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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2004
------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 1-3950
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FORD MOTOR COMPANY
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(Exact name of registrant as specified in its charter)
Delaware 38-0549190
---------------------------- ---------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation)
One American Road, Dearborn, Michigan 48126
-------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(313) 322-3000
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). [X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding
of each of the issuer's classes of common stock, as of the latest practicable
date: As of October 29, 2004 the Registrant had outstanding 1,758,815,803 shares
of Common Stock and 70,852,076 shares of Class B Stock.
Exhibit index located on sequential page number 34
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Part I. Financial Information
Item 1. Financial Statements
-----------------------------
Ford Motor Company and Subsidiaries
SECTOR STATEMENT OF INCOME
--------------------------
For the Periods Ended September 30, 2004 and 2003
(in millions, except per share amounts)
Third Quarter Nine Months
------------------------- ------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
(unaudited) (unaudited)
AUTOMOTIVE
Sales $32,798 $30,243 $108,262 $98,453
Costs and expenses
Cost of sales 30,957 28,381 98,637 91,059
Selling, administrative and other expenses 2,557 2,514 8,132 7,261
------- ------- -------- -------
Total costs and expenses 33,514 30,895 106,769 98,320
------- ------- -------- -------
Operating income/(loss) (716) (652) 1,493 133
Interest expense 397 362 1,094 878
Interest income and other non-operating income/(expense), net 383 455 508 781
Equity in net income/(loss) of affiliated companies 57 (45) 197 48
------- ------- -------- -------
Income/(loss) before income taxes - Automotive (673) (604) 1,104 84
FINANCIAL SERVICES
Revenues 6,198 6,499 18,128 19,595
Costs and expenses
Interest expense 1,470 1,552 4,342 4,794
Depreciation 1,570 2,072 4,962 6,880
Operating and other expenses 1,394 1,315 3,865 3,696
Provision for credit and insurance losses 339 529 892 1,801
------- ------- -------- -------
Total costs and expenses 4,773 5,468 14,061 17,171
------- ------- -------- -------
Income/(loss) before income taxes - Financial Services 1,425 1,031 4,067 2,424
------- ------- -------- -------
TOTAL COMPANY
Income/(loss) before income taxes 752 427 5,171 2,508
Provision for/(benefit from) income taxes 210 140 1,317 679
------- ------- -------- -------
Income/(loss) before minority interests 542 287 3,854 1,829
Minority interests in net income/(loss) of subsidiaries 62 45 219 245
------- ------- -------- -------
Income/(loss) from continuing operations 480 242 3,635 1,584
Income/(loss) from discontinued/held-for-sale operations (214) (3) (252) (32)
Cumulative effect of change in accounting principle - (264) - (264)
------- ------- -------- -------
Net income/(loss) $ 266 $ (25) $ 3,383 $ 1,288
======== ======= ======== =======
Average number of shares of Common and Class B
Stock outstanding 1,829 1,831 1,831 1,832
AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK (Note 7)
Basic income/(loss)
Income/(loss) from continuing operations $ 0.26 $ 0.13 $ 1.99 $ 0.87
Income/(loss) from discontinued/held-for-sale operations (0.11) - (0.14) (0.02)
Cumulative effect of change in accounting principle - (0.14) - (0.15)
------- ------- -------- -------
Net income/(loss) $ 0.15 $ (0.01) $ 1.85 $ 0.70
======= ======= ======== =======
Diluted income/(loss)
Income/(loss) from continuing operations $ 0.25 $ 0.13 $ 1.78 $ 0.82
Income/(loss) from discontinued/held-for-sale operations (0.10) - (0.12) (0.01)
Cumulative effect of change in accounting principle - (0.14) - (0.13)
------- ------- -------- -------
Net income/(loss) $ 0.15 $ (0.01) $ 1.66 $ 0.68
======= ======= ======== =======
Cash dividends $ 0.10 $ 0.10 $ 0.30 $ 0.30
The accompanying notes are part of the financial statements.
2
Item 1. Financial Statements (Continued)
-----------------------------
Ford Motor Company and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
--------------------------------
For the Periods Ended September 30, 2004 and 2003
(in millions, except per share amounts)
Third Quarter Nine Months
------------------------- ---------------------------
2004 2003 2004 2003
----------- ------------- ------------- -------------
(unaudited) (unaudited)
Sales and revenues
Automotive sales $32,798 $30,243 $108,262 $98,453
Financial Services revenues 6,198 6,499 18,128 19,595
------- ------- -------- -------
Total sales and revenues 38,996 36,742 126,390 118,048
Costs and expenses
Cost of sales 30,957 28,381 98,637 91,059
Selling, administrative and other expenses 5,521 5,901 16,959 17,837
Interest expense 1,867 1,914 5,436 5,672
Provision for credit and insurance losses 339 529 892 1,801
------- ------- -------- -------
Total costs and expenses 38,684 36,725 121,924 116,369
Automotive interest income and other non-operating
income/(expense), net 383 455 508 781
Automotive equity in net income/(loss)
of affiliated companies 57 (45) 197 48
------- ------- -------- -------
Income/(loss) before income taxes 752 427 5,171 2,508
Provision for/(benefit from) income taxes 210 140 1,317 679
------- ------- -------- -------
Income/(loss) before minority interests 542 287 3,854 1,829
Minority interests in net income/(loss) of subsidiaries 62 45 219 245
------- ------- -------- -------
Income/(loss) from continuing operations 480 242 3,635 1,584
Income/(loss) from discontinued/held-for-sale operations (214) (3) (252) (32)
Cumulative effect of change in accounting principle - (264) - (264)
------- ------- -------- -------
Net income/(loss) $ 266 $ (25) $ 3,383 $ 1,288
======= ======= ======== =======
Average number of shares of Common and Class B
Stock outstanding 1,829 1,831 1,831 1,832
AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK
Basic income/(loss)
Income/(loss) from continuing operations $ 0.26 $ 0.13 $ 1.99 $ 0.87
Income/(loss) from discontinued/held-for-sale operations (0.11) - (0.14) (0.02)
Cumulative effect of change in accounting principle - (0.14) - (0.15)
------- ------- -------- -------
Net income/(loss) $ 0.15 $ (0.01) $ 1.85 $ 0.70
======= ======= ======== =======
Diluted income/(loss)
Income/(loss) from continuing operations $ 0.25 $ 0.13 $ 1.78 $ 0.82
Income/(loss) from discontinued/held-for-sale operations (0.10) - (0.12) (0.01)
Cumulative effect of change in accounting principle - (0.14) - (0.13)
------- ------- -------- -------
Net income/(loss) $ 0.15 $ (0.01) $ 1.66 $ 0.68
======= ======= ======== =======
Cash dividends $ 0.10 $ 0.10 $ 0.30 $ 0.30
The accompanying notes are part of the financial statements.
3
Item 1. Financial Statements (Continued)
-----------------------------
Ford Motor Company and Subsidiaries
SECTOR BALANCE SHEET
--------------------
(in millions)
September 30, December 31,
2004 2003
---------------- ---------------
(unaudited)
ASSETS
Automotive
Cash and cash equivalents $ 6,713 $ 5,423
Marketable securities 10,320 10,749
Loaned securities 2,332 5,667
-------- --------
Total cash, marketable and loaned securities 19,365 21,839
Receivables, net 3,340 2,698
Inventories (Note 3) 10,981 9,151
Deferred income taxes 3,802 3,225
Other current assets 8,146 6,829
-------- --------
Total current assets 45,634 43,742
Equity in net assets of affiliated companies 1,856 1,930
Net property 41,287 41,919
Deferred income taxes 11,190 12,090
Goodwill and other intangible assets (Note 4) 6,064 6,053
Assets of discontinued/held-for-sale operations 114 410
Other assets 15,639 14,497
-------- --------
Total Automotive assets 121,784 120,641
Financial Services
Cash and cash equivalents 10,703 16,343
Investments in securities 1,262 1,123
Finance receivables, net 112,011 110,893
Net investment in operating leases 31,785 31,859
Retained interest in sold receivables 9,473 13,017
Goodwill and other intangible assets (Note 4) 950 1,008
Assets of discontinued/held-for-sale operations - 388
Other assets 12,478 17,292
Receivable from Automotive 2,246 3,356
-------- --------
Total Financial Services assets 180,908 195,279
-------- --------
Total assets $302,692 $315,920
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Automotive
Trade payables $ 16,751 $ 15,279
Other payables 3,349 2,940
Accrued liabilities 34,568 32,144
Debt payable within one year 1,004 1,806
Current payable to Financial Services 216 124
-------- --------
Total current liabilities 55,888 52,293
Senior debt 12,562 13,832
Subordinated debt 5,155 5,155
-------- --------
Total long-term debt 17,717 18,987
Other liabilities 41,405 45,085
Deferred income taxes 3,045 2,352
Liabilities of discontinued/held-for-sale operations 69 152
Payable to Financial Services 2,030 3,232
-------- --------
Total Automotive liabilities 120,154 122,101
Financial Services
Payables 2,299 2,189
Debt 145,986 159,011
Deferred income taxes 11,062 11,061
Other liabilities and deferred income 8,309 9,211
Liabilities of discontinued/held-for-sale operations - 37
-------- --------
Total Financial Services liabilities 167,656 181,509
Minority interests 813 659
Stockholders' equity
Capital stock
Common Stock, par value $0.01 per share (1,837 million shares issued) 18 18
Class B Stock, par value $0.01 per share (71 million shares issued) 1 1
Capital in excess of par value of stock 5,357 5,374
Accumulated other comprehensive income/(loss) (794) (414)
Treasury stock (1,768) (1,749)
Earnings retained for use in business 11,255 8,421
-------- --------
Total stockholders' equity 14,069 11,651
-------- --------
Total liabilities and stockholders' equity $302,692 $315,920
======== ========
The accompanying notes are part of the financial statements.
4
Item 1. Financial Statements (Continued)
-----------------------------
Ford Motor Company and Subsidiaries
CONSOLIDATED BALANCE SHEET
--------------------------
(in millions)
September 30, December 31,
2004 2003
---------------- ---------------
(unaudited)
ASSETS
Cash and cash equivalents $ 17,416 $ 21,766
Marketable securities 11,582 11,872
Loaned securities 2,332 5,667
Receivables, net 3,340 2,698
Finance receivables, net 112,011 110,893
Net investment in operating leases 31,785 31,859
Retained interest in sold receivables 9,473 13,017
Inventories 10,981 9,151
Equity in net assets of affiliated companies 2,812 2,959
Net property 42,904 43,524
Deferred income taxes 3,182 7,389
Goodwill and other intangible assets 7,014 7,061
Assets of discontinued/held-for-sale operations 114 798
Other assets 33,732 35,940
-------- --------
Total assets $288,678 $304,594
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Payables $ 22,399 $ 20,408
Accrued liabilities 31,849 29,564
Debt 164,707 179,804
Other liabilities and deferred income 49,714 53,880
Deferred income taxes 5,058 8,439
Liabilities of discontinued/held-for-sale operations 69 189
-------- --------
Total liabilities 273,796 292,284
Minority interests 813 659
Stockholders' equity
Capital stock
Common Stock, par value $0.01 per share (1,837 million shares issued) 18 18
Class B Stock, par value $0.01 per share (71 million shares issued) 1 1
Capital in excess of par value of stock 5,357 5,374
Accumulated other comprehensive income/(loss) (794) (414)
Treasury stock (1,768) (1,749)
Earnings retained for use in business 11,255 8,421
-------- --------
Total stockholders' equity 14,069 11,651
-------- --------
Total liabilities and stockholders' equity $288,678 $304,594
======== ========
The accompanying notes are part of the financial statements.
