Ford 2003 Annual Report Download - page 54

52 FORD MOTOR COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULT OF OPERATIONS
Ford Credit believes that managed leverage, which is the result of adjustments to its financial statement leverage, is useful to
its investors because it reflects the way Ford Credit manages its business. Ford Credit retains interests in receivables sold in
off-balance sheet securitization transactions, and with respect to subordinated retained interests, is exposed to credit risk.
Accordingly, Ford Credit considers securitization as an alternative source of funding and evaluates credit losses, receivables
and leverage on a managed as well as a financial statement basis. Ford Credit also deducts cash and cash equivalents because
they generally correspond to excess debt beyond the amount required to support its operations. In addition, Ford Credit adds
its minority interests to its financial statement equity, because all of the debt of such consolidated entities is included in its total
debt. SFAS No. 133 requires Ford Credit to make fair value adjustments to its assets, debt and equity positions to reflect the
impact of interest rate instruments Ford Credit uses in connection with its term debt issuances and securitizations. SFAS No. 133
adjustments vary over the term of the underlying debt and securitized funding obligations based on changes in market interest
rates. Ford Credit generally repays its debt funding obligations as they mature. As a result, Ford Credit excludes the impact of
SFAS No. 133 on both the numerator and denominator in order to exclude the interim effects of changes in market interest rates.
Accordingly, the managed leverage measure provides Ford Credit’s investors with meaningful information regarding
management’s decision-making processes.
Ford Credit’s managed leverage strategy involves establishing a leverage level that it believes reflects the risk characteristics
of its underlying assets. In establishing a target leverage level, Ford Credit considers the characteristics of the receivables in
its managed portfolio and the prevailing market conditions.
At December 31, 2003, Ford Credit’s managed leverage was 13.0 to 1, compared with 12.8 to 1 a year ago. Ford Credit’s
dividend policy is based in part on its strategy to maintain managed leverage at the lower end of the 13 -14 to 1 range.
As a result of improved profitability and lower managed receivable levels, Ford Credit paid dividends of $3.7 billion in 2003.
HERTZ
Hertz requires funding for the acquisition of revenue earning equipment, which consists of vehicles and industrial and
construction equipment. Hertz purchases this equipment in accordance with the terms of agreements negotiated with
automobile and equipment manufacturers. The financing requirements of Hertz are seasonal and are mainly explained by
the seasonality of the travel industry. Hertz’ fleet size, and its related financing requirements, generally peak in the summer
months, and decline during the winter months. Hertz accesses the global capital markets to meet its funding needs.
Hertz maintains unsecured domestic and foreign commercial paper programs and a secured domestic commercial paper
program to cover short-term funding needs, and also draws from bank lines, as a normal business practice, to fund
international needs. Hertz also is active in the domestic medium-term and long-term debt markets.
Hertz has an asset-backed securitization program for its domestic car rental fleet to reduce its borrowing costs and enhance
its financing resources. As of December 31, 2003, $723 million was outstanding under this program.
At December 31, 2003, Hertz had committed credit facilities totaling $2.8 billion. Of this amount, $1.3 billion represented global
and other committed credit facilities ($810 million of which are available through June 30, 2008 and $488 million of which have
various maturities of up to four years); $500 million consisted of a revolving credit line provided by Ford, which currently expires
in June 2005; $215 million consisted of asset-backed Letters of Credit, and $814 million consisted of 364-day asset-backed
commercial paper facilities.
TOTAL COMPANY
Stockholders’ Equity — Our stockholders’ equity was $11.7 billion at December 31, 2003, up $6.1 billion compared with the
level at December 31, 2002. The increase in stockholders' equity reflected primarily the impact of foreign currency translation
adjustments and a reduction in our minimum pension liability. For additional discussion of foreign currency translation
adjustments, see Notes 1 and 16 of the Notes to Financial Statements.
Pension — We sponsor defined benefit pension plans throughout the world. 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 benefits to retirees covered by the contract. These obligations give rise to significant expenses that are highly
dependent on assumptions discussed in Note 19 of the Notes to Financial Statements and under “Critical Accounting
Estimates” below. Based on present assumptions and benefit agreements, we expect our 2004 worldwide pre-tax pension
expense to be about $865 million, which is about $80 million lower than it was in 2003.
Included in our Stockholders’ Equity was a $3.5 billion adjustment for our worldwide minimum pension liability as of December
31, 2003. This was $2.2 billion better than the 2002 adjustment due to the improvement in the funded status of our worldwide
pension plans (i.e., the amount by which the present value of projected benefit obligations exceeded the market value of pension
plan assets) as of December 31, 2003, compared with December 31, 2002. The primary factor that contributed to the
improvement in the funded status was an increase in the actual return on plan assets for 2003, partially offset by decreases
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