Ford 2003 Annual Report Download - page 39

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2003 ANNUAL REPORT 37
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULT OF OPERATIONS
In the previous table, we disclose our Automotive income before income taxes excluding special items, which is not a financial
measure calculated and presented in accordance with generally accepted accounting principles in the United States (“GAAP”).
We believe, however, that this measure is useful to our investors because it excludes elements that we do not consider to be
indicative of our ongoing Automotive operating activities. This income before income taxes excluding special items measure is
one of the metrics by which our management evaluates the business and it provides investors with a more relevant measure of
the results generated by our ongoing operations.
The following table reconciles Automotive income before income taxes excluding special items to Automotive Income/(loss)
before income taxes (which includes special items), the most directly comparable financial measure presented in accordance
with GAAP (in millions):
2003 2002 2001
Automotive Sector
Income/(loss) before income taxes excluding special items $ 104 $ (253) $ (2,855)
Special items*:
Revitalization Plan and other charges -- (5,593)
European restructuring (513) (173) -
Premier Automotive Group restructuring -(157) -
Mazda restructuring actions -- (114)
Visteon agreement (1,597) --
Disposition of non-core businesses 49 (570) (295)
Total special items (2,061) (900) (6,002)
Income/(loss) before income taxes $ (1,957) $ (1,153) $ (8,857)
–––––––––––––
* See Automotive Sector Results from Operations — 2003 Compared with 2002 for a discussion of special items
The table below shows how we were able to significantly exceed our 2003 cost performance milestone (in billions):
Costs *
2003
Better/(Worse)
2002
Quality related $ 1.6
Manufacturing and engineering 1.2
Overhead 1.4
Net product costs 0.4
Depreciation and amortization (0.2)
Pension and healthcare (1.2)
Total $ 3.2
–––––––––––––
* At constant volume, mix and exchange and excluding special items.
The $1.6 billion in quality related cost reductions resulted from fewer warranty claims, primarily on 2002 model year vehicles, as
well as sharply lower recalls and customers service actions. The $1.2 billion reduction in manufacturing and engineering reflected
ongoing efficiencies and an intense effort to identify and eliminate waste. The $1.4 billion reduction in overhead resulted from
intensive cost cutting and elimination of waste in areas such as advertising and sales promotion, personnel costs, consulting,
travel and office supplies. Net product costs, which improved by $400 million, include the net impact of higher costs on newly
introduced vehicles and the effect of ongoing cost reductions on carryover vehicles.
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