UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X Annual report pursuant to Section 13 or 15(d) of the Securities
------ Exchange Act of 1934
For the fiscal year ended December 31, 2002
or
----- 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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FORD MOTOR COMPANY
(Exact name of Registrant as specified in its charter)
Delaware 38-0549190
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(State of incorporation) (I.R.S. employer identification no.)
One American Road, Dearborn, Michigan 48126
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(Address of principal executive offices) (Zip code)
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered (a)
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Common Stock, par value $.01 per share New York Stock Exchange
Pacific Coast Stock Exchange
Ford Motor Company Capital Trust I New York Stock Exchange
9% Trust Originated Preferred Securities,
liquidation preference $25 per share
Ford Motor Company Capital Trust II New York Stock Exchange
6.50% Cumulative Convertible Trust Preferred Securities,
liquidation preference $50 per share
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[Cover page 1 of 2 pages]
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
As of February 28, 2003, Ford had outstanding 1,760,367,330 shares of Common Stock and 70,852,076 shares of Class B Stock. Based on the New York Stock Exchange Composite Transaction closing price of the Common Stock on that date ($8.32 a share), the aggregate market value of such Common Stock was $14,646,256,185.
Document Where Incorporated
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Proxy Statement Part III (Items 10, 11, 12 and 13)
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* As stated under various Items of this Report, only certain specified portions of such document are incorporated by reference in this Report.
[Cover page 2 of 2 pages]
PART I
Ford Motor Company (referred to herein as "Ford", the "Company", "we", "our" or "us") was incorporated in Delaware in 1919. We acquired the business of a Michigan company, also known as Ford Motor Company, incorporated in 1903 to produce and sell automobiles designed and engineered by Henry Ford. We are the world's second-largest producer of cars and trucks combined. We and our subsidiaries also engage in other businesses, including financing and renting vehicles and equipment.
All of our periodic report filings with the Securities and Exchange Commission ("SEC") pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are made available, free of charge, through our website located at www.ford.com, including our annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and any amendments to those reports. These reports and amendments are available through our website as soon as reasonably practicable after we electronically file such report or amendment with the SEC.
To access our SEC reports or amendments, log onto our website and click on the following link on each successive screen.
o "Investor Information"
o "Company Financials"
o "U.S. S.E.C. EDGAR"
o "Click here to continue to view SEC Filings"
You will then see a list of reports filed by us with the SEC. Click on the report you desire to access.
Overview
Segments. Our business is divided into two business sectors: the Automotive sector and the Financial Services sector. We have managed these sectors as three primary operating segments as described below.
Business Sectors Operating Segments Description
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Automotive:
Automotive design, development, manufacture, sale,
and service of cars and trucks
Financial Services:
Ford Motor Credit Company vehicle-related financing, leasing, and
insurance
The Hertz Corporation renting of cars and light trucks and renting
industrial and construction equipment,
and other activities
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We provide financial information (such as, revenues, income, and assets)
for each of these business sectors and operating segments in three areas of this
Report: (1) Item 6. "Selected Financial Data" on pages 38 through 40; (2) Item
7. "Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 41 through 64, and (3) Notes 21 and 22 of the Notes to our
Financial Statements located at the end of this Report. Financial information
relating to certain geographic areas is also included in the above-mentioned
areas of this Report.
Item 1. Business (Continued)
Since our adoption of Statement of Financial Accounting Standard ("SFAS") No. 131 in 1998, we have presented a single Automotive segment in the Notes to our Financial Statements. This presentation is based on the organizational structure established under "Ford 2000", a management and business initiative we first implemented in 1996. Ford 2000 envisioned a global automotive business that captured in full the synergy and scale advantages of a multi-line, multi-jurisdiction, large volume manufacturer. Thus, Ford 2000 established global Automotive functions, including product development, purchasing, manufacturing and sales and marketing, that were managed centrally across our various brands and markets. Our experience with Ford 2000 has confirmed the value of a global perspective, and certain of our core functions, such as product development and purchasing, have remained under central direction. In other areas, however, our management structure has evolved toward a greater alignment with brands and markets. That evolution is reflected in our recent announcement of a new management structure for our Automotive operations under the leadership of James Padilla, Executive Vice President for North American Automotive Operations, and David Thursfield, Executive Vice President for International Automotive Operations. Messrs. Padilla and Thursfield will continue to pursue the synergies and scale advantages available from global coordination and integration. At the same time, they each will have independent responsibility for the performance of the Automotive operations under their control, and the financial results of those operations will be separately measured, stated and evaluated.
In line with this new management structure, we will, beginning with our Quarterly Report on Form 10-Q for the quarter ended March 31, 2003, expand the number of operating segments we present in the Notes to our Financial Statements by creating two segments within our Automotive sector - North America and International. The North America segment will include Automotive operations in the U.S., Canada and Mexico involving the design, development, manufacture, sale and service of cars and trucks under our Ford, Lincoln and Mercury brands. The International segment will include these Automotive operations outside of North America under our Ford brand, as well as the global operations (including North America) of our Premier Automotive Group brands (i.e., Volvo, Jaguar, Land Rover and Aston Martin). Our intention is to discuss the results of operations of the business units within the International Automotive segment (i.e, Ford-brand Europe, Ford-brand South America, Ford-brand Asia Pacific and Premier Automotive Group) in future periodic reports, beginning with our Quarterly Report on Form 10-Q for the quarter ended March 31, 2003. This discussion will occur in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section.
Revitalization Plan. Following an extensive review of all of our operations, in particular those in North and South America, on January 11, 2002, we announced a revitalization plan (the "Revitalization Plan") that includes the following elements:
o New products: A product-led revitalization program that will result in the introduction of 20 new or freshened products in the United States annually between January 2002 and mid-decade.
o Plant capacity: Reduction of North American installed final assembly capacity by about one million vehicles by mid-decade to realign capacity with market conditions. Manufacturing plans over the next several years include closing five plants (Edison Assembly, Ontario Truck Plant, St. Louis Assembly, Cleveland Aluminum Casting and Vulcan Forge) and downsizing and shift and line speed changes at other plants.
o Hourly workforce: About 12,000 hourly employees in North America will be affected by actions to be completed by mid-decade.
o Salaried workforce: Our 2001 voluntary separation program for salaried employees and other related actions resulted in a 3,500-person workforce reduction in North America. An additional 1,500-person salaried workforce reduction was achieved in 2002 to reach the goal of 5,000.
o Global workforce: More than 35,000 employees will be affected by combined actions around the world by mid-decade, including selected actions prior to 2002. These include: 21,500 in North America - 15,000 hourly, 5,000 salaried and 1,500 agency employees - and 13,500 in the rest of the world.
Item 1. Business (Continued)
o Cost Reductions: A total of $6 billion of cost reductions related to material costs, overhead reductions and improvements in capacity utilization by mid decade.
o Discontinued low-margin models: The Mercury Cougar, Mercury Villager, Lincoln Continental and most models of the Ford Escort were discontinued in 2002.
o Beyond North America: Revitalization plans beyond North American automotive operations include the continued implementation of the European transformation strategy, the Premier Automotive Group strategy, the turnaround in South America and a revised direction for Ford Motor Credit Company.
o Divestitures: We sold non-core assets and businesses that resulted in cash proceeds received in 2002 of $930 million and entered into commitments from third parties to receive more than $70 million in 2003.
Progress on Revitalization Plan. Overall, we are on track to achieve the objectives contained in our Revitalization Plan. For a discussion of our progress with respect to the Revitalization Plan, see Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Outlook".
Automotive Sector
Generally. We sell cars and trucks throughout the world. In 2002, we sold 6,973,000 vehicles throughout the world. Our automotive vehicle brands include Ford, Mercury, Lincoln, Volvo, Jaguar, Land Rover, and Aston Martin.
Substantially all of our cars, trucks and parts are marketed through retail dealers in North America, and through distributors and dealers outside of North America. At December 31, 2002, the approximate number of dealers and distributors worldwide distributing our vehicle brands was as follows: Ford, 13,000; Mercury, 2,141; Lincoln, 1,561; Volvo, 2,500; Jaguar, 787; Land Rover, 1,808; Aston Martin, 100. Because many dealerships distribute more than one of our brands from the same sales location, a single dealership may be counted under more than one brand in the previous sentence. In addition to the products we sell to our dealers for retail sale, we also sell cars and trucks to our dealers for sale to fleet customers, including daily rental companies, commercial fleet customers, leasing companies and governments. Sales to all of our fleet customers in the United States in the aggregate have represented between 22% and 23% of our total United States car and truck sales for the last five years. We do not depend on any single customer or small group of customers to the extent that the loss of such customer or group of customers would have a material adverse effect on our business.
In addition to producing and selling cars and trucks, we also provide our customers with after-the-sale vehicle services and products, such as maintenance and light repair, heavy repair, collision, vehicle accessories and extended repair service products. In North America, we market these services under the Quality CareSM brand and market original equipment replacement parts under the MotorcraftSM brand.
The worldwide automotive industry, Ford included, is affected significantly by a number of factors over which we have little control, including general economic conditions. In the United States, the automotive industry is a highly-competitive, cyclical business that has a wide variety of product offerings. The number of cars and trucks sold to retail and fleet buyers (commonly referred to as "industry demand") can vary substantially from year to year. In any year, industry demand depends largely on general economic conditions, the cost of purchasing and operating cars and trucks, and the availability and cost of credit and fuel. Industry demand also reflects the fact that cars and trucks are durable items that people generally can wait to replace.
Item 1. Business (Continued)
Our unit sales vary with the level of total industry demand and our share of that industry demand. Our share is influenced by how our products compare with those offered by other manufacturers based on many factors, including price, quality, styling, reliability, safety, and functionality. Our share also is affected by our timing of new model introductions and manufacturing capacity limitations. Our ability to satisfy changing consumer preferences with respect to type or size of vehicle and its design and performance characteristics can impact our sales and earnings significantly.
The profitability of vehicle sales is affected by many factors, including the following:
o unit sales volume
o the mix of vehicles and options sold
o the margin of profit on each vehicle sold
o the level of "incentives" (price discounts) and other marketing costs
o the costs for customer warranty claims and additional service
actions
o the costs for safety, emission and fuel economy technology and
equipment
o the ability to manage costs
o the ability to recover cost increases through higher prices
Further, because Ford and other manufacturers have a high proportion of costs that are fixed (including relatively fixed labor costs), relatively small changes in unit sales volumes can dramatically affect overall profitability. Therefore, should industry demand soften because of slowing or negative economic growth in the major markets in which we operate, or should our share of total industry sales decline, our profitability will be adversely affected.
Most of the factors that affect the United States automotive industry and its sales volumes and profitability are equally relevant outside the United States.
Competitive Position. The worldwide automotive industry consists of many producers, with no single dominant producer. Certain manufacturers, however, account for the major percentage of total sales within particular countries, especially their countries of origin. Detailed information regarding our competitive position in the principal markets where we compete can be found below as part of the overall discussion of the automotive industry in those markets.
Governmental Regulation. The worldwide automotive industry also is affected significantly by a substantial amount of costly governmental regulation. In the United States and Europe, for example, governmental regulation has arisen primarily out of concern for the environment, for greater vehicle safety, and for improved fuel economy. Many governments also regulate local content and/or impose import requirements as a means of creating jobs, protecting domestic producers, or influencing their balance of payments. A detailed discussion of the material government regulation in the United States and Europe impacting our business is set forth below under the heading "Governmental Standards".
Seasonality. There generally is no material seasonal impact on our business. To the extent that we do experience some fluctuation in the business of a seasonal nature, it has generally occurred in the third quarter and primarily is the result of the annual two to three week summer shut down of our manufacturing facilities during that quarter. As a result of these production shut downs, operating results for the third quarter typically are less favorable than those of the other quarters.
Raw Materials. We purchase a wide variety of raw materials for use in the production of our vehicles from numerous suppliers around the world. These raw materials include non-ferrous metals (e.g., aluminum), precious metals (e.g., palladium, platinum and rhodium), ferrous alloys (e.g., steel), energy (e.g., natural gas) and resins (e.g., polypropylene). We believe that we have adequate supplies or sources of availability of the raw materials necessary to meet our needs. However, there are risks and uncertainties with respect to the supply of certain of these raw materials that could impact their availability in sufficient quantities to meet our needs. These risks and uncertainties include industry manufacturing capacity restraints in the United States steel industry as a result of the filing for bankruptcy protection by a
Item 1. Business (Continued)
number of domestic steel manufacturers. In addition, because the grade of steel used in our products is not generic, but rather is often uniquely specified for each part, there is a limited number of suppliers, or even a single supplier, for each type of steel purchased. In the event of an interruption of supply of a given type of specified steel, replacement steel would not be readily available on the market as it would take some amount of time for a substitute supplier to tailor their manufacturing processes to produce steel that meets our specifications. A prolonged disruption of the supply of steel or any other raw materials used for the production of our vehicles could have a substantial adverse effect on us.
Backlog Orders. We generally produce and ship our products on average within approximately 20 days after an order is deemed to become firm. Therefore, no significant amount of backlog orders accumulates during any period.
Intellectual Property. We own, or hold licenses to use, numerous patents, copyrights and trademarks on a global basis. Our policy is to protect our competitive position by, among other methods, filing U.S. and international patent applications to protect technology and improvements that we consider important to the development of our business. As such, we have generated a large number of patents related to the operation of our business and expect this portfolio to continue to grow as we actively pursue additional technological innovation. We currently have over 10,000 active patents and pending patent applications globally, with an average age for patents in our active patent portfolio being 7 1/2 years. In addition to this intellectual property, we also rely on our proprietary knowledge and ongoing technological innovation to develop and maintain our competitive position. While we believe these patents, patent applications and know-how, in the aggregate, to be important to the conduct of our business, and we obtain licenses to use certain intellectual property owned by others, none is individually considered material to our business. Similarly, we own numerous trademarks and service marks that contribute to the identity and recognition of our company and its products and services globally. Certain of these marks are integral to the conduct of our business, the loss of which could have a material adverse effect on our business.
Following is a discussion of the automotive industry in the principal markets where we compete:
Sales Data. The following table shows U.S. industry sales of cars and
trucks for the years indicated:
U. S. Industry Sales
(millions of units)
Years Ended December 31,
------------------------------------------------------------------
2002 2001 2000 1999 1998
--------- --------- ---------- --------- ----------
Cars.................... 8.1 8.4 8.8 8.7 8.2
Trucks.................. 9.0 9.1 9.0 8.7 7.8
----- ----- ----- ----- -----
Total................... 17.1 17.5 17.8 17.4 16.0
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Item 1. Business (Continued)
We classify cars by small, medium, large and premium segments and trucks by compact pickup, bus/van (including minivans), full-size pickup, sport utility vehicles and medium/heavy segments. The large and premium car segments and the bus/van, full-size pickup and sport utility vehicle segments include the industry's most profitable vehicle lines. The term "bus" as used in this discussion refers to vans designed to carry passengers. The following tables show the proportion of United States car and truck unit sales by segment for the industry (including both domestic and foreign-based manufacturers) and Ford for the years indicated:
U. S. Industry Vehicle Sales by Segment
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Years Ended December 31,
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2002 2001 2000 1999 1998
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CARS
Small....................................... 16.0% 16.7% 16.7% 16.1% 16.9%
Medium...................................... 21.4 21.6 22.9 23.8 23.6
Large....................................... 2.2 2.7 2.9 3.2 3.7
Premium..................................... 7.7 7.2 7.2 6.8 6.8
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Total U.S. Industry Car Sales............... 47.3 48.2 49.7 49.9 51.0
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TRUCKS
Compact Pickup.............................. 4.6% 5.2% 5.9% 6.2% 6.7%
Bus/Van..................................... 8.6 8.8 10.0 10.1 10.1
Full-Size Pickup............................ 12.7 13.2 12.4 12.7 12.4
Sport Utility Vehicles...................... 25.2 23.0 19.8 18.5 17.5
Medium/Heavy................................ 1.6 1.6 2.2 2.6 2.3
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Total U.S. Industry Truck Sales............. 52.7 51.8 50.3 50.1 49.0
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Total U.S. Industry Vehicle Sales........... 100.0% 100.0% 100.0% 100.0% 100.0%
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Ford Vehicle Sales by Segment in U.S.
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Years Ended December 31,
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2002 2001 2000 1999 1998
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CARS
Small....................................... 12.5% 14.0% 14.5% 13.5% 13.1%
Medium...................................... 11.9 11.5 13.0 15.5 16.7
Large....................................... 4.4 5.2 5.1 5.7 5.7
Premium..................................... 7.8 7.0 7.5 6.2 4.2
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Total Ford U.S. Car Sales................... 36.6 37.7 40.1 40.9 39.7
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TRUCKS
Compact Pickup.............................. 6.2% 6.9% 7.9% 8.4% 8.4%
Bus/Van..................................... 9.1 9.1 10.5 11.0 11.1
Full-Size Pickup............................ 22.5 22.9 20.9 20.9 21.3
Sport Utility Vehicles...................... 25.4 23.2 20.4 18.5 19.1
Medium/Heavy................................ 0.2 0.2 0.2 0.3 0.4
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Total Ford U.S. Truck Sales................. 63.4 62.3 59.9 59.1 60.3
----- ----- ----- ----- -----
Total Ford U.S. Vehicle Sales............... 100.0% 100.0% 100.0% 100.0% 100.0%
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As the tables above indicate, there has been a general shift from cars to trucks for both industry sales and Ford sales. This shift has been occurring gradually over a number of years. Ford's sales of trucks as a percentage of its total vehicle sales has also increased since 1999 because of higher sales of sport utility vehicles and full-size pickups. Ford's sales of the medium car segment as a percentage of its total sales has deteriorated more than the general decline of the industry sales in that segment because of the discontinuance of certain product offerings in the segment (e.g., Ford Contour and Mercury Mystique). Ford's sales of the premium car segment as a percentage of total Ford U.S. car sales has increased since 1998 because of the addition of Volvo vehicles as a result of our purchase of Volvo Car Corporation on March 31, 1999 and expansion of our Jaguar car product offerings.
Item 1. Business (Continued)
Market Share Data. Our principal competitors in the United States include General Motors Corporation, DaimlerChrysler Corporation, Toyota Corporation, Honda Motor Corporation and Nissan Motor Corporation, Ltd. The following tables show changes in car and truck United States market shares of the six leading vehicle manufacturers for the years indicated:
U.S. Car Market Shares*
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Years Ended December 31,
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2002 2001 2000 1999 1998
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Ford**................................... 16.4% 17.7% 19.1% 19.9% 20.4%
General Motors........................... 25.5 27.0 28.6 29.3 29.8
DaimlerChrysler***....................... 8.6 8.5 9.1 10.3 10.7
Toyota................................... 12.2 11.3 11.0 10.2 10.6
Honda.................................... 10.3 10.7 10.0 9.8 10.6
Nissan................................... 6.1 4.9 4.8 4.6 5.0
All Other****............................ 20.9 19.9 17.4 15.9 12.9
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Total U.S. Car Retail Deliveries...... 100.0% 100.0% 100.0% 100.0% 100.0%
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U.S. Truck Market Shares*
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Years Ended December 31,
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2002 2001 2000 1999 1998
--------- --------- ---------- --------- ----------
Ford**................................... 25.5% 27.4% 28.2% 28.6% 30.5%
General Motors........................... 30.7 28.9 27.0 27.8 27.5
DaimlerChrysler***....................... 19.0 19.5 21.5 22.2 23.2
Toyota................................... 8.5 8.7 7.2 6.7 6.3
Honda.................................... 4.5 3.4 3.1 2.6 1.9
Nissan................................... 2.8 3.2 3.7 3.2 2.7
All Other*****........................... 9.0 8.9 9.3 8.9 7.9
----- ----- ----- ----- -----
Total U.S. Truck Retail Deliveries.... 100.0% 100.0% 100.0% 100.0% 100.0%
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U.S. Combined Car and Truck Market Shares*
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Years Ended December 31,
------------------------------------------------------------------
2002 2001 2000 1999 1998
--------- --------- ---------- --------- ----------
Ford**................................... 21.1% 22.8% 23.7% 24.3% 25.3%
General Motors........................... 28.3 28.0 27.8 28.5 28.7
DaimlerChrysler***....................... 14.1 14.2 15.3 16.3 16.8
Toyota................................... 10.3 10.0 9.1 8.5 8.5
Honda.................................... 7.3 6.9 6.6 6.2 6.3
Nissan................................... 4.4 4.1 4.3 3.9 3.9
All Other****............................ 14.5 14.0 13.2 12.3 10.5
----- ----- ----- ----- -----
Total U.S. Car and Truck Retail Deliveries 100.0% 100.0% 100.0% 100.0% 100.0%
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The decline in overall market share for Ford since 1998 is primarily the result of increased competition and, in particular, an increased number of new competitive truck product offerings.
Item 1. Business (Continued)
Marketing Incentives and Fleet Sales. Automotive manufacturers that sell vehicles in the United States typically give purchasers price discounts or other marketing incentives. These incentives are the result of competition from new product offerings by manufacturers and the desire to maintain production levels and market shares. Manufacturers provide these incentives to both retail and fleet customers (fleet customers include daily rental companies, commercial fleet customers, leasing companies and governments). Marketing incentives generally are higher during periods of economic downturns, when excess capacity in the industry tends to increase. We estimate that there exists presently about three to four million units of excess capacity in North America.
Our marketing costs for the Ford, Lincoln and Mercury brands in the
United States as a percent of gross sales revenue for those brands were as
follows for the three years indicated: 15.8% (2002), 14.7% (2001), and 11.1%
(2000). These "marketing costs" include primarily (i) marketing incentives on
vehicles, such as retail rebates and costs for special financing and lease
programs, (ii) reserves for costs and/or losses associated with our required
repurchase of certain vehicles sold to daily rental companies, and (iii) costs
for advertising and sales promotions for vehicles. The increase in marketing
costs over the last several years is a result of increased competition in the
United States market.
Fleet sales generally are less profitable than retail sales, and sales to daily rental companies generally are less profitable than sales to other fleet purchasers. The mix between sales to daily rental companies and other fleet customers has been about evenly split in recent years. The table below shows our fleet sales in the United States, and the amount of those sales as a percentage of our total United States car and truck sales, for the last five years.
Ford Fleet Sales
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Years Ended December 31,
------------------------------------------------------------------
2002 2001 2000 1999 1998
--------- --------- ---------- --------- ----------
Units sold.................................. 816,000 885,000 977,000 940,000 878,000
Percent of Ford's total U.S. car and truck sales 23% 22% 23% 23% 22%
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Warranty Coverage and Additional Service Actions. We presently provide warranty coverage for defects in factory-supplied materials and workmanship on all vehicles in the United States. The warranty coverage for Ford/Mercury vehicles generally extends for 36 months or 36,000 miles (whichever occurs first) and covers components of the vehicle, including tires beginning January 1, 2001 for 2001 and later model years. Prior to January 1, 2001, tires were warranted only by the tire manufacturers. The United States warranty coverage for luxury vehicles (Lincoln, Jaguar, Volvo and Land Rover) extends for 48 months or 50,000 miles (whichever occurs first) but, except for 2001 or later model year Lincoln vehicles, does not include tires, which are warranted by the tire manufacturers. In general, different warranty coverage is provided on medium trucks and on vehicles sold outside the United States. Warranty coverage for safety restraint systems (safety belts, air bags and related components) extends for 60 months or 50,000 miles (whichever occurs first). Also, corrosion damage resulting in perforation (holes) in body sheet metal panels is covered on 1995 and newer models for 60 months (unlimited mileage). In addition, the Federal Clean Air Act requires warranty coverage for 8 years or 80,000 miles (whichever occurs first) for emissions equipment (e.g., catalytic converter and powertrain control module) on most light duty vehicles sold in the United States. As a result of these warranties, costs for warranty repairs can be substantial. Estimated warranty costs for each vehicle sold by us are accrued at the time of sale. Such accruals, however, are subject to adjustment from time to time depending on actual experience.
In addition to the costs associated with the contractual warranty coverage provided on our vehicles, we also incur costs as a result of additional service actions not covered by our warranties, including product recalls and customer satisfaction actions. Estimated additional service action costs for each vehicle sold by us are also accrued at the time of sale and are subject to the same adjustments described above.
For a discussion of our accounting estimates with respect to costs for warranty and additional service actions, see Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations--Critical Accounting Estimates".
Item 1. Business (Continued)
Market Share Information. Outside of the United States, Europe is our largest market for the sale of cars and trucks. The automotive industry in Europe is intensely competitive. Our principal competitors in Europe include General Motors Corporation, DaimlerChrysler Corporation, Volkswagen A.G., PSA, Renault Group, Fiat SPA and Toyota Corporation. Over the past year, we estimate that 167 new or freshened vehicles, including derivatives of existing vehicles, were introduced in the European market by various manufacturers. For the past 10 years, the top six manufacturers have collectively held between 73% and 77% of the total car market. This competitive environment is expected to intensify further as Japanese manufacturers increase their production capacity, and all of the manufacturers of premium brands (e.g., BMW, Mercedes Benz and Audi) continue to broaden their product offerings. We estimate that in 2002 the European automotive industry had excess capacity of approximately four million units (based on a comparison of European domestic demand and capacity).
In 2002, vehicle manufacturers sold approximately 17.2 million cars and trucks in Europe, down 3.4% from 2001 levels. Our combined car and truck market share in Europe in 2002 was 10.9%, up 2/10 of one percentage point from 2001.
Britain and Germany are our most important markets within Europe, although the Southern European countries are becoming increasingly significant. Any adverse change in the British or German market has a significant effect on our total European automotive profits. For 2002 compared with 2001, total industry sales were up 4% in Britain and down 3% in Germany.
For purposes of the figures shown in this section, we consider Europe to consist of the following 19 markets: Britain, Germany, France, Italy, Spain, Austria, Belgium, Ireland, Netherlands, Portugal, Switzerland, Finland, Sweden, Denmark, Norway, Czech Republic, Greece, Hungary and Poland.
Marketing Incentives. The automotive industry in Europe continues to be
intensely competitive. In Europe in 2002, increased competition resulted in
substantial retail and fleet incentive spending on the part of Ford and most
manufacturers, particularly in our key European market of Britain. Similar to
the United States, marketing costs in Europe include primarily (i) marketing
incentives on vehicles, such as rebates and costs for special financing and
lease programs, (ii) reserves for costs and/or losses associated with our
required repurchase of certain vehicles sold to daily rental companies, and
(iii) costs for advertising and sales promotions for vehicles.
Motor Vehicle Distribution in Europe. On October 1, 2002, the Commission of the European Union adopted a new regulation that changes the way motor vehicles are sold and repaired throughout the European Community. Under the new regulation, Ford could continue to maintain its "exclusive" distribution arrangements that allow it to provide dealers with exclusive sales territories, however, the new regulation eliminates the formerly allowable restrictions on resale. This means that if we continue with the exclusive distribution arrangements, our dealers could sell vehicles to any reseller (e.g., supermarket chains, internet agencies and other resellers not authorized by us), who in turn could sell to end customers both within and outside of the dealer's exclusive sales territory. Alternatively, the new regulation allows manufacturers to establish a "selective" distribution regime that would allow the manufacturer to determine the number but, beginning in 2005, not the location of its dealers. In addition, under the selective distribution regime, we would be able to restrict the dealer's ability to sell our vehicles to unauthorized resellers. Under either system, the new rules make it easier for a dealer to display and sell multiple brands in one store without the need to maintain separate facilities.
Ford, as well as the majority of the other automotive manufacturers, has elected to establish a selective distribution system. Therefore, beginning in 2005, under new dealer agreements to be entered with each of our dealers in the European Union, our dealers will be free to set up additional sales or delivery outlets within the European Union and to sell actively to all customers within the European Union.
Item 1. Business (Continued)
Within this new regulation, the Commission also has adopted sweeping changes to the repair industry. Dealers can no longer be required by the manufacturer to perform repair work themselves. Instead, dealers can subcontract the work to independent repair shops that meet reasonable criteria set by the manufacturer. These authorized repair facilities can perform warranty and recall work, in addition to other repair and maintenance work. While a manufacturer can continue to require the use of its parts in warranty and recall work, the repair facility can use parts made by others that are of comparable quality for all other repair work.
We are currently negotiating our new Dealer, Authorized Repairer and Spare Part contracts on a country by country level. The new regulation will apply to existing dealers and any new dealers when the new agreements are signed, which is expected to occur during the first half of 2003.
It is difficult to quantify at this time the full impact of these changes on our European operations. The Commission, however, has stated that it expects the new rules to lead to increased competition and a narrowing of differences in car prices from country to country.
Warranty Coverage. Beginning in January 2002, warranty coverage provided by volume manufacturers (including Ford) in most of our European markets increased from one year with unlimited mileage to two years with unlimited mileage. This increase in warranty coverage was prompted by new consumer laws in eleven of the 19 European markets that granted private buyers a two-year period in which to pursue defects in goods (including vehicles and substantial components). Prior to January 2002, Ford provided warranty coverage on Jaguar and Volvo brand vehicles that extended for 36 months or 60,000+ miles and will continue to provide such warranty coverage. In Britain, Ford provides a warranty package that includes a 36 month warranty composed of a 12 month/unlimited mileage base warranty and free of charge OEW (Extended Service Plan) covering up to a further 24 months and 60,000 miles. Commercial vehicles (e.g., Ford Transit and Ford Transit Connect) carry a 24 month/unlimited mileage warranty except in Britain where Ford currently provides a 36 month or 100,000 miles base warranty. In addition to the base warranties discussed above, Ford warrants the bodywork of all of its brands against rust perforation for periods between 6 years and 12 years.
Canada and Mexico. Canada and Mexico also are important markets for us. In Canada, industry sales of new cars and trucks in 2002 were approximately 1,730,000 units, up 8.4% from 2001 levels. In 2002, industry sales of new cars and trucks in Mexico were approximately 1,005,000 units, up approximately 6.1% from 2001 levels Our combined car and truck market share in these markets in 2002 was 15.8% in Canada and 16.5% in Mexico.
South America. Brazil and Argentina are our principal markets in South America. The economic environment in those countries has been volatile in recent years, particularly in 2002, leading to large variations in industry sales. Results have also been influenced by sharp devaluation of the Argentine Peso and Brazilian Real, continued weak economic conditions, political uncertainty and government actions to reduce inflation and public deficits. Industry sales in 2002 were approximately 1.5 million units in Brazil, down about 6.4% from 2001, and approximately 96,000 units in Argentina, down 52.2% from 2001. Our combined car and truck market share in these markets in 2002 was 10.3% in Brazil (up 2.1 percentage points from last year) and 16.5% in Argentina (up 2.0 percentage points from a year ago).
Ford has undertaken restructuring actions in recent years to improve its competitiveness in South America. In addition, we built a new assembly plant in Brazil, which will manufacture a new family of vehicles for the South American markets. The new plant started building the 5-door Fiesta in May of 2002 and began producing an all-new sport utility vehicle early in the first quarter of 2003.
Item 1. Business (Continued)
Asia Pacific. In the Asia Pacific region, Australia, Taiwan, Thailand and Japan are our principal markets. Industry volumes in 2002 in this region were as follows: approximately 824,000 units in Australia (up 6.6% from 2001), approximately 399,000 units in Taiwan (up 15% from 2001), approximately 415,000 units in Thailand (up 39.7% from 2001) and approximately 5.8 million units in Japan (down 2% from 2001). In 2002, our combined car and truck market share in Australia was 14.3%. In Taiwan, we had a combined car and truck market share in 2002 of 16.4%. In Thailand, our combined car and truck market share was 5.7% in 2002. Our combined car and truck market share in Japan has been less than 1% in recent years. We own a 33.4% interest in Mazda Motor Corporation ("Mazda") and account for Mazda on an equity basis. Mazda's market share in Japan has been in the 5% range in recent years. Our principal competition in the Asia Pacific region has been the Japanese manufacturers. We anticipate that the continuing relaxation of import restrictions (including duty reductions) will intensify competition in the region.
We opened an assembly plant in India in 1999, launching an all-new small car (the Ikon) designed specifically for that market. In addition, India sells components to Mexico and South Africa. We expect India to become one of our most important markets in Asia in the future.
We also are in the process of increasing our presence in China. During 2002, a new purchasing office was established in China to take advantage of sourcing opportunities for global markets from that country. The Changan Ford assembly plant located in Chongqing became operational and production of the Fiesta in China started mid-January 2003. Changan Ford is our 50/50 joint venture operation with Changan Automobile.
Africa. We distribute Ford, Jaguar, Land Rover, Mazda, and Volvo vehicles in South Africa. In 2002, industry volume in South Africa was approximately 350,000 units, down 4.6% from 2001 levels. Our combined car and truck market share in 2002 was 13.2% for the five brands we distribute.
Financial Services Sector
Ford Motor Credit Company ("Ford Credit") is the world's largest automotive finance company based on the dollar value of the portfolio of finance receivables owned and managed. Ford Credit provides vehicle and dealer financing in 36 countries to more than 11 million customers and more than 12,500 automotive dealers. Ford Credit is a wholly-owned subsidiary of Ford.
Ford Credit offers a wide variety of automotive financial services to and through automotive dealers throughout the world. Ford Credit's primary financial products fall into three categories:
o Retail financing -- purchasing retail installment sale contracts and retail leases from dealers, and offering financing to commercial customers, primarily vehicle leasing companies and fleet purchasers, to purchase or lease vehicle fleets.
o Wholesale financing -- making loans to dealers to finance the purchase of vehicle inventory, also known as floorplan financing.
o Other financing -- making loans to dealers for working capital, improvements to dealership facilities, and the acquisition and refinancing of real estate.
Ford Credit also services the finance receivables it originates and purchases, makes loans to Ford affiliates, purchases certain receivables of Ford and its subsidiaries and provides insurance services related to its financing programs. Ford Credit's revenues are primarily from retail installment sale contracts and leases, interest supplements and other support payments it receives from Ford on special-
Item 1. Business (Continued)
rate retail financing programs, from investment and other income related to sold receivables, and from payments made under wholesale and other dealer loan financing programs.
Ford Credit does business in all 50 states of the United States through about 165 dealer automotive financing branches and seven regional service centers, and does business in all provinces in Canada through 16 dealer automotive financing branches and 2 regional service centers. Outside the United States, FCE Bank plc ("FCE") is Ford Credit's largest operation. FCE's primary business is to support the sale of Ford vehicles in Europe through the Ford dealer network. A variety of retail, leasing and wholesale finance plans are provided in most countries in which it operates. FCE does business in the United Kingdom, Germany, most other European countries, and Saudi Arabia. Ford Credit, through its subsidiaries, also operates in Mexico, Brazil, Australia, a number of Asia-Pacific countries, Argentina and Chile. In addition, Ford Credit manages Ford's vehicle financing operations in other countries where Ford Credit does not have operations.
Ford Credit's share of retail financing for new Ford, Lincoln and Mercury brand vehicles sold by dealers in the United States and new Ford brand vehicles sold by dealers in Europe and its share of wholesale financing for those brands of vehicles acquired by dealers in the United States and Europe was as follows during the last three years:
Years Ended December 31,
-----------------------------
2002 2001 2000
-------- -------- --------
United States
-------------
Financing share - Ford, Lincoln and Mercury
Retail installment and lease* 41% 54% 51%
Wholesale 84 84 84
Europe
------
Financing share - Ford
Retail installment and lease ** 34% 37% 32%
Wholesale 97 97 97
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Item 1. Business (Continued)
Ford Credit reviews its business performance on an owned basis, a managed basis and a serviced basis. The owned basis includes only the receivables it owns and reports on its balance sheet. The managed basis includes owned receivables and receivables sold through securitizations which continue to be serviced. The serviced basis includes managed receivables and Ford Credit's serviced-only receivables, which include receivables that were sold through whole-loan sale transactions. For a detailed discussion of receivables sold through securitizations and whole-loan sale transactions, see Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Financial Services Sector". Ford Credit's owned finance receivables, net of allowance for credit losses, and net investment in operating leases, and managed finance receivables and net investment in operating leases, are shown below. Ford Credit's serviced receivables, are also noted (in billions):
December 31,
-------------------------------------
2002 2001
---------------- ----------------
Outstanding receivables, net-Owned
Finance receivables
Retail installment $ 68.4 $ 83.4
Wholesale 16.4 15.4
Other 9.8 9.1
------ ------
Total finance receivables, net $ 94.6 $107.9
Net investment in operating leases 31.6 37.5
------ ------
Total owned $126.2 $145.4
====== ======
Memo: Allowance for credit losses
included above $ 3.2 $ 2.8
Outstanding receivables-Managed
Finance receivables
Retail installment $117.3 $124.7
Wholesale 38.9 32.8
Other 9.8 9.1
------ ------
Total finance receivables, net $166.0 $166.6
Net investment in operating leases 31.6 37.6
------ ------
Total managed* $197.6 $204.2
====== ======
Outstanding Receivables - Serviced $202.6 $204.2
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Ford Credit analyzes its performance primarily on an owned and managed basis. It retains interests in receivables sold in securitization transactions, and, with respect to subordinated retained interests, has credit risk. As a result, it evaluates credit losses, receivables and leverage on a managed as well as an owned basis. In contrast, Ford Credit does not have the same financial interest in the performance of receivables sold through whole-loan sale transactions because it retains no interests in those receivables and, therefore, has no credit risk with respect to them. Accordingly, Ford Credit generally reviews the performance of its serviced portfolio only to evaluate the effectiveness of its origination and collection activities.
Item 1. Business (Continued)
The following tables show actual credit losses net of recoveries, which is referred to as net credit losses, and loss-to-receivables ratios (calculated as net credit losses divided by average net receivables) for Ford Credit's worldwide owned and managed portfolios, for the various categories of financing during the years indicated (in millions):
Years Ended or at December 31,
------------------------------------------------
2002 2001 2000
------------- ------------- -------------
Owned
-----
Net credit losses
Retail installment and lease* $2,292 $2,052 $1,283
Wholesale 40 33 14
Other 30 24 -
------ ------ ------
Total $2,362 $2,109 $1,297
====== ====== ======
Loss-to-receivables**
Retail installment and lease* 2.04% 1.74% 1.10%
Wholesale 0.25 0.12 0.05
Total including other 1.72% 1.36% 0.84%
Managed
-------
Net credit losses
Retail installment and lease* $2,740 $2,272 $1,410
Wholesale 46 34 15
Other 30 24 -
------ ------ ------
Total $2,816 $2,330 $1,425
====== ====== ======
Loss-to-receivables**
Retail installment and lease* 1.73% 1.45% 1.00%
Wholesale 0.13 0.10 0.05
Total including other 1.39% 1.20% 0.81%
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Shown below is an analysis of Ford Credit's allowance for credit losses related to owned finance receivables and operating leases for the years indicated (dollar amounts in billions):
2002 2001 2000
------------- ------------- -------------
Balance, beginning of year $2.8 $1.6 $1.5
Provision charged to operations 3.0 3.4 1.6
Deductions
Losses 2.9 2.5 1.6
Recoveries (0.5) (0.4) (0.3)
---- ---- ----
Net losses 2.4 2.1 1.3
Other changes, principally
amounts relating to finance
receivables sold and translation adjustments 0.2 0.1 0.2
---- ---- ----
Net deductions 2.6 2.2 1.5
---- ---- ----
Balance, end of year $3.2 $2.8 $1.6
==== ==== ====
Allowance for credit losses as a percentage
of end-of-period net receivables* 2.51% 1.89% 1.03%
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In 2002, higher net credit losses resulted largely from the continuation of a weak economy in the United States, and the continuation of a high level of personal bankruptcy filings.
Item 1. Business (Continued)
Under a profit maintenance agreement with Ford Credit, Ford has agreed to make payments to maintain Ford Credit's earnings at certain levels. In addition, under a support agreement with FCE, Ford Credit has agreed to maintain FCE's net worth above a minimum level. No payments were made under either of these agreements during the period 2000 through 2002.
For further discussion of Ford Credit's credit losses, funding sources and funding strategies, see Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations". For a discussion of how Ford Credit manages its financial market risks, see Item 7A. "Quantitative and Qualitative Disclosure About Market Risk".
The Hertz Corporation ("Hertz") and its affiliates, associates and independent licensees represent what Hertz believes is the largest worldwide general use car rental brand based upon revenues. Hertz also operates one of the largest industrial and construction equipment rental businesses in North America based upon revenues. Hertz and its affiliates, associates and independent licensees, do the following:
o rent cars and light trucks
o rent industrial and construction equipment
o sell their used cars and equipment
o provide third-party claim management services
These businesses are operated from approximately 7,000 locations throughout the United States and in over 150 foreign countries and jurisdictions. Hertz is an indirect, wholly-owned subsidiary of Ford.
Below are some financial highlights for Hertz (in millions):
Years Ended December 31,
-------------------------
2002 2001
---------- ----------
Revenue $4,978 $4,925
Pre-Tax Income 200 3
Income before cumulative effect of
change in accounting principle 127 23
Net Income/(Loss) (167) 23
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Item 1. Business (Continued)
Governmental Standards
A number of governmental standards and regulations relating to safety, corporate average fuel economy ("CAFE"), emissions control, noise control, damageability, and theft prevention are applicable to new motor vehicles, engines, and equipment manufactured for sale in the United States, Europe and elsewhere. In addition, manufacturing and assembly facilities in the United States, Europe and elsewhere are subject to stringent standards regulating air emissions, water discharges, and the handling and disposal of hazardous substances. Such facilities in the United States and Europe also are subject to comprehensive national, regional, and/or local permit programs with respect to such matters.
Mobile Source Emissions Control -- U.S. Requirements. The Federal Clean Air Act imposes stringent limits on the amount of regulated pollutants that lawfully may be emitted by new motor vehicles and engines produced for sale in the United States. Currently, most light duty vehicles sold in the United States must comply with these standards for 10 years or 100,000 miles, whichever first occurs. The U.S. Environmental Protection Agency ("EPA") has promulgated post-2004 model year standards that are more stringent than the default standards contained in the Clean Air Act. These new regulations will require most light duty trucks to meet the same emissions standards as passenger cars by the 2007 model year. The stringency of the new standards presents compliance challenges and is likely to hinder efforts to employ light-duty diesel technology, which could negatively impact our ability to meet CAFE standards. The EPA also has promulgated post-2004 emission standards for "heavy-duty" trucks (8,500-14,000 lbs. gross vehicle weight). These standards are likely to pose technical challenges and may affect the competitive position of full-line vehicle manufacturers such as Ford.
Pursuant to the Clean Air Act, California has received a waiver from the EPA to establish its own unique emissions control standards. New vehicles and engines sold in California must be certified by the California Air Resources Board ("CARB"). CARB has adopted stringent new vehicle emissions standards that will be phased in beginning in the 2004 model year. These new standards treat most light duty trucks the same as passenger cars and require both types of vehicles to meet new stringent emissions requirements. As with the EPA's post-2004 standards, CARB's vehicle standards present a difficult engineering challenge, and will essentially rule out the use of light-duty diesel technology.
Since 1990, the California program has included requirements for manufacturers to produce and deliver for sale zero-emission vehicles, which produce no emissions of regulated pollutants ("ZEV"). Currently available ZEVs are typically battery-powered vehicles with narrow consumer appeal due to their limited range, reduced functionality, and high cost. The ZEV mandate initially required that a specified percentage of each manufacturer's vehicles produced for sale in California, beginning at 2% in 1998 and increasing to 10% in 2003, must be ZEVs. In 1996, CARB eliminated the ZEV mandate for the 1998-2002 model years, but retained the 10% mandate in a modified form beginning with the 2003 model year. Around the same time, vehicle manufacturers voluntarily entered into agreements with CARB to conduct ZEV demonstration programs. In 2001, CARB approved a series of complex modifications to the ZEV mandate that required manufacturers to produce increasing numbers of ZEVs and partial zero-emission vehicles ("PZEVs") between 2003 and 2018. PZEVs are vehicles certified to California's super-ultra-low emission vehicle ("SULEV") tailpipe standards, with zero evaporative emissions.
In 2002, a federal court granted a preliminary injunction against enforcement of the ZEV mandate because it found that certain provisions are preempted by the federal CAFE law. That ruling is on appeal. In the meantime, in March 2003, California regulators proposed sweeping changes to the ZEV mandate that would shift the focus of the regulation away from battery-electric vehicles to advanced-technology vehicles (e.g., hybrid electric vehicles or compressed natural gas vehicles) with extremely low--but not zero--tailpipe emissions. In essence, the proposal would drop the current "pure ZEV" requirements in favor of increased requirements to produce advanced-technology vehicles, plus a requirement to produce a small number of zero-emission fuel cell vehicles by 2008. The proposal would also establish an "Independent Expert Review Panel" to periodically assess the state of ZEV technology. On one hand, the changes appear to reflect a welcome recognition that battery-electric vehicles simply do not have the potential to achieve widespread customer acceptance. On the other hand, the proposal calls for very
Item 1. Business (Continued)
large numbers of advanced-technology vehicles in future years; there are questions about the feasibility of these requirements, as well as California's authority to adopt them. We expect that this proposal will face significant opposition from certain groups that continue to support near-term requirements for battery-electric vehicles.
The Clean Air Act permits other states that do not meet national ambient air quality standards to adopt California's motor vehicle emission standards no later than two years before the affected model year. New York, Massachusetts, Vermont, and Maine adopted the California standards effective with the 2001 model year or before. New York and Massachusetts have adopted the California ZEV mandate along with alternative ZEV compliance programs. Other states are considering the adoption of California vehicle standards, with or without the ZEV mandate. There are problems with transferring California standards to northeast states, including the following: 1) the driving range of ZEVs is greatly diminished in cold weather, thereby limiting their market appeal; and 2) the northeast states have refused to adopt the California reformulated gasoline regulations, which may impair the ability of vehicles to meet California's in-use standards.
Ford has accumulated ZEV credits through sales of TH!NK brand electric vehicles, and it has plans to accumulate more credits by selling future PZEV models. In the longer term, however, it is doubtful whether the market will support the number of battery electric vehicles called for by the modified ZEV mandate. Fuel cell technology may in the future enable production of ZEVs with widespread consumer appeal, but it does not appear that production vehicles with fuel cell technology will be commercially feasible for years to come. Compliance with the ZEV mandate may eventually require costly actions that would have a substantial adverse effect on Ford's sales volume and profits. For example, Ford could be required to curtail the sale of non-electric vehicles and/or offer to sell electric vehicles well below cost. Other states may seek to adopt CARB's ZEV mandate pursuant to the Clean Air Act, thereby increasing the costs to Ford.
Under the Clean Air Act, the EPA and CARB can require manufacturers to recall and repair non-conforming vehicles. The EPA, through its testing of production vehicles, also can halt the shipment of non-conforming vehicles. Ford may be required to recall, or may voluntarily recall, vehicles for such purposes in the future. The costs of related repairs or inspections associated with such recalls could be substantial.
European Requirements. European Union ("EU") directives and related legislation limit the amount of regulated pollutants that may be emitted by new motor vehicles and engines sold in the EU. In 1998, the EU adopted a new directive on emissions from passenger cars and light commercial trucks. More stringent emissions standards applied to new car certifications beginning January 1, 2000 and to new car registrations beginning January 1, 2001 ("Stage III Standards"). A second level of even more stringent emission standards will apply to new car certifications beginning January 1, 2005 and to new car registrations beginning January 1, 2006 ("Stage IV Standards"). The comparable light commercial truck Stage III Standards and Stage IV Standards would come into effect one year later than the passenger car requirements. The directive includes a framework that permits EU member states to introduce fiscal incentives to promote early compliance with the Stage III and Stage IV Standards. The directive also introduces on-board diagnostic requirements, more stringent evaporative emission requirements, and in-service compliance testing and recall provisions for emissions-related defects that occur in the first five years or 80,000 kilometers of vehicle life (extended to 100,000 kilometers in 2005). The Stage IV Standards for diesel engines are not yet technically feasible and may impact our ability to produce and offer a broad range of products with the characteristics and functionality that customers demand. A related EU directive was adopted at the same time which establishes standards for cleaner fuels beginning in 2000 and even cleaner fuels in 2005. The EU is setting up a program to assess the need for further changes to vehicle emission and fuel standards after 2005.
