UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X Annual report pursuant to Section 13 or 15(d) of the Securities
------ Exchange Act of 1934 (No Fee Required)
For the fiscal year ended December 31, 2001
or
------ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
For the transition period from _______ to _______
Commission file number 1-3950
------
FORD MOTOR COMPANY
(Exact name of Registrant as specified in its charter)
Delaware 38-0549190
-------- ----------
(State of incorporation) (I.R.S. employer identification no.)
One American Road, Dearborn, Michigan 48126
------------------------------------- -----
(Address of principal executive offices) (Zip code)
313-322-3000
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered (a)
-------------------------------------- -------------------------
Common Stock, par value $.01 per share New York Stock Exchange
Pacific Coast Stock Exchange
Depositary Shares, each representing New York Stock Exchange
1/2,000 of a share of Series B Cumulative
Preferred Stock, as described below
---------------
(a) In addition, shares of Common Stock of Ford are listed on certain stock
exchanges in Europe.
[Cover page 1 of 2 pages]
Securities registered pursuant to Section 12(g) of the Act:
Series B Cumulative Preferred Stock, par value $1.00 per share, with an annual
dividend rate of $4,125 per share and a liquidation preference of $50,000 per
share.
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No______
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of February 26, 2002, Ford had outstanding 1,735,756,535 shares of Common
Stock and 70,852,076 shares of Class B Stock. Based on the New York Stock
Exchange Composite Transaction closing price of the Common Stock on that date
($15.55 a share), the aggregate market value of such Common Stock was
$26,991,014,119. Although there is no quoted market for our Class B Stock,
shares of Class B Stock may be converted at any time into an equal number of
shares of Common Stock for the purpose of effecting the sale or other
disposition of such shares of Common Stock. The shares of Common Stock and Class
B Stock outstanding at February 26, 2001 included shares owned by persons who
may be deemed to be "affiliates" of Ford. We do not believe, however, that any
such person should be considered to be an affiliate. For information concerning
ownership of outstanding Common Stock and Class B Stock, see the Proxy Statement
for Ford's Annual Meeting of Stockholders to be held on May 9, 2002 (our "Proxy
Statement"), which is incorporated by reference under various Items of this
Report.
Document Incorporated by Reference*
-----------------------------------
Document Where Incorporated
-------- ------------------
Proxy Statement Part III (Items 10,
11, 12 and 13)
--------------------------
* As stated under various Items of this Report, only certain specified portions
of such document are incorporated by reference in this Report.
[Cover page 2 of 2 pages]
PART I
Item 1. Business
-----------------
Ford Motor Company was incorporated in Delaware in 1919. We acquired
the business of a Michigan company, also known as Ford Motor Company,
incorporated in 1903 to produce and sell automobiles designed and engineered by
Henry Ford. We are the world's second-largest producer of cars and trucks
combined. We and our subsidiaries also engage in other businesses, including
financing and renting vehicles and equipment.
Overview
Our business is divided into two business sectors: the Automotive
sector and the Financial Services sector. We manage these sectors as three
primary operating segments as described below.
Business Sectors Operating Segments Description
---------------- ------------------ -----------
Automotive:
Automotive design, manufacture, sale, and service
of cars and trucks
Financial Services:
Ford Motor Credit Company vehicle-related financing, leasing, and
insurance
The Hertz Corporation renting and leasing of cars and trucks and
renting industrial and construction
equipment, and other activities
We provide financial information (such as, revenues, income, and assets)
for each of these business sectors and operating segments in three areas of this
Report: (1) Item 6. "Selected Financial Data" on pages 36 through 38; (2) Item
7. "Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 39 through 57; and (3) Note 18 of the Notes to our
Consolidated Financial Statements located at the end of this Report (page
FS-21). Financial information relating to certain geographic areas is also
included in the above-mentioned areas of this Report.
Revitalization Plan
-------------------
Following an extensive review of our North and South American operations,
on January 11, 2002, we announced a revitalization plan (the "Revitalization
Plan") that includes the following elements:
o New products: A product-led revitalization program that will result in
the introduction of 20 new or freshened products in the United States
annually between now and mid-decade.
o Plant capacity: Reduction of North American plant manufacturing
operating capacity by about one million vehicles by mid-decade to
realign capacity with market conditions.
o Hourly workforce: About 12,000 hourly employees in North America are
affected by actions completed in December 2001 or to be taken
throughout 2002 and beyond. An additional 3,000 hourly employees were
affected in 2001. Plans are being made to reassign as many plant
employees as possible.
Item 1. Business (Continued)
o Salaried workforce: Our 2001 voluntary separation program for salaried
employees and other related actions resulted in a 3,500-person
workforce reduction in North America. This program will be extended to
achieve an additional 1,500-person salaried workforce reduction to
reach the goal of 5,000. If necessary to meet this goal, an
involuntary separation program will be used.
o Global workforce: More than 35,000 employees will be affected by
combined actions around the world by mid-decade. These include: 21,500
in North America - 15,000 hourly, 5,000 salaried and 1,500 agency
employees - and 13,500 in the rest of the world.
o Material costs: A material cost-reduction program has been initiated
with North American suppliers which shares design savings, with Ford
receiving 65 percent of implemented cost reductions and suppliers
receiving 35 percent in the first year. Designs will be developed that
will help improve our products and overall quality. This program,
along with other material cost reduction efforts, is expected to
improve ongoing annual profits before taxes by $3 billion by
mid-decade.
o Discontinued low-margin models: The Mercury Cougar, Mercury Villager,
Lincoln Continental and Ford Escort will be discontinued this year.
o Beyond North America: Revitalization plans beyond North American
automotive operations include the continued implementation of the
European transformation strategy, the Premier Automotive Group
strategy, the turnaround in South America and a revised direction for
Ford Motor Credit Company.
o Divestitures: We are pursuing the sale of non-core assets and
businesses. Our plan includes $1 billion of cash realization from
these actions in 2002.
Manufacturing plans over the next several years include: 1) closing five
plants: Edison Assembly, Ontario Truck Plant, St. Louis Assembly, Cleveland
Aluminum Casting and Vulcan Forge; 2) no new products have been identified for
two plants: Ohio Assembly and Cuautitlan Assembly; 3) pursuing the sale of
Woodhaven Forging Plant; 4) major downsizing and shift reductions at eleven
plants; and 5) line speed reductions and changes to operating patterns at nine
plants.
Automotive Sector
We sell cars and trucks throughout the world. In 2001, we sold
approximately 7 million vehicles throughout the world. Our automotive vehicle
brands include Ford, Mercury, Lincoln, Volvo, Jaguar, Land Rover, Aston Martin
and TH!NK. Substantially all of our cars, trucks and parts are marketed through
retail dealers in North America, and through distributors and dealers outside of
North America. At December 31, 2001, the approximate number of dealers and
distributors worldwide distributing our vehicle brands was as follows: Ford,
over 13,000; Mercury, 2,229; Lincoln, 1,610; Volvo, 2,500; Jaguar, 694; Land
Rover, 2,300; Aston Martin, 81; TH!NK, 69. Because many dealerships distribute
more than one of our brands from the same sales location, a single dealership
may be counted under more than one brand in the previous sentence.
The worldwide automotive industry, Ford included, is affected significantly
by a number of factors over which we have little control, including general
economic conditions. In the United States, the automotive industry is a
highly-competitive, cyclical business that has a wide variety of product
offerings. The number of cars and trucks sold to retail buyers (commonly
referred to as "industry demand") can vary substantially from year to year. In
any year, industry demand depends largely on general economic conditions, the
cost of purchasing and operating cars and trucks, and the availability and cost
of credit and fuel. Industry demand also reflects the fact that cars and trucks
are durable items that people generally can wait to replace.
2
Item 1. Business (Continued)
The worldwide automotive industry consists of many producers, with no
single dominant producer. Certain manufacturers, however, account for the major
percentage of total sales within particular countries, especially their
countries of origin. Most of the factors that affect the United States
automotive industry and its sales volumes and profitability are equally relevant
outside the United States.
The worldwide automotive industry also is affected significantly by a
substantial amount of costly governmental regulation. In the United States and
Europe, for example, governmental regulation has arisen primarily out of concern
for the environment, for greater vehicle safety, and for improved fuel economy.
Many governments also regulate local content and/or impose import requirements
as a means of creating jobs, protecting domestic producers, or influencing their
balance of payments.
Our unit sales vary with the level of total industry demand and our share
of that industry demand. Our share is influenced by how our products compare
with those offered by other manufacturers based on many factors, including
price, quality, styling, reliability, safety, and functionality. Our share also
is affected by our timing of new model introductions and manufacturing capacity
limitations. Our ability to satisfy changing consumer preferences with respect
to type or size of vehicle and its design and performance characteristics can
impact our sales and earnings significantly.
The profitability of vehicle sales is affected by many factors, including
the following:
o unit sales volume
o the mix of vehicles and options sold
o the margin of profit on each vehicle sold
o the level of "incentives" (price discounts) and other marketing costs
o the costs for customer warranty claims and other customer satisfaction
actions
o the costs for government-mandated safety, emission and fuel economy
technology and equipment
o the ability to manage costs
o the ability to recover cost increases through higher prices
Further, because Ford and other manufacturers have a high proportion of costs
that are fixed (including relatively fixed labor costs), relatively small
changes in unit sales volumes can dramatically affect overall profitability.
Therefore, should industry demand soften because of slowing or negative economic
growth in the major markets in which we operate, or should our share of total
industry sales decline, our profitability will be adversely affected. In recent
years, industry sales of vehicles in the United States have been at record
levels (17.5, 17.8 and 17.4 million units in 2001, 2000 and 1999 respectively).
In 2002, however, we expect industry sales volumes in the United States to be
about 16.5 million units and we expect to incur significant losses in our
Automotive segment in 2002.
Following is a discussion of the automotive industry in the principal
markets where we compete, as well as a discussion of our Ford Customer Service
Division:
United States
-------------
Sales Data. The following table shows U.S. industry sales of cars and
-----------
trucks for the years indicated:
U. S. Industry Sales
(millions of units)
Years Ended December 31,
------------------------------------------------------------------
2001 2000 1999 1998 1997
--------- --------- ---------- --------- ----------
Cars................................... 8.4 8.8 8.7 8.2 8.3
Trucks................................. 9.1 9.0 8.7 7.8 7.2
--- --- --- --- ---
Total.................................. 17.5 17.8 17.4 16.0 15.5
==== ==== ==== ==== ====
3
Item 1. Business (Continued)
We classify cars by small, middle, large and luxury segments and trucks by
compact pickup, bus/van, full-size pickup, sport utility vehicles and
medium/heavy segments. The large and luxury car segments and the bus/van,
full-size pickup and sport utility vehicle segments include the industry's most
profitable vehicle lines. The term "bus" as used in this discussion refers to
vans designed to carry passengers. The following tables show the proportion of
United States car and truck unit sales by segment for the industry (including
Japanese and other foreign-based manufacturers) and Ford for the years
indicated:
U. S. Industry Vehicle Sales by Segment
------------------------------------------------------------------
Years Ended December 31,
------------------------------------------------------------------
2001 2000 1999 1998 1997
--------- --------- ---------- --------- ----------
CARS
Small....................................... 16.7% 16.7% 16.1% 16.9% 18.1%
Middle...................................... 21.6 22.9 23.8 23.6 24.7
Large....................................... 2.7 2.9 3.2 3.7 4.3
Luxury...................................... 7.2 7.2 6.8 6.8 6.3
----- ----- ----- ----- -----
Total U.S. Industry Car Sales............... 48.2 49.7 49.9 51.0 53.4
----- ----- ----- ----- -----
TRUCKS
Compact Pickup.............................. 5.2% 5.9% 6.2% 6.7% 6.4%
Bus/Van..................................... 8.8 10.0 10.1 10.1 10.4
Full-Size Pickup............................ 13.2 12.4 12.7 12.4 12.0
Sport Utility Vehicles...................... 23.0 19.8 18.5 17.5 15.7
Medium/Heavy................................ 1.6 2.2 2.6 2.3 2.1
----- ----- ----- ----- -----
Total U.S. Industry Truck Sales............. 51.8 50.3 50.1 49.0 46.6
----- ----- ----- ----- -----
Total U.S. Industry Vehicle Sales........... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
Ford Vehicle Sales by Segment in U.S.
------------------------------------------------------------------
Years Ended December 31,
------------------------------------------------------------------
2001 2000 1999 1998 1997
--------- --------- ---------- --------- ----------
CARS
Small....................................... 13.9% 14.5% 13.5% 13.1% 12.7%
Middle...................................... 11.4 13.0 15.5 16.7 19.6
Large....................................... 5.2 5.1 5.7 5.7 5.6
Luxury...................................... 7.0 7.5 6.2 4.2 4.1
----- ----- ----- ----- -----
Total Ford U.S. Car Sales................... 37.7 40.1 40.9 39.7 42.0
----- ----- ----- ----- -----
TRUCKS
Compact Pickup.............................. 6.9% 7.9% 8.4% 8.4% 7.7%
Bus/Van..................................... 9.1 10.5 11.0 11.1 12.6
Full-Size Pickup............................ 22.9 20.9 20.9 21.3 19.3
Sport Utility Vehicles...................... 23.2 20.4 18.5 19.1 17.3
Medium/Heavy*............................... 0.2 0.2 0.3 0.4 1.1
----- ----- ----- ----- -----
Total Ford U.S. Truck Sales................. 62.3 59.9 59.1 60.3 58.0
----- ----- ----- ----- -----
Total Ford U.S. Vehicle Sales............... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
-------------------------
*In 1997 Ford sold its heavy truck businesses in North America and Australia/New
Zealand to Freightliner Corporation. Ford ceased production of heavy trucks in
North America in December 1997. The transfer of the North American and
Australian heavy truck businesses was completed in 1998.
As shown in the tables above, since 1997 there has been a shift from cars
to trucks for both industry sales and Ford sales. Ford's sales of the middle car
segment as a percentage of its total sales has deteriorated more than the
general decline of the industry sales in that segment because of the
discontinuance of certain product offerings in the segment (e.g., Ford
Thunderbird and Contour and Mercury Mystique) and, more recently, lower fleet
sales of the Ford Taurus model.
4
Item 1. Business (Continued)
Market Share Data. The following tables show changes in car and truck
------------------
United States market shares of the six leading vehicle manufacturers for the
years indicated:
U.S. Car Market Shares*
------------------------------------------------------------------
Years Ended December 31,
------------------------------------------------------------------
2001 2000 1999 1998 1997
--------- --------- ---------- --------- ----------
Ford**................................... 17.7% 19.1% 19.9% 20.4% 20.8%
General Motors........................... 27.0 28.6 29.3 29.8 32.2
DaimlerChrysler***....................... 8.5 9.1 10.3 10.7 10.2
Toyota................................... 11.3 11.0 10.2 10.6 9.9
Honda.................................... 10.7 10.0 9.8 10.6 10.0
Nissan................................... 4.9 4.8 4.6 5.0 5.7
All Other****............................ 19.9 17.4 15.9 12.9 11.2
----- ----- ----- ----- -----
Total U.S. Car Retail Deliveries...... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
U.S. Truck Market Shares*
------------------------------------------------------------------
Years Ended December 31,
------------------------------------------------------------------
2001 2000 1999 1998 1997
--------- --------- ---------- --------- ----------
Ford**................................... 27.4% 28.3% 28.6% 30.5% 31.4%
General Motors........................... 28.9 27.0 27.8 27.5 28.8
DaimlerChrysler***....................... 19.5 21.5 22.2 23.2 21.9
Toyota................................... 8.7 7.2 6.7 6.3 5.7
Honda.................................... 3.4 3.1 2.6 1.9 1.5
Nissan................................... 3.2 3.7 3.2 2.7 3.6
All Other*****........................... 8.9 9.2 8.9 7.9 7.1
----- ----- ----- ----- -----
Total U.S. Truck Retail Deliveries.... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
U.S. Combined Car and Truck Market Shares*
------------------------------------------------------------------
Years Ended December 31,
------------------------------------------------------------------
2001 2000 1999 1998 1997
--------- --------- ---------- --------- ----------
Ford**................................... 22.8% 23.7% 24.3% 25.3% 25.8%
General Motors........................... 28.0 27.8 28.5 28.7 30.6
DaimlerChrysler***....................... 14.2 15.3 16.3 16.8 15.6
Toyota................................... 10.0 9.1 8.5 8.5 7.9
Honda.................................... 6.9 6.6 6.2 6.3 6.0
Nissan................................... 4.1 4.3 3.9 3.9 4.7
All Other****............................ 14.0 13.2 12.3 10.5 9.4
----- ----- ----- ----- -----
Total U.S. Car and Truck Retail Deliveries 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
--------------------------
* All U.S. retail sales data are based on publicly available information from
the media and trade publications. ** Ford purchased Volvo Car on March 31,
1999 and Land Rover on June 30, 2000. The figures shown here include Volvo
Car and Land Rover on a pro forma basis for the periods prior to their
acquisition by Ford. During the period from 1997 through 1998, Volvo Car
represented no more than 1.2 percentage points of total market share during
any one year. During the period 1997 through 1999, Land Rover represented
no more than 0.4 percentage points of total market share during any one
year.
*** Chrysler and Daimler-Benz merged in late 1998. The figures shown here
combine Chrysler and Daimler-Benz (excluding Freightliner and Sterling
Heavy Trucks) on a pro forma basis for the periods prior to their merger.
**** "All Other" includes primarily companies based in various European
countries, Korea and other Japanese manufacturers. The increase in combined
market share shown for "All Others" reflects primarily increases in market
share for European manufactures (e.g., BMW) and the Korean manufacturers
(e.g., Hyundai and Kia).
*****"All Other" in the U.S. Truck Market Shares table includes primarily
companies based in various European countries, Korea and other Japanese
manufacturers. The decrease in combined market share from 2000 to 2001
shown for "All Others" in this table reflects primarily decreases in market
share for heavy truck manufacturers.
The decline in overall market share for Ford in 2001 and in Ford's truck
market share since 1997 is primarily the result of increased competition and, in
particular, an increased number of new competitive product offerings mainly from
foreign manufacturers.
5
Item 1. Business (Continued)
Marketing Incentives and Fleet Sales. Automotive manufacturers that sell
-------------------------------------
vehicles in the United States typically give purchasers price discounts or other
marketing incentives. These incentives are the result of competition from new
product offerings by manufacturers and the desire to maintain production levels
and market shares. Manufacturers provide these incentives to both retail and
fleet customers (fleet customers include daily rental companies, commercial
fleet customers, leasing companies and governments). Marketing incentives
generally are higher during periods of economic downturns, when excess capacity
in the industry tends to increase. We estimate that there exists presently about
five to six million units of excess capacity in North America.
Our marketing costs for the Ford, Lincoln and Mercury brands in the United
States as a percent of gross sales revenue for those brands were as follows for
the three years indicated: 14.7% (2001), 11.1% (2000), and 10.6% (1999). In the
fourth quarter of 2001, our United States marketing costs as a percent of gross
sales revenue for those brands was 16.7%. These "marketing costs" include
primarily (i) marketing incentives on vehicles, such as retail rebates and costs
for special financing and lease programs, (ii) reserves for costs and/or losses
associated with our required repurchase of certain vehicles sold to daily rental
companies, and (iii) costs for advertising and sales promotions for vehicles.
The increase in marketing costs over the last several years is a result of
intense competition in the United States market.
Fleet sales generally are less profitable than retail sales, and sales to
daily rental companies generally are less profitable than sales to other fleet
purchasers. The mix between sales to daily rental companies and other fleet
customers has been about evenly split in recent years. The table below shows our
fleet sales in the United States, and the amount of those sales as a percentage
of our total United States car and truck sales, for the last five years.
Ford Fleet Sales
------------------------------------------------------------------
Years Ended December 31,
------------------------------------------------------------------
2001 2000 1999 1998 1997
--------- --------- ---------- --------- ----------
Units sold......................................... 885,000 977,000 940,000 878,000 923,000
Percent of Ford's total U.S. car and truck sales... 22% 23% 23% 22% 24%
Warranty Coverage. We presently provide warranty coverage for defects in
------------------
factory-supplied materials and workmanship on all vehicles (other than medium
trucks) in the United States. This warranty coverage for Ford/Mercury vehicles
extends for 36 months or 36,000 miles (whichever occurs first) and covers
components of the vehicle, including tires beginning January 1, 2001 for 2001
and later model years. Prior to January 1, 2001, tires were warranted only by
the tire manufacturers. The United States warranty coverage for 2002 and later
model years TH!NK Neighbor vehicles extends for 36 months with unlimited miles.
The United States warranty coverage for luxury vehicles (Lincoln, Jaguar, Volvo,
and Land Rover) extends for 48 months or 50,000 miles (whichever occurs first)
but, except for Lincoln beginning January 1, 2001, does not include tires, which
are warranted by the tire manufacturers. In general, different warranty coverage
is provided on medium trucks and on vehicles sold outside the United States.
Warranty coverage for safety restraint systems (safety belts, air bags and
related components) extends for 60 months or 50,000 miles (whichever occurs
first) and 60 months with unlimited miles for 2002 and later model years TH!NK
Neighbor vehicles. Also, corrosion damage resulting in perforation (holes) in
body sheet metal panels is covered on 1995 and newer models for 60 months
(unlimited mileage). In addition, the Federal Clean Air Act requires warranty
coverage for 8 years or 80,000 miles (whichever occurs first) for emissions
equipment (catalytic converter and powertrain control module) on most light duty
vehicles sold in the United States. As a result of these warranties and the
concern for customer satisfaction, costs for warranty repairs, emissions
equipment repairs, and customer satisfaction actions ("warranty costs") can be
substantial. Estimated warranty costs for each vehicle sold by us are accrued at
the time of sale. Such accruals, however, are subject to adjustment from time to
time depending on actual experience.
6
Item 1. Business (Continued)
Europe
------
Market Share Information. Outside of the United States, Europe is our
---------------------------
largest market for the sale of cars and trucks. The automotive industry in
Europe is intensely competitive. Over the past year, we estimate that 145 new or
freshened vehicles, including derivatives of existing vehicles, were introduced
in the European market by various manufacturers. For the past 10 years, the top
six manufacturers have collectively held between 73% and 77% of the total car
market, and have each achieved a car market share in about the 9% to 19% range.
(Manufacturers' shares, however, vary considerably by country.) This competitive
environment is expected to intensify further as Japanese manufacturers increase
their production capacity, and all of the manufacturers of premium brands (e.g.,
BMW, Mercedes Benz and Audi) continue to broaden their product offerings. We
estimate that in 2001 the European automotive industry had excess capacity of
approximately six million units (based on a comparison of European domestic
demand and capacity).
In 2001, vehicle manufacturers sold approximately 17.8 million cars and
trucks in Europe, about the same as 2000 levels. Our combined car and truck
market share in Europe in 2001 was 10.7%, up 7/10 of one percentage point from
2000.
Britain and Germany are our most important markets within Europe, although
the Southern European countries are becoming increasingly significant. Any
adverse change in the British or German market has a significant effect on our
total European automotive profits. For 2001 compared with 2000, total industry
sales were up 10% in Britain and down 2% in Germany.
For purposes of the figures shown in this section, we have considered
Europe to consist of the following 19 markets: Britain, Germany, France, Italy,
Spain, Austria, Belgium, Ireland, Netherlands, Portugal, Switzerland, Finland,
Sweden, Denmark, Norway, Czech Republic, Greece, Hungary, and Poland.
Motor Vehicle Distribution in Europe. On February 5, 2002, the European
---------------------------------------
Commission proposed a new regulation that would change the way motor vehicles
are sold and repaired throughout the European Community. While Ford could
continue to maintain its "exclusive" distribution arrangements that allow it to
provide dealers with exclusive sales territories, the new rules would eliminate
the presently allowable restrictions on resale. This means that our dealers
could sell vehicles to any reseller (e.g., supermarket chains, internet agencies
and other resellers not authorized by us) who in turn could sell to end
customers both within and outside of the dealer's exclusive sales territory.
Alternatively, manufacturers could establish a "selective" distribution regime
that would allow the manufacturer to determine the number but not the location
of its dealers. Dealers also would be free to set up additional sales or
delivery outlets within the European Union and provide active sales to all
customers within the European Union, but not sell motor vehicles to resellers
not authorized by the manufacturer. Under both systems, the new rules would make
it easier for a dealer to display and sell multiple brands in one store without
the need to maintain separate facilities.
The Commission also has proposed sweeping changes to the repair industry.
Dealers could no longer be required by the manufacturer to perform repair work.
Instead, dealers could subcontract the work to independent repair shops that met
reasonable criteria set by the manufacturer. These "official" repair facilities
could perform warranty and recall work, in addition to other repair and
maintenance work. While a manufacturer could continue to require the use of its
parts in warranty and recall work, the repair facility could use parts made by
others that were of comparable quality for all other repair work.
It is difficult to quantify at this time the full impact of these changes
on our European operations. The Commission, however, has stated that it expects
the new rules to lead to increased competition and a narrowing of car prices
from country to country. The new rules, coupled with the introduction of the new
single currency, are likely to put downward pressure on prices for both vehicles
and vehicle parts. Our existing dealer agreements will be modified by October 1,
2003 when the new rules are expected to apply.
7
Item 1. Business (Continued)
Other Markets
-------------
Mexico and Canada. Mexico and Canada also are important markets for us. In
-----------------
2001, industry sales of new cars and trucks in Mexico were approximately 948,000
units, up approximately 7% from 2000 levels. In Canada, industry sales of new
cars and trucks in 2001 were approximately 1.59 million units, up 0.7% from 2000
levels. Our combined car and truck market share in these markets in 2001 was
17.3% (Mexico) and 16.6% (Canada).
South America. Brazil and Argentina are our principal markets in South
--------------
America. The economic environment in those countries has been volatile in recent
years, leading to large variations in industry sales. Results have also been
influenced by the devaluation of the Brazilian Real and Argentina Peso,
continued weak economic conditions and government actions to reduce inflation
and public deficits. Industry sales in 2001 were 1.6 million units in Brazil, up
about 10% from 2000, and approximately 201,000 units in Argentina, down 41% from
2000. Our combined car and truck market share in these markets in 2001 was 7.8%
in Brazil (down 1.3% from last year) and 14.3% in Argentina (down 0.6% from a
year ago).
Ford has undertaken restructuring actions in recent years to improve our
competitiveness in South America. In addition, we are building a new assembly
plant in Brazil, which will manufacture a new family of vehicles for the South
American markets. The new plant will start building the 5-door Fiesta in the
spring of 2002 and begin producing an all-new sport utility vehicle next year.
Asia Pacific. In the Asia Pacific region, Australia, Taiwan, Thailand and
------------
Japan are our principal markets. Industry volumes in 2001 in this region were as
follows: approximately 773,000 units in Australia (down 1.9% from 2000),
approximately 347,400 units in Taiwan (down 17.4% from 2000), approximately
297,000 units in Thailand (up 13.4% from 2000) and approximately 5.9 million
units in Japan (down 1.0% from 2000). In 2001, our combined car and truck market
share in Australia was 15.1%. In Taiwan, we had a combined car and truck market
share in 2001 of 14.9%. In Thailand, our combined car and truck market share was
6.5% in 2001. Our combined car and truck market share in Japan has been less
than 1% in recent years. We own a 33.4% interest in Mazda Motor Corporation and
account for Mazda on an equity basis. Mazda's market share in Japan has been in
the 5% range in recent years. Our principal competition in the Asia Pacific
region has been the Japanese manufacturers. We anticipate that the continuing
relaxation of import restrictions (including duty reductions) will intensify
competition in the region.
We opened a new assembly plant in India in 1999, launching an all-new small
car (the Ikon) designed specifically for that market. In 2001, approximately
14,800 Ikons were produced for sale in India. In addition, India commenced sale
of Ikon CKD (completely knocked down) kits to Mexico and South Africa, exporting
28,150 CKD kits to these two countries in 2001. We expect India to become one of
our most important markets in Asia in the future.
Africa. In recent years, we have operated in the South African market as a
------
45% owner in the South African Motor Corporation (Pty.) Limited ("SAMCOR"). In
2000, we increased our ownership interest in SAMCOR to 100% by purchasing the
remaining 55% we did not previously own. Subsequent to this purchase, SAMCOR's
name was changed to Ford Motor Company of Southern Africa ("FMCSA").
FMCSA assembles and distributes Ford, Mazda, Volvo and, beginning in 2001,
Land Rover vehicles in South Africa. In addition, FMCSA distributes Jaguar
vehicles. In 2001, industry volume in South Africa was approximately 367,000
units, up 7.6% from 2000 levels. FMCSA's combined car and truck market share in
2001 was 15.1% for the five brands it distributes.
8
Item 1. Business (Continued)
Ford Customer Service Division
------------------------------
Ford Customer Service Division is a business unit within Ford that supports
customers of Ford, Lincoln and Mercury brand vehicles through a network of
franchised dealers. This is the principal source of vehicle service and customer
support for our vehicle owners within these brands, traditionally recognized by
the Quality CareSM brand. Ford Customer Service Division's first, and most
critical, role within the organization is to provide the service parts, tools,
technology & support to facilitate the dealer network to achieve high levels of
customer service satisfaction and owner loyalty. Beyond the traditional Ford,
Lincoln and Mercury Dealerships, Ford Customer Service Division also works
together with the other Ford trustmark brands to optimize our dealer service
business and share best practices.
Ford Customer Service Division was part of our former Automotive Consumer
Services Group that also included the Diversified Consumer Services
Organization. That organization contains businesses that provide services to
vehicle owners for all automotive brands. As part of our RevitalizationPlan,
discussed below under Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations," we plan to focus primarily on our dealer
network for traditional vehicle service and customer support. In addition, we
will decrease our involvement in selected businesses in our Diversified Consumer
Services organization -- we have announced that we are evaluating the sale or
partial disposition of Kwik-Fit, our European maintenance and light repair
business, Collision Team of America, a U.S. chain of collision repair centers
and GreenLeaf LLC, a chain of automotive recycling centers in the U.S. and
Canada.
Through Ford Customer Service Division's e-Business initiatives, we are
working to manage our business in real time. By linking together our suppliers,
dealers and customers, we are able to improve the speed, accuracy and efficiency
of the service business throughout the value chain. One of the greatest
competitive advantages we can provide to our dealers is the ability to easily
obtain information such as:
o Technical information from suppliers
o Parts distribution status
o Service problem diagnosis
o Customer experience results
9
Item 1. Business (Continued)
Financial Services Sector
Ford Motor Credit Company
-------------------------
Ford Credit is the world's largest automotive finance company based on the
dollar value of the portfolio of finance receivables it owns and manages. Ford
Credit and its subsidiaries provide vehicle and dealer financing in 36 countries
to more than 11 million customers and more than 12,500 automotive dealers. Ford
Credit is a wholly-owned subsidiary of Ford.
Ford Credit and its subsidiaries offer a wide variety of automotive
financial services to and through automotive dealers throughout the world. Under
the Ford Credit brand name, financial services are provided to and through
dealers of Ford, Lincoln and Mercury brand vehicles and, through its PRIMUS
division, financial services are provided to and through dealers of Jaguar, Land
Rover, Aston Martin and Mazda brand vehicles and non-Ford dealers. The Volvo
Finance subsidiary provides financing to Volvo dealers. Financial services are
also provided to vehicle leasing companies and fleet purchasers.
Ford Credit's primary financial services fall into three categories:
o Retail financing - - purchasing retail installment sale contracts and
retail leases from dealers.
o Wholesale financing - - making loans to dealers to finance the
purchase of vehicle inventory, also known as floorplan financing.
o Other financing - - making loans to dealers for working capital,
improvements to dealership facilities, and acquisition of real estate.
Ford Credit also services its finance receivables, makes loans to Ford
affiliates, finances receivables of Ford and our subsidiaries and provides
insurance services related to its financing programs. Revenues are earned
primarily from retail financing contracts and leases and interest supplements
and other support payments from Ford on special-rate retail financing programs.
Ford Credit conducts insurance operations through The American Road
Insurance Company and its subsidiaries in the United States and Canada. American
Road's business primarily consists of: insurance
covering obligations to vehicle customers under warranty and extended service
plan contracts for new and used vehicles manufactured by Ford and nonaffiliated
companies, primarily originating from Ford dealers; physical damage insurance
covering vehicles and equipment financed at wholesale by Ford Credit; and the
reinsurance of credit life and credit disability insurance for retail purchasers
of vehicles and equipment. A majority of the extended service plan business and
all of the warranty business of American Road is reinsured by Gentle Winds
Reinsurance, Ltd., a subsidiary of Ford. The financial results of this reinsured
business are reflected in our financial statements under the Automotive sector.
Ford Credit and its subsidiaries conduct business in all 50 states of the
United States through about 175 dealer automotive financing branches and seven
regional service centers. Outside the United States, FCE Bank plc ("Ford Credit
Europe") is Ford Credit's largest operation. Ford Credit Europe's primary
business is to support the sale of Ford vehicles in Europe through the Ford
dealer network. A variety of retail, leasing and wholesale finance plans are
provided in most countries in which it operates. Ford Credit Europe does
business in the United Kingdom, Germany, most other European countries, and
Saudi Arabia. Ford Credit, through its subsidiaries, also operates in Canada,
Mexico, Brazil, Australia, a number of Asia-Pacific countries, Argentina and
Chile. In addition, Ford Credit manages Ford's vehicle financing operations in
other countries where Ford Credit does not have operations.
10
Item 1. Business (Continued)
Ford Credit's share of retail financing for new Ford, Lincoln and Mercury
brand vehicles sold by dealers in the United States and new Ford brand vehicles
sold by dealers in Europe and its share of wholesale financing for those brands
of vehicles acquired by dealers in the United States and Europe was as follows
during the last three years:
Years Ended December 31,
----------------------------------------------------
2001 2000 1999
--------------- --------------- -------------
United States
-------------
Retail installment and lease* 54% 51% 47%
Wholesale 84 84 84
Europe
------
Retail installment and lease ** 37 32 33
Wholesale 97 97 96
--------------------------
* As a percentage of total sales and leases of Ford, Lincoln and
Mercury brand vehicles, including cash sales.
** As a percentage of total sales and leases of Ford brand vehicles,
including cash sales.
