our ongoing operating
activities ("special items"). The following table details 2008, 2007,
and 2006 special items by segment or business unit (in millions):
Automotive
Sector
|
|
|
|
|
|
|
|
|
|
Ford
North America
|
|
|
|
|
|
|
|
|
|
Fixed
asset impairment charges
|
|
$ |
(5,300 |
) |
|
$ |
— |
|
|
$ |
(2,200 |
) |
Personnel-reduction
programs
|
|
|
(873 |
) |
|
|
(829 |
) |
|
|
(2,934 |
) |
Gain/(Loss)
on sale of ACH plants/assets
|
|
|
(324 |
) |
|
|
3 |
|
|
|
— |
|
Accelerated
depreciation related to AAI acquisition of leased facility
|
|
|
(306 |
) |
|
|
— |
|
|
|
— |
|
U.S.
dealer consolidation (including dealer goodwill
impairment)
|
|
|
(219 |
) |
|
|
— |
|
|
|
— |
|
Supplier
settlement/Other
|
|
|
(202 |
) |
|
|
— |
|
|
|
— |
|
Ballard
restructuring
|
|
|
(70 |
) |
|
|
— |
|
|
|
— |
|
Pension
curtailment charges
|
|
|
— |
|
|
|
(180 |
) |
|
|
(2,741 |
) |
Variable
marketing –change in business practice
(a)
|
|
|
— |
|
|
|
(1,099 |
) |
|
|
— |
|
U.S.
plant idlings (primarily fixed-asset write-offs)
|
|
|
— |
|
|
|
— |
|
|
|
(281 |
) |
Job
Security Benefits (b)
|
|
|
344 |
|
|
|
80 |
|
|
|
(1,826 |
) |
Retiree
health care (primarily curtailment gains)
|
|
|
2,583 |
|
|
|
1,332 |
|
|
|
— |
|
Total
Ford North America
|
|
|
(4,367 |
) |
|
|
(693 |
) |
|
|
(9,982 |
) |
Ford
South America
|
|
|
|
|
|
|
|
|
|
|
|
|
Legal
settlement relating to social welfare tax liability
|
|
|
— |
|
|
|
— |
|
|
|
110 |
|
Ford
Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel-reduction
programs
|
|
|
(82 |
) |
|
|
(90 |
) |
|
|
(84 |
) |
Variable
marketing –change in business practice (a)
|
|
|
— |
|
|
|
(120 |
) |
|
|
— |
|
Plant
idling/closure
|
|
|
— |
|
|
|
(43 |
) |
|
|
— |
|
Total
Ford Europe
|
|
|
(82 |
) |
|
|
(253 |
) |
|
|
(84 |
) |
Volvo
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel-reduction
programs/Other
|
|
|
(194 |
) |
|
|
(67 |
) |
|
|
(217 |
) |
Dealer
restructuring
|
|
|
(31 |
) |
|
|
— |
|
|
|
— |
|
Goodwill
impairment charges
|
|
|
— |
|
|
|
(2,400 |
) |
|
|
— |
|
Variable
marketing –change in business practice (a)
|
|
|
— |
|
|
|
(87 |
) |
|
|
— |
|
Total
Volvo
|
|
|
(225 |
) |
|
|
(2,554 |
) |
|
|
(217 |
) |
Ford
Asia Pacific Africa
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel-reduction
programs/Other
|
|
|
(137 |
) |
|
|
(23 |
) |
|
|
(65 |
) |
Variable
marketing –change in business practice (a)
|
|
|
— |
|
|
|
(15 |
) |
|
|
— |
|
Total
Ford Asia Pacific Africa
|
|
|
(137 |
) |
|
|
(38 |
) |
|
|
(65 |
) |
Mazda
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment
of dealer network goodwill
|
|
|
(214 |
) |
|
|
— |
|
|
|
— |
|
Loss
on sale of Mazda shares
|
|
|
(121 |
) |
|
|
— |
|
|
|
— |
|
Personnel-reduction
programs –AAI
|
|
|
— |
|
|
|
— |
|
|
|
(38 |
) |
Mazda
pension transfer
|
|
|
— |
|
|
|
— |
|
|
|
115 |
|
Total
Mazda
|
|
|
(335 |
) |
|
|
— |
|
|
|
77 |
|
Other
Automotive
|
|
|
|
|
|
|
|
|
|
|
|
|
Returns
on the assets held in the TAA
|
|
|
(509 |
) |
|
|
— |
|
|
|
— |
|
Initial
mark-to-market adjustment on Mazda marketable securities
|
|
|
(80 |
) |
|
|
— |
|
|
|
— |
|
Loss
on conversion of convertible securities
|
|
|
— |
|
|
|
(632 |
) |
|
|
— |
|
Gain
on exchange and purchase of debt securities
|
|
|
141 |
|
|
|
120 |
|
|
|
— |
|
Total
Other Automotive sector
|
|
|
(448 |
) |
|
|
(512 |
) |
|
|
— |
|
Jaguar
Land Rover and Aston Martin
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-for-sale
impairment/loss on sale of Jaguar Land Rover
|
|
|
(559 |
) |
|
|
— |
|
|
|
— |
|
Net
gains/(losses) on certain Jaguar Land Rover undesignated
hedges
|
|
|
(19 |
) |
|
|
143 |
|
|
|
— |
|
Personnel-reduction
programs
|
|
|
(4 |
) |
|
|
(120 |
) |
|
|
(161 |
) |
Fixed
asset impairment charges
|
|
|
— |
|
|
|
— |
|
|
|
(1,600 |
) |
Sale
of Aston Martin (primarily the gain on sale)
|
|
|
— |
|
|
|
208 |
|
|
|
— |
|
Variable
marketing –change in business practice (a)
|
|
|
— |
|
|
|
(53 |
) |
|
|
— |
|
Jaguar
Land Rover operating profits for 2008/Other
|
|
|
614 |
|
|
|
— |
|
|
|
— |
|
Total
Jaguar Land Rover and Aston Martin
|
|
|
32 |
|
|
|
178 |
|
|
|
(1,761 |
) |
Total
Automotive sector
|
|
|
(5,562 |
) |
|
|
(3,872 |
) |
|
|
(11,922 |
) |
Financial
Services Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
Credit net operating lease impairment charges
|
|
|
(2,086 |
) |
|
|
— |
|
|
|
— |
|
Total
|
|
$ |
(7,648 |
) |
|
$ |
(3,872 |
) |
|
$ |
(11,922 |
) |
__________
(a)
|
Represents
a one-time, non-cash charge related to a change in our business practice
for offering and announcing retail variable marketing incentives to our
dealers. See our Annual Report on Form 10-K for the year ended
December 31, 2007 for discussion of this change in business
practice.
|
(b)
|
See
Note 18 of the Notes to the Financial Statements for definition and
discussion of Job Security
Benefits.
|
ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Included
in Provision for/(Benefit
from) income taxes are tax benefits of $144 million, $1.5 billion,
and $2 billion, for 2008, 2007, and 2006, respectively, that we consider to
be special items. These consist of the tax effects of the pre-tax
special items listed above, the impact of changes in tax rate on deferred tax
balances, and, in 2007, a $1.5 billion benefit reflecting the change in our
deferred tax asset valuation allowance allocated to Income/(Loss) from continuing
operations after taking into consideration income from Accumulated other comprehensive
income/(loss) when determining whether sufficient future taxable income
exists to realize deferred tax assets.
The
discussion below of Automotive and Financial Services sector results of
operations is on a pre-tax basis.
AUTOMOTIVE
SECTOR RESULTS OF OPERATIONS
2008
Compared with 2007
Details
by segment or business unit of Income/(Loss) before income taxes
are shown below (in millions), with Jaguar Land Rover and Aston Martin
segment separated out from "ongoing" subtotals:
|
|
|
|
|
|
|
|
|
|
Ford
North America *
|
|
$ |
(10,248 |
) |
|
$ |
(4,139 |
) |
|
$ |
(6,109 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
South America
|
|
|
1,230 |
|
|
|
1,172 |
|
|
|
58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
Europe
|
|
|
970 |
|
|
|
744 |
|
|
|
226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volvo
|
|
|
(1,690 |
) |
|
|
(2,718 |
) |
|
|
1,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
Asia Pacific Africa
|
|
|
(290 |
) |
|
|
2 |
|
|
|
(292 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Mazda
|
|
|
(105 |
) |
|
|
182 |
|
|
|
(287 |
) |
Total
ongoing Automotive operations
|
|
|
(10,133 |
) |
|
|
(4,757 |
) |
|
|
(5,376 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Automotive
|
|
|
(1,722 |
) |
|
|
(1,059 |
) |
|
|
(663 |
) |
Total
ongoing Automotive
|
|
|
(11,855 |
) |
|
|
(5,816 |
) |
|
|
(6,039 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Jaguar
Land Rover and Aston Martin
|
|
|
32 |
|
|
|
846 |
|
|
|
(814 |
) |
Total
Automotive sector
|
|
$ |
(11,823 |
) |
|
$ |
(4,970 |
) |
|
$ |
(6,853 |
) |
__________
|
* Includes
the sales of Mazda6 by our consolidated subsidiary,
AAI.
|
ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Details
by segment of Automotive revenues ("sales") and wholesale unit volumes for 2008
and 2007 are shown below:
|
|
|
|
|
Wholesales
(b)
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
North America (c)
|
|
$ |
53.4 |
|
|
$ |
70.4 |
|
|
$ |
(17.0 |
) |
|
|
(24 |
)% |
|
|
2,329 |
|
|
|
2,890 |
|
|
|
(561 |
) |
|
|
(19 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
South America
|
|
|
8.6 |
|
|
|
7.6 |
|
|
|
1.0 |
|
|
|
14 |
|
|
|
435 |
|
|
|
438 |
|
|
|
(3 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
Europe
|
|
|
39.0 |
|
|
|
36.3 |
|
|
|
2.7 |
|
|
|
7 |
|
|
|
1,820 |
|
|
|
1,918 |
|
|
|
(98 |
) |
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volvo
|
|
|
14.7 |
|
|
|
17.8 |
|
|
|
(3.1 |
) |
|
|
(17 |
) |
|
|
359 |
|
|
|
482 |
|
|
|
(123 |
) |
|
|
(26 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
Asia Pacific Africa (d)
|
|
|
6.5 |
|
|
|
7.0 |
|
|
|
(0.5 |
) |
|
|
(8 |
) |
|
|
464 |
|
|
|
535 |
|
|
|
(71 |
) |
|
|
(13 |
) |
Total
ongoing Automotive operations
|
|
|
122.2 |
|
|
|
139.1 |
|
|
|
(16.9 |
) |
|
|
(12 |
) |
|
|
5,407 |
|
|
|
6,263 |
|
|
|
(856 |
) |
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jaguar
Land Rover and Aston Martin
|
|
|
7.0 |
|
|
|
15.3 |
|
|
|
(8.3 |
) |
|
|
(54 |
) |
|
|
125 |
|
|
|
292 |
|
|
|
(167 |
) |
|
|
(57 |
) |
Total
Automotive sector
|
|
$ |
129.2 |
|
|
$ |
154.4 |
|
|
$ |
(25.2 |
) |
|
|
(16 |
) |
|
|
5,532 |
|
|
|
6,555 |
|
|
|
(1,023 |
) |
|
|
(16 |
) |
__________
(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 185,000 and 205,000 units in 2008 and 2007,
respectively. "Sales" above does not include revenue from these
units.
|
Details
of Automotive sector market share for selected markets for 2008 and 2007, along
with the level of dealer stocks as of December 31, 2008 and 2007, are
shown below:
|
|
|
|
Dealer-Owned
Stocks (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
Over/(Under)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States (b)
|
|
|
14.2 |
% |
|
|
14.6 |
% |
|
|
(0.4 |
) |
pts.
|
|
|
442 |
|
|
|
533 |
|
|
|
(91 |
) |
South
America (b) (c)
|
|
|
9.7 |
|
|
|
10.7 |
|
|
|
(1.0 |
) |
|
|
|
46 |
|
|
|
36 |
|
|
|
10 |
|
Europe
(b) (d)
|
|
|
8.6 |
|
|
|
8.5 |
|
|
|
0.1 |
|
|
|
|
331 |
|
|
|
317 |
|
|
|
14 |
|
Volvo
– U.S./Europe (d)
|
|
|
0.5/1.3 |
|
|
|
0.6/1.5 |
|
|
|
(0.1)/(0.2) |
|
|
|
|
14/39 |
|
|
|
24/43 |
|
|
|
(10)/(4) |
|
Asia
Pacific and Africa (b) (e) (f)
|
|
|
2.0 |
|
|
|
2.3 |
|
|
|
(0.3 |
) |
|
|
|
46 |
|
|
|
58 |
|
|
|
(12 |
) |
__________
(a)
|
Dealer-owned
stocks represent our estimate of vehicles shipped to our customers
(dealers) and not yet sold by the dealers to their retail customers, as
well as some vehicles reflected in our
inventory.
|
(b)
|
Includes
only Ford and, in certain markets (primarily the United States), Lincoln
and Mercury brands.
|
(c)
|
South
America market share is based on estimated vehicle retail sales for our
six major markets (Argentina, Brazil, Chile, Colombia, Ecuador, and
Venezuela).
|
(d)
|
European
2008 market share is based, in part, on estimated vehicle registrations
for the 19 European markets we track See "Item 1. Business" for
discussion of these markets.
|
(e)
|
Asia
Pacific and Africa 2008 market share is based on estimated vehicle retail
sales for our 12 major markets (Australia, China, Japan, India, Indonesia,
Malaysia, New Zealand, Philippines, South Africa, Taiwan, Thailand, and
Vietnam).
|
(f)
|
Dealer-owned
stocks for Asia Pacific and Africa include primarily Ford-brand vehicles
as well as a small number of units distributed for other
manufacturers.
|
ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Overall
Automotive Sector
The
decline in earnings primarily reflected unfavorable volume and mix ($6.9
billion), fixed asset impairment charges in Ford North America ($5.3 billion),
lower returns on our cash portfolio ($1 billion), lower returns on the assets
held in the TAA (about $700 million), and a held-for-sale impairment/loss on
sale of Jaguar Land Rover (about $600 million). These factors
were offset partially by favorable cost changes ($4.3 billion), the
non-recurrence of a goodwill impairment charge related to Volvo ($2.4 billion),
and favorable retiree health care changes (primarily curtailment gains) ($1.3
billion).
The
decrease in revenue is more than explained by lower volumes and lower revenue
for Jaguar Land Rover, offset partially by favorable changes in currency
exchange.
The table
below details our 2008 cost changes at constant volume, mix, and exchange,
excluding special items and discontinued operations
(in billions):
Explanation
of Cost Changes
|
|
2008
Better/(Worse)
Than
2007
|
|
Manufacturing
and engineering
|
|
Largely
explained by hourly and salaried personnel reductions in North America and
efficiencies in our plants and processes
|
|
$ |
1.5 |
|
Spending-related
|
|
Primarily
reflecting lower expense related to the North America asset impairment at
the end of the second quarter and the non-recurrence of accelerated
depreciation and amortization for facilities that recently
closed
|
|
|
1.3 |
|
Pension
and OPEB
|
|
Primarily
reflecting health care efficiencies and the effect of U.S. hourly retiree
health care VEBA agreement
|
|
|
1.2 |
|
Overhead
|
|
Primarily
reduced salaried personnel levels
|
|
|
1.0 |
|
Advertising
& sales promotions
|
|
Primarily
decreased advertising costs in North America
|
|
|
0.4 |
|
Warranty-related
|
|
Largely
explained by quality improvements
|
|
|
0.1 |
|
Net
product costs
|
|
More
than explained by commodity cost increases and unfavorable mark-to-market
adjustments on commodity hedges
|
|
|
(1.2 |
) |
|
|
Total
|
|
$ |
4.3 |
|
Ford North America
Segment. The decline in earnings is more than explained by
unfavorable volume and mix ($5.4 billion), fixed asset impairment charges
($5.3 billion), and lower net pricing ($1.3 billion), offset partially by
favorable cost changes (more than explained by lower manufacturing and
engineering, spending-related, and pension and OPEB costs) ($3.5 billion),
favorable retiree health care changes (primarily curtailment gains) ($1.3
billion), and the non-recurrence of a variable marketing charge related to a
business practice change ($1.1 billion).
Ford South America
Segment. The increase in earnings is more than explained by
favorable net pricing, offset partially by unfavorable cost changes, unfavorable
volume and mix, and unfavorable changes in currency exchange. The
unfavorable cost changes are more than explained by higher net product
costs.
Ford Europe
Segment. The increase in earnings is primarily explained by
favorable cost changes, favorable net pricing, and the non-recurrence of a
variable marketing charge related to a business practice change, offset
partially by unfavorable changes in currency exchange rates and unfavorable
volume and mix. The favorable cost changes primarily reflected lower
warranty-related and pension costs, offset partially by higher manufacturing and
engineering costs.
Volvo Segment. The
improvement in earnings is more than explained by the non-recurrence of a
goodwill impairment charge and favorable cost changes. These factors
were offset partially by unfavorable volume and mix, mainly in the United States
and Europe (largely due to lower industry sales volumes, lower market share, and
unfavorable product mix), lower net pricing, and unfavorable changes in currency
exchange rates. The favorable cost changes primarily reflected lower
manufacturing and engineering, overhead, net product, warranty, and advertising
costs.
Ford Asia Pacific Africa
Segment. The decline in results primarily reflected
unfavorable volume and mix, unfavorable changes in currency exchange rates, and
higher personnel reduction costs, offset partially by favorable cost changes and
higher net pricing. The favorable cost changes primarily reflected
lower net product, overhead, and spending-related costs.
ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Mazda Segment. The decline in
results are more than explained by a charge as determined under U.S. GAAP
representing the impact on Ford of a goodwill impairment related to Mazda-owned
dealerships in Japan and the loss on sale of a portion of Ford's share in
Mazda.
Other
Automotive. The decline in earnings primarily reflected lower
returns on our cash portfolio and lower returns on the assets held in the
TAA. These factors were offset partially by the non-recurrence of the
conversion of convertible securities, lower interest expense, and favorable
mark-to-market adjustments for changes in currency exchange rates on
intercompany loans.
Jaguar Land Rover and Aston Martin
Segment. The decrease in earnings primarily reflected the
held-for-sale impairment and loss on sale of Jaguar Land Rover and the
non-recurrence of the gain on sale of Aston Martin.
2007
Compared with 2006
Details
by Automotive segment or business unit of Income/(Loss) before income taxes
are shown below (in millions):
|
|
|
|
|
|
|
|
|
|
Ford
North America*
|
|
$ |
(4,139 |
) |
|
$ |
(15,992 |
) |
|
$ |
11,853 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
South America
|
|
|
1,172 |
|
|
|
661 |
|
|
|
511 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
Europe
|
|
|
744 |
|
|
|
371 |
|
|
|
373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volvo
|
|
|
(2,718 |
) |
|
|
(256 |
) |
|
|
(2,462 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
Asia Pacific Africa
|
|
|
2 |
|
|
|
(250 |
) |
|
|
252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mazda
|
|
|
182 |
|
|
|
245 |
|
|
|
(63 |
) |
Total
ongoing Automotive operations
|
|
|
(4,757 |
) |
|
|
(15,221 |
) |
|
|
10,464 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Automotive
|
|
|
(1,059 |
) |
|
|
247 |
|
|
|
(1,306 |
) |
Total
ongoing Automotive
|
|
|
(5,816 |
) |
|
|
(14,974 |
) |
|
|
9,158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jaguar
Land Rover and Aston Martin
|
|
|
846 |
|
|
|
(2,066 |
) |
|
|
2,912 |
|
Total
Automotive sector
|
|
$ |
(4,970 |
) |
|
$ |
(17,040 |
) |
|
$ |
12,070 |
|
__________
* Includes
the sale of Mazda6 vehicles by our consolidated subsidiary, AAI.
ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Details
of Automotive sector sales and wholesale unit volumes by Automotive segment for
2007 and 2006 are shown below:
|
|
|
|
|
Wholesales
(b)
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
North America (c)
|
|
$ |
70.4 |
|
|
$ |
70.7 |
|
|
$ |
(0.3 |
) |
|
|
— |
% |
|
|
2,890 |
|
|
|
3,123 |
|
|
|
(233 |
) |
|
|
(7 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
South America
|
|
|
7.6 |
|
|
|
5.7 |
|
|
|
1.9 |
|
|
|
33 |
|
|
|
438 |
|
|
|
381 |
|
|
|
57 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
Europe
|
|
|
36.3 |
|
|
|
30.4 |
|
|
|
5.9 |
|
|
|
20 |
|
|
|
1,918 |
|
|
|
1,846 |
|
|
|
72 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volvo
|
|
|
17.8 |
|
|
|
16.1 |
|
|
|
1.7 |
|
|
|
10 |
|
|
|
482 |
|
|
|
460 |
|
|
|
22 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
Asia Pacific Africa (d)
|
|
|
7.0 |
|
|
|
6.5 |
|
|
|
0.5 |
|
|
|
8 |
|
|
|
535 |
|
|
|
517 |
|
|
|
18 |
|
|
|
3 |
|
Total
ongoing Automotive operations
|
|
|
139.1 |
|
|
|
129.4 |
|
|
|
9.7 |
|
|
|
8 |
|
|
|
6,263 |
|
|
|
6,327 |
|
|
|
(64 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jaguar
Land Rover and Aston Martin
|
|
|
15.3 |
|
|
|
13.9 |
|
|
|
1.4 |
|
|
|
10 |
|
|
|
292 |
|
|
|
270 |
|
|
|
22 |
|
|
|
8 |
|
Total
Automotive sector
|
|
$ |
154.4 |
|
|
$ |
143.3 |
|
|
$ |
11.1 |
|
|
|
8 |
% |
|
|
6,555 |
|
|
|
6,597 |
|
|
|
(42 |
) |
|
|
(1 |
)% |
__________
(a)
|
2007
over/(under) 2006 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. For a discussion of our revenue recognition policy for
these sales, see Note 2 of the Notes to the Financial
Statements.
|
(c)
|
Reflects
sales of Mazda6 by our consolidated subsidiary,
AAI.
|
(d)
|
Included
in wholesale unit volumes of Ford Asia Pacific and Africa are Ford-badged
vehicles sold in China and Malaysia by certain unconsolidated affiliates
totaling about 205,000 and 158,000 units in 2007 and 2006,
respectively. "Sales" above does not include revenue from these
units.
|
Details
of Automotive sector market share for selected markets for 2007 and 2006, along
with the level of dealer stocks as of December 31, 2007 and 2006, are
shown below:
|
|
|
|
|
Dealer-Owned
Stocks (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
Over/(Under)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States (b)
|
|
|
14.6 |
% |
|
|
16.0 |
% |
|
|
(1.4 |
)pts. |
|
|
533 |
|
|
|
570 |
|
|
|
(37 |
) |
South
America (b) (c)
|
|
|
10.7 |
|
|
|
11.5 |
|
|
|
(0.8 |
) |
|
|
36 |
|
|
|
40 |
|
|
|
(4 |
) |
Europe
(b) (d)
|
|
|
8.5 |
|
|
|
8.5 |
|
|
|
— |
|
|
|
317 |
|
|
|
322 |
|
|
|
(5 |
) |
Volvo
- U.S./Europe (d)
|
|
|
0.6/1.5 |
|
|
|
0.7/1.4 |
|
|
|
(0.1.)/0.1 |
|
|
|
24/43 |
|
|
|
19/44 |
|
|
|
5/ |
(1) |
Asia
Pacific and Africa (b) (e) (f)
|
|
|
2.3 |
|
|
|
2.4 |
|
|
|
(0.1 |
) |
|
|
58 |
|
|
|
50 |
|
|
|
8 |
|
__________
(a)
|
Dealer-owned
stocks represent our estimate of vehicles shipped to our customers
(dealers) and not yet sold by the dealers to their retail customers, as
well as some vehicles reflected in our
inventory.
|
(b)
|
Includes
only Ford and, in certain markets (primarily the United States), Lincoln
and Mercury brands.
|
(c)
|
South
America market share is based on estimated vehicle retail sales for our
six major markets (Argentina, Brazil, Chile, Colombia, Ecuador, and
Venezuela).
|
(d)
|
European
2007 market share is based, in part, on estimated vehicle registrations
for the 19 European markets we track. See "Item 1. Business"
for discussion of these
markets.
|
(e)
|
Asia
Pacific and Africa 2007 market share is based on estimated vehicle retail
sales for our 12 major markets (Australia, China, Japan, India, Indonesia,
Malaysia, New Zealand, Philippines, South Africa, Taiwan, Thailand, and
Vietnam).
|
(f)
|
Dealer-owned
stocks for Asia Pacific and Africa include primarily Ford-brand vehicles
as well as a small number of units distributed for other
manufacturers.
|
ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Overall
Automotive Sector
The
improvement in earnings primarily reflected lower charges for Job Security
Benefits and personnel-reduction programs in Ford North America
($4 billion), favorable net pricing – including a variable marketing charge
related to a business practice change – ($2.6 billion), lower pension
curtailment charges ($2.6 billion), the non-recurrence of
2006 impairment charges related to our long-lived assets in Ford North
America ($2.2 billion), favorable cost changes ($1.8 billion), the
non-recurrence of an impairment charge related to assets in Jaguar Land Rover
($1.6 billion), and retiree health care curtailment gains related to our hourly
separation programs ($1.3 billion). These factors were offset
partially by higher impairment charges related to assets in Volvo (about $2.4
billion), changes in currency exchange rates (about $900 million), and
higher net interest (about $800 million).
The
increase in revenue primarily reflected changes in currency exchange rates,
improved product mix, and higher net pricing, offset partially by lower volumes
(more than explained by North America). Higher net pricing in 2007
compared with 2006 was achieved despite the variable marketing charge related to
a business practice change.
The table
below details our 2007 cost changes at constant volume, mix, and exchange,
excluding special items and discontinued operations
(in billions):
Explanation
of Cost Changes
|
|
2007
Better/(Worse) Than
2006
|
|
Warranty-related
|
|
Primarily
the non-recurrence of adverse 2006 adjustments to Jaguar and Land Rover
warranty accruals, and improvements in most operations
|
|
$ |
1.0 |
|
Manufacturing
and engineering
|
|
Primarily
hourly and salaried personnel reductions and efficiencies in our plants
and processes
|
|
|
0.8 |
|
Pension
and OPEB
|
|
Primarily
the favorable impact associated with the mid-2006 implementation of our
2005 retiree health care cost sharing agreement with the UAW, ongoing
improvements related to curtailments, and higher pension
asset returns
|
|
|
0.8 |
|
Spending-related
|
|
Primarily
reduced depreciation resulting from 2006 asset impairments, as well
as lower accelerated depreciation related to our efforts to reduce
production capacity
|
|
|
0.8 |
|
Overhead
|
|
Primarily
salaried personnel reductions
|
|
|
0.5 |
|
Advertising
& sales promotions
|
|
Primarily
increased advertising costs
|
|
|
(0.2 |
) |
Net
product costs
|
|
Primarily
added product content (including diesel engine emission requirements) and
higher commodity costs, offset partially by material cost
reductions
|
|
|
(1.9 |
) |
|
|
Total
|
|
$ |
1.8 |
|
Ford North America
Segment. The improvement in earnings primarily reflected lower
charges for Job Security Benefits and personnel-reduction programs, lower
pension curtailment charges, the non-recurrence of 2006 impairment charges
related to our long-lived assets, higher net pricing, and retiree health care
curtailment gains related to our hourly separation programs.
Ford South America
Segment. The increase in earnings is more than explained by
higher net revenue and improved volume and mix, offset partially by unfavorable
cost changes and the non-recurrence of a 2006 gain associated with a legal
settlement relating to a social welfare tax liability. The
unfavorable cost changes primarily reflected higher net product costs and higher
manufacturing and engineering costs.
Ford Europe
Segment. The increase in earnings is more than explained by
favorable cost changes and improved volume and mix, offset partially by costs
associated with a U.K. plant closure and changes in currency
exchange. The favorable cost changes primarily reflected lower
warranty-related costs and net product costs, offset partially by higher
manufacturing and engineering costs and advertising and sales promotion
costs.
Volvo Segment. The
decline in earnings primarily reflected an asset impairment charge.
Ford Asia Pacific Africa
Segment. The improvement in results primarily reflected
favorable cost changes, higher net pricing, and lower charges for
personnel-reduction programs, offset partially by less favorable volume and
mix. The favorable cost changes primarily reflected lower
manufacturing and engineering costs, overhead costs, and net product
costs.
ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Mazda Segment. The decrease
in earnings primarily reflected the decrease in net earnings at Mazda (including
the non-recurrence of a gain Mazda realized on the transfer of its pension
liabilities back to the Japanese government), offset partially by the
non-recurrence of personnel-reduction programs at AAI.
Other
Automotive. The decline in results primarily reflected higher
interest expense and related costs associated with the higher debt levels that
resulted from financing actions taken in the fourth quarter of 2006, the
non-recurrence in Other Automotive of tax-related interest adjustments resulting
from settlements with the Internal Revenue Service in 2006, and a loss on the
conversion of our convertible securities. These unfavorable factors were offset
partially by higher interest income reflecting higher average cash balances,
mark-to-market adjustments for changes in exchange rates on intercompany loans
and related loan hedges, and a gain on the exchange of debt securities for
equity that occurred in December 2007.
Jaguar Land Rover and Aston Martin
Segment. The improvement in results is more than explained by
the non-recurrence of a fixed asset impairment charge for Jaguar Land Rover,
favorable cost changes, favorable net pricing, and the effect of our sale of
Aston Martin (primarily the gain on sale). The favorable cost changes
primarily reflected lower warranty-related costs (primarily the non-recurrence
of adverse 2006 adjustments to Jaguar Land Rover warranty accruals) and
overhead costs.
FINANCIAL
SERVICES SECTOR RESULTS OF OPERATIONS
2008
Compared with 2007
Details
of the full-year Financial Services sector Revenues and Income/(Loss) before income taxes
for 2008 and 2007 are shown below:
|
|
|
|
|
Income/(Loss)
Before Income Taxes
(in
millions)
|
|
|
|
|
|
|
|
|
|
2008
Over/(Under)
|
|
|
|
|
|
|
|
|
2008
Over/(Under)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
Credit
|
|
$ |
16.7 |
|
|
$ |
17.8 |
|
|
$ |
(1.1 |
) |
|
$ |
(2,559 |
) |
|
$ |
1,215 |
|
|
$ |
(3,774 |
) |
Other
Financial Services
|
|
|
0.4 |
|
|
|
0.3 |
|
|
|
0.1 |
|
|
|
(22 |
) |
|
|
9 |
|
|
|
(31 |
) |
Total
|
|
$ |
17.1 |
|
|
$ |
18.1 |
|
|
$ |
(1.0 |
) |
|
$ |
(2,581 |
) |
|
$ |
1,224 |
|
|
$ |
(3,805 |
) |
Ford
Credit
The
decrease in pre-tax earnings primarily reflected the significant decline in used
vehicle auction values during 2008. This decline in auction values
contributed to an impairment charge to Ford Credit’s North America segment
operating lease portfolio ($2.1 billion), a higher provision for credit losses
($1.2 billion), and higher depreciation expense for leased vehicles (about $700
million). Other factors that explain the decrease in pre-tax earnings
include lower volume primarily related to lower average receivables (about $300
million), higher net losses related to market valuation adjustments to
derivatives (about $200 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 partially offset by higher financing
margin primarily attributable to lower borrowing costs (about $200 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 $300 million), and a gain related to
the sale of approximately half of Ford Credit's ownership interest in its Nordic
operation (about $100 million).
ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Ford
Credit reviews its business performance from several perspectives,
including:
|
•
|
On-balance sheet
basis. Includes the receivables and leases Ford Credit
owns and securitized receivables and leases that remain on Ford Credit's
balance sheet (includes other structured financings and factoring
transactions that have features similar to
securitizations);
|
|
•
|
Securitized off-balance sheet
basis. Includes receivables sold in securitization
transactions that, when sold, do not remain on Ford Credit's balance
sheet;
|
|
•
|
Managed
basis. Includes on-balance sheet receivables, excluding
unearned interest supplements related to finance receivables, and
securitized off-balance sheet receivables that Ford Credit continues to
service; and
|
|
•
|
Serviced
basis. Includes managed receivables and leases, and
receivables sold in whole-loan sale transactions where Ford Credit retains
no interest in the sold receivables, but which it continues to
service.
|
Ford
Credit analyzes its financial performance primarily on a managed and on-balance
sheet basis. It retains interests in receivables sold in off-balance
sheet securitizations and, with respect to subordinated retained interests, has
credit risk. As a result, it evaluates credit losses, receivables,
and leverage on a managed basis as well as on an on-balance sheet
basis. In contrast, Ford Credit does not have the same financial
interest in the performance of receivables sold in whole-loan sale transactions,
and, as a result, it generally reviews the performance of its serviced portfolio
only to evaluate the effectiveness of its origination and collection
activities. To evaluate the performance of these activities, Ford
Credit monitors a number of measures, such as delinquencies, repossession
statistics, losses on repossessions, and the number of bankruptcy
filings.
Ford
Credit's receivable levels are shown in the table below (in
billions):
|
|
|
|
On-Balance
Sheet
|
|
|
|
|
|
|
Finance
receivables
|
|
|
|
|
|
|
Retail
installment
|
|
$ |
62.8 |
|
|
$ |
73.3 |
|
Wholesale
|
|
|
27.7 |
|
|
|
34.7 |
|
Other
|
|
|
2.8 |
|
|
|
3.4 |
|
Total
finance receivables, net
|
|
|
93.3 |
|
|
|
111.4 |
|
Net
investment in operating leases
|
|
|
22.5 |
|
|
|
29.7 |
|
Total
on-balance sheet (a)(b)
|
|
$ |
115.8 |
|
|
$ |
141.1 |
|
Unearned
Interest Supplements — included in Finance
receivables
|
|
$ |
1.3 |
|
|
$ |
— |
|
Securitized
Off-Balance Sheet
|
|
|
|
|
|
|
|
|
Finance
receivables
|
|
|
|
|
|
|
|
|
Retail
installment
|
|
$ |
0.6 |
|
|
$ |
6.0 |
|
Wholesale
|
|
|
— |
|
|
|
— |
|
Other
|
|
|
— |
|
|
|
— |
|
Total
finance receivables
|
|
|
0.6 |
|
|
|
6.0 |
|
Net
investment in operating leases
|
|
|
— |
|
|
|
— |
|
Total
securitized off-balance sheet
|
|
$ |
0.6 |
|
|
$ |
6.0 |
|
Managed
|
|
|
|
|
|
|
|
|
Finance
receivables
|
|
|
|
|
|
|
|
|
Retail
installment
|
|
$ |
64.7 |
|
|
$ |
79.3 |
|
Wholesale
|
|
|
27.7 |
|
|
|
34.7 |
|
Other
|
|
|
2.8 |
|
|
|
3.4 |
|
Total
finance receivables, net
|
|
|
95.2 |
|
|
|
117.4 |
|
Net
investment in operating leases
|
|
|
22.5 |
|
|
|
29.7 |
|
Total
managed
|
|
$ |
117.7 |
|
|
$ |
147.1 |
|
Serviced
|
|
$ |
118.0 |
|
|
$ |
148.0 |
|
__________
(a)
|
At
December 31, 2008 and 2007, includes finance receivables of $73.7 billion
and $67.2 billion, respectively, that have been sold for legal purposes in
securitizations that do not satisfy the requirements for accounting sale
treatment. In addition, at December 31, 2008
and 2007, includes net investment in operating leases of $15.6
billion and $18.9 billion, respectively, that have been included in
securitizations that do not satisfy the requirements for accounting sale
treatment. These underlying securitized assets are available
only for payment of the debt or other obligations issued or arising in the
securitization transactions; they are not available to pay Ford Credit's
other obligations or the claims of Ford Credit's other creditors until the
associated debt or other obligations are
satisfied.
|
(b)
|
Includes
allowance for credit losses of $1.7 billion and $1.1 billion at December
31, 2008 and 2007, respectively.
|
Managed
receivables decreased from year-end 2007, primarily reflecting lower North
America receivables (mainly due to lower Ford vehicle sales), changes in
currency exchange rates, the impact of divestitures and alternative business
arrangements, and the second quarter 2008 impairment charge for its North
America operating leases.
ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
The
following table shows worldwide charge-offs (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
|
|
|
|
|
|
|
|
|
|
Retail
installment and lease
|
|
$ |
1,089 |
|
|
$ |
608 |
|
|
$ |
481 |
|
Wholesale
|
|
|
29 |
|
|
|
17 |
|
|
|
12 |
|
Other
|
|
|
17 |
|
|
|
7 |
|
|
|
10 |
|
Total
on-balance sheet
|
|
$ |
1,135 |
|
|
$ |
632 |
|
|
$ |
503 |
|
Securitized
Off-Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
installment and lease
|
|
$ |
31 |
|
|
$ |
65 |
|
|
$ |
(34 |
) |
Wholesale
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Other
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total
securitized off-balance sheet
|
|
$ |
31 |
|
|
$ |
65 |
|
|
$ |
(34 |
) |
Managed
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
installment and lease
|
|
$ |
1,120 |
|
|
$ |
673 |
|
|
$ |
447 |
|
Wholesale
|
|
|
29 |
|
|
|
17 |
|
|
|
12 |
|
Other
|
|
|
17 |
|
|
|
7 |
|
|
|
10 |
|
Total
managed
|
|
$ |
1,166 |
|
|
$ |
697 |
|
|
$ |
469 |
|
Loss-to-Receivables
Ratios On-Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
installment and lease
|
|
|
1.10 |
% |
|
|
0.60 |
% |
|
0.50 pts.
|
|
Wholesale
|
|
|
0.09 |
|
|
|
0.05 |
|
|
0.04
|
|
Total
including other
|
|
|
0.84 |
% |
|
|
0.46 |
% |
|
0.38 pts.
|
|
Managed
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
installment and lease
|
|
|
1.10 |
% |
|
|
0.61 |
% |
|
0.49 pts.
|
|
Wholesale
|
|
|
0.09 |
|
|
|
0.05 |
|
|
0.04
|
|
Total
including other
|
|
|
0.84 |
% |
|
|
0.47 |
% |
|
0.37 pts.
|
|
Most of
Ford Credit's charge-offs are related to retail installment sale and lease
contracts. Charge-offs depend on the number of vehicle repossessions,
the unpaid balance outstanding at the time of repossession, the auction price of
repossessed vehicles, and other losses associated with impaired accounts and
unrecoverable vehicles. Ford Credit incurs credit losses on its
wholesale loans, but default rates for these receivables historically have been
substantially lower than those for retail installment sale and lease
contracts.
Charge-offs
and loss-to-receivables ratios for Ford Credit's on-balance sheet and managed
portfolios increased from a year ago. These increases primarily
reflected higher severity and higher repossessions in the retail installment and
lease portfolio, higher unrecoverable vehicles and other losses, and lower
recoveries. The higher severity is mainly due to lower auction values
in the used vehicle market, an increase in the amount financed, and a higher mix
of 72-month contracts. Wholesale and dealer loan charge-offs
increased from a year ago, primarily reflecting an increase in dealer
defaults.
ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Shown
below is an analysis of Ford Credit's allowance for credit losses and its
allowance for credit losses as a percentage of end-of-period receivables
(finance receivables (excluding unearned interest supplements), and net
investment in operating leases, excluding the allowance for credit losses) for
its on-balance sheet portfolio for the years ended December 31 (dollar
amounts in billions):
Allowance
for Credit Losses
|
|
|
|
|
|
|
Balance,
beginning of year
|
|
$ |
1.1 |
|
|
$ |
1.1 |
|
Provision
for credit losses
|
|
|
1.8 |
|
|
|
0.6 |
|
Deductions
|
|
|
|
|
|
|
|
|
Charge-offs
before recoveries
|
|
|
1.5 |
|
|
|
1.1 |
|
Recoveries
|
|
|
(0.4 |
) |
|
|
(0.5 |
) |
Net
charge-offs
|
|
|
1.1 |
|
|
|
0.6 |
|
Other
changes, principally amounts related to translation adjustments and
finance receivables sold
|
|
|
0.1 |
|
|
|
— |
|
Net
deductions
|
|
|
1.2 |
|
|
|
0.6 |
|
Balance,
end of year
|
|
$ |
1.7 |
|
|
$ |
1.1 |
|
Allowance
for credit losses as a percentage of end-of-period net
receivables
|
|
|
1.40 |
% |
|
|
0.77 |
% |
ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Ford
Credit's allowance for credit losses totaled $1.7 billion at December 31, 2008,
including about $210 million to reflect higher severities consistent with its
updated assumptions due to lower auction values during 2008. The
allowance for credit losses is primarily a function of portfolio quality,
historical loss performance, and receivable levels.
In
purchasing retail finance and lease contracts, Ford Credit uses a proprietary
scoring system that classifies contracts using several factors, such as credit
bureau information, FICO score, customer characteristics, and contract
characteristics. In addition to Ford Credit’s proprietary scoring
system, it considers other factors, such as employment history, financial
stability, and capacity to pay. As of December 31, 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.
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. For additional discussion, see "Critical
Accounting Estimates – Accumulated Depreciation on Vehicles Subject to Operating
Leases."
In the
second quarter of 2008, higher fuel prices and the weak economic climate in
North America resulted in a pronounced shift in consumer preferences from
full-size trucks and traditional sport utility vehicles to smaller, more
fuel-efficient vehicles. This shift in preferences caused a
significant reduction in auction values. As a result of these market
factors and Ford Credit's 2008 second quarter adequacy study results, Ford
Credit recorded a pre-tax impairment charge of $2.1 billion representing
the amount by which the carrying value of certain vehicle lines in our lease
portfolio exceeded their fair value (see "Critical Accounting Estimates – Ford
Credit North America Investment in Operating Leases").
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 98% of its
total investment in operating leases at December 31, 2008 (in thousands,
except for percentages):
|
|
|
|
|
|
|
|
|
|
|
Placements
|
|
|
317 |
|
|
|
484 |
|
Terminations
|
|
|
381 |
|
|
|
378 |
|
Returns
|
|
|
327 |
|
|
|
300 |
|
|
|
|
|
|
|
|
|
|
Memo:
|
|
|
|
|
|
|
|
|
Return
rates
|
|
|
86 |
% |
|
|
79 |
% |
In 2008,
placement volumes were down 167,000 units compared with 2007, primarily
reflecting lower industry sales volumes, our lower market share, and changes in
our marketing programs which emphasized retail installment sale
contracts. Termination and return volumes increased 3,000 units and
27,000 units, respectively, compared with last year, primarily reflecting growth
in lease placements since 2004 and higher return rates, consistent with auction
values that were lower than expected at the time of contract purchase and a
general shift in consumer preferences away from full-size trucks and traditional
sport utility vehicles.
ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
While
Ford Credit continues to offer leasing to customers who prefer this product,
lower auction values and the present funding environment have made leasing less
economical for Ford Credit and for consumers. This has contributed to
a reduction in Ford Credit's lease originations and over time will reduce its
residual risk exposure.
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 fourth quarter 2008 vehicle mix for lease terms
comprising about 65% of Ford Credit's active Ford, Lincoln, and Mercury brand
U.S. operating lease portfolio (in thousands, except for
percentages):
|
|
|
|
|
|
|
|
|
|
|
Returns
|
|
|
|
|
|
|
24-Month
term
|
|
|
88 |
|
|
|
85 |
|
36-Month
term
|
|
|
61 |
|
|
|
58 |
|
39-Month
term/Other term
|
|
|
19 |
|
|
|
34 |
|
Total
returns
|
|
|
168 |
|
|
|
177 |
|
|
|
|
|
|
|
|
|
|
Memo:
|
|
|
|
|
|
|
|
|
Return
rates
|
|
|
88 |
% |
|
|
83 |
% |
|
|
|
|
|
|
|
|
|
Auction
Values at Constant Fourth Quarter 2008 Vehicle Mix
|
|
|
|
|
|
|
|
|
24-Month
term
|
|
$ |
14,970 |
|
|
$ |
17,475 |
|
36-Month
term
|
|
|
12,600 |
|
|
|
14,575 |
|
In 2008,
Ford, Lincoln, and Mercury brand U.S. return volumes were down 9,000 units
compared with 2007, primarily reflecting a shift in lease term placement mix
from 24-month to 36-month in 2006, partially offset by higher return
rates. Auction values at constant fourth quarter 2008 mix were down
$2,505 per unit from 2007 levels for vehicles under 24-month leases, and down
$1,975 for vehicles under 36-month leases, primarily reflecting the overall
auction value deterioration in the used vehicle market and a shift in consumer
preferences from full-size trucks and traditional sport utility vehicles to
smaller, more fuel-efficient vehicles.
2007
Compared with 2006
Details
of the full-year Financial Services sector Revenues and Income/(Loss) before income taxes
for 2007 and 2006 are shown below:
|
|
|
|
|
Income/(Loss)
Before Income Taxes
(in
millions)
|
|
|
|
|
|
|
|
|
|
2007
Over/(Under)
|
|
|
|
|
|
|
|
|
2007
Over/(Under)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
Credit
|
|
$ |
17.8 |
|
|
$ |
16.5 |
|
|
$ |
1.3 |
|
|
$ |
1,215 |
|
|
$ |
1,953 |
|
|
$ |
(738 |
) |
Other
Financial Services
|
|
|
0.3 |
|
|
|
0.3 |
|
|
|
— |
|
|
|
9 |
|
|
|
13 |
|
|
|
(4 |
) |
Total
|
|
$ |
18.1 |
|
|
$ |
16.8 |
|
|
$ |
1.3 |
|
|
$ |
1,224 |
|
|
$ |
1,966 |
|
|
$ |
(742 |
) |
Ford
Credit
The
decrease in pre-tax earnings primarily reflected a higher provision for credit
losses primarily related to the non-recurrence of credit loss reserve reductions
(about $500 million), lower financing margin primarily related to higher
borrowing costs (about $400 million), unfavorable lease residual performance
reflected in higher depreciation expense for leased vehicles (about
$400 million), and higher other costs primarily due to Ford Credit's North
American business transformation initiative (about
$100 million). These factors were offset partially by lower
expenses primarily reflecting improved operating costs (about $400 million) and
lower net losses related to market valuation adjustments to derivatives (about
$300 million).
ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
LIQUIDITY
AND CAPITAL RESOURCES
Automotive
Sector
Our
industry has been heavily impacted by the global economic crisis, which has
included a sudden and substantial decline in global industry sales
volume. The dramatic decline in industry sales volume, combined with
tight credit markets, other economic factors and trends described above, and the
costs associated with transforming our business, have put significant pressure
on our Automotive liquidity (as evidenced during 2008 by negative Automotive
gross cash flow of $21.2 billion and total Company net loss of
$14.7 billion). While the economic environment worsens, we
believe that our continued focus on our plan as discussed below is the right
strategy to achieve our objectives. Our strategy includes ensuring
that we have sufficient funding available with a high degree of certainty
throughout the business cycle. Our long-term goal is to improve our
core Automotive operations so that we have a high degree of certainty about our
capability to generate cash from our operations. In addition, our
strategy includes maintaining large gross cash balances, having a long-dated
debt maturity profile, maintaining committed credit facilities, and funding
long-term liabilities over time.
Gross
Cash. Automotive gross cash includes cash and cash
equivalents, net marketable securities, loaned securities and certain assets
contained in a Voluntary Employee Beneficiary Association trust ("VEBA"), a
trust which may be used to pre-fund certain types of company-paid benefits for
U.S. employees and retirees. Before 2008, we included in Automotive
gross cash those VEBA assets that were invested in shorter-duration fixed income
investments and could be used within 18 months to pay for benefits
("short-term VEBA assets"). As a result of the Retiree Health Care
Settlement Agreement (discussed in Note 23 of the Notes to the Financial
Statements), we did not in 2008 and do not expect in the future to have
significant short-term VEBA assets. Gross cash as of December 31
is detailed below for the years shown (in billions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
6.4 |
|
|
$ |
20.7 |
|
|
$ |
16.0 |
|
|
$ |
13.4 |
|
Marketable
securities (a)
|
|
|
9.3 |
|
|
|
2.0 |
|
|
|
11.3 |
|
|
|
6.9 |
|
Loaned
securities
|
|
|
— |
|
|
|
10.3 |
|
|
|
5.3 |
|
|
|
3.4 |
|
Total
cash, marketable securities and loaned securities
|
|
|
15.7 |
|
|
|
33.0 |
|
|
|
32.6 |
|
|
|
23.7 |
|
Securities-in-transit
(b)
|
|
|
— |
|
|
|
(0.3 |
) |
|
|
(0.5 |
) |
|
|
— |
|
UAW-Ford
TAA (c)
|
|
|
(2.3 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Short-term
VEBA assets
|
|
|
— |
|
|
|
1.9 |
|
|
|
1.8 |
|
|
|
1.4 |
|
Gross
cash (d)
|
|
$ |
13.4 |
|
|
$ |
34.6 |
|
|
$ |
33.9 |
|
|
$ |
25.1 |
|
__________
(a)
|
Included
in 2008 are Ford Credit debt securities that we purchased through December
31, 2008 with a carrying value of $492 million; the estimated fair value
of these securities at December 31, 2008 was
$437 million. Debt securities with a face and fair value
of about $135 million matured on
January 15, 2009. Also included are Mazda marketable
securities with a fair value of $322 million at
December 31, 2008.
|
(b)
|
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.
|
(c)
|
Amount
transferred to UAW-Ford TAA that, due to consolidation, continues to be
shown in Cash,
marketable securities and loaned
securities.
|
(d)
|
Pursuant
to the Retiree Health Care Settlement Agreement (see Note 23 of the Notes
to the Financial Statements), in January 2008 we contributed
$4.6 billion of assets and reduced our Automotive gross cash
accordingly.
|
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 generally accepted accounting principles
("GAAP") in the United States and differs from Cash flows from operating activities
of continuing operations, the most directly comparable U.S. GAAP
financial measure.
ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Changes
in Automotive gross cash for the last three years are summarized below (in
billions):
|
|
|
|
|
|
|
|
|
|
Gross
cash at end of period
|
|
$ |
13.4 |
|
|
$ |
34.6 |
|
|
$ |
33.9 |
|
Gross
cash at beginning of period
|
|
|
34.6 |
|
|
|
33.9 |
|
|
|
25.1 |
|
Total
change in gross cash
|
|
$ |
(21.2 |
) |
|
$ |
0.7 |
|
|
$ |
8.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating-related
cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
income/(loss) before income taxes (excluding special
items)
|
|
$ |
(6.3 |
) |
|
$ |
(1.1 |
) |
|
$ |
(5.1 |
) |
Capital
expenditures
|
|
|
(6.5 |
) |
|
|
(6.0 |
) |
|
|
(6.8 |
) |
Depreciation
and special tools amortization
|
|
|
5.5 |
|
|
|
6.8 |
|
|
|
7.1 |
|
Changes
in receivables, inventory and trade payables
|
|
|
(2.9 |
) |
|
|
(0.7 |
) |
|
|
(2.0 |
) |
Other
(b)
|
|
|
(6.4 |
) |
|
|
1.4 |
|
|
|
1.2 |
|
Subtotal
|
|
|
(16.6 |
) |
|
|
0.4 |
|
|
|
(5.6 |
) |
Up-front
subvention payments to Ford Credit
|
|
|
(2.9 |
) |
|
|
— |
|
|
|
— |
|
Total
operating-related cash flows
|
|
|
(19.5 |
) |
|
|
0.4 |
|
|
|
(5.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
changes in gross cash
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
impact of personnel-reduction programs and Job Security Benefits
accrual
|
|
|
(0.7 |
) |
|
|
(2.5 |
) |
|
|
(1.2 |
) |
Contributions
to funded pension plans
|
|
|
(1.0 |
) |
|
|
(1.6 |
) |
|
|
(0.8 |
) |
Net
effect of TAA/VEBA on gross cash
|
|
|
(4.6 |
) |
|
|
1.2 |
|
|
|
3.4 |
|
Capital
transactions with Financial Services sector (c)
|
|
|
— |
|
|
|
— |
|
|
|
1.4 |
|
Tax
payments, tax refunds and tax receipts from affiliates
|
|
|
2.2 |
|
|
|
2.6 |
|
|
|
0.3 |
|
Acquisitions
and divestitures
|
|
|
2.5 |
|
|
|
1.1 |
|
|
|
0.2 |
|
Dividends
to shareholders
|
|
|
— |
|
|
|
— |
|
|
|
(0.5 |
) |
Net
proceeds from/(Payments on) Automotive sector debt
|
|
|
(0.5 |
) |
|
|
(0.6 |
) |
|
|
11.7 |
|
Other
(d)
|
|
|
0.4 |
|
|
|
0.1 |
|
|
|
(0.1 |
) |
Total
change in gross cash
|
|
$ |
(21.2 |
) |
|
$ |
0.7 |
|
|
$ |
8.8 |
|
__________
(a)
|
Excluding
sale proceeds, total change in Automotive gross cash attributable to
Jaguar Land Rover operations was $300 million net cash outflow for
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)
|
Primarily
expense and payment timing differences for items such as pension and OPEB,
marketing, and warranty, as well as additional factors such as the impact
of foreign currency translation on our cash balances, and tax
payments.
|
(c)
|
Primarily
dividends received from Ford Credit, excluding proceeds from Financial
Services sector divestitures paid to the Automotive
sector. Ford Credit suspended its regular dividend payments in
2007.
|
(d)
|
In
2008, primarily the net issuance of Ford Common Stock (an inflow of about
$800 million) and dividends to minority shareholders of consolidated
subsidiaries (an outflow of about
$200 million).
|
Shown
below is a reconciliation between financial statement Cash flows from operating activities
of continuing operations and operating-related cash flows (calculated as
shown in the table above), for the last three years (in billions):
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities of continuing operations
(b)
|
|
$ |
(12.4 |
) |
|
$ |
8.7 |
|
|
$ |
(4.2 |
) |
Items
included in operating-related cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(6.5 |
) |
|
|
(6.0 |
) |
|
|
(6.8 |
) |
Net
transactions between Automotive and Financial Services sectors
(c)
|
|
|
(0.8 |
) |
|
|
(0.3 |
) |
|
|
(0.5 |
) |
Net
cash flows from non-designated derivatives
|
|
|
1.2 |
|
|
|
1.1 |
|
|
|
0.2 |
|
Foreign
currency translation
|
|
|
(0.3 |
) |
|
|
0.5 |
|
|
|
0.1 |
|
Items
not included in operating-related cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
impact of personnel-reduction programs and Job Security Benefits
reserve
|
|
|
0.7 |
|
|
|
2.5 |
|
|
|
1.2 |
|
Net
(sales)/purchases of trading securities
|
|
|
— |
|
|
|
(4.5 |
) |
|
|
6.8 |
|
Contributions
to funded pension plans
|
|
|
1.0 |
|
|
|
1.6 |
|
|
|
0.8 |
|
VEBA
cash flows (reimbursement for benefits paid)
|
|
|
— |
|
|
|
(1.1 |
) |
|
|
(2.9 |
) |
Tax
refunds, tax payments, and tax receipts from affiliates
|
|
|
(2.2 |
) |
|
|
(2.6 |
) |
|
|
(0.3 |
) |
Other
(b)
|
|
|
(0.2 |
) |
|
|
0.5 |
|
|
|
— |
|
Operating-related
cash flows
|
|
$ |
(19.5 |
) |
|
$ |
0.4 |
|
|
$ |
(5.6 |
) |
________
(a)
|
Except
as noted (see footnote (b) below), 2008 data exclude Jaguar Land Rover;
2007 and 2006 include Jaguar Land
Rover.
|
(b)
|
Includes
Jaguar Land Rover.
|
(c)
|
Primarily
payables and receivable's 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.
|
ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Debt and Net
Cash. At December 31, 2008, our Automotive sector
had total debt of $25.8 billion, compared with $26.9 billion a year
ago. This reduction is primarily explained by various exchanges of
debt securities with an aggregate principal amount of $431 million for
shares of Ford Common Stock, debt transferred to the buyer upon the sale of
Jaguar Land Rover, favorable currency exchange, and the conversion of senior
convertible notes to shares of Ford Common Stock.