Certain European countries are conducting in-use emissions testing to ascertain compliance of motor vehicles with applicable emissions standards. These actions could lead to recalls of vehicles; the future costs of related inspection or repairs could be substantial.
Item 1. Business (Continued)
Stationary Source Emissions Control -- U.S. Requirements. In the United States, the Federal Clean Air Act also requires the EPA to identify "hazardous air pollutants" from various industries and promulgate rules restricting their emission. In 2002, the EPA issued proposed rules for a variety of industrial categories, several of which would further regulate emissions from our U.S. operations, including engine testing, automobile surface coating and iron casting. These technology-based standards could require certain of our facilities to significantly reduce their air emissions. If the final rules are unchanged from the proposals, the cost to us, in the aggregate, to comply with these standards could be substantial.
Motor Vehicle Safety -- U.S. Requirements. The National Traffic and Motor Vehicle Safety Act of 1966 (the "Safety Act") regulates motor vehicles and motor vehicle equipment in the United States in two primary ways. First, the Safety Act prohibits the sale in the United States of any new vehicle or equipment that does not conform to applicable motor vehicle safety standards established by the National Highway Traffic Safety Administration (the "Safety Administration"). Meeting or exceeding many safety standards is costly because the standards tend to conflict with the need to reduce vehicle weight in order to meet emissions and fuel economy standards. Second, the Safety Act requires that defects related to motor vehicle safety be remedied through safety recall campaigns. A manufacturer also is obligated to recall vehicles if it determines that they do not comply with a safety standard. Should Ford or the Safety Administration determine that either a safety defect or a noncompliance exists with respect to certain of Ford's vehicles, the costs of such recall campaigns could be substantial. There were pending before the Safety Administration approximately 40 investigations relating to alleged safety defects or potential compliance issues in Ford vehicles as of February 11, 2003.
The Transportation Recall Enhancement, Accountability, and Documentation Act (the "TREAD Act") was signed into law in November 2000. The TREAD Act mandates that the Safety Administration establish several new regulations including reporting requirements for motor vehicle manufacturers on foreign recalls and certain information received by the manufacturer that may assist the agency in the identification of safety defects.
Foreign Requirements. Canada, the EU, individual member countries within the EU, and other countries in Europe, South America and the Asia Pacific markets also have safety standards applicable to motor vehicles and are likely to adopt additional or more stringent standards in the future. In addition, the European Automobile Manufacturers Association (of which Ford is a member) ("ACEA") made a voluntary commitment in June 2001 to introduce a range of safety measures to improve pedestrian protection with the first phase starting in 2005 and a second phase starting in 2010. Similar commitments were subsequently made by the Japanese and Korean automobile manufacturers associations. As a result, over 99% of cars and small vans sold in Europe are covered by industry safety commitments. After consultation with the European Council of Ministers and the European Parliament, the European Commission released a proposal for a directive in February 2003, which includes only the principal requirements and objectives of the industry commitments (i.e., the application dates, the types of tests to be conducted and the limit values to be achieved). The detailed provisions for various tests prescribed by the directive will be subject to a subsequent Commission decision related to the industry commitments, which is scheduled for publication in late 2003.
Motor Vehicle Fuel Economy -- U.S. Requirements. Under federal law, vehicles must meet minimum CAFE standards set by the Safety Administration. A manufacturer is subject to potentially substantial civil penalties if it fails to meet the CAFE standard in any model year, after taking into account all available credits for the preceding three model years and expected credits for the three succeeding model years.
The law established a passenger car CAFE standard of 27.5 mpg for 1985 and later model years, which the Safety Administration believes it has the authority to amend to a level it determines to be the maximum feasible level. The current CAFE standard applicable to light trucks is 20.7 mpg. In late 2002, the Safety Administration issued a Notice of Proposed Rulemaking that would increase the CAFE standard for light trucks to 21.0 mpg for model year 2005; 21.6 mpg for model year 2006; and 22.2 mpg for model year 2007. Ford and the Alliance of Automobile Manufacturers have submitted extensive comments on
Item 1. Business (Continued)
the proposed rule, which we expect will be finalized later in 2003. We expect that light truck standards will continue to increase beyond model year 2007, and it is also likely that the Safety Administration will soon issue proposed increases in passenger car standards as well. There is renewed interest in CAFE in Congress, and there is some potential for new legislation that avoids the regulatory process and establishes new standards by statute.
Pressure to increase CAFE standards stems in part from concerns over greenhouse gas emissions, which may affect the global climate. With respect to greenhouse gas emissions, the Bush administration released a climate change policy initiative in February 2002. The Bush administration plan stresses voluntary measures and a cap-and-trade program to stem the growth of greenhouse gas emissions. The Bush administration also has launched the Freedom Car initiative, which supports research for fuel cell-powered vehicles. Other nations continue to press for United States ratification of the so-called "Kyoto Protocol," which would require the United States to reduce greenhouse gas emissions by 7% below its 1990 levels. The Kyoto Protocol does not currently have the support of either the Bush administration or Congress. Separately, a petition has been filed with the EPA requesting that it regulate carbon dioxide (CO2, a greenhouse gas) emissions from motor vehicles under the Clean Air Act. The petitioners have filed suit in an effort to compel a formal response from the EPA. Several state Attorneys General have also signaled their intention to sue the EPA to compel regulation of CO2 emissions.
In 2002, California enacted legislation authorizing CARB to regulate greenhouse gas emissions from new motor vehicles beginning in the 2009 model year. Other states are considering similar legislation. CO2 is the primary greenhouse gas emitted from motor vehicles, and the amount of CO2 emissions is proportional to the amount of fuel used. It is possible that CARB may attempt to implement the law by setting fleet average standards for vehicle CO2 emissions, although we believe this would be prohibited by the federal fuel economy law.
In general, a continued increase in demand for larger vehicles, coupled with a decline in demand for small and middle-size vehicles, could jeopardize our long-term ability to comply with CAFE standards. In addition, if significant increases in CAFE standards for upcoming model years are imposed beyond those presently proposed, or if the EPA or other agencies regulate CO2 emissions from motor vehicles, we might find it necessary to take various costly actions that could have substantial adverse effects on our sales volume and profits. For example, we might have to curtail production of larger, family-size and luxury cars and full-size light trucks, restrict offerings of engines and popular options, and increase market support programs for our most fuel-efficient cars and light trucks.
Foreign Requirements. The EU also is a party to the Kyoto Protocol and has agreed to reduce greenhouse gas emissions by 8% below their 1990 levels during the 2008-2012 period. In December 1997, the European Council of Environment Ministers (the "Environment Council") reaffirmed its goal to reduce average CO2 emissions from new cars to 120 grams per kilometer by 2010 (at the latest) and invited European motor vehicle manufacturers to negotiate further with the European Commission on a satisfactory voluntary environmental agreement to help achieve this goal. In October 1998, the EU agreed to support an environmental agreement with the European Automotive Manufacturers Association (of which Ford is a member) on CO2 emission reductions from new passenger cars (the "Agreement"). The Agreement establishes an emission target of 140 grams of CO2 per kilometer for the average of new cars sold in the EU by the Association's members in 2008. In addition, the Agreement establishes an estimated target range of 165-170 grams of CO2 per kilometer for the average of new cars sold in 2003. Also in 2003, the Association will review the potential for additional CO2 reductions, with a view to moving further toward the EU's objective. The Agreement assumes (among other things) that no negative measures will be implemented against diesel-fueled cars and the full availability of improved fuels with low sulfur content in 2005. Average CO2 emissions of 140 grams per kilometer for new passenger cars corresponds to a 25% reduction in average CO2 emissions compared to 1995.
The Environment Council requested the European Commission to review in 2003 the EU's progress toward reaching the 120 gram target by 2010, and to implement annual monitoring of the average CO2 emissions from new passenger cars and progress toward achievement of the objectives for 2003.
Item 1. Business (Continued)
In 1995, members of the German Automobile Manufacturers Association (including Ford Werke AG) made a voluntary pledge to increase by 2005 the average fuel economy of new cars sold in Germany by 25% from 1990 levels, to make regular reports on fuel consumption, and to increase industry research and development efforts toward this end. The German Automobile Manufacturers Association has reported that the industry is on track to meet the pledge.
Other European countries are considering other initiatives for reducing CO2 emissions from motor vehicles. Taken together, such proposals could have substantial adverse effects on our sales volumes and profits in Europe.
End-of-Life Vehicle Directive -- The European Parliament has published a directive imposing an obligation on motor vehicle manufacturers to take back end-of-life vehicles with zero or negative value registered after July 1, 2002, and to take back all other end-of-life vehicles with zero or negative value as of January 1, 2007, with no cost to the last owner. The directive also imposes requirements on the proportion of the vehicle that may be disposed of in landfills and the proportion that must be reused or recycled beginning in 2006, and bans the use of certain substances in vehicles beginning with vehicles registered after July 2003. Member states may apply these provisions prior to the dates mentioned above.
Presently, there are numerous uncertainties surrounding the form and implementation of the legislation in different member states, especially regarding manufacturers' responsibilities and the resultant expenses that may be incurred. As of December 31, 2002, the following five member states have adopted legislation to implement the directive: The Netherlands, Germany, Belgium, Austria and Spain. In addition, Norway has adopted legislation similar to the directive. Based on the legislation that has been enacted to date, we have accrued $70 million at December 31, 2002 for compliance costs we expect to incur in respect of our existing vehicle populations in those countries. Depending on the legislation implemented in the ten member states that have not yet enacted legislation and other circumstances, we may be required to take additional accruals for the expected costs to comply with these regulations. Although all of the member states were required to enact legislation to implement the directive by April 21, 2002, implementation of the directive has been delayed in some countries and is now expected to be substantially finalized during 2003. The directive should not, however, result in significant cash expenditures before 2007.
Pollution Control Costs -- During the period 2003 through 2007, we expect to spend approximately $377 million on our North American and European facilities to comply with air and water pollution and hazardous waste control standards, which now are in effect or are scheduled to come into effect. Of this total, we estimate spending approximately $68 million in 2003 and $102 million in 2004.
Employment Data
The average number of people we employed by geographic area was as
follows for the years indicated:
2002 2001
--------------- ----------------
United States 161,868 165,787
Europe 136,717 139,355
Other 51,736 53,533
------- --------
Total 350,321 358,675
======= =======
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Most of our employees work in our Automotive sector. In 2002, the average number of people we employed decreased approximately two percent. The decrease reflects a reduction in employment in our Automotive sector in North America and Europe and the partial-year effect of the sale of our Kwik-Fit subsidiary. The numbers above include approximately 19,800 hourly employees of Ford who are assigned to
Item 1. Business (Continued)
Visteon Corporation, and, pursuant to our collective bargaining agreement with the United Automobile Workers (the "UAW"), remain Ford employees. The number of Ford employees assigned to Visteon has declined from approximately 24,000 at the time of our spin-off of Visteon as a result of retirements and, in some cases, the return of employees to Ford. Visteon reimburses us for all costs to us associated with these employees.
For further information regarding employment statistics of Ford, see Item 6. "Selected Financial Data" later in this Report. For information concerning employee retirement benefits, see Note 20 of our Notes to Financial Statements at the end of this Report.
Substantially all of the hourly employees in our Automotive operations in the United States are represented by unions and covered by collective bargaining agreements. Approximately 99% of these unionized hourly employees in our Automotive segment are represented by the UAW. Approximately 3% of our salaried employees are represented by unions. Most hourly employees and many non-management salaried employees of our subsidiaries outside the United States also are represented by unions.
We have entered into a collective bargaining agreement with the UAW that is scheduled to expire on September 14, 2003. Negotiation of a new collective bargaining agreement with the UAW could result in our incurring costs different than currently anticipated. We also have recently entered into a new collective bargaining agreement with the Canadian Automobile Workers ("CAW") that is scheduled to expire on September 20, 2005. Among other things, our agreements with the UAW and CAW provide for guaranteed wage and benefit levels throughout their terms and provide for significant employment security. As a practical matter, these agreements restrict our ability to eliminate product lines, close plants and divest businesses. These agreements can also limit our ability to change local work rules and practices. Our Revitalization Plan assumes full compliance with our obligations under existing collective bargaining agreements.
Consistent with the Revitalization Plan, for example, our new agreement with the CAW provides for the closure of our Ontario Truck Plant in 2004. In addition to the closure of the Ontario Truck Plant in July 2004, the new CAW agreement includes a requirement to make a $600 million (Canadian Dollar) investment in our Oakville Assembly Plant for the new Ford Freestar and Mercury Monterey minivans, and a commitment to provide 900 jobs at the Oakville site during the term of this agreement.
We are or will be negotiating new collective bargaining agreements with labor unions in Mexico, Australia, Taiwan, Thailand where current agreements will expire in 2003. We are or will be negotiating a new collective bargaining agreement to cover the employees of our Land Rover subsidiary, whose current agreement also will expire in 2003.
In recent years we have not had significant work stoppages at our facilities, but they have occurred in some of our suppliers' facilities. A work stoppage could occur as a result of disputes under our collective bargaining agreements with labor unions or in connection with negotiations of new collective bargaining agreements, which, if protracted, could substantially adversely affect our business and results of operation. Work stoppages at supplier facilities for labor or other reasons could have similar consequences if alternate sources of components are not readily available.
In addition to our collective bargaining agreement with the UAW, we entered into a separate agreement with the UAW in connection with the sale of our Dearborn steel-making operations to Rouge Industries, Inc., then known as Marico Acquisition Corp., in 1989. As part of the sale, employees of our former steel-making operations became employees of Rouge Steel Company, a wholly-owned subsidiary of Rouge Industries, Inc. ("Rouge"). Pursuant to the UAW agreement, we agreed that Rouge hourly employees who, at the time of the sale, were represented by the UAW and met certain seniority requirements would be allowed to return to Ford to work in one of our Rouge area plants if they were laid off by Rouge in the future as a result of a layoff of unknown duration, a permanent discontinuance of operations by Rouge or a sale of the assets of Rouge. The right to return remains in effect with respect to each eligible employee for a period equal to the employee's Ford seniority as of the date of the sale by Ford. Approximately 800 former Ford employees currently employed by Rouge are covered by this
Item 1. Business (Continued)
agreement. In part to avoid the occurrence of one or more of the triggering events described above, we have extended subordinated credit to Rouge totaling $90 million through June 30, 2004. In its Annual Report on Form 10-K for the year ended December 31, 2002, Rouge stated that it has suffered recurring losses from operations and negative cash flows that raise substantial doubt about its ability to continue as a going concern.
Engineering, Research and Development
We conduct engineering, research and development primarily to improve the performance (including fuel efficiency), safety and customer satisfaction of our products, and to develop new products. We also have staffs of scientists who engage in basic research. We maintain extensive engineering, research and design centers for these purposes, including large centers in Dearborn, Michigan; Dunton, Gaydon and Whitley, England; Gothenburg, Sweden; and Merkenich, Germany. Most of our engineering research and development relates to our Automotive operating segment.
During the last three years, we took charges to our consolidated income
for engineering, research and development we sponsored in the following amounts:
$7.7 billion (2002), $7.3 billion (2001), and $6.8 billion (2000). Any
customer-sponsored research and development activities that we conduct are not
material.
We own substantially all of our U.S. manufacturing and assembly facilities. These facilities are situated in various sections of the country and include assembly plants, engine plants, casting plants, metal stamping plants, and transmission plants. Most of our distribution centers are leased (approximately 43% are owned). A substantial amount of our warehousing is provided by third party providers under service contracts. All of the warehouses that continue to be operated by us are leased, although many of our manufacturing and assembly facilities contain some warehousing space. Substantially all of our sales offices are being leased.
In addition, we maintain and operate manufacturing plants, assembly facilities, parts distribution centers, and engineering centers outside the United States. We own substantially all of the manufacturing plants, assembly facilities, and engineering centers. The majority of our parts distribution centers outside of the United States are either leased or provided by vendors under service contracts.
Our Automotive sector operates approximately 81 plants; 65 distribution centers/warehouses; and 53 engineering and research and development sites. We operate significantly fewer distribution centers/warehouses than reported in 2001 as a result of an increase in the use of warehousing services provided by third party providers under service contracts. The number of facilities dedicated as distribution centers has not materially changed from 2001.
In addition to the plants that we operate directly, we are a partner in a number of joint ventures that operate plants that support our Automotive segment. The most significant of these joint ventures are:
o AutoAlliance International ("AAI") - a 50/50 joint venture with Mazda (of which we own 33.4%), which owns and operates as its principal business an automobile vehicle assembly plant in Flat Rock, Michigan. AAI currently produces the Mazda6 vehicle and, beginning in 2004, is planning to produce the next-generation Ford Mustang for the 2005 model year. Ford supplies all of the hourly and substantially all of the salaried labor requirements to AAI and AAI reimburses Ford for the full cost of that labor.
o AutoAlliance (Thailand) ("AAT") - a 50/50 joint venture with Mazda, which owns and operates a manufacturing plant in Rayong, Thailand. AAT produces the Ford Ranger and Mazda B-Series pick up trucks for the Thai market and for export to over 100 countries worldwide (other than North America), in both built up and CKD kit form. AAT will begin producing the Ford Everest, a derivative of the Ford Ranger, for the Thai and export markets later this year. All of the hourly and salaried labor requirements for AAT are employees of AAT.
o Blue Diamond Truck, S de RL de CV - a joint venture between Ford (49% partner) and International Truck and Engine Corporation (51% partner), the operating arm of Navistar International Corporation ("Navistar"). Blue Diamond Truck develops and manufactures selected medium and light commercial trucks in Mexico and sells the vehicles to Ford and Navistar for their own independent distribution. Blue Diamond Truck commenced manufacturing operations in December 2002, with its first products, the Ford F-650/750 trucks, being shipped in February 2003. A Navistar subsidiary supplies all of the hourly labor and most of the salaried labor requirements of Blue Diamond Truck, with Blue Diamond Truck reimbursing Navistar for related costs.
o Blue Diamond Parts, LLC - a joint venture between Ford (51% partner) and Navistar (49% partner). Blue Diamond Parts manages sourcing, merchandising, and distribution of various replacement parts. It is designed principally to (a) increase Ford's share of the service parts business for Ford vehicles sold in North America that are equipped with Navistar diesel engines and (b) provide service parts support
Item 2. Properties (Continued)
for trucks produced by Blue Diamond Truck. Both Ford and Navistar supply the labor requirements of Blue Diamond Parts. Blue Diamond Parts reimburses Ford and Navistar for the full cost of the labor supplied by them.
o Ford Otosan - a long-standing joint venture in Turkey between Ford (41% partner), the Koc Group of Turkey (41% partner) and public investors (18%) that 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.
o 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 manual transmission operations that were transferred 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.
o ZF Batavia L.L.C. - a joint venture between Ford (49% partner) and ZF Friedrichshafen Germany (51% partner), which owns and operates our former Batavia, Ohio automatic transmission business. ZF Batavia will produce, starting in 2003, a Front Wheel Drive Continuously Variable Transmission (CVT) for use in certain 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 the Mazda Tribute. Ford supplies part of the hourly labor requirements to the ZF Batavia plant consisting primarily of Ford hourly employees who worked at the plant prior to the joint venture being formed. ZF Batavia reimburses Ford for the full cost of the hourly labor.
o Tenedora Nemak, S.A. de C.V. - a joint venture between Ford (20% partner) and a subsidiary of Alfa S.A. de C.V., a Mexican conglomerate (80% partner), that owns and operates, among other facilities, our former Canadian castings operations and supplies engine blocks and heads to several of our engine plants. Ford supplies a portion of the hourly labor requirements to the castings operation. Tenedora Nemak, S.A. de C.V. reimburses Ford for the full cost of the hourly labor supplied by Ford.
o TEKFOR Cologne GmbH - a planned 50/50 joint venture with Neumayer Holding GmbH, a German company, to which Ford-Werke AG intends to transfer the operations of the Ford forge in Cologne. The joint venture will produce forged components, primarily for transmissions and chassis, for use in Ford vehicles and sale to third parties. We expect current employees of the Cologne Forge Plant to be
Item 2. Properties (Continued)
assigned to the joint venture by Ford and remain employees of Ford. All new employees hired to work at the forge will be hired as employees of the joint venture. In the event of surplus labor at the joint venture, Ford employees assigned to the joint venture may return to Ford. TEKFOR Cologne GmbH will reimburse Ford for full cost of the Ford employees assigned to the joint venture.
o Changan Ford Automobile Corporation ("Changan Ford") - a joint venture among Ford (50% partner), the Changan Automobile (Group) Company, Ltd. (24% partner) and Chongqing Changan Automobile Co., Ltd. (26% partner). Changan Ford produces and distributes in China a compact family sedan vehicle, the Ford Fiesta, and is planning to launch the Ford Mondeo in 2003. Most of the hourly and salaried labor requirements of Changan Ford are employees of the joint venture, with Ford supplying only a small portion of the labor requirements. Changan Ford reimburses Ford for substantially all the cost of the labor supplied by Ford.
o Jiangling Motors Corporation - a joint venture in China between Ford (30% partner), the Jiangling Motors Company Group of China (41% partner) and public investors (29%) that assembles the Ford Transit Van and other non-Ford vehicles for distribution in China. Substantially all of the hourly and salaried labor requirements of Jiangling Motors Corporation are employees of the joint venture.
The furniture, equipment and other physical property owned by our Financial Services operations are not material in relation to their total assets.
The facilities owned or leased by us or our subsidiaries and joint ventures described above are, in the opinion of management, suitable and adequate for the manufacture and assembly of our products and will continue to be adequate following the plant closings described above as part of our Revitalization Plan.
Various legal actions, governmental investigations and proceedings and claims are pending or may be instituted or asserted in the future against us and our subsidiaries, including, but not limited to, those arising out of the following: alleged defects in our products; governmental regulations covering safety, emissions, and fuel economy; financial services; employment-related matters; dealer, supplier, and other contractual relationships; intellectual property rights; product warranties; environmental matters; and shareholder matters. Some of the pending legal actions are, or purport to be, class actions. Some of the foregoing matters involve or may involve compensatory, punitive or antitrust or other multiplied damage claims in very large amounts, or demands for recall campaigns, environmental remediation programs, sanctions or other relief that, if granted, would require very large expenditures. See Item 1. "Business-Governmental Standards". We regularly evaluate the expected outcome of product liability litigation and other litigation matters. We have accrued expenses for probable losses on product liability matters, in the aggregate, based on an analysis of historical litigation payouts and trends. Expenses also have been accrued for other litigation where losses are deemed probable. These accruals have been reflected in our financial statements. Following is a discussion of our significant pending legal proceedings:
Recall and National Highway Traffic Safety Administration Matters. On August 9, 2000, Bridgestone/Firestone, Inc. ("Firestone") announced a recall of all Firestone ATX and ATX II tires (P235/75R15) produced in North America since 1991 and Wilderness AT tires of that same size manufactured at Firestone's Decatur, Illinois plant. Firestone estimated that about 6.5 million of the affected tires were still in service on the date the recall was announced. The recall was announced following an analysis by Ford and Firestone that identified a statistically significant incidence of tread separation occurring in the affected tires. Most of the affected tires were installed as original equipment on Ford Explorer sport utility vehicles. This original recall was substantially completed by the end of the first quarter of 2001. On May 22, 2001, we announced that we would replace all remaining Firestone Wilderness AT tires (about 13 million tires) on our vehicles. This precautionary action was based on an analysis of data on the actual road performance of these tires, comparisons with the performance of comparable tires by other tire makers, a review of information developed by and received from the Safety Administration, and laboratory and vehicle testing. This program has also been completed.
The Safety Administration investigated the tread separation matter both to make a root cause assessment and to determine whether Firestone's recall should be expanded to include other Firestone tires. We actively cooperated with the Safety Administration in their investigation. On February 12, 2002, the Safety Administration issued a report denying an earlier request for an investigation into the handling and stability of the Ford Explorer after a tread separation. In its report, the Safety Administration specifically analyzed and rejected each of allegations made in the request. The Safety Administration based its denial on both a technical analysis of the steering and handling of the Ford Explorer as well as a review of crash data that indicated "no significant difference in the likelihood of a crash following a tread separation between Explorer vehicles and other compact SUVs."
Firestone Tire Related Litigation. In the United States, the above-described defect in certain Firestone tires, most of which were installed as original equipment on Ford Explorers, has led to a significant number of personal injury and class action lawsuits against Ford and Firestone. These cases are described below.
Firestone Personal Injury Actions. Plaintiffs in the personal injury cases typically allege that their injuries were caused by defects in the tire that caused it to lose its tread and/or by defects in the Ford Explorer that caused the vehicle to roll over. We are a defendant in these actions and, as with all litigation we face, are investigating the circumstances surrounding the accidents and preparing to defend our product in the event we are unable to reach reasonable resolution. In addition to the significant
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number of personal injury cases against us related to accidents in the United States allegedly caused by tread separations involving Firestone tires on our vehicles, we are also a party to numerous cases filed by residents of foreign countries involving accidents outside of the United States allegedly caused by the same tire issues. A number of these cases have been filed in courts in the United States and are pending in the federal court in Indianapolis, and in state courts in Texas and Tennessee.
Firestone Class Actions. Over 100 Firestone-related class actions have been filed against us, but most have been consolidated into a single case now pending in federal court in Indianapolis. Plaintiffs in these cases have never been injured in an accident involving Firestone tires, but they seek to recover, on behalf of all purchasers of Ford Explorers with Firestone tires, the alleged diminution in vehicle value caused by the use of those tires or by the alleged instability of Explorers. Plaintiffs also seek punitive damages.
In the case pending in Indianapolis, the United States Court of Appeals for the Seventh Circuit has ruled that the case cannot be maintained as a nationwide or statewide class action. Plaintiffs' petition for a writ of certiorari in the United States Supreme Court was denied. Plaintiffs are likely to begin focusing on one or more of the 15 cases that have not yet been transferred to Indianapolis. These cases were filed in state courts in Illinois (2 cases), Pennsylvania, South Carolina (2 cases), Wisconsin, Arkansas (2 cases), California (2 cases), Louisiana, Ohio, Texas, Connecticut, and Florida. Some of these cases have been removed to federal court and are likely to be transferred to the court in Indianapolis, where they will be subject to the Seventh Circuit's order denying class certification. Some of these cases, however, will remain in state court where the trial courts will be free to reconsider the issue of class certification.
In one of the cases filed in Illinois, and in one of the cases filed in South Carolina, the trial courts have already certified statewide classes. In those cases, however, plaintiffs are not relying on any alleged defects in the Ford Explorer; rather, they allege only that Firestone ATX and Wilderness AT tires installed on Ford Explorers and Mercury Mountaineers are defective. Since we have already agreed to replace all of these tires, we are seeking to have these cases dismissed as moot. We will also be seeking appellate review of these rulings.
Firestone Securities Class Actions. Seven class actions were consolidated in federal court in Detroit alleging securities fraud and violations of Rule 10b-5 on behalf of all persons who purchased Ford stock during the period from March 1998 through August 2000. The plaintiffs allege that, during that period of time, the defendants made misrepresentations about the safety of Ford products and the Ford Explorer in particular, and failed to disclose material facts about problems with Firestone tires and the safety of Ford Explorers equipped with Firestone tires. The plaintiffs claim that, as a result of these misrepresentations or omissions, they purchased Ford stock at inflated prices and were damaged when the price of the stock fell upon announcement of the recall and subsequent revelations. On December 10, 2001 the federal district court granted our motion to dismiss and dismissed the consolidated action with prejudice. The court denied plaintiffs motion for leave to file an amended complaint and plaintiffs filed an appeal to the Sixth Circuit Court of Appeals. All briefs on appeal have been filed and we are awaiting oral argument.
Venezuelan Matters. In Venezuela, the investigation being conducted by the Attorney General's Office as to whether criminal charges should be filed against Firestone and Ford employees as a result of tire tread separation accidents that occurred in that country remains open. The Venezuelan consumer protection agency (INDECU) is assisting in this investigation. INDECU has submitted an extensive report alleging there are no defects in the Firestone tires rather that the tire tread separation was the result of the inflation pressure specified by Ford. The report also alleges a series of defects in the Ford Explorer including defects in the steering knuckle and spindle, shock absorbers, roof design, front axle fastener, the general electronic module and powertrain control module. These allegations are contrary to the Safety Administration's findings and Ford's analysis of U.S. and Venezuelan accidents involving the Ford Explorer. In a separate investigation being conducted by the Venezuelan National Assembly concerning the cause of the accidents, a preliminary report was filed on December 5, 2001 by the Technical Commission appointed to conduct the investigation. The report did not contain any conclusions regarding
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the cause of the accidents; it only detailed the work performed by the committee up to that date. Since the release of the INDECU report, the National Assembly has demonstrated renewed interest in its own investigation. We have submitted to the Attorney General a written rebuttal of the INDECU report and, in late September, members of Ford Venezuela's senior management appeared before the National Assembly to refute INDECU's findings. Due to the political situation in Venezuela, there has been very little activity concerning this matter at either the National Assembly or at the Attorney General's Office since December 2002.
Asbestos Matters. Asbestos was used in brakes, clutches and other auto components dating from the early 1900s. Along with other vehicle manufacturers, we have been the target of asbestos litigation and, as a result, we are a defendant in various actions for injuries claimed to have resulted from alleged contact with certain Ford parts and other products containing asbestos. Plaintiffs in these personal injury cases allege various health problems as a result of asbestos exposure either from (i) component parts found in older vehicles (ii) insulation or other asbestos products in our facilities or (iii) asbestos aboard our former maritime fleet. The majority of these cases have been filed in the state courts in essentially every state in the country.
Most of the asbestos litigation we face involves mechanics or other individuals who have worked on the brakes of our vehicles over the years. Also, in most of asbestos litigation we are not the sole defendant. We believe we are being more aggressively targeted in asbestos suits because many previously targeted companies have filed for bankruptcy. We are prepared to defend these asbestos related cases and, with respect to the cases alleging exposure from our component parts, believe that the scientific evidence confirms our long-standing position that mechanics and others are not at an increased risk of asbestos related disease as a result of exposure to asbestos used in our vehicles.
The extent of our financial exposure to asbestos litigation remains very difficult to estimate. The majority of our asbestos cases do not specify a dollar amount for damages, and in many of the other cases the dollar amount specified is the jurisdictional minimum. The vast majority of these cases involve multiple defendants, with the number in some cases exceeding 100. At the same time, although our annual payout and related defense costs in asbestos cases have not, to date, been substantial, they are increasing and may increase more rapidly in the future. The total number of claims pending against us as of February 28, 2003 is approximately 25,000, compared with approximately 23,000 claims as of December 31, 2002 and 18,000 claims as of December 31, 2001. This, together with the trends in civil litigation toward larger jury verdicts and punitive damages awards, will result in increased costs in 2003 and could result in our costs for asbestos-related claims becoming substantial in the future.
Romo v. Ford. During December, 1994, an action was filed in Superior Court in Stanislaus County, California, alleging that manufacturing and design defects in a 1978 Bronco and failure to warn caused the deaths of three members of the plaintiff's family. The trial in July 1999 resulted in a jury verdict ordering us to pay $290 million in punitive damages and $5 million in compensatory damages, on which interest continues to accrue. Following the trial, the trial judge set aside the punitive damages award based on a finding of misconduct during jury deliberations. On June 28, 2002, the California Court of Appeals reinstated the original jury verdict. In reinstating the verdict, the three-judge appeals panel acknowledged that there was juror misconduct during the early stages of deliberations, but stated that there was no proof that we had been prejudiced by the misconduct or that the jury had ultimately failed to decide the case on the legal instructions given by the trial judge. The appeals court also rejected our contention that the punitive damages were not warranted by the evidence and were, in any event, excessive. An appeal of the appellate court's decision to the California Supreme Court was denied. On January 21, 2003, we filed a petition for certiorari in the United States Supreme Court.
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General. We have received notices under various federal and state environmental laws that we (along with others) may be a potentially responsible party for the costs associated with remediating numerous hazardous substance storage, recycling or disposal sites in many states and, in some instances, for natural resource damages. We also may have been a generator of hazardous substances at a number of other sites. The amount of any such costs or damages for which we may be held responsible could be substantial. The contingent losses that we expect to incur in connection with many of these sites have been accrued and those losses are reflected in our financial statements in accordance with generally accepted accounting principles. However, for many sites, the remediation costs and other damages for which we ultimately may be responsible are not reasonably estimable because of uncertainties with respect to factors such as our connection to the site or to materials there, the involvement of other potentially responsible parties, the application of laws and other standards or regulations, site conditions, and the nature and scope of investigations, studies, and remediation to be undertaken (including the technologies to be required and the extent, duration, and success of remediation). As a result, we are unable to determine or reasonably estimate the amount of costs or other damages for which we are potentially responsible in connection with these sites, although that total could be substantial.
Cleveland Casting Plant. Following an inspection by the Cleveland Local Air Agency (which has been delegated enforcement authority by Ohio EPA), our Cleveland Casting Plant received a notice of violation in July 2002. The NOV alleges that the Plant exceeded a number of its permit limitations, modified its emission sources without first obtaining a permit to install, and did not operate certain process equipment according to permit requirements. If Ford is determined to have violated its permit requirements or Ohio EPA regulations, Ford could be required to pay fines or take other actions, the aggregate cost of which could exceed $100,000.
Paint Class Actions. There are two purported class actions pending against us in Texas and Illinois alleging claims for fraud, breach of warranty, and violations of consumer protection statutes. The Texas case purports to assert claims on behalf of Texas residents who have experienced paint peeling in certain 1984 through 1992 model year Ford vehicles. The Illinois case purports to assert claims on behalf of residents of all states except Louisiana and Texas who have experienced paint peeling on most 1988 through 1997 model year Ford vehicles. Plaintiffs in both cases contend that their paint is defective and susceptible to peeling because we did not use spray primer between the high-build electrocoat ("HBEC") and the color coat. The lack of spray primer allegedly causes the adhesion of the color coat to the HBEC to deteriorate after extended exposure to ultraviolet radiation from sunlight. Plaintiffs in both cases seek unspecified compensatory damages (in an amount to cover the cost of repainting their vehicles and to compensate for alleged diminution in value), punitive damages, attorneys' fees and interest.
In the Texas case, Sheldon, the trial court certified a class of Texas owners who experienced paint peeling because of the alleged defect. That order was reversed by the Texas Supreme Court, but the trial court granted a renewed motion for class certification and certified two classes consisting of original owners of class vehicles who experienced peeling paint and all original owners who paid us or a Ford dealer to repaint their vehicles. Our appeal from this order to the Texas Court of Appeals is pending. In the Illinois case, Phillips, the trial court denied our motion to dismiss and plaintiff's motion for class certification is pending.
Ford/Citibank Visa Class Action. Following the June 1997 announcement of the termination of the Ford/Citibank credit card rebate program, five purported nationwide class actions and two purported statewide class action were filed against us; Citibank is also a defendant in some of these actions. The actions allege damages in an amount up to $3,500 for each cardholder who obtained a Ford/Citibank credit card in reliance on the rebate program and who is precluded from accumulating discounts toward the purchase or lease of new Ford vehicles after December 1997 as a result of the termination of the rebate program. Plaintiffs contend that defendants deceptively breached their contract by unilaterally terminating the
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program, that defendants have been unjustly enriched as a result of the interest charges and fees collected from cardholders, and further, that defendants conspired to deprive plaintiffs of the benefits of their credit card agreement. Plaintiffs seek compensatory damages, or alternatively, reinstatement of the rebate program, and punitive damages, costs, expenses and attorneys' fees. The five purported nationwide class actions were filed in state courts in Alabama, Illinois, New York, Oregon and Washington, and the purported statewide class actions were filed in a California state courts. The Alabama court has conditionally certified a class consisting of Alabama residents. Ford removed all of the cases, except the most recently filed California state court case filed in December 2002, to federal court which consolidated and transferred the cases to federal court in Washington for pretrial proceedings. In October 1999, the federal court dismissed the consolidated proceedings for lack of jurisdiction and sent each action back to the state court in which it originated. We appealed this ruling to the United States Court of Appeals for the Ninth Circuit, which affirmed the trial court. The United States Supreme Court granted our petition for a writ of certiorari but dismissed the writ after oral argument. Five of the cases will be remanded to state courts in Alabama, California, Illinois, New York and Washington. The case in Oregon has been dismissed.
Lease Residual Class Action. In January 1998, in connection with a case pending in Illinois state court, Ford and Ford Credit were served with a summons and intervention counterclaim complaint relating to Ford Credit's leasing practices (Higginbotham v. Ford Credit). The counterclaim plaintiff, Carla Higginbotham, is a member of a class that has been conditionally certified for settlement purposes in Shore v. Ford Credit. In the Shore case, Ford Credit commenced an action for deficiency against Virginia Shore, a Ford Credit lessee. Shore counterclaimed for purported violations of the Truth-in-Leasing Act (alleging that certain lease charges were excessive) and the Truth-in-Lending Act (alleging that the lease lacked clarity). Shore purported to represent a class of all similarly situated lessees. Ford was not a party to the Shore case. Higginbotham objected to the proposed settlement of the Shore case, intervened as a named defendant, filed separate counterclaims against Ford Credit, and joined Ford as an additional counterclaim defendant. Higginbotham asserts claims against Ford Credit for violations of the Consumer Leasing Act, seeks a declaratory judgment concerning the enforceability of early termination provisions in Ford Credit's leases, and asserts fraud. She also asserts a claim against Ford Credit and Ford for conspiracy to violate the Truth-in-Lending Act. The Higginbotham counterclaims allege that Ford Credit inflates the residual values of its leased vehicles, which results in lower monthly lease payments but higher termination fees for lessees who exercise their right of early termination. Higginbotham claims that the early termination fees were not adequately disclosed on the lease form and that the fees are excessive and illegal because of the allegedly inflated residual values. She also alleges that Ford dictated the residual values to Ford Credit and thereby participated in an unlawful conspiracy. This case was stayed pending the approval/rejection of the settlement in Shore. Ford Credit has reached individual settlements with the Shore plaintiffs.
The Illinois court in Higginbotham found that the lease end residual value of Ms. Higginbotham's vehicle was properly valued and, as a result, Ms. Higginbotham was an inadequate representative for the class. Subsequently, Ms. Higginbotham voluntarily dismissed her intervention counterclaim without prejudice in the Illinois state court and has reactivated her initial suit in the Florida federal court, pursuing substantially similar claims on behalf of herself and others similarly situated. Consequently, the Higginbotham case is proceeding in Florida. In addition, Ford Credit has filed a response to plaintiff's motion for class certification and has renewed its motion for summary judgment based on information obtained in discovery. Plaintiffs have filed a Request for Judicial Notice of Newly Discovered Evidence to support their motion for class certification and to oppose our motions for summary judgment.
Retail Lessee Insurance Coverage Class Action. On May 24, 1999, Michigan Mutual Insurance Company was served with a purported class action complaint in federal court in Florida alleging that the Ford Commercial, General Liability and Business Automobile Insurance Policy, and the Personal Auto Supplement to that policy, provides uninsured/underinsured motorist coverage and medical payments coverage to retail lessees of Ford vehicles (e.g., to Red Carpet lessees). We are required to defend and indemnify Michigan Mutual. We believe the complaint rests on an untenable interpretation of the Michigan Mutual policy, which was intended to cover company cars and lease evaluation vehicles. Unfortunately, however, the Florida Court of Appeals in a prior action brought by a single individual, has accepted plaintiffs' interpretation of the policy. The Florida court's opinion should not be controlling in federal court, however, and we have filed a motion for summary judgment based on the policy language
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and the intention of the parties. Plaintiffs responded to our motion, cross-moved for summary judgment in their favor, moved to amend their complaint, and moved for class certification. The federal district court denied our motion to dismiss and our request to certify the question for immediate appeal, but also denied plaintiffs' motion to certify a class. We expect the plaintiffs will renew their motion for class certification.
Throttle Body Assemblies Class Action. A purported nationwide class action is pending in federal court in Ohio on behalf of all persons who own or lease 1999 Mercury Villagers. The complaint alleges that the vehicle has a defective throttle body assembly that causes the gas pedal to intermittently lock or stick in the closed position. The complaint alleges breach of warranty, negligence, and violation of consumer protection statutes. Plaintiffs seek an order requiring us to recall the vehicles. They also seek unspecified compensatory damages, treble damages, attorneys fees, and costs. The trial court has denied plaintiffs' motion to certify a nationwide class, but plaintiffs' motion to certify a statewide class is pending.
Windstar Transmission Class Actions. Two purported class actions are pending, alleging that we marketed, advertised, sold, and leased 1995 Windstars in a deceptive manner by misrepresenting their quality and safety and actively concealing defects in the transmissions. One case is pending in California state court and is limited to owners and lessees of that state. Another case is pending in Illinois state court and purports to represent owners and lessees from all states. Plaintiffs contend that transmissions in the Windstar have prematurely suffered from shifting problems and acceleration failures, requiring early replacement at substantial expense to owners. The cases assert several statutory and common law theories, and seek several types of relief, including unspecified compensatory damages, punitive damages, and injunctive relief. Plaintiffs' have filed a motion for class certification in the California case.
Seat Back Class Actions. Four purported statewide class actions were filed in state courts in Maryland, New Hampshire, New Jersey and New York against Ford, General Motors Corporation and DaimlerChrysler AG alleging that seat backs with single recliner mechanisms are defective. Plaintiffs in each of these suits alleged that seats installed in class vehicles (defined as almost all passenger cars made after 1991) are defective because the seat backs are unstable and susceptible to rearward collapse in the event of a rear-end collision. The purported class in each state consists of all persons who own a class vehicle and specifically excludes all persons who have suffered personal injury as a result of the rearward collapse of a seat. Plaintiffs allege causes of action for negligence, strict liability, implied warranty, fraud, and civil conspiracy. Plaintiffs also allege violations of the consumer protection statutes in the various states. Plaintiffs seek "compensatory damages measured by the cost of correcting the defect, not to exceed $5,000 for each class vehicle." Ford's motions to dismiss were granted in Maryland, New Hampshire, and New York, and Ford's motion for summary judgment was granted in New Jersey. The New Hampshire Supreme Court affirmed the trial court's ruling. The Maryland Court of Appeals (Maryland's highest court) has agreed to review the dismissal of the Maryland case. Plaintiffs' appeals are pending in New York and New Jersey.
Fair Lending Class Action. A purported class action in federal court in New York (Jones) alleges that Ford Credit's pricing practices discriminate against African-Americans. Specifically, plaintiffs allege, "although Ford Credit's initial analysis applies objective criteria to calculate the risk-related 'Buy Rate,' Ford Credit then authorizes a subjective component in its credit pricing system - the Mark-up Policy - to impose additional non-risk charges." A second case, pending in federal court in Nashville (Claybrook v. Primus), contains similar allegations concerning Primus accounts. A third case was filed in the Pennsylvania federal district court in which a Latino community-based organization, Ceiba, Inc., has made similar allegations on behalf of Latino Americans. Ford Credit is only one of several defendants in the Pennsylvania case.
F-150 Radiator Class Actions. Two purported class actions are pending alleging that the Company defrauded purchasers of approximately 400,000 1999-2001 F-150 trucks by falsely representing that certain option packages included "upgraded" radiators. In one case, in state court in Texas, the trial court has certified a nationwide class of all purchasers of 2000 and 2001 F-150 trucks with heavy duty or trailer packages. We are appealing that ruling to the Texas Court of Appeals. Another case
Item 3. Legal Proceedings (Continued)
recently was filed in state court in South Carolina and purports to represent a statewide class. We removed the case to federal court and filed a motion to stay proceedings pending the outcome of the appeal in Texas. Another case, previously pending in state court in New York, has been dismissed and plaintiffs have appealed. Prior to the filing of these suits, we implemented a program that gives affected customers a choice of $100 cash, a $500 coupon, or installation of an upgraded radiator. However, plaintiffs' are alleging that the program should cover additional vehicles and that they should be reimbursed for loss of use of the vehicle while the radiators are being replaced, and that they are entitled to attorney fees.
Platinum Group Metals. A purported nationwide class action has been filed against us in federal court in New York alleging securities fraud and violations of Rule 10b-5 on behalf of all persons who purchased Ford stock between December 1, 1999 and January 12, 2002 (the "class period"). The plaintiff alleges that during the class period we entered into a series of contracts for the purchase of platinum group metals ("PGM") at historically high prices and failed to properly hedge these purchases, thereby exposing us to losses when the price of PGM fell. The plaintiffs allege that we made statements in our public disclosures about our commodity purchase practices and hedging programs that misled investors as to our exposure to loss from PGM purchases. As a result, plaintiffs allege that they purchased Ford stock at inflated prices and were damaged when we "wrote-down" the value of our PGM by $1 billion on a pre-tax basis. Our motion to dismiss for failure to plead fraud or fraudulent intent with sufficient particularity under the Private Securities Litigation Reform Act is pending. Plaintiffs have sought numerous extensions and have not yet filed a response to this motion.
Side Release Seat Belt Buckles. On February 14, 2002, we were served with a purported class action alleging that the side release buckles installed in 1969 through 1998 Ford vehicles are defective because they "could unlatch from inertial forces." The suit was filed in state court in Illinois against General Motors Corporation as well as against Ford, allegedly on behalf of all Illinois owners of vehicles with the defective buckles. The complaint seeks compensatory and punitive damages, including a payment to each class member of the cost of installing different buckles. We filed a motion to dismiss on the basis that the plaintiffs have suffered no injury. That motion was denied on May 21, 2002. We plan to appeal that ruling.
Focus Fuel Delivery Module Class Action. On April 17, 2002, a purported nationwide class action was filed against us in state court in New Jersey on behalf of all persons who own or lease 2000-2002 Ford Focus vehicles. The complaint alleges that the fuel delivery module in these vehicles is defective and causes a loss of power on acceleration and stalling. The complaint alleges consumer fraud, breach of warranty and unjust enrichment. Plaintiffs seek rescission of their contracts, compensatory damages, punitive damages, an injunction, and attorney fees.
Crown Victoria Police Interceptor Class Actions. A total of nineteen purported class actions have been filed on behalf of government entities that own Ford Crown Victoria Police Interceptors, alleging that the vehicles are susceptible to fuel leaks and fires when struck from the rear at high speed. Sixteen of the actions have been consolidated into a Multi District Litigation ("MDL") proceeding in the U.S. District Court, Northern District of Ohio. The three remaining actions are pending in Illinois and Louisiana (two cases). We have removed these actions to federal court, and we are requesting that they be consolidated into the MDL proceeding. Of the nineteen purported class actions, two purport to represent a nationwide class; the other cases purport to represent statewide classes. The complaints seek a recall of the affected vehicles, an injunction, compensatory and punitive damages and other relief. Five additional purported class actions relating to non-police Ford Crown Victoria vehicles, with similar allegations and demands for relief, have been filed in Arkansas, Illinois and Ohio. The Arkansas and New Jersey cases purport to represent a nationwide class; the others purport to represent owners in the relevant state.
Apartheid Class Actions. We and scores of other United States and European corporations have been named as defendants in purported class action litigation filed in federal court in New York on behalf of South African citizens who suffered alleged "crimes against humanity" and other forms of violence and oppression under the apartheid regime. The legal theories asserted in this litigation are similar to the legal theories advanced in the previously-reported WWII forced and slave labor lawsuits, which resulted
Item 3. Legal Proceedings (Continued)
in the formation of a humanitarian fund pursuant to a multi-national accord. The current lawsuit alleges that we and other automobile manufacturers (including General Motors Corporation and DaimlerChrysler AG) helped perpetuate the apartheid regime by selling vehicles to the South African military and police. This matter is in the early stage of litigation and we are preparing our response.
Hydroboost Truck Brake Class Action. A purported class action was filed on August 2, 2002 in state court in Oklahoma on behalf of all purchasers of 1999 through 2002 model year F-250, F-350, F-450, and F-550 Ford Super Duty Trucks and 2002 Excursions with hydroboost hydraulic braking systems. The complaint alleges that these trucks are unsafe because they suffer diminished power assist to the brakes or steering when the driver is simultaneously braking and steering. The complaint alleges breach of warranty and fraud, and seeks the cost of retrofitting the trucks to eliminate the alleged danger, compensation for diminished resale value, and other relief. We removed the case to federal court, but it was remanded to state court.
