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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2003 OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934 For the transition period from to
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Commission file number 1-3950
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FORD MOTOR COMPANY
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(Exact name of registrant as specified in its charter)
Incorporated in Delaware 38-0549190
--------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One American Road, Dearborn, Michigan 48126
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 313-322-3000
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Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X|. No [ ].
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes |X|. No [ ].
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding
of each of the issuer's classes of common stock, as of the latest practicable
date: As of November 7, 2003, the Registrant had outstanding 1,760,190,834
---------------- -------------
shares of Common Stock and 70,852,076 shares of Class B Stock.
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Exhibit index located on sequential page number 33
Part I. Financial Information
Item 1. Financial Statements
- -----------------------------
Ford Motor Company and Subsidiaries
SECTOR STATEMENT OF INCOME
--------------------------
For the Periods Ended September 30, 2003 and 2002
(in millions, except per share amounts)
Third Quarter Nine Months
------------------------- --------------------------
2003 2002 2003 2002
------------- ----------- ------------ -------------
(unaudited) (unaudited)
AUTOMOTIVE
Sales $30,337 $32,396 $98,719 $99,764
Costs and expenses (Note 2)
Cost of sales 28,437 30,568 91,205 92,736
Selling, administrative and other expenses 2,536 2,467 7,321 7,140
------- ------- ------- -------
Total costs and expenses 30,973 33,035 98,526 99,876
------- ------- ------- -------
Operating income/(loss) (636) (639) 193 (112)
Interest income 445 378 727 661
Interest expense 373 340 915 1,037
------- ------- ------- -------
Net interest income/(expense) 72 38 (188) (376)
Equity in net income/(loss) of affiliated companies (45) (17) 48 (97)
------- ------- ------- -------
Income/(loss) before income taxes - Automotive (609) (618) 53 (585)
FINANCIAL SERVICES
Revenues 6,551 6,942 19,727 21,242
Costs and expenses
Interest expense 1,552 1,868 4,794 5,741
Depreciation 2,095 2,530 6,939 7,631
Operating and other expenses 1,342 1,180 3,767 3,832
Provision for credit and insurance losses 530 792 1,802 2,523
------- ------- ------- -------
Total costs and expenses 5,519 6,370 17,302 19,727
------- ------- ------- -------
Income/(loss) before income taxes - Financial Services 1,032 572 2,425 1,515
------- ------- ------- -------
TOTAL COMPANY
Income/(loss) before income taxes 423 (46) 2,478 930
Provision for/(benefit from) income taxes 141 81 672 350
------- ------- ------- -------
Income/(loss) before minority interests 282 (127) 1,806 580
Minority interests in net income/(loss) of subsidiaries 45 117 245 285
------- ------- ------- -------
Income/(loss) from continuing operations 237 (244) 1,561 295
Income/(loss) from discontinued/held-for-sale operations 2 (27) (4) (48)
Loss on disposal of discontinued/held-for-sale operations - (55) (5) (95)
Cumulative effect of change in accounting principle (264) - (264) (1,002)
------- ------- ------- -------
Net income/(loss) $ (25) $ (326) $ 1,288 $ (850)
======= ======= ======= =======
Income/(loss) attributable to Common and Class B Stock
after Preferred Stock dividends $ (25) $ (330) $ 1,288 $ (861)
Average number of shares of Common and Class B
Stock outstanding 1,831 1,822 1,832 1,814
AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK (Notes 3 and 9)
Basic income/(loss)
Income/(loss) from continuing operations $ 0.13 $ (0.14) $ 0.85 $ 0.16
Income/(loss) from discontinued/held-for-sale operations - (0.01) - (0.03)
Loss on disposal of discontinued/held-for-sale operations - (0.03) - (0.05)
Cumulative effect of change in accounting principle (0.14) - (0.15) (0.55)
------- ------- ------- -------
Net income/(loss) $ (0.01) $ (0.18) $ 0.70 $ (0.47)
======= ======= ======= =======
Diluted income/(loss)
Income/(loss) from continuing operations $ 0.13 $ (0.14) $ 0.81 $ 0.16
Income/(loss) from discontinued/held-for-sale operations - (0.01) - (0.03)
Loss on disposal of discontinued/held-for-sale operations - (0.03) - (0.05)
Cumulative effect of change in accounting principle (0.14) - (0.13) (0.55)
------- ------- ------- -------
Net income/(loss) $ (0.01) $ (0.18) $ 0.68 $ (0.47)
======= ======= ======= =======
Cash dividends $ 0.10 $ 0.10 $ 0.30 $ 0.30
The accompanying notes are part of the financial statements.
2
Item 1. Financial Statements (Continued)
- -----------------------------
Ford Motor Company and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
--------------------------------
For the Periods Ended September 30, 2003 and 2002
(in millions, except per share amounts)
Third Quarter Nine Months
------------------------- ------------------------
2003 2002 2003 2002
------------- ----------- ------------ -------------
(unaudited) (unaudited)
Sales and revenues
Automotive sales $30,337 $32,396 $ 98,719 $ 99,764
Financial Services revenue 6,551 6,942 19,727 21,242
------- ------- -------- --------
Total sales and revenues 36,888 39,338 118,446 121,006
Automotive interest income 445 378 727 661
Costs and expenses
Cost of sales 28,437 30,568 91,205 92,736
Selling, administrative and other expenses 5,973 6,177 18,027 18,603
Interest expense 1,925 2,208 5,709 6,778
Provision for credit and insurance losses 530 792 1,802 2,523
------- ------- -------- --------
Total costs and expenses 36,865 39,745 116,743 120,640
Automotive equity in net income/(loss)
of affiliated companies (45) (17) 48 (97)
------- ------- -------- --------
Income/(loss) before income taxes 423 (46) 2,478 930
Provision for/(benefit from) income taxes 141 81 672 350
------- ------- -------- --------
Income/(loss) before minority interests 282 (127) 1,806 580
Minority interests in net income/(loss) of subsidiaries 45 117 245 285
------- ------- -------- --------
Income/(loss) from continuing operations 237 (244) 1,561 295
Income/(loss) from discontinued/held-for-sale operations 2 (27) (4) (48)
Loss on disposal of discontinued/held-for-sale operations - (55) (5) (95)
Cumulative effect of change in accounting principle (264) - (264) (1,002)
------- ------- -------- --------
Net income/(loss) $ (25) $ (326) $ 1,288 $ (850)
======= ======= ======== ========
Income/(loss) attributable to Common and Class B Stock
after Preferred Stock dividends $ (25) $ (330) $ 1,288 $ (861)
Average number of shares of Common and Class B
Stock outstanding 1,831 1,822 1,832 1,814
AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK
Basic income/(loss)
Income/(loss) from continuing operations $ 0.13 $ (0.14) $ 0.85 $ 0.16
Income/(loss) from discontinued/held-for-sale operations - (0.01) - (0.03)
Loss on disposal of discontinued/held-for-sale operations - (0.03) - (0.05)
Cumulative effect of change in accounting principle (0.14) - (0.15) (0.55)
------- ------- -------- --------
Net income/(loss) $ (0.01) $ (0.18) $ 0.70 $ (0.47)
======= ======= ======== ========
Diluted income/(loss)
Income/(loss) from continuing operations $ 0.13 $ (0.14) $ 0.81 $ 0.16
Income/(loss) from discontinued/held-for-sale operations - (0.01) - (0.03)
Loss on disposal of discontinued/held-for-sale operations - (0.03) - (0.05)
Cumulative effect of change in accounting principle (0.14) - (0.13) (0.55)
------- ------- -------- --------
Net income/(loss) $ (0.01) $ (0.18) $ 0.68 $ (0.47)
======= ======= ======== ========
Cash dividends $ 0.10 $ 0.10 $ 0.30 $ 0.30
The accompanying notes are part of the financial statements.
3
Item 1. Financial Statements (Continued)
- -----------------------------
Ford Motor Company and Subsidiaries
SECTOR BALANCE SHEET
--------------------
(in millions)
September 30, December 31,
2003 2002
-------------- --------------
(unaudited)
ASSETS
Automotive
Cash and cash equivalents $ 6,817 $ 5,180
Marketable securities 12,226 17,464
Loaned securities (Note 4) 6,942 -
-------- --------
Total cash, marketable and loaned securities 25,985 22,644
Receivables, net 2,755 2,065
Inventories (Note 6) 10,085 6,980
Deferred income taxes 3,358 3,462
Other current assets 5,514 4,551
Current receivable from Financial Services 637 1,062
-------- --------
Total current assets 48,334 40,764
Equity in net assets of affiliated companies 1,858 2,470
Net property 40,471 36,364
Deferred income taxes 11,039 11,694
Goodwill (Note 7) 5,212 4,805
Other intangible assets (Note 7) 837 812
Assets of discontinued/held-for-sale operations - 98
Other assets 11,408 10,783
-------- --------
Total Automotive assets 119,159 107,790
Financial Services
Cash and cash equivalents 21,070 7,070
Investments in securities 1,323 807
Finance receivables, net 109,173 97,030
Net investment in operating leases 33,761 40,055
Retained interest in sold receivables 10,203 17,618
Goodwill (Note 7) 763 752
Other intangible assets (Note 7) 241 248
Assets of discontinued/held-for-sale operations - 2,406
Other assets 15,272 16,643
Receivable from Automotive 3,947 4,803
-------- --------
Total Financial Services assets 195,753 187,432
-------- --------
Total assets $314,912 $295,222
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Automotive
Trade payables $ 15,797 $ 14,606
Other payables 2,710 2,485
Accrued liabilities 31,348 27,644
Debt payable within one year 976 557
-------- --------
Total current liabilities 50,831 45,292
Senior debt 14,149 13,607
Subordinated debt 5,843 -
-------- --------
Total long-term debt 19,992 13,607
Other liabilities 48,849 46,886
Deferred income taxes 338 303
Liabilities of discontinued/held-for-sale operations 24 138
Payable to Financial Services 3,947 4,803
-------- --------
Total Automotive liabilities 123,981 111,029
Financial Services
Payables 2,235 1,890
Debt 159,268 148,058
Deferred income taxes 11,521 11,644
Other liabilities and deferred income 8,491 9,448
Liabilities of discontinued/held-for-sale operations - 831
Payable to Automotive 637 1,062
-------- --------
Total Financial Services liabilities 182,152 172,933
Company-obligated mandatorily redeemable preferred securities of subsidiary
trusts holding solely junior subordinated debentures of the Company - 5,670
Minority interests 589 -
Stockholders' equity
Capital stock
Common Stock, par value $0.01 per share (1,837 million shares issued) 18 18
Class B Stock, par value $0.01 per share (71 million shares issued) 1 1
Capital in excess of par value of stock 5,432 5,420
Accumulated other comprehensive income/(loss) (4,756) (6,531)
Treasury stock (1,903) (1,977)
Earnings retained for use in business 9,398 8,659
-------- --------
Total stockholders' equity 8,190 5,590
-------- --------
Total liabilities and stockholders' equity $314,912 $295,222
======== ========
The accompanying notes are part of the financial statements.
4
Item 1. Financial Statements (Continued)
- -----------------------------
Ford Motor Company and Subsidiaries
CONSOLIDATED BALANCE SHEET
--------------------------
(in millions)
September 30, December 31,
2003 2002
-------------- --------------
(unaudited)
ASSETS
Cash and cash equivalents $ 27,887 $ 12,250
Marketable securities 13,549 18,271
Loaned securities 6,942 -
Receivables, net 2,755 2,065
Finance receivables, net 109,173 97,030
Net investment in operating leases 33,761 40,055
Retained interest in sold receivables 10,203 17,618
Inventories 10,085 6,980
Equity in net assets of affiliated companies 2,877 3,569
Net property 42,077 37,935
Deferred income taxes 14,397 15,213
Goodwill 5,975 5,557
Other intangible assets 1,078 1,060
Assets of discontinued/held-for-sale operations - 2,504
Other assets 29,569 29,250
-------- --------
Total assets $310,328 $289,357
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Payables $ 20,742 $ 18,981
Accrued liabilities 29,113 25,088
Debt 180,236 162,222
Other liabilities and deferred income 56,922 56,276
Deferred income taxes 14,512 14,561
Liabilities of discontinued/held-for-sale operations 24 969
-------- --------
Total liabilities 301,549 278,097
Minority interests 589 -
Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely
junior subordinated debentures of the Company - 5,670
Stockholders' equity
Capital stock
Common Stock, par value $0.01 per share (1,837 million shares issued) 18 18
Class B Stock, par value $0.01 per share (71 million shares issued) 1 1
Capital in excess of par value of stock 5,432 5,420
Accumulated other comprehensive income/(loss) (4,756) (6,531)
Treasury stock (1,903) (1,977)
Earnings retained for use in business 9,398 8,659
-------- --------
Total stockholders' equity 8,190 5,590
-------- --------
Total liabilities and stockholders' equity $310,328 $289,357
======== ========
The accompanying notes are part of the financial statements.
