Edgar Filing: FORD MOTOR CO

form10-q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

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

	For the quarterly period ended September 30, 2007

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

	For the transition period from _____________________ to ___________________________

	Commission File Number: 1-3950

FORD MOTOR COMPANY

(Exact name of registrant as specified in its charter)

1-3950		38-0549190
(Commission File Number)		(IRS Employer Identification No.)

One American Road, Dearborn, Michigan		48126
(Address of principal executive offices)		(Zip Code)

(313) 322-3000

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
		x	Yes		¨	No

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

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

As of November 1, 2007, the registrant had outstanding 2,039,353,485 shares of Common Stock and 70,852,076 shares of Class B Stock.

Exhibit index located on page number 46

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements.

FORD MOTOR COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME

For the Periods Ended September 30, 2007 and 2006

(in millions, except per share amounts)

	Third Quarter						First Nine Months
	2007			2006			2007		2006
	(unaudited)						(unaudited)
Sales and revenues
Automotive sales	$	36,270		$	32,541		$	115,006	$	107,313
Financial Services revenues		4,808			4,554			13,333		12,449
Total sales and revenues		41,078			37,095			128,339		119,762

Costs and expenses
Automotive cost of sales		33,238			37,552			104,135		110,338
Selling, administrative and other expenses		4,904			4,489			15,828		13,706
Interest expense		2,733			1,937			8,210		6,330
Financial Services provision for credit and insurance losses		194			97			374		193
Total costs and expenses		41,069			44,075			128,547		130,567

Automotive interest income and other non-operating income/(expense), net		(216	)		555			672		1,080
Automotive equity in net income/(loss) of affiliated companies		51			61			262		345
Income/(Loss) before income taxes		(156	)		(6,364	)		726		(9,380	)
Provision for/(Benefit from) income taxes		162			(1,160	)		467		(2,506	)
Income/(Loss) before minority interests		(318	)		(5,204	)		259		(6,874	)
Minority interests in net income/(loss) of subsidiaries		62			48			205		126
Income/(Loss) from continuing operations		(380	)		(5,252	)		54		(7,000	)
Income/(Loss) from discontinued operations (Note 7)		—			4			34		12
Net income/(loss)	$	(380	)	$	(5,248	)	$	88	$	(6,988	)

AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK (Note 8)
Basic income/(loss)
Income/(Loss) from continuing operations	$	(0.19	)	$	(2.79	)	$	0.03	$	(3.74	)
Income/(Loss) from discontinued operations		—			—			0.02		0.01
Net income/(loss)	$	(0.19	)	$	(2.79	)	$	0.05	$	(3.73	)
Diluted income/(loss)
Income/(Loss) from continuing operations	$	(0.19	)	$	(2.79	)	$	0.03	$	(3.74	)
Income/(Loss) from discontinued operations		—			—			0.02		0.01
Net income/(loss)	$	(0.19	)	$	(2.79	)	$	0.05	$	(3.73	)

Cash dividends	$	—		$	0.05		$	—	$	0.25

The accompanying notes are part of the financial statements

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

SECTOR STATEMENT OF INCOME

For the Periods Ended September 30, 2007 and 2006

(in millions, except per share amounts)

	Third Quarter						First Nine Months
	2007			2006			2007			2006
	(unaudited)						(unaudited)
AUTOMOTIVE
Sales	$	36,270		$	32,541		$	115,006		$	107,313
Costs and expenses
Cost of sales		33,238			37,552			104,135			110,338
Selling, administrative and other expenses		3,016			2,791			10,314			8,709
Total costs and expenses		36,254			40,343			114,449			119,047
Operating income/(loss)		16			(7,802	)		557			(11,734	)

Interest expense		563			(72	)		1,720			621

Interest income and other non-operating income/(expense), net		(216	)		555			672			1,080
Equity in net income/(loss) of affiliated companies		51			61			262			345
Income/(Loss) before income taxes — Automotive		(712	)		(7,114	)		(229	)		(10,930	)

FINANCIAL SERVICES
Revenues		4,808			4,554			13,333			12,449
Costs and expenses
Interest expense		2,170			2,009			6,490			5,709
Depreciation		1,620			1,400			4,599			3,899
Operating and other expenses		268			298			915			1,098
Provision for credit and insurance losses		194			97			374			193
Total costs and expenses		4,252			3,804			12,378			10,899
Income/(Loss) before income taxes — Financial Services		556			750			955			1,550

