e10vk
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the fiscal year ended December 31, 2006
or
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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)
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Delaware
(State of incorporation)
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38-0549190
(I.R.S. employer identification no.) |
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One American Road, Dearborn, Michigan
(Address of principal executive offices)
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48126
(Zip code) |
313-322-3000
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered (a) |
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Common Stock, par value $.01 per share
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New York Stock Exchange |
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7.50% Notes Due June 10, 2043
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New York Stock Exchange |
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Ford Motor Company Capital Trust II
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New York Stock Exchange |
6.50% Cumulative Convertible Trust Preferred |
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Securities, liquidation preference $50 per share |
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(a) |
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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: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act.
Yesþ Noo
Indicate by check mark if the registrant is not required to file reports pursuant to section 13 or
Section 15(d) of the Act.
Yeso Noþ
Indicate by check mark if 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 þ No o
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. o
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. (Check one)
Large accelerated filer þ 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
Act). Yes o No þ
As of June 30, 2006, Ford had outstanding 1,809,771,835 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 ($6.30 per share), the aggregate market value of such Common Stock
was $11,401,562,561. 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, 2006 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 currently
scheduled to be held on May 10, 2007 (our Proxy Statement), which is incorporated by reference
under various Items of this Report as indicated below.
As of February 12, 2007, Ford had outstanding 1,821,686,422 shares of Common Stock and
70,852,076 shares of Class B Stock. Based on the New York Stock Exchange Composite Transaction
closing price of the Common Stock on that date ($8.65 per share), the aggregate market value of
such Common Stock was $15,757,587,550.
DOCUMENTS INCORPORATED BY REFERENCE
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Document
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Where Incorporated |
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Proxy Statement*
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Part III (Items 10, 11, 12, 13 and 14) |
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* |
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As stated under various Items of this Report, only certain specified portions of such
document are incorporated by reference in this Report. |
Exhibit
Index begins on page 75
TABLE OF CONTENTS
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FS-1 |
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FS-1 |
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FS-2 |
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FS-3 |
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FS-59 |
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FSS-1 |
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FSS-2 |
TABLE OF CONTENTS
(continued)
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EXHIBITS |
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By-Laws as amended through December 14, 2006 |
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Amendments to Deferred Compensation Plan, effective as of December 1, 2006 |
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Annual Incentive Compensation Plan Metrics for 2007 |
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Form of Final Award Notification Letter for 2006 Performance-Based Restricted Stock Equivalents |
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Description of Performance-Based Restricted Stock Units for 2007 |
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Form of Final Award Notification Letter for 2004-2006 Performance Period |
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Description of Time-Based Restricted Stock Units |
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Amended and Restated Agreement between Ford Motor Company and Ford Motor Credit Company dated as of December 12, 2006 |
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Description of Settlement of Special 2006-2008 Senior Executive Retention Program |
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Arrangement between Ford Motor Company and Mark Fields dated February 7, 2007 |
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Description of Company Practices regarding Club Memberships for Executives |
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Description of Special Terms and Conditions for Stock Options Granted to Alan Mulally |
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Description of President and CEO
Compensation Arrangements |
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Credit Agreement dated as of December 15, 2006 |
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Calculation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends |
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List of Subsidiaries of Ford as of February 21, 2007 |
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Consent of Independent Registered Public Accounting Firm |
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Powers of Attorney |
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Rule 15d-14(a) Certification of Chief
Executive Officer |
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Rule 15d-14(a) Certification of Chief Financial Officer |
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Section 1350 Certification of Chief
Executive Officer |
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Section 1350 Certification of
Chief Financial Officer |
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, that had been 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 vehicles.
In addition to the information about Ford and its subsidiaries contained in this Annual Report
on Form 10-K for the year ended December 31, 2006 (2006 Form 10-K Report or 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.
Upon accessing our website and clicking on the Corporate Governance link, viewers will see a
list of corporate governance documents and may click on the desired document. 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 may 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 that is provided on our website, all of
our recent 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. This includes recent Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, as well
as any amendments to those Reports. Also, recent Section 16 filings 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 made 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:
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Investor Information |
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Company Reports |
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U.S. S.E.C. EDGAR |
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Click here to continue on to view SEC Filings |
Viewers will then see a list of reports filed with the SEC and may click on the desired document.
The foregoing information regarding our website and its content is for convenience only. The
content of our website is not deemed to be incorporated by reference into this report nor should it
be deemed to have been filed with the SEC.
ITEM 1. Business (continued)
OVERVIEW
Segments. We review and present our business results in two sectors: Automotive and
Financial Services. Within these sectors, our business is divided into reportable segments 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.
Our Automotive and Financial Services segments are described in the table below:
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Business Sector |
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Reportable Segments |
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Description |
Automotive:
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Ford North America
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Primarily includes the sale of Ford, Lincoln and Mercury brand vehicles and related service parts in North America (the United States, Canada and Mexico), together with the associated costs to design, develop, manufacture and service these vehicles and parts. |
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Ford South America
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Primarily includes 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. |
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Ford Europe
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Primarily includes the sale of Ford-brand vehicles and related service parts in Europe, Turkey and Russia, together with the associated costs to design, develop, manufacture and service these vehicles and parts. |
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Premier Automotive Group
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Primarily includes the sale of Premier Automotive Group (PAG) brand vehicles (i.e., Volvo, Jaguar, Land Rover and Aston Martin) and related service parts throughout the world (including North and South America, Asia
Pacific and Africa), together with the associated costs to design, develop, manufacture and service these vehicles and parts. |
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Ford Asia Pacific and Africa/Mazda
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Primarily includes the sale of Ford-brand vehicles and related service parts in the Asia Pacific region and South Africa, together with the associated costs to design, develop, manufacture and service these vehicles and parts, and our share of the results of
Mazda Motor Corporation (of which we own approximately 33.4%) and certain of our Mazda-related investments. |
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Financial Services:
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Ford Motor Credit Company
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Primarily includes vehicle-related financing, leasing, and insurance. |
We provide financial information (such as revenues, income, and assets) for each of these
business sectors and reportable segments in three areas of this Report: (1) Item 6. Selected
Financial Data, (2) Item 7. Managements Discussion and Analysis of Financial Condition and
Results of Operations, and (3) Note 24 of the Notes to the Financial Statements located at the end
of this Report. Financial information relating to certain geographic areas also is included in
these Notes.
2
ITEM 1. Business (continued)
AUTOMOTIVE SECTOR
General
We sell cars and trucks throughout the world. In 2006, we sold approximately 6,597,000
vehicles at wholesale throughout the world. See Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations for additional discussion of wholesale unit volumes.
Our vehicle brands include Ford, Mercury, Lincoln, Volvo, Land Rover, Jaguar 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, the substantial majority of
which are independently owned. At December 31, 2006, the approximate number of dealers and
distributors worldwide distributing our vehicle brands was as follows:
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Number of Dealerships |
Brand |
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at December 31, 2006* |
Ford |
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9,480 |
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Mercury |
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1,971 |
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Lincoln |
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1,515 |
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Volvo |
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2,352 |
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Land Rover |
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1,376 |
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Jaguar |
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871 |
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Aston Martin |
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125 |
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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 23% and 31% of our total U.S. 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 and other
channels, 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 ServiceSM,
Ford Extended Service PlanSM, and MotorcraftSM.
The worldwide automotive industry, Ford included, is affected significantly by general
economic conditions (among other factors) over which we have little control. This is especially so
because vehicles are durable goods, which provide consumers latitude in determining whether and
when to replace an existing vehicle. The decision whether and when to make a vehicle purchase may
be affected significantly by slowing economic growth, geo-political events, and other factors
(including the cost of purchasing and operating cars and trucks and the availability and cost of
credit and fuel). Accordingly, the number of cars and trucks sold (commonly referred to as
industry demand) may vary substantially from year to year. The automotive industry is also a
highly competitive, cyclical business that has a wide and growing variety of product offerings from
a growing number of increasingly global manufacturers.
Our wholesale unit volumes vary with the level of total industry demand and our share of that
industry demand. In the short term, our wholesale unit volumes also are influenced by the level of
dealer inventory. Our share is influenced by how our products are perceived in comparison to those
offered by other manufacturers based on many factors, including price, quality, styling,
reliability, safety, functionality, and corporate reputation. Our share also is affected by the
timing and frequency of new model introductions. Our ability to satisfy changing consumer
preferences with respect to type or size of vehicle, as well as design and performance
characteristics, impacts our sales and earnings significantly.
3
ITEM 1. Business (continued)
The profitability of vehicle sales is affected by many factors, including the following:
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wholesale unit volumes; |
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the mix of vehicles and options sold; |
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the margin of profit on each vehicle sold; |
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the level of incentives (e.g., price discounts) and other marketing costs; |
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the costs for customer warranty claims and additional service actions; and |
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the costs for safety, emission and fuel economy technology and equipment. |
Further,
because we (like other manufacturers) have a high proportion of costs that are
relatively fixed (including labor costs), small changes in wholesale unit volumes may 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 maintain their market share and
production levels. A discussion of our strategies 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 may 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). See
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations for
additional discussion of revenue recognition practices. We manage our vehicle production schedule
based on a number of factors, including dealer stock levels (i.e., the 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). We experience
some fluctuation in the business of a seasonal nature. Generally, North American production is
higher in the first half of the year to meet demand in the spring and summer, which are usually the
strongest sales months of the year. Third quarter production is typically the lowest of the year,
generally reflecting the annual two-week vacation shutdown of our manufacturing facilities during
this quarter. As a result, operating results for the third quarter typically are less favorable
than those of other quarters.
Raw Materials. We purchase a wide variety of raw materials for use in 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), ferrous metals (e.g., steel and iron
castings), 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 always risks and uncertainties with respect to the supply of raw materials that
could impact their availability in sufficient quantities to meet our needs. See Item 7.
Management Discussion and Analysis of Financial Condition and Results of Operations Overview for
a discussion of commodity and energy price trends, and Item 7A. Quantitative and Qualitative
Disclosures About Market Risk Commodity Price Risk for a discussion of commodity price risks.
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. 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 approximately 13,000
active patents and pending patent applications globally, with an average age for patents in our
active patent portfolio of just over 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 that these patents, patent applications and know-how, in
the aggregate, are 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.
We also 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, a loss of any of which could have a material adverse effect on our
business.
4
ITEM 1. Business (continued)
Warranty Coverage and Additional Service Actions. We presently provide warranties on vehicles
we sell. Warranties are offered for specific periods of time and/or mileage, and vary depending
upon the type of product, usage of the product and the geographic location of its sale. Types of
warranty coverage offered include base coverage (e.g., bumper-to-bumper coverage in the United
States on Ford-brand vehicles for 36 months or 36,000 miles, whichever occurs first), safety
restraint coverage, and corrosion coverage. Beginning with 2007 model-year passenger cars and
light trucks, Ford extended the powertrain warranty coverage offered on Ford, Lincoln and Mercury
vehicles sold in the United States, Canada and select U.S. export markets (e.g., powertrain
coverage for certain vehicles sold in the United States from three years or 36,000 miles to five
years or 60,000 miles on Ford and Mercury brands and from four years or 50,000 miles to six years
or 70,000 miles on the Lincoln brand). In compliance with regulatory requirements, we also provide
emissions-defects and emissions-performance warranty coverage. Pursuant to these warranties, Ford
will repair, replace, or adjust all parts on a vehicle that are defective in factory-supplied
materials or workmanship during the specified warranty period.
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 and additional service action costs for each vehicle sold by us are accrued
for at the time of sale. Accruals for estimated warranty and additional service action costs are
based on historical experience and subject to adjustment from time to time depending on actual
experience. Warranty accrual adjustments required when actual warranty claim experience differs
from our estimates may have a material impact on our results of operations and financial condition.
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 27 of the Notes to the Financial Statements.
United States
Sales Data. The following table shows U.S. industry sales of cars and trucks for the years
indicated (in millions of units):
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U.S. Industry Sales* |
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Years Ended December 31, |
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2006 |
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2005 |
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2004 |
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2003 |
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2002 |
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Cars |
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8.1 |
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7.9 |
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7.7 |
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7.8 |
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8.2 |
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Trucks |
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9.0 |
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9.6 |
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9.6 |
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9.2 |
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8.9 |
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Total |
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17.1 |
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17.5 |
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17.3 |
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17.0 |
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17.1 |
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* |
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Throughout this section, industry sales include sales of heavy trucks. |
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 vehicles, the distinction between
traditional cars and trucks has become more difficult to draw, and these vehicles are not
consistently classified as either cars or trucks across vehicle manufacturers. In the tables above
and below, we have classified crossover vehicles as sport utility vehicles. In addition, we have
classified as premium all of our luxury cars, regardless of size; premium sport utility vehicles
and crossovers are included in trucks. Annually, we conduct a comprehensive review of many
factors to determine the appropriate classification of vehicle segments and the vehicles within
those segments, and this review occasionally results in a change of classification for certain
vehicles.
5
ITEM 1. Business (continued)
The following tables show the proportion of U.S. 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 United States) for the years indicated:
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U.S. Industry Vehicle Mix of Sales by Segment |
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Years Ended December 31, |
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2006 |
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2005 |
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2004 |
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2003 |
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2002 |
CARS |
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Small |
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19.8 |
% |
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17.9 |
% |
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16.9 |
% |
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17.3 |
% |
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18.3 |
% |
Medium |
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12.4 |
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12.3 |
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13.1 |
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14.4 |
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15.2 |
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Large |
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7.4 |
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7.4 |
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6.8 |
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6.6 |
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7.2 |
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Premium |
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7.5 |
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7.8 |
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|
|
7.7 |
|
|
|
7.7 |
|
|
|
7.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. Industry Car Sales |
|
|
47.1 |
|
|
|
45.4 |
|
|
|
44.5 |
|
|
|
46.0 |
|
|
|
48.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TRUCKS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compact Pickup |
|
|
3.5 |
% |
|
|
3.9 |
% |
|
|
4.0 |
% |
|
|
4.4 |
% |
|
|
4.6 |
% |
Bus/Van |
|
|
7.8 |
|
|
|
8.1 |
|
|
|
8.5 |
|
|
|
8.2 |
|
|
|
8.5 |
|
Full-Size Pickup |
|
|
13.3 |
|
|
|
14.6 |
|
|
|
14.7 |
|
|
|
14.0 |
|
|
|
13.1 |
|
Sport Utility Vehicles |
|
|
25.2 |
|
|
|
25.6 |
|
|
|
26.1 |
|
|
|
25.7 |
|
|
|
24.3 |
|
Medium/Heavy |
|
|
3.1 |
|
|
|
2.4 |
|
|
|
2.2 |
|
|
|
1.7 |
|
|
|
1.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. Industry Truck Sales |
|
|
52.9 |
|
|
|
54.6 |
|
|
|
55.5 |
|
|
|
54.0 |
|
|
|
51.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. Industry Vehicle Sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford Vehicle Mix of Sales by Segment in U.S. |
|
|
Years Ended December 31, |
|
|
2006 |
|
2005 |
|
2004 |
|
2003 |
|
2002 |
CARS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small |
|
|
11.8 |
% |
|
|
10.9 |
% |
|
|
10.2 |
% |
|
|
11.4 |
% |
|
|
12.5 |
% |
Medium |
|
|
12.1 |
|
|
|
7.7 |
|
|
|
8.7 |
|
|
|
10.4 |
|
|
|
11.9 |
|
Large |
|
|
7.7 |
|
|
|
8.3 |
|
|
|
5.0 |
|
|
|
4.8 |
|
|
|
4.4 |
|
Premium |
|
|
6.4 |
|
|
|
6.3 |
|
|
|
7.1 |
|
|
|
7.5 |
|
|
|
8.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Ford U.S. Car Sales |
|
|
38.0 |
|
|
|
33.2 |
|
|
|
31.0 |
|
|
|
34.1 |
|
|
|
37.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TRUCKS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compact Pickup |
|
|
3.2 |
% |
|
|
3.8 |
% |
|
|
4.7 |
% |
|
|
6.0 |
% |
|
|
6.3 |
% |
Bus/Van |
|
|
8.0 |
|
|
|
8.4 |
|
|
|
8.8 |
|
|
|
8.4 |
|
|
|
9.1 |
|
Full-Size Pickup |
|
|
27.7 |
|
|
|
28.8 |
|
|
|
28.2 |
|
|
|
24.3 |
|
|
|
22.5 |
|
Sport Utility Vehicles |
|
|
22.5 |
|
|
|
25.3 |
|
|
|
26.9 |
|
|
|
27.0 |
|
|
|
24.8 |
|
Medium/Heavy |
|
|
0.6 |
|
|
|
0.5 |
|
|
|
0.4 |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Ford U.S. Truck Sales |
|
|
62.0 |
|
|
|
66.8 |
|
|
|
69.0 |
|
|
|
65.9 |
|
|
|
62.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Ford U.S. Vehicle Sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As the tables above indicate, the general shift from cars to trucks for both industry
sales and Ford sales is beginning to shift back toward cars. Prior to 2005, both industry and
Fords truck mix had been increasing since 2002, reflecting higher sales of sport utility vehicles
and full-size pickups. In 2006, in line with industry trends, Fords sport utility vehicle sales
as a percent of total sales declined, while medium and small car percentages increased. The
increase in 2006 in the proportion of medium cars sold by Ford largely reflects the introduction of
new models in this segment (e.g., Ford Fusion and Mercury Milan).
Market Share Data. The competitive environment in the United States has intensified and is
expected to continue to intensify as Japanese and Korean manufacturers increase imports to the
United States and production capacity in North America. Our principal competitors in the United
States include General Motors Corporation (General Motors), DaimlerChrysler Corporation
(DaimlerChrysler), Toyota Motor Corporation (Toyota), Honda Motor Company (Honda) and Nissan
Motor Company (Nissan). The following tables show changes in U.S. car and truck market share for
Ford (including all of our brands sold in the United States), and for the other five leading
vehicle manufacturers for the years indicated.
6
ITEM 1. Business (continued)
The percentages in each of the following tables represent the percentage of the combined car and
truck industry:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Car Market Shares (a) |
|
|
Years Ended December 31, |
|
|
2006 |
|
2005 |
|
2004 |
|
2003 |
|
2002 |
Ford |
|
|
6.4 |
% |
|
|
6.1 |
% |
|
|
6.1 |
% |
|
|
6.9 |
% |
|
|
7.8 |
% |
General Motors |
|
|
10.0 |
|
|
|
10.2 |
|
|
|
10.7 |
|
|
|
11.6 |
|
|
|
12.1 |
|
DaimlerChrysler |
|
|
5.2 |
|
|
|
5.1 |
|
|
|
4.8 |
|
|
|
4.5 |
|
|
|
4.8 |
|
Toyota |
|
|
8.6 |
|
|
|
7.4 |
|
|
|
6.3 |
|
|
|
6.0 |
|
|
|
5.6 |
|
Honda |
|
|
4.9 |
|
|
|
4.8 |
|
|
|
4.9 |
|
|
|
4.9 |
|
|
|
4.9 |
|
Nissan |
|
|
3.2 |
|
|
|
3.3 |
|
|
|
3.0 |
|
|
|
3.0 |
|
|
|
2.9 |
|
All Other (b) |
|
|
8.8 |
|
|
|
8.5 |
|
|
|
8.7 |
|
|
|
9.1 |
|
|
|
10.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. Car Deliveries |
|
|
47.1 |
% |
|
|
45.4 |
% |
|
|
44.5 |
% |
|
|
46.0 |
% |
|
|
48.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Truck Market Shares (a) |
|
|
Years Ended December 31, |
|
|
2006 |
|
2005 |
|
2004 |
|
2003 |
|
2002 |
Ford |
|
|
10.7 |
% |
|
|
12.1 |
% |
|
|
13.2 |
% |
|
|
13.6 |
% |
|
|
13.3 |
% |
General Motors |
|
|
14.1 |
|
|
|
15.6 |
|
|
|
16.4 |
|
|
|
16.4 |
|
|
|
16.2 |
|
DaimlerChrysler |
|
|
8.8 |
|
|
|
9.4 |
|
|
|
9.2 |
|
|
|
9.3 |
|
|
|
9.3 |
|
Toyota |
|
|
6.3 |
|
|
|
5.6 |
|
|
|
5.6 |
|
|
|
5.0 |
|
|
|
4.6 |
|
Honda |
|
|
3.9 |
|
|
|
3.6 |
|
|
|
3.2 |
|
|
|
3.1 |
|
|
|
2.4 |
|
Nissan |
|
|
2.8 |
|
|
|
2.9 |
|
|
|
2.7 |
|
|
|
1.7 |
|
|
|
1.4 |
|
All Other(b) |
|
|
6.3 |
|
|
|
5.4 |
|
|
|
5.2 |
|
|
|
4.9 |
|
|
|
4.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. Truck Deliveries |
|
|
52.9 |
% |
|
|
54.6 |
% |
|
|
55.5 |
% |
|
|
54.0 |
% |
|
|
51.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Combined Car and Truck Market Shares (a) |
|
|
Years Ended December 31, |
|
|
2006 |
|
2005 |
|
2004 |
|
2003 |
|
2002 |
Ford |
|
|
17.1 |
% |
|
|
18.2 |
% |
|
|
19.3 |
% |
|
|
20.5 |
% |
|
|
21.1 |
% |
General Motors |
|
|
24.1 |
|
|
|
25.8 |
|
|
|
27.1 |
|
|
|
28.0 |
|
|
|
28.3 |
|
DaimlerChrysler |
|
|
14.0 |
|
|
|
14.5 |
|
|
|
14.0 |
|
|
|
13.8 |
|
|
|
14.1 |
|
Toyota |
|
|
14.9 |
|
|
|
13.0 |
|
|
|
11.9 |
|
|
|
11.0 |
|
|
|
10.2 |
|
Honda |
|
|
8.8 |
|
|
|
8.4 |
|
|
|
8.1 |
|
|
|
8.0 |
|
|
|
7.3 |
|
Nissan |
|
|
6.0 |
|
|
|
6.2 |
|
|
|
5.7 |
|
|
|
4.7 |
|
|
|
4.3 |
|
All Other(b) |
|
|
15.1 |
|
|
|
13.9 |
|
|
|
13.9 |
|
|
|
14.0 |
|
|
|
14.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. Car and Truck Deliveries |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
All U.S. sales data are based on publicly available information from the media and trade
publications. |
|
(b) |
|
All Other includes primarily companies based in Korea, other Japanese manufacturers and
various European 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. |
Our decline in overall market share is primarily the result of several factors,
including increased competition, a recent industry shift away from our stronger segments (e.g.,
traditional sport utility vehicles and full-size pickups) and the discontinuation of a number of
our vehicle lines over the last several years.
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. The table below shows our fleet sales (including all
brands) in the United States, and the amount of those sales as a percentage of our total U.S. car
and truck sales for the last five years (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford Fleet Sales |
|
|
Years Ended December 31, |
|
|
2006 |
|
2005 |
|
2004 |
|
2003 |
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
Daily Rental Units |
|
|
453 |
|
|
|
450 |
|
|
|
429 |
|
|
|
444 |
|
|
|
459 |
|
Commercial and Other Units |
|
|
287 |
|
|
|
263 |
|
|
|
248 |
|
|
|
227 |
|
|
|
252 |
|
Government Units |
|
|
162 |
|
|
|
141 |
|
|
|
133 |
|
|
|
124 |
|
|
|
123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fleet Units |
|
|
902 |
|
|
|
854 |
|
|
|
810 |
|
|
|
795 |
|
|
|
834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of Fords total U.S. car and truck sales |
|
|
31 |
% |
|
|
27 |
% |
|
|
24 |
% |
|
|
23 |
% |
|
|
23 |
% |
Fleet sales increased in 2006, reflecting industry strength in the commercial and
government segments. Sales to daily rental car companies were constant in 2006 compared with 2005.
In 2007, sales to daily rental car companies should decrease significantly, reflecting the
discontinuance of the Ford Taurus sedan and Freestar minivan models in 2006, and our strategy to
concentrate on more profitable retail sales.
7
ITEM 1. Business (continued)
Europe
Market Share Information. Outside of the United States, Europe is our largest market for the
sale of cars and trucks. The automotive industry in Europe is intensely competitive. Our
principal competitors in Europe include General Motors, Volkswagen A.G. Group, PSA Group, Renault
Group, and Fiat SpA. For the past 10 years, the top six manufacturers have collectively held
between 70% and 76% of the total market. This competitive environment is expected to intensify
further as Japanese and Korean manufacturers increase their production capacity in Europe, and as
other manufacturers of premium brands (e.g., BMW, Mercedes Benz and Audi) continue to broaden their
product offerings.
For purposes of this discussion, 2006 market data are based on estimated registrations
currently available; percentage change is measured from actual 2005 registrations. We track
industry sales in Europe for 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. In 2006, vehicle manufacturers sold approximately 17.8
million cars and trucks in the 19 markets we track in Europe, down 1.2% from 2005 levels. Fords
combined car and truck market share in Europe (including all of our brands sold in Europe) in 2006
was 10.6% (down 0.1 percentage points from 2005).
Britain and Germany are our most important markets within Europe. Any change in the British
or German market has a significant effect on our total European automotive profits. For 2006
compared with 2005, total industry sales were down 3.3% in Britain and up 4.3% in Germany. Our
combined car and truck market share in these markets (including all of our brands sold in these
markets) in 2006 was 19.8% in Britain (up 0.3 percentage points from the previous year), and 8.2%
in Germany (down 0.4 percentage points from the previous year). In particular, the market share
for Ford-brand vehicles in Britain grew by 0.6 percentage points in 2006 the first significant
increase in share for the Ford brand in Britain in recent years.
Although not included in the primary 19 markets above, several additional markets in the
region contribute to our Ford Europe segment results. Fords share of the Turkish market
increased by 0.1 percentage points to 17.1% the fifth year in a row that the Ford brand has led
the market in sales in Turkey. We also are experiencing strong sales in Russia, where sales of
Ford-brand vehicles increased approximately 92% to 116,000 units in 2006.
Motor Vehicle Distribution in Europe. On October 1, 2002, the Commission of the European
Union (Commission) adopted a new regulation that changed 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 with the possibility of 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 entitled to determine the number of our dealers but, since October 2005, not their location.
Under either system, the 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 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 may subcontract the work to independent repair shops that meet reasonable
criteria set by the manufacturer. These authorized repair facilities may perform warranty and
recall work, in addition to other repair and maintenance work. While a manufacturer may continue
to require the use of its parts in warranty and recall work, the repair facility may use parts made
by others that are of comparable quality for all other repair work. We have negotiated and
implemented 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 rules, the Commission intends to increase competition and narrow price differences
from country to country. While it remains difficult to quantify the full impact of these changes
on our European operations, the Block Exemption Regulation continued to contribute to an
increasingly competitive market for vehicles and parts. This has contributed to an increase in
marketing expenses, thus negatively affecting the profitability of our Ford Europe and PAG
segments. We anticipate that this trend may continue as dealers and parts suppliers become
increasingly organized and established.
8
ITEM 1. Business (continued)
Other Markets
Canada and Mexico. Canada and Mexico also are important markets for us. In Canada, industry
sales of new cars and trucks in 2006 were approximately 1.7 million units, up 2.2% from 2005
levels. Industry sales of new cars and trucks in Mexico for 2006 were approximately 1.2 million
units, up 1.3% from 2005. Our combined car and truck market share (including all of our brands
sold in these markets) in 2006 was 14.6% in Canada (up 0.7 percentage points from the previous
year), and 15.5% in Mexico (down 1.3 percentage points from the previous year).
South America. Brazil, Argentina and Venezuela are our principal markets in South America.
The economic environment in these countries has been relatively stable in recent years. The 2006
and 2005 results have been favorably influenced by continued improvements in economic conditions,
political stability and government actions to reduce inflation and interest rates. Industry sales
in 2006 were approximately 1.9 million units in Brazil (up 12.4% from the previous year),
approximately 439,000 units in Argentina (up 16.9% from the previous year), and approximately
336,000 units in Venezuela (up 46.7% from the previous year). Our combined car and truck share in
these markets (including all of our brands sold in these markets) in 2006 was 11.5% in Brazil (down
1.0 percentage points from the previous year), 14.6% in Argentina (down 0.8 percentage points from
the previous year), and 18.4% in Venezuela (up 0.7 percentage points from the previous year).
Asia Pacific. Australia, Thailand, South Africa, and Taiwan are our principal markets in this
region. Details of preliminary 2006 and actual 2005 industry volumes and our combined car and
truck market share for these countries (including sales of all of our brands) are shown in the
table below:
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Industry Volumes |
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(in thousands) |
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Corporate Market Share |
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2006 |
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2006 |
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|
Over/(Under) |
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Over/(Under) |
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2006 |
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2005 |
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2005 |
|
2006 |
|
2005 |
|
2005 |
Australia |
|
|
963 |
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|
988 |
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|
(25 |
) |
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|
(3 |
)% |
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|
11.9 |
% |
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|
14.9 |
% |
|
(3.0) pts. |
South Africa |
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|
641 |
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|
565 |
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|
76 |
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|
13 |
% |
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|
10.8 |
% |
|
|
10.5 |
% |
|
0.3 pts. |
Taiwan |
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|
366 |
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|
514 |
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|
|
(148 |
) |
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|
(29 |
)% |
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|
14.8 |
% |
|
|
11.0 |
% |
|
3.8 pts. |
Thailand |
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|
673 |
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|
700 |
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|
(27 |
) |
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|
(4 |
)% |
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|
2.9 |
% |
|
|
4.2 |
% |
|
(1.3) pts. |
We have an ownership interest in Mazda Motor Corporation (Mazda) of approximately
33.4%, and account for Mazda on an equity basis. Mazdas market share in the Asia Pacific region
was 2.9% in 2006. 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 2003, we launched the Endeavor, Fords first SUV in India, and we
also launched the Fusion crossover in late 2004 and the Fiesta in late 2005. Our operations in
India also sell components to other Ford affiliates.
We also are in the process of increasing our presence in China. Changan Ford Mazda Automobile
Corporation, Ltd. (CFMA) is a joint venture between Ford (35% partner), Mazda (15% partner), and
the Chongqing Changan Automobile Co., Ltd. (Changan) (50% partner). CFMAs first assembly plant,
located in Chongqing, became operational and began producing the Ford Fiesta in January 2003, and
the Ford Mondeo later that year. The Ford Focus was launched in 2005, and the Mazda3 and Volvo S40
were launched in 2006. We also announced in 2003 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. This investment will initially support the
addition of new products and expansion of production capacity at CFMAs Chongqing plant from 50,000
units per year to about 200,000 units per year. It will also support the establishment of a second
assembly plant and a new engine plant located in Nanjing. We began construction of these new
facilities in 2005, with expected completion in 2007. Initial capacity at the new assembly
facility is expected to be about 160,000 units annually. In addition, we have a 30% interest in
Jiangling Motors Corporation, Ltd., which has operations in Nanchang and assembles light commercial
vehicles, including the Ford Transit, for distribution in China. We also import Jaguar, Volvo,
Land Rover, and select Ford vehicles into China. We continue to operate a purchasing office in
China to procure components for operations outside of China. For additional discussion of our
joint ventures in China, see Item 2. Properties.
9
ITEM 1. Business (continued)
FINANCIAL SERVICES SECTOR
Ford Motor Credit Company
Ford Motor Credit Company (Ford Credit) offers a wide variety of automotive financing
products to and through automotive dealers throughout the world. The predominant share of Ford
Credits business consists of financing our vehicles and supporting our dealers. Ford Credits
primary financial products fall into the following three categories:
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Retail financing. Purchasing retail installment sales contracts and retail lease
contracts from dealers, and offering financing to commercial customers, primarily vehicle
leasing companies and fleet purchasers, to purchase or lease vehicle fleets; |
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|
Wholesale financing. Making loans to dealers to finance the purchase of vehicle
inventory, also known as floorplan financing; and |
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|
Other financing. Making loans to dealers for working capital, improvements to dealership
facilities, and the acquisition and refinancing of dealership real estate. |
Ford Credit also services the finance receivables and leases that it originates and purchases,
makes loans to affiliates, purchases certain receivables from us and our subsidiaries, and provides
insurance services related to its financing programs. Ford Credits revenues are earned primarily
from payments made under retail installment sale contracts and retail leases (including interest
supplements and other support payments it receives from us on special financing programs), and from
payments made under wholesale and other dealer loan financing programs.
Ford Credit does business in all 50 states of the United States and in all provinces in Canada
through automotive dealer financing branches and regional business centers. In 2007, Ford Credit
will begin consolidating its branches in the United States and Canada into its regional business
centers. Outside of the United States, FCE Bank plc (FCE) is Ford Credits largest operation.
FCEs primary business is to support the sale of our vehicles in Europe through our dealer network.
FCE offers a variety of retail, leasing and wholesale finance plans 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 the Asia Pacific and Latin American regions. In
addition, FCE, through its Worldwide Trade Financing division, provides financing to dealers in
countries where typically we have no established local presence.
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, as well as
Ford Credits share of wholesale financing for new Ford, Lincoln and Mercury brand vehicles
acquired by dealers in the United States (excluding fleet) and of new
Ford-brand vehicles acquired
by dealers in Europe, were as follows during the last three years:
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Years Ended |
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December 31, |
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2006 |
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2005 |
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2004 |
United States |
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Financing share Ford, Lincoln and Mercury |
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Retail installment and lease |
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44 |
% |
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37 |
% |
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|
45 |
% |
Wholesale |
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80 |
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|
81 |
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84 |
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Europe |
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Financing share Ford |
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Retail installment and lease |
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27 |
% |
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|
28 |
% |
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|
29 |
% |
Wholesale |
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|
95 |
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|
96 |
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|
97 |
|
The
increase in Ford Credits retail financing share in the United States in 2006
compared with 2005 primarily reflected the impact of our
marketing programs that emphasized the use of Ford Credit financing
and the non-recurrence in 2006 of our marketing program that
offered employee pricing to all customers in 2005. For a detailed discussion of Ford Credits receivables, 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 Disclosures about Market Risk.
We sponsor special financing programs available only through Ford Credit. Under these
programs, we make interest supplement or other support payments to Ford Credit. These programs
increase Ford Credits financing volume and share of financing sales of our vehicles. See Note 1
of the Notes to the Financial Statements for more information about these support payments.
10
ITEM 1. Business (continued)
We have a profit maintenance agreement with Ford Credit that requires us to maintain
consolidated income before income taxes and net income at specified minimum levels. In addition,
Ford Credit has an agreement to maintain a minimum control interest in FCE and to maintain FCEs
net worth above a minimum level. No payments were made under either of these agreements during the
2004 through 2006 periods.
In addition, we entered into an Amended and Restated Agreement with Ford Credit dated December
12, 2006 relating to our set-off arrangements and long-standing intercompany business practices, a
copy of which is filed as an exhibit hereto.
GOVERNMENTAL STANDARDS
Many governmental standards and regulations relating to safety, fuel economy, emissions
control, noise control, vehicle recycling, substances of concern, 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 also may
be subject to comprehensive national, regional, and/or local permit programs with respect to such
matters.
Mobile Source Emissions Control
U.S. Requirements Federal Emissions Standards. 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. The current (Tier 2) emissions standards
promulgated by the U.S. Environmental Protection Agency (EPA) require light-duty trucks and
certain heavy-duty passenger-carrying trucks to meet the same emissions standards as passenger cars
by the 2007 model year. The Tier 2 emissions standards also extend emissions durability
requirements to 120,000 or 150,000 miles (depending on the specific standards to which the vehicle
is certified). These standards present compliance challenges and make it more costly and difficult
to utilize light-duty diesel technology, which in turn restricts our ability to improve fuel
economy for purposes of satisfying Corporate Average Fuel Economy (CAFE) standards.
