Ford 2003 Annual Report Download - page 47

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2003 ANNUAL REPORT 45
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULT OF OPERATIONS
Shown below is an analysis of Ford Credit’s allowance for credit losses related to finance receivables and operating leases for
the years ended December 31 (dollar amounts in billions):
2003 2002
Allowance for Credit Losses
Balance, beginning of year $ 3.2 $ 2.8
Provision charged to operations 2.0 3.0
Deductions
Losses 2.5 2.9
Recoveries (0.5) (0.5)
Net losses 2.0 2.4
Other changes, principally amounts relating to finance
receivables sold and translation adjustments 0.2 0.2
Net deductions 2.2 2.6
Balance, end of year $ 3.0 $ 3.2
Allowance for credit losses as a percentage of end-of-period net receivables* 2.28% 2.52%
–––––––––––––
* Includes net investment in operating leases.
The decrease in the allowance for credit losses of $200 million reflected primarily the charge-off of $106 million for accounts
delinquent over 120 days primarily in our European wholesale receivables portfolio and lower losses in the commercial and
liquidating Fairlane Credit portfolios.
The following table summarizes the activity related to off-balance sheet sales of receivables reported as revenues for
the periods indicated (in millions except for ratios):
2003 2002
Net gain on sales of receivables $ 436 $ 529
Servicing fees 677 700
Interest income from retained securities 679 606
Excess spread and other 973 775
Investment and other income related to sales of receivables 2,765 2,610
Less: Whole-loan income (234) (79)
Income related to off-balance sheet securitizations $ 2,531 $ 2,531
Memo:
Finance receivables sold $ 21,321 $ 40,712
Servicing portfolio as of period-end 56,705 76,346
Pre-tax gain per dollar of retail receivables sold 2.0% 1.4%
The increase in investment and other income related to sales of receivables of $155 million or 6% compared with 2002,
reflected higher excess spread and other income offset partially by lower net gains. Higher excess spread and other income
resulted from higher levels of outstanding securitized receivables in 2002. Lower gains in 2003 resulted from lower amounts
of finance receivables sold, down about $19 billion compared with 2002, reflecting lower funding requirements. Excluding the
effects of the whole-loan sale transactions, which totaled $10.4 billion in the 2002-2003 period, off-balance sheet securitization
income was unchanged compared with 2002.
Sales of finance receivables through off-balance sheet securitizations have the impact on earnings of recalendarizing and
reclassifying net financing margin (i.e., financing revenue less interest expense) and credit losses related to the sold receivables,
compared with how they would have been reported if Ford Credit continued to report the sold receivables on-balance sheet
and funded them through asset-backed financings. Recalendarization effects occur initially when the gain or loss on sales of
receivables is recognized in the period the receivables are sold. Over the life of the securitization transaction, Ford Credit
recognizes excess spread, interest income from retained securities, servicing fees and other receivable sale income.
In addition, credit losses related to the off-balance sheet securitized receivables are included in the initial and ongoing valuation
of Ford Credit’s interest-only strip asset (see “Off-balance Sheet Arrangements — Sales of Receivables by Ford Credit” for
definition) and do not impact the Provision for credit and insurance losses on the income statement and they do not influence
the assessment of the adequacy of the Allowance for credit losses for Ford Credit’s on-balance sheet receivables.
FIN33_72 3/21/04 12:48 AM Page 45