UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2006

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

FORD MOTOR COMPANY
(Exact name of registrant as specified in its charter)

1-3950
38-0549190
(Commission File Number)
(IRS Employer Identification No.)
   
One American Road, Dearborn, Michigan
48126
(Address of principal executive offices)
(Zip Code)

(313) 322-3000
(Registrant's telephone number, including area code)

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
x Yes        o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
Accelerated filer o
Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes       x No

As of November 6, 2006, the registrant had outstanding 1,818,041,779 shares of Common Stock and 70,852,076 shares of Class B Stock.

Exhibit index located on page number 58.
 

EXPLANATORY NOTE

In October 2006, Ford Motor Company (generally, "Ford," "we," "us" or "our") reviewed our application of paragraph 68 of Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, and its use at our indirect wholly-owned subsidiary, Ford Motor Credit Company ("Ford Credit"). One of the general requirements of SFAS No. 133 is that hedge accounting is appropriate only for those hedging relationships that a company expects will be highly effective in achieving offsetting changes in fair value or cash flows attributable to the risk being hedged. To determine whether transactions satisfy this requirement, companies must periodically assess the effectiveness of hedging relationships both prospectively and retrospectively. Paragraph 68 of SFAS No. 133 ("Paragraph 68") contains an exception from these periodic assessment requirements in the form of an "assumption of no ineffectiveness" for certain hedges of interest rate risk that involve interest rate swaps and recognized interest-bearing assets or liabilities. The exception identifies the specific requirements for the derivative and hedged items that must be met, such as a derivative fair value of zero at inception of the hedging relationship, matching maturity dates, and contemporaneous formal documentation.

Based on our review, we concluded that all of our interest rate swaps were and continue to be highly effective economic hedges; nearly all of these transactions, however, failed to meet the requirements set forth in Paragraph 68, primarily because:

 
·
Transactions that we designated as fair value hedges involved interest rate swaps hedging the back-end of debt instruments or involved longer-than-normal settlement periods.

 
·
We paid or received fees when entering into a derivative contract or upon changing counterparties.

 
·
Interest rate swaps included terms that did not exactly match the terms of the debt, including prepayment optionality.

Although we now have determined that the hedging relationships at issue in this restatement did not meet the specific criteria for an assumption of no ineffectiveness pursuant to Paragraph 68, we are precluded by SFAS No. 133 from retroactively performing full effectiveness testing in order to apply hedge accounting. Accordingly, the restated results in our Annual Report on Form 10-K/A for the year ended December 31, 2005 ("2005 Form 10-K/A Report") reflect the changes in fair value of these instruments as derivative gains and losses during the affected periods, without recording any offsetting change in the value of the debt they were economically hedging.

As a result, we have filed our 2005 Form 10-K/A Report restating certain financial information therein including: historical balance sheets as of December 31, 2005 and 2004; statements of income, cash flows and stockholders’ equity for the years ending 2005, 2004, and 2003; and selected financial data as of and for the years ended December 31, 2005, 2004, 2003, 2002 and 2001.

1

Changes in the fair value of interest rate swaps are driven primarily by changes in interest rates. We have long-term interest rate swaps with large notional balances, many of which are "receive-fixed, pay-float" interest rate swaps. Such swaps increase in value when interest rates decline, and decline in value when interest rates rise. As a result, changes in interest rates cause substantial volatility in the fair values that must be recognized in earnings. For 2001 and 2002, when interest rates were trending lower, we have recognized large derivative gains in our restated financial data. The upward trend in interest rates from 2003 through 2005 caused our interest rate swaps to decline in value, resulting in the recognition of derivative losses for these periods.
 
See Note 28 of the Notes to the Financial Statements in our 2005 Form 10-K/A Report for additional information and amounts related to our restatement. In addition, this Quarterly Report on Form 10-Q for the period ended September 30, 2006 includes, in Note 2 of the Notes to the Financial Statements, restated consolidated and sector statements of income for the three- and nine-month periods ended September 30, 2005, restated consolidated and sector balance sheets as of December 31, 2005, and restated condensed consolidated and sector statements of cash flows for the nine-month period ended September 30, 2005.

The following table sets forth a reconciliation of previously reported and restated net income/(loss) for the periods shown (in millions):

   
2005 Net Income/(Loss)
  
           
   
Third
Quarter
 
First Nine
Months
  
           
Previously reported
 
$
(284
)
$
1,874
  
Pre-tax adjustments:
              
Fair value interest rate swaps
    
(435
)
  
(624
)
Other out-of-period adjustments
    
(31
)
  
63
  
Total pre-tax adjustments
    
(466
)
  
(561
)
Related tax effects - provision for/(benefit from)
    
(174
)
  
(201
)
Net after-tax adjustments
    
(292
)
  
(360
)
Restated
  
$
(576
)
$
1,514
  

Subsequent to the completion of our originally-filed financial statements for each period being restated, we identified adjustments that should have been recorded in these earlier periods.  Upon identification, we determined these adjustments to be immaterial, individually and in the aggregate, to our originally-filed financial statements, and generally recognized these adjustments ("out-of-period" adjustments) in the period in which they were identified.  Because the Ford Credit interest rate swap adjustment has required a restatement, we also are reversing these out-of-period adjustments and recording them in the proper periods.