The EPA also has promulgated new standards and requirements for EPA-defined heavy-duty
vehicles and engines (those vehicles with 8,500-14,000 pounds gross vehicle weight) to apply
beginning with the 2007 model year for diesel engines and with the 2008 model year for gasoline
engines. These standards and requirements include more stringent evaporative hydrocarbon standards
for gasoline vehicles, and more stringent exhaust emission standards for all vehicles. In order to
meet the new diesel standards, manufacturers must employ new aftertreatment technologies, such as
diesel particulate filters, which require periodic customer maintenance. These technologies add
significant cost to the emissions control system, and there are potential issues associated with
consumer acceptance. The EPA and manufacturers are engaged in discussions over the warning systems
that will be used to alert motorists of the need for maintenance of these systems.
As discussed in Stationary Source Emissions Control below, the EPA continues to revise the
National Ambient Air Quality Standards for particulate matter and ozone, and to redesignate areas
of the country from attainment to non-attainment status. These periodic changes further
increase pressure to reduce vehicle emissions of particulate matter, volatile organic compounds,
and nitrogen oxide.
U.S. Requirements California and Other State Emissions Standards. 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). CARBs current LEV II emissions standards treat most light-duty
trucks the same as passenger cars, and require both types of vehicles to meet new stringent
emissions requirements. Like the EPAs Tier 2 emissions standards, CARBs LEV II vehicle emissions
standards also present a difficult engineering challenge, and impose even greater barriers to the
use of light-duty diesel technology. In 2004, CARB enacted standards limiting emissions of
greenhouse gases (e.g., carbon dioxide) from new motor vehicles. CARB asserts that its vehicle
emissions regulations provide authority for it to adopt such standards. Vehicle manufacturers are
seeking through federal litigation to invalidate these regulations on the grounds that greenhouse
gas standards are functionally equivalent to fuel economy standards and thus preempted by the
federal fuel economy law and/or the federal Clean Air Act. Issues associated with greenhouse gas
regulation are discussed more fully in the Motor Vehicle Fuel Economy section below.
11
ITEM 1. Business (continued)
Since 1990, the California program has included requirements for manufacturers to produce and
deliver for sale zero-emission vehicles (ZEVs), which produce no emission of regulated
pollutants. Typically, the only vehicles capable of meeting these requirements are battery-powered
vehicles, which have had narrow consumer appeal due to their limited range, reduced functionality,
and high cost. This ZEV mandate initially required that a specified percentage of each
manufacturers vehicles produced for sale in California be ZEVs.
In 2003, CARB adopted amendments to the ZEV mandate that shifted the near-term focus of the
regulation away from battery-electric vehicles to advanced-technology vehicles (e.g., hybrid
electric vehicles or natural gas vehicles) with extremely low 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 provide a compliance path pursuant to which the auto industry would need to
produce specified numbers of zero-emission fuel cell vehicles. In the aggregate, the rules call
for production by the industry of 250 zero-emission fuel cell vehicles by the 2008 model year,
2,500 more in the 2009-2011 model-year period, and 25,000 more in the 2012-2014 model-year period.
While the 2003 amendments appear to reflect a recognition by CARB that battery-electric
vehicles do not have the potential to achieve widespread consumer acceptance, the rules still
require manufacturers to produce a substantial number of either battery-electric or fuel cell
vehicles in the 2012 model year and beyond. There are substantial questions about the feasibility
of producing the required number of zero-emission fuel cell vehicles, due to the substantial
engineering challenges and high costs associated with this technology. It is also doubtful whether
the market will support the number of required ZEVs. 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, if at all. In
accordance with CARBs ZEV regulations, a panel of independent experts is currently reviewing the
feasibility of the ZEV requirements, and is expected to issue its findings in 2007. It is
anticipated that the panels findings will likely lead to further amendment of the ZEV regulations,
but we do not know how extensive the changes may be. Compliance with the ZEV mandate may
eventually require costly actions that would have a substantial
adverse effect on our sales
volume and profits. For example, we could be required to curtail the sale of non-ZEVs and/or
offer to sell ZEVs, advanced-technology vehicles, and PZEVs well below cost.
The Clean Air Act permits other states that do not meet national ambient air quality standards
to adopt Californias motor vehicle emissions standards no later than two years before the affected
model year. In addition to California, ten states, primarily located in the Northeast and
Northwest, have adopted the California standards (including Californias greenhouse gas
provisions). Eight of these states also adopted the ZEV requirements. These ten states, together
with California, account for nearly 30% of Fords current light-duty vehicle sales volume in the
United States. More states are considering adopting the California standards. Unfortunately,
there are problems inherent in transferring California standards to other states, including the
following: 1) managing fleet average emissions standards and ZEV mandate requirements on a
state-by-state basis presents a major challenge to automobile company distribution systems; 2)
market acceptance of some ZEVs varies from state to state, depending on weather and other factors;
and 3) the states adopting the California program have not adopted Californias clean fuel
regulations, which may impair the ability of vehicles to meet Californias in-use standards.
U.S. Requirements Warranty, Recall, and On-Board Diagnostics. Under the Clean Air Act, the
EPA and CARB may require manufacturers to recall and repair non-conforming vehicles (which may be
identified by testing or analysis done by the manufacturer, the EPA or CARB), or we may voluntarily
stop shipment of or recall non-conforming vehicles. The costs of related repairs or inspections
associated with such recalls, or a stop shipment order, could be substantial. CARB is in the
process of revising its program for emissions defect and warranty reporting and associated field
actions (which includes recall actions). When complete, the new rules are likely to impose
additional testing requirements and require manufacturers to conduct more frequent
emissions-related field actions, resulting in added costs.
Both CARB and the EPA also have adopted on-board diagnostic (OBD) regulations, which require
a vehicle to monitor its emissions control system and notify the vehicle operator (via the check
engine light) of any malfunction. These regulations have become extremely complicated, and
creation of a compliant system requires substantial engineering resources. CARBs OBD rules for
vehicles under 14,000 pounds gross vehicle weight include a variety of requirements that phase in
between the 2006 and 2010 model years. CARB also has adopted engine manufacturer diagnostic
requirements for heavy-duty gasoline and diesel engines that apply to the 2007 to 2009 model years,
and additional OBD requirements for vehicles over 14,000 pounds gross vehicle weight in model years
2010 and beyond.
12
ITEM 1. Business (continued)
The EPAs OBD rules are generally less stringent than CARBs, so manufacturers typically design for
compliance with CARBs requirements in order to avoid designing two systems. The complexity of the
OBD requirements and the difficulties of meeting all of the monitoring conditions and thresholds
make OBD approval one of the most challenging aspects of certifying vehicles for emissions
compliance. CARB regulations provide for automatic recalls of vehicles that fail to comply with
specified OBD requirements. In addition, many other states have implemented OBD tests as part of their
inspection and maintenance programs. Failure of in-service compliance tests could lead to vehicle
recalls with substantial costs for related inspections or repairs.
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 emissions standards were applied 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. This directive on emissions also introduced OBD
requirements, more stringent evaporative emissions 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). Failure 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 technologically difficult and
precluded manufacturers from offering some products in time to be eligible for government incentive
programs. The EU commenced a program in 2004 to determine the specifics for further changes to
vehicle emissions standards, and in 2005 the European Commission published a proposed law for Stage
V emissions. Specific mandated targets or limits are yet to be determined. To date, the law has not
yet been finalized.
Other National Requirements. Many countries, in an effort to address air quality concerns,
are adopting previous versions of European or United Nations Economic Commission for Europe
mobile source emissions regulations. Some countries have adopted more advanced
regulations based on the most recent version of European or U.S. regulations; for example, China
has adopted the most recent European standards to be implemented in the 2008-2010 timeframe. Korea
and Taiwan have adopted very stringent U.S.-based standards for gasoline vehicles, and
European-based standards for diesel vehicles. Because fleet average requirements do not apply,
some vehicle emissions control systems may have to be redesigned to meet the requirements in these
markets. Furthermore, not all of these countries have adopted appropriate fuel quality standards
to accompany the stringent emissions standards adopted. This could lead to compliance problems,
particularly if OBD or in-use surveillance requirements are implemented. Japan has unique standards and test
procedures, and is considering more stringent standards for implementation in 2009. This may
require unique emissions control systems be designed for the Japanese market.
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 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 require certain of our
facilities to reduce their air emissions significantly. 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.
The Clean Air Act also requires the EPA to periodically review and update its National Ambient
Air Quality Standards (NAAQS), and to designate whether counties or other local areas are in
compliance with the new standards. If an area or county does not meet the new standards
(non-attainment areas), the state must revise its implementation plans to achieve attainment. In
2006, the EPA issued a final rule revising the NAAQS for particulate matter. For fine particulate
matter (i.e., particles 2.5 micrometers in diameter or less), the EPA has issued a new standard
that is considerably more stringent than its predecessor. The EPA estimates that the new standard
will put approximately 124 counties into non-attainment status for fine particulate matter. With
respect to coarse particulate matter (i.e., particles between 2.5 and 10 micrometers in diameter),
the EPA has retained the existing standard after considering an alternative program that would have
focused on urban and industrial sources. Various parties have filed petitions for review of the
final particulate-matter rules in the United States Court of Appeals for the District of Columbia
Circuit, in most cases seeking more stringent standards that would create even more new
non-attainment areas.
13
ITEM 1. Business (continued)
The Alliance of Automobile Manufacturers (an industry trade group made up of nine leading
automotive manufacturers including BMW Group, DaimlerChrysler, Ford, General Motors, Mazda,
Mitshubishi Motors, Porsche, Toyota and Volkswagen (the Alliance)) is planning to intervene to
oppose further changes to the EPAs final rule. Even under the final rule as issued, the new
non-attainment areas will need to revise their implementation plans to require additional emissions
control equipment and impose more stringent permit requirements on facilities in those areas. The
cost to us, in aggregate, to comply with these requirements could be substantial. The EPA is
currently in the process of considering revisions to the ozone NAAQS that could have significant
implications for both stationary and mobile emissions sources.
European
Requirements. In Europe, environmental legislation is driven by EU
law, in most cases in the form of directives that must be transposed into national
legislation. All of our European plants are located in the EU region, with the exception of St.
Petersburg in Russia. One of the core EU directives is the Directive on Integrated Pollution
Prevention Control (IPPC). The IPPC regulates the permit process for facilities, and thus the
allowed emissions from these facilities. As in the United States, engine testing, surface coating,
casting operations, and boiler houses all fall under this regime. The Solvent Emission Directive
coming into effect in October 2007 primarily affects vehicle manufacturing plants, which must
upgrade their paint shops to meet the new requirements. The cost to us, in the aggregate, to
comply with these requirements could be substantial.
Periodic emission reporting also is required of EU Member States, in most cases defined in the
permits of the facility. The recently-approved Pollution Release and Transfer Register requires
more reporting regarding emissions into air, water and soil than its precursor. The information
required by these reporting systems is publicly available on the Internet.
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 (NHTSA). 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 is obligated to recall vehicles if it determines that the vehicles do not comply with
a safety standard. Should we or NHTSA determine that either a safety defect or a noncompliance
exists with respect to certain of our vehicles, the cost of such recall campaigns could be
substantial. There were pending before NHTSA five investigations relating to alleged safety
defects or potential compliance issues in our vehicles as of January 22, 2007.
The Safe, Accountable, Flexible, and Efficient Transportation Equity Act: A Legacy for Users
(SAFETEA-LU) was signed into law in 2005. SAFETEA-LU establishes a number of substantive,
safety-related rulemaking mandates for NHTSA that can be expected to result in new regulations and
product content requirements.
The Transportation Recall Enhancement, Accountability, and Documentation Act (the TREAD Act)
was signed into law in November 2000. The TREAD Act required NHTSA to 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 early
identification of safety defects. Various groups have challenged the categorical determination by
NHTSA that certain areas of data, including warranty claim information, field reports, and consumer
complaint information, were granted a presumption of confidentiality under the TREAD Act early
warning reporting requirements. Since that time, the United States District Court for the District
of Columbia has ruled that, while NHTSA had the authority to make these categorical determinations,
it did not provide adequate public notice and opportunity to comment in so doing. NHTSA has
decided to address this issue in further rulemaking. Resolution of this litigation may result in
the publication of information (such as injury accident information) that manufacturers have been
submitting to NHTSA under the TREAD Acts early warning reporting rules.
14
ITEM 1. Business (continued)
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 (EAMA) (also known in
Europe as ACEA), of which Ford is a member, 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, more
than 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 set forth 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 Federal Standards. Federal law requires that vehicles meet minimum
corporate average fuel economy standards set by NHTSA. 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.
Federal law established a passenger car CAFE standard of 27.5 miles per gallon for 1985 and
later model years, which NHTSA believes it has the authority to amend to a level it determines to
be the maximum feasible level. By rule, NHTSA has set light-truck CAFE standards of 21.6 miles per
gallon for model year 2006, and 22.2 miles per gallon for model year 2007. In August 2005,
NHTSA issued a Notice of Proposed Rulemaking seeking to change the structure of the light-truck
fuel economy standards for the model year 2008 and beyond. After taking public comment, NHTSA
released the final rule in 2006. The final rule relies on a continuous mathematical function
relating fuel economy targets to vehicle size. In model year 2011 and beyond, the truck CAFE
standards will apply for the first time to certain classes of heavier passenger vehicles (SUVs and
passenger vans with a gross vehicle weight between 8,500 and 10,000 pounds, or with a gross vehicle
weight below 8,500 pounds and a curb weight above 6,000 pounds).
A number of groups have filed petitions seeking judicial review of the light truck rule.
These petitions for review have been consolidated into one case in the United States Court of
Appeals for the Ninth Circuit. Among other things, the petitioners allege that the new light truck
standards have been set below what is technologically possible and required by law; that NHTSA has
failed to adequately address global climate change, air quality and other environmental impacts in
making its decision; and that NHTSAs new methodology for determining truck CAFE standards is not
authorized by the underlying federal statute. Petitioners also challenge NHTSAs position that
state greenhouse gas rules are preempted by federal law. Briefing in this litigation is underway,
and the Alliance plans to file an amicus brief seeking to prevent changes to NHTSAs final rule.
Congress is considering a host of energy-related bills, some of which would impose specific
new CAFE standards, including new standards for passenger cars, that would be much more onerous
than the percentage increases typically required by NHTSA in setting maximum feasible standards
under current law. If such a bill were enacted, it could threaten our ability to comply with
passenger car fuel economy standards in the future. At the same time, the Bush administration has
requested authority from Congress for NHTSA to reform passenger car CAFE standards using a similar
structure to the new fuel economy program for light trucks. New authority from Congress is
believed to be required because the federal law governing the fuel economy program imposes greater
limitations on NHTSAs ability to regulate cars than light trucks. Various bills have been
introduced in response to the administrations request.
Pressure to increase CAFE standards stems in part from concerns about the impact of carbon
dioxide and other greenhouse gas emissions on the global climate. In 1999, a petition was filed
with the EPA requesting that it regulate carbon dioxide emissions from motor vehicles under the
Clean Air Act. This would be the equivalent to imposing fuel economy standards, since the amount
of carbon dioxide emitted by a vehicle is directly proportional to the amount of fuel consumed.
The petitioners later filed suit in an effort to compel a formal response from the EPA. In August
2003, the EPA denied the petition on the grounds that the Clean Air Act does not authorize the EPA
to regulate greenhouse gas emissions, and only NHTSA is authorized to regulate fuel economy under
the CAFE law. A number of states, cities, and environmental groups filed for review of the EPAs
decision in the United States Court of Appeals for the District of Columbia Circuit. A coalition
of states and industry trade groups, including the Alliance, intervened in support of the EPAs
15
ITEM 1. Business (continued)
decision. In July 2005, the Court held that the EPA had exercised reasonable discretion in
determining not to regulate carbon dioxide as a pollutant. This ruling is now being reviewed by
the United States Supreme Court, and a decision is expected by the summer of 2007. The Alliance is
an intervenor in the case, and has filed a brief in support of the EPAs decision.
U.S. Requirements California and Other State Standards. In July 2002, California enacted
Assembly Bill 1493 (AB 1493), a law mandating that CARB promulgate greenhouse gas standards for
light-duty vehicles beginning with model year 2009. In September 2004, CARB adopted California
greenhouse gas emissions regulations applicable to 2009-2016 model-year cars and trucks,
effectively imposing more stringent fuel economy standards than those set by NHTSA. These
regulations impose standards that are equivalent to a CAFE standard of more than 43 miles per
gallon for passenger cars and small trucks, and approximately 27 miles per gallon for large light
trucks and medium-duty passenger vehicles by model year 2016. The Alliance and individual
companies (including Ford) submitted comments opposing the rules and addressing errors in CARBs
underlying economic and technical analyses. In December 2004, the Alliance filed suit in federal
district court in Fresno, California. In addition to the Alliance, plaintiffs in the case include
several automobile dealers, two other individual automobile manufacturers, and another automotive
trade association. The suit challenges the regulation on several bases, including that it is
preempted by the federal CAFE law. The discovery phase for this litigation is largely completed,
and trial is currently expected toward the end of 2007.
A host of other states have adopted, or are in the process of adopting, CARBs greenhouse gas
standards. These states include New York, Massachusetts, Maine, Vermont, Rhode Island,
Connecticut, New Jersey, Pennsylvania, Oregon, and Washington. Several other states are known to
be considering the adoption of such rules. The Alliance, along with other plaintiffs, has filed
suit in federal court in Vermont and Rhode Island challenging those states adoption of the
California AB 1493 rules. It appears likely that trial in the Vermont case may begin in March
2007; the Rhode Island case is not as far along.
In
September 2006, California also enacted the Global Warming Solutions Act of 2006 (better known
as Assembly Bill 32 (AB 32)). This law mandates that statewide greenhouse gas emissions be
capped at 1990 levels by the year 2020, which would represent a significant reduction from current
greenhouse gas levels. It also requires the monitoring and annual reporting of greenhouse gas
emissions by all significant sources, and delegates authority to CARB to develop and implement
greenhouse gas emissions reduction measures. AB 32 also provides that, if the AB 1493 standards do not
take effect, CARB must implement alternative regulations to control mobile sources of greenhouse
gas emissions to achieve equivalent or greater reductions than mandated by AB 1493. It is not
clear at this time how this bill would be implemented.
Fords ability to comply with CAFE or greenhouse gas emissions standards depends heavily on
the alignment of these standards with actual consumer demand, as well as adequate lead time to make
the necessary product changes (assuming that the technology can be developed). If consumers demand
vehicles that are relatively large, have high performance, and/or are feature-laden, while
regulatory standards are skewed toward vehicles that are smaller and more economical, compliance
becomes problematic. Moreover, if regulatory requirements call for rapid, substantial increases in
fleet average fuel economy (or decreases in fleet average greenhouse
gas emissions), we
may not have adequate resources and time to make major product
changes across most or all of our
vehicle fleet (assuming the technology can be developed). The recent changes to the light truck
CAFE standards pose very significant challenges for us. The standards set forth in AB 1493 pose
even greater challenges, because their rapid rate of increase and extreme stringency are
unprecedented in the history of fuel economy regulation. If significant increases in CAFE
standards are imposed beyond those presently in effect or greenhouse gas regulations (such as AB
1493) are imposed, we likely would be forced to take various costly actions that could have
substantial adverse effects on our sales volume and profits. Such actions may include, but are not
limited to, curtailing production and sale of certain vehicles such as family-size, luxury, and
high-performance cars and full-size light trucks; restricting offerings of selected engines and
popular options; and/or increasing market support programs for our most fuel-efficient cars and
light trucks in order to maintain compliance.
See Item 3. Legal Proceedings for a discussion of the public nuisance litigation filed by
the state of California against automobile manufacturers for alleged global warming damages. If
that suit should result in a judgment against manufacturers, it could encourage similar litigation
in other states and municipalities. It could also have the effect of imposing judicially-mandated
standards for greenhouse gas emissions that would arguably supersede or augment existing fuel
economy requirements. Such a result could compel us to implement product restrictions and/or other
costly actions as outlined above.
16
ITEM 1. Business (continued)
European Requirements. The EU is a party to the Kyoto Protocol and has agreed to reduce
greenhouse gas emissions by eight percent below 1990 levels during the 2008-2012 period. In 1998,
the EU agreed to support an environmental agreement with ACEA (of which Ford is a member) on carbon
dioxide emission reductions from new passenger cars (the ACEA Agreement). The ACEA Agreement
established an emissions target of 140 grams of carbon dioxide per kilometer for the average of new
cars sold in the EU by the ACEAs members in 2008. This corresponds to a 25% reduction in average
carbon dioxide emissions compared to 1995. To date, the industry has made good progress, meeting
an interim target for 2003 (165 170 grams of carbon dioxide per kilometer); however, achieving
the 140 grams per kilometer target by 2008 remains ambitious both technologically and economically.
In 2005, ACEA and the European Commission reviewed the potential for additional carbon dioxide
reductions, with the goal of achieving the EUs objective of 120 grams of carbon dioxide per
kilometer (g/km) by 2012. The discussions have advanced using the concept of an integrated
approach to further reductions, involving the oil industry and other sectors. In 2007, it has been
proposed to set a 120 g/km overall target, with a vehicle target of 130 g/km and complementary
measures making up the other 10 g/km in emissions reductions. The complementary measures could
include, for example, regulation of tires or mobile air conditioning systems, or mandatory
introduction of biofuels. The proposal also included a non-binding target for commercial vehicles
under 3.5 tons of 175 g/km by 2012. Many details remain subject to negotiation or revision in the
legislative process. The resulting legislation likely will be adopted into law by 2009.
Some European countries are considering other initiatives for reducing carbon dioxide
emissions from motor vehicles, including fiscal measures. For example, the U.K. introduced a
vehicle excise duty and company car taxation based on carbon dioxide emissions in 2001, and other
member states such as France and Portugal have announced their intention to adopt carbon
dioxide-based taxes for passenger cars. The 2007 European Commission announcement is likely to
trigger further fiscal measures.
Other National Requirements. Some Asian countries (such as China, Japan, South Korea, and
Taiwan) have also adopted fuel efficiency targets. For example, Japan has fuel efficiency targets
for 2010 passenger car and commercial trucks with incentives for early adoption. China has adopted
targets for 2005 and 2008, and is expected to continue setting new targets to address energy
security issues.
Following considerable discussion, the Canadian automobile industry signed a Memorandum of
Understanding (MOU) dated April 5, 2005 with the Canadian government in which the industry
voluntarily committed to reduce greenhouse gas emissions from the Canadian vehicle fleet by 5.3
megatons (Mt) by 2010 (which slightly exceeds the governments 5.2 Mt target under its Kyoto
Protocol Climate Change Action Plan). The MOU contains the following interim targets for the
entire Canadian automobile industry: 2.4 Mt reduction by 2007, total reduction of 3.0 Mt in 2008,
total reduction of 3.9 Mt in 2009 and the full 5.3 Mt reduction in 2010. Pursuant to the MOU, a
committee of industry and government representatives has been established to monitor the industrys
overall compliance with the annual MOU targets.
European Chemicals Policy
The European Commission finalized its regulatory framework in December 2006 for a single
system to register, evaluate, and authorize the use of certain chemicals (REACH). The rules will
take effect on June 1, 2007, followed by a pre-registration phase of eighteen months. Compliance
with the legislation is likely to be administratively burdensome for all entities in the supply
chain, and research and development resources may be redirected from market-drive to
REACH-driven activities. The regulation also may accelerate restriction or banning 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 2007 through 2011, we expect to spend approximately $325 million on our
North American and European facilities to comply with stationary source air and water pollution and
hazardous waste control standards which are now in effect or are scheduled to come into effect
during this period. Of this total, we currently estimate spending approximately $75 million in
2007 and $65 million in 2008. Specific environmental expenses are difficult to isolate because
expenditures may be made for more than one purpose, making precise classification difficult.
17
ITEM 1. Business (continued)
EMPLOYMENT DATA
The approximate number of individuals employed by us and our consolidated entities (including
entities we do not control) at December 31, 2006 and 2005 was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
Business Unit |
|
|
|
|
|
|
|
|
Automotive |
|
|
|
|
|
|
|
|
The Americas |
|
|
|
|
|
|
|
|
Ford North America |
|
|
128 |
|
|
|
140 |
|
Ford South America |
|
|
13 |
|
|
|
13 |
|
Ford Europe and PAG |
|
|
|
|
|
|
|
|
Ford Europe |
|
|
66 |
|
|
|
66 |
|
PAG |
|
|
45 |
|
|
|
49 |
|
Ford Asia Pacific and Africa |
|
|
18 |
|
|
|
18 |
|
Financial Services |
|
|
|
|
|
|
|
|
Ford Motor Credit Company |
|
|
13 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
283 |
|
|
|
300 |
|
|
|
|
|
|
|
|
|
|
The decrease in employment levels primarily reflects implementation of our
personnel-reduction programs in North America.
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 sector are represented by the International
Union, United Automobile, Aerospace and Agricultural Implement Workers of America (UAW or United
Automobile Workers). Approximately two percent of our U.S. salaried employees are represented by
unions. Most hourly employees and many non-management salaried employees of our subsidiaries
outside of the United States also are represented by unions.
Our average labor cost per-hour-worked for hourly employees of Ford in the United States,
excluding subsidiaries, was as follows for the listed years:
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
Earnings |
|
$ |
32.38 |
|
|
$ |
31.64 |
|
Benefits |
|
|
38.13 |
|
|
|
33.26 |
|
|
|
|
|
|
|
|
Total |
|
$ |
70.51 |
|
|
$ |
64.90 |
|
|
|
|
|
|
|
|
We have entered into collective bargaining agreements with the UAW, and the National
Automobile, Aerospace, Transportation and General Workers Union of Canada (CAW or Canadian
Automobile Workers). Among other things, our agreements with the UAW and CAW provide for
guaranteed wage and benefit levels throughout the term of the respective agreements, 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 during the terms of the
agreements. Our agreement with the UAW expires on September 14, 2007, and our agreement with the
CAW expires on September 16, 2008. Historically, negotiation of new collective bargaining
agreements with the UAW and CAW have typically resulted in increases in wages and benefits,
including retirement benefits; some of these increases typically have been provided to salaried
employees as well.
In 2006, we negotiated new Ford collective bargaining agreements with labor unions in
Argentina, Australia, Brazil, Britain, France, Germany, Mexico, Russia, and Vietnam. We also
negotiated new collective bargaining agreements to cover employees at our Jaguar (Britain) and
Volvo (Sweden) affiliates.
In 2007, we are or will be negotiating new collective bargaining agreements with labor unions
in Argentina, Belgium, Brazil, France, India, Mexico, New Zealand, Philippines, Russia, Southern
Africa, Spain, Taiwan, Thailand, United States (hourly and salaried), Venezuela and Vietnam. We
will also negotiate new collective bargaining agreements at our Aston Martin (Britain), Land Rover
(Britain), and Volvo (Sweden) affiliates.
18
ITEM 1. Business (continued)
ENGINEERING, RESEARCH AND DEVELOPMENT
We engage in 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 sector. 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: $7.2 billion (2006), $8 billion
(2005), and $7.4 billion (2004). Any customer-sponsored research and development activities that
we conduct are not material.
ITEM 1A. Risk Factors
We have listed below (not necessarily in order of importance or probability of occurrence) the
most significant risk factors applicable to us:
Continued decline in market share. Our overall market share in the United States has declined
in each of the past five years, from 21.1% in 2002 to 17.1% in 2006. The decline in overall
market share primarily reflects a decline in our retail market share, which excludes fleet
sales, during the past five years from 16.3% in 2002 to 11.8% in 2006. Because a high
proportion of our costs are fixed, these volume reductions have had an adverse impact on our
results of operations. While we are attempting to stabilize our market share and reduce our
capacity over time through the restructuring actions described in Item 7. Managements
Discussion and Analysis of Financial Condition and Results of Operations Overview, we cannot
be certain that we will be successful. Continued declines in our market share could have a
substantial adverse effect on our results of operations and financial condition.
Continued or increased price competition resulting from industry overcapacity, currency
fluctuations or other factors. The global automotive industry is intensely competitive, with
overall manufacturing capacity far exceeding current demand. For example, the global automotive
industry is estimated to have had excess capacity of 14.8 million units in 2006. Industry
overcapacity has resulted in many of our principal competitors offering marketing incentives on
vehicles in an attempt to maintain market share. These marketing incentives have included a
combination of subsidized financing or leasing programs, price rebates and other incentives. As
a result, we have not necessarily been able to increase prices sufficiently to offset higher
costs of marketing incentives or other cost increases (e.g., for commodities or health care) or
the impact of adverse currency fluctuations in either the U.S. or European markets. While we,
General Motors and DaimlerChrysler have each announced plans to reduce capacity significantly,
these reductions will take several years to complete and will only partially address the
industrys overcapacity problems. A continuation or increase in these trends could have a
substantial adverse effect on our results of operations and financial condition.
A market shift (or an increase in or acceleration of market shift) away from sales of trucks or
sport utility vehicles, or from sales of other more profitable vehicles in the United States.
Trucks and sport utility vehicles historically have represented some of our most profitable
vehicle segments and the segment in which we have our highest market share. During the past few
years, there has been a general shift in consumer preferences away from medium- and large-sized
sport utility vehicles, which has adversely affected our overall market share and our
profitability. A continuation or acceleration of this general shift in consumer preferences
away from sport utility vehicles, or a similar shift in consumer preferences away from truck
sales or other more profitable vehicle sales, whether because of higher fuel prices, declines in
the construction industry or otherwise, could have an increasingly adverse effect on our results
of operations and financial condition.
19
ITEM 1A. Risk Factors (continued)
A significant decline in industry sales, particularly in the United States or Europe, resulting
from slowing economic growth, geo-political events or other factors. The worldwide automotive
industry is affected significantly by general economic conditions (among other factors) over
which automobile manufacturers have little control. This is especially so because vehicles are
durable goods, which provide consumers latitude in determining whether and when to replace an
existing vehicle. The decision whether and when to make a vehicle purchase may be affected
significantly by slowing economic growth, geo-political events, and other factors. Consumer
demand may vary substantially from year to year, and, in any given year, consumer demand may be
affected significantly by general economic conditions, including the cost of purchasing and
operating a vehicle and the availability and cost of credit and fuel.
Moreover, like other manufacturers, we have a high proportion of costs that are fixed, so
that relatively small changes in wholesale unit volumes may dramatically affect overall
profitability. In recent years, industry demand has remained at high levels. Should industry
demand soften because of slowing or negative economic growth in key markets or other factors,
our results of operations and financial condition could be substantially adversely affected.
For additional discussion of economic trends, see Item 7. Managements Discussion and Analysis
of Financial Condition and Results of Operations Overview.
Lower-than-anticipated market acceptance of new or existing products. Offering highly desirable
vehicles can mitigate the risks of increasing price competition and declining demand.
Conversely, offering vehicles that are perceived to be less desirable (whether in terms of
price, quality, styling, safety, overall value or otherwise) can exacerbate these risks. For
example, if a new model were to experience quality issues at the time of launch, the vehicles
perceived quality could be affected even after the issues had been corrected, resulting in lower
sales volumes, market share and profitability.
Continued or increased high prices for or reduced availability of fuel. A continuation of or
further increase in high prices for fuel or reduced availability of fuel, particularly in the
United States, could result in weaker demand for relatively more profitable large and luxury car
and truck models and increased demand for relatively less profitable small cars and trucks. An
acceleration of such a trend, as demonstrated in the short-term with the spike in fuel prices
following Hurricanes Katrina and Rita in the U.S. Gulf Coast region in 2005, could have a substantial
adverse effect on our financial condition and results of operations.
Currency or commodity price fluctuations. As a resource-intensive manufacturing operation, we
are exposed to a variety of market and asset risks, including the effects of changes in foreign
currency exchange rates, commodity prices and interest rates. These risks affect our Automotive
and Financial Services sectors. We monitor and manage these exposures as an integral part of
our overall risk management program, which recognizes the unpredictability of markets and seeks
to reduce the potentially adverse effects on our business. Nevertheless, changes in currency
exchange rates, commodity prices and interest rates cannot always be predicted or hedged. In
addition, because of intense price competition and our high level of fixed costs, we may not be
able to address such changes even if they are foreseeable. Substantial changes in these rates
and prices could have a substantial adverse effect on our financial condition and results of
operations. For additional discussion of currency or commodity price risk, see Item 7A.
Quantitative and Qualitative Disclosures about Market Risk.
Adverse effects from the bankruptcy or insolvency of a major competitor. We and certain of our
major competitors have substantial legacy costs (principally related to employee benefits)
that put each of us at a competitive disadvantage to other competitors. The bankruptcy or
insolvency of a major competitor with substantial legacy costs could result in that competitor
gaining a significant cost advantage (by eliminating or reducing contractual obligations to
unions and other parties through bankruptcy proceedings). In addition, the bankruptcy or
insolvency of a major auto manufacturer likely could lead to substantial disruptions in the
automotive supply base, which could have a substantial adverse impact on our financial condition
and results of operations.
20
ITEM 1A. Risk Factors (continued)
Economic distress of suppliers that has in the past and may in the future require us to provide
financial support or take other measures to ensure supplies of components or materials.
Automobile manufacturers continue to experience commodity cost pressures and the effects of
industry overcapacity. These factors have also increased pressure on the industrys supply
base, as suppliers cope with higher commodity costs, lower production volumes and other
challenges. As a result, suppliers have been less able to absorb commodity cost increases or to
achieve productivity improvements, and, therefore, less willing to reduce prices to us. We have
taken and may continue to take actions to provide financial assistance to certain suppliers to
ensure an uninterrupted supply of materials and components. For example, in 2005 we reacquired
from Visteon twenty-three North American facilities in order to protect our supply of
components. In connection with this transaction, we forgave $1.1 billion of Visteons liability
to us for employee-related costs, and incurred a pre-tax loss of $468 million.
Labor or other constraints on our ability to restructure our business. Substantially all of the
hourly employees in our Automotive operations in the United States and Canada are represented by
unions and covered by collective bargaining agreements. Our agreement with the United
Automobile Workers union expires in September 2007 and will be renegotiated this year. Our
agreement with the Canadian Automobile Workers union expires in September 2008 and will be
renegotiated next year. These agreements provide for guaranteed wage and benefit levels
throughout their terms and provide for significant employment security. As a practical matter,
these agreements restrict our ability to eliminate product lines, close plants, and divest
businesses during the terms of the agreements. These agreements may also limit our ability to
change local work rules and practices to encourage flexible manufacturing and other
efficiency-related improvements. Accordingly, unless we are able to negotiate significant
changes to these agreements, they may impede our ability to restructure our business
successfully to compete more effectively in todays global marketplace. For discussion of our
restructuring plans, see Item 7. Managements Discussion and Analysis of Financial Condition
and Results of Operations Overview.
