Exhibit 99
Items 2 and 4 of Part I and Items 1, 2 and 5 of Part II of Ford's Quarterly
Report on Form 10-Q for the quarterly period ended September 30, 2004. ALL
REFERENCES TO WE, OUR, AND US IN THIS EXHIBIT 99 REFER TO FORD MOTOR COMPANY.
-46-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Certain amounts were reclassified to conform to current period
presentation. Reclassifications include profit and loss related to
discontinued/held-for-sale operations.
THIRD QUARTER RESULTS OF OPERATIONS
Our worldwide net income was $266 million in the third quarter of 2004, or
$0.15 per diluted share of Common and Class B Stock. In the third quarter of
2003, net loss was $25 million, or $0.01 per share.
Results by business sector for the third quarter of 2004 and 2003 are shown
below (in millions):
Third Quarter
Net Income/(Loss)
-----------------------------------------
2004
Over/(Under)
2004 2003 2003
--------- ------------ ----------------
Income/(loss) before income taxes
Automotive sector $ (673) $ (604) $(69)
Financial Services sector 1,425 1,031 394
------ ------ ----
Total Company 752 427 325
Provision for/(benefit from) income taxes 210 140 70
Minority interests in net income/(loss) of subsidiaries a/ 62 45 17
------ ------ ----
Income/(loss) from continuing operations 480 242 238
Income/(loss) from discontinued/held-for-sale operations b/ (214) (3) (211)
Cumulative effect of change in accounting principle - (264) 264
------ ------ ----
Net income/(loss) $ 266 $ (25) $291
====== ====== ====
- ----------
a/ Minority interests in net income/(loss) of subsidiaries primarily related
to Ford Europe's consolidated less-than-100%-owned affiliates.
b/ See Note 2 of the Notes to the Financial Statements for discussion of
Income/(loss) from discontinued/held-for-sale operations.
Automotive Sector
- -----------------
Details of Automotive sector results for the third quarter of 2004 and 2003
are shown below (in millions):
Third Quarter
--------------------------------------------------------------------------------
Income/(Loss) Before Taxes
Income/(Loss) Before Taxes Excluding Special Items
-------------------------------------- ---------------------------------------
2004 2004
Over/ Over/
(Under) (Under)
2004 2003 2003 2004 2003 2003
------------ ---------- -------------- ----------- ----------- ---------------
Americas
Ford North America $(522) $(108) $(414) $(481) $(108) $(373)
Ford South America 59 (26) 85 59 (26) 85
----- ----- ----- ----- ----- -----
Total Americas (463) (134) (329) (422) (134) (288)
Ford Europe and PAG
Ford Europe (33) (456) 423 (33) (400) 367
PAG (194) (24) (170) (171) (24) (147)
----- ------ ----- ----- ----- -----
Total Ford Europe and PAG (227) (480) 253 (204) (424) 220
Ford Asia Pacific and Africa/Mazda
Ford Asia Pacific and Africa 35 3 32 35 3 32
Mazda and Associated Operations 13 5 8 13 5 8
----- ----- ----- ----- ----- -----
Total Ford Asia Pacific
and Africa/Mazda 48 8 40 48 8 40
Other Automotive (31) 2 (33) (31) 2 (33)
----- ----- ----- ----- ----- -----
Total, excluding special items (609) (548) (61)
Special items * (64) (56) (8)
----- ----- -----
Total Automotive $(673) $(604) $ (69) $(673) $(604) $ (69)
===== ===== ===== ===== ===== =====
- ----------
* 2004 special items included charges of $(41) million for our investment in
Ballard Power Systems Inc. and $(23) million related to our PAG improvement
plan. 2003 special items included a charge of $(56) million for our Ford
Europe improvement plan.
-47-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Details of Automotive sector sales and vehicle unit sales for the third
quarter 2004 and 2003 are shown below:
Sales Vehicle Unit Sales *
(in billions) (in thousands)
------------------------------------------- --------------------------------------------
2004 2004
Over/(Under) Over/(Under)
2004 2003 2003 2004 2003 2003
--------- ---------- ---------------------- --------- ---------- -----------------------
Americas
Ford North America $18.1 $17.9 $ 0.2 1% 780 782 (2) -%
Ford South America 0.8 0.5 0.3 60 76 55 21 38
----- ----- ----- -- ----- ----- -- --
Total Americas 18.9 18.4 0.5 3 856 837 19 2
Ford Europe and PAG
Ford Europe 5.9 4.6 1.3 28 372 326 46 14
PAG 6.1 5.6 0.5 9 169 164 5 3
----- ----- ----- -- ----- ----- -- --
Total Ford Europe and PAG 12.0 10.2 1.8 18 541 490 51 10
Ford Asia Pacific and Africa 1.9 1.6 0.3 19 111 96 15 16
----- ----- ----- -- ----- ----- -- --
Total Automotive $32.8 $30.2 $ 2.6 9% 1,508 1,423 85 6%
===== ===== ===== == ===== ===== == ==
- ----------
* Included in vehicle unit sales of Ford Asia Pacific and Africa are
Ford-badged vehicles sold in China and Malaysia by our unconsolidated
affiliates totaling 16,000 and 11,000 units in 2004 and 2003, respectively.
The revenue from these units is not reflected in the dollar sales reported
above.
Details of Automotive sector market share for selected markets for the
third quarter 2004 and 2003 are shown below:
2004
Over/(Under)
2004 2003 2003 Market
---------- ------------- ------------------- ------------------
Americas
Ford North America 17.3% 18.6% (1.3)pts. U.S. b/
Ford South America 11.4 12.1 (0.7) Brazil b/
Ford Europe and PAG a/
Ford Europe 8.8 8.6 0.2 Europe b/
PAG 1.2/2.2 1.3/2.0 (0.1)/0.2 U.S./Europe
Ford Asia Pacific and Africa 15.1 14.7 0.4 Australia b/
- ----------
a/ 2004 European market share for Ford Europe and PAG are based, in part, on
estimated vehicle registrations for our 19 major markets.
b/ Excludes market share of our Premier Automotive Group brand vehicles (i.e.
Volvo, Jaguar, Land Rover and Aston Martin).
The following discussion, except where noted, is based on Income/(Loss)
Before Taxes Excluding Special Items. We believe this measure to be useful to
investors because it excludes elements that we do not consider to be indicative
of earnings from our on-going operating activities. As a result, it provides
investors with a more relevant measure of the results generated by our
operations.
Compared with the third quarter of 2003, the increase in loss by $61
million for the Automotive sector primarily reflected unfavorable changes in
exchange rates (about $300 million) and higher net interest (about $100 million
- -- discussed below under "Other Automotive"), offset partially by improved cost
performance (about $200 million -- measured at constant volume, mix and
exchange) and higher vehicle unit sales (about $100 million).
