Ford 2002 Annual Report Download - page 56

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Based on the planning assumptions set forth above and achievement of the foregoing milestones, we expect 2003 fully
diluted earnings to be about 70 cents per share for the full-year and 20 cents per share for the first quarter. For the full-year,
we expect the Automotive sector to break even and the Financial Services sector to provide improved cash contributions to
the parent company.
REVITALIZATION PLAN UPDATE
In January 2002, we announced our Revitalization Plan, which is expected to improve our pre-tax income to $7 billion by
mid-decade. Excluding unusual items, our pre-tax earnings in 2002 were well in excess of the breakeven target we set
when we announced the Revitalization Plan last year. We also made improvements to our cost structure consistent with the
Revitalization Plan. With the progress made on costs in 2002, coupled with the acceleration of cost reductions planned for
this year, we expect profits to be ahead of the original plan this year as well. This expectation is reflected in our full year
earnings target of 70 cents per share.
PENSION AND HEALTH CARE EXPENSES
We sponsor defined benefit pension plans throughout the world and post retirement health care plans, primarily in the
United States. We also provide health care coverage for our active employees, primarily in the United States. Pursuant to
our collective bargaining agreement with the UAW, under which most of our U.S. hourly employees are covered, we are
contractually committed to provide specified levels of pension and health care benefits to both employees and retirees
covered by the contract. These obligations give rise to significant expenses that are highly dependent on assumptions
discussed in Note 20 of the Notes to our Financial Statements and under “Critical Accounting Estimates” above.
Based on present assumptions and benefit agreements, we expect our 2003 U.S. pre-tax pension expense to be about $270
million, which is about $460 million higher than it was in 2002.
In 2002, our health care costs for United States employees was $2.8 billion, with about $1.9 billion attributable to retirees and
$900 million attributable to active employees. Our health care costs in the United States have been rising at about 16% a year
over the last two years. The cost of prescription drugs, which rose about 15% in 2002 compared with 2001, is the fastest
growing segment of our health care costs and now accounts for approximately 30% of our total United States health care
costs. Although we have taken measures to have salaried employees and retirees bear a higher portion of the costs of their
health care benefits, we expect these trends to continue over the next several years.
RISK FACTORS
Statements included or incorporated by reference herein may constitute “forward looking statements” within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements involve a number of risks, uncertainties, and other factors that
could cause actual results to differ materially from those stated, including, without limitation:
• greater price competition in the U.S. and Europe resulting from currency fluctuations, industry overcapacity
or other factors;
• a significant decline in industry sales, particularly in the U.S. or Europe, resulting from slowing economic growth,
geo-political events or other factors;
• lower-than-anticipated market acceptance of new or existing products;
• work stoppages at key Ford or supplier facilities or other interruptions of supplies;
• the discovery of defects in vehicles resulting in delays in new model launches, recall campaigns or
increased warranty costs;
• increased safety, emissions, fuel economy or other regulation resulting in higher costs and/or sales restrictions;
• unusual or significant litigation or governmental investigations arising out of alleged defects in our products or otherwise;
• worse-than-assumed economic and demographic experience for our post retirement benefit plans (e.g., investment
returns, interest rates, health care cost trends, benefit improvements);
• currency or commodity price fluctuations;
• a market shift from truck sales in the U.S.;
• economic difficulties in South America or Asia;
• reduced availability of or higher prices for fuel;
• labor or other constraints on our ability to restructure our business;
• a change in our requirements under long-term supply arrangements under which we are obligated to
purchase minimum quantities or pay minimum amounts;
• a further credit rating downgrade;
• inability to access debt or securitization markets around the world at competitive rates or in sufficient amounts;
• higher-than-expected credit losses;
• lower-than-anticipated residual values for leased vehicles;
• increased price competition in the rental car industry and/or a general decline in business or leisure travel due to terrorist
attacks, act of war or measures taken by governments in response thereto that negatively affect the travel industry; and
• our inability to implement the Revitalization Plan.