At
December 31, 2008, our Automotive sector had negative net cash
(defined as gross cash less total debt) of $12.4 billion, compared with net
cash of $7.7 billion at the end of 2007.
The
weighted-average maturity of our total Automotive debt is approximately
15 years, and is measured based on the maturity dates of our debt or the
first date of any put option available to the owners of our
debt. About $3 billion of debt matures by
December 31, 2012, and about $15 billion matures or has a put
option by December 31, 2017. For additional information on
debt, see Note 16 of the Notes to the Financial Statements.
Pursuant
to the Retiree Health Care Settlement Agreement, on April 9, 2008 we
issued to a wholly-owned subsidiary Ford-UAW Holdings LLC, $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 and total
Company net debt would increase 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 would depend on market yields for similar debt.
In
January 2009, we liquidated the assets in the TAA and replaced them with a
promissory note owing by Ford to Ford-UAW Holdings LLC, allowing us to access
the TAA assets as another available source of liquidity for use during 2009 in
our operations. The promissory note is in the principal amount of
$2.3 billion (the market value of the TAA assets at December 31, 2008);
matures on December 31, 2009; bears interest at 9% per annum; and
requires payment of an amount, if any, by which the returns in a hypothetical
investment portfolio of the TAA assets would have exceeded a 9% return for
2009, not to exceed $150 million.
See "Overview" above for
discussion of a tentative agreement we have reached with the UAW to modify the
Retiree Health Care Settlement Agreement and the related notes.
Secured
Credit Agreement. On December 15, 2006, we entered
into a secured credit agreement (the "Credit Agreement") which provides for a
seven-year, $7 billion term-loan facility and a five-year revolving credit
facility of $11.5 billion. The Credit Agreement has been filed
and is incorporated by reference herein as Exhibit 10-AA hereto. Due
to concerns about the instability in the capital markets with the uncertain
state of the global economy, on January 29, 2009, we gave notice to
borrow the total unused amount (i.e., $10.9 billion) under our secured
revolving credit facility. On February 3, 2009, the requested
borrowing date, the lenders under that facility advanced to us
$10.1 billion. As expected, the unused portion of the
$890 million commitment of Lehman Commercial Paper Inc. ("LCPI"), one
of the lenders under the facility, was not advanced because LCPI filed for
protection under Chapter 11 of the U.S. Bankruptcy Code on
October 5, 2008. The total $10.1 billion revolving
loan will bear interest at LIBOR plus a margin of 2.25% and will mature on
December 15, 2011. For more information about this revolving credit
facility, see Note 16 of the Notes to the Financial
Statements.
The
borrowings of the Company, the subsidiary borrowers, and the guarantors under
the Credit Agreement are secured by a substantial portion of our domestic
Automotive assets. The collateral includes a majority of our
principal domestic manufacturing facilities, excluding facilities to be closed,
subject to limitations set forth in existing public indentures and other
unsecured credit agreements; domestic accounts receivable; domestic inventory;
up to $4 billion of marketable securities or cash proceeds therefrom; 100%
of the stock of our principal domestic subsidiaries, including Ford Credit (but
excluding the assets of Ford Credit); certain intercompany notes of Volvo
Holding Company Inc. (a holding company for Volvo), Ford Motor Company of
Canada, Limited ("Ford Canada") and Grupo Ford S. de R.L. de C.V. (a Mexican
subsidiary); 66% to 100% of the stock of all major first tier foreign
subsidiaries (including Volvo); and certain domestic intellectual property,
including trademarks.
ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
The
Credit Agreement requires ongoing compliance with a borrowing base covenant and
contains other restrictive covenants, including a restriction on our ability to
pay dividends. The Credit Agreement prohibits the payment of
dividends (other than dividends payable solely in stock) on Ford Common and
Class B Stock, subject to certain limited exceptions. In
addition, the Credit Agreement contains a liquidity covenant requiring us to
maintain a minimum of $4 billion in the aggregate of domestic cash, cash
equivalents, loaned and marketable securities and short-term VEBA assets and/or
availability under the revolving credit facility.
With
respect to the borrowing base covenant, we are required to limit the outstanding
amount of debt under the Credit Agreement as well as certain permitted
additional indebtedness secured by the collateral described above such that the
total debt outstanding does not exceed the value of the collateral as calculated
in accordance with the Credit Agreement (the "Borrowing Base
value").
The
following table provides detail of Borrowing Base value for various categories
of collateral (in millions, except percentages):
|
|
|
|
|
|
|
|
|
|
U.S.
receivables$
|
|
$ |
377 |
|
|
|
75 |
% |
|
$ |
283 |
|
U.S.
inventory
|
|
|
2,256 |
|
|
|
60 |
% |
|
|
1,354 |
|
Pledge
of intercompany notes
|
|
|
5,912 |
|
|
|
N/A |
|
|
|
3,658 |
|
Pledge
of equity in Ford Credit and certain foreign subsidiaries (net of
intercompany transactions)
|
|
|
15,697 |
|
|
|
75 |
% |
|
|
11,773 |
|
U.S.
property, plant and equipment subject to indenture
limitation
|
|
|
4,846 |
|
|
|
N/A |
|
|
|
2,329 |
|
Other
U.S. machinery and equipment
|
|
|
3,216 |
|
|
|
40 |
% |
|
|
1,286 |
|
Intellectual
property and U.S. trademarks (b)
|
|
|
7,900 |
|
|
|
N/A |
|
|
|
2,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eligible
value/borrowing base
|
|
$ |
40,204 |
|
|
|
|
|
|
$ |
23,183 |
|
(a)
|
Based on formulas
set forth in the Credit Agreement, and not necessarily indicative of fair
market value (which could be materially higher or lower); receivables,
inventory, intercompany notes, and property, plant and equipment
reflect net book value at December 31, 2008; equity of Ford
Credit is based on its book value at December 31, 2008, net of
certain intercompany transactions, and equity in other subsidiaries is
based on a multiple of their
two-year average EBITDA less
debt.
|
(b)
|
Value
reflects independent third party valuation of
trademarks.
|
As of
December 31, 2008, the Borrowing Base value and the total outstanding
amount of debt secured by collateral were $23,183 million and $7,354
million, respectively, which resulted in collateral coverage ratio of 3.15 to
1. On a pro forma adjusted basis to take into account the
$10.1 billion revolving loan advanced to us on February 3, 2009,
the resulting collateral coverage ratio would have been 1.33 to 1 at December
31, 2008.
The
borrowing base increased by $1.1 billion over December 31, 2007 primarily due to
improved equity in Ford Espana S.A. and the inclusion of Ford Deutschland
Holdings, GmbH offset partially by the second quarter North America fixed asset
impairment, elimination of certain intercompany notes as a result of the Jaguar
Land Rover divestiture, and reductions in North America inventory
levels.
In
addition to customary payment, representation, bankruptcy, and judgment
defaults, the Credit Agreement contains cross-payment and cross-acceleration
defaults with respect to other debt for borrowed money, and a change in control
default.
Other Credit
Facilities. Excluding our secured revolving credit facility
discussed above, at December 31, 2008, we had $722 million of other
contractually-committed Automotive credit facilities with financial
institutions, including $141 million of worldwide Automotive unsecured credit
facilities and $581 million of local credit facilities to foreign
Automotive affiliates. Of the $195 million borrowed under these
lines, most matures in 2009. Of the $527 million available for
use, $121 million are committed through June 30, 2009, $25 million are
committed through June 30, 2010, $327 million are committed through
April 1, 2012, and the remainder expire before
June 30, 2009.
ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Pension Plan
Contributions. Our policy for funded plans is to contribute
annually, at a minimum, amounts required by applicable laws and
regulations. We do from time to time make contributions beyond those
legally required.
In 2008,
we made $1.7 billion of cash contributions to our funded pension plans,
including plans for our former Jaguar and Land Rover
operations. During 2009, we expect to contribute to worldwide
pension plans $1.5 billion from available Automotive cash and cash
equivalents. This amount includes about $400 million of benefit
payments paid directly by us for unfunded plans. Based on current
assumptions and regulations, we do not expect to have a legal requirement to
fund our major U.S. pension plans in 2009. For a further discussion
of our pension plans, see Note 23 of the Notes to the Financial
Statements.
Financial
Services Sector
Ford
Credit
Ford
Credit has been able to fund its business and support the sale of Ford vehicles
despite the challenges of the global economic crisis, largely by reducing
receivables and using its committed liquidity programs and government-sponsored
funding programs in the United States and Europe. Ford Credit's
funding strategy is to maintain liquidity to meet short-term funding obligations
by having a substantial cash balance and committed funding
capacity. As a result of lower unsecured credit ratings assigned to
Ford Credit over the past few years, its unsecured funding costs have increased
over time. While Ford Credit continues to access the unsecured debt
market when it makes sense to do so, Ford Credit has increased its use of
securitization funding as it has been more cost effective than unsecured funding
and allowed Ford Credit access to a broad investor base. Ford Credit
plans to meet a significant portion of its 2009 funding requirements
through securitizations, including the use of government-sponsored funding
programs. In addition, Ford Credit has various alternative business
arrangements for select products and markets that reduce its funding
requirements while allowing it to support us (e.g., Ford Credit's partnering in
Brazil for retail financing and FCE Bank plc's ("FCE") partnering with various
financial institutions in Europe for full service leasing and retail and
wholesale financing). Ford Credit
is continuing to explore and execute such alternative business
arrangements. Ford Credit has applied for FDIC and State of Utah
approval for an industrial loan corporation, which if approved will allow Ford
Credit to obtain funding by issuing FDIC-insured certificates of
deposit.
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 continues to face the challenges of the global
credit crisis, including reduced access to public and private securitization
markets, a significant increase in the credit spreads associated with both
asset-backed and unsecured funding, higher
renewal costs on its committed liquidity programs, higher enhancements resulting
in reduced net proceeds from securitizations, shorter maturities in Ford
Credit’s public and private securitization issuances in certain circumstances,
and a reduction in its capacity to obtain derivatives to manage market risk,
including interest rate risk, in its securitization programs. 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.
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 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 its
ongoing profits and adversely affect its ability to support the sale of Ford
vehicles.
Debt and
Cash. Ford Credit's total debt plus securitized off-balance
sheet funding was $127 billion at December 31, 2008, $17.7
billion lower compared with a year ago. At
December 31, 2008, Ford Credit's cash, cash equivalents and marketable
securities (excluding marketable securities related to insurance activities)
totaled $23.6 billion (including $5.5 billion to be used only to
support on-balance sheet securitizations, compared with $4.7 billion at
year-end 2007). In the normal course of its funding activities, Ford
Credit may generate more proceeds than are required for its immediate funding
needs. These excess amounts are maintained as highly liquid
investments, which provide liquidity for Ford Credit's short-term funding needs
and give Ford Credit flexibility in the use of its other funding
programs.
Funding. Ford Credit requires
substantial funding in the normal course of business. Its funding
requirements are driven mainly by the need to: (i) purchase
retail installment sale contracts and retail lease contracts to support the sale
of Ford products, which are influenced by Ford-sponsored special-rate financing
programs that are available exclusively through Ford Credit, (ii) provide
wholesale financing and capital financing for Ford dealers, and (iii) repay
its debt obligations.
ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Ford
Credit's funding sources include primarily securitizations and, to a limited
extent, unsecured debt. Ford Credit issues both short- and long-term debt that
is held by both institutional and retail investors, with long-term debt having
an original maturity of more than 12 months. Ford Credit sponsors a number of
securitization programs that can be structured to provide both short- and
long-term funding through institutional investors in the United States and
international capital markets. During 2008, Ford Credit continued to meet a
significant portion of its funding requirements through securitizations because
of their lower relative costs given its credit ratings (as described below) and
the diversity of funding sources that they provide. Securitized funding (both
on- and off-balance sheet, net of retained interests), as a percent of total
managed receivables, was as follows at the end of each of the last three years:
2008 – 62%, 2007 – 51%, 2006 – 48%.
Ford
Credit obtains short-term unsecured funding from the sale of floating rate
demand notes under its Ford Interest Advantage program and by issuing unsecured
commercial paper in the United States, Europe, and other international
markets. At December 31, 2008, the principal amount
outstanding of Ford Interest Advantage notes, which may be redeemed at any time
at the option of the holders thereof without restriction, was about
$2 billion. At present, all of Ford Credit's short-term credit
ratings by SEC-designated nationally recognized statistical rating organizations
(the "NRSROs") are below the Tier-2 category, and as a result it has limited
access to the unsecured commercial paper market and Ford Credit's unsecured
commercial paper cannot be held by money market funds. At December
31, 2008, the principal amount outstanding of Ford Credit's unsecured commercial
paper was about $12 million. Ford Credit does not hold reserves
specifically to fund the payment of any of its unsecured short-term funding
obligations. Instead, Ford Credit maintains multiple sources of
liquidity, including cash, cash equivalents, and marketable securities
(excluding marketable securities related to insurance activities), unused
committed liquidity programs, excess securitizable assets, and committed and
uncommitted credit facilities, which Ford Credit believes should be sufficient
for its unsecured short-term funding obligations.
Government-Sponsored Funding
Programs. Ford Credit’s near-term funding sources include
government-sponsored funding programs. In October 2008, Ford Credit
registered to sell up to $16 billion of Ford Credit's retail securitization
program ("FCAR") asset-backed commercial paper to 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 through October 30,
2009. Through December 31, 2008, Ford Credit sold to the CPFF about
$7 billion of FCAR asset-backed commercial paper. In addition, as of
December 31, 2008, FCE had accessed $1.1 billion of short-term funding
under the European Central Bank’s (“ECB”) open market operations program under
which obligations are backed by either notes or receivables. In
January 2009, the ECB announced an increase in the minimum ratings threshold
required to access funding under this facility and the higher ratings
requirement could reduce FCE’s level of funding from this facility.
In
November 2008, the U.S. Federal Reserve announced the Term Asset-Backed
Securities Loan Facility (“TALF”), pursuant to which the Federal Reserve Bank of
New York will provide up to $200 billion of non-recourse loans to investors
in highly-rated asset-backed securities who pledge these securities as
collateral for the non-recourse loans. Asset-backed securities backed
by automotive retail, lease, and wholesale finance receivables qualify for the
TALF program. On February 10, 2009, this program was
further expanded to $1 trillion by the Consumer and Business Lending
Initiative as part of the Financial Stability Plan announced by the U.S.
Treasury.
To be
eligible for TALF, asset-backed securities must be issued after
January 1, 2009, and all or substantially all of the underlying
automotive finance receivables must have been originated on or after
October 1, 2007. To appeal to a broad investor base for its
asset-backed securities, Ford Credit plans to make the majority of its 2009 U.S.
asset-backed securitizations eligible for TALF, which would require that these
securitizations have a credit rating in the highest long-term or short-term
investment grade rating category from two or more major NRSROs (as designated by
the Federal Reserve Bank) and not have a credit rating below the highest
investment grade rating category from any major NRSRO.
Wholesale
securitization under the TALF program is limited to the amount of an issuer’s
wholesale securitizations maturing in 2009, which for Ford Credit would limit
its TALF-eligible wholesale issuances to $6.5 billion, assuming the relevant
credit rating requirements are met. At this time, Ford Credit does
not meet the credit rating requirements under TALF and the ECB program for its
wholesale securitizations, but is working toward meeting the credit rating
requirements in the near future. Ford Credit's inability to obtain
the necessary credit ratings for its issuances would limit its ability to
finance wholesale receivables for our dealers.
ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Due to
the present global credit crisis and Ford Credit's limited access to public and
private securitization markets, Ford Credit expects the majority of its funding
in 2009 will consist of eligible issuances pursuant to government-sponsored
programs.
In
addition, in January 2009, the Canadian government announced a C$12 billion
Canadian Secured Credit facility which is intended to provide asset-backed
funding for automotive and commercial loans and leases. Ford Credit
plans to pursue funding under this program and any other global
government-sponsored programs for which it is eligible.
Credit Facilities and Committed
Liquidity Programs. See Note 16 of the Notes to the
Financial Statements for more information regarding credit facilities and
committed liquidity programs for Ford Credit. As a result of the
continued asset-backed securities market volatility that began in August 2007
and significantly worsened in the second half of 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.
Funding
Portfolio. Ford Credit’s outstanding debt and off-balance
sheet securitizations were as follows on the dates indicated (in billions,
except for ratios):
|
|
|
|
Debt
|
|
|
|
|
|
|
Asset-backed
commercial paper (a)(b)
|
|
$ |
11.5 |
|
|
$ |
13.5 |
|
Other
asset-backed short-term debt (a)
|
|
|
5.6 |
|
|
|
5.2 |
|
Ford
Interest Advantage
|
|
|
2.0 |
|
|
|
5.4 |
|
Unsecured
commercial paper
|
|
|
— |
|
|
|
0.5 |
|
Other
short-term debt
|
|
|
1.1 |
|
|
|
1.5 |
|
Total
short-term debt
|
|
|
20.2 |
|
|
|
26.1 |
|
Unsecured
long-term debt (including notes payable within one year)
|
|
|
51.2 |
|
|
|
62.8 |
|
Asset-backed
long-term debt (including notes payable within one year)
(a)
|
|
|
55.1 |
|
|
|
50.5 |
|
Total
debt
|
|
|
126.5 |
|
|
|
139.4 |
|
Off-Balance
Sheet Securitizations
|
|
|
|
|
|
|
|
|
Securitized
off-balance sheet portfolio
|
|
|
0.6 |
|
|
|
6.0 |
|
Retained
interest
|
|
|
(0.1 |
) |
|
|
(0.7 |
) |
Total
off-balance sheet securitizations
|
|
|
0.5 |
|
|
|
5.3 |
|
|
|
|
|
|
|
|
|
|
Total
debt plus off-balance sheet securitizations
|
|
$ |
127.0 |
|
|
$ |
144.7 |
|
Ratios
|
|
|
|
|
|
|
|
|
Securitized
funding to managed receivables
|
|
|
62 |
% |
|
|
51 |
% |
Short-term
debt and notes payable within one year to total debt
|
|
|
50 |
|
|
|
43 |
|
Short-term
debt and notes payable within one year to total
capitalization
|
|
|
46 |
|
|
|
39 |
|
__________
(a)
|
Obligations
issued in securitizations that are payable only out of collections on the
underlying securitized assets and related
enhancements.
|
(b)
|
At
December 31, 2008, includes $7 billion of asset-backed commercial paper
sold to the CPFF.
|
At
December 31, 2008, Ford Credit’s unsecured long-term debt (including notes
payable within one year) was down about $12 billion from year-end 2007,
primarily reflecting about $14 billion of debt maturities and about a
$1 billion decrease in the debt balance due to changes in currency exchange
rates offset partially by about $3 billion of unsecured long-term debt
issuance. Unsecured long-term debt maturities were as follows: 2009 –
$16 billion; 2010 – $8 billion; 2011 – $12 billion; and the remainder
thereafter. On October 15, 2008, holders of $2 billion of debt with
an original maturity date of 2012 exercised their option to sell (put) the bonds
back to Ford Credit and receive full payment of their principal in April
2009. These bonds are reflected in the 2009 maturities. In
2008, Ford Credit repurchased about $200 million par value of unsecured
debt with original maturity in the first half of 2009. From
January 1, 2009 through February 25, 2009, Ford Credit
repurchased about $200 million par value of its unsecured debt with
original maturity in the first half of 2009 and included in the maturities
above. In addition, in 2008 we purchased about $500 million of
Ford Credit's unsecured debt.
At
December 31, 2008, Ford Credit’s asset-backed long-term debt (including notes
payable within one year) was up about $5 billion from year-end 2007, reflecting
asset-backed long-term debt issuance in excess of amortization of asset-backed
debt. Ford Credit’s securitized off-balance sheet funding was down
about $5 billion from year-end 2007, reflecting the amortization of previous
securitizations.
ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Funding Plan. The following
table illustrates Ford Credit's public and private term funding issuances for
2007 and 2008 and its planned issuances for 2009 (in billions):
|
|
|
|
|
|
|
|
|
|
Public
Term Funding
|
|
|
|
|
|
|
|
|
|
Unsecured
|
|
$ |
0–2 |
|
|
$ |
2 |
|
|
$ |
6 |
|
Securitizations
(a)
|
|
|
5–10 |
|
|
|
11 |
|
|
|
6 |
|
Total
public term funding
|
|
$ |
5–12 |
|
|
$ |
13 |
|
|
$ |
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Term Funding
(b)
|
|
$ |
10–15 |
|
|
$ |
29 |
|
|
$ |
28 |
|
__________
(a)
|
Reflects
new issuance; excludes other structured
financings.
|
(b)
|
Includes
private term debt, securitizations, other structured financings, and other
term funding; excludes sales to Ford Credit's on-balance sheet
asset-backed commercial paper
programs.
|
The cost
of securitizations and unsecured debt funding is based on a margin or spread
over a benchmark interest rate. Spreads are typically measured in
basis points. Ford Credit's asset-backed funding and unsecured
long-term debt costs are based on spreads over U.S. Treasury securities of
similar maturities, a comparable LIBOR or other comparable benchmark
rates. Ford Credit's unsecured commercial paper funding costs are
based on spreads to LIBOR. Ford Credit's floating rate demand notes
funding costs are changed depending on market conditions. In addition
to enhancing Ford Credit's liquidity, one of the main reasons that Ford Credit
has increased its use of securitizations as a funding source over the last few
years has been that spreads on its securitizations have been more stable and
lower than those on its unsecured long-term debt funding. Prior to
August 2007, Ford Credit's securitized funding spreads (which are based on the
creditworthiness of the underlying securitized asset and enhancements) were not
volatile, while its unsecured long-term spreads were
volatile. Consistent with the overall market, Ford Credit was
impacted by volatility in the asset-backed securities markets beginning in the
second half of 2007. Ford Credit experienced higher spreads for
several of its committed liquidity programs as well as its public and private
issuances. In the first half of 2008, Ford Credit's spreads on the
fixed rate notes offered in its U.S. public retail securitizations ranged
between 80 and 200 basis points over the relevant benchmark rates (U.S. public
retail securitizations were not offered in the second half of
2008). During 2008, Ford Credit's U.S. unsecured long-term debt
funding spreads as measured by the five-year credit default swap market ranged
between 690 basis points over LIBOR and more than 2,500 basis points over
LIBOR.
Ford
Credit's funding plan is subject to risks and uncertainties, many of which are
beyond its control. If credit markets continue to constrain term
securitization funding, Ford Credit will consider reducing its assets below the
low-end of its projected year-end 2009 managed receivables balance (i.e., below
$90 billion).
Balance Sheet Liquidity
Profile. Ford Credit defines its balance sheet liquidity
profile as the cumulative maturities of its finance receivables, investment in
operating leases, and cash less the cumulative debt maturities over upcoming
annual periods. The following table shows Ford Credit's balance sheet
liquidity profile for the periods presented as of December 31, 2008
(in billions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Through
2012 and Thereafter
|
|
Finance
receivables (a), investment in operating leases (b) and cash
(c)
|
|
$ |
89.3 |
|
|
$ |
116.5 |
|
|
$ |
131.6 |
|
|
$ |
142.4 |
|
Debt
|
|
|
(71.3 |
) |
|
|
(91.7 |
) |
|
|
(109.7 |
) |
|
|
(126.5 |
) |
Finance
receivables, investment in operating leases and cash over/(under)
debt
|
|
$ |
18.0 |
|
|
$ |
24.8 |
|
|
$ |
21.9 |
|
|
$ |
15.9 |
|
__________
(a)
|
Finance
receivables net of unearned income.
|
(b)
|
Investment
in operating leases net of accumulated
depreciation.
|
(c)
|
Cash
includes cash, cash equivalents and marketable securities (excludes
marketable securities related to insurance activities) at
December 31, 2008.
|
ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Ford
Credit's balance sheet is inherently liquid because of the short-term nature of
its finance receivables, investment in operating leases, and
cash. Maturities of investment in operating leases consist primarily
of rental payments attributable to depreciation over the remaining life of the
lease and the expected residual value at lease termination. The table
above reflects the following adjustments to debt maturities to match all of the
asset-backed debt maturities with the underlying asset maturities:
|
•
|
The
2009 maturities include all of the wholesale securitizations that
otherwise extend beyond 2009; and
|
|
•
|
Retail
and lease securitizations under certain committed liquidity programs are
treated as amortizing on January 1, 2009 instead of amortizing
after the contractual maturity of those committed liquidity programs that
otherwise extend beyond January 1,
2009.
|
Leverage. Ford
Credit uses leverage, or the debt-to-equity ratio, to make various business
decisions, including evaluating and establishing pricing for retail, wholesale,
and lease financing, and assessing our capital structure. Ford Credit
refers to its shareholder's interest and its historical stockholder's equity as
equity. Ford Credit calculates leverage on a financial statement
basis and on a managed basis using the following formulas:
Financial
Statement Leverage
|
=
|
Total Debt
|
|
|
|
Equity
|
|
|
|
Total
Debt
|
+
|
Securitized
Off-Balance
Sheet
Receivables
|
-
|
Retained
Interest
in
Securitized
Off-Balance
Sheet
Receivables
|
-
|
Cash
and Cash Equivalents and Marketable Securities (a)
|
-
|
Adjustments
for Derivative Accounting on Total Debt (b)
|
Managed
Leverage
|
=
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
+
|
Minority
Interest
|
-
|
Adjustments
for Derivative Accounting
on
Equity (b)
|
|
|
__________
(a)
|
Excluding
marketable securities related to insurance
activities.
|
(b)
|
Primarily
related to market valuation adjustments to derivatives due to movements in
interest rates. Adjustments to debt are related to designated
fair value hedges and adjustments to equity are related to retained
earnings.
|
The
following table illustrates the calculation of Ford Credit's financial statement
leverage (in billions, except for ratios):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
debt
|
|
$ |
126.5 |
|
|
$ |
139.4 |
|
|
$ |
139.7 |
|
Total
equity
|
|
|
10.6 |
|
|
|
13.4 |
|
|
|
11.8 |
|
Financial
statement leverage (to 1)
|
|
|
12.0 |
|
|
|
10.4 |
|
|
|
11.9 |
|
The
following table illustrates the calculation of Ford Credit's managed leverage
(in billions, except for ratios):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
debt
|
|
$ |
126.5 |
|
|
$ |
139.4 |
|
|
$ |
139.7 |
|
Securitized
off-balance sheet receivables outstanding
|
|
|
0.6 |
|
|
|
6.0 |
|
|
|
12.2 |
|
Retained
interest in securitized off-balance sheet receivables
|
|
|
(0.1 |
) |
|
|
(0.7 |
) |
|
|
(1.0 |
) |
Adjustments
for cash, cash equivalents and marketable securities (a)
|
|
|
(23.6 |
) |
|
|
(16.7 |
) |
|
|
(21.8 |
) |
Adjustments
for derivative accounting (b)
|
|
|
(0.4 |
) |
|
|
— |
|
|
|
(0.1 |
) |
Total
adjusted debt
|
|
$ |
103.0 |
|
|
$ |
128.0 |
|
|
$ |
129.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
equity (including minority interest)
|
|
$ |
10.6 |
|
|
$ |
13.4 |
|
|
$ |
11.8 |
|
Adjustments
for derivative accounting (b)
|
|
|
(0.2 |
) |
|
|
(0.3 |
) |
|
|
(0.5 |
) |
Total
adjusted equity
|
|
$ |
10.4 |
|
|
$ |
13.1 |
|
|
$ |
11.3 |
|
Managed
leverage (to 1)
|
|
|
9.9 |
|
|
|
9.8 |
|
|
|
11.4 |
|
__________
(a)
|
Excluding
marketable securities related to insurance
activities.
|
(b)
|
Primarily
related to market valuation adjustments to derivatives due to movements in
interest rates. Adjustments to debt are related to designated
fair value hedges and adjustments to equity are related to retained
earnings.
|
ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Ford
Credit believes that managed leverage is useful to its investors because it
reflects the way Ford Credit manages its business. Ford Credit
retains interests in receivables sold in off-balance sheet securitization
transactions and, with respect to subordinated retained interests, is exposed to
credit risk. Accordingly, Ford Credit evaluates charge-offs,
receivables and leverage on a managed as well as a financial statement
basis. Ford Credit also deducts cash and cash equivalents and
marketable securities (excluding marketable securities related to insurance
activities) because they generally correspond to excess debt beyond the amount
required to support its operations and amounts to support its on-balance sheet
securitizations.
In
addition, Ford Credit adds its minority interests to its financial statement
equity because all of the debt of such consolidated entities is included in its
total debt. Ford Credit makes derivative accounting adjustments to
its assets, debt, and equity positions to reflect the impact of interest rate
instruments Ford Credit uses in connection with its term-debt issuances and
securitizations. The derivative accounting adjustments related to
these instruments vary over the term of the underlying debt and securitized
funding obligations based on changes in market interest rates. Ford
Credit generally repays its debt obligations as they mature. As a
result, Ford Credit excludes the impact of these derivative accounting
adjustments on both the numerator and denominator in order to exclude the
interim effects of changes in market interest rates. Ford Credit
believes the managed leverage measure provides its investors with meaningful
information regarding management's decision-making processes.
Ford
Credit plans its managed leverage by considering prevailing market conditions
and the risk characteristics of its business. At
December 31, 2008, Ford Credit's managed leverage was
9.9 to 1, compared with 9.8 to 1 a year ago. In
2008, Ford Credit did not pay any distributions. See "Outlook" for
discussion of Ford Credit's planned 2009 distributions.
Securitizations
by Ford Credit
Securitization. Ford
Credit securitizes finance receivables and net investment in operating leases
through a variety of programs, utilizing amortizing, variable funding and
revolving structures. Ford Credit's securitization programs are
targeted to many different investors in both public and private transactions in
capital markets worldwide. Ford Credit completed its first
securitization in 1988, and regularly securitizes assets, purchased or
originated, in the United States, Canada, Mexico, and Europe (including the
United Kingdom, Germany, Spain, Italy, and France).
Most of
Ford Credit's securitizations do not satisfy the requirements for accounting
sale treatment, and the securitized assets and associated debt remain on Ford
Credit's balance sheet. Some of Ford Credit's securitizations,
however, do satisfy accounting sale treatment and are not reflected on its
balance sheet in the same way as debt funding. All of Ford Credit's
securitization transactions since January 2007 have been on-balance sheet
transactions. Both on- and off-balance sheet securitizations have an
effect on its financial condition, operating results and liquidity.
Ford
Credit securitizes its assets because the securitization market provides it with
a lower cost source of funding compared with unsecured debt given our present
credit ratings, and it diversifies Ford Credit's funding among different markets
and investors. In the United States, Ford Credit generally is able to
obtain funding in two days for its unutilized capacity in most of its committed
liquidity programs. New programs and new transaction structures
typically require substantial development time before coming to
market. As a result of ongoing market volatility, Ford Credit's
ability to access non-committed sources is limited at this time. This
market volatility has impacted the timing, amount, cost, enhancements, and types
of securitizations Ford Credit is able to complete.
In a
securitization transaction, the securitized assets are generally held by a
bankruptcy-remote special purpose entity ("SPE") in order to isolate the
securitized assets from the claims of Ford Credit's other creditors and to
insure that the cash flows on the securitized assets are available for the
benefit of securitization investors. As a result, payments to
securitization investors are based on the creditworthiness of the securitized
assets and any enhancements, and not on Ford Credit's
creditworthiness. Senior asset-backed securities issued by the SPEs
generally receive the highest short-term credit ratings and among the highest
long-term credit ratings from the rating agencies that rate them.
Securitization
SPEs have limited purposes and generally are only permitted to purchase the
securitized assets, issue the asset-backed securities and make payments on the
securities. Some SPEs, such as the trusts that issue securities
backed by retail installment sale contracts, only issue a single series of
securities and generally are dissolved when those securities have been paid in
full. Other SPEs, such as the trusts that issue securities backed by
wholesale receivables, issue multiple series of securities from time to time and
are not dissolved until the last series of securities is paid in
full.
ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Ford
Credit's use of SPEs in its securitizations is consistent with conventional
practices in the securitization industry. Ford Credit sponsors the
SPEs used in all of its securitization programs with the exception of
bank-sponsored conduits. None of Ford Credit's officers, directors or
employees holds any equity interests in its SPEs or receives any direct or
indirect compensation from the SPEs. These SPEs do not own Ford
Credit's shares or shares of any of its affiliates.
In order
to be eligible for inclusion in a securitization transaction, each asset must
satisfy certain eligibility criteria designed for the specific
transaction. For example, for securitizations of retail installment
sale contracts, the selection criteria may be based on factors such as location
of the obligor, contract term, payment schedule, interest rate, financing
program, the type of financed vehicle, and whether the contracts are active and
in good standing (e.g., when the obligor is not more than 30-days delinquent or
bankrupt). Generally, Ford Credit selects the assets to be included
in a particular securitization randomly from its entire portfolio of assets that
satisfy the applicable eligibility criteria. Specific assets are
usually not identified until the month in which the securitization
occurs.
Ford
Credit provides various forms of credit enhancements to reduce the risk of loss
for securitization investors. Credit enhancements include
over-collateralization (when the principal amount of the securitized assets
exceeds the principal amount of related asset-backed securities), segregated
cash reserve funds, subordinated securities, and excess spread (when interest
collections on the securitized assets exceed the related fees and expenses,
including interest payments on the related asset-backed
securities). Ford Credit may also provide payment enhancements that
increase the likelihood of the timely payment of interest and the payment of
principal at maturity. Payment enhancements include yield supplement
arrangements, interest rate swaps, liquidity facilities, and certain cash
deposits. Ford Credit has no direct exposure to monoline insurance
companies (insurance companies that operate in a single industry and guarantee
the timely repayment of bond principal and interest when an issuer
defaults).
Ford
Credit retains interests in its securitization transactions, including senior
and subordinated securities issued by the SPE, rights to cash held for the
benefit of the securitization investors (for example, a reserve fund) and
residual interests. Residual interests represent the right to receive
collections on the securitized assets in excess of amounts needed to pay
securitization investors and to pay other transaction participants and
expenses. Ford Credit retains credit risk in securitizations because
its retained interests include the most subordinated interests in the
securitized assets, and are structured to absorb expected credit losses on the
securitized assets before any losses would be experienced by
investors. Based on past experience, Ford Credit expects that any
losses in the pool of securitized assets would likely be limited to its retained
interests.
Ford
Credit is engaged as servicer to collect and service the securitized
assets. Its servicing duties include collecting payments on the
securitized assets and preparing monthly investor reports on the performance of
the securitized assets and on amounts of interest and/or principal payments to
be made to investors. While servicing securitized assets, Ford Credit
applies the same servicing policies and procedures that Ford Credit applies to
its owned assets and maintains its normal relationship with its financing
customers.
Ford
Credit generally has no obligation to repurchase or replace any securitized
asset that subsequently becomes delinquent in payment or otherwise is in
default. Securitization investors have no recourse to Ford Credit or
its non-securitized assets for credit losses on the securitized assets and have
no right to require Ford Credit to repurchase their investments. Ford
Credit does not guarantee any asset-backed securities and has no obligation to
provide liquidity or make monetary contributions or contributions of additional
assets to its SPEs either due to the performance of the securitized assets or
the credit rating of its short-term or long-term debt. However, as
the seller and servicer of the securitized assets, Ford Credit is obligated to
provide certain kinds of support to its securitizations, which are customary in
the securitization industry. These obligations consist of
indemnifications, repurchase obligations on assets that do not meet eligibility
criteria or that have been materially modified, the mandatory sale of additional
assets in revolving transactions and, in some cases, servicer advances of
interest shortfalls or other amounts.
Risks to Continued Funding under
Securitization Programs. The following securitization programs
contain structural features that could prevent Ford Credit from using these
sources of funding in certain circumstances:
|
·
|
Retail
Securitization. If the credit enhancement on any
asset-backed security held by FCAR is reduced to zero, FCAR may not
purchase any additional asset-backed securities and would wind down its
operations. In addition, if credit losses or delinquencies in
Ford Credit's portfolio of retail assets exceed specified levels, FCAR is
not permitted to purchase additional asset-backed securities for so long
as such levels are exceeded.
|
ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
|
·
|
Retail Conduits. If
credit losses or delinquencies on the pool of assets held by a conduit
exceed specified levels, or if the level of over-collateralization for
such pool decreases below a specified level, Ford Credit will not have the
right to sell additional pools of assets to that
conduit.
|
|
·
|
Wholesale
Securitization. If the payment rates on wholesale
receivables are lower than specified levels, or if there are significant
dealer defaults, Ford Credit will be unable to obtain additional funding
and any existing funding would begin to
amortize.
|
|
·
|
Retail
Warehouse. If credit losses or delinquencies in Ford
Credit's portfolio of retail assets exceed specified levels, Ford Credit
will be unable to obtain additional funding from the securitization of
retail installment sale contracts through its retail warehouse facility
(i.e., a short-term credit facility under which draws are backed by the
retail contracts).
|
|
·
|
Flat Revolving Structures in
Europe. If credit losses or delinquencies on FCE's
assets used for these structures exceed specified levels, or if FCE fails
to add the required amount of additional assets, or if cash reserves fall
below certain levels, FCE will be unable to obtain additional funding and
any existing funding would begin to
amortize.
|
|
·
|
Variable Funding Note
Structures in Europe. If credit losses or delinquencies
on FCE's assets used for these notes exceed specified levels, or if
payment rates on FCE's wholesale receivables are lower than specified
levels, or if cash reserves fall below certain levels, FCE will be unable
to obtain additional funding and any existing funding would begin to
amortize.
|
In the
past, these features have not limited Ford Credit's ability to use
securitization to fund its operations.
In
addition to the specific transaction-related structural features discussed
above, Ford Credit's securitization programs may be affected by the following
factors: market disruption and volatility, the market capacity for
Ford Credit and Ford Credit's sponsored investments, the general demand for the
type of assets supporting the asset-backed securities, the availability of
committed liquidity facilities, the amount and credit quality of assets
available, the performance of assets in its previous securitizations, accounting
and regulatory changes, and Ford Credit's credit ratings. In
addition, a bankruptcy of Ford, Ford Credit, or FCE would cause certain of Ford
Credit's funding transactions to amortize and result in a termination of certain
liquidity commitments. If, as a result of any of these or other
factors, the cost of securitization funding were to increase significantly or
funding through securitizations were no longer available to Ford Credit, it
would have a material adverse impact on Ford Credit's financial condition and
results of operations, which could adversely affect its ability to support the
sale of our vehicles.
On-Balance
Sheet Arrangements
Most of
Ford Credit’s securitization programs do not satisfy the requirements for
accounting sale treatment and, therefore, the securitized assets and related
debt are included in Ford Credit’s financial statements. Ford Credit
expects its future securitizations to be on-balance sheet. Ford
Credit believes on-balance sheet arrangements are more transparent to its
investors. Securitized assets are only available to repay the related
asset-backed debt and to pay other securitization investors and other
participants. These assets are not available to pay Ford Credit’s
other obligations or the claims of its other creditors until the associated debt
or other obligations are satisfied. This debt is not Ford Credit’s
legal obligation or the legal obligation of its other
subsidiaries. Assets and associated liabilities related to Ford
Credit's on-balance sheet securitizations are as follows (in
billions):
|
|
|
|
|
|
|
|
|
|
|
Total
outstanding principal amount of finance receivables and net investment in
operating leases included in on-balance sheet
securitizations
|
|
$ |
89.3 |
|
|
$ |
86.1 |
|
Cash
balances to be used only to support the on-balance sheet
securitizations
|
|
|
5.5 |
|
|
|
4.7 |
|
Debt
payable only out of collections on the underlying securitized assets and
related enhancements
|
|
|
72.2 |
|
|
|
69.2 |
|
See Note
16 of the Notes to the Financial Statements for more information regarding
on-balance sheet securitizations.
ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Off-Balance
Sheet Arrangements
We have
entered into various arrangements not reflected on our balance sheet that have
or are reasonably likely to have a current or future effect on our financial
condition, results of operations or liquidity. These include
securitizations by Ford Credit in off-balance sheet transactions, variable
interest entities ("VIEs") and guarantees. For a discussion of our
VIEs and guarantees, see Notes 11 and 29, respectively, of the Notes to the
Financial Statements.
In 2008,
Ford Credit did not enter into any off-balance sheet arrangements (off-balance
sheet securitization transactions and whole-loan sale transactions), which is
consistent with its plan to fund securitizations through on-balance sheet
transactions. In 2008, income related to off-balance sheet
arrangements reported in Financial Services revenues
was $199 million compared with $391 million in 2007, a decline of $192
million. The decline primarily reflected amortization of the
off-balance sheet securitization portfolio. Securitized off-balance
sheet receivables were about $600 million and $6 billion at December
31, 2008 and 2007, respectively.
Total
Company
Stockholders'
Equity. Our stockholders' equity was negative
$17.3 billion at December 31, 2008, a decline of about
$22.7 billion compared with December 31, 2007. The
decline primarily reflected unfavorable changes in Retained earnings, due to our
2008 net loss and unfavorable changes in Accumulated other comprehensive
income/(loss) primarily related to currency translation and pension and
OPEB adjustments, offset partially by changes in Capital in excess of par value of
stock, primarily the issuance of stock. See the Consolidated
Statement of Stockholders' Equity in our Financial Statements for details of
Comprehensive income/(loss).
Credit
Ratings. Our short- and long-term debt is rated by four credit
rating agencies designated as NRSROs by the SEC:
|
•
|
Moody’s
Investors Service, Inc. ("Moody’s");
and
|
|
•
|
Standard
& Poor’s Rating Services, a division of The McGraw-Hill Companies,
Inc. ("S&P").
|
In
several markets, locally recognized rating agencies also rate us. A
credit rating reflects an assessment by the rating agency of the credit risk
associated with a corporate entity or particular securities issued by that
entity. Their ratings of us are based on information provided by us
and other sources. Credit ratings are not recommendations to buy,
sell or hold securities and are subject to revision or withdrawal at any time by
the assigning rating agency. Each rating agency may have different
criteria for evaluating company risk and, therefore, ratings should be evaluated
independently for each rating agency. Lower credit ratings generally
result in higher borrowing costs and reduced access to capital
markets. The NRSROs have indicated that our lower ratings are
primarily a reflection of the rating agencies' concerns regarding our automotive
cash flow, liquidity and profitability, low industry sales volume, changes in
market share and product portfolio mix, and industry pricing
pressure.
The
following ratings actions were taken in the fourth quarter of 2008:
Ford
|
|
§
|
DBRS
|
In
November 2008, DBRS lowered Ford's long-term rating to CCC from CCC (high)
and maintained Ford's trend at Negative.
|
§
|
Fitch
|
In
October 2008, Fitch lowered Ford's long-term rating to CC from CCC+ and
maintained Ford's outlook at Negative
|
§
|
Moody's
|
Moody's
lowered Ford's long-term rating to Caa2 from Caa1 in November 2008 and to
Ca from Caa2 in December 2008. Moody's maintained Ford's
outlook at Negative.
|
§
|
S&P
|
In
November 2008, S&P lowered Ford's long-term rating to CCC- from CCC
and maintained Ford's outlook at
Negative.
|
ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Ford Credit
|
|
§
|
DBRS
|
In
November 2008, DBRS lowered Ford Credit's long-term rating to B (low) from
B, lowered Ford Credit's short-term rating to R-5 from R-4 and maintained
Ford Credit's trend at Negative.
|
§
|
Fitch
|
In
October 2008, Fitch lowered Ford Credit's long-term rating to B- from B+,
lowered Ford Credit's short-term rating to C from B and maintained Ford
Credit's outlook at Negative.
|
§
|
Moody's
|
Moody's
lowered Ford Credit's long-term rating to B2 from B1 in October 2008, to
B3 from B2 in November 2008, and to Caa1 from B3 in December
2008. Moody's maintained Ford Credit's outlook at
Negative.
|
§
|
S&P
|
In
November 2008, S&P lowered Ford Credit's long-term rating to CCC+ from
B- and maintained Ford Credit's outlook at
Negative.
|
The
following summarizes certain of the credit ratings and the outlook presently
assigned to Ford and Ford Credit by these four NRSROs:
|
|
|
|
|
|
|
Issuer
Default/ Corporate/ Issuer Rating
|
|
Long-Term
Senior Unsecured
|
|
|
|
|
|
Long-Term
Senior Unsecured
|
|
|
|
|
DBRS
|
|
CCC
(high)
|
|
|
CCC
|
|
|
B
(low)
|
|
Negative
|
|
|
B
(low)
|
|
|
R-5
|
|
Negative
|
Fitch
|
|
CCC
|
|
|
CC
|
|
|
B
|
|
Negative
|
|
|
B-
|
|
|
C
|
|
Negative
|
Moody's
|
|
Caa3
|
|
|
Ca
|
|
|
B2
|
|
Negative
|
|
|
Caal
|
|
|
NP
|
|
Negative
|
S&P
|
|
CCC+
|
|
|
CCC-
|
|
|
CCC+
|
|
Negative
|
|
|
CCC+*
|
|
|
NR
|
|
Negative
|
__________
*
|
S&P rates FCE's long-term
senior unsecured rating as B-, maintaining a one notch differential versus
Ford Credit.
|
Based on
the foregoing and our current planning assumptions as discussed in "Outlook"
below, we believe that we have sufficient near-term liquidity to fund our plan
and product investments and do not expect that we will need a bridge loan from
the U.S. government for Automotive liquidity requirements. For
further discussion of the risks and uncertainties that may impact our plan, see
"Item 1A. Risk Factors," "Outlook" below, and Note 1 of the Notes to the
Financial Statements.
ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
OUTLOOK
Although
2009 will be challenging, we believe that 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 –
provides the right tools to achieve our objectives. For additional
discussion of the economic environment and discussion and assessment of the
risks and opportunities to our current planning assumptions, see "Item 1A. Risk
Factors," and our "Overview" and "Critical Accounting Estimates" disclosures, as
well as the discussion that follows.
Our
current projection of upcoming vehicle production for certain segments is as
follows (in thousands):
|
|
|
|
|
|
Ford
North America
|
375
|
|
(317)
|
Ford
Europe
|
325
|
|
(214)
|
Volvo
|
67
|
|
(45)
|
The
year-over-year decline in planned vehicle production for Ford North America
primarily reflects reduced production of full-size trucks and SUVs, with most of
the reduction early in the first quarter to rebalance dealer inventories
consistent with industry declines. The decline in Ford Europe planned
production primarily reflects declining industry sales volume.
Our
current planning assumptions for 2009 include:
Industry Volume (a)
|
|
Full-Year Plan
|
(million
units)
|
|
|
–United
States
|
|
10.5
– 12.5
|
–Europe
(b)
|
|
12.5
– 13.5
|
|
|
|
Operational Metrics
|
|
|
Compared
with 2008:
|
|
|
–Quality
|
|
Improve
|
–Automotive
Structural Costs (c)
|
|
Improve
by about $4 Billion
|
–U.S.
Market Share (Ford and Lincoln Mercury)
|
|
Stabilize
|
–U.S.
Share of Retail Market (d)
|
|
Stabilize
|
–Europe
Market Share (b)
|
|
Equal
/ Improve
|
–Automotive
Operating-Related Cash Flow (e)
|
|
Negative
but Significantly Improved
|
Absolute
Amount:
|
|
|
–Capital
Spending
|
|
$5 Billion
–
$5.5 Billion
|
__________
(a)
|
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)
|
Compared
with 2008 share of retail market of about
12%.
|
(e)
|
See
"Liquidity and Capital Resources" above for reconciliation to U.S.
GAAP.
|
We anticipate very weak global industry
sales volume during 2009, with a full-year decline in the range of about 15%
from 2008 levels. Global credit markets remain tight as we begin the
year, with government and central bank actions being taken to stabilize
markets. Our suppliers and dealers, already experiencing financial
pressures in recent years, have been weakened further by the global economic
downturn and financial crisis.
We expect Automotive operating-related
cash flow in 2009 to be negative, but significantly improved from
2008. During 2008, the effect of the sudden and substantial decline
in global industry sales volume (an estimated decline of 3.5 million units
compared with 2007, the majority of which occurred in the second half of the
year), and our resulting production declines, generated substantial negative
cash flow. We expect industry sales volume early in 2009 to decline
somewhat, before stabilizing in the first half and beginning to recover later in
the year. Trade payables and other elements of working capital should
improve as industry sales volume stabilizes and begins to grow, contributing to
improved Automotive operating-related cash flow.
Other factors contributing to the
expected improvement in Automotive operating-related cash flow include planned
structural cost reductions, capital spending reductions of about $1 billion
to $1.5 billion (primarily reflecting non-recurrence of spending during
2008 on our major F-150 launch and greater efficiencies from our "One Ford"
global product development initiative), smaller up-front subvention payments to
Ford Credit, and lower inventories.
ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Non-operating-related
cash outflows should improve as well, reflecting the non-recurrence in 2009 of
significant VEBA contributions, and anticipated government loans to support
capital spending that improves fuel efficiency and reduces vehicle
emissions.
This is
in addition to the $2.3 billion of TAA assets that we gained access to for
use during 2009, and the $10.1 billion revolving loan we received in
February 2009 (discussed in "Liquidity and Capital Resources").
We
believe that our current planning assumptions are reasonable, based on our
analysis of the market. There is a risk, however, that industry sales
volume may not stabilize as early in 2009, or begin to improve as soon
thereafter, as we forecast. Additionally, dramatically lower industry
sales volume has made existing debt obligations and fixed cost levels difficult
for many suppliers to manage, especially with the tight credit market, raising
the possibility of supplier bankruptcy as evidenced by the recent request by the
Motor and Equipment Manufacturers Association and other supplier industry trade
groups to the U.S. Treasury Department for significant government
assistance.
In assessing these risks, we have
calculated that even a decline of 20% and 10%, respectively, for the United
States and Europe from the midpoint of the range of our current planning
assumptions for 2009 industry sales volume, combined with the estimated cost
necessary to ensure an uninterrupted supply of materials and components (absent
a significant industry event in 2009 such as an uncontrolled bankruptcy of a
major competitor or major suppliers in 2009, which we believe is remote), would
not materially impair our ability to fund our plan. We believe that
the risk of a decline in industry sales volume below these levels (i.e., below
9.2 million units in the United States and 11.7 million units in
Europe) is remote. Nonetheless, if industry sales volumes were to
decline below our current planning assumptions, we remain committed to taking
the necessary steps to match our manufacturing capacity to demand.
Our current planning assumptions
project U.S. industry sales volumes for 2010 and 2011 that range lower by
about an average of 750,000 units per year than the 14.5 million units
and 15.5 million units, respectively, previously disclosed in our business
plan submitted to Congress and filed as an exhibit to our Current Report on Form
8-K dated December 1, 2008.
As noted above, two of our competitors
with substantial legacy costs and debt, General Motors and Chrysler, currently
are engaged in discussions concerning U.S. government-funded restructurings
that, if successful, would reduce their legacy costs, align their employee
benefit costs with those of other competitors, and substantially reduce their
debt. For example, the government proposal for restructuring would
require that a significant portion of our competitors’ debt and OPEB obligations
be converted into equity. While we do not anticipate entering into a
government-funded restructuring, we are pursuing similar restructuring
actions to remain competitive.
At
year-end 2009, Ford Credit anticipates its managed receivables to be in the
range of $90 billion to $100 billion. The decrease from year-end 2008 primarily
reflects lower industry sales volumes, the transition of Jaguar, Land
Rover, and Mazda financing to other finance providers, and other strategic
actions. If credit markets continue to constrain term securitization funding or
Ford Credit is ineligible for government-sponsored funding programs, Ford Credit
will consider reducing its assets below the low-end of its projected year-end
2009 managed receivables balance (i.e., below $90 billion).
Beginning
in 2009, Ford Credit expects to pay distributions of about $2 billion
through 2010; Ford Credit will balance returns of capital with the successful
execution of its funding plan. This is down from the $3 billion of
planned distributions through 2010 reported in our Quarterly Report on Form 10-Q
for the period ended September 30, 2008. This reduction is
offset by the impact of higher-than-expected tax payments to us under our
tax-sharing agreement, primarily associated with Ford Credit's declining
operating lease portfolio. In total, Ford Credit anticipates its
planned tax payments and distributions during the fourth quarter 2008 through
2010 period to be consistent with its prior plan.
We
believe we are on track for total Company and Ford North America pre-tax results
and Automotive operating-related cash flow to be at or above breakeven in 2011,
excluding special items (such as expenses related to our planned facility
closures in 2011).
ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Risk
Factors
Statements
included or incorporated by reference herein may constitute “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act
of 1995. Forward-looking statements are based on expectations,
forecasts, and assumptions by our management and involve a number of risks,
uncertainties, and other factors that could cause actual results to differ
materially from those stated, including, without limitation:
·
|
Continued
or worsening financial crisis;
|
·
|
Further
declines in industry sales volume, particularly in the United States or
Europe, due to financial crisis, deepening recessions, geo-political
events, or other factors;
|
·
|
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 market shift away from sales of
trucks, SUVs, or other more profitable vehicles, particularly in the
United States;
|
·
|
A
return to elevated gasoline prices, as well as the potential for volatile
prices or reduced availability;
|
·
|
Lower-than-anticipated
market acceptance of new or existing
products;
|
·
|
Fluctuations
in foreign currency exchange rates, commodity prices, and interest
rates;
|
·
|
Adverse
effects from the bankruptcy, insolvency, or government-funded
restructuring of, change in ownership or control of, or alliances entered
into by a major competitor;
|
·
|
Restriction
on use of tax attributes from tax law "ownership
change";
|
·
|
Economic
distress of suppliers that may require us to provide financial support or
take other measures to ensure supplies of components or materials and
could increase our costs, affect our liquidity, or cause production
disruptions;
|
·
|
Single-source
supply 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;
|
·
|
Pension
and postretirement health care and life insurance liabilities impairing
our liquidity or financial
condition;
|
·
|
Inability
to implement the Retiree Health Care Settlement Agreement regarding UAW
hourly retiree health care;
|
·
|
Worse-than-assumed
economic and demographic experience for our postretirement benefit plans
(e.g., discount rates or investment
returns);
|
·
|
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, 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 subject to long-term
supply arrangements that commit us to purchase minimum or fixed quantities
of 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
secured debt);
|
·
|
Failure
of financial institutions to fulfill commitments under committed credit
facilities;
|
·
|
Ford
Credit's need for substantial liquidity to finance its
business;
|
·
|
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 other factors;
|
·
|
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;
|
·
|
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, data protection, or other regulation
resulting in greater costs or financing
restrictions;
|
·
|
Inability
to implement our plans to further reduce structural costs and increase
liquidity.
|
We cannot
be certain that any expectation, forecast, or assumption made in preparing
forward-looking statements will prove accurate, or that any projection will be
realized. It is to be expected that there may be differences between
projected and actual results. Our forward-looking statements speak
only as of the date of their initial issuance, and we do not undertake any
obligation to update or revise publicly any forward-looking statement, whether
as a result of new information, future events or otherwise. For
additional discussion of these risks, see "Item 1A. Risk Factors."
ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
CRITICAL
ACCOUNTING ESTIMATES
We
consider an accounting estimate to be critical if: 1) the accounting
estimate requires us to make assumptions about matters that were highly
uncertain at the time the accounting estimate was made, and 2) changes in the
estimate that are reasonably likely to occur from period to period, or use of
different estimates that we reasonably could have used in the current period,
would have a material impact on our financial condition or results of
operations.
Management
has discussed the development and selection of these critical accounting
estimates with the Audit Committee of our Board of Directors. In
addition, there are other items within our financial statements that require
estimation, but are not deemed critical as defined above. Changes in estimates
used in these and other items could have a material impact on our financial
statements.
Warranty
and Additional Service Actions
Nature of Estimates
Required. The estimated warranty and additional service action
costs are accrued for each vehicle at the time of sale. Estimates are
principally based on assumptions regarding the lifetime warranty costs of each
vehicle line and each model year of that vehicle line, where little or no claims
experience may exist. In addition, the number and magnitude of
additional service actions expected to be approved, and policies related to
additional service actions, are taken into consideration. Due to the
uncertainty and potential volatility of these estimated factors, changes in our
assumptions could materially affect net income.