Focus Brake Wear Class Action. A purported class action was filed in state court in California on July 23, 2002 on behalf of all persons who own or lease 2000 and 2001 model year Ford Focus vehicles. The complaint alleges that the front brake pads and rotors wear out prematurely, resulting in repair bills and damage to other components of the vehicles. The complaint alleges breach of warranty, misrepresentation and unfair competition. Plaintiffs seek an injunction, restitution of amounts paid for the vehicles, and other relief. We removed the case to federal court, however, the court has remanded the case to state court.
Kingsford Class Action. On October 8, 2002, a purported class action was filed against us and Kingsford Products Company in state court in Dickinson County, Michigan. The purported class consists of approximately 900 property owners in the Kingsford, Michigan area. The lawsuit seeks damages for diminution in property values and emotional distress as a result of environmental issues in the area allegedly related to our former automobile parts, chemical distillation and charcoal production plant in Kingsford, Michigan. We and Kingsford Products have been cooperating with the State of Michigan Department of Environmental Quality to investigate and address environmental issues in the area.
Fifteen-Passenger Van Class Action. On December 9, 2002, we received a
summons and complaint filed in state court in Harris County, Texas, alleging
that we breached express warranties and committed unfair and deceptive trade
practices by selling fifteen-passenger vans that "cannot safely transport more
than nine persons." This allegation is based upon warnings and recommendations
issued by the federal government with respect to fifteen-passenger vans and the
relatively higher rate of rollovers experienced by this class of vehicles in
comparison to passenger cars, especially when they are fully loaded and driven
at high speed. The complaint alleges a national class of persons who purchased
fifteen-passenger vans within the last four years and a subclass of purchasers
who currently reside in Texas and currently own fifteen-passenger vans
manufactured between 1990 and the present. The complaint seeks actual and
multiple damages for the alleged "difference between the value of a van which
can safely carry 15 passengers and one which can safely transport no more than
9." In the alternative, the complaint seeks "to have the Defendants
modify/repair their existing `15 passenger vans' and to provide training to all
drivers of such vans so that such vans can be used as warranted." The complaint
also seeks exemplary damages, attorney's fees, costs and interest. On January
15, 2003, we received a summons and complaint in a second case, also in state
court in Texas, containing similar allegations. We have removed these cases to
federal court and intend to file a motion to dismiss.
Rouge Powerhouse Insurance Litigation. Factory Mutual Insurance Company, an insurer of Rouge Steel Company, filed an action against us in March 2000. The action seeks damages for claims paid out for property damage and business interruption losses experienced by Rouge Steel Company as a result of the 1999 Rouge Powerhouse explosion. Total claims in the action exceed $340 million. The insurer alleges that the Powerhouse explosion was caused by our negligence, gross negligence and/or willful and wanton misconduct. This action was moved to arbitration, and closing arguments in the
Item 3. Legal Proceedings (Continued)
arbitration occurred in November 2002. We are awaiting a decision from the arbitration panel. (Additional claims by other insurers and suppliers of Rouge Steel that totaled over $45 million were dismissed prior to the arbitration hearing.) In addition, seventeen Ford employees and two Rouge Steel employees also have filed lawsuits seeking recovery for alleged psychological injuries caused as a result of the explosion. These actions are pending in state court in Michigan.
Scrap Materials Litigation. In August 2002, Technology Recycling Corporation, doing business as Eclipse Technology, filed a lawsuit in Wayne County Circuit Court against us and a subsidiary alleging breach of contract and tortious interference with contract based upon our recent termination of our Master Service Agreements and other sales agreements with Eclipse. Eclipse contends that it has a five-year contract requiring us to provide Eclipse all scrap and blemished materials from all of our facilities in North America. We have denied that we have any such contractual obligation with Eclipse.
Antitrust Class Action. During February and early March 2003, eleven antitrust class actions were filed in federal courts in California, Illinois, Massachusetts, Florida, and New York (seven cases) and six antitrust class actions were filed in state courts in California (four cases), Arizona, and New York against us, Ford Motor Company of Canada, and several other motor vehicle manufacturers and their U.S. and Canadian affiliates ("defendants"). Plaintiffs in these cases purport to represent a nationwide class consisting of all persons who purchased a new car manufactured by one of defendants after January 1, 2001. Plaintiffs allege that defendants violated the law by entering into agreements in restraint of trade to "prevent new cars sold in Canada from being imported into the United States." Plaintiffs allege that by so doing, the new car manufacturers maintained prices in the United States at an artificially high level, causing plaintiffs and members of the class to pay more for new cars than they would have in the absence of the alleged wrongdoing. Plaintiffs seek treble damages in these actions.
Not required.
Our executive officers and their positions and ages at March 14, 2003 unless otherwise noted, are shown in the table below:
Present Position
Name Position Held Since Age
---- -------- ---------- ---
William Clay Ford, Jr.* Chairman of the Board and October 2001 45
Chief Executive Officer
Nicholas V. Scheele** President and Chief October 2001 59
Operating Officer
(also a Director)
Allan D. Gilmour Vice Chairman and May 2002 68
Chief Financial Officer
Carl E. Reichardt*** Vice Chairman (also a Director) October 2001 71
James J. Padilla Executive Vice President and December 2002 56
President, North America
John M. Rintamaki Chief of Staff January 2000 61
David W. Thursfield Executive Vice President-- December 2002 57
International Operations and
Global Purchasing
Mark Fields Group Vice President-- July 2002 42
Premier Automotive Group
Roman J. Krygier Group Vice President-- November 2001 60
Manufacturing and Quality
James G. O'Connor Group Vice President-- May 2002 60
North America Marketing,
Sales and Service
Richard Parry-Jones Group Vice President,
Product Development
and Chief Technical Officer August 2001 51
Greg C. Smith Group Vice President-- October 2002 51
(Chairman, President &
Chief Executive Officer,
Ford Motor Credit Company)
Martin B. Zimmerman Group Vice President-- November 2001 56
Corporate Affairs
Joe W. Laymon Vice President-- November 2001 50
Corporate Human Resources
35
|
Item 4A. Executive Officers of Ford (Continued)
Donat R. Leclair Vice President and Controller November 2001 51
Dennis E. Ross Vice President and October 2000 52
General Counsel
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** Also a member of the Office of the Chairman and Chief Executive Committee of the Board of Directors.
*** Also Chair of the Finance Committee and a member of the Office of the Chairman and Chief Executive Committee of the Board of Directors.
All of the above officers, except those noted below, have been employed by Ford or its subsidiaries in one or more capacities during the past five years. Described below are the positions (other than those with Ford or its subsidiaries) held by those officers who have not been with Ford or its subsidiaries for five years:
o Mr. Gilmour previously served as Ford's Chief Financial Officer from 1986 to 1987 and as a Vice Chairman from 1993 until his retirement after 34 years with Ford in 1995. Mr. Gilmour also owns a Ford-franchised automotive dealership.
o Mr. Reichardt served as Chairman and Chief Executive Officer of Wells Fargo & Company from 1983 until his retirement in 1994. He joined Wells Fargo in 1970 and was elected president in 1978 and chief operating officer in 1981. He was elected a director of Ford Motor Company in 1986.
o Mr. Laymon was Vice President, US and Canada Region and Director, Human Resources, Worldwide Regions, for Eastman Kodak Company from 1996 to 2000.
Under Ford's By-Laws, the executive officers are elected by the Board of Directors at the Annual Meeting of the Board of Directors held for this purpose. Each officer is elected to hold office until his or her successor is chosen or as otherwise provided in the By-Laws.
PART II
Our Common Stock is listed on the New York and Pacific Coast Stock Exchanges in the United States and on certain stock exchanges in Belgium, France, Germany, Switzerland and the United Kingdom.
The table below shows the high and low sales prices for our Common Stock and the dividends we paid per share of Common and Class B Stock for each quarterly period in 2002 and 2001.
2002 2001
----------------------------------------- ------------------------------------------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
Common Stock price per share*
High $17.29 $18.23 $16.24 $11.91 $31.37 $31.42 $25.93 $19.08
Low 13.90 14.88 9.24 6.90 23.75 23.50 14.70 14.83
Dividends per share of
Common and Class B Stock* $0.10 $0.10 $0.10 $0.10 $0.30 $0.30 $0.30 $0.15
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As of February 28, 2003, stockholders of record of Ford included 190,109 holders of Common Stock (which number does not include 28,945 former holders of old Ford Common Stock who have not yet tendered their shares pursuant to our recapitalization, known as the Value Enhancement Plan, which became effective on August 9, 2000) and 102 holders of Class B Stock.
We sold or issued shares of our Common Stock during the past three years in private transactions that were not registered with the Securities and Exchange Commission as follows:
2002 2001 2000
------------------ ------------------ ----------------
2,131,411 shares* 188,919 shares 730,854 shares
-----------------------
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* Of these shares, 1,485,864 shares were disclosed in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, and 36,156 shares were disclosed in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2002.
These shares were sold or issued in transactions that were exempt from registration requirements because they were private placements under Section 4(2) of the Securities Act of 1933, as amended. All of the shares issued in 2002 and 2001 and 230,334 of the shares issued in 2000 were issued to various directors, officers and other executives of the Company pursuant to their compensation plans or agreements. The remaining 500,520 shares issued in 2000 were sold in several, unrelated transactions to owners of automotive dealerships, automotive recycling businesses, and other businesses in exchange for those businesses. The consideration we received for these shares was equal to the market value of the shares at the time of the transactions.
The following tables set forth selected financial data and other data concerning Ford for each of the last five years (dollar amounts in millions, except per share amounts). The data (except for employment data) have been reclassified for discontinued and held-for-sale operations, which are described in Note 3 of the Notes to our Financial Statements.
SUMMARY OF OPERATIONS
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Automotive sector
Sales $134,425 $130,827 $140,777 $135,029 $118,017
Operating income/(loss) (531) (7,395) 5,288 7,186 5,376
Income/(loss) before income taxes (1,156) (8,862) 5,323 7,292 5,842
Net income/(loss) from continuing operations (987) (6,155) 3,664 4,996 4,049
Financial Services sector
Revenues $ 28,161 $ 29,927 $ 28,314 $ 25,162 $ 25,011
Income/(loss) before income taxes 2,109 1,440 2,976 2,565 18,415
Net income/(loss) from continuing operations a/,b/ 1,271 806 1,792 1,508 17,333
Total Company
Income/(loss) before income taxes $ 953 $(7,422) $ 8,299 $ 9,857 $ 24,257
Provision/(credit) for income taxes 302 (2,097) 2,720 3,243 2,723
Minority interests in net income of subsidiaries 367 24 123 110 152
-------- -------- -------- -------- --------
Income/(loss) from continuing operations a/ 284 (5,349) 5,456 6,504 21,382
Income/(loss) from discontinued/held-for-sale operations (63) (104) 263 733 689
Loss on disposal of discontinued/held-for-sale operations (199) - (2,252) - -
Cumulative effects of change in accounting principle (1,002) - - - -
-------- -------- -------- -------- --------
Net income/(loss) $ (980) $(5,453) $ 3,467 $ 7,237 $ 22,071
======== ======== ======== ======== ========
Total Company Data Per Share of Common
and Class B Stock b/
Basic:
Income/(loss) from continuing operations $ 0.15 $ (2.96) $ 3.69 $ 5.38 $ 17.60
Income/(loss) from discontinued/held-for sale operations (0.04) (0.06) 0.18 0.61 0.57
Loss on disposal of discontinued/held-for-sale operations (0.11) - (1.53) - -
Cumulative effects of change in accounting principle (0.55) - - - -
Net income/(loss) (0.55) (3.02) 2.34 5.99 18.17
Diluted:
Income/(loss) from continuing operations $ 0.15 $ (2.96) $ 3.62 $ 5.26 $ 17.20
Income/(loss) from discontinued/held-for sale operations (0.03) (0.06) 0.17 0.60 0.56
Loss on disposal of discontinued/held-for-sale operations (0.11) - (1.49) - -
Cumulative effects of change in accounting principle (0.55) - - - -
Net income/(loss) (0.54) (3.02) 2.30 5.86 17.76
Cash dividends c/ $0.40 $ 1.05 $ 1.80 $ 1.88 $ 1.72
Common stock price range (NYSE Composite)
High 18.23 31.42 31.46 37.30 33.76
Low 6.90 14.70 21.69 25.42 15.64
Average number of shares of Common and
Class B stock outstanding (in millions) 1,819 1,820 1,483 1,210 1,211
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Item 6. Selected Financial Data (Continued)
SUMMARY OF OPERATIONS
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Total Company Balance
Sheet Data at Year-End
Assets
Automotive sector $107,790 $ 88,319 $ 94,312 $ 99,201 $ 83,911
Financial Services sector 187,432 188,224 189,078 171,048 148,801
-------- -------- -------- -------- --------
Total assets $295,222 $276,543 $283,390 $270,249 $232,712
======== ======== ======== ======== ========
Long-term debt
Automotive $ 13,607 $ 13,467 $ 11,769 $ 10,398 $ 8,589
Financial Services 106,529 107,031 86,877 67,178 55,092
Stockholders' equity 5,590 7,786 18,610 27,604 23,434
Total Company Facility
and Tooling Data
Capital expenditures for
facilities (excluding special tools) $ 4,174 $ 4,615 $ 5,315 $ 4,332 $ 4,369
Depreciation 12,676 15,453 12,561 11,846 10,890
Expenditures for special tools 3,104 2,337 3,033 3,327 3,388
Amortization of special tools 2,461 3,265 2,451 2,459 2,880
Total Company Employee
Data - Worldwide
Payroll $ 18,319 $ 17,810 $ 18,227 $ 18,512 $ 16,757
Total labor costs 23,871 23,937 25,940 26,953 25,606
Average number of employees 350,321 358,675 352,380 375,214 342,545
Total Company Employee
Data - U.S. Operations
Payroll $ 11,301 $ 11,084 $ 11,288 $ 11,473 $ 10,548
Average number of employees 161,868 165,787 165,081 173,120 171,269
Average hourly labor costs f/
Earnings $ 29.34 $ 27.38 $ 26.73 $ 25.58 $ 24.30
Benefits 23.31 20.35 21.71 21.79 21.42
-------- ------- -------- --------- --------
Total hourly labor costs $ 52.65 $ 47.73 $ 48.44 $ 47.37 $ 45.72
======== ======= ======== ======== ========
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f/ Per hour worked (in dollars). Excludes data for subsidiary companies.
Item 6. Selected Financial Data (Continued)
SUMMARY OF VEHICLE UNIT SALES a/
(in thousands) 2002 2001 2000 1999 1998
---- ---- ---- ---- ----
North America
United States
Cars 1,454 1,427 1,775 1,725 1,563
Trucks 2,493 2,458 2,711 2,660 2,425
----- ----- ----- ----- -----
Total United States 3,947 3,885 4,486 4,385 3,988
Canada 280 245 300 288 279
Mexico 175 162 147 114 103
----- ----- ----- ----- -----
Total North America 4,402 4,292 4,933 4,787 4,370
Europe
Britain 592 637 476 518 498
Germany 327 383 320 353 444
Italy 245 249 222 209 205
Spain 169 178 180 180 155
France 150 163 158 172 171
Other countries 520 551 526 528 377
----- ----- ----- ----- -----
Total Europe 2,003 2,161 1,882 1,960 1,850
Other international
Brazil 148 125 134 117 178
Australia 117 115 125 125 133
Taiwan 65 53 63 56 77
Argentina 25 29 49 60 97
Japan 32 36 26 32 25
Other countries 181 197 212 83 93
----- ----- ----- ----- -----
Total other international 568 555 609 473 603
Total worldwide vehicle ----- ----- ----- ----- -----
unit sales 6,973 7,008 7,424 7,220 6,823
===== ===== ===== ===== =====
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The presentation below, consistent with our prior periodic reports, provides a geographic split of our Automotive operations, reflecting the results of our various automotive affiliates grouped by legal domicile.
The results of our continuing operations exclude the results of discontinued and held-for-sale operations, which are described in Note 3 of the Notes to our Financial Statements.
FOURTH QUARTER 2002 RESULTS OF OPERATIONS
Our worldwide losses were $130 million in the fourth quarter of 2002, or $0.07 per diluted share of Common and Class B Stock. In the fourth quarter of 2001, losses were $5,068 million, including charges of $4,106 million primarily related to our Revitalization Plan, or $2.81 per diluted share. Worldwide sales and revenues were $41.6 billion in the fourth quarter of 2002, up $869 million, reflecting primarily improvement in net pricing and mix. Unit sales of cars and trucks were 1,791,000, down 21,000 units, due to reduced U.S. and European industry volume, and reduced U.S. market share, partially offset by a fourth quarter 2002 increase in U.S. dealer inventories (23,000 units) and the non-recurrence of a reduction in U.S. dealer inventories in the fourth quarter of 2001 (101,000 units).
Results of our operations by business sector for the fourth quarter of 2002 and 2001 are shown below (in millions):
Fourth Quarter
Net Income/(Loss)
------------------------------------
2002
Over/(Under)
2002 2001 2001
--------- ----------- ------------
Automotive sector $ (342) $(4,667) $ 4,325
Financial Services sector 331 (364) 695
------- ------- -------
Income/(loss) from continuing operations (11) (5,031) 5,020
Income/(loss) from discontinued and held-for-sale operations * (15) (37) 22
Loss on disposal of discontinued and held-for-sale operations * (104) - (104)
------- ------- -------
Total Company net income/(loss) $ (130) $(5,068) $ 4,938
======= ======= =======
|
Worldwide losses for our Automotive sector were $342 million in the fourth quarter of 2002 on sales of $34.7 billion. Losses in the fourth quarter of 2001 were $4,667 million on sales of $33.6 billion.
Details of our geographic Automotive sector operations for the fourth quarter of 2002 and 2001 are shown below (in millions):
Fourth Quarter
Income/(Loss) from Continuing Operations
-----------------------------------------
2002
Over/(Under)
2002 2001 2001
---------- ------------ ---------------
North American Automotive $ (49) $(4,024) $ 3,975
Automotive Outside North America
- Europe (363) 59 (422)
- South America (11) (598) 587
- Rest of World 81 (104) 185
------- ------- -------
Total Automotive Outside North America (293) (643) 350
------- ------- -------
Total Automotive sector $ (342) $(4,667) $ 4,325
======= ======= =======
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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
The improved fourth quarter results in our North American automotive
operations reflected primarily the non-recurrence of the 2001 asset impairments
and other one-time charges that were primarily related to our Revitalization
Plan, as well as improvements in cost performance (primarily lower costs related
to warranty coverages and additional service actions), net revenue and vehicle
mix. These were offset partially by lower unit sales volume in 2002 due
primarily to lower U.S. industry demand (down 400,000 units to 17.1 million
units on a seasonally adjusted annual basis) and lower market share (down 1.6
percentage points to 21.2%) for Ford, Lincoln and Mercury brand vehicles,
compared with 2001 levels.
The decrease in fourth quarter results in Europe reflected charges related to restructuring actions involving our Ford-brand Europe and Premier Automotive Group operations, as well as a less favorable vehicle mix and lower production for dealer inventories. These were partially offset by a higher European market share (up 0.6 percentage points to 10.6%) for all vehicle brands.
The fourth quarter restructuring charges in Europe discussed above totaled $117 million for Ford-brand operations and $106 million for Premier Automotive Group operations, with each primarily reflecting employee separation costs. In the case of Ford-brand operations, the employee separation costs were incurred primarily in preparation for the planned transfer of production of the Transit vehicle from our Genk, Belgium facility to a facility owned by an unconsolidated joint venture in Turkey - Ford Otosan - in which we have a 41% equity interest.
Our Automotive sector losses in South America were $11 million from operations in the fourth quarter of 2002, compared with a loss of $598 million for the same period one year ago. The improvement reflected primarily the non-recurrence of the 2001 asset impairments and other restructuring charges that were largely related to our Revitalization Plan and the reversal of accruals related to trade tariffs as a result of the settlement between Brazil and Argentina of MERCOSUR trade balance rules. The results also reflected improved operating fundamentals, partially offset by lower industry volumes. The earnings improvement of $185 million in Rest of World reflected primarily the non-recurrence of a Mazda pension-related charge in the fourth quarter of 2001.
Details of our Financial Services sector earnings from continuing operations are shown below (in millions):
Fourth Quarter
Income/(Loss) from Continuing Operations
-----------------------------------------
2002
Over/(Under)
2002 2001 2001
---------- --------- ------------------
Ford Credit $ 372 $(301) $ 673
Hertz 16 (58) 74
Minority interests and other (57) (5) (52)
----- ----- -----
Total Financial Services sector $ 331 $(364) $ 695
===== ===== =====
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Ford Credit's consolidated income from continuing operations in the fourth quarter of 2002 was $372 million, compared with a loss of $301 million in 2001, which included charges associated with the Revitalization Plan ($204 million). Apart from the non-recurrence of last year's Revitalization Plan charges, the improvement reflected a lower provision for credit losses, lower charges from hedging activities, and the net favorable impact of receivables sales, offset partially by lower net financing margins.
Earnings at Hertz in the fourth quarter of 2002 were $16 million, compared with a loss of $58 million a year ago. The profit increase was primarily due to improved worldwide car rental volume and pricing, the continued recovery from the adverse impact the terrorist attacks of September 11, 2001 had on business travel during the fourth quarter of 2001, and cost reductions.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Included in the $57 million loss for "minority interests and other" within the Financial Services sector incurred in the fourth quarter of 2002 is an after-tax charge related to our equity interest in a partnership that holds diversified financing assets. This partnership owns leased assets, primarily leveraged leases involving aircraft, power generation, rail, shipping, and telecommunications equipment. These are assets that we retained in connection with our sale of the assets of USL Capital Corporation in 1996. The charge, totaling $40 million after-tax, is specifically related to aircraft leases to United Airlines (twelve aircraft), which is in bankruptcy.
FULL-YEAR 2002 RESULTS OF OPERATIONS
Our worldwide sales and revenues were $162.6 billion in 2002, up $1.8 billion from 2001. The increase is explained by higher Automotive revenues, reflecting higher unit sales volume and improved vehicle mix in North America, partially offset by lower financial services revenues resulting from increased sales of receivables. We sold 6,973,000 cars and trucks in 2002, down 35,000 units from 2001.
Results of our operations by business sector for 2002, 2001, and 2000 are shown below (in millions):
Automotive Sector Financial Services Sector Total
----------------------------- ----------------------------- ----------------------------
2002 2001 2000 2002 2001 2000 2002 2001 2000
--------- --------- --------- --------- --------- --------- --------- --------- --------
Income/(loss) from continuing
operations $ (987) $(6,155) $ 3,664 $1,271 $ 806 $ 1,792 $ 284 $(5,349) $ 5,456
Income/(loss) from discontinued and
held-for-sale operations
(93) (112) 269 30 8 (6) (63) (104) 263
Loss on disposal of discontinued and
held-for-sale operations
(168) - (2,252) (31) - - (199) - (2,252)
Cumulative effect of change in
accounting principle * (708) - - (294) - - (1,002) - -
------- ------- ------- ------ ------ ------- ------- ------- -------
Total Company net income/(loss)
$(1,956) $(6,267) $ 1,681 $ 976 $ 814 $ 1,786 $ (980) $(5,453) $ 3,467
======= ======= ======= ====== ====== ======= ======= ======= =======
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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
The following unusual items were included in our 2002, 2001, and 2000 income from continuing operations (in millions):
Automotive Sector
------------------------------------------------------------
Rest Total Financial
North South of Auto Services
America Europe America World Sector Sector
------------ ---------- ------------- --------- ------------ ------------
2002
----
- Derivative instruments (SFAS No. 133) ongoing
effects $ (57) $ (57) $ (141)
- Interest income on U.S. federal tax refund 142 142
- Loss on sale of Kwik-Fit and other businesses (15) $ (510) (525)
- European end-of-life accrual (46) (46)
- Europe and PAG restructuring (223) (223)
------- ------- ------- ------ ------- -------
Total 2002 unusual items $ 70 $ (779) $ - $ - $ (709) $ (141)
======= ======= ======= ====== ======= =======
------------------------------------------------------------------------------------------------------------------------------------
2001
----
- Derivative instruments (SFAS No. 133)
transition adjustment and ongoing effects $ (95) $ (95) $ (157)
- Mazda restructuring actions in the second
quarter $ (114) (114)
- Write-down of E-commerce and Automotive-
related ventures in the third quarter (199) (199)
- Revitalization Plan and other fourth quarter
charges * (3,149) $ (552) (201) (3,902) (204)
------- ------- ------- ------ ------- -------
Total 2001 unusual items $(3,443) $ - $ (552) $ (315) $(4,310) $ (361)
======= ======= ======= ====== ======= =======
------------------------------------------------------------------------------------------------------------------------------------
2000
----
- Asset impairment and restructuring costs for
Ford-brand operations in Europe in the
second quarter $(1,019) $(1,019)
- Inventory-related profit reduction for Land
Rover in the third quarter $ (13) (76) $ (17) (106)
- Write-down of assets associated with the
Nemak joint venture in the fourth quarter (133) (133)
------- ------- ------- ------ ------- -------
Total 2000 unusual items $ (146) $(1,095) $ - $ (17) $(1,258) $ -
======= ======= ======= ====== ======= =======
|
We established and communicated the financial milestones for 2002. Our results against these milestones, excluding the unusual items described above, are listed below.
2002 Milestone Achieved
-------------- --------
Restructuring Priorities
------------------------
Communicate/implement plans Report on progress Yes
Quality (U.S.) Improve J.D. Power Initial Quality Survey Yes
Capacity utilization (North America) Improve by 10% Yes
Non-product-related cost Reduce by $2 billion Yes
Divest non-core operations $1 billion cash realization Yes *
Financial Results
-----------------
Corporate
Pre-tax earnings Positive Yes
Capital spending $7 billion Yes
Europe Improve results No
South America Improve results No
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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
AUTOMOTIVE SECTOR RESULTS OF OPERATIONS
Details of our Automotive sector geographic earnings from continuing operations for 2002, 2001, and 2000 are shown below (in millions):
Income/(Loss)from Continuing
Operations
-----------------------------------
2002 2001 2000
------------ ----------- ----------
North American Automotive $ (278) $(5,488) $ 4,909
Automotive Outside North America
- Europe (725) 268 (1,115)
- South America (295) (776) (236)
- Rest of World 311 (159) 106
------- ------- -------
Total Automotive Outside North America (709) (667) (1,245)
------- ------- ------
Total Automotive sector $ (987) $(6,155) $ 3,664
======= ======= =======
|
Worldwide losses from continuing operations for our Automotive sector were $987 million in 2002 on sales of $134.4 billion, compared with losses of $6,155 million in 2001 on sales of $130.8 billion.
Our automotive sector losses from continuing operations in North America were $278 million in 2002 on sales of $94.1 billion, compared with losses of $5,488 million in 2001 on sales of $90.8 billion. The improvement in earnings reflected primarily the non-recurrence of the 2001 asset impairments and other one-time charges largely related to our Revitalization Plan, as well as the non-recurrence of costs related to our 2001 Firestone tire replacement action (about $2 billion). Additionally, profits improved due to achievement of our 2002 milestone to reduce non-product costs by $2 billion and the replenishment of dealer inventories in the U.S., which were unusually low at year-end 2001. These improvements were partially offset by increased product-related costs and lower market share. Net pricing (per vehicle, at constant mix) was about the same as 2001 levels, with pricing improvements being offset by higher variable marketing costs.
In 2002, approximately 17.1 million new cars and trucks were sold in the United States, down from 17.5 million units in 2001. Our share of those unit sales was 21.1% in 2002, down 1.7 percentage points from a year ago. The decline in market share reflected a number of factors, including an increase in the number of new competitive product offerings and our discontinuation of four vehicle lines (Mercury Cougar, Mercury Villager, Lincoln Continental and most models of the Ford Escort). Marketing costs for our Ford, Lincoln and Mercury brands increased to 15.8% of sales of those brands, up from 14.7% a year ago, reflecting continuing competitive pressures in the United States.
Our automotive sector losses in Europe were $725 million from continuing operations in 2002, compared with earnings of $268 million a year ago. The decrease reflected primarily the loss related to our sale of Kwik-Fit, charges related to restructuring actions involving our Ford-brand Europe and Premier Automotive Group operations (discussed above), as well as a less favorable vehicle mix primarily at Jaguar and lower production to reduce dealer inventories.
In 2002, approximately 17.2 million new cars and trucks were sold in our nineteen primary European markets, down from 17.8 million units in 2001. Our share of those unit sales was 10.9% in 2002, up 0.3 percentage points from a year ago, due primarily to share improvement for Ford-brand vehicles (up 0.1 percentage points to 8.7%), Jaguar brand vehicles (up 0.1 percentage points to 0.3%) and Volvo brand vehicles (up 0.1 percentage points to 1.4%).
Our Automotive sector losses from continuing operations in South America were $295 million in 2002, compared with losses of $776 million in 2001. The improvement reflected primarily the non-recurrence of the 2001 asset impairments and other one-time charges largely related to our Revitalization Plan. The results also reflected the adverse effects of currency devaluation, partially offset by continuing improvement in operating fundamentals.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
In 2002, approximately 1.5 million new cars and trucks were sold in Brazil, compared with 1.6 million in 2001. Our share of those unit sales was 10.3% in 2002, up 2.1 percentage points from a year ago. The increase in market share reflected market acceptance of our new Ford Fiesta model and strong sales performance.
Automotive sector earnings from continuing operations outside North America, Europe, and South America ("Rest of World") were $311 million in 2002, compared with losses of $159 million in 2001. The improvement reflected primarily the non-recurrence of the 2001 pension and restructuring related charges at Mazda, as well as net revenue and volume improvements throughout our Asia Pacific operations and operating improvements at Mazda.
New car and truck sales in Australia, our largest market in Rest of World, were approximately 824,000 units in 2002, up about 51,000 units from a year ago. In 2002, our combined car and truck market share in Australia was 14.3%, down 0.8 percentage points from 2001, reflecting primarily strong competitive pressures in the small car segment and the truck segment.
Worldwide losses from continuing operations for our Automotive sector were $6,155 million in 2001 on sales of $130.8 billion, compared with earnings of $3,664 million in 2000 on sales of $140.8 billion. Adjusted for constant volume and mix and excluding unusual items and costs related to our Firestone tire replacement action, our total costs in the Automotive sector increased $1.0 billion compared with 2000.
Our Automotive sector losses from continuing operations in North America were $5,488 million in 2001 on sales of $90.8 billion, compared with earnings of $4,909 million in 2000 on sales of $103.8 billion. The earnings deterioration reflected primarily lower vehicle unit sales volumes, the charges associated with the Revitalization Plan and the other charges outlined above, significantly increased marketing costs, costs associated with the Firestone tire replacement action and increased costs associated with warranty and additional service actions.
In 2001, approximately 17.5 million new cars and trucks were sold in the United States, down from 17.8 million units in 2000. Our share of those unit sales was 22.8% in 2001, down 0.9 percentage points from a year ago, due primarily to increased competition resulting from new model entrants into the truck and sport utility vehicle segments, as well as the continued weakness of the Japanese yen, which creates favorable pricing opportunities for our Japanese competitors. Marketing costs for our Ford, Lincoln and Mercury brands increased to 14.7% of sales of those brands, up from 11.1% a year ago, reflecting increased competitive pricing in the form of subsidized financing and leasing programs (such as 0.0% financing during the fourth quarter), cash rebates and other incentive programs.
Our Automotive sector earnings in Europe were $268 million from continuing operations in 2001, compared with losses of $1,115 million a year ago. The increase reflected the non-recurrence of the 2000 charge related to asset impairments and restructuring, as well as increased vehicle unit sales and the effect on depreciation from last year's asset impairment and restructuring actions.
In 2001, approximately 17.8 million new cars and trucks were sold in our nineteen primary European markets, down from 17.9 million units in 2000. Our share of those unit sales was 10.7% in 2001, up 0.7 percentage points from a year ago, reflecting increased sales of new Ford-brand Mondeo and Transit models and our acquisition of Land Rover.
Our Automotive sector losses in South America were $776 million from continuing operations in 2001, compared with a loss of $236 million in 2000. The decrease is more than explained by asset impairment charges and the devaluation of the Argentine peso.
In 2001, approximately 1.6 million new cars and trucks were sold in Brazil, compared with 1.5 million in 2000. Our share of those unit sales was 8.2% in 2001, down 1.4 percentage points compared
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
with 2000. The decline in market share reflected new and existing manufacturers who are aggressively competing for market share.
Automotive sector losses from continuing operations outside North America, Europe, and South America ("Rest of World") were $159 million in 2001, compared with earnings of $106 million in 2000. The earnings deterioration reflected Ford's share of a non-cash charge relating to Mazda's pension expenses and other restructuring actions at Mazda.
New car and truck sales in Australia, our largest market in Rest of World, were approximately 773,000 units in 2001, down about 14,000 units from a year ago. In 2001, our combined car and truck market share in Australia was 15.1%, down 0.6 percentage points from 2000, reflecting primarily share deterioration in the full-size car segment due to continued aggressive competition.
FINANCIAL SERVICES SECTOR RESULTS OF OPERATIONS
Our Financial Services sector consists primarily of two segments, Ford Credit and Hertz. Details of our Financial Services sector earnings from continuing operations for 2002, 2001, and 2000 are shown below (in millions):
Income/(Loss)from
Continuing Operations
------------------------------------
2002 2001 2000
----------- ----------- ------------
Ford Credit $1,235 $ 831 $1,542
Hertz 127 23 358
Minority interests and other (91) (48) (108)
------ ------ ------
Total Financial Services sector $1,271 $ 806 $1,792
====== ====== ======
|
Ford Credit's consolidated income from continuing operations was $1,235 million, up $404 million from 2001. Apart from the non-recurrence of last year's Revitalization Plan charges, the improvement in earnings reflected primarily a lower provision for credit losses, offset partially by the net unfavorable impact of receivable sales and lower net financing margins.
Revenue from the sale of finance receivables includes the gain on sales of finance receivables through securitizations and whole-loan sale transactions and servicing fee income from sold receivables that Ford Credit continues to service. Gains or losses on sales of receivables are recognized in the period in which they are sold. In addition, the sale of finance receivables through securitization transactions provides revenue from the interest earned on securities sold by the securitization entity that Ford Credit retains, our undivided interest in wholesale receivables, and other income related to interest-only assets. Interest-only assets, also referred to as excess spread, represent Ford Credit's right to receive collections on sold receivables that are in excess of the amount needed to pay principal and interest payments to investors and servicing fees.
As shown below, total revenue related to receivables sales was $2,610 million in 2002, compared with $1,433 million and $557 million in 2001 and 2000, respectively. The increase in 2002 resulted from the growth in Ford Credit's outstanding sold receivables balances over the last two years. Gains on sales of receivables in 2002 were about the same as those in 2001, reflecting lower gains per dollar of retail receivables sold (about 1.9% in 2002, compared with 2.2% in 2001).
Sales of receivables 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 securitizations on Ford Credit's revenues and earnings in a given year will vary depending on the amount, type of receivable and timing of securitizations in the current year and the preceding two to three year period, as well as the interest
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
rate environment at the times the finance receivables were originated and securitized. The following table shows the estimated after-tax impact of sales of receivables through securitizations and whole-loan sale transactions for the years indicated, net of the effect of reduced financing margins resulting from the foregone revenue attributable to the sold receivables (in millions):
2002 2001 2000
---------- --------- ---------
Gain on sales of receivables $ 728 $ 739 $ 14
SFAS No. 133 fair value basis adjustment (199) (327) -
------ ------ -----
Net gain on sales of receivables $ 529 $ 412 $ 14
Servicing fees 700 456 190
Interest income from retained securities 606 379 152
Excess spread and other 775 186 201
------ ------ -----
Total revenue related to receivables sales $2,610 $1,433 $ 557
Reduction in financing margin from current-year securitizations* (968) (1,059) (243)
Reduction in financing margin from prior-year securitizations* (1,967) (611) (521)
------ ------ -----
Pre-tax impact of receivable sales (325) (237) (207)
Tax 120 88 77
------ ------ -----
After-tax impact of receivable sales $ (205) $ (149) $(130)
====== ====== =====
Memo:
After-tax impact of sales of receivables
excluding SFAS No. 133 $ (79) $ 57 $(130)
|
Earnings at Hertz in 2002, before the cumulative effect of a change in accounting principle, were $127 million. The Hertz results shown here include amortization of intangibles at Ford FSG, Inc., Hertz' parent company, which is not applicable to Hertz' financial statements. Results for Hertz in 2002 included a $294 million non-cash charge related to impairment of goodwill in Hertz' industrial and construction equipment rental business in accordance with SFAS No. 142, Goodwill and Other Intangible Assets. In 2001, Hertz had earnings of $23 million. The increase in earnings, before the change in accounting principle, was principally due to an improved car rental pricing environment and lower costs.
Included in the $91 million loss for "minority interests and other" within the Financial Services sector for 2002 is an after-tax charge related to our equity interest in a partnership that holds diversified financing assets. These are assets that we retained in connection with our sale of the assets of USL Capital Corporation in 1996. The charge, totaling $95 million after-tax, is specifically related to aircraft leases to United Airlines (twelve aircraft) and US Airways (five aircraft) which are in bankruptcy, and telecommunications equipment leases to a WorldCom subsidiary. In all, the partnership has leased 69 aircraft to 11 lessees, primarily to U.S.-based airlines; our share of the partnership's remaining investment in aircraft leases is about $350 million.
Ford Credit's consolidated income from continuing operations in 2001 was $831 million, down $711 million or 46% from 2000. Excluding Ford Credit's share of the charges associated with the Revitalization Plan, net income was about $1 billion, down $507 million compared with 2000, due primarily to a higher provision for credit losses and the net unfavorable impact of SFAS No. 133 from hedging activity, offset partially by favorable earnings effects related to securitization transactions, higher financing volumes of finance receivables and operating leases and improved financing margins.
Earnings at Hertz in 2001 were $23 million. In 2000, Hertz had earnings of $358 million. The decrease in earnings was primarily due to lower car rental volume in the United States, reflecting the adverse impact on business travel and downward pricing pressure due to the slowdown in the United States economy and the adverse impact of the terrorist attacks.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
LIQUIDITY AND CAPITAL RESOURCES
For the Automotive sector, liquidity and capital resources include gross cash balances, cash generated from operations, our ability to raise funds in capital markets and committed credit lines.
Gross Cash - Automotive gross cash includes cash and marketable securities and assets contained in a Voluntary Employee Beneficiary Association ("VEBA") trust, which are financial assets available to fund certain future employee benefit obligations in the near term, as summarized below (in billions):
December 31,
---------------------------------
2002 2001 2000
---------- ---------- ----------
Cash and cash equivalents $ 5.2 $ 4.1 $ 3.4
Marketable securities 17.4 10.9 13.1
VEBA 2.7 2.7 3.7
----- ----- -----
Gross cash $25.3 $17.7 $20.2
===== ===== =====
|
In managing our business, we classify changes in gross cash in three categories: operating (including capital expenditures and capital transactions with the Financial Services sector), acquisitions and divestitures, and financing. Changes for the last three years are summarized below (in billions):
December 31,
---------------------------------
2002 2001 2000
---------- ---------- ----------
Gross cash at end of period $25.3 $17.7 $20.2
Gross cash at beginning of period 17.7 20.2 25.4
----- ----- -----
Total change in gross cash $ 7.6 $(2.5) $(5.2)
===== ===== =====
Operating related cash flows
Automotive net income/(loss) $(2.0) $(6.3) $ 1.7
Non-cash, one-time charges 1.7 4.3 3.5
Depreciation and special tools amortization 4.9 5.0 5.1
Changes in receivables, inventory and trade payables (1.8) 4.4 (0.5)
Other - primarily expense and payment timing differences 3.8 (0.1) 3.7
Capital transactions with Financial Services sector * 0.4 0.4 0.7
Capital expenditures (6.8) (6.3) (7.4)
----- ----- -----
Total operating related cash flows before tax refunds 0.2 1.4 6.8
Tax refunds 2.6 - -
----- ----- -----
Total operating related cash flows 2.8 1.4 6.8
Divestitures and asset sales 0.9 0.4 -
Acquisitions and capital contributions (0.3) (2.7) (2.7)
Financing related cash flows
Convertible trust preferred securities 4.9 - -
Value Enhancement Plan - - (5.6)
Dividends to shareholders (0.7) (1.9) (2.8)
Net issuance/(purchase) of stock 0.1 (1.4) (1.2)
Changes in total Automotive Sector debt (0.1) 1.7 0.3
----- ----- -----
Total financing related cash flows 4.2 (1.6) (9.3)
----- ----- -----
Total change in gross cash $ 7.6 $(2.5) $(5.2)
===== ===== =====
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In 2002, we had non-cash one-time charges of $1.7 billion, reflecting primarily impairment of goodwill and other intangible assets under SFAS 142, Goodwill and Other Intangible Assets (which eliminates amortization of goodwill and certain other intangible assets, but requires annual testing for impairment), losses on the sales of Kwik-Fit and other businesses, and restructuring charges in our Ford- brand European Automotive operations and Premier Automotive Group operations.
Timing differences between the recognition of certain expenses or revenue reductions and their corresponding cash payments are recognized in operating related cash flows. In 2002, these differences and other miscellaneous items improved our operating related cash flows by $3.8 billion, denoted as
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
"Other" in the table above. These timing differences arise primarily from accrual of health care, marketing, warranty and additional service action costs before the corresponding cash payments are required to be made.
In 2002, we spent $6.8 billion for Automotive sector capital goods, such as machinery, equipment, tooling and facilities. This was up $500 million from 2001, reflecting primarily increased spending on new products consistent with our product-led revitalization. Capital expenditures were 5.0% of sales in 2002, up 0.2 percentage points from a year ago.
During 2002, we received $4.9 billion of net proceeds from the issuance of our 6.5% Cumulative Convertible Trust Preferred Securities and about $2.6 billion of income tax refunds. These two factors alone explain substantially all of the $7.6 billion increase in our gross cash balances during 2002.
Capital transactions with the Financial Services sector improved cash flow by $400 million, reflecting primarily dividends from Ford Credit, net of a $700 million cash contribution from Ford indirectly to Ford Credit in January 2002.
Shown in the table below is a reconciliation between operating related cash flow above and financial statement cash flows from operating activities before securities trading (in billions):
Full Year
----------------------------
2002 2001
------------- ------------
Operating related cash flows $ 2.8 $ 1.4
Items Ford includes in operating related cash flow
Capital transactions with Financial Services sector (0.4) (0.4)
Capital expenditures 6.8 6.3
Net transactions between Automotive and Financial Services sectors * 0.1 (0.6)
Other, primarily exclusion of cash in-flows from VEBA draw-down 0.2 0.8
------ ------
Total reconciling items 6.7 6.1
------ ------
Cash flows from operating activities before securities trading $ 9.5 $ 7.5
====== ======
|
Debt and Net Cash - At December 31, 2002, our Automotive sector had total debt of $14.2 billion, up $400 million from a year ago. The weighted average maturity of our long-term debt, substantially all of which is fixed-rate debt, is approximately 27 years with about $1.1 billion maturing by December 31, 2007. The weighted average maturity of total debt (long-term and short-term) is approximately 26 years. At December 31, 2002, our Automotive sector had net cash (defined as gross cash less total debt) of $11.1 billion, compared with $3.9 billion and $8.1 billion at the end of 2001 and 2000, respectively.
Credit Facilities - At December 31, 2002, the Automotive sector had $7.8 billion of contractually committed credit agreements with various banks; eighty-eight percent of the total facilities are committed through June 30, 2007. Ford has the ability to transfer on a non-guaranteed basis $7.2 billion of these credit lines to Ford Credit or FCE Bank, plc, Ford Credit's European operation ("FCE"). All of our 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 out ability to borrow). Approximately $100 million of these facilities were in use at December 31, 2002.
Other Securities - 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 as described in Note 14 of the Notes to our Financial Statements. These securities are not included in the total debt amounts discussed above. In addition, during the fourth quarter of 2002, we redeemed our Series B Cumulative Preferred Stock for an aggregate redemption price of $177 million.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Ford Credit
Debt and Cash - Ford Credit's total debt was $140.3 billion at December 31, 2002, down $5.5 billion compared with a year ago. Ford Credit's outstanding commercial paper (not including commercial paper issued to affiliates) at December 31, 2002 totaled $8.2 billion. The average remaining maturity of Ford Credit's commercial paper in North America and Europe was 34 days. At December 31, 2002, Ford Credit had cash and cash equivalents of $6.8 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 $6.8 billion of cash and cash equivalents, $5 billion represented overborrowings, while the remaining $1.8 billion was employed in operating activities.
Funding - Ford Credit requires substantial funding in the normal course
of business. Ford Credit's funding requirements are driven mainly by the need to
(i) purchase retail installment sale contracts and vehicle leases to support the
sale of Ford products, which to a large extent are influenced by Ford-sponsored
special financing and leasing programs that are available exclusively through
Ford Credit, (ii) provide vehicle inventory and capital financing for Ford
dealers, and (iii) repay its debt obligations.
Funding sources for Ford Credit include the sale of commercial paper, issuance of term debt, the sale of receivables in securitization transactions and, in the case of FCE, the issuance of certificates of deposit. These funds are obtained from investors in various markets.
Ford Credit's commercial paper issuances are used to meet short-term funding needs. Ford Credit has commercial paper programs in the United States, Europe, Canada and other international markets. It reduced the amount of its outstanding global unsecured commercial paper from $15.7 billion at the end of 2001 to $8.2 billion ($3.4 billion net of overborrowings and including commercial paper sold to other Ford affiliates) at December 31, 2002 by replacing such funding with term-debt and proceeds from the sale of receivables. During 2003, Ford Credit plans to have commercial paper outstanding at levels of around $5 billion to $7 billion, net of overborrowings. Ford Credit also obtains short-term funding through the issuance of variable denomination, floating rate demand notes through its Ford Money Market Account program. At December 31, 2002, $5.1 billion of such notes were outstanding. Bank borrowings are an additional source of short-term funding in certain international markets.
Long-term funding requirements for Ford Credit are met through the issuance of a variety of debt securities in both the United States and international capital markets. During 2002, Ford Credit issued approximately $13.5 billion of term debt with maturities ranging between one and thirty years. During 2003, Ford Credit plans to raise $7 billion to $10 billion through term debt issuances and $12 billion to $15 billion through public term securitization transactions, which are discussed below. Other sources of funds include bank borrowings, mainly in countries where capital markets are less developed.
During 2002, Ford Credit continued to meet a significant portion of its funding requirements by selling finance receivables in securitizations because of the stability of investor appetite for asset-backed securities, their lower relative cost (as described below), and the diversification of funding sources that they provide. Ford Credit also developed or expanded additional funding sources, including retail unsecured bond issuances, new asset-backed commercial paper programs and international securitization programs. In addition, Ford Credit launched a whole-loan sale program that will reduce future funding requirements. Under the whole-loan sale program, Ford Credit sells retail loans without holding any retained interests in such loans and receives fee income as it continues to service those loans. Ford Credit sold $5 billion of retail loans through this program in the fourth quarter of 2002, and expects to complete further sales in 2003. Because Ford Credit does not have retained interests in receivables sold through its whole-loan program, it does not have contractual or economic risk of loss associated with those retained interests with respect to whole-loan sales of receivables. Accordingly, Ford Credit does not treat such receivables as "managed receivables" and whole-loan sales of receivables are excluded from the discussion of securitization transactions below.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
As a result of Ford Credit's expanded securitization sources and other actions, the decline in debt ratings Ford Credit experienced in 2002 and 2001 did not have a material impact on its ability to fund operations and maintain liquidity. Any further lowering of Ford Credit's debt ratings would increase its borrowing costs and potentially constrain certain funding availability from the capital markets. This in turn likely would cause Ford Credit to rely more heavily on funding through securitization transactions, or to reduce its assets and liabilities. Ford Credit's ability to sell its receivables may be affected by the following factors: the amount and credit quality of receivables available to sell, the performance of receivables sold in previous transactions, general demand for the type of receivables Ford Credit offers, market capacity for Ford Credit-sponsored investments, market disruption and Ford Credit's debt ratings. If as a result of any of these or other factors, the cost of securitized funding significantly increased or securitized funding were no longer available to Ford Credit, its liquidity would be adversely impacted.
