Ford 2009 Annual Report Download - page 67

Management’s Discussion and Analysis of Financial Condition and Results of Operations
Ford Motor Company | 2009 Annual Report 65
At December 31, 2009 and 2008, our net deferred tax assets, net of the valuation allowances of $17.5 billion and
$17.3 billion, respectively, were $1.1 billion in each period. Unlike our U.S. operations where, considering the pattern of
recent relevant losses and the uncertainties associated with projected future taxable income exclusive of reversing
temporary differences, we gave no weight to projections showing future taxable income, these net deferred tax assets
relate to certain operations outside North America where we generally have had a long history of profitability and believe it
is more likely than not that the net deferred tax assets will be realized through future taxable earnings. Accordingly, we
have not established a valuation allowance on our remaining net deferred tax assets. Most notably, at December 31, 2009
and 2008, we recognized a net deferred tax asset of $1.5 billion and $1.4 billion, respectively, in our U.K. Automotive
operations, primarily based upon the tax return consolidation of our Automotive operations with our U.K. FCE operation.
Our U.K. FCE operation has a long history of profitability, and we believe it will provide a source of future taxable income
that can be reasonably estimated. Even with lower volumes and higher credit losses in the recent past as discussed in
"Results of Operations" above, FCE operations remain profitable in 2009. If in the future FCE profits in the United
Kingdom decline, additional valuation allowances may be required. We will continue to assess the need for a valuation
allowance in the future.
Accumulated Depreciation on Vehicles Subject to Operating Leases
Accumulated depreciation on vehicles subject to operating leases reduces the value of the leased vehicles in our
operating lease portfolio from their original acquisition value to their expected residual value at the end of the lease term.
These vehicles primarily consist of retail lease contracts for Ford Credit and vehicles sold to daily rental car companies
subject to a guaranteed repurchase option ("rental repurchase vehicles") for the Automotive sector.
We monitor residual values each month, and we review the adequacy of our accumulated depreciation on a quarterly
basis. If we believe that the expected residual values for our vehicles have changed, we revise depreciation to ensure that
our net investment in operating leases (equal to our acquisition value of the vehicles less accumulated depreciation) will be
adjusted to reflect our revised estimate of the expected residual value at the end of the lease term. Such adjustments to
depreciation expense would result in a change in the depreciation rates of the vehicles subject to operating leases, and are
recorded prospectively on a straight-line basis.
For retail leases, each lease customer has the option to buy the leased vehicle at the end of the lease or to return the
vehicle to the dealer. If the customer returns the vehicle to the dealer, the dealer may buy the vehicle from Ford Credit or
return it to Ford Credit. Ford Credit's North America operating lease activity was as follows for each of the last three years
(in thousands, except percentages):





 

 


9HKLFOHUHWXUQYROXPH 

     
5HWXUQUDWH

     
For rental repurchase vehicles, practically all vehicles have been returned to us.
Nature of Estimates Required. Each operating lease in our portfolio represents a vehicle we own that has been leased
to a customer. At the time we purchase a lease, we establish an expected residual value for the vehicle. We estimate the
expected residual value by evaluating recent auction values, historical return volumes for our leased vehicles, industry-
wide used vehicle prices, our marketing incentive plans and vehicle quality data.
Assumptions Used. For retail leases, our accumulated depreciation on vehicles subject to operating leases is based on
our assumptions of:
• Auction value. Ford Credit's projection of the market value of the vehicles when we sell them at the end of the lease;
and
• Return volume. Ford Credit's projection of the number of vehicles that will be returned to us at lease-end.
See Note 8 of the Notes to the Financial Statements for more information regarding accumulated depreciation on
vehicles subject to operating leases.