Edgar Filing: FORD MOTOR CO

form10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2008

£	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)

Delaware	38-0549190
(State of Incorporation)	(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.

S Yes

£No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company in Rule 12b-2 of the Exchange Act.

Large accelerated filer S

Accelerated filer £

Non-accelerated filer £

Smaller reporting company £

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

£ Yes

x No

As of July 29, 2008, the registrant had outstanding 2,190,498,174 shares of Common Stock and 70,852,076 shares of Class B Stock.

Exhibit index located on page number 58.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

FORD MOTOR COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME

For the Periods Ended June 30, 2008 and 2007

(in millions, except per share amounts)

	Second Quarter					First Half
	2008			2007		2008			2007
	(unaudited)					(unaudited)
Sales and revenues
Automotive sales	$	37,057		$	40,106	$	76,174		$	78,736
Financial Services revenues		4,455			4,136		8,866			8,525
Total sales and revenues		41,512			44,242		85,040			87,261

Costs and expenses
Automotive cost of sales		39,995			36,182		75,451			70,897
Selling, administrative and other expenses		7,305			4,952		12,400			10,924
Interest expense		2,412			2,759		4,957			5,477
Financial Services provision for credit and insurance losses		598			121		942			180
Total costs and expenses		50,310			44,014		93,750			87,478

Automotive interest income and other non-operating income/(expense), net		(192	)		559		(100	)		888
Automotive equity in net income/(loss) of affiliated companies		(40	)		139		96			211
Income/(Loss) before income taxes		(9,030	)		926		(8,714	)		882
Provision for/(Benefit from) income taxes		(444	)		123		(349	)		305
Income/(Loss) before minority interests		(8,586	)		803		(8,365	)		577
Minority interests in net income/(loss) of subsidiaries		89			85		211			143
Income/(Loss) from continuing operations		(8,675	)		718		(8,576	)		434
Income/(Loss) from discontinued operations (Note 8)		8			32		9			34
Net income/(loss)	$	(8,667	)	$	750	$	(8,567	)	$	468

AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK (Note 9)
Basic income/(loss)
Income/(Loss) from continuing operations	$	(3.88	)	$	0.38	$	(3.87	)	$	0.23
Income/(Loss) from discontinued operations		—			0.02		—			0.02
Net income/(loss)	$	(3.88	)	$	0.40	$	(3.87	)	$	0.25
Diluted income/(loss)
Income/(Loss) from continuing operations	$	(3.88	)	$	0.30	$	(3.87	)	$	0.21
Income/(Loss) from discontinued operations		—			0.01		—			0.01
Net income/(loss)	$	(3.88	)	$	0.31	$	(3.87	)	$	0.22

Cash dividends	$	—		$	—	$	—		$	—

The accompanying notes are part of the financial statements

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

SECTOR STATEMENT OF INCOME

For the Periods Ended June 30, 2008 and 2007

(in millions, except per share amounts)

	Second Quarter					First Half
	2008			2007		2008			2007
	(unaudited)					(unaudited)
AUTOMOTIVE
Sales	$	37,057		$	40,106	$	76,174		$	78,736
Costs and expenses
Cost of sales		39,995			36,182		75,451			70,897
Selling, administrative and other expenses		2,955			3,224		6,064			7,298
Total costs and expenses		42,950			39,406		81,515			78,195
Operating income/(loss)		(5,893	)		700		(5,341	)		541

Interest expense		485			577		1,013			1,157

Interest income and other non-operating income/(expense), net		(192	)		559		(100	)		888
Equity in net income/(loss) of affiliated companies		(40	)		139		96			211
Income/(Loss) before income taxes — Automotive		(6,610	)		821		(6,358	)		483

FINANCIAL SERVICES
Revenues		4,455			4,136		8,866			8,525
Costs and expenses
Interest expense		1,927			2,182		3,944			4,320
Depreciation		4,112			1,479		5,948			2,979
Operating and other expenses		238			249		388			647
Provision for credit and insurance losses		598			121		942			180
Total costs and expenses		6,875			4,031		11,222			8,126
Income/(Loss) before income taxes — Financial Services		(2,420	)		105		(2,356	)		399

TOTAL COMPANY
Income/(Loss) before income taxes		(9,030	)		926		(8,714	)		882
Provision for/(Benefit from) income taxes		(444	)		123		(349	)		305
Income/(Loss) before minority interests		(8,586	)		803		(8,365	)		577
Minority interests in net income/(loss) of subsidiaries		89			85		211			143
Income/(Loss) from continuing operations		(8,675	)		718		(8,576	)		434
Income/(Loss) from discontinued operations (Note 8)		8			32		9			34
Net income/(loss)	$	(8,667	)	$	750	$	(8,567	)	$	468

AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK (Note 9)
Basic income/(loss)
Income/(Loss) from continuing operations	$	(3.88	)	$	0.38	$	(3.87	)	$	0.23
Income/(Loss) from discontinued operations		—			0.02		—			0.02
Net income/(loss)	$	(3.88	)	$	0.40	$	(3.87	)	$	0.25
Diluted income/(loss)
Income/(Loss) from continuing operations	$	(3.88	)	$	0.30	$	(3.87	)	$	0.21
Income/(Loss) from discontinued operations		—			0.01		—			0.01
Net income/(loss)	$	(3.88	)	$	0.31	$	(3.87	)	$	0.22

Cash dividends	$	—		$	—	$	—		$	—

The accompanying notes are part of the financial statements

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(in millions)

	June 30, 2008			December 31, 2007
	(unaudited)
ASSETS
Cash and cash equivalents	$	30,066		$	35,283
Marketable securities		12,525			5,248
Loaned securities		7,347			10,267
Finance receivables, net		106,928			109,053
Other receivables, net		8,964			8,210
Net investment in operating leases		31,074			33,255
Retained interest in sold receivables		380			653
Inventories (Note 2)		12,987			10,121
Equity in net assets of affiliated companies		3,189			2,853
Net property		32,149			36,239
Deferred income taxes		3,251			3,500
Goodwill and other net intangible assets (Note 4)		2,044			2,069
Assets of discontinued/held-for-sale operations (Note 8)		28			7,537
Other assets		14,365			14,976
Total assets	$	265,297		$	279,264

LIABILITIES AND STOCKHOLDERS’ EQUITY
Payables	$	24,216		$	20,832
Accrued liabilities and deferred revenue		72,381			74,738
Debt		166,025			168,787
Deferred income taxes		2,899			3,034
Liabilities of discontinued/held-for-sale operations (Note 8)		—			4,824
Total liabilities		265,521			272,215

Minority interests		1,459			1,421

Stockholders’ equity
Capital stock
Common Stock, par value $0.01 per share (2,198 million shares issued)		22			21
Class B Stock, par value $0.01 per share (71 million shares issued)		1			1
Capital in excess of par value of stock		8,386			7,834
Accumulated other comprehensive income/(loss)		131			(558	)
Treasury stock		(183	)		(185	)
Retained earnings/(Accumulated deficit)		(10,040	)		(1,485	)
Total stockholders’ equity		(1,683	)		5,628
Total liabilities and stockholders’ equity	$	265,297		$	279,264

The accompanying notes are part of the financial statements

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

SECTOR BALANCE SHEET

(in millions)

	June 30, 2008			December 31, 2007
	(unaudited)
ASSETS
Automotive
Cash and cash equivalents	$	16,948		$	20,678
Marketable securities		5,099			2,092
Loaned securities		7,347			10,267
Total cash, marketable and loaned securities		29,394			33,037
Receivables, net		5,116			4,530
Inventories (Note 2)		12,987			10,121
Deferred income taxes		542			532
Other current assets		7,035			5,514
Current receivable from Financial Services		895			509
Total current assets		55,969			54,243
Equity in net assets of affiliated companies		2,558			2,283
Net property		31,909			35,979
Deferred income taxes		7,676			9,268
Goodwill and other net intangible assets (Note 4)		2,034			2,051
Assets of discontinued/held-for-sale operations (Note 8)		28			7,537
Other assets		6,055			5,614
Non-current receivable from Financial Services		2,110			1,514
Total Automotive assets		108,339			118,489
Financial Services
Cash and cash equivalents		13,118			14,605
Marketable securities		7,426			3,156
Finance receivables, net		110,776			112,733
Net investment in operating leases		27,152			30,309
Retained interest in sold receivables		380			653
Equity in net assets of affiliated companies		631			570
Goodwill and other net intangible assets (Note 4)		10			18
Other assets		5,623			7,217
Total Financial Services assets		165,116			169,261
Intersector elimination		(3,005	)		(2,023	)
Total assets	$	270,450		$	285,727

LIABILITIES AND STOCKHOLDERS' EQUITY
Automotive
Trade payables	$	18,137		$	15,718
Other payables		4,013			3,237
Accrued liabilities and deferred revenue		28,471			27,672
Deferred income taxes		2,748			2,671
Debt payable within one year		1,432			1,175
Total current liabilities		54,801			50,473
Long-term debt		25,028			25,779
Other liabilities		38,803			41,676
Deferred income taxes		967			783
Liabilities of discontinued/held-for-sale operations (Note 8)		—			4,824
Total Automotive liabilities		119,599			123,535
Financial Services
Payables		2,066			1,877
Debt		139,565			141,833
Deferred income taxes		4,337			6,043
Other liabilities and deferred income		5,107			5,390
Payable to Automotive		3,005			2,023
Total Financial Services liabilities		154,080			157,166

Minority interests		1,459			1,421

Stockholders' equity
Capital stock
Common Stock, par value $0.01 per share (2,198 million shares issued)		22			21
Class B Stock, par value $0.01 per share (71 million shares issued)		1			1
Capital in excess of par value of stock		8,386			7,834
Accumulated other comprehensive income/(loss)		131			(558	)
Treasury stock		(183	)		(185	)
Retained earnings/(Accumulated deficit)		(10,040	)		(1,485	)
Total stockholders' equity		(1,683	)		5,628
Intersector elimination		(3,005	)		(2,023	)
Total liabilities and stockholders' equity	$	270,450		$	285,727