Work stoppages at Ford or supplier facilities or other interruptions of supplies. A work
stoppage could occur at Ford or supplier facilities, most likely as a result of disputes under
existing collective bargaining agreements with labor unions, or in connection with negotiations
of new collective bargaining agreements, such as the renegotiation in 2007 of our
agreement with the United Automobile Workers union. A dispute under an existing collective
bargaining agreement could arise, for example, as a result of efforts to implement restructuring
actions, such as those discussed under Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations Overview. A work stoppage for this or other
reasons at Ford or its suppliers, or an interruption or shortage of supplies for any reason
(e.g., financial distress, natural disaster or production difficulties affecting a supplier), if
protracted, could substantially adversely affect our financial condition and results of
operations.
Single-source supply of components or materials. Some components used in our vehicles (e.g.,
certain diesel engines) are available from a single supplier and cannot be quickly or
inexpensively re-sourced to another supplier due to long lead times and contractual commitments
that might be required by another supplier in order to provide the component or materials. In
addition to the risks described above regarding interruption of supplies, which are exacerbated
in the case of single-source suppliers, the exclusive supplier of a key component potentially
could exert significant bargaining power over price, quality, warranty claims or other terms
relating to a component.
Substantial pension and postretirement healthcare and life insurance liabilities impairing our
liquidity or financial condition. We have two principal qualified defined benefit retirement
plans in the United States that provide noncontributory benefits to employees. Certain of our
U.S. and non-U.S. subsidiaries have separate similar noncontributory plans that generally
provide similar types of benefits for their employees. In addition, we, and certain of our
subsidiaries, sponsor plans to provide selected health care and life insurance benefits for
retired employees. See Note 23 of the Notes to the Financial Statements for more information
about these plans, including funded status.
Our U.S. defined benefit pension plans are subject to Title IV of the Employee Retirement
Income Security Act of 1974 (ERISA). Under Title IV of ERISA, the Pension Benefit Guaranty
Corporation (PBGC) has the authority under certain circumstances or upon the occurrence of
certain events to terminate an underfunded pension plan. One of those circumstances is the
occurrence of an event that unreasonably increases the risk of unreasonably large losses to the
PBGC. Although we believe that it is not likely that the PBGC will terminate any of our plans,
in the event that our U.S. pension plans were to be terminated at a time when the liabilities of
the plans exceeded the assets of the plans, we would incur a liability to the PBGC that could be
equal to the entire amount of the underfunding.
21
ITEM 1A. Risk Factors (continued)
If our cash flows and capital resources were to be insufficient to
fund our pension or
postretirement healthcare and life insurance obligations, we could be forced to reduce or delay
investments and capital expenditures, seek additional capital, or
restructure or refinance our
indebtedness. In addition, if our operating results and available cash were to be insufficient
to meet our pension or postretirement healthcare and life insurance obligations, we could face
substantial liquidity problems and might be required to dispose of material assets or operations
to meet our pension or postretirement healthcare and life insurance obligations. We might not
be able to consummate those dispositions or to obtain the proceeds that we could realize from
them, and these proceeds might not be adequate to meet any pension or postretirement healthcare
and life insurance obligations then due.
Worse-than-assumed economic and demographic experience for our postretirement benefit plans
(e.g., discount rates, investment returns, health care cost trends). The measurement of our
obligations, costs and liabilities associated with benefits pursuant to our postretirement
benefit plans requires that we estimate the present values of projected future payments to all
participants. We use many assumptions in calculating these estimates, including assumptions
related to discount rates, investment returns on designated plan assets, health care cost
trends, and demographic experience (e.g., mortality and retirement rates). To the extent that
actual results are less favorable than our assumptions, there could be a substantial adverse
impact on our financial condition and results of operations. For additional discussion of these
assumptions, 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.
The discovery of defects in vehicles resulting in delays in new model launches, recall campaigns
and/or increased warranty costs. Meeting or exceeding many government-mandated safety standards
is costly, especially where standards may conflict with the need to reduce vehicle weight in
order to meet government-mandated emissions and fuel-economy standards. Government safety
standards also require manufacturers to remedy defects related to motor vehicle safety through
safety recall campaigns, and a manufacturer is obligated to recall vehicles if it determines
that they do not comply with a safety standard. Should we or government safety regulators
determine that a safety or other defect or a noncompliance exists with respect to certain of our
vehicles prior to the start of production, the launch of such vehicle could be delayed until
such defect is remedied. The costs associated with any protracted delay in new model launches
necessary to remedy such defect, or the cost of recall campaigns to remedy such defects in
vehicles that have been sold, could be substantial.
Increased safety, emissions (e.g., CO2), fuel economy or other (e.g., pension
funding) regulation resulting in higher costs, cash expenditures, and/or sales restrictions.
The worldwide automotive industry is governed by a substantial number of governmental
regulations, which often differ by state, region and country. In the United States and Europe,
for example, governmental regulation has arisen primarily out of concern for the environment,
greater vehicle safety and a desire for improved fuel economy. Many governments regulate local
product content and/or impose import requirements as a means of creating jobs, protecting
domestic producers and influencing their balance of payments. The cost of complying with these
requirements can be substantial.
Our ability to comply with CAFE or greenhouse gas emissions standards depends heavily on
the alignment of these standards with actual consumer demand. If consumers demand vehicles that
are relatively large, have high performance, and/or are feature-laden while regulatory standards
are skewed toward vehicles that are smaller and more economical, compliance becomes problematic.
Moreover, if legislative or regulatory requirements call for rapid, substantial increases in
fleet average fuel economy (or decreases in fleet average greenhouse gas emissions), the Company
may not have adequate resources and time to make major product changes across most or all of its
vehicle fleet. If significant increases in CAFE standards are imposed beyond those presently in
effect or proposed, or if state greenhouse gas regulations are not overturned, we may be forced
to take various costly actions that could have substantial adverse effects on our sales volume
and profits. For example, we may have to curtail production of certain vehicles such as
family-size, luxury, and high-performance cars and full-size light-trucks; restrict offerings of
selected engines and popular options; and/or increase market support programs for our most
fuel-efficient cars and light-trucks in order to maintain compliance. See Item 1. Governmental
Standards for additional discussion.
22
ITEM 1A. Risk Factors (continued)
Unusual or significant litigation or governmental investigations arising out of alleged defects
in our products or otherwise. We spend substantial resources ensuring compliance with
governmental safety and other standards. However, compliance with governmental standards does
not necessarily prevent individual or class action lawsuits, which can entail significant cost
and risk. For example, the preemptive effect of the Federal Motor Vehicle Safety Standards is
often a contested issue in litigation, and some courts have permitted liability findings even
where our vehicles comply with federal law. Furthermore, simply responding to litigation or
government investigations of our compliance with regulatory standards requires significant
expenditures of time and other resources.
A change in our requirements for parts or materials where we have entered into long-term supply
arrangements that commit us to purchase minimum or fixed quantities of certain parts or
materials, or to pay a minimum amount to the seller (take-or-pay contracts). We have entered
into a number of long-term supply contracts that require us to purchase a fixed quantity of
parts to be used in the production of our vehicles. If our need for any of these parts were to
lessen, we could still be required to purchase a specified quantity of the part or pay a minimum
amount to the seller pursuant to the take-or-pay contract. We also have entered into a small
number of long-term supply contracts for raw materials (for example, precious metals used in
catalytic converters) that require us to purchase a fixed percentage of mine output. If our
need for any of these raw materials were to lessen, or if a suppliers output of materials were
to increase, we could be required to purchase more materials than we need.
Adverse effects on our operations resulting from certain geo-political or other events. We
conduct a significant portion of our business in countries outside of the United States, and are
pursuing growth opportunities in a number of emerging markets. These activities expose us to,
among other things, risks associated with geo-political events, such as a governmental takeover
(i.e., nationalization) of our manufacturing facilities; disruption of operations in a
particular country as a result of political or economic instability, the outbreak of war or the
expansion of hostilities; or acts of terrorism. Such events could have a substantial adverse
effect on our financial condition and results of operations.
Substantial
negative Automotive operating-related cash flows for the near- to medium-term
affecting our ability to meet our obligations, invest in our business or refinance our debt.
During the next few years, we expect substantial negative operating-related cash outflows.
Future borrowings may not be available to us under our credit facilities or otherwise in amounts
sufficient to enable us to pay our indebtedness and to fund our other liquidity needs. For
example, if we are unable to meet certain covenants of our $11.5 billion secured credit facility
established in December 2006 (e.g., if the value of assets pledged do not exceed outstanding
borrowings), we will not be able to borrow under the facility. If our cash flow is worse than
expected due to an economic recession, work stoppages, increased pension
contributions or otherwise, or if we are unable to borrow under our credit facilities or
otherwise for these purposes, we may need to refinance or restructure all or a portion of our
indebtedness on or before maturity, reduce or delay capital investments, or seek to raise
additional capital. We may not be able to implement one or more of these alternatives on terms
acceptable to us, or at all. The terms of our existing or future debt agreements may restrict
us from pursuing any of these alternatives. Should our cash flow be worse than anticipated or
we fail to achieve any of these alternatives, this could materially adversely affect our ability
to repay our indebtedness and otherwise have a substantial adverse effect on our financial
condition and results of operations. For further information on our liquidity and capital
resources, see Item 7. Managements Discussion and Analysis of Financial Condition and Results
of Operations Liquidity and Capital Resources and Note 15 of the Notes to the Financial
Statements.
Substantial levels of Automotive indebtedness adversely affecting our financial condition or
preventing us from fulfilling our debt obligations (which may grow because we are able to incur
substantially more debt, including additional secured debt). As a result of our recent
financing actions and our other debt, we are a highly leveraged company. Our significant
Automotive debt service obligations could have important consequences, including the following:
our high level of indebtedness could make it difficult for us to satisfy our obligations with
respect to our outstanding indebtedness; our ability to obtain additional financing for working
capital, capital expenditures, acquisitions, if any, or general corporate purposes may be
impaired; we must use a substantial portion of our cash flow from operations to pay interest on
our indebtedness, which will reduce the funds available to us for operations and other purposes;
and our high level of indebtedness makes us more vulnerable to economic downturns and adverse
developments in our business. The more leveraged we become, the more we become exposed to the
risks described herein. See Item 7. Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and Capital Resources and Note 15 of the Notes
to the Financial Statements for additional information regarding our indebtedness.
23
ITEM 1A. Risk Factors (continued)
Inability of Ford Credit to access debt or securitization markets around the world at
competitive rates or in sufficient amounts due to additional credit rating downgrades or otherwise. The lowering of credit ratings for Ford and Ford
Credit has increased borrowing costs and caused Ford Credits access to the unsecured debt
markets to become more restricted. In response, Ford Credit has increased its use of
securitization and other sources of liquidity. Over time, and particularly in the event of any
further credit rating downgrades or a significant decline in the demand for the types of
securities it offers, Ford Credit may need to reduce the amount of receivables it purchases or
originates. A significant reduction in the amount of receivables Ford Credit purchases or
originates would significantly reduce ongoing profits and could adversely affect Ford Credits
ability to support the sale of Ford vehicles. For additional discussion, see Item 7.
Managements Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources.
Higher-than-expected credit losses. Credit risk is the possibility of loss from a customers or
dealers failure to make payments according to contract terms. Credit risk (which is heavily
dependent upon economic factors including unemployment, consumer debt service burden, personal
income growth, dealer profitability and used car prices) has a significant impact on Ford
Credits business. The level of credit losses Ford Credit may experience could exceed its
expectations. For additional discussion regarding credit losses, see Item 7. Managements
Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting
Estimates.
Increased competition from banks or other financial institutions seeking to increase their share
of financing Ford vehicles. No single company is a dominant force in the automotive finance
industry. Most of Ford Credits bank competitors in the United States use credit aggregation
systems that permit dealers to send, through a single standard system, retail credit
applications to multiple finance sources to evaluate financing options offered by these finance
sources. This process has resulted in greater competition based on financing rates. In
addition, Ford Credit is facing increased competition on wholesale financing for Ford dealers.
Competition from such competitors with lower borrowing costs may increase, which could adversely
affect Ford Credits profitability and the volume of its business.
Changes in interest rates. Ford Credit is exposed to interest rate risk, and the particular
market to which it is most exposed is U.S. dollar LIBOR. Ford Credits interest rate risk
exposure results principally from re-pricing risk, or differences in the re-pricing
characteristics of assets and liabilities. Any inability to adequately control this exposure
could adversely affect its business. For additional discussion of interest rate risk, see Item
7A. Quantitative and Qualitative Disclosures about Market Risk.
To limit the impact of interest rate changes, Ford Credit has entered into 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 to Ford Credit when interest rates decline,
and decline in value when interest rates rise. When interest rate swaps are not in designated
hedging relationships, changes in the fair values of these derivatives due to interest rate
movements can cause substantial earnings volatility.
Collection and servicing problems related to finance receivables and net investment in operating
leases. After Ford Credit purchases retail installment sale contracts and leases from dealers
and other customers, it manages or services the receivables. Any disruption of its servicing
activity, due to inability to access or accurately maintain customer account records or
otherwise, could have a significant negative impact on its ability to collect on those
receivables and/or satisfy its customers.
Lower-than-anticipated residual values or higher-than-expected return volumes for leased
vehicles. Ford Credit projects expected residual values (including residual value support
payments from Ford) and return volumes of the vehicles it leases. Actual proceeds realized by
Ford Credit upon the sale of returned leased vehicles at lease termination may be lower than the
amount projected, which reduces the profitability of the lease transaction. Among the factors
that can affect the value of returned lease vehicles are the volume of vehicles returned,
economic conditions, and the quality or perceived quality, safety or reliability of the
vehicles. All of these, alone or in combination, have the potential to adversely affect Ford
Credits profitability. For additional discussion regarding residual value, see Item 7.
Managements Discussion and Analysis of Financial Condition and Results of Operations Critical
Accounting Estimates.
24
ITEM 1A. Risk Factors (continued)
New or increased credit, consumer or data protection or other regulations resulting in higher
costs and/or additional financing restrictions. As a finance company, Ford Credit is highly
regulated by governmental authorities in the locations where it operates. In the United States,
its operations are subject to regulation, supervision and licensing under various federal, state
and local laws and regulations, including the federal Truth-in-Lending Act, Equal Credit
Opportunity Act and Fair Credit Reporting Act. In some countries outside the United States,
Ford Credits subsidiaries are regulated banking institutions and are required, among other
things, to maintain minimum capital reserves. In many other locations, governmental authorities
require companies to have licenses in order to conduct financing businesses. Efforts to comply
with these laws and regulations impose significant costs on Ford Credit, and affect the conduct
of its business. Additional regulation could add significant cost or operational constraints
that might impair its profitability.
ITEM 1B. Unresolved Staff Comments
None to report.
ITEM 2. Properties
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, although many of
these properties have been pledged to secure indebtedness. Our facilities are situated in various
sections of the country and include assembly plants, engine plants, casting plants, metal stamping
plants, transmission plants, and other component plants. Most of our distribution centers are
leased (we own approximately 42% of the total square footage). A substantial amount of our
warehousing is provided by third-party providers under service contracts. Because the facilities
provided pursuant to third-party service contracts need not be dedicated exclusively or even
primarily to our use, these spaces are not included in the number of distribution
centers/warehouses listed in the table below. All of the warehouses that we operate are leased,
although many of our manufacturing and assembly facilities contain some warehousing space.
Substantially all of our sales offices are leased space. Approximately 92% 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 of the United States. We own substantially
all of our non-U.S. 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. As in the United States, space provided by vendors
under service contracts need not be dedicated exclusively or even primarily to our use, and is not
included in the number of distribution centers/warehouses listed in the table below.
The total number of plants, distribution centers/warehouses, engineering and research and
development sites, and sales offices used by our Automotive segments are shown in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution |
|
Engineering, |
|
Sales |
Segment |
|
Plants |
|
Centers/Warehouses |
|
Research/Development |
|
Offices |
Ford North America |
|
|
54 |
* |
|
|
31 |
|
|
|
39 |
|
|
|
38 |
|
Ford South America |
|
|
7 |
|
|
|
1 |
|
|
|
0 |
|
|
|
0 |
|
Ford Europe |
|
|
19 |
|
|
|
7 |
|
|
|
5 |
|
|
|
10 |
|
PAG |
|
|
14 |
|
|
|
3 |
|
|
|
4 |
|
|
|
16 |
|
Ford Asia Pacific and Africa/Mazda |
|
|
13 |
|
|
|
3 |
|
|
|
2 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
107 |
|
|
|
45 |
|
|
|
50 |
|
|
|
69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
We have announced plans to cease operations at a number of North
American manufacturing facilities as part of our restructuring
actions; the number above does not include plants that have been
idled to date. For further discussion of our restructuring actions,
see Item 7. Managements Discussion and Analysis of Financial
Condition and Results of Operations Overview. Included in the
table above are 13 plants operated by ACH; of these, we have reached
agreement in principle to sell three plants. We also have announced
that we intend to sell or idle all plants currently operated by ACH by
the end of 2008. |
25
ITEM 2. Properties (continued)
Included in the number of plants 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. Following are the most significant of these consolidated joint ventures and the
number of plants they own:
|
|
|
AutoAlliance International (AAI) a 50/50 joint venture with Mazda (of which we own
approximately 33.4%), which operates as its principal business an automobile vehicle
assembly plant in Flat Rock, Michigan. AAI currently produces the Mazda6 and Ford Mustang
models. 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. |
|
|
|
|
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
Ford Transit Connect vehicle and our sole distributor of Ford vehicles in Turkey. In
addition, Ford Otosan makes the Ford Transit series and the Cargo truck for the Turkish and
export markets, and certain engines and transmissions, most of which are under license.
This joint venture owns and operates two plants and a parts distribution depot in Turkey. |
|
|
|
|
Getrag Ford Transmissions GmbH a 50/50 joint venture with Getrag Deutsche Venture GmbH
and Co. KG, 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) transferred 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 this Getrag joint
venture. Ford employees who worked at the manual transmission operations transferred at the
time of 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 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
transferred to this joint venture its plant in Köping, Sweden. The joint venture produces
all-wheel drive components. As noted above, the manual transmission operations at the
Köping plant were transferred to Getrag Ford Transmissions GmbH. The hourly and salaried
employees at the plant have become employees of the joint venture. |
|
|
|
|
Tekfor Cologne GmbH (Tekfor) a 50/50 joint venture of Ford-Werke GmbH (Ford-Werke)
and Neumayer Tekfor GmbH, a German company, to which joint venture Ford-Werke 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 for sale to third
parties. Those Ford employees who worked at the Cologne Forge Plant at the time of the
formation of the joint venture are assigned to Tekfor by Ford and remain Ford employees. In
the event of surplus labor at the joint venture, Ford employees assigned to Tekfor may
return to Ford. New workers at the joint venture will be hired as employees of the joint
venture. Tekfor reimburses Ford for the full cost of 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. (Pininfarina) (60% partner). In September 2003, Volvo Cars and
Pininfarina established this joint venture for the engineering and manufacture of niche
vehicles, starting with a new, small convertible (Volvo C70), which is distributed by Volvo.
The joint venture began production of the new car at the Uddevalla Plant in Sweden, which
was transferred from Volvo Cars to the joint venture in December 2005, and is the joint
ventures only plant. |
|
|
|
|
Ford Vietnam Limited a joint venture between Ford (75% partner) and Song Cong Diesel
(25% partner). Ford Vietnam assembles and distributes several Ford vehicles in Vietnam,
including Escape, Everest, Focus, Mondeo, Ranger and Transit models. 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 Ford as well as
Mazda and Suzuki. In addition to domestic assembly, FLH also has |
26
ITEM 2. Properties (continued)
local product development capability to modify vehicle designs for local needs, and
imports Ford-brand built-up vehicles from Europe and the United States. 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,
unconsolidated 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 (Thailand) (AAT) a joint venture among Ford (50%), Mazda (45%) and a
Thai affiliate of Mazdas (5%), which owns and operates a manufacturing plant in Rayong,
Thailand. AAT produces the Ford Everest, Ford Ranger 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 manufactures Ford
F-650/750 medium-duty commercial trucks that are sold in the United States and Canada;
Navistar medium-duty commercial trucks that are sold in Mexico; and a low-cab-forward,
light-/medium-duty commercial truck for each of Ford and Navistar. |
|
|
|
|
Tenedora Nemak, S.A. de C.V. a joint venture between Ford (15% partner) and a
subsidiary of Mexican conglomerate Alfa S.A. de C.V. (85% partner), which 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 Mazda Automobile Corporation, Ltd. (CFMA) a joint venture between Ford
(35% partner), Mazda (15% partner) and the Chongqing Changan Automobile Co., Ltd.
(Changan) (50% partner). Through its facility in the Chinese city of Chongqing, CFMA
produces and distributes in China the Ford Fiesta, Mondeo and Focus, the Mazda3 and the
Volvo S40. In 2005, CFMA received approval from the Chinese government for the
establishment of a new vehicle manufacturing plant in the Chinese city of Nanjing, which is
now under construction. |
|
|
|
|
Changan Ford Mazda Engine Company, Ltd. (CFME) a joint venture between Ford (25%
partner), Mazda (25% partner) and the Chongqing Changan Automobile Co., Ltd (50% partner).
CFME is located in the City of Nanjing, and will produce the Ford New I4 and Mazda BZ
engines in support of the assembly of Ford- and Mazda-branded vehicles manufactured in
China. |
|
|
|
|
Jiangling Motors Corporation, Ltd. (JMC) a publicly-traded company in China with Ford
(30% shareholder) and Jiangxi Jiangling Holdings, Ltd. (41% shareholder) as its controlling
shareholders. Jiangxi Jiangling Holdings, Ltd. is a 50/50 joint venture between Chongqing
Changan Automobile Co., Ltd. and Jiangling Motors Company Group. The public investors of
JMC own 29% of its outstanding shares. JMC assembles the Ford Transit van and other
non-Ford-technology-based 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 Associated Motor
Industries Malaysia, Sdn. Bhd., an assembly company, including Econovan, Escape, Everest,
Laser and Ranger models. |
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 more than adequate for the manufacture and assembly
of our products.
27
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; shareholder and investor matters; and financial
reporting 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. We have also
accrued expenses for other litigation where losses are deemed probable and reasonably estimable.
These accruals are reflected in our financial statements.
Following is a discussion of our significant pending legal proceedings:
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 component parts found in older vehicles, insulation or other asbestos products in our
facilities, or asbestos aboard our former maritime fleet. The majority of these cases have been
filed in 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. In most of the 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 one
hundred. Many of these cases also involve multiple plaintiffs, and we are often unable to tell
from the pleadings which of the plaintiffs are making claims against us (as opposed to other
defendants). Our annual payout and related defense costs in asbestos cases had been increasing
between 1999 and 2003, and began to decline in 2004 and 2005. In 2006, these costs again
decreased; however, they may become substantial in the future.
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
28
ITEM 3. Legal Proceedings (continued)
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.
Woodhaven Stamping Plant Letter of Violation. In 2005, the Michigan Department of
Environmental Quality (DEQ) issued a letter of violation to Fords Woodhaven Stamping Plant
alleging that the facility had failed to properly report emissions from boilers and space heaters,
and that the facility had failed to apply for a Title V permit as required by Michigan law. We
have resolved this matter and paid a fine of $47,500.
Edison Assembly Plant Concrete Disposal. During demolition of our Edison Assembly Plant, we
discovered very low levels of contaminants in the concrete slab. The concrete was crushed and
reused by several developers as fill material at ten different off-site locations. The New Jersey
Department of Environmental Protection (DEP) asserts that some of these locations may not have
been authorized to receive the waste. In March 2006, the DEP ordered Ford, its supplier
MIG-Alberici, Inc., and the developer Edgewood Properties, Inc., to investigate, and if
appropriate, remove contaminated materials. Ford has substantially completed the work at a number
of locations, and Edgewood is completing the investigation and remediation at several locations
that it owns. Also in March 2006, the New Jersey Attorney Generals office issued a grand jury
subpoena and civil information request to Ford. We are fully cooperating with the DEP and the
Attorney Generals office to resolve this matter.
California Environmental Action. On September 20, 2006, the California Attorney General filed
a complaint in the United States District Court for the Northern District of California against
Ford, General Motors, Toyota, Honda, DaimlerChrysler and Nissan, seeking monetary damages on a
joint and several basis for economic and environmental harm to California caused by global warming.
The complaint alleges that cars and trucks sold in the United States constitute an environmental
public nuisance under federal and California state common law. We believe that this suit is
without merit, and we are filing for dismissal as soon as practicable. Two years ago, eight states
(including California) and several other plaintiffs filed a similar environmental public nuisance
claim in the United States District Court for the Southern District of New York against five public
utilities. That case was dismissed in 2005, when the United States District Court for the Southern
District of New York concluded that the suit presented non-justiciable political questions. The
public utilities case has been appealed to the United States Court of Appeals for the Second
Circuit.
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 (i) that have been certified as a
class action by a court of competent jurisdiction (and any additional purported class actions that
raise allegations substantially similar to a certified case), and (ii) that, if resolved
unfavorably to the Company, would likely involve a significant cost.
Explorer Class Actions. An Illinois state court certified a statewide class of purchasers and
lessees of 1991-2001 Ford Explorers equipped with Firestone ATX or Wilderness tires who have not
experienced any problems with either the tires or the vehicles (Rowan v. Ford Motor Company). The
complaint alleges that Explorers are unstable and that the Firestone tires are defective.
Plaintiffs claim that the value of the vehicles was diminished because of the alleged defects and
seek unspecified actual and compensatory damages and other relief. No trial date is currently
scheduled.
A California state court certified a statewide class of purchasers and lessees of 1990-2000
Ford Explorers (Gray v. Ford Motor Company and four coordinated cases). The complaint alleges that
Explorers are unstable and that Ford concealed information about them. Plaintiffs seek relief
similar to that sought in Rowan. Trial is scheduled for April 2007.
There are also 14 purported statewide class actions pending in several states, raising
allegations similar to those raised in Rowan and in Gray, and seeking similar relief.
Bridgestone-Firestone, Inc. (Firestone) was a co-defendant in most of these cases, but settled
all claims against it in these cases. The only remaining claims in these cases are based on the
Explorers alleged rollover propensity.
29
ITEM 3. Legal Proceedings (continued)
Paint Class Actions. A state court in Madison County, Illinois certified a nationwide class
of owners of 1989-96 model year vehicles that have experienced paint peeling. Plaintiffs contend
that their vehicles paint is defective in that there was a substantial risk of topcoat or
clearcoat delamination, and that Ford failed to disclose that risk. 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. No trial date is
currently scheduled.
Blue Oval Certified Program Class Action. On January 31, 2007, the United States District
Court for the District of New Jersey certified a nationwide class of dealers who were franchisees
of Ford Motor Companys Ford Division at any time during the period mid-2000 through March 2005.
Plaintiffs allege that Fords Blue Oval Certified Program, which was designed to reward dealers who
obtained high customer satisfaction ratings, violated the Robinson-Patman Act, the Automobile
Dealers Day in Court Act, and various state laws. The complaint seeks injunctive and declaratory
relief, and unspecified damages (including compensatory, statutory, treble and punitive damages).
We plan to appeal the class certification order.
OTHER MATTERS
ERISA Fiduciary Litigation. A purported class action lawsuit is pending in the United States
District Court for the Eastern District of Michigan naming as defendants Ford Motor Company and
several of our current or former employees and officers (Nowak, et al. v. Ford Motor Company, et
al., along with three consolidated cases). The lawsuit alleges that the defendants violated ERISA by failing to prudently and loyally manage funds
held in employee savings plans sponsored by Ford. Specifically, the plaintiffs allege (among other
claims) that the defendants violated fiduciary duties owed to plan participants by continuing to
offer Ford Common Stock as an investment option in the savings plans. The defendants deny the
plaintiffs allegations, and intend to defend this matter vigorously.
SEC Pension and Post-Employment Benefit Accounting Inquiry. On October 14, 2004, the Division
of Enforcement of the Securities and Exchange Commission (SEC) notified us that it was conducting
an inquiry into the methodology used to account for pensions and other post-employment benefits.
We are one of several companies to receive a request for information as part of this inquiry. We
continue to cooperate with the SEC in providing the information requested.
SEC Restatement Inquiry. We were contacted in November 2006 by the Division of Corporation
Finance and the Division of Enforcement of the SEC for additional information regarding the
disclosures in the Current Reports on Form 8-K dated October 20, 2006, the Annual Reports on Form
10-K/A for the year ended December 31, 2005, and the Quarterly Reports on Form 10-Q for the period
ended September 30, 2006 filed by Ford and Ford Credit relating to our restatement of financial
results. As previously disclosed, we are voluntarily cooperating with these informal inquiries.
Diesel Engine Litigation. In January 2007, we filed suit in Michigan state court against the
single-source supplier of diesel engines for our Super Duty F-Series
pickup trucks. Among other things,
our suit seeks reimbursement for warranty and related costs involving
prior model-year diesel engines
supplied by International Truck and Engine Corporation (International) (a subsidiary of Navistar
International Transportation Corporation). As of February 26,
2007, International has announced that it has suspended production of
our 6.4L diesel engines. We believe this action
is unlawful, and we intend vigorously to pursue our legal rights. Our
Super Duty F-Series pickup trucks are among our most profitable
vehicles; any protracted interruption of the supply of engines from
International could have a substantial adverse effect on our
financial condition and results of operation.
ITEM 4. Submission of Matters to a Vote of Security Holders
Not required.
30
ITEM 4A. Executive Officers of Ford
Our executive officers and their positions and ages at February 9, 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Present Position |
|
|
Name |
|
Position |
|
Held Since |
|
Age |
William Clay Ford, Jr. (a)
|
|
Executive Chairman and Chairman of the Board
|
|
September 2006
|
|
|
49 |
|
|
|
|
|
|
|
|
|
|
Alan Mulally (b)
|
|
President and Chief Executive Officer
|
|
September 2006
|
|
|
61 |
|
|
|
|
|
|
|
|
|
|
Lewis W. K. Booth
|
|
Executive Vice President -Ford
Europe and Premier Automotive Group; Chairman -Jaguar, Land Rover,
Volvo and Ford Europe
|
|
October 2005
|
|
|
58 |
|
|
|
|
|
|
|
|
|
|
Mark Fields
|
|
Executive Vice President -President, The Americas
|
|
October 2005
|
|
|
46 |
|
|
|
|
|
|
|
|
|
|
Donat R. Leclair, Jr.
|
|
Executive Vice President and Chief Financial Officer
|
|
August 2003
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
Mark A. Schulz (c)
|
|
Executive Vice President
|
|
October 2005
|
|
|
54 |
|
|
|
|
|
|
|
|
|
|
Michael E. Bannister
|
|
Group Vice President -Chairman and Chief Executive Officer, Ford Motor Credit Company
|
|
April 2004
|
|
|
57 |
|
|
|
|
|
|
|
|
|
|
Francisco Codina
|
|
Group Vice President -North America Marketing, Sales and Service
|
|
March 2006
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
John Fleming
|
|
Group Vice President -President and Chief Executive Officer, Ford Europe
|
|
October 2005
|
|
|
56 |
|
|
|
|
|
|
|
|
|
|
Derrick M. Kuzak
|
|
Group Vice President -Global Product Development
|
|
December 2006
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
Joe W. Laymon
|
|
Group Vice President -Corporate Human Resources and Labor Affairs
|
|
October 2003
|
|
|
54 |
|
|
|
|
|
|
|
|
|
|
J C. Mays
|
|
Group Vice President -Design and Chief Creative Officer
|
|
August 2003
|
|
|
52 |
|
|
|
|
|
|
|
|
|
|
Ziad S. Ojakli
|
|
Group Vice President -Corporate Affairs
|
|
January 2004
|
|
|
39 |
|
|
|
|
|
|
|
|
|
|
John G. Parker
|
|
Group Vice President -Asia Pacific, Africa and Mazda
|
|
September 2006
|
|
|
59 |
|
|
|
|
|
|
|
|
|
|
Richard Parry-Jones
|
|
Group Vice President -Chief Technical Officer
|
|
August 2001
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
Peter J. Daniel
|
|
Senior Vice President and Controller
|
|
September 2006
|
|
|
60 |
|
|
|
|
|
|
|
|
|
|
David G. Leitch
|
|
Senior Vice President and General Counsel
|
|
April 2005
|
|
|
46 |
|
|
|
|
(a) |
|
Also a Director, Chair of the Office of the Chairman and Chief Executive, Acting Chair of the Finance Committee and a member of
the Environmental and Public Policy Committee of the Board of Directors. |
|
(b) |
|
Also a Director and member of the Office of the Chairman and Chief Executive and the Finance Committee of the Board of
Directors. |
|
(c) |
|
Mr. Schulz has announced his intention to retire. |
31
ITEM 4A. Executive Officers of Ford (continued)
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 recent
positions (other than those with Ford or its subsidiaries) held by those officers who have not yet
been with Ford or its subsidiaries for five years:
|
|
|
Prior to joining Ford in September 2006, Mr. Mulally served as executive vice
president of The Boeing Company, and president and chief executive officer of Boeing
Commercial Airplanes. Mr. Mulally also was a member of Boeings Executive Council, and
served as Boeings senior executive in the Pacific Northwest. He was named Boeings
president of Commercial Airplanes in September 1998; the responsibility of chief executive
officer for the business unit was added in March 2001. |
|
|
|
|
Mr. Leitch served as the Deputy Assistant and Deputy Counsel to President George
W. Bush from December 2002 to March 2005. From June 2001 until December 2002, he served as
Chief Counsel for the Federal Aviation Administration, overseeing a staff of 290 in
Washington and the agencys 11 regional offices. Prior to June 2001, Mr. Leitch was a
partner at Hogan & Hartson LLP in Washington DC, where his practice focused on appellate
litigation in state and federal court. |
|
|
|
|
Mr. Ojakli served as Principal Deputy for Legislative Affairs for President
George W. 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 our 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 Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Our Common Stock is listed on the New York Stock Exchange in the United States and on certain
stock exchanges in Belgium, France, 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 2005 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
2006 |
|
|
First |
|
Second |
|
Third |
|
Fourth |
|
First |
|
Second |
|
Third |
|
Fourth |
|
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
Common Stock price |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
per share (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High |
|
$ |
14.75 |
|
|
$ |
11.69 |
|
|
$ |
11.19 |
|
|
$ |
10.00 |
|
|
$ |
8.96 |
|
|
$ |
8.05 |
|
|
$ |
9.48 |
|
|
$ |
9.19 |
|
Low |
|
|
10.94 |
|
|
|
9.07 |
|
|
|
9.55 |
|
|
|
7.57 |
|
|
|
7.39 |
|
|
|
6.17 |
|
|
|
6.06 |
|
|
|
6.85 |
|
Dividends per share of Common and Class B Stock (b) |
|
$ |
0.10 |
|
|
$ |
0.10 |
|
|
$ |
0.10 |
|
|
$ |
0.10 |
|
|
$ |
0.10 |
|
|
$ |
0.10 |
|
|
$ |
0.05 |
|
|
$ |
0.00 |
|
|
|
|
(a) |
|
New York Stock Exchange composite interday prices as listed in the price history database available at www.NYSEnet.com. |
|
(b) |
|
On December 15, 2006, we entered into a new secured credit facility which contains a covenant prohibiting us from
paying any dividends (other than dividends payable solely in stock) on our Common and Class B Stock, subject to
certain limited exceptions. As a result, it is unlikely that we will pay any dividends in the foreseeable future.
See Note 15 of the Notes to the Financial Statements for more information regarding the secured credit facility and
related covenants. |
As of February 9, 2007, stockholders of record of Ford included 172,480 holders of Common
Stock (which number does not include 1,425 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.