TOTAL COMPANY
Income/(Loss) before income taxes		(156	)		(6,364	)		726			(9,380	)
Provision for/(Benefit from) income taxes		162			(1,160	)		467			(2,506	)
Income/(Loss) before minority interests		(318	)		(5,204	)		259			(6,874	)
Minority interests in net income/(loss) of subsidiaries		62			48			205			126
Income/(Loss) from continuing operations		(380	)		(5,252	)		54			(7,000	)
Income/(Loss) from discontinued operations (Note 7)		—			4			34			12
Net income/(loss)	$	(380	)	$	(5,248	)	$	88		$	(6,988	)

AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK (Note 8)
Basic income/(loss)
Income/(Loss) from continuing operations	$	(0.19	)	$	(2.79	)	$	0.03		$	(3.74	)
Income/(Loss) from discontinued operations		—			—			0.02			0.01
Net income/(loss)	$	(0.19	)	$	(2.79	)	$	0.05		$	(3.73	)
Diluted income/(loss)
Income/(Loss) from continuing operations	$	(0.19	)	$	(2.79	)	$	0.03		$	(3.74	)
Income/(Loss) from discontinued operations		—			—			0.02			0.01
Net income/(loss)	$	(0.19	)	$	(2.79	)	$	0.05		$	(3.73	)

Cash dividends	$	—		$	0.05		$	—		$	0.25

The accompanying notes are part of the financial statements

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(in millions)

	September 30, 2007			December 31, 2006
	(unaudited)
ASSETS
Cash and cash equivalents	$	27,437		$	28,896
Marketable securities		11,838			21,472
Loaned securities		7,697			5,256
Finance receivables, net		108,486			106,863
Other receivables, net		11,209			7,657
Net investment in operating leases		33,717			29,834
Retained interest in sold receivables		760			990
Inventories (Note 2)		12,886			11,421
Equity in net assets of affiliated companies		2,661			2,787
Net property		37,831			38,174
Deferred income taxes		4,103			4,920
Goodwill and other net intangible assets (Note 3)		6,487			6,821
Assets of discontinued/held-for-sale operations (Note 7)		—			767
Other assets		11,051			12,696
Total assets	$	276,163		$	278,554

LIABILITIES AND STOCKHOLDERS’ EQUITY
Payables	$	25,898		$	23,417
Accrued liabilities and deferred revenue		81,330			82,388
Debt		163,213			172,049
Deferred income taxes		3,165			2,743
Liabilities of discontinued/held-for-sale operations (Note 7)		—			263
Total liabilities		273,606			280,860

Minority interests		1,394			1,159

Stockholders’ equity
Capital stock
Common Stock, par value $0.01 per share (2,050 million shares issued)		21			18
Class B Stock, par value $0.01 per share (71 million shares issued)		1			1
Capital in excess of par value of stock		7,273			4,562
Accumulated other comprehensive income/(loss)		(7,272	)		(7,846	)
Treasury stock		(186	)		(183	)
Retained earnings/(Accumulated deficit)		1,326			(17	)
Total stockholders’ equity		1,163			(3,465	)
Total liabilities and stockholders’ equity	$	276,163		$	278,554

The accompanying notes are part of the financial statements

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

SECTOR BALANCE SHEET

(in millions)

	September 30, 2007			December 31, 2006
	(unaudited)
ASSETS
Automotive
Cash and cash equivalents	$	18,945		$	16,022
Marketable securities		7,211			11,310
Loaned securities		7,697			5,256
Total cash, marketable and loaned securities		33,853			32,588
Receivables, net		6,571			3,753
Inventories (Note 2)		12,886			11,421
Deferred income taxes		523			1,569
Other current assets		7,428			7,707
Current receivable from Financial Services		1,079			—
Total current assets		62,340			57,038
Equity in net assets of affiliated companies		2,092			2,029
Net property		37,567			37,905
Deferred income taxes		11,857			14,850
Goodwill and other net intangible assets (Note 3)		6,469			6,804
Assets of discontinued/held-for-sale operations (Note 7)		—			767
Other assets		2,665			3,241
Non-current receivable from Financial Services		359			—
Total Automotive assets		123,349			122,634
Financial Services
Cash and cash equivalents		8,492			12,874
Marketable securities		4,627			10,162
Finance receivables, net		113,124			110,767
Net investment in operating leases		29,827			26,606
Retained interest in sold receivables		760			990
Goodwill and other net intangible assets (Note 3)		18			17
Other assets		5,824			6,167
Receivable from Automotive		—			1,467
Total Financial Services assets		162,672			169,050
Intersector elimination		(1,438	)		(1,467	)
Total assets	$	284,583		$	290,217

