Ford 2009 Annual Report Download - page 51

Management’s Discussion and Analysis of Financial Condition and Results of Operations
Ford Motor Company | 2009 Annual Report 49
Leverage. Ford Credit uses leverage, or the debt-to-equity ratio, to make various business decisions, including
evaluating and establishing pricing for retail, wholesale, and lease financing, and assessing Ford Credit's capital structure.
Ford Credit refers to its shareholder's interest as equity. Ford Credit calculates leverage on a financial statement basis and
on a managed basis using the following formulas:
)LQDQFLDO6WDWHPHQW/HYHUDJH  7RWDO'HEW       
  (TXLW\        

7RWDO'HEW 
6HFXULWL]HG
2II%DODQFH
6KHHW
5HFHLYDEOHV 
5HWDLQHG
,QWHUHVWLQ
6HFXULWL]HG
2II%DODQFH
6KHHW
5HFHLYDEOHV 
&DVKDQG&DVK
(TXLYDOHQWV
DQG0DUNHWDEOH
6HFXULWLHVD 
$GMXVWPHQWVIRU
'HULYDWLYH
$FFRXQWLQJRQ
7RWDO'HEWE
0DQDJHG/HYHUDJH   
      (TXLW\  $GMXVWPHQWV
IRU'HULYDWLYH
$FFRXQWLQJ
RQ(TXLW\E

__________
(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.
The following table illustrates the calculation of Ford Credit's financial statement leverage (in billions, except for ratios):

'HFHPEHU
'HFHPEHU'HFHPEHU
'HFHPEHU






 

 


7RWDOGHEW

     
(TXLW\

     
)LQDQFLDOVWDWHPHQWOHYHUDJHWR 

     
The following table illustrates the calculation of Ford Credit's managed leverage (in billions, except for ratios):

'HFHPEHU
'HFHPEHU'HFHPEHU
'HFHPEHU






 

 


7RWDOGHEW

     
6HFXULWL]HGRIIEDODQFHVKHHWUHFHLYDEOHVRXWVWDQGLQJ

     
5HWDLQHGLQWHUHVWLQVHFXULWL]HGRIIEDODQFHVKHHWUHFHLYDEOHV 

 ಧ    
$GMXVWPHQWVIRUFDVKFDVKHTXLYDOHQWVDQGPDUNHWDEOHVHFXULWLHVD

     
$GMXVWPHQWVIRUGHULYDWLYHDFFRXQWLQJE 

     ಧ
7RWDODGMXVWHGGHEW 

     

(TXLW\

     
$GMXVWPHQWVIRUGHULYDWLYHDFFRXQWLQJE 

     
7RWDODGMXVWHGHTXLW\

     
0DQDJHGOHYHUDJHWR

     
__________
(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.