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, 2006

o
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        o 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 o
Non-accelerated filer o

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

As of November 6, 2006, the registrant had outstanding 1,818,041,779 shares of Common Stock and 70,852,076 shares of Class B Stock.

Exhibit index located on page number 58.
 




EXPLANATORY NOTE

In October 2006, Ford Motor Company (generally, "Ford," "we," "us" or "our") reviewed our application of paragraph 68 of Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, and its use at our indirect wholly-owned subsidiary, Ford Motor Credit Company ("Ford Credit"). One of the general requirements of SFAS No. 133 is that hedge accounting is appropriate only for those hedging relationships that a company expects will be highly effective in achieving offsetting changes in fair value or cash flows attributable to the risk being hedged. To determine whether transactions satisfy this requirement, companies must periodically assess the effectiveness of hedging relationships both prospectively and retrospectively. Paragraph 68 of SFAS No. 133 ("Paragraph 68") contains an exception from these periodic assessment requirements in the form of an "assumption of no ineffectiveness" for certain hedges of interest rate risk that involve interest rate swaps and recognized interest-bearing assets or liabilities. The exception identifies the specific requirements for the derivative and hedged items that must be met, such as a derivative fair value of zero at inception of the hedging relationship, matching maturity dates, and contemporaneous formal documentation.

Based on our review, we concluded that all of our interest rate swaps were and continue to be highly effective economic hedges; nearly all of these transactions, however, failed to meet the requirements set forth in Paragraph 68, primarily because:

 
·
Transactions that we designated as fair value hedges involved interest rate swaps hedging the back-end of debt instruments or involved longer-than-normal settlement periods.

 
·
We paid or received fees when entering into a derivative contract or upon changing counterparties.

 
·
Interest rate swaps included terms that did not exactly match the terms of the debt, including prepayment optionality.

Although we now have determined that the hedging relationships at issue in this restatement did not meet the specific criteria for an assumption of no ineffectiveness pursuant to Paragraph 68, we are precluded by SFAS No. 133 from retroactively performing full effectiveness testing in order to apply hedge accounting. Accordingly, the restated results in our Annual Report on Form 10-K/A for the year ended December 31, 2005 ("2005 Form 10-K/A Report") reflect the changes in fair value of these instruments as derivative gains and losses during the affected periods, without recording any offsetting change in the value of the debt they were economically hedging.

As a result, we have filed our 2005 Form 10-K/A Report restating certain financial information therein including: historical balance sheets as of December 31, 2005 and 2004; statements of income, cash flows and stockholders’ equity for the years ending 2005, 2004, and 2003; and selected financial data as of and for the years ended December 31, 2005, 2004, 2003, 2002 and 2001.

1


Changes in the fair value of interest rate swaps are driven primarily by changes in interest rates. We have long-term interest rate swaps with large notional balances, many of which are "receive-fixed, pay-float" interest rate swaps. Such swaps increase in value when interest rates decline, and decline in value when interest rates rise. As a result, changes in interest rates cause substantial volatility in the fair values that must be recognized in earnings. For 2001 and 2002, when interest rates were trending lower, we have recognized large derivative gains in our restated financial data. The upward trend in interest rates from 2003 through 2005 caused our interest rate swaps to decline in value, resulting in the recognition of derivative losses for these periods.
 
See Note 28 of the Notes to the Financial Statements in our 2005 Form 10-K/A Report for additional information and amounts related to our restatement. In addition, this Quarterly Report on Form 10-Q for the period ended September 30, 2006 includes, in Note 2 of the Notes to the Financial Statements, restated consolidated and sector statements of income for the three- and nine-month periods ended September 30, 2005, restated consolidated and sector balance sheets as of December 31, 2005, and restated condensed consolidated and sector statements of cash flows for the nine-month period ended September 30, 2005.

The following table sets forth a reconciliation of previously reported and restated net income/(loss) for the periods shown (in millions):

   
2005 Net Income/(Loss)
 
           
   
Third
Quarter
 
First Nine
Months
 
           
Previously reported
 
$
(284
)
$
1,874
 
Pre-tax adjustments:
             
Fair value interest rate swaps
   
(435
)
 
(624
)
Other out-of-period adjustments
   
(31
)
 
63
 
Total pre-tax adjustments
   
(466
)
 
(561
)
Related tax effects - provision for/(benefit from)
   
(174
)
 
(201
)
Net after-tax adjustments
   
(292
)
 
(360
)
Restated
 
$
(576
)
$
1,514
 

Subsequent to the completion of our originally-filed financial statements for each period being restated, we identified adjustments that should have been recorded in these earlier periods.  Upon identification, we determined these adjustments to be immaterial, individually and in the aggregate, to our originally-filed financial statements, and generally recognized these adjustments ("out-of-period" adjustments) in the period in which they were identified.  Because the Ford Credit interest rate swap adjustment has required a restatement, we also are reversing these out-of-period adjustments and recording them in the proper periods.