5
Item 1. Financial Statements (Continued)
- -----------------------------
Ford Motor Company and Subsidiaries
CONDENSED SECTOR STATEMENT OF CASH FLOWS
----------------------------------------
For the Periods Ended September 30, 2003 and 2002
(in millions)
Nine Months 2003 Nine Months 2002
---------------------------- -----------------------------
Financial Financial
Automotive Services Automotive Services
------------ --------------- ------------- ---------------
(unaudited) (unaudited)
Cash and cash equivalents at January 1 $ 5,180 $ 7,070 $ 4,064 $ 3,133
Cash flows from operating activities before
securities trading 4,875 13,318 10,877 11,457
Net sales/(purchases) of trading securities 1,516 (166) (4,698) (53)
------- -------- ------- --------
Net cash flows from operating activities 6,391 13,152 6,179 11,404
Cash flows from investing activities
Capital expenditures (5,568) (271) (4,632) (452)
Acquisitions of receivables and lease investments - (42,305) - (60,461)
Collections of receivables and lease investments - 33,921 - 38,204
Net acquisitions of daily rental vehicles - (1,487) - (1,658)
Purchases of securities (7,356) (490) (1,460) (423)
Sales and maturities of securities 4,136 589 1,232 390
Proceeds from sales of receivables
and lease investments - 15,781 - 28,237
Proceeds from sale of businesses 77 204 - -
Repayment of debt from discontinued operations - 1,421 - -
Net investing activity with Financial Services 2,975 - 409 -
Cash paid for acquisitions - - (22) -
Cash recognized on consolidation of joint ventures 256 - - -
Other 696 20 (72) 690
------- -------- ------- --------
Net cash (used in)/provided by investing activities (4,784) 7,383 (4,545) 4,527
Cash flows from financing activities
Cash dividends (549) - (555) -
Net sales/(purchases) of Common Stock (43) - 196 -
Proceeds from mandatorily redeemable convertible
preferred securities - - 4,900 -
Changes in short-term debt (179) 3,405 (123) (13,332)
Proceeds from issuance of other debt 883 16,338 281 13,991
Principal payments on other debt (689) (23,173) (736) (13,193)
Net financing activity with Automotive - (2,975) - (409)
Other (6) 9 (20) 60
------- -------- ------- --------
Net cash (used in)/provided by financing activities (583) (6,396) 3,943 (12,883)
Effect of exchange rate changes on cash 188 286 (14) 207
Net transactions with Automotive/Financial Services 425 (425) (966) 966
------- -------- ------- --------
Net increase/(decrease) in cash and cash equivalents 1,637 14,000 4,597 4,221
------- -------- ------- --------
Cash and cash equivalents at September 30 $ 6,817 $21,070 $ 8,661 $ 7,354
======= ======= ======= ========
The accompanying notes are part of the financial statements.
6
Item 1. Financial Statements (Continued)
- -----------------------------
Ford Motor Company and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
----------------------------------------------
For the Periods Ended September 30, 2003 and 2002
(in millions)
Nine Months
2003 2002
----------- ----------
(unaudited)
Cash and cash equivalents at January 1 $ 12,250 $ 7,197
Cash flows from operating activities before securities trading 18,193 22,334
Net sales/(purchases) of trading securities 1,350 (4,751)
-------- --------
Net cash flows from operating activities 19,543 17,583
Cash flows from investing activities
Capital expenditures (5,839) (5,084)
Acquisitions of receivables and lease investments (42,305) (60,461)
Collections of receivables and lease investments 33,921 38,204
Net acquisitions of daily rental vehicles (1,487) (1,658)
Purchases of securities (7,846) (1,883)
Sales and maturities of securities 4,725 1,622
Proceeds from sales of receivables and lease investments 15,781 28,237
Proceeds from sale of businesses 281 -
Repayment of debt from discontinued operations 1,421 -
Cash paid for acquisitions - (22)
Cash recognized on consolidation of joint ventures 256 -
Other 716 618
-------- --------
Net cash (used in)/provided by investing activities (376) (427)
Cash flows from financing activities
Cash dividends (549) (555)
Net sales/(purchases) of Common Stock (43) 196
Proceeds from mandatorily redeemable convertible preferred securities - 4,900
Changes in short-term debt 3,226 (13,455)
Proceeds from issuance of other debt 17,221 14,272
Principal payments on other debt (23,862) (13,929)
Other 3 40
-------- --------
Net cash (used in)/provided by financing activities (4,004) (8,531)
Effect of exchange rate changes on cash 474 193
-------- --------
Net increase/(decrease) in cash and cash equivalents 15,637 8,818
-------- --------
Cash and cash equivalents at September 30 $ 27,887 $ 16,015
======== ========
The accompanying notes are part of the financial statements.
7
Item 1. Financial Statements (Continued)
- -----------------------------
Ford Motor Company and Subsidiaries
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(unaudited)
1. Financial Statements - The financial data presented herein are unaudited,
but in the opinion of management reflect those adjustments necessary for a
fair presentation of the results of operations and financial condition of
Ford Motor Company and its consolidated subsidiaries for the periods and at
the dates presented. Results for interim periods should not be considered
indicative of results for a full year. Reference should be made to the
financial statements contained in our Annual Report on Form 10-K for the
year ended December 31, 2002 (the "10-K Report"). For purposes of this
report, "Ford", the "Company", "we", "our", "us" or similar references
means Ford Motor Company and its consolidated subsidiaries unless the
context requires otherwise. Certain amounts for prior periods were
reclassified to conform with current period presentation. Reclassifications
include profits, losses and cash flows related to discontinued and
held-for-sale operations.
2. Selected Automotive Costs and Expenses are summarized as follows (in
millions):
Third Quarter Nine Months
----------------------- ----------------------
2003 2002 2003 2002
---------- --------- --------- ---------
Depreciation $722 $645 $2,059 $1,864
Amortization of special tools 580 580 1,932 1,803
Post retirement benefits expense 815 501 2,403 1,561
3. Accounting Policy - Stock-based Compensation - Effective January 1, 2003,
we adopted the fair value recognition provisions of Statement of Financial
Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based
Compensation ("SFAS No. 123"), for stock-based employee compensation. Under
the modified prospective method of adoption selected by the Company under
the provisions of SFAS No. 148, Accounting for Stock-Based Compensation -
Transition and Disclosure, stock-based employee compensation expense
recognized in 2003 is the same as that which would have been recognized had
the fair value recognition provisions of SFAS No. 123 been applied to all
awards from its original effective date. Results of prior years have not
been restated. The following table illustrates the effect on net income and
earnings per share if the fair value method had been applied in each period
(in millions):
Third Quarter Nine Months
----------------------- ------------------------
2003 2002 2003 2002
---------- ----------- ----------- ------------
Net income/(loss) attributable to Common
and Class B Stock, as reported $ (25) $ (330) $1,288 $ (861)
Add: Employee stock option expense included in
reported net income, net of related tax effects 28 - 83 -
Deduct: Total employee stock option expense
determined under fair value method for all
awards, net of related tax effects (28) (45) (83) (115)
------ ------ ------ ------
Pro forma net income/(loss) $ (25) $ (375) $1,288 $ (976)
====== ====== ====== ======
Earnings per share:
Basic - as reported $(0.01) $(0.18) $ 0.70 $(0.47)
Basic - pro forma $(0.01) $(0.21) $ 0.70 $(0.54)
Diluted - as reported $(0.01) $(0.18) $ 0.68 $(0.47)
Diluted - pro forma $(0.01) $(0.21) $ 0.68 $(0.53)
4. Loaned Securities - We loan certain securities from our portfolio to other
institutions. Such securities are classified as Loaned securities on the
Balance Sheet. Collateral for the loaned securities, consisting of cash or
other securities, is required to be maintained at a rate of 102% of the
market value of a loaned security. Cash collateral received is recorded as
an asset in Other current assets, offset by an obligation to return the
collateral in Other payables. Income received from loaning securities is
recorded as Interest income.
5. FCAR Owner Trust - Ford Motor Credit Company ("Ford Credit") uses a special
purpose trust, FCAR, as a source of funds for its operations. FCAR's
activities are limited to issuing asset-backed commercial paper and other
securities and buying highly-rated asset-backed securities issued by
securitization special purpose entities ("SPEs") sponsored by Ford Credit.
In the second quarter of 2003, Ford Credit purchased a portion of equity
interests in FCAR from unaffiliated parties. As a result of this
transaction, FCAR's assets, liabilities and results of operations were
consolidated into Ford Credit's financial statements. In addition, the
accounting consolidation of FCAR also caused certain of the Ford
Credit-sponsored securitization SPEs that sell asset-backed securities to
FCAR to lose their status as qualifying SPEs under SFAS No. 140, Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities. Consequently, the receivables previously sold by us to these
SPEs were deemed to be reacquired by us ("reacquired receivables") in
accordance with SFAS No. 140 requirements and were consolidated in the
second quarter at fair value. Following the accounting consolidation of
FCAR, most sales of receivables to Ford Credit-sponsored SPEs that sell
asset-back securities to FCAR will not qualify as an accounting sale and
will be reported on-balance sheet.
8
Item 1. Financial Statements (Continued)
- -----------------------------
Ford Motor Company and Subsidiaries
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(unaudited)
5. FCAR Owner Trust (Continued)
The accounting consolidation of FCAR and related securitization SPEs did
not change the bankruptcy-remote status of FCAR or the Ford
Credit-sponsored securitization SPEs. The accounting consolidation did not
have a material impact on Ford Credit's earnings, back-up credit
facilities, unsecured debt funding programs or other securitization
programs. No gain or loss was recorded upon consolidation.
At September 30, 2003, about $10.7 billion of retail installment
receivables reported on Ford Credit's balance sheet have been sold for
legal purposes to Ford Credit-sponsored securitization SPEs that sell
asset-backed securities to FCAR and are available only to pay
securitization investors and other participants and are not available to
pay the obligations of Ford Credit or the claims of Ford Credit's
creditors. These finance receivables supported $9.2 billion of asset-backed
commercial paper issued by FCAR, which is payable solely out of collections
on these receivables and is not the legal obligation of Ford Credit.
6. Automotive Inventories are summarized as follows (in millions):
September 30, December 31,
2003* 2002
----------------- ---------------
Raw materials, work in process and supplies $ 3,901 $3,174
Finished products 7,155 4,763
------- ------
Total inventories at FIFO 11,056 7,937
Less LIFO adjustment (971) (957)
------- ------
Total inventories $10,085 $6,980
======= ======
- - - - -
* Includes newly consolidated variable interest entities (see Note 8).
7. Goodwill and Other Intangibles - We perform annual testing in the second
quarter on goodwill and certain other intangible assets to determine if any
impairment has occurred. No impairment resulted from our annual test in the
second quarter of 2003.
Changes in the carrying amount of goodwill are as follows (in millions):
Automotive Sector Financial Services Sector
---------------------------------------- -----------------------------------
North America International Ford Credit Hertz
------------------ ------------------ ---------------- ---------------
Beginning balance,
December 31, 2002 $ 157 $4,648 $ 129 $ 623
Impairment - - - -
Exchange translation/other * 5 402 - 11
------ ------ ------ ------
Ending balance,
September 30, 2003 $ 162 $5,050 $ 129 $ 634
====== ====== ====== ======
- - - - -
* Primarily reflects the impact of foreign exchange.
In addition, included within Equity in net assets of affiliated companies
was goodwill of $390 million at September 30, 2003.
The components of identifiable intangible assets are as follows as of
September 30, 2003 (in millions):
Automotive Sector Financial Services Sector
---------------------------------------- --------------------------------------------
Amortizable Non-amortizable Amortizable Non-amortizable
--------------- --------------------- ------------------ ----------------------
Gross carrying amount $511 $418 $ 91 $189
Less: accumulated
amortization (92) - (39) -
---- ---- ---- ----
Net intangible assets $419 $418 $ 52 $189
==== ==== ==== ====
Pre-tax amortization expense related to these intangible assets for the
nine months ended September 30, 2003 was $20 million. Intangible asset
amortization is forecasted to range from $25 to $35 million per year for
the next five years.