32
ITEM 5. Market for Fords Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities (continued)
During the fourth quarter of 2006, we purchased shares of our Common Stock as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
Maximum Number |
|
|
|
|
|
|
|
Average |
|
|
Purchased |
|
|
(or Approximate Dollar Value) |
|
|
|
Total Number |
|
|
Price |
|
|
as Part of Publicly |
|
|
of Shares that May Yet Be |
|
|
|
of Shares |
|
|
Paid |
|
|
Announced Plans |
|
|
Purchased Under the |
|
Period |
|
Purchased* |
|
|
per Share |
|
|
or Programs |
|
|
Plans or Programs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No publicly announced |
Oct. 1, 2006 through Oct. 31, 2006 |
|
|
1,731,686 |
|
|
$ |
8.21 |
|
|
|
0 |
|
|
repurchase program in place |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No publicly announced |
Nov. 1, 2006 through Nov. 30, 2006 |
|
|
1,691,819 |
|
|
$ |
8.61 |
|
|
|
0 |
|
|
repurchase program in place |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No publicly announced |
Dec. 1, 2006 through Dec. 31, 2006 |
|
|
2,124,176 |
|
|
$ |
7.32 |
|
|
|
0 |
|
|
repurchase program in place |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
5,547,681 |
|
|
$ |
7.99 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
We currently do not have a publicly announced repurchase program in place. Of the 5,547,681
shares purchased, 5,532,458 shares were purchased from the Ford Motor Company Savings and
Stock Investment Plan for Salaried Employees (SSIP) and the Tax Efficient Savings Plan for
Hourly Employees (TESPHE). Shares are generally purchased from SSIP and TESPHE when
participants in those plans elect to sell units in the Ford Stock Fund upon retirement, upon
termination of employment with the Company, related to an in-service distribution, or to fund
a loan against an existing account balance in the Ford Stock Fund. Shares are not purchased
from these plans when a participant transfers account balances out of the Ford Stock Fund and
into another investment option under the plans. For the full year 2006, we purchased
23,766,410 shares on such basis from participants in SSIP and TESPHE. The remaining shares
were acquired from our employees or directors in accordance with our various compensation
plans as a result of share withholdings to pay income taxes with respect to: (i) the lapse of
restrictions on restricted stock, (ii) the issuance of unrestricted stock, including issuances
as a result of the conversion of restricted stock equivalents, or (iii) to pay the exercise
price and related income taxes with respect to certain exercises of stock options. |
33
ITEM 6. Selected Financial Data
The following table sets forth selected financial data for each of the last five years (dollar
amounts in millions, except per share amounts).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
SUMMARY OF OPERATIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and revenues |
|
$ |
160,123 |
|
|
$ |
176,896 |
|
|
$ |
172,316 |
|
|
$ |
166,095 |
|
|
$ |
167,000 |
|
Income/(loss) before income taxes |
|
$ |
(15,051 |
) |
|
$ |
1,079 |
|
|
$ |
4,109 |
|
|
$ |
914 |
|
|
$ |
4,036 |
|
Provision/(credit) for income taxes |
|
|
(2,646 |
) |
|
|
(845 |
) |
|
|
643 |
|
|
|
(46 |
) |
|
|
1,459 |
|
Minority interests in net income of subsidiaries |
|
|
210 |
|
|
|
280 |
|
|
|
282 |
|
|
|
314 |
|
|
|
367 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) from continuing operations |
|
|
(12,615 |
) |
|
|
1,644 |
|
|
|
3,184 |
|
|
|
646 |
|
|
|
2,210 |
|
Income/(loss) from discontinued operations |
|
|
2 |
|
|
|
47 |
|
|
|
(146 |
) |
|
|
(143 |
) |
|
|
(333 |
) |
Cumulative effects of change in accounting principle |
|
|
|
|
|
|
(251 |
) |
|
|
|
|
|
|
(264 |
) |
|
|
(1,002 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss) |
|
$ |
(12,613 |
) |
|
$ |
1,440 |
|
|
$ |
3,038 |
|
|
$ |
239 |
|
|
$ |
875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive Sector |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
143,307 |
|
|
$ |
153,474 |
|
|
$ |
147,119 |
|
|
$ |
139,433 |
|
|
$ |
134,706 |
|
Operating income/(loss) |
|
|
(17,921 |
) |
|
|
(4,188 |
) |
|
|
(200 |
) |
|
|
(1,035 |
) |
|
|
(507 |
) |
Income/(loss) before income taxes |
|
|
(17,017 |
) |
|
|
(3,874 |
) |
|
|
(178 |
) |
|
|
(1,387 |
) |
|
|
(957 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services Sector |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
16,816 |
|
|
$ |
23,422 |
|
|
$ |
25,197 |
|
|
$ |
26,662 |
|
|
$ |
32,294 |
|
Income/(loss) before income taxes |
|
|
1,966 |
|
|
|
4,953 |
|
|
|
4,287 |
|
|
|
2,301 |
|
|
|
4,993 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Company Data Per Share of Common and Class B Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) from continuing operations |
|
$ |
(6.72 |
) |
|
$ |
0.89 |
|
|
$ |
1.74 |
|
|
$ |
0.35 |
|
|
$ |
1.21 |
|
Income/(loss) from discontinued operations |
|
|
|
|
|
|
0.03 |
|
|
|
(0.08 |
) |
|
|
(0.08 |
) |
|
|
(0.19 |
) |
Cumulative effects of change in accounting principle |
|
|
|
|
|
|
(0.14 |
) |
|
|
|
|
|
|
(0.14 |
) |
|
|
(0.55 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss) |
|
$ |
(6.72 |
) |
|
$ |
0.78 |
|
|
$ |
1.66 |
|
|
$ |
0.13 |
|
|
$ |
0.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) from continuing operations |
|
$ |
(6.72 |
) |
|
$ |
0.87 |
|
|
$ |
1.59 |
|
|
$ |
0.35 |
|
|
$ |
1.14 |
|
Income/(loss) from discontinued/held-for-sale operations |
|
|
|
|
|
|
0.02 |
|
|
|
(0.07 |
) |
|
|
(0.08 |
) |
|
|
(0.16 |
) |
Cumulative effects of change in accounting principle |
|
|
|
|
|
|
(0.12 |
) |
|
|
|
|
|
|
(0.14 |
) |
|
|
(0.47 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss) |
|
$ |
(6.72 |
) |
|
$ |
0.77 |
|
|
$ |
1.52 |
|
|
$ |
0.13 |
|
|
$ |
0.51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends |
|
$ |
0.25 |
|
|
$ |
0.40 |
|
|
$ |
0.40 |
|
|
$ |
0.40 |
|
|
$ |
0.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock price range (NYSE Composite) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High |
|
$ |
9.48 |
|
|
$ |
14.75 |
|
|
$ |
17.34 |
|
|
$ |
17.33 |
|
|
$ |
18.23 |
|
Low |
|
|
6.06 |
|
|
|
7.57 |
|
|
|
12.61 |
|
|
|
6.58 |
|
|
|
6.90 |
|
Average number of shares of Common and Class B Stock outstanding (in millions) |
|
|
1,879 |
|
|
|
1,846 |
|
|
|
1,830 |
|
|
|
1,832 |
|
|
|
1,819 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SECTOR BALANCE SHEET DATA AT YEAR-END |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive Sector |
|
$ |
122,634 |
|
|
$ |
113,825 |
|
|
$ |
113,251 |
|
|
$ |
111,208 |
|
|
$ |
100,140 |
|
Financial Services Sector |
|
|
169,050 |
|
|
|
162,194 |
|
|
|
189,188 |
|
|
|
195,509 |
|
|
|
187,576 |
|
Intersector elimination |
|
|
(1,467 |
) |
|
|
(83 |
) |
|
|
(2,753 |
) |
|
|
(3,356 |
) |
|
|
(5,865 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
290,217 |
|
|
$ |
275,936 |
|
|
$ |
299,686 |
|
|
$ |
303,361 |
|
|
$ |
281,851 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term Debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive Sector |
|
$ |
28,514 |
|
|
$ |
16,900 |
|
|
$ |
17,250 |
|
|
$ |
18,758 |
|
|
$ |
13,363 |
|
Financial Services Sector |
|
|
115,859 |
|
|
|
103,080 |
|
|
|
112,080 |
|
|
|
123,655 |
|
|
|
121,304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt |
|
$ |
144,373 |
|
|
$ |
119,980 |
|
|
$ |
129,330 |
|
|
$ |
142,413 |
|
|
$ |
134,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity |
|
$ |
(3,465 |
) |
|
$ |
13,442 |
|
|
$ |
17,437 |
|
|
$ |
13,459 |
|
|
$ |
7,633 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
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 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. In addition, revenue for finished vehicles we sell to customers or vehicle
modifiers on consignment is not recognized until the vehicle is sold to the ultimate customer.
Therefore, except for the impact of the daily rental units sold subject to a guaranteed repurchase
option, those units placed into our own fleet, and those units for which recognition of revenue is
otherwise deferred, wholesale volumes to our customers and revenue
from such sales are closely
linked with our production.
Most of the vehicles sold by us to our dealers and distributors are financed at wholesale by
Ford Credit. Upon Ford Credit originating the wholesale receivable related to a dealers purchase
of a vehicle, Ford Credit pays cash to the relevant legal entity in our Automotive sector in
payment of the dealers obligation for the purchase price of the vehicle. The dealer then pays the
wholesale finance receivable when it sells the vehicle to a retail customer.
Our Financial Services sectors revenue is generated primarily from interest on finance
receivables, net of certain deferred 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, depreciation and operating expenses.
Transactions
between our 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, and the Automotive
sector makes the related cash payments, over the expected life of the related finance receivable or
operating lease. See Note 1 of the Notes to the Financial Statements for a more detailed discussion of
transactions and payments between our Automotive and Financial
Services sectors. Our 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. These reductions to revenue are accrued at the later of the date the related vehicle
sales to the dealer are recorded or at the date the incentive program is both approved and
communicated.
Key Economic Factors and Trends Affecting the Automotive Industry
Excess Capacity. According to CSM Worldwide, an automotive research firm, in 2006 the
estimated automotive industry global production capacity for light vehicles (about 79 million
units) significantly exceeded global production of cars and trucks (about 65 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 16% and 14%, respectively. According to production
capacity data projected by CSM Worldwide, global excess capacity conditions could continue for
several more years, with planned capacity reductions announced by us and General Motors Corporation
offset by increases in capacity additions in Asia Pacific markets.
35
ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)
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, the incremental new U.S. manufacturing capacity of
Japanese and Korean manufacturers in recent years has contributed, and is likely to continue to
contribute, to the severe pricing pressure in that market. For example, in 2006, Toyota completed construction of an assembly plant in Texas that reportedly will be capable of
producing at least 200,000 full-size pick-up trucks per year. The reduction of real prices for
similarly contented vehicles in the United States has become more pronounced since the late 1990s,
and we expect that a challenging pricing environment will continue for some time to come. In
addition, the Japanese yen remains weak against the U.S. dollar and at historic lows against the
euro, contributing substantially to Japanese vehicle manufacturers significant cost advantage,
especially on exports from Japan to these markets. In Europe, the automotive industry also has
experienced intense pricing pressure for several years, exacerbated in recent years by the Block
Exemption Regulation discussed above in Item 1. Business Automotive Sector.
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 and other mature markets, we expect that growth in spending on vehicle
mix and content will change generally in line with GDP or above. The benefits of this to revenue
growth in the automotive industry are significant. In the United States, for example, consumers in
the highest income brackets are buying more often and are more frequently buying upscale.
Although growth in wholesales (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 majority of global industry revenues. We also expect
that the North American market will continue as the single largest source of revenue for the
automotive industry in the world.
Health Care Expenses. In 2006, our health care expenses for U.S. employees, retirees, and
their dependents were $3.1 billion, with about $1.8 billion for postretirement health care and the
balance for active employee health care and other retiree expense.
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
2007, our trend assumptions for U.S. health care costs include an initial trend rate of six
percent, gradually declining to a steady state trend rate of five percent reached in 2011. These
assumptions include the effect of actions we are taking and expect to take to offset health care
inflation, including eligibility management, employee education and wellness programs, competitive
sourcing, and employee cost sharing.
Commodity and Energy Price Increases. Commodity price increases, particularly for steel and
resins (which are our two largest commodity exposures and among the most difficult to hedge), have
occurred recently and are continuing during a period of strong global demand for these materials.
In addition, energy prices continued to increase significantly in 2006. In particular, gasoline
prices in the United States increased in volatility and rose to levels over $3.00 per gallon in
2006. Although prices have moderated somewhat, they remain and are expected to remain at high
levels. This has had an adverse effect on the demand for full- and medium-sized sport utility
vehicles and trucks in the United States.
Currency Exchange Rate Volatility. The U.S. dollar has depreciated against most major
currencies since 2002. This created downward margin pressure on auto manufacturers that have U.S.
dollar revenue with foreign currency cost. Because we produce vehicles in Europe (e.g., Jaguar,
Land Rover, Aston Martin and Volvo models) for sale in the United States and produce components in
Europe (e.g., engines) for use in some of our North American vehicles, we experienced margin
pressure. Although this pressure was offset partially by gains on foreign exchange derivatives,
this offset declines over time due to the expiration of favorable hedges previously put in place.
We, like many other automotive manufacturers with sales in the United States, are not always able
to price for depreciation of the U.S. dollar due to the extremely competitive pricing environment
in the United States.
36
ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)
Other Economic Factors. Additional factors have recently affected the performance of the
automotive industry. In the United States, 2006 was a period of a significant contraction in the
housing market. As a result, residential construction of new homes declined by 4.2% (after
inflation). This adjustment had two effects on automotive sales and revenue directly, through
its adverse effect on GDP growth, and as a contributing factor to potential softer demand for truck
sales. Both of these factors may continue to contribute to lower light vehicle sales in the United
States.
CO2 Emissions Standards for Medium and Heavy Trucks. New, more stringent U.S.
regulatory requirements for truck emissions took effect on January 1, 2007, which increased the
cost of engines used in medium and heavy trucks. These standards did not apply to vehicles
purchased prior to the implementation of the new regulations. As a result, sales of medium and
heavy trucks were elevated in 2006 as buyers pulled ahead orders that they would otherwise have
made at a later date. This may result in a deterioration of the sales pace for medium and heavy
trucks in 2007.
Trends and Strategies
The global automotive marketplace has become increasingly fragmented and crowded, and we
anticipate that this trend will continue to accelerate into the future. Anticipating little growth
in the overall volume of vehicles sold in North America for the foreseeable future, we expect more
manufacturers to offer an increasing number of products in this market. To address this market
reality and the factors and trends affecting the automotive industry discussed above, we have been
focusing on the following four key priorities:
|
|
|
Restructuring the Company to be profitable at lower volumes and with a changed vehicle mix; |
|
|
|
|
Accelerating product development and reducing manufacturing complexity; |
|
|
|
|
Obtaining and maintaining adequate liquidity to fund the first two priorities; and |
|
|
|
|
Working together through teamwork and accountability. |
Restructuring the Company
To compete more effectively in todays global marketplace, and particularly in North America,
we have embarked on a plan to restructure aggressively our Automotive business to address the
realities of lower demand, higher fuel prices and the shifting model mix from trucks and large SUVs
to more fuel-efficient vehicles.
On January 23, 2006, we announced a major business improvement plan for our North American
Automotive operations, which we referred to as the Way Forward plan. On September 15, 2006,
responding to changing facts and circumstances, we announced an acceleration of this plan,
including actions designed to further reduce operating costs and increase the flow of new products.
Personnel reductions
Acceleration of the Way Forward plan includes additional reductions of our capacity and
workforce to contribute to our goal of reducing annual North America operating costs by about $5
billion by the end of 2008 as compared with 2005. Our accelerated plan reduces salaried-related
costs through the elimination of the equivalent of about 14,000 salaried-related positions, which
represents about one-third of our North American salaried workforce. This reduction includes our
elimination of the equivalent of nearly 5,000 salaried positions by the end of 2006; the additional
reductions are being achieved through early retirements, voluntary separations and, as necessary,
involuntary separations, with most employee departures expected to be completed by the end of the
first quarter of 2007.
By agreement with the UAW, we also extended early retirement or separation packages to all
U.S. hourly employees, including Ford employees at our ACH plants. Through year-end 2006, about
37,000 hourly employees represented by the UAW had accepted (and not rescinded) an early retirement
or separation offer. The vast majority of these employees are expected to separate from the
Company by September 2007, though many of the offers include an opportunity for the employee to
rescind acceptance until the time of separation. The accelerated plan to sell or close all ACH
facilities by the end of 2008 will result in additional personnel reductions.
37
ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)
Overall, including ACH hourly employees, at December 31, 2006 we had about 89,000 hourly
employees in North America (including Canada and Mexico), which is down from about 99,500 employees
at year-end 2005. By the end of 2008, our plan is to operate with between 55,000 to 60,000 hourly
employees in North America.
Capacity alignment
We also intend to reduce and realign our vehicle assembly capacity to bring it more in line
with demand and shifting customer preferences. There are several ways to measure our vehicle
assembly capacity, two of which are installed capacity and manned capacity. Installed capacity
refers to the physical capability of the plant and equipment to assemble vehicles if fully manned.
Manned capacity refers to the degree to which the installed capacity has been staffed. In
addition, in North America there generally exists the capability to work overtime or schedule
downtime to adjust the manned capacity in the short term to match sales.
In the longer term, a useful measure of capacity is maximum installed capacity. This reflects
the full physical capacity of the plant and equipment, including maximum overtime. In the shorter
term, a useful measure is straight-time manned capacity. This reflects the extent to which labor
is being utilized to make the installed capacity capable of actually assembling vehicles.
Since year-end 2005, we have reduced our North American maximum installed capacity (with all
plants operating on two shifts) and straight-time manned capacity from 4.8 million units and 3.6
million units, respectively, to 4.1 million units and 3.4 million units, respectively. As
indicated in the table below, our plan is to further reduce our North American assembly capacity on
both bases by the end of 2008. Our projected North American vehicle production divided by our
planned maximum installed assembly capacity of 3.6 million units results in a capacity utilization
rate of 84% in 2008. Our North American straight-time manned capacity utilization in 2008 is
projected to be 100% as a result of plant idlings as well as shift eliminations and line speed
reductions. Reducing our manned capacity in this manner allows us to achieve major cost savings
and coordinates plant idlings with planned product changes, which we believe is the best economic
approach.
|
|
|
|
|
|
|
|
|
|
|
2008 Projected |
|
|
Assembly |
|
Capacity |
|
|
Capacity |
|
Utilization |
Capacity Measure |
|
(mil. units) |
|
(percent) |
Maximum Installed * |
|
|
3.6 |
|
|
|
84 |
% |
Manned Straight-Time |
|
|
3.0 |
|
|
|
100 |
% |
|
|
|
* |
|
Based on a two-shift operating pattern |
We plan to reduce our maximum installed assembly capacity in North America by the end of the
decade so that it closely matches projected sales of Ford, Lincoln and Mercury brand units.
As part of this reduction, we have announced plans to idle 16 North American manufacturing
facilities, including seven vehicle assembly plants, by the end of 2012. Of these, the following
nine facilities have been or are planned to be idled by the end of 2008:
|
|
|
Atlanta Assembly Plant (idled in 2006); |
|
|
|
|
Batavia Transmission Plant (to be idled in 2008); |
|
|
|
|
Essex Engine Plant (to be idled in 2007); |
|
|
|
|
Maumee Stamping Plant (to be idled in 2008); |
|
|
|
|
Norfolk Assembly Plant (to be idled in 2007); |
|
|
|
|
St. Louis Assembly Plant (idled in 2006); |
|
|
|
|
Twin Cities Assembly Plant (to be idled in 2008); |
|
|
|
|
Windsor Casting Plant (to be idled in 2007); and |
|
|
|
|
Wixom Assembly Plant (to be idled in 2007). |
38
ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)
Also, in 2007, we have eliminated or plan to eliminate a shift at each of the Norfolk, Twin
Cities, St. Thomas (Ontario) and Michigan Truck assembly plants, and plan to add a third crew at
the Dearborn Truck Assembly Plant to accommodate additional F-150 truck production.
Additionally, we plan to sell or close all of the 13 remaining ACH plants by the end of 2008.
Of these, we have entered into nonbinding memoranda of understanding for the sale of three ACH
plants.
Accelerating Product Development and Reducing Manufacturing Complexity
As part of our acceleration of the Way Forward plan, 70 percent of Ford, Lincoln, and Mercury
products (by volume) in North America will be new or significantly upgraded by the end of 2008
compared with 2006 models; these efforts will include the expansion of our product lineup in growth
segments such as crossover vehicles. We have most recently introduced or will introduce in the next
few months the following new models:
|
|
|
Ford North America: the all-new Ford Edge and Lincoln MKX crossover models,
substantially new versions of the Ford Expedition and Lincoln Navigator models, new
models of our segment-leading Ford Super Duty trucks, and new versions of the Lincoln
MKZ sedan and Ford Escape and Mercury Mariner compact sport utility vehicles and
hybrids; |
|
|
|
|
Ford Europe: the award-winning Ford S-MAX crossover vehicle (named Car of the Year
2007 in Europe), Galaxy minivan, and Transit truck (named International Van of the
Year 2007 in Europe); and |
|
|
|
|
PAG: Jaguar XKR coupe, Land Rover/Freelander/LR2 SUVs, Volvo S80 sedan and Volvo
C30 coupe. |
In addition, we are continuing to invest in new gasoline, flexible-fuel, diesel, hydrogen, and
hybrid powertrains, as well as fuel-saving six-speed transmission technology.
We plan to accelerate the development of new products designed to meet shifting consumer
preferences for more fuel-efficient, smaller vehicles. To facilitate this, we have reorganized our
product development activities into a unified and integrated global organization that reports
directly to our Chief Executive Officer, and we are developing a truly global product plan that
takes full advantage of our global product development assets, technologies and people. By
leveraging our scale, we will be able to apply our global product development capital and
engineering resources to fewer vehicle platforms, drivetrains and powertrains. This commonality of
platforms, drivetrains and powertrains, in turn, will reduce complexity in our vehicles and
processes. Moreover, as we make our investments in new products, we will continue to improve our
production systems quality, productivity and flexibility.
Fords I-4 Duratec engine family (1.8L through 2.5L) is an example of how commonality can
work. The I-4 Duratec is being used by Ford Europe (Focus and Mondeo models), Volvo (S40 model),
Ford Asia Pacific (Focus and Volvo S40 models), Ford North America (Focus, Escape/Mariner,
Fusion/Milan models), and by Mazda in several of its vehicles. For the Ford-brand models, this is
expected to represent production in 2007 of more than 800,000 I-4 Duratec engines and annual
production in the next few years of more than one million engines.
Obtaining and Maintaining Adequate Liquidity
As discussed below under Liquidity and Capital Resources Automotive Sector and in Note 15
of the Notes to the Financial Statements, we obtained $23.5 billion of new liquidity in December
2006, including proceeds from a convertible debt offering of $4.95 billion, proceeds from a secured
term loan of $7 billion and a secured revolving credit facility of $11.5 billion. This resulted in
total automotive liquidity of about $46 billion at year-end 2006, which we believe should allow us
to fund the restructuring and product development priorities discussed above, and provide us with a
cushion for a recession or other unforeseen events in the near term.
39
ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)
Working Together through Teamwork and Accountability
Our global management team is focused on a single, company-wide global business plan that
establishes clear performance goals for the entire Company. This requires all functions product
development, purchasing, information technology, manufacturing, etc, across the globe to work
together and be accountable to meet the performance goals established by our business plan.
To facilitate this, our senior management team has established weekly meetings to assess our
progress against the business plan goals, to identify risks to meeting and opportunities for
exceeding those goals, and to make decisions about actions to take to mitigate risks or implement
opportunities to stay on track to meet or exceed those goals.
Financial Impact and Assumptions
Execution of the four priorities discussed above is expected to result in our Ford North
America segment, and our Automotive sector overall, being profitable in 2009. This projection is
based on the following operating assumptions in the 2008 and 2009 time period:
|
|
|
Sales volume and mix of products stabilizing in North America, with U.S. market share
in the 14% to 15% range for Ford, Lincoln and Mercury brands, and lower fleet sales as a
percentage of total sales. This in part reflects cessation in 2006 of production of the
Ford Taurus sedan in Atlanta and Ford Freestar and Mercury Monterey minivans in
Oakville, Ontario. In addition, we expect growth in sales volumes outside the United
States. |
|
|
|
|
Cumulative reduction in annual operating costs for our Ford North America segment of about
$5 billion by the end of 2008 compared with 2005, largely reflecting the personnel and
capacity reductions discussed above, and continuing cost improvements in 2009. |
For a discussion of our liquidity needs and uses during this period, see Liquidity and Capital
Resources Automotive Sector below. For a discussion of the outlook for our 2007 full-year
performance, see Outlook below.
40
ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)
RESULTS OF OPERATIONS
FULL-YEAR 2006 RESULTS OF OPERATIONS
Our worldwide net income was a loss of $12.6 billion or $6.72 per share of Common and Class B
Stock in 2006, down $14 billion from a profit of $1.4 billion or $0.77 per share in 2005.
Results
by business sector for 2006, 2005, and 2004 are shown below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Income/(loss) before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
Automotive Sector |
|
$ |
(17,017 |
) |
|
$ |
(3,874 |
) |
|
$ |
(178 |
) |
Financial Services Sector |
|
|
1,966 |
|
|
|
4,953 |
|
|
|
4,287 |
|
|
|
|
|
|
|
|
|
|
|
Total Company |
|
|
(15,051 |
) |
|
|
1,079 |
|
|
|
4,109 |
|
Provision for/(benefit from) income taxes (a) |
|
|
(2,646 |
) |
|
|
(845 |
) |
|
|
643 |
|
Minority interests in net income/(loss) of subsidiaries (b) |
|
|
210 |
|
|
|
280 |
|
|
|
282 |
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) from continuing operations |
|
|
(12,615 |
) |
|
|
1,644 |
|
|
|
3,184 |
|
Income/(loss) from discontinued operations |
|
|
2 |
|
|
|
47 |
|
|
|
(146 |
) |
Cumulative effect of change in accounting principle (c) |
|
|
|
|
|
|
(251 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss) |
|
$ |
(12,613 |
) |
|
$ |
1,440 |
|
|
$ |
3,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
See Note 18 of the Notes to the Financial Statements for disclosure regarding 2006
effective tax rate. |
|
(b) |
|
Primarily related to Ford Europes consolidated 41%-owned affiliate, Ford Otosan; the
decrease in 2006 primarily reflected the impact on deferred tax balances of tax law changes in
Turkey. The pre-tax results for Ford Otosan were $509 million in 2006, $503 million in 2005,
and $452 million in 2004. See Item 2. Properties for additional discussion of Ford Otosan. |
|
(c) |
|
See Note 27 of the Notes to the Financial Statements. |
Included in Income/(loss) before income taxes are items we do not consider indicative of
our ongoing operating activities (special items). The following table details 2006, 2005, and
2004 special items by segment or business unit (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Automotive Sector |
|
|
|
|
|
|
|
|
|
|
|
|
Ford North America |
|
|
|
|
|
|
|
|
|
|
|
|
Jobs Bank Benefits and personnel-reduction programs (a) |
|
$ |
(4,760 |
) |
|
$ |
(401 |
) |
|
$ |
|
|
Pension curtailment charges |
|
|
(2,741 |
) |
|
|
|
|
|
|
|
|
Fixed asset impairment charges |
|
|
(2,200 |
) |
|
|
|
|
|
|
|
|
U.S. plant idlings (primarily fixed-asset write-offs) |
|
|
(281 |
) |
|
|
|
|
|
|
|
|
Visteon-related charges (primarily valuation allowance against employee-related receivables) (b) |
|
|
|
|
|
|
(468 |
) |
|
|
(600 |
) |
Fuel-cell technology charges |
|
|
|
|
|
|
(116 |
) |
|
|
(182 |
) |
Divestiture of non-core business (Beanstalk Group, LLC) |
|
|
|
|
|
|
(59 |
) |
|
|
|
|
Changes in state non-income tax law |
|
|
|
|
|
|
85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Ford North America |
|
|
(9,982 |
) |
|
|
(959 |
) |
|
|
(782 |
) |
Ford South America |
|
|
|
|
|
|
|
|
|
|
|
|
Legal settlement relating to social welfare tax liability |
|
|
110 |
|
|
|
|
|
|
|
|
|
Ford Europe |
|
|
|
|
|
|
|
|
|
|
|
|
Personnel-reduction programs |
|
|
(84 |
) |
|
|
(510 |
) |
|
|
(49 |
) |
Premier Automotive Group (PAG) |
|
|
|
|
|
|
|
|
|
|
|
|
Jaguar and Land Rover fixed asset impairment charges |
|
|
(1,600 |
) |
|
|
(1,300 |
) |
|
|
|
|
Personnel-reduction programs/Other |
|
|
(378 |
) |
|
|
(245 |
) |
|
|
(110 |
) |
Ford Asia Pacific and Africa/Mazda |
|
|
|
|
|
|
|
|
|
|
|
|
Personnel-reduction programs |
|
|
(103 |
) |
|
|
(33 |
) |
|
|
|
|
Mazda pension transfer |
|
|
115 |
|
|
|
|
|
|
|
|
|
Divestiture of non-core business (certain Australia dealerships) |
|
|
|
|
|
|
14 |
|
|
|
(81 |
) |
Other Automotive |
|
|
|
|
|
|
|
|
|
|
|
|
Divestiture of non-core businesses (primarily related to Kwik-Fit Group Limited) |
|
|
|
|
|
|
152 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
Total Automotive Sector |
|
|
(11,922 |
) |
|
|
(2,881 |
) |
|
|
(1,005 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services Sector |
|
|
|
|
|
|
|
|
|
|
|
|
Divestiture of non-core business (The Hertz Corporation (Hertz)) |
|
|
|
|
|
|
1,499 |
|
|
|
|
|
Property clean-up settlement |
|
|
|
|
|
|
|
|
|
|
45 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(11,922 |
) |
|
$ |
(1,382 |
) |
|
$ |
(960 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
See Note 17 of the Notes to the Financial Statements for definition and discussion of Jobs
Bank Benefits. |
|
(b) |
|
See Notes 19 and 23 of the Notes to the Financial Statements for discussion of
Visteon-related charges. |
41
ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)
AUTOMOTIVE SECTOR RESULTS OF OPERATIONS
Our discussion of Automotive sector results of operations is on a pre-tax basis.
2006 Compared with 2005
Details by Automotive segment or business unit of Income/(loss) before income taxes are shown
below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
Over/ |
|
|
|
|
|
|
|
|
|
|
|
(Under) |
|
|
|
2006 |
|
|
2005 |
|
|
2005 |
|
The Americas |
|
|
|
|
|
|
|
|
|
|
|
|
Ford North America |
|
$ |
(15,969 |
) |
|
$ |
(2,444 |
) |
|
$ |
(13,525 |
) |
Ford South America |
|
|
661 |
|
|
|
399 |
|
|
|
262 |
|
|
|
|
|
|
|
|
|
|
|
Total The Americas |
|
|
(15,308 |
) |
|
|
(2,045 |
) |
|
|
(13,263 |
) |
Ford Europe and PAG |
|
|
|
|
|
|
|
|
|
|
|
|
Ford Europe |
|
|
371 |
|
|
|
(437 |
) |
|
|
808 |
|
PAG |
|
|
(2,322 |
) |
|
|
(1,634 |
) |
|
|
(688 |
) |
|
|
|
|
|
|
|
|
|
|
Total Ford Europe and PAG |
|
|
(1,951 |
) |
|
|
(2,071 |
) |
|
|
120 |
|
Ford Asia Pacific and Africa/Mazda |
|
|
|
|
|
|
|
|
|
|
|
|
Ford Asia Pacific and Africa |
|
|
(250 |
) |
|
|
42 |
|
|
|
(292 |
) |
Mazda and Associated Operations |
|
|
245 |
|
|
|
255 |
|
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
Total Ford Asia Pacific and Africa/Mazda |
|
|
(5 |
) |
|
|
297 |
|
|
|
(302 |
) |
Other Automotive |
|
|
247 |
|
|
|
(55 |
) |
|
|
302 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(17,017 |
) |
|
$ |
(3,874 |
) |
|
$ |
(13,143 |
) |
|
|
|
|
|
|
|
|
|
|
Details of Automotive sector sales and wholesale unit volumes by Automotive segment or
business unit for 2006 and 2005 are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
|
|
|
|
|
|
|
|
|
Wholesales (a) |
|
|
|
|
|
|
|
(in billions) |
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
Over/(Under) |
|
|
|
|
|
|
|
|
|
|
Over/(Under) |
|
|
|
2006 |
|
|
2005 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
2005 |
|
The Americas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford North America |
|
$ |
69.4 |
|
|
$ |
80.6 |
|
|
$ |
(11.2 |
) |
|
|
(14 |
)% |
|
|
3,051 |
|
|
|
3,410 |
|
|
|
(359 |
) |
|
|
(11 |
)% |
Ford South America |
|
|
5.7 |
|
|
|
4.4 |
|
|
|
1.3 |
|
|
|
30 |
|
|
|
381 |
|
|
|
335 |
|
|
|
46 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total The Americas |
|
|
75.1 |
|
|
|
85.0 |
|
|
|
(9.9 |
) |
|
|
(12 |
) |
|
|
3,432 |
|
|
|
3,745 |
|
|
|
(313 |
) |
|
|
(8 |
) |
Ford Europe and PAG |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford Europe |
|
|
30.4 |
|
|
|
29.9 |
|
|
|
0.5 |
|
|
|
2 |
|
|
|
1,846 |
|
|
|
1,753 |
|
|
|
93 |
|
|
|
5 |
|
PAG |
|
|
30.0 |
|
|
|
30.3 |
|
|
|
(0.3 |
) |
|
|
(1 |
) |
|
|
730 |
|
|
|
764 |
|
|
|
(34 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Ford Europe and PAG |
|
|
60.4 |
|
|
|
60.2 |
|
|
|
0.2 |
|
|
|
|
|
|
|
2,576 |
|
|
|
2,517 |
|
|
|
59 |
|
|
|
2 |
|
Ford Asia Pacific and Africa/Mazda |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford Asia Pacific and Africa (b) |
|
|
6.5 |
|
|
|
7.7 |
|
|
|
(1.2 |
) |
|
|
(15 |
) |
|
|
517 |
|
|
|
473 |
|
|
|
44 |
|
|
|
9 |
|
Mazda and Associated Operations (c) |
|
|
1.3 |
|
|
|
0.6 |
|
|
|
0.7 |
|
|
|
|
|
|
|
72 |
|
|
|
32 |
|
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Ford Asia Pacific and Africa/Mazda |
|
|
7.8 |
|
|
|
8.3 |
|
|
|
(0.5 |
) |
|
|
(6 |
) |
|
|
589 |
|
|
|
505 |
|
|
|
84 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
143.3 |
|
|
$ |
153.5 |
|
|
$ |
(10.2 |
) |
|
|
(7 |
)% |
|
|
6,597 |
|
|
|
6,767 |
|
|
|
(170 |
) |
|
|
(3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Wholesale unit volumes generally are reported on a where-sold basis,
and include all Ford-badged units and units manufactured by Ford that
are sold to other manufacturers, as well as units distributed for
other manufacturers. Vehicles sold to daily rental car companies that
are subject to a guaranteed repurchase option, as well as other sales
of finished vehicles for which the recognition of revenue is deferred
(e.g., consignments), are included in wholesale unit volumes. For a
discussion of our revenue recognition policy for these sales, see Note
2 of the Notes to the Financial Statements. |
|
(b) |
|
Included in wholesale unit volumes of Ford Asia Pacific and Africa are
Ford-badged vehicles sold in China and Malaysia by certain
unconsolidated affiliates totaling about 159,000 and 87,000 units in
2006 and 2005, respectively. Sales above does not include revenue
from these units. |
|
(c) |
|
Reflects sales of Mazda6 by our consolidated subsidiary, AutoAlliance
International, Inc. (AAI), beginning with the consolidation of AAI
in the third quarter of 2005. See Note 13 of the Notes to the
Financial Statements. |
42
ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)
Details of Automotive sector market share for selected markets for 2006 and 2005, along
with the level of dealer stocks as of December 31, 2006 and 2005, are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dealer-Owned Stocks (a) |
|
|
Market Share |
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
Over/(Under) |
|
|
|
|
|
|
|
|
|
Over/(Under) |
Market |
|
2006 |
|
2005 |
|
2005 |
|
2006 |
|
2005 |
|
2005 |
U.S. (b) |
|
|
16.0 |
% |
|
|
17.0 |
% |
|
|
(1.0 |
)pts. |
|
|
570 |
|
|
|
733 |
|
|
|
(163 |
) |
South America (b) (c) |
|
|
11.5 |
|
|
|
12.0 |
|
|
|
(0.5 |
) |
|
|
40 |
|
|
|
33 |
|
|
|
7 |
|
Europe (b) (d) |
|
|
8.5 |
|
|
|
8.5 |
|
|
|
|
|
|
|
322 |
|
|
|
342 |
|
|
|
(20 |
) |
PAG U.S./Europe (d) |
|
|
1.1/2.1 |
|
|
|
1.2/2.2 |
|
|
|
(0.1)/(0.1 |
) |
|
|
34/67 |
|
|
|
45/69 |
|
|
|
(11)/(2 |
) |
Asia Pacific and Africa (b) (e) (f) |
|
|
2.4 |
|
|
|
2.4 |
|
|
|
|
|
|
|
50 |
|
|
|
50 |
|
|
|
|
|
|
|
|
(a) |
|
Dealer-owned stocks represent our estimate of vehicles shipped to our customers (dealers) and not yet sold by the
dealers to their retail customers, as well as some vehicles reflected in our inventory. |
|
(b) |
|
Includes only Ford and, in certain markets (primarily U.S.), Lincoln and Mercury brands. |
|
(c) |
|
South America market share is based on vehicle retail sales for our six major markets (Argentina,
Brazil, Chile, Colombia, Ecuador, and Venezuela). |
|
(d) |
|
European 2006 market share is based, in part, on estimated
vehicle registrations for our 19 major European markets. See
"Item 1. Business'' for discussion of these markets. |
|
(e) |
|
Asia Pacific and Africa 2006 market share is based on estimated vehicle retail sales for our 12 major markets
(Australia, China, Japan, India, Indonesia, Malaysia, New Zealand,
Philippines, South Africa, Taiwan, Thailand, and
Vietnam). |
|
(f) |
|
Dealer-owned stocks for Asia Pacific and Africa include primarily Ford-brand vehicles as well as a small number of
units distributed for other manufacturers. |
Overall Automotive Sector
The
decline in earnings reflected the effect of Jobs Bank Benefits
charges and higher
personnel-reduction program charges for our Ford North America segment, unfavorable volume and mix
(mainly lower market share, adverse product mix in Ford North America, and lower dealer stock
levels), pension curtailment charges, impairment charges related to our long-lived assets in Ford
North America and Jaguar and Land Rover operations, and unfavorable net pricing. These adverse
factors were offset partially by favorable cost changes. Our efforts to restructure the Ford North
America business resulted in the Jobs Bank Benefits and personnel-reduction program charges, and
the related pension curtailment charges.
