Ford Motor Credit Company
QUARTERLY REPORT
ON FORM 10-Q
for the quarter ended
September 30, 2004
Filed pursuant to Section 13
of the Securities Exchange Act of 1934
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________
Commission file number 1-6368
Ford Motor Credit Company
(Exact name of registrant as specified in its charter)
Delaware 38-1612444
(State of incorporation) (I.R.S. employer identification no.)
One American Road, Dearborn, Michigan 48126
(Address of principal executive offices) (Zip code)
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Registrant's telephone number, including area code (313) 322-3000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).
As of November 1, 2004, the registrant had outstanding 250,000 shares of Common Stock. No voting stock of the registrant is held by non-affiliates of the registrant.
EXHIBIT INDEX APPEARS AT PAGE 37
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
For the Periods Ended September 30, 2004 and 2003
(in millions)
Third Quarter Nine Months
------------------------ ------------------------
2004 2003 2004 2003
----------- ------------ ----------- ------------
(Unaudited) (Unaudited)
Financing revenue
Operating leases $ 1,406 $ 1,761 $ 4,429 $ 5,741
Retail 1,193 1,268 3,434 3,473
Interest supplements and other support costs earned
from affiliated companies 792 851 2,464 2,548
Wholesale 238 168 700 591
Other 54 35 163 196
------------- ---------- ------------ ---------
Total financing revenue 3,683 4,083 11,190 12,549
Depreciation on vehicles subject to operating leases (1,133) (1,615) (3,682) (5,565)
Interest expense (1,338) (1,430) (3,962) (4,428)
------------- ---------- ------------ ---------
Net financing margin 1,212 1,038 3,546 2,556
Other revenue
Investment and other income related to sales
of receivables (Note 4) 506 576 1,636 2,139
Insurance premiums earned, net 46 54 167 179
Other income 271 230 786 736
------------- ---------- ------------ ---------
Total financing margin and revenue 2,035 1,898 6,135 5,610
Expenses
Operating expenses 568 603 1,671 1,726
Provision for credit losses (Note 3) 264 446 641 1,509
Insurance expenses 36 41 147 179
------------- ---------- ------------ ---------
Total expenses 868 1,090 2,459 3,414
------------- ---------- ------------ ---------
Income from continuing operations before income taxes 1,167 808 3,676 2,196
Provision for income taxes 435 306 1,353 848
------------- ---------- ------------ ---------
Income from continuing operations before minority interests 732 502 2,323 1,348
Minority interests in net (loss)/income of subsidiaries - (1) 1 2
------------- ---------- ------------ ---------
Income from continuing operations 732 503 2,322 1,346
Income/(loss) from discontinued/held-for-sale
operations (Note 8) 2 1 (3) 1
------------- ---------- ------------ ----------
Net income $ 734 $ 504 $ 2,319 $ 1,347
============= ========== ============ ==========
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The accompanying notes are an integral part of the financial statements.
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in millions)
September 30, December 31,
2004 2003
-------------- -------------
(Unaudited)
ASSETS
Cash and cash equivalents (Note 1) $ 10,148 $ 15,688
Investments in securities 595 611
Finance receivables, net (Note 2) 110,544 108,912
Net investment in operating leases 21,448 23,164
Retained interest in securitized assets (Note 4) 9,473 13,017
Notes and accounts receivable from affiliated companies 1,516 2,060
Derivative financial instruments (Note 10) 5,741 9,842
Assets of discontinued/held-for-sale operations (Note 8) - 388
Other assets 4,674 5,530
------------ ------------
Total assets $ 164,139 $ 179,212
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Accounts payable
Trade, customer deposits, and dealer reserves $ 1,475 $ 1,535
Affiliated companies 1,758 1,258
------------ ------------
Total accounts payable 3,233 2,793
Debt (Note 5) 135,336 149,652
Deferred income taxes, net 7,467 6,334
Derivative financial instruments (Note 10) 956 1,370
Liabilities of discontinued/held-for-sale operations (Note 8) - 37
Other liabilities and deferred income 5,705 6,533
------------ ------------
Total liabilities 152,697 166,719
Minority interests in net assets of subsidiaries 12 19
Stockholder's equity
Capital stock, par value $100 a share, 250,000 shares
authorized, issued and outstanding 25 25
Paid-in surplus (contributions by stockholder) 5,117 5,117
Accumulated other comprehensive income (Note 7) 457 420
Retained earnings (Note 7) 5,831 6,912
------------ ------------
Total stockholder's equity 11,430 12,474
------------ ------------
Total liabilities and stockholder's equity $ 164,139 $ 179,212
============ ============
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The accompanying notes are an integral part of the financial statements.
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS FROM CONTINUING OPERATIONS
For the Periods Ended September 30, 2004 and 2003
(in millions)
Nine Months
-------------------------
2004 2003
----------- ------------
(Unaudited)
Cash flows from operating activities
Income from continuing operations $ 2,322 $ 1,346
Adjustments to reconcile income from continuing operations
to net cash provided by operating activities:
Provision for credit losses 641 1,509
Depreciation and amortization 4,010 5,865
Gain on sales of finance receivables (150) (329)
Increase in deferred income taxes 1,007 567
Decrease in other assets 4,021 2,099
(Decrease)/increase in other liabilities (664) 822
All other operating activities (146) (26)
----------- ----------
Net cash provided by operating activities 11,041 11,853
----------- ----------
Cash flows from investing activities
Purchase of finance receivables (other than wholesale) (39,450) (37,863)
Collection of finance receivables (other than wholesale) 30,324 24,312
Purchase of operating lease vehicles (9,010) (7,822)
Liquidation of operating lease vehicles 6,633 9,255
Decrease/(increase) in wholesale receivables 1,373 (894)
Net change in retained interest (145) 4,419
(Increase)/decrease in note receivable with affiliate (27) 256
Proceeds from sale of receivables 9,154 15,781
Purchase of investment securities (622) (481)
Proceeds from sale/maturity of investment securities 641 581
Proceeds from sale of businesses 412 1,421
All other investing activities (27) 42
----------- ----------
Net cash (used in)/provided by investing activities (744) 9,007
----------- ----------
Cash flows from financing activities
Proceeds from issuance of long-term debt 9,077 14,776
Principal payments on long-term debt (26,668) (20,440)
Change in short-term debt, net 5,136 957
Cash dividends paid (3,400) (2,900)
----------- ----------
Net cash used in financing activities (15,855) (7,607)
Effect of exchange rate changes on cash and cash equivalents 18 247
----------- ----------
Net change in cash and cash equivalents (5,540) 13,500
Cash and cash equivalents, beginning of period 15,688 6,793
----------- ----------
Cash and cash equivalents, end of period $ 10,148 $ 20,293
=========== ===========
Supplementary cash flow information
Interest paid $ 4,612 $ 4,945
Taxes paid 104 122
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The accompanying notes are an integral part of the financial statements.
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include Ford Motor Credit Company, its controlled domestic and foreign subsidiaries and joint ventures, and variable interest entities ("VIEs") in which Ford Motor Credit Company is considered the primary beneficiary (collectively referred to herein as "Ford Credit", "we", "our" or "us"). We are an indirect, wholly owned subsidiary of Ford Motor Company ("Ford"). The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America for interim financial information, and instructions to the Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion of management, these financial statements include all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of the results for interim periods. Results for interim periods should not be considered indicative of results for a full year. Reference should be made to the financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2003 (the "10-K Report"). Certain amounts in prior period financial statements have been reclassified to conform to current period presentation.
Cash and Cash Equivalents
At September 30, 2004 and December 31, 2003, approximately $800 million and $850 million, respectively, of our cash balance are legally isolated to primarily support our on-balance sheet securitization special purpose entities ("SPEs").
NOTE 2. FINANCE RECEIVABLES
Net finance receivables at September 30, 2004 and December 31, 2003 were as follows (in millions):
September 30, December 31,
2004 2003
-------------- --------------
(Unaudited)
Retail (a) $ 84,133 $ 80,015
Wholesale (b) 21,347 22,618
Other (c) 7,270 8,661
-------------- --------------
Total finance receivables, net of unearned income 112,750 111,294
Less: Allowance for credit losses (2,206) (2,382)
-------------- --------------
Finance receivables, net $ 110,544 $ 108,912
============== ==============
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(a) At September 30, 2004 and December 31, 2003, includes about $13.2
billion and $14.3 billion, respectively, of retail receivables that have
been sold for legal purposes to securitization SPEs and are available
only for repayment of debt issued by those entities, and to pay other
securitization investors and other participants. These receivables are
not available to pay our obligations or the claims of our creditors.
(b) At September 30, 2004 and December 31, 2003, includes about $1.3 billion
and $800 million, respectively, of wholesale receivables primarily with
dealers that are reported as consolidated subsidiaries of Ford effective
July 1, 2003. Ford generally does not guarantee these receivables.
(c) At September 30, 2004 and December 31, 2003, includes approximately $100
million of other receivables with dealers that are reported as
consolidated subsidiaries of Ford effective July 1, 2003. Ford generally
does not guarantee these receivables.
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 3. ALLOWANCE FOR CREDIT LOSSES
The following table summarizes the activity in the allowance for credit losses on finance receivables and operating leases for the periods ended September 30 (in millions):
Third Quarter Nine Months
2004 2003 2004 2003
---------- ---------- ----------- ----------
(Unaudited) (Unaudited)
Allowance, beginning of period $ 2,651 $ 3,238 $ 3,006 $ 3,173
Provision for credit losses 264 446 641 1,509
Deductions
Charge-offs 472 594 1,403 1,780
Recoveries (123) (128) (387) (370)
------------ ---------- ----------- -----------
Net charge-offs 349 466 1,016 1,410
Other changes, principally amounts related to finance
receivables sold and translation adjustments (8) 4 57 58
------------ ---------- ----------- -----------
Net deductions 341 470 1,073 1,468
------------ ---------- ----------- -----------
Allowance, end of period (a) $ 2,574 $ 3,214 $ 2,574 $ 3,214
============ ========== ========== ===========
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(a) At September 30, 2004, includes $2,206 million on finance receivables and $368 million on operating leases. At September 30, 2003, includes $2,690 million on finance receivables and $524 million on operating leases.
NOTE 4. SALES OF RECEIVABLES
Retained Interest
Components of retained interest in receivables sold in securitization transactions at September 30, 2004 and December 31, 2003 were as follows (in millions):
September 30, December 31,
2004 2003
-------------- -------------
(Unaudited)
Wholesale receivables sold to securitization entities $ 6,571 $ 9,249
Subordinated securities 1,017 1,568
Interest-only strips 1,017 1,169
Restricted cash held for benefit of securitization entities 501 511
Senior securities 367 520
-------------- -------------
Retained interest in securitized assets $ 9,473 $ 13,017
============== =============
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Most of the retained interest in sold wholesale receivables ($5.0 billion and $8.0 billion at September 30, 2004 and December 31, 2003, respectively) represents our undivided interest in wholesale receivables that are available to support the issuance of additional securities by a securitization entity; the balance represents credit enhancements. Interest-only strips represent the present value of monthly collections on the sold finance receivables in excess of amounts needed by the SPE (securitization trust) to pay principal and interest to investors and servicing fees that will be realized by us. Investments in subordinated securities and restricted cash are senior to interest-only strips for credit enhancement purposes.
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 4. SALES OF RECEIVABLES (Continued)
Retained interests are recorded at fair value. For wholesale receivables, book value approximates fair value because of their short-term maturities. The fair values of senior and subordinated securities are estimated based on market prices. In determining the fair value of interest-only strips, we discount the present value of the projected cash flows retained at various discount rates based on economic factors in individual countries.
Investment and Other Income
The following table summarizes the activity related to off-balance sheet sales of receivables reported in investment and other income for the periods ended September 30 (in millions):
Third Quarter Nine Months
-------------------- ---------------------
2004 2003 2004 2003
--------- ---------- --------- ----------
(Unaudited) (Unaudited)
Net gain on sales of receivables $ 20 $ 45 $ 150 $ 329
Interest income on sold wholesale receivables
and retained securities 162 138 467 545
Servicing fees 99 152 329 528
Excess spread and other 225 241 690 737
--------- ---------- --------- ---------
Investment and other income related to sales of $ 506 $ 576 $ 1,636 $ 2,139
receivables ========= ========== ========= =========
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Securitization Special Purpose Entities
We use SPEs, including on-balance sheet SPEs, in a variety of securitization transactions as a source of funds for our operations. At September 30, 2004, about $13.2 billion of retail installment receivables reported on our balance sheet have been sold for legal purposes to securitization SPEs and are available only for repayment of debt issued by those entities, and to pay other securitization investors and other participants. These receivables are not available to pay our obligations or the claims of our creditors. The debt issued by the SPEs includes both asset-backed commercial paper and medium-term notes, which is payable solely out of collections on these receivables and is not our legal obligation; these issuances, for financial statement reporting purposes, are reported as debt on our balance sheet.
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 5. DEBT
Debt at September 30, 2004 and December 31, 2003 was as follows (in millions):
Interest Rates
----------------------------------
Average Weighted-
Contractual (a) Average (b) September 30, December 31,
----------------- ----------------
2004 2003 2004 2003 2004 2003
------- --------- ------- -------- -------------- --------------
(Unaudited)
Short-term debt
Commercial paper 1.6% 1.9% $ 8,513 $ 6,095
Asset-backed commercial paper (c) 1.5% 1.2% 10,851 8,984
Floating rate demand notes 2.4% 2.8% 8,083 7,328
Other short-term debt (d) 5.5% 5.9% 2,404 2,290
-------------- --------------
Total short-term debt 2.1% 2.3% 2.3% 2.5% 29,851 24,697
-------------- --------------
Long-term debt
Senior indebtedness
Notes payable within one year (e) 31,667 29,534
Notes payable after one year (f) 73,875 95,474
Unamortized discount (57) (53)
-------------- --------------
Total long-term debt (g) 5.9% 5.8% 4.5% 4.2% 105,485 124,955
-------------- --------------
Total debt 5.0% 5.2% 4.0% 3.9% $ 135,336 $ 149,652
============== ==============
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(a) Third Quarter 2004 and Fourth Quarter 2003 average contractual rates
excluding the effects of interest rate swap agreements and facility fees.
(b) Third Quarter 2004 and Fourth Quarter 2003 weighted-average rates
including the effect of interest rate swap agreements.
(c) Amounts represent asset-backed commercial paper issued by FCAR which is
payable solely out of collections on the receivables supporting FCAR's
assets and is not our legal obligation.
(d) Includes $15 million and $54 million with affiliated companies at
September 30, 2004 and December 31, 2003, respectively.
(e) Includes $54 million and $2 million with affiliated companies at
September 30, 2004 and December 31, 2003, respectively.
(f) Includes $54 million and $133 million with affiliated companies at
September 30, 2004 and December 31, 2003, respectively. Also includes
debt of $701 million at September 30, 2004 and $324 million at
December 31, 2003, which is payable solely out of collections on
receivables and is not our legal obligation.
(g) The average contractual and weighted-average interest rates for total
long-term debt represent the rates for both notes payable within one year
and notes payable after one year.
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 6. VARIABLE INTEREST ENTITIES
Effective July 1, 2003, we adopted Financial Interpretation No. 46 ("FIN 46"), Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51, for VIEs formed prior to February 1, 2003. FIN 46 requires that once an entity is determined to be a VIE, the party with the controlling financial interest, the primary beneficiary, is required to consolidate it. FIN 46 also requires disclosures about VIEs that the company is not required to consolidate but in which it has a significant variable interest. Our adoption of FIN 46R, on December 15, 2003, did not impact our financial reporting.
We have investments in certain joint ventures deemed to be VIEs of which we are not the primary beneficiary. The risks and rewards associated with our interests in these entities are based primarily on ownership percentages. Our maximum exposure (approximately $137 million at September 30, 2004) to any potential losses associated with these VIEs is limited to our equity investments and, where applicable, receivables due from the VIEs.
On-balance sheet securitization SPEs, discussed in Note 4, are also considered VIEs under FIN 46R.
We also sell receivables to bank-sponsored asset-backed commercial paper issuers that are SPEs of the sponsor bank and are not consolidated by us. At September 30, 2004, these SPEs held about $4.1 billion of retail installment sale contracts previously owned by us.
NOTE 7. RETAINED EARNINGS AND COMPREHENSIVE INCOME
The following table summarizes earnings retained for use in the business for the periods ended September 30 (in millions):
Third Quarter Nine Months
------------------------- -------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
Retained earnings, beginning balance $ 6,597 $ 7,738 $ 6,912 $ 8,795
Net income 734 504 2,319 1,347
Dividends (1,500) (1,000) (3,400) (2,900)
------------ ------------ ------------ -----------
Retained earnings, ending balance $ 5,831 $ 7,242 $ 5,831 $ 7,242
============ ============ ============ ===========
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The following table summarizes comprehensive income for the periods ended September 30 (in millions):
Third Quarter Nine Months
------------------------- ------------------------
2004 2003 2004 2003
------------ ------------ ------------ -----------
(Unaudited) (Unaudited)
Net income $ 734 $ 504 $ 2,319 $ 1,347
Other comprehensive income 50 99 37 494
------------ ------------ ------------ ----------
Total comprehensive income $ 784 $ 603 $ 2,356 $ 1,841
============ ============ ============ ==========
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Comprehensive income includes foreign currency translation adjustments, unrealized gains and losses on investments in securities, unrealized gains and losses on certain derivative instruments, and unrealized gains and losses on retained interests in securitized assets (unrealized amounts are net of related tax effects).
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 8. DISCONTINUED AND HELD-FOR-SALE OPERATIONS
During the fourth quarter of 2003, management committed to a plan to sell AMI Leasing and Fleet Management Services ("AMI"), our operation in the U.S. that offers full service car and truck leasing. This business was reported as held-for-sale under Statement of Financial Accounting Standards No. 144 ("SFAS No. 144"), Accounting for the Impairment or Disposal of Long-lived Assets. We recognized an after-tax charge of $55 million in 2003 reflecting the anticipated loss on sale of these assets, which was reported in loss on disposal of discontinued/held-for-sale operations. This amount represented the difference between the anticipated selling price of these assets, less costs to sell them, and their recorded book value. During the third quarter of 2004, we completed the sale of AMI; the income statement impact related to the final disposition was not material.