5
Item 1. Financial Statements (Continued)
----------------------------
Ford Motor Company and Subsidiaries
CONDENSED SECTOR STATEMENT OF CASH FLOWS
----------------------------------------
For the Periods Ended September 30, 2004 and 2003
(in millions)
Nine Months 2004 Nine Months 2003
---------------------------- -----------------------------
Financial Financial
Automotive Services Automotive Services
------------ --------------- ------------- ---------------
(unaudited) (unaudited)
Cash and cash equivalents at January 1 $ 5,423 $ 16,343 $ 5,159 $ 7,064
Cash flows from operating activities before
securities trading 1,371 12,622 4,855 13,254
Net sales/(purchases) of trading securities 3,911 59 1,516 (166)
-------- -------- -------- --------
Net cash flows from operating activities 5,282 12,681 6,371 13,088
Cash flows from investing activities
Capital expenditures (4,603) (299) (5,558) (271)
Acquisitions of receivables and lease investments - (47,338) - (42,239)
Collections of receivables and lease investments - 37,035 - 33,921
Net acquisitions of daily rental vehicles - (2,739) - (1,487)
Purchases of securities (6,811) (786) (7,356) (490)
Sales and maturities of securities 6,635 650 4,136 589
Proceeds from sales of receivables
and lease investments - 9,265 - 15,781
Proceeds from sale of businesses 125 412 77 1,625
Net investing activity with Financial Services 3,277 - 2,975 -
Cash paid for acquisitions (30) - - -
Cash recognized on consolidation of joint ventures - - 256 -
Other 10 100 696 20
-------- -------- -------- --------
Net cash (used in)/provided by investing activities (1,397) (3,700) (4,774) 7,449
Cash flows from financing activities
Cash dividends (549) - (549) -
Net sales/(purchases) of Common Stock (127) - (43) -
Changes in short-term debt (279) 8,979 (173) 3,405
Proceeds from issuance of other debt 406 12,138 883 16,338
Principal payments on other debt (2,112) (32,378) (689) (23,173)
Net financing activity with Automotive - (3,277) - (2,975)
Other (17) 6 (6) 9
-------- -------- -------- --------
Net cash (used in)/provided by financing activities (2,678) (14,532) (577) (6,396)
Effect of exchange rate changes on cash (9) 3 188 286
Net transactions with Automotive/Financial Services 92 (92) 425 (425)
-------- -------- -------- --------
Net increase/(decrease) in cash and cash equivalents 1,290 (5,640) 1,633 14,002
-------- -------- -------- --------
Cash and cash equivalents at September 30 $ 6,713 $ 10,703 $ 6,792 $ 21,066
======== ======== ======== ========
The accompanying notes are part of the financial statements.
6
Item 1. Financial Statements (Continued)
----------------------------
Ford Motor Company and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
----------------------------------------------
For the Periods Ended September 30, 2004 and 2003
(in millions)
Nine Months
------------------------------
2004 2003
-------------- ----------------
(unaudited)
Cash and cash equivalents at January 1 $ 21,766 $ 12,223
Cash flows from operating activities before securities trading 13,993 18,109
Net sales/(purchases) of trading securities 3,970 1,350
-------- --------
Net cash flows from operating activities 17,963 19,459
Cash flows from investing activities
Capital expenditures (4,902) (5,829)
Acquisitions of receivables and lease investments (47,338) (42,239)
Collections of receivables and lease investments 37,035 33,921
Net acquisitions of daily rental vehicles (2,739) (1,487)
Purchases of securities (7,597) (7,846)
Sales and maturities of securities 7,285 4,725
Proceeds from sales of receivables and lease investments 9,265 15,781
Proceeds from sale of businesses 537 1,702
Cash paid for acquisitions (30) -
Cash recognized on consolidation of joint ventures - 256
Other 110 716
-------- --------
Net cash (used in)/provided by investing activities (8,374) (300)
Cash flows from financing activities
Cash dividends (549) (549)
Net sales/(purchases) of Common Stock (127) (43)
Changes in short-term debt 8,700 3,232
Proceeds from issuance of other debt 12,544 17,221
Principal payments on other debt (34,490) (23,862)
Other (11) 3
-------- --------
Net cash (used in)/provided by financing activities (13,933) (3,998)
Effect of exchange rate changes on cash (6) 474
-------- --------
Net increase/(decrease) in cash and cash equivalents (4,350) 15,635
-------- --------
Cash and cash equivalents at September 30 $ 17,416 $ 27,858
======== ========
The accompanying notes are part of the financial statements.
7
Item 1. Financial Statements (Continued)
----------------------------
Ford Motor Company and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS
---------------------------------
(unaudited)
1. Financial Statements - The financial data presented herein are unaudited,
but in the opinion of management reflect those adjustments necessary for a
fair presentation of the results of operations and financial condition of
Ford Motor Company and its consolidated subsidiaries and consolidated
Variable Interest Entities ("VIEs") of which we are the primary beneficiary
for the periods and at the dates presented. Results for interim periods
should not be considered indicative of results for a full year. Reference
should be made to the financial statements contained in our Annual Report
on Form 10-K for the year ended December 31, 2003 (the "10-K Report"). For
purposes of this report, "Ford", the "Company", "we", "our", "us" or
similar references mean Ford Motor Company and our consolidated
subsidiaries and our consolidated VIEs of which we are the primary
beneficiary, unless the context requires otherwise. Certain amounts for
prior periods were reclassified to conform with current period
presentation. Reclassifications include the presentation of
discontinued/held-for-sale operations and Interest income and other
non-operating income/(expense), net.
2. Discontinued and Held-for-Sale Operations
-----------------------------------------
Automotive Sector
-----------------
In September 2004, management committed to sell our Formula One racing
operations, as these operations are not consistent with our recently
announced PAG improvement plan nor our goals to build on the basics and
focus on our core business. We expect to sell these operations during the
next twelve months and have reported them as held-for-sale under Statement
of Financial Accounting Standards ("SFAS") No. 144 Accounting for the
Impairment or Disposal of Long-Lived Assets, for all periods shown. In the
third quarter of 2004, we recorded a pre-tax charge of $69 million
reflected in Income/(loss) from discontinued/held-for-sale operations
related to the anticipated loss on the sale of the net assets. The charge
represents the difference between the anticipated selling price of the net
assets, less costs to sell them, and their recorded book values. Under SFAS
No. 142 Goodwill and Other Intangible Assets, we also recorded a pre-tax
goodwill impairment of $204 million reflected in Income/(loss) from
discontinued/held-for-sale operations related to the disposal of these
operations.
Financial Services Sector
-------------------------
In September 2004, the Financial Services sector completed the sale,
initiated in 2003, of a U.S. subsidiary that offers full service car and
truck leasing.
Total Company
-------------
The results of all discontinued/held-for-sale operations are as follows (in
millions):
Third Quarter Nine Months
------------------------- ---------------------
2004 2003 2004 2003
----------- ---------- ---------- --------
Sales and revenues $ 66 $ 147 $ 278 $ 451
Income/(loss) from discontinued/held-for-sale operations:
Operating income/(loss) $ (24) $ (6) $ (64) $ (43)
Goodwill impairment (204) - (204) -
Gain/(loss) on discontinued/held-for-sale operations (69) - (78) (8)
----- ----- ----- -----
Pre-tax total (297) (6) (346) (51)
Provision for/(benefit from) income taxes (83) (3) (94) (19)
----- ----- ----- -----
Total $(214) $ (3) $(252) $ (32)
===== ===== ===== =====
At September 30, 2004, assets of discontinued/held-for-sale operations
consisted primarily of net property totaling $72 million.
3. Automotive Inventories are summarized as follows (in millions):
----------------------
September 30, December 31,
2004 2003
---------------- ---------------
Raw materials, work in process and supplies $ 3,996 $ 3,813
Finished products 7,961 6,334
------- -------
Total inventories at FIFO 11,957 10,147
Less LIFO adjustment (976) (996)
------- -------
Total inventories $10,981 $ 9,151
======= =======
8
Item 1. Financial Statements (Continued)
----------------------------
Ford Motor Company and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS
---------------------------------
(unaudited)
4. Goodwill and Other Intangibles - We perform annual testing in the second
quarter on goodwill and certain other intangible assets to determine if any
impairment has occurred. No impairment resulted from our annual test in the
second quarter of 2004.
Changes in the carrying amount of goodwill are as follows (in millions):
Financial Services
Automotive Sector Sector
---------------------------------------- -----------------------------
FAP & Ford
Americas Europe/PAG Other Credit Hertz
-------- ---------- ------ ------ -----
Beginning balance,
December 31, 2003 $154 $4,951 $ 72 $129 $640
Exchange translation/other 32 (25) (4) (50) -
---- ------ ---- ---- ----
Ending balance,
September 30, 2004 $186 $4,926 $ 68 $ 79 $640
==== ====== ==== ==== ====
In addition, included within Equity in net assets of affiliated companies
was goodwill of $205 million at September 30, 2004. During the third
quarter and first nine months of 2004, we impaired $64 million and $185
million, respectively, of goodwill related to other-than-temporary loss in
value for two of our equity investments.
The components of identifiable intangible assets are as follows as of
September 30, 2004 (in millions):
Automotive Sector Financial Services Sector
---------------------------------------- --------------------------------------------
Amortizable Non-amortizable Amortizable Non-amortizable
--------------- --------------------- ------------------ ----------------------
Gross carrying amount $ 564 $ 452 $ 92 $ 189
Less: accumulated
amortization (132) - (50) -
----- ----- ---- -----
Net intangible assets $ 432 $ 452 $ 42 $ 189
===== ===== ==== =====
Pre-tax amortization expense related to these intangible assets for the
nine months ended September 30, 2004 was $28 million. Intangible asset
amortization is forecasted to range from $30 to $40 million per year for
the next five years.
5. Variable Interest Entities - Effective July 1, 2003, we adopted Financial
Accounting Standards Board Interpretation No. 46, Consolidation of Variable
Interest Entities, an Interpretation of ARB No. 51 ("FIN 46"), for VIEs
formed prior to February 1, 2003. As a result of consolidating VIEs of
which we are the primary beneficiary, in the third quarter of 2003 we
recognized a non-cash charge of $264 million as the Cumulative effect of
change in accounting principle in our statement of income. The charge
represented the difference between the fair value of the assets,
liabilities and minority interests recorded upon consolidation and the
carrying value of our investments in these entities. Recorded assets
excluded goodwill in accordance with FIN 46.
Reflected in our September 30, 2004 balance sheet are $3.8 billion of VIE
assets related to VIEs that were consolidated as a result of the
implementation of FIN 46. During the third quarter of 2004, there were no
significant changes to VIEs of which we are the primary beneficiary.
VIEs of which we are not the primary beneficiary:
------------------------------------------------
Automotive Sector
-----------------
Ford has several investments in other joint ventures deemed to be VIEs of
which we are not the primary beneficiary. The risks and rewards associated
with our interests in these entities are based primarily on ownership
percentages. Our maximum exposure (approximately $7 million at September
30, 2004) to any potential losses associated with these VIEs is limited to
our equity investments and, where applicable, receivables due from the
VIEs.
Financial Services Sector
-------------------------
Ford Credit has investments in certain joint ventures deemed to be VIEs of
which it is not the primary beneficiary. The risks and rewards associated
with Ford Credit's interests in these entities are based primarily on
ownership percentages. Ford Credit's maximum exposure (approximately $137
million at September 30, 2004) to any potential losses associated with
these VIEs is limited to its equity investments, and, where applicable,
receivables due from the VIEs.