LIABILITIES AND STOCKHOLDERS’ EQUITY
Automotive
Trade payables	$	19,162		$	16,937
Other payables		4,788			4,893
Accrued liabilities and deferred revenue		29,132			28,877
Deferred income taxes		3,408			3,138
Debt payable within one year		1,392			1,499
Current payable to Financial Services		—			640
Total current liabilities		57,882			55,984
Long-term debt		26,285			28,514
Other liabilities		47,299			49,386
Deferred income taxes		1,025			441
Liabilities of discontinued/held-for-sale operations (Note 7)		—			263
Non-current payable to Financial Services		—			827
Total Automotive liabilities		132,491			135,415
Financial Services
Payables		1,948			1,587
Debt		135,536			142,036
Deferred income taxes		7,152			10,827
Other liabilities and deferred income		4,899			4,125
Payable to Automotive		1,438			—
Total Financial Services liabilities		150,973			158,575

Minority interests		1,394			1,159

Stockholders’ equity
Capital stock
Common Stock, par value $0.01 per share (2,050 million shares issued)		21			18
Class B Stock, par value $0.01 per share (71 million shares issued)		1			1
Capital in excess of par value of stock		7,273			4,562
Accumulated other comprehensive income/(loss)		(7,272	)		(7,846	)
Treasury stock		(186	)		(183	)
Retained earnings/(Accumulated deficit)		1,326			(17	)
Total stockholders’ equity		1,163			(3,465	)
Intersector elimination		(1,438	)		(1,467	)
Total liabilities and stockholders’ equity	$	284,583		$	290,217

The accompanying notes are part of the financial statements

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the Periods Ended September 30, 2007 and 2006

(in millions)

	First Nine Months
	2007			2006
	(unaudited)

Cash flows from operating activities of continuing operations
Net cash (used in)/provided by operating activities	$	13,242		$	16,979

Cash flows from investing activities of continuing operations
Capital expenditures		(4,215	)		(5,242	)
Acquisitions of retail and other finance receivables and operating leases		(42,827	)		(47,688	)
Collections of retail and other finance receivables and operating leases		34,509			31,741
Purchases of securities		(9,085	)		(17,471	)
Sales and maturities of securities		14,805			15,196
Proceeds from sales of retail and other finance receivables and operating leases		705			3,956
Proceeds from sale of businesses		1,236			54
Cash paid for acquisitions		(18	)		—
Transfer of cash balances upon disposition of discontinued/held-for-sale operations		(83	)		(4	)
Other		901			143
Net cash (used in)/provided by investing activities		(4,072	)		(19,315	)

Cash flows from financing activities of continuing operations
Cash dividends		—			(468	)
Sales of Common Stock		152			355
Purchases of Common Stock		(31	)		(139	)
Changes in short-term debt		(2,558	)		(276	)
Proceeds from issuance of other debt		24,018			32,775
Principal payments on other debt		(32,457	)		(33,012	)
Other		169			(34	)
Net cash (used in)/provided by financing activities		(10,707	)		(799	)

Effect of exchange rate changes on cash		64			238

Net increase/(decrease) in cash and cash equivalents from continuing operations		(1,473	)		(2,897	)

Cash flows from discontinued operations
Cash flows from operating activities of discontinued operations		16			(2	)
Cash flows from investing activities of discontinued operations		—			—
Cash flows from financing activities of discontinued operations		—			—

Net increase/(decrease) in cash and cash equivalents	$	(1,457	)	$	(2,899	)

