Ford 2007 Annual Report Download - page 34

Management’s Discussion and Analysis of Financial Condition and Results of Operations
32 Ford Motor Company | 2007 Annual Report
demand notes funding costs are changed depending on market conditions. Prior to August 2007, Ford Credit's securitized
funding spreads (which are based on the creditworthiness of the underlying securitized asset and enhancements) were not
volatile, while its unsecured long-term spreads were volatile. Consistent with the overall market, Ford Credit was impacted
by volatility in the asset-backed securities markets during the second half of 2007. Ford Credit experienced higher spreads
for several of its committed liquidity programs as well as its public and private issuances. During 2007, Ford Credit's
spreads on the fixed rate notes offered in its U.S. public retail securitizations ranged between six and eleven basis points
during the first half of the year and between 37 and 43 basis points during the second half of the year over the relevant
benchmark rates, while its U.S. unsecured long-term debt funding spreads as measured by the five-year credit default swap
market have fluctuated between 219 and 750 basis points over LIBOR. In January 2008, Ford Credit completed a U.S.
public retail securitization with spreads on the fixed rate notes between 80 and 110 basis points over the relevant
benchmark rates.
Ford Credit's funding plan is subject to risks and uncertainties, many of which are beyond its control. If credit markets
continue to constrain term securitization funding, Ford Credit will consider reducing its assets below the low-end of its
projected managed receivables balance (i.e., below $130 billion).
Credit Facilities and Committed Liquidity Programs. See Note 16 of the Notes to the Financial Statements for more
information regarding credit facilities and committed liquidity programs for Ford Credit. As a result of the continued asset-
backed securities market disruption that began in August 2007, there is a risk to the renewal of some of these committed
liquidity programs, which could lead to a reduction in the size of these programs and/or higher costs.
Balance Sheet Liquidity Profile. Ford Credit defines its balance sheet liquidity profile as the cumulative contractual
maturities of its finance receivables, investment in operating leases, and cash less the cumulative contractual debt
maturities, over upcoming annual periods. The following table shows Ford Credit's balance sheet liquidity profile for the
periods presented as of December 31, 2007 (in billions):
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__________
(a) Finance receivables net of unearned income.
(b) Investment in operating leases net of accumulated depreciation.
(c) Includes cash, cash equivalents and marketable securities (excludes marketable securities related to insurance activities).
Ford Credit's balance sheet is inherently liquid because of the short-term nature of its finance receivables, investment
in operating leases, and cash. Contractual maturities of investment in operating leases consist primarily of depreciation
over the remaining life of the lease and the expected residual value at lease termination.
Leverage. Ford Credit uses leverage, or the debt-to-equity ratio, to make various business decisions, including
establishing pricing for retail, wholesale, and lease financing, and assessing our capital structure. Ford Credit refers to its
shareholder's interest and its historical stockholder's equity as equity. Ford Credit calculates leverage on a financial
statement basis and on a managed basis using the following formulas:
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__________
(a) Excluding marketable securities related to insurance activities.
(b) Primarily related to market valuation adjustments from derivatives due to movements in interest rates.