UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2003 OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934 For the transition period from to
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Commission file number 1-3950
FORD MOTOR COMPANY
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(Exact name of registrant as specified in its charter)
Incorporated in Delaware 38-0549190
--------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One American Road, Dearborn, Michigan 48126
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 313-322-3000
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Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X|. No [ ].
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes |X|. No [ ].
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding
of each of the issuer's classes of common stock, as of the latest practicable
date: As of July 29, 2003, the Registrant had outstanding 1,761,117,906 shares
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of Common Stock and 70,852,076 shares of Class B Stock.
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Exhibit index located on sequential page number 34
Item 1. Financial Statements
- -----------------------------
Ford Motor Company and Subsidiaries
SECTOR STATEMENT OF INCOME
--------------------------
For the Periods Ended June 30, 2003 and 2002
(in millions, except per share amounts)
Second Quarter First Half
------------------------- --------------------------
2003 2002 2003 2002
------------- ----------- ------------ -------------
(unaudited) (unaudited)
<s> <c> <c> <c> <c>
AUTOMOTIVE
Sales $34,182 $35,197 $68,382 $67,368
Costs and expenses (Note 3)
Cost of sales 31,684 32,245 62,768 62,168
Selling, administrative and other expenses 2,472 2,365 4,785 4,673
------- ------- ------- -------
Total costs and expenses 34,156 34,610 67,553 66,841
------- ------- ------- -------
Operating income/(loss) 26 587 829 527
Interest income 134 171 282 283
Interest expense 229 336 542 697
------- ------- ------- -------
Net interest income/(expense) (95) (165) (260) (414)
Equity in net income/(loss) of affiliated companies 72 (19) 93 (80)
------- ------- ------- -------
Income/(loss) before income taxes - Automotive 3 403 662 33
FINANCIAL SERVICES
Revenues 6,488 7,010 13,176 14,300
Costs and expenses
Interest expense 1,598 1,885 3,242 3,873
Depreciation 2,277 2,540 4,844 5,101
Operating and other expenses 1,219 1,214 2,425 2,652
Provision for credit and insurance losses 679 771 1,272 1,731
------- ------- ------- -------
Total costs and expenses 5,773 6,410 11,783 13,357
------- ------- ------- -------
Income/(loss) before income taxes - Financial Services 715 600 1,393 943
------- ------- ------- -------
TOTAL COMPANY
Income/(loss) before income taxes 718 1,003 2,055 976
Provision for/(benefit from) income taxes 195 289 531 269
------- ------- ------- -------
Income/(loss) before minority interests 523 714 1,524 707
Minority interests in net income/(loss) of subsidiaries 98 95 200 168
------- ------- ------- -------
Income/(loss) from continuing operations 425 619 1,324 539
Income/(loss) from discontinued/held-for-sale operations (3) (9) (6) (21)
Loss on disposal of discontinued/held-for-sale operations (5) (40) (5) (40)
Cumulative effect of change in accounting principle - - - (1,002)
------- ------- ------- -------
Net income/(loss) $ 417 $ 570 $ 1,313 $ (524)
======= ======= ======= =======
Income/(loss) attributable to Common and Class B Stock
after Preferred Stock dividends $ 417 $ 567 $ 1,313 $ (531)
Average number of shares of Common and Class B
Stock outstanding 1,832 1,813 1,832 1,810
AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK (Notes 4 and 10)
Basic income/(loss)
Income/(loss) from continuing operations $ 0.23 $ 0.34 $ 0.72 $ 0.29
Income/(loss) from discontinued/held-for-sale operations - (0.01) - (0.01)
Loss on disposal of discontinued/held-for-sale operations - (0.02) - (0.02)
Cumulative effect of change in accounting principle - - - (0.55)
------- ------- ------- -------
Net income/(loss) $ 0.23 $ 0.31 $ 0.72 $ (0.29)
Diluted income/(loss)
Income/(loss) from continuing operations $ 0.22 $ 0.31 $ 0.67 $ 0.29
Income/(loss) from discontinued/held-for-sale operations - - - (0.01)
Loss on disposal of discontinued/held-for-sale operations - (0.02) - (0.02)
Cumulative effect of change in accounting principle - - - (0.55)
------- ------- ------- -------
Net income/(loss) $ 0.22 $ 0.29 $ 0.67 $ (0.29)
Cash dividends $ 0.10 $ 0.10 $ 0.20 $ 0.20
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 June 30, 2003 and 2002
(in millions, except per share amounts)
Second Quarter First Half
------------------------- --------------------------
2003 2002 2003 2002
------------- ----------- ------------ -------------
(unaudited) (unaudited)
<s> <c> <c> <c> <c>
Sales and revenues
Automotive sales $34,182 $35,197 $68,382 $67,368
Financial Services revenue 6,488 7,010 13,176 14,300
------- ------- ------- -------
Total sales and revenues 40,670 42,207 81,558 81,668
Automotive interest income 134 171 282 283
Costs and expenses
Cost of sales 31,684 32,245 62,768 62,168
Selling, administrative and other expenses 5,968 6,119 12,054 12,426
Interest expense 1,827 2,221 3,784 4,570
Provision for credit and insurance losses 679 771 1,272 1,731
------- ------- ------- ------
Total costs and expenses 40,158 41,356 79,878 80,895
Automotive equity in net income/(loss) of affiliated companies 72 (19) 93 (80)
------- ------- ------- ------
Income/(loss) before income taxes 718 1,003 2,055 976
Provision for/(benefit from) income taxes 195 289 531 269
------- ------ ------- -------
Income/(loss) before minority interests 523 714 1,524 707
Minority interests in net income/(loss) of subsidiaries 98 95 200 168
------- ------ ------- -------
Income/(loss) from continuing operations 425 619 1,324 539
Income/(loss) from discontinued/held-for-sale operations (3) (9) (6) (21)
Loss on disposal of discontinued/held-for-sale operations (5) (40) (5) (40)
Cumulative effect of change in accounting principle - - - (1,002)
------- ------- ------- -------
Net income/(loss) $ 417 $ 570 $ 1,313 $ (524)
======= ======= ======= =======
Income/(loss) attributable to Common and Class B Stock
after Preferred Stock dividends $ 417 $ 567 $ 1,313 $ (531)
Average number of shares of Common and Class B
Stock outstanding 1,832 1,813 1,832 1,810
AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK
Basic income/(loss)
Income/(loss) from continuing operations $ 0.23 $ 0.34 $ 0.72 $ 0.29
Income/(loss) from discontinued/held-for-sale operations - (0.01) - (0.01)
Loss on disposal of discontinued/held-for-sale operations - (0.02) - (0.02)
Cumulative effect of change in accounting principle - - - (0.55)
------- ------- ------- -------
Net income/(loss) $ 0.23 $ 0.31 $ 0.72 $ (0.29)
Diluted income/(loss)
Income/(loss) from continuing operations $ 0.22 $ 0.31 $ 0.67 $ 0.29
Income/(loss) from discontinued/held-for-sale operations - - - (0.01)
Loss on disposal of discontinued/held-for-sale operations - (0.02) - (0.02)
Cumulative effect of change in accounting principle - - - (0.55)
------- ------- ------- -------
Net income/(loss) $ 0.22 $ 0.29 $ 0.67 $ (0.29)
Cash dividends $ 0.10 $ 0.10 $ 0.20 $ 0.20
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)
June 30, December 31,
2003 2002
-------------- --------------
(unaudited)
<s> <c> <c>
ASSETS
Automotive
Cash and cash equivalents $ 7,486 $ 5,180
Marketable securities 14,992 17,464
Loaned securities (Note 5) 4,647 -
-------- --------
Total cash, marketable and loaned securities 27,125 22,644
Receivables 2,438 2,065
Inventories (Note 7) 8,448 6,980
Deferred income taxes 3,188 3,462
Other current assets 6,316 4,551
Current receivable from Financial Services 1,329 1,062
-------- --------
Total current assets 48,844 40,764
Equity in net assets of affiliated companies 2,558 2,470
Net property 38,054 36,364
Deferred income taxes 12,112 11,694
Goodwill (Note 8) 5,094 4,805
Other intangible assets (Note 8) 830 812
Assets of discontinued/held-for-sale operations - 98
Other assets 11,240 10,783
-------- --------
Total Automotive assets 118,732 107,790
Financial Services
Cash and cash equivalents 10,198 7,070
Investments in securities 692 807
Finance receivables, net 109,319 97,030
Net investment in operating leases 36,273 40,055
Retained interest in sold receivables 14,530 17,618
Goodwill (Note 8) 762 752
Other intangible assets (Note 8) 244 248
Assets of discontinued/held-for-sale operations - 2,406
Other assets 16,768 16,643
Receivable from Automotive 4,273 4,803
-------- --------
Total Financial Services assets 193,059 187,432
-------- --------
Total assets $311,791 $295,222
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Automotive
Trade payables $ 15,885 $ 14,606
Other payables 3,326 2,485
Accrued liabilities 31,509 27,644
Debt payable within one year 479 557
-------- --------
Total current liabilities 51,199 45,292
Long-term debt 14,001 13,607
Other liabilities 49,252 46,886
Deferred income taxes 177 303
Liabilities of discontinued/held-for-sale operations 27 138
Payable to Financial Services 4,273 4,803
-------- --------
Total Automotive liabilities 118,929 111,029
Financial Services
Payables 2,621 1,890
Debt 154,958 148,058
Deferred income taxes 11,623 11,644
Other liabilities and deferred income 8,578 9,448
Liabilities of discontinued/held-for-sale operations - 831
Payable to Automotive 1,329 1,062
-------- --------
Total Financial Services liabilities 179,109 172,933
Company-obligated mandatorily redeemable preferred securities of subsidiary
trusts holding solely junior subordinated debentures of the Company 5,669 5,670
Stockholders' equity
Capital stock
Common Stock, par value $0.01 per share (1,837 million shares issued) 18 18
Class B Stock, par value $0.01 per share (71 million shares issued) 1 1
Capital in excess of par value of stock 5,396 5,420
Accumulated other comprehensive income/(loss) (Note 11) (5,065) (6,531)
Treasury stock (1,872) (1,977)
Earnings retained for use in business 9,606 8,659
-------- --------
Total stockholders' equity 8,084 5,590
-------- --------
Total liabilities and stockholders' equity $311,791 $295,222
======== ========
The accompanying notes are part of the financial statements.
4
Item 1. Financial Statements (Continued)
- -----------------------------
Ford Motor Company and Subsidiaries
CONSOLIDATED BALANCE SHEET
--------------------------
(in millions)
June 30, December 31,
2003 2002
--------------- ---------------
(unaudited)
<s> <c> <c>
ASSETS
Cash and cash equivalents $ 17,684 $ 12,250
Marketable securities 15,684 18,271
Loaned securities 4,647 -
Receivables 2,438 2,065
Finance receivables, net 109,319 97,030
Net investment in operating leases 36,273 40,055
Retained interest in sold receivables 14,530 17,618
Inventories 8,448 6,980
Equity in net assets of affiliated companies 3,596 3,569
Net property 39,634 37,935
Deferred income taxes 15,320 15,213
Goodwill 5,856 5,557
Other intangible assets 1,074 1,060
Assets of discontinued/held-for-sale operations - 2,504
Other assets 31,686 29,250
-------- --------
Total assets $306,189 $289,357
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Payables $ 21,832 $ 18,981
Accrued liabilities 29,117 25,088
Debt 169,438 162,222
Other liabilities and deferred income 57,547 56,276
Deferred income taxes 14,475 14,561
Liabilities of discontinued/held-for-sale operations 27 969
-------- --------
Total liabilities 292,436 278,097
Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely
junior subordinated debentures of the Company 5,669 5,670
Stockholders' equity
Capital stock
Common Stock, par value $0.01 per share (1,837 million shares issued) 18 18
Class B Stock, par value $0.01 per share (71 million shares issued) 1 1
Capital in excess of par value of stock 5,396 5,420
Accumulated other comprehensive income/(loss) (5,065) (6,531)
Treasury stock (1,872) (1,977)
Earnings retained for use in business 9,606 8,659
-------- --------
Total stockholders' equity 8,084 5,590
-------- --------
Total liabilities and stockholders' equity $306,189 $289,357
======== ========
The accompanying notes are part of the financial statements.
