form10q.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2008

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

For the transition period from                         to                        
 
Commission File Number: 1-3950


FORD MOTOR COMPANY
(Exact name of registrant as specified in its charter)


Delaware
38-0549190
(State of Incorporation)
(IRS Employer Identification No.)
   
One American Road, Dearborn, Michigan
48126
(Address of principal executive offices)
(Zip Code)


(313) 322-3000
(Registrant's telephone number, including area code)

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

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

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

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

Exhibit index located on page number 58.
 


 
 

 
 
PART I. FINANCIAL INFORMATION
Item 1.  Financial Statements
FORD MOTOR COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME
For the Periods Ended June 30, 2008 and 2007
(in millions, except per share amounts)

   
Second Quarter
   
First Half
 
   
2008
   
2007
   
2008
   
2007
 
   
(unaudited)
   
(unaudited)
 
Sales and revenues
                       
Automotive sales
  $ 37,057     $ 40,106     $ 76,174     $ 78,736  
Financial Services revenues
    4,455       4,136       8,866       8,525  
Total sales and revenues
    41,512       44,242       85,040       87,261  
                                 
Costs and expenses
                               
Automotive cost of sales
    39,995       36,182       75,451       70,897  
Selling, administrative and other expenses
    7,305       4,952       12,400       10,924  
Interest expense
    2,412       2,759       4,957       5,477  
Financial Services provision for credit and insurance losses
    598       121       942       180  
Total costs and expenses
    50,310       44,014       93,750       87,478  
                                 
Automotive interest income and other non-operating income/(expense), net
    (192 )     559       (100 )     888  
Automotive equity in net income/(loss) of affiliated companies
    (40 )     139       96       211  
Income/(Loss) before income taxes
    (9,030 )     926       (8,714 )     882  
Provision for/(Benefit from) income taxes
    (444 )     123       (349 )     305  
Income/(Loss) before minority interests
    (8,586 )     803       (8,365 )     577  
Minority interests in net income/(loss) of subsidiaries
    89       85       211       143  
Income/(Loss) from continuing operations
    (8,675 )     718       (8,576 )     434  
Income/(Loss) from discontinued operations (Note 8)
    8       32       9       34  
Net income/(loss)
  $ (8,667 )   $ 750     $ (8,567 )   $ 468  
                                 
AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK (Note 9)
                               
Basic income/(loss)
                               
Income/(Loss) from continuing operations
  $ (3.88 )   $ 0.38     $ (3.87 )   $ 0.23  
Income/(Loss) from discontinued operations
             0.02                0.02  
Net income/(loss)
  $ (3.88 )   $ 0.40     $ (3.87 )   $ 0.25  
Diluted income/(loss)
                               
Income/(Loss) from continuing operations
  $ (3.88 )   $ 0.30     $ (3.87 )   $ 0.21  
Income/(Loss) from discontinued operations
             0.01                0.01  
Net income/(loss)
  $ (3.88 )   $ 0.31     $ (3.87 )   $ 0.22  
                                 
Cash dividends
  $     $     $     $  

The accompanying notes are part of the financial statements

 
2

 
 
Item 1. Financial Statements (Continued)
 
FORD MOTOR COMPANY AND SUBSIDIARIES

SECTOR STATEMENT OF INCOME
For the Periods Ended June 30, 2008 and 2007
(in millions, except per share amounts)

   
Second Quarter
   
First Half
 
   
2008
   
2007
   
2008
   
2007
 
   
(unaudited)
   
(unaudited)
 
AUTOMOTIVE
                       
Sales
  $ 37,057     $ 40,106     $ 76,174     $ 78,736  
Costs and expenses
                               
Cost of sales
    39,995       36,182       75,451       70,897  
Selling, administrative and other expenses
    2,955       3,224       6,064       7,298  
Total costs and expenses
    42,950       39,406       81,515       78,195  
Operating income/(loss)
    (5,893 )     700       (5,341 )     541  
                                 
Interest expense
    485       577       1,013       1,157  
                                 
Interest income and other non-operating income/(expense), net
    (192 )     559       (100 )     888  
Equity in net income/(loss) of affiliated companies
    (40 )     139       96       211  
Income/(Loss) before income taxes — Automotive
    (6,610 )     821       (6,358 )     483  
                                 