NOTE 9. GUARANTEES
The fair values of guarantees and indemnifications issued since December 31, 2002 are recorded in the financial statements and are de minimis. At September 30, 2004, the following guarantees and indemnifications were issued and outstanding:
Guarantees of certain obligations of unconsolidated and other affiliates: In some cases, we have guaranteed debt and other financial obligations of unconsolidated affiliates, including joint ventures and Ford. Expiration dates vary, and guarantees will terminate on payment and/or cancellation of the obligation. A payment would be triggered by failure of the guaranteed party to fulfill its obligation covered by the guarantee. In some circumstances, we are entitled to recover from Ford or an affiliate of Ford amounts paid by us under the guarantee. However, our ability to enforce these rights is sometimes stayed until the guaranteed party is paid in full. The maximum potential payments under these guarantees total approximately $177 million.
Indemnifications: In the ordinary course of business, we execute contracts that include indemnifications typical in the industry, which are related to several types of transactions, such as debt funding, derivatives, the sale of receivables, and the sale of businesses. These indemnifications might include claims related to any of the following: intellectual property and privacy rights; governmental regulations and employment-related issues; dealer, supplier, and other commercial contractual relationships; financial status; tax related issues; securities law; and environmental related issues. Performance under these indemnities would generally be triggered by a breach of terms of a contract or by a third party claim. We regularly evaluate the probability of having to incur costs associated with indemnifications contained in contracts that we are a party to and have accrued for expected losses that are probable and for which a loss can be estimated. During the third quarter of 2004, there were no significant changes to our indemnifications.
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 10. DERIVATIVE FINANCIAL INSTRUMENTS
Income Statement Impact
The following table presents, for the periods ended September 30, the ineffective portion of both fair value and cash flow hedges, amortization of mark-to-market adjustments associated with hedging relationships that have been terminated, and mark-to-market adjustments that reflect changes in interest rates for non-designated hedging activity (in millions):
Third Quarter Nine Months
------------------ ------------------
2004 2003 2004 2003
-------- --------- -------- ---------
(Unaudited) (Unaudited)
Income before income taxes $ 99 $ 58 $ 234 $ 178
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Balance Sheet Impact
The fair value of derivatives reflects the price that a third party would be willing to pay or receive in arm's length transactions for assuming our position in the derivatives transaction and includes mark-to-market adjustments to reflect the effects of changes in interest rates, accrued interest and, for derivatives with a foreign currency component, a revaluation adjustment. The following table summarizes, at September 30, 2004 and December 31, 2003, the estimated fair value of our derivative financial instruments, taking into consideration the effects of legally enforceable netting agreements, which allow us to settle positive and negative positions with the same counterparty on a net basis (in millions):
September 30, 2004 December 31, 2003
--------------------------- ---------------------------
Fair Value Fair Value Fair Value Fair Value
Assets Liabilities Assets Liabilities
------------ ------------- ------------ -------------
(Unaudited)
Foreign currency swaps $ 2,996 $ 846 $ 6,257 $ 1,119
Interest rate swaps 3,090 189 3,930 213
Foreign currency forwards and options (a) - 266 - 383
Impact of netting agreements (345) (345) (345) (345)
------------ ------------- ------------ -------------
Total derivative financial instruments $ 5,741 $ 956 $ 9,842 $ 1,370
============ ============= ============ =============
|
(a) Includes internal forward contracts between Ford Credit and an affiliated company.
Period-to-period changes in the derivative asset and liability amounts may be impacted by net interest or foreign currency settlements, changes in foreign exchange and interest rates, and the notional amount of derivatives outstanding.
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 11. SEGMENT INFORMATION
We divide our operating segments based on geographic regions: the North
America Segment (includes operations in the United States and Canada) and the
International Segment (includes operations in all other countries). We measure
the performance of our segments primarily on an income before income taxes
basis, after excluding the impact to earnings from hedge ineffectiveness, and
other adjustments in applying Statement of Financial Accounting Standards No.
133 ("SFAS No. 133"), Accounting for Derivative Instruments and Hedging
Activities, as amended and interpreted, on January 1, 2001. These adjustments
are included in unallocated risk management and excluded in assessing segment
performance because our risk management activities are carried out on a
centralized basis at the corporate level, with only certain elements allocated
to our two segments. The segments are presented on a managed basis (managed
basis includes on-balance sheet receivables and securitized off-balance sheet
receivables activity), and the effect of off-balance sheet securitizations is
included in unallocated/eliminations. Certain amounts in prior year segment
information have been reclassified to conform to current year presentation.
Key operating data for our operating segments for the periods ended September 30 or at September 30 were as follows (in millions):
Unallocated/Eliminations
------------------------------------- Ford
North Unallocated Effect of Credit
America International Risk Sales of Financial
Segment Segment Management Receivables Total Statements
---------- --------------- ------------ ------------- ---------- -----------
(Unaudited)
Third Quarter 2004
Revenue $ 3,786 $ 920 $ 99 $ (299) $ (200) $ 4,506
Income
Income before income taxes 886 182 99 - 99 1,167
Provision for income taxes 332 64 39 - 39 435
Income from continuing operations 554 118 60 - 60 732
Other disclosures
Depreciation on vehicles subject
to operating leases 1,022 111 - - - 1,133
Interest expense 1,123 416 - (201) (201) 1,338
Provision for credit losses 233 31 - - - 264
Third Quarter 2003
Revenue $ 4,434 $ 909 $ 51 $ (451) $ (400) $ 4,943
Income
Income before income taxes 562 188 58 - 58 808
Provision for income taxes 209 66 31 - 31 306
Income from continuing operations 353 122 28 - 28 503
Other disclosures
Depreciation on vehicles subject
to operating leases 1,465 150 - - - 1,615
Interest expense 1,343 420 (7) (326) (333) 1,430
Provision for credit losses 403 43 - - - 446
|
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 11. SEGMENT INFORMATION (Continued)
Unallocated/Eliminations
------------------------------------- Ford
North Unallocated Effect of Credit
America International Risk Sales of Financial
Segment Segment Management Receivables Total Statements
---------- --------------- ------------ ------------- ---------- -----------
(Unaudited)
Nine Months 2004
Revenue $ 11,805 $ 2,881 $ 234 $ (1,141) $ (907) $ 13,779
Income
Income before income taxes 2,814 628 234 - 234 3,676
Provision for income taxes 1,048 220 85 - 85 1,353
Income from continuing operations 1,766 408 148 - 148 2,322
Other disclosures
Depreciation on vehicles subject
to operating leases 3,317 365 - - - 3,682
Interest expense 3,362 1,314 - (714) (714) 3,962
Provision for credit losses 548 93 - - - 641
Finance receivables (including net
investment in operating leases) 131,646 38,726 307 (38,687) (38,380) 131,992
Total assets 149,072 43,974 307 (29,214) (28,907) 164,139
Nine Months 2003
Revenue $ 14,321 $ 2,720 $ 178 $ (1,616) $ (1,438) $ 15,603
Income
Income before income taxes 1,517 501 178 - 178 2,196
Provision for income taxes 606 176 66 - 66 848
Income from continuing operations 911 325 110 - 110 1,346
Other disclosures
Depreciation on vehicles subject
to operating leases 5,139 426 - - - 5,565
Interest expense 4,372 1,254 - (1,198) (1,198) 4,428
Provision for credit losses 1,361 148 - - - 1,509
Finance receivables (including net
investment in operating leases) 143,360 37,136 628 (49,204) (48,576) 131,920
Total assets 172,970 43,784 628 (39,002) (38,374) 178,380
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We were incorporated in Delaware in 1959. We are an indirect, wholly owned
subsidiary of Ford Motor Company ("Ford"). We provide automotive financing in 36
countries for Ford, Lincoln, Mercury, Aston Martin, Jaguar, Land Rover, Mazda
and Volvo dealers and customers. Our principal executive offices are located at
One American Road, Dearborn, Michigan 48126, and our telephone number is
(313) 322-3000.
Our North America segment includes our operations in the United States and Canada. Our International segment includes our operations in all other countries in which we do business directly and indirectly. Our International segment includes operations in three main regions: Europe, Asia-Pacific and Latin America. These operations offer substantially similar products and services, subject to local legal restrictions and market conditions. For a more detailed discussion of our business segments and the geographic scope of our operations, refer to the "Overview" section of Item 1 of our 10-K Report.
We review our business performance from several perspectives, including:
o On-balance sheet basis - includes receivables we own and receivables
sold for legal purposes that remain on our balance sheet,
o Securitized off-balance sheet basis - includes receivables sold in
securitization transactions that are not reflected on our balance
sheet,
o Managed basis - includes on-balance sheet and securitized off-balance
sheet receivables that we continue to service, and
o Serviced basis - includes managed receivables and receivables sold in
whole-loan sale transactions where we retain no interest in the sold
receivables, but which we continue to service.
We analyze our financial performance primarily on an on-balance sheet and managed basis. We retain interests in receivables sold in off-balance sheet securitizations, and with respect to subordinated retained interests, we have credit risk. As a result, we evaluate charge-offs, receivables and leverage on a managed basis as well as on an on-balance sheet basis. In contrast, we do not have the same financial interest in the performance of receivables sold in whole-loan sale transactions. As a result, we generally review the performance of our serviced portfolio only to evaluate the effectiveness of our origination and collection activities. To evaluate the performance of these activities, we monitor a number of serviced performance measures, such as repossession statistics, losses on repossessions and the number of bankruptcy filings.
We measure the performance of our North America segment and our International segment primarily on an income before income taxes basis, after excluding the impact to earnings from hedge ineffectiveness, and other adjustments in applying Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"), Accounting for Derivative Instruments and Hedging Activities because our risk management activities are carried out on a centralized basis at the corporate level, with only certain elements allocated to our two segments. For further discussion regarding our segments, see Note 11 of our Notes to Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Results of Operations
Third Quarter 2004 Compared with Third Quarter 2003
In the third quarter of 2004, we earned $734 million, up $230 million or 46% compared with earnings of $504 million a year ago. Our consolidated pre-tax income from continuing operations was $1.2 billion, up $359 million or 44% from earnings of $808 million a year ago. The increase in earnings primarily resulted from improved credit loss performance ($182 million) and leasing results ($180 million), offset partially by the impact of lower receivables ($87 million).
Results of our operations by business segment for the third quarter of 2004 and 2003 are shown below:
Third Quarter
--------------------------------------------------
2004 Over/
(Under) 2003
-----------------------
2004 2003 Amount Percentage
---------- --------- --------- ------------
(in millions)
Income before income taxes
North America segment ........................... $ 886 $ 562 $ 324 58%
International segment............................ 182 188 (6) (3)
Unallocated/eliminations ........................ 99 58 41
---------- --------- ---------
Pre-tax income from continuing operations .... 1,167 808 359 44
Provision for income taxes and minority interests . (435) (305) (130)
Income from discontinued/held-for-sale operations . 2 1 1
---------- --------- ---------
Total net income ............................. $ 734 $ 504 $ 230 46%
========== ========= =========
|
North America segment income before income taxes in the third quarter of 2004 was up $324 million compared with the third quarter of 2003. This increase primarily reflected improved credit loss performance and leasing results. The improved credit loss performance primarily resulted from fewer repossessions and a lower average loss per repossession. The improvement in leasing results primarily reflected higher used vehicles prices and a reduction in the percentage of vehicles returned to us at lease termination.
International segment income before income taxes in the third quarter of 2004 was down $6 million compared with the third quarter of 2003. This decrease was more than explained by the impact of lower income related to sales of receivables.
Income before income taxes in the unallocated/eliminations category in the third quarter of 2004 was up $41 million compared with the third quarter of 2003. The increase primarily reflected the net favorable market valuation of derivative instruments and associated exposures.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
First Nine Months 2004 Compared with First Nine Months 2003
In the first nine months of 2004, we earned $2.3 billion, up $972 million or 72% compared with earnings of $1.3 billion a year ago. Our consolidated pre-tax income from continuing operations was $3.7 billion, up $1.5 billion or 67% from earnings of $2.2 billion a year ago. The increase in earnings primarily resulted from improved credit loss performance and leasing results, offset partially by the impact of lower income related to sales of receivables.
Results of our operations by business segment for the first nine months of 2004 and 2003 are shown below:
First Nine Months
--------------------------------------------------
2004 Over/
(Under) 2003
-----------------------
2004 2003 Amount Percentage
---------- --------- --------- ------------
(in millions)
Income before income taxes
North America segment ........................... $ 2,814 $ 1,517 $ 1,297 85%
International segment............................ 628 501 127 25
Unallocated/eliminations ........................ 234 178 56
---------- --------- ---------
Pre-tax income from continuing operations .... 3,676 2,196 1,480 67
Provision for income taxes and minority interests . (1,354) (850) (504)
Income from discontinued/held-for-sale operations . (3) 1 (4)
---------- --------- ---------
Total net income ............................. $ 2,319 $ 1,347 $ 972 72%
========== ========= =========
|
North America segment income before income taxes in the first nine months of 2004 was up $1.3 billion compared with the first nine months of 2003. This increase primarily reflected improved credit loss performance and improved leasing results, offset partially by lower income related to sales of receivables. The improved credit loss performance primarily resulted from fewer repossessions and a lower average loss per repossession. The improvement in leasing results primarily reflected higher used vehicles prices and a reduction in the percentage of vehicles returned to us at lease termination. The lower income related to sales of receivables primarily reflected lower sales of receivables and the impact of lower outstanding off-balance sheet receivables.
International segment income before income taxes in the first nine months of 2004 was up $127 million compared with the first nine months of 2003. This increase primarily reflected improved credit loss performance, favorable changes in currency exchange rates, and lower operating costs in Europe.
Income before income taxes in the unallocated/eliminations category in the first nine months of 2004 was up $56 million compared with the first nine months of 2003. The improvement primarily reflected the net favorable market valuation of derivative instruments and associated exposures.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Placement Volume and Financing Share
Total worldwide financing contract placement volumes, excluding financing volumes for unconsolidated entities, for new and used vehicles are shown below:
Third Quarter First Nine Months Full Year
------------- ----------------- ---------------------------
2004 2003 2004 2003 2003 2002 2001 2000
----- ------ ------ ------- ------ ------ ----- -----
(in thousands)
Worldwide
Retail installment.............. 756 807 2,046 2,181 2,805 3,215 4,441 3,728
Operating and finance leases.... 129 110 388 389 487 775 1,050 1,228
----- ------ ------- ------ ------ ----- ----- -----
Total financing volume........ 885 917 2,434 2,570 3,292 3,990 5,491 4,956
===== ====== ====== ====== ====== ===== ===== =====
North America Segment
United States................... 579 588 1,479 1,551 1,980 2,512 3,819 3,525
Canada.......................... 46 54 134 156 197 212 227 210
----- ------ ------- ------ ------ ------ ------ -----
Total North America segment... 625 642 1,613 1,707 2,177 2,724 4,046 3,735
International Segment
Europe.......................... 191 205 614 649 836 917 988 795
Other international............. 69 70 207 214 279 349 457 426
----- ------ ------- ------ ------ ------ ----- -----
Total International segment... 260 275 821 863 1,115 1,266 1,445 1,221
----- ------ ------- ------ ------ ------ ----- -----
Total financing volume........ 885 917 2,434 2,570 3,292 3,990 5,491 4,956
===== ====== ======= ====== ====== ====== ===== =====
|
Shown below are our financing shares of new Ford, Lincoln and Mercury brand vehicles sold by dealers in the United States and Ford brand vehicles sold by dealers in Europe. Also shown below are our wholesale financing shares of new Ford, Lincoln and Mercury brand vehicles acquired by dealers in the United States and of new Ford brand vehicles acquired by dealers in Europe:
Third Quarter First Nine Months Full Year
------------- ----------------- -----------------------------
2004 2003 2004 2003 2003 2002 2001 2000
----- ------ ------ ------- ------ ------ ------ ------
United States
Financing share - Ford, Lincoln and
Mercury
Retail installment and lease..... 55% 48% 44% 39% 39% 41% 54% 51%
Wholesale........................ 78 82 79 83 82 85 84 84
Europe
Financing share - Ford
Retail installment and lease..... 29% 31% 28% 31% 31% 34% 37% 32%
Wholesale........................ 97 96 97 96 97 97 97 97
|
North America Segment. Our total financing contract placement volumes were 625,000 contracts in the third quarter of 2004, down 17,000 contracts or 3% compared with a year ago reflecting our reduction of used and non-Ford retail installment financing as a result of our continued focus on supporting Ford's brands. Financing share of new Ford, Lincoln and Mercury brand cars and light trucks sold by dealers in the United States was 55% in the third quarter of 2004 compared with 48% a year ago. This increase primarily reflected higher contract placement volumes involving favorable Ford-sponsored marketing programs.
In the third quarter of 2004, wholesale market share was 78%, down four percentage points from a year ago. The decline primarily reflected the impact of pricing actions by competitor financing sources. In the third quarter of 2004, we continued our dealer loyalty programs intended to improve our wholesale market share.
In the first nine months of 2004, our total financing contract placement volumes were 1,613,000 contracts, down 94,000 contracts or 6% compared with a year ago. This overall decrease reflected our reduction of used and non-Ford retail installment financing as a result of our continued focus on supporting Ford's brands.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
International Segment. In the third quarter of 2004, our total financing contract placement volumes were 260,000, down 15,000 contracts or 5% compared with a year ago. This decline resulted from lower volumes in Britain, primarily from lower Ford-sponsored marketing incentives.