Cash and cash equivalents at January 1	$	28,896		$	28,391
Cash and cash equivalents of discontinued/held-for-sale operations at January 1		(2	)		19
Net increase/(decrease) in cash and cash equivalents		(1,457	)		(2,899	)
Less: cash and cash equivalents of discontinued/held-for-sale operations at September 30		—			(15	)
Cash and cash equivalents at September 30	$	27,437		$	25,496

The accompanying notes are part of the financial statements

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

CONDENSED SECTOR STATEMENT OF CASH FLOWS

For the Periods Ended September 30, 2007 and 2006

(in millions)

	First Nine Months 2007						First Nine Months 2006
	Automotive			Financial Services			Automotive			Financial Services
	(unaudited)						(unaudited)
Cash flows from operating activities of continuing operations
Net cash (used in)/provided by operating activities	$	5,932		$	5,247		$	5,024		$	5,471

Cash flows from investing activities
Capital expenditures		(4,176	)		(39	)		(5,212	)		(30	)
Acquisitions of retail and other finance receivables and operating leases		—			(42,827	)		—			(47,688	)
Collections of retail and other finance receivables and operating leases		—			34,545			—			32,099
Net (increase)/decrease of wholesale receivables		—			2,027			—			6,126
Purchases of securities		(1,428	)		(7,657	)		(3,641	)		(13,830	)
Sales and maturities of securities		1,469			13,336			4,095			11,101
Proceeds from sales of retail and other finance receivables and operating leases		—			705			—			3,956
Proceeds from sale of businesses		1,079			157			54			—
Cash paid for acquisitions		(18	)		—			—			—
Transfer of cash balances upon disposition of discontinued/held-for-sale operations		(83	)		—			(4	)		—
Investing activity from Financial Services		—			—			785			—
Investing activity to Financial Services		(8	)		—			(1,400	)		—
Other		728			173			(61	)		204
Net cash (used in)/provided by investing activities		(2,437	)		420			(5,384	)		(8,062	)

Cash flows from financing activities
Cash dividends		—			—			(468	)		—
Sales of Common Stock		152			—			355			—
Purchases of Common Stock		(31	)		—			(139	)		—
Changes in short-term debt		(69	)		(2,489	)		251			(527	)
Proceeds from issuance of other debt		189			23,829			204			32,571
Principal payments on other debt		(617	)		(31,840	)		(629	)		(32,383	)
Financing activity from Automotive		—			8			—			1,400
Financing activity to Automotive		—			—			—			(785	)
Other		225			(56	)		76			(110	)
Net cash (used in)/provided by financing activities		(151	)		(10,548	)		(350	)		166

Effect of exchange rate changes on cash		342			(278	)		3			235
Net change in intersector receivables/payables and other liabilities		(777	)		777			848			(848	)
Net increase/(decrease) in cash and cash equivalents from continuing operations		2,909			(4,382	)		141			(3,038	)

Cash flows from discontinued operations
Cash flows from operating activities of discontinued operations		16			—			(2	)		—
Cash flows from investing activities of discontinued operations		—			—			—			—
Cash flows from financing activities of discontinued operations		—			—			—			—

Net increase/(decrease) in cash and cash equivalents	$	2,925		$	(4,382	)	$	139		$	(3,038	)

Cash and cash equivalents at January 1	$	16,022		$	12,874		$	13,373		$	15,018
Cash and cash equivalents of discontinued/held-for-sale operations at January 1		(2	)		—			19			—
Net increase/(decrease) in cash and cash equivalents		2,925			(4,382	)		139			(3,038	)
Less: cash and cash equivalents of discontinued/held-for-sale operations at September 30		—			—			(15	)		—
Cash and cash equivalents at September 30	$	18,945		$	8,492		$	13,516		$	11,980

The accompanying notes are part of the financial statements

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS

NOTE 1. FINANCIAL STATEMENTS

The consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States ("GAAP") for interim financial information and instructions to the Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion of management, these unaudited financial statements reflect a fair statement of the results of operations and financial condition of Ford Motor Company and its consolidated subsidiaries and consolidated variable interest entities ("VIEs") of which we are the primary beneficiary for the periods and at the dates presented. The operating results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. Reference should be made to the financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2006 ("2006 Form 10-K Report"). For purposes of this report, "Ford," the "Company," "we," "our," "us" or similar references mean Ford Motor Company and our consolidated subsidiaries and our consolidated VIEs of which we are the primary beneficiary, unless the context requires otherwise.

