Ford 2010 Annual Report Download - page 43

Management’s Discussion and Analysis of Financial Condition and Results of Operations
Ford Motor Company | 2010 Annual Report 41
Ford Credit
The improvement in pre-tax results primarily reflects lower depreciation expense for leased vehicles and lower
residual losses on returned vehicles due to higher auction values ($1.9 billion), and a lower provision for credit losses
primarily related to non-recurrence of higher severity offset partially by higher repossessions (about $800 million). Other
factors that explain the improvement in pre-tax results include the non-recurrence of net losses related to market
valuation adjustments to derivatives (about $400 million), net gains related to unhedged currency exposure primarily from
cross-border intercompany lending (about $300 million), lower net operating costs (about $200 million), and higher
financing margin primarily attributable to lower borrowing costs (about $100 million). These factors were offset partially
by lower volume primarily reflecting lower industry volumes, lower dealer stocks, the impact of divestitures and
alternative business arrangements, and changes in currency exchange rates (about $1 billion); the non-recurrence of the
gain related to the sale of approximately half of Ford Credit's ownership interest in its Nordic operation (about
$100 million), and a valuation allowance for Australian finance receivables sold in 2009 (about $50 million).
LIQUIDITY AND CAPITAL RESOURCES
Automotive Sector
Our industry has been impacted heavily by the global economic crisis that began in 2008, which included a sudden
and substantial decline in global industry sales volume. The dramatic decline in industry sales volume, combined with
tight credit markets and other economic factors and the costs associated with transforming our business, put significant
pressure on our Automotive liquidity. While the economic environment has improved, recoveries in key markets have
been modest due to weak labor markets and tight credit. We believe that our continued focus on delivering on our One
Ford plan is the right strategy to achieve our objectives. Our Automotive liquidity strategy includes ensuring that we have
sufficient liquidity available with a high degree of certainty throughout the business cycle by generating cash from
operations and maintaining access to other sources of funding.
Gross Cash. Automotive gross cash includes cash and cash equivalents and net marketable securities. In 2008, we
reclassified out of our Automotive gross cash calculation the TAA securities related to our Retiree Health Care
Settlement Agreement. Gross cash is detailed below as of the dates shown (in billions):
December 31,
December 31, December 31,
December 31,
2010
20102010
2010
2009
20092009
2009
2008 20082008
2008
2007 20072007
2007
Cash and cash equivalents ................................
................................
$ 6.3 $ 9.7 $ 6.1 $ 20.3
Marketable securities (a)................................
................................
14.2 15.2 9.3 2.0
Loaned securities................................................................
................................
— — — 10.3
Total cash, marketable securities and loaned securities
................................
20.5 24.9 15.4 32.6
Securities-in-transit (b)................................................................
................................
— — — (0.3)
UAW-Ford TAA/Other (c)................................
................................
— — (2.3) —
Short-term VEBA assets ................................
................................
— — — 1.9
Gross cash (d) ................................................................
................................
$ 20.5 $ 24.9 $ 13.1 $ 34.2
__________
(a) Included in 2010 are Ford Credit debt securities that we purchased, which are reflected in the table at a carrying value of $201 million, the
estimated fair value of which is $203 million. Also included are Mazda marketable securities with a fair value of $179 million. For similar
datapoints for the other periods listed here, see our prior-period financial reports.
(b) The purchase or sale of marketable securities for which the cash settlement was not made by period-end and for which there was a payable or
receivable recorded on the balance sheet at period-end.
(c) Amount transferred to UAW-Ford TAA that, due to consolidation, was shown in Cash, marketable securities and loaned securities.
(d) Pursuant to the Retiree Health Care Settlement Agreement (see Note 18 of the Notes to the Financial Statements), in January 2008 we
contributed $4.6 billion of assets and reduced our Automotive gross cash accordingly.
Our cash, cash equivalents, and marketable securities are held primarily in highly liquid investments, which provide
for anticipated and unanticipated cash needs. Our cash, cash equivalents, and marketable securities primarily include
U.S. Treasury obligations, federal agency securities, bank time deposits with investment-grade institutions, corporate
investment-grade securities, A-1/P-1 (or higher) rated commercial paper, and debt obligations of certain foreign
governments, foreign governmental agencies and supranational institutions. The average maturity of these investments
ranges from 90 days to up to one year and is adjusted based on market conditions and liquidity needs. We monitor our
cash levels and average maturity on a daily basis.