Ford 2004 Annual Report Download - page 43

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Hertz has an asset-backed securitization (“ABS”) program for its domestic car rental fleet to reduce its borrowing costs and
enhance its financing flexibility. As of December 31, 2004, $898 million was outstanding under the ABS program consisting of
$298 million of commercial paper and $600 million of medium-term notes.
At December 31, 2004, Hertz had committed credit facilities totaling $2.8 billion. Of this amount, $1.3 billion represented
global and other committed credit facilities ($708 million of which are available through June 30, 2009 and $560 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 2006; $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 $16 billion at December 31, 2004, up $4.4 billion compared with
December 31, 2003. The increase primarily reflected net income and foreign currency translation adjustments, offset partially
by dividends and the change in our minimum pension liability. For additional discussion of foreign currency translation
adjustments, see Note 2 of the Notes to the Financial Statements.
Pension. We sponsor defined benefit pension plans for our employees in many countries. 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 22 of the Notes to the Financial Statements and under
“Critical Accounting Estimates” below.
Included in our stockholders’ equity was a $4 billion adjustment for our worldwide minimum pension liability as of
December 31, 2004. This was about $500 million greater than the 2003 adjustment, due to the decline 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, 2004, compared with December 31, 2003. The primary factor that
contributed to the decline in the funded status was the decrease in discount rates at December 31, 2004 used to calculate the
present value of benefit obligations compared with the prior year, partially offset by the actual return on plan assets for 2004 in
excess of the expected asset return.
Credit 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 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.
The following chart summarizes Ford’sa/ credit ratings and the outlook assigned by the NRSROs since 2002:
DBRSb/ Fitch Moody’s S&P
Date Long-Term
Short-
Term Trend
Long-
Term
Short-
Term Outlook
Long-
Term
Short-
Term Outlook
Long-
Term
Short-
Term Outlook
Jan. 2002 A (low) R-1 (low) Stable BBB+ F2 Negative Baa1 P-2 Negative BBB+ A-2 Negative
Oct. 2002 A (low) R-1 (low) Negative BBB+ F2 Negative Baa1 P-2 Negative BBB A-2 Negative
Apr. 2003 BBB (high) R-1 (low) Stable BBB+ F2 Negative Baa1 P-2 Negative BBB A-2 Negative
Nov. 2003 BBB (high) R-1 (low) Stable BBB+ F2 Negative Baa1 P-2 Negative BBB- A-3 Stable
May 2004 BBB (high) R-1 (low) Stable BBB+ F2 Stable Baa1 P-2 Negative BBB- A-3 Stable
a/ Moody’s presently rates Ford Credit’s long-term debt at “A3”, and Hertz’s long-term debt at “Baa2”.
All other May 2004 ratings and outlooks shown apply equally to Ford, Ford Credit, and Hertz.
b/ NRSRO designation granted on February 27, 2003.