The decline in revenue primarily reflected lower wholesale unit volumes in Ford North America,
adverse product mix, and unfavorable net pricing.
The table below details our 2006 cost changes at constant volume, mix, and exchange, excluding
special items and discontinued operations (in billions):
|
|
|
|
|
|
|
|
|
|
|
2006 Better/(Worse) |
|
|
|
|
Than |
Explanation of Cost Changes |
|
2005 |
Manufacturing and engineering
|
|
Primarily hourly and salaried personnel reductions and continued improvements in our plants and processes.
|
|
|
$ 1.0 |
|
Pension and Other Postretirement Employee Benefits (OPEB)
|
|
Primarily improvements beginning in
the third quarter associated with our retiree health cost sharing agreement with the UAW, and improvements related to revisions to our salaried benefit plans, offset partially by the impact of reducing the discount rate and long-term expected return assumptions.
|
|
|
0.5 |
|
Overhead
|
|
Primarily related to salaried personnel reductions.
|
|
|
0.4 |
|
Net product
|
|
Pricing reductions from our suppliers and net design cost reductions, offset primarily by commodity price increases.
|
|
|
0.1 |
|
Depreciation and amortization
|
|
Acceleration of depreciation
resulting from ongoing improvement plans including the announced facility idlings, offset partially by the favorable impact of impairment charges for long-lived assets and the favorable impact of the change in special tooling amortization methodology.
|
|
|
(0.1 |
) |
Warranty-related
|
|
Primarily reflects adjustments to Jaguar and Land Rover warranty accruals related to unfavorable prior model-year performance and the non-recurrence in 2006 of favorable reserve adjustments, offset partially by favorable coverage performance in Ford North America.
|
|
|
(0.1 |
) |
Advertising & Sales Promotions
|
|
Primarily increased advertising costs.
|
|
|
(0.3 |
) |
|
|
|
|
|
|
|
Total
|
|
|
|
|
$ 1.5 |
|
|
|
|
|
|
|
|
43
ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)
The Americas
Ford North America Segment. The decline in earnings primarily reflected the effect of Jobs
Bank Benefits charges and higher personnel-reduction program charges, unfavorable volume and mix (mainly
adverse product mix, lower market share, a reduction in stock levels, and lower industry volumes),
pension curtailment charges, unfavorable net pricing, and impairment charges related to our
long-lived assets, offset partially by favorable cost changes. The favorable cost changes
reflected improvements in pension and OPEB costs, manufacturing and engineering costs,
warranty-related costs, and overhead costs.
Ford South America Segment. The increase in earnings primarily reflected favorable net
pricing, favorable volume and mix more than accounted for by higher industry volume, and a legal
settlement relating to social welfare tax liability, offset partially by unfavorable cost changes.
The unfavorable cost changes primarily reflected higher net product
costs, and manufacturing and
engineering costs.
Ford Europe and PAG
Ford Europe Segment. The improvement in results primarily reflected reduced charges for
personnel-reduction programs, favorable volume and mix, and favorable cost changes, offset partially
by unfavorable changes in currency exchange rates. The favorable cost changes primarily reflected
lower overhead costs, warranty-related costs, net product costs, and manufacturing and engineering
costs, offset partially by higher pension costs.
PAG Segment. The decline in earnings primarily reflected unfavorable warranty-related costs
mainly associated with adjustments to warranty accruals for prior model-year vehicles (mainly at
Jaguar and Land Rover), unfavorable currency exchange (mainly related to the expiration of favorable
hedges), and higher impairment charges for long-lived assets of the Jaguar and Land Rover
operations. These adverse factors were offset partially by favorable manufacturing and engineering
costs, favorable volume and mix (mainly improved product and market mix, offset partially by lower
market share primarily at Volvo and Jaguar and lower levels of dealer stocks) and lower net product
costs.
Ford Asia Pacific and Africa/Mazda
Ford Asia Pacific and Africa/Mazda Segment. The decline in results for Ford Asia Pacific and
Africa primarily reflected unfavorable volume and mix (mainly adverse product mix including lower
large car sales in Australia, and lower market share) and unfavorable changes in currency exchange
rates. Wholesale unit volumes for the year increased, while revenue
for the same period decreased.
The increase in wholesale unit volumes is explained by higher unit sales in China and India, offset
partially by declines in other markets (primarily Australia and
Taiwan). Our revenue excludes
wholesale unit volumes at our unconsolidated affiliates, primarily those in China. The decrease in
revenue primarily reflects changes in currency exchange rates and a higher mix of small cars
relative to the same period last year.
The decrease in earnings for Mazda and Associated Operations primarily reflected the
non-recurrence of gains on our investment in Mazda convertible bonds, and charges for
personnel-reduction programs at AAI, offset partially by our share of a gain Mazda realized on the
transfer of its pension liabilities back to the Japanese government. During the second half of
2005 and the first quarter of 2006, we converted to equity all of our Mazda convertible bonds, and,
therefore, will no longer have income effects from mark-to-market adjustments for these bonds.
Other Automotive
The
improvement in results primarily reflected higher returns on invested cash, and a higher
average cash portfolio, offset partially by the non-recurrence of a gain on the sale of our
remaining interest in Kwik-Fit Group Limited.
44
ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)
2005 Compared with 2004
Details by Automotive segment or business unit of Income/(loss) before income taxes are shown
below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
Over/ |
|
|
|
|
|
|
|
|
|
|
|
(Under) |
|
|
|
2005 |
|
|
2004 |
|
|
2004 |
|
The Americas |
|
|
|
|
|
|
|
|
|
|
|
|
Ford North America |
|
$ |
(2,444 |
) |
|
$ |
525 |
|
|
$ |
(2,969 |
) |
Ford South America |
|
|
399 |
|
|
|
144 |
|
|
|
255 |
|
|
|
|
|
|
|
|
|
|
|
Total The Americas |
|
|
(2,045 |
) |
|
|
669 |
|
|
|
(2,714 |
) |
Ford Europe and PAG |
|
|
|
|
|
|
|
|
|
|
|
|
Ford Europe |
|
|
(437 |
) |
|
|
177 |
|
|
|
(614 |
) |
PAG |
|
|
(1,634 |
) |
|
|
(830 |
) |
|
|
(804 |
) |
|
|
|
|
|
|
|
|
|
|
Total Ford Europe and PAG |
|
|
(2,071 |
) |
|
|
(653 |
) |
|
|
(1,418 |
) |
Ford Asia Pacific and Africa/Mazda |
|
|
|
|
|
|
|
|
|
|
|
|
Ford Asia Pacific and Africa |
|
|
42 |
|
|
|
(36 |
) |
|
|
78 |
|
Mazda and Associated Operations |
|
|
255 |
|
|
|
118 |
|
|
|
137 |
|
|
|
|
|
|
|
|
|
|
|
Total Ford Asia Pacific and Africa/Mazda |
|
|
297 |
|
|
|
82 |
|
|
|
215 |
|
Other Automotive |
|
|
(55 |
) |
|
|
(276 |
) |
|
|
221 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(3,874 |
) |
|
$ |
(178 |
) |
|
$ |
(3,696 |
) |
|
|
|
|
|
|
|
|
|
|
Details of Automotive sector sales and wholesale unit volumes by Automotive segment or
business unit for 2005 and 2004 are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
|
|
|
|
|
|
|
|
|
Wholesales (a) |
|
|
|
|
|
|
|
(in billions) |
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
Over/(Under) |
|
|
|
|
|
|
|
|
|
|
Over/(Under) |
|
|
|
2005 |
|
|
2004 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
2004 |
|
The Americas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford North America |
|
$ |
80.6 |
|
|
$ |
83.0 |
|
|
$ |
(2.4 |
) |
|
|
(3 |
)% |
|
|
3,410 |
|
|
|
3,613 |
|
|
|
(203 |
) |
|
|
(6 |
)% |
Ford South America |
|
|
4.4 |
|
|
|
3.0 |
|
|
|
1.4 |
|
|
|
46 |
|
|
|
335 |
|
|
|
291 |
|
|
|
44 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total The Americas |
|
|
85.0 |
|
|
|
86.0 |
|
|
|
(1.0 |
) |
|
|
(1 |
) |
|
|
3,745 |
|
|
|
3,904 |
|
|
|
(159 |
) |
|
|
(4 |
) |
Ford Europe and PAG |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford Europe |
|
|
29.9 |
|
|
|
26.5 |
|
|
|
3.4 |
|
|
|
13 |
|
|
|
1,753 |
|
|
|
1,736 |
|
|
|
17 |
|
|
|
1 |
|
PAG |
|
|
30.3 |
|
|
|
27.6 |
|
|
|
2.7 |
|
|
|
10 |
|
|
|
764 |
|
|
|
773 |
|
|
|
(9 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Ford Europe and PAG |
|
|
60.2 |
|
|
|
54.1 |
|
|
|
6.1 |
|
|
|
11 |
|
|
|
2,517 |
|
|
|
2,509 |
|
|
|
8 |
|
|
|
|
|
Ford Asia Pacific and Africa/Mazda |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford Asia Pacific and Africa (b) |
|
|
7.7 |
|
|
|
7.0 |
|
|
|
0.7 |
|
|
|
10 |
|
|
|
473 |
|
|
|
429 |
|
|
|
44 |
|
|
|
10 |
|
Mazda and Associated Operations (c) |
|
|
0.6 |
|
|
|
|
|
|
|
0.6 |
|
|
|
|
|
|
|
32 |
|
|
|
|
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Ford Asia Pacific and Africa/Mazda |
|
|
8.3 |
|
|
|
7.0 |
|
|
|
1.3 |
|
|
|
19 |
|
|
|
505 |
|
|
|
429 |
|
|
|
76 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
153.5 |
|
|
$ |
147.1 |
|
|
$ |
6.4 |
|
|
|
4 |
% |
|
|
6,767 |
|
|
|
6,842 |
|
|
|
(75 |
) |
|
|
(1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Wholesale unit volumes generally are reported on a where-sold basis,
and include all Ford-badged units and units manufactured by Ford that
are sold to other manufacturers, as well as units distributed for
other manufacturers. Vehicles sold to daily rental car companies that
are subject to a guaranteed repurchase option, as well as other sales
of finished vehicles for which the recognition of revenue is deferred
(e.g., consignments), are included in wholesale unit volumes. For a
discussion of our revenue recognition policy for such sales, see Note
2 of the Notes to the Financial Statements. |
|
(b) |
|
Included in wholesales of Ford Asia Pacific and Africa are Ford-badged
vehicles sold in China and Malaysia by certain unconsolidated
affiliates totaling about 87,000 and 66,000 units in 2005 and 2004,
respectively. Sales above does not include revenue from these
units. |
|
(c) |
|
Reflects sales of Mazda6 by our consolidated subsidiary, AAI,
beginning with the consolidation of AAI in the third quarter of 2005.
See Note 13 of the Notes to the Financial Statements. |
45
ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)
Details of Automotive sector market share for selected markets for 2005 and 2004, along
with the level of dealer stocks as of December 31, 2005 and 2004, are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dealer-Owned Stocks (a) |
|
|
Market Share |
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
|
|
|
|
|
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
Over/(Under) |
|
|
|
|
|
|
|
|
|
Over/(Under) |
Market |
|
2005 |
|
2004 |
|
2004 |
|
2005 |
|
2004 |
|
2004 |
U.S. (b) |
|
|
17.0 |
% |
|
|
18.0 |
% |
|
|
(1.0 |
)pts. |
|
|
733 |
|
|
|
794 |
|
|
|
(61 |
) |
South America (b) (c) |
|
|
12.0 |
|
|
|
11.9 |
|
|
|
0.1 |
|
|
|
33 |
|
|
|
29 |
|
|
|
4 |
|
Europe (b) (d) |
|
|
8.5 |
|
|
|
8.6 |
|
|
|
(0.1 |
) |
|
|
342 |
|
|
|
356 |
|
|
|
(14 |
) |
PAG U.S./Europe (d) |
|
|
1.2/2.2 |
|
|
|
1.3/2.3 |
|
|
|
(0.1)/(0.1 |
) |
|
|
45/69 |
|
|
|
41/68 |
|
|
|
4/1 |
|
Asia Pacific and Africa (b) (e) (f) |
|
|
2.4 |
|
|
|
2.3 |
|
|
|
0.1 |
|
|
|
50 |
|
|
|
46 |
|
|
|
4 |
|
|
|
|
(a) |
|
Dealer-owned stocks represent our estimate of vehicles shipped to our customers (dealers) and not yet sold by
the dealers to their retail customers, as well as some vehicles reflected in our inventory. |
|
(b) |
|
Includes only Ford and, in certain markets (primarily U.S.), Lincoln and Mercury brands. |
|
(c) |
|
South America market share is based on vehicle retail sales for our six major markets (Argentina,
Brazil, Chile, Colombia, Ecuador, and Venezuela). |
|
(d) |
|
European market share is based, in part, on vehicle registrations for our 19 major European markets. |
|
(e) |
|
Asia Pacific and Africa market share is based on vehicle retail sales for our 12 major markets
(Australia, China, Japan, India, Indonesia, Malaysia, New Zealand, Philippines, South Africa, Taiwan,
Thailand, and Vietnam). |
|
(f) |
|
Dealer-owned stocks for Asia Pacific and Africa include primarily Ford-brand vehicles as well as a small
number of units distributed for other manufacturers. |
Overall Automotive Sector
The decline in earnings reflected losses at our Ford North America segment, an impairment
charge for long-lived assets of Jaguar and Land Rover operations, and higher charges for personnel
reduction programs, offset partially by favorable market performance at Land Rover and
increased earnings at our Ford South America segment, Other Automotive, and Ford Asia Pacific and
Africa/Mazda segment.
The
improvement in revenues primarily reflected favorable product mix and favorable changes in
currency exchange rates.
The Americas
Ford North America Segment. The decline in results primarily reflected lower U.S. market
share, unfavorable cost changes, lower dealer stock levels, charges for personnel-reduction
programs, and unfavorable currency exchange. Unfavorable cost changes primarily reflected higher
warranty-related costs and net product costs.
Ford South America Segment. The increase in earnings primarily reflected favorable net
pricing, higher industry volumes, and favorable currency exchange, offset partially by unfavorable
cost changes. The unfavorable cost changes primarily reflected higher net product costs and
overhead costs.
Ford Europe and PAG
Ford Europe Segment. The decline in results primarily reflected higher charges for
personnel-reduction programs, unfavorable net pricing, and adverse product and market mix, offset
partially by favorable cost changes and favorable changes in currency exchange rates. The
favorable cost changes primarily reflected lower manufacturing and engineering costs offset
partially by unfavorable warranty-related costs.
PAG Segment. The decline in earnings primarily reflected an impairment charge for long-lived
assets of the Jaguar and Land Rover operations, unfavorable currency exchange, and higher charges
for personnel-reduction programs, offset partially by favorable net pricing, improved product mix
primarily reflecting the impact of new Land Rover products, and favorable cost changes. The
favorable cost changes primarily reflected lower warranty-related costs and favorable manufacturing
and engineering costs offset partially by higher net product costs.
46
ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
(continued)
Ford Asia Pacific and Africa/Mazda
Ford Asia Pacific and Africa/Mazda Segment. The improvement in results for Ford Asia Pacific
and Africa primarily reflected the non-recurrence of 2004 charges related to the disposition of
certain dealerships, favorable changes in currency exchange rates, and a gain on the disposal of
our investment in Mahindra & Mahindra Ltd., offset partially by unfavorable product mix, higher
costs associated with new products and facilities in China, and charges for personnel-reduction
programs.
The increase in earnings for Mazda and Associated Operations primarily reflected gains on our
investment in Mazda convertible bonds and improved Mazda operating results. In the second half of
2005, we converted to equity about 82.5% of our Mazda convertible bonds.
Other Automotive
The improvement in earnings primarily reflected higher returns on invested cash and a gain on
the sale of non-core businesses, offset partially by lower interest on tax refunds from prior-year
federal and state tax matters (about $450 million in 2005 compared with $600 million in 2004).
FINANCIAL SERVICES SECTOR RESULTS OF OPERATIONS
Our discussion of Financial Services sector results of operations is on a pre-tax basis.
2006 Compared with 2005
Details of the full-year Financial Services sector Revenues and Income/(loss) before income
taxes for 2006 and 2005 are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
Income/(Loss) Before Income Taxes |
|
|
|
(in billions) |
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
Over/(Under) |
|
|
|
|
|
|
|
|
|
|
Over/(Under) |
|
|
|
2006 |
|
|
2005 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
2005 |
|
Ford Credit |
|
$ |
16.5 |
|
|
$ |
15.9 |
|
|
$ |
0.6 |
|
|
$ |
1,953 |
|
|
$ |
2,923 |
|
|
$ |
(970 |
) |
Other Financial Services |
|
|
0.3 |
|
|
|
0.1 |
|
|
|
0.2 |
|
|
|
13 |
|
|
|
(39 |
) |
|
|
52 |
|
Hertz operating results |
|
|
|
|
|
|
7.4 |
|
|
|
(7.4 |
) |
|
|
|
|
|
|
974 |
|
|
|
(974 |
) |
Gain on sale of Hertz* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,095 |
|
|
|
(1,095 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
16.8 |
|
|
$ |
23.4 |
|
|
$ |
(6.6 |
) |
|
$ |
1,966 |
|
|
$ |
4,953 |
|
|
$ |
(2,987 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
The segment presentation of the gain on sale of Hertz in Note 24 of the Notes to the
Financial Statements is $1,006 million in the Hertz segment and $89 million in Other Financial
Services. |
We sold Hertz during the fourth quarter of 2005, resulting in declines in Revenues and
Income/(loss) before income taxes during 2006.
Ford Credit
The
decrease in Ford Credit's full-year
earnings primarily reflected higher borrowing costs, higher
depreciation expense, and the impact of
lower average receivable levels in its managed portfolio. These were offset partially by market
valuations, primarily related to non-designated derivatives and reduced operating costs.
Ford Credit reviews its business performance from several perspectives, including:
|
|
|
On-balance sheet basis. Includes the receivables and leases Ford Credit owns and
securitized receivables and leases that remain on Ford Credits balance sheet (including
other structured financings and factoring transactions that have features similar to
securitizations); |
47
ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
(continued)
|
|
|
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
and leases that Ford Credit continues to service; and |
|
|
|
|
Serviced basis. Includes managed receivables and leases and receivables sold in
whole-loan sale transactions where Ford Credit retains no interest in the sold receivables,
but which it continues to service. |
Ford Credit analyzes its financial performance primarily on a managed and on-balance sheet
basis. It retains interests in receivables sold in off-balance sheet securitizations and, with
respect to subordinated retained interests, has credit risk. As a result, it evaluates credit
losses, receivables, and leverage on a managed basis as well as on an on-balance sheet basis. In
contrast, Ford Credit does not have the same financial interest in the performance of receivables
sold in whole-loan sale transactions, and, as a result, Ford Credit generally reviews the
performance of its serviced portfolio only to evaluate the effectiveness of its origination and
collection activities. To evaluate the performance of these activities, Ford Credit monitors a
number of measures, such as repossession statistics, losses on repossessions and the number of
bankruptcy filings.
Ford Credits receivable levels are shown in the table below (in billions):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
On-Balance Sheet |
|
|
|
|
|
|
|
|
Finance receivables |
|
|
|
|
|
|
|
|
Retail installment |
|
$ |
70.4 |
|
|
$ |
65.7 |
|
Wholesale |
|
|
35.2 |
|
|
|
39.6 |
|
Other |
|
|
3.8 |
|
|
|
4.6 |
|
|
|
|
|
|
|
|
Total finance receivables, net |
|
|
109.4 |
|
|
|
109.9 |
|
Net investment in operating leases |
|
|
25.9 |
|
|
|
22.2 |
|
|
|
|
|
|
|
|
Total on-balance sheet* |
|
$ |
135.3 |
|
|
$ |
132.1 |
|
|
|
|
|
|
|
|
Memo: Allowance for credit losses included above |
|
$ |
1.1 |
|
|
$ |
1.6 |
|
Securitized Off-Balance Sheet |
|
|
|
|
|
|
|
|
Finance receivables |
|
|
|
|
|
|
|
|
Retail installment |
|
$ |
12.2 |
|
|
$ |
18.0 |
|
Wholesale |
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total finance receivables |
|
|
12.2 |
|
|
|
18.0 |
|
Net investment in operating leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securitized off-balance sheet |
|
$ |
12.2 |
|
|
$ |
18.0 |
|
|
|
|
|
|
|
|
Managed |
|
|
|
|
|
|
|
|
Finance receivables |
|
|
|
|
|
|
|
|
Retail installment |
|
$ |
82.6 |
|
|
$ |
83.7 |
|
Wholesale |
|
|
35.2 |
|
|
|
39.6 |
|
Other |
|
|
3.8 |
|
|
|
4.6 |
|
|
|
|
|
|
|
|
Total finance receivables, net |
|
|
121.6 |
|
|
|
127.9 |
|
Net investment in operating leases |
|
|
25.9 |
|
|
|
22.2 |
|
|
|
|
|
|
|
|
Total managed |
|
$ |
147.5 |
|
|
$ |
150.1 |
|
|
|
|
|
|
|
|
Serviced |
|
$ |
149.5 |
|
|
$ |
153.0 |
|
|
|
|
* |
|
At December 31, 2006 and 2005, includes finance receivables of $56.5 billion and $44.7
billion, respectively, that have been sold for legal purposes in securitizations that do not
satisfy the requirements for accounting sale treatment. In addition, at December 31, 2006 and
2005, includes net investment in operating leases of $17.3 billion and $6.5 billion,
respectively, that have been sold for legal purposes in securitizations that do not satisfy
the requirements for accounting sale treatment. These underlying securitized assets are
available only for payment of the debt or other obligations issued or arising in the
securitization transactions; they are not available to pay Ford Credits other obligations or
the claims of Ford Credits other creditors. |
Managed
receivables decreased from year-end 2005, primarily reflecting lower wholesale
receivable levels, offset partially by increased net investment in operating leases. On-balance
sheet receivable levels increased, primarily reflecting the impact of U.S. public retail
transactions in 2006 being reported on-balance sheet. Securitized off-balance sheet receivables
declined for the same reason.
48
ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
(continued)
The following table shows worldwide credit losses net of recoveries (charge-offs) for Ford
Credit for the various categories of financing during the periods indicated. The
loss-to-receivables ratios, which equal charge-offs divided by the average amount of receivables
outstanding for the period, are shown below for Ford Credits on-balance sheet and managed
portfolios.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
Over/(Under) |
|
|
|
2006 |
|
|
2005 |
|
|
2005 |
|
Charge-offs (in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
On-Balance Sheet |
|
|
|
|
|
|
|
|
|
|
|
|
Retail installment and lease |
|
$ |
465 |
|
|
$ |
681 |
|
|
$ |
(216 |
) |
Wholesale |
|
|
44 |
|
|
|
23 |
|
|
|
21 |
|
Other |
|
|
14 |
|
|
|
2 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
Total on-balance sheet |
|
$ |
523 |
|
|
$ |
706 |
|
|
$ |
(183 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reacquired Receivables (retail)* |
|
$ |
2 |
|
|
$ |
22 |
|
|
$ |
(20 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Securitized Off-Balance Sheet |
|
|
|
|
|
|
|
|
|
|
|
|
Retail installment and lease |
|
$ |
84 |
|
|
$ |
127 |
|
|
$ |
(43 |
) |
Wholesale |
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securitized off-balance sheet |
|
$ |
84 |
|
|
$ |
127 |
|
|
$ |
(43 |
) |
|
|
|
|
|
|
|
|
|
|
Managed |
|
|
|
|
|
|
|
|
|
|
|
|
Retail installment and lease |
|
$ |
551 |
|
|
$ |
830 |
|
|
$ |
(279 |
) |
Wholesale |
|
|
44 |
|
|
|
23 |
|
|
|
21 |
|
Other |
|
|
14 |
|
|
|
2 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
Total managed |
|
$ |
609 |
|
|
$ |
855 |
|
|
$ |
(246 |
) |
|
|
|
|
|
|
|
|
|
|
Loss-to-Receivables Ratios |
|
|
|
|
|
|
|
|
|
|
|
|
On-Balance Sheet |
|
|
|
|
|
|
|
|
|
|
|
|
Retail installment and lease |
|
|
0.50 |
% |
|
|
0.72 |
% |
|
|
(0.22 |
) pts. |
Wholesale |
|
|
0.12 |
|
|
|
0.09 |
|
|
|
0.03 |
|
Total including other |
|
|
0.39 |
% |
|
|
0.57 |
% |
|
|
(0.18 |
) pts. |
Managed |
|
|
|
|
|
|
|
|
|
|
|
|
Retail installment and lease |
|
|
0.51 |
% |
|
|
0.73 |
% |
|
|
(0.22 |
) pts. |
Wholesale |
|
|
0.12 |
|
|
|
0.06 |
|
|
|
0.06 |
|
Total including other |
|
|
0.41 |
% |
|
|
0.54 |
% |
|
|
(0.13 |
) pts. |
|
|
|
* |
|
Reacquired receivables reflect the amount of receivables that resulted from the accounting
consolidation of Ford Credits FCAR Owner Trust retail securitization program (FCAR) in the
second quarter of 2003. |
Charge-offs and loss-to-receivable ratios for Ford Credits on-balance sheet, securitized
off-balance sheet, and managed portfolios declined from a year ago, primarily reflecting fewer
repossessions. These improvements resulted from a higher quality retail installment and lease
portfolio, and enhancements to Ford Credits collection practices.
Shown below is an analysis of Ford Credits allowance for credit losses and its allowance for
credit losses as a percentage of end-of-period receivables (net finance receivables and net
investment in operating leases) for its on-balance sheet portfolio for the years ended December 31
(dollar amounts in billions). During 2006, Ford Credit updated its analysis of contract
liquidation data which affected the level of required reserves for credit losses. In addition,
Ford Credit implemented refinements to certain modeling techniques that are used in determining the
allowance for credit losses.
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
Allowance for Credit Losses |
|
|
|
|
|
|
|
|
Balance, beginning of year |
|
$ |
1.6 |
|
|
$ |
2.4 |
|
Provision for credit losses |
|
|
0.1 |
|
|
|
0.2 |
|
Deductions |
|
|
|
|
|
|
|
|
Charge-offs
before recoveries |
|
|
1.0 |
|
|
|
1.2 |
|
Recoveries |
|
|
(0.5 |
) |
|
|
(0.5 |
) |
|
|
|
|
|
|
|
Net charge-offs |
|
|
0.5 |
|
|
|
0.7 |
|
Other changes, principally amounts related to finance receivables sold and translation adjustments |
|
|
0.1 |
|
|
|
0.3 |
|
|
|
|
|
|
|
|
Net deductions |
|
|
0.6 |
|
|
|
1.0 |
|
|
|
|
|
|
|
|
Balance, end of year |
|
$ |
1.1 |
|
|
$ |
1.6 |
|
|
|
|
|
|
|
|
Allowance for credit losses as a percentage of end-of-period net receivables |
|
|
0.81 |
% |
|
|
1.19 |
% |
49
ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
(continued)
The
decrease in Ford Credits allowance for credit losses primarily
reflected improved charge-off performance, and changes in its assumptions and
modeling techniques ($81 million) described above that affected the allowance.
Other Financial Services
The improvement in results primarily reflected the non-recurrence of the 2005 write-off of
aircraft leases related to the bankruptcy of Delta Air Lines, and, in 2006, higher property sales.
2005 Compared with 2004
Details of the full-year Financial Services sector Income/(loss) before income taxes for 2005
and 2004 are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss) Before Income Taxes |
|
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
Over/(Under) |
|
|
|
2005 |
|
|
2004 |
|
|
2004 |
|
Ford Credit |
|
$ |
2,923 |
|
|
$ |
3,710 |
|
|
$ |
(787 |
) |
Other Financial Services |
|
|
(39 |
) |
|
|
84 |
|
|
|
(123 |
) |
Hertz operating results (a) |
|
|
974 |
|
|
|
493 |
|
|
|
481 |
|
Gain on sale of Hertz (b) |
|
|
1,095 |
|
|
|
|
|
|
|
1,095 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,953 |
|
|
$ |
4,287 |
|
|
$ |
666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes amortization expense related to intangibles recognized upon consolidation of Hertz. |
|
(b) |
|
The segment presentation of the gain on sale of Hertz in Note 24 of the Notes to the
Financial Statements is $1,006 million in the Hertz segment and $89 million in Other Financial
Services. |
Ford Credit
Ford Credits income before income taxes was down $787 million, which includes $405 million
for reduced market valuations primarily related to non-designated derivatives. The remaining
decrease in earnings primarily reflected higher borrowing costs and the impact of lower retail
receivable levels, offset partially by improved credit loss performance.
Hertz
The increase in Hertz operating results primarily reflected the cessation of depreciation on
long-lived assets from the point Hertz was held for sale (i.e., September 2005) until it was sold,
higher car and equipment rental volumes and improved pricing for equipment rental.
Other Financial Services
The decline in results primarily reflected the non-recurrence of a 2004 property clean-up
settlement, and, in 2005, lower property sales and the write-off of aircraft leases related to the
bankruptcy of Delta Air Lines.
50
ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
(continued)
LIQUIDITY AND CAPITAL RESOURCES
Automotive Sector
Our
strategy is to ensure that 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, maintaining committed credit facilities, and funding long-term liabilities over time.
Gross Cash. Automotive gross cash includes cash and cash equivalents, net marketable
securities, loaned securities and certain assets contained in a Voluntary Employee Beneficiary
Association trust (VEBA), a trust which may be used to pre-fund certain types of company-paid
benefits for U.S. employees and retirees. We include in Automotive gross cash those VEBA assets
that are invested in shorter-duration fixed income investments and can be used within 18 months to
pay for benefits (short-term VEBA assets). Gross cash as
of December 31, 2006, 2005, and 2004 is
detailed below (in billions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Cash and cash equivalents |
|
$ |
16.0 |
|
|
$ |
13.4 |
|
|
$ |
10.1 |
|
Marketable securities |
|
|
11.3 |
|
|
|
6.9 |
|
|
|
8.3 |
|
Loaned securities |
|
|
5.3 |
|
|
|
3.4 |
|
|
|
1.1 |
|
|
|
|
|
|
|
|
|
|
|
Total cash, marketable securities and loaned securities |
|
|
32.6 |
|
|
|
23.7 |
|
|
|
19.5 |
|
Securities-In-Transit * |
|
|
(0.5 |
) |
|
|
|
|
|
|
|
|
Short-term VEBA assets |
|
|
1.8 |
|
|
|
1.4 |
|
|
|
4.1 |
|
|
|
|
|
|
|
|
|
|
|
Gross cash |
|
$ |
33.9 |
|
|
$ |
25.1 |
|
|
$ |
23.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
The purchase or sale of marketable securities for which the cash settlement was not made by period-end. |
In managing our business, we classify changes in Automotive gross cash into two
categories: operating-related, and other (which includes the impact of certain special items,
contributions to funded pension plans, the net effect of the change in our VEBA on gross cash,
capital transactions with the Financial Services sector, acquisitions and divestitures, dividends
paid to shareholders, changes in Automotive debt, and other primarily financing-related). Our
key metrics are operating-related cash flow, which best represents the ability of our Automotive
operations to generate cash, and Automotive gross cash. We believe the cash flow analysis
reflected in the table below, which differs from a cash flow statement presented in accordance with
generally accepted accounting principles in the United States (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 of
continuing operations, the most directly comparable GAAP financial measure.
