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Management’s Discussion and Analysis of Financial Condition and Results of Operations
52 Ford Motor Company | 2010 Annual Report
The following table illustrates the calculation of Ford Credit's financial statement leverage (in billions, except for ratios):
December 31,
December 31,December 31,
December 31,
2010
20102010
2010
2009
20092009
2009
2
222008
008008
008
Total debt................................................................................................
................................
$ 82.9 $ 96.3 $ 126.5
Equity................................................................................................
................................
10.3 11.0 10.6
Financial statement leverage (to 1) ................................................................
................................
8.0 8.8 12.0
The following table illustrates the calculation of Ford Credit's managed leverage (in billions, except for ratios):
December 31,
December 31,December 31,
December 31,
2010
20102010
2010
2009
20092009
2009
2
222008
008008
008
Total debt................................................................................................
................................
$ 82.9 $ 96.3 $ 126.5
Securitized off-balance sheet receivables outstanding................................
................................
— 0.1 0.6
Retained interest in securitized off-balance sheet receivables ................................
................................
— 0.0 (0.1)
Adjustments for cash, cash equivalents, and marketable securities (a)
................................
(14.6) (17.3) (23.6)
Adjustments for derivative accounting (b) ................................................................
................................
(0.3) (0.2) (0.4)
Total adjusted debt ................................................................................................
................................
$ 68.0 $ 78.9 $ 103.0
Equity................................................................................................
................................
$ 10.3 $ 11.0 $ 10.6
Adjustments for derivative accounting (b) ................................................................
................................
(0.1) (0.2) (0.2)
Total adjusted equity................................................................................................
................................
$ 10.2 $ 10.8 $ 10.4
Managed leverage (to 1)................................................................
................................
6.7 7.3 9.9
__________
(a) Excluding marketable securities related to insurance activities.
(b) 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.
Ford Credit believes that managed leverage is useful to its investors because it reflects the way Ford Credit manages
its business. Ford Credit retains interests in receivables sold in off-balance sheet securitization transactions and, with
respect to subordinated retained interests, is exposed to credit risk. Accordingly, Ford Credit evaluates charge-offs,
receivables, and leverage on a managed as well as a financial statement basis. Ford Credit also deducts cash and 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 believes the managed leverage measure provides its investors with
meaningful information regarding management's decision-making processes.
Ford Credit plans its managed leverage by considering prevailing market conditions and the risk characteristics of its
business. At December 31, 2010, Ford Credit's managed leverage was 6.7 to 1, compared with 7.3 to 1 at
December 31, 2009. Based on Ford Credit's present analysis of the quality of its assets, Ford Credit believes the
appropriate leverage would be in the range of 10-11 to 1. Longer term, Ford Credit expects to return its leverage to the
appropriate level consistent with its analysis of the quality of the assets. Ford Credit's managed leverage is significantly
below the threshold of 11.5 to 1 set forth in the Amended and Restated Support Agreement with us. In 2010, Ford Credit
distributed $2.5 billion to its parent.
Securitization Transactions by Ford Credit
Securitization. Ford Credit securitizes finance receivables and net investment in operating leases through a variety of
programs, utilizing amortizing, variable funding, and revolving structures. Ford Credit also sells finance receivables in
structured financing transactions. Due to the similarities between securitization and structured financing, Ford Credit
refers to structured financings as securitization transactions. Ford Credit's securitization programs are targeted to many
different investors in both public and private transactions in capital markets worldwide. Ford Credit completed its first
securitization transaction in 1988, and regularly securitizes assets, purchased or originated, in the United States, Canada,
Mexico, and European countries.