We do not intend to amend previously-filed Quarterly Reports on Form 10-Q for periods ending prior to December 31, 2005. The reader should not rely on our previously-filed Quarterly Report on Form 10-Q for the period ended September 30, 2005, but should instead rely upon the updated financial data provided for the third quarter and nine months ended September 30, 2005 herein.

2

PART I. FINANCIAL INFORMATION

ITEM 1.
Financial Statements.

FORD MOTOR COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME
For the Periods Ended September 30, 2006 and 2005
(in millions, except per share amounts)

   
Third Quarter
  
First Nine Months
  
       
Restated -
See Note 2
      
Restated -
See Note 2
  
   
2006
  
2005
  
2006
  
2005
  
   
(unaudited)
  
(unaudited)
  
Sales and revenues
                  
Automotive sales
  
$
32,556
  
$
34,656
  
$
107,356
  
$
112,778
  
Financial Services revenues
    
4,554
    
5,854
    
12,449
    
17,793
  
Total sales and revenues
    
37,110
    
40,510
    
119,805
    
130,571
  
                           
Costs and expenses
                          
Automotive cost of sales
    
37,554
    
33,471
    
110,340
    
105,786
  
Selling, administrative and other expenses
    
4,496
    
5,983
    
13,730
    
18,181
  
Interest expense
    
1,936
    
2,157
    
6,330
    
6,287
  
Financial Services provision for credit and insurance losses
    
97
    
182
    
193
    
350
  
Total costs and expenses
    
44,083
    
41,793
    
130,593
    
130,604
  
                           
Automotive interest income and other non-operating income/(expense), net
    
555
    
307
    
1,080
    
1,111
  
Automotive equity in net income/(loss) of affiliated companies
    
61
    
133
    
345
    
259
  
Income/(loss) before income taxes
    
(6,357
)
  
(843
)
  
(9,363
)
  
1,337
  
Provision for/(benefit from) income taxes
    
(1,157
)
  
(314
)
  
(2,499
)
  
(328
)
Income/(loss) before minority interests
    
(5,200
)
  
(529
)
  
(6,864
)
  
1,665
  
Minority interests in net income/(loss) of subsidiaries
    
48
    
54
    
126
    
196
  
Income/(loss) from continuing operations
    
(5,248
)
  
(583
)
  
(6,990
)
  
1,469
  
Income/(loss) from discontinued operations (Note 4)
    
—
    
7
    
2
    
45
  
Net income/(loss)
  
$
(5,248
)
$
(576
)
$
(6,988
)
$
1,514
  
                           
AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK (Note 12)
                          
Basic income/(loss)
                          
Income/(loss) from continuing operations
  
$
(2.79
)
$
(0.31
)
$
(3.73
)
$
0.80
  
Income/(loss) from discontinued operations
    
—
    
—
    
—
    
0.02
  
Net income/(loss)
  
$
(2.79
)
$
(0.31
)
$
(3.73
)
$
0.82
  
Diluted income/(loss)
                          
Income/(loss) from continuing operations
  
$
(2.79
)
$
(0.31
)
$
(3.73
)
$
0.76
  
Income/(loss) from discontinued operations
    
—
    
—
    
—
    
0.03
  
Net income/(loss)
  
$
(2.79
)
$
(0.31
)
$
(3.73
)
$
0.79
  
Cash dividends
  
$
0.05
  
$
0.10
  
$
0.25
  
$
0.30
  

The accompanying notes are part of the financial statements
 
3
Item 1. Financial Statements (Continued)
 
FORD MOTOR COMPANY AND SUBSIDIARIES

SECTOR STATEMENT OF INCOME
For the Periods Ended September 30, 2006 and 2005
(in millions, except per share amounts)

   
Third Quarter
  
First Nine Months
  
       
Restated -
See Note 2 
      
Restated -
See Note 2
  
   
2006
  
2005
  
2006
  
2005
  
   
(unaudited)
  
(unaudited)
  
AUTOMOTIVE
                  
Sales
  
$
32,556
  
$
34,656
  
$
107,356
  
$
112,778
  
Costs and expenses
                          
Cost of sales
    
37,554
    
33,471
    
110,340
    
105,786
  
Selling, administrative and other expenses
    
2,798
    
2,811
    
8,733
    
8,977
  
Total costs and expenses
    
40,352
    
36,282
    
119,073
    
114,763
  
Operating income/(loss)
    
(7,796
)
  
(1,626
)
  
(11,717
)
  
(1,985
)
                           
Interest expense
    
(73
)
  
371
    
621
    
960
  
                           
Interest income and other non-operating income/(expense), net
    
555
    
307
    
1,080
    
1,111
  
Equity in net income/(loss) of affiliated companies
    
61
    
133
    
345
    
259
  
Income/(loss) before income taxes — Automotive
    
(7,107
)
  
(1,557
)
  
(10,913
)
  
(1,575
)
                           