51
ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
(continued)
Changes in Automotive gross cash for the last three years are summarized below (in billions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Gross cash at end of period |
|
$ |
33.9 |
|
|
$ |
25.1 |
|
|
$ |
23.6 |
|
Gross cash at beginning of period |
|
|
25.1 |
|
|
|
23.6 |
|
|
|
25.9 |
|
|
|
|
|
|
|
|
|
|
|
Total change in gross cash |
|
$ |
8.8 |
|
|
$ |
1.5 |
|
|
$ |
(2.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating-related cash flows |
|
|
|
|
|
|
|
|
|
|
|
|
Automotive income/(loss) before income taxes |
|
$ |
(17.0 |
) |
|
$ |
(3.9 |
) |
|
$ |
(0.2 |
) |
Special items |
|
|
11.9 |
|
|
|
2.9 |
|
|
|
1.0 |
|
Capital expenditures |
|
|
(6.8 |
) |
|
|
(7.1 |
) |
|
|
(6.3 |
) |
Depreciation and special tools amortization |
|
|
7.1 |
|
|
|
6.9 |
|
|
|
6.4 |
|
Changes in receivables, inventory and trade payables (a) |
|
|
(2.0 |
) |
|
|
1.3 |
|
|
|
(1.1 |
) |
Other (b) |
|
|
1.2 |
|
|
|
(1.4 |
) |
|
|
1.4 |
|
|
|
|
|
|
|
|
|
|
|
Total operating-related cash flows |
|
|
(5.6 |
) |
|
|
(1.3 |
) |
|
|
1.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other changes in cash |
|
|
|
|
|
|
|
|
|
|
|
|
Cash impact of personnel-reduction programs and Jobs Bank Benefits accrual |
|
|
(1.2 |
) |
|
|
(0.4 |
) |
|
|
|
|
Contributions to funded pension plans |
|
|
(0.8 |
) |
|
|
(2.5 |
) |
|
|
(2.2 |
) |
Net effect of VEBA on gross cash |
|
|
3.4 |
|
|
|
(0.2 |
) |
|
|
(2.8 |
) |
Capital transactions with Financial Services sector (c) |
|
|
1.4 |
|
|
|
2.3 |
|
|
|
4.2 |
|
Acquisitions and divestitures |
|
|
0.2 |
|
|
|
5.3 |
|
|
|
0.4 |
|
Dividends paid to shareholders |
|
|
(0.5 |
) |
|
|
(0.7 |
) |
|
|
(0.7 |
) |
Net proceeds from/(payments on) Automotive sector debt |
|
|
11.7 |
|
|
|
(0.5 |
) |
|
|
(2.4 |
) |
Other (d) |
|
|
0.2 |
|
|
|
(0.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total change in gross cash |
|
$ |
8.8 |
|
|
$ |
1.5 |
|
|
$ |
(2.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
In 2006, working capital changes reflected the impact of lower production volumes on accounts payable, the
effect on inventory of several new product launches at year end, and
changes in our value-added tax
receivables collection process in Europe. |
|
(b) |
|
Primarily expense and payment timing differences for items such as pension and OPEB, marketing, and warranty. |
|
(c) |
|
Primarily dividends received from Ford Credit, excluding proceeds from Financial Services sector
divestitures paid to the Automotive sector. Beginning in 2007, Ford Credit will suspend its regular dividend
payments. |
|
(d) |
|
In 2006, primarily proceeds from tax refunds (an inflow of about $300 million), the net issuance of Ford
Common Stock under employee savings plans (an inflow of about $200 million), and dividends to minority
shareholders of consolidated subsidiaries (an outflow of about $200 million). |
Shown in the table below is a reconciliation between financial statement Cash flows from
operating activities of continuing operations and operating-related cash flows (calculated as shown
in the table above), for the last three years (in billions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Cash flows from operating activities of continuing operations |
|
$ |
(4.2 |
) |
|
$ |
5.4 |
|
|
$ |
7.0 |
|
Items included in operating-related cash flows |
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(6.8 |
) |
|
|
(7.1 |
) |
|
|
(6.3 |
) |
Net transactions between Automotive and Financial Services sectors* |
|
|
(0.5 |
) |
|
|
(0.4 |
) |
|
|
1.3 |
|
Items not included in operating-related cash flows |
|
|
|
|
|
|
|
|
|
|
|
|
Cash impact of Jobs Bank Benefits and separation programs |
|
|
1.2 |
|
|
|
0.4 |
|
|
|
|
|
Net (sales)/purchases of trading securities |
|
|
6.8 |
|
|
|
0.6 |
|
|
|
(5.6 |
) |
Pension contributions |
|
|
0.8 |
|
|
|
2.5 |
|
|
|
2.2 |
|
VEBA cash flows (net reimbursement for benefits paid)/contributions to VEBA |
|
|
(2.9 |
) |
|
|
(2.8 |
) |
|
|
2.8 |
|
Other |
|
|
|
|
|
|
0.1 |
|
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
Operating-related cash flows |
|
$ |
(5.6 |
) |
|
$ |
(1.3 |
) |
|
$ |
1.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Primarily payables and receivables between the sectors in the normal course of business. |
Debt and Net Cash. At December 31, 2006, our Automotive sector had total debt of $30
billion, compared with $17.9 billion a year ago. The increase in debt primarily reflected $4.95
billion of unsecured convertible debt and $7 billion of secured bank financing that we completed in
December 2006. For more information on the nearly $12 billion of new financing, see Note 15 of the
Notes to the Financial Statements.
At December 31, 2006, our Automotive sector had net cash (defined as gross cash less total
debt) of $3.9 billion, compared with $7.2 billion at the end of 2005.
52
ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
(continued)
The weighted-average maturity of our total automotive debt is approximately 17 years, and is
measured based on the maturity dates of our debt or the first date of any put option available to
the owners of our debt. About $3 billion of debt matures by
December 31, 2011, and about $15
billion matures or has a put option by December 31, 2016. For additional information on debt, see
Note 15 of the Notes to the Financial Statements.
Credit Facilities. At December 31, 2006, we had $13 billion of contractually-committed credit
facilities with financial institutions, including $11.5 billion pursuant to a senior secured credit
facility established in December 2006, $1.1 billion of global Automotive unsecured credit
facilities, and $400 million of local credit facilities available to foreign affiliates. At
December 31, 2006, $12.5 billion of these facilities were available for use. For further discussion
of our committed credit facilities, see Note 15 of the Notes to the Financial Statements. This new
secured credit facility, together with the $12 billion of funds raised in December 2006 discussed
above, was obtained primarily to fund the cash outflows discussed below.
During the period 2007 through 2009, we expect cumulative Automotive operating-related cash
outflows of about $10 billion, and cumulative cash expenditures for restructuring actions of about
$7 billion. More than half of this $17 billion cash outflow is expected to occur in 2007. This
cash outflow primarily reflects substantial operating losses in our
Automotive sector through 2008,
and cash expenditures incurred in connection with personnel separations. It also reflects our
expectation to continue to invest in new products throughout this period at about the same level as
we have during the past few years, or approximately $7 billion annually.
In the period 2007 through 2009, we expect other non-operating related net Automotive cash
inflows of about $2 billion, reflecting the use of about $3 billion in long-term VEBA assets,
proceeds from receipt of government tax refunds and affiliate tax payments, and proceeds from
planned divestitures of Automobile Protection Corporation and all or part of Aston Martin, offset
partially by pension contributions and reductions of other Automotive debt.
Pension Plan 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.
In 2006, we made $800 million of cash contributions to our funded pension plans. During 2007,
we expect to contribute from available Automotive cash and cash equivalents $2.2 billion to our
worldwide pension plans, including about $400 million of benefit payments paid directly by us for
unfunded plans. Based on current assumptions and regulations, we do not expect to have a legal
requirement to fund our major U.S. pension plans in 2007.
For a further discussion of our pension plans, see Note 23 of the Notes to the Financial
Statements.
Financial Services Sector
Ford Credit
Ford Credits funding strategy is to maintain a high level of liquidity by having a
substantial cash balance and committed funding capacity, allowing it to meet its short-term funding
obligations. As a result of lower credit ratings, its unsecured funding costs have increased over
time. While Ford Credit continues to access the unsecured debt market, it has increased its use of
securitization funding as it is presently more cost effective than unsecured funding and allows it
access to a broad investor base. Ford Credit plans to meet a significant portion of its 2007
funding requirements through securitizations, and will continue to expand and diversify its
asset-backed funding by asset class and region. In addition, Ford
Credit has various alternative business arrangements for select products and markets that reduce
its funding requirements while allowing it to support us. Ford Credit will continue to pursue such
arrangements in the future. Over time, Ford Credit may need to reduce further
the amount of receivables and operating leases it purchases and originates. A significant reduction in Ford Credits managed receivables would
reduce its ongoing profits, and could adversely affect its ability to support the sale of our
vehicles.
Debt and Cash. Ford Credits total debt plus securitized off-balance sheet funding was $150.9
billion at December 31, 2006, about $900 million higher compared with a year ago. At December 31,
2006, Ford Credits cash, cash equivalents and marketable securities (excluding marketable
securities related to insurance activities) totaled $21.8 billion (including $3.7 billion to be
used only to support on-balance sheet securitizations), compared with $17.9 billion at year-end
2005. In the normal course of its funding activities, Ford Credit may generate more proceeds
53
ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
(continued)
than are necessary for its immediate funding needs. These excess amounts are maintained primarily
as highly liquid investments, which provide liquidity for Ford Credits short-term funding needs
and give Ford Credit flexibility in the use of its other funding programs.
Funding. Ford Credit requires substantial funding in the normal course of business. Its
funding requirements are driven mainly by the need to: (i) purchase retail installment sale
contracts and retail lease contracts to support the sale of Ford products, which are influenced by
Ford-sponsored special financing programs that are available exclusively through Ford Credit, (ii)
provide wholesale financing and capital financing for Ford dealers, and (iii) repay its debt
obligations.
Ford Credits funding sources include primarily securitizations and unsecured debt. Ford
Credit issues both short- and long-term debt that is held by both institutional and retail
investors, with long-term debt having an original maturity of more than 12 months. During 2006,
Ford Credit continued to meet a significant portion of its funding requirements through
securitizations because of their lower relative costs given its credit ratings (as described
below), the stability of the market for asset-backed securities, 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 at the end of each of the last
three years: 2006 48%, 2005 38%, 2004 26%.
Ford Credit obtains short-term funding from the sale of floating rate demand notes under its
Ford Interest Advantage program. At December 31, 2006, the principal amount outstanding of such
notes was $5.6 billion. In addition, Ford Credit issues unsecured commercial paper in the United
States, Europe and other international markets, with sales mostly to qualified institutional
investors. Ford Credit does not hold reserves specifically to fund the payment of any of its
short-term funding obligations. Instead, Ford Credit maintains multiple sources of liquidity, including
cash, cash equivalents, and marketable securities (excluding marketable securities related to
insurance activities), unused committed liquidity programs, excess securitizable assets, and
committed and uncommitted credit facilities, which Ford Credit
believes should be sufficient for its short-term funding obligations.
The following table illustrates Ford Credits public and private term funding transactions for
2005 and 2006 and its planned issuances for 2007 (in billions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
Forecast |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
Public Term Funding Transactions |
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured |
|
$ |
3 - 5 |
|
|
$ |
9 |
|
|
$ |
9 |
|
Securitizations |
|
|
7 - 15 |
|
|
|
14 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
Total public term funding transactions |
|
$ |
10 - 20 |
|
|
$ |
23 |
|
|
$ |
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Term Funding Transactions * |
|
$ |
25 - 35 |
|
|
$ |
29 |
|
|
$ |
18 |
|
|
|
|
* |
|
Includes securitizations, term debt, and whole-loan sales; excludes Ford Credits on-balance
sheet asset-backed commercial paper programs and proceeds from revolving transactions. |
The cost of securitizations and unsecured debt funding is based on a margin or spread
over a benchmark interest rate. Spreads are typically measured in basis points. Ford Credits
asset-backed funding and unsecured long-term debt costs are based on spreads over U.S. Treasury
securities of similar maturities, a comparable London Interbank Offered Rate (LIBOR) or other
comparable benchmark rates. Ford Credits unsecured commercial paper and floating rate demand
notes funding costs are based on spreads over LIBOR. Ford Credits securitized funding spreads
(which are based on the creditworthiness of the underlying securitized asset and enhancements) have
not been volatile, while its unsecured long-term spreads have been volatile over the last three
years. During 2006, Ford Credits spreads on the fixed rate notes offered in its U.S. public
retail securitizations ranged between six and eleven basis points over the relevant benchmark
rates, while its unsecured long-term debt funding spreads as measured by the five-year credit
default swap market have fluctuated between 270 and 585 basis points above LIBOR.
54
ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
(continued)
Credit Facilities and Committed Liquidity Programs. For additional funding and to maintain
liquidity, at December 31, 2006 Ford Credit and its majority-owned subsidiaries, including FCE, had
$3.8 billion of contractually-committed unsecured credit facilities with financial institutions, of
which $2.6 billion were available for use. In addition, at December 31, 2006, banks provided $18.9
billion of contractually-committed liquidity facilities exclusively to support Ford Credits two
on-balance sheet asset-backed commercial paper programs. Ford Credit also has entered into
agreements with a number of bank-sponsored asset-backed commercial paper conduits (conduits) and
other financial institutions pursuant to which such parties are contractually committed, at Ford
Credits option, to purchase from Ford Credit eligible retail or wholesale assets or to make
advances under asset-backed securities backed by wholesale assets for proceeds of up to
approximately $29.1 billion. At December 31, 2006, $9.7 billion of these commitments were in use.
In addition, Ford Credit has a multi-year committed liquidity program for the purchase of up to $6
billion of unrated asset-backed securities that at its option can be supported with various retail,
wholesale, or leased assets. Ford Credits ability to obtain funding under this program is subject
to having a sufficient amount of assets available to issue the securities. For further discussion
of these facilities and programs, see Note 15 of the Notes to the 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
our capital structure. Ford Credit calculates leverage on a financial statement basis and on a
managed basis using the following formulas:
|
|
|
|
|
|
|
Financial Statement Leverage
|
|
=
|
|
Total Debt
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Debt
|
|
+
|
|
Securitized
Off-Balance
Sheet
Receivables
|
|
-
|
|
Retained
Interest in
Securitized
Off-Balance
Sheet
Receivables
|
|
-
|
|
Cash
and Cash
Equivalents
and Marketable
Securities *
|
|
- |
|
Fair Value
Hedge
Accounting
Adjustments
on Total Debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed Leverage
|
|
= |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
+
|
|
Minority
Interest
|
|
-
|
|
Fair Value
Hedge
Accounting
Adjustments
on Equity |
|
|
|
|
|
|
|
* |
|
Excluding marketable securities related to insurance activities. |
The following table illustrates the calculation of Ford Credits financial statement
leverage (in billions, except for ratios):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
2006 |
|
2005 |
|
2004 |
Total debt |
|
$ |
139.7 |
|
|
$ |
133.4 |
|
|
$ |
142.4 |
|
Total stockholders equity |
|
|
11.8 |
|
|
|
11.4 |
|
|
|
12.8 |
|
Debt-to-equity ratio (to 1) |
|
|
11.9 |
|
|
|
11.7 |
|
|
|
11.1 |
|
The following table illustrates the calculation of Ford Credits managed leverage (in
billions, except for ratios):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Total debt |
|
$ |
139.7 |
|
|
$ |
133.4 |
|
|
$ |
142.4 |
|
Securitized off-balance sheet receivables outstanding (a) |
|
|
12.2 |
|
|
|
18.0 |
|
|
|
37.7 |
|
Retained interest in securitized off-balance sheet receivables (b) |
|
|
(1.0 |
) |
|
|
(1.4 |
) |
|
|
(9.5 |
) |
Adjustments for cash, cash equivalents and marketable securities (c) |
|
|
(21.8 |
) |
|
|
(17.9 |
) |
|
|
(12.7 |
) |
Fair value hedge accounting adjustments |
|
|
(0.1 |
) |
|
|
(0.5 |
) |
|
|
(1.3 |
) |
|
|
|
|
|
|
|
|
|
|
Total adjusted debt |
|
$ |
129.0 |
|
|
$ |
131.6 |
|
|
$ |
156.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (including minority interest) |
|
$ |
11.8 |
|
|
$ |
11.4 |
|
|
$ |
12.8 |
|
Fair value hedge accounting adjustments |
|
|
(0.5 |
) |
|
|
(0.7 |
) |
|
|
(1.3 |
) |
|
|
|
|
|
|
|
|
|
|
Total adjusted equity |
|
$ |
11.3 |
|
|
$ |
10.7 |
|
|
$ |
11.5 |
|
|
|
|
|
|
|
|
|
|
|
Managed debt-to-equity ratio (to 1) |
|
|
11.4 |
|
|
|
12.3 |
|
|
|
13.6 |
|
|
|
|
(a) |
|
Includes securitized funding from discontinued operations in 2004. |
|
(b) |
|
Includes retained interest in securitized receivables from discontinued operations in 2004. |
|
(c) |
|
Excluding marketable securities related to insurance activities. |
55
ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
(continued)
Ford Credit believes that managed 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 evaluates charge-offs, receivables and
leverage on a managed as well as a financial statement basis. Ford Credit also deducts cash and
cash equivalents and marketable securities (excluding marketable securities related to insurance
activities) because they generally correspond to excess debt beyond the amount required to support
its operations and amounts to support its on-balance sheet securitizations.
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. Ford Credit makes
fair value hedge accounting 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. The fair value hedge accounting 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 obligations as they mature. As a result, Ford Credit excludes the impact
of the fair value hedge accounting adjustments 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 Credit plans its managed leverage by considering prevailing market conditions and the
risk characteristics of its business. At December 31, 2006, Ford Credits managed leverage was
11.4 to 1, compared with 12.3 to 1 a year ago. In 2006, Ford Credit paid cash dividends of $1.35
billion. To further enhance future funding flexibility, Ford Credit has suspended regular dividend
payments beginning in 2007. Correspondingly, Ford Credit expects a continued reduction in its
managed leverage.
Total Company
Stockholders Equity. Our stockholders equity was negative $3.5 billion at December 31,
2006, down $16.9 billion compared with December 31, 2005. The decrease primarily reflected 2006
net losses and recognition of previously unamortized changes in the funded status of our defined
benefit postretirement plans (such as assumption changes and benefit plan changes) as required by
the implementation of Statement of Financial Accounting Standards (SFAS) No. 158, offset
partially by foreign currency translation adjustments. For additional discussion of SFAS No. 158
and its impact on our financial position, see Note 23 of the Notes to the Financial Statements.
For additional discussion of foreign currency translation adjustments, see Note 2 of the Notes to
the Financial Statements.
Credit Ratings
Our short- and long-term debt is rated by four credit rating agencies designated as nationally
recognized statistical rating organizations (NRSROs) by the SEC:
|
|
|
Dominion Bond Rating Service Limited (DBRS); |
|
|
|
|
Fitch, Inc. (Fitch); |
|
|
|
|
Moodys Investors Service, Inc. (Moodys); and |
|
|
|
|
Standard & Poors Rating Services, a division of The McGraw-Hill Companies, Inc. (S&P). |
In several markets, locally recognized rating agencies also rate us. A credit rating reflects
an assessment by the rating agency of the credit risk associated with a corporate entity or
particular securities issued by that entity. Their ratings of us are 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 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 health care costs.
56
ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
(continued)
The following ratings actions were taken in the fourth quarter 2006:
Ford
|
|
|
DBRS: In November 2006, DBRS assigned Ford an issuer rating of B (low), lowered Fords
long-term senior unsecured rating to CCC (high) from B, rated Fords senior secured credit facilities at B (high), and maintained the trend at
Negative. |
|
|
|
|
Fitch: In November 2006, Fitch lowered Fords long-term senior unsecured rating to B from
B+, rated Fords senior secured credit facilities at BB and maintained the outlook at
Negative. In December 2006, Fitch lowered Fords long-term senior unsecured rating to B- from
B and maintained the outlook at Negative. Fords issuer default rating of B was unaffected. |
|
|
|
|
Moodys: In November 2006, Moodys affirmed Fords corporate
rating at B3, lowered Fords long-term senior unsecured rating to
Caa1 from B3, rated Fords senior secured credit facilities at Ba3, and maintained the outlook at Negative. |
|
|
|
|
S&P: In November 2006, S&P affirmed Fords issuer credit rating at B, lowered Fords long-term senior unsecured rating to CCC+ from
B, rated Fords senior secured credit facilities at
B, and maintained the outlook at Negative. |
Ford Credit
|
|
|
DBRS: In November 2006, DBRS lowered Ford Credits long-term senior unsecured rating to B
from B (high), maintained the short-term rating at R-4, and maintained the trend at Negative. |
|
|
|
|
S&P, Moodys and Fitch: No ratings actions taken in the fourth quarter of 2006. |
The following summarizes certain of the credit ratings and the outlook presently assigned to
Ford and Ford Credit by these four NRSROs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford |
|
Ford Credit |
|
|
Issuer Default/ |
|
Long-Term |
|
|
|
|
|
Long-Term |
|
|
|
|
|
|
Corporate/ Issuer |
|
Senior |
|
Senior |
|
Outlook / |
|
Senior |
|
Short-Term |
|
Outlook / |
|
|
Rating |
|
Unsecured |
|
Secured |
|
Trend |
|
Unsecured |
|
Unsecured |
|
Trend |
DBRS |
|
B (low) |
|
CCC (high) |
|
B (high) |
|
Negative |
|
B |
|
R-4 |
|
Negative |
Fitch |
|
B |
|
B- |
|
BB |
|
Negative |
|
BB- |
|
B |
|
Negative |
Moodys |
|
B3 |
|
Caa1 |
|
Ba3 |
|
Negative |
|
B1 |
|
NP |
|
Negative |
S&P |
|
B |
|
CCC+ |
|
B |
|
Negative |
|
B* |
|
B-3 |
|
Negative |
|
|
|
* |
|
S&P rates FCE long-term senior unsecured rating as B+, maintaining a one notch differential
versus Ford Credit. |
OUTLOOK
Our current projection of first quarter 2007 production for certain segments is as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
|
|
|
|
2007 |
|
|
Vehicle Unit |
|
Over/(Under) |
|
|
Production |
|
2006 |
Ford North America |
|
|
740 |
|
|
|
(136 |
) |
Ford Europe |
|
|
520 |
|
|
|
29 |
|
PAG |
|
|
210 |
|
|
|
15 |
|
We have set and communicated the following 2007 planning assumptions and operational metrics:
Planning Assumptions
Industry Volume (SAAR incl. heavy trucks):
|
|
|
|
|
-U.S. (million units) |
|
|
16.8 |
|
-Europe (million units) |
|
|
17.6 |
|
|
|
|
|
|
U.S. industry net pricing |
|
Lower |
57
ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
(continued)
Operational Metrics
|
|
|
Quality
|
|
Improved |
Market share |
|
|
-U.S.
|
|
Lower |
-Other regions
|
|
Higher |
Automotive cost *
|
|
Lower |
Cash flow
|
|
Negative |
Capital spending (in billions)
|
|
About $7 |
|
|
|
* |
|
At constant volume, mix and exchange; excluding special items. |
As indicated in the table above, we anticipate that quality will continue to improve in
2007. We anticipate that U.S. market share will be lower as we reduce fleet sales, though new
product introductions should increase market share in most other regions. We plan to continue to
reduce Automotive costs during 2007, and we remain on track to deliver about $5 billion of cost
reductions in North America by the end of 2008 as compared with 2005. We anticipate that commodity
and regulatory costs will continue to increase in 2007; that advertising and sales promotions costs
will remain essentially flat; and that other product costs, manufacturing and engineering, pension
and OPEB, depreciation and amortization, warranty and overhead costs should decrease. As
previously disclosed, we anticipate that, from 2007 through 2009, cumulative Automotive
operating-related cash outflows will be about $10 billion, and cumulative restructuring
expenditures about $7 billion. We expect more than half of this $17 billion in outflow to occur
during 2007. These outflows also reflect plans to invest in new products at levels comparable to
previous years, or about $7 billion annually. During the same period, from 2007 through 2009, we
also anticipate other non-operating related net Automotive cash inflows of about $2 billion. For
additional discussion of projected Automotive cash flows, see Liquidity and Capital Resources -
Automotive Sector above.
As previously disclosed, we expect that market share and most earnings comparisons will remain
challenging through the first three quarters of 2007. We expect that production levels will be
down in the first half of 2007, before increasing on a year-over-year basis during the second half
of the year. The decline in the first half of the year primarily reflects cessation of production
of the Ford Taurus and Ford Freestar (in the fourth quarter of 2006) resulting in lower fleet and
total share, as well as lower truck production. Year-over-year third-quarter earnings comparisons
will be impacted by the non-recurrence of tax-related interest income we received in 2006. In
addition, essentially no tax offsets to losses will be recognized during 2007, which will
negatively impact comparisons for the first nine months of 2007. However, we do anticipate that
special items in 2007 will be significantly lower than in 2006, with special items likely in the
range of $1 billion to $2 billion excluding any gains or losses from the sale of any operations,
and that our structural-related cost reductions will improve during the year as personnel are
separated, plants are idled, and capacity is reduced.
By segment or business unit for full-year 2007, we anticipate that Ford North America will
improve its results, though still incur a substantial loss. We anticipate that PAG will be
profitable, and we expect continued profits from Ford South America, Ford Europe, and Mazda and
Associated Operations. We expect that Ford Asia Pacific and Africa will report a full-year loss,
primarily due to adverse segmentation in Australia and lower industry volumes in Taiwan. Net
interest expense will be substantially higher in 2007 compared with 2006, primarily reflecting the
impact of the new debt raised at the end of 2006, as well as the absence of tax-related interest
income. In 2007, we expect total Automotive results including special items, though still a loss,
to be substantially improved from 2006.
We expect Ford Credits 2007 pre-tax profits to be substantially lower than 2006 due to higher
borrowing costs, the non-recurrence of credit loss reserve reductions in the amounts experienced in
2006, the costs associated with its North America restructuring initiative (as described in Item
1. Business Financial Services Sector), and the impact of lower receivable levels. Beginning
with 2007, Ford Credit will suspend regular dividends. We expect year-end managed receivables to
be in the range of $140 billion to $145 billion.
We currently expect our overall results including special items, though still a net loss, to
be substantially improved from 2006.
58
ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
(continued)
Risk Factors
Statements included or incorporated by reference herein may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are based on expectations, forecasts and assumptions by our management
and involve a number of risks, uncertainties, and other factors that could cause actual results to
differ materially from those stated, including, without limitation:
|
|
Continued decline in market share; |
|
|
Continued or increased price competition resulting from industry overcapacity, currency fluctuations or other factors; |
|
|
A market shift (or an increase in or acceleration of market shift) away from sales of
trucks or sport utility vehicles, or from sales of other more profitable vehicles in the
United States; |
|
|
A significant decline in industry sales, particularly in the United States or Europe,
resulting from slowing economic growth, geo-political events or other factors; |
|
|
Lower-than-anticipated market acceptance of new or existing products; |
|
|
Continued or increased high prices for or reduced availability of fuel; |
|
|
Currency or commodity price fluctuations; |
|
|
Adverse effects from the bankruptcy or insolvency of a major competitor; |
|
|
Economic distress of suppliers that has in the past and may in the future require us to
provide financial support or take other measures to ensure supplies of components or
materials; |
|
|
Labor or other constraints on our ability to restructure our business; |
|
|
Work stoppages at Ford or supplier facilities or other interruptions of supplies; |
|
|
Single-source supply of components or materials; |
|
|
Substantial pension and postretirement healthcare and life insurance liabilities impairing our liquidity or financial condition; |
|
|
Worse-than-assumed economic and demographic experience for our postretirement benefit plans
(e.g., discount rates, investment returns, and health care cost trends); |
|
|
The discovery of defects in vehicles resulting in delays in new model launches, recall
campaigns or increased warranty costs; |
|
|
Increased safety, emissions (e.g., CO2), fuel economy or other (e.g., pension
funding) regulation resulting in higher costs, cash expenditures, and/or sales restrictions; |
|
|
Unusual or significant litigation or governmental investigations arising out of alleged
defects in our products or otherwise; |
|
|
A change in our requirements for parts or materials where we have entered into long-term
supply arrangements that commit us to purchase minimum or fixed quantities of certain parts or
materials, or to pay a minimum amount to the seller (take-or-pay contracts); |
|
|
Adverse effects on our operations resulting from certain geo-political or other
events; |
|
|
Substantial negative Automotive operating-related cash flows for the near- to
medium-term affecting our ability to meet our obligations, invest in our business or refinance
our debt; |
|
|
Substantial levels of Automotive indebtedness adversely affecting our financial condition
or preventing us from fulfilling our debt obligations (which may grow because we are able to
incur substantially more debt, including additional secured debt); |
|
|
Inability of Ford Credit to access debt or securitization markets around the world at
competitive rates or in sufficient amounts due to additional credit rating downgrades or otherwise; |
|
|
Higher-than-expected credit losses; |
|
|
Increased competition from banks or other financial institutions seeking to increase their share of financing Ford vehicles; |
|
|
Changes in interest rates; |
|
|
Collection and servicing problems related to finance receivables and net investment in operating leases; |
|
|
Lower-than-anticipated residual values or higher-than-expected return volumes for leased vehicles; and |
|
|
New or increased credit, consumer or data protection or other regulations
resulting in higher costs and/or additional financing restrictions. |
We cannot be certain that any expectation, forecast or assumption made by management in
preparing forward-looking statements will prove accurate, or that any projection will be realized.
It is to be expected that there may be differences between projected and actual results. Our
forward-looking statements speak only as of the date of their initial issuance, and we do not
undertake any obligation to update or revise publicly any forward-looking statement, whether as a
result of new information, future events or otherwise. For additional discussion of these risks,
see Item 1A. Risk Factors.
59
ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
(continued)
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. In addition, there are other items within our
financial statements that require estimation, but are not deemed critical as defined above. Changes
in estimates used in these and other items could have a material impact on our financial
statements.
Warranty 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 re-evaluated 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 accruals are then compared with present spending rates to ensure that the balances are
adequate to meet expected future obligations.
See Note 27 of the Notes to the Financial Statements for more information regarding costs and
assumptions for warranties and additional service actions.
Pensions
Nature of Estimates Required. The estimation of our pension obligations, costs and
liabilities 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 salary increases and demographic experience. These assumptions may have an effect on the
amount and timing of future contributions.
Assumptions and Approach Used. The assumptions used in developing the required estimates
include the following key factors:
|
|
|
Discount rates. We base the discount rate assumption primarily on the results of a cash
flow matching analysis, which matches the future cash outflows for each major plan to a
yield curve comprised of high quality bonds specific to the country of the plan. Benefit
payments are discounted at the rates on the curve and a single discount rate specific to
the plan is determined. |
|
|
|
|
Expected return on plan assets. The expected return on plan assets assumption reflects
historical plan returns and long-run inputs from a range of advisors for capital market
returns, inflation, bond yields, and other variables, adjusted for specific aspects of our
investment strategy. The assumption is based on consideration of all inputs, with a focus
on long-term trends to avoid short-term market influences. Assumptions are not changed
unless structural trends in the underlying economy are identified, our asset strategy
changes, or there are significant changes in other inputs. |
|
|
|
|
Salary growth. The salary growth assumption reflects our long-term actual experience,
outlook and assumed inflation. |
60
ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
(continued)
|
|
|
Inflation. Our inflation assumption is based on an evaluation of external market
indicators. |
|
|
|
|
Expected contributions. The expected amount and timing of contributions is based on an
assessment of minimum requirements, and additional amounts based on cash availability and
other considerations (e.g., funded status, avoidance of Pension Benefit Guaranty
Corporation (PBGC) penalty premiums, U.K. Pension Protection Fund levies, and tax
efficiency). |
|
|
|
|
Retirement rates. Retirement rates are developed to reflect actual and projected plan experience. |
|
|
|
|
Mortality rates. Mortality rates are developed to reflect actual and projected plan experience. |
Plan obligations and costs are based on existing retirement plan provisions. No assumption is
made regarding any potential future changes to benefit provisions beyond those to which we are
presently committed (e.g., in existing labor contracts).
The effects of actual results differing from our assumptions and the effects of changing
assumptions are included in unamortized net gains and losses. Unamortized gains and losses are
amortized over future periods and, therefore, generally affect our recognized expense in future
periods. Amounts are recognized as a component of net expense over the expected future years of
service (approximately 11 years for the major U.S. plans). In 2006, the U.S. actual return on
assets was 14%, which exceeded the expected return of 8.5%. The year-end 2006 weighted average
discount rates for the U.S. and non-U.S. plans increased by 25 and 33 basis points, respectively.
These differences resulted in an unamortized gain of about $5 billion. These gains are only
amortized to the extent they exceed 10% of the higher of the market-related value of assets or the
projected benefit obligation of the respective plan. For the major U.S. plans, the gains do not
exceed this threshold and recognition will begin at a future measurement date.
See Note 23 of the Notes to the Financial Statements for more information regarding costs and
assumptions for employee retirement benefits.
Sensitivity Analysis. The December 31, 2006 pension funded status and 2007 expense are
affected by December 31, 2006 assumptions. Note that these sensitivities may be asymmetric and are
specific to the time periods noted. 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 factors is shown below (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(Decrease) in: |
|
|
|
|
December 31, 2006 |
|
|
|
|
Percentage |
|
U.S. Plans |
|
Non-U.S. Plans |
|
Total Plans |
|
2007 Expense |
|
|
Point |
|
Funded Status |
|
Funded Status |
|
Funded Status |
|
|
|
|
Assumption |
|
Change |
|
and Equity |
|
and Equity |
|
and Equity |
|
U.S. Plans |
|
Non-U.S. Plans |
Discount rate |
|
+/- 1.0 pt. |
|
$4,690/$(5,230) |
|
$4,630/$(5,440) |
|
$9,320/$(10,670) |
|
$10/$290 |
|
$(380)/$460 |
Actual return on assets |
|
+/- 1.0 |
|
400/(400) |
|
240/(240) |
|
640/(640) |
|
(10)/10 |
|
(10)/10 |
Expected return on assets |
|
+/- 1.0 |
|
|
|
|
|
|
|
(410)/410 |
|
(240)/240 |
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, stockholders equity and expense. We
cannot predict these changes in discount rates or investment returns and, therefore, cannot
reasonably estimate whether adjustments to our stockholders equity in subsequent years will be
significant.
Other Postretirement Employee Benefits (Retiree Health Care and Life Insurance)
Nature of Estimates Required. The estimation of our obligations, costs and liabilities
associated with other postretirement employee benefits (OPEB) (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.
61
ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
(continued)
Assumptions and Approach Used. The assumptions used in developing the required estimates
include the following key factors:
|
|
|
Discount rates. We base the discount rate assumption primarily on the results of a cash
flow matching analysis, which matches the future cash outflows for each plan to a yield
curve comprised of high quality bonds specific to the country of the plan. Benefit
payments are discounted at the rates on the curve and a single discount rate specific to
the plan is determined. |
|
|
|
|
Health care cost trends. Our health care cost trend assumptions are developed based on
historical cost data, the near-term outlook, anticipated efficiencies and other
cost-mitigation actions (including eligibility management, employee education and wellness,
competitive sourcing and appropriate employee cost sharing) and an assessment of likely
long-term trends. |
|
|
|
|
Expected return on plan assets. The expected return on plan assets assumption reflects
external investment managers expectations of likely returns on short-duration VEBA assets
over the next several years. |
|
|
|
|
Salary growth. The salary growth assumptions reflect our long-term actual experience,
outlook and assumed inflation. |
|
|
|
|
Expected VEBA contributions/drawdowns. The expected amount and timing of
contributions/drawdowns is based on an assessment of hourly retiree benefit payments to be
reimbursed, tax efficiency, and cash availability. |
|
|
|
|
Retirement rates. Retirement rates are developed to reflect actual and projected plan experience. |
|
|
|
|
Mortality rates. Mortality rates are developed to reflect actual and projected plan experience. |
Plan obligations and costs are based on existing retirement plan provisions. No assumption is
made regarding any potential future changes to benefit provisions beyond those to which we are
presently committed (e.g., in existing labor contracts).