5
Item 1. Financial Statements (Continued)
- -----------------------------
Ford Motor Company and Subsidiaries
CONDENSED SECTOR STATEMENT OF CASH FLOWS
----------------------------------------
For the Periods Ended June 30, 2003 and 2002
(in millions)
First Half 2003 First Half 2002
---------------------------- -----------------------------
Financial Financial
Automotive Services Automotive Services
------------ --------------- ------------- ---------------
<s> <c> <c> <c> <c>
(unaudited) (unaudited)
Cash and cash equivalents at January 1 $ 5,180 $ 7,070 $ 4,064 $ 3,133
Cash flows from operating activities before
securities trading 5,748 8,444 8,096 8,082
Net sales/(purchases) of trading securities 10 (380) (3,766) (60)
------- -------- ------- --------
Net cash flows from operating activities 5,758 8,064 4,330 8,022
Cash flows from investing activities
Capital expenditures (3,415) (118) (2,936) (300)
Acquisitions of receivables and lease investments - (28,962) - (44,454)
Collections of receivables and lease investments - 18,800 - 27,078
Net acquisitions of daily rental vehicles - (1,545) - (1,896)
Purchases of securities (4,255) (319) (1,030) (320)
Sales and maturities of securities 2,093 376 898 268
Proceeds from sales of receivables and lease investments - 13,573 - 19,430
Proceeds from sale of businesses 77 204 - -
Net investing activity with Financial Services 1,867 - 29 -
Cash paid for acquisitions - - (22) -
Other 489 (37) (45) 426
------- -------- ------- --------
Net cash (used in)/provided by investing activities (3,144) 1,972 (3,106) 232
Cash flows from financing activities
Cash dividends (366) - (369) -
Net sales/(purchases) of Common Stock (3) - 92 -
Proceeds from mandatorily redeemable convertible
preferred securities - - 4,900 -
Changes in short-term debt (119) (2,342) (91) (6,929)
Proceeds from issuance of other debt 825 7,720 265 12,359
Principal payments on other debt (548) (12,395) (691) (13,965)
Repayment of debt from discontinued operations - 1,421 - -
Net financing activity with Automotive - (1,867) - (29)
Other (5) 48 (14) 478
------- -------- ------- --------
Net cash (used in)/provided by financing activities (216) (7,415) 4,092 (8,086)
Effect of exchange rate changes on cash 175 240 75 249
Net transactions with Automotive/Financial Services (267) 267 (1,001) 1,001
------- -------- ------- --------
Net increase/(decrease) in cash and cash equivalents 2,306 3,128 4,390 1,418
------- -------- ------- --------
Cash and cash equivalents at June 30 $ 7,486 $ 10,198 $ 8,454 $ 4,551
======= ======== ======= ========
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 June 30, 2003 and 2002
(in millions)
First Half
2003 2002
----------- ----------
(unaudited)
<s> <c> <c>
Cash and cash equivalents at January 1 $ 12,250 $ 7,197
Cash flows from operating activities before
securities trading 14,192 16,178
Net sales/(purchases) of trading securities (370) (3,826)
-------- --------
Net cash flows from operating activities 13,822 12,352
Cash flows from investing activities
Capital expenditures (3,533) (3,236)
Acquisitions of receivables and lease investments (28,962) (44,454)
Collections of receivables and lease investments 18,800 27,078
Net acquisitions of daily rental vehicles (1,545) (1,896)
Purchases of securities (4,574) (1,350)
Sales and maturities of securities 2,469 1,166
Proceeds from sales of receivables and lease investments 13,573 19,430
Proceeds from sale of businesses 281 -
Cash paid for acquisitions - (22)
Other 452 381
-------- --------
Net cash (used in)/provided by investing activities (3,039) (2,903)
Cash flows from financing activities
Cash dividends (366) (369)
Net sales/(purchases) of Common Stock (3) 92
Proceeds from mandatorily redeemable convertible
preferred securities - 4,900
Changes in short-term debt (2,461) (7,020)
Proceeds from issuance of other debt 8,545 12,624
Principal payments on other debt (12,943) (14,656)
Repayment of debt from discontinued operations 1,421 -
Other 43 464
-------- --------
Net cash (used in)/provided by financing activities (5,764) (3,965)
Effect of exchange rate changes on cash 415 324
-------- --------
Net increase/(decrease) in cash and cash equivalents 5,434 5,808
-------- --------
Cash and cash equivalents at June 30 $ 17,684 $ 13,005
======== ========
The accompanying notes are part of the financial statements.
7
Item 1. Financial Statements (Continued)
- -----------------------------
Ford Motor Company and Subsidiaries
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(unaudited)
1. Financial Statements - The financial data presented herein are unaudited,
but in the opinion of management fairly present in all material respects
the results of operations and financial condition of Ford Motor Company and
its consolidated subsidiaries for the periods and at the dates presented.
Results for interim periods should not be considered indicative of results
for a full year. Reference should be made to the financial statements
contained in our Annual Report on Form 10-K for the year ended December 31,
2002 (the "10-K Report"). For purposes of this report, "Ford", the
"Company", "we", "our", "us" or similar references means Ford Motor Company
and its consolidated subsidiaries unless the context requires otherwise.
Certain amounts for prior periods were reclassified to conform with current
period presentation consistent with the presentation in the 10-K Report.
Reclassifications include profits and losses related to discontinued and
held-for-sale operations.
2. New Accounting Standard - In May 2003, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS")
No. 150, Accounting for Certain Financial Instruments With Characteristics
of Both Liabilities and Equity. SFAS No. 150 establishes how an issuer
classifies and measures certain financial instruments that have
characteristics of both liabilities and equity. The statement requires that
an issuer classify financial instruments that are within its scope as a
liability. Previously, many of these instruments were classified as equity.
SFAS No. 150 is effective immediately for qualifying financial instruments
issued after May 31, 2003 and is effective for existing issuances in the
third quarter 2003. We are adopting SFAS No. 150 as it becomes effective.
We expect to reclassify the trust preferred securities of Ford Motor
Company Capital Trust I ($669 million at June 30, 2003), which are
presently reported in the mezzanine section of the balance sheet.
3. Selected Automotive Costs and Expenses are summarized as follows (in
millions):
Second Quarter First Half
----------------------- ----------------------
2003 2002 2003 2002
---------- --------- --------- ---------
<s> <c> <c> <c> <c>
Depreciation $644 $631 $1,337 $1,219
Amortization of special tools 667 651 1,352 1,223
Postretirement expense 790 572 1,588 1,060
4. Accounting Policy - Stock-based Compensation - During the first quarter of
2003, we adopted the fair value recognition provisions of SFAS No. 123,
Accounting for Stock-Based Compensation, for stock-based employee
compensation, effective as of January 1, 2003. Under the modified
prospective method of adoption selected by the Company under the provisions
of SFAS No. 148, Accounting for Stock-Based Compensation - Transition and
Disclosure, stock-based employee compensation expense recognized in 2003 is
the same as that which would have been recognized had the fair value
recognition provisions of SFAS No. 123 been applied to all awards from its
original effective date. Results of prior years have not been restated. The
following table illustrates the effect on net income and earnings per share
if the fair value method had been applied to all outstanding and unvested
stock option awards in each period (in millions):
Second Quarter First Half
------------------------- ------------------------
2003 2002 2003 2002
------------ ----------- ----------- ------------
<s> <c> <c> <c> <c>
Net income/(loss) attributable to Common
and Class B Stock, as reported $ 417 $ 567 $1,313 $ (531)
Add: Employee stock option expense included in
reported net income, net of related tax effects 28 - 55 -
Deduct: Total employee stock option expense
determined under fair value method for all
awards, net of related tax effects (28) (41) (55) (70)
------ ------ ------ ------
Pro forma net income/(loss) $ 417 $ 526 $1,313 $ (601)
====== ====== ====== ======
Earnings per share:
Basic - as reported $ 0.23 $ 0.31 $ 0.72 $(0.29)
Basic - pro forma $ 0.23 $ 0.29 $ 0.72 $(0.33)
Diluted - as reported $ 0.22 $ 0.29 $ 0.67 $(0.29)
Diluted - pro forma $ 0.22 $ 0.27 $ 0.67 $(0.33)
8
Item 1. Financial Statements (Continued)
- -----------------------------
Ford Motor Company and Subsidiaries
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(unaudited)
5. Loaned Securities - We loan certain securities from our portfolio to other
institutions. Such securities are classified as Loaned securities on the
Balance Sheet. Collateral for the loaned securities, consisting of cash or
other securities, is required to be maintained at a rate of 102% of the
market value of a loaned security. Cash collateral received is recorded as
an asset in Other current assets, offset by an obligation to return the
collateral in Other payables. Income received from loaning securities is
recorded as Interest income.
6. FCAR Owner Trust - Ford Credit uses a special purpose trust, FCAR Owner
Trust ("FCAR"), as a source of funds for its operations. FCAR's activities
are limited to issuing asset-backed commercial paper and other securities
and buying highly rated asset-backed securities issued by securitization
special purpose entities ("SPEs") sponsored by Ford Credit.
In the second quarter of 2003, Ford Credit purchased a portion of the
equity of FCAR from unaffiliated parties. As a result of this transaction,
FCAR's assets, liabilities and results of operations were consolidated into
Ford Credit's financial statements. In addition, the accounting
consolidation of FCAR also caused certain of the Ford Credit sponsored
securitization SPEs that sell asset-backed securities to FCAR to lose their
status as qualifying SPEs under the Statement of Financial Accounting
Standards ("SFAS") No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities. Consequently, the
receivables previously sold by us to these SPEs were deemed to be
reacquired by us in accordance with SFAS No.140 requirements and are now
reported on-balance sheet at fair value as of June 30, 2003. Following the
accounting consolidation of FCAR, most sales of receivables to Ford
Credit-sponsored SPEs that sell asset-back securities to FCAR will not
qualify as sales for accounting purposes and will, instead, be reported
on-balance sheet.
The accounting consolidation of FCAR did not have a material impact on Ford
Credit's earnings, back-up credit facilities, unsecured debt funding
programs or other securitization programs. No gain or loss was recorded
upon consolidation. Notwithstanding this accounting consolidation, the
receivables sold to the SPEs and the asset-backed securities held by FCAR
remain available only for the SPEs and FCAR and their investors and other
participants and are not available to pay Ford Credit's obligations or the
claims of its creditors. The bankruptcy remoteness of these entities and
the isolation of assets achieved in these transactions were not changed by
the consolidation of FCAR.
At June 30, 2003, about $12 billion of retail installment receivables
reported on Ford Credit's balance sheet have been sold for legal purposes
to Ford Credit-sponsored SPEs that sell asset-backed securities to FCAR and
are available only to pay securitization investors and other participants
and are not available to pay the obligations of Ford Credit or the claims
of Ford Credit's creditors. These finance receivables supported $11.3
billion of asset-backed commercial paper issued by FCAR, which is payable
solely out of collections on these receivables and is not the legal
obligation of Ford Credit.
7. Automotive Inventories are summarized as follows (in millions):
June 30, December 31,
2003 2002
--------------- ----------------
<s> <c> <c>
Raw materials, work in process and supplies $3,543 $3,174
Finished products 5,866 4,763
------ ------
Total inventories at FIFO 9,409 7,937
Less LIFO adjustment (961) (957)
------ ------
Total inventories $8,448 $6,980
====== ======
8. Goodwill and Other Intangibles - We perform annual testing in the second
quarter on goodwill and certain other intangible assets to determine if any
impairment (i.e., the comparison of estimated fair value to carrying value)
has occurred. Fair value is estimated using the present value of expected
cash flows. No impairment resulted from our annual test in the second
quarter of 2003.
Changes in the carrying amount of goodwill are as follows (in millions):
Automotive Sector Financial Services Sector
---------------------------------------- -----------------------------------
North America International Ford Credit Hertz
------------------ ------------------ ---------------- ---------------
<s> <c> <c> <c> <c>
Beginning balance,
December 31, 2002 $ 157 $4,648 $ 129 $ 623
Impairment - - - -
Exchange translation/other * 5 284 - 10
------ ------ ------ ------
Ending balance, June 30, 2003 $ 162 $4,932 $ 129 $ 633
====== ====== ====== ======
- - - - -
* Primarily reflects the impact of foreign exchange.
In addition, included within Equity in net assets of affiliated companies
was goodwill of $412 million at June 30, 2003.
9
Item 1. Financial Statements (Continued)
- -----------------------------
Ford Motor Company and Subsidiaries
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(unaudited)
8. Goodwill and Other Intangibles (Continued)
The components of identifiable intangible assets are as follows as of June
30, 2003 (in millions):
Automotive Sector Financial Services Sector
---------------------------------------- --------------------------------------------
Amortizable Non-amortizable Amortizable Non-amortizable
--------------- --------------------- ------------------ ----------------------
<s> <c> <c> <c>
Gross carrying amount $500 $414 $ 91 $189
Less: accumulated
amortization (84) - (36) -
---- ---- ---- ----
Net intangible assets $416 $414 $ 55 $189
==== ==== ==== ====
Pre-tax amortization expense for the six months ended June 30, 2003 was $13
million. Intangible asset amortization is forecasted to range from about
$15 to $25 million per year for the next five years.
9. Variable Interest Entities - In January 2003, the FASB issued
Interpretation No. 46, Consolidation of Variable Interest Entities ("FIN
46"), which clarifies accounting guidance on consolidation. A Variable
Interest Entity ("VIE") does not share economic risk and reward through
typical equity ownership arrangements; instead, contractual or other
relationships re-distribute economic risks and rewards among equity holders
and other parties. Once an entity is determined to be a VIE, the party with
the controlling financial interest, the primary beneficiary, is required to
consolidate it. FIN 46 also requires disclosures regarding significant
relationships with VIEs, whether or not consolidated.
Automotive:
Ford has determined that a subsidiary trust, the Ford Motor Capital Trust
II ("Trust II") is a VIE, of which Ford is not the primary beneficiary.
Trust II has outstanding 6.50% Cumulative Convertible Trust Preferred
Securities with an aggregate liquidation preference of $5 billion. The sole
assets of Trust II are $5,155 million principal amount of 6.5% Junior
Subordinated Debentures due 2032 of Ford Motor Company. Prior to July 1,
2003, Trust II has been consolidated with Ford for financial statement
purposes and the preferred shares of Trust II have been presented within
the mezzanine section of our balance sheet. Beginning in the third quarter,
we expect to de-consolidate Trust II and Ford's obligation represented by
the junior subordinated debentures will be reported as a component of
Long-term debt within the balance sheet. The de-consolidation would not
change Trust II's obligations to its preferred shareholders or our
obligations to Trust II.