FINANCIAL SERVICES
                          
Revenues
    
4,554
    
5,854
    
12,449
    
17,793
  
Costs and expenses
                          
Interest expense
    
2,009
    
1,786
    
5,709
    
5,327
  
Depreciation
    
1,400
    
1,537
    
3,899
    
4,591
  
Operating and other expenses
    
298
    
1,635
    
1,098
    
4,613
  
Provision for credit and insurance losses
    
97
    
182
    
193
    
350
  
Total costs and expenses
    
3,804
    
5,140
    
10,899
    
14,881
  
Income/(loss) before income taxes — Financial Services
    
750
    
714
    
1,550
    
2,912
  
                           
TOTAL COMPANY
                          
Income/(loss) before income taxes
    
(6,357
)
  
(843
)
  
(9,363
)
  
1,337
  
Provision for/(benefit from) income taxes
    
(1,157
)
  
(314
)
  
(2,499
)
  
(328
)
Income/(loss) before minority interests
    
(5,200
)
  
(529
)
  
(6,864
)
  
1,665
  
Minority interests in net income/(loss) of subsidiaries
    
48
    
54
    
126
    
196
  
Income/(loss) from continuing operations
    
(5,248
)
  
(583
)
  
(6,990
)
  
1,469
  
Income/(loss) from discontinued operations (Note 4)
    
—
    
7
    
2
    
45
  
Net income/(loss)
  
$
(5,248
)
$
(576
)
$
(6,988
)
$
1,514
  
                           
AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK (Note 12)
                          
Basic income/(loss)
                          
Income/(loss) from continuing operations
  
$
(2.79
)
$
(0.31
)
$
(3.73
)
$
0.80
  
Income/(loss) from discontinued operations
    
—
    
—
    
—
    
0.02
  
Net income/(loss)
  
$
(2.79
)
$
(0.31
)
$
(3.73
)
$
0.82
  
Diluted income/(loss) 
                          
Income/(loss) from continuing operations
  
$
(2.79
)
$
(0.31
)
$
(3.73
)
$
0.76
  
Income/(loss) from discontinued operations
    
—
    
—
    
—
    
0.03
  
Net income/(loss)
  
$
(2.79
)
$
(0.31
)
$
(3.73
)
$
0.79
  
Cash dividends
  
$
0.05
  
$
0.10
  
$
0.25
  
$
0.30
  

The accompanying notes are part of the financial statements

4
Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET
(in millions)

   
September 30,
2006
  
Restated -
see Note 2
December 31,
2005
  
   
(unaudited)
      
ASSETS
          
Cash and cash equivalents
  
$
25,511
  
$
28,406
  
Marketable securities
    
14,552
    
10,672
  
Loaned securities
    
564
    
3,461
  
Finance receivables, net
    
106,685
    
105,975
  
Other receivables, net
    
8,004
    
8,536
  
Net investment in operating leases
    
30,943
    
27,099
  
Retained interest in sold receivables
    
1,073
    
1,420
  
Inventories (Note 6)
    
11,997
    
10,271
  
Equity in net assets of affiliated companies
    
2,828
    
2,579
  
Net property
    
37,844
    
40,676
  
Deferred income taxes
    
4,197
    
5,880
  
Goodwill and other intangible assets (Note 9)
    
6,396
    
5,945
  
Assets of discontinued/held-for-sale operations    
—
     5  
Other assets
    
16,871
    
18,534
  
Total assets
  
$
267,465
  
$
269,459
  
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
              
Payables
  
$
22,738
  
$
22,910
  
Accrued liabilities and deferred revenue
    
77,365
    
73,047
  
Debt
    
154,410
    
153,278
  
Deferred income taxes
    
2,774
    
5,660
  
Total liabilities
    
257,287
    
254,895
  
               
Minority interests
    
1,015
    
1,122
  
               
Stockholders’ equity
              
Capital stock
              
Common Stock, par value $0.01 per share (1,837 million shares issued)
    
18
    
18
  
Class B Stock, par value $0.01 per share (71 million shares issued)
    
1
    
1
  
Capital in excess of par value of stock
    
4,579
    
4,872
  
Accumulated other comprehensive income/(loss)
    
(785
)
  
(3,680
)
Treasury stock
    
(258
)
  
(833
)
Retained earnings
    
5,608
    
13,064
  
Total stockholders’ equity
    
9,163
    
13,442
  
Total liabilities and stockholders’ equity
  
$
267,465
  
$
269,459
  

The accompanying notes are part of the financial statements

5
Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

SECTOR BALANCE SHEET
(in millions)
 
   
September 30,
2006
  
Restated -
See Note 2
December 31,
2005
  
   
(unaudited)
      
ASSETS
          
Automotive
          
Cash and cash equivalents
  
$
13,531
  
$
13,388
  
Marketable securities
    
7,768
    
6,860
  
Loaned securities
    
564
    
3,461
  
Total cash, marketable and loaned securities
    
21,863
    
23,709
  
Receivables, net
    
3,551
    
3,075
  
Inventories (Note 6)
    
11,997
    
10,271
  
Deferred income taxes
    
657
    
1,249
  
Other current assets
    
7,891
    
8,177
  
Total current assets
    
45,959
    
46,481
  
Equity in net assets of affiliated companies
    
2,026
    
1,756
  
Net property
    
37,533
    
40,348
  
Deferred income taxes
    
13,023
    
10,999
  
Goodwill and other intangible assets (Note 9)
   