8. Variable Interest Entities - In January 2003, the Financial Accounting
Standards Board ("FASB") issued Interpretation No. 46 ("FIN 46"),
Consolidation of Variable Interest Entities, an Interpretation of ARB No.
51, which expands upon and strengthens existing accounting guidance
concerning when a company should include in its financial statements the
assets, liabilities and activities of another entity. A Variable Interest
Entity ("VIE") does not share economic risk and reward through typical
equity ownership arrangements; instead, contractual or other relationships
re-distribute economic risks and rewards among equity holders and other
parties. Once an entity is determined to be a VIE, the party with the
controlling financial interest, the primary beneficiary, is required to
consolidate it. FIN 46 also requires disclosures about VIEs that the
company is not required to consolidate but in which it has a significant
variable interest.
9
Item 1. Financial Statements (Continued)
- -----------------------------
Ford Motor Company and Subsidiaries
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(unaudited)
8. Variable Interest Entities (Continued)
Effective July 1, 2003, we adopted FIN 46 for VIEs formed prior to February
1, 2003. As a result of consolidating the VIEs of which we are the primary
beneficiary, we have recognized a non-cash charge of $264 million as the
Cumulative effect of change in accounting principle in our Statement of
Income.
The charge represents the difference between the fair value of the assets,
liabilities and minority interests recorded upon consolidation and the
carrying value of the investments. Recorded assets exclude goodwill as FIN
46 does not allow for goodwill to be recorded upon consolidation of a VIE.
The liabilities recognized as a result of consolidating the VIEs do not
represent additional claims on our general assets, rather, they represent
claims against the specific assets of the consolidated VIEs. Conversely,
assets recognized as a result of consolidating these VIEs do not represent
additional assets that could be used to satisfy claims against our general
assets. Reflected in our September 30, 2003 Balance Sheet are $3.3 billion
of VIEs assets, none of which are pledged as collateral.
Automotive Sector
-----------------
VIEs of which we are the primary beneficiary:
As of July 1, 2003, the Automotive sector consolidated certain joint
ventures, which are VIEs that we have invested in and contracted with to
manufacture and/or assemble vehicles and/or components. The activities with
these joint ventures include purchasing substantially all of the joint
ventures' output under a cost plus margin arrangement and/or volume
dependent pricing. Described below are the most significant of the VIEs
that were consolidated.
Ford Otosan ("Otosan") is a joint venture in Turkey with Ford (41%
partner), the Koc Group of Turkey (41% partner) and public investors
(18%). Otosan is the single assembly supplier of the new Ford Transit
Connect and an assembly supplier of the Ford Transit van.
Getrag Ford Transmissions GmbH ("GFT") is a 50/50 joint venture with
Getrag Deutsche Venture GmbH & Co. Kg i.G., a German company, to which
we transferred our European manual transmission operations in
Halewood, England, Cologne, Germany and Bordeaux, France. GFT is the
primary supplier of manual transmissions for use in our European
vehicles.
ZF Transmission Technologies L.L.C. is a joint venture between Ford
(49% partner) and ZF Friedrichshafen Germany (51% partner). This joint
venture owns ZF Batavia L.L.C. ("ZF Batavia"), which operates our
former Batavia, Ohio automatic transmission business. ZF Batavia
produces both a front wheel drive continuously variable transmission
and a front wheel drive 4-speed automatic transmission for use in
certain of our vehicles sold in North America and Europe.
Tekfor Cologne Gmbh ("Tekfor") is a 50/50 joint venture with Neumayer
Holdings GmbH, a German company, to which we transferred our Cologne
forging operations. Tekfor produces transmission and chassis
components for use in our vehicles. Tekfor was formed and consolidated
in the second quarter of 2003.
We hold equity interests in certain Ford and/or Lincoln Mercury
dealerships. As of July 1, 2003, we consolidated a portfolio of
approximately 160 dealerships that are part of our Dealer Development
program. The program's purpose is to facilitate the establishment of
independent franchised dealers by allowing a participating dealership
operator to become the sole owner of a Ford and/or Lincoln Mercury
dealership corporation by purchasing equity from Ford using the operator's
share of dealership net profits. We supply and finance the majority of
vehicles and parts to these dealerships and the operators have a contract
to buy Ford's equity interest over a period of time.
VIEs of which we are not the primary beneficiary:
Ford has investments in two subsidiary trusts, Ford Motor Company Capital
Trust I ("Trust I") and Ford Motor Company Capital Trust II ("Trust II")
that are VIEs of which Ford is not the primary beneficiary. Prior to July
1, 2003, Trust I and Trust II were consolidated in our financial statements
and the preferred securities of Trust I and Trust II were presented as
Company-obligated mandatorily redeemable preferred securities of subsidiary
trusts holding solely junior subordinated debentures of the Company on our
Balance Sheet. Effective July 1, 2003, we deconsolidated Trust I and Trust
II and our obligations to Trust I and Trust II are presented as
Subordinated debt on our Balance Sheet. For further discussions of our
obligations to Trust I and Trust II, refer to Notes 14 and 15 of the Notes
to the Financial Statements in the 10-K Report.
Ford has several investments in other joint ventures deemed to be VIEs
where we are not the primary beneficiary. The risks and rewards associated
with our interests in these entities are based primarily on ownership
percentages. Our maximum exposure to any potential losses, should they
occur, associated with these VIEs is limited to our equity investments
(approximately $2 million) and, where applicable, receivables due from the
VIEs (approximately $38 million).
10
Item 1. Financial Statements (Continued)
- -----------------------------
Ford Motor Company and Subsidiaries
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(unaudited)
8. Variable Interest Entities (Continued)
Financial Services Sector
-------------------------
Ford Credit
Ford Credit has investments in certain joint ventures deemed to be VIEs in
which it is not the primary beneficiary. The risks and rewards associated
with Ford Credit's interests in these entities are based primarily on
ownership percentages. Ford Credit's maximum exposure to any potential
losses, should they occur, associated with these VIEs is limited to its
equity investments, which at September 30, 2003 totaled approximately $100
million.
9. Income Per Share of Common and Class B Stock - The calculation of diluted
income/(loss) per share of Common and Class B Stock takes into account the
effect of rights to acquire our Common Stock, such as stock options,
considered to be potentially dilutive. Basic and diluted income/(loss) per
share were calculated using the following (in millions):
Third Quarter Nine Months
-------------------------- ---------------------------
2003 2002 2003 2002
----------- ----------- ----------- ------------
Diluted Income
Income/(loss) attributable to Common and Class B
Stock after Preferred Stock dividends $ (25) $ (330) $1,288 $ (861)
Convertible preferred securities interest - - 160 -
------ ------ ------ ------
Diluted income/(loss) $ (25) $ (330) $1,448 $ (861)
====== ====== ====== ======
Average shares outstanding 1,831 1,822 1,832 1,814
Issuable and uncommitted ESOP shares (2) (1) (2) (1)
------ ------ ------ ------
Basic shares 1,829 1,821 1,830 1,813
Reverse antidilutive contingently issuable
shares included above - (1) - -
Net dilutive effect of options 14 -* 10 13
Convertible preferred securities -** -** 282 -**
------ ------ ------ ------
Diluted shares 1,843 1,820 2,122 1,826
====== ====== ====== ======
- - - - -
Not included in calculation of diluted earnings per share due to their
antidilutive effect:
* 8 million potential shares related to options; and
** 282 million shares related to convertible preferred securities.
10. Comprehensive Income - Other comprehensive income primarily reflects
adjustments for foreign currency translation and SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities. Total comprehensive
income is summarized as follows (in millions):
Third Quarter Nine Months
-------------------------- ---------------------------
2003 2002 2003 2002
----------- ----------- ----------- ------------
Net income/(loss) $ (25) $ (326) $1,288 $ (850)
Other comprehensive income/(loss) 309 408 1,775 3,389
------ ------ ------ ------
Total comprehensive income/(loss) $ 284 $ 82 $3,063 $2,539
====== ====== ====== ======
11. Guarantees - On November 26, 2002, FASB issued Interpretation No. 45 ("FIN
45"), Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others. For certain
guarantees issued after December 31, 2002, FIN 45 requires a guarantor to
recognize, upon issuance of a guarantee, a liability for the fair value of
the guarantee. The fair values of guarantees and indemnifications issued
during 2003 are recorded in the financial statements and are de minimis. At
September 30, 2003, the following guarantees were issued and outstanding:
Guarantees related to affiliates and third parties: We guarantee debt and
lease obligations of certain joint ventures as well as certain financial
obligations of outside third parties to support business and economic
growth. Expiration dates vary, and guarantees will terminate on payment
and/or cancellation of the obligation. A payment 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. The maximum potential payments under these guarantees total
approximately $475 million, the majority of which relates to the Automotive
sector.
In 1992, we issued $500 million of 7.25% Notes due October 1, 2008
("Notes"). In 1999, the bondholders agreed to relieve us as the primary
obligor with respect to the principal of these Notes. As part of this
transaction, Ford placed certain financial assets into an escrow trust for
the benefit of the bondholders, and the trust became the primary obligor
with respect to the principal (Ford became secondarily liable for the
entire principal amount). Currently $150 million is recorded
11
Item 1. Financial Statements (Continued)
- -----------------------------
Ford Motor Company and Subsidiaries
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(unaudited)
11. Guarantees (Continued)
in the financial statements as Senior debt related to this transaction,
which is being amortized over the life of the Notes.
We also have guarantees outstanding associated with two subsidiary trusts,
Trust I and Trust II. For further discussions of Trust I and Trust II,
refer to Notes 14 and 15 of the Notes to the Financial Statements in the
10-K Report.
Sales to third parties of Automotive receivables, with recourse: From time
to time, the Automotive sector sells receivables to third parties with
recourse. Receivables are sold on a rolling basis and individual sales
liquidate at different times. A payment would be triggered by failure of
the obligor to fulfill its obligations covered by the contract. The maximum
potential amount of future payments is approximately $59 million.
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;
governmental regulations and employment-related matters; dealer, supplier,
and other commercial contractual relationships; and financial matters, such
as securitizations. Performance under these indemnities would generally be
triggered by a breach of terms of the contract or by a third party claim.
We regularly evaluate the probability of having to incur costs associated
with these indemnifications and have accrued for expected losses that are
probable. We are party to numerous indemnifications and many of these
indemnities do not limit potential payment; therefore, we are unable to
estimate a maximum amount of potential future payments that could result
from claims made under these indemnities.
Product Performance:
Warranty: Estimated warranty costs and additional service actions are
accrued for at the time the vehicle is sold to a dealer. Included in the
warranty cost accruals are costs for basic warranty coverages on vehicles
sold. 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 accrual (in millions):
Beginning balance, December 31, 2002 $ 5,401
Payments made in 2003 (2,594)
Changes in accrual related to warranties issued in 2003 2,525
Changes in accrual related to pre-existing warranties (268)
Foreign currency translation and Other* 276
-------
Ending balance, September 30, 2003 $ 5,340
=======
- - - - -
* Other includes newly consolidated VIEs (see Note 8).
12. Segment Information - The Company's operating activity consists of two
operating sectors, Automotive and Financial Services.
The Automotive sector consists of the design, development, manufacture,
sale and service of cars, trucks and service parts. We are reporting our
Automotive sector results as two primary segments, North America and
International. The North America segment includes primarily the sale of
Ford, Lincoln and Mercury brand vehicles and related service parts in the
U.S., Canada and Mexico, and the associated costs to design, develop,
manufacture and service these vehicles and parts. The International segment
includes primarily the sale of Ford-brand vehicles and related service
parts outside of North America and the sale of Premier Automotive Group
brand vehicles (i.e., Volvo, Jaguar, Land Rover and Aston Martin) and
related service parts throughout the world (including North America),
together with the associated costs to design, develop, manufacture and
service these vehicles and parts. Additionally, the International segment
includes our share of the results of Mazda Motor Corporation and
Mazda-related joint ventures. The Other Automotive component of the
Automotive sector consists primarily of net interest expense, which is not
managed individually by the two segments. Transactions among automotive
segments are presented on an absolute cost basis, eliminating the effect of
legal entity transfer prices within the Automotive sector for vehicles,
components and product engineering. Prior to 2003, the Automotive sector
was reported as one segment. Prior period information reflects the two
reporting segments within the Automotive sector.