We do not intend to amend previously-filed Quarterly Reports on Form 10-Q for periods ending prior to December 31, 2005. The reader should not rely on our previously-filed Quarterly Report on Form 10-Q for the period ended September 30, 2005, but should instead rely upon the updated financial data provided for the third quarter and nine months ended September 30, 2005 herein.

2


PART I. FINANCIAL INFORMATION

ITEM 1.
Financial Statements.

FORD MOTOR COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME
For the Periods Ended September 30, 2006 and 2005
(in millions, except per share amounts)

   
Third Quarter
 
First Nine Months
 
       
Restated -
See Note 2
     
Restated -
See Note 2
 
   
2006
 
2005
 
2006
 
2005
 
   
(unaudited)
 
(unaudited)
 
Sales and revenues
                 
Automotive sales
 
$
32,556
 
$
34,656
 
$
107,356
 
$
112,778
 
Financial Services revenues
   
4,554
   
5,854
   
12,449
   
17,793
 
Total sales and revenues
   
37,110
   
40,510
   
119,805
   
130,571
 
                           
Costs and expenses
                         
Automotive cost of sales
   
37,554
   
33,471
   
110,340
   
105,786
 
Selling, administrative and other expenses
   
4,496
   
5,983
   
13,730
   
18,181
 
Interest expense
   
1,936
   
2,157
   
6,330
   
6,287
 
Financial Services provision for credit and insurance losses
   
97
   
182
   
193
   
350
 
Total costs and expenses
   
44,083
   
41,793
   
130,593
   
130,604
 
                           
Automotive interest income and other non-operating income/(expense), net
   
555
   
307
   
1,080
   
1,111
 
Automotive equity in net income/(loss) of affiliated companies
   
61
   
133
   
345
   
259
 
Income/(loss) before income taxes
   
(6,357
)
 
(843
)
 
(9,363
)
 
1,337
 
Provision for/(benefit from) income taxes
   
(1,157
)
 
(314
)
 
(2,499
)
 
(328
)
Income/(loss) before minority interests
   
(5,200
)
 
(529
)
 
(6,864
)
 
1,665
 
Minority interests in net income/(loss) of subsidiaries
   
48
   
54
   
126
   
196
 
Income/(loss) from continuing operations
   
(5,248
)
 
(583
)
 
(6,990
)
 
1,469
 
Income/(loss) from discontinued operations (Note 4)
   
   
7
   
2
   
45
 
Net income/(loss)
 
$
(5,248
)
$
(576
)
$
(6,988
)
$
1,514
 
                           
AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK (Note 12)
                         
Basic income/(loss)
                         
Income/(loss) from continuing operations
 
$
(2.79
)
$
(0.31
)
$
(3.73
)
$
0.80
 
Income/(loss) from discontinued operations
   
   
   
   
0.02
 
Net income/(loss)
 
$
(2.79
)
$
(0.31
)
$
(3.73
)
$
0.82
 
Diluted income/(loss)
                         
Income/(loss) from continuing operations
 
$
(2.79
)
$
(0.31
)
$
(3.73
)
$
0.76
 
Income/(loss) from discontinued operations
   
   
   
   
0.03
 
Net income/(loss)
 
$
(2.79
)
$
(0.31
)
$
(3.73
)
$
0.79
 
Cash dividends
 
$
0.05
 
$
0.10
 
$
0.25
 
$
0.30
 

The accompanying notes are part of the financial statements
 
3

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

SECTOR STATEMENT OF INCOME
For the Periods Ended September 30, 2006 and 2005
(in millions, except per share amounts)

   
Third Quarter
 
First Nine Months
 
       
Restated -
See Note 2 
     
Restated -
See Note 2
 
   
2006
 
2005
 
2006
 
2005
 
   
(unaudited)
 
(unaudited)
 
AUTOMOTIVE
                 
Sales
 
$
32,556
 
$
34,656
 
$
107,356
 
$
112,778
 
Costs and expenses
                         
Cost of sales
   
37,554
   
33,471
   
110,340
   
105,786
 
Selling, administrative and other expenses
   
2,798
   
2,811
   
8,733
   
8,977
 
Total costs and expenses
   
40,352
   
36,282
   
119,073
   
114,763
 
Operating income/(loss)
   
(7,796
)
 
(1,626
)
 
(11,717
)
 
(1,985
)
                           
Interest expense
   
(73
)
 
371
   
621
   
960
 
                           
Interest income and other non-operating income/(expense), net
   
555
   
307
   
1,080
   
1,111
 
Equity in net income/(loss) of affiliated companies
   
61
   
133
   
345
   
259
 
Income/(loss) before income taxes — Automotive
   
(7,107
)
 
(1,557
)
 
(10,913
)
 
(1,575
)
                           
