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3 9
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
During 2002, Ford Credit began a program to sell retail installment sale contracts in transactions where it retains no interest
and thus no exposure to the sold assets. These transactions, referred to as “whole-loan sale transactions,” provide liquidity by
enabling Ford Credit to reduce its managed receivables and its need for funding to support those receivables. Total outstanding
receivables sold in whole-loan sale transactions at December 31, 2004 were $4.0 billion.
As a result of lower credit ratings over the last three years, Ford Credit focused its efforts on further diversification of funding
sources and reduced its reliance on short-term funding, especially unsecured commercial paper. Ford Credit launched new
asset-backed commercial paper and retail unsecured bond programs, and it expanded its securitization and other structured
financing channels, including transactions by foreign affiliates and expansion of its bank-sponsored asset-backed commercial
paper issuers program. As Ford Credit’s short-term credit ratings have declined, asset-backed commercial paper programs
have become more cost-effective compared with unsecured commercial paper, and allow Ford Credit access to a larger
investor base. As a result of Ford Credit’s funding strategy and the reduction in its managed receivables, lower credit ratings
during the past three years have not had a material impact on Ford Credit’s ability to fund its operations. Any further lowering
of its credit ratings may increase Ford Credit’s borrowing costs and potentially constrain its funding sources. This could cause
Ford Credit to increase its use of securitization or other sources of liquidity or to reduce the amount of receivables it could
purchase, thereby potentially adversely affecting its ability to support the sale of Ford vehicles.
For additional funding and to maintain liquidity, Ford Credit and its majority-owned subsidiaries, including FCE,
have contractually committed credit facilities with financial institutions that totaled approximately $7.5 billion at
December 31, 2004. This includes $4.3 billion of Ford Credit facilities ($3.9 billion global and approximately $400 million
non-global) and $3.2 billion of FCE facilities ($3.0 billion global and approximately $200 million non-global). Approximately
$800 million of the total facilities were in use at December 31, 2004. Additionally, at December 31, 2004, banks provided
$18.0 billion of contractually committed liquidity facilities supporting two asset-backed commercial paper programs established
by Ford Credit. Ford Credit also has entered into agreements with a number of bank-sponsored asset-backed commercial
paper issuers under which such issuers are contractually committed to purchase from Ford Credit, at Ford Credit’s option, up to
$14.3 billion of receivables in the aggregate at December 31, 2004. For further discussion of these facilities and agreements,
see Note 15 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:
The following table illustrates the calculation of Ford Credit’s financial statement leverage (in billions, except for ratios):
Financial
Statement
Leverage
=Total Debt
Equity
Retained
Interest in
Securitized Securitized
Off-Balance Off-Balance Cash SFAS No. 133
Sheet Sheet and Cash Adjustments
Managed
Leverage
Total Debt + Receivables - Receivables - Equivalents - on Total Debt
=
Equity + Minority
Interest -SFAS No. 133
Adjustment on
Equity
December 31,
2004 2003 2002
Total debt $ 144.3 $ 149.7 $ 140.3
Total stockholder’s equity 11.5 12.5 13.6
Debt-to-equity ratio (to 1) 12.6 12.0 10.3