Ford 2002 Annual Report Download - page 48

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
At December 31, 2002, Hertz had committed credit facilities totaling $3.0 billion. Of this amount, $1.4 billion represented global
and other committed credit facilities ($0.9 billion of which are available through June 30, 2007 and $0.5 billion 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 2004; $215 million consisted of asset backed Letters of Credit, and $928 million consisted of 364-day
asset backed commercial paper facilities.
TOTAL COMPANY
Stockholders’ Equity —Our stockholders’ equity was $5.6 billion at December 31, 2002, down $2.2 billion compared with
December 31, 2001. As described below, changes in the funded status of our pension funds adversely impacted stockholders’
equity by $5.3 billion, which was partially offset by favorable foreign currency translation adjustments of $2.9 billion.
Our stockholders’ equity also was reduced in 2002 by net losses of $980 million and dividend payments of $743 million.
Post Retirement Obligations —We sponsor defined benefit pension plans whose pension fund assets consist principally of
investments in equities and in government and other fixed income securities. For our major U.S. pension funds, the target asset
allocation is 70% equities and 30% fixed income securities. On December 31, 2002, the market value of our U.S. pension fund
assets was less than the projected benefit obligations (calculated using a discount rate of 6.75%, which is reduced from 7.25%
used at year-end 2001) by $7.3 billion for our U.S. plans. For non-U.S. plans, the shortfall as of December 31, 2002, was $8.3
billion, for a total worldwide shortfall of $15.6 billion. Our stockholders’ equity was reduced by $5.3 billion at December 31, 2002
because of increased pension under funding. Pension funding obligations and strategies are highly dependent on investment
returns, discount rates, actuarial assumptions, and benefit levels (which can be contractually specified, such as those under the
Ford-UAW Retirement Plan that is subject to negotiation in 2003). If these assumptions were to remain unchanged, we project
that we would not have a legal requirement to fund our major U.S. pension plans before 2007. However, we review our pension
assumptions regularly and we do from time to time make contributions beyond those legally required. For example, in January
2003 we contributed $500 million in cash to the U.S. pension funds and, depending on a determination that it will be deductible
for U.S. income tax purposes, expect to contribute an additional $500 million by June 2003. Further, after giving effect to these
contributions, based on current interest rates and on our return assumptions and assuming no additional contributions, we do
not expect to be required to pay any variable-rate premiums to the Pension Benefit Guaranty Corporation before 2005.
We sponsor post retirement health care plans, primarily in the U.S. We partially fund these obligations through a VEBA trust,
which is invested in short-term fixed income investments.
Debt Ratings —Our short- and long-term debt are rated by three nationally-recognized statistical rating organizations: Fitch, Inc.
(“Fitch”); Moody's Investors Service, Inc. (“Moody’s”); and Standard & Poor’s Rating Services, a division of McGraw-Hill
Companies, Inc. (“S&P”). In addition to these three rating agencies, we also are rated in several local markets by locally
recognized rating agencies. Debt ratings reflect an assessment by the rating agencies of the credit risk associated with
particular securities we issue, and are based on information provided by us or other sources. Lower ratings generally result in
higher borrowing costs and reduced access to capital markets. Long- and short-term debt ratings of BBB- and F3 or higher by
Fitch, Baa3 and P-3 or higher by Moody's and BBB- and A3 or higher by S&P are considered “investment grade.” However,
debt ratings are not recommendations to buy, sell, or hold securities and are subject to revision or withdrawal at any time by
the assigning rating agency. Each rating agency may have different criteria in evaluating the risk associated to a company, and
therefore ratings should be evaluated independently for each rating agency.
Fitch Ratings —On January 11, 2002, Fitch lowered the long-term debt ratings of Ford, Ford Credit and Hertz from A- to BBB+,
confirmed Ford Credit’s and Hertz’ short-term debt rating at F2, and confirmed the rating outlook for all three companies as
negative. On October 31, 2002, Fitch affirmed the long-term debt ratings of Ford, Ford Credit and Hertz at BBB+, short-term
debt ratings at F2 and its rating outlook as negative.
Moody’s Ratings —On January 16, 2002, Moody’s lowered Ford’s long-term debt rating from A3 to Baa1, lowered Ford Credit’s
long- and short-term debt ratings from A2 to A3 and from Prime-1 to Prime-2, respectively, and confirmed the rating outlook of
both companies as negative. Moody’s also lowered Hertz’ long-term debt rating from Baa1 to Baa2, confirmed its short-term
debt rating at Prime-2 and confirmed its rating outlook as negative. On December 10, 2002, Moody’s confirmed Hertz’ long-term
debt rating at Baa2, short-term debt rating at Prime-2 and its rating outlook is negative. On March 7, 2003, Moody’s affirmed the
long-term debt rating of Ford at Baa1 and long- and short-term debt ratings of Ford Credit at A3 and Prime-2, respectively, and
confirmed the rating outlook of both companies as negative.
S&P Ratings —On January 11, 2002, S&P changed the rating outlook for Ford, Ford Credit and Hertz to negative. On October
16, 2002, S&P placed Ford, Ford Credit and Hertz’s long-term debt ratings on CreditWatch with negative implications. The short-
term debt rating of Ford Credit was reaffirmed at A2. On October 25, 2002, S&P lowered the long-term debt ratings of Ford and
Ford Credit from BBB+ to BBB. It affirmed the short-term debt ratings of Ford Credit at A2. S&P stated that its rating outlook on
us was negative and that is was concerned that the benefits of our Revitalization Plan could eventually be offset by decreasing
industry demand in North America, industry wide price competition and Ford's market share weakness. S&P also indicated that
its ratings on Ford could be lowered further if it comes to doubt Ford's ability to sustain earnings improvement, including the