FINANCIAL SERVICES
                         
Revenues
   
4,554
   
5,854
   
12,449
   
17,793
 
Costs and expenses
                         
Interest expense
   
2,009
   
1,786
   
5,709
   
5,327
 
Depreciation
   
1,400
   
1,537
   
3,899
   
4,591
 
Operating and other expenses
   
298
   
1,635
   
1,098
   
4,613
 
Provision for credit and insurance losses
   
97
   
182
   
193
   
350
 
Total costs and expenses
   
3,804
   
5,140
   
10,899
   
14,881
 
Income/(loss) before income taxes — Financial Services
   
750
   
714
   
1,550
   
2,912
 
                           
TOTAL COMPANY
                         
Income/(loss) before income taxes
   
(6,357
)
 
(843
)
 
(9,363
)
 
1,337
 
Provision for/(benefit from) income taxes
   
(1,157
)
 
(314
)
 
(2,499
)
 
(328
)
Income/(loss) before minority interests
   
(5,200
)
 
(529
)
 
(6,864
)
 
1,665
 
Minority interests in net income/(loss) of subsidiaries
   
48
   
54
   
126
   
196
 
Income/(loss) from continuing operations
   
(5,248
)
 
(583
)
 
(6,990
)
 
1,469
 
Income/(loss) from discontinued operations (Note 4)
   
   
7
   
2
   
45
 
Net income/(loss)
 
$
(5,248
)
$
(576
)
$
(6,988
)
$
1,514
 
                           
AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK (Note 12)
                         
Basic income/(loss)
                         
Income/(loss) from continuing operations
 
$
(2.79
)
$
(0.31
)
$
(3.73
)
$
0.80
 
Income/(loss) from discontinued operations
   
   
   
   
0.02
 
Net income/(loss)
 
$
(2.79
)
$
(0.31
)
$
(3.73
)
$
0.82
 
Diluted income/(loss) 
                         
Income/(loss) from continuing operations
 
$
(2.79
)
$
(0.31
)
$
(3.73
)
$
0.76
 
Income/(loss) from discontinued operations
   
   
   
   
0.03
 
Net income/(loss)
 
$
(2.79
)
$
(0.31
)
$
(3.73
)
$
0.79
 
Cash dividends
 
$
0.05
 
$
0.10
 
$
0.25
 
$
0.30
 

The accompanying notes are part of the financial statements

4

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET
(in millions)

   
September 30,
2006
 
Restated -
see Note 2
December 31,
2005
 
   
(unaudited)
     
ASSETS
         
Cash and cash equivalents
 
$
25,511
 
$
28,406
 
Marketable securities
   
14,552
   
10,672
 
Loaned securities
   
564
   
3,461
 
Finance receivables, net
   
106,685
   
105,975
 
Other receivables, net
   
8,004
   
8,536
 
Net investment in operating leases
   
30,943
   
27,099
 
Retained interest in sold receivables
   
1,073
   
1,420
 
Inventories (Note 6)
   
11,997
   
10,271
 
Equity in net assets of affiliated companies
   
2,828
   
2,579
 
Net property
   
37,844
   
40,676
 
Deferred income taxes
   
4,197
   
5,880
 
Goodwill and other intangible assets (Note 9)
   
6,396
   
5,945
 
Assets of discontinued/held-for-sale operations    
    5  
Other assets
   
16,871
   
18,534
 
Total assets
 
$
267,465
 
$
269,459
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
             
Payables
 
$
22,738
 
$
22,910
 
Accrued liabilities and deferred revenue
   
77,365
   
73,047
 
Debt
   
154,410
   
153,278
 
Deferred income taxes
   
2,774
   
5,660
 
Total liabilities
   
257,287
   
254,895
 
               
Minority interests
   
1,015
   
1,122
 
               
Stockholders’ equity
             
Capital stock
             
Common Stock, par value $0.01 per share (1,837 million shares issued)
   
18
   
18
 
Class B Stock, par value $0.01 per share (71 million shares issued)
   
1
   
1
 
Capital in excess of par value of stock
   
4,579
   
4,872
 
Accumulated other comprehensive income/(loss)
   
(785
)
 
(3,680
)
Treasury stock
   
(258
)
 
(833
)
Retained earnings
   
5,608
   
13,064
 
Total stockholders’ equity
   
9,163
   
13,442
 
Total liabilities and stockholders’ equity
 
$
267,465
 
$
269,459
 

The accompanying notes are part of the financial statements

5

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

SECTOR BALANCE SHEET
(in millions)
 
   
September 30,
2006
 
Restated -
See Note 2
December 31,
2005
 
   
(unaudited)
     
ASSETS
         
Automotive
         
Cash and cash equivalents
 
$
13,531
 
$
13,388
 
Marketable securities
   
7,768
   
6,860
 
Loaned securities
   
564
   
3,461
 
Total cash, marketable and loaned securities
   
21,863
   
23,709
 
Receivables, net
   
3,551
   
3,075
 
Inventories (Note 6)
   
11,997
   
10,271
 
Deferred income taxes
   
657
   
1,249
 
Other current assets
   
7,891
   
8,177
 
Total current assets
   
45,959
   
46,481
 
Equity in net assets of affiliated companies
   
2,026
   
1,756
 
Net property
   
37,533
   
40,348
 
Deferred income taxes
   
13,023
   
10,999
 
Goodwill and other intangible assets (Note 9)
   