Assumptions and Approach
Used. Our estimate of warranty and additional service action
obligations is re-evaluated on a quarterly basis. Experience has shown that
initial data for any given model year can be volatile; therefore, our process
relies upon long-term historical averages until sufficient data are
available. As actual experience becomes available, it is used to
modify the historical averages to ensure that the forecast is within the range
of likely outcomes. Resulting accruals are then compared with present
spending rates to ensure that the balances are adequate to meet expected future
obligations.
See
Note 29 of the Notes to the Financial Statements for more information
regarding costs and assumptions for warranties and additional service
actions.
Pensions
Nature of Estimates
Required. The estimation of our pension obligations, costs,
and liabilities requires that we make use of estimates of the present value of
the projected future payments to all participants, taking into consideration the
likelihood of potential future events such as salary increases and demographic
experience. These assumptions may have an effect on the amount and
timing of future contributions.
Assumptions and Approach
Used. The assumptions used in developing the required
estimates include the following key factors:
|
·
|
Discount
rates. We base the discount rate assumption primarily on
the results of a cash flow matching analysis, which matches the future
cash outflows for each major plan to a yield curve comprised of high
quality bonds specific to the country of the plan. Benefit
payments are discounted at the rates on the curve and a single discount
rate specific to the plan is
determined.
|
|
·
|
Expected return on plan
assets. The expected return on plan assets assumption
reflects historical returns and long-run inputs from a range of advisors
for capital market returns, inflation, bond yields, and other variables,
adjusted for specific aspects of our investment strategy. The
assumption is based on consideration of all inputs, with a focus on
long-term trends to avoid short-term market
influences. Assumptions are not changed unless structural
trends in the underlying economy are identified, our asset strategy
changes, or there are significant changes in other
inputs.
|
|
·
|
Salary
growth. The salary growth assumption reflects our
long-term actual experience, outlook, and assumed
inflation.
|
|
·
|
Inflation. Our
inflation assumption is based on an evaluation of external market
indicators.
|
ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
|
·
|
Expected
contributions. The expected amount and timing of
contributions is based on an assessment of minimum requirements, and
additional amounts based on cash availability and other considerations
(e.g., funded status, avoidance of regulatory premiums and levies, and tax
efficiency).
|
|
·
|
Retirement
rates. Retirement rates are developed to reflect actual
and projected plan experience.
|
|
·
|
Mortality
rates. Mortality rates are developed to reflect actual
and projected plan experience.
|
Plan
obligations and costs are based on existing retirement plan
provisions. No assumption is made regarding any potential future
changes to benefit provisions beyond those to which we are presently committed
(e.g., in existing labor contracts).
The
effects of actual results differing from our assumptions and the effects of
changing assumptions are included in unamortized net gains and
losses. Unamortized gains and losses are amortized over future
periods and, therefore, generally affect our recognized expense in future
periods. Amounts are recognized as a component of net expense over
the expected future years of service (approximately 12 years for the major U.S.
plans). In 2008, the U.S. actual return on assets was negative 10%,
which was less than the expected return of 8.25%. The
year-end 2008 weighted average discount rates for the U.S. and non-U.S.
plans increased by 25 and 32 basis points, respectively. These
differences resulted in unamortized losses of about
$9 billion. These losses are only amortized to the extent they
exceed 10% of the higher of the market-related value of assets or the projected
benefit obligation of the respective plan. For the major U.S. plans,
the losses do not exceed this threshold and recognition will begin at a future
measurement date.
See
Note 23 of the Notes to the Financial Statements for more information
regarding costs and assumptions for employee retirement benefits.
Sensitivity
Analysis. The December 31, 2008 pension funded
status and 2009 expense are affected by year-end 2008
assumptions. These sensitivities may be asymmetric and are specific
to the time periods noted. They also may not be additive, so the
impact of changing multiple factors simultaneously cannot be calculated by
combining the individual sensitivities shown. The effect of the
indicated increase/(decrease) in selected factors is shown below (in
millions):
|
|
Percentage
|
|
|
|
|
|
|
Point
|
|
|
|
|
|
December
31, 2008 Obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate
|
|
+/-
1.0 pt.
|
|
|
$ |
60/$(70) |
|
|
$ |
(130)/$140 |
|
|
$ |
(3,730)/$4,450 |
|
|
$ |
(2,450)/$2,790 |
|
Expected
return on assets
|
|
+/-
1.0
|
|
|
|
(400)/400 |
|
|
|
(170)/170 |
|
|
|
— |
|
|
|
— |
|
The
foregoing indicates that changes in the discount rate and return on assets can
have a significant effect on the expense of our pension plans and/or
obligation. We cannot predict these changes in discount rates or
investment returns and, therefore, cannot reasonably estimate whether
adjustments to our expense or obligation in subsequent years will be
significant.
Other
Postretirement Employee Benefits
Nature of Estimates
Required. The estimation of our obligations, costs, and
liabilities associated with OPEB, primarily retiree health care and life
insurance, requires that we make use of estimates of the present value of the
projected future payments to all participants, taking into consideration the
likelihood of potential future events such as health care cost increases, salary
increases, and demographic experience, which may have an effect on the amount
and timing of future payments.
Assumptions and Approach
Used. The assumptions used in developing the required
estimates include the following key factors:
|
·
|
Discount
rates. We base the discount rate assumption primarily on
the results of a cash flow matching analysis, which matches the future
cash outflows for each plan to a yield curve comprised of high quality
bonds specific to the country of the plan. Benefit payments are
discounted at the rates on the curve and a single discount rate specific
to the plan is determined.
|
ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
|
·
|
Health care cost
trends. Our health care cost trend assumptions are
developed based on historical cost data, the near-term outlook,
anticipated efficiencies and other cost-mitigation actions (including
eligibility management, employee education and wellness, competitive
sourcing and appropriate employee cost sharing) and an assessment of
likely long-term trends.
|
|
·
|
Expected return on plan
assets. The expected return on plan assets assumption
reflects historical returns, recent trends and long-run inputs from a
range of advisors for capital market returns, inflation, bond yields, and
other variables, adjusted for specific aspects of our investment
strategy. The assumption is based on consideration of all
inputs, with a focus on return expectations over the next twelve months
(VEBA assets will be drawn down where permitted or transferred to the New
UAW Retiree Health Care VEBA in
2009).
|
|
·
|
Salary
growth. The salary growth assumptions reflect our
long-term actual experience, outlook and assumed
inflation.
|
|
·
|
Expected VEBA
drawdowns. The expected amount and timing of VEBA
drawdowns is based on an assessment of hourly retiree benefit payments to
be reimbursed, tax efficiency, cash availability, and terms of the Retiree
Health Care Settlement Agreement.
|
|
·
|
Retirement
rates. Retirement rates are developed to reflect actual
and projected plan experience.
|
|
·
|
Mortality
rates. Mortality rates are developed to reflect actual
and projected plan experience.
|
Plan
obligations and costs are based on existing retirement plan
provisions. No assumption is made regarding any potential future
changes to benefit provisions beyond those to which we are presently committed
(e.g., in existing labor contracts).
The
effects of actual results differing from our assumptions and the effects of
changing assumptions are included in unamortized net gains and
losses. Unamortized gains and losses are amortized over future
periods and, therefore, generally affect our recognized expense in future
periods. In 2008, the U.S. actual health care trend was negative 1%,
compared to the expected initial trend of 3% at December 31,
2007. The weighted average discount rate used to determine the
benefit obligation for U.S. plans at December 31, 2008 was 4.95%, compared
with 6.45% at December 31, 2007. These differences, as well
as updates related to employee separation programs, resulted in an unamortized
gain of about $7 billion. This amount is expected to be
recognized as a component of net expense over the expected future years of
service (approximately 14 years).
See
Note 23 of the Notes to the Financial Statements for more information
regarding costs and assumptions for other postretirement employee
benefits.
Sensitivity
Analysis. The effect on U.S. and Canadian plans by a one
percentage point increase/(decrease) in the assumed health care cost trend rates
would increase/(decrease) the postretirement health care benefit obligation for
year-end 2008 by approximately $210 million/$(170) million, and the service
and interest component of health care expense for 2009 by
$20 million/$(10) million.
Impairments
of Goodwill and Long-Lived Assets
Nature of Estimates Required –
Goodwill. Goodwill is not amortized, but is subject to
periodic assessments of impairment. We test goodwill for impairment
annually during the fourth quarter, or when events occur or circumstances change
that would more likely than not reduce the fair value of the reporting unit
below its carrying value. Impairment of goodwill is evaluated using a
two step process. The first step involves comparison of the fair
value of a reporting unit with its carrying value. If the carrying
value of the reporting unit exceeds its fair value, the second step of the
process involves comparison of the implied fair value of goodwill (based on a
purchase price allocation methodology) with its carrying value. If
the carrying value of the reporting unit's goodwill exceeds the implied fair
value of that goodwill, an impairment loss is recognized in an amount equal to
the excess. Restoration of a previously-recognized goodwill
impairment loss is not allowed.
Nature of Estimates Required –
Long-Lived Assets. Long-lived asset groups are tested for
recoverability when changes in circumstances indicate the carrying value may not
be recoverable. Events that trigger a test for recoverability include
material adverse changes in 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.
ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Automotive
Sector
Assumptions and Approach
Used. We measure the fair value of a reporting unit or 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 reporting unit or asset group using
the income approach and/or the market approach. The income approach
uses cash flow projections. Inherent in our development of cash flow
projections are assumptions and estimates derived from a review of our operating
results, approved business plans, expected growth rates, and cost of capital,
similar to those a market participant would use to assess fair
value. We also make certain assumptions about future economic
conditions and other data. Many of the factors used in assessing fair
value are outside the control of management, and these assumptions and estimates
may change in future periods.
Changes
in assumptions or estimates can materially affect the fair value measurement of
a reporting unit or asset group, and therefore can affect the amount of the
impairment. The following are key assumptions we use in making cash
flow projections:
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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.
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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.
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Discount
rate. When measuring 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.
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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
sales volumes, inflation, interest rates, prices of raw materials
(i.e., commodities), and foreign currency exchange
rates.
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The
market approach is another method for measuring the fair value of a reporting
unit or 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.
Automotive
Sector – Goodwill
Of the
Automotive goodwill that remained on our balance sheet at December 31, 2008,
$1.2 billion was related to Volvo and $31 million was related to Ford
Europe.
Volvo. As
previously disclosed, in the fourth quarter of 2007 we recorded a
$2.4 billion impairment of our Volvo goodwill. We estimated at
that time that a 0.5 percentage point decrease in the long-term growth rate
would have decreased our fair value estimate by about
$250 million. A 0.5 percentage point increase in the
discount rate assumption would have decreased the fair value estimate by about
$350 million.
During
the fourth quarter of 2008, we performed our annual test of goodwill of Volvo
and concluded that its carrying value did not exceed its fair
value. Although it is difficult to assess the probabilities of all
possible market-participant assumptions in the volatile economic environment in
which we currently operate, we believe we have adjusted our fair value
assumptions appropriately. As discussed in "Overview," we recently
announced that we are reevaluating strategic options for Volvo, including a
possible sale. We have also considered in our analysis information
which has become available to us during our reevaluation which has supported our
conclusion that no impairment of goodwill is necessary. As we study
the viability of our options, we anticipate that we will receive additional
information that will allow us to further refine our assumptions and better
evaluate the impact of the current economic environment on the fair value of our
Volvo reporting unit. If this information reflects a lower fair value
estimate than presently assumed, we will again assess the Volvo reporting unit
goodwill for impairment which could result in an additional charge.
ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Ford Europe. We performed our
annual goodwill testing in the fourth quarter of 2008. Using updated
business and economic projections, we assessed that the carrying value of our
Ford Europe reporting unit at December 31, 2008 did not exceed its
fair value. If the present business climate continues without
indication of a medium-term improvement, revised business projection and growth
rate assumptions could result in future impairments.
Automotive
Sector – Long-Lived Assets
As
discussed in "Overview," the sudden and substantial decline in global industry
sales volume, combined with tight credit markets, other economic factors and
trends, and costs associated with transforming our business, have put
significant pressure on the profitability and liquidity of our long-lived asset
groups. We closely examined each of our asset groups for triggering
events and the conclusions of those assessments for each asset group are as
follows:
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Ford North
America: Due to rapidly-changing U.S. market conditions
in 2008, we tested the long-lived assets of our Ford North America segment
and recorded a pre-tax impairment charge of $5.3
billion.
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·
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Ford South
America: For 2008, our Ford South America segment
continued to be profitable and generate positive net cash
flows. Through the fourth quarter of 2008, the operating
results were consistent with projected results; therefore, we did not have
a triggering event.
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·
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Ford
Europe: For 2008, our Ford Europe segment continued to
be profitable. Profit results were consistent with projections,
and cash flow is projected to be positive in 2009. Based on
this, we did not have a triggering
event.
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·
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Volvo: We
tested the long-lived assets of our Volvo segment during 2008 due to the
current-period cash flow losses combined with a history of cash flow
losses and a projection of a decline in net cash flows based on updated
market projections reflecting recent industry
sales volumes. We assessed that the carrying value of our
long-lived assets was recoverable. We also assessed that the
carrying value of our Volvo reporting unit did not exceed its fair
value.
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Ford Asia Pacific
Africa: Due to the rapid deterioration in business
climate throughout the Asia Pacific region which resulted in cash flow
loss projections, we tested the long-lived assets of our Ford Asia Pacific
Africa segment and assessed that the carrying value was
recoverable.
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If the
global business climate as it exists at December 31, 2008 continues or worsens
without indication of a medium-term improvement, revised business projections
for operating results could result in future impairments.
See Notes
13 and 14 of the Notes to the Financial Statements for more information
regarding impairment of goodwill and long-lived assets.
Sensitivity
Analysis. As discussed above, due to rapidly-changing U.S.
market conditions in the second quarter of 2008 (discussed in Note 13 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 our Quarterly Report on Form
10-Q for the period ended June 30, 2008.
ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
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.
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 sales 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.
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 may materially affect the fair value measurement of
an asset group, and therefore may affect the amount of the
impairment. The following are key assumptions we use in making cash
flow projections for Ford Credit's operating leases:
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·
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Auction
values. Ford Credit's projection of the market value of
the vehicles when Ford Credit sells them at the end of the
lease.
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·
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Return
volume. Ford Credit's projection of the number of
vehicles that will be returned at
lease-end.
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ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
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·
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Discount
rate. Ford Credit's estimation of the discount rate,
reflecting hypothetical market assumptions regarding borrowing rates,
credit loss patterns, and residual value
risk.
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See
Notes 2 and 13 of the Notes to the Financial Statements for more
information regarding impairment of long-lived assets.
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 13 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,
Ford Credit concluded that the operating lease portfolio was impaired and we and
Ford Credit recorded a pre-tax charge of $2.1 billion in 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.
At the
time of the impairment, Ford Credit estimated that a one percent 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.
Fuel
prices declined in the second half of 2008; however, we believe that the
pronounced shift in consumer preferences from full-size trucks and sport utility
vehicles to smaller, more fuel-efficient vehicles is permanent. The
economic climate weakened further in the second half of 2008 and auction values
have also declined primarily attributable to cars and crossover
vehicles. We expect auction values for smaller, more fuel-efficient
vehicles to improve in the future; however, in accordance with our normal
process, we reviewed the adequacy of our accumulated depreciation and, during
the second half of 2008, increased our depreciation rates on certain vehicles
within our operating lease portfolio as appropriate. For additional
information on residual risk on operating leases, refer to "Critical Accounting
Estimates – Accumulated Depreciation on Vehicles Subject to Operating
Leases."
Although
at this time we do not anticipate additional impairment charges, a deterioration
of the business climate would impact the assumptions we use in future impairment
testing and 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.
Statement
of Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes
("SFAS No. 109") requires a reduction of the carrying amounts of deferred tax
assets by recording a valuation allowance if, based on the available evidence,
it is more likely than not (defined by SFAS No. 109 as a likelihood of more
than 50%) 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.
ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
This
assessment, which is completed on a taxing jurisdiction basis, takes into
account a number of types of evidence, including the following:
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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;
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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
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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.
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See
Note 19 of the Notes to the Financial Statements for more information
regarding deferred tax assets.
Sensitivity
Analysis. In 2006, our net deferred tax position 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 Interpretation No. 48,
Accounting for Uncertainty in
Income Taxes – an interpretation of FASB Statement No. 109
("FIN 48")). Taxable losses during 2008, primarily in the
United States, increased the valuation allowance by $9.3 billion to a
balance of $17.8 billion at December 31, 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. As discussed above, however, we have heavily weighted the
objectively-measured recent financial reporting losses and, for these purposes,
given no weight to subjectively determined projections of future taxable income
exclusive of reversing temporary differences, and concluded as of December
31, 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.
ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
At
December 31, 2008 and December 31, 2007, our net deferred tax assets, net
of the valuation allowances of $17.8 billion and $8.6 billion
respectively, were $1.1 billion 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 December 31,
2008 and December 31, 2007, we continued to recognize a net deferred tax asset
of $1.4 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.
Accumulated
Depreciation on Vehicles Subject to Operating Leases
Accumulated
depreciation on vehicles subject to operating leases reduces the value of the
leased vehicles in our operating lease portfolio from their original acquisition
value to their expected residual value at the end of the lease
term. These vehicles primarily consist of retail lease contracts for
Ford Credit and vehicles sold to daily rental car companies subject to a
guaranteed repurchase option ("rental repurchase vehicles") for the Automotive
sector.
We
monitor residual values each month, and we review the adequacy of our
accumulated depreciation on a quarterly basis. If we believe that the
expected residual values for our vehicles have changed, we revise depreciation
to ensure that our net investment in operating leases (equal to our acquisition
value of the vehicles less accumulated depreciation) will be adjusted to reflect
our revised estimate of the expected residual value at the end of the lease
term. Such adjustments to depreciation expense would result in a
change in the depreciation rates of the vehicles subject to operating leases,
and are recorded prospectively on a straight-line basis.
For
retail leases, each lease customer has the option to buy the leased vehicle at
the end of the lease or to return the vehicle to the dealer. If the
customer returns the vehicle to the dealer, the dealer may buy the vehicle from
Ford Credit or return it to Ford Credit. Ford Credit's North America
operating lease activity was as follows for each of the last three years (in
thousands, except percentages):
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Vehicle
return volume
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327 |
|
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300 |
|
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237 |
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Return
rate
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86 |
% |
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79 |
% |
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72 |
% |
For
rental repurchase vehicles, practically all vehicles have been returned to
us.
Nature of Estimates Required.
Each operating lease in our portfolio represents a vehicle we own that
has been leased to a customer. At the time we purchase a lease, we
establish an expected residual value for the vehicle. We estimate the
expected residual value by evaluating recent auction values, historical return
volumes for our leased vehicles, industry-wide used vehicle prices, our
marketing incentive plans and vehicle quality data.
Assumptions
Used. For retail leases, our accumulated depreciation on
vehicles subject to operating leases is based on our assumptions
of:
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•
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Auction
value. Ford Credit's projection of the market value of
the vehicles when we sell them at the end of the lease;
and
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•
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Return
volume. Ford Credit's projection of the number of
vehicles that will be returned to us at lease
end.
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See
Note 5 of the Notes to the Financial Statements for more information
regarding accumulated depreciation on vehicles subject to operating
leases.
Sensitivity
Analysis. For returned vehicles, we face a risk that the
amount we obtain from the vehicle sold at auction will be less than our estimate
of the expected residual value for the vehicle. At
December 31, 2008, if future auction values for Ford Credit's existing
portfolio of operating leases on Ford, Lincoln and Mercury brand vehicles in the
United States were to decrease by one percent from its present estimates, the
effect would be to increase the depreciation on these vehicles by about
$60 million. Similarly, if return volumes for Ford Credit's
existing portfolio of operating leases on Ford, Lincoln and Mercury brand
vehicles in the United States were to increase by one percentage point from its
present estimates, the effect would be to increase the depreciation on these
vehicles by about $20 million. These increases in depreciation
would be charged to depreciation expense during the 2009 through
2012 period so that the net investment in operating leases at the end of
the lease term for these vehicles is equal to the revised expected residual
value. Adjustments to the amount of accumulated depreciation on
operating leases will be reflected on our balance sheet as Net investment in operating leases
and on the income statement in Depreciation, in each case
under the Financial Services sector.
ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Allowance
for Credit Losses
The
allowance for credit losses is Ford Credit's estimate of the probable credit
losses inherent in finance receivables and operating leases at the date of the
balance sheet. Consistent with its normal practices and policies,
Ford Credit assesses the adequacy of its allowance for credit losses quarterly
and regularly evaluates the assumptions and models used in establishing the
allowance. Because credit losses can vary substantially over time,
estimating credit losses requires a number of assumptions about matters that are
uncertain.
Nature
of Estimates Required. Ford Credit
estimates the probable credit losses inherent in finance receivables and
operating leases based on several factors.
Retail Installment and Lease
Portfolio. The retail installment and lease portfolio is evaluated using
a combination of models and management judgment, and is based on factors such as
historical trends in credit losses and recoveries (including key metrics such as
delinquencies, repossessions, and bankruptcies), the composition of Ford
Credit's present portfolio (including vehicle brand, term, risk evaluation, and
new/used vehicles), trends in historical and projected used vehicle values, and
economic conditions. Estimates from models may not fully reflect losses inherent
in the present portfolio, and an element of the allowance for credit losses is
established for the imprecision inherent in loan loss models. Reasons for
imprecision include changes in economic trends and conditions, portfolio
composition and other relevant factors.
Assumptions
Used. Ford Credit makes projections of two key
assumptions:
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Frequency. The
number of finance receivables and operating lease contracts that Ford
Credit expects will default over a period of time, measured as
repossessions; and
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|
Loss
severity. The expected difference between the amount a
customer owes Ford Credit when Ford Credit charges off the finance
contract and the amount Ford Credit receives, net of expenses, from
selling the repossessed vehicle, including any recoveries from the
customer.
|
Ford
Credit uses these assumptions to assist in estimating its allowance for credit
losses. See Note 6 of the Notes to the Financial Statements for
more information regarding allowance for credit losses.
Sensitivity
Analysis. Changes in the assumptions used to derive frequency
and severity would affect the allowance for credit losses. The effect
of the indicated increase/decrease in the assumptions is shown below for Ford,
Lincoln, and Mercury brand vehicles in the U.S. retail and lease portfolio (in
millions):
|
|
|
|
|
|
|
Assumption
|
|
|
|
|
December
31, 2008
Allowance
for
Credit
Losses
|
|
|
|
|
Repossession
rates *
|
|
+/-
0.1 pt.
|
|
|
$ |
50/$(50)
|
|
|
$ |
50/$(50)
|
|
Loss
severity
|
|
+/-
1.0
|
|
|
|
10/(10) |
|
|
|
10/(10) |
|
__________
* Reflects
the number of finance receivables and operating lease contracts that Ford Credit
expects will default over a period of time relative to the average number of
contracts outstanding.
Wholesale and Dealer Loan
Portfolio. The wholesale and dealer loan portfolio is
evaluated by segmenting individual loans into risk pools, which are determined
by the risk characteristics of the loan (such as the amount of the loan, the
nature of collateral, and the financial status of the dealer). The
risk pools are analyzed to determine if individual loans are impaired, and an
allowance is estimated for the expected loss of these loans.
ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Changes
in Ford Credit's assumptions affect the Provision
for credit and insurance losses on our income statement and the allowance
for credit losses contained within Finance
receivables, net and Net
investment in operating
leases on our balance sheet, in each case under the Financial Services
sector.
ACCOUNTING
STANDARDS ISSUED BUT NOT YET ADOPTED
In
December 2007, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 141R, Business Combinations ("SFAS
No. 141R"). This standard
establishes principles and requirements for how the acquirer recognizes and
measures the acquired identifiable assets, assumed liabilities, noncontrolling
interest in the acquiree, and acquired goodwill or gain from a bargain
purchase. SFAS No. 141R also determines what information
the acquirer must disclose to enable users of the financial statements to
evaluate the nature and financial effects of the business
combination. SFAS No. 141R is effective for us as of
January 1, 2009 and we will apply the standard prospectively to all
business combinations subsequent to the effective date.
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No. 51
("SFAS No. 160"). This standard establishes accounting and
reporting standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. SFAS No. 160 clarifies that a
noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated
financial statements. SFAS No. 160 is effective for us as
of January 1, 2009. The presentation and disclosure requirements of
this standard must be applied retrospectively for all periods presented and will
impact how we present and disclose noncontrolling interests and income from
noncontrolling interests in our financial statements.
In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities – an amendment of FASB Statement No.
133 ("SFAS No. 161"). This standard requires enhanced
disclosures about an entity's derivative and hedging activities. SFAS
No. 161 requires qualitative disclosures about objectives and strategies for
using derivatives, quantitative disclosures about fair value amounts of gains
and losses on derivative instruments, and disclosures about credit-risk-related
contingent features in derivative agreements. SFAS No. 161 is
effective for us as of January 1, 2009. This standard only requires
enhanced disclosures and will have no impact on our financial condition and
results of operations.
In May
2008, the FASB issued FASB Staff Position ("FSP") APB 14-1, Accounting for Convertible Debt
Instruments that may be Settled in Cash upon Conversion (Including Partial Cash
Settlement) ("FSP APB 14-1"). FSP APB 14-1 applies to
convertible debt securities that, upon conversion, may be settled by the issuer
fully or partially in cash. FSP APB 14-1 specifies that issuers of
such instruments should separately account for the liability and equity
components in a manner that will reflect the entity's nonconvertible debt
borrowing rate when interest cost is recognized in subsequent
periods. FSP APB 14-1 is effective for us as of January 1, 2009, and
must be applied retrospectively to all periods presented. We are adopting the
FSP as of January 1, 2009, and we expect a $1.9 billion increase to 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.
In
December 2008, the FASB issued FSP FAS 132(R)-1, Employer's Disclosures about
Postretirement Benefit Plan Assets ("FSP FAS 132(R)-1"). The FSP requires enhanced
disclosures about plan assets currently required by SFAS No. 132 (revised
2003), Employer's Disclosures
about Pensions and Other Postretirement Benefits. FSP FAS
132(R)-1 requires more detailed disclosures about employers' plan assets,
including employers' investment strategies, major categories of plan assets,
concentrations of risk within plan assets, and valuation techniques used to
measure the fair value of plan assets. FSP FAS 132(R)-1 is effective for fiscal
years ending after December 15, 2009, and early adoption is permitted. We
will be adopting the FSP as of December 31, 2009. We are currently assessing the
potential impact of this FSP on our financial statement
disclosures.
AGGREGATE
CONTRACTUAL OBLIGATIONS
We are
party to many contractual obligations involving commitments to make payments to
third parties. Most of these are debt obligations incurred by our
Financial Services sector. Long-term debt may have fixed or variable
interest rates. For long-term debt with variable rate interest, we
estimate the future interest payments based on projected market interest rates
for various floating-rate benchmarks received from third parties. In
addition, as part of our normal business practices, we enter into contracts with
suppliers for purchases of certain raw materials, components and
services. These arrangements may contain fixed or minimum quantity
purchase requirements. We enter into such arrangements to facilitate
adequate supply of these materials and services. "Purchase
obligations" are defined as off-balance sheet agreements to purchase goods or
services that are enforceable and legally binding on the Company and that
specify all significant terms.
ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
The table
below summarizes our contractual obligations as of December 31, 2008
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments
Due by Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010-2011
|
|
|
2012-2013
|
|
|
|
|
On-balance
sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt (a) (b) (excluding capital leases)
|
|
$ |
25,146 |
|
|
$ |
108,196 |
|
|
$ |
(492 |
) |
|
$ |
132,850 |
|
|
$ |
42,483 |
|
|
$ |
47,495 |
|
|
$ |
19,691 |
|
|
$ |
23,181 |
|
Interest
payments relating to long-term debt
|
|
|
22,057 |
|
|
|
15,513 |
|
|
|
— |
|
|
|
37,570 |
|
|
|
6,564 |
|
|
|
8,509 |
|
|
|
4,869 |
|
|
|
17,628 |
|
Capital
leases
|
|
|
301 |
|
|
|
— |
|
|
|
— |
|
|
|
301 |
|
|
|
68 |
|
|
|
138 |
|
|
|
45 |
|
|
|
50 |
|
Off-balance
sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
obligations
|
|
|
2,619 |
|
|
|
80 |
|
|
|
— |
|
|
|
2,699 |
|
|
|
1,286 |
|
|
|
1,190 |
|
|
|
183 |
|
|
|
40 |
|
Operating
leases
|
|
|
1,619 |
|
|
|
341 |
|
|
|
— |
|
|
|
1,960 |
|
|
|
505 |
|
|
|
669 |
|
|
|
414 |
|
|
|
372 |
|
Total
|
|
$ |
51,742 |
|
|
$ |
124,130 |
|
|
$ |
(492 |
) |
|
$ |
175,380 |
|
|
$ |
50,906 |
|
|
$ |
58,001 |
|
|
$ |
25,202 |
|
|
$ |
41,271 |
|
_______
(a)
|
Amount
includes, prior to adjustment noted above, $648 million for the Automotive
sector and $42.2 billion for the Financial Services sector for the
current portion of long-term debt. See Note 16 of the Notes to
the Financial Statements for additional
discussion.
|
(b)
|
Automotive
sector excludes unamortized debt discounts of $(144)
million. Financial Services sector excludes unamortized debt
discounts of $(256) million and adjustments of $334 million related
to designated fair value hedges of the
debt.
|
(c)
|
Intersector
elimination related to Ford's acquisition of Ford Credit debt
securities. See Note 1 of the Notes to the Financial
Statements for additional detail.
|
Liabilities
recognized under FIN 48 for uncertain tax benefits of $1.9 billion
(see Note 19 of the Notes to the Financial Statements) are excluded from the
table above. Final settlement of a significant portion of these
obligations will require bilateral tax agreements among us and various
countries, the timing of which cannot be reasonably estimated.
For
additional information regarding long-term debt, operating lease obligations,
and pension and OPEB obligations and the UAW VEBA, see Notes 16, 5, and 23,
respectively, of the Notes to the Financial Statements.
ITEM 7A. Quantitative and
Qualitative Disclosures About Market Risk
OVERVIEW
We are
exposed to a variety of market and other risks, including the effects of changes
in foreign currency exchange rates, commodity prices, interest rates, as well as
risks to availability of funding sources, hazard events, and specific asset
risks.
These
risks affect our Automotive and Financial Services sectors
differently. We monitor and manage these exposures as an integral
part of our overall risk management program, which includes regular reports to a
central management committee, the Global Risk Management Committee
("GRMC"). The GRMC is chaired by our Chief Financial Officer, and its
members include our Treasurer, our Corporate Controller, and other members of
senior management.
Our
Automotive and Financial Services sectors are exposed to liquidity risk, or the
possibility of having to curtail their businesses or being unable to meet
present and future financial obligations as they come due because funding
sources may be reduced or become unavailable. We maintain plans for
sources of funding to ensure liquidity through a variety of economic or business
cycles. As discussed in greater detail in
"Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations" our funding sources include sales of receivables in
securitizations and other structured financings, unsecured debt issuances and
bank borrowings.
We are
exposed to a variety of insurable risks, such as loss or damage to property,
liability claims, and employee injury. We protect against these risks
through a combination of self-insurance and the purchase of commercial insurance
designed to protect against events that could generate significant
losses.
Direct
responsibility for the execution of our market risk management strategies
resides with our Treasurer's Office and is governed by written polices and
procedures. Separation of duties is maintained between the
development and authorization of derivative trades, the transaction of
derivatives, and the settlement of cash flows. Regular audits are
conducted to ensure that appropriate controls are in place and that they remain
effective. In addition, our market risk exposures and our use of
derivatives to manage these exposures are reviewed by the GRMC, and the Audit
and Finance Committees of our Board of Directors.
In
accordance with corporate risk management policies, we use derivative
instruments, such as forward contracts, swaps and options that economically
hedge certain exposures (foreign currency, commodity, and interest
rates). Derivative positions are used to manage underlying exposures;
we do not use derivative contracts for trading, market-making or speculative
purposes. In certain instances, we forgo hedge accounting, which
results in unrealized gains and losses that are recognized currently in net
income. The global credit crisis and the deterioration of our credit
ratings have significantly reduced our ability to obtain derivatives to manage
market risks. For additional information on our derivatives, see
Note 22 of the Notes to the Financial Statements.
The
market and counterparty risks of our Automotive sector and Ford Credit are
discussed and quantified below.
AUTOMOTIVE
MARKET AND COUNTERPARTY RISK
Our
Automotive sector frequently has expenditures and receipts denominated in
foreign currencies, including the following: purchases and sales of
finished vehicles and production parts, debt and other payables, subsidiary
dividends, and investments in foreign operations. These expenditures
and receipts create exposures to changes in exchange rates. We also
are exposed to changes in prices of commodities used in our Automotive sector
and changes in interest rates.
Foreign
currency risk and commodity risk are measured and quantified using a model to
evaluate the sensitivity of the fair value of currency and commodity derivative
instruments with exposure to market risk that assumes instantaneous, parallel
shifts in rates and/or prices. For options and instruments with
non-linear returns, appropriate models are utilized to determine the impact of
shifts in rates and prices.
ITEM
7A. Quantitative and Qualitative Disclosures About Market Risk
(continued)
Foreign Currency
Risk. Foreign currency risk is the possibility that our
financial results could be better or worse than planned because of changes in
currency exchange rates. Accordingly, we use derivative instruments
to hedge our economic exposure with respect to forecasted revenues and costs,
assets, liabilities, investments in foreign operations, and firm commitments
denominated in foreign currencies. In our hedging actions, we use
primarily instruments commonly used by corporations to reduce foreign exchange
risk (e.g., forward and option contracts).
The net
fair value of foreign exchange forward and option contracts as of December 31,
2008 was an asset of $249 million compared to $632 million as of
December 31, 2007. The potential decrease in fair value of
foreign exchange forward and option contracts, assuming a 10% adverse
change in the underlying currency exchange rates, would be approximately
$600 million at December 31, 2008 and was $2 billion as of
December 31, 2007.
Commodity Price
Risk. Commodity price risk is the possibility that our
financial results could be better or worse than planned because of changes in
the prices of commodities used in the production of motor vehicles, such as
non-ferrous metals (e.g., aluminum), precious metals (e.g., palladium), ferrous
metals (e.g., steel and iron castings), energy (e.g., natural gas and
electricity), and plastics/resins (e.g., polypropylene). Steel and
resins are our two largest commodity exposures and are among the most difficult
to hedge.
We use
derivative instruments to hedge the price risk associated with the purchase of
those commodities that we can economically hedge (primarily non-ferrous metals,
precious metals and energies). In our hedging actions, we primarily
use instruments commonly used by corporations to reduce commodity price risk
(e.g., financially settled forward contracts, swaps, and options).
The net
fair value of commodity forward and option contracts as of
December 31, 2008 was a liability of $212 million, compared
to an asset of $353 million as of December 31, 2007. The
potential decrease in fair value of commodity forward and option contracts,
assuming a 10% decrease in the underlying commodity prices, would be
approximately $26 million at December 31, 2008, compared with a
decrease of $100 million at December 31, 2007.
In
addition, our purchasing organization (with guidance from the GRMC as
appropriate) negotiates contracts to ensure continuous supply of raw
materials. In some cases, these contracts stipulate minimum purchase
amounts and specific prices, and as such, play a role in managing price
risk.
Interest Rate
Risk. Interest rate risk relates to the gain or loss we could
incur in our Automotive investment portfolio due to a change in interest
rates. Our interest rate sensitivity analysis on the investment
portfolio includes cash and cash equivalents, net marketable and loaned
securities. At December 31, 2008, we had $13.4 billion
(excluding the TAA amount of $2.3 billion which was established in 2008) in
our Automotive investment portfolio, compared to $33 billion at
December 31, 2007. We invest the portfolio in securities of
various types and maturities, the value of which are subject to fluctuations in
interest rates. The portfolios are classified as trading portfolios
and gains and losses (unrealized and realized) are reported in the income
statement. The investment strategy is based on clearly defined risk
and liquidity guidelines to maintain liquidity, minimize risk, and earn a
reasonable return on the short-term investment.
At any
time, a rise in interest rates could have a material adverse impact on the fair
value of our portfolios. Assuming a hypothetical increase in interest
rates of one percentage point, the value of our portfolios would be reduced by
about $57 million. This compares to $85 million, as
calculated as of December 31, 2007. While these are our
best estimates of the impact of the specified interest rate scenario, actual
results could differ from those projected. The sensitivity analysis
presented assumes interest rate changes are instantaneous, parallel shifts in
the yield curve. In reality, interest rate changes of this magnitude
are rarely instantaneous or parallel.
ITEM
7A. Quantitative and Qualitative Disclosures About Market Risk
(continued)
Counterparty
Risk. Counterparty risk relates to the loss we could incur if
an obligor or counterparty defaulted on an investment or a derivative
contract. We enter into master agreements with counterparties that
allow netting of certain exposures in order to manage this
risk. Exposures primarily relate to investments in fixed income
instruments and derivative contracts used for managing interest rate, foreign
currency exchange rate and commodity price risk. We, together with
Ford Credit, establish exposure limits for each counterparty to minimize risk
and provide counterparty diversification.
Our
approach to managing counterparty risk is forward-looking and proactive,
allowing us to take risk mitigation actions before risks become
losses. We establish exposure limits for both net fair value and
future potential exposure, based on our overall risk tolerance and ratings-based
historical default probabilities. The exposure limits are lower for
lower-rated counterparties and for longer-dated exposures. We use a
model to assess our potential exposure, defined at a 95% confidence
level. Our exposures are monitored on a regular basis and included in
periodic reporting to our Treasurer.
Substantially
all of our counterparty exposures are with counterparties that are rated
single-A or better. Our guideline for counterparty minimum long-term
ratings is BBB-.
For
additional information about derivative notional amount and fair value of
derivatives, please refer to Note 22 of the Notes to the Financial
Statements.
FORD
CREDIT MARKET RISK
Overview. Ford
Credit is exposed to a variety of risks in the normal course of its business
activities. In addition to counterparty risk discussed above, Ford
Credit is subject to the following additional types of risks that it seeks to
identify, assess, monitor, and manage, in accordance with defined policies and
procedures:
|
·
|
Market risk — the
possibility that changes in interest and currency exchange rates will
adversely affect cash flow and economic
value;
|
|
·
|
Credit risk — the
possibility of loss from a customer’s failure to make payments according
to contract terms;
|
|
·
|
Residual risk — the
possibility that the actual proceeds received at lease termination will be
lower than projections or return volumes will be higher than projections;
and
|
|
·
|
Liquidity risk — the
possibility that Ford Credit may be unable to meet all of its current and
future obligations in a timely
manner.
|
Each form
of risk is uniquely managed in the context of its contribution to Ford Credit's
overall global risk. Business decisions are evaluated on a
risk-adjusted basis and services are priced consistent with these
risks. Credit and residual risks are discussed above in "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations – Critical Accounting Estimates" and liquidity risk is discussed
above in "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations – Liquidity and Capital
Resources." A discussion of Ford Credit's market risks (foreign
currency risk and interest rate risk) is included below.
Foreign Currency
Risk. Ford Credit's policy is to minimize exposure to changes
in currency exchange rates. To meet funding objectives, Ford Credit
borrows in a variety of currencies, principally U.S. dollars and
Euros. Ford Credit faces exposure to currency exchange rates if a
mismatch exists between the currency of receivables and the currency of the debt
funding those receivables. When possible, receivables are funded with
debt in the same currency, minimizing exposure to exchange rate
movements. When a different currency is used, Ford Credit may execute
the following foreign currency derivatives to convert substantially all of
foreign currency debt obligations to the local country currency of the
receivables:
|
·
|
Foreign currency swap —
an agreement to convert non-U.S. dollar long-term debt to U.S.
dollar-denominated payments or non-local market debt to local market debt
for our international affiliates;
or
|
|
·
|
Foreign currency
forward — an agreement to buy or sell an amount of funds in an
agreed currency at a certain time in the future for a certain
price.
|
As a
result of this policy, Ford Credit believes its market risk exposure relating to
changes in currency exchange rates is insignificant.
ITEM
7A. Quantitative and Qualitative Disclosures About Market Risk
(continued)
Interest Rate
Risk. Ford Credit's primary market risk exposure is interest
rate risk, and the particular market to which it is most exposed is U.S. dollar
LIBOR. Interest rate risk exposure results principally from
“re-pricing risk” or differences in the re-pricing characteristics of assets and
liabilities. An instrument’s re-pricing period is a term used to
describe how an interest rate-sensitive instrument responds to changes in
interest rates. It refers to the time it takes an instrument’s
interest rate to reflect a change in market interest rates. For
fixed-rate instruments, the re-pricing period is equal to the maturity of the
instrument’s principal, because the principal is considered to re-price only
when re-invested in a new instrument. For a floating-rate instrument,
the re-pricing period is the period of time before the interest rate adjusts to
the market rate. For instance, a floating-rate loan whose interest
rate is reset to a market index annually on December 31 would have a
re-pricing period of one year on January 1, regardless of the instrument’s
maturity.
Re-pricing
risk arises when assets and the related debt have different re-pricing periods,
and consequently, respond differently to changes in interest
rates. As an example, consider a hypothetical portfolio of fixed-rate
assets that is funded with floating-rate debt. If interest rates
increase, the interest paid on debt increases while the interest received on
assets remains fixed. In this case, the hypothetical portfolio’s cash
flows are exposed to changes in interest rates because its assets and debt have
a re-pricing mismatch.
Ford
Credit's receivables consist primarily of fixed-rate retail installment sale and
lease contracts and floating-rate wholesale receivables. Fixed-rate
retail installment sale and lease contracts are originated principally with
maturities ranging between two and six years and generally require customers to
make equal monthly payments over the life of the contract. Wholesale
receivables are originated to finance new and used vehicles held in dealers’
inventory and generally require dealers to pay a floating rate.
Funding
sources consist primarily of securitizations and short- and long-term unsecured
debt. In the case of unsecured term debt, and in an effort to have
funds available throughout business cycles, Ford Credit may borrow at terms
longer than the terms of their assets, in most instances with up to ten year
maturities. These debt instruments are principally fixed-rate and
require fixed and equal interest payments over the life of the instrument and a
single principal payment at maturity.
Ford
Credit is exposed to interest rate risk to the extent that a difference exists
between the re-pricing profile of its assets and its
debt. Specifically, without derivatives, in the aggregate Ford
Credit's assets would re-price more quickly than its debt.
Ford
Credit's interest rate risk management objective is to maximize its economic
value while limiting the impact of changes in interest rates. Ford
Credit achieves this objective by setting an established risk tolerance and
staying within the tolerance through the following risk management
process.
Ford
Credit determines the sensitivity of its economic value to hypothetical changes
in interest rates. Ford Credit then enters into interest rate swaps
to economically convert portions of its floating-rate debt to fixed or
fixed-rate debt to floating to ensure that the sensitivity of its economic value
falls within an established tolerance. As part of its process, Ford
Credit also monitors the sensitivity of its pre-tax cash flow using simulation
techniques. To measure this sensitivity, Ford Credit calculates the
change in expected cash flows to changes in interest rates over a twelve-month
horizon. This calculation determines the sensitivity of changes in
cash flows associated with the re-pricing characteristics of its
interest-rate-sensitive assets, liabilities, and derivative financial
instruments under various hypothetical interest rate scenarios including both
parallel and non-parallel shifts in the yield curve. This sensitivity
calculation does not take into account any future actions Ford Credit may take
to reduce the risk profile that arises from a change in interest
rates. These quantifications of interest rate risk are reported to
the Treasurer regularly (either monthly or quarterly depending on the
market).
The
process described above is used to measure and manage the interest rate risk of
Ford Credit's operations in the United States, Canada, and the United Kingdom,
which together represented approximately 80% of its total on-balance sheet
finance receivables at December 31, 2008. For its other international
affiliates, Ford Credit uses a technique, commonly referred to as “gap
analysis,” to measure re-pricing mismatch. This process uses re-pricing
schedules that group assets, debt, and swaps into discrete time-bands based on
their re-pricing characteristics. Ford Credit then enters into interest rate
swaps, which effectively change the re-pricing profile of its debt, to ensure
that any re-pricing mismatch (between assets and liabilities) existing in a
particular time-band falls within an established tolerance.
ITEM
7A. Quantitative and Qualitative Disclosures About Market Risk
(continued)
As a
result of its interest rate risk management process, in the aggregate Ford
Credit's debt combined with the derivative instruments economically hedging the
debt re-prices faster than its assets. Other things being equal, this
means that during a period of rising interest rates, the interest rates paid on
its debt will increase more rapidly than the interest rates earned on its
assets, thereby initially reducing Ford Credit's pre-tax cash
flow. Correspondingly, during a period of falling interest rates,
Ford Credit would expect its pre-tax cash flow to initially
increase.
To
provide a quantitative measure of the sensitivity of its pre-tax cash flow to
changes in interest rates, Ford Credit uses interest rate scenarios that assume
a hypothetical, instantaneous increase or decrease in interest rates of one
percentage point across all maturities (a “parallel shift”), as well as a base
case that assumes that interest rates remain constant at existing
levels. In reality, interest rate changes are rarely instantaneous or
parallel and rates could move more or less than the one percentage point assumed
in Ford Credit's analysis. As a result, the actual impact to pre-tax
cash flow could be higher or lower than the results detailed in the table
below. These interest rate scenarios are purely hypothetical and do
not represent Ford Credit's view of future interest rate movements.
Pre-tax
cash flow sensitivity as of year-end 2008 and 2007 was as follows (in
millions):
|
|
Pre-Tax
Cash Flow Sensitivity (given
a
one percentage point instantaneous
increase in interest
rates)
|
|
|
Pre-Tax
Cash Flow Sensitivity (given a
one
percentage point instantaneous
decrease in interest
rates) *
|
|
|
|
|
|
|
|
|
December
31, 2008
|
|
$ |
(28 |
) |
|
$ |
28 |
|
December
31, 2007
|
|
|
(16 |
) |
|
|
16 |
|
_______
*
|
Pre-tax
cash flow sensitivity given a one percentage point decrease in interest
rates requires an assumption of negative interest rates in markets where
existing interest rates are below one
percent.
|
Based on
assumptions included in the analysis, sensitivity to a one-percentage point
instantaneous change in interest rates was higher at year-end 2008 than at
year-end 2007. This change primarily reflects the result of normal
fluctuations within the approved tolerances of our risk management
strategy.
While the
sensitivity analysis presented is Ford Credit's best estimate of the impacts of
the specified assumed interest rate scenarios, its actual results could differ
from those projected. The model Ford Credit uses to conduct this analysis is
heavily dependent on assumptions. Embedded in the model are assumptions
regarding the reinvestment of maturing asset principal, refinancing of maturing
debt, replacement of maturing derivatives, exercise of options embedded in debt
and derivatives, and predicted repayment of retail installment sale and lease
contracts ahead of contractual maturity. Ford Credit's repayment projections
ahead of contractual maturity are based on historical experience. If interest
rates or other factors change, Ford Credit's actual prepayment experience could
be different than projected.
The fair
value of Ford Credit's net derivative financial instruments (derivative assets
less derivative liabilities) at December 31, 2008 was $1.6 billion
compared with $1.4 billion at December 31, 2007. For
additional information regarding Financial Services
sector derivatives, see Note 22 of the Notes to the Financial
Statements.
ITEM
8. Financial Statements and
Supplementary Data
Our
Financial Statements, the accompanying Notes to the Financial Statements, the
Report of Independent Registered Public Accounting Firm, and the Financial
Statement Schedule that are filed as part of this Report are listed under
"Item 15. Exhibits and Financial Statement Schedules" and are set forth on
pages FS-1 through FS-77 and FSS-1 immediately following the signature pages of
this Report.
Selected
quarterly financial data for 2008 and 2007 is provided in Note 28 of the
Notes to the Financial Statements.
ITEM
9. Changes in and
Disagreements with Accountants on Accounting and Financial
Disclosure
None.
ITEM
9A. Controls and
Procedures
EVALUATION
OF DISCLOSURE CONTROLS AND PROCEDURES
Alan
Mulally, our Chief Executive Officer ("CEO"), and 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 (the "Exchange Act"), as of
December 31, 2008 and each has concluded that such disclosure controls
and procedures were effective to ensure that information required to be
disclosed in our periodic reports filed under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified by the
Securities and Exchange Commission's rules and forms and such information is
accumulated and communicated to our management as appropriate to allow for
timely decisions regarding required disclosure.
MANAGEMENT'S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rule
13a-15(f). The Company's internal control over financial reporting is
a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions or because the degree of
compliance with policies or procedures may deteriorate.
Under the
supervision and with the participation of our management, including our CEO and
CFO, we conducted an assessment of the effectiveness of our internal control
over financial reporting as of December 31, 2008. The assessment was based on
criteria established in the framework Internal Control – Integrated
Framework, issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this assessment, management concluded that our
internal control over financial reporting was effective as of December 31,
2008.
The
effectiveness of the Company's internal control over financial reporting as of
December 31, 2008 has been audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm, as stated in their report included
herein.
MATERIAL
CHANGES IN INTERNAL CONTROL
During
the fourth quarter of 2008, we had the following change in business processes or
practices that resulted or likely will result in significant changes in our
internal control over financial reporting:
Income Tax
Software. We launched new software to support the Company's
accounting for income taxes.
ITEM
9B. Other
Information
None.
PART
III
ITEM
10. Directors, Executive
Officers of Ford and Corporate Governance
The
information required by Item 10 regarding our directors is incorporated by
reference from the information under the captions "Election of Directors,"
"Section 16(a) Beneficial Ownership Reporting Compliance" and "Management Stock
Ownership" in our Proxy Statement. The information required by Item 10 regarding
our executive officers appears as Item 4A under Part I of this Report. The
information required by Item 10 regarding an audit committee financial expert is
incorporated by reference from the information under the caption "Corporate
Governance" in our Proxy Statement. The information required by Item 10
regarding the members of our Audit Committee of the Board of Directors is
incorporated by reference from the information under the caption "Committees of
the Board of Directors" in our Proxy Statement. The information required by Item
10 regarding the Audit Committee's review and discussion of the audited
financial statements is incorporated by reference from information under the
caption "Audit Committee Report" in our Proxy Statement. The information
required by Item 10 regarding our codes of ethics is incorporated by reference
from the information under the caption "Corporate Governance" in our Proxy
Statement. In addition, we have included in "Item 1. Business" instructions for
how to access our codes of ethics on our website and our Internet address.
Amendments to, and waivers granted under, our Code of Ethics for Senior
Financial Personnel, if any, will be posted to our website as well.
ITEM
11. Executive
Compensation
The
information required by Item 11 is incorporated by reference from the
information under the following captions in our Proxy
Statement: "Director Compensation," "Compensation Discussion and
Analysis," "Compensation Committee Report," "Compensation Committee Interlocks
and Insider Participation," "Compensation of Executive Officers," "Grants of
Plan-Based Awards," "Outstanding Equity Awards at Fiscal Year-End," "Option
Exercises and Stock Vested," "Pension Benefits," "Nonqualified Deferred
Compensation," and "Post-Employment Compensation."
ITEM
12. Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder
Matters
The
information required by Item 12 is incorporated by reference from the
information under the captions "Equity Compensation Plan Information" and
"Management Stock Ownership" in our Proxy Statement.
ITEM
13. Certain Relationships and
Related Transactions, and Director Independence
The
information required by Item 13 is incorporated by reference from the
information under the captions "Certain Relationships and Related Transactions"
and "Corporate Governance" in our Proxy Statement.
ITEM
14. Principal Accounting Fees
and Services
The
information required by Item 14 is incorporated by reference from the
information under the caption "Audit Committee Report" in our Proxy
Statement.
PART
IV
ITEM
15. Exhibits and
Financial Statement Schedules
(a)
1. Financial Statements – Ford Motor Company and Subsidiaries
The
following are contained in this 2008 Form 10-K Report:
|
·
|
Consolidated
Statement of Income and Sector Statement of Income for the years ended
December 31, 2008, 2007, and
2006.
|
|
·
|
Consolidated
Balance Sheet and Sector Balance Sheet at December 31, 2008 and
2007.
|
|
·
|
Consolidated
Statement of Cash Flows and Sector Statement of Cash Flows for the years
ended December 31, 2008, 2007, and
2006.
|
|
·
|
Consolidated
Statement of Stockholders' Equity for the years ended December 31, 2008,
2007, and 2006.
|
|
·
|
Notes
to the Financial Statements.
|
|
·
|
Report
of Independent Registered Public Accounting
Firm.
|
The
Consolidated and Sector Financial Statements, the Notes to the Financial
Statements and the Report of Independent Registered Public Accounting Firm
listed above are filed as part of this Report and are set forth on pages FS-1
through FS-77 immediately following the signature pages of this
Report.
(a)
2. Financial Statement Schedules
Designation
|
Description
|
|
|
Schedule
II
|
Valuation
and Qualifying Accounts
|
Schedule
II is filed as part of this Report and is set forth on page FSS-1 immediately
following the Notes to the Financial Statements referred to
above. The other schedules are omitted because they are not
applicable, the information required to be contained in them is disclosed
elsewhere in our Consolidated and Sector Financial Statements or the amounts
involved are not sufficient to require submission.
(a)
3. Exhibits
Designation
|
|
Description
|
|
Method of
Filing
|
|
|
|
|
|
Exhibit
2
|
|
Stock
Purchase Agreement dated as of September 12, 2005 between
CCMG Holdings, Inc., Ford Holdings LLC and Ford Motor
Company.
|
|
Filed
as Exhibit 2 to our Quarterly Report on
Form
10-Q for the period ended September 30, 2005.*
|
|
|
|
|
|
Exhibit
3-A
|
|
Restated
Certificate of Incorporation, dated August 2, 2000.
|
|
Filed
as Exhibit 3-A to our Annual Report on
Form
10-K for the year ended December 31, 2000.*
|
|
|
|
|
|
Exhibit
3-B
|
|
By-Laws
as amended through December 14, 2006.
|
|
Filed
as Exhibit 3-B to our Annual Report on
Form
10-K for the year ended December 31, 2006.*
|
|
|
|
|
|
|
|
Executive
Separation Allowance Plan as amended and restated as of
December 31, 2008.**
|
|
Filed
with this Report.
|
|
|
|
|
|
|
|
Deferred
Compensation Plan for Non- Employee Directors, as amended and restated as
of December 31, 2008.**
|
|
Filed
with this
Report.
|
ITEM
15. Exhibits and Financial Statement Schedules (continued)
Designation
|
|
Description
|
|
Method of
Filing
|
|
|
|
|
|
|
|
Benefit
Equalization Plan, as amended and restated as of
December 31, 2008.**
|
|
Filed
with this Report.
|
|
|
|
|
|
Exhibit
10-D
|
|
Description
of financial counseling services provided to certain
executives.**
|
|
Filed
as Exhibit 10-F to Ford's Annual Report on Form 10-K for
the year ended December 31, 2002.*
|
|
|
|
|
|
|
|
Supplemental
Executive Retirement Plan, as amended and restated as of
December 31, 2008.**
|
|
Filed
with this Report.
|
|
|
|
|
|
Exhibit
10-F
|
|
Restricted
Stock Plan for Non-Employee Directors adopted by the Board of Directors on
November 10, 1988.**
|
|
Filed
as Exhibit 10-P to our Annual Report on Form
10-K for the year ended December 31, 1988.*
|
|
|
|
|
|
Exhibit
10-F-1
|
|
Amendment
to Restricted Stock Plan for Non-Employee Directors, effective as of
August 1, 1996.**
|
|
Filed
as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996.*
|
|
|
|
|
|
Exhibit
10-F-2
|
|
Amendment
to Restricted Stock Plan for Non-Employee Directors, effective as of
July 1, 2004.**
|
|
Filed
as Exhibit 10 to our Quarterly Report on Form 10-Q
for the quarter ended September 30, 2004.*
|
|
|
|
|
|
|
|
Third
Amendment to Restricted Stock Plan for Non-Employee Directors, effective
as of December 31, 2008.**
|
|
Filed
with this Report.
|
|
|
|
|
|
Exhibit
10-F-4
|
|
Description
of Director Compensation as of July 13, 2006.**
|
|
Filed
as Exhibit 10-G-3 to our Quarterly Report on Form
10-Q for the quarter ended
September 30, 2006.*
|
|
|
|
|
|
Exhibit 10-F 5 |
|
Amendment
to Description of Director Compensation as of March 1, 2009.** |
|
Filed
with this Report. |
|
|
|
|
|
Exhibit
10-G
|
|
2008
Long-Term Incentive Plan.**
|
|
Filed
as Exhibit 10.1 to our Quarterly Report on Form
10-Q for the quarter ended June 30, 2008.*
|
|
|
|
|
|
Exhibit
10-H
|
|
Description
of Matching Gift Program and Vehicle Evaluation Program for Non-Employee
Directors.**
|
|
Filed
as Exhibit 10-I to our Annual Report on Form 10-K/A
for the year ended December 31, 2005.*
|
|
|
|
|
|
|
|
Non-Employee
Directors Life Insurance and Optional Retirement Plan as amended and
restated as of December 31, 2008.**
|
|
Filed
with this Report.
|
|
|
|
|
|
Exhibit
10-J
|
|
Description
of Non-Employee Directors Accidental Death, Dismemberment and Permanent
Total Disablement Indemnity.**
|
|
Filed
as Exhibit 10-S to our Annual Report on Form 10-K
for the year ended December 31, 1992.*
|
|
|
|
|
|
Exhibit
10-K
|
|
Agreement
dated December 10, 1992 between Ford and William C.