In the first nine months of 2004, our total financing contract placement volumes were 821,000, down 42,000 contracts or 5% compared with a year ago. This overall decrease resulted primarily from the same factors described in the preceding paragraph.
Financial Condition
Finance Receivables and Operating Leases
Our financial condition is impacted significantly by the level of our receivables, which are shown below:
December 31,
September 30, ----------------------------------------
Receivables 2004 2003 2002 2001 2000
------------ ------- ------- ------- --------
(in billions)
On-Balance Sheet
(including on-balance sheet
securitizations)
Finance receivables
Retail installment................... $ 82.1 $ 77.8 $ 68.4 $ 83.4 $ 79.9
Wholesale............................ 21.2 22.5 16.4 15.4 33.7
Other................................ 7.2 8.6 9.8 9.1 8.4
-------- ------- ------- ------- -------
Total finance receivables, net..... 110.5 108.9 94.6 107.9 122.0
Net investment in operating leases.... 21.5 23.2 31.3 37.2 36.5
-------- ------- ------- ------- -------
Total on-balance sheet............. $ 132.0 $ 132.1 $ 125.9 $ 145.1 $ 158.5
======== ======= ======= ======= =======
Memo: Allowance for credit losses
included above....................... $ 2.6 $ 3.0 $ 3.2 $ 2.8 $ 1.6
Securitized Off-Balance Sheet
Finance receivables
Retail installment................... $ 20.1 $ 29.1 $ 48.9 $ 41.2 $ 26.0
Wholesale............................ 18.6 20.3 22.5 17.5 2.3
Other................................ -- -- -- -- --
-------- ------- ------- ------- -------
Total finance receivables.......... 38.7 49.4 71.4 58.7 28.3
Net investment in operating leases.... -- -- -- -- 0.1
-------- ------- ------- ------- -------
Total securitized off-balance sheet.$ 38.7 $ 49.4 $ 71.4 $ 58.7 $ 28.4
======== ======= ======= ======= =======
Managed
Finance receivables
Retail installment................... $ 102.2 $ 106.9 $ 117.3 $ 124.6 $ 105.9
Wholesale............................ 39.8 42.8 38.9 32.9 36.0
Other................................ 7.2 8.6 9.8 9.1 8.4
-------- ------- ------- ------- -------
Total finance receivables......... 149.2 158.3 166.0 166.6 150.3
Net investment in operating leases.... 21.5 23.2 31.3 37.2 36.6
-------- ------- ------- ------- -------
Total managed..................... $ 170.7 $ 181.5 $ 197.3 $ 203.8 $ 186.9
======== ======= ======= ======= =======
Serviced.............................. $ 175.4 $ 188.8 $ 202.3 $ 203.8 $ 186.9
|
On-Balance Sheet Receivables. On-balance sheet net finance receivables and net investment in operating leases at September 30, 2004, were $132.0 billion, down $100 million from year-end 2003.
At September 30, 2004 and December 31, 2003, on-balance sheet receivables included about $13.2 billion and $14.3 billion, respectively, of retail receivables that have been sold for legal purposes to securitization SPEs and are available only for repayment of debt issued by those entities, and to pay other securitization investors and other participants. These receivables are not available to pay our obligations or the claims of our creditors.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Securitized Off-Balance Sheet Receivables. Total securitized off-balance sheet receivables at September 30, 2004, were $38.7 billion, down $10.7 billion from year-end 2003. The decrease primarily reflected lower funding requirements.
Managed Receivables. Total managed receivables at September 30, 2004, were $170.7 billion, down $10.8 billion from year-end 2003.
Serviced Receivables. Serviced receivables include our managed receivables and receivables that we sold in whole-loan sale transactions. We continue to service the receivables sold in whole-loan sale transactions. We retain no interest in the receivables, however, and all credit risk associated with the receivables is transferred to the buyer.
Credit Risk
Credit risk is the possibility of loss from a customer's failure to make payments according to contract terms. Credit risk has a significant impact on our business. We actively manage the credit risk of our consumer and non-consumer portfolios to balance our level of risk and return. The allowance for credit losses reflected on our balance sheet is our estimate of the probable credit losses for receivables and leases that are impaired at the points in time shown on our balance sheet.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Credit Loss Metrics
Worldwide
The following table shows actual credit losses net of recoveries ("charge-offs") for our worldwide on-balance sheet, reacquired, securitized off-balance sheet and managed receivables, for the various categories of financing during the periods indicated. The loss-to-receivables ratios, which equal annualized charge-offs divided by the average amount of net receivables outstanding for the period, are shown for our on-balance sheet and managed portfolios.
Third Quarter First Nine Months Full Year
----------------- ------------------ ------------------------
2004 2003 2004 2003 2003 2002 2001
-------- -------- -------- -------- ------- ------ ------
Charge-offs (in millions)
On-Balance Sheet
Retail installment and lease................. $ 340 $ 443 $ 999 $1,356 $1,871 $2,292 $2,052
Wholesale.................................... 10 21 19 38 148 40 33
Other........................................ (1) 2 (2) 16 25 30 24
------- ------- ------ ------ ------ ------ ------
Total on-balance sheet...................... 349 466 1,016 1,410 2,044 2,362 2,109
Reacquired Receivables (retail)............... 18 37 57 56 92 -- --
------- ------- ------ ------ ------ ------ ------
Total on-balance sheet (including reacquired
receivables).............................. $ 367 $ 503 $1,073 $1,466 $2,136 $2,362 $2,109
======= ======= ====== ====== ====== ====== ======
Securitized Off-Balance Sheet
Retail installment and lease................. $ 90 $ 167 $ 323 $ 510 $ 677 $ 448 $ 218
Wholesale.................................... 1 (2) 1 1 -- 6 1
Other........................................ -- -- -- -- -- -- --
------- ------ ------ ------ ------ ------ -----
Total securitized off-balance sheet........ $ 91 $ 165 $ 324 $ 511 $ 677 $ 454 $ 219
======= ====== ====== ====== ====== ====== =====
Managed
Retail installment and lease.................. $ 448 $ 647 $1,379 $1,922 $2,640 $2,740 $2,270
Wholesale..................................... 11 19 20 39 148 46 34
Other......................................... (1) 2 (2) 16 25 30 24
------- ------ ------ ------ ------ ------ ------
Total managed.............................. $ 458 $ 668 $1,397 $1,977 $2,813 $2,816 $2,328
======= ====== ====== ====== ====== ====== ======
Loss-to-Receivables Ratios
On-Balance Sheet (including reacquired
receivables)*
Retail installment and lease.................. 1.41% 1.83% 1.41% 1.89% 1.97% 2.05% 1.74%
Wholesale..................................... 0.19 0.44 0.12 0.28 0.79 0.25 0.12
Total including other....................... 1.13% 1.52% 1.10% 1.54% 1.67% 1.72% 1.36%
Memo: On-Balance Sheet (excluding reacquired
receivables)................................... 1.07% 1.40% 1.05% 1.49% 1.60% 1.72% 1.36%
Managed
Retail installment and lease.................. 1.45% 1.88% 1.47% 1.85% 1.91% 1.73% 1.43%
Wholesale..................................... 0.11 0.21 0.06 0.13 0.37 0.13 0.10%
Total including other....................... 1.07% 1.45% 1.06% 1.41% 1.50% 1.39% 1.19%
|
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
On-Balance Sheet. In the third quarter of 2004, charge-offs for our on-balance sheet portfolio excluding charge-offs on reacquired receivables declined $117 million or 25% from a year ago, primarily reflecting lower repossessions and a lower average loss per repossession in our U.S. retail installment and operating lease portfolio. Our on-balance sheet loss-to-receivables ratio including reacquired receivables in the third quarter of 2004 was 1.13%, down from 1.52% in 2003.
In the first nine months of 2004, charge-offs for our on-balance sheet portfolio excluding charge-offs on reacquired receivables were $1,016 million, down $394 million or 28% from a year ago for the same reasons stated above. The on-balance sheet loss-to-receivables ratio including reacquired receivables for the first nine months of 2004 was 1.10%, down from 1.54% in the first nine months of 2003.
Securitized Off-Balance Sheet. In the third quarter of 2004, charge-offs for our securitized off-balance sheet portfolio decreased $74 million or 45% from a year ago, primarily reflecting lower repossessions and a lower average loss per repossession in our U.S. retail installment receivables and an overall lower level of securitized receivables resulting from lower securitization activity in the last year. In the first nine months of 2004, charge-offs for our securitized off-balance sheet portfolio declined $187 million or 37% from a year ago.
Managed. In the third quarter of 2004, charge-offs for our managed portfolio decreased $210 million or 31% from a year ago primarily reflecting improved performance in our U.S. retail installment and operating lease portfolio and an overall lower level of receivables resulting from lower placement volumes. Our loss-to-receivables ratio was 1.07%, down from 1.45% a year ago. In the first nine months of 2004, charge-offs for our managed portfolio declined $580 million or 29% from a year ago.
Ford Credit U.S. Retail and Operating Lease
The following table shows the loss-to-receivables, repossession, bankruptcy and delinquency statistics for our Ford, Lincoln and Mercury brand U.S. retail installment sale and lease portfolio, which was approximately 60% of our worldwide-managed portfolio of retail receivables and net investment in operating leases at September 30, 2004.
Third Quarter First Nine Months Full Year
----------------- ------------------ -------------------------------------
2004 2003 2004 2003 2003 2002 2001 2000
-------- -------- -------- --------- -------- -------- -------- --------
On-Balance Sheet
Charge-offs (in millions)......... $ 207 $ 271 $ 574 $ 784 $ 1,088 $ 1,180 $ 1,135 $ 806
Loss-to-receivables ratios
(including reacquired
receivables).................... 1.47% 1.91% 1.39% 1.99% 2.04% 1.87% 1.61% 1.12%
Managed
Charge-offs (in millions)......... $ 238 $ 372 $ 707 $ 1,125 $ 1,530 $ 1,520 $ 1,304 $ 865
Loss-to-receivables ratios........ 1.38% 1.86% 1.35% 1.81% 1.89% 1.50% 1.31% 0.98%
Other Metrics - Serviced
Repossessions (in thousands)...... 42 51 125 147 200 199 174 141
Repossession ratios............... 3.09% 3.44% 3.02% 3.12% 3.27% 2.79% 2.45% 2.19%
Average loss per repossession..... $ 6,450 $ 7,200 $ 6,550 $ 7,400 $ 7,350 $ 6,960 $ 6,600 $5,800
New bankruptcy filings (in
thousands)....................... 20 27 66 84 107 118 91 71
Over-60-day delinquency ratios.... 0.19% 0.38% 0.19% 0.38% 0.35% 0.36% 0.40% 0.30%
|
On-Balance Sheet. Charge-offs declined $64 million in the third quarter of 2004 compared with a year ago, reflecting our emphasis on purchasing higher quality receivables and enhancements to our collection practices. These actions, along with improved economic conditions in the U.S., have contributed to lower delinquency ratios and lower repossessions in the third quarter. In addition, lower lease-end termination volumes have contributed to higher used vehicle prices, reducing the average loss per repossession.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Managed. Charge-offs declined $134 million compared with a year ago reflecting lower repossessions and a lower average loss per repossession as described above and lower levels of managed receivables resulting from lower retail installment and lease placement volumes.
Other Metrics - Serviced. Repossessions are shown in aggregate and as a percent of the average number of accounts outstanding during the relevant periods, defined as the repossession ratio. In the third quarter of 2004, the total number of repossessions decreased 9,000 units compared with a year ago. Our repossession ratio decreased 35 basis points reflecting a 13% reduction in the average number of outstanding contracts compared with 2003. Our average loss per repossession was $6,450, down $750 per unit or 10% from a year ago.
In the first nine months of 2004, our total number of repossessions was 125,000, down 15% from a year ago. Our first nine months repossession ratio was 3.02%, down from 3.12% a year ago. The average loss per repossession for the first nine months was $6,550, down from $7,400 in 2003.
In the third quarter of 2004, the over-60-day delinquency ratio was 0.19%, down from 0.38% a year ago. For quarterly ratios, delinquencies are expressed as a percent of the end-of-period accounts outstanding for non-bankrupt accounts. Full year delinquency ratios are expressed as an average of the quarterly ratios for non-bankrupt accounts.
Allowance for Credit Losses
Our allowance for credit losses and our allowance for credit losses as a percentage of end-of-period net receivables, for our on-balance sheet portfolio, are shown below:
December 31,
September 30, ----------------------------------
2004 2003 2002 2001 2000
------------ -------- -------- -------- ------
(in billions)
Allowance for Credit Losses
Retail installment and lease............ $ 2.5 $ 2.8 $ 2.9 $ 2.5 $ 1.5
Wholesale............................... 0.1 0.1 0.2 0.2 0.1
Other................................... 0.0 0.1 0.1 0.1 0.0
------ ------- ------- ------- -------
Total allowance for credit losses.... $ 2.6 $ 3.0 $ 3.2 $ 2.8 $ 1.6
====== ======= ======= ======= =======
As a Percentage of End-of-Period Net
Receivables
Retail installment and lease............ 2.34% 2.76% 2.92% 2.10% 1.28%
Wholesale............................... 0.55 0.71 1.36 1.03 0.37
Other................................... 0.52 0.67 0.62 0.66 0.24
Total................................ 1.95% 2.28% 2.52% 1.89% 1.03%
|
At September 30, 2004, our allowance for credit losses was down about $400 million compared with year-end 2003, primarily reflecting improved portfolio performance in the United States.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Residual Risk
We are exposed to residual risk on operating leases, Red Carpet Option contracts and similar balloon payment products where the customer has the right to return the financed vehicle to us. Our residual risk on retail lease and other contracts is composed of two types of risk: residual value risk and return rate risk. Residual value risk is the possibility that the actual net proceeds we realize upon the sale of returned vehicles at contract termination, which is referred to as the residual value of these vehicles, will be lower than our projection of these values. Return rate risk is the possibility that the percentage of vehicles returned to us at contract termination will be higher than we expect.
Retail Operating Lease Experience
We use various statistics to monitor our residual value risk and return rate risk. Placement volume measures the number of leases we purchase each year. Termination volume measures the number of vehicles for which the lease has ended in each year. Return rates are the percentage of vehicles that are returned to us at the end of the terminated lease and not purchased by either the customer or the dealer. The following table shows placement volumes, termination volumes and return rates for our North America segment, which accounted for 92% of our total net investment in operating leases at September 30, 2004:
Third Quarter First Nine Months Full Year
----------------- ----------------- ---------------------------------
2004 2003 2004 2003 2003 2002 2001 2000
------- ------- ------- -------- ------- -------- ------- -------
Placement Volume (in thousands)
Ford, Lincoln and Mercury Cars 8 11 32 48 57 104 163 205
Ford, Lincoln and Mercury
Trucks....................... 58 33 156 113 144 261 408 538
Jaguar, Land Rover and Volvo*. 13 16 38 38 48 95 90 53
Other......................... 12 10 32 18 25 9 17 23
-- -- -- -- -- -- -- --
Total North America segment 91 70 258 217 274 469 678 819
== == === === === === === ===
Termination Volume (in thousands)
Ford, Lincoln and Mercury Cars 26 39 100 140 167 169 151 154
Ford, Lincoln and Mercury 67 104 209 341 412 486 366 360
Trucks.......................
Jaguar, Land Rover and Volvo*. 17 16 45 43 55 48 34 28
Other......................... 4 5 12 16 20 34 80 87
-- -- -- -- -- -- -- --
Total North America segment 114 164 366 540 654 737 631 629
=== === === === === === === ===
Return Rate
Ford, Lincoln and Mercury Cars 70% 76% 75% 78% 78% 62% 58% 62%
Ford, Lincoln and Mercury
Trucks....................... 53 67 53 69 68 66 66 63
Jaguar, Land Rover and Volvo*. 59 46 57 51 54 43 45 51
Other......................... 58 57 55 55 55 50 60 69
Total North America segment 58% 67% 60% 70% 69% 63% 62% 63%
|
In the third quarter of 2004, placement volumes were up 21,000 units compared with a year ago. Termination volumes were down 50,000 units compared with a year ago, largely related to lower contract placement volumes in 2001 and 2002. In the third quarter of 2004, return rates were down 9 percentage points compared with a year ago, primarily reflecting higher used vehicle prices and lower contract lease-end values. Specifically, the return rate improvement largely was related to Ford, Lincoln and Mercury trucks, as the used vehicle prices of this segment improved more significantly than the other vehicle segments.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Credit Ratings
Our short- and long-term debt is rated by four credit rating agencies designated as nationally recognized statistical rating organizations ("NRSROs") by the SEC:
o Dominion Bond Rating Service Limited ("DBRS");
o Fitch, Inc. ("Fitch");
o Moody's Investors Service, Inc. ("Moody's"); and
o Standard & Poor's Rating Services, a division of McGraw-Hill
Companies, Inc. ("S&P").
In several markets, locally recognized rating agencies also rate us. A credit rating reflects an assessment by the rating agency of the credit risk associated with particular securities we issue, based on information provided by Ford, other sources, and us. Credit 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 for evaluating company risk and, therefore, ratings should be evaluated independently for each rating agency. Lower credit ratings generally result in higher borrowing costs and reduced access to capital markets. Our credit ratings from all of the NRSROs are closely associated with their opinions on Ford. Our lower ratings over the past several years are primarily a reflection of those opinions, including concerns regarding Ford's automotive cash flow and profitability, declining market share, excess industry capacity, industry pricing pressure and rising healthcare costs.