9
Item 1. Financial Statements (Continued)
----------------------------
Ford Motor Company and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS
---------------------------------
(unaudited)
5. Variable Interest Entities (Continued)
--------------------------
Ford Credit also sells receivables to bank-sponsored asset-backed
commercial paper issuers that are special purpose entities ("SPEs") of the
sponsor bank and are not consolidated by us. At September 30, 2004, these
SPEs held about $4.1 billion of retail installment sale contracts
previously owned by Ford Credit.
6. Derivative Financial Instruments
--------------------------------
Income Statement Impact: The ineffective portion of designated hedges,
amortization of mark-to-market adjustments associated with hedging
relationships that have been terminated, and mark-to-market adjustments
that reflect changes in interest rates for non-designated hedging activity
are recognized in Cost of sales for the Automotive sector and in Revenues
for the Financial Services sector and are shown in the table below (in
millions):
Income/(Loss) Before Income Taxes
--------------------------------------------------------------
Third Quarter Nine Months
-------------------------------- ----------------------------
2004 2003 2004 2003
---------------- --------------- --------------- ------------
Automotive Sector $ 43 $ 132 $ 137 $ 230
Financial Services Sector 99 58 234 178
------ ----- ----- -----
Total $ 142 $ 190 $ 371 $ 408
====== ====== ====== ======
Fair Value of Derivative Instruments: The fair value of derivatives
reflects the price that a third party would be willing to pay or receive in
arm's length transactions for assuming our position in the derivatives
transaction and includes mark-to-market adjustments to reflect the effects
of changes in the related index. The following tables summarize the
estimated fair value of our derivative financial instruments, taking into
consideration the effects of legally enforceable netting agreements, (in
billions):
September 30, 2004 December 31, 2003
-------------------------------- -----------------------------
Fair Value Fair Value Fair Value Fair Value
Assets Liabilities Assets Liabilities
-------------- --------------- --------------- --------------
Automotive Sector
-----------------
Total derivative financial instruments $ 1.9 $ 0.4 $ 2.3 $ 0.6
===== ===== ===== =====
Financial Services Sector
-------------------------
Foreign currency swaps, forwards and options $ 3.0 $ 1.1 $ 6.3 $ 1.5
Interest rate swaps 3.1 0.2 3.9 0.2
Impact of netting agreements (0.3) (0.3) (0.3) (0.3)
----- ----- ----- -----
Total derivative financial instruments $ 5.8 $ 1.0 $ 9.9 $ 1.4
====== ====== ===== =====
7. Amounts Per Share of Common and Class B Stock - The calculation of diluted
income/(loss) per share of Common and Class B Stock takes into account the
effect of rights to acquire our Common Stock, such as convertible
securities and stock options, considered to be potentially dilutive. Basic
and diluted income/(loss) per share were calculated using the following (in
millions):
Third Quarter Nine Months
------------------------- ---------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
Diluted Income
--------------
Income/(loss) from continuing operations
attributable to Common and Class B Stock $ 480 $ 242 $3,635 $1,584
Income impact of assumed conversion of
convertible preferred securities 50 - 152 160
------- ------ ------ ------
Diluted income/(loss)
from continuing operations $ 530 $ 242 $3,787 $1,744
====== ====== ====== ======
Diluted Shares
--------------
Average shares outstanding 1,829 1,831 1,831 1,832
Issuable/(returnable) and uncommitted ESOP shares (4) (2) (4) (2)
------ ------ ------ ------
Basic shares 1,825 1,829 1,827 1,830
Employee compensation-related shares,
primarily stock options 19 14 19 10
Convertible preferred securities 282 -* 282 282
------ ------ ------ ------
Diluted shares 2,126 1,843 2,128 2,122
====== ====== ====== ======
- - - - -
Not included in calculation of diluted earnings per share due to their
antidilutive effect:
* 282 million shares related to convertible preferred securities.
10
Item 1. Financial Statements (Continued)
----------------------------
Ford Motor Company and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS
---------------------------------
(unaudited)
8. Comprehensive Income - Other comprehensive income/(loss) primarily
reflected adjustments for foreign currency translation, SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, and minimum
pension liability. Total comprehensive income/(loss) is summarized as
follows (in millions):
Third Quarter Nine Months
------------------------- ------------------------
2004 2003 2004 2003
----------- ---------- ---------- ----------
Net income/(loss) $ 266 $ (25) $3,383 $1,288
Other comprehensive income/(loss) 415 309 (380) 1,775
------ ------ ------ ------
Total comprehensive income/(loss) $ 681 $ 284 $3,003 $3,063
====== ====== ====== ======
9. Retirement Benefits - Pension, postretirement health care and life
insurance benefit expense is summarized as follows (in millions):
Third Quarter
-----------------------------------------------------------------------------
Pension Benefits
-------------------------------------------------- Health Care and
U.S. Plans Non-U.S. Plans Life Insurance
------------------------ ------------------------ -----------------------
2004 2003 2004 2003 2004 2003
----------- ---------- ----------- ----------- ---------- -----------
Service cost $ 159 $ 148 $ 138 $ 123 $ 136 $ 131
Interest cost 614 605 330 293 493 502
Expected return on assets (803) (808) (411) (345) (85) (9)
Amortization of:
Prior service cost 125 109 26 34 (55) (45)
(Gains)/losses and other 6 20 45 44 152 133
Separation programs - - 6 34 - -
Allocated costs to Visteon (27) (22) - - (60) (79)
------- ------- ------- ------- ----- -----
Net expense/(income) $ 74 $ 52 $ 134 $ 183 $ 581 $ 633
======= ======= ======= ======= ===== =====
Nine Months
-----------------------------------------------------------------------------
Pension Benefits
-------------------------------------------------- Health Care and
U.S. Plans Non-U.S. Plans Life Insurance
------------------------ ------------------------ -----------------------
2004 2003 2004 2003 2004 2003
----------- ---------- ----------- ----------- ---------- -----------
Service cost $ 477 $ 444 $ 414 $ 369 $ 409 $ 391
Interest cost 1,834 1,815 998 877 1,481 1,502
Expected return on assets (2,409) (2,388) (1,231) (1,036) (197) (27)
Amortization of:
Prior service cost 375 327 82 101 (165) (134)
(Gains)/losses and other 17 7 137 120 458 398
Separation programs 1 - 36 56 - -
Allocated costs to Visteon (79) (66) - - (183) (237)
------- ------- ------- ------- ------- -------
Net expense/(income) $ 216 $ 139 $ 436 $ 487 $ 1,803 $ 1,893
======= ======= ======= ======= ======= =======
Company Contributions: Our policy for funded defined benefit pension plans
is to contribute, at a minimum, amounts required by applicable laws,
regulations, and union agreements. We from time to time make contributions
beyond those legally required. During the first nine months of 2004, we
made $1.8 billion of contributions to our funded pension funds and benefit
payments for our unfunded pension plans. We contributed an additional $300
million on October 6, 2004 to our U.S. pension funds.
We contributed $1.5 billion to our previously established long-term
Voluntary Employees Beneficiary Association trust ("VEBA") for U.S. hourly
retiree healthcare and life insurance benefits during the first nine months
of 2004. We contributed an additional $300 million on October 6, 2004 to
the long-term VEBA.
We continue to consider further contributions to our pension funds and to
the VEBA.
10. Guarantees - The fair values of guarantees and indemnifications issued
since December 31, 2002 are recorded in the financial statements and are de
minimis.
At September 30, 2004, the following guarantees were issued and
outstanding:
Guarantees related to affiliates and third parties: We guarantee debt and
lease obligations of certain joint ventures as well as certain financial
obligations of outside third parties to support business and economic
growth. Expiration dates vary, and guarantees will terminate on payment
and/or cancellation of the obligation. A payment would be triggered by
failure of the guaranteed party to fulfill its obligation covered by the
guarantee. In some circumstances, we are entitled to recover from the third
party amounts paid by us under the guarantee. However, our ability to
enforce these rights is sometimes stayed until the guaranteed party is paid
in full. The maximum potential payments
11
Item 1. Financial Statements (Continued)
----------------------------
Ford Motor Company and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS
---------------------------------
(unaudited)
10. Guarantees (Continued)
----------
under these guarantees total approximately $524 million, the majority of
which relates to the Automotive sector.
In 1992, we issued $500 million of 7.25% Notes due October 1, 2008
("Notes"). In 1999, the bondholders agreed to relieve us as the primary
obligor with respect to the principal of these Notes. As part of this
transaction, Ford placed certain financial assets into an escrow trust for
the benefit of the bondholders. Ford is still the primary obligor with
respect to the interest on these obligations. The trust became the primary
obligor with respect to the principal (Ford became secondarily liable for
the entire principal amount).
We also have guarantees outstanding associated with a subsidiary trust,
Ford Motor Company Capital Trust II ("Trust II"). For further discussions
of Trust II, refer to Notes 12 and 14 of the Notes to the Financial
Statements in the 10-K Report.
Indemnifications: We regularly evaluate the probability of having to incur
costs associated with indemnifications contained in contracts that we are a
party to and have accrued for expected losses that are probable and for
which a loss can be estimated. During the third quarter there were no
significant changes to our indemnifications.
Product Performance:
Warranty: Estimated warranty costs and additional service actions are
accrued for at the time a vehicle is sold to a dealer. Included in the
warranty cost accruals are costs for basic warranty coverages on vehicles
sold. Estimates for warranty costs are made based primarily on historical
warranty claim experience. Product recalls and other customer service
actions are not included in the warranty reconciliation below but are also
accrued for at the time of sale. The following is a tabular reconciliation
of the product warranty accrual (in millions):
Nine Months
---------------------------
2004 2003
------------ ------------
Beginning balance $ 5,443 $5,401
Payments made during the period (2,701) (2,594)
Changes in accrual related to warranties issued during the period 2,586 2,525
Changes in accrual related to pre-existing warranties 21 (268)
Foreign currency translation/other 25 276
------- ------
Ending balance $ 5,374 $5,340
======= ======
11. Segment Information - The Company's operating activity consists of two
operating sectors, Automotive and Financial Services.
Segment selection is based upon the organizational structure that we use to
evaluate performance and make decisions on resource allocation, as well as
availability and materiality of separate financial results consistent with
that structure.
Beginning with the second quarter of 2004, we changed the reporting of our
Automotive sector to show three primary segments, Americas, Ford Europe and
PAG, and Ford Asia Pacific and Africa/Mazda. Automotive sector prior period
information reflects the three primary segments in the table below.