Ford.**
|
|
Filed
as Exhibit 10-T to our Annual Report on Form 10-K
for the year ended December 31, 1992.*
|
|
|
|
|
|
|
|
Select
Retirement Plan, as amended and restated as of
December 31, 2008.**
|
|
Filed
with this Report.
|
|
|
|
|
|
|
|
Deferred
Compensation Plan, as amended and restated as of
December 31, 2008.**
|
|
Filed
with this Report.
|
|
|
|
|
|
Exhibit
10-N
|
|
Annual
Incentive Compensation Plan, as amended and restated as of
March 1, 2008.**
|
|
Filed
as Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarter ended
June 30,
2008.*
|
ITEM
15. Exhibits and Financial Statement Schedules (continued)
Designation
|
|
Description
|
|
Method of
Filing
|
|
|
|
|
|
|
|
Amendment
to the Ford Motor Company Annual Incentive Compensation Plan (effective as
of December 31, 2008).**
|
|
Filed
with this Report
|
|
|
|
|
|
Exhibit
10-N-2
|
|
Annual
Incentive Compensation Plan Metrics for 2008.**
|
|
Filed
as Exhibit 10-O-2 to our Annual Report on Form
10-K for the year ended December 31, 2007.*
|
|
|
|
|
|
|
|
Annual
Incentive Compensation Plan Metrics for 2009.**
|
|
Filed
with this Report.
|
|
|
|
|
|
Exhibit
10-N-4
|
|
Performance-Based
Restricted Stock Unit Metrics for 2008.**
|
|
Filed
as Exhibit 10-O-3 to our Annual Report on Form
10-K for the year ended December 31, 2007.*
|
|
|
|
|
|
|
|
Performance-Based
Restricted Stock Unit Metrics for 2009.**
|
|
Filed
with this Report.
|
|
|
|
|
|
Exhibit
10-O
|
|
1998
Long-Term Incentive Plan, as amended and restated effective as of
January 1, 2003.**
|
|
Filed
as Exhibit 10-R to our Annual Report on Form 10-K
for the year ended December 31, 2002.*
|
|
|
|
|
|
Exhibit
10-O-1
|
|
Amendment
to Ford Motor Company 1998 Long-Term Incentive Plan (effective as of
January 1, 2006).**
|
|
Filed
as Exhibit 10-P-1 to our Annual Report on Form 10-K/A for the year
ended December 31, 2005.*
|
|
|
|
|
|
Exhibit
10-O-2
|
|
Form
of Stock Option Agreement (NQO) with Terms and
Conditions.**
|
|
Filed
as Exhibit 10-P-2 to our Annual Report on Form 10-K/A for the year
ended December 31, 2005.*
|
|
|
|
|
|
|
|
Form
of Stock Option (NQO) Terms and Conditions for 2008 Long-Term Incentive
Plan.**
|
|
Filed
with this Report.
|
|
|
|
|
|
|
|
Form
of Stock Option (NQO) Agreement for 2008 Long-Term Incentive
Plan.**
|
|
Filed
with this Report.
|
|
|
|
|
|
Exhibit
10-O-5
|
|
Form
of Stock Option Agreement (ISO) with Terms and
Conditions.**
|
|
Filed
as Exhibit 10-P-3 to our Annual Report on Form 10-K/A for the year
ended December 31, 2005.*
|
|
|
|
|
|
|
|
Form
of Stock Option (ISO) Terms and Conditions for 2008 Long-Term Incentive
Plan.**
|
|
Filed
with this Report.
|
|
|
|
|
|
|
|
Form
of Stock Option Agreement (ISO) for 2008 Long-Term Incentive
Plan.**
|
|
Filed
with this Report.
|
|
|
|
|
|
Exhibit
10-O-8
|
|
Form
of Stock Option Agreement (U.K. NQO) with Terms and
Conditions.**
|
|
Filed
as Exhibit 10-P-4 to our Annual Report on Form 10-K/A for the year
ended December 31, 2005.*
|
|
|
|
|
|
|
|
Form
of Stock Option (U.K. NQO) Terms and Conditions for 2008 Long-Term
Incentive Plan.**
|
|
Filed
with this Report.
|
|
|
|
|
|
|
|
Form
of Stock Option Agreement (U.K. NQO) for 2008 Long-Term Incentive
Plan.**
|
|
Filed
with this Report.
|
|
|
|
|
|
Exhibit
10-O-11
|
|
Performance
Stock Rights Description for 2006-2008 Performance
Period.**
|
|
Filed
as Exhibit 10-P-6 to our Annual Report on Form 10-K/A for the year
ended December 31,
2005.*
|
ITEM
15. Exhibits and Financial Statement Schedules (continued)
Designation
|
|
Description
|
|
Method of
Filing
|
|
|
|
|
|
Exhibit
10-O-12
|
|
Form
of Final Award Notification Letter For 2005-2007 Performance
Period.**
|
|
Filed
as Exhibit 10-P-7 to our Annual Report on Form
10-K for the year ended December 31, 2007.*
|
|
|
|
|
|
Exhibit
10-O-13
|
|
Form
of Performance-Based Restricted Stock Equivalent Opportunity Letter for
2006.**
|
|
Filed
as Exhibit 10-P-10 to our Annual Report on Form 10-K/A for the year
ended December 31, 2005.*
|
|
|
|
|
|
|
|
Form
of Restricted Stock Grant Letter.**
|
|
Filed
with this Report.
|
|
|
|
|
|
Exhibit
10-O-15
|
|
Form
of Final Award Notification Letter for 2006 Performance-Based Restricted
Stock Equivalents.**
|
|
Filed
as Exhibit 10-P-13 to our Annual Report on Form 10-K for the year
ended December 31, 2006.*
|
|
|
|
|
|
Exhibit
10-O-16
|
|
Form
of Final Award Notification Letter for 2007 Performance-Based Restricted
Stock Units.**
|
|
Filed
as Exhibit 10-P-15 to our Annual Report on Form
10-K for the year ended December 31, 2007.*
|
|
|
|
|
|
|
|
Form
of Final Award Notification Letter for Performance-Based Restricted Stock
Units.**
|
|
Filed
with this Report.
|
|
|
|
|
|
Exhibit
10-O-18
|
|
Form
of Performance-Based Restricted Stock Unit Opportunity Letter for
2008.**
|
|
Filed
as Exhibit 10-P-16 to our Annual Report on Form
10-K for the year ended December 31, 2007.*
|
|
|
|
|
|
|
|
Form
of Performance-Based Restricted Stock Unit Opportunity Letter (2008
Long-Term Incentive Plan).**
|
|
Filed
with this Report.
|
|
|
|
|
|
|
|
Form
of Final Award Notification Letter for 2006-2008 Performance
Period.**
|
|
Filed
with this Report.
|
|
|
|
|
|
Exhibit
10-O-21
|
|
1998
Long-Term Incentive Plan Restricted Stock Unit
Agreement.**
|
|
Filed
as Exhibit 10-P-19 to our Annual Report on Form
10-K for the year ended December 31, 2007.*
|
|
|
|
|
|
|
|
2009
Long-Term Incentive Plan Restricted Stock Unit
Agreement.**
|
|
Filed
with this Report.
|
|
|
|
|
|
Exhibit
10-O-23
|
|
1998
Long-Term Incentive Plan Restricted Stock Unit Terms and
Conditions.**
|
|
Filed
as Exhibit 10-P-20 to our Annual Report on Form
10-K for the year ended December 31, 2007.*
|
|
|
|
|
|
|
|
2008
Long-Term Incentive Plan Restricted Stock Unit Terms and
Conditions.**
|
|
Filed
with this Report.
|
|
|
|
|
|
Exhibit
10-O-25
|
|
Form
of Final Award Agreement for Performance-Based Restricted Stock Units
under 1998 Long-Term Incentive Plan.**
|
|
Filed
as Exhibit 10-P-21 to our Annual Report on Form
10-K for the year ended December 31, 2007.*
|
|
|
|
|
|
|
|
Form
of Final Award Agreement for Performance-Based Restricted Stock Units
under 2008 Long-Term Incentive Plan.**
|
|
Filed
with this Report.
|
|
|
|
|
|
Exhibit
10-O-27
|
|
Form
of Final Award Terms and Conditions for Performance-Based Restricted Stock
Units under 1998 Long-Term Incentive Plan.**
|
|
Filed
as Exhibit 10-O-22 to our Annual Report on Form
10-K for the year ended December 31,
2007.*
|
ITEM
15. Exhibits and Financial Statement Schedules (continued)
Designation
|
|
Description
|
|
Method of
Filing
|
|
|
|
|
|
|
|
Form
of Final Award Terms and Conditions for Performance-Based Restricted Stock
Units under 2008 Long-Term Incentive Plan.**
|
|
Filed
with this Report.
|
|
|
|
|
|
|
|
Form
of Notification Letter for Time-Based Restricted Stock
Units.**
|
|
Filed
with this Report.
|
|
|
|
|
|
Exhibit
10-P
|
|
Agreement
dated January 13, 1999 between Ford and Edsel B. Ford
II.**
|
|
Filed
as Exhibit 10-X to our Annual Report on Form 10-K
for the year ended December 31, 1998.*
|
|
|
|
|
|
Exhibit
10-Q
|
|
Amended
and Restated Agreement between Ford Motor Company and Ford Motor Credit
Company dated as of December 12, 2006.
|
|
Filed
as Exhibit 10-R to our Annual Report on Form 10-K
for the year ended December 31, 2006.*
|
|
|
|
|
|
Exhibit
10-R
|
|
Agreement
between Ford and Carl Reichardt, entered into in June
2002.**
|
|
Filed
as Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarter
ended June 30, 2002.*
|
|
|
|
|
|
Exhibit
10-S
|
|
Form
of Trade Secrets/Non-Compete Statement between Ford and certain of its
Executive Officers.**
|
|
Filed
as Exhibit 10-V to our Annual Report on Form 10-K
for the year ended December 31, 2003.*
|
|
|
|
|
|
Exhibit
10-T
|
|
Description
of Settlement of Special 2006 – 2008 Senior Executive Retention
Program.**
|
|
Filed
as Exhibit 10-U-1 to our Annual Report on Form 10-K for the year
ended December 31, 2006.*
|
|
|
|
|
|
|
|
Form
of Final Award Letter for Performance-Based Restricted Stock Unit Enhanced
Grant.**
|
|
Filed
with this Report.
|
|
|
|
|
|
Exhibit
10-U
|
|
Form
of Special 2006 Performance Incentive Opportunity
Letter.**
|
|
Filed
as Exhibit 10-V to our Annual Report on Form 10-K/A
for the year ended December 31, 2005.*
|
|
|
|
|
|
Exhibit
10-U-1
|
|
Form
of Final Award Letter for Performance Incentive
Opportunity.**
|
|
Filed
as Exhibit 10-V-1 to our Annual Report on Form
10-K for the year ended December 31, 2007.*
|
|
|
|
|
|
|
|
Arrangement
between Ford Motor Company and William C. Ford, Jr., dated
February 25, 2009.**
|
|
Filed
with this Report.
|
|
|
|
|
|
Exhibit
10-W
|
|
Arrangement
between Ford Motor Company and Mark Fields dated February 7,
2007.**
|
|
Filed
as Exhibit 10-AA-1 to our Annual Report on Form 10-K for the year
ended December 31, 2006.*
|
|
|
|
|
|
Exhibit
10-X
|
|
Description
of Company Practices regarding Club Memberships for
Executives.**
|
|
Filed
as Exhibit 10-BB to our Annual Report on Form 10-K for the year ended
December 31, 2006.*
|
|
|
|
|
|
Exhibit
10-Y
|
|
Accession
Agreement between Ford Motor Company and Alan Mulally as of
September 1, 2006.**
|
|
Filed
as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended
September 30, 2006.*
|
|
|
|
|
|
Exhibit
10-Y-1
|
|
Description
of Special Terms and Conditions for Stock Options Granted to Alan
Mulally.**
|
|
Filed
as Exhibit 10-CC-1 to our Annual Report on Form 10-K for the year
ended December 31, 2006.*
|
|
|
|
|
|
Exhibit
10-Y-2
|
|
Description
of President and CEO Compensation Arrangements.**
|
|
Filed
as Exhibit 10-CC-2 to our Annual Report on Form 10-K for the year
ended December 31, 2006.*
|
|
|
|
|
|
|
|
Form
of Alan Mulally Agreement Amendment.**
|
|
Filed
with this
Report.
|
ITEM
15. Exhibits and Financial Statement Schedules (continued)
Designation
|
|
Description
|
|
Method of
Filing
|
|
|
|
|
|
Exhibit
10-Z
|
|
Consulting
Agreement between Ford Motor Company and Sir John Bond dated
September 13, 2006.**
|
|
Filed
as Exhibit 10.2 to our Quarterly Report on Form
10-Q for the quarter ended
September 30, 2006.*
|
|
|
|
|
|
Exhibit
10-AA
|
|
Credit
Agreement dated as of December 15, 2006.
|
|
Filed
as Exhibit 10-EE to our Annual Report on Form 10-K for the year ended
December 31, 2006.*
|
|
|
|
|
|
Exhibit
10-BB
|
|
Retiree
Health Care Settlement Agreement.**
|
|
Filed
as Exhibit 10.1 to our Current Report on Form
8-K filed on April 11, 2008.*
|
|
|
|
|
|
Exhibit
10-CC
|
|
Ford
Motor Company, TML Holdings Limited and Tata Motors Limited Agreement for
the Sale and Purchase of Jaguar and Land Rover dated as of March 25,
2008.
|
|
Filed
as Exhibit 10.2 to our Quarterly Report on Form
10-Q for the quarter ended March 31, 2008.*
|
|
|
|
|
|
Exhibit
10-DD
|
|
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
as Exhibit 10 to our Quarterly Report on Form
10-Q for the quarter ended September 30, 2008.*
|
|
|
|
|
|
|
|
Calculation
of Ratio of Earnings to Combined Fixed Charges.
|
|
Filed
with this Report.
|
|
|
|
|
|
|
|
List
of Subsidiaries of Ford as of February 20, 2009.
|
|
Filed
with this Report.
|
|
|
|
|
|
|
|
Consent
of Independent Registered Public Accounting Firm.
|
|
Filed
with this Report.
|
|
|
|
|
|
|
|
Powers
of Attorney.
|
|
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.
|
__________
*
|
Incorporated
by reference as an exhibit to this Report (file number reference 1-3950,
unless otherwise indicated).
|
**
|
Management
contract or compensatory plan or
arrangement.
|
Instruments
defining the rights of holders of certain issues of long-term debt of Ford and
of certain consolidated subsidiaries and of any unconsolidated subsidiary, for
which financial statements are required to be filed with this Report, have not
been filed as exhibits to this Report because the authorized principal amount of
any one of such issues does not exceed 10% of the total assets of Ford and our
subsidiaries on a consolidated basis. Ford agrees to furnish a copy
of each of such instrument to the Securities and Exchange Commission
upon request.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, Ford has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
FORD
MOTOR COMPANY
By:
|
/s/
Peter J. Daniel
|
|
|
Peter
J. Daniel
|
|
|
Senior
Vice President and Controller
|
|
|
|
|
Date:
|
February
26, 2009
|
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, this
Report has been signed below by the following persons on behalf of Ford and in
the capacities on the date indicated:
|
|
|
|
|
|
|
|
|
|
|
|
Director,
Chairman of the Board, Executive Chairman, Chair of the Office of the
Chairman and Chief Executive, and Chair of the Finance
Committee
|
|
February
26, 2009
|
William
Clay Ford, Jr.
|
|
|
|
|
|
|
|
|
|
|
Director,
President and Chief Executive Officer
(principal
executive officer)
|
|
February
26, 2009
|
Alan
Mulally
|
|
|
|
|
|
|
|
|
|
|
Director
and Chair of the Audit Committee
|
|
February
26, 2009
|
Stephen
G. Butler
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
February
26, 2009
|
Kimberly
A. Casiano
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
February
26, 2009
|
Edsel
B. Ford II
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
February
26, 2009
|
Irvine
O. Hockaday, Jr.
|
|
|
|
|
|
|
|
|
|
|
|
Director
and Chair of the Compensation Committee
|
|
February
26, 2009
|
Richard
A. Manoogian
|
|
|
|
|
|
|
|
|
|
|
|
Director
and Chair of the Nominating and
|
|
February
26, 2009
|
Ellen
R. Marram
|
|
Governance
Committee
|
|
|
|
|
|
|
|
|
|
Director
and Chair of the Sustainability
|
|
February
26, 2009
|
Homer
A. Neal
|
|
Committee
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
|
|
|
GERALD
L. SHAHEEN*
|
|
Director
|
|
February
26, 2009
|
Gerald
L. Shaheen
|
|
|
|
|
|
|
|
|
|
JOHN
L. THORNTON*
|
|
Director
|
|
February
26, 2009
|
John
L. Thornton
|
|
|
|
|
|
|
|
|
|
LEWIS
BOOTH*
|
|
Executive
Vice President and Chief Financial Officer (principal financial
officer)
|
|
February
26, 2009
|
L.W.K.
Booth
|
|
|
|
|
|
|
|
|
PETER
J. DANIEL*
|
|
Senior
Vice President and Controller
|
|
|
|
|
(principal
accounting officer)
|
|
February
26, 2009
|
|
|
|
|
|
|
|
|
|
|
*By: |
/s/
PETER J. SHERRY, JR.
|
|
|
|
February
26, 2009
|
(Peter
J. Sherry, Jr.)
|
|
|
|
|
Attorney-in-Fact
|
|
|
|
|
This
page intentionally left blank.
FORD
MOTOR COMPANY AND SUBSIDIARIES
CONSOLIDATED
STATEMENT OF INCOME
For
the Years Ended December 31, 2008, 2007 and 2006
(in
millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
Sales
and revenues
|
|
|
|
|
|
|
|
|
|
Automotive
sales
|
|
$ |
129,166 |
|
|
$ |
154,379 |
|
|
$ |
143,249 |
|
Financial
Services revenues
|
|
|
17,111 |
|
|
|
18,076 |
|
|
|
16,816 |
|
Total
sales and revenues
|
|
|
146,277 |
|
|
|
172,455 |
|
|
|
160,065 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
cost of sales
|
|
|
127,103 |
|
|
|
142,587 |
|
|
|
148,866 |
|
Selling,
administrative and other expenses
|
|
|
21,430 |
|
|
|
21,169 |
|
|
|
19,148 |
|
Goodwill
impairment
|
|
|
— |
|
|
|
2,400 |
|
|
|
— |
|
Interest
expense
|
|
|
9,682 |
|
|
|
10,927 |
|
|
|
8,783 |
|
Financial
Services provision for credit and insurance losses
|
|
|
1,874 |
|
|
|
668 |
|
|
|
241 |
|
Total
costs and expenses
|
|
|
160,089 |
|
|
|
177,751 |
|
|
|
177,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
interest income and other non-operating income/(expense),
net
|
|
|
(755 |
) |
|
|
1,161 |
|
|
|
1,478 |
|
Automotive
equity in net income/(loss) of affiliated companies
|
|
|
163 |
|
|
|
389 |
|
|
|
421 |
|
Income/(Loss)
before income taxes
|
|
|
(14,404 |
) |
|
|
(3,746 |
) |
|
|
(15,074 |
) |
Provision
for/(Benefit from) income taxes (Note 19)
|
|
|
63 |
|
|
|
(1,294 |
) |
|
|
(2,655 |
) |
Income/(Loss)
before minority interests
|
|
|
(14,467 |
) |
|
|
(2,452 |
) |
|
|
(12,419 |
) |
Minority
interests in net income/(loss) of subsidiaries
|
|
|
214 |
|
|
|
312 |
|
|
|
210 |
|
Income/(Loss)
from continuing operations
|
|
|
(14,681 |
) |
|
|
(2,764 |
) |
|
|
(12,629 |
) |
Income/(Loss)
from discontinued operations (Note 20)
|
|
|
9 |
|
|
|
41 |
|
|
|
16 |
|
Net
income/(loss)
|
|
$ |
(14,672 |
) |
|
$ |
(2,723 |
) |
|
$ |
(12,613 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
number of shares of Common and Class B Stock outstanding
|
|
|
2,273 |
|
|
|
1,979 |
|
|
|
1,879 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMOUNTS
PER SHARE OF COMMON AND CLASS B STOCK (Note 21)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
income/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
from continuing operations
|
|
$ |
(6.46 |
) |
|
$ |
(1.40 |
) |
|
$ |
(6.73 |
) |
Income/(Loss)
from discontinued operations
|
|
|
— |
|
|
|
0.02 |
|
|
|
0.01 |
|
Net
income/(loss)
|
|
$ |
(6.46 |
) |
|
$ |
(1.38 |
) |
|
$ |
(6.72 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
income/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
from continuing operations
|
|
$ |
(6.46 |
) |
|
$ |
(1.40 |
) |
|
$ |
(6.73 |
) |
Income/(Loss)
from discontinued operations
|
|
|
— |
|
|
|
0.02 |
|
|
|
0.01 |
|
Net
income/(loss)
|
|
$ |
(6.46 |
) |
|
$ |
(1.38 |
) |
|
$ |
(6.72 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
0.25 |
|
The
accompanying notes are part of the financial statements.
FORD
MOTOR COMPANY AND SUBSIDIARIES
SECTOR
STATEMENT OF INCOME
For
the Years Ended December 31, 2008, 2007 and 2006
(in
millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
AUTOMOTIVE
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
129,166 |
|
|
$ |
154,379 |
|
|
$ |
143,249 |
|
Costs
and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
127,103 |
|
|
|
142,587 |
|
|
|
148,866 |
|
Selling,
administrative and other expenses
|
|
|
11,356 |
|
|
|
13,660 |
|
|
|
12,327 |
|
Goodwill
impairment
|
|
|
— |
|
|
|
2,400 |
|
|
|
— |
|
Total
costs and expenses
|
|
|
138,459 |
|
|
|
158,647 |
|
|
|
161,193 |
|
Operating
income/(loss)
|
|
|
(9,293 |
) |
|
|
(4,268 |
) |
|
|
(17,944 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
1,938 |
|
|
|
2,252 |
|
|
|
995 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income and other non-operating income/(expense), net
|
|
|
(755 |
) |
|
|
1,161 |
|
|
|
1,478 |
|
Equity
in net income/(loss) of affiliated companies
|
|
|
163 |
|
|
|
389 |
|
|
|
421 |
|
Income/(Loss)
before income
taxes — Automotive
|
|
|
(11,823 |
) |
|
|
(4,970 |
) |
|
|
(17,040 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCIAL
SERVICES
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
17,111 |
|
|
|
18,076 |
|
|
|
16,816 |
|
Costs
and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
7,744 |
|
|
|
8,675 |
|
|
|
7,788 |
|
Depreciation
|
|
|
9,109 |
|
|
|
6,289 |
|
|
|
5,295 |
|
Operating
and other expenses
|
|
|
965 |
|
|
|
1,220 |
|
|
|
1,526 |
|
Provision
for credit and insurance losses
|
|
|
1,874 |
|
|
|
668 |
|
|
|
241 |
|
Total
costs and expenses
|
|
|
19,692 |
|
|
|
16,852 |
|
|
|
14,850 |
|
Income/(Loss)
before income taxes — Financial Services
|
|
|
(2,581 |
) |
|
|
1,224 |
|
|
|
1,966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
COMPANY
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
before income taxes
|
|
|
(14,404 |
) |
|
|
(3,746 |
) |
|
|
(15,074 |
) |
Provision
for/(Benefit from) income taxes (Note 19)
|
|
|
63 |
|
|
|
(1,294 |
) |
|
|
(2,655 |
) |
Income/(Loss)
before minority interests
|
|
|
(14,467 |
) |
|
|
(2,452 |
) |
|
|
(12,419 |
) |
Minority
interests in net income/(loss) of subsidiaries
|
|
|
214 |
|
|
|
312 |
|
|
|
210 |
|
Income/(Loss)
from continuing operations
|
|
|
(14,681 |
) |
|
|
(2,764 |
) |
|
|
(12,629 |
) |
Income/(Loss)
from discontinued operations (Note 20)
|
|
|
9 |
|
|
|
41 |
|
|
|
16 |
|
Net
income/(loss)
|
|
$ |
(14,672 |
) |
|
$ |
(2,723 |
) |
|
$ |
(12,613 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
number of shares of Common and Class B Stock outstanding
|
|
|
2,273 |
|
|
|
1,979 |
|
|
|
1,879 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMOUNTS
PER SHARE OF COMMON AND CLASS B STOCK (Note 21)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
income/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
from continuing operations
|
|
$ |
(6.46 |
) |
|
$ |
(1.40 |
) |
|
$ |
(6.73 |
) |
Income/(Loss)
from discontinued operations
|
|
|
— |
|
|
|
0.02 |
|
|
|
0.01 |
|
Net
income/(loss)
|
|
$ |
(6.46 |
) |
|
$ |
(1.38 |
) |
|
$ |
(6.72 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
income/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
from continuing operations
|
|
$ |
(6.46 |
) |
|
$ |
(1.40 |
) |
|
$ |
(6.73 |
) |
Income/(Loss)
from discontinued operations
|
|
|
— |
|
|
|
0.02 |
|
|
|
0.01 |
|
Net
income/(loss)
|
|
$ |
(6.46 |
) |
|
$ |
(1.38 |
) |
|
$ |
(6.72 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
0.25 |
|
The
accompanying notes are part of the financial statements.
FORD
MOTOR COMPANY AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEET
(in
millions)
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
22,049 |
|
|
$ |
35,283 |
|
Marketable
securities (Note 3)
|
|
|
17,411 |
|
|
|
5,248 |
|
Loaned
securities (Note 3)
|
|
|
— |
|
|
|
10,267 |
|
Finance
receivables, net
|
|
|
93,484 |
|
|
|
109,053 |
|
Other
receivables, net
|
|
|
6,073 |
|
|
|
8,210 |
|
Net
investment in operating leases (Note 5)
|
|
|
25,738 |
|
|
|
33,255 |
|
Retained
interest in sold receivables (Note 7)
|
|
|
92 |
|
|
|
653 |
|
Inventories
(Note 8)
|
|
|
8,618 |
|
|
|
10,121 |
|
Equity
in net assets of affiliated companies (Note 9)
|
|
|
1,592 |
|
|
|
2,853 |
|
Net
property (Note 12)
|
|
|
28,565 |
|
|
|
36,239 |
|
Deferred
income taxes
|
|
|
3,108 |
|
|
|
3,500 |
|
Goodwill
and other net intangible assets (Note 14)
|
|
|
1,593 |
|
|
|
2,069 |
|
Assets
of discontinued/held-for-sale operations (Note 20)
|
|
|
198 |
|
|
|
7,537 |
|
Other
assets
|
|
|
9,807 |
|
|
|
14,976 |
|
Total
assets
|
|
$ |
218,328 |
|
|
$ |
279,264 |
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Payables
|
|
$ |
14,772 |
|
|
$ |
20,832 |
|
Accrued
liabilities and deferred revenue (Note 15)
|
|
|
63,386 |
|
|
|
74,738 |
|
Debt
(Note 16)
|
|
|
154,196 |
|
|
|
168,787 |
|
Deferred
income taxes
|
|
|
2,035 |
|
|
|
3,034 |
|
Liabilities
of discontinued/held-for-sale operations (Note 20)
|
|
|
55 |
|
|
|
4,824 |
|
Total
liabilities
|
|
|
234,444 |
|
|
|
272,215 |
|
Minority
interests
|
|
|
1,195 |
|
|
|
1,421 |
|
Stockholders'
equity
|
|
|
|
|
|
|
|
|
Capital
stock (Note 21)
|
|
|
|
|
|
|
|
|
Common
Stock, par value $0.01 per share (2,341 million shares issued of
6 billion authorized)
|
|
|
23 |
|
|
|
21 |
|
Class
B Stock, par value $0.01 per share (71 million shares issued of
530 million authorized)
|
|
|
1 |
|
|
|
1 |
|
Capital
in excess of par value of stock
|
|
|
9,076 |
|
|
|
7,834 |
|
Accumulated
other comprehensive income/(loss)
|
|
|
(10,085 |
) |
|
|
(558 |
) |
Treasury
stock
|
|
|
(181 |
) |
|
|
(185 |
) |
Retained
earnings/(Accumulated deficit)
|
|
|
(16,145 |
) |
|
|
(1,485 |
) |
Total
stockholders' equity
|
|
|
(17,311 |
) |
|
|
5,628 |
|
Total
liabilities and stockholders' equity
|
|
$ |
218,328 |
|
|
$ |
279,264 |
|
The
accompanying notes are part of the financial statements.
FORD
MOTOR COMPANY AND SUBSIDIARIES
SECTOR
BALANCE SHEET
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Automotive
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
6,377 |
|
|
$ |
20,678 |
|
Marketable
securities (Note 3)
|
|
|
9,296 |
|
|
|
2,092 |
|
Loaned
securities (Note 3)
|
|
|
— |
|
|
|
10,267 |
|
Total
cash, marketable and loaned securities
|
|
|
15,673 |
|
|
|
33,037 |
|
Receivables,
less allowances of $221 and $197
|
|
|
3,464 |
|
|
|
4,530 |
|
Inventories
(Note 8)
|
|
|
8,618 |
|
|
|
10,121 |
|
Deferred
income taxes
|
|
|
302 |
|
|
|
532 |
|
Other
current assets
|
|
|
4,032 |
|
|
|
5,514 |
|
Current
receivable from Financial Services (Note 1)
|
|
|
2,035 |
|
|
|
509 |
|
Total
current assets
|
|
|
34,124 |
|
|
|
54,243 |
|
Equity
in net assets of affiliated companies (Note 9)
|
|
|
1,069 |
|
|
|
2,283 |
|
Net
property (Note 12)
|
|
|
28,352 |
|
|
|
35,979 |
|
Deferred
income taxes
|
|
|
7,204 |
|
|
|
9,268 |
|
Goodwill
and other net intangible assets (Note 14)
|
|
|
1,584 |
|
|
|
2,051 |
|
Assets
of discontinued/held-for-sale operations (Note 20)
|
|
|
— |
|
|
|
7,537 |
|
Other
assets
|
|
|
1,512 |
|
|
|
5,614 |
|
Non-current
receivable from Financial Services (Note 1)
|
|
|
— |
|
|
|
1,514 |
|
Total
Automotive assets
|
|
|
73,845 |
|
|
|
118,489 |
|
Financial
Services
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
15,672 |
|
|
|
14,605 |
|
Marketable
securities (Note 3)
|
|
|
8,607 |
|
|
|
3,156 |
|
Finance
receivables, net (Note 4)
|
|
|
96,101 |
|
|
|
112,733 |
|
Net
investment in operating leases (Note 5)
|
|
|
23,120 |
|
|
|
30,309 |
|
Retained
interest in sold receivables (Note 7)
|
|
|
92 |
|
|
|
653 |
|
Equity
in net assets of affiliated companies (Note 9)
|
|
|
523 |
|
|
|
570 |
|
Goodwill
and other net intangible assets (Note 14)
|
|
|
9 |
|
|
|
18 |
|
Assets
of discontinued/held-for-sale operations (Note 20)
|
|
|
198 |
|
|
|
— |
|
Other
assets
|
|
|
7,345 |
|
|
|
7,217 |
|
Total
Financial Services assets
|
|
|
151,667 |
|
|
|
169,261 |
|
Intersector
elimination
|
|
|
(2,535 |
) |
|
|
(2,023 |
) |
Total
assets
|
|
$ |
222,977 |
|
|
$ |
285,727 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Automotive
|
|
|
|
|
|
|
|
|
Trade
payables
|
|
$ |
10,635 |
|
|
$ |
15,718 |
|
Other
payables
|
|
|
2,167 |
|
|
|
3,237 |
|
Accrued
liabilities and deferred revenue (Note 15)
|
|
|
32,395 |
|
|
|
27,672 |
|
Deferred
income taxes
|
|
|
2,790 |
|
|
|
2,671 |
|
Debt
payable within one year (Note 16)
|
|
|
1,191 |
|
|
|
1,175 |
|
Total
current liabilities
|
|
|
49,178 |
|
|
|
50,473 |
|
Long-term
debt (Note 16)
|
|
|
24,655 |
|
|
|
25,779 |
|
Other
liabilities (Note 15)
|
|
|
24,815 |
|
|
|
41,676 |
|
Deferred
income taxes
|
|
|
614 |
|
|
|
783 |
|
Liabilities
of discontinued/held-for-sale operations (Note 20)
|
|
|
— |
|
|
|
4,824 |
|
Total
Automotive liabilities
|
|
|
99,262 |
|
|
|
123,535 |
|
Financial
Services
|
|
|
|
|
|
|
|
|
Payables
|
|
|
1,970 |
|
|
|
1,877 |
|
Debt
(Note 16)
|
|
|
128,842 |
|
|
|
141,833 |
|
Deferred
income taxes
|
|
|
3,280 |
|
|
|
6,043 |
|
Other
liabilities and deferred income (Note 15)
|
|
|
6,184 |
|
|
|
5,390 |
|
Liabilities
of discontinued/held-for-sale operations (Note 20)
|
|
|
55 |
|
|
|
— |
|
Payable
to Automotive (Note 1)
|
|
|
2,035 |
|
|
|
2,023 |
|
Total
Financial Services liabilities
|
|
|
142,366 |
|
|
|
157,166 |
|
|
|
|
|
|
|
|
|
|
Minority
interests
|
|
|
1,195 |
|
|
|
1,421 |
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
|
|
|
|
|
|
Capital
stock (Note 21)
|
|
|
|
|
|
|
|
|
Common Stock,
par value $0.01 per share (2,341 million shares issued of 6 billion
authorized)
|
|
|
23 |
|
|
|
21 |
|
Class
B Stock, par value $0.01 per share (71 million shares issued of
530 million authorized)
|
|
|
1 |
|
|
|
1 |
|
Capital
in excess of par value of stock
|
|
|
9,076 |
|
|
|
7,834 |
|
Accumulated
other comprehensive income/(loss)
|
|
|
(10,085 |
) |
|
|
(558 |
) |
Treasury
stock
|
|
|
(181 |
) |
|
|
(185 |
) |
Retained
earnings/(Accumulated deficit)
|
|
|
(16,145 |
) |
|
|
(1,485 |
) |
Total
stockholders' equity
|
|
|
(17,311 |
) |
|
|
5,628 |
|
Intersector
elimination
|
|
|
(2,535 |
) |
|
|
(2,023 |
) |
Total
liabilities and stockholders' equity
|
|
$ |
222,977 |
|
|
$ |
285,727 |
|
The
accompanying notes are part of the financial statements.
FORD
MOTOR COMPANY AND SUBSIDIARIES
CONSOLIDATED
STATEMENT OF CASH FLOWS
For
the Years Ended December 31, 2008, 2007 and 2006
(in
millions)
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities of continuing operations
|
|
|
|
|
|
|
|
|
|
Net
cash flows from operating activities (Note 24)
|
|
$ |
(179 |
) |
|
$ |
17,074 |
|
|
$ |
9,622 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities of continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(6,696 |
) |
|
|
(6,022 |
) |
|
|
(6,848 |
) |
Acquisitions
of retail and other finance receivables and operating
leases
|
|
|
(44,562 |
) |
|
|
(55,681 |
) |
|
|
(59,793 |
) |
Collections
of retail and other finance receivables and operating
leases
|
|
|
42,061 |
|
|
|
45,498 |
|
|
|
41,502 |
|
Purchases
of securities
|
|
|
(64,754 |
) |
|
|
(11,423 |
) |
|
|
(23,678 |
) |
Sales
and maturities of securities
|
|
|
62,046 |
|
|
|
18,660 |
|
|
|
18,456 |
|
Settlements
of derivatives
|
|
|
2,533 |
|
|
|
861 |
|
|
|
486 |
|
Proceeds
from sales of retail and other finance receivables and operating
leases
|
|
|
— |
|
|
|
708 |
|
|
|
5,120 |
|
Proceeds
from sale of businesses
|
|
|
6,854 |
|
|
|
1,236 |
|
|
|
56 |
|
Cash
paid for acquisitions
|
|
|
(13 |
) |
|
|
— |
|
|
|
— |
|
Transfer
of cash balances upon disposition of discontinued/held-for-sale
operations
|
|
|
(928 |
) |
|
|
(83 |
) |
|
|
(4 |
) |
Other
|
|
|
316 |
|
|
|
(211 |
) |
|
|
(161 |
) |
Net
cash (used in)/provided by investing activities
|
|
|
(3,143 |
) |
|
|
(6,457 |
) |
|
|
(24,864 |
) |
Cash
flows from financing activities of continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends
|
|
|
— |
|
|
|
— |
|
|
|
(468 |
) |
Sales
of Common Stock
|
|
|
756 |
|
|
|
250 |
|
|
|
431 |
|
Purchases
of Common Stock
|
|
|
— |
|
|
|
(31 |
) |
|
|
(183 |
) |
Changes
in short-term debt
|
|
|
(5,120 |
) |
|
|
919 |
|
|
|
(5,825 |
) |
Proceeds
from issuance of other debt
|
|
|
42,163 |
|
|
|
33,113 |
|
|
|
58,258 |
|
Principal
payments on other debt
|
|
|
(46,299 |
) |
|
|
(39,431 |
) |
|
|
(36,601 |
) |
Other
|
|
|
(604 |
) |
|
|
(88 |
) |
|
|
(339 |
) |
Net
cash (used in)/provided by financing activities
|
|
|
(9,104 |
) |
|
|
(5,268 |
) |
|
|
15,273 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
(808 |
) |
|
|
1,014 |
|
|
|
464 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase/(decrease) in cash and cash equivalents from continuing
operations
|
|
|
(13,234 |
) |
|
|
6,363 |
|
|
|
495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities of discontinued operations
|
|
|
— |
|
|
|
26 |
|
|
|
(11 |
) |
Cash
flows from investing activities of discontinued operations
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Cash
flows from financing activities of discontinued operations
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase/(decrease) in cash and cash equivalents
|
|
$ |
(13,234 |
) |
|
$ |
6,389 |
|
|
$ |
484 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at January 1
|
|
$ |
35,283 |
|
|
$ |
28,896 |
|
|
$ |
28,391 |
|
Cash
and cash equivalents of discontinued/held-for-sale operations at January
1
|
|
|
— |
|
|
|
(2 |
) |
|
|
19 |
|
Net
increase/(decrease) in cash and cash equivalents
|
|
|
(13,234 |
) |
|
|
6,389 |
|
|
|
484 |
|
Less:
Cash and cash equivalents of discontinued/held-for-sale operations at
December 31
|
|
|
— |
|
|
|
— |
|
|
|
2 |
|
Cash
and cash equivalents at December 31
|
|
$ |
22,049 |
|
|
$ |
35,283 |
|
|
$ |
28,896 |
|
The
accompanying notes are part of the financial statements.
FORD
MOTOR COMPANY AND SUBSIDIARIES
SECTOR
STATEMENT OF CASH FLOWS
For
the Years Ended December 31, 2008, 2007 and 2006
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities of continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash flows from operating activities (Note 24)
|
|
$ |
(12,440 |
) |
|
$ |
9,107 |
|
|
$ |
8,725 |
|
|
$ |
6,402 |
|
|
$ |
(4,172 |
) |
|
$ |
7,316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities of continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures (Note 26)
|
|
|
(6,620 |
) |
|
|
(76 |
) |
|
|
(5,971 |
) |
|
|
(51 |
) |
|
|
(6,809 |
) |
|
|
(39 |
) |
Acquisitions
of retail and other finance receivables and operating
leases
|
|
|
— |
|
|
|
(44,562 |
) |
|
|
— |
|
|
|
(55,681 |
) |
|
|
— |
|
|
|
(59,793 |
) |
Collections
of retail and other finance receivables and operating
leases
|
|
|
— |
|
|
|
42,479 |
|
|
|
— |
|
|
|
45,518 |
|
|
|
— |
|
|
|
41,867 |
|
Net
(increase)/decrease in wholesale receivables
|
|
|
— |
|
|
|
2,736 |
|
|
|
— |
|
|
|
1,927 |
|
|
|
— |
|
|
|
6,113 |
|
Purchases
of securities
|
|
|
(41,347 |
) |
|
|
(23,831 |
) |
|
|
(2,628 |
) |
|
|
(8,795 |
) |
|
|
(4,068 |
) |
|
|
(19,610 |
) |
Sales
and maturities of securities
|
|
|
43,617 |
|
|
|
18,429 |
|
|
|
2,686 |
|
|
|
15,974 |
|
|
|
4,865 |
|
|
|
13,591 |
|
Settlements
of derivatives
|
|
|
1,157 |
|
|
|
1,376 |
|
|
|
1,051 |
|
|
|
(190 |
) |
|
|
308 |
|
|
|
178 |
|
Proceeds
from sales of retail and other finance receivables and operating
leases
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
708 |
|
|
|
— |
|
|
|
5,120 |
|
Proceeds
from sale of businesses
|
|
|
3,156 |
|
|
|
3,698 |
|
|
|
1,079 |
|
|
|
157 |
|
|
|
56 |
|
|
|
— |
|
Cash
paid for acquisitions
|
|
|
(13 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Transfer
of cash balances upon disposition of discontinued/held-for-sale
operations
|
|
|
(928 |
) |
|
|
— |
|
|
|
(83 |
) |
|
|
— |
|
|
|
(4 |
) |
|
|
— |
|
Investing
activity from Financial Services
|
|
|
9 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,185 |
|
|
|
— |
|
Investing
activity to Financial Services
|
|
|
— |
|
|
|
— |
|
|
|
(18 |
) |
|
|
— |
|
|
|
(1,400 |
) |
|
|
— |
|
Other
|
|
|
40 |
|
|
|
276 |
|
|
|
19 |
|
|
|
(230 |
) |
|
|
(290 |
) |
|
|
129 |
|
Net
cash (used in)/provided by investing activities
|
|
|
(929 |
) |
|
|
525 |
|
|
|
(3,865 |
) |
|
|
(663 |
) |
|
|
(6,157 |
) |
|
|
(12,444 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities of continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(468 |
) |
|
|
— |
|
Sales
of Common Stock
|
|
|
756 |
|
|
|
— |
|
|
|
250 |
|
|
|
— |
|
|
|
431 |
|
|
|
— |
|
Purchases
of Common Stock
|
|
|
— |
|
|
|
— |
|
|
|
(31 |
) |
|
|
— |
|
|
|
(183 |
) |
|
|
— |
|
Changes
in short-term debt
|
|
|
104 |
|
|
|
(5,224 |
) |
|
|
(90 |
) |
|
|
1,009 |
|
|
|
414 |
|
|
|
(6,239 |
) |
Proceeds
from issuance of other debt
|
|
|
203 |
|
|
|
41,960 |
|
|
|
240 |
|
|
|
32,873 |
|
|
|
12,254 |
|
|
|
46,004 |
|
Principal
payments on other debt
|
|
|
(594 |
) |
|
|
(45,281 |
) |
|
|
(837 |
) |
|
|
(38,594 |
) |
|
|
(758 |
) |
|
|
(35,843 |
) |
Financing
activity from Automotive
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
18 |
|
|
|
— |
|
|
|
1,400 |
|
Financing
activity to Automotive
|
|
|
— |
|
|
|
(9 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,185 |
) |
Other
|
|
|
(252 |
) |
|
|
(352 |
) |
|
|
35 |
|
|
|
(123 |
) |
|
|
(147 |
) |
|
|
(192 |
) |
Net
cash (used in)/provided by financing activities
|
|
|
217 |
|
|
|
(8,906 |
) |
|
|
(433 |
) |
|
|
(4,817 |
) |
|
|
11,543 |
|
|
|
3,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
(309 |
) |
|
|
(499 |
) |
|
|
506 |
|
|
|
508 |
|
|
|
104 |
|
|
|
360 |
|
Net
change in intersector receivables/payables and other
liabilities
|
|
|
(840 |
) |
|
|
840 |
|
|
|
(291 |
) |
|
|
291 |
|
|
|
1,321 |
|
|
|
(1,321 |
) |
Net
increase/(decrease) in cash and cash equivalents from continuing
operations
|
|
|
(14,301 |
) |
|
|
1,067 |
|
|
|
4,642 |
|
|
|
1,721 |
|
|
|
2,639 |
|
|
|
(2,144 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities of discontinued operations
|
|
|
— |
|
|
|
— |
|
|
|
16 |
|
|
|
10 |
|
|
|
(11 |
) |
|
|
— |
|
Cash
flows from investing activities of discontinued operations
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Cash
flows from financing activities of discontinued operations
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase/(decrease) in cash and cash equivalents
|
|
$ |
(14,301 |
) |
|
$ |
1,067 |
|
|
$ |
4,658 |
|
|
$ |
1,731 |
|
|
$ |
2,628 |
|
|
$ |
(2,144 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at January 1
|
|
$ |
20,678 |
|
|
$ |
14,605 |
|
|
$ |
16,022 |
|
|
$ |
12,874 |
|
|
$ |
13,373 |
|
|
$ |
15,018 |
|
Cash
and cash equivalents of discontinued/held-for-sale operations at January
1
|
|
|
— |
|
|
|
— |
|
|
|
(2 |
) |
|
|
— |
|
|
|
19 |
|
|
|
— |
|
Net
increase/(decrease) in cash and cash equivalents
|
|
|
(14,301 |
) |
|
|
1,067 |
|
|
|
4,658 |
|
|
|
1,731 |
|
|
|
2,628 |
|
|
|
(2,144 |
) |
Less:
Cash and cash equivalents of discontinued/held-for-sale operations at
December 31
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2 |
|
|
|
— |
|
Cash
and cash equivalents at December 31
|
|
$ |
6,377 |
|
|
$ |
15,672 |
|
|
$ |
20,678 |
|
|
$ |
14,605 |
|
|
$ |
16,022 |
|
|
$ |
12,874 |
|
The
accompanying notes are part of the financial statements.
FORD
MOTOR COMPANY AND SUBSIDIARIES
CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY
For
the Years Ended December 31, 2008, 2007 and 2006
(in
millions)
|
|
|
|
|
Capital
in
|
|
|
|
|
|
Accumulated
Other Comprehensive
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess
|
|
|
Retained
|
|
|
Income/(Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
of
Par
|
|
|
Earnings/
|
|
|
Foreign
|
|
|
Employee
|
|
|
Derivative
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Value
of
|
|
|
(Accumulated
|
|
|
Currency
|
|
|
Benefit
|
|
|
Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YEAR
ENDED DECEMBER 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
$ |
19 |
|
|
$ |
4,872 |
|
|
$ |
13,064 |
|
|
$ |
613 |
|
|
$ |
(4,396 |
) |
|
$ |
103 |
|
|
$ |
(833 |
) |
|
$ |
13,442 |
|
Comprehensive
income/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income/(loss)
|
|
|
— |
|
|
|
— |
|
|
|
(12,613 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(12,613 |
) |
Foreign
currency translation (net of $3 of tax benefit)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,585 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,585 |
|
Net
gain/(loss) on derivative instruments (net of $266 of tax)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
17 |
|
|
|
— |
|
|
|
477 |
|
|
|
— |
|
|
|
494 |
|
Minimum
pension liability (net of $819 of tax)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,542 |
|
|
|
— |
|
|
|
— |
|
|
|
1,542 |
|
Net
holding gain/(loss) (net of $31 of tax benefit)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(59 |
) |
|
|
— |
|
|
|
(59 |
) |
Comprehensive
income/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,051 |
) |
Adoption of
Statement of Financial AccountingStandards ("SFAS") No. 158
(net of $646 of tax benefit)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(8,728 |
) |
|
|
— |
|
|
|
— |
|
|
|
(8,728 |
) |
Common
Stock issued for employee benefit plans and other
|
|
|
— |
|
|
|
(310 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(310 |
) |
ESOP
loan and treasury stock
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
650 |
|
|
|
650 |
|
Cash
dividends
|
|
|
— |
|
|
|
— |
|
|
|
(468 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(468 |
) |
Balance
at end of year
|
|
$ |
19 |
|
|
$ |
4,562 |
|
|
$ |
(17 |
) |
|
$ |
3,215 |
|
|
$ |
(11,582 |
) |
|
$ |
521 |
|
|
$ |
(183 |
) |
|
$ |
(3,465 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YEAR
ENDED DECEMBER 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
$ |
19 |
|
|
$ |
4,562 |
|
|
$ |
(17 |
) |
|
$ |
3,215 |
|
|
$ |
(11,582 |
) |
|
$ |
521 |
|
|
$ |
(183 |
) |
|
$ |
(3,465 |
) |
Comprehensive
income/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income/(loss)
|
|
|
— |
|
|
|
— |
|
|
|
(2,723 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,723 |
) |
Foreign
currency translation (net of $0 of tax)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,780 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,780 |
|
Net
gain/(loss) on derivative instruments (net of $126 of tax
benefit)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2 |
|
|
|
— |
|
|
|
(66 |
) |
|
|
— |
|
|
|
(64 |
) |
Employee
benefit related (net of $1,870 of tax)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5,620 |
|
|
|
— |
|
|
|
— |
|
|
|
5,620 |
|
Net
holding gain/(loss) (net of $0 of tax)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(48 |
) |
|
|
— |
|
|
|
(48 |
) |
Comprehensive
income/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,565 |
|
Adoption
of Financial Accounting Standards Board ("FASB") Interpretation
No. 48
|
|
|
— |
|
|
|
— |
|
|
|
1,255 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,255 |
|
Common
Stock issued for debt conversion, employee benefit plans, and
other
|
|
|
3 |
|
|
|
3,272 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,275 |
|
ESOP
loan and treasury stock
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2 |
) |
|
|
(2 |
) |
Cash
dividends
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Balance
at end of year
|
|
$ |
22 |
|
|
$ |
7,834 |
|
|
$ |
(1,485 |
) |
|
$ |
4,997 |
|
|
$ |
(5,962 |
) |
|
$ |
407 |
|
|
$ |
(185 |
) |
|
$ |
5,628 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YEAR
ENDED DECEMBER 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
$ |
22 |
|
|
$ |
7,834 |
|
|
$ |
(1,485 |
) |
|
$ |
4,997 |
|
|
$ |
(5,962 |
) |
|
$ |
407 |
|
|
$ |
(185 |
) |
|
$ |
5,628 |
|
Comprehensive
income/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income/(loss)
|
|
|
— |
|
|
|
— |
|
|
|
(14,672 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(14,672 |
) |
Foreign
currency translation (net of $0 of tax)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5,576 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5,576 |
) |
Net
gain/(loss) on derivative instruments (net of $147 of tax
benefit)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(31 |
) |
|
|
— |
|
|
|
(303 |
) |
|
|
— |
|
|
|
(334 |
) |
Employee
benefit related (net of $44 of tax)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,575 |
) |
|
|
— |
|
|
|
— |
|
|
|
(3,575 |
) |
Net
holding gain/(loss) (net of $0 of tax)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(42 |
) |
|
|
— |
|
|
|
(42 |
) |
Comprehensive
income/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,199 |
) |
Adoption
of SFAS No. 159 (net of $0 of tax)
|
|
|
— |
|
|
|
— |
|
|
|
12 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
12 |
|
Common
Stock issued for debt conversion, employee benefit plans, and
other
|
|
|
2 |
|
|
|
1,242 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,244 |
|
ESOP
loan and treasury stock
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4 |
|
|
|
4 |
|
Cash
dividends
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Balance
at end of year
|
|
$ |
24 |
|
|
$ |
9,076 |
|
|
$ |
(16,145 |
) |
|
$ |
(610 |
) |
|
$ |
(9,537 |
) |
|
$ |
62 |
|
|
$ |
(181 |
) |
|
$ |
(17,311 |
) |
The
accompanying notes are part of the financial statements.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
Table
of Contents
Footnote
|
|
Page
|
|
|
|
Note
1
|
Presentation
|
FS
–9
|
|
|
|
Note
2
|
Summary
of Accounting Policies
|
FS
–13
|
|
|
|
Note
3
|
Marketable,
Loaned, and Other Securities
|
FS
–21
|
|
|
|
Note
4
|
Finance
Receivables –Financial Services Sector
|
FS
–22
|
|
|
|
Note
5
|
Net
Investment in Operating Leases
|
FS
–23
|
|
|
|
Note
6
|
Allowance for
Credit Losses –Financial Services Sector
|
FS
–24
|
|
|
|
Note
7
|
Sales
of Receivables –Financial Services Sector
|
FS
–25
|
|
|
|
Note
8
|
Inventories
|
FS
–26
|
|
|
|
Note
9
|
Equity
in Net Assets of Affiliated Companies
|
FS
–27
|
|
|
|
Note
10
|
Significant
Unconsolidated Affiliates
|
FS
–28
|
|
|
|
Note
11
|
Variable
Interest Entities
|
FS
–28
|
|
|
|
Note
12
|
Net
Property and Related Expenses
|
FS
–34
|
|
|
|
Note
13
|
Impairment
of Long-Lived Assets
|
FS
–34
|
|
|
|
Note
14
|
Goodwill
and Other Net Intangibles
|
FS
–35
|
|
|
|
Note
15
|
Accrued
Liabilities and Deferred Revenue
|
FS
–36
|
|
|
|
Note
16
|
Debt
and Commitments
|
FS
–37
|
|
|
|
Note
17
|
Share-Based
Compensation
|
FS
–42
|
|
|
|
Note
18
|
Employee
Separation Actions and Exit and Disposal Activities
|
FS
–44
|
|
|
|
Note
19
|
Income
Taxes
|
FS
–46
|
|
|
|
Note
20
|
Discontinued
Operations, Held-For-Sale Operations, Other Dispositions, and
Acquisitions
|
FS
–48
|
|
|
|
Note
21
|
Capital
Stock and Amounts Per Share
|
FS
–52
|
|
|
|
Note
22
|
Derivative
Financial Instruments and Hedging Activities
|
FS
–53
|
|
|
|
Note
23
|
Retirement
Benefits
|
FS
–56
|
|
|
|
Note
24
|
Operating
Cash Flows
|
FS
–65
|
|
|
|
Note
25
|
Fair
Value Measurements
|
FS
–67
|
|
|
|
Note
26
|
Segment
Information
|
FS
–69
|
|
|
|
Note
27
|
Geographic
Information
|
FS
–73
|
|
|
|
Note
28
|
Selected
Quarterly Financial Data
|
FS
–73
|
|
|
|
Note
29
|
Commitments
and Contingencies
|
FS
–74
|
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
1. PRESENTATION
Our
financial statements are presented in accordance with generally accepted
accounting principles ("GAAP") in the United States and are shown on a
consolidated basis, and on a sector basis for Automotive and Financial
Services. We believe the additional information provided in the
sector statements enables the reader to better understand the operating
performance, financial position, cash flows, and liquidity of our two very
different businesses. 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.