6,379
    
5,928
  
Assets of discontinued/held-for-sale operations    
—
     5  
Other assets
    
9,006
    
8,308
  
Total Automotive assets
    
113,926
    
113,825
  
Financial Services
              
Cash and cash equivalents
    
11,980
    
15,018
  
Marketable securities
    
6,784
    
3,812
  
Finance receivables, net
    
111,138
    
111,436
  
Net investment in operating leases
    
26,286
    
22,951
  
Retained interest in sold receivables
    
1,073
    
1,420
  
Goodwill and other intangible assets (Note 9)
    
17
    
17
  
Other assets
    
5,921
    
7,457
  
Receivable from Automotive
    
994
    
83
  
Total Financial Services assets
    
164,193
    
162,194
  
Intersector elimination
    
(994
)
  
(83
)
Total assets
  
$
277,125
  
$
275,936
  
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
              
Automotive
              
Trade payables
  
$
17,895
  
$
16,637
  
Other payables
    
3,163
    
4,222
  
Accrued liabilities and deferred revenue
    
29,545
    
28,829
  
Deferred income taxes
    
1,152
    
804
  
Debt payable within one year
    
1,289
    
978
  
Current payable to Financial Services
    
285
    
83
  
Total current liabilities
    
53,329
    
51,553
  
Long-term debt
    
16,376
    
16,900
  
Other liabilities
    
43,214
    
38,639
  
Deferred income taxes
    
466
    
586
  
Non-current payable to Financial Services
    
709
    
—
  
Total Automotive liabilities
    
114,094
    
107,678
  
Financial Services
              
Payables
    
1,680
    
2,051
  
Debt
    
136,745
    
135,400
  
Deferred income taxes
    
10,816
    
10,747
  
Other liabilities and deferred income
    
4,606
    
5,579
  
Total Financial Services liabilities
    
153,847
    
153,777
  
               
Minority interests
    
1,015
    
1,122
  
               
Stockholders’ equity
              
Capital stock
              
Common Stock, par value $0.01 per share (1,837 million shares issued)
    
18
    
18
  
Class B Stock, par value $0.01 per share (71 million shares issued)
    
1
    
1
  
Capital in excess of par value of stock
    
4,579
    
4,872
  
Accumulated other comprehensive income/(loss)
    
(785
)
  
(3,680
)
Treasury stock
    
(258
)
  
(833
)
Retained earnings
    
5,608
    
13,064
  
Total stockholders’ equity
    
9,163
    
13,442
  
Intersector elimination
    
(994
)
  
(83
)
Total liabilities and stockholders’ equity
  
$
277,125
  
$
275,936
  

The accompanying notes are part of the financial statements

6
Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the Periods Ended September 30, 2006 and 2005
(in millions)

   
First Nine Months
  
       
Restated -
  
       
See Note 2
  
 
  
2006
  
2005
  
   
(unaudited)
  
       
Cash flows from operating activities of continuing operations
      
Net cash (used in)/provided by operating activities
  
$
16,975
  
$
19,282
  
               
Cash flows from investing activities of continuing operations
              
Capital expenditures
    
(5,242
)
  
(5,462
)
Acquisitions of retail and other finance receivables and operating leases
    
(47,688
)
  
(42,026
)
Collections of retail and other finance receivables and operating leases
    
31,741
    
36,492
  
Net acquisitions of daily rental vehicles
    
—
    
(2,183
)
Purchases of securities
    
(17,471
)
  
(10,100
)
Sales and maturities of securities
    
15,196
    
4,197
  
Proceeds from sales of retail and other finance receivables and operating leases
    
3,956
    
15,144
  
Proceeds from sale of businesses
    
54
    
2,245
  
Cash paid for acquisitions
    
—
    
(1,617
)
Transfer of cash balances upon disposition of discontinued/held-for-sale operations
    
(4
)
  
(4
)
Other
    
143
    
2,229
  
Net cash (used in)/provided by investing activities
    
(19,315
)
  
(1,085
)
               
Cash flows from financing activities of continuing operations
              
Cash dividends
    
(468
)
  
(552
)
Sales of Common Stock
    
355
    
697
  
Purchases of Common Stock
    
(139
)
  
(447
)
Changes in short-term debt
    
(276
)
  
(6,234
)
Proceeds from issuance of other debt
    
32,775
    
21,677
  
Principal payments on other debt
    
(33,012
)
  
(32,516
)
Other
    
(34
)
  
(28
)
Net cash (used in)/provided by financing activities
    
(799
)
  
(17,403
)
               
Effect of exchange rate changes on cash
    
238
    
(376
)
               
Net increase/(decrease) in cash and cash equivalents from continuing operations
    
(2,901
)
  