The Financial Services sector includes two primary segments, Ford Credit
and Hertz. Ford Credit provides vehicle-related financing, leasing, and
insurance. Hertz rents cars, light trucks and industrial and construction
equipment.
Segment selection is 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.
12
Item 1. Financial Statements (Continued)
- -----------------------------
Ford Motor Company and Subsidiaries
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(unaudited)
12. Segment Information (Continued)
Elims/
(in millions) Automotive Sector Financial Services Sector a/ Other Total
--------------------------------- --------------------------------- ------- -------
North Inter- Ford Elims/ b/
America national Other Total Credit Hertz Other Total
------- -------- ------ ------- -------- ------ ------ -------
THIRD QUARTER 2003
Revenues
External customer $17,876 $12,461 $ - $ 30,337 $ 4,915 $ 1,488 $ 148 $ 6,551 $ - $ 36,888
Intersegment 544 520 - 1,064 75 6 2 83 (1,147) -
Income
Income/(loss) before income taxes (116) (494) 1 (609) 809 186 37 1,032 - 423
THIRD QUARTER 2002
Revenues
External customer 21,258 10,814 324 32,396 5,523 1,412 7 6,942 - 39,338
Intersegment 576 513 - 1,089 96 9 (9) 96 (1,185) -
Income
Income/(loss) before income taxes 591 (714) (495) (618) 460 160 (48) 572 - (46)
NINE MONTHS 2003
Revenues
External customer 60,789 37,930 - 98,719 15,488 3,899 340 19,727 - 118,446
Intersegment 2,671 1,230 - 3,901 233 21 (5) 249 (4,150) -
Income
Income/(loss) before income taxes 1,565 (1,258) (254) 53 2,197 184 44 2,425 - 2,478
Other Disclosures
Total assets at September 30 119,159 178,380 13,249 4,124 195,753 - 314,912
NINE MONTHS 2002
Revenues
External customer 65,818 33,030 916 99,764 17,020 3,752 470 21,242 - 121,006
Intersegment 3,026 962 - 3,988 271 24 (9) 286 (4,274) -
Income
Income/(loss) before income taxes 1,977 (1,554) (1,008) (585) 1,375 173 (33) 1,515 - 930
Other Disclosures
Total assets at September 30 100,112 169,387 11,597 4,600 185,584 - 285,696
- - - - - -
a/ Financial Services sector's interest income is recorded as Revenues.
b/ Includes intersector transactions occurring in the ordinary course of
business.
13
Report of Independent Accountants
To the Board of Directors and Stockholders
Ford Motor Company:
We have reviewed the accompanying consolidated balance sheet of Ford Motor
Company and its subsidiaries as of September 30, 2003, and the related
consolidated statement of income for each of the three-month and nine-month
periods ended September 30, 2003 and 2002 and the consolidated statement of cash
flows for the nine-month periods ended September 30, 2003 and 2002. In addition,
we have reviewed the accompanying interim sector balance sheet and the related
sector statements of income and of cash flows, presented for purposes of
additional analysis. The interim consolidated and sector financial statements
(collectively, the "interim financial statements") are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with generally
accepted auditing standards, the objective of which is the expression of an
opinion regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying interim financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
As discussed in Note 3 to the consolidated financial statements, on January 1,
2003, the Company adopted Statement of Financial Accounting Standards No.148,
"Accounting for Stock-Based Compensation - Transition and Disclosure", which
changed the method for accounting for stock-based employee compensation. In
addition, as discussed in Note 8 to the consolidated financial statements, on
July 1, 2003, the Company adopted Financial Accounting Standards Board
Interpretation No. 46, "Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51".
We previously audited in accordance with auditing standards generally accepted
in the United States of America, the consolidated and sector balance sheets as
of December 31, 2002, and the related consolidated and sector statements of
income and of cash flows, and consolidated statement of stockholders' equity for
the year then ended (not presented herein), and in our report dated January 17,
2003, we expressed an unqualified opinion on those consolidated and sector
financial statements. In our opinion, the information set forth in the
accompanying consolidated and sector balance sheet information as of December
31, 2002, is fairly stated in all material respects in relation to the
consolidated and sector balance sheets from which it has been derived.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Detroit, Michigan
October 16, 2003
14
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations
- -------------
THIRD QUARTER RESULTS OF OPERATIONS
Our worldwide net loss was $25 million in the third quarter of 2003, or
$0.01 per diluted share of Common and Class B Stock. In the third quarter of
2002, losses were $326 million, or $0.18 per share.
Our worldwide Automotive sales and Financial Services revenues totaled
$36.9 billion in the third quarter of 2003, down $2.5 billion from a year ago.
Unit sales of cars and trucks were 1,423,000 units, down 233,000 units from a
year ago. In the third quarter of 2003, our U.S. corporate market share was
19.9%, down 1.4 percentage points from the same period a year ago. Our European
corporate market share was 10.7% in the third quarter of 2003, down 0.3
percentage points from the same period a year ago.
Results by business sector for the third quarter of 2003 and 2002 are shown
below (in millions):
Third Quarter Net Income/(Loss)
--------------------------------------------
2003
Over/(Under)
2003 2002* 2002
----------- ------------ -------------------
Income/(loss) before income taxes
Automotive sector $ (609) $ (618) $ 9
Financial Services sector 1,032 572 460
------ ------ -----
Total Company 423 (46) 469
Provision for/(benefit from) income taxes 141 81 60
Minority interests in net income/(loss) of subsidiaries 45 117 (72)
------ ------ -----
Income/(loss) from continuing operations 237 (244) 481
Income/(loss) from discontinued/held-for-sale operations 2 (27) 29
Loss on disposal of discontinued/held-for-sale operations - (55) 55
Cumulative effect of change in accounting principle (264) - (264)
------ ------ -----
Net income/(loss) $ (25) $ (326) $ 301
====== ====== =====
- ------------
* Certain amounts were reclassified to conform to current period presentation
consistent with the presentation in our 10-K Report. Reclassifications
include profits and losses related to discontinued and held-for-sale
operations.
Automotive Sector
- -----------------
As discussed in our 10-K Report, beginning with the first quarter of 2003,
we expanded the number of operating segments we present by reporting two
segments within our Automotive sector - North America and International. See
Note 12 of the Notes to Financial Statements for a description of these
segments.
As a result of changes in our management structure that became effective on
October 1, 2003, beginning with the fourth quarter 2003, the North America
Automotive segment will be renamed the Americas segment and will primarily
include the sale of Ford, Lincoln and Mercury brand vehicles and related service
parts in North America (U.S., Canada and Mexico) and the sale of Ford-brand
vehicles and related service parts in South America. We will continue to provide
separate results for the North America and South America business units within
our Americas segment.
The worldwide loss before income taxes for our Automotive sector was $609
million in the third quarter of 2003 on sales of $30.3 billion, compared with a
loss of $618 million in the third quarter of 2002 on sales of $32.4 billion.
Details of third quarter Automotive sector results before income taxes are
shown below (in millions):
Third Quarter Income/(Loss)
Before Income Taxes
-------------------------------------------
2003
Over/(Under)
2003 2002 2002
------------ ------------ -----------------
North America Automotive segment $(116) $ 591 $(707)
International Automotive segment
- Ford Europe (452) (246) (206)
- Ford South America (26) (243) 217
- Ford Asia Pacific 1 (49) 50
- Premier Automotive Group (22) (160) 138
- Other International 5 (16) 21
----- ----- -----
Total International Automotive segment (494) (714) 220
Other Automotive 1 (495) 496
----- ----- -----
Total Automotive sector $(609) $(618) $ 9
===== ===== =====
15
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations (Continued)
- -------------
North America Automotive Segment
Loss before income taxes for our North America Automotive segment was $116
million in the third quarter of 2003 on sales of $17.9 billion. Income before
income taxes in the third quarter of 2002 was $591 million on sales of $21.3
billion. The decline reflected lower vehicle sales and lower net pricing,
partially offset by strong cost performance and improved product mix. See
"Outlook - Costs" below for additional discussion of cost performance.
In the third quarter of 2003, our unit sales in North America were 783,000,
down from 998,000 for the same period a year ago. The sales decrease reflected a
larger reduction in dealer stocks (87,000 units) compared with a year ago and
reduced market share. Our U.S. market share for Ford, Lincoln, and Mercury brand
vehicles was 18.6% in the third quarter of 2003, down 1.5 percentage points from
a year ago, reflecting primarily a planned reduction in daily rental vehicle
sales and the discontinuation of low-margin models (Ford Escort, Lincoln
Continental, Mercury Cougar and Mercury Villager).
International Automotive Segment
Loss before income taxes for our International Automotive segment was $494
million in the third quarter of 2003 on sales of $12.4 billion compared with a
loss of $714 million in the same period of 2002 on sales of $10.8 billion. With
respect to any explanatory factors in the following discussion that involve cost
performance, see "Outlook - Costs" below for further information.
Ford Europe. Loss before income taxes for our Ford Europe business unit was
$452 million in the third quarter of 2003 on sales of $4.7 billion compared
with a loss of $246 million in the same period of 2002 on sales of $4.4
billion. The decline reflected a larger reduction in dealer stocks,
unfavorable net pricing, a less favorable product mix and unfavorable
exchange rates, partially offset by cost performance.
In the third quarter of 2003, unit sales for Ford Europe were 326,000, down
from 341,000 for the same period a year ago. European market share for our
Ford-brand vehicles was 8.6% in the third quarters of 2003 and 2002.
We recently announced restructuring actions related to our Ford Europe
business unit that include personnel reductions in the United Kingdom and
Germany, a shift removal at our plant in Genk, Belgium and other
manufacturing efficiencies. A total of about 6,700 employees will be
affected by these actions. The United Kingdom actions, affecting about 500
employees, occurred in the third quarter of 2003, for which we incurred a
$56 million pre-tax charge in the third quarter of 2003. We expect to incur
pre-tax charges of between $550 million and $600 million for the balance of
these actions. Of the $550 million to $600 million, we expect to incur a
significant portion in the fourth quarter of 2003 and the balance in 2004.
We expect most of the cash outlay for these restructuring actions will take
place in 2004. We anticipate these actions will reduce costs in our Ford
Europe business unit by about $450 million in 2004 and about $550 million
annually thereafter.
Ford South America. Loss before income taxes for our Ford South America
business unit was $26 million in the third quarter of 2003 on sales of $489
million compared with a loss of $243 million in the same period of 2002 on
sales of $392 million. The improvement reflected primarily the
non-recurrence of currency devaluation a year ago, as well as improved net
pricing and market share.
In the third quarter of 2003, unit sales for Ford South America were
55,000, up from 52,000 for the same period a year ago. Market share of
Ford-brand vehicles sold in Brazil was 12.1% in the third quarter of 2003,
up from 10.9% a year ago, reflecting primarily higher sales of the new Ford
Ecosport and Fiesta models.
Ford Asia Pacific. Income before income taxes for our Ford Asia Pacific
business unit was $1 million on sales of $1.6 billion in the third quarter
of 2003 compared with a loss of $49 million in the same period of 2002 on
sales of $1.1 billion. The improvement reflected primarily higher industry
volume, improved market share and favorable exchange rates, partially
offset by higher development costs for new products.
In the third quarter of 2003, unit sales for Ford Asia Pacific were 96,000,
up from 77,000 for the same period a year ago. Our market share in
Australia improved to 14.7% in the third quarter of 2003, up from 13.3% a
year ago, reflecting primarily the introduction of the new Ford Falcon
model towards the end of 2002.
16
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations (Continued)
- -------------
Premier Automotive Group. Loss before income taxes for our PAG business
unit was $22 million on sales of $5.6 billion in the third quarter of 2003
compared with a loss of $160 million in the same period of 2002 on sales of
$4.9 billion. The improvement reflected primarily improved cost performance
and product mix, partially offset by unfavorable exchange rates.
In the third quarter of 2003, worldwide unit sales for PAG were 163,000,
down from 188,000 from the same period a year ago. U.S. market share was
1.3%, up from 1.2% a year ago. European market share was 2.1%, down from
2.4% a year ago.
Other International. Other International had profits of $5 million for the
third quarter of 2003, up from a loss of $16 million for the third quarter
of 2002, reflecting improvements in our Mazda-related investments.