The cost of both unsecured term debt and funding through securitization transactions is based on the margin (or spread) over a benchmark interest rate, such as the London Interbank Offered Rate or interest rates paid on U.S. Treasury securities of similar maturities. Spreads are typically measured in basis points, where one basis point equals one one-hundredth of one percent (0.01%). Since 1998, the three-year fixed rate spread on Ford Credit's securitized funding has been at a level between 38 and 110 basis points above comparable U.S. Treasury securities, while Ford Credit's unsecured term-debt spreads have fluctuated between 46 basis points and 662 basis points above comparable U.S. Treasury securities. In 2002, Ford Credit's unsecured term-debt spreads fluctuated between 195 and 662 basis points above comparable U.S. Treasury securities, with an average spread of 357 basis points and a year-end spread of 375 basis points above comparable U.S. Treasury securities.
Ford Credit's worldwide proceeds from the sale of retail and wholesale finance receivables through securtizations and whole-loan sales are shown below for the years ended December 31 (in billions):
Receivable Type 2002 2001 2000
--------------- ------------ ------------- ------------
Retail $36.5 $32.0 $19.2
Wholesale 4.8 8.8 0.3
----- ----- -----
Net Proceeds... $41.3 $40.8 $19.5
===== ===== =====
|
For additional funding and to maintain liquidity, Ford Credit has contractually committed credit facilities with financial institutions that totaled $13.9 billion at December 31, 2002, including $5.3 billion available for FCE. The majority of these facilities are available through June 30, 2007 and $900 million was in use at December 31, 2002 (primarily by affiliates outside of the United States and Europe). In addition, banks provide $13.6 billion of contractually committed liquidity facilities to support Ford Credit's asset-backed commercial paper programs. All of Ford Credit's 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).
Ford Credit also has entered into agreements with several bank-sponsored, commercial paper issuers (conduits) under which such issuers are contractually committed to purchase from Ford Credit or hold, at Ford Credit's option, up to an aggregate of $12.6 billion of receivables. These agreements have varying maturity dates between March 31, 2003 and October 31, 2003. As of December 31, 2002, approximately $5.2 billion of these commitments were used. These programs do not contain restrictive financial covenants (for example, debt-to-equity limitations or minimum net worth requirements) or material adverse change clauses that could preclude selling receivables, but do contain provisions that would terminate those commitments if the performance of the sold receivables deteriorates beyond specified levels. None of these arrangements may be terminated based on a change in our credit rating. For a discussion of the impact of Financial Accounting Standards Board ("FASB") Interpretation No. 46, Consolidation of Variable Interest Entities ("FIN 46") on the cost and availability of these conduit facilities, see "Off-Balance Sheet Arrangements - Variable Interest Entities", below.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
At December 31, 2002, Ford Credit's debt-to-equity ratio was 12.8 to 1 on a managed basis (excluding the effect of Axus, our all-makes vehicle fleet leasing operation, that was held for sale), down from 14.8 to 1 at December 31, 2001. In calculating its managed leverage, Ford Credit adds outstanding securitized receivables (but not receivables sold in whole-loan sale transactions) to debt, and nets against this amount its retained interests in securitized receivables and its cash, including overborrowings. Ford Credit also adjusts both debt and equity for effects of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, in the calculation of managed leverage because SFAS No. 133 adjustments vary over the term of the underlying debt and securitized funding obligations based on changes in market rates and we generally repay our debt as it matures.
Hertz
Hertz requires funding for the acquisition of revenue earning equipment, which consists of vehicles and industrial and construction equipment. Hertz purchases this equipment in accordance with the terms of agreements negotiated with automobile and equipment manufacturers. The financing requirements of Hertz are seasonal and are mainly explained by the seasonality of the travel industry. Hertz' fleet size, and its related financing requirements, generally peak in the months of June and July, and decline during the months of December and January. Hertz accesses the global capital markets to meet its funding needs.
Hertz maintains unsecured domestic and foreign commercial paper programs and a secured domestic commercial paper program to cover short-term funding needs, and also draws from bank lines, as a normal business practice, to fund international needs. Hertz also is active in the domestic medium-term and long-term debt markets.
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 December 31, 2002, $514 million was outstanding under this program.
At December 31, 2002, Hertz had committed credit facilities totaling $3.0 billion. Of this amount, $1.4 billion represented global and other committed credit facilities ($0.9 billion of which are available through June 30, 2007 and $0.5 billion of which have various maturities of up to four years); $500 million consisted of a revolving credit line provided by Ford, which currently expires in June 2004; $215 million consisted of asset backed Letters of Credit, and $928 million consisted of 364-day asset backed commercial paper facilities.
Stockholders' Equity - Our stockholders' equity was $5.6 billion at December 31, 2002, down $2.2 billion compared with December 31, 2001. As described below, changes in the funded status of our pension funds adversely impacted stockholders' equity by $5.3 billion, which was partially offset by favorable foreign currency translation adjustments of $2.9 billion. Our stockholders' equity also was reduced in 2002 by net losses of $980 million and dividend payments of $743 million.
Post Retirement Obligations - We sponsor defined benefit pension plans whose pension fund assets consist principally of investments in equities and in government and other fixed income securities. For our major U.S. pension funds, the target asset allocation is 70% equities and 30% fixed income securities. On December 31, 2002, the market value of our U.S. pension fund assets was less than the projected benefit obligations (calculated using a discount rate of 6.75%, which is reduced from 7.25% used at year-end 2001) by $7.3 billion for our U.S. plans. For non-U.S. plans, the shortfall as of December 31, 2002, was $8.3 billion, for a total worldwide shortfall of $15.6 billion. Our stockholders' equity was reduced by $5.3 billion at December 31, 2002 because of increased pension under funding. Pension funding obligations and strategies are highly dependent on investment returns, discount rates, actuarial assumptions, and benefit levels (which can be contractually specified, such as those under the Ford-UAW Retirement Plan that is subject to negotiation in 2003). If these assumptions were to remain unchanged, we project that we would not have a legal requirement to fund our major U.S. pension plans
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
before 2007. However, we review our pension assumptions regularly and we do from time to time make contributions beyond those legally required. For example, in January 2003 we contributed $500 million in cash to the U.S. pension funds and, depending on a determination that it will be deductible for U.S. income tax purposes, expect to contribute an additional $500 million by June 2003. Further, after giving effect to these contributions, based on current interest rates and on our return assumptions and assuming no additional contributions, we do not expect to be required to pay any variable-rate premiums to the Pension Benefit Guaranty Corporation before 2005.
We sponsor post retirement health care plans, primarily in the U.S. We partially fund these obligations through a VEBA trust, which is invested in short-term fixed income investments.
Debt Ratings - Our short- and long-term debt are rated by three nationally-recognized statistical rating organizations: Fitch, Inc. ("Fitch"); Moody's Investors Service, Inc. ("Moody's"); and Standard & Poor's Rating Services, a division of McGraw-Hill Companies, Inc. ("S&P"). In addition to these three rating agencies, we also are rated in several local markets by locally recognized rating agencies. Debt ratings reflect an assessment by the rating agencies of the credit risk associated with particular securities we issue, and are based on information provided by us or other sources. Lower ratings generally result in higher borrowing costs and reduced access to capital markets. Long- and short-term debt ratings of BBB- and F3 or higher by Fitch, Baa3 and P-3 or higher by Moody's and BBB- and A3 or higher by S&P are considered "investment grade." However, debt ratings are not recommendations to buy, sell, or hold securities and are subject to revision or withdrawal at any time by the assigning rating agency. Each rating agency may have different criteria in evaluating the risk associated to a company, and therefore ratings should be evaluated independently for each rating agency.
Fitch Ratings. On January 11, 2002, Fitch lowered the long-term debt ratings of Ford, Ford Credit and Hertz from A- to BBB+, confirmed Ford Credit's and Hertz' short-term debt rating at F2, and confirmed the rating outlook for all three companies as negative. On October 31, 2002, Fitch affirmed the long-term debt ratings of Ford, Ford Credit and Hertz at BBB+, short-term debt ratings at F2 and its rating outlook as negative.
Moody's Ratings. On January 16, 2002, Moody's lowered Ford's long-term debt rating from A3 to Baa1, lowered Ford Credit's long- and short-term debt ratings from A2 to A3 and from Prime-1 to Prime-2, respectively, and confirmed the rating outlook of both companies as negative. Moody's also lowered Hertz' long-term debt rating from Baa1 to Baa2, confirmed its short-term debt rating at Prime-2 and confirmed its rating outlook as negative. On December 10, 2002, Moody's confirmed Hertz' long-term debt rating at Baa2, short-term debt rating at Prime-2 and its rating outlook is negative. On March 7, 2003, Moody's affirmed the long-term debt rating of Ford at Baa1 and long- and short-term debt ratings of Ford Credit at A3 and Prime-2, respectively, and confirmed the rating outlook of both companies as negative.
S&P Ratings. On January 11, 2002, S&P changed the rating outlook for Ford, Ford Credit and Hertz to negative. On October 16, 2002, S&P placed Ford, Ford Credit and Hertz's long-term debt ratings on CreditWatch with negative implications. The short-term debt rating of Ford Credit was reaffirmed at A2. On October 25, 2002, S&P lowered the long-term debt ratings of Ford and Ford Credit from BBB+ to BBB. It affirmed the short-term debt ratings of Ford Credit at A2. S&P stated that its rating outlook on us was negative and that is was concerned that the benefits of our Revitalization Plan could eventually be offset by decreasing industry demand in North America, industry wide price competition and Ford's market share weakness. S&P also indicated that its ratings on Ford could be lowered further if it comes to doubt Ford's ability to sustain earnings improvement, including the achievement of at least breakeven per-tax earnings in our Automotive operations in 2003. On October 30, 2002, S&P affirmed Hertz' long-term debt rating at BBB and its short-term debt rating at A2. On March 7, 2003, S&P affirmed the long-term debt ratings of Ford and Ford Credit at BBB and the short-term debt rating of Ford Credit at A2. The outlook for all companies is negative.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
OFF-BALANCE SHEET ARRANGEMENTS
We have entered into various arrangements not reflected on our balance sheet that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. These include guarantees, sales of receivables by Ford Credit, and variable interest entities, each of which is discussed below.
Occasionally, we guarantee debt and lease obligations of joint venture entities and other third parties with which we do business to support their growth. As of December 31, 2002, our maximum potential exposure under these guarantees was $486 million.
In the ordinary course of business, we also execute contracts involving
indemnifications standard in the industry and indemnifications specific to a
transaction. These indemnifications include claims for any of the following:
environmental, tax, and shareholder matters; intellectual property rights;
governmental regulations and employment-related matters; financial matters; and
dealer, supplier, and other commercial contractual relationships. Performance
under these indemnities would generally be triggered by a breach of terms of the
contract or by a third party claim.
Securitizations
Ford Credit regularly uses securitization to fund its operations. Ford Credit securitizes its receivables because the highly-liquid and efficient market provides Ford Credit with a cost-effective source of funding. Ford Credit most frequently securitizes retail installment sale contracts. Ford Credit also securitizes receivables from Ford-franchised dealers and non-Ford dealers representing loans used to finance their automobile floorplan inventories, generally referred to as wholesale receivables or floorplan receivables. Ford Credit occasionally engages in securitization of operating leases. In 2002, Ford Credit significantly expanded securitization of finance receivables by foreign subsidiaries.
In a typical securitization, Ford Credit sells a pool of finance receivables to a wholly-owned, bankruptcy-remote special purpose subsidiary that establishes a separate special purpose trust or entity ("SPE") and transfers the receivables to the SPE in exchange for the proceeds from securities issued by the SPE. Following the transfer of the sold receivables to the SPE, the receivables are no longer assets of Ford Credit and the sold receivables no longer appear on our balance sheet. The SPE issues interest-bearing securities, usually notes or certificates of various maturities and interest rates, which are paid by the SPE from future collections on the receivables it owns. These securities, commonly referred to as asset-backed securities, are structured into senior and subordinated classes. The senior classes have priority over the subordinated classes in receiving collections from the receivables and may also benefit from other enhancements such as over-collateralization, excess spread and cash reserve funds. These securities generally are rated by independent rating agencies and sold in public offerings or in private transactions.
Ford Credit uses SPEs in securitization transactions to achieve isolation of the sold receivables for the benefit of securitization investors. Assuming, accounting rules are met, the sold receivables are removed from our balance sheet. The use of SPEs in this way allows the SPE to issue senor securities (typically with a higher debt rating than Ford Credit's debt securities) in a highly-liquid and efficient market, thereby providing Ford Credit with a cost-effective source of funding. The two-tiered sale of receivables to a wholly-owned subsidiary and then to the SPE is conventional in the asset backed securitization market. Most of the SPEs used in Ford Credit's securitization transactions are classified as qualifying special purpose entities consistent with the requirements of SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, because of the nature of the assets held by these entities and the limited nature of their activities. Ford Credit also sponsors one securitization SPE, FCAR Owner Trust ("FCAR"), that is not a qualifying SPE under SFAS No. 140
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
because its permitted activities are notsufficiently limited. However, because FCAR maintains substantive third-party equity, this entity is not required to be consolidated in our financial statements at December 31, 2002 under applicable accounting rules. However, see "-Variable Interest Entities" below and Note 13 of the Notes to our Financial Statements for a further discussion of the impact of FIN 46 on Ford Credit's FCAR securitization structure and on other securitization structures utilized by Ford Credit. None of our or Ford Credit's officers, directors or employees holds any equity interest in the SPEs or receives any direct or indirect compensation from the SPEs. The SPEs do not own stock in either Ford or Ford Credit or any of their affiliates.
Ford Credit or its affiliates often retain interests in the securitized receivables. The retained interests may include senior and subordinated securities, undivided interests in wholesale receivables, restricted cash held for the benefit of the SPEs and interest-only strips. Subordinated securities represent lower rated classes of securities issued by the SPEs. Restricted cash is funded initially by a small portion of proceeds from the sale of receivables that may be used to pay principal and interest to SPE investors and, after investors are fully paid, remaining cash is returned to Ford Credit. Interest-only strips, also referred to as excess spread, represent the right to receive collections on the sold finance receivables in excess of amounts needed by the SPE to pay interest and principal to investors, servicing fees and other required payments. The subordinated securities, restricted cash, interest-only strips, and a portion of the undivided interest in wholesale receivables serve as credit enhancements to the holders of the more senior securities issued by the SPEs.
At December 31, 2002 and 2001, the total outstanding principal amount of receivables sold by Ford Credit in securitizations was $71.3 billion and $58.7 billion, respectively. At those dates, Ford Credit's retained interests in such sold receivables were $17.6 billion and $12.5 billion, respectively.
Ford Credit has no obligation to repurchase any sold receivable that becomes delinquent in payment or otherwise is in default. The holders of the asset-backed securities have no recourse to Ford Credit or its other assets for credit losses on the sold receivables and have no ability to require Ford Credit to repurchase their securities. Ford Credit does not guarantee any securities issued by SPEs. However, as is customary in asset-backed securitization transactions, Ford Credit, as the seller of the finance receivables to the SPE and servicer of such receivables, is obligated to provide certain kinds of support. These support obligations include indemnification of the SPE and its trustees, the requirement to repurchase receivables that do not meet eligibility criteria or that have been materially modified by the servicer, the obligation to sell additional receivables in certain transactions and the advancing of interest payment short falls. Based on its experience, Ford Credit does not expect to make any indemnification payments. In 2002, Ford Credit was not required to repurchase any sold receivables due to their failure to meet eligibility criteria and the principal amount of recievables repurchased due to servicer modifications was about $340 million for all retail securitization programs.
Whole-loan Sales
In the fourth quarter of 2002, Ford Credit sold about $5 billion of retail installment sale contracts in two whole-loan sale transactions. In addition, Ford Credit is contractually committed to sell an additional $2 billion of retail installment sale contract receivables in the first quarter of 2003 through a whole-loan sale transaction. In respect of whole-loan sale transactions, Ford Credit generally has the same indemnification, repurchase and other obligations in whole-loan sale transactions as it does in securitization transactions. These continuing obligations are discussed above. Ford Credit retains servicing rights and obligations with respect to the receivables sold in whole-loan sale transactions and earns a servicing fee. Unlike securitizations, however, whole-loan sale transactions involve the sale of receivables without Ford Credit or one of its affiliates retaining any interest in the sold receivables. Because Ford Credit does not have retained interests in receivables sold through its whole-loan program, it does not have contractual or economic risk of loss associated with those retained interests with respect to whole-loan sales of receivables. No SPEs are used in Ford Credit's whole-loan sale program.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Risks to Future Sales of Receivables
Some of Ford Credit's securitization programs contain structural features that could prevent further funding if the credit losses or delinquencies on a pool of sold receivables or on Ford Credit's overall managed portfolio exceed specified levels or if payment rates on or amounts of wholesale receivables are lower than specified levels. Ford Credit does not expect that any of these features will have a material adverse impact on its ability to securitize receivables. In addition, Ford Credit's ability to sell its receivables may be affected by the following factors: the amount and credit quality of receivables available to sell, the performance of receivables sold in previous transactions, general demand for the type of receivables Ford Credit offers, market capacity for Ford Credit-sponsored investments, market disruption and Ford Credit's debt ratings. If as a result of any of these or other factors, the cost of securitized funding significantly increased or securitized funding were no longer available to Ford Credit, its liquidity would be adversely impacted.
Automotive
Our Automotive sector has invested in several joint ventures that are reported as equity investments. In many cases, we have contracted with these joint ventures to manufacture and/or assemble vehicles or components. We have invested and contracted with these entities to obtain low cost, high quality parts and vehicles, world-class niche product development capabilities and the ability to leverage the technical expertise of our joint venture partners. These investments may involve a transfer of assets in exchange for an equity interest. In some cases, we have agreed to guarantee the debt of the entity; in others we have unconditional supply arrangements that are used by the entity to secure financing. In many cases, labor used by the joint ventures are Ford employees, the cost of which we are reimbursed; however, failing reimbursement we are ultimately responsible for the costs of these employees. The terms of these supply arrangements are a result of arms-length negotiation. For a discussion of the impact of FIN 46 on our accounting for these joint ventures, see Note 13 of the Notes to our Financial Statements.
Financial Services
It is reasonably possible that FCAR, in its existing structure, may be consolidated in our financial results in compliance with FIN 46. Our equity investment and retained beneficial interest related to FCAR is approximately $1.7 billion, which is reflected on our consolidated balance sheet. At December 31, 2002, FCAR had gross assets of $12.2 billion and gross liabilities of $11.8 billion. We continue to assess structures that would maintain FCAR as an unconsolidated entity under FIN 46. We are continuing to analyze the impact on our financial statements of FIN 46 and its impact on FCAR. In addition, Ford Credit also sells receivables to bank-sponsored asset-backed commercial paper issuers that are SPEs of the sponsor bank. FIN 46 might also require the sponsor banks to consolidate the assets and liabilities of the SPEs into their financial results. If this occurs, the sponsor banks may increase the program fees for Ford Credit's use of these SPEs or fail to renew their commitment to purchase additional receivables from Ford Credit. At December 31, 2002, about $6 billion of retail installment sale contracts Ford Credit originated were held by these SPEs. We believe we would not be required to consolidate any portion of these SPEs in our financial results. We are continuing to evaluate the impact of FIN 46 on the bank sponsors of these SPEs and on the continued availability and costs of this program. We believe bank sponsors will not terminate their SPEs or reduce their purchase of receivables.
AGGREGATE CONTRACTUAL OBLIGATIONS
We are party to many contractual obligations involving commitments to make payments to third parties. Most of these are debt obligations incurred by our Financial Services sector. In addition, as part of our normal business practices, we enter into contracts with suppliers for purchases of certain raw materials, components and services. These arrangements may contain fixed or minimum quantity purchase requirements. We enter into such arrangements to facilitate adequate supply of these materials
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
and services. Many of these obligations are recorded; others are disclosed in various notes to the financial statements. Some obligations are executory contracts and therefore are not recognized as liabilities until the occurrence of a future event.
In order to provide information about our short- and long- term liquidity needs, a disclosure of selected obligations is displayed below (in millions):
Payments Due by Period
-------------------------------------------------------------------
Less More
than 1 1 - 3 3 - 5 than 5
Total year years years years
---------- ----------- ---------- ---------- ----------
Debt obligations $162,222 $42,086 $56,655 $23,858 $39,623
Capital lease obligations 284 45 48 37 154
Operating lease obligations 3,294 856 1,125 603 710
-------- ------- ------- ------- -------
Total $165,800 $42,987 $57,828 $24,498 $40,487
======== ======= ======= ======= =======
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CRITICAL ACCOUNTING ESTIMATES
We consider an accounting estimate to be critical if: 1) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and 2) changes in the estimate that are reasonably likely to occur from period to period, or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations.
Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of our Board of Directors and the Audit Committee has reviewed the foregoing disclosure. In addition, there are other items within our financial statements that require estimation, but are not deemed critical as defined above. Changes in estimates used in these and other items could have a material impact on our financial statements.
See Notes 1 and 24 of the Notes to our Financial Statements for more information regarding costs and assumptions for warranties and additional service actions.
Nature of Estimates Required: The estimated warranty and additional service action costs for each vehicle sold by us are accrued at the time the vehicle is sold to a dealer. Included in the accruals are the costs for both basic warranty and additional service action on vehicles we sell. Estimates are principally based on assumptions regarding the lifetime warranty costs of each vehicle line and each model year of that vehicle line, where little or no claims experience may exist. In addition, the number and magnitude of additional service actions expected to be approved, and policies related to additional service actions, are taken into consideration. Due to the uncertainty and potential volatility of these estimated factors, changes in our assumptions could materially affect net income.
Assumptions and Approach Used: Our estimate of warranty and additional service action obligations is reevaluated on a quarterly basis. Experience has shown that initial data for any given model year can be volatile; therefore, our process relies upon long-term historical averages until sufficient data are available. As actual experience becomes available, it is used to modify the historical averages to ensure that the forecast is within the range of likely outcomes. Resulting balances are then compared with present spending rates to ensure that the accruals are adequate to meet expected future obligations.
See Note 20 of the Notes to our Financial Statements for more information regarding costs and assumptions for employee retirement benefits.
Nature of Estimates Required: The measurement of our pension obligations, costs and liabilities
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
is dependent on a variety of assumptions used by our actuaries. These assumptions include estimates of the present value of projected future pension payments to all plan participants, taking into consideration the likelihood of potential future events such as salary increases and demographic experience. These assumptions may have an effect on the amount and timing of future contributions. The plan trustee conducts an independent valuation of the fair value of pension plan assets.
Assumptions and Approach Used: The assumptions used in developing the required estimates include the following key factors:
o Discount rates o Inflation
o Salary growth o Expected return on plan assets
o Retirement rates o Mortality rates
We base the discount rate assumption on investment yields available at year-end on corporate long-term bonds rated AA. Our inflation assumption is based on an evaluation of external market indicators. The salary growth assumptions reflect our long-term actual experience, the near-term outlook and assumed inflation. The expected return on plan assets reflects asset allocations, investment strategy and the views of investment managers and other large pension plan sponsors. Retirement and mortality rates are based primarily on actual plan experience. The effects of actual results differing from our assumptions are accumulated and amortized over future periods and, therefore, generally affect our recognized expense in such future periods.
Sensitivity Analysis: The effect of the indicated decrease in the selected assumptions is shown below, assuming no changes in benefit levels and no amortization of gains or losses for our major plans in 2003 (in millions):
Effect on U. S. Plans:
-------------------------------------------------------
December 31, 2002
--------------------------
Percentage Decline Reduction Higher
Point in Funded in 2003
Assumption Change Status Equity Expense
-------------------------------- ------------- ------------- ----------- ------------
Discount rate -0.5 pts. $ 1,800 $ 1,100 $ 10
Expected return on assets -0.5 pts. - - 175
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See Note 20 of the Notes to our Financial Statements for more information regarding costs and assumptions for other post retirement benefits.
Nature of Estimates Required: The measurement of our obligations, costs and liabilities associated with other post retirement benefits (e.g., retiree health care) requires that we make use of estimates of the present value of the projected future payments to all participants, taking into consideration the likelihood of potential future events such as health care cost increases, salary increases and demographic experience, which may have an effect on the amount and timing of future payments.
Assumptions and Approach Used: The assumptions used in developing the required estimates include the following key factors:
o Health care cost trends o Inflation
o Discount rates o Expected return on plan assets
o Salary growth o Mortality rates
o Retirement rates
Our health care cost trend assumptions are developed based on historical cost data, the near-term outlook, and an assessment of likely long-term trends. We base the discount rate assumption on investment yields available at year-end on corporate long-term bonds rated AA. Our inflation assumption is based on an evaluation of external market indicators. The salary growth assumptions reflect our long-term actual experience, the near-term outlook and assumed inflation. The expected return on plan assets
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
reflects history and asset allocation. Retirement and mortality rates are based primarily on actual plan experience. The effects of actual results differing from our assumptions are accumulated and amortized over future periods and, therefore, generally affect our recognized expense in such future periods.
Sensitivity Analysis: The effect of the indicated increase/decrease in the selected assumptions is shown below (assuming no changes in benefit levels); the 2003 expense effect includes the impact on service cost and interest cost as well as amortization of gains or losses (in millions):
Effect on U. S. and Canadian Plans:
-----------------------------------------------------------------
December 31, 2002
Assumption Percentage Obligation 2003 Expense
Point Change Higher/(Lower) Higher/(Lower)
-------------------------------- ----------------------- ------------------- -------------------
Discount rate +/- 0.5 pts. $(1,700)/$1,700 $(130)/$130
Health care cost trend +/- 1.0 pts. 3,900/(3,300) 560/(460)
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See Note 10 of the Notes to our Financial Statements for more information regarding our allowance for credit losses.
The allowance for credit losses is our estimate of the probable credit losses related to impaired finance receivables and operating leases as of the date of the financial statements. Significant judgment is required in estimating this amount because credit losses vary substantially over time, and estimating probable losses requires a number of assumptions about matters which are uncertain.
Nature of Estimates Required: We estimate the probable credit losses related to impaired finance receivables and operating leases by evaluating several different factors with econometric models. These factors include historical credit loss trends, the credit quality of our present portfolio, trends in historical and projected used vehicle values, and general economic measures.
Assumptions and Approach Used: The factors listed above result in a
projection of two key assumptions:
o Frequency - the percentage of finance receivables and operating leases
that we expect to default over a period of time, which is measured
principally by the repossession rate (the ratio of the number of
vehicles repossessed in a time period divided by the average number
of accounts outstanding in the same time period)
o Loss severity - the difference between the amount a customer owes us
when we charge off the finance contract and the amount we receive, net
of expenses, from selling the repossessed vehicle, including any
recoveries from the customer.
We estimate the expected frequency and loss severity with econometric models. We monitor credit loss performance monthly and assess the adequacy of our allowance for credit losses quarterly.
Sensitivity Analysis: We believe the present level of our allowance for credit losses is adequate to cover the probable losses related to impaired finance receivables and operating leases; however, changes in the assumptions to derive frequency and severity would have an impact on the allowance for credit losses. Over the past three years, repossession rates for our U.S. retail and lease portfolio have varied between 2% and 3%.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
The effect of the indicated increase/decrease in the assumptions is shown below for retail and lease receivables that finance Ford, Lincoln, and Mercury vehicles in the United States (in millions):
Effect on:
-------------------------------------------------
December 31, 2002 2002 Provision
Assumption Percentage Allowance for for Credit
Point Credit Losses Losses
Change Higher/(Lower) Higher/(Lower)
--------------------------------------------- ------------ ------------------------- ---------------------
Repossession rates +/- 0.1 pts. $80/$(80) $80/$(80)
Loss severity +/- 1.0 pts. 25/(25) 25/(25)
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Changes in our assumptions affect the provision for credit losses on our income statement and the allowance for credit and insurance losses on our balance sheet.
Accumulated depreciation on operating leases reflects the cumulative amount of depreciation that has been recorded to date, reducing the value of the vehicles in our operating lease portfolio from their original acquisition value to their projected residual value at the end of the lease term.
Nature of Estimates Required: Each operating lease in our portfolio represents a vehicle we own that has been leased to a customer. At the origination of the lease, we establish an estimated residual value for the vehicle at lease end. Significant judgment is required in estimating the expected lease-end residual value because future market values of used vehicles are difficult to predict. We depreciate leased vehicles on a straight-line basis to estimated residual value.
We monitor residual value performance by vehicle line monthly. We review the adequacy of our accumulated depreciation on a quarterly basis. If we believe that the residual values for our vehicles have decreased, we revise depreciation for the affected vehicles to ensure that the book value (our net investment in the operating lease, equal to our acquisition value of the vehicles less accumulated depreciation) will be reduced to our revised estimate of residual value at the end of the lease term. Such adjustments to depreciation expense are recorded over the remaining term of the contracts of affected vehicles in our portfolio on a straight-line basis.
Each lease retail customer has the option to buy the leased vehicle at the end of the lease or to return the vehicle to the dealer. In the latter case, the dealer then has the option to purchase the vehicle at the contractual lease-end value or return it to us. For returned vehicles, we face a potential risk that the book value of the vehicle will exceed the auction value. Over the last five years, about 60% to 70% of retail leased vehicles have been returned to us.
Assumptions and Approach Used: Our accumulated depreciation on operating leases is based on the following assumptions:
o Auction value: the expected o Return rates: the expected
market value of the vehicle at percentage of vehicles that
the end of the lease. will be returned at the end of
the lease.
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We estimate expected auction values and return rates with econometric models. These models use historical auction values, historical return rates for our leased vehicles, industry-wide used vehicle prices, our marketing plans and vehicle quality data.
Sensitivity Analysis: The largest impact of changes in assumptions is on Ford Credit's U.S. retail operating leases of Ford, Lincoln and Mercury brand vehicles. If future auction values for all of the Ford, Lincoln, and Mercury vehicles in our U.S. operating lease portfolio at year-end 2002 were to decrease by $100 per unit from our present estimates, we would increase our depreciation on these vehicles by a cumulative amount of about $70 million in the 2003 through 2005 period to cause the book value at the end of the lease term for these vehicles to be equal to the revised residual value. Similarly, if future return rates for our existing portfolio of Ford, Lincoln and Mercury vehicles in the U.S. were to increase by one
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
percentage point from our present estimates, we would increase our depreciation on these vehicles by about $15 million in the 2003 through 2005 period. Changes in the amount of accumulated depreciation on operating leases will be reflected on our balance sheet in "Net investment in operating leases" and on the income statement in the "Depreciation" line of the Financial Services sector.
NEW ACCOUNTING STANDARDS
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation--Transition and Disclosure--an amendment of FASB Statement No. 123. This Statement amends SFAS No. 123, "Accounting for Stock-Based Compensation", to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Effective January 1, 2003, we adopted the fair value recognition provisions of SFAS No. 123 prospectively to all unvested employee awards as of January 1, 2003, and all new awards granted to employees after January 1, 2003 using the modified prospective method of adoption under the provisions of SFAS No. 148.
The FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities in June 2002. This Statement requires obligations associated with disposing of operations to be recognized and measured at fair value when certain liabilities are incurred. The current accounting guidance allows for recognition of liabilities on the commitment date of a disposal or exit plan. We adopted this Statement on January 1, 2003 and plant closures related to our Revitalization Plan will follow SFAS No. 146 accounting guidelines. We do not expect adoption of this Statement to have a material impact on our consolidated financial position or results of operations.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. This Statement superseded SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of and addresses financial accounting and reporting for impairment of long-lived assets to be held and used, and long-lived assets and components of an entity to be disposed of. We adopted this Statement on January 1, 2002.
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations, which requires entities to establish liabilities for legal obligations associated with the retirement of tangible long-lived assets. We adopted the Statement on January 1, 2003 and do not expect a material impact on our consolidated financial position or results of operations.
In November 2002, the FASB issued Interpretation No. 45 (FIN 45), Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN 45 clarifies the requirements of SFAS No. 5, Accounting for Contingencies, relating to a guarantor's accounting for, and disclosure of, the issuance of certain types of guarantees. 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 obligations it assumes under the guarantee. Guarantees issued prior to January 1, 2003, are not subject to liability recognition, but are subject to expanded disclosure requirements. We do not believe that the adoption of this Interpretation will have a material impact on our consolidated financial position or statement of operations. For further discussion, see Note 24 of the Notes to our Financial Statements.
In January 2003, FASB issued FIN 46, an interpretation of Accounting Research Bulletin No. 51. Under FIN 46, which requires us to consolidate variable interest entities for which we are deemed to be the primary beneficiary and disclose information about variable interest entities in which we have a significant variable interest. FIN 46 became effective immediately for variable interest entities formed after January 31, 2003 and will become effective in the third quarter of 2003 for any variable interest entities formed prior to February 1, 2003. We are adopting FIN 46 as it becomes effective, which could materially impact our financial statements. For further discussion of FIN 46, see "Off-Balance Sheet Arrangements-Variable Interest Entities" above and Note 13 of the Notes to our Financial Statements.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
OUTLOOK
We have set and communicated certain financial milestones for 2003. The financial milestones for 2003 are as follows:
Planning Assumptions
--------------------
Industry Volume
U.S. 16.5 million units
Europe 17.0 million units
Net Pricing
U.S. Zero
Europe 1%
Physicals Milestone
--------- ---------
Quality Improve in all regions
Market Share Improve in all regions
Automotive:
Cost Performance (at constant
volume and mix) Improve by at least $500 million
Capital Spending $8 billion
Financial Results
-----------------
Automotive
Income Before Taxes Breakeven
Operating Cash Flow* Breakeven
Ford Credit Improve cash contribution to Parent
Maintain managed leverage in low
end of 13-14 to 1 range **
----------------
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* Consistent with operating cash flow calculation under "Liquidity and Capital Resources - Automotive Sector" above. ** Consistent with definition of leverage under "Liquidity and Capital Resources - Financial Services Sector" above.
Based on the planning assumptions set forth above and achievement of the foregoing milestones, we expect 2003 fully diluted earnings to be about 70 cents per share for the full-year and 20 cents per share for the first quarter. For the full-year, we expect the Automotive sector to break even and the Financial Services sector to provide improved cash contributions to the parent company.
In January 2002, we announced our Revitalization Plan, which is expected to improve our pre-tax income to $7 billion by mid-decade. Excluding unusual items, our pre-tax earnings in 2002 were well in excess of the breakeven target we set when we announced the Revitalization Plan last year. We also made improvements to our cost structure consistent with the Revitalization Plan. With the progress made on costs in 2002, coupled with the acceleration of cost reductions planned for this year, we expect profits to be ahead of the original plan this year as well. This expectation is reflected in our full year earnings target of 70 cents per share.
We sponsor defined benefit pension plans throughout the world and post retirement health care plans, primarily in the United States. We also provide health care coverage for our active employees,
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
primarily in the United States. Pursuant to our collective bargaining agreement with the UAW, under which most of our U.S. hourly employees are covered, we are contractually committed to provide specified levels of pension and health care benefits to both employees and retirees covered by the contract. These obligations give rise to significant expenses that are highly dependent on assumptions discussed in Note 20 of the Notes to our Financial Statements and under "Critical Accounting Estimates" above.
Based on present assumptions and benefit agreements, we expect our 2003 U.S. pre-tax pension expense to be about $270 million, which is about $460 million higher than it was in 2002.
In 2002, our health care costs for United States employees was $2.8 billion, with about $1.9 billion attributable to retirees and $900 million attributable to active employees. Our health care costs in the United States have been rising at about 16% a year over the last two years. The cost of prescription drugs, which rose about 15% in 2002 compared with 2001, is the fastest growing segment of our health care costs and now accounts for approximately 30% of our total United States health care costs. Although we have taken measures to have salaried employees and retirees bear a higher portion of the costs of their health care benefits, we expect these trends to continue over the next several years.
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, act of war or measures taken by governments in response
thereto that negatively affect the travel industry; and
o our inability to implement the Revitalization Plan.
OVERVIEW
We are exposed to a variety of market and other risks, including the effects of changes in foreign currency exchange rates, commodity prices, interest rates, as well as risks to availability of funding sources, hazard events, and specific asset risks.
These risks affect our Automotive and Financial Services sectors differently. We monitor and manage these exposures as an integral part of our overall risk management program, which includes regular reports to a central management committee, the Global Risk Management Committee ("GRMC"). The GRMC is responsible for developing our overall risk management objectives and reviewing performance against these objectives. The GRMC is chaired by our Chief Financial Officer, and its members include our Treasurer, our Controller, and the Chief Financial Officer of Ford Credit.
Our Automotive and Financial Services sectors are exposed to liquidity risk, or the possibility of having to curtail their businesses or being unable to meet present and future financial obligations as they come due because funding sources may be reduced or become unavailable. We, and particularly Ford Credit, which comprises substantially all of our Financial Services sector, maintain plans for sources of funding to ensure liquidity through a variety of economic or business cycles. As discussed in greater detail in Item 7, our funding sources include commercial paper, term debt, sale of receivables through securitization transactions, committed lines of credit from major banks, and other sources.
We are exposed to a variety of insurable risks, such as loss or damage to property, liability claims, and employee injury. We protect against these risks through a combination of self-insurance and the purchase of commercial insurance designed to protect against events that could generate significant losses.
Direct responsibility for the execution of our market risk management strategies resides with our Treasurer's Office and is governed by written polices and procedures. Separation of duties is maintained between the development and authorization of derivative trades, the transaction of derivatives, and the settlement of cash flows. Regular audits are conducted to ensure that appropriate controls are in place and that they remain effective. In addition, our market risk exposures and our use of derivatives to manage these exposures are reviewed by the GRMC and the Audit Committee of our Board of Directors. For additional information on our derivatives, see Note 17 of our Notes to Financial Statements.
The market and counterparty risks of our Automotive sector and Ford Credit are discussed and quantified below. The quantitative disclosures presented are independent of any adjustments related to SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities.
AUTOMOTIVE MARKET AND COUNTERPARTY RISK
Our Automotive sector frequently has expenditures and receipts denominated in foreign currencies, including the following: purchases and sales of finished vehicles and production parts, debt and other payables, subsidiary dividends, and investments in foreign operations. These expenditures and receipts create exposures to changes in exchange rates. We also are exposed to changes in prices of commodities used in our Automotive sector and changes in interest rates.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk (Continued)
Foreign currency risk and commodity risk are measured and quantified using a model to calculate the changes in the value of currency and commodity derivative instruments along with the underlying exposure being hedged. Beginning with this report, we have changed our risk disclosure methodology to an earnings at risk ("EaR") model from a value at risk ("VaR"). VaR is a valuation of the existing hedge portfolio and projects the potential change in the portfolio's liquidation value. EaR provides the potential impact to pre-tax earnings related to foreign currency and commodity price exposure and is a more meaningful metric to an ongoing business than VaR. The model to calculate EaR combines current market data with historical data on volatilities and correlations of the underlying currencies and commodity prices. EaR includes hedging derivatives as well as the underlying exposures over a twelve month period.
Foreign currency risk is the possibility that our financial results could be better or worse than planned because of changes in foreign currency exchange rates. We use derivative instruments to hedge assets, liabilities, investments in foreign operations, and firm commitments denominated in foreign currencies. In our hedging actions, we use primarily instruments commonly used by corporations to reduce foreign exchange risk (e.g., forward contracts and options).
Our EaR is based on transaction exposure, which is the foreign currency exposure that results from cross border cash flows from specific transactions, and our related hedging activity. At December 31, 2002, the EaR from foreign currency exchange movements over the next twelve months is less than $390 million, within a 95% confidence level, which is approximately $60 million higher than the EaR projection for 2002 calculated as of December 31, 2001. The increased exposure results primarily from less diversification benefit due to higher correlation among major currency pairings.
Commodity price risk is the possibility of higher or lower costs due to changes in the prices of commodities, such as non-ferrous (e.g., aluminum) and precious metals (e.g., palladium, platinum and rhodium), ferrous alloys (e.g., steel), energy (e.g., natural gas and electricity), and plastics/resins (e.g., polypropylene), which we use in the production of motor vehicles. We use derivative instruments to hedge the price risk associated with the purchase of those commodities that we can economically hedge. In our hedging actions, we primarily use instruments commonly used by corporations to reduce commodity price risk (e.g., financially settled forward contracts, swaps, and options).
Based on our financial hedging activities with derivatives and the associated underlying exposures (e.g., precious metals, aluminum, copper, natural gas, and unleaded gas), at December 31, 2002, the EaR from commodity price movements over the next twelve months is less than $59 million, within a 95% confidence level, which is approximately $25 million lower than the EaR projection for 2002 calculated as of December 31, 2001. The decreased exposure results primarily from declining consumption exposures and a lower cost basis.
In addition to these price-hedging activities, our procurement activities ensure that we have adequate supplies of raw materials used in our business. These procurement activities utilize forward purchase contracts, long-term supply contracts, and stockpiles. Any price-hedging inherent in our procurement activities is approved by the GRMC.
Interest rate risk relates to the gain or loss we could incur to our investment portfolio in the event of a change in interest rates. We have $25.3 billion in cash (including assets contained in a VEBA trust), which we invest in securities of various types and maturities. Many of these securities are interest sensitive. These securities are generally classified as Trading or Available for Sale. The Trading portfolio gains and losses (unrealized and realized) are reported in the income statement. The Available for Sale portfolio realized
Item 7A. Quantitative and Qualitative Disclosures About Market Risk (Continued)
gains or losses are reported in the income statement, and unrealized gains and losses are reported in the Consolidated Statement of Stockholders' Equity in other comprehensive income. The investment strategy is based on clearly defined risk and liquidity guidelines to maintain liquidity, minimize risk, and earn a reasonable return on the short-term investment.
At any time, a rise in interest rates could have a material adverse impact on the fair value of our Trading and our Available for Sale portfolios. As of December 31, 2002, the value of our Trading portfolio was $18.5 billion (including assets contained in a VEBA trust), the value of our Available for Sale portfolio was $1.6 billion, and the value of our cash and cash equivalents was $5.2 billion.
Assuming a hypothetical, instantaneous increase in interest rates of one percentage point, the value of our Available for Sale and Trading portfolios would be reduced by $185 million and $27 million, respectively. While this is our best estimate of the impact of the specified interest rate scenario, actual results could differ from those projected. The sensitivity analysis presented assumes interest rate changes are instantaneous, parallel shifts in the yield curve. In reality, interest rate changes are rarely instantaneous or parallel.
Counterparty risk relates to the loss we could incur if an obligor or counterparty defaulted on an investment or a derivative contract. Exposures primarily relate to investments in fixed-income instruments and derivative contracts used for managing interest rate, currency and commodity risk. We, together with Ford Credit, establish exposure limits for each counterparty to minimize risk and provide counterparty diversification. Our exposures are monitored on a regular basis and are included in monthly reporting to the GRMC.
Our approach to managing counterparty risk is forward-looking and proactive, allowing us to take risk mitigation actions. We establish exposure limits for both mark-to-market and future potential exposure, based on our overall risk tolerance and ratings-based historical default probabilities. The exposure limits are lower for lower-rated counterparties and for longer-dated exposures. We use a Monte Carlo simulation technique to assess our potential exposure by tenor, defined at a 95% confidence level.
Substantially all of our counterparty and obligor exposures are with counterparties and obligors that are rated single-A or better.
FORD CREDIT MARKET RISKS
Ford Credit is exposed to risks in the normal course of its business activities. In addition to counterparty risk discussed above, Ford Credit is subject to the following additional types of risks that it seeks to identify, assess, monitor and manage, in accordance with defined policies and procedures:
o Market risk - the possibility that changes in future market interest
and currency exchange rates or prices will have an adverse impact on
operating results.
o Credit risk - the possibility of loss from a customer's failure to
make payments according to contract terms.
o Residual risk - the possibility that the actual proceeds received by
Ford Credit upon the sale of returned lease vehicles at lease
termination will be lower than its internal forecast of residual
values.
o Liquidity risk - the possibility of being unable to meet all current
and future obligations in a timely manner.
Each form of risk is uniquely managed in the context of its contribution to Ford Credit's overall global risk. Business decisions are evaluated on a risk-adjusted basis and products are priced consistent
Item 7A. Quantitative and Qualitative Disclosures About Market Risk (Continued)
with these risks. Credit and residual risks are discussed above under the caption "Critical Accounting Estimates" and liquidity risk is discussed above under the caption "Liquidity and Capital Resources--Financial Services Sector-- Ford Credit", in each case in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations." The following discusses Ford Credit's market risks:
Foreign Currency Risk. To meet funding objectives, Ford Credit issues debt or, for its international affiliates, draws on local credit lines in a variety of currencies. Ford Credit faces exposure to currency exchange rates if a mismatch exists between the currency of its receivables and the currency of the debt funding those receivables. When possible, receivables are funded with debt in the same currency, minimizing exposure to exchange rate movements. When a different currency is used, Ford Credit seeks to minimize the impact of currency exchange rates on operating results by executing foreign currency derivatives. These derivatives convert substantially all of its foreign currency debt obligations to the local country currency of the receivables. As a result, Ford Credit's market risk exposure relating to currency exchange rates is believed to be immaterial.
Interest Rate Risk. Interest rate risk is the primary market risk to which Ford Credit is exposed and consists principally of "re-pricing risk" or differences in the re-pricing characteristics of assets and liabilities. An instrument's re-pricing period is a term used by financial institutions to describe how an interest rate-sensitive instrument responds to changes in interest rates. It refers to the time it takes an instrument's interest rate to reflect a change in market interest rates. For fixed-rate instruments, the re-pricing period is equal to the maturity for repayment of the instrument's principal because, with a fixed interest rate, the principal is considered to re-price only when re-invested in a new instrument. For a floating-rate instrument, the re-pricing period is the period of time before the interest rate adjusts to the market rate. For instance, a floating-rate loan whose interest rate is reset to a market index annually on December 31st would have a re-pricing period of one year on January 1st, regardless of the instrument's maturity.
Ford Credit's receivables consist primarily of fixed-rate retail installment sale and lease contracts and floating-rate wholesale receivables. Fixed-rate retail installment sale and lease contracts are originated principally with maturities ranging between two and six years and generally require customers to make equal monthly payments over the life of the contract. Ford Credit's funding sources consist primarily of short and long-term unsecured debt and sales of receivables in securitizations. In the case of unsecured term debt, and in an effort to have funds available throughout business cycles, Ford Credit often borrows longer-term, with five to ten year maturities. These debt instruments are principally fixed-rate and require fixed and equal interest payments over the life of the instrument and a single principal payment at maturity.
Ford Credit is exposed to interest rate risk to the extent that a difference exists between the re-pricing profile of its assets and debt. Specifically, without derivatives, Ford Credit's assets would re-price more quickly than its debt.
Ford Credit's interest rate risk management objective is to maximize its financing margin while limiting fluctuations caused by changes in interest rates. Ford Credit achieves this objective by setting an established risk tolerance range and staying within this tolerance range through an interest rate risk management program that includes entering into derivatives commonly known as interest rate swaps.
On a monthly basis, Ford Credit determines the sensitivity of the economic value of its portfolio of interest rate-sensitive assets and liabilities (its economic value) to hypothetical changes in interest rates. Economic value is a measure of the present value of all future expected cash flows, discounted by market interest rates, and is equal to the present value of interest rate-sensitive assets minus the present value of interest rate-sensitive liabilities. Ford Credit then enters into interest rate swaps, effectively converting portions of its floating-rate debt or assets to fixed or its fixed-rate debt or assets to floating, to ensure that the sensitivity of its economic value falls within an established target range. Ford Credit also monitors the sensitivity of its earnings to interest rates using earnings simulation techniques. These simulations calculate the projected earnings of its portfolio of interest rate-sensitive assets and liabilities under various interest rate scenarios, including both parallel and non-parallel shifts in the yield curve. These quantifications of interest rate risk are included in monthly reporting to the GRMC.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk (Continued)
The process described above is used to measure and manage the interest rate risk of Ford Credit's operations in the United States and Canada, which together represented approximately 74% of its total owned finance receivables at December 31, 2002. For its international affiliates, Ford Credit uses a technique commonly referred to as "gap analysis," to measure re-pricing mismatch. This process uses re-pricing schedules, which group assets, debt, and swaps into time-bands based on their re-pricing period. Under this process, Ford Credit enters into interest rate swaps, effectively changing the re-pricing profile of its assets and debt, to ensure that any re-pricing mismatch existing in a particular time-band falls within an established tolerance.
