Ford 2003 Annual Report Download - page 87

2003 ANNUAL REPORT 85
NOTES TO FINANCIAL STATEMENTS
FINANCIAL SERVICES SECTOR
For additional funding and to maintain liquidity, Ford Credit and its majority-owned subsidiaries (including FCE) have contractu-
ally committed credit facilities with financial institutions that totaled approximately $7.7 billion at December 31, 2003, including
$3.3 billion and $3.2 billion of global credit facilities at Ford Credit and FCE, respectively and $1.2 billion of non-global credit
facilities with varying terms and conditions that support local financing needs. Approximately $1.0 billion of the total facilities
were in use at December 31, 2003. Forty-seven percent of these facilities are committed through June 30, 2008. The global
credit facilities may be used, at Ford Credit’s or FCE’s option, by any of their direct or indirect majority-owned subsidiaries.
Ford Credit or FCE, as the case may be, will guarantee any such borrowings. All of the global credit facilities are free of
material adverse change clauses and restrictive financial covenants (for example, debt-to-equity limitations, minimum net
worth requirements and credit rating triggers that would limit our ability to borrow).
Additionally, at December 31, 2003, banks provided $18.6 billion of contractually committed liquidity facilities supporting two
asset-backed commercial paper programs; $18.2 billion support Ford Credit’s FCAR program and $425 million support Ford
Credit’s Motown NotesSM Program.
In addition, Ford Credit also has entered into agreements with several bank-sponsored, commercial paper issuers under
which such issuers in the aggregate are contractually committed to purchase from Ford Credit, at Ford Credit’s option, up to
$12.8 billion of receivables. The agreements have varying maturity dates between June 24, 2004 and October 29, 2004. As of
December 31, 2003, approximately $4.4 billion of these commitments have been used. These agreements do not contain restrictive
financial covenants (for example, debt-to-equity limitations or minimum net worth requirements) or material adverse change
clauses that would relieve the bank-sponsored asset-backed commercial paper issuer of its obligation to purchase receivables,
but do contain provisions that could terminate the unused portion of those commitments if the performance of the sold receivables
deteriorates beyond specified levels. None of these arrangements may be terminated based on a change in Ford Credit’s
credit rating.
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.
NOTE 13. VARIABLE INTEREST ENTITIES
In January 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46 (“FIN 46”), Consolidation of
Variable Interest Entities, an Interpretation of ARB No. 51, which expands upon and strengthens existing accounting guidance
concerning when a company should include in its financial statements the assets, liabilities and activities of another entity. A
Variable Interest Entity (“VIE”) does not share economic risk and rewards through typical equity ownership arrangements; instead,
contractual or other relationships re-distribute economic risks and rewards among equity holders and other parties. Once an
entity is determined to be a VIE, the party with the controlling financial interest, the primary beneficiary, is required to consolidate
it. FIN 46 also requires disclosures about VIEs that the Company is not required to consolidate but in which it has a significant
variable interest.
Effective July 1, 2003, we adopted FIN 46 for VIEs formed prior to February 1, 2003. As a result of consolidating the VIEs of
which we are the primary beneficiary, in the third quarter of 2003, we recognized a non-cash charge of $264 million as the
Cumulative effect of change in accounting principle in our statement of income. The charge represented the difference between
the fair value of the assets, liabilities and minority interests recorded upon consolidation and the carrying value of the invest-
ments. Recorded assets excluded goodwill in accordance with FIN 46.
The liabilities recognized as a result of consolidating the VIEs do not represent additional claims on our general assets, rather,
they represent claims against the specific assets of the consolidated VIEs. Conversely, assets recognized as a result of consoli-
dating these VIEs do not represent additional assets that could be used to satisfy claims against our general assets. Reflected
in our December 31, 2003 balance sheet are $3.4 billion of VIE assets.
AUTOMOTIVE SECTOR
VIEs of which we are the primary beneficiary:
As of July 1, 2003, the Automotive sector consolidated certain joint ventures determined to be VIEs, which we have invested
in and contracted with to manufacture and/or assemble vehicles and/or components. The activities with these joint ventures
include purchasing substantially all of the joint ventures’ output under a cost plus margin arrangement and/or volume dependent
pricing. Described below are the most significant of the VIEs that were consolidated.
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