FORM 10-K
(Mark One) | ||
x
|
Annual Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
For the fiscal year ended December 31, 2003 | ||
or | ||
o
|
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 1-3950 |
38-0549190
(I.R.S. employer identification no.)
48126
(Zip code)
313-322-3000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Name of each exchange on which registered(a) | |
|
|
|
Common Stock, par value $.01 per share | New York Stock Exchange | |
Pacific Coast Stock Exchange | ||
7.50% Notes Due June 10, 2043
|
New York Stock Exchange | |
Ford Motor Company Capital Trust II
6.50% Cumulative Convertible Trust Preferred Securities, liquidation preference $50 per share |
New York Stock Exchange |
(a) | In addition, shares of Common Stock of Ford are listed on certain stock exchanges in Europe. |
Securities registered pursuant to Section 12(g) of the Act:
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. Yes ü No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ü
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes ü No
As of June 30, 2003, Ford had outstanding 1,762,162,479 shares of Common Stock and 70,852,076 shares of Class B Stock. Based on the New York Stock Exchange Composite Transaction closing price of the Common Stock on that date ($10.99 a share), the aggregate market value of such Common Stock was $19,366,165,644. Although there is no quoted market for our Class B Stock, shares of Class B Stock may be converted at any time into an equal number of shares of Common Stock for the purpose of effecting the sale or other disposition of such shares of Common Stock. The shares of Common Stock and Class B Stock outstanding at June 30, 2003 included shares owned by persons who may be deemed to be affiliates of Ford. We do not believe, however, that any such person should be considered to be an affiliate. For information concerning ownership of outstanding Common Stock and Class B Stock, see the Proxy Statement for Fords Annual Meeting of Stockholders to be held on May 13, 2004 (our Proxy Statement), which is incorporated by reference under various Items of this Report.
As
of February 27, 2004, Ford had outstanding 1,760,536,756
shares of Common Stock and 70,852,076 shares of Class B
Stock. Based on the New York Stock Exchange Composite
Transaction closing price of the Common Stock on that date
($13.75 a share), the aggregate market value of such Common
Stock was $24,207,380,395.
DOCUMENT INCORPORATED BY REFERENCE*
Document
Where Incorporated
Part III (Items 10, 11, 12, 13 and 14)
* | As stated under various Items of this Report, only certain specified portions of such document are incorporated by reference in this Report. |
PART I
ITEM 1. BUSINESS
Ford Motor Company (referred to herein as
Ford, the Company, we,
our or us) was incorporated in Delaware
in 1919. We acquired the business of a Michigan company, also
known as Ford Motor Company, incorporated in 1903 to produce and
sell automobiles designed and engineered by Henry Ford. We are
one of the worlds largest producers of cars and trucks
combined. We and our subsidiaries also engage in other
businesses, including financing and renting vehicles and
equipment.
In addition to the information about Ford and its
subsidiaries contained in this Report, extensive information
about our Company can be found throughout our website located at
www.ford.com, including information about our management team,
our brands and products, and our corporate governance principles.
The corporate governance information on our
website includes our Corporate Governance Principles, our Code
of Ethics for Senior Financial Personnel, our Code of Ethics for
Directors, our Standards of Corporate Conduct for all employees,
and the Charters for each of our Board Committees. In addition,
amendments to, and waivers granted to our directors and
executive officers under, our Codes of Ethics, if any, will be
posted in this area of our website. These corporate governance
documents can be accessed by logging onto our website and
clicking on the Corporate Governance link.
You will then see a list of corporate governance
documents. Click on the document you desire to access. In
addition, printed versions of our Corporate Governance
Principles, our Code of Ethics for Senior Financial Personnel,
our Standards of Corporate Conduct and the Charters for each of
our Board Committees can be obtained, free of charge, by writing
to our Shareholder Relations Department, Ford Motor Company, One
American Road, P.O. Box 1899, Dearborn, Michigan 48126-1899.
In addition to the Company information discussed
above provided on our website, all of our periodic report
filings with the Securities and Exchange Commission
(SEC) pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended, are made available,
free of charge, through our website, including our annual report
on Form 10-K, quarterly reports on Form 10-Q, and
current reports on Form 8-K, and any amendments to those
reports. Also, each Section 16 filing made with the SEC by
the Company or any of its executive officers or directors with
respect to our common stock are made available, free of charge,
through our website. The periodic reports and amendments and the
Section 16 filings are available through our website as
soon as reasonably practicable after such report or amendment is
electronically filed with the SEC.
To access our SEC reports or amendments or the
Section 16 filings, log onto our website and click on the
following link on each successive screen.
You will then see a list of reports filed with
the SEC. Click on the report you desire to access.
The foregoing information regarding our website
and its content is for your convenience only. The content of our
website is not deemed to be incorporated by reference in this
report or filed with the SEC.
Overview
Segments
. Our
business is divided into two business sectors: the Automotive
sector and the Financial Services sector. We manage these
sectors as four primary operating segments as described below.
We provide financial information (such as,
revenues, income, and assets) for each of these business sectors
and operating segments in three areas of this Report:
(1) Item 6. Selected Financial Data on
page 32; (2) Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations on pages 33 through 67, and
(3) Notes 2, 20 and 21 of the Notes to Financial
Statements located at the end of this Report. Financial
information relating to certain geographic areas is also
included in the above-mentioned Notes.
Revitalization Plan
.
Following an extensive review of all of our operations, in
particular those in North and South America, on January 11,
2002, we announced a revitalization plan (the
Revitalization Plan) that included the following
elements:
2
Progress on Revitalization
Plan
. Overall, we are on track to
achieve the objectives contained in our Revitalization Plan. For
a discussion of our progress with respect to the Revitalization
Plan, see Item 7. Managements Discussion and
Analysis of Financial Condition and Results of
Operations Overview.
Automotive Sector
General
We sell cars and trucks throughout the world. In
2003, we sold 6,724,000 vehicles throughout the world. Our
automotive vehicle brands include Ford, Mercury, Lincoln, Volvo,
Jaguar, Land Rover, and Aston Martin.
Substantially all of our cars, trucks and parts
are marketed through retail dealers in North America, and
through distributors and dealers outside of North America. At
December 31, 2003, the approximate number of dealers and
distributors worldwide distributing our vehicle brands was as
follows: Ford, 10,651; Mercury, 2,016; Lincoln, 1,544; Volvo,
2,277; Jaguar, 814; Land Rover, 1,524; Aston Martin, 104.
Because many of these dealerships distribute more than one of
our brands from the same sales location, a single dealership may
be counted under more than one brand. In addition to the
products we sell to our dealers for retail sale, we also sell
cars and trucks to our dealers for sale to fleet customers,
including daily rental car companies, commercial fleet
customers, leasing companies and governments. Sales to all of
our fleet customers in the United States in the aggregate have
represented between 22% and 23% of our total United States car
and truck sales for the last five years. We do not depend on any
single customer or small group of customers to the extent that
the loss of such customer or group of customers would have a
material adverse effect on our business.
In addition to producing and selling cars and
trucks, we also provide retail customers with a wide range of
after-the-sale vehicle services and products through our dealer
network, in areas such as maintenance and light repair, heavy
repair, collision, vehicle accessories and extended service
warranty. In North America, we market these products and
services under several brands including Genuine Ford and
Lincoln-Mercury Parts and Service
SM
, Ford Extended
Service Plan
SM
(ESP), and Motorcraft
SM
.
3
The worldwide automotive industry, Ford included,
is affected significantly by a number of factors over which we
have little control, including general economic conditions. The
automotive industry is a highly-competitive, cyclical business
that has a wide variety of product offerings. The number of cars
and trucks sold (commonly referred to as industry
demand) can vary substantially from year to year. In any
year, industry demand depends largely on general economic
conditions, the cost of purchasing and operating cars and
trucks, and the availability and cost of credit and fuel.
Industry demand also reflects the fact that cars and trucks are
durable items that people generally can wait to replace.
Our unit sales vary with the level of total
industry demand and our share of that industry demand. Our share
is influenced by how our products compare with those offered by
other manufacturers based on many factors, including price,
quality, styling, reliability, safety, and functionality. Our
share also is affected by our timing of new model introductions
and manufacturing capacity limitations. Our ability to satisfy
changing consumer preferences with respect to type or size of
vehicle, as well as design and performance characteristics, can
impact our sales and earnings significantly.
The profitability of vehicle sales is affected by
many factors, including the following:
Further, because Ford and other manufacturers
have a high proportion of costs that are fixed (including
relatively fixed labor costs), small changes in unit sales
volumes can significantly affect overall profitability.
In addition, the automobile industry continues to
face a very competitive pricing environment, driven in part by
industry excess capacity. For the past several decades,
manufacturers typically have given price discounts and other
marketing incentives to purchasers to maintain production levels
and market shares. A discussion of our revenue management
strategy to compete in this pricing environment is set forth
below in Item 7. Managements Discussion and
Analysis of Financial Condition and Results of
Operations Overview.
Competitive
Position
. The worldwide automotive
industry consists of many producers, with no single dominant
producer. Certain manufacturers, however, account for the major
percentage of total sales within particular countries,
especially their countries of origin. Detailed information
regarding our competitive position in the principal markets
where we compete can be found below as part of the overall
discussion of the automotive industry in those markets.
Seasonality
. We
generally record the sale of a vehicle (and recognize sales
proceeds in revenue) when it is produced and shipped to our
customer (i.e., our dealer or distributor). We manage our
vehicle production schedule based on a number of factors,
including dealer stock levels (i.e., number of units held in
inventory by our dealers and distributors for sale to retail and
fleet customers) and retail sales (i.e., units sold by our
dealers and distributors to their customers at retail). There
generally is no material seasonal impact on our production
levels or the overall business. To the extent that we do
experience some fluctuation in the business of a seasonal
nature, it has generally occurred in the second and third
quarters and primarily is the result of the annual
4
two to three week summer shutdown of our
manufacturing facilities during the third quarter. This downtime
is used to prepare our manufacturing facilities for the annual
new model year changeover. Typically, production is higher in
the second quarter in anticipation of the shutdown and lower in
the third quarter due to the two to three weeks of downtime. As
a result, operating results for the third quarter typically are
less favorable than those of the other quarters.
Raw Materials
. We
purchase a wide variety of raw materials for use in the
production of our vehicles from numerous suppliers around the
world. These raw materials include non-ferrous metals (e.g.,
aluminum), precious metals (e.g., palladium, platinum and
rhodium), ferrous alloys (e.g., steel), energy (e.g., natural
gas) and resins (e.g., polypropylene). We believe that we have
adequate supplies or sources of availability of the raw
materials necessary to meet our needs. However, there are risks
and uncertainties with respect to the supply of certain of these
raw materials that could impact their availability in sufficient
quantities to meet our needs.
Backlog Orders
. We
generally produce and ship our products on average within
approximately 20 days after an order is deemed to become
firm. Therefore, no significant amount of backlog orders
accumulates during any period.
Intellectual
Property
. We own, or hold licenses to
use, numerous patents, copyrights and trademarks on a global
basis. Our policy is to protect our competitive position by,
among other methods, filing U.S. and international patent
applications to protect technology and improvements that we
consider important to the development of our business. As such,
we have generated a large number of patents related to the
operation of our business and expect this portfolio to continue
to grow as we actively pursue additional technological
innovation. We currently have over 11,000 active patents and
pending patent applications globally, with an average age for
patents in our active patent portfolio being 5 years. In
addition to this intellectual property, we also rely on our
proprietary knowledge and ongoing technological innovation to
develop and maintain our competitive position. While we believe
these patents, patent applications and know-how, in the
aggregate, to be important to the conduct of our business, and
we obtain licenses to use certain intellectual property owned by
others, none is individually considered material to our
business. Similarly, we own numerous trademarks and service
marks that contribute to the identity and recognition of our
company and its products and services globally. Certain of these
marks are integral to the conduct of our business, the loss of
which could have a material adverse effect on our business.
United States
Sales Data
. The
following table shows U.S. industry sales of cars and
trucks for the years indicated:
We classify cars by small, medium, large and
premium segments and trucks by compact pickup, bus/van
(including minivans), full-size pickup, sport utility vehicles
and medium/ heavy segments. However, with the introduction of
crossover or hybrid vehicle lines, the distinction between
traditional cars and trucks has become more difficult to draw
and these vehicles are not consistently classified as either by
the various manufacturers. In the tables below, crossover
vehicles have been classified as sport utility vehicles. The
term bus as used in this discussion refers to vans
designed to carry
5
passengers. The following tables show the
proportion of United States car and truck unit sales by segment
for the industry (including both domestic and foreign-based
manufacturers) and Ford (including all of our brands sold in the
U.S.) for the years indicated:
As the tables above indicate, there has been a
general shift from cars to trucks for both industry sales and
Ford sales. This shift has been occurring gradually over a
number of years. Fords sales of trucks as a percentage of
its total vehicle sales has also increased since 1999 because of
higher sales of sport utility vehicles and full-size pickups.
Fords sales of the small and medium car segment as a
percentage of its total sales has deteriorated more than the
general decline of the industry sales in these segments because
of the discontinuance of certain product offerings (e.g., Ford
Escort, Mercury Cougar, Ford Contour and Mercury Mystique) and
reduction in low-margin daily rental car business. Fords
sales of the premium car segment as a percentage of total Ford
6
U.S. car sales has increased since 1998
because of the addition of Volvo vehicles as a result of our
purchase of Volvo Car Corporation on March 31, 1999 and
expansion of our Jaguar car product offerings. The decline in
premium car sales in 2003 primarily reflects the discontinuance
of certain product offerings (e.g. Lincoln Continental).
Market Share Data
.
Our principal competitors in the United States include General
Motors Corporation, DaimlerChrysler Corporation, Toyota
Corporation, and Honda Motor Corporation. The following tables
show changes in car and truck United States market shares for
Ford (including all of our brands sold in the U.S.) and the
other four leading vehicle manufacturers for the years
indicated. The percentages in each of the following tables
represent the percentage of the combined car and truck industry.
_______________
7
The decline in overall market share for Ford
since 1999 is primarily the result of increased competition and,
in particular, an increased number of new competitive truck
product offerings. In addition, this decline also reflects
actions we have taken to improve our profitability, including
the discontinuance of a number of vehicles and a planned
reduction in low-margin daily rental car sales.
Fleet Sales
. The
sales data and market share information provided above include
both retail and fleet sales. Fleet sales include sales to daily
rental car companies, commercial fleet customers, leasing
companies and governments. Fleet sales generally are less
profitable than retail sales and, within the fleet sales
category, sales to daily rental car companies generally are less
profitable than sales to other fleet purchasers.
The table below shows our fleet sales in the
United States, and the amount of those sales as a percentage of
our total United States car and truck sales, for the last five
years.
As the table above indicates, sales to daily
rental car companies are down for the third consecutive year.
This decline reflects primarily the continued execution of our
strategy of reducing sales to daily rental car companies to
improve our overall profitability. The decline in Commercial and
Other Units Sold reflects, in part, a broad weakness in this
segment driven by difficult economic conditions.
Warranty Coverage and Additional Service
Actions
. We presently provide warranty
coverage for defects in factory-supplied materials and
workmanship on all vehicles in the United States. The warranty
coverage for Ford/Mercury vehicles generally extends for
36 months or 36,000 miles (whichever occurs first) and
covers components of the vehicle, including tires beginning
January 1, 2001 for 2001 and later model years. Prior to
January 1, 2001, tires were warranted only by the tire
manufacturers. The United States warranty coverage for luxury
vehicles (Lincoln, Jaguar, Volvo and Land Rover) extends for
48 months or 50,000 miles (whichever occurs first) but,
except for 2001 or later model year Lincoln and Volvo vehicles,
does not include tires, which are warranted by the tire
manufacturers. Warranty coverage for safety restraint systems
(safety belts, air bags and related components) extends for
60 months or 50,000 miles (whichever occurs first), except
on Volvo vehicles, which is 60 months/ unlimited mileage.
Also, corrosion damage resulting in perforation (holes) in body
sheet metal panels is covered on 1995 and newer models for
60 months/ unlimited mileage, with 72 months/
unlimited mileage on Jaguar/Land Rover products and
96 months/ unlimited mileage on Volvo vehicles. In
addition, the Federal Clean Air Act requires warranty coverage
for 8 years or 80,000 miles (whichever occurs first) for
emissions equipment (e.g., catalytic converter and powertrain
control module) on most light duty vehicles sold in the United
States. As a result of these warranties, costs for warranty
repairs can be substantial.
In addition to the costs associated with the
contractual warranty coverage provided on our vehicles, we also
incur costs as a result of additional service actions not
covered by our warranties, including product recalls and
customer satisfaction actions.
Estimated warranty costs and additional service
action costs for each vehicle sold by us are accrued at the time
of sale. Accruals for estimated warranty costs and additional
service action costs are subject to adjustment from time to time
depending on actual experience.
8
For additional information with respect to costs
for warranty and additional service actions, see Item 7.
Managements Discussion and Analysis of Financial
Condition and Results of Operations Critical
Accounting Estimates and Note 23 of the Notes to
Financial Statements.
Europe
Market Share
Information
. Outside of the United
States, Europe is our largest market for the sale of cars and
trucks. We consider Europe to consist of the following 19
markets: Britain, Germany, France, Italy, Spain, Austria,
Belgium, Ireland, Netherlands, Portugal, Switzerland, Finland,
Sweden, Denmark, Norway, Czech Republic, Greece, Hungary and
Poland. The automotive industry in Europe is intensely
competitive. Our principal competitors in Europe include General
Motors Corporation, DaimlerChrysler Corporation, Volkswagen
A.G., PSA, Renault Group, Fiat SPA and Toyota Corporation. For
the past 10 years, the top six manufacturers have
collectively held between 72% and 78% of the total car market.
This competitive environment is expected to intensify further as
Japanese manufacturers increase their production capacity in
Europe, and all of the other (non-Ford) manufacturers of premium
brands (e.g., BMW, Mercedes Benz and Audi) continue to broaden
their product offerings. For a discussion of restructuring
actions taken in Europe in 2003, see Item 7.
Managements Discussion and Analysis of Financial
Condition and Results of Operations.
In 2003, vehicle manufacturers sold approximately
17.1 million cars and trucks in Europe, down 1% from 2002
levels. Our combined car and truck market share in Europe
(including all of our brands sold in Europe) in 2003 was 10.7%,
down about 0.2 percentage points from 2002.
Britain and Germany are our most important
markets within Europe, although the Southern European countries
are becoming increasingly significant. Any adverse change in the
British or German market has a significant effect on our total
European automotive profits. For 2003 compared with 2002, total
industry sales were up 2.0% in Britain and down 0.6% in Germany.
Our combined car and truck market share in these markets
(including all of our brands sold in these markets) in 2003 was
19.7% in Britain (down 0.9 percentage points from last
year) and 8.6% in Germany (down 1.1 percentage points from
a year ago).
Marketing
Incentives
. The automotive industry in
Europe continues to be intensely competitive. In Europe in 2003,
increased competition resulted in substantial retail and fleet
incentive spending on the part of Ford and most manufacturers,
particularly in our key European market of Britain. Similar to
the United States, marketing costs in Europe include primarily
(i) marketing incentives on vehicles, such as rebates and
costs for special financing and lease programs,
(ii) accruals for costs and/or losses associated with our
required repurchase of certain vehicles sold to daily rental car
companies, and (iii) costs for advertising and sales
promotions for vehicles. We utilize revenue management
strategies in Europe consistent with those in the United States.
A discussion of our revenue management strategy is set forth
below in Item 7. Managements Discussion and
Analysis of Financial Condition and Results of
Operations Overview.
Motor Vehicle Distribution in
Europe
. On October 1, 2002, the
Commission of the European Union adopted a new regulation that
changes the way motor vehicles are sold and repaired throughout
the European Community (the Block Exemption
Regulation). Under the Block Exemption Regulation,
manufacturers had the choice to either operate an
exclusive distribution system with exclusive dealer
sales territories, but possible sales to any reseller (e.g.,
supermarket chains, internet agencies and other resellers not
authorized by the manufacturer), who in turn could sell to end
customers both within and outside of the dealers exclusive
sales territory, or a selective distribution system.
We, as well as the vast majority of the other
automotive manufacturers, have elected to establish a
selective distribution system, allowing us to
restrict the dealers ability to sell our vehicles to
unauthorized resellers. In addition, under the
selective distribution system, we are
9
entitled to determine the number of our dealers,
but beginning in October 2005, not their location. Under either
system, the new rules make it easier for a dealer to display and
sell multiple brands in one store without the need to maintain
separate facilities. Within this new regulation, the Commission
also has adopted sweeping changes to the repair industry.
Dealers can no longer be required by the manufacturer to perform
repair work themselves. Instead, dealers can subcontract the
work to independent repair shops that meet reasonable criteria
set by the manufacturer. These authorized repair facilities can
perform warranty and recall work, in addition to other repair
and maintenance work. While a manufacturer can continue to
require the use of its parts in warranty and recall work, the
repair facility can use parts made by others that are of
comparable quality for all other repair work. We have negotiated
and implemented new Dealer, Authorized Repairer and Spare Part
Supply contracts on a country-by-country level and, therefore,
the Block Exemption Regulation now applies with respect to all
of our dealers.
With these new rules, the Commission intends to
increase competition and narrow car price differences from
country to country. At this time it is difficult to quantify the
full impact of these changes on our European operations.
However, in the first year of its existence, the Block Exemption
Regulation has contributed to an even more competitive
environment in Europe, which, in turn, has contributed to a
significant increase in marketing incentives, thus adversely
affecting our profitability in Europe.
Warranty Coverage and Additional Service
Actions
. Beginning in January 2002,
warranty coverage provided by volume manufacturers (including
Ford) in most of our European markets increased from one year
with unlimited mileage to two years with unlimited mileage. This
increase in warranty coverage was prompted by new consumer laws
in eleven of the 19 European markets that granted private
buyers a two-year period in which to pursue defects in goods
(including vehicles and substantial components). Prior to
January 2002, Ford provided warranty coverage on Jaguar and
Volvo brand (only in Britain) vehicles that extended for
36 months or 60,000+ miles and will continue to provide
such warranty coverage. In Britain, Ford provides a warranty
package on Ford-brand vehicles that includes a 36 month
warranty composed of a 12 month/ unlimited mileage base
warranty and free of charge OEW (Extended Service Plan) covering
up to a further 24 months and 60,000 miles. Commercial
vehicles (e.g., Ford Transit and Ford Transit Connect) carry a
24 month/ unlimited mileage warranty except in Britain
where Ford currently provides a 36 month or 100,000 miles
base warranty. In Britain, Jaguar and Land Rover provide
36 month/ unlimited mileage warranty, enhanced in January
2002 to unlimited mileage from the previous 60,000 mile
warranty. In mainland Europe, Jaguar provides 36 month/
unlimited mileage warranty, enhanced in January 2002 to
unlimited mileage from the previous 100,000 km limit; Land Rover
provides 36 month 100,000 km warranty, enhanced in November
2001 from the previous 12 month warranty; and Volvo
provides 24 month/ unlimited mileage warranty. In addition
to the base warranties discussed above, Ford warrants the
bodywork of all of its brands against rust perforation for
periods between 6 years and 12 years.
In addition to the costs associated with the
contractual warranty coverage provided on our vehicles, we also
incur costs as a result of additional service actions not
covered by our warranties, including product recalls and
customer satisfaction actions.
Estimated warranty costs and additional service
action costs for each vehicle sold by us are accrued at the time
of sale. Accruals for estimated warranty costs and additional
service action costs are subject to adjustment from time to time
depending on actual experience.
For additional information with respect to costs
for warranty and additional service actions, see Item 7.
Managements Discussion and Analysis of Financial
Condition and Results of Operations Critical
Accounting Estimates and Note 23 of the Notes to
Financial Statements.
10
Other Markets
Canada and Mexico
.
Canada and Mexico also are important markets for us. In Canada,
industry sales of new cars and trucks in 2003 were approximately
1.6 million units, down 6% from 2002 levels. In 2003,
industry sales of new cars and trucks in Mexico were
approximately 1 million units, about the same as 2002
levels. Our combined car and truck market share in these markets
(including all of our brands sold in these markets) in 2003 was
15.8% in Canada (about the same as last year) and 16.5% in
Mexico (about the same as last year).
South America
.
Brazil and Argentina are our principal markets in South America.
The economic environment in those countries has been volatile in
recent years, particularly in 2002, leading to large variations
in industry sales. Results have also been influenced by
continued weak economic conditions, political uncertainty, and
government actions to reduce inflation and public deficits.
Industry sales in 2003 were approximately 1.4 million units
in Brazil, down about 5% from 2002, and approximately 140,000
units in Argentina, up 46% from 2002. Our combined car and truck
market share in these markets (including all of our brands sold
in these markets) in 2003 was 12.1% in Brazil (up
1.8 percentage points from last year) and 21.8% in
Argentina (up 5.3 percentage points from a year ago).
Ford has undertaken restructuring actions in
recent years to improve its competitiveness in South America. In
addition, we built a new assembly plant in Brazil, which
manufactures a new family of vehicles for the South American
markets and other markets.
Asia Pacific
. In the
Asia Pacific region, Australia, Taiwan, Thailand and Japan are
our principal markets. Details of the industry volumes and our
combined car and truck market share for these countries
(including all of our brands sold in a particular country) are
shown below.
_______________
In addition, we own a 33.4% interest in Mazda
Motor Corporation (Mazda) and account for Mazda on
an equity basis. Mazdas market share in Japan has been in
the 5% range in recent years. Our principal competition in the
Asia Pacific region has been the Japanese manufacturers. We
anticipate that the ongoing relaxation of import restrictions
(including duty reductions) will continue to intensify
competition in the region.
We began operations in India in 1999, launching
an all-new small car (the Ikon) designed specifically for that
market. In addition, Ford India sells components to other Ford
affiliates.
We also are in the process of increasing our
presence in China. During 2002, a new purchasing office was
established in China to take advantage of sourcing opportunities
for global markets from that country. Changan Ford is our 50/50
joint venture operation with Chongqing Changan Automobile Co,
Ltd. The Changan Ford assembly plant located in Chongqing became
operational and began producing the Fiesta model in January 2003
and the Mondeo model in mid-2003. We have also announced that
more than $1 billion would be invested over the next
several years to expand manufacturing capacity, introduce new
products and expand distribution channels in the Chinese
automotive market. The investment will initially support the
addition of new products and expansion of production capacity at
Changan Ford from 20,000 units a year to 150,000 units per year.
It will
11
also support the establishment of a second
assembly plant and a new engine plant. In addition, we have a
30% interest in Jiangling Motors Corporation with operations
located in Nanchang. We also import Jaguar, Volvo, Land Rover,
and selected Ford vehicles into China.
Financial Services Sector
Ford Motor Credit Company
Ford Motor Credit Company (Ford
Credit) provides vehicle and dealer financing in
36 countries to more than 11 million customers and
more than 12,500 automotive dealers. Ford Credit is an
indirect, wholly-owned subsidiary of Ford.
Ford Credit offers a wide variety of automotive
financial services to and through automotive dealers throughout
the world. Ford Credits primary financial products fall
into three categories:
Ford Credit also services the finance receivables
and leases it originates and purchases, makes loans to Ford
affiliates, purchases certain receivables of Ford and its
subsidiaries and provides insurance services related to its
financing programs. Ford Credits revenues are earned
primarily from retail installment sale contracts and retail
leases, including interest supplements and other support
payments it receives from Ford on special-rate retail financing
programs, from investment and other income related to sold
receivables, and from payments made under wholesale and other
dealer loan financing programs.
Ford Credit does business in all 50 states
of the United States through about 160 dealer automotive
financing branches and seven regional service centers, and does
business in all provinces in Canada through 16 dealer
automotive financing branches and two regional service centers.
Outside the United States, FCE Bank plc (FCE)
is Ford Credits largest operation. FCEs primary
business is to support the sale of Ford vehicles in Europe
through the Ford dealer network. A variety of retail, leasing
and wholesale finance plans are provided in most countries in
which it operates. FCE does business in the United Kingdom,
Germany and most other European countries. Ford Credit, through
its subsidiaries, also operates in Mexico, Puerto Rico, Brazil,
Chile, Venezuela, Argentina, Australia, Japan, Taiwan, Thailand
and New Zealand. Ford Credit also operates through joint
ventures with local financial institutions and other third
parties in India, Indonesia, South Africa and Saudi Arabia. In
addition, Ford Credit manages Fords vehicle financing
operations in other countries where Ford Credit does not have
operations.
Ford Credits share of retail financing for
new Ford, Lincoln and Mercury brand vehicles sold by dealers in
the United States and new Ford-brand vehicles sold by dealers in
Europe and Ford
12
Credits share of wholesale financing for
those brands of vehicles acquired by dealers in the United
States and Europe were as follows during the last three years:
For a detailed discussion of Ford Credits
on-balance sheet receivables, managed receivables, receivables
sold through securitizations and whole-loan sale transactions,
credit losses, allowance for credit losses, loss-to-receivables
ratios, funding sources and funding strategies, see Item 7.
Managements Discussion and Analysis of Financial
Condition and Results of Operations. For a discussion of
how Ford Credit manages its financial market risks, see
Item 7A. Quantitative and Qualitative Disclosure
About Market Risk.
The predominant share of Ford Credits
business consists of financing our vehicles and supporting our
dealers. Any extended reduction or suspension of the production
or sale of our vehicles due to a decline in consumer demand,
work stoppage, governmental action, negative publicity or other
event, or significant changes to marketing programs sponsored by
us, would likely have an adverse effect on Ford Credits
business.
We periodically sponsor special-rate financing
programs available only through Ford Credit. Under these
programs, we make interest supplement or other support payments
to Ford Credit. These programs may increase Ford Credits
financing volume and share of financing sales of Ford vehicles.
See Note 1 of the Notes to Financial Statements for more
information about these support payments.
Under a profit maintenance agreement with Ford
Credit, we have agreed to make payments to maintain Ford
Credits earnings at certain levels. In addition, under a
support agreement with FCE, Ford Credit has agreed to maintain
FCEs net worth above a minimum level. No payments were
made under either of these agreements during the 2001 through
2003 periods.
The Hertz Corporation
The Hertz Corporation (Hertz) and its
affiliates, associates and independent licensees represent what
Hertz believes is the largest worldwide general use car rental
brand based upon revenues. Hertz maintains a substantial network
of company-owned car rental locations both in the United States
and in Europe, and what it believes to be the largest number of
on-airport car rental locations in the world, enabling Hertz to
provide consistent quality, pricing and service worldwide. Hertz
derives approximately 74% of its car rental revenues from
on-airport locations. The Hertz #1 Club Gold
TM
service provides an expedited rental service to members
worldwide. Through its many travel industry relationships with
airlines and hotels, Hertz has targeted the most frequent
travelers to become Hertz #1 Club Gold
TM
members.
Hertz, through its wholly owned subsidiary, Hertz
Equipment Rental Corporation (HERC), also operates
one of the largest industrial and construction equipment rental
businesses in North America based upon revenues and maintains a
significant market share in the North American industrial and
construction equipment rental market. HERC rents a broad range
of earthmoving equipment,
13
material handling equipment, aerial and
electrical equipment, air compressors, pumps, small tools,
compaction equipment and construction-related trucks.
Other activities of Hertz include self-insurance
operations for both its car rental and industrial and
construction equipment rental businesses, the sale of its used
cars and equipment and third-party claim management services.
Hertz operates its businesses from approximately
7,200 locations throughout the United States and in over
150 foreign countries and jurisdictions. Hertz is an indirect,
wholly-owned subsidiary of Ford.
Below are some financial highlights for Hertz as
consolidated in our Statement of Income (in millions):
Governmental Standards
A number of governmental standards and
regulations relating to safety, corporate average fuel economy
(CAFE), emissions control, noise control,
damageability, and theft prevention are applicable to new motor
vehicles, engines, and equipment manufactured for sale in the
United States, Europe and elsewhere. In addition, manufacturing
and assembly facilities in the United States, Europe and
elsewhere are subject to stringent standards regulating air
emissions, water discharges, and the handling and disposal of
hazardous substances. Such facilities in the United States and
Europe also are subject to comprehensive national, regional,
and/or local permit programs with respect to such matters.
Mobile Source Emissions
Control
U.S. Requirements.
The Federal Clean Air Act imposes
stringent limits on the amount of regulated pollutants that
lawfully may be emitted by new motor vehicles and engines
produced for sale in the United States. Currently, most light
duty vehicles sold in the United States must comply with these
standards for 10 years or 100,000 miles, whichever
first occurs. The U.S. Environmental Protection Agency
(EPA) has promulgated post-2004 model year standards
that are more stringent than the default standards contained in
the Clean Air Act. These new regulations will require most light
duty trucks to meet the same emissions standards as passenger
cars by the 2007 model year. The stringency of the new standards
presents compliance challenges and is likely to hinder efforts
to employ light-duty diesel technology, which could negatively
impact our ability to meet CAFE standards. The EPA also has
promulgated post-2004 emission standards for
heavy-duty trucks (8,500-14,000 lbs. gross
vehicle weight). These standards are likely to pose technical
challenges and may affect the competitive position of full-line
vehicle manufacturers such as Ford.
Pursuant to the Clean Air Act, California has
received a waiver from the EPA to establish its own unique
emissions control standards. New vehicles and engines sold in
California must be certified by the California Air Resources
Board (CARB). CARB has adopted stringent vehicle
emissions standards that started phasing in with the 2004 model
year. These new standards treat most light duty trucks the same
as passenger cars and require both types of vehicles to meet new
stringent emissions requirements. As with the EPAs
post-2004 standards, CARBs vehicle standards present a
difficult engineering challenge, and will essentially rule out
the use of light-duty diesel technology.
14
Since 1990, the California program has included
requirements for manufacturers to produce and deliver for sale
zero-emission vehicles, which produce no emissions of regulated
pollutants (ZEV). Currently available ZEVs are
typically battery-powered vehicles with narrow consumer appeal
due to their limited range, reduced functionality, and high
cost. The ZEV mandate initially required that a specified
percentage of each manufacturers vehicles produced for
sale in California, beginning at 2% in 1998 and increasing to
10% in 2003, must be ZEVs. In 1996, CARB eliminated the ZEV
mandate for the 1998-2002 model years, but retained the 10%
mandate in a modified form beginning with the 2003 model year.
Around the same time, vehicle manufacturers voluntarily entered
into agreements with CARB to conduct ZEV demonstration programs.
In 2001, CARB proposed a number of changes to the
ZEV mandate that were ultimately withdrawn, in part as a result
of litigation by some manufacturers. In April 2003, CARB voted
to adopt new amendments to the ZEV mandate that shift the
near-term focus of the regulation away from battery-electric
vehicles to advanced-technology vehicles (e.g., hybrid electric
vehicles or compressed natural gas vehicles) with extremely
low but not zero tailpipe emissions. The
rules also give some credit for so-called partial zero
emission vehicles (PZEVs), which can be
internal combustion engine vehicles certified to very low
tailpipe emissions and zero evaporative emissions. In addition,
the rules call on the industry to ramp up production of
zero-emission fuel cell vehicles over the longer term. In the
aggregate, the industry must produce 250 zero-emission fuel
cell vehicles by the 2008 model year, and 2,500 more in the
2009-2011 model year period. A panel of independent experts will
review the feasibility of these requirements in 2006. While the
changes appear to reflect a recognition that battery-electric
vehicles simply do not have the potential to achieve widespread
customer acceptance, there are substantial questions about the
feasibility of producing the required number of fuel-cell
vehicles due to the substantial engineering challenges and high
costs associated with this technology.
The Clean Air Act permits other states that do
not meet national ambient air quality standards to adopt
Californias motor vehicle emission standards no later than
two years before the affected model year. New York,
Massachusetts, Vermont, and Maine adopted the California
standards effective with the 2001 model year or before. New York
and Massachusetts have adopted the California ZEV mandate along
with alternative ZEV compliance programs. In January 2004, the
New Jersey legislature voted to adopt California standards,
including the ZEV mandate. Other states, including Maryland and
Connecticut, are currently considering the adoption of
California standards. There are problems with transferring
California standards to northeast states, including the
following: 1) the driving range of ZEVs is greatly
diminished in cold weather, thereby limiting their market
appeal; and 2) the northeast states have refused to adopt
the California reformulated gasoline regulations, which may
impair the ability of vehicles to meet Californias in-use
standards.
Ford has accumulated ZEV credits in California,
New York and Massachusetts through sales of TH!NK brand electric
vehicles, and it has plans to accumulate more credits by selling
future PZEV models. In the longer term, however, it is doubtful
whether the market will support the number of battery electric
vehicles called for by the modified ZEV mandate. Fuel cell
technology may in the future enable production of ZEVs with
widespread consumer appeal. However, due to the engineering
challenges, the high cost of the technology, infrastructure
needs, and other issues, it does not appear that mass production
of fuel cell vehicles will be commercially feasible for years to
come. Compliance with the ZEV mandate may eventually require
costly actions that would have a substantial adverse effect on
Fords sales volume and profits. For example, Ford could be
required to curtail the sale of non-electric vehicles and/or
offer to sell electric vehicles well below cost. Other states
may seek to adopt CARBs ZEV mandate pursuant to the Clean
Air Act, thereby increasing the costs to Ford.
Under the Clean Air Act, the EPA and CARB can
require manufacturers to recall and repair non-conforming
vehicles. The EPA, through its testing of production vehicles,
also can halt the
15
shipment of non-conforming vehicles. Ford may be
required to recall, or may voluntarily recall, vehicles for such
purposes in the future. The costs of related repairs or
inspections associated with such recalls, or the cost of a
stop-shipment order, could be substantial.
European
Requirements.
European Union
(EU) directives and related legislation limit the
amount of regulated pollutants that may be emitted by new motor
vehicles and engines sold in the EU. In 1998, the EU adopted a
new directive on emissions from passenger cars and light
commercial trucks. More stringent emissions standards applied to
new car certifications beginning January 1, 2000 and to new
car registrations beginning January 1, 2001
(Stage III Standards). A second level of even
more stringent emission standards will apply to new car
certifications beginning January 1, 2005 and to new car
registrations beginning January 1, 2006
(Stage IV Standards). The comparable light
commercial truck Stage III Standards and Stage IV
Standards come into effect one year later than the passenger car
requirements. The directive includes a framework that permits EU
member states to introduce fiscal incentives to promote early
compliance with these standards. The directive also introduced
on-board diagnostic requirements, more stringent evaporative
emission requirements, and in-service compliance testing and
recall provisions for emissions-related defects that occur in
the first five years or 80,000 kilometers of vehicle life
(extended to 100,000 kilometers in 2005). Failures of in-service
compliance tests could lead to vehicle recalls with substantial
costs for related inspections or repairs. The Stage IV
Standards for diesel engines have proven technically difficult
and have precluded manufacturers from offering some products in
time to be eligible for government incentive programs. A related
EU directive was adopted, also in 1998, which establishes
standards for cleaner fuels beginning in 2000 and even cleaner
fuels in 2005. A further change to the Fuels Directive was
agreed in 2003, which reduced the maximum sulphur limit in
gasoline and diesel to 10 ppm widespread market
availability is required from 2005 and mandated in 2009. The EU
is commencing a program in 2004 to determine the specifics for
further changes to vehicle emission standards. These are
expected to concentrate on diesel particulates and NOx from 2010.
Stationary Source Emissions
Control
U.S. Requirements.
In the United States, the Federal
Clean Air Act also requires the EPA to identify hazardous
air pollutants from various industries and promulgate
rules restricting their emission. The EPA has issued proposed or
final rules for a variety of industrial categories, several of
which would further regulate emissions from our
U.S. operations, including engine testing, automobile
surface coating and iron casting. These technology-based
standards could require certain of our facilities to
significantly reduce their air emissions. Additional programs
under the Clean Air Act, including Compliance Assurance
Monitoring and periodic monitoring could require our facilities
to install additional emission monitoring equipment. The cost to
us, in the aggregate, to comply with these requirements could be
substantial.
Motor Vehicle
Safety
U.S. Requirements.
The National Traffic and Motor
Vehicle Safety Act of 1966 (the Safety Act)
regulates motor vehicles and motor vehicle equipment in the
United States in two primary ways. First, the Safety Act
prohibits the sale in the United States of any new vehicle or
equipment that does not conform to applicable motor vehicle
safety standards established by the National Highway Traffic
Safety Administration (the Safety Administration).
Meeting or exceeding many safety standards is costly because the
standards tend to conflict with the need to reduce vehicle
weight in order to meet emissions and fuel economy standards.
Second, the Safety Act requires that defects related to motor
vehicle safety be remedied through safety recall campaigns. A
manufacturer also is obligated to recall vehicles if it
determines that they do not comply with a safety standard.
Should Ford or the Safety Administration determine that either a
safety defect or a noncompliance exists with respect to certain
of Fords vehicles, the costs of such recall campaigns
could be substantial. There were pending before the Safety
Administration approximately 10 investigations relating to
alleged safety defects or potential compliance issues in Ford
vehicles as of February 18, 2004.
16
The Transportation Recall Enhancement,
Accountability, and Documentation Act (the TREAD
Act) was signed into law in November 2000. The TREAD Act
mandates that the Safety Administration establish several new
regulations including reporting requirements for motor vehicle
manufacturers on foreign recalls and certain information
received by the manufacturer that may assist the agency in the
identification of safety defects.
Foreign Requirements.
Canada, the EU, individual member
countries within the EU, and other countries in Europe, South
America and the Asia Pacific markets also have safety standards
applicable to motor vehicles and are likely to adopt additional
or more stringent standards in the future. In addition, the
European Automobile Manufacturers Association (of which Ford is
a member) (EAMA) made a voluntary commitment in June
2001 to introduce a range of safety measures to improve
pedestrian protection with the first phase starting in 2005 and
a second phase starting in 2010. Similar commitments were
subsequently made by the Japanese and Korean automobile
manufacturers associations. As a result, over 99% of cars and
small vans sold in Europe are covered by industry safety
commitments. The European Council of Ministers and the European
Parliament published a directive in December 2003 and a decision
in February 2004, which together lay down detailed technical
provisions for enforcement of the industry commitments (i.e.,
the application dates, the types of tests to be conducted the
test procedures to be used and the limit values to be achieved).
Motor Vehicle Fuel
Economy
U.S. Requirements.
Under federal law, vehicles must
meet minimum corporate average fuel economy (CAFE)
standards set by the Safety Administration. A manufacturer is
subject to potentially substantial civil penalties if it fails
to meet the CAFE standard in any model year, after taking into
account all available credits for the preceding three model
years and expected credits for the three succeeding model years.
The law established a passenger car CAFE standard
of 27.5 mpg for 1985 and later model years, which the
Safety Administration believes it has the authority to amend to
a level it determines to be the maximum feasible level. The
current CAFE standard applicable to light trucks is
20.7 mpg. In April 2003, the Safety Administration issued a
final rule increasing the CAFE standard for light trucks to
21.0 mpg for model year 2005; 21.6 mpg for model year 2006;
and 22.2 mpg for model year 2007. The Safety Administration
is currently seeking public comment on the possibility of
changing the framework of the light truck CAFE standards and/or
creating a new vehicle classification scheme. It is anticipated
that the Safety Administration will also start a rulemaking
process to increase CAFE standards for passenger cars in the
near future. There is renewed interest in CAFE in Congress, and
there is some potential for new legislation that avoids the
regulatory process and establishes new standards by statute.
Pressure to increase CAFE standards stems in part
from concerns over greenhouse gas emissions (GHGs),
which may affect the global climate. With respect to greenhouse
gas emissions, the Bush administration released a climate change
policy initiative in February 2002. The Bush administration plan
stresses voluntary measures and a cap-and-trade program to stem
the growth of greenhouse gas emissions. The Bush administration
also has launched the Freedom Car initiative, which supports
research for fuel cell-powered vehicles. Other nations continue
to press for United States ratification of the so-called
Kyoto Protocol, which would require the United
States to reduce greenhouse gas emissions by 7% below its 1990
levels. The Kyoto Protocol does not currently have the support
of either the Bush administration or Congress. Separately, a
petition was filed with the EPA requesting that it regulate
carbon dioxide (CO
2
, a greenhouse gas) emissions from
motor vehicles under the Clean Air Act. The petitioners filed
suit in an effort to compel a formal response from the EPA. In
August 2003, EPA denied the petition on the grounds that
1) the Clean Air Act does not authorize EPA to regulate
GHGs, and 2) only the Safety Administration is authorized
to regulate fuel economy under the CAFE law. A number of states,
cities, and environmental groups have filed for review of
EPAs decision in the United States Court of Appeals
17
for the District of Columbia Circuit. We
anticipate that a coalition of states and industry trade groups,
including the Alliance of Automobile Manufacturers, will seek to
intervene in support of EPAs decision.
In 2002, California enacted legislation
authorizing CARB to regulate greenhouse gas emissions from new
motor vehicles beginning in the 2009 model year. Other states
are considering similar legislation. CO
2
is the
primary greenhouse gas emitted from motor vehicles, and the
amount of CO
2
emissions is proportional to the
amount of fuel used. It is possible that CARB may attempt to
implement the law by setting fleet average standards for vehicle
CO
2
emissions, although we believe this would be
prohibited by the federal fuel economy law. CARB is expected to
promulgate regulations in this area during the 2005 calendar
year.
In general, a continued increase in demand for
larger vehicles, coupled with a decline in demand for small and
middle-size vehicles, could jeopardize our long-term ability to
comply with CAFE standards. In addition, if significant
increases in CAFE standards for upcoming model years are imposed
beyond those presently in effect or proposed, or if the EPA or
other agencies regulate CO
2
emissions from motor
vehicles, we might find it necessary to take various costly
actions that could have substantial adverse effects on our sales
volume and profits. For example, we might have to curtail
production of larger, family-size and luxury cars and full-size
light trucks, restrict offerings of engines and popular options,
and increase market support programs for our most fuel-efficient
cars and light trucks.