FINANCIAL SERVICES
                               
Revenues
    4,455       4,136       8,866       8,525  
Costs and expenses
                               
Interest expense
    1,927       2,182       3,944       4,320  
Depreciation
    4,112       1,479       5,948       2,979  
Operating and other expenses
    238       249       388       647  
Provision for credit and insurance losses
    598       121       942       180  
Total costs and expenses
    6,875       4,031       11,222       8,126  
Income/(Loss) before income taxes — Financial Services
    (2,420 )     105       (2,356 )     399  
                                 
TOTAL COMPANY
                               
Income/(Loss) before income taxes
    (9,030 )     926       (8,714 )     882  
Provision for/(Benefit from) income taxes
    (444 )     123       (349 )     305  
Income/(Loss) before minority interests
    (8,586 )     803       (8,365 )     577  
Minority interests in net income/(loss) of subsidiaries
    89       85       211       143  
Income/(Loss) from continuing operations
    (8,675 )     718       (8,576 )     434  
Income/(Loss) from discontinued operations (Note 8)
    8       32       9       34  
Net income/(loss)
  $ (8,667 )   $ 750     $ (8,567 )   $ 468  
                                 
AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK (Note 9)
                               
Basic income/(loss)
                               
Income/(Loss) from continuing operations
  $ (3.88 )   $ 0.38     $ (3.87 )   $ 0.23  
Income/(Loss) from discontinued operations
          0.02             0.02  
Net income/(loss)
  $ (3.88 )   $ 0.40     $ (3.87 )   $ 0.25  
Diluted income/(loss)
                               
Income/(Loss) from continuing operations
  $ (3.88 )   $ 0.30     $ (3.87 )   $ 0.21  
Income/(Loss) from discontinued operations
          0.01             0.01  
Net income/(loss)
  $ (3.88 )   $ 0.31     $ (3.87 )   $ 0.22  
                                 
Cash dividends
  $     $     $     $  

The accompanying notes are part of the financial statements

 
3

 
 
Item 1. Financial Statements (Continued)
 
FORD MOTOR COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET
(in millions)

   
June 30,
2008
   
December 31,
2007
 
   
(unaudited)
   
 
 
ASSETS
           
Cash and cash equivalents
  $ 30,066     $ 35,283  
Marketable securities
    12,525       5,248  
Loaned securities
    7,347       10,267  
Finance receivables, net
    106,928       109,053  
Other receivables, net
    8,964       8,210  
Net investment in operating leases
    31,074       33,255  
Retained interest in sold receivables
    380       653  
Inventories  (Note 2)
    12,987       10,121  
Equity in net assets of affiliated companies
    3,189       2,853  
Net property
    32,149       36,239  
Deferred income taxes
    3,251       3,500  
Goodwill and other net intangible assets (Note 4)
    2,044       2,069  
Assets of discontinued/held-for-sale operations (Note 8)
    28       7,537  
Other assets
    14,365       14,976  
Total assets
  $ 265,297     $ 279,264  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Payables
  $ 24,216     $ 20,832  
Accrued liabilities and deferred revenue
    72,381       74,738  
Debt
    166,025       168,787  
Deferred income taxes
    2,899       3,034  
Liabilities of discontinued/held-for-sale operations (Note 8)
          4,824  
Total liabilities
    265,521       272,215  
                 
Minority interests
    1,459       1,421  
                 
Stockholders’ equity
               
Capital stock
               
Common Stock, par value $0.01 per share (2,198 million shares issued)
    22       21  
Class B Stock, par value $0.01 per share (71 million shares issued)
    1       1  
Capital in excess of par value of stock
    8,386       7,834  
Accumulated other comprehensive income/(loss)
    131       (558 )
Treasury stock
    (183 )     (185 )
Retained earnings/(Accumulated deficit)
    (10,040 )     (1,485 )
Total stockholders’ equity
    (1,683 )     5,628  
Total liabilities and stockholders’ equity
  $ 265,297     $ 279,264  

The accompanying notes are part of the financial statements

 
4

 

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
SECTOR BALANCE SHEET
(in millions)
 
   
June 30,
2008
   
December 31,
2007
 
   
(unaudited)
       