NOTE 2. INVENTORIES

Inventories are summarized as follows (in millions):

	September 30,			December 31,
	2007			2006
Raw materials, work-in-process and supplies	$	4,565		$	4,545
Finished products		9,385			7,891
Total inventories under first-in, first-out method ("FIFO")		13,950			12,436
Less: last-in, first-out method ("LIFO") adjustment		(1,064	)		(1,015	)
Total inventories	$	12,886		$	11,421

NOTE 3. GOODWILL AND OTHER INTANGIBLES

Goodwill

Our policy is to perform annual testing of goodwill and certain other intangible assets during the fourth quarter to determine whether any impairment has occurred. Testing is conducted at the reporting unit level.

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

	Goodwill, December 31, 2006		Goodwill Acquired		Exchange Translation/Other			Goodwill, September 30, 2007
Automotive Sector
Ford North America	$	95	$	—	$	(5	)	$	90
Ford Europe		35		—		1			36
Premier Automotive Group ("PAG")		5,574		—		(388	)		5,186
Ford Asia Pacific and Africa		6		—		—			6
Total Automotive sector		5,710		—		(392	)		5,318
Financial Services Sector
Ford Credit		17		—		1			18
Total Financial Services sector		17		—		1			18
Total	$	5,727	$	—	$	(391	)	$	5,336

In addition to the goodwill presented in the above table, included within Automotive equity in net assets of affiliated companies was goodwill of $244 million at September 30, 2007.

Item 1. Financial Statements (Continued)

NOTE 3. GOODWILL AND OTHER INTANGIBLES (Continued)

Ford North America

Automobile Protection Corporation ("APCO"). During the second quarter of 2007, we sold our wholly-owned North American subsidiary, APCO. APCO was not an integrated component of our Ford North America reporting unit. Accordingly, the full amount of APCO's goodwill, $112 million, was classified within Assets of discontinued/held-for-sale operations at December 31, 2006.

PAG

The decrease in PAG goodwill is attributable to the allocation of PAG goodwill to Aston Martin Lagonda Group Limited ("Aston Martin") for $434 million and the settlement of a Land Rover tax matter for $230 million (discussed below), offset partially by foreign currency translation adjustments of $276 million.

Aston Martin. Aston Martin was owned primarily through our wholly-owned subsidiary, Jaguar Cars Limited, and was a component of our PAG reporting unit. Its operations were integrated with our other PAG reporting entities, sharing, among other things, certain facilities and tooling, intellectual property, in-bound logistics, information technology services, and parts supply.

During the second quarter of 2007, we sold Aston Martin. As part of this sale, we allocated $434 million of goodwill to Aston Martin that was included in PAG goodwill at December 31, 2006. The goodwill remaining in our PAG reporting unit was tested at March 31, 2007, and no goodwill impairment was necessary.

Land Rover Deferred Tax. During the second and third quarters of 2007, we settled a tax matter related to the acquisition of Land Rover which resulted in a total reduction of PAG goodwill of $230 million. See Note 6 for additional information.

Other Intangibles

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

	September 30, 2007							December 31, 2006
	Gross Carrying Amount		Less: Accumulated Amortization			Net Intangible Assets		Gross Carrying Amount		Less: Accumulated Amortization			Net Intangible Assets
Automotive Sector
Tradename	$	543	$	—		$	543	$	491	$	—		$	491
Distribution networks		389		(110	)		279		372		(98	)		274
Manufacturing and production incentive rights		285		(53	)		232		246		—			246
Other		271		(174	)		97		240		(157	)		83
Total Automotive Sector		1,488		(337	)		1,151		1,349		(255	)		1,094
Total Financial Services Sector		4		(4	)		—		4		(4	)		—
Total	$	1,492	$	(341	)	$	1,151	$	1,353	$	(259	)	$	1,094

Our identifiable intangible assets are comprised of a non-amortizable tradename, distribution networks with a useful life of 40 years, manufacturing and production incentive rights with a useful life of 4 years, and other intangibles with various amortization periods (primarily patents, customer contracts, technology, and land rights).