In October 2004, DBRS, Fitch, Moody's and S&P each confirmed our long- and short-term debt ratings, and their outlook or trend. The following chart summarizes our credit ratings and the outlook assigned by the NRSROs since 2001:
---------- -------------------------------- -------------------------- ---------------------- -------------------------
DBRS* Fitch Moody's S&P
---------- ------------ ---------- -------- -------- ------- --------- ----- ------ --------- -------- ------ ---------
Date Long-Term Short-Term Trend Long-Term Short- Outlook Long- Short- Outlook Long- Short- Outlook
Term Term Term Term Term
---------- ----------- ----------- ------- --------- ------- --------- ----- ------ -------- -------- ------ --------
Aug. 2001 A R-1 (low) Stable A+ F1 Negative A2 P-1 Negative A A-1 Negative
---------- ----------- ---------- -------- -------- ------ -------- ----- ------ --------- -------- ------ ---------
Sep. 2001 A R-1 (low) Stable A- F2 Negative A2 P-1 Negative A A-1 Negative
---------- ----------- ---------- -------- -------- ------- -------- ----- ------ --------- -------- ------ ---------
Oct. 2001 A (low) R-1 (low) Stable A- F2 Negative A2 P-1 Negative BBB+ A-2 Stable
---------- ----------- ---------- -------- -------- ------- -------- ----- ------ --------- -------- ------ ---------
Jan. 2002 A (low) R-1 (low) Stable BBB+ F2 Negative A3 P-2 Negative BBB+ A-2 Negative
---------- ----------- ---------- -------- -------- ------- -------- ----- ------ --------- -------- ------ ---------
Oct. 2002 A (low) R-1 (low) Negative BBB+ F2 Negative A3 P-2 Negative BBB A-2 Negative
---------- ----------- ---------- -------- -------- ------- -------- ----- ------ --------- -------- ------ ---------
Apr. 2003 BBB (high) R-1 (low) Stable BBB+ F2 Negative A3 P-2 Negative BBB A-2 Negative
---------- ----------- ---------- -------- -------- ------- -------- ----- ------ --------- -------- ------ ---------
Nov. 2003 BBB (high) R-1 (low) Stable BBB+ F2 Negative A3 P-2 Negative BBB- A-3 Stable
---------- ----------- ---------- -------- -------- ------- -------- ----- ------ --------- -------- ------ ---------
May 2004 BBB (high) R-1 (low) Stable BBB+ F2 Stable A3 P-2 Negative BBB- A-3 Stable
---------- ----------- ---------- -------- -------- ------- -------- ----- ------ --------- -------- ------ ---------
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* NRSRO designation granted on February 27, 2003
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Funding
Our outstanding debt and securitized off-balance sheet funding was as follows on the dates indicated:
December 31,
September 30, ------------------------------------------
2004 2003 2002 2001 2000
------------ -------- -------- ------- ------
(in billions)
Debt
Commercial paper - unsecured.............. $ 8.5 $ 6.1 $ 8.2 $ 15.7 $ 42.3
Asset-backed commercial paper (FCAR)...... 10.9 9.0 -- -- --
Floating rate demand notes................ 8.1 7.3 5.1 4.0 3.7
Other short-term debt..................... 2.4 2.3 2.9 2.9 3.9
-------- -------- -------- -------- --------
Total short-term debt................... 29.9 24.7 16.2 22.6 49.9
Long-term debt (including notes payable
within One year.......................... 105.4 125.0 124.1 123.2 95.7
-------- -------- -------- -------- --------
Total debt.............................. 135.3 149.7 140.3 145.8 145.6
Securitized Off-Balance Sheet Funding
Securitized off-balance sheet portfolio... 38.7 49.4 71.4 58.7 28.4
Retained interest......................... (9.5) (13.0) (17.6) (12.5) (3.7)
-------- -------- -------- -------- --------
Total securitized off-balance sheet
funding................................ 29.2 36.4 53.8 46.2 24.7
-------- -------- -------- -------- --------
Total debt plus securitized off-balance
sheet funding.......................... $ 164.5 $ 186.1 $ 194.1 $ 192.0 $ 170.3
======== ======== ======== ======== ========
Memo: Asset-backed commercial paper (FCAR)
previously reported as securitized off-balance
sheet funding.............................. -- -- $ 11.9 $ 12.1 $ 0.7
Ratios
Credit lines to total unsecured commercial
paper.................................... 86% > 100% > 100% 87% 57%
Credit lines to total unsecured commercial
paper (including Ford bank lines)........ > 100 > 100 > 100 > 100 78
Securitized funding to managed receivables. 24 25 27 23 13
Short-term debt and notes payable within
one year to total debt.................... 45 36 28 30 43
Short-term debt and notes payable within
one year to total capitalization.......... 42 33 25 28 40
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At September 30, 2004, unsecured commercial paper was up $2.4 billion compared with year-end 2003, reflecting increased investor demand. At September 30, 2004, total debt plus securitized off-balance sheet funding was down $21.6 billion compared with year-end 2003, reflecting repayment of debt maturing in the first nine months of 2004 and lower asset levels, which reduced our funding needs.
During the third quarter of 2004, we issued $3.4 billion of long-term debt with maturities of one to 10 years, including about $2.5 billion of unsecured institutional funding and about $900 million of unsecured retail bonds. In addition, we realized proceeds of about $3.8 billion from sales of receivables in off-balance sheet securitizations.
We expect our full-year 2004 public term funding requirements to be between $13 billion and $18 billion. In the first nine months of 2004, we completed about $13 billion of public term funding transactions. Because of significant available liquidity and our relatively smaller balance sheet size, during the third quarter we purchased in open market transactions a small portion of our outstanding debt securities. Depending on market conditions, we may continue repurchasing a portion of our outstanding debt securities during the remainder of 2004.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Liquidity
Maintaining liquidity through access to diverse funding sources has always been a key factor in our funding strategy. We define liquidity as our ability to meet our funding needs, which include purchasing retail installment sale and lease contracts, funding other financing programs and repaying our debt obligations as they become due, or earlier under certain debt retirement programs. Our policy is to have sufficient cash and cash equivalents, unused conduit capacity, securitizable assets and back-up credit facilities to provide liquidity for all of our short-term funding obligations. In addition to unsecured debt offerings (discussed above) and sales of receivables (discussed below), we have access to the following other sources of liquidity:
Cash and Cash Equivalents. At September 30, 2004, our cash and cash equivalents totaled $10.1 billion, compared with $15.7 billion at the end of 2003, down $5.6 billion, primarily reflecting debt maturities in excess of new debt issuances. In the normal course of our funding transactions, we may generate more proceeds than are necessary for our immediate funding needs. These excess amounts are maintained primarily as highly liquid investments, provide liquidity for our short-term funding obligations and give us flexibility in the use of our other funding programs. Our cash and cash equivalents include short-term U.S. Treasury bills, federal agency discount notes, A-1/P-1 (or higher) rated commercial paper, and bank time deposits with investment grade institutions. The average term of these investments is typically less than 60 days. We monitor our cash levels daily and adjust them as necessary to support our short-term liquidity needs.
Conduit Program. We have entered into agreements with several bank-sponsored commercial paper issuers ("conduits") under which such conduits are contractually committed to purchase from us, at our option, up to $12.8 billion of receivables in the aggregate as of October 31, 2004. This is an extremely liquid funding source, as we are able to access funds in two days. These agreements have varying maturity dates between November 30, 2004 and October 13, 2005 and, in the past, have been renewed on an annual basis. As of October 31, 2004, we had utilized approximately $3.6 billion of these conduit commitments. These agreements do not contain restrictive financial covenants (for example, debt-to-equity limitations or minimum net worth requirements) or material adverse change clauses that would relieve the conduit of its obligation to purchase receivables. However, they do contain provisions that could terminate the unused portion of the purchase commitments if the performance of the sold receivables deteriorates beyond specified levels. Based on our experience, we do not expect any commitments to be terminated due to these performance requirements. None of these arrangements may be terminated based on a change in our credit rating.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Back-up Credit Facilities
Our back-up credit facilities were as follows on the dates indicated:
September 30, December 31,
--------------------- -------------------------------------
2004 2003 2003 2002 2001 2000
--------- --------- --------- -------- -------- ------
(in billions)
Back-up Credit Facilities
Ford Motor Credit......................... $ 4.4 $ 6.4 $ 4.3 $ 8.6 $ 9.0 $ 20.0
FCE Bank plc.............................. 2.9 3.4 3.4 5.3 4.6 4.7
Ford bank lines (available at Ford's 6.9 6.7 6.8 7.6 8.4 8.4
option) .................................
Asset-backed commercial paper lines....... 18.9 16.4 18.6 13.6 12.5 1.4
------ ------- ------- ------- ------- -------
Total back-up facilities............. 33.1 32.9 33.1 35.1 34.5 34.5
Drawn amounts............................. (0.7) (1.2) (1.0) (0.9) (0.7) (0.9)
------ ------- ------- ------- ------- -------
Total available back-up facilities..... $ 32.4 $ 31.7 $ 32.1 $ 34.2 $ 33.8 $ 33.6
====== ======= ======= ======= ======= =======
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For additional funding and to maintain liquidity, we and our majority-owned subsidiaries, including FCE Bank plc ("FCE"), have contractually committed credit facilities with financial institutions that totaled approximately $7.3 billion at September 30, 2004. This includes $4.4 billion of Ford Motor Credit facilities ($3.9 billion global and $0.5 billion non-global) and $2.9 billion of FCE facilities ($2.7 billion global and $0.2 billion non-global). Approximately $0.7 billion of our total facilities were in use at September 30, 2004. These facilities have various maturity dates. Of the $7.3 billion, about 38% of these facilities are committed through June 30, 2009. Our global credit facilities may be used at our option by any of our direct or indirect majority-owned subsidiaries. FCE's global credit facilities may be used at its option by any of its direct or indirect majority-owned subsidiaries. We or FCE, as the case may be, will guarantee any such borrowings. All of the global credit facilities have substantially identical contract terms (other than commitment amounts) and are free of material adverse change clauses and restrictive financial covenants (for example, debt-to-equity limitations, minimum net worth requirements and credit rating triggers) that would limit our ability to borrow.
At Ford's option, approximately $6.9 billion of Ford's global lines of credit may be used by any of its direct or indirect majority-owned subsidiaries on a guaranteed basis. Ford also has the ability to transfer, on a non-guaranteed basis, $2.5 billion of such credit lines to us and $518 million to FCE.
Additionally, at September 30, 2004, banks provided $18.9 billion of contractually committed liquidity facilities supporting two asset-backed commercial paper programs; $18.5 billion supported our FCAR program and $425 million supported our Motown NotesSM program. Unlike our other credit facilities described above, these facilities provide liquidity exclusively to each individual asset-backed commercial paper program. Utilization of these facilities is not at our discretion but is determined by and subject to conditions specific to each program. At September 30, 2004, about $16.5 billion of FCAR's bank credit facilities were available to support FCAR's asset-backed commercial paper or subordinated debt. Although not eligible to support commercial paper, the remaining $1.9 billion of available credit lines could be accessed for additional funding if additional subordinated debt is issued.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Off-Balance Sheet Arrangements and Other Sales of Receivables Transactions
Sales of Receivables Activity
The following table illustrates our worldwide off-balance sheet receivables sales activity for the periods indicated:
Third Quarter First Nine Months Full Year
----------------- ------------------ ------------------------------------
2004 2003 2004 2003 2003 2002 2001 2000
-------- -------- -------- -------- -------- -------- -------- -------
(in billions)
Net Proceeds from Receivable Sales
North America Segment
Public retail............................. $ -- $ -- $ 1.7 $ 5.6 $ 5.7 $ 15.5 $ 16.6 $ 18.8
Conduit................................... 0.5 -- 1.2 1.1 1.8 2.5 6.2 --
Triad..................................... -- -- 0.6 0.9 1.7 1.1 -- --
Motown NotesSM program.................... -- -- 1.0 1.0 1.0 4.8 -- --
FCAR...................................... -- -- -- -- -- 8.3 12.1 --
Public wholesale.......................... 3.0 -- 3.0 -- -- -- 5.0 --
Canada and other.......................... -- 1.0 -- 1.0 1.4 1.2 -- --
------- ------ ------- ------- ------ ------- ------- -------
Total North America segment............. 3.5 1.0 7.5 9.6 11.6 33.4 39.9 18.8
International Segment
Europe
Public................................... 0.4 0.5 1.1 1.6 1.5 2.2 0.7 0.7
Conduit.................................. -- -- 0.2 0.4 1.1 0.3 -- --
------- ------ ------- ------- ------ ------- ------- -------
Total Europe............................ 0.4 0.5 1.3 2.0 2.6 2.5 0.7 0.7
Asia Pacific.............................. -- 0.4 0.4 0.9 0.9 0.5 0.2 --
Latin America............................. -- 0.3 -- 0.3 0.6 -- -- --
------- ------ ------- ------- ------ ------- ------- -------
Total International segment............. 0.4 1.2 1.7 3.2 4.1 3.0 0.9 0.7
------- ------ ------- ------- ------ ------- ------- -------
Net proceeds.......................... 3.9 2.2 9.2 12.8 15.7 36.4 40.8 19.5
Whole-loan sales......................... -- -- -- 3.0 5.4 4.9 -- --
------- ------ ------- ------- ------ ------- ------- -------
Total net proceeds...................... 3.9 2.2 9.2 15.8 21.1 41.3 40.8 19.5
Retained interest and other.................. (3.0) 0.2 (3.5) (0.2) 0.2 (0.6) 11.7 2.1
------- ------ ------- ------- ------ ------- ------- -------
Total receivables sold.................. 0.9 2.4 5.7 15.6 21.3 40.7 52.5 21.6
Prior period sold receivables, net of paydown
activity.................................. 42.5 52.6 37.7 39.4 35.4 35.7 6.2 6.8
------- ------ ------- ------- ------ ------- ------- -------
Total sold receivables outstanding at
the end of the relevant period........ 43.4 55.0 43.4 55.0 56.7 76.4 58.7 28.4
Memo:
Less: Receivables outstanding in whole-loan
sale transactions............................ (4.7) (5.8) (4.7) (5.8) (7.3) (5.0) -- --
------- ------ ------- ------- ------ ------- ------- -------
Total securitized off-balance sheet
receivables........................... $ 38.7 $ 49.2 $ 38.7 $ 49.2 $ 49.4 $ 71.4 $ 58.7 $ 28.4
======= ====== ======= ======= ====== ======= ======= =======
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At September 30, 2004, off-balance sheet receivables outstanding totaled $43.4 billion, down $11.6 billion or 21% compared with a year ago. This decrease primarily reflected our lower funding requirements and the use of on-balance sheet securitizations. In the third quarter of 2004, $900 million of receivables were sold in off-balance sheet transactions, down about $1.5 billion from the third quarter of 2003. In the first nine months of 2004, $5.7 billion of receivables were sold in off-balance sheet transactions, down $9.9 billion or 63% compared with the first nine months of 2003.
Our worldwide proceeds from the sale of retail and wholesale finance receivables through off-balance sheet securitizations and whole-loan sale transactions are shown below for the periods indicated:
Third Quarter First Nine Months Full Year
-------------------- -------------------- ----------------------------------------
Receivable Type 2004 2003 2004 2003 2003 2002 2001 2000
----------------------------- ---------- --------- --------- ---------- --------- ---------- ---------- --------
(in billions)
Retail....................... $ 0.9 $ 2.2 $ 5.2 $ 11.8 $ 14.7 $ 31.6 $ 32.3 $ 19.2
Wholesale.................... 3.0 -- 4.0 1.0 1.0 4.8 8.5 0.3
-------- -------- -------- -------- -------- -------- -------- --------
Net proceeds............... 3.9 2.2 9.2 12.8 15.7 36.4 40.8 19.5
Whole-loan................... -- -- -- 3.0 5.4 4.9 -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total net proceeds...... $ 3.9 $ 2.2 $ 9.2 $ 15.8 $ 21.1 $ 41.3 $ 40.8 $ 19.5
======== ======== ======== ======== ======== ======== ======== ========
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
The Effect of Receivables Sales Activity on Financial Reporting
We report the following items in Investment and other income related to sales of receivables on our income statement:
o Gain on sales of finance receivables,
o Interest income on sold wholesale receivables and retained securities,
o Servicing fee income from sold receivables that we continue to service, and
o Excess spread and other income.
The following table summarizes activity related to off-balance sheet sales of receivables reported in Investment and other income related to sales of receivables for the periods indicated:
Third Quarter First Nine Months Full Year
--------------- ------------------ --------------------------------
2004 2003 2004 2003 2003 2002 2001 2000
------ ------ ------ ------ ------- ------ ------ ------
(in millions)
Net gain on sales of receivables............ $ 20 $ 45 $ 150 $ 329 $ 436 $ 529 $ 412 $ 14
Interest income on sold wholesale
receivables and retained securities........ 162 138 467 545 679 606 379 152
Servicing fees.............................. 99 152 329 528 677 700 456 190
Excess spread and other..................... 225 241 690 737 973 775 186 201
------- ------ ------- ------- ------ ------ ------ -----
Investment and other income related to
sales of receivables..................... 506 576 1,636 2,139 2,765 2,610 1,433 557
Less: Whole-loan income .................... (15) (35) (71) (144) (234) (79) -- --
------- ------ -------- ------- ------ ------ ------ -----
Income related to off-balance sheet....... $ 491 $ 541 $ 1,565 $ 1,995 $2,531 $2,531 $1,433 $ 557
securitizations.......................... ======= ====== ======== ======= ====== ====== ====== =====
Memo:
Finance receivables sold................... $ 881 $ 2,400 $ 5,687 $15,648 $21,321 $40,712 $52,533 $21,618
Servicing portfolio as of period-end....... 43,400 55,020 43,400 55,020 56,705 76,346 58,748 28,366
Pre-tax gain per dollar of retail
receivables sold.......................... 2.3% 1.9% 2.6% 2.1% 2.0% 1.4% 1.2% 0.1%
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In the third quarter of 2004, investment and other income related to sales of receivables declined $70 million or 12% compared with a year ago. This decline resulted from lower levels of outstanding sold receivables, down about $11.6 billion compared with the third quarter of 2003, primarily reflecting our lower funding requirements and higher levels of on-balance sheet securitizations. Excluding the effects of whole-loan sale transactions, which totaled $10.4 billion in the 2002-2004 period, off-balance sheet securitization income declined $50 million compared with the third quarter of 2003. In the first nine months of 2004, off-balance sheet securitization income declined $430 million or 22% compared with the first nine months of 2003. The decline reflects primarily lower off-balance sheet retail receivables sales in 2004, and lower levels of outstanding sold receivables.