6,379
   
5,928
 
Assets of discontinued/held-for-sale operations    
    5  
Other assets
   
9,006
   
8,308
 
Total Automotive assets
   
113,926
   
113,825
 
Financial Services
             
Cash and cash equivalents
   
11,980
   
15,018
 
Marketable securities
   
6,784
   
3,812
 
Finance receivables, net
   
111,138
   
111,436
 
Net investment in operating leases
   
26,286
   
22,951
 
Retained interest in sold receivables
   
1,073
   
1,420
 
Goodwill and other intangible assets (Note 9)
   
17
   
17
 
Other assets
   
5,921
   
7,457
 
Receivable from Automotive
   
994
   
83
 
Total Financial Services assets
   
164,193
   
162,194
 
Intersector elimination
   
(994
)
 
(83
)
Total assets
 
$
277,125
 
$
275,936
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
             
Automotive
             
Trade payables
 
$
17,895
 
$
16,637
 
Other payables
   
3,163
   
4,222
 
Accrued liabilities and deferred revenue
   
29,545
   
28,829
 
Deferred income taxes
   
1,152
   
804
 
Debt payable within one year
   
1,289
   
978
 
Current payable to Financial Services
   
285
   
83
 
Total current liabilities
   
53,329
   
51,553
 
Long-term debt
   
16,376
   
16,900
 
Other liabilities
   
43,214
   
38,639
 
Deferred income taxes
   
466
   
586
 
Non-current payable to Financial Services
   
709
   
 
Total Automotive liabilities
   
114,094
   
107,678
 
Financial Services
             
Payables
   
1,680
   
2,051
 
Debt
   
136,745
   
135,400
 
Deferred income taxes
   
10,816
   
10,747
 
Other liabilities and deferred income
   
4,606
   
5,579
 
Total Financial Services liabilities
   
153,847
   
153,777
 
               
Minority interests
   
1,015
   
1,122
 
               
Stockholders’ equity
             
Capital stock
             
Common Stock, par value $0.01 per share (1,837 million shares issued)
   
18
   
18
 
Class B Stock, par value $0.01 per share (71 million shares issued)
   
1
   
1
 
Capital in excess of par value of stock
   
4,579
   
4,872
 
Accumulated other comprehensive income/(loss)
   
(785
)
 
(3,680
)
Treasury stock
   
(258
)
 
(833
)
Retained earnings
   
5,608
   
13,064
 
Total stockholders’ equity
   
9,163
   
13,442
 
Intersector elimination
   
(994
)
 
(83
)
Total liabilities and stockholders’ equity
 
$
277,125
 
$
275,936
 

The accompanying notes are part of the financial statements

6

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the Periods Ended September 30, 2006 and 2005
(in millions)

   
First Nine Months
 
       
Restated -
 
       
See Note 2
 
 
 
2006
 
2005
 
   
(unaudited)
 
       
Cash flows from operating activities of continuing operations
     
Net cash (used in)/provided by operating activities
 
$
16,975
 
$
19,282
 
               
Cash flows from investing activities of continuing operations
             
Capital expenditures
   
(5,242
)
 
(5,462
)
Acquisitions of retail and other finance receivables and operating leases
   
(47,688
)
 
(42,026
)
Collections of retail and other finance receivables and operating leases
   
31,741
   
36,492
 
Net acquisitions of daily rental vehicles
   
   
(2,183
)
Purchases of securities
   
(17,471
)
 
(10,100
)
Sales and maturities of securities
   
15,196
   
4,197
 
Proceeds from sales of retail and other finance receivables and operating leases
   
3,956
   
15,144
 
Proceeds from sale of businesses
   
54
   
2,245
 
Cash paid for acquisitions
   
   
(1,617
)
Transfer of cash balances upon disposition of discontinued/held-for-sale operations
   
(4
)
 
(4
)
Other
   
143
   
2,229
 
Net cash (used in)/provided by investing activities
   
(19,315
)
 
(1,085
)
               
Cash flows from financing activities of continuing operations
             
Cash dividends
   
(468
)
 
(552
)
Sales of Common Stock
   
355
   
697
 
Purchases of Common Stock
   
(139
)
 
(447
)
Changes in short-term debt
   
(276
)
 
(6,234
)
Proceeds from issuance of other debt
   
32,775
   
21,677
 
Principal payments on other debt
   
(33,012
)
 
(32,516
)
Other
   
(34
)
 
(28
)
Net cash (used in)/provided by financing activities
   
(799
)
 
(17,403
)
               
Effect of exchange rate changes on cash
   
238
   
(376
)
               
Net increase/(decrease) in cash and cash equivalents from continuing operations
   
(2,901
)
 