The Automotive sector has invested in and contracted with joint ventures to
manufacture and/or assemble vehicles or components, several of which may be
VIEs of which Ford expects to be the primary beneficiary and, upon Ford's
adoption of FIN 46, plans to consolidate.
In the second quarter of 2003, we consolidated a newly formed joint
venture:
Tekfor Cologne Gmbh - a 50/50 joint venture with Neumayer Holdings
GmbH, a German company, to which we transferred our forging operations
in Cologne. The joint venture produces forged components, primarily
for transmissions and chassis, for use in Ford vehicles and sales to
third parties. Ford currently supplies most of the hourly and salaried
labor requirements of this joint venture. Ford employees who worked at
the transferred operations at the time of the formation of the joint
venture are assigned to the joint venture by Ford. In the event of
surplus labor at the joint venture, Ford employees assigned to the
joint venture may return to Ford. Employees hired in the future to
work in these operations will be employed directly by the joint
venture. Tekfor Cologne Gmbh reimburses Ford for the full cost of the
hourly and salaried labor supplied by Ford.
In the third quarter of 2003, we plan to consolidate the following
pre-existing joint ventures:
Ford Otosan - a long-standing joint venture in Turkey between Ford
(41% partner), the Koc Group of Turkey (41% partner) and public
investors (18%). Ford Otosan is our single source supplier of the new
Ford Transit Connect vehicle. In addition, we recently announced that
production of the Ford Transit Van in Europe currently taking place at
our Genk Plant in Belgium will be transferred to the Kocaeli Plant
owned by Ford Otosan. Ford Otosan now assembles a limited number of
Transit Vans for selected markets. We expect that the Kocaeli Plant's
capacity will be expanded to replace the Genk Plant production
following conclusion of binding agreements. At that point, Ford Otosan
will assemble Transit as a major supplier to our European Automotive
operations. Production of the Transit Van in Southampton, England will
continue. Substantially all of the salaried and hourly labor
requirements of Ford Otosan are employees of Ford Otosan, with only a
limited number of Ford salaried employees assigned to Ford Otosan to
provide technical assistance. Ford Otosan reimburses us for the full
cost of the employees we supply.
10
Item 1. Financial Statements (Continued)
- -----------------------------
Ford Motor Company and Subsidiaries
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(unaudited)
9. Variable Interest Entities (Continued)
Getrag Ford Transmissions GmbH - a 50/50 joint venture with Getrag
Deutsche Venture GmbH & Co. Kg i.G., a German company, to which we
transferred our European manual transmission operations in Halewood,
England, Cologne, Germany and Bordeaux, France. The Getrag joint
venture produces manual transmissions for our European vehicle
assembly operations. Ford currently supplies most of the hourly and
salaried labor requirements of the operations transferred to the
Getrag joint venture. Ford employees who worked at the transferred
operations at the time of the formation of the joint venture are
assigned to the joint venture by Ford. In the event of surplus labor
at the joint venture, Ford employees assigned to the joint venture may
return to Ford. Employees hired in the future to work in these
operations will be employed directly by the joint venture. Getrag Ford
Transmissions GmbH reimburses Ford for the full cost of the hourly and
salaried labor supplied by Ford.
ZF Transmission Technologies L.L.C. - a joint venture between Ford
(49% partner) and ZF Friedrichshafen Germany (51% partner). This joint
venture owns ZF Batavia L.L.C. which operates our former Batavia, Ohio
automatic transmission business. ZF Batavia L.L.C. will produce,
starting in 2003, a Front Wheel Drive Continuously Variable
Transmission ("CVT") for use in certain of our vehicles sold in North
America and Europe. ZF Batavia also produces a Front Wheel Drive
4-Speed Automatic Transmission that is currently used in the Ford
Mondeo, as well as in both the Ford Escape and Mazda Tribute. Ford
supplies part of the hourly labor requirements to the ZF Batavia plant
consisting primarily of Ford hourly employees who worked at the plant
prior to the joint venture being formed. ZF Batavia reimburses Ford
for the full cost of the hourly labor.
Dealer Development Automotive Dealerships ("DDD") - Since 1950, Ford
has been operating its DDD program. The DDD program's purpose is to
facilitate the establishment of independent franchised dealers by
allowing a participating dealership operator to become the sole owner
of a Ford and/or Lincoln Mercury dealership corporation by purchasing
equity from Ford using the operator's share of dealership net profits.
Ford has launched over 1,600 dealerships via the DDD program since its
inception and currently holds equity interests in approximately 160
dealerships.
We are currently analyzing these and other joint ventures to determine the
impact of consolidation under FIN 46. We believe additional liabilities
recognized as a result of consolidating VIEs would not represent additional
claims on our general assets; rather, they would represent claims against
the additional assets recognized as a result of consolidating the VIEs.
Conversely, we believe additional assets recognized as a result of
consolidating these VIEs would not represent additional assets that could
be used to satisfy claims against our general assets.
Additionally, we have identified a VIE for which we are not the primary
beneficiary, Kwik-Fit Group Limited, of which we have a 19% equity
interest. Kwik-Fit Group Limited is the company that acquired our former
interest in Kwik-Fit Holdings Ltd.
Ford Credit:
Ford Credit has identified FCAR as a VIE. As discussed in Note 6, Ford
Credit purchased certain interests in FCAR from unaffiliated parties, which
resulted in the financial statement consolidation of FCAR in the second
quarter of 2003.
In addition, Ford Credit sells receivables to bank-sponsored asset-backed
commercial paper issuers that are SPEs of the sponsor bank. Under FIN 46,
the sponsor banks may be required to consolidate the assets and liabilities
of these SPEs into their financial results or restructure these SPEs. At
June 30, 2003, these SPEs held approximately $6 billion of retail
installment sale contracts previously owned by Ford Credit. Ford Credit
believes it will not be required to consolidate any portion of these SPEs
in its financial results under FIN 46. Also, none of the bank sponsors have
indicated to Ford Credit any intention to terminate their SPEs or reduce
their purchases of receivables as a result of FIN 46.
Ford Credit also has reviewed its joint venture arrangements and has
determined that three may be VIEs. Ford Credit is continuing to analyze
these joint ventures to determine if it is the primary beneficiary.
Consolidation of these entities into Ford Credit would not materially
impact our financial statements.
11
Item 1. Financial Statements (Continued)
- -----------------------------
Ford Motor Company and Subsidiaries
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(unaudited)
10. Income Per Share of Common and Class B Stock - The calculation of diluted
income per share of Common and Class B Stock takes into account the effect
of obligations, such as stock options, considered to be potentially
dilutive. Basic and diluted income per share were calculated using the
following (in millions):
Second Quarter First Half
-------------------------- ---------------------------
2003 2002 2003 2002
----------- ----------- ----------- ------------
<s> <c> <c> <c> <c>
Diluted Income
--------------
Income/(loss) attributable to Common and Class B
Stock after Preferred Stock dividends $ 417 $ 567 $1,313 $ (531)
Convertible preferred securities interest 54 54 107 -
------ ------ ------ ------
Diluted income/(loss) $ 471 $ 621 $1,420 $ (531)
====== ====== ====== ======
Average shares outstanding 1,832 1,813 1,832 1,810
Issuable and uncommitted ESOP shares (2) (1) (2) (1)
------ ------ ------ ------
Basic shares 1,830 1,812 1,830 1,809
Net dilutive effect of options 12 18 8 17
Convertible preferred securities 282 282 282 -*
------ ------ ------ ------
Diluted shares 2,124 2,112 2,120 1,826
====== ====== ====== ======
- - - - -
* Not included in calculation of diluted earnings per share due to their
antidilutive effect (282 million shares related to convertible preferred
securities).
11. Comprehensive Income - Other comprehensive income primarily reflects
adjustments for foreign currency translation and SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities. Total comprehensive
income is summarized as follows (in millions):
Second Quarter First Half
-------------------------- ---------------------------
2003 2002 2003 2002
----------- ----------- ----------- ------------
<s> <c> <c> <c> <c>
Net income/(loss) $ 417 $ 570 $1,313 $ (524)
Other comprehensive income/(loss) 1,054 2,321 1,466 2,981
------ ------ ------ ------
Total comprehensive income/(loss) $1,471 $2,891 $2,779 $2,457
====== ====== ====== ======
12. Guarantees - On November 26, 2002, FASB issued Interpretation No. 45 ("FIN
45"), Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others. For certain
guarantees issued after December 31, 2002, FIN 45 requires a guarantor to
recognize, upon issuance of a guarantee, a liability for the fair value of
the guarantee. The fair values of guarantees and indemnifications issued
during 2003 are recorded in the financial statements and are de minimis.
At June 30, 2003, the following guarantees were issued and outstanding:
Guarantees related to affiliates and third parties: We guarantee debt and
lease obligations of certain joint ventures as well as certain financial
obligations of outside third parties to support business and economic
growth. Expiration dates vary, and guarantees will terminate on payment
and/or cancellation of the obligation. A payment would be triggered by
failure of the guaranteed party to fulfill its obligation covered by the
guarantee. In some circumstances, we are entitled to recover from the third
party amounts paid by us under the guarantee. However, our ability to
enforce these rights is sometimes stayed until the guaranteed party is paid
in full. The maximum potential payments under these guarantees total
approximately $541 million, the majority of which relates to the Automotive
sector.
Sales to third parties of Automotive receivables, with recourse: From time
to time, the Automotive sector sells receivables to third parties with
recourse. Receivables are sold on a rolling basis and individual sales
liquidate at different times. A payment would be triggered by failure of
the obligor to fulfill its obligations covered by the contract. The maximum
potential amount of future payments is approximately $23 million.
Indemnifications: In the ordinary course of business, we execute contracts
involving indemnifications standard in the industry and indemnifications
specific to a transaction such as the sale of a business. These
indemnifications might include claims against any of the following:
environmental, tax and shareholder matters; intellectual property rights;
governmental regulations and employment-related matters; dealer, supplier,
and other commercial contractual relationships; and financial matters, such
as securitizations. Performance under these indemnities would generally be
triggered by a breach of terms of the contract or by a third party claim.
We regularly evaluate the
12
Item 1. Financial Statements (Continued)
- -----------------------------
Ford Motor Company and Subsidiaries
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(unaudited)
12. Guarantees (Continued)
probability of having to incur costs associated with these indemnifications
and have accrued for expected losses that are probable. The primary types
of indemnifications for which payments are possible are as follows:
Environmental: We have indemnified various parties for costs
associated with remediating numerous hazardous substance storage,
recycling or disposal sites and, in some instances, for natural
resource damages. Costs or damages for which we may be held
responsible could be substantial. The contingent losses that we expect
to incur in connection with these sites have been accrued and are
reflected in our financial statements in accordance with generally
accepted accounting principles. The aggregate amount accrued for
environmental indemnification liabilities reflected in our financial
statements is $100 million. The accrual represents the estimated cost
to study potential environmental issues at sites and the estimated
cost to implement remediation actions, including on-going maintenance,
as required. Cost estimates are developed by site. Initial cost
estimates are based on historical experience at similar sites and are
refined over time on the basis of in-depth studies of the site.
For many sites, the remediation costs and other damages for which we
ultimately may be responsible are not reasonably estimable because of
uncertainties with respect to factors such as our connection to the
site, the materials there, the involvement of other responsible
parties, the application of laws and other standards or regulations,
site conditions, and the nature and scope of investigations, studies,
and remediation to be undertaken (including the technologies to be
required and the extent, duration, and success of remediation). As a
result, we are unable to estimate a maximum amount for costs or other
damages for which we are potentially responsible in connection with
these indemnifications.
Tax: We provide various tax-related indemnifications that typically
protect the indemnified party from certain events that result in a tax
treatment different from that originally anticipated. In some cases,
tax indemnifications relate to representations or warranties given by
us. Our liability is fixed when a final determination of the
indemnified party's tax liability is made. In some cases, a payment
under a tax indemnification may be offset in whole or in part by
refunds from the applicable governmental taxing authority. We are
party to numerous tax indemnifications and many of these indemnities
do not limit potential payment; therefore, we are unable to estimate a
maximum amount of potential future payments that could result from
claims made under these indemnities.
Product Performance:
Warranty: Estimated warranty costs and additional service actions are
accrued for at the time the vehicle is sold to a dealer. Included in
the warranty cost accruals are costs for basic warranty coverages on
vehicles sold. Product recalls and other customer service actions are
not included in the warranty reconciliation below but are also accrued
for at the time of sale. Estimates for warranty costs are made based
primarily on historical warranty claim experience. The following is a
tabular reconciliation of the product warranty accrual (in millions):
Beginning balance, December 31, 2002 $ 5,401
Payments made in 2003 (1,694)
Changes in accrual related to warranties issued in 2003 1,698
Changes in accrual related to pre-existing warranties (136)
Foreign currency translation 131
-------
Ending balance, June 30, 2003 $ 5,400
=======
13. Segment Information - The Company's operating activity consists of two
operating sectors, Automotive and Financial Services.