The net impact of off-balance sheet securitizations on our earnings in a given period will vary depending on the amount and type of receivables sold and the timing of the transactions in the current period and the preceding two-to-three year period, as well as the interest rate environment at the time the finance receivables were originated and securitized.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
The following table shows, on an analytical basis, the earnings impact of our off-balance sheet securitizations as if we had reported them on-balance sheet and funded them through asset-backed financings for the periods indicated:
Third Quarter First Nine Months Full Year
------------------ -------------------- -------------------------------------
2004 2003 2004 2003 2003 2002 2001 2000
-------- -------- -------- -------- ----- ------- -------- ---------
(in millions)
Financing revenue
Retail revenue................. $ 524 $ 749 $ 1,889 $ 2,779 $ 3,580 $ 4,040 $ 2,954 $ 1,622
Wholesale revenue.............. 266 243 817 832 1,080 1,101 499 384
------- ------- -------- -------- ------- ------- ------- --------
Total financing revenue...... 790 992 2,706 3,611 4,660 5,141 3,453 2,006
Borrowing cost................... (201) (326) (714) (1,198) (1,491) (2,205) (1,784) (1,242)
------- ------- -------- -------- ------- ------- ------- --------
Net financing margin......... 589 666 1,992 2,413 3,169 2,936 1,669 764
Net credit losses................ (91) (165) (324) (511) (677) (454) (219) (92)
------- ------- -------- -------- ------- ------- ------- --------
Income before income taxes. $ 498 $ 501 $ 1,668 $ 1,902 $ 2,492 $ 2,482 $ 1,450 $ 672
======= ======= ======== ======== ======= ======= ======= ========
Memo:
Income related to off-balance sheet
securitizations.................. $ 491 $ 541 $ 1,565 $ 1,995 $ 2,531 $ 2,531 $ 1,433 $ 557
Recalendarization impact of
off-balance sheet securitizations. $ (7) $ 40 $ (103) $ 93 $ 39 $ 49 $ (17) $ (115)
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In the third quarter of 2004, the impact to earnings of off-balance sheet securitizations was $7 million lower than had these transactions been structured as on-balance sheet securitizations. For the first nine months of 2004, the impact was $103 million lower than had these transactions been structured as on-balance sheet securitizations. These differences result from recalendarization effects caused by gain-on-sale accounting requirements. This effect will fluctuate as the amount of receivables sold in our off-balance sheet securitizations increases or decreases over time and with changes in market conditions.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Leverage
We use leverage, or the debt-to-equity ratio, to make various business decisions, including establishing pricing for retail, wholesale and lease financing, and assessing our capital structure. For a discussion of our capital structure, see "Capital Adequacy" in our 2003 10-K Report. We calculate leverage on a financial statement basis and on a managed basis using the following formulas:
Financial Total Debt
Statement = ----------
Leverage Equity
Retained
Interest
in
Securitized Securitized
Off-balance Off-balance Cash SFAS No. 133
Sheet Sheet and Cash Adjustments
Total + Receivables - Receivables - Equivalents - on Total Debt
Debt
Managed Leverage = _____________________________________________________________________________
SFAS No. 133
Equity + Minority - Adjustment
Interest on Equity
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The following table shows the calculation of our financial statement leverage:
December 31,
September 30, -----------------------------------
2004 2003 2002 2001 2000
------------ -------- ------- -------- ---------
(in billions)
Total debt..................................... $ 135.3 $ 149.7 $ 140.3 $ 145.8 $ 145.6
Total stockholder's equity..................... 11.4 12.5 13.6 12.0 12.2
Financial statement leverage (to 1)............ 11.8 12.0 10.3 12.2 11.9
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At September 30, 2004, our financial statement leverage was 11.8 to 1, compared with 12.0 to 1 at year-end 2003. This decrease in leverage resulted primarily from lower funding requirements.
The following table shows the calculation of our managed leverage:
December 31,
September 30, ------------------------------------
2004 2003 2002 2001 2000
------------ ------ -------- -------- ---------
(in billions)
Total debt $ 135.3 $ 149.7 $ 140.3 $ 145.8 $ 145.6
Securitized off-balance sheet receivables
outstanding................................. 38.7 49.4 71.4 58.7 28.4
Retained interest in securitized off-balance
sheet receivables........................... (9.5) (13.0) (17.6) (12.5) (3.7)
Adjustments for cash and cash equivalents.... (10.1) (15.7) (6.8) (2.9) (1.1)
Adjustments for SFAS No. 133................. (3.6) (4.7) (6.2) (2.1) --
-------- ------- ------- ------- --------
Total adjusted debt....................... $ 150.8 $ 165.7 $ 181.1 $ 187.0 $ 169.2
======== ======= ======== ======= ========
Total stockholder's equity (including minority
interest).................................... $ 11.4 $ 12.5 $ 13.6 $ 12.0 $ 12.2
Adjustments for SFAS No. 133.................. 0.0 0.2 0.5 0.6 --
-------- ------- -------- ------- --------
Total adjusted equity...................... $ 11.4 $ 12.7 $ 14.1 $ 12.6 $ 12.2
======== ======= ======== ======== ========
Managed leverage (to 1) ...................... 13.2 13.0 12.8 14.8 13.9
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
We believe that managed leverage is useful to our investors because it reflects the way we manage our business. We retain interests in receivables sold in off-balance sheet securitization transactions and, with respect to subordinated retained interests, are exposed to credit risk. Accordingly, we consider securitization as an alternative source of funding and evaluate charge-offs, receivables and leverage on a managed as well as a financial statement basis. We also deduct cash and cash equivalents because they generally correspond to excess debt beyond the amount required to support our operations. In addition, we add our minority interests to our financial statement equity, because all of the debt of such consolidated entities is included in our total debt. SFAS No. 133 requires us to make fair value adjustments to our assets, debt and equity positions to reflect the impact of interest rate instruments we use in connection with our term debt issuances and securitizations. SFAS No. 133 adjustments vary over the term of the underlying debt and securitized funding obligations based on changes in market interest rates. We generally repay our debt obligations as they mature. As a result, we exclude the impact of SFAS No. 133 on both the numerator and denominator in order to exclude the interim effects of changes in market interest rates. For a discussion of our use of interest rate instruments and other derivatives, see Item 7A of our 10-K Report. We believe the managed leverage measure provides our investors with meaningful information regarding management's decision-making processes.
Our managed leverage strategy involves establishing a leverage level that we believe reflects the risk characteristics of our underlying assets. In establishing a target leverage level, we consider the characteristics of the receivables in our managed portfolio and the prevailing market conditions.
At September 30, 2004, our managed leverage was 13.2 to 1, up from 13.0 at year-end 2003. Our dividend policy is based in part on our strategy to maintain managed leverage in the lower end of the 13 - 14 to 1 range. Based on our profitability and managed receivable levels, we paid dividends of $3.4 billion in the first nine months of 2004.
Changes in Accounting Standards
The Financial Accounting Standards Board is expected to issue an exposure
draft of an amendment to SFAS No. 140 that: (1) addresses the conditions under
which a qualifying SPE is permitted to issue beneficial interests with
maturities that are shorter than the maturities of the assets held by the
qualifying SPE and roll over those beneficial interests at maturity; (2) amends
other requirements related to commitments by transferors to provide additional
assets to fulfill obligations to the beneficial interest holders; and
(3) addresses other issues related to transfers of financial assets. We are
continuing to assess the impact the expected exposure draft may have on our
accounting for qualifying SPEs and certain securitization funding programs.
Outlook
For the full year, we expect our earnings to be significantly higher than our earnings a year ago primarily reflecting the impact of improved credit loss performance and leasing results, offset partially by the impact of a lower level of receivables. At year-end 2004, we expect our managed receivables to be about $170 billion.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Cautionary Statement Regarding Forward Looking Statements
Statements included in this Report or incorporated by reference into this Report may constitute "forward-looking statements" within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995. The words "anticipate," "believe," "estimate," "expect," "intend," "may," "plan," "will," "project," "future" and "should" and similar expressions are intended to identify forward-looking statements, and these statements are based on our current expectations and assumptions concerning future events. These statements involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied by such statements, including the following:
Automotive Related:
o Greater price competition resulting from currency fluctuations, industry overcapacity or other factors;
o Significant decline in automotive industry sales and our financing of those sales, particularly in the United States or Europe, resulting from slowing economic growth, geo-political events or other factors;
o Lower-than-anticipated market acceptance of new or existing Ford products;
o Economic distress of suppliers that may require Ford to provide financial support or take other measures to ensure supplies of materials;
o Increased safety, emissions, fuel economy or other regulations resulting in higher costs and/or sales restrictions;
o Work stoppages at Ford or supplier facilities or other interruptions of supplies;
o Discovery of defects in Ford vehicles resulting in delays in new model launches, recall campaigns, increased warranty costs or litigation;
o Unusual or significant litigation or governmental investigations arising out of alleged defects in Ford products or otherwise;
o Reduced availability of or higher prices for or reduced availability fuel;
o Market shift from truck sales in the United States;
o Changes in Ford's requirements under long-term supply arrangements under which Ford is obligated to purchase minimum quantities or pay minimum amounts;
o Change in the nature or mix of automotive marketing programs and incentives;
Ford Motor Credit Related:
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 Collection and servicing problems related to our finance receivables and net investment in operating leases;
o Lower-than-anticipated residual values and higher-than-expected lease return rates;
o New or increased credit, consumer protection or other regulations resulting in higher costs and/or additional financing restrictions;
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
o Changes in Ford's marketing programs that de-emphasize financing incentives, which could result in a decline in our share of financing Ford vehicles;
General:
o Ford's or our inability to implement the Revitalization Plan;
o Credit rating downgrades;
o Major capital market disruptions that could prevent Ford or us from having access to the capital markets or that would limit our liquidity;
o Availability of securitization as a source of funding;
o Labor or other constraints on Ford's or our ability to restructure Ford's or our business;
o Increased price competition in the rental car industry and/or a general decline in business or leisure travel due to terrorist attacks, acts of war, epidemic diseases or measures taken by governments in response thereto that negatively affect the travel industry;
o Worse-than-assumed economic and demographic experience for our post-retirement benefit plans (e.g., investment returns, interest rates, health care trends, benefit improvements);
o Economic difficulties in any significant market; and
o Currency, commodity or interest rate fluctuations, including rising steel prices.
Other Financial Information
PricewaterhouseCoopers LLP ("PwC") has not audited the interim financial information included in this 10-Q report. In reviewing such information, PwC has applied limited procedures in accordance with professional standards for reviews of interim financial information. Accordingly, you should restrict your reliance on their reports on such information. PwC is not subject to the liability provisions of Section 11 of the Securities Act of 1933 for their reports on the interim financial information because such reports do not constitute "reports" or "parts" of the registration statements prepared or certified by PwC within the meaning of Sections 7 and 11 of the Securities Act of 1933.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In our 10-K Report, we discuss in greater detail our market risk, counter-party risk, and operating risk. To provide a quantitative measure of the sensitivity of our pre-tax net interest income to changes in interest rates, we use interest rate scenarios that assume a hypothetical, instantaneous increase or decrease in interest rates of 100 basis points (or 1%) across all maturities, as well as a base case that assumes that interest rates remain constant at existing levels. These interest rate scenarios are purely hypothetical and do not represent our view of future interest rate movements. The differences in pre-tax net interest income between these scenarios and the base case over a twelve-month period represent an estimate of the sensitivity of our pre-tax net interest income. Under this model, we estimate that at September 30, 2004, all else constant, such an increase in interest rates would reduce our pre-tax net interest income by approximately $152 million over the next twelve months, compared with $179 million at December 31, 2003. 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. Had the analysis assumed a gradual change in interest rates of 100 basis points, it would have resulted in a lower pre-tax net interest income impact.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Michael E. Bannister, our Chief Executive Officer, and David P. Cosper, our Vice Chairman, Chief Financial Officer and Treasurer, have performed an evaluation of the Company's disclosure controls and procedures, as that term is defined in Rule 13a-14 (c) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as of September 30, 2004 and each has concluded that such disclosure controls and procedures are effective to ensure that information required to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified by the Securities and Exchange Commission's rules and regulations.
Changes in Internal Controls
No changes in the Company's internal controls over financial reporting occurred during the quarter ended September 30, 2004, that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
As a result of Ford transferring its shares to Ford Holdings, LLC on July 1, 2004, we are now a wholly owned subsidiary of Ford Holdings, LLC. Ford Holdings, LLC is a wholly owned subsidiary of Ford.
You can find additional information about Ford in Ford's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2004, which has been included as an exhibit to this Report (without Exhibits or Financial Statements).
ITEM 6. EXHIBITS
Exhibits: please refer to Exhibit Index on page 37.
Instruments defining the rights of holders of certain issues of long-term debt of Ford Motor Credit 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 Motor Credit. Ford Motor Credit agrees to furnish a copy of each of such instruments to the Commission upon request.
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Ford Motor Credit Company has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
FORD MOTOR CREDIT COMPANY
By: /s/ David P. Cosper
----------------------------------------------------
(David P. Cosper)
Vice Chairman, Chief Financial Officer and Treasurer
Date: November 8, 2004
|
To the Board of Directors and Stockholders of
Ford Motor Credit Company:
We have reviewed the accompanying consolidated balance sheet of Ford Motor Credit Company and its subsidiaries as of September 30, 2004, and the related consolidated statements of income for each of the three-month and nine-month periods ended September 30, 2004 and 2003, and the consolidated statement of cash flows from continuing operations for the nine-month periods ended September 30, 2004 and 2003. These interim financial statements are the responsibility of the Company's management.
We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We previously audited in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2003, and the related consolidated statements of income, stockholder's equity, and cash flows from continuing operations for the year then ended (not presented herein), and in our report dated January 21, 2004 we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2003, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.
/s/ PRICEWATERHOUSECOOPERS LLP Detroit, Michigan November 8, 2004 |
FORD MOTOR CREDIT COMPANY
EXHIBIT INDEX
Designation Description Method of Filing
------------- ------------------------------------ ----------------------
Exhibit 10 Amended and restated Support Filed with this Report
Agreement dated as of
September 20, 2004 between
Ford Motor Credit Company and
FCE Bank plc
Exhibit 12 Ford Motor Credit Company Filed with this Report
and Subsidiaries
Calculation of Ratio of
Earnings to Fixed Charges
Exhibit 15 Letter of Filed with this Report
PricewaterhouseCoopers LLP,
dated November 8, 2004, relating to
Financial Information
Exhibit 31.1 Rule 15d-14(a) Certification of CEO Filed with this Report
Exhibit 31.2 Rule 15d-14(a) Certification of CFO Filed with this Report
Exhibit 32.1 Section 1350 Certification of CEO Furnished with this Report
Exhibit 32.2 Section 1350 Certification of CFO Furnished with this Report
Exhibit 99 Items 2 and 4 of Part I and Items 1, Filed with this Report
2 and 5 of Part II of Ford Motor
Company's Quarterly Report on Form
10-Q for the quarterly period ended
September 30, 2004
|
Exhibit 10
SUPPORT AGREEMENT dated as of
September 20, 2004 (this "Agreement"),
between FORD MOTOR CREDIT COMPANY, a
Delaware corporation ("Ford Credit")
and FCE BANK PLC, a corporation
organized under the laws of England
("FCE Bank")
Ford Credit is an indirect wholly owned subsidiary of Ford Motor Company ("Ford"). Ford Credit International, Inc. ("FCII") a wholly owned subsidiary of Ford Credit, owns a 100% ownership interest in FCE Bank. FCE Bank's primary business is to support the sale of Ford vehicles in Europe through the Ford dealer network. In order to facilitate FCE Bank's continued support of Ford's sales in Europe, Ford Credit and FCE Bank agree as follows:
1. The terms of this Agreement will commence on the date of this Agreement, and will supersede the terms of the agreement of the same title executed by the parties on August 13, 2002.
2. Ford Credit shall, at all times during the term of this Agreement, maintain, either directly or indirectly through one or more subsidiaries, a control interest of not less than 75% of the capital of FCE Bank.
3(a). Upon demand of FCE Bank, Ford Credit shall make a payment contribution, to the extent required, to FCE Bank for each quarterly accounting period during the term of this Agreement in an amount sufficient to cause the net worth (paid-in capital plus retained earnings) of FCE Bank for such calendar quarter, as shown on the financial statements on a U.S. basis (prepared in accordance with U.S. generally accepted accounting principles) of FCE Bank for such quarter, to be not less than US$500 million. Such payment contribution, if required, will be made not later than 30 days after the end of such quarterly accounting period. If final financial results of FCE Bank are not available at the time that a determination is to be made whether a payment is due by Ford Credit for a given calendar quarter, such determination may be based on the latest available forecast of results of FCE Bank for such period.
3(b). In the event that Ford Credit shall have made a contribution to FCE Bank under paragraph 3(a) with respect to any quarterly accounting period of, and FCE Bank thereafter shall have, at the end of the calendar year in which the contribution has been made, a net worth in excess of US$500 million after giving effect to any dividends paid by FCE Bank to its shareholders during or at the end of such year, then FCE Bank shall, upon demand of Ford Credit, make a repayment to Ford Credit equal to the lesser of (i) such excess or (ii) the aggregate of any contribution made by Ford Credit to FCE Bank under paragraph 3(a) during such year.
4. In consideration of Ford Credit agreeing to maintain a control interest under paragraph 2 and make contributions under paragraph 3, during the term of this Agreement FCE Bank shall make (or shall procure the making of) wholesale inventory and retail financing accommodations generally available to dealers in vehicles manufactured or sold by Ford and other manufacturers and to their customers in the United Kingdom and all other locations that FCE Bank considers appropriate from time to time.