Ford Credit's managed finance receivables include receivables that it owns
and receivables that it has sold in securitization transactions that it
continues to service. Ford Credit's owned and managed finance receivables and
net investment in operating leases, net of allowances for credit losses, were as
follows at the dates indicated (in billions):
December 31,
-------------------------------------
2001 2000
---------------- ----------------
Outstanding receivables-Owned
Finance receivables
Retail $ 83.4 $ 79.9
Wholesale 15.4 33.7
Other 10.9 9.1
------ ------
Total finance receivables, net $109.7 $122.7
Net investment in operating leases 39.3 38.5
------ ------
Total owned $149.0 $161.2
====== ======
Memo: Allowance for credit losses
included above $ 2.8 $ 1.6
Outstanding receivables-Managed
Finance receivables
Retail $124.7 $105.9
Wholesale 32.8 36.1
Other 10.9 9.1
------ ------
Total finance receivables, net $168.4 $151.1
Net investment in operating leases 39.4 38.6
------ ------
Total managed* $207.8 $189.7
====== ======
Memo: Allowance for credit losses
included above $ 3.3 $ 2.1
---------------------
* At December 31, 2001 and 2000, Ford Credit's retained interests in
sold receivables were $12.5 billion and $3.7 billion, respectively.
For more information regarding these retained interests, see Item 7.
" Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources - Financial
Services Sector."
11
Item 1. Business (Continued)
The following table sets forth information concerning Ford Credit's and its
affiliates' credit loss experience on its owned and managed receivables for
various categories of financing during the years indicated (in millions):
Years Ended or at December 31,
------------------------------------------------
2001 2000 1999
------------- ------------- -------------
Owned
-----
Net credit losses
Retail* $2,055 $1,283 $ 995
Wholesale 32 14 3
Other 24 - 2
----- ----- -----
Total $2,111 $1,297 $1,000
====== ====== ======
Net losses as a percentage of average net receivables**
Retail 1.71% 1.09% 0.95%
Wholesale 0.13 0.05 0.01
Total including other 1.35 0.84 0.74
Managed
-------
Net credit losses
Retail* $2,272 $1,410 $1,164
Wholesale 34 15 3
Other 24 - 2
----- ----- -----
Total $2,330 $1,425 $1,169
====== ====== ======
Net losses as a percentage of average net receivables**
Retail 1.45% 1.00% 0.97%
Wholesale 0.10 0.05 0.01
Total including other 1.20 0.81 0.78
--------------------------
* Includes net credit losses on operating leases.
** Includes net investment in operating leases.
Shown below is an analysis of Ford Credit's allowance for credit losses
related to owned finance receivables and operating leases for the years
indicated (in billions):
2001 2000 1999
------------- ------------- -------------
Balance, beginning of year $1.6 $1.5 $1.5
Additions- provision for credit losses 3.4 1.6 1.2
Deductions
Losses 2.5 1.6 1.3
Recoveries (0.4) (0.3) (0.3)
----- ----- -----
Net losses 2.1 1.3 1.0
Other changes, principally
amounts relating to finance
receivables and operating
leases sold 0.1 0.2 0.2
----- ----- -----
Net deductions 2.2 1.5 1.2
----- ----- -----
Balance, end of year $2.8 $1.6 $1.5
===== ==== ====
Allowance for credit losses as a percentage
of net receivables* 1.86% 1.02% 1.04%
Allowance for credit losses as a percentage 1.60% 1.10% 1.04%
of net receivables managed**
-------------------------
* Includes net investment in operating leases.
** Includes net investment in operating leases and includes
receivables sold by Ford Credit that it continues to service, as
well as receivables owned by it.
In 2001, higher net credit losses resulted largely from increases in Ford
Credit's volume of receivables, a conversion of collection activities from local
branch offices to regional service centers in the United States and Canada, and
an overall decline in the economy in the United States. During the last quarter
of 2001, Ford Credit experienced an increase in account delinquencies and
vehicle repossessions
12
Item 1. Business (Continued)
reflecting significantly weakening economic conditions in the United States
following the terrorist attacks on September 11, 2001. As a result, in 2001,
Ford Credit increased its allowance for credit losses by $1.2 billion compared
with 2000 year-end levels.
In response to higher credit losses, Ford Credit implemented the following
actions in 2001:
o Refined its pricing and financing policies to reduce its exposure to
higher risk financing contracts,
o Increased service center staffing levels, improved training of new
collectors, and enhanced segmentation strategies, and
o Initiated further improvements in bankruptcy predictors and portfolio
monitoring processes.
Ford Credit requires substantial funding in the normal course of business.
Ford Credit's funding requirements are driven mainly by the need to (i) purchase
retail installment sale contracts and vehicle leases to support the sale of Ford
products, which to a large extent are influenced by Ford-sponsored special
financing and leasing programs that are available exclusively through Ford
Credit, and (ii) repay its debt obligations.
Funding sources for Ford Credit include the sale of commercial paper,
issuance of term debt, the sale of receivables and, in the case of Ford Credit
Europe, the issuance of certificates of deposits to diverse investors in various
markets. The ability of Ford Credit to obtain funds is affected by its debt
ratings, which are closely related to the outlook for, and financial condition
of, Ford and the nature and availability of support facilities. The long-term
senior debt of each of Ford, Ford Credit and Ford Credit Europe is rated as
follows by the three agencies that provide ratings:
Ford Ford Credit and Ford Credit Europe
---- ----------------------------------
Fitch, Inc. BBB+ BBB+
Moody's Investor's Service Baa1 A3
Standard & Poor's BBB+ BBB+
The commercial paper of each of Ford Credit and Ford Credit Europe is rated
"F2" (by Fitch, Inc.), "Prime-2" (by Moody's), and "A-2" (by S&P).
Under a profit maintenance agreement with Ford Credit, Ford has agreed to
make payments to maintain Ford Credit's earnings at certain levels. In addition,
under a support agreement with Ford Credit Europe, Ford Credit has agreed to
maintain Ford Credit Europe's net worth above a minimum level. No payments were
made under either of these agreements during the period 1998 through 2001.
For further discussion of Ford Credit's credit losses, funding sources and
funding strategies, see Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations". For a discussion of how Ford
Credit manages its credit risks, lease residual risks, financial market risks,
liquidity risks and operating risks, see Item 7A. "Quantitative and Qualitative
Disclosure About Market Risk".
The Hertz Corporation
---------------------
Hertz and its affiliates, associates and independent licensees operate what
Hertz believes is the largest worldwide car rental business based upon revenues.
They also operate one of the largest industrial and construction equipment
rental businesses in North America based upon revenues. Hertz and its
affiliates, associates and independent licensees, do the following:
o rent and lease cars and trucks
o rent industrial and construction equipment
o sell their used cars and equipment
o provide third-party claim management services
13
Item 1. Business (Continued)
These businesses are operated from approximately 7,000 locations throughout the
United States and in over 140 foreign countries and jurisdictions.
Below are some financial highlights for Hertz (in millions):
Years Ended December
31,
-------------------------------------
2001 2000
---------------- ----------------
Revenue $4,925 $5,087
Pre-Tax Income 3 581
Net Income 23 358
Between April 1997 and March 2001, we owned approximately 82% of the
economic interest of Hertz, with the remaining approximately 18% interest
represented by shares of Hertz common stock that were publicly traded. In March
2001, through a cash tender offer and a merger transaction, we acquired the
publicly held shares and, as a result, Hertz has become an indirect,
wholly-owned subsidiary of Ford.
Governmental Standards
A number of governmental standards and regulations relating to safety,
corporate average fuel economy ("CAFE"), emissions control, noise control,
damageability, and theft prevention are applicable to new motor vehicles,
engines, and equipment manufactured for sale in the United States, Europe and
elsewhere. In addition, manufacturing and assembly facilities in the United
States, Europe and elsewhere are subject to stringent standards regulating air
emissions, water discharges, and the handling and disposal of hazardous
substances. Such facilities in the United States and Europe also are subject to
comprehensive national, regional, and/or local permit programs with respect to
such matters.
Mobile Source Emissions Control -- U.S. Requirements. The Federal Clean Air
-------------------------------
Act imposes stringent limits on the amount of regulated pollutants that lawfully
may be emitted by new motor vehicles and engines produced for sale in the United
States. Currently, most light duty vehicles sold in the United States must
comply with these standards for 10 years or 100,000 miles, whichever first
occurs. The U.S. Environmental Protection Agency ("EPA") recently has
promulgated post-2004 model year standards that are more stringent than the
default standards contained in the Clean Air Act. These new regulations will
require most light duty trucks to meet the same emissions standards as passenger
cars by the 2007 model year. The stringency of the new standards may impact our
ability to produce and offer a broad range of products with the characteristics
and functionality that customers demand. The new standards also are likely to
limit severely the use of diesel technology, which could negatively impact fuel
economy performance. The EPA also has promulgated post-2004 emission standards
for "heavy-duty" trucks (8,500-14,000 lbs. gross vehicle weight). These
standards are likely to pose technical challenges and may affect the competitive
position of full-line vehicle manufacturers such as Ford.
Pursuant to the Clean Air Act, California has received a waiver from the
EPA to establish its own unique emissions control standards. New vehicles and
engines sold in California must be certified by the California Air Resources
Board ("CARB"). CARB's emissions requirements (the "California program") for
model years 1994 through 2003 require manufacturers to meet a non-methane
organic gases fleet average requirement that is significantly more stringent
than that prescribed by the Clean Air Act for the corresponding periods of time.
In late 1998, CARB adopted stringent new vehicle emissions standards that must
be phased in beginning in the 2004 model year. These new standards treat most
light duty trucks the same as passenger cars and require both types of vehicles
to meet new stringent emissions requirements. It is also expected that these new
standards will essentially eliminate the use of diesel technology. CARB's new
standards present a difficult engineering and technological challenge, and may
impact our ability to produce and offer a broad range of products with the
characteristics and functionality that customers demand.
14
Item 1. Business (Continued)
Since 1990, the California program has included requirements for
manufacturers to produce and deliver for sale "zero-emission vehicles" (the "ZEV
mandate"). The ZEV mandate initially required that a specified percentage of
each manufacturer's vehicles produced for sale in California, beginning at 2% in
1998 and increasing to 10% in 2003, must be zero-emission vehicles ("ZEVs"),
which produce no emissions of regulated pollutants. In 1996, CARB eliminated the
ZEV mandate for the 1998-2002 model years, but retained the 10% mandate in a
modified form beginning with the 2003 model year. Around the same time, vehicle
manufacturers voluntarily entered into agreements with CARB to conduct ZEV
demonstration programs.
In January 2001, CARB voted to approve a series of complex modifications to
the ZEV mandate. These modifications require large-volume manufacturers such as
Ford to produce "partial zero-emission vehicles" ("PZEVs") and/or ZEVs beginning
in the 2003 model year. PZEVs are vehicles certified to California's
"super-ultra-low emission vehicle" ("SULEV") tailpipe standards, with zero
evaporative emissions. Using a series of phase-in tables and credit adjustments,
the number of ZEVs required under the modified mandate will increase
substantially between 2003 and 2018. The California Office of Administrative Law
refused to approve these rules due to procedural defects, so the modifications
still have not been finalized. We anticipate that CARB will attempt to correct
the defects and finalize the rules in 2002.
The Clean Air Act permits other states that do not meet national ambient
air quality standards to adopt California's motor vehicle emission standards no
later than two years before the affected model year. New York, Massachusetts,
Vermont, and Maine adopted the California standards effective with the 2001
model year or before. New York, Massachusetts, and Vermont have either
previously adopted, or indicated an intention to adopt, the California ZEV
mandate. Maryland and New Jersey have laws requiring the adoption of California
standards if certain triggers are met. There are problems with transferring
California standards to northeast states, including the following: 1) the
driving range of ZEVs is greatly diminished in cold weather, thereby limiting
their market appeal; and 2) the northeast states have refused to adopt the
California reformulated gasoline regulations, which may impair the ability of
vehicles to meet California's in-use standards. New York and Massachusetts are
in the process of finalizing rules that give manufacturers the option of
complying with the California ZEV mandate or with an alternative program that
may make compliance more feasible in those states; it is likely that Ford will
choose the alternative program. It is anticipated that Vermont will adopt the
latest version of the ZEV mandate once it becomes final in California.
Battery electric vehicles are the only zero-emission vehicles currently
feasible for mass production. Despite intensive research activities, battery
technology has not made the major strides that were projected when the ZEV
mandate was originally enacted in 1990. Battery-electric vehicles remain
considerably more costly than gasoline-powered vehicles, and they have a
relatively short driving range before they must be recharged. These factors
limit the consumer appeal of battery-powered vehicles. Ford plans to comply with
the early years of the modified ZEV mandate through sales of its TH!NK brand of
electric vehicles, along with one or more PZEV models. In the longer term,
however, it is doubtful whether the market will support the number of battery
electric vehicles called for by the modified ZEV mandate. Fuel cell technology
may in the future enable production of ZEVs with widespread consumer appeal, but
commercially feasible fuel cell technology appears to be a decade or more away.
Compliance with the ZEV mandate may eventually require costly actions that would
have a substantial adverse effect on Ford's sales volume and profits. For
example, we could be required to curtail the sale of non-electric vehicles
and/or offer to sell electric vehicles well below cost. Other states may seek to
adopt CARB's ZEV mandate pursuant to the Clean Air Act, thereby increasing the
costs to Ford. Other automobile manufacturers, along with some dealers, have
filed suit in state and federal court seeking to eliminate the ZEV mandate on
various procedural and substantive grounds.
Under the Clean Air Act, the EPA and CARB can require manufacturers to
recall and repair non-conforming vehicles. The EPA, through its testing of
production vehicles, also can halt the shipment of non-conforming vehicles. Ford
may be required to recall, or may voluntarily recall, vehicles for such purposes
in the future. The costs of related repairs or inspections associated with such
recalls can be substantial.
15
Item 1. Business (Continued)
European Requirements. European Union ("EU") directives and related
legislation limit the amount of regulated pollutants that may be emitted by new
motor vehicles and engines sold in the EU. In 1998, the EU adopted a new
directive on emissions from passenger cars and light commercial trucks. More
stringent emissions standards applied to new car certifications beginning
January 1, 2000 and to new car registrations beginning January 1, 2001 ("Stage
III Standards"). A second level of even more stringent emission standards will
apply to new car certifications beginning January 1, 2005 and to new car
registrations beginning January 1, 2006 ("Stage IV Standards"). The comparable
light commercial truck Stage III Standards and Stage IV Standards would come
into effect one year later than the passenger car requirements. The directive
includes a framework that permits EU member states to introduce fiscal
incentives to promote early compliance with the Stage III and Stage IV
Standards. The directive also introduces on-board diagnostic requirements, more
stringent evaporative emission requirements, and in-service compliance testing
and recall provisions for emissions-related defects that occur in the first five
years or 80,000 kilometers of vehicle life (extended to 100,000 kilometers in
2005). The Stage IV Standards for diesel engines are not yet technically
feasible and may impact our ability to produce and offer a broad range of
products with the characteristics and functionality that customers demand. A
related EU directive was adopted at the same time which establishes standards
for cleaner fuels beginning in 2000 and even cleaner fuels in 2005. The EU is
setting up a program to assess the need for further changes to vehicle emission
and fuel standards after 2005.
Certain European countries are conducting in-use emissions testing to
ascertain compliance of motor vehicles with applicable emissions standards.
These actions could lead to recalls of vehicles; the future costs of related
inspection or repairs could be substantial.
Motor Vehicle Safety -- U.S. Requirements. The National Traffic and Motor
--------------------
Vehicle Safety Act of 1966 (the "Safety Act") regulates motor vehicles and motor
vehicle equipment in the United States in two primary ways. First, the Safety
Act prohibits the sale in the United States of any new vehicle or equipment that
does not conform to applicable motor vehicle safety standards established by the
National Highway Traffic Safety Administration (the "Safety Administration").
Meeting or exceeding many safety standards is costly because the standards tend
to conflict with the need to reduce vehicle weight in order to meet emissions
and fuel economy standards. Second, the Safety Act requires that defects related
to motor vehicle safety be remedied through safety recall campaigns. There were
pending before the Safety Administration approximately 32 investigations
relating to alleged safety defects in Ford vehicles as of February 28, 2002. A
manufacturer also is obligated to recall vehicles if it determines that they do
not comply with a safety standard. Should Ford or the Safety Administration
determine that either a safety defect or a noncompliance exists with respect to
certain of Ford's vehicles, the costs of such recall campaigns could be
substantial.
The Transportation Recall Enhancement, Accountability, and Documentation
Act (the "TREAD Act") was signed into law in November 2000. The TREAD Act
establishes new reporting requirements for motor vehicles, motor vehicle
equipment, and tires, including reporting to the Safety Administration
information on foreign recalls and information received by the manufacturer that
may assist the agency in the identification of safety defects. The obligation of
vehicle manufacturers to provide, on a cost-free basis, a remedy for vehicles
with an identified safety defect or non-compliance issue is extended from eight
years to ten years by the new legislation. The Safety Administration is also
required to develop a new dynamic test on rollovers to be used for consumer
information. Potential civil penalties are increased from $1,000 to $5,000 per
day for certain statutory violations, with a maximum penalty of $15,000,000 for
a related series of violations. Similar penalties are included for violation of
the reporting requirements. Criminal penalties are introduced for persons who
make false statements to the government or withhold information with the intent
to mislead the government about safety defects that have caused death or serious
bodily injury. Currently, there is substantial rulemaking activity related to
several TREAD Act requirements and final rules are expected to be promulgated
throughout 2002 creating significant additional regulatory burdens for vehicle
manufacturers.
Foreign Requirements. Canada, the EU, individual member countries within
the EU, and other countries in Europe, South America and the Asia Pacific
markets also have safety standards applicable to motor vehicles and are likely
to adopt additional or more stringent standards in the future.
16
Item 1. Business (Continued)
Motor Vehicle Fuel Economy -- U.S. Requirements. Under federal law,
-----------------------------
vehicles must meet minimum Corporate Average Fuel Economy ("CAFE") standards set
by the Safety Administration. A manufacturer is subject to potentially
substantial civil penalties if it fails to meet the CAFE standard in any model
year, after taking into account all available credits for the preceding three
model years and expected credits for the three succeeding model years.
The law established a passenger car CAFE standard of 27.5 mpg for 1985 and
later model years, which the Safety Administration believes it has the authority
to amend to a level it determines to be the maximum feasible level. The Safety
Administration has established a 20.7 mpg CAFE standard applicable to light
trucks.
Ford expects to be able to comply with the foregoing CAFE standards, in
some cases using credits from prior or succeeding model years. In general, a
continued increase in demand for larger vehicles, coupled with a decline in
demand for small and middle-size vehicles could jeopardize our long-term ability
to maintain compliance with CAFE standards.
The CAFE standards will likely increase in the near future. Both the House
and Senate have passed separate bills directing the Safety Administration to
establish new fuel economy standards for upcoming model years. It is anticipated
that a measure similar to these bills will be enacted into law during 2002. Even
if Congress does not pass such a law, it is likely that the Safety
Administration will use its existing rulemaking authority to promulgate
increases in light truck fuel economy standards. The Safety Administration has
recently requested public comment on the advisability and feasibility of
increasing light truck standards in the 2005-2010 time frame.
Pressure to increase CAFE standards stems in part from concerns over
greenhouse gas emissions, which may affect the global climate. With respect to
greenhouse gas emissions, the Bush administration released a climate change
policy initiative in February 2002. The Bush administration plan stresses
voluntary measures and a cap-and-trade program to stem the growth of greenhouse
gas emissions. The Bush administration also has launched the Freedom Car
initiative, which supports research for fuel cell-powered vehicles. Other
nations continue to press for United States ratification of the so-called "Kyoto
Protocol," which would require the United States to reduce greenhouse gas
emissions by 7% below its 1990 levels. The Kyoto Protocol does not currently
have the support of either the Bush administration or Congress. Separately, a
petition has been filed with the EPA requesting that it regulate carbon dioxide
(CO2, a greenhouse gas) emissions from motor vehicles under the Clean Air Act.
EPA has requested public comment on this petition but has not taken action to
date. Some states, including California, are also proposing to regulate CO2
emissions from motor vehicles.
If significant increases in CAFE standards for upcoming model years are
imposed, or if EPA or other agencies regulate CO2 emissions from motor vehicles,
Ford might find it necessary to take various costly actions that could have
substantial adverse effects on its sales volume and profits. For example, Ford
might have to curtail production of larger, family-size and luxury cars and
full-size light trucks, restrict offerings of engines and popular options, and
increase market support programs for its most fuel-efficient cars and light
trucks.
Foreign Requirements. The EU also is a party to the Kyoto Protocol and has
agreed to reduce greenhouse gas emissions by 8% below their 1990 levels during
the 2008-2012 period. In December 1997, the European Council of Environment
Ministers (the "Environment Council") reaffirmed its goal to reduce average CO2
emissions from new cars to 120 grams per kilometer by 2010 (at the latest) and
invited European motor vehicle manufacturers to negotiate further with the
European Commission on a satisfactory voluntary environmental agreement to help
achieve this goal. In October 1998, the EU agreed to support an environmental
agreement with the European Automotive Manufacturers Association (of which Ford
is a member) on CO2 emission reductions from new passenger cars (the
"Agreement"). The Agreement establishes an emission target of 140 grams of CO2
per kilometer for the average of new cars sold in the EU by the Association's
members in 2008. In addition, the Agreement provides that certain Association
members (including Ford) will introduce models emitting no more than 120 grams
of CO2 per
17
Item 1. Business (Continued)
kilometer in 2000, and establishes an estimated target range of 165-170 grams of
CO2 per kilometer for the average of new cars sold in 2003. Also in 2003, the
Association will review the potential for additional CO2 reductions, with a view
to moving further toward the EU's objective. The Agreement assumes (among other
things) that no negative measures will be implemented against diesel-fueled cars
and the full availability of improved fuels with low sulfur content in 2005.
Average CO2 emissions of 140 grams per kilometer for new passenger cars
corresponds to a 25% reduction in average CO2 emissions compared to 1995.
The Environment Council requested the European Commission to review in 2003
the EU's progress toward reaching the 120 gram target by 2010, and to implement
annual monitoring of the average CO2 emissions from new passenger cars and
progress toward achievement of the objectives for 2000 and 2003.
In 1995, members of the German Automobile Manufacturers Association
(including Ford Werke AG) made a voluntary pledge to increase by 2005 the
average fuel economy of new cars sold in Germany by 25% from 1990 levels, to
make regular reports on fuel consumption, and to increase industry research and
development efforts toward this end. The German Automobile Manufacturers
Association has reported that the industry is on track to meet the pledge.
Other European countries are considering other initiatives for reducing CO2
emissions from motor vehicles. Taken together, such proposals could have
substantial adverse effects on our sales volumes and profits in Europe.
Japan has adopted automobile fuel consumption goals that manufacturers must
attempt to achieve by the 2000 model year. The consumption levels apply only to
gasoline-powered vehicles, vary by vehicle weight, and range from 5.8 km/l to
19.2 km/l.
End-of-Life Vehicle Proposal -- The European Parliament has published a
------------------------------
directive imposing an obligation on motor vehicle manufacturers to take back
end-of-life vehicles with zero or negative value registered after July 1, 2002,
and to take back all other end-of-life vehicles with zero or negative value as
of January 1, 2007, with no cost to the last owner. The Directive also imposes
requirements on the proportion of the vehicle that may be disposed of in
landfills and the proportion that must be reused or recycled beginning in 2006,
and bans the use of certain substances in vehicles beginning with vehicles
registered after July 2003. Member states may apply these provisions prior to
the dates mentioned above.
Presently, there are numerous uncertainties surrounding the form and
implementation of the legislation in different member states, especially
regarding manufacturers' responsibilities and the resultant expenses that may be
incurred. Depending on the individual member states' legislation and other
circumstances, we may be required to accrue the costs represented by these
regulations in our 2002 financial statements. The directive should not, however,
result in significant cash expenditures before 2007.
Pollution Control Costs -- During the period 2002 through 2006, we expect
-------------------------
to spend approximately $391 million on our North American and European
facilities to comply with air and water pollution and hazardous waste control
standards, which now are in effect or are scheduled to come into effect. Of this
total, we estimate spending approximately $73 million in 2002 and $93 million in
2003.
18
Item 1. Business (Continued)
Employment Data
The average number of people we employed by geographic area was as follows
for the years indicated:
2001 2000
---------------- ----------------
United States 165,512 164,853
Europe 135,283 132,528
Other 53,636 52,736
-------- --------
Total 354,431 350,117
======= =======
In 2001, the average number of people we employed increased approximately
one percent. The increase reflects the full year effect of acquisitions and
newly consolidated subsidiaries (Land Rover, Ford Motor Company Southern Africa,
Collision Team of America). The numbers above include approximately 20,500
hourly employees of Ford who are assigned to Visteon Corporation, and, pursuant
to our collective bargaining agreement with the United Automobile Workers (the
"UAW"), remain Ford employees. Visteon reimburses Ford for all costs to Ford
associated with these employees. Most of our employees work in our Automotive
operations.
For further information regarding employment statistics of Ford, see Item
6. "Selected Financial Data" later in this Report. For information concerning
employee retirement benefits, see Note 17 of our Notes to Consolidated Financial
Statements at the end of this Report.
Substantially all of the hourly employees in our Automotive operations in
the United States are represented by unions and covered by collective bargaining
agreements. Approximately 99% of these unionized hourly employees in our
Automotive segment are represented by the UAW. Approximately 2% of our salaried
employees are represented by unions. Most hourly employees and many
non-management salaried employees of our subsidiaries outside the United States
also are represented by unions.
We have entered into a collective bargaining agreement with the UAW that is
scheduled to expire on September 14, 2003. We also have entered into a
collective bargaining agreement with the Canadian Automobile Workers ("CAW")
that is scheduled to expire on September 17, 2002. Among other things, our
agreements with the UAW and CAW provide for guaranteed wage and benefit levels
throughout their terms and provide for significant employment security. As a
practical matter, these agreements restrict our ability to eliminate product
lines, close plants, and divest businesses. These agreements can also limit our
ability to change local work rules and practices. Our Revitalization Plan
assumes full compliance with our obligations under existing collective
bargaining agreements. Negotiation of new collective bargaining agreements with
the UAW and CAW could result in our incurring costs different than currently
anticipated.
We are or will be negotiating new collective bargaining agreements with
labor unions in Europe (as well as Mexico and Asia Pacific) where current
agreements will expire in 2002. A protracted work stoppage in Europe could
substantially adversely affect Ford's profits.
In recent years we have not had significant work stoppages at our
facilities, but they have occurred in some of our suppliers' facilities. A work
stoppage could occur as a result of disputes under our collective bargaining
agreements with labor unions or in connection with negotiations of new
collective bargaining agreements, which, if protracted, could substantially
adversely affect our business and results of operation. Work stoppages at
supplier facilities for labor or other reasons could have similar consequences
if alternate sources of components are not readily available. Our Canadian
facilities, which are covered by the CAW agreement expiring in September 2002,
include facilities that are the primary source of engines for many of our truck
and sport utility models, which are among our most profitable models. Therefore,
any protracted work stoppage at our Canadian facilities in connection with the
negotiation of a new collective bargaining agreement with the CAW will have a
substantial adverse effect on our business.
19
Item 1. Business (Continued)
In addition to our collective bargaining agreement with the UAW, we entered
into a separate agreement with the UAW in connection with the sale of our
Dearborn steel-making operations to Rouge Industries, Inc., then known as Marico
Acquisition Corp., in 1989. As part of the sale, employees of our former
steel-making operations became employees of Rouge Steel Company, a wholly owned
subsidiary of Rouge Industries, Inc. ("Rouge"). Pursuant to the UAW agreement,
we agreed that Rouge hourly employees who, at the time of the sale, were
represented by the UAW and met certain seniority requirements would be allowed
to return to Ford to work in one of our Rouge area plants if they were laid off
by Rouge in the future as a result of a layoff of unknown duration, a permanent
discontinuance of operations by Rouge or a sale of the assets of Rouge. The
right to return remains in effect with respect to each eligible employee for a
period equal to the employee's Ford seniority as of the date of the sale by
Ford. Approximately 1,000 former Ford employees currently employed by Rouge are
covered by this agreement. In part to avoid the occurrence of one or more of the
triggering events described above, we have extended subordinated credit to Rouge
totaling $90 million. In its Annual Report on Form 10-K for the year ended
December 31, 2001, Rouge stated that it has suffered recurring losses from
operations and negative cash flows that raise substantial doubt about its
ability to continue as a going concern.
Engineering, Research and Development
We conduct engineering, research and development primarily to improve the
performance (including fuel efficiency), safety and customer satisfaction of our
products, and to develop new products. We also have staffs of scientists who
engage in basic research. We maintain extensive engineering, research and design
facilities for these purposes, including large centers in Dearborn, Michigan;
Dunton, England; and Merkenich, Germany. Most of our engineering research and
development relates to our Automotive operating segment.
During the last three years, we took charges to our consolidated income for
engineering, research and development we sponsored in the following amounts
(restated for prior years to exclude Visteon): $7.4 billion (2001), $6.8 billion
(2000), and $6.0 billion (1999). Any customer-sponsored research and development
activities that we conduct are not material.
Item 2. Properties
-------------------
We own substantially all of our U.S. manufacturing and assembly facilities.
These facilities are situated in various sections of the country and include
assembly plants, engine plants, casting plants, metal stamping plants, and
transmission plants. We also own a majority of our sales offices, with the
remainder being leased. Most of our distribution centers and warehouses are
leased (approximately 26% are owned).
In addition, we maintain and operate manufacturing plants, assembly
facilities, parts distribution centers, and engineering centers outside the
United States. We own substantially all of the manufacturing plants, assembly
facilities, and engineering centers. The majority of our parts distribution
centers outside of the United States are either leased or provided by vendors
under service contracts.
Our Automotive segment operates approximately 96 plants; 126 distribution
centers/ warehouses; and 53 engineering and research and development centers.
20
Item 2. Properties (Continued)
In recent years, we have sold or contributed certain of our automotive
assets to entities in which we are a joint venture partner. These joint ventures
operate approximately 17 plants that formerly were operated by our Automotive
segment. Because we do not control these joint ventures, but have significant
influence over their operating and financial policies, these joint ventures are
not consolidated with us for financial reporting purposes, but they are
accounted for in our financial statements using the equity method. The most
significant of these joint ventures are:
o Getrag Ford Transmissions GmbH -- a 50/50 joint venture with
Getrag Deutsche Venture GmbH & Co. KG., a German company, to
which we transferred our European manual transmission operations
in Halewood, England, Cologne, Germany and Bordeaux, France. The
Getrag joint venture produces manual transmissions for our
European vehicle assembly operations. Ford currently supplies
most of the hourly and salaried labor requirements of the
operations transferred to the Getrag joint venture. Ford
employees who worked at the manual transmission operations that
were transferred at the time of the formation of the joint
venture are leased to the joint venture from Ford. Employees
hired in the future to work in these operations will be employed
directly by the joint venture. Getrag Ford Transmissions GmbH
reimburses Ford for the full cost of the hourly and salaried
labor supplied by Ford.
o ZF Batavia L.L.C. -- a joint venture between Ford (49% partner)
and ZF Friedrichshafen Germany (51% partner), which owns and
operates our former Batavia, Ohio automatic transmission
business. ZF Batavia will produce, starting in 2003, a Front
Wheel Drive Continuously Variable Transmission (CVT) for use in
certain Ford Motor Company vehicles in North America and Europe.
ZF Batavia also produces a Front Wheel Drive 4-Speed Automatic
Transmission that is currently used in the Ford Mondeo, as well
as in both the Ford Escape and the Mazda Tribute. Ford supplies
part of the hourly labor requirements to the ZF Batavia plant
consisting primarily of Ford hourly employees who worked at the
plant prior to the joint venture being formed. ZF Batavia
reimburses Ford for the full cost of the hourly labor.
o Tenedora Nemak, S.A. de C.V. -- owns and operates our former
Canadian castings operations and supplies engine blocks and heads
to several of our engine plants. Tenedora Nemak, S.A. de C.V. was
an existing castings joint venture between Ford and a subsidiary
of Alfa S.A. de C.V., a Mexican conglomerate. Ford supplies a
portion of the hourly labor requirements to the castings
operation. Tenedora Nemak, S.A. de C.V. reimburses Ford for the
full cost of the hourly labor supplied by Ford. We own 20% of
this joint venture.
The furniture, equipment and other physical property owned by our Financial
Services operations are not material in relation to their total assets.
The facilities owned or leased by us or our subsidiaries and joint ventures
described above are, in the opinion of management, suitable and adequate for the
manufacture and assembly of our products and will continue to be adequate
following the plant closings described above as part of our Revitalization Plan.
21
Item 3. Legal Proceedings
--------------------------
Various legal actions, governmental investigations and proceedings and
claims are pending or may be instituted or asserted in the future against us and
our subsidiaries, including, but not limited to, those arising out of the
following: alleged defects in our products; governmental regulations covering
safety, emissions, and fuel economy; financial services; employment-related
matters; dealer, supplier, and other contractual relationships; intellectual
property rights; product warranties; environmental matters; and shareholder
matters. Some of the pending legal actions are, or purport to be, class actions.
Some of the foregoing matters involve or may involve compensatory, punitive or
antitrust or other multiplied damage claims in very large amounts, or demands
for recall campaigns, environmental remediation programs, sanctions or other
relief that, if granted, would require very large expenditures. See Item 1.
"Business-Governmental Standards". We regularly evaluate the expected outcome of
product liability litigation and other litigation matters. We have accrued
expenses for probable losses on product liability matters, in the aggregate,
based on an analysis of historical litigation payouts and trends. Expenses also
have been accrued for other litigation where losses are deemed probable. These
accruals have been reflected in our financial statements. Following is a
discussion of our significant pending legal proceedings:
Firestone Matters
-----------------
Recall and National Highway Traffic Safety Administration Matters. On
-----------------------------------------------------------------------
August 9, 2000, Bridgestone/Firestone, Inc. ("Firestone") announced a recall of
all Firestone ATX and ATX II tires (P235/75R15) produced in North America since
1991 and Wilderness AT tires of that same size manufactured at Firestone's
Decatur, Illinois plant. Firestone estimated that about 6.5 million of the
affected tires were still in service on the date the recall was announced. The
recall was announced following an analysis by Ford and Firestone that identified
a statistically significant incidence of tread separation occurring in the
affected tires. Most of the affected tires were installed as original equipment
on Ford Explorer sport utility vehicles. This original recall was substantially
completed by the end of the first quarter 2001.