The Automotive sector consists of the design, development, manufacture,
sale and service of cars, trucks and service parts. Beginning in 2003, we
are reporting our Automotive sector results as two primary segments, North
America and International. The North America segment includes primarily the
sale of Ford, Lincoln and Mercury brand vehicles and related service parts
in the U.S., Canada and Mexico, and the associated costs to design,
develop, manufacture and service these vehicles and parts. The
International segment includes primarily the sale of Ford brand vehicles
and related service parts outside of North America and the sale of Premier
Automotive Group brand vehicles (i.e., Volvo, Jaguar, Land Rover and Aston
Martin) and related service parts throughout the world (including North
America), together with the associated costs to design, develop,
manufacture and service these vehicles and parts. Additionally, the
International segment includes our share of the results of Mazda Motor
Corporation and Mazda-related joint ventures. The Other Automotive
component of the Automotive sector consists primarily of net interest
expense, which is not managed individually by the two segments.
Transactions among automotive segments are presented on an absolute cost
basis, eliminating the effect of legal entity transfer prices within the
Automotive sector for vehicles, components and product engineering. Prior
to 2003, the Automotive sector was reported as one segment. Prior period
information reflects the two reporting segments within the Automotive
sector.
13
Item 1. Financial Statements (Continued)
- -----------------------------
Ford Motor Company and Subsidiaries
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(unaudited)
13. Segment Information (Continued)
The Financial Services sector primarily includes two segments, Ford Credit
and Hertz. Ford Credit provides vehicle-related financing, leasing, and
insurance. Hertz rents cars, light trucks and industrial and construction
equipment.
Segment selection is based upon the organizational structure that we use to
evaluate performance and make decisions on resource allocation, as well as
availability and materiality of separate financial results consistent with
that structure.
14
Item 1. Financial Statements (Continued)
- -----------------------------
Ford Motor Company and Subsidiaries
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(unaudited)
13. Segment Information (Continued)
Elims/
Automotive Sector Financial Services Sector a/ Other Total
---------------------------------- ------------------------------------ ------- -------
North Inter- Ford Elims/ b/
America national Other Total Credit Hertz Other Total
------- -------- ------ -------- -------- ------- ------ --------
<s> <c> <c> <c> <c> <c> <c> <c> <c> <c> <c>
SECOND QUARTER 2003
Revenues
External customer $20,698 $13,484 $ - $ 34,182 $ 5,103 $ 1,266 $ 119 $ 6,488 $ - $ 40,670
Intersegment 1,111 420 - 1,531 79 9 (6) 82 (1,613) -
Income
Income/(loss) before income taxes 445 (411) (31) 3 661 57 (3) 715 - 718
SECOND QUARTER 2002
Revenues
External customer $23,087 $11,815 $ 295 $ 35,197 $ 5,640 $ 1,257 $ 113 $ 7,010 $ - $ 42,207
Intersegment 1,456 191 - 1,647 90 8 (4) 94 (1,741) -
Income
Income/(loss) before income taxes 921 (371) (147) 403 519 72 9 600 - 1,003
FIRST HALF 2003
Revenues
External customer $42,913 $25,469 $ - $ 68,382 $ 10,573 $ 2,411 $ 192 $ 13,176 $ - $ 81,558
Intersegment 2,127 710 - 2,837 158 15 (7) 166 (3,003) -
Income
Income/(loss) before income taxes 1,681 (764) (255) 662 1,388 (2) 7 1,393 - 2,055
Other Disclosures
Total assets at June 30 118,732 175,000 13,086 4,973 193,059 - 311,791
FIRST HALF 2002
Revenues
External customer $44,560 $22,216 $ 592 $ 67,368 $ 11,497 $ 2,340 $ 463 $ 14,300 $ - $ 81,668
Intersegment 2,450 449 - 2,899 175 15 - 190 (3,089) -
Income
Income/(loss) before income taxes 1,386 (840) (513) 33 915 13 15 943 - 976
Other Disclosures
Total assets at June 30 100,797 172,567 12,038 4,889 189,494 - 290,291
- - - - - -
a/ Financial Services sector's interest income is recorded as Revenues.
b/ Includes intersector transactions occurring in the ordinary course of
business.
15
Item 1. Financial Statements (Continued)
- -----------------------------
Report of Independent Accountants
To the Board of Directors and Stockholders
Ford Motor Company:
We have reviewed the accompanying consolidated balance sheet of Ford Motor
Company and its subsidiaries as of June 30, 2003, and the related consolidated
statement of income for each of the three-month and six-month periods ended June
30, 2003 and 2002 and the consolidated statement of cash flows for the six-month
periods ended June 30, 2003 and 2002. In addition, we have reviewed the
accompanying interim sector balance sheet and the related sector statements of
income and cash flows, presented for purposes of additional analysis. The
consolidated interim and sector financial statements (collectively, the
"financial statements") are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with generally
accepted auditing standards, the objective of which is the expression of an
opinion regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated and sector basis interim financial
statements for them to be in conformity with accounting principles generally
accepted in the United States of America.
As discussed in Note 4 to the consolidated financial statements, on January 1,
2003, the Company adopted Statement of Financial Accounting Standards No.148,
"Accounting for Stock-Based Compensation - Transition and Disclosure", which
changed the method for accounting for stock-based employee compensation.
We previously audited in accordance with auditing standards generally accepted
in the United States of America, the consolidated and sector balance sheets as
of December 31, 2002, and the related consolidated statements of income,
stockholders' equity, and of cash flows for the year then ended (not presented
herein), and in our report dated January 17, 2003 we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying consolidated and sector balance sheets
as of December 31, 2002, is fairly stated in all material respects in relation
to the consolidated and sector balance sheets from which it has been derived.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Detroit, Michigan
July 15, 2003
16
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations
- -------------
SECOND QUARTER RESULTS OF OPERATIONS
Our worldwide earnings were $417 million in the second quarter of 2003, or
$0.22 per diluted share of Common and Class B Stock. In the second quarter of
2002, earnings were $570 million, or $0.29 per share.
Our worldwide Automotive sales and Financial Services revenues totaled
$40.7 billion in the second quarter of 2003, down $1.5 billion from a year ago.
Unit sales of cars and trucks were 1,717,000 units, down 137,000 units from a
year ago. In the second quarter of 2003, our U.S. corporate market share was
20.6%, down 0.7 percentage points from the same period a year ago. Our European
corporate market share was 10.8% in the second quarter of 2003, unchanged from
the same period a year ago.
Results by business sector for the second quarter of 2003 and 2002 are
shown below (in millions):
Second Quarter Net Income/(Loss)
---------------------------------------
2003
Over/(Under)
2003 2002* 2002
----------- ------------ --------------
<s> <c> <c> <c>
Income/(loss) before income taxes
Automotive sector $ 3 $ 403 $(400)
Financial Services sector 715 600 115
------ ------ -----
Total Company 718 1,003 (285)
Provision for/(benefit from) income taxes 195 289 (94)
Minority interests in net income/(loss) of subsidiaries 98 95 3
------ ------ -----
Income/(loss) from continuing operations 425 619 (194)
Income/(loss) from discontinued/held-for-sale operations (3) (9) 6
Loss on disposal of discontinued/held-for-sale operations (5) (40) 35
------ ------ -----
Net income/(loss) $ 417 $ 570 $(153)
====== ====== =====
- ------------
* Certain amounts were reclassified to conform to current period presentation
consistent with the presentation in our 10-K Report. Reclassifications include
profits and losses related to discontinued and held-for-sale operations.
Automotive Sector
- -----------------
As discussed in our 10-K Report, beginning with the first quarter of 2003,
we expanded the number of operating segments we present by reporting two
segments within our Automotive sector - North America and International.
The North America Automotive segment primarily includes the sale of Ford,
Lincoln and Mercury brand vehicles and related service parts in the U.S., Canada
and Mexico, and the associated costs to design, develop, manufacture and service
these vehicles and parts. The International Automotive segment primarily
includes the sale of Ford brand vehicles and service parts outside of North
America and the sale of Premier Automotive Group ("PAG") brand vehicles (i.e.,
Volvo, Jaguar, Land Rover and Aston Martin) and related service parts throughout
the world (including North America), together with the associated costs to
design, develop, manufacture and service these vehicles and parts. We are
providing separate results for the business units within our International
Automotive segment (i.e., Ford Europe, Ford South America, Ford Asia Pacific and
PAG).
Previously, we reported Automotive financial results on a geographic/legal
entity basis. The new segment reporting is on a business-unit basis consistent
with the way our two Automotive segments are managed. Costs for each segment and
business unit within each segment reflect absolute corporate costs, eliminating
the effect of transfer prices within the Automotive sector for vehicles,
components and product engineering that were previously reported in geographic
results. Interest income and expense and results of non-core Automotive
businesses are reported in Other Automotive; these were previously included in
geographic results.
Worldwide income before income taxes for our Automotive sector was $3
million in the second quarter of 2003 on sales of $34.2 billion, compared with
income before income taxes in the second quarter of 2002 of $403 million on
sales of $35.2 billion. The decline reflected the non-recurrence of a U.S.
dealer stock build in the second quarter of 2002 and lower U.S. and Europe
industry volume, together with lower net pricing, partially offset by improved
cost performance. Improved cost performance is the net result of decreases in
current model product costs, warranty and additional service action costs,
manufacturing and engineering costs and overhead, partially offset by increased
product costs for new models and pension and healthcare benefits.
17
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations (Continued)
- -------------
Details of second quarter Automotive sector results before income taxes are
shown below (in millions):
Second Quarter Income/(Loss)
Before Income Taxes
----------------------------------------
2003
Over/(Under)
2003 2002 2002
------------ ------------ --------------
<s> <c> <c> <c>
North America Automotive segment $ 445 $ 921 $(476)
International Automotive segment
- Ford Europe (525) (18) (507)
- Ford South America (69) (198) 129
- Ford Asia Pacific (28) (53) 25
- Premier Automotive Group 166 (122) 288
- Other International 45 20 25
----- ----- -----
Total International Automotive segment (411) (371) (40)
Other Automotive (31) (147) 116
------ ----- -----
Total Automotive sector $ 3 $ 403 $(400)
===== ===== =====
North America Automotive Segment
Income before income taxes for our North America Automotive segment was
$445 million in the second quarter of 2003 on sales of $20.7 billion. Income
before income taxes in the second quarter of 2002 was $921 million on sales of
$23.1 billion. The decline reflected lower net pricing and lower vehicle
production volume due to the non-recurrence of a dealer stock build in 2002 and
lower industry volume, partially offset by strong cost performance and product
mix improvements.
In the second quarter of 2003, our unit sales in North America were 980,000
down from 1,120,000 for the same period a year ago. Our U.S. market share for
Ford, Lincoln, and Mercury brand vehicles was 19.3% in the second quarter of
2003, down 0.8 percentage points from a year ago, reflecting primarily the
discontinuation of various models (Ford Escort, Lincoln Continental, Mercury
Cougar and Mercury Villager).
International Automotive Segment
Losses before income taxes for our International Automotive segment were
$411 million in the second quarter of 2003 on sales of $13.5 billion. Losses
before income taxes in the second quarter of 2002 were $371 million on sales of
$11.8 billion.
Ford Europe. Our Ford Europe business unit consists of the sale of
Ford-brand vehicles and service parts principally throughout the Europe
region, Turkey and Russia, together with the costs associated with the
design, development, manufacture and servicing of those vehicles and parts.
Losses before income taxes for our Ford Europe business unit were $525
million in the second quarter of 2003 on sales of $5.2 billion. Losses
before income taxes in the second quarter of 2002 were $18 million on sales
of $4.9 billion. The decline in earnings was primarily explained by lower
net pricing, less favorable product mix, lower industry volume, dealer
stock reductions and unfavorable currency exchange effects, offset
partially by improved cost performance and market share.
In the second quarter of 2003, unit sales for Ford Europe were 409,000,
down from 417,000 for the same period a year ago. European market share for
our Ford-brand vehicles improved to 8.7% in the second quarter of 2003, up
0.1 percentage points from the same period a year ago.
Ford South America. Our Ford South America business unit consists of the
sale of Ford brand vehicles and service parts in South America, principally
Brazil, Argentina and Venezuela, together with the costs associated with
the design, development, manufacture and servicing of those vehicles and
parts. Losses before income taxes for our Ford South America business unit
were $69 million in the second quarter of 2003 on sales of $435 million,
compared with losses before income taxes of $198 million on sales of $426
million for the same period a year ago. The improvement reflected primarily
the non-recurrence of currency devaluation a year ago, as well as improved
net pricing and market share.
In the second quarter of 2003, unit sales for Ford South America were
49,000, up from 46,000 for the same period a year ago. Market share of
Ford-brand vehicles sold in Brazil was 11.7% in the second quarter of 2003,
up 2.7 percentage points from a year ago, reflecting primarily sales of the
new Ford Fiesta and EcoSport models.
18
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations (Continued)
- --------------
Ford Asia Pacific. Our Ford Asia Pacific business unit consists of the sale
of Ford brand vehicles and service parts principally in Australia, Taiwan,
South Africa, China and Thailand, together with the costs associated with
the design, development, manufacture and servicing of those vehicles and
parts. Losses before income taxes for our Ford Asia Pacific business unit
were $28 million on sales of $1.4 billion in the second quarter of 2003.
Losses before income taxes in the second quarter of 2002 were $53 million
on sales of $1.0 billion. The improvement reflected primarily favorable net
pricing and the market acceptance of the new Ford Falcon in Australia.