The accompanying notes are part of the financial statements.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the Periods Ended June 30, 2008 and 2007

(in millions)

	First Half
	2008			2007
	(unaudited)

Cash flows from operating activities of continuing operations
Net cash (used in)/provided by operating activities	$	2,161		$	5,227

Cash flows from investing activities of continuing operations
Capital expenditures		(3,128	)		(2,637	)
Acquisitions of retail and other finance receivables and operating leases		(25,483	)		(26,280	)
Collections of retail and other finance receivables and operating leases		22,150			20,591
Purchases of securities		(33,015	)		(4,720	)
Sales and maturities of securities		28,390			12,088
Proceeds from sales of retail and other finance receivables and operating leases		—			702
Proceeds from sale of businesses		6,135			1,001
Cash paid for acquisitions		(13	)		—
Transfer of cash balances upon disposition of discontinued/held-for-sale operations		(925	)		(83	)
Other		1,869			1,178
Net cash (used in)/provided by investing activities		(4,020	)		1,840

Cash flows from financing activities of continuing operations
Cash dividends		—			—
Sales of Common Stock		144			51
Purchases of Common Stock		—			(31	)
Changes in short-term debt		(1,049	)		(1,396	)
Proceeds from issuance of other debt		20,726			17,165
Principal payments on other debt		(23,396	)		(19,768	)
Other		(267	)		(61	)
Net cash (used in)/provided by financing activities		(3,842	)		(4,040	)

Effect of exchange rate changes on cash		469			71

Net increase/(decrease) in cash and cash equivalents from continuing operations		(5,232	)		3,098

Cash flows from discontinued operations
Cash flows from operating activities of discontinued operations		15			16
Cash flows from investing activities of discontinued operations		—			—
Cash flows from financing activities of discontinued operations		—			—

Net increase/(decrease) in cash and cash equivalents	$	(5,217	)	$	3,114

Cash and cash equivalents at January 1	$	35,283		$	28,896
Cash and cash equivalents of discontinued/held-for-sale operations at January 1		—			(2	)
Net increase/(decrease) in cash and cash equivalents		(5,217	)		3,114
Less: cash and cash equivalents of discontinued/held-for-sale operations at June 30		—			(8	)
Cash and cash equivalents at June 30	$	30,066		$	32,000

The accompanying notes are part of the financial statements

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

CONDENSED SECTOR STATEMENT OF CASH FLOWS

For the Periods Ended June 30, 2008 and 2007

(in millions)

	First Half 2008						First Half 2007
	Automotive			Financial Services			Automotive			Financial Services
	(unaudited)						(unaudited)
Cash flows from operating activities of continuing operations
Net cash (used in)/provided by operating activities	$	(1,560	)	$	5,151		$	2,810		$	3,358

Cash flows from investing activities
Capital expenditures		(3,077	)		(51	)		(2,616	)		(21	)
Acquisitions of retail and other finance receivables and operating leases		—			(25,483	)		—			(26,280	)
Collections of retail and other finance receivables and operating leases		—			22,188			—			20,427
Net (increase)/decrease of wholesale receivables		—			(1,468	)		—			(777	)
Purchases of securities		(23,683	)		(9,332	)		(924	)		(3,796	)
Sales and maturities of securities		23,349			5,041			917			11,171
Proceeds from sales of retail and other finance receivables and operating leases		—			—			—			702
Proceeds from sale of businesses		2,451			3,684			1,001			—
Cash paid for acquisitions		(13	)		—			—			—
Transfer of cash balances upon disposition of discontinued/held-for-sale operations		(925	)		—			(83	)		—
Investing activity to Financial Services		—			—			(6	)		—
Other		914			955			498			680
Net cash (used in)/provided by investing activities		(984	)		(4,466	)		(1,213	)		2,106

Cash flows from financing activities
Cash dividends		—			—			—			—
Sales of Common Stock		144			—			51			—
Purchases of Common Stock		—			—			(31	)		—
Changes in short-term debt		—			(1,049	)		6			(1,402	)
Proceeds from issuance of other debt		78			20,648			158			17,007
Principal payments on other debt		(266	)		(23,130	)		(363	)		(19,405	)
Financing activity from Automotive		—			—			—			6
Other		(176	)		(91	)		(4	)		(57	)
Net cash (used in)/provided by financing activities		(220	)		(3,622	)		(183	)		(3,851	)

Effect of exchange rate changes on cash		270			199			62			9
Net change in intersector receivables/payables and other liabilities		(1,236	)		1,236			(435	)		435
Net increase/(decrease) in cash and cash equivalents from continuing operations		(3,730	)		(1,502	)		1,041			2,057

Cash flows from discontinued operations
Cash flows from operating activities of discontinued operations		—			15			16			—
Cash flows from investing activities of discontinued operations		—			—			—			—
Cash flows from financing activities of discontinued operations		—			—			—			—