The effects of actual results differing from our assumptions and the effects of changing
assumptions are included in unamortized net gains and losses. Unamortized gains and losses are
amortized over future periods and, therefore, generally affect our recognized expense in future
periods. In 2006, the U.S. actual health care trend was 5%, which was less than the expected trend
of 7%. The year-end 2006 weighted average discount rate for the U.S. increased by 25 basis points.
These differences, as well as updates for employee separation programs, resulted in an unamortized
gain of about $3 billion. This amount is expected to be recognized as a component of net expense
over the expected future years of service (approximately 11 years).
See Note 23 of the Notes to the Financial Statements for more information regarding costs and
assumptions for employee retirement benefits.
Sensitivity Analysis. The December 31, 2006 OPEB funded status and 2007 expense are affected
by December 31, 2006 assumptions. Note that these sensitivities may be asymmetric and are specific
to the time periods noted. They are not 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect on U.S. and Canadian Plans: |
|
|
|
|
Increase/(Decrease) |
|
|
Percentage |
|
December 31, 2006 |
|
|
|
|
Point |
|
Funded Status |
|
|
Assumption |
|
Change |
|
and Equity |
|
2007 Expense |
Discount rate |
|
+/- 1.0 pt. |
|
$ |
3,830/$(4,580 |
) |
|
$ |
(340)/$390 |
|
Health care cost trend rates total expense |
|
+/- 1.0 |
|
|
(4,580)/3,640 |
|
|
|
680/(540) |
|
Health care cost trend rates service and interest expense |
|
+/- 1.0 |
|
|
(4,580)/3,640 |
|
|
|
340/(270) |
|
62
ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
(continued)
Allowance for Credit Losses Financial Services Sector
The allowance for credit losses is Ford Credits estimate of the credit losses related to
impaired finance receivables and operating leases as of the date of the financial statements.
Consistent with its normal practices and policies, Ford Credit assesses the adequacy of its
allowance for credit losses quarterly and regularly evaluates the assumptions and models used in
establishing the allowance. Because credit losses can vary substantially over time, estimating
credit losses requires a number of assumptions about matters that are uncertain.
Nature of Estimates Required. Ford Credit estimates the credit losses related to impaired
finance receivables and operating leases based on several factors including historical credit loss
trends (including loss history and key physical trends, such as delinquency and repossessions), the
composition and credit quality of its present portfolio (including vehicle brand, term, risk
evaluation and new/used), trends in historical and projected used vehicle values and general
economic measures.
Assumptions Used. Ford Credit makes projections of two key assumptions:
|
|
|
Frequency. The number of finance receivables and operating lease contracts that Ford
Credit expects will default over a period of time, measured as repossessions; and |
|
|
|
|
Loss severity. The expected difference between the amounts a customer owes Ford Credit
when they charge off the finance contract and the amount Ford Credit receives, net of
expenses, from selling the repossessed vehicle, including any recoveries from the customer. |
Ford Credit uses these assumptions to assist in setting its allowance for credit losses. See
Note 6 of the Notes to the Financial Statements for more information regarding allowance for credit
losses.
Sensitivity
Analysis. Changes in the assumptions used to derive frequency and severity would
affect the allowance for credit losses. The effect of the indicated increase/decrease in the
assumptions is shown below for Ford, Lincoln and Mercury brand vehicles in the United States (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(Decrease) |
|
|
Percentage |
|
December 31, 2006 |
|
|
|
|
Point |
|
Allowance for |
|
2006 |
Assumption |
|
Change |
|
Credit Losses |
|
Expense |
Repossession rates * |
|
+/- 0.1 pt. |
|
|
$30/$(30 |
) |
|
|
$30/$(30 |
) |
Loss severity |
|
+/- 1.0 |
|
|
5/(5) |
|
|
|
5/(5) |
|
|
|
|
* |
|
Reflects the number of finance receivables and operating lease contracts that Ford Credit
expects will default over a period of time relative to the average number of contracts
outstanding. |
Changes
in our assumptions affect the Provision for credit and insurance losses on our
statement of income and the allowance for credit losses contained within Finance receivables,
net and Net investment in operating leases on our balance sheet.
Accumulated Depreciation on Vehicles Subject to Operating Leases
Accumulated depreciation on vehicles subject to operating leases reduces the value of the
leased vehicles in our operating lease portfolio from their original acquisition value to their
expected residual value at the end of the lease term. These vehicles primarily consist of retail
lease contracts for Ford Credit and vehicles sold to daily rental car companies subject to a
guaranteed repurchase option (rental repurchase vehicles) for the Automotive sector.
We monitor residual values each month, and we review the adequacy of our accumulated
depreciation on a quarterly basis. If we believe that the expected residual values for our
vehicles have changed, we revise depreciation to ensure that our net investment in operating leases
(equal to our acquisition value of the vehicles less accumulated depreciation) will be adjusted to
reflect our revised estimate of the expected residual value at the end of the lease term. Such
adjustments to depreciation expense would result in a change in the depreciation rates of the
vehicles subject to operating leases, and are recorded on a straight-line basis.
63
ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
(continued)
For retail leases, 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. If the customer returns the vehicle to the
dealer, the dealer may buy the vehicle from us or return it to us. Over the last three years,
between 230,000 and 310,000 units of Ford Credits North America operating lease vehicles have been
returned to us per year. For rental repurchase vehicles, practically all vehicles are returned to
us.
Nature of Estimates Required. Each operating lease in our portfolio represents a vehicle we
own that has been leased to a customer. At the time we purchase a lease, we establish an expected
residual value for the vehicle. We estimate the expected residual value by evaluating historical
auction values, historical return volumes for our leased vehicles, industry-wide used vehicle
prices, our marketing plans and vehicle quality data.
Assumptions Used. For retail leases, our accumulated depreciation on vehicles subject to
operating leases is based on our assumptions of:
|
|
|
Auction value. The market value of the vehicles when we sell them at the end of the lease; and |
|
|
|
|
Return volume. The number of vehicles that will be returned to us at lease end. |
See Note 5 of the Notes to the Financial Statements for more information regarding accumulated
depreciation on vehicles subject to operating leases.
Sensitivity Analysis. For returned vehicles, we face a risk that the amount we obtain from
the vehicle sold at auction will be less than our estimate of the expected residual value for the
vehicle. At December 31, 2006, if future auction values for Ford Credits existing portfolio of
operating leases on Ford, Lincoln and Mercury brand vehicles in the U.S. were to decrease by one
percent from its present estimates, the effect would be to increase the depreciation on these
vehicles by about $50 million. Similarly, if return volumes for Ford Credits existing portfolio
of operating leases on Ford, Lincoln and Mercury brand vehicles in the U.S. were to increase by one
percentage point from its present estimates, the effect would be to increase the depreciation on
these vehicles by about $10 million. These increases in depreciation would be charged to
depreciation expense during the 2007 through 2010 period so that the net investment in operating
leases at the end of the lease term for these vehicles is equal to the revised expected residual
value. 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
Depreciation, in each case under the Financial Services sector.
ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED
In February 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 155,
Accounting for Certain Hybrid Financial Instruments an amendment of FASB Statements No. 133 and
140 (SFAS No. 155). This standard permits fair value remeasurement for any hybrid financial
instrument that contains an embedded derivative that otherwise would require bifurcation. The
standard requires that interests in securitized financial assets be evaluated to identify whether
they are freestanding derivatives or hybrid financial instruments containing an embedded derivative
that requires bifurcation. SFAS No. 155 is effective for all financial instruments acquired or
issued by us after January 1, 2007. We expect the impact on our financial condition or results of
operations to be immaterial.
In March 2006, FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets an
amendment to FASB Statement No. 140 (SFAS No. 156), which provides revised guidance on when a
servicing asset and servicing liability should be recognized and requires all separately recognized
servicing assets and servicing liabilities to be initially measured at fair value, if practicable.
The standard also requires separate presentation of servicing assets and servicing liabilities
subsequently measured at fair value in the statement of financial position and additional footnote
disclosures. SFAS No. 156 is effective for us as of January 1, 2007. We expect the impact on our
financial condition or results of operations to be immaterial.
In June 2006, FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes -
an interpretation of FASB Statement No. 109 (FIN 48). This interpretation prescribes a
recognition threshold and a measurement attribute for the financial statement reporting of tax
positions taken in tax returns. The interpretation is effective for fiscal years beginning after
December 15, 2006. We are adopting the interpretation as of January 1, 2007 and we expect a $1
billion to $1.5 billion increase to equity as a result of this adoption. The favorable impact to
equity is the result of recognizing
64
ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
(continued)
refund claims and related interest for prior years that meet the more-likely-than-not recognition
threshold of FIN 48. These prior-year refund claims and related interest were not recognized as of
December 31, 2006 because they were considered gain contingencies under SFAS No. 5, Accounting for
Contingencies and could not be recognized until the contingency lapsed.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS No. 157).
This standard defines fair value, establishes a framework for measuring fair value in GAAP, and
expands disclosures about fair value measurements. SFAS No. 157 does not introduce new
requirements for when fair value measures must be used, but focuses on how to measure fair value.
SFAS No. 157 establishes a fair value hierarchy to classify the sources of information used to
measure fair value. SFAS No. 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007 and interim periods within those fiscal years. We are assessing
the potential impact on present fair value measurement techniques, disclosures, and on our
financial position.
In September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans an amendment of FASB Statements No. 87, 88, 106, and
132(R). This standard requires employers that sponsor defined benefit plans to recognize the
over-funded or under-funded status of a defined benefit postretirement plan as an asset or
liability in its statement of financial position and to recognize changes in that funded status in
the year in which the changes occur, through comprehensive income. For further discussion of the
impact of the adoption of this standard on our financial condition, see Note 23 of the Notes to the
Financial Statements. The measurement date for substantially all of our worldwide postretirement
benefit plans is December 31. The potential impact on our financial condition for those plans in
which we have not adopted the requirement to measure plan assets and benefit obligation as of the
date of our present statement of financial position is minimal. This requirement is not effective
until December 2008.
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, results of
operations or liquidity. These include securitizations by Ford Credit in off-balance sheet
transactions, variable interest entities (VIEs) and guarantees. For a discussion of our VIEs and
guarantees, see Notes 13 and 27, respectively, of the Notes to the Financial Statements.
Securitizations by Ford Credit
Securitization. Ford Credit securitizes retail installment sale contracts, wholesale
receivables, and net investment in operating leases through a variety of programs, utilizing
amortizing, variable funding and revolving structures. Most of Ford Credits securitizations do
not satisfy the requirements for accounting sale treatment and the securitized assets and
associated debt remain on Ford Credits balance sheet. Some of Ford Credits securitizations,
however, do satisfy
accounting sale treatment and are not reflected on its balance sheet in the same way as debt
funding, but could have an effect on its financial condition, operating results and liquidity.
In a securitization transaction, the securitized assets are generally held by a
bankruptcy-remote special purpose entity (SPE) in order to isolate the securitized assets from
the claims of Ford Credits creditors and to insure that the cash flows on the securitized assets
are available for the benefit of securitization investors. As a result, payments to securitization
investors are based on the creditworthiness of the securitized assets and any enhancements, and not
on Ford Credits creditworthiness. Senior asset-backed securities issued by the SPEs generally
receive the highest short-term credit ratings and among the highest long-term credit ratings from
the rating agencies that rate them, and are sold to securitization investors at cost-effective
pricing.
In order to be eligible for inclusion in a securitization transaction, each asset must satisfy
certain eligibility criteria designed for the specific transaction. For example, for
securitizations of retail installment sale contracts, the selection criteria may be based on
factors such as location of the obligor, contract term, payment schedule, interest rate, financing
program, the type of financed vehicle, and whether the contracts are active and in good standing.
Ford Credit selects the assets to be included in a particular securitization randomly from its
entire portfolio of assets that satisfy the applicable eligibility criteria. Specific assets are
generally not identified until the month in which the securitization occurs.
65
ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
(continued)
Securitization SPEs have limited purposes and generally are only permitted to purchase the
securitized assets, issue the asset-backed securities and make payments on the securities. Some
SPEs, such as the trusts that issue securities backed by retail installment sale contracts, only
issue a single series of securities and generally are dissolved when those securities have been
paid in full. Other SPEs, such as the trusts that issue securities backed by wholesale
receivables, issue multiple series of securities from time to time and are not dissolved until the
last series of securities is paid in full.
Ford Credits use of SPEs in its securitizations is consistent with conventional practices in
the securitization industry. Ford Credit sponsors the SPEs used in all of its securitization
programs with the exception of bank-sponsored conduits. None of Ford Credits officers, directors
or employees holds any equity interests in its SPEs or receives any direct or indirect compensation
from the SPEs. These SPEs do not own Ford Credits stock or stock of any of its affiliates.
Ford Credit retains interests in its securitization transactions, including senior and
subordinated securities issued by the SPE, rights to restricted cash held for the benefit of the
securitization investors (for example, a reserve fund) and residual interests. Residual interests
represent the right to receive collections on the securitized assets in excess of amounts needed to
pay securitization investors and to pay other transaction participants and expenses. Ford Credits
ability to realize the carrying amount of its retained interests depends on the performance of the
securitized assets, including factors such as the actual credit losses and the prepayment speeds or
payment rates of such assets. Ford Credit retains credit risk in securitizations because its
retained interests include the most subordinated interests in the securitized assets, which are the
first to absorb credit losses on the securitized assets. Based on past experience, Ford Credit
expects that any credit losses in the pool of securitized assets would likely be limited to its
retained interests.
At December 31, 2006 and 2005, the total outstanding principal amount of receivables sold by
Ford Credit in off-balance sheet securitizations was $12.2 billion and $18 billion, respectively.
At December 31, 2006 and 2005, Ford Credits retained interests in such sold receivables were $990
million and $1.4 billion, respectively.
Ford Credit generally has no obligation to repurchase or replace any securitized asset that
subsequently becomes delinquent in payment or otherwise is in default. Securitization investors
have no recourse to Ford Credit or its other assets for credit losses on the securitized assets and
have no right to require Ford Credit to repurchase their investments. Ford Credit does not
guarantee any asset-backed securities and has no obligation to provide liquidity or make monetary
contributions or contributions of additional assets to its SPEs either due to the performance of
the securitized assets or the credit rating of its short-term or long-term debt. However, as the
seller and servicer of the securitized assets, Ford Credit is obligated to provide certain kinds of
support to its securitizations, which are customary in the securitization industry. These
obligations consist of indemnifications, repurchase obligations on assets that do not meet
eligibility criteria or that have been materially modified, the mandatory sale of additional assets
in revolving transactions and, in some cases, servicer advances of interest shortfalls or other
amounts.
Risks to Continued Funding under Securitization Programs. The following securitization
programs contain structural features that could prevent Ford Credit from using these sources of
funding in certain circumstances:
|
|
|
FCAR. If the credit enhancement on any asset-backed security held by FCAR is
reduced to zero, FCAR may not purchase any additional asset-backed securities and would
wind down its operations. In addition, if credit losses or delinquencies in Ford Credits
portfolio of retail, wholesale or lease assets exceed specified levels, FCAR is not
permitted to purchase additional asset-backed securities of the affected type for so long
as such levels are exceeded. |
|
|
|
|
Retail Conduits. If credit losses or delinquencies on the pool of assets held
by a conduit exceed specified levels, or if the level of over-collateralization for such
pool decreases below a specified level, Ford Credit would not have the right to sell
additional pools of assets to that conduit. |
|
|
|
|
Wholesale Securitization (including Motown Notes). If the payment rates on
wholesale receivables are lower than specified levels, or if there are significant dealer
defaults, Ford Credit would be unable to obtain additional funding and any existing funding
would begin to amortize. |
Based on its experience, Ford Credit does not expect that any of these features will have a
material adverse impact on its ability to use securitization to fund its operations.
66
ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
(continued)
In addition to the specific transaction-related structural features discussed above, Ford
Credits securitization programs may be affected by the following factors: the amount and credit
quality of assets available to securitize, the performance of assets in its previous
securitizations, general demand for the type of assets supporting the asset-backed securities,
market capacity for Ford Credit and Ford Credit-sponsored investments, accounting and regulatory
changes, Ford Credits credit ratings, and the availability of
liquidity facilities. If, as a
result of any of these or other factors, the cost of securitization funding were to increase
significantly or funding through securitizations were no longer available to Ford Credit, it would
have a material adverse impact on Ford Credits financial condition, results of operations or
liquidity.
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. Long-term
debt may have fixed or variable interest rates. For long-term debt with variable rate interest, we
estimate the future interest payments based on projected market interest rates for various
floating-rate benchmarks received from third parties. 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 table below summarizes our contractual obligations as of December 31, 2006 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
|
|
|
|
Financial |
|
|
|
|
|
|
|
|
|
|
2008- |
|
|
2010- |
|
|
2012 and |
|
|
|
Automotive |
|
|
Services |
|
|
Total |
|
|
2007 |
|
|
2009 |
|
|
2011 |
|
|
Thereafter |
|
On-balance sheet |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt* (excluding capital leases) |
|
$ |
28,938 |
|
|
$ |
115,859 |
|
|
$ |
144,797 |
|
|
$ |
35,523 |
|
|
$ |
46,689 |
|
|
$ |
23,759 |
|
|
$ |
38,826 |
|
Interest payments relating to long-term debt |
|
|
36,505 |
|
|
|
22,586 |
|
|
|
59,091 |
|
|
|
8,418 |
|
|
|
12,019 |
|
|
|
7,765 |
|
|
|
30,889 |
|
Capital leases |
|
|
372 |
|
|
|
|
|
|
|
372 |
|
|
|
53 |
|
|
|
129 |
|
|
|
118 |
|
|
|
72 |
|
Off-balance sheet |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase obligations |
|
|
4,225 |
|
|
|
140 |
|
|
|
4,365 |
|
|
|
1,589 |
|
|
|
2,332 |
|
|
|
311 |
|
|
|
133 |
|
Operating lease |
|
|
1,660 |
|
|
|
494 |
|
|
|
2,154 |
|
|
|
607 |
|
|
|
830 |
|
|
|
392 |
|
|
|
325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
71,700 |
|
|
$ |
139,079 |
|
|
$ |
210,779 |
|
|
$ |
46,190 |
|
|
$ |
61,999 |
|
|
$ |
32,345 |
|
|
$ |
70,245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Amount includes $796 million for the current portion of long-term debt. See Note 15 of the
Notes to the Financial Statements for additional discussion. |
For additional information regarding long-term debt, operating lease obligations, and pension
and OPEB obligations, see Notes 15, 27 and 23, respectively, of the Notes to the Financial
Statements.
67
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 other members of senior management.
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 maintain plans for sources of funding to ensure liquidity through a variety of
economic or business cycles. As discussed in greater detail in Item 7. Managements Discussion
and Analysis of Financial Condition and Results of Operations, our funding sources include sales
of receivables in securitizations and other structured financings, unsecured debt issuances and
bank borrowings.
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 and Finance Committees 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 trading, market-making or speculative purposes. In certain instances, we forgo hedge
accounting, which results in unrealized gains and losses that are recognized currently in net
income. For additional information on our derivatives, see Note 22 of the Notes to the 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 evaluate
the sensitivity of the fair value of currency and commodity derivative instruments with exposure to
market risk that assumes instantaneous, parallel shifts in rates and/or prices. For options and
instruments with non-linear returns, appropriate models are utilized to determine the impact of
shifts in rates and prices.
68
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk (continued)
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.
Accordingly, we use derivative instruments to hedge our economic exposure with respect to
forecasted revenues and costs, 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).
The net fair value of financial instruments with exposure to cash flow foreign currency risk
was an asset of $705 million as of December 31, 2006 compared to a net fair value liability of $421
million as of December 31, 2005. The increase in fair value primarily reflects mark-to-market
adjustments resulting from the weakening of the U.S. dollar against the euro, the British pound and
the Swedish krona. The potential decrease in fair value for such financial instruments, assuming a
10% adverse change in quoted foreign currency exchange rates, would be $2.1 billion and $1.6
billion at December 31, 2006 and 2005, respectively.
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), precious metals
(e.g., palladium), ferrous metals (e.g., steel and iron castings), energy (e.g., natural gas and
electricity), and plastics/resins (e.g., polypropylene), which we use in the production of motor
vehicles. Steel and resins are our two largest commodity exposures and are among the most
difficult to hedge.
We use derivative instruments to hedge the price risk associated with the purchase of those
commodities that we can economically hedge (primarily non-ferrous metals, precious metals and
energies). 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).
The net fair value asset of commodity forward and option contracts as of December 31, 2006 and
2005 was $750 million and $664 million, respectively. The potential decrease in fair value of
commodity forward and option contracts, assuming a 10% adverse change in the underlying commodity
price, would be about $200 million at both December 31, 2006 and 2005.
In addition, our purchasing organization (with guidance from the GRMC as appropriate)
negotiates contracts to ensure continuous supply of raw materials. In some cases, these contracts
stipulate minimum purchase amounts and specific prices, and as such, play a role in managing price
risk.
Interest Rate Risk. Interest rate risk relates to the gain or loss we could incur in our
Automotive investment portfolio due to a change in interest rates. Our interest rate sensitivity
analysis on the investment portfolio includes cash and cash equivalents, net marketable and loaned
securities and VEBA assets. At December 31, 2006, we had $37.5 billion (including total VEBA
assets of $4.9 billion) in our Automotive investment portfolio, compared to $25.1 billion at
December 31, 2005. We invest the portfolio in securities of various types and maturities, the
value of which are subject to fluctuations in interest rates. These securities are generally
classified as either trading or available-for-sale. The trading portfolio gains and losses
(unrealized and realized) are reported in the income statement. The available-for-sale portfolio
realized gains or losses are reported in the income statement, and unrealized gains and losses are
reported in the Consolidated Statement of Stockholders Equity in Accumulated other comprehensive
income/(loss). 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 available-for-sale portfolios. As of December 31, 2006, the value of our
trading portfolio was $36.6 billion, which is $14 billion higher than December 31, 2005. The value
of our available-for-sale portfolio was about $900 million, which is $1.6 billion lower than
December 31, 2005.
Assuming a hypothetical increase in interest rates of one percentage point, the value of our
trading and available-for-sale portfolios would be reduced by $121 million and $12 million,
respectively. This compares to $91 million and $28 million, respectively, as calculated as of
December 31, 2005. While these are our best estimates 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 of this magnitude are rarely instantaneous or parallel.
69
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk (continued)
Counterparty Risk. The use of derivatives to manage market risk results in counterparty risk,
which is the loss we could incur if counterparty defaulted on 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 derivative contracts used for managing interest rate,
foreign currency exchange rate and commodity price risk. We, together with Ford Credit, establish
exposure limits for each counterparty to minimize risk and provide counterparty diversification.
Our approach to managing counterparty risk is forward-looking and proactive, allowing us to
take risk mitigation actions before risks become losses. We establish exposure limits for both net
fair value 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. We monitor and report our exposures to the
Treasurer on a periodic basis.
Substantially all of our counterparty exposures are with counterparties that are rated
single-A or better. Our guideline for counterparty minimum long-term ratings is BBB-.
For additional information about derivative notional amount and fair value of derivatives,
please refer to Note 22 of the Notes to the Financial Statements.
FORD CREDIT MARKET RISKS
Overview. Ford Credit is exposed to a variety of 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 interest and currency exchange rates will
adversely affect Ford Credits cash flow and economic value; |
|
|
|
|
Credit risk. The possibility of loss from a customers failure to make payments
according to contract terms; |
|
|
|
|
Residual risk. The possibility that the actual proceeds Ford Credit receives at lease
termination will be lower than its projections or return rates will be higher than its
projections; and, |
|
|
|
|
Liquidity risk. The possibility that Ford Credit may be 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 Item 7.
Managements Discussion and Analysis of Financial Condition and Results of Operations Critical
Accounting Estimates and liquidity risk is discussed above in Item 7. Managements Discussion and
Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources. A
discussion of Ford Credits market risks is included below.
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 rate changes 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 its exposure to changes in currency
exchange rates 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.
70
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk (continued)
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 31 would have a re-pricing period of one year on January 1, 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.
Wholesale receivables are originated to finance new and used vehicles held in dealers inventory
and generally require dealers to pay a floating rate. Ford Credits funding sources consist
primarily of securitizations and short- and long-term unsecured debt. In the case of unsecured
term debt, and in an effort to have funds available throughout the business cycle, Ford Credit may
issue debt with five- to ten-year maturities, which is generally longer than the terms of its
assets. 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.
Ford Credits interest rate risk management objective is to maximize its economic value while
limiting the impact of changes in interest rates. Ford Credit achieves this objective by setting
an established risk tolerance and staying within this tolerance through the following risk
management process:
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, to economically convert portions of its floating-rate debt to fixed or
its fixed-rate debt to floating, to ensure that the sensitivity of its economic value falls within
an established tolerance. Ford Credit also monitors its pre-tax cash flow sensitivity over a
twelve-month horizon using simulation techniques. This simulation determines the sensitivity of
cash flows associated with the re-pricing characteristics of interest rate-sensitive assets,
liabilities and derivatives under various hypothetical interest rate scenarios including both
parallel and non-parallel shifts in the yield curve. This sensitivity calculation does not take
into account any future actions Ford Credit may take to reduce the risk profile that arises from a
change in interest rates. These quantifications of interest rate risk are reported to our
Treasurer regularly (either monthly or quarterly dependent on the market).
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 79% of its total on-balance sheet finance receivables at December 31, 2006. For its
other 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 discrete time bands based on their re-pricing characteristics. Under
this process, Ford Credit enters into interest rate swaps, which effectively change the re-pricing
profile of its debt, to ensure that any re-pricing mismatch (between assets and liabilities)
existing in a particular time band falls within an established tolerance.
As a result of its interest rate risk management process, Ford Credits debt, combined with
the derivative instruments economically hedging its 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 its assets, thereby
initially reducing Ford Credits pre-tax cash flow. Correspondingly, during a period of falling
interest rates, Ford Credits pre-tax cash flow would be expected to initially increase. To
provide a quantitative measure of the sensitivity of its pre-tax cash flow 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 (a parallel
71
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk (continued)
shift), 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 cash flow. The sensitivity as of
year-end 2006 and 2005 was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006 |
|
December 31, 2005 |
Pre-tax Cash Flow
sensitivity given a
one percentage point
instantaneous increase
in interest rates |
|
$ |
(55 |
) |
|
$ |
(40 |
) |
Pre-tax Cash Flow
sensitivity given a
one percentage point
instantaneous decrease
in interest rates |
|
|
55 |
|
|
|
40 |
|
Based on assumptions included in the analysis, sensitivity to a one percentage point
instantaneous change in interest rates was higher at year-end 2006 than at year-end 2005. This
change primarily reflects the results of normal fluctuations within the approved tolerances of risk
management strategy. While the sensitivity analysis presented is Ford Credits best estimate of
the impacts of specified assumed interest rate scenarios, the model Ford Credit uses for this
analysis is heavily dependent on assumptions, so that actual results could differ from those
projected. Embedded in the model Ford Credit uses are assumptions regarding the reinvestment of
maturing asset principal, refinancing of maturing debt, and predicted repayment of retail
installment sale and lease contracts ahead of contractual maturity. Ford Credits repayment
projections of retail installment sale and lease contracts ahead of contractual maturity are based
on historical experience. If interest rates or other factors were to change, the actual prepayment
experience could be different than projected.
Additionally, interest rate changes of one percentage point or more are rarely instantaneous
or parallel, and rates could move more or less than the one percentage point assumed in Ford
Credits analysis. As a result, the actual impact to pre-tax cash flow could be higher or lower
than the results detailed above. The model used to conduct this analysis also relies heavily on
assumptions 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 Ford Credits net derivative financial instruments (derivative assets less
derivative liabilities) as reported in Note 22 of the Notes to the Financial Statements as of
December 31, 2006 was $1.5 billion compared with $1.9 billion at December 31, 2005. The decrease
in fair value reflects primarily mark-to-market adjustments resulting from higher interest rates,
partially offset by translation gains resulting from the weakening of the U.S. dollar against the
euro and the British pound. For additional information on Ford Credit derivatives, please refer to
the Financial Services Sector discussion in Note 22 of the Notes to the Financial Statements.
ITEM 8. Financial Statements and Supplementary Data
Our Financial Statements, the accompanying Notes to the Financial Statements, the Report of
Independent Registered Public Accounting Firm, the Financial Statement Schedule and the Report of
Independent Registered Public Accounting Firm on Financial Statement Schedule that are filed as
part of this Report are listed under Item 15. Exhibits and Financial Statement Schedules and are
set forth on pages FS-1 through FS-59 and FSS-1 and FSS-2 immediately following the signature pages
of this Report.
Selected quarterly financial data for 2006 and 2005 is provided in Note 26 of the Notes to the
Financial Statements.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
72
ITEM 9A. Controls and Procedures
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Alan Mulally, our Chief Executive Officer (CEO), and Donat R. Leclair, Jr., our Chief
Financial Officer (CFO), have performed an evaluation of the Companys disclosure controls and
procedures, as that term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as
amended (the Exchange Act), as of December 31, 2006 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 forms.
MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The Companys
internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in conditions or
because the degree of compliance with policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our CEO and CFO,
we conducted an assessment of the effectiveness of our internal control over financial reporting as
of December 31, 2006. The assessment was based on criteria established in the framework Internal
Control Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this assessment, management concluded that our internal control over
financial reporting was effective as of December 31, 2006.
Managements assessment of the effectiveness of the Companys internal control over financial
reporting as of December 31, 2006 has been audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm, as stated in their report included in this Report.
MATERIAL CHANGES IN INTERNAL CONTROL
During the fourth quarter of 2006, Ford Europe modified some of its information technology
systems to accommodate new business relationships created by recent legal entity status changes.
Also during the fourth quarter of 2006, we implemented changes related to remediation of a
material weakness in internal control over financial reporting with respect to accounting for
certain hedges of interest rate risk (as reported in our Quarterly Report on Form 10-Q for the
quarter ended September 30, 2006). We suspended our use of the application of Paragraph 68 of SFAS
No. 133, and de-designated all derivative transactions to which we previously had applied the
exception set forth in Paragraph 68.
ITEM 9B. Other Information
None.
73
PART III
ITEM 10. Directors, Executive Officers of Ford and Corporate Governance
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 the Audit Committees review and discussion of the audited financial statements is
incorporated by reference from information under the caption Audit Committee Report 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. Business 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
Discussion and Analysis, Compensation Committee Report, Compensation Committee Interlocks and
Insider Participation, Compensation of Executive Officers, Grants of Plan-Based Awards,
Outstanding Equity Awards at Fiscal Year-End, Option Exercises and Stock Vested, Pension
Benefits, Nonqualified Deferred Compensation, and Post-Employment Compensation.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information required by Item 12 is incorporated by reference from the information under
the captions Equity Compensation Plan Information and Management Stock Ownership in our Proxy
Statement.
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
The information required by Item 13 is incorporated by reference from the information under
the captions Certain Relationships and Related Transactions and Corporate Governance in our
Proxy Statement.
ITEM 14. Principal Accounting 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 and Financial Statement Schedules
(a) 1. Financial Statements Ford Motor Company and Subsidiaries
The following are contained in this 2006 10-K Report:
|
|
|
Consolidated Statement of Income and Sector Statement of Income for the years ended
December 31, 2006, 2005, and 2004. |
|
|
|
|
Consolidated Balance Sheet and Sector Balance Sheet at December 31, 2006 and 2005. |
|
|
|
|
Consolidated Statement of Cash Flows and Sector Statement of Cash Flows for the years
ended December 31, 2006, 2005, and 2004. |
|
|
|
|
Consolidated Statement of Stockholders Equity for the years ended December 31, 2006, 2005, and 2004. |
|
|
|
|
Notes to the Financial Statements. |
|
|
|
|
Report of Independent Registered Public Accounting Firm. |
The Consolidated and Sector Financial Statements, the Notes to the Financial Statements and
the Report of Independent Registered Public Accounting Firm listed above are filed as part of this
Report and are set forth on pages FS-1 through FS-60 immediately following the signature pages of
this Report.