In the second quarter of 2003, unit sales for Ford Asia Pacific were
83,000, up from 75,000 for the same period a year ago. Our market share in
Australia improved to 13.6% in the second quarter of 2003, up from 12.8% a
year ago, primarily due to the introduction of the new Ford Falcon model.
Premier Automotive Group. Our PAG business unit consists of the sale of PAG
brand vehicles (i.e., Volvo, Jaguar, Land Rover and Aston Martin) and
related service parts throughout the world (including North America),
together with the associated costs to design, develop, manufacture and
service those vehicles and parts. Income before income taxes for our PAG
business unit was $166 million in the second quarter of 2003, a $288
million improvement from losses before income taxes of $122 million in the
second quarter of 2002. The improvement reflected primarily favorable cost
performance, improved net pricing and favorable product mix. Sales were
$6.4 billion in the second quarter of 2003 compared with sales of $5.5
billion in the second quarter of 2002. The increase in sales reflected
primarily stronger European currencies and improved product mix with the
launch of the new Volvo XC90 and Jaguar XJ models.
In the second quarter of 2003, worldwide unit sales for PAG were 196,000,
about the same as a year ago. U.S. market share was 1.3%, up 0.1 percentage
points for the second quarter of 2003 compared to the second quarter of
2002. European market share was 2.1%, down 0.1 percentage points from the
second quarter of 2002.
Other International. Other International consists primarily of our share of
the results of Mazda Motor Corporation, of which we own 33.4%, and of our
Mazda-related joint ventures. Other International had profits of $45
million for the second quarter of 2003, up from $20 million for the second
quarter of 2002 reflecting improved Mazda results.
Other Automotive
In 2003, Other Automotive represents primarily interest income and expense
(including realized and unrealized gains and losses on marketable securities).
Other Automotive reduced income before income taxes by $31 million for the
second quarter of 2003. The improvement of $116 million compared with the same
period a year ago is due to lower net interest expense and the non-recurrence of
losses in non-core businesses that have now been sold or shut down.
Financial Services Sector
- -------------------------
Our Financial Services sector consists primarily of two segments, Ford
Credit and Hertz. Details of second quarter Financial Services sector
income/(loss) before income taxes for the second quarters of 2003 and 2002 are
shown below (in millions).
Second Quarter Income/(Loss)
Before Income Taxes
------------------------------------------
2003
Over/(Under)
2003 2002 2002
------------ ---------- --------------
<s> <c> <c> <c>
Ford Credit $661 $519 $142
Hertz* 57 72 (15)
Minority interests and other (3) 9 (12)
---- ---- ----
Total Financial Services sector $715 $600 $115
==== ==== ====
- ------------
* The Hertz results include amortization expense related to intangibles at
Ford FSG, Inc., Hertz' parent company.
Ford Credit
FCAR Consolidation. Ford Credit uses a special purpose trust, FCAR, as a
source of funds for its operations. FCAR's activities are limited to issuing
asset-backed commercial paper and other securities and buying highly rated
asset-backed securities issued by securitization SPEs sponsored by Ford Credit.
19
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations (Continued)
- --------------
In the second quarter of 2003, Ford Credit purchased from unaffiliated
parties a portion of the equity of FCAR. As a result of this transaction, FCAR's
assets, liabilities and results of operations were consolidated into Ford
Credit's financial statements. In addition, the accounting consolidation of FCAR
also caused certain of the Ford Credit sponsored securitization SPEs that sell
asset-backed securities to FCAR to lose their status as qualifying SPEs under
SFAS No. 140. Consequently, the receivables previously sold by Ford Credit to
these SPEs were deemed to be reacquired in accordance with SFAS No. 140
requirements. These receivables are now referred to as "reacquired receivables"
and are reported on-balance sheet at fair value as of June 30, 2003. Following
the accounting consolidation of FCAR, most sales of receivables to Ford Credit
sponsored SPEs that sell asset-backed securities to FCAR will not qualify as
sales for accounting purposes and, instead, will be reported on-balance sheet.
The accounting consolidation of FCAR did not have a material impact on Ford
Credit's earnings, back-up credit facilities, unsecured debt funding programs or
other securitization programs. The consolidation of FCAR did, however, increase
Ford Credit's financial statement debt-to-equity ratio to 11.3 to 1, compared
with 10.5 to 1 with FCAR unconsolidated. No gain or loss was recorded upon
consolidation.
Notwithstanding this accounting consolidation, the receivables sold to the
SPEs and the asset-backed securities held by FCAR remain available only for the
SPEs and FCAR and their investors and other participants and are not available
to pay Ford Credit's obligations or the claims of its creditors. The bankruptcy
remoteness of these entities and the isolation of assets achieved in these
transactions were not changed by the consolidation of FCAR.
As a result of the consolidation of FCAR, we have modified the reporting
categories for Ford Credit's receivables, credit losses and allowance for credit
losses. Previously, we reported receivables under four categories: "owned",
"securitized", "managed" and "serviced". We have changed the "owned" category to
"on-balance sheet" because, as discussed above, some of the securitized
receivables (which remain sold for legal purposes) are now reflected in our
financial statements. These include the reacquired receivables related to the
FCAR consolidation. Other securitized receivables that remain off-balance sheet
are now categorized as "securitized off-balance sheet". There is no impact to
the "managed" and "serviced" categories. Credit losses and allowance for credit
losses have been modified to the new categories as appropriate.
Results of Operations. Ford Credit's consolidated income before income
taxes in the second quarter of 2003 was $661 million, up $142 million from the
second quarter of 2002. Compared with 2002, the increase primarily reflected
higher income related to the sales of receivables and a lower provision for
credit losses, offset partially by the impact of lower average net receivables.
As shown in the table below, investment and other income related to
receivables sales was $672 million, up $153 million from a year ago, reflecting
primarily higher excess spread and higher levels of retained interest related to
securitized off-balance sheet wholesale receivables.
The provision for credit losses in the second quarter of 2003 was $543
million, down $117 million from a year ago, reflecting primarily lower average
net receivables. Credit losses related to Ford Credit's on-balance sheet
receivables in the second quarter of 2003 were $452 million, down $94 million
from the second quarter of 2002, reflecting primarily a reduction in the amount
of Ford Credit's on-balance sheet receivables. Managed credit losses in the
second quarter of 2003 were $641 million, about the same as a year ago. On June
30, 2003, credit loss reserves were $3.2 billion or 2.42% of on-balance sheet
receivables, up from 2.19% a year ago. In the second quarter of 2003, the
loss-to-receivables ratio (that is, actual net credit losses during a period as
a percentage of average outstanding net receivables for that period) for Ford
Credit's on-balance sheet portfolio was 1.44% (excluding credit losses on
reacquired receivables relating to the FCAR consolidation) and 1.50% (including
credit losses on reacquired receivables relating to the FCAR consolidation)
compared with 1.58% a year ago and 1.61% in the first quarter of 2003. We
believe that the use of the non-GAAP on-balance sheet credit loss ratio
(including credit losses on reacquired receivables) is useful to our investors
because it provides a more complete representation of our actual on-balance
sheet loss performance.
Net financing margins in the second quarter of 2003 were $875 million, down
$174 million from a year ago reflecting lower placement volumes and the
continued off-balance sheet sales of receivables.
Sales of receivables through off-balance sheet securitizations and
whole-loan sale transactions reduce Ford Credit's financing revenues in the year
the receivables are sold, as well as in future years, compared with what they
otherwise would be if Ford Credit continued to own the receivables. These
foregone revenues can reduce financing margins and offset any positive impact
associated with the gain on sales of receivables. The net impact of off-balance
sheet securitizations on Ford Credit's revenues and earnings in a given period
will vary depending on the amount, type of receivable and timing of
securitizations in the current period and the preceding two to three year
period, as well as the interest rate environment at the times the finance
receivables were originated and securitized. The following
20
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations (Continued)
- -------------
table shows the calculations and amounts Ford Credit uses to analyze the pre-tax
impact of sales of receivables through off-balance sheet securitizations and
whole-loan sale transactions for the second quarter of 2003 and 2002, net of the
effect of reduced financing margins resulting from the foregone revenue
attributable to the sold receivables (in millions):
Second Quarter
-----------------------
2003 2002
---------- ---------
<s> <c> <c>
Net gain on sales of receivables $ 51 $ 18
Servicing fees 179 180
Interest income from retained securities 197 148
Excess spread and other 245 173
----- -----
Total revenue related to receivables sales 672 519
Reduction in financing margin from current-period securitizations* (12) (12)
Reduction in financing margin from prior-period securitizations* (853) (633)
----- -----
Pre-tax impact of receivables sales $(193) $(126)
===== =====
- ------------
* Calculated on a basis using a borrowing cost equal to the actual financing
rate paid to securitization investors, which was significantly lower than Ford
Credit's average borrowing cost for unsecured debt for the periods presented. If
calculated on a basis using Ford Credit's average borrowing cost for unsecured
debt, the reduction in financing margin from securitization would be
significantly lower and the pre-tax impact of sales of receivables would be
significantly higher than the amounts shown.
The quantification of investment and other income related to receivables
sales and financing margin impact set forth above includes the effects of the
reacquired receivables through May 15, 2003, the date of the accounting
consolidation of FCAR. In accordance with generally accepted accounting
principles, such amounts will not be re-stated for prior reporting periods. In
the future, any on-balance sheet securitizations will not generate gains on sale
or other securitization income or have any financing margin impact.
Hertz
In the second quarter of 2003, Hertz had income before income taxes of $57
million, down from $72 million in the second quarter of 2002. Strong cost
performance was more than offset by unfavorable pricing and lower volume.
FIRST HALF RESULTS OF OPERATIONS
Our worldwide earnings were $1,313 million in the first half of 2003, or
$0.67 per diluted share of Common and Class B Stock. In the first half of 2002,
losses were $524 million, or $0.29 per share.
Our worldwide Automotive sales and Financial Services revenues totaled
$81.6 billion in the first half of 2003, down from $81.7 billion a year ago.
Unit sales of cars and trucks were 3,430,000 units, down 100,000 units from a
year ago. In the first half of 2003, our U.S. corporate market share was 20.9%,
down 0.1 percentage points from the same period a year ago. Our European
corporate market share was 11.1% in the first half of 2003, unchanged from the
first half of 2002.
Results by business sector for the first half of 2003 and 2002 are shown
below (in millions):
First Half Net Income/(Loss)
----------------------------------------
2003
Over/(Under)
2003 2002* 2002
----------- ------------ ---------------
<s> <c> <c> <c>
Income/(loss) before income taxes
Automotive sector $ 662 $ 33 $ 629
Financial Services sector 1,393 943 450
------- ------- ------
Total Company 2,055 976 1,079
Provision for/(benefit from) income taxes 531 269 262
Minority interests in net income/(loss) of subsidiaries 200 168 32
------- ------- ------
Income/(loss) from continuing operations 1,324 539 785
Income/(loss) from discontinued/held-for-sale operations (6) (21) 15
Loss on disposal of discontinued/held-for-sale operations (5) (40) 35
Cumulative effect of change in accounting principle - (1,002) 1,002
------- -------- ------
Net income/(loss) $ 1,313 $ (524) $1,837
======= ======= ======
* Certain amounts were reclassified to conform with current period
presentation consistent with the presentation in our 10-K Report.
Reclassifications include profits and losses related to discontinued and
held-for-sale operations.
21
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations (Continued)
- --------------
Automotive Sector
- -----------------
Worldwide income before income taxes for our Automotive sector was $662
million in the first half of 2003 on sales of $68.4 billion compared with income
before income taxes of $33 million in the first half of 2002, on sales of $67.4
billion.
Details of first half Automotive sector results before income taxes are
shown below (in millions):
First Half Income/(Loss)
Before Income Taxes
-----------------------------------------
2003
Over/(Under)
2003 2002 2002
------------ ------------ ---------------
<s> <c> <c> <c>
North America Automotive segment $1,681 $1,386 $ 295
International Automotive segment
- Ford Europe (774) (286) (488)
- Ford South America (100) (283) 183
- Ford Asia Pacific (54) (92) 38
- Premier Automotive Group 78 (192) 270
- Other International 86 13 73
------ ------ ------
Total International Automotive segment (764) (840) 76
Other Automotive (255) (513) 258
------- ------ ------
Total Automotive sector $ 662 $ 33 $ 629
====== ====== ======
North America Automotive Segment
Income before income taxes for our North America Automotive segment was
$1.7 billion in the first half of 2003 on sales of $42.9 billion. Income before
income taxes in the first half of 2002 was $1.4 billion on sales of $44.6
billion. Cost reductions and favorable product mix more than accounted for the
improvement. These improvements were partially offset by unfavorable net
pricing, a lower dealer stock build in 2003 compared with 2002 and lower U.S.
industry volume.
In the first half of 2003, our unit sales in North America were 2,004,000,
down from 2,150,000 for the same period a year ago. Our U.S. market share for
Ford, Lincoln, and Mercury brand vehicles was 19.6% in the first half of 2003,
down 0.2 percentage points from a year ago, due in part to the discontinuation
of various models (Ford Escort, Lincoln Continental, Mercury Cougar and Mercury
Villager).
International Automotive Segment
Losses before income taxes for our International Automotive segment were
$764 million in the first half of 2003 on sales of $25.5 billion. Losses before
income taxes in the first half of 2002 were $840 million on sales of $22.2
billion.