The Safety Administration investigated the tread separation matter both to
make a root cause assessment and to determine whether Firestone's recall should
be expanded to include other Firestone tires. We actively cooperated with the
Safety Administration in their investigation. As a result of our work with the
Safety Administration with regard to its investigation of the Firestone tire
recall and our own root cause analysis, we announced on May 22, 2001 that we
would replace all remaining 15, 16, and 17-inch Firestone Wilderness AT tires
(about 13 million tires) on our vehicles. This precautionary action was based on
our analysis of data on the actual road performance of these tires, comparisons
with the performance of comparable tires by other tire makers, a review of
information developed by and received from the Safety Administration, and
extensive laboratory and vehicle testing.
As a result of its investigations, the Safety Administration on October 4,
2001 issued its determination that 3.5 million Wilderness AT tires manufactured
before May 1998, which tires were subject to our replacement program, are
defective, and said that Firestone had agreed to recall those tires. About 2.5
million of the defective tires are estimated to have been in service as of May
2001 (when Ford's replacement program was announced), and consist of 15 and
16-inch Wilderness AT tires manufactured prior to May 1998 and supplied to Ford
as original equipment or sold as replacement equipment.
On February 12, 2002, the Safety Administration issued a report denying an
earlier request for an investigation into the handling and stability of the
Explorer after a tread separation. In its report, the Safety Administration
specifically analyzed and rejected each of allegations made in the request. The
Safety Administration based its denial on both a technical analysis of the
steering and handling of the Explorer as well as a review of crash data that
indicated "no significant difference in the likelihood of a crash following a
tread separation between Explorer vehicles and other compact SUVs."
22
Item 3. Legal Proceedings (Continued)
Firestone Tire Related Litigation. In the United States, the
---------------------------------------
above-described defect in certain Firestone tires, most of which were installed
as original equipment on Ford Explorers, has led to a significant number of
personal injury and class action lawsuits against Ford and Firestone. These
cases are described in detail below.
Firestone Personal Injury Actions. Plaintiffs in the personal injury cases
typically allege that their injuries were caused by defects in the tire that
caused it to lose its tread and/or by defects in the Explorer that caused the
vehicle to roll over. We are a defendant in these actions and, as with all
litigation facing the Company, are investigating the circumstances surrounding
the accidents and preparing to defend our product in the event we are unable to
reach reasonable resolution.
Firestone Class Actions. Five purported class actions are pending in which
plaintiffs seek to represent persons who own (or at one time owned) Ford
Explorers with Firestone tires: one in federal court in Indianapolis and four in
state courts in Pennsylvania, Wisconsin, South Carolina and Illinois. (A total
of about 96 Firestone-related class actions were originally filed, but almost
all of these have been consolidated into the one case now pending in federal
court in Indianapolis.) These actions were brought on behalf of persons who have
never been injured in an accident involving Firestone tires. They seek to expand
the scope of the recall to include other tires, the cost of replacing those
tires, the alleged diminution in vehicle value caused by the use of those tires
or by the alleged instability of Explorers, or the amount by which Ford was
"unjustly enriched" through inflated wholesale prices. They also seek punitive
damages.
In the federal case, our motion to dismiss that complaint was granted in
part and denied in part. The court ruled that, under the National Highway
Traffic Safety Act, the Safety Administration has the exclusive authority to
order and supervise automotive recalls. Accordingly, the court dismissed those
portions of the class action complaints that sought recall of additional tires
or court supervision of the recall and the tire replacement program. The court
also dismissed some of the claims for damages. However, the court refused to
dismiss the plaintiffs' warranty and unjust enrichment claims.
On November 28, 2001, the federal court certified a class consisting of
"[a]ll current residents of the United States who either (a) owned or leased a
1991 through 2001 model year Ford Explorer as of August 9, 2000 . . . or (b)
owned or leased a 1991 through 2001 model year Ford Explorer prior to August 9,
2000 . . ." The court also certified a class consisting of "[a]ll current
residents of the United States who owned or leased at any time from 1990 to the
present, vehicles that are or were equipped with Firestone ATX, ATX II, Firehawk
ATX, ATX 23 Degree, Widetrack Radial Baja, and Wilderness tires; all tires that
are the same as Firestone ATX, ATX II, Firehawk ATX, ATX 23 Degree, Widetrack
Radial Baja, and Wilderness tires but sold by Firestone under other brand names;
and all other tires manufactured by Firestone that are the same or are
substantially similar to Firestone ATX, ATX II, Firehawk ATX, ATX 23 Degree,
Widetrack Radial Baja and Wilderness tires." The United States Court of Appeals
for the Seventh Circuit has granted our petition to review this ruling.
The state trial court in South Carolina has certified a class of all owners
of Wilderness AT or ATX tires installed on Ford Explorers, but our motion to
dismiss that case is still pending.
Firestone Shareholder Derivative Actions. Two shareholder derivative
actions are pending against the Board of Directors with the Company named as a
nominal defendant. Both actions are in Michigan, one in state court and one in
federal court. The actions allege that the Board members breached their
fiduciary duties to the Company and shareholders by failing to inform themselves
adequately regarding Firestone tires, failing to insure that the Explorer design
was safe, failing to report problems with Firestone tires and to stop using
Firestone tires as original equipment, failing to recall all affected tires on a
global basis as soon as problems were known, and mismanaging the recall once it
was announced. The actions also allege breach of fiduciary duties by the Board
with respect to the use of distributor-mounted thick film ignition ("TFI")
modules. The plaintiffs seek injunctive relief and damages, a
23
Item 3. Legal Proceedings (Continued)
return of all Director compensation during the period of the alleged breaches
and attorneys fees. By agreement of the parties the state court action has been
administratively stayed pending the outcome of the federal court action. In the
federal court action, Ford has filed a motion to dismiss.
Firestone Securities Class Actions. One purported nationwide class action
against the Company was filed in federal court in Detroit alleging securities
fraud and violations of Rule 10b-5 on behalf of all persons who purchased Ford
stock during the period from March 1998 through August 2000. (Seven separate
class action complaints were filed initially, but all seven complaints have now
been replaced by one master complaint.) The plaintiffs allege that, during that
period of time, the defendants made misrepresentations about the safety of Ford
products and the Explorer in particular, and failed to disclose material facts
about problems with Firestone tires and the safety of Explorers equipped with
Firestone tires. The plaintiffs claim that, as a result of these
misrepresentations or omissions, they purchased Ford stock at inflated prices
and were damaged when the price of the stock fell upon announcement of the
recall and subsequent revelations. On December 10, 2001 the federal district
court granted Ford's motion to dismiss and dismissed the consolidated action
with prejudice. Plaintiffs have moved to amend the judgment to make the
dismissal without prejudice and for leave to file an amended complaint.
Venezuelan Matters. In Venezuela, the Attorney General's Office continues
------------------
to investigate whether criminal charges should be filed against Firestone and
Ford employees as a result of tire tread separation accidents that occurred in
that country. The Venezuelan consumer protection agency (INDECU) is assisting in
this investigation. In a separate investigation being conducted by the
Venezuelan National Assembly concerning the cause of the accidents, a
preliminary report was filed on December 5, 2001 by the Technical Commission
appointed to conduct the investigation. The report did not contain any
conclusions regarding the cause of the accidents; it only detailed the work
performed by the committee up to that date. It is not clear whether the
committee will submit a final report.
Other Product Liability Matters
-------------------------------
Asbestos Matters. Along with other vehicle manufacturers, we have been the
----------------
target of asbestos litigation. We are a defendant in various actions for
injuries claimed to have resulted from alleged contact with certain Ford parts
and other products containing asbestos. Asbestos was used in brakes, clutches
and other auto components from 1927-1997. We no longer use asbestos in our
vehicles.
Most of the asbestos litigation we face involves mechanics that worked with
brakes over the years, although we have some cases that relate to the presence
of asbestos in our facilities. In most of these cases we are not the sole
defendant. We believe we are becoming more aggressively targeted in these suits
as a result of the bankruptcy filings of companies that have been the previous
targets of asbestos litigation. As with all litigation facing the Company, we
are prepared to defend these asbestos related cases. We believe that the
scientific evidence confirms our long-standing position that mechanics are not
at an increased risk of asbestos related disease as a result of exposure to
asbestos used in the Company's vehicles.
The majority of these cases do not specify a dollar amount for damages
claimed and in many of those cases that do specify a dollar amount, the specific
amount referred to is only the jurisdictional minimum. In any event, the actual
damages paid out to claimants pursuant to adverse judgments or settlements have
historically been only a small fraction of the damages claimed. To date, our
annual payout on these cases has not been material. However, trends toward
larger jury verdicts and increased awards of punitive damages create the risk
that the amounts actually paid to asbestos claimants may increase in the future.
24
Item 3. Legal Proceedings (Continued)
Environmental Matters
---------------------
General. We have received notices under various federal and state
-------
environmental laws that we (along with others) may be a potentially responsible
party for the costs associated with remediating numerous hazardous substance
storage, recycling or disposal sites in many states and, in some instances, for
natural resource damages. We also may have been a generator of hazardous
substances at a number of other sites. The amount of any such costs or damages
for which we may be held responsible could be substantial. The contingent losses
that we expect to incur in connection with many of these sites have been accrued
and those losses are reflected in our financial statements in accordance with
generally accepted accounting principles. However, for many sites, the
remediation costs and other damages for which we ultimately may be responsible
are not reasonably estimable because of uncertainties with respect to factors
such as our connection to the site or to materials there, the involvement of
other potentially responsible parties, the application of laws and other
standards or regulations, site conditions, and the nature and scope of
investigations, studies, and remediation to be undertaken (including the
technologies to be required and the extent, duration, and success of
remediation). As a result, we are unable to determine or reasonably estimate the
amount of costs or other damages for which we are potentially responsible in
connection with these sites, although that total could be substantial.
Waste Disposal. The EPA initiated a civil enforcement action against Ford
--------------
as a result of Ford Venezuela's 1997 shipment of industrial wastes from its
Valencia Assembly Plant in Venezuela for disposal in Texas. Ford Venezuela
shipped the industrial waste to the U.S. for disposal under the more stringent
U.S. disposal requirements because of the unavailability of adequate disposal
facilities in Venezuela and to ensure proper disposal of the waste. Although
Ford believes that the subject waste is properly classified as non-hazardous
under U.S. environmental laws, the EPA contends that even if the wastes do not
exhibit any hazardous characteristics, they nevertheless may be the product of a
process that is automatically deemed hazardous under applicable regulations. If
Ford is determined to have violated EPA regulations regarding the disposal of
hazardous wastes, Ford could be required to pay fines which could exceed
$100,000.
Ohio Assembly Plant. In September 1999, the EPA filed an administrative
--------------------
complaint against Ford alleging violations of the Resource Conservation and
Recovery Act ("RCRA") at Ford's Ohio Assembly Plant. The alleged violations are
related to Ford's storage of hazardous waste and the absence of a leak
monitoring program for paint equipment. The count alleging failure to implement
a leak monitoring program for paint equipment remains subject to discussion
between Ford and EPA. Subsequent to the Ohio Assembly enforcement action, Ford
has received notices of violation alleging the same noncompliance at other
facilities. If Ford is determined to have violated EPA regulations, Ford could
be required to pay fines or take other actions, the aggregate cost of which
could exceed $100,000.
Sale of E-450s in California. CARB has opened an investigation with respect
----------------------------
to approximately 375 1998 and 1999 model year E-450 vehicles sold to California
customers. CARB alleges that these vehicles were sold without the required
California emissions certification. CARB alleges that the sales were due, in
part, to an error in Ford's ordering process for the E-450. If Ford is
determined to have violated CARB regulations, Ford could be required to pay
fines that could exceed $100,000. Discussions between CARB and Ford are ongoing.
Class Actions
-------------
Paint Class Actions. There are two purported class actions pending against
-------------------
Ford in Texas and Illinois alleging claims for fraud, breach of warranty, and
violations of consumer protection statutes. The Texas case purports to assert
claims on behalf of Texas residents who have experienced paint peeling in
certain 1984 through 1992 model year Ford vehicles. The Illinois case purports
to assert claims on behalf of residents of all states except Louisiana and Texas
who have experienced paint peeling on most 1988 through 1997 model year Ford
vehicles. Plaintiffs in both cases contend that their paint is defective and
susceptible to peeling because Ford did not use spray primer between the
high-build electrocoat ("HBEC") and the color coat. The lack of spray primer
allegedly causes the adhesion of the color coat to
25
Item 3. Legal Proceedings (Continued)
the HBEC to deteriorate after extended exposure to ultraviolet radiation from
sunlight. Plaintiffs in both cases seek unspecified compensatory damages (in an
amount to cover the cost of repainting their vehicles and to compensate for
alleged diminution in value), punitive damages, attorneys' fees and interest.
The Illinois case, Phillips, is still in the early stages of litigation and
--------
there have been no significant developments in that case. In the Texas case,
Sheldon, the trial court certified a class of Texas owners who experienced paint
-------
peeling because of the alleged defect. On May 11, 2000, the Texas Supreme Court
reversed the trial court, decertified the class and remanded the case for
further proceedings. On remand, the trial court certified two classes consisting
of original owners of class vehicles who experienced peeling paint and original
owners who paid Ford or a Ford dealer to repaint their vehicles. We have filed
an appeal with the Texas Court of Appeals.
TFI Module Class Actions. There are seven class actions pending in state
-------------------------
courts in Alabama, California, Illinois, Maryland, Missouri, Tennessee and
Washington, alleging defects in TFI modules in more than 22 million vehicles
manufactured by Ford between 1983 and 1995. With minor variations based upon
state law and differences in the scope of the classes alleged, all of the cases
involve the same legal claims and theories. The parties have reached an
agreement to settle the lead case in California and five of the other pending
cases. The agreement provides that Ford will extend the warranties applicable to
distributor-mounted TFI modules to 100,000 miles, reimburse class members who
previously paid to replace Motorcraft(R) distributor-mounted TFI modules, donate
$5 million to an organization for research and education in the fields of
automotive safety or environmental protection, and pay plaintiffs' counsel
reasonable fees and expenses. The court in the California case gave preliminary
approval to the settlement. A final hearing on the settlement has been scheduled
for June 21, 2002. If the settlement is approved by the California court, the
remaining five cases expressly subject to the settlement will be dismissed. A
class certification motion is pending in the seventh case (in Illinois), but if
the nationwide settlement is approved by the California court we expect that
case to be dismissed as well.
Ford/Citibank Visa Class Action. Following the June 1997 announcement of
--------------------------------
the termination of the Ford/Citibank credit card rebate program, five purported
nationwide class actions and one purported statewide class action were filed
against Ford; Citibank is also a defendant in some of these actions. The actions
allege damages in an amount up to $3,500 for each cardholder who obtained a
Ford/Citibank credit card in reliance on the rebate program and who is precluded
from accumulating discounts toward the purchase or lease of new Ford vehicles
after December 1997 as a result of the termination of the rebate program.
Plaintiffs contend that defendants deceptively breached their contract by
unilaterally terminating the program, that defendants have been unjustly
enriched as a result of the interest charges and fees collected from
cardholders, and further, that defendants conspired to deprive plaintiffs of the
benefits of their credit card agreement. Plaintiffs seek compensatory damages,
or alternatively, reinstatement of the rebate program, and punitive damages,
costs, expenses and attorneys' fees. The five purported nationwide class actions
were filed in state courts in Alabama, Illinois, New York, Oregon and
Washington, and the purported statewide class action was filed in a California
state court. The Alabama court has conditionally certified a class consisting of
Alabama residents. Ford removed all of the cases to federal court, which
consolidated and transferred the cases to federal court in Washington for
pretrial proceedings. In October 1999, the federal court dismissed the
consolidated proceedings for lack of jurisdiction and sent each action back to
the state court in which it originated. We appealed this ruling to the United
States Court of Appeals for the Ninth Circuit, which affirmed the trial court.
The United States Supreme Court has granted Ford's petition for a writ of
certiorari and will review the decision of the Ninth Circuit. We do not expect a
decision from the Court until at least the fourth quarter.
Lease Residual Class Action. In January 1998, in connection with a case
-----------------------------
pending in Illinois state court, Ford and Ford Credit were served with a summons
and intervention counterclaim complaint relating to Ford Credit's leasing
practices (Higginbotham v. Ford Credit). The counterclaim plaintiff, Carla
----------------------------
Higginbotham, is a member of a class that has been conditionally certified for
settlement purposes in Shore v. Ford Credit. In the Shore case, Ford Credit
--------------------- -----
commenced an action for deficiency against Virginia Shore, a Ford Credit lessee.
Shore counterclaimed for purported violations of the Truth-in-Leasing Act
(alleging that
26
Item 3. Legal Proceedings (Continued)
certain lease charges were excessive) and the Truth-in-Lending Act (alleging
that the lease lacked clarity). Shore purported to represent a class of all
similarly situated lessees. Ford was not a party to the Shore case. Higginbotham
-----
objected to the proposed settlement of the Shore case, intervened as a named
-----
defendant, filed separate counterclaims against Ford Credit, and joined Ford as
an additional counterclaim defendant. Higginbotham asserts claims against Ford
Credit for violations of the Consumer Leasing Act, seeks a declaratory judgment
concerning the enforceability of early termination provisions in Ford Credit's
leases, and asserts fraud. She also asserts a claim against Ford Credit and Ford
for conspiracy to violate the Truth-in-Lending Act. The Higginbotham
------------
counterclaims allege that Ford Credit inflates the residual values of its leased
vehicles, which results in lower monthly lease payments but higher termination
fees for lessees who exercise their right of early termination. Higginbotham
claims that the early termination fees were not adequately disclosed on the
lease form and that the fees are excessive and illegal because of the allegedly
inflated residual values. She also alleges that Ford dictated the residual
values to Ford Credit and thereby participated in an unlawful conspiracy. This
case was stayed pending the approval/rejection of the settlement in Shore. Ford
-----
Credit has reached individual settlements with the Shore plaintiffs.
-----
The Illinois court in Higginbotham found that the lease end residual value
------------
of Ms. Higginbotham's vehicle was properly valued and, as a result, Ms.
Higginbotham was an inadequate representative for the class. Subsequently, Ms.
Higginbotham voluntarily dismissed her intervention counterclaim without
prejudice in the Illinois state court and has reactivated her initial suit in
the Florida federal court, pursuing substantially similar claims on behalf of
herself and others similarly situated. Consequently, the Higginbotham case is
------------
proceeding in Florida. In addition, Ford Credit has filed a response to
plaintiff's motion for class certification and has renewed its motion for
summary judgment based on information obtained in discovery.
Retail Lessee Insurance Coverage Class Action. On May 24, 1999, Michigan
----------------------------------------------
Mutual Insurance Company was served with a purported class action complaint in
federal court in Florida alleging that the Ford Commercial, General Liability
and Business Automobile Insurance Policy, and the Personal Auto Supplement to
that policy, provides uninsured/underinsured motorist coverage and medical
payments coverage to retail lessees of Ford vehicles (e.g., to Red Carpet
lessees). The Company is required to defend and indemnify Michigan Mutual. The
complaint rests on an untenable interpretation of the Michigan Mutual policy,
which was intended to cover company cars and lease evaluation vehicles.
Unfortunately, however, the Florida Court of Appeals in a prior action brought
by a single individual, has accepted plaintiffs' interpretation of the policy.
The Florida court's opinion should not be controlling in federal court, however,
and Ford has filed a motion for summary judgment based on the policy language
and the intention of the parties. Plaintiffs responded to Ford's motion,
cross-moved for summary judgment in their favor, moved to amend their complaint,
and moved for class certification. A hearing on Ford's motion was held on
October 2, 2000, and we expect a decision sometime in 2002.
Throttle Body Assemblies Class Action. A purported nationwide class
-------------------------------------
action is pending in federal court in Ohio on behalf of all persons who own or
lease 1999 Mercury Villagers. The complaint alleges that the vehicle has a
defective throttle body assembly that causes the gas pedal to intermittently
lock or stick in the closed position. The complaint alleges breach of warranty,
negligence, and violation of consumer protection statutes. Plaintiffs seek an
order requiring Ford to recall the vehicles. They also seek unspecified
compensatory damages, treble damages, attorneys fees, and costs. Plaintiffs'
motion to certify a class is pending.
Windstar Transmission Class Actions. Two purported class actions are
--------------------------------------
pending, alleging that Ford marketed, advertised, sold, and leased 1995
Windstars in a deceptive manner by misrepresenting their quality and safety and
actively concealing defects in the transmissions. One case is pending in
California state court and is limited to owners and lessees of that state.
Another case is pending in Illinois state court and purports to represent owners
and lessees from all states. Plaintiffs contend that transmissions in the
Windstar have prematurely suffered from shifting problems and acceleration
failures, requiring early replacement at substantial expense to owners. The
cases assert several statutory and common law theories, and seek several types
of relief, including unspecified compensatory damages, punitive damages, and
injunctive relief. Plaintiffs' have filed a motion for class certification in
the California case. (A third case, which alleged a defect in the transmissions
of 3.8 liter engines in 1990-95
27
Item 3. Legal Proceedings (Continued)
Taurus/Sables and 1990-94 Lincoln Continentals in addition to 1995 Windstars has
been dismissed. Plaintiffs have appealed the dismissal to the United States
Court of Appeals for the Third Circuit.)
Seat Back Class Actions. Four purported statewide class actions were filed
-----------------------
in state courts in Maryland, New Hampshire, New Jersey and New York against
Ford, General Motors Corporation and DaimlerChrysler AG alleging that seat backs
with single recliner mechanisms are defective. Plaintiffs in each of these suits
alleged that seats installed in class vehicles (defined as almost all passenger
cars made after 1991) are defective because the seat backs are unstable and
susceptible to rearward collapse in the event of a rear-end collision. The
purported class in each state consists of all persons who own a class vehicle
and specifically excludes all persons who have suffered personal injury as a
result of the rearward collapse of a seat. Plaintiffs allege causes of action
for negligence, strict liability, implied warranty, fraud, and civil conspiracy.
Plaintiffs also allege violations of the consumer protection statutes in the
various states. Plaintiffs seek "compensatory damages measured by the cost of
correcting the defect, not to exceed $5,000 for each class vehicle." Ford's
motions to dismiss were granted in Maryland, New Hampshire, and New York, and
Ford's motion for summary judgment was granted in New Jersey. The New Hampshire
Supreme Court affirmed the trial court's ruling, but plaintiffs' appeals are
pending in New York, Maryland, and New Jersey.
Late Charges Class Actions. A purported state-wide class action was filed
--------------------------
in state court in Maryland (Simpkins v. Ford Credit) in which the plaintiffs are
-----------------------
contending that Ford Motor Credit Company's late charges on lease accounts
violate state law. The plaintiffs allege that Ford Credit and PRIMUS violated
the Maryland Consumer Leasing Act, the Maryland Constitution and the Maryland
Consumer Code by charging late fees in consumer lease transactions in excess of
6%. The plaintiffs assert that the maximum late fee allowed under Maryland law
is the judgment rate of interest, which is 6% per annum. Plaintiffs are seeking
restitution, punitive damages and injunctive relief. We have filed a motion to
dismiss.
Fair Lending Class Action. Ford Credit has been served with three purported
-------------------------
class actions alleging that its pricing practices are discriminatory. One (Jones
-----
v. Ford Credit) was filed in federal court in New York, another (Rodriquez v.
-------------- ------------
Ford Credit) was filed in federal court in Illinois and the last (Lucena v.
------------ ---------
PRIMUS) was filed in federal court in Pennsylvania. The Jones case alleges that
------ -----
our pricing practices discriminate against African Americans. Specifically,
plaintiffs allege that although Ford Credit's initial credit risk scoring
analysis applies objective criteria to calculate the risk-related "Buy Rate,"
Ford Credit then authorizes dealers to impose a subjective component in its
credit pricing system - the Mark-up Policy - to impose additional non-risk
charges. It is the alleged subjective mark-up that plaintiffs allege
discriminates against African Americans. Ford Credit's motion to dismiss was
denied and the parties are preparing for trial. Rodriquez and Lucena involve
--------- ------
similar allegations but with respect to Hispanic Americans. In Rodriquez, the
---------
court denied our motion to dismiss and we expect the plaintiffs to file a motion
for class certification. In Lucena, the plaintiffs filed a motion to voluntarily
------
dismiss the case without prejudice, which was granted. We expect the plaintiffs
to re-file the case. Ford and Ford Credit believe that Ford Credit's pricing
practices are fair and are not discriminatory.
F-150 Radiator Class Actions. Two purported class actions are pending
-------------------------------
alleging that the Company defrauded purchasers of 1999-2001 F-150 trucks by
falsely representing that certain option packages included "upgraded" radiators.
Approximately 400,000 trucks that were intended to have larger radiators were
built with standard radiators. The first case, filed in state court in New York,
purports to represent a nationwide class, and seeks an order requiring
installation of larger radiators and other damages. The trial court granted our
motion to dismiss, and plaintiffs have appealed. In the second case, filed in
state court in Texas, the trial court has certified a class of all purchasers of
2000 and 2001 F-150 trucks with heavy duty or trailer packages in Texas, and
seeks unspecified damages. We are appealing that ruling to the Texas Court of
Appeals. Plaintiffs' motion to modify the certification ruling to expand it to a
nationwide class is pending in the trial court.
28
Item 3. Legal Proceedings (Continued)
Platinum Group Metals. A purported nationwide class action has been filed
----------------------
against the Company in federal court in New York alleging securities fraud and
violations of Rule 10b-5 on behalf of all persons who purchased Ford stock
between December 1, 1999 and January 12, 2002 (the "class period"). The
plaintiff alleges that during the class period the Company entered into a series
of contracts for the purchase of platinum group metals ("PGM") at historically
high prices and failed to properly hedge these purchases, thereby exposing the
Company to losses when the price of PGM fell. The plaintiffs allege that the
Company made statements in its securities disclosures about its commodity
purchase practices and hedging programs that misled investors as to Ford's
exposure to loss from PGM purchases. As a result, plaintiffs allege that they
purchased Ford stock at inflated prices and were damaged when Ford "wrote-down"
the value of its PGM by $1 billion on a pre-tax basis.
Side Release Seat Belt Buckles. On February 14, 2002, Ford was served with
------------------------------
a purported class action alleging that the side release buckles installed in
1969 through 1998 Ford vehicles are defective because they "could unlatch from
inertial forces." The suit was filed in state court in Illinois against General
Motors Corporation as well as against Ford, allegedly on behalf of all Illinois
owners of vehicles with the defective buckles. The complaint seeks compensatory
and punitive damages, including a payment to each class member of the cost of
installing different buckles.
Other Matters
-------------
Rouge Powerhouse Insurance Litigation. There are several pending lawsuits
--------------------------------------
arising out of the February 1, 1999 Rouge Powerhouse explosion. In June 2000,
Ford filed a coverage action against ten property insurance carriers seeking
property damage and business interruption losses attributable to the Powerhouse
explosion. Factory Mutual, one of these insurers, filed a counterclaim in the
lawsuit for claims paid to Rouge Steel Company ("Rouge Steel"). Factory Mutual's
counterclaim alleges that Rouge Steel's damages occurred as a result of Ford's
negligence, gross negligence or willful and wanton misconduct in operating the
Powerhouse and totals approximately $340 million. This counterclaim, and a
similar claim for approximately $25 million by other insurers of Rouge Steel,
has been ordered to arbitration. Additionally, claims related to business
interruption losses incurred by several suppliers to Rouge Steel, totaling
approximately $20 million, also have been added to the arbitration. In addition,
seventeen Ford employees and two Rouge Steel employees also have filed lawsuits
seeking recovery in excess of $100 million in the aggregate for alleged
psychological injuries caused as a result of the explosion.
Visteon Dispute. As reported in the media, Ford and Visteon Corporation,
---------------
our former automotive components subsidiary that was spun-off on June 28, 2000,
have been attempting to resolve certain disputes that arose out of the spin-off
related to the pricing of components sold by Visteon to Ford. The primary
disputes related to (i) the amount of Ford's contractual entitlement to
productivity price reductions for the year 2001, and (ii) Ford's ability to
adjust downward the price of business sourced to Visteon in Europe at the time
of the spin-off over the years 2001-2005. We have negotiated a resolution of the
first matter in respect of North America, and Visteon is pursuing arbitration of
the second matter.
Item 4. Submission of Matters to a Vote of Security Holders
------------------------------------------------------------
Not required.
29
Item 4A. Executive Officers of Ford
------------------------------------
Our executive officers and their positions and ages at March 15, 2002
unless otherwise noted, are shown in the table below:
Present Position
Name Position Held Since Age
---- -------- ---------- ---
William Clay Ford, Jr.* Chairman of the Board and October 2001 44
Chief Executive Officer
Nicholas V. Scheele President and Chief October 2001 58
Operating Officer
(also a Director)
Carl E. Reichardt** Vice Chairman (also a Director) October 2001 70
John M. Rintamaki Chief of Staff January 2000 60
I. Martin Inglis Group Vice President and August 2001 51
Chief Financial Officer
Roman J. Krygier Group Vice President-- November 2001 59
Manufacturing and Quality
Carlos E. Mazzorin Group Vice President-- January 2000 60
Asia Pacific Operations,
South American Operations
and Global Purchasing
James J. Padilla Group Vice President-- November 2001 55
North America
Richard Parry-Jones Group Vice President-- November 2001 50
Chief Technical Officer
Wolfgang Reitzle Group Vice President--Premier March 1999 53
Automotive Group
David W. Thursfield Group Vice President-- November 2001 56
(Chairman, President and
CEO, Ford of Europe, Inc.)
Martin B. Zimmerman Group Vice President-- November 2001 55
Corporate Affairs
Marvin W. Adams Vice President-- December 2000 44
Chief Information Officer
William W. Boddie Vice President-- January 2000 56
Global Core Engineering
30
Item 4A. Executive Officers of Ford (Continued)
Present Position
Name Position Held Since Age
---- -------- ---------- ---
Thomas K. Brown Vice President--Global January 2002 46
Purchasing
Mei Wei Cheng Vice President-- January 1999 52
(President, Ford
Motor (China) Ltd.)
Susan M. Cischke Vice President - January 2001 48
Environmental and
Safety Engineering
William J. Cosgrove Vice President July 1999 56
(Chief of Staff and Chief
Financial Officer, Premier
Automotive Group)
Robert A. Dover Vice President-- November 2001 56
(President, Jaguar
and Land Rover)
Mark Fields Vice President December 1999 41
Karen C. Francis Vice President-- April 2001 39
(ConsumerConnect)
Louise K. Goeser Vice President--Quality March 1999 48
Joseph Greenwell Vice President--Global November 2001 50
Automotive and Product
Promotions & Associations
Janet M. Grissom Vice President-- January 1998 52
Washington Affairs
Lloyd E. Hansen Vice President-- November 2001 53
Revenue Management
Darryl B. Hazel Vice President--Ford January 2002 53
Customer Service Division
Earl J. Hesterberg Vice President-- June 1999 48
(Vice President, Marketing,
Sales and Service, Ford of
Europe, Inc.)
Brian P. Kelley Vice President-- January 2002 41
(President, Lincoln and Mercury)
Joe W. Laymon Vice President-- November 2001 49
Corporate Human Resources
31
Item 4A. Executive Officers of Ford (Continued)
Present Position
Name Position Held Since Age
---- -------- ---------- ---
Martin Leach Vice President-- January 2000 45
(Vice President, Product
Development, Ford of Europe, Inc.)
Donat R. Leclair Vice President and Controller November 2001 50
Kathleen A. Ligocki Vice President--Strategy, November 2001 45
Business Development,
Canada and Mexico
Malcolm S. Macdonald Vice President--Finance March 2002 61
and Treasurer
Philip R. Martens Vice President--Vehicle March 2002 41
Programs and Processes
J.C. Mays Vice President--Design October 1997 47
Timothy J. O'Brien Vice President--Real Estate November 2001 49
James G. O'Connor Vice President-- June 1998 59
(President, Ford Division)
Hans-Olov Olsson Vice President-- November 2001 60
(President, Volvo Cars)
Dennis E. Ross Vice President and October 2000 51
General Counsel
Shamel T. Rushwin Vice President--North March 1999 54
American Business Operations
Gerhard F. A. Schmidt Vice President--Research April 2001 56
Mark A. Schultz Vice President-- January 2002 49
(President, Ford Asia Pacific)
Greg C. Smith Vice President--(President August 2001 50
& Chief Operating Officer,
Ford Motor Credit Company)
Anne Stevens Vice President--North America April 2001 53
Vehicle Operations
David T. Szczupak Vice President-- Powertrain November 2001 46
Operations
Chris P. Theodore Vice President--North January 2000 51
America Product Development
Janet E. Valentic Vice President--Global March 2001 42
Marketing
32
Item 4A. Executive Officers of Ford (Continued)
Present Position
Name Position Held Since Age
---- -------- ---------- ---
James G. Vella Vice President--Corporate November 2001 46
Public Affairs
Alex P. Ver Vice President--Advanced January 2000 55
Manufacturing Engineering
Rolf Zimmermann Vice President-- April 2001 55
(Vice President, Craftsmanship
and Launch, Ford of Europe, Inc.)
------------------
* Also Chairman of the Environmental and Public Policy Committee and the
Nominating and Governance Committee and a member of the Finance Committee of the
Board of Directors.
** Also Chairman of the Finance Committee and a member of the Nominating and
Governance Committee of the Board of Directors
All of the above officers, except those noted below, have been employed by
Ford or its subsidiaries in one or more capacities during the past five years.
