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3 6
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
In managing our business, we classify changes in gross cash into four categories: operating-related (both including and
excluding pension/long-term VEBA contributions and tax refunds), capital transactions with the Financial Services sector,
acquisitions and divestitures and other (primarily financing related). Our key metric for operating-related cash flow is cash
flow before funded pension and long-term VEBA contributions and tax refunds. This metric best represents the ability of our
Automotive operations to generate cash. We believe the cash flow analysis reflected in the table below, which differs from a cash
flow statement presented in accordance with GAAP, is useful to investors because it includes cash flow elements that we consider
to be related to our operating activities (e.g., capital spending) that are not included in Cash flows from operating activities
before securities trading, the most directly comparable GAAP financial measure.
Changes in Automotive gross cash for the last three years are summarized below (in billions):
Total 2004 operating-related cash flows before funded pension plan and long-term VEBA contributions and tax refunds were
$1.0 billion positive. Other operating-related changes, primarily timing differences between expense or revenue recognition
and the corresponding cash payments for costs such as health care, pension, marketing, and warranty, offset partially by higher
year-end inventory, contributed about $900 million in 2004. The $1.1 billion decrease in capital expenditures in 2004 from
2003, primarily reflected the high level of North American spending in 2003 for new product launches consistent with our
product-led revitalization plan.
Including funded pension plan and long-term VEBA contributions and tax refunds, operating-related cash flows were an outflow
of $3.7 billion. Contributions to our worldwide funded pension plans totaled $2.2 billion in 2004, compared to approximately
$2.8 billion in 2003. In 2004, we also contributed $2.8 billion to a long-term VEBA used to pre-fund a portion of Ford’s other
postretirement benefits liability. We made no contributions to our short-term VEBA in 2004 which we include in gross cash. The
$4.1 billion of short-term VEBA assets are invested in a manner similar to our cash portfolio and are available to fund certain
employee benefit obligations in the near term. The $5.2 billion of long-term VEBA assets are invested in a manner similar to
our pension fund assets. The assets of the long-term VEBA are not included in gross cash, but are dedicated to pay longer-term
healthcare obligations. See Note 22 of the Notes to the Financial Statements for plans to contribute to funded pension plans
and VEBA.
2004 2003 2002
Gross cash at end of period $ 23.6 $ 25.9 $ 25.3
Gross cash at beginning of period 25.9 25.3 17.7
Total change in gross cash $ (2.3) $ 0.6 $ 7.6
Operating-related cash flows
Automotive income/(loss) before income taxes $ (0.2) $ (1.9) $ (1.1)
Non-cash portion of Visteon special items 0.6 1.6 -
Capital expenditures (6.3) (7.4) (6.8)
Depreciation and special tools amortization 6.4 5.5 4.9
Changes in receivables, inventory and trade payables (0.4) (1.0) (1.8)
All other 0.9 3.3 5.1
Total operating-related cash flows before
pension/long-term VEBA contributions and tax refunds 1.0 0.1 0.3
Funded pension plans/long-term VEBA contributions (5.0) (4.8) (0.5)
Tax refunds 0.3 1.7 2.6
Total operating-related cash flows (3.7) (3.0) 2.4
Capital transactions with Financial Services sector a/ 4.2 3.6 0.4
Acquisitions and divestitures 0.4 0.5 0.6
Other
Dividends paid to shareholders (0.7) (0.7) (0.7)
Convertible preferred securities - - 4.9
Changes in total Automotive sector debt (2.4) (0.1) (0.1)
Cash from FIN 46 consolidations b/ - 0.3 -
Other – primarily net issuance/(purchase) of stock (0.1) - 0.1
Total change in gross cash $ (2.3) $ 0.6 $ 7.6
a/ Primarily dividends, loans, and loan repayments.
b/ See Note 16 of the Notes to the Financial Statements for a discussion of the adoption of FIN 46.