Ford Europe. Losses before income taxes for our Ford Europe business unit
were $774 million in the first half of 2003 on sales of $10.2 billion.
Losses before income taxes in the first half of 2002 were $286 million on
sales of $9.0 billion. The change was primarily the result of lower net
pricing, a less favorable product mix and lower industry volumes. Cost
reductions and improved market share were partial offsets.
In the first half of 2003, unit sales for Ford Europe were 800,000, up from
759,000 for the same period a year ago. European market share for our
Ford-brand vehicles improved to 9.0% in the first half of 2003, up 0.1
percentage points from the same period a year ago.
Ford South America. Losses before income taxes for our Ford South America
business unit were $100 million in the first half of 2003 on sales of $765
million compared with losses before income taxes of $283 million a year ago
on sales of $822 million. The improvement was primarily due to the absence
of adverse currency exchange rate effects experienced in the first half of
2002, favorable net pricing and higher market share, partially offset by
lower industry volumes.
In the first half of 2003, unit sales for Ford South America were 93,000,
up from 87,000 for the same period a year ago. Market share of Ford-brand
vehicles sold in Brazil was 11.1% in the first half of 2003, up 2.4
percentage points from a year ago, reflecting primarily sales of the new
Ford Fiesta and EcoSport models.
22
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations (Continued)
- -------------
Ford Asia Pacific. Losses before income taxes for our Ford Asia Pacific
business unit were $54 million on sales of $2.7 billion in the first half
of 2003. Losses before income taxes in the first half of 2002 were $92
million on sales of $2.0 billion. The improvement reflects favorable net
pricing and higher unit sales volume following the launch of the new Ford
Falcon model in Australia.
In the first half of 2003, unit sales for Ford Asia Pacific were 165,000,
up from 150,000 for the same period a year ago. Our market share in
Australia improved to 13.9% in the first half of 2003, up from 12.9% a year
ago, primarily due to the introduction of the new Ford Falcon model.
Premier Automotive Group. Income before income taxes for our PAG business
unit was $78 million in the first half of 2003, a $270 million improvement
from losses before income taxes of $192 million in first half of 2002. The
improvement reflects primarily cost reductions and favorable product mix
with the launch of the new Volvo XC90 and Jaguar XJ models. Sales were
$11.8 billion in the first half of 2003, up from $10.3 billion in the first
half of 2002. The increase in sales reflected primarily stronger European
currencies and improved product mix with the launch of the new Volvo XC90
and Jaguar XJ models.
In the first half of 2003, worldwide unit sales for PAG were 368,000, down
from 383,000 for the same period a year ago. U.S. market share was 1.2%, up
0.1 percentage points compared with the same period a year ago and European
market share was 2.1%, down 0.1 percentage points from the first half of
2002.
Other International. Other International consists primarily of our share of
the results of Mazda Motor Corporation, of which we own 33.4%, and of our
Mazda-related joint ventures. Other International had profits of $86
million in the first half of 2003, up from $13 million in the first half of
2002 reflecting improved Mazda results and other gains related to Ford's
investment in Mazda.
Other Automotive
Other Automotive reduced earnings before income taxes by $255 million for
the first half of 2003. The improvement of $258 million compared with the same
period a year ago is due to lower interest expense and the non-recurrence of
losses in non-core businesses that have now been sold or shut down.
Financial Services Sector
- -------------------------
Our Financial Services sector consists primarily of two segments, Ford
Credit and Hertz. Details of first half Financial Services sector income/(loss)
before income taxes for 2003 and 2002 are shown below (in millions):
First half Income/(Loss)
Before Income Taxes
--------------------------------------------
2003
Over/(Under)
2003 2002 2002
------------ ---------- ----------------
<s> <c> <c> <c>
Ford Credit $1,388 $ 915 $ 473
Hertz* (2) 13 (15)
Minority interests and other 7 15 (8)
----- ------ ------
Total Financial Services sector $1,393 $ 943 $ 450
====== ====== ======
- ------------
* The Hertz results include amortization expense related to intangibles at Ford
FSG, Inc., Hertz' parent company.
Ford Credit
Ford Credit's consolidated income before income taxes in the first half of
2003 was $1,388 million, up $473 million from the first half of 2002. Compared
with 2002, the increase primarily reflected a lower provision for credit losses
and higher income related to the sales of receivables, offset partially by the
impact of lower average net receivables.
The provision for credit losses in the first half of 2003 was $1,063
million, down $488 million from a year ago, reflecting primarily lower average
net receivables. Credit losses on Ford Credit's on-balance sheet portfolio in
the first half of 2003 were $945 million, down $186 million from the first half
of 2002, reflecting primarily a reduction in the amount of Ford Credit's
on-balance sheet receivables. Managed credit losses in the first half of 2003
were $1,326 million, about the same as a year ago. On June 30, 2003, credit loss
reserves were $3.2 billion or 2.42% of on-balance sheet receivables,
23
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations (Continued)
- -------------
up from 2.19% a year ago. In the first half of 2003, the loss-to-receivables
ratio (that is, actual net credit losses during a period as a percentage of
average outstanding net receivables for that period) for Ford Credit's
on-balance sheet portfolio was 1.51% (excluding credit losses on reacquired
receivables relating to the FCAR consolidation) and 1.54% (including credit
losses on reacquired receivables relating to the FCAR accounting consolidation),
compared with 1.62% a year ago.
As shown in the table below, investment and other income related to
receivables sales was $1,563 million, up $406 million from a year ago,
reflecting primarily higher excess spread and higher levels of retained interest
related to securitized off-balance sheet wholesale receivables.
Net financing margins for the first half of 2003 were $1,552 million, down
$545 million from a year ago reflecting lower placement volumes and the
continued off-balance sheet sales of receivables.
The following table shows the calculations and amounts Ford Credit uses to
analyze the pre-tax impact of sales of receivables through off-balance sheet
securitizations (including with respect to FCAR-related receivables through May
15, 2003) and whole-loan sale transactions for the first half of 2003 and 2002,
net of the effect of reduced financing margins resulting from the foregone
revenue attributable to the sold receivables (in millions):
First half
-----------------------
2003 2002
---------- ---------
<s> <c> <c>
Net gain on sales of receivables $ 284 $ 231
Servicing fees 376 338
Interest income from retained securities 407 300
Excess spread and other 496 288
------ ------
Total revenue related to receivables sales 1,563 1,157
Reduction in financing margin from current-period securitizations* (300) (244)
Reduction in financing margin from prior-period securitizations* (1,470) (1,152)
------ ------
Pre-tax impact of receivables sales $ (207) $ (239)
====== ======
* Calculated on a basis using a borrowing cost equal to the actual financing
rate paid to securitization investors, which was significantly lower than
Ford Credit's average borrowing cost for unsecured debt for the periods
presented. If calculated on a basis using Ford Credit's average borrowing
cost for unsecured debt, the reduction in financing margin from
securitization would be significantly lower and the pre-tax impact of sales
of receivables would be significantly higher than the amounts shown.
Hertz
In the first half of 2003, Hertz had losses before income taxes of $2
million, down from a $13 million profit in the first half of 2002. Strong cost
performance was more than offset by unfavorable pricing.
LIQUIDITY AND CAPITAL RESOURCES
Automotive Sector
- -----------------
For the Automotive sector, liquidity and capital resources include cash
generated by operations, gross cash balances, our ability to raise funds in
capital markets and committed credit lines.
Gross Cash - We consider Automotive gross cash to include cash and cash
equivalents, marketable securities, loaned securities and assets contained in a
Voluntary Employee Beneficiary Association ("VEBA") trust, which are financial
assets available to fund certain future employee benefit obligations in the near
term, as summarized below (in billions):
2003 2002
-------------------------- -------------------------
June 30 January 1 June 30 January 1
------------ ------------ ------------ ------------
<s> <c> <c> <c> <c>
Cash and cash equivalents $ 7.5 $ 5.2 $ 8.5 $ 4.1
Marketable securities 15.0 17.4 14.9 10.9
Loaned securities * 4.6 - - -
------ ------ ------ ------
Total cash, marketable securities and loaned securities 27.1 22.6 23.4 15.0
VEBA assets 1.6 2.7 1.5 2.7
------ ------ ------ ------
Gross cash $ 28.7 $ 25.3 $ 24.9 $ 17.7
====== ====== ====== ======
* As part of our investment strategy, we engage in securities lending to
improve the income received from our cash portfolios. See Note 5 of
the Notes to Financial Statements for additional discussion on
securities lending.
24
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations (Continued)
- -------------
In managing our business, we classify changes in gross cash in three
categories: operating related (including capital expenditures and capital
transactions with the Financial Services sector), acquisitions and divestitures,
and financing related. We believe the cash flow analysis reflected in the table
below is useful to investors because it includes cash flow elements not included
in "cash flows from operating activities before securities trading" that we
consider to be related to our operating activities (e.g., capital spending).
Changes in Automotive gross cash for the second quarter and first half of 2003
and 2002 are summarized below (in billions):
Second Quarter First Half
----------------------- ----------------------
2003 2002 2003 2002
---------- ----------- ---------- -----------
<s> <c> <c> <c> <c>
Gross cash at end of period $28.7 $24.9 $28.7 $24.9
Gross cash at beginning of period 26.6 21.5 25.3 17.7
----- ----- ----- -----
Total change in gross cash $ 2.1 $ 3.4 $ 3.4 $ 7.2
===== ===== ===== =====
Operating related cash flows
Automotive income/(loss) before income taxes $ - $ 0.4 $ 0.7 $ -
Capital expenditures (2.0) (1.4) (3.4) (2.9)
Depreciation and special tools amortization 1.3 1.3 2.7 2.4
Changes in receivables, inventory and trade payables (0.2) 0.6 (0.6) 0.2
U.S. pension fund contributions - - (1.0) -
Capital transactions with Financial Services sector * 0.9 - 1.7 (0.7)
Other 1.6 1.7 2.1 2.5
----- ----- ----- -----
Total operating related cash flows before tax refunds 1.6 2.6 2.2 1.5
Tax refunds - 0.8 0.9 0.8
----- ----- ----- -----
Total operating related cash flows 1.6 3.4 3.1 2.3
Divestitures and asset sales 0.2 0.1 0.4 0.4
Acquisitions and capital contributions - - - (0.1)
----- ------ ----- -----
Total acquisitions and divestitures 0.2 0.1 0.4 0.3
Financing related cash flows
Dividends paid to shareholders (0.2) (0.2) (0.4) (0.4)
Convertible preferred securities - - - 4.9
Changes in total Automotive sector debt 0.4 - 0.2 -
Other 0.1 0.1 0.1 0.1
------ ------ ----- -----
Total financing related cash flows 0.3 (0.1) (0.1) 4.6
------ ------ ----- -----
Total change in gross cash $ 2.1 $ 3.4 $ 3.4 $ 7.2
====== ====== ===== =====
- - - - - -
* Reflects operating related cash flows (i.e., dividends, capital
contributions, loans, and loan repayments).
Shown in the table below is a reconciliation between financial statement
cash flows from operating activities before securities trading and operating
related cash flows, calculated as shown in the table above, for the second
quarter and first half of 2003 and 2002 (in billions):
Second Quarter First Half
------------------------ ---------------------------
2003 2002 2003 2002
----------- ------------ ------------- ------------
<s> <c> <c> <c> <c>
Cash flows from operating activities before securities
Trading $ 2.7 $ 5.8 $ 5.7 * $ 8.1 *
Items included in operating related cash flow
Capital transactions with Financial Services sector 0.9 - 1.7 (0.7)
Capital expenditures (2.0) (1.4) (3.4) (2.9)
Net transactions between Automotive and
Financial Services sectors - (0.6) (0.3) ** (1.0) **
Other, primarily exclusion of cash in-flows from VEBA
draw-down - (0.4) (0.6) (1.2)
----- ----- ----- -----
Total reconciling items (1.1) (2.4) (2.6) (5.8)
----- ----- ----- -----
Operating related cash flows $ 1.6 $ 3.4 $ 3.1 $ 2.3
===== ===== ===== =====
- - - - - -
* As shown in our condensed sector statement of cash flows for the Automotive
sector.
** Primarily payables and receivables between the sectors in the normal course
of business, as shown in our Condensed Sector Statement of Cash Flows.
Capital transactions with the Financial Services sector improved operating
related cash flow by $900 million in the second quarter of 2003, compared to no
change in cash flow in the second quarter of 2002, primarily related to improved
operating performance at Ford Credit. Capital transactions with the Financial
Services sector improved operating related cash flow by $1.7 billion in the
first half of 2003, compared to a $700 million reduction in cash flow in the
first half of 2002 related to a capital contribution to Ford Credit. In
addition, $204 million of dividends from the Financial Services sector in the
first half of 2003 is reflected in the table above as "divestitures and asset
sales" because it results from the sale by Ford Credit of its Axus vehicle fleet
leasing unit.
25
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations (Continued)
- -------------
Debt - At June 30, 2003, our Automotive sector had total debt of $14.5
billion, compared with $14.2 billion at December 31, 2002.
Ford Motor Company Capital Trust I and Ford Motor Company Capital Trust II
together have outstanding an aggregate $5.7 billion of trust preferred
securities. The dividend and liquidation preferences on these securities are
paid from interest and principal payments on our junior subordinated debentures
held by the Trusts in an aggregate principal amount exceeding the aggregate
liquidation preference of the trust preferred securities. The trust preferred
securities and the junior subordinated debentures have been classified in the
mezzanine section of our balance sheet in accordance with applicable accounting
standards and, therefore, neither has been included in the total debt amount
discussed above. During the third quarter of 2003, these securities will be
reclassified as debt as the result of the adoption of new accounting standards.