418
  
               
Cash flows from discontinued operations
              
Cash flows from operating activities of discontinued operations
    
2
    
65
  
Cash flows from investing activities of discontinued operations
    
—
    
(50
)
Cash flows from financing activities of discontinued operations
    
—
    
—
  
               
Net increase/(decrease) in cash and cash equivalents
  
$
(2,899
)
$
433
  
               
Cash and cash equivalents at January 1
  
$
28,406
  
$
22,828
  
Cash and cash equivalents of discontinued/held-for-sale operations at January 1
    
4
    
681
  
Net increase/(decrease) in cash and cash equivalents
    
(2,899
)
  
433
  
Less: cash and cash equivalents of discontinued/held-for-sale operations at September 30
    
—
    
(790
)
Cash and cash equivalents at September 30
  
$
25,511
  
$
23,152
  

The accompanying notes are part of the financial statements

7
Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

CONDENSED SECTOR STATEMENT OF CASH FLOWS
For the Periods Ended September 30, 2006 and 2005
(in millions)

       
Restated - See Note 2
  
   
First Nine Months 2006
  
First Nine Months 2005
  
   
Automotive
  
Financial
Services
  
Automotive
  
Financial
Services
  
   
(unaudited)
  
(unaudited)
  
Cash flows from operating activities of continuing operations
                  
Net cash (used in)/provided by operating activities
  
$
5,020
  
$
5,471
  
$
4,532
  
$
5,887
  
                           
Cash flows from investing activities
                          
Capital expenditures
    
(5,212
)
  
(30
)
  
(5,109
)
  
(353
)
Acquisitions of retail and other finance receivables and operating leases
    
—
    
(47,688
)
  
—
    
(42,026
)
Collections of retail and other finance receivables and operating leases
    
—
    
32,099
    
—
    
36,579
  
Net (increase)/decrease of wholesale receivables
    
—
    
6,126
    
—
    
5,629
  
Net acquisitions of daily rental vehicles
    
—
    
—
    
—
    
(2,775
)
Purchases of securities
    
(3,641
)
  
(13,830
)
  
(4,343
)
  
(5,757
)
Sales and maturities of securities
    
4,095
    
11,101
    
3,239
    
958
  
Proceeds from sales of retail and other finance receivables and operating leases
    
—
    
3,956
    
—
    
15,144
  
Proceeds from sales of wholesale receivables
    
—
    
—
    
—
    
3,739
  
Proceeds from sale of businesses
    
54
    
—
    
204
    
2,041
  
Transfer of cash balances upon disposition of discontinued/held-for-sale operations
    
(4
)
  
—
    
1
    
(5
)
Investing activity from Financial Services
    
785
    
—
    
2,486
    
—
  
Investing activity to Financial Services
    
(1,400
)
  
—
    
—
    
—
  
Cash paid for acquisitions
    
—
    
—
    
(1,617
)
  
—
  
Other
    
(61
)
  
204
    
453
    
1,776
  
Net cash (used in)/provided by investing activities
    
(5,384
)
  
(8,062
)
  
(4,686
)
  
14,950
  
                           
Cash flows from financing activities
                          
Cash dividends
    
(468
)
  
—
    
(552
)
  
—
  
Sales of Common Stock
    
355
    
—
    
697
    
—
  
Purchases of Common Stock
    
(139
)
  
—
    
(447
)
  
—
  
Changes in short-term debt
    
251
    
(527
)
  
(3
)
  
(6,231
)
Proceeds from issuance of other debt
    
204
    
32,571
    
253
    
21,424
  
Principal payments on other debt
    
(629
)
  
(32,383
)
  
(682
)
  
(31,834
)
Financing activity from Automotive
    
—
    
1,400
    
—
    
—
  
Financing activity to Automotive
    
—
    
(785
)
  
—
    
(2,486
)
Other
    
76
    
(110
)
  
(4
)
  
(24
)
Net cash (used in)/provided by financing activities
    
(350
)
  
166
    
(738
)
  
(19,151
)
                           
Effect of exchange rate changes on cash
    
3
    
235
    
14
    
(390
)
Net change in intersector receivables/payables and other liabilities
    
848
    
(848
)
  
(168
)
  
168
  
Net increase/(decrease) in cash and cash equivalents from continuing operations
    
137
    
(3,038
)
  
(1,046
)
  
1,464
  
                           
Cash flows from discontinued operations
                          
Cash flows from operating activities of discontinued operations
    
2
    
—
    
(6
)
  
71
  
Cash flows from investing activities of discontinued operations
    
—
    
—
    
16
    
(66
)
Cash flows from financing activities of discontinued operations
    
—
    
—
    
—
    
—
  
                           
Net increase/(decrease) in cash and cash equivalents
  
$
139
  
$
(3,038
)
$
(1,036
)
$
1,469
  
                           
Cash and cash equivalents at January 1
  
$
13,388
  
$
15,018
  
$
10,139
  
$
12,689
  
Cash and cash equivalents of discontinued/held-for-sale operations at January 1
    
4
    
—
    
2
    
679
  
Net increase/(decrease) in cash and cash equivalents
    
139
    
(3,038
)
  
(1,036
)
  
1,469
  
Less: cash and cash equivalents of discontinued/held-for-sale operations at September 30
    
—
    
—
    
(13
)
  