Other Automotive
In 2003, Other Automotive had income before income taxes of $1 million for
the third quarter of 2003 compared with a loss of $495 million in the same
period of 2002. The 2002 results include a $570 million charge related to the
sale of Kwik-Fit Holding Ltd. ("Kwik-Fit") and other non-core businesses. The
improvement also reflects interest income of $331 million related to a tax
refund in the third quarter of 2003 compared with interest income of $211
million on a tax refund in the same period a year ago. These improvements were
partially offset by higher interest expense, including $95 million of interest
expense related to our trust preferred securities that was classified as
minority interest prior to our adoption of FIN 46.
Financial Services Sector
- -------------------------
Our Financial Services sector consists of two primary segments, Ford Credit
and Hertz. Details of Financial Services sector income/(loss) before income
taxes for the third quarters of 2003 and 2002 are shown below (in millions):
Third Quarter Income/(Loss)
Before Income Taxes
------------------------------------------
2003
Over/(Under)
2003 2002 2002
------------ ---------- --------------
Ford Credit $ 809 $460 $349
Hertz* 186 160 26
Other Financial Services 37 (48) 85
------ ---- ----
Total Financial Services sector $1,032 $572 $460
====== ==== ====
- ------------
* Includes amortization expense related to intangibles recognized upon
consolidation of Hertz.
Ford Credit
Ford Credit's consolidated income before income taxes in the third quarter
of 2003 was $809 million, up $349 million from the third quarter of 2002.
Compared with 2002, the increase primarily reflected a lower provision for
credit losses, the favorable impact of the interest rate environment on
borrowing costs and the net favorable market valuation of derivative instruments
and associated exposures. The impact of lower average net receivables was a
partial offset.
The provision for credit losses in the third quarter of 2003 was $445
million, down $266 million from a year ago, reflecting primarily lower lease and
retail placement volumes, receivables sold in off-balance sheet securitizations
and whole-loan sale transactions. Ford Credit's average borrowing cost rate was
4.1% compared with 5.1% a year ago.
17
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations (Continued)
- -------------
Details of credits losses and loss-to-receivables ratios (annualized net
credit losses during a period as a percentage of average net receivables for
that period) for the third quarters of 2003 and 2002 are shown below (in
millions except for ratios):
Third Quarter
-----------------------------------------
2003
(over)/under
2003 2002 2002
----------- ---------- ----------------
Credit losses
On-balance sheet $ 466 $ 591 $ 125
Managed 679 706 27
Loss-to-receivables ratio
On-balance sheet 1.40% 1.71% 0.31 ppts.
On-balance sheet (including credit losses associated with
reacquired receivables)* 1.52% 1.71% 0.19 ppts.
- ------------
* We believe that the use of the on-balance sheet loss-to-receivables ratio
that includes the credit losses on reacquired receivables is useful to our
investors because it provides a more complete presentation of our
on-balance sheet credit loss performance.
September 30,
-----------------------------------------
2003
(over)/under
Allowance for credit losses 2003 2002 2002
------------ ----------- ---------------
On-balance sheet (in billions) $ 3.2 $ 3.2 $ -
As a percent of on-balance sheet receivables 2.43% 2.33% (0.10) ppts.
The decrease in credit losses related to on-balance sheet receivables
reflected primarily lower placement volumes, off-balance sheet securitizations
and whole-loan sale transactions. The improvement in the loss-to-receivables
ratio largely reflected the lower amount of off-balance sheet securitization in
2003, which resulted in a greater portion of the recently originated receivables
being retained on our balance sheet. Credit losses on recently originated
receivables are generally lower initially and increase as the receivables
mature.
Sales of receivables through off-balance sheet securitizations and
whole-loan sale transactions reduce Ford Credit's financing margins in the year
the receivables are sold, as well as in future years, compared with what they
otherwise would be if Ford Credit continued to own the receivables. These
foregone financing margins can offset any positive impact associated with the
gain on sales of receivables. The net impact of off-balance sheet
securitizations and whole-loan sale transactions on Ford Credit's revenue and
earnings in a given period will vary depending on the amount and type of
receivables sold and timing of the transactions in the current period and the
preceding two to three year period, as well as the interest rate environment at
the times the finance receivables were originated and securitized or sold. The
following table shows, on an analytical basis, the pre-tax impact of sales of
receivables through off-balance sheet securitizations (including FCAR-related
receivables through May 15, 2003) and whole-loan sale transactions for the third
quarter of 2003 and 2002, net of the effect of reduced financing margins
attributable to the sold receivables (in millions):
Third Quarter
----------------------
2003 2002
--------- ---------
Net gain on sales of receivables $ 45 $ 57
Servicing fees 152 176
Interest income from retained securities 138 149
Excess spread and other 240 213
----- -----
Total revenue related to receivables sales 575 595
Reduction in financing margin from current-period securitizations* (27) (82)
Reduction in financing margin from prior-period securitizations* (648) (637)
----- -----
Pre-tax impact of receivables sales $(100) $(124)
===== =====
- ------------
* Calculated on a basis using a borrowing cost equal to the actual financing
rate paid to securitization investors, which was significantly lower than
Ford Credit's average borrowing cost for unsecured debt for the periods
presented. If calculated on a basis using Ford Credit's average borrowing
cost for unsecured debt, the reduction in financing margin from
securitization would be significantly lower.
18
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations (Continued)
- -------------
Hertz
In the third quarter of 2003, Hertz's income before income taxes was $186
million, up from $160 million in the third quarter of 2002. This increase
reflected favorable cost performance and higher rental-car volume, offset
partially by lower pricing reflecting a highly competitive environment.
Other Financial Services
In the third quarter of 2003, results for Other Financial Services were $37
million, up $85 million from a year ago, reflecting primarily the write-down of
certain aircraft leases in 2002.
FIRST NINE MONTHS RESULTS OF OPERATIONS
Our worldwide earnings were $1.3 billion in the first nine months of 2003,
or $0.68 per diluted share of Common and Class B Stock. In the first nine months
of 2002, losses were $850 million, or $0.47 per share.
Our worldwide Automotive sales and Financial Services revenues totaled
$118.4 billion in the first nine months of 2003, down from $121.0 billion a year
ago. Unit sales of cars and trucks were 4,844,000 units, down 341,000 units from
a year ago. In the first nine months of 2003, our U.S. corporate market share
was 20.6%, down 0.5 percentage points from the same period a year ago. Our
European corporate market share was 10.9% in the first nine months of 2003, down
0.1 percentage points from the same period a year ago.
Results by business sector for the first nine months of 2003 and 2002 are
shown below (in millions):
First Nine Months
Net Income/(Loss)
----------------------------------------
2003
Over/(Under)
2003 2002* 2002
----------- ------------ ---------------
Income/(loss) before income taxes
Automotive sector $ 53 $ (585) $ 638
Financial Services sector 2,425 1,515 910
------ ------- ------
Total Company 2,478 930 1,548
Provision for/(benefit from) income taxes 672 350 322
Minority interests in net income/(loss) of subsidiaries 245 285 (40)
------ ------- ------
Income/(loss) from continuing operations 1,561 295 1,266
Income/(loss) from discontinued/held-for-sale operations (4) (48) 44
Loss on disposal of discontinued/held-for-sale operations (5) (95) 90
Cumulative effect of change in accounting principle (264) (1,002) 738
------ ------- ------
Net income/(loss) $1,288 $ (850) $2,138
====== ======= ======
- ------------
* Certain amounts were reclassified to conform to current period presentation
consistent with the presentation in our 10-K Report. Reclassifications
include profits and losses related to discontinued and held-for-sale
operations.
Automotive Sector
- -----------------
Worldwide income before income taxes for our Automotive sector was $53
million in the first nine months of 2003 on sales of $98.7 billion compared with
a loss of $585 million in the first nine months of 2002 on sales of $99.8
billion.
19
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations (Continued)
- -------------
Details of the first nine months Automotive sector results before income
taxes are shown below (in millions):
First Nine Months
Income/(Loss) Before Income Taxes
-----------------------------------------
2003
Over/(Under)
2003 2002 2002
------------ ------------ ---------------
North America Automotive segment $ 1,565 $1,977 $(412)
International Automotive segment
- Ford Europe (1,226) (532) (694)
- Ford South America (126) (526) 400
- Ford Asia Pacific (53) (141) 88
- Premier Automotive Group 56 (352) 408
- Other International 91 (3) 94
------ ------- -----
Total International Automotive segment (1,258) (1,554) 296
Other Automotive (254) (1,008) 754
------ ------ -----
Total Automotive sector $ 53 $ (585) $ 638
====== ====== =====
North America Automotive Segment
Income before income taxes for our North America Automotive segment was
$1.6 billion in the first nine months of 2003 on sales of $60.8 billion. Income
before income taxes in the first nine months of 2002 was $2.0 billion on sales
of $65.8 billion. The decline reflected unfavorable net pricing, a dealer stock
reduction in 2003 compared with a dealer stock build in 2002 and lower market
share, partially offset by cost reductions and favorable product mix.
In the first nine months of 2003, our unit sales in North America were
2,791,000, down from 3,148,000 for the same period a year ago. Our U.S. market
share for Ford, Lincoln, and Mercury brand vehicles was 19.3% in the first nine
months of 2003, down from 19.9% a year ago, reflecting primarily the
discontinuation of low-margin models (Ford Escort, Lincoln Continental, Mercury
Cougar and Mercury Villager) and a planned reduction in daily rental vehicle
sales.
International Automotive Segment
Loss before income taxes for our International Automotive segment was $1.3
billion in the first nine months of 2003 on sales of $37.9 billion compared with
a loss of $1.6 billion in the same period of 2002 on sales of $33.0 billion.
Ford Europe. Loss before income taxes for our Ford Europe business unit was
$1.2 billion in the first nine months of 2003 on sales of $14.9 billion
compared with a loss of $532 million in the same period of 2002 on sales of
$13.4 billion. The decline was primarily the result of a less favorable
vehicle mix, lower net pricing and unfavorable exchange rates, partially
offset by cost reductions.
In the first nine months of 2003, unit sales for Ford Europe were
1,113,000, up from 1,101,000 for the same period a year ago. European
market share for our Ford-brand vehicles was 8.8% in the first nine months
of 2003, up from 8.7% a year ago.
Ford South America. Loss before income taxes for our Ford South America
business unit was $126 million in the first nine months of 2003 on sales of
$1.2 billion compared with a loss of $526 million in the same period of
2002 on sales of $1.2 billion. The improvement was primarily due to the
non-recurrence of currency devaluation experienced in the same period a
year ago, favorable net pricing and higher market share.
In the first nine months of 2003, unit sales for Ford South America were
148,000, up from 139,000 for the same period a year ago. Market share of
Ford-brand vehicles sold in Brazil was 11.4% in the first nine months of
2003, up from 9.4% a year ago. The improvement primarily reflected sales of
the new Ford Fiesta and EcoSport models.
Ford Asia Pacific. Loss before income taxes for our Ford Asia Pacific
business unit was $53 million on sales of $4.3 billion in the first nine
months of 2003 compared with a loss of $141 million in the same period of
2002 on sales of $3.1 billion. The improvement primarily reflected higher
net pricing and improved unit sales volume and product mix, partially
offset by higher costs related to new products.
20
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations (Continued)
- -------------
In the first nine months of 2003, unit sales for Ford Asia Pacific were
260,000, up from 227,000 for the same period a year ago. Our market share
in Australia improved to 14.2% in the first nine months of 2003, up from
13.0% a year ago, reflecting primarily the introduction of the new Ford
Falcon model toward the end of 2002.
Premier Automotive Group. Income before income taxes for our PAG business
unit was $56 million on sales of $17.5 billion in the first nine months of
2003 compared with a loss of $352 million in the same period of 2002 on
sales of $15.3 billion. The improvement primarily reflected cost reductions
and favorable product mix with the launch of the new Volvo XC90 and Jaguar
XJ models, partially offset by unfavorable exchange rates.
In the first nine months of 2003, worldwide unit sales for PAG were
532,000, down from 570,000 from the same period a year ago. U.S. market
share was 1.3%, up from 1.2% a year ago. European market share was 2.1%,
down from 2.2% a year ago.
Other International. Other International had profits of $91 million in the
first nine months of 2003, up from a loss of $3 million in the first nine
months of 2002. The improvement primarily reflected our share of Mazda's
improved operating results.
