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

2


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

3


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

4


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 
 
5

 
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

6


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

7


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.

8


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.

9


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
 
 
10


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.

11


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 Taxesan 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.

12


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.

13


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)