(777
)
Cash and cash equivalents at September 30
  
$
13,531
  
$
11,980
  
$
9,092
  
$
14,060
  
 
The accompanying notes are part of the financial statements

8
Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS

NOTE 1. FINANCIAL STATEMENTS

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States for interim financial information, and instructions to the Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion of management, these unaudited financial statements reflect those adjustments necessary for a fair statement of the results of operations and financial condition of Ford Motor Company and its consolidated subsidiaries and consolidated variable interest entities ("VIEs") of which we are the primary beneficiary for the periods and at the dates presented. Results for interim periods should not be considered indicative of results for a full year. Reference should be made to the financial statements contained in our Annual Report on Form 10-K/A for the year ended December 31, 2005 (the "2005 Form 10-K/A Report"). For purposes of this report, "Ford", the "Company", "we", "our", "us" or similar references mean Ford Motor Company and our consolidated subsidiaries and our consolidated VIEs of which we are the primary beneficiary, unless the context requires otherwise.

NOTE 2.  RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

In October 2006, we reviewed our application of paragraph 68 of Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, and its use at our indirect wholly-owned subsidiary, Ford Motor Credit Company ("Ford Credit"). One of the general requirements of SFAS No. 133 is that hedge accounting is appropriate only for those hedging relationships that a company expects will be highly effective in achieving offsetting changes in fair value or cash flows attributable to the risk being hedged. To determine whether transactions satisfy this requirement, companies must periodically assess the effectiveness of hedging relationships both prospectively and retrospectively. Paragraph 68 of SFAS No. 133 ("Paragraph 68") contains an exception from these periodic assessment requirements in the form of an "assumption of no ineffectiveness" for certain hedges of interest rate risk that involve interest rate swaps and recognized interest-bearing assets or liabilities. The exception identifies the specific requirements for the derivative and hedged items that must be met, such as a derivative fair value of zero at inception of the hedging relationship, matching maturity dates, and contemporaneous formal documentation.

Based on our review, we concluded that all of our interest rate swaps were and continue to be highly effective economic hedges; nearly all of these transactions, however, failed to meet the requirements set forth in Paragraph 68, primarily because:

 
·
Transactions that we designated as fair value hedges involved interest rate swaps hedging the back-end of debt instruments or involved longer-than-normal settlement periods.

 
·
We paid or received fees when entering into a derivative contract or upon changing counterparties.

 
·
Interest rate swaps included terms that did not exactly match the terms of the debt, including prepayment optionality.

Although we now have determined that the hedging relationships at issue in this restatement did not meet the specific criteria for an assumption of no ineffectiveness pursuant to Paragraph 68, we are precluded by SFAS No. 133 from retroactively performing full effectiveness testing in order to apply hedge accounting. Accordingly, the restated results in our Annual Report on Form 10-K/A for the year ended December 31, 2005 ("2005 Form 10-K/A Report") reflect the changes in fair value of these instruments as derivative gains and losses during the affected periods, without recording any offsetting change in the value of the debt they were economically hedging.

As a result, we have filed our 2005 Form 10-K/A Report restating certain financial information therein including: historical balance sheets as of December 31, 2005 and 2004; statements of income, cash flows and stockholders’ equity for the years ending 2005, 2004, and 2003; and selected financial data as of and for the years ended December 31, 2005, 2004, 2003, 2002 and 2001.

9
Item 1. Financial Statements (Continued)

Changes in the fair value of interest rate swaps are driven primarily by changes in interest rates. We have long-term interest rate swaps with large notional balances, many of which are "receive-fixed, pay-float" interest rate swaps. Such swaps increase in value when interest rates decline, and decline in value when interest rates rise. As a result, changes in interest rates cause substantial volatility in the fair values that must be recognized in earnings. For 2001 and 2002, when interest rates were trending lower, we have recognized large derivative gains in our restated financial data. The upward trend in interest rates from 2003 through 2005 caused our interest rate swaps to decline in value, resulting in the recognition of derivative losses for these periods.
 
See Note 28 of the Notes to the Financial Statements in our 2005 Form 10-K/A Report for additional information and amounts related to our restatement. In addition, this Quarterly Report on Form 10-Q for the period ended September 30, 2006 includes, in Note 2, restated consolidated and sector statements of income for the three- and nine-month periods ended September 30, 2005, restated consolidated and sector balance sheets as of December 31, 2005, and restated condensed consolidated and sector statements of cash flows for the nine-month period ended September 30, 2005.

The following table sets forth a reconciliation of previously reported and restated net income/(loss) for the periods shown (in millions):

   
2005 Net Income/(Loss)
  
           
   
Third
Quarter
 
First Nine
Months
  
           
Previously reported
 
$
(284
)
$
1,874
  
Pre-tax adjustments:
              
Fair value interest rate swaps
    
(435
)
  
(624
)
Other out-of-period adjustments
    
(31
)
  
63
  
Total pre-tax adjustments
    
(466
)
  
(561
)
Related tax effects - provision for/(benefit from)
    
(174
)
  
(201
)
Net after-tax adjustments
    
(292
)
  
(360
)
Restated
  
$
(576
)
$
1,514
  

Subsequent to the completion of our originally-filed financial statements for each period being restated, we identified adjustments that should have been recorded in these earlier periods.  Upon identification, we determined these adjustments to be immaterial, individually and in the aggregate, to our originally-filed financial statements, and generally recognized these adjustments ("out-of-period" adjustments) in the period in which they were identified.  Because the Ford Credit interest rate swap adjustment has required a restatement, we also are reversing these out-of-period adjustments and recording them in the proper periods.
 