418
 
               
Cash flows from discontinued operations
             
Cash flows from operating activities of discontinued operations
   
2
   
65
 
Cash flows from investing activities of discontinued operations
   
   
(50
)
Cash flows from financing activities of discontinued operations
   
   
 
               
Net increase/(decrease) in cash and cash equivalents
 
$
(2,899
)
$
433
 
               
Cash and cash equivalents at January 1
 
$
28,406
 
$
22,828
 
Cash and cash equivalents of discontinued/held-for-sale operations at January 1
   
4
   
681
 
Net increase/(decrease) in cash and cash equivalents
   
(2,899
)
 
433
 
Less: cash and cash equivalents of discontinued/held-for-sale operations at September 30
   
   
(790
)
Cash and cash equivalents at September 30
 
$
25,511
 
$
23,152
 

The accompanying notes are part of the financial statements

7

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

CONDENSED SECTOR STATEMENT OF CASH FLOWS
For the Periods Ended September 30, 2006 and 2005
(in millions)

       
Restated - See Note 2
 
   
First Nine Months 2006
 
First Nine Months 2005
 
   
Automotive
 
Financial
Services
 
Automotive
 
Financial
Services
 
   
(unaudited)
 
(unaudited)
 
Cash flows from operating activities of continuing operations
                 
Net cash (used in)/provided by operating activities
 
$
5,020
 
$
5,471
 
$
4,532
 
$
5,887
 
                           
Cash flows from investing activities
                         
Capital expenditures
   
(5,212
)
 
(30
)
 
(5,109
)
 
(353
)
Acquisitions of retail and other finance receivables and operating leases
   
   
(47,688
)
 
   
(42,026
)
Collections of retail and other finance receivables and operating leases
   
   
32,099
   
   
36,579
 
Net (increase)/decrease of wholesale receivables
   
   
6,126
   
   
5,629
 
Net acquisitions of daily rental vehicles
   
   
   
   
(2,775
)
Purchases of securities
   
(3,641
)
 
(13,830
)
 
(4,343
)
 
(5,757
)
Sales and maturities of securities
   
4,095
   
11,101
   
3,239
   
958
 
Proceeds from sales of retail and other finance receivables and operating leases
   
   
3,956
   
   
15,144
 
Proceeds from sales of wholesale receivables
   
   
   
   
3,739
 
Proceeds from sale of businesses
   
54
   
   
204
   
2,041
 
Transfer of cash balances upon disposition of discontinued/held-for-sale operations
   
(4
)
 
   
1
   
(5
)
Investing activity from Financial Services
   
785
   
   
2,486
   
 
Investing activity to Financial Services
   
(1,400
)
 
   
   
 
Cash paid for acquisitions
   
   
   
(1,617
)
 
 
Other
   
(61
)
 
204
   
453
   
1,776
 
Net cash (used in)/provided by investing activities
   
(5,384
)
 
(8,062
)
 
(4,686
)
 
14,950
 
                           
Cash flows from financing activities
                         
Cash dividends
   
(468
)
 
   
(552
)
 
 
Sales of Common Stock
   
355
   
   
697
   
 
Purchases of Common Stock
   
(139
)
 
   
(447
)
 
 
Changes in short-term debt
   
251
   
(527
)
 
(3
)
 
(6,231
)
Proceeds from issuance of other debt
   
204
   
32,571
   
253
   
21,424
 
Principal payments on other debt
   
(629
)
 
(32,383
)
 
(682
)
 
(31,834
)
Financing activity from Automotive
   
   
1,400
   
   
 
Financing activity to Automotive
   
   
(785
)
 
   
(2,486
)
Other
   
76
   
(110
)
 
(4
)
 
(24
)
Net cash (used in)/provided by financing activities
   
(350
)
 
166
   
(738
)
 
(19,151
)
                           
Effect of exchange rate changes on cash
   
3
   
235
   
14
   
(390
)
Net change in intersector receivables/payables and other liabilities
   
848
   
(848
)
 
(168
)
 
168
 
Net increase/(decrease) in cash and cash equivalents from continuing operations
   
137
   
(3,038
)
 
(1,046
)
 
1,464
 
                           
Cash flows from discontinued operations
                         
Cash flows from operating activities of discontinued operations
   
2
   
   
(6
)
 
71
 
Cash flows from investing activities of discontinued operations
   
   
   
16
   
(66
)
Cash flows from financing activities of discontinued operations
   
   
   
   
 
                           
Net increase/(decrease) in cash and cash equivalents
 
$
139
 
$
(3,038
)
$
(1,036
)
$
1,469
 
                           
Cash and cash equivalents at January 1
 
$
13,388
 
$
15,018
 
$
10,139
 
$
12,689
 
Cash and cash equivalents of discontinued/held-for-sale operations at January 1
   
4
   
   
2
   
679
 
Net increase/(decrease) in cash and cash equivalents
   
139
   
(3,038
)
 
(1,036
)
 
1,469
 
Less: cash and cash equivalents of discontinued/held-for-sale operations at September 30
   
   
   
(13
)
 
