Ford 2003 Annual Report Download - page 99

2003 ANNUAL REPORT 97
NOTES TO FINANCIAL STATEMENTS
COMPANY CONTRIBUTIONS
Our policy for funded plans is to contribute annually, at a minimum, amounts required by applicable laws, regulations, and union
agreements. 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.
During 2004, we expect worldwide Company cash outflow in respect of our defined benefit pension plans will total $1.1 billion,
consisting of contributions to pension funds and benefit payments for unfunded plans.
PLAN ASSET INFORMATION
Our investment strategy has a long-term horizon and is tolerant of return volatility, in keeping with the long-term nature of the
liabilities. The target asset allocation for our major plans worldwide generally is 70% equities, 30% fixed income. The present
allocation to alternative investments is below 1%. All assets are externally managed and investment managers have discretion to
invest globally within their respective mandates. A diverse array of investment processes within asset classes reduces volatility.
Most assets are actively managed; manager skill and broad mandates have generally produced long-term returns in excess of
common market indices. Ford securities comprised less than one-half of one percent of the value of our worldwide pension plan
assets during 2003 and 2002.
The equity allocation shown at year-end 2003 and 2002 includes public equity securities, private equity investments, and REITS.
Real estate investments shown separately reflect a liquidation strategy that has been in place for several years. Other assets
include cash held for near-term benefit funding; cash held by investment managers for liquidity purposes is included in the
appropriate asset class balance.
The long-term return assumption at year-end 2003 is 8.75% for the U.S. and averages 8.38% for non-U.S. plans. A consistent
approach generally is used worldwide to develop this assumption. This approach utilizes long-run equilibrium assumptions from
a range of advisors for capital market returns, inflation and other variables, adjusted for specific aspects of our strategy. This
exercise is conducted periodically, and changes in our assumption reflect changes in equilibrium views over time; we do not
expect to modify this assumption frequently. The long-term performance of our funds generally has been in excess of long-term
return assumptions worldwide.
We previously established a VEBA to pay a portion of U.S. hourly retiree health and life insurance benefits. In December 2003,
we contributed $3.5 billion to the trust, and all the assets were invested in short-term fixed income securities. Subsequent to
year-end, VEBA assets of $2.0 billion were invested in long-term investments, to be managed in a strategy similar to the pension
investment strategy described previously. The remaining VEBA assets will continue to be invested in short-term fixed income
securities, a portion of which is managed internally, with the remainder externally. The long-term expected return assumption
applicable to the total retiree VEBA is 6.2%, reflecting the weighted average of the expected returns on the long-term and short-
term portions of the portfolio.
NOTE 20. SEGMENT INFORMATION
The Company’s operating activity consists of two operating sectors, Automotive and Financial Services.
The Automotive sector consists of the design, development, manufacture, sale and service of cars, trucks and service parts.
In 2003, we began reporting our Automotive sector results as two primary segments, Americas and International.
The Americas segment includes primarily the sale of Ford, Lincoln and Mercury brand vehicles and related service parts in North
America (U.S., Canada and Mexico) and Ford-brand vehicles and related service parts in South America, and the associated
costs to design, develop, manufacture and service these vehicles and parts.
The International segment includes primarily the sale of Ford-brand vehicles and related service parts outside of North and South
America and the sale of Premier Automotive Group brand vehicles (i.e., Volvo, Jaguar, Land Rover and Aston Martin) and related
service parts throughout the world (including North and South America), together with the associated costs to design, develop,
manufacture and service these vehicles and parts. Additionally, the International segment includes our share of the results of
Mazda Motor Corporation and Mazda-related joint ventures.
The Other Automotive component of the Automotive sector consists primarily of net interest expense, which is not managed
individually by the two segments.
Transactions between Automotive segments are presented on an absolute cost basis, eliminating the effect of legal entity
transfer prices within the Automotive sector for vehicles, components and product engineering. Prior to 2003, the Automotive
sector was reported as one segment. Prior year information reflects the two reporting segments within the Automotive sector.
The Financial Services sector includes two primary segments, Ford Credit and Hertz. Ford Credit provides vehicle-related
financing, leasing, and insurance. Hertz rents cars, light trucks and industrial and construction equipment.
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