ASSETS
           
Automotive
           
Cash and cash equivalents
  $ 16,948     $ 20,678  
Marketable securities
    5,099       2,092  
Loaned securities
    7,347       10,267  
Total cash, marketable and loaned securities
    29,394       33,037  
Receivables, net
    5,116       4,530  
Inventories (Note 2)
    12,987       10,121  
Deferred income taxes
    542       532  
Other current assets
    7,035       5,514  
Current receivable from Financial Services
    895       509  
Total current assets
    55,969       54,243  
Equity in net assets of affiliated companies
    2,558       2,283  
Net property
    31,909       35,979  
Deferred income taxes
    7,676       9,268  
Goodwill and other net intangible assets (Note 4)
    2,034       2,051  
Assets of discontinued/held-for-sale operations (Note 8)
    28       7,537  
Other assets
    6,055       5,614  
Non-current receivable from Financial Services
    2,110       1,514  
Total Automotive assets
    108,339       118,489  
Financial Services
               
Cash and cash equivalents
    13,118       14,605  
Marketable securities
    7,426       3,156  
Finance receivables, net
    110,776       112,733  
Net investment in operating leases
    27,152       30,309  
Retained interest in sold receivables
    380       653  
Equity in net assets of affiliated companies
    631       570  
Goodwill and other net intangible assets (Note 4)
    10       18  
Other assets
    5,623       7,217  
Total Financial Services assets
    165,116       169,261  
Intersector elimination
    (3,005 )     (2,023 )
Total assets
  $ 270,450     $ 285,727  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
Automotive
               
Trade payables
  $ 18,137     $ 15,718  
Other payables
    4,013       3,237  
Accrued liabilities and deferred revenue
    28,471       27,672  
Deferred income taxes
    2,748       2,671  
Debt payable within one year
    1,432       1,175  
Total current liabilities
    54,801       50,473  
Long-term debt
    25,028       25,779  
Other liabilities
    38,803       41,676  
Deferred income taxes
    967       783  
Liabilities of discontinued/held-for-sale operations (Note 8)
          4,824  
Total Automotive liabilities
    119,599       123,535  
Financial Services
               
Payables
    2,066       1,877  
Debt
    139,565       141,833  
Deferred income taxes
    4,337       6,043  
Other liabilities and deferred income
    5,107       5,390  
Payable to Automotive
    3,005       2,023  
Total Financial Services liabilities
    154,080       157,166  
                 
Minority interests
    1,459       1,421  
                 
Stockholders' equity
               
Capital stock
               
Common Stock, par value $0.01 per share (2,198 million shares issued)
    22       21  
Class B Stock, par value $0.01 per share (71 million shares issued)
    1       1  
Capital in excess of par value of stock
    8,386       7,834  
Accumulated other comprehensive income/(loss)
    131       (558 )
Treasury stock
    (183 )     (185 )
Retained earnings/(Accumulated deficit)
    (10,040 )     (1,485 )
Total stockholders' equity
    (1,683 )     5,628  
Intersector elimination
    (3,005 )     (2,023 )
Total liabilities and stockholders' equity
  $ 270,450     $ 285,727  

The accompanying notes are part of the financial statements.
 
5

 
Item 1. Financial Statements (Continued)
 
 
FORD MOTOR COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the Periods Ended June 30, 2008 and 2007
(in millions)

   
First Half
 
   
2008
   
2007
 
   
(unaudited)
 
       
Cash flows from operating activities of continuing operations
     
Net cash (used in)/provided by operating activities
  $ 2,161     $ 5,227  
                 
Cash flows from investing activities of continuing operations
               
Capital expenditures
    (3,128 )     (2,637 )
Acquisitions of retail and other finance receivables and operating leases
    (25,483 )     (26,280 )
Collections of retail and other finance receivables and operating leases
    22,150       20,591  
Purchases of securities
    (33,015 )     (4,720 )
Sales and maturities of securities
    28,390       12,088  
Proceeds from sales of retail and other finance receivables and operating leases
          702  
Proceeds from sale of businesses
    6,135       1,001  
Cash paid for acquisitions
    (13 )      
Transfer of cash balances upon disposition of discontinued/held-for-sale operations
    (925 )     (83 )
Other
    1,869       1,178  
Net cash (used in)/provided by investing activities
    (4,020 )     1,840  
                 
Cash flows from financing activities of continuing operations
               
Cash dividends
           
Sales of Common Stock
    144       51  
Purchases of Common Stock
          (31 )
Changes in short-term debt
    (1,049 )     (1,396 )
Proceeds from issuance of other debt
    20,726       17,165  
Principal payments on other debt
    (23,396 )     (19,768 )
Other
    (267 )     (61 )
Net cash (used in)/provided by financing activities
    (3,842 )     (4,040 )
                 