Described below are the positions (other than those with Ford or its
subsidiaries) held by those officers who have not been with Ford or its
subsidiaries for five years:
o Mr. Adams was Executive Vice President, Bank One Operations and Technology,
Bank One from February 1997 until December 2000. From June 1996 until
February 1997 he was Chief Information Officer of Frontier Communications
Corporation and from April 1994 to June 1996 he served as President, Bank
One Financial Card Services Corporation.
o Mr. Brown was Vice President, Supply Management for United Technologies
Automotive from 1998 to 1999. Prior to that time, he was Executive Director
of Purchasing for United Technologies Automotive from 1997 to 1998.
o Mr. Cheng was President and Regional Executive of GE Appliances Ltd. in
Hong Kong from October 1996 until January 1998. From September 1994 until
September 1996 he was President of General Electric China.
o Ms. Cischke was Senior Vice President, Regulatory Affairs and Passenger Car
Operations, DaimlerChrysler from October 1999 until January 2001. From
December 1996 until September 1999, she served as Vice President, Vehicle
Certification, Compliance and Safety Affairs, DaimlerChrysler.
o Ms. Francis was Managing Director and Chief Marketing Officer, Internet
Capital Group from May 2000 until April 2001. From 1996 until May 2000 she
served as a manager with General Motors Corporation, including as General
Manager of the Oldsmobile division of General Motors Corporation from
December 1998 until May 2000.
o Ms. Goeser served as General Manager, Refrigeration Product Team Whirlpool
Corporation, Whirlpool North American Appliance Group, from September 1996
until March 1999. From January 1994 until September 1996, she served as
Vice President, Corporate Quality, Whirlpool Corporation.
o Mr. Laymon was Vice President, US and Canada Region and Director, Human
Resources, Worldwide Regions, for Eastman Kodak Company from 1996 to 2000.
33
Item 4A. Executive Officers of Ford (Continued)
o Ms. Ligocki served as Vice President, Strategy and Worldwide Sales, United
Technologies Automotive from February 1997 to August 1998. From June 1996
to February 1997 she served as Vice President and General Manager, United
Technologies Motor Systems.
o Mr. Kelley served as Vice President and General Manager for Sales and
Distribution with General Electric's Appliance Division from January 1997
until June 1999.
o Mr. Mays was Vice President of Design Development at SHR Perceptual
Management in Scottsdale, Arizona from 1995 to October 1997. Prior to that
he was design director responsible for worldwide design strategy,
development and execution for Audi AG.
o Mr. Reichardt served as Chairman and Chief Executive Officer of Wells Fargo
& Company from 1983 until his retirement in 1994. He joined Wells Fargo in
1970 and was elected president in 1978 and chief operating officer in 1981.
He was elected a director of Ford Motor Company in 1986.
o Dr. Reitzle served as a member of the Board of Management of BMW AG, Market
and Product from March 1998 to February 1999. He served as Chairman of
Rover Group Board from October 1995 to March 1997 and was a member of the
Board of Management of BMW AG, Research and Development from July 1987 to
October 1995.
o Mr. Rushwin served as Vice President-International Manufacturing and
Minivan Assembly Operations at DaimlerChrysler AG and its predecessors from
October 1994 until March 1999.
o Dr. Schmidt served as Senior Vice President, Vehicle Integration, BMW from
August 2000 until April 2001. He was Senior Vice President, Powertrain
Development, BMW from 1990 until August 2000.
o Mr. Theodore most recently was Senior Vice President-Platform Engineering
at DaimlerChrysler AG and its predecessors from January 1998 until March
1999. His prior positions at DaimlerChrysler AG were General Manager-Small
Car Platform Engineering from 1996 through December 1997 and General
Manager-Minivan Platform Engineering from 1992 through 1996.
o Ms. Valentic was Senior Vice President and an Account Director for Leo
Burnett USA Advertising from 1992 to 1998.
Under Ford's By-Laws, the executive officers are elected by the Board of
Directors at the Annual Meeting of the Board of Directors held for this purpose.
Each officer is elected to hold office until his or her successor is chosen or
as otherwise provided in the By-Laws.
34
PART II
Item 5. Market for Ford's Common Stock and Related Stockholder Matters
-----------------------------------------------------------------------
Our Common Stock is listed on the New York and Pacific Coast Stock
Exchanges in the United States and on certain stock exchanges in Belgium,
France, Germany, Switzerland and the United Kingdom.
The table below shows the high and low sales prices for our Common Stock
and the dividends we paid per share of Common and Class B Stock for each
quarterly period in 2001 and 2000.
2001 2000
----------------------------------------- ------------------------------------------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
------- ------- ------- ------- ------- ------- ------- ---------
Common Stock price per share*
High $31.37 $31.42 $25.93 $19.08 $30.33 $31.46 $29.88 $27.00
Low 23.75 23.50 14.70 22.12 14.83 21.69 23.08 23.63
Dividends per share of
Common and Class B Stock* $0.30 $0.30 $0.30 $0.15 $0.286 $0.286 $0.286 $0.30
---------------------------
* New York Stock Exchange composite interday prices as provided by the
www.NYSEnet.com price history database. All prices and dividends prior to August
9, 2000 have been adjusted to reflect the effects of our recapitalization, known
as the Value Enhancement Plan ("VEP"), which became effective at that time, and
all prices prior to June 28, 2000 have been adjusted to reflect the spin-off of
Visteon Corporation, our former automotive components subsidiary, completed on
that date.
For a discussion of recent dividend actions taken by our board of
directors, see Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital Resources-Total
Company."
As of February 26, 2002, stockholders of record of Ford included 184,938
holders of Common Stock (which number does not include 30,925 former holders of
old Ford Common Stock who have not yet tendered their shares pursuant to the
VEP) and 111 holders of Class B Stock.
During 2000 and 1999, we sold 500,520 shares and 1,001,513 shares,
respectively, of our Common Stock in private transactions that were not
registered with the Securities and Exchange Commission. These transactions were
exempt from registration requirements because they were private placements under
Section 4(2) of the Securities Act of 1933, as amended. These shares were sold
in several, unrelated transactions to owners of automotive dealerships,
automotive recycling businesses, and other businesses in exchange for those
businesses. The consideration we received for the shares was equal to the market
value of the shares at the time of the transactions. No shares of our Common
Stock were sold in 2001 in such private transactions.
35
Item 6. Selected Financial Data
--------------------------------
The following tables set forth selected financial data and other data
concerning Ford for each of the last five years (dollar amounts in millions,
except per share amounts). 1997-1999 data (except employee data) have been
restated to reflect Visteon as a discontinued operation.
SUMMARY OF OPERATIONS
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Automotive sector
Sales $131,528 $141,230 $135,073 $118,017 $121,976
Operating income/(loss) (7,568) 5,232 7,169 5,376 6,060
Income/(loss) before income taxes (9,036) 5,267 7,275 5,842 6,267
Net income/(loss) (6,267) 3,624 4,986 4,049 4,203
Financial Services sector
Revenues $30,884 $28,828 $25,630 $25,524 $30,796
Income before income taxes 1,452 2,967 2,579 18,438 3,857
Net income a/,b/ 814 1,786 1,516 17,319 2,206
Total Company
Income/(loss) before income taxes $(7,584) $8,234 $9,854 $24,280 $10,124
Provision/(credit) for income taxes (2,151) 2,705 3,248 2,760 3,436
Minority interests in net income of subsidiaries 20 119 104 152 279
------- --------- ------ ------- -------
Income/(loss) from continuing operations
a/, b/ (5,453) 5,410 6,502 21,368 6,409
Income from discontinued operation - 309 735 703 511
Loss on spin-off of discontinued operation - (2,252) - - -
------- -------- ------- ------- -------
Net income/(loss) $(5,453) $ 3,467 $ 7,237 $22,071 $ 6,920
======= ========= ======= ======= =======
Total Company Data Per Share of Common
and Class B Stock c/
Basic:
Income/(loss) from continuing operations $(3.02) $3.66 $5.38 $17.59 $5.32
Income/(loss) before cumulative effects
of changes in accounting principles (3.02) 2.34 5.99 18.17 5.75
Net income/(loss) (3.02) 2.34 5.99 18.17 5.75
Diluted:
Income/(loss) from continuing operations $(3.02) $3.59 $5.26 $17.19 $5.20
Income/(loss) before cumulative effects
of changes in accounting principles (3.02) 2.30 5.86 17.76 5.62
Net income/(loss) (3.02) 2.30 5.86 17.76 5.62
Cash dividends d/ $1.05 $1.80 $1.88 $1.72 $1.645
Common stock price range (NYSE Composite)
High 31.42 31.46 37.30 33.76 18.34
Low 14.70 21.69 25.42 15.64 10.95
Average number of shares of Common and
Class B stock outstanding (in millions) 1,820 1,483 1,210 1,211 1,195
- - - - -
a/ 1998 includes a non-cash gain of $15,955 million that resulted from Ford's
spin-off of The Associates.
b/ 1997 includes a gain of $269 million on the sale of Hertz Common Stock.
c/ Share data have been adjusted to reflect stock dividends and stock splits.
Common stock price range (NYSE Composite) has been adjusted to reflect the
Visteon spin-off, a recapitalization known as our Value Enhancement Plan,
and The Associates Spin-off.
d/ Adjusted for the Value Enhancement Plan effected in August 2000, cash
dividends were $1.16 per share in 2000.
36
Item 6. Selected Financial Data (Continued)
SUMMARY OF OPERATIONS
(continued)
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Total Company Balance
Sheet Data at Year-End
Assets
Automotive sector $88,319 $ 94,312 $ 99,201 $ 83,911 $ 80,339
Financial Services sector 188,224 189,078 171,048 148,801 194,018
-------- --------- --------- --------- --------
Total assets $276,543 $283,390 $270,249 $232,712 $274,357
======== ======== ======== ======== ========
Long-term debt
Automotive $13,492 $ 11,769 $ 10,398 $ 8,589 $ 6,964
Financial Services 107,266 87,118 67,517 55,468 73,198
Stockholders' equity 7,786 18,610 27,604 23,434 30,787
Total Company Facility
and Tooling Data
Capital expenditures for
facilities (excluding
special tools) $4,671 $ 5,315 $ 4,332 $ 4,369 $ 4,906
Depreciation 15,864 12,915 11,846 10,890 9,865
Expenditures for special tools 2,337 3,033 3,327 3,388 2,894
Amortization of special tools 3,265 2,451 2,459 2,880 3,126
Total Company Employee
Data - Worldwide
Payroll $17,433 $ 18,081 $ 18,390 $ 16,757 $ 17,187
Total labor costs 23,553 25,783 26,881 25,606 25,546
Average number of employees 354,431 350,117 374,093 342,545 363,892
Total Company Employee
Data - U.S. Operations
Payroll $10,832 $ 11,274 $ 11,418 $ 10,548 $ 10,840
Average number of employees 165,512 164,853 173,045 171,269 189,787
Average hourly labor costs f/
Earnings $27.38 $ 26.73 $ 25.58 $ 24.30 $ 22.95
Benefits 20.35 21.71 21.79 21.42 20.60
-------- --------- --------- --------- ---------
Total hourly labor costs $47.73 $ 48.44 $ 47.37 $ 45.72 $ 43.55
====== ======== ======== ======== ========
- - - - -
f/ Per hour worked (in dollars). Excludes data for subsidiary companies.
37
Item 6. Selected Financial Data (Continued)
SUMMARY OF VEHICLE UNIT SALES a/
(in thousands)
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
North America
United States
Cars 1,427 1,775 1,725 1,563 1,614
Trucks 2,458 2,711 2,660 2,425 2,402
----- ----- ----- ----- -----
Total United States 3,885 4,486 4,385 3,988 4,016
Canada 245 300 288 279 319
Mexico 162 147 114 103 97
----- ----- ----- ----- -----
Total North America 4,292 4,933 4,787 4,370 4,432
Europe
Britain 637 476 518 498 466
Germany 383 320 353 444 460
Italy 249 222 209 205 248
Spain 178 180 180 155 155
France 163 158 172 171 153
Other countries 551 526 528 377 318
----- ----- ----- ----- -----
Total Europe 2,161 1,882 1,960 1,850 1,800
Other international
Brazil 125 134 117 178 214
Australia 115 125 125 133 132
Taiwan 53 63 56 77 79
Argentina 29 49 60 97 147
Japan 18 26 32 25 40
Other countries 198 212 83 93 103
----- ----- ----- ----- -----
Total other international 538 609 473 603 715
Total worldwide vehicle
----- ----- ----- ----- -----
unit sales 6,991 7,424 7,220 6,823 6,947
===== ===== ===== ===== =====
- - - - -
a/ Vehicle unit sales generally are reported worldwide on a "where sold" basis
and include sales of all Ford Motor Company-badged units, as well as units
manufactured by Ford and sold to other manufacturers.
38
Item 7. Management's Discussion and Analysis of Financial Condition and Results
--------------------------------------------------------------------------------
of Operations
-------------
FOURTH QUARTER 2001 RESULTS OF OPERATIONS
Our worldwide losses, including charges of $4,106 million primarily related
to our Revitalization Plan, were $5,068 million in the fourth quarter of 2001,
or $2.81 per diluted share of Common and Class B Stock. In the fourth quarter of
2000, earnings were $1,077 million (including charges for unusual items of $133
million), or $0.57 per diluted share. Worldwide sales and revenues were $41.2
billion in the fourth quarter of 2001, down $1.4 billion, reflecting primarily
lower vehicle sales in North America, partially offset by higher vehicle sales
in Europe. Unit sales of cars and trucks were 1,808,000 units, down 32,000
units, reflecting primarily lower market share in the United States, partially
offset by higher market share in Europe.
Results of our operations by business sector for the fourth quarter of 2001
and 2000 are shown below (in millions):
Fourth Quarter Net Income/(Loss)
-------------------------------------
2001
Over/(Under)
2001 2000 2000
--------- ------------ --------------
Automotive sector $(4,708) $ 629 $(5,337)
Financial Services sector (360) 448 (808)
------- ------ -------
Total Company net income/(loss) $(5,068) $1,077 $(6,145)
======= ====== =======
Following an extensive review of Ford's North and South American
operations, on January 11, 2002, we announced the operating and financial goals
of our Revitalization Plan, which we expect to achieve by mid-decade. The
pre-tax impact of the Revitalization Plan and other fourth quarter charges
include (in billions):
Fixed-asset impairments
North America $3.1
South America 0.7
----
Total fixed-asset impairments 3.8
Precious metals 1.0
Personnel (primarily North America salaried) 0.6
All other 0.3
----
Total pre-tax charges $5.7
====
Memo: After-tax effect of charges $4.1
These substantially non-cash charges included $3.9 billion and $204 million
for the Automotive sector and the Financial Services sector, respectively. The
Automotive-related charge included asset impairment charges, write-down of
precious metals and forward contracts related thereto, employee separation costs
(primarily for employees who voluntarily accepted separation offers in 2001) and
other charges, such as an accounting charge for Mazda pension expense and the
impact of the devaluation of the Argentine peso. See Note 16 of the Notes to our
Consolidated Financial Statements for more information regarding these charges.
We expect that the effects of our Revitalization Plan will improve our
pre-tax operating results to $7 billion annually, an improvement of $9 billion,
by mid-decade. This expectation is based on assumptions for the U.S. market for
2003 and beyond with respect to industry sales (16 million units annually),
Ford-brand market share (19%) and net pricing (negative).
39
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Automotive Sector
-----------------
Worldwide losses for our Automotive sector were $4,708 million in the
fourth quarter of 2001 on sales of $33.8 billion. Earnings in the fourth quarter
of 2000 were $629 million on sales of $35.1 billion.
Details of our Automotive sector earnings for the fourth quarter of 2001
and 2000 are shown below (in millions):
Fourth Quarter
Net Income/(Loss)
-----------------------------------------
2001
Over/(Under)
2001 2000 2000
---------- ------------ -----------------
North American Automotive $(4,068) $ 607 $(4,675)
Automotive Outside North America
- Europe 61 33 28
- South America (598) (31) (567)
- Rest of World (103) 20 (123)
------- ------ -------
Total Automotive Outside
North America (640) 22 (662)
------- ------ -------
Total Automotive sector $(4,708) $ 629 $(5,337)
======= ====== =======
The decrease in our fourth quarter Automotive sector earnings in North
America reflected primarily the asset impairments and other charges outlined
above, lower vehicle unit sales volumes, significantly increased marketing costs
for Ford, Lincoln and Mercury brands (16.7% of sales compared with 10.7% a year
ago), and an increase in warranty and other costs associated with customer
satisfaction initiatives.
The improved fourth quarter results in Europe reflected an increase in
vehicle unit sales and the benefits of last year's restructuring actions. The
decline in South America reflected primarily asset impairments related to the
Revitalization Plan and other charges, lower operating results due to a weaker
currency in Brazil, the devaluation of the Argentine peso and lower industry
volumes in Brazil and Argentina.
Financial Services Sector
-------------------------
Details of our Financial Services sector earnings are shown below (in
millions):
Fourth Quarter
Net Income/(Loss)
----------------------------------------
2001
Over/(Under)
2001 2000 2000
----------- ----------- ----------------
Ford Credit $(297) $410 $(707)
Hertz (58) 56 (114)
Minority interests and other (5) (18) 13
----- ---- -----
Total Financial Services sector $(360) $448 $(808)
===== ==== =====
Ford Credit's consolidated loss in the fourth quarter of 2001 was $297
million, compared with earnings of $410 million in 2000. This result included
charges associated with the Revitalization Plan ($204 million) and the ongoing
impact of Statement of Financial Accounting Standards ("SFAS") No. 133 ($99
million). The Revitalization Plan charges included costs for strategic
partnering actions in Brazil, including writedowns and losses related to the
disposition of certain assets ($126 million); government initiatives in
Argentina related to currency devaluation and consumer debt ($65 million); and
voluntary employee separation costs in North America ($13 million). Excluding
these charges and the impact of SFAS No. 133, Ford Credit earned $6 million,
down $404 million from the same period a year earlier. The reduction was more
than accounted for by a higher provision for credit losses ($913 million after
taxes in 2001 compared with $360 million in 2000), offset partially by favorable
volumes, margins and investment and other income related to securitizations. The
higher provision for credit losses was in response to
40
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
higher credit loss experience in the fourth quarter of 2001, reflecting
significant weakening economic conditions in the United States.
Losses at Hertz in the fourth quarter of 2001 were $58 million, compared
with earnings of $56 million a year ago. The profit decline was primarily due to
the lower car rental volume in the United States, reflecting the adverse impact
on business travel and pricing following the terrorist attacks of September 11,
2001 and the slowdown in the U.S. economy.
FULL-YEAR 2001 RESULTS OF OPERATIONS
Our worldwide sales and revenues were $162.4 billion in 2001, down $7.7
billion from 2000, reflecting primarily lower vehicle sales in North America,
offset partially by higher vehicle sales in Europe. We sold 6,991,000 cars and
trucks in 2001, down 433,000 units, reflecting primarily lower market share in
the United States, partially offset by higher market share in Europe.
Results of our operations by business sector for 2001, 2000, and 1999 are
shown below (in millions):
Net Income/(Loss)
---------------------------------------
2001 2000 1999
------------ ----------- ------------
Automotive sector $(6,267) $ 3,624 $ 4,986
Financial Services sector 814 1,786 1,516
------- ------- -------
Income/(Loss) from continuing operations (5,453) 5,410 6,502
Income from discontinued operation* - 309 735
Loss on spin-off of discontinued operation - (2,252) -
------- ------- -------
Total Company net income/(loss) $(5,453) $ 3,467 $ 7,237
======= ======= =======
* Visteon Corporation, our former automotive components
subsidiary, was spun off to Ford Common and Class B
stockholders on June 28, 2000.
41
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
The following unusual items were included in our 2001, 2000, and 1999
income from continuing operations (in millions):
Automotive Sector
-----------------------------------------------------------
Rest Total Financial
North South of Auto Services
America Europe America World Sector Sector
------------ ---------- ------------ --------- ------------ ------------
2001
----
- Derivative instruments (SFAS No. 133)
transition adjustment and ongoing effects $ (95) $ (95) $ (157)
- Mazda restructuring actions in the second
quarter $ (114) (114)
- Write-down of E-commerce and Automotive-
related ventures in the third quarter (199) (199)
- Revitalization Plan and other fourth quarter
charges (includes portion of SFAS No. 133) (3,149) $(552) (201) (3,902) (204)
------- ------- ----- ------ ------- ------
Total 2001 unusual items $(3,443) - $(552) $ (315) $(4,310) $ (361)
======= ======= ===== ====== ======= ======
------------------------------------------------------------------------------------------------------------------------------------
2000
----
- Asset impairment and restructuring costs for
Ford brand operations in Europe in the
second quarter $(1,019) $(1,019)
- Inventory-related profit reduction for Land
Rover in the third quarter $ (13) (76) $ (17) (106)
- Write-down of assets associated with the
Nemak joint venture in the fourth quarter (133) (133)
------- ------- ----- ------ -------
Total 2000 unusual items $ (146) $(1,095) - $ (17) $(1,258) $ -
======= ======= ===== ====== ======= ======
------------------------------------------------------------------------------------------------------------------------------------
1999
----
- Gain from the sale of our interest in
AutoEuropa to Volkswagen AG in the first
quarter $ 165 $ 165
- Inventory-related profit reduction for Volvo
Car in the second quarter $ (16) (125) $ (5) (146)
- Visteon-related postretirement adjustment in
the third quarter (incl. in Total Auto Sector) (125)
- Employee separation costs in the third
quarter (79) (79) $ (23)
- Lump-sum payments relating to ratification of
the 1999 United Auto Workers and Canadian
Auto Workers contracts in the fourth
quarter (80) (80)
------- ------- ----- ------ -------
Total 1999 unusual items $ (175) $ 40 - $ (5) $ (265) $ (23)
======= ======= ===== ====== ======= ======
Excluding these unusual items, losses from continuing operations would
have been $782 million in 2001, compared with income from continuing
operations of $6,668 million in 2000 and $6,790 million in 1999.
42
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
We established and communicated the financial milestones listed below for
2001, which excluded Visteon in both the 2000 base period and 2001. Our results
against these milestones, excluding the unusual items described above, are
listed below.
2001 Milestone Actual Result
-------------- -------------
Total Company
-------------
-- Revenue Grow $5 billion Declined $8 billion
Automotive
----------
-- North America 4%+ return on sales (2.3)%
-- Europe 1%+ return on sales 0.8%
-- South America Improve results Improved by $12 million
-- Rest of World Achieve profitability Earned $156 million
-- Total Costs Reduce $1 billion Increased $1 billion*
(at constant volume and mix)
-- Capital Spending Contain at $8 billion or less Spent $6.4 billion
Financial Services
------------------
-- Ford Credit Improve returns Declined 3.6 percentage
points
Grow earnings 10% Declined 22%
- - - - -
* Excludes costs related to our Firestone tire replacement action
AUTOMOTIVE SECTOR RESULTS OF OPERATIONS
Details of our Automotive sector earnings from continuing operations for
2001, 2000, and 1999 are shown below (in millions):
Net Income/(Loss)
------------------------------------
2001 2000 1999
------------ ----------- -----------
North American Automotive $(5,597) $ 4,886 $5,418
Automotive Outside North America
- Europe 266 (1,130) 50
- South America (777) (240) (444)
- Rest of World (159) 108 87
------- ------- ------
Total Automotive Outside
North America (670) (1,262) (307)
Visteon-related postretirement adjustment - - (125)
------- ------- ------
Total Automotive sector $(6,267) $ 3,624 $4,986
======= ======= ======
2001 Compared with 2000
-----------------------
Worldwide losses from continuing operations for our Automotive sector were
$6,267 million in 2001 on sales of $131.5 billion, compared with earnings of
$3,624 million in 2000 on sales of $141.2 billion. Adjusted for constant volume
and mix and excluding unusual items and costs related to our Firestone tire
replacement action, our total costs in the Automotive sector increased $1.0
billion compared with 2000.
Our Automotive sector losses from continuing operations in North America
were $5,597 million in 2001 on sales of $91.0 billion, compared with earnings of
$4,886 million in 2000 on sales of $103.9 billion. The earnings deterioration
reflected primarily lower vehicle unit sales volumes, the charges associated
with the Revitalization Plan and the other charges outlined above, significantly
increased marketing costs, costs associated with the Firestone tire replacement
action and increased warranty and other costs associated with customer
satisfaction initiatives.
43
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
In 2001, approximately 17.5 million new cars and trucks were sold in the
United States, down from 17.8 million units in 2000. Our share of those unit
sales was 22.8% in 2001, down 0.9 percentage points from a year ago, due
primarily to increased competition resulting from new model entrants into the
truck and sport utility vehicle segments, as well as the continued weakness of
the Japanese yen, which creates favorable pricing opportunities for our Japanese
competitors. Marketing costs for our Ford, Lincoln and Mercury brands increased
to 14.7% of sales of those brands, up from 11.1% a year ago, reflecting
increased competitive pricing in the form of subsidized financing and leasing
programs (such as 0.0% financing during the fourth quarter), cash rebates and
other incentive programs.
Our Automotive sector earnings in Europe were $266 million from continuing
operations in 2001, compared with losses of $1,130 million a year ago. The
increase reflected the non-recurrence of the 2000 charge related to asset
impairments and restructuring, as well as increased vehicle unit sales and the
effect on depreciation from last year's asset impairment and restructuring
actions.
In 2001, approximately 17.8 million new cars and trucks were sold in our
nineteen primary European markets, down from 17.9 million units in 2000. Our
share of those unit sales was 10.7% in 2001, up 0.7 percentage points from a
year ago, reflecting increased sales of new Ford-brand Mondeo and Transit models
and our acquisition of Land Rover.
Our Automotive sector losses in South America were $777 million from
continuing operations in 2001, compared with a loss of $240 million in 2000. The
decrease is more than explained by asset impairment charges and the devaluation
of the Argentine peso.
Industry sales in 2001 were 1.6 million units in Brazil, up about 10% from
2000, and approximately 201,000 units in Argentina, down 41% from 2000. Brazil's
economy has recently entered into a recession as a result of tight fiscal and
monetary policies and election year uncertainties, which have restrained growth.
We expect industry volumes in Brazil to deteriorate in 2002. Economic conditions
continue to remain weak in Argentina primarily as a result of the recent peso
devaluation. Our combined car and truck market share in these markets in 2001
was 7.8% in Brazil (down 1.3 percentage points) and 14.3% in Argentina (down 1.4
percentage points).
Automotive sector losses from continuing operations outside North America,
Europe, and South America ("Rest of World") were $159 million in 2001, compared
with earnings of $108 million in 2000. The earnings deterioration reflected
Ford's share of a non-cash charge relating to Mazda's pension expenses and other
restructuring actions at Mazda.
New car and truck sales in Australia, our largest market in Rest of World,
were approximately 773,000 units in 2001, down about 14,000 units from a year
ago. In 2001, our combined car and truck market share in Australia was 15.1%,
down 0.6 percentage points from 2000, reflecting primarily share deterioration
in the full-size car segment due to continued aggressive competition.
2000 Compared with 1999
-----------------------
Worldwide earnings from continuing operations for our Automotive sector
were $3,624 million in 2000 on sales of $141 billion, compared with $4,986
million in 1999 on sales of $135 billion. The decrease in earnings reflected
asset impairments and restructuring charges in Europe and lower earnings in
North America, offset partially by improved results in South America. Adjusted
for constant volume and mix, our total costs in the Automotive sector declined
$500 million compared with 1999.
Our Automotive sector earnings from continuing operations in North America
were $4,886 million in 2000 on sales of $103.9 billion, compared with $5,418
million in 1999 on sales of $99.2 billion. The earnings deterioration reflected
primarily costs associated with the Firestone tire recall and higher warranty
costs related to our 3.8 liter engine, offset partially by increased volume. The
after-tax return on sales for our Automotive sector in North America was 4.8% in
2000, down 0.7 percentage points from 1999.
44
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
In 2000, approximately 17.8 million new cars and trucks were sold in the
United States, up from 17.4 million units in 1999. Our share of those unit sales
was 23.7% in 2000, down 0.1 percentage points from 1999.
Our Automotive sector losses in Europe were $1,130 million from continuing
operations in 2000, compared with earnings of $50 million a year ago. The
decline reflected primarily the second quarter 2000 charge of $1,019 million
related to asset impairment and restructuring costs for Ford brand operations.
In 2000, approximately 17.9 million new cars and trucks were sold in our
nineteen primary European markets, down from 18.2 million units in 1999. Our
share of those unit sales was 10% in 2000, down 0.2 percentage points from 1999,
reflecting primarily an increase in market share related to our acquisitions of
Volvo Car and Land Rover, offset by a decrease in market share for Ford-brand
vehicles. The decrease in our Ford brand share reflected primarily continued
aggressive competition.
Our Automotive sector in South America lost $240 million from continuing
operations in 2000, compared with a loss of $444 million in 1999. The
improvement reflected primarily higher vehicle margins resulting from cost
reductions and improved product mix and pricing.
In 2000, approximately 1.5 million new cars and trucks were sold in Brazil,
compared with 1.3 million in 1999. Our share of those unit sales was 9.1% in
2000, down 0.6 percentage points from 1999. The decline in market share
reflected increased competition.
Automotive sector earnings from continuing operations in the Rest of World
were $108 million in 2000, compared with earnings of $87 million in 1999.
New car and truck sales in Australia, our largest market in Rest of World,
were approximately 788,000 units in 2000, essentially unchanged from 1999. In
2000, our combined car and truck market share in Australia was 15.7%, down 1.9
percentage points from 1999, reflecting primarily strong competitive pressures.
FINANCIAL SERVICES SECTOR RESULTS OF OPERATIONS
Earnings of our Financial Services sector consist primarily of two
segments, Ford Credit and Hertz. Details of our Financial Services sector
earnings for 2001, 2000, and 1999 are shown below (in millions):
Net Income/(Loss)
-----------------------------------
2001 2000 1999
----------- ---------- ------------
Ford Credit $839 $1,536 $1,261
Hertz 23 358 336
Minority interests and other (48) (108) (81)
---- ------ ------
Total Financial Services sector $814 $1,786 $1,516
==== ====== ======
2001 Compared with 2000
-----------------------
Ford Credit's consolidated net income in 2001 was $839 million, down $697
million or 45% from 2000. Excluding Ford Credit's share of the charges
associated with the Revitalization Plan and the ongoing impact of SFAS No. 133,
net income was $1.2 billion, down $336 million compared with 2000, due primarily
to a higher provision for credit losses, offset partially by favorable earnings
effects related to securitization transactions, higher financing volumes of
finance receivables and operating leases and improved financing margins.
45
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
The following table summarizes the effects of securitization transactions
on Ford Credit's earnings for the years indicated (in millions on a pre-tax
basis):
2001 2000 1999
---------------- ----------------- -----------------
Gains on sales of receivables $ 739 $ 14 $ 83
SFAS No. 133 fair value basis
adjustment (327) - -
------ ------ ------
Net gain 412 14 83
Servicing fees collected 456 190 136
Interest income from retained
securities 379 152 173
Excess spread and other 186 201 41
------ ------ ------
Total investment and other income
related to securitization $1,433 $ 557 $ 433
====== ====== ======
Memo:
Total investment and other income
related to securitization
(excluding SFAS No. 133) $1,760 $ 557 $ 433
Securitization revenue includes the gains on sales of finance receivables,
as well as the interest earned on retained securities, servicing fee income from
sold receiveables that Ford Credit continues to service, and other income
related to interest-only strips. Interest-only strips, also referred to as
excess spread, represent Ford Credit's right to receive collections on sold
receivables in excess of the amount needed to pay principal and interest
payments to investors and servicing fees.
Gains or losses on sales of receivables are recognized in the period in
which they are sold. As shown above, in 2001 such gains were $412 million,
compared with $14 million and $83 million in 2000 and 1999, respectively. The
sale of receivables has the impact of reducing Ford Credit's financing margins
in the year the receivables are sold as well as in future years. The net impact
of securitizations on Ford Credit's earnings in a given year will vary depending
on the amount, type of receivable and timing of securitizations in the current
year and the preceding two to three year period, as well as the interest rate
environments at the time the finance receivables were originated and
securitized. The following table shows the estimated after-tax impact of
securitization for the years indicated, net of the effect of reduced financing
margins resulting from the foregone earnings of sold receivables (in millions):
2001 2000 1999
------------------ ------------- -------------
Total investment and other income
related to securitization
(excluding SFAS No. 133) $1,760 $ 557 $ 3
Impact of current-year receivable
sales on financing margin (1,059) (243) (218)
Impact of prior-year receivable
sales on financing margin (611) (521) (158)
------ ------ ------
Pre-tax impact of securitization 90 (207) 57
Tax (33) 77 (21)
------ ------ ------
After-tax impact of securitization $ 57 $ (130) $ 36
====== ====== ======
Because we do not expect another sharp decline in interest rates, and Ford
Credit is planning to sell a smaller amount of finance receivables, we do not
anticipate that the gains on sales of receivables will continue at the level
experienced in 2001. As a result of the large increase in the use of
securitization in 2001, we also anticipate that there will be a significant
unfavorable effect on Ford Credit's financing margin in 2002.
Earnings at Hertz in 2001 were $23 million. In 2000, Hertz had earnings of
$358 million. The decrease in earnings was primarily due to lower car rental
volume in the United States, reflecting the adverse impact on business travel
and pricing of the slowdown in the United States economy.
46
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
2000 Compared with 1999
-----------------------
Ford Credit's consolidated net income in 2000 was $1,536 million, up $275
million or 22% from 1999. Compared with 1999, the increase in earnings reflected
primarily improved net financing margins and a higher level of receivables,
offset partially by higher credit losses and operating costs.
Earnings at Hertz in 2000 were $358 million. In 1999, Hertz had earnings of
$336 million. The increase in earnings reflected primarily strong volume-related
performance, offset partially by downward pricing pressure and higher interest
costs.
LIQUIDITY AND CAPITAL RESOURCES
Automotive Sector
-----------------
For the Automotive sector, liquidity and capital resources include cash
generated from operations, gross cash balances, our ability to raise funds in
capital markets and committed credit lines.