5. All determinations hereunder shall be made in accordance with U.S. generally accepted accounting principles.
6. This Agreement contains the entire agreement between the parties hereto with respect to the transactions contemplated hereby and shall supersede all prior agreements between the parties hereto with respect to the subject matter hereof.
7. This Agreement shall be governed by and construed under the laws of England.
8. The terms of this Agreement shall not be waived, altered, modified, amended, or supplemented in any manner whatsoever except by a written instrument signed by each of the parties hereto, provided, however, that Ford Credit unilaterally, may orally waive any obligation of FCE Bank to make a repayment under paragraph 3(b) hereof.
9. No person shall have any right by virtue of the Contracts (Rights of Third Parties) Act 1999 to enforce any term (express or implied) of this Agreement.
10. This Agreement will terminate on January 31, 2010 (the "Termination Date"); provided, however, that immediately on February 1, 2005, the Termination Date will be extended automatically to January 31, 2011 unless either party has given notice of termination as described below. Thereafter, immediately on February 1 of each year, the Termination Date will be extended automatically for an additional one-year period ending on January 31 of the following year unless either party has previously given notice of termination as described below.
If a party to this Agreement wishes to prevent automatic extension of the Termination Date on February 1 of a given year, that party must give notice of termination to the other party no later than January 1 of such year, in which case this Agreement will terminate as of the Termination Date set on the last preceding extension date. In the absence of such notice, extension of the Termination Date will occur as described above.
For the purposes of this paragraph 10, reference to a Termination Date or any date on which a period ends shall be interpreted as reference to the end of such day and reference to the extension of the agreement on any date shall be interpreted as reference to the beginning of such day.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be fully executed as of the day and year first above written.
( FORD MOTOR CREDIT COMPANY
( acting by:
/s/ David P. Cosper
----------------------------------------
Dave Cosper
Vice Chairman & Chief Financial Officer
Ford Motor Credit Company
( FCE BANK PLC
( acting by:
/s/ David Kimball
----------------------------------------
Treasurer
FCE Bank PLC
|
Exhibit 12
FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
Nine For the Years Ended December 31,
Months ---------------------------------------------------------
2004 2003 2002 2001 2000 1999
--------- --------- ---------- --------- --------- ---------
(in millions)
Earnings
Income before income taxes $ 3,676 $ 3,035 $ 1,965 $ 1,494 $ 2,507 $ 2,085
Less: Equity in net income/
(loss) of affiliated companies 8 12 13 5 (22) (25)
Fixed charges 3,987 5,867 6,967 8,959 8,940 7,165
--------- --------- --------- --------- --------- --------
Earnings before fixed charges $ 7,655 $ 8,890 $ 8,919 $ 10,448 $ 11,469 $ 9,275
========= ========= ========= ========= ========= ========
Fixed charges
Interest expense $ 3,962 $ 5,831 $ 6,929 $ 8,922 $ 8,910 $ 7,140
Rents 25 36 38 37 30 25
--------- --------- --------- --------- --------- --------
Total fixed charges $ 3,987 $ 5,867 $ 6,967 $ 8,959 $ 8,940 $ 7,165
========= ========= ========= ========= ========= ========
Ratio of earnings to fixed charges 1.92 1.52 1.28 1.17 1.28 1.29
|
For purposes of our ratio, earnings consist of the sum of pre-tax income from continuing operations before adjustment for minority interests in consolidated subsidiaries, less equity in net income/(loss) of affiliated companies, plus fixed charges. Fixed charges consist of interest on borrowed funds, amortization of debt discount, premium, and issuance expense, and one-third of all rental expense (the proportion deemed representative of the interest factor).
Exhibit 15
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Ford Motor Credit Company Registration Statements Nos. 333-91953, 333-92595, 333-45015, 333-86832 and 333-107955 on Form S-3
Commissioners:
We are aware that our report dated November 8, 2004 on our review of interim financial information of Ford Motor Credit Company for the three and nine-month periods ended September 30, 2004 and 2003 and included in the Company's quarterly report on Form 10-Q for the quarter ended September 30, 2004 is incorporated by reference in the aforementioned Registration Statements.
/s/ PRICEWATERHOUSECOOPERS LLP Detroit, Michigan November 8, 2004 |
Exhibit 31.1
CERTIFICATION
I, Michael E. Bannister, Chairman of the Board and Chief Executive Officer of Ford Motor Credit Company, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 of Ford Motor Credit Company;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: November 8, 2004 /s/ Michael E. Bannister ------------------------------------------------- Michael E. Bannister Chairman of the Board and Chief Executive Officer |
Exhibit 31.2
CERTIFICATION
I, David P. Cosper, Vice Chairman, Chief Financial Officer and Treasurer of Ford Motor Credit Company, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 of Ford Motor Credit Company;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: November 8, 2004 /s/ David P. Cosper ---------------------------------------------------- David P. Cosper Vice Chairman, Chief Financial Officer and Treasurer |
Exhibit 32.1
FORD MOTOR CREDIT COMPANY
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Michael E. Bannister, Chairman of the Board and Chief Executive Officer
of Ford Motor Credit Company (the "Company"), hereby certify pursuant to
Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended, and
Section 1350 of Chapter 63 of title 18 of the United States Code, that to
my knowledge:
1. the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2004, to which this statement is furnished as an exhibit (the "Report"), fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; 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/ Michael E. Bannister
-------------------------------------------------
Michael E. Bannister
Chairman of the Board and Chief Executive Officer
Date: November 8, 2004
|
Exhibit 32.2
FORD MOTOR CREDIT COMPANY
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, David P. Cosper, Vice Chairman, Chief Financial Officer and Treasurer
of Ford Motor Credit Company (the "Company"), hereby certify pursuant to
Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended, and
Section 1350 of Chapter 63 of title 18 of the United States Code, that to
my knowledge:
1. the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2004, to which this statement is furnished as an exhibit (the "Report"), fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; 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/ David P. Cosper
----------------------------------------------------
David P. Cosper
Vice Chairman, Chief Financial Officer and Treasurer
Date: November 8, 2004
|
Exhibit 99
Items 2 and 4 of Part I and Items 1, 2 and 5 of Part II of Ford's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2004. ALL REFERENCES TO WE, OUR, AND US IN THIS EXHIBIT 99 REFER TO FORD MOTOR COMPANY.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Certain amounts were reclassified to conform to current period presentation. Reclassifications include profit and loss related to discontinued/held-for-sale operations.
THIRD QUARTER RESULTS OF OPERATIONS
Our worldwide net income was $266 million in the third quarter of 2004, or $0.15 per diluted share of Common and Class B Stock. In the third quarter of 2003, net loss was $25 million, or $0.01 per share.
Results by business sector for the third quarter of 2004 and 2003 are shown
below (in millions):
Third Quarter
Net Income/(Loss)
-----------------------------------------
2004
Over/(Under)
2004 2003 2003
--------- ------------ ----------------
Income/(loss) before income taxes
Automotive sector $ (673) $ (604) $(69)
Financial Services sector 1,425 1,031 394
------ ------ ----
Total Company 752 427 325
Provision for/(benefit from) income taxes 210 140 70
Minority interests in net income/(loss) of subsidiaries a/ 62 45 17
------ ------ ----
Income/(loss) from continuing operations 480 242 238
Income/(loss) from discontinued/held-for-sale operations b/ (214) (3) (211)
Cumulative effect of change in accounting principle - (264) 264
------ ------ ----
Net income/(loss) $ 266 $ (25) $291
====== ====== ====
|
Details of Automotive sector results for the third quarter of 2004 and 2003
are shown below (in millions):
Third Quarter
--------------------------------------------------------------------------------
Income/(Loss) Before Taxes
Income/(Loss) Before Taxes Excluding Special Items
-------------------------------------- ---------------------------------------
2004 2004
Over/ Over/
(Under) (Under)
2004 2003 2003 2004 2003 2003
------------ ---------- -------------- ----------- ----------- ---------------
Americas
Ford North America $(522) $(108) $(414) $(481) $(108) $(373)
Ford South America 59 (26) 85 59 (26) 85
----- ----- ----- ----- ----- -----
Total Americas (463) (134) (329) (422) (134) (288)
Ford Europe and PAG
Ford Europe (33) (456) 423 (33) (400) 367
PAG (194) (24) (170) (171) (24) (147)
----- ------ ----- ----- ----- -----
Total Ford Europe and PAG (227) (480) 253 (204) (424) 220
Ford Asia Pacific and Africa/Mazda
Ford Asia Pacific and Africa 35 3 32 35 3 32
Mazda and Associated Operations 13 5 8 13 5 8
----- ----- ----- ----- ----- -----
Total Ford Asia Pacific
and Africa/Mazda 48 8 40 48 8 40
Other Automotive (31) 2 (33) (31) 2 (33)
----- ----- ----- ----- ----- -----
Total, excluding special items (609) (548) (61)
Special items * (64) (56) (8)
----- ----- -----
Total Automotive $(673) $(604) $ (69) $(673) $(604) $ (69)
===== ===== ===== ===== ===== =====
|
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Details of Automotive sector sales and vehicle unit sales for the third
quarter 2004 and 2003 are shown below:
Sales Vehicle Unit Sales *
(in billions) (in thousands)
------------------------------------------- --------------------------------------------
2004 2004
Over/(Under) Over/(Under)
2004 2003 2003 2004 2003 2003
--------- ---------- ---------------------- --------- ---------- -----------------------
Americas
Ford North America $18.1 $17.9 $ 0.2 1% 780 782 (2) -%
Ford South America 0.8 0.5 0.3 60 76 55 21 38
----- ----- ----- -- ----- ----- -- --
Total Americas 18.9 18.4 0.5 3 856 837 19 2
Ford Europe and PAG
Ford Europe 5.9 4.6 1.3 28 372 326 46 14
PAG 6.1 5.6 0.5 9 169 164 5 3
----- ----- ----- -- ----- ----- -- --
Total Ford Europe and PAG 12.0 10.2 1.8 18 541 490 51 10
Ford Asia Pacific and Africa 1.9 1.6 0.3 19 111 96 15 16
----- ----- ----- -- ----- ----- -- --
Total Automotive $32.8 $30.2 $ 2.6 9% 1,508 1,423 85 6%
===== ===== ===== == ===== ===== == ==
|
Details of Automotive sector market share for selected markets for the third quarter 2004 and 2003 are shown below:
2004
Over/(Under)
2004 2003 2003 Market
---------- ------------- ------------------- ------------------
Americas
Ford North America 17.3% 18.6% (1.3)pts. U.S. b/
Ford South America 11.4 12.1 (0.7) Brazil b/
Ford Europe and PAG a/
Ford Europe 8.8 8.6 0.2 Europe b/
PAG 1.2/2.2 1.3/2.0 (0.1)/0.2 U.S./Europe
Ford Asia Pacific and Africa 15.1 14.7 0.4 Australia b/
|
The following discussion, except where noted, is based on Income/(Loss) Before Taxes Excluding Special Items. We believe this measure to be useful to investors because it excludes elements that we do not consider to be indicative of earnings from our on-going operating activities. As a result, it provides investors with a more relevant measure of the results generated by our operations.
Compared with the third quarter of 2003, the increase in loss by $61 million for the Automotive sector primarily reflected unfavorable changes in exchange rates (about $300 million) and higher net interest (about $100 million -- discussed below under "Other Automotive"), offset partially by improved cost performance (about $200 million -- measured at constant volume, mix and exchange) and higher vehicle unit sales (about $100 million).
Ford North America. The decline in results for Ford North America primarily reflected unfavorable changes in exchange rates and lower production volumes, partially offset by improved product mix. Unfavorable changes in exchange rates reflected continued weakening of the U.S. dollar compared with the Canadian dollar and Euro, net of hedging.
Although vehicle unit sales were about the same as the third quarter 2003, production was down 39,000 units. The difference between sales and production volumes primarily reflected the fact that we had more units being returned to us from daily rental car companies and sold at auction than we delivered to those companies.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Profits on these units are recognized over the term of the lease and vehicle unit sales are recognized when the vehicles are sold at auction.
The decline in market share is the result of pressure on our retail market share, particularly with respect to cars, as we balanced out 2004 model year vehicles and changed over to 2005 model year vehicles, as well as our on-going strategy to reduce vehicle sales to daily rental car companies.
Ford South America. The improvement in profit and sales for Ford South America primarily reflected positive net pricing and higher vehicle unit sales, partially offset by higher material costs.
Ford Europe. The improvement for Ford Europe primarily reflected higher vehicle unit sales and favorable cost performance. The increase in vehicle unit sales primarily reflected higher sales (primarily the Ford Focus C-Max model) in the major western European markets and in Turkey and Russia.
PAG. The decline in results for PAG primarily reflected the cost of launching new vehicles, particularly at Land Rover, and unfavorable changes in exchange rates, net of hedging, partially offset by higher vehicle unit sales.
The $23 million charge for PAG improvement actions reported as a special item in the third quarter of 2004 reflected costs associated with hourly and salaried employee voluntary separation programs at the Halewood and Browns Lane facilities. As previously announced, we expect further charges in the fourth quarter of 2004 and in 2005 related to the planned voluntary separation of employees. We presently estimate these charges to be $75 million in the fourth quarter of 2004 and $75 million in 2005.
Ford Asia Pacific and Africa. The improvement for Ford Asia Pacific and Africa primarily reflected favorable changes in exchange rates, improved cost performance, and higher vehicle unit sales, partially offset by unfavorable net pricing. The increase in vehicle unit sales reflected higher industry volumes in China, Australia and Taiwan, as well as improved market share in Australia and South Africa.
Mazda and Associated Operations. The change primarily reflected improvements in our Mazda-related investments.
The decline in results for Other Automotive reflected lower interest income on tax refunds.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Our Financial Services sector includes two primary segments, Ford Credit and Hertz. Details of Financial Services sector income/(loss) before income taxes for the third quarter of 2004 and 2003 are shown below (in millions):
Third Quarter
Income/(Loss) Before Income Taxes
--------------------------------------------
2004
Over/(Under)
2004 2003 2003
----------- ------------ ----------------
Ford Credit $1,167 $ 808 $359
Hertz* 249 186 63
Other Financial Services 9 37 (28)
----- ------ ----
Total Financial Services sector $1,425 $1,031 $394
====== ====== ====
|
The improvement in earnings primarily resulted from improved credit loss performance ($182 million) and leasing results ($180 million), offset partially by the impact of lower receivables ($87 million). The improvement in leasing results primarily reflected higher used vehicle prices and a reduction in the percentage of vehicles returned to Ford Credit at lease termination.
Details of actual credit losses net of recoveries ("charge-offs") and loss-to-receivables ratios (annualized charge-offs during a period as a percentage of average net receivables for that period) for the third quarter of 2004 and 2003 are shown below:
Third Quarter
-------------------------------------------------
2004
Over/(Under)
2004 2003 2003
------------ ------------ --------------------
Charge-offs (in millions)
On-balance sheet $ 349 $ 466 $(117)
Managed 458 668 (210)
Loss-to-receivables ratio
On-balance sheet 1.07% 1.40% (0.33) pts.
On-balance sheet (including charge-offs
associated with reacquired receivables)* 1.13% 1.52% (0.39) pts.
|
The decrease of $117 million in charge-offs for the on-balance sheet portfolio primarily reflected lower repossessions and a lower average loss per repossession in the U.S. retail installment and operating lease portfolio.
Ford Credit's net finance receivables and net investment in operating leases for on-balance sheet, securitized off-balance sheet, managed and serviced portfolios are shown below (in billions):
2004
September 30, December 31, Over/(Under)
2004 2003 2003
--------------- --------------- -----------------
On-balance sheet (including on-balance
sheet securitizations) $132.0 $132.1 $ (0.1)
Securitized off-balance sheet 38.7 49.4 (10.7)
------ ------ ------
Managed $170.7 $181.5 $(10.8)
====== ====== ======
Serviced $175.4 $188.8 $(13.4)
|
The decrease in securitized off-balance sheet receivables of $10.7 billion primarily reflected lower funding requirements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Shown below is Ford Credit's allowance for credit losses related to finance receivables and operating leases for the periods specified:
2004
September 30, December 31, Over/(Under)
2004 2003 2003
---------------- ---------------- ----------------
Allowance for credit losses (in billions) $2.6 $3.0 $(0.4)
Allowance as a percentage of end-of-period net
receivables 1.95% 2.28% (0.33) pts.
|
The decrease in the allowance for credit losses of about $400 million primarily reflected improved portfolio performance in the United States.
The improvement at Hertz was primarily due to higher rental volume in the leisure and commercial car rental market segments, offset partially by lower pricing due to a highly competitive environment. Earnings were also favorably impacted by lower fleet costs, higher net proceeds received in excess of book value on the disposal of used vehicles and equipment, and improved conditions in North America equipment rental operations.
FIRST NINE MONTHS RESULTS OF OPERATIONS
Our worldwide net income was $3.4 billion in the first nine months of 2004, or $1.66 per diluted share of Common and Class B Stock. In the first nine months of 2003, net income was $1.3 billion, or $0.68 per share.