(777
)
Cash and cash equivalents at September 30
 
$
13,531
 
$
11,980
 
$
9,092
 
$
14,060
 
 
The accompanying notes are part of the financial statements

8

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 accounting principles generally accepted 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 those adjustments necessary for 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. Results for interim periods should not be considered indicative of results for a full year. Reference should be made to the financial statements contained in our Annual Report on Form 10-K/A for the year ended December 31, 2005 (the "2005 Form 10-K/A 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.  RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

In October 2006, we reviewed our application of paragraph 68 of Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, and its use at our indirect wholly-owned subsidiary, Ford Motor Credit Company ("Ford Credit"). One of the general requirements of SFAS No. 133 is that hedge accounting is appropriate only for those hedging relationships that a company expects will be highly effective in achieving offsetting changes in fair value or cash flows attributable to the risk being hedged. To determine whether transactions satisfy this requirement, companies must periodically assess the effectiveness of hedging relationships both prospectively and retrospectively. Paragraph 68 of SFAS No. 133 ("Paragraph 68") contains an exception from these periodic assessment requirements in the form of an "assumption of no ineffectiveness" for certain hedges of interest rate risk that involve interest rate swaps and recognized interest-bearing assets or liabilities. The exception identifies the specific requirements for the derivative and hedged items that must be met, such as a derivative fair value of zero at inception of the hedging relationship, matching maturity dates, and contemporaneous formal documentation.

Based on our review, we concluded that all of our interest rate swaps were and continue to be highly effective economic hedges; nearly all of these transactions, however, failed to meet the requirements set forth in Paragraph 68, primarily because:

 
·
Transactions that we designated as fair value hedges involved interest rate swaps hedging the back-end of debt instruments or involved longer-than-normal settlement periods.

 
·
We paid or received fees when entering into a derivative contract or upon changing counterparties.

 
·
Interest rate swaps included terms that did not exactly match the terms of the debt, including prepayment optionality.

Although we now have determined that the hedging relationships at issue in this restatement did not meet the specific criteria for an assumption of no ineffectiveness pursuant to Paragraph 68, we are precluded by SFAS No. 133 from retroactively performing full effectiveness testing in order to apply hedge accounting. Accordingly, the restated results in our Annual Report on Form 10-K/A for the year ended December 31, 2005 ("2005 Form 10-K/A Report") reflect the changes in fair value of these instruments as derivative gains and losses during the affected periods, without recording any offsetting change in the value of the debt they were economically hedging.

As a result, we have filed our 2005 Form 10-K/A Report restating certain financial information therein including: historical balance sheets as of December 31, 2005 and 2004; statements of income, cash flows and stockholders’ equity for the years ending 2005, 2004, and 2003; and selected financial data as of and for the years ended December 31, 2005, 2004, 2003, 2002 and 2001.

9

Item 1. Financial Statements (Continued)

Changes in the fair value of interest rate swaps are driven primarily by changes in interest rates. We have long-term interest rate swaps with large notional balances, many of which are "receive-fixed, pay-float" interest rate swaps. Such swaps increase in value when interest rates decline, and decline in value when interest rates rise. As a result, changes in interest rates cause substantial volatility in the fair values that must be recognized in earnings. For 2001 and 2002, when interest rates were trending lower, we have recognized large derivative gains in our restated financial data. The upward trend in interest rates from 2003 through 2005 caused our interest rate swaps to decline in value, resulting in the recognition of derivative losses for these periods.
 
See Note 28 of the Notes to the Financial Statements in our 2005 Form 10-K/A Report for additional information and amounts related to our restatement. In addition, this Quarterly Report on Form 10-Q for the period ended September 30, 2006 includes, in Note 2, restated consolidated and sector statements of income for the three- and nine-month periods ended September 30, 2005, restated consolidated and sector balance sheets as of December 31, 2005, and restated condensed consolidated and sector statements of cash flows for the nine-month period ended September 30, 2005.

The following table sets forth a reconciliation of previously reported and restated net income/(loss) for the periods shown (in millions):

   
2005 Net Income/(Loss)
 
           
   
Third
Quarter
 
First Nine
Months
 
           
Previously reported
 
$
(284
)
$
1,874
 
Pre-tax adjustments:
             
Fair value interest rate swaps
   
(435
)
 
(624
)
Other out-of-period adjustments
   
(31
)
 
63
 
Total pre-tax adjustments
   
(466
)
 
(561
)
Related tax effects - provision for/(benefit from)
   
(174
)
 
(201
)
Net after-tax adjustments
   
(292
)
 
(360
)
Restated
 
$
(576
)
$
1,514
 

Subsequent to the completion of our originally-filed financial statements for each period being restated, we identified adjustments that should have been recorded in these earlier periods.  Upon identification, we determined these adjustments to be immaterial, individually and in the aggregate, to our originally-filed financial statements, and generally recognized these adjustments ("out-of-period" adjustments) in the period in which they were identified.  Because the Ford Credit interest rate swap adjustment has required a restatement, we also are reversing these out-of-period adjustments and recording them in the proper periods.
 