Effect of exchange rate changes on cash
    469       71  
                 
Net increase/(decrease) in cash and cash equivalents from continuing operations
    (5,232 )     3,098  
                 
Cash flows from discontinued operations
               
Cash flows from operating activities of discontinued operations
    15       16  
Cash flows from investing activities of discontinued operations
           
Cash flows from financing activities of discontinued operations
           
                 
Net increase/(decrease) in cash and cash equivalents
  $ (5,217 )   $ 3,114  
                 
Cash and cash equivalents at January 1
  $ 35,283     $ 28,896  
Cash and cash equivalents of discontinued/held-for-sale operations at January 1
          (2 )
Net increase/(decrease) in cash and cash equivalents
    (5,217 )     3,114  
Less: cash and cash equivalents of discontinued/held-for-sale operations at June 30
          (8 )
Cash and cash equivalents at June 30
  $ 30,066     $ 32,000  

The accompanying notes are part of the financial statements

 
6

 

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

CONDENSED SECTOR STATEMENT OF CASH FLOWS
For the Periods Ended June 30, 2008 and 2007
(in millions)

   
First Half 2008
   
First Half 2007
 
   
Automotive
   
Financial
Services
   
Automotive
   
Financial
Services
 
   
(unaudited)
   
(unaudited)
 
Cash flows from operating activities of continuing operations
                       
Net cash (used in)/provided by operating activities
  $ (1,560 )   $ 5,151     $ 2,810     $ 3,358  
                                 
Cash flows from investing activities
                               
Capital expenditures
    (3,077 )     (51 )     (2,616 )     (21 )
Acquisitions of retail and other finance receivables and operating leases
          (25,483 )           (26,280 )
Collections of retail and other finance receivables and operating leases
          22,188             20,427  
Net (increase)/decrease of wholesale receivables
          (1,468 )           (777 )
Purchases of securities
    (23,683 )     (9,332 )     (924 )     (3,796 )
Sales and maturities of securities
    23,349       5,041       917       11,171  
Proceeds from sales of retail and other finance receivables and operating leases
                      702  
Proceeds from sale of businesses
    2,451       3,684       1,001        
Cash paid for acquisitions
    (13 )                  
Transfer of cash balances upon disposition of discontinued/held-for-sale operations
    (925 )           (83 )      
Investing activity to Financial Services
                (6 )      
Other
    914       955       498       680  
Net cash (used in)/provided by investing activities
    (984 )     (4,466 )     (1,213 )     2,106  
                                 
Cash flows from financing activities
                               
Cash dividends
                       
Sales of Common Stock
    144             51        
Purchases of Common Stock
                (31 )      
Changes in short-term debt
          (1,049 )     6       (1,402 )
Proceeds from issuance of other debt
    78       20,648       158       17,007  
Principal payments on other debt
    (266 )     (23,130 )     (363 )     (19,405 )
Financing activity from Automotive
                      6  
Other
    (176 )     (91 )     (4 )     (57 )
Net cash (used in)/provided by financing activities
    (220 )     (3,622 )     (183 )     (3,851 )
                                 
Effect of exchange rate changes on cash
    270       199       62       9  
Net change in intersector receivables/payables and other liabilities
    (1,236 )     1,236       (435 )     435  
Net increase/(decrease) in cash and cash equivalents from continuing operations
    (3,730 )     (1,502 )     1,041       2,057  
                                 
Cash flows from discontinued operations
                               
Cash flows from operating activities of discontinued operations
          15       16        
Cash flows from investing activities of discontinued operations
                       
Cash flows from financing activities of discontinued operations
                       
                                 
Net increase/(decrease) in cash and cash equivalents
  $ (3,730 )   $ (1,487 )   $ 1,057     $ 2,057  
                                 
Cash and cash equivalents at January 1
  $ 20,678     $ 14,605     $ 16,022     $ 12,874  
Cash and cash equivalents of discontinued/held-for-sale operations at January 1
                (2 )      
Net increase/(decrease) in cash and cash equivalents
    (3,730 )     (1,487 )     1,057       2,057  
Less: cash and cash equivalents of discontinued/held-for-sale operations at June 30
                (8 )      
Cash and cash equivalents at June 30
  $ 16,948     $ 13,118     $ 17,069     $ 14,931  