Pre-tax amortization expense related to these intangible assets was as follows (in millions):

	Third Quarter				First Nine Months
	2007		2006		2007		2006
Pre-tax amortization expense	$	32	$	7	$	80	$	19

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

Item 1. Financial Statements (Continued)

NOTE 4. VARIABLE INTEREST ENTITIES

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

Reflected in our September 30, 2007 and December 31, 2006 balance sheets are consolidated VIE assets of $6 billion and $5.6 billion, respectively, for our Automotive sector and $73.1 billion and $69.5 billion, respectively, for our Financial Services sector. Included in Automotive consolidated VIE assets are $682 million and $488 million of cash and cash equivalents at September 30, 2007 and December 31, 2006, respectively. For our Financial Services sector, consolidated VIE assets included $4.3 billion and $3.7 billion in cash and cash equivalents and $68.8 billion and $65.8 billion of receivables and beneficial interests in net investment in operating leases at September 30, 2007 and December 31, 2006, respectively.

We have several investments in other entities determined to be VIEs of which we are not the primary beneficiary. The risks and rewards associated with our interests in these entities are based primarily on ownership percentages. Our maximum exposure was $193 million and $294 million for our Automotive sector and $72 million and $182 million for our Financial Services sector at September 30, 2007 and December 31, 2006, respectively. Any potential losses associated with these VIEs would be limited to the value of our invested capital or equity rights and, where applicable, receivables due from the VIEs.

Our Financial Services sector consists primarily of Ford Motor Credit Company LLC ("Ford Credit"). Ford Credit uses special purpose entities ("SPEs") that are considered VIEs for most of our on-balance sheet securitizations. Ford Credit also sells finance receivables to bank-sponsored asset-backed commercial paper issuers that are SPEs of the sponsor bank; these SPEs are not consolidated by us. All of these sales constitute sales for legal purposes, but some of the sales do not satisfy the requirements for accounting sale treatment. The outstanding balance of these finance receivables was approximately $4 billion and $5.2 billion at September 30, 2007 and December 31, 2006, respectively.

NOTE 5. EMPLOYEE SEPARATION ACTIONS

Automotive Sector

General

In 2006, we announced a major business improvement plan for our North American Automotive operations, which we refer to as our Way Forward plan. As part of this plan, we began implementing a number of different employee separation actions during 2006, our accounting for which is dependent on the design of the individual benefit action.

Jobs Bank Benefits Reserve

We expense Jobs Bank Benefits (see Note 17 of the Notes to the Financial Statements in our 2006 Form 10-K Report) expected to be provided to our hourly employees in accordance with our International Union, United Automobile, Aerospace and Agricultural Implement Workers of America ("UAW") and National Automobile, Aerospace, Transportation and General Workers Union of Canada ("CAW") collective bargaining agreements at facilities that will be permanently idled. We recorded an expense in Automotive cost of sales, and the following table summarizes the activity in the related Jobs Bank Benefits reserve:

	Reserve (in millions)						Number of employees
	First Nine Months 2007			Full Year 2006			First Nine Months 2007			Full Year 2006
Beginning balance	$	1,036		$	—			10,728			—
Additions to Jobs Bank/Transfers from voluntary separation program (i.e., rescissions)		205			2,583			2,019			25,849
Voluntary separations and relocations		(307	)		(1,445	)		(4,588	)		(15,121	)
Benefit payments and other adjustmentsPackages accepted		(140	)		(102	)		—			—
Ending balance	$	794		$	1,036			8,159			10,728

Item 1. Financial Statements (Continued)

NOTE 5. EMPLOYEE SEPARATION ACTIONS (Continued)

Separation Actions

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

UAW Voluntary Separations. During 2006, we offered voluntary separation packages to our entire UAW hourly workforce and established a reserve for the costs associated with this action. We recorded an expense in Automotive cost of sales and the following table summarizes the activity in the related separation reserve:

	Reserve (in millions)						Number of employees
	First Nine Months 2007			Full Year 2006			First Nine Months 2007			Full Year 2006
Beginning balance	$	2,435		$	—			26,351			—
Voluntary acceptances		—			3,240			—			36,623
Payments/Terminations		(1,816	)		(788	)		(21,425	)		(10,084	)
Rescissions		(290	)		(17	)		(3,360	)		(188	)
Ending balance	$	329		$	2,435			1,566			26,351

The balance in the reserve represents, in part, the cost of separation packages for employees (1,566 shown in the table above) who accepted a retirement package and ceased duties, but who will remain on our employment rolls until they reach retirement eligibility. The reserve for these employees will be released over the period through the end of 2009. The remaining balance of the reserve reflects costs associated with employee tuition programs.

