Ford 2003 Annual Report Download - page 55

2003 ANNUAL REPORT 53
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULT OF OPERATIONS
in the discount rates at December 31, 2003 used to calculate the present value of benefit obligations, in each case compared
with the prior year. These changes are shown in the table below:
December 31,
2003 2002
Current Change from Current Change from
Year Prior Year Year Prior Year
Discount rate
U.S. plans 6.25% (0.50)pts 6.75% (0.50)pts
Non-U.S. plans 5.61% (0.04) 5.65% (0.45)
Actual return on plan assets (in millions)
U.S. plans $ 7,687 $11,022 $ (3,335) $ (1,777)
Non-U.S. plans 2,070 3,762 (1,692) (761)
Funded status (in millions)
U.S. plans $ (3,447) $ 3,829 $ (7,276) $ (7,872)
Non-U.S. plans (8,242) 93 (8,335) (5,279)
Our 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,
2003, the market value of our U.S. pension fund assets was less than the projected benefit obligation (calculated using a
discount rate of 6.25%, which is reduced from 6.75% used at year-end 2002) by $3.4 billion for our U.S. plans (of which
$2 billion relates to our U.S. funded plans). For non-U.S. plans, the shortfall as of December 31, 2003, was $8.2 billion, for a
total worldwide shortfall of $11.7 billion. 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). 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 2009. However, we review our pension assumptions regularly and we do from time
to time make contributions beyond those legally required. For example, in 2003 we made over $2 billion of discretionary cash
contributions to our U.S. pension funds. 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 2009.
For information related to our expenses and liabilities with respect to health care benefits we provide to our employees and
retirees, see “Overview — Key Economic Factors and Trends Affecting Automotive Industry — Health Care Expenses” above
and “Critical Accounting Estimates — Other Postretirement Benefits (Retiree Health Care and Life Insurance)” below.
Debt Ratings — Our short- and long-term debt is rated by four credit rating agencies designated as nationally recognized
statistical rating organizations (“NRSROs”) by the Securities and Exchange Commission:
• Dominion Bond Rating Service Limited (“DBRS”);
• 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 several markets, locally recognized rating agencies also rate us. A credit rating reflects an assessment by the rating agency
of the credit risk associated with particular securities we issue, based on information provided by us and other sources. Credit
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 for evaluating company risk, and therefore ratings should
be evaluated independently for each rating agency. Lower credit ratings generally result in higher borrowing costs and reduced
access to capital markets. The NRSROs have indicated that our lower ratings since 2001 are primarily a reflection of the rating
agencies’ concerns regarding our automotive cash flow and profitability, declining market share, excess industry capacity,
industry pricing pressure and rising healthcare costs.
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