Other Automotive
Other Automotive had a loss before income taxes of $254 million in the
first nine months of 2003 compared with a loss of $1.0 billion in the same
period a year ago. The improvement reflected the non-recurrence of losses in
non-core businesses that have now been sold or shut down and lower interest
expense.
Financial Services Sector
- -------------------------
Details of first nine months Financial Services sector income/(loss) before
income taxes for 2003 and 2002 are shown below (in millions):
First Nine Months Income/(Loss)
Before Income Taxes
-------------------------------------------
2003
Over/(Under)
2003 2002 2002
------------ ---------- ---------------
Ford Credit $2,197 $1,375 $822
Hertz* 184 173 11
Other Financial Services 44 (33) 77
------ ------ ----
Total Financial Services sector $2,425 $1,515 $910
====== ====== ====
- ------------
* Includes amortization expense related to intangibles recognized upon
consolidation of Hertz.
Ford Credit
Ford Credit's consolidated income before income taxes in the first nine
months of 2003 was $2.2 billion, up $822 million from the first nine months of
2002. Compared with 2002, the increase primarily reflected a lower provision for
credit losses, the favorable impact of the interest rate environment on
borrowing costs, higher income related to securitizations and the net favorable
market valuation of derivative instruments and associated exposures. The impact
of lower average net receivables was a partial offset.
The provision for credit losses in the first nine months of 2003 was $1.5
billion, down $753 million from a year ago, primarily reflecting lower lease and
retail placement volumes, receivables sold in securitizations and whole-loan
sale transactions. Ford Credit's average borrowing cost rate was 4.3% compared
with 5.2% a year ago. Revenue related to receivables sales was $2.1 billion, up
$387 million from a year ago, reflecting primarily higher excess spread and
higher levels of interest income from retained securities.
21
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations (Continued)
- -------------
Details of credits losses and loss-to-receivables ratios for the first nine
months of 2003 and 2002 are shown below (in millions except for ratios):
First Nine Months
------------------------------------------
2003
(over)/under
2003 2002 2002
----------- ----------- ---------------
Credit losses
On-balance sheet $ 1,410 $ 1,723 $ 313
Managed 2,006 2,025 19
Loss-to-receivables ratio
On-balance sheet 1.48% 1.65% 0.17 ppts.
On-balance sheet (including credit losses associated
with reacquired receivables)* 1.54% 1.65% 0.11 ppts.
- ------------
* We believe that the use of the on-balance sheet loss-to-receivables ratio
that includes the credit losses on reacquired receivables is useful to our
investors because it provides a more complete presentation of our
on-balance sheet credit loss performance.
Credit losses on Ford Credit's on-balance sheet portfolio for the first
nine months of 2003 were $1.4 billion, down $313 million from the first nine
months of 2002, reflecting primarily lower receivables resulting from lower
placement volumes, off-balance sheet securitizations and whole-loan sale
transactions.
The following table shows, on an analytical basis, the pre-tax impact of
sales of receivables through off-balance sheet securitizations (including
FCAR-related receivables through May 15, 2003) and whole-loan sale transactions
for the first nine months of 2003 and 2002, net of the effect of reduced
financing margins attributable to the sold receivables (in millions):
First Nine Months
-----------------------
2003 2002
---------- ---------
Net gain on sales of receivables $ 329 $ 289
Servicing fees 528 514
Interest income from retained securities 545 449
Excess spread and other 737 500
------ ------
Total revenue related to receivables sales 2,139 1,752
Reduction in financing margin from current-period securitizations* (457) (547)
Reduction in financing margin from prior-period securitizations* (1,988) (1,568)
------ ------
Pre-tax impact of receivables sales $ (306) $ (363)
====== ======
- -----------
* Calculated on a basis using a borrowing cost equal to the actual financing
rate paid to securitization investors, which was significantly lower than
Ford Credit's average borrowing cost for unsecured debt for the periods
presented. If calculated on a basis using Ford Credit's average borrowing
cost for unsecured debt, the reduction in financing margin from
securitization would be significantly lower.
Hertz
In the first nine months of 2003, Hertz's income before income taxes was
$184 million, up from $173 million in the first nine months of 2002. The
increase reflected higher rental-car volumes and improved cost performance,
offset partially by lower pricing.
Other Financial Services
In the first nine months of 2003, results for Other Financial Services were
$44 million, up from a loss of $33 million in the first nine months of 2002,
reflecting primarily the write-down of certain aircraft leases in 2002.
LIQUIDITY AND CAPITAL RESOURCES
Automotive Sector
- -----------------
For the Automotive sector, liquidity and capital resources include cash
generated by operations, gross cash balances, our ability to raise funds in
capital markets and committed credit lines.
22
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations (Continued)
- -------------
Gross Cash - We consider Automotive gross cash to include cash and cash
equivalents, marketable securities, loaned securities and assets contained in a
Voluntary Employee Beneficiary Association ("VEBA") trust, which are financial
assets available to fund certain future employee benefit obligations in the near
term, as summarized below (in billions):
2003 2002
------------------------------ ------------------------------
September 30 January 1 September 30 January 1
--------------- ------------- --------------- -------------
Cash and cash equivalents $ 6.8 $ 5.2 $ 8.7 $ 4.1
Marketable securities 12.2 17.4 16.1 10.9
Loaned securities * 7.0 - - -
------ ------ ------ ------
Total cash, marketable securities and
loaned securities 26.0 22.6 24.8 15.0
VEBA assets 0.9 2.7 0.9 2.7
------ ------ ------ ------
Gross cash $ 26.9 $ 25.3 $ 25.7 $ 17.7
====== ====== ====== ======
- --------------
* As part of our investment strategy, we engage in securities lending to
improve the income received from our cash portfolios. See Note 4 of the
Notes to Financial Statements for additional discussion on securities
lending.
In managing our business, we classify changes in gross cash in three
categories: operating-related (including capital expenditures and capital
transactions with the Financial Services sector), acquisitions and divestitures,
and financing-related. We believe the cash flow analysis reflected in the table
below, which differs from a cash flow statement presented in accordance with
United States generally accepted accounting principles ("GAAP"), is useful to
investors because it includes cash flow elements not included in the most
directly comparable GAAP financial measure, (i.e., "cash flows from operating
activities before securities trading"), that we consider to be related to our
operating activities (e.g., capital spending). Changes in Automotive gross cash
for the third quarter and first nine months of 2003 and 2002 are summarized
below (in billions):
Third Quarter First Nine Months
----------------------- ------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
Gross cash at end of period $26.9 $25.7 $26.9 $25.7
Gross cash at beginning of period 28.7 24.9 25.3 17.7
----- ----- ----- -----
Total change in gross cash $(1.8) $ 0.8 $ 1.6 $ 8.0
===== ===== ===== =====
Operating-related cash flows
Automotive income/(loss) before income taxes $(0.6) $(0.6) $ 0.1 $(0.6)
Capital expenditures (2.2) (1.7) (5.6) (4.6)
Depreciation and special tools amortization 1.3 1.2 4.0 3.7
Changes in receivables, inventory and trade payables (0.9) (0.6) (1.4) (0.4)
Pension plan contributions (0.2) (0.1) (1.7) (0.4)
Capital transactions with Financial Services sector a/ 1.2 0.4 2.8 (0.3)
Other (1.0) 0.5 1.7 3.2
----- ----- ----- -----
Total operating-related cash flows before tax refunds (2.4) (0.9) (0.1) 0.6
Tax refunds 0.6 1.8 1.4 2.6
----- ----- ----- -----
Total operating-related cash flows (1.8) 0.9 1.3 3.2
Divestitures and asset sales 0.1 0.1 0.5 0.5
Acquisitions and capital contributions - - - (0.1)
----- ----- ----- ------
Total acquisitions and divestitures 0.1 0.1 0.5 0.4
Financing-related cash flows
Dividends paid to shareholders (0.2) (0.2) (0.5) (0.6)
Convertible preferred securities - - - 4.9
Changes in total Automotive sector debt (0.1) (0.1) 0.1 (0.1)
Other (0.1) 0.1 (0.1) 0.2
----- ----- ----- -----
Total financing-related cash flows (0.4) (0.2) (0.5) 4.4
Cash from FIN 46 consolidations b/ 0.3 - 0.3 -
----- ----- ----- -----
Total change in gross cash $(1.8) $ 0.8 $ 1.6 $ 8.0
===== ===== ===== =====
- ------------------
a/ Reflects operating-related cash flows (i.e., dividends, capital
contributions, loans, and loan repayments).
b/ See "Adoption of New Accounting Standard" below.
23
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations (Continued)
- -------------
Shown in the table below is a reconciliation between financial statement
cash flows from operating activities before securities trading and
operating-related cash flows, calculated as shown in the table above, for the
third quarter and first nine months of 2003 and 2002 (in billions):
Third Quarter First Nine Months
----------------------- ------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
Cash flows from operating activities before securities
trading a/ $(0.9) $ 2.8 $ 4.9 $10.9
Items included in operating-related cash flow
Capital transactions with Financial Services sector 1.2 0.4 2.8 (0.3)
Capital expenditures (2.2) (1.7) (5.6) (4.6)
Net transactions between Automotive and
Financial Services sectors b/ 0.7 - 0.4 (1.0)
Other, primarily exclusion of cash in-flows from VEBA
draw-down (0.6) (0.6) (1.2) (1.8)
----- ----- ----- -----
Total reconciling items (0.9) (1.9) (3.6) (7.7)
----- ----- ----- -----
Operating-related cash flows $(1.8) $ 0.9 $ 1.3 $ 3.2
===== ===== ===== =====
- -------------
a/ As shown in our condensed sector statement of cash flows for the
Automotive sector.
b/ Primarily payables and receivables between the sectors in the normal
course of business, as shown in our Condensed Sector Statement of Cash
Flows.
Capital transactions with the Financial Services sector improved
operating-related cash flow by $1.2 billion in the third quarter of 2003,
compared to $400 million in the third quarter of 2002, primarily related to
improved profitability and asset reductions at Ford Credit. Capital transactions
with the Financial Services sector improved operating-related cash flow by $2.8
billion in the first nine months of 2003, compared to a $300 million reduction
in cash flow in the first nine months of 2002 reflecting a net capital
contribution to Ford Credit in 2002. In addition, $204 million of dividends from
the Financial Services sector in the first nine months of 2003 is reflected in
the table above as "divestitures and asset sales" because it results from the
sale by Ford Credit of its Axus vehicle fleet leasing unit. Other operating
changes, primarily timing differences between expense recognition and the cash
payment for costs such as health care, marketing, warranty and additional
service actions, and non-recurrence of the reversal of non-cash expense
associated with the sale of Kwik-Fit in the third quarter of 2002, reduced cash
by $1.5 billion for each of the third quarter and the first nine months of 2003,
compared with the same periods in 2002.
Debt - At September 30, 2003, our Automotive sector had total senior debt
of $15.1 billion, compared with $14.2 billion at December 31, 2002.
Ford Motor Company Capital Trust I and Ford Motor Company Capital Trust II
("the Trusts") together have outstanding an aggregate $5.7 billion of trust
preferred securities. The dividend and liquidation preferences on these
securities are paid from interest and principal payments on our junior
subordinated debentures held by the Trusts in an aggregate principal amount of
$5.8 billion. Prior to July 1, 2003, the trust preferred securities were
presented between the liabilities and equity sections of our balance sheet in
accordance with the applicable accounting standards at that time. Effective July
1, 2003, the junior subordinated debentures are classified as subordinated debt
in our balance sheet as the result of the adoption of FIN 46. See "Adoption of
New Accounting Standard" below and Note 8 of the Notes to Financial Statements.
This reclassification did not impact the status of the holders of our senior
debt relative to holders of the subordinated debentures or the trust preferred
securities.
Financial Services Sector
- -------------------------
Ford Credit
Debt and Cash - Ford Credit's total debt was $149.6 billion at September
30, 2003, up $9.3 billion compared with December 31, 2002. This increase
primarily reflected the consolidation of FCAR. Ford Credit's unsecured
commercial paper at September 30, 2003 totaled $8.8 billion. At September 30,
2003, the average remaining maturity of Ford Credit's unsecured commercial paper
in North America and Europe was 32 days. At September 30, 2003, Ford Credit had
cash and cash equivalents of $20.3 billion. In the normal course of its funding
activities, Ford Credit may generate more proceeds than are necessary for its
immediate funding needs. This excess funding is referred to as "overborrowings."