Net increase/(decrease) in cash and cash equivalents	$	(3,730	)	$	(1,487	)	$	1,057		$	2,057

Cash and cash equivalents at January 1	$	20,678		$	14,605		$	16,022		$	12,874
Cash and cash equivalents of discontinued/held-for-sale operations at January 1		—			—			(2	)		—
Net increase/(decrease) in cash and cash equivalents		(3,730	)		(1,487	)		1,057			2,057
Less: cash and cash equivalents of discontinued/held-for-sale operations at June 30		—			—			(8	)		—
Cash and cash equivalents at June 30	$	16,948		$	13,118		$	17,069		$	14,931

The accompanying notes are part of the financial statements

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 generally accepted accounting principles ("GAAP") 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 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. The operating results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. Reference should be made to the financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2007 ("2007 Form 10-K Report"), updated in our Current Report on Form 8-K filed on June 2, 2008. 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. All held-for-sale assets and liabilities are excluded from the footnotes unless otherwise noted. See Note 8 for details of held-for-sale operations.

Presentation of Balance Sheet

The difference between the total assets and total liabilities as presented in our sector balance sheet and consolidated balance sheet is the result of netting of deferred income tax assets and liabilities. The reconciliation between total sector and consolidated balance sheets is as follows (in millions):

	June 30, 2008			December 31, 2007
Sector balance sheet presentation of deferred income tax assets:
Automotive sector current deferred income tax assets	$	542		$	532
Automotive sector non-current deferred income tax assets		7,676			9,268
Financial Services sector deferred income tax assets*		186			163
Total		8,404			9,963
Reclassification for netting of deferred income taxes		(5,153	)		(6,463	)
Consolidated balance sheet presentation of deferred income tax assets	$	3,251		$	3,500

Sector balance sheet presentation of deferred income tax liabilities:
Automotive sector current deferred income tax liabilities	$	2,748		$	2,671
Automotive sector non-current deferred income tax liabilities		967			783
Financial Services sector deferred income tax liabilities		4,337			6,043
Total		8,052			9,497
Reclassification for netting of deferred income taxes		(5,153	)		(6,463	)
Consolidated balance sheet presentation of deferred income tax liabilities	$	2,899		$	3,034

__________

*	Financial Services deferred income tax assets are included in Financial Services other assets on our sector balance sheet.

Presentation of Cash Flows

Beginning with our statement of cash flows for the period ended March 31, 2008, we changed the presentation of cash flows to separately disclose the purchases of trading securities and the sale and maturities of trading securities as gross amounts within Cash flows from investing activities instead of Cash flows from operating activities of continuing operations. This change is in response to our election to apply the fair value option to our available-for-sale and held-to-maturity securities upon adoption of Statement of Financial Accounting Standards ("SFAS") No. 159, The Fair Value Option for Financial Assets and Financial Liabilities – including an amendment of FASB Statement No. 115 ("SFAS No. 159") on January 1, 2008.

Item 1. Financial Statements (Continued)

NOTE 1. FINANCIAL STATEMENTS (Continued)

The reconciliation between total sector and consolidated cash flows from operating activities of continuing operations is as follows (in millions):

	First Half
	2008			2007
Sum of sector cash flows from operating activities of continuing operations	$	3,591		$	6,168
Reclassification of wholesale receivable cash flows from investing to operating for consolidated presentation (a)		(1,468	)		(777	)
Reclassification of finance receivable cash flows from investing to operating for consolidated presentation (b)		38			(164	)
Consolidated cash flows from operating activities of continuing operations	$	2,161		$	5,227

__________

(a)

In addition to vehicles sold by us, the cash flows from wholesale finance receivables being reclassified from investing to operating include financing by Ford Motor Credit Company LLC ("Ford Credit") of used and non-Ford vehicles. 100% of cash flows from wholesale finance receivables have been reclassified for consolidated presentation as the portion of these cash flows from used and non-Ford vehicles is impracticable to separate.

(b)

Includes cash flows of finance receivables purchased from certain divisions and subsidiaries of the Automotive sector.

NOTE 2. INVENTORIES

Inventories are summarized as follows (in millions):

	June 30,			December 31,
	2008			2007
Raw materials, work-in-process and supplies	$	4,506		$	4,360
Finished products		9,540			6,861
Total inventories under first-in, first-out method ("FIFO")		14,046			11,221
Less: Last-in, first-out method ("LIFO") adjustment		(1,059	)		(1,100	)
Total inventories	$	12,987		$	10,121

Inventories are stated at lower of cost or market. About one-fourth of inventories were determined under the LIFO method.

NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS

Automotive Sector

Based upon the financial impact of rapidly-changing U.S. market conditions during the second quarter of 2008, we projected a decline in net cash flows for the Ford North America segment. The decline primarily reflected: (1) a more pronounced and accelerated shift in consumer preferences away from full-size trucks and traditional sport utility vehicles ("SUVs") to smaller, more fuel-efficient vehicles as a result of higher fuel prices; (2) lower-than-anticipated U.S. industry demand; and (3) greater-than-anticipated escalation of commodity costs. As a result, in the second quarter of 2008 we tested the long-lived assets of this segment for recoverability and recorded in Automotive cost of sales a pre-tax impairment charge of $5.3 billion, representing the amount by which the carrying value of these assets exceeded the estimated fair value.

