Ford 2012 Annual Report Download - page 42

40 Ford Motor Company | 2012 Annual Report
Management's Discussion and Analysis of Financial Condition and Results of Operations
Export-Import Bank of the United States ("Ex-Im") and Private Export Funding Corporation ("PEFCO") Secured
Revolving Loan. At December 31, 2012, this working capital facility, which supports vehicle exports from the United
States, was fully drawn at $300 million. The facility will renew annually until June 15, 2015, provided that no payment or
bankruptcy default exists and Ex-Im continues to have a perfected security interest in the collateral, which consists of
vehicles in transit in the United States to be exported to Canada, Mexico, and other select markets.
Other Automotive Credit Facilities. At December 31, 2012, we had $901 million of local credit facilities available to
non-U.S. Automotive affiliates, of which $140 million had been utilized. Of the $901 million of committed credit facilities,
$345 million expires in 2013, $196 million expires in 2014, $318 million expires in 2015, and $42 million thereafter.
Net Cash. Our Automotive sector net cash calculation as of the dates shown was as follows (in billions):
December 31,
2012
December 31,
2011
Gross cash $ 24.3 $22.9
Less:
Long-term debt 12.9 12.1
Debt payable within one year 1.4 1.0
Total debt 14.3 13.1
Net cash $ 10.0 $ 9.8
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Total debt at December 31, 2012 increased by about $1.2 billion from December 31, 2011, primarily reflecting the
additional drawdowns of low-cost loans for advanced technology vehicle development and our renminbi-denominated
debt issuance in Hong Kong.
Not shown in the table above is the $2 billion aggregate principal amount of 4.75% Notes due January 15, 2043 we
issued in January 2013. With this issuance we took advantage of favorable market conditions to issue low-cost, long-term
debt, the proceeds of which have been used, in part, to redeem approximately $600 million principal amount of 7.50%
Notes due June 10, 2043, with the remainder to be contributed to our funded pension plans during 2013 to support our
pension de-risking actions (discussed below). This action is consistent with our mid-decade target of Automotive debt
levels at about $10 billion.
Pension Plan Contributions and Strategy. Worldwide, our defined benefit pension plans were underfunded by
$18.7 billion at December 31, 2012, compared with being underfunded by $15.4 billion at December 31, 2011. The
deterioration is more than explained by sharply lower discount rates, with the U.S. weighted-average discount rate
declining to 3.84% at the end of 2012 from 4.64% at the end of 2011.
Our long-term strategy is to reduce the risk of our funded defined benefit pension plans, including minimizing the
volatility of the value of our pension assets relative to pension liabilities and the need for unplanned use of capital
resources to fund the plans. The strategy will reduce balance sheet, cash flow, and income exposures and, in turn, reduce
our risk profile. The key elements of this strategy include:
• Limiting liability growth in our defined benefit plans by closing participation to new participants;
• Reducing plan deficits through discretionary cash contributions;
• Progressively re-balancing assets to more fixed income investments, with a target asset allocation to be reached
over the next several years of about 80% fixed income investments and 20% growth assets, which will provide a
better matching of plan assets to the characteristics of the liabilities, thereby reducing our net exposure; and
• Taking other strategic actions to reduce pension liabilities, such as the voluntary lump sum payout program
started in 2012 for U.S. salaried retirees.
In 2012, we contributed $3.4 billion to our worldwide funded pension plans, an increase of $2.3 billion compared with
2011. During 2013, we expect to contribute from Automotive cash and cash equivalents about $5 billion to our worldwide
funded plans (including discretionary contributions of about $3.4 billion, largely to our U.S. plans) and to make
$400 million of benefit payments to participants in unfunded plans, for a total of about $5.4 billion.
The voluntary lump sum payout program we started in 2012 will continue through 2013. To date, eligible retirees have
accepted lump sum offers that have resulted in about $1.2 billion of our pension obligations being settled.
Based on current assumptions and regulations, we do not expect to have a legal requirement to fund our major
U.S. pension plans in 2013.