As a result of its interest rate risk management process, including derivatives, Ford Credit's debt re-prices slightly faster than its assets. Other things equal, this means that during a period of rising interest rates, the interest rates paid on Ford Credit's debt will increase more rapidly than the interest rates earned on assets, thereby initially reducing Ford Credit's earnings by a small amount. Correspondingly, during a period of falling interest rates, Ford Credit's earnings would be expected to initially increase by a small amount. To provide a quantitative measure of the sensitivity of its earnings to changes in interest rates, Ford Credit uses interest rate scenarios that assume a hypothetical, instantaneous increase or decrease in interest rates of one percentage point across all maturities, as well as a base case that assumes that interest rates remain constant at existing levels. The differences between these scenarios and the base case over a one year horizon represent an estimate of the sensitivity of Ford Credit's pre-tax earnings over the following year. This sensitivity as of year-end 2001 and 2002 is as follows:
Pre-tax earnings impact given a Pre-tax earnings impact given a
one percentage point increase in one percentage point decrease in
interest rates (in millions) interest rates (in millions)
December 31, 2002 $(153) $156
December 31, 2001 $(120) $121
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While the sensitivity analysis presented is Ford Credit's best estimate of the impacts of specified assumed interest rate scenarios, actual results could differ from those projected. The model used to conduct this analysis is heavily dependent on assumptions, particularly those regarding the reinvestment of maturing asset principal, refinancing of maturing debt, and predicted repayment of sale and lease contracts ahead of contractual maturity.
Our Financial Statements, the accompanying Notes and the Report of Independent Accountants that are filed as part of this Report are listed under Item 15. "Exhibits, Financial Statement Schedules, and Reports on Form 8-K" and are set forth on pages FS-1 through FS-29 immediately following the signature pages of this Report.
Selected quarterly financial data for us and our consolidated subsidiaries for 2002 and 2001 is in Note 23 of our Notes to Financial Statements.
Not required.
PART III
The information required by Item 10 regarding our directors is incorporated by reference from the information under the captions "Election of Directors", "Section 16(a) Beneficial Ownership Reporting Compliance" and "Management Stock Ownership" in our Proxy Statement. The information required by Item 10 regarding our executive officers appears as Item 4A under Part I of this Report.
The information required by Item 11 is incorporated by reference from
the information under the following captions in our Proxy Statement:
"Compensation of Directors", "Compensation Committee Report on Executive
Compensation", "Compensation Committee Interlocks and Insider Participation
"Compensation of Executive Officers", "Stock Options", "Performance Stock
Rights", "Stock Performance Graphs" and "Retirement Plans".
The information required by Item 12 is incorporated by reference from the information under the caption "Stock Options - Equity Compensation Plan Information" and "Management Stock Ownership" in our Proxy Statement.
The information required by Item 13 is incorporated by reference from the information under the caption "Certain Relationships and Related Transactions" in our Proxy Statement.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
William Clay Ford, Jr., our Chief Executive Officer, and Allan D. Gilmour, our Chief Financial Officer, have performed an evaluation of our 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"), within 90 days of the date of this report 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 period specified by the Securities and Exchange Commission's rules and regulations.
CHANGES IN INTERNAL CONTROLS
No significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses, were made as a result of the evaluation.
PART IV
Sector Statement of Income and Consolidated Statement of Income for the years ended December 31, 2002, 2001, and 2000.
Sector Balance Sheet and Consolidated Balance Sheet at December 31, 2002 and 2001.
Sector Statement of Cash Flows and Consolidated Statement of Cash Flows for the years ended December 31, 2002, 2001, and 2000.
Consolidated Statement of Stockholders' Equity for the years ended December 31, 2002, 2001, and 2000.
Notes to Financial Statements
Report of Independent Accountants
The Sector and Consolidated Financial Statements, the Notes to Financial Statements and the Report of Independent Accountants listed above are filed as part of this Report and are set forth on pages FS-1 through FS-29 immediately following the signatures pages of this Report.
None Required.
The schedules are omitted because the information required to be contained in them is disclosed elsewhere in our Sector and Consolidated Financial Statements or the amounts involved are not sufficient to require submission.
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
(a) 3. Exhibits
-----------------
Designation Description Method of Filing
----------- ----------- ----------------
Exhibit 3-A Restated Certificate of Incorporation, Filed as Exhibit 3-A to Ford's
dated August 2, 2000. Annual Report on Form 10-K for the
year ended December 31, 2000.*
Exhibit 3-B By-Laws as amended Filed with this Report.
through December 12, 2002.
Exhibit 10-A Amended and Restated Profit Filed as Exhibit 10-A to Ford's
Maintenance Agreement, dated as of Annual Report on Form 10-K
January 1, 2002, between Ford for the year ended December 31, 2001.*
and Ford Credit.
Exhibit 10-B Executive Separation Allowance Plan Filed as Exhibit 10-B to Ford's
as amended and restated through Annual Report on Form 10-K
December 18, 2000 for separations on for the year ended
or after January 1, 1981.** December 31, 2000.*
Exhibit 10-C Description of Ford practices regarding Filed as Exhibit 10-J to Ford's
travel expenses of spouses of certain Annual Report on Form 10-K for the
executives.** year ended December 31, 1980.*
Exhibit 10-D Deferred Compensation Plan for Filed as Exhibit 10-H-1 to Ford's
Non-Employee Directors, as amended Annual Report on Form 10-K for the
on July 11, 1991.** year ended December 31, 1991.*
Exhibit 10-D-1 Amendments to Deferred Compensation Plan Filed as Exhibit 10-G-1 to Ford's
for Non-Employee Directors, effective as of Annual Report on Form 10-K for the
January 1, 1996.** year ended December 31, 1995.*
Exhibit 10-D-2 Amendment to Deferred Compensation Plan Filed as Exhibit 10-G-2 to Ford's
for Non-Employee Directors, effective as of Annual Report on Form 10-K for the
November 14, 1996.** year ended December 31, 1996.*
Exhibit 10-E Benefit Equalization Plan, as Filed as Exhibit 10-F to Ford's
amended and restated as of Annual Report on Form 10-K for the
December 18, 2000.** year ended December 31, 2000.*
Exhibit 10-F Description of financial counseling Filed with this Report.
services provided to certain executives.**
Exhibit 10-G Supplemental Executive Retirement Plan, Filed as Exhibit 10-H to Ford's
as restated and incorporating amendments Annual Report on Form 10-K for the
through December 18, 2000.** year ended December 31, 2000.*
73
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Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
Designation Description Method of Filing
----------- ----------- ----------------
Exhibit 10-H Restricted Stock Plan for Non-Employee Filed as Exhibit 10-P to Ford's
Directors adopted by the Board of Annual Report on Form 10-K for the
Directors on November 10, 1988, year ended December 31, 1988.*
and approved by the stockholders at
the 1989 Annual Meeting.**
Exhibit 10-H-1 Amendment to Restricted Stock Plan for Filed as Exhibit 10.1 to Ford's
Non-Employee Directors, effective as of Quarterly Report on Form 10-Q for the
August 1, 1996.** quarter ended September 30, 1996.*
Exhibit 10-I 1990 Long-Term Incentive Plan, Filed as Exhibit 10-R to Ford's
amended as of June 1, 1990.** Annual Report on Form 10-K for the
year ended December 31, 1990.*
Exhibit 10-I-1 Amendment to 1990 Long-Term Incentive Filed as Exhibit 10-P-1 to Ford's
Plan, effective as of October 1, 1990.** Annual Report on Form 10-K for the
year ended December 31, 1991.*
Exhibit 10-I-2 Amendment to 1990 Long-Term Incentive Filed as Exhibit 10.2 to Ford's
Plan, effective as of March 8, 1995.** Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995.*
Exhibit 10-I-3 Amendment to 1990 Long-Term Filed as Exhibit 10-M-3 to Ford's
Incentive Plan, effective as of Annual Report on Form 10-K for the
October 1, 1997.** year ended December 31, 1997.*
Exhibit 10-I-4 Amendment to 1990 Long-Term Filed as Exhibit 10-M-4 to Ford's
Incentive Plan, effective as of Annual Report on Form 10-K for the
January 1, 1998.** year ended December 31, 1997.*
Exhibit 10-J Description of Matching Gift Program for Filed as Exhibit 10-Q to Ford's
Non-Employee Directors.** Annual Report on Form 10-K for the
year ended December 31, 1991.*
Exhibit 10-K Non-Employee Directors Life Insurance Filed as Exhibit 10-O to Ford's
and Optional Retirement Plan Annual Report on Form 10-K for the
(as amended as of January 1, 1993).** year ended December 31, 1994.*
Exhibit 10-L Description of Non-Employee Directors Filed as Exhibit 10-S to Ford's
Accidental Death, Dismemberment and Annual Report on Form 10-K for the
Permanent Total Disablement Indemnity.** year ended December 31, 1992.*
Exhibit 10-M Agreement dated December 10, 1992 Filed as Exhibit 10-T to Ford's
between Ford and William C. Ford.** Annual Report on Form 10-K for the
year ended December 31, 1992.*
Exhibit 10-N Support Agreement dated as of October 1, Filed as Exhibit 10-T to Ford's
1993 between Ford and FCE Bank. Annual Report on Form 10-K for the
year ended December 31, 1993.*
74
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Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
Designation Description Method of Filing
----------- ----------- ----------------
Exhibit 10-N-1 Amendment No. 1 dated as of November Filed as Exhibit 10-R-1 to Ford's
15, 1995 to Support Agreement between Annual Report on Form 10-K for the
Ford and FCE Bank. year ended December 31, 1995.*
Exhibit 10-O Select Retirement Plan Filed as Exhibit 10-P to Ford's
as amended and restated through Annual Report on Form 10-K for the
January 1, 2000.** year ended December 31, 2000.*
Exhibit 10-P Deferred Compensation Plan, Filed as Exhibit 10-R to Ford's
as amended and restated as of Annual Report on Form 10-K for the
January 1, 2000.** year ended December 31, 1999.*
Exhibit 10-P-1 Amendment to Deferred Filed as Exhibit 4.2 to Ford's
Compensation Plan effective Registration Statement No. 333-
as of April 12, 2000.** 56660.*
Exhibit 10-P-2 Amendment to Deferred Filed as Exhibit 4.3 to Ford's
Compensation Plan effective Registration Statement No. 333-
as of June 1, 2000.** 56660.*
Exhibit 10-Q Annual Incentive Compensation Plan, Filed as Exhibit 10-T to Ford's
as amended and restated as of Annual Report on Form 10-K for the
January 1, 2000.** year ended December 31, 1999.*
Exhibit 10-R 1998 Long-Term Incentive Plan, Filed with this Report.
as amended and restated effective as of
January 1, 2003, subject to shareholder
approval.**
Exhibit 10-S Agreement dated January 13, 1999 Filed as Exhibit 10-X to Ford's
between Ford and Edsel B. Ford II.** Annual Report on Form 10-K for
the year ended December 31, 1998.*
Exhibit 10-T Agreement between Ford Motor Filed as Exhibit 10 to Ford's
Company and Ford Motor Credit Current Report on Form 8-K
Company dated as of October 18, 2001 dated October 18, 2001.*
Exhibit 10-U Agreement between Ford and Filed as Exhibit 10.2 to Ford's
Carl Reichardt, entered into in Quarterly Report on Form 10-Q for
June, 2002.** the quarter ended June 30, 2002.*
Exhibit 10-V Form of Trade Secrets/Non-Compete Filed as Exhibit 10.3 to Ford's
Statement between Ford and certain Quarterly Report on Form 10-Q for
of its Executive Officers.** the quarter ended June 30, 2002.*
Exhibit 10-W Amendment to Benefit Equalization Plan, Filed as Exhibit 10 to Ford's
adopted in October, 2002 and effective Quarterly Report on Form 10-Q for the
as of November 1, 2001.** quarter ended September 30, 2002.*
75
|
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
Designation Description Method of Filing
----------- ----------- ----------------
Exhibit 12 Computation of Ratio of Earnings to Filed with this Report.
Combined Fixed Charges and Preferred
Stock Dividends.
Exhibit 21 List of Subsidiaries of Ford Filed with this Report.
as of March 15, 2003.
Exhibit 23 Consent of Independent Certified Public Filed with this Report.
Accountants.
Exhibit 24 Powers of Attorney. Filed with this Report.
Exhibit 99-A CEO Certification Pursuant to Filed with this Report.
Section 906 of the Sarbanes-
Oxley Act of 2002
Exhibit 99-B CFO Certification Pursuant to Filed with this Report.
Section 906 of the Sarbanes-
Oxley Act of 2002
|
Instruments defining the rights of holders of certain issues of long-term debt of Ford and of certain consolidated subsidiaries and of any unconsolidated subsidiary, for which financial statements are required to be filed with this Report, have not been filed as exhibits to this Report because the authorized principal amount of any one of such issues does not exceed 10% of the total assets of Ford and our subsidiaries on a consolidated basis. Ford agrees to furnish a copy of each of such instruments to the Commission upon request.
Ford filed the following Current Reports on Form 8-K during the quarter ended December 31, 2002:
Current Report on Form 8-K dated October 1, 2002 included information relating to Ford's September 2002 U.S. sales results.
Current Report on Form 8-K dated October 7, 2002 included information relating to Ford's 2002 collective bargaining agreement between Ford Motor Company of Canada, Limited and the Canadian Auto Workers (CAW) Union.
Current Report on Form 8-K dated October 16, 2002 included information relating to Ford's third quarter 2002 financial results.
Current Report on Form 8-K dated October 21, 2002 included information relating to an update to Ford's Revitalization Plan.
Current Report on Form 8-K dated November 1, 2002 included information relating to Ford's October 2002 U.S. sales results.
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
Current Report on Form 8-K dated November 15, 2002 included information relating to Ford's sale of Kwik-Fit Holdings, Ltd.
Current Report on Form 8-K dated December 3, 2002 included information relating to Ford's November 2002 U.S. sales results and Ford's North American and Overseas Production schedule dated December 3, 2002.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Ford has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
FORD MOTOR COMPANY
By: Allan D. Gilmour*
-------------------------------
(Allan D. Gilmour)
Vice Chairman and
Chief Financial Officer
Date: March 14, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934,
|
this Report has been signed below by the following persons on behalf of Ford and in the capacities on the date indicated.
Signature Title Date
--------- ----- ----
William Clay Ford, Jr.* Director, Chairman of the
------------------------------- Board and Chief Executive Officer
(William Clay Ford, Jr.) and Chair of the Environmental and
Public Policy Committee and
Office of the Chairman and
Chief Executive Committee
(principal executive officer)
John R. H. Bond* Director
-------------------------------
(John R. H. Bond)
Edsel B. Ford II* Director March 14, 2003
-------------------------------
(Edsel B. Ford II)
William Clay Ford* Director
-------------------------------
(William Clay Ford)
Irvine O. Hockaday, Jr.* Director and
------------------------------- Chair of the
(Irvine O. Hockaday, Jr.) Audit Committee
78
|
Signature Title Date
--------- ----- ----
Marie-Josee Kravis* Director and Chair of the
------------------------------- Compensation Committee
(Marie-Josee Kravis)
Richard A. Manoogian* Director
-------------------------------
(Richard A. Manoogian)
Ellen R. Marram* Director and Chair of the
-------------------------------
(Ellen R. Marram) Nominating and Governance
Committee
Homer A Neal* Director
-------------------------------
(Homer A. Neal)
Jorma Ollila* Director March 14, 2003
-------------------------------
(Jorma Ollila)
Carl E. Reichardt* Director, Chair of
------------------------------- the Finance Committee
(Carl E. Reichardt) and Vice Chairman
Robert E. Rubin* Director
-------------------------------
(Robert E. Rubin)
Nicholas V. Scheele* Director and President and
------------------------------- Chief Operating Officer
(Nicholas V. Scheele)
John L. Thornton* Director
-------------------------------
(John L. Thornton)
Allan D. Gilmour* Vice Chairman and
------------------------------- Chief Financial Officer
(Allan D. Gilmour) (principal financial officer)
Donat R. Leclair* Vice President and Controller
------------------------------- (principal accounting officer)
(Donat R. Leclair)
*By: /s/Peter Sherry, Jr.
--------------------------
(Peter Sherry, Jr.)
Attorney-in-Fact
|
CERTIFICATION
I, William Clay Ford, Jr., Chairman of the Board and Chief Executive Officer of Ford Motor Company, certify that:
1. I have reviewed this annual report on Form 10-K of Ford Motor Company;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operation and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c) Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
By: /s/ William Clay Ford, Jr.
William Clay Ford, Jr.
Chairman of the Board and
Chief Executive Officer
|
CERTIFICATION
I, Allan D. Gilmour, Vice Chairman and Chief Financial Officer of Ford Motor Company, certify that:
1. I have reviewed this annual report on Form 10-K of Ford Motor Company;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operation and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c) Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
By: /s/ Allan D. Gilmour
Allan D. Gilmour
Vice Chairman and
Chief Financial Officer
|
Ford Motor Company and Subsidiaries
SECTOR STATEMENT OF INCOME
--------------------------
For the Years Ended December 31, 2002, 2001 and 2000
(in millions, except per share amounts)
2002 2001 2000
------------ ------------ -------------
AUTOMOTIVE
Sales (Note 1) $134,425 $130,827 $140,777
Costs and expenses (Note 1)
Costs of sales 125,137 128,417 125,651
Selling, administrative and other expenses 9,819 9,805 9,838
-------- -------- --------
Total costs and expenses 134,956 138,222 135,489
Operating income/(loss) (531) (7,395) 5,288
Interest income 834 765 1,488
Interest expense 1,368 1,376 1,383
-------- -------- --------
Net interest income/(expense) (534) (611) 105
Equity in net income/(loss) of affiliated companies (91) (856) (70)
-------- -------- --------
Income/(loss) before income taxes - Automotive (1,156) (8,862) 5,323
FINANCIAL SERVICES
Revenues (Note 1) 28,161 29,927 28,314
Costs and expenses (Note 1)
Interest expense 7,456 9,441 9,477
Depreciation 10,240 10,164 9,059
Operating and other expenses 5,080 5,221 4,845
Provision for credit and insurance losses 3,276 3,661 1,957
-------- -------- --------
Total costs and expenses 26,052 28,487 25,338
Income/(loss) before income taxes - Financial Services 2,109 1,440 2,976
-------- -------- --------
TOTAL COMPANY
Income/(loss) before income taxes 953 (7,422) 8,299
Provision for/(benefit from) income taxes (Note 2) 302 (2,097) 2,720
-------- -------- --------
Income/(loss) before minority interests 651 (5,325) 5,579
Minority interests in net income/(loss) of subsidiaries 367 24 123
-------- -------- --------
Income/(loss) from continuing operations 284 (5,349) 5,456
Income/(loss) from discontinued/held-for-sale operations (Note 3) (63) (104) 263
Loss on disposal of discontinued/held-for-sale operations (Note 3) (199) - (2,252)
Cumulative effect of change in accounting principle (Note 7) (1,002) - -
-------- -------- --------
Net income/(loss) $ (980) $ (5,453) $ 3,467
======== ======== ========
Income/(loss) attributable to Common and Class B Stock
after Preferred Stock dividends $ (995) $ (5,468) $ 3,452
Average number of shares of Common and Class B
Stock outstanding (Note 15) 1,819 1,820 1,483
AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK (Note 15)
Basic income/(loss)
Income/(loss) from continuing operations $ 0.15 $ (2.96) $ 3.69
Income/(loss) from discontinued/held-for-sale operations (0.04) (0.06) 0.18
Loss on disposal of discontinued/held-for-sale operations (0.11) - (1.53)
Cumulative effect of change in accounting principle (0.55) - -
-------- -------- --------
Net income/(loss) $ (0.55) $ (3.02) $ 2.34
Diluted income/(loss)
Income/(loss) from continuing operations $ 0.15 $ (2.96) $ 3.62
Income/(loss) from discontinued/held-for-sale operations (0.03) (0.06) 0.17
Loss on disposal of discontinued/held-for-sale operations (0.11) - (1.49)
Cumulative effect of change in accounting principle (0.55) - -
-------- -------- --------
Net income/(loss) $ (0.54) $ (3.02) $ 2.30
Cash dividends $ 0.40 $ 1.05 $ 1.80
|
The accompanying notes are part of the financial statements.
FS-1
Ford Motor Company and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
--------------------------------
For the Years Ended December 31, 2002, 2001 and 2000
(in millions, except per share amounts)
2002 2001 2000
------------ ------------ -------------
Sales and revenues
Sales $134,425 $130,827 $140,777
Revenues and other interest income 28,995 30,692 29,802
-------- -------- --------
Total sales and revenues 163,420 161,519 170,579
Costs and expenses
Costs of sales 125,137 128,417 125,651
Selling, administrative and other expenses 25,150 25,195 23,721
Interest expense 8,824 10,817 10,860
Provision for credit and insurance losses 3,276 3,661 1,957
-------- -------- --------
Total costs and expenses 162,387 168,090 162,189
Equity in net income/(loss) of affiliated companies (80) (851) (91)
-------- -------- --------
Income/(loss) before income taxes 953 (7,422) 8,299
Provision for/(benefit from) income taxes 302 (2,097) 2,720
-------- -------- --------
Income/(loss) before minority interests 651 (5,325) 5,579
Minority interests in net income/(loss) of subsidiaries 367 24 123
-------- -------- --------
Income/(loss) from continuing operations 284 (5,349) 5,456
Income/(loss) from discontinued/held-for-sale operations (63) (104) 263
Loss on disposal of discontinued/held-for-sale operations (199) - (2,252)
Cumulative effect of change in accounting principle (1,002) - -
-------- -------- --------
Net income/(loss) $ (980) $ 5,453 $ 3,467
======== ======== ========
Income/(loss) attributable to Common and Class B Stock
after Preferred Stock dividends $ (995) $ (5,468) $ 3,452
Average number of shares of Common and Class B
Stock outstanding 1,819 1,820 1,483
AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK
Basic income/(loss)
Income/(loss) from continuing operations $ 0.15 $ (2.96) $ 3.69
Income/(loss) from discontinued/held-for-sale operations (0.04) (0.06) 0.18
Loss on disposal of discontinued/held-for-sale operations (0.11) - (1.53)
Cumulative effect of change in accounting principle (0.55) - -
-------- -------- --------
Net income/(loss) $ (0.55) $ (3.02) $ 2.34
Diluted income/(loss)
Income/(loss) from continuing operations $ 0.15 $ (2.96) $ 3.62
Income/(loss) from discontinued/held-for-sale operations (0.03) (0.06) 0.17
Loss on disposal of discontinued/held-for-sale operations (0.11) - (1.49)
Cumulative effect of change in accounting principle (0.55) - -
-------- -------- --------
Net income/(loss) $ (0.54) $ (3.02) $ 2.30
Cash dividends $ 0.40 $ 1.05 $ 1.80
|
The accompanying notes are part of the financial statements.
FS-2
Ford Motor Company and Subsidiaries
SECTOR BALANCE SHEET
--------------------
As of December 31, 2002 and 2001
(in millions)
2002 2001
------------- ------------
ASSETS
Automotive
Cash and cash equivalents $ 5,180 $ 4,064
Marketable securities (Note 4) 17,464 10,949
-------- --------
Total cash and marketable securities 22,644 15,013
Receivables, less allowances of $374 and $240 2,065 2,181
Inventories (Note 5) 6,980 6,127
Deferred income taxes 3,462 2,595
Other current assets 4,551 6,153
Current receivable from Financial Services (Note 1) 1,062 938
-------- --------
Total current assets 40,764 33,007
Equity in net assets of affiliated companies 2,470 2,450
Net property (Note 6) 36,364 33,022
Deferred income taxes 11,694 5,981
Goodwill (Note 7) 4,805 5,213
Other intangible assets (Note 7) 812 1,125
Assets of discontinued and held-for-sale operations (Note 3) 98 368
Other assets 10,783 7,153
-------- --------
Total Automotive assets 107,790 88,319
Financial Services
Cash and cash equivalents 7,070 3,133
Investments in securities (Note 4) 807 628
Finance receivables, net (Notes 8 and 10) 97,030 110,190
Net investment in operating leases (Note 9) 40,055 45,388
Retained interest in sold receivables (Note 8) 17,618 12,548
Goodwill (Note 7) 752 1,042
Other intangible assts (Note 7) 248 265
Assets of discontinued and held-for-sale operations (Note 3) 2,406 2,136
Other assets 16,643 9,182
Receivable from Automotive (Note 1) 4,803 3,712
-------- --------
Total Financial Services assets 187,432 188,224
-------- --------
Total assets $295,222 $276,543
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Automotive
Trade payables $ 14,606 $ 15,620
Other payables 2,485 4,224
Accrued liabilities (Note 11) 27,644 24,295
Debt payable within one year (Note 12) 557 302
-------- --------
Total current liabilities 45,292 44,441
Long-term debt (Note 12) 13,607 13,467
Other liabilities (Note 11) 46,886 30,873
Deferred income taxes 303 362
Liabilities of discontinued and held-for-sale operations (Note 3) 138 125
Payable to Financial Services (Note 1) 4,803 3,712
-------- --------
Total Automotive liabilities 111,029 92,980
Financial Services
Payables 1,890 1,484
Debt (Note 12) 148,058 153,034
Deferred income taxes 11,644 9,686
Other liabilities and deferred income 9,448 9,165
Liabilities of discontinued and held-for-sale operations (Note 3) 831 798
Payable to Automotive (Note 1) 1,062 938
-------- --------
Total Financial Services liabilities 172,933 175,105
Company-obligated mandatorily redeemable preferred securities of a subsidiary
trusts holding solely junior subordinated debentures of the Company (Note 14) 5,670 672
Stockholders' equity
Capital stock (Notes 15 and 16)
Preferred Stock, par value $1.00 per share
(aggregate liquidation preference of $177 million at December 31, 2001) - *
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 5,420 6,001
Accumulated other comprehensive income/(loss) (6,531) (5,913)
Treasury stock (1,977) (2,823)
Earnings retained for use in business 8,659 10,502
-------- --------
Total stockholders' equity 5,590 7,786
-------- --------
Total liabilities and stockholders' equity $295,222 $276,543
======== ========
|
FS-3
Ford Motor Company and Subsidiaries
CONSOLIDATED BALANCE SHEET
--------------------------
As of December 31, 2002 and 2001
(in millions)
2002 2001
-------------- ------------
ASSETS
Cash and cash equivalents $ 12,250 $ 7,197
Marketable securities 18,271 11,577
Receivables, less allowances of $374 and $240 2,065 2,181
Net investment in operating leases 40,055 45,388
Finance receivables, net 97,030 110,190
Retained interest in sold receivables 17,618 12,548
Inventories 6,980 6,127
Equity in net assets of affiliated companies 3,569 3,713
Net property 37,935 34,575
Deferred income taxes 15,213 8,639
Goodwill 5,557 6,255
Other intangible assets 1,060 1,390
Assets of discontinued/held-for-sale operations 2,504 2,504
Other assets 29,250 19,609
-------- --------
Total assets $289,357 $271,893
======== ========
LIABILITIES AND STOCKHOLDERS EQUITY
Payables $ 18,981 $ 21,328
Accrued liabilities 25,088 24,224
Debt 162,222 166,803
Other liabilities and deferred income 56,276 39,812
Deferred income taxes 14,561 10,345
Liabilities of discontinued/held-for-sale operations 969 923
-------- --------
Total liabilities 278,097 263,435
Company-obligated mandatorily redeemable preferred securities of a subsidiary
trusts holding solely junior subordinated debentures of the Company 5,670 672
Stockholders' equity
Capital stock
Preferred Stock, par value $1.00 per share
(aggregate liquidation preference of $177 million at December 31, 2001) - *
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 5,420 6,001
Accumulated other comprehensive income/(loss) (6,531) (5,913)
Treasury stock (1,977) (2,823)
Earnings retained for use in business 8,659 10,502
-------- --------
Total stockholders' equity 5,590 7,786
-------- --------
Total liabilities and stockholders' equity $289,357 $271,893
======== ========
|
FS-4
Ford Motor Company and Subsidiaries
SECTOR STATEMENT OF CASH FLOWS
------------------------------
For the Years Ended December 31, 2002, 2001 and 2000
(in millions)
2002 2001 2000
------------------------ ---------------------------- ---------------------------
Financial Financial Financial
Automotive Services Automotive Services Automotive Services
----------- ------------ -------------- ------------- -------------- ------------
Cash and cash equivalents at January 1 $ 4,064 $ 3,133 $ 3,360 $ 1,417 $ 2,793 $ 1,543
Cash flows from operating activities
before securities trading (Note 18) 9,487 15,375 7,456 13,172 12,009 14,378
Net sales/(purchases) of trading
securities (6,206) (23) 1,143 120 6,858 122
-------- -------- -------- -------- -------- -------
Net cash flows from
operating activities 3,281 15,352 8,599 13,292 18,867 14,500
Cash flows from investing activities
Capital expenditures (6,776) (502) (6,301) (651) (7,393) (955)
Acquisitions of other companies
(Note 19) (289) - (1,998) (737) (2,662) (112)
Acquisitions of receivables and lease
investments - (81,806) - (94,061) - (95,552)
Collections of receivables and lease
investments - 45,777 - 45,110 - 54,031
Net acquisitions of daily rental vehicles - (1,846) - (1,412) - (2,107)
Purchases of securities (3,446) (609) (12,489) (734) (6,136) (564)
Sales and maturities of securities 3,445 479 13,866 759 5,105 557
Proceeds from sales of receivables and
lease investments - 41,289 - 41,419 - 19,439
Proceeds from sale of businesses 257 - - - - -
Net investing activity with
Financial Services 1,053 - 186 - 645 -
Other - 407 367 250 - (320)
-------- -------- -------- -------- -------- -------
Net cash (used in)/provided by
investing activities (5,756) 3,189 (6,369) (10,057) (10,441) (25,583)
Cash flows from financing activities
Cash dividends (743) - (1,929) - (2,751) -
Net sales/(purchases) of Common Stock 287 - (1,385) - (1,229) -
Proceeds from mandatorily redeemable
convertible preferred securities (Note 14) 4,900 - - - - -
Preferred Stock - Series B redemption (177) - - - - -
Net changes in short-term debt (25) (14,136) 38 (18,349) (776) (6,906)
Proceeds from issuance of other debt 318 15,524 2,063 44,193 2,363 37,261
Principal payments on other debt (859) (15,760) (1,122) (26,193) (1,277) (17,250)
Value Enhancement Plan payments (Note 15) - - - - (5,555) -
Net debt repayments from discontinued
operation - - - - 650 -
Net cash distribution to
discontinued operation - - - - (85) -
Net financing activity with Automotive - (1,053) - (186) - (645)
Other (23) 361 261 (184) 139 73
--------- -------- -------- -------- -------- -------
Net cash (used in)/provided by
financing activities 3,678 (15,064) (2,074) (719) (8,521) 12,533
Effect of exchange rate changes on cash 37 336 (101) (151) (55) (859)
Net transactions with Automotive/
Financial Services (124) 124 649 (649) 717 (717)
Net increase/(decrease) in cash
and cash equivalents 1,116 3,937 704 1,716 567 (126)
-------- -------- -------- -------- -------- -------
Cash and cash equivalents at December 31 $ 5,180 $ 7,070 $ 4,064 $ 3,133 $ 3,360 $ 1,417
======== ======== ======== ======== ======== =======
|
The accompanying notes are part of the financial statements.
FS-5
Ford Motor Company and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
For the Years Ended December 31, 2002, 2001 and 2000
(in millions)
2002 2001 2000
-----------------------------------------
Cash and cash equivalents at January 1 $ 7,197 $ 4,777 $ 4,336
Cash flows from operating activities before securities trading 24,862 20,628 26,387
Net sales/(purchases) of trading securities (6,229) 1,263 6,980
-------- -------- --------
Net cash flows from operating activities 18,633 21,891 33,367
Cash flows from investing activities
Capital expenditures (7,278) (6,952) (8,348)
Acquisitions of other companies (289) (2,735) (2,774)
Acquisitions of receivables and lease investments (81,806) (94,061) (95,552)
Collections of receivables and lease investments 45,777 45,110 54,031
Net acquisitions of daily rental vehicles (1,846) (1,412) (2,107)
Purchases of securities (4,055) (13,223) (6,700)
Sales and maturities of securities 3,924 14,625 5,662
Proceeds from sales of receivables and lease investments 41,289 41,419 19,439
Proceeds from sale of businesses 257 - -
Other 407 617 (320)
-------- -------- --------
Net cash (used in)/provided by investing activities (3,620) (16,612) (36,669)
Cash flows from financing activities
Cash dividends (743) (1,929) (2,751)
Net sales/(purchases) of Common Stock 287 (1,385) (1,229)
Proceeds from mandatorily redeemable convertible preferred securities 4,900 - -
Preferred Stock - Series B redemption (177) - -
Changes in short-term debt (14,161) (18,311) (7,682)
Proceeds from issuance of other debt 15,842 46,256 39,624
Principal payments on other debt (16,619) (27,315) (18,527)
Value Enhancement Plan payments - - (5,555)
Net debt repayments from discontinued operation - - 650
Net cash distribution to discontinued operation - - (85)
Other 338 77 212
-------- -------- --------
Net cash (used in)/provided by financing activities (10,333) (2,607) 4,657
---------
Effect of exchange rate changes on cash 373 (252) (914)
-------- -------- --------
Net increase/(decrease) in cash and cash equivalents 5,053 2,420 441
-------- -------- --------
Cash and cash equivalents at December 31 $ 12,250 $ 7,197 $ 4,777
======== ======== ========
|
The accompanying notes are part of the financial statements.
FS-6
Ford Motor Company and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
----------------------------------------------
For the Years Ended December 31, 2002, 2001 and 2000
(in millions)
Capital Other Comprehensive Income
in Excess -------------------------------------
of Par Foreign Minimum Derivative
Capital Value of Retained Currency Pension Instruments
Stock Stock Earnings Translation Liability and Other Other Total
--------- ---------- ----------- ------------- ----------- ----------- ----------- -----------
YEAR ENDED DECEMBER 31, 2000
----------------------------
Balance at beginning of year $1,222 $ 5,049 $24,606 $(1,565) $ (374) $ 83 $(1,417) $27,604
Comprehensive income
Net income 3,467 3,467
Foreign currency translation (1,538) (1,538)
Minimum pension liability
(net of tax of $36) (66) (66)
Net holding gain
(net of tax of $15) 28 28
-------
Comprehensive income 1,891
Common Stock issued for
employee benefit plans and other (78) (78)
ESOP loan and treasury stock (618) (618)
Value Enhancement Plan (1,203) 1,203 (5,731) (5,731)
Stock dividend (Spin-off
of Visteon) (1,707) (1,707)
Cash dividends (2,751) (2,751)
------- ------- ------- ------- ------- ------- ------- -------
Balance at end of year $ 19 $ 6,174 $17,884 $(3,103) $ (440) $ 111 $(2,035) $18,610
======= ======= ======= ======= ======= ======= ======= =======
YEAR ENDED DECEMBER 31, 2001
----------------------------
Balance at beginning of year $ 19 $6,174 $17,884 $(3,103) $ (440) $ 111 $(2,035) $18,610
Comprehensive income
Net loss (5,453) (5,453)
Foreign currency translation (1,240) (1,240)
Net loss on derivative
instruments (net of tax of $592)
(Note 17) 129 (1,228) (1,099)
Minimum pension liability
(net of tax of $3) (5) (5)
Net holding loss
(net of tax of $74) (137) (137)
-------
Comprehensive loss (7,934)
Common Stock issued for
employee benefit plans and other (173) (173)
ESOP loan and treasury stock (788) (788)
Cash dividends (1,929) (1,929)
------- ------- ------- ------- ------- ------- ------- -------
Balance at end of year $ 19 $ 6,001 $10,502 $(4,214) $ (445) $(1,254) $(2,823) $ 7,786
======= ======= ======= ======= ======= ======= ======= =======
YEAR ENDED DECEMBER 31, 2002
----------------------------
Balance at beginning of year $ 19 $ 6,001 $10,502 $(4,214) $ (445) $(1,254) $(2,823) $ 7,786
Comprehensive income
Net loss (980) (980)
Foreign currency translation 2,938 2,938
Net gain on derivative
instruments (net of tax of $822)
(Note 17) (15) 1,541 1,526
Minimum pension liability
(net of tax of $2,870) (5,331) (5,331)
Net holding gain
(net of tax of $134) 249 249
-------
Comprehensive loss (1,598)
Common Stock issued for
employee benefit plans and other (524) (524)
Preferred Stock - Series B
redemption (57) (120) (177)
ESOP loan and treasury stock 846 846
Cash dividends (743) (743)
------- ------- ------- ------- ------- ------- ------- -------
Balance at end of year $ 19 $ 5,420 $ 8,659 $(1,291) $(5,776) $ 536 $(1,977) $ 5,590
======= ======= ======= ======= ======= ======= ======= =======
|
The accompanying notes are part of the financial statements.
FS-7
Ford Motor Company and Subsidiaries
Our financial statements include consolidated majority-owned subsidiaries. Affiliates that we do not control, but have significant influence over operating and financial policies, are accounted for using the equity method.
Our sector financial statements, consolidated financial statements and notes have all been reclassified to reflect discontinued and held-for-sale operations.
2002 2001 2000
----------- ----------- -----------
Advertising $2.9 $3.1 $3.0
Engineering, research and development 7.7 7.3 6.8
|
FS-8
Gains or losses from the sale of finance receivables are recognized in the period the sale occurs based on the relative fair value of the portion sold and the portion allocated to retained interests. The retained interests are recorded at fair value estimated by discounting future cash flows using a rate that reflects the credit, interest and prepayment risks associated with similar types of instruments. Changes in fair value are recorded, net of tax, as a component of other comprehensive income.
The following table illustrates the effect on net income and amounts per share if we had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation in prior years (in millions):
2002 2001 2000
----------- ----------- -----------
Income/(loss) attributable to Common and Class B Stock after
preferred stock dividends of
$15 million in 2002, 2001 and 2000 - as reported $ (995) $(5,468) $ 3,452
Deduct: Total stock-based employee
compensation expense determined under fair value
method for all awards, net of related tax effects (179) (162) (128)
------- ------- -------
Pro forma net income/(loss) $(1,174) $(5,630) $ 3,324
Amounts per share:
Basic - as reported $ (0.55) $ (3.02) $ 2.34
Basic - pro forma (0.65) (3.11) 2.25
Diluted - as reported $ (0.54) $ (3.02) $ 2.30
Diluted - pro forma (0.64) (3.11) 2.22
|
FS-9
2002 2001
--------------------------- -----------------------------
Financial Financial
Automotive Services Automotive Services
-------------- ------------ -------------- --------------
Finance receivables, net a/ $ 3.5 $ 4.7
Net investment in operating leases b/ 4.0 4.2
Other assets c/ 1.5 0.9
Intersector non-current receivables/(payables) d/ $(4.8) 4.8 $(3.7) 3.7
Intersector current receivables/(payables) e/ 1.1 (1.1) 0.9 (0.9)
|
Periodically, Ford Credit receives interest supplements and other support cost payments from Automotive for providing special vehicle financing for low-interest-rate marketing programs. Ford Credit records these transactions as revenue over the life of the contract. Amounts recorded as revenue by the Financial Services sector, and billed to the Automotive sector, were $3.7 billion in 2002, $4.1 billion in 2001, and $3.5 billion in 2000. The Automotive sector records the estimated costs for these sales incentive programs as "Marketing Incentives".
Components of income taxes, excluding equity in net results of affiliated
companies accounted for after-tax:
Income/(loss) before income taxes (in millions):
------------------------------------------------
2002 2001 2000
----------- ------------ ------------
U.S. $ 1,112 $(5,785) $ 9,394
Non-U.S. (79) (786) (1,004)
------- ------- -------
Total $ 1,033 $(6,571) $ 8,390
======= ======= =======
Provision for income taxes (in millions):
-----------------------------------------
Current:
Federal $ (423) $ 22 $ 154
Non-U.S. 548 103 760
State and local - - 116
------- ------- -------
Total Current 125 125 1,030
------- ------- -------
Deferred:
Federal 224 (2,072) 2,632
Non-U.S. (120) (248) (1,153)
State and local 73 98 211
------- ------- -------
Total Deferred 177 (2,222) 1,690
------- ------- -------
Total $ 302 $(2,097) $ 2,720
======= ======= =======
Reconciliation of effective tax rate:
-------------------------------------
U.S. statutory rate 35 % 35 % 35 %
Non-U.S. income taxes (3) (2) (2)
State and local income taxes 5 (1) 3
Deductible dividends (8) 2 (1)
General business credits (20) 2 0
Dispositions and restructurings 20 0 1
Other 0 (4) (4)
--- --- ---
Effective rate 29 % 32 % 32 %
=== === ===
|
FS-10
Deferred taxes at December 31 (in millions):
--------------------------------------------
2002 2001
----------- ----------
Deferred tax assets
-------------------
Employee benefit plans $ 8,219 $ 4,900
Dealer and customer allowances and claims 3,132 3,360
Tax credit carryforwards 2,085 718
Allowance for credit losses 1,886 1,533
Other foreign deferred tax assets 2,135 1,680
All other 3,089 3,239
------- -------
Total deferred tax assets 20,546 15,430
Deferred tax liabilities
------------------------
Leasing transactions 8,418 8,213
Depreciation and amortization
(excluding leasing transactions) 4,814 3,887
Finance receivables 2,837 2,388
All other 3,825 2,648
------- -------
Total deferred tax liabilities 19,894 17,136
------- -------
Net deferred tax assets/(liabilities) $ 652 $(1,706)
======= =======
|
No provision for deferred taxes has been made on $860 million of unremitted earnings (primarily related to periods prior to 1998) which are considered to be indefinitely invested in non-U.S. subsidiaries. Deferred taxes for these unremitted earnings are not practicable to estimate.
Operating loss carryforwards for tax purposes were $3.6 billion at December 31, 2002. A substantial portion of these losses has an indefinite carryforward period; the remaining losses will begin to expire in 2003. Tax credits available to offset future tax liabilities are $2.1 billion. A substantial portion has an indefinite carryforward period; the remainder begins to expire in 2005. Tax benefits of operating loss and tax credit carryforwards are evaluated on an ongoing basis, including a review of historical and projected future operating results, the eligible carryforward period, and other circumstances.
During the fourth quarter of 2002, management committed to plans to sell certain other non-core Automotive sector businesses, including our former automotive recycling business in the U.S. and electric vehicle business in Norway. We expect to complete the sale of these businesses during 2003 and have reported these businesses as held-for-sale under SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, for all periods shown. We have recognized an after-tax charge of $109 million, on the anticipated loss on sale of these assets, reflected in net loss on disposal of discontinued operations and held-for-sale operations. This amount represents the difference between the anticipated selling price of these assets less costs to sell them, and their recorded book value.
On June 28, 2000, we distributed our 100% ownership interest in Visteon Corporation, our former automotive components subsidiary, by means of a tax-free spin-off in the form of a dividend on Ford Common and Class B Stock. The total market value of the distribution was $2.1 billion, which resulted in an after-tax loss of $2.3 billion. This loss represented the excess of the carrying value of our net investment over the market value on the distribution date.
In connection with the spin-off of Visteon, about 24,000 hourly employees working for Visteon who were represented by the UAW remained Ford employees, with Visteon agreeing to reimburse us for the costs of those employees. The average number of these employees was approximately 19,800 in 2002.
The operating results of the discontinued and held-for-sale Automotive operations are as follows (in millions):
2002 2001 2000
----------- ---------- -----------
Sales $ 241 $ 224 $1,425
Income/(loss) before income taxes (143) (170) 438
(Provision for)/benefit from income taxes 50 58 (169)
----- ----- ------
Net income/(loss) from discontinued/held-for-sale operations $ (93) $(112) $ 269
===== ===== ======
|
At December 31, 2002 and 2001, inventories associated with discontinued and held-for-sale operations totaled $49 million and $64 million, respectively. At December 31, 2002 and 2001, net property of the entities totaled $28 million and $99 million, respectively.
FS-11
The operating results of the discontinued and held-for-sale operations are as follows (in millions):
2002 2001 2000
---------- ---------- ----------
Revenues $ 210 $ 179 $ 116
Income/(loss) before income taxes 37 12 (9)
(Provision for)/benefit from income taxes (7) (4) 3
----- ----- -----
Net income/(loss) from discontinued/held-for-sale operations $ 30 $ 8 $ (6)
===== ===== =====
|
Trading securities are recorded at fair value with unrealized gains and losses included in income. Available-for-sale securities are recorded at fair value with net unrealized holding gains and losses reported, net of tax, in other comprehensive income. Held-to-maturity securities are recorded at amortized cost. Realized gains and losses are accounted for using the specific identification method.
The fair value of substantially all securities is determined by quoted market prices. The estimated fair value of securities for which there are no quoted market prices is based on similar types of securities that are traded in the market. Equity securities that do not have readily determinable fair values are recorded at cost. Book value approximates fair value for all securities.
Expected maturities of debt securities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalty.
On October 2, 2002, we purchased (Y) 20 billion (equivalent of U.S. $164 million) aggregate principal amount of convertible bonds issued by Mazda Motor Corporation. The bonds are accounted for as an available-for-sale security and included in Equity in net assets of affiliated companies. As of December 31, 2002, these bonds had a fair value of $161 million.
Investments in securities at December 31 were as follows (in millions):
2002 2001
---------------------------------------------- --------------------------------------------
Unrealized Unrealized
Amortized ------------------ Book/Fair Amortized ----------------- Book/Fair
Cost Gains Losses Value Cost Gains Losses Value
------------- -------- --------- ------------- ------------- -------- -------- ------------
Automotive Sector
-----------------
Trading $15,725 $145 $ 1 $15,869 $ 9,374 $32 $30 $ 9,376
Available-for-sale
Corporate debt 1,576 21 2 1,595 1,557 20 4 1,573
------- ---- --- ------- ------- --- --- -------
Total $17,301 $166 $ 3 $17,464 $10,931 $52 $34 $10,949
======= ==== === ======= ======= === === =======
Financial Services Sector
-------------------------
Trading $ 143 $ - $ - $ 143 $ 95 $ - $ - $ 95
Available-for-sale
U.S. government and agency 163 9 - 172 78 2 1 79
Municipal 1 - - 1 - - - -
Government - non U.S. 20 - - 20 18 1 - 19
Corporate debt 172 10 - 182 163 6 1 168
Mortgage-backed 215 9 - 224 207 4 2 209
Equity 46 20 7 59 29 27 4 52
------- ---- --- ------- ------- --- --- -------
Total 617 48 7 658 495 40 8 527
Held-to-maturity
U.S. government 6 - - 6 6 - - 6
------- ---- --- ------- ------- --- --- -------
Total $ 766 $ 48 $ 7 $ 807 $ 596 $40 $ 8 $ 628
======= ==== === ======= ======= === === =======
|
The proceeds and gains/(losses) from sales of available-for-sale securities were as follows (in millions):
Proceeds Gains/(Losses)
------------------------------ ----------------------------------------------
2002 2001 2002 2001 2000
--------------- -------------- --------------- -------------- ---------------
Automotive $ 3,445 $12,489 $24 $47 $2
Financial Services 479 745 6 11 3
|
FS-12
The amortized cost and fair value of investments in available-for-sale and held-to-maturity securities by contractual maturity for Automotive and Financial Service sectors were as follows (in millions):
2002 2001
------------------------------------------------- -------------------------------------------------
Available-for-Sale Held-to-Maturity Available-for-Sale Held-to-Maturity
------------------------ ------------------------ ------------------------ ------------------------
Contractual Amortized Fair Amortized Fair Amortized Fair Amortized Fair
Maturity Cost Value Cost Value Cost Value Cost Value
-------------------------- ------------- ---------- ------------- ---------- ------------- ---------- ------------- ----------
1 year $ 297 $ 300 $ - $ - $ 22 $ 22 $ - $ -
2-5 years 1,160 1,177 3 3 1,284 1,302 1 1
6-10 years 266 275 1 1 289 292 3 3
11 years and later 208 218 2 2 221 223 2 2
Mortgage-backed
securities 216 224 - - 207 209 - -
Equity securities 46 59 - - 29 52 - -
------ ------ ------ ------ ------ ------ ------ ------
Total $2,193 $2,253 $ 6 $ 6 $2,052 $2,100 $ 6 $ 6
====== ====== ====== ====== ====== ====== ====== ======
|
Inventories at December 31 were as follows (in millions):
2002 2001
------------ -----------
Raw materials, work-in-process and supplies $ 3,174 $ 2,430
Finished products 4,763 4,602
------- -------
Total inventories at FIFO 7,937 7,032
Less LIFO adjustment (957) (905)
------- -------
Total inventories $ 6,980 $ 6,127
======= =======
|
Inventories are stated at lower of cost or market. About one-third of inventories were determined under the last-in, first-out method.