Financial Services Sector

During the second quarter of 2008, higher fuel prices and the weak economic climate in the United States and Canada resulted in a more pronounced and accelerated shift in consumer preferences away from full-size trucks and traditional SUVs to smaller, more fuel-efficient vehicles. This shift in consumer preferences combined with a weak economic climate caused a significant reduction in auction values for used full-size trucks and traditional SUVs. As a result, we tested Ford Credit's operating leases in its North America segment for recoverability and recorded a pre-tax impairment charge in Selling, administrative and other expenses on our consolidated income statement and in Financial Services depreciation on our sector income statement of $2.1 billion, representing the amount by which the carrying value of certain vehicle lines in Ford Credit's lease portfolio exceeded the estimated fair value.

Item 1. Financial Statements (Continued)

NOTE 4. GOODWILL AND OTHER NET INTANGIBLES

Changes in the carrying amount of goodwill are as follows (in millions):

	Automotive Sector										Financial Services Sector
	Ford North America			Ford Europe		Volvo		Total			Ford Credit			Total Company
Balances at December 31, 2007	$	89		$	37	$	1,360	$	1,486		$	18		$	1,504
Changes in goodwill:
Goodwill acquired		—			—		—		—			—			—
Other disposals		(1	)		—		—		(1	)		(9	)		(10	)
Dealer goodwill impairment*		(88	)		—		—		(88	)		—			(88	)
Effect of foreign currency translation and other		—			1		85		86			1			87
Balances at June 30, 2008	$	—		$	38	$	1,445	$	1,483		$	10		$	1,493

__________

Based on our expected reduction of our Ford North America dealership base, we recorded an other-than-temporary impairment of our investment in our consolidated North America dealerships. We recorded the $88 million impairment of our investment in the first quarter of 2008 by writing down the related goodwill to its fair value of $0.

Other Net Intangibles

The components of net identifiable intangible assets are as follows (in millions):

	June 30, 2008							December 31, 2007
	Gross Carrying Amount		Less: Accumulated Amortization			Net Intangible Assets		Gross Carrying Amount		Less: Accumulated Amortization			Net Intangible Assets
Automotive Sector
Distribution networks	$	355	$	(113	)	$	242	$	335	$	(103	)	$	232
Manufacturing and production incentive rights		333		(124	)		209		297		(74	)		223
Other		198		(98	)		100		199		(89	)		110
Total Automotive sector		886		(335	)		551		831		(266	)		565
Total Financial Services Sector		4		(4	)		—		4		(4	)		—
Total	$	890	$	(339	)	$	551	$	835	$	(270	)	$	565

Our identifiable intangible assets are comprised of distribution networks with a useful life of 40 years, manufacturing and production incentive rights acquired in 2006 with a useful life of 4 years, and other intangibles with various amortization periods (primarily patents, customer contracts, technology, and land rights). Pre-tax amortization expense, excluding the effects of foreign currency translation, was as follows (in millions):

	Second Quarter				First Half
	2008		2007		2008		2007
Pre-tax amortization expense	$	26	$	25	$	50	$	47

Excluding the impact of foreign currency translation, intangible asset amortization is forecasted to range from $95 million to $105 million per year for the next three years, and $20 million to $30 million per year thereafter.

NOTE 5. VARIABLE INTEREST ENTITIES

We consolidate VIEs of which we are the primary beneficiary. The liabilities recognized as a result of consolidating these VIEs do not necessarily 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 necessarily represent additional assets that could be used to satisfy claims against our general assets.

Item 1. Financial Statements (Continued)

NOTE 5. VARIABLE INTEREST ENTITIES (Continued)

The total consolidated VIE assets reflected on our June 30, 2008 and December 31, 2007 balance sheets are as follows (in millions):

	June 30,		December 31,
	2008		2007
Automotive Sector
Cash and cash equivalents	$	753	$	742
Other assets		5,517		5,599
Total assets	$	6,270	$	6,341

Financial Services Sector
Cash and cash equivalents	$	5,263	$	4,605
Finance receivables		70,716		60,361
Net investment in operating leases		15,133		17,461
Total assets	$	91,112	$	82,427

We have several investments in entities determined 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 at June 30, 2008 and December 31, 2007, respectively, was $379 million and $357 million for our Automotive sector and $150 million and $76 million for our Financial Services sector. Any potential losses associated with these VIEs would be limited to the value of our invested capital or equity rights and, where applicable, receivables due from the VIEs.

Ford Credit uses special purpose entities ("SPEs") that are considered VIEs for most of its on-balance sheet securitizations. Ford Credit also sells finance receivables to bank-sponsored asset-backed commercial paper issuers that are SPEs of the sponsor bank; these SPEs are not consolidated by Ford Credit. All of these transactions constitute sales for legal purposes, but some do not satisfy the requirements for accounting sale treatment. The outstanding balance of these finance receivables was approximately $2.6 billion and $3.4 billion at June 30, 2008 and December 31, 2007, respectively.