Americas
- --------
Ford North America. The decline in results for Ford North America primarily
reflected unfavorable changes in exchange rates and lower production
volumes, partially offset by improved product mix. Unfavorable changes in
exchange rates reflected continued weakening of the U.S. dollar compared
with the Canadian dollar and Euro, net of hedging.
Although vehicle unit sales were about the same as the third quarter 2003,
production was down 39,000 units. The difference between sales and
production volumes primarily reflected the fact that we had more units
being returned to us from daily rental car companies and sold at auction
than we delivered to those companies.
-48-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Profits on these units are recognized over the term of the lease and
vehicle unit sales are recognized when the vehicles are sold at auction.
The decline in market share is the result of pressure on our retail market
share, particularly with respect to cars, as we balanced out 2004 model
year vehicles and changed over to 2005 model year vehicles, as well as our
on-going strategy to reduce vehicle sales to daily rental car companies.
Ford South America. The improvement in profit and sales for Ford South
America primarily reflected positive net pricing and higher vehicle unit
sales, partially offset by higher material costs.
Ford Europe and PAG
- -------------------
Ford Europe. The improvement for Ford Europe primarily reflected higher
vehicle unit sales and favorable cost performance. The increase in vehicle
unit sales primarily reflected higher sales (primarily the Ford Focus C-Max
model) in the major western European markets and in Turkey and Russia.
PAG. The decline in results for PAG primarily reflected the cost of
launching new vehicles, particularly at Land Rover, and unfavorable changes
in exchange rates, net of hedging, partially offset by higher vehicle unit
sales.
The $23 million charge for PAG improvement actions reported as a special
item in the third quarter of 2004 reflected costs associated with hourly
and salaried employee voluntary separation programs at the Halewood and
Browns Lane facilities. As previously announced, we expect further charges
in the fourth quarter of 2004 and in 2005 related to the planned voluntary
separation of employees. We presently estimate these charges to be $75
million in the fourth quarter of 2004 and $75 million in 2005.
Ford Asia Pacific and Africa/Mazda
- ----------------------------------
Ford Asia Pacific and Africa. The improvement for Ford Asia Pacific and
Africa primarily reflected favorable changes in exchange rates, improved
cost performance, and higher vehicle unit sales, partially offset by
unfavorable net pricing. The increase in vehicle unit sales reflected
higher industry volumes in China, Australia and Taiwan, as well as improved
market share in Australia and South Africa.
Mazda and Associated Operations. The change primarily reflected
improvements in our Mazda-related investments.
Other Automotive
- ----------------
The decline in results for Other Automotive reflected lower interest income
on tax refunds.
-49-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Financial Services Sector
- -------------------------
Our Financial Services sector includes two primary segments, Ford Credit
and Hertz. Details of Financial Services sector income/(loss) before income
taxes for the third quarter of 2004 and 2003 are shown below (in millions):
Third Quarter
Income/(Loss) Before Income Taxes
--------------------------------------------
2004
Over/(Under)
2004 2003 2003
----------- ------------ ----------------
Ford Credit $1,167 $ 808 $359
Hertz* 249 186 63
Other Financial Services 9 37 (28)
----- ------ ----
Total Financial Services sector $1,425 $1,031 $394
====== ====== ====
- ----------
* Includes amortization expense related to intangibles recognized upon
consolidation of Hertz.
Ford Credit
- -----------
The improvement in earnings primarily resulted from improved credit loss
performance ($182 million) and leasing results ($180 million), offset partially
by the impact of lower receivables ($87 million). The improvement in leasing
results primarily reflected higher used vehicle prices and a reduction in the
percentage of vehicles returned to Ford Credit at lease termination.
Details of actual credit losses net of recoveries ("charge-offs") and
loss-to-receivables ratios (annualized charge-offs during a period as a
percentage of average net receivables for that period) for the third quarter of
2004 and 2003 are shown below:
Third Quarter
-------------------------------------------------
2004
Over/(Under)
2004 2003 2003
------------ ------------ --------------------
Charge-offs (in millions)
On-balance sheet $ 349 $ 466 $(117)
Managed 458 668 (210)
Loss-to-receivables ratio
On-balance sheet 1.07% 1.40% (0.33) pts.
On-balance sheet (including charge-offs
associated with reacquired receivables)* 1.13% 1.52% (0.39) pts.
- ----------
* Ford Credit believes that the use of the on-balance sheet
loss-to-receivables ratio that includes the charge-offs on reacquired
receivables is useful to investors because it provides a more complete
presentation of Ford Credit's on-balance sheet credit loss performance.
The decrease of $117 million in charge-offs for the on-balance sheet
portfolio primarily reflected lower repossessions and a lower average loss per
repossession in the U.S. retail installment and operating lease portfolio.
Ford Credit's net finance receivables and net investment in operating
leases for on-balance sheet, securitized off-balance sheet, managed and serviced
portfolios are shown below (in billions):
2004
September 30, December 31, Over/(Under)
2004 2003 2003
--------------- --------------- -----------------
On-balance sheet (including on-balance
sheet securitizations) $132.0 $132.1 $ (0.1)
Securitized off-balance sheet 38.7 49.4 (10.7)
------ ------ ------
Managed $170.7 $181.5 $(10.8)
====== ====== ======
Serviced $175.4 $188.8 $(13.4)
The decrease in securitized off-balance sheet receivables of $10.7 billion
primarily reflected lower funding requirements.
-50-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Shown below is Ford Credit's allowance for credit losses related to finance
receivables and operating leases for the periods specified:
2004
September 30, December 31, Over/(Under)
2004 2003 2003
---------------- ---------------- ----------------
Allowance for credit losses (in billions) $2.6 $3.0 $(0.4)
Allowance as a percentage of end-of-period net
receivables 1.95% 2.28% (0.33) pts.
The decrease in the allowance for credit losses of about $400 million
primarily reflected improved portfolio performance in the United States.
Hertz
- -----
The improvement at Hertz was primarily due to higher rental volume in the
leisure and commercial car rental market segments, offset partially by lower
pricing due to a highly competitive environment. Earnings were also favorably
impacted by lower fleet costs, higher net proceeds received in excess of book
value on the disposal of used vehicles and equipment, and improved conditions in
North America equipment rental operations.
FIRST NINE MONTHS RESULTS OF OPERATIONS
Our worldwide net income was $3.4 billion in the first nine months of 2004,
or $1.66 per diluted share of Common and Class B Stock. In the first nine months
of 2003, net income was $1.3 billion, or $0.68 per share.