To
provide comparative prior-year balance sheets, certain amounts on our
December 31, 2007 consolidated and sector balance sheets and related
footnotes have been reclassified for operations held-for-sale in
2008. All held-for-sale assets and liabilities are excluded from the
footnotes unless otherwise noted. For information about our
held-for-sale operations, see Note 20.
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
|
|
$ |
302 |
|
|
$ |
532 |
|
Automotive
sector non-current deferred income tax assets
|
|
|
7,204 |
|
|
|
9,268 |
|
Financial
Services sector deferred income tax assets*
|
|
|
251 |
|
|
|
163 |
|
Total
|
|
|
7,757 |
|
|
|
9,963 |
|
Reclassification
for netting of deferred income taxes
|
|
|
(4,649 |
) |
|
|
(6,463 |
) |
Consolidated
balance sheet presentation of deferred income tax assets
|
|
$ |
3,108 |
|
|
$ |
3,500 |
|
|
|
|
|
|
|
|
|
|
Sector
balance sheet presentation of deferred income tax
liabilities:
|
|
|
|
|
|
|
|
|
Automotive
sector current deferred income tax liabilities
|
|
$ |
2,790 |
|
|
$ |
2,671 |
|
Automotive
sector non-current deferred income tax liabilities
|
|
|
614 |
|
|
|
783 |
|
Financial
Services sector deferred income tax liabilities
|
|
|
3,280 |
|
|
|
6,043 |
|
Total
|
|
|
6,684 |
|
|
|
9,497 |
|
Reclassification
for netting of deferred income taxes
|
|
|
(4,649 |
) |
|
|
(6,463 |
) |
Consolidated
balance sheet presentation of deferred income tax
liabilities
|
|
$ |
2,035 |
|
|
$ |
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
December 31, 2008, we issued 88,325,372 shares resulting in proceeds of
$434 million. For the year, we purchased, with $424 million
of cash, debt securities of Ford Credit with a carrying value of
$492 million and recorded gains on extinguishment of debt in the
amount of $68 million in Automotive interest income and other
non-operating income/(expense), net. The estimated fair value
of these debt securities was $437 million at
December 31, 2008.
On our
consolidated balance sheet, the debt is no longer reported in our Debt
balances.
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 $492 million of debt is reported as Financial Services
debt. Likewise, included in Automotive marketable
securities is $492 million related to Ford's purchase of the Ford Credit
debt securities. Consolidating elimination adjustments for these debt
securities, and a related $8 million of accrued interest, are included in the
Intersector elimination
lines on the sector balance sheet.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
1. PRESENTATION
(Continued)
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
of continuing operations 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 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
|
|
$ |
(3,333 |
) |
|
$ |
15,127 |
|
|
$ |
3,144 |
|
Reclassification
of wholesale receivable cash flows from investing to operating for
consolidated presentation (a)
|
|
|
2,736 |
|
|
|
1,927 |
|
|
|
6,113 |
|
Reclassification
of finance receivable cash flows from investing to operating for
consolidated presentation (b)
|
|
|
418 |
|
|
|
20 |
|
|
|
365 |
|
Consolidated
cash flows from operating activities of continuing
operations
|
|
$ |
(179 |
) |
|
$ |
17,074 |
|
|
$ |
9,622 |
|
__________
(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
$424 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 of continuing operations on our sector statement of
cash flows to Principal
payments on other debt line item within Cash flows from financing activities
of continuing operations on our consolidated statement of cash
flows.
Liquidity
At December 31, 2008, our Automotive sector had total
cash, cash equivalents, and marketable securities of $15.7 billion
(including $2.3 billion of Temporary Asset Account ("TAA") assets, as defined in
Note 23). Due to concerns about the instability in the
capital markets with the uncertain state of the global economy, on
January 29, 2009, we gave notice to borrow the total unused amount
under our $11.5 billion secured revolving credit facility entered into in
December 2006. In February 2009, the lenders under that facility
advanced to us $10.1 billion.
We experienced substantial negative cash flows in 2008,
and had negative stockholders' equity of $17.3 billion at
December 31, 2008. Based on our current planning
assumptions, we expect net Automotive operating cash flows in 2009 to be
negative, but significantly improved from 2008. The dramatic decline
in industry sales volume during 2008, and our reduced production to match
demand, had a substantial negative effect on cash flows. Trade
payables and other elements of working capital should improve as industry sales
volume stabilizes and begins to grow, contributing to the expected improvement
in operating cash flow.
We
continue to face many risks and uncertainties, however, related to the global
economy, our industry in particular, and the credit environment which could
materially impact our plan. Of these potentialities, we believe that
the two risks that are reasonably possible to have a material impact on our
going concern analysis are (i) a decline in industry sales volume to levels
below our current planning assumptions, and (ii) actions necessary to ensure an
uninterrupted supply of materials and components.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
1. PRESENTATION
(Continued)
Our
current planning assumptions forecast that industry sales volume will decline somewhat in early
2009, before stabilizing in the first half and beginning to recover later in the
year, culminating in full-year 2009 U.S. industry sales volume in the range of
10.5 million units to 12.5 million units, and industry sales volume
for the 19 markets we track in Europe in the range of 12.5 million units to
13.5 million units. Based on our analysis of the market,
we believe that these assumptions are reasonable. There is a
risk, however, that industry sales volume may not stabilize as early in 2009, or
begin to improve as soon thereafter, as our planning assumptions
forecast.
In
addition to the risk related to industry sales volume, our plan also could
be negatively impacted by pressures affecting our supply base. During
2008, our suppliers experienced increased economic distress due to the sudden
and substantial drop in industry sales volumes that affected all automobile
manufacturers. Dramatically lower industry sales volumes have
made existing debt obligations and fixed cost levels difficult for many
suppliers to manage, especially with the tight credit market, raising the
possibility of supplier bankruptcy as evidenced by the recent request by the
Motor and Equipment Manufacturers Association and other supplier industry trade
groups to the U.S. Treasury Department for significant government
assistance. As a result, it is reasonably possible that
our costs to ensure an uninterrupted supply of materials and components could be
higher than our present planning assumptions by a material amount.
We
believe that even a combination of these two reasonably possible scenarios,
however, as measured by a decline of 20% and 10%, respectively, for the United
States and Europe from the midpoint of the range of our current planning
assumptions for 2009 industry sales volume, combined with our assessment of
the necessary cost to ensure an uninterrupted supply of materials and components
(absent a significant industry event in 2009 such as an uncontrolled bankruptcy
of a major competitor or major suppliers in 2009 which we believe is
remote), would not exceed our present available liquidity. We believe
that the risk of decline in industry sales volume below these levels (i.e.,
below 9.2 million units in the United States and 11.7 million units in
Europe) is remote. Therefore, we do not believe that these reasonably
possible scenarios cause substantial doubt about our ability to continue as
a going concern for the next year.
With
regard to our Financial Services sector, Ford Credit expects the majority of its
funding in 2009 will consist of eligible issuances pursuant to
government-sponsored programs. It is reasonably possible that credit
markets could continue to constrain Ford Credit's funding or that Ford
Credit will not be eligible for government-sponsored
programs. In these circumstances, Ford Credit could mitigate these
funding risks by reducing the amount of finance receivables and operating leases
they purchase or originate. At our current industry sales volume
assumption, this would not have a material impact on our going concern
analysis. If industry sales volume were to decline to the reduced
levels described above, the risk of Ford Credit not being able to support the
sale of Ford products would be remote.
Accordingly,
we have concluded that there is no substantial doubt about our ability to
continue as a going concern, and our financial statements have been
prepared on a going concern basis.
Notwithstanding,
as previously disclosed in our business plan submission to Congress in
December 2008, in this environment a number of scenarios could put severe
pressure on our short- and long-term Automotive liquidity, including a worsening
of the scenarios described above. We presently believe that the
likelihood of such an event is remote. In such a scenario, however,
or in response to other unanticipated circumstances, we could take additional
mitigating actions or require additional financing
to improve our liquidity.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
1. PRESENTATION
(Continued)
Certain
Transactions Between Automotive and Financial Services Sectors
Intersector
transactions occur in the ordinary course of business. We formally
documented certain long-standing business practices with Ford Credit, our
indirect wholly-owned subsidiary, in a 2001 agreement that was amended in
2006. Additional details on certain transactions and the effect on
each sector's balance sheet at December 31 are shown below (in
billions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance
receivables, net (a)
|
|
|
|
$ |
2.6 |
|
|
|
|
$ |
3.7 |
|
Unearned
interest supplements and residual support (b)
|
|
|
|
|
(2.6 |
) |
|
|
|
|
(0.7 |
) |
Wholesale
receivables/Other (c)
|
|
|
|
|
1.0 |
|
|
|
|
|
1.8 |
|
Net
investment in operating leases (d)
|
|
|
|
|
0.6 |
|
|
|
|
|
0.7 |
|
Other
assets (e)
|
|
|
|
|
0.6 |
|
|
|
|
|
1.2 |
|
Intersector
receivables/(payables) (f)
|
$ |
2.0
|
|
|
(2.0 |
) |
$
|
2.0
|
|
|
(2.0 |
) |
__________
(a)
|
Automotive
sector receivables (generated primarily from vehicle and parts sales to
third parties) sold to Ford Credit. These receivables are
classified as Other
receivables, net on our consolidated balance sheet and
Finance receivables, net
on our sector balance sheet.
|
|
|
(b)
|
As
of January 1, 2008, to reduce ongoing obligations to Ford Credit and to be
consistent with general industry practice, we began paying interest
supplements and residual value support to Ford Credit at the time Ford
Credit purchased eligible contracts from dealers.
|
|
|
(c)
|
Primarily
wholesale receivables with entities that are consolidated subsidiaries of
Ford. The consolidated subsidiaries include dealerships that
are partially owned by Ford and consolidated as variable interest entities
("VIEs"), and also certain overseas affiliates.
|
|
|
(d)
|
Sale-leaseback
agreement between Automotive and Financial Services sectors relating to
vehicles that we lease to our employees and employees of our
subsidiaries.
|
|
|
(e)
|
Primarily
used vehicles purchased by Ford Credit pursuant to the Automotive sector's
obligation to repurchase such vehicles from daily rental car
companies. These vehicles are subsequently sold at
auction.
|
|
|
(f)
|
Amounts
owed to the Automotive sector by Ford Credit, or vice versa, primarily
under a tax sharing
agreement.
|
Additionally,
amounts recorded as revenue by the Financial Services sector and billed to the
Automotive sector for interest supplements and other support costs for special
financing and leasing programs were $4.8 billion in 2008, $4.6 billion in
2007, and $3.5 billion in 2006. The Automotive sector had
accrued in Accrued liabilities
and deferred revenue $2.5 billion and $5.4 billion for interest
supplements at December 31, 2008 and 2007, respectively, and about
$450 million and about $900 million for residual-value supplements in the
United States and Canada to be paid to Ford Credit over the term of the related
finance contracts at December 31, 2008 and 2007,
respectively.
Other
Non-Operating Income/(Expense)
Automotive Sector. The following table summarizes the amounts included
in Interest income
and other non-operating income/(expense), net for the years ended
December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
$ |
951 |
|
|
$ |
1,713 |
|
|
$ |
1,409 |
|
Realized
and unrealized gains/(losses) on cash equivalents and marketable
securities
|
|
|
(1,309 |
) |
|
|
(109 |
) |
|
|
52 |
|
Gains/(Losses)
on the sale of held-for-sale operations, equity and cost investments, and
other dispositions
|
|
|
(527 |
) |
|
|
139 |
|
|
|
32 |
|
Gains/(Losses)
on extinguishment of debt
|
|
|
141 |
|
|
|
(512 |
) |
|
|
— |
|
Other
|
|
|
(11 |
) |
|
|
(70 |
) |
|
|
(15 |
) |
Total
|
|
$ |
(755 |
) |
|
$ |
1,161 |
|
|
$ |
1,478 |
|
Financial Services
Sector. Ford Credit recognized earnings of $496 million,
$899 million and $819 million in 2008, 2007, and 2006, respectively,
related to interest and investment income on its cash and cash equivalents and
marketable securities. These amounts are included in Financial
Services revenues.
NOTE
2. SUMMARY OF ACCOUNTING POLICIES
Consolidation
of Financial Statements
Our
financial statements include consolidated majority-owned subsidiaries and
consolidated variable interest entities ("VIEs") of which we are the primary
beneficiary. The equity method of accounting is used for our investments in
entities in which we do not have control or of which we are not the primary
beneficiary, but over whose operating and financial policies we have the ability
to exercise significant influence.
VIEs. We use
qualitative analysis to determine whether or not we are the primary beneficiary
of a VIE. We consider the rights and obligations conveyed by our
implicit and explicit variable interests in each VIE and the relationship of
these with the variable interests held by other parties to determine whether our
variable interests will absorb a majority of a VIE's expected losses, receive a
majority of its expected residual returns, or both. If we determine that our
variable interests will absorb a majority of the VIE's expected losses, receive
a majority of its expected residual
returns, or both we consolidate the VIE as the primary beneficiary, and if not,
we do not consolidate.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
2. SUMMARY OF ACCOUNTING POLICIES (Continued)
Use
of Estimates
The
preparation of financial statements in accordance with U.S. GAAP requires us to
make estimates and assumptions that affect our reported amounts of assets and
liabilities, our disclosure of contingent assets and liabilities at the date of
the financial statements, and our revenue and expenses during the periods
reported. Estimates are used when accounting for certain items such
as marketing accruals, warranty costs, employee benefit programs,
etc. Estimates are based on historical experience, where applicable,
and assumptions that we believe are reasonable under the
circumstances. Due to the inherent uncertainty involved with
estimates, actual results may differ.
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 Note
25.
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.
Cash
and Cash Equivalents
Cash and
all highly-liquid investments with a maturity of 90 days or less at the
date of purchase, including short-term time deposits, government agency
securities, and corporate obligations, are classified in Cash and cash
equivalents. Cash and cash equivalents that are restricted as
to withdrawal or usage under the terms of certain contractual arrangements are
recorded in Other assets
on our consolidated balance sheet. We
review our disbursement accounts and reclassify any aggregate negative balances
to a liability account included in Payables on our balance
sheet. See Note 11 for additional information regarding
Automotive VIEs, as well as cash that supports Financial Services' on-balance
sheet securitizations.
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.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
2. SUMMARY OF ACCOUNTING POLICIES (Continued)
Marketable
Securities
Marketable
securities include
investments in U.S. and other government securities, corporate obligations and
equities, and asset-backed securities with a maturity greater than 90 days at
the date of purchase.
For all
cash equivalents and marketable securities held at January 1, 2008 and recorded
as available-for-sale or held-to-maturity, we elected to apply the fair value
option under SFAS No. 159 and thereafter recorded these instruments as
trading securities. Prior to our election of the fair value option, the
unrealized gains and losses for available-for-sale securities were recorded to
Accumulated other
comprehensive income/(loss) and the unrealized gains and losses for
held-to-maturity securities were not recognized. This election
resulted in a cumulative after-tax increase of approximately $12 million to the
opening balance of Retained
earnings. Cash equivalents and marketable securities acquired subsequent
to January 1, 2008 have been recorded as trading securities. Trading
securities are recorded at fair value with unrealized gains and losses recorded
in Automotive interest income
and other non-operating income/(expense), net and Financial Services
revenues. Realized gains and losses are accounted for using
the specific identification method.
Loaned
Securities
We have
loaned certain securities from our portfolio to other institutions through a
process administered by our custodial bank. When we elect to
participate in this program, such securities are classified as Loaned
securities. The purpose of entering into these transactions is
to provide us with additional income, which improves the return on these
assets. Our custodial bank monitors exposure to borrowers and
indemnifies us against borrower default. In the event of both a
borrower default and the failure of our custodial bank to indemnify us, we have
the right to realize on the collateral to satisfy the borrower's repayment
obligation.
In these
lending transactions, we transfer financial assets to borrowers and receive
collateral, consisting of cash or other securities equal to 102% of the market
value of the loaned securities. Cash received as collateral is
recorded on our consolidated balance sheet in Other assets and on our
sector balance sheet in Other
current assets, offset by a current obligation to return the collateral
in Payables on the
consolidated balance sheet and Other payables on the sector
balance sheet. Securities held as collateral are not recorded on our
balance sheet and are not pledged or sold. Income earned on the
collateral, net of expenses incurred on the obligation, is in Automotive interest income and other
non-operating income/(expense), net.
Sales
and Transfers of Receivables
Ford
Credit transfers finance receivables and net investments in operating leases in
structured transactions to fund operations and to maintain
liquidity. The majority of its transactions do not meet the criteria
for selling and derecognizing financial assets. Accordingly, the
assets continue to be reported on our financial statements as Finance receivables, net or
as Net investment in operating
leases.
Ford
Credit derecognizes the assets and reports a sale when it transfers receivables
to bankruptcy-remote special purpose entities ("SPEs") or other independent
entities, the transferee is provided a right to pledge or exchange their
beneficial interests, and when it does not maintain control over the assets
transferred. Ford Credit may or may not retain a residual or subordinated
interest in these transactions and reports a gain or loss in the period in which
these sales occur. In measuring the gain or loss, the carrying value
of the receivables transferred is allocated between the assets sold and the
interests retained, based on their relative fair values at the date of
sale. At the time of the transaction, retained interests are recorded
at fair value and the unrealized gains are reported net of tax, as a separate
component of Accumulated other
comprehensive income/(loss).
Ford
Credit also retains the servicing responsibility and generally receives a
servicing fee for those transactions that meet the sales
criteria. The fee is recognized as earned which is generally over the
remaining term of the related sold receivables.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
2. SUMMARY OF ACCOUNTING POLICIES (Continued)
Allowance
for Credit Losses
The
allowance for credit losses is our estimate of the probable credit losses
inherent in finance receivables and operating leases at the date of the balance
sheet. The allowance is based on factors such as historical trends in
credit losses and recoveries (including key metrics such as delinquencies,
repossessions, and bankruptcies), the composition of our present portfolio
(including vehicle brand, term, risk evaluation, and new/used vehicles), trends
in historical and projected used vehicle values and economic
conditions. Additions to the allowance for credit losses are made by
recording charges to the Financial Services provision for
credit and insurance losses on our income statement. Finance
receivables and lease investments are charged to the allowance for credit losses
at the earlier of when an account is deemed to be uncollectible or when an
account is 120 days delinquent, taking into consideration the financial
condition of the borrower or lessee, the value of the collateral, recourse to
guarantors and other factors. Recoveries on finance receivables and
lease investments previously charged off as uncollectible are credited to the
allowance for credit losses.
Inventories
All
inventories are stated at the lower of cost or market. Cost for a
substantial portion of U.S. inventories is determined on a last-in, first-out
("LIFO") basis. LIFO was used for approximately 23% and 25% of
inventories at December 31, 2008 and 2007, respectively. Cost of
other inventories is determined on a first-in, first-out ("FIFO")
basis.
Valuation
of Deferred Tax Assets
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.
Our
accounting for deferred tax consequences represents our best estimate of the
likely future tax consequences of events that have been recognized in our
financial statements or tax returns and their future probability. 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.
Asset
Impairments
Held-for-Sale and Discontinued
Operations. We perform an impairment test on an asset group to
be discontinued, held for sale, or otherwise disposed of when management has
committed to the action and the action is expected to be completed within one
year. We estimate fair value to approximate the expected proceeds to
be received, less transaction costs, and compare it to the carrying value of the
asset group. An impairment charge is recognized when the carrying
value exceeds the estimated fair value.
Held-and-Used Long-Lived
Assets. We monitor the carrying value of long-lived asset
groups held and used for potential impairment when certain triggering events
have occurred. These events include current period losses combined
with a history of losses and a projection of continuing losses, and significant
negative industry or economic trends. When a triggering event occurs,
a test for recoverability is performed, comparing projected undiscounted future
cash flows (utilizing current cash flow information and expected growth rates)
to the carrying value of the asset group. If the test for
recoverability identifies a possible impairment, the asset group's fair value is
determined using an in-use valuation premise and the income
approach. The income approach is applied using a discounted cash flow
methodology that incorporates assumptions similar to those a market participant
would use to assess fair value. These assumptions relate to business
projections, long-term growth rate, discount rate, and economic
projections. An impairment charge is recognized for the amount by
which the carrying value of the asset group exceeds its estimated fair
value.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
2. SUMMARY OF ACCOUNTING POLICIES (Continued)
Goodwill. Our
policy is to perform annual testing of goodwill and certain other net intangible
assets during the fourth quarter to determine whether any impairment has
occurred. Goodwill impairment testing is also performed following an
allocation of goodwill to a business to be disposed, or following a triggering
event for the long-lived asset impairment test. Testing is conducted
at the reporting unit level, which is the same level as our operating
segments. To test for goodwill impairment, the carrying value of each
reporting unit is compared with its fair value. Fair value is
measured relying primarily on the income approach by applying a discounted cash
flow methodology. Additionally, we may measure fair value under the
market approach. This approach considers various market multiples
(e.g., net operating revenue and earnings before interest, taxes, and
depreciation and amortization ("EBITDA")) of companies that are engaged in the
same or similar line of business.
Conditional
Asset Retirement Obligations
We accrue
for costs related to legal obligations to perform certain activities in
connection with the retirement, disposal or abandonment of assets for which the
fair value of the liability can be reasonably estimated. Certain
conditional asset retirement obligations exist that are not recorded on our
balance sheet, including regulated substances. These costs are not
estimable until a triggering event occurs (e.g., plant closing) due to the
absence of historical cost, range of potential settlement dates and variability
among plants. Once a triggering event occurs and the fair value of
the asset retirement obligation can be estimated, those costs are included as
part of the liability.
Foreign
Currency Translation
The
assets and liabilities of foreign subsidiaries using the local currency as their
functional currency are translated to U.S. dollars using end-of-period exchange
rates and any resulting translation adjustments are reported in Accumulated other comprehensive
income/(loss). The net translation adjustment for 2008 was a
decrease in net assets and Accumulated other comprehensive
income/(loss) of $5.6 billion (net of tax of $0). The net translation
adjustment for 2008 also reflects amounts transferred to net income as a result
of the sale or liquidation of an entity, resulting in a gain of
$1.8 billion (primarily from the sale of Jaguar Land Rover and a portion of
our stake in Mazda). In 2007 and 2006, the net translation
adjustments were an increase in net assets and Accumulated other comprehensive
income/(loss) of $1.8 billion and $2.6 billion (net of tax of
$0 for 2007 and $3 million benefit for 2006), respectively.
Also
included in Automotive cost of
sales, Automotive interest income and other non-operating
income/(expense), net, and Financial Services revenues
are gains or losses arising from transactions denominated in currencies other
than the functional currency of the locations, the effect of re-measuring assets
and liabilities of foreign subsidiaries using U.S. dollars as their functional
currency, and the results of our foreign currency hedging
activities. For additional discussion of hedging activities, see
Note 22. The net after-tax income effects of these adjustments
were a gain of $922 million in 2008, a gain of $217 million in 2007, and a
loss of $17 million in 2006.
Revenue
Recognition — Automotive Sector
Automotive
sales consist primarily of revenue generated from the sale of
vehicles. Sales are recorded when the risks and rewards of ownership
are transferred to our customers (generally dealers and
distributors). For the majority of our sales, this occurs when
products are shipped from our manufacturing facilities or at the point of
delivery. When vehicles are shipped to customers or modifiers on
consignment, revenue is recognized when the vehicle is sold to the ultimate
customer.
We also
sell vehicles to daily rental car companies subject to guaranteed repurchase
options. These vehicles are accounted for as operating
leases. At the time of transfer, the proceeds are recorded as
deferred revenue in Accrued
liabilities and deferred revenue. The difference between the
proceeds and the guaranteed repurchase amount is recognized in Automotive sales over the term of the
lease, using a straight-line method. Also at the time of transfer,
the cost of the vehicles is recorded in Other current
assets. The difference between the cost of the vehicle and the
estimated auction value is depreciated in Automotive cost of sales over the term of
the lease. At December 31, 2008 and 2007, included in
Accrued liabilities and
deferred revenue was $2.9 billion and $3.2 billion,
respectively, and included in Other current assets was
$2.6 billion and $2.9 billion, respectively, for these
vehicles.
Income
generated from cash and cash equivalents, investments in marketable securities,
loaned securities and other miscellaneous receivables is reported in Automotive interest income and other
non-operating income/(expense), net.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
2. SUMMARY OF ACCOUNTING POLICIES (Continued)
Revenue
Recognition — Financial Services Sector
Revenue
from finance receivables (including direct financing leases) is recognized using
the interest method. Certain origination costs on receivables are
deferred and amortized, using the interest method, over the term of the related
receivable as a reduction in financing revenue. Rental revenue on
operating leases is recognized on a straight-line basis over the term of the
lease. Initial direct costs related to leases are deferred and
amortized on a straight-line basis over the term of the lease. The
accrual of rental payments on operating leases and interest on receivables is
discontinued at the time a receivable is determined to be
uncollectible.
Income
generated from cash and cash equivalents, investments in marketable securities,
and other miscellaneous receivables is reported in Financial Services
revenues.
Marketing
Incentives and Interest Supplements
Marketing
incentives, including customer and dealer cash payments and costs for special
financing and leasing programs paid to the Financial Services sector, are
generally recognized by the Automotive sector as revenue reductions in Automotive
sales. These revenue reductions are accrued at the later of
the date the related vehicle sales to the dealers are recorded or the date the
incentive program is both approved and communicated. We generally
estimate these accruals using marketing incentives that are approved as of the
balance sheet date and are expected to be effective at the beginning of the
subsequent period. The Financial Services sector identifies payments
for special financing and leasing programs as interest supplements or other
support costs and recognizes them consistent with the earnings process of the
underlying receivable or operating lease.
Employee
Separation Actions and Exit and Disposal Activities
Under our
collective bargaining agreements, we are required to pay benefits to our hourly
employees at facilities that will be closed. The benefits are
expensed in Automotive cost of
sales when it becomes probable that the employees will be permanently
idled. We expense costs associated with the small number of employees
who are temporarily idled on an as-incurred basis.
The cost
of voluntary employee separation actions is recorded at the time of an
employee's acceptance, unless the acceptance requires explicit approval by the
Company. The costs of conditional voluntary separations are accrued
when all conditions are satisfied. The costs of involuntary
separation programs are accrued when management has approved the program and the
affected employees are identified.
Share-Based
Compensation
We grant
performance and time-based restricted stock units to our
employees. Restricted stock units awarded in stock ("RSU-stock")
provide the recipients with the right to shares of stock after a restriction
period. The fair value of the units granted under the 1998 Long-term
Incentive Plan ("LTIP") is the average of the high and low market price of our
Common Stock on the grant date. The fair value of the units granted
under the 2008 LTIP is the closing price of our Common Stock on the grant
date. Outstanding RSU-stock are either strictly time-based or a
combination of performance and time-based. Time-based RSU-stock
awards issued in 2006 and prior, vest at the end of the restriction period and
the expense is taken equally over the restriction period. For
time-based RSU-stock awards issued in and after 2007, the awards generally vest
under the graded vesting method. One-third of the RSU-stock awards
vest after the first anniversary of the grant date, one-third after the second
anniversary, and one-third after the third anniversary. The expense
is recognized in accordance with this graded vesting method. Under
both methods, at the end of the restriction period, the RSU-stock is fully
expensed in Selling,
administrative, and other expenses. Performance RSU-stock have
a performance period (usually 1-3 years) and a restriction period (usually 1-3
years). Compensation expense for performance RSU-stock awards is not
recognized until it is probable and estimable. Expense is then
recognized over the performance and restriction periods based on the fair market
value of Ford stock at grant date.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
2. SUMMARY OF ACCOUNTING POLICIES (Continued)
We also
grant stock options to our employees. We measure the fair value of
the majority of our stock options using the Black-Scholes option-pricing model,
using historical volatility and our determination of the expected
term. The expected term of stock options is the time period that the
stock options are expected to be outstanding. Historical data is used
to estimate option exercise behaviors and employee termination experience within
the valuation model. Based on our assessment of employee groupings
and observable behaviors, we determined that a single grouping is
appropriate. Generally, 33% of the options are exercisable after the
first anniversary of the date of grant, 66% after the second anniversary, and
100% after the third anniversary. Stock options expire ten years from
the grant date and are expensed in Selling, administrative, and other
expenses using a three-year graded vesting methodology.
Supplier
Price Adjustments
We
frequently negotiate price adjustments with our suppliers throughout a
production cycle, even after receiving production material. These
price adjustments relate to changes in design specifications or to other
commercial terms such as economics, productivity, and competitive
pricing. We recognize price adjustments when we reach final agreement
with our suppliers. In general, we avoid direct price changes in
consideration of future business; however, when these occur, our policy is to
defer the financial statement impact of any such price change given explicitly
in consideration of future business where guaranteed volumes are
specified.
Raw
Material Arrangements
We
negotiate prices for and facilitate the purchase of raw materials on behalf of
our suppliers. These raw material arrangements, which take place
independently of any purchase orders being issued to our suppliers, are
negotiated at arms length and do not involve volume guarantees to either
party. When we pass the risks and rewards of ownership to our
suppliers, including inventory risk, market price risk, and credit risk for the
raw material, we record both the cost of the raw material and the income from
the subsequent sale to the supplier in Automotive cost of
sales. When we retain the risks and rewards of ownership, we
account for the raw material as Inventory on our balance
sheet.
Warranty
and Extended Service Plans
Estimated
warranty costs and additional service actions are accrued for at the time the
vehicle is sold to a dealer, including costs for basic warranty coverage on
vehicles sold, product recalls, and other customer service
actions. Fees or premiums for the issuance of extended service plans
are recognized in income over the contract period in proportion to the costs
expected to be incurred in performing services under the contract.
Government
Grants and Loan Incentives
From time
to time, we receive grants and loan incentives from domestic and foreign
governments. They are recorded in the financial statements in
accordance with the purpose of the grant, either as a reduction of expenses or a
reduction of the cost of the capital investment. The benefit of
grants and loan incentives is recorded when performance is complete and all
conditions as specified in the agreement are fulfilled. When recorded
as a reduction of expense, grants and loan incentives are recorded as a
reduction in Automotive cost
of sales.
Derivative
Financial Instruments and Hedge Accounting
In the
normal course of business, our operations are exposed to global market risks,
including the effect of changes in foreign currency exchange rates, certain
commodity prices and interest rates. To manage these risks, we enter into
various derivatives contracts. Our hedging program, derivative positions and
overall risk management strategy is reviewed by management on a regular basis.
We only enter into transactions we believe will be highly effective at
offsetting the underlying risk.
We enter
into master agreements with counterparties that generally allow for netting of
certain exposures. To ensure consistency in our treatment of
derivative and non-derivative exposures with regard to these agreements, we do
not net our derivative position by counterparty for purposes of balance sheet
presentation and disclosure.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
2. SUMMARY OF ACCOUNTING POLICIES (Continued)
All
derivatives are recognized on the balance sheet at fair value. We have elected
to apply hedge accounting to certain derivatives in both the Automotive and
Financial Services sectors. Derivatives 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. Cash flows associated with
designated hedges are reported in the same category as the underlying hedged
item.
Some
derivatives do not qualify for hedge accounting; for others, we elect not to
apply hedge accounting. We report changes in the fair value of derivatives not
designated as hedging instruments through Automotive cost of sales,
Automotive interest income and
other non-operating income/(expense), net, or Financial Services revenues
depending on the sector and underlying exposure. Cash flows
associated with non-designated or de-designated derivatives are reported in
Net cash (used in)/provided by
investing activities in our statements of cash flows.
Cash Flow
Hedges. The Automotive sector has designated certain forward
and option contracts as cash flow hedges of forecasted transactions with
exposure to foreign currency exchange and commodity price
risks. During the second half of 2008, all foreign exchange forwards
and options previously designated as cash flow hedges of forecasted transactions
under critical terms match were de-designated and re-designated under the
"long-haul" method using regression analysis to assess hedge
effectiveness. In 2008, there were no commodity derivatives
designated as cash flow hedges.
The
effective portion of changes in the fair value of cash flow hedges is deferred
in Accumulated other
comprehensive income/(loss) and is recognized in Automotive cost of sales when
the hedged item affects earnings. The ineffective portion is recorded directly
in earnings. Our policy is to de-designate cash flow hedges prior to the time
forecasted transactions are recognized as assets or liabilities on the balance
sheet and report subsequent changes in fair value through Automotive cost of
sales. An amount is also reclassified from Accumulated other comprehensive
income/(loss) and recognized in earnings if it becomes probable that the
original forecasted transaction will not occur. Our cash flow hedges mature
within two years or less.
Fair Value
Hedges. The Financial Services sector uses derivatives to
reduce the risk of changes in the fair value of liabilities. We have designated
certain receive-fixed, pay-float interest rate swaps as fair value hedges of
fixed-rate debt under the "long haul" method of assessing
effectiveness. The risk being hedged is the risk of changes in the
fair value of the hedged item attributable to changes in the benchmark interest
rate. We use regression analysis to assess hedge effectiveness. If the hedge
relationship is deemed to be highly effective, we record the changes in the fair
value of the hedged item related to the risk being hedged in Financial Services debt with
the offset in Financial
Services revenue. The change in fair value of the related
derivative is also recorded in Financial Services
revenue. Hedge ineffectiveness, recorded directly in earnings,
is the difference between the change in fair value of the entire derivative
instrument and the change in fair value of the hedged item attributable to
changes in the benchmark interest rate.
When a
derivative is de-designated from a fair value hedge relationship, or when the
derivative in a fair value hedge relationship is terminated before maturity, the
fair value adjustment to the hedged item continues to be reported as part of the
basis of the item and is amortized over its remaining life.
Net Investment
Hedges. We have used foreign currency exchange derivatives to
hedge the net assets of certain foreign entities to offset the translation and
economic exposures related to our investment in these entities. We
assessed effectiveness based upon a comparison of the hedge with the beginning
balance of the net investment on an after tax basis, with subsequent quarterly
tests based upon changes in spot rates to determine the effective portion of the
hedge. Changes in the value of these derivative instruments, excluding the
ineffective portion of the hedge, were included in Accumulated other comprehensive
income/(loss) as a foreign currency translation adjustment until the
hedged investment is sold or liquidated. We had no active foreign
currency derivatives classified as net investment hedges at
December 31, 2008 and 2007.
Normal Purchases and Normal Sales
Classification. For physical supply contracts that are entered
into for the purpose of procuring commodities to be used in production over a
reasonable period in the normal course of our business, we have elected to apply
the normal purchases and normal sales classification, with certain
exceptions.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
2. SUMMARY OF ACCOUNTING POLICIES (Continued)
Selected
Other Costs
Freight,
engineering, and research and development costs are included in Automotive cost of sales;
advertising costs are included in Selling, administrative and other
expenses. Engineering, research and development costs are
expensed as incurred when performed internally or performed by a supplier when
reimbursement is guaranteed. Freight costs on goods shipped and
advertising costs are expensed as incurred. Engineering, research and
development, and advertising expenses were as follows (in
billions):
|
|
|
|
|
|
|
|
|
|
Engineering,
research and development
|
|
$ |
7.3 |
|
|
$ |
7.5 |
|
|
$ |
7.2 |
|
Advertising
|
|
|
4.6 |
|
|
|
5.4 |
|
|
|
5.1 |
|
Depreciation
and Amortization
Property
and equipment are stated at cost and depreciated primarily using the
straight-line method over the estimated useful life of the
asset. Useful lives range from 3 years to
36 years. The estimated useful lives generally are
14.5 years for machinery and equipment, and 30 years for buildings and
land improvements. Maintenance, repairs, and rearrangement costs are
expensed as incurred. Special tools are amortized using a time-based
method which amortizes the cost of the special tools over their expected useful
lives using a straight-line method, or, if the production volumes for major
product programs associated with the tools are expected to materially decline
over the life of the tool, using an accelerated method reflecting the rate of
decline.
Presentation
of Sales and Sales-Related Taxes
We
collect and remit taxes assessed by different governmental authorities that are
both imposed on and concurrent with a revenue-producing transaction between us
and our customers. These taxes may include, but are not limited to,
sales, use, value-added, and some excise taxes. We report the
collection of these taxes on a net basis (excluded from revenues).
Income
Taxes
Effective
with the adoption of Interpretation No. 48, Accounting for Uncertainty in Income
Taxes – an interpretation of FASB Statement No. 109 ("FIN 48"),
we have elected to recognize accrued interest related to unrecognized tax
benefits and tax related penalties in the Provision for/(Benefit from) income
taxes on our consolidated income statement.
Subsequent
Events
We
evaluate the effects of all subsequent events through the date the audit of our
financial statements is complete, management certifies the financial statements,
and we file the financial statements with the U.S. Securities and Exchange
Commission.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
3. MARKETABLE, LOANED, AND OTHER SECURITIES
All
marketable securities held at January 1, 2008 or subsequently acquired are
reported as trading securities. Where available, we use quoted market
prices to measure fair value. If quoted market prices are not
available, such as for federal 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.
Investments
in marketable and loaned securities at December 31 were as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
Gains/(Losses) (a)
|
|
|
|
|
|
Unrealized
Gains/(Losses) (a)
|
|
Automotive
Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading
(b)
|
|
$ |
9,296 |
|
|
$ |
(1,443 |
) |
|
$ |
10,901 |
|
|
$ |
(55 |
) |
Available-for-sale
|
|
|
— |
|
|
|
— |
|
|
|
1,458 |
|
|
|
9 |
|
Total
Automotive sector
|
|
|
9,296 |
|
|
|
(1,443 |
) |
|
|
12,359 |
|
|
|
(46 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Services Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading
|
|
|
8,607 |
|
|
|
(32 |
) |
|
|
1 |
|
|
|
— |
|
Available-for-sale
|
|
|
— |
|
|
|
— |
|
|
|
3,147 |
|
|
|
9 |
|
Held-to-maturity
|
|
|
— |
|
|
|
— |
|
|
|
8 |
|
|
|
— |
|
Total
Financial Services sector
|
|
|
8,607 |
|
|
|
(32 |
) |
|
|
3,156 |
|
|
|
9 |
|
Intersector
elimination (b)
|
|
|
(492 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total
Company
|
|
$ |
17,411 |
|
|
$ |
(1,475 |
) |
|
$ |
15,515 |
|
|
$ |
(37 |
) |
__________
(a)
|
Unrealized
gains/(losses) are reflected in fair value data provided in this table;
unrealized gains/(losses) on trading securities are recorded in income on
a current period basis.
|
(b)
|
The
Fair Value column reflects an investment in Ford Credit debt securities
shown at a carrying value of $492 million (estimated fair value of
which is $437 million) at December 31, 2008. See
Note 1 for additional detail.
|
On
November 18, 2008 we sold a portion of our investment in Mazda and reclassified
our remaining investment to Marketable
securities. The fair value of our investment in Mazda at
December 31, 2008 was $322 million. See Note 9 for additional
information.
Marketable
and loaned securities recorded as available-for-sale and held-to-maturity
securities at December 31, 2007 were as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
government
|
|
$ |
214 |
|
|
$ |
1 |
|
|
$ |
— |
|
|
$ |
215 |
|
Mortgage-backed
|
|
|
575 |
|
|
|
6 |
|
|
|
1 |
|
|
|
580 |
|
Other
debt securities
|
|
|
660 |
|
|
|
3 |
|
|
|
— |
|
|
|
663 |
|
Total
Automotive sector
|
|
$ |
1,449 |
|
|
$ |
10 |
|
|
$ |
1 |
|
|
$ |
1,458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Services Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
government
|
|
$ |
632 |
|
|
$ |
1 |
|
|
$ |
— |
|
|
$ |
633 |
|
Government-sponsored
enterprises
|
|
|
1,944 |
|
|
|
4 |
|
|
|
— |
|
|
|
1,948 |
|
Mortgage-backed
securities
|
|
|
324 |
|
|
|
2 |
|
|
|
1 |
|
|
|
325 |
|
Other
debt securities
|
|
|
139 |
|
|
|
2 |
|
|
|
1 |
|
|
|
140 |
|
Equity
securities
|
|
|
99 |
|
|
|
2 |
|
|
|
— |
|
|
|
101 |
|
Subtotal
|
|
|
3,138 |
|
|
|
11 |
|
|
|
2 |
|
|
|
3,147 |
|
Held-to-maturity
|
|
|
8 |
|
|
|
— |
|
|
|
— |
|
|
|
8 |
|
Total
Financial Services sector
|
|
$ |
3,146 |
|
|
$ |
11 |
|
|
$ |
2 |
|
|
$ |
3,155 |
|
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
3. MARKETABLE, LOANED, AND OTHER SECURITIES (Continued)
The
proceeds from maturities and sales of available-for-sale securities were as
follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
sector
|
|
$ |
— |
|
|
$ |
496 |
|
|
$ |
2,686 |
|
|
$ |
4,369 |
|
Financial
Services sector
|
|
|
7,900 |
|
|
|
9,157 |
|
|
|
8,074 |
|
|
|
4,434 |
|
Total
Company
|
|
$ |
7,900 |
|
|
$ |
9,653 |
|
|
$ |
10,760 |
|
|
$ |
8,803 |
|
Realized
gains and losses on sales of available-for-sale securities were as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
sector
|
|
$ |
10 |
|
|
$ |
4 |
|
|
$ |
7 |
|
|
$ |
22 |
|
Financial
Services sector
|
|
|
45 |
|
|
|
19 |
|
|
|
5 |
|
|
|
4 |
|
Total
Company
|
|
$ |
55 |
|
|
$ |
23 |
|
|
$ |
12 |
|
|
$ |
26 |
|
Loaned
Securities
At
December 31, 2008 we had no loaned securities. In 2007,
loaned securities were primarily collateralized by cash, U.S. Treasury
securities and government-sponsored agency securities. We had securities and
cash as collateral in the amount of $10 billion and
$480 million, respectively, at December 31, 2007, shown in Other assets. The
securities held as collateral were not pledged or sold.
Other
Securities
Not
included in the marketable securities table are cost method investments totaling
$68 million included in Other assets. Our
largest cost method investment relates to our ownership in Primrose Cove Limited
of $56 million, preferred shares of which we received as part of the sale
of Aston Martin Lagonda Group Limited ("Aston Martin"). See
Note 20 for further discussion of the sale of Aston Martin.
NOTE
4. FINANCE RECEIVABLES — FINANCIAL SERVICES SECTOR
Net
finance receivables at December 31 were as follows (in
millions):
|
|
|
|
|
|
|
Retail
(including direct financing leases)
|
|
$ |
67,316 |
|
|
$ |
75,442 |
|
Wholesale
|
|
|
27,483 |
|
|
|
33,457 |
|
Other
finance receivables
|
|
|
4,057 |
|
|
|
4,753 |
|
Total
finance receivables
|
|
|
98,856 |
|
|
|
113,652 |
|
Unearned
interest supplements
|
|
|
(1,343 |
) |
|
|
— |
|
Allowance
for credit losses
|
|
|
(1,417 |
) |
|
|
(948 |
) |
Other
|
|
|
5 |
|
|
|
29 |
|
Net
finance and other receivables
|
|
$ |
96,101 |
|
|
$ |
112,733 |
|
|
|
|
|
|
|
|
|
|
Net
finance receivables subject to fair value*
|
|
$ |
91,584 |
|
|
$ |
107,432 |
|
Fair
Value
|
|
$ |
84,615 |
|
|
$ |
103,954 |
|
__________
*
|
At
December 31, 2008 and 2007, excludes $4.5 billion and $5.3 billion,
respectively, of certain receivables (primarily direct financing leases)
that are not subject to fair value disclosure requirements.
|
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
4. FINANCE RECEIVABLES — FINANCIAL SERVICES SECTOR (Continued)
Finance
receivables that originated outside of the United States were $43.1 billion
and $55.7 billion at December 31, 2008 and 2007,
respectively. Other finance receivables consisted primarily of real
estate, commercial and other collateralized loans, and accrued
interest. At December 31, 2008, finance receivables
included $1.2 billion owed by the three customers with the largest
receivables balances.
Included
in net finance and other receivables at December 31, 2008
and 2007 were $73.7 billion and $67.2 billion, respectively, of
finance receivables that secure certain debt obligations. The cash
flows generated from collection of these receivables can be used only for
payment of the related debt and obligations arising from the transfer; they are
not available to pay our other obligations or the claims of our other creditors
(see Notes 11 and 16).
The fair
value of finance receivables is generally calculated by discounting future cash
flows using an estimated discount rate that reflects the current credit,
interest rate, and prepayment risks associated with similar types of
instruments.
Future
maturities of total finance receivables, including minimum lease rentals, are as
follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
finance receivables, including minimum lease rentals
|
|
$ |
58,725 |
|
|
$ |
20,304 |
|
|
$ |
11,598 |
|
|
$ |
8,229 |
|
|
$ |
98,856 |
|
Experience
indicates that a portion of the portfolio is repaid before the scheduled
maturity dates.
The net
investment in direct financing leases at December 31 was as follows
(in millions):
|
|
|
|
|
|
|
Total
minimum lease rentals to be received
|
|
$ |
2,940 |
|
|
$ |
3,430 |
|
Less:
Unearned income
|
|
|
(541 |
) |
|
|
(512 |
) |
Loan
origination costs
|
|
|
33 |
|
|
|
57 |
|
Estimated
residual values
|
|
|
2,135 |
|
|
|
2,356 |
|
Less:
Allowance for credit losses
|
|
|
(50 |
) |
|
|
(52 |
) |
Net
investment in direct financing leases
|
|
$ |
4,517 |
|
|
$ |
5,279 |
|
The
investment in direct financing leases primarily relates to the leasing of
vehicles. Future maturities of minimum lease rentals, as included
above, are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
rentals on direct financing leases
|
|
$ |
994 |
|
|
$ |
861 |
|
|
$ |
693 |
|
|
$ |
392 |
|
|
$ |
2,940 |
|
NOTE
5. NET INVESTMENT IN OPERATING LEASES
The net
investment in operating leases at December 31 was as follows (in
millions):
|
|
|
|
|
|
|
Automotive
Sector
|
|
|
|
|
|
|
Vehicles,
net of depreciation (a)
|
|
$ |
2,618 |
|
|
$ |
2,946 |
|
Financial
Services Sector
|
|
|
|
|
|
|
|
|
Vehicles
and other equipment, at cost (b)
|
|
|
28,926 |
|
|
|
38,956 |
|
Accumulated
depreciation
|
|
|
(5,542 |
) |
|
|
(8,493 |
) |
Allowance
for credit losses
|
|
|
(264 |
) |
|
|
(154 |
) |
Total
Financial Services sector
|
|
|
23,120 |
|
|
|
30,309 |
|
Total
|
|
$ |
25,738 |
|
|
$ |
33,255 |
|
__________
(a)
|
Included
inAutomotive
other current assets on our sector balance
sheet.
|
(b)
|
Includes
the impairment of operating leases at Ford Credit. See Note 13
for additional details.
|
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
5. NET INVESTMENT IN OPERATING LEASES (Continued)
Automotive
Sector
Included
in Net investment in operating
leases are vehicles sold to daily rental car companies subject to
guaranteed repurchase options. Assets subject to operating leases are
depreciated on the straight-line method over the projected service life of the
lease to reduce the asset to its estimated residual value. Operating
lease depreciation expense (which excludes gains and losses on disposal of
assets) was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
Operating
lease depreciation expense
|
|
$ |
861 |
|
|
$ |
979 |
|
|
$ |
1,384 |
|
Included
in Automotive sales are
rents on operating leases. The amount contractually due for minimum
rentals on operating leases is $113 million for 2009.
Financial
Services Sector
Included
in Net investment in operating
leases at December 31, 2008 and 2007 were interests
of $15.6 billion and $18.9 billion, respectively, that have been
included in securitizations that do not satisfy the requirements for accounting
sale treatment. These net investments in operating leases are
available only for payment of the debt or other obligations issued or arising in
the securitization transactions; they are not available to pay our other
obligations or the claims of our other creditors.
Included
in Financial Services
revenues are rents on operating leases. The amounts
contractually due for minimum rentals on operating leases are as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
rentals on operating leases
|
|
$ |
4,205 |
|
|
$ |
2,920 |
|
|
$ |
1,581 |
|
|
$ |
444 |
|
|
$ |
58 |
|
|
$ |
180 |
|
Assets
subject to operating leases are depreciated on the straight-line method over the
term of the lease to reduce the asset to its estimated residual
value. Estimated residual values are based on assumptions for used
vehicle prices at lease termination and the number of vehicles that are expected
to be returned. Operating lease depreciation expense (which includes
gains and losses on disposal of assets) was as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
Operating
lease depreciation expense
|
|
$ |
9,048 |
|
|
$ |
6,212 |
|
|
$ |
5,214 |
|
NOTE
6. ALLOWANCE FOR CREDIT LOSSES — FINANCIAL SERVICES
SECTOR
Changes
in the allowance for credit losses for finance receivables, investment in direct
financing leases, and investment in operating leases were as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
1,102 |
|
|
$ |
1,121 |
|
|
$ |
1,594 |
|
Provision
for credit losses
|
|
|
1,773 |
|
|
|
592 |
|
|
|
100 |
|
Total
charge-offs and recoveries
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs
|
|
|
(1,552 |
) |
|
|
(1,105 |
) |
|
|
(995 |
) |
Recoveries
|
|
|
414 |
|
|
|
470 |
|
|
|
470 |
|
Net
charge-offs
|
|
|
(1,138 |
) |
|
|
(635 |
) |
|
|
(525 |
) |
Other
changes, principally amounts related to finance receivables sold and
translation adjustments
|
|
|
(56 |
) |
|
|
24 |
|
|
|
(48 |
) |
Ending
balance
|
|
$ |
1,681 |
|
|
$ |
1,102 |
|
|
$ |
1,121 |
|
During
2008, Ford Credit updated their assumptions to reflect higher loss severities
due to lower auction values, which increased their allowance for credit losses
by about $210 million at December 31, 2008. Loss
severity is the expected difference between the amount a customer owes Ford
Credit when they charge off the finance contract and the amount Ford Credit
receives, net of expense, from selling the repossessed vehicle, including any
recoveries from the customer.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
7. SALES OF RECEIVABLES — FINANCIAL SERVICES SECTOR
Servicing
Portfolio
Ford
Credit retains servicing rights for receivables sold in off-balance sheet
securitization and whole-loan sale transactions. The portfolio of
assets being serviced is summarized in the following table for the years ended
December 31 (in millions):
|
|
|
|
Servicing
portfolio at December 31, 2006
|
|
$ |
14,234 |
|
Receivables
sales
|
|
|
815 |
|
Collections
and re-acquired receivables
|
|
|
(8,151 |
) |
Servicing
portfolio at December 31, 2007
|
|
|
6,898 |
|
Receivables
sales
|
|
|
— |
|
Collections
and re-acquired receivables
|
|
|
(6,069 |
) |
Servicing
portfolio at December 31, 2008
|
|
$ |
829 |
|
Outstanding
delinquencies over 30 days related to the off-balance sheet securitized
portfolio were $33 million and $180 million at December 31, 2008
and 2007, respectively. Credit losses, net of recoveries, were
$31 million and $65 million for the years ended December 31, 2008
and 2007, respectively. Expected static pool credit losses related to
outstanding securitized retail receivables were 1.1% at
December 31, 2008. To calculate the static pool credit
losses, actual and projected future credit losses are added together and divided
by the original balance of each pool of assets.
Retained
Interest in Securitized Assets
The
residual interests represent the outstanding balance and rights to future cash
flows arising after all other investors have received their contractual
return. Ford Credit did not enter into any new transactions that met
the criteria for selling financial assets during 2008. In 2007, total
net proceeds from sale transactions were $697 million.
The
outstanding balances of Ford Credit's retained interest in securitized assets
were $92 million and $653 million at December 31, 2008 and 2007,
respectively. Retained interests are recorded at fair
value. Ford Credit estimates the fair value of retained interests
using internal valuation models, market inputs, and their own
assumptions.
There are
three key assumptions used at December 31, 2008 in estimating cash
flows from the sales of retail receivables. The cash flow discount
rate was 16.5%, the estimated net credit loss rate ranged from 0.4% to 2.6%, and
the prepayment speed was 1.3%. The corresponding sensitivity of the
current fair values to 10% and 20% adverse changes ranged from $0 to $2 million.
The effect of a variation in a particular assumption on the fair value of
residual interest in securitization transactions was calculated without changing
any other assumptions and changes in one factor may result in changes in
another.
Investment
and Other Income
The
following table summarizes the activity related to sales of receivables reported
in Financial Services revenues
for the years ended December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
Servicing
fees
|
|
$ |
45 |
|
|
$ |
122 |
|
|
$ |
198 |
|
Interest
income on retained interests
|
|
|
154 |
|
|
|
264 |
|
|
|
382 |
|
Net
gain on sale of receivables
|
|
|
— |
|
|
|
5 |
|
|
|
88 |
|
Investment
and other income related to sales of receivables
|
|
$ |
199 |
|
|
$ |
391 |
|
|
$ |
668 |
|
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
7. SALES OF RECEIVABLES — FINANCIAL SERVICES SECTOR (Continued)
Cash
Flow
The
following table summarizes the cash flow movements between the transferees and
Ford Credit in its off-balance sheet sales of receivables for the years ended
December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
Proceeds
from sales of receivables and retained interests
|
|
|
|
|
|
|
|
|
|
Proceeds
from sales of retail receivables
|
|
$ |
— |
|
|
$ |
697 |
|
|
$ |
4,863 |
|
Proceeds
from interest in sold wholesale receivables
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Proceeds
from revolving-period securitizations
|
|
|
— |
|
|
|
— |
|
|
|
217 |
|
Proceeds
from sale of retained notes – retail
|
|
|
— |
|
|
|
— |
|
|
|
40 |
|
Total
|
|
$ |
— |
|
|
$ |
697 |
|
|
$ |
5,120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows related to net change in retained interest
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
in sold retail receivables
|
|
$ |
281 |
|
|
$ |
401 |
|
|
$ |
672 |
|
Interest
in sold wholesale receivables
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total
|
|
$ |
281 |
|
|
$ |
401 |
|
|
$ |
672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing
fees
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
$ |
45 |
|
|
$ |
122 |
|
|
$ |
198 |
|
Wholesale
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total
|
|
$ |
45 |
|
|
$ |
122 |
|
|
$ |
198 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
cash flows received on retained interests (which are reflected in
securitization income)
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
$ |
168 |
|
|
$ |
147 |
|
|
$ |
115 |
|
Wholesale
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total
|
|
$ |
168 |
|
|
$ |
147 |
|
|
$ |
115 |
|
NOTE
8. INVENTORIES
Inventories
at December 31 were as follows (in millions):
|
|
|
|
|
|
|
Raw
materials, work-in-process and supplies
|
|
$ |
3,016 |
|
|
$ |
4,360 |
|
Finished
products
|
|
|
6,493 |
|
|
|
6,861 |
|
Total
inventories under FIFO
|
|
|
9,509 |
|
|
|
11,221 |
|
Less:
LIFO adjustment
|
|
|
(891 |
) |
|
|
(1,100 |
) |
Total
inventories
|
|
$ |
8,618 |
|
|
$ |
10,121 |
|
At
December 31, 2008, inventory quantities were reduced, resulting in a liquidation
of LIFO inventory quantities carried at lower costs prevailing in prior years as
compared with the cost of 2008 purchases, the effect of which decreased Automotive cost of sales by
about $209 million.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
9. EQUITY IN NET ASSETS OF AFFILIATED COMPANIES
The
following table reflects our ownership percentages at
December 31, 2008, and balances of equity method investments at
December 31, 2008 and 2007 (in millions, except
percentages):
|
|
|
|
|
Investment
Balance
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
Sector
|
|
|
|
|
|
|
|
|
|
AutoAlliance
(Thailand) Co., Ltd ("AAT").
|
|
|
50.0 |
% |
|
$ |
258 |
|
|
$ |
202 |
|
Jiangling
Motors Corporation, Ltd ("JMC")
|
|
|
30.0 |
% |
|
|
191 |
|
|
|
159 |
|
Changan
Ford Mazda Automobile Corporation, Ltd
|
|
|
35.0 |
% |
|
|
189 |
|
|
|
183 |
|
Ford
Motor Company Capital Trust II ("Trust II")
|
|
|
5.0 |
% |
|
|
155 |
|
|
|
155 |
|
Tenedora
Nemak, S.A. de C.V.
|
|
|
6.8 |
% |
|
|
74 |
|
|
|
76 |
|
Blue
Diamond Truck, S. de R.L. de C.V.
|
|
|
49.0 |
% |
|
|
33 |
|
|
|
45 |
|
Getrag
Asia Pacific GmbH & Co. KG
|
|
|
25.0 |
% |
|
|
29 |
|
|
|
25 |
|
S.C.