We do not intend to amend previously-filed Quarterly Reports on Form 10-Q for periods ending prior to December 31, 2005. The reader should not rely on the financial information in our previously-filed Quarterly Report on Form 10-Q for the period ended September 30, 2005, but should instead rely upon the updated financial data provided for the third quarter and nine months ended September 30, 2005 herein.

Presentation of Cash Flows

Beginning with our year ended December 31, 2005 statements of cash flows, we have revised the presentation of cash flows to separately disclose the operating, investing, and financing portions of the cash flows attributable to our discontinued operations. This revision is in response to public statements by the staff of the Securities and Exchange Commission ("SEC") concerning classification of discontinued operations within the statement of cash flows.

10

Item 1. Financial Statements (Continued)

NOTE 2. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (Continued)

The following table presents the effect of the restatement on the Consolidated Statement of Income (in millions, except per share amounts):

   
Third Quarter 2005
 
First Nine Months 2005
 
   
Previously
Reported
 
Restated
 
Previously
Reported
 
Restated
 
   
(unaudited)
 
(unaudited)
 
Sales and revenues
                 
Automotive sales
 
$
34,675
 
$
34,656
 
$
112,692
 
$
112,778
 
Financial Services revenues
   
6,181
   
5,854
   
17,848
   
17,793
 
Total sales and revenues
   
40,856
   
40,510
   
130,540
   
130,571
 
                           
Costs and expenses
                         
Automotive cost of sales
   
33,532
   
33,471
   
105,803
   
105,786
 
Selling, administrative and other expenses
   
5,983
   
5,983
   
18,200
   
18,181
 
Interest expense
   
1,976
   
2,157
   
5,659
   
6,287
 
Financial Services provision for credit and insurance losses
   
182
   
182
   
350
   
350
 
Total costs and expenses
   
41,673
   
41,793
   
130,012
   
130,604
 
                           
Automotive interest income and other non-operating income/(expense), net
   
307
   
307
   
1,111
   
1,111
 
Automotive equity in net income/(loss) of affiliated companies
   
133
   
133
   
259
   
259
 
Income/(loss) before income taxes
   
(377
)
 
(843
)
 
1,898
   
1,337
 
Provision for/(benefit from) income taxes
   
(140
)
 
(314
)
 
(127
)
 
(328
)
Income/(loss) before minority interests
   
(237
)
 
(529
)
 
2,025
   
1,665
 
Minority interests in net income/(loss) of subsidiaries
   
54
   
54
   
196
   
196
 
Income/(loss) from continuing operations
   
(291
)
 
(583
)
 
1,829
   
1,469
 
Income/(loss) from discontinued operations (Note 4)
   
7
   
7
   
45
   
45
 
Net income/(loss)
 
$
(284
)
$
(576
)
$
1,874
 
$
1,514
 
                           
AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK (Note 12)
                         
Basic income/(loss)
                         
Income/(loss) from continuing operations
 
$
(0.16
)
$
(0.31
)
$
0.99
 
$
0.80
 
Income/(loss) from discontinued operations
   
0.01
   
   
0.03
   
0.02
 
Net income/(loss)
 
$
(0.15
)
$
(0.31
)
$
1.02
 
$
0.82
 
Diluted income/(loss)
                         
Income/(loss) from continuing operations
 
$
(0.16
)
$
(0.31
)
$
0.93
 
$
0.76
 
Income/(loss) from discontinued operations
   
0.01
   
   
0.02
   
0.03
 
Net income/(loss)
 
$
(0.15
)
$
(0.31
)
$
0.95
 
$
0.79
 
Cash dividends
 
$
0.10
 
$
0.10
 
$
0.30
 
$
0.30
 
 
11

Item 1. Financial Statements (Continued)

NOTE 2. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (Continued)

The following table presents the effect of the restatement on the Sector Statement of Income (in millions, except per share amounts):

   
Third Quarter 2005
 
First Nine Months 2005
 
   
Previously
Reported
 
Restated
 
Previously
Reported
 
Restated
 
   
(unaudited)
 
(unaudited)
 
AUTOMOTIVE
                 
Sales
 
$
34,675
 
$
34,656
 
$
112,692
 
$
112,778
 
Costs and expenses
                         
Cost of sales
   
33,532
   
33,471
   
105,803
   
105,786
 
Selling, administrative and other expenses
   
2,811
   
2,811
   
8,996
   
8,977
 
Total costs and expenses
   
36,343
   
36,282
   
114,799
   
114,763
 
Operating income/(loss)
   
(1,668
)
 
(1,626
)
 
(2,107
)
 
(1,985
)
                           
Interest expense
   
371
   
371
   
960
   
960
 
                           
Interest income and other non-operating income/(expense), net
   
307
   
307
   
1,111
   
1,111
 
Equity in net income/(loss) of affiliated companies
   
133
   
133
   
259
   
259
 
Income/(loss) before income taxes — Automotive
   
(1,599
)
 