The accompanying notes are part of the financial statements

 
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 ("GAAP") in the United States for interim financial information and instructions to the Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X.  In the opinion of management, these unaudited financial statements reflect a fair statement of the results of operations and financial condition of Ford Motor Company and its consolidated subsidiaries and consolidated variable interest entities ("VIEs") of which we are the primary beneficiary for the periods and at the dates presented.  The operating results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year.  Reference should be made to the financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2007 ("2007 Form 10-K Report"), updated in our Current Report on Form 8-K filed on June 2, 2008.  For purposes of this report, "Ford," the "Company," "we," "our," "us" or similar references mean Ford Motor Company and our consolidated subsidiaries and our consolidated VIEs of which we are the primary beneficiary, unless the context requires otherwise.  All held-for-sale assets and liabilities are excluded from the footnotes unless otherwise noted.  See Note 8 for details of held-for-sale operations.

Presentation of Balance Sheet

The difference between the total assets and total liabilities as presented in our sector balance sheet and consolidated balance sheet is the result of netting of deferred income tax assets and liabilities.  The reconciliation between total sector and consolidated balance sheets is as follows (in millions):
 
   
June 30,
 2008
   
December 31,
2007
 
Sector balance sheet presentation of deferred income tax assets:
           
Automotive sector current deferred income tax assets
  $ 542     $ 532  
Automotive sector non-current deferred income tax assets
    7,676       9,268  
Financial Services sector deferred income tax assets*
    186       163  
Total
    8,404       9,963  
Reclassification for netting of deferred income taxes
    (5,153 )     (6,463 )
Consolidated balance sheet presentation of deferred income tax assets
  $ 3,251     $ 3,500  
                 
Sector balance sheet presentation of deferred income tax liabilities:
               
Automotive sector current deferred income tax liabilities
  $ 2,748     $ 2,671  
Automotive sector non-current deferred income tax liabilities
    967       783  
Financial Services sector deferred income tax liabilities
    4,337       6,043  
Total
    8,052       9,497  
Reclassification for netting of deferred income taxes
    (5,153 )     (6,463 )
Consolidated balance sheet presentation of deferred income tax liabilities
  $ 2,899     $ 3,034  
__________
*
Financial Services deferred income tax assets are included in Financial Services other assets on our sector balance sheet.

Presentation of Cash Flows

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

 
8

 
 
Item 1. Financial Statements (Continued)
 
NOTE 1. FINANCIAL STATEMENTS (Continued)

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

   
First Half
 
   
2008
   
2007
 
Sum of sector cash flows from operating activities of continuing operations
  $ 3,591     $ 6,168  
Reclassification of wholesale receivable cash flows from investing to operating for consolidated presentation (a)
    (1,468 )     (777 )
Reclassification of finance receivable cash flows from investing to operating for consolidated presentation (b)
    38       (164
Consolidated cash flows from operating activities of continuing operations
  $ 2,161     $ 5,227  
__________
(a) 
In addition to vehicles sold by us, the cash flows from wholesale finance receivables being reclassified from investing to operating include financing by Ford Motor Credit Company LLC ("Ford Credit") of used and non-Ford vehicles.  100% of cash flows from wholesale finance receivables have been reclassified for consolidated presentation as the portion of these cash flows from used and non-Ford vehicles is impracticable to separate.
(b) 
Includes cash flows of finance receivables purchased from certain divisions and subsidiaries of the Automotive sector.


NOTE 2. INVENTORIES

Inventories are summarized as follows (in millions):

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

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


NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS

Automotive Sector

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

Financial Services Sector

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


 
9

 
 
Item 1. Financial Statements (Continued)
 
NOTE 4. GOODWILL AND OTHER NET INTANGIBLES

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

   
 
Automotive Sector
   
Financial Services Sector
       
   
Ford North America
   
Ford Europe
   
 
Volvo
   
 
Total
   
Ford Credit
   
Total Company
 
Balances at December 31, 2007
  $ 89     $ 37     $ 1,360     $ 1,486     $ 18     $ 1,504  
Changes in goodwill:
                                               
Goodwill acquired
                                   
Other disposals
    (1 )                 (1 )     (9 )     (10 )
Dealer goodwill impairment*
    (88 )                 (88 )           (88 )
Effect of foreign currency translation and other
          1       85       86       1       87  
Balances at June 30, 2008
  $     $ 38     $ 1,445     $ 1,483     $ 10     $ 1,493  
__________
*
Based on our expected reduction of our Ford North America dealership base, we recorded an other-than-temporary impairment of our investment in our consolidated North America dealerships.  We recorded the $88 million impairment of our investment in the first quarter of 2008 by writing down the related goodwill to its fair value of $0.