Of the $20.3 billion of cash and cash equivalents, $18.3 billion represented
overborrowings, while the remaining $2 billion was employed in operating
activities. The increase in overborrowing, up $13.3 billion from December 31,
2002, reflected Ford Credit's plan to pre-fund debt maturities. We believe this
strategy results in greater flexibility in the execution of Ford Credit's 2004
funding plan.
24
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations (Continued)
- -------------
Ford Credit expects its full-year 2003 public term funding requirements to
be between $25 billion and $30 billion. As of September 30, 2003, Ford Credit
had completed about $24 billion of public term funding transactions, or 80% to
95% of its full-year requirements. Ford Credit expects its full-year 2004 public
term funding requirements to be between $20 billion and $30 billion.
Credit Facilities - For additional funding and to maintain liquidity, Ford
Credit and its majority-owned subsidiaries (including FCE Bank, plc ("FCE"))
have contractually committed credit facilities with financial institutions that
totaled approximately $8.6 billion at September 30, 2003, including $4.3 billion
and $3.2 billion of global credit facilities at Ford Credit and FCE,
respectively. Approximately $1 billion of the total facilities were in use at
September 30, 2003. Forty-five percent of these facilities are committed through
June 30, 2008. The global credit facilities may be used, at Ford Credit's or
FCE's option, by any of their direct or indirect majority-owned subsidiaries.
Any such borrowings would be guaranteed by Ford Credit or FCE. All of the global
credit facilities are free of material adverse change clauses and restrictive
financial covenants (for example, debt-to-equity limitations, minimum net worth
requirements and credit rating triggers that would limit borrowing ability).
Additionally, at September 30, 2003, banks provided $17.6 billion of
contractually committed liquidity facilities supporting two asset-backed
commercial paper programs of which $17.2 billion supported Ford Credit's FCAR
program and $425 million supported Ford Credit's Motown NotesSM Program.
In addition, Ford Credit has entered into agreements with several
bank-sponsored, commercial paper issuers ("conduits") under which such conduits
are contractually committed to purchase from Ford Credit, at Ford Credit's
option, up to an aggregate of approximately $12.5 billion of receivables. The
agreements have varying maturity dates between June 24, 2004 and October 29,
2004. As of September 30, 2003, approximately $4.3 billion of these conduit
commitments were utilized.
Leverage - At September 30, 2003, Ford Credit's financial statement
leverage (debt-to-equity ratio) was 12.0 to 1. Ford Credit's managed leverage
(as calculated below) was 12.7 to 1. The following table illustrates the
calculation of Ford Credit's financial statement leverage (in billions except
for ratios):
September 30,
----------------------
2003 2002 December 31,2002
---------- ---------- ----------------------
Total debt $149.6 $140.3 $140.3
Total stockholder's equity 12.5 13.7 13.6
Debt-to-equity ratio (to 1) 12.0 10.3 10.3
The following table illustrates the calculation of Ford Credit's managed
leverage (in billions except for ratios):
September 30,
----------------------
2003 2002 December 31,2002
----------- --------- ----------------------
Total debt $149.6 $140.3 $140.3
Securitized off-balance sheet
receivables outstanding 48.8 65.8 71.4
Retained interest in securitized
off-balance sheet receivables (10.2) (9.7) (17.6)
Adjustments for cash and cash
Equivalents (20.3) (7.1) (6.8)
Adjustments for SFAS No. 133 (5.4) (6.0) (6.2)
------ ------ ------
Adjusted debt $162.5 $183.3 $181.1
====== ====== ======
Total stockholder's equity
(including minority interest) $ 12.5 $ 13.7 $ 13.6
Adjustment for SFAS No. 133 0.3 0.5 0.5
------ ------ ------
Adjusted equity $ 12.8 $ 14.2 $ 14.1
====== ====== ======
Managed debt-to-equity ratio (to 1) 12.7 12.9 12.8
We believe that the use of the managed leverage measure, which is the
result of several adjustments to Ford Credit's financial statement leverage, is
useful to our 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, has credit risk. Accordingly, it considers securitization as an
alternative source of funding and evaluates credit losses, receivables and
leverage on a managed as well as a financial statement basis. As a result, the
managed leverage measure provides our investors with meaningful information
regarding management's decision-making processes.
25
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations (Continued)
- -------------
Hertz
Debt and Cash - Hertz's total debt was $8.2 billion at September 30, 2003,
up $1.1 billion from December 31, 2002, reflecting seasonal rental fleet demand
and the issuance of $500 million term notes on September 30, 2003, principally
to reduce short-term borrowings. Outstanding commercial paper at September 30,
2003 totaled $2.7 billion at Hertz, with an average remaining maturity of 32
days compared with $1.5 billion at December 31, 2002. At September 30, 2003,
Hertz had cash and cash equivalents of $642 million, up from $275 million at
December 31, 2002.
During 2002, Hertz launched an asset-backed securitization program for its
domestic car rental fleet to reduce its borrowing costs and enhance its
financing resources. As of September 30, 2003, $934 million of asset-backed
commercial paper was outstanding under this program.
Total Company
- -------------
Stockholders' Equity - Our stockholders' equity was $8.2 billion at
September 30, 2003, up $2.6 billion compared with December 31, 2002. The
increase reflects primarily net income of $1.3 billion and other comprehensive
income of $1.8 billion (primarily foreign currency translation adjustments),
less dividends of $549 million. See Note 10 of the Notes to Financial Statements
for further discussion of other comprehensive income.
Debt Ratings - On November 12, 2003, Standard & Poor's Rating Services
("S&P") downgraded the long-term corporate debt ratings of Ford, Ford Credit
and Hertz to "BBB-" with a stable outlook from "BBB" with a negative outlook.
S&P also downgraded the short-term ratings of Ford, Ford Credit and Hertz to
"A-3" from "A-2". Lower ratings generally result in higher borrowing costs and
reduced access to capital markets. We expect that this downgrade will
substantially reduce Ford Credit's ability to issue unsecured commercial paper.
It is too early, however, to determine the impact of the downgrade on Ford
Credit's funding mix for 2004. Ford Credit's funding strategy continues to be
focused on maintaining liquidity and diverse and competitive funding sources. We
believe Ford Credit's funding strategy will allow it to continue to fund its
operations in 2003 and beyond.
ADOPTION OF NEW ACCOUNTING STANDARD
Effective July 1, 2003, we adopted FIN 46 for variable interest entities
("VIEs") formed prior to February 1, 2003. As a result of adoption, we
consolidated several VIEs in our financial statements and recognized a
cumulative effect of change in accounting principle of $264 million. See Note 8
of the Notes to Financial Statements for further information, including a
discussion of entities so consolidated.
The impact on selected balance sheet items at September 30, 2003 is
reflected below (in billions):
At September 30, 2003
---------------------
AUTOMOTIVE ASSETS
Cash and cash equivalents $0.3
Inventories 1.0
Net property 1.4
AUTOMOTIVE LIABILITIES
Senior debt 0.8
Subordinated debt 5.8 *
Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely
junior subordinated debentures of the Company (5.7)*
- --------------
* The Trusts together had outstanding preferred securities with an aggregate
liquidation preference of $5.7 billion. The sole assets of the Trusts are $5.8
billion aggregate principal amount of subordinated debentures.
Other selected impacts on Automotive third quarter 2003 results included
the following (in billions):
Third Quarter 2003
-----------------------
Sales $0.7
Costs and expenses 0.6
Interest expense 0.1
Capital expenditures 0.1
26
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations (Continued)
- -------------
OFF-BALANCE SHEET ARRANGEMENTS
Special Purpose Entities - At September 30, 2003, the total outstanding
principal amount of receivables sold by Ford Credit that was held by off-balance
sheet securitization trusts was $48.8 billion, down $22.6 billion from December
31, 2002. Ford Credit's retained interests in such sold receivables at September
30, 2003 were $10.2 billion, down $7.4 billion from December 31, 2002. The
decrease in receivables held by off-balance sheet securitization trusts
reflected primarily the accounting consolidation of FCAR during the second
quarter of 2003 and the slower pace of off-balance sheet securitizations this
year. The decrease in retained interests reflected seasonal fluctuations in
wholesale receivables balances.
RECENT DEVELOPMENTS
New UAW Contract - On September 29, 2003, our new four-year collective
bargaining agreement with the United Automobile, Aerospace and Agricultural
Implement Workers of America (the "UAW") became effective. The prior agreement
expired on September 14, 2003. Among the significant terms of the new agreement
are:
o The ability to close four manufacturing plants in the United States,
o Eligible employees received a $3,000 cash payment in October of 2003 and
will receive a cash payment in 2004 equal to 3% of eligible annual
earnings, a 2% increase in wages in 2005 and a 3% increase in wages in
2006,
o Current eligible retirees will receive a lump sum payment of $800 in
December 2003, 2004, 2005 and 2006, with no increase to their current
pension benefit rate,
o The lifetime pension benefit rate for future retirees will increase over
the term of the contract by $4.20 per month for each year of service,
o Increased flexibility to have Ford employees on assignment to Visteon
Corporation transferred to open positions at Ford facilities, and
o Visteon will have the ability to negotiate a collective bargaining
agreement with the UAW for new employees without the requirement that its
terms mirror the terms of the Ford agreement with the UAW.
The pension benefit changes (including the lump sum payment to current
eligible retirees) added about $1.2 billion to our U.S. pension obligations,
calculated using a discount rate of 6.75%. This and other increases in costs
resulting from the new contract, however, are expected to be mitigated by the
increased operating flexibility provided by the new agreement, including the
ability to better align manufacturing capacity with changing customer demand and
the consequent reduction in the number of employees covered by the agreement.
The new agreement also will enable us to meet our goal of reducing manufacturing
capacity by one million units in North America, consistent with our
Revitalization Plan.
Visteon Negotiations - We are presently conducting negotiations with
Visteon Corporation, our largest supplier and former automotive components
subsidiary that we spun off to our stockholders in June 2000. The object of the
negotiations is to improve the overall competitiveness of Visteon, which will
ultimately benefit us in the form of more competitive components and systems
purchased from Visteon. The negotiations are primarily focused on sourcing and
pricing, and could modify certain of the obligations assumed by Ford and Visteon
in connection with the spin-off, including, in particular, Visteon's obligations
with respect to the Ford hourly employees assigned to Visteon. Whether these
negotiations with Visteon lead to any modifications to our existing agreements,
and, if they do, the extent of any such modifications, will depend, in part, on
the terms of the new collective bargaining agreement being negotiated between
Visteon and the UAW, referred to above.
OUTLOOK
Industry Volumes - We are changing our assumptions for industry vehicle
unit sales volumes from the levels assumed earlier in the year. In the United
States, based on a year-to-date seasonally adjusted average rate of 16.9 million
units, we are increasing our full-year assumption to 16.9 million units from
16.5 million assumed at the beginning of year. In Europe, we are changing our
full-year assumption to 16.9 million units from 17 million assumed at the
beginning of the year, and 16.3 million units assumed in July 2003.
27
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations (Continued)
- -------------
Production - We expect our vehicle unit production in the fourth quarter of
2003 to be as follows, compared with same period last year, for our three most
significant automotive business units:
Unit Production
-----------------------------------------------------
Fourth Quarter 2003
Projected Fourth Over/(Under)
Business Unit Quarter 2003 Fourth Quarter 2002
------------- ---------------------- ---------------------------
Ford North America 920,000 (31,000)
Ford Europe 430,000 (20,000)
PAG 195,000 25,000
Net Pricing - We continue to expect the level of competitive incentive
activity to remain high in the U.S. and Europe and expect net pricing for
full-year 2003 to be negative in the United States and negative 1% to 2% in
Europe. The net pricing metric measures the percentage change in revenue from
the combined effect of changes in vehicle wholesale prices and marketing
incentives, while excluding the effects of changes in unit sales volume, product
mix and foreign currency exchange rates.
Costs - Year-over-year cost reductions (excluding the effects of changes in
production volume, product mix, currency exchange rates and charges related to
the European restructuring actions discussed above) for the first nine months of
2003 were $2.7 billion and for the full-year 2003 are expected to be at least $3
billion. Improved quality is expected to result in lower costs of $1.6 billion.
About one half of the $1.6 billion is expected to relate to changes in accruals
for pre-existing warranties based on claims experience for recent model years.