Gross Cash - Automotive gross cash includes cash and marketable securities
----------
and assets contained in a Voluntary Employee Beneficiary Association ("VEBA")
trust, which reflect financial assets available to fund the business and pay
future obligations in the near term, as summarized below (in billions):
December 31,
---------------------------------
2001 2000 1999
---------- ---------- ----------
Cash and cash equivalents $ 4.1 $ 3.4 $ 2.8
Marketable securities 10.9 13.1 18.9
VEBA 2.7 3.7 3.7
------ ------ ------
Gross cash $ 17.7 $ 20.2 $ 25.4
====== ====== ======
47
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
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. Changes for the last three years are summarized below (in
billions):
December 31,
---------------------------------
2001 2000 1999
---------- ---------- ----------
Present year-end gross cash $17.7 $20.2 $25.4
Prior year-end gross cash 20.2 25.4 25.7
----- ----- -----
Present over (under) prior $(2.5) $(5.2) $(0.3)
===== ===== =====
Operating related cash flows
Automotive net income/(loss) $(6.3) $ 3.6 $ 5.0
Capital expenditures (6.4) (7.4) (7.1)
Depreciation and amortization 5.3 5.4 5.2
Impairment charges (depreciation and amortization) 3.8 1.1 -
Changes in working capital a/ 4.6 4.1 (1.9)
Capital transactions with Financial Services sector b/ 0.4 0.7 0.4
All other (0.1) (0.7) 4.5
----- ----- -----
Total operating related 1.3 6.8 6.1
Acquisitions and divestitures (2.3) (2.7) (5.8)
Financing related
Value Enhancement Plan - (5.6) -
Dividends to shareholders (1.9) (2.8) (2.3)
Issuance of common stock 0.5 0.6 0.3
Purchase of common stock (1.8) (1.8) (0.7)
Changes in total Automotive Sector debt 1.7 0.3 2.1
----- ----- -----
Total financing related (1.5) (9.3) (0.6)
----- ----- -----
Total change in gross cash $(2.5) $(5.2) $(0.3)
===== ===== =====
------------
a/ Working capital includes current assets (excluding cash and marketable
securities) less current liabilities (excluding the current portion of
long-term debt).
b/ Includes capital contributions, dividends, loans, loan repayments and asset
sales.
In 2001, we spent $6.4 billion for capital goods, such as machinery,
equipment, tooling, and facilities, used in our Automotive sector. This was down
$1.0 billion from 2000, reflecting primarily a reduced number of product
introductions. Capital expenditures were 4.8% of sales in 2001, down 0.4
percentage points from a year ago.
The $4.6 billion improvement in working capital in 2001 reflected primarily
lower receivables ($2.2 billion in 2001 compared with $4.7 billion in 2000),
resulting largely from implementation of Ford's best practices for receivables
management (mainly at Volvo and Land Rover) and inventory improvements across
much of the company ($6.2 billion in 2001 compared with $7.5 billion in 2000).
Dividends totaling $400 million were paid from Ford Credit to Ford in 2001.
However, no dividend payments were made in the fourth quarter of 2001.
Additionally, in January 2002, $700 million of cash was contributed from Ford to
Ford Credit as additional equity, which lowered Ford Credit's debt-to-equity
ratio to 14.1 to 1 (calculated on a basis that treats proceeds from securitized
funding as debt).
In 2001, we spent $2.0 billion for acquisitions of other companies
(primarily the final payment of $1.6 billion to AB Volvo for our acquisition of
Volvo Car) and contributed $735 million to the Financial Services sector for the
purchase of the minority interest in Hertz. These expenditures were offset
partially by divestitures (primarily proceeds of about $400 million from the
sale of assets to our Getrag transmissions joint venture).
48
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
In 2001, we spent $1.8 billion for purchases of our common stock under our
$5 billion share repurchase program ($1.2 billion) and our anti-dilutive share
repurchase program. Issuances of common stock in 2001, reflecting primarily
employee stock option exercises, resulted in the receipt of proceeds of $500
million.
Debt and Net Cash - At December 31, 2001, our Automotive sector had total
-----------------
debt of $13.8 billion, up $1.7 billion from a year ago. The weighted average
maturity of this debt is approximately 28 years, of which $902 million matures
by December 31, 2006. At December 31, 2001, our Automotive sector had net cash
(defined as gross cash less total of long-term debt and current portion of
long-term debt) of $3.9 billion, compared with $8.1 billion and $13.7 billion at
the end of 2000 and 1999, respectively.
Credit Facilities - At December 31, 2001, the Automotive sector had $8.6
------------------
billion of contractually committed credit agreements with various banks; 87.4%
of this amount is available through June 30, 2006. Ford also has the ability to
transfer, on a non-guaranteed basis, $7.4 billion and $598 million of these
credit lines to Ford Credit and Ford Credit Europe, respectively.
Cumulative Convertible Trust Preferred Securities - On January 30, 2002, we
-------------------------------------------------
sold 100 million shares of Cumulative Convertible Trust Preferred Securities to
the public at a price of $50 per share, for net proceeds (after underwriting
commissions, but before expenses) of $4,900,000,000. The proceeds will be used
for general corporate purposes. The preferred securities were issued by Ford
Motor Company Capital Trust II, the sole assets of which are the junior
subordinated convertible debentures due January 15, 2032 of Ford Motor Company.
The preferred securities can be converted into shares of Ford common stock at
any time at a conversion price of $17.70 per share. If converted, the aggregate
amount of additional shares of Ford common stock that would be outstanding would
be about 282 million shares.
Financial Services Sector
-------------------------
Ford Credit
Debt and Cash - Ford Credit's total debt was $146.3 billion at December 31,
-------------
2001, equal to last year. Outstanding commercial paper at December 31, 2001
totaled $15.7 billion at Ford Credit, with an average remaining maturity of 48
days. At December 31, 2001, Ford Credit had cash and cash equivalents of $2.9
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 $2.9 billion of cash
and cash equivalents, $1.9 billion represented these overborrowings.
Funding - Ford Credit requires substantial funding in the normal course of
-------
business. Ford Credit's funding requirements are driven mainly by the need to
(i) purchase retail installment sale contracts and vehicle leases to support the
sale of Ford products, which to a large extent are influenced by Ford-sponsored
special financing and leasing programs that are available exclusively through
Ford Credit, and (ii) repay its debt obligations.
Funding sources for Ford Credit include the sale of commercial paper,
issuance of term debt, the sale of receivables and, in the case of Ford Credit
Europe, the issuance of certificates of deposit to diverse investors in various
markets.
Ford Credit's commercial paper issuances are used to meet short-term
funding needs. Ford Credit has commercial paper programs in the United States,
Europe, Canada and other international markets. It reduced the amount of its
outstanding global commercial paper from $42.3 billion at the end of 2000 to
$15.7 billion ($13.8 billion net of overborrowings) at December 31, 2001 by
replacing such funding with term-debt and proceeds from the sale of receivables.
During 2002, Ford Credit plans to maintain its commercial paper outstanding at
levels of around $5 billion to $7 billion, net of overborrowings. Ford Credit
also obtains short-term funding through the issuance of variable
49
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
denomination, floating rate demand notes through its Ford Money Market Account
program. At December 31, 2001, $4.0 billion of such notes were outstanding. Bank
borrowings by Ford Credit's foreign affiliates are an additional source of
short-term funding.
Long-term funding requirements for Ford Credit are met through the issuance
of a variety of debt securities underwritten in both the United States and
international capital markets. During 2001, Ford Credit issued approximately
$40.3 billion of term-debt with maturities of two to ten years. During 2002,
Ford Credit plans to raise $15 billion to $20 billion through term debt
issuances and $15 billion to $20 billion through securitization transactions
(excluding securitization transactions relating to asset backed commercial paper
programs), which are discussed below. Other sources of funds include bank
borrowings, mainly in countries where capital markets are less competitive.
Beginning in 2000, Ford Credit modified its funding strategy to reduce its
reliance on short-term funding. Ford Credit increased its use of selling finance
receivables in securitization transactions because of its lower relative cost
(as described below) and issued a larger amount of unsecured long-term debt to
improve its liquidity. Ford Credit will continue to use securitization as long
as it provides added funding and remains cost efficient. Ford Credit also
developed additional funding sources and capacity to maintain a diversified
funding portfolio, such as wholesale receivables securitization and asset-backed
commercial paper programs.
As a result of this funding strategy, the decline in debt ratings Ford
Credit experienced in 2001 and 2000 did not have a material impact on its abilty
to fund operations and maintain liquidity, although its access to the commercial
paper market has declined. In 2002, Ford Credit's funding strategy will continue
to focus on improving liquidity and making diverse and competitive funding
sources available. We believe that this funding strategy will allow Ford Credit
to maintain liquidity through difficult economic conditions. Any further
lowering of Ford Credit's debt ratings would increase its borrowing costs and
potentially constrain certain funding availability from the capital markets.
This in turn likely would cause Ford Credit to rely more heavily on funding
through securitization transactions. However, Ford Credit's ability to
securitize its receivables may be affected by the following factors: the amount
and credit quality of receivables available to sell, the performance of
receivables sold in previous transactions, general demand for the type of
receivables Ford Credit offers, and Ford Credit's debt ratings. If as a result
of any of these or other factors, the cost of securitized funding significantly
increased or securitized funding was no longer available to Ford Credit, its
liquidity would be adversely impacted.
The cost of both unsecured term debt and funding through securitization
transactions is based on the margin (or spread) over a benchmark interest rate,
such as the London Interbank Offered Rate or interest rates paid on U.S.
Treasury Notes of similar maturities. Spreads are typically measured in basis
points, where one basis point equals one one-hundredth of one percent (0.01%).
The relative stability of spreads for funding through securitization
transactions compared with unsecured term-debt funding spreads and
diversification of funding sources are the primary reasons Ford Credit
securitizes assets as a funding source. Since 1998, the fixed rate spread on
Ford Credit's securitized funding has been at a level between 48 and 99 basis
points above comparable U.S. Treasury rates, while Ford Credit's unsecured
term-debt funding spreads have fluctuated from as low as 50 basis points to over
264 basis points above comparable U.S. Treasury rates.
Over the last year, Ford Credit significantly increased its use of
securitization transactions because, as discussed above, they have become a more
cost-effective source of funds than unsecured financing sources. For 2001, 2000
and 1999, Ford Credit's proceeds from the sale of finance receivables are shown
below (in billions):
Receivable Type 2001 2000 1999
--------------- --------- --------- --------
Retail $32.0 $19.2 $8.7
Wholesale 8.8 0.3 1.2
----- ----- ----
Net Proceeds... $40.8 $19.5 $9.9
===== ===== ====
In addition, in January of 2002 Ford Credit sold receivables resulting in
$9.6 billion of proceeds.
50
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
For additional liquidity, Ford Credit maintains contractually committed
credit facilities with banking institutions that totaled $14 billion at December
31, 2001, including $4.5 billion available for Ford Credit Europe. The majority
of these facilities are available through June 30, 2006 and $1 billion was in
use at December 31, 2001 (primarily by affiliates outside of the United States
and Europe). In addition, Ford Credit and Ford Credit Europe may at Ford's
option use $7.4 billion and $598 million, respectively, of Ford's committed
credit facilities, which also are available through June 30, 2006. At December
31, 2001, banks also provided $12.5 billion of facilities to support Ford
Credit's asset-backed commercial paper program.
Ford Credit also has entered into agreements with several bank-sponsored,
commercial paper issuers under which such issuers are contractually committed to
purchase from Ford Credit, at Ford Credit's option, up to an aggregate of $12.4
billion of receivables. These agreements have varying maturity dates between
June 27, 2002 and December 12, 2002. As of December 31, 2001, approximately $5.6
billion of these commitments were utilized.
Special Purpose Entities - Ford Credit regularly uses securitization to
-------------------------
finance its operations. Ford Credit securitizes retail installment sales
contracts with the most frequency. Ford Credit also securitizes receivables from
Ford-franchised dealers and non-Ford dealers representing loans used to finance
their automobile floorplan inventories, generally referred to as wholesale
receivables or floorplan receivables. Ford Credit occasionally engages in
securitization of operating leases.
In a typical securitization, Ford Credit sells a pool of finance
receivables to a wholly-owned, bankruptcy-remote special purpose subsidiary that
establishes a separate special purpose trust ("SPE") and transfers the
receivables to the trust in exchange for the proceeds from the securities issued
by the trust. Following the transfer of the sold receivables to the SPE, the
receivables are no longer assets of Ford Credit and the sold receivables no
longer appear on our balance sheet. The SPE issues interest-bearing securities,
usually notes or certificates of various maturities and interest rates, secured
by future collections on the sold receivables and related collateral. These
securities, commonly referred to as asset-backed securities, are structured into
senior and subordinate classes. The senior classes have priority over the
subordinated classes in receiving collections from sold receivables and may also
benefit from other enhancements such as over collateralization, excess spread
and cash reserve funds. These securities generally are rated by at least two
independent rating agencies and sold in registered public offerings or in
private transactions exempt from registration under U.S. securities laws.
Ford Credit uses SPEs in securitization transactions to achieve, for the
benefit of securitization investors, isolation of the sold receivables so that
the receivables securing the securities issued by the SPE would be beyond the
reach of Ford Credit's creditors. The use of SPEs in this way allows the SPE to
issue highly-rated securities in a highly-liquid and efficient market, thereby
providing Ford Credit with a cost-effective source of funding. The two-tiered
sale of receivables to a wholly-owned subsidiary and then to the SPE is
conventional in the asset backed securitization market. Most of these SPEs are
classified as qualifying special purpose entities consistent with the
requirements of SFAS No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities, because of the nature of
the assets held by these entities and the limited nature of their activities.
None of our or Ford Credit's officers, directors or employees holds any equity
interest in the SPEs or receives any direct or indirect compensation from the
SPEs. The SPEs do not own stock in either Ford or Ford Credit or any of their
affiliates.
Ford Credit or its affiliates often retain interests in the sold
receivables. The retained interests may include senior and subordinated
securities, restricted cash held for the benefit of the SPEs and interest-only
strips. Subordinated securities represent lower rated classes of securities
issued by the SPEs. Restricted cash is funded initially by a small portion of
proceeds from the sale of receivables that may be used to pay principal and
interest to SPE investors, with unrestricted cash returned to Ford Credit after
investors are fully paid. Interest-only strips, also referred to as excess
spread, represent the right to receive collections on the sold finance
receivables in excess of amounts needed by the SPE to pay interest and principal
to investors and servicing fees. The retained interests serve as credit
enhancements to the holders of the more senior securities issued by the SPEs.
51
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
At December 31, 2001 and 2000, the total outstanding principal amount of
receivables sold by Ford Credit that was held by SPEs was $58.7 billion and
$28.4 billion, respectively. At those dates, Ford Credit's retained interests in
such sold receivables were $12.5 billion and $3.7 billion, respectively.
Ford Credit has no obligation to repurchase any sold receivable that
becomes delinquent in payment or otherwise is in default. The holders of the
asset-backed securities have no recourse to Ford Credit or its other assets for
credit losses on the sold receivables and have no ability to require Ford Credit
to repurchase their securities. Ford Credit does not guarantee any securities
issued by SPEs. However, as is customary in asset-backed securitization
transactions, Ford Credit as the seller of the finance receivables to the SPE,
is obligated to provide certain kinds of support. These support obligations fall
into three basic categories:
Indemnification. Ford Credit is obligated to indemnify the SPE for breaches
of representations and warranties made at the time the receivables are
originally transferred to the SPE, and certain tax liabilities incurred by the
trust or the holder of the securities issued by the SPE.
Receivable repurchase obligations. The rating agencies specify eligibility
criteria for receivables permitted to be included in securitizations. Ford
Credit makes representations and warrants to the SPE that the sold receivables
meet the eligibility criteria. If a breach of any of our representations and
warranties as to the eligibility of a sold receivable is later discovered, the
SPE may require us to repurchase the non-conforming receivable from the SPE. The
repurchase price is the face value of the receivable plus accrued interest.
Mandatory sale of additional receivables. Ford Credit uses both amortizing
and revolving structures in its securitizations. In most amortizing structures,
the SPE issues securities that will receive monthly payments of principal and
interest and therefore amortize down as principal collections are received. In
revolving structures, the SPE issues securities that only receive monthly
interest payments for a set period of time, called the revolving period, before
receiving repayments of principal. Because the principal amount of the issued
securities remains constant during the revolving period while the principal
balance of the underlying finance receivables are declining, Ford Credit, as the
sponsor of the securitization transaction, is required to replenish or "top up"
the SPE with new receivables, which are paid for by the SPE with proceeds from
principal collections on the sold receivables during the revolving period.
In addition, in connection with securitization transactions, the SPE
engages Ford Credit to collect and service the sold receivables for a servicing
fee of 1% of the principal amount of the receivables. As servicer of the sold
receivables, Ford Credit is entitled to grant extensions and make adjustments to
obligors if such extensions and adjustments are consistent with our servicing
policies and procedures. However, if Ford Credit makes material changes to a
receivable, including changes to the interest rate, changes in the amount or
number of monthly payments or extensions of the final payment date of any
receivable beyond certain established dates, Ford Credit is required to
repurchase the affected receivable from the SPE at face value plus accrued
interest.
Hertz
Hertz requires funding for the acquisition of revenue earning equipment,
which consists of vehicles and industrial and construction equipment. Hertz
purchases this equipment in accordance with the terms of agreements negotiated
with automobile and equipment manufacturers. The financing requirements of Hertz
are seasonal and are mainly explained by the seasonality of the travel industry.
Hertz's fleet size, and its related financing requirements, generally peak in
the months of June and July, and decline during the months of December and
January. Hertz accesses the global capital markets to meet its funding needs.
52
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Hertz maintains domestic and foreign commercial paper programs to cover
short-term funding needs, and also draws from bank lines, as a normal business
practice, to fund international needs. Hertz also is active in the medium-term
and long-term debt markets.
During 2001, Hertz aligned its funding strategy with Ford Credit's by
reducing its reliance on commercial paper and increasing its use of long-term
funding sources to improve its liquidity, and is planning on launching an
asset-backed securitization program during the second quarter of 2002.
At December 31, 2001, Hertz had committed credit facilities totaling $3.4
billion. Of this amount, $2.6 billion represents global and other committed
credit facilities ($1.1 billion of which are available through June 30, 2006 and
$1.6 billion of which have various maturities of up to four years); $200 million
consists of seasonal short-term facilities; and $500 million consists of a
revolving credit line provided by Ford, which currently expires in June 2003.
Total Company
-------------
Stockholders' Equity - Our stockholders' equity was $7.8 billion at
---------------------
December 31, 2001, down $10.8 billion compared with December 31, 2000. This
decrease reflected primarily net losses of $5.5 billion, dividend payments of
$1.9 billion, foreign currency translation adjustments of $1.2 billion
(primarily reflecting weakening currencies in Europe), a net charge to equity on
derivative financial instruments in accordance with SFAS No. 133 of $1.1 billion
(primarily foreign currency hedges and interest rate swaps) and $1.2 billion
spent on share repurchases.
Dividends and Share Repurchases - In October 2001, our board of directors
--------------------------------
declared a fourth quarter 2001 dividend on Ford's common and Class B stock of
$0.15 per share, which represented a 50% reduction from the $0.30 per share
dividend that had been paid since the fourth quarter of 2000. On January 11,
2002, our board of directors further reduced the quarterly dividend on common
and Class B stock by declaring a first quarter 2002 dividend of $0.10 per share,
which represented a 33% reduction from the fourth quarter 2001 dividend. These
dividend reductions will yield cash savings of nearly $1.5 billion annually.
Also, during 2001 we purchased $1.2 billion of our common stock under our $5
billion share repurchase program that had commenced in September 2000. However,
in May 2001, we suspended share repurchases indefinitely.
Debt Ratings - Our short- and long-term debt are rated by three major
-------------
rating agencies: Fitch, Inc. ("Fitch"); Moody's Investors Service, Inc.
("Moody's"); and Standard & Poor's Rating Services, a division of McGraw-Hill
Companies, Inc. ("S&P"). In addition to these three rating agencies, we also are
rated in several local markets by locally recognized rating agencies. Debt
ratings reflect an assessment by the rating agencies of the credit risk
associated with particular securities we issue, and are based on information
provided by us or other sources that rating agencies consider reliable. Lower
ratings generally result in higher borrowing costs and reduced access to capital
markets. Long- and short-term debt ratings of BBB- and F3 or higher by Fitch,
Baa3 and P-3 or higher by Moody's and BBB- and A3 or higher by S&P are
considered "investment grade." However, debt ratings are not recommendations to
buy, sell, or hold securities and are subject to revision or withdrawal at any
time by the assigning rating agency. Each rating agency may have different
criteria in evaluating the risk associated to a company, and therefore ratings
should be evaluated independently for each rating agency.
Fitch Ratings. On September 26, 2001, Fitch lowered the long-term debt
ratings of Ford, Ford Credit and Hertz from A+ to A- and lowered Ford Credit's
and Hertz' short-term debt ratings from F1 to F2 with a negative outlook for all
entities. On January 11, 2002, Fitch lowered the long-term debt ratings of Ford,
Ford Credit and Hertz from A- to BBB+, confirmed Ford Credit's and Hertz's
short-term debt rating at F2, and confirmed the rating outlook for all companies
as negative.
Moody's Ratings. On October 18, 2001, Moody's lowered Ford's long-term debt
rating from A2 to A3, affirmed Ford Credit's long- and short-term debt ratings
at A2 and Prime-1, respectively, and changed the rating outlook for both
companies from stable to negative. Moody's also lowered Hertz' long- and
short-term debt ratings from A3 to Baa1 and from Prime-1 to Prime-2,
respectively, and changed its rating
53
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
outlook on Hertz to negative. On January 16, 2002, Moody's lowered Ford's long
term debt rating fromA3 to Baa1, lowered Ford Credit's long- and short-term debt
ratings from A2 to A3 and from Prime-1 to Prime-2, respectively, and confirmed
the rating outlook of both companies as negative. Moody's also lowered Hertz'
long-term debt rating from Baa1 to Baa2, confirmed its short-term debt rating at
Prime-2 and confirmed its rating outlook as negative.
S&P Ratings. On October 15, 2001, S&P lowered the long-term debt ratings of
Ford and Ford Credit from A to BBB+, lowered Ford Credit's short-term debt
rating from A-1 to A-2, and changed the rating outlook for both companies from
negative to stable. S&P also lowered Hertz's long- and short-term debt ratings
from A- to BBB and from A-1 to A-2, respectively, and changed its rating outlook
to stable. On January 11, 2002, S&P changed the rating outlook for all companies
to negative.
Contractual Obligations and Commitments - For information regarding debt
-----------------------------------------
and other obligations of the Automotive and Financial Services sectors,
including amounts maturing in each of the next five years, see Note 11 of the
Notes to our Consolidated Financial Statements. In addition, we, as part of our
normal business practices, enter into long-term arrangements with suppliers for
purchases of certain raw materials, components and services. These arrangements
may contain fixed/minimum quantity purchase requirements. We enter into such
arrangements to facilitate adequate supply of these materials and services.
HERTZ PURCHASE
In March 2001, through a tender offer and a merger transaction, we acquired
(for a total price of about $735 million) the common stock of Hertz that we did
not own, which represented about 18% of the economic interest in Hertz. As a
result, Hertz has become an indirect, wholly-owned subsidiary.
NEW ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, "Business Combinations", effective for all business combinations
initiated after June 30, 2001. The Statement requires that the purchase method
of accounting be used for all business combinations and specifies that certain
acquired intangible assets in a business combination be recognized as assets
separately from goodwill and existing intangible assets and goodwill be
evaluated for these new separation requirements. We do not expect adoption of
this Statement to have a material impact on our consolidated financial position
or results of operations.
We adopted SFAS No. 142, "Goodwill and Other Intangible Assets" on January
1, 2002. Goodwill and certain intangible assets will no longer be amortized, but
will be subject to an annual impairment test. At year-end 2001, we had goodwill
of $6.6 billion and other intangible assets of $1.3 billion. We are presently
evaluating the amount of the transitional impairment, which may range up to $2
billion or more, related to Kwik-Fit and other investments. Goodwill and
indefinite-lived intangible asset amortization of about $250 million after taxes
was charged to income in 2001.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations", which requires entities to establish liabilities for
legal obligations associated with the retirement of tangible long-lived assets.
We will adopt the Statement on January 1, 2003. Although we are assessing the
impact, we do not expect adoption of this Statement to have a material impact on
our consolidated financial position or results of operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". This Statement superseded SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" and addresses financial accounting and reporting for
impairment of long-lived assets to be held and used, and long-lived assets and
components of an entity to be disposed of. We adopted this Statement on January
1, 2002. Although we are
54
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
assessing the impact, we do not expect this Statement to have a material impact
on our consolidated financial position or results of operations.
CRITICAL ACCOUNTING POLICIES
Our consolidated financial statements are prepared in conformity with
United States generally accepted accounting principles. The preparation of these
financial statements requires the use of estimates, judgments, and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the periods presented. The significant accounting principles which we believe
are the most important to aid in fully understanding our financial results are
the following:
Product warranties - estimated warranty costs for each vehicle sold by us
are accrued at the time the vehicle is sold to a dealer. Estimates for warranty
costs are made based primarily on historical warranty claim experience. Included
in our warranty cost accruals are costs for basic warranties on vehicles we
sell, extended service plans (i.e., where customers pay a fee to have extended
warranty coverage beyond the base warranty period), product recalls and customer
satisfaction actions outside the base warranty. An example of a customer
satisfaction action would be our Firestone tire replacement action begun in May
2001, in which we offered to replace 13 million Firestone tires installed on our
vehicles. Warranty cost accruals are adjusted from time to time when actual
warranty claim experience differs from that estimated.
Marketing incentives - costs for customer and dealer cash incentives and
costs for special financing and leasing programs that we sponsor through Ford
Credit (e.g., 0.0% financing program) are recognized as sales reductions at the
later of the date the related vehicle sales are recorded or at the date the
incentive program is both approved and communicated. In general, the amount of
financing cost that we provide to Ford Credit is the difference between the
amounts offered to retail customers and a market-based interest or lease rate.
Costs for marketing incentives are based upon assumptions regarding the number
of vehicles that will have a specific incentive applied against them. To the
extent the actual number of vehicles differs from this estimate, or if a
different mix of incentives occurs, the marketing expense accruals are adjusted.
Retirement benefits - our employee pension and other postretirement benefit
(i.e., health care and life insurance) costs and obligations are dependent on
our assumptions used by actuaries in calculating such amounts. These assumptions
include discount rates, health care cost trends rates, inflation, salary growth,
long-term return on plan assets, retirement rates, mortality rates and other
factors. We base the discount rate assumption on investment yields available at
year-end on AA-rated corporate long-term bond yields. Our health care cost trend
assumptions are developed based on historical cost data, the near-term outlook,
and an assessment of likely long-term trends. Our inflation assumption is based
on an evaluation of external market indicators. The salary growth assumptions
reflect our long-term actual experience, the near-term outlook and assumed
inflation. Retirement and mortality rates are based primarily on actual plan
experience. Actual results that differ from our assumptions are accumulated and
amortized over future periods and, therefore, generally affect our recognized
expense and recorded obligation in such future periods. While we believe that
the assumptions used are appropriate, significant differences in actual
experience or significant changes in assumptions would affect our pension and
other postretirement benefits costs and obligations. See Note 17 of the Notes to
our Consolidated Financial Statements for more information regarding costs and
assumptions for employee retirement benefits.
Impairment of long-lived assets - we periodically review the carrying value
of our long-lived assets held and used and assets to be disposed of, including
goodwill and other intangible assets, when events and circumstances warrant such
a review. We evaluate the carrying value of long-lived assets for potential
impairment on a regional operating business unit basis using undiscounted
after-tax estimated cash flows or on an individual asset basis if the asset is
held for sale. See Note 16 of the Notes to our Consolidated Financial Statements
for information regarding impairment charges incurred in respect of
55
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
our North and South American Automotive operations in 2001 and our European
Automotive operations in 2000.
Allowance for credit losses - the allowance for credit losses reflects our
estimate of losses inherent in Ford Credit's portfolio of finance receivables
and operating leases. These losses result from obligors or lessees failing to
timely make principal, interest or lease payments. Our estimates are based on
several factors, including prices of used vehicles, loan-to-value ratios, the
number of payments remaining to be made on the obligation (all of which affect
severity of loss) and economic conditions and the credit risk quality of the
portfolio (both of which affect the frequency of defaults). We monitor credit
loss performance monthly and we assess the adequacy of our allowance for credit
losses quarterly. When we determine an account to be uncollectible, we reduce
our finance receivables and lease investments and write off the loss through our
allowance for credit losses. We increase our allowance for credit losses by
amounts we recover on finance receivables and lease investments we previously
charged off as an uncollectible account. For information regarding how Ford
Credit manages its credit loss risk, see Item 7A. "Quantitative and Qualitative
Disclosures About Market Risk - Ford Credit Market and Other Risks - Credit
Risk."
Depreciation expense on operating leases and residual values - we have a
significant number of vehicles in Ford Credit's operating lease portfolio. Our
operating lease customers pay us fixed monthly rental payments that we cannot
subsequently alter. At lease termination, our operating lease customers have the
opportunity of either purchasing the vehicle for the lease-end value specified
in their lease contract or returning the vehicle to us. We sell at auction
substantially all vehicles returned to us. We estimate the lease-end value based
on a proprietary econometric model that uses historical experience and
forward-looking information, such as our new product plans, marketing programs
and quality metrics. We record depreciation expense for vehicles subject to
operating leases on a straight-line basis over the term of the lease in amounts
necessary to reduce the vehicle to its estimated residual value at the end of
the lease term. Accumulated depreciation is reflected on our balance sheet and
is included in our net investment in operating leases.
Initially, depreciation expense is based on our assessment of lease-end
residual value at the time of contract origination. Monthly, we monitor vehicle
line performance and, quarterly, we review the adequacy of our accumulated
depreciation reserve. The most significant factors we examine to assess whether
adjustments are required are: lease termination volumes, vehicle return rates
and expected used-car values at the end of the lease terms. If we determine that
modifications are necessary, we will record adjustments to accumulated
depreciation through earnings over the remaining life of the affected vehicles
in our portfolio.
OUTLOOK
Industry Sales Volumes and Financial Results
--------------------------------------------
Our outlook for car and truck (including heavy trucks) industry sales in 2002 in
our major markets is as follows:
United States -- approximately 16.5 million units, compared with the
17.5 million units sold in 2001
Europe -- approximately 16.9 million units, compared with the
17.8 million units sold in 2001 (both figures based on
nineteen markets)
Brazil -- approximately 1.4 million units, compared with the 1.6
million units sold in 2001
Australia -- approximately 790,000 units, compared with the 773,000
units sold in 2001
Based on these and other assumptions (e.g., assumptions regarding marketing
costs, which are expected to be higher in 2002), we expect 2002 earnings
(excluding unusual items) to be about breakeven,
56
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
with the Automotive sector incurring significant losses and the Financial
Services sector providing offsetting profits. In addition, we expect the
operating related changes in gross cash for the Automotive sector (calculated on
the basis described under "Liquidity and Capital Resources - Automotive Sector -
Gross Cash) to be negative in 2002. Similar to the improvements in cost and the
other expected benefits of the Revitalization Plan, we expect to achieve
meaningful improvements in such operating cash flow by mid-decade.
2002 Financial Milestones
-------------------------
We have set and communicated certain financial milestones for 2002. While
we hope to achieve these goals, they should not be interpreted as projections,
expectations or forecasts of 2002 results. The financial milestones for 2002 are
as follows:
Restructuring Priorities 2002 Milestone
------------------------ --------------
Communicate/implement plans Report on progress
Quality (U.S.) Improve J.D. Power Initial Quality Survey
Capacity utilization (North America) Improve by 10%
Non-product-related cost Reduce by $2 billion
Divest non-core operations $1 billion cash realization
Financial Results
-----------------
Corporate
Pre-tax earnings (excluding
unusual items) Positive
Capital spending $7 billion
Europe Improve results
South America Improve results
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: increasing price
competition in the U.S. and Europe resulting from industry overcapacity,
currency fluctuations or other factors; a significant decline in industry sales,
particularly in the United States or Europe, resulting from slowing economic
growth or other factors; lower-than-anticipated market acceptance of our new or
existing products; currency or commodity price fluctuations; availability of
fuel; a market shift from truck sales in the United States;
lower-than-anticipated residual values for leased vehicles; a credit rating
downgrade, labor or other constraints on our ability to restructure our
business; increased safety, emissions, fuel economy or other regulation
resulting in higher costs and/or sales restrictions; work stoppages at key Ford
or supplier facilities or other interruptions of supplies; the discovery of
defects in vehicles resulting in delays in new model launches, recall campaigns,
increased warranty costs or litigation; insufficient credit loss reserves; and
our inability to implement the Revitalization Plan.
57
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
--------------------------------------------------------------------
OVERVIEW
We are exposed to a variety of market and other risks, including the
effects of changes in foreign currency exchange rates, commodity prices,
interest rates, as well as risks to availability of funding sources, hazard
events, and specific asset risks. These risks affect our Automotive and
Financial Services sectors differently. We monitor and manage these exposures as
an integral part of our overall risk management program, which includes regular
reports to a central management committee that oversees global risk management
practices. Our risk management program recognizes the unpredictability of
markets and seeks to reduce profit volatility. For more information on these
financial exposures, see Notes 1 and 14 of the Notes to our Consolidated
Financial Statements.
Our Automotive and Financial Services sectors also are exposed to liquidity
risk, or the possibility of having to curtail their businesses or being unable
to meet present and future financial obligations as they come due because
funding sources may be reduced or become unavailable. We, and particularly Ford
Credit, which comprises substantially all of our Financial Services sector,
maintain plans for sources of funding to ensure liquidity through any economic
or business cycle. As discussed in greater detail in Item 7, our funding sources
include commercial paper, term debt, sale of receivables through securitization
transactions, committed lines of credit from major banks, and other sources.
We also are exposed to a variety of insurable risks, such as loss or damage
to property, liability claims, and employee injury. We protect against these
risks through a combination of self insurance and the purchase of commercial
insurance designed to protect against events that could generate significant
losses.
The market and counterparty risks of our Automotive sector and Ford Credit
are discussed and quantified below.
AUTOMOTIVE MARKET AND COUNTERPARTY RISK
Our Automotive sector frequently has expenditures and receipts denominated
in foreign currencies, including the following: purchases and sales of finished
vehicles and production parts, debt and other payables, subsidiary dividends,
and investments in affiliates. These expenditures and receipts create exposures
to changes in exchange rates. We also are exposed to changes in prices of
commodities used in our Automotive sector.
Foreign Currency Risk
---------------------
Foreign currency risk is the possibility that our financial results could
be better or worse than planned because of changes in exchange rates. We use
derivative instruments to hedge assets, liabilities and firm commitments
denominated in foreign currencies. Our hedging policy is designed to reduce
income volatility and is based on clearly defined guidelines. Speculative
actions are not permitted. In our hedging actions, we use primarily instruments
commonly used by corporations to reduce foreign exchange, interest rate and
other price risks (e.g., forward contracts, options and interest rate swaps). We
use a value-at-risk ("VAR") analysis to evaluate our exposure to changes in
foreign currency exchange rates. The primary assumptions used in the VAR
analysis are as follows:
o A Monte Carlo simulation model is used to calculate changes in the
value of currency derivative instruments (e.g., forwards and options)
and all significant underlying exposures. The VAR analysis includes an
18-month exposure and derivative hedging horizon and a one-month
holding period.