12
Item 1. Financial Statements (Continued)
----------------------------
Ford Motor Company and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS
---------------------------------
(unaudited)
11. Segment Information (Continued)
-------------------
(in millions)
Automotive Sector Financial Services Sector a/
---------------------------------------------- -----------------------------------
Ford Asia
Ford Pacific
Europe & Africa Ford Elims/ Elims/
Americas and PAG /Mazda Other Total Credit Hertz Other Total Other Total
-------- ------- --------- ----- ------- ------- ------ ------- -------- ------- --------
b/
THIRD QUARTER 2004
Revenues
External customer $18,905 $12,012 $ 1,881 $ - $ 32,798 $ 4,391 $ 1,664 $ 143 $ 6,198 $ - $ 38,996
Intersegment 451 409 45 - 905 115 4 1 120 (1,025) -
Income
Income/(loss)
before income taxes (463) (227) 48 (31) (673) 1,167 249 9 1,425 - 752
THIRD QUARTER 2003
Revenues
External customer $18,365 $10,258 $ 1,620 $ - $ 30,243 $ 4,868 $ 1,489 $ 142 $ 6,499 $ - $ 36,742
Intersegment 544 451 69 - 1,064 75 5 3 83 (1,147) -
Income
Income/(loss)
before income taxes (134) (480) 8 2 (604) 808 186 37 1,031 - 427
NINE MONTHS 2004
Revenues
External customer $63,974 $38,891 $ 5,397 $ - $108,262 $ 13,414 $ 4,388 $ 326 $ 18,128 $ - $126,390
Intersegment 2,646 1,943 77 - 4,666 365 15 (1) 379 (5,045) -
Income
Income/(loss)
before income taxes 1,871 (374) 185 (578) 1,104 3,676 386 5 4,067 - 5,171
Other Disclosures
Total assets at
September 30 121,784 164,139 14,804 1,965 180,908 - 302,692
NINE MONTHS 2003
Revenues
External customer $62,043 $32,119 $ 4,291 $ - $ 98,453 $ 15,370 $ 3,899 $ 326 $ 19,595 $ - $118,048
Intersegment 2,671 1,138 92 - 3,901 233 21 (5) 249 (4,150) -
Income
Income/(loss)
before income taxes 1,463 (1,168) 42 (253) 84 2,196 184 44 2,424 - 2,508
Other Disclosures
Total assets at
September 30 119,159 178,829 13,249 3,675 195,753 - 314,912
- - - - -
a/ Financial Services sector's interest income is recorded as Revenues.
b/ Includes intersector transactions occurring in the ordinary course of
business.
13
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
Ford Motor Company:
We have reviewed the accompanying consolidated balance sheet of Ford Motor
Company and its subsidiaries as of September 30, 2004, and the related
consolidated statement of income for each of the three and nine-month
periods ended September 30, 2004 and 2003, and the consolidated statement
of cash flows for each of the nine-month periods ended September 30, 2004
and 2003. In addition, we have reviewed the accompanying interim sector
balance sheet and the related sector statements of income and of cash
flows, presented for purposes of additional analysis. The interim
consolidated and sector financial statements (collectively, the "interim
financial statements") are the responsibility of the Company's management.
We conducted our reviews in accordance with the standards of the Public
Company Accounting Oversight Board (United States). A review of interim
financial information consists principally of applying analytical
procedures and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit
conducted in accordance with the standards of the Public Company Accounting
Oversight Board, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying interim financial statements for them to
be in conformity with accounting principles generally accepted in the
United States of America.
As discussed in Note 5 to the interim financial statements, on July 1,
2003, the Company adopted Financial Accounting Standards Board
Interpretation No. 46, "Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51."
We previously audited in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated and
sector balance sheets as of December 31, 2003, and the related consolidated
and sector statements of income and of cash flows (not presented herein),
and consolidated statement of stockholders' equity for the year then ended
(not presented herein), and in our report dated March 10, 2004, we
expressed an unqualified opinion on those consolidated and sector financial
statements. In our opinion, the information set forth in the accompanying
consolidated and sector balance sheet information as of December 31, 2003,
is fairly stated in all material respects in relation to the consolidated
and sector balance sheets from which it has been derived.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Detroit, MI
November 8, 2004
14
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Certain amounts were reclassified to conform to current period
presentation. Reclassifications include profit and loss related to
discontinued/held-for-sale operations.
THIRD QUARTER RESULTS OF OPERATIONS
Our worldwide net income was $266 million in the third quarter of 2004, or
$0.15 per diluted share of Common and Class B Stock. In the third quarter of
2003, net loss was $25 million, or $0.01 per share.
Results by business sector for the third quarter of 2004 and 2003 are shown
below (in millions):
Third Quarter
Net Income/(Loss)
-----------------------------------------
2004
Over/(Under)
2004 2003 2003
--------- ------------ ----------------
Income/(loss) before income taxes
Automotive sector $ (673) $ (604) $(69)
Financial Services sector 1,425 1,031 394
------ ------ ----
Total Company 752 427 325
Provision for/(benefit from) income taxes 210 140 70
Minority interests in net income/(loss) of subsidiaries a/ 62 45 17
------ ------ ----
Income/(loss) from continuing operations 480 242 238
Income/(loss) from discontinued/held-for-sale operations b/ (214) (3) (211)
Cumulative effect of change in accounting principle - (264) 264
------ ------ ----
Net income/(loss) $ 266 $ (25) $291
====== ====== ====
----------
a/ Minority interests in net income/(loss) of subsidiaries primarily related
to Ford Europe's consolidated less-than-100%-owned affiliates.
b/ See Note 2 of the Notes to the Financial Statements for discussion of
Income/(loss) from discontinued/held-for-sale operations.
Automotive Sector
-----------------
Details of Automotive sector results for the third quarter of 2004 and 2003
are shown below (in millions):
Third Quarter
--------------------------------------------------------------------------------
Income/(Loss) Before Taxes
Income/(Loss) Before Taxes Excluding Special Items
-------------------------------------- ---------------------------------------
2004 2004
Over/ Over/
(Under) (Under)
2004 2003 2003 2004 2003 2003
------------ ---------- -------------- ----------- ----------- ---------------
Americas
Ford North America $(522) $(108) $(414) $(481) $(108) $(373)
Ford South America 59 (26) 85 59 (26) 85
----- ----- ----- ----- ----- -----
Total Americas (463) (134) (329) (422) (134) (288)
Ford Europe and PAG
Ford Europe (33) (456) 423 (33) (400) 367
PAG (194) (24) (170) (171) (24) (147)
----- ------ ----- ----- ----- -----
Total Ford Europe and PAG (227) (480) 253 (204) (424) 220
Ford Asia Pacific and Africa/Mazda
Ford Asia Pacific and Africa 35 3 32 35 3 32
Mazda and Associated Operations 13 5 8 13 5 8
----- ----- ----- ----- ----- -----
Total Ford Asia Pacific
and Africa/Mazda 48 8 40 48 8 40
Other Automotive (31) 2 (33) (31) 2 (33)
----- ----- ----- ----- ----- -----
Total, excluding special items (609) (548) (61)
Special items * (64) (56) (8)
----- ----- -----
Total Automotive $(673) $(604) $ (69) $(673) $(604) $ (69)
===== ===== ===== ===== ===== =====
----------
* 2004 special items included charges of $(41) million for our investment in
Ballard Power Systems Inc. and $(23) million related to our PAG improvement
plan. 2003 special items included a charge of $(56) million for our Ford
Europe improvement plan.
15
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Details of Automotive sector sales and vehicle unit sales for the third
quarter 2004 and 2003 are shown below:
Sales Vehicle Unit Sales *
(in billions) (in thousands)
------------------------------------------- --------------------------------------------
2004 2004
Over/(Under) Over/(Under)
2004 2003 2003 2004 2003 2003
--------- ---------- ---------------------- --------- ---------- -----------------------
Americas
Ford North America $18.1 $17.9 $ 0.2 1% 780 782 (2) -%
Ford South America 0.8 0.5 0.3 60 76 55 21 38
----- ----- ----- -- ----- ----- -- --
Total Americas 18.9 18.4 0.5 3 856 837 19 2
Ford Europe and PAG
Ford Europe 5.9 4.6 1.3 28 372 326 46 14
PAG 6.1 5.6 0.5 9 169 164 5 3
----- ----- ----- -- ----- ----- -- --
Total Ford Europe and PAG 12.0 10.2 1.8 18 541 490 51 10
Ford Asia Pacific and Africa 1.9 1.6 0.3 19 111 96 15 16
----- ----- ----- -- ----- ----- -- --
Total Automotive $32.8 $30.2 $ 2.6 9% 1,508 1,423 85 6%
===== ===== ===== == ===== ===== == ==
----------
* Included in vehicle unit sales of Ford Asia Pacific and Africa are
Ford-badged vehicles sold in China and Malaysia by our unconsolidated
affiliates totaling 16,000 and 11,000 units in 2004 and 2003, respectively.
The revenue from these units is not reflected in the dollar sales reported
above.
Details of Automotive sector market share for selected markets for the
third quarter 2004 and 2003 are shown below:
2004
Over/(Under)
2004 2003 2003 Market
---------- ------------- ------------------- ------------------
Americas
Ford North America 17.3% 18.6% (1.3)pts. U.S. b/
Ford South America 11.4 12.1 (0.7) Brazil b/
Ford Europe and PAG a/
Ford Europe 8.8 8.6 0.2 Europe b/
PAG 1.2/2.2 1.3/2.0 (0.1)/0.2 U.S./Europe
Ford Asia Pacific and Africa 15.1 14.7 0.4 Australia b/
----------
a/ 2004 European market share for Ford Europe and PAG are based, in part, on
estimated vehicle registrations for our 19 major markets.
b/ Excludes market share of our Premier Automotive Group brand vehicles (i.e.
Volvo, Jaguar, Land Rover and Aston Martin).
The following discussion, except where noted, is based on Income/(Loss)
Before Taxes Excluding Special Items. We believe this measure to be useful to
investors because it excludes elements that we do not consider to be indicative
of earnings from our on-going operating activities. As a result, it provides
investors with a more relevant measure of the results generated by our
operations.
Compared with the third quarter of 2003, the increase in loss by $61
million for the Automotive sector primarily reflected unfavorable changes in
exchange rates (about $300 million) and higher net interest (about $100 million
-- discussed below under "Other Automotive"), offset partially by improved cost
performance (about $200 million -- measured at constant volume, mix and
exchange) and higher vehicle unit sales (about $100 million).
Americas
--------
Ford North America. The decline in results for Ford North America primarily
reflected unfavorable changes in exchange rates and lower production
volumes, partially offset by improved product mix. Unfavorable changes in
exchange rates reflected continued weakening of the U.S. dollar compared
with the Canadian dollar and Euro, net of hedging.
Although vehicle unit sales were about the same as the third quarter 2003,
production was down 39,000 units. The difference between sales and
production volumes primarily reflected the fact that we had more units
being returned to us from daily rental car companies and sold at auction
than we delivered to those companies.
16
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Profits on these units are recognized over the term of the lease and
vehicle unit sales are recognized when the vehicles are sold at auction.
The decline in market share is the result of pressure on our retail market
share, particularly with respect to cars, as we balanced out 2004 model
year vehicles and changed over to 2005 model year vehicles, as well as our
on-going strategy to reduce vehicle sales to daily rental car companies.
Ford South America. The improvement in profit and sales for Ford South
America primarily reflected positive net pricing and higher vehicle unit
sales, partially offset by higher material costs.
Ford Europe and PAG
-------------------
Ford Europe. The improvement for Ford Europe primarily reflected higher
vehicle unit sales and favorable cost performance. The increase in vehicle
unit sales primarily reflected higher sales (primarily the Ford Focus C-Max
model) in the major western European markets and in Turkey and Russia.
PAG. The decline in results for PAG primarily reflected the cost of
launching new vehicles, particularly at Land Rover, and unfavorable changes
in exchange rates, net of hedging, partially offset by higher vehicle unit
sales.
The $23 million charge for PAG improvement actions reported as a special
item in the third quarter of 2004 reflected costs associated with hourly
and salaried employee voluntary separation programs at the Halewood and
Browns Lane facilities. As previously announced, we expect further charges
in the fourth quarter of 2004 and in 2005 related to the planned voluntary
separation of employees. We presently estimate these charges to be $75
million in the fourth quarter of 2004 and $75 million in 2005.