(1,557
)
 
(1,697
)
 
(1,575
)
                           
FINANCIAL SERVICES
                         
Revenues
   
6,181
   
5,854
   
17,848
   
17,793
 
Costs and expenses
                         
Interest expense
   
1,605
   
1,786
   
4,699
   
5,327
 
Depreciation
   
1,537
   
1,537
   
4,591
   
4,591
 
Operating and other expenses
   
1,635
   
1,635
   
4,613
   
4,613
 
Provision for credit and insurance losses
   
182
   
182
   
350
   
350
 
Total costs and expenses
   
4,959
   
5,140
   
14,253
   
14,881
 
Income/(loss) before income taxes — Financial Services
   
1,222
   
714
   
3,595
   
2,912
 
                           
TOTAL COMPANY
                         
Income/(loss) before income taxes
   
(377
)
 
(843
)
 
1,898
   
1,337
 
Provision for/(benefit from) income taxes
   
(140
)
 
(314
)
 
(127
)
 
(328
)
Income/(loss) before minority interests
   
(237
)
 
(529
)
 
2,025
   
1,665
 
Minority interests in net income/(loss) of subsidiaries
   
54
   
54
   
196
   
196
 
Income/(loss) from continuing operations
   
(291
)
 
(583
)
 
1,829
   
1,469
 
Income/(loss) from discontinued operations (Note 4)
   
7
   
7
   
45
   
45
 
Net income/(loss)
 
$
(284
)
$
(576
)
$
1,874
 
$
1,514
 
                           
AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK (Note 12)
                         
Basic income/(loss)
                         
Income/(loss) from continuing operations
 
$
(0.16
)
$
(0.31
)
$
0.99
 
$
0.80
 
Income/(loss) from discontinued operations
   
0.01
   
   
0.03
   
0.02
 
Net income/(loss)
 
$
(0.15
)
$
(0.31
)
$
1.02
 
$
0.82
 
Diluted income/(loss) 
                         
Income/(loss) from continuing operations
 
$
(0.16
)
$
(0.31
)
$
0.93
 
$
0.76
 
Income/(loss) from discontinued operations
   
0.01
   
   
0.02
   
0.03
 
Net income/(loss)
 
$
(0.15
)
$
(0.31
)
$
0.95
 
$
0.79
 
Cash dividends
 
$
0.10
 
$
0.10
 
$
0.30
 
$
0.30
 
 
12

Item 1. Financial Statements (Continued)

NOTE 2. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (Continued)

The following table presents the effect of the restatement on the Consolidated Balance Sheet at December 31, 2005 (in millions):

   
Previously
Reported
 
Restated
 
ASSETS
         
Cash and cash equivalents
 
$
28,406
 
$
28,406
 
Marketable securities
   
10,672
   
10,672
 
Loaned securities
   
3,461
   
3,461
 
Finance receivables, net
   
105,975
   
105,975
 
Other receivables, net
   
8,522
   
8,536
 
Net investment in operating leases
   
27,099
   
27,099
 
Retained interest in sold receivables
   
1,420
   
1,420
 
Inventories (Note 6)
   
10,271
   
10,271
 
Equity in net assets of affiliated companies
   
2,579
   
2,579
 
Net property
   
40,706
   
40,676
 
Deferred income taxes
   
5,881
   
5,880
 
Goodwill and other intangible assets (Note 9)
   
5,945
   
5,945
 
Assets of discontinued/held-for-sale operations
   
5
   
5
 
Other assets
   
18,534
   
18,534
 
Total assets
 
$
269,476
 
$
269,459
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
             
Payables
 
$
22,813
 
$
22,910
 
Accrued liabilities and deferred revenue
   
72,977
   
73,047
 
Debt
   
154,332
   
153,278
 
Deferred income taxes
   
5,275
   
5,660
 
Total liabilities
   
255,397
   
254,895
 
               
Minority interests
   
1,122
   
1,122
 
               
Stockholders’ equity
             
Capital stock
             
Common Stock, par value $0.01 per share (1,837 million shares issued)
   
18
   
18
 
Class B Stock, par value $0.01 per share (71 million shares issued)
   
1
   
1
 
Capital in excess of par value of stock
   
4,872
   
4,872
 
Accumulated other comprehensive income/(loss)
   
(3,562
)
 
(3,680
)
Treasury stock
   
(833
)
 
(833
)
Retained earnings
   
12,461
   
13,064
 
Total stockholders’ equity
   
12,957
   
13,442
 
Total liabilities and stockholders’ equity
 
$
269,476
 
$
269,459
 
 
13

Item 1. Financial Statements (Continued)

NOTE 2. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (Continued)

The following table presents the effect of the restatement on the Sector Balance Sheet at December 31, 2005 (in millions):

   
Previously
Reported
 
Restated
 
ASSETS
         
Automotive
         
Cash and cash equivalents
 
$
13,388
 
$
13,388
 
Marketable securities
   
6,860
   
6,860
 
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