Automobile Craiova SA. ("ACSA") *
|
|
|
72.4 |
% |
|
|
24 |
|
|
|
— |
|
Getrag
America Holdings GmbH CH
|
|
|
25.0 |
% |
|
|
19 |
|
|
|
3 |
|
NuCellsys
Holding GmbH
|
|
|
50.0 |
% |
|
|
18 |
|
|
|
14 |
|
Changan
Ford Mazda Engine Company, Ltd.
|
|
|
25.0 |
% |
|
|
15 |
|
|
|
15 |
|
Blue
Diamond Parts, LLC
|
|
|
51.0 |
% |
|
|
10 |
|
|
|
5 |
|
Ford
Performance Vehicles Pty Ltd.
|
|
|
49.0 |
% |
|
|
8 |
|
|
|
7 |
|
OEConnection
LLC
|
|
|
25.0 |
% |
|
|
7 |
|
|
|
5 |
|
Percepta,
LLC
|
|
|
45.0 |
% |
|
|
7 |
|
|
|
5 |
|
Automotive
Fuel Cell Cooperation Corporation ("AFCC")….
|
|
|
30.0 |
% |
|
|
4 |
|
|
|
— |
|
Mazda
Motor Corporation ("Mazda")
|
|
|
— |
|
|
|
— |
|
|
|
1,322 |
|
Ballard
Power Systems, Inc. ("Ballard")
|
|
|
— |
|
|
|
— |
|
|
|
22 |
|
Lindsay
Cars Limited ("Lindsay")
|
|
|
— |
|
|
|
— |
|
|
|
7 |
|
Other
|
|
Various
|
|
|
|
28 |
|
|
|
33 |
|
Total
Automotive sector
|
|
|
|
|
|
|
1,069 |
|
|
|
2,283 |
|
Financial
Services Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
DFO
Partnership
|
|
|
50.0 |
% |
|
|
357 |
|
|
|
468 |
|
Saracen
HoldCo AB *
|
|
|
50.0 |
% |
|
|
66 |
|
|
|
— |
|
AB
Volvofinans ("Volvofinans")
|
|
|
10.0 |
% |
|
|
44 |
|
|
|
38 |
|
FFS
Finance South Africa (Pty) Limited
|
|
|
50.0 |
% |
|
|
34 |
|
|
|
42 |
|
RouteOne
LLC
|
|
|
30.0 |
% |
|
|
18 |
|
|
|
19 |
|
Other
|
|
Various
|
|
|
|
4 |
|
|
|
3 |
|
Total
Financial Services sector
|
|
|
|
|
|
|
523 |
|
|
|
570 |
|
Total
Company
|
|
|
|
|
|
$ |
1,592 |
|
|
$ |
2,853 |
|
__________
*
|
See
Note 20 for discussion of these
entities.
|
We
received $224 million, $216 million, and $166 million of dividends
from these affiliated companies for the years ended
December 31, 2008, 2007, and 2006,
respectively.
Automotive
Sector
Mazda. In November
2008, we sold 278 million shares of Mazda for net proceeds of
$532 million. As a result of the transaction, we recorded a
pre-tax loss on the sale of $121 million, net of transaction costs and
recognition of foreign currency translation adjustments, in Automotive interest income and other
non-operating income/(expense), net. We continue to own
195.5 million shares of Mazda, representing a 13.78% ownership
interest. We no longer have certain management rights we previously
held and, as a result, we have deemed that we no longer hold significant
influence over Mazda's operating and financial
policies. Consequently, we will account for its remaining investment
of $322 million in Mazda as a marketable security.
Ballard. In the first quarter
of 2008, we reached an agreement with Ballard to exchange our entire ownership
interest of 12.9 million shares of Ballard stock for a 30% equity interest in
AFCC along with $22 million in cash. AFCC is a joint venture between Ford
(30%), Daimler AG (50.1%) and Ballard (19.9%). It was created for the
development of automotive fuel cells. We also have agreed to purchase from
Ballard its 19.9% equity interest for $65 million plus interest within five
years. As a result of the exchange, we recognized in Automotive cost of sales a
pre-tax loss of $70 million. Our investment in AFCC is reported in Automotive equity in net assets of affiliated
companies.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
9. EQUITY IN NET ASSETS OF AFFILIATED COMPANIES (Continued)
Lindsay. In the
second quarter of 2008, we acquired additional ownership interest in Lindsay,
bringing our total ownership interest to 100%. As a result of this
transaction we began consolidating the subsidiary's financial
results.
Financial
Services Sector
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, Ford Credit received $157 million as proceeds from the sale and
recognized a pre-tax gain of $51 million, including $40 million of
foreign currency translation adjustments, reported in Financial Services revenues.
Ford Credit reports its remaining ownership interest in Other assets as an equity
method investment.
NOTE
10. SIGNIFICANT UNCONSOLIDATED AFFILIATES
Presented
below is summarized financial information for Mazda. Mazda was
considered to be a significant unconsolidated affiliate in 2007.
Mazda. Included in
our Automotive equity in net assets of affiliated
companies at December 31, 2008 and 2007 was $0 and
$1.3 billion, respectively, associated with our investment in
Mazda. Our investment in Mazda included $0 and $207 million of
goodwill included in Automotive equity in net assets of
affiliated companies at December 31, 2008 and 2007,
respectively. Dividends received from Mazda were $27 million,
$36 million, and $20 million for the years ended
December 31, 2008, 2007, and 2006,
respectively.
Summarized
income statement information from Mazda's published financial statements,
prepared in accordance with Japanese GAAP, for the twelve months ended
September 30, 2008, 2007, and 2006, and summarized balance sheet
information from Mazda's published financial statements at September 30, 2008,
2007, and 2006 is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
31,422 |
|
|
$ |
28,108 |
|
|
$ |
26,640 |
|
Cost
and expenses
|
|
|
30,036 |
|
|
|
26,763 |
|
|
|
25,395 |
|
Income
from continuing operations
|
|
|
889 |
|
|
|
698 |
|
|
|
611 |
|
Net
income/(loss)
|
|
|
854 |
|
|
|
628 |
|
|
|
542 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
19,548 |
|
|
$ |
16,776 |
|
|
$ |
15,008 |
|
Total
liabilities
|
|
|
14,067 |
|
|
|
12,430 |
|
|
|
11,408 |
|
Included
in our Automotive equity in
net income/(loss) of affiliated companies was the following income for
the years ended December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
Ford's
share of Mazda's net income/(loss)
|
|
$ |
25 |
|
|
$ |
189 |
|
|
$ |
256 |
|
Ford's
share of Mazda's net income/(loss) in the table above represents our share of
Mazda's results on a U.S. GAAP basis. For 2008, our share includes a
charge as determined under U.S. GAAP representing the impact on us of a goodwill
impairment related to Mazda-owned dealerships in Japan.
NOTE
11. VARIABLE INTEREST ENTITIES
We
consolidate VIEs of which we are the primary beneficiary. The
liabilities recognized as a result of consolidating these VIEs do not
necessarily represent additional claims on our general assets; rather, they
represent claims against the specific assets of the consolidated
VIEs. Conversely, assets recognized as a result of consolidating
these VIEs do not represent additional assets that could be used to satisfy
claims against our general assets.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
11. VARIABLE INTEREST ENTITIES (Continued)
Automotive
Sector
VIEs
of which we are the primary beneficiary:
Activities
with the joint ventures described below include purchasing substantially all of
the joint ventures' output under a cost-plus-margin arrangement and/or volume
dependent pricing. These contractual arrangements may require us to absorb joint
venture losses when production volume targets are not met or allow us, in some
cases, to receive bonuses when production volume targets are exceeded. Described
below are the significant VIEs that were consolidated.
AutoAlliance
International, Inc. ("AAI") is a 50/50 joint venture with Mazda in North
America. AAI is engaged in the manufacture of automobiles on behalf
of Ford and Mazda, primarily for sale in North America.
Ford
Otomotiv Sanayi Anonim Sirketi ("Ford Otosan") is a 41/41/18 joint venture in
Turkey with the Koc Group of Turkey and public investors. Ford Otosan
is the single-source supplier of the Ford Transit Connect model, and an assembly
supplier of the Ford Transit van model, both of which we sell primarily in
Europe.
Getrag
Ford Transmissions GmbH ("GFT") is a 50/50 joint venture with Getrag Deutsche
Venture GmbH and Co. KG. GFT is the primary supplier of manual
transmissions for use in our European vehicles.
Getrag
All Wheel Drive AB is a 40/60 joint venture between Volvo Cars and Getrag Dana
Holding GmbH. The joint venture produces all-wheel-drive
components.
Tekfor
Cologne GmbH ("Tekfor") is a 50/50 joint venture with Neumayer Tekfor
GmbH. Tekfor produces transmission and chassis components for use in
our vehicles.
Pininfarina
Sverige, AB is a 40/60 joint venture between Volvo Cars and Pininfarina,
S.p.A. The joint venture was established to engineer and manufacture
niche vehicles.
We also
hold interests in certain Ford and/or Lincoln Mercury dealerships. At
December 31, 2008, we consolidated a portfolio of approximately
67 dealerships that are part of our Dealer Development
program. We supply and finance the majority of vehicles and parts to
these dealerships, and the operators have a contract to buy our equity interest
over a period of time.
The total
consolidated VIE assets and liabilities reflected on our
December 31, 2008 and 2007 balance sheets are as follows (in
millions):
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
665 |
|
|
$ |
742 |
|
Receivables
|
|
|
548 |
|
|
|
937 |
|
Inventories
|
|
|
1,162 |
|
|
|
1,187 |
|
Net
property
|
|
|
2,379 |
|
|
|
2,969 |
|
Other
assets
|
|
|
297 |
|
|
|
506 |
|
Total
assets
|
|
$ |
5,051 |
|
|
$ |
6,341 |
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Trade
payables
|
|
$ |
573 |
|
|
$ |
1,014 |
|
Accrued
liabilities
|
|
|
289 |
|
|
|
839 |
|
Income
taxes payable
|
|
|
73 |
|
|
|
206 |
|
Debt
|
|
|
972 |
|
|
|
1,085 |
|
Other
liabilities
|
|
|
169 |
|
|
|
229 |
|
Total
liabilities
|
|
$ |
2,076 |
|
|
$ |
3,373 |
|
|
|
|
|
|
|
|
|
|
Minority
interest
|
|
$ |
1,168 |
|
|
$ |
1,394 |
|
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
11. VARIABLE INTEREST ENTITIES (Continued)
The
financial performance of the consolidated VIEs reflected on our income
statements for the years ended December 31, 2008 and 2007 are as
follows (in millions):
|
|
|
|
|
|
|
Sales
|
|
$ |
7,191 |
|
|
$ |
7,753 |
|
Costs
and expenses
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
6,154 |
|
|
|
6,166 |
|
Selling,
administrative and other expenses
|
|
|
749 |
|
|
|
814 |
|
Total
costs and expenses
|
|
|
6,903 |
|
|
|
6,980 |
|
Operating
income/(loss)
|
|
|
288 |
|
|
|
773 |
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
82 |
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
Interest
income and other non-operating income/(expense), net
|
|
|
55 |
|
|
|
40 |
|
Equity
in net income/(loss) of affiliated companies
|
|
|
(3 |
) |
|
|
(1 |
) |
Income/(Loss)
before income taxes - Automotive
|
|
|
258 |
|
|
|
757 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for/(Benefit from) income taxes
|
|
|
46 |
|
|
|
172 |
|
Minority
interest in net income/(loss) of subsidiaries
|
|
|
202 |
|
|
|
322 |
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
from continuing operations
|
|
$ |
10 |
|
|
$ |
263 |
|
VIEs
of which we are not the primary beneficiary:
In 2005,
as part of the transaction to sell our interest in The Hertz Corporation
("Hertz"), we provided cash-collateralized letters of credit to support the
payment obligations of Hertz Vehicle Financing LLC, a VIE which is wholly owned
by Hertz and of which we are not the primary beneficiary. The fair
value of our obligation related to these letters of credit, which will expire no
later than December 21, 2011, was approximately $14 million at
December 31, 2008. For additional discussion of these
letters of credit, see Note 29.
We also
have investments in unconsolidated subsidiaries determined to be VIEs of which
we are not the primary beneficiary. These investments are accounted
for as equity-method investments and included in Equity in net assets of affiliated
companies.
Formed in
1995, AAT is a 50/50 joint venture with Mazda in Thailand. AAT is
engaged in the manufacturing of automobiles on behalf of Mazda and Ford for both
the Thai domestic market and for export markets through Ford and Mazda. Ford and
Mazda share equally the risks and rewards of the joint venture.
In 2002,
we established the Trust II. We own 100% of Trust II's Common Stock
which is equal to 5% of Trust II's total equity. The risks and
rewards associated with our interests in this entity are based primarily on
ownership percentage.
Our
maximum exposure at December 31 is detailed as follows (in
millions):
|
|
|
|
|
|
|
|
Change
in
|
|
|
|
|
|
|
|
|
|
Maximum
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
$ |
413 |
|
|
$ |
357 |
|
|
$ |
56 |
|
Liabilities
|
|
|
(38 |
) |
|
|
(18 |
) |
|
|
(20 |
) |
Guarantees
(off-balance sheet)
|
|
|
362 |
|
|
|
182 |
|
|
|
180 |
|
Total
maximum exposure
|
|
$ |
737 |
|
|
$ |
521 |
|
|
$ |
216 |
|
This
includes a guarantee of a line of credit on behalf of AAT for plant
expansion.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
11. VARIABLE INTEREST ENTITIES (Continued)
Financial
Services Sector
VIEs
of which we are the primary beneficiary:
Ford
Credit uses special purpose entities to issue debt to public and private
investors, bank conduits and government programs including the U.S. Federal
Reserve's Commercial Paper Funding Facility ("CPFF") and the open market
operations program of the European Central Bank ("ECB"). The debt is
secured by the expected cash flows from finance receivables and net investments
in operating leases that have been legally sold but continue to be recognized by
us.
The VIE
transactions create and pass along risks to the variable interest holders,
depending on the assets securing the debt and the specific terms of the
transactions. In certain transactions in which the VIE issues
floating rate debt, the funding costs of the counterparty are passed through to
the VIE. The variability inherent in these funding costs exclude the
interest rate risk that is mitigated by the VIE's derivatives and may reduce
Ford Credit's residual interests.
We
aggregate and analyze our transactions based on the risk profile of the product
and the type of funding structure, including:
|
·
|
Retail
transactions – consumer credit risk and prepayment
risk.
|
|
·
|
Wholesale
transactions – dealer credit risk.
|
|
·
|
Net
investments in operating lease transactions – vehicle residual value risk,
consumer credit risk, and prepayment
risk.
|
Ford
Credit provides various forms of credit enhancements to reduce the risk of loss
for securitization investors. Credit enhancements include
over-collaterization (when the principal amount of the securitized assets
exceeds the principal amount of related asset-backed securities), segregated
cash reserve funds, subordinated securities, and excess spread (when interest
collections on the securitized assets exceed the related fees and expenses,
including interest payments on the related asset-backed
securities). Ford Credit may also provide payment enhancements that
increase the likelihood of the timely payment of interest and the payment of
principal at maturity. Payment enhancements include yield supplement
arrangements, interest rate swaps, liquidity facilities, and certain cash
deposits.
Ford
Credit retains interests in its securitization transactions, including senior
and subordinated securities issued by the VIE, rights to cash held for the
benefit of the securitization investors (for example, a reserve fund) and
residual interests. Residual interests represent the right to receive
collections on the securitized assets in excess of amounts needed to pay
securitization investors and pay other transaction participants and
expenses. Ford Credit retains credit risk in securitizations because
its retained interests include the most subordinated interests in the
securitized assets, which are the first to absorb credit losses on the
securitized assets. Based on past experience, Ford Credit expects
that any credit losses in the pool of securitized assets would likely be limited
to its retained interests.
Ford
Credit is engaged as servicer to collect and service the securitized
assets. Its servicing duties include collecting payments on the
securitized assets and preparing monthly investor reports on the performance of
the securitized assets and on amounts of interest and/or principal payments to
be made to investors. While servicing securitized assets, Ford Credit
applies the same servicing policies and procedures that Ford Credit applies to
its owned assets and maintains its normal relationship with its financing
customers.
As
residual interest holder, Ford Credit is exposed to underlying credit risk of
the collateral, and may be exposed to interest rate risk. Ford
Credit's exposure does not represent incremental risk to Ford Credit and was
$18.2 billion and $16.3 billion at December 31, 2008 and 2007,
respectively. The amount of risk absorbed by Ford Credit's residual
interests is generally represented by and limited to the amount of
overcollaterization of its assets securing the debt and any cash reserves
funded. For Ford Credit's wholesale transactions, it also includes
cash it has contributed to excess funding accounts and its participation
interests in the VIE.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
11. VARIABLE INTEREST ENTITIES (Continued)
Ford
Credit generally has no obligation to repurchase or replace any securitized
asset that subsequently becomes delinquent in payment or otherwise is in
default. Securitization investors have no recourse to Ford Credit or
its other assets for credit losses on the securitized assets and have no right
to require Ford Credit to repurchase their investments. Ford Credit does not
guarantee any asset-backed securities and has no obligation to provide liquidity
or contribute cash or additional assets to its VIEs.
A number
of Ford Credit's VIEs participate in its committed liquidity
programs. From time to time, Ford Credit has elected to renegotiate
terms of its commitments, reallocate its commitments globally, or repurchase and
extinguish its obligations in order to address challenging market conditions and
the organizational restructuring of some of its counterparties. Refer
to Note 16 for additional information on Ford Credit's committed
programs.
In
certain transactions Ford Credit has dynamic enhancements, where it may elect to
support the performance and/or product mix of the transactions by purchasing
additional subordinated notes or increasing cash reserves. Ford
Credit's maximum contribution was $487 million in 2008.
Although
not contractually required, Ford Credit regularly supports its wholesale
securitization programs by repurchasing receivables of dealers from the VIEs
when a dealers' performance is at risk, which transfers the corresponding risk
of loss from the VIE to Ford Credit. Ford Credit repurchased $395
million and $787 million of receivables in 2008 and 2007,
respectively. In addition, from time to time, Ford Credit supports
its revolving wholesale transactions by contributing cash to an excess funding
account when receivable levels fall below required levels. Ford
Credit's cash enhancements ranged from zero to $2.2 billion and zero to $1.6
billion in 2008 and 2007, respectively.
Ford
Credit's FCAR Owner Trust retail securitization program (“FCAR”) is a VIE that
issues commercial paper and Ford Credit may, on occasion, purchase the debt
issued by FCAR. In October 2008, Ford Credit registered to sell up to
$16 billion of FCAR asset-backed commercial paper to 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 through October 30, 2009. Through
December 31, 2008, Ford Credit sold to the CPFF about $7 billion of FCAR
asset-backed commercial paper. At December 31, 2008, the
finance receivables of FCAR supported $11.5 billion of FCAR's asset-backed
commercial paper held by external investors and $71 million was held by
Ford Credit. In the third quarter of 2008, Ford Credit repurchased
$2.5 billion of asset-backed securities from FCAR and used the proceeds to
pay off maturing FCAR commercial paper.
The
assets securing the debt of the VIEs remain on Ford Credit's balance sheet as
Finance receivables,
net or Net investment
in operating leases and therefore are not included in the VIE assets
shown in the following table. As of December 31, 2008, the carrying
values of the assets were $41.9 billion of retail receivables, $19.6 billion of
wholesale receivables, and $15.6 billion of net investment in operating
leases. As of December 31, 2007, the carrying values of the assets
were $40.7 billion of retail receivables, $22.8 billion of wholesale
receivables, and $18.9 billion of net investment in operating
leases. The liabilities recognized as a result of consolidating these
VIEs do not represent additional claims on Ford Credit's general assets; rather,
they represent claims against only the specific securitized
assets. Conversely, these specific securitized assets do not
represent additional assets that could be used to satisfy claims against Ford
Credit's general assets.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
11. VARIABLE INTEREST ENTITIES (Continued)
The total
consolidated VIE assets and liabilities reflected on our December 31 balance
sheets are as follows (in millions):
|
|
|
|
|
|
|
|
|
Cash
& Cash Equivalents (a)
|
|
|
|
|
|
Cash
& Cash Equivalents (a)
|
|
|
|
|
VIEs
supporting transactions by asset-class (b)
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
$ |
2,673 |
|
|
$ |
34,507 |
|
|
$ |
2,621 |
|
|
$ |
36,000 |
|
Wholesale
|
|
|
1,029 |
|
|
|
15,537 |
|
|
|
793 |
|
|
|
16,063 |
|
Net
investment in operating leases
|
|
|
206 |
|
|
|
12,005 |
|
|
|
469 |
|
|
|
14,310 |
|
Total
|
|
$ |
3,908 |
|
|
$ |
62,049 |
|
|
$ |
3,883 |
|
|
$ |
66,373 |
|
__________
(a)
|
Additional
cash and cash equivalents available to support the obligations of the VIEs
that are not assets of the VIEs were $949 million and
$753 million as of December 31, 2008 and 2007,
respectively.
|
(b)
|
In 2008, certain
notes issued by the VIEs to affiliated companies served as
collateral for accessing the ECB facility. This external
funding of $308 million at December 31, 2008 was not
reflected as a liability of the VIEs, but was included in our consolidated
liabilities.
|
(c)
|
The
derivative assets of our consolidated VIEs were $46 million and $24
million at December 31, 2008 and 2007, respectively, and the derivative
liabilities were $808 million and $271 million at December 31, 2008 and
2007, respectively.
|
The
financial performance of the consolidated VIEs reflected in our December 31
income statements are as follows (in millions):
|
|
|
|
|
|
|
|
|
Derivative
(Income)/
Expense
|
|
|
|
|
|
Derivative
(Income)/
Expense
|
|
|
|
|
VIEs
supporting transactions by asset-class
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
$ |
684 |
|
|
$ |
1,725 |
|
|
$ |
150 |
|
|
$ |
1,740 |
|
Wholesale
|
|
|
(47 |
) |
|
|
706 |
|
|
|
8 |
|
|
|
904 |
|
Net
investment in operating leases
|
|
|
178 |
|
|
|
622 |
|
|
|
17 |
|
|
|
662 |
|
Our
financial performance related to VIEs
|
|
$ |
815 |
|
|
$ |
3,053 |
|
|
$ |
175 |
|
|
$ |
3,306 |
|
VIEs
of which we are not the primary beneficiary:
Ford
Credit has investments in certain joint ventures determined to be VIEs of which
it is not the primary beneficiary. These joint ventures provide
consumer and dealer financing in their respective markets. The joint ventures
are financed by external debt as well as subordinated financial support provided
by our joint venture partner. The risks and rewards associated with Ford
Credit's interests in these joint ventures are based primarily on ownership
percentages. Ford Credit's investments in these joint ventures are accounted for
as equity method investments and are included in Other assets. Ford
Credit's maximum exposure to any potential losses associated with these VIEs is
limited to its equity investments, and amounted to $140 million and $76 million
at December 31, 2008 and 2007, respectively.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
12. NET PROPERTY AND RELATED EXPENSES
Net
property at December 31 was as follows (in millions):
|
|
|
|
|
|
|
Land
|
|
$ |
579 |
|
|
$ |
764 |
|
Buildings
and land improvements
|
|
|
12,560 |
|
|
|
14,402 |
|
Machinery,
equipment and other
|
|
|
43,633 |
|
|
|
45,303 |
|
Construction
in progress
|
|
|
1,355 |
|
|
|
2,031 |
|
Total
land, plant and equipment
|
|
|
58,127 |
|
|
|
62,500 |
|
Accumulated
depreciation
|
|
|
(38,237 |
) |
|
|
(36,561 |
) |
Net
land, plant and equipment
|
|
|
19,890 |
|
|
|
25,939 |
|
Special
tools, net of amortization
|
|
|
8,462 |
|
|
|
10,040 |
|
Net
Automotive sector property
|
|
|
28,352 |
|
|
|
35,979 |
|
Net
Financial Services sector property*
|
|
|
213 |
|
|
|
260 |
|
Total
|
|
$ |
28,565 |
|
|
$ |
36,239 |
|
__________
*
|
Included
in Financial Services
other assets on our sector balance
sheet.
|
Automotive
sector property-related expenses for the years ended December 31 were as follows
(in millions):
|
|
|
|
|
|
|
|
|
|
Depreciation
and other amortization
|
|
$ |
6,584 |
|
|
$ |
3,474 |
|
|
$ |
6,487 |
|
Amortization
of special tools
|
|
|
4,537 |
|
|
|
3,289 |
|
|
|
4,671 |
|
Total
*
|
|
$ |
11,121 |
|
|
$ |
6,763 |
|
|
$ |
11,158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maintenance
and rearrangement
|
|
$ |
1,839 |
|
|
$ |
2,014 |
|
|
$ |
2,081 |
|
__________
*
|
Includes
impairments of long-lived assets for 2008 and 2006. See Note 13
for additional information.
|
NOTE
13. 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 impairment and recorded in Automotive cost of sales a
pre-tax 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 |
|
During
2006, we projected a decline in net cash flows for the Ford North America
segment, primarily reflecting lower market share assumptions and capacity
reductions. As a result, in the third quarter of 2006, we tested the
long-lived assets of this segment for recoverability and recorded a pre-tax
impairment charge of $2.2 billion in Automotive cost of sales,
representing the amount by which the carrying value of these assets exceeded the
fair value.
During
the third quarter of 2006, we also reviewed our business plan for the Jaguar
Land Rover operating unit and, consistent with 2006 operating results, projected
lower sales, a decline in net cash flows for this operating unit based on cost
performance shortfalls and currency exchange deterioration. As a
result, we tested the long-lived assets of this operating unit for
recoverability and recorded a pre-tax impairment charge of $1.6 billion in
Automotive cost of
sales, representing the amount by which the carrying value of these
assets exceeded the fair value.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
13. IMPAIRMENT OF LONG-LIVED ASSETS (Continued)
The table
below describes the significant components of the 2006 long-lived asset
impairments of the Ford North America segment and the Jaguar Land Rover
operating unit (in millions):
|
|
|
|
|
|
|
Land
|
|
$ |
— |
|
|
$ |
— |
|
Buildings
and land improvements
|
|
|
324 |
|
|
|
176 |
|
Machinery,
equipment and other
|
|
|
1,360 |
|
|
|
635 |
|
Special
tools
|
|
|
516 |
|
|
|
750 |
|
Intangible
assets
|
|
|
— |
|
|
|
39 |
|
Total
|
|
$ |
2,200 |
|
|
$ |
1,600 |
|
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, in particular 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
14. GOODWILL AND OTHER NET INTANGIBLES
Goodwill
Changes
in the carrying amount of goodwill are as follows (in millions):
|
|
|
|
|
Financial
Services Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at December 31, 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
|
|
|
— |
|
|
|
(6 |
) |
|
|
(210 |
) |
|
|
(216 |
) |
|
|
— |
|
|
|
(216 |
) |
Balances
at December 31, 2008
|
|
$ |
— |
|
|
$ |
31 |
|
|
$ |
1,150 |
|
|
$ |
1,181 |
|
|
$ |
9 |
|
|
$ |
1,190 |
|
__________
*
|
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.
|
Excluded
from the table above is goodwill within Equity in net assets of affiliated
companies of $34 million and $247 million at December 31, 2008 and
2007, respectively.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
14. 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
|
|
$ |
295 |
|
|
$ |
(96 |
) |
|
$ |
199 |
|
|
$ |
335 |
|
|
$ |
(103 |
) |
|
$ |
232 |
|
Manufacturing
and production incentive rights
|
|
|
227 |
|
|
|
(113 |
) |
|
|
114 |
|
|
|
297 |
|
|
|
(74 |
) |
|
|
223 |
|
Other
|
|
|
148 |
|
|
|
(58 |
) |
|
|
90 |
|
|
|
199 |
|
|
|
(89 |
) |
|
|
110 |
|
Total
Automotive sector
|
|
|
670 |
|
|
|
(267 |
) |
|
|
403 |
|
|
|
831 |
|
|
|
(266 |
) |
|
|
565 |
|
Total
Financial Services Sector
|
|
|
4 |
|
|
|
(4 |
) |
|
|
— |
|
|
|
4 |
|
|
|
(4 |
) |
|
|
— |
|
Total
|
|
$ |
674 |
|
|
$ |
(271 |
) |
|
$ |
403 |
|
|
$ |
835 |
|
|
$ |
(270 |
) |
|
$ |
565 |
|
Our
identifiable net 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, was as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
Pre-tax
amortization expense
|
|
$ |
99 |
|
|
$ |
106 |
|
|
$ |
66 |
|
Intangible
asset amortization is forecasted to be approximately $100 million per year
for the next two years, and $20 million to $30 million
thereafter.
NOTE
15. ACCRUED LIABILITIES AND DEFERRED REVENUE
Accrued
liabilities and deferred revenue at December 31 was as follows (in
millions):
|
|
|
|
|
|
|
Automotive
Sector
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Other
postretirement employee benefits ("OPEB")
|
|
$ |
10,917 |
|
|
$ |
457 |
|
Dealer
and customer allowances and claims
|
|
|
10,691 |
|
|
|
13,604 |
|
Deferred
revenue
|
|
|
3,667 |
|
|
|
4,093 |
|
Employee
benefit plans
|
|
|
1,987 |
|
|
|
2,892 |
|
Accrued
interest
|
|
|
419 |
|
|
|
514 |
|
Pension
|
|
|
478 |
|
|
|
439 |
|
Other
|
|
|
4,236 |
|
|
|
5,673 |
|
Total
Automotive current
|
|
|
32,395 |
|
|
|
27,672 |
|
Non-current
|
|
|
|
|
|
|
|
|
Pension
|
|
|
11,435 |
|
|
|
6,678 |
|
OPEB
|
|
|
5,358 |
|
|
|
23,760 |
|
Dealer
and customer allowances and claims
|
|
|
4,757 |
|
|
|
7,149 |
|
Deferred
revenue
|
|
|
1,767 |
|
|
|
1,989 |
|
Employee
benefit plans
|
|
|
525 |
|
|
|
934 |
|
Other
|
|
|
973 |
|
|
|
1,166 |
|
Total
Automotive non-current
|
|
|
24,815 |
|
|
|
41,676 |
|
Total
Automotive sector
|
|
|
57,210 |
|
|
|
69,348 |
|
Financial
Services Sector
|
|
|
6,184 |
|
|
|
5,390 |
|
Total
Sectors
|
|
|
63,394 |
|
|
|
74,738 |
|
Intersector
elimination*
|
|
|
(8 |
) |
|
|
— |
|
Total
Company
|
|
$ |
63,386 |
|
|
$ |
74,738 |
|
__________
*
|
Accrued
interest related to Ford's acquisition of Ford Credit debt
securities. See Note 1 for additional
detail.
|
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
16. DEBT AND COMMITMENTS
Debt at
December 31 was as follows (in millions, except percentages):
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
payable within one year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
|
|
|
4.5 |
% |
|
|
5.6 |
% |
|
|
4.5 |
% |
|
|
5.6 |
% |
|
$ |
543 |
|
|
$ |
653 |
|
Long-term
payable within one year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior
indebtedness (c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
648 |
|
|
|
522 |
|
Total
debt payable within one year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,191 |
|
|
|
1,175 |
|
Long-term
debt payable after one year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior
indebtedness
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
and bank debt (c) (d)
|
|
|
6.3 |
% |
|
|
7.2 |
% |
|
|
6.6 |
% |
|
|
7.4 |
% |
|
|
21,772 |
|
|
|
22,905 |
|
Unamortized
discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(144 |
) |
|
|
(153 |
) |
Total
senior indebtedness
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,628 |
|
|
|
22,752 |
|
Subordinated
indebtedness
|
|
|
6.5 |
% |
|
|
6.5 |
% |
|
|
6.5 |
% |
|
|
6.5 |
% |
|
|
3,027 |
|
|
|
3,027 |
|
Total
long-term debt payable after one year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,655 |
|
|
|
25,779 |
|
Total
Automotive debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
25,846 |
|
|
$ |
26,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
9,135 |
|
|
$ |
22,986 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Services Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed
commercial paper
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
11,503 |
|
|
$ |
13,518 |
|
Other
asset-backed short-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,569 |
|
|
|
5,209 |
|
Ford
Interest Advantage (e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,958 |
|
|
|
5,408 |
|
Unsecured
commercial paper
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
|
526 |
|
Other
short-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,526 |
|
|
|
1,707 |
|
Total
short-term debt
|
|
|
4.5 |
% |
|
|
5.5 |
% |
|
|
5.2 |
% |
|
|
5.7 |
% |
|
|
20,568 |
|
|
|
26,368 |
|
Long-term
debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior
indebtedness
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable within one year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,712 |
|
|
|
12,656 |
|
Notes
payable after one year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,583 |
|
|
|
52,301 |
|
Unamortized
discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(256 |
) |
|
|
(91 |
) |
Asset-backed
debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable within one year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,501 |
|
|
|
21,108 |
|
Notes
payable after one year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,734 |
|
|
|
29,491 |
|
Total
long-term debt
|
|
|
6.1 |
% |
|
|
6.5 |
% |
|
|
6.0 |
% |
|
|
6.3 |
% |
|
|
108,274 |
|
|
|
115,465 |
|
Total
Financial Services debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
128,842 |
|
|
$ |
141,833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
112,389 |
|
|
$ |
138,434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Automotive and Financial Services debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
154,688 |
|
|
$ |
168,787 |
|
Intersector
elimination (f)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(492 |
) |
|
|
— |
|
Total
Company debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
154,196 |
|
|
$ |
168,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Excludes
the effect of interest rate swap agreements and facility
fees.
|
(b)
|
Includes
the effect of interest rate swap agreements and facility
fees.
|
(c)
|
Includes
$6.9 billion in secured debt at December 31, 2008 and
2007.
|
(d)
|
Includes
$11 million in debt to mature in 2032 with put options exercisable
monthly since February 15, 1995.
|
(e)
|
The
Ford Interest Advantage program consists of our floating rate demand
notes.
|
(f)
|
Debt
related to Ford's acquisition of Ford Credit debt
securities. See Note 1 for additional
detail.
|
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
16. DEBT AND COMMITMENTS (Continued)
Debt
maturities at December 31, 2008 were as follows (in
millions):
Total
debt maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
sector
|
|
$ |
1,191 |
|
|
$ |
872 |
|
|
$ |
263 |
|
|
$ |
175 |
|
|
$ |
6,626 |
|
|
$ |
16,863 |
|
|
$ |
(144 |
) |
|
$ |
25,846 |
|
Financial
Services sector
|
|
|
62,781 |
|
|
|
22,455 |
|
|
|
24,225 |
|
|
|
7,595 |
|
|
|
5,340 |
|
|
|
6,368 |
|
|
|
78 |
|
|
|
128,842 |
|
Intersector
elimination (b)
|
|
|
(310 |
) |
|
|
(182 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(492 |
) |
Total
Company
|
|
$ |
63,662 |
|
|
$ |
23,145 |
|
|
$ |
24,488 |
|
|
$ |
7,770 |
|
|
$ |
11,966 |
|
|
$ |
23,231 |
|
|
$ |
(66 |
) |
|
$ |
154,196 |
|
(a)
|
Automotive
sector excludes unamortized debt discounts of
$(144) million. Financial Services sector excludes
unamortized debt discounts of $(256) million and adjustments of
$334 million related to designated fair value hedges of the
debt. See Note 2 for detail on hedge accounting
policies.
|
(b)
|
Debt
related to Ford's acquisition of Ford Credit debt
securities. See Note 1 for additional
detail.
|
The fair
value of debt is estimated based upon quoted market prices, current market rates
for similar debt within approximately the same remaining maturities, or
discounted cash flow models utilizing current market rates. The
change in the fair value of our debt in 2008 was primarily driven by a
deterioration in credit markets generally, as indicated by widening of credit
default swap ("CDS") spreads, and the negative outlook for the automotive sector
specifically.
Automotive
Sector
We issued
an aggregate of 46,437,906 and 62,000,761 shares of Ford Common Stock, par
value $0.01 per share, in exchange for $431 million and
$567 million principal amount of our outstanding publicly-issued debt
securities in 2008 and 2007, respectively. We did not receive cash
proceeds as a result of the exchange of Ford Common Stock for the debt
securities, which have been retired and cancelled. We completed these
transactions to reduce debt and interest costs, increase equity, and, thereby,
improve the balance sheet. As a result of the exchange, we recorded a
pre-tax gain of $73 million and $120 million in Automotive interest income and other
non-operating income/(expense), net in 2008 and 2007,
respectively.
Senior
Convertible Indebtedness
At
December 31, 2008, we have outstanding $4.88 billion in principal
amount of unsecured Senior Convertible Notes (the "Convertible Notes") that
mature in 2036. The Convertible Notes pay interest semiannually at a
rate of 4.25% per annum. The Convertible Notes are convertible
into shares of Ford Common Stock, based on a conversion rate (subject to
adjustment) of 108.6957 shares per $1,000 principal amount of Convertible
Notes (which is equal to a conversion price of $9.20 per share,
representing a 25% conversion premium based on the closing price of
$7.36 per share on December 6, 2006). Holders may
require us to purchase all or a portion of the Convertible Notes for cash on
December 20, 2016 and December 15, 2026 or upon a change in
control of the Company or for shares of Ford Common Stock upon a designated
event, in each case for a price equal to 100% of the principal amount of the
Convertible Notes being repurchased, plus any accrued and unpaid interest to,
but not including, the date of repurchase. We may redeem for cash all
or a portion of the Convertible Notes at our option at any time or from time to
time on or after December 20, 2016 at a price equal to 100% of the
principal amount of the Convertible Notes to be redeemed, plus accrued and
unpaid interest to, but not including, the redemption date. We also
may terminate the conversion rights at any time on or after
December 20, 2013 if the closing price of Ford Common Stock exceeds
140% of the then-prevailing conversion price for twenty trading days during any
consecutive thirty trading day period.
During
the Fourth Quarter 2008 pursuant to a request for conversion, we issued an
aggregate of 7,253,035 shares of Ford Common Stock, par value
$0.01 per share, in exchange for $67 million principal amount of
our Convertible Notes.
Subordinated
Convertible Indebtedness
At
December 31, 2008, Ford Motor Company Capital Trust II ("Trust II"), a
subsidiary trust, had outstanding 6.50% Cumulative Convertible Trust
Preferred Securities with an aggregate liquidation preference of
$2.9 billion (the “Trust Preferred Securities”). The sole assets
of Trust II are $3 billion of 6.50% Junior Subordinated Convertible
Debentures due 2032 of Ford Motor Company (the "Subordinated
Debentures"). As of January 15, 2007, the Subordinated
Debentures had become redeemable at our option. We guarantee the
payment of all distribution and other payments of the Trust Preferred
Securities to the extent not paid by Trust II, but only if and to the
extent we have made a payment of interest or principal on the Subordinated
Debentures. Trust II is not consolidated by us as it is a VIE in
which we do not have a significant variable interest and of which we are not the
primary beneficiary.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
16. DEBT AND COMMITMENTS (Continued)
On
August 3, 2007, pursuant to an exchange or conversion offer made by
Trust II and Ford to holders of Trust Preferred Securities, holders of
42,543,071 then-outstanding Trust Preferred Securities with an aggregate
liquidation preference of $2.1 billion elected to convert such securities
into an aggregate 194,494,157 shares of Ford Common Stock. The
conversion offer provided for a premium of 1.7468 additional shares of Ford
Common Stock, over the 2.8249 shares of Ford Common Stock into which each
Trust Preferred Security was convertible pursuant to its conversion
terms. As a result of the exchange, we recorded a pre-tax loss of
$632 million in Automotive interest income and other
non-operating income/(expense), net.
Secured
Borrowing and Credit Facilities*
On
December 15, 2006,
we entered into an agreement (the "Credit Agreement") which provides for a
seven-year $7 billion term-loan facility and a five-year revolving credit
facility of $11.5 billion. At December 31, 2008, our outstanding
principal balance of the term-loan facility was $6.9 billion. The
term-loan principal amount amortizes at a rate of 1% per annum, is payable in
full at December 15, 2013 and bears interest at LIBOR plus a margin of
3.00%.
Due to
concerns about the instability in the capital markets with the uncertain state
of the global economy, on January 29, 2009, we gave notice to borrow the
total unused amount (i.e., $10.9 billion) under our $11.5 billion
secured revolving credit facility entered into in
December 2006. On February 3, 2009, the requested borrowing
date, the lenders under that facility advanced to us
$10.1 billion. As expected, the $890 million commitment of
Lehman Commercial Paper Inc. ("LCPI"), one of the lenders under the
facility, was not advanced because of LCPI having filed for protection under
Chapter 11 of the U.S. Bankruptcy Code on
October 5, 2008. The $10.1 billion revolving loan will
bear interest at LIBOR plus a margin of 2.25% and will mature on December 15,
2011.
Under the
Credit Agreement, we may designate certain of our domestic and foreign
subsidiaries, including Ford Credit, as borrowers under the revolving
facility. We and certain of our domestic subsidiaries that constitute
a substantial portion of our domestic automotive assets (excluding cash) are
guarantors under the Credit Agreement, and future material domestic subsidiaries
will become guarantors when formed or acquired.
Collateral. The
borrowings of the Company, the subsidiary borrowers, and the guarantors under
the Credit Agreement are secured by a substantial portion of our domestic
Automotive assets (excluding cash). The collateral includes a
majority of our principal domestic manufacturing facilities, excluding
facilities to be closed, subject to limitations set forth in existing public
indentures and other unsecured credit agreements; domestic accounts receivable;
domestic inventory; up to $4 billion of marketable securities or cash
proceeds therefrom; 100% of the stock of our principal domestic subsidiaries,
including Ford Credit (but excluding the assets of Ford Credit); certain
intercompany notes of Volvo Holding Company Inc., a holding company for Volvo,
Ford Motor Company of Canada, Limited ("Ford Canada") and Grupo Ford S. de R.L.
de C.V. (a Mexican subsidiary); 66% to 100% of the stock of all major first tier
foreign subsidiaries (including Volvo); and certain domestic intellectual
property, including trademarks.
Covenants. The
Credit Agreement requires ongoing compliance with a borrowing base covenant and
contains other restrictive covenants, including a restriction on our ability to
pay dividends. The Credit Agreement prohibits the payment of
dividends (other than dividends payable solely in stock) on Ford Common and
Class B Stock, subject to certain limited exceptions. In
addition, the Credit Agreement contains a liquidity covenant requiring us to
maintain a minimum of $4 billion in the aggregate of domestic cash, cash
equivalents, loaned and marketable securities and short-term Voluntary Employee
Benefit Association ("VEBA") assets and/or availability under the revolving
credit facility.
With
respect to the borrowing base covenant, we are required to limit the outstanding
amount of debt under the Credit Agreement as well as certain permitted
additional indebtedness secured by the collateral described above such that the
total debt outstanding does not exceed the value of the collateral as calculated
in accordance with the Credit Agreement.
*
|
Credit
facilities of our VIEs are excluded as we do not control their
use.
|
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
16. DEBT AND COMMITMENTS (Continued)
Events of
Default. In addition to customary payment, representation,
bankruptcy and judgment defaults, the Credit Agreement contains cross-payment
and cross-acceleration defaults with respect to other debt for borrowed money,
and a change in control default.
Other Automotive Credit
Facilities. At December 31, 2008, we had $722 million of other
contractually-committed Automotive credit facilities with financial
institutions, including $141 million of worldwide Automotive unsecured credit
facilities and $581 million of local credit facilities to foreign Automotive
affiliates. Of the $195 million borrowed under these lines, most
matures in 2009. Of the $527 million available for use,
$121 million are committed through June 30, 2009, $25 million are
committed through June 30, 2010, $327 million are committed through
April 1, 2012, and the remainder expire before
June 30, 2009.
Financial
Services Sector
Credit
Facilities
At
December 31, 2008, Ford Credit and its majority-owned subsidiaries,
including FCE Bank, plc ("FCE"), had $2 billion of contractually-committed
unsecured credit facilities with financial institutions, of which
$1.4 billion were available for use. Of the credit facilities
available for use, $31 million matured in January, 2009, $811 million
are committed through June 29, 2009, $117 million are committed through
June 30, 2010, and $442 million are committed through
December 31, 2011. Of the $2 billion
contractually-committed credit facilities, $315 million constitute Ford
Credit bank lines (of which $70 million are worldwide) and
$1.7 billion are FCE bank lines (of which $1.6 billion are
worldwide). The Ford Credit worldwide credit facilities may be used,
at Ford Credit's option, by any of its direct or indirect, majority-owned
subsidiaries. Similarly, the FCE worldwide credit facilities may be
used, at FCE's option, by any of FCE's direct or indirect, majority-owned
subsidiaries. Ford Credit or FCE, as the case may be, will guarantee
any such borrowings. All of the worldwide credit facilities are free
of material adverse change clauses, restrictive financial covenants (for
example, debt-to-equity limitations and minimum net worth requirements) and
credit rating triggers that could limit Ford Credit's ability to obtain
funding.
In
addition, at December 31, 2008, Ford Credit had $15.7 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
$15.7 billion of contractually-committed liquidity facilities, $9.2 billion
are committed through June 29, 2009, $174 million are committed
through June 30, 2011, and $6.3 billion are committed through
June 29, 2012. 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 December 31, 2008, $15.3 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 December 31, 2008, the outstanding commercial paper
balance for the FCAR program was $11.5 billion. Ford Credit is
registered to sell up to $16 billion of asset-backed commercial paper under
the CPFF. As of December 31, 2008 Ford Credit had sold to
the CPFF $7 billion of asset-backed commercial paper.
Committed
Liquidity Programs
Ford
Credit and its subsidiaries, including FCE, have entered into agreements with a
number of bank-sponsored asset-backed commercial paper conduits ("conduits") and
other financial institutions, whereby such parties are contractually committed,
at Ford Credit's option, to purchase from Ford Credit's eligible retail or
wholesale assets or to purchase or make advances under asset-backed securities
backed by retail or wholesale assets for proceeds up to $24 billion at
December 31, 2008 ($12.5 billion retail and $11.5 billion
wholesale) of which $8.1 billion are commitments to FCE. These
committed liquidity programs have varying maturity dates, with
$21.7 billion having maturities within the next twelve months (of which
$7.3 billion relates to FCE commitments), and the balance having maturities
between December 2010 and September 2011. As a result of
the continued asset-backed securities market volatility that began in
August 2007 and significantly worsened in the second half of 2008, there is
a risk of non-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 it having a sufficient amount of assets eligible for these
programs as well as Ford Credit's ability to obtain interest rate hedging
arrangements for securitizations. At December 31, 2008,
$21.4 billion of these commitments were in use. These programs
are free of material adverse change clauses, restrictive financial covenants
(for example, debt-to-equity limitations and minimum net worth requirements) and
credit rating triggers that could limit Ford Credit's ability to obtain
funding. However, the unused portion of these commitments may be
terminated if the performance of the underlying assets deteriorates beyond
specified levels. Based on Ford Credit's experience and knowledge as
servicer of the related assets, we do not expect any of these programs to be
terminated due to such events.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
16. DEBT AND COMMITMENTS (Continued)
In
addition, Ford Credit has a committed liquidity program for the purchase of up
to $4 billion of asset-backed securities, which is committed until
December 2010 at Ford Credit's option can be supported with various retail,
wholesale, or lease assets. Ford Credit's ability to obtain funding
under this program is subject to it having a sufficient amount of assets
available to issue the securities. This program is also free of
material adverse change clauses, restrictive financial covenants and credit
rating triggers that could limit Ford Credit's ability to obtain
funding. At December 31, 2008, Ford Credit had
$4 billion of outstanding funding in this program.
Secured
Borrowing
The
following table shows the assets and the associated liabilities related to Ford
Credit's secured debt arrangements that are included in our financial statements
for the years ended December 31 (in billions):
|
|
2008
|
|
|
2007
|
|
|
|
Cash
|
|
|
Receivables
|
|
|
Related
Debt
|
|
|
Cash
|
|
|
Receivables
|
|
|
Related
Debt
|
|
Retail
|
|
$ |
3.3 |
|
|
$ |
51.6 |
|
|
$ |
42.6 |
|
|
$ |
2.7 |
|
|
$ |
41.7 |
|
|
$ |
36.9 |
|
Wholesale
|
|
|
1.2 |
|
|
|
22.1 |
|
|
|
17.6 |
|
|
|
0.8 |
|
|
|
25.5 |
|
|
|
18.0 |
|
Net
investment in operating leases
|
|
|
1.0 |
|
|
|
15.6 |
|
|
|
12.0 |
|
|
|
1.2 |
|
|
|
18.9 |
|
|
|
14.3 |
|
Total
secured debt arrangements*
|
|
$ |
5.5 |
|
|
$ |
89.3 |
|
|
$ |
72.2 |
|
|
$ |
4.7 |
|
|
$ |
86.1 |
|
|
$ |
69.2 |
|
_________
*
|
Includes
debt of $62 billion and $66 billion as of December 31, 2008 and 2007
respectively, issued by VIEs of which we are the primary beneficiary or an
affiliate whereby the debt is backed by the collateral of the VIE. The
carrying values of Ford Credit assets securing the debt issued by these
VIEs were $4.8 billion and $4.7 billion of cash, $41.9 billion and $40.7
billion of retail receivables, $19.6 billion and $22.8 billion of
wholesale receivables, and $15.6 billion and $18.9 billion of net
investment in operating leases as of December 31, 2008 and 2007,
respectively. Refer to Note 11 for further discussion regarding
VIEs.
|
In
certain structures, Ford Credit issues asset-backed debt directly, rather
than through consolidated VIEs. For Ford Credit's bank-sponsored
conduit program, Ford Credit transfers finance receivables to bank conduits or
sponsor banks in which it retains a significant interest in the transferred
pools of receivables. The outstanding balance of the transferred
pools of finance receivables was $8.4 billion and $449 million and the
associated secured debt was $6.9 billion and $400 million at December 31,
2008 and 2007, respectively. For Ford Credit's ECB facility, it
pledged its asset-backed notes as collateral and has issued $773 million of
secured debt as of December 31, 2008 that did not utilize a
VIE. These programs represent the significant portion of Ford
Credit's secured debt arrangements that do not utilize VIEs.
Financial
Services sector asset-backed debt also includes $96 million and $105 million at
December 31, 2008 and December 31, 2007, respectively, that is secured by
property.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
17. SHARE-BASED COMPENSATION
At
December 31, 2008, a variety of Ford stock-based compensation grants
or awards were outstanding for employees (including officers) and members of the
Board of Directors. All stock-based compensation plans are approved
by the shareholders.
We have
stock-based compensation outstanding under two LTIPs: the 1998 LTIP and the
2008 LTIP. No further grants may be made under the
1998 LTIP. All outstanding stock-based compensation under the
1998 LTIP continues to be governed by the terms and conditions of the
existing agreements for those grants. Grants may continue to be made
under the 2008 LTIP through April 2018.
Under the
2008 LTIP, 2% of our issued Common Stock as of December 31, 2008
becomes available for granting plan awards in the succeeding calendar
year. Any unused portion is available for later years. The
limit may be increased up to 3% in any year, with a corresponding reduction in
shares available for grants in future years. At
December 31, 2008, the number of unused shares carried forward was
42.1 million shares.
Upon
stock-settled compensation exercises and awards, we issued new shares of Common
Stock. We do not expect to repurchase a significant number of shares
for treasury stock during 2009.
Restricted
Stock Units
RSU-stock
activity during 2008 was as follows:
|
|
|
|
|
Weighted-
Average
Grant- Date Fair Value
|
|
|
Aggregate
Intrinsic Value
(millions)
|
|
Outstanding,
beginning of year
|
|
|
17.6 |
|
|
$ |
7.68 |
|
|
|
|
Granted
|
|
|
18.5 |
|
|
|
6.05 |
|
|
|
|
Vested
|
|
|
(5.3 |
) |
|
|
7.60 |
|
|
|
|
Forfeited
|
|
|
(4.9 |
) |
|
|
6.09 |
|
|
|
|
Outstanding,
end of year
|
|
|
25.9 |
|
|
|
6.84 |
|
|
$ |
59.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSU-stock
expected to vest
|
|
|
24.7 |
|
|
|
N/A |
|
|
|
56.6 |
|
The fair
value and intrinsic value of RSU-stock during 2008, 2007, and 2006 were as
follows (in millions, except RSU per unit amounts):
|
|
|
|
|
|
|
|
|
|
Fair
value
|
|
|
|
|
|
|
|
|
|
Granted
|
|
$ |
112 |
|
|
$ |
121 |
|
|
$ |
28 |
|
Weighted
average grant date (per unit)
|
|
|
6.05 |
|
|
|
7.64 |
|
|
|
7.83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
40 |
|
|
|
9 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intrinsic
value
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
12 |
|
|
|
8 |
|
|
|
5 |
|
Compensation
cost was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
Compensation
cost
|
|
$ |
82 |
|
|
$ |
76 |
|
|
$ |
15 |
|
Taxes
*
|
|
|
— |
|
|
|
— |
|
|
|
(5 |
) |
Compensation
cost, net of taxes
|
|
$ |
82 |
|
|
$ |
76 |
|
|
$ |
10 |
|
__________
*
|
No
taxes recorded due to established valuation
allowances.
|
As of
December 31, 2008, there
was approximately $52 million in unrealized compensation cost related to
non-vested RSU-stock. This expense will be recognized over a weighted
average period of 1.3 years.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
17. SHARE-BASED COMPENSATION (Continued)
Stock
Options
Stock
option activity was as follows:
|
|
|
|
|
|
|
|
|
|
Stock
Option Activity
|
|
|
|
|
Weighted-Average
Exercise
Price
|
|
|
|
|
|
Weighted-Average
Exercise
Price
|
|
|
|
|
|
Weighted-
Average
Exercise
Price
|
|
Outstanding,
beginning of year
|
|
|
247.3 |
|
|
$ |
17.57 |
|
|
|
255.6 |
|
|
$ |
17.83 |
|
|
|
245.2 |
|
|
$ |
18.72 |
|
Granted
|
|
|
13.5 |
|
|
|
6.12 |
|
|
|
16.3 |
|
|
|
7.56 |
|
|
|
29.1 |
|
|
|
7.89 |
|
Exercised*
|
|
|
(0.3 |
) |
|
|
7.65 |
|
|
|
(1.2 |
) |
|
|
7.61 |
|
|
|
(0.5 |
) |
|
|
7.55 |
|
Forfeited
(including expirations)
|
|
|
(34.3 |
) |
|
|
21.03 |
|
|
|
(23.4 |
) |
|
|
14.00 |
|
|
|
(18.2 |
) |
|
|
14.26 |
|
Outstanding,
end of year
|
|
|
226.2 |
|
|
|
16.37 |
|
|
|
247.3 |
|
|
|
17.57 |
|
|
|
255.6 |
|
|
|
17.83 |
|
Exercisable,
end of year
|
|
|
194.8 |
|
|
|
17.86 |
|
|
|
205.6 |
|
|
|
19.38 |
|
|
|
203.2 |
|
|
|
19.81 |
|
__________
*
|
Exercised
at option price ranging from $7.55 to $7.83 during 2008, option price
ranging from $7.12 to $7.83 during 2007, and option price of $7.55 during
2006.
|
The total
fair value of options that vested during the years ended December 31 was as
follows (in millions):
|
|
|
|
|
|
|
|
|
|
Fair
value of vested options
|
|
$ |
65 |
|
|
$ |
81 |
|
|
$ |
93 |
|
We have
194.8 million fully-vested stock options, with a weighted-average exercise
price of $17.86 and remaining term of 3.7 years. We expect
30.8 million stock options (after forfeitures), with a weighted-average
exercise price of $7.08 and remaining term of 8.3 years to vest in the
future. There is no intrinsic value for unvested and vested options
at December 31, 2008.