Results by business sector for the first nine months of 2004 and 2003 are
shown below (in millions):
First Nine Months
Net Income/(Loss)
--------------------------------------------
2004
Over/(Under)
2004 2003 2003
----------- ------------ -----------------
Income/(loss) before income taxes
Automotive sector $1,104 $ 84 $1,020
Financial Services sector 4,067 2,424 1,643
------ ------ ------
Total Company 5,171 2,508 2,663
Provision for/(benefit from) income taxes 1,317 679 638
Minority interests in net income/(loss) of subsidiaries a/ 219 245 (26)
------ ------ ------
Income/(loss) from continuing operations 3,635 1,584 2,051
Income/(loss) from discontinued/held-for-sale operations b/ (252) (32) (220)
Cumulative effect of change in accounting principle - (264) 264
------ ------ ------
Net income/(loss) $3,383 $1,288 $2,095
====== ====== ======
- ----------
a/ In 2004, Minority interests in net income/(loss) of subsidiaries primarily
related to Ford Europe's consolidated less-than-100%-owned affiliates. In
2003, the amount primarily related to interest expense on Trust II
obligations (for additional discussion of this interest expense, see "First
Nine Months Results of Operations - Other Automotive" below).
b/ See Note 2 of the Notes to the Financial Statements for further discussion
of Income/(loss) from discontinued/held-for-sale operations.
-51-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Automotive Sector
- -----------------
Details of Automotive sector results for the first nine months of 2004 and
2003 are shown below (in millions):
First Nine Months
--------------------------------------------------------------------------------
Income/(Loss) Before Taxes
Income/(Loss) Before Taxes Excluding Special Items
-------------------------------------- ---------------------------------------
2004 2004
Over/ Over/
(Under) (Under)
2004 2003 2003 2004 2003 2003
---------- ---------- -------------- ----------- ---------- --------------
Americas
Ford North America $1,775 $ 1,588 $ 187 $ 1,936 $ 1,588 $ 348
Ford South America 96 (125) 221 96 (125) 221
------- ------- ------ ------- ------- ------
Total Americas 1,871 1,463 408 2,032 1,463 569
Ford Europe and PAG
Ford Europe 134 (1,225) 1,359 183 (1,169) 1,352
PAG (508) 57 (565) (485) 57 (542)
------ ------- ------ ------- ------- ------
Total Ford Europe and PAG (374) (1,168) 794 (302) (1,112) 810
Ford Asia Pacific and Africa/Mazda
Ford Asia Pacific and Africa 58 (49) 107 58 (49) 107
Mazda and Associated Operations 127 91 36 127 91 36
------ ------- ------ ------- ------- ------
Total Ford Asia Pacific and Africa/
Mazda 185 42 143 185 42 143
Other Automotive (578) (253) (325) (595) (253) (342)
------ ------- ------ ------- ------- ------
Total, excluding special items 1,320 140 1,180
Special items * (216) (56) (160)
------- ------- ------
Total Automotive $1,104 $ 84 $1,020 $ 1,104 $ 84 $1,020
====== ======= ====== ======= ======= ======
- ----------
* 2004 special items include charges of $(161) million for our investment in
Ballard Power Systems Inc., $(49) million for our Ford Europe improvement
plan, and $(23) million for our PAG improvement plan, offset partially by
$17 million related to a prior divestiture. 2003 special items include a
charge of $(56) million for our Ford Europe improvement plan.
Details of Automotive sector sales and vehicle unit sales for the first
nine months of 2004 and 2003 are shown below:
Sales Vehicle Unit Sales *
(in billions) (in thousands)
------------------------------------------ -------------------------------------------
2004 2004
Over/(Under) Over/(Under)
2004 2003 2003 2004 2003 2003
--------- ---------- ------------------- --------- --------- ---------------------
Americas
Ford North America $ 61.9 $60.8 $1.1 2% 2,710 2,788 (78) (3)%
Ford South America 2.1 1.2 0.9 75 209 148 61 41
----- ----- ---- -- ----- ----- --- --
Total Americas 64.0 62.0 2.0 3 2,919 2,936 (17) (1)
Ford Europe and PAG
Ford Europe 19.1 14.8 4.3 29 1,253 1,123 130 12
PAG 19.8 17.4 2.4 14 559 533 26 5
----- ----- ---- -- ----- ----- --- --
Total Ford Europe and PAG 38.9 32.2 6.7 21 1,812 1,656 156 9
Ford Asia Pacific and Africa 5.4 4.3 1.1 26 315 260 55 21
----- ----- ---- -- ----- ----- --- --
Total Automotive $108.3 $98.5 $9.8 10% 5,046 4,852 194 4%
====== ===== ==== == ===== ===== === ==
- ----------
* Included in vehicle unit sales of Ford Asia Pacific and Africa are
Ford-badged vehicles sold in China and Malaysia by our unconsolidated
affiliates totaling 51,000 and 24,000 in 2004 and 2003, respectively. The
revenue from these units is not reflected in the dollar sales reported
above.
-52-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Details of Automotive sector market share for selected markets for the
first nine months of 2004 and 2003 are shown below:
2004
Over/(Under)
2004 2003 2003 Market
----------- ----------- ------------------- ------------------
Americas
Ford North America 18.0% 19.3% (1.3)pts. U.S. b/
Ford South America 11.3 11.4 (0.1) Brazil b/
Ford Europe and PAG a/
Ford Europe 8.9 8.8 0.1 Europe b/
PAG 1.3/2.3 1.3/2.1 0/0.2 U.S./Europe
Ford Asia Pacific 14.1 14.2 (0.1) Australia b/
- ----------
a/ 2004 European market share for Ford Europe and PAG are based, in part, on
estimated vehicle registrations for our 19 major markets.
b/ Excludes market share of our Premier Automotive Group brand vehicles (i.e.
Volvo, Jaguar, Land Rover and Aston Martin).
The following discussion is based on Income/(Loss) Before Taxes Excluding
Special Items. We believe this measure to be useful to investors because it
excludes elements that we do not consider to be indicative of earnings from our
on-going operating activities. As a result, it provides investors with a more
relevant measure of the results generated by our operations.
Compared with the first nine months of 2003, the improvement in profit of
$1.2 billion for the Automotive sector primarily reflected favorable cost
performance (measured at constant volume, mix, and exchange), improved vehicle
unit sales, and positive net pricing, partially offset by unfavorable changes in
exchange rates.
The improved cost performance resulted from the following factors:
o manufacturing and engineering costs decreased by about $900 million,
primarily as a result of lower employment levels and the non-recurrence of
the UAW contract settlements incurred last year;
o overhead costs, which include administrative and staff support, decreased
by about $400 million, primarily as a result of lower employment levels
(excluding the impact of FIN 46 consolidations);
o net product costs decreased by about $200 million, primarily as a result of
design efficiencies and supplier negotiations;
o depreciation and amortization costs increased by about $600 million,
primarily as a result of new product programs;
o quality-related costs increased by about $100 million, primarily reflecting
the non-recurrence of favorable reserve adjustments for warranty and
additional service action costs in the year-ago period; and
o pension and retiree health care expenses were unchanged.