Foreign Requirements.
The EU also is a party to the Kyoto
Protocol and has agreed to reduce greenhouse gas emissions by 8%
below their 1990 levels during the 2008-2012 period. In December
1997, the European Council of Environment Ministers (the
Environment Council) reaffirmed its goal to reduce
average CO
2
emissions from new cars to
120 grams per kilometer by 2010 (at the latest) and invited
European motor vehicle manufacturers to negotiate further with
the European Commission on a satisfactory voluntary
environmental agreement to help achieve this goal. In October
1998, the EU agreed to support an environmental agreement with
EAMA (of which Ford is a member) on CO
2
emission
reductions from new passenger cars (the Agreement).
The Agreement establishes an emission target of 140 grams
of CO
2
per kilometer for the average of new cars sold
in the EU by the Associations members in 2008. In
addition, the Agreement established an interim estimated target
range of 165-170 grams of CO
2
per kilometer for
the average of new cars sold in 2003. In 2004, EAMA and the
European Commission will review the potential for additional
CO
2
reductions, with a view to moving further toward
the EUs objective. The Agreement assumes (among other
things) that no negative measures will be implemented against
diesel-fueled cars and the full availability of improved fuels
with low sulfur content in 2005. Average
CO
2
emissions of 140 grams per kilometer
for new passenger cars corresponds to a 25% reduction in average
CO
2
emissions compared to 1995.
The Environment Council requested the European
Commission to review in 2004 the EUs progress toward
reaching the 120 gram target by 2010, and to implement annual
monitoring of the average CO
2
emissions from new
passenger cars and progress toward achievement of the objectives
for 2003. To date, the industry has made very good progress and
has met the interim target for 2003 (170-165g
CO
2
/km). The CO
2
target to be achieved for
2008 is 140g CO
2
/km.
In 1995, members of the German Automobile
Manufacturers Association (including Ford Werke AG) made a
voluntary pledge to increase by 2005 the average fuel economy of
new cars sold in Germany by 25% from 1990 levels, to make
regular reports on fuel consumption, and to increase industry
research and development efforts toward this end. The German
Automobile Manufacturers Association has reported that the
industry is on track to meet the pledge.
Other European countries are considering other
initiatives for reducing CO
2
emissions from
motor vehicles, including fiscal measures. For example, the UK
introduced vehicle excise duty and
18
company car taxation based on
CO
2
emissions in 2001. Taken together, such
proposals could have substantial adverse effects on our sales
volumes and profits in Europe.
End-of-Life Vehicle
Directive
The European
Parliament has published a directive imposing an obligation on
motor vehicle manufacturers to take back end-of-life vehicles
with zero or negative value registered after July 1, 2002,
and to take back all other end-of-life vehicles with zero or
negative value as of January 1, 2007, with no cost to the
last owner. The directive also imposes requirements on the
proportion of the vehicle that may be disposed of in landfills
and the proportion that must be reused or recycled beginning in
2006, and bans the use of certain substances in vehicles
beginning with vehicles registered after July 2003. Member
states may apply these provisions prior to the dates mentioned
above.
Presently, there are numerous uncertainties
surrounding the form and implementation of the legislation in
different member states, especially regarding
manufacturers responsibilities and the resultant expenses
that may be incurred. As of December 31, 2003, the
following member states have adopted legislation to implement
the directive: The Netherlands, Germany, Belgium, Austria,
Spain, Luxemburg, Italy, France, Ireland, Portugal and Sweden.
On April 16, 2003, ten countries signed an accession
agreement with the European Union to become new members of the
European Union on May 1, 2004. Of those states, only
Slovenia has implemented the ELV Directive and the others are
expected to implement the ELV Directive during 2004. Based on
the legislation that has been enacted to date, we have accrued
$103 million at December 31, 2003 for compliance costs
we expect to incur in respect of our existing vehicle
populations in those and other countries. Depending on the
legislation implemented in the ten member states that have not
yet enacted legislation and other circumstances, we may be
required to make additional accruals for the expected costs to
comply with these regulations. Although all of the member states
were required to enact legislation to implement the directive by
April 21, 2002, implementation of the directive has been
delayed in some countries and is now expected to be
substantially finalized during 2004. The directive should not,
however, result in significant cash expenditures before 2007.
Mobile Air
Conditioning
The European
Commission adopted a draft regulation in August 2003 to phase
out the use of HFC-134a as a refrigerant in mobile air
conditioning units. The regulation would phase out the use of
this refrigerant between 2009 and 2013 and provide credits for
the early introduction of more leak-resistant air conditioning
systems and alternative refrigerants. These requirements may
increase the cost of vehicle air conditioning. This proposed
regulation has been referred to the European Council and the
European Parliament for their consideration.
European Chemicals
Policy
The European
Commission adopted a draft regulation in October 2003 for a
single system to register, evaluate, and authorize the use of
certain chemicals (REACH). Final adoption of the
regulation is anticipated in 2005 to 2006 with compliance
required one to two years later. The regulation may accelerate
the ban or restriction on use of certain chemicals and
materials, which could increase the costs of certain products
and processes used to manufacture vehicles and parts.
Pollution Control
Costs
During the period
2004 through 2008, we expect to spend approximately
$430 million on our North American and European facilities
to comply with air and water pollution and hazardous waste
control standards, which are now in effect or are scheduled to
come into effect. Of this total, we estimate spending
approximately $122 million in 2004 and $120 million in
2005. Specific environmental expenses are difficult to isolate
because expenditures may be made for more than one purpose,
making precise classification difficult.
19
Employment Data
The number of on-roll employees we employed at
December 31, 2003 and 2002 was:
Our labor cost per hour worked for hourly
employees of Ford Motor Company (including employees assigned to
Visteon Corporation), excluding subsidiaries, for the following
years was:
The increase in benefits for our hourly employees
in 2003 over 2002 primarily reflected increased health care
costs, a one-time $3,000 lump sum payment to each of our U.S.
hourly employees upon the ratification of our new collective
bargaining agreement with the UAW (discussed below) and
increased pension expense.
As shown in the table above, from
December 31, 2002 to December 31, 2003, the number of
people we employ increased approximately one percent. The 2003
number includes 14,628 employees that were added to our on-roll
employment numbers as a result of the consolidation of several
joint ventures that were deemed variable interest entities of
which we are the primary beneficiary under Financial Accounting
Standards Board (FASB) Interpretation No. 46,
Consolidation of Variable Interest Entities
(FIN 46). Excluding the effects of the
consolidation of these entities, the number of employees on-roll
would have declined 10,910 (or approximately three percent).
The employment numbers in the table above exclude
approximately 20,000 hourly employees of Ford who are
assigned to Visteon Corporation (Visteon), and,
pursuant to our collective bargaining agreement with the
International Union, United Automobile, Aerospace and
Agricultural Implement Workers of America (the UAW),
remain Ford employees. Visteon reimburses us for most of the
costs associated with these employees. For information regarding
agreements entered into with Visteon in December 2003 relating
to these employees and other matters, see Item 7.
Managements Discussion and Analysis of Financial
Condition and Results of Operations.
20
Substantially all of the hourly employees in our
Automotive operations in the United States are represented by
unions and covered by collective bargaining agreements.
Approximately 99% of these unionized hourly employees in our
Automotive segment are represented by the UAW. Approximately 3%
of our salaried employees are represented by unions. Most hourly
employees and many non-management salaried employees of our
subsidiaries outside the United States also are represented by
unions.
We have entered into collective bargaining
agreements with the UAW and the National Automobile, Aerospace,
Transportation and General Workers Union of Canada
(CAW). The agreement with the UAW is scheduled to
expire on September 14, 2007 and the agreement with the CAW
is scheduled to expire on September 20, 2005. Among other
things, our agreements with the UAW and CAW provide for
guaranteed wage and benefit levels throughout their terms and
provide for significant employment security. As a practical
matter, these agreements may restrict our ability to eliminate
product lines, close plants, and divest businesses.
Our new collective bargaining agreements are
consistent with our Revitalization Plan and provide us the
flexibility necessary to achieve the goals of that plan. This
flexibility includes the ability to reduce manufacturing
capacity by one million units in North America by closing four
assembly plants, improvement in our ability to bring Ford
employees assigned to Visteon back to fill plant openings for
which we otherwise would have to hire new employees and
increased operating flexibility. The return of Ford employees
will provide us the opportunity to fill labor requirements from
an experienced pool of UAW-represented employees.
In 2003, we negotiated new agreements with labor
unions in Mexico, France, Britain, Sweden, Australia, Taiwan,
Thailand, New Zealand, Belgium, and Brazil.
We are or will be negotiating new collective
bargaining agreements with labor unions in Mexico, Germany,
Vietnam, South Africa, Taiwan, Britain, Brazil and Venezuela
where current agreements will expire in 2004. We will also be
negotiating new collective bargaining agreements to cover
employees at our Volvo and Jaguar affiliates in 2004.
In recent years, we have not had significant work
stoppages at our facilities, but they have occurred in some of
our suppliers facilities. A work stoppage could occur as a
result of disputes under our collective bargaining agreements
with labor unions or in connection with negotiations of new
collective bargaining agreements, which, if protracted, could
adversely affect our business and results of operation. Work
stoppages at supplier facilities for labor or other reasons
could have similar consequences if alternate sources of
components are not readily available.
In addition to our collective bargaining
agreement with the UAW, in 1989 we entered into a separate
agreement with the UAW in connection with the sale of our
Dearborn steel-making operations to Rouge Industries, Inc., then
known as Marico Acquisition Corp. As part of the sale, employees
of our former steel-making operations became employees of Rouge
Steel Company, a wholly-owned subsidiary of Rouge Industries,
Inc. (Rouge). Pursuant to the UAW agreement, we
agreed that Rouge hourly employees who, at the time of the sale,
were represented by the UAW and met certain seniority
requirements would be allowed to return to Ford to work in one
of our Rouge area plants if they were laid off by Rouge in the
future as a result of a layoff of unknown duration, a permanent
discontinuance of operations by Rouge or a sale of the assets of
Rouge. The right to return remains in effect with respect to
each eligible employee for a period equal to the employees
Ford seniority as of the date of the sale by Ford. Approximately
700 former Ford employees are covered by this agreement. On
October 23, 2003, Rouge filed a voluntary petition under
Chapter 11 of the Bankruptcy Code. On December 30,
2003, the bankruptcy court approved the sale of substantially
all of Rouges assets to Severstal North America, Inc.
(Severstal), which sale closed on January 30,
2004. On February 23, 2004, Ford entered into an agreement
with the UAW to provide opportunities to the employees of Rouge
who would have had the right to return to
21
Ford under the circumstances described above.
These employees were provided an option to (i) continue
employment with Severstal, begin receipt of Ford-UAW retirement
benefits if otherwise eligible, and waive any claims against
Ford relating to the prior agreement, (ii) continue in
employment with Severstal for a retention period before
termination, begin receipt of Ford-UAW retirement benefits while
employed by Severstal if otherwise eligible, and at termination
be eligible for an incentive benefit funded by Ford and waive
any claims against Ford relating to the prior agreement, or
(iii) terminate employment with Severstal, immediately
transfer to Ford employment, and waive any claims against Ford
relating to the prior agreement.
Engineering, Research and
Development
We conduct engineering, research and development
primarily to improve the performance (including fuel
efficiency), safety and customer satisfaction of our products,
and to develop new products. We also have staffs of scientists
who engage in basic research. We maintain extensive engineering,
research and design centers for these purposes, including large
centers in Dearborn, Michigan; Dunton, Gaydon and Whitley,
England; Gothenburg, Sweden; and Aachen and Merkenich, Germany.
Most of our engineering research and development relates to our
Automotive operating segment. In general, our engineering
activities that do not involve basic research or product
development, such as manufacturing engineering, are excluded
from our engineering, research and development charges discussed
below.
During the last three years, we recorded charges
to our consolidated income for engineering, research and
development we sponsored in the following amounts:
$7.5 billion (2003), $7.7 billion (2002), and
$7.3 billion (2001). Any customer-sponsored research and
development activities that we conduct are not material.
Investor Information
Company Reports
U.S. S.E.C. EDGAR
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Filings
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Business Sectors
Operating Segments
Description
Americas
primarily includes the sale of Ford, Lincoln and
Mercury brand vehicles and related service parts in North
America (United States, Canada and Mexico) and the sale of
Ford-brand vehicles and related service parts in South America,
together with the associated costs to design, develop,
manufacture and service these vehicles and parts
International
primarily includes the sale of Ford-brand
vehicles and related service parts outside of the Americas and
the sale of Premier Automotive Group brand vehicles (i.e.,
Volvo, Jaguar, Land Rover and Aston Martin) and related service
parts throughout the world (including the Americas), together
with the associated costs to design, develop, manufacture and
service these vehicles and parts
Ford Motor Credit Company
primarily includes vehicle-related financing,
leasing and insurance
The Hertz Corporation
primarily includes the renting of cars and light
trucks and renting of industrial and construction equipment
New products: A product-led revitalization
program that will result in the introduction of 20 new or
freshened products in the United States annually between January
2002 and mid-decade.
Plant capacity: Reduction of North American
installed final assembly capacity by about one million vehicles
by mid-decade to realign capacity with market conditions.
Hourly workforce: Reduction of about
12,000 hourly employees in North America by mid-decade.
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Salaried workforce: Our 2001 voluntary separation
program for salaried employees and other related actions
resulted in a 3,500-person workforce reduction in North America.
An additional 1,500-person salaried workforce reduction was
achieved in 2002 to reach the goal of 5,000.
Global workforce: Reduction of more than 35,000
employees by combined actions around the world by mid-decade,
including selected actions prior to 2002. These include: 21,500
in North America 15,000 hourly, 5,000 salaried
and 1,500 agency employees and 13,500 in the rest of
the world.
Cost Reductions: A total of $6 billion of
cost reductions related to material costs, overhead reductions
and improvements in capacity utilization by mid-decade.
Discontinued low-margin models: Discontinuance of
the Mercury Cougar, Mercury Villager, Lincoln Continental and
most models of the Ford Escort, which occurred in 2002.
Beyond North America: Revitalization plans beyond
North American automotive operations included the continued
implementation of the European transformation strategy, the
Premier Automotive Group strategy, the turnaround in South
America and a revised direction for Ford Motor Credit Company.
Divestitures: Disposition of non-core assets and
businesses.
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unit sales volume
the mix of vehicles and options sold
the margin of profit on each vehicle sold
the level of incentives (price
discounts) and other marketing costs
the costs for customer warranty claims and
additional service actions
the costs for safety, emission and fuel economy
technology and equipment
the ability to manage costs
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U. S. Industry Sales
Years Ended December 31,
2003
2002
2001
2000
1999
(millions of units)
7.6
8.1
8.4
8.8
8.7
9.4
9.0
9.1
9.0
8.7
17.0
17.1
17.5
17.8
17.4
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U. S. Industry Vehicle Sales
by Segment
Years Ended December 31,
2003
2002
2001
2000
1999
14.9
%
16.0
%
16.7
%
16.7
%
16.1
%
19.9
21.4
21.6
22.9
23.8
2.1
2.2
2.7
2.9
3.2
8.0
7.7
7.2
7.2
6.8
44.9
47.3
48.2
49.7
49.9
4.4
%
4.6
%
5.2
%
5.9
%
6.2
%
8.0
8.6
8.8
10.0
10.1
14.0
12.7
13.2
12.4
12.7
27.0
25.2
23.0
19.8
18.5
1.7
1.6
1.6
2.2
2.6
55.1
52.7
51.8
50.3
50.1
100.0
%
100.0
%
100.0
%
100.0
%
100.0
%
Ford Vehicle Sales by Segment
in U.S.
Years Ended December 31,
2003
2002
2001
2000
1999
11.4
%
12.5
%
14.0
%
14.5
%
13.5
%
10.4
11.9
11.5
13.0
15.5
4.8
4.4
5.2
5.1
5.7
7.0
7.8
7.0
7.5
6.2
33.6
36.6
37.7
40.1
40.9
6.0
%
6.2
%
6.9
%
7.9
%
8.4
%
8.4
9.1
9.1
10.5
11.0
24.3
22.5
22.9
20.9
20.9
27.5
25.4
23.2
20.4
18.5
0.2
0.2
0.2
0.2
0.3
66.4
63.4
62.3
59.9
59.1
100.0
%
100.0
%
100.0
%
100.0
%
100.0
%
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U.S. Car Market Shares*
Years Ended December 31,
2003
2002
2001
2000
1999
6.9
%
7.7
%
8.6
%
9.5
%
9.9
%
11.5
12.1
13.0
14.2
14.9
3.8
4.1
4.1
4.5
5.1
5.9
5.8
5.5
5.5
5.1
4.8
4.9
5.1
5.0
4.9
12.0
12.7
11.9
11.0
10.0
44.9
%
47.3
%
48.2
%
49.7
%
49.9
%
U.S. Truck Market Shares*
Years Ended December 31,
2003
2002
2001
2000
1999
13.6
%
13.4
%
14.2
%
14.2
%
14.3
%
16.4
16.2
15.0
13.6
13.9
10.0
10.0
10.1
10.8
11.1
5.1
4.5
4.5
3.6
3.4
3.1
2.4
1.8
1.6
1.3
6.9
6.2
6.2
6.5
6.1
55.1
%
52.7
%
51.8
%
50.3
%
50.1
%
U.S. Combined Car and
Truck Market Shares*
Years Ended December 31,
2003
2002
2001
2000
1999
20.5
%
21.1
%
22.8
%
23.7
%
24.2
%
27.9
28.3
28.0
27.8
28.8
13.8
14.1
14.2
15.3
16.2
11.0
10.3
10.0
9.1
8.5
7.9
7.3
6.9
6.6
6.2
18.9
18.9
18.1
17.5
16.1
100.0
%
100.0
%
100.0
%
100.0
%
100.0
%
**
Ford purchased Volvo Car on March 31, 1999
and Land Rover on June 30, 2000. The figures shown here
include Volvo Car and Land Rover on a pro forma basis for the
periods prior to their acquisition by Ford. In 1999, Land Rover
represented less than 0.2 percentage points of total market
share.
***
All Other includes primarily
companies based in various European countries, Korea and other
Japanese manufacturers and, with respect to the U.S. Truck
Market Shares table and U.S. Combined Car and Truck Market
Shares table, includes heavy truck manufacturers.
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Ford Fleet Sales
Years Ended December 31,
2003
2002
2001
2000
1999
429,000
446,000
452,000
472,000
469,000
222,000
247,000
290,000
335,000
337,000
124,000
123,000
143,000
170,000
134,000
775,000
816,000
885,000
977,000
940,000
22%
23%
22%
23%
23%
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Industry Volumes
Corporate Market Share
2003
2003
Over/(Under)
Over/(Under)
2003
2002
2002
2003
2002
2002
(in thousands)
910
824
86
10.4
%
14.8
%
14.4
%
0.4 pts.
414
399
15
3.7
%
17.3
%
16.4
%
0.9 pts.
532
415
117
28.1
%
5.0
%
5.7
%
(0.7) pts.
5,828
5,792
36
0.6
%
*
*
*
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Retail financing purchasing retail
installment sale contracts and retail leases from dealers, and
offering financing to commercial customers, primarily vehicle
leasing companies and fleet purchasers, to purchase or lease
vehicle fleets.
Wholesale financing making loans to
dealers to finance the purchase of vehicle inventory, also known
as floorplan financing.
Other financing making loans to
dealers for working capital, improvements to dealership
facilities, and the acquisition and refinancing of dealership
real estate.
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Years Ended
December 31,
2003
2002
2001
39
%
41
%
54
%
82
85
84
31
%
34
%
37
%
97
97
97
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Years Ended
December 31,
2003
2002
$
5,200
$
4,945
228
200
149
128
149
(166
)
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2003
2002
122,201
128,094
10,102
9,882
61,685
65,872
15,302
14,952
52,347
52,678
2,644
2,445
19,270
19,751
29,347
28,924
5
1,215
312,903
323,813
14,628
327,531
323,813
______________________
* Includes 7,973 in North America and 6,655 in Ford Europe
2003
2002
$
30.27
$
29.34
31.15
23.31
$
61.42
$
52.65
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Our principal properties include manufacturing and assembly facilities, distribution centers, warehouses, sales or administrative offices and engineering centers.
We own substantially all of our U.S. manufacturing and assembly facilities. These facilities are situated in various sections of the country and include assembly plants, engine plants, casting plants, metal stamping plants, and transmission plants. Most of our distribution centers are leased (approximately 40% of our total square footage is owned). A substantial amount of our warehousing is provided by third party providers under service contracts. All of the warehouses that continue to be operated by us are leased, although many of our manufacturing and assembly facilities contain some warehousing space. Substantially all of our sales offices are being leased. Approximately 90% of the total square footage of our engineering centers and our supplementary research and development space is owned by us.
In addition, we maintain and operate manufacturing plants, assembly facilities, parts distribution centers, and engineering centers outside the United States. We own substantially all of the manufacturing plants, assembly facilities, and engineering centers. The majority of our parts distribution centers outside of the United States are either leased or provided by vendors under service contracts.
22
The total number plants, distribution centers/
warehouses, engineering and research and development sites, and
sales offices used by the Americas and International segments of
our Automotive sector are shown below.
Distribution
Engineering,
Segment
Plants
Centers/ Warehouses
Research/ Development
Sales Offices
56
51
42
43
46
16
9
28
102
67
51
71
Included in the number of plants used by the International segment shown above are several plants that are not operated directly by us, but rather by consolidated joint ventures that operate plants that support our Automotive sector. The following are the most significant of these consolidated joint ventures and the number of plants they own.
| Ford Otosan a joint venture in Turkey between Ford (41% partner), the Koc Group of Turkey (41% partner) and public investors (18%) that is our single source supplier of the new Ford Transit Connect vehicle. In addition, we have announced that production of the Ford Transit Van in Europe will increase at the Kocaeli Plant owned by Ford Otosan to effectively replace the production that ceased at our Genk Plant in Belgium. Ford Otosan currently assembles a limited number of Transit Vans for selected markets. Once production of the Ford Transit Van is increased, Ford Otosan will assemble Transit as a major supplier to Ford Europe. Production of the Transit Van in Southampton, England will continue. This joint venture operates two plants. | |
| Getrag Ford Transmissions GmbH a 50/50 joint venture with Getrag Deutsche Venture GmbH & Co. Kg i.G., a German company, to which we transferred our European manual transmission operations in Halewood, England, Cologne, Germany and Bordeaux, France. In 2004, Volvo Car Corporation (Volvo Cars) agreed to transfer its manual transmission operations from its Köping, Sweden plant to this joint venture. The Getrag joint venture produces manual transmissions for our operations in Europe (Ford Europe and PAG). Ford currently supplies most of the hourly and salaried labor requirements of the operations transferred to the Getrag joint venture. Ford employees who worked at the manual transmission operations that were transferred at the time of the formation of the joint venture are assigned to the joint venture by Ford. In the event of surplus labor at the joint venture, Ford employees assigned to the joint venture may return to Ford. Employees hired in the future to work in these operations will be employed directly by the joint venture. Getrag Ford Transmissions GmbH reimburses Ford for the full cost of the hourly and salaried labor supplied by Ford. This joint venture operates or will operate three plants. | |
| Getrag All Wheel Drive AB a joint venture in Sweden between Getrag Dana Holding GmbH (Getrag/Dana) (60 % partner) and Volvo Cars (40% partner). In January 2004, Volvo Cars entered into agreements with Getrag/Dana to transfer Volvo Cars plant in Köping, Sweden to this joint venture. The joint venture will produce all wheel drive components and, for a time, chassis components as well. The manual transmission operations at the Köping plant will be transferred to Getrag Ford Transmissions GmbH. The hourly and salaried employees at the plant have become employees of the joint venture. | |
| TEKFOR Cologne GmbH a 50/50 joint venture with Neumayer Holding GmbH, a German company, to which Ford-Werke AG transferred the operations of the Ford forge in Cologne. The joint venture produces forged components, primarily for transmissions and chassis, for use in Ford vehicles and sale to third parties. Those Ford employees that worked at the Cologne Forge Plant at the time of the formation of the joint venture are assigned to the joint venture by Ford and remain employees of Ford. All new employees hired to work at the forge |
23
will be hired as employees of the joint venture. In the event of surplus labor at the joint venture, Ford employees assigned to the joint venture may return to Ford. TEKFOR Cologne GmbH reimburses Ford for full cost of the Ford employees assigned to the joint venture. This joint venture operates one plant. | ||
| Pininfarina Sverige, AB a joint venture between Volvo Cars (40% partner) and Pininfarina, S.p.A. (60% partner). In September 2003, Volvo Cars entered into agreements with Pininfarina to establish this joint venture for the engineering and manufacture of niche vehicles, starting with a new, small convertible. Volvo Cars will outsource the design and engineering to Pininfarina with the manufacturing performed by the joint venture. The joint venture will produce the car at the Uddevalla Plant in Sweden, which was transferred from Volvo Cars to the joint venture and is the joint ventures only plant. | |
| Ford Vietnam Limited a joint venture between Ford (75% partner) and Song Kong Diesel (25% partner). Ford Vietnam assembles and distributes several Ford vehicles in Vietnam, including Transit, Laser, Ranger and Escape. This joint venture operates one plant. | |
| Ford India Private Limited a joint venture between Ford (84% partner) and Mahindra & Mahindra Limited (16% partner). Ford India assembles and distributes the Ford Ikon and Endeavour in India, Nepal and Bangladesh. Ford India also imports and distributes the Mondeo. Ikon kits are exported to Mexico, South Africa and China. This joint venture operates one plant. | |
| Ford Lio Ho Motor Company Ltd. (FLH) a joint venture in Taiwan among Ford (70% partner), the Lio Ho Group (25% partner) and individual shareholders (5% ownership in aggregate) that assembles a variety of Ford and Mazda vehicles sourced from North America, Europe, Mazda, and Suzuki, including Escape, Tribute, Mondeo, Tierra, Mazda Protégé, Econovan, Mazda Bongo, and Suzuki Pronto. In addition to domestic assembly, FLH also imports/ distributes built-up vehicles from North America and Europe. This joint venture operates one plant. |
In addition to the plants that we operate directly or that are operated by consolidated joint ventures, additional plants that support our Automotive sector are operated by other, non-consolidated joint ventures of which we are a partner. These additional plants are not included in the number of plants shown in the table above. The most significant of these joint ventures are:
| AutoAlliance International (AAI) a 50/50 joint venture with Mazda (of which we own 33.4%), which owns and operates as its principal business an automobile vehicle assembly plant in Flat Rock, Michigan. AAI currently produces the Mazda6 vehicle and will produce the next-generation Ford Mustang beginning later this year for the 2005 model year. Ford supplies all of the hourly and substantially all of the salaried labor requirements to AAI and AAI reimburses Ford for the full cost of that labor. | |
| AutoAlliance (Thailand) (AAT) a 50/50 joint venture with Mazda, which owns and operates a manufacturing plant in Rayong, Thailand. AAT produces the Ford Ranger, Ford Everest and Mazda B- Series pickup trucks for the Thai market and for export to over 100 countries worldwide (other than North America), in both built up and kit form. | |
| Blue Diamond Truck, S de RL de CV a joint venture between Ford (49% partner) and International Truck and Engine Corporation (51% partner), a subsidiary of Navistar International Corporation (Navistar). Blue Diamond Truck develops and manufactures selected medium and light commercial trucks in Mexico and sells the vehicles to Ford and Navistar for their own independent distribution. Blue Diamond Truck commenced manufacturing operations in December 2002, with its first products, the Ford F-650/750 trucks, being shipped in February 2003. |
24
| Blue Diamond Parts, LLC a joint venture between Ford (51% partner) and Navistar (49% partner). Blue Diamond Parts manages sourcing, merchandising, and distribution of various replacement parts. |
| Tenedora Nemak, S.A. de C.V. a joint venture between Ford (20% partner) and a subsidiary of Alfa S.A. de C.V., a Mexican conglomerate (80% partner), that owns and operates, among other facilities, our former Canadian castings operations and supplies engine blocks and heads to several of our engine plants. Ford supplies a portion of the hourly labor requirements for the Canadian plants, for which it is fully reimbursed by the joint venture. | |
| Changan Ford Automobile Corporation (Changan Ford) a 50/50 joint venture between Ford and the Chongqing Changan Automobile Co, Ltd. Changan Ford produces and distributes in China a compact family sedan vehicle, the Ford Fiesta, and is planning to launch the Ford Mondeo model in 2003. | |
| Jiangling Motors Corporation a joint venture in China between Ford (30% partner), the Jiangling Motors Company Group of China (41% partner) and public investors (29%) that assembles the Ford Transit Van and other non-Ford vehicles for distribution in China. | |
| Ford Malaysia Sdn. Bhd. a joint venture between Ford (49% partner) and Tractors Malaysia, a publicly-traded subsidiary of Sime Darby (51% partner). Ford Malaysia distributes Ford vehicles assembled by its wholly-owned subsidiary AMI, an assembly company, including Laser, Ranger, Everest, Escape and Econovan. |
The furniture, equipment and other physical property owned by our Financial Services operations are not material in relation to their total assets.
The facilities owned or leased by us or our subsidiaries and joint ventures described above are, in the opinion of management, suitable and adequate for the manufacture and assembly of our products.
ITEM 3. | LEGAL PROCEEDINGS |
Overview
Various legal actions, governmental investigations and proceedings and claims are pending or may be instituted or asserted in the future against us and our subsidiaries, including, but not limited to, those arising out of the following: alleged defects in our products; governmental regulations covering safety, emissions, and fuel economy; financial services; employment-related matters; dealer, supplier, and other contractual relationships; intellectual property rights; product warranties; environmental matters; and shareholder matters. Some of the pending legal actions are, or purport to be, class actions. Some of the foregoing matters involve or may involve compensatory, punitive or antitrust or other multiplied damage claims in very large amounts, or demands for recall campaigns, environmental remediation programs, sanctions or other relief that, if granted, would require very large expenditures. We regularly evaluate the expected outcome of product liability litigation and other litigation matters. We have accrued expenses for probable losses on product liability matters, in the aggregate, based on an analysis of historical litigation payouts and trends. Expenses also have been accrued for other litigation where losses are deemed probable. These accruals are reflected in our financial statements.
25
Following is a discussion of our significant pending legal proceedings:
Product Liability Matters
Asbestos Matters . Asbestos was used in brakes, clutches and other automotive components dating from the early 1900s. Along with other vehicle manufacturers, we have been the target of asbestos litigation and, as a result, we are a defendant in various actions for injuries claimed to have resulted from alleged contact with certain Ford parts and other products containing asbestos. Plaintiffs in these personal injury cases allege various health problems as a result of asbestos exposure either from (i) component parts found in older vehicles (ii) insulation or other asbestos products in our facilities or (iii) asbestos aboard our former maritime fleet. The majority of these cases have been filed in the state courts.
Most of the asbestos litigation we face involves mechanics or other individuals who have worked on the brakes of our vehicles over the years. Also, in most asbestos litigation we are not the sole defendant. We believe we are being more aggressively targeted in asbestos suits because many previously targeted companies have filed for bankruptcy. We are prepared to defend these asbestos related cases and, with respect to the cases alleging exposure from our brakes, believe that the scientific evidence confirms our long-standing position that mechanics and others are not at an increased risk of asbestos related disease as a result of exposure to the type of asbestos formerly used in the brakes on our vehicles.
The extent of our financial exposure to asbestos litigation remains very difficult to estimate. The majority of our asbestos cases do not specify a dollar amount for damages, and in many of the other cases the dollar amount specified is the jurisdictional minimum. The vast majority of these cases involve multiple defendants, with the number in some cases exceeding 100. Our annual payout and related defense costs in asbestos cases are increasing and may become substantial in the future. The total number of claims pending against us as of February 3, 2004 is approximately 41,500, compared with approximately 25,000 as of February 2003. This, together with the trends in civil litigation toward larger jury verdicts and punitive damages awards, is expected to result in increased payouts and defense costs in 2004.
The United States Congress continues to consider proposals to reform asbestos litigation. The lead proposal would create a trust fund from which eligible asbestos claimants would be compensated and would preclude, during the life of the trust, litigation in the United States based on exposure to asbestos. The trust fund would be funded by asbestos defendants (including us) and the insurance industry. These funds would be used to pay eligible claimants (i.e., those who satisfy specific medical criteria and can adequately demonstrate occupational exposure to asbestos) according to a specified schedule. If legislation is enacted creating such a trust fund, we would likely be required to make substantial contributions to the fund over a specified period of time, resulting in our incurring a charge in the amount of the present value of such anticipated contributions in the period in which the legislation becomes effective. We cannot predict whether or in what form the legislation will be enacted or the costs associated with such enactment.
Romo v. Ford . During December, 1994, an action was filed in Superior Court in Stanislaus County, California, alleging that manufacturing and design defects in a 1978 Bronco caused the deaths of three members of the plaintiffs family. The trial in July 1999 resulted in a jury verdict ordering us to pay $290 million in punitive damages and $5 million in compensatory damages. On May 19, 2003, the United States Supreme Court granted our petition for certiorari and remanded the case for reconsideration in light of the Supreme Courts decision in State Farm v. Campbell, which held that punitive awards generally cannot exceed nine times the compensatory award and that punitive awards cannot be based on out-of-state or dissimilar conduct. On remand, the California appeals court gave the plaintiffs the choice of either accepting a reduced punitive damages award in
26
the amount of approximately $24 million (slightly less than five times the $5 million compensatory damage award) or a new trial. The plaintiffs elected to accept the reduced punitive damages award, which, with interest, amounted to approximately $34.5 million.
Environmental Matters
General . We have received notices under various federal and state environmental laws that we (along with others) may be a potentially responsible party for the costs associated with remediating numerous hazardous substance storage, recycling or disposal sites in many states and, in some instances, for natural resource damages. We also may have been a generator of hazardous substances at a number of other sites. The amount of any such costs or damages for which we may be held responsible could be substantial. The contingent losses that we expect to incur in connection with many of these sites have been accrued and those losses are reflected in our financial statements in accordance with generally accepted accounting principles. However, for many sites, the remediation costs and other damages for which we ultimately may be responsible are not reasonably estimable because of uncertainties with respect to factors such as our connection to the site or to materials there, the involvement of other potentially responsible parties, the application of laws and other standards or regulations, site conditions, and the nature and scope of investigations, studies, and remediation to be undertaken (including the technologies to be required and the extent, duration, and success of remediation). As a result, we are unable to determine or reasonably estimate the amount of costs or other damages for which we are potentially responsible in connection with these sites, although that total could be substantial.
Cleveland Engine Plant Notice of Violation . Following an inspection by the Cleveland Local Air Agency (which has been delegated enforcement authority by the Ohio Environmental Protection Agency (Ohio EPA)) our Cleveland Engine Plant received a notice of violation in July 2003. The NOV alleged violations of permit limitations for a maintenance paint spray booth and engine testing operations. The potential violations associated with the engine testing operations previously had been reported to Ohio EPA. In December 2003, Ford resolved the matter with Ohio EPA through an administrative settlement that included a nominal penalty.
Cleveland Casting Plant Notice of Violation . Following an inspection by the Cleveland Local Air Agency, our Cleveland Casting Plant received a notice of violation in July 2002. The NOV alleged that the Plant exceeded a number of its permit limitations, modified its emission sources without first obtaining a permit to install, did not operate certain process equipment according to permit requirements, and did not conduct required emission testing. In December 2003, Ford resolved the matter with Ohio EPA through an administrative settlement that included a nominal penalty.
Wixom Assembly Plant Notice of Violation Regarding Air Emissions . In September 2003, the Department of Environmental Quality (the DEQ) notified Ford that it is commencing an enforcement action related to several abatement equipment malfunctions at our Wixom, Michigan Assembly Plant over the last few years. The DEQ alleges that the plant did not properly follow state air rules governing abatement equipment malfunction. We are negotiating the terms of a malfunction abatement plan with the DEQ that will be included in the Plants operating permit. It is reasonably possible that the DEQ could seek monetary sanctions of $100,000 or more for these alleged violations.
Class Actions
The following are actions filed against us on behalf of individual plaintiffs and all others similarly situated (i.e., purported class actions). In light of the fact that very few of the purported class actions filed against us in the past have ever been certified by the courts as class actions, the actions listed below are limited to those that (i) have been certified as a class action by a court of competent
27
jurisdiction (and any additional purported class actions that raise allegations substantially similar to a certified case) and (ii) if resolved unfavorably to the Company, would likely involve a significant cost.
Firestone Class Actions . Over 100 Firestone-related class actions have been filed against us, but many have been consolidated into a single case now pending in federal court in Indianapolis. Plaintiffs in these cases have never been injured in an accident involving Firestone tires, but they seek to recover, on behalf of all purchasers of Ford Explorers with Firestone tires, the alleged diminution in vehicle value caused by the use of those tires or by the alleged instability of Explorers. Plaintiffs also seek punitive damages.
In the case pending in Indianapolis, the United States Court of Appeals for the Seventh Circuit has ruled that the case cannot be maintained as a nationwide or statewide class action. Plaintiffs are now focusing on some of the 23 cases that have not yet been transferred to Indianapolis. These cases were filed in state courts in Illinois, Pennsylvania, South Carolina (2 cases), Wisconsin, Arkansas (2 cases), California (5 cases), Louisiana, Ohio, Texas (2 cases), Connecticut (5 cases), Florida, and Tennessee. Some of these cases have been removed to federal court and are likely to be transferred to the court in Indianapolis, where they will be subject to the Seventh Circuits order denying class certification. Some of these cases, however, will remain in state court where the trial courts will be free to reconsider the issue of class certification. A state trial judge in Arkansas has dismissed one of the cases pending in that state because plaintiffs suffered no injury.
In the case filed in Illinois, and in one of the cases filed in South Carolina, the trial courts have already certified statewide classes. In those cases, however, plaintiffs are not relying on any alleged defects in the Ford Explorer; rather, they allege only that Firestone ATX and Wilderness AT tires installed on Ford Explorers and Mercury Mountaineers are defective. Since we have already agreed to replace all of these tires, we are seeking to have these cases dismissed as moot. We will also be seeking appellate review of these rulings.
On June 20, 2003, the U.S. Court of Appeals enjoined the prosecutions of state cases that purport to represent a nationwide class on the basis that the courts prior decisions establish conclusively that these cases cannot be tried as nationwide class actions. State cases that involve only statewide classes are unaffected by the June 20 decision, but are likely to be stayed pending completion of a settlement that Firestone has tentatively negotiated with the plaintiffs. The proposed settlement would require plaintiffs to dismiss all class action claims against Ford that are based on alleged tire defects.
Paint Class Actions . A purported class action in state court in Illinois asserts claims on behalf of residents of all states except Texas who have experienced paint peeling on most 1988 through 1997 model year Ford vehicles. Plaintiffs allege fraud, breach of warranty, and violations of consumer protection statutes, contending that their paint is defective and susceptible to peeling because we did not use spray primer between the high-build electrocoat (HBEC) and the color coat. The lack of spray primer allegedly causes the adhesion of the color coat to the HBEC to deteriorate after extended exposure to ultraviolet radiation from sunlight. Plaintiffs seek unspecified compensatory damages (in an amount to cover the cost of repainting their vehicles and to compensate for alleged diminution in value), punitive damages, attorneys fees and interest. On September 15, 2003, the court certified the class of owners of 1989-96 model year vehicles that have experienced paint peeling (all states except Texas). We will seek leave to appeal this order.
A second purported class action, filed in Texas state court, involving essentially the same allegations was settled for a nominal amount following reversal by the Texas Court of Appeals of the trial courts order certifying a class.
Ford/Citibank Visa Class Action . Four purported nationwide class actions and two purported statewide class actions are pending against us in connection with the June 1997 announcement of the termination of the Ford/Citibank credit card rebate program; Citibank is also a defendant in some
28
of these actions. The actions allege damages in an amount up to $3,500 for each cardholder who obtained a Ford/Citibank credit card in reliance on the rebate program and who is precluded from accumulating discounts toward the purchase or lease of new Ford vehicles after December 1997 as a result of the termination of the rebate program. Plaintiffs contend that defendants deceptively breached their contract by unilaterally terminating the program, that defendants have been unjustly enriched as a result of the interest charges and fees collected from cardholders, and further, that defendants conspired to deprive plaintiffs of the benefits of their credit card agreement. Plaintiffs seek compensatory damages, or alternatively, reinstatement of the rebate program, and punitive damages, costs, expenses and attorneys fees.
The four purported nationwide class actions are pending in state courts in Alabama, Illinois, New York, and Washington, and the purported statewide class actions are pending in California state courts. The Alabama court has conditionally certified a class consisting of Alabama residents.
Crown Victoria Police Interceptor Class Actions . A total of 23 purported class actions have been filed on behalf of government entities that own Ford Crown Victoria Police Interceptors, alleging that the vehicles are susceptible to fuel leaks and fires when struck from the rear at high speed. Twenty of the actions have been consolidated into a Multi District Litigation (MDL) proceeding in the U.S. District Court, Northern District of Ohio. The remaining actions are pending in Illinois (2 cases) and California. Five of the cases purport to represent a nationwide class; the other cases purport to represent statewide classes. The complaints seek a recall of the affected vehicles, an injunction, compensatory and punitive damages and other relief. A state court in Illinois has certified a state-wide class of all municipalities in the state of Illinois that own 1992-2002 Police Interceptor vehicles.
Six additional purported class actions relating to non-police Ford Crown Victoria vehicles, with similar allegations and demands for relief, have been filed in Arkansas, Illinois, Ohio, California, Florida, and Texas. The Arkansas and Ohio cases purport to represent a nationwide class; the others purport to represent owners in the relevant state.
F-150 Radiator Class Actions . Three purported class actions are pending alleging that the Company defrauded purchasers of approximately 400,000 1999-2001 F-150 trucks by falsely representing that certain option packages included upgraded radiators. In one case, in state court in Texas, the trial court has certified a nationwide class of all purchasers of 2000 and 2001 F-150 trucks with heavy duty or trailer packages. We are appealing that ruling to the Texas Court of Appeals. Cases in South Carolina and California purport to represent statewide classes. Prior to the filing of these suits, we implemented a program that gives affected customers a choice of $100 cash, a $500 coupon, or installation of an upgraded radiator. However, plaintiffs are alleging that the program should cover additional vehicles, that they should be reimbursed for loss of use of the vehicle while the radiators are being replaced, and that they are entitled to attorney fees.
Hydroboost Truck Brake Class Action . A purported class action was filed on August 2, 2002 in state court in Oklahoma on behalf of all purchasers of 1999 through 2002 model year F-250, F-350, F-450, and F-550 Ford Super Duty Trucks and 2002 Excursions with hydroboost hydraulic braking systems. The complaint alleges that these trucks are unsafe because they suffer diminished power assist to the steering when the driver is simultaneously braking and steering. The complaint alleges breach of warranty and fraud, and seeks the cost of retrofitting the trucks to eliminate the alleged danger, compensation for diminished resale value, and other relief. On January 19, 2004, the court granted plaintiffs motion to certify a nationwide class, and agreed to stay proceedings while we appeal. The Safety Administration investigated a similar issue and closed the investigation, finding that diminished steering assist while braking is present in these trucks, but that the associated injury and property damage incidents are so rare that they do not present a risk to vehicle safety.
29
ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
Not required.
ITEM 4A. | EXECUTIVE OFFICERS OF FORD |
Our executive officers and their positions and ages at March 1, 2004 unless otherwise noted, are shown in the table below:
Present Position | ||||||||||
Name | Position | Held Since | Age | |||||||
|
|
|
|
|||||||
William Clay Ford, Jr.*
|
Chairman of the Board and Chief Executive Officer
|
October 2001 | 46 | |||||||
Nicholas V. Scheele**
|
President and Chief Operating Officer (also a
Director)
|
October 2001 | 60 | |||||||
Allan D. Gilmour
|
Vice Chairman
|
May 2002 | 69 | |||||||
James J. Padilla
|
Executive Vice President and President, The
Americas
|
December 2002 | 57 | |||||||
David W. Thursfield
|
Executive Vice President
International Operations and Global Purchasing
(Chairman & CEO, Ford of Europe)
|
December 2002 | 58 | |||||||
Bruce L. Blythe
|
Chief Strategy Officer
|
September 2003 | 59 | |||||||
Lewis W. K. Booth
|
Group Vice President (President & COO,
Ford of Europe)
|
September 2003 | 55 | |||||||
Mark Fields
|
Group Vice President Premier
Automotive Group
|
July 2002 | 43 | |||||||
Roman J. Krygier
|
Group Vice President Manufacturing
and Quality
|
November 2001 | 61 | |||||||
Joe W. Laymon
|
Group Vice President Corporate Human
Resources
|
October 2003 | 51 | |||||||
Donat R. Leclair
|
Group Vice President and Chief Financial Officer
|
August 2003 | 52 | |||||||
Philip R. Martens
|
Group Vice President Product Creation
|
October 2003 | 43 | |||||||
J C. Mays
|
Group Vice President Design
|
August 2003 | 49 | |||||||
James G. OConnor
|
Group Vice President North America
Marketing, Sales and Service
|
May 2002 | 61 | |||||||
Ziad S. Ojakli
|
Group Vice President Corporate Affairs
|
January 2004 | 36 | |||||||
Richard Parry-Jones
|
Group Vice President, Product Development and
Chief Technical Officer
|
August 2001 | 52 | |||||||
Mark A. Schulz
|
Group Vice President Asia Pacific
|
October 2003 | 51 | |||||||
Greg C. Smith
|
Group Vice President
(Chairman & Chief Executive Officer, Ford Motor Credit
Company)
|
October 2002 | 52 | |||||||
Anne Stevens
|
Group Vice President Canada, Mexico
and South America
|
October 2003 | 55 | |||||||
James C. Gouin
|
Vice President and Controller
|
August 2003 | 44 | |||||||
Dennis E. Ross
|
Vice President and General Counsel
|
October 2000 | 53 |
_______________
** | Also a member of the Office of the Chairman and Chief Executive Committee of the Board of Directors. |
All of the above officers, except those noted below, have been employed by Ford or its subsidiaries in one or more capacities during the past five years. Described below are the positions (other than those with Ford or its subsidiaries) held by those officers who have not been with Ford or its subsidiaries for five years:
| Mr. Gilmour previously served as Fords Chief Financial Officer from 1986 to 1987 and as a Vice Chairman from 1993 until his retirement after 34 years with Ford in 1995. Mr. Gilmour also owns a Ford-franchised automotive dealership. | |
| Mr. Blythe previously served in a number of senior strategic and financial positions with Ford from 1968 until he left the Company in 1993. From 1993 until he rejoined Ford in his current |
30
Item 4A. | Executive Officers of Ford (Continued) |
position in 2003, Mr. Blythe served as a consultant to various clients, including the Ford family. | ||
| Mr. Laymon was Vice President, US and Canada Region and Director, Human Resources, Worldwide Regions, for Eastman Kodak Company from 1996 to 2000. | |
| Mr. Ojakli served as Principal Deputy for Legislative Affairs for President Bush from December 2002 to 2003, and was Deputy Assistant to the President from 2001 to 2002. Prior to that, from 1998 to 2000, he was the Policy Director and Chief of Staff to the Senate Republican Conference Secretary. |
Under Fords By-Laws, the executive officers are elected by the Board of Directors at the Annual Meeting of the Board of Directors held for this purpose. Each officer is elected to hold office until his or her successor is chosen or as otherwise provided in the By-Laws.