Net property at December 31 was as follows (in millions):
Average
Life(Years) 2002 2001
----------------- ------------ -------------
Land - $ 598 $ 577
Buildings and land improvements 30 10,337 9,913
Machinery, equipment and other 14 39,373 38,625
Construction in progress - 2,688 2,598
-------- --------
Total land, plant and equipment $ 52,996 $ 51,713
Accumulated depreciation (26,571) (27,489)
-------- --------
Net land, plant and equipment $ 26,425 $ 24,224
Special tools, net of amortization 5 9,939 8,798
-------- --------
Net property $ 36,364 $ 33,022
======== ========
|
Property-related expenses were as follows (in millions):
2002 2001 2000
------------ ------------ ------------
Depreciation $2,436 $5,289 $3,502
Amortization of special tools 2,461 3,265 2,451
------ ------ ------
Total $4,897 $8,554 * $5,953 *
====== ====== ======
Maintenance and rearrangement $1,962 $2,035 $2,146
|
Effective January 1, 2002, we adopted SFAS No. 142, Goodwill and Other Intangible Assets, which eliminates amortization of goodwill and certain other intangible assets, but requires annual testing for impairment (comparison of estimated fair value to carrying value). Fair value is estimated using the present value of expected future cash flows and other valuation measures. The Automotive sector completed the transitional impairment test in the first quarter of 2002 and the Financial Services sector completed the transitional impairment test in the second quarter of 2002. After-tax, non-cash transition charges were taken of $708 million in the Automotive sector, primarily relating to the impairment of goodwill in Kwik-Fit, our former all-makes European vehicle repair business, and $294 million in the Financial Services sector, related to the impairment of goodwill in Hertz' industrial and construction equipment rental business. Our policy is to test annually for impairment during the second quarter.
FS-13
If SFAS No. 142 had been in effect for the year ended December 31, 2001, our
earnings would have been improved due to reduced amortization, as described
below (in millions):
Net Basic Diluted
Income/ Amounts Amounts
(Loss) Per Share Per Share
------------ ------------ ----------------
Income/(loss) attributable to Common and Class B
Stock after preferred stock dividends of
$15 million - as reported $(5,453) $(3.02) $(3.02)
Add: amortization, after-tax 259 * 0.14 0.14
------- ------ ------
Adjusted net income/(loss) $(5,194) $(2.88) $(2.88)
======= ====== ======
|
Effective July 1, 2001, we adopted SFAS No. 141, Business Combinations, which specifies the types of acquired intangible assets to be reported separately from goodwill and those to be included in goodwill. Certain intangible assets, primarily acquired distribution networks and technology, continue to be amortized over their useful lives, with no significant residual value.
Changes to Automotive sector goodwill and other intangible assets were as follows (in millions):
Goodwill Other Intangibles
------------------- ------------------------------------------
Amortizable Non-amortizable
------------------- -------------------
December 31, 2001 balance $5,213 $1,125 $ -
Impairment (pre-tax) (939) - -
Tradename reclassification - (618) 618
Workforce reclassification 126 (126) -
Currency translation 430 55 49
Amortization and other (25) (27) (264) b/
------ ------ ------
December 31, 2002 balance $4,805 $ 409 a/ $ 403
====== ====== ======
|
Changes to Financial Services sector goodwill and other intangible assets were as follows (in millions):
Goodwill Other Intangibles
------------------- -------------------------------------------
Non-
Amortizable amortizable
------------------- --------------------
December 31, 2001 balance $1,042 $ 265 $ -
Impairment (pre-tax) (294) - -
Tradename reclassification - (189) 189
Currency translation 11 2 -
Amortization and other (7) (19) -
------ ------ ------
December 31, 2002 balance $ 752 $ 59 * $ 189
====== ====== ======
|
In addition, equity in net assets of affiliated companies included goodwill of $435 million and $465 million at December 31, 2002 and December 31, 2001, respectively. Pre-tax amortization expense for intangible assets, excluding goodwill, for the years ended December 31, 2002 and 2001 was $40 million and $73 million, respectively. Intangible asset amortization is forecasted to range from about $15 to $25 million per year for the next five years.
Net finance receivables at December 31 were as follows (in millions):
2002 2001
----------------- -----------------
Retail $ 63,141 $ 78,607
Wholesale 16,827 15,785
Other finance receivables 11,073 10,337
-------- --------
Total finance receivables 91,041 104,729
Allowance for credit losses (2,630) (2,283)
Other 314 267
-------- --------
Net finance and other receivables $ 88,725 $102,713
======== ========
|
Finance receivables that originated outside the U.S. were $41.5 billion and $41.6 billion at December 31, 2002 and 2001, respectively. Other finance receivables consisted primarily of real estate, commercial, and other collateralized loans and accrued interest. Included in other finance receivables at both December 31, 2002 and 2001 were $1.6 billion of accounts receivable purchased by certain Financial Services sector operations from Automotive sector operations.
FS-14
Future maturities, exclusive of SFAS No. 133, of total finance receivables are as follows (in millions): 2003 - $54,077; 2004 - $17,912; 2005 - $8,124; thereafter - $10,115. Experience indicates that a substantial portion of the portfolio generally is repaid before the contractual maturity dates.
The Financial Services sector has sold receivables to special purpose entities (SPE). At December 31, 2002, the number of these SPEs and the amount of assets held were as follows (in billions):
Number of
SPEs 2002
------------ -------------
Ford Credit
Retail finance receivables 55 $48.9
Wholesale finance receivables 1 22.4
-- -----
Total Ford Credit 56 71.3
Automotive receivables 1 0.1
-- -----
Total 57 $71.4
== =====
|
Retained interests in sold receivables were as follows (in millions):
2002 2001
------------ -------------
Wholesale receivables sold to securitization entities $ 12,454 $ 7,586
Subordinated securities 2,845 2,039
Interest-only strips 1,696 1,235
Restricted cash held for the benefit of securitization entities 623 377
Senior securities - 1,311
-------- --------
Total $ 17,618 $ 12,548
======== ========
|
Retained interests in sold wholesale receivables were $11.4 billion and $6.5 billion as of December 31, 2002 and 2001, respectively. These primarily represent our undivided interest in wholesale receivables that are available to support the issuance of additional securities by the securitization entity; the balance represents credit enhancements. Subordinated securities, interest-only strips and restricted cash are credit enhancement assets. Interest only strips represent the present value of monthly collections on the sold receivables in excess of amounts needed by the SPE (securitization trust) to pay interest and principal to investors and servicing fees to Ford Credit. Investments in subordinated securities and restricted cash are senior to interest only strips.
Finance receivables subject to fair value at December 31, 2002 and 2001 were (in millions) $88,357 and $103,710, respectively. The fair value of these finance receivables at December 31, 2002 and 2001 was (in millions) $89,885 and $103,864, respectively.
Net investment in direct financing leases at December 31 was as follows (in millions):
2002 2001
-------------- ---------------
Total minimum lease rentals to be received $5,665 $5,183
Less: Unearned income (1,049) (997)
Loan origination costs 37 49
Estimated residual values 3,689 3,288
Less: Allowance for credit losses (37) (46)
------ ------
Net investment in direct financing leases $8,305 $7,477
====== ======
|
The investment in direct financing leases relates to the leasing of vehicles,
various types of transportation and other equipment, and facilities. Minimum
direct financing lease rentals are contractually due as follows (in millions):
2003 - $1,983; 2004 - $1,636; 2005 - $1,286; thereafter - $760.
The net investment in operating leases at December 31 was as follows (in
millions):
2002 2001
-------------- ---------------
Vehicles and other equipment, at cost $ 53,864 $ 58,076
Accumulated depreciation (13,247) (12,210)
Allowances for credit losses (562) (478)
-------- --------
Net investment in operating leases $ 40,055 $ 45,388
======== ========
|
Minimum rentals on operating leases are contractually due as follows (in millions): 2003 - $7,453; 2004 - $4,323; 2005 - $3,854; 2006 - $1,231; 2007 - $198; thereafter - $1,568.
Assets subject to operating leases are depreciated primarily on the straight-line method over the term of the lease to reduce the asset to its estimated residual value. Estimated residual values are based on assumptions for used vehicle prices at lease termination and the number of vehicles that are expected to be returned. Depreciation expense (which includes gains and losses on disposal of assets) was $10.0 billion in 2002, $10.0 billion in 2001, and $8.9 billion in 2000.
FS-15
The allowance for credit losses is our estimate of probable credit losses related to impaired receivables and operating leases as of the date of the financial statements. This allowance is based on the credit quality of our present portfolio, trends in historical and projected used vehicle values, general economic measures and our processes for servicing receivables. Finance receivables and lease investments are charged to the allowance for credit losses when an account is deemed to be uncollectible, taking into consideration the financial condition of the borrower or lessee, the value of the collateral, recourse to guarantors and other factors. Recoveries on finance receivables and lease investments previously charged off as uncollectible are credited to the allowance for credit losses.
Changes in the allowance for credit losses were as follows (in millions):
2002 2001 2000
-------------- ------------- --------------
Beginning balance $2,807 $1,684 $1,565
Provision for credit losses 3,000 3,397 1,701
Total charge-offs and recoveries:
Charge-offs (2,878) (2,524) (1,616)
Recoveries 486 375 300
------ ------ ------
Net losses (2,392) (2,149) (1,316)
Other changes, principally amounts related to finance receivables
sold and translation adjustment (186) (125) (266)
------ ------ ------
Ending balance $3,229 $2,807 $1,684
====== ====== ======
|
Accrued Liabilities (Current) 2002 2001
----------------------------- ------------- --------------
Dealer and customer allowances and claims $14,166 $13,605
Deferred income taxes 2,614 297
Deferred revenue 2,423 2,460
Accrued interest 1,705 827
Employee benefit plans 1,360 1,790
Postretirement benefits other than pensions 1,301 1,230
Other 4,075 4,086
------- -------
Total accrued liabilities $27,644 $24,295
======= =======
Other Liabilities (Non-current)
-------------------------------
Postretirement benefits other than pensions $16,344 $15,451
Unfunded pension obligation 12,818 1,143
Dealer and customer allowances and claims 9,125 6,805
Employee benefit plans 4,138 3,853
Other 4,461 3,621
------- -------
Total other liabilities $46,886 $30,873
======= =======
|
Automotive and Financial Services debt as of December 31 was as follows (in
millions):
Automotive Financial Services
------------------------------------------ -----------------------------------------
Weighted Weighted
Average Average
Rate a/ Amount Rate a/ Amount
------------------ ----------------------- ---------------- ------------------------
2002 2001 2002 2001 2002 2001 2002 2001
--------- -------- ----------- ----------- ------- -------- ----------- ------------
Debt payable within one year
----------------------------
Short-term $ 438 $ 263 $ 1,083 $ 1,531
Commercial paper - - 9,663 16,683
Other short-term - - 7,534 6,291
------- ------- -------- --------
Total short-term debt 6.8% 12.3% 438 263 4.3% 4.4% 18,280 24,505
Long-term payable within one year 119 39 23,249 21,498
------- ------- -------- --------
Total debt payable within one year 557 302 41,529 46,003
Long-term debt
--------------
Senior indebtedness
Notes and bank debt 7.6% 7.6% 13,607 13,467 4.8% 5.8% 105,774 105,999
Unamortized discount - - (88) (61)
------- ------- -------- --------
Total senior indebtedness 13,607 13,467 105,686 105,938
Subordinated indebtedness - - 9.4% 8.8% 843 1,093
------- ------- -------- --------
Total long-term debt 13,607 13,467 106,529 107,031
------- ------- -------- --------
Total debt $14,164 $13,769 $148,058 $153,034
======= ======= ======== ========
Fair value b/ $12,522 $13,029 $151,580 $157,261
|
There- Maturity
2003 2004 2005 2006 2007 after Average Years
---------- ---------- ---------- ----------- ---------- ---------- -----------------
Long-term debt maturities
-------------------------
Automotive $ 119 $ 203 $ 250 $ 353 $ 126 $12,675 27
Financial Services 23,249 30,164 26,038 14,095 9,284 26,948 3
|
FS-16
At December 31, 2002, the Automotive sector had $7.8 billion of contractually committed credit agreements with various banks; eighty-eight percent of the total facilities are committed through June 30, 2007. We also have the ability to transfer, on a non-guaranteed basis, $7.2 billion of these credit lines to Ford Credit or FCE Bank plc. Approximately $100 million of these facilities were in use at December 31, 2002.
At December 31, 2002, various subsidiaries of the Financial Services sector, including Hertz, had an additional $15.3 billion of contractually committed support facilities; 56% of which are available through June 30, 2007 and $0.9 billion were in use. In addition, banks provide $13.6 billion and $1.1 billion of facilities to support asset-backed commercial paper programs that provide funding to Ford Credit and Hertz, respectively.
Ford Credit also has entered into agreements with several bank-sponsored, commercial paper issuers under which such issuers are contractually committed to purchase from Ford Credit, at Ford Credit's option, up to an aggregate of $12.6 billion of receivables. These agreements expire between March 31, 2003 and October 31, 2003. As of December 31, 2002, approximately $5.2 billion of these commitments have been utilized.
In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities. Under FIN 46, we are required to consolidate variable interest entities for which we are deemed to be the primary beneficiary by the third quarter of 2003, and disclose information about those in which we have significant variable interests effective immediately.
The Automotive sector has invested in and contracted with several joint ventures to manufacture and/or assemble vehicles or components. The net investment in joint ventures that may be deemed variable interest entities was approximately $806 million at December 31, 2002.
Ford Credit has activities with a limited purpose trust owned by a Ford Credit
subsidiary and outside investors.
Activities are limited to the purchase of asset-backed securities and the
issuance of commercial paper. In its existing structure, it is likely that this
trust would be consolidated. Ford Credit's equity investment and retained
beneficial interest in this trust is approximately $1.7 billion. At December 31,
2002, this trust had gross assets of $12.2 billion and gross liabilities of
$11.8 billion.
Ford Credit also participates in bank-sponsored asset-backed commercial paper conduits where pools of retail installment contracts are sold to committed issuers that are variable interest entities of the sponsoring banks. At December 31, 2002, about $5.9 billion of retail installment receivables originated by Ford Credit were held by these conduits. In general, the percentage of Ford Credit assets sold to these variable interest entities is less than 50% of the variable interest entities total assets.
We continue to analyze the impact of FIN 46 on our financial statements. Consolidation of the above variable interests could result in a material impact to the 2003 earnings and would be reported as a change in accounting principle. Because we are not required to perform on behalf of these entities if they do not fulfill their obligations, consolidation of any variable interest entities would not increase our exposure to risk or loss or increase our obligations related to these entities. We believe that the meaningful estimate of potential loss related to variable interest entities is equal to our investment and retained interests.
Ford Motor Company Capital Trust, a subsidiary trust I (Trust), has outstanding 9% Trust Originated Preferred Securities with an aggregate liquidation preference of $632 million (the Preferred Securities). The sole assets of the Trust are $651 million aggregate principal amount of Ford Motor Company 9% Junior Subordinated Debentures due December 2025 (Debentures). At our option, we may redeem the Debentures, in whole or in part. To the extent we redeem the Debentures and upon the maturity of the Debentures, the Trust is required to redeem the Preferred Securities at $25 per share plus accrued and unpaid distributions. We guarantee the payment of all distributions and other payments on the Preferred Securities to the extent not paid by the Trust, but only if and to the extent we have made a payment of interest or principal on the Debentures.
Ford Motor Company Capital Trust II, a subsidiary trust (Trust II), has outstanding 6.50% Cumulative Convertible Trust Preferred Securities with an aggregate liquidation preference of $5 billion (the Trust II Preferred Securities). The sole assets of Trust II are $5,155 million principal amount of 6.50% Junior Subordinated Debentures due 2032 of Ford Motor Company (the Subordinated Debentures). At our option, we may redeem the Subordinated Debentures, in whole or in part, on or after January 15, 2007. To the extent we redeem the Subordinated Debentures or upon the maturity of the Subordinated Debentures, Trust II is required to redeem the Trust II Preferred Securities at $50 per share plus accrued and unpaid distributions. We guarantee the payment of all distribution and other payments of the Trust II Preferred Securities to the
FS-17
extent not paid by Trust II, but only if and to the extent we have made a payment of interest or principal on the Subordinated Debentures.
All general voting power is vested in the holders of Common Stock and the holders of Class B Stock. Holders of Common Stock have 60% of the general voting power and holders of Class B Stock are entitled to such number of votes per share as would give them the remaining 40%. Shares of Common Stock and Class B Stock share equally in dividends, with stock dividends payable in shares of stock of the class held. If liquidated, each share of Common Stock will be entitled to the first $0.50 available for distribution to holders of Common Stock and Class B Stock, each share of Class B Stock will be entitled to the next $1.00 so available, each share of Common Stock will be entitled to the next $0.50 so available and each share of Common and Class B Stock will be entitled to an equal amount thereafter.
In August 2000, under a recapitalization known as the Value Enhancement Plan, shareholders elected to receive $5.7 billion in cash, and the total number of Common and Class B shares that became issued and outstanding was 1.893 billion. Prior period outstanding share and earnings per share amounts were not adjusted.
In December 2002, we redeemed for cash, at an aggregate redemption price of $177 million, all of our outstanding Series B Depositary Shares, representing 1/2000 of a share of $1.00 par value Series B Cumulative Preferred Stock.
As discussed in Note 14, Trust II Preferred Securities with an aggregate liquidation preference of $5 billion are outstanding. At the option of the holder, each Preferred Security is convertible at any time on or before January 15, 2032 into shares of Ford Common Stock at a rate of 2.8249 shares for each Preferred Security (equivalent to a conversion price of $17.70 per share). Conversion of all shares of such securities would result in the issuance of 282.5 million shares of Ford Common Stock.
Changes to the number of shares of capital stock issued were as follows (shares in millions):
Common Class B
Stock Stock Preferred
------------ ------------ --------------
Issued at December 31, 1999 1,151 71 0.004
2000 - Value Enhancement Plan 686 - -
2002 - Series B Redemption - - (0.004)
----- -- ------
Issued at December 31, 2002 1,837 71 0.000
===== == ======
Authorized at December 31, 2002 6,000 530 30
|
2002 2001 2000
------------- ------------- ------------
Diluted Income/(Loss)
---------------------
Income/(loss) attributable to Common and Class B Stock
after preferred stock dividends of
$15 million in 2002, 2001 and 2000 $(995) $(5,468) $3,452
===== ======= ======
Diluted Shares
--------------
Average shares outstanding 1,819 1,820 1,483
Issuable and uncommitted ESOP shares (1) (9) (9)
----- ----- -----
Basic shares 1,818 1,811 1,474
Contingently issuable shares - (1) -
Net dilutive effect of options 11 - a/ 30
Convertible preferred securities - b/ - -
----- ----- -----
Diluted shares 1,829 1,810 1,504
===== ===== =====
|
We have stock options outstanding under the 1990 Long-Term Incentive Plan (LTIP) and the 1998 LTIP. No further grants may be made under the 1990 LTIP and all outstanding options are exercisable. Grants may be made under the 1998 LTIP through April 2008. All outstanding options under the 1990 LTIP continue to be governed by the terms and conditions of the existing option agreements for those grants. Under the 1998 LTIP, 33% of the options are generally exercisable after the first anniversary of the date of grant, 66% after the second anniversary, and 100% after the third anniversary. Stock options expire 10 years from the grant date. Performance stock rights (PSRs) and restricted stock units (RSUs) are based on
FS-18
performance achievement. At December 31, 2002, 6.2 million PSRs and 2.6 million RSUs were outstanding. Stock options and PSRs are described in our proxy statement.
Under the 1998 LTIP, 2% of our issued common stock as of December 31 becomes available for granting plan awards in the succeeding calendar year. Any unused portion is available for later years. The limit may be increased up to 3% in any year, with a corresponding reduction in shares available for grants in future years. At December 31, 2002, the number of unused shares carried forward aggregated to 28.7 million shares.
2002 2001 2000
------------------------ --------------------------- ----------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Stock Option Activity (in millions) Shares Price Shares Price Shares Price
--------------------- ----------- ------------ ----------- --------------- ------------ ---------------
Outstanding, beginning of period 172.1 $22.01 153.7 $19.16 75.3 $32.66
Granted 50.6 16.29 35.3 30.49 15.8 41.02
Adjustment a/ - - - - 71.4 -
Exercised b/ (4.3) 7.63 (14.0) 12.07 (6.9) 15.15
Terminated/expired or surrendered (5.5) 24.37 (2.9) 25.91 (1.9) 32.94
----- ----- -----
Outstanding, end of period 212.9 20.88 172.1 22.01 153.7 19.16
===== ===== =====
Exercisable, end of period 134.0 21.02 113.2 18.74 100.3 15.59
|
Details on various option exercise price ranges are as follows:
Outstanding Options Exercisable Options
------------------------------------------------------- ------------------------------------
Weighted- Weighted- Weighted-
Range of Shares Average Life Average Shares Average
Exercise Prices (millions) (years) Exercise Price (millions) Exercise Price
----------------------------- ---------------- ------------------ ------------------- ---------------- -------------------
$ 7.09 - $10.58 3.6 9.9 $ 9.77 0.0 $ -
10.76 - 15.81 56.4 3.4 12.29 52.2 12.07
16.19 - 23.88 93.6 7.5 20.07 44.1 22.60
23.97 - 35.79 58.6 7.2 30.85 37.0 31.40
41.03 - 42.52 0.7 5.3 41.42 0.7 41.42
----- -----
Total options 212.9 134.0
===== =====
|
The estimated fair value of stock options at the time of grant using the Black-Scholes option pricing model was as follows:
2002 2001 2000
----------- ------------ -----------
Fair value per option $5.76 $8.88 $6.27 *
Assumptions:
------------
Annualized dividend yield 2.5% 4.0% 4.9%
Expected volatility 35.0% 43.9% 38.8%
Risk-free interest rate 5.1% 5.1% 6.3%
Expected option term (in years) 7 6 5
|
See Note 1 for a discussion of the impact on earnings of our adoption of SFAS No. 123 in respect of stock option awards, effective January 1, 2003.
We adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended and interpreted, on January 1, 2001, which establishes accounting and reporting standards for derivative instruments and requires that all derivatives be recorded at fair value on the balance sheet, including embedded derivatives.
Our operations are exposed to global market risks, including the effect of changes in foreign currency exchange rates, certain commodity prices and interest rates. As an integral part of our overall risk management program, we use derivatives to manage financial exposures that occur in the normal course of business. Our objective is to minimize the financial exposure arising from these risks.
FS-19
Adjustments to income for the years ended December 31, were (in millions):
2002 2001
------------------------------------ -------------------------------------
Financial Financial
Automotive Services Total Automotive Services Total
-------------- ---------- -------- --------------- ---------- --------
Income/(loss) before income taxes * $ (87) $(225) $(312) $(588) $(251) $(839)
Net income/(loss) (57) (141) (198) (387) (157) (544)
|
Derivatives used to minimize financial exposures for foreign exchange and commodity price risks generally mature within three years or less, with a maximum maturity of seven years. The impact to earnings associated with discontinuance of cash flow hedges and hedge ineffectiveness was a gain of $6 million in 2002 and a charge to earnings of $32 million in 2001.
Changes in the value of derivatives are included in other comprehensive income, a component of stockholders' equity, and reclassified to earnings at the time the associated hedged transaction impacts net income. The following table summarizes activity in other comprehensive income for designated cash flow hedges during the years ended December 31, (in millions):
2002 2001
----------- -----------
Beginning of period:
Net unrealized gain/(loss) on derivative financial instruments $(1,228) $ (550)
Increase/(decrease) in fair value of derivatives 847 (822)
(Gains)/losses reclassified from OCI 694 144
------- -------
End of period:
Net unrealized gain/(loss) on derivative financial instruments $ 313 $(1,228)
======= =======
|
We expect to reclassify gains of $188 million from other comprehensive income to net income during the next twelve months. Consistent with our comprehensive, non-speculative risk management practices, neither these nor future reclassifications are anticipated to have a material effect on net Company earnings, as they should be substantially offset by the effects on related underlying transactions.
During the fourth quarter of 2001, we reevaluated our plans with respect to certain forward purchase commitments for various precious metals commodities that were previously excluded from the scope of SFAS No. 133 and determined that they no longer qualify for exclusion. Accordingly, we recorded an unfavorable transition adjustment of $449 million as of December 31, 2001.
FS-20
The reconciliation of net income/(loss) to cash flows from operating activities before securities trading is as follows (in millions):
2002 2001 2000
------------------------- --------------------------- -------------------------
Financial Financial Financial
Automotive Services Automotive Services Automotive Services
------------ ------------ ------------- ------------- ------------ ------------
Net income/(loss) from continuing
operations $ (987) $ 1,271 $(6,155) $ 806 $ 3,664 $ 1,792
Depreciation and special tools
amortization 4,897 10,240 4,999 10,164 5,087 9,059
Impairment charges (depreciation
and amortization) - - 3,828 - 1,100 -
Amortization of goodwill, intangibles 21 19 299 43 305 42
Net losses/(earnings) from equity
investments in excess of dividends
remitted 134 13 845 (5) 86 17
Provision for credit/insurance losses - 3,276 - 3,661 - 1,957
Foreign currency adjustments 51 - (201) - (58) -
Loss on sale of business 519 - - - - -
Provision for deferred income taxes (1,377) 595 (2,242) 538 706 1,449
Decrease/(increase) in accounts
receivable and other current assets 2,570 (2,499) 1,201 (813) (523) (1,049)
Decrease/(increase) in inventory (650) - 1,122 - (1,369) -
Increase/(decrease) in accounts payable
and accrued and other liabilities 3,971 2,681 4,729 (969) 2,444 1,267
Other 338 (221) (969) (253) 567 (156)
-------- ------- ------- ------- ------- -------
Cash flows $ 9,487 $15,375 $ 7,456 $13,172 $12,009 $14,378
======== ======= ======= ======= ======= =======
|
We consider all highly liquid investments with a maturity of three months or less, including short-term time deposits and government, agency and corporate obligations, to be cash equivalents. Automotive sector cash equivalents at December 31, 2002 and 2001 were $4.4 billion and $3.3 billion, respectively; Financial Services sector cash equivalents at December 31, 2002 and 2001 were $5.3 billion and $2.2 billion, respectively.
Cash paid/(received) for interest and income taxes was as follows (in millions):
2002 2001 2000
----------- ------------ -------------
Interest $7,737 $9,947 $10,318
Income taxes (1,883) 929 1,991
|
Accounting for Acquisitions - We account for our acquisitions under the purchase method. The assets acquired, liabilities assumed, and the results of operations of the acquired company since the acquisition date are included in our financial statements on a consolidated basis. On a pro forma basis, none of these acquisitions would have had a material effect on our results of operations.
Other pre-tax charges during the year totaled $143 million which represented primarily impairments and dispositions of our interest in e-commerce ventures.
European Charges - Continuing our European Transformation Strategy with respect to our Ford-brand operations in Europe, we recorded a pre-tax charge in Automotive cost of sales of $173 million in the fourth quarter of 2002. The charge included previously announced restructuring of the Genk (Belgium) vehicle assembly plant and the Cologne (Germany) facilities. Employee separation included a workforce reduction of about 1,800 employees (1,740 hourly and 60 salaried) related to the planned transfer of the Transit vehicle production to the Ford Otosan (Turkey) joint venture, die-casting rationalization and other manufacturing actions.
Premier Automotive Group Charges - We recorded a restructuring pre-tax charge in Automotive cost of sales of $157 million in the fourth quarter 2002 related to workforce reductions in our Premier Automotive Group operations of about 940 employees (225 hourly and 715 salary). The hourly reductions result from line speed reductions at our Halewood, England plant and the salary reductions (voluntary redundancy) relate to efficiency actions.
FS-21
Fixed-asset impairments
North America $3.1
South America 0.7
----
Total fixed-asset impairments 3.8
Precious metals 1.0
Personnel (primarily North America salaried) 0.6
All other 0.3
----
Total pre-tax charges $5.7
====
Memo: After-tax effect of charges $4.1
|
In response to significantly deteriorating business conditions resulting in operating losses, we conducted extensive business reviews of our Automotive operations in North America and South America during the fourth quarter. As part of these reviews, we determined that projected undiscounted cash flows were not sufficient to justify the carrying values of the related long-lived assets. Asset impairment charges of $3,084 million in North America and $744 million in South America were recorded in Automotive cost of sales, reflecting a write-down to estimated fair value, as determined by independent valuations. The impairment increased depreciation, special tool amortization, and goodwill amortization by $2,688 million, $867 million, and $273 million, respectively.
Precious metals (primarily palladium) are used in catalytic converters produced to meet required automotive emission standards. Our business objective has been to ensure adequate supply of these critical commodities. In 2000 and early 2001, we acquired precious metals and entered into forward purchase contracts at then-prevailing market prices in an environment of uncertain supply and outlook. In the fourth quarter of 2001, our engineers validated a breakthrough catalyst design, which will help reduce our usage of palladium. For the precious metals physically held, we have substantially reduced our holdings in excess of those stocking requirements. Beginning in the fourth quarter of 2001, we have written down the value of the excess metal to its estimated realizable value. In addition, precious metal forward contracts have been settled in lieu of taking physical delivery of the related metal. Therefore, as required by SFAS No. 133, precious metal forward purchase contracts have been marked-to-market. The total pre-tax charge for precious metals in the fourth quarter of 2001 was $953 million.
Personnel charges of $565 million before taxes primarily reflected voluntary salaried employee separations in North America.
Other pre-tax charges mainly reflected a $201 million non-cash charge to equity in net income of affiliated companies, representing our share of a charge related to Mazda's pension expenses, and a $160 million charge related to a major devaluation of the Argentine peso.
Purchase of Remainder of Hertz Corporation - In March 2001, we acquired (for $735 million) the common stock of Hertz that we did not own, which represented about 18% of the economic interest in Hertz. The excess of the purchase price over the fair market value of net assets acquired was approximately $390 million.
European Charges - Following an extensive review of the Ford brand Automotive operations in Europe, we recorded a pre-tax charge in Automotive cost of sales of $1.6 billion in the second quarter. This charge included $1.1 billion for asset impairments and $468 million for restructuring costs. Employee separation included a workforce reduction of about 3,300 employees (2,900 hourly and 400 salaried) related to the planned cessation of vehicle production at the Dagenham (U.K.) Body and Assembly Plant. As of December 31, 2002, restructuring actions included in Automotive cost of sales in the second quarter of 2000 are now largely complete. Remaining costs related to the cessation of vehicle production at the Dagenham (U.K.) body and assembly plant total $26 million, which are principally workforce reduction and other exit-related costs.
The asset impairment charge, attributable to excess capacity related to Ford's performance in the European market, reflected the write-down of certain long-lived assets, as determined by an independent valuation.
Nemak Joint Venture - During the fourth quarter of 2000, we recorded in Automotive cost of sales a pre-tax charge of $205 million related to the fair value transfer of our Windsor Aluminum Plant, Essex Aluminum Plant, and Casting Process Development Center for an increased equity interest in our joint venture with Nemak. We reflected the new joint venture in our financial statements on an equity basis.
FS-22
In general, our plans are funded, with the main exceptions of the U.S. defined benefit plans for senior management and certain plans in Germany; in such cases, an unfunded liability is recorded.
Our policy for funded plans is to contribute annually, at a minimum, amounts required by applicable laws, regulations, and union agreements. Plan assets consist principally of investments in stocks and government and other fixed income securities. At December 31, 2002, stocks represented 68% of the market value of pension assets for our principal U.S. plans and fixed income securities represented 32%. Ford securities comprised less than one-half of one percent of the value of our worldwide pension plan assets during 2002 and 2001.
We also sponsor defined contribution plans for certain of our U.S. and non-U.S. employees. Our expense, primarily for matching contributions, for various plans was $23 million in 2002, $167 million in 2001, and $159 million in 2000.
Our expense for pension, postretirement health care and life insurance benefits was as follows (in millions):
Pension Benefits
------------------------------------------------------------ Health Care
U.S. Plans Non-U.S. Plans and Life Insurance
----------------------------- ------------------------------ ------------------------------
2002 2001 2000 2002 2001 2000 2002 2001 2000
--------- --------- --------- --------- --------- ---------- --------- ---------- ---------
Service cost $ 556 $ 531 $ 495 $ 377 $ 396 $ 405 $ 427 $ 374 $ 320
Interest cost 2,453 2,410 2,345 977 974 918 1,801 1,697 1,483
Expected return on assets (3,646) (3,697) (3,281) (1,265) (1,184) (1,162) (85) (161) (135)
Amortization of:
Prior service costs 529 532 620 137 138 133 (145) (114) (38)
(Gains)/losses and other (130) (367) (418) 25 (101) 17 310 161 28
Separation programs 107 303 122 39 8 184 * 16 114 54
Allocated costs to Visteon (62) (58) (71) - - - (228) (149) (159)
------- ------- ------- ------- ------- ------- ------ ------ ------
Net expense/(income) $ (193) $ (346) $ (188) $ 290 $ 231 $ 495 $2,096 $1,922 $1,553
======= ======= ======= ======= ======= ======= ====== ====== ======
|
FS-23
The year-end status of these plans was as follows (in millions):
Pension Benefits
--------------------------------------------- Health Care
U.S. Plans Non-U.S. Plans And Life Insurance
---------------------- -------------------- ---------------------
2002 2001 2002 2001 2002 2001
---------- ---------- --------- --------- --------- ----------
Change in Benefit Obligation
----------------------------
Benefit obligation at January 1 $35,223 $33,282 $15,991 $16,918 $ 25,433 $ 23,374
Service cost 556 531 377 396 427 374
Interest cost 2,453 2,410 977 974 1,801 1,697
Amendments (3) 6 133 133 (264) (923)
Separation programs 132 330 102 24 16 114
Net transfers in/(out) - - - (170) - -
Plan participant contributions 39 40 95 83 14 -
Benefits paid (2,806) (2,496) (921) (768) (1,232) (1,145)
Foreign exchange translation - - 1,980 (637) 4 (26)
Actuarial (gain)/loss 1,559 1,120 1,964 (962) 4,064 1,968
------- ------- ------- ------- -------- --------
Benefit obligation at December 31 $37,153 $35,223 $20,698 $15,991 $ 30,263 $ 25,433
======= ======= ======= ======= ======== ========
Change in Plan Assets
---------------------
Fair value of plan assets at January 1 $35,819 $39,830 $12,935 $14,714 $ 2,692 $ 3,135
Actual return on plan assets (3,335) (1,558) (1,692) (931) 64 200
Company contributions 181 167 611 380 1,310 529
Net transfers in/(out) - (300) * - (152) - -
Plan participant contributions 39 40 95 83 - -
Benefits paid (2,806) (2,496) (921) (768) (1,232) (1,145)
Foreign exchange translation - - 1,322 (515) - -
Other (21) 136 13 124 - (27)
------- ------- ------- ------- -------- --------
Fair value of plan assets at December 31 $29,877 $35,819 $12,363 $12,935 $ 2,834 $ 2,692
======= ======= ======= ======= ======== ========
Funded status $(7,276) $ 596 $(8,335) $(3,056) $(27,429) $(22,741)
Unamortized prior service costs 2,831 3,358 784 768 (1,161) (1,043)
Unamortized net (gains)/losses and other 6,742 (1,939) 6,874 1,642 10,423 6,655
------- ------- ------- ------- -------- --------
Net amount recognized $ 2,297 $ 2,015 $ (677) $ (646) $(18,167) $(17,129)
======= ======= ======= ======= ======== ========
Amounts Recognized in the Balance Sheet
Consist of Assets/(Liabilities)
-------------------------------
Prepaid assets $ 3,429 $ 3,099 $ 1,728 $ 1,259 $ - $ -
Accrued liabilities (8,921) (1,356) (7,449) (2,779) (18,167) (17,129)
Intangible assets 2,797 72 890 352 - -
Accumulated other comprehensive income 4,992 200 4,154 522 - -
------- ------- ------- ------- -------- --------
Net amount recognized $ 2,297 $ 2,015 $ (677) $ (646) $(18,167) $(17,129)
======= ======= ======= ======= ======== ========
Pension Plans in Which Accumulated Benefit
Obligation Exceeds Plan Assets at December 31
---------------------------------------------
Accumulated benefit obligation $35,305 $ 1,302 $17,569 $ 5,109
Fair value of plan assets 29,773 184 11,756 2,721
Weighted average assumptions as of December 31
----------------------------------------------
Discount rate 6.75% 7.25% 5.65% 6.10% 6.75% 7.25%
Expected return on assets 8.75% 9.50% 8.40% 8.70% 6.00% 6.00%
Average rate of increase in compensation 5.20% 5.20% 3.80% 3.80% - -
Initial health care cost trend rate - - - - 11.00% 9.45%
Ultimate health care cost trend rate - - - - 5.00% 5.00%
Number of years to ultimate trend rate - - - - 5 6
|
A one percentage point increase/(decrease) in the assumed health care cost trend rate would increase/(decrease) the postretirement health care benefit obligation by approximately $3.9 billion/($3.3 billion) and the service and interest component of this expense by $283 million/($221) million.
FS-24
Our sectors, Automotive and Financial Services, are managed as three primary operating segments. The Automotive sector (and segment) consists of the design, development, manufacture, sale and service of cars and trucks. 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 was based upon internal organizational structure, the way in which performance is managed and evaluated, the availability of separate financial results and materiality considerations.
Financial Services Sector
-----------------------------------
Ford Other Eliminations
Automotive Credit Hertz Fin Svcs and Other b/ Total
---------- ---------- ---------- ----------- ------------ ----------
2002
----
Revenues
External customer $134,425 $ 22,640 $ 4,949 $ 549 $ 23 $162,586
Intersegment 4,444 330 29 90 (4,893) -
-------- -------- ------- ------ ------- --------
Total Revenues $138,869 $ 22,970 $ 4,978 $ 639 $(4,870) $162,586
======== ======== ======= ====== ======= ========
Income
Income/(loss) before taxes $ (1,156) $ 1,970 $ 200 $ (76) $ 15 $ 953
Provision for/(benefit from) income tax (533) 731 73 14 17 302
Income/(loss) from continuing operations (987) 1,235 127 (89) (2) 284
Other Disclosures
Depreciation and amortization $ 4,918 $ 8,513 $ 1,639 $ 41 $ 66 $ 15,177
Interest income a/ 834 - - - - 834
Interest expense 1,368 6,929 377 150 - 8,824
Capital expenditures 6,776 83 255 164 - 7,278
Unconsolidated affiliates
Equity in net income/(loss) (91) 11 - - - (80)
Investments in 2,470 197 - 29 - 2,696
Total assets at year-end 107,790 170,169 11,479 5,788 (4) 295,222
-----------------------------------------------------------------------------------------------------------------------------------
2001
----
Revenues
External customer $130,827 $ 24,325 $ 4,898 $ 678 $ 26 $160,754
Intersegment 3,260 521 27 103 (3,911) -
-------- -------- ------- ------ ------- --------
Total Revenues $134,087 $ 24,846 $ 4,925 $ 781 $(3,885) $160,754
======== ======== ======= ====== ======= ========
Income
Income/(loss) before taxes $ (8,862) $ 1,496 $ 3 $ (59) $ - $ (7,422)
Provision for/(benefit from) income tax (2,750) 664 (21) 10 - (2,097)
Income/(loss) from continuing operations (6,155) 831 23 (48) - (5,349)
Other Disclosures
Depreciation and amortization $ 9,126 $ 8,464 $ 1,620 $ 54 $ 69 $ 19,333
Interest income a/ 765 - - - - 765
Interest expense 1,376 8,922 414 105 - 10,817
Capital expenditures 6,301 182 310 159 - 6,952
Unconsolidated affiliates
Equity in net income/(loss) (856) 5 - - - (851)
Investments in 2,450 177 - 11 - 2,638
Total assets at year-end 88,319 173,096 10,525 4,616 (13) 276,543
-----------------------------------------------------------------------------------------------------------------------------------
2000
----
Revenues
External customer $140,777 $ 22,857 $ 5,027 $ 399 $ 31 $169,091
Intersegment 3,783 227 30 154 (4,194) -
-------- -------- ------- ------ ------- --------
Total Revenues $144,560 $ 23,084 $ 5,057 $ 553 $(4,163) $169,091
======== ======== ======= ====== ======= ========
Income
Income before taxes $ 5,323 $ 2,504 $ 581 $ (109) $ - $ 8,299
Provision for/(benefit from) income tax 1,609 929 223 (41) - 2,720
Income/(loss) from continuing operations 3,664 1,542 358 (108) - 5,456
Other Disclosures
Depreciation and amortization $ 6,489 $ 7,495 $ 1,504 $ 47 $ 55 $ 15,590
Interest income a/ 1,488 - - - - 1,488
Interest expense 1,383 8,912 428 122 15 10,860
Capital expenditures 7,393 168 291 496 - 8,348
Unconsolidated affiliates
Equity in net income/(loss) (70) (22) - 1 - (91)
Investments in 2,949 79 - 7 - 3,035
Total assets at year-end 94,312 174,258 10,620 3,731 469 283,390
|
FS-25
United All Total
States Europe Other Company
----------- ------------- ----------- --------------
2002
----
External revenues $108,392 $35,313 $18,881 $162,586
Income/(loss) from continuing operations 432 (491) 343 284
Net property 16,730 15,051 6,154 37,935
2001
----
External revenues $107,771 $34,972 $18,011 $160,754
Income/(loss) from continuing operations (4,381) 503 (1,471) (5,349)
Net property 16,121 12,533 5,921 34,575
2000
----
External revenues $118,269 $31,651 $19,171 $169,091
Income/(loss) from continuing operations 6,038 (846) 264 5,456
Net property 19,388 13,585 6,256 39,229
|
2002 2001
------------------------------------------- ---------------------------------------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
--------- --------- --------- ---------- --------- -------- -------- --------
Automotive
Sales $32,171 $35,197 $32,396 $34,661 $34,450 $34,381 $28,403 $33,593
Operating income/(loss) (60) 587 (639) (419) 1,356 (1,398) (1,039) (6,314)
Financial Services
Revenues 7,370 6,930 6,942 6,919 7,562 7,522 7,725 7,118
Income/(loss) before
income taxes 343 600 572 594 592 687 624 (463)
Total Company
Income/(loss) from
continuing operations (80) 619 (244) (11) 1,077 (730) (665) (5,031)*
Common and Class B per share
Basic income/(loss) from
continuing operations $ (0.05) $ 0.34 $ (0.14) $ (0.01) $ 0.59 $ (0.41) $ (0.37) $ (2.79)
Diluted income/(loss) from
continuing operations (0.05) 0.31 (0.14) (0.01) 0.57 (0.41) (0.37) (2.79)
|
There-
2003 2004 2005 2006 2007 after
----------- ---------- ---------- ---------- ---------- -----------
Automotive $440 $345 $244 $169 $183 $254
Financial Services 416 303 233 143 108 456
|
Rental expense was $1,112 million in 2002, $967 million in 2001, and $889 million in 2000.
FS-26
At December 31, 2002, the following guarantees were issued and outstanding:
Guarantees of unconsolidated affiliate and third party debt: 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 from March 2003 to July 2011 or 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 is approximately $486 million, substantially all 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 $27 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 sale of a business. These indemnifications might include claims against any of the following: environmental, tax and shareholder matters; intellectual property rights; governmental regulations and employment-related matters; dealer, supplier, and other commercial contractual relationships; and financial matters, such as securitizations. Performance under these indemnities would generally be triggered by a breach of terms of the contract or by a third party claim. We regularly evaluate the probability of having to incur costs associated with these indemnifications and have accrued for expected losses that are probable. The types of indemnifications for which payments are possible are as follows:
Environmental: We have indemnified various parties for the costs associated with remediating numerous hazardous substance storage, recycling or disposal sites in many states and, in some instances, for natural resource damages. The amount of any such costs or damages for which we may be held responsible could be substantial. The contingent losses that we expect to incur in connection with many of these sites have been accrued and those losses are reflected in our financial statements in accordance with generally accepted accounting principles. The aggregate amount accrued for environmental indemnification liabilities reflected in our financial statements is $101 million. The accrual represents the estimated cost to study potential environmental issues at sites deemed investigation or cleanup activities, 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 potentially responsible parties, the application of laws and other standards or regulations, site conditions, and the nature and scope of investigations, studies, and remediation to be undertaken (including the technologies to be required and the extent, duration, and success of remediation). As a result, we are unable to estimate a maximum amount for costs or other damages for which we are potentially responsible in connection with these indemnifications, which are generally uncapped.
Tax: We provide various tax-related indemnifications as part of transactions. The indemnified party typically is protected 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 typically 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.
FS-27
January 1, 2002 beginning balance $ 4,739
Payments made in 2002 (3,508)
Changes in accrual related to warranties issued in 2002 3,489
Changes in accrual related to pre-existing warranties 595
Foreign currency translation 86
-------
December 31, 2002 ending balance $ 5,401
=======
|
Extended Service Plan: Generally, extended service plans are separate contracts with retail customers who pay fees to extend warranty coverage beyond the base warranty period. Under these plans, contract fees are recognized in income over the contract period in proportion to the costs expected to be incurred in performing contracted services.
The following is a tabular reconciliation of extended service plan deferred revenue accounts (in millions):
January 1, 2002 beginning balance $ 2,659
Current year written revenue 1,206
Current year earned revenue (958)
Foreign currency translation 31
-------
December 31, 2002 ending balance $ 2,938
=======
|
Litigation is subject to many uncertainties, and the outcome of individual litigated matters is not predictable with assurance. We have established accruals for certain of the matters discussed in the foregoing paragraph where losses are deemed probable. It is reasonably possible, however, that some of the matters discussed in the foregoing paragraph for which accruals have not been established could be decided unfavorably to us and could require us to pay damages or make other expenditures in amounts or a range of amounts that cannot be estimated at December 31, 2002. We do not reasonably expect, based on our analysis, that such matters would have a material effect on future financial statements for a particular year, although such an outcome is possible.
FS-28
Report of Independent Accountants
To the Board of Directors and Stockholders Ford Motor Company:
In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of income, stockholders' equity and cash flows present fairly, in all material respects, the financial position of Ford Motor Company and its subsidiaries at December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the accompanying sector balance sheet and the related sector statements of income and cash flows, presented for purposes of additional analysis, present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. The consolidated and sector financial statements (collectively, the "financial statements") are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 7 to the consolidated financial statements, on January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets", which changed the method of accounting for goodwill and other intangible assets. In addition, as discussed in Note 3 to the consolidated financial statements, on January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which changed the method of accounting for discontinued operations. Also, as discussed in Note 17 to the consolidated financial statements, on January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities".
