Ford 2004 Annual Report Download - page 93

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NOTES TO THE FINANCIAL STATEMENTS
Guarantees related to affiliates and third parties. We guarantee debt and lease obligations of certain joint ventures as well
as certain financial obligations of outside third parties to support business and economic growth. Expiration dates vary, and
guarantees will terminate on payment and/or cancellation of the obligation. A payment would be triggered by failure of the
guaranteed party to fulfill its obligation covered by the guarantee. In some circumstances, we are entitled to recover from the
third party amounts paid by us under the guarantee. However, our ability to enforce these rights is sometimes stayed until the
guaranteed party is paid in full. The maximum potential payments under these guarantees total approximately $471 million,
the majority of which relates to the Automotive sector.
In 1992, we issued $500 million of 7.25% Notes due October 1, 2008 (“Notes”). In 1999, the bondholders agreed to relieve
us as the primary obligor with respect to the principal of these Notes. As part of this transaction, we placed certain financial
assets into an escrow trust for the benefit of the bondholders, and the trust became the primary obligor with respect to the
principal (we became secondarily liable for the entire principal amount).
We also have guarantees outstanding associated with a subsidiary trust, Trust II. For further discussions of Trust II, refer to Notes
15 and 17.
Indemnifications. In the ordinary course of business, we execute contracts involving indemnifications standard in the industry
and indemnifications specific to a transaction such as the sale of a business. These indemnifications might include claims
against any of the following: environmental, tax and shareholder matters; intellectual property rights; power generation
contracts; governmental regulations and employment-related matters; dealer, supplier, and other commercial contractual
relationships; and financial matters, such as securitizations. Performance under these indemnities would generally be triggered
by a breach of terms of the contract or by a third-party claim. We regularly evaluate the probability of having to incur costs
associated with these indemnifications and have accrued for expected losses that are probable. We are party to numerous
indemnifications and many of these indemnities do not limit potential payment; therefore, we are unable to estimate a
maximum amount of potential future payments that could result from claims made under these indemnities.
Product Performance
Warranty. Estimated warranty costs and additional service actions are accrued for at the time the vehicle is sold to a dealer.
Included in the warranty cost accruals are costs for basic warranty coverages on vehicles sold. Additional service actions
such as product recalls and other customer service actions are not included in the warranty reconciliation below, but are also
accrued for at the time of sale. Estimates for warranty costs are made based primarily on historical warranty claim experience.
The following is a tabular reconciliation of the product warranty accrual (in millions):
Extended Service Plans. Fees or premiums for the issuance of extended service plans are recognized in income over the
contract period in proportion to the costs expected to be incurred in performing services under the contract.
Litigation and Claims
Various legal actions, governmental investigations and proceedings and claims are pending or may be instituted or asserted in the
future against us, including those arising out of alleged defects in our products; governmental regulations relating to safety, emissions
and fuel economy; financial services; employment-related matters; dealer, supplier and other contractual relationships; intellectual
property rights; product warranties; environmental matters; shareholder or investor matters; and financial reporting matters. Certain
of the pending legal actions are, or purport to be, class actions. Some of the foregoing matters involve or may involve compensatory,
punitive, or antitrust or other treble damage claims in very large amounts, or demands for recall campaigns, environmental
remediation programs, sanctions, or other relief, which, if granted, would require very large expenditures.
Litigation is subject to many uncertainties, and the outcome of individual litigated matters is not predictable with assurance.
We have established accruals for certain of the matters discussed in the foregoing paragraph where losses are deemed
probable and reasonably estimable. It is reasonably possible, however, that some of the matters discussed in the foregoing
paragraph for which accruals have not been established could be decided unfavorably to us and could require us to pay
damages or make other expenditures in amounts or a range of amounts that cannot be estimated at December 31, 2004. We
do not reasonably expect, based on our analysis, that such matters would have a material effect on future financial statements
for a particular year, although such an outcome is possible.
2004 2003
Beginning balance $ 5,443 $ 5,401
Payments made during the year (3,694) (3,524)
Changes in accrual related to warranties issued during the year 3,611 3,562
Changes in accrual related to pre-existing warranties 161 (266)
Foreign currency translation and other 230 270
Ending balance $ 5,751 $ 5,443