58
Item 7A. Quantitative and Qualitative Disclosures About Market Risk (Continued)
o The VAR analysis calculates the potential risk, within a 99%
confidence level, on cross-border currency cash flow exposures,
including the effects of foreign currency derivatives. (Translation
exposures are not included in the VAR analysis). The Monte Carlo
simulation model uses historical volatility and correlation estimates
of the underlying assets to produce a large number of future price
scenarios, which have a statistically lognormal distribution.
o Estimates of correlations and volatilities are drawn primarily from
the RiskMetricsTM datasets.
Hedging actions substantially reduce our risk to changes in currency rates.
Based on our overall currency exposure (including derivative positions) during
2001, the risk during 2001 to our pre-tax cash flow from currency movements was
on average $300 million, with a high of $350 million and a low of $275 million.
At December 31, 2001, currency movements are projected to affect our pre-tax
cash flow over the next 18 months by less than $275 million, within a 99%
confidence level. Compared with our projection at December 31, 2000, the 2001
VAR amount is approximately $25 million lower, primarily because of decreased
currency exchange rate volatility.
Commodity Price Risk
--------------------
Commodity price risk is the possibility of higher or lower costs due to
changes in the prices of commodities, such as non-ferrous (e.g., aluminum) and
precious metals (e.g., palladium, platinum and rhodium), ferrous alloys (e.g.,
steel), energy (e.g., natural gas) and plastics (e.g., polypropylene), which we
use in the production of motor vehicles. We use derivative instruments to hedge
the price risk associated with the purchase of those commodities that we can
economically hedge. The fair value liability of such contracts, excluding the
underlying exposures, as of December 31, 2001 and 2000 was approximately a
negative $259 million and a positive $56 million, respectively. The potential
change in the fair value of commodity forward and option contracts, assuming a
10% change in the underlying commodity price, would be approximately $267
million and $280 million at December 31, 2001 and 2000, respectively. This
amount excludes the offsetting impact of the price change we would experience in
purchasing the underlying commodities.
In addition to these price-hedging activities, our procurement activities
ensure that we have adequate supplies of raw materials used in our business.
These procurement activities utilize forward purchase contracts, long-term
supply contracts and stockpiles. The $1 billion pre-tax write-down of precious
metals, discussed in Note 16 of the Notes to our Consolidated Financial
Statements, related to these procurement activities. In conjunction with this
write-down, we modified our processes so that any price-hedging inherent in our
procurement activities is executed by or coordinated with our Treasurer's
Office, which manages our price-hedging activity.
Our price-hedging policy is based on clearly defined guidelines.
Speculative actions are not permitted. In 2001, we enhanced our risk evaluation
to include a VAR analysis, using historical volatilities, to evaluate our
exposure to changes in commodity prices given our financial hedges, forward
procurement and supply contracts on those commodities which we hedge.
Based on our commodity exposure and related hedging activity, at December
31, 2001, commodity price movements are projected to affect our pre-tax cash
flow over the next twelve months by up to $167 million, within a 99% confidence
level. Over the last year the VAR measurements averaged $339 million, with a
high of $625 million and a low of $167 million. These risk levels are
substantially lower than they would otherwise be without hedging actions.
Counterparty Risk
-----------------
Counterparty risk relates to the loss we could incur if a counterparty
defaulted on an investment or a derivative contract. Exposures managed are
financial and primarily relate to investments in fixed-income products and
derivative transactions for the purpose of managing interest rate, currency and
commodity risk. We, together with Ford Credit, establish exposure limits for
each counterparty to
59
Item 7A. Quantitative and Qualitative Disclosures About Market Risk (Continued)
minimize risk and provide counterparty diversification. Exposures are monitored
on a regular basis.
Our approach to managing counterparty risk is forward-looking and
proactive, allowing us to take risk mitigation actions. Exposure limits are
established for both mark-to-market and future potential exposure, based on our
overall risk tolerance and ratings-based historical default probabilities. A
Monte Carlo simulation technique is utilized to generate the potential exposure
by tenor, within a 95% confidence level (market convention). Estimates of
correlations and volatilities are drawn from RiskMetricsTM datasets.
FORD CREDIT MARKET AND OTHER RISKS
Overview
--------
Ford Credit is exposed to risks in the normal course of its business
activities. In addition to counterparty risk discussed above, Ford Credit is
subject to the following additional types of risks that it seeks to identify,
assess, monitor and manage, in accordance with defined policies and procedures:
o Credit risk - the possibility of loss from a customer's failure to
make payments according to contract terms.
o Residual risk - the possibility that the actual proceeds received by
Ford Credit upon the sale of returned lease vehicles at lease
termination will be lower than its internal forecast of residual
values.
o Market risk - the possibility that changes in future market interest
and currency exchange rates or prices will make Ford Credit's
positions less valuable.
o Liquidity risk - the possibility of being unable to meet all current
and future obligations in a timely manner.
o Operating risk - the possibility of errors relating to transaction
processing and systems, actions that could result in compliance
deficiencies with regulatory standards or fraud by Ford Credit's own
employees or outside persons.
Each form of risk is uniquely managed in the context of its contribution to
Ford Credit's overall global risk. Business decisions are evaluated on a
risk-adjusted basis and products are priced consistent with these risks. See
Ford Motor Credit Company's Annual Report on Form-10 K for the year ended
December 31, 2001 for more information on this subject.
Credit Risk
-----------
Ford Credit extends consumer credit by purchasing retail vehicle
installment sale and lease contracts from vehicle dealers. These contracts are
divided into segments by credit risk tier, term and whether the vehicle financed
or leased is new or used. Segment data are used to ensure that pricing and
servicing procedures are commensurate with the risk associated with each
contract. Ford Credit has behavioral models to assist in determining the best
collection strategies. In general, collection procedures are designed to keep
accounts current and to collect on delinquent accounts. As a final step, after
reasonable collection efforts have failed, vehicles are repossessed; however,
collection efforts of any remaining balance continue until the account is paid
in full or determined to be uncollectible.
Ford Credit also extends non-consumer loans, which include wholesale and
other loans to dealers as well as automotive financing for commercial entities.
To monitor credit performance, Ford Credit requires dealers to submit monthly
financial statements, performs periodic physical audits of vehicles (with more
frequent audits for higher risk dealers), and monitors inventory payoffs daily
to detect adverse deviations from typical payoff patterns, in which case
appropriate actions are taken.
60
Item 7A. Quantitative and Qualitative Disclosures About Market Risk (Continued)
Residual Risk
-------------
Ford Credit's lease contracts are written with vehicle lease-end values
that approximate residual values published in Automotive Leasing Guide. For
financial reporting purposes, however, Ford Credit sets the internal value of
expected residual values (net of costs) based on a proprietary econometric model
that uses historical experience and forward looking information such as new
product plans, marketing programs and quality metrics. Any unfavorable
difference between the customer contract lease-end value and Ford Credit's
internal forecast is accrued and expensed as depreciation. Ford Credit reviews
the depreciation rates on leased vehicles quarterly and adjusts them as needed
to reflect changes in the projected residual values.
At lease termination, Ford Credit maximizes residual proceeds through the
use of models to determine which geographic market would yield the highest
resale value, net of transportation cost. Sometimes, lease extensions or early
terminations are offered to take advantage of seasonal resale patterns.
Market Risk
-----------
The goal of financial market risk management is to reduce the profit
volatility effect of changes in interest rates and currency exchange rates. Ford
Credit uses various financial instruments, particularly interest rate and
currency swaps to manage market risk. Ford Credit is exclusively an end user of
these instruments, which are commonly referred to as derivatives; and, does not
engage in any trading, market-making or other speculative activities in the
derivative markets.
Since Ford Credit's principal use of derivatives is to eliminate mismatches
between the terms of assets and liabilities, changes in interest rates and
exchange rates would have generally offsetting effects on the value of Ford
Credit's financial assets and derivative instruments and, therefore, would not
be expected to have a material impact on Ford Credit's financial position or
results of operations. For instance, assuming an instantaneous increase of one
percentage point in interest rates applied to all financial assets, debt and
hedging instruments, Ford Credit's after-tax earnings would decline by $66
million over the ensuing twelve-month period.
Liquidity Risk
--------------
One of Ford Credit's major objectives is to maintain funding availability
through any economic or business cycle. Ford Credit focuses on developing
funding sources to support growth and refinancing of maturing debt. Ford Credit
also issues debt that, on average, matures later than assets liquidate, further
enhancing overall liquidity.
Global funding activities include the direct and dealer-placed commercial
paper, the placement of term debt to retail and institutional investors and
public and private sale of receivables. Ford Credit's ability to raise funds at
a competitive cost is linked to its debt ratings.
Management closely monitors the amount of short-term funding and mix of
short-term funding to total debt, the overall composition of total debt and the
availability of committed credit facilities in relation to the level of
outstanding short-term debt. Stress testing of Ford Credit's liquidity position
is conducted periodically.
For a detailed discussion of Ford Credit's funding sources and debt
ratings, see Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital Resources."
61
Item 7A. Quantitative and Qualitative Disclosures About Market Risk (Continued)
Operating Risk
--------------
Ford Credit operates in many locations and relies on the abilities of its
employees and systems to process a large number of transactions. Improper
operation of systems or improper employee actions could result in financial
loss, regulatory action and damage to our reputation. To address this risk, we
and Ford Credit maintain internal control processes that identify transaction
authorization requirements, safeguard assets from misuse or theft, and ensure
the reliability of financial and other data. We also maintain system controls to
maintain the accuracy of information about our operations. These controls are
designed to manage operating risk throughout our operations.
Item 8. Financial Statements and Supplementary Data
----------------------------------------------------
Our Financial Statements, the accompanying Notes and the Report of
Independent Accountants that are filed as part of this Report are listed under
Item 14. "Exhibits, Financial Statement Schedules, and Reports on Form 8-K" and
are set forth on pages FS-1 through FS-23 immediately following the signature
pages of this Report.
Selected quarterly financial data for us and our consolidated subsidiaries
for 2001 and 2000 is in Note 21 of our Notes to Consolidated Financial
Statements.
Item 9. Changes in and Disagreements With Accountants on Accounting and
-------------------------------------------------------------------------
Financial Disclosure
--------------------
Not required.
62
PART III
Item 10. Directors and Executive Officers of Ford
--------------------------------------------------
The information required by Item 10 regarding our directors is incorporated
by reference from the information under the captions "Election of Directors" and
"Management Stock Ownership" in our Proxy Statement. The information required by
Item 10 regarding our executive officers appears as Item 4A under Part I of this
Report.
Item 11. Executive Compensation
--------------------------------
The information required by Item 11 is incorporated by reference from the
information under the following captions in our Proxy Statement: "Compensation
of Directors", "Compensation Committee Report on Executive Compensation",
"Compensation of Executive Officers", "Stock Options", "Performance Stock Rights
and Restricted Stock Units", "Stock Performance Graphs" and "Retirement Plans".
Item 12. Security Ownership of Certain Beneficial Owners and Management
------------------------------------------------------------------------
The information required by Item 12 is incorporated by reference from the
information under the caption "Management Stock Ownership" in our Proxy
Statement.
Item 13. Certain Relationships and Related Transactions
--------------------------------------------------------
The information required by Item 13 is incorporated by reference from the
information under the caption "Certain Relationships and Related Transactions"
in our Proxy Statement.
63
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
--------------------------------------------------------------------------
(a) 1. Financial Statements - Ford Motor Company and Subsidiaries
-----------------------------------------------------------------
Consolidated Statement of Income for the years ended December 31, 2001,
2000, and 1999.
Consolidated Balance Sheet at December 31, 2001 and 2000.
Consolidated Statement of Cash Flows for the years ended December 31, 2001,
2000, and 1999.
Consolidated Statement of Stockholders' Equity for the years ended December
31, 2001, 2000, and 1999.
Notes to Consolidated Financial Statements
Report of Independent Accountants
The Consolidated Financial Statements, the Notes to Consolidated Financial
Statements and the Report of Independent Accountants listed above are filed as
part of this Report and are set forth on pages FS-1 through FS-23 immediately
following the signatures pages of this Report.
(a) 2. Financial Statement Schedules
--------------------------------------
Designation Description
----------- -----------
None Required.
The schedules are omitted because the information required to be contained
in them is disclosed elsewhere in the Financial Statements or the amounts
involved are not sufficient to require submission.
64
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
(a) 3. Exhibits
-----------------
Designation Description Method of Filing
----------- ----------- ----------------
Exhibit 3-A Restated Certificate of Incorporation, Filed as Exhibit 3-A to Ford's
dated August 2, 2000. Annual Report on Form 10-K for the
year ended December 31, 2000.*
Exhibit 3-B By-Laws as amended Filed as Exhibit 3-B to Ford's Quarterly
through October 30, 2001. Report on Form 10-Q for the quarter
ended September 30, 2001.*
Exhibit 4 Form of Deposit Agreement dated as of Filed as Exhibit 4-E to Ford's
October 29, 1992 among Ford, Registration Statement No. 33-53092.*
Chemical Bank, as Depositary,
and the holders from time to time of
Depositary Shares, each representing
1/2,000 of a share of Ford's
Series B Cumulative Preferred Stock.
Exhibit 10-A Amended and Restated Profit Filed with this Report.
Maintenance Agreement, dated as of
January 1, 2002, between Ford
and Ford Credit.
Exhibit 10-B Executive Separation Allowance Plan Filed as Exhibit 10-B to Ford's
as amended and restated through Annual Report on Form 10-K
December 18, 2000 for separations on for the year ended
or after January 1, 1981.** December 31, 2000.*
Exhibit 10-C Description of Ford practices regarding Filed as Exhibit 10-I to Ford's
club memberships for executives.** Annual Report on Form 10-K for the
year ended December 31, 1981.*
Exhibit 10-D Description of Ford practices regarding Filed as Exhibit 10-J to Ford's
travel expenses of spouses of certain Annual Report on Form 10-K for the
executives.** year ended December 31, 1980.*
Exhibit 10-E Deferred Compensation Plan for Filed as Exhibit 10-H-1 to Ford's
Non-Employee Directors, as amended Annual Report on Form 10-K for the
on July 11, 1991.** year ended December 31, 1991.*
Exhibit 10-E-1 Amendments to Deferred Compensation Plan Filed as Exhibit 10-G-1 to Ford's
for Non-Employee Directors, effective as of Annual Report on Form 10-K for the
January 1, 1996.** year ended December 31, 1995.*
Exhibit 10-E-2 Amendment to Deferred Compensation Plan Filed as Exhibit 10-G-2 to Ford's
for Non-Employee Directors, effective as of Annual Report on Form 10-K for the
November 14, 1996.** year ended December 31, 1996.*
65
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
Designation Description Method of Filing
----------- ----------- ----------------
Exhibit 10-F Benefit Equalization Plan, as Filed as Exhibit 10-F to Ford's
amended and restated as of Annual Report on Form 10-K for the
December 18, 2000.** year ended December 31, 2000.*
Exhibit 10-G Description of financial counseling Filed as Exhibit 10-N to Ford's
services provided to certain executives.** Annual Report on Form 10-K for the
year ended December 31, 1983.*
Exhibit 10-H Supplemental Executive Retirement Plan, Filed as Exhibit 10-H to Ford's
as restated and incorporating amendments Annual Report on Form 10-K for the
through December 18, 2000.** year ended December 31, 2000.*
Exhibit 10-I Restricted Stock Plan for Non-Employee Filed as Exhibit 10-P to Ford's
Directors adopted by the Board of Annual Report on Form 10-K for the
Directors on November 10, 1988, year ended December 31, 1988.*
and approved by the stockholders at
the 1989 Annual Meeting.**
Exhibit 10-I-1 Amendment to Restricted Stock Plan for Filed as Exhibit 10.1 to Ford's
Non-Employee Directors, effective as of Quarterly Report on Form 10-Q for the
August 1, 1996.** quarter ended September 30, 1996.*
Exhibit 10-J 1990 Long-Term Incentive Plan, Filed as Exhibit 10-R to Ford's
amended as of June 1, 1990.** Annual Report on Form 10-K for the
year ended December 31, 1990.*
Exhibit 10-J-1 Amendment to 1990 Long-Term Incentive Filed as Exhibit 10-P-1 to Ford's
Plan, effective as of October 1, 1990.** Annual Report on Form 10-K for the
year ended December 31, 1991.*
Exhibit 10-J-2 Amendment to 1990 Long-Term Incentive Filed as Exhibit 10.2 to Ford's
Plan, effective as of March 8, 1995.** Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995.*
Exhibit 10-J-3 Amendment to 1990 Long-Term Filed as Exhibit 10-M-3 to Ford's
Incentive Plan, effective as of Annual Report on Form 10-K for the
October 1, 1997.** year ended December 31, 1997.*
Exhibit 10-J-4 Amendment to 1990 Long-Term Filed as Exhibit 10-M-4 to Ford's
Incentive Plan, effective as of Annual Report on Form 10-K for the
January 1, 1998.** year ended December 31, 1997.*
Exhibit 10-K Description of Matching Gift Program for Filed as Exhibit 10-Q to Ford's
Non-Employee Directors.** Annual Report on Form 10-K for the
year ended December 31, 1991.*
Exhibit 10-L Non-Employee Directors Life Insurance Filed as Exhibit 10-O to Ford's
and Optional Retirement Plan Annual Report on Form 10-K for the
(as amended as of January 1, 1993).** year ended December 31, 1994.*
Exhibit 10-M Description of Non-Employee Directors Filed as Exhibit 10-S to Ford's
Accidental Death, Dismemberment and Annual Report on Form 10-K for the
Permanent Total Disablement Indemnity.** year ended December 31, 1992.*
66
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
Designation Description Method of Filing
----------- ----------- ----------------
Exhibit 10-N Agreement dated December 10, 1992 Filed as Exhibit 10-T to Ford's
between Ford and William C. Ford.** Annual Report on Form 10-K for the
year ended December 31, 1992.*
Exhibit 10-O Support Agreement dated as of October 1, Filed as Exhibit 10-T to Ford's
1993 between Ford and FCE Bank. Annual Report on Form 10-K for the
year ended December 31, 1993.*
Exhibit 10-O-1 Amendment No. 1 dated as of November Filed as Exhibit 10-R-1 to Ford's
15, 1995 to Support Agreement between Annual Report on Form 10-K for the
Ford and FCE Bank. year ended December 31, 1995.*
Exhibit 10-P Select Retirement Plan Filed as Exhibit 10-P to Ford's
as amended and restated through Annual Report on Form 10-K for the
January 1, 2000.** year ended December 31, 2000.*
Exhibit 10-Q Deferred Compensation Plan, Filed as Exhibit 10-R to Ford's
as amended and restated as of Annual Report on Form 10-K for the
January 1, 2000.** year ended December 31, 1999.*
Exhibit 10-Q-1 Amendment to Deferred Filed as Exhibit 4.2 to Ford's
Compensation Plan effective Registration Statement No. 333-
as of April 12, 2000.** 56660.*
Exhibit 10-Q-2 Amendment to Deferred Filed as Exhibit 4.3 to Ford's
Compensation Plan effective Registration Statement No. 333-
as of June 1, 2000.** 56660.*
Exhibit 10-R Annual Incentive Compensation Plan, Filed as Exhibit 10-T to Ford's
as amended and restated as of Annual Report on Form 10-K for the
January 1, 2000.** year ended December 31, 1999.*
Exhibit 10-S 1998 Long-Term Incentive Plan, Filed as Exhibit 10-W to Ford's
effective as of January 1, 1998.** Annual Report on Form 10-K for the
year ended December 31, 1997.*
Exhibit 10-S-1 Amendment to 1998 Long-Term Incentive Filed as Exhibit 10-W-1 to Ford's
Plan, effective as of January 1, 1999.** Annual Report on Form 10-K for
the year ended December 31, 1998.*
Exhibit 10-S-2 Amendment to 1998 Long-Term Incentive Filed as Exhibit 10-U-2 to Ford's
Plan, effective as of March 10, 2000.** Annual Report on Form 10-K for the
year ended December 31, 1999.*
Exhibit 10-S-3 Amendment to 1998 Long-Term Incentive Filed with this Report.
Plan, effective as of January 31, 2002,
subject to shareholder approval.**
Exhibit 10-T Agreement dated January 13, 1999 Filed as Exhibit 10-X to Ford's
between Ford and Edsel B. Ford II.** Annual Report on Form 10-K for
the year ended December 31, 1998.*
67
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
Designation Description Method of Filing
----------- ----------- ----------------
Exhibit 10-U Description of Agreement dated Filed as Exhibit 10-V to Ford's
March 18, 1999 with Wolfgang Reitzle.** Annual Report on Form 10-K for
the year ended December 31, 2000.*
Exhibit 10-V Description of Agreement dated Filed as Exhibit 10-W to Ford's
July 2001 with Wolfgang Reitzle.** Quarterly Report for the quarter ended
September 30, 2001.*
Exhibit 10-W Description of Agreement dated Filed as Exhibit 10-X to Ford's
September 2001 with Jacques Nasser.** Quarterly Report for the quarter ended
September 30, 2001.*
Exhibit 10-X Agreement dated December 3, 2001 Filed with this Report.
between Ford and W. Wayne Booker.**
Exhibit 10-Y Agreement dated February 2002 Filed with this Report.
between Ford and Donald A. Winkler.**
Exhibit 10-Z Agreement between Ford Motor Filed as Exhibit 10 to Ford's
Company and Ford Motor Credit Current report on Form 8-K
Company dated as of October 18, 2001 dated October 18, 2001.*
Exhibit 12 Computation of Ratio of Earnings to Filed with this Report.
Combined Fixed Charges and Preferred
Stock Dividends.
Exhibit 21 List of Subsidiaries of Ford Filed with this Report.
as of March 15, 2002.
Exhibit 23 Consent of Independent Certified Public Filed with this Report.
Accountants.
Exhibit 24 Powers of Attorney. Filed with this Report.
--------------------------
* Incorporated by reference as an exhibit to this Report (file number
reference 1-3950, unless otherwise indicated)
** Management contract or compensatory plan or arrangement
Instruments defining the rights of holders of certain issues of long-term
debt of Ford and of certain consolidated subsidiaries and of any unconsolidated
subsidiary, for which financial statements are required to be filed with this
Report, have not been filed as exhibits to this Report because the authorized
principal amount of any one of such issues does not exceed 10% of the total
assets of Ford and our subsidiaries on a consolidated basis. Ford agrees to
furnish a copy of each of such instruments to the Commission upon request.
68
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
(b) Reports on Form 8-K
----------------------------
Ford filed the following Current Reports on Form 8-K during the quarter
ended December 31, 2001:
Current Report on Form 8-K dated October 2, 2001 included information
relating to Ford's September 2001 U.S. sales results.
Current Report on Form 8-K dated October 10, 2001 included information
relating to Ford's fourth quarter 2001 dividend.
Current Report on Form 8-K dated October 17, 2001 included information
relating to Ford's third quarter 2001 financial results.
Current Report on Form 8-K dated October 18, 2001 included information
relating to an Agreement between Ford Motor Company and Ford Motor Credit
Company.
Current Report on Form 8-K dated October 24, 2001 included information
relating to Ford's registration of Debt Securities pursuant to Registration
Statements No. 333-86035 and 333-49164.
Current Report on Form 8-K dated October 30, 2001 included information
relating to Ford's senior management changes.
Current Report on Form 8-K dated November 1, 2001 included information
relating to Ford's October 2001 U.S. sales results and Ford's North American
production and overseas sales schedule.
Current Report on Form 8-K dated December 1, 2001 included information
relating to Ford's November 2001 U.S. sales results and Ford's North American
production and overseas sales schedule.
Current Report on Form 8-K dated December 5, 2001 included information
relating to Ford's updated 2001 fourth quarter financial forecast.
69
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, Ford has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FORD MOTOR COMPANY
By: I. Martin Inglis*
-------------------------------
(I Martin Inglis)
Group Vice President and
Chief Financial Officer
Date: March 28, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of Ford and in
the capacities on the date indicated.
Signature Title Date
--------- ----- ----
William Clay Ford, Jr.* Director, Chairman of the
------------------------------- Board and Chief Executive Officer
(William Clay Ford, Jr.) and Chairman of the
Environmental and Public
Policy Committee and the
Nominating and Governance
Committee
(principal executive officer)
John R. H. Bond* Director
-------------------------------
(John R. H. Bond)
Michael D. Dingman* Director and March 28, 2002
------------------------------- Chairman of the
(Michael D. Dingman) Compensation
Committee
Edsel B. Ford II* Director
-------------------------------
(Edsel B. Ford II)
William Clay Ford* Director
-------------------------------
(William Clay Ford)
Irvine O. Hockaday, Jr.* Director and
------------------------------- Chairman of the
(Irvine O. Hockaday, Jr.) Audit Committee
70
Signature Title Date
--------- ----- ----
Marie-Josee Kravis* Director
-------------------------------
(Marie-Josee Kravis)
Richard A. Manoogian* Director
-------------------------------
(Richard A. Manoogian)
Ellen R. Marram* Director
-------------------------------
(Ellen R. Marram)
Homer A Neal* Director
-------------------------------
(Homer A. Neal)
Jorma Ollila* Director March 28, 2002
-------------------------------
(Jorma Ollila)
Carl E. Reichardt* Director, Chairman of
------------------------------- the Finance Committee
(Carl E. Reichardt) and Vice Chairman
Robert E. Rubin* Director
-------------------------------
(Robert E. Rubin)
Nicholas V. Scheele* Director and President and
------------------------------- Chief Operating Officer
(Nicholas V. Scheele)
John L. Thornton* Director
-------------------------------
(John L. Thornton)
I. Martin Inglis* Group Vice President and
------------------------------- Chief Financial Officer
(I. Martin Inglis) (principal financial officer)
Don Leclair* Vice President and Controller
------------------------------- (principal accounting officer)
(Don Leclair)
*By: /s/ Peter Sherry, Jr.
---------------------------
(Peter Sherry, Jr.)
Attorney-in-Fact
71
Ford Motor Company and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
--------------------------------
For the Years Ended December 31, 2001, 2000 and 1999
(in millions, except per share amounts)
2001 2000 1999
------------- ------------ ------------
AUTOMOTIVE
Sales (Note 1) $131,528 $141,230 $135,073
Costs and expenses (Notes 1 and 16)
Costs of sales 129,159 126,114 119,030
Selling, administrative and other expenses 9,937 9,884 8,874
-------- -------- --------
Total costs and expenses 139,096 135,998 127,904
Operating income/(loss) (7,568) 5,232 7,169
Interest income 766 1,488 1,418
Interest expense 1,378 1,383 1,347
-------- -------- --------
Net interest income/(expense) (612) 105 71
Equity in net income/(loss) of affiliated companies (Note 1) (856) (70) 35
-------- -------- --------
Income/(loss) before income taxes - Automotive (9,036) 5,267 7,275
FINANCIAL SERVICES
Revenues (Note 1) 30,884 28,828 25,630
Costs and expenses (Note 1)
Interest expense 9,470 9,519 7,679
Depreciation 10,564 9,408 9,254
Operating and other expenses 5,733 4,971 4,653
Provision for credit and insurance losses 3,665 1,963 1,465
-------- -------- --------
Total costs and expenses 29,432 25,861 23,051
Income before income taxes - Financial Services 1,452 2,967 2,579
-------- -------- --------
TOTAL COMPANY
Income/(loss) before income taxes (7,584) 8,234 9,854
Provision for income taxes (Note 2) (2,151) 2,705 3,248
-------- -------- --------
Income/(loss) before minority interests (5,433) 5,529 6,606
Minority interests in net income of subsidiaries 20 119 104
-------- -------- --------
Income/(loss) from continuing operations (5,453) 5,410 6,502
Income from discontinued operation (Note 3) - 309 735
Loss on spin-off of discontinued operation (Note 3) - (2,252) -
-------- -------- --------
Net income/(loss) $ (5,453) $ 3,467 $ 7,237
======== ======== ========
Income/(loss) attributable to Common and Class B Stock
after Preferred Stock dividends $ (5,468) $ 3,452 $ 7,222
Average number of shares of Common and Class B
Stock outstanding (Note 1) 1,820 1,483 1,210
AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK (Note 1)
Basic income
Income/(loss) from continuing operations $ (3.02) $ 3.66 $ 5.38
Income from discontinued operation - 0.21 0.61
Loss on spin-off of discontinued operation - (1.53) -
-------- -------- --------
Net income/(loss) $ (3.02) $ 2.34 $ 5.99
Diluted income
Income/(loss) from continuing operations $ (3.02) $ 3.59 $ 5.26
Income from discontinued operation - 0.21 0.60
Loss on spin-off of discontinued operation - (1.50) -
-------- -------- --------
Net income/(loss) $ (3.02) $ 2.30 $ 5.86
Cash dividends $ 1.05 $ 1.80 $ 1.88
The accompanying notes are part of the financial statements.
FS-1
Ford Motor Company and Subsidiaries
CONSOLIDATED BALANCE SHEET
--------------------------
As of December 31, 2001 and 2000
(in millions)
2001 2000
---------------- ---------------
ASSETS
Automotive
Cash and cash equivalents $ 4,079 $ 3,374
Marketable securities (Note 4) 10,949 13,116
-------- --------
Total cash and marketable securities 15,028 16,490
Receivables 2,214 4,685
Inventories (Note 5) 6,191 7,514
Deferred income taxes 2,595 2,239
Other current assets (Note 1) 6,155 5,318
Current receivable from Financial Services (Note 1) 938 1,587
-------- --------
Total current assets 33,121 37,833
Equity in net assets of affiliated companies (Note 1) 2,450 2,949
Net property (Note 6) 33,121 37,508
Deferred income taxes 5,996 3,342
Other assets (Note 1) 13,631 12,680
-------- --------
Total Automotive assets 88,319 94,312
Financial Services
Cash and cash equivalents 3,139 1,477
Investments in securities (Note 4) 628 817
Finance receivables, net (Note 7) 111,958 125,164
Net investment in operating leases (Note 8) 47,262 46,593
Retained interest in sold receivables (Note 7) 12,548 3,687
Other assets 8,977 8,703
Receivable from Automotive (Note 1) 3,712 2,637
-------- --------
Total Financial Services assets 188,224 189,078
-------- --------
Total assets $276,543 $283,390
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Automotive
Trade payables $ 15,677 $ 15,075
Other payables 4,577 4,011
Accrued liabilities (Note 10) 23,990 23,369
Income taxes payable - 449
Debt payable within one year (Note 11) 302 277
-------- --------
Total current liabilities 44,546 43,181
Long-term debt (Note 11) 13,492 11,769
Other liabilities (Note 10) 30,868 29,610
Deferred income taxes 362 353
Payable to Financial Services (Note 1) 3,712 2,637
-------- --------
Total Automotive liabilities 92,980 87,550
Financial Services
Payables 3,095 5,297
Debt (Note 11) 153,543 153,510
Deferred income taxes 9,703 8,677
Other liabilities and deferred income 7,826 7,486
Payable to Automotive (Note 1) 938 1,587
-------- --------
Total Financial Services liabilities 175,105 176,557
Company-obligated mandatorily redeemable preferred securities of a subsidiary
T trust holding solely junior subordinated debentures of the Company (Note 1) 672 673
Stockholders' equity
Capital stock (Notes 12 and 13)
Preferred Stock, par value $1.00 per share (aggregate liquidation preference
of $177 million) * *
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 6,001 6,174
Accumulated other comprehensive income (5,913) (3,432)
ESOP loan and treasury stock (2,823) (2,035)
Earnings retained for use in business 10,502 17,884
-------- --------
Total stockholders' equity 7,786 18,610
-------- --------
Total liabilities and stockholders' equity $276,543 $283,390
======== ========
- - - - -
*Less than $1 million
The accompanying notes are part of the financial statements.
FS-2
Ford Motor Company and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
For the Years Ended December 31, 2001, 2000 and 1999
(in millions)
2001 2000 1999
-------------------------- ---------------------------- ---------------------------
Financial Financial Financial
Automotive Services Automotive Services Automotive Services
------------ ------------- -------------- ------------- ------------- -------------
Cash and cash equivalents at January 1 $ 3,374 $ 1,477 $ 2,793 $ 1,588 $ 3,143 $ 1,151
Cash flows from operating activities
before securities trading (Note 15) 7,809 13,919 12,023 15,335 12,535 12,697
Net sales/(purchases) of trading
securities 916 120 6,858 122 2,316 (157)
-------- -------- -------- -------- -------- --------
Net cash flows from operating activities 8,725 14,039 18,881 15,457 14,851 12,540
Cash flows from investing activities
Capital expenditures (6,357) (651) (7,393) (955) (7,069) (590)
Acquisitions of other companies
(Note 16) (1,998) (737) (2,662) (112) (5,763) (144)
Acquisitions of receivables and lease
investments - (96,505) - (96,512) - (80,422)
Collections of receivables and lease
investments
investments - 46,961 - 54,290 - 46,646
Net acquisitions of daily rental vehicles - (1,412) - (2,107) - (1,739)
Purchases of securities (12,489) (734) (6,136) (564) (3,609) (900)
Sales and maturities of securities 13,772 759 5,105 557 2,352 1,100
Proceeds from sales of receivables and
lease investments
lease investments - 41,419 - 19,439 - 9,931
Net investing activity with
Financial Services
Financial Services 186 - 645 - 1,329 -
Other 367 250 - (320) (70) 119
-------- -------- -------- -------- -------- --------
Net cash used in investing activities (6,519) (10,650) (10,441) (26,284) (12,830) (25,999)
Cash flows from financing activities
Cash dividends
Cash dividends (1,929) - (2,751) - (2,290) -
Issuance of Common Stock 453 - 592 - 274 -
Purchase of treasury stock (1,838) - (1,821) - (707) -
Changes in short-term debt 38 (18,311) (776) (6,406) (429) 5,547
Proceeds from issuance of other debt 2,088 44,129 2,363 37,086 3,143 37,184
Principal payments on other debt (1,122) (26,135) (1,277) (17,158) (821) (28,672)
Value Enhancement Plan payments (Note 12)) - - (5,555) - - -
Net debt repayments from discontinued
operation - - 650 - - -
Net cash distribution to
discontinued operation - - (85) - - -
Net financing activity with Automotive - (186) - (645) - (1,329)
Other 261 (424) 139 (585) (127) 88
-------- -------- -------- -------- -------- --------
Net cash (used in)/provided by
financing activities
financing activities (2,049) (927) (8,521) 12,292 (957) 12,818
Effect of exchange rate changes on cash (101) (151) (55) (859) (57) (279)
Net transactions with Automotive/
Financial Services
Financial Services 649 (649) 717 (717) (1,357) 1,357
-------- -------- -------- -------- -------- --------
Net increase/(decrease) in cash and
cash
equivalents
cash equivalents 705 1,662 581 (111) (350) 437
-------- -------- -------- -------- --------- --------
Cash and cash equivalents at December 31 $ 4,079 $ 3,139 $ 3,374 $ 1,477 $ 2,793 $ 1,588
======== ======== ======== ======== ======== ========
The accompanying notes are part of the financial statements.