See Notes 2 and 9 of the Notes to Financial Statements. This reclassification
will not impact the status of the holders of our senior debt relative to holders
of the subordinated debentures or the trust preferred securities.
Credit Facilities - At July 1, 2003, the Automotive sector had $6.9 billion
of contractually committed credit agreements with various banks, of which $6.8
billion were available for use. 91.0% of the total facilities are committed
through June 30, 2008. Of the $6.9 billion, $6.7 billion constitute global
credit facilities and may be used, at Ford's option, by any of its direct or
indirect majority-owned subsidiaries on a guaranteed basis. Ford also has the
ability to transfer, on a non-guaranteed basis, $2.5 billion of such global
credit facilities to Ford Credit and $543 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 (for
example, debt-to-equity limitations, minimum net worth requirements and credit
rating triggers that would limit our ability to borrow).
Financial Services Sector
- -------------------------
Ford Credit
Debt and Cash - Ford Credit's total debt was $146.2 billion at June 30,
2003, up $5.9 billion compared with December 31, 2002. This increase is more
than explained by the consolidation of FCAR. Ford Credit's unsecured commercial
paper at June 30, 2003 totaled $8.4 billion. At June 30, 2003, the average
remaining maturity of Ford Credit's unsecured commercial paper in North America
and Europe was 36 days. At June 30, 2003, Ford Credit had cash and cash
equivalents of $9.7 billion. In the normal course of its funding activities,
Ford Credit may generate more proceeds than are necessary for its immediate
funding needs. This excess funding is referred to as "overborrowings." Of the
$9.7 billion of cash and cash equivalents, $8.0 billion represented
overborrowings, while the remaining $1.7 billion was employed in operating
activities.
Ford Credit expects its full-year 2003 public term funding requirements to
be between $20 billion to $25 billion. As of June 30, 2003, Ford Credit had
completed about $15 billion of public term funding transactions, or 60% to 75%
of its full-year requirements.
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 $9.8 billion at July 1, 2003, including $5.2 billion and $3.2
billion of global credit facilities at Ford Credit and FCE, respectively.
Approximately $1.2 billion of the total facilities were in use at July 1, 2003.
44.4% of these facilities, which have various maturity dates, are committed
through June 30, 2008. The global credit facilities may be used, at Ford
Credit's or FCE's option, by any of their direct or indirect majority-owned
subsidiaries. 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 its ability to borrow).
Additionally, at July 1, 2003, banks provided $16.4 billion of
contractually committed liquidity facilities supporting two asset-backed
commercial paper programs; $16.0 billion support Ford Credit's FCAR program and
$425 million support Ford Credit's Motown NotesSM Program.
In addition, Ford Credit has entered into agreements with several
bank-sponsored, commercial paper issuers ("conduits") under which such conduits
are contractually committed to purchase from Ford Credit, at Ford Credit's
option, up to an aggregate of approximately $12.6 billion of receivables. The
agreements have varying maturity dates between August 14, 2003 and June 28,
2004. As of June 30, 2003, approximately $5.0 billion of these conduit
commitments have been utilized.
26
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations (Continued)
- -------------
Leverage - At June 30, 2003, Ford Credit's financial statement leverage
(debt-to-equity ratio) was 11.3 to 1. Ford Credit's managed leverage was 12.9 to
1. The following table illustrates the calculation of Ford Credit's financial
statement leverage (debt and stockholder's equity in billions):
June 30 December 31
--------------------- --------------------------------------
2003 2002 2002 2001 2000 1999
---- ---- ---- ---- ---- ----
<s> <c> <c> <c> <c> <c> <c>
Total debt $146.2 $142.1 $140.3 $145.8 $145.6 $132.1
Total stockholder's equity 12.9 13.7 13.6 12.0 12.2 10.9
Debt-to-equity ratio (to 1) 11.3 10.4 10.3 12.2 11.9 12.1
The following table illustrates the calculation of Ford Credit's managed
leverage (debt and stockholder's equity in billions):
June 30 December 31
--------------------- ---------------------------------------
2003 2002 2002 2001 2000 1999
---- ---- ---- ---- ---- ----
<s> <c> <c> <c> <c> <c> <c>
Total debt $146.2 $142.1 $140.3 $145.8 $145.6 $132.1
Securitized off-balance sheet receivables
outstanding 56.0 65.7 71.4 58.7 28.4 19.5
Retained interest in securitized off-balance
sheet receivables (14.5) (11.5) (17.6) (12.5) (3.7) (3.5)
Adjustments for cash and cash equivalents (9.7) (4.2) (6.8) (2.9) (1.1) (0.9)
Adjustments for SFAS No. 133 (6.6) (3.3) (6.2) (2.1) -- --
------ ------ ------ ------ ------ ------
Adjusted debt $171.4 $188.8 $181.1 $187.0 $169.2 $147.2
====== ====== ====== ====== ====== ======
Total stockholder's equity $ 12.9 $ 13.7 $ 13.6 $ 12.0 $ 12.2 $ 10.9
Adjustment for SFAS No. 133 0.4 0.5 0.5 0.6 -- --
Adjustment for minority interest * * * * * 0.4
------ ------ ------ ------ ------ ------
Adjusted equity $ 13.3 $ 14.2 $ 14.1 $ 12.6 $ 12.2 $ 11.3
====== ======= ====== ====== ====== ======
Managed debt-to-equity ratio (to 1) 12.9 13.3 12.8 14.8 13.9 13.0
* Less than $50 million.
We believe that the use of the managed leverage measure, which is the
result of several adjustments to Ford Credit's financial statement leverage, is
useful to our investors because it reflects the way Ford Credit manages its
business. Ford Credit retains interests in receivables sold in off-balance sheet
securitization transactions and, with respect to subordinated retained
interests, has credit risk. Accordingly, it considers securitization as an
alternative source of funding and evaluates credit losses, receivables and
leverage on a managed as well as a financial statement basis. As a result, the
managed leverage measure provides our investors with meaningful information
regarding management's decision-making processes.
Hertz
Debt and Cash - Hertz' total debt was $8.0 billion at June 30, 2003, up
$1.0 billion from December 31, 2002, reflecting seasonal rental fleet demand.
Outstanding commercial paper at June 30, 2003 totaled $3.0 billion at Hertz,
with an average remaining maturity of 34 days compared with $1.5 billion at
December 31, 2002. At June 30, 2003, Hertz had cash and cash equivalents of $384
million, up from $287 million at December 31, 2002.
During 2002, Hertz launched an asset-backed securitization program for its
domestic car rental fleet to reduce its borrowing costs and enhance its
financing resources. As of June 30, 2003, $861 million of asset-backed
commercial paper was outstanding under this program.
Total Company
Stockholders' Equity - Our stockholders' equity was $8.1 billion at June
30, 2003, up $2.5 billion compared with December 31, 2002. The increase reflects
primarily net income of $1.3 billion and other comprehensive income of $1.5
billion, less dividends of $366 million. See Note 11 of the Notes to Financial
Statements for further discussion of other comprehensive income.
OFF-BALANCE SHEET ARRANGEMENTS
Special Purpose Entities - At June 30, 2003, the total outstanding
principal amount of receivables sold by Ford Credit that was held by off-balance
sheet securitization trusts was $56.0 billion, down $15.4 billion from December
31, 2002. Ford Credit's retained interests in such sold receivables at June 30,
2003 were $14.5 billion, down $3.1 billion from December 31, 2002. The decrease
in receivables held by off-balance sheet securitization trusts and the decrease
in retained interests reflected primarily the accounting consolidation of FCAR
during the second quarter of 2003.
27
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations (Continued)
- -------------
Variable Interest Entities - For a discussion of variable interest
entities, see Note 9 of the Notes to Financial Statements.
2003 OUTLOOK
Industry Volumes. We are changing our assumption of industry volume for
Europe in 2003 to 16.3 million units from 17 million units at the beginning of
the year and 16.5 million units in May 2003 because we anticipate a more
challenging economic environment in the second half of 2003. For the United
States, our assumption of 16.5 million units for 2003 remains unchanged. These
industry volume assumptions are based on economic growth assumptions for the
United States and Europe of about 2% and 1%, respectively, in 2003.
Production. Due to lower U.S. and Europe industry volume and significant
model-year changeovers (e.g., the Ford F-150 pickup truck and Freestar minivan),
we are projecting lower vehicle unit production in the third quarter of 2003,
compared with the third quarter of last year, as follows:
Unit Production
-----------------------------------------
Third Quarter 2003
Projected Third Over/(Under)
Business Unit Quarter 2003 Third Quarter 2002
------------- -------------- ------------------
Ford North America 810,000 (141,000)
Ford Europe 335,000 (22,000)
PAG 150,000 (4,000)
Net Pricing. The level of competitive incentive activity remains high in
the U.S. and Europe and we believe net pricing for the full year will be less
than zero in both markets. However, we expect second half net pricing in the
U.S. and Europe to be better than the first half primarily as a result of new
product introductions (e.g., Ford F-150 pickup truck, Ford Freestar and Mercury
Monterey minivans in North America, and Ford Focus C-Max in Europe). The net
pricing metric measures the percentage change in revenue from the combined
effect of changes in vehicle wholesale prices and marketing incentives, while
excluding the effects of changes in unit sales volume, product mix and foreign
currency exchange rates.
Costs. We expect to continue to achieve year-over-year cost reductions
(excluding the effects of changes in production volume, product mix and currency
exchange rates) during the second half of 2003, although at a slower pace than
we have seen year-to-date, with a full year improvement of about $2.5 billion.
Product costs for the full year are expected to be unchanged from 2002, with
cost increases on new models being offset by cost reductions on current models.
However, new model costs will be higher in the second half, primarily reflecting
the launch of the new Ford F-150 pickup truck and Freestar minivan. Similar to
the first half, pension and healthcare costs are expected to show a
year-over-year increase in the second half. We also expect second half increases
in depreciation and amortization, reflecting higher capital spending associated
with the new products. Improvements in quality will contribute to cost
reductions due to lower warranty related-costs and fewer additional service
actions throughout the year, with savings expected to be higher in the first
half than the second half. We have also moved aggressively to reduce
manufacturing, engineering and overhead costs in the first half, and we expect
those reductions to continue. By the end of 2003, we plan to implement actions
to reduce on-going salaried personnel costs by about 10%.
Ford Credit. We expect second half 2003 earnings for Ford Credit to be
lower than first half earnings, reflecting primarily lower levels of
securitization and receivables.
Earnings. Based on the foregoing expectations and projections and subject
to the risk factors described below, we expect to incur a loss in the third
quarter of 2003 of about $0.15 per share and continue to expect to earn about
$0.70 cents per share for full-year 2003. These projections and our milestones
do not, however, include the effects of any special items, such as our adoption
of new accounting standard FIN 46 (discussed in Note 9 of the Notes to Financial
Statements), or actions to reduce salaried personnel costs.
28
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations (Continued)
- -------------
RISK FACTORS
Statements included or incorporated by reference herein may constitute
"forward looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements involve a number of risks,
uncertainties, and other factors that could cause actual results to differ
materially from those stated, including, without limitation:
o greater price competition in the U.S. and Europe resulting from currency
fluctuations, industry overcapacity or other factors;
o a significant decline in industry sales, particularly in the U.S. or
Europe, resulting from slowing economic growth, geo-political events or
other factors;
o lower-than-anticipated market acceptance of new or existing products;
o work stoppages at key Ford or supplier facilities or other interruptions of
supplies;
o the discovery of defects in vehicles resulting in delays in new model
launches, recall campaigns or increased warranty costs;
o increased safety, emissions, fuel economy or other regulation resulting in
higher costs and/or sales restrictions;
o unusual or significant litigation or governmental investigations arising
out of alleged defects in our products or otherwise;
o worse-than-assumed economic and demographic experience for our post
retirement benefit plans (e.g., investment returns, interest rates, health
care cost trends, benefit improvements);
o currency or commodity price fluctuations;
o a market shift from truck sales in the U.S.;
o economic difficulties in South America or Asia;
o reduced availability of or higher prices for fuel;
o labor or other constraints on our ability to restructure our business;
o a change in our requirements under long-term supply arrangements under
which we are obligated to purchase minimum quantities or pay minimum
amounts;
o a further credit rating downgrade;
o inability to access debt or securitization markets around the world at
competitive rates or in sufficient amounts;
o higher-than-expected credit losses;
o lower-than-anticipated residual values for leased vehicles;
o increased price competition in the rental car industry and/or a general
decline in business or leisure travel due to terrorist attacks, acts of
war, epidemic disease or measures taken by governments in response thereto
that negatively affect the travel industry; and
o our inability to implement the Revitalization Plan.
NEW ACCOUNTING STANDARDS
FASB issued Statement of Financial Accounting Standards ("SFAS") No. 150 in
May 2003. For a discussion of our adoption of this standard, see Note 2 of the
Notes to Financial Statements.