(a) 2. Financial Statement Schedules
|
|
|
Designation |
|
Description |
Schedule II
|
|
Valuation and Qualifying Accounts |
Schedule II and the Report of Independent Registered Public Accounting Firm on Financial
Statement Schedule are filed as part of this Report and are set forth on pages FSS-1 and FSS-2
immediately following the Notes to the Financial Statements referred to above. The other schedules
are omitted because they are not applicable, 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 |
Exhibit 2
|
|
Stock Purchase Agreement dated as of
September 12, 2005 between CCMG
Holdings, Inc., Ford Holdings LLC and
Ford Motor Company.
|
|
Filed as Exhibit 2 to our
Quarterly Report on Form
10-Q for the period ended
September 30, 2005.* |
|
|
|
|
|
Exhibit 3-A
|
|
Restated Certificate of Incorporation,
dated August 2, 2000.
|
|
Filed as Exhibit 3-A to
our Annual Report on Form
10-K for the year ended
December 31, 2000.* |
|
|
|
|
|
Exhibit 3-B
|
|
By-Laws as amended through December 14,
2006.
|
|
Filed with this Report. |
|
|
|
|
|
Exhibit 10-A
|
|
Amended and Restated Profit Maintenance
Agreement, dated as of January 1, 2002,
between Ford and Ford Credit.
|
|
Filed as Exhibit 10-A to
our Annual Report on Form
10-K for the year ended
December 31, 2001.* |
75
ITEM 15. Exhibits and Financial Statement Schedules (continued)
|
|
|
|
|
Designation |
|
Description |
|
Method of Filing |
Exhibit 10-B
|
|
Executive Separation Allowance Plan as
amended through October 1, 2006 for
separations on or after January 1,
1981.**
|
|
Filed as Exhibit 10-B to
our Quarterly Report on
Form 10-Q for the quarter
ended September 30, 2006.* |
|
|
|
|
|
Exhibit 10-C
|
|
Deferred Compensation Plan for Non-
Employee Directors, as amended and
restated as of January 1, 2005.**
|
|
Filed as Exhibit 10-D to
our Annual Report on Form
10-K for the year ended
December 31, 2004.* |
|
|
|
|
|
Exhibit 10-D
|
|
Benefit Equalization Plan, as amended
as of October 1, 2006.**
|
|
Filed as Exhibit 10-D to
our Quarterly Report on
Form 10-Q for the quarter
ended September 30, 2006.* |
|
|
|
|
|
Exhibit 10-D-1
|
|
Amendment to Benefit Equalization Plan,
adopted in October 2002 and effective
as of November 1, 2001.**
|
|
Filed as Exhibit 10 to our
Quarterly Report on Form
10-Q for the quarter ended
September 30, 2002.* |
|
|
|
|
|
Exhibit 10-E
|
|
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.* |
|
|
|
|
|
Exhibit 10-F
|
|
Supplemental Executive Retirement Plan,
as amended through October 1, 2006.**
|
|
Filed as Exhibit 10-F to
our Quarterly Report on
Form 10-Q for the quarter
ended September 30, 2006.* |
|
|
|
|
|
Exhibit 10-G
|
|
Restricted Stock Plan for Non-Employee
Directors adopted by the Board of
Directors on November 10, 1988.**
|
|
Filed as Exhibit 10-P to
our Annual Report on Form
10-K for the year ended
December 31, 1988.* |
|
|
|
|
|
Exhibit 10-G-1
|
|
Amendment to Restricted Stock Plan for
Non-Employee Directors, effective as of
August 1, 1996.**
|
|
Filed as Exhibit 10.1 to
our Quarterly Report on
Form 10-Q for the quarter
ended September 30, 1996.* |
|
|
|
|
|
Exhibit 10-G-2
|
|
Amendment to Restricted Stock Plan for
Non-Employee Directors, effective as of
July 1, 2004.**
|
|
Filed as Exhibit 10 to our
Quarterly Report on Form
10-Q for the quarter ended
September 30, 2004.* |
|
|
|
|
|
Exhibit 10-G-3
|
|
Description of Director Compensation as
of July 13, 2006.**
|
|
Filed as Exhibit 10-G-3 to
our Quarterly Report on
Form 10-Q for the quarter
ended September 30, 2006.* |
|
|
|
|
|
Exhibit 10-H
|
|
1990 Long-Term Incentive Plan, amended
as of June 1, 1990.**
|
|
Filed as Exhibit 10-R to
our Annual Report on Form
10-K for the year ended
December 31, 1990.* |
|
|
|
|
|
Exhibit 10-H-1
|
|
Amendment to 1990 Long-Term Incentive
Plan, effective as of October 1,
1990.**
|
|
Filed as Exhibit 10-P-1 to
our Annual Report on Form
10-K for the year ended
December 31, 1991.* |
|
|
|
|
|
Exhibit 10-H-2
|
|
Amendment to 1990 Long-Term Incentive
Plan, effective as of March 8, 1995.**
|
|
Filed as Exhibit 10.2 to
our Quarterly Report on
Form 10-Q for the quarter
ended March 31, 1995.* |
|
|
|
|
|
Exhibit 10-H-3
|
|
Amendment to 1990 Long-Term Incentive
Plan, effective as of October 1,
1997.**
|
|
Filed as Exhibit 10-M-3 to
our Annual Report on Form
10-K for the year ended
December 31, 1997.* |
|
|
|
|
|
Exhibit 10-H-4
|
|
Amendment to 1990 Long-Term Incentive
Plan, effective as of January 1,
1998.**
|
|
Filed as Exhibit 10-M-4 to
our Annual Report on Form
10-K for the year ended
December 31, 1997.* |
|
|
|
|
|
Exhibit 10-I
|
|
Description of Matching Gift Program
and Vehicle Evaluation Program for
Non-Employee Directors.**
|
|
Filed as Exhibit 10-I to
our Annual Report on Form
10-K/A for the year ended
December 31, 2005.* |
|
|
|
|
|
Exhibit 10-J
|
|
Non-Employee Directors Life Insurance
and Optional Retirement Plan (as
amended as of October 1, 2006).**
|
|
Filed as Exhibit 10-J to
our Quarterly Report on
Form 10-Q for the quarter
ended September 30, 2006.* |
76
ITEM 15. Exhibits and Financial Statement Schedules (continued)
|
|
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|
|
Designation |
|
Description |
|
Method of Filing |
Exhibit 10-K
|
|
Description of Non-Employee Directors
Accidental Death, Dismemberment and
Permanent Total Disablement
Indemnity.**
|
|
Filed as Exhibit 10-S to
our Annual Report on Form
10-K for the year ended
December 31, 1992.* |
|
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|
|
|
Exhibit 10-L
|
|
Agreement dated December 10, 1992
between Ford and William C. Ford.**
|
|
Filed as Exhibit 10-T to
our Annual Report on Form
10-K for the year ended
December 31, 1992.* |
|
|
|
|
|
Exhibit 10-M
|
|
Select Retirement Plan, as amended
through October 1, 2006.**
|
|
Filed as Exhibit 10-M to
our Quarterly Report on
Form 10-Q for the quarter
ended September 30, 2006.* |
|
|
|
|
|
Exhibit 10-N
|
|
Deferred Compensation Plan, as amended
and restated as of July 12, 2006.**
|
|
Filed as Exhibit 10-N to
our Quarterly Report on
Form 10-Q for the quarter
ended September 30, 2006.* |
|
|
|
|
|
Exhibit 10-N-1
|
|
Amendments to Deferred Compensation
Plan, effective as of December 1,
2006.**
|
|
Filed with this Report. |
|
|
|
|
|
Exhibit 10-O
|
|
Annual Incentive Compensation Plan, as
amended and restated as of January 1,
2000.**
|
|
Filed as Exhibit 10-T to
our Annual Report on Form
10-K for the year ended
December 31, 1999.* |
|
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|
|
|
Exhibit 10-O-1
|
|
Annual Incentive Compensation Plan
Metrics for 2007.**
|
|
Filed with this Report. |
|
|
|
|
|
Exhibit 10-P
|
|
1998 Long-Term Incentive Plan, as
amended and restated effective as of
January 1, 2003.**
|
|
Filed as Exhibit 10-R to
our Annual Report on Form
10-K for the year ended
December 31, 2002.* |
|
|
|
|
|
Exhibit 10-P-1
|
|
Amendment to Ford Motor Company 1998
Long-Term Incentive Plan (effective as
of January 1, 2006).**
|
|
Filed as Exhibit 10-P-1 to
our Annual Report on Form
10-K/A for the year ended
December 31, 2005.* |
|
|
|
|
|
Exhibit 10-P-2
|
|
Form of Stock Option Agreement (NQO)
with Terms and Conditions.**
|
|
Filed as Exhibit 10-P-2 to
our Annual Report on Form
10-K/A for the year ended
December 31, 2005.* |
|
|
|
|
|
Exhibit 10-P-3
|
|
Form of Stock Option Agreement (ISO)
with Terms and Conditions.**
|
|
Filed as Exhibit 10-P-3 to
our Annual Report on Form
10-K/A for the year ended
December 31, 2005.* |
|
|
|
|
|
Exhibit 10-P-4
|
|
Form of Stock Option Agreement (U.K.
NQO) with Terms and Conditions.**
|
|
Filed as Exhibit 10-P-4 to
our Annual Report on Form
10-K/A for the year ended
December 31, 2005.* |
|
|
|
|
|
Exhibit 10-P-5
|
|
Performance Stock Rights Description
for 2005-2007 Performance Period.**
|
|
Filed as Exhibit 10-Q-4 to
our Annual Report on Form
10-K for the year ended
December 31, 2004.* |
|
|
|
|
|
Exhibit 10-P-6
|
|
Performance Stock Rights Description
for 2006-2008 Performance Period.**
|
|
Filed as Exhibit 10-P-6 to
our Annual Report on Form
10-K/A for the year ended
December 31, 2005.* |
|
|
|
|
|
Exhibit 10-P-7
|
|
Form of Final Award Notification Letter
For 2003-2005 Performance Period.**
|
|
Filed as Exhibit 10-P-7 to
our Annual Report on Form
10-K/A for the year ended
December 31, 2005.* |
|
|
|
|
|
Exhibit 10-P-8
|
|
Form of Restricted Stock Equivalent
Grant Letter.**
|
|
Filed as Exhibit 10-Q-6 to
our Annual Report on Form
10-K for the year ended
December 31, 2004.* |
|
|
|
|
|
Exhibit 10-P-9
|
|
Form of Performance-Based Restricted
Stock Equivalent Opportunity Letter for
2005.**
|
|
Filed as Exhibit 10-Q-7 to
our Annual Report on Form
10-K for the year ended
December 31, 2004.* |
77
ITEM 15. Exhibits and Financial Statement Schedules (continued)
|
|
|
|
|
Designation |
|
Description |
|
Method of Filing |
Exhibit 10-P-10
|
|
Form of Performance-Based Restricted
Stock Equivalent Opportunity Letter for
2006.**
|
|
Filed as Exhibit 10-P-10
to our Annual Report on
Form 10-K/A for the year
ended December 31, 2005.* |
|
|
|
|
|
Exhibit 10-P-11
|
|
Form of Restricted Stock Grant Letter.**
|
|
Filed as Exhibit 10-Q-8 to
our Annual Report on Form
10-K for the year ended
December 31, 2004.* |
|
|
|
|
|
Exhibit 10-P-12
|
|
Form of Final Award Notification Letter
for 2005 Performance-Based Restricted
Stock Equivalents.**
|
|
Filed as Exhibit 10-P-12
to our Annual Report on
Form 10-K/A for the year
ended December 31, 2005.* |
|
|
|
|
|
Exhibit 10-P-13
|
|
Form of Final Award Notification Letter
for 2006 Performance-Based Restricted
Stock Equivalents.**
|
|
Filed with this Report. |
|
|
|
|
|
Exhibit 10-P-14
|
|
Description of Performance-Based
Restricted Stock Units for 2007.**
|
|
Filed with this Report. |
|
|
|
|
|
Exhibit 10-P-15
|
|
Form of Final Award Notification Letter
for 2004-2006 Performance Period.**
|
|
Filed with this Report. |
|
|
|
|
|
Exhibit 10-P-16
|
|
Description of Time-Based Restricted
Stock Units .**
|
|
Filed with this Report. |
|
|
|
|
|
Exhibit 10-Q
|
|
Agreement dated January 13, 1999
between Ford and Edsel B. Ford II.**
|
|
Filed as Exhibit 10-X to
our Annual Report on Form
10-K for the year ended
December 31, 1998.* |
|
|
|
|
|
Exhibit 10-R
|
|
Amended and Restated Agreement between
Ford Motor Company and Ford Motor
Credit Company dated as of December 12,
2006.
|
|
Filed with this Report. |
|
|
|
|
|
Exhibit 10-S
|
|
Agreement between Ford and Carl
Reichardt, entered into in June 2002.**
|
|
Filed as Exhibit 10.2 to
our Quarterly Report on
Form 10-Q for the quarter
ended June 30, 2002.* |
|
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|
|
|
Exhibit 10-T
|
|
Form of Trade Secrets/Non-Compete
Statement between Ford and certain of
its Executive Officers.**
|
|
Filed as Exhibit 10-V to
our Annual Report on Form
10-K for the year ended
December 31, 2003.* |
|
|
|
|
|
Exhibit 10-U
|
|
Form of Special 2006-2008 Retention
Incentive Opportunity Letter.**
|
|
Filed as Exhibit 10-U to
our Annual Report on Form
10-K/A for the year ended
December 31, 2005.* |
|
|
|
|
|
Exhibit 10-U-1
|
|
Description of Settlement of Special
2006 2008 Senior Executive Retention
Program.**
|
|
Filed with this Report. |
|
|
|
|
|
Exhibit 10-V
|
|
Form of Special 2006 Performance
Incentive Opportunity Letter.**
|
|
Filed as Exhibit 10-V to
our Annual Report on Form
10-K/A for the year ended
December 31, 2005.* |
|
|
|
|
|
Exhibit 10-W
|
|
Arrangement between Ford Motor Company
and James J. Padilla.**
|
|
Filed as Exhibit 10-Z to
our Annual Report on Form
10-K/A for the year ended
December 31, 2005.* |
|
|
|
|
|
Exhibit 10-X-1
|
|
Description of Retirement Arrangement
for James J. Padilla.**
|
|
Filed with our Current
Report on Form 8-K dated
May 10, 2006.* |
|
|
|
|
|
Exhibit 10-X-2
|
|
Agreement between Ford Motor Company
and James J. Padilla dated April 7,
2006.**
|
|
Filed as Exhibit 10.1 to
our Quarterly Report on
Form 10-Q/A for the
quarter ended June 30,
2006.* |
78
ITEM 15. Exhibits and Financial Statement Schedules (continued)
|
|
|
|
|
Designation |
|
Description |
|
Method of Filing |
Exhibit 10-Y
|
|
Arrangement between Ford Motor Company
and William Clay Ford, Jr. dated May
11, 2005.**
|
|
Filed with our Current
Report on Form 8-K dated
May 11, 2005.* |
|
|
|
|
|
Exhibit 10-Y-1
|
|
Arrangement between Ford Motor Company
and William Clay Ford, Jr. dated
February 27, 2006.**
|
|
Filed as Exhibit 10-AA-1
to our Annual Report on
Form 10-K/A for the year
ended December 31, 2005.* |
|
|
|
|
|
Exhibit 10-Z
|
|
Arrangement between Ford Motor Company
and Greg C. Smith dated February 10,
2006.**
|
|
Filed as Exhibit 10-BB to
our Annual Report on Form
10-K/A for the year ended
December 31, 2005.* |
|
|
|
|
|
Exhibit 10-Z-1
|
|
Agreement between Ford Motor Company
and Greg C. Smith dated February 10,
2006.**
|
|
Filed as Exhibit 10-BB-1
to our Annual Report on
Form 10-K/A for the year
ended December 31, 2005.* |
|
|
|
|
|
Exhibit 10-AA
|
|
Agreement between Ford Motor Company
and Mark Fields dated October 5,
2005.**
|
|
Filed as Exhibit 10-CC to
our Annual Report on Form
10-K/A for the year ended
December 31, 2005.* |
|
|
|
|
|
Exhibit 10-AA-1
|
|
Arrangement between Ford Motor Company
and Mark Fields dated February 7,
2007.**
|
|
Filed with this Report. |
|
|
|
|
|
Exhibit 10-BB
|
|
Description of Company Practices
regarding Club Memberships for
Executives.**
|
|
Filed with this Report. |
|
|
|
|
|
Exhibit 10-CC
|
|
Accession Agreement between Ford Motor
Company and Alan Mulally as of
September 1, 2006.**
|
|
Filed as Exhibit 10.1 to
our Quarterly Report on
Form 10-Q for the quarter
ended September 30, 2006.* |
|
|
|
|
|
Exhibit 10-CC-1
|
|
Description of Special Terms and
Conditions for Stock Options Granted to
Alan Mulally.**
|
|
Filed with this Report. |
|
|
|
|
|
Exhibit 10-CC-2
|
|
Description of President and CEO
Compensation Arrangements.**
|
|
Filed with this Report. |
|
|
|
|
|
Exhibit 10-DD
|
|
Consulting Agreement between Ford Motor
Company and Sir John Bond dated
September 13, 2006.**
|
|
Filed as Exhibit 10.2 to
our Quarterly Report on
Form 10-Q for the quarter
ended September 30, 2006.* |
|
|
|
|
|
Exhibit 10-EE
|
|
Credit Agreement dated as of December
15, 2006.
|
|
Filed with this Report. |
|
|
|
|
|
Exhibit 12
|
|
Calculation of Ratio of Earnings to
Combined Fixed Charges and Preferred
Stock Dividends.
|
|
Filed with this Report. |
|
|
|
|
|
Exhibit 21
|
|
List of Subsidiaries of Ford as of
February 21, 2007.
|
|
Filed with this Report. |
|
|
|
|
|
Exhibit 23
|
|
Consent of Independent Registered
Public Accounting Firm.
|
|
Filed with this Report. |
|
|
|
|
|
Exhibit 24
|
|
Powers of Attorney.
|
|
Filed with this Report. |
79
ITEM 15. Exhibits and Financial Statement Schedules (continued)
|
|
|
|
|
Designation |
|
Description |
|
Method of Filing |
Exhibit 31.1
|
|
Rule 15d-14(a) Certification of CEO.
|
|
Filed with this Report. |
|
|
|
|
|
Exhibit 31.2
|
|
Rule 15d-14(a) Certification of CFO.
|
|
Filed with this Report. |
|
|
|
|
|
Exhibit 32.1
|
|
Section 1350 Certification of CEO.
|
|
Furnished with this Report. |
|
|
|
|
|
Exhibit 32.2
|
|
Section 1350 Certification of CFO.
|
|
Furnished with this Report. |
|
|
|
* |
|
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.
80
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended, Ford has duly caused this Report to be signed on its behalf by the undersigned, thereunto
duly authorized.
FORD MOTOR COMPANY
|
|
|
|
|
By:
|
|
/s/ Peter J. Daniel
Peter J. Daniel
|
|
|
|
|
Senior Vice President and Controller |
|
|
|
|
|
|
|
Date:
|
|
February 28, 2007 |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, 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, Executive
Chairman, Chair of the Office of the Chairman
and Chief Executive, and Acting Chair of the Finance
Committee
|
|
February 28, 2007 |
|
|
|
|
|
ALAN MULALLY*
Alan Mulally
|
|
Director, President and Chief Executive Officer (principal
executive officer)
|
|
February 28, 2007 |
|
|
|
|
|
JOHN R. H. BOND*
John R. H. Bond
|
|
Director
|
|
February 28, 2007 |
|
|
|
|
|
STEPHEN G. BUTLER*
Stephen G. Butler
|
|
Director and Chair of the Audit Committee
|
|
February 28, 2007 |
|
|
|
|
|
KIMBERLY A. CASIANO*
Kimberly A. Casiano
|
|
Director
|
|
February 28, 2007 |
|
|
|
|
|
EDSEL B. FORD II*
Edsel B. Ford II
|
|
Director
|
|
February 28, 2007 |
|
|
|
|
|
IRVINE O. HOCKADAY, JR.*
Irvine O. Hockaday, Jr.
|
|
Director
|
|
February 28, 2007 |
|
|
|
|
|
RICHARD A. MANOOGIAN*
Richard A. Manoogian
|
|
Director and Chair of the Compensation Committee
|
|
February 28, 2007 |
|
|
|
|
|
ELLEN R. MARRAM*
Ellen R. Marram
|
|
Director and Chair of the Nominating and Governance
Committee
|
|
February 28, 2007 |
|
|
|
|
|
HOMER A. NEAL*
Homer A. Neal
|
|
Director and Chair of the Environmental and Public
Policy Committee
|
|
February 28, 2007 |
|
|
|
|
|
JORMA OLLILA*
Jorma Ollila
|
|
Director
|
|
February 28, 2007 |
81
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
JOHN L. THORNTON*
John L. Thornton
|
|
Director
|
|
February 28, 2007 |
|
|
|
|
|
DONAT R. LECLAIR, JR.*
Donat R. Leclair, Jr.
|
|
Executive Vice President and Chief
Financial Officer (principal
financial officer)
|
|
February 28, 2007 |
|
|
|
|
|
PETER J. DANIEL*
Peter J. Daniel
|
|
Senior Vice President and Controller
(principal accounting officer)
|
|
February 28, 2007 |
|
|
|
|
|
|
|
*By:
|
|
/s/ PETER J. SHERRY, JR.
|
|
|
|
February 28, 2007 |
|
|
|
|
|
|
|
(Peter J. Sherry, Jr.) |
|
|
|
|
|
|
Attorney-in-Fact |
|
|
|
|
82
This page intentionally left blank
FORD MOTOR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
For the Years Ended December 31, 2006, 2005 and 2004
(in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Sales and revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Automotive sales |
|
$ |
143,307 |
|
|
$ |
153,474 |
|
|
$ |
147,119 |
|
Financial Services revenues |
|
|
16,816 |
|
|
|
23,422 |
|
|
|
25,197 |
|
|
|
|
|
|
|
|
|
|
|
Total sales and revenues |
|
|
160,123 |
|
|
|
176,896 |
|
|
|
172,316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Automotive cost of sales |
|
|
148,869 |
|
|
|
144,924 |
|
|
|
135,755 |
|
Selling, administrative and other expenses |
|
|
19,180 |
|
|
|
24,622 |
|
|
|
24,012 |
|
Interest expense |
|
|
8,783 |
|
|
|
8,417 |
|
|
|
8,471 |
|
Financial Services provision for credit and insurance losses |
|
|
241 |
|
|
|
483 |
|
|
|
1,212 |
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
177,073 |
|
|
|
178,446 |
|
|
|
169,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive interest income and other non-operating income/(expense), net |
|
|
1,478 |
|
|
|
1,249 |
|
|
|
988 |
|
Automotive equity in net income/(loss) of affiliated companies |
|
|
421 |
|
|
|
285 |
|
|
|
255 |
|
Gain on sale of The Hertz Corporation (Hertz) (Note 19) |
|
|
|
|
|
|
1,095 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before income taxes |
|
|
(15,051 |
) |
|
|
1,079 |
|
|
|
4,109 |
|
Provision for/(benefit from) income taxes (Note 18) |
|
|
(2,646 |
) |
|
|
(845 |
) |
|
|
643 |
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before minority interests |
|
|
(12,405 |
) |
|
|
1,924 |
|
|
|
3,466 |
|
Minority interests in net income/(loss) of subsidiaries |
|
|
210 |
|
|
|
280 |
|
|
|
282 |
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) from continuing operations |
|
|
(12,615 |
) |
|
|
1,644 |
|
|
|
3,184 |
|
Income/(loss) from discontinued operations (Note 19) |
|
|
2 |
|
|
|
47 |
|
|
|
(146 |
) |
|
|
|
|
|
|
|
|
|
|
Income/(loss) before cumulative effects of changes in accounting principles |
|
|
(12,613 |
) |
|
|
1,691 |
|
|
|
3,038 |
|
Cumulative effects of changes in accounting principles (Note 27) |
|
|
|
|
|
|
(251 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss) |
|
$ |
(12,613 |
) |
|
$ |
1,440 |
|
|
$ |
3,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of shares of Common and Class B Stock outstanding |
|
|
1,879 |
|
|
|
1,846 |
|
|
|
1,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK (Note 20) |
|
|
|
|
|
|
|
|
|
|
|
|
Basic income/(loss) |
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) from continuing operations |
|
$ |
(6.72 |
) |
|
$ |
0.89 |
|
|
$ |
1.74 |
|
Income/(loss) from discontinued operations |
|
|
|
|
|
|
0.03 |
|
|
|
(0.08 |
) |
Cumulative effects of changes in accounting principles |
|
|
|
|
|
|
(0.14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss) |
|
$ |
(6.72 |
) |
|
$ |
0.78 |
|
|
$ |
1.66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income/(loss) |
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) from continuing operations |
|
$ |
(6.72 |
) |
|
$ |
0.87 |
|
|
$ |
1.59 |
|
Income/(loss) from discontinued operations |
|
|
|
|
|
|
0.02 |
|
|
|
(0.07 |
) |
Cumulative effects of changes in accounting principles |
|
|
|
|
|
|
(0.12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss) |
|
$ |
(6.72 |
) |
|
$ |
0.77 |
|
|
$ |
1.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends |
|
$ |
0.25 |
|
|
$ |
0.40 |
|
|
$ |
0.40 |
|
The accompanying notes are part of the financial statements.
FS - 1
FORD MOTOR COMPANY AND SUBSIDIARIES
SECTOR STATEMENT OF INCOME
For the Years Ended December 31, 2006, 2005 and 2004
(in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
AUTOMOTIVE |
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
143,307 |
|
|
$ |
153,474 |
|
|
$ |
147,119 |
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
148,869 |
|
|
|
144,924 |
|
|
|
135,755 |
|
Selling, administrative and other expenses |
|
|
12,359 |
|
|
|
12,738 |
|
|
|
11,564 |
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
161,228 |
|
|
|
157,662 |
|
|
|
147,319 |
|
|
|
|
|
|
|
|
|
|
|
Operating income/(loss) |
|
|
(17,921 |
) |
|
|
(4,188 |
) |
|
|
(200 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
995 |
|
|
|
1,220 |
|
|
|
1,221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income and other non-operating income/(expense), net |
|
|
1,478 |
|
|
|
1,249 |
|
|
|
988 |
|
Equity in net income/(loss) of affiliated companies |
|
|
421 |
|
|
|
285 |
|
|
|
255 |
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before income taxes Automotive |
|
|
(17,017 |
) |
|
|
(3,874 |
) |
|
|
(178 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCIAL SERVICES |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
16,816 |
|
|
|
23,422 |
|
|
|
25,197 |
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
7,788 |
|
|
|
7,197 |
|
|
|
7,250 |
|
Depreciation |
|
|
5,295 |
|
|
|
5,854 |
|
|
|
6,618 |
|
Operating and other expenses |
|
|
1,526 |
|
|
|
6,030 |
|
|
|
5,830 |
|
Provision for credit and insurance losses |
|
|
241 |
|
|
|
483 |
|
|
|
1,212 |
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
14,850 |
|
|
|
19,564 |
|
|
|
20,910 |
|
Gain on sale of Hertz (Note 19) |
|
|
|
|
|
|
1,095 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before income taxes Financial Services |
|
|
1,966 |
|
|
|
4,953 |
|
|
|
4,287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL COMPANY |
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before income taxes |
|
|
(15,051 |
) |
|
|
1,079 |
|
|
|
4,109 |
|
Provision for/(benefit from) income taxes (Note 18) |
|
|
(2,646 |
) |
|
|
(845 |
) |
|
|
643 |
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before minority interests |
|
|
(12,405 |
) |
|
|
1,924 |
|
|
|
3,466 |
|
Minority interests in net income/(loss) of subsidiaries |
|
|
210 |
|
|
|
280 |
|
|
|
282 |
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) from continuing operations |
|
|
(12,615 |
) |
|
|
1,644 |
|
|
|
3,184 |
|
Income/(loss) from discontinued operations (Note 19) |
|
|
2 |
|
|
|
47 |
|
|
|
(146 |
) |
|
|
|
|
|
|
|
|
|
|
Income/(loss) before cumulative effects of changes in accounting principles |
|
|
(12,613 |
) |
|
|
1,691 |
|
|
|
3,038 |
|
Cumulative effects of changes in accounting principles (Note 27) |
|
|
|
|
|
|
(251 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss) |
|
$ |
(12,613 |
) |
|
$ |
1,440 |
|
|
$ |
3,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of shares of Common and Class B Stock outstanding |
|
|
1,879 |
|
|
|
1,846 |
|
|
|
1,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK (Note 20) |
|
|
|
|
|
|
|
|
|
|
|
|
Basic income/(loss) |
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) from continuing operations |
|
$ |
(6.72 |
) |
|
$ |
0.89 |
|
|
$ |
1.74 |
|
Income/(loss) from discontinued operations |
|
|
|
|
|
|
0.03 |
|
|
|
(0.08 |
) |
Cumulative effects of changes in accounting principles |
|
|
|
|
|
|
(0.14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss) |
|
$ |
(6.72 |
) |
|
$ |
0.78 |
|
|
$ |
1.66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income/(loss) |
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) from continuing operations |
|
$ |
(6.72 |
) |
|
$ |
0.87 |
|
|
$ |
1.59 |
|
Income/(loss) from discontinued operations |
|
|
|
|
|
|
0.02 |
|
|
|
(0.07 |
) |
Cumulative effects of changes in accounting principles |
|
|
|
|
|
|
(0.12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss) |
|
$ |
(6.72 |
) |
|
$ |
0.77 |
|
|
$ |
1.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends |
|
$ |
0.25 |
|
|
$ |
0.40 |
|
|
$ |
0.40 |
|
The accompanying notes are part of the financial statements.
FS - 2
FORD MOTOR COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in millions)
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
28,894 |
|
|
$ |
28,406 |
|
Marketable securities (Note 3) |
|
|
21,472 |
|
|
|
10,672 |
|
Loaned securities (Note 3) |
|
|
5,256 |
|
|
|
3,461 |
|
Finance receivables, net |
|
|
106,863 |
|
|
|
105,975 |
|
Other receivables, net |
|
|
7,782 |
|
|
|
8,536 |
|
Net investment in operating leases (Note 5) |
|
|
29,834 |
|
|
|
27,099 |
|
Retained interest in sold receivables (Note 7) |
|
|
990 |
|
|
|
1,420 |
|
Inventories (Note 8) |
|
|
11,578 |
|
|
|
10,271 |
|
Equity in net assets of affiliated companies |
|
|
2,787 |
|
|
|
2,579 |
|
Net property (Note 10) |
|
|
38,505 |
|
|
|
40,676 |
|
Deferred income taxes |
|
|
4,950 |
|
|
|
5,880 |
|
Goodwill and other net intangible assets (Note 12) |
|
|
6,937 |
|
|
|
5,945 |
|
Assets of discontinued/held-for-sale operations |
|
|
|
|
|
|
5 |
|
Other assets |
|
|
12,706 |
|
|
|
18,534 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
278,554 |
|
|
$ |
269,459 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Payables |
|
$ |
23,549 |
|
|
$ |
22,910 |
|
Accrued liabilities and deferred revenue (Note 14) |
|
|
82,518 |
|
|
|
73,047 |
|
Debt (Note 15) |
|
|
172,049 |
|
|
|
153,278 |
|
Deferred income taxes |
|
|
2,744 |
|
|
|
5,660 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
280,860 |
|
|
|
254,895 |
|
|
|
|
|
|
|
|
|
|
Minority interests |
|
|
1,159 |
|
|
|
1,122 |
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
|
|
|
|
|
|
Capital stock (Note 20) |
|
|
|
|
|
|
|
|
Common Stock, par value $0.01 per share (1,837 million shares issued; 6,000 million shares authorized) |
|
|
18 |
|
|
|
18 |
|
Class B Stock, par value $0.01 per share (71 million shares issued; 530 million shares authorized) |
|
|
1 |
|
|
|
1 |
|
Capital in excess of par value of stock |
|
|
4,562 |
|
|
|
4,872 |
|
Accumulated other comprehensive income/(loss) |
|
|
(7,846 |
) |
|
|
(3,680 |
) |
Treasury stock |
|
|
(183 |
) |
|
|
(833 |
) |
Retained earnings/(Accumulated deficit) |
|
|
(17 |
) |
|
|
13,064 |
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
(3,465 |
) |
|
|
13,442 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
278,554 |
|
|
$ |
269,459 |
|
|
|
|
|
|
|
|
The accompanying notes are part of the financial statements.
FS - 3
FORD MOTOR COMPANY AND SUBSIDIARIES
SECTOR BALANCE SHEET
(in millions)
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
ASSETS |
|
|
|
|
|
|
|
|
Automotive |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
16,020 |
|
|
$ |
13,388 |
|
Marketable securities (Note 3) |
|
|
11,310 |
|
|
|
6,860 |
|
Loaned securities (Note 3) |
|
|
5,256 |
|
|
|
3,461 |
|
|
|
|
|
|
|
|
Total cash, marketable and loaned securities |
|
|
32,586 |
|
|
|
23,709 |
|
Receivables, less allowances of $196 and $298 |
|
|
3,878 |
|
|
|
3,075 |
|
Inventories (Note 8) |
|
|
11,578 |
|
|
|
10,271 |
|
Deferred income taxes |
|
|
1,569 |
|
|
|
1,249 |
|
Other current assets |
|
|
7,714 |
|
|
|
8,177 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
57,325 |
|
|
|
46,481 |
|
Equity in net assets of affiliated companies |
|
|
2,029 |
|
|
|
1,756 |
|
Net property (Note 10) |
|
|
38,236 |
|
|
|
40,348 |
|
Deferred income taxes |
|
|
14,880 |
|
|
|
10,999 |
|
Goodwill and other net intangible assets (Note 12) |
|
|
6,920 |
|
|
|
5,928 |
|
Assets of discontinued/held-for-sale operations |
|
|
|
|
|
|
5 |
|
Other assets |
|
|
3,244 |
|
|
|
8,308 |
|
|
|
|
|
|
|
|
Total Automotive assets |
|
|
122,634 |
|
|
|
113,825 |
|
Financial Services |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
12,874 |
|
|
|
15,018 |
|
Marketable securities (Note 3) |
|
|
10,162 |
|
|
|
3,812 |
|
Finance receivables, net (Note 4) |
|
|
110,767 |
|
|
|
111,436 |
|
Net investment in operating leases (Note 5) |
|
|
26,606 |
|
|
|
22,951 |
|
Retained interest in sold receivables (Note 7) |
|
|
990 |
|
|
|
1,420 |
|
Goodwill and other intangible assets (Note 12) |
|
|
17 |
|
|
|
17 |
|
Other assets |
|
|
6,167 |
|
|
|
7,457 |
|
Receivable from Automotive (Note 1) |
|
|
1,467 |
|
|
|
83 |
|
|
|
|
|
|
|
|
Total Financial Services assets |
|
|
169,050 |
|
|
|
162,194 |
|
Intersector elimination |
|
|
(1,467 |
) |
|
|
(83 |
) |
|
|
|
|
|
|
|
Total assets |
|
$ |
290,217 |
|
|
$ |
275,936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Automotive |
|
|
|
|
|
|
|
|
Trade payables |
|
$ |
17,069 |
|
|
$ |
16,637 |
|
Other payables |
|
|
4,893 |
|
|
|
4,222 |
|
Accrued liabilities and deferred revenue (Note 14) |
|
|
28,995 |
|
|
|
28,829 |
|
Deferred income taxes |
|
|
3,139 |
|
|
|
804 |
|
Debt payable within one year (Note 15) |
|
|
1,499 |
|
|
|
978 |
|
Current payable to Financial Services (Note 1) |
|
|
640 |
|
|
|
83 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
56,235 |
|
|
|
51,553 |
|
Long-term debt (Note 15) |
|
|
28,514 |
|
|
|
16,900 |
|
Other liabilities (Note 14) |
|
|
49,398 |
|
|
|
38,639 |
|
Deferred income taxes |
|
|
441 |
|
|
|
586 |
|
Non-current payable to Financial Services (Note 1) |
|
|
827 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Automotive liabilities |
|
|
135,415 |
|
|
|
107,678 |
|
Financial Services |
|
|
|
|
|
|
|
|
Payables |
|
|
1,587 |
|
|
|
2,051 |
|
Debt (Note 15) |
|
|
142,036 |
|
|
|
135,400 |
|
Deferred income taxes |
|
|
10,827 |
|
|
|
10,747 |
|
Other liabilities and deferred income |
|
|
4,125 |
|
|
|
5,579 |
|
|
|
|
|
|
|
|
Total Financial Services liabilities |
|
|
158,575 |
|
|
|
153,777 |
|
|
|
|
|
|
|
|
|
|
Minority Interests |
|
|
1,159 |
|
|
|
1,122 |
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
|
|
|
|
|
|
Capital stock (Note 20) |
|
|
|
|
|
|
|
|
Common Stock, par value $0.01 per share (1,837 million shares issued; 6,000 million shares authorized)
|
|
|
18 |
|
|
|
18 |
|
Class B Stock, par value $0.01 per share (71 million shares issued; 530 million shares authorized) |
|
|
1 |
|
|
|
1 |
|
Capital in excess of par value of stock |
|
|
4,562 |
|
|
|
4,872 |
|
Accumulated other comprehensive income/(loss) |
|
|
(7,846 |
) |
|
|
(3,680 |
) |
Treasury stock |
|
|
(183 |
) |
|
|
(833 |
) |
Retained earnings/(Accumulated deficit) |
|
|
(17 |
) |
|
|
13,064 |
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
(3,465 |
) |
|
|
13,442 |
|
Intersector elimination |
|
|
(1,467 |
) |
|
|
(83 |
) |
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
290,217 |
|
|
$ |
275,936 |
|
|
|
|
|
|
|
|
The accompanying notes are part of the financial statements.