We
received about $2 million from the exercise of stock options in
2008. The tax benefit realized was de minimis. An
equivalent of about $2 million in new issues were used to settle exercised
options. For options exercised during the years ended
December 31, 2008, 2007, and 2006, the difference between the fair
value of the common shares issued and their respective exercise price was de minimis, $1 million,
and $1 million, respectively.
Compensation
cost was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
Compensation
cost
|
|
$ |
35 |
|
|
$ |
75 |
|
|
$ |
77 |
|
Taxes
*
|
|
|
— |
|
|
|
— |
|
|
|
(19 |
) |
Compensation
cost, net of taxes
|
|
$ |
35 |
|
|
$ |
75 |
|
|
$ |
58 |
|
__________
*
|
No
taxes recorded due to established valuation
allowances.
|
As of
December 31, 2008, there
was about $20 million in unrealized compensation cost related to non-vested
stock options. This expense will be recognized over a weighted
average period of 1.3 years. A summary of the status of our
non-vested shares and changes during 2008 follows:
|
|
|
|
|
Weighted-Average
Grant-Date
Fair
Value
|
|
Non-vested
beginning of year
|
|
|
41.7 |
|
|
$ |
3.09 |
|
Granted
|
|
|
13.5 |
|
|
|
2.65 |
|
Vested
|
|
|
(20.1 |
) |
|
|
3.25 |
|
Forfeited
(including expirations)
|
|
|
(3.7 |
) |
|
|
3.15 |
|
Non-vested
end of year
|
|
|
31.4 |
|
|
|
2.79 |
|
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
17. SHARE-BASED COMPENSATION (Continued)
The
estimated fair value of stock options at the time of grant using the
Black-Scholes option-pricing model was as follows:
|
|
|
|
|
|
|
|
|
|
Fair
value per option
|
|
$ |
2.65 |
|
|
$ |
3.57 |
|
|
$ |
2.07 |
|
Assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized
dividend yield
|
|
|
— |
% |
|
|
— |
% |
|
|
4.9 |
% |
Expected
volatility
|
|
|
37.7 |
% |
|
|
39.2 |
% |
|
|
39.7 |
% |
Risk-free
interest rate
|
|
|
3.9 |
% |
|
|
4.8 |
% |
|
|
4.9 |
% |
Expected
option term (in years)
|
|
|
6.0 |
|
|
|
6.5 |
|
|
|
6.5 |
|
Details
on various stock option exercise price ranges are as follows:
|
|
|
|
|
|
|
|
Range
of Exercise Prices
|
|
|
|
|
|
Weighted-Average
Life (years)
|
|
|
Weighted-Average
Exercise
Price
|
|
|
|
|
|
Weighted-Average
Exercise
Price
|
|
$ |
5.11
- $10.58
|
|
|
|
76.0 |
|
|
|
6.84 |
|
|
$ |
7.56 |
|
|
|
44.6 |
|
|
$ |
7.90 |
|
|
10.62
- 15.81
|
|
|
|
48.1 |
|
|
|
5.50 |
|
|
|
13.03 |
|
|
|
48.1 |
|
|
|
13.03 |
|
|
15.91
- 23.88
|
|
|
|
55.4 |
|
|
|
2.5 |
|
|
|
18.99 |
|
|
|
55.4 |
|
|
|
18.99 |
|
|
23.97
- 35.79
|
|
|
|
46.7 |
|
|
|
1.3 |
|
|
|
31.01 |
|
|
|
46.7 |
|
|
|
31.01 |
|
Total
options
|
|
|
|
226.2 |
|
|
|
|
|
|
|
|
|
|
|
194.8 |
|
|
|
|
|
Other
Share-Based Awards
Under the
1998 and 2008 LTIPs we have granted other share-based awards to select
executives and other key employees, in addition to stock options and restricted
stock units. These awards include restricted stock, cash-awarded
restricted stock units, performance stock rights, and stock appreciation
rights. These awards have various vesting criteria which may include
service requirements, individual performance targets, and company-wide
performance targets.
Other
share-based compensation cost was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
Compensation
cost
|
|
$ |
— |
|
|
$ |
9 |
|
|
$ |
19 |
|
Taxes
*
|
|
|
— |
|
|
|
— |
|
|
|
(7 |
) |
Compensation
cost, net of taxes
|
|
$ |
— |
|
|
$ |
9 |
|
|
$ |
12 |
|
__________
*
|
No
taxes recorded due to established valuation
allowances.
|
NOTE
18. EMPLOYEE SEPARATION ACTIONS AND EXIT AND DISPOSAL
ACTIVITIES
Automotive
Sector
General
We began
implementing a number of different employee separation plans during 2006, our
accounting for which is dependent on the design of the individual benefit
action.
Job
Security Benefits Reserve
As part
of our plan to reduce and realign vehicle assembly capacity and related
manufacturing to bring it more in line with demand and shifting customer
preferences, we plan to sell or close certain North American manufacturing
facilities, including our Automotive Components Holdings, LLC ("ACH") component
manufacturing plants. Hourly employees working at these U.S. plants
are represented by the International Union, United Automobile, Aerospace and
Agricultural Implement Workers of America ("UAW"); hourly employees working at
the Canadian plants identified above are represented by the National Automobile,
Aerospace, Transportation and General Workers Union of Canada
("CAW"). Our 2007 collective bargaining agreement with the UAW
requires us to pay idled employees who meet certain conditions a portion of
their wages and benefits for a specified period of time.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
18. EMPLOYEE SEPARATION ACTIONS AND EXIT AND DISPOSAL ACTIVITIES
(Continued)
Our
collective bargaining agreement with the CAW contains a provision pursuant to
which we are required to pay idled employees a portion of their wages and
certain benefits for a specified period of time based on the number of credits
an employee has received. This agreement expired in
September 2008. The new 2008 CAW collective bargaining agreement
continues this job security program. We refer to these benefits under
the UAW and CAW agreements as "Job Security Benefits."
The Job
Security Benefits reserve includes an amount for benefits expected to be
provided in their present form under the current UAW and CAW collective
bargaining agreements. We recorded the expense in Automotive cost of sales, and
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)
|
|
|
71 |
|
|
|
232 |
|
|
|
806 |
|
|
|
2,220 |
|
Voluntary
separations and relocations
|
|
|
(248 |
) |
|
|
(311 |
) |
|
|
(2,880 |
) |
|
|
(4,632 |
) |
Benefit
payments and other adjustments
|
|
|
(229 |
) |
|
|
(140 |
) |
|
|
(2,055 |
) |
|
|
— |
|
Ending
balance
|
|
$ |
411 |
|
|
$ |
817 |
|
|
|
4,187 |
|
|
|
8,316 |
|
The
reserve balance above takes into account several factors: the
demographics of the population at each affected facility, redeployment
alternatives, estimate of benefits to be paid, 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
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
|
|
|
307 |
|
|
|
— |
|
|
|
2,558 |
|
|
|
— |
|
Payments/Terminations
|
|
|
(384 |
) |
|
|
(1,912 |
) |
|
|
(3,397 |
) |
|
|
(21,587 |
) |
Rescissions
and other adjustments
|
|
|
14 |
|
|
|
(298 |
) |
|
|
(61 |
) |
|
|
(3,390 |
) |
Ending
balance
|
|
$ |
162 |
|
|
$ |
225 |
|
|
|
474 |
|
|
|
1,374 |
|
The
ending balances shown above primarily 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. The remaining balance of the reserve reflects costs
associated with employee tuition programs.
Other Employee Separation
Actions. The following table shows pre-tax charges for other
hourly and salaried employee separation actions for the full year 2008, 2007 and
2006 (in millions). These charges are reported in Automotive cost of sales and
Selling, administrative and
other expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volvo
|
|
$ |
108 |
|
|
$ |
11 |
|
|
$ |
54 |
|
Ford
Asia Pacific Africa
|
|
|
97 |
|
|
|
5 |
|
|
|
61 |
|
Ford
U.S. (salaried-related)
|
|
|
79 |
|
|
|
154 |
|
|
|
22 |
|
Ford
Canada
|
|
|
74 |
|
|
|
223 |
|
|
|
14 |
|
Ford
Europe
|
|
|
38 |
|
|
|
45 |
|
|
|
109 |
|
Ford
Mexico
|
|
|
33 |
|
|
|
— |
|
|
|
— |
|
The
charges above exclude costs for pension and OPEB.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
18. EMPLOYEE SEPARATION ACTIONS AND EXIT AND DISPOSAL ACTIVITIES (Continued)
Financial
Services Sector
Separation
Actions
In 2008
and 2007, we recognized pre-tax charges of $16 million and
$37 million, respectively, in Selling, administrative and other
expenses for employee separation actions. The 2008 expense
reflects restructuring actions in non-U.S. locations that are expected to be
substantially completed by the end of 2009. The 2007 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
19. INCOME TAXES
Components
of income taxes excluding discontinued operations, cumulative effects of changes
in accounting principles, other comprehensive income, and equity in net results
of affiliated companies accounted for after-tax, are as follows:
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
before income taxes, excluding equity in net results of affiliated
companies accounted for after-tax (in millions)
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$ |
(16,459 |
) |
|
$ |
(6,374 |
) |
|
$ |
(15,814 |
) |
Non-U.S.
|
|
|
1,879 |
|
|
|
2,225 |
|
|
|
335 |
|
Total
|
|
$ |
(14,580 |
) |
|
$ |
(4,149 |
) |
|
$ |
(15,479 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for/(Benefit from) income taxes (in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
(117 |
) |
|
$ |
(39 |
) |
|
$ |
— |
|
Non-U.S.
|
|
|
458 |
|
|
|
313 |
|
|
|
372 |
|
State
and local
|
|
|
36 |
|
|
|
1 |
|
|
|
(8 |
) |
Total
current
|
|
|
377 |
|
|
|
275 |
|
|
|
364 |
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
95 |
|
|
|
(1,710 |
) |
|
|
(4,281 |
) |
Non-U.S.
|
|
|
(350 |
) |
|
|
410 |
|
|
|
1,112 |
|
State
and local
|
|
|
(59 |
) |
|
|
(269 |
) |
|
|
150 |
|
Total
deferred
|
|
|
(314 |
) |
|
|
(1,569 |
) |
|
|
(3,019 |
) |
Total
|
|
$ |
63 |
|
|
$ |
(1,294 |
) |
|
$ |
(2,655 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
of effective tax rate
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
tax at statutory rate
|
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
Non-U.S.
income taxes
|
|
|
1.2 |
|
|
|
1.3 |
|
|
|
0.7 |
|
State
and local income taxes
|
|
|
0.2 |
|
|
|
4.2 |
|
|
|
2.4 |
|
Deductible
dividends
|
|
|
— |
|
|
|
— |
|
|
|
0.5 |
|
General
business credits
|
|
|
1.1 |
|
|
|
5.4 |
|
|
|
1.2 |
|
Dispositions
and restructurings
|
|
|
15.8 |
|
|
|
(6.1 |
) |
|
|
— |
|
Medicare
prescription drug benefit
|
|
|
0.6 |
|
|
|
2.1 |
|
|
|
0.7 |
|
Prior
year settlements and claims
|
|
|
(0.6 |
) |
|
|
1.0 |
|
|
|
3.4 |
|
Tax-related
interest
|
|
|
0.5 |
|
|
|
(1.7 |
) |
|
|
— |
|
Other
|
|
|
(0.1 |
) |
|
|
3.2 |
|
|
|
(1.1 |
) |
Valuation
allowance
|
|
|
(54.1 |
) |
|
|
(13.3 |
) |
|
|
(25.7 |
) |
Effective
rate
|
|
|
(0.4 |
)% |
|
|
31.1 |
% |
|
|
17.1 |
% |
No
provision for deferred taxes has been made on $1.2 billion of unremitted
earnings that are permanently invested in our non-U.S. operating
assets. Had these earnings not been permanently reinvested in
non-U.S. operations, the U.S. tax consequences of their repatriation would have
been insignificant since these earnings were subject to foreign taxes that would
offset, as foreign tax credits, substantially all U.S. taxes.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE 19. INCOME
TAXES (Continued)
The
components of deferred tax assets and liabilities at December 31 were as follows
(in millions):
|
|
|
|
|
|
2007*
|
|
Deferred
tax assets
|
|
|
|
|
|
|
|
Employee
benefit plans
|
|
$ |
9,482 |
|
|
$ |
10,020 |
|
Net
operating loss carryforwards
|
|
|
7,083 |
|
|
|
2,095 |
|
Tax
credit carryforwards
|
|
|
2,520 |
|
|
|
1,169 |
|
Dealer
and customer allowances and claims
|
|
|
1,873 |
|
|
|
2,436 |
|
Other
foreign deferred tax assets
|
|
|
3,948 |
|
|
|
3,364 |
|
Allowance
for credit losses
|
|
|
1,884 |
|
|
|
1,655 |
|
All
other
|
|
|
2,748 |
|
|
|
2,873 |
|
Total
gross deferred tax assets
|
|
|
29,538 |
|
|
|
23,612 |
|
Less:
valuation allowance
|
|
|
(17,840 |
) |
|
|
(8,560 |
) |
Total
net deferred tax assets
|
|
|
11,698 |
|
|
|
15,052 |
|
Deferred
tax liabilities
|
|
|
|
|
|
|
|
|
Leasing
transactions
|
|
|
3,206 |
|
|
|
5,694 |
|
Depreciation
and amortization (excluding leasing transactions)
|
|
|
2,890 |
|
|
|
3,877 |
|
Finance
receivables
|
|
|
786 |
|
|
|
866 |
|
All
other
|
|
|
3,743 |
|
|
|
4,149 |
|
Total
deferred tax liabilities
|
|
|
10,625 |
|
|
|
14,586 |
|
Net
deferred tax assets/(liabilities)
|
|
$ |
1,073 |
|
|
$ |
466 |
|
__________
*
|
Includes
Jaguar Land Rover
|
Operating
loss carryforwards for tax purposes were $16.8 billion at
December 31, 2008. A substantial portion of these losses
expire in 2029; the remaining losses will begin to expire in
2013. Tax credits available to offset future tax liabilities are
$2.5 billion. A substantial portion of these credits have a
remaining carryforward period of 10 years or more. Tax benefits
of operating loss and tax credit carryforwards are evaluated on an ongoing
basis, including a review of historical and projected future operating results,
the eligible carryforward period, and other circumstances.
Effective
September 30, 2006, the balance of deferred taxes primarily at our U.S
entities has changed from a net deferred tax liability position to a net
deferred tax asset position. Due to the cumulative losses we have
incurred at these operations and their near-term financial outlook, we have
established a valuation allowance of $17.8 billion against the net deferred
tax asset.
We
adopted the provisions of FIN 48 on January 1, 2007. As a result
of the implementation of FIN 48, we recorded an increase of
$1.3 billion to Retained
earnings. The favorable impact to Retained earnings was
primarily the result of recognizing a receivable of approximately
$1.5 billion associated with refund claims and related interest for prior
years that met the "more-likely-than-not" recognition threshold of
FIN 48. These prior year refund claims and related interest were
not recognized as of December 31, 2006 because they were considered
gain contingencies under SFAS No. 5, Accounting for Contingencies
and could not be recognized until the contingency lapsed. The amount
of unrecognized tax benefits at January 1, 2008 was
$1.8 billion. A reconciliation of the beginning and ending
amount of unrecognized tax benefits is as follows for the years listed (in
millions):
|
|
|
|
|
|
|
Balance
at January 1
|
|
$ |
1,810 |
|
|
$ |
1,947 |
|
Increase
– tax positions in prior periods
|
|
|
416 |
|
|
|
226 |
|
Increase
– tax positions in current period
|
|
|
64 |
|
|
|
105 |
|
Decrease –
tax positions in prior periods
|
|
|
(38 |
) |
|
|
(264 |
) |
Settlements
|
|
|
(235 |
) |
|
|
(266 |
) |
Lapse
of statute of limitations
|
|
|
(23 |
) |
|
|
(37 |
) |
Foreign
currency translation adjustment
|
|
|
(96 |
) |
|
|
99 |
|
Balance
at December 31
|
|
$ |
1,898 |
|
|
$ |
1,810 |
|
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE 19. INCOME
TAXES (Continued)
The
amount of unrecognized tax benefits at December 31, 2008 and
December 31, 2007 that would affect the effective tax rate if
recognized was $964 million and $837 million,
respectively.
The U.S.
and Canadian governments are presently in negotiations regarding our transfer
pricing methodologies, covering a number of years. It is reasonably
possible that negotiations for some or all of those years could be completed
within the next twelve months, resulting in a significant reduction in
unrecognized tax benefits. A reasonable estimate of the possible
reduction in unrecognized tax benefits cannot be made at this time.
Examinations
by tax authorities have been completed through 1999 in Germany, 2001 in Sweden,
2003 in Canada, 2003 in the United States, and 2004 in the United
Kingdom. Although examinations have been completed in these
jurisdictions, various unresolved transfer pricing disputes exist for years
dating back to 1994.
During
2008 and 2007, we recorded in our consolidated statement of income approximately
$69 million in tax-related interest income and $62 million
in tax related interest expense, respectively. As of
December 31, 2008, and December 31, 2007, we had recorded a
net receivable of $177 million, and a payable of $216 million,
respectively, for tax-related interest.
NOTE
20. DISCONTINUED OPERATIONS, HELD-FOR-SALE OPERATIONS, OTHER
DISPOSITIONS, AND ACQUISITIONS
Automotive
Sector
Discontinued
Operations
Automotive Protection Corporation
("APCO"). During 2007, the management team of APCO, together
with Trident IV, L.P., a private equity fund managed by Stone Point
Capital LLC, purchased APCO from us. This transaction was the result
of our ongoing strategic review of our operations. As a result of the
transaction, we realized a pre-tax gain of $51 million (net of transaction
costs and working capital adjustments), reported in Income/(Loss) from discontinued
operations.
The
results of all discontinued Automotive sector operations are as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
- |
|
|
$ |
13 |
|
|
$ |
59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income/(loss) from discontinued operations
|
|
$ |
- |
|
|
$ |
2 |
|
|
$ |
23 |
|
Gain/(Loss)
on discontinued operations
|
|
|
- |
|
|
|
51 |
|
|
|
3 |
|
(Provision
for)/Benefit from income taxes
|
|
|
- |
|
|
|
(18 |
) |
|
|
(10 |
) |
Income/(Loss)
from discontinued operations
|
|
$ |
- |
|
|
$ |
35 |
|
|
$ |
16 |
|
At
December 31, 2008, there were no assets or liabilities remaining on
our balance sheet related to discontinued operations.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
20. DISCONTINUED OPERATIONS, HELD-FOR-SALE OPERATIONS, OTHER
DISPOSITIONS, AND ACQUISITIONS (Continued)
Held-for-Sale
Operations
Jaguar 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. During the first quarter of 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.
During
the second quarter 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. This loss included the recognition of $1.2 billion of
accumulated other comprehensive income, the settlement of about $550 million of
net intercompany payables, and related separation costs of about $150
million.
Subsequent
to the second quarter 2008, we received $132 million in cash, which
reflected final settlement of purchase price adjustments and paid additional
separation costs of $2 million. As a result, we recognized an additional
pre-tax loss of $32 million reported in Automotive interest income and other
non-operating income/(expense), net. With this, our pre-tax loss is
$138 million.
The
assets and liabilities of Jaguar Land Rover operations classified as
held-for-sale operations at June 2, 2008 (date of sale) and
December 31, 2007 are summarized as follows (in
millions):
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
900 |
|
|
$ |
— |
|
Receivables
|
|
|
1,172 |
|
|
|
758 |
|
Inventories
|
|
|
1,921 |
|
|
|
1,530 |
|
Net
property
|
|
|
2,199 |
|
|
|
2,246 |
|
Goodwill
and other net intangibles
|
|
|
2,002 |
|
|
|
2,010 |
|
Pension
assets
|
|
|
786 |
|
|
|
696 |
|
Other
assets
|
|
|
309 |
|
|
|
297 |
|
Impairment
of carrying value
|
|
|
(421 |
) |
|
|
— |
|
Total
assets of the held-for-sale operations
|
|
$ |
8,868 |
|
|
$ |
7,537 |
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Payables
|
|
$ |
2,628 |
|
|
$ |
2,395 |
|
Pension
liabilities
|
|
|
18 |
|
|
|
19 |
|
Warranty
liabilities
|
|
|
579 |
|
|
|
645 |
|
Debt
|
|
|
177 |
|
|
|
— |
|
Other
liabilities
|
|
|
2,340 |
|
|
|
1,765 |
|
Total
liabilities of the held-for-sale operations
|
|
$ |
5,742 |
|
|
$ |
4,824 |
|
The cash
balances we transferred upon sale consisted primarily of about $600 million
related to the committed pension funding under the definitive agreement and
$177 million related to debt which the buyer agreed to assume upon
sale.
ACH. In the second
quarter of 2008, we classified the ACH Milan plant, which produces fuel tanks
and bumper fascias, as held for sale. At that time, a pre-tax
impairment charge of $18 million was recorded which represented the excess
of net book value of the held-for-sale assets over the expected
proceeds. During the third quarter, deteriorating domestic economic
and industry conditions significantly reduced the probability of this sale and
the Milan plant was subsequently reclassified as held and used. The
pre-tax impairment charge continues to be reported in Automotive cost of
sales.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
20. DISCONTINUED OPERATIONS, HELD-FOR-SALE OPERATIONS, OTHER
DISPOSITIONS, AND ACQUISITIONS (Continued)
In 2007,
we completed the sale of the ACH Converca Plant to the Linamar
Corporation. The Converca plant, which produced power transfer units,
was a component of ACH in Mexico. As a result of the transaction, ACH
reported a pre-tax gain on the sale of $3 million (net of transaction costs
and liabilities assumed), reported in Automotive interest income and other
non-operating income/(expense), net.
In 2007,
we completed the sale of the ACH El Jarudo plant to Cooper-Standard Automotive
Inc. The El Jarudo plant, which produced fuel rails, fuel charging
assemblies, and spring lock connectors, was a component of ACH in
Mexico. As a result of the sale, we recognized a de minimis pre-tax loss,
reported in Automotive
interest income and other non-operating income/(expense),
net.
Aston Martin. In
2007, Ford and its subsidiary (at that time), Jaguar Cars Limited, completed the
sale of our 100% interest in Aston Martin. As a result of the sale, we
recognized a pre-tax gain of $181 million (net of transaction costs and
working capital adjustments) reported in Automotive interest income and other
non-operating income/(expense), net.
European
dealerships. In 2007, Ford Motor Company and its
subsidiary, FIECO Holdings GmbH, completed the sale of its interest in three
European dealerships to MVC Automotive Group B.V. As a result of the
transaction, we recognized a pre-tax loss on the sale of $14 million (net
of transaction costs and recognition of foreign currency translation
adjustments) reported in
Automotive interest income and other non-operating income/(expense),
net.
Other
Dispositions
ACH. During the
second quarter 2008, we completed the sale of the ACH 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
was primarily related to changes in long-term contractual restructuring
obligations. With this, our pre-tax loss is
$304 million.
Thai-Swedish Assembly Group
("TSA"). During the fourth quarter of 2008, Ford Motor Company
and its subsidiary, Volvo Car Corporation, completed the sale of TSA to Volvo
Holding Sverige, AB (an unrelated company, aka Volvo Truck and Bus (Thailand)
Co., Ltd.). Under the terms of the agreement, we sold $14 million of net
assets and received $24 million in gross proceeds. We recognized a pre-tax
gain of $12 million, including $2 million of foreign currency
translation adjustments, in Automotive interest income and other
non-operating income/(expense), net.
Acquisitions
ACSA. In March
2008, we acquired 72.4% of the shares of ACSA, a Romanian carmaker which will be
fully integrated into Ford production systems, from Romania's Authority for
State Assets Recovery ("AVAS") for $87 million. Over the next four years,
we are required pursuant to the sale agreement with AVAS to invest €675 million
into the operations of the business. We also plan to acquire the minority
shareholder's equity interest. Based on the continuing significance of AVAS'
control and participation in the operations of ACSA during the four-year
investment period, our investment is reflected in Automotive equity in net assets of
affiliated companies. We anticipate that we will consolidate the
operations upon the cessation of AVAS' control and participation in the
operations.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
20. DISCONTINUED OPERATIONS, HELD-FOR-SALE OPERATIONS, OTHER
DISPOSITIONS, AND ACQUISITIONS (Continued)
Troller Veiculos Especiais LTDA
("Troller"). In December 2006, we purchased Troller, a
Brazilian manufacturer of vehicles in the light duty segment, for a
present-value cash amount of $214 million and liabilities amounting to
$32 million. In accordance with the purchase agreement, we paid
$27 million and $64 million (including interest) in 2007 and 2008,
respectively. The remaining balance, which has been classified as debt, will be
paid over the course of the next two years.
Financial
Services Sector
Discontinued
Operations
Triad Financial Corporation
("Triad"). In 2005, Ford Credit completed the sale of
Triad. For the years ending December 31, 2008 and 2007,
Ford Credit received additional proceeds pursuant to a contractual agreement
entered into at the closing of the sale, and recognized $9 million and
$6 million after-tax, respectively, in Income/(Loss) from discontinued
operations.
The
results of all discontinued Financial Services sector operations are as follows
(in millions):
|
|
|
|
|
|
|
|
|
|
Operating
income/(loss) from discontinued operations
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Gain/(Loss)
on discontinued operations
|
|
|
15 |
|
|
|
10 |
|
|
|
— |
|
(Provision
for)/Benefit from income taxes
|
|
|
(6 |
) |
|
|
(4 |
) |
|
|
— |
|
Income/(Loss)
from discontinued operations
|
|
$ |
9 |
|
|
$ |
6 |
|
|
$ |
— |
|
At
December 31, 2008 and 2007, there were no assets or liabilities
remaining on our Financial Services sector balance sheet related to discontinued
operations.
Held-for-Sale
Operations
Primus Leasing Company Limited
("Primus Thailand"). During the fourth quarter of 2008, Ford
Credit committed to a plan to sell Primus Thailand, its operation that offers
automotive retail and wholesale financing of Ford, Mazda, and Volvo
vehicles. Ford Credit expects to complete the sale during the first
quarter of 2009 for an amount approximately equal to book value.
The
assets and liabilities of Primus Thailand classified as held for sale at
December 31, 2008 are summarized as follows (in
millions):
|
|
|
|
Assets
|
|
|
|
Finance
receivables, net
|
|
$ |
194 |
|
Other
assets
|
|
|
4 |
|
Total
assets of held-for-sale operations
|
|
$ |
198 |
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Accounts
payable
|
|
$ |
13 |
|
Debt
|
|
|
41 |
|
Other
liabilities
|
|
|
1 |
|
Total
liabilities of held-for-sale operations
|
|
$ |
55 |
|
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
20. DISCONTINUED OPERATIONS, HELD-FOR-SALE OPERATIONS, OTHER
DISPOSITIONS, AND ACQUISITIONS (Continued)
Other
Dispositions
Nordic
Operations. During the second quarter of 2008, Ford Credit
completed the creation of a new legal entity (Saracen HoldCo AB) and transferred
into it the majority of its business and assets from Denmark, Finland, Norway,
and Sweden. Also in the second quarter, Ford Credit sold 50% of the
new legal entity. As a result of the sale, Ford Credit reduced Finance receivables, net by
approximately $1.7 billion, and recognized a pre-tax gain in Financial Services revenues
of approximately $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 in Other assets as an equity
method investment. The new legal entity will support the sale of Ford
vehicles in these markets.
PRIMUS Financial Services, Inc.
In the second quarter of 2008, Ford Credit completed the sale of 96% of
its ownership interest in PRIMUS Financial Services Inc., its operation in Japan
that offered automotive retail and wholesale financing of Ford and Mazda
vehicles. As a result of the sale, Finance receivables, net were
reduced by approximately $1.8 billion, Debt was reduced by
approximately $252 million, and Ford Credit 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.
Included in the foreign currency translation adjustment is the recognition of
$3 million relating to a net investment hedge. Ford Credit reports its
remaining ownership interest in Other assets 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% interest in Primus Philippines, its operation that
offered automotive retail and wholesale financing of Ford and Mazda
vehicles. Ford Credit also completed the sale of its
40% ownership in PFL Holdings, Inc., a holding company in the
Philippines that owned the remaining 40% ownership interest in Primus
Philippines. As a result of the sale, Ford Credit recognized a
pre-tax gain of $5 million, net of transaction costs and including
$1 million of foreign currency translation adjustments, in Financial Services
revenues.
NOTE
21. CAPITAL STOCK AND AMOUNTS PER SHARE
All
general voting power is vested in the holders of Common Stock and Class B
Stock. Holders of our Common Stock have 60% of the general voting
power and holders of our Class B Stock are entitled to such number of votes per
share as will give them the remaining 40%. Shares of Common Stock and
Class B Stock share equally in dividends when and as paid, with stock dividends
payable in shares of stock of the class held. As discussed in
Note 16, we are prohibited from paying dividends (other than dividends
payable in stock) under the terms of the Credit Agreement.
If
liquidated, each share of Common Stock will be entitled to the first $0.50
available for distribution to holders of Common Stock and Class B Stock, each
share of Class B Stock will be entitled to the next $1.00 so available, each
share of Common Stock will be entitled to the next $0.50 so available and each
share of Common and Class B Stock will be entitled to an equal amount
thereafter.
As
discussed in Note 16, Convertible Notes with a principal amount of
$4.88 billion are outstanding following the conversion during the fourth
quarter 2008 of $66.7 million principal amount for 7,253,053 shares of Ford
Common Stock. At the option of the holder, each Convertible Note is
convertible at any time on or before December 15, 2036, into shares of
Ford Common Stock at a rate of 108.6957 shares per $1,000 principal
amount of Convertible Notes (equivalent to a conversion price of $9.20 per
share). Conversion of all shares of such Convertible Notes would
result in the issuance of 531 million shares of our Common
Stock.
As
discussed in Note 16, Trust Preferred Securities with an aggregate
liquidation preference of $2.9 billion are outstanding, following the
conversion of 42,543,071 of Trust Preferred Securities on
August 3, 2007. At the option of the holder, each Trust
Preferred Security is convertible, at any time on or before
January 15, 2032, into shares of our Common Stock at a rate of
2.8249 shares for each Trust Preferred Security (equivalent to a conversion
price of $17.70 per share). Conversion of all shares of such
Trust Preferred Securities would result in the issuance of 162 million
shares of our Common Stock.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
21. CAPITAL STOCK AND AMOUNTS PER SHARE (Continued)
As
discussed in Note 16, on February 11 and April 25, 2008, we
issued an aggregate of 46,437,906 shares of Ford Common Stock in exchange
for $431 million principal amount of our debt securities.
As
discussed in Note 1, we issued shares of Ford Common Stock from time to time in
market transactions and used the proceeds to purchase outstanding Ford Credit
debt securities maturing prior to 2012. As of
December 31, 2008 we issued 88,325,372 shares of Ford Common
Stock resulting in proceeds of $434 million.
As
discussed in Note 16, on December 7, 2007, we issued an aggregate
of 62,000,761 shares of Ford Common Stock in exchange for $567 million
principal amount of our debt securities.
Amounts
Per Share of Common and Class B Stock
The
calculation of diluted income per share of Ford Common Stock and Class B Stock
takes into account the effect of obligations, such as RSU-stock awards, stock
options, and convertible notes and securities, considered to be potentially
dilutive. Basic and diluted income/(loss) per share were calculated
using the following (in millions):
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted Income/(Loss)
|
|
|
|
|
|
|
|
|
|
Basic
income/(loss) from continuing operations attributable to Common Stock and
Class B Stock
|
|
$ |
(14,681 |
) |
|
$ |
(2,764 |
) |
|
$ |
(12,629 |
) |
Effect
of dilutive senior convertible notes (a)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Effect
of Trust Preferred Securities (b)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Diluted
income/(loss) from continuing operations attributable to Common Stock and
Class B Stock
|
|
$ |
(14,681 |
) |
|
$ |
(2,764 |
) |
|
$ |
(12,629 |
) |
Diluted
Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
shares outstanding
|
|
|
2,273 |
|
|
|
1,979 |
|
|
|
1,879 |
|
Restricted
and uncommitted-ESOP shares
|
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(2 |
) |
Basic
shares
|
|
|
2,272 |
|
|
|
1,978 |
|
|
|
1,877 |
|
Net
dilutive options and restricted and uncommitted ESOP shares
(c)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Dilutive
senior convertible notes (a)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Dilutive
Trust Preferred Securities (b)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Diluted
shares
|
|
|
2,272 |
|
|
|
1,978 |
|
|
|
1,877 |
|
_________
|
531
million shares and the related income effect for senior convertible notes
(issued December 15, 2006).
|
(b)
|
282 million shares
and the related income effect for Trust Preferred Securities through
August 2, 2007. As of August 3, 2007,
following the conversion of about 43 million of our Trust Preferred
Securities, 162 million shares and the related income effect are not
included in the calculation.
|
(c)
|
$27
million, $14 million, and $4 million contingently-issuable shares
(primarily reflecting restricted stock units) for 2008, 2007, and 2006,
respectively.
|
NOTE
22. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING
ACTIVITIES
As part
of our risk management strategy, we enter into derivative transactions to
mitigate exposures. Foreign currency forwards, options, swaps and futures are
used to manage foreign exchange exposure. Commodity forwards and options are
used to manage commodity price risk. Interest rate swaps, caps and floors are
used to manage the effects of interest rate fluctuations. The vast majority of
our derivatives are not exchange-traded and are over-the-counter customized
derivative transactions. The objective of our risk management program is to
offset gains and losses on the underlying exposures with gains and losses on
derivatives used to hedge them. Regardless of hedge accounting
treatment, we only enter into transactions we believe will be highly effective
at offsetting the underlying risk. See Note 2 for information
regarding our hedge accounting policies.
Regardless
of hedge accounting treatment, we only enter into transactions we believe will
be highly effective at offsetting the underlying risk. We do not engage in any
speculative activities in the derivative markets.
Our use
of derivatives to manage market risk results in the risk of a counterparty
defaulting on a derivative contract. We establish exposure limits for
each counterparty to minimize this risk and provide counterparty
diversification. Substantially all of our derivative exposures are
with counterparties that have long-term credit ratings of single-A or better.
The aggregate fair value of derivative instruments in asset positions on
December 31, 2008, is $4.5 billion, and represents the maximum loss
that would be recognized at the reporting date if all counterparties failed to
perform as contracted.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
22. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)
Income
Statement Effect of Derivative Instruments
The
following table summarizes the pre-tax gains/(losses) for each type of hedge
designation for the Automotive and Financial Services sectors, for the years
ended December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
Income
Statement Classification
|
Automotive
Sector
|
|
|
|
|
|
|
|
|
|
|
Cash
flow hedges:
|
|
|
|
|
|
|
|
|
|
|
Impact
of discontinued hedges (a)
|
|
$ |
3 |
|
|
$ |
190 |
|
|
$ |
(8 |
) |
Automotive
cost of sales
|
Ineffectiveness
|
|
|
3 |
|
|
|
— |
|
|
|
— |
|
Automotive
cost of sales
|
Net
investment hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ineffectiveness
|
|
|
— |
|
|
|
(1 |
) |
|
|
40 |
|
Automotive
cost of sales
|
Derivatives
not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodities
(b)
|
|
|
(262 |
) |
|
|
33 |
|
|
|
333 |
|
Automotive
cost of sales
|
Foreign
currency derivatives on operating exposures (b) (c)
|
|
|
755 |
|
|
|
474 |
|
|
|
71 |
|
Automotive
cost of sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency derivatives on investment portfolios
|
|
|
16 |
|
|
|
— |
|
|
|
— |
|
Automotive
interest income/(expense) and other non-operating income/(expense),
net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
(18 |
) |
|
|
(53 |
) |
|
|
88 |
|
Automotive
cost of sales; Automotive interest income/(expense) and other
non-operating income/(expense), net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Services Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ineffectiveness
|
|
$ |
(54 |
) |
|
$ |
— |
|
|
$ |
11 |
|
Financial
Services revenues
|
Net
interest settlements and accruals excluded from the assessment of hedge
effectiveness
|
|
|
59 |
|
|
|
— |
|
|
|
19 |
|
Interest
expense
|
Foreign
exchange revaluation adjustments excluded from the assessment of hedge
effectiveness (c)
|
|
|
— |
|
|
|
— |
|
|
|
160 |
|
Financial
Services revenues
|
Derivatives
not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate derivatives
|
|
|
(93 |
) |
|
|
139 |
|
|
|
(181 |
) |
Financial
Services revenues
|
Foreign
currency swaps and forward contracts (c)
|
|
|
1,527 |
|
|
|
(338 |
) |
|
|
(149 |
) |
Selling,
administrative and other expense
|
Other
|
|
|
(1 |
) |
|
|
1 |
|
|
|
1 |
|
Financial
Services revenues
|
__________
(a)
|
Includes
reclassifications in the second quarter of 2007 from Accumulated other
comprehensive income/(loss) in the amount of $182 million
attributable to Jaguar Land Rover forecasted transactions probable to not
occur.
|
(b)
|
Includes
amounts released from Accumulated other
comprehensive income/(loss) to income related to cash
flow hedges de-designated prior to maturity.
|
(c)
|
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).
|
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
22. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)
Balance
Sheet Effect of Derivative Instruments
The
following tables summarize the estimated fair value of our derivative financial
instruments at December 31
(in millions):
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
|
|
|
Fair
Value
|
|
|
Fair
Value
|
|
|
Notional
|
|
|
Fair
Value
|
|
|
Fair
Value
|
|
|
|
(in
billions)
|
|
|
Assets
|
|
|
Liabilities
|
|
|
(in
billions)
|
|
|
Assets
|
|
|
Liabilities
|
|
Automotive
Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flow hedges
|
|
$ |
2 |
|
|
$ |
235 |
|
|
$ |
112 |
|
|
$ |
15 |
|
|
$ |
617 |
|
|
$ |
195 |
|
Derivatives
not designated as hedging instruments
|
|
|
9 |
|
|
|
469 |
|
|
|
554 |
|
|
|
21 |
|
|
|
757 |
|
|
|
188 |
|
Total
derivative financial instruments
|
|
$ |
11 |
|
|
$ |
704 |
|
|
$ |
666 |
|
|
$ |
36 |
|
|
$ |
1,374 |
|
|
$ |
383 |
|
Financial
Services Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value hedges
|
|
$ |
3 |
|
|
$ |
345 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Derivatives
not designated as hedging instruments
|
|
|
152 |
|
|
|
3,471 |
|
|
|
2,157 |
|
|
|
182 |
|
|
|
2,811 |
|
|
|
1,349 |
|
Total
derivative financial instruments
|
|
$ |
155 |
|
|
$ |
3,816 |
|
|
$ |
2,157 |
|
|
$ |
182 |
|
|
$ |
2,811 |
|
|
$ |
1,349 |
|
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 swap (“CDS”) spread applied to a net exposure, by
counterparty. We use our counterparty's CDS spread when we are in a
net asset position and our own CDS spread when we are in a net liability
position. At December 31, 2008, our adjustment for
non-performance risk relative to a measure based on an unadjusted inter-bank
deposit rate (e.g., LIBOR) reduced derivative assets by $30 million and
$102 million for Automotive and Financial Services sectors, respectively;
and reduced derivative liabilities by $126 million and $117 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. See Note 25 for additional information on fair value
measurements of derivative instruments.
Accumulated
Other Comprehensive Income/(Loss) Activity
The
following table summarizes activity in Accumulated other comprehensive
income/(loss) excluding foreign currency translation adjustments on net
investment hedges for both the Automotive and Financial Services sectors during
the years ended December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
Beginning
of year: net unrealized gain/(loss) on derivative financial
instruments
|
|
$ |
368 |
|
|
$ |
434 |
|
|
$ |
(43 |
) |
Increase/(Decrease)
in fair value of derivatives
|
|
|
(45 |
) |
|
|
178 |
|
|
|
742 |
|
Gains
reclassified from Accumulated other
comprehensive income/(loss)
|
|
|
(258 |
) |
|
|
(244 |
) |
|
|
(265 |
) |
End
of year: net unrealized gain/(loss) on derivative financial
instruments
|
|
$ |
65 |
|
|
$ |
368 |
|
|
$ |
434 |
|
We expect
to reclassify existing net gains of $104 million from Accumulated other comprehensive
income/(loss) to Net
income/(loss) during the next twelve months as the underlying exposures
are realized.
In 2008,
a net gain of $90 million of foreign currency translation on net investment
hedges was transferred from Accumulated other comprehensive
income/(loss) to earnings due to the sale of investments in foreign
affiliates.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
23. RETIREMENT BENEFITS
Employee
Retirement and Savings Plans
We have
two principal qualified defined benefit retirement plans in the United
States. The Ford-UAW Retirement Plan covers hourly employees
represented by the UAW, and the General Retirement Plan covers substantially all
other Ford employees in the United States hired on or before
December 31, 2003. The hourly plan provides noncontributory
benefits related to employee service. The salaried plan provides
similar noncontributory benefits and contributory benefits related to pay and
service. Other U.S. and non-U.S. subsidiaries have separate plans
that generally provide similar types of benefits for their
employees. We established, effective January 1, 2004, a
defined contribution plan generally covering new salaried U.S. employees hired
on or after that date.
For our
plans that provide benefits based on salary, we project employee future salary
growth for such salary-related benefits. Certain of our defined
benefit pension plans provide benefits that are not based on salary (e.g., U.S.
Ford-UAW Retirement Plan, noncontributory portion of the U.S. General Retirement
Plan, and Canada Ford-UAW Retirement Plan). The salary growth
assumption is not applicable to these benefits.
Plan
obligations and costs are based on existing retirement plan
provisions. No assumption is made regarding any potential future
changes to benefit provisions beyond those to which we are presently committed
(e.g., in existing labor contracts).
In
general, our plans are funded, with the main exceptions being certain plans in
Germany and U.S. defined benefit plans for senior management. In such
cases, an unfunded liability is recorded.
The
expense for our worldwide defined contribution plans was $163 million in 2008,
$136 million in 2007, and $80 million in 2006. This
includes the expense for company matching contributions to our primary employee
savings plan in the United States of $58 million in 2008, $37 million in
2007, and $0 in 2006. Company matching contributions for U.S.
employees were suspended effective January 1, 2009.
Other
Postretirement Employee Benefits
We, and
certain of our subsidiaries, sponsor plans to provide other postretirement
benefits for retired employees, primarily certain health care and life insurance
benefits. The Ford UAW Hospital-Surgical-Medical-Drug-Dental-Vision
Program ("H-S-M-D-D-V Program") covers hourly employees represented by the UAW,
and the Ford Salaried Health Care Plan covers substantially all other Ford
employees in the United States hired before
June 1, 2001. U.S. salaried employees hired on or after
June 1, 2001 are covered by a separate plan that provides for annual
company allocations to employee-specific notional accounts to be used to fund
postretirement health care benefits. We also provide company-paid
postretirement life insurance benefits to U.S. salaried employees hired before
January 1, 2004 and all U.S. hourly employees. Our
employees generally may become eligible for benefits when they retire; however,
benefits and eligibility rules may be modified from time to time.
Effective
January 1, 2007 for U.S. salaried employees hired before
June 1, 2001, we established a company contribution limit set at 2006
levels for retiree health care benefits. In addition, for U.S.
salaried employees hired before January 1, 2004 who are retirement
eligible after June 1, 2006, company-paid retiree life insurance
benefits were limited to $50,000. These benefit changes resulted in a
reduction in 2006 and ongoing expense of about $400 million annually as
well as a decrease in the year-end 2005 OPEB obligation of about
$3 billion.
Effective
January 1, 2008 for U.S. salaried employees hired before June 1, 2001,
we replaced health care coverage (including prescription drugs and dental) for
retirees and surviving spouses who are age 65 and older or Medicare
eligible with a new Health Reimbursement Arrangement ("HRA"). Each
such surviving spouse, retiree and his or her eligible spouse are provided an
annual amount of up to $1,800 in an HRA account. The HRA may be used
to help offset health care, dental, vision and hearing costs. This
benefit change resulted in a decrease in the year-end 2006 OPEB obligation of
about $500 million and a reduction in 2006 and ongoing expense of about
$80 million annually.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
23. RETIREMENT BENEFITS (Continued)
Effective
August 1, 2008, the Company-paid retiree basic life insurance benefits were
capped at $25,000 for eligible existing and future salaried
retirees. Salaried employees hired on or after January 1, 2004 are
not eligible for retiree basic life insurance. The obligation
decreased by about $850 million and ongoing expense was reduced by about
$125 million annually beginning in 2009 as a result of this benefit
change. This supersedes the limit effective January 1, 2007 for
Company-paid retiree life insurance benefits of $50,000.
UAW
Retiree Health Care Settlement Agreement
The
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
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 was 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 estimated
to have a present value of $1.5 billion as of August
29, 2008.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
23. RETIREMENT BENEFITS (Continued)
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 $2.3 billion reflecting realized losses of
$234 million and $742 million at August 29, 2008 and
December 31, 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.
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/(loss).
The New
Benefit Obligation was 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/(loss) and attributable to years of service after
December 31, 2009. We 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
continue to record service costs and other elements of net periodic
postretirement benefit costs, and 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 realized and unrealized returns through the Implementation
Date. Ford does not guarantee or warrant the investment returns of
these assets.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
23. RETIREMENT BENEFITS (Continued)
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/(loss) 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.
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 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 made 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
UAW Benefit 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.
The
following table summarizes the assets held by the UAW Benefit Trust and the
related obligation (in millions). These amounts are excluded from our
worldwide OPEB benefit obligation and plan asset values shown on the following
page.
|
|
|
|
|
|
|
|
|
|
|
Change
in Benefit Obligation
|
|
|
|
|
|
|
Benefit
obligation at January 1
|
|
$ |
15 |
|
|
$ |
12 |
|
Benefits
paid
|
|
|
(158 |
) |
|
|
(152 |
) |
Contributions
|
|
|
196 |
|
|
|
154 |
|
Actual
return on trust assets
|
|
|
1 |
|
|
|
1 |
|
Benefit
obligation at December 31
|
|
$ |
54 |
|
|
$ |
15 |
|
|
|
|
|
|
|
|
|
|
Change
in Plan Assets
|
|
|
|
|
|
|
|
|
Fair
value of plan assets at January 1
|
|
$ |
15 |
|
|
$ |
12 |
|
Benefits
paid
|
|
|
(158 |
) |
|
|
(152 |
) |
Contributions
|
|
|
196 |
|
|
|
154 |
|
Actual
return on trust assets
|
|
|
1 |
|
|
|
1 |
|
Fair
value of plan assets at December 31
|
|
$ |
54 |
|
|
$ |
15 |
|
|
|
|
|
|
|
|
|
|
Net
Liability Recognized
|
|
$ |
— |
|
|
$ |
— |
|
NOTE
23. RETIREMENT BENEFITS (Continued)
The
measurement date for substantially all of our worldwide postretirement benefit
plans is December 31. Our expense for defined benefit pension
and OPEB was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
378 |
|
|
$ |
464 |
|
|
$ |
680 |
|
|
$ |
403 |
|
|
$ |
632 |
|
|
$ |
704 |
|
|
$ |
326 |
|
|
$ |
369 |
|
|
$ |
617 |
|
Interest
cost
|
|
|
2,687 |
|
|
|
2,621 |
|
|
|
2,431 |
|
|
|
1,519 |
|
|
|
1,650 |
|
|
|
1,396 |
|
|
|
1,456 |
|
|
|
1,805 |
|
|
|
2,004 |
|
Expected
return on assets
|
|
|
(3,462 |
) |
|
|
(3,479 |
) |
|
|
(3,379 |
) |
|
|
(1,693 |
) |
|
|
(1,905 |
) |
|
|
(1,643 |
) |
|
|
(265 |
) |
|
|
(256 |
) |
|
|
(479 |
) |
Amortization
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior
service cost/(credit)
|
|
|
374 |
|
|
|
265 |
|
|
|
444 |
|
|
|
99 |
|
|
|
109 |
|
|
|
120 |
|
|
|
(900 |
) |
|
|
(996 |
) |
|
|
(815 |
) |
(Gains)/Losses
and other
|
|
|
19 |
|
|
|
24 |
|
|
|
99 |
|
|
|
213 |
|
|
|
460 |
|
|
|
568 |
|
|
|
267 |
|
|
|
817 |
|
|
|
769 |
|
Separation
programs
|
|
|
334 |
|
|
|
814 |
|
|
|
440 |
|
|
|
138 |
|
|
|
190 |
|
|
|
263 |
|
|
|
13 |
|
|
|
7 |
|
|
|
84 |
|
(Gain)/Loss
from curtailment
|
|
|
— |
|
|
|
176 |
|
|
|
2,535 |
|
|
|
— |
|
|
|
(8 |
) |
|
|
206 |
|
|
|
(2,714 |
) |
|
|
(1,332 |
) |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
expense
|
|
$ |
330 |
|
|
$ |
885 |
|
|
$ |
3,250 |
|
|
$ |
679 |
|
|
$ |
1,128 |
|
|
$ |
1,614 |
|
|
$ |
(1,817 |
) |
|
$ |
414 |
|
|
$ |
2,183 |
|
_______
* Includes
Jaguar Land Rover.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
23. RETIREMENT BENEFITS (Continued)
The
year-end status of these plans was as follows (dollar amounts in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in Benefit Obligation (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
obligation at January 1
|
|
$ |
44,493 |
|
|
$ |
45,252 |
|
|
$ |
26,958 |
|
|
$ |
27,371 |
|
|
$ |
28,096 |
|
|
$ |
30,863 |
|
Service
cost
|
|
|
378 |
|
|
|
464 |
|
|
|
353 |
|
|
|
452 |
|
|
|
326 |
|
|
|
369 |
|
Interest
cost
|
|
|
2,687 |
|
|
|
2,619 |
|
|
|
1,387 |
|
|
|
1,324 |
|
|
|
1,456 |
|
|
|
1,805 |
|
Amendments
|
|
|
3 |
|
|
|
1,623 |
|
|
|
108 |
|
|
|
12 |
|
|
|
(928 |
) |
|
|
(20 |
) |
Separation
programs
|
|
|
334 |
|
|
|
813 |
|
|
|
86 |
|
|
|
169 |
|
|
|
13 |
|
|
|
7 |
|
Curtailments
|
|
|
— |
|
|
|
118 |
|
|
|
— |
|
|
|
10 |
|
|
|
(1 |
) |
|
|
6 |
|
Settlements
|
|
|
— |
|
|
|
(3 |
) |
|
|
(58 |
) |
|
|
(146 |
) |
|
|
— |
|
|
|
— |
|
Plan
participant contributions
|
|
|
25 |
|
|
|
34 |
|
|
|
101 |
|
|
|
99 |
|
|
|
42 |
|
|
|
64 |
|
Benefits
paid
|
|
|
(3,969 |
) |
|
|
(3,937 |
) |
|
|
(1,472 |
) |
|
|
(1,660 |
) |
|
|
(1,628 |
) |
|
|
(1,699 |
) |
Medicare
D subsidy
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
68 |
|
|
|
85 |
|
Foreign
exchange translation
|
|
|
— |
|
|
|
— |
|
|
|
(5,002 |
) |
|
|
2,297 |
|
|
|
(478 |
) |
|
|
398 |
|
Divestiture
|
|
|
— |
|
|
|
— |
|
|
|
(6 |
) |
|
|
(75 |
) |
|
|
— |
|
|
|
— |
|
Actuarial
(gain)/loss and other
|
|
|
(821 |
) |
|
|
(2,490 |
) |
|
|
(842 |
) |
|
|
(2,895 |
) |
|
|
(7,901 |
) |
|
|
(3,782 |
) |
Benefit
obligation at December 31
|
|
$ |
43,130 |
|
|
$ |
44,493 |
|
|
$ |
21,613 |
|
|
$ |
26,958 |
|
|
$ |
19,065 |
|
|
$ |
28,096 |
|
Change
in Plan Assets (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of plan assets at January 1
|
|
$ |
45,759 |
|
|
$ |
44,696 |
|
|
$ |
22,429 |
|
|
$ |
20,183 |
|
|
$ |
3,875 |
|
|
$ |
4,921 |
|
Actual
return on plan assets
|
|
|
(4,486 |
) |
|
|
4,860 |
|
|
|
(2,192 |
) |
|
|
900 |
|
|
|
(1,011 |
) |
|
|
79 |
|
Company
contributions
|
|
|
144 |
|
|
|
148 |
|
|
|
1,321 |
|
|
|
1,515 |
|
|
|
— |
|
|
|
— |
|
Plan
participant contributions
|
|
|
25 |
|
|
|
34 |
|
|
|
101 |
|
|
|
99 |
|
|
|
— |
|
|
|
— |
|
Benefits
paid
|
|
|
(3,969 |
) |
|
|
(3,937 |
) |
|
|
(1,472 |
) |
|
|
(1,660 |
) |
|
|
(77 |
) |
|
|
(1,125 |
) |
Settlements
|
|
|
— |
|
|
|
(3 |
) |
|
|
(58 |
) |
|
|
(146 |
) |
|
|
— |
|
|
|
— |
|
Foreign
exchange translation
|
|
|
— |
|
|
|
— |
|
|
|
(4,687 |
) |
|
|
1,623 |
|
|
|
— |
|
|
|
— |
|
Divestiture
|
|
|
— |
|
|
|
— |
|
|
|
(3 |
) |
|
|
(75 |
) |
|
|
— |
|
|
|
— |
|
Other
|
|
|
(38 |
) |
|
|
(39 |
) |
|
|
(11 |
) |
|
|
(10 |
) |
|
|
(1 |
) |
|
|
— |
|
Fair
value of plan assets at December 31
|
|
$ |
37,435 |
|
|
$ |
45,759 |
|
|
$ |
15,428 |
|
|
$ |
22,429 |
|
|
$ |
2,786 |
|
|
$ |
3,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded
status at December 31
|
|
$ |
(5,695 |
) |
|
$ |
1,266 |
|
|
$ |
(6,185 |
) |
|
$ |
(4,529 |
) |
|
$ |
(16,279 |
) |
|
$ |
(24,221 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
Recognized on the Balance Sheet (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid
assets
|
|
$ |
15 |
|
|
$ |
2,984 |
|
|
$ |
54 |
|
|
$ |
894 |
|
|
$ |
— |
|
|
$ |
— |
|
Accrued
liabilities
|
|
|
(5,710 |
) |
|
|
(1,718 |
) |
|
|
(6,239 |
) |
|
|
(5,423 |
) |
|
|
(16,279 |
) |
|
|
(24,221 |
) |
Total
|
|
$ |
(5,695 |
) |
|
$ |
1,266 |
|
|
$ |
(6,185 |
) |
|
$ |
(4,529 |
) |
|
$ |
(16,279 |
) |
|
$ |
(24,221 |
) |
Amounts
Recognized in Accumulated Other Comprehensive Loss (b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized
prior service costs/(credits)
|
|
$ |
2,268 |
|
|
$ |
2,639 |
|
|
$ |
557 |
|
|
$ |
645 |
|
|
$ |
(3,510 |
) |
|
$ |
(6,242 |
) |
Unamortized
net (gains)/losses and other
|
|
|
4,858 |
|
|
|
(2,288 |
) |
|
|
5,163 |
|
|
|
3,973 |
|
|
|
611 |
|
|
|
7,674 |
|
Total
|
|
$ |
7,126 |
|
|
$ |
351 |
|
|
$ |
5,720 |
|
|
$ |
4,618 |
|
|
$ |
(2,899 |
) |
|
$ |
1,432 |
|
Pension
Plans in Which Accumulated Benefit Obligation Exceeds Plan Assets at
December 31 (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
benefit obligation
|
|
$ |
25,051 |
|
|
$ |
1,702 |
|
|
$ |
12,458 |
|
|
$ |
13,579 |
|
|
|
|
|
|
|
|
|
Fair
value of plan assets
|
|
|
20,098 |
|
|
|
64 |
|
|
|
7,677 |
|
|
|
9,244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
Benefit Obligation at December 31 (a)
|
|
$ |
42,355 |
|
|
$ |
43,497 |
|
|
$ |
20,256 |
|
|
$ |
25,227 |
|
|
|
|
|
|
|
|
|
_______
(a)
|
Excludes
Jaguar Land Rover.
|
(b)
|
Includes
Jaguar Land Rover.
|
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
23. RETIREMENT BENEFITS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Assumptions at December 31 (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate
|
|
|
6.50 |
% |
|
|
6.25 |
% |
|
|
5.90 |
% |
|
|
5.58 |
% |
|
|
4.95 |
% |
|
|
6.45 |
% |
Expected
return on assets
|
|
|
8.25 |
% |
|
|
8.25 |
% |
|
|
7.10 |
% |
|
|
7.26 |
% |
|
|
4.67 |
% |
|
|
8.40 |
% |
Average
rate of increase in compensation
|
|
|
3.80 |
% |
|
|
3.80 |
% |
|
|
3.15 |
% |
|
|
3.21 |
% |
|
|
3.80 |
% |
|
|
3.80 |
% |
Initial
health care cost trend rate
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5 |
% |
|
|
3 |
% |
Ultimate
health care cost trend rate (b)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5 |
% |
Year
ultimate trend rate is reached (b)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
2011
|
|
Assumptions
Used to Determine Net Benefit Cost for the Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate (c)
|
|
|
6.25 |
% |
|
|
5.86 |
% |
|
|
5.58 |
% |
|
|
4.91 |
% |
|
|
5.81 |
% |
|
|
5.98 |
% |
Expected
return on assets (c)
|
|
|
8.25 |
% |
|
|
8.50 |
% |
|
|
7.26 |
% |
|
|
7.64 |
% |
|
|
7.17 |
% |
|
|
5.50 |
% |
Average
rate of increase in compensation
|
|
|
3.80 |
% |
|
|
3.80 |
% |
|
|
3.21 |
% |
|
|
3.30 |
% |
|
|
3.80 |
% |
|
|
3.80 |
% |
Weighted
Average Asset Allocation at December 31 (d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities
|
|
|
35.7 |
% |
|
|
51.3 |
% |
|
|
40.6 |
% |
|
|
55.2 |
% |
|
|
48.2 |
% |
|
|
— |
|
Debt
securities
|
|
|
57.8 |
% |
|
|
46.2 |
% |
|
|
57.8 |
% |
|
|
43.6 |
% |
|
|
51.7 |
% |
|
|
100.0 |
% |
Real
estate
|
|
|
— |
|
|
|
— |
|
|
|
0.9 |
% |
|
|
0.7 |
% |
|
|
— |
|
|
|
— |
|
Other
assets
|
|
|
6.5 |
% |
|
|
2.5 |
% |
|
|
0.7 |
% |
|
|
0.5 |
% |
|
|
0.1 |
% |
|
|
— |
|
_______
(a)
|
Excludes
Jaguar Land Rover.
|
(b)
|
The
ultimate trend rate for U.S. health care plans no longer applies beyond
2008 since we have capped our obligation for hourly and salaried retiree
health care costs.
|
(c)
|
Includes
effects of all remeasurements during
2008.
|
(d)
|
Weighted
average asset allocation based on major non-U.S. plans including United
Kingdom, Canada, Germany, Sweden, Netherlands, Belgium and
Australia. Excludes Jaguar Land Rover
plans.
|
As a
result of the Retiree Health Care Settlement Agreement and various separation
programs (discussed in Note 18), we have recognized curtailments due to the
significant reduction in the expected aggregate years of future service of the
employees in the U.S. and Canadian pension and OPEB plans. The
financial impact of the curtailments is reflected in the tables above
and is recorded in Automotive cost of sales and
Selling, administrative and
other expenses.