NOTE 6. JOB SECURITY BENEFITS RESERVE AND EMPLOYEE SEPARATION ACTIONS

Automotive Sector

Job Security Benefits Reserve

We are required to pay most idled unionized hourly employees in North America a portion of their wages and benefits for a specified period of time ("Job Security Benefits") (previously referred to as Jobs Bank Benefits). We expense in Automotive cost of sales Job Security Benefits expected to be provided to our hourly employees at facilities that will be closed or at which shifts will be eliminated or, in the case of some Automotive Components Holdings, LLC ("ACH") plants, sold (see Note 18 of the Notes to the Financial Statements in our 2007 Form 10-K Report).

The Job Security Benefits reserve includes an amount for benefits expected to be provided in their present form under the current International Union, United Automobile, Aerospace and Agricultural Implement Workers of America ("UAW") and National Automobile, Aerospace, Transportation and General Workers Union of Canada ("CAW") collective bargaining agreements. The Job Security Benefits provided to our hourly employees are expensed when it becomes probable that employees will be permanently idled. The following table summarizes the activity in the related Job Security Benefits reserve:

	Reserve (in millions)						Number of Employees
	First Half 2008			Full Year 2007			First Half 2008			Full Year 2007
Beginning balance	$	817		$	1,036			8,316			10,728
Additions to Job Security Benefits reserve/Transfers from voluntary separation program (i.e., rescissions)		44			232			518			2,220
Voluntary separations and relocations		(228	)		(311	)		(2,613	)		(4,632	)
Benefit payments and other adjustments		238			(140	)		—			—
Ending balance	$	871		$	817			6,221			8,316

The $238 million increase in the reserve during the first half of 2008 relates to a lengthening of Job Security Benefits for certain employees. We previously had assumed a shorter benefit period for these employees, who we now expect to remain idled for a longer period of time due to lower vehicle production volumes and recent capacity changes.

Item 1. Financial Statements (Continued)

NOTE 6. JOB SECURITY BENEFITS RESERVE AND EMPLOYEE SEPARATION ACTIONS (Continued)

The reserve balance above takes into account several factors: the demographics of the population at each affected facility, redeployment alternatives, and recent experience relative to voluntary redeployments. Due to the complexities inherent in estimating this reserve, our actual costs could differ materially. We continue to expense costs associated with the small number of employees who are temporarily idled on an as-incurred basis.

Separation Actions

The costs of voluntary employee separation actions are recorded at the time of an employee's acceptance, unless the acceptance requires explicit approval by the Company. The costs of conditional voluntary separations are accrued when all conditions are satisfied. The costs of involuntary separation programs are accrued when management has approved the program, the affected employees have been identified, and termination is probable.

UAW Voluntary Separations. The following table summarizes the activity in the related separation reserve, with the expense recorded in Automotive cost of sales:

	Reserve (in millions)						Number of Employees
	First Half 2008			Full Year 2007			First Half 2008			Full Year 2007
Beginning balance	$	225		$	2,435			1,374			26,351
Voluntary acceptances		180			—			1,461			—
Payments/Terminations		(227	)		(1,912	)		(1,823	)		(21,587	)
Rescissions and other adjustments		11			(298	)		(61	)		(3,390	)
Ending balance	$	189		$	225			951			1,374

The ending balances shown above represent the cost of separation packages for employees who accepted packages but have not yet left the Company, as well as employees who accepted a retirement package and ceased duties, but who will remain on our employment rolls until they reach retirement eligibility. Excluded from the table above are 2,863 voluntary acceptances of retirement incentive packages during the first half of 2008 the costs for which are included in pension and other postretirement employee benefits ("OPEB") benefit separation costs. See Note 12 for employee separation costs related to pension and OPEB.

Other Employee Separation Actions. In the second quarter of 2008, we announced plans to reduce salaried employee costs in North America by 15%. In the United States, we recognized pre-tax charges of $13 million related to those actions which were probable to occur as of June 30, 2008; the remaining charges, for separations that were not probable to occur by June 30, 2008, will be accrued in the third quarter of 2008. Some of these actions have required the use of involuntary separations. In 2007, we completed our previously-announced North American salaried employee reduction and incurred $154 million of pre-tax charges in the United States through the first half of 2007. These charges are reported in Automotive cost of sales and Selling, administrative and other expenses.

In addition, we had pre-tax charges for other hourly and salaried employee separation actions outside the United States. We recognized $31 million and $69 million for the second quarter of 2008 and 2007, respectively, and $38 million and $252 million for the first half of 2008 and 2007, respectively. These charges are reported in Automotive cost of sales and Selling, administrative and other expenses and exclude costs for pension and OPEB. See Note 12 for employee separation costs related to pension and OPEB.