PART II
ITEM 5. | MARKET FOR FORDS COMMON STOCK AND RELATED STOCKHOLDER MATTERS |
Our Common Stock is listed on the New York and Pacific Coast Stock Exchanges in the United States and on certain stock exchanges in Belgium, France, Germany, Switzerland and the United Kingdom.
The table below shows the high and low sales
prices for our Common Stock and the dividends we paid per share
of Common and Class B Stock for each quarterly period in
2003 and 2002.
2003
2002
First
Second
Third
Fourth
First
Second
Third
Fourth
Quarter
Quarter
Quarter
Quarter
Quarter
Quarter
Quarter
Quarter
$
10.80
$
11.71
$
12.53
$
17.33
$
17.29
$
18.23
$
16.24
$
11.91
6.58
7.30
10.43
10.41
13.90
14.88
9.24
6.90
$
0.10
$
0.10
$
0.10
$
0.10
$
0.10
$
0.10
$
0.10
$
0.10
As of February 27, 2004, stockholders of record of Ford included 192,725 holders of Common Stock (which number does not include 19,834 former holders of old Ford Common Stock who have not yet tendered their shares pursuant to our recapitalization, known as the Value Enhancement Plan, which became effective on August 9, 2000) and 103 holders of Class B Stock.
We sold or issued shares of our Common Stock
during the past three years in private transactions that were
not registered with the Securities and Exchange Commission as
follows:
2003
2002
2001
1,451,859 shares
2,131,411 shares
188,919 shares
These shares were sold or issued in transactions that were exempt from registration requirements because they were private placements under Section 4(2) of the Securities Act of 1933, as amended. All of the shares issued in 2003, 2002 and 2001 were issued to various directors, officers and other executives of the Company pursuant to their compensation plans or agreements. The consideration we received for these shares was determined to be at least equal to the market value of the shares at the time of the transactions.
31
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial
data concerning Ford for each of the last five years (dollar
amounts in millions, except per share amounts). The data have
been reclassified for held-for-sale operations in 2003, which
are described in Note 3 of the Notes to Financial
Statements.
2003
2002
2001
2000
1999
$
164,196
$
162,256
$
160,504
$
168,930
$
160,053
1,370
951
(7,419
)
8,311
9,856
135
301
(2,096
)
2,722
3,247
314
367
24
127
112
921
283
(5,347
)
5,462
6,497
(8
)
(62
)
(106
)
257
740
(154
)
(199
)
(2,252
)
(264
)
(1,002
)
$
495
$
(980
)
$
(5,453
)
$
3,467
$
7,237
$
138,442
$
134,273
$
130,736
$
140,765
$
135,022
(1,531
)
(528
)
(7,390
)
5,298
7,190
(1,957
)
(1,153
)
(8,857
)
5,333
7,296
$
25,754
$
27,983
$
29,768
$
28,165
$
25,031
3,327
2,104
1,438
2,978
2,560
$
0.50
$
0.15
$
(2.96
)
$
3.69
$
5.38
(0.04
)
(0.06
)
0.18
0.61
(0.09
)
(0.11
)
(1.53
)
(0.14
)
(0.55
)
$
0.27
$
(0.55
)
$
(3.02
)
$
2.34
$
5.99
$
0.50
$
0.15
$
(2.96
)
$
3.62
$
5.26
(0.03
)
(0.06
)
0.17
0.60
(0.09
)
(0.11
)
(1.49
)
(0.14
)
(0.55
)
$
0.27
$
(0.54
)
$
(3.02
)
$
2.30
$
5.86
$
0.40
$
0.40
$
1.05
$
1.80
$
1.88
17.33
18.23
31.42
31.46
37.30
6.58
6.90
14.70
21.69
25.42
1,832
1,819
1,820
1,483
1,210
$
120,641
$
107,790
$
88,319
$
94,312
$
99,201
195,279
187,432
188,224
189,078
171,048
$
315,920
$
295,222
$
276,543
$
283,390
$
270,249
$
18,987
$
13,607
$
13,467
$
11,769
$
10,398
100,764
106,525
107,024
86,865
67,170
$
119,751
$
120,132
$
120,491
$
98,634
$
77,568
$
11,651
$
5,590
$
7,786
$
18,610
$
27,604
(a) | Share data have been adjusted to reflect stock dividends and stock splits. Common stock price range (NYSE Composite) has been adjusted to reflect the spin-offs of Visteon and The Associates, and a recapitalization known as our Value Enhancement Plan. | |
(b) | Adjusted for the Value Enhancement Plan effected in August 2000, cash dividends were $1.16 per share in 2000. |
32
ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
OVERVIEW
Generation of Revenue, Income and Cash
Our Automotive sectors revenue, income and cash are generated primarily from sales of vehicles to our dealers and distributors (i.e., our customers). Vehicles we produce generally are subject to firm orders from our customers and generally are deemed sold (with the proceeds from such sale recognized in revenue) immediately after they are produced and shipped to our customers. This is not the case, however, with respect to vehicles produced for sale to daily rental car companies that are subject to a guaranteed repurchase option or vehicles produced for use in our own fleet (including management evaluation vehicles). Vehicles sold to daily rental car companies that are subject to a guaranteed repurchase option are accounted for as operating leases, with lease revenue and profits recognized over the term of the lease. When we sell the vehicle at auction, we recognize a gain or loss on the difference, if any, between actual auction value and the projected auction value. Therefore, except for the impact of the daily rental units sold subject to a guaranteed repurchase option and those units placed into our own fleet, vehicle production is closely linked with unit sales and revenue from such sales.
Our Financial Services sectors revenue is generated primarily from interest on finance receivables, including interest, net of certain deferred loan origination costs that are included as a reduction of financing revenue, and such revenue is recognized over the term of the receivable using the interest method. Also, revenue from operating leases, net of certain deferred origination costs, is recognized on a straight-line basis over the term of the lease. Income is generated to the extent revenues exceed expenses, most of which are interest and operating expenses.
Transactions between the Automotive and Financial Services sectors occur in the ordinary course of business. For example, Ford Credit receives interest supplements and other support cost payments from the Automotive sector in connection with special vehicle financing and leasing programs that it sponsors. Ford Credit records these payments as revenue over the term of the related finance receivable or operating lease. The Automotive sector records the estimated costs of marketing incentives, including dealer and retail customer cash payments (e.g., rebates) and costs of special financing and leasing programs, as a reduction to revenue at the later of the date the related vehicle sales are recorded or at the date the incentive program is both approved and communicated.
Key Economic Factors and Trends Affecting Automotive Industry
Excess Capacity. According to CSM Worldwide, an automotive research firm, in 2003, the automotive industrys estimated global production capacity for light vehicles (about 65 million units) significantly exceeded global production of cars and trucks (about 53 million units). In North America and Europe, the two regions where the majority of revenue and profits are earned in the industry, excess capacity was an estimated 14% and 17%, respectively, in 2003. We expect that this condition will continue for many years.
Pricing Pressure. Excess capacity coupled with a proliferation of new products being introduced in key segments by the industry will keep pressure on manufacturers ability to increase prices on their products. In addition, in recent years, Korean-based manufacturers have been increasing the number of vehicles they export for sale in the United States and other key markets, and this has contributed, and is expected to continue to contribute, to pricing pressure. In the United States, the reduction of real prices for similarly contented vehicles accelerated in recent years, and we expect that a challenging pricing environment will continue for some time to come. In Europe, the automotive industry has experienced intense pricing pressure for several years; in 2003, net pricing declined more in Europe than in the United States. Net pricing is a measure of the combined effect
33
Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued) |
of changes in wholesale prices for vehicles sold and marketing incentives incurred on those vehicles, while excluding the effects of changes in unit sales volume and foreign currency exchange rates.
Consumer Spending Trends. We expect, however, that a decline in, or the inability to increase, vehicle prices could be offset by the spending habits of consumers and their propensity to purchase over time higher-end, more expensive vehicles and/or vehicles with more features. Over the next decade, in the United States, we expect that growth in spending on vehicle mix and content will generally track the increase in real GDP per capita. The benefits of this to revenue growth in the automotive industry are significant. In the United States, for example, consumers in the highest income bracket are buying more often and more frequently buying upscale. We believe the share of the premium brand segment in the U.S. automotive industry will approach 13% by the end of this decade, compared with about 10% to 11% presently. With our luxury brands (i.e., Lincoln, Volvo, Jaguar, Land Rover and Aston Martin), we believe we are positioned well to take advantage of this trend.
Although growth in vehicle unit sales (i.e., volume) will be greatest in emerging markets in the next decade, we expect that the mature automotive markets (e.g., North America, Western Europe and Japan) will continue to be the source of a substantial majority of global industry revenues over the next decade. We also expect that the North American market will continue as the single largest source of revenue for the automotive industry in the world in the next decade.
Health Care Expenses. In the United States, the average annual percentage increase in health care prices we have experienced in the last few years has been in the double digits. In 2003, our health care expenses for United States employees and retirees were $3.2 billion, with about $2.2 billion attributable to retirees and the balance attributable to active employees. Prescription drug costs is the fastest growing segment of our health care expenses and accounted for about one-third of our total United States health care expenses in 2003.
Although we have taken measures to have employees and retirees bear a higher portion of the costs of their health care benefits, we expect our health care costs to continue to increase. For 2004, our trend assumptions for U.S. health care expenses include an initial trend rate of 9% and a steady state trend rate of 5% reached in 2010. These assumptions include the effect of actions we are taking and expect to take to offset health care inflation, including further employee cost sharing, administrative improvements and other efficiencies.
Trends and Strategies
Revenue Management. To address the pricing pressure that exists in the automotive industry, we have employed a customer-focused revenue management strategy to maximize per unit revenue. This strategy is focused on a disciplined approach to utilizing customer demand data available from many sources, including internet hits, transaction data, customer leads, and research to help us develop and sell vehicles that more closely match customer desires.
We believe our revenue management strategy has contributed significantly to increases in our revenue per vehicle sold for our Ford North America business unit of $724 and $284 for 2003 and 2002, respectively. (These amounts exclude the incremental effect on revenue from the consolidation of certain dealerships in 2003 related to FIN 46, discussed in Note 13 of the Notes to Financial Statements).
Cost Reduction. Given the difficult economic and operating environment described herein, we continue to focus on reducing our cost structure. During 2003, we reduced our costs by over $3 billion (at constant volume, mix and exchange and excluding special items). Cost reductions were realized in quality-related costs resulting from fewer warranty claims, recalls and customer service actions, as well as reduced manufacturing, engineering and overhead costs. Lower product costs (which are comprised of material and component costs for our vehicles) on carryover vehicles
34
partially offset higher product costs for newly introduced vehicles. Further cost efficiencies will be realized as we continue to implement our Revitalization Plan.
Shared Technologies. One of the strategies we are employing to realize efficiencies in manufacturing, engineering and product costs for new vehicles is the sharing of vehicle platforms and components among various models and the re-use of those platforms and components from one generation of a vehicle model to the next.
Revitalization Plan Progress
In January 2002, we announced that through the implementation of our Revitalization Plan, we expected to improve our pre-tax profit excluding special items to $7 billion by mid-decade, which we have defined as 2006. We do not expect a linear progression to the target of $7 billion of pre-tax profit excluding special items.
In 2004, we expect that the rate of profit improvement will be less than what we have experienced over the past couple of years. We are still about a year away from introducing new products that are designed in a manner such that the cost to produce them is appropriate in the current pricing environment, and we are about two years away from having those products in significant volume. In addition, as indicated above, rising health care costs remain a concern for us.
We expect, however, to make progress in 2004, as
we will focus on significantly improving the performance of our
Ford Europe business unit, and filling our global product
pipeline with new product introductions, particularly in the
passenger car area. Further, as indicated above, we are
continuing our efforts to improve quality and our cost
structure. Overall, while conditions may slow our rate of
improvement in 2004, we believe we are on track to achieve our
goal of $7 billion in pre-tax profits, excluding special
items, by year-end 2006.
FULL-YEAR 2003 RESULTS OF OPERATIONS
The results of our continuing operations below
exclude the results of discontinued and held-for-sale
operations, which are described in Note 3 of the Notes to
Financial Statements.
Our worldwide net income was $495 million or
$0.27 per share of Common and Class B stock in 2003, up
$1.5 billion from a loss of $980 million or $0.55 per
share in 2002.
Results by business sector for 2003, 2002, and
2001 are shown below (in millions):
35
We established and communicated milestones for
2003. Our results against these milestones are listed below:
In the table above, we disclose our Automotive
income before income taxes excluding special items, which is not
a financial measure calculated and presented in accordance with
generally accepted accounting principles in the United States
(GAAP). We believe, however, that this measure is
useful to our investors because it excludes elements that we do
not consider to be indicative of our ongoing Automotive
operating activities. This income before income taxes excluding
special items measure is one of the metrics by which our
management evaluates the business and it provides investors with
a more relevant measure of the results generated by our ongoing
operations.
36
The following table reconciles Automotive income
before income taxes excluding special items to Automotive
Income/(loss) before income taxes
(which includes special
items), the most directly comparable financial measure presented
in accordance with GAAP (in millions):
The table below shows how we were able to
significantly exceed our 2003 cost performance milestone (in
billions):
The $1.6 billion in quality related cost
reductions resulted from fewer warranty claims, primarily on
2002 model year vehicles, as well as sharply lower recalls and
customers service actions. The $1.2 billion reduction in
manufacturing and engineering reflected ongoing efficiencies and
an intense effort to identify and eliminate waste. The
$1.4 billion reduction in overhead resulted from intensive
cost cutting and elimination of waste in areas such as
advertising and sales promotion, personnel costs, consulting,
travel and office supplies. Net product costs, which improved by
$400 million, include the net impact of higher costs on
newly introduced vehicles and the effect of ongoing cost
reductions on carryover vehicles.
37
AUTOMOTIVE SECTOR RESULTS OF
OPERATIONS
2003 Compared with 2002
Details of Automotive sector income/(loss) before
income taxes and income/(loss) before income taxes excluding
special items for 2003 and 2002 are shown below (in millions):
Details of Automotive sector sales and vehicle
unit sales for 2003 and 2002 are shown below:
38
Details of Automotive sector market share for
selected markets for 2003 and 2002 are shown below:
Americas Automotive Segment
The principal terms of these agreements include:
39
The improvement in loss before income taxes for
Other Automotive (which in 2003 represents primarily interest
income and expense including realized and unrealized gains and
losses on cash and marketable securities) reflected primarily
the non-recurrence of a charge of $570 million in 2002
related to the sale of non-core businesses, primarily Kwik-Fit
Holdings Ltd (Kwik-Fit). The improvement was
partially offset by the non-recurrence of gains in cash and
marketable securities in 2002, which reflected declining
interest rates in 2002.
40
Details of Automotive sector income/(loss) before
income taxes and income/(loss) before income taxes excluding
special items for 2002 and 2001 are shown below
(in millions):
Details of Automotive sector sales and vehicle
unit sales for 2002 and 2001 are shown below:
41
Details of Automotive sector market share for
selected markets for 2002 and 2001 are shown below:
42
The increased loss reflected primarily the loss
on sale of Kwik-fit and other non-core businesses, offset
partially by improved net interest costs.
FINANCIAL SERVICES SECTOR RESULTS OF
OPERATIONS
2003 Compared with 2002
Details of the full year Financial Services
Sector income/(loss) before income taxes for 2003 and 2002 are
shown below (in millions):
The increase in income before income taxes of
$1.1 billion primarily reflected a lower provision for
credit losses and the net favorable market valuation of
derivative instruments and associated exposures. The impact of
lower average net receivables was a partial offset.
The provision for credit losses for the full year
of 2003 was $2.0 billion, down $1.0 billion from a
year ago, reflecting primarily the non-recurrence of an increase
in Ford Credits allowance for credit losses in 2002 and
lower credit losses.
Ford Credit reviews its business performance from
several perspectives, including:
Ford Credit analyzes its financial performance
primarily on an on-balance sheet and managed basis. It retains
interests in receivables sold in off-balance sheet
securitization transactions, and with respect to subordinated
retained interests, has credit risk. As a result, it evaluates
credit losses, receivables and leverage on a managed, as well as
an on-balance sheet basis. In contrast, Ford Credit does not
have the same financial interest in the performance of
receivables sold through whole-loan sale transactions because it
retains no interests in those receivables and, therefore, has no
credit risk with respect to them. Accordingly, Ford Credit
generally reviews the performance of its serviced portfolio only
to evaluate the effectiveness of its origination and collection
activities.
43
Ford Credits finance receivables, net of
allowance for credit losses, and net investment in operating
leases for our on-balance sheet, securitized off-balance sheet,
managed and serviced portfolios are shown below
(in billions):
On-Balance Sheet Receivables.
On-balance sheet finance receivables
and net investment in operating leases, net of allowance for
credit losses, increased $6.2 billion or 5% from a year
ago. The increase primarily reflected the receivables that were
recorded on our balance sheet (reacquired
receivables) as a result of the accounting consolidation
of FCAR Owner Trust (FCAR) in May 2003 (discussed in
Note 8 of the Notes to Financial Statements) and the impact
related to changes in currency exchange rates. The increase was
offset partially by the impact of lower lease and retail
placement volumes and receivables sold in off-balance sheet
securitizations and whole-loan sale transactions.
At December 31, 2003, on-balance sheet
retail receivables included $14.3 billion that were sold
for legal purposes to Ford Credit-sponsored special purpose
entities (SPE) that sell asset-backed securities to
FCAR and are available only for repayment of asset-backed
commercial paper issued by FCAR, other securitization investors
and other participants. These receivables are not available to
pay the obligations of Ford Credit or the claims of Ford
Credits creditors.
44
Securitized Off-Balance Sheet Receivables.
Total securitized off-balance sheet
receivables decreased $22 billion or 31% from a year ago.
This decrease primarily reflected the reacquired receivables
resulting from the consolidation of FCAR, now reported on our
balance sheet, the slower pace of securitizations and the
increased use of whole-loan sale transactions.
Managed Receivables.
Total managed receivables decreased
$15.8 billion or 8% from a year ago, the decrease primarily
reflected lower retail installment finance receivables resulting
from lower placement volumes, lower net investment in operating
leases, and the sale of U.S. retail finance receivables in
whole-loan sale transactions. Net investment in operating leases
was lower, reflecting a de-emphasis of leasing in Fords
marketing programs.
The following table shows actual credit losses
net of recoveries, which are referred to as net credit losses,
for Ford Credits 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 net credit losses
divided by the average amount of net receivables outstanding for
the period, are shown for the on-balance sheet and managed
portfolios.
The decrease in net credit losses for our
on-balance sheet portfolio primarily reflected improved
performance in our U.S. commercial receivables and lower
on-balance sheet receivables at Ford
45
Credits subsidiaries Triad Financial
Corporation and Fairlane Credit, LLC. These declines were offset
partially by a charge-off of accounts delinquent for over
120 days, which resulted in recognition of
$106 million of credit losses, primarily in our European
wholesale receivables portfolio. The charge off was a result of
our European operations adopting the practice of our North
American operations of charging off all accounts more than
120 days delinquent. The on-balance sheet
loss-to-receivables ratio of 1.67% was down from 1.72%. The
improvement in the loss-to-receivables ratio reflected lower
credit losses and the retention of securitized receivables on
Ford Credits balance sheet.
Shown below is an analysis of Ford Credits
allowance for credit losses related to finance receivables and
operating leases for the years ended December 31 (dollar
amounts in billions):
The decrease in the allowance for credit losses
of $200 million reflected primarily the charge-off of
$106 million for accounts delinquent over 120 days
primarily in our European wholesale receivables portfolio and
lower losses in the commercial and liquidating Fairlane Credit
portfolios.
The following table summarizes the activity
related to off-balance sheet sales of receivables reported as
revenues for the periods indicated (in millions except for
ratios):
The increase in investment and other income
related to sales of receivables of $155 million or 6%
compared with 2002, reflected higher excess spread and other
income offset partially by lower net gains. Higher excess spread
and other income resulted from higher levels of outstanding
securitized receivables in 2002. Lower gains in 2003 resulted
from lower amounts of finance receivables sold, down about
$19 billion compared with 2002, reflecting lower funding
requirements.
46
Excluding the effects of the whole-loan sale
transactions, which totaled $10.4 billion in the 2002-2003
period, off-balance sheet securitization income was unchanged
compared with 2002.
Sales of finance receivables through off-balance
sheet securitizations have the impact on earnings of
recalendarizing and reclassifying net financing margin (i.e.,
financing revenue less interest expense) and credit losses
related to the sold receivables, compared with how they would
have been reported if Ford Credit continued to report the sold
receivables on-balance sheet and funded them through
asset-backed financings. Recalendarization effects occur
initially when the gain or loss on sales of receivables is
recognized in the period the receivables are sold. Over the life
of the securitization transaction, Ford Credit recognizes excess
spread, interest income from retained securities, servicing fees
and other receivable sale income.
In addition, credit losses related to the
off-balance sheet securitized receivables are included in the
initial and ongoing valuation of Ford Credits
interest-only strip asset (see Off-balance Sheet
Arrangements Sales of Receivables by Ford
Credit for definition) and do not impact the
Provision
for credit and insurance losses
on the income statement and
they do not influence the assessment of the adequacy of the
Allowance for credit losses
for Ford Credits
on-balance sheet receivables.
Therefore, over the life of each off-balance
sheet securitization transaction, the gain or loss on sale of
receivables, excess spread, interest income from retained
securities, servicing fees and other receivable sale income is
equal to the net financing margin and credit losses that would
have been reported had Ford Credit reported the receivables on
its balance sheet and funded them through asset-backed
financings.
The net impact of off-balance sheet
securitizations on Ford Credits 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 receivables sold in off-balance
sheet securitizations had Ford Credit reported them as
on-balance sheet and funded them through asset-backed financing
for the periods indicated (in millions):
In 2003, the impact on earnings of reporting the
sold receivables as off-balance sheet securitizations was
$39 million higher than had these transactions been
structured as on-balance sheet securitizations. This difference
results from recalendarization effects caused by gain-on-sale
accounting requirements, as discussed above.
This effect will fluctuate as the amount of
receivables sold in Ford Credits off-balance sheet
securitizations increases or decreases over time. In a steady
state of securitization activity, the difference between
reporting securtitizations on- or off-balance sheet in a
particular year approaches
47
zero. While the difference in earnings impact
between on- or off-balance sheet securitizations is minimal,
this funding source has provided us with significant borrowing
cost savings compared with unsecured debt and funding
flexibility in a difficult economic environment.
Hertz
The improvement of $28 million in income
before income taxes reflected strong cost performance and
improved leisure vehicle rental demand, partially offset by
lower pricing.
Other Financial Services
The improvement of $125 million in income
before income taxes reflected primarily the non-recurrence of a
charge incurred in 2002 related to the write-down of our
investment in several airplane and telecommunications equipment
leases.
2002 Compared with 2001
Details of the full year Financial Services
Sector income/(loss) before income taxes for 2002 and 2001 are
shown below (in millions):
The increase in income before income taxes of
$471 million reflected primarily a lower provision for
credit losses and the decrease in the net unfavorable market
valuation of derivative instruments and associated exposures.
The impact of lower net financing margins was a partial offset.
The improvement in income before income taxes
reflected primarily an improved car rental pricing environment
and lower costs.
LIQUIDITY AND CAPITAL RESOURCES
Our strategy is to ensure we have sufficient
funding available with a high degree of certainty throughout the
business cycle. The key elements of this strategy include
maintaining large gross cash balances, generating cash from
operating-related activities, having a long-dated debt maturity
profile, and maintaining committed credit facilities.
48
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) (see below). Gross cash as
of December 31, 2003, 2002 and 2001 is detailed below (in
billions):
In managing our business, we classify changes in
gross cash into four categories: operating-related (both
including and excluding pension/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
flow is cash flow before pension 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 flow analysis reflected in the table below,
which differs from a cash flow statement presented in accordance
with GAAP, is useful to investors because it includes cash flow
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 last three
years are summarized below (in billions):
(b) See
Note 13 of the Notes to Financial Statements for a
discussion of the adoption of FIN 46.
49
Total 2003 operating-related cash flows before
funded pension plan and long-term VEBA contributions and tax
refunds was $100 million positive reflecting profits and
other operating-related changes, offset partially by increased
net capital spending and growth in year-end inventory. The
$600 million increase in capital expenditures in 2003 from
2002, reflected primarily increased spending on new products
consistent with our product-led revitalization plan. Other
operating-related changes, primarily cash tax payments and
timing differences between expense or revenue recognition and
the corresponding cash payments for costs such as health care,
pension, marketing, and warranty, improved our cash flows by
$2.9 billion in 2003.
Including funded pension plan and long-term VEBA
contributions and tax refunds, operating-related cash flows were
an outflow of $3.0 billion. Contributions to our worldwide
funded pension plans totaled $2.8 billion in 2003, compared
to approximately $500 million in 2002. In 2003, we also
contributed $2 billion to a long-term VEBA trust used to
pre-fund a portion of Fords other postretirement benefits
liability. This contribution is in addition to the
$4 billion contributed to our short-term VEBA, which we
include in gross cash. These are assets invested similar to our
cash portfolio and are available to fund certain employee
benefit obligations in the near term. The $2 billion of
long-term VEBA assets are invested similar to our pension fund
assets. The assets of the long-term VEBA are not included in our
gross cash, but are dedicated to pay longer-term healthcare
obligations.
Capital transactions with the Financial Services
sector of $3.6 billion in 2003 reflected primarily higher
dividends paid by Ford Credit, which in turn reflected improved
profitability and asset reductions at Ford Credit. In addition,
dividends of $204 million from the Financial Services
sector in 2003 are reflected in the table above as divestitures
because they resulted from the sale by Ford Credit of its Axus
vehicle fleet leasing unit.
Shown in the table below is a reconciliation
between financial statement
Cash flows from operating
activities before securities trading
and operating-related
cash flows, (calculated as shown in the table above), for the
last three years (in billions):
Debt and Net Cash.
At December 31, 2003, our Automotive sector had total
senior debt of $15.0 billion compared with
$14.2 billion a year ago. The debt increase primarily
reflects the adoption of Financial Accounting Standards Board
(FASB) Interpretation No. 46
(FIN 46), which requires the consolidation of
certain entities. For a discussion of the adoption of
FIN 46, see Note 13 of the Notes to Financial
Statements. At December 31, 2003, our Automotive sector had
net cash (defined as gross cash less total senior debt) of
$10.9 billion, compared with $11.1 billion and
$3.9 billion at the end of 2002 and 2001, respectively.
In 2003, we retired about $900 million of
relatively high-cost debt through open-market repurchases and
through redemptions. We expect to repurchase a similar amount in
2004.
At December 31, 2003, Ford Motor Company
Capital Trust I and Ford Motor Company Capital
Trust II (the Trusts) together had outstanding
an aggregate $5.7 billion of trust preferred securities.
The dividend and liquidation preferences on these securities are
paid from interest and principal
50
payments on our junior subordinated debentures
held by the Trusts in an aggregate principal amount of
$5.8 billion. Effective July 1, 2003, the junior
subordinated debentures are classified as
Subordinated
debt
on our balance sheet as the result of the adoption of
FIN 46. This reclassification did not impact the status of
the holders of our senior debt relative to holders of the
subordinated debentures or the trust preferred securities. For
additional discussions related to the Trusts, see Notes 12
and 15 of the Notes to Financial Statements.
On January 2, 2004, we redeemed our
outstanding junior subordinated debentures held by Trust I.
This had the effect of reducing total Automotive subordinated
debt by $688 million. The debt is classified as
Debt
payable within one year
on our balance sheet as of
December 31, 2003.
The weighted average maturity of our total
long-term debt (including subordinated debt), substantially all
of which is fixed-rate debt, is approximately 26 years with
about $2.7 billion maturing by December 31, 2008. The
weighted average maturity of total debt (long-term and
short-term including subordinated debt) is approximately
25 years. For additional information on debt, see
Note 12 of the Notes to Financial Statements.
Credit Facilities.
At December 31, 2003, the Automotive sector had
$7.0 billion of contractually committed credit agreements
with various banks, of which $6.9 billion were available
for use. For further discussion of our committed credit
facilities, see Note 12 of the Notes to Financial
Statements.
Financial Services Sector
Debt and Cash.
Ford
Credits total debt was $149.7 billion at
December 31, 2003, up $9.4 billion compared with a
year ago, reflecting primarily asset-backed commercial paper
that was previously off-balance sheet debt of FCAR. Ford
Credits outstanding unsecured commercial paper at
December 31, 2003 totaled $6.1 billion, down
$2.1 billion compared with a year ago and down
$36.2 billion compared with year-end 2000. The reduction
since 2000 primarily reflects the lowering of Ford Credits
short-term credit ratings over that time period as discussed
below under Debt Ratings. The lower short-term
credit rating has made Ford Credits commercial paper
largely ineligible for investment by money market mutual funds
under Rule 2a-7 of the Investment Company Act of 1940, as
amended. To partially offset this reduction in Ford
Credits outstanding unsecured commercial paper,
asset-backed commercial paper issued through Ford Credits
FCAR and Motown Notes
SM
programs increased
substantially beginning in 2001.
At December 31, 2003, Ford Credit had cash
and cash equivalents of $15.7 billion. In the normal course
of its funding activities, Ford Credit may generate more
proceeds than are necessary for its immediate funding needs.
These excess amounts are maintained primarily as highly liquid
investments, provide liquidity for Ford Credits short-term
funding obligations and give it flexibility in the use of its
other funding programs.
Funding.
Ford Credit
requires substantial funding in the normal course of business.
Ford Credits funding requirements are driven mainly by the
need to (i) purchase retail installment sale contracts and
vehicle leases to support the sale of Ford products, which are
influenced by Ford-sponsored special financing and leasing
programs that are available exclusively through Ford Credit,
(ii) provide vehicle inventory and capital financing for
Ford dealers, and (iii) repay its debt obligations.
Ford Credits funding sources include debt
issuances, sales of receivables in securitizations, and bank
borrowings. Debt issuance consists of short- and long-term
unsecured debt, placed directly by Ford Credit or through
securities dealers or underwriters in the United States and
international capital markets, and reaches both retail and
institutional investors. Ford Credit issues commercial
51
paper in the United States, Europe, Canada and
other international markets. In addition to its commercial paper
programs, Ford Credit also obtains short-term funding from the
sale of floating rate demand notes, which may be redeemed at any
time at the option of the holder thereof without restriction. At
December 31, 2003, the principal amount outstanding of such
notes was $7.3 billion. Ford Credit does not hold reserves
specifically to fund the payment of the demand notes or any
other short-term funding obligation. Ford Credits policy
is to have sufficient cash and cash equivalents, unused
committed bank-sponsored asset-backed commercial paper issuer
capacity, securitizable assets, and back-up credit facilities to
provide liquidity for all of its short-term funding obligations.
During 2003, Ford Credit continued to meet a
significant portion of its funding requirements by selling
receivables in securitizations because of the stability of the
market for asset-backed securities, their lower relative costs
given our credit ratings (as described below), and the diversity
of funding sources that they provide. Securitized funding (both
on- and off-balance sheet, net of retained interests) as a
percent of total managed receivables was as follows as of the
end of each of the last three years: 2003 25%,
2002 27%, 2001 23%.
The following table illustrates Ford
Credits term public funding issuances for 2002 and 2003
and its planned issuances for 2004 (in billions):
The cost of both debt and funding in
securitizations is based on a margin or spread over a benchmark
interest rate, such as interest rates paid on U.
S. Treasury securities of similar maturities. Over the last
two years, spreads on Ford Credits securitized funding
have fluctuated between 35 and 86 basis points above
comparable U.S. Treasury securities, while Ford
Credits unsecured long-term debt funding spreads have
fluctuated between 186 and 662 basis points above
comparable U.S. Treasury securities. In 2003, Ford
Credits unsecured term-debt spreads fluctuated between 186
and 638 basis points above comparable U.S. Treasury
securities, with an average spread of 341 basis points and
a year-end spread of 186 basis points above comparable
U.S. Treasury securities.
Ford Credit also continued its program to sell
retail installment sale contracts in transactions where it
retains no interest and thus no exposure to the sold contracts.
These transactions, which we refer to as whole-loan sale
transactions, provide liquidity by enabling Ford Credit to
reduce its managed receivables and its need for funding to
support those receivables. In 2003, Ford Credit sold
$5.5 billion of retail finance receivables through
whole-loan sales.
As a result of Ford Credits funding
strategy and the reduction in its managed receivables, the
lowering of its credit ratings over the past three years has not
had a material impact on Ford Credits ability to fund its
operations, although lower credit ratings have contributed to an
increase in its overall borrowing costs. In 2003, its funding
strategy continued to focus on maintaining liquidity and access
to diversified funding sources that are cost effective. Any
further lowering of its credit ratings may increase Ford
Credits borrowing costs and potentially constrain its
funding sources. This could likely cause Ford Credit to increase
its use of securitization or other sources of liquidity or to
reduce
52
its managed receivables. Ford Credits
ability to sell its receivables may be affected by the following
factors: the amount and credit quality of receivables available
to sell, the performance of receivables sold in previous
transactions, general demand for the type of receivables Ford
Credit offers, market capacity for Ford Credit-sponsored
investments, accounting and regulatory changes, Ford
Credits debt ratings and Ford Credits ability to
maintain back-up liquidity facilities for certain securitization
programs. If as a result of any of these or other factors, the
cost of securitized funding significantly increased or
securitized funding were no longer available to Ford Credit, its
liquidity would be adversely impacted.
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 $7.7 billion at
December 31, 2003. Approximately $1.0 billion of the
total facilities were in use at December 31, 2003.
Additionally, at December 31, 2003, banks provided
$18.6 billion of contractually committed liquidity
facilities that supported two asset-backed commercial paper
programs established by Ford Credit. Ford Credit also has
entered into agreements with several bank-sponsored asset-backed
commercial paper issuers under which such issuers in the
aggregate are committed to purchase from Ford Credit, at Ford
Credits option, up to $12.8 billion of receivables.
For further discussion of these facilities and agreements, see
Note 12 of the Notes to Financial Statements.
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
appropriate capital structure. Ford Credit calculates leverage
on a financial statement basis and on a managed basis using the
following formulas:
The following table illustrates the calculation
of Ford Credits financial statement leverage
(in billions):
At December 31, 2003, Ford Credits
financial statement leverage was 12.0 to 1, compared with 10.3
to 1 a year ago. This increase in leverage resulted primarily
from the accounting consolidation of FCAR resulting in
$9.0 billion of FCARs debt reported on Ford
Credits balance sheet at December 31, 2003.
53
The following table illustrates the calculation
of Ford Credits managed leverage (in billions):
Ford Credit believes that managed leverage, which
is the result of adjustments to its financial statement
leverage, is useful to its investors because it reflects the way
Ford Credit manages its business. Ford Credit retains interests
in receivables sold in off-balance sheet securitization
transactions, and with respect to subordinated retained
interests, is exposed to credit risk. Accordingly, Ford Credit
considers securitization as an alternative source of funding and
evaluates credit losses, receivables and leverage on a managed
as well as a financial statement basis. Ford Credit also deducts
cash and cash equivalents because they generally correspond to
excess debt beyond the amount required to support its
operations. In addition, Ford Credit adds its minority interests
to its financial statement equity, because all of the debt of
such consolidated entities is included in its total debt. SFAS
No. 133 requires Ford Credit to make fair value adjustments
to its assets, debt and equity positions to reflect the impact
of interest rate instruments Ford Credit uses in connection with
its 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. Ford Credit generally repays its debt funding
obligations as they mature. As a result, Ford Credit excludes
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. Accordingly, the managed leverage
measure provides Ford Credits investors with meaningful
information regarding managements decision-making
processes.
Ford Credits managed leverage strategy
involves establishing a leverage level that it believes reflects
the risk characteristics of its underlying assets. In
establishing a target leverage level, Ford Credit considers the
characteristics of the receivables in its managed portfolio and
the prevailing market conditions.
At December 31, 2003, Ford Credits
managed leverage was 13.0 to 1, compared with 12.8 to 1 a year
ago. Ford Credits dividend policy is based in part on its
strategy to maintain managed leverage at the lower end of the
13-14 to 1 range. As a result of improved profitability and
lower managed receivable levels, Ford Credit paid dividends of
$3.7 billion in 2003.
Hertz requires funding for the acquisition of
revenue earning equipment, which consists of vehicles and
industrial and construction equipment. Hertz purchases this
equipment in accordance with the terms of agreements negotiated
with automobile and equipment manufacturers. The financing
requirements of Hertz are seasonal and are mainly explained by
the seasonality of the travel industry. Hertz fleet size,
and its related financing requirements, generally peak in the
summer
54
months, and decline during the winter months.
Hertz accesses the global capital markets to meet its funding
needs.
Hertz maintains unsecured domestic and foreign
commercial paper programs and a secured domestic commercial
paper program to cover short-term funding needs, and also draws
from bank lines, as a normal business practice, to fund
international needs. Hertz also is active in the domestic
medium-term and long-term debt markets.
Hertz has an asset-backed securitization program
for its domestic car rental fleet to reduce its borrowing costs
and enhance its financing resources. As of December 31,
2003, $723 million was outstanding under this program.
At December 31, 2003, Hertz had committed
credit facilities totaling $2.8 billion. Of this amount,
$1.3 billion represented global and other committed credit
facilities ($810 million of which are available through
June 30, 2008 and $488 million of which have various
maturities of up to four years); $500 million consisted of
a revolving credit line provided by Ford, which currently
expires in June 2005; $215 million consisted of
asset-backed Letters of Credit, and $814 million consisted
of 364-day asset-backed commercial paper facilities.
Stockholders
Equity
. Our stockholders equity
was $11.7 billion at December 31, 2003, up
$6.1 billion compared with the level at December 31,
2002. The increase in stockholders equity reflected
primarily the impact of foreign currency translation adjustments
and a reduction in our minimum pension liability. For additional
discussion of foreign currency translation adjustments, see
Notes 1 and 16 of the Notes to Financial Statements.
Pension
. We sponsor
defined benefit pension plans throughout the world. Pursuant to
our collective bargaining agreement with the UAW, under which
most of our U.S. hourly employees are covered, we are
contractually committed to provide specified levels of pension
benefits to retirees covered by the contract. These obligations
give rise to significant expenses that are highly dependent on
assumptions discussed in Note 19 of the Notes to our
Financial Statements and under Critical Accounting
Estimates below. Based on present assumptions and benefit
agreements, we expect our 2004 worldwide pre-tax pension expense
to be about $865 million, which is about $80 million
lower than it was in 2003.
55
Included in our Stockholders Equity was a
$3.5 billion adjustment for our worldwide minimum pension
liability as of December 31 2003. This was
$2.2 billion better than the 2002 adjustment due to the
improvement in the funded status of our worldwide pension plans
(i.e., the amount by which the present value of projected
benefit obligations exceeded the market value of pension plan
assets) as of December 31, 2003, compared with
December 31, 2002. The primary factor that contributed to
the improvement in the funded status was an increase in the
actual return on plan assets for 2003, partially offset by
decreases in the discount rates at December 31, 2003 used
to calculate the present value of benefit obligations, in each
case compared with the prior year. These changes are shown in
the table below:
Our pension fund assets consist principally of
investments in equities and in government and other fixed income
securities. For our major U.S. pension funds, the target
asset allocation is 70% equities and 30% fixed income
securities. On December 31, 2003, the market value of our
U.S. pension fund assets was less than the projected
benefit obligation (calculated using a discount rate of 6.25%,
which is reduced from 6.75% used at year-end 2002) by
$3.4 billion for our U.S. plans (of which
$2 billion relates to our U.S. funded plans). For
non-U.S. plans, the shortfall as of December 31, 2003,
was $8.2 billion, for a total worldwide shortfall of
$11.7 billion. Pension funding obligations and strategies
are highly dependent on investment returns, discount rates,
actuarial assumptions, and benefit levels (which can be
contractually specified, such as those under the Ford-UAW
Retirement Plan). If these assumptions were to remain unchanged,
we project that we would not have a legal requirement to fund
our major U.S. pension plans before 2009. However, we
review our pension assumptions regularly and we do from time to
time make contributions beyond those legally required. For
example, in 2003 we made over $2 billion of discretionary
cash contributions to our U.S. pension funds. Further,
after giving effect to these contributions, based on current
interest rates and on our return assumptions and assuming no
additional contributions, we do not expect to be required to pay
any variable-rate premiums to the Pension Benefit Guaranty
Corporation before 2009.
For information related to our expenses and
liabilities with respect to health care benefits we provide to
our employees and retirees, see Overview Key
Economic Factors and Trends Affecting Automotive
Industry Health Care Expenses above and
Critical Accounting Estimates Other
Postretirement Benefits (Retiree Health Care and Life
Insurance) below.
56
Debt Ratings.
Our
short- and long-term debt is rated by four credit rating
agencies designated as nationally recognized statistical rating
organizations (NRSROs) by the Securities and
Exchange Commission:
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 us and
other sources. 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.
The NRSROs have indicated that our lower ratings since 2001 are
primarily a reflection of the rating agencies concerns
regarding our automotive cash flow and profitability, declining
market share, excess industry capacity, industry pricing
pressure and rising healthcare costs.
The following chart summarizes Fords*
credit ratings and the outlook assigned by the NRSROs since 2000:
The ratings and trend assigned by DBRS have been
in effect since April 2003 and were confirmed by DBRS in
December 2003. The ratings and outlooks assigned by Fitch and
Moodys have been in effect since January 2002 and were
affirmed or confirmed by each firm in November 2003. The ratings
and outlook assigned by S&P have been in effect since
November 2003, when S&P lowered the long-term credit ratings
on Ford, Ford Credit and Hertz to BBB- with a stable
outlook from BBB with a negative outlook, and
lowered the short-term credit rating to A-3 from
A-2.
57
OUTLOOK
2004 Financial Milestones
We have set and communicated certain planning
assumptions, operational metrics and financial milestones for
2004, shown below:
2004 is the first year in which we have provided
financial milestones for our individual Automotive business
units. Our confidence in achieving the Automotive profit target
in total is greater than it is for any of the individual
business units.
Based on the planning assumptions set forth above
and achievement of the foregoing milestones, we expect 2004
earnings per share from continuing operations excluding special
items to range from $1.20 to $1.30 for the full-year. Our
present estimate of special items for 2004 is a pre-tax charge
of up to $300 million, or about $0.11 per share on an after
tax basis, consisting of the balance of the Ford Europe
restructuring charge and future expected losses with respect to
dispositions of remaining non-core businesses.
58
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:
CRITICAL ACCOUNTING ESTIMATES
We consider an accounting estimate to be critical
if: 1) the accounting estimate requires us to make
assumptions about matters that were highly uncertain at the time
the accounting estimate was made, and 2) changes in the
estimate that are reasonably likely to occur from period to
period, or use of different estimates that we reasonably could
have used in the current period, would have a material impact on
our financial condition or results of operations.
Management has discussed the development and
selection of these critical accounting estimates with the Audit
Committee of our Board of Directors and the Audit Committee has
reviewed the foregoing disclosure. In addition, there are other
items within our financial statements that
59
require estimation, but are not deemed critical
as defined above. Changes in estimates used in these and other
items could have a material impact on our financial statements.
Warranty and Additional Service
Actions
See Notes 1 and 23 of the Notes to our
Financial Statements for more information regarding costs and
assumptions for warranties and additional service actions.
Nature of Estimates Required.
The estimated warranty and additional
service action costs are accrued for each vehicle at the time of
sale. Estimates are principally based on assumptions regarding
the lifetime warranty costs of each vehicle line and each model
year of that vehicle line, where little or no claims experience
may exist. In addition, the number and magnitude of additional
service actions expected to be approved, and policies related to
additional service actions, are taken into consideration. Due to
the uncertainty and potential volatility of these estimated
factors, changes in our assumptions could materially affect net
income.
Assumptions and Approach Used.
Our estimate of warranty and
additional service action obligations is reevaluated on a
quarterly basis. Experience has shown that initial data for any
given model year can be volatile; therefore, our process relies
upon long-term historical averages until sufficient data are
available. As actual experience becomes available, it is used to
modify the historical averages to ensure that the forecast is
within the range of likely outcomes. Resulting balances are then
compared with present spending rates to ensure that the accruals
are adequate to meet expected future obligations.
Pensions
See Note 19 of the Notes to Financial
Statements for more information regarding costs and assumptions
for employee retirement benefits.