Ford Asia Pacific and Africa/Mazda
----------------------------------
Ford Asia Pacific and Africa. The improvement for Ford Asia Pacific and
Africa primarily reflected favorable changes in exchange rates, improved
cost performance, and higher vehicle unit sales, partially offset by
unfavorable net pricing. The increase in vehicle unit sales reflected
higher industry volumes in China, Australia and Taiwan, as well as improved
market share in Australia and South Africa.
Mazda and Associated Operations. The change primarily reflected
improvements in our Mazda-related investments.
Other Automotive
----------------
The decline in results for Other Automotive reflected lower interest income
on tax refunds.
17
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Financial Services Sector
-------------------------
Our Financial Services sector includes two primary segments, Ford Credit
and Hertz. Details of Financial Services sector income/(loss) before income
taxes for the third quarter of 2004 and 2003 are shown below (in millions):
Third Quarter
Income/(Loss) Before Income Taxes
--------------------------------------------
2004
Over/(Under)
2004 2003 2003
----------- ------------ ----------------
Ford Credit $1,167 $ 808 $359
Hertz* 249 186 63
Other Financial Services 9 37 (28)
----- ------ ----
Total Financial Services sector $1,425 $1,031 $394
====== ====== ====
----------
* Includes amortization expense related to intangibles recognized upon
consolidation of Hertz.
Ford Credit
-----------
The improvement in earnings primarily resulted from improved credit loss
performance ($182 million) and leasing results ($180 million), offset partially
by the impact of lower receivables ($87 million). The improvement in leasing
results primarily reflected higher used vehicle prices and a reduction in the
percentage of vehicles returned to Ford Credit at lease termination.
Details of actual credit losses net of recoveries ("charge-offs") and
loss-to-receivables ratios (annualized charge-offs during a period as a
percentage of average net receivables for that period) for the third quarter of
2004 and 2003 are shown below:
Third Quarter
-------------------------------------------------
2004
Over/(Under)
2004 2003 2003
------------ ------------ --------------------
Charge-offs (in millions)
On-balance sheet $ 349 $ 466 $(117)
Managed 458 668 (210)
Loss-to-receivables ratio
On-balance sheet 1.07% 1.40% (0.33) pts.
On-balance sheet (including charge-offs
associated with reacquired receivables)* 1.13% 1.52% (0.39) pts.
----------
* Ford Credit believes that the use of the on-balance sheet
loss-to-receivables ratio that includes the charge-offs on reacquired
receivables is useful to investors because it provides a more complete
presentation of Ford Credit's on-balance sheet credit loss performance.
The decrease of $117 million in charge-offs for the on-balance sheet
portfolio primarily reflected lower repossessions and a lower average loss per
repossession in the U.S. retail installment and operating lease portfolio.
Ford Credit's net finance receivables and net investment in operating
leases for on-balance sheet, securitized off-balance sheet, managed and serviced
portfolios are shown below (in billions):
2004
September 30, December 31, Over/(Under)
2004 2003 2003
--------------- --------------- -----------------
On-balance sheet (including on-balance
sheet securitizations) $132.0 $132.1 $ (0.1)
Securitized off-balance sheet 38.7 49.4 (10.7)
------ ------ ------
Managed $170.7 $181.5 $(10.8)
====== ====== ======
Serviced $175.4 $188.8 $(13.4)
The decrease in securitized off-balance sheet receivables of $10.7 billion
primarily reflected lower funding requirements.
18
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Shown below is Ford Credit's allowance for credit losses related to finance
receivables and operating leases for the periods specified:
2004
September 30, December 31, Over/(Under)
2004 2003 2003
---------------- ---------------- ----------------
Allowance for credit losses (in billions) $2.6 $3.0 $(0.4)
Allowance as a percentage of end-of-period net
receivables 1.95% 2.28% (0.33) pts.
The decrease in the allowance for credit losses of about $400 million
primarily reflected improved portfolio performance in the United States.
Hertz
-----
The improvement at Hertz was primarily due to higher rental volume in the
leisure and commercial car rental market segments, offset partially by lower
pricing due to a highly competitive environment. Earnings were also favorably
impacted by lower fleet costs, higher net proceeds received in excess of book
value on the disposal of used vehicles and equipment, and improved conditions in
North America equipment rental operations.
FIRST NINE MONTHS RESULTS OF OPERATIONS
Our worldwide net income was $3.4 billion in the first nine months of 2004,
or $1.66 per diluted share of Common and Class B Stock. In the first nine months
of 2003, net income was $1.3 billion, or $0.68 per share.
Results by business sector for the first nine months of 2004 and 2003 are
shown below (in millions):
First Nine Months
Net Income/(Loss)
--------------------------------------------
2004
Over/(Under)
2004 2003 2003
----------- ------------ -----------------
Income/(loss) before income taxes
Automotive sector $1,104 $ 84 $1,020
Financial Services sector 4,067 2,424 1,643
------ ------ ------
Total Company 5,171 2,508 2,663
Provision for/(benefit from) income taxes 1,317 679 638
Minority interests in net income/(loss) of subsidiaries a/ 219 245 (26)
------ ------ ------
Income/(loss) from continuing operations 3,635 1,584 2,051
Income/(loss) from discontinued/held-for-sale operations b/ (252) (32) (220)
Cumulative effect of change in accounting principle - (264) 264
------ ------ ------
Net income/(loss) $3,383 $1,288 $2,095
====== ====== ======
----------
a/ In 2004, Minority interests in net income/(loss) of subsidiaries primarily
related to Ford Europe's consolidated less-than-100%-owned affiliates. In
2003, the amount primarily related to interest expense on Trust II
obligations (for additional discussion of this interest expense, see "First
Nine Months Results of Operations - Other Automotive" below).
b/ See Note 2 of the Notes to the Financial Statements for further discussion
of Income/(loss) from discontinued/held-for-sale operations.
19
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Automotive Sector
-----------------
Details of Automotive sector results for the first nine months of 2004 and
2003 are shown below (in millions):
First Nine Months
--------------------------------------------------------------------------------
Income/(Loss) Before Taxes
Income/(Loss) Before Taxes Excluding Special Items
-------------------------------------- ---------------------------------------
2004 2004
Over/ Over/
(Under) (Under)
2004 2003 2003 2004 2003 2003
---------- ---------- -------------- ----------- ---------- --------------
Americas
Ford North America $1,775 $ 1,588 $ 187 $ 1,936 $ 1,588 $ 348
Ford South America 96 (125) 221 96 (125) 221
------- ------- ------ ------- ------- ------
Total Americas 1,871 1,463 408 2,032 1,463 569
Ford Europe and PAG
Ford Europe 134 (1,225) 1,359 183 (1,169) 1,352
PAG (508) 57 (565) (485) 57 (542)
------ ------- ------ ------- ------- ------
Total Ford Europe and PAG (374) (1,168) 794 (302) (1,112) 810
Ford Asia Pacific and Africa/Mazda
Ford Asia Pacific and Africa 58 (49) 107 58 (49) 107
Mazda and Associated Operations 127 91 36 127 91 36
------ ------- ------ ------- ------- ------
Total Ford Asia Pacific and Africa/
Mazda 185 42 143 185 42 143
Other Automotive (578) (253) (325) (595) (253) (342)
------ ------- ------ ------- ------- ------
Total, excluding special items 1,320 140 1,180
Special items * (216) (56) (160)
------- ------- ------
Total Automotive $1,104 $ 84 $1,020 $ 1,104 $ 84 $1,020
====== ======= ====== ======= ======= ======
----------
* 2004 special items include charges of $(161) million for our investment in
Ballard Power Systems Inc., $(49) million for our Ford Europe improvement
plan, and $(23) million for our PAG improvement plan, offset partially by
$17 million related to a prior divestiture. 2003 special items include a
charge of $(56) million for our Ford Europe improvement plan.
Details of Automotive sector sales and vehicle unit sales for the first
nine months of 2004 and 2003 are shown below:
Sales Vehicle Unit Sales *
(in billions) (in thousands)
------------------------------------------ -------------------------------------------
2004 2004
Over/(Under) Over/(Under)
2004 2003 2003 2004 2003 2003
--------- ---------- ------------------- --------- --------- ---------------------
Americas
Ford North America $ 61.9 $60.8 $1.1 2% 2,710 2,788 (78) (3)%
Ford South America 2.1 1.2 0.9 75 209 148 61 41
----- ----- ---- -- ----- ----- --- --
Total Americas 64.0 62.0 2.0 3 2,919 2,936 (17) (1)
Ford Europe and PAG
Ford Europe 19.1 14.8 4.3 29 1,253 1,123 130 12
PAG 19.8 17.4 2.4 14 559 533 26 5
----- ----- ---- -- ----- ----- --- --
Total Ford Europe and PAG 38.9 32.2 6.7 21 1,812 1,656 156 9
Ford Asia Pacific and Africa 5.4 4.3 1.1 26 315 260 55 21
----- ----- ---- -- ----- ----- --- --
Total Automotive $108.3 $98.5 $9.8 10% 5,046 4,852 194 4%
====== ===== ==== == ===== ===== === ==
----------
* Included in vehicle unit sales of Ford Asia Pacific and Africa are
Ford-badged vehicles sold in China and Malaysia by our unconsolidated
affiliates totaling 51,000 and 24,000 in 2004 and 2003, respectively. The
revenue from these units is not reflected in the dollar sales reported
above.
20
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Details of Automotive sector market share for selected markets for the
first nine months of 2004 and 2003 are shown below:
2004
Over/(Under)
2004 2003 2003 Market
----------- ----------- ------------------- ------------------
Americas
Ford North America 18.0% 19.3% (1.3)pts. U.S. b/
Ford South America 11.3 11.4 (0.1) Brazil b/
Ford Europe and PAG a/
Ford Europe 8.9 8.8 0.1 Europe b/
PAG 1.3/2.3 1.3/2.1 0/0.2 U.S./Europe
Ford Asia Pacific 14.1 14.2 (0.1) Australia b/
----------
a/ 2004 European market share for Ford Europe and PAG are based, in part, on
estimated vehicle registrations for our 19 major markets.
b/ Excludes market share of our Premier Automotive Group brand vehicles (i.e.
Volvo, Jaguar, Land Rover and Aston Martin).
The following discussion is based on Income/(Loss) Before Taxes Excluding
Special Items. We believe this measure to be useful to investors because it
excludes elements that we do not consider to be indicative of earnings from our
on-going operating activities. As a result, it provides investors with a more
relevant measure of the results generated by our operations.
Compared with the first nine months of 2003, the improvement in profit of
$1.2 billion for the Automotive sector primarily reflected favorable cost
performance (measured at constant volume, mix, and exchange), improved vehicle
unit sales, and positive net pricing, partially offset by unfavorable changes in
exchange rates.
The improved cost performance resulted from the following factors:
o manufacturing and engineering costs decreased by about $900 million,
primarily as a result of lower employment levels and the non-recurrence of
the UAW contract settlements incurred last year;
o overhead costs, which include administrative and staff support, decreased
by about $400 million, primarily as a result of lower employment levels
(excluding the impact of FIN 46 consolidations);
o net product costs decreased by about $200 million, primarily as a result of
design efficiencies and supplier negotiations;
o depreciation and amortization costs increased by about $600 million,
primarily as a result of new product programs;
o quality-related costs increased by about $100 million, primarily reflecting
the non-recurrence of favorable reserve adjustments for warranty and
additional service action costs in the year-ago period; and
o pension and retiree health care expenses were unchanged.
Americas
--------
Ford North America. The improvement in profit for Ford North America
primarily reflected improved product mix, positive net pricing, and
favorable cost performance, partially offset by lower vehicle unit sales
and unfavorable changes in exchange rates. Lower vehicle unit sales
primarily reflected lower market share, partially offset by increased
dealer stock levels and higher industry volumes.