Financial Services Sector

Separation Actions

In 2007, we recognized pre-tax charges of $45 million in Selling, administrative and other expenses for employee separation actions. The majority of these actions were associated with Ford Credit's North American business transformation initiative (i.e., the consolidation of its North American branches into its seven existing business centers). These charges exclude costs for pension and OPEB. See Note 12 for employee separation costs related to pension and OPEB.

Item 1. Financial Statements (Continued)

NOTE 7. INCOME TAXES

Generally, for interim tax reporting we estimate one single tax rate for tax jurisdictions not subject to a valuation allowance, which is applied to the year-to-date ordinary income/(loss). However, we manage our operations by multi-jurisdictional business units and thus are unable to reasonably compute one overall effective tax rate. Accordingly, our worldwide tax provision is calculated pursuant to Financial Accounting Standards Board ("FASB") Interpretation No. 18, Accounting for Income Taxes in Interim Periods, which provides that tax (or benefit) in each foreign jurisdiction not subject to valuation allowance be separately computed as ordinary income/(loss) occurs within the jurisdiction.

NOTE 8. DISCONTINUED OPERATIONS, HELD-FOR-SALE OPERATIONS, OTHER DISPOSITIONS, AND ACQUISITIONS

Automotive Sector

Discontinued Operations

Automotive Protection Corporation ("APCO"). Our North American operation APCO was sold in the second quarter of 2007. Second quarter results for this discontinued operation are shown in the table below (in millions):

	Second Quarter					First Half
	2008		2007			2008		2007
Sales and revenues	$	—	$	1		$	—	$	13

Operating income/(loss) from discontinued operations	$	—	$	(1	)	$	—	$	2
Gain/(Loss) on discontinued operations		—		51			—		51
(Provision for)/Benefit from income taxes		—		(18	)		—		(19	)
Income/(Loss) from discontinued operations	$	—	$	32		$	—	$	34

Held-for-Sale Operations

Jaguar Land Rover. During 2007, we committed to sell our Jaguar Land Rover operations in order to focus on our core Automotive operations and to build liquidity. At December 31, 2007, we classified the assets and liabilities of these operations as held for sale on our balance sheet. On March 25, 2008, we entered into a definitive agreement with Tata Motors Limited pursuant to which we would sell all of our interest in Jaguar Land Rover for $2.3 billion, subject to customary purchase price adjustments upon completion (e.g., relating to working capital, cash, and debt), and agreed to contribute up to about $600 million to the Jaguar and Land Rover pension plans. In the first quarter of 2008, we recorded a pre-tax impairment charge of $421 million reported in Automotive cost of sales related to the disposal of these operations.

On June 2, 2008, we completed the sale of Jaguar Land Rover. We received $2.4 billion in cash proceeds and recorded a $145 million receivable for additional proceeds related to final purchase price adjustments. As a result of the sale, we recognized a pre-tax loss of $106 million, reported in Automotive interest income and other non-operating income/(expense), net. This loss includes the recognition of $1.2 billion of accumulated other comprehensive income, the settlement of about $550 million of net intercompany payables, and related separation costs of about $150 million.

Item 1. Financial Statements (Continued)

NOTE 8. DISCONTINUED OPERATIONS, HELD-FOR-SALE OPERATIONS, OTHER DISPOSITIONS, AND ACQUISITIONS (Continued)

The assets and liabilities of our Jaguar Land Rover operations classified as held for sale are summarized as follows (in millions):

	June 2, 2008			December 31, 2007
Assets
Cash and cash equivalents	$	900		$	—
Receivables		1,172			758
Inventories		1,921			1,530
Net property		2,199			2,246
Goodwill and other net intangibles		2,002			2,010
Pension assets		786			696
Other assets		309			297
Impairment of carrying value		(421	)		—
Total assets of the held-for-sale operations	$	8,868		$	7,537

Liabilities
Payables	$	2,628		$	2,395
Pension liabilities		18			19
Warranty liabilities		579			645
Debt		177			—
Other liabilities		2,340			1,765
Total liabilities of the held-for-sale operations	$	5,742		$	4,824

The cash balances we transferred upon sale consisted primarily of about $600 million related to the committed pension funding under the definitive agreement and $177 million related to debt which the buyer agreed to assume upon sale.

As part of the transaction, we will continue to supply Jaguar Land Rover with powertrains, stampings, and other vehicle components. We also committed to provide transitional support, including engineering, information technology, accounting, and other services. Ford Credit will provide financing for Jaguar Land Rover dealers and customers during a transition period, which can vary by market, for up to 12 months.

ACH. On April 14, 2008, ACH completed the sale of its glass business to Zeledyne, LLC. The sale included the Nashville, Tulsa, and VidrioCar plants, along with the research and development, engineering, sales and aftermarket operations in Tennessee and Michigan. These facilities will continue to supply Ford with automotive glass products. As a result of this transaction, we recognized a pre-tax loss of $285 million reported in Automotive interest income and other non-operating income/(expense). This loss is comprised of asset write-offs of $149 million, long-term contractual restructuring obligations of $104 million, and $32 million of transaction costs and other related expenses.