We do not intend to amend previously-filed Quarterly Reports on Form 10-Q for periods ending prior to December 31, 2005. The reader should not rely on the financial information in our previously-filed Quarterly Report on Form 10-Q for the period ended September 30, 2005, but should instead rely upon the updated financial data provided for the third quarter and nine months ended September 30, 2005 herein.

Presentation of Cash Flows

Beginning with our year ended December 31, 2005 statements of cash flows, we have revised the presentation of cash flows to separately disclose the operating, investing, and financing portions of the cash flows attributable to our discontinued operations. This revision is in response to public statements by the staff of the Securities and Exchange Commission ("SEC") concerning classification of discontinued operations within the statement of cash flows.

10
Item 1. Financial Statements (Continued)

NOTE 2. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (Continued)

The following table presents the effect of the restatement on the Consolidated Statement of Income (in millions, except per share amounts):

   
Third Quarter 2005
  
First Nine Months 2005
  
   
Previously
Reported
  
Restated
  
Previously
Reported
  
Restated
  
   
(unaudited)
  
(unaudited)
  
Sales and revenues
                  
Automotive sales
  
$
34,675
  
$
34,656
  
$
112,692
  
$
112,778
  
Financial Services revenues
    
6,181
    
5,854
    
17,848
    
17,793
  
Total sales and revenues
    
40,856
    
40,510
    
130,540
    
130,571
  
                           
Costs and expenses
                          
Automotive cost of sales
    
33,532
    
33,471
    
105,803
    
105,786
  
Selling, administrative and other expenses
    
5,983
    
5,983
    
18,200
    
18,181
  
Interest expense
    
1,976
    
2,157
    
5,659
    
6,287
  
Financial Services provision for credit and insurance losses
    
182
    
182
    
350
    
350
  
Total costs and expenses
    
41,673
    
41,793
    
130,012
    
130,604
  
                           
Automotive interest income and other non-operating income/(expense), net
    
307
    
307
    
1,111
    
1,111
  
Automotive equity in net income/(loss) of affiliated companies
    
133
    
133
    
259
    
259
  
Income/(loss) before income taxes
    
(377
)
  
(843
)
  
1,898
    
1,337
  
Provision for/(benefit from) income taxes
    
(140
)
  
(314
)
  
(127
)
  
(328
)
Income/(loss) before minority interests
    
(237
)
  
(529
)
  
2,025
    
1,665
  
Minority interests in net income/(loss) of subsidiaries
    
54
    
54
    
196
    
196
  
Income/(loss) from continuing operations
    
(291
)
  
(583
)
  
1,829
    
1,469
  
Income/(loss) from discontinued operations (Note 4)
    
7
    
7
    
45
    
45
  
Net income/(loss)
  
$
(284
)
$
(576
)
$
1,874
  
$
1,514
  
                           
AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK (Note 12)
                          
Basic income/(loss)
                          
Income/(loss) from continuing operations
  
$
(0.16
)
$
(0.31
)
$
0.99
  
$
0.80
  
Income/(loss) from discontinued operations
    
0.01
    
—
    
0.03
    
0.02
  
Net income/(loss)
  
$
(0.15
)
$
(0.31
)
$
1.02
  
$
0.82
  
Diluted income/(loss)
                          
Income/(loss) from continuing operations
  
$
(0.16
)
$
(0.31
)
$
0.93
  
$
0.76
  
Income/(loss) from discontinued operations
    
0.01
    
—
    
0.02
    
0.03
  
Net income/(loss)
  
$
(0.15
)
$
(0.31
)
$
0.95
  
$
0.79
  
Cash dividends
  
$
0.10
  
$
0.10
  
$
0.30
  
$
0.30
  
 
11
Item 1. Financial Statements (Continued)

NOTE 2. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (Continued)

The following table presents the effect of the restatement on the Sector Statement of Income (in millions, except per share amounts):

   
Third Quarter 2005
  
First Nine Months 2005
  
   
Previously
Reported
  
Restated
  
Previously
Reported
  
Restated
  
   
(unaudited)
  
(unaudited)
  
AUTOMOTIVE
                  
Sales
  
$
34,675
  
$
34,656
  
$
112,692
  
$
112,778
  
Costs and expenses
                          
Cost of sales
    
33,532
    
33,471
    
105,803
    
105,786
  
Selling, administrative and other expenses
    
2,811
    
2,811
    
8,996
    
8,977
  
Total costs and expenses
    
36,343
    
36,282
    
114,799
    
114,763
  
Operating income/(loss)
    
(1,668
)
  
(1,626
)
  
(2,107
)
  
(1,985
)
                           