Ford South America. The improvement in profit for Ford South America
primarily reflected positive net pricing and higher industry volumes,
partially offset by higher material cost.
Ford Europe and PAG
-------------------
Ford Europe. The improvement in profit for Ford Europe primarily reflected
favorable cost performance, and higher vehicle unit sales. The increase in
vehicle unit sales primarily reflected the strength of the Ford Focus C-Max
model and higher sales in Turkey and Russia.
PAG. The decline in results for PAG primarily reflected unfavorable changes
in exchange rates, unfavorable product mix, and the cost of launching new
vehicles, offset partially by higher vehicle unit sales.
21
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Ford Asia Pacific and Africa/Mazda
----------------------------------
Ford Asia Pacific and Africa. The improvement in profit for Ford Asia
Pacific and Africa primarily reflected favorable changes in exchange rates
and higher vehicle unit sales, offset partially by negative net pricing.
Mazda and Associated Operations. The change primarily reflected
improvements in our Mazda-related investments.
Other Automotive
----------------
The increase in loss before income taxes for Other Automotive primarily
reflected the reclassification of interest expense on our 6.50% Junior
Subordinated Debentures due 2032 held by a subsidiary trust, Ford Motor Company
Capital Trust II (prior to July 1, 2003, this interest expense was included in
Minority interests in net income/(loss) of subsidiaries), lower interest income
on tax refunds, and lower earnings on our cash and cash-like investments.
Financial Services Sector
-------------------------
Details of Financial Services sector income before income taxes for the
first nine months of 2004 and 2003 are shown below (in millions):
First Nine Months
Income/(Loss) Before Income Taxes
---------------------------------------------
2004
Over/(Under)
2004 2003 2003
---------- ------------ ----------------
Ford Credit $3,676 $2,196 $1,480
Hertz* 386 184 202
Other Financial Services 5 44 (39)
------- ------ ------
Total Financial Services sector $4,067 $2,424 $1,643
====== ====== ======
----------
* Includes amortization expense related to intangibles recognized upon
consolidation of Hertz.
Ford Credit
-----------
The improvement in earnings primarily resulted from improved credit loss
performance and leasing results, offset partially by the impact of lower income
related to sales of receivables. The improvement in leasing results primarily
reflected higher used vehicle prices and a reduction in the percentage of
vehicles returned to Ford Credit at lease termination.
Details of charge-offs and loss-to-receivables ratios for the first nine
months of 2004 and 2003 are shown below:
First Nine Months
---------------------------------------------------
2004
Over/(Under)
2004 2003 2003
------------- ------------- ------------------
Charge-offs (in millions)
On-balance sheet $1,016 $1,410 $(394)
Managed 1,397 1,977 (580)
Loss-to-receivables ratio
On-balance sheet 1.05% 1.49% (0.44) pts.
On-balance sheet (including charge-offs
associated with reacquired receivables)* 1.10% 1.54% (0.44) pts.
----------
* Ford Credit believes that the use of the on-balance sheet
loss-to-receivables ratio that includes the charge-offs on reacquired
receivables is useful to investors because it provides a more complete
presentation of Ford Credit's on-balance sheet credit loss performance.
The decrease of $394 million in charge-offs for the on-balance sheet
portfolio primarily reflected lower repossessions and a lower average loss per
repossession in the U.S. retail installment and operating lease portfolio.
22
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
The following table summarizes the activity related to the off-balance
sheet sales of receivables reported as revenues for the periods indicated (in
millions):
First Nine Months
------------------------------------------------
2004
Over/(Under)
2004 2003 2003
----------- ------------- ------------------
Net gain on sales of receivables $ 150 $ 329 $ (179)
Interest income on sold wholesale receivables and
retained securities 467 545 (78)
Servicing fees 329 528 (199)
Excess spread and other 690 737 (47)
------- ------- --------
Investment and other income related to sales of
receivables 1,636 2,139 (503)
Less: Whole-loan income (71) (144) 73
------- ------- --------
Income related to off-balance sheet securitizations $ 1,565 $ 1,995 $ (430)
======= ======= ========
Memo:
Finance receivables sold $ 5,687 $15,648 $ (9,961)
Servicing portfolio as of period-end 43,400 55,020 (11,620)
Pre-tax gain per dollar of retail receivables sold 2.6% 2.1% 0.5 pts.
Investment and other income related to sales of receivables decreased $503
million. This decline primarily resulted from lower off-balance sheet retail
receivables sales in 2004 and lower levels of outstanding sold receivables.
Excluding the effects of whole-loan sale transactions, which totaled $10.4
billion in the 2002-2004 period, off-balance sheet securitization income
declined $430 million.
The net impact of off-balance sheet securitizations on earnings in a given
period will vary depending on the amount and type of receivables sold and the
timing of the transactions in the current period and the preceding two-to-three
year period, as well as the interest rate environment at the time the finance
receivables were originated and securitized.
The following table shows, on an analytical basis, the earnings impact of
off-balance sheet securitizations as if Ford Credit had reported them on-balance
sheet and funded them through asset-backed financings for the periods indicated
(in millions):
First Nine Months
-----------------------------------------------
2004
Over/(Under)
2004 2003 2003
----------- ------------ ------------------
Financing revenue
Retail revenue $ 1,889 $ 2,779 $(890)
Wholesale revenue 817 832 (15)
------- ------- -----
Total financing revenue 2,706 3,611 (905)
Borrowing cost (714) (1,198) 484
------- ------- -----
Net financing margin 1,992 2,413 (421)
Net credit losses (324) (511) 187
------- ------- -----
Income before income taxes $ 1,668 $ 1,902 $(234)
======= ======= =====
Memo:
Income related to off-balance sheet securitizations $ 1,565 $ 1,995 $(430)
Recalendarization impact of off-balance sheet
securitizations (103) 93 (196)
In the first nine months of 2004, the impact to earnings of off-balance
sheet securitizations was $103 million lower than had these transactions been
structured as on-balance sheet securitizations. This difference results from
recalendarization effects caused by gain-on-sale accounting requirements. This
effect will fluctuate as the amount of receivables sold in off-balance sheet
securitizations increases or decreases over time and with changes in market
conditions.
Hertz
-----
The improvement was primarily due to higher rental volume in the leisure
and commercial car rental market segments, offset partially by lower pricing due
to a highly competitive environment. Earnings were also favorably impacted by
lower fleet costs, higher net proceeds received in excess of book value on the
disposal of used vehicles and equipment and improved conditions in North America
equipment rental operations.
23
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
LIQUIDITY AND CAPITAL RESOURCES
Automotive Sector
-----------------
For the Automotive sector, liquidity and capital resources include gross
cash balances, cash generated by operations, funds raised in capital markets and
committed credit lines.
Gross Cash. Automotive gross cash includes cash and cash equivalents,
marketable and loaned securities and assets contained in a short-term Voluntary
Employee Beneficiary Association trust ("VEBA") as detailed below (in billions):
2004 2003
-------------------------------- -------------------------------
September 30 January 1 September 30 January 1
----------------- ------------- ----------------- ------------
Cash and cash equivalents $ 6.7 $ 5.4 $ 6.8 $ 5.2
Marketable securities 10.3 10.8 12.2 17.4
Loaned securities 2.3 5.7 7.0 -
----- ----- ----- ------
Total cash, marketable and
Loaned securities 19.3 21.9 26.0 22.6
Short-term VEBA assets 4.1 4.0 0.9 2.7
----- ----- ----- ------
Gross cash $23.4 $25.9 $26.9 $ 25.3
===== ===== ===== ======
In managing our business, we classify changes in gross cash into four
categories: operating-related (both including and excluding funded pension plan
and long-term VEBA contributions and tax refunds), capital transactions with the
Financial Services sector, acquisitions and divestitures and other (primarily
financing related). Our key metric for operating-related cash flows is cash
flows before funded pension plan and long-term VEBA contributions and tax
refunds. This metric best represents the ability of our Automotive operations to
generate cash. We believe the cash flows analysis reflected in the table below,
which differs from a cash flows statement presented in accordance with GAAP, is
useful to investors because it includes cash flows elements that we consider to
be related to our operating activities (e.g., capital spending) that are not
included in Cash flows from operating activities before securities trading, the
most directly comparable GAAP financial measure.
Changes in Automotive gross cash for the third quarter and first nine
months of 2004 and 2003 are summarized below (in billions):
Third Quarter First Nine Months
----------------------- -----------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
Gross cash at end of period $23.4 $26.9 $23.4 $26.9
Gross cash at beginning of period 26.8 28.7 25.9 25.3
----- ----- ----- -----
Total change in gross cash $(3.4) $(1.8) $(2.5) $ 1.6
===== ===== ===== =====
Operating-related cash flows
Automotive income/(loss) before income
taxes, excluding special items $(0.6) $(0.6) $ 1.3 $ 0.1
Capital expenditures (2.0) (2.2) (4.6) (5.6)
Depreciation and special tools amortization 1.6 1.3 4.8 4.0
Changes in receivables, inventory and trade payables 0.1 (0.9) (1.0) (1.4)
Other (2.0) (1.0) (1.0) 1.5
----- ----- ----- -----
Total operating-related cash flows before pension/
long-term VEBA contributions and tax refunds (2.9) (3.4) (0.5) (1.4)
Funded pension plans/long-term VEBA contributions a/ (1.5) (0.2) (3.0) (1.5)
Tax refunds - 0.6 - 1.4
----- ----- ----- -----
Total operating-related cash flows (4.4) (3.0) (3.5) (1.5)
Capital transactions with Financial Services sector b/ 1.5 1.2 3.4 2.8
Divestitures and acquisitions - 0.1 0.3 0.5
Other
Dividends paid to shareholders (0.2) (0.2) (0.5) (0.5)
Changes in total Automotive sector debt (0.3) (0.1) (2.0) 0.1
Other - (0.1) (0.2) (0.1)
Cash from FIN 46 consolidation - 0.3 - 0.3
----- ----- ----- -----
Total change in gross cash $(3.4) $(1.8) $(2.5) $ 1.6
===== ===== ===== =====
----------
a/ See Note 9 of the Notes to the Financial Statements.
b/ Primarily dividends, capital contributions, loans and loan repayments.
24
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Shown in the table below is a reconciliation between Cash flows from
operating activities before securities trading and operating-related cash flows,
calculated as shown in the table above, for the third quarter and first nine
months of 2004 and 2003 (in billions):
Third Quarter First Nine Months
------------------------- ------------------------
2004 2003 2004 2003
----------- ----------- ---------- ----------
Cash flows from operating activities
before securities trading $(2.2) $(0.9) $ 1.4 a/ $ 4.9 a/
Items included in operating-related cash flows
Capital expenditures (2.0) (2.2) (4.6) (5.6)
Net transactions between Automotive
and Financial Services sectors (0.4) 0.7 0.1 b/ 0.4 b/
Other 0.2 (0.6) (0.4) (1.2)
----- ----- ---- -----
Total operating-related cash flows $(4.4) $(3.0) $(3.5) $(1.5)
===== ===== ===== =====
----------
a/ As shown in our condensed sector statement of cash flows for the Automotive
sector.
b/ Primarily payables and receivables between the sectors in the normal course
of business, as shown in our condensed sector statement of cash flows.