Results by business sector for the first nine months of 2004 and 2003 are
shown below (in millions):
First Nine Months
Net Income/(Loss)
--------------------------------------------
2004
Over/(Under)
2004 2003 2003
----------- ------------ -----------------
Income/(loss) before income taxes
Automotive sector $1,104 $ 84 $1,020
Financial Services sector 4,067 2,424 1,643
------ ------ ------
Total Company 5,171 2,508 2,663
Provision for/(benefit from) income taxes 1,317 679 638
Minority interests in net income/(loss) of subsidiaries a/ 219 245 (26)
------ ------ ------
Income/(loss) from continuing operations 3,635 1,584 2,051
Income/(loss) from discontinued/held-for-sale operations b/ (252) (32) (220)
Cumulative effect of change in accounting principle - (264) 264
------ ------ ------
Net income/(loss) $3,383 $1,288 $2,095
====== ====== ======
|
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Details of Automotive sector results for the first nine months of 2004 and
2003 are shown below (in millions):
First Nine Months
--------------------------------------------------------------------------------
Income/(Loss) Before Taxes
Income/(Loss) Before Taxes Excluding Special Items
-------------------------------------- ---------------------------------------
2004 2004
Over/ Over/
(Under) (Under)
2004 2003 2003 2004 2003 2003
---------- ---------- -------------- ----------- ---------- --------------
Americas
Ford North America $1,775 $ 1,588 $ 187 $ 1,936 $ 1,588 $ 348
Ford South America 96 (125) 221 96 (125) 221
------- ------- ------ ------- ------- ------
Total Americas 1,871 1,463 408 2,032 1,463 569
Ford Europe and PAG
Ford Europe 134 (1,225) 1,359 183 (1,169) 1,352
PAG (508) 57 (565) (485) 57 (542)
------ ------- ------ ------- ------- ------
Total Ford Europe and PAG (374) (1,168) 794 (302) (1,112) 810
Ford Asia Pacific and Africa/Mazda
Ford Asia Pacific and Africa 58 (49) 107 58 (49) 107
Mazda and Associated Operations 127 91 36 127 91 36
------ ------- ------ ------- ------- ------
Total Ford Asia Pacific and Africa/
Mazda 185 42 143 185 42 143
Other Automotive (578) (253) (325) (595) (253) (342)
------ ------- ------ ------- ------- ------
Total, excluding special items 1,320 140 1,180
Special items * (216) (56) (160)
------- ------- ------
Total Automotive $1,104 $ 84 $1,020 $ 1,104 $ 84 $1,020
====== ======= ====== ======= ======= ======
|
Details of Automotive sector sales and vehicle unit sales for the first nine months of 2004 and 2003 are shown below:
Sales Vehicle Unit Sales *
(in billions) (in thousands)
------------------------------------------ -------------------------------------------
2004 2004
Over/(Under) Over/(Under)
2004 2003 2003 2004 2003 2003
--------- ---------- ------------------- --------- --------- ---------------------
Americas
Ford North America $ 61.9 $60.8 $1.1 2% 2,710 2,788 (78) (3)%
Ford South America 2.1 1.2 0.9 75 209 148 61 41
----- ----- ---- -- ----- ----- --- --
Total Americas 64.0 62.0 2.0 3 2,919 2,936 (17) (1)
Ford Europe and PAG
Ford Europe 19.1 14.8 4.3 29 1,253 1,123 130 12
PAG 19.8 17.4 2.4 14 559 533 26 5
----- ----- ---- -- ----- ----- --- --
Total Ford Europe and PAG 38.9 32.2 6.7 21 1,812 1,656 156 9
Ford Asia Pacific and Africa 5.4 4.3 1.1 26 315 260 55 21
----- ----- ---- -- ----- ----- --- --
Total Automotive $108.3 $98.5 $9.8 10% 5,046 4,852 194 4%
====== ===== ==== == ===== ===== === ==
|
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Details of Automotive sector market share for selected markets for the first nine months of 2004 and 2003 are shown below:
2004
Over/(Under)
2004 2003 2003 Market
----------- ----------- ------------------- ------------------
Americas
Ford North America 18.0% 19.3% (1.3)pts. U.S. b/
Ford South America 11.3 11.4 (0.1) Brazil b/
Ford Europe and PAG a/
Ford Europe 8.9 8.8 0.1 Europe b/
PAG 1.3/2.3 1.3/2.1 0/0.2 U.S./Europe
Ford Asia Pacific 14.1 14.2 (0.1) Australia b/
|
The following discussion is based on Income/(Loss) Before Taxes Excluding Special Items. We believe this measure to be useful to investors because it excludes elements that we do not consider to be indicative of earnings from our on-going operating activities. As a result, it provides investors with a more relevant measure of the results generated by our operations.
Compared with the first nine months of 2003, the improvement in profit of $1.2 billion for the Automotive sector primarily reflected favorable cost performance (measured at constant volume, mix, and exchange), improved vehicle unit sales, and positive net pricing, partially offset by unfavorable changes in exchange rates.
The improved cost performance resulted from the following factors:
o manufacturing and engineering costs decreased by about $900 million,
primarily as a result of lower employment levels and the non-recurrence of
the UAW contract settlements incurred last year;
o overhead costs, which include administrative and staff support, decreased
by about $400 million, primarily as a result of lower employment levels
(excluding the impact of FIN 46 consolidations);
o net product costs decreased by about $200 million, primarily as a result of
design efficiencies and supplier negotiations;
o depreciation and amortization costs increased by about $600 million,
primarily as a result of new product programs;
o quality-related costs increased by about $100 million, primarily reflecting
the non-recurrence of favorable reserve adjustments for warranty and
additional service action costs in the year-ago period; and
o pension and retiree health care expenses were unchanged.
Ford North America. The improvement in profit for Ford North America primarily reflected improved product mix, positive net pricing, and favorable cost performance, partially offset by lower vehicle unit sales and unfavorable changes in exchange rates. Lower vehicle unit sales primarily reflected lower market share, partially offset by increased dealer stock levels and higher industry volumes.
Ford South America. The improvement in profit for Ford South America primarily reflected positive net pricing and higher industry volumes, partially offset by higher material cost.
Ford Europe. The improvement in profit for Ford Europe primarily reflected favorable cost performance, and higher vehicle unit sales. The increase in vehicle unit sales primarily reflected the strength of the Ford Focus C-Max model and higher sales in Turkey and Russia.
PAG. The decline in results for PAG primarily reflected unfavorable changes in exchange rates, unfavorable product mix, and the cost of launching new vehicles, offset partially by higher vehicle unit sales.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Ford Asia Pacific and Africa. The improvement in profit for Ford Asia Pacific and Africa primarily reflected favorable changes in exchange rates and higher vehicle unit sales, offset partially by negative net pricing.
Mazda and Associated Operations. The change primarily reflected improvements in our Mazda-related investments.
The increase in loss before income taxes for Other Automotive primarily reflected the reclassification of interest expense on our 6.50% Junior Subordinated Debentures due 2032 held by a subsidiary trust, Ford Motor Company Capital Trust II (prior to July 1, 2003, this interest expense was included in Minority interests in net income/(loss) of subsidiaries), lower interest income on tax refunds, and lower earnings on our cash and cash-like investments.
Details of Financial Services sector income before income taxes for the first nine months of 2004 and 2003 are shown below (in millions):
First Nine Months
Income/(Loss) Before Income Taxes
---------------------------------------------
2004
Over/(Under)
2004 2003 2003
---------- ------------ ----------------
Ford Credit $3,676 $2,196 $1,480
Hertz* 386 184 202
Other Financial Services 5 44 (39)
------- ------ ------
Total Financial Services sector $4,067 $2,424 $1,643
====== ====== ======
|
The improvement in earnings primarily resulted from improved credit loss performance and leasing results, offset partially by the impact of lower income related to sales of receivables. The improvement in leasing results primarily reflected higher used vehicle prices and a reduction in the percentage of vehicles returned to Ford Credit at lease termination.
Details of charge-offs and loss-to-receivables ratios for the first nine months of 2004 and 2003 are shown below:
First Nine Months
---------------------------------------------------
2004
Over/(Under)
2004 2003 2003
------------- ------------- ------------------
Charge-offs (in millions)
On-balance sheet $1,016 $1,410 $(394)
Managed 1,397 1,977 (580)
Loss-to-receivables ratio
On-balance sheet 1.05% 1.49% (0.44) pts.
On-balance sheet (including charge-offs
associated with reacquired receivables)* 1.10% 1.54% (0.44) pts.
|
The decrease of $394 million in charge-offs for the on-balance sheet portfolio primarily reflected lower repossessions and a lower average loss per repossession in the U.S. retail installment and operating lease portfolio.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
The following table summarizes the activity related to the off-balance
sheet sales of receivables reported as revenues for the periods indicated (in
millions):
First Nine Months
------------------------------------------------
2004
Over/(Under)
2004 2003 2003
----------- ------------- ------------------
Net gain on sales of receivables $ 150 $ 329 $ (179)
Interest income on sold wholesale receivables and
retained securities 467 545 (78)
Servicing fees 329 528 (199)
Excess spread and other 690 737 (47)
------- ------- --------
Investment and other income related to sales of
receivables 1,636 2,139 (503)
Less: Whole-loan income (71) (144) 73
------- ------- --------
Income related to off-balance sheet securitizations $ 1,565 $ 1,995 $ (430)
======= ======= ========
Memo:
Finance receivables sold $ 5,687 $15,648 $ (9,961)
Servicing portfolio as of period-end 43,400 55,020 (11,620)
Pre-tax gain per dollar of retail receivables sold 2.6% 2.1% 0.5 pts.
|
Investment and other income related to sales of receivables decreased $503 million. This decline primarily resulted from lower off-balance sheet retail receivables sales in 2004 and lower levels of outstanding sold receivables. Excluding the effects of whole-loan sale transactions, which totaled $10.4 billion in the 2002-2004 period, off-balance sheet securitization income declined $430 million.
The net impact of off-balance sheet securitizations on earnings in a given period will vary depending on the amount and type of receivables sold and the timing of the transactions in the current period and the preceding two-to-three year period, as well as the interest rate environment at the time the finance receivables were originated and securitized.
The following table shows, on an analytical basis, the earnings impact of off-balance sheet securitizations as if Ford Credit had reported them on-balance sheet and funded them through asset-backed financings for the periods indicated (in millions):
First Nine Months
-----------------------------------------------
2004
Over/(Under)
2004 2003 2003
----------- ------------ ------------------
Financing revenue
Retail revenue $ 1,889 $ 2,779 $(890)
Wholesale revenue 817 832 (15)
------- ------- -----
Total financing revenue 2,706 3,611 (905)
Borrowing cost (714) (1,198) 484
------- ------- -----
Net financing margin 1,992 2,413 (421)
Net credit losses (324) (511) 187
------- ------- -----
Income before income taxes $ 1,668 $ 1,902 $(234)
======= ======= =====
Memo:
Income related to off-balance sheet securitizations $ 1,565 $ 1,995 $(430)
Recalendarization impact of off-balance sheet
securitizations (103) 93 (196)
|
In the first nine months of 2004, the impact to earnings of off-balance sheet securitizations was $103 million lower than had these transactions been structured as on-balance sheet securitizations. This difference results from recalendarization effects caused by gain-on-sale accounting requirements. This effect will fluctuate as the amount of receivables sold in off-balance sheet securitizations increases or decreases over time and with changes in market conditions.
The improvement was primarily due to higher rental volume in the leisure and commercial car rental market segments, offset partially by lower pricing due to a highly competitive environment. Earnings were also favorably impacted by lower fleet costs, higher net proceeds received in excess of book value on the disposal of used vehicles and equipment and improved conditions in North America equipment rental operations.
Item 2. 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 by operations, funds raised in capital markets and committed credit lines.
Gross Cash. Automotive gross cash includes cash and cash equivalents, marketable and loaned securities and assets contained in a short-term Voluntary Employee Beneficiary Association trust ("VEBA") as detailed below (in billions):
2004 2003
-------------------------------- -------------------------------
September 30 January 1 September 30 January 1
----------------- ------------- ----------------- ------------
Cash and cash equivalents $ 6.7 $ 5.4 $ 6.8 $ 5.2
Marketable securities 10.3 10.8 12.2 17.4
Loaned securities 2.3 5.7 7.0 -
----- ----- ----- ------
Total cash, marketable and
Loaned securities 19.3 21.9 26.0 22.6
Short-term VEBA assets 4.1 4.0 0.9 2.7
----- ----- ----- ------
Gross cash $23.4 $25.9 $26.9 $ 25.3
===== ===== ===== ======
|
In managing our business, we classify changes in gross cash into four categories: operating-related (both including and excluding funded pension plan and long-term VEBA contributions and tax refunds), capital transactions with the Financial Services sector, acquisitions and divestitures and other (primarily financing related). Our key metric for operating-related cash flows is cash flows before funded pension plan and long-term VEBA contributions and tax refunds. This metric best represents the ability of our Automotive operations to generate cash. We believe the cash flows analysis reflected in the table below, which differs from a cash flows statement presented in accordance with GAAP, is useful to investors because it includes cash flows elements that we consider to be related to our operating activities (e.g., capital spending) that are not included in Cash flows from operating activities before securities trading, the most directly comparable GAAP financial measure.
Changes in Automotive gross cash for the third quarter and first nine months of 2004 and 2003 are summarized below (in billions):
Third Quarter First Nine Months
----------------------- -----------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
Gross cash at end of period $23.4 $26.9 $23.4 $26.9
Gross cash at beginning of period 26.8 28.7 25.9 25.3
----- ----- ----- -----
Total change in gross cash $(3.4) $(1.8) $(2.5) $ 1.6
===== ===== ===== =====
Operating-related cash flows
Automotive income/(loss) before income
taxes, excluding special items $(0.6) $(0.6) $ 1.3 $ 0.1
Capital expenditures (2.0) (2.2) (4.6) (5.6)
Depreciation and special tools amortization 1.6 1.3 4.8 4.0
Changes in receivables, inventory and trade payables 0.1 (0.9) (1.0) (1.4)
Other (2.0) (1.0) (1.0) 1.5
----- ----- ----- -----
Total operating-related cash flows before pension/
long-term VEBA contributions and tax refunds (2.9) (3.4) (0.5) (1.4)
Funded pension plans/long-term VEBA contributions a/ (1.5) (0.2) (3.0) (1.5)
Tax refunds - 0.6 - 1.4
----- ----- ----- -----
Total operating-related cash flows (4.4) (3.0) (3.5) (1.5)
Capital transactions with Financial Services sector b/ 1.5 1.2 3.4 2.8
Divestitures and acquisitions - 0.1 0.3 0.5
Other
Dividends paid to shareholders (0.2) (0.2) (0.5) (0.5)
Changes in total Automotive sector debt (0.3) (0.1) (2.0) 0.1
Other - (0.1) (0.2) (0.1)
Cash from FIN 46 consolidation - 0.3 - 0.3
----- ----- ----- -----
Total change in gross cash $(3.4) $(1.8) $(2.5) $ 1.6
===== ===== ===== =====
|
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Shown in the table below is a reconciliation between Cash flows from
operating activities before securities trading and operating-related cash flows,
calculated as shown in the table above, for the third quarter and first nine
months of 2004 and 2003 (in billions):
Third Quarter First Nine Months
------------------------- ------------------------
2004 2003 2004 2003
----------- ----------- ---------- ----------
Cash flows from operating activities
before securities trading $(2.2) $(0.9) $ 1.4 a/ $ 4.9 a/
Items included in operating-related cash flows
Capital expenditures (2.0) (2.2) (4.6) (5.6)
Net transactions between Automotive
and Financial Services sectors (0.4) 0.7 0.1 b/ 0.4 b/
Other 0.2 (0.6) (0.4) (1.2)
----- ----- ---- -----
Total operating-related cash flows $(4.4) $(3.0) $(3.5) $(1.5)
===== ===== ===== =====
|
Automotive operating-related cash flows, excluding contributions to our funded pension plans and long-term VEBA and excluding tax refunds, were negative $2.9 billion for the third quarter of 2004. This reflected the Automotive pre-tax loss excluding special items (about $600 million), capital spending net of depreciation and amortization (about $400 million), and other operating-related changes. The other operating-related changes were an outflow of $2 billion in the third quarter of 2004 due to the effects of seasonally lower vehicle production on marketing and warranty accruals compared with payments, the higher use of cash marketing incentives in lieu of interest rate incentives, and tax payments. These changes were offset partially by changes in receivables, inventory, and trade payables (positive cash flows of about $100 million).
Capital transactions with the Financial Services sector, primarily dividends received from Ford Credit, totaled $1.5 billion and $3.4 billion in the third quarter and first nine months of 2004, respectively.
Cash flows related to changes in Automotive sector debt in the third quarter of 2004 were an outflow of about $300 million, representing primarily the repurchase of senior debt in the open market. Through the first nine months of 2004, cash flows related to changes in Automotive sector debt were an outflow of $2 billion, which primarily represented the repurchase of $1.3 billion of senior debt (the majority of our purchases have been among four large issues, which have maturities between 2028 and 2032) and the redemption of our 9% Trust Originated Preferred Securities, which had the effect of reducing our subordinated debt by about $700 million.
Debt. At September 30, 2004, our Automotive sector had total senior debt of $13.6 billion, compared with $15.0 billion at December 31, 2003. The debt decrease primarily reflected the senior debt repurchases described above.
Ford Motor Company Capital Trust II ("Trust II") had outstanding $5.0 billion of trust preferred securities at September 30, 2004. The dividend and liquidation preferences on these securities are paid from interest and principal payments on our junior subordinated debentures held by Trust II in a principal amount of $5.2 billion.
Credit Facilities. At September 30, 2004, the Automotive sector had $7.2 billion of contractually committed credit agreements with various banks, of which $7.1 billion were available for use. 79% of the total facilities are committed through June 30, 2009. Of the $7.2 billion, $6.9 billion constitute global credit facilities and may be used, at our option, by any of our direct or indirect majority-owned subsidiaries on a guaranteed basis. We also have the ability to transfer, on a non-guaranteed basis, $2.5 billion of such global credit facilities to Ford Credit and $518 million to FCE Bank plc ("FCE"), Ford Credit's European operation. All of the global credit facilities are free of material adverse change clauses and restrictive financial covenants (e.g. debt-to-equity limitations, minimum net worth requirements and credit rating triggers that would limit our ability to borrow).
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Debt. Ford Credit's total debt was $135.3 billion at September 30, 2004, down $14.4 billion compared with December 31, 2003. This decrease primarily reflected repayment of maturing debt and lower asset levels, which reduced Ford Credit's funding needs. Ford Credit's unsecured commercial paper outstanding at September 30, 2004 totaled $8.5 billion, up $2.4 billion compared with December 31, 2003.