Other Employee Separation Actions. Most salaried employee separations within the United States were completed by the end of the first quarter of 2007, and were achieved through early retirements, voluntary separations, and involuntary separations where necessary. These actions resulted in pre-tax charges of $154 million during the first nine months of 2007, reported in Automotive cost of sales and Selling, administrative and other expenses.

The following table shows pre-tax charges for other hourly and salaried employee separation actions for the third quarter and first nine months of 2007 and 2006 (in millions). These charges are reported in Automotive cost of sales and Selling, administrative and other expenses.

	Third Quarter				First Nine Months
	2007		2006		2007		2006
Ford Canada	$	9	$	—	$	203	$	14
Ford Europe		13		12		40		52
PAG		5		48		33		65
Ford Asia Pacific and Africa		1		—		4		—

The charges above exclude costs for pension and other postretirement employee benefits ("OPEB"). See Note 10 for employee separation costs related to pension and OPEB.

Financial Services Sector

Separation Actions

In the first nine months of 2007, we recognized pre-tax charges of $43 million in Selling, administrative and other expenses primarily for employee separation actions in the United States and in Canada. These actions were associated with Ford Credit's North American business transformation initiative (i.e., the consolidation of its North American branches into its seven existing business centers). These charges exclude costs for pension and OPEB. See Note 10 for employee separation costs related to pension and OPEB.

Item 1. Financial Statements (Continued)

NOTE 6. INCOME TAXES

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

In June 2006, FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes– an interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Pursuant to FIN 48, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater-than-fifty-percent likelihood of being realized upon ultimate settlement.

We adopted the provisions of FIN 48 on January 1, 2007. As a result of the implementation of FIN 48, we recorded an increase of $1.3 billion to Retained earnings. The favorable impact to Retained earnings is primarily the result of recognizing a receivable of approximately $1.5 billion associated with 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 Statement of Financial Accounting Standards ("SFAS") No. 5, Accounting for Contingencies and could not be recognized until the contingency lapsed. The amount of gross unrecognized tax benefits at January 1, 2007 is $1.7 billion, of which $471 million would affect our effective tax rate, if recognized.

Examinations by tax authorities have been completed through 1998 in the United Kingdom, 1999 in Germany, 2000 in Sweden and the United States, and 2001 in Canada.

Effective with the adoption of FIN 48, we have elected to recognize accrued interest related to unrecognized tax benefits and tax-related penalties in the Provision for/(Benefit from) income taxes on our consolidated statement of income. As of January 1, 2007, we had recorded a liability of about $221 million for the payment of interest. During the second quarter of 2007, we recorded an additional liability of $127 million in interest and inflationary adjustments for tax refunds received in prior periods.

As previously reported, during the second quarter of 2007, we settled tax matters related to the acquisition of Land Rover with the U.K. tax authorities. The final resolution resulted in an increase in deferred tax assets and a corresponding decrease in goodwill. The increase in deferred tax assets resulted in an increase in the valuation allowance of $108 million. Additionally, during the third quarter of 2007, U.K. tax authorities granted further tax benefits related to our acquisition of Land Rover. The additional benefits resulted in an increase in deferred tax assets and a corresponding decrease in goodwill. The increase in deferred tax assets resulted in an increase in the valuation allowance of $122 million.

In July 2007, the U.K. government enacted legislation that reduced the corporate income tax rate effective April 1, 2008. We recorded $125 million of income tax provision as a result of remeasuring deferred tax assets for the enacted tax rate.