Americas
- --------
Ford North America. The improvement in profit for Ford North America
primarily reflected improved product mix, positive net pricing, and
favorable cost performance, partially offset by lower vehicle unit sales
and unfavorable changes in exchange rates. Lower vehicle unit sales
primarily reflected lower market share, partially offset by increased
dealer stock levels and higher industry volumes.
Ford South America. The improvement in profit for Ford South America
primarily reflected positive net pricing and higher industry volumes,
partially offset by higher material cost.
Ford Europe and PAG
- -------------------
Ford Europe. The improvement in profit for Ford Europe primarily reflected
favorable cost performance, and higher vehicle unit sales. The increase in
vehicle unit sales primarily reflected the strength of the Ford Focus C-Max
model and higher sales in Turkey and Russia.
PAG. The decline in results for PAG primarily reflected unfavorable changes
in exchange rates, unfavorable product mix, and the cost of launching new
vehicles, offset partially by higher vehicle unit sales.
-53-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Ford Asia Pacific and Africa/Mazda
- ----------------------------------
Ford Asia Pacific and Africa. The improvement in profit for Ford Asia
Pacific and Africa primarily reflected favorable changes in exchange rates
and higher vehicle unit sales, offset partially by negative net pricing.
Mazda and Associated Operations. The change primarily reflected
improvements in our Mazda-related investments.
Other Automotive
- ----------------
The increase in loss before income taxes for Other Automotive primarily
reflected the reclassification of interest expense on our 6.50% Junior
Subordinated Debentures due 2032 held by a subsidiary trust, Ford Motor Company
Capital Trust II (prior to July 1, 2003, this interest expense was included in
Minority interests in net income/(loss) of subsidiaries), lower interest income
on tax refunds, and lower earnings on our cash and cash-like investments.
Financial Services Sector
- -------------------------
Details of Financial Services sector income before income taxes for the
first nine months of 2004 and 2003 are shown below (in millions):
First Nine Months
Income/(Loss) Before Income Taxes
---------------------------------------------
2004
Over/(Under)
2004 2003 2003
---------- ------------ ----------------
Ford Credit $3,676 $2,196 $1,480
Hertz* 386 184 202
Other Financial Services 5 44 (39)
------- ------ ------
Total Financial Services sector $4,067 $2,424 $1,643
====== ====== ======
- ----------
* Includes amortization expense related to intangibles recognized upon
consolidation of Hertz.
Ford Credit
- -----------
The improvement in earnings primarily resulted from improved credit loss
performance and leasing results, offset partially by the impact of lower income
related to sales of receivables. The improvement in leasing results primarily
reflected higher used vehicle prices and a reduction in the percentage of
vehicles returned to Ford Credit at lease termination.
Details of charge-offs and loss-to-receivables ratios for the first nine
months of 2004 and 2003 are shown below:
First Nine Months
---------------------------------------------------
2004
Over/(Under)
2004 2003 2003
------------- ------------- ------------------
Charge-offs (in millions)
On-balance sheet $1,016 $1,410 $(394)
Managed 1,397 1,977 (580)
Loss-to-receivables ratio
On-balance sheet 1.05% 1.49% (0.44) pts.
On-balance sheet (including charge-offs
associated with reacquired receivables)* 1.10% 1.54% (0.44) pts.
- ----------
* Ford Credit believes that the use of the on-balance sheet
loss-to-receivables ratio that includes the charge-offs on reacquired
receivables is useful to investors because it provides a more complete
presentation of Ford Credit's on-balance sheet credit loss performance.
The decrease of $394 million in charge-offs for the on-balance sheet
portfolio primarily reflected lower repossessions and a lower average loss per
repossession in the U.S. retail installment and operating lease portfolio.
-54-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
The following table summarizes the activity related to the off-balance
sheet sales of receivables reported as revenues for the periods indicated (in
millions):
First Nine Months
------------------------------------------------
2004
Over/(Under)
2004 2003 2003
----------- ------------- ------------------
Net gain on sales of receivables $ 150 $ 329 $ (179)
Interest income on sold wholesale receivables and
retained securities 467 545 (78)
Servicing fees 329 528 (199)
Excess spread and other 690 737 (47)
------- ------- --------
Investment and other income related to sales of
receivables 1,636 2,139 (503)
Less: Whole-loan income (71) (144) 73
------- ------- --------
Income related to off-balance sheet securitizations $ 1,565 $ 1,995 $ (430)
======= ======= ========
Memo:
Finance receivables sold $ 5,687 $15,648 $ (9,961)
Servicing portfolio as of period-end 43,400 55,020 (11,620)
Pre-tax gain per dollar of retail receivables sold 2.6% 2.1% 0.5 pts.
Investment and other income related to sales of receivables decreased $503
million. This decline primarily resulted from lower off-balance sheet retail
receivables sales in 2004 and lower levels of outstanding sold receivables.
Excluding the effects of whole-loan sale transactions, which totaled $10.4
billion in the 2002-2004 period, off-balance sheet securitization income
declined $430 million.
The net impact of off-balance sheet securitizations on earnings in a given
period will vary depending on the amount and type of receivables sold and the
timing of the transactions in the current period and the preceding two-to-three
year period, as well as the interest rate environment at the time the finance
receivables were originated and securitized.
The following table shows, on an analytical basis, the earnings impact of
off-balance sheet securitizations as if Ford Credit had reported them on-balance
sheet and funded them through asset-backed financings for the periods indicated
(in millions):
First Nine Months
-----------------------------------------------
2004
Over/(Under)
2004 2003 2003
----------- ------------ ------------------
Financing revenue
Retail revenue $ 1,889 $ 2,779 $(890)
Wholesale revenue 817 832 (15)
------- ------- -----
Total financing revenue 2,706 3,611 (905)
Borrowing cost (714) (1,198) 484
------- ------- -----
Net financing margin 1,992 2,413 (421)
Net credit losses (324) (511) 187
------- ------- -----
Income before income taxes $ 1,668 $ 1,902 $(234)
======= ======= =====
Memo:
Income related to off-balance sheet securitizations $ 1,565 $ 1,995 $(430)
Recalendarization impact of off-balance sheet
securitizations (103) 93 (196)
In the first nine months of 2004, the impact to earnings of off-balance
sheet securitizations was $103 million lower than had these transactions been
structured as on-balance sheet securitizations. This difference results from
recalendarization effects caused by gain-on-sale accounting requirements. This
effect will fluctuate as the amount of receivables sold in off-balance sheet
securitizations increases or decreases over time and with changes in market
conditions.
Hertz
- -----
The improvement was primarily due to higher rental volume in the leisure
and commercial car rental market segments, offset partially by lower pricing due
to a highly competitive environment. Earnings were also favorably impacted by
lower fleet costs, higher net proceeds received in excess of book value on the
disposal of used vehicles and equipment and improved conditions in North America
equipment rental operations.