Funding. During the third quarter of 2004, Ford Credit issued $3.4 billion of long-term debt with maturities of one to 10 years, including about $2.5 billion of unsecured institutional funding and about $900 million of unsecured retail bonds. In addition, Ford Credit realized proceeds of $3.8 billion from sales of receivables in off-balance sheet securitizations.
Ford Credit expects its full-year 2004 public term funding requirements to be between $13 billion and $18 billion. In the first nine months of 2004, it completed about $13 billion of public term funding transactions. Because of significant available liquidity and Ford Credit's relatively smaller balance sheet size, during the third quarter Ford Credit purchased in open market transactions a small portion of its outstanding debt securities. Depending on market conditions, Ford Credit may continue repurchasing a portion of its outstanding debt securities during the remainder of 2004.
Leverage. Ford Credit uses leverage, or the debt-to-equity ratio, to make various business decisions, including establishing pricing for retail, wholesale, and lease financing, and assessing its capital structure. Ford Credit calculates leverage on a financial statement basis and on a managed basis.
Ford Credit's financial statement leverage is calculated from the components shown in the following table:
September 30, December 31,
2004 2003
----------------- ----------------
Total debt (in billions) $135.3 $149.7
Total stockholder's equity (in billions) 11.4 12.5
Financial statement leverage (to 1) 11.8 12.0
|
The decrease in the financial statement leverage resulted primarily from lower funding requirements.
Ford Credit's managed leverage is calculated from the components shown in the following table (in billions, except ratios):
September 30, December 31,
2004 2003
--------------- ----------------
Total debt $135.3 $149.7
Securitized off-balance sheet receivables outstanding 38.7 49.4
Retained interest in securitized
off-balance sheet receivables (9.5) (13.0)
Adjustments for cash and cash equivalents (10.1) (15.7)
Adjustments for SFAS No. 133 (3.6) (4.7)
------ ------
Adjusted debt $150.8 $165.7
====== ======
Total stockholder's equity
(including minority interest) $ 11.4 $ 12.5
Adjustment for SFAS No. 133 - 0.2
------ ------
Adjusted equity $ 11.4 $ 12.7
====== ======
Managed leverage (to 1) 13.2 13.0
|
Ford Credit's dividend policy is based in part on its strategy to maintain managed leverage in the lower end of the 13 - 14 to 1 range. Based on Ford Credit's profitability and managed receivable levels, it paid dividends of $3.4 billion in the first nine months of 2004.
Credit Facilities. For additional funding and to maintain liquidity, Ford Credit and its majority-owned subsidiaries, including FCE, have contractually committed credit facilities with financial institutions that totaled approximately $7.3 billion at September 30, 2004. This includes $4.4 billion of Ford Credit facilities ($3.9 billion global and $0.5 billion non-global) and $2.9 billion of FCE facilities ($2.7 billion global and $0.2 billion non-global).
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Approximately $0.7 billion of the total facilities were in use at September 30, 2004. Of the $7.3 billion, about 38% of these facilities are committed through June 30, 2009. The global credit facilities may be used, at Ford Credit's or FCE's option, by any of their direct or indirect majority-owned subsidiaries. Ford Credit or FCE, as the case may be, will guarantee any such borrowings. All of the global credit facilities are free of material adverse change clauses and restrictive financial covenants (for example, debt-to-equity limitations, minimum net worth requirements and credit rating triggers) that would limit Ford Credit's ability to borrow.
Additionally, at September 30, 2004, banks provided $18.9 billion of contractually committed liquidity facilities supporting two asset-backed commercial paper programs; $18.5 billion supported Ford Credit's FCAR program and $425 million supported Ford Credit's Motown NotesSM Program.
In addition, as of October 31, 2004, Ford Credit had entered into agreements with several bank-sponsored commercial paper issuers ("conduits") under which such conduits are contractually committed to purchase from Ford Credit, at Ford Credit's option, up to an aggregate of approximately $12.8 billion of receivables. The agreements have varying maturity dates between November 30, 2004 and October 13, 2005. As of October 31, 2004, approximately $3.6 billion of these conduit commitments have been utilized.
Debt and Cash. At September 30, 2004, Hertz had total debt of $8.9 billion, up $1.3 billion from December 31, 2003, reflecting seasonal rental fleet demand. During the first nine months of 2004, Hertz issued $1.9 billion of medium and long-term debt with maturities of three to 10 years. At September 30, 2004 and at December 31, 2003 commercial paper outstanding was $2.2 billion. At September 30, 2004, Hertz had cash and cash equivalents of $536 million, down from $610 million at December 31, 2003.
Hertz has an asset-backed securitization ("ABS") program for its domestic car rental fleet to reduce its borrowing costs and enhance its financing resources. As of September 30, 2004, $1.1 billion was outstanding under the ABS program consisting of $460 million of commercial paper and $600 million of medium-term notes.
Stockholders' Equity. Our stockholders' equity was $14.1 billion at September 30, 2004, up $2.4 billion from December 31, 2003. The increase primarily reflected net income of $3.4 billion less dividends of $549 million and other comprehensive loss of $380 million. See Note 8 of the Notes to the Financial Statements for further discussion of other comprehensive income/(loss).
Debt Ratings. In October 2004, Dominion Bond Rating Service Limited ("DBRS"), Fitch, Inc. ("Fitch"), Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Rating Services, a division of McGraw-Hill Companies, Inc. ("S&P"), each affirmed the long and short-term debt ratings of, and their outlook or trend for, Ford and Ford Credit. Also in October 2004, Fitch and Moody's affirmed the long and short-term ratings of, and their outlook or trend for, Hertz. In July 2004, DBRS affirmed the long and short-term debt ratings of Hertz and revised its trend to stable from negative. The ratings as of October 15, 2004 were as follows:
------------------------------------------------------------------------------------------------------------------------------
DBRS Fitch Moody's S&P
------- -------------------------- ---------------------------- ----------------------------- ----------------------------
Long- Short- Long- Short- Long- Short- Long- Short-
Term Term Trend Term Term Outlook Term Term Outlook Term Term Outlook
------- ------- -------- ------- ------- -------- --------- ------- -------- ---------- ------- -------- ---------
Ford BBB R-1 Stable BBB+ F2 Stable Baa1 P-2 Negative BBB- A-3 Stable
(high) (low)
------- ------- -------- ------- ------- -------- --------- ------- -------- ---------- ------- -------- ---------
Ford BBB R-1 Stable BBB+ F2 Stable A3 P-2 Negative BBB- A-3 Stable
Credit (high) (low)
------- ------- -------- ------- ------- -------- --------- ------- -------- ---------- ------- -------- ---------
Hertz BBB R-1 Stable BBB+ F2 Stable Baa2 P-2 Negative BBB- A-3 Stable
(high) (low)
------------------------------------------------------------------------------------------------------------------------------
|
OFF-BALANCE SHEET ARRANGEMENTS
Special Purpose Entities. At September 30, 2004, the total outstanding principal amount of receivables sold by Ford Credit and held by off-balance sheet securitization entities was $38.7 billion, down $10.7 billion from December 31, 2003. Ford Credit's retained interests in such sold receivables at September 30, 2004 were $9.5 billion, down $3.5 billion from December 31, 2003. The decrease in receivables held by off-balance sheet securitization entities primarily reflected Ford Credit's lower funding requirements. The decrease in retained interests primarily reflected a
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
seasonal decline in dealer stocks, which lowered the amount of wholesale receivables held in the trust for future sale, and lower retained retail securities, reflecting lower levels of outstanding sold receivables.
OUTLOOK
Shown below are our 2004 planning assumptions and our milestones for
operational metrics and financial results, as well as our outlook for achieving
these milestones:
Full Year
Milestone Outlook
--------- -------
Planning Assumptions
--------------------
Industry volume (SAAR) - U.S. 17.0 million units 17.2
Europe 16.9 million units 17.3
Operation Metrics
-----------------
Quality Improve in all regions On Track
Market share Flat or improve in all regions Mixed
Automotive cost performance a/ Improve by at least $500 million $1 Billion
Capital spending $7 billion Lower
Operating-related cash flows b/ $1.2 billion positive At Risk
Financial Results Pre-tax income c/
----------------- --------------
(in billions)
Automotive
Americas
Ford North America $ 1.5 - $ 1.7 On Track
Ford South America (0.1) - 0 Better
Ford Europe/PAG
Ford Europe (0.2) - (0.1) Better
PAG 0.5 - 0.6 Worse
Ford Asia Pacific and Africa
/Mazda 0 - 0.1 Better
----- -----
Total Automotive 0.9 - 1.1 On Track
Financial Services 2.6 - 2.7 Better
----- -----
Total Company $ 3.5 - $ 3.8 Better
===== =====
|
We continue to expect the Automotive sector to achieve about $1 billion of pre-tax income from continuing operations, excluding special items, in 2004. We expect to meet the milestone for Ford North America and to exceed the milestones for Ford Europe, Ford South America and Ford Asia Pacific and Africa/Mazda. We expect PAG to continue to improve from the third quarter to the fourth, but full-year results will be a loss. Because of Ford Credit's continued better-than-expected performance, we expect to exceed significantly the Financial Services sector milestone. Overall, we expect to exceed significantly our total company milestone for pre-tax income. Special items, including costs related to our investment in Ballard Power Systems Inc. and improvement actions in our Ford Europe and PAG business units, are presently estimated to reduce full-year earnings by $0.13 per share.
Visteon Corporation is our largest supplier, and it also utilizes about 18,000 Ford employees in its U.S. hourly workforce as of September 30, 2004. We continue to work with Visteon to identify changes that would improve the efficiency and operating results of both companies. Significant changes in Visteon's business inevitably have an impact on us.
On October 4, 2004, President Bush signed the "Working Families Tax Relief Act of 2004", which retroactively reinstated the research tax credit to the June 30, 2004 expiration date. The reinstatement of the research tax credit will be reflected in our fourth quarter results and will reduce the reported fourth quarter effective tax rate. As a result, we anticipate our full-year effective tax rate to be about 25%.
Based on the foregoing and subject to the risks described under "Risk Factors" below, we expect full-year per share earnings to be in the range of $2.00 to $2.05 per share from continuing operations, excluding special items.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
RISK FACTORS
Statements included or incorporated by reference herein may constitute "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from those stated, including, without limitation:
o greater price competition resulting from currency fluctuations, industry
overcapacity or other factors;
o a significant decline in industry sales, particularly in the U.S. or
Europe, resulting from slowing economic growth, geo-political events or
other factors;
o lower-than-anticipated market acceptance of new or existing products;
o economic distress of suppliers that may require us to provide financial
support or take other measures to ensure supplies of materials;
o work stoppages at Ford or supplier facilities or other interruptions of
supplies;
o the discovery of defects in vehicles resulting in delays in new model
launches, recall campaigns or increased warranty costs;
o increased safety, emissions, fuel economy or other regulation resulting in
higher costs and/or sales restrictions;
o unusual or significant litigation or governmental investigations arising
out of alleged defects in our products or otherwise;
o worse-than-assumed economic and demographic experience for our
postretirement benefit plans (e.g., investment returns, interest rates,
health care cost trends, benefit improvements);
o currency or commodity price fluctuations, including rising steel
prices;
o changes in interest rates;
o a market shift from truck sales in the U.S.;
o economic difficulties in any significant market;
o higher prices for or reduced availability of fuel;
o labor or other constraints on our ability to restructure our business;
o a change in our requirements under long-term supply arrangements under
which we are obligated to purchase minimum quantities or pay minimum
amounts;
o credit rating downgrades;
o inability to access debt or securitization markets around the world at
competitive rates or in sufficient amounts;
o higher-than-expected credit losses;
o lower-than-anticipated residual values for leased vehicles;
o increased price competition in the rental car industry and/or a general
decline in business or leisure travel due to terrorist attacks, acts of
war, epidemic disease or measures taken by governments in response thereto
that negatively affect the travel industry; and
o our inability to implement the Revitalization Plan.
OTHER FINANCIAL INFORMATION
The interim financial information included in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 has not been audited by PricewaterhouseCoopers LLP ("PwC"). In reviewing such information, PwC has applied limited procedures in accordance with professional standards for reviews of interim financial information. Accordingly, you should restrict your reliance on their reports on such information. PwC is not subject to the liability provisions of Section 11 of the Securities Act of 1933 for their reports on the interim financial information because such reports do not constitute "reports" or "parts" of the registration statements prepared or certified by PwC within the meaning of Sections 7 and 11 of the Securities Act of 1933.
Evaluation of disclosure controls and procedures. William Clay Ford, Jr., our Chief Executive Officer, and Donat R. Leclair, our Chief Financial Officer, have performed an evaluation of the Company's disclosure controls and procedures, as that term is defined in Rule 13a-15 (e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as of September 30, 2004 and each has concluded that such disclosure controls and procedures are effective to ensure that information required to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified by the Securities and Exchange Commission's rules and regulations.
Change in internal controls. No changes in the Company's internal controls over financial reporting occurred during the quarter ended September 30, 2004 that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.
PART II - OTHER INFORMATION
Buell-Wilson v. Ford. (Previously discussed on page 31 of the Quarterly Report on Form 10-Q for the quarter ended June 30, 2004 ("Second Quarter 10-Q Report")) On August 19, 2004, the trial court granted Ford's post-trial motions in part, reducing the compensatory verdicts to a total of $75 million, and reducing the punitive verdict to $75 million, for a total of $150 million in damages. We have filed a notice of appeal with the California Court of Appeals.
Crown Victoria Police Interceptor Class Actions. (Previously discussed on page 29 of the 10-K Report) The jury phase of the trial in the Crown Victoria Police Interceptor class action in Illinois state court resulted in a defense verdict; three counts remain for resolution by the judge.
Wixom Assembly Plant Notice of Violation Regarding Air Emissions (Previously discussed on page 27 of the 10-K Report) In August 2004, Ford agreed to an Administrative Consent Order with the Michigan Department of Environmental Quality ("DEQ") that will resolve the notice of violation. Under the Order, Ford will pay the DEQ $55,000, which includes DEQ's costs for the investigation and enforcement action, and the Wixom Plant will implement a Malfunction Abatement Plan to address abatement equipment malfunctions.
Chicago Assembly Plant Notice of Violation Regarding Waste Handling On August 23, 2004, the United States Environmental Protection Agency ("EPA"), Region Five, issued a letter notifying Ford of its intent to file an administrative complaint for civil penalties based on an initial determination that Ford's Chicago Assembly Plant violated certain requirements of the Resource Conservation and Recovery Act. The EPA's allegations arise out of an EPA inspection of the Chicago Assembly Plant conducted in November 2002. The violations alleged by EPA include: improper hazardous waste handling and storage, improper waste characterizations and manifesting, and failure to conduct and record certain tank and storage area inspections. Ford and the EPA will likely meet prior to the end of the year to discuss this matter.
Securities and Exchange Commission Inquiry On October 14, 2004, the Enforcement Division of the Securities and Exchange Commission ("SEC") notified Ford that it was conducting an inquiry into the methodology used to account for pensions and other post-employment benefits. The SEC informed us that we were one of several issuers to receive a request for information as part of this inquiry.
During the third quarter of 2004, we purchased shares of our Common Stock
as follows:
Total Number of Maximum Number (or
Shares Purchased as Approximate Dollar Value) of
Total Number of Average Part of Publicly Shares that May Yet Be
Shares Price Paid Announced Plans or Purchased Under the Plans or
Period Purchased a/ per Share Programs Programs
--------------------------- ------------------ ------------ ----------------------- -------------------------------
July 1, 2004
through No publicly announced
July 31, 2004 1,448,176 $14.92 0 repurchase program in place
August 1, 2004
through No publicly announced
August 31, 2004 1,646,590 $14.19 0 repurchase program in place
September 1, 2004
through No publicly announced
September 30, 2004 1,593,016 $14.05 0 repurchase program in place
--------- -
No publicly announced
Total 4,687,782 $14.37 0 repurchase program in place
========= =
|
a/ We currently do not have a publicly announced repurchase program in place.
Of the 4,687,782 shares purchased, 4,683,100 shares were purchased from the
Ford Motor Company Savings and Stock Investment Plan for Salaried Employees
("SSIP") and the Tax Efficient Savings Plan for Hourly Employees
("TESPHE"). Shares are generally purchased from the SSIP and TESPHE when
participants in those plans elect to sell units in the Ford Stock Fund upon
retirement, upon termination of employment with the Company, related to an
in-service distribution, or to fund a loan against an existing account
balance in the Ford Stock Fund. Shares are not purchased from these plans
when a participant transfers account balances out of the Ford Stock Fund
and into another investment option under the plans. The remaining shares
were acquired from our employees in accordance with our various
compensation plans as a result of required share withholdings to pay income
taxes with respect to (i) the lapse of restrictions on restricted stock,
(ii) the issuance of stock as a result of the conversion of restricted
stock equivalents awarded to our executives or directors, or to pay the
exercise price and related income taxes with respect to the exercise of a
stock option.
Motor Vehicle Fuel Economy - U.S. Requirements (Previously discussed on page 17 of the 10-K Report and page 32 of the Second Quarter 10-Q Report) In September 2004, the California Air Resources Board ("CARB") passed a resolution approving a plan to issue regulations by the end of the year aimed at controlling greenhouse gas emissions from motor vehicles. This resolution paves the way for rules that would take effect beginning in the 2009 model year and impose standards that could be equivalent to a Corporate Average Fuel Economy ("CAFE") standard of more than 43 miles per gallon for passenger cars, and approximately 27 miles per gallon for light trucks by model year 2016. The Alliance of Automobile Manufacturers and individual companies, including Ford, have submitted extensive comments opposing the rules and addressing errors in CARB's underlying economic and technical analyses. CARB is in the process of completing additional procedural requirements necessary to finalize the rules. The industry is continuing to participate in the administrative process while evaluating its options for responding to the rules.
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