FS-3
Ford Motor Company and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
----------------------------------------------
For the Years Ended December 31, 1999, 2000 and 2001
(in millions)
Capital Other Comprehensive Income
in Excess --------------------------------------
of Par Foreign Minimum Derivative
Capital Value of Retained Currency Pension Instruments
Stock Stock Earnings Translation Liability and Other Other Total
--------- ----------- ------------ ------------ ------------- ------------ ------------ ----------
YEAR ENDED DECEMBER 31, 1999
-----------------------------
Balance at beginning of year $1,222 $5,283 $19,659 $ (992) $ (698) $ 45 $(1,085) $23,434
Comprehensive income
Net income 7,237 7,237
Foreign currency translation (573) (573)
Minimum pension liability
(net of tax of $174) 324 324
Net holding gain
(net of tax of $20) 38 38
-------
Comprehensive income 7,026
Common Stock issued for
employee benefit plans and other (234) (234)
ESOP loan and treasury stock (332) (332)
Cash dividends (2,290) (2,290)
------ ------ ------- -------- ------ ------- ------- -------
Balance at end of year $1,222 $5,049 $24,606 $ (1,565) $ (374) $ 83 $(1,417) $27,604
====== ====== ======= ======== ====== ======= ======= =======
YEAR ENDED DECEMBER 31, 2000
----------------------------
Balance at beginning of year $1,222 $5,049 $24,606 $ (1,565) $ (374) $ 83 $(1,417) $27,604
Comprehensive income
Net income 3,467 3,467
Foreign currency translation (1,538) (1,538)
Minimum pension liability
(net of tax of $36) (66) (66)
Net holding gain
(net of tax of $15) 28 28
-------
Comprehensive income 1,891
Common Stock issued for
employee benefit plans and other (78) (78)
ESOP loan and treasury stock (618) (618)
Value Enhancement Plan (1,203) 1,203 (5,731) (5,731)
Stock dividend
(Spin-off of Visteon) (1,707) (1,707)
Cash dividends (2,751) (2,751)
------- ------ ------- -------- ------ ------- ------- -------
Balance at end of year $ 19 $6,174 $17,884 $ (3,103) $ (440) $ 111 $(2,035) $18,610
======= ====== ======= ======== ====== ======= ======= =======
YEAR ENDED DECEMBER 31, 2001
----------------------------
Balance at beginning of year $ 19 $6,174 $17,884 $ (3,103) $ (440) $ 111 $(2,035) $18,610
Comprehensive income
Net loss (5,453) (5,453)
Foreign currency translation (1,240) (1,240)
Net loss on derivative
instruments (net of tax of $592)
(Note 14) (1,099) (1,099)
Minimum pension liability
(net of tax of $3) (5) (5)
Net holding loss
(net of tax of $74) (137) (137)
-------
Comprehensive loss (7,934)
Common Stock issued for
employee benefit plans and other (173) (173)
ESOP loan and treasury stock (788) (788)
Cash dividends (1,929) (1,929)
------- ------ ------- -------- ------ ------- ------- -------
Balance at end of year $ 19 $6,001 $10,502 $ (4,343) $ (445) $(1,125) $(2,823) $ 7,786
======= ====== ======= ======== ====== ======= ======= =======
The accompanying notes are part of the financial statements.
FS-4
Ford Motor Company and Subsidiaries
Notes to Consolidated Financial Statements
------------------------------------------
NOTE 1. Accounting Policies
----------------------------
Principles of Consolidation
---------------------------
Our consolidated financial statements include our majority-owned subsidiaries
and reflect our two business sectors: Automotive and Financial Services.
Affiliates that we do not control, but have a significant influence over
operating and financial policies, are accounted for using the equity method.
Subsidiaries where control is expected to be temporary, principally investments
in certain dealerships, are also accounted for on an equity basis. We prepare
our financial statements using accounting principles generally accepted in the
United States which require management to make estimates and assumptions that
affect reported amounts and disclosures. Actual results could differ from those
estimates and assumptions. Certain amounts previously disclosed in our press
release and current report on Form 8-K dated January 17, 2002 have been
reclassified, and certain reclassifications have been made to prior periods to
conform with current reporting.
Structure of Operations
-----------------------
Our company's sectors, Automotive and Financial Services, are managed as three
primary operating segments (Note 18). The Automotive sector (and segment)
consists of the design, manufacture, sale, and service of cars and trucks. The
Financial Services sector primarily includes two segments, Ford Credit and
Hertz. Ford Credit is comprised of subsidiaries that provide vehicle-related
financing, leasing, and insurance. Hertz rents and leases cars and trucks and
rents industrial and construction equipment. Segment selection was based upon
internal organizational structure, the way in which these operations are managed
and their performance evaluated by our management and our board of directors,
the availability of separate financial results and materiality considerations.
Transactions Between Automotive and Financial Services Sectors
--------------------------------------------------------------
Ford and Ford Credit formally documented certain long-standing business
practices in an agreement dated October 18, 2001. Intersector transactions occur
in the ordinary course of business. Additional details on some of the main
intersector transactions and the effect on each sector's balance sheet at
December 31 is shown below (in billions):
2001 2000
---------------------------- ----------------------------
Financial Financial
Automotive Services Automotive Services
-------------- ------------- -------------- -------------
Finance receivables, net a/ $ 4.7 $ 5.6
Net investment in operating leases b/ 4.2 4.1
Other assets c/ 0.9 1.1
Intersector non-current receivables/(payables) d/ $(3.7) 3.7 $(2.6) 2.6
Intersector current receivables/(payables) e/ 0.9 (0.9) 1.6 (1.6)
- - - - -
a/ Automotive receivables (generated primarily from vehicle and parts
sales to third parties) sold to Ford Credit.
b/ Primarily Ford Credit vehicles leased to employees of Ford ($1.2 billion
in 2001 and $1.0 billion in 2000) and Automotive vehicles sold to Hertz
for rental ($3.0 billion in 2001 and $3.1 billion in 2000).
c/ Primarily used vehicles purchased by Ford Credit on behalf of Ford
pursuant to Ford Automotive's obligation to repurchase such vehicles from
daily rental car companies, including Hertz. These vehicles are
subsequently sold at auction by Ford Credit.
d/ Reflects amounts due Ford Credit from Automotive under a tax sharing agreement.
e/ Net result of all other transactions.
Periodically, Ford Credit receives interest supplements and other support cost
payments from Automotive for providing special vehicle financing for
low-interest-rate marketing programs. Ford Credit records these transactions as
revenue over the life of the contract. Amounts recorded as revenue by the
Financial Services sector, and billed to the Automotive sector, were $4.0
billion in 2001, $3.4 billion in 2000, and $3.2 billion in 1999. For the
Automotive sector, estimated costs for these sales incentive programs are
recorded as sales reductions as described below under "Revenue Recognition -
Automotive Sector".
Revenue Recognition - Automotive Sector
---------------------------------------
Sales are generally recorded when products are shipped to customers and
ownership is transferred. Sales with a guaranteed repurchase option are
accounted for as operating leases over the expected period prior to repurchase.
The carrying value of these vehicles, included in other current assets, was $2
billion at both December 31, 2001 and 2000. Estimated costs for sales incentive
programs are recognized as sales reductions at the later of the date the related
sales are recorded, or at the date the program is both approved and
communicated.
FS-5
NOTE 1. Accounting Policies (Continued)
----------------------------
Revenue Recognition - Financial Services Sector
-----------------------------------------------
Revenue from finance receivables, net of certain deferred loan origination costs
that are included as a reduction of financing revenue, is recognized over the
term of the receivable using the interest method. Revenue from operating leases,
net of certain deferred origination costs, is recognized on a straight-line
basis over the term of the lease. The accrual of interest on loans is
discontinued at the time the loan is impaired. Subsequent amounts of interest
collected are recognized in income only if full recovery of the remaining
principal is probable. Interest supplements paid by the Automotive sector are
recognized over the term of the receivable or operating lease. The Automotive
sector records interest supplements as sales incentives.
Warranty
-------
Estimated warranty costs for each vehicle sold by us are accrued at the time the
vehicle is sold to a dealer. Estimates for warranty costs are made based
primarily on historical warranty claim experience. Included in our warranty cost
accruals are costs for basic warranties on vehicles we sell, extended service
plans (i.e., where customers pay a fee to have extended warranty coverage beyond
the base warranty period), product recalls and customer satisfaction actions
outside the base warranty.
Selected Other Costs
--------------------
Freight costs are accrued at the time of sale and are included in cost of sales.
Advertising and engineering, research and development costs are expensed as
incurred and were as follows (in billions):
2001 2000 1999
----------- ----------- -----------
Advertising $3.1 $3.0 $2.7
Engineering, research and development 7.4 6.8 6.0
Special Purpose Entities
------------------------
Ford Credit sells finance receivables to special purpose entities (or SPEs) in
securitization transactions. These SPEs typically issue securities in the form
of notes and certificates that are structured into several classes with senior
classes having priority of payment over subordinated classes. In these
transactions, Ford Credit retains certain securities and other interests in the
sold receivables referred to as retained interests. The retained interests may
include senior notes, subordinated certificates, restricted cash held for the
benefit of SPEs and interest-only strips. Subordinated certificates represent
lower rated classes of securities issued by SPEs. Restricted cash consists of a
portion of proceeds from the sale of receivables that may be used to pay
interest and principal to investors if collections on the sold receivables are
insufficient, with any remaining restricted cash returned to Ford Credit after
investors are fully paid. Interest-only strips, also referred to as excess
spread, represent the right to receive collections on the sold receivables in
excess of amounts needed to pay interest and principal to investors and
servicing fees. The retained interests (other than senior notes) serve as credit
enhancement to the holders of the more senior securities issued by the SPEs.
In the period the sale occurs, estimated gains or losses from the sale of
finance receivables are recognized based on the relative fair value of the
portion sold and the portion allocated to retained interests. The retained
interests are recorded at fair value with changes in fair value recorded, net of
tax, as a separate component of accumulated other comprehensive income.
In Ford Credit's wholesale receivables securitization program, the SPE owns a
pool of wholesale receivables from selected dealer accounts. Ford Credit is
required to sell wholesale receivables generated under the selected dealer
accounts from time to time to the SPE. Ford Credit retains the portion of the
sold wholesale receivables that is in excess of the minimum receivables level
required to support the securities issued by the SPE. A part of this retained
interest is available as credit enhancement to senior noteholders. This retained
interest fluctuates as receivables levels increase or decrease over time and as
additional series of securities are issued by the SPE or are paid off. This
retained interest is recorded at fair value.
The number of off-balance sheet SPEs and the amount of assets (in billions) held
by such SPEs were as follows:
December 31,
Number 2001
------------------ ------------------
Ford Credit
Retail finance receivables 47 $41.3
Wholesale finance receivables 3 17.4
-- -----
Total Ford Credit 50 58.7
Ford Automotive receivables 1 0.1
Hertz - -
-- -----
Total 51 $58.8
== =====
FS-6
NOTE 1. Accounting Policies (Continued)
----------------------------
Income Per Share of Common and Class B Stock
--------------------------------------------
The calculation of diluted income per share of Common and Class B Stock takes
into account the effect of obligations, such as stock options, considered to be
potentially dilutive. Basic and diluted income per share were calculated using
the following number of shares (in millions): (Also see Note 12)
2001 2000 1999
-------------- ------------- --------------
Average shares outstanding 1,820 1,483 1,210
Issuable and uncommitted ESOP shares (9) (9) (4)
----- ----- -----
Basic shares 1,811 1,474 1,206
Contingently issuable shares (1)
Net dilutive effect of options - * 30 27
----- ----- -----
Diluted shares 1,810 1,504 1,233
===== ===== =====
- - - - -
* 30 million shares relating to employee stock options were not included
in the calculation of diluted EPS for 2001 due to their antidilutive
effect.
Foreign Currency Translation
----------------------------
Foreign currency exchange transaction and translation gains/(losses) included in
consolidated net income in 2001, 2000, and 1999 amounted to $(283) million,
$(115) million, and $308 million, respectively.
Goodwill and Other Intangibles
------------------------------
Goodwill and other intangible assets are carried at cost less accumulated
amortization. Intangible assets acquired prior to June 30, 2001 were amortized
through year-end 2001 using the straight-line method over periods not exceeding
40 years. Statement of Financial Accounting Standards (SFAS) No. 142 eliminates
the requirement to amortize goodwill and certain intangible assets, which will
be subject to an annual impairment test. The total goodwill included in the
Automotive sector's other assets was $5.3 billion and $5.8 billion at December
31, 2001 and 2000, respectively. Total goodwill included in the Financial
Services sector's other assets was $1.3 billion and $1.0 billion at December 31,
2001 and 2000, respectively. Other intangibles included in the Automotive
sector's other assets were $1.2 billion and $1.0 billion at December 31, 2001
and 2000, respectively. We are presently evaluating the amount of the
transitional impairment, which may range up to $2 billion or more, related to
Kwik-Fit and other investments. Goodwill and indefinite-lived intangible asset
amortization of about $250 million after taxes was charged to income in 2001.
Impairment of Long-Lived Assets
-------------------------------
We evaluate the carrying value of long-lived assets for potential impairment on
a regional operating business unit basis using undiscounted after-tax estimated
cash flows or at the individual asset level if held for sale.
Company-Obligated Mandatorily Redeemable Preferred Securities of a Subsidiary
-----------------------------------------------------------------------------
Trust
----
Ford Motor Company Capital Trust I (the "Trust") has outstanding $632 million 9%
Trust Originated Preferred Securities (the "Preferred Securities"). The sole
assets of the Trust are $651 million aggregate principal amount of Ford Motor
Company 9% Junior Subordinated Debentures due December 2025 (the "Debentures").
At our option, we may redeem the Debentures, in whole or in part, on or after
December 1, 2002. To the extent we redeem the Debentures and upon the maturity
of the Debentures, the Trust is required to redeem the Preferred Securities at
$25 per share plus accrued and unpaid distributions. We guarantee the payment of
all distributions and other payments on the Preferred Securities to the extent
not paid by the Trust, but only if and to the extent we have made a payment of
interest or principal on the Debentures.
European Parliament End of Life Vehicle Directive
-------------------------------------------------
Member states of the European Union are presently proposing laws that are
expected to require us and other original equipment manufacturers to take back,
recycle, and dispose of certain vehicles. We will record an estimate for those
potential liabilities upon enactment of the individual member states'
legislation.
FS-7
NOTE 2. Income Taxes
---------------------
Components of income taxes, excluding equity in net results of affiliated
companies accounted for after-tax:
Income/(loss) before income taxes (in millions)
-----------------------------------------------
2001 2000 1999
------------- ------------- -------------
U.S. $(6,015) $ 9,559 $9,299
Non-U.S. (1,085) (1,241) 537
------- ------- ------
Total $(7,100) $ 8,318 $9,836
======= ======= ======
Provision for income taxes (in millions)
---------------------------------------
Current:
Federal $ 22 $ 154 $ 491
Non-U.S. 103 760 727
State and local - 116 117
------- ------- ------
Total Current 125 1,030 1,335
------- ------- ------
Deferred:
Federal (2,126) 2,617 2,178
Non-U.S. (248) (1,153) (455)
State and local 98 211 190
------- ------- ------
Total Deferred (2,276) 1,675 1,913
------- ------- ------
Total $(2,151) $ 2,705 $3,248
======= ======= ======
Reconciliation of effective tax rate
------------------------------------
U.S. statutory rate 35 % 35 % 35 %
Non-U.S. income taxes (2) (2) (2)
State and local income taxes (1) 3 2
Other (2) (3) (2)
--- --- ---
Effective rate 30 % 33 % 33 %
=== === ===
Deferred taxes at December 31 (in millions)
-------------------------------------------
2001 2000
------------- ------------
Deferred tax assets
-------------------
Employee benefit plans $ 5,895 $ 5,138
Dealer and customer allowances and claims 1,919 2,364
Allowance for credit losses 1,518 1,067
Other foreign deferred tax assets 2,251 1,403
All other 5,966 2,782
------- -------
Total deferred tax assets 17,549 12,754
Deferred tax liabilities
------------------------
Leasing transactions 8,213 8,306
Depreciation and amortization
(excluding leasing transactions) 3,571 3,447
Finance receivables 2,388 2,593
All other 5,084 2,153
------- -------
Total deferred tax liabilities 19,256 16,499
------- -------
Net deferred tax liabilities $ 1,707 $ 3,745
======= =======
No provision for deferred taxes has been made on $860 million of unremitted
earnings (primarily prior to 1998) which are considered to be indefinitely
invested in non-U.S. subsidiaries. Deferred taxes for these unremitted earnings
are not practicable to estimate.
Non-U.S. net operating loss carryforwards for tax purposes were $3.5 billion at
December 31, 2001. A substantial portion of these losses has an indefinite
carryforward period; the remaining losses will begin to expire in 2003. Tax
benefits of operating loss carryforwards are evaluated on an ongoing basis,
including a review of historical and projected future operating results, the
eligible carryforward period, and other circumstances.
NOTE 3. Discontinued Operation
-------------------------------
On June 28, 2000, we distributed our 100% ownership interest in Visteon
Corporation, our former automotive components subsidiary, by means of a tax-free
spin-off in the form of a dividend on Ford Common and Class B Stock. The total
market value of the distribution was $2.1 billion, which resulted in an
after-tax loss of $2.3 billion. This loss represented the excess of the carrying
value of our net investment over the market value on the distribution date. Our
financial statements reflect Visteon as a "discontinued operation" for all
periods shown.
In connection with the spin-off of Visteon, about 24,000 hourly employees
working for Visteon who were represented by the UAW remained Ford employees,
with Visteon agreeing to reimburse Ford for the costs of those employees. The
average number of these employees in 2001 was approximately 20,500. Ford retains
FS-8
NOTE 3. Discontinued Operation (Continued)
-------------------------------
certain pension and postretirement benefit obligations for qualified salaried
employees that are working or who have worked for Visteon.
Visteon's revenues, not included in Ford's revenues for periods prior to
spin-off, totaled $10.5 billion and $19.4 billion for the years ended
December 31, 2000 and 1999. Income from discontinued operations for the years
ended December 31, 2000 and 1999 is reported net of income tax expense of
$182 million and $422 million.
NOTE 4. Marketable and Other Securities
----------------------------------------
Trading securities are recorded at fair value with unrealized gains and losses
included in income. Available-for-sale securities are recorded at fair value
with net unrealized holding gains and losses reported, net of tax, in other
comprehensive income. Held-to-maturity securities are recorded at amortized
cost. Realized gains and losses are accounted for using the specific
identification method.
The fair value of substantially all securities is determined by quoted market
prices. The estimated fair value of securities for which there are no quoted
market prices is based on similar types of securities that are traded in the
market. Equity securities that do not have readily determinable fair values are
recorded at cost. Book value approximates fair value for all securities.
Expected maturities of debt securities may differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without penalty.
Investments in securities at December 31 were as follows (in millions):
2001 2000
-------------------------------------------- ------------------------------------------
Amortized Unrealized Book/ Amortized Unrealized Book/
------------------ Fair ----------------- Fair
Cost Gains Losses Value Cost Gains Losses Value
------------- -------- --------- ----------- ------------- -------- -------- ----------
Automotive Sector
-----------------
Trading $ 9,374 $32 $30 $ 9,376 $10,214 $73 $ 4 $10,283
Available-for-sale
Corporate debt 1,557 20 4 1,573 1,480 8 - 1,488
Held-to-maturity * - - - - 1,345 - - 1,345
------- --- --- ------- ------- --- --- -------
Total $10,931 $52 $34 $10,949 $13,039 $81 $ 4 $13,116
======= === === ======= ======= === === =======
Financial Services Sector
-------------------------
Trading $ 95 $ - $ - $ 95 $ 258 $ 1 $ 1 $ 258
Available-for-sale
U.S. government and agency 78 2 1 79 94 4 - 98
Municipal - - - - 13 1 - 14
Government - non U.S. 18 1 - 19 14 1 - 15
Corporate debt 163 6 1 168 198 4 1 201
Mortgage-backed 207 4 2 209 167 2 2 167
Equity 29 27 4 52 27 34 3 58
------- --- --- ------- ------- --- --- -------
Total 495 40 8 527 513 46 6 553
Held-to-maturity
U.S. government 6 - - 6 6 - - 6
------- --- --- ------- ------- --- --- -------
Total $ 596 $40 $ 8 $ 628 $ 777 $47 $ 7 $ 817
======= === === ======= ======= === === =======
- - - - -
* Sold for $1,377 million in cash and realized a gain of $32 million in 2001.
The proceeds and gains/(losses) from available-for-sale securities were as
follows (in millions):
Proceeds Gains/(Losses)
------------------------------ ----------------------------------------------
2001 2000 2001 2000 1999
--------------- -------------- --------------- -------------- ---------------
Automotive $12,395 $4,938 $47 $2 $(7)
Financial Services 745 557 11 3 19
FS-9
NOTE 4. Marketable and Other Securities (Continued)
----------------------------------------
The amortized cost and fair value of investments in available-for-sale
securities and held-to-maturity securities by contractual maturity for
Automotive and Financial Service sectors were as follows (in millions):
2001 2000
------------------------------------------------- -------------------------------------------------
Available-for-Sale Held-to-Maturity Available-for-Sale Held-to-Maturity
------------------------ ------------------------ ------------------------ ------------------------
Contractual Amortized Fair Amortized Fair Amortized Fair Amortized Fair
Maturity Cost Value Cost Value Cost Value Cost Value
-------------------------- ------------- ---------- ------------- ---------- ------------- ---------- ------------- ----------
1 year $ 22 $ 22 $ - $ - $ 66 $ 66 $ 180 $ 180
2-5 years 1,284 1,302 1 1 1,525 1,536 1,167 1,167
6-10 years 289 292 3 3 79 81 3 3
11 years and later 221 223 2 2 129 133 1 1
Mortgage-backed
securities 207 209 - - 167 167 - -
Equity securities 29 52 - - 27 58 - -
------ ------ ------ ------ ------ ------ ------ ------
Total $2,052 $2,100 $ 6 $ 6 $1,993 $2,041 $1,351 $1,351
====== ====== ====== ====== ====== ====== ====== ======
NOTE 5. Inventories - Automotive Sector
---------------------------------------
Inventories at December 31 were as follows (in millions):
2001 2000
--------------- ---------------
Raw materials, work-in-process and supplies $ 2,436 $ 3,284
Finished products 4,660 5,325
------- -------
Total inventories at FIFO 7,096 8,609
Less LIFO adjustment (905) (1,095)
------- -------
Total inventories $ 6,191 $ 7,514
======= =======
Inventories are stated at lower of cost or market. About one-third of
inventories were determined under the last-in, first-out method. Reduction of
FIFO inventory in 2001 resulted in a decrement of a base year LIFO layer,
reducing cost of sales by $63 million.
NOTE 6. Net Property and Related Expenses - Automotive Sector
-------------------------------------------------------------
Net property at December 31 was as follows (in millions):
Average
Life(Years) 2001 2000
--------------- -------------- -------------
Land - $ 583 $ 639
Buildings and land improvements 30 9,921 9,896
Machinery, equipment and other 14 38,715 38,434
Construction in progress - 2,614 2,333
-------- --------
Total land, plant and equipment $ 51,833 $ 51,302
Accumulated depreciation (27,510) (24,327)
-------- --------
Net land, plant and equipment $ 24,323 $ 26,975
Special tools, net of amortization 5 8,798 10,533
-------- --------
Net property $ 33,121 $ 37,508
======== ========
Property and equipment are stated at cost and depreciated primarily using the
straight-line method over the estimated useful life of the asset. Special tools
placed in service before January 1, 1999 are amortized using an accelerated
method over periods of time representing the estimated life of those tools.
Special tools placed in service beginning in 1999 are amortized using the
units-of-production method. Maintenance, repairs, and rearrangement costs are
expensed as incurred. Property-related expenses were as follows (in millions):
2001 2000 1999
----------------- -------------- ---------------
Depreciation $5,300 $3,507 $2,592
Amortization of special tools 3,265 2,451 2,459
------ ------ ------
Total $8,565 * $5,958 * $5,051
====== ====== ======
Maintenance and rearrangement $2,035 $2,146 $1,698
- - - - -
* Includes impairment charges of $3,555 million and $866 million in 2001
and 2000, respectively (see Note 16).
FS-10
NOTE 7. Finance Receivables - Financial Services Sector
-------------------------------------------------------
Net finance receivables at December 31 were as follows (in millions):
2001 2000
--------------- -------------
Retail $ 78,607 $ 74,220
Wholesale 15,785 34,303
Other finance receivables 12,105 10,446
-------- --------
Total finance receivables 106,497 118,969
Allowance for credit losses (2,283) (1,240)
Other 267 417
-------- --------
Net finance and other receivables $104,481 $118,146
======== ========
Finance receivables that originated outside the U.S. are $41.6 billion and $37.6
billion at December 31, 2001 and 2000, respectively. Other finance receivables
consisted primarily of real estate, commercial, and other collateralized loans
and accrued interest. Included in other finance receivables at both December 31,
2001 and 2000 were $1.6 billion of accounts receivable purchased by certain
Financial Services sector operations from Automotive sector operations.
The Financial Services sector has sold receivables to special purpose entities
(additional SPE information is provided in Note 1). Retained interests in sold
receivables were as follows (in millions):
2001 2000
--------- ----------
Wholesale receivables sold to securitization trusts $ 7,586 $ -
Subordinated certificates 2,039 1,068
Senior notes 1,311 1,664
Interest-only strips 1,235 698
Restricted cash held for the benefit of
securitization trusts 377 257
------- ------
Total $12,548 $3,687
======= ======
Most of the retained interest in sold wholesale receivables (about $6.5 billion)
represents the company's undivided interest in wholesale receivables that are
available to support the issuance of additional securities by the SPE
(securitization trust). The balance represents credit enhancement to the holders
of the more senior securities issued by the SPEs. Interest-only strips represent
the present value of monthly collections on the sold finance receivables in
excess of amounts needed by the SPE (securitization trust) to pay interest and
principal to investors and servicing fees that will be realized by Ford Credit.
Subordinated securities, restricted cash and interest-only strips are credit
enhancement assets. Investments in subordinated securities and restricted cash
are senior to interest-only strips for credit enhancement purposes.
The fair value of receivables subject to fair value disclosure requirements, was
estimated by discounting future cash flows using a rate that reflected the
credit, interest, and prepayment risks associated with similar types of
instruments. The amount of net finance receivables subject to fair value at
December 31, 2001 and 2000 was (in millions) $103,878 and $117,664,
respectively. The fair value of these finance receivables at December 31, 2001
and 2000 was (in millions) $104,032 and $118,988, respectively.
Maturities, exclusive of SFAS 133, of total finance receivables were as follows
(in millions): 2002 - $61,150; 2003 - $23,436; 2004 - $10,610;
thereafter - $10,598. Experience indicates that a substantial portion of the
portfolio generally is repaid before the contractual maturity dates.
Net investment in direct financing leases at December 31 was as follows (in
millions):
2001 2000
------------- ------------
Total minimum lease rentals to be received $5,183 $4,922
Unearned income (997) (923)
Loan origination costs 49 58
Estimated residual values 3,288 3,081
Allowance for credit losses (46) (120)
------ ------
Net investment in direct financing leases $7,477 $7,018
====== ======
The investment in direct financing leases relates to the leasing of vehicles,
various types of transportation and other equipment, and facilities. Minimum
direct financing lease rentals are contractually due as follows (in millions):
2002 - $1,946; 2003 - $1,480; 2004 - $1,132; thereafter - $625.
FS-11
NOTE 8. Net Investment in Operating Leases
-------------------------------------------
The net investment in operating leases at December 31 was as follows (in
millions):
2001 2000
------------ -------------
Vehicles and other equipment, at cost $ 60,608 $ 58,082
Accumulated depreciation (12,858) (11,155)
Allowances for credit losses (488) (334)
-------- --------
Net investment in operating leases $ 47,262 $ 46,593
======== ========
Minimum rentals on operating leases are contractually due as follows (in
millions): 2002 - $8,701; 2003 - $6,115; 2004 - $3,317; 2005 - $1,362; 2006 -
$123; thereafter - $506.
Vehicles subject to operating leases are depreciated primarily on the
straight-line method over the term of the lease to reduce the asset to its
estimated residual value, based on assumptions for used car prices at lease
termination and the number of vehicles that are expected to be returned.
Depreciation expense (which includes gains and losses on disposal of assets) was
$10.4 billion in 2001, $9.2 billion in 2000, and $8.8 billion in 1999.
NOTE 9. Allowance for Credit Losses
------------------------------------
The allowance for probable credit losses includes a provision for certain
non-homogeneous impaired loans. Impaired loans are measured based on the present
value of expected future cash flows discounted at the loan's effective interest
rate. Finance receivables and lease investments are charged to the allowance for
credit losses after consideration of the financial condition of the borrower,
the value of the collateral, recourse to guarantors and other factors.
Recoveries are credited to the allowance for credit losses.
Changes in the allowance for credit losses were as follows (in millions):
2001 2000 1999
-------------- ------------- --------------
Beginning balance $1,694 $1,572 $1,577
Provision for credit losses 3,400 1,706 1,211
Total charge-offs and recoveries:
Charge-offs (2,527) (1,618) (1,287)
Recoveries 375 300 275
------ ------ ------
Net losses (2,152) (1,318) (1,012)
Other changes (125) (266) (204)
------ ------ ------
Ending balance $2,817 $1,694 $1,572
====== ====== ======
NOTE 10. Liabilities - Automotive Sector (in millions)
------------------------------------------------------
Accrued Liabilities (Current) 2001 2000
----------------------------- ------------- --------------
Dealer and customer allowances and claims $13,412 $11,660
Deferred revenue 2,460 2,209
Employee benefit plans 1,790 2,029
Postretirement benefits other than pensions 1,230 1,076
Other 5,098 6,395
------- -------
Total accrued liabilities $23,990 $23,369
======= =======
Other Liabilities (Non-current)
------------------------------
Postretirement benefits other than pensions $15,451 $14,093
Dealer and customer allowances and claims 6,805 6,202
Employee benefit plans 3,853 4,145
Unfunded pension obligation 1,143 1,188
Other 3,616 3,982
------- -------
Total other liabilities $30,868 $29,610
======= =======
FS-12
NOTE 11. Debt and Commitments
------------------------------
Automotive and Financial Services debt as of December 31 was as follows (in
millions):
Automotive Financial Services
------------------------------------------ ------------------------------------------
Weighted Weighted
Average Average
Rate a/ Amount Rate a/ Amount
------------------ ----------------------- ---------------- -------------------------
2001 2000 2001 2000 2001 2000 2001 2000
--------- -------- ----------- ----------- ------- -------- ----------- -------------
Debt payable within one year
----------------------------
Short-term $ 263 $ 225 $ 1,531 $ 1,904
Commercial paper - - 16,683 44,596
Other short-term - - 6,381 6,234
------- ------- -------- --------
Total short-term debt 12.3% 9.0% 263 225 4.8% 6.8% 24,595 52,734
Long-term payable within one year 39 52 21,682 13,658
------- ------- -------- --------
Total debt payable within one year 302 277 46,277 66,392
Long-term debt
--------------
Senior indebtedness
Notes and bank debt 7.6% 7.5% 13,492 11,769 5.7% 6.9% 106,234 85,734
Unamortized discount - - (61) (108)
------- ------- -------- --------
Total senior indebtedness 13,492 11,769 106,173 85,626
Subordinated indebtedness - - 8.8% 8.2% 1,093 1,492
------- ------- -------- --------
Total long-term debt 13,492 11,769 107,266 87,118
------- ------- -------- --------
Total debt $13,794 $12,046 $153,543 $153,510
======= ======= ======== ========
Fair value b/ $13,029 $11,970 $157,870 $155,862
Maturity
There- Average
2002 2003 2004 2005 2006 after (Years)
---------- ---------- ---------- ---------- ---------- ----------- ----------
Long-term debt maturities
-------------------------
Automotive $ 39 $ 128 $ 135 $ 246 $ 354 $12,629 28
Financial Services 21,682 23,146 26,453 17,325 12,488 27,854 4
Minimum rental commitments under non-
-------------------------------------
cancelable operating leases
---------------------------
Automotive $ 499 $ 434 $ 338 $ 255 $ 212 $ 1,051
Financial Services 400 296 180 127 88 399
- - - - -
a/ Includes the effect of interest rate swaps.
b/ Based on quoted market prices or current rates for similar debt with the same remaining maturities.
Effective January 1, 2002, we have no synthetic leases.
Rental expense for all operating leases was $962 million in 2001, $906 million
in 2000, and $860 million in 1999.
Support Facilities
------------------
At December 31, 2001, the Automotive sector had $8.6 billion of contractually
committed credit agreements with various banks; 87.4% are available through June
30, 2006. Ford also has the ability to transfer, on a non-guaranteed basis, $8.0
billion of these credit lines to Ford Credit and FCE Bank plc.
At December 31, 2001, various subsidiaries of the Financial Services sector had
an additional $16.9 billion of contractually committed support facilities; 49.3%
of which are available through June 30, 2006 and $1.0 billion were in use. In
addition, banks provide $12.5 billion of facilities to support Ford Credit's
asset-backed commercial paper program.