OTHER FINANCIAL INFORMATION
The interim financial information included in this 10-Q Report has not been
audited by PricewaterhouseCoopers LLP ("PwC"). In reviewing such information,
PwC has applied limited procedures in accordance with professional standards for
reviews of interim financial information. Accordingly, you should restrict your
reliance on their reports on such information. PwC is not subject to the
liability provisions of Section 11 of the Securities Act of 1933 for their
reports on the interim financial information because such reports do not
constitute "reports" or "parts" of the registration statements prepared or
certified by PwC within the meaning of Sections 7 and 11 of the Securities Act
of 1933.
Item 3. Quantitative and Qualitative Discussion about Market Risks
- ------------------------------------------------------------------
There is no material change in the information reported under Part I, Item
3 of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 and
Item 7A of our 10-K Report.
29
Item 4. Controls and Procedures
- --------------------------------
Evaluation of disclosure controls and procedures. William Clay Ford, Jr.,
our Chief Executive Officer, and Don R. Leclair, our Chief Financial Officer,
have performed an evaluation of the Company's disclosure controls and
procedures, as that term is defined in Rule 13a-14 (c) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as of June 30, 2003 and
each has concluded that such disclosure controls and procedures are effective to
ensure that information required to be disclosed in our periodic reports filed
under the Exchange Act is recorded, processed, summarized and reported, within
the time periods specified by the Securities and Exchange Commission's rules and
regulations.
Change in internal controls. No changes in the Company's internal controls
over financial reporting occurred during the quarter ended June 30, 2003 that
have materially affected, or are reasonably likely to materially affect, the
Company's internal controls over financial reporting.
Part II. Other Information
Item 1. Legal Proceedings
- --------------------------
Firestone Matters
- -----------------
Firestone Tire Related Litigation
---------------------------------
Firestone Class Actions. (Previously discussed on page 27 of the 10-K
Report.) On June 20, 2003, the U.S. Court of Appeals enjoined the prosecutions
of state cases that purport to represent a nationwide class on the basis that
the court's prior decisions establish conclusively that these cases cannot be
tried as nationwide class actions. State cases that involve only statewide
classes are unaffected by the June 20 decision, but are likely to be stayed
pending completion of a settlement that Firestone has tentatively negotiated
with the plaintiffs. The proposed settlement would require plaintiffs to dismiss
all class action claims against Ford that are based on alleged tire defects.
Other Product Liability Matters
- -------------------------------
Romo v Ford. (Previously discussed on page 28 of the 10-K Report.) On May
19, 2003, the United States Supreme Court granted our petition for certiorari,
vacated the decision of the California appeals court, and remanded the case for
reconsideration in light of the Supreme Court's recent decision in State Farm v.
Campbell, which reversed a $145 million punitive damage award on the basis that
punitive awards generally cannot exceed nine times the compensatory award and
that punitive awards cannot be based on out of state or dissimilar conduct.
Environmental Matters
- ---------------------
Wixom Assembly Plant Notice of Violation. On May 20, 2003, the City of
Wixom, Michigan, issued a notice of violation ("NOV") alleging that Ford's Wixom
Assembly Plant discharged unusually high concentrations of molybdenum in its
wastewater during the summer of 2002. The NOV alleges that wastewater discharge
from the Wixom Assembly Plant caused the levels of molybdenum in the city's
wastewater treatment plant biosolids to exceed regulatory limits that would
allow the city to dispose of the biosolids through land application. The NOV
requests payment of approximately $150,000 to cover handling and disposal costs
associated with alternate disposal.
Cleveland Engine Plant Notice of Violation. On July 2, 2003, the Cleveland
Local Air Agency (acting on behalf of Ohio Environmental Protection Agency
("Ohio EPA")) issued a NOV to our Cleveland Engine Plant alleging violations of
permit requirements for paint booth emissions. The NOV also alleges the Plant to
be in violation of its permit limits for an engine testing process, based on the
Plant's previous self-reporting of the matter to Ohio EPA. It is possible that
the Agency or Ohio EPA could seek monetary sanctions of $100,000 or more for
these alleged violations.
Class Actions
- -------------
Seat Back Class Actions. (Previously discussed on page 31 of the 10-K
Report.) The New Jersey Appellate Court has affirmed the trial court's grant of
summary judgment in our favor.
Crown Victoria Police Interceptor Class Actions. (Previously discussed on
page 32 of the 10-K Report and on page 24 of our Quarterly Report on Form 10-Q
for the quarter ended March 31, 2003 (the "First Quarter 10-Q Report").) A state
court in Illinois has certified a state-wide class of all municipalities in the
state of Illinois that own 1992-2002 Police Interceptor vehicles. Additional
cases have been filed in state courts in Florida and Pennsylvania, involving
allegations and demands for relief similar to those described under this caption
in the 10-K Report; these cases were removed to federal
30
Item 1. Legal Proceedings (Continued)
- --------------------------
court and our motions for transfer to the Multi District Litigation ("MDL")
proceeding in the U.S. District Court, Northern District of Ohio are pending. A
case in Ohio was dismissed. A Louisiana case was transferred to the MDL
proceeding.
Apartheid Class Action. (Previously discussed on page 32 of the 10-K
Report.) The defendants in this class action have filed a motion to dismiss.
Fifteen-Passenger Van Class Action. (Previously discussed on page 33 of the
10-K Report and on page 24 of First Quarter 10-Q Report.) On June 11 2003, we
received a summons and complaint in a fourth case, filed in state court in New
Jersey, involving allegations and demands for relief similar to those described
under this caption in the 10-K Report. One of the Texas cases was voluntarily
dismissed by the plaintiffs.
Antitrust Class Actions. (Previously discussed on page 34 of the 10-K
Report and on page 25 of First Quarter 10-Q Report.) Five additional cases have
been filed in federal courts in New York (three cases), Massachusetts and
Pennsylvania. Eighteen additional cases have been filed in state courts in
California (10 cases), New Jersey (three cases), Arizona, Florida, Minnesota,
New York, and Wisconsin. All cases filed in federal courts throughout the
country have been consolidated for pretrial proceedings in federal court in
Maine.
TFI Module Class Actions. (Previously discussed on page 26 of our Annual
Report on Form 10-K for the year ended December 31, 2001 (the "2001 10-K
Report"), on page 21 of our Quarterly Report on Form 10-Q for the quarter ended
June 30, 2002 and on page 21 of our Quarterly Report on Form 10-Q for the
quarter ended September 30, 2002.) All appeals from the court's order approving
the nationwide settlement in the California case have been withdrawn and all
related class actions in the United States have been dismissed. The nationwide
settlement described in the 2001 10-K Report became effective December 9, 2002.
The settlement agreement, described in the 2001 10-K Report, provides that Ford
will extend the warranties applicable to Motorcraft(R) distributor-mounted TFI
modules to 100,000 miles, reimburse class members who previously paid to replace
Motorcraft(R) distributor-mounted TFI modules within the extended warranty
period, donate $5 million to various colleges and universities for research and
education in the field of automotive safety, and pay plaintiffs' counsel
reasonable fees and expenses.
Item 2. Changes in Securities and Use of Proceeds
- --------------------------------------------------
During the second quarter of 2003, we issued a total of 33,697 shares of
our common stock under the 1998 Long-Term Incentive Plan to certain directors
and officers as part of their total compensation. Such shares, which included
shares issued on June 30, 2003 pursuant to the consulting agreement between us
and Mr. Edsel B. Ford II, a director of the Company, and the employment
agreement between us and Mr. Carl E. Reichardt, a director and former officer of
the Company, were not registered pursuant to the Securities Act of 1933, as
amended, in reliance on Section 4(2) thereof.
Item 4. Submission of Matter to a Vote of the Security-Holders
- ---------------------------------------------------------------
On June 16, 2003, the 2003 Annual Meeting of Stockholders of the Company
was held. The following is a brief description of the matters voted upon at the
meeting and tabulation of the voting therefor:
Proposal 1 Election of Directors.
Number of Votes
------------------------------------
Nominee For Against
- ------- --- -------
John R. H. Bond 2,643,423,897 98,709,688
Edsel B. Ford II 2,686,708,291 55,425,294
William C. Ford 2,683,534,466 58,599,119
William C. Ford, Jr. 2,684,094,466 58,039,119
Irvine O. Hockaday, Jr. 2,682,156,592 59,976,993
Marie-Josee Kravis 2,649,519,629 92,613,956
Richard A. Manoogian 2,650,254,972 91,878,613
Ellen R. Marram 2,683,421,544 58,712,041
Homer A. Neal 2,685,489,762 56,643,823
Jorma J. Ollila 2,685,140,027 56,993,558
Carl E. Reichardt 2,684,240,081 57,893,504
Robert E. Rubin 2,648,157,964 93,975,621
Nicholas V. Scheele 2,686,045,529 56,088,056
John L. Thornton 2,536,085,312 206,048,273
There were no broker non-votes with respect to the election of directors.
31
Item 4. Submission of Matter to a Vote of the Security-Holders (Continued)
- ---------------------------------------------------------------
Proposal 2 Ratification of Selection of Independent Public Accountants. A
proposal to ratify the selection of PricewaterhouseCoopers LLP as independent
public accountants to audit the books of account and other corporate records of
the Company for 2003 was adopted, with 2,676,434,481 votes cast for, 45,418,904
votes cast against, 20,280,200 votes abstained and 0 broker non-votes.
Proposal 3 Approval of the Terms of the Company's Annual Incentive
Compensation Plan. A proposal to approve the terms of the Company's Annual
Incentive Compensation Plan was adopted, with 2,564,498,928 votes cast for,
142,971,238 votes cast against, 34,663,419 votes abstained, and 0 broker
non-votes.
Proposal 4 Approval of the Terms of the Company's 1998 Long-Term Incentive
Plan. A proposal to approve the terms of the Company's 1998 Long-Term Incentive
Plan was adopted, with 2,300,156,989 votes cast for, 406,009,708 votes cast
against, 35,966,888 votes abstained and 0 broker non-votes.
Proposal 5 Relating to Disclosure of Officers' Compensation. A proposal
relating to disclosure of Company officers who are contractually entitled to
receive more than $500,000 annually in compensation was rejected, with
2,039,723,234 votes cast against, 235,017,387 votes cast for, 37,269,521 votes
abstained and 430,123,443 broker non-votes.
Proposal 6 Relating to the Method of Nominating and Electing the Company's
Directors. A proposal to amend the By-laws so that common stock shareholders
would nominate and elect 60% of the Company's directors and the Class B Stock
shareholders would nominate and elect 40% of the Company's directors was
rejected, with 2,065,492,841 votes cast against, 203,212,672 votes cast for,
43,304,629 votes abstained and 430,123,443 broker non-votes.
Proposal 7 Relating to Establishing an Independent Committee of the Board
to Evaluate Conflicts of Interests. A proposal relating to establishing an
independent committee of the Board to evaluate conflicts of interests between
Class B Stock shareholders and common stock shareholders was rejected, with
1,839,313,007 votes cast against, 427,947,376 votes cast for, 44,749,758 votes
abstained and 430,123,444 broker non-votes.
Item 5. Other Information
- --------------------------
Government Standards
- --------------------
Motor Vehicle Fuel Economy--U.S. Requirements
- ---------------------------------------------
Three state Attorneys General have filed suit against EPA seeking to compel
the agency to list carbon dioxide (CO2) as a "criteria air pollutant" under the
Clean Air Act, the first step toward establishing a national ambient air quality
standard for CO2. In a separate lawsuit, a number of private entities allege
that EPA has a duty to regulate emissions of greenhouse gases (including CO2)
from new motor vehicles. If successful, either of these suits has the potential
to lead to the development of a "CO2 emissions standard" for motor vehicles that
could effectively supersede the federal CAFE law. We expect that trade
associations representing a number of industries, including the motor vehicle
industry, will seek to intervene in both lawsuits.
End-of-Life Vehicle Directive
- -----------------------------
One additional country, Italy, has enacted legislation implementing the
End-of-Life Vehicle Directive during the second quarter 2003.
32
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
--------
Please refer to the Exhibit Index on Page 34.
(b) Reports on Form 8-K
-------------------
The Registrant filed the following Current Reports on Form 8-K during
the quarter ended June 30, 2003:
Current Report on Form 8-K dated April 1, 2003 included information
relating to U.S. retail sales of Ford vehicles in March 2003.
Current Report on Form 8-K dated April 16, 2003 included information
relating to Ford's first quarter 2003 financial results.
Current Report on Form 8-K dated May 1, 2003 included information
relating to U.S. retail sales of Ford vehicles in April 2003.
Current Report on Form 8-K dated May 21, 2003 included information
relating to an investor presentation.
Current Report on Form 8-K dated May 23, 2003 included information
relating to valuation of stock options.
Current Report on Form 8-K dated June 3, 2003 included information
relating to U.S. retail sales of Ford vehicles in May 2003.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FORD MOTOR COMPANY
------------------------------
(Registrant)
Date: August 1, 2003 By:/s/Don R. Leclair
-------------- --------------------------
Don R. Leclair
Group Vice President and Chief Financial Officer
33
EXHIBIT INDEX
Designation Description Method of Filing
------------------ ---------------------------------------------------- -----------------------
<s> <c> <c>
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 August 1, 2003, relating to
Financial Information
Exhibit 31.1 Rule 15d-14(a) Certification of CEO Filed with this Report
Exhibit 31.2 Rule 15d-14(a) Certification of CFO Filed with this Report
Exhibit 32.1 Section 1350 Certification of CEO Filed with this Report
Exhibit 32.2 Section 1350 Certification of CFO Filed with this Report
34