Ford 2005 Annual Report Download - page 40

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Managementʼs Discussion and Analysis of Financial
Condition and Results of Operations
For additional funding and to maintain liquidity, Ford Credit and its majority-owned subsidiaries, including FCE Bank plc ("FCE"),
have contractually committed credit facilities with financial institutions that totaled $6.2 billion at December 31, 2005, of which
$5.1 billion were available for use. Of the lines available for use, 36% are committed through June 30, 2010. Of the $6.2 billion,
$3.8 billion constitute Ford Credit facilities ($3.2 billion global and about $600 million non-global) and $2.4 billion constitute FCE
facilities ($2.3 billion global and about $100 million non-global). In addition, at December 31, 2005, banks provided $18.7 billion of
contractually committed liquidity facilities exclusively to support Ford Credit's two on-balance sheet asset-backed commercial paper
programs; $18.2 billion supported Ford Credit's FCAR retail program and $500 million supported Ford Credit's wholesale securitization
program ("Motown Notes"). Ford Credit also has entered into agreements with several bank-sponsored conduits under which such
conduits are contractually committed to purchase from Ford Credit, at Ford Creditʼs option, retail receivables for proceeds of up to
approximately $16.2 billion. At December 31, 2005, $5.5 billion of these conduit commitments were in use. For further discussion of
these facilities and agreements, see Note 16 of the Notes to the Financial Statements.
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 its capital structure. Ford Credit calculates leverage on a financial statement
basis and on a managed basis using the following formulas:
Financial Statement Leverage = Total Debt
Equity
Total Debt +
Securitized
Off-Balance
Sheet
Receivables -
Retained
Interest in
Securitized
Off-Balance
Sheet
Receivables -
Cash
and Cash
Equivalents -
Fair Value Hedge
Accounting
Adjustments
on Total Debt
Managed Leverage =
Equity + Minority
Interest
- Fair Value Hedge
Accounting
Adjustments
on Equity
The following table illustrates the calculation of Ford Creditʼs financial statement leverage (in billions, except for ratios):
December 31,
2005 2004 2003
Total debt.........................................................................................................................................................................................
.
$ 134.5 $ 144.3 $ 149.7
Total stockholderʼs equity ...............................................................................................................................................................
.
10.7 11.5 12.5
Debt-to-equity ratio (to 1) ...............................................................................................................................................................
.
12.5 12.6 12.0
The following table illustrates the calculation of Ford Creditʼs managed leverage (in billions, except for ratios):
December 31,
2005 2004 2003
Total debt....................................................................................................................................................................................... $ 134.5 $ 144.3 $ 149.7
Securitized off-balance sheet receivables outstanding (a)............................................................................................................ 18.0 37.7 49.4
Retained interest in securitized off-balance sheet receivables (b)................................................................................................ (1.4) (9.5) (13.0)
Adjustments for cash and cash equivalents................................................................................................................................... (17.9) (12.7) (15.7)
Fair value hedge accounting adjustments ..................................................................................................................................... (1.6) (3.2) (4.7)
Total adjusted debt ...................................................................................................................................................................... $ 131.6 $ 156.6 $ 165.7
Total stockholderʼs equity (including minority interest) .............................................................................................................. $ 10.7 $ 11.5 $ 12.5
Fair value hedge accounting adjustments ..................................................................................................................................... — (0.1) 0.2
Total adjusted equity ................................................................................................................................................................... $ 10.7 $ 11.4 $ 12.7
Managed debt-to-equity ratio (to 1) .............................................................................................................................................. 12.3 13.7 13.0
__________
(a) Includes securitized funding from discontinued operations in 2003 and 2004.
(b) Includes retained interest in securitized receivables from discontinued operations in 2003 and 2004.
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 considers securitization as an alternative source of funding and
evaluates charge-offs, receivables and leverage on a managed as well as a financial statement basis. Ford Credit also deducts cash and
cash equivalents because they generally correspond to excess debt beyond the amount required to support its operations. In addition,
Ford Credit adds its minority interests to its financial statement equity because all of the debt of such consolidated entities is included
in its total debt. Ford Credit makes fair value hedge 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 securitizations. The fair value
hedge accounting adjustments vary over the term of the underlying debt and securitized funding obligations based on changes in
Ford Motor Company Annual Report 2005 38 Ford Motor Company Annual Report 2005 39