Item 1. Financial Statements (Continued)

NOTE 7. DISCONTINUED OPERATIONS, HELD-FOR-SALE OPERATIONS, AND OTHER DISPOSITIONS

Automotive Sector

Discontinued Operations

The results of discontinued operations for the Automotive sector are as follows (in millions):

	Third Quarter					First Nine Months
	2007		2006			2007			2006
Sales and revenues	$	—	$	15		$	13		$	43

Operating income/(loss) from discontinued operations	$	—	$	7		$	2		$	17
Gain/(Loss) on discontinued operations		—		—			51			3
(Provision for)/Benefit from income taxes		—		(3	)		(19	)		(8	)
Income/(Loss) from discontinued operations	$	—	$	4		$	34		$	12

Held-for-Sale Operations

Automotive Components Holdings, LLC ("ACH"). On September 1, 2007, ACH sold its Converca I plant in Mexico, which produces power transfer units, to Linamar Corporation. As a result of the transaction, ACH received $64 million as proceeds on the sale. In the third quarter of 2007, ACH recognized a pre-tax gain on the sale of $5 million, net of transaction costs and liabilities assumed, reported in Automotive interest income and other non-operating income/(expense), net.

The assets of Converca I that were classified as a held-for-sale operation at September 1, 2007 and December 31, 2006 are summarized as follows (in millions):

	September 1, 2007		December 31, 2006
Assets
Inventories	$	13	$	15
Net property		43		50
Total assets of the held-for-sale operation	$	56	$	65

European dealerships. On September 19, 2007, Ford Motor Company and its subsidiary, FIECO Holdings GmbH, completed the sale of its interest in three European dealerships to MVC Automotive Group B.V. As a result of the transaction, we received $9 million as proceeds on the sale. In the third quarter of 2007, we recognized a pre-tax loss on the sale of $16 million, net of transaction costs and recognition of foreign currency translation adjustments. This was reported in Automotive interest income and other non-operating income/(expense), net.

The assets and liabilities of the three dealerships classified as held-for-sale operations at September 19, 2007 and December 31, 2006 are summarized as follows (in millions):

	September 19, 2007		December 31, 2006
Assets
Receivables	$	23	$	25
Inventories		64		46
Net property		16		14
Other assets		1		1
Total assets of the held-for-sale operations	$	104	$	86

Liabilities
Payables	$	27	$	11
Other liabilities		56		6
Total liabilities of the held-for-sale operations	$	83	$	17

At September 30, 2007, there were no assets or liabilities on our balance sheet related to the three European dealerships.

Item 1. Financial Statements (Continued)

NOTE 7. DISCONTINUED OPERATIONS, HELD-FOR-SALE OPERATIONS, AND OTHER DISPOSITIONS (Cont.)

Other Dispositions

ACH has entered into non-binding agreements for the sale of five of its businesses. The following table lists the businesses and their primary products:

Sheldon Road plant	Heating, ventilating and cooling assemblies; heat exchangers; and manual control panel components

Milan plant	Fuel tanks and bumper fascias

Monroe plant	Catalytic converters, driveshafts, and springs (agreement includes only driveshaft business– not the plant itself)

Nashvillle, Tulsa, and VidrioCar (Mexico) plants	Automotive and architectural glass products

Sandusky plant	Lighting components

Each of these sales is conditional on a successful negotiation by the buyer of labor terms with the UAW, which has not been completed. Therefore, none has yet reached held-for-sale status.

Financial Services Sector

Other Dispositions

AB Volvofinans ("Volvofinans"). During the third quarter of 2007, we sold a majority of our interest in Volvofinans, an unconsolidated subsidiary that finances the sale of Volvo and Renault vehicles through Volvo dealers in Sweden. As a result of the transaction, we received $157 million as proceeds from the sale and recognized a pre-tax gain of $51 million reported in Financial Services revenues.

NOTE 8. AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK

The calculation of diluted income per share of Common and Class B Stock takes into account the effect of common stock equivalents, such as stock options and convertible securities, considered to be potentially dilutive. Basic and diluted income/(loss) per share were calculated using the following (in millions):

	Third Quarter								First Nine Months
	2007				2006				2007			2006
Basic and Diluted Income/(Loss)
Basic income/(loss) from continuing operations	$	(380	)		$	(5,252	)		$	54		$	(7,000	)
Effect of dilutive senior convertible notes		—		(a)		—		(a)		—	(a)		—		(a)
Effect of dilutive 6.50% Cumulative Convertible Trust Preferred Securities ("Trust Preferred Securities")		—		(b)		—		(b)