Other Net Intangibles

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

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

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

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

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


NOTE 5. VARIABLE INTEREST ENTITIES

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


 
10

 
 
Item 1. Financial Statements (Continued)
 
NOTE 5. VARIABLE INTEREST ENTITIES (Continued)

The total consolidated VIE assets reflected on our June 30, 2008 and December 31, 2007 balance sheets are as follows (in millions):
   
June 30,
   
December 31,
 
   
2008
   
2007
 
Automotive Sector
           
Cash and cash equivalents
  $ 753     $ 742  
Other assets
    5,517       5,599  
Total assets
  $ 6,270     $ 6,341  
                 
Financial Services Sector
               
Cash and cash equivalents
  $ 5,263     $ 4,605  
Finance receivables
    70,716       60,361  
Net investment in operating leases
    15,133       17,461  
Total assets
  $ 91,112     $ 82,427  

We have several investments in entities determined to be VIEs of which we are not the primary beneficiary.  The risks and rewards associated with our interests in these entities are based primarily on ownership percentages.  Our maximum exposure at June 30, 2008 and December 31, 2007, respectively, was $379 million and $357 million for our Automotive sector and $150 million and $76 million for our Financial Services sector.  Any potential losses associated with these VIEs would be limited to the value of our invested capital or equity rights and, where applicable, receivables due from the VIEs.

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


NOTE 6. JOB SECURITY BENEFITS RESERVE AND EMPLOYEE SEPARATION ACTIONS

Automotive Sector

Job Security Benefits Reserve

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

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

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

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

 
11

 
 
Item 1. Financial Statements (Continued)
 
NOTE 6. JOB SECURITY BENEFITS RESERVE AND EMPLOYEE SEPARATION ACTIONS (Continued)

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

Separation Actions

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

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

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

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

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

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

Financial Services Sector

Separation Actions

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

 
12

 
 
Item 1. Financial Statements (Continued)
 
NOTE 7. INCOME TAXES

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


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

Automotive Sector

Discontinued Operations

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

   
Second Quarter
   
First Half
 
   
2008
   
2007
   
2008
   
2007
 
Sales and revenues
  $     $ 1     $     $ 13  
                                 
Operating income/(loss) from discontinued operations
  $     $ (1 )   $     $ 2  
Gain/(Loss) on discontinued operations
          51             51  
(Provision for)/Benefit from income taxes
          (18 )           (19 )
Income/(Loss) from discontinued operations
  $     $ 32     $     $ 34  

Held-for-Sale Operations

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

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

 
13

 
 
Item 1. Financial Statements (Continued)
 
NOTE 8. DISCONTINUED OPERATIONS, HELD-FOR-SALE OPERATIONS, OTHER DISPOSITIONS, AND ACQUISITIONS (Continued)
 
The assets and liabilities of our Jaguar Land Rover operations classified as held for sale are summarized as follows (in millions):
 
   
June 2,
2008
   
December 31,
2007
 
Assets
           
Cash and cash equivalents
  $ 900     $  
Receivables
    1,172       758  
Inventories
    1,921       1,530  
Net property
    2,199       2,246  
Goodwill and other net intangibles
    2,002       2,010  
Pension assets
    786       696  
Other assets
    309       297  
Impairment of carrying value
     (421 )      
Total assets of the held-for-sale operations
  $  8,868     $  7,537  
                 
Liabilities
               
Payables
  $ 2,628     $ 2,395  
Pension liabilities
    18       19  
Warranty liabilities
    579       645  
Debt
    177        
Other liabilities
     2,340        1,765  
Total liabilities of the held-for-sale operations
  $  5,742     $  4,824  

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

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

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

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

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

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

 
14

 
 
Item 1. Financial Statements (Continued)
 
NOTE 8. DISCONTINUED OPERATIONS, HELD-FOR-SALE OPERATIONS, OTHER DISPOSITIONS, AND ACQUISITIONS (Continued)


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

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

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

Financial Services Sector

Discontinued Operations

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

Other Dispositions

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

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

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

 
15

 
 
Item 1. Financial Statements (Continued)
 
NOTE 9. AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK

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


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