/s/PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Detroit, Michigan January 17, 2003 |
EXHIBIT 3-B
Ford
Ford Motor Company
By-Laws
As Amended Through December 12, 2002
BY-LAWS
OF
FORD MOTOR COMPANY
TABLE OF CONTENTS
Page
ARTICLE I - Offices..........................................................................1
ARTICLE II - Stockholders.....................................................................1
Section 1. Annual Meeting..................................................................1
Section 2. Special Meetings................................................................1
Section 3. Notice of Meetings..............................................................2
Section 4. Quorum..........................................................................2
Section 5. Organization....................................................................2
Section 6. Proxies and Voting..............................................................2
Section 7. Stock Lists.....................................................................2
Section 8. Ratification....................................................................3
Section 9. Judges..........................................................................3
ARTICLE III - Board of Directors...............................................................3
Section 1. Number, Term of Office and Eligibility..........................................3
Section 2. Meetings........................................................................4
Section 3. Notice of Meetings..............................................................4
Section 4. Quorum and Organization of Meetings.............................................4
Section 5. Powers..........................................................................5
Section 6. Reliance upon Books, Reports and Records........................................6
Section 7. Compensation of Directors.......................................................6
ARTICLE IV - Committees.......................................................................7
Section 1. Committees of the Board of Directors............................................7
Section 2. Audit Committee.................................................................7
Section 3. Compensation Committee..........................................................8
Section 4. Environmental and Public Policy Committee.......................................8
Section 5. Finance Committee...............................................................8
Section 6. Nominating and Governance Committee.............................................8
Section 7. Other Committees................................................................9
Section 8. Rules and Procedures............................................................9
Section 9. Application of Article..........................................................9
ARTICLE V - Officers.........................................................................9
Section 1. Officers........................................................................9
Section 2. Chairman of the Board of Directors and
Chief Executive Officer..............................................10
Section 3. President and Chief Operating Officer..........................................10
Section 4. Vice Chairmen of the Company, Executive Vice Presidents,
Group Vice Presidents and Vice Presidents................................10
Section 5. Treasurer and Assistant Treasurer..............................................11
Section 6. Secretary and Assistant Secretary..............................................11
Section 7. General Counsel................................................................12
Section 8. Controller.....................................................................12
|
Section 9. Salaries.......................................................................12 ARTICLE VI - Resignations, Removals and Vacancies...........................................12 Section 1. Resignations..................................................................12 Section 2. Removals......................................................................12 Section 3. Vacancies.....................................................................13 ARTICLE VII - Capital Stock - Dividends - Seal...............................................13 Section 1. Certificates of Shares; Uncertificated Shares.................................13 Section 2. Addresses of Stockholders.....................................................13 Section 3. Lost, Destroyed or Stolen Certificate.........................................14 Section 4. Fixing a Record Date..........................................................14 Section 5. Regulations...................................................................14 Section 6. Corporate Seal................................................................14 ARTICLE VIII - Execution of Contracts and Other Documents.....................................15 Section 1. Contracts, etc................................................................15 Section 2. Checks, Drafts, etc...........................................................15 ARTICLE IX - Fiscal Year....................................................................15 ARTICLE X - Miscellaneous..................................................................15 Section 1. Original Stock Ledger.........................................................15 Section 2. Notices and Waivers Thereof...................................................16 Section 3. Voting upon Stocks............................................................16 ARTICLE XI - Amendments.....................................................................17 |
BY-LAWS
OF
FORD MOTOR COMPANY
ARTICLE I
OFFICES
The registered office of the Company shall be in the City of Wilmington, County of New Castle, State of Delaware. The Company may also have an office in the City of Dearborn, State of Michigan, and at such other places as the Board of Directors may from time to time determine or as the business of the Company may require. The books and records of the Company may be kept (except as otherwise provided by law) at the office of the Company in the City of Dearborn, State of Michigan, outside of the State of Delaware, or at such other places as from time to time may be determined by the Board of Directors.
ARTICLE II
STOCKHOLDERS
Section 1. Annual Meeting.
Unless otherwise determined by the Board of Directors, the annual meeting of the stockholders for the purpose of electing directors and of transacting such other business as may come before it shall be held in the City of Detroit, State of Michigan, on the second Thursday of May in each and every year, if not a legal holiday, and if a legal holiday then on the next day not a legal holiday. The Board of Directors shall, by resolution duly adopted, fix the place within the City of Detroit, Michigan, or elsewhere if so determined, the time, and the date (if different from that described above) for the holding of each such meeting. At least twenty (20) days' notice shall be given to each stockholder entitled to vote at such meeting of the place, date and time for the meeting.
Section 2. Special Meetings.
Special meetings of the stockholders shall be held at the office of the Company in the City of Dearborn, State of Michigan, unless otherwise determined by resolution of the stockholders or of the Board of Directors, whenever called in the manner required by law for purposes as to which there are special statutory provisions, and for other purposes whenever called by the Chairman of the Board of Directors or the President, or by resolution of the Board of Directors, and whenever the holders of thirty percent (30%) or more of the total number of outstanding shares of any class of stock the holders of which are entitled to vote on every matter that is to be voted on without regard to class at such meeting shall file with the Secretary a written application for such meeting stating the time and purpose thereof.
Section 3. Notice of Meetings.
Except as otherwise provided by law, at least twenty (20) days' notice of stockholders' meetings stating the time and place and the objects thereof shall be given by the Chairman of the Board of Directors, the President or the Secretary to stockholders of record having voting power in respect of the business to be transacted thereat. No business other than that stated in the notice shall be transacted at any meeting.
Section 4. Quorum.
At any meeting of the stockholders the number of shares the holders of which shall be present or represented by proxy in order to constitute a quorum for, and the votes that shall be necessary for, the transaction of any business shall be as expressly provided in Article FOURTH of the Certificate of Incorporation, as amended. At any meeting of stockholders at which a quorum is not present, the holders of shares entitled to cast a majority of all of the votes (computed, in the case of each share of Class B Stock, as provided in subsection 1.3 of said Article FOURTH) which could be cast at such meeting by the holders of outstanding shares of stock of the Company who are present in person or by proxy and who are entitled to vote on every matter that is to be voted on without regard to class at such meeting may adjourn the meeting from time to time.
Section 5. Organization.
The Chairman of the Board of Directors shall act as chairman of meetings of the stockholders. The Board of Directors may designate any other officer or director of the Company to act as chairman of any meeting in the absence of the Chairman of the Board of Directors, and the Board of Directors may further provide for determining who shall act as chairman of any stockholders meeting in the absence of the Chairman of the Board of Directors and such designee.
The Secretary of the Company shall act as secretary of all meetings of the stockholders, but in the absence of the Secretary the presiding officer may appoint any other person to act as secretary of any meeting.
Section 6. Proxies and Voting.
Every stockholder entitled to vote at any meeting may vote in person or by proxy authorized by an instrument in writing or by a transmission permitted by law filed in accordance with the procedures established for the meeting. No proxy shall be voted after three years from its date unless such proxy provides expressly for a longer period. Shares of the Company's stock belonging to the Company shall not be voted upon directly or indirectly.
Section 7. Stock Lists.
A complete list of stockholders entitled to vote at any meeting of stockholders shall be prepared, in alphabetical order by class, by the Secretary and shall be open to the examination of any stockholder, at the place where the meeting is to be held, for at least ten days before the meeting and during the whole time of the meeting.
Section 8. Ratification.
Any transaction questioned in any stockholders' derivative suit, or any other suit to enforce alleged rights of the Company or any of its stockholders, on the ground of lack of authority, defective or irregular execution, adverse interest of any director, officer or stockholder, nondisclosure, miscomputation or the application of improper principles or practices of accounting may be approved, ratified and confirmed before or after judgment by the Board of Directors or by the holders of Common Stock and the holders of Class B Stock voting as provided in subsection 1.6 of Article FOURTH of the Certificate of Incorporation, as amended, and, if so approved, ratified or confirmed, shall have the same force and effect as if the questioned transaction had been originally duly authorized, and said approval, ratification or confirmation shall be binding upon the Company and all of its stockholders and shall constitute a bar to any claim or execution of any judgment in respect of such questioned transaction.
Section 9. Judges.
All votes by ballot at any meeting of stockholders shall be conducted by two judges appointed for the purpose either by the directors or by the meeting. The judges shall decide upon the qualifications of voters, count the votes and declare the result.
ARTICLE III
BOARD OF DIRECTORS
Section 1. Number, Term of Office and Eligibility.
Except as provided by the laws of the State of Delaware or by the Certificate of Incorporation, as amended, the business and the property of the Company shall be managed by or under the direction of a Board of not less than ten and not more than twenty directors, the exact number of which shall be fixed from time to time by resolution of the Board. Each director shall be elected annually by ballot by the holders of Common Stock and the holders of Class B Stock voting as provided in subsection 1.6 of Article FOURTH of the Certificate of Incorporation, as amended, at the annual meeting of stockholders, to serve until his or her successor shall have been elected and shall have qualified, except as provided in this Section. No person may be elected or re-elected a director of the Company if at the time of his or her election or re-election he or she shall have attained the age of seventy-two years, and the term of any director who shall have attained such age while serving as a director shall terminate as of the time of the first annual meeting of stockholders following his or her seventy-second birthday; provided, however, that the Board by resolution may waive such age limitation in any year and from year to year with respect to any director or directors.
Section 2. Meetings.
The directors may hold their meetings outside of the State of Delaware, at the office of the Company in the City of Dearborn, State of Michigan, or at such other place as from time to time they may determine.
The annual meeting of the Board of Directors, for the election of officers and the transaction of other business, shall be held at the World Headquarters of the Company in Dearborn, Michigan, on the same day as, and as soon as practicable following, the annual meeting of stockholders, or at such other time or place as shall be determined by the Board of Directors at its regular meeting next preceding said annual meeting of stockholders. No notice of said annual meeting of the Board of Directors shall be required to be given to the directors.
Regular meetings of the Board of Directors may be held at such time and place as shall from time to time be determined by the Board of Directors.
Special meetings of the Board of Directors shall be held whenever called by direction of the Chairman of the Board of Directors or the President or by one-third of the directors then in office.
Section 3. Notice of Meetings.
The Secretary or an Assistant Secretary shall give notice of the time and place of holding of meetings of the Board of Directors (excepting the annual meeting of directors) by mailing such notice not later than during the second day preceding the day on which such meeting is to be held, or by sending a cablegram, facsimile transmission, mailgram, radiogram, telegram or other form of recorded communication containing such notice or delivering such notice personally or by telephone not later than during the first day preceding the day on which such meeting is to be held to each director. Unless otherwise stated in the notice thereof any and all business may be transacted at any meeting.
Section 4. Quorum and Organization of Meetings.
A third of the total number of members of the Board of Directors as constituted from time to time, but in no event less than three, shall constitute a quorum for the transaction of business; but if at any meeting of the Board of Directors, there shall be less than a quorum present, a majority of those present may adjourn the meeting from time to time, and the meeting may be held as adjourned without further notice or waiver. Except as otherwise provided by law or by the Certificate of Incorporation, as amended, or by these By-Laws, a majority of the directors present at any duly constituted meeting may decide any question brought before such meeting.
The Board of Directors shall elect one of its members to be Chairman of the Board of Directors. The Chairman of the Board of Directors shall lead the Board of Directors in fulfilling its responsibilities as set forth in these By-Laws, including its responsibility to oversee the performance of the Company, and shall determine the agenda and perform all other duties and exercise all other powers which are or from time to time may be delegated to him or her by the Board of Directors.
Meetings of the Board of Directors shall be presided over by the Chairman of the Board of Directors, or in his or her absence, by the President, or in the absence of the Chairman of the Board of Directors and the President by such other person as the Board of Directors may designate or the members present may select.
Section 5. Powers.
In addition to the powers and authorities by these By-Laws expressly conferred upon them, the Board of Directors shall have and may exercise all such powers of the Company and do all such lawful acts and things that are not by statute or by the Certificate of Incorporation, as amended, or by these By-Laws directed or required to be exercised or done by the stockholders. Without prejudice to or limitation of such general powers and any other powers conferred by statute, or by the Certificate of Incorporation, as amended, or by these By-Laws, the Board of Directors shall have the following powers:
(1) To determine, subject to the requirements of law and of Section 5 of Article FOURTH of the Certificate of Incorporation, as amended, what, if any, dividends shall be declared and paid to the stockholders out of net profits, current or accumulated, or out of surplus or other assets of the Company available for dividends.
(2) To fix, and from time to time to vary, the amount of working capital of the Company, and to set aside from time to time out of net profits, current or accumulated, or surplus of the Company such amount or amounts as they in their discretion may deem necessary and proper as, or as a safeguard to the maintenance of, working capital, as a reserve for contingencies, as a reserve for repairs, maintenance, or rehabilitation, or as a reserve for revaluation of profits of the Company or for such other proper purpose as may in the opinion of the directors be in the best interests of the Company; and in their sole discretion to abolish or modify any such provision for working capital or any such reserve, and to credit the amount thereof to net profits, current or accumulated, or to the surplus of the Company.
(3) To purchase, or otherwise acquire for the Company, any business, property, rights or privileges which the Company may at the time be authorized to acquire, at such price or consideration and generally on such terms and conditions as they think fit; and at their discretion to pay therefor either wholly or partly in money, stock, bonds, debentures or other securities of the Company.
(4) To create, make and issue mortgages, bonds, deeds of trust, trust agreements or negotiable or transferable instruments or securities, secured by mortgage or otherwise, and to do every other act and thing necessary to effect the same.
(5) To appoint any person or corporation to accept and hold in trust for the Company any property belonging to the Company, or in which it is interested, or for any other purpose, and to execute such deeds and do all things requisite in relation to any such trust.
(6) To delegate any of the powers of the Board in the course of the business of the Company to any officer, employee or agent, and to appoint any person the agent of the Company, with such powers (including the power to subdelegate) and upon such terms as the Board may think fit.
(7) To remove any officer of the Company with or without cause, and from time to time to devolve the powers and duties of any officer upon any other person for the time being.
(8) To confer upon any officer of the Company the power to appoint, remove and suspend subordinate officers, agents and employees.
(9) To determine who shall be authorized on the Company's behalf, either generally or specifically, to make and sign bills, notes, acceptances, endorsements, checks, releases, receipts, contracts, conveyances, and all other written instruments executed on behalf of the Company.
(10) To make and change regulations, not inconsistent with these By-Laws, for the management of the Company's business and affairs.
(11) To adopt and, unless otherwise provided therein, to amend and repeal, from time to time, a bonus or supplemental compensation plan for employees (including employees who are officers or directors) of the Company or any subsidiary. Power to construe, interpret, administer, modify or suspend such plan shall be vested in the Board of Directors or a committee thereof.
(12) To adopt a retirement plan, or plans, for the purpose of making retirement payments to employees (including employees who are officers or directors) of the Company or of any subsidiary thereof; and to adopt a group insurance plan, or plans, for the purpose of enabling employees (including employees who are officers or directors) of the Company or of any subsidiary thereof to acquire insurance protection; any such retirement plan or insurance plan, unless otherwise provided therein, shall be subject to amendment or revocation by the Board of Directors.
Section 6. Reliance upon Books, Reports and Records.
Each director, each member of any committee designated by the Board of Directors and each officer, in the performance of his or her duties, shall be fully protected in relying in good faith upon the books of account or reports made to the Company by any of its officials, or by an independent certified public accountant, or by an appraiser selected with reasonable care by the Board of Directors or by any such committee, or in relying in good faith upon other records of the Company.
Section 7. Compensation of Directors.
Directors, as such, may receive, pursuant to resolution of the Board of Directors, fixed fees and other compensation for their services as directors, including, without limitation,
services as Chairman of the Board of Directors, or members of committees of the directors or as chairmen thereof; provided, however, that nothing herein contained shall be construed to preclude any director from serving the Company in any other capacity and receiving compensation therefor.
ARTICLE IV
COMMITTEES
Section 1. Committees of the Board of Directors.
There are hereby established as committees of the Board of Directors an Audit Committee, a Compensation Committee, an Environmental and Public Policy Committee, a Finance Committee, and a Nominating and Governance Committee, each of which shall have the powers and functions set forth in Sections 2, 3, 4, 5, and 6 hereof, respectively, and such additional powers as may be delegated to it by the Board of Directors. The Board of Directors may from time to time establish additional standing committees or special committees of the Board of Directors, each of which shall have such powers and functions as may be delegated to it by the Board of Directors. The Board of Directors may abolish any committee established by or pursuant to this Section 1 as it may deem advisable. Each such committee shall consist of one or more directors, the exact number being determined from time to time by the Board of Directors; provided, however, that membership on the Audit Committee and on the Compensation Committee shall be limited to directors who are not officers or employees of the Company. Designations of the Chairman and members of each such committee, and, if desired, a Vice Chairman and alternates for members, shall be made by the Board of Directors. Each such committee shall have a secretary who shall be designated by its chairman. A vice chairman of a committee shall act as the chairman of the committee in the absence or disability of the chairman.
Section 2. Audit Committee.
The Audit Committee shall select and engage, on behalf of the Company, independent public accountants to (1) audit the books of account and other corporate records of the Company and (2) perform such other duties as the Committee may from time to time prescribe. The Committee shall transmit financial statements certified by such independent public accountants to the Board of Directors after the close of each fiscal year. The selection of independent public accountants for each fiscal year shall be made in advance of the annual meeting of stockholders in such fiscal year and shall be submitted for ratification or rejection at such meeting. The Committee shall confer with such accountants and review and approve the scope of the audit of the books of account and other corporate records of the Company. The Committee shall have the power to confer with and direct the officers of the Company to the extent necessary to review the internal controls, accounting practices, financial structure and financial reporting of the Company. From time to time the Committee shall report to and advise the Board of Directors concerning the results of its consultation and review and such other matters relating to the internal controls, accounting practices, financial structure and financial reporting of the Company as the Committee believes merit review by the Board of Directors. The Committee also shall perform such other functions and exercise such other powers as may be delegated to it from time to time by the Board of Directors.
Section 3. Compensation Committee.
The Compensation Committee shall fix from time to time the salaries of members of the Board of Directors who are officers or employees of the Company, the President, and of any and all Vice Chairmen of the Company, Executive Vice Presidents, Group Vice Presidents and Vice Presidents of the Company. It also shall perform such functions as may be delegated to it under the provisions of any bonus, supplemental compensation, special compensation or stock option plan of the Company.
Section 4. Environmental and Public Policy Committee.
The Environmental and Public Policy Committee shall review all aspects of the Company's policies and practices that relate to environmental, public policy and corporate citizenship considerations facing the Company worldwide. From time to time the Committee shall report and make recommendations to the Board of Directors concerning the results of its review and such other matters relating to the foregoing matters as the Committee believes merit consideration by the Board of Directors. The Committee also shall perform such other functions and exercise such other powers as may be delegated to it from time to time by the Board of Directors.
Section 5. Finance Committee.
The Finance Committee shall review all aspects of the Company's policies and practices that relate to the management of the financial affairs of the Company, not inconsistent, however, with law or with such specific directions as to the conduct of affairs as shall have been given by the Board of Directors. The Committee also shall perform such other functions and exercise such other powers as may be delegated to it from time to time by the Board of Directors. From time to time the Committee shall report and make recommendations to the Board of Directors concerning the results of its review and such other matters relating to the foregoing matters as the Committee believes merit consideration by the Board of Directors.
Section 6. Nominating and Governance Committee.
The Nominating and Governance Committee from time to time shall consider and make recommendations to the Board of Directors, to the Chairman of the Board of Directors and to the President with respect to the management organization of the Company, the nominations or elections of directors and officers of the Company, senior management succession plans and the appointments of such other employees of the Company as shall be referred to the Committee.
The Committee from time to time shall consider the size, composition and functioning of the Board of Directors and make recommendations to the Board of Directors with respect to such matters. Prior to the annual meeting of stockholders each year, and prior to any special meeting of stockholders at which a director is to be elected, the Committee shall recommend to the Board of Directors persons proposed to constitute the nominees whose election at such meeting will be recommended by the Board of Directors.
The authority vested in the Committee by this section shall not derogate from the power of individual members of the Board of Directors to recommend or place in nomination persons other than those recommended by the Committee.
The Committee also shall perform such other functions and exercise such other powers as may be delegated to it from time to time by the Board of Directors.
Section 7. Other Committees.
The Board of Directors, or any committee, officer or employee of the Company may establish additional standing committees or special committees to serve in an advisory capacity or in such other capacities as may be permitted by law, by the Certificate of Incorporation and by the By-Laws. The members of any such committee need not be members of the Board of Directors. Any committee established pursuant to this Section 7 may be abolished by the person or body by whom it was established as he, she or it may deem advisable. Each such committee shall consist of two or more members, the exact number being determined from time to time by such person or body. Designations of members of each such committee and, if desired, alternates for members, shall be made by such person or body, at whose will all such members and alternates shall serve. The chairman of each such committee shall be designated by such person or body. Each such committee shall have a secretary who shall be designated by the chairman.
Section 8. Rules and Procedures.
Each committee may fix its own rules and procedures and shall meet at such times and places as may be provided by such rules, by resolution of the committee, or by call of the chairman or vice chairman. Notice of meeting of each committee, other than of regular meetings provided for by its rules or resolutions, shall be given to committee members. The presence of one-third of its members, but not less than two, shall constitute a quorum of any committee, and all questions shall be decided by a majority vote of the members present at the meeting. All action taken at each committee meeting shall be recorded in minutes of the meeting.
Section 9. Application of Article.
Whenever any provision of any other document relating to any committee of the Company named therein shall be in conflict with any provision of this Article IV, the provisions of this Article IV shall govern, except that if such other document shall have been approved by the stockholders, voting as provided in the Certificate of Incorporation, or by the Board of Directors, the provisions of such other document shall govern.
ARTICLE V
OFFICERS
Section 1. Officers.
The officers of the Company shall be a Chairman of the Board of Directors and a President, who shall be chosen from among the directors, and may also include one or more
Vice Chairmen of the Company, one or more Executive Vice Presidents, one or more Group Vice Presidents, one or more Vice Presidents, a Treasurer, a Controller and a Secretary, each of whom shall be elected by the Board of Directors to hold office until his or her successor shall have been chosen and shall have qualified. The Board of Directors may elect or appoint one or more Assistant Treasurers, one or more Assistant Secretaries, and such other officers as it may deem necessary, or desirable, each of whom shall have such authority, shall perform such duties and shall hold office for such term as may be prescribed by the Board of Directors from time to time. Any person may hold at one time more than one office.
Section 2. Chairman of the Board of Directors and Chief Executive Officer.
The Chairman of the Board of Directors shall be the Chief Executive Officer of the Company. Subject to the provisions of these By-Laws and to the direction of the Board of Directors, he or she shall have ultimate authority for decisions relating to the general management and control of the affairs and business of the Company and shall perform all other duties and exercise all other powers commonly incident to the position of Chief Executive Officer or which are or from time to time may be delegated to him or her by the Board of Directors, or which are or may at any time be authorized or required by law. He or she may redelegate from time to time and to the full extent permitted by law, in writing, to officers or employees of the Company any or all of such duties and powers, and any such redelegation may be either general or specific. Whenever he or she so shall delegate any of his or her authority, he or she shall file a copy of the redelegation with the Secretary of the Company.
Section 3. President and Chief Operating Officer.
The President shall be the Chief Operating Officer of the Company. Subject to the provisions of these By-Laws and to the direction of the Board of Directors and of the Chief Executive Officer, he or she shall have such powers and shall perform such duties as from time to time may be delegated to him or her by the Board of Directors or by the Chief Executive Officer, or which are or may at any time be authorized or required by law. In the absence or disability of the Chairman of the Board of Directors, or in the event of, and during the period of, a vacancy in such office, he or she shall be the Chief Executive Officer.
Section 4. Vice Chairmen of the Company, Executive Vice Presidents, Group Vice Presidents and Vice Presidents.
Each of the Vice Chairmen of the Company, each of the Executive Vice Presidents, each of the Group Vice Presidents and each of the other Vice Presidents shall have such powers and shall perform such duties as may be delegated to him or her by the Board of Directors, by the Chairman of the Board of Directors or by the President.
In addition, the Board of Directors shall designate one of the Vice Chairmen of the Company, Executive Vice Presidents, Group Vice Presidents, or Vice Presidents as the Chief Financial Officer, who, among his or her other powers and duties, shall provide and maintain, subject to the direction of the Board of Directors and the Finance Committee, financial and accounting controls over the business and affairs of the Company. Such office shall maintain, among others, adequate records of the assets, liabilities and financial
transactions of the Company, and shall direct the preparation of financial statements, reports and analyses. The Chief Financial Officer shall perform such other duties and exercise such other powers as are incident to such functions, subject to the control of the Board of Directors.
Section 5. Treasurer and Assistant Treasurer.
The Treasurer, subject to the direction of the Board of Directors, shall have the care and custody of all funds and securities which may come into his or her hands. When necessary or proper he or she shall endorse on behalf of the Company, for collection, checks, notes and other obligations, and shall deposit all funds of the Company in such banks or other depositaries as may be designated by the Board of Directors or by such officers or employees as may be authorized by the Board of Directors so to designate. He or she shall perform all acts incident to the office of Treasurer, subject to the control of the Board of Directors. He or she may be required to give a bond for the faithful discharge of his or her duties, in such sum and upon such conditions as the Board of Directors may require.
At the request of the Treasurer, any Assistant Treasurer, in the case of the absence or inability to act of the Treasurer, temporarily may act in his or her place. In the case of the death of the Treasurer, or in the case of his or her absence or inability to act without having designated an Assistant Treasurer to act temporarily in his or her place, the Assistant Treasurer so to perform the duties of the Treasurer shall be designated by the Chairman of the Board of Directors, the President, a Vice Chairman of the Company or an Executive Vice President.
Section 6. Secretary and Assistant Secretary.
The Secretary shall keep the minutes of the meetings of the stockholders and of the Board of Directors, and, when required, the minutes of meetings of the committees, and shall be responsible for the custody of all such minutes. Subject to the direction of the Board of Directors, the Secretary shall have custody of the stock ledgers and documents of the Company. He or she shall have custody of the corporate seal and shall affix and attest such seal to any instrument whose execution under seal shall have been duly authorized. He or she shall give notice of meetings and, subject to the direction of the Board of Directors, shall perform all other duties and enjoy all other powers commonly incident to his or her office.
At the request of the Secretary, any Assistant Secretary, in the case of the absence or inability to act of the Secretary, temporarily may act in his or her place. In the case of the death of the Secretary, or in the case of his or her absence or inability to act without having designated an Assistant Secretary to act temporarily in his or her place, the Assistant Secretary or other person so to perform the duties of the Secretary shall be designated by the Chairman of the Board of Directors, the President, a Vice Chairman of the Company or an Executive Vice President.
Section 7. General Counsel.
The Company may have a General Counsel who shall be appointed by the Board of Directors and who shall have general supervision of all matters of a legal nature concerning the Company.
Section 8. Controller.
The Controller shall have such powers and shall perform such duties as may be delegated to him or her by the Board of Directors, the Chairman of the Board of Directors, the President, or the appropriate Vice Chairman of the Company, Executive Vice President, Group Vice President or Vice President.
Section 9. Salaries.
Salaries of officers, agents or employees shall be fixed from time to time by the Board of Directors or by such committee or committees, or person or persons, if any, to whom such power shall have been delegated by the Board of Directors. An employment contract, whether with an officer, agent or employee, if expressly approved or specifically authorized by the Board of Directors, may fix a term of employment thereunder; and such contract, if so approved or authorized, shall be valid and binding upon the Company in accordance with the terms thereof, provided that this provision shall not limit or restrict in any way the right of the Company at any time to remove from office, discharge or terminate the employment of any such officer, agent or employee prior to the expiration of the term of employment under any such contract, except that the Company shall not thereby be relieved of any continuing liability for salary or other compensation provided for in such contract.
ARTICLE VI
RESIGNATIONS, REMOVALS AND VACANCIES
Section 1. Resignations.
Any director, officer or agent of the Company, or any member of any committee, may resign at any time by giving written notice to the Board of Directors, to the Chairman of the Board of Directors, to the President or to the Secretary of the Company. Any such resignation shall take effect at the time specified therein, or if the time be not specified therein, then upon receipt thereof. The acceptance of such resignation shall not be necessary to make it effective.
Section 2. Removals.
At any meeting thereof called for the purpose, the holders of Common Stock and the holders of Class B Stock voting as provided in subsection 1.6 of Article FOURTH of the Certificate of Incorporation, as amended, may remove from office or terminate the employment of any director, officer or agent with or without cause; and the Board of Directors, by vote of not less than a majority of the entire Board at any meeting thereof
called for the purpose, may, at any time, remove from office or terminate the employment of any officer, agent or member of any committee.
Section 3. Vacancies.
Subject to the last sentence of Section 1 of Article III, any vacancy in the office of any director, officer or agent through death, resignation, removal, disqualification, increase in the number of directors or other cause may be filled by the Board of Directors (in the case of vacancies in the Board, by the affirmative vote of a majority of the directors then in office, even though less than a quorum remains) and the person so elected shall hold office until his or her successor shall have been elected and shall have qualified.
ARTICLE VII
CAPITAL STOCK-DIVIDENDS-SEAL
Section 1. Certificates of Shares; Uncertificated Shares
The shares of capital stock of the Company shall be represented by certificates, provided that the Board of Directors may provide by resolution or resolutions that some or all of any or all classes or series of stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Company. Notwithstanding the adoption of such a resolution by the Board of Directors, every holder of stock represented by certificates, and upon request every holder of uncertificated shares, shall be entitled to have a certificate in such form, not inconsistent with the Certificate of Incorporation, as amended, as shall be approved by the Board of Directors. The certificates shall be signed by the Chairman of the Board of Directors, the President, a Vice Chairman of the Company, an Executive Vice President, a Group Vice President or a Vice President, and also by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary. Any and all signatures may be facsimiles.
All certificates shall bear the name of the person owning the shares represented thereby, shall state the number of shares represented by such certificate and the date of issue; and such information shall be entered in the Company's original stock ledger.
Section 2. Addresses of Stockholders.
It shall be the duty of every stockholder to notify the Company of his or her post office address and of any change therein. The latest address furnished by each stockholder shall be entered on the original stock ledger of the Company and the latest address appearing on such original stock ledger shall be deemed conclusively to be the post office address and the last-known post office address of such stockholder. If any stockholder shall fail to notify the Company of his or her post office address, it shall be sufficient to send corporate notices to such stockholder at the address, if any, understood by the Secretary to be his or her post office address, or in the absence of such address, to such stockholder, at the General Post Office in the City of Wilmington, State of Delaware.
Section 3. Lost, Destroyed or Stolen Certificate.
Any person claiming a stock certificate in lieu of one lost, destroyed or stolen, shall give the Company an affidavit as to his, her or its ownership of the certificate and of the facts which go to prove that it has been lost, destroyed or stolen. If required by the Board of Directors, he, she or it also shall give the Company a bond, in such form as may be approved by the Board of Directors, sufficient to indemnify the Company against any claim that may be made against it on account of the alleged loss of the certificate or the issuance of a new certificate.
Section 4. Fixing a Record Date.
The Board of Directors may fix in advance a date not exceeding (i) sixty (60) days preceding the date of any meeting of stockholders, or the date for payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of stock shall go into effect (other than conversions or exchanges pursuant to Sections 2, 3 or 4 of Article FOURTH of the Certificate of Incorporation, as amended), as a record date for the determination of the stockholders entitled to notice of and to vote at any such meeting and any adjournment thereof, or entitled to payment of any such dividend or to any such allotment of rights or to exercise the rights in respect of any such change, or conversion or exchange of stock (other than conversions or exchanges pursuant to Sections 2, 3 or 4 of Article FOURTH of the Certificate of Incorporation, as amended), or (ii), ten (10) days after adoption of the resolution fixing such date, as a record date for the determination of the stockholders entitled to consent in writing to corporate action; and in any such case, such stockholders and only such stockholders, as shall be stockholders of record on the date so fixed, shall be entitled, subject to the provisions of Article FOURTH of the Certificate of Incorporation, as amended, to such notice of and to vote at such meeting and any adjournment thereof or to receive payment of such dividend or to receive such allotment of rights or to exercise such rights or to give such consent, as the case may be, notwithstanding any transfer of any stock on the books of the Company after such record date.
Section 5. Regulations.
The Board of Directors shall have power and authority to make all such rules and regulations not inconsistent with any of the provisions of Sections 2, 3, 4 or 5 of Article FOURTH of the Certificate of Incorporation, as amended, as it may deem expedient, concerning the issue, transfer and registration of certificates for shares of the stock of the Company.
Section 6. Corporate Seal.
The corporate seal shall have inscribed thereon the name of the Company, the year of its organization, and the words "Corporate Seal" and "Delaware." If and when so authorized by the Board of Directors, a duplicate of the seal may be kept and used by the Secretary or Treasurer or by any Assistant Secretary or Assistant Treasurer.
ARTICLE VIII
EXECUTION OF CONTRACTS AND OTHER DOCUMENTS
Section 1. Contracts, etc.
Except as otherwise prescribed in these By-Laws, such officers, employees or agents of the Company as shall be specified by the Board of Directors shall sign, in the name and on behalf of the Company, all deeds, bonds, contracts, mortgages and other instruments or documents, the execution of which shall be authorized by the Board of Directors; and such authority may be general or confined to specific instances. Except as so authorized by the Board of Directors, no officer, agent or employee of the Company shall have power or authority to bind the Company by any contract or engagement or to pledge, mortgage, sell or otherwise dispose of its credit or any of its property or to render it pecuniarily liable for any purpose or in any amount.
Section 2. Checks, Drafts, etc.
Except as otherwise provided in these By-Laws, all checks, drafts, notes, bonds, bills of exchange or other orders, instruments or obligations for the payment of money shall be signed by such officer or officers, employee or employees, or agent or agents, as the Board of Directors shall by resolution direct. The Board of Directors may, in its discretion, also provide by resolution for the countersignature or registration of any or all such orders, instruments or obligations for the payment of money.
ARTICLE IX
FISCAL YEAR
The fiscal year of the Company shall begin the first day of January in each year.
ARTICLE X
MISCELLANEOUS
Section 1. Original Stock Ledger.
As used in these By-Laws and in the Certificate of Incorporation, as amended, the words "original stock ledger" shall mean the record maintained by the Secretary of the Company of the name and address of each of the holders of shares of any class of stock of the Company, and the number of shares and the numbers of the certificates for such shares held by each of them, taking into account transfers at the time made by and recorded on the transfer sheets of each of the Transfer Agents of the Company although such transfers may not then have been posted in the record maintained by the Secretary.
Section 2. Notices and Waivers Thereof.
Whenever any notice whatever is required by these By-Laws or by the Certificate of Incorporation, as amended, or by any of the laws of the State of Delaware to be given to any stockholder, director or officer, such notice, except as otherwise provided by the laws of the State of Delaware, may be given personally or by telephone or be given by cablegram, facsimile transmission, mailgram, radiogram, telegram or other form of recorded communication, addressed to such stockholder at the address set forth as provided in Section 2 of Article VII, or to such director or officer at his or her Company location, if any, or at such address as appears on the books of the Company, or the notice may be given in writing by depositing the same in a post office, or in a regularly maintained letter box, in a postpaid, sealed wrapper addressed to such stockholder at the address set forth in Section 2 of Article VII, or to such director or officer at his or her Company location, if any, or such address as appears on the books of the Company.
Any notice given by cablegram, mailgram, radiogram or telegram shall be deemed to have been given when it shall have been delivered for transmission. Any notice given by facsimile transmission or other form of recorded communication shall be deemed to have been given when it shall have been transmitted. Any notice given by mail shall be deemed to have been given when it shall have been mailed.
A waiver of any such notice in writing, including by cablegram, facsimile transmission, mailgram or telegram, signed or dispatched by the person entitled to such notice or by his or her duly authorized attorney, whether before or after the time stated therein, shall be deemed equivalent to the notice required to be given, and the presence at any meeting of any person entitled to notice thereof shall be deemed a waiver of such notice as to such person.
Section 3. Voting upon Stocks.
The Board of Directors (whose authorization in this connection shall be necessary in all cases) may from time to time appoint an attorney or attorneys or agent or agents of the Company, or may at any time or from time to time authorize the Chairman of the Board of Directors, the President, any Vice Chairman of the Company, any Executive Vice President, any Group Vice President, any Vice President, the Treasurer or the Secretary to appoint an attorney or attorneys or agent or agents of the Company, in the name and on behalf of the Company, to cast the votes which the Company may be entitled to cast as a stockholder or otherwise in any other corporation or association, any of the stock or securities of which may be held by the Company, at meetings of the holders of the stock or other securities of such other corporation or association, or to consent in writing to any action by any such other corporation or association, and the Board of Directors or any aforesaid officer so authorized may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent, and the Board of Directors or any aforesaid officer so authorized may from time to time authorize the execution and delivery, on behalf of the Company and under its corporate seal, or otherwise, of such written proxies, consents, waivers or other instruments as may be deemed necessary or proper in the premises.
ARTICLE XI
AMENDMENTS
The Board of Directors shall have power to make, alter, amend or repeal the By-Laws of the Company by vote of not less than a majority of the entire Board at any meeting of the Board. The holders of Common Stock and the holders of Class B Stock voting as provided in subsection 1.6 of Article FOURTH of the Certificate of Incorporation, as amended, shall have power to make, alter, amend or repeal the By-Laws at any regular or special meeting, if the substance of such amendment be contained in the notice of such meeting of stockholders.
EXHIBIT 10-F
Ford Motor Company provides financial assistance for professional financial counseling services obtained by senior level executives of the Company (Leadership Level 2 and above employees) who elect to participate in the program. The professional financial counseling may include estate planning, income tax planning, investment planning, stock option planning and a review of Company sponsored benefit plans (insurance, retirement and savings plans), as well as individualized financial planning. This program does not cover tax preparation services or transaction/fund management fees. The financial consultant's fees are split between the Company and the executive with the Company paying 75% and the executive paying the remaining 25%
Exhibit 10-R
Ford Motor Company 1998 Long-Term Incentive Plan
(Amended and Restated as of January 1, 2003, Subject to Shareholder Approval)
Purpose
1.(a) Purpose. This Plan, known as the "1998 Long-Term Incentive Plan" (the "Plan"), is intended to provide an incentive to certain salaried employees of Ford Motor Company (the "Company"), and of its subsidiaries, in order to encourage them to remain in the employ of the Company and to increase their interest in the Company's success. It is intended that this purpose be effected through awards or grants of stock options and various other rights with respect to shares of the Company's Common Stock (collectively, the "Plan Awards"), as provided herein, to eligible employees ("Participants").
(b) Company; Subsidiary; Employee. The term "Company" when used with reference to employment shall include subsidiaries of the Company. The term "subsidiary" shall mean (i) any corporation a majority of the voting stock of which is owned directly or indirectly by the Company or (ii) any limited liability company a majority of the membership interest of which is owned, directly or indirectly, by the Company. The term "employee" shall be deemed to include any person who is an employee of any joint venture corporation or partnership, or comparable entity, in which the Company has a substantial equity interest (a "Joint Venture"), provided such person was an employee of the Company immediately prior to becoming employed by such Joint Venture.
Administration
2.(a) Compensation [and Option] Committee. The Compensation [and Option] Committee of the Company's Board of Directors (the "Committee") shall administer the Plan and perform such other functions as are assigned to it under the Plan. The Committee is authorized, subject to the provisions of the Plan, from time to time to establish such rules and regulations as it may deem appropriate for the proper administration of the Plan, and to make such determinations under, and such interpretations of, and to take such steps in connection with, the Plan and the Plan Awards as it may deem necessary or advisable, in each case in its sole discretion.
(b) Delegation of Authority. The Committee may delegate any or all of its powers
and duties under the Plan, including, but not limited to, its authority to grant
waivers pursuant to Article 8, to one or more other committees as it shall
appoint, pursuant to such conditions or limitations as the Committee may
establish; provided, however, that the Committee shall not delegate its
authority to (1) make Plan Awards under the Plan, except as otherwise provided
in Articles 4 and 5, (2) act on matters affecting any Participant who is subject
to the reporting requirements of Section 16(a) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or the liability provisions of Section
16(b) of the Exchange Act (any such Participant being called a "Section 16
Person") or (3) amend or modify the Plan pursuant to the provisions of paragraph
(b) of Article 14.
(c) Eligibility of Committee Members. No person while a member of the Committee or any committee of the Board of Directors administering the Plan shall be eligible to hold or receive a Plan Award.
Stock Available for Plan Awards
3.(a) Stock Subject to Plan. The stock to be subject to or related to Plan
Awards shall be shares of the Company's Common Stock of the par value of $.01
per share ("Stock"), and may be either authorized and unissued or held in the
treasury of the Company. The maximum number of shares of Stock with respect to
which Plan Awards may be granted under the Plan, subject to adjustment in
accordance with the provisions of Article 11, in each calendar year during any
part of which the Plan is in effect shall be 2% of the total number of issued
shares of Stock as of December 31 of the calendar year immediately preceding
such year (the number of shares determined by application of such percentage in
any calendar year being called the "2% Limit" for such year); provided, however,
that such percentage may be increased to up to 3% in any one or more calendar
years, in which event the excess over 2% in any such calendar year shall be
applied to the reduction of the aggregate number of shares that otherwise would
have been available for Plan Awards pursuant to this paragraph (a) and paragraph
(c) of this Article 3 in subsequent calendar years during the term of the Plan,
in inverse order commencing with the year 2008. Notwithstanding the foregoing,
(i) the aggregate number of shares that may be issued upon exercise of
"incentive stock options" (as defined in paragraph (a)(l) of Article 5) shall
not exceed 2% of the number of shares authorized under the Company's Certificate
of Incorporation at the date of adoption of the Plan (subject to adjustment in
accordance with the provisions of Article 11), (ii) the maximum number of shares
subject to Options (as defined below), with or without any related Stock
Appreciation Rights (as defined below), that may be granted pursuant to Article
5 to any Covered Executive during any calendar year commencing with 2002 during
any part of which the Plan is in effect shall be 5,000,000, subject to
adjustment in accordance with the provisions of Article 11 and (iii) the maximum
number of shares of Stock that may be granted as Final Awards (as defined below)
pursuant to Article 4 to any Covered Executive during any calendar year during
any part of which the Plan is in effect shall be 906,703, subject to adjustment
in accordance with the provisions of Article 11.
(b) Computation of Stock Available for Plan Awards. For the purpose of computing the total number of shares of Stock remaining available for Plan Awards at any time in each calendar year during which the Plan is in effect, there shall be debited against the total number of shares determined to be available pursuant to paragraphs (a) and (c) of this Article 3 (i) the maximum number of shares of Stock subject to issuance upon exercise of Options (as defined below) granted in such year, (ii) the number of shares of Stock representing 150% of the Target Awards under Performance Stock Rights (as defined below) granted in such calendar year, and (iii) the number of shares of Stock related to Other Stock-Based Awards (as defined below) granted in such year, as determined by the Committee in each case as at the dates on which such Plan Awards were granted.
(c) Unused, Forfeited and Reacquired Shares. Any unused portion of the 2% Limit for any calendar year shall be carried forward and shall be made available for Plan Awards in succeeding calendar years. The shares involved in the unexercised or undistributed portion of any
terminated, expired or forfeited Plan Award (including, without limitation, the shares representing 150% of any Target Award that are not included in the related Final Award) also shall be made available for further Plan Awards. Any shares of Stock made available for Plan Awards pursuant to this paragraph (c) shall be in addition to the shares available pursuant to paragraph (a) of this Article 3.
Performance Stock Rights and Final Awards
4.(a) Grant of Performance Stock Rights. The term "Performance Stock Right" ("Right"), shall mean the right to receive, without payment to the Company, up to the number of shares of Stock described therein, subject to the terms and provisions of the Right and the Plan. The Committee, at any time and from time to time while the Plan is in effect, may grant, or authorize the granting of, Rights to such officers and other key salaried employees of the Company, whether or not members of the Board of Directors, as it may select and for such numbers of shares based on such dollar amounts as it shall designate, subject to the provisions of this Article 4 and Article 3. Notwithstanding anything contained in the Plan to the contrary, the Committee may authorize a committee of two or more Company officers appointed by it to determine the amount of individual grants of Rights and related Final Awards to key employees of the Company selected by such committee who are not officers or directors of the Company, subject to the provisions of Articles 3 and 4 and subject to a maximum number of shares of Stock and any other limitations specified by the Committee.
(b) Terms and Provisions of Performance Stock Rights. Prior to the grant of any
Right, the Committee shall determine the terms and provisions of each Right,
including, without limitation, (i) the number of shares of Stock to be earned
under such Right if 100% of each of the Performance Goals is achieved (the
"Target Award"), as adjusted pursuant to Article 11, (ii) one or more
performance goals ("Performance Goals") based on one or more Performance
Criteria (as defined below) to be used to measure performance under such Right,
(iii) the formula (the "Performance Formula") to be applied against the
Performance Goals in determining the percentage (which shall not exceed 150%) of
the Target Award (as adjusted pursuant to Article 11) used to determine the
number of shares of Stock earned under such Right, (iv) the period of time for
which such performance is to be measured (the "Performance Period"), which shall
commence not earlier than 90 days prior to the date of grant of such Right, and
(v) the period of time, if any, during which the disposition of shares of Stock
covered by any Final Award relating to such Right shall be restricted as
provided in paragraph (a) of Article 9 (the "Restriction Period"); provided,
however, that the Committee may establish the Restriction Period applicable to
any Right at the time of or at any time prior to the granting of the related
Final Award rather that at the time of granting such Right. Within 90 days of
commencement of a Performance Period, the Committee may establish a minimum
threshold objective for any Performance Goal for such Performance Period, which
if not met, would result in no Final Award being made to any Participant with
such Goal for such Period. During and after the Performance Period, but prior to
the grant of a Final Award relating to any Right granted to a Participant who is
not a "Covered Executive" (as defined below), the Committee may adjust the
Performance Goals, Performance Formula and Target Award and otherwise modify the
terms and provisions of such Right, subject to the terms and conditions of the
Plan. Each Right shall be evidenced by a letter, an agreement or such other
document as the Committee may determine. The term "Performance
Criteria" shall mean, with respect to any Right granted to a Participant who is a Covered Executive, one or more of the following objective business criteria established by the Committee with respect to the Company and/or any subsidiary, division, business unit or component thereof upon which the Performance Goals for a Performance Period are based: asset charge, asset turnover, automotive return on sales, capacity utilization, capital employed in the business, capital spending, cash flow, cost structure improvements, complexity reductions, customer loyalty, diversity, earnings growth, earnings per share, economic value added, environmental health and safety, facilities and tooling spending, hours per vehicle, increase in customer base, inventory turnover, market price appreciation, market share, net cash balance, net income, net income margin, net operating cash flow, operating profit margin, order to delivery time, plant capacity, process time, profits before tax, quality/customer satisfaction, return on assets, return on capital, return on equity, return on net operating assets, return on sales, revenue growth, sales margin, sales volume, total shareholder return, vehicles per employee, warranty performance to budget, variable margin and working capital. The term "Performance Criteria" shall mean, with respect to any Right granted to a Participant who is not a Covered Executive, one or more of the business criteria applicable to Covered Executives for the Performance Period and any other criteria based on individual, business unit, group or Company performance selected by the Committee. The Performance Criteria may be expressed in absolute terms or relate to the performance of other companies or to an index. The term "Covered Executive" shall mean the Chief Executive Officer and the other four highest compensated officers of the Company at year-end whose compensation is required to be reported in the Summary Compensation Table of the Proxy Statement.
(c) Dividend Equivalents on Rights. (1) If the Committee shall determine, each Participant to whom a Right is granted shall be entitled to receive payment of the same amount of cash that such Participant would have received as cash dividends if, on each record date during the entire Performance Period relating to such Right, such Participant had been the holder of record of a number of shares of Stock equal to 100% of the related Target Award (as adjusted pursuant to Article 11). In the case of any Right granted to a Participant after the commencement of the related Performance Period, any such payment relating to any dividend payable prior to the date of grant of such Right shall be made at the same time as the payment relating to the first dividend paid after such date of grant. Such cash payments are hereinafter called "dividend equivalents".
(2) Notwithstanding the provisions of paragraph (c)(1) of this Article 4
relating to dividend equivalents, the Committee may determine that, in lieu of
receiving all or any portion of any such dividend equivalent in cash, a
Participant shall receive an award of full shares of Stock having a value (as
determined by the Committee) approximately equal to the portion of such dividend
equivalent that was not paid in cash. Certificates for shares of Stock so
awarded shall be issued as of the payment date for the related cash dividend,
and the shares of Stock covered thereby shall be treated in the same manner as
shares of Stock representing Final Awards, subject to the terms and conditions
of the Plan, including, without limitation, the provisions of paragraphs (b),
(d) and (e) of Article 4 and Articles 8, 9, and 11.