Automotive operating-related cash flows, excluding contributions to our
funded pension plans and long-term VEBA and excluding tax refunds, were negative
$2.9 billion for the third quarter of 2004. This reflected the Automotive
pre-tax loss excluding special items (about $600 million), capital spending net
of depreciation and amortization (about $400 million), and other
operating-related changes. The other operating-related changes were an outflow
of $2 billion in the third quarter of 2004 due to the effects of seasonally
lower vehicle production on marketing and warranty accruals compared with
payments, the higher use of cash marketing incentives in lieu of interest rate
incentives, and tax payments. These changes were offset partially by changes in
receivables, inventory, and trade payables (positive cash flows of about $100
million).
Capital transactions with the Financial Services sector, primarily
dividends received from Ford Credit, totaled $1.5 billion and $3.4 billion in
the third quarter and first nine months of 2004, respectively.
Cash flows related to changes in Automotive sector debt in the third
quarter of 2004 were an outflow of about $300 million, representing primarily
the repurchase of senior debt in the open market. Through the first nine months
of 2004, cash flows related to changes in Automotive sector debt were an outflow
of $2 billion, which primarily represented the repurchase of $1.3 billion of
senior debt (the majority of our purchases have been among four large issues,
which have maturities between 2028 and 2032) and the redemption of our 9% Trust
Originated Preferred Securities, which had the effect of reducing our
subordinated debt by about $700 million.
Debt. At September 30, 2004, our Automotive sector had total senior debt of
$13.6 billion, compared with $15.0 billion at December 31, 2003. The debt
decrease primarily reflected the senior debt repurchases described above.
Ford Motor Company Capital Trust II ("Trust II") had outstanding $5.0
billion of trust preferred securities at September 30, 2004. The dividend and
liquidation preferences on these securities are paid from interest and principal
payments on our junior subordinated debentures held by Trust II in a principal
amount of $5.2 billion.
Credit Facilities. At September 30, 2004, the Automotive sector had $7.2
billion of contractually committed credit agreements with various banks, of
which $7.1 billion were available for use. 79% of the total facilities are
committed through June 30, 2009. Of the $7.2 billion, $6.9 billion constitute
global credit facilities and may be used, at our option, by any of our direct or
indirect majority-owned subsidiaries on a guaranteed basis. We also have the
ability to transfer, on a non-guaranteed basis, $2.5 billion of such global
credit facilities to Ford Credit and $518 million to FCE Bank plc ("FCE"), Ford
Credit's European operation. All of the global credit facilities are free of
material adverse change clauses and restrictive financial covenants (e.g.
debt-to-equity limitations, minimum net worth requirements and credit rating
triggers that would limit our ability to borrow).
25
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Financial Services Sector
-------------------------
Ford Credit
----------
Debt. Ford Credit's total debt was $135.3 billion at September 30, 2004,
down $14.4 billion compared with December 31, 2003. This decrease primarily
reflected repayment of maturing debt and lower asset levels, which reduced Ford
Credit's funding needs. Ford Credit's unsecured commercial paper outstanding at
September 30, 2004 totaled $8.5 billion, up $2.4 billion compared with December
31, 2003.
Funding. During the third quarter of 2004, Ford Credit issued $3.4 billion
of long-term debt with maturities of one to 10 years, including about $2.5
billion of unsecured institutional funding and about $900 million of unsecured
retail bonds. In addition, Ford Credit realized proceeds of $3.8 billion from
sales of receivables in off-balance sheet securitizations.
Ford Credit expects its full-year 2004 public term funding requirements to
be between $13 billion and $18 billion. In the first nine months of 2004, it
completed about $13 billion of public term funding transactions. Because of
significant available liquidity and Ford Credit's relatively smaller balance
sheet size, during the third quarter Ford Credit purchased in open market
transactions a small portion of its outstanding debt securities. Depending on
market conditions, Ford Credit may continue repurchasing a portion of its
outstanding debt securities during the remainder of 2004.
Leverage. Ford Credit uses leverage, or the debt-to-equity ratio, to make
various business decisions, including establishing pricing for retail,
wholesale, and lease financing, and assessing its capital structure. Ford Credit
calculates leverage on a financial statement basis and on a managed basis.
Ford Credit's financial statement leverage is calculated from the
components shown in the following table:
September 30, December 31,
2004 2003
----------------- ----------------
Total debt (in billions) $135.3 $149.7
Total stockholder's equity (in billions) 11.4 12.5
Financial statement leverage (to 1) 11.8 12.0
The decrease in the financial statement leverage resulted primarily from
lower funding requirements.
Ford Credit's managed leverage is calculated from the components shown in
the following table (in billions, except ratios):
September 30, December 31,
2004 2003
--------------- ----------------
Total debt $135.3 $149.7
Securitized off-balance sheet receivables outstanding 38.7 49.4
Retained interest in securitized
off-balance sheet receivables (9.5) (13.0)
Adjustments for cash and cash equivalents (10.1) (15.7)
Adjustments for SFAS No. 133 (3.6) (4.7)
------ ------
Adjusted debt $150.8 $165.7
====== ======
Total stockholder's equity
(including minority interest) $ 11.4 $ 12.5
Adjustment for SFAS No. 133 - 0.2
------ ------
Adjusted equity $ 11.4 $ 12.7
====== ======
Managed leverage (to 1) 13.2 13.0
Ford Credit's dividend policy is based in part on its strategy to maintain
managed leverage in the lower end of the 13 - 14 to 1 range. Based on Ford
Credit's profitability and managed receivable levels, it paid dividends of $3.4
billion in the first nine months of 2004.
Credit Facilities. For additional funding and to maintain liquidity, Ford
Credit and its majority-owned subsidiaries, including FCE, have contractually
committed credit facilities with financial institutions that totaled
approximately $7.3 billion at September 30, 2004. This includes $4.4 billion of
Ford Credit facilities ($3.9 billion global and $0.5 billion non-global) and
$2.9 billion of FCE facilities ($2.7 billion global and $0.2 billion
non-global).
26
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Approximately $0.7 billion of the total facilities were in use at September 30,
2004. Of the $7.3 billion, about 38% of these facilities are committed through
June 30, 2009. The global credit facilities may be used, at Ford Credit's or
FCE's option, by any of their direct or indirect majority-owned subsidiaries.
Ford Credit or FCE, as the case may be, will guarantee any such borrowings. All
of the global credit facilities are free of material adverse change clauses and
restrictive financial covenants (for example, debt-to-equity limitations,
minimum net worth requirements and credit rating triggers) that would limit Ford
Credit's ability to borrow.
Additionally, at September 30, 2004, banks provided $18.9 billion of
contractually committed liquidity facilities supporting two asset-backed
commercial paper programs; $18.5 billion supported Ford Credit's FCAR program
and $425 million supported Ford Credit's Motown NotesSM Program.
In addition, as of October 31, 2004, Ford Credit had entered into
agreements with several bank-sponsored commercial paper issuers ("conduits")
under which such conduits are contractually committed to purchase from Ford
Credit, at Ford Credit's option, up to an aggregate of approximately $12.8
billion of receivables. The agreements have varying maturity dates between
November 30, 2004 and October 13, 2005. As of October 31, 2004, approximately
$3.6 billion of these conduit commitments have been utilized.
Hertz
-----
Debt and Cash. At September 30, 2004, Hertz had total debt of $8.9 billion,
up $1.3 billion from December 31, 2003, reflecting seasonal rental fleet demand.
During the first nine months of 2004, Hertz issued $1.9 billion of medium and
long-term debt with maturities of three to 10 years. At September 30, 2004 and
at December 31, 2003 commercial paper outstanding was $2.2 billion. At September
30, 2004, Hertz had cash and cash equivalents of $536 million, down from $610
million at December 31, 2003.
Hertz has an asset-backed securitization ("ABS") program for its domestic
car rental fleet to reduce its borrowing costs and enhance its financing
resources. As of September 30, 2004, $1.1 billion was outstanding under the ABS
program consisting of $460 million of commercial paper and $600 million of
medium-term notes.
Total Company
-------------
Stockholders' Equity. Our stockholders' equity was $14.1 billion at
September 30, 2004, up $2.4 billion from December 31, 2003. The increase
primarily reflected net income of $3.4 billion less dividends of $549 million
and other comprehensive loss of $380 million. See Note 8 of the Notes to the
Financial Statements for further discussion of other comprehensive
income/(loss).
Debt Ratings. In October 2004, Dominion Bond Rating Service Limited
("DBRS"), 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"), each affirmed the long and short-term debt ratings of, and their
outlook or trend for, Ford and Ford Credit. Also in October 2004, Fitch and
Moody's affirmed the long and short-term ratings of, and their outlook or trend
for, Hertz. In July 2004, DBRS affirmed the long and short-term debt ratings of
Hertz and revised its trend to stable from negative. The ratings as of October
15, 2004 were as follows:
------------------------------------------------------------------------------------------------------------------------------
DBRS Fitch Moody's S&P
------- -------------------------- ---------------------------- ----------------------------- ----------------------------
Long- Short- Long- Short- Long- Short- Long- Short-
Term Term Trend Term Term Outlook Term Term Outlook Term Term Outlook
------- ------- -------- ------- ------- -------- --------- ------- -------- ---------- ------- -------- ---------
Ford BBB R-1 Stable BBB+ F2 Stable Baa1 P-2 Negative BBB- A-3 Stable
(high) (low)
------- ------- -------- ------- ------- -------- --------- ------- -------- ---------- ------- -------- ---------
Ford BBB R-1 Stable BBB+ F2 Stable A3 P-2 Negative BBB- A-3 Stable
Credit (high) (low)
------- ------- -------- ------- ------- -------- --------- ------- -------- ---------- ------- -------- ---------
Hertz BBB R-1 Stable BBB+ F2 Stable Baa2 P-2 Negative BBB- A-3 Stable
(high) (low)
------------------------------------------------------------------------------------------------------------------------------
OFF-BALANCE SHEET ARRANGEMENTS
Special Purpose Entities. At September 30, 2004, the total outstanding
principal amount of receivables sold by Ford Credit and held by off-balance
sheet securitization entities was $38.7 billion, down $10.7 billion from
December 31, 2003. Ford Credit's retained interests in such sold receivables at
September 30, 2004 were $9.5 billion, down $3.5 billion from December 31, 2003.
The decrease in receivables held by off-balance sheet securitization entities
primarily reflected Ford Credit's lower funding requirements. The decrease in
retained interests primarily reflected a
27
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
seasonal decline in dealer stocks, which lowered the amount of wholesale
receivables held in the trust for future sale, and lower retained retail
securities, reflecting lower levels of outstanding sold receivables.
OUTLOOK
Shown below are our 2004 planning assumptions and our milestones for
operational metrics and financial results, as well as our outlook for achieving
these milestones:
Full Year
Milestone Outlook
--------- -------
Planning Assumptions
--------------------
Industry volume (SAAR) - U.S. 17.0 million units 17.2
Europe 16.9 million units 17.3
Operation Metrics
-----------------
Quality Improve in all regions On Track
Market share Flat or improve in all regions Mixed
Automotive cost performance a/ Improve by at least $500 million $1 Billion
Capital spending $7 billion Lower
Operating-related cash flows b/ $1.2 billion positive At Risk
Financial Results Pre-tax income c/
----------------- --------------
(in billions)
Automotive
Americas
Ford North America $ 1.5 - $ 1.7 On Track
Ford South America (0.1) - 0 Better
Ford Europe/PAG
Ford Europe (0.2) - (0.1) Better
PAG 0.5 - 0.6 Worse
Ford Asia Pacific and Africa
/Mazda 0 - 0.1 Better
----- -----
Total Automotive 0.9 - 1.1 On Track
Financial Services 2.6 - 2.7 Better
----- -----
Total Company $ 3.5 - $ 3.8 Better
===== =====
----------
a/ At constant volume, mix and exchange; excluding special items.
b/ Excluding pension/long-term VEBA contributions and tax refunds.
c/ Excluding special items.