The assets and liabilities of our glass business classified as held for sale are summarized as follows (in millions):

	April 14, 2008
Assets
Cash	$	25
Inventories		73
Net property		75
Other net intangibles		1
Other assets		1
Total assets of the held-for-sale operations	$	175

Liabilities
Payables	$	1
Total liabilities of the held-for-sale operations	$	1

During the second quarter of 2008, the prospective buyer of the business at the Milan plant, which produces fuel tanks and bumper fascias, reached an agreement on labor terms with the UAW. This agreement was one of the conditions referenced in the non-binding agreement between ACH and the prospective buyer. At June 30, 2008, ACH classified the assets and liabilities of Milan plant as held for sale in our balance sheet. In the second quarter of 2008, we recorded a pre-tax impairment charge of $18 million reported in Automotive cost of sales related to the disposal of this business. The impairment charge reflects the impact on expected proceeds based on June 30, 2008 conditions and the net book value of the held-for-sale assets. We expect to complete the sale by the end of this year.

Item 1. Financial Statements (Continued)

NOTE 8. DISCONTINUED OPERATIONS, HELD-FOR-SALE OPERATIONS, OTHER DISPOSITIONS, AND ACQUISITIONS (Continued)

The assets of our Milan Plant classified as held for sale are summarized as follows (in millions):

	June 30, 2008
Assets
Inventories	$	12
Net property		34
Impairment of carrying value		(18	)
Total assets of the held-for-sale operations	$	28

Other Dispositions

ACH. As of June 30, 2008, in addition to its Milan plant, ACH had entered into a non-binding, conditional agreement for the sale of the business at the Sheldon Road plant. The primary products produced at the Sheldon Road plant are heating, ventilating, and cooling assemblies; heat exchangers; and manual control panel components. This sale is conditional upon reaching agreement on a variety of issues, including successful negotiation by the prospective buyer of labor terms with the UAW. ACH has terminated the non-binding agreements for the sale of the businesses at the Sandusky and Saline plants.

Financial Services Sector

Discontinued Operations

Triad Financial Corporation ("Triad"). In 2005, Ford Credit completed the sale of Triad. Triad specialized in automobile retail installment sales contracts with borrowers who generally would not be expected to qualify, based on their credit worthiness, for traditional financing sources such as those provided by commercial banks or automobile manufacturers' affiliated finance companies, primarily through non-Ford dealerships. In 2005, Ford Credit recognized a $4 million after-tax gain on disposal of discontinued operations. In the second quarter of 2008, Ford Credit received additional proceeds primarily based on better-than-anticipated securitized portfolio performance, and recognized an additional $8 million after-tax gain in Income/(Loss) from discontinued operations.

Other Dispositions

Nordic Operations. During the second quarter of 2008, Ford Credit completed the creation of a joint venture finance company and transferred the majority of its business and assets from Denmark, Finland, Norway, and Sweden into the joint venture. The joint venture will support the sale of Ford vehicles in these markets. As a result of the sale, Finance receivables, net were reduced by $1.7 billion, and we recognized a pre-tax gain of $85 million, net of transaction costs and including $35 million of foreign currency translation adjustments, in Financial Services revenues. Ford Credit reports its ownership interest in the joint venture as an equity method investment.

PRIMUS Financial Services Inc. ("PRIMUS Japan"). In April 2008, Ford Credit completed the sale of 96% of its ownership interest in PRIMUS Japan, Ford Credit's operation in Japan that offers automotive retail and wholesale financing of Ford and Mazda vehicles. As a result of the sale, Finance Receivables, net were reduced by $1.8 billion, Debt was reduced by $252 million, and we recognized a pre-tax gain of $22 million, net of transaction costs and including $28 million of foreign currency translation adjustments, in Financial Services revenues. Ford Credit reports its remaining ownership interest as a cost method investment.

Primus Finance and Leasing, Inc. ("Primus Philippines"). During the second quarter of 2008, Ford Credit completed the sale of its 60% ownership interest in Primus Philippines, which is Ford Credit's operation in the Philippines offering automotive retail and wholesale financing of Ford and Mazda vehicles. Ford Credit also completed the sale of its 40% ownership interest in PFL Holdings, Inc., a holding company in the Philippines that owns the remaining 40% ownership interest in Primus Philippines. As a result of the sale, we recognized a pre-tax gain of $5 million, net of transactions costs and including $1 million of foreign currency translation adjustments, in Financial Services revenues.

Item 1. Financial Statements (Continued)

NOTE 9. 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 common stock equivalents, such as stock options and convertible securities, considered to be potentially dilutive. Basic and diluted income/(loss) per share were calculated using the following (in millions):

	Second Quarter					First Half
	2008			2007		2008			2007
Basic and Diluted Income/(Loss)
Basic income/(loss) from continuing operations	$	(8,675	)	$	718	$	(8,576	)	$	434
Effect of dilutive senior convertible notes		—	(a)		34		—	(a)		69
Effect of dilutive 6.50% Cumulative Convertible Trust Preferred Securities ("Trust Preferred Securities")		—	(b)		54