F

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended September 30, 2002, and the nine-month period ended on the same date for Ford Motor Company. The company operates through two primary sectors: Automotive (manufacturing and sales of vehicles) and Financial Services (Ford Credit and Hertz). The financial statements are unaudited but reflect normal recurring adjustments.

Key Financial Metrics

Note: Total Debt figures for Financial Services include debt payable within one year and long-term debt. Automotive debt includes $209 million current and $13,604 million long-term.

Material Changes vs. Prior Period

• Net Loss Improvement: The net loss for Q3 2002 narrowed to $326 million from $692 million in Q3 2001. However, the nine-month loss widened to $850 million from $385 million, primarily due to a one-time non-cash charge of $1,002 million related to the adoption of SFAS No. 142 (Goodwill Impairment).
• Automotive Sector: Automotive losses improved significantly in Q3 2002 ($675 million loss) compared to Q3 2001 ($1,054 million loss), driven by higher unit sales (up 135,000 units) and favorable pricing. North American operations turned profitable ($33 million) for the first time in the period, while Europe and South America continued to report losses.
• Financial Services Sector: Earnings declined slightly in Q3 2002 ($349 million) compared to Q3 2001 ($362 million). Ford Credit earnings were down $82 million, largely due to higher credit losses and SFAS No. 133 adjustments, though Hertz earnings improved significantly ($106 million vs. $26 million).
• Liquidity: Automotive gross cash increased to $25.7 billion from $17.7 billion at year-end 2001, bolstered by $2.6 billion in tax refunds and $4.9 billion in proceeds from convertible preferred securities.

Guidance, Outlook, and Risks

• Full-Year 2002 Outlook: Management expects a profit of approximately 40 cents per share for the full year, excluding unusual items. This implies a smaller profit in Q4 compared to Q3, due to seasonal slowing in Hertz, higher credit losses at Ford Credit, and increased costs for new product launches (e.g., F-150, Jaguar XJ).
• Revitalization Plan: Ford remains on track to achieve its goal of $7 billion in annual pre-tax operating earnings by mid-decade. The company is implementing an additional $1 billion in cost reductions for 2003.
• Asset Dispositions: Ford expects to realize $1 billion in cash from non-core asset sales, though approximately $300 million is not expected until 2003 (related to the Kwik-Fit sale).
• Rating Actions: Standard & Poor's lowered Ford's long-term debt rating to "BBB" with a negative outlook in October 2002, citing concerns over market share weakness and industry demand. Fitch affirmed "BBB+" with a negative outlook; Moody's confirmed "Baa1" with a negative outlook.
• Risk Factors: Key risks include price competition, declining industry sales, currency fluctuations, higher-than-expected credit losses, and the inability to implement the Revitalization Plan.

Investor Verification Checklist

• Goodwill Impairment Charges: Verify the impact of the $1,002 million non-cash charge (SFAS No. 142) on the nine-month net loss and its exclusion from future earnings comparisons.
• European Operations: Assess the sustainability of the $636 million loss in Europe, which was exacerbated by a $510 million charge related to the sale of Kwik-Fit and new product launch costs for Jaguar.
• Credit Loss Provisions: Monitor Ford Credit's allowance for credit losses, which rose to 2.29% of net receivables, reflecting higher unemployment and bankruptcy rates.
• Debt Ratings: Track the negative outlooks from major rating agencies and the potential for further downgrades if pre-tax earnings in Automotive operations do not reach breakeven in 2003.
• Asset Sale Proceeds: Confirm the timing and finality of the Kwik-Fit sale and other non-core asset dispositions to ensure the projected $1 billion cash realization is met.