-55-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
LIQUIDITY AND CAPITAL RESOURCES
Automotive Sector
- -----------------
For the Automotive sector, liquidity and capital resources include gross
cash balances, cash generated by operations, funds raised in capital markets and
committed credit lines.
Gross Cash. Automotive gross cash includes cash and cash equivalents,
marketable and loaned securities and assets contained in a short-term Voluntary
Employee Beneficiary Association trust ("VEBA") as detailed below (in billions):
2004 2003
-------------------------------- -------------------------------
September 30 January 1 September 30 January 1
----------------- ------------- ----------------- ------------
Cash and cash equivalents $ 6.7 $ 5.4 $ 6.8 $ 5.2
Marketable securities 10.3 10.8 12.2 17.4
Loaned securities 2.3 5.7 7.0 -
----- ----- ----- ------
Total cash, marketable and
Loaned securities 19.3 21.9 26.0 22.6
Short-term VEBA assets 4.1 4.0 0.9 2.7
----- ----- ----- ------
Gross cash $23.4 $25.9 $26.9 $ 25.3
===== ===== ===== ======
In managing our business, we classify changes in gross cash into four
categories: operating-related (both including and excluding funded pension plan
and long-term VEBA contributions and tax refunds), capital transactions with the
Financial Services sector, acquisitions and divestitures and other (primarily
financing related). Our key metric for operating-related cash flows is cash
flows before funded pension plan and long-term VEBA contributions and tax
refunds. This metric best represents the ability of our Automotive operations to
generate cash. We believe the cash flows analysis reflected in the table below,
which differs from a cash flows statement presented in accordance with GAAP, is
useful to investors because it includes cash flows elements that we consider to
be related to our operating activities (e.g., capital spending) that are not
included in Cash flows from operating activities before securities trading, the
most directly comparable GAAP financial measure.
Changes in Automotive gross cash for the third quarter and first nine
months of 2004 and 2003 are summarized below (in billions):
Third Quarter First Nine Months
----------------------- -----------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
Gross cash at end of period $23.4 $26.9 $23.4 $26.9
Gross cash at beginning of period 26.8 28.7 25.9 25.3
----- ----- ----- -----
Total change in gross cash $(3.4) $(1.8) $(2.5) $ 1.6
===== ===== ===== =====
Operating-related cash flows
Automotive income/(loss) before income
taxes, excluding special items $(0.6) $(0.6) $ 1.3 $ 0.1
Capital expenditures (2.0) (2.2) (4.6) (5.6)
Depreciation and special tools amortization 1.6 1.3 4.8 4.0
Changes in receivables, inventory and trade payables 0.1 (0.9) (1.0) (1.4)
Other (2.0) (1.0) (1.0) 1.5
----- ----- ----- -----
Total operating-related cash flows before pension/
long-term VEBA contributions and tax refunds (2.9) (3.4) (0.5) (1.4)
Funded pension plans/long-term VEBA contributions a/ (1.5) (0.2) (3.0) (1.5)
Tax refunds - 0.6 - 1.4
----- ----- ----- -----
Total operating-related cash flows (4.4) (3.0) (3.5) (1.5)
Capital transactions with Financial Services sector b/ 1.5 1.2 3.4 2.8
Divestitures and acquisitions - 0.1 0.3 0.5
Other
Dividends paid to shareholders (0.2) (0.2) (0.5) (0.5)
Changes in total Automotive sector debt (0.3) (0.1) (2.0) 0.1
Other - (0.1) (0.2) (0.1)
Cash from FIN 46 consolidation - 0.3 - 0.3
----- ----- ----- -----
Total change in gross cash $(3.4) $(1.8) $(2.5) $ 1.6
===== ===== ===== =====
- ----------
a/ See Note 9 of the Notes to the Financial Statements.
b/ Primarily dividends, capital contributions, loans and loan repayments.
-56-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Shown in the table below is a reconciliation between Cash flows from
operating activities before securities trading and operating-related cash flows,
calculated as shown in the table above, for the third quarter and first nine
months of 2004 and 2003 (in billions):
Third Quarter First Nine Months
------------------------- ------------------------
2004 2003 2004 2003
----------- ----------- ---------- ----------
Cash flows from operating activities
before securities trading $(2.2) $(0.9) $ 1.4 a/ $ 4.9 a/
Items included in operating-related cash flows
Capital expenditures (2.0) (2.2) (4.6) (5.6)
Net transactions between Automotive
and Financial Services sectors (0.4) 0.7 0.1 b/ 0.4 b/
Other 0.2 (0.6) (0.4) (1.2)
----- ----- ---- -----
Total operating-related cash flows $(4.4) $(3.0) $(3.5) $(1.5)
===== ===== ===== =====
- ----------
a/ As shown in our condensed sector statement of cash flows for the Automotive
sector.
b/ Primarily payables and receivables between the sectors in the normal course
of business, as shown in our condensed sector statement of cash flows.
Automotive operating-related cash flows, excluding contributions to our
funded pension plans and long-term VEBA and excluding tax refunds, were negative
$2.9 billion for the third quarter of 2004. This reflected the Automotive
pre-tax loss excluding special items (about $600 million), capital spending net
of depreciation and amortization (about $400 million), and other
operating-related changes. The other operating-related changes were an outflow
of $2 billion in the third quarter of 2004 due to the effects of seasonally
lower vehicle production on marketing and warranty accruals compared with
payments, the higher use of cash marketing incentives in lieu of interest rate
incentives, and tax payments. These changes were offset partially by changes in
receivables, inventory, and trade payables (positive cash flows of about $100
million).
Capital transactions with the Financial Services sector, primarily
dividends received from Ford Credit, totaled $1.5 billion and $3.4 billion in
the third quarter and first nine months of 2004, respectively.
Cash flows related to changes in Automotive sector debt in the third
quarter of 2004 were an outflow of about $300 million, representing primarily
the repurchase of senior debt in the open market. Through the first nine months
of 2004, cash flows related to changes in Automotive sector debt were an outflow
of $2 billion, which primarily represented the repurchase of $1.3 billion of
senior debt (the majority of our purchases have been among four large issues,
which have maturities between 2028 and 2032) and the redemption of our 9% Trust
Originated Preferred Securities, which had the effect of reducing our
subordinated debt by about $700 million.
Debt. At September 30, 2004, our Automotive sector had total senior debt of
$13.6 billion, compared with $15.0 billion at December 31, 2003. The debt
decrease primarily reflected the senior debt repurchases described above.
Ford Motor Company Capital Trust II ("Trust II") had outstanding $5.0
billion of trust preferred securities at September 30, 2004. The dividend and
liquidation preferences on these securities are paid from interest and principal
payments on our junior subordinated debentures held by Trust II in a principal
amount of $5.2 billion.