Nature of Estimates Required.
The measurement of our pension
obligations, costs and liabilities is dependent on a variety of
assumptions used by our actuaries. These assumptions include
estimates of the present value of projected future pension
payments to all plan participants, taking into consideration the
likelihood of potential future events such as salary increases
and demographic experience. These assumptions may have an effect
on the amount and timing of future contributions. The plan
trustee conducts an independent valuation of the fair value of
pension plan assets.
Assumptions and Approach Used.
The assumptions used in developing the
required estimates include the following key factors:
We base the discount rate assumption on
investment yields available at year-end on corporate long-term
bonds rated AA. Our inflation assumption is based on an
evaluation of external market indicators. The salary growth
assumption reflects our long-term actual experience, the
near-term outlook and assumed inflation. The expected return on
plan assets assumption reflects asset allocation, investment
strategy and the views of investment managers and of other large
pension plan sponsors regarding the market. Retirement and
mortality rates are based primarily on actual plan experience.
The effects of actual results differing from our assumptions are
accumulated and amortized over future periods and, therefore,
generally affect our recognized expense in such future periods.
Sensitivity Analysis.
Sensitivity of our worldwide pension
funded status and stockholders equity to the indicated
increase/ decrease in the discount rate assumption is shown
below. Although
60
not an estimate, weve also included
sensitivity around the actual return on pension assets. Note
that these sensitivities may be asymmetric, and are specific to
the base conditions at year-end 2003. They also may not be
additive, so the impact of changing multiple factors
simultaneously cannot be calculated by combining the individual
sensitivities shown. The December 31, 2003 funded status is
affected by December 31, 2003 assumptions. Pension expense
for 2003 is affected by December 31, 2002
assumptions
.
The impact on our funded status, equity and
U.S. pension expense from a one percentage point change in
these assumptions is shown below (in millions).
The foregoing indicates that changes in the
discount rate and return on assets can have a significant effect
on the funded status of our pension plans and Stockholders
Equity. As stated above, we base the discount rate assumption on
investment yields available at year-end on corporate long-term
bonds rated AA. We cannot predict these bond yields or
investment returns and, therefore, cannot reasonably estimate
whether adjustments to our Stockholders Equity for minimum
pension liability in subsequent years will be significant.
Other Postretirement Benefits (Retiree Health
Care and Life Insurance)
See Note 19 of the Notes to Financial
Statements for more information regarding costs and assumptions
for other postretirement benefits.
Nature of Estimates Required.
The measurement of our obligations,
costs and liabilities associated with other postretirement
benefits (i.e., retiree health care and life insurance) requires
that we make use of estimates of the present value of the
projected future payments to all participants, taking into
consideration the likelihood of potential future events such as
health care cost increases, salary increases and demographic
experience, which may have an effect on the amount and timing of
future payments.
Assumptions and Approach Used.
The assumptions used in developing the
required estimates include the following key factors:
Our health care cost trend assumptions are
developed based on historical cost data, the near-term outlook,
efficiencies and other cost-mitigation actions (including
further employee cost sharing, administrative improvements and
other efficiencies) and an assessment of likely long-term
trends. We base the discount rate assumption on investment
yields available at year-end on corporate long-term bonds rated
AA. Our inflation assumption is based on an evaluation of
external market indicators. The salary growth assumptions
reflect our long-term actual experience, the near-term outlook
and assumed inflation. The expected return on plan assets
reflects asset allocation, investment strategy and the views of
investment managers and of other large pension plan sponsors
regarding the market. Retirement and mortality rates are based
primarily on actual plan experience.
61
The effects of actual results differing from our
assumptions are accumulated and amortized over future periods
and, therefore, generally affect our recognized expense in such
future periods.
Sensitivity Analysis.
The December 31, 2003
postretirement obligation is affected by December 31, 2003
assumptions. Postretirement benefit expense for 2003 is affected
by December 31, 2002 assumptions. Note that these
sensitivities may be asymmetric, and are specific to the base
conditions at year-end 2003. They also may not be additive, so
the impact of changing multiple factors simultaneously cannot be
calculated by combining the individual sensitivities shown. The
effect of the indicated increase/ decrease in selected
assumptions is shown below (in millions):
Allowance for Credit Losses
See Note 10 of the Notes to Financial
Statements for more information regarding our allowance for
credit losses.
The allowance for credit losses is our estimate
of the probable credit losses related to impaired finance
receivables and operating leases as of the date of the financial
statements. We exercise judgment in estimating this amount
because credit losses vary substantially over time, and
estimating probable losses requires a number of assumptions
about matters that are uncertain.
Nature of Estimates
Required.
We estimate the probable
credit losses related to impaired finance receivables and
operating leases by evaluating several different factors using
econometric models. These factors include historical credit loss
trends, the credit quality of our present portfolio, trends in
historical and projected used vehicle values, and general
economic measures.
Assumptions and Approach Used.
We use the factors listed above to
make projections of two key assumptions:
We use these assumptions to assist us in setting
our allowance for credit losses.
Sensitivity
Analysis.
We believe the present level
of our allowance for credit losses adequately reflects probable
losses related to impaired finance receivables and operating
leases. However, changes in the assumptions used to derive
frequency and severity would have an impact on the allowance for
credit losses. Over the past twenty years, repossession rates
for our U.S. retail and lease portfolio have varied between
2% and 4%.
62
The effect of the indicated increase/ decrease in
the assumptions is shown below for Ford, Lincoln, and Mercury
brand vehicles in the U.S. (in millions):
Changes in our assumptions affect
Provision
for credit losses
on our income statement and the
Allowance for credit and insurance losses
on our balance
sheet.
Accumulated Depreciation on Vehicles Subject
to Operating Leases Financial Services
Sector
See Note 9 of the Notes to Financial
Statements for more information regarding accumulated
depreciation on vehicles subject to operating leases.
Accumulated depreciation on vehicles subject to
operating leases reflects the cumulative amount of depreciation
that has been recorded to date, reducing the value of the leased
vehicles in our operating lease portfolio from their original
acquisition value to their estimated residual value (estimated
proceeds from the sale of the vehicle at auction at the end of
the lease term).
Nature of Estimates
Required.
Each operating lease in our
portfolio represents a vehicle we own that has been leased to a
customer. When we purchase the lease, we establish an estimated
residual value for the vehicle. We exercise judgment in
estimating the residual value because future market values of
used vehicles are difficult to predict. We depreciate leased
vehicles on a straight-line basis to estimated residual value.
We monitor residual value performance by vehicle
line each month and we review the adequacy of our accumulated
depreciation on a quarterly basis. If we believe that the
residual values for our vehicles have decreased, we revise
depreciation for the affected vehicles to ensure that our net
investment in the operating leases (equal to our acquisition
value of the vehicles minus accumulated depreciation) will be
reduced to our revised estimate of residual value at the end of
the lease term. Such adjustments to depreciation expense are
recorded over the remaining life of the affected vehicles in our
portfolio.
Each lease customer has the option to buy the
leased vehicle at the end of the lease or to return the vehicle
to the dealer. The dealer has the option to purchase the vehicle
at the contractual lease-end value or return it to us. For
returned vehicles, we face a risk that the amount we obtain from
the vehicle sold at auction will be less than our most recent
estimate of the residual value for the vehicle. Over the last
five years, about 60% to 70% of Ford Credit North Americas
operating lease vehicles have been returned to us.
Assumptions and Approach Used.
Our accumulated depreciation on
operating leases is based on the following assumptions:
We estimate residual values and return rates
using econometric models. These models use historical auction
values, historical return rates for our leased vehicles,
industry-wide used vehicle prices, our marketing plans and
vehicle quality data.
Sensitivity Analysis.
The largest impact of changes in
assumptions is on Ford Credits U.S. retail operating
leases of Ford, Lincoln and Mercury brand vehicles. If future
auction values for
63
all of the Ford, Lincoln, and Mercury vehicles in
our U.S. operating lease portfolio at year-end 2003 were to
decrease by $100 per unit from our present estimates, the total
impact would be to increase our depreciation on these vehicles
by about $55 million, which would be charged to
depreciation expense during the 2004 through 2006 period so that
the net investment in operating leases at the end of the lease
term for these vehicles is equal to the revised residual value.
Similarly, if future return rates for our existing portfolio of
Ford, Lincoln and Mercury vehicles in the U.S. were to
increase by one percentage point from our present estimates, the
total impact would be to increase our depreciation on these
vehicles by about $10 million in the 2004 through 2006
period. Adjustments to the amount of accumulated depreciation on
operating leases will be reflected on our balance sheet as
Net investment in operating leases
and on the income
statement in the
Depreciation
line, in each case under
the Financial Services sector.
OFF-BALANCE SHEET ARRANGEMENTS
We have entered into various arrangements not
reflected on our balance sheet that have or are reasonably
likely to have a current or future effect on our financial
condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources. These
include guarantees, sales of receivables by Ford Credit, and
variable interest entities, each of which is discussed below.
Guarantees
(See also
Note 23 of the Notes to Financial Statements)
Occasionally, we guarantee debt and lease
obligations of joint venture entities and other third parties
with which we do business to support their growth. As of
December 31, 2003, our maximum potential exposure under
these guarantees was $465 million.
In the ordinary course of business, we also
execute contracts involving indemnifications standard in the
industry and indemnifications specific to a transaction. These
indemnifications include claims for any of the following:
environmental, tax, and shareholder matters; intellectual
property rights; governmental regulations and employment-related
matters; financial matters; and dealer, supplier, and other
commercial contractual relationships. Performance under these
indemnities would generally be triggered by a breach of terms of
the contract or by a third party claim.
Ford Credit regularly uses securitization to fund
its operations. Ford Credit securitizes its receivables because
the highly-liquid and efficient securitization market provides
Ford Credit with a cost-effective source of funding, compared
with unsecured debt given Ford Credits present debt
ratings. In a typical securitization transaction, Ford Credit
sells a pool of finance receivables to a wholly-owned,
bankruptcy-remote special purpose subsidiary that establishes an
SPE, usually a trust, and transfers the receivables to the SPE
in exchange for proceeds from interest-bearing securities,
commonly called asset-backed securities, that are issued by the
SPE and are secured by future collections on the sold
receivables. Following the transfer of the sold receivables to
the SPE, and assuming compliance with SFAS No. 140
(discussed below), the receivables are no longer assets of Ford
Credit and the sold receivables no longer appear on our balance
sheet. The securities issued by the SPE are structured into
senior and subordinated classes. The senior classes have
priority over the subordinated classes in receiving collections
from the receivables and may also benefit from other
enhancements such as over-collateralization and cash reserve
funds. These securities generally are rated by independent
rating agencies and sold in public offerings or in private
transactions.
64
The following chart diagrams Ford Credits
typical securitization transaction:
Consistent with conventional practices in the
securitization industry, Ford Credit uses SPEs in securitization
transactions to achieve isolation of the sold receivables for
the benefit of securitization investors. Most of the SPEs used
in Ford Credits securitization transactions are classified
as qualifying special purpose entities consistent with the
requirements of SFAS No. 140,
Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of
Liabilities,
because of the nature of the assets held by
these entities and the limited nature of their activities. When
these accounting rules are met, the sold receivables are removed
from our balance sheet. The use of SPEs in the typical
securitization structure shown above, along with the use of
various forms of credit and payment enhancements to reduce the
risk of loss (as discussed below), allows the SPE to issue
senior asset-backed securities that generally receive the
highest short-term debt ratings and among the highest long-term
debt ratings, thereby providing Ford Credit with a
cost-effective source of funding.
Ford Credit also sponsors one securitization
program, FCAR Owner Trust (FCAR), which does not use
qualifying SPEs under SFAS No. 140. In the second quarter
of 2003, Ford Credit purchased a portion of equity interests in
FCAR from unaffiliated parties for $175 million. As a
result of this transaction, FCARs assets, liabilities and
results of operations were consolidated into our financial
statements. The effects of this transaction are more fully
described in Note 8 of the Notes to Financial Statements.
Ford Credit selects receivables at random for
securitization transactions using selection criteria designed
for the specific transaction. The selection criteria are
generally based on factors such as location of the obligor,
contract term, payment schedule, interest rate, financing
program, and the type of financed vehicle. In general, the
criteria also require receivables to be active and in good
standing.
Ford Credit often retains interests in the
securitized receivables. The retained interests may include
senior and subordinated securities, undivided interests in
wholesale receivables, restricted cash held for the benefit of
the SPEs (for example, a reserve fund) and interest-only strips.
Subordinated securities represent lower rated classes of
securities issued by the SPEs. Restricted cash is funded
initially by a small portion of proceeds from the sale of
receivables that may be used to pay principal and interest to
SPE investors and, after investors are fully paid, remaining
cash is returned to Ford Credit. Interest-only strips, also
referred to as excess spread, represent the right to receive
collections on the sold finance receivables in excess of amounts
needed by the SPE to pay interest and principal to investors,
servicing fees and other required payments. Because Ford Credit
typically retains the most subordinated interests in the SPE,
including subordinated securities, the right to receive excess
spread (interest-only strip) and any residual or remainder
interests of the SPE after all asset-backed securities are
repaid in full, Ford Credits retained interests will be
the first to absorb any credit losses on the sold receivables.
Because the credit enhancements are structured to protect the
holders of the senior asset-backed securities in highly stressed
receivables performance scenarios, the impact of credit losses
in the pool of sold receivables will likely be limited to Ford
Credits retained interests in terms of the timing and
total amount of excess spread it receives. Therefore, related to
receivables sold in securitizations, Ford Credit retains credit
risk up to the
65
amount of subordinated interests it retains in
securitizations. If the receivables were not securitized, Ford
Credits risk related to credit losses would not be limited
as it is in securitizations.
At December 31, 2003 and 2002, the total
outstanding principal amount of receivables sold by Ford Credit
in securitizations was $49.4 billion and
$71.4 billion, respectively. This decrease reflected
primarily the reacquired receivables following consolidation of
FCAR now reported on our balance sheet (as discussed above) and
the slower pace of securitizations in 2003. At December 31,
2003 and 2002, Ford Credits retained interests in such
sold receivables were $13.0 billion and $17.6 billion,
respectively.
Ford Credit has no obligation to repurchase any
sold receivable that becomes delinquent in payment or otherwise
is in default. The holders of the asset-backed securities have
no recourse to Ford Credit or its other assets for credit losses
on the sold receivables and have no ability to require Ford
Credit to repurchase their securities. Ford Credit does not
guarantee any securities issued by SPEs. However, as is
customary in asset-backed securitization transactions, Ford
Credit, as the seller of the finance receivables to the SPE and
servicer of such receivables, is obligated to provide certain
support obligations. These include indemnification of the SPE
and its trustees, the requirement to repurchase receivables that
do not meet eligibility criteria or that have been materially
modified by the servicer, the obligation to sell additional
receivables in certain transactions and the advancing of
interest payment short falls. Based on its experience, Ford
Credit does not expect to make any indemnification payments. In
2003, Ford Credit was not required to repurchase any sold
receivables due to their failure to meet eligibility criteria
and the principal amount of receivables repurchased due to
servicer modifications was about $193 million for all
retail securitization programs.
Some of Ford Credits securitization
programs contain structural features that could prevent further
funding if the credit losses or delinquencies on a pool of sold
receivables or on Ford Credits overall managed portfolio
exceed specified levels or if payment rates on or amounts of
wholesale receivables are lower than specified levels. Ford
Credit does not expect that any of these features will have a
material adverse impact on its ability to securitize
receivables. In addition, Ford Credits ability to sell its
receivables may be affected by the following factors: the amount
and credit quality of receivables available to sell, the
performance of receivables sold in previous transactions,
general demand for the type of receivables Ford Credit offers,
market capacity for Ford Credit-sponsored investments,
accounting and regulatory changes, Ford Credits debt
ratings and Ford Credits ability to maintain back-up
liquidity facilities for certain securitization programs. If as
a result of any of these or other factors, the cost of
securitized funding significantly increased or securitized
funding were no longer available to Ford Credit, Ford
Credits operations, financial condition and liquidity
would be adversely impacted.
Variable Interest Entities
The Automotive Sector has several investments in
other joint ventures deemed to be VIEs where 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 to any potential losses,
should they occur, associated with these VIEs is limited to our
equity investments and, where applicable, receivables due from
the VIEs (approximately $104 million).
66
Ford Credit has investments in certain joint
ventures deemed to be VIEs where Ford Credit is not the primary
beneficiary. The risks and rewards associated with Ford
Credits interest in these entities are based primarily on
ownership percentages. Ford Credits maximum exposure to
any potential losses, should they occur, associated with these
VIEs is limited to Ford Credits equity investments, which
at December 31, 2003 totaled approximately
$125 million.
AGGREGATE CONTRACTUAL OBLIGATIONS
We are party to many contractual obligations
involving commitments to make payments to third parties. Most of
these are debt obligations incurred by our Financial Services
sector. In addition, as part of our normal business practices,
we enter into contracts with suppliers for purchases of certain
raw materials, components and services. These arrangements may
contain fixed or minimum quantity purchase requirements. We
enter into such arrangements to facilitate adequate supply of
these materials and services. Purchase obligations
are defined as off-balance sheet agreements to purchase goods or
services that are enforceable and legally binding on the company
and that specify all significant terms.
The Other long-term liabilities
category includes only liabilities on our balance sheet that
have a definite pay-out scheme or are not contingent on a
subsequent event. Other long-term liabilities at
December 31, 2003 represent a payment obligation related to
a prior acquisition.
The table below summarizes our contractual
obligations as of December 31, 2003 (in millions):
For additional information to our long-term debt
and operating lease obligations, see Notes 12 and 23 in the
Notes to Financial Statements.
2003
2002
2001
$
(1,957
)
$
(1,153
)
$
(8,857
)
3,327
2,104
1,438
1,370
951
(7,419
)
135
301
(2,096
)
314
367
24
921
283
(5,347
)
(8
)
(62
)
(106
)
(154
)
(199
)
(264
)
(1,002
)
$
495
$
(980
)
$
(5,453
)
*
Related to adoption of FIN 46 in 2003 and
the adoption of Statement of Financial Accounting Standards
No. 142 (see Notes 13 and 7, respectively, of the
Notes to Financial Statements).
Table of Contents
Item 7.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
Planning Assumptions
Actual
16.5 million units
17.0
17.0 million units
17.0
Zero
(0.6)%
1%
(1.7)%
2003 Milestone
Results
Improve in all regions
Improved
Improve in all regions
Mixed
Improve by at least $500 million
$3.2 Bils.
$8 billion
$7.4 Bils.
Breakeven
$0.1 Bils.
Breakeven
$0.1 Bils.
Improve
Up $3.3 Bils.
Maintain in low end of 13-14 to 1 range
13.0 to 1
(a)
Calculated at constant volume, mix and exchange,
excluding special items (see chart below for additional
information on cost performance).
(b)
Excluding special items (see GAAP equivalent
measure and reconciliation below).
(c)
We have redefined this milestone to exclude
pension and long-term VEBA contributions in addition to the
exclusion of tax refunds. For the calculation of this non-GAAP
measure and reconciliation to its GAAP equivalent (Automotive
cash flows from operating activities before securities trading
of $1.3 billion) see Liquidity and Capital
Resources Gross Cash.
(d)
See Liquidity and Capital Resources,
Financial Services Sector, Ford Credit
Leverage for the calculation and reconciliation of this
non-GAAP measure.
Table of Contents
Item 7.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
2003
2002
2001
$
104
$
(253
)
$
(2,855
)
(5,593
)
(513
)
(173
)
(157
)
(114
)
(1,597
)
49
(570
)
(295
)
(2,061
)
(900
)
(6,002
)
$
(1,957
)
$
(1,153
)
$
(8,857
)
*
See Automotive Sector Results from
Operations 2003 Compared with 2002 for a discussion
of special items.
Costs*
2003
Better/(Worse)
2002
$ 1.6
1.2
1.4
0.4
(0.2)
(1.2)
$ 3.2
*
At constant volume, mix and exchange and
excluding special items.
Table of Contents
Item 7.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
Income/(Loss) Before Taxes
Income/(Loss) Before Taxes
Excluding Special Items
2003
2003
Over/
Over/
(Under)
(Under)
2003
2002
2002
2003
2002
2002
$
165
$
2,490
$
(2,325
)
$
1,762
$
2,490
$
(728
)
(130
)
(622
)
492
(130
)
(622
)
492
35
1,868
(1,833
)
1,632
1,868
(236
)
(1,626
)
(722
)
(904
)
(1,113
)
(549
)
(564
)
(25
)
(176
)
151
(25
)
(176
)
151
164
(897
)
1,061
164
(740
)
904
69
(15
)
84
69
(15
)
84
(1,418
)
(1,810
)
392
(905
)
(1,480
)
575
(574
)
(1,211
)
637
(623
)
(641
)
18
104
(253
)
357
(2,061
)
(900
)
(1,161
)
$
(1,957
)
$
(1,153
)
$
(804
)
$
(1,957
)
$
(1,153
)
$
(804
)
Sales
Vehicle Unit Sales*
(in billions)
(in thousands)
2003
2003
Over/(Under)
Over/(Under)
2003
2002
2002
2003
2002
2002
$
83.6
$
87.1
$
(3.5
)
(4
)%
3,811
4,146
(335
)
(8
)%
1.9
1.5
0.4
27
209
195
14
7
85.5
88.6
(3.1
)
(3
)
4,020
4,341
(321
)
(7
)
22.2
18.9
3.3
17
1,595
1,561
34
2
5.8
4.4
1.4
32
353
300
53
18
24.9
21.3
3.6
17
752
771
(19
)
(2
)
52.9
44.6
8.3
19
2,700
2,632
68
3
1.1
(1.1
)
$
138.4
$
134.3
$
4.1
3
%
6,720
6,973
(253
)
(4
)%
*
Includes rental repurchase and Company vehicles
sold at auction and excludes new and used vehicle sales by our
consolidated dealerships (consolidated beginning third quarter
of 2003).
Table of Contents
Item 7.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
2003
Over/(Under)
2003
2002
2002
Market
19.2
%
19.9
%
(0.7
) pts.
U.S.*
11.5
9.9
1.6
Brazil*
8.6
8.6
Europe*
13.9
13.2
0.7
Australia*
1.3/2.2
1.2/2.2
0.1/
U.S./Europe
*
Excludes market share of our Premier Automotive
Group brand vehicles (i.e. Volvo, Jaguar, Land Rover and Aston
Martin).
Ford North America.
The decrease in income before income taxes for Ford North
America included a charge of $1.6 billion related to
agreements reached with Visteon Corporation
(Visteon) in the fourth quarter of 2003. Visteon is
our largest supplier and is the primary supplier of many
critical components for several of our vehicle lines. The
agreements primarily address pricing and sourcing arrangements
between Ford and Visteon, as well as costs related to
approximately 20,000 UAW-represented Ford employees assigned to
Visteon.
Our assumption of approximately
$1.65 billion of Visteons responsibility for the
postretirement health care and life insurance benefit
obligations for our UAW-represented employees assigned to
Visteon.*
Extending the term for Visteon to complete
pre-funding of its remaining hourly and salaried postretirement
health care and life insurance liabilities to 2049, rather than
2020 as was agreed at the time of our spin-off of Visteon.*
Visteons agreement to pay us
$150 million in lieu of further price reductions for 2003
business in North America. In addition, Visteon has committed to
a schedule of annual price reductions over the next four years
for North American business.
All new Ford business sourced to Visteon will be
at competitive prices and terms and we are generally obligated
to source to Visteon in North America when it is competitive. In
addition, we will subsidize part of Visteons costs of
paying higher wages to our UAW-represented employees assigned to
Visteon, assuming industry-competitive manning levels, beginning
with any new Ford business sourced to Visteon.
We and Visteon will share equally up to
$200 million in costs to upgrade Visteons information
technology systems as it completes its separation from our
information technology systems.
*
See Note 19 of the Notes to Financial
Statements for more information regarding this aspect of the
agreement with Visteon.
In addition to the impact of the Visteon
agreements, the reduction in income reflected lower vehicle unit
sales, unfavorable net pricing and unfavorable exchange rates
partially offset by cost reductions and favorable product mix.
Lower vehicle unit sales reflected the absence of a dealer stock
change in 2003 compared with a dealer stock build in 2002 and
lower market share. Lower market share reflected the
discontinuation of low-margin models (Mercury Cougar, Ford
Table of Contents
Item 7.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
Escort, Mercury Villager, Lincoln Continental and
Ford Explorer Sport) and a planned reduction in sales to daily
rental car companies.
Ford South America.
The improvement in earnings reflected the non-recurrence of the
adverse effects of currency devaluation in Brazil and Argentina,
increased market share primarily due to market acceptance of two
new models, the Ford Fiesta and EcoSport, and continuing
improvement in the business structure.
International Automotive Segment
Ford Europe.
The
increased loss before income taxes for Ford Europe included a
charge of $513 million in 2003 compared to a charge of
$173 million in 2002 related to restructuring actions. The
2003 charges related to personnel reductions in Germany and the
United Kingdom, a shift removal at our plant in Genk, Belgium,
and other manufacturing efficiencies. We expect to incur
additional charges of about $160 million in the first half
of 2004 related to these actions and expect most of the related
cash outlay will take place in 2004. We anticipate these actions
will result in personnel reductions of about 6,700 and will
reduce costs in our Ford Europe business unit by about
$450 million in 2004, excluding the expected additional
charges related to the restructuring actions described above,
and about $550 million annually thereafter.
In addition to the impact of the restructuring
actions, the increased loss for Ford Europe reflected
unfavorable net pricing, a less favorable product mix,
unfavorable exchange rates and a larger reduction in dealer
stocks, partially offset by cost reductions and improved results
at Ford Otosan, our joint venture in Turkey. The increase in
sales reflected primarily stronger European currencies.
Ford Asia Pacific.
The improvement in sales and the loss
before income taxes for Ford Asia Pacific reflected primarily
favorable exchange rates, favorable net pricing, higher industry
volumes and improved market share.
Premier Automotive Group.
The improvement in income before
income taxes for Premier Automotive Group reflected primarily
cost reductions and improved product mix, partially offset by
unfavorable exchange rates. The improved product mix reflected
the introduction of the Jaguar XJ model in the first quarter of
2003 and a full year of sales of the Volvo XC90 and the Land
Rover Range Rover models. The increase in revenues reflected
stronger European currencies and favorable product mix.
Other International.
The improvement in Other International
profits reflected primarily our share of Mazdas improved
operating results.
Other Automotive
Table of Contents
Item 7.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
2002 Compared with 2001
Income/(Loss) Before Taxes
Income/(Loss) Before Taxes
Excluding Special Items
2002
2002
Over/(Under)
Over/(Under)
2002
2001
2001
2002
2001
2001
$
2,490
$
(5,278
)
$
7,768
$
2,490
$
(750
)
$
3,240
(622
)
(1,358
)
736
(622
)
(510
)
(112
)
1,868
(6,636
)
8,504
1,868
(1,260
)
3,128
(722
)
(306
)
(416
)
(549
)
(306
)
(243
)
(176
)
(351
)
175
(176
)
(351
)
175
(897
)
8
(905
)
(740
)
8
(748
)
(15
)
(606
)
591
(15
)
(111
)
96
(1,810
)
(1,255
)
(555
)
(1,480
)
(760
)
(720
)
(1,211
)
(966
)
(245
)
(641
)
(835
)
194
(253
)
(2,855
)
2,602
(900
)
(6,002
)
5,102
$
(1,153
)
$
(8,857
)
$
7,704
$
(1,153
)
$
(8,857
)
$
7,704
Sales
Vehicle Unit Sales*
(in billions)
(in thousands)
2002
2002
Over/(Under)
Over/(Under)
2002
2001
2001
2002
2001
2001
$
87.1
$
83.9
$
3.2
4
%
4,146
4,051
95
2
%
1.5
2.1
(0.6
)
(29
)
195
195
88.6
86.0
2.6
3
4,341
4,246
95
2
18.9
19.4
(0.5
)
(3
)
1,561
1,698
(137
)
(8
)
4.4
3.8
0.6
16
300
274
26
9
21.3
20.4
0.9
4
771
790
(19
)
(2
)
44.6
43.6
1.0
2
2,632
2,762
(130
)
(5
)
1.1
1.1
$
134.3
$
130.7
$
3.6
3
%
6,973
7,008
(35
)
%
*
Includes rental repurchase and Company vehicles
sold at auction.
Table of Contents
Item 7.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
2002
Over/(Under)
2002
2001
2001
Market
19.9
%
21.6
%
(1.7
) pts.
U.S.*
9.9
7.8
2.1
Brazil*
8.6
8.6
Europe*
13.2
13.8
(0.6
)
Australia*
1.2/2.2
1.2/2.0
/0.2
U.S./Europe
*
Excludes market share of our Premier Automotive
Group brand vehicles (i.e. Volvo, Jaguar, Land Rover and Aston
Martin).
Americas Automotive Segment
Ford North America.
The improvement in earnings reflected primarily the
non-recurrence of the 2001 asset impairments and other charges
($4.5 billion) largely related to our Revitalization Plan,
as well as the non-recurrence of costs related to our 2001
Firestone tire replacement action (about $2 billion).
Additionally, profits improved due to achievement of our 2002
milestone to reduce non-product costs by $2 billion and the
replenishment of dealer stocks in the United States, which were
unusually low at year-end 2001. These improvements were
partially offset by increased product-related costs and lower
market share. The decline in market share reflected a number of
factors, including an increase in the number of new competitive
product offerings and our discontinuation of four vehicle lines
(Mercury Cougar, Mercury Villager, Lincoln Continental and most
models of the Ford Escort) in the second half of 2002.
Ford South America.
The reduced loss reflected primarily the non-recurrence of the
2001 asset impairments and other one-time charges
($848 million) largely related to our Revitalization Plan.
The results also reflected the adverse effects of currency
devaluation, partially offset by continuing improvement in
operating costs. The increase in our market share in Brazil
reflected market acceptance of our new Ford Fiesta model and
strong sales performance.
International Automotive Segment
Ford Europe.
The
increased loss reflected primarily the charges
($173 million) related to restructuring actions involving
our Ford-brand Europe operations. The reduction in profitability
excluding restructuring charges reflected lower vehicle unit
volume, including a reduction in European industry sales volume
and the non-recurrence of a 2001 dealer stock build. Cost
reductions and higher net pricing were partial offsets.
Ford Asia Pacific.
The year-over-year improvements in
2002 resulted primarily from net pricing improvements and
favorable vehicle mix.
Premier Automotive Group.
The loss reflected primarily charges
($157 million) related to restructuring actions involving
our Premier Automotive Group operations, as well as a less
favorable vehicle mix primarily at Jaguar, unfavorable net
pricing and lower production to reduce dealer stocks.
Other International.
The improvement in 2002 reflected
primarily the absence of restructuring charges
($495 million) incurred in 2001 and improved operating
results at Mazda.
Table of Contents
Item 7.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
Other Automotive
Income/(Loss) Before
Income Taxes
2003
Over/(Under)
2003
2002
2002
$
3,035
$
1,965
$
1,070
228
200
28
64
(61
)
125
$
3,327
$
2,104
$
1,223
*
Includes amortization expense related to
intangibles recognized upon consolidation of Hertz.
Ford Credit
On-balance sheet basis includes
receivables Ford Credit owns and receivables sold for legal
purposes that remain on Ford Credits balance sheet.
Securitized off-balance sheet basis
includes receivables sold in securitization transactions that
are not reflected on Ford Credits balance sheet.
Managed basis includes on-balance
sheet and securitized off-balance sheet receivables that Ford
Credit continues to service.
Serviced basis includes managed
receivables and receivables that Ford Credit sold in whole-loan
sale transactions where Ford Credit retains no interest in the
sold receivables, but which it continues to service.
Table of Contents
Item 7.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
December 31,
2003
2002
$
77.8
$
68.4
22.5
16.4
8.6
9.8
108.9
94.6
23.2
31.3
$
132.1
$
125.9
$
3.0
$
3.2
$
29.1
$
48.9
20.3
22.5
49.4
71.4
$
49.4
$
71.4
$
106.9
$
117.3
42.8
38.9
8.6
9.8
158.3
166.0
23.2
31.3
$
181.5
$
197.3
$
188.8
$
202.3
*
At December 31, 2003 and 2002, Ford
Credits retained interests in sold receivables were
$13.0 billion and $17.6 billion, respectively. For
more information regarding these retained interests, see
Liquidity and Capital Resources Financial
Services Sector.
Table of Contents
Item 7.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
2003
2002
$
1,871
$
2,292
148
40
25
30
2,044
2,362
92
$
2,136
$
2,362
$
677
$
448
6
$
677
$
454
$
2,640
$
2,740
148
46
25
30
$
2,813
$
2,816
1.97
%
2.05
%
0.79
0.25
1.67
%
1.72
%
1.60
%
1.72
%
1.91
%
1.73
%
0.37
0.13
1.50
%
1.39
%
*
Ford Credit believes that the use of the
on-balance sheet loss-to-receivables ratio that includes the net
credit losses on reacquired receivables is useful to investors
because it provides a more complete presentation of Ford
Credits on-balance sheet credit loss performance.
Table of Contents
2003
2002
$
3.2
$
2.8
2.0
3.0
2.5
2.9
(0.5
)
(0.5
)
2.0
2.4
0.2
0.2
2.2
2.6
$
3.0
$
3.2
2.28
%
2.52
%
*
Includes net investment in operating leases.
2003
2002
$
436
$
529
677
700
679
606
973
775
2,765
2,610
(234
)
(79
)
$
2,531
$
2,531
$
21,321
$
40,712
56,705
76,346
2.0
%
1.4
%
Table of Contents
Item 7.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
2003
2002
$
3,580
$
4,040
1,080
1,101
4,660
5,141
(1,491
)
(2,205
)
3,169
2,936
(677
)
(454
)
$
2,492
$
2,482
$
2,531
$
2,531
39
49
Table of Contents
Income/(Loss)
Before Income Taxes
2002
Over/(Under)
2002
2001
2001
$
1,965
$
1,494
$
471
200
3
197
(61
)
(59
)
(2
)
$
2,104
$
1,438
$
666
*
Includes amortization expense related to
intangibles recognized upon consolidation of Hertz.
Ford Credit
Hertz
Automotive Sector
Table of Contents
Item 7.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
December 31,
2003
2002
2001
$
5.4
$
5.2
$
4.1
10.8
17.4
10.9
5.7
21.9
22.6
15.0
4.0
2.7
2.7
$
25.9
$
25.3
$
17.7
*
As part of our investment strategy, we engage in
securities lending to improve the returns on our cash
portfolios. See Note 4 of the Notes to Financial Statements
for additional discussion on securities lending.
2003
2002
2001
$
25.9
$
25.3
$
17.7
25.3
17.7
20.2
$
0.6
$
7.6
$
(2.5
)
$
0.1
$
(0.3
)
$
(2.9
)
(7.4
)
(6.8
)
(6.3
)
5.5
4.9
5.0
(1.0
)
(1.8
)
4.4
2.9
4.3
1.1
0.1
0.3
1.3
(4.8
)
(0.5
)
(0.3
)
1.7
2.6
(3.0
)
2.4
1.0
3.6
0.4
0.4
0.5
0.6
(2.3
)
(0.7
)
(0.7
)
(1.9
)
4.9
(0.1
)
(0.1
)
1.7
0.3
0.1
(1.4
)
$
0.6
$
7.6
$
(2.5
)
(a)
Primarily dividends, capital contributions,
loans, and loan repayments.
Table of Contents
Item 7.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
2003
2002
2001
$
1.3
$
9.5
$
7.4
(7.4
)
(6.8
)
(6.3
)
1.2
(0.1
)
0.6
1.9
(0.2
)
(0.7
)
$
(3.0
)
$
2.4
$
1.0
(a)
As shown in our Sector Statement of Cash Flows
for the Automotive sector.
(b)
Primarily payables and receivables between the
sectors in the normal course of business, as shown in our Sector
Statement of Cash Flows for the Automotive sector.
Table of Contents
Item 7.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
Ford Credit
Table of Contents
2004
Forecast
2003
2002
$
4 - 6
$
16
$
11
4 - 6
4
3
8 - 12
20
14
10 - 15
11
17
$
20 - 25
$
31
$
31
*
Reflects new issuance; excludes asset sales to
bank-sponsored asset-backed commercial paper issuers, whole-loan
sales, and other structured financings.
Table of Contents
Total Debt
=
Equity
Retained
Interest in
Securitized
Securitized
Off-balance
Off-balance
Cash
SFAS No. 133
Sheet
Sheet
and Cash
Adjustments
Total Debt
+
Receivables
-
Receivables
-
Equivalents
-
on Total Debt
=
Equity
+
Minority
-
SFAS No. 133
Interest
Adjustment
on Equity
December 31,
2003
2002
2001
$
149.7
$
140.3
$
145.8
12.5
13.6
12.0
12.0
10.3
12.2
Table of Contents
Item 7.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
December 31,
2003
2002
2001
$
149.7
$
140.3
$
145.8
49.4
71.4
58.7
(13.0
)
(17.6
)
(12.5
)
(15.7
)
(6.8
)
(2.9
)
(4.7
)
(6.2
)
(2.1
)
$
165.7
$
181.1
$
187.0
$
12.5
$
13.6
$
12.0
0.2
0.5
0.6
$
12.7
$
14.1
$
12.6
13.0
12.8
14.8
Hertz
Table of Contents
Item 7.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
Total Company
Table of Contents
Item 7.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
December 31,
2003
2002
Current
Change from
Current
Change from
Year
Prior Year
Year
Prior Year
6.25
%
(0.50
) pts.
6.75
%
(0.50
) pts.
5.61
%
(0.04
)
5.65
%
(0.45
)
$
7,687
$ 11,022
$
(3,335
)
$ (1,777
)
2,070
3,762
(1,692
)
(761
)
$
(3,447
)
$ 3,829
$
(7,276
)
$ (7,872
)
(8,242
)
93
(8,335
)
(5,279
)
Table of Contents
Item 7.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
Dominion Bond Rating Service Limited
(DBRS);
Fitch, Inc. (Fitch);
Moodys Investors Service, Inc.
(Moodys); and
Standard & Poors Rating Services, a
division of McGraw-Hill Companies, Inc. (S&P).
DBRS**
Fitch
Moodys
S&P
Long-
Short-
Long-
Short-
Long-
Short-
Long-
Short-
Date
Term
Term
Trend
Term
Term
Outlook
Term
Term
Outlook
Term
Term
Outlook
A (high)
R-1 (low)
Stable
A+
F1
Stable
A2
P-1
Stable
A
A-1
Stable
A
R-1 (low)
Stable
A+
F1
Negative
A2
P-1
Negative
A
A-1
Negative
A
R-1 (low)
Stable
A-
F2
Negative
A2
P-1
Negative
A
A-1
Negative
A (low)
R-1 (low)
Stable
A-
F2
Negative
A3
P-1
Negative
BBB+
A-2
Stable
A (low)
R-1 (low)
Stable
BBB+
F2
Negative
Baa1
P-2
Negative
BBB+
A-2
Negative
A (low)
R-1 (low)
Negative
BBB+
F2
Negative
Baa1
P-2
Negative
BBB
A-2
Negative
BBB (high)
R-1 (low)
Stable
BBB+
F2
Negative
Baa1
P-2
Negative
BBB
A-2
Negative
BBB (high)
R-1 (low)
Stable
BBB+
F2
Negative
Baa1
P-2
Negative
BBB-
A-3
Stable
*
Moodys presently rates Ford Credits
long-term debt at A3, and Hertzs long-term
debt at Baa2. DBRS has assigned Hertzs
long-term debt a negative trend. All other Nov. 2003 ratings and
outlooks shown apply equally to Ford, Ford Credit, and Hertz.
**
NRSRO designation granted on February 27,
2003
Table of Contents
Item 7.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
17.0 million units
16.9 million units
Down slightly
Down slightly
Improve in all regions
Flat or improve in all regions
Improve by at least $500 million
$7 billion
$1.2 billion positive
Milestone
$3.5 - $3.8
2.6 - 2.7
0.9 - 1.1
1.5 - 1.7
(0.1) - 0
(0.2) - (0.1)
0 - 0.1
0.5 - 0.6
(a)
At constant volume, mix and exchange; excluding
special items.
(b)
Excluding Pension/Long-Term VEBA contributions
and tax refunds. (See Liquidity and Capital
Resources Gross Cash for calculation of this
non-GAAP measure).
(c)
Excluding special items.
Table of Contents
Item 7.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
greater price competition resulting from currency
fluctuations, industry overcapacity or other factors;
a significant decline in industry sales,
particularly in the U.S. or Europe, resulting from slowing
economic growth, geo-political events or other factors;
lower-than-anticipated market acceptance of new
or existing products;
work stoppages at key Ford or supplier facilities
or other interruptions of supplies;
the discovery of defects in vehicles resulting in
delays in new model launches, recall campaigns or increased
warranty costs;
increased safety, emissions, fuel economy or
other regulation resulting in higher costs and/or sales
restrictions;
unusual or significant litigation or governmental
investigations arising out of alleged defects in our products or
otherwise;
worse-than-assumed economic and demographic
experience for our postretirement benefit plans (e.g.,
investment returns, interest rates, health care cost trends,
benefit improvements);
currency or commodity price fluctuations;
a market shift from truck sales in the U.S.;
economic difficulties in any significant market;
reduced availability of or higher prices for fuel;
labor or other constraints on our ability to
restructure our business;
a change in our requirements under long-term
supply arrangements under which we are obligated to purchase
minimum quantities or pay minimum amounts;
a further credit rating downgrade;
inability to access debt or securitization
markets around the world at competitive rates or in sufficient
amounts;
higher-than-expected credit losses;
lower-than-anticipated residual values for leased
vehicles;
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
our inability to implement the Revitalization
Plan.
Table of Contents
Item 7.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
Inflation
Expected return on plan assets
Mortality rates
Table of Contents
Increase/(Decrease) in:
December 31, 2003
Percentage
Point
U.S. Plans
Non-U.S. Plans
2003
Assumption
Change
Funded Status
Funded Status
Equity
U.S. Expense
+/- 1.0 pt.
$4,110/$(4,580)
$3,300/$(3,850)
$2,870/$(4,910)
$(20)/$20
+/- 1.0
$290/$(290)
$130/$(130)
$180/$(180)
+/- 1.0
$(350)/$350
Inflation
Expected return on plan assets
Mortality rates
Table of Contents
Effect on U.S. and Canadian
Plans: Increase/(Decrease)
Percentage
December 31, 2003
2003
Assumption
Point Change
Obligation
Expense
+/- 1.0 pt.
$(4,100)/$5,000
$(260)/$280
+/- 1.0
4,600/ (3,800
)
560/ (460
)
+/- 1.0
4,600/ (3,800
)
310/ (260
)
Frequency the percentage of finance
receivables and operating leases that we expect to default over
a period of time, measured principally by the repossession rate
(the ratio of the number of vehicles repossessed in a time
period, typically a year, divided by the average number of
accounts outstanding in the same time period); and
Loss severity the expected difference
between the amount a customer owes us when we charge off the
finance contract and the amount we receive, net of expenses,
from selling the repossessed vehicle, including any recoveries
from the customer.
Table of Contents
Item 7.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
Effect on:
Increase/(Decrease)
Percentage
December 31, 2003
Point
Allowance for
2003
Assumption
Change
Credit Losses
Expense
+/- 0.1 pts.
$50/$(50)
$50/$(50)
+/- 1.0
20/(20)
20/(20)
Residual value: the market value of the vehicles
when we sell them at the end of the lease.
Return rates: the percentage of vehicles that
will be returned to us at lease end.
Table of Contents
Item 7.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
Sales of Receivables by Ford Credit
Securitizations
Table of Contents
Item 7.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
Table of Contents
Item 7.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
Risks to Future Sales of Receivables
Automotive
Table of Contents
Item 7.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
Financial Services
Payments Due by Period
Less
More
Financial
Than
1-3
3-5
Than 5
Obligations
Automotive
Services
Total
1 Year
Years
Years
Years
$
20,185
$
131,245
$
151,430
$
31,679
$
52,367
$
18,698
$
48,686
328
2
330
37
70
52
171
1,202
1,202
1,202
9,220
9,220
4,577
2,232
1,368
1,043
1,809
1,835
3,644
846
1,200
754
844
$
32,744
$
133,082
$
165,826
$
37,139
$
57,071
$
20,872
$
50,744
ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
OVERVIEW
We are exposed to a variety of market and other risks, including the effects of changes in foreign currency exchange rates, commodity prices, interest rates, as well as risks to availability of funding sources, hazard events, and specific asset risks.
These risks affect our Automotive and Financial Services sectors differently. We monitor and manage these exposures as an integral part of our overall risk management program, which includes regular reports to a central management committee, the Global Risk Management Committee (GRMC). The GRMC is chaired by our Chief Financial Officer, and its members include our Treasurer, our Controller, and the Chief Financial Officer of Ford Credit.
67
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk (Continued) |
Our Automotive and Financial Services sectors are exposed to liquidity risk, or the possibility of having to curtail their businesses or being unable to meet present and future financial obligations as they come due because funding sources may be reduced or become unavailable. We, and particularly Ford Credit, which comprises substantially all of our Financial Services sector, maintain plans for sources of funding to ensure liquidity through a variety of economic or business cycles. As discussed in greater detail in the Managements Discussion and Analysis of Financial Condition and Results of Operations, our funding sources include commercial paper, term debt, sales of receivables through securitization transactions, committed lines of credit from major banks, and other sources.
We are exposed to a variety of insurable risks, such as loss or damage to property, liability claims, and employee injury. We protect against these risks through a combination of self-insurance and the purchase of commercial insurance designed to protect against events that could generate significant losses.