Ford Credit also has entered into agreements with several bank-sponsored,
commercial paper issuers under which such issues are contractually committed to
purchase from Ford Credit, at Ford Credit's option, up to an aggregate of $12.4
billion of receivables. These agreements expire between June 27, 2002 and
December 12, 2002. As of December 31, 2001, approximately $5.6 billion of these
commitments have been utilized.
NOTE 12. Capital Stock
-----------------------
All general voting power is vested in the holders of Common Stock and the
holders of Class B Stock. Holders of Common Stock have 60% of the general voting
power and holders of Class B Stock are entitled to such number of votes per
share as would give them, in the aggregate, the remaining 40%. Shares of Common
Stock and Class B Stock share equally in dividends, with stock dividends payable
in shares of stock of the
FS-13
NOTE 12. Capital Stock (Continued)
-----------------------
class held. If the company is liquidated, each share of Common Stock will be
entitled to the first $0.50 available for distribution to holders of Common
Stock and Class B Stock, each share of Class B Stock will be entitled to the
next $1.00 so available, each share of Common Stock will be entitled to the
next $0.50 so available and each share of Common and Class B Stock will be
entitled to an equal amount thereafter.
In August 2000, under a recapitalization known as the Value Enhancement Plan,
shareholders elected to receive $5.7 billion in cash, and the total number of
Common and Class B shares that became issued and outstanding was 1.893 billion.
Prior period outstanding share and earnings per share amounts were not adjusted.
Series B Depositary Shares, representing 1/2000 of a share of $1.00 par value
Series B Cumulative Preferred Stock, have a liquidation preference of $25 per
Depositary Share. Depositary Shares outstanding at December 31, 2001 were
7,096,688. Dividends are payable at a rate of $2.0625 per year per Depositary
Share. On and after December 1, 2002, and upon satisfaction of certain
conditions, the stock is redeemable for cash at Ford's option, in whole or in
part, at a redemption price equivalent to $25 per Depositary Share, plus an
amount equal to the sum of all accrued and unpaid dividends. The Series B
Cumulative Preferred Stock ranks senior to the Common Stock and Class B Stock in
respect of dividends and liquidation rights.
Changes to the number of shares of capital stock issued were as follows (shares
in millions):
Common Class B
Stock Stock Preferred
------------ ------------ --------------
Issued at December 31, 1998 1,151 71 0.004
2000 - Value Enhancement Plan 686
----- -- -----
Issued at December 31, 2001 1,837 71 0.004
===== == =====
Authorized at December 31, 2001 6,000 530 30
NOTE 13. Stock Options
-----------------------
We have stock options outstanding under the 1990 Long-Term Incentive Plan (LTIP)
and the 1998 LTIP. No further grants may be made under the 1990 LTIP and all
outstanding options are exerciseable. Grants may be made under the 1998 LTIP
through April 2008. All outstanding options under the 1990 LTIP continue to be
governed by the terms and conditions of the existing option agreements for those
grants. Under the 1998 LTIP, 33% of the options are generally exercisable after
the first anniversary of the date of grant, 66% after the second anniversary,
and 100% after the third anniversary. Stock options expire 10 years from the
grant date. Performance stock rights (PSRs) and restricted stock units (RSUs)
are based on performance achievement. At December 31, 2001, 6.5 million PSRs and
2.8 million RSUs were outstanding. Stock options, SARs, PSRs, and RSUs are
described in Ford's Proxy Statement.
Under the 1998 LTIP, 2% of our issued common stock as of December 31 becomes
available for granting plan awards in the succeeding calendar year. Any unused
portion is available for later years. The limit may be increased up to 3% in any
year, with a corresponding reduction in shares available for grants in future
years. At December 31, 2001, the number of unused shares carried forward
aggregated to 42.3 million shares.
2001 2000 1999
------------------------ ------------------------- ---------------------------
Weighted- Weighted- Weighted-
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
Stock Option Activity (millions) Price (millions) Price (millions) Price
--------------------- ------------ ----------- ------------ ------------ ------------ --------------
Outstanding, beginning of period 153.7 $19.16 75.3 $32.66 70.9 $25.67
Granted 35.3 30.49 15.8 41.02 14.9 57.84
Adjustment a/ 71.4
Exercised b/ (14.0) 12.07 (6.9) 15.15 (9.1) 20.26
Terminated/expired or surrendered (2.9) 25.91 (1.9) 32.94 (1.4) 27.98
----- ----- ----
Outstanding, end of period 172.1 22.01 153.7 19.16 75.3 32.66
===== ===== ====
Exercisable, end of period 113.2 18.74 100.3 15.59 41.8 23.51
- - - - -
a/ Outstanding stock options and related exercise prices were adjusted to
preserve the intrinsic value of options as a result of the Visteon
spin-off and Value Enhancement Plan in 2000.
b/ Exercised at option prices ranging from $5.75 to $26.59 during 2001,
$5.75 to $23.87 during 2000, and $10.43 to $44.75 during 1999.
FS-14
NOTE 13. Stock Options (Continued)
-----------------------
Details on various option price ranges are as follows:
Outstanding Options Exercisable Options
----------------------------------------------------- -----------------------------------
Weighted- Weighted- Weighted-
Option Price Shares Average Life Average Shares Average
Range (millions) (years) Price (millions) Price
----------------------------- ---------------- ------------------ ----------------- ----------------- -----------------
$ 7.09 - $10.58 4.2 0.8 $ 7.16 4.2 $ 7.16
10.76 - 15.81 52.8 4.0 12.07 52.8 12.07
16.19 - 23.88 53.3 7.2 22.62 37.2 22.58
23.97 - 35.79 61.1 8.3 30.83 18.3 31.89
41.03 - 42.52 0.7 6.3 41.42 0.7 41.42
----- -----
Total options 172.1 113.2
===== =====
The estimated fair value of stock options at the time of grant using the
Black-Scholes option pricing model was as follows:
2001 2000 1999
----------- -------------- -------------
Fair value per option $8.88 $6.27 * $17.53
Assumptions:
-----------
Annualized dividend yield 4.0% 4.9% 3.2%
Expected volatility 43.9% 38.8% 36.5%
Risk-free interest rate 5.1% 6.3% 5.2%
Expected option term (in years) 6 5 5
- - - - -
* Adjusted for the Value Enhancement Plan.
We measure compensation cost using the intrinsic value method. Since the option
exercise price is set at fair value at the date of grant, no compensation cost
for stock options has been recognized. If compensation cost had been determined
based on the estimated fair value of options granted since 1995, our pro forma
net income and earnings per share would have been as follows:
2001 2000 1999
----------------------- ---------------------- ------------------------
As Pro As Pro As Pro
Reported Forma Reported Forma Reported Forma
---------- ------------ ----------- ---------- ------------ -----------
Net income/(loss) (in millions) $(5,453) $(5,606) $3,467 $3,343 $7,237 $7,129
Income/(loss) per share-Basic (3.02) (3.10) 2.34 2.26 5.99 5.90
Income/(loss) per share-Diluted (3.02) (3.10) 2.30 2.22 5.86 5.77
NOTE 14. Derivative Financial Instruments
------------------------------------------
We adopted Statement of Financial Accounting Standard (SFAS) No. 133, Accounting
for Derivative Instruments and Hedging Activities, as amended, on January 1,
2001. Our operations are exposed to global market risks, including the effect of
changes in currency exchange rates, commodity prices, and interest rates. We use
derivatives to manage these financial exposures as an integral part of our
overall risk management program. We do not use derivatives for speculative
purposes. We recognize fair value hedges through earnings and cash flow hedges
through other comprehensive income. In prior years, gains and losses on currency
and interest rate derivatives were deferred and recognized through earnings with
the related underlying transactions.
Exchange rate risk is managed by use of foreign currency agreements, including
forward contracts, swaps, and options. Commodity price risk is managed by use of
forward price contracts and options. Exchange rate and commodity risk
derivatives are primarily accounted for as cash flow hedges and generally mature
in 3 years or less, with a maximum maturity of 8 years. Interest rate risk is
managed by entering into interest rate swap agreements to change the interest
rate characteristics of our debt (primarily used in the Financial Services
sector) to match the interest rate characteristics of related assets. These
interest rate derivatives are designated as either cash flow or fair value
hedges. In addition, we use forward contracts to hedge certain net investments
in foreign operations and hold other derivatives that presently do not qualify
for hedge accounting treatment under SFAS No. 133. During the fourth quarter of
2001, we reevaluated our plans with respect to certain forward purchase
commitments for various precious metals commodities that were previously
excluded from the scope of SFAS No. 133 and determined that they no longer
qualify for exclusion. Accordingly, we recorded a mark-to-market adjustment of
$449 million in our Automotive sector as of December 31, 2001 (Note 16).
Derivatives accounted for as cash flow hedges comprise most of the balance of
SFAS No. 133 activity reported as a part of stockholders' equity.
FS-15
NOTE 14. Derivative Financial Instruments (Continued)
------------------------------------------
Adjustments to income and to stockholders' equity at December 31, 2001, were (in
millions):
Automotive Financial Services Total
--------------------------- --------------------------- ----------------------------
Income before income taxes a/ $(588) $(251) $ (839)
Net income (387) (157) (544)
Stockholders' equity b/ (1,099)
a/ Automotive recorded in cost of sales; Financial Services recorded in revenues.
b/ Recorded in accumulated other comprehensive income.
The $1,099 million recorded in stockholders' equity is comprised of amounts
remaining from the $550 million transition adjustment on January 1, 2001 and net
losses on derivative instruments for the year (net of $144 million of such
amounts reclassified to income/(loss) during the year). We expect to reclassify
losses of $663 million ($96 million relates to transition adjustment) from
stockholders' equity to net income during the next twelve months. These amounts
are net of tax impact. Consistent with our comprehensive, non-speculative
risk-management practices, neither these nor future reclassifications are
anticipated to have a material effect on our net earnings, as they should be
substantially offset by the opposite effects on related underlying transactions.
NOTE 15. Operating Cash Flows Before Securities Trading
--------------------------------------------------------
The reconciliation of net income/(loss) to cash flows from operating activities
before securities trading is as follows (in millions):
2001 2000 1999
-------------------------- ------------------------- ---------------------------
Financial Financial Financial
Automotive Services Automotive Services Automotive Services
------------- ------------ -------------- ---------- --------------- -----------
Net income/(loss) from continuing
operations $(6,267) $ 814 $ 3,624 $ 1,786 $ 4,986 $ 1,516
Depreciation and special tools
amortization 5,010 10,564 5,092 9,408 5,051 9,254
Impairment charges (depreciation
and amortization) 3,828 - 1,100 - - -
Amortization of goodwill, intangibles 303 45 305 44 193 44
Net losses/(earnings) from equity
investments in excess of dividends
remitted 845 (5) 86 17 (14) 25
Provision for credit/insurance losses - 3,665 - 1,963 - 1,465
Foreign currency adjustments (201) - (58) - 284 -
Provision for deferred income taxes (2,257) 538 706 1,449 258 1,565
Decrease/(increase) in accounts
receivable and other current assets 1,194 (672) (509) (695) (822) (331)
Decrease/(increase) in inventory 1,122 - (1,369) - 955 -
Increase/(decrease) in accounts payable
and accrued and other liabilities 4,951 (762) 2,444 1,509 1,154 (1,213)
Other (719) (268) 602 (146) 490 372
------- ------- ------- ------- ------- -------
Cash flows $ 7,809 $13,919 $12,023 $15,335 $12,535 $12,697
======= ======= ======= ======= ======= =======
We consider all highly liquid investments with a maturity of three months or
less, including short-term time deposits and government, agency and corporate
obligations, to be cash equivalents. Automotive sector cash equivalents at
December 31, 2001 and 2000 were $3.3 billion and $2.9 billion, respectively;
Financial Services sector cash equivalents at December 31, 2001 and 2000 were
$2.2 billion and $1.0 billion, respectively. Cash flows resulting from futures
contracts, forward contracts and options that are accounted for as hedges of
identifiable transactions are classified in the same category as the item being
hedged.
Cash paid for interest and income taxes was as follows (in millions):
2001 2000 1999
----------- ------------ -------------
Interest $9,975 $10,354 $8,381
Income taxes 879 1,976 870
FS-16
NOTE 16. Automotive Sector Acquisitions, Dispositions, Restructurings and
--------------------------------------------------------------------------
Other Actions Accounting for Acquisitions - We account for our acquisitions
-----------------------------------------
under the purchase method. The assets acquired, liabilities assumed, and the
results of operations of the acquired company since the acquisition date are
included in our financial statements on a consolidated basis. On a pro forma
basis, none of these acquisitions would have had a material effect on our
results of operations.
2001
----
Fourth Quarter Impairment and Other Charges - Charges of $5.7 billion before
-------------------------------------------
taxes and $4.1 billion after taxes are summarized below, followed by explanatory
detail.
Fixed-asset impairments
North America $3.1
South America 0.7
----
Total fixed-asset impairments 3.8
Precious metals 1.0
Personnel (primarily North America salaried) 0.6
All other 0.3
----
Total pre-tax charges $5.7
====
Memo: After-tax effect of charges $4.1
In response to significantly deteriorating business conditions resulting in
operating losses, we conducted extensive business reviews of our Automotive
operations in North America and South America during the fourth quarter. As part
of these reviews, we determined that projected undiscounted cash flows were not
sufficient to justify the carrying values of the related long-lived assets.
Asset impairment charges of $3,084 million in North America and $744 million in
South America were recorded in Automotive cost of sales, reflecting a write-down
to estimated fair value, as determined by independent valuations. The impairment
increased depreciation, special tool amortization, and goodwill amortization by
$2,688 million, $867 million, and $273 million, respectively.
Precious metals (primarily palladium) are used in catalytic converters, required
to meet automotive emission standards. Our business objective has been to ensure
adequate supply of these critical commodities. In 2000 and early 2001, we
acquired precious metals and entered into forward purchase contracts at
then-prevailing market prices in an environment of uncertain supply and outlook
(characterized by periodic supply interruptions by a major producer, Russia, and
substantial increases in commodity prices - e.g., palladium prices rose from
about $200 an ounce in 1997 to about $1,100 an ounce in January 2001). In the
fourth quarter of 2001, our engineers validated a breakthrough catalyst design,
which will help reduce our usage of palladium (2002 usage is projected to be
down more than 50% from our usage in 2000). For our precious metals physically
held, we have accordingly revised our stocking requirements and are in the
process of reducing metals that are in excess of those stocking requirements
(including market sales to the extent the market can absorb the metal in an
orderly fashion). We have written down the value of the excess metal to its
estimated realizable value (equal to year-end market price). For precious metal
forward purchase contracts (all of which were previously planned for normal use
in production), we now are planning a number of actions, including cash settling
contracts in lieu of taking physical delivery of the related metal. Therefore,
as required by SFAS No. 133, precious metal forward purchase contracts have been
marked-to-market as of December 31, 2001. The total pre-tax charge for precious
metals was $953 million.
Personnel charges of $565 million before taxes primarily reflected voluntary
salaried employee separations in North America.
Other pre-tax charges mainly reflected a $201 million non-cash charge to equity
in net income of affiliated companies, representing our share of a charge
related to Mazda's pension expenses, and a $160 million charge related to a
major devaluation of the Argentine peso.
Purchase of Remainder of Hertz Corporation - In March, we acquired (for $735
------------------------------------------
million) the common stock of Hertz that we did not own, which represented about
18% of the economic interest in Hertz. The excess of the purchase price over the
fair market value of net assets acquired was approximately $390 million and was
amortized over 40 years in 2001.
FS-17
NOTE 16. Automotive Sector Acquisitions, Dispositions, Restructurings and Other
-------------------------------------------------------------------------------
Actions (Continued)
-------
2000
----
Purchase of Land Rover Business - In June, we purchased the Land Rover sport
-------------------------------
utility vehicle business from the BMW Group for 3 billion euros (equivalent to
$2.6 billion). We paid two-thirds of the purchase price at closing and will pay
the remainder in 2005. The excess of the purchase price over the fair market
value of net assets acquired was approximately $775 million and was amortized
over 40 years in 2000 and 2001.
European Charges - Following an extensive review of the Ford brand Automotive
----------------
operations in Europe, we recorded a pre-tax charge in Automotive cost of sales
of $1.6 billion in the second quarter. This charge included $1.1 billion for
asset impairments and $468 million for restructuring costs. Employee separation
included a workforce reduction of about 3,300 employees (2,900 hourly and 400
salaried) related to the planned cessation of vehicle production at the Dagenham
(U.K.) Body and Assembly Plant. As of December 31, 2001, we have utilized $197
million of the $468 million restructuring charge relating to a workforce
reduction of 2,365 employees and $20 million of other exit related costs.
The asset impairment charge, attributable to excess capacity related to Ford's
performance in the European market, reflected the write-down of certain
long-lived assets, as determined by an independent valuation.
Nemak Joint Venture - During the fourth quarter, we recorded in Automotive cost
-------------------
of sales a pre-tax charge of $205 million related to the fair value transfer of
our Windsor Aluminum Plant, Essex Aluminum Plant, and Casting Process
Development Center for an increased equity interest in our joint venture with
Nemak. We reflected the new joint venture in our consolidated financial
statements on an equity basis.
1999
----
Purchase of AB Volvo's Worldwide Passenger Car Business ("Volvo Car") -
---------------------------------------------------------------------
In March, we purchased Volvo Car for $6.45 billion. The acquisition price
included a cash payment of $2 billion on March 31, 1999, a deferred payment
obligation to AB Volvo of $1.6 billion paid April 2, 2001, and Volvo Car
automotive net indebtedness of $2.9 billion. Most automotive indebtedness was
repaid April 12, 1999. The excess of the purchase price over the fair market
value of net assets acquired was approximately $2.5 billion and was amortized
over 40 years during 1999, 2000, and 2001.
Purchase of Kwik-Fit Holdings plc - During the third quarter, we completed the
---------------------------------
purchase of all the outstanding stock of Kwik-Fit plc ("Kwik-Fit"). Kwik-Fit was
Europe's largest independent vehicle maintenance and light repair chain. The
purchase price was $1.6 billion and consisted of cash payments of $1.4 billion
and loan notes to certain Kwik-Fit shareholders of $200 million, redeemable
beginning April 30, 2000 and on any subsequent interest payment date. The excess
of the purchase price over the fair market value of net assets acquired was
approximately $1.1 billion and was amortized over 30 years during 1999, 2000,
and 2001.
Dissolution of AutoEuropa Joint Venture - On January 1, 1999, we dissolved our
---------------------------------------
minivan joint venture with Volkswagen AG in Portugal (AutoEuropa) resulting in a
$255 million pre-tax gain credited to Automotive cost of sales.
FS-18
NOTE 17. Retirement Benefits
-----------------------------
Employee Retirement Plans
-------------------------
We have two principal defined benefit retirement plans in the U.S. The Ford-UAW
Retirement Plan covers hourly employees represented by the UAW, and the General
Retirement Plan covers substantially all other Ford employees in the U.S. The
hourly plan provides noncontributory benefits related to employee service. The
salaried plan provides similar noncontributory benefits and contributory
benefits related to pay and service. Other U.S. and non-U.S. subsidiaries have
separate plans that generally provide similar types of benefits for their
employees. Ford-UAW Retirement Plan expense accruals for employees assigned to
Visteon are charged to Visteon.
In general, our plans are funded, with the main exceptions of the U.S. defined
benefit plans for executives and certain plans in Germany; in such cases, an
unfunded liability is recorded.
Our policy for funded plans is to contribute annually, at a minimum, amounts
required by applicable laws, regulations, and union agreements. Plan assets
consist principally of investments in stocks and government and other fixed
income securities. At December 31, 2001, stocks represented 73% of the market
value of pension assets for our principal U.S. plans and fixed income securities
represented 27%. Ford securities comprised less than one-half of one percent of
the value of our worldwide pension plan assets during 2000 and 2001.
We also sponsor defined contribution plans for certain of our U.S. and non-U.S.
employees. Our expense, primarily for matching contributions, for these plans
was (in millions): $153 in 2001, $145 in 2000, and $140 in 1999. Effective
January 1, 2002, we suspended matching contributions to these plans.
Postretirement Health Care and Life Insurance Benefits
------------------------------------------------------
We and certain of our subsidiaries sponsor plans to provide selected health care
and life insurance benefits for retired employees. Our U.S. and Canadian
employees generally may become eligible for those benefits if they retire;
however, benefits and eligibility rules may be modified from time to time.
Postretirement health care and life insurance expense accruals for hourly
employees assigned to Visteon and for salaried Visteon employees who met certain
age and service conditions at June 30, 2000 are charged to Visteon. A portion of
U.S. hourly and salary retiree health and life insurance benefits has been
prepaid. At December 31, 2001, the market value of this pre-funding was $2.7
billion, including $1.7 billion of Visteon promissory notes contributed to a
segregated trust.
Our expense for pension, postretirement health care and life insurance benefits
was as follows (in millions):
Pension Benefits
------------------------------------------------------------------ Health Care
U.S. Plans Non-U.S. Plans and Life Insurance
-------------------------------- --------------------------------- ------------------------------
2001 2000 1999 2001 2000 1999 2001 2000 1999
-------- ----------- ----------- --------- ---------- ------------ --------- --------- ---------
Service cost $ 531 $ 495 $ 522 $ 396 $ 405 $ 402 $ 374 $ 320 $ 275
Interest cost 2,410 2,345 1,713 974 918 823 1,697 1,483 972
Expected return on assets (3,697) (3,281) (2,475) (1,184) (1,162) (1,026) (161) (135) (82)
Amortization of:
Prior service costs 532 620 363 138 133 105 (114) (38) (35)
(Gains)/losses and other (367) (418) (41) (101) 17 145 161 28 29
Separation programs 303 122 108 8 184* 48 114 54 48
Allocated costs to Visteon (58) (71) - - - - (149) (159) -
------- ------- ------- ------- ------- ------- ------ ------ ------
Net expense/(income) $ (346) $ (188) $ 190 $ 231 $ 495 $ 497 $1,922 $1,553 $1,207
======= ======= ======= ======= ======= ======= ====== ====== ======
- - - - -
* Reflects reclassification of portion of restructuring reserve established in
2000.
FS-19
NOTE 17. Retirement Benefits (Continued)
-----------------------------
The year-end status of these plans was as follows (in millions):
Pension Benefits
---------------------------------------------------- Health Care
U.S. Plans Non-U.S. Plans And Life Insurance
------------------------- -------------------------- -------------------------
2001 2000 2001 2000 2001 2000
---------- -------------- ------------ ------------- ----------- -------------
Change in Benefit Obligation
----------------------------
Benefit obligation at January 1 $33,282 $31,846 $16,918 $16,484 $ 23,374 $ 15,744
Service cost 531 535 396 405 374 320
Interest cost 2,410 2,388 974 918 1,697 1,483
Amendments 6 - 133 232 (923) (226)
Separation programs 330 141 24 83 114 54
Net transfers in/(out) - (89) (170) 357 - 3,714
Plan participant contributions 40 45 83 71 - -
Benefits paid (2,496) (2,273) (768) (744) (1,145) (1,055)
Foreign exchange translation - - (637) (1,117) (26) 2
Actuarial (gain)/loss 1,120 689 (962) 229 1,968 3,338
------- ------- ------- ------- -------- --------
Benefit obligation at December 31 $35,223 $33,282 $15,991 $16,918 $ 25,433 $ 23,374
======= ======= ======= ======= ======== ========
Change in Plan Assets
---------------------
Fair value of plan assets at January 1 $39,830 $40,845 $14,714 $15,432 $ 3,135 $ 1,258
Actual return on plan assets (1,558) 979 (931) 233 200 168
Company contributions - 8 277 185 142 1,935
Net transfers in/(out) (300) * 90 (152) 520 - 425
Plan participant contributions 40 45 83 71 - -
Benefits paid (2,496) (2,273) (768) (744) (758) (651)
Foreign exchange translation - - (515) (1,041) - -
Other 303 136 227 58 (27) -
------- ------- ------- ------- --------- --------
Fair value of plan assets at December 31 $35,819 $39,830 $12,935 $14,714 $ 2,692 $ 3,135
======= ======= ======= ======= ======== ========
Funded status $ 596 $ 6,548 $(3,056) $(2,204) $(22,741) $(20,239)
Unamortized prior service costs 3,358 3,912 768 814 (1,043) (231)
Unamortized net (gains)/losses and other (1,939) (8,557) 1,642 430 6,655 4,850
------- ------- ------- ------- -------- --------
Net amount recognized $ 2,015 $ 1,903 $ (646) $ (960) $(17,129) $(15,620)
======= ======= ======= ======= ======== ========
Amounts Recognized in the Balance Sheet
Consist of Assets/(Liabilities):
--------------------------------
Prepaid assets $ 3,099 $ 2,856 $ 1,259 $ 1,040 $ - $ -
Accrued liabilities (1,356) (1,244) (2,779) (2,900) (17,129) (15,620)
Intangible assets 72 116 352 490 - -
Accumulated other comprehensive income 200 175 522 410 - -
------- ------- ------- ------- -------- --------
Net amount recognized $ 2,015 $ 1,903 $ (646) $ (960) $(17,129) $(15,620)
======= ======= ======= ======= ======== ========
Pension Plans in Which Accumulated Benefit
Obligation Exceeds Plan Assets at December 31
---------------------------------------------
Accumulated benefit obligation $ 1,302 $ 1,085 $ 5,109 $ 5,174
Fair value of plan assets 184 62 2,721 2,751
Weighted average assumptions as of December 31
----------------------------------------------
Discount rate 7.25% 7.50% 6.10% 6.10% 7.25% 7.50%
Expected return on assets 9.50% 9.50% 8.70% 8.80% 6.00% 6.00%
Average rate of increase in compensation 5.20% 5.20% 3.80% 4.10% - -
Initial health care cost trend rate - - - - 9.45% 8.97%
Ultimate health care cost trend rate - - - - 5.00% 5.00%
Number of years to ultimate trend rate - - - - 6 7
- - - - -
* Payment of retiree health care benefits.
The assumption for expected return on assets reflects our expectation of the
long-term average rate of earnings on pension funds invested to provide for the
benefits included in the projected benefit obligation. In making this
assumption, we review the outlook for inflation, fixed income returns and equity
returns, taking into consideration our plans' historical returns, our asset
allocation and investment strategy, as well as the views of investment managers
and other large pension plan sponsors. Although not a guarantee of future
results, the average annual return of our U.S. pension fund has exceeded 9.5%
for the last 10, 20 and 30-year periods. As a sensitivity measure, a one-half
point decrease/increase in our U.S. assumed return would increase/decrease
future annual U.S. pension pre-tax expense by about $190 million and would have
no effect on pension funded status or contribution requirements.
A one percentage point increase/(decrease) in the assumed health care cost trend
rate would increase/(decrease) the postretirement health care benefit obligation
by approximately $3.1 billion/($2.6 billion) and the service and interest
component of this expense by $310 million/($241) million.
FS-20
NOTE 18. Segment Information (in millions)
-------------------------------------------
Financial Services Sector
--------------------------------------
Auto- Ford Other Eliminations/
motive Credit Hertz Fin Svcs Other b/ Total
----------- ------------ ------------ ------------- ------------------ -------------
2001
----
Revenues
External customer $131,528 $ 24,996 $ 4,898 $ 966 $ 24 $162,412
Intersegment 3,260 455 27 106 (3,848) -
-------- -------- ------- ------- -------- --------
Total Revenues $134,788 $ 25,451 $ 4,925 $ 1,072 $ (3,824) $162,412
======== ======== ======= ======= ======== ========
Income
Income/(loss) before taxes $ (9,036) $ 1,508 $ 3 $ (59) $ - $ (7,584)
Provision for income tax (2,808) 668 (20) 9 - (2,151)
Income/(loss) from continuing
operations (6,267) 839 23 (67) 19 (5,453)
Other Disclosures
Depreciation and amortization $ 9,141 $ 8,861 $ 1,620 $ 54 $ 74 $ 19,750
Interest income a/ 766 - - - - 766
Interest expense 1,378 8,951 414 105 - 10,848
Capital expenditures 6,357 182 310 159 - 7,008
Unconsolidated affiliates
Equity in net income/(loss) (856) 5 - - - (851)
Investments in 2,450 177 - 11 - 2,638
Total assets at year-end 88,319 173,096 10,525 4,616 (13) 276,543
-----------------------------------------------------------------------------------------------------------------------------------
2000
----
Revenues
External customer $141,230 $ 23,412 $ 5,057 $ 336 $ 23 $170,058
Intersegment 3,783 194 30 154 (4,161) -
-------- -------- ------- ------- -------- --------
Total Revenues $145,013 $ 23,606 $ 5,087 $ 490 $ (4,138) $170,058
======== ======== ======= ======= ======== ========
Income
Income before taxes $ 5,267 $ 2,495 $ 581 $ (109) $ - $ 8,234
Provision for income tax 1,597 926 223 (41) - 2,705
Income from continuing operations 3,624 1,536 358 (35) (73) 5,410
Other Disclosures
Depreciation and amortization $ 6,497 $ 7,846 $ 1,504 $ 46 $ 56 $ 15,949
Interest income a/ 1,488 - - - - 1,488
Interest expense 1,383 8,970 428 121 - 10,902
Capital expenditures 7,393 168 291 496 - 8,348
Unconsolidated affiliates
Equity in net income/(loss) (70) (22) - 1 - (91)
Investments in 2,949 79 - 7 - 3,035
Total assets at year-end 94,312 174,258 10,620 3,731 469 283,390
-----------------------------------------------------------------------------------------------------------------------------------
1999
----
Revenues
External customer $135,073 $ 20,020 $ 4,695 $ 911 $ 4 $160,703
Intersegment 4,082 340 33 170 (4,625) -
-------- -------- ------- ------- -------- --------
Total Revenues $139,155 $ 20,360 $ 4,728 $ 1,081 $ (4,621) $160,703
======== ======== ======= ======= ======== ========
Income
Income before taxes $ 7,275 $ 2,104 $ 560 $ (85) $ - $ 9,854
Provision for income tax 2,251 791 224 (18) - 3,248
Income from continuing operations 4,986 1,261 336 (15) (66) 6,502
Other Disclosures
Depreciation and amortization $ 5,244 $ 7,565 $ 1,357 $ 326 $ 50 $ 14,542
Interest income a/ 1,418 - - - - 1,418
Interest expense 1,347 7,193 354 132 - 9,026
Capital expenditures 7,069 82 351 157 - 7,659
Unconsolidated affiliates
Equity in net income/(loss) 35 (25) - - - 10
Investments in 2,539 97 - 8 - 2,644
Total assets at year-end 99,201 156,631 10,137 4,210 70 270,249
- - - - -
a/ Ford Credit's and Hertz's interest income is recorded as Revenues.
b/ Includes intersegment transactions occurring in the ordinary course of business.
FS-21
NOTE 19. Geographic Information (in millions)
----------------------------------------------
United All Total
States Europe Other Company
------------ ------------- ----------- --------------
2001
----
External revenues $108,296 $35,532 $18,584 $162,412
Income from continuing operations (4,493) 513 (1,473) (5,453)
Net property 16,199 12,567 5,925 34,691
2000
----
External revenues $118,367 $32,132 $19,559 $170,058
Income from continuing operations 6,009 (862) 263 5,410
Net property 19,424 13,614 6,260 39,298
1999
----
External revenues $111,468 $32,709 $16,526 $160,703
Income from continuing operations 6,008 376 118 6,502
Net property 18,286 13,098 6,719 38,103
NOTE 20. Litigation and Claims
-------------------------------
Various legal actions, governmental investigations and proceedings and claims
are pending or may be instituted or asserted in the future against us, including
those arising out of alleged defects in our products; governmental regulations
relating to safety, emissions and fuel economy; financial services;
employment-related matters; dealer, supplier and other contractual
relationships; intellectual property rights; product warranties; environmental
matters; and shareholder matters. Certain of the pending legal actions are, or
purport to be, class actions. Some of the foregoing matters involve or may
involve compensatory, punitive, or antitrust or other treble damage claims in
very large amounts, or demands for recall campaigns, environmental remediation
programs, sanctions, or other relief which, if granted, would require very large
expenditures.
Litigation is subject to many uncertainties, and the outcome of individual
litigated matters is not predictable with assurance. We have established
reserves for certain of the matters discussed in the foregoing paragraph where
losses are deemed probable. It is reasonably possible, however, that some of the
matters discussed in the foregoing paragraph for which reserves have not been
established could be decided unfavorably to us and could require us to pay
damages or make other expenditures in amounts or a range of amounts that cannot
be estimated at December 31, 2001. We do not reasonably expect, based on our
analysis, that such matters would have a material effect on future consolidated
financial statements for a particular year, although such an outcome is
possible.
NOTE 21. Summary Quarterly Financial Data (Unaudited)
------------------------------------------------------
(in millions, except amounts per share)
2001 2000
-------------------------------------------- ------------------------------------------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
--------- ----------- ------------ --------- --------- ---------- ---------- ----------
Automotive
Sales $34,650 $34,552 $28,554 $33,772 $36,175 $37,366 $32,582 $35,107
Operating income/(loss) 1,329 (1,432) (1,084) (6,381) 2,322 1,413 574 923
Financial Services
Revenues 7,796 7,762 7,948 7,378 6,729 7,133 7,473 7,493
Income/(loss) before
income taxes 594 690 626 (458) 643 764 856 704
Total Company
Income/(loss) from
continuing operations 1,059 (752) (692) (5,068) 1,932 1,513 888 1,077
Common and Class B per share
Basic income/(loss) from
continuing operations $ 0.58 $ (0.42) $ (0.39) $ (2.81) $ 1.61 $ 1.26 $ 0.54 $ 0.58
Diluted income/(loss) from
continuing operations 0.56 (0.42) * (0.39) * (2.81) 1.58 1.24 0.53 0.57
- As previously reported (0.41) (0.38)
- - - - -
* Diluted earnings per share amounts for second and third quarters of 2001
have been corrected to exclude the antidilutive effect of stock options.
FS-22
Report of Independent Accountants
To the Board of Directors and Stockholders
Ford Motor Company:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, stockholders' equity and cash flows present
fairly, in all material respects, the financial position of Ford Motor Company
and Subsidiaries at December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001 in conformity with accounting principles generally accepted in
the United States of America. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As discussed in Note 14 to the consolidated financial statements, on January 1,
2001, the Company adopted Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities".
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Detroit, Michigan
February 15, 2002
FS-23