Credit Facilities. At September 30, 2004, the Automotive sector had $7.2
billion of contractually committed credit agreements with various banks, of
which $7.1 billion were available for use. 79% of the total facilities are
committed through June 30, 2009. Of the $7.2 billion, $6.9 billion constitute
global credit facilities and may be used, at our option, by any of our direct or
indirect majority-owned subsidiaries on a guaranteed basis. We also have the
ability to transfer, on a non-guaranteed basis, $2.5 billion of such global
credit facilities to Ford Credit and $518 million to FCE Bank plc ("FCE"), Ford
Credit's European operation. All of the global credit facilities are free of
material adverse change clauses and restrictive financial covenants (e.g.
debt-to-equity limitations, minimum net worth requirements and credit rating
triggers that would limit our ability to borrow).
-57-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Financial Services Sector
- -------------------------
Ford Credit
- ----------
Debt. Ford Credit's total debt was $135.3 billion at September 30, 2004,
down $14.4 billion compared with December 31, 2003. This decrease primarily
reflected repayment of maturing debt and lower asset levels, which reduced Ford
Credit's funding needs. Ford Credit's unsecured commercial paper outstanding at
September 30, 2004 totaled $8.5 billion, up $2.4 billion compared with December
31, 2003.
Funding. During the third quarter of 2004, Ford Credit issued $3.4 billion
of long-term debt with maturities of one to 10 years, including about $2.5
billion of unsecured institutional funding and about $900 million of unsecured
retail bonds. In addition, Ford Credit realized proceeds of $3.8 billion from
sales of receivables in off-balance sheet securitizations.
Ford Credit expects its full-year 2004 public term funding requirements to
be between $13 billion and $18 billion. In the first nine months of 2004, it
completed about $13 billion of public term funding transactions. Because of
significant available liquidity and Ford Credit's relatively smaller balance
sheet size, during the third quarter Ford Credit purchased in open market
transactions a small portion of its outstanding debt securities. Depending on
market conditions, Ford Credit may continue repurchasing a portion of its
outstanding debt securities during the remainder of 2004.
Leverage. Ford Credit uses leverage, or the debt-to-equity ratio, to make
various business decisions, including establishing pricing for retail,
wholesale, and lease financing, and assessing its capital structure. Ford Credit
calculates leverage on a financial statement basis and on a managed basis.
Ford Credit's financial statement leverage is calculated from the
components shown in the following table:
September 30, December 31,
2004 2003
----------------- ----------------
Total debt (in billions) $135.3 $149.7
Total stockholder's equity (in billions) 11.4 12.5
Financial statement leverage (to 1) 11.8 12.0
The decrease in the financial statement leverage resulted primarily from
lower funding requirements.
Ford Credit's managed leverage is calculated from the components shown in
the following table (in billions, except ratios):
September 30, December 31,
2004 2003
--------------- ----------------
Total debt $135.3 $149.7
Securitized off-balance sheet receivables outstanding 38.7 49.4
Retained interest in securitized
off-balance sheet receivables (9.5) (13.0)
Adjustments for cash and cash equivalents (10.1) (15.7)
Adjustments for SFAS No. 133 (3.6) (4.7)
------ ------
Adjusted debt $150.8 $165.7
====== ======
Total stockholder's equity
(including minority interest) $ 11.4 $ 12.5
Adjustment for SFAS No. 133 - 0.2
------ ------
Adjusted equity $ 11.4 $ 12.7
====== ======
Managed leverage (to 1) 13.2 13.0
Ford Credit's dividend policy is based in part on its strategy to maintain
managed leverage in the lower end of the 13 - 14 to 1 range. Based on Ford
Credit's profitability and managed receivable levels, it paid dividends of $3.4
billion in the first nine months of 2004.
Credit Facilities. For additional funding and to maintain liquidity, Ford
Credit and its majority-owned subsidiaries, including FCE, have contractually
committed credit facilities with financial institutions that totaled
approximately $7.3 billion at September 30, 2004. This includes $4.4 billion of
Ford Credit facilities ($3.9 billion global and $0.5 billion non-global) and
$2.9 billion of FCE facilities ($2.7 billion global and $0.2 billion
non-global).
-58-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Approximately $0.7 billion of the total facilities were in use at September 30,
2004. Of the $7.3 billion, about 38% of these facilities are committed through
June 30, 2009. The global credit facilities may be used, at Ford Credit's or
FCE's option, by any of their direct or indirect majority-owned subsidiaries.
Ford Credit or FCE, as the case may be, will guarantee any such borrowings. All
of the global credit facilities are free of material adverse change clauses and
restrictive financial covenants (for example, debt-to-equity limitations,
minimum net worth requirements and credit rating triggers) that would limit Ford
Credit's ability to borrow.
Additionally, at September 30, 2004, banks provided $18.9 billion of
contractually committed liquidity facilities supporting two asset-backed
commercial paper programs; $18.5 billion supported Ford Credit's FCAR program
and $425 million supported Ford Credit's Motown NotesSM Program.
In addition, as of October 31, 2004, Ford Credit had entered into
agreements with several bank-sponsored commercial paper issuers ("conduits")
under which such conduits are contractually committed to purchase from Ford
Credit, at Ford Credit's option, up to an aggregate of approximately $12.8
billion of receivables. The agreements have varying maturity dates between
November 30, 2004 and October 13, 2005. As of October 31, 2004, approximately
$3.6 billion of these conduit commitments have been utilized.
Hertz
- -----
Debt and Cash. At September 30, 2004, Hertz had total debt of $8.9 billion,
up $1.3 billion from December 31, 2003, reflecting seasonal rental fleet demand.
During the first nine months of 2004, Hertz issued $1.9 billion of medium and
long-term debt with maturities of three to 10 years. At September 30, 2004 and
at December 31, 2003 commercial paper outstanding was $2.2 billion. At September
30, 2004, Hertz had cash and cash equivalents of $536 million, down from $610
million at December 31, 2003.
Hertz has an asset-backed securitization ("ABS") program for its domestic
car rental fleet to reduce its borrowing costs and enhance its financing
resources. As of September 30, 2004, $1.1 billion was outstanding under the ABS
program consisting of $460 million of commercial paper and $600 million of
medium-term notes.
Total Company
- -------------
Stockholders' Equity. Our stockholders' equity was $14.1 billion at
September 30, 2004, up $2.4 billion from December 31, 2003. The increase
primarily reflected net income of $3.4 billion less dividends of $549 million
and other comprehensive loss of $380 million. See Note 8 of the Notes to the
Financial Statements for further discussion of other comprehensive
income/(loss).
Debt Ratings. In October 2004, Dominion Bond Rating Service Limited
("DBRS"), Fitch, Inc. ("Fitch"), Moody's Investors Service, Inc. ("Moody's") and
Standard & Poor's Rating Services, a division of McGraw-Hill Companies, Inc.