Direct responsibility for the execution of our market risk management strategies resides with our Treasurers Office and is governed by written polices and procedures. Separation of duties is maintained between the development and authorization of derivative trades, the transaction of derivatives, and the settlement of cash flows. Regular audits are conducted to ensure that appropriate controls are in place and that they remain effective. In addition, our market risk exposures and our use of derivatives to manage these exposures are reviewed by the GRMC and the Audit Committee of our Board of Directors.
In accordance with corporate risk management policies, we use derivative instruments, such as forward contracts, swaps and options that economically hedge certain exposures (foreign currency, commodity, and interest rates). Derivative positions are used to manage underlying exposures; we do not use derivative contracts for speculative purposes. In certain instances, we forgo hedge accounting, which results in unrealized gains and losses that are recognized currently in net income; examples of economic hedges that do not qualify for hedge accounting include foreign currency hedges of inter-company loans and dividends and certain transactions that use multiple hedge instruments. For additional information on our derivatives, see Note 16 of the Notes to Financial Statements.
The market and counterparty risks of our Automotive sector and Ford Credit are discussed and quantified below.
AUTOMOTIVE MARKET AND COUNTERPARTY RISK
Our Automotive sector frequently has expenditures and receipts denominated in foreign currencies, including the following: purchases and sales of finished vehicles and production parts, debt and other payables, subsidiary dividends, and investments in foreign operations. These expenditures and receipts create exposures to changes in exchange rates. We also are exposed to changes in prices of commodities used in our Automotive sector and changes in interest rates.
Foreign currency risk and commodity risk are measured and quantified using a model to calculate the changes in the value of currency and commodity derivative instruments along with the underlying cash flow exposures being hedged. Our earnings at risk (EaR) methodology is based on transaction exposure, which is the exposure that results from specific transactions and our related hedging activity. The methodology does not attempt to assess the impact on financial statement earnings resulting from non-cash flow risks (e.g., re-measurement of foreign currency-denominated assets or liabilities through income). EaR at a 95% confidence level is the methodology used to calculate the potential impact to pre-tax earnings related to cash flows in foreign currency and commodity price exposure. The calculation of EaR combines current market data with historical data on volatilities and correlations of the underlying currencies or commodity prices. This creates
68
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk (Continued) |
hypothetical prices based on the calculation of historical volatilities. The EaR methodology includes our hedging actions as well as the underlying exposures over a twelve-month period.
Foreign Currency Risk |
Foreign currency risk is the possibility that our financial results could be better or worse than planned because of changes in foreign currency exchange rates. We use derivative instruments to hedge our economic exposure with respect to assets, liabilities, investments in foreign operations, and firm commitments denominated in foreign currencies. In our hedging actions, we use primarily instruments commonly used by corporations to reduce foreign exchange risk (e.g., forward contracts and options).
At December 31, 2003, the EaR from foreign currency exchange movements over the next twelve months is projected at less than $350 million, within a 95% confidence level for the unhedged exposure. When calculated at the end of each quarter throughout the year, the high was $550 million, the low was $350 million and the average was $460 million; the risks impacting financial instruments are offset with underlying exposure being hedged. The 2003 year-end projection is approximately $40 million lower than the EaR projection for 2003 calculated as of December 31, 2002. The decreased exposure results primarily from more diversification benefit due to lower correlation among major currency pairings. The effect of currency movements on business units will vary based on the currency profile of the business unit (including any hedging actions taken). It can also be affected by competitive responses to currency changes.
Commodity Price Risk |
Commodity price risk is the possibility of higher or lower costs due to changes in the prices of commodities, such as non-ferrous metals (e.g., aluminum) and precious metals (e.g., palladium, platinum and rhodium), ferrous alloys (e.g., steel), energy (e.g., natural gas and electricity), and plastics/ resins (e.g., polypropylene), which we use in the production of motor vehicles.
We use derivative instruments to hedge the price risk associated with the purchase of those commodities that we can economically hedge. In our hedging actions, we primarily use instruments commonly used by corporations to reduce commodity price risk (e.g., financially settled forward contracts, swaps, and options). Based on our financial hedging activities with derivatives and the associated underlying commodities exposures at December 31, 2003, the EaR from commodity price movements over the next twelve months is projected at less than $90 million, within a 95% confidence level (when calculated at the end of each quarter throughout the year, the high was $90 million, the low was $69 million and the average was $80 million); the risks impacting financial instruments are offset with underlying exposure being hedged. The year-end level is approximately $31 million higher than the EaR projection for 2003 calculated as of December 31, 2002. The drivers of this increase are higher commodity price levels, price volatilities and exposures.
Where derivative instruments do not exist or do not provide a highly correlated hedge, our purchasing organization negotiates contracts mitigating price risk (e.g., steel and resins) which are approved by the GRMC.
Interest Rate Risk |
Interest rate risk relates to the gain or loss we could incur in our Automotive investment portfolio in the event of a change in interest rates. Our interest rate sensitivity analysis on the investment portfolio includes cash and cash equivalents, marketable and loaned securities and short-term VEBA Assets. At December 31, 2003, we had $25.9 billion in cash, compared to $25.3 billion at December 31, 2002. We invest our cash in securities of various types and maturities, the value of which are subject to fluctuations in interest rates. These securities are generally classified as Trading
69
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk (Continued) |
or Available for Sale. The Trading portfolio gains and losses (unrealized and realized) are reported in the income statement. The Available for Sale portfolio realized gains or losses are reported in the income statement, and unrealized gains and losses are reported in the Consolidated Statement of Stockholders Equity in other comprehensive income. The investment strategy is based on clearly defined risk and liquidity guidelines to maintain liquidity, minimize risk, and earn a reasonable return on the short-term investment.
At any time, a rise in interest rates could have a material adverse impact on the fair value of our Trading and our Available for Sale portfolios. As of December 31, 2003, the value of our Trading portfolio was $24.2 billion (including assets contained in a short-term VEBA trust), which is $0.6 billion higher than December 31, 2002. The value of our Available for Sale portfolio was $1.7 billion, which is unchanged from December 31, 2002.
Assuming a hypothetical, instantaneous increase in interest rates of one percentage point, the value of our Trading and Available for Sale portfolios would be reduced by $206 million and $29 million, respectively. This compares to $225 million and $29 million, respectively, as calculated as of December 31, 2002. While this is our best estimate of the impact of the specified interest rate scenario, actual results could differ from those projected. The sensitivity analysis presented assumes interest rate changes are instantaneous, parallel shifts in the yield curve. In reality, interest rate changes are rarely instantaneous or parallel.
Counterparty Risk |
Counterparty risk relates to the loss we could incur if an obligor or counterparty defaulted on an investment or a derivative contract. We enter into master agreements with counterparties that allow netting of certain exposures in order to manage this risk. Exposures primarily relate to investments in fixed-income instruments and derivative contracts used for managing interest rate, foreign currency exchange rates and commodity price risk. We, together with Ford Credit, establish exposure limits for each counterparty to minimize risk and provide counterparty diversification. Our exposures are monitored on a regular basis and are included in monthly reporting to the GRMC.
Our approach to managing counterparty risk is forward-looking and proactive, allowing us to take risk mitigation actions. We establish exposure limits for both mark-to-market and future potential exposure, based on our overall risk tolerance and ratings-based historical default probabilities. The exposure limits are lower for lower-rated counterparties and for longer-dated exposures. We use a Monte Carlo simulation technique to assess our potential exposure by tenor, defined at a 95% confidence level.
Substantially all of our counterparty and obligor exposures are with counterparties and obligors that are rated single-A or better.
FORD CREDIT MARKET RISKS
Overview |
Ford Credit is exposed to risks in the normal course of its business activities. In addition to counterparty risk discussed above, Ford Credit is subject to the following additional types of risks that it seeks to identify, assess, monitor and manage, in accordance with defined policies and procedures:
| Market risk the possibility that changes in future market interest and currency exchange rates or prices will have an adverse impact on operating results. | |
| Credit risk the possibility of loss from a customers failure to make payments according to contract terms. |
70
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk (Continued) |
| Residual risk the possibility that the actual proceeds received by Ford Credit upon the sale of returned lease vehicles at lease termination will be lower than the depreciated values (i.e., residual values) of those vehicles. | |
| Liquidity risk the possibility of being unable to meet all current and future obligations in a timely manner. |
Each form of risk is uniquely managed in the context of its contribution to Ford Credits overall global risk. Business decisions are evaluated on a risk-adjusted basis and products are priced consistent with these risks. Credit and residual risks are discussed above in Managements Discussion and Analysis of Financial Condition and Results of Operations under the caption Critical Accounting Estimates and liquidity risk is discussed above in Managements Discussion and Analysis of Financial Condition and Results of Operations under the caption Liquidity and Capital Resources Financial Services Sector Ford Credit. The following discusses Ford Credits market risks:
Foreign Currency Risk. To meet funding objectives, Ford Credit issues debt or, for its international affiliates, draws on local credit lines in a variety of currencies. Ford Credit faces exposure to currency exchange rates if a mismatch exists between the currency of its receivables and the currency of the debt funding those receivables. When possible, receivables are funded with debt in the same currency, minimizing exposure to exchange rate movements. When a different currency is used, Ford Credit seeks to minimize the impact of currency exchange rates on operating results by executing foreign currency derivatives. These derivatives convert substantially all of its foreign currency debt obligations to the local country currency of the receivables. As a result, Ford Credits market risk exposure relating to currency exchange rates is believed to be immaterial.
Interest Rate Risk. Interest rate risk is the primary market risk to which Ford Credit is exposed and consists principally of re-pricing risk or differences in the re-pricing characteristics of assets and liabilities. An instruments re-pricing period is a term used by financial institutions to describe how an interest rate-sensitive instrument responds to changes in interest rates. It refers to the time it takes an instruments interest rate to reflect a change in market interest rates. For fixed-rate instruments, the re-pricing period is equal to the maturity for repayment of the instruments principal because, with a fixed interest rate, the principal is considered to re-price only when re-invested in a new instrument. For a floating-rate instrument, the re-pricing period is the period of time before the interest rate adjusts to the market rate. For instance, a floating-rate loan whose interest rate is reset to a market index annually on December 31st would have a re-pricing period of one year on January 1st, regardless of the instruments maturity.
Ford Credits receivables consist primarily of fixed-rate retail installment sale and lease contracts and floating-rate wholesale receivables. Fixed-rate retail installment sale and lease contracts are originated principally with maturities ranging between two and six years and generally require customers to make equal monthly payments over the life of the contract. Ford Credits funding sources consist primarily of short- and long-term unsecured debt and sales of receivables in securitizations. In the case of unsecured term debt, and in an effort to have funds available throughout the business cycles, Ford Credit may borrow at terms longer than the term of its assets, with five to ten year maturities. These debt instruments are principally fixed-rate and require fixed and equal interest payments over the life of the instrument and a single principal payment at maturity.
Ford Credit is exposed to interest rate risk to the extent that a difference exists between the re-pricing profile of its assets and debt. Specifically, without derivatives, Ford Credits assets would re-price more quickly than its debt.
71
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk (Continued) |
Ford Credits interest rate risk management objective is to maximize its financing margin while limiting fluctuations caused by changes in interest rates. Ford Credit achieves this objective by setting an established risk tolerance range and staying within this tolerance range through an interest rate risk management program that includes entering into derivatives commonly known as interest rate swaps.
On a monthly basis, Ford Credit determines the sensitivity of the economic value of its portfolio of interest rate-sensitive assets and liabilities (its economic value) to hypothetical changes in interest rates. Economic value is a measure of the present value of all future expected cash flows, discounted by market interest rates, and is equal to the present value of interest rate-sensitive assets minus the present value of interest rate-sensitive liabilities. Ford Credit then enters into interest rate swaps, effectively converting portions of its floating-rate debt or assets to fixed or its fixed-rate debt or assets to floating, to ensure that the sensitivity of its economic value falls within an established target range. Ford Credit also monitors the sensitivity of its earnings to interest rates using pre-tax net interest income simulation techniques. These simulations calculate the projected pre-tax net interest income of its portfolio of interest rate-sensitive assets and liabilities under various interest rate scenarios, including both parallel and non-parallel shifts in the yield curve. These quantifications of interest rate risk are included in monthly reporting to the Treasurer.
The process described above is used to measure and manage the interest rate risk of Ford Credits operations in the United States, Canada and the United Kingdom, which together represented approximately 85% of its total on-balance sheet finance receivables at December 31, 2003. For its international affiliates, Ford Credit uses a technique commonly referred to as gap analysis, to measure re-pricing mismatch. This process uses re-pricing schedules, which group assets, debt, and swaps into time-bands based on their re-pricing period. Under this process, Ford Credit enters into interest rate swaps, effectively changing the re-pricing profile of its assets and debt, to ensure that any re-pricing mismatch existing in a particular time-band falls within an established tolerance.
As a result of its interest rate risk management
process, including derivatives, Ford Credits debt
re-prices faster than its assets. Other things equal, this means
that during a period of rising interest rates, the interest
rates paid on Ford Credits debt will increase more rapidly
than the interest rates earned on assets, thereby initially
reducing Ford Credits pre-tax net interest income.
Correspondingly, during a period of falling interest rates, Ford
Credits pre-tax net interest income would be expected to
initially increase. To provide a quantitative measure of the
sensitivity of its pre-tax net interest income to changes in
interest rates, Ford Credit uses interest rate scenarios that
assume a hypothetical, instantaneous increase or decrease in
interest rates of one percentage point across all maturities, as
well as a base case that assumes that interest rates remain
constant at existing levels. The differences between these
scenarios and the base case over a twelve-month period represent
an estimate of the sensitivity of Ford Credits pre-tax net
interest income. This sensitivity as of year-end 2003 and 2002
is as follows:
Pre-tax Net Interest
Pre-tax Net Interest
Income impact given a
Income impact given a
one percentage point
one percentage point
instantaneous
instantaneous
increase
decrease
in interest rates
in interest rates
(in millions)
(in millions)
$(179)
$179
$(153)
$156
While the sensitivity analysis presented is Ford Credits best estimate of the impacts of specified assumed interest rate scenarios, actual results could differ from those projected. The sensitivity analysis presented assumes interest rate changes are instantaneous, parallel shifts in the yield
72
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk (Continued) |
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. The model used to conduct this analysis is heavily dependent on assumptions, particularly those regarding the reinvestment of maturing asset principal, refinancing of maturing debt, and predicted repayment of sale and lease contracts ahead of contractual maturity.
The fair value of net derivative financial instruments (derivative assets less derivative liabilities) as of December 31, 2003 as reported in Note 16 of the Notes to Financial Statements was $8.9 billion, approximately $1.3 billion higher than a year ago. This increase primarily reflects the strengthening of the Euro against the U.S. dollar which increases the value of receive-Euro/ pay-U.S. dollar cross currency swaps and the decrease in U.S. interest rates which increases the value of our pay-floating/ receive-fixed rate swaps. For additional information on our derivatives, please refer to the Financial Services Sector of Note 16 of the Notes to Financial Statements.
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
Our Financial Statements, the accompanying Notes to Financial Statements, the Report of Independent Auditors, the Financial Statement Schedules and the Report of Independent Auditors on Financial Statement Schedule that are filed as part of this Report are listed under Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K and are set forth on pages FS-1 through FS-44 and FSS-1 and FSS-2 immediately following the signature pages of this Report.
Selected quarterly financial data for us and our consolidated subsidiaries for 2003 and 2002 is in Note 22 of the Notes to Financial Statements.
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
Not required.
ITEM 9A. | CONTROLS AND PROCEDURES |
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
William Clay Ford, Jr., our Chief Executive Officer, and Don R. Leclair, our Chief Financial Officer, have performed an evaluation of the Companys 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 December 31, 2003 and each has concluded that such disclosure controls and procedures are effective to ensure that information required to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified by the Securities and Exchange Commissions rules and regulations.
CHANGES IN INTERNAL CONTROLS
No changes in the Companys internal controls over financial reporting occurred during the quarter ended December 31, 2003 that have materially affected, or are reasonably likely to materially affect, the Companys internal controls over financial reporting.
73
PART III
ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF FORD |
The information required by Item 10 regarding our directors is incorporated by reference from the information under the captions Election of Directors, Section 16(a) Beneficial Ownership Reporting Compliance and Management Stock Ownership in our Proxy Statement. The information required by Item 10 regarding our executive officers appears as Item 4A under Part I of this Report. The information required by Item 10 regarding an audit committee financial expert is incorporated by reference from the information under the caption Corporate Governance in our Proxy Statement The information required by Item 10 regarding the members of our Audit Committee of the Board of Directors is incorporated by reference from the information under the caption Committees of the Board of Directors in our Proxy Statement. The information required by Item 10 regarding our codes of ethics is incorporated by reference from the information under the caption Corporate Governance in our Proxy Statement. In addition, we have included in Item 1 to this Report instructions for how to access our codes of ethics on our website and our Internet address. Amendments to, and waivers granted under, our Code of Ethics for Senior Financial Personnel, if any, will be posted to our website as well.
ITEM 11. | EXECUTIVE COMPENSATION |
The information required by Item 11 is incorporated by reference from the information under the following captions in our Proxy Statement: Compensation of Directors, Compensation Committee Report on Executive Compensation, Compensation Committee Interlocks and Insider Participation Compensation of Executive Officers, Stock Options, Performance Stock Rights, Stock Performance Graphs and Retirement Plans.
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT |
The information required by Item 12 is incorporated by reference from the information under the captions Stock Options Equity Compensation Plan Information and Management Stock Ownership in our Proxy Statement.
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS |
The information required by Item 13 is incorporated by reference from the information under the caption Certain Relationships and Related Transactions in our Proxy Statement.
ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The information required by Item 14 is incorporated by reference from the information under the caption Audit Committee Report in our Proxy Statement.
74
PART IV
ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K |
(a) 1. Financial Statements Ford Motor Company and Subsidiaries
Sector Statement of Income and Consolidated Statement of Income for the years ended December 31, 2003, 2002, and 2001.
Sector Balance Sheet and Consolidated Balance Sheet at December 31, 2003 and 2002.
Sector Statement of Cash Flows and Consolidated Statement of Cash Flows for the years ended December 31, 2003, 2002, and 2001.
Consolidated Statement of Stockholders Equity for the years ended December 31, 2003, 2002, and 2001.
Notes to Financial Statements
Report of Independent Auditors
The Sector and Consolidated Financial Statements, the Notes to Financial Statements and the Report of Independent Auditors listed above are filed as part of this Report and are set forth on pages FS-1 through FS-44 immediately following the signatures pages of this Report.
(a) 2. Financial Statement
Schedules
Designation
Description
Valuation and Qualifying Accounts
Schedule II and the Report of Independent Auditors on Financial Statement Schedule are filed as part of this Report and are set forth on page FSS-1 and FSS-2 immediately following the Notes to Financial Statements referred to above. The other schedules are omitted because either they are not applicable or the information required to be contained in them is disclosed elsewhere in our Sector and Consolidated Financial Statements or the amounts involved are not sufficient to require submission.
(a) 3. Exhibits
Designation
Description
Method of Filing
Restated Certificate of Incorporation, dated
August 2, 2000.
Filed as Exhibit 3-A to Fords Annual
Report on Form 10- K for the year ended December 31,
2000.*
By-Laws as amended through February 12, 2004.
Filed with this Report.
Amended and Restated Profit Maintenance
Agreement, dated as of January 1, 2002, between Ford and
Ford Credit.
Filed as Exhibit 10-A to Fords Annual
Report on Form 10-K for the year ended December 31,
2001.*
Executive Separation Allowance Plan as amended
and restated through December 18, 2000 for separations on
or after January 1, 1981.**
Filed as Exhibit 10-B to Fords Annual
Report on Form 10-K for the year ended December 31,
2000.*
75
Item 15.
Exhibits, Financial Statement Schedules, and
Reports on Form 8-K (Continued)
Designation
Description
Method of Filing
Description of Ford practices regarding travel
expenses of spouses of certain executives.**
Filed as Exhibit 10-J to Fords Annual
Report on Form 10-K for the year ended December 31,
1980.*
Deferred Compensation Plan for Non-Employee
Directors, as amended on July 11, 1991.**
Filed as Exhibit 10-H-1 to Fords
Annual Report on Form 10-K for the year ended
December 31, 1991.*
Amendments to Deferred Compensation Plan for
Non-Employee Directors, effective as of January 1, 1996.**
Filed as Exhibit 10-G-1 to Fords
Annual Report on Form 10-K for the year ended
December 31, 1995.*
Amendment to Deferred Compensation Plan for
Non-Employee Directors, effective as of November 14, 1996.**
Filed as Exhibit 10-G-2 to Fords
Annual Report on Form 10-K for the year ended
December 31, 1996.*
Benefit Equalization Plan, as amended and
restated as of December 18, 2000.**
Filed as Exhibit 10-F to Fords Annual
Report on Form 10-K for the year ended December 31,
2000.*
Description of an Amendment to the Benefit
Equalization Plan.**
Filed with this Report
Description of financial counseling services
provided to certain executives.**
Filed as Exhibit 10-F to Fords Annual
Report on Form 10-K for the year ended December 31,
2002.*
Supplemental Executive Retirement Plan, as
restated and incorporating amendments through December 18,
2000.**
Filed as Exhibit 10-H to Fords Annual
Report on Form 10-K for the year ended December 31,
2000.*
Restricted Stock Plan for Non-Employee Directors
adopted by the Board of Directors on November 10, 1988.**
Filed as Exhibit 10-P to Fords Annual
Report on Form 10-K for the year ended December 31,
1988.*
Amendment to Restricted Stock Plan for
Non-Employee Directors, effective as of August 1, 1996.**
Filed as Exhibit 10.1 to Fords
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996.*
1990 Long-Term Incentive Plan, amended as of
June 1, 1990.**
Filed as Exhibit 10-R to Fords Annual
Report on Form 10-K for the year ended December 31,
1990.*
Amendment to 1990 Long-Term Incentive Plan,
effective as of October 1, 1990.**
Filed as Exhibit 10-P-1 to Fords
Annual Report on Form 10-K for the year ended
December 31, 1991.*
Amendment to 1990 Long-Term Incentive Plan,
effective as of March 8, 1995.**
Filed as Exhibit 10.2 to Fords
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995.*
76
Item 15.
Exhibits, Financial Statement Schedules, and
Reports on Form 8-K (Continued)
Designation
Description
Method of Filing
Amendment to 1990 Long-Term Incentive Plan,
effective as of October 1, 1997.**
Filed as Exhibit 10-M-3 to Fords
Annual Report on Form 10-K for the year ended
December 31, 1997.*
Amendment to 1990 Long-Term Incentive Plan,
effective as of January 1, 1998.**
Filed as Exhibit 10-M-4 to Fords
Annual Report on Form 10-K for the year ended
December 31, 1997.*
Description of Matching Gift Program for
Non-Employee Directors.**
Filed as Exhibit 10-Q to Fords Annual
Report on Form 10-K for the year ended December 31,
1991.*
Non-Employee Directors Life Insurance and
Optional Retirement Plan (as amended as of January 1,
1993).**
Filed as Exhibit 10-O to Fords Annual
Report on Form 10-K for the year ended December 31,
1994.*
Description of Non-Employee Directors Accidental
Death, Dismemberment and Permanent Total Disablement Indemnity.**
Filed as Exhibit 10-S to Fords Annual
Report on Form 10-K for the year ended December 31,
1992.*
Agreement dated December 10, 1992 between
Ford and William C. Ford.**
Filed as Exhibit 10-T to Fords Annual
Report on Form 10-K for the year ended December 31,
1992.*
Support Agreement dated as of October 1,
1993 between Ford and FCE Bank.
Filed as Exhibit 10-T to Fords Annual
Report on Form 10-K for the year ended December 31,
1993.*
Amendment No. 1 dated as of
November 15, 1995 to Support Agreement between Ford and FCE
Bank.
Filed as Exhibit 10-R-1 to Fords
Annual Report on Form 10-K for the year ended
December 31, 1995.*
Select Retirement Plan as amended and restated
through January 1, 2000.**
Filed as Exhibit 10-P to Fords Annual
Report on Form 10-K for the year ended December 31,
2000.*
Deferred Compensation Plan, as amended and
restated as of January 1, 2000.**
Filed as Exhibit 10-R to Fords Annual
Report on Form 10-K for the year ended December 31,
1999.*
Amendment to Deferred Compensation Plan effective
as of April 12, 2000.**
Filed as Exhibit 4.2 to Fords
Registration Statement No. 333-56660.*
Amendment to Deferred Compensation Plan effective
as of June 1, 2000.**
Filed as Exhibit 4.3 to Fords
Registration Statement No. 333-56660.*
Amendment to Deferred Compensation Plan effective
as of March 10, 2004.**
Filed with this Report.
77
Item 15.
Exhibits, Financial Statement Schedules, and
Reports on Form 8-K (Continued)
Designation
Description
Method of Filing
Annual Incentive Compensation Plan, as amended
and restated as of January 1, 2000.**
Filed as Exhibit 10-T to Fords Annual
Report on Form 10-K for the year ended December 31,
1999.*
1998 Long-Term Incentive Plan, as amended and
restated effective as of January 1, 2003.**
Filed as Exhibit 10-R to Fords Annual
Report on Form 10-K for the year ended December 31,
2002.*
Agreement dated January 13, 1999 between
Ford and Edsel B. Ford II.**
Filed as Exhibit 10-X to Fords Annual
Report on Form 10-K for the year ended December 31,
1998.*
Agreement between Ford Motor Company and Ford
Motor Credit Company dated as of October 18, 2001.
Filed as Exhibit 10 to Fords Current
Report on Form 8-K dated October 18, 2001.*
Agreement between Ford and Carl Reichardt,
entered into in June, 2002.**
Filed as Exhibit 10.2 to Fords
Quarterly Report on Form 10-Q for the quarter ended
June 30, 2002.*
Form of Trade Secrets/Non-Compete Statement
between Ford and certain of its Executive Officers.**
Filed with this Report.
Amendment to Benefit Equalization Plan, adopted
in October, 2002 and effective as of November 1, 2001.**
Filed as Exhibit 10 to Fords Quarterly
Report on Form 10-Q for the quarter ended
September 30, 2002.*
Description of Special 2003 Performance Incentive
Arrangement.**
Filed as Exhibit 10 to Fords Quarterly
Report on Form 10-Q for the quarter ended
September 30, 2003.*
Arrangement between Ford Motor Company and John
M. Rintamaki dated February 28, 2003.**
Filed as Exhibit 10 to Fords Quarterly
Report on Form 10-Q for the quarter ended March 31,
2003.*
Calculation of Ratio of Earnings to Combined
Fixed Charges and Preferred Stock Dividends.
Filed with this Report.
List of Subsidiaries of Ford as of March 10,
2004.
Filed with this Report.
Consent of Independent Accountants.
Filed with this Report.
Powers of Attorney.
Filed with this Report.
Rule 15d-14(a) Certification of CEO
Filed with this Report.
Rule 15d-14(a) Certification of CFO
Filed with this Report.
78
Item 15.
Exhibits, Financial Statement Schedules, and
Reports on Form 8-K (Continued)
Designation
Description
Method of Filing
Section 1350 Certification of
CEO
Filed with this Report.
Section 1350 Certification of
CFO
Filed with this Report.
* | Incorporated by reference as an exhibit to this Report (file number reference 1-3950, unless otherwise indicated) |
** | Management contract or compensatory plan or arrangement |
Instruments defining the rights of holders of certain issues of long-term debt of Ford and of certain consolidated subsidiaries and of any unconsolidated subsidiary, for which financial statements are required to be filed with this Report, have not been filed as exhibits to this Report because the authorized principal amount of any one of such issues does not exceed 10% of the total assets of Ford and our subsidiaries on a consolidated basis. Ford agrees to furnish a copy of each of such instruments to the Commission upon request.
(b) Reports on Form 8-K
Ford filed the following Current Reports on Form 8-K during the quarter ended December 31, 2003:
Current Report on Form 8-K dated October 1, 2003 included information relating to Fords September 2003 U.S. sales results.
Current Report on Form 8-K dated October 2, 2003 included information relating to Fords 2003 collective bargaining agreement with the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (UAW).
Current Report on Form 8-K dated October 16, 2003 included information relating to Fords third quarter 2003 financial results.
Current Report on Form 8-K dated November 3, 2003 included information relating to Fords October 2003 U.S. sales results.
Current Report on Form 8-K dated December 2, 2003 included information relating to Fords November 2003 U.S. sales results.
Current Report on Form 8-K dated December 16, 2003 included information relating to Fords negotiations with Visteon Corporation.
Current Report on Form 8-K dated December 22, 2003 included information relating to Fords new agreements with Visteon Corporation.
79
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Ford has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
FORD MOTOR COMPANY |
By: | /s/ DON R. LECLAIR* |
|
|
(Don R. Leclair) | |
Group Vice President and | |
Chief Financial Officer |
Date: March 12, 2004
Pursuant to the requirements of the Securities
Exchange Act of 1934, this Report has been signed below by the
following persons on behalf of Ford and in the capacities on the
date indicated.
Signature
Title
Date
WILLIAM CLAY FORD, JR.*
(William Clay Ford, Jr.)
Director, Chairman of the Board
and Chief Executive Officer and
Chair of the Environmental and
Public Policy Committee and
Office of the Chairman and
Chief Executive Committee
(principal executive officer)
March 12, 2004
JOHN R. H. BOND*
(John R. H. Bond)
Director
March 12, 2004
STEPHEN G. BUTLER*
March 12, 2004
(Stephen G. Butler)
Director
March 12, 2004
KIMBERLY A. CASIANO*
(Kimberly A. Casiano)
Director
March 12, 2004
EDSEL B. FORD II*
(Edsel B. Ford II)
Director
March 12, 2004
WILLIAM CLAY FORD*
(William Clay Ford)
Director
March 12, 2004
IRVINE O. HOCKADAY, JR.*
(Irvine O. Hockaday, Jr.)
Director and Chair of the Audit Committee
March 12, 2004
MARIE-JOSÉE KRAVIS*
(Marie-Josée Kravis)
Director and Chair of the Compensation Committee
March 12, 2004
RICHARD A. MANOOGIAN*
(Richard A. Manoogian)
Director
March 12, 2004
80
Signature
Title
Date
ELLEN R. MARRAM*
(Ellen R. Marram)
Director and Chair of the Nominating and
Governance Committee
March 12, 2004
HOMER A. NEAL*
(Homer A. Neal)
Director
March 12, 2004
JORMA OLLILA*
(Jorma Ollila)
Director
March 12, 2004
CARL E. REICHARDT*
(Carl E. Reichardt)
Director, Chair of the Finance Committee
March 12, 2004
ROBERT E. RUBIN*
(Robert E. Rubin)
Director
March 12, 2004
NICHOLAS V. SCHEELE*
(Nicholas V. Scheele)
Director and President and
Chief Operating Officer
March 12, 2004
JOHN L. THORNTON*
(John L. Thornton)
Director
March 12, 2004
DON R. LECLAIR*
(Don R. Leclair)
Group Vice President and
Chief Financial Officer
(principal financial officer)
March 12, 2004
JAMES C. GOUIN*
(James C. Gouin)
Vice President and Controller (principal
accounting officer)
March 12, 2004
*By:
/s/ PETER J. SHERRY, JR.
(Peter J. Sherry, Jr.)
Attorney-in-Fact
March 12, 2004
81
FORD MOTOR COMPANY AND SUBSIDIARIES
SECTOR STATEMENT OF INCOME
2003
2002
2001
$
138,442
$
134,273
$
130,736
129,821
125,043
128,348
10,152
9,758
9,778
139,973
134,801
138,126
(1,531
)
(528
)
(7,390
)
870
834
765
1,370
1,368
1,376
(500
)
(534
)
(611
)
74
(91
)
(856
)
(1,957
)
(1,153
)
(8,857
)
25,754
27,983
29,768
6,320
7,468
9,440
8,779
10,162
10,096
4,971
4,974
5,133
2,357
3,275
3,661
22,427
25,879
28,330
3,327
2,104
1,438
1,370
951
(7,419
)
135
301
(2,096
)
1,235
650
(5,323
)
314
367
24
921
283
(5,347
)
(8
)
(62
)
(106
)
(154
)
(199
)
(264
)
(1,002
)
$
495
$
(980
)
$
(5,453
)
$
495
$
(995
)
$
(5,468
)
1,832
1,819
1,820
$
0.50
$
0.15
$
(2.96
)
(0.04
)
(0.06
)
(0.09
)
(0.11
)
(0.14
)
(0.55
)
$
0.27
$
(0.55
)
$
(3.02
)
$
0.50
$
0.15
$
(2.96
)
(0.03
)
(0.06
)
(0.09
)
(0.11
)
(0.14
)
(0.55
)
$
0.27
$
(0.54
)
$
(3.02
)
$
0.40
$
0.40
$
1.05
The accompanying notes are part of the financial statements.
FS-1
FORD MOTOR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
2003
2002
2001
$
138,442
$
134,273
$
130,736
25,754
27,983
29,768
164,196
162,256
160,504
870
834
765
129,821
125,043
128,348
23,902
24,894
25,007
7,690
8,836
10,816
2,357
3,275
3,661
163,770
162,048
167,832
74
(91
)
(856
)
1,370
951
(7,419
)
135
301
(2,096
)
1,235
650
(5,323
)
314
367
24
921
283
(5,347
)
(8
)
(62
)
(106
)
(154
)
(199
)
(264
)
(1,002
)
$
495
$
(980
)
$
(5,453
)
$
495
$
(995
)
$
(5,468
)
1,832
1,819
1,820
$
0.50
$
0.15
$
(2.96
)
(0.04
)
(0.06
)
(0.09
)
(0.11
)
(0.14
)
(0.55
)
$
0.27
$
(0.55
)
$
(3.02
)
$
0.50
$
0.15
$
(2.96
)
(0.03
)
(0.06
)
(0.09
)
(0.11
)
(0.14
)
(0.55
)
$
0.27
$
(0.54
)
$
(3.02
)
$
0.40
$
0.40
$
1.05
The accompanying notes are part of the financial statements.
FS-2
FORD MOTOR COMPANY AND SUBSIDIARIES
SECTOR BALANCE SHEET
December 31,
December 31,
2003
2002
$
5,427
$
5,157
10,749
17,464
5,667
21,843
22,621
2,721
2,047
9,181
6,977
3,225
3,462
6,839
4,547
1,062
43,809
40,716
1,930
2,470
41,993
36,352
12,092
11,694
5,378
4,719
876
812
68
246
14,495
10,781
120,641
107,790
16,343
7,064
1,123
807
110,893
97,007
31,859
39,727
13,017
17,618
769
749
239
248
388
2,783
17,292
16,626
3,356
4,803
195,279
187,432
$
315,920
$
295,222
$
15,289
$
14,579
2,942
2,471
32,171
27,615
1,806
551
124
52,332
45,216
13,832
13,607
5,155
18,987
13,607
45,104
46,887
2,352
303
94
213
3,232
4,803
122,101
111,029
2,189
1,886
159,011
148,054
11,061
11,629
9,211
9,441
37
861
1,062
181,509
172,933
5,670
659
18
18
1
1
5,374
5,420
(414
)
(6,531
)
(1,749
)
(1,977
)
8,421
8,659
11,651
5,590
$
315,920
$
295,222
The accompanying notes are part of the financial statements.
FS-3
FORD MOTOR COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31,
December 31,
2003
2002
$
21,770
$
12,221
11,872
18,271
5,667
2,721
2,047
110,893
97,007
31,859
39,727
13,017
17,618
9,181
6,977
2,959
3,569
43,598
37,923
7,389
2,978
6,147
5,468
1,115
1,060
456
3,029
35,950
29,227
$
304,594
$
277,122
$
20,420
$
18,936
29,591
25,059
179,804
162,212
53,899
56,270
8,439
2,311
131
1,074
292,284
265,862
5,670
659
18
18
1
1
5,374
5,420
(414
)
(6,531
)
(1,749
)
(1,977
)
8,421
8,659
11,651
5,590
$
304,594
$
277,122
The accompanying notes are part of the financial statements.
FS-4
FORD MOTOR COMPANY AND SUBSIDIARIES
SECTOR STATEMENT OF CASH FLOWS
2003
2002
2001
Financial
Financial
Financial
Automotive
Services
Automotive
Services
Automotive
Services
$
5,157
$
7,064
$
4,053
$
3,131
$
3,360
$
1,416
1,336
17,052
9,481
15,261
7,440
13,077
1,282
525
(6,206
)
(23
)
1,143
120
2,618
17,577
3,275
15,238
8,583
13,197
(7,370
)
(379
)
(6,776
)
(502
)
(6,301
)
(651
)
(62,980
)
(81,690
)
(93,982
)
42,727
45,767
45,121
(1,505
)
(1,846
)
(1,412
)
(8,925
)
(1,149
)
(3,446
)
(609
)
(12,489
)
(734
)
8,673
709
3,445
479
13,866
759
21,145
41,289
41,419
77
204
257
1,421
3,708
1,053
186
(289
)
(1,998
)
(737
)
256
716
55
407
372
250
(2,865
)
248
(5,756
)
3,295
(6,364
)
(9,967
)
(733
)
(743
)
(1,929
)
9
287
(1,385
)
4,900
(177
)
(237
)
1,542
(31
)
(14,140
)
38
(18,344
)
1,144
21,942
318
15,524
2,063
44,193
(1,097
)
(27,683
)
(859
)
(15,760
)
(1,122
)
(26,193
)
(3,708
)
(1,053
)
(186
)
(15
)
(4
)
(23
)
369
261
(185
)
(929
)
(7,911
)
3,672
(15,060
)
(2,074
)
(715
)
260
551
37
336
(101
)
(151
)
1,186
(1,186
)
(124
)
124
649
(649
)
270
9,279
1,104
3,933
693
1,715
$
5,427
$
16,343
$
5,157
$
7,064
$
4,053
$
3,131
The accompanying notes are part of the financial statements.
FS-5
FORD MOTOR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
2003
2002
2001
$
12,221
$
7,184
$
4,776
18,388
24,742
20,517
1,807
(6,229
)
1,263
20,195
18,513
21,780
(7,749
)
(7,278
)
(6,952
)
(62,980
)
(81,690
)
(93,982
)
42,727
45,767
45,121
(1,505
)
(1,846
)
(1,412
)
(10,074
)
(4,055
)
(13,223
)
9,382
3,924
14,625
21,145
41,289
41,419
281
257
1,421
(289
)
(2,735
)
256
771
407
622
(6,325
)
(3,514
)
(16,517
)
(733
)
(743
)
(1,929
)
9
287
(1,385
)
4,900
(177
)
1,305
(14,171
)
(18,306
)
23,086
15,842
46,256
(28,780
)
(16,619
)
(27,315
)
(19
)
346
76
(5,132
)
(10,335
)
(2,603
)
811
373
(252
)
9,549
5,037
2,408
$
21,770
$
12,221
$
7,184
The accompanying notes are part of the financial statements.
FS-6
FORD MOTOR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS
EQUITY
Other Comprehensive
Capital in
Income/(Loss)
Excess
of Par
Foreign
Minimum
Derivative
Capital
Value of
Retained
Currency
Pension
Instruments
Stock
Stock
Earnings
Translation
Liability
and Other
Other
Total
$
19
$
6,174
$
17,884
$
(3,103
)
$
(440
)
$
111
$
(2,035
)
$
18,610
(5,453
)
(5,453
)
(1,240
)
(1,240
)
129
(1,228
)
(1,099
)
(5
)
(5
)
(137
)
(137
)
(7,934
)
(173
)
(173
)
(788
)
(788
)
(1,929
)
(1,929
)
$
19
$
6,001
$
10,502
$
(4,214
)
$
(445
)
$
(1,254
)
$
(2,823
)
$
7,786
$
19
$
6,001
$
10,502
$
(4,214
)
$
(445
)
$
(1,254
)
$
(2,823
)
$
7,786
(980
)
(980
)
2,938
2,938
(15
)
1,541
1,526
(5,331
)
(5,331
)
249
249
(1,598
)
(524
)
(524
)
(57
)
(120
)
(177
)
846
846
(743
)
(743
)
$
19
$
5,420
$
8,659
$
(1,291
)
$
(5,776
)
$
536
$
(1,977
)
$
5,590
$
19
$
5,420
$
8,659
$
(1,291
)
$
(5,776
)
$
536
$
(1,977
)
$
5,590
495
495
3,075
3,075
(191
)
989
798
2,243
2,243
1
1
6,612
(46
)
(46
)
228
228
(733
)
(733
)
$
19
$
5,374
$
8,421
$
1,593
$
(3,533
)
$
1,526
$
(1,749
)
$
11,651
The accompanying notes are part of the financial statements.
FS-7
FORD MOTOR COMPANY AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS
Principles of Presentation and Consolidation
We present our financial statements on two bases: 1) sector basis for Automotive and Financial Services and 2) consolidated basis. We believe the additional information provided in the sector basis statements enable the reader to better understand the operating performance, financial position, cash flow and liquidity of our two very different businesses.
Our financial statements include consolidated majority-owned subsidiaries. Effective July 1, 2003, our financial statements also include consolidated variable interest entities (VIEs) of which we are the primary beneficiary (see Note 13). Affiliates that we do not consolidate, but for which we have significant influence over operating and financial policies, are accounted for using the equity method.
Prior period amounts in our sector financial statements, consolidated financial statements and notes have been reclassified to reflect discontinued/held-for-sale operations. In addition, certain amounts previously disclosed in our press release and current report on Form 8-K dated January 22, 2004 have been reclassified.
Cash and Cash Equivalents
Cash and all highly liquid investments with a maturity of three months or less at the date of purchase, including short-term time deposits and government agency and corporate obligations, are classified as Cash and cash equivalents .
Use of Estimates
The financial statements are prepared in conformity with generally accepted accounting principles in the United States. Management is required to make estimates and assumptions that affect reported amounts and disclosures. Actual results could differ from those assumptions. Estimates and assumptions are periodically reviewed and the effects of any material revisions are reflected in the financial statements in the period that they are determined to be necessary.
Revenue Recognition Automotive Sector
Sales are generally recorded when products are shipped to customers (primarily dealers) and ownership is transferred. Sales to daily rental car companies with a guaranteed repurchase option are accounted for as operating leases. The lease revenue is recognized over the term of the lease and a gain or loss on the remaining residual value is recognized when the vehicles are sold at auction. The carrying value of these vehicles, included in other current assets, was $2.2 billion and $2.0 billion at December 31, 2003 and 2002, respectively.
Investment income generated from investments in marketable securities and other miscellaneous receivables is reported as Interest income .
Revenue Recognition Financial Services Sector
Revenue from finance receivables, including interest, net of certain deferred loan origination costs that are included as a reduction of financing revenue, is recognized over the term of the receivable using the interest method. Revenue from operating leases, net of certain deferred origination costs, is recognized on a straight-line basis over the term of the lease. The accrual of interest on loans is discontinued at the time the loan is impaired. Subsequent amounts of interest collected are recognized in income only if full recovery of the remaining principal is probable. Interest supplements paid by the Automotive sector are recognized over the term of the receivable or operating lease.
FS-8
Marketing Incentives
Automotive marketing incentives, including customer and dealer cash payments and costs for special financing and leasing programs (e.g., interest subsidies paid to the Financial Services sector), are recognized as revenue reductions and are accrued at the later of the date the related vehicle sales are recorded or the date the incentive program is both approved and communicated. In general, the amount of interest or lease subsidies paid is the difference between the amounts offered to retail customers and a market-based interest or lease rate. Costs for marketing incentives are based on assumptions regarding the number of vehicles that will have a specific incentive applied against them.
Warranty and Additional Service Actions
Estimated expenses related to contractual product
warranties and additional service actions are accrued at the
time vehicles are sold to dealers. Estimates are established
using historical information on the nature, frequency, and
average cost of warranty claims. Additional service actions
include costs related to product recalls and other service
actions outside the contractual warranty coverage. Fees or
premiums received for the issuance of extended service plans are
recognized in income over the contract period in proportion to
the costs expected to be incurred in performing services under
the contract.
Selected Other Costs
Freight costs are accrued at the time of sale and
are included in cost of sales. Advertising and engineering,
research and development costs are expensed as incurred and were
as follows (in billions):
2003
2002
2001
$
2.7
$
2.9
$
3.1
7.5
7.7
7.3
Sale of Receivables
Ford Credit sells finance receivables to special purpose entities in securitization transactions. The receivables are removed from our balance sheet at the time they are sold. Sales and transfers that do not meet the criteria for surrender of control are accounted for as borrowings. Receivables are considered sold when the receivables are transferred beyond the reach of our creditors, the transferee has the right to pledge or exchange the assets and we have surrendered control over the rights and obligations of the receivables.
Gains or losses from the sale of finance receivables are recognized in the period the sale occurs based on the relative fair value of the portion sold and the portion allocated to retained interests. The retained interests are recorded at fair value estimated by discounting future cash flows using a rate that reflects the credit, interest and prepayment risks associated with similar types of instruments. Changes in fair value are recorded, net of tax, as Accumulated other comprehensive income/ (loss) , a component of stockholders equity.
Foreign Currency Translation
Results of operations and cash flows of foreign subsidiaries are, in most cases, translated to U.S. dollars at average-period currency exchange rates. Assets and liabilities are translated at end-of-period exchange rates.
FS-9
NOTE 1. ACCOUNTING POLICIES Continued
Included in the statement of income is the impact of re-measuring assets and liabilities of foreign subsidiaries using U.S. dollars as their functional currency, gains and losses arising from transactions denominated in a currency other than the functional currency, and the results of our foreign currency hedging activities (Note 16). The net income effects of these adjustments were gains of $454 million, and losses of $19 million, and $315 million in 2003, 2002, and 2001 respectively.
Translation adjustments related to foreign subsidiaries using the local currency as their functional currency are generally included in Accumulated other comprehensive income/(loss) , a component of stockholders equity. Translation adjustments were a $2.9 billion increase in 2003, a $2.9 billion increase in 2002 and a $1.1 billion decrease in 2001.