We continue to expect the Automotive sector to achieve about $1 billion of
pre-tax income from continuing operations, excluding special items, in 2004. We
expect to meet the milestone for Ford North America and to exceed the milestones
for Ford Europe, Ford South America and Ford Asia Pacific and Africa/Mazda. We
expect PAG to continue to improve from the third quarter to the fourth, but
full-year results will be a loss. Because of Ford Credit's continued
better-than-expected performance, we expect to exceed significantly the
Financial Services sector milestone. Overall, we expect to exceed significantly
our total company milestone for pre-tax income. Special items, including costs
related to our investment in Ballard Power Systems Inc. and improvement actions
in our Ford Europe and PAG business units, are presently estimated to reduce
full-year earnings by $0.13 per share.
Visteon Corporation is our largest supplier, and it also utilizes about
18,000 Ford employees in its U.S. hourly workforce as of September 30, 2004. We
continue to work with Visteon to identify changes that would improve the
efficiency and operating results of both companies. Significant changes in
Visteon's business inevitably have an impact on us.
On October 4, 2004, President Bush signed the "Working Families Tax Relief
Act of 2004", which retroactively reinstated the research tax credit to the June
30, 2004 expiration date. The reinstatement of the research tax credit will be
reflected in our fourth quarter results and will reduce the reported fourth
quarter effective tax rate. As a result, we anticipate our full-year effective
tax rate to be about 25%.
Based on the foregoing and subject to the risks described under "Risk
Factors" below, we expect full-year per share earnings to be in the range of
$2.00 to $2.05 per share from continuing operations, excluding special items.
28
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
RISK FACTORS
Statements included or incorporated by reference herein may constitute
"forward looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements involve a number of risks,
uncertainties, and other factors that could cause actual results to differ
materially from those stated, including, without limitation:
o greater price competition resulting from currency fluctuations, industry
overcapacity or other factors;
o a significant decline in industry sales, particularly in the U.S. or
Europe, resulting from slowing economic growth, geo-political events or
other factors;
o lower-than-anticipated market acceptance of new or existing products;
o economic distress of suppliers that may require us to provide financial
support or take other measures to ensure supplies of materials;
o work stoppages at Ford or supplier facilities or other interruptions of
supplies;
o the discovery of defects in vehicles resulting in delays in new model
launches, recall campaigns or increased warranty costs;
o increased safety, emissions, fuel economy or other regulation resulting in
higher costs and/or sales restrictions;
o unusual or significant litigation or governmental investigations arising
out of alleged defects in our products or otherwise;
o worse-than-assumed economic and demographic experience for our
postretirement benefit plans (e.g., investment returns, interest rates,
health care cost trends, benefit improvements);
o currency or commodity price fluctuations, including rising steel
prices;
o changes in interest rates;
o a market shift from truck sales in the U.S.;
o economic difficulties in any significant market;
o higher prices for or reduced availability of fuel;
o labor or other constraints on our ability to restructure our business;
o a change in our requirements under long-term supply arrangements under
which we are obligated to purchase minimum quantities or pay minimum
amounts;
o credit rating downgrades;
o inability to access debt or securitization markets around the world at
competitive rates or in sufficient amounts;
o higher-than-expected credit losses;
o lower-than-anticipated residual values for leased vehicles;
o increased price competition in the rental car industry and/or a general
decline in business or leisure travel due to terrorist attacks, acts of
war, epidemic disease or measures taken by governments in response thereto
that negatively affect the travel industry; and
o our inability to implement the Revitalization Plan.
OTHER FINANCIAL INFORMATION
The interim financial information included in this Quarterly Report on Form
10-Q for the quarter ended September 30, 2004 has not been audited by
PricewaterhouseCoopers LLP ("PwC"). In reviewing such information, PwC has
applied limited procedures in accordance with professional standards for reviews
of interim financial information. Accordingly, you should restrict your reliance
on their reports on such information. PwC is not subject to the liability
provisions of Section 11 of the Securities Act of 1933 for their reports on the
interim financial information because such reports do not constitute "reports"
or "parts" of the registration statements prepared or certified by PwC within
the meaning of Sections 7 and 11 of the Securities Act of 1933.
Item 3. Quantitative and Qualitative Discussion about Market Risks
------------------------------------------------------------------
There is no material change in the information reported under Part II, Item
7A of our 10-K Report.
29
Item 4. Controls and Procedures
--------------------------------
Evaluation of disclosure controls and procedures. William Clay Ford, Jr.,
our Chief Executive Officer, and Donat R. Leclair, our Chief Financial Officer,
have performed an evaluation of the Company's disclosure controls and
procedures, as that term is defined in Rule 13a-15 (e) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as of September 30, 2004
and each has concluded that such disclosure controls and procedures are
effective to ensure that information required to be disclosed in our periodic
reports filed under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified by the Securities and Exchange
Commission's rules and regulations.
Change in internal controls. No changes in the Company's internal controls
over financial reporting occurred during the quarter ended September 30, 2004
that have materially affected, or are reasonably likely to materially affect,
the Company's internal controls over financial reporting.
30
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
---------------------------
Product Liability Matters
-------------------------
Buell-Wilson v. Ford. (Previously discussed on page 31 of the Quarterly
Report on Form 10-Q for the quarter ended June 30, 2004 ("Second Quarter 10-Q
Report")) On August 19, 2004, the trial court granted Ford's post-trial motions
in part, reducing the compensatory verdicts to a total of $75 million, and
reducing the punitive verdict to $75 million, for a total of $150 million in
damages. We have filed a notice of appeal with the California Court of Appeals.
Crown Victoria Police Interceptor Class Actions. (Previously discussed on
page 29 of the 10-K Report) The jury phase of the trial in the Crown Victoria
Police Interceptor class action in Illinois state court resulted in a defense
verdict; three counts remain for resolution by the judge.
Environmental Matters
---------------------
Wixom Assembly Plant Notice of Violation Regarding Air Emissions
(Previously discussed on page 27 of the 10-K Report) In August 2004, Ford agreed
to an Administrative Consent Order with the Michigan Department of Environmental
Quality ("DEQ") that will resolve the notice of violation. Under the Order, Ford
will pay the DEQ $55,000, which includes DEQ's costs for the investigation and
enforcement action, and the Wixom Plant will implement a Malfunction Abatement
Plan to address abatement equipment malfunctions.
Chicago Assembly Plant Notice of Violation Regarding Waste Handling On
August 23, 2004, the United States Environmental Protection Agency ("EPA"),
Region Five, issued a letter notifying Ford of its intent to file an
administrative complaint for civil penalties based on an initial determination
that Ford's Chicago Assembly Plant violated certain requirements of the Resource
Conservation and Recovery Act. The EPA's allegations arise out of an EPA
inspection of the Chicago Assembly Plant conducted in November 2002. The
violations alleged by EPA include: improper hazardous waste handling and
storage, improper waste characterizations and manifesting, and failure to
conduct and record certain tank and storage area inspections. Ford and the EPA
will likely meet prior to the end of the year to discuss this matter.
Other Matters
-------------
Securities and Exchange Commission Inquiry On October 14, 2004, the
Enforcement Division of the Securities and Exchange Commission ("SEC") notified
Ford that it was conducting an inquiry into the methodology used to account for
pensions and other post-employment benefits. The SEC informed us that we were
one of several issuers to receive a request for information as part of this
inquiry.
31
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
---------------------------------------------------------------------
During the third quarter of 2004, we purchased shares of our Common Stock
as follows:
Total Number of Maximum Number (or
Shares Purchased as Approximate Dollar Value) of
Total Number of Average Part of Publicly Shares that May Yet Be
Shares Price Paid Announced Plans or Purchased Under the Plans or
Period Purchased a/ per Share Programs Programs
--------------------------- ------------------ ------------ ----------------------- -------------------------------
July 1, 2004
through No publicly announced
July 31, 2004 1,448,176 $14.92 0 repurchase program in place
August 1, 2004
through No publicly announced
August 31, 2004 1,646,590 $14.19 0 repurchase program in place
September 1, 2004
through No publicly announced
September 30, 2004 1,593,016 $14.05 0 repurchase program in place
--------- -
No publicly announced
Total 4,687,782 $14.37 0 repurchase program in place
========= =
----------
a/ We currently do not have a publicly announced repurchase program in place.
Of the 4,687,782 shares purchased, 4,683,100 shares were purchased from the
Ford Motor Company Savings and Stock Investment Plan for Salaried Employees
("SSIP") and the Tax Efficient Savings Plan for Hourly Employees
("TESPHE"). Shares are generally purchased from the SSIP and TESPHE when
participants in those plans elect to sell units in the Ford Stock Fund upon
retirement, upon termination of employment with the Company, related to an
in-service distribution, or to fund a loan against an existing account
balance in the Ford Stock Fund. Shares are not purchased from these plans
when a participant transfers account balances out of the Ford Stock Fund
and into another investment option under the plans. The remaining shares
were acquired from our employees in accordance with our various
compensation plans as a result of required share withholdings to pay income
taxes with respect to (i) the lapse of restrictions on restricted stock,
(ii) the issuance of stock as a result of the conversion of restricted
stock equivalents awarded to our executives or directors, or to pay the
exercise price and related income taxes with respect to the exercise of a
stock option.
Item 5. Other Information.
---------------------------
Governmental Standards
----------------------
Motor Vehicle Fuel Economy - U.S. Requirements (Previously discussed on
page 17 of the 10-K Report and page 32 of the Second Quarter 10-Q Report) In
September 2004, the California Air Resources Board ("CARB") passed a resolution
approving a plan to issue regulations by the end of the year aimed at
controlling greenhouse gas emissions from motor vehicles. This resolution paves
the way for rules that would take effect beginning in the 2009 model year and
impose standards that could be equivalent to a Corporate Average Fuel Economy
("CAFE") standard of more than 43 miles per gallon for passenger cars, and
approximately 27 miles per gallon for light trucks by model year 2016. The
Alliance of Automobile Manufacturers and individual companies, including Ford,
have submitted extensive comments opposing the rules and addressing errors in
CARB's underlying economic and technical analyses. CARB is in the process of
completing additional procedural requirements necessary to finalize the rules.
The industry is continuing to participate in the administrative process while
evaluating its options for responding to the rules.
32
Item 6. Exhibits.
-----------------
Please refer to the Exhibit Index on Page 34.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FORD MOTOR COMPANY
------------------------------------
(Registrant)
Date: November 8, 2004 By: /s/James C. Gouin
---------------- --------------------------------
James C. Gouin
Vice President and Controller
33
EXHIBIT INDEX
-------------
Designation Description Method of Filing
------------------ ----------------------------------------------------------------------------------------------
Exhibit 10 Amendment to Ford Motor Company Restricted Stock Filed with this Report
Plan for Non-Employee Directors
Exhibit 12 Ford Motor Company and Subsidiaries Calculation Filed with this Report
of Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends
Exhibit 15 Letter of PricewaterhouseCoopers LLP, Independent Filed with this Report
Accountants, dated November 8, 2004, relating to
Financial Information
Exhibit 31.1 Rule 15d-14(a) Certification of CEO Filed with this Report
Exhibit 31.2 Rule 15d-14(a) Certification of CFO Filed with this Report
Exhibit 32.1 Section 1350 Certification of CEO Furnished with this Report
Exhibit 32.2 Section 1350 Certification of CFO Furnished with this Report
34