("S&P"), each affirmed the long and short-term debt ratings of, and their
outlook or trend for, Ford and Ford Credit. Also in October 2004, Fitch and
Moody's affirmed the long and short-term ratings of, and their outlook or trend
for, Hertz. In July 2004, DBRS affirmed the long and short-term debt ratings of
Hertz and revised its trend to stable from negative. The ratings as of October
15, 2004 were as follows:
- ------------------------------------------------------------------------------------------------------------------------------
DBRS Fitch Moody's S&P
- ------- -------------------------- ---------------------------- ----------------------------- ----------------------------
Long- Short- Long- Short- Long- Short- Long- Short-
Term Term Trend Term Term Outlook Term Term Outlook Term Term Outlook
- ------- ------- -------- ------- ------- -------- --------- ------- -------- ---------- ------- -------- ---------
Ford BBB R-1 Stable BBB+ F2 Stable Baa1 P-2 Negative BBB- A-3 Stable
(high) (low)
- ------- ------- -------- ------- ------- -------- --------- ------- -------- ---------- ------- -------- ---------
Ford BBB R-1 Stable BBB+ F2 Stable A3 P-2 Negative BBB- A-3 Stable
Credit (high) (low)
- ------- ------- -------- ------- ------- -------- --------- ------- -------- ---------- ------- -------- ---------
Hertz BBB R-1 Stable BBB+ F2 Stable Baa2 P-2 Negative BBB- A-3 Stable
(high) (low)
- ------------------------------------------------------------------------------------------------------------------------------
OFF-BALANCE SHEET ARRANGEMENTS
Special Purpose Entities. At September 30, 2004, the total outstanding
principal amount of receivables sold by Ford Credit and held by off-balance
sheet securitization entities was $38.7 billion, down $10.7 billion from
December 31, 2003. Ford Credit's retained interests in such sold receivables at
September 30, 2004 were $9.5 billion, down $3.5 billion from December 31, 2003.
The decrease in receivables held by off-balance sheet securitization entities
primarily reflected Ford Credit's lower funding requirements. The decrease in
retained interests primarily reflected a
-59-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
seasonal decline in dealer stocks, which lowered the amount of wholesale
receivables held in the trust for future sale, and lower retained retail
securities, reflecting lower levels of outstanding sold receivables.
OUTLOOK
Shown below are our 2004 planning assumptions and our milestones for
operational metrics and financial results, as well as our outlook for achieving
these milestones:
Full Year
Milestone Outlook
--------- -------
Planning Assumptions
--------------------
Industry volume (SAAR) - U.S. 17.0 million units 17.2
Europe 16.9 million units 17.3
Operation Metrics
-----------------
Quality Improve in all regions On Track
Market share Flat or improve in all regions Mixed
Automotive cost performance a/ Improve by at least $500 million $1 Billion
Capital spending $7 billion Lower
Operating-related cash flows b/ $1.2 billion positive At Risk
Financial Results Pre-tax income c/
----------------- --------------
(in billions)
Automotive
Americas
Ford North America $ 1.5 - $ 1.7 On Track
Ford South America (0.1) - 0 Better
Ford Europe/PAG
Ford Europe (0.2) - (0.1) Better
PAG 0.5 - 0.6 Worse
Ford Asia Pacific and Africa
/Mazda 0 - 0.1 Better
----- -----
Total Automotive 0.9 - 1.1 On Track
Financial Services 2.6 - 2.7 Better
----- -----
Total Company $ 3.5 - $ 3.8 Better
===== =====
- ----------
a/ At constant volume, mix and exchange; excluding special items.
b/ Excluding pension/long-term VEBA contributions and tax refunds.
c/ Excluding special items.
We continue to expect the Automotive sector to achieve about $1 billion of
pre-tax income from continuing operations, excluding special items, in 2004. We
expect to meet the milestone for Ford North America and to exceed the milestones
for Ford Europe, Ford South America and Ford Asia Pacific and Africa/Mazda. We
expect PAG to continue to improve from the third quarter to the fourth, but
full-year results will be a loss. Because of Ford Credit's continued
better-than-expected performance, we expect to exceed significantly the
Financial Services sector milestone. Overall, we expect to exceed significantly
our total company milestone for pre-tax income. Special items, including costs
related to our investment in Ballard Power Systems Inc. and improvement actions
in our Ford Europe and PAG business units, are presently estimated to reduce
full-year earnings by $0.13 per share.
Visteon Corporation is our largest supplier, and it also utilizes about
18,000 Ford employees in its U.S. hourly workforce as of September 30, 2004. We
continue to work with Visteon to identify changes that would improve the
efficiency and operating results of both companies. Significant changes in
Visteon's business inevitably have an impact on us.
On October 4, 2004, President Bush signed the "Working Families Tax Relief
Act of 2004", which retroactively reinstated the research tax credit to the June
30, 2004 expiration date. The reinstatement of the research tax credit will be
reflected in our fourth quarter results and will reduce the reported fourth
quarter effective tax rate. As a result, we anticipate our full-year effective
tax rate to be about 25%.
Based on the foregoing and subject to the risks described under "Risk
Factors" below, we expect full-year per share earnings to be in the range of
$2.00 to $2.05 per share from continuing operations, excluding special items.
-60-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
RISK FACTORS
Statements included or incorporated by reference herein may constitute
"forward looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements involve a number of risks,
uncertainties, and other factors that could cause actual results to differ
materially from those stated, including, without limitation:
o greater price competition resulting from currency fluctuations, industry
overcapacity or other factors;
o a significant decline in industry sales, particularly in the U.S. or
Europe, resulting from slowing economic growth, geo-political events or
other factors;
o lower-than-anticipated market acceptance of new or existing products;
o economic distress of suppliers that may require us to provide financial
support or take other measures to ensure supplies of materials;
o work stoppages at Ford or supplier facilities or other interruptions of
supplies;
o the discovery of defects in vehicles resulting in delays in new model
launches, recall campaigns or increased warranty costs;
o increased safety, emissions, fuel economy or other regulation resulting in
higher costs and/or sales restrictions;
o unusual or significant litigation or governmental investigations arising
out of alleged defects in our products or otherwise;
o worse-than-assumed economic and demographic experience for our
postretirement benefit plans (e.g., investment returns, interest rates,
health care cost trends, benefit improvements);
o currency or commodity price fluctuations, including rising steel
prices;
o changes in interest rates;
o a market shift from truck sales in the U.S.;
o economic difficulties in any significant market;
o higher prices for or reduced availability of fuel;
o labor or other constraints on our ability to restructure our business;
o a change in our requirements under long-term supply arrangements under
which we are obligated to purchase minimum quantities or pay minimum
amounts;
o credit rating downgrades;
o inability to access debt or securitization markets around the world at
competitive rates or in sufficient amounts;
o higher-than-expected credit losses;
o lower-than-anticipated residual values for leased vehicles;
o increased price competition in the rental car industry and/or a general
decline in business or leisure travel due to terrorist attacks, acts of
war, epidemic disease or measures taken by governments in response thereto
that negatively affect the travel industry; and
o our inability to implement the Revitalization Plan.