We expect the remainder to primarily reflect a significant reduction in recalls
over the past two years. Manufacturing and engineering costs are expected to
decline $1.2 billion, and a $1.2 billion reduction in overhead is expected from
intensive cost cutting and elimination of waste in areas such as advertising and
sales promotion, personnel costs, consulting, travel and office supplies. Net
product costs, which comprise purchased material and components for vehicle
production, are expected to be reduced by about $300 million. These reductions
will be partially offset by higher depreciation and amortization ($200 million),
and higher pension and healthcare costs ($1.1 billion). Beyond 2003, we do not
expect cost reductions related to vehicle quality, manufacturing and engineering
and overhead to continue at the same levels we are expecting for 2003. Our
future success in reducing costs will depend increasingly on reducing material
and component costs associated with vehicle production. In addition to personnel
reduction actions for Ford Europe, we plan, as previously announced, to reduce
on-going worldwide salaried expense for our other business units, which will not
have a significant impact in 2003.
U.S. Pension Status - For our U.S. pension plans, which represents our
largest pension obligation, we estimate that the projected benefit obligation
exceeded the market value of pension assets by about $7.1 billion as of
September 30, 2003, reflecting an estimated year-to-date pension fund return of
15.1%, an estimated discount rate of 6.25% (down 50 basis points from year-end
2002) and the terms of our new UAW contract discussed above (including the
present value of lump sum payments to current eligible retirees).
Financial Services - We expect fourth quarter 2003 earnings from our
Financial Services sector to be lower than the third quarter, reflecting
primarily seasonally lower car rental volume at Hertz.
Earnings - Based on income from continuing operations and excluding special
items (e.g., charges for the restructuring actions at our Ford Europe Automotive
business unit or charges for any modifications to our agreements with Visteon),
we expect our earnings per share to be in the range of $0.95 to $1.05 and we
expect pre-tax profits of our Automotive sector to be breakeven or slightly
positive.
28
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations (Continued)
- -------------
RISK FACTORS
Statements included or incorporated by reference herein may constitute
"forward looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements involve a number of risks,
uncertainties, and other factors that could cause actual results to differ
materially from those stated, including, without limitation:
o greater price competition in the U.S. and Europe resulting from currency
fluctuations, industry overcapacity or other factors;
o a significant decline in industry sales, particularly in the U.S. or
Europe, resulting from slowing economic growth, geo-political events or
other factors;
o lower-than-anticipated market acceptance of new or existing products;
o work stoppages at key Ford or supplier facilities or other interruptions of
supplies;
o the discovery of defects in vehicles resulting in delays in new model
launches, recall campaigns or increased warranty costs;
o increased safety, emissions, fuel economy or other regulation resulting in
higher costs and/or sales restrictions;
o unusual or significant litigation or governmental investigations arising
out of alleged defects in our products or otherwise;
o worse-than-assumed economic and demographic experience for our post
retirement benefit plans (e.g., investment returns, interest rates, health
care cost trends, benefit improvements);
o currency or commodity price fluctuations;
o a market shift from truck sales in the U.S.;
o economic difficulties in South America or Asia;
o reduced availability of or higher prices for fuel;
o labor or other constraints on our ability to restructure our business;
o a change in our requirements under long-term supply arrangements under
which we are obligated to purchase minimum quantities or pay minimum
amounts;
o a further credit rating downgrade;
o inability to access debt or securitization markets around the world at
competitive rates or in sufficient amounts;
o higher-than-expected credit losses;
o lower-than-anticipated residual values for leased vehicles;
o increased price competition in the rental car industry and/or a general
decline in business or leisure travel due to terrorist attacks, acts of
war, epidemic disease or measures taken by governments in response thereto
that negatively affect the travel industry; and
o our inability to implement the Revitalization Plan.
OTHER FINANCIAL INFORMATION
The interim financial information included in this Quarterly Report on Form
10-Q for the quarter ended September 30, 2003 has not been audited by
PricewaterhouseCoopers LLP ("PwC"). In reviewing such information, PwC has
applied limited procedures in accordance with professional standards for reviews
of interim financial information. Accordingly, you should restrict your reliance
on their reports on such information. PwC is not subject to the liability
provisions of Section 11 of the Securities Act of 1933 for their reports on the
interim financial information because such reports do not constitute "reports"
or "parts" of the registration statements prepared or certified by PwC within
the meaning of Sections 7 and 11 of the Securities Act of 1933.
Item 3. Quantitative and Qualitative Discussion about Market Risks
- ------------------------------------------------------------------
There is no material change in the information reported under Part I, Item
3 of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 and
Item 7A of our 10-K Report.
29
Item 4. Controls and Procedures
- --------------------------------
Evaluation of disclosure controls and procedures. William Clay Ford, Jr.,
our Chief Executive Officer, and Don R. Leclair, our Chief Financial Officer,
have performed an evaluation of the Company's disclosure controls and
procedures, as that term is defined in Rule 13a-14 (c) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as of September 30, 2003
and each has concluded that such disclosure controls and procedures are
effective to ensure that information required to be disclosed in our periodic
reports filed under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified by the Securities and Exchange
Commission's rules and regulations.
Change in internal controls. No changes in the Company's internal controls
over financial reporting occurred during the quarter ended September 30, 2003
that have materially affected, or are reasonably likely to materially affect,
the Company's internal controls over financial reporting.
Part II. Other Information
Item 1. Legal Proceedings
- --------------------------
Other Product Liability Matters
- -------------------------------
Asbestos Matters. (Previously discussed on page 28 of our Annual Report on
Form 10-K for the year ended December 31, 2002 (the "10-K Report").) The United
States Congress is considering various proposals to reform asbestos litigation.
The lead proposal would create a trust fund from which eligible asbestos
claimants would be compensated and would abolish, during the life of the trust,
litigation in the United States based on exposure to asbestos. The trust fund
would be funded by asbestos defendants (including us) and the insurance
industry. These funds would be used to pay eligible claimants (i.e., those who
satisfy specific medical criteria and can adequately demonstrate occupational
exposure to asbestos) according to a specified schedule. If legislation is
enacted creating such a trust fund, we would likely be required to make
substantial contributions to the fund over a specified period of time, resulting
in our incurring a charge in the amount of the present value of such anticipated
contributions in the period in which the legislation is enacted. Although we
cannot predict whether or in what form the legislation will be enacted, it could
significantly reduce our exposure to asbestos litigation costs.
Environmental Matters
- ---------------------
Wixom Assembly Plant Notice of Violation. (Previously discussed page 30 of
the Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 (the
"Second Quarter 10-Q Report").) In August 2003, Ford agreed to voluntarily
contribute $125,000 toward the City of Wixom's biosolids disposal costs without
admission of responsibility or liability.
Wixom Assembly Plant Notice of Violation Regarding Air Emissions. In
September 2003, the Department of Environmental Quality (the "DEQ") notified
Ford that it is commencing an enforcement action related to several abatement
equipment malfunctions over the last few years. The DEQ alleges that the Plant
did not properly follow state air rules governing abatement equipment
malfunction. It is reasonably possible that the DEQ could seek monetary
sanctions of $100,000 or more for these alleged violations.
Class Actions
- -------------
Paint Class Actions. (Previously discussed on page 29 of the 10-K Report.)
On August 14, 2003, the Texas Court of Appeals issued an opinion reversing the
order of the trial court certifying a class in the Texas case (Sheldon). On
September 15, 2003, the state court in Illinois certified a nationwide class of
owners of 1989-96 model year vehicles that have experienced paint peeling
(Phillips). We will seek leave to appeal this order.
Seat Back Class Actions. (Previously discussed on page 31 of the 10-K
Report and page 30 of the Second Quarter 10-Q Report.) The Plaintiffs in the New
Jersey case filed a petition for certiorari to the highest court in New Jersey,
which was denied.
Platinum Group Metals. (Previously discussed on page 32 of the 10-K
Report.) On September 25, 2003, the U.S. District Court for the Southern
District of New York granted our motion to dismiss. The court's order granting
our motion to dismiss allows the plaintiffs to file an amended complaint.
30
Item 1. Legal Proceedings (Continued)
- --------------------------
Fifteen-Passenger Van Class Action. (Previously discussed on page 33 of the
10-K Report, on page 24 of First Quarter 10-Q Report and on page 31 of the
Second Quarter 10-Q Report.) We have received a summons and complaint in a fifth
case, filed in state court in New Jersey, involving allegations and demands for
relief similar to those described under this caption in the 10-K Report.
Antitrust Class Actions. (Previously discussed on page 34 of the 10-K
Report, on page 25 of First Quarter 10-Q Report and on page 31 of the Second
Quarter 10-Q Report.) All of the previously reported cases filed in New Jersey
have been dismissed by the trial court. Two additional cases have been filed in
state courts in New York and California.
Item 2. Changes in Securities and Use of Proceeds
- --------------------------------------------------
During the third quarter of 2003, we issued a total of 18,453 shares of our
common stock under the 1998 Long-Term Incentive Plan to certain directors and
officers as part of their total compensation. Such shares, which included shares
issued on September 30, 2003 pursuant to the consulting agreement between us and
Mr. Edsel B. Ford II, a director of the Company, and shares issued on July 31,
2003 pursuant to the employment agreement between us and Mr. Carl E. Reichardt,
a director and former officer of the Company, were not registered pursuant to
the Securities Act of 1933, as amended, in reliance on Section 4(2) thereof.
Item 5. Other Information
- --------------------------
Government Standards.
- --------------------
Motor Vehicle Fuel Economy--U.S. Requirements
- ---------------------------------------------
As previously reported, a coalition of environmental and consumer
organizations filed a petition with EPA seeking regulations that would limit
emissions of greenhouse gases (GHGs) from motor vehicles. We believe that such
regulations would be tantamount to setting new fuel economy standards, because
the amount of GHGs emitted from a vehicle is directly proportional to the amount
of fuel consumed. In August 2003, EPA denied the petition filed by the coalition
on the grounds that 1) the Clean Air Act does not authorize EPA to regulate
GHGs, and 2) only NHTSA is authorized to regulate fuel economy under the CAFE
law. A number of states, cities, and environmental groups have filed for review
of EPA's decision in the United States Court of Appeals for the District of
Columbia Circuit. We anticipate that a coalition of states and industry trade
groups, including the Alliance of Automobile Manufacturers, will seek to
intervene in support of EPA's decision.
The lawsuit filed by three state attorneys general against EPA seeking to
compel the agency to list carbon dioxide as a criteria pollutant under the Clean
Air Act was dismissed after EPA issued its denial of the GHG petition discussed
in the previous paragraph.
End-of-Life Vehicle Directive. Two additional countries, France and
Portugal, have enacted legislation implementing the End-of-Life Vehicle
Directive during the third quarter of 2003.
31
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
Please refer to the Exhibit Index on Page 33.
(b) Reports on Form 8-K
The Registrant filed the following Current Reports on Form 8-K during
the quarter ended September 30, 2003:
Current Report on Form 8-K dated July 1, 2003 included information
relating to U.S. retail sales of Ford vehicles in June 2003.
Current Report on Form 8-K dated July 16, 2003 included information
relating to Ford's second quarter 2003 financial results.
Current Report on Form 8-K dated August 1, 2003 included information
relating to U.S. retail sales of Ford vehicles in July 2003.
Current Report on Form 8-K dated September 3, 2003 included
information relating to U.S. retail sales of Ford vehicles in August
2003.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FORD MOTOR COMPANY
----------------------------------
(Registrant)
Date: November 13, 2003 By: /s/James C. Gouin
----------------- -----------------------
James C. Gouin
Vice President and Controller
32
EXHIBIT INDEX
-------------
Designation Description Method of Filing
------------------ --------------------------------------------------- -----------------------
Exhibit 10 Description of Special 2003 Performance Filed with this Report
Incentive Arrangement
Exhibit 12 Ford Motor Company and Subsidiaries Calculation Filed with this Report
of Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends
Exhibit 15 Letter of PricewaterhouseCoopers LLP, Independent Filed with this Report
Accountants, dated November 12, 2003, relating to
Financial Information
Exhibit 31.1 Rule 15d-14(a) Certification of CEO Filed with this Report
Exhibit 31.2 Rule 15d-14(a) Certification of CFO Filed with this Report
Exhibit 32.1 Section 1350 Certification of CEO Filed with this Report
Exhibit 32.2 Section 1350 Certification of CFO Filed with this Report
33