Ford 2014 Annual Report Download - page 80

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
The following table shows the calculation of Ford Credit’s managed leverage (in billions, except for ratios):
December 31,
2014
December 31,
2013
December 31,
2012
Total debt (a) $ 105.0 $98.7 $89.3
Adjustments for cash, cash equivalents, and marketable securities (b) (8.9)(10.8) (10.9)
Adjustments for derivative accounting (c) (0.4)(0.2) (0.8)
Total adjusted debt $ 95.7 $87.7 $77.6
Equity $ 11.4 $10.6 $ 9.7
Adjustments for derivative accounting (c) (0.4)(0.3) (0.3)
Total adjusted equity $ 11.0 $10.3 $ 9.4
Managed leverage (to 1) (d) 8.7 8.5 8.3
__________
(a) Includes debt issued in securitization transactions and payable only out of collections on the underlying securitized assets and related
enhancements. Ford Credit holds the right to receive the excess cash flows not needed to pay the debt issued by, and other obligations of, the
securitization entities that are parties to those securitization transactions.
(b) Excludes marketable securities related to insurance activities.
(c) Primarily related to market valuation adjustments to derivatives due to movements in interest rates. Adjustments to debt are related to designated
fair value hedges and adjustments to equity are related to retained earnings.
(d) Equals total adjusted debt over total adjusted equity.
Ford Credit believes that managed leverage is useful to its investors because it reflects the way Ford Credit manages
its business. Ford Credit deducts cash, cash equivalents, and marketable securities (excluding marketable securities
related to insurance activities) because they generally correspond to excess debt beyond the amount required to support
its operations and amounts to support on-balance sheet securitization transactions. Ford Credit makes derivative
accounting adjustments to its assets, debt, and equity positions to reflect the impact of interest rate instruments Ford
Credit uses in connection with its term-debt issuances and securitization transactions. The derivative accounting
adjustments related to these instruments vary over the term of the underlying debt and securitized funding obligations
based on changes in market interest rates. Ford Credit generally repays its debt obligations as they mature. As a result,
Ford Credit excludes the impact of these derivative accounting adjustments on both the numerator and denominator in
order to exclude the interim effects of changes in market interest rates.
Ford Credit plans its managed leverage by considering prevailing market conditions and the risk characteristics of its
business. At December 31, 2014, Ford Credit’s managed leverage was 8.7:1, compared with 8.5:1 at
December 31, 2013. In 2015, Ford Credit expects managed leverage to continue in the range of 8:1 to 9:1. In 2014, Ford
Credit paid $395 million in distributions to its parent, Ford Holdings LLC.
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