OTHER FINANCIAL INFORMATION
The interim financial information included in this Quarterly Report on Form
10-Q for the quarter ended September 30, 2004 has not been audited by
PricewaterhouseCoopers LLP ("PwC"). In reviewing such information, PwC has
applied limited procedures in accordance with professional standards for reviews
of interim financial information. Accordingly, you should restrict your reliance
on their reports on such information. PwC is not subject to the liability
provisions of Section 11 of the Securities Act of 1933 for their reports on the
interim financial information because such reports do not constitute "reports"
or "parts" of the registration statements prepared or certified by PwC within
the meaning of Sections 7 and 11 of the Securities Act of 1933.
-61-
Item 4. Controls and Procedures
- --------------------------------
Evaluation of disclosure controls and procedures. William Clay Ford, Jr.,
our Chief Executive Officer, and Donat R. Leclair, our Chief Financial Officer,
have performed an evaluation of the Company's disclosure controls and
procedures, as that term is defined in Rule 13a-15 (e) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as of September 30, 2004
and each has concluded that such disclosure controls and procedures are
effective to ensure that information required to be disclosed in our periodic
reports filed under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified by the Securities and Exchange
Commission's rules and regulations.
Change in internal controls. No changes in the Company's internal controls
over financial reporting occurred during the quarter ended September 30, 2004
that have materially affected, or are reasonably likely to materially affect,
the Company's internal controls over financial reporting.
-62-
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
- ---------------------------
Product Liability Matters
- -------------------------
Buell-Wilson v. Ford. (Previously discussed on page 31 of the Quarterly
Report on Form 10-Q for the quarter ended June 30, 2004 ("Second Quarter 10-Q
Report")) On August 19, 2004, the trial court granted Ford's post-trial motions
in part, reducing the compensatory verdicts to a total of $75 million, and
reducing the punitive verdict to $75 million, for a total of $150 million in
damages. We have filed a notice of appeal with the California Court of Appeals.
Crown Victoria Police Interceptor Class Actions. (Previously discussed on
page 29 of the 10-K Report) The jury phase of the trial in the Crown Victoria
Police Interceptor class action in Illinois state court resulted in a defense
verdict; three counts remain for resolution by the judge.
Environmental Matters
- ---------------------
Wixom Assembly Plant Notice of Violation Regarding Air Emissions
(Previously discussed on page 27 of the 10-K Report) In August 2004, Ford agreed
to an Administrative Consent Order with the Michigan Department of Environmental
Quality ("DEQ") that will resolve the notice of violation. Under the Order, Ford
will pay the DEQ $55,000, which includes DEQ's costs for the investigation and
enforcement action, and the Wixom Plant will implement a Malfunction Abatement
Plan to address abatement equipment malfunctions.
Chicago Assembly Plant Notice of Violation Regarding Waste Handling On
August 23, 2004, the United States Environmental Protection Agency ("EPA"),
Region Five, issued a letter notifying Ford of its intent to file an
administrative complaint for civil penalties based on an initial determination
that Ford's Chicago Assembly Plant violated certain requirements of the Resource
Conservation and Recovery Act. The EPA's allegations arise out of an EPA
inspection of the Chicago Assembly Plant conducted in November 2002. The
violations alleged by EPA include: improper hazardous waste handling and
storage, improper waste characterizations and manifesting, and failure to
conduct and record certain tank and storage area inspections. Ford and the EPA
will likely meet prior to the end of the year to discuss this matter.
Other Matters
- -------------
Securities and Exchange Commission Inquiry On October 14, 2004, the
Enforcement Division of the Securities and Exchange Commission ("SEC") notified
Ford that it was conducting an inquiry into the methodology used to account for
pensions and other post-employment benefits. The SEC informed us that we were
one of several issuers to receive a request for information as part of this
inquiry.
-63-
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
- ---------------------------------------------------------------------
During the third quarter of 2004, we purchased shares of our Common Stock
as follows:
Total Number of Maximum Number (or
Shares Purchased as Approximate Dollar Value) of
Total Number of Average Part of Publicly Shares that May Yet Be
Shares Price Paid Announced Plans or Purchased Under the Plans or
Period Purchased a/ per Share Programs Programs
- --------------------------- ------------------ ------------ ----------------------- -------------------------------
July 1, 2004
through No publicly announced
July 31, 2004 1,448,176 $14.92 0 repurchase program in place
August 1, 2004
through No publicly announced
August 31, 2004 1,646,590 $14.19 0 repurchase program in place
September 1, 2004
through No publicly announced
September 30, 2004 1,593,016 $14.05 0 repurchase program in place
--------- -
No publicly announced
Total 4,687,782 $14.37 0 repurchase program in place
========= =
- ----------
a/ We currently do not have a publicly announced repurchase program in place.
Of the 4,687,782 shares purchased, 4,683,100 shares were purchased from the
Ford Motor Company Savings and Stock Investment Plan for Salaried Employees
("SSIP") and the Tax Efficient Savings Plan for Hourly Employees
("TESPHE"). Shares are generally purchased from the SSIP and TESPHE when
participants in those plans elect to sell units in the Ford Stock Fund upon
retirement, upon termination of employment with the Company, related to an
in-service distribution, or to fund a loan against an existing account
balance in the Ford Stock Fund. Shares are not purchased from these plans
when a participant transfers account balances out of the Ford Stock Fund
and into another investment option under the plans. The remaining shares
were acquired from our employees in accordance with our various
compensation plans as a result of required share withholdings to pay income
taxes with respect to (i) the lapse of restrictions on restricted stock,
(ii) the issuance of stock as a result of the conversion of restricted
stock equivalents awarded to our executives or directors, or to pay the
exercise price and related income taxes with respect to the exercise of a
stock option.
Item 5. Other Information.
- ---------------------------
Governmental Standards
- ----------------------
Motor Vehicle Fuel Economy - U.S. Requirements (Previously discussed on
page 17 of the 10-K Report and page 32 of the Second Quarter 10-Q Report) In
September 2004, the California Air Resources Board ("CARB") passed a resolution
approving a plan to issue regulations by the end of the year aimed at
controlling greenhouse gas emissions from motor vehicles. This resolution paves
the way for rules that would take effect beginning in the 2009 model year and
impose standards that could be equivalent to a Corporate Average Fuel Economy
("CAFE") standard of more than 43 miles per gallon for passenger cars, and
approximately 27 miles per gallon for light trucks by model year 2016. The
Alliance of Automobile Manufacturers and individual companies, including Ford,
have submitted extensive comments opposing the rules and addressing errors in
CARB's underlying economic and technical analyses. CARB is in the process of
completing additional procedural requirements necessary to finalize the rules.
The industry is continuing to participate in the administrative process while
evaluating its options for responding to the rules.
-64-
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