On
December 31, 2006, we adopted certain recognition and disclosure
provisions of SFAS No. 158, Employers' Accounting for Defined
Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements
No. 87, 88, 106 and 132(R) ("SFAS No. 158"). This
standard requires employers that sponsor defined benefit plans to recognize the
overfunded or underfunded status of a defined benefit postretirement plan as an
asset or liability in its balance sheet, and to recognize changes in that funded
status in the year in which the changes occur. Unrecognized prior
service credits/costs and net actuarial gains/losses are recognized as a
component of Accumulated other
comphrehensive income/(loss).
The
amounts in Accumulated other
comprehensive income/(loss) that are expected to be recognized as
components of net expense/(income) during the next year are as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior
service cost/(credit)
|
|
$ |
374 |
|
|
$ |
81 |
|
|
$ |
(910 |
) |
|
$ |
(455 |
) |
(Gains)/Losses
and other
|
|
|
16 |
|
|
|
119 |
|
|
|
75 |
|
|
|
210 |
|
Plan
Contributions and Drawdowns
Pension. Our
policy for funded pension plans is to contribute annually, at a minimum, amounts
required by applicable laws and regulations. We do from time to time
make contributions beyond those legally required. In 2008, we made
$1.7 billion of cash contributions to our funded pension plans, including
plans for our former Jaguar and Land Rover
operations. During 2009, we expect to contribute to our
worldwide pension plans $1.5 billion from available Automotive cash and
cash equivalents. This amount includes about $400 million of
benefit payments paid directly by us for unfunded plans.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
23. RETIREMENT BENEFITS (Continued)
Based on
current assumptions and regulations, we do not expect to have a legal
requirement to fund our major U.S. pension plans in 2009.
Life Insurance. In
2008, we withdrew approximately $80 million from the VEBA as reimbursement for
U.S. hourly retiree life insurance benefit payments. During 2009, we
expect to withdraw about $60 million from the VEBA as reimbursement for
U.S. hourly retiree life insurance benefit payments.
Estimated
Future Benefit Payments
The
following table presents estimated future gross benefit payments and subsidy
receipts related to the Medicare Prescription Drug Improvement and Modernization
Act of 2003 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
$ |
3,980 |
|
|
$ |
1,240 |
|
|
$ |
1,610 |
|
|
$ |
(60 |
) |
2010
|
|
|
3,880 |
|
|
|
1,230 |
|
|
|
530 |
|
|
|
- |
|
2011
|
|
|
3,740 |
|
|
|
1,250 |
|
|
|
460 |
|
|
|
- |
|
2012
|
|
|
3,640 |
|
|
|
1,280 |
|
|
|
450 |
|
|
|
- |
|
2013
|
|
|
3,510 |
|
|
|
1,290 |
|
|
|
450 |
|
|
|
- |
|
2014
- 2018
|
|
|
16,320 |
|
|
|
6,840 |
|
|
|
2,170 |
|
|
|
- |
|
Plan
Asset Information
Pension. Our
investment strategy for pension assets has a long-term horizon, in keeping with
the long-term nature of the liabilities. In our 2007 Ford 10-K
Report, we disclosed that we revised our investment strategy in order to reduce
the volatility of the value of our U.S. pension assets relative to U.S. pension
liabilities. We reduced the proportion of public equity investments
and increased the proportion of assets in fixed income and alternative
investments. Our present target asset allocation, which we expect to
reach over the next several years, is about 30% public equity investments, 45%
fixed income investments, and up to 25% alternative investments (e.g., private
equity, real estate, and hedge funds).
In 2008,
the investment strategies for Ford U.K. and Ford Canada plans also were revised,
with similar objectives. The target asset allocations for Ford U.K.
and Ford Canada plans are about 30% public equity investments and 45% fixed
income, and up to 25% alternative investments.
All
assets are externally managed and most assets are actively
managed. Ford securities comprised less than five percent of the
total market value of our assets in major worldwide plans (including the United
States, United Kingdom, Canada, Germany, Sweden, Netherlands, Belgium, and
Australia) during 2008 and 2007.
Public
equity and fixed income investment managers are permitted to use derivatives as
efficient substitutes for traditional securities and to manage exposure to
foreign exchange and interest rate risks. Interest rate and foreign
currency derivative instruments are used for the purpose of hedging changes in
the fair value of assets that result from interest rate changes and currency
fluctuations. Interest rate derivatives are also used to adjust
portfolio duration. Derivatives may not be used to leverage or to
alter the economic exposure to an asset class outside the scope of the mandate
to which an investment manager has been appointed.
Alternative
investment managers are permitted to employ leverage (including through the use
of derivatives or other tools) that may alter economic exposure.
The
equity allocation shown at year-end 2008 and 2007 includes public equity
securities. Other assets include private equity investments, hedge
funds, and cash held for near-term benefit funding; cash held by investment
managers for liquidity purposes is included in the appropriate asset class
balance.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
23. RETIREMENT BENEFITS (Continued)
The
long-term return assumption at year-end 2008 is 8.25% for U.S. plans, 7.75% for
U.K. plans and averages 7.10% for all non-U.S. plans. A generally
consistent approach is used worldwide to develop this
assumption. This approach considers various sources, primarily inputs
from a range of advisors for long-term capital market returns, inflation, bond
yields and other variables, adjusted for specific aspects of our investment
strategy by plan. Historical returns are also considered where
appropriate.
At
December 31, 2008, our actual 10-year annual rate of return on pension
plan assets was 6.0% and 3.4% for U.S. and U.K. plans,
respectively. At December 31, 2007, our actual 10-year
annual rate of return on pension plan assets was 8.84% and 6.45% for U.S. and
U.K. plans, respectively.
Health Care. At
December 31, 2008, we had $2.7 billion of retiree health care
VEBA assets, which were predominantly invested about 70% in public equity
investments and 30% in longer duration fixed income investments. All
VEBA assets are managed externally. Ford securities comprised less
than five percent of the market value of the total assets during 2008 and
2007.
Investment
managers are permitted to use derivatives as efficient substitutes for
traditional securities and to manage exposure to foreign exchange and interest
rate risks. Interest rate and foreign currency derivative instruments
are used for the purpose of hedging changes in the fair value of assets that
result from interest rate changes and currency
fluctuations. Derivatives may not be used to leverage or to alter the
economic exposure to an asset class outside the scope of the mandate to which an
investment manager has been appointed. Cash held by investment
managers for liquidity purposes is included in the appropriate asset class
balance.
The
expected return assumption applicable to the retiree health care VEBA is 4.75%,
which reflects historical returns, recent trends and long-run inputs from a
range of advisors for capital markets, inflation, bond yields, and other
variables, adjusted for specific aspects of our investment
strategy. The assumption is based on consideration of all inputs,
with a focus on return expectations over the next twelve months (VEBA assets
will be transferred to the New UAW Retiree Health Care VEBA in
2009).
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
24. OPERATING CASH FLOWS
The
reconciliation of Net
income/(loss) to cash flows from operating activities of continuing
operations is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income/(loss)
|
|
$ |
(13,080 |
) |
|
$ |
(1,592 |
) |
|
$ |
(14,672 |
) |
(Income)/Loss
of discontinued operations
|
|
|
— |
|
|
|
(9 |
) |
|
|
(9 |
) |
Depreciation
and special tools amortization
|
|
|
5,803 |
|
|
|
7,023 |
|
|
|
12,826 |
|
Impairment
charges (depreciation and amortization)
|
|
|
5,318 |
|
|
|
2,086 |
|
|
|
7,404 |
|
Jaguar
Land Rover impairment charge
|
|
|
421 |
|
|
|
— |
|
|
|
421 |
|
Amortization
of intangibles
|
|
|
99 |
|
|
|
— |
|
|
|
99 |
|
Other
amortization
|
|
|
51 |
|
|
|
(643 |
) |
|
|
(592 |
) |
Net
losses/(earnings) from equity investments in excess of dividends
received
|
|
|
60 |
|
|
|
— |
|
|
|
60 |
|
Provision
for credit and insurance losses
|
|
|
— |
|
|
|
1,874 |
|
|
|
1,874 |
|
Foreign
currency adjustments
|
|
|
(484 |
) |
|
|
— |
|
|
|
(484 |
) |
Net
(gain)/loss on investment securities
|
|
|
1,364 |
|
|
|
11 |
|
|
|
1,375 |
|
Net
(gain)/loss on sale of businesses
|
|
|
551 |
|
|
|
(29 |
) |
|
|
522 |
|
Net
(gain)/loss on debt conversions
|
|
|
(141 |
) |
|
|
— |
|
|
|
(141 |
) |
Net
(gain)/loss on pension and OPEB curtailment
|
|
|
(2,714 |
) |
|
|
— |
|
|
|
(2,714 |
) |
Goodwill
impairment
|
|
|
88 |
|
|
|
— |
|
|
|
88 |
|
Stock
option expense
|
|
|
32 |
|
|
|
3 |
|
|
|
35 |
|
Cash
changes in operating assets and liabilities were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for deferred income taxes
|
|
|
4,602 |
|
|
|
(2,648 |
) |
|
|
1,954 |
|
Decrease/(Increase)
in accounts receivable and other assets
|
|
|
(1,351 |
) |
|
|
2,442 |
|
|
|
1,091 |
|
Decrease/(Increase)
in inventory
|
|
|
(358 |
) |
|
|
— |
|
|
|
(358 |
) |
Increase/(Decrease)
in accounts payable and accrued and other liabilities
|
|
|
(13,905 |
) |
|
|
1,258 |
|
|
|
(12,647 |
) |
Net
sales/(purchases) of trading securities
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Other
|
|
|
1,204 |
|
|
|
(669 |
) |
|
|
535 |
|
Cash
flows from operating activities of continuing operations
|
|
$ |
(12,440 |
) |
|
$ |
9,107 |
|
|
$ |
(3,333 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income/(loss)
|
|
$ |
(3,480 |
) |
|
$ |
757 |
|
|
$ |
(2,723 |
) |
(Income)/Loss
of discontinued operations
|
|
|
(35 |
) |
|
|
(6 |
) |
|
|
(41 |
) |
Depreciation
and special tools amortization
|
|
|
6,763 |
|
|
|
6,289 |
|
|
|
13,052 |
|
Amortization
of intangibles
|
|
|
106 |
|
|
|
— |
|
|
|
106 |
|
Other
amortization
|
|
|
57 |
|
|
|
521 |
|
|
|
578 |
|
Net
losses/(earnings) from equity investments in excess of dividends
received
|
|
|
(175 |
) |
|
|
— |
|
|
|
(175 |
) |
Provision
for credit and insurance losses
|
|
|
— |
|
|
|
668 |
|
|
|
668 |
|
Foreign
currency adjustments
|
|
|
206 |
|
|
|
— |
|
|
|
206 |
|
Net
(gain)/loss on investment securities
|
|
|
60 |
|
|
|
(40 |
) |
|
|
20 |
|
Net
(gain)/loss on sale of businesses
|
|
|
(172 |
) |
|
|
(7 |
) |
|
|
(179 |
) |
Net
(gain)/loss on debt conversions
|
|
|
512 |
|
|
|
— |
|
|
|
512 |
|
Net
(gain)/loss on pension and OPEB curtailment
|
|
|
(1,164 |
) |
|
|
— |
|
|
|
(1,164 |
) |
Goodwill
impairment
|
|
|
2,400 |
|
|
|
— |
|
|
|
2,400 |
|
Stock
option expense
|
|
|
70 |
|
|
|
5 |
|
|
|
75 |
|
Cash
changes in operating assets and liabilities were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for deferred income taxes
|
|
|
(880 |
) |
|
|
(4,597 |
) |
|
|
(5,477 |
) |
Decrease/(Increase)
in accounts receivable and other assets
|
|
|
313 |
|
|
|
(268 |
) |
|
|
45 |
|
Decrease/(Increase)
in inventory
|
|
|
371 |
|
|
|
— |
|
|
|
371 |
|
Increase/(Decrease)
in accounts payable and accrued and other liabilities
|
|
|
(1,041 |
) |
|
|
2,389 |
|
|
|
1,348 |
|
Net
sales/(purchases) of trading securities
|
|
|
4,537 |
|
|
|
2 |
|
|
|
4,539 |
|
Other
|
|
|
277 |
|
|
|
689 |
|
|
|
966 |
|
Cash
flows from operating activities of continuing operations
|
|
$ |
8,725 |
|
|
$ |
6,402 |
|
|
$ |
15,127 |
|
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
24. OPERATING CASH FLOWS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income/(loss)
|
|
$ |
(13,912 |
) |
|
$ |
1,299 |
|
|
$ |
(12,613 |
) |
(Income)/Loss
of discontinued operations
|
|
|
(16 |
) |
|
|
— |
|
|
|
(16 |
) |
Depreciation
and special tools amortization
|
|
|
7,358 |
|
|
|
5,295 |
|
|
|
12,653 |
|
Impairment
charges (depreciation and amortization)
|
|
|
3,800 |
|
|
|
— |
|
|
|
3,800 |
|
Amortization
of intangibles
|
|
|
66 |
|
|
|
— |
|
|
|
66 |
|
Net
losses/(earnings) from equity investments in excess of dividends
received
|
|
|
(253 |
) |
|
|
— |
|
|
|
(253 |
) |
Provision
for credit and insurance losses
|
|
|
— |
|
|
|
241 |
|
|
|
241 |
|
Foreign
currency adjustments
|
|
|
112 |
|
|
|
— |
|
|
|
112 |
|
Net
(gain)/loss on investment securities
|
|
|
13 |
|
|
|
(15 |
) |
|
|
(2 |
) |
(Gain)/Loss
on sale of business
|
|
|
— |
|
|
|
(33 |
) |
|
|
(33 |
) |
Stock
option expense
|
|
|
72 |
|
|
|
5 |
|
|
|
77 |
|
Cash
changes in operating assets and liabilities were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for deferred income taxes
|
|
|
(2,577 |
) |
|
|
77 |
|
|
|
(2,500 |
) |
Decrease/(Increase)
in accounts receivable and other assets
|
|
|
1,622 |
|
|
|
657 |
|
|
|
2,279 |
|
Decrease/(Increase)
in inventory
|
|
|
(695 |
) |
|
|
— |
|
|
|
(695 |
) |
Increase/(Decrease)
in accounts payable and accrued and other liabilities
|
|
|
7,112 |
|
|
|
(578 |
) |
|
|
6,534 |
|
Net
sales/(purchases) of trading securities
|
|
|
(6,762 |
) |
|
|
(9 |
) |
|
|
(6,771 |
) |
Other
|
|
|
(112 |
) |
|
|
377 |
|
|
|
265 |
|
Cash
flows from operating activities of continuing operations
|
|
$ |
(4,172 |
) |
|
$ |
7,316 |
|
|
$ |
3,144 |
|
Cash
paid/(received) for interest and income taxes for continuing operations was as
follows (in millions):
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
|
|
|
Automotive
sector
|
|
$ |
2,021 |
|
|
$ |
2,584 |
|
|
$ |
1,419 |
|
Financial
Services sector
|
|
|
8,090 |
|
|
|
8,346 |
|
|
|
7,483 |
|
Total
interest paid
|
|
$ |
10,111 |
|
|
$ |
10,930 |
|
|
$ |
8,902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
$ |
685 |
|
|
$ |
(223 |
) |
|
$ |
423 |
|
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
25. FAIR VALUE MEASUREMENTS
The
following table summarizes the fair values of financial instruments measured at
fair value on a recurring basis at December 31, 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 December 31, 2008
|
|
Automotive
Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
equivalents –financial instruments (a) (b)
|
|
$ |
117 |
|
|
$ |
1,460 |
|
|
$ |
— |
|
|
$ |
1,577 |
|
Marketable
securities (a) (c) (d)
|
|
|
4,938 |
|
|
|
3,716 |
|
|
|
150 |
|
|
|
8,804 |
|
Derivative
financial instruments
|
|
|
— |
|
|
|
698 |
|
|
|
6 |
|
|
|
704 |
|
Total
assets at fair value
|
|
$ |
5,055 |
|
|
$ |
5,874 |
|
|
$ |
156 |
|
|
$ |
11,085 |
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
financial instruments
|
|
$ |
— |
|
|
$ |
628 |
|
|
$ |
38 |
|
|
$ |
666 |
|
Total
liabilities at fair value
|
|
$ |
— |
|
|
$ |
628 |
|
|
$ |
38 |
|
|
$ |
666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Services Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
equivalents –financial instruments (a)
(b)
|
|
$ |
655 |
|
|
$ |
4,388 |
|
|
$ |
— |
|
|
$ |
5,043 |
|
Marketable
securities (a) (c)
|
|
|
6,236 |
|
|
|
2,366 |
|
|
|
5 |
|
|
|
8,607 |
|
Derivative
financial instruments
|
|
|
— |
|
|
|
2,900 |
|
|
|
916 |
|
|
|
3,816 |
|
Retained
interest in sold receivables
|
|
|
— |
|
|
|
— |
|
|
|
92 |
|
|
|
92 |
|
Total
assets at fair value
|
|
$ |
6,891 |
|
|
$ |
9,654 |
|
|
$ |
1,013 |
|
|
$ |
17,558 |
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
financial instruments
|
|
$ |
— |
|
|
$ |
1,167 |
|
|
$ |
990 |
|
|
$ |
2,157 |
|
Total
liabilities at fair value
|
|
$ |
— |
|
|
$ |
1,167 |
|
|
$ |
990 |
|
|
$ |
2,157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
_______
(a)
|
At
December 31, 2008, approximately 90% 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 in this table excludes time deposits,
certificates of deposit, money market accounts, and other cash equivalents
reported at par value of $1.9 billion and $3.2 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 an investment in Ford Credit debt
securities held by the Automotive sector with a carrying value of
$492 million and a fair value of $437 million. See
Note 1 for additional detail.
|
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
25. 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 December 31, 2008 (in
millions):
|
|
Fair
Value Measurements Using Significant Unobservable
Inputs
|
|
|
|
|
|
|
Fair
Value at January 1, 2008
|
|
|
Total
Realized and Unrealized Gains/ (Losses)
|
|
|
Net
Purchases/ (Settlements)(a)
|
|
|
Net
Transfers Into/(Out of) Level
3
|
|
|
Fair
Value at December
31, 2008
|
|
|
Change
In Unrealized Gains/
(Losses)
on Instruments
Still
Held (b)
|
|
Automotive
Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable
securities (c)
|
|
$ |
201 |
|
|
$ |
(28 |
) |
|
$ |
24 |
|
|
$ |
(47 |
) |
|
$ |
150 |
|
|
$ |
(24 |
) |
Derivative
financial instruments, net (d)
|
|
|
257 |
|
|
|
(124 |
) |
|
|
(83 |
) |
|
|
(82 |
) |
|
|
(32 |
) |
|
|
(63 |
) |
Total
Level 3 fair value
|
|
$ |
458 |
|
|
$ |
(152 |
) |
|
$ |
(59 |
) |
|
$ |
(129 |
) |
|
$ |
118 |
|
|
$ |
(87 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Services Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable
securities (e)
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
5 |
|
|
$ |
— |
|
|
$ |
5 |
|
|
$ |
— |
|
Derivative
financial instruments, net (f)
|
|
|
(2 |
) |
|
|
8 |
|
|
|
(5 |
) |
|
|
(75 |
) |
|
|
(74 |
) |
|
|
(41 |
) |
Retained
interest in sold receivables (g)
|
|
|
653 |
|
|
|
49 |
|
|
|
(610 |
) |
|
|
— |
|
|
|
92 |
|
|
|
(58 |
) |
Total
Level 3 fair value
|
|
$ |
651 |
|
|
$ |
57 |
|
|
$ |
(610 |
) |
|
$ |
(75 |
) |
|
$ |
23 |
|
|
$ |
(99 |
) |
__________
(a)
|
Includes
option premiums paid or received on options traded during the
quarter.
|
(b)
|
For
those assets and liabilities still held at
December 31, 2008.
|
(c)
|
Realized
and 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 $(31) million in the fourth quarter
of 2008, and $(28) million for the full year
2008.
|
(d)
|
Reflects
fair value of derivative assets, net of liabilities. Realized
and unrealized gains/(losses) on Automotive sector derivative financial
instruments for the period presented are recorded to Automotive cost of
sales
($(61) million for fourth quarter of 2008, and $(119) million for the
full year 2008), and Automotive interest income and
other non-operating income/(expense), net ($(1) million
for the fourth quarter of 2008, and $(5) million for the full year
2008) on the income statement. See Note 22 for income statement
classification by hedge
designation.
|
(e)
|
Marketable
securities that were previously included in retained interest in
securitized assets at June 30,
2008.
|
(f)
|
Reflects fair value
of derivative assets, net of liabilities. Realized and
unrealized gains/(losses) on derivative financial instruments for the
period presented are recorded to Interest
expense ($1 million for the fourth quarter of 2008
and $12 million for the full year 2008), and Financial
Services revenues ($(27) million for the fourth quarter of
2008 and $23 million for the full year 2008) on the income statement, and
Accumulated
other comprehensive income/(loss) on the balance sheet reflecting
foreign currency translation ($(24) million for fourth quarter 2008 and
$(27) million for the full year 2008). Refer to Note 22
for income statement classification by hedge
designation.
|
(g)
|
Realized
and unrealized gains/(losses) on the retained interests in securitized
assets for the period presented are recorded in Financial Services revenues
on the
income statement ($2 million in the fourth quarter of 2008 and
$107 million for the full year 2008) and Accumulated other
comprehensive income/(loss) on the balance sheet
($(14) million in the fourth quarter of 2008 and $(58) million for
the full year 2008).
|
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
25. FAIR VALUE MEASUREMENTS (Continued)
Non-Recurring
Measurements. Certain assets and liabilities are measured at
fair value on a non-recurring basis in periods subsequent to their initial
recognition. The following table summarizes the fair values of items
measured at fair value on a non-recurring basis for the year ended
December 31, 2008 (in millions):
|
|
Items
Measured at Fair Value on a Non-recurring Basis
|
|
|
|
|
|
|
Quoted
Price in Active Markets for Identical Assets
|
|
|
Significant
Other Observable Inputs
|
|
|
Significant
Unobservable Inputs
|
|
|
|
|
|
|
|
Automotive
Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
investment (a)
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
131 |
|
|
$ |
131 |
|
|
$ |
(88 |
) |
North
America net property (b)
|
|
|
— |
|
|
|
— |
|
|
|
11,009 |
|
|
|
11,009 |
|
|
|
(5,300 |
) |
Held-for-sale
operations (c)
|
|
|
— |
|
|
|
— |
|
|
|
1,728 |
|
|
|
1,728 |
|
|
|
(439 |
) |
Total
assets at fair value
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
12,868 |
|
|
$ |
12,868 |
|
|
$ |
(5,827 |
) |
Financial
Services Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
investment in certain operating leases (d)
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
9,414 |
|
|
$ |
9,414 |
|
|
$ |
(2,086 |
) |
Total
assets at fair value
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
9,414 |
|
|
$ |
9,414 |
|
|
$ |
(2,086 |
) |
__________
(a)
|
During
the first quarter of 2008, we impaired our investment in our consolidated
dealerships. The fair value measurement used to determine the
impairment was based on liquidation prices of comparable
assets. See Note 14 for additional discussion of this
impairment.
|
(b)
|
In
accordance with the provisions of SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets
("SFAS No. 144"), we recorded a pre-tax impairment charge of
$5.3 billion during the second quarter of 2008 related to the
long-lived assets in the Ford North America segment. The fair value
measurement used to determine the impairment was based on the income
approach which utilized cash flow projections consistent with the most
recent Ford North America business plan approved by our Board of
Directors, a terminal value, and a discount rate equivalent to a market
participant's weighted average cost of capital. See Note 13 for
additional discussion of this
impairment.
|
(c)
|
In
accordance with the provisions of SFAS No. 144, we recorded pre-tax
impairments of $421 million during the first quarter of 2008 and
$18 million during the second quarter of 2008 related to
held-for-sale operations. The fair value measurements used to
determine the impairments were based on expected proceeds negotiated with
the buyers. See Note 20 for additional
discussion of these
impairments.
|
(d)
|
In
accordance with the provisions of SFAS No. 144, we recorded a pre-tax
impairment of $2.1 billion during the second quarter of 2008 related to
certain vehicle lines included in our Financial Services sector Net investment in operating
leases. The fair value used to determine the impairment was
measured by discounting the contractual payments and estimated auction
proceeds. The discount rate reflected hypothetical market assumptions
regarding borrowing rates, credit loss patterns, and residual value
risk. See Note 13 for additional discussion of this
impairment.
|
NOTE
26. 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 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, 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
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
26. SEGMENT INFORMATION (Continued)
Ford
South America segment includes primarily the sale of Ford-brand vehicles and
related service parts in South America.
Ford
Europe segment includes primarily the sale of Ford-brand vehicles and related
service parts in Europe (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 South Africa.
The Mazda
segment includes the equity income/(loss) associated with our investment in
Mazda (33.4% of Mazda's profit after tax before the sale of a portion of our
investment in November 2008), as well as certain of our Mazda-related
investments. Beginning with the fourth quarter of 2008, our remaining
investment in Mazda (approximately 13.78%) will be treated as marketable
securities. All mark-to-market adjustments will flow through Other
Automotive.
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 businesses including holding companies, real estate, and the
financing and leasing of some Volvo vehicles in Europe.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
26. SEGMENT INFORMATION (Continued)
(In
millions)
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jaguar
Land Rover and
Aston
Martin
|
|
|
|
|
|
|
|
Sales/Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
customer
|
|
$ |
53,382 |
|
|
$ |
8,648 |
|
|
$ |
39,009 |
|
|
$ |
14,679 |
|
|
$ |
6,474 |
|
|
$ |
— |
|
|
$ |
6,974 |
|
|
$ |
— |
|
|
$ |
129,166 |
|
Intersegment
|
|
|
677 |
|
|
|
— |
|
|
|
761 |
|
|
|
99 |
|
|
|
— |
|
|
|
— |
|
|
|
63 |
|
|
|
— |
|
|
|
1,600 |
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
before income taxes
|
|
|
(10,248 |
) |
|
|
1,230 |
|
|
|
970 |
|
|
|
(1,690 |
) |
|
|
(290 |
) |
|
|
(105 |
) |
|
|
32 |
|
|
|
(1,722 |
) |
|
|
(11,823 |
) |
Other
disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and special tools amortization
|
|
|
8,272 |
|
|
|
193 |
|
|
|
1,645 |
|
|
|
742 |
|
|
|
254 |
|
|
|
— |
|
|
|
15 |
|
|
|
— |
|
|
|
11,121 |
|
Amortization
of intangibles
|
|
|
7 |
|
|
|
77 |
|
|
|
7 |
|
|
|
7 |
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
99 |
|
Interest
expense
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,938 |
|
|
|
1,938 |
|
Automotive
interest income
|
|
|
61 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
890 |
|
|
|
951 |
|
Cash
outflow for capital expenditures
|
|
|
3,718 |
|
|
|
217 |
|
|
|
1,669 |
|
|
|
547 |
|
|
|
321 |
|
|
|
— |
|
|
|
148 |
|
|
|
— |
|
|
|
6,620 |
|
Unconsolidated
affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in net income/(loss)
|
|
|
90 |
|
|
|
— |
|
|
|
(58 |
) |
|
|
(1 |
) |
|
|
107 |
|
|
|
25 |
|
|
|
— |
|
|
|
— |
|
|
|
163 |
|
Total
assets at year-end
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73,845 |
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales/Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
customer
|
|
$ |
70,366 |
|
|
$ |
7,585 |
|
|
$ |
36,330 |
|
|
$ |
17,772 |
|
|
$ |
7,031 |
|
|
$ |
— |
|
|
$ |
15,295 |
|
|
$ |
— |
|
|
$ |
154,379 |
|
Intersegment
|
|
|
523 |
|
|
|
— |
|
|
|
712 |
|
|
|
118 |
|
|
|
— |
|
|
|
— |
|
|
|
153 |
|
|
|
— |
|
|
|
1,506 |
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
before income taxes
|
|
|
(4,139 |
) |
|
|
1,172 |
|
|
|
744 |
|
|
|
(2,718 |
) |
|
|
2 |
|
|
|
182 |
|
|
|
846 |
|
|
|
(1,059 |
) |
|
|
(4,970 |
) |
Other
disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and special tools amortization
|
|
|
3,809 |
|
|
|
117 |
|
|
|
1,423 |
|
|
|
770 |
|
|
|
261 |
|
|
|
— |
|
|
|
383 |
|
|
|
— |
|
|
|
6,763 |
|
Amortization
of intangibles
|
|
|
17 |
|
|
|
69 |
|
|
|
7 |
|
|
|
7 |
|
|
|
1 |
|
|
|
— |
|
|
|
5 |
|
|
|
— |
|
|
|
106 |
|
Interest
expense
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,252 |
|
|
|
2,252 |
|
Automotive
interest income
|
|
|
87 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,626 |
|
|
|
1,713 |
|
Cash
outflow for capital expenditures
|
|
|
2,895 |
|
|
|
183 |
|
|
|
1,366 |
|
|
|
752 |
|
|
|
258 |
|
|
|
— |
|
|
|
517 |
|
|
|
— |
|
|
|
5,971 |
|
Unconsolidated
affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in net income/(loss)
|
|
|
66 |
|
|
|
— |
|
|
|
4 |
|
|
|
— |
|
|
|
130 |
|
|
|
189 |
|
|
|
— |
|
|
|
— |
|
|
|
389 |
|
Total
assets at year-end
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
118,489 |
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales/Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
customer
|
|
$ |
70,591 |
|
|
$ |
5,697 |
|
|
$ |
30,394 |
|
|
$ |
16,105 |
|
|
$ |
6,539 |
|
|
$ |
— |
|
|
$ |
13,923 |
|
|
$ |
— |
|
|
$ |
143,249 |
|
Intersegment
|
|
|
393 |
|
|
|
— |
|
|
|
878 |
|
|
|
94 |
|
|
|
4 |
|
|
|
— |
|
|
|
139 |
|
|
|
— |
|
|
|
1,508 |
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
before income taxes
|
|
|
(16,006 |
) |
|
|
661 |
|
|
|
371 |
|
|
|
(256 |
) |
|
|
(250 |
) |
|
|
259 |
|
|
|
(2,066 |
) |
|
|
247 |
|
|
|
(17,040 |
) |
Other
disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and special tools amortization
|
|
|
6,830 |
|
|
|
77 |
|
|
|
1,289 |
|
|
|
636 |
|
|
|
246 |
|
|
|
— |
|
|
|
2,080 |
|
|
|
— |
|
|
|
11,158 |
|
Amortization
of intangibles
|
|
|
7 |
|
|
|
1 |
|
|
|
6 |
|
|
|
6 |
|
|
|
1 |
|
|
|
— |
|
|
|
45 |
|
|
|
— |
|
|
|
66 |
|
Interest
expense
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
995 |
|
|
|
995 |
|
Automotive
interest income
|
|
|
75 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,334 |
|
|
|
1,409 |
|
Cash
outflow for capital expenditures
|
|
|
3,641 |
|
|
|
122 |
|
|
|
1,404 |
|
|
|
777 |
|
|
|
267 |
|
|
|
— |
|
|
|
598 |
|
|
|
— |
|
|
|
6,809 |
|
Unconsolidated
affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in net income/(loss)
|
|
|
87 |
|
|
|
— |
|
|
|
1 |
|
|
|
— |
|
|
|
77 |
|
|
|
256 |
|
|
|
— |
|
|
|
— |
|
|
|
421 |
|
Total
assets at year-end
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
122,634 |
|
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
26. SEGMENT INFORMATION (Continued)
|
|
Financial
Services Sector (a)
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
|
|
|
Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales/Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
customer
|
|
$ |
16,672 |
|
|
$ |
439 |
|
|
$ |
— |
|
|
$ |
17,111 |
|
|
$ |
— |
|
|
$ |
146,277 |
|
Intersegment
|
|
|
842 |
|
|
|
25 |
|
|
|
(6 |
) |
|
|
861 |
|
|
|
(2,461 |
) |
|
|
— |
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
before income taxes
|
|
|
(2,559 |
) |
|
|
(22 |
) |
|
|
— |
|
|
|
(2,581 |
) |
|
|
— |
|
|
|
(14,404 |
) |
Other
disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and special tools amortization
|
|
|
9,072 |
|
|
|
37 |
|
|
|
— |
|
|
|
9,109 |
|
|
|
— |
|
|
|
20,230 |
|
Amortization
of intangibles
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
99 |
|
Interest
expense
|
|
|
7,634 |
|
|
|
110 |
|
|
|
— |
|
|
|
7,744 |
|
|
|
— |
|
|
|
9,682 |
|
Automotive
interest income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
951 |
|
Cash
outflow for capital expenditures
|
|
|
44 |
|
|
|
32 |
|
|
|
— |
|
|
|
76 |
|
|
|
— |
|
|
|
6,696 |
|
Unconsolidated
affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in net income/(loss)
|
|
|
8 |
|
|
|
5 |
|
|
|
— |
|
|
|
13 |
|
|
|
— |
|
|
|
176 |
|
Total
assets at year-end
|
|
|
150,127 |
|
|
|
11,017 |
|
|
|
(9,477 |
) |
|
|
151,667 |
|
|
|
(2,535 |
) |
|
|
222,977 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales/Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
customer
|
|
$ |
17,772 |
|
|
$ |
304 |
|
|
$ |
— |
|
|
$ |
18,076 |
|
|
$ |
— |
|
|
$ |
172,455 |
|
Intersegment
|
|
|
866 |
|
|
|
29 |
|
|
|
(7 |
) |
|
|
888 |
|
|
|
(2,394 |
) |
|
|
— |
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
before income taxes
|
|
|
1,215 |
|
|
|
9 |
|
|
|
— |
|
|
|
1,224 |
|
|
|
— |
|
|
|
(3,746 |
) |
Other
disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and special tools amortization
|
|
|
6,257 |
|
|
|
32 |
|
|
|
— |
|
|
|
6,289 |
|
|
|
— |
|
|
|
13,052 |
|
Amortization
of intangibles
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
106 |
|
Interest
expense
|
|
|
8,630 |
|
|
|
45 |
|
|
|
— |
|
|
|
8,675 |
|
|
|
— |
|
|
|
10,927 |
|
Automotive
interest income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,713 |
|
Cash
outflow for capital expenditures
|
|
|
2 |
|
|
|
49 |
|
|
|
— |
|
|
|
51 |
|
|
|
— |
|
|
|
6,022 |
|
Unconsolidated
affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in net income/(loss)
|
|
|
14 |
|
|
|
— |
|
|
|
— |
|
|
|
14 |
|
|
|
— |
|
|
|
403 |
|
Total
assets at year-end
|
|
|
169,023 |
|
|
|
10,520 |
|
|
|
(10,282 |
) |
|
|
169,261 |
|
|
|
(2,023 |
) |
|
|
285,727 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales/Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
customer
|
|
$ |
16,553 |
|
|
$ |
263 |
|
|
$ |
— |
|
|
$ |
16,816 |
|
|
$ |
— |
|
|
$ |
160,065 |
|
Intersegment
|
|
|
694 |
|
|
|
31 |
|
|
|
(7 |
) |
|
|
718 |
|
|
|
(2,226 |
) |
|
|
— |
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
before income taxes
|
|
|
1,953 |
|
|
|
13 |
|
|
|
— |
|
|
|
1,966 |
|
|
|
— |
|
|
|
(15,074 |
) |
Other
disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and special tools amortization
|
|
|
5,262 |
|
|
|
33 |
|
|
|
— |
|
|
|
5,295 |
|
|
|
— |
|
|
|
16,453 |
|
Amortization
of intangibles
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
66 |
|
Interest
expense
|
|
|
7,818 |
|
|
|
(30 |
) |
|
|
— |
|
|
|
7,788 |
|
|
|
— |
|
|
|
8,783 |
|
Automotive
interest income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,409 |
|
Cash
outflow for capital expenditures
|
|
|
25 |
|
|
|
14 |
|
|
|
— |
|
|
|
39 |
|
|
|
— |
|
|
|
6,848 |
|
Unconsolidated
affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in net income/(loss)
|
|
|
7 |
|
|
|
— |
|
|
|
— |
|
|
|
7 |
|
|
|
— |
|
|
|
428 |
|
Total
assets at year-end
|
|
|
167,973 |
|
|
|
10,554 |
|
|
|
(8,836 |
) |
|
|
169,691 |
|
|
|
(1,467 |
) |
|
|
290,858 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
__________
(a)
|
Financial
Services sector's interest income is recorded as Financial Services
revenues.
|
(b)
|
Includes
intersector transactions occurring in the ordinary course of
business.
|
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
27. GEOGRAPHIC INFORMATION
The
following table includes information for both Automotive and Financial Services
sectors (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$ |
60,376 |
|
|
$ |
29,319 |
|
|
$ |
80,874 |
|
|
$ |
37,355 |
|
|
$ |
81,096 |
|
|
$ |
36,094 |
|
Canada
|
|
|
7,781 |
|
|
|
6,377 |
|
|
|
9,363 |
|
|
|
10,311 |
|
|
|
8,075 |
|
|
|
9,279 |
|
Mexico
|
|
|
2,833 |
|
|
|
950 |
|
|
|
2,826 |
|
|
|
1,052 |
|
|
|
3,461 |
|
|
|
992 |
|
Total
North America
|
|
|
70,990 |
|
|
|
36,646 |
|
|
|
93,063 |
|
|
|
48,718 |
|
|
|
92,632 |
|
|
|
46,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
Kingdom
|
|
|
15,481 |
|
|
|
2,280 |
|
|
|
17,368 |
|
|
|
3,490 |
|
|
|
15,862 |
|
|
|
3,547 |
|
Germany
|
|
|
9,408 |
|
|
|
5,226 |
|
|
|
8,376 |
|
|
|
5,484 |
|
|
|
7,006 |
|
|
|
4,974 |
|
Sweden
|
|
|
4,274 |
|
|
|
3,484 |
|
|
|
5,240 |
|
|
|
4,413 |
|
|
|
4,290 |
|
|
|
4,241 |
|
Other
|
|
|
27,554 |
|
|
|
3,507 |
|
|
|
29,060 |
|
|
|
3,478 |
|
|
|
22,922 |
|
|
|
3,346 |
|
Total
Europe
|
|
|
56,717 |
|
|
|
14,497 |
|
|
|
60,044 |
|
|
|
16,865 |
|
|
|
50,080 |
|
|
|
16,108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
Other
|
|
|
18,570 |
|
|
|
3,160 |
|
|
|
19,348 |
|
|
|
3,911 |
|
|
|
17,353 |
|
|
|
3,369 |
|
Total
|
|
$ |
146,277 |
|
|
$ |
54,303 |
|
|
$ |
172,455 |
|
|
$ |
69,494 |
|
|
$ |
160,065 |
|
|
$ |
65,842 |
|
__________
*
|
Includes
Net investment in
operating leases and Net
property from our consolidated balance
sheet.
|
NOTE
28. SELECTED QUARTERLY FINANCIAL DATA (unaudited)
|
|
|
|
|
|
|
(In
millions, except per share amounts)
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
39,117 |
|
|
$ |
37,057 |
|
|
$ |
27,733 |
|
|
$ |
25,259 |
|
|
$ |
38,630 |
|
|
$ |
40,106 |
|
|
$ |
36,270 |
|
|
$ |
39,373 |
|
Operating
income/(loss)
|
|
|
552 |
|
|
|
(5,893 |
) |
|
|
(6 |
) |
|
|
(3,946 |
) |
|
|
(159 |
) |
|
|
700 |
|
|
|
16 |
|
|
|
(4,825 |
) |
Income/(Loss)
before income taxes
|
|
|
252 |
|
|
|
(6,610 |
) |
|
|
(699 |
) |
|
|
(4,766 |
) |
|
|
(338 |
) |
|
|
821 |
|
|
|
(712 |
) |
|
|
(4,741 |
) |
Financial
Services Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
4,411 |
|
|
|
4,455 |
|
|
|
4,312 |
|
|
|
3,933 |
|
|
|
4,389 |
|
|
|
4,136 |
|
|
|
4,808 |
|
|
|
4,743 |
|
Income/(Loss)
before income taxes
|
|
|
64 |
|
|
|
(2,420 |
) |
|
|
159 |
|
|
|
(384 |
) |
|
|
294 |
|
|
|
105 |
|
|
|
556 |
|
|
|
269 |
|
Total
Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
before income taxes
|
|
|
316 |
|
|
|
(9,030 |
) |
|
|
(540 |
) |
|
|
(5,150 |
) |
|
|
(44 |
) |
|
|
926 |
|
|
|
(156 |
) |
|
|
(4,472 |
) |
Income/(Loss)
before cumulative effects ofchanges in accounting
principles
|
|
|
100 |
|
|
|
(8,667 |
) |
|
|
(129 |
) |
|
|
(5,976 |
) |
|
|
(282 |
) |
|
|
750 |
|
|
|
(380 |
) |
|
|
(2,811 |
) |
Net
income/(loss)
|
|
|
100 |
|
|
|
(8,667 |
) |
|
|
(129 |
) |
|
|
(5,976 |
) |
|
|
(282 |
) |
|
|
750 |
|
|
|
(380 |
) |
|
|
(2,811 |
) |
Common
and Class B per share from income/(loss) before cumulative effects of
changes in accounting principles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.05 |
|
|
$ |
(3.88 |
) |
|
$ |
(0.06 |
) |
|
$ |
(2.51 |
) |
|
$ |
(0.15 |
) |
|
$ |
0.40 |
|
|
$ |
(0.19 |
) |
|
$ |
(1.33 |
) |
Diluted
|
|
|
0.05 |
|
|
|
(3.88 |
) |
|
|
(0.06 |
) |
|
|
(2.51 |
) |
|
|
(0.15 |
) |
|
|
0.31 |
|
|
|
(0.19 |
) |
|
|
(1.33 |
) |
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE
29. COMMITMENTS AND CONTINGENCIES
Lease
Commitments
We lease
land, buildings and equipment under agreements that expire in various
years. Minimum rental commitments under non-cancellable operating
leases were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
sector
|
|
$ |
413 |
|
|
$ |
301 |
|
|
$ |
228 |
|
|
$ |
186 |
|
|
$ |
156 |
|
|
$ |
335 |
|
|
$ |
1,619 |
|
Financial
Services sector
|
|
|
92 |
|
|
|
79 |
|
|
|
61 |
|
|
|
43 |
|
|
|
29 |
|
|
|
37 |
|
|
|
341 |
|
Rental
expense was as follows (in billions):
|
|
|
|
|
|
|
|
|
|
Rental
expense
|
|
$ |
1.0 |
|
|
$ |
1.0 |
|
|
$ |
1.0 |
|
Guarantees
At
December 31, 2008 and 2007, 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 through 2017, 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 $206 million for 2008 and $8 million for
2007. The carrying value of our recorded liabilities related to these
guarantees was $24 million at December 31, 2008.
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 21, 2011 and supports the
payment obligations of Hertz Vehicle Finance LLC under one or more series of
asset-backed notes ("asset-backed notes"). The letters of credit can
be drawn upon on any date funds allocated to pay interest on the asset-backed
notes are insufficient to pay scheduled interest payments, principal amounts due
on the legal final maturity date, or when the balance of assets supporting the
asset-backed notes is less than the outstanding balance of the asset-backed
notes. The carrying value of our deferred gain related to the letters
of credit was $14 million and $18 million at December 31, 2008 and 2007,
respectively.
Indemnifications. In
the ordinary course of business, we execute contracts involving indemnifications
standard in the industry and indemnifications specific to a transaction, such as
the sale of a business. These indemnifications might include claims
against any of the following: environmental, tax, and shareholder matters;
intellectual property rights; power generation contracts; governmental
regulations and employment-related matters; dealers, supplier, and other
commercial contractual relationships; and financial matters, such as
securitizations. Performance under these indemnities would generally
be triggered by a breach of terms of the contract or by a third-party
claim. We regularly evaluate the probability of having to incur costs
associated with these indemnifications and have accrued for expected losses that
are probable. As part of the sale of Jaguar Land Rover we provided
the buyer a customary set of indemnifications. The maximum exposure
related to these indemnifications is $805 million and the probability of payment
is remote. 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.
FORD
MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE
FINANCIAL STATEMENTS
NOTE 29. COMMITMENTS AND
CONTINGENCIES (Continued)
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 accounted for in Accrued liabilities and deferred
revenue (in millions):
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
4,862 |
|
|
$ |
5,235 |
|
Payments
made during the period
|
|
|
(3,076 |
) |
|
|
(3,287 |
) |
Changes
in accrual related to warranties issued during the period
|
|
|
2,242 |
|
|
|
2,894 |
|
Changes
in accrual related to pre-existing warranties
|
|
|
109 |
|
|
|
(232 |
) |
Foreign
currency translation and other
|
|
|
(297 |
) |
|
|
252 |
|
Ending
balance
|
|
$ |
3,840 |
|
|
$ |
4,862 |
|
Litigation
and Claims
Various
legal actions, governmental investigations and proceedings and claims are
pending or may be instituted or asserted in the future against us, including but
not limited to those arising out of alleged defects in our products;
governmental regulations relating to safety, emissions and fuel economy, or
other matters; financial services; employment-related matters; dealer, supplier,
and other contractual relationships; intellectual property rights; product
warranties; environmental matters; shareholder or investor matters; and
financial reporting matters. Certain of the pending legal actions
are, or purport to be, class actions. Some of the foregoing matters
involve or may involve compensatory, punitive, or antitrust or other treble
damage claims in very large amounts, or demands for recall campaigns,
environmental remediation programs, sanctions, or other relief, which, if
granted, would require very large expenditures.
Litigation
is subject to many uncertainties, and the outcome of individual litigated
matters is not predictable with assurance. We have established
accruals for certain of the matters discussed in the foregoing paragraph where
losses are deemed probable and reasonably estimable. It is reasonably
possible, however, that some of the matters discussed in the foregoing paragraph
for which accruals have not been established could be decided unfavorably to us
and could require us to pay damages or make other expenditures in amounts or a
range of amounts that cannot be estimated at
December 31, 2008. We do not reasonably expect, based on
our analysis, that such matters would have a material effect on future financial
statements for a particular year, although such an outcome is
possible.
Conditional
Asset Retirement Obligations
We have
identified asbestos abatement and PCB removal as conditional asset retirement
obligations. Asbestos abatement was estimated using site-specific
surveys where available and a per/square foot estimate where surveys were
unavailable. PCB removal costs were based on historical removal costs
per transformer and applied to transformers identified by a PCB transformer
global survey we conducted.
The
following is a reconciliation of the liability for our conditional asset
retirement obligations which are recorded in Accrued liabilities and deferred
revenue (in millions):
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
404 |
|
|
$ |
414 |
|
Liabilities
settled
|
|
|
(39 |
) |
|
|
(11 |
) |
Revisions
to estimates
|
|
|
(3 |
) |
|
|
1 |
|
Foreign
currency translation
|
|
|
(2 |
) |
|
|
— |
|
Ending
balance
|
|
$ |
360 |
|
|
$ |
404 |
|
Report
of Independent Registered Public Accounting Firm
To the
Board of Directors and Stockholders
Ford
Motor Company:
In our
opinion, the consolidated financial statements listed in the index appearing
under Item 15(a)(1) present fairly, in all material respects, the financial
position of Ford Motor Company and its subsidiaries at December 31, 2008 and
December 31, 2007, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2008 in
conformity with accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement
schedule listed in the index appearing under Item 15(a)(2) presents fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. Also in
our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2008, based on
criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company's management is responsible
for these financial statements and financial statement schedule, for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in
Management's Report on Internal Control Over Financial Reporting appearing under
Item 9A. Our responsibility is to express opinions on these financial
statements, on the financial statement schedule, and on the Company's internal
control over financial reporting based on our integrated audits. We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material
respects. Our audits of the financial statements included examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our
opinions.
Our
audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying sector balance
sheets and the related sector statements of income and of cash flows are
presented for purposes of additional analysis and are not a required part of the
basic financial statements. Such information has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, are fairly stated in all material respects in relation to the
basic financial statements taken as a whole.
As
discussed in Note 19 to the consolidated financial statements, the Company
changed the manner in which it accounts for uncertain tax positions in
2007. As discussed in Note 23 to the consolidated financial
statements, the Company changed the manner in which it accounts for defined
benefit pension and other postretirement plans in 2006.
The
global economy is currently facing a financial crisis and severe recession,
which has led to significant pressure on the Company and the automotive industry
generally. Two of the Company's major competitors have submitted
viability plans in connection with U.S. government-supported restructuring
efforts and similar requests for government financial support have been made on
behalf of motor vehicle suppliers. As discussed under Liquidity in
Note 1 to the Consolidated Financial Statements, the Company and its operations
continue to be affected by these industry and economic conditions.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (i)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/s/
PricewaterhouseCoopers LLP
PricewaterhouseCoopers
LLP
Detroit,
Michigan
February
26, 2009
FORD
MOTOR COMPANY AND SUBSIDIARIES
Schedule
II — Valuation and Qualifying Accounts
(in
millions)
Description
|
|
Balance
at Beginning
of Period
|
|
|
Charged
to Costs
and Expenses
|
|
|
Deductions
|
|
|
Balance
at End
of Period
|
|
For
the Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances
deducted from assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
losses
|
|
$ |
1,102 |
|
|
$ |
1,773 |
|
|
$ |
1,194 |
(a)
|
|
$ |
1,681 |
|
Doubtful
receivables (b)
|
|
|
197 |
|
|
|
55 |
|
|
|
31 |
(c)
|
|
|
221 |
|
Inventories
(primarily service part obsolescence) (b)
|
|
|
313 |
|
|
|
(28 |
)(e)
|
|
|
— |
|
|
|
285 |
|
Deferred
tax assets (f)
|
|
|
8,560 |
|
|
|
9,280 |
(g)
|
|
|
— |
|
|
|
17,840 |
|
Total
allowances deducted from assets
|
|
$ |
10,172 |
|
|
$ |
11,080 |
|
|
$ |
1,225 |
|
|
$ |
20,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances
deducted from assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
losses
|
|
$ |
1,121 |
|
|
$ |
592 |
|
|
$ |
611 |
(a)
|
|
$ |
1,102 |
|
Doubtful
receivables (b)
|
|
|
173 |
|
|
|
5 |
|
|
|
(19 |
)
(c)
|
|
|
197 |
|
Inventories
(primarily service part obsolescence) (b)
|
|
|
353 |
|
|
|
(40 |
)(e)
|
|
|
— |
|
|
|
313 |
|
Deferred
tax assets (f)
|
|
|
7,865 |
(h) |
|
|
695 |
(g)
|
|
|
— |
|
|
|
8,560 |
|
Total
allowances deducted from assets
|
|
$ |
9,512 |
|
|
$ |
1,252 |
|
|
$ |
592 |
|
|
$ |
10,172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances
deducted from assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
losses
|
|
$ |
1,594 |
|
|
$ |
100 |
|
|
$ |
573 |
(a)
|
|
$ |
1,121 |
|
Doubtful
receivables (b)
|
|
|
294 |
|
|
|
14 |
|
|
|
135 |
(c)
|
|
|
173 |
(d) |
Inventories
(primarily service part obsolescence) (b)
|
|
|
303 |
|
|
|
50 |
(e)
|
|
|
— |
|
|
|
353 |
|
Deferred
tax assets (f)
|
|
|
252 |
|
|
|
6,928 |
(g)
|
|
|
— |
|
|
|
7,180 |
|
Total
allowances deducted from assets
|
|
$ |
2,443 |
|
|
$ |
7,092 |
|
|
$ |
708 |
|
|
$ |
8,827 |
|
__________
(a)
|
Finance
receivables and lease investments deemed to be uncollectible and other
changes, principally amounts related to finance receivables sold and
translation adjustments.
|
(b)
|
Excludes
Jaguar Land Rover.
|
(c)
|
Accounts
and notes receivable deemed to be uncollectible as well as translation
adjustments.
|
(d)
|
Includes
non-current Visteon-related receivables of $1 million at December 31,
2006, which are netted against Other
assets – Automotive on the sector balance
sheet.
|
(e)
|
Net
change in inventory allowances.
|
(f)
|
Includes
Jaguar Land Rover.
|
(g)
|
Includes
$1.1 billion, $156 million, and $2.7 billion in 2008, 2007, and
2006, respectively, of allowance for deferred tax assets through Accumulated
other comprehensive income/(loss) and $8.2 billion,
$539 million, and $4.2 billion in 2008, 2007, and 2006, respectively, of
allowance for deferred tax assets through the income
statement.
|
(h)
|
Includes
$685 million increase to balance at January 1, 2007 due to the
adoption of FIN 48.
|
FSS -
1