Depreciation and Amortization of Property, Plant and Equipment
Property and equipment are stated at cost and depreciated primarily using the straight-line method over the estimated useful life of the asset. Special tools placed in service before January 1, 1999 are amortized using an accelerated method over the estimated life of those tools. Special tools placed in service beginning in 1999 are amortized using the units-of-production method. Maintenance, repairs, and rearrangement costs are expensed as incurred.
Impairment of Long-Lived Assets
We test for impairment when events and circumstances warrant such a review. We evaluate the carrying value of long-lived assets for potential impairment on a regional operating business unit basis or at the individual asset level, if held for sale, using undiscounted after-tax estimated cash flows. An asset group is considered impaired when the anticipated separately identifiable cash flows from the asset group are less than the carrying value.
Stock Options
Effective January 1, 2003, we adopted the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, for stock-based employee compensation. Under the modified prospective method of adoption selected by the Company under the provisions of SFAS No. 148, Accounting for Stock-Based Compensation Transition and Disclosure , stock-based employee compensation expense recognized in 2003 is the same as that which would have been recognized had the fair value recognition provisions of SFAS No. 123 been applied to all awards from its original effective date. Results of prior years have not been restated.
FS-10
NOTE 1. ACCOUNTING
POLICIES Continued
The following table illustrates the effect on net
income and earnings per share if the fair value method had been
applied to all unvested outstanding stock option awards in each
year (in millions):
Transactions Between Automotive and Financial
Services Sectors
Intersector transactions occur in the ordinary
course of business. The Company and Ford Motor Credit Company
(Ford Credit) formally documented certain
long-standing business practices in a 2001 agreement. Additional
details on certain transactions and the effect on each
sectors balance sheet at December 31 is shown below
(in billions):
2003
2002
2001
$
495
$
(995
)
$
(5,468
)
112
(112
)
(179
)
(162
)
$
495
$
(1,174
)
$
(5,630
)
$
0.27
$
(0.55
)
$
(3.02
)
0.27
(0.65
)
(3.11
)
$
0.27
$
(0.54
)
$
(3.02
)
0.27
(0.64
)
(3.11
)
2003
2002
Financial
Financial
Automotive
Services
Automotive
Services
$
2.9
$
2.5
4.1
4.0
1.2
1.5
$
(3.2
)
3.2
$
(4.8
)
4.8
(0.1
)
0.1
1.1
(1.1
)
(a) | Automotive receivables(generated primarily from vehicle and parts sales to third parties) sold to Ford Credit. |
(b) | Primarily Automotive vehicles used by Hertz for rental ($3.2 billion in 2003 and $3.0 billion in 2002) and Ford Credit vehicles leased to employees of the Company ($0.9 billion in 2003 and $1.0 billion in 2002). |
(c) | Primarily used vehicles purchased by Ford Credit on behalf of the Company pursuant to Automotives obligation to repurchase such vehicles from daily rental car companies, including Hertz. These vehicles are subsequently sold at auction by Ford Credit. |
(d) | Primarily amounts due Ford Credit from Automotive under a tax sharing agreement. |
(e) | Net result of all other transactions including receivables of Ford Credit from Automotives consolidated dealerships and a tax sharing agreement between Automotive and Hertz. |
Periodically, Ford Credit receives interest supplements and other support cost payments from Automotive for providing special vehicle financing for low-interest-rate marketing programs. Ford Credit records these transactions as revenue over the life of the contract. Amounts recorded as revenue by the Financial Services sector, and billed to the Automotive sector, were $3.5 billion in 2003, $3.7 billion in 2002, and $4.1 billion in 2001.
The Automotive sector records the estimated costs for these sales incentive programs as described above under Marketing Incentives.
FS-11
NOTE 2. INCOME TAXES
Components of income taxes, excluding equity in
net results of affiliated companies accounted for after-tax, are
as follows:
2003
2002
2001
$
(209
)
$
1,112
$
(5,785
)
1,496
(79
)
(786
)
$
1,287
$
1,033
$
(6,571
)
$
(149
)
$
(423
)
$
22
653
547
104
32
536
124
126
(209
)
224
(2,072
)
(129
)
(120
)
(248
)
(63
)
73
98
(401
)
177
(2,222
)
$
135
$
301
$
(2,096
)
35
%
35
%
35
%
(2
)
(3
)
(2
)
(2
)
5
(1
)
(4
)
(8
)
2
(12
)
(20
)
2
20
(5
)
(4
)
10
%
29
%
32
%
Annual tax provisions include amounts considered sufficient to pay assessments that may result from examinations of prior year tax returns; however, the amount ultimately paid upon resolution of issues raised may differ materially from the amount accrued. No provision for deferred taxes has been made on $860 million of unremitted earnings (primarily prior to 1998) that are considered to be indefinitely invested in non-U.S. subsidiaries. Deferred taxes for these unremitted earnings are not practicable to estimate.
FS-12
NOTE 2. INCOME TAXES
(Continued)
The components of deferred tax assets and
liabilities at December 31 were as follows (in millions):
2003
2002
$
6,721
$
8,219
3,177
3,132
2,370
2,085
2,012
2,135
1,930
1,886
5,196
4,135
21,406
21,592
7,956
8,418
6,511
5,860
2,953
2,837
5,036
3,810
22,456
20,925
$
(1,050
)
$
667
Operating loss carryforwards for tax purposes were $4.6 billion at December 31, 2003. A substantial portion of these losses has an indefinite carryforward period; the remaining losses will begin to expire in 2004. Tax credits available to offset future tax liabilities are $2.4 billion. A substantial portion has an indefinite carryforward period; the remainder begins to expire in 2005. Tax benefits of operating loss and tax credit carryforwards are evaluated on an ongoing basis, including a review of historical and projected future operating results, the eligible carryforward period, and other circumstances. Management believes that it is more likely than not that the deferred tax assets will be realized.
NOTE 3. DISCONTINUED AND HELD-FOR-SALE OPERATIONS
Automotive Sector
The Automotive sector completed the sale of several of its non-core businesses initiated in 2002, including our former automotive recycling businesses in the United States and Canada and our electric vehicle business in Norway. Associated with these sales, we recorded after-tax net losses of $168 million in 2002 reflected in Loss on disposal of discontinued/held-for sale operations .
During the fourth quarter of 2003, management committed to sell certain additional non-core Automotive sector businesses. We expect to sell or unwind these businesses during 2004 and have reported these businesses as held-for-sale under SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, for all periods shown. We have recognized an after-tax charge of $99 million in 2003, on the anticipated loss on sale of these assets, reflected in Loss on disposal of discontinued/held-for-sale operations . This amount represents the difference between the anticipated selling price of these assets, less costs to sell them, and their recorded book value.
FS-13
NOTE 3. DISCONTINUED AND HELD-FOR-SALE
OPERATIONS (Continued)
The operating results of the discontinued and
held-for-sale Automotive operations are as follows
(in millions):
2003
2002
2001
$
214
$
393
$
316
$
(16
)
$
(146
)
$
(175
)
(5
)
(51
)
(60
)
$
(11
)
$
(95
)
$
(115
)
At December 31, 2003 and 2002, inventories associated with discontinued and held-for-sale operations totaled $2 million and $52 million, respectively. At December 31, 2003 and 2002, net property of the entities totaled $8 million and $40 million, respectively.
Financial Services Sector
The Financial Services sector completed the sale, initiated in 2002, of its all-makes vehicle fleet leasing operations in Europe, New Zealand and Australia. We recognized an after-tax charge of $31 million in 2002, reflected in Loss on disposal of discontinued/held-for-sale operations . This amount represents the difference between the selling price of these assets, less costs to sell them, and their recorded book value.
During the fourth quarter of 2003, management committed to a plan to sell a wholly-owned subsidiary in the U.S. that offers full service car and truck leasing. We expect to complete the sale of this business during 2004 and have reported this business as held-for-sale under SFAS No. 144 for all periods shown. We recognized an after-tax charge of $55 million in 2003 on the anticipated loss on sale of these assets, reflected in Loss on disposal of discontinued/held-for-sale operations . This amount represents the difference between the anticipated selling price of these assets, less costs to sell them, and their recorded book value.
The operating results of the discontinued and
held-for-sale Financial Services operations are as follows
(in millions):
2003
2002
2001
$
95
$
293
$
254
$
4
$
41
$
14
1
8
5
$
3
$
33
$
9
NOTE 4. | MARKETABLE, LOANED AND OTHER SECURITIES |
Trading securities are recorded at fair value with unrealized gains and losses included in income. Available-for-sale securities are recorded at fair value with net unrealized holding gains and losses reported, net of tax, in Accumulated other comprehensive income . Held-to-maturity securities are recorded at amortized cost. Realized gains and losses are accounted for using the specific identification method.
The fair value of substantially all securities is determined by quoted market prices. The estimated fair value of securities for which there are no quoted market prices is based on similar types of securities that are traded in the market. Equity securities that do not have readily determinable fair values are recorded at cost. Book value approximates fair value for all securities.
FS-14
NOTE 4. | MARKETABLE, LOANED AND OTHER SECURITIES (Continued) |
Expected maturities of debt securities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalty.
On October 2, 2002, we purchased ¥ 20 billion (equivalent of U.S. $164 million) aggregate principal amount of convertible bonds issued by Mazda Motor Corporation. The bonds are accounted for as an available-for-sale security and included in Equity in net assets of affiliated companies . As of December 31, 2003 and 2002, these bonds had a fair value of $210 million and $161 million, respectively.
We loan certain securities from our portfolio to other institutions. Such securities are classified as Loaned securities on the balance sheet. Collateral for the loaned securities, consisting of cash or other securities, is required to be maintained at a rate of 102% of the market value of a loaned security. Cash collateral received is recorded as an asset in Other current assets, offset by an obligation to return the collateral in Other payables . Income received from loaning securities is recorded as Interest income .
Investments in marketable and loaned securities
at December 31 were as follows (in millions):
2003
2002
Unrealized
Unrealized
Amortized
Book/Fair
Amortized
Book/Fair
Cost
Gains
Losses
Value
Cost
Gains
Losses
Value
$
14,502
$
69
$
4
$
14,567
$
15,725
$
145
$
1
$
15,869
1,850
10
11
1,849
1,576
21
2
1,595
$
16,352
$
79
$
15
$
16,416
$
17,301
$
166
$
3
$
17,464
$
501
$
$
$
501
$
143
$
$
$
143
113
3
1
115
163
9
172
13
13
1
1
65
4
69
20
20
156
5
161
172
10
182
177
5
1
181
215
9
224
47
31
3
75
46
20
7
59
571
48
5
614
617
48
7
658
8
8
6
6
$
1,080
$
48
$
5
$
1,123
$
766
$
48
$
7
$
807
The proceeds and gains/(losses) from sales of
available-for-sale securities were as follows (in millions):
Proceeds
Gains/(Losses)
2003
2002
2001
2003
2002
2001
$
8,673
$
3,445
$
12,489
$
9
$
24
$
47
703
479
745
14
6
11
FS-15
The amortized cost and fair value of investments
in available-for-sale and held-to-maturity securities by
contractual maturity for Automotive and Financial Service
sectors were as follows (in millions):
NOTE 4.
MARKETABLE, LOANED AND OTHER
SECURITIES (Continued)
2003
2002
Available-for-Sale
Held-to-Maturity
Available-for-Sale
Held-to-Maturity
Amortized
Fair
Amortized
Fair
Amortized
Fair
Amortized
Fair
Contractual Maturity
Cost
Value
Cost
Value
Cost
Value
Cost
Value
$
257
$
258
$
$
$
291
$
294
$
$
1,231
1,227
993
1,004
188
188
169
172
174
176
123
125
$
1,850
$
1,849
$
$
$
1,576
$
1,595
$
$
$
50
$
51
$
$
$
6
$
6
$
$
146
149
6
6
167
173
3
3
88
93
97
103
1
1
63
65
2
2
85
93
2
2
177
181
216
224
47
75
46
59
$
571
$
614
$
8
$
8
$
617
$
658
$
6
$
6
NOTE 5. | INVENTORIES AUTOMOTIVE SECTOR |
Inventories at December 31 were as follows (in millions):
2003 | 2002 | ||||||||
|
|
||||||||
Raw materials, work-in-process and supplies
|
$ | 3,842 | $ | 3,174 | |||||
Finished products
|
6,335 | 4,760 | |||||||
|
|
||||||||
Total inventories at FIFO
|
10,177 | 7,934 | |||||||
Less LIFO adjustment
|
(996 | ) | (957 | ) | |||||
|
|
||||||||
Total inventories
|
$ | 9,181 | $ | 6,977 | |||||
|
|
Inventories are stated at lower of cost or market. About one-third of inventories were determined under the last-in, first-out method.
FS-16
NOTE 6. NET PROPERTY AND RELATED
EXPENSES AUTOMOTIVE SECTOR
Net property at December 31 was as follows
(in millions):
Average
Depreciable
Life (Years)
2003
2002
$
675
$
598
30
12,204
10,337
14
44,582
39,358
2,652
2,688
60,113
52,981
(30,112
)
(26,568
)
30,001
26,413
5
11,992
9,939
$
41,993
$
36,352
Property-related expenses were as follows (in
millions):
2003
2002
2001
$
2,814
$
2,435
$
5,287
2,658
2,461
3,265
$
5,472
$
4,896
$
8,552
*
$
1,791
$
1,962
$
2,035
|
* | Includes impairment charges of $3,555 million in 2001 (see Note 18). |
NOTE 7. GOODWILL AND OTHER INTANGIBLES
Effective January 1, 2002, we adopted SFAS No. 142, Goodwill and Other Intangible Assets, which eliminates amortization of goodwill and certain other intangible assets and requires annual testing for impairment (comparison of estimated fair value to carrying value). In 2002, after-tax, non-cash transition charges were taken of $708 million in the Automotive sector, primarily relating to the impairment of goodwill in Kwik-fit, our former all-makes European vehicle repair business, and $294 million in the Financial Services sector, related to the impairment of goodwill in Hertz industrial and construction equipment rental business. We perform annual testing in the second quarter to determine if any impairment has occurred. No impairment resulted from our annual test in the second quarter of 2003.
Changes in the carrying amount of goodwill are as
follows (in millions):
Financial
Automotive Sector
Services Sector
Americas
International
Ford Credit
Hertz
$
168
$
4,551
$
126
$
623
6
653
3
17
$
174
$
5,204
$
129
$
640
In addition, included within Equity in net assets of affiliated companies was goodwill of $390 million at December 31, 2003.
FS-17
NOTE 7. GOODWILL AND OTHER
INTANGIBLES (Continued)
The components of identifiable intangible assets
are as follows as of December 31, 2003 (in millions):
Automotive Sector
Financial Services Sector
Amortizable
Non-amortizable
Amortizable
Non-amortizable
$
529
$
449
$
92
$
189
(102
)
(42
)
$
427
$
449
$
50
$
189
Pre-tax amortization expense related to these intangible assets for the years ended December 31, 2003 and 2002 was $35 million and $40 million, respectively. Intangible asset amortization is forecasted to range from $25 to $35 million per year for the next five years.
If SFAS No. 142 had been in effect for the
year ended December 31, 2001, our earnings would have been
improved due to reduced amortization, as described below (in
millions):
Net
Basic
Diluted
Income/
Amounts
Amounts
(Loss)
Per Share
Per Share
$
(5,453
)
$
(3.02
)
$
(3.02
)
259
*
0.14
0.14
$
(5,194
)
$
(2.88
)
$
(2.88
)
|
* | $227 million Automotive and $32 million Financial Services. |
NOTE 8. FINANCE RECEIVABLES FINANCIAL SERVICES SECTOR
Net finance receivables at December 31 were as follows (in millions):
2003 | 2002 | ||||||||
|
|
||||||||
Retail
|
$ | 80,973 | $ | 71,479 | |||||
Wholesale
|
22,910 | 16,827 | |||||||
Other finance receivables
|
9,115 | 11,054 | |||||||
|
|
||||||||
Total finance receivables
|
112,998 | 99,360 | |||||||
Allowance for credit losses
|
(2,436 | ) | (2,667 | ) | |||||
Other
|
331 | 314 | |||||||
|
|
||||||||
Net finance and other receivables
|
$ | 110,893 | $ | 97,007 | |||||
|
|
Finance receivables that originated outside the U.S. were $45.7 billion and $42.0 billion at December 31, 2003 and 2002, respectively. Other finance receivables consisted primarily of real estate, commercial and other collateralized loans and accrued interest. Included in wholesale and other finance receivables at December 31, 2003 and 2002 were $2.9 billion and $2.5 billion, respectively, of accounts receivable purchased by certain Financial Services sector operations from Automotive sector operations.
Future maturities, exclusive of the effects of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, of total finance receivables including minimum lease rentals are as follows (in billions): 2004 $61.9; 2005 $22.9; 2006 $12.6; thereafter $12.0. Experience indicates that a substantial portion of the portfolio generally is repaid before the contractual maturity dates.
FS-18
Finance receivables subject to fair value at December 31, 2003 and 2002 were $102.9 billion and $88.3 billion, respectively. The fair value of these finance receivables at December 31, 2003 and 2002 was $103.9 billion and $89.9 billion, respectively.
Included in retail receivables above are
investments in direct financing leases. The net investment at
December 31 was as follows (in millions):
2003
2002
$
5,532
$
5,660
(972
)
(1,048
)
42
37
4,017
3,689
(139
)
(77
)
$
8,480
$
8,261
The investment in direct financing leases relates to the leasing of vehicles, various types of transportation and other equipment and facilities. Future maturities of minimum lease rentals, as included above, are as follows (in billions): 2004 $2.1; 2005 $1.7; 2006 $1.2; thereafter $0.5 billion.
The Financial Services sector sold receivables in off-balance sheet securitizations and whole-loan transactions and retained servicing rights. In off-balance sheet securitizations, we retain interests in the sold receivables, and with respect to subordinated retained interests, we have credit risk. At December 31, 2003, outstanding sold receivables were as follows (in billions):
2003 | ||||||
|
||||||
Ford Credit outstanding sold
receivables
|
||||||
Off-balance sheet securitizations
|
$ | 49.4 | ||||
Whole-loan sale transactions
|
7.3 | |||||
|
||||||
Total
|
$ | 56.7 | ||||
|
Retained interests in sold receivables were as
follows (in millions):
2003
2002
$
9,249
$
12,454
1,568
2,845
1,169
1,696
520
511
623
$
13,017
$
17,618
Most of the retained interests in sold wholesale receivables represents our undivided interest in wholesale receivables that are available to support the issuance of additional securities by the securitization entity ($8.0 billion and $11.4 billion as of December 31, 2003 and 2002, respectively); the balance represents credit enhancements. Interest-only strips represent the right to receive collections on the sold finance receivables in excess of amounts needed by the securitization entities to pay interest and principal to investors, servicing fees and other required payments. Investments in subordinated securities and restricted cash are senior to interest-only strips.
Ford Credit uses a special purpose trust (FCAR), as a source of funds for its operations. FCARs activities are limited to issuing asset-backed commercial paper and other securities and
FS-19
buying highly-rated asset-backed securities issued by securitization special purpose entities (SPEs) sponsored by Ford Credit.
In the second quarter of 2003, Ford Credit purchased a portion of equity interests in FCAR from unaffiliated parties. As a result of this transaction, FCARs assets, liabilities and results of operations were consolidated into Ford Credits financial statements. In addition, the consolidation of FCAR also caused certain of the Ford Credit-sponsored securitization SPEs that sell asset-backed securities to FCAR to lose their status as qualifying SPEs under SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. Consequently, the receivables previously sold by us to these SPEs were deemed to be reacquired (reacquired receivables) by us in accordance with SFAS No. 140 requirements and were consolidated in the second quarter at fair value. Following the consolidation of FCAR, most sales of receivables to Ford Credit-sponsored SPEs that sell asset-back securities to FCAR will not qualify as an accounting sale and will be reported on-balance sheet.
The consolidation of FCAR and related securitization SPEs for financial reporting purposes did not change the bankruptcy-remote status of FCAR or the Ford Credit-sponsored securitization SPEs. The accounting consolidation did not have a material impact on Ford Credits earnings, back-up credit facilities, unsecured debt funding programs or other securitization programs. No gain or loss was recorded upon consolidation.
At December 31, 2003, about $14.3 billion of retail installment receivables reported on our balance sheet have been sold for legal purposes to Ford Credit-sponsored securitization SPEs that sell asset-backed securities to FCAR and are available only to pay securitization investors and other participants and are not available to pay the obligations of Ford Credit or the claims of Ford Credits creditors. These finance receivables supported $9.0 billion of asset-backed commercial paper issued by FCAR, which is payable solely out of collections on these receivables and is not the legal obligation of Ford Credit. At December 31, 2003, FCAR had capacity to issue externally an additional $3.9 billion of asset-backed commercial paper, based on the existing amount of retail installment receivables that supported this program.
The net investment in operating leases at December 31 was as follows (in millions):
2003 | 2002 | ||||||||
|
|
||||||||
Vehicles and other equipment, at cost
|
$ | 44,098 | $ | 53,287 | |||||
Accumulated depreciation
|
(11,615 | ) | (12,999 | ) | |||||
Allowances for credit losses
|
(624 | ) | (561 | ) | |||||
|
|
||||||||
Net investment in operating leases
|
$ | 31,859 | $ | 39,727 | |||||
|
|
Minimum rentals on operating leases are contractually due as follows: 2004 $5.9 billion; 2005 $4.0 billion; 2006 $2.1 billion; 2007 $656 million; 2008 $214 million; thereafter $464 million.
Assets subject to operating leases are depreciated primarily on the straight-line method over the term of the lease to reduce the asset to its estimated residual value. Estimated residual values are based on assumptions for used vehicle prices at lease termination and the number of vehicles that are expected to be returned. Operating lease depreciation expense (which includes gains and losses on disposal of assets) was $8.5 billion in 2003, $9.9 billion in 2002, and $9.9 billion in 2001.
FS-20
The allowance for credit losses is our estimate of probable credit losses related to impaired receivables and operating leases as of the date of the financial statements. This allowance is based on factors including historical credit loss trends, the credit quality of our present portfolio, trends in historical and projected used vehicle values and general economic measures. Additions to the allowance for credit losses are made by recording charges to the provision for credit losses on our income statement. In general, finance receivables and lease investments are charged to the allowance for credit losses at the earlier of when an account is deemed to be uncollectible or when an account is 120 days delinquent, taking into consideration the financial condition of the borrower or lessee, the value of the collateral, recourse to guarantors and other factors. Recoveries on finance receivables and lease investments previously charged off as uncollectible are credited to the allowance for credit losses.
Changes in the allowance for credit losses for
finance receivables, investment in direct financing leases and
investment in operating leases were as follows (in millions):
2003
2002
2001
$
3,228
$
2,806
$
1,684
2,038
3,000
3,397
(2,581
)
(2,878
)
(2,524
)
494
486
375
(2,087
)
(2,392
)
(2,149
)
(119
)
(186
)
(126
)
$
3,060
$
3,228
$
2,806
NOTE 11. LIABILITIES AUTOMOTIVE SECTOR (IN MILLIONS)
2003 | 2002 | ||||||||
|
|
||||||||
Accrued Liabilities (Current)
|
|||||||||
Dealer and customer allowances and claims
|
$ | 16,098 | $ | 14,165 | |||||
Deferred income taxes
|
2,996 | 2,614 | |||||||
Deferred revenue
|
2,587 | 2,423 | |||||||
Accrued interest
|
1,814 | 1,705 | |||||||
Employee benefit plans
|
1,732 | 1,360 | |||||||
Postretirement benefits other than pensions
|
1,397 | 1,302 | |||||||
Other
|
5,547 | 4,046 | |||||||
|
|
||||||||
Total accrued liabilities
|
$ | 32,171 | $ | 27,615 | |||||
|
|
||||||||
Other Liabilities (Non-current)
|
|||||||||
Postretirement benefits other than pensions
|
$ | 17,136 | $ | 16,344 | |||||
Unfunded pension obligation
|
9,579 | 12,818 | |||||||
Dealer and customer allowances and claims
|
9,097 | 9,125 | |||||||
Employee benefit plans
|
5,189 | 4,137 | |||||||
Other
|
4,103 | 4,463 | |||||||
|
|
||||||||
Total other liabilities
|
$ | 45,104 | $ | 46,887 | |||||
|
|
FS-21
NOTE 12. DEBT AND COMMITMENTS
Automotive and Financial Services debt as of
December 31 was as follows (in millions):
Automotive
Financial Services
Weighted
Weighted
Average
Average
Rate(a)
Amount
Rate(a)
Amount
2003
2002
2003
2002
2003
2002
2003
2002
$
608
$
432
$
1,238
$
1,083
17,295
9,663
9,234
7,534
5.3%
6.8%
608
432
2.1%
4.3%
27,767
18,280
510
119
30,480
23,249
9.0%
688
1,806
551
58,247
41,529
7.0%
7.6%
13,832
13,607
4.3%
4.8%
99,987
105,770
(66
)
(88
)
13,832
13,607
99,921
105,682
6.5%
5,155
9.4%
9.4%
843
843
18,987
13,607
100,764
106,525
$
20,793
$
14,158
$
159,011
$
148,054
$
19,847
$
12,516
$
162,635
$
151,576
Maturity
There-
Average
2004
2005
2006
2007
2008
After
(Years)
$
1,198
$
434
$
459
$
226
$
363
$
17,505
26
30,480
30,987
20,487
11,843
6,266
31,181
3
(a) | Includes the effect of interest rate swaps. | |
(b) | Based on quoted market prices or current rates for similar debt with the same remaining maturities. |
Subordinated Indebtedness
At December 31, 2003, Ford Motor Company Capital Trust, a subsidiary trust (Trust I), had outstanding 9% Trust Originated Preferred Securities with an aggregate liquidation preference of $632 million (the Preferred Securities). The sole assets of the Trust were $651 million aggregate principal amount of Ford Motor Company 9% Junior Subordinated Debentures due December 2025 (the Debentures). On January 2, 2004, we redeemed the Debentures, which reduced our subordinated debt included in Debt payable within one year by $688 million. The redemption of the Debentures resulted in the simultaneous mandatory redemption by Trust I of the Preferred Securities at $25 per share plus accrued and unpaid distributions.
Ford Motor Company Capital Trust II, a subsidiary trust (Trust II), has outstanding 6.50% Cumulative Convertible Trust Preferred Securities with an aggregate liquidation preference of $5 billion (the Trust II Preferred Securities). The sole assets of Trust II are $5,155 million principal amount of 6.50% Junior Subordinated Debentures due 2032 of Ford Motor Company (the
FS-22
Subordinated Debentures). At our option, we may redeem the Subordinated Debentures, in whole or in part, on or after January 15, 2007. To the extent we redeem the Subordinated Debentures or upon the maturity of the Subordinated Debentures, Trust II is required to redeem the Trust II Preferred Securities at $50 per share plus accrued and unpaid distributions. We guarantee the payment of all distribution and other payments of the Trust II Preferred Securities to the extent not paid by Trust II, but only if and to the extent we have made a payment of interest or principal on the Subordinated Debentures.
Credit Facilities*
Automotive Sector
At December 31, 2003, the Automotive sector had $7.0 billion of contractually committed credit agreements with various banks of which $6.9 billion were available for use. Ninety-two percent of the total facilities are committed through June 30, 2008. Of the $7.0 billion, $6.8 billion constitute global credit facilities and may be used, at Fords option, by any of its direct or indirect majority-owned subsidiaries on a guaranteed basis. Ford also has the ability to transfer, on a non-guaranteed basis, $2.5 billion of such global credit facilities to Ford Credit and $543 million to FCE Bank plc. (FCE), Ford Credits European operation. All of the global credit facilities are free of material adverse change clauses and restrictive financial covenants (for example, debt-to-equity limitations, minimum net worth requirements and credit rating triggers that would limit our ability to borrow).
Financial Services Sector
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 $7.7 billion at December 31, 2003, including $3.3 billion and $3.2 billion of global credit facilities at Ford Credit and FCE, respectively and $1.2 billion of non-global credit facilities with varying terms and conditions that support local financing needs. Approximately $1.0 billion of the total facilities were in use at December 31, 2003. Forty-seven percent of these facilities are committed through June 30, 2008. The global credit facilities may be used, at Ford Credits or FCEs 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 our ability to borrow).
Additionally, at December 31, 2003, banks provided $18.6 billion of contractually committed liquidity facilities supporting two asset-backed commercial paper programs; $18.2 billion support Ford Credits FCAR program and $425 million support Ford Credits Motown Notes SM Program.
In addition, Ford Credit also has entered into agreements with several bank-sponsored, commercial paper issuers under which such issuers in the aggregate are contractually committed to purchase from Ford Credit, at Ford Credits option, up to $12.8 billion of receivables. The agreements have varying maturity dates between June 24, 2004 and October 29, 2004. As of December 31, 2003, approximately $4.4 billion of these commitments have been used. 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 bank-sponsored asset-backed commercial paper issuer of its obligation to purchase receivables, but do contain provisions that could terminate the unused portion of those commitments if the performance
* | Credit facilities of our Variable Interest Entities are excluded as we do not control their use. |
FS-23
NOTE 12. DEBT AND COMMITMENTS (Continued)
of the sold receivables deteriorates beyond specified levels. None of these arrangements may be terminated based on a change in Ford Credits credit rating.
At December 31, 2003, Hertz had committed credit facilities totaling $2.8 billion. Of this amount, $1.3 billion represented global and other committed credit facilities ($810 million of which are available through June 30, 2008 and $488 million of which have various maturities of up to four years); $500 million consisted of a revolving credit line provided by Ford, which currently expires in June 2005; $215 million consisted of asset-backed Letters of Credit, and $814 million consisted of 364-day asset-backed commercial paper facilities.
NOTE 13. VARIABLE INTEREST ENTITIES
In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51 , which expands upon and strengthens existing accounting guidance concerning when a company should include in its financial statements the assets, liabilities and activities of another entity. A Variable Interest Entity (VIE) does not share economic risk and rewards through typical equity ownership arrangements; instead, contractual or other relationships re-distribute economic risks and rewards among equity holders and other parties. Once an entity is determined to be a VIE, the party with the controlling financial interest, the primary beneficiary, is required to consolidate it. FIN 46 also requires disclosures about VIEs that the Company is not required to consolidate but in which it has a significant variable interest.
Effective July 1, 2003, we adopted FIN 46 for VIEs formed prior to February 1, 2003. As a result of consolidating the VIEs of which we are the primary beneficiary, in the third quarter of 2003, we recognized a non-cash charge of $264 million as the Cumulative effect of change in accounting principle in our statement of income. The charge represented the difference between the fair value of the assets, liabilities and minority interests recorded upon consolidation and the carrying value of the investments. Recorded assets excluded goodwill in accordance with FIN 46.
The liabilities recognized as a result of consolidating the VIEs do not represent additional claims on our general assets, rather, they represent claims against the specific assets of the consolidated VIEs. Conversely, assets recognized as a result of consolidating these VIEs do not represent additional assets that could be used to satisfy claims against our general assets. Reflected in our December 31, 2003 balance sheet are $3.4 billion of VIE assets.
Automotive Sector
VIEs of which we are the primary beneficiary:
As of July 1, 2003, the Automotive sector consolidated certain joint ventures determined to be VIEs, which we have invested in and contracted with to manufacture and/or assemble vehicles and/or components. The activities with these joint ventures include purchasing substantially all of the joint ventures output under a cost plus margin arrangement and/or volume dependent pricing. Described below are the most significant of the VIEs that were consolidated.
Ford Otosan (Otosan) is a joint venture in Turkey with Ford (41% partner), the Koc Group of Turkey (41% partner) and public investors (18%). Otosan is the single assembly supplier of the new Ford Transit Connect and an assembly supplier of the Ford Transit van.
Getrag Ford Transmissions GmbH (GFT) is a 50/50 joint venture with Getrag Deutsche Venture GmbH & Co. Kg i.G., a German company, to which we transferred our European manual
FS-24
transmission operations in Halewood, England, Cologne, Germany and Bordeaux, France. GFT is the primary supplier of manual transmissions for use in our European vehicles.
ZF Transmission Technologies L.L.C. is a company jointly owned between Ford (49%) and ZF Friedrichshafen Germany (ZF) (51%). At December 31, 2003, this company owned automatic transmission intellectual property and an automatic transmission plant in Batavia, Ohio (ZF Batavia, LLC). The Batavia, Ohio plant produces both a front wheel drive continuously variable transmission (CVT) and a front wheel drive 4-speed automatic transmission for use in certain of our vehicles sold in North America and Europe. On February 3, 2004, Ford acquired 100% ownership of ZF Batavia, LLC (renamed Batavia Transmissions, LLC). Ford and ZF will maintain their joint ownership of ZF Transmission Technologies, LLC, which will concentrate on future CVT product development.
Tekfor Cologne Gmbh (Tekfor) is a 50/50 joint venture with Neumayer Holdings GmbH, a German company, to which we transferred our Cologne forging operations. Tekfor produces transmission and chassis components for use in our vehicles. Tekfor was formed and consolidated in the second quarter of 2003.
We hold equity interests in certain Ford and/or Lincoln Mercury dealerships. As of July 1, 2003, we consolidated a portfolio of approximately 160 dealerships that are part of our Dealer Development program. The programs purpose is to facilitate the establishment of independent franchised dealers by allowing a participating dealership operator to become the sole owner of a Ford and/or Lincoln Mercury dealership corporation by purchasing equity from Ford using the operators share of dealership net profits. We supply and finance the majority of vehicles and parts to these dealerships and the operators have a contract to buy Fords equity interest over a period of time.
VIEs of which we are not the primary beneficiary:
At December 31, 2003, Ford had investments in two subsidiary trusts, Ford Motor Company Capital Trust I (Trust I) and Ford Motor Company Capital Trust II (Trust II) that are VIEs of which Ford is not the primary beneficiary. Prior to July 1, 2003, Trust I and Trust II were consolidated in our financial statements and the preferred securities of Trust I and Trust II were presented as Company-obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely junior subordinated debentures of the Company on our balance sheet. Effective July 1, 2003, we deconsolidated Trust I and Trust II. Our obligation to Trust I is presented as Dept payable within one year and our obligation to Trust II is presented as Subordinated debt on our balance sheet. For further discussions of our obligations to Trust I and Trust II, see Notes 12 and 14.
Ford has several investments in other joint ventures deemed to be VIEs of which we are not the primary beneficiary. The risks and rewards associated with our interests in these entities are based primarily on ownership percentages. Our maximum exposure (approximately $104 million at December 31, 2003) to any potential losses, should they occur, associated with these VIEs is limited to our equity investments and, where applicable, receivables due from the VIEs.
Financial Services Sector
FCAR is considered a VIE under FIN 46 and has been consolidated. See Note 8 for a description of FCAR.
Ford Credit has investments in certain joint ventures deemed to be VIEs of which it is not the primary beneficiary. The risks and rewards associated with Ford Credits interests in these entities are based primarily on ownership percentages. Ford Credits maximum exposure (approximately
FS-25
$125 million at December 31, 2003) to any potential losses, should they occur, associated with these VIEs is limited to its equity investments.
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 December 31, 2003, these SPEs held about $5.5 billion of retail installment sale contracts previously owned by us.
NOTE 14. CAPITAL STOCK AND AMOUNTS PER SHARE
All general voting power is vested in the holders of Common Stock and the holders of Class B Stock. Holders of Common Stock have 60% of the general voting power and holders of Class B Stock are entitled to such number of votes per share as would give them the remaining 40%. Shares of Common Stock and Class B Stock share equally in dividends, with stock dividends payable in shares of stock of the class held. If liquidated, each share of Common Stock will be entitled to the first $0.50 available for distribution to holders of Common Stock and Class B Stock, each share of Class B Stock will be entitled to the next $1.00 so available, each share of Common Stock will be entitled to the next $0.50 so available and each share of Common and Class B Stock will be entitled to an equal amount thereafter.
In December 2002, we redeemed for cash, at an aggregate redemption price of $177 million, all of our outstanding Series B Depositary Shares, representing 1/2000 of a share of $1.00 par value Series B Cumulative Preferred Stock.
As discussed in Note 12, Trust II Preferred Securities with an aggregate liquidation preference of $5 billion are outstanding. At the option of the holder, each Preferred Security is convertible, at any time on or before January 15, 2032, into shares of Ford Common Stock at a rate of 2.8249 shares for each Preferred Security (equivalent to a conversion price of $17.70 per share). Conversion of all shares of such securities would result in the issuance of 282.5 million shares of Ford Common Stock.
Changes to the number of shares of capital stock
issued were as follows (shares in millions):
Common
Class B
Stock
Stock
Preferred
1,837
71
0.004
(0.004
)
1,837
71
0.000
6,000
530
30
FS-26
NOTE 14. CAPITAL STOCK AND AMOUNTS PER
SHARE (Continued)
Amounts Per Share of Common and Class B
Stock
The calculation of diluted income per share of
Common and Class B Stock takes into account the effect of
obligations, such as stock options and convertible securities,
considered to be potentially dilutive. Basic and diluted
income/(loss) per share were calculated using the following
number of shares (in millions):
2003
2002
2001
$
921
$
283
$
(5,347
)
(15
)
(15
)
$
921
$
268
$
(5,362
)
1,832
1,819
1,820
(2
)
(1
)
(9
)
1,830
1,818
1,811
(1
)
13
11
(a)
(b)
(b)
1,843
1,829
1,810
Not included in calculation of diluted earnings per share due to their antidilutive effect:
(a) | 30 million potential shares related to options in 2001. |
(b) | 282 million shares related to convertible preferred securities in 2003 and 2002. |
NOTE 15. STOCK OPTIONS
We have stock options outstanding under two Long-term Incentive Plans (LTIP), the 1990 LTIP and the 1998 LTIP. No further grants may be made under the 1990 LTIP and all outstanding options are exercisable. Grants may be made under the 1998 LTIP through April 2008. All outstanding options under the 1990 LTIP continue to be governed by the terms and conditions of the existing option agreements for those grants. Under the 1998 LTIP, 33% of the options are generally exercisable after the first anniversary of the date of grant, 66% after the second anniversary, and 100% after the third anniversary. Stock options expire ten years from the grant date and, beginning in 2003, are expensed. Additionally, we have outstanding performance stock rights, restricted stock units, restricted stock grants and equivalents, and stock appreciation rights.
Under the 1998 LTIP, 2% of our issued common stock as of December 31 becomes available for granting plan awards in the succeeding calendar year. Any unused portion is available for later years. The limit may be increased up to 3% in any year, with a corresponding reduction in shares available for grants in future years. At December 31, 2003, the number of unused shares carried forward aggregated to 36.2 million shares.
FS-27
NOTE 15. STOCK OPTIONS
(Continued)
2003
2002
2001
Weighted-
Weighted-
Weighted-
Average
Average
Average
Exercise
Exercise
Exercise
Stock Option Activity (in millions)
Shares
Price
Shares
Price
Shares
Price
212.9
$
20.88
172.1
$
22.01
153.7
$
19.16
31.3
7.93
50.6
16.29
35.3
30.49
(4.2
)
11.06
(4.3
)
7.63
(14.0
)
12.07
(5.3
)
19.90
(5.5
)
24.37
(2.9
)
25.91
234.7
19.34
212.9
20.88
172.1
22.01
161.7
21.44
134.0
21.02
113.2
18.74
(a) | Exercised at option prices ranging from $10.99 to $13.54 during 2003, $7.09 to $12.53 during 2002, and $5.75 to $26.59 during 2001. |
Details on various stock option exercise price
ranges are as follows:
Outstanding Options
Exercisable Options
Weighted-
Weighted-
Weighted-
Shares
Average Life
Average
Shares
Average
Range of Exercise Prices
(millions)
(years)
Exercise Price
(millions)
Exercise Price
$ 7.09 - $10.58
33.7
9.2
$
8.10
1.2
$
9.75
10.62 - 15.81
51.9
2.7
12.40
48.9
12.25
15.91 - 23.88
91.5
6.5
20.11
64.5
21.45
23.97 - 35.79
56.9
6.2
30.88
46.4
31.13
41.03 - 42.52
0.7
4.3
41.42
0.7
41.42
Total options
234.7
161.7
The estimated fair value of stock options at the
time of grant using the Black-Scholes option pricing model was
as follows:
2003
2002
2001*
$
2.07
$
5.76
$
7.86
5.1
%
2.5
%
4.0
%
39.3
%
35.0
%
32.7
%
3.7
%
5.1
%
4.9
%
7
7
6
* | Previously disclosed values adjusted to conform with SFAS 123 requirements. |
See Note 1 for a discussion of the impact on earnings of our adoption of SFAS No. 123 in respect to stock option awards, effective January 1, 2003.
NOTE 16. DERIVATIVE FINANCIAL INSTRUMENTS
We adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended and interpreted, on January 1, 2001. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and requires that all derivatives be recorded at fair value on our balance sheet, including embedded derivatives.
Our operations are exposed to global market risks, including the effect of changes in foreign currency exchange rates, certain commodity prices and interest rates. The objective of our risk management program is to manage the financial and operational exposure arising from these risks by offsetting gains and losses on the underlying exposures with gains and losses on derivatives
FS-28
used to hedge them. We have comprehensive hedge documentation that defines the hedging objectives, practices, procedures, and accounting treatment. Our hedging program and our derivative positions and strategy are reviewed on a regular basis by our management. In addition, we have entered into agreements that allow us to settle positive and negative positions with the same counterparty on a net basis.
Derivative positions are used only to manage identified exposures. We have elected to apply hedge accounting to a portion of our derivatives. Hedges that receive designated hedge accounting treatment are evaluated for effectiveness at the time they are designated as well as throughout the hedge period. Some derivatives do not qualify for hedge accounting under SFAS No. 133; for others, we elect not to apply hedge accounting treatment. For both of these, the mark to fair value is reported currently through earnings.
Automotive Sector
Adjustments to pre-tax income as a result of the ineffectiveness in our SFAS No. 133 designated hedges and our non-designated hedges, for the years ended December 31, were a gain of $237 million in 2003 and a loss of $437 million in 2002.
Cash Flow Hedges
We use forwards and options contracts, which qualify as cash flow hedges to manage our exposure to foreign currency exchange and commodity price risks. The effective portion of changes in the fair value of cash flow hedges is deferred in Accumulated Other Comprehensive Income (OCI) and is recognized in Cost of sales when the hedged item affects earnings. We have excluded a time value component of derivatives on certain commodity hedges from the measurement of effectiveness. The amount of the excluded component was not significant in 2003 and 2002.
Derivatives used to manage financial exposures for foreign exchange and commodity price risks generally mature within three years or less, with a maximum maturity of five years. Cash flow hedges are discontinued when it is probable that the original forecasted transaction will not occur. Due to the change in contractual commitments and the discontinuation of hedges on certain foreign currency related debt, we recognized a net gain of $38 million in Cost of sales during 2003. The impact to earnings associated with hedge ineffectiveness from cash flow hedges was recorded in Cost of sales as a loss of $2 million in 2003 and a gain of $7 million in 2002.
Net Investment Hedges
We use designated foreign currency forward exchange contracts to hedge the net assets of certain foreign entities to offset the translation and economic exposures related to our investment in these entities. The change in the value of these derivatives is recorded in OCI as a foreign currency translation adjustment. The ineffectiveness related to net investment hedges is recorded in Cost of sales . Gains of $95 million and of $97 million were recorded in 2003 and 2002, respectively.
Other Derivative Instruments
In accordance with corporate risk management policies, we use derivatives, such as forward contracts and options that economically hedge certain exposures. As previously stated, in certain instances we elect not to apply hedge accounting, which results in recording in income on a quarterly basis, the change in fair value of the derivative. Both the unrealized and realized gains and losses on derivatives that economically hedge commodity and foreign exchange exposures are
FS-29
reported in Cost of Sales . The impact to earnings associated with non-designated hedges was a gain of $106 million in 2003 and a loss of $541 million in 2002.
Financial Services Sector
Ford Credits overall risk management objective is to maximize financing income while limiting the effect of changes in foreign currencies and interest rates. Ford Credit faces exposure to currency exchange rates if a mismatch exists between the currency of its receivables and the currency of the debt funding those receivables. Ford Credit also executes cross-currency swaps and foreign currency forwards to convert substantially all of the foreign currency debt obligations to the local currency of the receivables. Interest rate swaps are used to manage exposure to re-pricing risk, which arises when assets and the debt funding those assets have different re-pricing periods that consequently respond differently to interest rate changes.
Cash Flow Hedges
Ford Credit designates interest rate swaps as cash flow hedges to manage its exposure to interest rate risks. The impact to earnings associated with hedge ineffectiveness was recognized in Revenues as a gain of $3 million in 2003 and a gain of $1 million in 2002. In assessing hedge effectiveness for cash flow hedges related to interest rates, Ford Credit uses the variability of cash flows method and excludes accrued interest. Net interest settlements and accruals excluded from the assessment of hedge effectiveness were expenses of $482 million in 2003 and $765 million in 2002 and recorded in Interest expense . While net interest settlements and accruals are excluded from hedge effectiveness testing, they are included in evaluating the overall risk management objective.
Ford Credits designated cash flow hedges include hedges of revolving commercial paper balances. At December 31, 2003, thirty months was the maximum length of time that forecasted transactions were hedged.
Fair Value Hedges
Ford Credit uses interest rate swaps to hedge its exposure to interest rate risk. Unrealized gains and losses on designated fair value hedges, along with the changes in the fair value of the underlying hedged exposure are recognized and recorded in Revenues . The impact to earnings from hedge ineffectiveness was a gain of $255 million in 2003 and a loss of $193 million in 2002. In assessing hedge effectiveness, we exclude certain components, representing accrued interest on the receive and pay legs of the swap. Net interest settlements and accrual income of $1.8 billion in 2003 and $1.5 billion in 2002 was recorded as a reduction in Interest expense . Ford Credit also excludes from the assessment of hedge effectiveness foreign exchange adjustments, representing the portion of the derivatives fair value attributable to the change in foreign currency exchange rates for the reporting period, which were favorable adjustments totaling $1.3 billion in 2003 and $1.5 billion in 2002. While net settlements and foreign currency adjustments are excluded from Ford Credits hedge effectiveness testing, they are included in evaluating the overall risk management objective. The favorable adjustments related to the foreign currency derivatives reported above were offset by net unfavorable revaluation impacts on debt denominated in a currency other than the locations functional currency, which was also recorded in Revenues.