(d) Final Awards. (1) As soon as practicable following the completion of the Performance Period relating to any Right, but not later than 12 months following such completion, the Committee shall determine the percentage (which shall not exceed 150%) of the Target Award (as adjusted
pursuant to Article 11) which shall be used to determine the number of shares of Stock to be awarded finally to the Participant who holds such Right. Such number of shares of Stock is called the "Final Award". Each Final Award shall represent only full shares of Stock, and any fractional share that would otherwise result from such Final Award calculation shall be disregarded. In making such determination, the Committee shall apply the applicable Performance Formula for the Participant for the Performance Period against the accomplishment of the related Performance Goals. The Committee may, in its sole discretion, reduce the amount of any Final Award that otherwise would be awarded to any Participant for any Performance Period. In addition, the Committee may, in its sole discretion, increase the amount of any Final Award that otherwise would be awarded to any Participant who is not a Covered Executive, subject to the maximum Final Award amount of 150% of the related Target Award (as adjusted pursuant to Article 11), taking into account (i) the extent to which the Performance Goals provided in such Right was, in the Committee's sole opinion, achieved, (ii) the individual performance of such Participant during the related Performance Period and (iii) such other factors as the Committee may deem relevant, including, without limitation, any change in circumstances or unforeseen events, relating to the Company, the economy or otherwise, since the date of grant of such Right. The Committee shall notify such Participant of such Participant's Final Award as soon as practicable following such determination.
(2) Following the determination of each Final Award, the Company shall issue or cause to be issued certificates for the number of shares of Stock representing such Final Award, registered in the name of the Participant who received such Final Award. Such Participant shall thereupon become the holder of record of the number of shares of Stock evidenced by such certificates, entitled to dividends, voting rights and other rights of a holder thereof, subject to the terms and provisions of the Plan, including, without limitation, the provisions of paragraph (e) of this Article 4 and Articles 8, 9 and 11. If the Committee has determined that dividend equivalents shall be payable to a Participant with respect to any Right pursuant to paragraph (c) of this Article 4, concurrently with the issuance of such certificates, the Company shall deliver to such Participant an amount equal to the amount of the cash dividends that such Participant would have received with respect to the shares of Stock representing such Final Award, prior to the date on which such Participant shall have become the holder of record of such shares, if such Participant had become such a holder of record immediately following completion of the Performance Period relating to such Final Award. The Committee may require that such certificates bear such restrictive legend as the Committee may specify and be held by the Company in escrow or otherwise pursuant to any form of agreement or instrument that the Committee may specify.
(3) Notwithstanding the provisions of paragraphs (d)(l) and (2) of this Article 4 or any other provision of the Plan, in the case of any Right held by a Participant who is an employee of a foreign subsidiary or foreign branch of the Company or of a foreign Joint Venture, or held by a Participant who is in any other category specified by the Committee, the Committee may specify that such Participant's Final Award shall not be represented by certificates for shares of Stock but shall be represented by rights approximately equivalent (as determined by the Committee) to the rights that such Participant would have received if certificates for shares of Stock had been issued in the name of such Participant in accordance with paragraphs (d)(l) and (2) of this Article 4 (such rights being called "Stock Equivalents"). Subject to the provisions of Article 11 and the other terms and provisions of the Plan, if the Committee shall so determine, each Participant who
holds Stock Equivalents shall be entitled to receive the same amount of cash that such Participant would have received as dividends if certificates for shares of Stock had been issued in the name of such Participant pursuant to paragraphs (d)(l) and (2) of this Article 4 covering the number of shares equal to the number of shares to which such Stock Equivalents relate. Notwithstanding any other provision of the Plan to the contrary, the Stockn Equivalents representing any Final Award may, at the option of the Committee, be converted into an equivalent number of shares of Stock or, upon the expiration of the applicable Restriction Period, into cash, under such circumstances and in such manner as the Committee may determine.
(4) If the Restriction Period relating to any Final Award shall expire while the Participant who was granted such Award is employed by the Company, the certificates for the shares of Stock issued in such Participant's name with respect to such Final Award, and certificates for a number of shares of Stock equal to the number of shares represented by any Stock Equivalents then held by such Participant with respect to such Final Award, shall be delivered to such Participant as soon as practicable, free of all restrictions and restrictive legends.
(e) Effect of Termination of Employment or Death. (1) If a Participant's employment with the Company shall be terminated, prior to the expiration of the Restriction Period relating to any Right granted to such Participant, by reason of discharge, release in the best interest of the Company, voluntary quit or retirement without the approval of the Company, such Right, and any shares of Stock or Stock Equivalents issued in the name of such Participant as a Final Award relating to such Right, shall be forfeited and cancelled forthwith unless the Committee shall grant an appropriate waiver. Any such waiver shall be granted in accordance with the procedure specified in paragraph (b) of Article 8 (in which event the reference in such paragraph (b) to "the nonfulfillment of such condition" shall be deemed to refer to such Participant's termination for any of the reasons specified above).
(2) If a Participant's employment with the Company shall be terminated for any reason other than a reason specified in paragraph (e)(l) of this Article 4, except death, prior to or concurrently with the expiration of the Restriction Period relating to any Right granted to such Participant,
(i) certificates for any shares of Stock issued in such Participant's name prior to such termination of employment as a Final Award relating to such Right, and certificates for a number of shares of Stock equal to the number of shares represented by any Stock Equivalents then held by such Participant with respect to such Final Award, shall be delivered to such Participant as soon as practicable, free of all restrictions and restrictive legends; and
(ii) subject to the provisions of Article 8, certificates for any shares of Stock issued in such Participant's name following such termination of employment as a Final Award relating to such Right (whether relating to a Performance Period ended prior to such termination or subsequent thereto) shall be delivered to such Participant as soon as practicable, free of all restrictions and restrictive legends.
(3) If a Participant's employment with the Company shall be terminated at any time by reason of a sale or other disposition (including, without limitation, a transfer to a Joint Venture) of the division, operation or subsidiary in which such Participant was employed or to which such
Participant was assigned, unless the Committee shall specify otherwise, any Rights then held by such Participant, and any shares of Stock or Stock Equivalents issued in the name of such Participant as a Final Award relating to such Rights, shall be dealt with as provided in paragraph (e)(2) of this Article 4.
(4) If a Participant shall die while in the employ of the Company, any Rights then held by such Participant shall remain in effect. Such Rights, and any shares of Stock then issued in the name of such Participant (but not yet distributed to such Participant), and any such shares thereafter issuable with respect to such Rights, as Final Awards under the Plan, shall be transferred or issued and delivered to the beneficiary designated pursuant to Article 10 or, if no such designation is in effect, to the executor or administrator of the estate of such Participant, free of all restrictions and restrictive legends. With regard to any Stock Equivalents then held by such Participant, certificates for a number of shares of Stock equal to the number of shares represented thereby shall be issued and delivered to such beneficiary, executor or administrator, free of all restrictions and restrictive legends.
(5) Subject to the provisions of Article 8, if a Participant shall die following termination of employment, any Rights then held by such Participant shall remain in effect. Such Rights, and any shares of Stock then issued in the name of such Participant (but not yet distributed to such Participant), and any such shares thereafter issuable with respect to such Rights, as Final Awards under the Plan, shall be transferred or issued and delivered to the beneficiary designated pursuant to Article 10 or, if no such designation is in effect, to the executor or administrator of the estate of such Participant, free of all restrictions and restrictive legends. With regard to any Stock Equivalents then held by such Participant, certificates for a number of shares of Stock equal to the number of shares represented thereby shall be issued and delivered to such beneficiary, executor or administrator, free of all restrictions and restrictive legends.
(6) Notwithstanding any other provision of the Plan to the contrary, if a Participant's employment with the Company shall for any reason terminate prior to the later of (a) the date of expiration of the period of six months following the commencement of the Performance Period relating to any Right (or such other period as the Committee may specify) or (b) the date six months following the date of grant of such Right, such Right shall be forfeited and cancelled forthwith unless the Committee shall determine otherwise.
(7) Notwithstanding any provision of the Plan to the contrary, (i) the Committee may at any time establish a Restriction Period applicable to the Stock to be represented by any Final Award, and such Restriction Period shall remain in effect until such time (which may be later than the date of the Participant's retirement or other termination of employment) as the Committee may determine; and (ii) the Committee may determine that no shares of Stock or certificates therefor shall be delivered to any Participant until the date of expiration of the applicable Restriction Period (or such earlier date as the Committee may determine).
Options And Stock Appreciation Rights
5.(a) Grant of Options. (1) The Board of Directors, at any time and from time to time while the Plan is in effect, may authorize the granting of Options to such officers and other key salaried
employees of the Company, whether or not members of the Board of Directors, as it may select from among those nominated by the Committee, and for such numbers of shares as it shall designate, subject to the provisions of this Article 5 and Article 3; provided, however, that no Option shall be granted to a Participant for a larger number of shares than the Committee shall recommend for such Participant. Each Option granted pursuant to the Plan shall be designated at the time of grant as either an "incentive stock option" ("ISO"), as such term is defined in the Internal Revenue Code of 1986, as amended (the "Code"), or its successors (or shall otherwise be designated as an option entitled to favorable treatment under the Code) or as a "nonqualified stock option" ("NQO") (ISOs and NQOs being individually called an "Option" and collectively called "Options").
(2) Without in any way limiting the authority provided in paragraph (a)(l) of this Article 5, the Board of Directors may authorize the Committee to authorize the granting of Options, at any time and from time to time while the Plan is in effect, to such officers and other key salaried employees of the Company, whether or not members of the Board of Directors, as the Committee may select, subject to the provisions of this Article 5 and Article 3 and subject to such other limitations as the Board of Directors may specify. In addition, to the extent such authority has been delegated to the Committee pursuant to this Article 5, the Committee may authorize a committee of two or more Company officers appointed by it to determine the amount and date of individual Option grants for key employees selected by such committee who are not officers or directors of the Company, subject to Articles 3 and 5 and subject to a maximum number of shares of Stock and any other limitations specified by the Committee.
(3) The date on which an Option shall be granted shall be the date of authorization of such grant or such later date as may be determined at the time such grant is authorized. Any individual may hold more than one Option.
(b) Price. In the case of each Option granted under the Plan the option price shall be the fair market value of Stock on the date of grant of such Option; provided, however, that in the case of any Option granted to an employee of a foreign subsidiary or a foreign branch of the Company or of a foreign Joint Venture the Board of Directors may in its discretion fix an option price in excess of the fair market value of Stock on such date. The term "fair market value" when used with reference to the option price shall mean the average of the highest price and the lowest price at which Stock shall have been sold regular way on the New York Stock Exchange on the date of grant of such Option. In the event that any Option shall be granted on a date on which there were no such sales of Stock on such Exchange, the fair market value of Stock on such date shall be deemed to be the average of such highest price and lowest price on the next preceding day on which there were such sales.
(c) Grant of Stock Appreciation Rights. (1) The Board of Directors may authorize the granting of Stock Appreciation Rights (as defined below) to such Participants who are granted Options under the Plan as it may select from among those nominated therefor by the Committee. The Committee may authorize the granting of Stock Appreciation Rights to such Participants as are granted Options under the Plan pursuant to paragraph (a) of this Article 5. Each Stock Appreciation Right shall relate to a specific Option granted under the Plan and may be granted concurrently with the Option to which it relates or at any time prior to the exercise, termination
or expiration of such Option.
(2) The term "Stock Appreciation Right" shall mean the right to receive, without payment to the Company and as the Participant may elect, either (a) that number of shares of Stock determined by dividing (i) the total number of shares of Stock subject to the related Option (or the portion or portions thereof which the Participant from time to time elects to use for purposes of this clause (a), multiplied by the amount by which the fair market value of a share of Stock on the day the right is exercised exceeds the option price (such amount being hereinafter referred to as the "Spread"), by (ii) the fair market value of a share of Stock on the exercise date; or (b) cash in an amount determined by multiplying (i) the total number of shares of Stock subject to the related Option (or the portion or portions thereof which the Participant from time to time elects to use for purposes of this clause (b)), by (ii) the amount of the Spread; or (c) a combination of shares of Stock and cash, in amounts determined as set forth in clauses (a) and (b) above; provided, however, that the total number of shares which may be received upon exercise of a Stock Appreciation Right for Stock shall not exceed the total number of shares subject to the related Option or portion thereof, and the total amount of cash which may be received upon exercise of a Stock Appreciation Right for cash shall not exceed the fair market value on the date of exercise of the total number of shares subject to the related Option or portion thereof.
(3) The Committee may impose such conditions as it may deem appropriate upon the exercise of an Option or a Stock Appreciation Right, including, without limitation, a condition that the Stock Appreciation Right may be exercised only in accordance with rules and regulations adopted by the Committee from time to time.
(4) The right of a Participant to exercise a Stock Appreciation Right shall be cancelled if and to the extent the related Option is exercised. The right of a Participant to exercise an Option shall be cancelled if and to the extent that shares covered by such Option are used to calculate shares or cash received upon exercise of a related Stock Appreciation Right.
(5) The fair market value of Stock on the date of exercise of a Stock Appreciation Right shall be determined as of such exercise date in the same manner as the fair market value of Stock on the date of grant of an Option is determined pursuant to paragraph (b) of this Article 5.
(6) If any fractional share of Stock would otherwise be payable to a Participant upon the exercise of a Stock Appreciation Right, the Participant shall be paid a cash amount equal to the same fraction of the fair market value (determined as described above) of the Stock on the date of exercise.
(d) Stock Option Agreement. Each Option and related Stock Appreciation Right shall be evidenced by a Stock Option Agreement in such form and containing such provisions not inconsistent with the provisions of the Plan as the Committee from time to time shall approve. Each Stock Option Agreement shall provide that the Participant shall agree to remain in the employ of the Company for such period from the date of grant of such Option or combination of Options or related Stock Appreciation Rights as shall be provided in the Stock Option Agreement; provided, however, that the Company's right to terminate the employment of the Participant at any time, with or without cause, shall not be restricted by such agreement.
(e) Terms of Options and Stock Appreciation Rights. Each Option and related Stock Appreciation Right granted under the Plan shall be exercisable on such date or dates, during such period, for such number of shares and subject to such further conditions as shall be determined pursuant to the provisions of the Stock Option Agreement with respect to such Option and related Stock Appreciation Right; provided, however, that a Stock Appreciation Right shall not be exercisable prior to or later than the time the related Option could be exercised; and provided, further, that in any event no Option or related Stock Appreciation Right shall be exercised beyond ten years from the date of grant of the Option.
(f) Effect of Termination of Employment or Death. (1) Except as provided in paragraphs (f)(2), (3) and (4) of this Article 5, if, prior to the date that any Option or Stock Appreciation Right shall first have become exercisable, the Participant's employment with the Company shall be terminated by the Company, with or without cause, or by the act, death, incapacity or retirement of the Participant, the Participant's right to exercise such Option or Stock Appreciation Right shall terminate on the date of such termination of employment and all rights thereunder shall cease.
(2) Notwithstanding the provisions of paragraph (f)(l) of this Article 5, if the Participant's employment with the Company shall be terminated by reason of retirement, release because of disability or death, and the Participant had remained in the employ of the Company for at least six months following the date of any Stock Option Agreement under the Plan between such Participant and the Company, and subject to the provisions of Article 8, all such Participant's rights under such Stock Option Agreement shall continue in effect or continue to accrue for the period ending on the date ten years from the date of grant of any Option (or such shorter period as the Committee may specify), subject, in the event of the Participant's death prior to such date, to the provisions of paragraph (f)(7) of this Article 5 and subject to any other limitation on the exercise of such rights in effect at the date of exercise.
(3) Notwithstanding the provisions of paragraph (f)(l) of this Article 5, if the Participant's employment with the Company shall be terminated under mutually satisfactory conditions, and the Participant had remained in the employ of the Company for at least six months following the date of any Stock Option Agreement under the Plan between the Participant and the Company, and subject to the provisions of Article 8, all such Participant's rights under such Stock Option Agreement shall continue in effect or continue to accrue until the date three months after the date of such termination (but not later than the date ten years from the date of grant of any Option), subject, in the event of the Participant's death during such three-month period, to the provisions of paragraph (f)(7) of this Article 5 and subject to any other limitation on the exercise of such rights in effect at the date of exercise.
(4) Notwithstanding any other provision of the Plan to the contrary, if a Participant's employment with the Company shall be terminated at any time by reason of a sale or other disposition (including, without limitation, a transfer to a Joint Venture) of the division, operation or subsidiary in which such Participant was employed or to which such Participant was assigned, all such Participant's rights under any Option and any related Stock Appreciation Right granted to him or her shall continue in effect and continue to accrue until the date five years after the date
of such termination or such earlier or later date as the Committee may specify (but not later than the date ten years from the date of grant of any Option), provided such Participant shall satisfy both of the following conditions:
(a) such Participant, at the date of such termination, had remained in the employ of the Company for at least three months following the grant of such Option and Stock Appreciation Right, and
(b) such Participant continues to be or becomes employed in such division, operation or subsidiary following such sale or other disposition and remains in such employ until the date of exercise of such Option or Stock Appreciation Right (unless the Committee, or any committee appointed by it for the purpose, shall waive this condition (b)).
Upon termination of such Participant's employment with such (former) division, operation or subsidiary following such sale or other disposition, any then existing right of such Participant to exercise any such Option or Stock Appreciation Right shall be subject to the following limitations: (i) if such Participant's employment is terminated by reason of disability, death or retirement with the approval of his or her employer, such Participant's rights shall continue as provided in the preceding sentence with the same effect as if his or her employment had not terminated; (ii) if such Participant's employment is terminated by reason of discharge or voluntary quit, such Participant's rights shall terminate on the date of such termination of employment and all rights under such Option and Stock Appreciation Right shall cease; and (iii) if such Participant's employment is terminated for any reason other than a reason set forth in the preceding clauses (i) and (ii), such Participant shall have the right, within three months after such termination, to exercise such Option or Stock Appreciation Right to the extent that it or any installment thereof shall have accrued at the date of such termination and shall not have been exercised, subject in the case of any such termination to the provisions of Article 8 and any other limitation on the exercise of such Option and Stock Appreciation Right in effect at the date of exercise.
(5) If, on or after the date that any Option or Stock Appreciation Right shall first have become exercisable, a Participant's employment with the Company shall be terminated for any reason except retirement, release because of disability, death, release because of a sale or other disposition of the division, operation or subsidiary in which such Participant was employed or to which such Participant was assigned, release under mutually satisfactory conditions, discharge, release in the best interest of the Company or voluntary quit, such Participant shall have the right, within three months after such termination, to exercise such Option or Stock Appreciation Right to the extent that it or any installment thereof shall have accrued at the date of such termination of employment and shall not have been exercised, subject to the provisions of Article 8 and any other limitation on the exercise of such Option or Stock Appreciation Right in effect at the date of exercise.
(6) If a Participant's employment with the Company shall be terminated at any time by reason of discharge, release in the best interest of the Company or voluntary quit, the Participant's right to exercise such Option or Stock Appreciation Right shall terminate on the date of such termination of employment and all rights thereunder shall cease.
(7) If a Participant shall die within the applicable period specified in paragraph (f)(2), (3), (4) or (5) of this Article 5, the beneficiary designated pursuant to Article 10 or, if no such designation is in effect, the executor or administrator of the estate of the decedent or the person or persons to whom the Option or Stock Appreciation Right shall have been validly transferred by the executor or administrator pursuant to will or the laws of descent and distribution shall have the right, within the same period of time as the period during which the Participant would have been entitled to exercise such Option or Stock Appreciation Right (except that (a) in the case of a Participant to whom paragraph (f)(5) of this Article 5 applies, such Participant's Option or Stock Appreciation Right may be exercised only to the extent that it or any installment thereof shall have accrued at the date of death and shall not have been exercised; and (b) the period of time within which any Option or Stock Appreciation Right shall be exercisable following the date of the Participant's death shall not be less than one year (unless the Option by its terms expires earlier)), subject to the provision that no Option or related Stock Appreciation Right shall be exercised under any circumstances beyond ten years from the date of grant of such Option, and to any other limitation on the exercise of such Option or Stock Appreciation Right in effect at the date of exercise. No transfer of an Option or Stock Appreciation Right by the Participant, other than by filing a written designation of beneficiary pursuant to Article 10, shall be effective to bind the Company unless the Company shall have been furnished with written notice of such transfer and a copy of the will and/or such other evidence as the Committee may deem necessary to establish the validity of the transfer. No transfer shall be effective without the acceptance by the designated beneficiary or other transferee of the terms and conditions of such Option or Stock Appreciation Right.
(8) Notwithstanding anything contained in the Plan to the contrary, in the event of a change in the rules or interpretations of the Financial Accounting Standards Board that would result in negative accounting treatment for Options that continue to vest after termination of employment for the reason specified below, for any Options granted under the Plan on or after March 10, 2000 to Participants whose employment with the Company terminates by reason of a sale or other disposition (including, without limitation, a transfer to a Joint Venture) of the division, operation or subsidiary in which such Participant was employed or to which such Participant was assigned, effective as of the later of (i) the date of such termination of employment or (ii) the effective date of such accounting change, all such Participant's rights under such Options shall become immediately vested and continue for the period specified in paragraph (f)(4) of this Article 5, subject to the conditions specified therein and in Article 8.
(g) Payment for Option Shares. (1) Payment for shares of Stock purchased upon exercise of an Option granted hereunder shall be made, either in full or, if the Committee shall so determine and at the election of the Participant, in installments, in such manner as provided in the applicable Stock Option Agreement.
(2) Unless the Committee shall provide otherwise in any form of Stock Option Agreement, any payment for shares of Stock purchased upon exercise of an Option granted hereunder may be made in cash, by delivery of shares of Stock beneficially owned by the Participant or by a combination of cash and Stock, at the election of the Participant; provided, however, that any shares of Stock so delivered shall have been beneficially owned by the Participant for a period of not less than six months prior to the date of exercise. Any such shares of Stock so delivered shall be valued at their fair market value on the date of such exercise, which shall be determined as of
such date in the same manner as the fair market value of Stock on the date of grant of an Option is determined pursuant to paragraph (b) of this Article 5. The Committee shall determine whether and if so the extent to which actual delivery of share certificates to the Company shall be required.
Stock and Other Stock-Based and Combination Awards
6.(a) Grants of Other Stock-Based Awards. The Committee, at any time and from time to time while the Plan is in effect, may grant to such officers and other salaried employees of the Company, whether or not members of the Board of Directors, as it may select, Plan Awards pursuant to which Stock is or may in the future be acquired, or Plan Awards valued or determined in whole or part by reference to, or otherwise based on, Stock (including but not limited to Plan Awards denominated in the form of "stock units", grants of so-called "phantom stock" and options containing terms or provisions differing in whole or in part from Options granted pursuant to Article 5) (such Plan Awards being hereinafter called "Other Stock-Based Awards"). Other Stock-Based Awards may be granted either alone, in addition to, in tandem with or as an alternative to any other kind of Plan Award, grant or benefit granted under the Plan or under any other employee plan of the Company, including a plan of any acquired entity.
(b) Terms and Conditions. Subject to the provisions of the Plan, the Committee shall have authority to determine the time or times at which Other Stock-Based Awards shall be made, the number of shares of Stock or stock units and the like to be granted or covered pursuant to such Plan Awards (subject to the provisions of Article 3) and all other terms and conditions of such Plan Awards, including, but not limited to, whether such Plan Awards shall be payable or paid in cash, Stock or otherwise.
(c) Consideration for Other Stock-Based Awards. In the discretion of the
Committee, any Other-Stock Based Award may be granted as a Stock bonus for no
consideration other than services rendered; provided, however, that in the event
an Other Stock-Based Award shall be granted to a Participant who is a Section 16
Person under which shares of Stock are or may in the future be issued for any
other type of consideration, the amount of such consideration shall either be
(i) equal to the amount (such as the par value of such shares) required to be
received by the Company in order to assure compliance with applicable state law
or (ii) equal to or greater than 50% of the fair market value of such shares (as
determined in accordance with paragraph (b) of Article 5) on the date of grant
of such Other Stock-Based Award.
(d) Salaried Employee. Notwithstanding anything contained in the Plan to the contrary, the term "salaried employee", for purposes of this Article 6, shall be deemed to include any salaried employee of the Company or any other person designated by the Committee for an award under this Article 6.
Cash Awards
7. Notwithstanding any other provision of the Plan to the contrary, the Committee may determine to permit a Participant, other than a Section 16 Person, who is an employee of a foreign
subsidiary or a foreign branch of the Company or of a foreign Joint Venture to receive cash in lieu of any Plan Award or shares of Stock that would otherwise have been granted to or delivered to such Participant under the Plan, in such amount as the Committee may determine in its sole discretion. In addition, prior to payment of any Plan Award that is otherwise payable in Stock, the Committee may determine to pay the Plan Award in whole or in part in cash of equal value. The value of such Plan Award on the date of distribution shall be determined in the same manner as the fair market value of Stock on the date of grant of an Option pursuant to paragraph (b) of Article 5.
Payment of Plan Awards and Conditions Thereon
8.(a) Effect of Competitive Activity. Anything contained in the Plan to the contrary notwithstanding, if the employment of any Participant shall terminate, for any reason other than death, while any Plan Award to such Participant is outstanding hereunder, and such Participant has not yet received the Stock covered by such Plan Award or otherwise received the full benefit of such Plan Award, such Participant, if otherwise entitled thereto, shall receive such Stock or benefit only if, during the entire period from the date of such Participant's termination to the date of such receipt, such Participant shall have earned out such Plan Award by (i) making himself or herself available, upon request, at reasonable times and upon a reasonable basis, to consult with, supply information to and otherwise cooperate with the Company or any subsidiary thereof with respect to any matter that shall have been handled by him or her or under his or her supervision while he or she was in the employ of the Company or of any subsidiary thereof, and (ii) refraining from engaging in any activity that is directly or indirectly in competition with any activity of the Company or any subsidiary thereof.
(b) Nonfulfillment of Competitive Activity Conditions: Waivers Under the Plan. In the event of a Participant's nonfulfillment of any condition set forth in paragraph (a) of this Article 8 such Participant's rights under any Plan Award shall be forfeited and cancelled forthwith; provided, however, that the nonfulfillment of such condition may at any time (whether before, at the time of or subsequent to termination of employment) be waived in the following manner:
(i) with respect to any such Participant who at any time shall have been a
Section 16 Person, such waiver may be granted by the Committee upon its
determination that in its sole judgment there shall not have been and will
not be any substantial adverse effect upon the Company or any subsidiary
thereof by reason of the nonfulfillment of such condition; and
(ii) with respect to any other such Participant, such waiver may be granted by the Committee (or any committee appointed by it for the purpose) upon its determination that in its sole judgment there shall not have been and will not be any such substantial adverse effect.
(c) Effect of Inimical Conduct. Anything contained in the Plan to the contrary notwithstanding, all rights of a Participant under any Plan Award shall cease on and as of the date on which it has been determined by the Committee that such Participant at any time (whether before or subsequent to termination of such Participant's employment) acted in a manner inimical to the best interests of the Company or any subsidiary thereof.
(d) Tax and Other Withholding. Prior to any distribution of cash, Stock or Other Stock-Based Awards (including payments under paragraph (c) of Article 4) to any Participant, appropriate arrangements (consistent with the Plan and any rules adopted hereunder) shall be made for the payment of any taxes and other amounts required to be withheld by federal, state or local law.
(e) Substitution. The Committee, in its sole discretion, may substitute a Plan Award (except ISOs) for another Plan Award or Plan Awards of the same or different type.
Non-Transferability of Plan Awards; Restrictions on Disposition and Exercise of Plan Awards
9.(a) Restrictions on Transfer of Rights or Final Awards. (i) No Right or (ii) until the expiration of the applicable Restriction Period, no shares of Stock covered by any Final Award determined under paragraph (d) of Article 4, shall be transferred, pledged, assigned or otherwise disposed of by a Participant, except as permitted by the Plan, without the consent of the Committee, otherwise than by will or the laws of descent and distribution; provided, however, that the Committee may permit, on such terms as it may deem appropriate, use of Stock included in any Final Award as partial or full payment upon exercise of an Option under the Plan or a stock option under any Stock Option Plan of the Company prior to the expiration of the Restriction Period relating to such Final Award.
(b) Restrictions on Transfer of Options or Stock Appreciation Rights. Unless the Committee determines otherwise, no Option or related Stock Appreciation Right shall be transferable by a Participant otherwise than by will or the laws of descent and distribution, and during the lifetime of a Participant the Option or Stock Appreciation Right shall be exercisable only by such Participant or such Participant's guardian or legal representative.
(c) Restrictions on Transfer of Certain Other Stock-Based Awards. Unless the Committee determines otherwise, no Other-Stock Based Award which constitutes an option or similar right shall be transferable by a Participant otherwise than by will or the laws of descent and distribution, and during the lifetime of a Participant any such Other-Stock Based Award shall be exercisable only by such Participant or such Participant's guardian or legal representative.
Designation of Beneficiaries
10. Anything contained in the Plan to the contrary notwithstanding, a Participant may file with the Company a written designation of a beneficiary or beneficiaries under the Plan (subject to such limitations as to the classes and number of beneficiaries and contingent beneficiaries and such other limitations as the Committee from time to time may prescribe), subject to the provisions of paragraph (e) of Article 4 and paragraph (f) of Article 5. A Participant shall be deemed to have designated as beneficiary or beneficiaries under the Plan the person or persons who receive such Participant's life insurance proceeds under the basic Company Life Insurance Plan unless such Participant shall have assigned such life insurance or shall have filed with the Company a written designation of a different beneficiary or beneficiaries under the Plan. A Participant may from time to time revoke or change any such designation of beneficiary. Any designation of beneficiary under the Plan shall be controlling over any other disposition,
testamentary or otherwise; provided, however, that if the Committee shall be in doubt as to the entitlement of any such beneficiary to any Right, Final Award, Option, Stock Appreciation Right or Other Stock-Based Award, the Committee may determine to recognize only the legal representative of such Participant, in which case the Company, the Committee and the members thereof shall not be under any further liability to anyone. In the event of the death of any Participant, the term "Participant" as used in the Plan shall thereafter be deemed to refer to the beneficiary designated pursuant to this Article 10 or, if no such designation is in effect, the executor or administrator of the estate of such Participant, unless the context otherwise requires.
Merger, Consolidation, Stock Dividends, Etc.
11.(a) Adjustments. In the event of any merger, consolidation, reorganization, stock split, stock dividend or other event affecting Stock, an appropriate adjustment shall be made in the total number of shares available for Plan Awards and in all other provisions of the Plan that include a reference to a number of shares, and in the numbers of shares covered by, and other terms and provisions of, outstanding Plan Awards.
(b) Committee Determinations. The foregoing adjustments and the manner of application of the foregoing provisions shall be determined by the Committee in its sole discretion. Any such adjustment may provide for the elimination of any fractional share which might otherwise become subject to a Plan Award.
Acceleration of Payment or Modification of Plan Awards
12. Notwithstanding any other provision of the Plan, the Committee, in the event of the death of a Participant or in any other circumstance, may accelerate distribution of any Plan Award in its entirety or in a reduced amount, in cash or in Stock, or modify any Plan Award, in each case on such basis and in such manner as the Committee may determine in its sole discretion.
Rights as a Stockholder
13. A Participant shall not have any rights as a stockholder with respect to any share covered by any Plan Award until such Participant shall have become the holder of record of such share.
Term, Amendment, Modification and Termination of the Plan
14.(a) Term. The Plan shall terminate on May 1, 2008, except with respect to Plan Awards then outstanding.
(b) Amendment, Modification and Termination. The Board of Directors, upon
recommendation of the Committee, at any time may amend, modify or terminate the
Plan, and the Committee at any time may amend or modify the Plan; provided,
however, that no such action of the Board of Directors or the Committee, without
approval of the stockholders, may (a) increase the total number of shares of
Stock with respect to which Plan Awards may be granted under the Plan, (b)
extend the term of the Plan as set forth in paragraph (a) of this Article 14 or
(c) permit any
person while a member of the Committee or any committee of the Board of Directors administering the Plan to be eligible to receive or hold a Plan Award; provided, however, that neither the Board of Directors nor the Committee may amend or modify the Plan so as to increase the maximum number of shares determinable pursuant to the last sentence of paragraph (a) of Article 3.
Indemnification and Exculpation
15.(a) Indemnification. Each person who is or shall have been a member of the Board of Directors or of the Committee or of any committee of the Board of Directors administering the Plan or of any committee appointed by the foregoing committees shall be indemnified and held harmless by the Company against and from any and all loss, cost, liability or expense that may be imposed upon or reasonably incurred by such person in connection with or resulting from any claim, action, suit or proceeding to which such person may be or become a party or in which such person may be or become involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by such person in settlement thereof (with the Company's written approval) or paid by such person in satisfaction of a judgment in any such action, suit or proceeding, except a judgment in favor of the Company based upon a finding of such person's lack of good faith; subject, however, to the condition that, upon the institution of any claim, action, suit or proceeding against such person, such person shall in writing give the Company an opportunity, at its own expense, to handle and defend the same before such person undertakes to handle and defend it on such person's behalf. The foregoing right of indemnification shall not be exclusive of any other right to which such person may be entitled as a matter of law or otherwise, or any power that the Company may have to indemnify or hold such person harmless.
(b) Exculpation. Each member of the Board of Directors or of the Committee or of any committee of the Board of Directors administering the Plan or any committee appointed by the foregoing committees, and each officer and employee of the Company, shall be fully justified in relying or acting in good faith upon any information furnished in connection with the administration of the Plan by any appropriate person or persons other than such person. In no event shall any person who is or shall have been a member of the Board of Directors or of the Committee or of any committee of the Board of Directors administering the Plan or of any committee appointed by the foregoing committees, or an officer or employee of the Company, be held liable for any determination made or other action taken or any omission to act in reliance upon any such information, or for any action (including the furnishing of information) taken or any failure to act, if in good faith.
Expenses of Plan
16.The entire expense of offering and administering the Plan shall be borne by the Company and its participating subsidiaries.
Finality of Determinations
17.Each determination, interpretation, or other action made or taken pursuant to the provisions of the Plan by the Board of Directors or the Committee or any committee of the Board of Directors administering the Plan or any committee appointed by the foregoing committees shall
be final and shall be binding and conclusive for all purposes and upon all persons, including, but without limitation thereto, the Company, the stockholders, the Committee and each of the members thereof, and the directors, officers, and employees of the Company and its subsidiaries, the Participants, and their respective successors in interest.
1998LTIP.am.2003
Exhibit 12
Ford Motor Company and Subsidiaries
CALCULATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
----------------------------------------------------------------------------------------
(in millions)
For the Years Ended December 31
---------------------------------------------------------
2002 2001 2000 1999 1998
----------- ---------- ---------- ---------- ------------
Earnings
--------
Income before income taxes
and cumulative effects of changes
in accounting principles $ 953 $(7,422) $ 8,299 $ 9,857 $24,257
Equity in net (income)/loss of affiliates
plus dividends from affiliates 132 856 99 (13) 88
Adjusted fixed charges a/ 9,595 11,242 11,263 9,339 9,120
- ------- ------- ------- ------- -------
Earnings $10,680 $ 4,676 $19,661 $19,183 $33,465
======= ======= ======= ======= =======
Combined Fixed Charges and
Preferred Stock Dividends
--------------------------
Interest expense b/ $ 8,873 $10,863 $10,895 $ 9,020 $ 8,841
-
Interest portion of rental expense c/ 381 333 307 261 227
-
Preferred stock dividend requirements of
majority owned subsidiaries and trusts 353 55 55 55 55
------- ------- ------- ------- -------
Fixed charges 9,607 11,251 11,257 9,336 9,123
Ford preferred stock dividend requirements d/ 22 22 22 22 121
- ------- ------- ------- ------- -------
Total combined fixed charges
and preferred stock dividends $ 9,629 $11,273 $11,279 $ 9,358 $ 9,244
======= ======= ======= ======= =======
Ratios
------
Ratio of earnings to fixed charges 1.1 f/ 1.7 2.1 3.7e/
-
Ratio of earnings to combined fixed
charges and preferred stock dividends 1.1 f/ 1.7 2.0 3.6e/
-
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Discontinued operations are excluded from all amounts.
Exhibit 21
SUBSIDIARIES OF FORD MOTOR COMPANY AS OF MARCH 15, 2003*
--------------------------------------------------------
Organization Jurisdiction
------------ ------------
Ford Brasil Ltda. Brazil
Ford Capital B.V. The Netherlands
Ford Motor Company (Belgium) N.V. Belgium
Ford Nederland B.V. The Netherlands
Ford Espana S.A. Spain
Ford European Holdings, Inc. Delaware, U.S.A.
Ford Deutschland Holding, GmbH Germany
Ford Werke AG Germany
Volvo Car Holding Germany GmbH Germany
Volvo Car Germany GmbH Germany
Ford Export Services B.V. The Netherlands
Ford FSG, Inc. Delaware, U.S.A.
Ford Motor Credit Company Delaware, U.S.A.
The American Road Insurance Company Michigan, U.S.A.
FCALM, LLC Delaware, U.S.A.
Ford Credit Floorplan Corporation Delaware, U.S.A.
Ford Credit Floorplan, LLC Delaware, U.S.A.
Ford Credit Auto Receivables Two, LLC Delaware, U.S.A.
Ford Credit Auto Receivables Two, L.P. Delaware, U.S.A.
Ford Credit International, Inc. Delaware, U.S.A.
FCE Bank plc England
FMCC Mexicana, S.A. de C.V. Mexico
Ford Credit Canada Limited Canada
Ford Credit Canada Leasing Limited Canada
Primus Automotive Financial Services, Inc. New York, U.S.A.
Volvo Finance North America, Inc. Delaware, U.S.A.
The Hertz Corporation Delaware, U.S.A.
Hertz Equipment Rental Corporation Delaware, U.S.A.
Ford Global Technologies, LLC Delaware, U.S.A.
Ford Holdings LLC Delaware, U.S.A.
Ford Motor Land Development Corporation Delaware, U.S.A.
Ford International Capital Corporation Delaware, U.S.A.
Ford Automotive Holdings England
Ford Motor Company Limited England
Jaguar Limited England
Jaguar Cars Exports Limited England
Jaguar Cars Limited England
Volvo Car UK Limited England
Ford Italia S.p.A. Italy
Ford Mexico Holdings, Inc. Delaware, U.S.A.
Grupo Ford S. de R.L. de C.V. Mexico
Ford Motor Company, S.A. de C.V. Mexico
Ford Motor Company of Canada, Limited Ontario, Canada
Essex Manufacturing Ontario, Canada
FLH Holding, Inc. Ontario, Canada
Ford Lio Ho Motor Company Ltd. Taiwan
Ford Motor Company of Australia Limited Australia
Land Rover Holdings England
Land Rover Group Limited The Channel Islands
Ford Motor Company of Southern Africa (Pty.) Ltd. South Africa
Ford Motor de Venezuela, S.A. Venezuela
Page 1 of 2
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SUBSIDIARIES (Continued)
Organization Jurisdiction
------------ ------------
Ford Motor Service Company Michigan, U.S.A.
Gentle Winds Reinsurance, Ltd. Cayman Islands
Ford Motor Vehicle Assurance Company Michigan, U.S.A.
Ford South America Holdings, LLC Delaware, U.S.A.
Ford Argentina S.C.A. Argentina
Ford Super Enhanced Investment Partnership Michigan, U.S.A.
Ford Trading Company, LLC Delaware, U.S.A.
Ford VAC Corporation Delaware, U.S.A.
Ford VHC AB Sweden
Volvo Personvagnar Holding AB Sweden
Volvo Personvagnar AB Sweden
Snebe Holding B.V. The Netherlands
Volvo Cars Europe Industry NV Belgium
Volvo Personbilar Sverige Aktiebolag Sweden
Groupe Ford France SAS France
Ford Automotive Group SAS France
Ford Aquitaine Industries SAS France
Ford France Automobile SAS France
Land Rover Group USA, Inc. Delaware, U.S.A.
Land Rover North America, Inc. Delaware, U.S.A.
PAG Holdings Japan, Inc. Japan
PAG Import, Inc. Japan
Volvo Cars of North America, LLC Delaware, U.S.A.
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444 Other U.S. Subsidiaries
599 Other Non-U.S. Subsidiaries
* Subsidiaries are not shown by name in the above list if, considered in the aggregate as a single subsidiary, they would not constitute a significant subsidiary.
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
Re: Ford Motor Company Registration Statements Nos. 2-95018, 2-95020, 33-14951, 33-19036, 33-36043, 33-36061, 33-39402, 33-50194, 33-50238, 33-54275, 33-54283, 33-54348, 33-54735, 33-54737, 33-58255, 33-61107, 33-64605, 33-64607, 333-02735, 333-20725, 333-27993, 333-28181, 333-31466, 333-37396,
333-37536, 333-37542, 333-38580, 333-38586, 333-40258, 333-40260, 333-46295, 333-47443, 333-47445, 333-47733, 333-52399, 333-56660, 333-57596, 333-57598, 333-58695, 333-58697, 333-58701, 333-61882, 333-61886, 333-65703, 333-70447, 333-71380, 333-72476, 333-72478, |
333-74313, 333-85138, 333-86127, 333-87619, 333-87990, 333-100910 and 333-101293 on Form S-8 and 333-67209 and 333-75214 on Form S-3.
Commissioners:
We hereby consent to the incorporation by reference in the above Registration Statements of our report dated January 17, 2003 on our audits of the consolidated financial statements of Ford Motor Company and Subsidiaries as of December 31, 2002 and 2001, and for each of the three years in the period ended December 31, 2002, which report is included in this Annual Report on Form 10-K.
/s/PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Detroit, Michigan March 14, 2003 |
Exhibit 24
FORD MOTOR COMPANY
The undersigned, Peter Sherry, Jr., an Assistant Secretary of FORD MOTOR COMPANY, a Delaware corporation (the "Company"), DOES HEREBY CERTIFY that the following resolutions were adopted at a meeting of the Board of Directors of the Company duly called and held on March 12, 2003, adjourned, and then reconvened on March 13, 2003, and that the same are in full force and effect:
WHEREAS, pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, on March 12, 2003, William Clay Ford, Jr., Chairman of the Board of Directors and Chief Executive Officer of the Company, and Allan D. Gilmour, Vice Chairman and Chief Financial Officer of the Company, each executed certifications with respect to the Company's Annual Report on Form 10-K for the year ended December 31, 2002 (the "10-K Report"), which certifications are set forth in the 10-K Report; and
WHEREAS, such certifications were made, in part, on reliance of the assurances given by the Company's Disclosure Committee, co-chaired by Donat R. Leclair, Vice President and Controller of the Company, and Dennis E. Ross, Vice President and General Counsel of the Company, which committee is responsible for the preparation of the Company's annual and quarterly reports.
NOW, THEREFORE, BE IT:
RESOLVED, That the draft 10-K Report presented to this meeting to be filed with the Securities and Exchange Commission (the "Commission") under the Securities Exchange Act of 1934, as amended, be and hereby is in all respects authorized and approved; that the directors and appropriate officers of the Company, and each of them, be and hereby are authorized to sign and execute in their own behalf, or in the name and on behalf of the Company, or both, as the case may be, the 10-K Report, and any and all amendments thereto, with such changes therein as such directors and officers may deem necessary, appropriate or desirable, as conclusively evidenced by their execution thereof; and that the appropriate officers of the Company, and each of them, be and hereby are authorized to cause the 10-K Report and any such amendments, so executed, to be filed with the Commission.
RESOLVED, That each officer and director who may be required to sign and execute the 10-K Report or any amendment thereto or document in connection therewith (whether in the name and on behalf of the Company, or as an officer or director of the Company, or otherwise), be and hereby is authorized to execute a power of attorney appointing D. R. Leclair, D. E. Ross, P. J. Sherry, Jr., L. J. Ghilardi and D. J. Cropsey, and each of them, severally, his or her true and lawful attorney or attorneys to sign in his or her name, place and stead in any such capacity the 10-K Report and any and all amendments thereto and documents in connection therewith, and to file the same with the Commission, each of said attorneys to have power to act with or without the other, and to have full power and authority to do and perform in the name and on behalf of each of said officers and directors who shall have executed such power of attorney, every act whatsoever which such attorneys, or any of them, may deem necessary, appropriate or desirable to be done in connection therewith as fully and to all intents and purposes as such officers or directors might or could do in person.
WITNESS my hand as of this 13th day of March, 2003.
/s/Peter Sherry, Jr.
----------------------
Peter Sherry, Jr.
Assistant Secretary
(SEAL)
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Each of the undersigned, a director or officer of FORD MOTOR COMPANY, appoints each of D. R. Leclair, D. E. Ross, P. J. Sherry, Jr., L. J. Ghilardi and D. J. Cropsey his or her true and lawful attorney and agent to do any and all acts and things and execute any and all instruments which the attorney and agent may deem necessary or advisable in order to enable FORD MOTOR COMPANY to comply with the Securities Exchange Act of 1934, and any requirements of the Securities and Exchange Commission, in connection with the Annual Report of FORD MOTOR COMPANY on Form 10-K for the year ended December 31, 2002 and any and all amendments thereto, as authorized at a meeting of the Board of Directors of FORD MOTOR COMPANY duly called and held on March 12, 2003, adjourned, and then reconvened on March 13, 2003, including, but not limited to, power and authority to sign his or her name (whether on behalf of FORD MOTOR COMPANY, or as a director or officer of FORD MOTOR COMPANY, or by attesting the seal of FORD MOTOR COMPANY, or otherwise) to such instruments and to such Annual Report and any amendments thereto, and to file them with the Securities and Exchange Commission. Each of the undersigned ratifies and confirms all that any of the attorneys and agents shall do or cause to be done by virtue hereof. Any one of the attorneys and agents shall have, and may exercise, all the powers conferred by this instrument.
Each of the undersigned has signed his or her name as of the 13th day of March, 2003.
/s/William Clay Ford, Jr. /s/Nicholas V. Scheele
-------------------------------- ---------------------------------
(William Clay Ford, Jr.) (Nicholas V. Scheele)
/s/John R. H. Bond /s/Edsel B. Ford II
-------------------------------- ---------------------------------
(John R. H. Bond) (Edsel B. Ford II)
/s/ William Clay Ford /s/Irvine O. Hockaday, Jr.
-------------------------------- ---------------------------------
(William Clay Ford) (Irvine O. Hockaday, Jr.)
/s/Marie-Josee Kravis /s/Richard A. Manoogian
-------------------------------- ---------------------------------
(Marie-Josee Kravis) (Richard A. Manoogian)
/s/Ellen R. Marram /s/Homer A. Neal
-------------------------------- ---------------------------------
(Ellen R. Marram) (Homer A. Neal)
/s/Jorma Ollila /s/Carl E. Reichardt
-------------------------------- ---------------------------------
(Jorma Ollila) (Carl E. Reichardt)
/s/Robert E. Rubin /s/John L. Thornton
-------------------------------- ---------------------------------
(Robert E. Rubin) (John L. Thornton)
/s/Allan D. Gilmour /s/Donat R. Leclair
-------------------------------- ---------------------------------
(Allan D. Gilmour) (Donat R. Leclair)
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Exhibit 99-A
FORD MOTOR COMPANY
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, William Clay Ford, Jr., the Chairman of the Board and Chief Executive Officer of Ford Motor Company (the "Company"), hereby certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:
1. the Company's annual report on Form 10-K for the year ended December 31, 2002, to which this statement is filed as an exhibit (the "Report"), fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/William Clay Ford
--------------------------
William Clay Ford, Jr.
Chairman of the Board and
Chief Executive Officer
Dated: March 12, 2003
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Exhibit 99-B
FORD MOTOR COMPANY
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Allan D. Gilmour, Vice Chairman and Chief Financial Officer of Ford Motor Company (the "Company"), hereby certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:
1. the Company's annual report on Form 10-K for the year ended December 31, 2002, to which this statement is filed as an exhibit (the "Report"), fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/Allan D. Gilmour
-------------------------
Allan D. Gilmour
Vice Chairman and
Chief Financial Officer
Dated: March 12, 2003
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