Interest expense
    
371
    
371
    
960
    
960
  
                           
Interest income and other non-operating income/(expense), net
    
307
    
307
    
1,111
    
1,111
  
Equity in net income/(loss) of affiliated companies
    
133
    
133
    
259
    
259
  
Income/(loss) before income taxes — Automotive
    
(1,599
)
  
(1,557
)
  
(1,697
)
  
(1,575
)
                           
FINANCIAL SERVICES
                          
Revenues
    
6,181
    
5,854
    
17,848
    
17,793
  
Costs and expenses
                          
Interest expense
    
1,605
    
1,786
    
4,699
    
5,327
  
Depreciation
    
1,537
    
1,537
    
4,591
    
4,591
  
Operating and other expenses
    
1,635
    
1,635
    
4,613
    
4,613
  
Provision for credit and insurance losses
    
182
    
182
    
350
    
350
  
Total costs and expenses
    
4,959
    
5,140
    
14,253
    
14,881
  
Income/(loss) before income taxes — Financial Services
    
1,222
    
714
    
3,595
    
2,912
  
                           
TOTAL COMPANY
                          
Income/(loss) before income taxes
    
(377
)
  
(843
)
  
1,898
    
1,337
  
Provision for/(benefit from) income taxes
    
(140
)
  
(314
)
  
(127
)
  
(328
)
Income/(loss) before minority interests
    
(237
)
  
(529
)
  
2,025
    
1,665
  
Minority interests in net income/(loss) of subsidiaries
    
54
    
54
    
196
    
196
  
Income/(loss) from continuing operations
    
(291
)
  
(583
)
  
1,829
    
1,469
  
Income/(loss) from discontinued operations (Note 4)
    
7
    
7
    
45
    
45
  
Net income/(loss)
  
$
(284
)
$
(576
)
$
1,874
  
$
1,514
  
                           
AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK (Note 12)
                          
Basic income/(loss)
                          
Income/(loss) from continuing operations
  
$
(0.16
)
$
(0.31
)
$
0.99
  
$
0.80
  
Income/(loss) from discontinued operations
    
0.01
    
—
    
0.03
    
0.02
  
Net income/(loss)
  
$
(0.15
)
$
(0.31
)
$
1.02
  
$
0.82
  
Diluted income/(loss) 
                          
Income/(loss) from continuing operations
  
$
(0.16
)
$
(0.31
)
$
0.93
  
$
0.76
  
Income/(loss) from discontinued operations
    
0.01
    
—
    
0.02
    
0.03
  
Net income/(loss)
  
$
(0.15
)
$
(0.31
)
$
0.95
  
$
0.79
  
Cash dividends
  
$
0.10
  
$
0.10
  
$
0.30
  
$
0.30
  
 
12
Item 1. Financial Statements (Continued)

NOTE 2. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (Continued)

The following table presents the effect of the restatement on the Consolidated Balance Sheet at December 31, 2005 (in millions):

   
Previously
Reported
  
Restated
  
ASSETS
          
Cash and cash equivalents
  
$
28,406
  
$
28,406
  
Marketable securities
    
10,672
    
10,672
  
Loaned securities
    
3,461
    
3,461
  
Finance receivables, net
    
105,975
    
105,975
  
Other receivables, net
    
8,522
    
8,536
  
Net investment in operating leases
    
27,099
    
27,099
  
Retained interest in sold receivables
    
1,420
    
1,420
  
Inventories (Note 6)
    
10,271
    
10,271
  
Equity in net assets of affiliated companies
    
2,579
    
2,579
  
Net property
    
40,706
    
40,676
  
Deferred income taxes
    
5,881
    
5,880
  
Goodwill and other intangible assets (Note 9)
    
5,945
    
5,945
  
Assets of discontinued/held-for-sale operations
    
5
    
5
  
Other assets
    
18,534
    
18,534
  
Total assets
  
$
269,476
  
$
269,459
  
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
              
Payables
  
$
22,813
  
$
22,910
  
Accrued liabilities and deferred revenue
    
72,977
    
73,047
  
Debt
    
154,332
    
153,278
  
Deferred income taxes
    
5,275
    
5,660
  
Total liabilities
    
255,397
    
254,895
  
               
Minority interests
    
1,122
    
1,122
  
               
Stockholders’ equity
              
Capital stock
              
Common Stock, par value $0.01 per share (1,837 million shares issued)
    
18
    
18
  
Class B Stock, par value $0.01 per share (71 million shares issued)
    
1
    
1
  
Capital in excess of par value of stock
    
4,872
    
4,872
  
Accumulated other comprehensive income/(loss)
    
(3,562
)
  
(3,680
)
Treasury stock
    
(833
)
  
(833
)
Retained earnings
    
12,461
    
13,064
  
Total stockholders’ equity
    
12,957
    
13,442
  
Total liabilities and stockholders’ equity
  
$
269,476
  
$
269,459
  
 
13
Item 1. Financial Statements (Continued)

NOTE 2. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (Continued)

The following table presents the effect of the restatement on the Sector Balance Sheet at December 31, 2005 (in millions):

   
Previously
Reported
  
Restated
  
ASSETS
          
Automotive
          
Cash and cash equivalents
  
$
13,388
  
$
13,388
  
Marketable securities
    
6,860
    
6,860