FS-30
Net Investment Hedges
Ford Credit uses foreign currency forward exchange contracts and options to hedge the net asset of certain foreign entities to offset the translation and economic exposures related to its investment in foreign entities. Changes in the value of these derivatives are recorded in OCI as a foreign currency translation adjustment. Ineffectiveness, which is recognized in Revenues, was a loss of $17 million in 2003 and the amount in 2002 was not significant.
Other Derivative Instruments
In accordance with corporate risk management
policies, Ford Credit uses derivative instruments, such as swaps
and forward contracts that economically hedge certain exposures
(foreign currency and interest rates). In certain instances,
these derivatives do not qualify for hedge accounting treatment
or Ford Credit elects not to apply hedge accounting
(non-designated hedges). For non-designated hedges we recorded a
gain of $58 million in 2003 and a loss of $33 million
in 2002 related to unrealized gains and losses resulting from
the effect of changes in interest rates. In addition, net
interest settlements and accruals related to derivatives that
were non-designated resulted in income of $105 million in
2003 and expense of $251 million in 2002. These net
interest settlement and accrual amounts were included in
evaluating Ford Credits overall risk management objective.
Unrealized and realized gains and losses related to certain
non-designated foreign currency derivatives resulted in
favorable adjustments totaling $1.9 billion in 2003 and
$1.6 billion in 2002. The favorable adjustments related to
foreign currency derivatives reported above were offset by net
unfavorable revaluation impacts on the related debt denominated
in a currency other than the locations functional
currency. Both the unrealized and realized gains and losses on
non-designated derivatives were recorded in
Revenues
.
Summary of OCI Activity
The following table summarizes activity in OCI
excluding foreign currency translation adjustments on net
investment hedges for both the Automotive and Financial Services
sectors during the years ended December 31, (in
millions):
2003
2002
$
313
$
(1,228
)
1,072
847
(83
)
694
$
1,302
$
313
We expect to reclassify for Automotive and Financial Services sectors, existing net gains of $748 million from OCI to net income during the next twelve months as the hedged transaction is recognized in earnings. The effects of related underlying transactions will offset future reclassifications.
FS-31
NOTE 16. DERIVATIVE FINANCIAL INSTRUMENTS (Continued)
Fair Value of Derivative Instruments
The fair value of derivatives reflects the price
that a third party would be willing to pay or receive in
arms length transactions and includes mark-to-market
adjustments to reflect the effects of changes in the related
index. The following tables summarize the estimated fair value
of our derivative financial instruments, taking into
consideration the effects of legally enforceable netting
agreements, at December 31 (in billions):
2003
2002
Fair Value
Fair Value
Fair Value
Fair Value
Assets
Liabilities
Assets
Liabilities
$
2.3
$
0.6
$
1.4
$
0.8
$
6.3
$
1.1
$
3.7
$
0.8
3.9
0.2
5.1
0.4
(0.3
)
(0.3
)
(0.4
)
(0.4
)
$
9.9
$
1.0
$
8.4
$
0.8
NOTE 17. | OPERATING CASH FLOWS BEFORE SECURITIES TRADING |
The reconciliation of Net income/(loss) from continuing operations to cash flows from operating activities before securities trading is as follows (in millions):
2003 | 2002 | 2001 | |||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||
Financial | Financial | Financial | |||||||||||||||||||||||
Automotive | Services | Automotive | Services | Automotive | Services | ||||||||||||||||||||
|
|
|
|
|
|
||||||||||||||||||||
Net income/(loss) from continuing operations
|
$ | (1,091 | ) | $ | 2,012 | $ | (985 | ) | $ | 1,268 | $ | (6,152 | ) | $ | 805 | ||||||||||
Depreciation and special tools amortization
|
5,472 | 8,791 | 4,896 | 10,181 | 4,997 | 10,139 | |||||||||||||||||||
Impairment charges (depreciation and amortization)
|
| | | | 3,828 | | |||||||||||||||||||
Amortization of goodwill and intangibles
|
24 | 10 | 21 | 18 | 296 | 31 | |||||||||||||||||||
Net losses/(earnings) from equity investments in
excess of dividends remitted
|
(2 | ) | | 134 | 13 | 845 | (5 | ) | |||||||||||||||||
Provision for credit/ insurance losses
|
| 2,357 | | 3,275 | | 3,661 | |||||||||||||||||||
Foreign currency adjustments
|
160 | | 51 | | (201 | ) | | ||||||||||||||||||
Loss on sale of business
|
| | 519 | | | | |||||||||||||||||||
Stock option expense
|
154 | 19 | | | | | |||||||||||||||||||
Provision for deferred income taxes
|
785 | 1,274 | (1,378 | ) | 595 | (2,241 | ) | 538 | |||||||||||||||||
Decrease/(increase) in accounts receivable and
other current assets
|
(1,445 | ) | 1,353 | 2,568 | (2,533 | ) | 1,225 | (837 | ) | ||||||||||||||||
Decrease/(increase) in inventory
|
(505 | ) | | (650 | ) | | 1,125 | | |||||||||||||||||
Increase/(decrease) in accounts payable and
accrued and other liabilities
|
(1,786 | ) | 1,132 | 3,928 | 2,678 | 4,707 | (974 | ) | |||||||||||||||||
Other
|
(430 | ) | 104 | 377 | (234 | ) | (989 | ) | (281 | ) | |||||||||||||||
|
|
|
|
|
|
||||||||||||||||||||
Cash flows from operating activities before
securities trading
|
$ | 1,336 | $ | 17,052 | $ | 9,481 | $ | 15,261 | $ | 7,440 | $ | 13,077 | |||||||||||||
|
|
|
|
|
|
Automotive sector cash equivalents at December 31, 2003 and 2002 were $4.0 billion and $4.4 billion, respectively; Financial Services sector cash equivalents at December 31, 2003 and 2002 were $14.2 billion and $5.3 billion, respectively.
FS-32
Cash paid/(received) for interest and income
taxes was as follows (in millions):
NOTE 17.
OPERATING CASH FLOWS BEFORE SECURITIES TRADING
(Continued)
2003
2002
2001
$
7,553
$
7,748
$
9,946
(1,046
)
(1,883
)
929
NOTE 18. | ACQUISITIONS, DISPOSITIONS, RESTRUCTURINGS AND OTHER ACTIONS |
2003
European Charges Reflecting the ongoing restructuring of the Ford Europe business unit of our International Automotive segment, we recorded pre-tax charges in Automotive cost of sales totaling $513 million in the third and fourth quarters of 2003. The charges included costs associated with employee separations. These actions and the approximate reduction in personnel are as follows:
Number of | ||||
Employees | ||||
|
||||
Planned shift pattern changes at our Genk
(Belgium) vehicle assembly plant
|
2,900 | |||
Manufacturing, engineering and staff efficiency
actions in Cologne (Germany) and at various locations in the UK
(1,170 salaried and 730 hourly)
|
1,900 |
2002
Sale of Kwik-Fit Holdings Ltd. and Other In November 2002, we completed the sale of our interest in Kwik-Fit Holdings Ltd., our European all-makes vehicle repair business, to an acquisition company formed by CVC Capital Partners. The sales price of £330 million (equivalent to about $500 million) consisted of a combination of approximately $300 million in cash and a note with a face value of approximately $200 million. We recognized a pre-tax loss of $519 million in cost of sales in 2002. Additionally, in 2002, we acquired a 19% equity stake in the acquisition company. Our disposal of our interest in Kwik-Fit was not reflected as a discontinued operation due to our continued involvement as an equity investor in the acquisition company. In 2003, we recognized pre-tax income of $49 million related to the acceleration of payments received on the note.
Other pre-tax charges during the year totaled $143 million which represented primarily impairments and dispositions of our interest in e-commerce ventures.
European Charges With respect to our Ford Europe business unit of our International Automotive segment, we recorded a pre-tax charge in Automotive cost of sales of $173 million in the fourth quarter of 2002. These actions and the approximate reduction in personnel are as follows:
Number of | ||||
Employees | ||||
|
||||
Planned transfer of the Transit vehicle
production to the Ford Otosan (Turkey) joint venture,
die-casting rationalization and other manufacturing actions
(1,740 hourly and 60 salary)
|
1,800 |
Premier Automotive Group Charges We recorded a restructuring pre-tax charge in Automotive cost of sales of $157 million in the fourth quarter 2002 related to workforce reductions in our Premier Automotive Group. These actions and the approximate reduction in personnel are as follows:
Number of | ||||
Employees | ||||
|
||||
Line speed reduction at our Halewood (England)
plant and efficiency actions (voluntary redundancy)
(225 hourly and 715 salary)
|
940 |
FS-33
NOTE 18. | ACQUISITIONS, DISPOSITIONS, RESTRUCTURINGS AND OTHER ACTIONS (Continued) |
2001
Asset Impairment Charges In response to significantly deteriorating business conditions resulting in operating losses, we conducted extensive business reviews of our Automotive operations in North America and South America during the fourth quarter. As part of these reviews, we determined that projected undiscounted cash flows were not sufficient to justify the carrying values of the related long-lived assets. Asset impairment charges of $3,084 million in North America and $744 million in South America were recorded in Automotive cost of sales, reflecting a write-down to estimated fair value, as determined by independent valuations. The impairment increased depreciation, special tool amortization, and goodwill amortization by $2,688 million, $867 million, and $273 million, respectively.
Precious Metals Related Charges Precious metals (primarily palladium) are used in catalytic converters, which are used in vehicles to meet required automotive emission standards. Our business objective has been to ensure adequate supply of these critical commodities. In 2000 and early 2001, we acquired precious metals and entered into forward purchase contracts at then-prevailing market prices in an environment of uncertain supply and outlook. In the fourth quarter of 2001, our engineers validated a breakthrough catalyst design, which will help reduce our usage of palladium. For the precious metals physically held, we substantially reduced our holdings in excess of those stocking requirements. Beginning in the fourth quarter of 2001, we wrote down the value of the excess metal to its estimated realizable value. In addition, precious metal forward contracts were settled in lieu of taking physical delivery of the related metal. Therefore, as required by SFAS No. 133, precious metal forward purchase contracts were marked-to-market. The total pre-tax charge for precious metals in the fourth quarter of 2001 was $953 million.
Other Charges Other charges during the during the fourth quarter of 2001 included personnel charges of $565 million before taxes primarily reflected voluntary salaried employee separations in North America.
Purchase of Remainder of Hertz Corporation In March 2001, we acquired (for $735 million) the common stock of Hertz that we did not own, which represented about 18% of the economic interest in Hertz. The excess of the purchase price over the fair market value of net assets acquired was approximately $390 million and was accounted for under the purchase method.
NOTE 19. | RETIREMENT BENEFITS |
Employee Retirement Plans
We have two principal qualified defined benefit retirement plans in the U.S. The Ford-UAW Retirement Plan covers hourly employees represented by the UAW, and the General Retirement Plan covers substantially all other Ford employees in the U.S. hired on or before December 31, 2003. The hourly plan provides noncontributory benefits related to employee service. The salaried plan provides similar noncontributory benefits and contributory benefits related to pay and service. Other U.S. and non-U.S. subsidiaries have separate plans that generally provide similar types of benefits for their employees. We established, effective January 1, 2004, a defined contribution plan generally covering new salaried U.S. employees hired on or after that date. Ford-UAW Retirement Plan expense accruals for UAW-represented employees assigned to Visteon (Visteon Hourly Employees) are charged to Visteon.
In general, our plans are funded, with the main exceptions of the U.S. defined benefit plans for senior management and certain plans in Germany; in such cases, an unfunded liability is recorded.
FS-34
NOTE 19. | RETIREMENT BENEFITS (Continued) |
We also sponsor defined contribution plans for certain of our U.S. and non-U.S. employees. Our expense, primarily for matching contributions, for various plans was $37 million in 2003, $23 million in 2002 and $167 million in 2001.
Postretirement Health Care and Life Insurance Benefits
We, and certain of our subsidiaries, sponsor plans to provide selected health care and life insurance benefits for retired employees. Our U.S. and Canadian employees generally may become eligible for those benefits if they retire; however, benefits and eligibility rules may be modified from time to time.
In 2003, we agreed to relieve Visteon of its responsibility for the postretirement health care and life insurance liability related to service prior to June 30, 2000 for the Visteon Hourly Employees. This resulted in a one-time charge to expense of $1,646 million, and the forgiveness of associated Visteon promissory notes previously included in plan assets. Pursuant to the agreement, the expense associated with service after June 30, 2000 for Visteon Hourly Employees is charged to Visteon.
Postretirement health care and life insurance expense for former salaried Ford employees who transferred to Visteon and met certain age and service conditions at June 30, 2000 (the Visteon Salaried Employees, and, together with the Visteon Hourly Employees, the Visteon Employees) is also charged to Visteon.
A long-term receivable representing Visteons remaining costs of postretirement health care and life insurance liability for the Visteon Employees in the amount of $480 million has been recorded by Ford. We expect the receivable to increase with expense charged to Visteon and to decrease as Visteon or the Visteon Voluntary Employees Beneficiary Association trust (VEBA) makes cash payments to us directly in case of a payment from Visteon or to us as Ford Plan Administrator, in case of a payment from the Visteon VEBA.
Visteon has agreed to make a series of cash payments to the Visteon VEBA so that by December 31, 2049, the assets in the Visteon VEBA will equal Visteons postretirement healthcare and life insurance liability for the Visteon Employees on that date. The cash payments to the Visteon VEBA will commence no later than January 2, 2006 for the Visteon Hourly Employees and January 1, 2011 for the Visteon Salaried Employees.
On December 8, 2003, the President signed into law the Medicare Prescription Drug, Improvement and Modernization Act of 2003. The law provides for a federal subsidy to sponsors of retiree healthcare benefit plans that provide a benefit at least actuarially equivalent to the benefit established by the law. We provide retiree drug benefits that exceed the value of the benefits that will be provided by Medicare Part D, and our retirees out-of-pocket costs are less than they would be under Medicare Part D. Therefore, we have concluded that our plan is at least actuarially equivalent to the Medicare Part D plan and that we will be eligible for the subsidy. We have reflected the impact of the subsidy as an unrecognized gain, which reduced our benefit obligation by $1.8 billion at December 31, 2003. Final authoritative guidance, when issued by the FASB, could require us to re-determine the impact of this legislation.
FS-35
The measurement date for our worldwide
postretirement benefit plans is December 31. Our expense
for pension, postretirement health care and life insurance
benefits was as follows (in millions):
NOTE 19.
RETIREMENT BENEFITS (Continued)
Pension Benefits
Health Care and Life
U.S. Plans
Non-U.S. Plans
Insurance
2003
2002
2001
2003
2002
2001
2003
2002
2001
$
600
$
556
$
531
$
492
$
377
$
396
$
521
$
427
$
374
2,442
2,453
2,410
1,170
977
974
2,004
1,801
1,697
(3,202
)
(3,646
)
(3,697
)
(1,382
)
(1,265
)
(1,184
)
(37
)
(85
)
(161
)
472
529
532
135
137
138
(179
)
(145
)
(114
)
33
(130
)
(367
)
148
25
(101
)
532
310
161
107
303
128
39
8
16
114
1,646
(88
)
(62
)
(58
)
(314
)
(228
)
(149
)
$
257
$
(193
)
$
(346
)
$
691
$
290
$
231
$
4,173
$
2,096
$
1,922
The year-end status of these plans was as follows
(in millions):
Pension Benefits
Health Care and
U.S. Plans
Non-U.S. Plans
Life Insurance
2003
2002
2003
2002
2003
2002
$
37,153
$
35,223
$
20,698
$
15,991
$
30,263
$
25,433
600
556
492
377
521
427
2,442
2,453
1,170
977
2,004
1,801
1,282
(3
)
5
133
(372
)
(264
)
132
80
102
16
39
39
134
95
28
14
(2,697
)
(2,806
)
(1,018
)
(921
)
(1,419
)
(1,232
)
3,269
1,980
12
4
1,644
1,559
(40
)
1,964
1,325
4,064
$
40,463
$
37,153
$
24,790
$
20,698
$
32,362
$
30,263
$
29,877
$
35,819
$
12,363
$
12,935
$
2,834
$
2,692
7,687
(3,335
)
2,070
(1,692
)
10
64
2,168
181
1,029
611
3,500
893
39
39
134
95
(2,697
)
(2,806
)
(1,018
)
(921
)
(877
)
(815
)
1,924
1,322
(58
)
(21
)
46
13
(1,902
)
$
37,016
$
29,877
$
16,548
$
12,363
$
3,565
$
2,834
$
(3,447
)
$
(7,276
)
$
(8,242
)
$
(8,335
)
$
(28,797
)
$
(27,429
)
3,640
2,831
790
784
(1,352
)
(1,161
)
3,917
6,742
7,122
6,874
11,075
10,423
$
4,110
$
2,297
$
(330
)
$
(677
)
$
(19,074
)
$
(18,167
)
FS-36
NOTE 19.
RETIREMENT BENEFITS (Continued)
Pension Benefits
Health Care and
U.S. Plans
Non-U.S. Plans
Life Insurance
2003
2002
2003
2002
2003
2002
$
5,230
$
3,429
$
2,724
$
1,728
$
$
(5,807
)
(8,921
)
(7,792
)
(7,449
)
(19,074
)
(18,167
)
2,916
2,797
874
890
1,771
4,992
3,864
4,154
$
4,110
$
2,297
$
(330
)
$
(677
)
$
(19,074
)
$
(18,167
)
$
22,334
$
35,305
$
21,145
$
17,569
19,378
29,773
15,832
11,756
$
38,786
$
35,394
$
21,797
$
18,110
6.25
%
6.75
%
5.61
%
5.65
%
6.25
%
6.75
%
8.75
%
8.75
%
8.38
%
8.40
%
6.20
%
6.00
%
4.50
%
5.20
%
3.80
%
3.80
%
9
%
11
%
5
%
5
%
2010
2008
6.75
%
7.25
%
5.65
%
6.10
%
6.75
%
7.25
%
8.75
%
9.50
%
8.40
%
8.70
%
6.00
%
6.00
%
5.20
%
5.20
%
3.80
%
3.80
%
72.2
%
67.0
%
63.7
%
58.7
%
0.0
%
0.0
%
26.3
%
31.9
%
34.5
%
39.5
%
100.0
%
100.0
%
0.2
%
0.3
%
1.1
%
1.2
%
0.0
%
0.0
%
1.3
%
0.8
%
0.7
%
0.6
%
0.0
%
0.0
%
A one percentage point increase/ (decrease) in the assumed health care cost trend rate would increase/ (decrease) the postretirement health care benefit obligation by approximately $4.6 billion/ $(3.8) billion and the service and interest component of health care expense by $310 million/ $(260) million.
Company Contributions
Our policy for funded plans is to contribute annually, at a minimum, amounts required by applicable laws, regulations, and union agreements. We do from time to time make contributions beyond those legally required. For example, in 2003 we made over $2 billion of discretionary cash contributions to our U.S. pension funds.
During 2004, we expect worldwide Company cash outflow in respect of our defined benefit pension plans will total $1.1 billion, consisting of contributions to pension funds and benefit payments for unfunded plans.
FS-37
NOTE 19. | RETIREMENT BENEFITS (Continued) |
Plan Asset Information
Our investment strategy has a long-term horizon and is tolerant of return volatility, in keeping with the long-term nature of the liabilities. The target asset allocation for our major plans worldwide generally is 70% equities, 30% fixed income. The present allocation to alternative investments is below 1%. All assets are externally managed and investment managers have discretion to invest globally within their respective mandates. A diverse array of investment processes within asset classes reduces volatility. Most assets are actively managed; manager skill and broad mandates have generally produced long-term returns in excess of common market indices. Ford securities comprised less than one-half of one percent of the value of our worldwide pension plan assets during 2003 and 2002.
The equity allocation shown at year-end 2003 and 2002 includes public equity securities, private equity investments, and REITS. Real estate investments shown separately reflect a liquidation strategy that has been in place for several years. Other assets include cash held for near-term benefit funding; cash held by investment managers for liquidity purposes is included in the appropriate asset class balance.
The long-term return assumption at year-end 2003 is 8.75% for the U.S. and averages 8.38% for non-U.S. plans. A consistent approach generally is used worldwide to develop this assumption. This approach utilizes long-run equilibrium assumptions from a range of advisors for capital market returns, inflation and other variables, adjusted for specific aspects of our strategy. This exercise is conducted periodically, and changes in our assumption reflect changes in equilibrium views over time; we do not expect to modify this assumption frequently. The long-term performance of our funds generally has been in excess of long-term return assumptions worldwide.
We previously established a VEBA to pay a portion of U.S. hourly retiree health and life insurance benefits. In December 2003, we contributed $3.5 billion to the trust, and all the assets were invested in short-term fixed income securities. Subsequent to year-end, VEBA assets of $2.0 billion were invested in long-term investments, to be managed in a strategy similar to the pension investment strategy described previously. The remaining VEBA assets will continue to be invested in short-term fixed income securities, a portion of which is managed internally, with the remainder externally. The long-term expected return assumption applicable to the total retiree VEBA is 6.2%, reflecting the weighted average of the expected returns on the long-term and short-term portions of the portfolio.
NOTE 20. | SEGMENT INFORMATION |
The Companys operating activity consists of two operating sectors, Automotive and Financial Services.
The Automotive sector consists of the design, development, manufacture, sale and service of cars, trucks and service parts. In 2003, we began reporting our Automotive sector results as two primary segments, Americas and International.
The Americas segment includes primarily the sale of Ford, Lincoln and Mercury brand vehicles and related service parts in North America (U.S., Canada and Mexico) and Ford-brand vehicles and related service parts in South America, and the associated costs to design, develop, manufacture and service these vehicles and parts.
The International segment includes primarily the sale of Ford-brand vehicles and related service parts outside of North and South America and the sale of Premier Automotive Group brand vehicles (i.e., Volvo, Jaguar, Land Rover and Aston Martin) and related service parts throughout the world
FS-38
NOTE 20. | SEGMENT INFORMATION (Continued) |
(including North and South America), together with the associated costs to design, develop, manufacture and service these vehicles and parts. Additionally, the International segment includes our share of the results of Mazda Motor Corporation and Mazda-related joint ventures.
The Other Automotive component of the Automotive sector consists primarily of net interest expense, which is not managed individually by the two segments.
Transactions between Automotive segments are presented on an absolute cost basis, eliminating the effect of legal entity transfer prices within the Automotive sector for vehicles, components and product engineering. Prior to 2003, the Automotive sector was reported as one segment. Prior year information reflects the two reporting segments within the Automotive sector.
The Financial Services sector includes two primary segments, Ford Credit and Hertz. Ford Credit provides vehicle-related financing, leasing, and insurance. Hertz rents cars, light trucks and industrial and construction equipment.
Segment selection is based upon the
organizational structure that we use to evaluate performance and
make decisions on resource allocation, as well as availability
and materiality of separate financial results consistent with
that structure.
Automotive Sector
Financial Services Sector(a)
Inter-
Ford
Elims/
Elims/
Americas
national
Other
Total
Credit
Hertz
Other
Total
Other(b)
Total
(in millions)
$
85,474
$
52,968
$
$
138,442
$
20,125
$
5,200
$
429
$
25,754
$
$
164,196
3,628
1,688
5,316
316
26
(3
)
339
(5,655
)
35
(1,418
)
(574
)
(1,957
)
3,035
228
64
3,327
1,370
(1,177
)
1,164
79
69
1,312
135
3,346
2,150
5,496
7,084
1,658
48
8,790
14,286
870
870
870
1,370
1,370
5,831
373
116
6,320
7,690
7,370
30
254
95
379
7,749
(88
)
162
74
12
(3
)
9
83
1,930
196
37
233
2,163
120,641
178,829
12,920
3,530
195,279
315,920
FS-39
NOTE 20.
SEGMENT INFORMATION (Continued)
Automotive Sector
Financial Services Sector(a)
Inter-
Ford
Elims/
Elims/
Americas
national
Other
Total
Credit
Hertz
Other
Total
Other(b)
Total
(in millions)
$
88,619
$
44,567
$
1,087
$
134,273
$
22,541
$
4,945
$
497
$
27,983
$
$
162,256
4,104
1,295
5,399
269
33
(15
)
287
(5,686
)
1,868
(1,810
)
(1,211
)
(1,153
)
1,965
200
(61
)
2,104
951
(532
)
730
72
31
833
301
3,191
1,691
35
4,917
8,501
1,639
42
10,182
15,099
834
834
834
1,368
1,368
6,929
377
162
7,468
8,836
6,776
83
255
164
502
7,278
(122
)
64
(33
)
(91
)
11
11
(80
)
2,470
197
29
226
2,696
107,790
170,169
11,479
5,784
187,432
295,222
$
86,065
$
43,577
$
1,094
$
130,736
$
24,246
$
4,898
$
624
$
29,768
$
$
160,504
3,670
679
4,349
457
27
(42
)
442
(4,791
)
(6,636
)
(1,255
)
(966
)
(8,857
)
1,494
3
(59
)
1,438
(7,419
)
(2,748
)
663
(21
)
10
652
(2,096
)
7,442
1,606
73
9,121
8,465
1,620
54
10,139
19,260
765
765
765
1,376
1,376
8,922
414
104
9,440
10,816
6,301
182
310
159
651
6,952
(292
)
(344
)
(220
)
(856
)
5
5
(851
)
2,450
177
11
188
2,638
88,319
173,096
10,525
4,603
188,224
276,543
(a) | Financial Services sectors interest income is recorded as Revenues. |
(b) | Includes intersector transactions occurring in the ordinary course of business. |
FS-40
NOTE 21. GEOGRAPHIC
INFORMATION
United
All
Total
States
Europe
Other
Company
(in millions)
$
103,435
$
39,280
$
21,481
$
164,196
18,711
19,173
5,714
43,598
$
108,214
$
35,189
$
18,853
$
162,256
18,037
15,046
4,839
37,922
$
107,613
$
34,896
$
17,995
$
160,504
17,355
12,529
4,680
34,564
NOTE 22. SUMMARY QUARTERLY FINANCIAL DATA (UNAUDITED)
2003 | 2002 | ||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
First | Second | Third | Fourth | First | Second | Third | Fourth | ||||||||||||||||||||||||||
Quarter | Quarter | Quarter | Quarter | Quarter | Quarter | Quarter | Quarter | ||||||||||||||||||||||||||
(in millions, except amounts per share) |
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
Automotive
|
|||||||||||||||||||||||||||||||||
Sales
|
$ | 34,159 | $ | 34,142 | $ | 30,292 | $ | 39,849 | $ | 32,134 | $ | 35,164 | $ | 32,360 | $ | 34,615 | |||||||||||||||||
Operating income/(loss)
|
806 | 26 | (640 | ) | (1,723 | ) | (61 | ) | 589 | (638 | ) | (418 | ) | ||||||||||||||||||||
Financial Services
|
|||||||||||||||||||||||||||||||||
Revenues
|
6,656 | 6,440 | 6,499 | 6,159 | 7,262 | 6,970 | 6,892 | 6,859 | |||||||||||||||||||||||||
Income/(loss) before income taxes
|
678 | 715 | 1,031 | 903 | 343 | 599 | 569 | 593 | |||||||||||||||||||||||||
Total Company
|
|||||||||||||||||||||||||||||||||
Income/(loss) from continuing operations
|
901 | 426 | 237 | (643 | ) | (81 | ) | 620 | (244 | ) | (12 | ) | |||||||||||||||||||||
Net income/(loss)
|
896 | 417 | (25 | ) | (793 | ) | (1,094 | ) | 570 | (326 | ) | (130 | ) | ||||||||||||||||||||
Common and Class B per share
|
|||||||||||||||||||||||||||||||||
Basic income/(loss) from continuing operations
|
$ | 0.49 | $ | 0.23 | $ | 0.13 | $ | (0.35 | ) | $ | (0.05 | ) | $ | 0.34 | $ | (0.14 | ) | $ | (0.01 | ) | |||||||||||||
Diluted income/(loss) from continuing operations
|
0.45 | 0.22 | 0.13 | (0.35 | ) | (0.05 | ) | 0.31 | (0.14 | ) | (0.01 | ) |
NOTE 23. COMMITMENTS AND CONTINGENCIES
Lease Commitments
We lease land, buildings and equipment under agreements that expire in various years. Minimum rental commitments under non-cancelable operating leases were as follows (in millions):
There- | ||||||||||||||||||||||||
2004 | 2005 | 2006 | 2007 | 2008 | after | |||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
Automotive
|
$ | 446 | $ | 346 | $ | 259 | $ | 248 | $ | 169 | $ | 341 | ||||||||||||
Financial Services
|
400 | 330 | 265 | 198 | 139 | 503 |
Rental expense was $1.3 billion in 2003, $1.1 billion in 2002 and $1.0 billion in 2001.
FS-41
Guarantees
On November 26, 2002, FASB issued Interpretation No. 45 (FIN 45), Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others . For certain guarantees issued after December 31, 2002, FIN 45 requires a guarantor to recognize, upon issuance of a guarantee, a liability for the fair value of the guarantee. The fair values of guarantees and indemnifications issued during 2003 are recorded in the financial statements and are de minimis. At December 31, 2003, the following guarantees were issued and outstanding:
Guarantees related to affiliates and third parties: We guarantee debt and lease obligations of certain joint ventures as well as certain financial obligations of outside third parties to support business and economic growth. Expiration dates vary, and guarantees will terminate on payment and/or cancellation of the obligation. A payment would be triggered by failure of the guaranteed party to fulfill its obligation covered by the guarantee. In some circumstances, we are entitled to recover from the third party amounts paid by us under the guarantee. However, our ability to enforce these rights is sometimes stayed until the guaranteed party is paid in full. The maximum potential payments under these guarantees total approximately $465 million, the majority of which relates to the Automotive sector.
In 1992, we issued $500 million of 7.25% Notes due October 1, 2008 (Notes). In 1999, the bondholders agreed to relieve us as the primary obligor with respect to the principal of these Notes. As part of this transaction, Ford placed certain financial assets into an escrow trust for the benefit of the bondholders, and the trust became the primary obligor with respect to the principal (Ford became secondarily liable for the entire principal amount). Approximately $150 million is recorded in the financial statements as Senior debt related to this transaction, which is being amortized over the life of the Notes.
We also have guarantees outstanding associated with two subsidiary trusts, Trust I and Trust II. For further discussions of Trust I and Trust II, see Notes 12 and 14.
Sales to third parties of Automotive receivables, with recourse: From time to time, the Automotive sector sells receivables to third parties with recourse. Receivables are sold on a rolling basis and individual sales liquidate at different times. A payment would be triggered by failure of the obligor to fulfill its obligations covered by the contract. The maximum potential amount of future payments is approximately $14 million.
Indemnifications: In the ordinary course of business, we execute contracts involving indemnifications standard in the industry and indemnifications specific to a transaction such as the sale of a business. These indemnifications might include claims against any of the following: environmental, tax and shareholder matters; intellectual property rights; governmental regulations and employment-related matters; dealer, supplier, and other commercial contractual relationships; and financial matters, such as securitizations. Performance under these indemnities would generally be triggered by a breach of terms of the contract or by a third party claim. We regularly evaluate the probability of having to incur costs associated with these indemnifications and have accrued for expected losses that are probable. We are party to numerous indemnifications and many of these
FS-42
NOTE 23. COMMITMENTS AND CONTINGENCIES (Continued)
indemnities do not limit potential payment; therefore, we are unable to estimate a maximum amount of potential future payments that could result from claims made under these indemnities.
Product Performance,
Warranty:
Estimated warranty costs and
additional service actions are accrued for at the time the
vehicle is sold to a dealer. Included in the warranty cost
accruals are costs for basic warranty coverages on vehicles
sold. Product recalls and other customer service actions are not
included in the warranty reconciliation below but are also
accrued for at the time of sale. Estimates for warranty costs
are made based primarily on historical warranty claim
experience. The following is a tabular reconciliation of the
product warranty accrual (in millions):
2003
2002
$
5,401
$
4,739
(3,524
)
(3,508
)
3,562
3,489
(266
)
595
270
86
$
5,443
$
5,401
|
* | Other includes newly consolidated VIEs (see Note 13). |
Litigation and Claims
Various legal actions, governmental investigations and proceedings and claims are pending or may be instituted or asserted in the future against us, including those arising out of alleged defects in our products; governmental regulations relating to safety, emissions and fuel economy; financial services; employment-related matters; dealer, supplier and other contractual relationships; intellectual property rights; product warranties; environmental matters; and shareholder matters. Certain of the pending legal actions are, or purport to be, class actions. Some of the foregoing matters involve or may involve compensatory, punitive, or antitrust or other treble damage claims in very large amounts, or demands for recall campaigns, environmental remediation programs, sanctions, or other relief, which, if granted, would require very large expenditures.
Litigation is subject to many uncertainties, and the outcome of individual litigated matters is not predictable with assurance. We have established accruals for certain of the matters discussed in the foregoing paragraph where losses are deemed probable. It is reasonably possible, however, that some of the matters discussed in the foregoing paragraph for which accruals have not been established could be decided unfavorably to us and could require us to pay damages or make other expenditures in amounts or a range of amounts that cannot be estimated at December 31, 2003. We do not reasonably expect, based on our analysis, that such matters would have a material effect on future financial statements for a particular year, although such an outcome is possible.
FS-43
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
In our opinion, the accompanying consolidated
balance sheet and the related consolidated statements of income,
of stockholders equity and of cash flows present fairly,
in all material respects, the financial position of Ford Motor
Company and its subsidiaries at December 31, 2003 and 2002,
and the results of their operations and their cash flows for
each of the three years in the period ended December 31,
2003 in conformity with accounting principles generally accepted
in the United States of America. In addition, in our opinion,
the accompanying sector balance sheet and the related sector
statements of income and of cash flows, presented for purposes
of additional analysis, present fairly, in all material
respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
The consolidated and sector financial statements (collectively,
the financial statements) are the responsibility of
the Companys management; our responsibility is to express
an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States
of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
As discussed in Note 1 to the financial
statements, on January 1, 2003, the Company adopted
Statement of Financial Accounting Standards (SFAS)
No. 148, Accounting for Stock-Based
Compensation Transition and Disclosure. As
discussed in Note 13 to the financial statements, on
July 1, 2003, the Company adopted Financial Accounting
Standards Board Interpretation No. 46, Consolidation
of Variable Interest Entities, an Interpretation of ARB
No. 51. As discussed in Note 7 to the financial
statements, on January 1, 2002, the Company adopted SFAS
No. 142, Goodwill and Other Intangible Assets.
As discussed in Note 3 to the financial statements, on
January 1, 2002, the Company adopted SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets.
/s/ PricewaterhouseCoopers LLP
FS-44
Table of Contents
Ford Motor Company
Balance at
Charged to
Balance at
Beginning
Costs and
End of
Description
of Period
Expenses
Deductions
Period
$
3,228
$
2,038
$
2,206
(a)
$
3,060
374
108
98
(b)
384
304
64
(c)
368
$
3,906
$
2,210
$
2,304
$
3,812
$
2,806
$
3,000
$
2,578
(a)
$
3,228
240
160
26
(b)
374
283
21
(c)
304
$
3,329
$
3,181
$
2,604
$
3,906
$
1,684
$
3,397
$
2,275
(a)
$
2,806
202
69
31
(b)
240
300
(17
)(c)
283
$
2,186
$
3,449
$
2,306
$
3,329
(a) | Finance receivables and lease investments deemed to be uncollectible and other changes, principally amounts related to finance receivables sold and translation adjustments. |
(b) | Accounts and notes receivable deemed to be uncollectible and translation adjustments. |
(c) | Net change in inventory allowances. |
FSS-1
REPORT OF INDEPENDENT AUDITORS ON
To the Board of Directors and Stockholders
Our audits of the financial statements referred to in our report dated March 10, 2004 appearing in this Annual Report on Form 10-K also included an audit of the financial statement schedule listed in Item 15.(a)2. of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related financial statements.
/s/ PricewaterhouseCoopers LLP
FSS-2
EXHIBIT INDEX
Designation
Description
Method of Filing
By-Laws as amended through February 12, 2004.
Filed with this Report.
Description of an Amendment to the Benefit
Equalization Plan.
Filed with this Report.
Amendment to Deferred Compensation Plan effective
as of March 10, 2004.
Filed with this Report.
Form of Trade Secrets/Non-Compete Statement
between Ford and certain of its Executive Officers.
Filed with this Report.
Calculation of Ratio of Earnings to Combined
Fixed Charges and Preferred Stock Dividends.
Filed with this Report.
List of Subsidiaries of Ford as of March 10,
2004.
Filed with this Report.
Consent of Independent Accountants.
Filed with this Report.
Powers of Attorney.
Filed with this Report.
Rule 15d-14(a) Certification of CEO
Filed with this Report.
Rule 15d-14(a) Certification of CFO
Filed with this Report.
Section 1350 Certification of CEO
Filed with this Report.
Section 1350 Certification of CFO
Filed with this Report.
Exhibit 3-B
Ford Motor Company
As amended through February 12, 2004
BY-LAWS
i
ii
BY-LAWS
ARTICLE I
OFFICES
The registered office of the Company shall be in
the City of Wilmington, County of New Castle, State of Delaware.
The Company may also have an office in the City of Dearborn,
State of Michigan, and at such other places as the Board of
Directors may from time to time determine or as the business of
the Company may require. The books and records of the Company
may be kept (except as otherwise provided by law) at the office
of the Company in the City of Dearborn, State of Michigan,
outside of the State of Delaware, or at such other places as
from time to time may be determined by the Board of Directors.
ARTICLE II
STOCKHOLDERS
Section 1. Annual Meeting.
Unless otherwise determined by the Board of
Directors, the annual meeting of the stockholders for the
purpose of electing directors and of transacting such other
business as may come before it shall be held in the City of
Detroit, State of Michigan, on the second Thursday of May in
each and every year, if not a legal holiday, and if a legal
holiday then on the next day not a legal holiday. The Board of
Directors shall, by resolution duly adopted, fix the place
within the City of Detroit, Michigan, or elsewhere if so
determined, the time, and the date (if different from that
described above) for the holding of each such meeting. At least
twenty (20) days notice shall be given to each
stockholder entitled to vote at such meeting of the place, date
and time for the meeting.
Section 2. Special
Meetings.
Special meetings of the stockholders shall be
held at the office of the Company in the City of Dearborn, State
of Michigan, unless otherwise determined by resolution of the
stockholders or of the Board of Directors, whenever called in
the manner required by law for purposes as to which there are
special statutory provisions, and for other purposes whenever
called by the Chairman of the Board of Directors or the
President, or by resolution of the Board of Directors, and
whenever the holders of thirty percent (30%) or more of the
total number of outstanding shares of any class of stock the
holders of which are entitled to vote on every matter that is to
be voted on without regard to class at such meeting shall file
with the Secretary a written application for such meeting
stating the time and purpose thereof.
Section 3. Notice of
Meetings.
Except as otherwise provided by law, at least
twenty (20) days notice of stockholders
meetings stating the time and place and the objects thereof
shall be given by the Chairman of the Board of Directors, the
President or the Secretary to stockholders of record having
voting power in respect of the business to be transacted
thereat. No business other than that stated in the notice shall
be transacted at any meeting.
Section 4. Quorum.
At any meeting of the stockholders the number of
shares the holders of which shall be present or represented by
proxy in order to constitute a quorum for, and the votes that
shall be necessary for, the transaction of any business shall be
as expressly provided in Article FOURTH of the
1
Section 5. Organization.
The Chairman of the Board of Directors shall act
as chairman of meetings of the stockholders. The Board of
Directors may designate any other officer or director of the
Company to act as chairman of any meeting in the absence of the
Chairman of the Board of Directors, and the Board of Directors
may further provide for determining who shall act as chairman of
any stockholders meeting in the absence of the Chairman of the
Board of Directors and such designee.
The Secretary of the Company shall act as
secretary of all meetings of the stockholders, but in the
absence of the Secretary the presiding officer may appoint any
other person to act as secretary of any meeting.
Section 6. Proxies and
Voting.
Every stockholder entitled to vote at any meeting
may vote in person or by proxy authorized by an instrument in
writing or by a transmission permitted by law filed in
accordance with the procedures established for the meeting. No
proxy shall be voted after three years from its date unless such
proxy provides expressly for a longer period. Shares of the
Companys stock belonging to the Company shall not be voted
upon directly or indirectly.
Section 7. Stock Lists.
A complete list of stockholders entitled to vote
at any meeting of stockholders shall be prepared, in
alphabetical order by class, by the Secretary and shall be open
to the examination of any stockholder, at the place where the
meeting is to be held, for at least ten days before the meeting
and during the whole time of the meeting.
Section 8. Ratification.
Any transaction questioned in any
stockholders derivative suit, or any other suit to enforce
alleged rights of the Company or any of its stockholders, on the
ground of lack of authority, defective or irregular execution,
adverse interest of any director, officer or stockholder,
nondisclosure, miscomputation or the application of improper
principles or practices of accounting may be approved, ratified
and confirmed before or after judgment by the Board of Directors
or by the holders of Common Stock and the holders of
Class B Stock voting as provided in subsection 1.6 of
Article FOURTH of the Certificate of Incorporation, as
amended, and, if so approved, ratified or confirmed, shall have
the same force and effect as if the questioned transaction had
been originally duly authorized, and said approval, ratification
or confirmation shall be binding upon the Company and all of its
stockholders and shall constitute a bar to any claim or
execution of any judgment in respect of such questioned
transaction.
Section 9. Judges.
All votes by ballot at any meeting of
stockholders shall be conducted by two judges appointed for the
purpose either by the directors or by the meeting. The judges
shall decide upon the qualifications of voters, count the votes
and declare the result.
2
ARTICLE III
BOARD OF DIRECTORS
Section 1. Number, Term of Office
and Eligibility.
Except as provided by the laws of the State of
Delaware or by the Certificate of Incorporation, as amended, the
business and the property of the Company shall be managed by or
under the direction of a Board of not less than ten and not more
than twenty directors, the exact number of which shall be fixed
from time to time by resolution of the Board. Each director
shall be elected annually by ballot by the holders of Common
Stock and the holders of Class B Stock voting as provided
in subsection 1.6 of Article FOURTH of the Certificate
of Incorporation, as amended, at the annual meeting of
stockholders, to serve until his or her successor shall have
been elected and shall have qualified, except as provided in
this Section. No person may be elected or re-elected a director
of the Company if at the time of his or her election or
re-election he or she shall have attained the age of seventy-two
years, and the term of any director who shall have attained such
age while serving as a director shall terminate as of the time
of the first annual meeting of stockholders following his or her
seventy-second birthday; provided, however, that the Board by
resolution may waive such age limitation in any year and from
year to year with respect to any director or directors.
Section 2. Meetings.
The directors may hold their meetings outside of
the State of Delaware, at the office of the Company in the City
of Dearborn, State of Michigan, or at such other place as from
time to time they may determine.
The annual meeting of the Board of Directors, for
the election of officers and the transaction of other business,
shall be held at the World Headquarters of the Company in
Dearborn, Michigan, on the same day as, and as soon as
practicable following, the annual meeting of stockholders, or at
such other time or place as shall be determined by the Board of
Directors at its regular meeting next preceding said annual
meeting of stockholders. No notice of said annual meeting of the
Board of Directors shall be required to be given to the
directors.
Regular meetings of the Board of Directors may be
held at such time and place as shall from time to time be
determined by the Board of Directors.
Special meetings of the Board of Directors shall
be held whenever called by direction of the Chairman of the
Board of Directors or the President or by one-third of the
directors then in office.
Section 3. Notice of
Meetings.
The Secretary or an Assistant Secretary shall
give notice of the time and place of holding of meetings of the
Board of Directors (excepting the annual meeting of directors)
by mailing such notice not later than during the second day
preceding the day on which such meeting is to be held, or by
sending a cablegram, facsimile transmission, mailgram,
radiogram, telegram or other form of recorded communication
containing such notice or delivering such notice personally or
by telephone not later than during the first day preceding the
day on which such meeting is to be held to each director. Unless
otherwise stated in the notice thereof any and all business may
be transacted at any meeting.
Section 4. Quorum and Organization
of Meetings.
A third of the total number of members of the
Board of Directors as constituted from time to time, but in no
event less than three, shall constitute a quorum for the
transaction of business; but if at any meeting of the Board of
Directors, there shall be less than a quorum present, a majority
of those present may adjourn the meeting from time to time, and
the meeting may be held as adjourned without further notice or
waiver. Except as otherwise provided by law or by the Certificate
3
The Board of Directors shall elect one of its
members to be Chairman of the Board of Directors. The Chairman
of the Board of Directors shall lead the Board of Directors in
fulfilling its responsibilities as set forth in these By-Laws,
including its responsibility to oversee the performance of the
Company, and shall determine the agenda and perform all other
duties and exercise all other powers which are or from time to
time may be delegated to him or her by the Board of Directors.
Meetings of the Board of Directors shall be
presided over by the Chairman of the Board of Directors, or in
his or her absence, by the President, or in the absence of the
Chairman of the Board of Directors and the President by such
other person as the Board of Directors may designate or the
members present may select.
Section 5. Powers.
In addition to the powers and authorities by
these By-Laws expressly conferred upon them, the Board of
Directors shall have and may exercise all such powers of the
Company and do all such lawful acts and things that are not by
statute or by the Certificate of Incorporation, as amended, or
by these By-Laws directed or required to be exercised or done by
the stockholders. Without prejudice to or limitation of such
general powers and any other powers conferred by statute, or by
the Certificate of Incorporation, as amended, or by these
By-Laws, the Board of Directors shall have the following powers:
4
Section 6. Reliance upon Books,
Reports and Records.
Each director, each member of any committee
designated by the Board of Directors and each officer, in the
performance of his or her duties, shall be fully protected in
relying in good faith upon the books of account or reports made
to the Company by any of its officials, or by an independent
certified public accountant, or by an appraiser selected with
reasonable care by the Board of Directors or by any such
committee, or in relying in good faith upon other records of the
Company.
Section 7. Compensation of
Directors.
Directors, as such, may receive, pursuant to
resolution of the Board of Directors, fixed fees and other
compensation for their services as directors, including, without
limitation, services as Chairman of the Board of Directors, or
members of committees of the directors or as chairmen thereof;
provided, however, that nothing herein contained shall be
construed to preclude any director from serving the Company in
any other capacity and receiving compensation therefor.
ARTICLE IV
COMMITTEES
Section 1. Committees of the Board
of Directors.
There are hereby established as committees of the
Board of Directors an Audit Committee, a Compensation Committee,
an Environmental and Public Policy Committee, a Finance
Committee, and a Nominating and Governance Committee, each of
which shall have the powers and functions set forth in
Sections 2, 3, 4, 5, and 6 hereof, respectively, and such
additional powers as may be delegated to it by the Board of
Directors. The Board of Directors may from time to time
establish additional standing committees or special committees
of the Board of Directors, each of which shall have such powers
and functions as may be delegated to it by the Board of
Directors. The Board of Directors may abolish any committee
established by or pursuant to this Section 1 as it may deem
5
Section 2. Audit
Committee.
The Audit Committee shall select and engage, on
behalf of the Company, independent public accountants to
(1) audit the books of account and other corporate records
of the Company and (2) perform such other duties as the
Committee may from time to time prescribe. The Committee shall
transmit financial statements certified by such independent
public accountants to the Board of Directors after the close of
each fiscal year. The selection of independent public
accountants for each fiscal year shall be made in advance of the
annual meeting of stockholders in such fiscal year and shall be
submitted for ratification or rejection at such meeting. The
Committee shall confer with such accountants and review and
approve the scope of the audit of the books of account and other
corporate records of the Company. The Committee shall have the
power to confer with and direct the officers of the Company to
the extent necessary to review the internal controls, accounting
practices, financial structure and financial reporting of the
Company. From time to time the Committee shall report to and
advise the Board of Directors concerning the results of its
consultation and review and such other matters relating to the
internal controls, accounting practices, financial structure and
financial reporting of the Company as the Committee believes
merit review by the Board of Directors. The Committee also shall
perform such other functions and exercise such other powers as
may be delegated to it from time to time by the Board of
Directors.
Section 3. Compensation
Committee.
The Compensation Committee shall fix from time to
time the salaries of members of the Board of Directors who are
officers or employees of the Company, the President, and of any
and all Vice Chairmen of the Company, Executive Vice Presidents,
Group Vice Presidents and Vice Presidents of the Company. The
Committee from time to time shall consider and make
recommendations to the Board of Directors, to the Chairman of
the Board of Directors and to the President with respect to the
management organization of the Company, the nominations or
elections of officers of the Company, senior management
succession plans and the appointments of such other employees of
the Company as shall be referred to the Committee. It also shall
perform such functions as may be delegated to it under the
provisions of any bonus, supplemental compensation, special
compensation or stock option plan of the Company.
Section 4. Environmental and Public
Policy Committee.
The Environmental and Public Policy Committee
shall review all aspects of the Companys policies and
practices that relate to environmental, public policy and
corporate citizenship considerations facing the Company
worldwide. From time to time the Committee shall report and make
recommendations to the Board of Directors concerning the results
of its review and such other matters relating to the foregoing
matters as the Committee believes merit consideration by the
Board of Directors. The Committee also shall perform such other
functions and exercise such other powers as may be delegated to
it from time to time by the Board of Directors.
Section 5. Finance
Committee.
The Finance Committee shall review all aspects of
the Companys policies and practices that relate to the
management of the financial affairs of the Company, not
inconsistent, however, with law
6
Section 6. Nominating and Governance
Committee.
The Nominating and Governance Committee from time
to time shall consider and make recommendations to the Board of
Directors and to the Chairman of the Board of Directors with
respect to the nominations or elections of directors of the
Company.
The Committee from time to time shall consider
the size, composition, functioning and compensation of the Board
of Directors and make recommendations to the Board of Directors
with respect to such matters. Prior to the annual meeting of
stockholders each year, and prior to any special meeting of
stockholders at which a director is to be elected, the Committee
shall recommend to the Board of Directors persons proposed to
constitute the nominees whose election at such meeting will be
recommended by the Board of Directors.
The authority vested in the Committee by this
section shall not derogate from the power of individual members
of the Board of Directors to recommend or place in nomination
persons other than those recommended by the Committee.
The Committee also shall perform such other
functions and exercise such other powers as may be delegated to
it from time to time by the Board of Directors.
Section 7. Other
Committees.
The Board of Directors, or any committee, officer
or employee of the Company may establish additional standing
committees or special committees to serve in an advisory
capacity or in such other capacities as may be permitted by law,
by the Certificate of Incorporation and by the By-Laws. The
members of any such committee need not be members of the Board
of Directors. Any committee established pursuant to this
Section 7 may be abolished by the person or body by
whom it was established as he, she or it may deem advisable.
Each such committee shall consist of two or more members, the
exact number being determined from time to time by such person
or body. Designations of members of each such committee and, if
desired, alternates for members, shall be made by such person or
body, at whose will all such members and alternates shall serve.
The chairman of each such committee shall be designated by such
person or body. Each such committee shall have a secretary who
shall be designated by the chairman.
Section 8. Rules and
Procedures.
Each committee may fix its own rules and
procedures and shall meet at such times and places as may be
provided by such rules, by resolution of the committee, or by
call of the chairman or vice chairman. Notice of meeting of each
committee, other than of regular meetings provided for by its
rules or resolutions, shall be given to committee members. The
presence of one-third of its members, but not less than two,
shall constitute a quorum of any committee, and all questions
shall be decided by a majority vote of the members present at
the meeting. All action taken at each committee meeting shall be
recorded in minutes of the meeting.
7
Section 9. Application of
Article.
Whenever any provision of any other document
relating to any committee of the Company named therein shall be
in conflict with any provision of this Article IV, the
provisions of this Article IV shall govern, except that if
such other document shall have been approved by the
stockholders, voting as provided in the Certificate of
Incorporation, or by the Board of Directors, the provisions of
such other document shall govern.
ARTICLE V
OFFICERS
Section 1. Officers.
The officers of the Company shall be a Chairman
of the Board of Directors and a President, who shall be chosen
from among the directors, and may also include one or more Vice
Chairmen of the Company, one or more Executive Vice Presidents,
one or more Group Vice Presidents, one or more Vice Presidents,
a Treasurer, a Controller and a Secretary, each of whom shall be
elected by the Board of Directors to hold office until his or
her successor shall have been chosen and shall have qualified.
The Board of Directors may elect or appoint one or more
Assistant Treasurers, one or more Assistant Secretaries, and
such other officers as it may deem necessary, or desirable, each
of whom shall have such authority, shall perform such duties and
shall hold office for such term as may be prescribed by the
Board of Directors from time to time. Any person may hold at one
time more than one office.
Section 2. Chairman of the Board of
Directors and Chief Executive Officer.
The Chairman of the Board of Directors shall be
the Chief Executive Officer of the Company. Subject to the
provisions of these By-Laws and to the direction of the Board of
Directors, he or she shall have ultimate authority for decisions
relating to the general management and control of the affairs
and business of the Company and shall perform all other duties
and exercise all other powers commonly incident to the position
of Chief Executive Officer or which are or from time to time may
be delegated to him or her by the Board of Directors, or which
are or may at any time be authorized or required by law. He or
she may redelegate from time to time and to the full extent
permitted by law, in writing, to officers or employees of the
Company any or all of such duties and powers, and any such
redelegation may be either general or specific. Whenever he or
she so shall delegate any of his or her authority, he or she
shall file a copy of the redelegation with the Secretary of the
Company.
Section 3. President and Chief
Operating Officer.
The President shall be the Chief Operating
Officer of the Company. Subject to the provisions of these
By-Laws and to the direction of the Board of Directors and of
the Chief Executive Officer, he or she shall have such powers
and shall perform such duties as from time to time may be
delegated to him or her by the Board of Directors or by the
Chief Executive Officer, or which are or may at any time be
authorized or required by law. In the absence or disability of
the Chairman of the Board of Directors, or in the event of, and
during the period of, a vacancy in such office, he or she shall
be the Chief Executive Officer.
Section 4. Vice Chairmen of the
Company, Executive Vice Presidents, Group Vice Presidents and
Vice Presidents.
Each of the Vice Chairmen of the Company, each of
the Executive Vice Presidents, each of the Group Vice Presidents
and each of the other Vice Presidents shall have such powers and
shall
8
In addition, the Board of Directors shall
designate one of the Vice Chairmen of the Company, Executive
Vice Presidents, Group Vice Presidents, or Vice Presidents as
the Chief Financial Officer, who, among his or her other powers
and duties, shall provide and maintain, subject to the direction
of the Board of Directors and the Finance Committee, financial
and accounting controls over the business and affairs of the
Company. Such office shall maintain, among others, adequate
records of the assets, liabilities and financial transactions of
the Company, and shall direct the preparation of financial
statements, reports and analyses. The Chief Financial Officer
shall perform such other duties and exercise such other powers
as are incident to such functions, subject to the control of the
Board of Directors.
Section 5. Treasurer and Assistant
Treasurer.
The Treasurer, subject to the direction of the
Board of Directors, shall have the care and custody of all funds
and securities which may come into his or her hands. When
necessary or proper he or she shall endorse on behalf of the
Company, for collection, checks, notes and other obligations,
and shall deposit all funds of the Company in such banks or
other depositaries as may be designated by the Board of
Directors or by such officers or employees as may be authorized
by the Board of Directors so to designate. He or she shall
perform all acts incident to the office of Treasurer, subject to
the control of the Board of Directors. He or she may be required
to give a bond for the faithful discharge of his or her duties,
in such sum and upon such conditions as the Board of Directors
may require.
At the request of the Treasurer, any Assistant
Treasurer, in the case of the absence or inability to act of the
Treasurer, temporarily may act in his or her place. In the case
of the death of the Treasurer, or in the case of his or her
absence or inability to act without having designated an
Assistant Treasurer to act temporarily in his or her place, the
Assistant Treasurer so to perform the duties of the Treasurer
shall be designated by the Chairman of the Board of Directors,
the President, a Vice Chairman of the Company or an Executive
Vice President.
Section 6. Secretary and Assistant
Secretary.
The Secretary shall keep the minutes of the
meetings of the stockholders and of the Board of Directors, and,
when required, the minutes of meetings of the committees, and
shall be responsible for the custody of all such minutes.
Subject to the direction of the Board of Directors, the
Secretary shall have custody of the stock ledgers and documents
of the Company. He or she shall have custody of the corporate
seal and shall affix and attest such seal to any instrument
whose execution under seal shall have been duly authorized. He
or she shall give notice of meetings and, subject to the
direction of the Board of Directors, shall perform all other
duties and enjoy all other powers commonly incident to his or
her office.
At the request of the Secretary, any Assistant
Secretary, in the case of the absence or inability to act of the
Secretary, temporarily may act in his or her place. In the case
of the death of the Secretary, or in the case of his or her
absence or inability to act without having designated an
Assistant Secretary to act temporarily in his or her place, the
Assistant Secretary or other person so to perform the duties of
the Secretary shall be designated by the Chairman of the Board
of Directors, the President, a Vice Chairman of the Company or
an Executive Vice President.
Section 7. General
Counsel.
The Company may have a General Counsel who shall
be appointed by the Board of Directors and who shall have
general supervision of all matters of a legal nature concerning
the Company.
9
Section 8. Controller.
The Controller shall have such powers and shall
perform such duties as may be delegated to him or her by the
Board of Directors, the Chairman of the Board of Directors, the
President, or the appropriate Vice Chairman of the Company,
Executive Vice President, Group Vice President or Vice President.
Section 9. Salaries.
Salaries of officers, agents or employees shall
be fixed from time to time by the Board of Directors or by such
committee or committees, or person or persons, if any, to whom
such power shall have been delegated by the Board of Directors.
An employment contract, whether with an officer, agent or
employee, if expressly approved or specifically authorized by
the Board of Directors, may fix a term of employment thereunder;
and such contract, if so approved or authorized, shall be valid
and binding upon the Company in accordance with the terms
thereof, provided that this provision shall not limit or
restrict in any way the right of the Company at any time to
remove from office, discharge or terminate the employment of any
such officer, agent or employee prior to the expiration of the
term of employment under any such contract, except that the
Company shall not thereby be relieved of any continuing
liability for salary or other compensation provided for in such
contract.
ARTICLE VI
RESIGNATIONS, REMOVALS AND VACANCIES
Section 1. Resignations.
Any director, officer or agent of the Company, or
any member of any committee, may resign at any time by giving
written notice to the Board of Directors, to the Chairman of the
Board of Directors, to the President or to the Secretary of the
Company. Any such resignation shall take effect at the time
specified therein, or if the time be not specified therein, then
upon receipt thereof. The acceptance of such resignation shall
not be necessary to make it effective.
Section 2. Removals.
At any meeting thereof called for the purpose,
the holders of Common Stock and the holders of Class B
Stock voting as provided in subsection 1.6 of
Article FOURTH of the Certificate of Incorporation, as
amended, may remove from office or terminate the employment of
any director, officer or agent with or without cause; and the
Board of Directors, by vote of not less than a majority of the
entire Board at any meeting thereof called for the purpose, may,
at any time, remove from office or terminate the employment of
any officer, agent or member of any committee.
Section 3. Vacancies.
Subject to the last sentence of Section 1 of
Article III, any vacancy in the office of any director,
officer or agent through death, resignation, removal,
disqualification, increase in the number of directors or other
cause may be filled by the Board of Directors (in the case of
vacancies in the Board, by the affirmative vote of a majority of
the directors then in office, even though less than a quorum
remains) and the person so elected shall hold office until his
or her successor shall have been elected and shall have
qualified.
10
ARTICLE VII
CAPITAL STOCK DIVIDENDS
SEAL
Section 1. Certificates of Shares;
Uncertificated Shares
The shares of capital stock of the Company shall
be represented by certificates, provided that the Board of
Directors may provide by resolution or resolutions that some or
all of any or all classes or series of stock shall be
uncertificated shares. Any such resolution shall not apply to
shares represented by a certificate until such certificate is
surrendered to the Company. Notwithstanding the adoption of such
a resolution by the Board of Directors, every holder of stock
represented by certificates, and upon request every holder of
uncertificated shares, shall be entitled to have a certificate
in such form, not inconsistent with the Certificate of
Incorporation, as amended, as shall be approved by the Board of
Directors. The certificates shall be signed by the Chairman of
the Board of Directors, the President, a Vice Chairman of the
Company, an Executive Vice President, a Group Vice President or
a Vice President, and also by the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary. Any and
all signatures may be facsimiles.
All certificates shall bear the name of the
person owning the shares represented thereby, shall state the
number of shares represented by such certificate and the date of
issue; and such information shall be entered in the
Companys original stock ledger.
Section 2. Addresses of
Stockholders.
It shall be the duty of every stockholder to
notify the Company of his or her post office address and of any
change therein. The latest address furnished by each stockholder
shall be entered on the original stock ledger of the Company and
the latest address appearing on such original stock ledger shall
be deemed conclusively to be the post office address and the
last-known post office address of such stockholder. If any
stockholder shall fail to notify the Company of his or her post
office address, it shall be sufficient to send corporate notices
to such stockholder at the address, if any, understood by the
Secretary to be his or her post office address, or in the
absence of such address, to such stockholder, at the General
Post Office in the City of Wilmington, State of Delaware.
Section 3. Lost, Destroyed or Stolen
Certificate.
Any person claiming a stock certificate in lieu
of one lost, destroyed or stolen, shall give the Company an
affidavit as to his, her or its ownership of the certificate and
of the facts which go to prove that it has been lost, destroyed
or stolen. If required by the Board of Directors, he, she or it
also shall give the Company a bond, in such form as may be
approved by the Board of Directors, sufficient to indemnify the
Company against any claim that may be made against it on account
of the alleged loss of the certificate or the issuance of a new
certificate.
Section 4. Fixing a Record
Date.
The Board of Directors may fix in advance a date
not exceeding (i) sixty (60) days preceding the date
of any meeting of stockholders, or the date for payment of any
dividend, or the date for the allotment of rights, or the date
when any change or conversion or exchange of stock shall go into
effect (other than conversions or exchanges pursuant to
Sections 2, 3 or 4 of Article FOURTH of the
Certificate of Incorporation, as amended), as a record date for
the determination of the stockholders entitled to notice of and
to vote at any such meeting and any adjournment thereof, or
entitled to payment of any such dividend or to any such
allotment of rights or to exercise the rights in respect of any
such change, or conversion or exchange of stock (other than
conversions or exchanges pursuant to Sections 2, 3 or 4 of
Article FOURTH of the Certificate of Incorporation, as
amended), or (ii), ten (10) days after adoption of the
resolution fixing such date, as a record date for the
determination of the stockholders entitled to consent in writing
to corporate action; and in any such case, such stockholders and
only such stockholders, as shall be stockholders of record on
the date
11
Section 5. Regulations.
The Board of Directors shall have power and
authority to make all such rules and regulations not
inconsistent with any of the provisions of Sections 2, 3, 4
or 5 of Article FOURTH of the Certificate of Incorporation,
as amended, as it may deem expedient, concerning the issue,
transfer and registration of certificates for shares of the
stock of the Company.
Section 6. Corporate Seal.
The corporate seal shall have inscribed thereon
the name of the Company, the year of its organization, and the
words Corporate Seal and Delaware. If
and when so authorized by the Board of Directors, a duplicate of
the seal may be kept and used by the Secretary or Treasurer or
by any Assistant Secretary or Assistant Treasurer.
ARTICLE VIII
EXECUTION OF CONTRACTS AND OTHER DOCUMENTS
Section 1. Contracts, etc.
Except as otherwise prescribed in these By-Laws,
such officers, employees or agents of the Company as shall be
specified by the Board of Directors shall sign, in the name and
on behalf of the Company, all deeds, bonds, contracts, mortgages
and other instruments or documents, the execution of which shall
be authorized by the Board of Directors; and such authority may
be general or confined to specific instances. Except as so
authorized by the Board of Directors, no officer, agent or
employee of the Company shall have power or authority to bind
the Company by any contract or engagement or to pledge,
mortgage, sell or otherwise dispose of its credit or any of its
property or to render it pecuniarily liable for any purpose or
in any amount.
Section 2. Checks, Drafts,
etc.
Except as otherwise provided in these By-Laws,
all checks, drafts, notes, bonds, bills of exchange or other
orders, instruments or obligations for the payment of money
shall be signed by such officer or officers, employee or
employees, or agent or agents, as the Board of Directors shall
by resolution direct. The Board of Directors may, in its
discretion, also provide by resolution for the countersignature
or registration of any or all such orders, instruments or
obligations for the payment of money.
12
ARTICLE IX
FISCAL YEAR
The fiscal year of the Company shall begin the
first day of January in each year.
ARTICLE X
MISCELLANEOUS
Section 1. Original Stock
Ledger.
As used in these By-Laws and in the Certificate
of Incorporation, as amended, the words original stock
ledger shall mean the record maintained by the Secretary
of the Company of the name and address of each of the holders of
shares of any class of stock of the Company, and the number of
shares and the numbers of the certificates for such shares held
by each of them, taking into account transfers at the time made
by and recorded on the transfer sheets of each of the Transfer
Agents of the Company although such transfers may not then have
been posted in the record maintained by the Secretary.
Section 2. Notices and Waivers
Thereof.
Whenever any notice whatever is required by these
By-Laws or by the Certificate of Incorporation, as amended, or
by any of the laws of the State of Delaware to be given to any
stockholder, director or officer, such notice, except as
otherwise provided by the laws of the State of Delaware, may be
given personally or by telephone or be given by cablegram,
facsimile transmission, mailgram, radiogram, telegram or other
form of recorded communication, addressed to such stockholder at
the address set forth as provided in Section 2 of
Article VII, or to such director or officer at his or her
Company location, if any, or at such address as appears on the
books of the Company, or the notice may be given in writing by
depositing the same in a post office, or in a regularly
maintained letter box, in a postpaid, sealed wrapper addressed
to such stockholder at the address set forth in Section 2
of Article VII, or to such director or officer at his or
her Company location, if any, or such address as appears on the
books of the Company.
Any notice given by cablegram, mailgram,
radiogram or telegram shall be deemed to have been given when it
shall have been delivered for transmission. Any notice given by
facsimile transmission or other form of recorded communication
shall be deemed to have been given when it shall have been
transmitted. Any notice given by mail shall be deemed to have
been given when it shall have been mailed.
A waiver of any such notice in writing, including
by cablegram, facsimile transmission, mailgram or telegram,
signed or dispatched by the person entitled to such notice or by
his or her duly authorized attorney, whether before or after the
time stated therein, shall be deemed equivalent to the notice
required to be given, and the presence at any meeting of any
person entitled to notice thereof shall be deemed a waiver of
such notice as to such person.
Section 3. Voting upon
Stocks.
The Board of Directors (whose authorization in
this connection shall be necessary in all cases) may from time
to time appoint an attorney or attorneys or agent or agents of
the Company, or may at any time or from time to time authorize
the Chairman of the Board of Directors, the President, any Vice
Chairman of the Company, any Executive Vice President, any Group
Vice President, any Vice President, the Treasurer or the
Secretary to appoint an attorney or attorneys or agent or agents
of the Company, in the name and on behalf of the Company, to
cast the votes which the Company may be entitled to cast as a
stockholder or otherwise in any other corporation or
association, any of the stock or securities of which may be held
by the Company, at meetings of the holders of the
13
ARTICLE XI
AMENDMENTS
The Board of Directors shall have power to make,
alter, amend or repeal the By-Laws of the Company by vote of not
less than a majority of the entire Board at any meeting of the
Board. The holders of Common Stock and the holders of
Class B Stock voting as provided in subsection 1.6 of
Article FOURTH of the Certificate of Incorporation, as
amended, shall have power to make, alter, amend or repeal the
By-Laws at any regular or special meeting, if the substance of
such amendment be contained in the notice of such meeting of
stockholders.
Page
Offices
1
Stockholders
1
Section 1.
Annual Meeting
1
Section 2.
Special Meetings
1
Section 3.
Notice of Meetings
1
Section 4.
Quorum
1
Section 5.
Organization
2
Section 6.
Proxies and Voting
2
Section 7.
Stock Lists
2
Section 8.
Ratification
2
Section 9.
Judges
2
Board of Directors
3
Section 1.
Number, Term of Office and Eligibility
3
Section 2.
Meetings
3
Section 3.
Notice of Meetings
3
Section 4.
Quorum and Organization of Meetings
3
Section 5.
Powers
4
Section 6.
Reliance upon Books, Reports and Records
5
Section 7.
Compensation of Directors
5
Committees
5
Section 1.
Committees of the Board of Directors
5
Section 2.
Audit Committee
6
Section 3.
Compensation Committee
6
Section 4.
Environmental and Public Policy Committee
6
Section 5.
Finance Committee
6
Section 6.
Nominating and Governance Committee
7
Section 7.
Other Committees
7
Section 8.
Rules and Procedures
7
Section 9.
Application of Article
8
Page
Officers
8
Section 1.
Officers
8
Section 2.
Chairman of the Board of Directors and Chief
Executive Officer
8
Section 3.
President and Chief Operating Officer
8
Section 4.
Vice Chairmen of the Company, Executive Vice
Presidents, Group Vice Presidents and Vice Presidents
8
Section 5.
Treasurer and Assistant Treasurer
9
Section 6.
Secretary and Assistant Secretary
9
Section 7.
General Counsel
9
Section 8.
Controller
10
Section 9.
Salaries
10
Resignations, Removals and Vacancies
10
Section 1.
Resignations
10
Section 2.
Removals
10
Section 3.
Vacancies
10
Capital Stock
Dividends Seal
11
Section 1.
Certificates of Shares; Uncertificated Shares
11
Section 2.
Addresses of Stockholders
11
Section 3.
Lost, Destroyed or Stolen Certificate
11
Section 4.
Fixing a Record Date
11
Section 5.
Regulations
12
Section 6.
Corporate Seal
12
Execution of Contracts and Other
Documents
12
Section 1.
Contracts, etc.
12
Section 2.
Checks, Drafts, etc.
12
Fiscal Year
13
Miscellaneous
13
Section 1.
Original Stock Ledger
13
Section 2.
Notices and Waivers Thereof
13
Section 3.
Voting upon Stocks
13
Amendments
14
(1) To determine, subject to the
requirements of law and of Section 5 of Article FOURTH
of the Certificate of Incorporation, as amended, what, if any,
dividends shall be declared and paid to the stockholders out of
net profits, current or accumulated, or out of surplus or other
assets of the Company available for dividends.
(2) To fix, and from time to time to vary,
the amount of working capital of the Company, and to set aside
from time to time out of net profits, current or accumulated, or
surplus of the Company such amount or amounts as they in their
discretion may deem necessary and proper as, or as a safeguard
to the maintenance of, working capital, as a reserve for
contingencies, as a reserve for repairs, maintenance, or
rehabilitation, or as a reserve for revaluation of profits of
the Company or for such other proper purpose as may in the
opinion of the directors be in the best interests of the
Company; and in their sole discretion to abolish or modify any
such provision for working capital or any such reserve, and to
credit the amount thereof to net profits, current or
accumulated, or to the surplus of the Company.
(3) To purchase, or otherwise acquire for
the Company, any business, property, rights or privileges which
the Company may at the time be authorized to acquire, at such
price or consideration and generally on such terms and
conditions as they think fit; and at their discretion to pay
therefor either wholly or partly in money, stock, bonds,
debentures or other securities of the Company.
(4) To create, make and issue mortgages,
bonds, deeds of trust, trust agreements or negotiable or
transferable instruments or securities, secured by mortgage or
otherwise, and to do every other act and thing necessary to
effect the same.
(5) To appoint any person or corporation to
accept and hold in trust for the Company any property belonging
to the Company, or in which it is interested, or for any other
purpose, and to execute such deeds and do all things requisite
in relation to any such trust.
(6) To delegate any of the powers of the
Board in the course of the business of the Company to any
officer, employee or agent, and to appoint any person the agent
of the Company, with such powers (including the power to
subdelegate) and upon such terms as the Board may think fit.
(7) To remove any officer of the Company
with or without cause, and from time to time to devolve the
powers and duties of any officer upon any other person for the
time being.
(8) To confer upon any officer of the
Company the power to appoint, remove and suspend subordinate
officers, agents and employees.
(9) To determine who shall be authorized on
the Companys behalf, either generally or specifically, to
make and sign bills, notes, acceptances, endorsements, checks,
releases, receipts, contracts, conveyances, and all other
written instruments executed on behalf of the Company.
(10) To make and change regulations, not
inconsistent with these By-Laws, for the management of the
Companys business and affairs.
(11) To adopt and, unless otherwise provided
therein, to amend and repeal, from time to time, a bonus or
supplemental compensation plan for employees (including
employees who are officers or directors) of the Company or any
subsidiary. Power to construe, interpret, administer, modify or
suspend such plan shall be vested in the Board of Directors or a
committee thereof.
(12) To adopt a retirement plan, or plans,
for the purpose of making retirement payments to employees
(including employees who are officers or directors) of the
Company or of any subsidiary thereof; and to adopt a group
insurance plan, or plans, for the purpose of enabling employees
(including employees who are officers or directors) of the
Company or of any subsidiary thereof to acquire insurance
protection; any such retirement plan or insurance plan, unless
otherwise provided therein, shall be subject to amendment or
revocation by the Board of Directors.
14
Exhibit 10-E-1
In 2002, the Board of Directors amended the Companys Benefit Equalization plan (BEP) to provide that William Clay Ford, Jr. and Carl E. Reichardt, who are eligible to participate in the Companys General Retirement Plan (GRP) only on a non-contributory basis because they do not receive a cash salary, accrue an equalization benefit under the BEP. The equalization benefit provides, in combination with the GRP non-contributory benefit, an amount equal to the amount Mr. Ford and Mr. Reichardt would have received under the GRP using the notional base annual salary and assuming that Mr. Ford and Mr. Reichardt would have been contributing members.
Exhibit 10-P-3
AMENDMENT TO FORD MOTOR COMPANY
DEFERRED COMPENSATION PLAN
The following new paragraph (j) is added to Section 4:
(j) Payout in Ford Stock. Anything in the Plan to the contrary notwithstanding, the Compensation Committee may determine that certain awards otherwise payable in Ford Stock under the LTI Plan that are deferred under the Plan shall be distributed in whole shares of Ford Stock rather than in cash if, at the time of the initial deferral of the award, the participant elected (i) the Ford Stock Fund as the option for measuring the value of the award and (ii) shares of Ford Stock rather than cash as the form of payment. In addition, the Committee may require, as a condition to such deferral, that (x) the participant make the elections described in (i) and (ii) above, (y) the value of such deferral continue to be measured based on the Ford Stock Fund with no redesignation of such deferral to other measurement options under the Plan allowed and (z) the ultimate form of payout may not be changed by the participant to cash.
Exhibit 10.V
Most of the Companys executive officers, including all of the current officers who were named in the Summary Compensation Table of the 2003 proxy statement signed a noncompete agreement in June 2002, substantially in the form below, except that William Clay Ford, Jr., our Chairman and Chief Executive Officer, and Allan D. Gilmour, our Vice Chairman, did not receive the remuneration. In addition, certain individuals who became executive officers after June 1, 2002 signed the agreement in consideration of their hiring or promotion and related compensation, benefits and perquisites.
Trade Secrets/ Non-Compete Statement
[I acknowledge to Ford Motor Company (including, as used herein, any affiliates of Ford Motor Company)]
[I acknowledge that one of the factors Ford Motor Company considered and relied on in offering employment to me was my willingness to sign and execute this statement. I also acknowledge to Ford Motor Company (including, as used herein, any affiliates of Ford Motor Company)]
| I am aware of trade secrets and/or other confidential or proprietary information concerning the business plans, strategies, tactics, manufacturing know-how, good will, sources of supply, customers and other trade secrets or confidential information not generally known to others engaged in similar businesses; and, | |
| During the course of my continued employment, I will become aware of trade secrets or other confidential or proprietary information concerning the business plans, strategies, tactics, manufacturing know-how, sources of supply, customers and other trade secrets or confidential information not generally known to others engaged in similar businesses. |
I agree that Ford Motor Company is entitled to be protected from the possibility that I may seek to become or actually become associated with a business that competes with Ford Motor Company. This would be unfair competition, because I have, and will have, extensive knowledge about Ford Motor Company, including the confidential information described above.
I also agree:
| For a period of two years immediately following my voluntary termination, as an officer, director or employee of Ford Motor Company, I shall not, directly or indirectly, work for or associate with any business that competes in trade or commerce with Ford Motor Company; and | |
| Always to refrain from any direct or indirect use or disclosure (whether intentional, negligent or reckless) of any trade secret or confidential or proprietary information belonging to Ford Motor Company to any person or business, without regard to the nature of my termination; and, | |
| To refrain from taking any action that will cause the termination or interference of existing business relationships between or among Ford Motor Company, Ford Motor Company employees, and any of their customers or suppliers for two years following my voluntary termination from Ford Motor Company. |
I acknowledge that if I violate any of the terms of this memorandum, I will cause severe, immediate and irreparable harm to Ford Motor Company.
My decision to sign this memorandum was made voluntarily and freely[, and, in consideration of][a restricted stock grant of Ford common stock having the value of one times my current |
base salary, the sufficiency and receipt of which is acknowledged. The actual number of shares will be determined by using the Fair Market Value (FMV) of the Ford stock on May 31, 2002. FMV is the average of the high and low stock prices on May 31, 2002. The stock will be issued as of June 1, 2002 with restrictions that will lapse on the 3 rd anniversary of the grant] [my election as an officer of the Company and related compensation, benefits, and perquisites]. |
I acknowledge that this statement does not, and will not, alter my status as an employee-at-will.
If any of the terms of this memorandum are found by a court of competent jurisdiction to be unenforceable due to the duration, scope, geography or territory, I agree that the court shall be authorized to construe or interpret these terms in a manner that makes this memorandum enforceable within that jurisdiction. The law of the State of Michigan (excluding its conflict of laws provisions) shall govern the meaning, construction and interpretation of this memorandum even if I am employed elsewhere.
Nothing contained in this document shall be construed to supersede, modify or affect the terms or provisions of any existing executive or employee benefit plan.
This memorandum may not be changed or amended unless it is in writing and signed by the parties.
* | In certain countries where restricted stock is taxed at the time of grant, restricted stock equivalents were granted in lieu of restricted stock. |
Signed by: |
|
Date: |
|
Exhibit 12
Ford Motor Company and Subsidiaries
CALCULATION OF RATIO OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
For the Years Ended December 31
2003
2002
2001
2000
1999
$
1,370
$
951
$
(7,419
)
$
8,311
$
9,856
(155
)
137
550
50
3
1,215
1,088
(6,869
)
8,361
9,859
8,428
9,653
11,218
11,264
9,326
$
9,643
$
10,741
$
4,349
$
19,625
$
19,185
$
7,753
$
8,883
$
10,860
$
10,892
$
9,015
439
370
323
296
250
190
353
55
55
55
8,382
9,606
11,238
11,243
9,320
22
22
22
22
$
8,382
$
9,628
$
11,260
$
11,265
$
9,342
1.2
1.1
(f
)
1.7
2.1
1.2
1.1
(f
)
1.7
2.1
Discontinued operations are excluded from all
amounts
(a)
Income before taxes includes equity income from
unconsolidated subsidiaries.
(b)
Fixed charges, as shown above, adjusted to
exclude the amount of interest capitalized during the period and
Preferred Stock dividend requirements of majority owned
subsidiaries and trusts.
(c)
Includes interest, whether expensed or
capitalized, and amortization of debt expense and discount or
premium relating to any indebtedness.
(d)
One-third of all rental expense is deemed to be
interest.
(e)
Preferred Stock dividend requirements of Ford
Motor Company were increased to an amount representing the
pre-tax earnings which would be required to cover such dividend
requirements based on Ford Motor Companys effective income
tax rates.
(f)
Earnings for the year ended December 31,
2001 were inadequate to cover fixed charges. The coverage
deficiency was $6.7 billion for ratio of earnings to fixed
charges and $6.8 billion for ratio of earnings to combined
fixed charges and preferred stock dividends.
Exhibit 21
SUBSIDIARIES OF FORD MOTOR COMPANY AS OF
MARCH 10, 2004*
Organization
Jurisdiction
Brazil
The Netherlands
Belgium
The Netherlands
Spain
Delaware, U.S.A.
Germany
Germany
Germany
Germany
Delaware, U.S.A.
Delaware, U.S.A.
Delaware, U.S.A.
Delaware, U.S.A.
Delaware, U.S.A.
Delaware, U.S.A.
Delaware, U.S.A.
England
England
England
England
England
England
Italy
Delaware, U.S.A.
Mexico
Mexico
Ontario, Canada
Ontario, Canada
Ontario, Canada
Taiwan
Australia
England
England
South Africa
Delaware, U.S.A.
Delaware, U.S.A.
Delaware, U.S.A.
Delaware, U.S.A.
England
Mexico
404 Other
U.S. Subsidiaries
Organization
Jurisdiction
Canada
Canada
Delaware, U.S.A.
Delaware, U.S.A.
New York, U.S.A.
Michigan, U.S.A.
Michigan, U.S.A.
Cayman Islands
Michigan, U.S.A.
Turkey
Michigan, U.S.A.
Delaware, U.S.A.
Delaware, U.S.A.
Sweden
Sweden
Sweden
The Netherlands
Belgium
Sweden
France
France
Delaware, U.S.A.
Japan
Japan
Delaware, U.S.A.
* | Subsidiaries are not shown by name in the above list if, considered in the aggregate as a single subsidiary, they would not constitute a significant subsidiary. |
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by
reference in the aforementioned Registration Statements of Ford
Motor Company of our reports dated March 10, 2004 relating
to our audits of the financial statements and related financial
statement schedule, which appear in this Annual Report on
Form 10-K.
/s/ PricewaterhouseCoopers LLP
Re:
Ford Motor Company Registration Statements
Nos. 2-95018, 2-95020, 33-14951, 33-19036, 33-36043,
33-36061, 33-39402, 33-50194, 33-50238, 33-54275, 33-54283,
33-54348, 33-54735, 33-54737, 33-55847, 33-58255, 33-61107,
33-62227, 33-64605, 33-64607, 333-02735, 333-20725, 333-27993,
333-28181, 333-31466, 333-37396, 333-37536, 333-37542,
333-38580, 333-38586, 333-40258, 333-40260, 333-46295,
333-47443, 333-47445, 333-47733, 333-49545, 333-49547,
333-52399, 333-56660, 333-57596, 333-57598, 333-58695,
333-58697, 333-58701, 333-61882, 333-61886, 333-65703,
333-70447, 333-71380, 333-72476, 333-72478, 333-74313,
333-85138, 333-86127, 333-87619, 333-87990, 333-100910,
333-101293, 333-104063, 333-104064, 333-105674, and 333-110105
on Form S-8 and Nos. 333-67209 and 333-75214 on
Form S-3.
Exhibit 24
FORD MOTOR COMPANY
The undersigned, Peter J. Sherry, Jr., Secretary of FORD MOTOR COMPANY, a Delaware corporation (the Company), DOES HEREBY CERTIFY that the following resolutions were adopted at a meeting of the Board of Directors of the Company duly called and held on March 11, 2004, and that the same are in full force and effect:
WHEREAS, pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, on March 10, 2004, William Clay Ford, Jr., Chairman of the Board of Directors and Chief Executive Officer of the Company, and Don R. Leclair, Group Vice President and Chief Financial Officer of the Company, each executed certifications with respect to the Companys Annual Report on Form 10-K for the year ended December 31, 2003 (the 10-K Report), which certifications are set forth in the 10-K Report; and
WHEREAS, such certifications were made, in part, on reliance of the assurances given by the Companys Disclosure Committee, co-chaired by James C. Gouin, Vice President and Controller of the Company, and Dennis E. Ross, Vice President and General Counsel of the Company, which committee is responsible for the preparation of the Companys annual and quarterly reports.
NOW, THEREFORE, BE IT:
RESOLVED, That the draft 10-K Report presented to this meeting to be filed with the Securities and Exchange Commission (the Commission) under the Securities Exchange Act of 1934, as amended, be and hereby is in all respects authorized and approved; that the directors and appropriate officers of the Company, and each of them, be and hereby are authorized to sign and execute in their own behalf, or in the name and on behalf of the Company, or both, as the case may be, the 10-K Report, and any and all amendments thereto, with such changes therein as such directors and officers may deem necessary, appropriate or desirable, as conclusively evidenced by their execution thereof; and that the appropriate officers of the Company, and each of them, be and hereby are authorized to cause the 10-K Report and any such amendments, so executed, to be filed with the Commission.
RESOLVED, That each officer and director who may be required to sign and execute the 10-K Report or any amendment thereto or document in connection therewith (whether in the name and on behalf of the Company, or as an officer or director of the Company, or otherwise), be and hereby is authorized to execute a power of attorney appointing J. C. Gouin, D. E. Ross, P. J. Sherry, Jr., L. J. Ghilardi and D. J. Cropsey, and each of them, severally, his or her true and lawful attorney or attorneys to sign in his or her name, place and stead in any such capacity the 10-K Report and any and all amendments thereto and documents in connection therewith, and to file the same with the Commission, each of said attorneys to have power to act with or without the other, and to have full power and authority to do and perform in the name and on behalf of each of said officers and directors who shall have executed such power of attorney, every act whatsoever which such attorneys, or any of them, may deem necessary, appropriate or desirable to be done in connection therewith as fully and to all intents and purposes as such officers or directors might or could do in person.
WITNESS my hand as of this 11th day of March, 2004.
/s/ Peter J. Sherry, Jr. | |
|
|
Peter J. Sherry, Jr. | |
Secretary |
(SEAL)
Exhibit 24
POWER OF ATTORNEY WITH RESPECT TO
Each of the undersigned, a director or officer of
FORD MOTOR COMPANY, appoints each of J. C. Gouin,
D. E. Ross, P. J. Sherry, Jr., L. J.
Ghilardi and D. J. Cropsey his or her true and lawful
attorney and agent to do any and all acts and things and execute
any and all instruments which the attorney and agent may deem
necessary or advisable in order to enable FORD MOTOR COMPANY to
comply with the Securities Exchange Act of 1934, and any
requirements of the Securities and Exchange Commission, in
connection with the Annual Report of FORD MOTOR COMPANY on
Form 10-K for the year ended December 31, 2003 and any
and all amendments thereto, as authorized at a meeting of the
Board of Directors of FORD MOTOR COMPANY duly called and held on
March 10, 2004, adjourned, and then reconvened on
March 11, 2004, including, but not limited to, power and
authority to sign his or her name (whether on behalf of FORD
MOTOR COMPANY, or as a director or officer of FORD MOTOR
COMPANY, or by attesting the seal of FORD MOTOR COMPANY, or
otherwise) to such instruments and to such Annual Report and any
amendments thereto, and to file them with the Securities and
Exchange Commission. Each of the undersigned ratifies and
confirms all that any of the attorneys and agents shall do or
cause to be done by virtue hereof. Any one of the attorneys and
agents shall have, and may exercise, all the powers conferred by
this instrument.
Each of the undersigned has signed his or her
name as of the 11th day of March, 2004.
/s/ WILLIAM CLAY FORD, JR.
(William Clay Ford, Jr.)
/s/ NICHOLAS V. SCHEELE
(Nicholas V. Scheele)
/s/ JOHN R. H. BOND
(John R. H. Bond)
/s/ STEPHEN G. BUTLER
(Stephen G. Butler)
/s/ KIMBERLY A. CASIANO
(Kimberly A. Casiano)
/s/ EDSEL B. FORD II
(Edsel B. Ford II)
/s/ WILLIAM CLAY FORD
(William Clay Ford)
/s/ IRVINE O. HOCKADAY, JR.
(Irvine O. Hockaday, Jr.)
/s/ MARIE-JOSÉE KRAVIS
(Marie-Josée Kravis)
/s/ RICHARD A. MANOOGIAN
(Richard A. Manoogian)
/s/ ELLEN R. MARRAM
(Ellen R. Marram)
/s/ HOMER A. NEAL
(Homer A. Neal)
/s/ JORMA OLLILA
(Jorma Ollila)
/s/ CARL E. REICHARDT
(Carl E. Reichardt)
/s/ ROBERT E. RUBIN
(Robert E. Rubin)
/s/ JOHN L. THORNTON
(John L. Thornton)
/s/ JAMES C. GOUIN
(James C. Gouin)
/s/ DONAT R. LECLAIR
(Donat R. Leclair)
Exhibit 31.1
CERTIFICATION
I, William Clay Ford, Jr., Chairman of the
Board and Chief Executive Officer of Ford Motor Company, certify
that:
Date: March 10, 2004
/s/ WILLIAM CLAY FORD, JR.
1.
I have reviewed this Annual Report on
Form 10-K for the year ended December 31, 2003 of Ford
Motor 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 registrants 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
registrants 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 registrants internal control over financial reporting
that occurred during the registrants most recent fiscal
quarter (the registrants fourth fiscal quarter in the case
of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants
internal control over financial reporting; and
5.
The registrants other certifying officer(s)
and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the
registrants auditors and the audit committee of the
registrants 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 registrants 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 registrants internal control over financial
reporting.
______________________________________________________
William Clay Ford, Jr.
Exhibit 31.2
CERTIFICATION
I, Don R. Leclair, Group Vice President and Chief
Financial Officer of Ford Motor Company, certify that:
Date: March 10, 2004
/s/ DON R. LECLAIR
1.
I have reviewed this Annual Report on
Form 10-K for the year ended December 31, 2003 of Ford
Motor 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 registrants 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
registrants 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 registrants internal control over financial reporting
that occurred during the registrants most recent fiscal
quarter (the registrants fourth fiscal quarter in the case
of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants
internal control over financial reporting; and
5.
The registrants other certifying officer(s)
and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the
registrants auditors and the audit committee of the
registrants 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 registrants 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 registrants internal control over financial
reporting.
______________________________________________________
Don R. Leclair
Exhibit 32.1
FORD MOTOR COMPANY
CERTIFICATION OF CHIEF EXECUTIVE
OFFICER
I, William Clay Ford, Jr., the Chairman of
the Board and Chief Executive Officer of Ford Motor Company (the
Company), hereby certify pursuant to
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:
1.
the Companys Annual Report on
Form 10-K for the year ended December 31, 2003, to
which this statement is filed as an exhibit (the
Report), fully complies with the requirements of
section 13(a) or 15(d) of the Securities Exchange Act of
1934, 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/ WILLIAM CLAY FORD, JR.
William Clay Ford, Jr.
Chairman of the Board and
Chief Executive Officer
Dated: March 10, 2004
Exhibit 32.2
FORD MOTOR COMPANY
CERTIFICATION OF CHIEF FINANCIAL
OFFICER
I, Don R. Leclair, Group Vice President and Chief
Financial Officer of Ford Motor 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:
1.
the Companys Annual Report on
Form 10-K for the year ended December 31, 2003, to
which this statement is filed as an exhibit (the
Report), fully complies with the requirements of
section 13(a) or 15(d) of the Securities Exchange Act of
1934, 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/ DON R. LECLAIR
Don R. Leclair
Group Vice President and
Chief Financial Officer
Dated: March 10, 2004